Latest / Bloomberg Intelligence / Fed Won't Have Your Back, Salient's Hunt Says

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Fed Won't Have Your Back, Salient's Hunt Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 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 m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well,
• 0:32
  Speaker 1: what's real about this market is that many investors have
• 0:36
  Speaker 1: really neglected to get in on the advance in share prices.
• 0:40
  Speaker 1: But here to tell us perhaps why is Ben Hunt.
• 0:43
  Speaker 1: He is the chief investment strategist for Salient and they're
• 0:46
  Speaker 1: based in Houston, but he joins us here in our studio.
• 0:49
  Speaker 1: Thanks very much for being here. Been great to be here,
• 0:51
  Speaker 1: Thanks for having me. Maybe you can sort of unpack
• 0:54
  Speaker 1: my very short description of what is going on. This
• 0:57
  Speaker 1: is a rally in stocks, dows at a record today
• 1:01
  Speaker 1: SMP two. Uh. No one likes this rally somehow? What? Why?
• 1:06
  Speaker 1: Why is that there's no feeling of exuberance? Is there? No,
• 1:09
  Speaker 1: there's no feeling of exuberance, And I'll tell you why.
• 1:11
  Speaker 1: It's It would be as if you had a housing
• 1:15
  Speaker 1: market that was just going gangbusters. And an all time
• 1:20
  Speaker 1: high and housing prices and housing activity, and yet real
• 1:23
  Speaker 1: estate agents were having a miserable time. But that's the
• 1:26
  Speaker 1: situation we have now because we have the markets at
• 1:29
  Speaker 1: all time highs. And yet and yet anyone who's been
• 1:33
  Speaker 1: in this business for really more than a nanosecond doesn't
• 1:36
  Speaker 1: trust it. They don't like it. Why not because it
• 1:39
  Speaker 1: doesn't depend on fundamental factors, right, The plain truth of
• 1:43
  Speaker 1: the matter is that fundamentals right, what what I'll call
• 1:47
  Speaker 1: stock picking, buying good stuff and avoiding the bad stuff.
• 1:51
  Speaker 1: That hasn't worked for eight years. It hasn't worked since
• 1:54
  Speaker 1: March of two thousand and nine, when the when the Feds.
• 1:58
  Speaker 1: When you say it hasn't worked, and what has it
• 2:00
  Speaker 1: not worked? I mean because you think about companies like Facebook, like, uh,
• 2:05
  Speaker 1: you know, I pick a Microsoft for example. I mean,
• 2:08
  Speaker 1: there are companies that have returned. But no, No, My
• 2:12
  Speaker 1: point is that everything is up right. So the SNP
• 2:16
  Speaker 1: has tripled over the last eight years. But if you
• 2:19
  Speaker 1: look at you know, you can the bad with the good,
• 2:22
  Speaker 1: the bad with the good, right, because this this massive
• 2:25
  Speaker 1: amount of buying that's been going on right right now,
• 2:28
  Speaker 1: Exchange traded funds that are typically packed with not just
• 2:31
  Speaker 1: one stock obviously. Well, well, well that's true. Let me
• 2:33
  Speaker 1: let me let me come back on the whole et
• 2:35
  Speaker 1: F question, because they're there there. I think there are
• 2:37
  Speaker 1: two main factors here that make this such an unloved market.
• 2:42
  Speaker 1: And it's an unloved market by stock pickers because against
• 2:46
  Speaker 1: stock picking hasn't worked. Trying to pick the good from
• 2:48
  Speaker 1: the bad on what we've all been trained to believe
• 2:51
  Speaker 1: should be the deciding factors between the good and the bad.
• 2:55
  Speaker 1: That hasn't worked right. It used to work, It really
• 2:58
  Speaker 1: did right, So you can look at all these actors
• 3:00
  Speaker 1: like quality and value and the like. It it was
• 3:03
  Speaker 1: able to you were able to to to pick one
• 3:06
  Speaker 1: set of stocks avoid another set of stocks. That doesn't
• 3:09
  Speaker 1: work when everything goes up together. And that's been that
• 3:12
  Speaker 1: rising tide that lifts all boats. That's come from this
• 3:15
  Speaker 1: massive wall of money that central banks have plunged into markets.
