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Debt Ceiling, Markets, Retail, and Diamonds (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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Speaker 1: my co host Matt Miller.
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Speaker 2: Every business day we bring you interviews from CEOs, market pros,
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Speaker 2: and Bloomberg experts, along with essential market moving news. Find
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Speaker 2: the Bloomberg Markets Podcast called Apple Podcasts or wherever you
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Speaker 2: listen to podcasts, and at Bloomberg dot com Slash podcast.
0:21
Speaker 3: We got those sticky inflation numbers this morning. I ran,
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Speaker 3: I want to start with you because the treasury trade
0:27
Speaker 3: is what we're looking at most when it comes to
0:29
Speaker 3: the debt ceiling impact. Talk to me about how that's
0:32
Speaker 3: looking today as we head into this long weekend.
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Speaker 4: Yeah, so, you know, everyone is very hopeful that there's
0:39
Speaker 4: going to be a some kind of deal. So you've
0:41
Speaker 4: seen a little bit of a pullback in some of
0:43
Speaker 4: the some of the t bills that had been trading,
0:47
Speaker 4: you know, amazingly cheap to to other areas of the market,
0:52
Speaker 4: and they still are right. So there still is this
0:55
Speaker 4: risk priced into the market at the moment. I don't
0:57
Speaker 4: think that that's going to change until we actually see
1:00
Speaker 4: a deal. You know, risk managers and money market mutual
1:03
Speaker 4: funds are just going to avoid these tea bills that
1:06
Speaker 4: that potentially could have delayed payments because those investors just
1:09
Speaker 4: need to have the daily liquidity and certainty that they're
1:12
Speaker 4: going to get their money when it's promised, and if
1:15
Speaker 4: if they don't, they're just going to avoid those. But
1:17
Speaker 4: but then there's others, you know, there's other investors that
1:19
Speaker 4: are speaking to are like, well, I'm okay if there's
1:22
Speaker 4: a one or two day delayed payment, so I'll maybe
1:25
Speaker 4: buy some of that instead of holding it in other
1:27
Speaker 4: instruments that that are similar, like a bank account, for example,
1:31
Speaker 4: which yields, you know, way less than what a what
1:33
Speaker 4: a one week T bill is currently yielding.
1:37
Speaker 5: And a hotbunt in here because I were just described
1:40
Speaker 5: kind of the the bond trade there, talk to us
1:42
Speaker 5: a little bit about what the US economy, the US
1:45
Speaker 5: budget actually does look like if this deal does come through.
1:51
Speaker 6: Right, So, the basic the deal looks like, the biggest
1:55
Speaker 6: piece is the two year spending cap, and that will
1:58
Speaker 6: basically be the element of that entire deal in terms
2:02
Speaker 6: of its impact on the economy. I think that you know,
2:06
Speaker 6: if it's a two year cap, then it means that
2:09
Speaker 6: likely that the hit next year from the spending cap
2:13
Speaker 6: would be about you know, taking away two underd k
2:19
Speaker 6: of Josh relative to baseline. It's not a significant amount, right,
2:23
Speaker 6: it's it's probably you know, it won't amount to too
2:27
Speaker 6: much impact. But once they do lift the cap in
2:32
Speaker 6: twenty twenty five, it will also generate some kind of recovery,
2:38
Speaker 6: mild recovery. So yeah, it's just a it's not a
2:42
Speaker 6: very big spending consolidation, so I would say, yeah, just
2:47
Speaker 6: not that big.
2:48
Speaker 3: All right, Well, we do have our Michael McKee in
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Speaker 3: studio now. Would never be joining us on the phone
2:53
Speaker 3: on a big inflation day like this one, Mike, how
2:56
Speaker 3: bad is the pc.
2:58
Speaker 1: News for the Fed?
3:03
Speaker 7: If you assume that their goal is to get interest
3:06
Speaker 7: rates lower and the economy come in reasonably strong, that
3:11
Speaker 7: it's not good news because you're going to probably have
3:13
Speaker 7: to raise rates higher. That's the kind of the story
3:16
Speaker 7: that inflation is telling us at this point. Now, we'll
3:18
Speaker 7: get another CPI right before they're meeting on June fourteenth.
3:21
Speaker 7: But the economy looks very strong. Consumer spending very strong
3:25
Speaker 7: in the month of April, and business spending. The Durbal
3:29
Speaker 7: goods orders were relatively strong, So you got a combination
3:34
Speaker 7: of a strong economy and prices not going down, maybe
3:39
Speaker 7: in part because businesses are taking advantage of the strong economy,
3:42
Speaker 7: and it just tells the fact that what they have
3:45
Speaker 7: done so far to put restraint in place hasn't worked.
3:48
Speaker 7: The argument is that maybe it takes a while for
3:51
Speaker 7: the cumulative effect to start to have an impact, but
3:55
Speaker 7: right now it looks like the people who think they
3:58
Speaker 7: need to do more may carry the day.
4:01
Speaker 5: Well, McKee, we spoke this morning, and one of the
4:04
Speaker 5: kind of concerns that I had was, Look, if you're
4:06
Speaker 5: capping fiscal spending for two years in theory, shouldn't that
4:10
Speaker 5: mean that the government spending kind of tail went to
4:12
Speaker 5: the economy is capped as well, And isn't that a
4:16
Speaker 5: reason for concern?
4:17
Speaker 1: Tell me why I'm.
4:17
Speaker 7: Wrong, Because they're not really cutting spending. This is the
4:22
Speaker 7: standard Washington game where you move money around and sort
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Speaker 7: of shuffle where the pot comes from and where it
4:29
Speaker 7: goes to. But it doesn't really change the amount that
4:31
Speaker 7: the government is going to spend. You're going to put
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Speaker 7: spending caps on non defense discretionary spending, which is the
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Speaker 7: smallest part of the budget, the entitlement programs Medicare and
4:42
Speaker 7: Social Security. They'll keep spending at the same rate that
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Speaker 7: they are because they're exempted, they have their own formulas
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Speaker 7: for how much they go up. And defense spending, according
4:52
Speaker 7: to what we have seen reported about the deal, is
4:54
Speaker 7: going to go up three percent as it was planned to.
4:59
Speaker 7: So the amount of money that they're talking about cutting back,
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Speaker 7: they're really cutting back the increase in what was going
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Speaker 7: to be spent, rather than actually spending less.
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Speaker 4: Now, you know what's interesting about that, if I could
5:12
Speaker 4: jump in here a little bit, is that when they
5:13
Speaker 4: did something similar to this with sequestration back in twenty eleven,
5:17
Speaker 4: it did have the effect of limiting budget deficits, right,
5:21
Speaker 4: just because you wound up having growth be somewhat bigger
5:25
Speaker 4: and higher than government spending increases. And I think that
5:28
Speaker 4: in a way, that's the that's kind of the Goldilock
5:31
Speaker 4: scenario here for budgetary hawks, right, people who want to
5:34
Speaker 4: make sure that the debt doesn't continue to increase at
5:38
Speaker 4: such a rapid pace. But making it, you know, a
5:40
Speaker 4: two year deal also limits some of that some of
5:44
Speaker 4: the inks that might occur around some of those you know,
5:48
Speaker 4: bigger chunks of the pie. But like Mike said, things like,
5:51
Speaker 4: you know, it's social Security spending for example. That's one
5:54
Speaker 4: of the big things that is really driving some of
5:57
Speaker 4: the debt limit aks that we have right now. Right, So,
6:00
Speaker 4: there was some news yesterday that the Treasury Department is
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Speaker 4: going to be issuing net debt of sixty four billion
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Speaker 4: dollars that that matures next Thursday, and everyone's like, well,
6:09
Speaker 4: how are they issuing net debt of sixty sixty four
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Speaker 4: billion dollars? Well, one of the ways is because sixty
6:15
Speaker 4: billion dollars of non marketable debt is coming out of
6:17
Speaker 4: the Social Security Trust Fund to pay effectively to pay
6:21
Speaker 4: the social security payments that are due that day. So
6:25
Speaker 4: that debt is going down. But at the same time,
6:27
Speaker 4: the government doesn't have any cash in order to pay.
