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Earnings, Mergers, Buy American, and Formula 1 · 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.
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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
0:17
Speaker 1: you listen to podcasts, and at Bloomberg dot com Slash
0:20
Speaker 1: podcast To switch skiers and go to the big banks.
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Speaker 1: Allison Williams Bloomberg Intelligence. She's been founding these big banks
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Speaker 1: for a long time. She's got an informed opinion. So, Allison,
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Speaker 1: we've heard from some of the big ones here, what's
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Speaker 1: kind of the takeaway? I mean, I know business trends
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Speaker 1: are tough there from investment banking and so on and
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Speaker 1: so forth, but is trading enough and is wealth management
0:41
Speaker 1: enough to get these big firms through to better capital
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Speaker 1: markets days?
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Speaker 3: So it was a software quarter for the investment bank,
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Speaker 3: but fick with a highlight. It actually came in about
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Speaker 3: stable with a year ago equities trading down about twelve
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Speaker 3: percent across the US banks, and then these coming in
1:00
Speaker 3: down twenty to twenty five percent, which actually was a
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Speaker 3: little bit better than feared and certainly better than you know,
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Speaker 3: the almost fifty percent decline that we saw last year.
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Speaker 3: I would say going forward, you know, the pipelines are
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Speaker 3: still healthy. We've been hearing that for several quarters now,
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Speaker 3: and more and more of the banks are talking about
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Speaker 3: a hope for the second half and twenty twenty four. Certainly,
1:27
Speaker 3: you know, clarity is what's needed to execute these deals.
1:31
Speaker 3: That the curve is pricing in some FED cuts towards
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Speaker 3: the end of the year, and I think that has
1:36
Speaker 3: been something that the banks are looking for as a
1:39
Speaker 3: catalyst for that activity. For banks, you know that the
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Speaker 3: outperforming banks in terms of returns and revenue growth were
1:47
Speaker 3: really those more focused on lending, so Wells Fargo, Japon, Morgan,
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Speaker 3: Bank America, and City. I would say that these four
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Speaker 3: banks plus all of the regional banks, you know, the
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Speaker 3: one thing we heard the universally deposits they're down, and
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Speaker 3: the net interest income outlook is worsening because the costs
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Speaker 3: of those deposits are rising. We did see some some
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Speaker 3: terms of do you.
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Speaker 2: Think a little too ironic? Yeah, I really do think
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Speaker 2: it's for years I was interviewing bank CEO's Allison, who
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Speaker 2: were like, we can't make any money in this low
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Speaker 2: interest rate environment, there's no way for us to make
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Speaker 2: net interest margin with zero rates. And now that the
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Speaker 2: head and other central banks have been like, okay, you know,
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Speaker 2: here's five hundred bases points have increased rates, They're like,
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Speaker 2: we can't make any money in these high interest rate environments.
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Speaker 2: I reget that they just move too quickly for them,
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Speaker 2: But how does it look, you know, going out two
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Speaker 2: or three quarters? Are they gonna are they gonna be
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Speaker 2: raking in the net interest margin by Q four?
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Speaker 3: I mean, so keep in mind that it's all about
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Speaker 3: sort of you know, the expectations and where we are. Right.
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Speaker 3: So net interest income was up, I mean it's almost
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Speaker 3: up fifty percent of JP Moore. Again, it was up
3:00
Speaker 3: to you know, forty five percent almost at Wells Fargo,
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Speaker 3: twenty three to twenty five percent of our city group.
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Speaker 3: So the net interest income growth is really strong, and
3:11
Speaker 3: so it is contributing turnings growth. It's just that, you know,
3:14
Speaker 3: investors are looking for the peak, and so I we
3:19
Speaker 3: it was four Q perhaps for some banks, it might
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Speaker 3: be one que for others. And so it's not that
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Speaker 3: they're not making money, it's just that that the lift, right,
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Speaker 3: So they got the lift on the on the on
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Speaker 3: the prices of their loans, but now the prices of
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Speaker 3: the deposits, so they're you know, cost of goods sold,
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Speaker 3: if you will, is finally starting to catch up. And
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Speaker 3: so that's that's and that's coming in a little bit
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Speaker 3: faster than people had anticipated. So you know, it's all
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Speaker 3: about the expectations. So they are still making snipping an
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Speaker 3: amount of money. Again, commercial real estate, that's the big
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Speaker 3: thing we're focusing on. Everyone's focusing on credit. Credit is
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Speaker 3: still really solid. It's weakening at the margin. Commercial real estate,
4:03
Speaker 3: you know, is very early innings, but in general, you know,
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Speaker 3: the returns this quarter were still pretty good.
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Speaker 1: Head Count, Allison, I mean, when you talk about some
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Speaker 1: some weakness in these businesses, that seems to be the
4:16
Speaker 1: first place where these big banks can go to can
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Speaker 1: reduce expenses. What are they saying about headcount going forward?
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Speaker 3: So starting to hear definitely on the investment banking side
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Speaker 3: of things, you know, pockets of cuts. As I said
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Speaker 3: that the pipelines have been there for a while, and
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Speaker 3: there really weren't reductions last year because the banks keep
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Speaker 3: holding out hope that that revenue is coming back. But
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Speaker 3: we are starting to see some some reductions. We're also hearing,
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Speaker 3: you know, more broadly so Goldman had had made some
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Speaker 3: pretty sizable cuts, as we know at the very beginning
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Speaker 3: of the year. They're making cuts in their consumer bank.
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Speaker 3: You know, Bank of America is actually talking about hiring
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Speaker 3: people this year, but then things you know, topping out
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Speaker 3: after that, and to some extent it is you know,
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Speaker 3: sort of the attrition is also slowing because it's just
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Speaker 3: not the same job market that it was a year ago.
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Speaker 1: Yep, absolutely, all right, Alison, thanks so much for jumping
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Speaker 1: on with us. We appreciate it. And it's busy time
5:16
Speaker 1: of the quarterview with the banks reporting here, they tend
5:18
Speaker 1: to be one of the first groups out of the gate.
5:21
Speaker 1: Allison Williams, she's a senior bank's analyst for Bloomberg Intelligence.
5:23
Speaker 1: She's based in our Princeton University office. And again, I
5:27
Speaker 1: think what we've heard from a lot of the banks,
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Speaker 1: the big banks as well as the regional banks is
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Speaker 1: the business is okay at the moment, and they are
5:34
Speaker 1: cautiously optimistic. But you know, I think i'd probably double
5:37
Speaker 1: underscore cautiously at this point when we hear from those
5:41
Speaker 1: bank management teams S and p. Five hundred. I'm gonna
5:44
Speaker 1: say it for Lisa Bromwins. It is unched on the day.
5:47
Speaker 1: Literally nothing going on out there in the SMP. But
5:49
Speaker 1: that's okay. It's a Friday yet, Yeah, because we've got
5:51
Speaker 1: options expiring at one pm Wall Street time.
5:55
Speaker 4: You're listening to the team Ken's are Live program Bloomberg
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6:10
Speaker 1: Our next guest has perspective, let me put it that way.
6:13
Speaker 1: Very very expansive, resume, very impressive, and we need perspective
6:18
Speaker 1: in a big way here. Nancy Tangler joins us. She's
6:20
Speaker 1: a CIO of Laffer Tangler Investments.
6:24
Speaker 5: Gets this.
6:24
Speaker 1: She splits her time map between Lake Tahoe and Scottsdale. We,
6:29
Speaker 1: I mean, figured it out completely. Nancy, thanks so much
6:31
Speaker 1: for joining us here. We appreciate it coming to New
6:33
Speaker 1: York City to.
6:35
Speaker 2: The Loma Point Loma University. Yeah, I know where Point
6:40
Speaker 2: Loma is.
6:41
Speaker 1: How good is that?
6:42
Speaker 2: That's another great time. Geographically, You've done very.
6:45
Speaker 1: Fun, very well, and we're stuck here in midtown East
6:48
Speaker 1: I don't know how that works, all right, Nancy, You've
6:50
Speaker 1: seen these markets over cycles, over long periods of time. Here,
6:54
Speaker 1: we've just come out of a pandemic. We had some
6:57
Speaker 1: crazy fiscal stimulus. Now to stry to pull that stimulus away.
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Speaker 1: The FED has raised rates at an unprecedented level over
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Speaker 1: the past four quarters. How you guys kind of positioned
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Speaker 1: yourself for this environment right here.
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Speaker 6: Yeah, So I've been pretty critical of Washington and the FED.
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Speaker 6: You know, I wrote a piece in July of twenty
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Speaker 6: twenty one that was entitled mister Magoo's Washington, and that
7:23
Speaker 6: is what they remind me of. They kind of walk
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Speaker 6: along and there's destruction all around them, and somehow they
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Speaker 6: come out of it clean. But I think if the
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Speaker 6: last well, first of all, I wish the FED Reserve
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Speaker 6: Board governors would stop talking.
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Speaker 2: And yeah, they talk way too much all the time,
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Speaker 2: so many of them. I almost wonder they get paid
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Speaker 2: for each speaking engagement because why.
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Speaker 6: I don't know, but I think a little mystique would
7:46
Speaker 6: go a long way. And the last press conference was
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Speaker 6: very disappointing because the FED chair was asked, do you
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Speaker 6: think monetary fiscal policy is too much? Should we could
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Speaker 6: can you say something and he refuses to even correlation
8:01
Speaker 6: between the spending.
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Speaker 2: And you'd missed Alan Greenspan, right.
