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Microsoft, First Republic, the Debt Ceiling, and Watches · 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
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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
0:21
Speaker 1: All right, let's talk tech. The tech geeks are out
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Speaker 1: in force today. MSFT put up some numbers. Let's bring
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Speaker 1: in anaag Ran and man Deep Singh, our tech analyst
0:30
Speaker 1: at Bloomberg Intelligence. And we can't get rid of these guys.
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Speaker 1: They keep sticking around. So on, rog, let's start with
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Speaker 1: you Microsoft. I mean, this is a two trillion dollar
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Speaker 1: market cap company and stocks up seven percent today. Talk
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Speaker 1: to us first about the earnings and then second about activision.
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Speaker 3: Yeah, you know, Paul, you've known that I've liked this
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Speaker 3: company for many years. But frankly, going into the quota,
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Speaker 3: I was a little worded that they were going to
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Speaker 3: not only miss, but actually guide downwards. And the exact
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Speaker 3: opposite happened. Almost every major product category performed better compared
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Speaker 3: to last quarter, and you know, increasing revenue run rates,
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Speaker 3: So I have no words. I mean, they just blow
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Speaker 3: it out of the park.
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Speaker 1: Frankly, all right, activision. Activision is big, I mean sucks big.
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Speaker 2: Not hurting Microsoft, though, I should point out that, you know,
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Speaker 2: Microsoft was up like eight percent in the pre market trade.
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Speaker 2: Then the headline came across from the UK that the
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Speaker 2: regulator there is going to bigfoot this sixty nine billion
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Speaker 2: dollar purchase and Microsoft is still up seven percent.
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Speaker 3: Yeah, that's fair, but they are up on you know
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Speaker 3: numbers and not lets you know, not that it had
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Speaker 3: nothing to do with the you know, the acquisition in
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Speaker 3: our vue. But this is going to be a big
1:42
Speaker 3: problem in terms of how this thing gets settled. Now,
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Speaker 3: it's going to be a lot of court fighting and
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Speaker 3: legal issues. And I mean this just shows that regulators
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Speaker 3: around the world don't want big tech companies to buy anything.
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Speaker 3: I mean, this is so basically buybacks, more buybacks.
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Speaker 1: I saw Jenary on Bloomberg Television. I get to see
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Speaker 1: what she said. What is Jenry, who was our was
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Speaker 1: our anti trust expert in Bloomberg Intelligence, What is she
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Speaker 1: saying about it?
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Speaker 3: She thinks it's just going to be an ongoing legal
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Speaker 3: battle to try to get this resolved. I mean, that's
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Speaker 3: it's just going to take a lot more time to
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Speaker 3: figure out. Microsoft not going to back down anytime, honoring.
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Speaker 2: Why does Microsoft need call of duty? You know, why
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Speaker 2: do they need activision which makes call of duty? Now
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Speaker 2: that they have AI powered bing?
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Speaker 3: Well, you've told me this many times that you know
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Speaker 3: the cloud gaming is not ready here right now, and
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Speaker 3: you know maybe it will be ready three to five
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Speaker 3: years from now, and the whichever company has more content
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Speaker 3: is going to be dominant, is going to be one
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Speaker 3: of the dominating force there. And gaming has been a
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Speaker 3: big part of Microsoft since southiat Okoba.
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Speaker 4: All right.
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Speaker 1: Mendeed, Meta platform slash Facebook in this studio stock is
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Speaker 1: up seventy seven year to date. I thought these guys
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Speaker 1: had a problem with costs going crazy on something like
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Speaker 1: called the metaverse, which I don't know what that is.
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Speaker 1: Advertisers pulling back because there's a recession. How did they
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Speaker 1: turn the narrative around here for meta.
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Speaker 5: Well, it is still driven by cost cuts. Nothing has
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Speaker 5: changed in terms of the top line expectations. I think
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Speaker 5: what Alphabet did yesterday was to la fears that, you know,
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Speaker 5: digital advertising was going down the cliff. I don't think
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Speaker 5: that's happening anymore. And look, there will be at pricing headminds.
