Latest / Bloomberg Intelligence / Mark Vitner, senior economist at Wells Fargo Securities,

Transcript

Mark Vitner, senior economist at Wells Fargo Securities, · 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
• 0:15
  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 and L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Food
• 0:31
  Speaker 1: delivery business, it seems like there's so many competitors out
• 0:34
  Speaker 1: their door Dash, Uber Eats. We have h Adam Price,
• 0:37
  Speaker 1: CEO of Waiter Holdings. Adam, thanks so much for joining
• 0:40
  Speaker 1: us so in this food delivery business. First of all,
• 0:42
  Speaker 1: tell us about Waiter Holding solus about the history of
• 0:44
  Speaker 1: the company and kind of your strategy. Yeah, absolutely so.
• 0:48
  Speaker 1: So Waiter was founded in Louisiana and we focus on small,
• 0:52
  Speaker 1: medium sized markets around the US. So whereas in the
• 0:54
  Speaker 1: big cities you have the big companies like door Dash,
• 0:57
  Speaker 1: grub Hub, Uber Eats, and the small cities around the
• 1:00
  Speaker 1: US you have Waiter and we operate another brand called
• 1:03
  Speaker 1: Bite Squad. There's a feeling that there's been too much
• 1:06
  Speaker 1: hopium around the food delivery services. And I'm sure you've
• 1:09
  Speaker 1: read all of these articles and I'm sure you shake
• 1:11
  Speaker 1: your head and you say, they just don't get it. Uh.
• 1:14
  Speaker 1: What do you think right now of some of the
• 1:16
  Speaker 1: backlash that we've been getting from all of the investment
• 1:20
  Speaker 1: in food delivery services. Yeah, it's it's a great question
• 1:23
  Speaker 1: that the real crux of the of the arguments right
• 1:26
  Speaker 1: now is what is the sustainability of the space? You know,
• 1:29
  Speaker 1: if consumers are expecting free delivery and you have to
• 1:33
  Speaker 1: take a portion of the sale value from the restaurant,
• 1:36
  Speaker 1: you know, where does this space live in its entire
• 1:38
  Speaker 1: There's been so much money that's flown into it, and
• 1:41
  Speaker 1: are these businesses sustainable and can they be profitable? And
• 1:45
  Speaker 1: and we really feel that Waiter, the focus needs to
• 1:48
  Speaker 1: be around consistency and really aiming for a consistent customer
• 1:52
  Speaker 1: experience so the customers stay sticky to the platform and
• 1:55
  Speaker 1: stop jumping around from platform and the platform, and then
• 1:57
  Speaker 1: focusing on the operational efficiens. Uh, in order for the
• 2:01
  Speaker 1: sustainability and the long term profitability that there's consistency. That's important.
• 2:05
  Speaker 1: So is making money and that's proven to be difficult
• 2:07
  Speaker 1: given the fact that there is competition including getting in
• 2:11
  Speaker 1: your car or using your legs and going and getting
• 2:13
  Speaker 1: the food yourself, right, I mean, how do you how
• 2:15
  Speaker 1: have you found profitability? Well, there's a clear shift in
• 2:19
  Speaker 1: the consumers willing to pay for convenience, So so the
• 2:22
  Speaker 1: the competition of a consumer going to pick it up
• 2:25
  Speaker 1: that that is a clear deviation. And what you're seeing
• 2:27
  Speaker 1: in terms of consumer behavior, people are willing to value
• 2:30
  Speaker 1: their time, they're willing to pay for convenience. So food
• 2:32
  Speaker 1: delivery isn't going anywhere. The question is what makes it
• 2:35
  Speaker 1: sustainable and profitable and and in our system, what really
• 2:39
  Speaker 1: drives that profitability is is the attachment of the customer base.
• 2:42
  Speaker 1: You can't continuously be paying to acquire new customers, and
• 2:45
  Speaker 1: that's really done through consistency and then the streamlining of
• 2:48
  Speaker 1: the operations. And that's what gets you to that profitability.
• 2:51
  Speaker 1: And one of the items we use, which is dramatically
• 2:53
  Speaker 1: different than our competitors, is we use W two drivers
• 2:56
  Speaker 1: as opposed to contractors, which allows us to pull some
• 2:59
  Speaker 1: of those operation levers that I can get into details
• 3:01
  Speaker 1: if you like. All right, so let's talk about profitability.
• 3:03
  Speaker 1: I'm looking at the Bloomberg terminal right now, the f
• 3:05
  Speaker 1: A function and uh Waiter Holdings is not profitable. We
• 3:09
  Speaker 1: even had so, and you guys been in the business
• 3:11
  Speaker 1: for a few years. I'm looking at at the forecast
• 3:13
  Speaker 1: for still not forecasting to be profitable UH. I look
• 3:16
  Speaker 1: at Uber which has got scale out the wise Zoo.
• 3:20
  Speaker 1: They even say that their Uber Eats business is the
• 3:22
  Speaker 1: weaker and the least profitable of relative to their ride business.