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Speaker 6: I know, I miss his briefcase.
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Speaker 2: I miss his I miss his testimony because he would
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Speaker 2: freely comment on fiscal policy. And why wouldn't you, I mean,
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Speaker 2: it's such an important component, right, and Vulker.
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Speaker 6: Did, Yeah, you weren't born yet, so you wouldn't know.
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Speaker 2: Oh that's so kind of you, so kind.
8:24
Speaker 4: Yeah.
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Speaker 6: So what we've been doing is, first of all, we
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Speaker 6: moved our clients out of bonds in the summer of
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Speaker 6: twenty twenty when the ten year hit fifty bases point yield,
8:31
Speaker 6: and then we've been moving them back in recently and
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Speaker 6: began adding risk back into our equity portfolios, though it
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Speaker 6: sounds counterintuitive last fall. So that was Technology and consumer discretionary,
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Speaker 6: and those are names that we still like, but we've
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Speaker 6: been trimming them because they've they've appreciated so much, and
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Speaker 6: we're looking for companies that are Our investing theme is
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Speaker 6: old economy companies that are embracing the digital revolution think McDonald's, Chipotle,
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Speaker 6: Public Storage, and then the suppliers of the digital solutions.
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Speaker 1: So what are some of the names that. You know, again,
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Speaker 1: we have a FED that's kind of at or close
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Speaker 1: to peaking on rates, you know, so maybe some of
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Speaker 1: that headwind for some of the tech and consumer names
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Speaker 1: is kind of abating a little bit.
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Speaker 2: Let's go public storage because McDonald's and Chipotle, Paul and
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Speaker 2: I are intimately familiar with public storage. We don't know so, well,
9:22
Speaker 2: why do you like them? What's that company about?
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Speaker 6: So they're engaging over fifty percent of their new clients digitally,
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Speaker 6: so they never meet with an individual, They access their
9:33
Speaker 6: storage locker digitally, and so they've really levered up on
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Speaker 6: productivity at the company and they've they paid a special
9:41
Speaker 6: dividend last year of thirteen dollars a share, and they
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Speaker 6: raised the dividends. So we dislike it for a steady,
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Speaker 6: stable earner in the portfolio to complement some of the
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Speaker 6: riskier names that we have in there.
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Speaker 2: And you have you have Microsoft as well? Or do
9:56
Speaker 2: you like Microsoft? Because lately every company that has a
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Speaker 2: difficult earnings report just has to mention AI to try
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Speaker 2: and get back in. But Microsoft's been at this game
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Speaker 2: for longer than you know.
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Speaker 6: Tsmc Well, we trimmed it, I mean because we bought
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Speaker 6: more last fall, and it was one of our largest
10:15
Speaker 6: holdings across all of our strategies. But it went well
10:19
Speaker 6: above our guidelines. So we've pulled back on weakness. We'd
10:21
Speaker 6: be adding to it.
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Speaker 2: That's all those big giant megatech companies, Amazon, Microsoft, Oracle
10:28
Speaker 2: you held right, So are those companies that you've taken profits.
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Speaker 6: We've only taken profits so far in Salesforce and in
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Speaker 6: Microsoft this round. But historically, you know, we've been at
10:40
Speaker 6: this for a long time. We were buyers of Apple
10:42
Speaker 6: in twenty thirteen, and so we've been a net seller
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Speaker 6: of that stock for a long time, and we have
10:47
Speaker 6: it represents about three percent of our portfolio. The others
10:51
Speaker 6: are much larger portion of it. But yeah, I think
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Speaker 6: now is a really interesting time to look at Amazon.
10:55
Speaker 6: I thought Andy Jasse's shareholder letter was excellent. I think
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Speaker 6: he's being Tim Cooked, which was you know, everyone doubted
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Speaker 6: Tim Cook at Apple, and that's when you got it
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Speaker 6: once in a lifetime opportunity to buy it at nine
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Speaker 6: times earnings.
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Speaker 1: You know you mentioned one of your names buying on
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Speaker 1: weakness is a name that's been in the news a lot,
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Speaker 1: and that's Tesla. Yeah, I guess you had the stomach
11:16
Speaker 1: to you know, deal with Elon Musk. What's your tesla
11:20
Speaker 1: call here?
11:20
Speaker 6: So we're going to be adding to it. I think,
11:23
Speaker 6: you know, the margin decline is meaningful, but he still
11:27
Speaker 6: has margins that are twice GM and three or four
11:31
Speaker 6: times FORD. What I think is important about Elon Musk
11:36
Speaker 6: is that he seems to be always going where the
11:39
Speaker 6: puck is going, not where it's been. And so the
11:42
Speaker 6: price kept cutting, and then today he announced price increases.
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Speaker 6: That's going to drive people to the ecosystem, and I think,
11:49
Speaker 6: much like Apple, that's a really smart strategy. So he
11:52
Speaker 6: doesn't mind being underestimated. I think I owned it once
11:56
Speaker 6: and sold it because that was when he was on
11:58
Speaker 6: the Joe Rogan podcast smoking.
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Speaker 2: Smoking weed, Yeah yesterday. It was four twenty so a
12:03
Speaker 2: lot of people were smoking yeah.
12:05
Speaker 6: And I sold it because you know, he had his
12:08
Speaker 6: top management team turned over a number of times. He
12:10
Speaker 6: had that sec problem. And it went up four or
12:12
Speaker 6: five fold from there. So when we got an opportunity
12:15
Speaker 6: in January to buy it back on a relative price
12:17
Speaker 6: to sales ratio it's still attractive, we stepped in.
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Speaker 2: And it's also interesting that he's doing I mean, essentially
12:23
Speaker 2: you see GM and Ford and all the other legacy
12:26
Speaker 2: automakers raising prices on their you know, very expensive products, right,
12:30
Speaker 2: high margin products, and then doing everything they can to
12:33
Speaker 2: cut prices on their lower end products. And that's certainly
12:36
Speaker 2: what Musk is doing as well. But since it's all electric,
12:38
Speaker 2: people don't differentiate this much. Right, He's raising prices on
12:41
Speaker 2: the one hundred and thirty thousand dollars SUV while he's
12:44
Speaker 2: cutting prices on the forty five thousand dollars you know Sedan.
12:50
Speaker 2: So it just makes this.
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Speaker 6: Yeah, it's kind of the LVMH of the auto industry, and.
12:56
Speaker 2: It gets that kind of valuation. And I mean it did, right.
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Speaker 2: It was at four hundred, now it's at one sixty. Yeah,
13:01
Speaker 2: so I guess this is the right time.
13:02
Speaker 6: We've picked it off in at like one oh four,
13:04
Speaker 6: but we didn't buy enough. That's that's the perpetual dissatisfaction
13:07
Speaker 6: of being a portfolio manager.
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Speaker 1: All right, Nancy, next time, anytime you're in New York,
13:12
Speaker 1: you need to stop buy because but you're gonna be
13:13
Speaker 1: in Tahoe in Scottsdale. I'll put You're not in New
13:15
Speaker 1: York very often.
13:16
Speaker 2: I am.
13:16
Speaker 6: I'm here every month Okay, well come.
13:18
Speaker 1: Back, let us know when you're coming back on week
13:19
Speaker 1: you here, we'll talk some more stocks and more names.
13:21
Speaker 1: I want to talk you about being a senior woman
13:24
Speaker 1: in a financial services industry. I know you're the author
13:26
Speaker 1: of the book The Woman's Guide to Successful Investing in
13:29
Speaker 1: your working on a second edition. Now we want to
13:31
Speaker 1: get you to talk to you a little bit about
13:33
Speaker 1: that because, as you know, you are somewhat unique in
13:36
Speaker 1: the financial services industry, and we appreciate.
13:38
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13:54
Speaker 4: Bloomberg eleven thirty.
13:58
Speaker 1: Deb Bacon, she covers the detailers for Bloomberg Intelligence, is
14:01
Speaker 1: based in London. So we're going to talk to her
14:03
Speaker 1: about Procter and Gamble because she covers Procter and Gamble.
14:06
Speaker 1: But then I'm moving on very quickly to luxury because
14:09
Speaker 1: Deb is my go to voice, as she is for
14:12
Speaker 1: many institutional investors on the luxury business. But deb let's
14:15
Speaker 1: pay the bills here. Let's start with Procter and Gamble.
14:18
Speaker 1: The stocks up three point eight percent. It doesn't sound
14:20
Speaker 1: like a lot, but that's like the the stock never
14:22
Speaker 1: moves that much. So they had some good numbers. Tell
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Speaker 1: us what happened, right?
14:27
Speaker 7: I think you know, I looked at these numbers and
14:31
Speaker 7: the market was already expecting decent sales growth, so there
14:35
Speaker 7: was a little beat on sales. But the big thing
14:40
Speaker 7: here is the amount of growth margin that they're accumulating.
14:43
Speaker 7: And when we think that we're going to see costs
14:46
Speaker 7: start to fall away and also for X headwinds start
14:50
Speaker 7: to transition over the coming quarters, that votes really well
14:54
Speaker 7: for the level of productivity that's there. They're volumes are
14:57
Speaker 7: down three percent, but that's kind of in line with
14:59
Speaker 7: the market. So they're holding market share by value and volume.
15:03
Speaker 7: They're investing heavily in marketing spend, and it really bodes
15:07
Speaker 7: well for where their position going into next fiscal year.