• 3:19
  Speaker 1: About fourteen trillion dollars that's how much the central bank
• 3:24
  Speaker 1: balance sheets are today, and they're adding about two trillion
• 3:27
  Speaker 1: dollars a year, so it's it's a massive amount of
• 3:30
  Speaker 1: money now. But here's the thing. Something changed last Wednesday
• 3:34
  Speaker 1: with the fat announcement. What what we're really seeing is
• 3:38
  Speaker 1: that the FED is changing and I'll use a ten
• 3:40
  Speaker 1: dollar word, their reaction function. And basically what that means
• 3:44
  Speaker 1: is the FED going forward. I don't think they're going
• 3:46
  Speaker 1: to be your best friend like they have been for
• 3:48
  Speaker 1: the past eight years. What leads you to believe that
• 3:52
  Speaker 1: just because they might raise rates what two maybe three times? Well,
• 3:55
  Speaker 1: it's it's it's a it's a whole different, uh way
• 3:58
  Speaker 1: of looking at the world. And that's what I mean
• 4:00
  Speaker 1: by this, this this economist phrase, right, reaction function? What what?
• 4:04
  Speaker 1: What does that mean? It means that what sort of
• 4:07
  Speaker 1: data is the FED looking at? What do they say
• 4:10
  Speaker 1: that they're looking at, and how do they react that
• 4:12
  Speaker 1: new data? So what we've had so far this year
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  Speaker 1: is actually pretty not so good data from what they
• 4:19
  Speaker 1: typically look at, things like inflation, things like industrial production,
• 4:25
  Speaker 1: all those have been pretty pretty not so good. Right,
• 4:28
  Speaker 1: Employment is good though, This is the thing, and this
• 4:31
  Speaker 1: is this is the shift, Right, So the shift is
• 4:33
  Speaker 1: now really focused on the unemployment rate. The shift is
• 4:37
  Speaker 1: really focused on the potential for wage inflation. And so
• 4:41
  Speaker 1: this is why the FED gave a very hawkish talk,
• 4:46
  Speaker 1: uh not just in what they announced, but then in
• 4:48
  Speaker 1: the press conference afterwards. So what what I'm saying is
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  Speaker 1: that this this, this pattern that we've been so well
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  Speaker 1: trained to respond to over the last eight years, of
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  Speaker 1: the FED and the other Central b is doing more
• 5:00
  Speaker 1: and more and more, that pattern shifts has shifted, and
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  Speaker 1: it's it's look, this this is what always so how
• 5:09
  Speaker 1: and I want to give you the time to do this.
• 5:11
  Speaker 1: It explained how investors should shift their thinking in order
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  Speaker 1: to accommodate this situation well to to respects. The first
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  Speaker 1: is that that the FED is not going to have
• 5:20
  Speaker 1: your back anymore in the way that it has. So
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  Speaker 1: what we've we've been really well trained over the last
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  Speaker 1: eight years, and whenever there's some sort of scary moment,
• 5:31
  Speaker 1: right then the response has always been, oh, the FED
• 5:33
  Speaker 1: will do more, they'll buy more, they will lower interest rates.
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  Speaker 1: If it's not here, maybe it's the ECB. So I'm
• 5:42
  Speaker 1: saying that's changed. What's the second thing? Give you thirty
• 5:45
  Speaker 1: seconds there. So the second thing is this, when everything
• 5:49
  Speaker 1: was going up together, stock picking, active management didn't matter, right,
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  Speaker 1: and so that's why you saw all this money go
• 5:57
  Speaker 1: away from i'll call ittively managed mutual funds into e
• 6:02
  Speaker 1: t s and the like, because it really didn't matter.
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  Speaker 1: When this rolls over with the the fat not being
• 6:08
  Speaker 1: your best friend, it matters again, and it's just at
• 6:11
  Speaker 1: the moment of maximum capitulation both by practitioners and investors
• 6:16
  Speaker 1: here in this market. I want to thank you very
• 6:18
  Speaker 1: much for your insight. Very interesting. Ben Hunt is the
• 6:21
  Speaker 1: chief investment strategist for Salient. They are based in Houston, Texas,
• 6:27
  Speaker 1: and you can follow a Ben on Twitter at epsilon
• 6:31
  Speaker 1: Theory and you'll be able to find out exactly all
• 6:35
  Speaker 1: the details about how that theory is put together and
• 6:37
  Speaker 1: how it applies to professional investing. Well done, Thanks very much,
• 6:41
  Speaker 1: Ben Hunt. I want to bring in Stephen Gandal. He
• 6:55
  Speaker 1: is a columnist for Bloomberg gad fly covering equity markets.