6:30
Speaker 4: So that's why the public debt has to be increased.
6:33
Speaker 4: So it's not that the government has more you know,
6:36
Speaker 4: a bigger pot of extraordinary measures to use. It just
6:40
Speaker 4: you know, basically taking from one hand giving to the other.
6:42
Speaker 4: But that gets bigger and bigger as time goes on.
6:44
Speaker 4: So to Mike's point, deficits are still going to be positive, right,
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Speaker 4: You're still you're still not going to have a balanced budget,
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Speaker 4: you know, but it does slow the growth of the
6:54
Speaker 4: of the debt over time.
6:55
Speaker 7: There is a problem that we haven't really focused on
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Speaker 7: coming up that I reckon comment done because right now
7:01
Speaker 7: the Treasury has forty nine and a half billion. It
7:04
Speaker 7: will have much less next week. But suppose we get
7:07
Speaker 7: a deal, Treasury needs to build up his cast reserves
7:11
Speaker 7: normally wants about five hundred billion in there. So according
7:15
Speaker 7: to the Treasury at their last three funding announcement, they
7:18
Speaker 7: said they anticipated having five hundred and fifty billion in
7:21
Speaker 7: their account by the end of June. And as we
7:24
Speaker 7: just noted, forty nine and a half of is all
7:27
Speaker 7: that's there? So IRA, who's going to buy all that stuff?
7:30
Speaker 7: And what is it going to cost?
7:32
Speaker 4: Well, there's a couple of pieces to that. Actually, Number
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Speaker 4: one is it probably you know that five hundred and
7:38
Speaker 4: fifty number assumed that the debt limit was going to
7:40
Speaker 4: be raised when they had, you know, several hundred billion
7:42
Speaker 4: dollars in cash already in the Treasury General account. So
7:48
Speaker 4: one is I think demand will be pretty decent for
7:51
Speaker 4: four bills at this point. You know, money funds and
7:54
Speaker 4: ultra short ultra short money wants to kind of lock
7:58
Speaker 4: in these higher rates now in the anticipate patient that
8:00
Speaker 4: maybe in the future the feder Reserve is going to
8:02
Speaker 4: ease interest rates, so there will be some of that.
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Speaker 4: Number one and number two, there will have to be
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Speaker 4: about five hundred million dollars in issues very very quickly,
8:11
Speaker 4: and probably two hundred billion almost right away. And I think,
8:14
Speaker 4: given where yields are right now, for some of that paper,
8:17
Speaker 4: it'll be pretty well received. There'll be plenty. There is
8:20
Speaker 4: an issue about what happened to the Fed's balance sheet,
8:22
Speaker 4: because the reserve balances are likely to go down and
8:26
Speaker 4: go down quickly, and we know that from September of
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Speaker 4: twenty nineteen. What can happen if reserves really go down
8:33
Speaker 4: and the plumbing in the financial sector ends up being
8:35
Speaker 4: a little bit squishy, It'll be really interesting to see
8:38
Speaker 4: what happens in the repo market at that point.
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Speaker 5: Yeah, certainly a lot dies. And I gotta say, we
8:42
Speaker 5: got to get Nana Wong's take on this. We're going
8:43
Speaker 5: to bring her back shortly. Bloomberg Economics is Anna Wong,
8:46
Speaker 5: Iour Jersey actuallyf us interest rate strategies, our Bloomberg Intelligence,
8:49
Speaker 5: of course, our star player, Mike McKee, Bloomberg International Economics
8:53
Speaker 5: and Policy correspondent.
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Speaker 1: We thank you as always interesting stuff.
8:57
Speaker 5: Markets in the green folks, stick with us.
9:01
Speaker 8: You're listening to the Team ken'sline program Bloomberg Markets weekdays
9:05
Speaker 8: at ten am Eastern on Bloomberg dot Com, the iHeartRadio
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9:11
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9:15
Speaker 5: Maddie, A lot to digest here in terms of Federal Reserve,
9:19
Speaker 5: the debt ceiling, these markets. But I think at the
9:23
Speaker 5: end of the day, it's really all about do we
9:26
Speaker 5: or do we not hit a recession by the end
9:28
Speaker 5: of the year.
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Speaker 1: Who better to bring in and to.
9:31
Speaker 5: Talk about this is Philip colmar Am I saving that right,
9:34
Speaker 5: Cort colmar It is managing partner and global strategist over
9:37
Speaker 5: at MRB Partners. Philip for somethingk you for joining us
9:40
Speaker 5: in the Studiosmini was here. He'd give you a gold star.
9:44
Speaker 5: Talk to us about these recession onds.
9:46
Speaker 9: Yeah, the marketplace too high of an expectations towards recession,
9:50
Speaker 9: particularly following the SVV or banking system strains. More generally,
9:55
Speaker 9: you know, our view, as has said, a recession is
9:56
Speaker 9: not likely over certainly throughout this year and probably over
10:00
Speaker 9: the next year. And the reason is, and I think
10:02
Speaker 9: we're seeing it today in the data is the US
10:05
Speaker 9: consumer is in a lot stronger shape than people give.
10:07
Speaker 10: It credits for.
10:08
Speaker 9: It's spent ten or fifteen years de leveraging, has healthy
10:11
Speaker 9: balance sheets, has low debt burdens, and a tremendous amount
10:15
Speaker 9: of cash transferred to it, but thanks to fiscal policy
10:17
Speaker 9: during the pandemic, so it hasn't needed to tap into
10:21
Speaker 9: credit to do It makes the US consumer a lot
10:23
Speaker 9: less interest rate sensitive because the consumption is such an
10:26
Speaker 9: important part something like seventy percent of GDP. It makes
10:28
Speaker 9: the overall economy less interest rate sensitive. And I think
10:30
Speaker 9: people have just chronically underestimated where that breaking point is
10:34
Speaker 9: of interest rates or total cost of capital, whether that
10:37
Speaker 9: be FED policy or bond yields. Before we tip into recession.
10:40
Speaker 3: Did any of the retail earnings that we got change
10:42
Speaker 3: your picture on the consumer? I know it was a
10:44
Speaker 3: little bit muddied, but a Walmart, for example, seemed pretty
10:48
Speaker 3: clear that the US consumers struggling. They're moving to those
10:51
Speaker 3: lower margin food purchases because they just can't afford much else.