15:10
Speaker 2: What are the four X headwind transitions you're expecting? What
15:14
Speaker 2: are we looking for?
15:16
Speaker 7: So the company expects five percent by year end for
15:19
Speaker 7: fiscal twenty twenty three, and this quarter we're already starting
15:24
Speaker 7: to see that come off. So it was one half
15:26
Speaker 7: way to this is their fiscal Q three pardon.
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Speaker 2: Me, five percent of five percent of.
15:30
Speaker 7: What sorry, so on five percent of sales. So at
15:35
Speaker 7: the top line for fiscal twenty twenty three, you're going
15:38
Speaker 7: to see all in net sales, not one percent, because
15:41
Speaker 7: there's going to be about a five percent for X
15:44
Speaker 7: headwind fiscal twenty twenty three. But as as we've seen
15:49
Speaker 7: through the coming quarters, we see four percent for X
15:53
Speaker 7: headwind in the last Q three and that should go
15:56
Speaker 7: down some more in Q four, So bit by bit
15:59
Speaker 7: into next year, we'll see that headwind turn into tailwind.
16:03
Speaker 7: And at the same time we've seen peak. Of course,
16:05
Speaker 7: we'll start to see some of those coming off, and
16:08
Speaker 7: that just really puts them in good positions for next year.
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Speaker 1: All right, deb, Matt Miller is more of a you know,
16:13
Speaker 1: practer and gamble guy. I'm more of a luxury goods guy.
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Speaker 1: So talk to us about what's going on in the
16:18
Speaker 1: luxury good business. I know you follow all of those names.
16:22
Speaker 1: I want to get it from the angle of China
16:23
Speaker 1: reopening because you know everything I know about the luxury
16:26
Speaker 1: good business I learned by reading your research. But China's reopening,
16:29
Speaker 1: that's going to be a really big tailwind. When will
16:33
Speaker 1: some of the luxury good companies start to see that?
16:36
Speaker 7: I mean in terms of share price, we're seeing that
16:38
Speaker 7: already right, some of the big So it was announced
16:42
Speaker 7: eight to January that that China would do a big reopening,
16:46
Speaker 7: a very big surprise, and already we start to see
16:49
Speaker 7: share price momentum on the back of that. So we've
16:52
Speaker 7: seen the likes of Air Mayres or Brunelo, Kushinelli up
16:56
Speaker 7: over thirty percent year today. So these companies are already
16:59
Speaker 7: swung quite well through second half of twenty twenty two,
17:03
Speaker 7: and then for the sector overall, it's becoming an outperformer.
17:07
Speaker 7: And what we saw was January was still very difficult
17:10
Speaker 7: because people were hesitant to get back in in the marketplace,
17:14
Speaker 7: product not in the right place. By February, these companies
17:18
Speaker 7: are saying that we're seeing traveling, we're seeing spending in stores,
17:22
Speaker 7: a return into the market, but still a drag for
17:26
Speaker 7: China overall in the Asia through the Q one into
17:29
Speaker 7: Q two, though we would expect if there are no
17:32
Speaker 7: big adversaries, that we see double digit growth starting to
17:35
Speaker 7: pick up through Q two year on year and through
17:38
Speaker 7: the rest of twenty twenty three.
17:41
Speaker 1: Talk to us about just the supply chain for some
17:45
Speaker 1: of these luxury retailers. I mean, where do they source
17:48
Speaker 1: their product? Has it been a problem, is it getting better?
17:51
Speaker 1: So on the on the supply chain side, right.
17:54
Speaker 7: So if we think about the heritage companies like ms
18:00
Speaker 7: like LVMH, the Italian traditional luxury makers, everything's produced locally
18:08
Speaker 7: so as in so I need to rephrase that everything
18:12
Speaker 7: is produced out of Europe, so France, Italy and others.
18:16
Speaker 7: So their supply chain is particularly robust, and in fact
18:20
Speaker 7: they're having to probably raise fourty five percent capacity per
18:24
Speaker 7: year just to manage that double digit growth because they
18:28
Speaker 7: have had such an explosion that some of these companies
18:32
Speaker 7: have doubled their sales versus twenty eighteen, So they're fully
18:37
Speaker 7: compensated twenty nineteen, twenty twenty and through the lockdown and
18:42
Speaker 7: they're out at the other end, and they're bigger and
18:44
Speaker 7: stronger than ever. So they're having to build production and
18:47
Speaker 7: build supply chain around that. The big move also has
18:51
Speaker 7: been that pre COVID we saw only around forty five
18:54
Speaker 7: percent of sales online and now that's very much more
18:58
Speaker 7: than doubled, and in the teams many makers, and they're
19:01
Speaker 7: working with big you know, some of the best in
19:04
Speaker 7: class in terms of of partners out there like Farfex,
19:09
Speaker 7: Alibaba Luxury Portals to really do things also online. So
19:15
Speaker 7: they're marketing to more clients baskets of bigger size, and
19:21
Speaker 7: also they're getting a younger generation on board more quickly.
19:24
Speaker 1: So DEBI, I look at you know, the shares of
19:27
Speaker 1: hermez or ames up thirty eight percent this year fifty
19:32
Speaker 1: two week high, up sixty percent on a trailing twelve
19:35
Speaker 1: month basis. Have I missed that luxury trade?
19:40
Speaker 7: You're going to be buying it for forty eight times
19:42
Speaker 7: next year's pe. But I've had so much interest in
19:46
Speaker 7: this stock over the week because the idea here is
19:49
Speaker 7: that you know, there are only three hundred stores worldwide.
19:54
Speaker 7: The company will opened two new production sites for leather
19:58
Speaker 7: goods this shure. They have another production site coming on
20:02
Speaker 7: board every year to twenty twenty seven, and so that's
20:06
Speaker 7: how they're fulfilling their growth. They have waiting lists longer
20:10
Speaker 7: than some of the watch companies, and yet they're also
20:14
Speaker 7: using their one single individual brands to transition into very
20:20
Speaker 7: sizable and weighty sectors. They're doing very well and ready
20:25
Speaker 7: to wear of course into others, into jewelry, into homeware,
20:29
Speaker 7: homewhere is that right?
20:30
Speaker 1: There's plenty of stuff, plenty of stuff for me to
20:34
Speaker 1: spend on Debacon. She's a senior anas covering luxury goods
20:37
Speaker 1: for Bloomberg Intelligence out of London, talking about the practer
20:41
Speaker 1: and gamble numbers very strong, talking about luxury, which means
20:45
Speaker 1: very strong. These stacks have been on an absolute terror
20:47
Speaker 1: in part due to a China reopening.
20:51
Speaker 4: You're listening to the Team Cancer Live program Bloomberg Markets
20:55
Speaker 4: weekdays at ten am Eastern on Bloomberg dot Com, the
20:58
Speaker 4: iHeartRadio app Berg Business Happen or listen on demand wherever
21:02
Speaker 4: you get your podcasts.
21:05
Speaker 1: John Tucker, thank you so much. We appreciate that. Now
21:07
Speaker 1: I kind of forgot about this deal. But it's a
21:10
Speaker 1: big one. Kroger Albertson's the supermarket chained twenty five billion
21:14
Speaker 1: dollar merger. It is winding its way through the regulatory process.
21:18
Speaker 1: We're going to get an update on that, and in
21:20
Speaker 1: order to do that, we have our expert in the
21:22
Speaker 1: Bloomberg Interactive Broker Studio. That's Jennifer Lee. She's a senior
21:26
Speaker 1: litigation analy She covers antitrust for Bloomberg. Intelligence absolutely indispensable.
21:31
Speaker 1: When you get these big M and A trades that
21:33
Speaker 1: you know are just going to be looked at by
21:35
Speaker 1: the various regulatory authorities, it's good to get an expert
21:37
Speaker 1: opinion on that. So Jen, just give us the latest
21:40
Speaker 1: here Again, it's a big deal, supermarket business, twenty five
21:42
Speaker 1: billion dollars. Where are we in the review process? Is
21:45
Speaker 1: this deal going to get done?
21:47
Speaker 8: Right?
21:47
Speaker 3: Sure?
21:47
Speaker 9: Well, you know they've been in the investigation phase. So
21:50
Speaker 9: the FTC started their in depth investigation early December, and
21:54
Speaker 9: it usually takes the companies four to five, maybe even
21:57
Speaker 9: six months to finish that up, and the news is
21:59
Speaker 9: quiet during that time. I mean, I think that's why
22:00
Speaker 9: this has been sort of falling off the radar. But
22:03
Speaker 9: I'm thinking it's probably about time soon for the companies
22:06
Speaker 9: to finish that up, and that's when things sort of
22:08
Speaker 9: get into earnest in terms of talking about whether there's
22:10
Speaker 9: a remedy that might be sufficient for the Federal Trade
22:13
Speaker 9: Commission to agree to clear the deal.
22:17
Speaker 2: What does the Federal Trade Commission want?
22:19
Speaker 9: Well, they're going to want divestitures of stores and I
22:22
Speaker 9: think what this is going to come down to is
22:25
Speaker 9: how many stores will have to be sold and who
22:27
Speaker 9: the buyer will be, and whether or not that buyer's adequate.
22:30
Speaker 9: And I believe these companies face a really skeptical Federal
22:33
Speaker 9: Trade Commission on both of those, and I have a
22:36
Speaker 9: funny feeling they're probably not going to be able to
22:38
Speaker 9: come to terms on this, and if they can't, it
22:40
Speaker 9: means they're going to get a lawsuit to block the deal.