• 3:27
  Speaker 1: What is the model to profitability? What levers have to
• 3:30
  Speaker 1: be pulled? Well, there there's a couple of things. All
• 3:33
  Speaker 1: of these groups just exploded in growth because of geographic expansion,
• 3:38
  Speaker 1: and you have to be in. Step one in being
• 3:41
  Speaker 1: profitable is realizing you know what markets do you have
• 3:44
  Speaker 1: that put you on a path to scale and profitability,
• 3:47
  Speaker 1: that allow you to operationalize and bring in that sustainability
• 3:51
  Speaker 1: with that scale. So one of the things we've actually
• 3:53
  Speaker 1: done recently UH is pulled back on our market share
• 3:57
  Speaker 1: or on our markets. We close thirty eight markets UH
• 4:00
  Speaker 1: will be finishing in the next fifteen days or so
• 4:02
  Speaker 1: that we announced in our last quarterly call. You have
• 4:04
  Speaker 1: to be very careful not to be over extended in
• 4:07
  Speaker 1: this space. What's interesting to me also is how the
• 4:10
  Speaker 1: consumer access is waiter right, I mean, do they go
• 4:13
  Speaker 1: to waiters website or do they go to the restaurant
• 4:17
  Speaker 1: that they want to order from and then there's a
• 4:19
  Speaker 1: tab from waiter, So which is it? It's both, you know,
• 4:23
  Speaker 1: you're trying to acquire customers and multiple fronts. We have
• 4:25
  Speaker 1: an app, a mobile application, just like you know most
• 4:27
  Speaker 1: of the players in this space. We also put order
• 4:30
  Speaker 1: now buttons on the restaurant's website which drive people to
• 4:32
  Speaker 1: download the mobile app. Um. So there's multiple channels, but
• 4:35
  Speaker 1: the primary channel that we receive all our orders as
• 4:37
  Speaker 1: the mobile application. So it's interesting. So uber eats some
• 4:41
  Speaker 1: of these bigger market ones grubub, are you finding that
• 4:44
  Speaker 1: they are now coming down into your midden small size
• 4:47
  Speaker 1: markets and if so, how do you compete against those
• 4:49
  Speaker 1: big companies? Yeah? Absolutely, So what you've seen is that,
• 4:52
  Speaker 1: you know, in an effort to continue the rapid revenue growth,
• 4:56
  Speaker 1: geographic expansion has been in the primary tactic. So you
• 4:59
  Speaker 1: have almost in all of our markets you have two
• 5:03
  Speaker 1: to three primary players. Now in food deliver you have
• 5:06
  Speaker 1: grub uber waiter or grub door dash waiter, so you
• 5:10
  Speaker 1: see multiple players in every market. The key to owning
• 5:13
  Speaker 1: that market again is around consistency of customer experience. Anybody
• 5:17
  Speaker 1: can go into a market and start offering customers free food,
• 5:20
  Speaker 1: and they're gonna get customers. If you don't have to
• 5:22
  Speaker 1: pay for delivery, you're gonna start using or trying the platform.
• 5:25
  Speaker 1: What's critical is the way to retain those customers is
• 5:28
  Speaker 1: by consistently having a good experience on the delivery side.
• 5:31
  Speaker 1: How much are people willing to pay for delivery? It
• 5:34
  Speaker 1: ranges based on markets. One of the nice things about
• 5:36
  Speaker 1: smaller medium sized markets is you do get a larger
• 5:38
  Speaker 1: appetite for paying for delivery fees, all right, because people
• 5:44
  Speaker 1: are that much more willing to But it's still you know,
• 5:46
  Speaker 1: I we recently changed in the in most of the
• 5:49
  Speaker 1: way to brand in markets are delivery feed from five
• 5:51
  Speaker 1: dollar support dollars because it resonates better with the customer.
• 5:54
  Speaker 1: So you see downward pressure in that consumer delivery fee
• 5:57
  Speaker 1: that you have to adapt to on a market by
• 5:59
  Speaker 1: market basis, Are you still I know you said you're
• 6:01
  Speaker 1: downsizing closing some markets. Are you still adding some markets selectively?
• 6:04
  Speaker 1: Round Now it's very selectively. One of the things when
• 6:07
  Speaker 1: a space becomes highly competitive like this is you really
• 6:10
  Speaker 1: have to leverage your brand in geographic proximity. When you
• 6:13
  Speaker 1: expand markets so so as you grow, you need to
• 6:16
  Speaker 1: be very careful not to jump geographies and be overexposed
• 6:20
  Speaker 1: to competitive pressure in that area and grow very organically,
• 6:24
  Speaker 1: almost from a geographic stampliat. How often do you order in?
• 6:27
  Speaker 1: I order in several times a week? Yeah, what about you,
• 6:29
  Speaker 1: Paul rarely? Yeah? Do you go pick it up? Are you? Yeah?