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Speaker 5: Search is the most resilient, which is what the alphabet
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Speaker 5: number showed. I do expect some at pricing headminds in
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Speaker 5: the results tonight, But when you are cutting ten billion
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Speaker 5: dollars in costs, I think it's always a good story
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Speaker 5: to sell, given we know these models are so good
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Speaker 5: in terms of you know, throwing out free cash flow.
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Speaker 5: So that's what's driving the stock right now.
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Speaker 2: Does Google have a weakness here? I know they dominate
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Speaker 2: in search with something like ninety percent of the global
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Speaker 2: search market right and Microsoft they're being had like six
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Speaker 2: or seven percent. But now they've got this AI powered bing.
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Speaker 2: I used it this morning to ask what kind of
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Speaker 2: infrastructure upgrades are needed on the US electricity grid if
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Speaker 2: people start adopting a higher share of evs rather than
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Speaker 2: ic E cars. You asked chat, I asked bing in
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Speaker 2: one in one sent in one you know search query,
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Speaker 2: I said, what kind of infrastructure upgrade does the US
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Speaker 2: electric grid need if we start buying more and more evs?
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Speaker 1: And the and the and the.
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Speaker 2: And the AI chat bot came back with an incredibly
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Speaker 2: elegant UH and direct answer, citing three different sources saying, look,
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Speaker 2: we're gonna need one and a half to two trillion
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Speaker 2: dollars of infrastructure upgrades by twenty thirty just to maintain
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Speaker 2: the electric grid where it is today. That's incredibly smart.
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Speaker 2: Google couldn't do anything near that.
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Speaker 5: Well, they will be, and that's the risk when you
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Speaker 5: have a ninety percent share in search. It's like anything
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Speaker 5: that comes on the horizon is always an imminent threat.
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Speaker 5: So in this case, clearly.
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Speaker 2: But there's never been anything on the horizon before.
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Speaker 5: Well no, I would disagree because a lot of people
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Speaker 5: and companies have tried PageRank. They've tried to copy Google's algorithm,
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Speaker 5: but they've never been as good in search as Google.
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Speaker 5: And that's why that mode has been penetrable, because no
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Speaker 5: one has been as good in search. So clearly, this
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Speaker 5: is something new on the horizon. It has a lot
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Speaker 5: of promise. We think it's going to raise Google's cost
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Speaker 5: of revenue because the cost of infrastructure goes up. But
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Speaker 5: will it be as good and as simple to use
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Speaker 5: as Google Search. The answer so far is no, and
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Speaker 5: it hasn't heard their revenue, which is why search are
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Speaker 5: performed last night.
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Speaker 1: But Matt had a I can't believe Matt put that
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Speaker 1: query in.
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Speaker 5: That's pretty yes, And that's where the search market could
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Speaker 5: grow because now you could search in terms of you know,
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Speaker 5: long questions, which you weren't able to do before, and
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Speaker 5: you don't have to browse through the links that they showing.
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Speaker 5: You said, this is a better way to consume Internet
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Speaker 5: content because you can search in paragraphs like long queries.
6:06
Speaker 1: And I just like liquor store near me. That was
6:10
Speaker 1: man so Ana Rod talk to us about just tech
6:14
Speaker 1: spending overall. I mean, you know, really over the last
6:17
Speaker 1: fifteen twenty years, it's just it seems like it's never slowed.
6:20
Speaker 1: You guys think you're smart, but reality is you're just
6:23
Speaker 1: you're just behind this great tech wave. I mean, anybody
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Speaker 1: could do that. But now we actually have some headwinds
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Speaker 1: to tech spending. Where are we seeing some of those headwinds?
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Speaker 1: How pronounced are they How long do you think they'll
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Speaker 1: they'll persist?
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Speaker 3: See, before last night, I thought it would last by
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Speaker 3: the end of the year. But to be very honest,
6:40
Speaker 3: after Microsoft, you know, we could already be at that
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Speaker 3: pivot at this point, and you know it will take
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Speaker 3: a few more couple of months more for us to
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Speaker 3: figure it out. I have no doubt that once all
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Speaker 3: of this thing you know, settles in next year or
6:51
Speaker 3: whenever that you know twelve month period is over, we're
6:54
Speaker 3: going to see a bounce back and a major bounce
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Speaker 3: back in growth rates. Because the shift or digital sift
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Speaker 3: to AI shift, all of these things is still in
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Speaker 3: such early innings that there is no reason for companies
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Speaker 3: not to spend on technology products.