22:44
Speaker 1: I mean, well, where is Kroger I mean, Alberts' is
22:47
Speaker 1: a West Coast chain.
22:48
Speaker 2: Right, Kroger's in Columbus.
22:50
Speaker 1: Yeah, Kroger's in Columbus in the South. I mean, they're
22:52
Speaker 1: not around here. So I don't even think about them.
22:54
Speaker 1: But it seems like it's an easy fix, Paul.
22:57
Speaker 2: If you want the best of everything, including the price
23:00
Speaker 2: club program, okay, very good.
23:02
Speaker 1: I would think you just have a big map, and
23:05
Speaker 1: where they overlap, you say you got to sell one
23:06
Speaker 1: of them, end of story. What's the big deal?
23:08
Speaker 2: Right?
23:08
Speaker 9: And that's the way it's always gone, Okay, And so
23:11
Speaker 9: here's sort of the fundamental problem that the Federal Trade
23:13
Speaker 9: Commission is facing and thinking about today. That is the
23:16
Speaker 9: way these deals have always gone. You have a map,
23:18
Speaker 9: you look at local regions one mile to ten miles.
23:21
Speaker 9: If they overlap and it's concentrated, you divest. You're good
23:24
Speaker 9: to go. But what that has resulted in in many
23:27
Speaker 9: different industries, according to this Federal Trade Commission, is too
23:30
Speaker 9: much consolidation and overly concentrated industries. So they don't like
23:34
Speaker 9: that approach very much anymore. They've taken it in agriculture,
23:38
Speaker 9: you know, They've taken it in many different industries that
23:40
Speaker 9: are local in nature. So in this one, I think
23:43
Speaker 9: they're going to go beyond that. They're not just going
23:44
Speaker 9: to look at these local overlaps. I think they'll also
23:47
Speaker 9: define fairly narrow markets, which then increases concentration in those
23:51
Speaker 9: local regions. But they may also look in regionally or
23:54
Speaker 9: nationally to see the impact of this combination on suppliers.
23:58
Speaker 9: They might go the other direction. Okay, right, so a
24:02
Speaker 9: package good.
24:02
Speaker 1: Store, if I'm in an industry that has Walmart, I'm like,
24:05
Speaker 1: I got no problem. I mean, you're jumping on me
24:08
Speaker 1: because I'm hooking up with another regional supermarket chain when
24:11
Speaker 1: I compete against Walmart.
24:13
Speaker 9: Right, And you know, part of the argument is that
24:15
Speaker 9: these companies need to combine to better compete with the
24:17
Speaker 9: Walmarts and the costcos of Coural. But you know what
24:21
Speaker 9: happens when they say, well, we need the scale, we
24:23
Speaker 9: need to combine because we need the scale to better
24:25
Speaker 9: compete against Walmart and Costco. Oh, but we think we
24:27
Speaker 9: can divest a handful of stores and they can succeed
24:30
Speaker 9: on their own without that scale. You know, it's difficult
24:33
Speaker 9: to make that argument. And that's really what they're going
24:35
Speaker 9: to do here. You know, they're talking about three hundred
24:37
Speaker 9: stores or so, while in their divestiture agreement, Kroger has
24:41
Speaker 9: agreed to go all the way up to six hundred
24:43
Speaker 9: and fifty before it has the right to walk away
24:45
Speaker 9: from the deal. So I think the FTC is going
24:48
Speaker 9: to be looking for that six hundred and fifty number
24:50
Speaker 9: or more.
24:50
Speaker 2: How long is this going to take? I mean they've
24:54
Speaker 2: just they're likely done responding to the FTC's inquiries now, right,
24:58
Speaker 2: And then you say, expect maybe a lawsuit at the
25:02
Speaker 2: end of the year next year.
25:04
Speaker 9: When is it gonna No, I think it'll happen before then.
25:07
Speaker 9: So as of April fifth, they had not yet finished
25:09
Speaker 9: these what they call second requests. That's the investigation. They
25:12
Speaker 9: may be done now. Now technically as soon as they finish.
25:15
Speaker 9: The FTC only has thirty days, but it's pretty commonplace
25:18
Speaker 9: to enter into a timing agreement with the agency that
25:21
Speaker 9: gives it at least another sixty sometimes ninety more days
25:24
Speaker 9: beyond that. So let's say they do that, they could
25:26
Speaker 9: get and they get the lawsuit, that would be around
25:29
Speaker 9: August timeframe. These kinds of lawsuits are for preliminary injunction,
25:33
Speaker 9: so they move quickly. The average timing, based on my calculations,
25:37
Speaker 9: is about five months from the filing of the complaint
25:40
Speaker 9: to a decision, So theoretically there could be a decision
25:43
Speaker 9: by the end of this year or even early. In
25:45
Speaker 9: one queue, all.
25:46
Speaker 1: Right, this is what I always do when I'm talking
25:47
Speaker 1: at M and A. I go, M A go, I
25:49
Speaker 1: click on the deal and I click on the advisors.
25:52
Speaker 1: So the seller here has Credit Swiss and Goldman Sachs
25:55
Speaker 1: as their financial advisors. They have seven legal advisors. And
25:59
Speaker 1: I'm I'm not talking Mickey Mouse firms here, I'm talking Krevath,
26:02
Speaker 1: I'm talking White in case Walktel Lipton. I mean, the
26:06
Speaker 1: lawyers are getting paid here big time. It's just crazy
26:09
Speaker 1: how that plays out. But I guess the question is,
26:12
Speaker 1: is this just the function This tough view of this
26:15
Speaker 1: deal is at a function of the democratic administration that if
26:19
Speaker 1: this were Republican administration, the FTC might be more inclined
26:22
Speaker 1: to let this deal go through, you know.
26:24
Speaker 9: Possibly. I think there was sort of a change that
26:27
Speaker 9: began in anti trust actually during the Trump administration. It's
26:30
Speaker 9: not just this this administration. This one is certainly aggressive
26:34
Speaker 9: and activist, but there has been this movement generally and
26:38
Speaker 9: somewhat bipartisan, to strengthen up our M and A, the
26:42
Speaker 9: way we view M and A and the way we
26:43
Speaker 9: scrutinize these deals because of anti trust exactly. Yeah, you know,
26:48
Speaker 9: And we also have this example, you know, from in
26:50
Speaker 9: twenty fourteen, Safeway and Albertson's merged, and it was a
26:53
Speaker 9: big failure. They cleared it, they divested stores, the company
26:56
Speaker 9: that bought the divested stores went bankrupt before a year,
26:59
Speaker 9: and then I'llson's brought back a bunch of those stores.
27:02
Speaker 9: I mean, that is a colossaliz.
27:03
Speaker 2: Was it a failure in terms of because I think
27:05
Speaker 2: this administration right now has to think not only about antitrust,
27:09
Speaker 2: but also about inflation. So the question is with scale,
27:13
Speaker 2: are you able to keep prices down or with scale
27:16
Speaker 2: are you able to push higher prices onto consumers? Right,
27:20
Speaker 2: That's that's the crux of the argument that Biden has
27:23
Speaker 2: to worry about right now.
27:24
Speaker 9: It's not Biden viously, but his regulators. But and that's
27:28
Speaker 9: exactly the issue. I mean, the companies say, with scale,
27:31
Speaker 9: this will trickle down to better prices.
27:33
Speaker 2: And the companies say, we'll defend it to the regulators
27:37
Speaker 2: and to the customers, but to the shareholders they're like, hey,
27:39
Speaker 2: if we can get this scale, we're going to push
27:41
Speaker 2: through price increasing.
27:42
Speaker 9: Exact customers exactly. And once upon a time an argument
27:45
Speaker 9: about efficiencies was really helpful in the anti trust context
27:48
Speaker 9: because the thought was if a company can gain efficiencies,
27:51
Speaker 9: that'll pass down to consumers too in better prices. But
27:53
Speaker 9: over time the regulators said, no, this isn't really happening.
27:56
Speaker 9: It's just better margins for the companies. It's really not
27:59
Speaker 9: trickling down to the consumers. We're not going to give
28:01
Speaker 9: as much credence to these efficiencies claims or these claims
28:04
Speaker 9: that this scale will allow us to provide better prices.
28:07
Speaker 1: All right, so we got this big supermarket deal out there.
28:10
Speaker 1: What else are you looking at? What else is you
28:12
Speaker 1: know in the lens of kind of this, you know,
28:15
Speaker 1: M and a litigation anti trust issues.
28:17
Speaker 9: Well, I'm just waiting because I expect the Department of
28:20
Speaker 9: Justice is likely to sue to try to block the
28:22
Speaker 9: Adobe Figma transaction which has been floating out there.
28:25
Speaker 1: Really, that's that's another big one right now.
28:26
Speaker 9: Now, that's another big one, and I think twenty billion
28:29
Speaker 9: dollars I believe, and I suspect that's going to happen,
28:32
Speaker 9: and I think that could happen at any time.
28:34
Speaker 10: Now.
28:34
Speaker 9: You know, the Apartment of Justice has already sued to
28:36
Speaker 9: try to block Jet Blue in Spirit. So I'm watching
28:39
Speaker 9: that that's going to go into trial and we'll see
28:41
Speaker 9: what happens there. I think they have a pretty good argument,
28:44
Speaker 9: to be honest, in that case. I suspect the DOJ
28:47
Speaker 9: can be successful. Really, yes, because I think it's.