• 6:34
  Speaker 1: Why are you driving? I know it's a good question,
• 6:36
  Speaker 1: it's good no, But I also love the idea that
• 6:39
  Speaker 1: it's um people like to value their time could also
• 6:42
  Speaker 1: be translated into people are lazy and they don't want
• 6:45
  Speaker 1: to get off the couch. But actually it is true,
• 6:47
  Speaker 1: especially if you have a family or something like. Yeah,
• 6:49
  Speaker 1: And that's what's beautiful about the small medium sized markets
• 6:52
  Speaker 1: is it's a much higher concentration of families. So so
• 6:56
  Speaker 1: you end up at time is our only finite resource.
• 6:59
  Speaker 1: So if anything, that should be the most valuable item
• 7:02
  Speaker 1: that we have in our in our day to day lives.
• 7:04
  Speaker 1: Thank you so much for being with us. Adam Price
• 7:06
  Speaker 1: is a chief executive officer of Waiter Holdings, which is
• 7:10
  Speaker 1: based in Louisiana. Joining us here in our Bloomberg Interactive
• 7:13
  Speaker 1: Broker studios. Copium is the word of the week at
• 7:25
  Speaker 1: least hopium that there will be some sort of deal,
• 7:27
  Speaker 1: despite the fact that we have no concrete evidence. We've
• 7:30
  Speaker 1: seen this before, we've seen we have really we're really
• 7:34
  Speaker 1: getting close, but we have nothing again and again and again.
• 7:38
  Speaker 1: Joining us now to talk about with the hopium is
• 7:40
  Speaker 1: real in or in terms of market reaction and how
• 7:43
  Speaker 1: it should persist. Heading into David Kotok, Cumberland Advisor's Chief
• 7:47
  Speaker 1: investment officer, David, I know that you've been bullish on equities.
• 7:52
  Speaker 1: Do you continue to be even after the recent leg
• 7:54
  Speaker 1: higher in the recent new all time highs that we've seen.
• 7:58
  Speaker 1: At the moment, I am getting very nervous. We entered
• 8:03
  Speaker 1: the market, went to fully invested structure lisa UM the
• 8:08
  Speaker 1: last week in August, and we have been there since then.
• 8:14
  Speaker 1: And at this level with of markets and with the
• 8:18
  Speaker 1: current news flow, I'm very, very concerned. The market is
• 8:23
  Speaker 1: discounting all the positive outcomes and it's being fueled by
• 8:29
  Speaker 1: a very expansive federal reserve policy, which is creating huge
• 8:33
  Speaker 1: liquidity that doesn't last forever. So the answer is am
• 8:38
  Speaker 1: I concerned and worried? Absolutely? Yes? And would I be
• 8:42
  Speaker 1: making changes? They could come at any time. So the changes, David,
• 8:46
  Speaker 1: this is interesting because I think obviously, over the last
• 8:48
  Speaker 1: several times we've had you on, you've been very correctly
• 8:51
  Speaker 1: in the bullish camp. So this is a from our perspective,
• 8:54
  Speaker 1: a little bit of a turn for you. How do
• 8:57
  Speaker 1: would you proceed if you were to continue to be
• 8:59
  Speaker 1: cause it's kind of changes would you make. I would
• 9:02
  Speaker 1: raise cash, lower equity exposure. I might consider switching to
• 9:09
  Speaker 1: more defensive, less aggressive sectors. Um Our quantitative work has
• 9:17
  Speaker 1: been guiding us because it's capturing these um changes in
• 9:22
  Speaker 1: market sentiment, and the market sentiment has become extended a
• 9:29
  Speaker 1: variety of ways to estimate that we never know for sure,
• 9:33
  Speaker 1: but we're seeing it. And our view is the market
• 9:37
  Speaker 1: is reflecting changes in headlines which are affecting sentiment. Fear
• 9:43
  Speaker 1: of wealth taxes, the Warren Sanders approach seems to be
• 9:49
  Speaker 1: subsiding as the politics change. Um whether impeachment would be
• 9:56
  Speaker 1: conviction in the Senate seems to be subsiding the houses.