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Speaker 2: Mandy.
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Speaker 1: I mean in your in the companies you cover, where
7:13
Speaker 1: you seeing some of the biggest growth in tech spending.
7:16
Speaker 1: Is there the next cloud out there? What's the next
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Speaker 1: big thing?
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Speaker 5: I think the next big thing is clearly large language
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Speaker 5: models and generative AI. That's what these generative AI, generative
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Speaker 5: generative AI, That's what Matt's query is about, you know,
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Speaker 5: in terms of looking at content that's out there on
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Speaker 5: the web and giving a smart long form results where
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Speaker 5: you don't have to go through different types of links.
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Speaker 5: And you can apply that concept with images, with different
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Speaker 5: types of content, so it's not just text based searches.
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Speaker 5: You can apply that framework to a lot of different
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Speaker 5: types and I think every company right now is tinkering
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Speaker 5: with it. Clearly there's a big infrastructure investment that and
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Speaker 5: Rog was alluding to. So that's going into that tech
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Speaker 5: spend is you have to upgrade your infrastructure. You can
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Speaker 5: use your existing data centers and run those queries and
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Speaker 5: that's a big, big tailwind for it spent.
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Speaker 2: I just asked Bing how much of a problem is
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Speaker 2: the rising rate environment in the United States for big
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Speaker 2: technology companies and their spending plans. And Bing says higher
8:18
Speaker 2: interest rates can hurt growing tech companies in three ways. First,
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Speaker 2: they increase the cost of borrowing more money to expand
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Speaker 2: a business. That's bad news for high growth tech companies
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Speaker 2: which are burning cash with widening losses. Second, it reduces
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Speaker 2: long term estimates for a company's earnings and free cash flow. Third,
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Speaker 2: it slows down businesses cash flows and stunts their reinvestment
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Speaker 2: into innovation and growth prosperty.
8:35
Speaker 1: Good good job being Men Deep Seeing on Around Rock
8:38
Speaker 1: and a Bloomberg Intelligence.
8:40
Speaker 6: You're listening to the team Ken's our live program Bloomberg
8:44
Speaker 6: Markets weekdays at ten am Eastern.
8:46
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8:48
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8:51
Speaker 6: you get your podcasts.
8:54
Speaker 1: We have state of the art facilities, and we literally
8:57
Speaker 1: met and I sit at a round table, which means
9:02
Speaker 1: we can actually have rounds at tables with smart anamals.
9:05
Speaker 1: We just did it with the tech geeks on our agrana,
9:08
Speaker 1: Man Deep Sing from Bloomberg Intelligence, two of the best
9:10
Speaker 1: on the street. Now we do it with the banks.
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Speaker 1: We have two other top analysts here, Herman Channey follows
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Speaker 1: the regional banks, Neil Sipes. He follows the big boy banks,
9:19
Speaker 1: the money center banks, along with Alison Williams. We got
9:21
Speaker 1: them here at our Bloomberg Interactive Broker studio. We're round
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Speaker 1: tabling this thing.
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Speaker 5: Herman.
9:25
Speaker 1: Let's start with you're you're the problem child here in
9:27
Speaker 1: the banking space at this First Republic thing. It's down
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Speaker 1: another gajillion percent today, it was down fifty percent yesterday.
9:35
Speaker 1: Is this thing a going concern? Is this something that
9:37
Speaker 1: the fdi SE has to come in and just say, okay,
9:40
Speaker 1: we're in charge now.
9:41
Speaker 2: Don't take going concern.
9:42
Speaker 1: I just did. I just did.
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Speaker 7: At this point, the bank's running out of options. There's
9:47
Speaker 7: been reports from Bloomberg that they're looking to sew up
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Speaker 7: to one hundred and fifty or one hundred billion dollars
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Speaker 7: in assets. Which I think it's going to be a
9:56
Speaker 7: tough We talked about this earlier. They only have about
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Speaker 7: fourteen billion dollars capital and any sort of haircut is
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Speaker 7: going to eat in that capital, and so it's they
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Speaker 7: don't have a lot of good negotiating power at this point.