28:51
Speaker 1: Jef bluent Spirit, I mean Spirit, who cares about Spirit?
28:54
Speaker 2: Really? Do we?
28:54
Speaker 7: Well?
28:55
Speaker 9: The people who like an ultra low cost carrier option
28:58
Speaker 9: very much care about Spirit, and they're going to lose
29:00
Speaker 9: that option if Jet Blue takes over all of those routes.
29:03
Speaker 9: And I think that's the crux of the matter.
29:04
Speaker 2: I will tell you, having lived in Europe for a
29:07
Speaker 2: long time, it's it was so awesome to be able
29:11
Speaker 2: to fly anywhere on the continent for like fifty bucks.
29:15
Speaker 2: Ye at any time that I've lived there, that I
29:18
Speaker 2: lived there over the last like seven years. Right then
29:20
Speaker 2: I come back here and I want to fly to Austin,
29:23
Speaker 2: and it's like, I gotta fly economy, you know, Oh
29:26
Speaker 2: my god, that's just terrible. But but the flying economy
29:32
Speaker 2: on United to Austin still costs like ten times more
29:37
Speaker 2: than flying business on Ryanair to Valencia, you know, so.
29:44
Speaker 1: Sort economy is not good for you.
29:45
Speaker 2: Now. It's just painful for my knees, you know, especially
29:48
Speaker 2: at my age.
29:49
Speaker 1: So that I guess they don't factor that into the
29:51
Speaker 1: spirit Jet Blue thing.
29:53
Speaker 2: I want to hear something funny about Paul Until very
29:56
Speaker 2: recently he thought the picture of the guy on Alaska
30:01
Speaker 2: Airlines tail was Jerry Garcia. That's not a joke.
30:06
Speaker 9: I really thought that I did, and I had.
30:09
Speaker 2: A pilot Joy Garcia.
30:10
Speaker 4: It may have been an Eskimo.
30:12
Speaker 2: I don't know. Can we say Eskimo in a way
30:15
Speaker 2: be canceled?
30:16
Speaker 4: Sorry?
30:16
Speaker 1: I don't know. But next time you're at an airport
30:18
Speaker 1: and you see Alaska Airlines, tell me what you think.
30:21
Speaker 1: It's not so far off.
30:22
Speaker 9: I'm gonna have to take a look, all right.
30:24
Speaker 1: Jenry, thanks so much for joining us senior litigation analyst.
30:26
Speaker 1: She covers all the antitrust stuff for all the big
30:29
Speaker 1: M and A out there. Nobody else on the street
30:31
Speaker 1: has that kind of research we do at Bloomberg Intelligence
30:34
Speaker 1: and ssures closely with the industry in stock analys so
30:37
Speaker 1: that we get the best analysis out there to our clients. Jenry,
30:40
Speaker 1: thanks so much. We appreciate it.
30:42
Speaker 4: You're listening to the tape Canser live program Bloomberg Markets
30:46
Speaker 4: weekdays at ten am Eastern on Bloomberg Radio, the tune
30:49
Speaker 4: in app, Bloomberg dot Com, and the Bloomberg Business App.
30:52
Speaker 4: You can also listen live on Amazon Alexa from our
30:55
Speaker 4: flagship New York station just Say Alexa playing Bloomberg eleven thirty.
31:01
Speaker 1: I think over the last several years there's been a
31:03
Speaker 1: big pusher or moved towards kind of reshoring a lot
31:07
Speaker 1: of operations and businesses on US soil, you know, by
31:12
Speaker 1: American that kind of thing. It's kind of gain momentum.
31:14
Speaker 1: It certainly exacerbated by the pandemic, but there are those
31:17
Speaker 1: that say, hey, let's not go so fast here. Maybe
31:20
Speaker 1: this global supply chain thing is still a thing. Dave Stalin,
31:24
Speaker 1: So those people from Taiwan, I don't know. We'll find out.
31:27
Speaker 1: Dave Stalin chill out a little bit exactly. He's the
31:30
Speaker 1: CEO of the Telecommunications Industry Association. He's also a graduate
31:34
Speaker 1: of the US Naval Academy and a former infantry officer
31:38
Speaker 1: with the US Marine Corps. So we thank him for
31:40
Speaker 1: his service. Dave, thanks so much for joining us here. Again.
31:44
Speaker 1: You think about over the last three four years pandemic,
31:47
Speaker 1: been a lot of talk about on shoring, and it
31:49
Speaker 1: kind of goes it's taken another level maybe with some
31:53
Speaker 1: of the technology, maybe a cold war brewing between the
31:55
Speaker 1: US and China on things on the telecommunications and technology space.
32:00
Speaker 1: What's your view of how things have kind of evolved.
32:03
Speaker 8: Well, thanks for having me. Yeah, it's an interesting time.
32:06
Speaker 8: I think through the pandemic, we've recognized how important connectivity is.
32:12
Speaker 8: It's almost like the air we breathe, but we don't
32:15
Speaker 8: want it to be polluted air, right, So it's important
32:18
Speaker 8: that we're buying products and building networks from trusted suppliers.
32:23
Speaker 2: But I mean, we are buying a lot of products
32:26
Speaker 2: and building networks with products out of China, certainly out
32:32
Speaker 2: of Taiwan, but also out of China. Should we be
32:35
Speaker 2: concerned about that?
32:37
Speaker 8: Yeah, I definitely think there's a legitimate concern, and the
32:41
Speaker 8: administration has significant concerns about the concentration of ICT or
32:46
Speaker 8: technology manufacturing in China. But what's not clear is should
32:51
Speaker 8: government review outbound investment in a way that really forces
32:58
Speaker 8: companies to determine at a high level with heavy government review,
33:04
Speaker 8: where they buy their products from. We're strong supporters of
33:08
Speaker 8: building product in America and we are definitely as an
33:12
Speaker 8: ICT industry trending in that direction more and more so.
33:16
Speaker 8: But it's probably hard to get everything built in America
33:20
Speaker 8: at a reasonable price.
33:21
Speaker 2: Well what about a free market? You know, what about
33:24
Speaker 2: businesses being able to do whatever they want with their dollars?
33:29
Speaker 2: How much should the government be involved in this?
33:32
Speaker 8: Yeah? So I'll go back to the point that everything
33:34
Speaker 8: is connected these days, from an IoT device in your
33:38
Speaker 8: home to a critical network to a broadband network, and
33:41
Speaker 8: we have to be careful with that level of connectivity
33:45
Speaker 8: to ensure we're buying products and services from trusted partners,
33:50
Speaker 8: and I think that's one of the roots of the issue.
33:52
Speaker 8: The other, of course, is the overall competitiveness around the globe.
34:00
Speaker 8: We first need to make sure that we're buying trusted products.
34:04
Speaker 8: And TIA, as you mentioned, is an industry association that's
34:07
Speaker 8: been around for eighty years. We've obviously seen a ton
34:10
Speaker 8: of change and we create standards for the industry and
34:13
Speaker 8: we advocate with the government for the industry large companies,
34:17
Speaker 8: small companies, and we're very focused on ensuring that the
34:22
Speaker 8: networks that are getting built are going to become more
34:25
Speaker 8: and more trusted over time. But you have to verify trust,
34:28
Speaker 8: you can't just assume it. And that's where the standard
34:31
Speaker 8: side of TIA comes into play, as we've developed the
34:35
Speaker 8: first cyber and supply chain security standard that's measurable for
34:39
Speaker 8: the industry.
34:40
Speaker 1: So kind of going down that route, Dave, I mean
34:43
Speaker 1: the companies that you are, many of the companies that
34:45
Speaker 1: you represent have been, have done, and continue to do
34:48
Speaker 1: business in China. They just have to. That's just kind
34:51
Speaker 1: of where the supply chain takes You can't disengage from China.
34:57
Speaker 1: So what are some of the companies that you represent,
34:59
Speaker 1: what are they How have they changed their behaviors or
35:03
Speaker 1: their business models over the last several years.
35:05
Speaker 8: Sure, it's a couple aspects. One is definitely companies are
35:09
Speaker 8: moving manufacturing out of China to other places in the world,
35:14
Speaker 8: some cases of the US, but to other places in
35:16
Speaker 8: the world. There are many trusted US trading partners out
35:21
Speaker 8: there Mexico, India and others that they're moving. They're manufacturing too.
35:27
Speaker 8: Number two, one of the big challenges we have is
35:31
Speaker 8: on the ICT space is anything that's electronics. We can
35:35
Speaker 8: make fiber cable here, and we do with companies such
35:38
Speaker 8: as Corning and Comscope. That's not a problem. We can
35:41
Speaker 8: make cell towers here, we can make all the attachments. Obviously,
35:45
Speaker 8: the labor to build and to project manage these networks
35:49
Speaker 8: can be done here. But moving chips over is a
35:53
Speaker 8: good first step, but it's not the only step. So
35:56
Speaker 8: the US government has recently about a year ago, introduce
36:00
Speaker 8: US as part of the IIJA, the Infrastructure Investment and
36:04
Speaker 8: Jobs Act, a really large, forty five billion dollar program
36:08
Speaker 8: to bring broadband to the unserved and underserved around the country.