10:55
Speaker 9: Yeah, I think you see some downshifting we saw in
10:58
Speaker 9: the retail sales data in the past, as well, we've
11:00
Speaker 9: seen a little bit affirming as a less print, but
11:04
Speaker 9: we have seen some softening down in the consumer. Now,
11:06
Speaker 9: we'd expect that coming off of sort of an economic
11:09
Speaker 9: boom almost that we had. There's been a big down
11:12
Speaker 9: shift in terms of economic activity from really boom like
11:16
Speaker 9: dynamics fueled by fiscal and monetary policy, and so in
11:19
Speaker 9: that boom, there's there's space for weakness. There's been higher inflation,
11:23
Speaker 9: and all the wages are there. It's only now that
11:25
Speaker 9: it's starting to turn into real wage growth, so there
11:27
Speaker 9: was a bit of a bite. I think that that's
11:29
Speaker 9: going to work for the consumer heading forward as inflation
11:31
Speaker 9: moderates a bit, I don't. I think it's going to
11:32
Speaker 9: stay a lot stickier as we saw today. Then certainly
11:35
Speaker 9: the FED hopes and investors have been predicting, so watch
11:37
Speaker 9: it for that bond market. But I do think the
11:39
Speaker 9: consumer will ultimately be resilient ultimately, if even if downshifting here.
11:45
Speaker 5: But do recessions happen kind of in a vacuum. It's
11:47
Speaker 5: not the slow grind lower, it's a it's a very
11:50
Speaker 5: sudden drop essentially. So if you're seeing a resilient consumer,
11:54
Speaker 5: that doesn't necessarily mean that there isn't a sudden drop
11:57
Speaker 5: in the near or distant future.
12:00
Speaker 1: What would be kind of the canary and the coal
12:02
Speaker 1: mine for you.
12:02
Speaker 9: Yeah, so whenever you're normalizing interest rates or the cost
12:05
Speaker 9: of capital is rising, you're going to blow up things.
12:07
Speaker 9: That's just natural. So the difference between this cycle and say,
12:10
Speaker 9: you know, the two thousand and eight cycle, is that
12:12
Speaker 9: household sector gives you a really strong anchor to the
12:14
Speaker 9: global economy or US and your area economy and there
12:17
Speaker 9: for the global economy because they're so resilient. So that
12:19
Speaker 9: makes the challenge of tipping us into recession harder. That
12:22
Speaker 9: being said, when you lift up interest rates, you do
12:25
Speaker 9: things like cause banking system strains, you take out some
12:27
Speaker 9: zero yielding assets, You'll hit the private investment space and
12:31
Speaker 9: those kind of things, and they can have ripple effects
12:32
Speaker 9: through it. So it's these kind of weak links that
12:34
Speaker 9: we monitor closely to see when you build up what
12:37
Speaker 9: we call critical contagion to tip it over. People had
12:39
Speaker 9: rightfully feared some elements of that with the banking system strains.
12:43
Speaker 9: The problem was is the magnitude just wasn't anywhere on
12:45
Speaker 9: compared to the you know, on size of the GFC.
12:48
Speaker 9: It was a much smaller issue this time around, but
12:50
Speaker 9: it's those kind of things you look for, is some
12:52
Speaker 9: kind of contagion that's strangling through. I think the missstake
12:55
Speaker 9: that a lot of the recession camp made, though, is
12:58
Speaker 9: that they look for in dedicators and old rule of
13:01
Speaker 9: thumb measures, particularly in the manufacturing confidence those kind of things.
13:04
Speaker 9: They forget that that's shrunk in terms of size of
13:06
Speaker 9: the overall economy, and the service sector has been accelerating.
13:09
Speaker 9: It's been strong, and that's kind of thing. It's a
13:11
Speaker 9: much bigger sector of the economy than manufacturing, and people
13:15
Speaker 9: often forget their go to ism manufacturing index. It's dipped
13:18
Speaker 9: below the fifty line. I think it is twelve times
13:20
Speaker 9: if you count this one since eighty three and eight
13:22
Speaker 9: of them have been headfakes. They haven't been recessions, so
13:25
Speaker 9: it doesn't have a great batting average. Focus more on
13:27
Speaker 9: the service sector doesn't have as much history, but it's
13:29
Speaker 9: not signaling a recession at this point.
13:31
Speaker 3: I love the optimism because I would rather us not
13:34
Speaker 3: have to deal with a recession, particularly on the consumer side.
13:37
Speaker 3: I'm going to try to get some extra credit on
13:39
Speaker 3: this Friday, though, by pointing out the warp function on
13:41
Speaker 3: the terminal warp for folks listening to us, and it
13:46
Speaker 3: tells us the anticipation of rate hikes moving forward. In
13:49
Speaker 3: June that went up to fifty four percent, saying a hike.
13:53
Speaker 1: Tell me why you think they're wrong.
13:56
Speaker 9: Well, I think the Fed is signaling that it wants
13:59
Speaker 9: to to go to the sidelines, do a weight and
14:01
Speaker 9: see mode, mostly because the banking systems strains a bit
14:04
Speaker 9: of vasing and inflation. Obviously, today's numbers has been tough.
14:07
Speaker 9: I think the real mistake in terms of interest rate
14:10
Speaker 9: expectations is pricing in the deep rate cuts. Now we've
14:12
Speaker 9: seen a lot of that come back out this month alone, right,
14:15
Speaker 9: but there's still significant rate cuts, and that's predicated on
14:17
Speaker 9: the recession camp. At this cost of capital. Back to
14:20
Speaker 9: being the optimist or the optimist on the economy, it's
14:23
Speaker 9: at this cost of capital we don't see the breaking point.
14:25
Speaker 9: It doesn't necessarily mean the Fed has to do a
14:27
Speaker 9: lot more.
14:28
Speaker 10: It means the.
14:28
Speaker 9: Distortion of the yield curve. In many ways, the lower
14:32
Speaker 9: bond yields is subsidizing. Remember, a lot of the economy
14:34
Speaker 9: borrows at the long end, not the short end of
14:35
Speaker 9: the curve, and so the inversion of the yield curve,
14:37
Speaker 9: even though recession or economic bears would point to that
14:40
Speaker 9: as a recession signal, it's actually subsidizing economic growth here,
14:44
Speaker 9: so it's actually preventing in many ways that recession. So
14:47
Speaker 9: I think the caretful thing is is if you get
14:49
Speaker 9: away from the recession camp, be careful in the bond market,
14:52
Speaker 9: and of course that causes ripple effects and volatility through
14:54
Speaker 9: the asset spectrums in general.
14:56
Speaker 5: Are you worried at all about that bond volatility? I mean,
14:59
Speaker 5: you're seeing such a a kind of selling baked into,
15:03
Speaker 5: especially in T bills, but you're seeing it on the
15:05
Speaker 5: front end of the curve as well, as you point
15:07
Speaker 5: out the unwind of that in the next few weeks
15:11
Speaker 5: or a few months. Are you at all concerned about
15:13
Speaker 5: the volatility or the risk taking in the bond market
15:15
Speaker 5: right now?
15:16
Speaker 9: Yeah, I think that's I mean, bond volatility has been
15:18
Speaker 9: a very big issue pretty much for the last couple
15:21
Speaker 9: of years, and I continue to see that as an issue.
15:23
Speaker 9: So there's a difference between if you're in a fixed
15:26
Speaker 9: income investor, we'd be shorter on the duration and expecting
15:29
Speaker 9: bondials go up. We've seen some of that. We still
15:31
Speaker 9: see a move higher. Equities gets a little bit more mixed,
15:33
Speaker 9: so well, we may not be in the recession camp
15:35
Speaker 9: here at this cost of capital. So that's good for
15:39
Speaker 9: equities as we reprice or do an upward shift in
15:42
Speaker 9: terms of economic expectations. Keep an eye on the bond
15:45
Speaker 9: market because that's the flip side of it. As bond
15:47
Speaker 9: and yields come up, it hurts that discount rate. It
15:50
Speaker 9: creates that volatility ripples back into the equity market. And
15:52
Speaker 9: so we say with clients, you've got to be a
15:54
Speaker 9: lot more selective in this environment on equities. Favorite places
15:58
Speaker 9: where you get your valuation discount and places where you
16:00
Speaker 9: get relative earnings upside. So I look at the market
16:02
Speaker 9: right now. We get a bit of a frenzy going
16:04
Speaker 9: on in tech. Again, some of it's AI driven, but
16:06
Speaker 9: that's not the spot where you get your relative value discount,
16:09
Speaker 9: and even relative earnings are eroding. You know, you flip
16:11
Speaker 9: over and you look at large cap banks. They look
16:13
Speaker 9: a lot better in terms of both of those things.