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Speaker 7: So it's we're gonna wait to see.
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Speaker 1: So what does the FDI see? How does that organization work?
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Speaker 1: How did they decide when to step Are they asked
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Speaker 1: to step in? Do they look at the situation say
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Speaker 1: we are stepping in?
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Speaker 2: How does that work? At this point?
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Speaker 7: The regulators are embedded into First Republic over I would
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Speaker 7: say the past few weeks a month or so, and
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Speaker 7: they're seeing all the numbers that are coming in in
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Speaker 7: terms of deposit outflow, in terms of how they're managing
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Speaker 7: the balance sheet, so that they have a pulse on
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Speaker 7: the situation. And it's really up to their determination that
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Speaker 7: if they want to come in and close the doors.
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Speaker 1: And Mat I want to bring in Neil Sipes. This
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Speaker 1: is a dude we hired as a summer associate in
10:46
Speaker 1: Bloomberg Intelligence. Now he's pretty much running the whole place.
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Speaker 1: I mean, you know, so like Alison Williams, we love.
10:51
Speaker 1: She's kind of the rock star. But my you know,
10:54
Speaker 1: she's got people. You can't get through to her because
10:56
Speaker 1: she's got people to kind of shielder. So now we've
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Speaker 1: got Neil Sypes. He's research chalnels covering some of the
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Speaker 1: bigger banks, and.
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Speaker 2: He studied in the great state of Ohio.
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Speaker 8: Is that you're a DA flyer, that's right, that's right,
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Speaker 8: one of the few.
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Speaker 2: I was right next door at Antioch College, not studying,
11:09
Speaker 2: not studying.
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Speaker 1: Yeah, the University of Dayton, home of a great healthcare analyst,
11:13
Speaker 1: former bi analyst Michael Manns. Now it's sit investments in Minneapolis.
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Speaker 1: So nice lineage there of good analyst, research channels, command
11:22
Speaker 1: of Uniers of Dayton. You know, talk to us about
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Speaker 1: what we've seen some of the bigger banks here. How
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Speaker 1: are they performing in terms of just kind of the
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Speaker 1: core banking business as well as their capital markets businesses.
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Speaker 4: Yeah.
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Speaker 8: Sure, And I think it is a little bit of
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Speaker 8: a difference when you compare it with some of the
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Speaker 8: regional peers that have had more idiosyncratic issues for themselves.
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Speaker 8: And what we've seen is, you know, the larger banks
11:43
Speaker 8: have been able to weather this storm a little bit
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Speaker 8: better than what you've seen at some of the regionals,
11:49
Speaker 8: or at least stay out of the headlines in the
11:51
Speaker 8: sense that they've been some of these have been the
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Speaker 8: beneficiaries of some of these deposit flights what we're seeing
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Speaker 8: across the industry. It's no question that deposits are on
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Speaker 8: the decline, but ultimately some of these have some of
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Speaker 8: these larger banks have much more diversified deposit franchises that
12:07
Speaker 8: can weather these storms and ultimately have a more diversified
12:10
Speaker 8: client base, which ultimately, you know, supports the businesses across
12:15
Speaker 8: whether it's investment banking, asset management, wealth management, et cetera,
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Speaker 8: whereas some of these regionals are a little bit more narrow.
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Speaker 1: Now, I like your coverage. You go over some of
12:23
Speaker 1: the smaller investment banks, and if I were to go
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Speaker 1: back to the banking world, that's where I would go
12:27
Speaker 1: to the evercres, the moluses, maybe even ray j and
12:31
Speaker 1: Stefel talk goes out some of those smaller regional investment banks.
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Speaker 1: How are they doing? How do they compete against the
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Speaker 1: JP Morgans and the Morgan Stanleys of the world.