36:13
Speaker 8: One of the requirements is by America so there are
36:16
Speaker 8: by America laws in place that say, when you use
36:20
Speaker 8: US grant money, for example, the BAD program, the Broadband
36:25
Speaker 8: Equity Access Deployment Program, part of IJA, a lot of acronyms,
36:30
Speaker 8: you must follow the by America laws. Now, what we've
36:35
Speaker 8: asked for is a limited and a targeted waiver for
36:41
Speaker 8: certain parts of that and in essence, anything that has
36:43
Speaker 8: a chip in it is not effectively made in the
36:47
Speaker 8: US current So the labors no problem, the fiber cables
36:50
Speaker 8: no problem, the towers, no problem. But anything that has
36:54
Speaker 8: a chip, in other words, electronics, anything with intelligence that
36:58
Speaker 8: has a chip in it is currently for the most part,
37:02
Speaker 8: not made in the US. Therefore, we need that waiver
37:06
Speaker 8: for this BEAD program.
37:08
Speaker 2: By the way, as Paul is saying, you have a
37:10
Speaker 2: tremendous resume and obviously have served this country in the
37:16
Speaker 2: US military and in many different ways. After the Naval Academy,
37:20
Speaker 2: US Army Ranger School Distinguished Honor graduate, there were in
37:24
Speaker 2: the first, second, third, and fourth Marine divisions. I don't
37:29
Speaker 2: know if this is this question is pertaining to the
37:33
Speaker 2: Telecommunications Industry Association at all, but do you worry that
37:37
Speaker 2: even some of our military equipment has chips out of.
37:40
Speaker 8: China, absolutely, and the US military, the DoD is very
37:45
Speaker 8: concerned about that as well, and they're putting tighter restrictions.
37:49
Speaker 8: We all know that the Biden administration also just set
37:53
Speaker 8: aside something like sixty five billion dollars to bring chip
37:56
Speaker 8: manufacturing back to the US standard that I alluded to,
38:02
Speaker 8: what we call SES nine thousand and one is the
38:05
Speaker 8: only measurable and certifiable cyber and supply chain security standard
38:09
Speaker 8: out there. We look at the processes that somebody uses
38:14
Speaker 8: when they're developing a product to ensure that it's trusted.
38:17
Speaker 8: The software and the hardware. You have to go back
38:19
Speaker 8: to the route to ensure that you're developing a product
38:23
Speaker 8: that is secure. So you have to have third party
38:27
Speaker 8: verification that the software and hardware. There's so much open
38:31
Speaker 8: source software being used these days. You have to verify
38:34
Speaker 8: that those things are secure.
38:36
Speaker 3: You know.
38:36
Speaker 8: That's why I'm in this job. Many of my peers
38:40
Speaker 8: are sailing on a boat or digging in their garden
38:44
Speaker 8: in the backyard and long retired. But I am really
38:48
Speaker 8: passionate about this industry and passionate about the security of
38:51
Speaker 8: our country.
38:53
Speaker 1: Well, we appreciate it. Dave I appreciate all your services
38:55
Speaker 1: in support of this country. Dave Stalen, CEO of the
38:58
Speaker 1: Telecommunications Industry Association, looking at the kind of the global
39:03
Speaker 1: technology trade, the global telecommunications trade, a lot of work
39:07
Speaker 1: to be done there to ensure these systems out there.
39:10
Speaker 4: You're listening to the tape Can's our live program Bloomberg
39:13
Speaker 4: Markets weekdays at ten am Eastern on Bloomberg Radio, the
39:17
Speaker 4: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
39:20
Speaker 4: You can also listen live on Amazon Alexa from our
39:23
Speaker 4: flagship New York station, Just say Alexa, play Bloomberg eleven thirty.
39:29
Speaker 1: Formula one. This is a big business globally. It's starting
39:33
Speaker 1: to get bigger here in the US, I think, and
39:36
Speaker 1: I know a little bit about this because the liberty
39:37
Speaker 1: media folks own it and they have big, big plans
39:40
Speaker 1: for growing Formula one. And we got a big, big
39:44
Speaker 1: race coming to Miami, Formula one Miami Grand Prix coming.
39:47
Speaker 1: That's a big news for I guess any city that
39:50
Speaker 1: hosts it. But let's get the latest with Hannah Elliott.
39:52
Speaker 1: She's got a great story out on the Bloomberg Hannah
39:54
Speaker 1: covers the auto industry for US how to talk to
39:58
Speaker 1: us about Miami. It sounds like a fun event. It
40:01
Speaker 1: sounds like a must to event, must must see event
40:05
Speaker 1: and be seen event.
40:06
Speaker 10: About mind, must see it? Yeah, totally must see and
40:09
Speaker 10: be seen is exactly right. There's there's a reason they
40:13
Speaker 10: call it the Magic City. That certainly applies to how
40:16
Speaker 10: Miami does Formula one. It is a spectacle unlike any other.
40:22
Speaker 10: Last year we saw that it f one brought three
40:26
Speaker 10: hundred and fifty million dollars into Miami, with people, you know,
40:31
Speaker 10: spending money on hotels, decadent nights out, uh, drinking, partying,
40:38
Speaker 10: eating culture, all of that, plus of course race tickets.
40:42
Speaker 2: And not a little bit of money. Hannah, I mean
40:44
Speaker 2: I saw on You're sure lots of money. I mean
40:46
Speaker 2: some people are spending. Did you say there was like
40:49
Speaker 2: thirty or fifty thousand dollars bottle service?
40:52
Speaker 10: Yeah. So you know, for instance, at the Club eleven,
40:56
Speaker 10: which maybe you've heard of before, it's a big Miami club,
41:00
Speaker 10: we've had this table. Tables start at five thousand dollars
41:04
Speaker 10: and they go up to two hundred thousand dollars. If
41:07
Speaker 10: you want a table with bottle service on the dance floor,
41:10
Speaker 10: that'll accommodate.
41:10
Speaker 2: One hundred people.
41:12
Speaker 10: But yeah, I mean, of course we've got h you've
41:15
Speaker 10: heard of Carbone, of course, the great Italian restaurant chain,
41:20
Speaker 10: Carbone is doing a pop up called Carbone Beach. They
41:23
Speaker 10: did it last year, they're going to do it again
41:24
Speaker 10: this year. Tickets cost three thousand dollars. Tables start at
41:28
Speaker 10: twenty four thousand dollars. That's for a dinner or a meal.
41:32
Speaker 2: So this is yeah, this is just for going going
41:35
Speaker 2: out right now. I just came back from the Moto
41:37
Speaker 2: GP in Austin, which is motorcycles, of course, and it
41:40
Speaker 2: was far less crowded than Formula One was in Austin.
41:44
Speaker 2: But what everybody you want at the race is access,
41:48
Speaker 2: right You want to be in the paddock, you want
41:50
Speaker 2: to be able to walk up and down pit lane,
41:52
Speaker 2: you want to be able to peer into the garages.
41:55
Speaker 2: How much is that kind of access going to cost?
41:58
Speaker 2: If I can even get it at F one Miami.
42:01
Speaker 10: So Padda Club tickets right now are costing over fourteen
42:04
Speaker 10: thousand dollars. I have seen prices as low as ten thousand,
42:10
Speaker 10: but according to my last check, I was emailing a
42:14
Speaker 10: couple people this week to confirm the final price. They're
42:17
Speaker 10: at fourteen thousand dollars right now. That gets you, of
42:19
Speaker 10: course access to these luxury suites with food and alcohol,
42:23
Speaker 10: and we'll get you pit access to in some cases.
42:27
Speaker 10: Then you have a lot of pride.
42:28
Speaker 2: By the way, that was a tenth the price at
42:30
Speaker 2: the Moto GP in Austin, they were fourteen hundred.
42:33
Speaker 10: You know Austin is I love Austin. Of course, Austin
42:36
Speaker 10: had the first formula and raised in a long time
42:39
Speaker 10: in the US. We love Austin. But Miami, you know,
42:42
Speaker 10: has quite a reputation for partying and they really have
42:45
Speaker 10: to live up to it, and the prices are reflecting.
42:47
Speaker 1: That kind of talked to us about just Formula one
42:49
Speaker 1: in the US. I know, you know, the likes of
42:51
Speaker 1: you know, Matt Miller all into it. I'm sure you
42:54
Speaker 1: are as well. Where where is it just in terms
42:57
Speaker 1: of popularity and the growth of it?
43:00
Speaker 2: How has it grown since the first race in Austin.
43:02
Speaker 10: So it's been really interesting, you know, my Formula one
43:07
Speaker 10: has had some history in the US, starting in the
43:11
Speaker 10: late nineteen fifties. There have been random races everywhere from
43:15
Speaker 10: Michigan to California to New York, but it's never really
43:19
Speaker 10: got a foothold. Of course, the Austin Race started about
43:23
Speaker 10: twelve years ago. That was really the first one and
43:26
Speaker 10: since then. This is the second year for Miami. Also
43:29
Speaker 10: this year we've got a race in Las Vegas coming,
43:32
Speaker 10: which is going to be potentially even bigger and more
43:35
Speaker 10: expensive than Miami, So we're getting a bit of a foothold.
43:39
Speaker 10: A big part of that is the fact that Liberty
43:42
Speaker 10: Media is now the owner and really prioritizes television. Of course,
43:47
Speaker 10: TV audiences are very important in America if you want
43:50
Speaker 10: a big fan base exactly. I was just gonna say,
43:55
Speaker 10: you cannot underestimate the influence of Netflix's documentary series Drive
44:00
Speaker 10: to Survive. They've had I think they're in their fifth
44:02
Speaker 10: season now, and that is really humanized and drama dramaticized
44:08
Speaker 10: the drivers and the race and actually it's kind of
44:11
Speaker 10: been called the Kardashians on four wheels. It is kind
44:15
Speaker 10: of It's really interesting and it really has broad and
44:17
Speaker 10: so it's very fair to say that television. Of course,
44:21
Speaker 10: television audiences are up every year by double digit percentages.