16:15
Speaker 9: For the most part, that also lends itself outside of
16:17
Speaker 9: the US into some of things like European markets and
16:19
Speaker 9: stuff like that where you get better valuation discounts relative
16:21
Speaker 9: earnings favoring. But selectivity is going to be the name
16:23
Speaker 9: of the game here because of as you said, that
16:25
Speaker 9: bond volatility and a fields continue to ratchet higher. That
16:28
Speaker 9: takes a lot of wind out of the equity market.
16:30
Speaker 3: Are the tech plays then in kind of the comps
16:34
Speaker 3: and peers of companies that are going all in on AI?
16:38
Speaker 1: Is that the move?
16:39
Speaker 9: Yeah, I think there's there's a frenzy around that move
16:42
Speaker 9: at this point. I think the tech starting you don't
16:44
Speaker 9: like it, well, I think there's I think there's going
16:48
Speaker 9: to be momentum behind it. So there's a trade probably
16:50
Speaker 9: in that continuing. I think it's going to take time
16:52
Speaker 9: to develop that technology and really try to materialize it
16:54
Speaker 9: into profits, and so there's some of that. I think
16:56
Speaker 9: the original tech rally started here even before a lot
17:00
Speaker 9: of that in the context if we were in a
17:02
Speaker 9: sluggish or week maybe even quasi recessionary growth backdob but
17:06
Speaker 9: that we were going to get significant rate cuts. That's
17:09
Speaker 9: those longer duration assets, the growth sphere or growth index
17:12
Speaker 9: tends to benefit in that backdrob. But if we undwind
17:14
Speaker 9: that recession risk we push up bond yield, then you
17:17
Speaker 9: want to be in more of the value cohort rather
17:20
Speaker 9: than some of this. And if you are going to
17:22
Speaker 9: dip your toe into the growth cohort, we would recommend
17:27
Speaker 9: communication services that spot where they got beaten up last
17:30
Speaker 9: year and seems to have a better valuation support at
17:32
Speaker 9: this point.
17:33
Speaker 3: Okay, quickly in our final minute here, I'm working on
17:35
Speaker 3: a story about what happens if the dollar dips. Can
17:38
Speaker 3: you tell me if the dollar is going to dip
17:41
Speaker 3: so I know whether or not I should be working
17:43
Speaker 3: on that story.
17:43
Speaker 9: Yeah, yeah, the dollar. I mean, I'm cyclically negative on
17:48
Speaker 9: the dollars, so I would expect it to dip. It
17:51
Speaker 9: was over sold recently and we got interest rate expectations
17:56
Speaker 9: starting to wind up of the curve, so we got
17:57
Speaker 9: some firmness in the dollar associated from that. But I
18:00
Speaker 9: think you've got to catch up story on a relative
18:02
Speaker 9: growth basis in the rest of the world, Europe and
18:04
Speaker 9: in Asia from their lag openings. I still think the
18:08
Speaker 9: you should has some work to do, but the FED
18:09
Speaker 9: kind of goes on hold, so I think that the
18:11
Speaker 9: dollar slides.
18:12
Speaker 1: So yes, nice, oh man.
18:14
Speaker 5: Just as we talk about the dollar, we gotta go.
18:16
Speaker 5: I have so many follow up questions. Philip Colemar, Managing Partner,
18:19
Speaker 5: Global Strategists over at MRB Partners, we thank you as
18:22
Speaker 5: always coming in in studio without a time.
18:24
Speaker 1: Might add though, is that allowed on a Friday? Apparently?
18:28
Speaker 1: I'm told it is hard disagree on my end. Never less,
18:31
Speaker 1: we'll forgive you. Have a good weekend.
18:33
Speaker 5: Thanks Philip Colemar again MRB Partners. Folks, we are seeing
18:36
Speaker 5: green on the screen. The S and P five hundred
18:38
Speaker 5: higher by one percent. That rally has really taken off
18:42
Speaker 5: in just the last thirty minutes or so, the Nasdaq
18:44
Speaker 5: significantly outperforming, higher by one point four percent. The VICX
18:48
Speaker 5: though we're a seventeen handle. There is a lot going
18:51
Speaker 5: on this market. We're going to dive into it.
18:53
Speaker 8: You're listening to the tape cans Are Line program Bloomberg
18:56
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
19:00
Speaker 8: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
19:03
Speaker 8: You can also listen live on Amazon Alexa from our
19:06
Speaker 8: flagship New York station, Just say Alexa, Play Bloomberg eleven thirty.
19:12
Speaker 5: Next guest is pretty exciting, Liz McCormick, our chief markets correspondent.
19:16
Speaker 5: She has a little bit of everything over on Bloomberg News,
19:19
Speaker 5: and she has this really interesting story about kind of
19:23
Speaker 5: hedge fund trades and how they're navigating all of this
19:27
Speaker 5: debt ceiling debate and how how kind of go wrong. So, Liz,
19:31
Speaker 5: welcome to the show. Thank you for making time for
19:33
Speaker 5: us on a Friday. How can some of these trades
19:36
Speaker 5: go wrong?
19:38
Speaker 11: By the way, saying yes to you was the easiest yes.
19:41
Speaker 11: So wow, you know what.
19:44
Speaker 1: I'm recording this and putting it in my email.
19:47
Speaker 11: Well, so you know, Shanali, who you know well, and
19:49
Speaker 11: several other of our great lady reporters are on this
19:53
Speaker 11: story together just looking at you know it. You know
19:56
Speaker 11: we've talked before. The basis trade is a long favorite
19:58
Speaker 11: of hedge funds. But you know, there's a lot of
20:01
Speaker 11: things we saw in March twenty twenty, especially when things
20:03
Speaker 11: get bad, the march is not functioning, and especially when
20:06
Speaker 11: repro rates go high, because these are trades that make
20:08
Speaker 11: a little money but make a heck of a lot
20:10
Speaker 11: more when they use a lot of leverage, which is
20:12
Speaker 11: what these folks do. So that's long been an area
20:15
Speaker 11: that regulators say, you know, we want some more oversight,
20:18
Speaker 11: you know, and they've been trying to do things that
20:22
Speaker 11: bring you know, hedge funds more under the fold of oversight.
20:26
Speaker 11: But there are blind spots like the bilateral repo market,
20:29
Speaker 11: which the Treasury's Office of Financial Research has done a
20:32
Speaker 11: lot of good work on getting data but said that's
20:34
Speaker 11: still kind of a blind spot, and that's how a
20:37
Speaker 11: lot of this repo is done. So, you know, now
20:40
Speaker 11: we're saying things are going to work out on the
20:42
Speaker 11: debt ceiling. I hope it does. But some of the
20:45
Speaker 11: chaos that people are worried may ensue is repro rates
20:49
Speaker 11: could surge and things like that. So there that puts,
20:52
Speaker 11: you know, kind of the risk. So that's why I
20:53
Speaker 11: think there's been folks tapping around checking, you know, how's
20:56
Speaker 11: the leverage positioning and things like that on we don't
20:59
Speaker 11: want to know blow up.