• 7:00
  Speaker 1: He can be followed on Twitter at Stephen Gandal g
• 7:03
  Speaker 1: A M. D. E. L. Alright, so tell us, Mr
• 7:06
  Speaker 1: gad flyer, what about this deal that Amazon taking over
• 7:10
  Speaker 1: the Whole Foods. What effect do you believe that that
• 7:15
  Speaker 1: has on the grocery store industry? But I want you
• 7:19
  Speaker 1: to see if you can connect that with this initial
• 7:21
  Speaker 1: public offering that we've been speaking about Blue Apron, which
• 7:25
  Speaker 1: is the prepared recipe, base delivery, cook at home food business.
• 7:31
  Speaker 1: So clearly market thinks it's gonna have a lot of
• 7:33
  Speaker 1: effect on the grocery business. All the stocks fell uh
• 7:38
  Speaker 1: if you look at it, and and and so some
• 7:40
  Speaker 1: people use that to bridge to say that maybe the
• 7:43
  Speaker 1: government's gonna look at this anti trust if if investors
• 7:46
  Speaker 1: are so worried about Kroger's and Safe Supervalue and some
• 7:49
  Speaker 1: of the other ones. But I don't think that's really case.
• 7:51
  Speaker 1: It's very It's relatively small. The the in terms of
• 7:54
  Speaker 1: sixteen billion. I think in terms of sales uh food
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  Speaker 1: food right right have eight hundred billion in the grocery
• 8:01
  Speaker 1: business and billion for Amazon at a twollions for Amazon.
• 8:06
  Speaker 1: But Amazon has eight billion in the in the grocery business.
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  Speaker 1: So it's still small. It's a bigger portion of the
• 8:11
  Speaker 1: online grocery online business. But because that's because you have
• 8:16
  Speaker 1: to if you broadly define what Amazon, because Amazon sells
• 8:20
  Speaker 1: everything online. If you say everything that could show up
• 8:22
  Speaker 1: in a grocery store, called that Amazon's online grocery business,
• 8:25
  Speaker 1: that's a lot of stuff that maybe isn't they've never
• 8:28
  Speaker 1: really thought of. It's not Amazon Fresh, they've really ever
• 8:30
  Speaker 1: thought of that as kind of grocery delivery. So but
• 8:33
  Speaker 1: clearly the the market is concerned about that. I'm not
• 8:36
  Speaker 1: sure how concerned they should be about in what way
• 8:40
  Speaker 1: the stocks all felt, I mean the competing groceries, the
• 8:44
  Speaker 1: competing grocer stores right, a little bit up today, but okay, yeah,
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  Speaker 1: a little rebound on let's say Krogra for example, right exactly.
• 8:49
  Speaker 1: So for for Blue Apron, this comes at a very
• 8:53
  Speaker 1: bad time, right, because they're trying to price their I
• 8:55
  Speaker 1: p O. You can imagine that Whole Foods would do
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  Speaker 1: a service of whole meals where a customers would get
• 9:01
  Speaker 1: free delivery, and that is uh and and also Whole
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  Speaker 1: Foods is seen as a premium fresh food brand. So
• 9:08
  Speaker 1: you can see there's a big negative for for Blue Apron.
• 9:12
  Speaker 1: I keep thinking of one word, and I don't know
• 9:14
  Speaker 1: whether it should be one word, but it's called peepot.
• 9:17
  Speaker 1: Remember peepod. Yeah, well, originally it was a victim of
• 9:22
  Speaker 1: the dot com bust. There was an operation that was
• 9:25
  Speaker 1: designed to deliver food to your home in just this manner.