44:25
Speaker 10: We do have a lot of momentum, and Miami is
44:27
Speaker 10: a big part.
44:28
Speaker 7: Of that all right.
44:28
Speaker 2: Listen, Hannah, while we have you here, I want to
44:30
Speaker 2: get your take on some of the other issues in
44:32
Speaker 2: the car industry. More broadly, we've been talking so much
44:36
Speaker 2: about Tesla cutting prices six times in a row now
44:39
Speaker 2: for the cheaper models. Last night we heard their raising
44:42
Speaker 2: prices for the more expensive Model X and Model S.
44:46
Speaker 2: What's your take on Tesla right now? They've seen incredible
44:49
Speaker 2: top line growth, not as much as Elan as projected,
44:52
Speaker 2: but they have a lot of competition coming into the market.
44:56
Speaker 10: Absolutely, I think the biggest problem that Tesla has right
44:59
Speaker 10: now is the connection to its owner, Elon Musk. I
45:02
Speaker 10: live in La. I can't tell you how many people say,
45:05
Speaker 10: I'm a little cringey when I drive my Tesla. I'm
45:09
Speaker 10: a little embarrassed about it. Because of some of the
45:14
Speaker 10: antics of the company owner. We can't disassociate Elon from
45:19
Speaker 10: Tesla right now, and I do think that's hurting the
45:21
Speaker 10: brand perception. Secondly, to your point, there are so many
45:26
Speaker 10: worthy competitors now to Tesla. Tesla one hundred percent beat
45:31
Speaker 10: everyone to the punch, but that was ten years ago
45:34
Speaker 10: and now we have amazing electric vehicles from outing BMW, Mercedes,
45:38
Speaker 10: Pull Star, you know, Volvo. The list goes on Porsche,
45:44
Speaker 10: every every automaker, now Kie.
45:46
Speaker 2: Ev Kia makes some kick can I say, I don't
45:50
Speaker 2: think kick butt EV's Hey? Listen one more on. Paul
45:55
Speaker 2: has like a two thousand and six fourteen twenty fourteen
45:59
Speaker 2: V it's a stick and he doesn't want to give
46:02
Speaker 2: it up, but he needs to buy a new car,
46:04
Speaker 2: and he said he can't find anything with a stick
46:06
Speaker 2: out there. What would you recommend to a sporty, successful
46:11
Speaker 2: former Wall Street gentleman like Paul Sweeney? What should he
46:14
Speaker 2: get with a stick? What's out there?
46:16
Speaker 10: You can get a nine to eleven with the stick,
46:19
Speaker 10: you go, let's just call it how it is. You
46:22
Speaker 10: can still buy a nine to eleven with a manual
46:24
Speaker 10: transmission and you will love it.
46:27
Speaker 1: Yeah, that sounds good.
46:28
Speaker 2: I've been telling you for a while, but you know what,
46:31
Speaker 2: Why put it off when eventually.
46:33
Speaker 10: A matter of time?
46:33
Speaker 1: It's only a matter of time. You guys have got
46:36
Speaker 1: me red. Well, so, Hannah, what's the next thing on
46:39
Speaker 1: the what's the next car you really want to test
46:42
Speaker 1: drive out there?
46:43
Speaker 10: I'll tell you what I'm gonna drive in a week
46:45
Speaker 10: and a half. And I'm actually very excited about it. It's
46:47
Speaker 10: the Lamborghini Hurricane Strato, which is their off quote unquote
46:51
Speaker 10: off road Lamborghini. I'm going to go out to Joshua Tree.
46:56
Speaker 10: We're gonna drive it in the desert.
46:57
Speaker 2: We're gonna video it.
46:59
Speaker 1: Yeah, they say off road. Instead of it being like
47:02
Speaker 1: an inch off the ground, it's like three inches off
47:04
Speaker 1: the ground.
47:04
Speaker 10: Yeah, exactly, So you're not going down a dirt trail
47:09
Speaker 10: very slowly.
47:09
Speaker 1: I'm still not sure you want to take that on
47:11
Speaker 1: in Manhattan Street with all the potholes.
47:12
Speaker 2: I know, is Hannah's job. By the way, She's gonna
47:15
Speaker 2: go to Joshua Tree, probably with some rock star in
47:19
Speaker 2: a Lamborghini. They're gonna do shrooms, camp out. It's gonna
47:21
Speaker 2: be awesome, and she gets paid.
47:24
Speaker 10: I will report that. You're welcome to join. You know,
47:26
Speaker 10: let's make a party of it.
47:28
Speaker 2: That is that is very cool, And a lot of
47:30
Speaker 2: these car makers are coming out with, you know, off
47:32
Speaker 2: right road versions. You mentioned the nine to eleven. They
47:34
Speaker 2: have their what's it called the Decar and it's like
47:36
Speaker 2: two hundred and fifty grand. Is it really like an
47:39
Speaker 2: off road worthy vehicle?
47:41
Speaker 10: I think so. I think so. Let's not forget. Lamborghini
47:44
Speaker 10: really does have sorry sorry, Porsche really does have a
47:48
Speaker 10: history of off road racing, of Raleigh racing. Of course,
47:51
Speaker 10: they're Rothman's cars, you know, decades ago were really successful
47:55
Speaker 10: and popular. So yeah, I believe it when Porscha says
47:58
Speaker 10: we've got an off road We've got a Safari style
48:00
Speaker 10: nine to eleven. I believe that.
48:02
Speaker 2: You can even get that Rothman's livery painted on your
48:06
Speaker 2: nine to eleven to car. I think it's like a
48:07
Speaker 2: twenty three thousand dollars option.
48:09
Speaker 10: The only thing about that is they changed the word
48:12
Speaker 10: to say rough roads instead of Rothman, even though delivery
48:16
Speaker 10: looks the same. Oh, which is yeah.
48:19
Speaker 2: A little week.
48:20
Speaker 1: Are there car makers, like luxury car makers that just
48:22
Speaker 1: say we're not gonna go ev Has anybody ever said
48:25
Speaker 1: that now?
48:26
Speaker 10: Well, yeah, Ferrari has said that. Lamborghini said that. There
48:29
Speaker 10: have been a lot who say that, Okay, who swear
48:33
Speaker 10: up and down we will never go electric. I think
48:35
Speaker 10: at one time Rules Royce said that, you know, they
48:38
Speaker 10: a lot say it. A lot also said we will
48:41
Speaker 10: never make an suv. So whenever someone says never, I
48:45
Speaker 10: do take it with a grain of salt.
48:46
Speaker 1: Yeah, we'll let you go. But the story I thought
48:48
Speaker 1: this week was hilarious or just really telling was Ford
48:51
Speaker 1: f one point fifty. They're bringing their electric truck to Norway,
48:55
Speaker 1: I mean.
48:56
Speaker 2: Which is double funny if you remember those Will Ferrell
48:58
Speaker 2: commercials in Super.
48:59
Speaker 1: Bowl exactly, So I'm like, I don't know where you're
49:00
Speaker 1: going to park that thing in EUROPEA Yeah, Henda Elliott,
49:03
Speaker 1: thanks so much for joining us. Really great stuff. We
49:05
Speaker 1: look forward to your reporting from Joshua Tree in a
49:07
Speaker 1: few weeks. Honda La she covers automotive stuff, and she
49:10
Speaker 1: actually gets to ride and test drive all these.
49:12
Speaker 2: Cars, and she's gotten on the highest of high high
49:15
Speaker 2: end yes vehicles expecting She writes for Bloomberg Pursuits. Check
49:19
Speaker 2: it out on the web.
49:20
Speaker 4: You're listening to the tape Cat's are live program Bloomberg
49:24
Speaker 4: Markets weekdays at ten am Eastern on Bloomberg Radio, the
49:27
Speaker 4: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
49:30
Speaker 4: You can also listen live on Amazon Alexa from our
49:33
Speaker 4: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
49:39
Speaker 1: One of the things that Matt and I like to
49:40
Speaker 1: do on this show is try to bring some perspective
49:44
Speaker 1: to these markets. Try to tap into some veterans who've
49:47
Speaker 1: been through a cycle or two in our Exicus certainly
49:49
Speaker 1: qualifies Chris Allman, He's the CIO of Colsters. What is Colsters?
49:53
Speaker 1: Is California State Teachers Retirement System? Is it big? Well?
49:58
Speaker 1: I think they got a portfolio valued three hundred and
50:00
Speaker 1: six billion as of every twenty eight, twenty three, So
50:04
Speaker 1: the answers yes, and of course based in Sacramento, California. Chris,
50:09
Speaker 1: I mean, and it's also.
50:10
Speaker 2: I think it's important to mention it's important, right, This
50:14
Speaker 2: is the retirement of teachers, the most underpaid people in
50:19
Speaker 2: our society, the most undervalued, and people like Chris helped
50:26
Speaker 2: to make sure that they can live well after they're
50:28
Speaker 2: done doing the service that they do for our for
50:31
Speaker 2: our society.
50:31
Speaker 1: Absolutely, it's a big responsibility. So Chris, given that kind
50:34
Speaker 1: of build up, I mean, twenty twenty two year to
50:37
Speaker 1: forget for most investors a little bit better starting off
50:40
Speaker 1: this year, we where do we go from here?