• 10:02
  Speaker 1: Maybe an assumption, but the political risk is now the
• 10:06
  Speaker 1: Clinton impeachment model, not the Nixon impeachment attempt model. So
• 10:14
  Speaker 1: markets are making adjustments, and I think part of that
• 10:18
  Speaker 1: is due to an assumption. The assumption is there will
• 10:21
  Speaker 1: be some form of truth trade reduction of tension, and
• 10:27
  Speaker 1: that's necessary for economics to start to improve. The economic
• 10:31
  Speaker 1: landscape is terrible because we see manufacturing sector shrinkage and
• 10:36
  Speaker 1: all the news flow that your you report every day
• 10:40
  Speaker 1: is sending that kind of a message. So to us
• 10:44
  Speaker 1: it says, okay, we had a big pendulum swing where
• 10:46
  Speaker 1: at all time new highs and I never saw a
• 10:50
  Speaker 1: client complaint when you took a profit and put it
• 10:53
  Speaker 1: in the bank. All right, So where would you take
• 10:55
  Speaker 1: profits here? Well, I would cut back on the high
• 11:00
  Speaker 1: beta sectors which have really really raised ahead. So you
• 11:06
  Speaker 1: cut back on Apple and yeah, the big names, the
• 11:12
  Speaker 1: tech sector among them. Um um, the defense hasn't had
• 11:17
  Speaker 1: a terrific run. Maybe it'll have more. I you know,
• 11:21
  Speaker 1: these are This has to now become an e t
• 11:24
  Speaker 1: F by E t F sector by sector, industry, industry
• 11:28
  Speaker 1: by industry decision. But for the run from August, the
• 11:34
  Speaker 1: wind has been at our back because the we were
• 11:38
  Speaker 1: in cash in our quantitative models from the end of
• 11:42
  Speaker 1: February to August, and we have had a terrific year
• 11:47
  Speaker 1: by having cash during a period of time of high
• 11:50
  Speaker 1: volatility and uncertainty and the way we measure it, and
• 11:54
  Speaker 1: then we had the triggers, so we went in an
• 11:57
  Speaker 1: ox i. It's been a remarkable uh here and at
• 12:03
  Speaker 1: this juncture you have to ask yourself, how much more
• 12:06
  Speaker 1: can you expect? I'm above my targets for year end
• 12:11
  Speaker 1: on the S and P. It was a three thousand target,
• 12:14
  Speaker 1: you may recall we've discussed it on the show over
• 12:18
  Speaker 1: the years. Well, we're above it, and we look as
• 12:23
  Speaker 1: like we have stability now in the monetary area, at
• 12:26
  Speaker 1: least it appears, so you can't expect much improvement beyond that.
• 12:31
  Speaker 1: And we are seeing little uptick signs in inflation and
• 12:37
  Speaker 1: uptick signs in some of the bond interest rates. And
• 12:41
  Speaker 1: what that suggests is the wind has been at our back,
• 12:46
  Speaker 1: but maybe it's now subsidy. Hey, David, thanks so much
• 12:50
  Speaker 1: for joining us. We appreciate your color as always in that.
• 12:53
  Speaker 1: Clearly we sensed a little bit of change in tone
• 12:55
  Speaker 1: from you, so we appreciate your sharing that with us.
• 12:57
  Speaker 1: David Kotak common Advisor's chief investment off So that was
• 13:00
  Speaker 1: news for me, Lisa, because David's been consistently I think
• 13:03
  Speaker 1: constructive and now he's saying, you know, he's had a
• 13:07
  Speaker 1: nice run here, as obviously has. The market has um
• 13:10
  Speaker 1: and it's not the worst thing to perhaps take a
• 13:12
  Speaker 1: little bit of money off the table, maybe get a
• 13:14
  Speaker 1: little bit defensive. We've heard that from some people as well.
• 13:18
  Speaker 1: Others are still saying, hey, we've got more to run
• 13:21
  Speaker 1: in this market. But you know, a grizzled veteran like
• 13:23
  Speaker 1: David Kotok say, let's get a little bit cautious. Very
• 13:26
  Speaker 1: interesting change in tone for him. So we got retail
• 13:42
  Speaker 1: sales out this morning, and they did gain, but they
• 13:46
  Speaker 1: were a little bit more muted in certain areas. That
• 13:49
  Speaker 1: gave certain economists concerned that perhaps the consumer, the stalwart
• 13:53
  Speaker 1: of the economic expansion, was running out of steam. Joining
• 13:57
  Speaker 1: us now Mark Vitner, senior economist. It was Fargo Security,
• 14:00
  Speaker 1: and Mark, I really do want to hone in here
• 14:02
  Speaker 1: on the consumers, since it has been so pivotal in
• 14:05
  Speaker 1: driving growth here in the United States. Do you view
• 14:09
  Speaker 1: the retail sales that we got out this morning as
• 14:11
  Speaker 1: potentially a warning sign? I don't know that it's that
• 14:15
  Speaker 1: much of a warning. We're coming off a lot of
• 14:17
  Speaker 1: strength in the third quarter, and there's also there was
• 14:20
  Speaker 1: some supply disruption in the auto sector, and I think
• 14:24
  Speaker 1: that that may have weaken what would have been even
• 14:26
  Speaker 1: stronger auto sales. So, you know, I think that the
• 14:30
  Speaker 1: consumer seems to be in reasonably good shape. While job
• 14:33
  Speaker 1: growth is slow, the unemployment rate is very, very low.