• 9:29
  Speaker 1: And well I think peopot still around. There was a
• 9:32
  Speaker 1: web in well they have a new a new version
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  Speaker 1: of anyway, The point being that what has changed in
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  Speaker 1: the food preparation and delivery business that makes this a
• 9:40
  Speaker 1: good business now, whereas let's say, seventeen years ago, it
• 9:44
  Speaker 1: wasn't such a good business. I'm not sure. I mean
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  Speaker 1: Amazon was first of all, Whole Foods did not think
• 9:50
  Speaker 1: this was a good business. They weren't in it. They
• 9:52
  Speaker 1: partnered with instant Cart, so they said, you know, we'll
• 9:55
  Speaker 1: let someone else kind of do this part of the busines.
• 9:56
  Speaker 1: Instat Cart is a delivery another delivery service that it
• 10:00
  Speaker 1: or two uh Amazon Fresh or what people think Amazon's
• 10:05
  Speaker 1: gonna do with Whole Foods. So hope it said they
• 10:06
  Speaker 1: didn't really want to be in this business and and
• 10:09
  Speaker 1: Amazon had trouble getting into it. I mean they they
• 10:12
  Speaker 1: they have kind of dabbled in it for a few
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  Speaker 1: years and then kind of decided, I guess with this
• 10:16
  Speaker 1: that couldn't do it on their own. Blue Apron has
• 10:19
  Speaker 1: made the case of this is a really good business,
• 10:22
  Speaker 1: but they haven't really shown that it can be. I mean,
• 10:24
  Speaker 1: the idea with the commerces that it can bend the
• 10:26
  Speaker 1: cost structure, right, you don't have to have stores, you
• 10:29
  Speaker 1: have to distribution. We've done in their short stories. You
• 10:31
  Speaker 1: can be a lot more profitable. But that doesn't really
• 10:33
  Speaker 1: the case in in groceries because the inventor you have
• 10:36
  Speaker 1: goes bad. Right, the main problem with the grocery store
• 10:39
  Speaker 1: is that your food is always spoiling. And and Amazon
• 10:43
  Speaker 1: or Blue Apron sorry, hasn't been able to show that
• 10:45
  Speaker 1: they can hold lower inventory than their traditional grocer. Right.
• 10:50
  Speaker 1: Their inventory is going up, has been going up, it
• 10:52
  Speaker 1: hasn't been as a presentage of and spoilage costs have
• 10:55
  Speaker 1: been going up. So it's not clear that, uh, when
• 11:00
  Speaker 1: it comes to grocery business, the e commerce is really
• 11:02
  Speaker 1: a better business model. So having said that, what makes
• 11:07
  Speaker 1: Amazon dot Com think? Do you believe that this is
• 11:11
  Speaker 1: a growth business or is it just to take more
• 11:13
  Speaker 1: market share? And then you know, you'll read a recipe
• 11:16
  Speaker 1: in the Washington Post, which is owned by Jeff Bezos,
• 11:19
  Speaker 1: and you'll be able to order it through some app
• 11:23
  Speaker 1: that will automatically connect you with content. I mean, all
• 11:26
  Speaker 1: these marketing options, right, I Mean, one thing you could
• 11:29
  Speaker 1: say is just this is a bigger test. You know,
• 11:32
  Speaker 1: He's it's not much money for Amazon, as you said that,
• 11:35
  Speaker 1: in terms of the market kept, it's not very big.
• 11:37
  Speaker 1: So they're just they're doing another test. They tried with
• 11:40
  Speaker 1: on their own for a test. This is a bigger one.
• 11:42
  Speaker 1: So that's one way to look at the other way
• 11:44
  Speaker 1: look at it, I would think is the play is
• 11:45
  Speaker 1: that Amazon just wants to be more and more part
• 11:47
  Speaker 1: of your life. Right you wake up? I wake up
• 11:49
  Speaker 1: every morning and say Alexa, good morning. Right, And so
• 11:52
  Speaker 1: if I'm getting my groceries from Amazon to even if
• 11:55
  Speaker 1: it's not producing a lot of profits for them, you
• 11:57
  Speaker 1: can see how they want to continue to integrate and
• 12:00
  Speaker 1: is on into your daily life. And if you get
• 12:02
  Speaker 1: your food from Amazon, that's a big part of it.