21:01
Speaker 3: This was the exact question that I wanted to ask you, Liz.
21:04
Speaker 3: If the US's credit rating is impacted over these debt
21:08
Speaker 3: ceiling debates, what does that do to these requirements?
21:14
Speaker 11: Well, isn't that It's interesting because first of all, it
21:18
Speaker 11: is number one, it's interesting to know what happens to treasury.
21:21
Speaker 11: So as you guys remember in twenty eleven, SMP downgraded
21:26
Speaker 11: just after the deal was done, but it yields went down.
21:29
Speaker 11: There was like a flight to safety. People still wanted treasury,
21:32
Speaker 11: So there is an expectation that probably treasuries, you know,
21:36
Speaker 11: and that wasn't a default. So if we have a default,
21:38
Speaker 11: that's a different ballgame, and that's kind of like uncharted territories.
21:42
Speaker 11: But if there was just a downgrade, the system may
21:45
Speaker 11: be able to withstand that because if your collateral is
21:48
Speaker 11: treasuries and the value goes up, you're okay. But embedded
21:52
Speaker 11: in these trades are the risks they don't you know,
21:54
Speaker 11: because every time is different. So even on a downgrade,
21:57
Speaker 11: if these you know, the longside of a basis, say
22:00
Speaker 11: you're long to cash. If there are major issues and
22:02
Speaker 11: the value goes down, there could be margin calls. So
22:05
Speaker 11: that could be a recent you know, we've done a
22:07
Speaker 11: few stories on you know, after twenty eleven, twenty thirteen,
22:11
Speaker 11: FED Treasury made and the market participants, you know, the
22:14
Speaker 11: overseers and let's call it like SIFMA, etcetera, made like
22:17
Speaker 11: backup plans. How can the market function if there's a
22:20
Speaker 11: delayed payment, but nothing has been tested yet, so you know,
22:24
Speaker 11: we kind of hope to never go through that, but
22:26
Speaker 11: hopefully things would function, but it's an unknown.
22:30
Speaker 5: Speaking of unknowns, a lot of folks, Liz, and correct
22:33
Speaker 5: me if I'm wrong. A lot of folks are obviously
22:35
Speaker 5: off already on the road starting the Memorial Day weekend
22:38
Speaker 5: a little bit earlier.
22:40
Speaker 1: But there is a reason to pay attention to tonight.
22:42
Speaker 5: Aren't a lot of the credit ratings updates coming out
22:45
Speaker 5: Friday night?
22:47
Speaker 11: Well they never tell us, you know. And but that's
22:50
Speaker 11: what I was going to say, like, now, why are
22:53
Speaker 11: we not off already on our long weekend? That's another story,
22:55
Speaker 11: But I was going to say, like, ugh, that's all
22:58
Speaker 11: we need is like we have to keep any open
23:01
Speaker 11: for is there some let's just say that somebody else
23:04
Speaker 11: could go on watch, you know, put them on watch,
23:06
Speaker 11: because that's what Fitch did put the U. They didn't
23:08
Speaker 11: downgrade the rating, but they put the US on like
23:10
Speaker 11: a negative watch. And you haven't seen that for Moody's
23:14
Speaker 11: or S and P. Now it looks like a deal's coming,
23:17
Speaker 11: but if things break down over the weekend, You're right,
23:19
Speaker 11: we could see that, even if it's not late tonight.
23:21
Speaker 11: It they can do that at any time. So I
23:24
Speaker 11: think they feel like if a deal gets done today,
23:26
Speaker 11: there's enough time because they need about two days to
23:28
Speaker 11: get you know, the bill signed, et cetera, and to
23:31
Speaker 11: get you know, not hit that X state where treasury
23:34
Speaker 11: runs out of cash. But you're right, if things fall
23:36
Speaker 11: apart Saturday and everybody walks out and it, then you could,
23:40
Speaker 11: you know, see some more ratings watches and who knows
23:43
Speaker 11: Fitch could do more. I have no idea. They didn't
23:46
Speaker 11: tell me, but it's a concern of course.
23:48
Speaker 5: Well still Liz refresher memories here from kind of the
23:51
Speaker 5: twenty eleven saga when we talked about these credit Ultimately
23:54
Speaker 5: the credit downgrade, it kind of happened over the span
23:56
Speaker 5: if I think like six weeks or something the downgrade
23:58
Speaker 5: actually happened. I want to say, maybe mid August or
24:01
Speaker 5: end of August. But the first warnings came out I
24:04
Speaker 5: think in early July. So it feels like this could
24:08
Speaker 5: still take a couple of weeks, right right.
24:11
Speaker 11: And remember now, definitely not saying there's a repeat of
24:14
Speaker 11: this happening, but S and P there was a deal
24:17
Speaker 11: in SMB downgraded because they say they didn't like, you know,
24:20
Speaker 11: they're looking at overall, how is the you know, the
24:24
Speaker 11: nation's fiscal leaders functioning, how's the everything work, And they
24:28
Speaker 11: were just very displeased with how things went. It didn't
24:31
Speaker 11: vode well for the fiscal outlook for the US, so
24:35
Speaker 11: they downgraded. Now, as you know, there was a lot
24:38
Speaker 11: of pushback, et cetera. That's another story. But that happened
24:41
Speaker 11: even though a deal had been been done with Obama
24:45
Speaker 11: and you know the other side of the aisle. But
24:49
Speaker 11: so I think, you know, the people are waiting. You know,
24:52
Speaker 11: the outlook is one thing, but a downgrade is another.
24:55
Speaker 11: And I think this thing has to fall apart hard
24:57
Speaker 11: for that to happen. But twenty eleven, you know, Blomberg
25:00
Speaker 11: even did a lot of stories afterwards. It was almost
25:02
Speaker 11: kind of mind spinning that if rates go down, bonds
25:07
Speaker 11: rally after downgrade, does that mean ratings matter? I mean,
25:11
Speaker 11: clearly they do, because you know, they're front and center
25:13
Speaker 11: of people's mind. But it was just kind of weird.
25:17
Speaker 11: You know, I lived through that, and so it didn't
25:19
Speaker 11: kind of go as you would think.
25:23
Speaker 3: And Liz, just to go back to the story here
25:26
Speaker 3: that you have that's so great. I wonder if you
25:29
Speaker 3: can explain to you know, my mom listening to him
25:32
Speaker 3: on this conversation, how this sort of risky trade might
25:37
Speaker 3: impact consumers. Right, is, what is the end impact that
25:42
Speaker 3: this might have on regular, everyday people who aren't on
25:46
Speaker 3: Wall Street.
25:47
Speaker 11: Well, yeah, your mom and my mom isn't particularly, they
25:50
Speaker 11: wouldn't know and they wouldn't be so concerned about this
25:53
Speaker 11: basis trade. But what will concern them is if it's
25:57
Speaker 11: like when SVB went down, my mother, I know pool
26:00
Speaker 11: who that was. Maybe some of us didn't either, but
26:03
Speaker 11: it tightened the total credit conditions of the US economy,
26:07
Speaker 11: the financial system, and that's not good. That may make
26:10
Speaker 11: it you know, harder, you know, to get loans, to
26:13
Speaker 11: be more costly, et cetera. I think with hedge funds
26:15
Speaker 11: in the basis trade, if you have a blow up
26:17
Speaker 11: where funds go under, then that is another kind of
26:22
Speaker 11: like feeling of tightening of conditions and the financial system.