• 14:36
  Speaker 1: There's no sign that layoffs are picking up, so folks
• 14:39
  Speaker 1: aren't concerned about their job security, and wages and salaries
• 14:42
  Speaker 1: are are accelerating. So I actually think there's too much
• 14:46
  Speaker 1: pessimism about the consumer. And if we had numbers just
• 14:50
  Speaker 1: like this every month, every month, month after month, we
• 14:53
  Speaker 1: would still be better off than what most folks have
• 14:55
  Speaker 1: forecasts for the next year. So, Mark, how concerned are
• 14:59
  Speaker 1: you about, uh? The manufacturing sector business investment continued weakness there. Yes,
• 15:04
  Speaker 1: that's a smaller part of the U. S economy relative
• 15:06
  Speaker 1: to the consumer, but how do you kind of view
• 15:09
  Speaker 1: that mosaic? Well, manufacturing is a smaller part of the economy,
• 15:13
  Speaker 1: but it still accounts for most of the swing. When
• 15:15
  Speaker 1: we went from two percent growth to three percent growth,
• 15:17
  Speaker 1: two thirds of the acceleration came from manufacturing, and the
• 15:21
  Speaker 1: move from three percent back to two two thirds of
• 15:23
  Speaker 1: the acceleration has been because of a slowdown in the
• 15:25
  Speaker 1: factory sector. Part of that is due to the ongoing
• 15:29
  Speaker 1: uncertainty about where we're headed with trade negotiations with China.
• 15:33
  Speaker 1: If we get a trade deal with China, manufacturing out
• 15:35
  Speaker 1: activity will probably pick up, investment will probably pick up
• 15:39
  Speaker 1: um six months out. The other thing that has been
• 15:42
  Speaker 1: happening is that when growth, when the economy was growing
• 15:44
  Speaker 1: two percent, you needed less inventory than when we were
• 15:47
  Speaker 1: growing three And now that we're back at two businesses
• 15:50
  Speaker 1: have been reducing inventories, and that's weight on manufacturers. That
• 15:54
  Speaker 1: that pool to manufacturing activity from from inventory d stocking
• 15:59
  Speaker 1: is now probably behind us. So I think in the
• 16:02
  Speaker 1: very near term we're gonna see a little We're gonna
• 16:03
  Speaker 1: see some better numbers on industrial production and better numbers
• 16:06
  Speaker 1: in the ISM Manufactured Survey. The estimate for your over
• 16:12
  Speaker 1: you GDP growth in the United States right now one
• 16:14
  Speaker 1: point eight percent. For how close are we to stall
• 16:19
  Speaker 1: speed here, well, one percent is about what we've averaged,
• 16:24
  Speaker 1: what we average from two thousand ten to two thousand sixteen.
• 16:27
  Speaker 1: I guess if you look over the entire business cycle,
• 16:29
  Speaker 1: we're right at two point three percent since the recession ended.
• 16:33
  Speaker 1: So it's a little bit slower than where we've been.
• 16:35
  Speaker 1: But if we grow one point eight percent per year,
• 16:37
  Speaker 1: that's probably enough to keep the unemployment rates steady. And
• 16:41
  Speaker 1: we're at three point six percent. So if not horrible,
• 16:44
  Speaker 1: I would rather see growth somewhere more to two percent.
• 16:47
  Speaker 1: I think the greater risk is that when growth slows,
• 16:51
  Speaker 1: we're more vulnerable to some sort of exogenous shock. If
• 16:54
  Speaker 1: something bad were to happen somewhere in the world, maybe
• 16:58
  Speaker 1: if China took a harder line on Hong Kong, um
• 17:02
  Speaker 1: that that might tip the balance into recessions. We walk
• 17:06
  Speaker 1: through that a little bit because we have been seeing
• 17:08
  Speaker 1: these headlines about how things have been accelerating and tensions
• 17:11
  Speaker 1: have been rising increasingly in Hong Kong with the death
• 17:13
  Speaker 1: of a student. How does that end up being the
• 17:16
  Speaker 1: exogenous factor? Uh that disrupts the global economy more significantly.