50:43
Speaker 5: Well, first off, thank you, gentlemen, thank you for that introduction,
50:46
Speaker 5: and you said term gentlemen loosely. Yes, Matt and Paul,
50:50
Speaker 5: it's been a long time. It is great to see you.
50:53
Speaker 5: I had to travel all the way to Berlin once
50:55
Speaker 5: just to see Matt on TV.
50:56
Speaker 3: Though.
50:57
Speaker 5: Hey, listen, guys, you know surprise saying my fiscal year
51:01
Speaker 5: is June thirty, so it is a positive year. We're
51:05
Speaker 5: up single digits, you know, high threes. That isn't a
51:09
Speaker 5: great year for us. We need to earn seven. But
51:12
Speaker 5: like you've been saying all day, everybody feels worried. Everybody
51:17
Speaker 5: is slightly negative. But the numbers aren't telling you that
51:20
Speaker 5: the stock market is up. Look at non US developed
51:26
Speaker 5: markets are up thirteen percent so far. They're up nine
51:30
Speaker 5: percent just in twenty twenty three. So maybe, just maybe
51:36
Speaker 5: they're going to pull off a smooth landing.
51:39
Speaker 2: We just talked with Phil Orlando over at Federated Hermes.
51:42
Speaker 2: He expects S and P earnings to total like one
51:44
Speaker 2: hundred ninety dollars, down from two nineteen last year. So
51:48
Speaker 2: there are some bears out there. What do you make
51:51
Speaker 2: of the sentiment in these markets, Chris.
51:55
Speaker 5: You know, Matt, I am looking out and I gotta
51:57
Speaker 5: tell you, I'm worried. I had talked to a lot
52:00
Speaker 5: of global CIOs and we are all on I feel
52:05
Speaker 5: like we're on thin ice. Liquidity is very tight. You
52:08
Speaker 5: don't go from zero to five hundred well in case
52:11
Speaker 5: of the Miami Grand Prix, you don't go from zero
52:13
Speaker 5: to five hundred basis points in nine months without seeing
52:17
Speaker 5: some pain. Not just Silicon Valley Bank or Signature Bank.
52:20
Speaker 5: But you know, the next shoe to drop is obviously
52:23
Speaker 5: probably going to be in commercial real estate office debt.
52:27
Speaker 5: People are seeing some of that debt roll and rates
52:30
Speaker 5: are higher and the buildings have to come down in value.
52:33
Speaker 5: We haven't seen any transactions, but just the cap rates
52:37
Speaker 5: have changed, so it's a tough market.
52:39
Speaker 2: And people got to refinance. There's a wall of maturity
52:43
Speaker 2: coming do that we're all scared of. I find it
52:45
Speaker 2: fitting that the that the phrase the next shoot to
52:49
Speaker 2: drop comes from real estate. Yes, and it's from New
52:52
Speaker 2: York tenements basically back in the day the walls and
52:56
Speaker 2: the I guess ceilings and Florida threat then that you
52:59
Speaker 2: could hear someone taking off his shoes when he got
53:02
Speaker 2: into bed, and you just waited after the first one
53:04
Speaker 2: for the next shoe to drop.
53:05
Speaker 4: That's good.
53:06
Speaker 5: You guys are amazing. What history buffs shoes news.
53:09
Speaker 2: You can use hue drops so so in terms of
53:12
Speaker 2: the Fed, how does Jerome How did Jerome Powell and co?
53:15
Speaker 2: Deal with this? We I guess I'll expect them to
53:17
Speaker 2: raise rates at least one more time. The debate is
53:21
Speaker 2: as to whether they cut rates when things start getting
53:23
Speaker 2: really painful, if we have big problems in commercial real
53:26
Speaker 2: estate for the financial stability picture, if we have a
53:30
Speaker 2: jumping unemployment, if another one or two million people lose
53:34
Speaker 2: or if one or two million people lose their jobs
53:36
Speaker 2: when we get to like four and a half percent,
53:37
Speaker 2: which relatively is relatively low, but still that would that
53:41
Speaker 2: would hurt for especially those losing the jobs. Does the
53:44
Speaker 2: FED have the resolve to keep fighting inflation or will
53:48
Speaker 2: they you know, blink and cut rates early?
53:52
Speaker 5: Well, I can't read his mind. And you know, you
53:55
Speaker 5: got to believe Jay Powell. He's he's been consistent all
53:58
Speaker 5: the way back since last last year. I was going
54:01
Speaker 5: to say last summer he is willing to hurt the
54:03
Speaker 5: economy to reduce inflation. But so far inflation has come down.
54:08
Speaker 5: Oil prices and commodity prices have softened. You guys are
54:11
Speaker 5: just talking about doctor Copper about thirty minutes ago. And
54:15
Speaker 5: so I got to think that amazingly they are orchestrating,
54:21
Speaker 5: even though it's hard to believe a soft landing. They
54:24
Speaker 5: are though going to raise rates obviously again at least
54:27
Speaker 5: once more. And as your last guest said, we're all
54:29
Speaker 5: going to be looking for the P word, the pauseword,
54:33
Speaker 5: and maybe they will. I don't think they're going to
54:35
Speaker 5: pivot this year. I think the market, the bomb market's
54:38
Speaker 5: overly optimistic about that. But I am amazed at how
54:43
Speaker 5: uncomfortable investors feel. Yet the planes are full, people are shopping,
54:49
Speaker 5: they're going to the Grand Prix, they're buying bottle service.
54:53
Speaker 5: This economy is strong, not just here. But Matt explained
54:56
Speaker 5: to me Europe. That is amazing to me.
54:59
Speaker 2: It is actually I mean, for months, Paul and I
55:02
Speaker 2: were terrified for Europeans on their behalf. We thought, oh
55:06
Speaker 2: my goodness, what are they looking forward to. It's going
55:08
Speaker 2: to be an awful winter. And it turned out, you know,
55:11
Speaker 2: the weather is what blessed them, I guess, and they
55:15
Speaker 2: seem to have avoided a recession. Also, you got the
55:18
Speaker 2: Chinese reopening, which was a surprise. With those things happening,
55:23
Speaker 2: I kind of expected a lift to commodities prices, right,
55:27
Speaker 2: and we still see oil now at seventy seven dollars
55:30
Speaker 2: of aarrol, even after the surprise cut. Why don't we
55:33
Speaker 2: see you know, iron Ore was tanking this morning when
55:36
Speaker 2: I came in. Why don't we see a lift of
55:38
Speaker 2: these commodity prices. Why isn't the global economy expected to
55:41
Speaker 2: grow with all of with all these blessings from beyond?
55:47
Speaker 5: You know, I'll tell you guys a secret. That's why
55:50
Speaker 5: I listened to your show every day when I drive in.
55:52
Speaker 5: You go, you know in California. You know, we're the
55:55
Speaker 5: graveyard shift of the financial markets. So we're coming in
55:57
Speaker 5: when the market's already open. But I listen to you
56:00
Speaker 5: guys because I'm baffled by this. You're right, I have
56:03
Speaker 5: been in Paul mentioned, I've been in this business a
56:05
Speaker 5: heck of a long time. And this market is really
56:09
Speaker 5: a conundrum because so many people feel like there's some
56:14
Speaker 5: kind of a pothole, not an O eight, but a
56:17
Speaker 5: pothole coming a recession. It's the most anticipated recession in history,
56:22
Speaker 5: and I can't believe I'm saying this. But therefore it
56:25
Speaker 5: may not happen. We may just muddle our way back
56:28
Speaker 5: out of this. I find that hard to believe I've
56:31
Speaker 5: been nervous. We have been defensive all year, and that's
56:35
Speaker 5: hurt us, not tremendously, but you know, every time there's
56:38
Speaker 5: a rally, we sell into it, and I see that
56:40
Speaker 5: in a lot of investors. The one thing I'm very
56:42
Speaker 5: concerned about is ill liquidity amongst major institutional investors, endowments.
56:50
Speaker 5: Certainly in there's no liquidation in private equity or in
56:55
Speaker 5: real estate, and those are two huge illiquid asset classes.
56:59
Speaker 5: We all count on some activity and cash flow and
57:02
Speaker 5: nobody's seeing anything. So if you're a mature plan like
57:05
Speaker 5: we are, where people have negative cash flows, you know
57:08
Speaker 5: your cash is dear in this market and you're holding
57:11
Speaker 5: on to it.
57:12
Speaker 1: All right, Chris, really appreciate getting a couple of minutes
57:14
Speaker 1: of your time. As always, next time you're in New York,
57:16
Speaker 1: please let us know. We'll get you in the studio here,
57:18
Speaker 1: have a proper discussion studio.
57:20
Speaker 2: We'll take you out to launch Man exactly right. Yeah,
57:23
Speaker 2: this is the big town. We stayed into hotail hours,
57:25
Speaker 2: sure le service. Absolutely. Chris Alman. He's the CIO of Colsters.
57:29
Speaker 1: They manage the money for the California State Teachers Retirement
57:32
Speaker 1: System been a longtime investor, really stage, we love getting
57:35
Speaker 1: his in the thoughts.
57:36
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
57:39
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
57:43
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
57:47
Speaker 2: at Matt Miller nineteen seventy three.
57:49
Speaker 1: And I'm Fall Sweeney. I'm on Twitter at pt Sweeney.
57:52
Speaker 1: Before the podcast, you can always catch us worldwide at
57:55
Speaker 1: Bloomberg Radio