26:25
Speaker 11: It's never good for funds that you know. You might say, oh,
26:28
Speaker 11: that was a rich folks own those hedge funds. It
26:31
Speaker 11: doesn't matter, but it kind of does because they helped
26:33
Speaker 11: grease the wheels of the system. They provide you know,
26:37
Speaker 11: both sides of a trade sometimes, So I think that's
26:40
Speaker 11: where the regular mom and pop make care if they hear, oh,
26:44
Speaker 11: another big firm, I don't know who that is, but
26:47
Speaker 11: collapsed and you know that's not good. And you know,
26:49
Speaker 11: sentiment is a lot of things, you know, for people.
26:52
Speaker 11: So if they're feeling like, well, things are bad, It's
26:54
Speaker 11: like when you hear all the headlines about layoffs, people
26:56
Speaker 11: are like, oh boy, I better watch out and not
26:59
Speaker 11: buy this thing. So I think it might be sentiment.
27:01
Speaker 11: It might be tightening up financial conditions because these folks
27:05
Speaker 11: don't really care about the nuance of the trade.
27:07
Speaker 5: Yeah, bless you Liz McCormick for connecting the Wall Street
27:11
Speaker 5: story with the Main Street story, because it does matter
27:13
Speaker 5: to her point, not just trades in the bond market,
27:16
Speaker 5: in the equity market as well. And I would say
27:17
Speaker 5: every market that is out there, listener the last thirty
27:20
Speaker 5: seconds when we're talking about kind of the unwind, how
27:25
Speaker 5: much does liquidity that we've already seen the last few
27:28
Speaker 5: months matter? Are we kind of set up for the
27:30
Speaker 5: bond market to panic a little bit twenty seconds?
27:35
Speaker 11: Yeah, a loss of liquidity would not be good, and
27:38
Speaker 11: a panic is not good. And you know really quickly
27:41
Speaker 11: if we do get a deal, there's some idiosyncratic things
27:44
Speaker 11: happening with the Treasury having to rebuild their cash buffer
27:47
Speaker 11: selling a lot of bills that's going to siphon liquidity
27:49
Speaker 11: out anyway, So a blow up and basis and less
27:52
Speaker 11: liquidity that would be a mixture that is not ideal.
27:56
Speaker 5: Liz McCormick, our chief markets correspondent, true expert in all
28:01
Speaker 5: things bonds.
28:01
Speaker 1: We thank you as always.
28:04
Speaker 8: You're listening to the team Ken's our live program, Bloomberg
28:07
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg dot Com,
28:11
Speaker 8: the iHeartRadio app and the Bloomberg Business app, or listen
28:14
Speaker 8: on demand wherever you get your podcast.
28:19
Speaker 1: It's get a little bit more on what someone was
28:20
Speaker 1: just talking about.
28:21
Speaker 5: Dana Telsey a true expert here, chief Research Officer and
28:24
Speaker 5: CEO of Telsey Advisory Group. And look, if Paul Sweeney
28:28
Speaker 5: was here, he'd say she is the best in the biz.
28:31
Speaker 5: So I'm gonna say it.
28:31
Speaker 1: She is the best in the biz.
28:33
Speaker 5: Dana, thank you as always for joining us.
28:36
Speaker 1: Let's talk about when the company.
28:37
Speaker 12: Thank you for having me.
28:38
Speaker 5: Of course, the pleasure was there one of the company
28:41
Speaker 5: stories that someone was just talking about the Gap stories
28:44
Speaker 5: really surprising to the ubsite.
28:45
Speaker 1: Give us your take.
28:47
Speaker 12: So my take is that you've had obviously years of
28:50
Speaker 12: week results. Something's going on with the women's business, that
28:54
Speaker 12: women are all of a sudden spending. You heard about
28:56
Speaker 12: that both at the Gap brand, and you also hold
29:00
Speaker 12: about it at the Old Navy brand in terms of
29:02
Speaker 12: the strength and frankly, the cleanliness of the inventory, which
29:06
Speaker 12: frankly was down around twenty seven and a half percent,
29:09
Speaker 12: I think helped. I think it's helping to move the needle.
29:12
Speaker 12: This does not say that the Gap is fixed by
29:14
Speaker 12: any measure, but it says they're on the path of
29:17
Speaker 12: progress and that even though they don't have the CEO,
29:20
Speaker 12: they're not letting grass grow under their feet.
29:23
Speaker 3: Dana, help me understand the bottom line here when it
29:27
Speaker 3: comes to these retail Ooh, I'm sorry.
29:30
Speaker 5: Well good, I'll take We'll take it from here, Dana,
29:34
Speaker 5: talk to us. I think what Maddie was asking specifically
29:36
Speaker 5: about the bottom line when it comes to Gap, and
29:38
Speaker 5: we know they've had their own inventory issues as well
29:42
Speaker 5: and certain partnerships.
29:43
Speaker 1: What's the update there?
29:46
Speaker 12: I'm sorry, Can you just repeat that?
29:47
Speaker 1: Sure?
29:48
Speaker 5: What is the update when it comes to inventory and
29:50
Speaker 5: their partnerships on the bottom line.
29:52
Speaker 1: For a company like.
29:53
Speaker 12: Gap small, the inventory partnerships are first going to get
29:56
Speaker 12: into the fold. You take a look at Mattel, what
30:00
Speaker 12: they're doing the partnership with these are things in order
30:03
Speaker 12: to drive brand relevance and drive brand heat to re
30:05
Speaker 12: engage consumers. I think the inventory management that they're putting
30:09
Speaker 12: in place in order to be closer and chase into
30:13
Speaker 12: goods is really what is beginning to happen. We all
30:16
Speaker 12: know that the headwinds of supply chain disruptions led to
30:19
Speaker 12: over inventory last year that is first being positioned and
30:23
Speaker 12: cleaned out. One of the key themes coming out of
30:25
Speaker 12: retail earning season so far is inventories are coming down
30:29
Speaker 12: and it seems by the second half of the calendar
30:32
Speaker 12: year will be clean with inventory levels in line with
30:35
Speaker 12: sales growth.
30:37
Speaker 3: Dana, sorry about that, we were having some technical issues,
30:40
Speaker 3: but excellent answer there. The other thing I wanted to
30:43
Speaker 3: hear from you is, you know, what is the takeaway
30:46
Speaker 3: from this earning season? After it felt like the Target
30:49
Speaker 3: Walmart story made sense to me. The consumer is struggling,
30:52
Speaker 3: But then we had beats. Like you said, we had
30:54
Speaker 3: an Old Navy doing well, we had Abercrombie doing well Urban.
30:58
Speaker 3: So what am I supposed to think about the health
31:00
Speaker 3: of the consumer When I look at the totality of
31:02
Speaker 3: these retail earnings.
31:04
Speaker 12: I think you have to slice it up into the
31:07
Speaker 12: income levels of the consumer. You have to slice it
31:10
Speaker 12: up into where is the particular company. And I think
31:14
Speaker 12: everyone is working to manage the headwinds of crime and
31:17
Speaker 12: shrink that is out there, the uncertainty of the levels
31:21
Speaker 12: of consumer demand, and the focus on product innovation to
31:25
Speaker 12: drive conversion. I think conversion matters. I think essentials versus discretionary.