• 17:21
  Speaker 1: But you never really know what the exogenous factor is
• 17:24
  Speaker 1: until it happens. That's why they're called black swans. But
• 17:27
  Speaker 1: but my senses, if China did have to come in
• 17:29
  Speaker 1: harshly than the than the response from the West would
• 17:34
  Speaker 1: probably be trade sanctions and the economic sanctions on China,
• 17:38
  Speaker 1: which would be far worse than the trade war, and
• 17:41
  Speaker 1: we saw how much the trade wars loclobal economy. So
• 17:44
  Speaker 1: if if sanctions would have to be put in place
• 17:47
  Speaker 1: on businesses doing business in China, then that that would
• 17:49
  Speaker 1: be an all another ball game, which I think would
• 17:51
  Speaker 1: would really slow the global economy. But that's there really
• 17:54
  Speaker 1: wouldn't be any choice in the matter. Would be similar
• 17:56
  Speaker 1: to what we saw in Russia with CRIMEA, So it
• 17:59
  Speaker 1: would be, uh, you know, it would be similar circumstance
• 18:01
  Speaker 1: to that. So, Mark, do you think the Federal Reserve
• 18:04
  Speaker 1: is taking the right tack here after that last rate
• 18:07
  Speaker 1: cut to say, maybe a little bit of a pause
• 18:09
  Speaker 1: here and we will take a look at the data
• 18:11
  Speaker 1: as it comes in. Yeah, I think they are. I mean,
• 18:14
  Speaker 1: and you know, and I don't want to you just
• 18:17
  Speaker 1: say one last thing on China. That's certainly not something
• 18:19
  Speaker 1: that we're looking for. I think that I really doubt
• 18:21
  Speaker 1: that we would ever see a scenario like that. But
• 18:24
  Speaker 1: but I think that the FETE is holding off to
• 18:27
  Speaker 1: see are we going to get a trade deal? And
• 18:29
  Speaker 1: if we get a trade deal, does it cause the
• 18:31
  Speaker 1: economy to re accelerate? And uh, if it does, then
• 18:35
  Speaker 1: they're probably done. But I think a lot of folks think, hey,
• 18:39
  Speaker 1: if we get a trade deal, the Feds done. I
• 18:40
  Speaker 1: don't think it's that simple. I think we gotta get
• 18:43
  Speaker 1: a trade deal and then we have to see if
• 18:44
  Speaker 1: that trade deal actually impacts the economy in a meaningful way,
• 18:48
  Speaker 1: and if it does, then they probably are done. But
• 18:51
  Speaker 1: right now we still have another cut by the funds
• 18:55
  Speaker 1: rate in March. We have another quarter point cut in March.
• 18:57
  Speaker 1: But they're clearly in a wait and see mode right
• 19:00
  Speaker 1: now until we get to March. Do you think if
• 19:02
  Speaker 1: we get if we don't get a trade deal, that
• 19:05
  Speaker 1: the one point eight percent prediction for it seems right
• 19:09
  Speaker 1: or do you think it would be substantially lower. Well,
• 19:12
  Speaker 1: when we came up with our forecast at one growth,
• 19:15
  Speaker 1: we were we were assuming no trade deal or a
• 19:18
  Speaker 1: minimal trade deal, and and so you know, I it's
• 19:23
  Speaker 1: really hard to say, but I would say that the
• 19:25
  Speaker 1: downside risk of the economy would certainly increase if we
• 19:27
  Speaker 1: don't get a trade deal, because it's not it's not
• 19:30
  Speaker 1: just the immediate effects on the US economy. It really
• 19:33
  Speaker 1: works through the dampening effects, the further dampening effects on
• 19:36
  Speaker 1: global economic growth, and how that comes back to impact
• 19:39
  Speaker 1: the US because the US really is not a We
• 19:42
  Speaker 1: don't have much of our economy tied to the global economy,
• 19:46
  Speaker 1: certainly not as much as as other industrialized nations do.
• 19:50
  Speaker 1: So jobs has been a big part of supporting this
• 19:52
  Speaker 1: consumer we've had to kind of slow down. Are you
• 19:54
  Speaker 1: concerned about jobs? I'm not as concerned about the slowdown
• 19:58
  Speaker 1: in jobs, And actually the slowdown is greater than what
• 20:00
  Speaker 1: the reported data indicate. Because in August we got the
• 20:04
  Speaker 1: quarterly Senses of Employment wage data which showed the job
• 20:07
  Speaker 1: growth from March of eighteen to March of nineteen, which
• 20:10
  Speaker 1: is the source of the revisions that we get early
• 20:12
  Speaker 1: next year. It was half a million jobs less then
• 20:16
  Speaker 1: was previously reported. Most of that downward revision is in
• 20:19
  Speaker 1: retail trade because of the loss of jobs to online retailing,
• 20:22
  Speaker 1: in the leisure and hospitality sector because of rising wages,
• 20:26
  Speaker 1: total income earned from those jobs is actually stronger than
• 20:29
  Speaker 1: have been previously reported, so that more than off. That's
• 20:32
  Speaker 1: the fact that job brother is slower than the slow
• 20:34
  Speaker 1: Mark Whittner, thank you so much for joining us. Mark Whittner,
• 20:36
  Speaker 1: senior economists at Wells Fargo Securities. We works back in
• 20:51
  Speaker 1: the news coming across the Bloomberg terminal. Right now, WE
• 20:53
  Speaker 1: Works is said to face SEC inquiry into possible rule breaches.
• 20:58
  Speaker 1: Uh so we want to dig into that. Matt Robinson,
• 21:00
  Speaker 1: Bloomberg News joins us here in a Bloomberg Interactive Broker Studios.