• 12:04
  Speaker 1: Do you think that there's a greater risk of a
• 12:06
  Speaker 1: food delivery company versus a restaurant company? And I'm thinking
• 12:11
  Speaker 1: about the food scare that took place with Chipultle over
• 12:15
  Speaker 1: the last couple of years and how that really knocked
• 12:17
  Speaker 1: their stock and caused the whole bunch of problems for
• 12:20
  Speaker 1: the company that they are still struggling with. I think
• 12:23
  Speaker 1: whenever you're trying to do fresh on a mass scale,
• 12:27
  Speaker 1: uh and again Blue Apron, if you look at them,
• 12:30
  Speaker 1: they've had inventory issues, problems trying to get the food
• 12:33
  Speaker 1: fast enough to um consumers before it spoils. I think
• 12:37
  Speaker 1: you're you're you're going to run into this problem the
• 12:39
  Speaker 1: same way Bold they ran into the problem. So yeah,
• 12:40
  Speaker 1: I think it's an issue, and I think if you again,
• 12:44
  Speaker 1: the Amazon deal for Whole Foods comes at a bad
• 12:46
  Speaker 1: time for the Blue Apron because Blue Apron, it's supposed
• 12:51
  Speaker 1: to have a higher profit margins, so they're they're multiple
• 12:53
  Speaker 1: is supposed to be a premium, but they have about
• 12:56
  Speaker 1: the same profit margins as Whole Foods, and Amazon's only
• 12:59
  Speaker 1: paying is paying like a little bit less than one
• 13:01
  Speaker 1: time sales. Blue Apron today announcing their I p O.
• 13:04
  Speaker 1: They want to go in about four times sales right
• 13:06
  Speaker 1: that they really have to uh and some of that
• 13:09
  Speaker 1: because the Blue Aprons construct uh sorry growth, but they
• 13:13
  Speaker 1: really have to ben that cross structure and show they can,
• 13:14
  Speaker 1: which they haven't to say that we're worth four times
• 13:17
  Speaker 1: whereas Whole Foods only with less than one. But I'm
• 13:21
  Speaker 1: just wondering if you there's a Devil's Advocate position to take,
• 13:23
  Speaker 1: which is that this is actually a good thing for
• 13:25
  Speaker 1: Blue Apron because it confirms that there is big money
• 13:29
  Speaker 1: behind the food delivery business, and Whole Foods of course
• 13:34
  Speaker 1: comes with its store footprint, which something that blue Apron
• 13:37
  Speaker 1: doesn't have is either a plus or a minus. I
• 13:40
  Speaker 1: agree there is some validation to it, but there's validation
• 13:43
  Speaker 1: at a quarter of the price, and with that validation
• 13:46
  Speaker 1: comes a very big competitor after you. Yeah, and just
• 13:50
  Speaker 1: want to have you tried any of these home delivery
• 13:53
  Speaker 1: fresh Direct in New York. I sort of like it
• 13:57
  Speaker 1: in a lot of boxes, like so, so you lose
• 14:00
  Speaker 1: is the time of shopping at the store, but you
• 14:03
  Speaker 1: um or you don't have that time, but you do
• 14:05
  Speaker 1: have the time of cutting up boxes and uh, at
• 14:08
  Speaker 1: least in New York City, uh, tying together so you
• 14:10
  Speaker 1: can get the guardsman to take them away. Well, well done,
• 14:14
  Speaker 1: thank you, and good for you for being so uh
• 14:17
  Speaker 1: environmentally conscious. Thanks very much. Stephen again del He is
• 14:21
  Speaker 1: a columnist covering equity markets for Bloomberg Gadfly. Go ahead
• 14:24
  Speaker 1: and follow him on Twitter at Stephen Gandal g A
• 14:28
  Speaker 1: N D E L. I want to bring in Alex Brinka,
• 14:43
  Speaker 1: our initial public offerings reporter, to sort of add into this,
• 14:46
  Speaker 1: because you're not necessarily going to take a company that
• 14:49
  Speaker 1: is losing money. I think it's doing about seven dred
• 14:51
  Speaker 1: and eighty million in revenue. Uh, this is a food
• 14:55
  Speaker 1: delivery home preparation company called Blue Apron scoring public alex
• 15:01
  Speaker 1: A pleasure tell us what you know about this I
• 15:03
  Speaker 1: p O. I think it's gonna They said, what five
• 15:06
  Speaker 1: seven million, including the overlap montunder writers, right, so right
• 15:10
  Speaker 1: now they're marketing slower, They're they're marketing sorry you know,
• 15:14
  Speaker 1: I mean, I'm in the weeks that I relate, I
• 15:16
  Speaker 1: get excited pim um. They're marketing thirty million shares um
• 15:20
  Speaker 1: for fifteen dollars to seventeen dollars each. That's according to
• 15:24
  Speaker 1: the filing that they updated us when they filed this morning,
• 15:27
  Speaker 1: basically announcing to the world that they're going on the
• 15:29
  Speaker 1: road show for this I p O. Interesting timing though,
• 15:33
  Speaker 1: and not necessarily Blue Apron's fault. So they they operate
• 15:37
  Speaker 1: in the food delivery industry. As you said, they send
• 15:41
  Speaker 1: boxes Amazon exactly. You know where I'm getting Amazon Amazon,
• 15:45
  Speaker 1: Amazon exactly. So they send food and you remember last
• 15:49
  Speaker 1: week Amazon agreed to buy Whole Foods for about fourteen
• 15:52
  Speaker 1: billion dollars. So that kind of big looming specter over
• 15:56
  Speaker 1: this whole grocery industry is out of the control all
• 16:00
  Speaker 1: of Blue Apron. They've got to get this deal done.