31:31
Speaker 12: It hurts me to say that essentials is still winning
31:34
Speaker 12: over discretionary. I can't wait until my world comes back
31:38
Speaker 12: in discretionary. But we're going to need confidence and to
31:41
Speaker 12: stability in the macro to drive discretionary well.
31:45
Speaker 3: On that exact topic area. When it comes to discretionary,
31:49
Speaker 3: some of my sources have told me that they see
31:52
Speaker 3: the dollar continuing to descend because of these debt sealing
31:56
Speaker 3: issues and that that might be good for consumer discretionary.
32:00
Speaker 3: What is your outlook on that.
32:03
Speaker 12: I think overall, for consumer discretionary, I think we're going
32:06
Speaker 12: to get to lapping easier comparisons in the back half.
32:09
Speaker 12: I think investors are going to look by the third
32:12
Speaker 12: quarter out to twenty twenty four and will we be
32:15
Speaker 12: going to begin to see some improvement. I think right now,
32:18
Speaker 12: I think cautiousness is there, and even on the luxury end,
32:22
Speaker 12: there's a moderation to spend. Even though from twenty nineteen
32:26
Speaker 12: to today, luxury brands many of their revenues are up
32:30
Speaker 12: fifty percent plus, but in a year over year basis,
32:34
Speaker 12: you're seeing a moderation.
32:35
Speaker 3: Are you thinking a lot about a dollar impact in
32:38
Speaker 3: that calculation?
32:39
Speaker 12: Though, yes, yes, I am. I think that's something to
32:42
Speaker 12: be mindful of.
32:45
Speaker 5: Dana expand on what you were saying about luxury specifically here,
32:50
Speaker 5: it's largely a lot of the gains have been largely
32:52
Speaker 5: China driven. Correct me if I'm wrong, But what happens
32:55
Speaker 5: when you start to see a Chinese consumer moderate as well?
33:00
Speaker 11: Well?
33:00
Speaker 12: So far, there's the reopening in China is happening, and
33:04
Speaker 12: it's pretty solid for some of the accessories companies. I
33:07
Speaker 12: would say that the tourism track to hear in North
33:10
Speaker 12: America will be the next benefit. We have not seen
33:13
Speaker 12: that so far. We have not heard of moderation in
33:17
Speaker 12: China on the luxury side, it's been more here in
33:20
Speaker 12: North America that we've seen that.
33:23
Speaker 5: And does that make up for the slowdown in the
33:27
Speaker 5: American consumer? What is kind of the tug of war
33:31
Speaker 5: essentially between the American consumer and the Chinese consumer when
33:34
Speaker 5: it comes to read.
33:35
Speaker 12: Through, I think the read through is that the Chinese
33:38
Speaker 12: consumer hasn't been able to go out socially engage. They
33:41
Speaker 12: are a year behind us in re engaging with social
33:43
Speaker 12: occasions and events. Here in North America, the macro headwinds
33:47
Speaker 12: and concerns over debt sealing, stock market volatility, and also
33:52
Speaker 12: the allocation of capital to going out and experiences for
33:56
Speaker 12: this core luxury consumer. At the super high end, mezzas
34:00
Speaker 12: and Chanelle's are still winning and showing big games. I
34:03
Speaker 12: think the others where it can be upper accessible, that's
34:07
Speaker 12: where we've seen some of the moderation.
34:09
Speaker 1: And for when you're.
34:11
Speaker 5: Looking at the opposite end of the spectrum, must take
34:14
Speaker 5: a look at say Walmart, for example, When you look
34:16
Speaker 5: at the stock Dana, it's kind of almost an outperformer
34:20
Speaker 5: in a lot of.
34:20
Speaker 1: These recessionary periods.
34:22
Speaker 5: Do you think that's kind of a worthy stock to
34:25
Speaker 5: look at right now, We've got about let's just say
34:28
Speaker 5: forty five seconds.
34:29
Speaker 12: Yes, I do think so. They're having an investor day
34:32
Speaker 12: next week. It's a worthy stock to look at. They
34:34
Speaker 12: manage inventory as well, and look at the market share
34:37
Speaker 12: opportunities they still have, even as big as they are.
34:41
Speaker 5: Gotcha, Dana Telsey, we think you as always she covers
34:44
Speaker 5: the gambit, but she had on my Paul Sweeny voice
34:47
Speaker 5: here and say she is the best in the biz.
34:49
Speaker 8: You're listening to the tape can't Live program Bloomberg Markets
34:53
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34:56
Speaker 8: in app, Bloomberg dot Com, and the Bloomberg Business app,
35:00
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35:03
Speaker 8: New York station. Just say Alexa, play Bloomberg eleven thirty.
35:08
Speaker 3: Now, just to update everyone who has been keeping a
35:12
Speaker 3: key watch on this indicator, Krety and I are still
35:15
Speaker 3: without rings on our left hands. So we are going
35:18
Speaker 3: to have a great conversation next with birth Gerstein, CEO
35:22
Speaker 3: at Brilliant Earth. We're going to talk about the wedding industry,
35:25
Speaker 3: diamond prices, engagement rings, all those fun things. Just to
35:29
Speaker 3: keep in mind for us creedy moving forward as we
35:31
Speaker 3: as we you know, continue this journey. Hint, hello listener,
35:35
Speaker 3: So let's get to it with Beth. Beth, thank you
35:38
Speaker 3: so much for joining us on this holiday weekend. Just
35:41
Speaker 3: kick us off by giving our audience a quick recap
35:44
Speaker 3: on Brilliant Earth and what you guys do for those
35:46
Speaker 3: not familiar.
35:48
Speaker 10: Great and I'm happy to be here, thanks for having
35:50
Speaker 10: me so. Brilliant Earth is the next generation fine jeweler
35:55
Speaker 10: for today's consumer. We were founded on a mission for
35:59
Speaker 10: sustain ability, transparency and inclusivity, so we've really been driven
36:03
Speaker 10: by mission, our mission from the beginning. We also have
36:07
Speaker 10: a very unique omni channel model, so at this point
36:10
Speaker 10: we have thirty one showrooms. We are a digital first
36:13
Speaker 10: company and we offer a really beautiful wide assortment of
36:20
Speaker 10: engagement rings, wedding rings, and other fine jewelry products for
36:24
Speaker 10: a wide variety of occasions beyond bridle.
36:28
Speaker 5: What are you seeing in terms of the trends there?
36:31
Speaker 5: I mean maybe two three years ago during COVID, it
36:34
Speaker 5: felt like the big trend was pause, wait, like don't
36:38
Speaker 5: get married just yet, postpone your wedding, and then there
36:41
Speaker 5: was this influx of kind of booking some of these things.
36:45
Speaker 1: Beth, where are we now on that?
36:48
Speaker 10: Yeah?
36:48
Speaker 1: Absolutely.
36:49
Speaker 10: So last year was actually one of the biggest years
36:52
Speaker 10: in weddings in decades. There were two point six million
36:55
Speaker 10: weddings in the United States, and I think nineteen eighty
36:58
Speaker 10: five is the last we'd seen such a boom. I
37:01
Speaker 10: think part of that is just with COVID, a lot
37:04
Speaker 10: of people were waiting to have the big day when
37:06
Speaker 10: other people could gather. Obviously there was some disruption in
37:10
Speaker 10: dating and how relationships formed. I think actually that through COVID,
37:15
Speaker 10: it made those relationships tighter, and so you had a
37:17
Speaker 10: lot of engagements as well, And so this year is
37:20
Speaker 10: more of a normalizing year. I think one of the
37:23
Speaker 10: great things about Bridle is it's a very recession resilient.