• 21:03
  Speaker 1: Also a headline at that Roger Stone is guilty in
• 21:06
  Speaker 1: US trial overlies about the leagues. So the headlines continue
• 21:10
  Speaker 1: to break. But going back to WE Work, So what's
• 21:13
  Speaker 1: going on here? What do you think this is? The
• 21:14
  Speaker 1: SEC is really looking in here? So when the SEC
• 21:17
  Speaker 1: opens investigation, they're looking to see whether what was disclosed
• 21:20
  Speaker 1: to investors was reflected in you know, private discussions what
• 21:25
  Speaker 1: was going on in the company. So they're always looking for, um,
• 21:28
  Speaker 1: you know, if you're saying something publicly that it matches
• 21:31
  Speaker 1: what you're saying privately. And given the sort of fall
• 21:35
  Speaker 1: from grace from We Work over the last couple of months, certainly,
• 21:38
  Speaker 1: you know, um sort of enterprising for security lawyers to
• 21:40
  Speaker 1: be like they're going to make sure that they're kicking
• 21:41
  Speaker 1: the tires and that everything that was you know, going
• 21:45
  Speaker 1: on in the company was known to potential investors. So
• 21:49
  Speaker 1: there has been there have been other reports that the
• 21:51
  Speaker 1: SEC was in close contact with we were leading up
• 21:53
  Speaker 1: to the I p O saying your documents are insufficient.
• 21:56
  Speaker 1: The whole community adjusted a bit that they changed to
• 21:59
  Speaker 1: something else was problematic. You guys need to account for
• 22:02
  Speaker 1: your finances in a better way. How instrumental will that
• 22:06
  Speaker 1: be in this investigation? If at all? Well, you know,
• 22:10
  Speaker 1: for something like this. And another thing to point out
• 22:12
  Speaker 1: is that often with these kinds of investigations they last years. Um,
• 22:16
  Speaker 1: you know, the average investigation is like two or three
• 22:18
  Speaker 1: years for the SEC. And um, there you know, they're
• 22:21
  Speaker 1: sort of wrapping their arms around, like you know what
• 22:23
  Speaker 1: was disclosed. I mean there's a lot. I mean, you know,
• 22:25
  Speaker 1: the company was had to perspectus out for bonds. You know,
• 22:28
  Speaker 1: there's a lot of information to sort of dive into,
• 22:32
  Speaker 1: uh to make sure that, you know, investors were properly
• 22:35
  Speaker 1: informed of their business. So the deal never happened, okay,
• 22:39
  Speaker 1: But still the SEC can cite them for some issues
• 22:43
  Speaker 1: as it relates to just its registration statement and things
• 22:46
  Speaker 1: like right. Right, So anytime you're raising money for a venture,
• 22:49
  Speaker 1: that's a security. I mean that's a very general way
• 22:53
  Speaker 1: to uh to sort of talk about it. But you know,
• 22:55
  Speaker 1: venture capital m and if you're if you're raising money
• 22:57
  Speaker 1: for a venture and you're lying to sophisticate investors. That's
• 23:02
  Speaker 1: you know, the SEC has brought cases in recent years,
• 23:05
  Speaker 1: given how how much that market has been growing. What's
• 23:09
  Speaker 1: the potential penalty for we work? It's hard to say.
• 23:12
  Speaker 1: I mean, you know, this is something that's just just
• 23:14
  Speaker 1: getting started. Um, you know most of the time, you know,
• 23:17
  Speaker 1: the SEC is a civil regulator. They can't they look
• 23:20
  Speaker 1: at you know, it's penalties or hey, we want you
• 23:22
  Speaker 1: to improve this disclosure. Um, you know, so it's it's
• 23:26
  Speaker 1: it's very hard to say at this point though. So
• 23:28
  Speaker 1: but you know, can the SEC like one of the
• 23:30
  Speaker 1: things about we work when it did filets S one?
• 23:33
  Speaker 1: There's a lot of governance issues there, you know about
• 23:36
  Speaker 1: the UH corporate jets and leasing back space and so
• 23:40
  Speaker 1: on and so forth. Are those some of the things
• 23:42
  Speaker 1: now that those are disclosed? Are those some of the
• 23:45
  Speaker 1: things that the SEC might look at and say, was
• 23:47
  Speaker 1: it full disclosure? Or the you know, did you need
• 23:49
  Speaker 1: to do more? Right? Those? Are those are? Um, those
• 23:52
  Speaker 1: are good questions that the SEC is gonna be asking
• 23:54
  Speaker 1: because you know, those are sort of legal lawyer to
• 23:58
  Speaker 1: lawyer questions. You know, what how do you define material?
• 24:00
  Speaker 1: Was this you know explicit enough? But the SEC you know,
• 24:04
  Speaker 1: has in the past they look at those kinds of transactions.