• 16:02
  Speaker 1: But you know that happened just last week. Now they're
• 16:04
  Speaker 1: going to have to go out in front of investors
• 16:06
  Speaker 1: for the next two weeks and answer questions about the industry,
• 16:10
  Speaker 1: about where their competitive edge is, and you've got to
• 16:14
  Speaker 1: think a lot of those questions are going to include
• 16:16
  Speaker 1: that word Amazon. I'm wondering if you could just speak
• 16:18
  Speaker 1: a little bit about the people or about some of
• 16:20
  Speaker 1: the details of the company, because I was reading the
• 16:22
  Speaker 1: s one and these are very accomplished executives who are
• 16:26
  Speaker 1: running it the albeit many of them in their thirties
• 16:29
  Speaker 1: and forties. It is a young company. It's a New
• 16:32
  Speaker 1: York based company. UM. It was founded by Matt Salzburg.
• 16:36
  Speaker 1: He used to work at Bessemer Venture Partners in exactly,
• 16:40
  Speaker 1: and it's one of the early investors in Blue Apron
• 16:43
  Speaker 1: as well. UM. He's been around the block for a
• 16:44
  Speaker 1: while UM in the tech kind of startup space. He
• 16:48
  Speaker 1: also worked for Blackstone. The CFO came from under Armor
• 16:53
  Speaker 1: UM where he was of the VP of account exactly
• 16:57
  Speaker 1: Bradley Dickerson. So they there is some big name experience here. Again,
• 17:02
  Speaker 1: the constant question is going to be for a lot
• 17:04
  Speaker 1: of these companies, this one will only be valued at
• 17:07
  Speaker 1: three point two billion dollars if it sells its shares
• 17:10
  Speaker 1: at the high end of that range compared to you know,
• 17:13
  Speaker 1: the giants out there. The question will continue to be
• 17:15
  Speaker 1: in this space. It's an eight hundred billion dollar grocery market.