37:27
Speaker 10: It's very overall resilient category. Like typically there's about two
37:31
Speaker 10: point two million weddings in good times and bad and
37:35
Speaker 10: I think just coming off of these peak years, we're
37:38
Speaker 10: just in a phase where it's normalizing to a more
37:42
Speaker 10: regular time period versus COVID.
37:45
Speaker 3: Talk to me a little bit about your foot traffic.
37:47
Speaker 3: I know that you've expanded your showroom footprint, going from
37:51
Speaker 3: fifteen to thirty locations. But foot traffic is something that
37:55
Speaker 3: I feel the wedding industry can really benefit from because
37:57
Speaker 3: you got to go in person to try on the dress,
37:59
Speaker 3: to try on the engagement rain. What numbers are you
38:02
Speaker 3: seeing and how are you planning to grow them?
38:06
Speaker 10: We think about things actually a little bit differently because
38:09
Speaker 10: we really focus on this omnichannel model.
38:11
Speaker 1: A lot of times.
38:12
Speaker 10: The way that our consumer shops, they start the process online,
38:16
Speaker 10: it's very education driven and then they'll often make an
38:20
Speaker 10: appointment to come into one of our showrooms and then
38:24
Speaker 10: you know, it's very seamless in terms of where they
38:25
Speaker 10: end up purchasing. So foot traffic for us is a
38:29
Speaker 10: little bit different because of that appointment driven model. You know,
38:32
Speaker 10: we're seeing really nice overall traction in terms of people
38:36
Speaker 10: making appointments, in terms of people walking in. We have
38:39
Speaker 10: a variety of different formats, so some of them are
38:41
Speaker 10: upper floor and we've just expanded more into some of
38:44
Speaker 10: those ground floor locations where it's more easy to browse
38:48
Speaker 10: the collection without an appointment and seeing really nice results
38:51
Speaker 10: there as well. So one of the metrics that we
38:54
Speaker 10: look at, for example, is we're really looking at how
38:57
Speaker 10: the metro overall grows, and one of the things that's
38:59
Speaker 10: really exciting for us is after a year period, we
39:03
Speaker 10: see the bookings and the revenue in that metro actually double.
39:07
Speaker 10: So it's more about how we can drive that incrementality
39:11
Speaker 10: and offer a really seamless experience for our customer.
39:15
Speaker 1: Beth.
39:16
Speaker 5: Of of course, you are the CEO and co founder
39:19
Speaker 5: of Brilliant Earth. It is also listed on the nasdeck.
39:21
Speaker 5: By the way, b r LT is your ticker, Beth.
39:25
Speaker 5: A lot of optimism around the wedding industry, trust me,
39:27
Speaker 5: me and Madison. No, the amount of money we are
39:30
Speaker 5: shelling out and just being yes at these weddings are
39:32
Speaker 5: are kind of insane. But that being said, talk to
39:36
Speaker 5: us a little bit about your stock performance here. If
39:38
Speaker 5: you're looking at the last year or so, your shares
39:40
Speaker 5: have really taken a little bit of a hit.
39:42
Speaker 1: What's the stock market missing?
39:45
Speaker 10: Well, I think that you know, one, we think that
39:48
Speaker 10: there's a ton of value in Brilliant Earth, and you know,
39:52
Speaker 10: we're not necessarily concerned with stock performance on any given day.
39:57
Speaker 10: You know that said, we are a profitable company. We've
40:02
Speaker 10: really been able to differentiate with our brand and being
40:06
Speaker 10: the largest single brand independent jeweler in the industry have
40:12
Speaker 10: very strong brand awareness. I think the figure I mentioned
40:16
Speaker 10: in our last earnings call where we were at sixty
40:18
Speaker 10: six percent aided brand awareness, which was a twelve point
40:21
Speaker 10: increase over the same measurement a few years ago. So overall,
40:25
Speaker 10: I think that we're continuing to gain share, we're profitable,
40:30
Speaker 10: we're really differentiating ourselves in a fragmented industry. And yeah,
40:34
Speaker 10: we're I think we were part of the twenty twenty
40:37
Speaker 10: one IPO class. So I think oftentimes, you know, people
40:42
Speaker 10: don't tend to understand our differences versus others. Perhaps that
40:45
Speaker 10: when public that maybe shouldn't have.
40:49
Speaker 3: And when it comes to the interest in specific products
40:54
Speaker 3: that you offer from consumers, can you talk to me
40:58
Speaker 3: about scifically sort of the ethically sourced diamond space and
41:04
Speaker 3: how you're thinking about that and how the demand story
41:07
Speaker 3: for that is going.
41:09
Speaker 10: Yeah, you know, as I mentioned earlier, we really were
41:12
Speaker 10: founded on the belief that the consumer deserves an ethically
41:16
Speaker 10: sourced product for such an emotional purchase that really represents
41:22
Speaker 10: love and commitment.
41:23
Speaker 1: It was so important that.
41:24
Speaker 10: We could trace the source that we were really transparent
41:28
Speaker 10: about the offering that we had. We are really focused
41:31
Speaker 10: on giving back. We have a brilliantarre foundation that gives
41:35
Speaker 10: back to a lot of projects within mining and responsible
41:38
Speaker 10: sourcing as well as climate change, and this resonates with
41:42
Speaker 10: the younger consumer. I feel like sustainability, transparency or table stakes,
41:46
Speaker 10: but customers, I think really appreciate buying from brands that
41:51
Speaker 10: they believe in and that come across as authentic to.
41:54
Speaker 1: Who they are.
41:55
Speaker 10: And so that's what we've been about from the beginning.
41:58
Speaker 10: And you know, we talk about this in a really
42:01
Speaker 10: open way and I think our customers appreciate it. So
42:05
Speaker 10: one of the things that we offer we have a
42:07
Speaker 10: really nice selection of sustainably rated lab diamonds. We have
42:10
Speaker 10: a really great selection of blockchain enabled diamonds. So we're
42:13
Speaker 10: constantly investing in the technology and the underpinnings to show
42:18
Speaker 10: to our customer.
42:19
Speaker 11: So this is.
42:19
Speaker 1: Very blockchain enabled diamonds.
42:22
Speaker 10: I did, Yeah, we're using blockchain. We're using blockchain to
42:27
Speaker 10: be able to really showcase the journey of a diamond
42:30
Speaker 10: to a consumer, so you can understand the manufacturing practices.
42:34
Speaker 10: You can understand everything from the rough carrot weight and
42:37
Speaker 10: looking at a video of the rough diamond from when
42:40
Speaker 10: it's unearthed from the mind. So, I think it's just
42:44
Speaker 10: the technology is quite frankly, it's really state of the art,
42:48
Speaker 10: and it shows that we're really investing in transparency and
42:51
Speaker 10: traceability along the way for the consumer.
42:55
Speaker 5: All Right, we'll certainly have to have you back on
42:57
Speaker 5: to talk a little bit more about the updates there
42:59
Speaker 5: they're seeing in the blockchain space. Bet Gerstein, the CEO
43:01
Speaker 5: and co founder of Brilliant Earth, training on the Nasdaq
43:05
Speaker 5: with the ticker br l T. We thank you, as
43:08
Speaker 5: always for your time.
43:12
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
43:15
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
43:19
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
43:22
Speaker 2: at Matt Miller nineteen seventy three.
43:25
Speaker 11: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.
43:27
Speaker 2: Before the podcast, you can always catch us worldwide at
43:30
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