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Speaker 8: Yeah, well, some of those boutique investment banks, they compete
12:41
Speaker 8: specifically in the advisory space, and like you said, that's
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Speaker 8: the place you wanted to be. Maybe in twenty twenty one,
12:46
Speaker 8: maybe not so much right now, as we've seen deal
12:49
Speaker 8: activity pretty much on ice since the beginning of twenty
12:52
Speaker 8: twenty two. Keep in mind we were coming off that
12:54
Speaker 8: record twenty twenty one. But as we've seen interest rates rise,
12:57
Speaker 8: we've seen economic expectations sour a little bit, it's become
13:01
Speaker 8: a lot more difficult for deals to take place. Confidence
13:03
Speaker 8: is lower, market sentiment is weak. When you have volatility,
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Speaker 8: it's a lot harder for buyers and sellers to come
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Speaker 8: together on a price, and ultimately that's going to be
13:11
Speaker 8: an issue. Not to mention what we've seen with capital markets,
13:14
Speaker 8: it's a lot more difficult and a lot more expensive
13:17
Speaker 8: to raise.
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Speaker 2: That capital Herman in terms of First Republic, obviously, the
13:23
Speaker 2: share price is in free fall right now, and it
13:27
Speaker 2: had been grouped together with a number of other regional banks,
13:29
Speaker 2: including pac West. Yesterday pack West was also decimated almost
13:34
Speaker 2: it was down by like nine percent. Today I noticed
13:36
Speaker 2: pac West bouncing like eighteen percent in the pre market
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Speaker 2: and it's up right now another six percent. Why is that?
13:45
Speaker 2: Is it just that we thought, oh, maybe pack West
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Speaker 2: isn't a doom loop as well, and now we realize
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Speaker 2: they're okay.
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Speaker 7: Well, they reported numbers yesterday and had some really encouraging numbers,
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Speaker 7: specifically to deposits, and deposits were down twenty percent through
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Speaker 7: March twentieth. They had pre announced that mid quarter, and
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Speaker 7: at the end of the quarter deposits came back a
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Speaker 7: little bit, and then through Friday a deposits came back
14:14
Speaker 7: more so. So the fear that that depositive flight was
14:18
Speaker 7: happening with with PacWest has been alleviated a bit, similar
14:22
Speaker 7: to what has happened with Western Alliance as well. So
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Speaker 7: it does seem like the issues really are focused on
14:29
Speaker 7: First Republic.
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Speaker 2: Well, and look, PacWest had a fifty two week high
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Speaker 2: of about thirty bucks a year. They're down to ten,
14:35
Speaker 2: so taken down by two thirds. First Republic had a
14:38
Speaker 2: fifty two week high of one seventy right, and they're
14:40
Speaker 2: trading for five dollars a year, much worse. But I
14:45
Speaker 2: don't understand why yesterday's release prompted, you know, a fifty
14:50
Speaker 2: percent drop and another thirty percent drop today. I mean, yes,
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Speaker 2: they had one hundred billion dollars of outflows in the
14:55
Speaker 2: first three months, but they only had one point seven
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Speaker 2: percent of outflows in April, right, So it does look
15:02
Speaker 2: like they stemmed the bleeding.
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Speaker 7: It looks like they stem the bleeding. But there's overly
15:06
Speaker 7: reliance now on higher cost CDs. We're talking four and
15:10
Speaker 7: a half five percent CDs that they have to rely on,
15:13
Speaker 7: and also wholesale funding borrowing from the discount window, borrowing
15:17
Speaker 7: from the FHLB that's costly as well. So where though
15:21
Speaker 7: the costlyer funding is going to squeeze their margins and
15:24
Speaker 7: spur negative earnings for the foreseeable future. So that's really
15:29
Speaker 7: what a spooking folks.
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Speaker 2: Neil has it affected the companies that you cover. I mean,
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Speaker 2: it's quite different from Stefel and Evercore obviously First Republic,
15:38
Speaker 2: but they have high net worth individual maybe they have
15:40
Speaker 2: bankers from Stefel in Evercore that got their zero percent
15:43
Speaker 2: mortgages there.
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Speaker 8: Yeah, it's it's definitely a different story for stephl and
15:47
Speaker 8: Raymond James because when you think about these two institutions,
15:51
Speaker 8: it's more so a wealth manager that owns a bank
15:53
Speaker 8: rather than a bank that owns other division.
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Speaker 2: But I just mean, are there any knock on effects?
15:57
Speaker 2: Are you hearing people from no doubt saying like hey,
15:59
Speaker 2: I have a plan, or we're taking assets from them,
16:02
Speaker 2: or you know.