• 17:20
  Speaker 1: How what's the market? What's your target audience for getting
• 17:23
  Speaker 1: these home kits delivered to you? Is that enough? Is
• 17:27
  Speaker 1: there growth? There? Is that enough? Well in the S
• 17:30
  Speaker 1: one and DA if you can even come in on this,
• 17:31
  Speaker 1: you know, looking at the charts that they show that
• 17:33
  Speaker 1: are going to be part of the road show, it
• 17:35
  Speaker 1: has you know, a nice big bar chart that shows
• 17:37
  Speaker 1: that the biggest demographic is the youngest age group cohort
• 17:41
  Speaker 1: and that I think something like or the total customer
• 17:46
  Speaker 1: base is made up of these young people and maybe
• 17:48
  Speaker 1: they just don't know how to cook. And that's you know,
• 17:51
  Speaker 1: that's the book case and that's what they're pitching, and
• 17:52
  Speaker 1: that will be so important for these deals for these
• 17:55
  Speaker 1: companies that are losing a lot of money. Investors want
• 17:57
  Speaker 1: to know where is the growth? Why do I trust
• 17:59
  Speaker 1: my money with you at this young age? Where is
• 18:02
  Speaker 1: the growth going to be? They say? Blue Aprin says,
• 18:04
  Speaker 1: they only address less than one percent of the total
• 18:06
  Speaker 1: addressable market for customers in the US, so you can
• 18:10
  Speaker 1: see there that there is room for improvement. But the
• 18:13
  Speaker 1: bear case, I still got to say those millennials, I'm
• 18:17
  Speaker 1: of the category we're still buying on Amazon. I was
• 18:19
  Speaker 1: going to ask you have you had a Blue Apron
• 18:22
  Speaker 1: I have. I've tried to be a good reporter. I've
• 18:24
  Speaker 1: tried Blue Aprin. I've tried sun Basket, which is another
• 18:26
  Speaker 1: company that, according to our sources, has hired underwriters for
• 18:30
  Speaker 1: a potential I p O moving to go public. So
• 18:33
  Speaker 1: you can see there are some copycats here. So competition
• 18:36
  Speaker 1: is going to be the key word thinking copycats uber
• 18:38
  Speaker 1: left Gee, it's an interesting tech economy. Thank you very much,
• 18:42
  Speaker 1: Alex Brinka, our initial public offerings reporter, and you'll be
• 18:45
  Speaker 1: following Blue Apron Force and Dave Wilson Bloomberg Stocks. Colmus,
• 18:48
  Speaker 1: thank you very much. Let's turn our attention now to
• 19:01
  Speaker 1: banks and the potential payout of thirty billion dollars here
• 19:05
  Speaker 1: to tell us more as our senior writer for Banking
• 19:07
  Speaker 1: and Finance, y'am an owner on for Bloomberg News. Yeahm
• 19:10
  Speaker 1: and always a pleasure to see you. Thirty billion dollars.
• 19:13
  Speaker 1: That's Um, that's real money, isn't it. Yes, it is?
• 19:16
  Speaker 1: And where does it come from? And where can it go?
• 19:18
  Speaker 1: I mean it's not new money. It's not more money
• 19:21
  Speaker 1: that that the banks are going to make as profits.
• 19:24
  Speaker 1: But it's the money that they will be able to
• 19:28
  Speaker 1: uh distribute to their shareholders in addition to what what
• 19:32
  Speaker 1: they did last year. So this is just an increase
• 19:34
  Speaker 1: individends and buy backs. And that's crucial for shareholders of
• 19:38
  Speaker 1: banks because, um, you know, many years after the crisis,
• 19:42
  Speaker 1: they really were so stingy. The banks were stingy. They
• 19:45
  Speaker 1: had to be stingy. The regulators didn't really let them
• 19:47
  Speaker 1: distribute any of the money they kept holding onto them
• 19:50
  Speaker 1: and improving their capital levels. Now finally those payouts are
• 19:55
  Speaker 1: slowly inching up. We'll tell us about Stephen Manuch in
• 19:59
  Speaker 1: the Treasury secret terry and his role in this topic. Um,
• 20:03
  Speaker 1: you know that this sort of the easing of the
• 20:06
  Speaker 1: stress test where where this you know, this is why
• 20:08
  Speaker 1: some some of the banks are increasing their payouts. It
• 20:11
  Speaker 1: sort of predates Trump and munition things. Things started happening
• 20:15
  Speaker 1: even last year because partly because banks have managed to
• 20:18
  Speaker 1: increase their capital levels over the years, so it's not
• 20:21
  Speaker 1: as bad as it used to be uh, and regulators
• 20:23
  Speaker 1: have have sort of eased up on them. But munition
• 20:26
  Speaker 1: under Trump's executive order is reviewing all the all the
• 20:30
  Speaker 1: bank regulations and and in his recommendations that came out
• 20:33
  Speaker 1: last week, he suggested that they should get even you know,
• 20:37
  Speaker 1: easier on the banks during the stress tests and and
• 20:40
  Speaker 1: make them ever two years you know, dropped the qualitative
• 20:44
  Speaker 1: uh portion of it, which is very tough. So so
• 20:47
  Speaker 1: going forward under regulators approved appointed by Trump, things are
• 20:53
  Speaker 1: probably gonna get even better for the banks. Now. The
• 20:55
  Speaker 1: regulators that actually administer these stress tests they from the
• 21:00
  Speaker 1: Federal Reserve. Yes, this is a federal reserve institution. It
• 21:04
  Speaker 1: has become. They started in two thousand nine. Um. I
• 21:08
  Speaker 1: mean it was very much hand in hand um with
• 21:11
  Speaker 1: the government at the time who wanted to to restore
• 21:14
  Speaker 1: confidence in the US banking system. Um. But then it
• 21:17
  Speaker 1: became a big, big federal reserve institution and um. Dan Trullo,
• 21:23
  Speaker 1: who was in charge of regulation at the Federal Reserve
• 21:27
  Speaker 1: was a big proponent of this and and led this
• 21:29
  Speaker 1: effort for years. So he is out. Um. There will
• 21:32
  Speaker 1: be new people appointed by Trump to the Fed Um,
• 21:36
  Speaker 1: so if those people are are more industry friendly, you know,
• 21:40
  Speaker 1: this could get even easier. When you say get even easier,
• 21:44
  Speaker 1: you mean to actually change the terms of the stress test.