• 24:07
  Speaker 1: Is this really a true arms length transaction? Is this
• 24:10
  Speaker 1: you know, separate from you know, would you have given
• 24:13
  Speaker 1: this deal or proposed deal to anyone else that you
• 24:16
  Speaker 1: know you didn't have a relationship with. Looking right now
• 24:19
  Speaker 1: at we work bonds, they are implying a yield of
• 24:21
  Speaker 1: fifteen percent or nearly fift seventy four a little bit
• 24:25
  Speaker 1: less than seventy five cents on the dollar. These are
• 24:27
  Speaker 1: bonds maturing in not long term day. They were trading
• 24:31
  Speaker 1: it back in August, Yes, it is absolutely Uh. Well,
• 24:34
  Speaker 1: actually they were trading back in September. They were trading
• 24:38
  Speaker 1: at a seven point two percent yields, So yes, more
• 24:41
  Speaker 1: than double. And I'm just looking right now, and it
• 24:43
  Speaker 1: raises questions about the financial feasibility of this company going forward.
• 24:47
  Speaker 1: And I'm thinking, Matt, as you talk two to three
• 24:50
  Speaker 1: year investigation by the SEC, is we work going to
• 24:53
  Speaker 1: be around in two to three years to uh to
• 24:56
  Speaker 1: account for whatever mouth feasans if there is any found. Yes,
• 25:01
  Speaker 1: I mean even if you know, if that scenario would
• 25:03
  Speaker 1: have happened you know, you're still obligated to deal with
• 25:06
  Speaker 1: you know, uh, securities laws. So I mean for um,
• 25:10
  Speaker 1: you know, for them, they're gonna want to, you know,
• 25:12
  Speaker 1: just be like, hey, you know, here is our full
• 25:13
  Speaker 1: disclosure um in um you know, in in raising cash.
• 25:17
  Speaker 1: It is already fallout for the investment banks and the
• 25:20
  Speaker 1: law firms that advised we work on this underrating processes.
• 25:24
  Speaker 1: It typically spill over to them generally. I mean, it
• 25:27
  Speaker 1: depends on what the government's looking at. If if uh,
• 25:30
  Speaker 1: if the story is is that you know, this was
• 25:32
  Speaker 1: a you know, a company that everyone was expecting great
• 25:35
  Speaker 1: growth and it was you know, people really thought this
• 25:38
  Speaker 1: was the value of the company, then it's it's hard
• 25:41
  Speaker 1: to say there was some misrepresentation, right, there's there's people
• 25:44
  Speaker 1: believed in this story at the time. But if if
• 25:47
  Speaker 1: in turn, it's like, well, actually they were you know,
• 25:50
  Speaker 1: they were not being as explicit about their business, then
• 25:54
  Speaker 1: you know, and and then who knew about that that
• 25:56
  Speaker 1: that those are the kinds of things that the government
• 25:58
  Speaker 1: wants to uh sort of investigate. Thank you so much
• 26:00
  Speaker 1: for being with us. Really an interesting, uh interesting story,
• 26:05
  Speaker 1: good Scoop. Thank you for joining Matt Robinson. Uh covers
• 26:08
  Speaker 1: all things related to financial regulation and the SEC. For
• 26:11
  Speaker 1: us here at Bloomberg. We Work is said to be
• 26:15
  Speaker 1: facing an SEC inquiry into rule violations, potentially over their
• 26:20
  Speaker 1: disclosures being perhaps a little incongruous depending on who they're
• 26:24
  Speaker 1: talking to. You. Yeah, it's interesting to see how this
• 26:25
  Speaker 1: will playoff. But it just just one more just the
• 26:27
  Speaker 1: news keeps coming for we Work. Um, you know, you know,
• 26:31
  Speaker 1: think about the fall from grace for this company we
• 26:33
  Speaker 1: started the year to where we are, uh now, it's
• 26:36
  Speaker 1: just extraordinary. And so the question really is, as you raised,
• 26:39
  Speaker 1: I think at some point if I think we may
• 26:40
  Speaker 1: be there right now, is what is the ongoing concern
• 26:43
  Speaker 1: story with we Work here as you look at the
• 26:46
  Speaker 1: balance sheet and you look at the cash burning, can
• 26:48
  Speaker 1: they cut cost fast enough to get the profitability? Now
• 26:51
  Speaker 1: they did bring you know, some of the profit forecasts
• 26:54
  Speaker 1: a little bit forward, but it's still it's really under
• 26:57
  Speaker 1: under question. The news keeps coming. Also from Washington, d C.
• 27:00
  Speaker 1: We should just say that Roger Stone, in the longtime
• 27:01
  Speaker 1: Republican operative and early Trump booster, was convicted to lying
• 27:05
  Speaker 1: to Congress, of lying to Congress, obstructing a Congressional probe,
• 27:09
  Speaker 1: and witness tampering. This is just two days after House
• 27:11
  Speaker 1: Democrats separately began public impeachment hearings, but this just came
• 27:15
  Speaker 1: down as well, and we wanted to bring that to you.
• 27:18
  Speaker 1: In the markets, we are seeing something of a rally,
• 27:21
  Speaker 1: although it's actually extending gains. You've got the Nastick up
• 27:24
  Speaker 1: sixtents of a percent, similar with the smp UH and
• 27:26
  Speaker 1: the DOAO, with optimism that there will be some sort
• 27:29
  Speaker 1: of trade deal.