• 21:46
  Speaker 1: For example, have it done every other year for example?
• 21:50
  Speaker 1: That is one way and um other ways are um.
• 21:53
  Speaker 1: You know, banks have complained a lot about how untransparent
• 21:58
  Speaker 1: some portions of this. In other words, that you know
• 22:01
  Speaker 1: everybody does their own stress test. They say, okay, if
• 22:04
  Speaker 1: there was a big crisis financial economic meltdown, how would
• 22:08
  Speaker 1: be fair? And then the FED takes those and then
• 22:11
  Speaker 1: runs its own calculations using its own secret models. They
• 22:14
  Speaker 1: don't tell anyone, and and the banks keep saying, we
• 22:17
  Speaker 1: never know what you're really looking at, and so more transparency,
• 22:22
  Speaker 1: for example, that the Fed starts giving about these things,
• 22:24
  Speaker 1: the banks would like that. Well, one thing that we
• 22:27
  Speaker 1: know that is transparent is that if you have two
• 22:29
  Speaker 1: hundred and fifty billion dollars in assets or less, you
• 22:33
  Speaker 1: can be exempt from this from parts of it, I
• 22:36
  Speaker 1: mean the qualitative section that that I mentioned. The qualitative
• 22:39
  Speaker 1: section is where not only the numbers, but they looked
• 22:44
  Speaker 1: at every risk management tool that the bank's had and
• 22:47
  Speaker 1: really cracked down on them, on on small little things
• 22:50
  Speaker 1: that they found lacking, which again the banks hated. Uh
• 22:54
  Speaker 1: dotcha banks. Trust Bank, which is a very small subsidiary
• 22:58
  Speaker 1: in the US, kept failing that portion for a few years. Um,
• 23:01
  Speaker 1: they're not going to be in it this year. But
• 23:03
  Speaker 1: Dortche Bank and other big European banks are gonna be
• 23:07
  Speaker 1: um consolidated. I mean they have consultated all their US
• 23:10
  Speaker 1: operations under one roof according to other federals. And so
• 23:14
  Speaker 1: those big consolidated entities in the US will actually come
• 23:18
  Speaker 1: under the stress test next year. So it will be
• 23:20
  Speaker 1: tough for them again. So they will be under the
• 23:22
  Speaker 1: spotlight once more. Um, and and they might then we
• 23:25
  Speaker 1: might see failures there next year. UM. But still as
• 23:29
  Speaker 1: we go forward, you know these things are not gonna
• 23:31
  Speaker 1: miss harsh. There will be more transparency and the banks
• 23:35
  Speaker 1: will probably know better how to deal with them or
• 23:39
  Speaker 1: game them. Well. Thanks very much, I know you're gonna
• 23:42
  Speaker 1: be watching both of those potential scenarios, y'all. I'm an
• 23:44
  Speaker 1: owner on senior writer Banking and Finance for Bloomberg News,
• 23:48
  Speaker 1: speaking about less stressful tests how thirty billion dollars could
• 23:52
  Speaker 1: be unlocked for bank shareholders. Thanks for listening to the
• 23:58
  Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
• 24:01
  Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform
• 24:05
  Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox.
• 24:09
  Speaker 1: I'm on Twitter at Lisa Abramo wits one. Before the podcast,
• 24:13
  Speaker 1: you can always catch us worldwide on Bloomberg Radio