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Speaker 8: Well for sure, I mean you've seen the flight of
16:06
Speaker 8: some advisors from First Republic. When you have issues at
16:09
Speaker 8: the underlying bank, at someone like First Republic, you ultimately
16:12
Speaker 8: see the flight of some of those advisors and ultimately
16:14
Speaker 8: those client assets to some of these other competitors. But
16:17
Speaker 8: to be fair, the Stefil and Raymond James of the world,
16:20
Speaker 8: they're also seeing the same issues of deposits perhaps shifting
16:23
Speaker 8: between either lower cost bank accounts all the way up
16:27
Speaker 8: to those money market funds that are ultimately leaving the
16:29
Speaker 8: balance sheet. Steefeil, on one hand, has been very aggressive
16:32
Speaker 8: in sharing that interest rate increase with its clients. Others
16:36
Speaker 8: perhaps less so when you see those deposits leave the
16:38
Speaker 8: balance sheet.
16:39
Speaker 2: Herman Chan is such a rock stary.
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Speaker 1: He had to leave because TV beckond they want to
16:44
Speaker 1: know what's going on the First Republic. So he just ran,
16:46
Speaker 1: literally ran to the TV studio. When Antorres says, get
16:49
Speaker 1: in studio, Yeah, get in studio. You do not mess around.
16:52
Speaker 2: And Torres is a Bloomberg television producer to whom you
16:55
Speaker 2: do not say no.
16:55
Speaker 1: Exactly right. So Neil, again you follow some of these
17:00
Speaker 1: regional investment banks, they focus really heavily on advisory work,
17:03
Speaker 1: as you said, more so than capital markets. There ain't
17:06
Speaker 1: no deals happening, man, What are they saying about the
17:09
Speaker 1: m and A environment out there?
17:11
Speaker 8: Yeah, and they're saying that there's not much happening. And unfortunately,
17:15
Speaker 8: you know, back in January, we were hearing a little
17:17
Speaker 8: bit of some positive comments of saying, look, markets had
17:20
Speaker 8: turned around a little bit in the fourth quarter and
17:22
Speaker 8: that was extending in the first quarter. So there were
17:25
Speaker 8: some growing opportunities, some green shoots, so to speak. But
17:28
Speaker 8: ultimately what they've said so far this quarter is March
17:31
Speaker 8: pretty much canceled that out right, the volatility that we
17:33
Speaker 8: saw around banks that spread across broader markets. Yes, we're
17:36
Speaker 8: still up on the year, but that inherent volatility and
17:40
Speaker 8: ultimately just the lack of clarity as to where monetary
17:43
Speaker 8: policy is going to be, how the economy is going
17:45
Speaker 8: to look, how inflation is trajecting throughout the rest of
17:48
Speaker 8: the year. That's ultimately going to continue away on deal announcements,
17:52
Speaker 8: which therefore ways on future fees.
17:54
Speaker 1: You know, on a scale one to ten, ten being
17:56
Speaker 1: the best. How was your experience at the University of Dayton.
18:00
Speaker 8: Yeah, no, hesitation.
18:02
Speaker 1: You're a big fan, right, yep?
18:03
Speaker 8: Yeah. I mean I can't speak highly enough of it.
18:06
Speaker 1: And you are you a high native?
18:08
Speaker 4: I am not.
18:09
Speaker 8: I'm a Connecticut native actually. Okay, So I did a
18:11
Speaker 8: little quick trip to the Midwest and sort of came back.
18:14
Speaker 8: But ultimately, I mean it's it's a great you know,
18:17
Speaker 8: education there, and they have a student run investment fund yep,
18:20
Speaker 8: and so they're able to, you know, kind of put
18:22
Speaker 8: that hands on experience with analysis.
18:24
Speaker 2: Did you ever get a milkshake at Young's Dairy Farm?
18:27
Speaker 8: I did not. I'm not familiar with them.
18:29
Speaker 2: Have you not be into Yellow Springs?
18:30
Speaker 4: I have not.
18:31
Speaker 8: Oh, I've driven through it.
18:32
Speaker 2: I think he's all business, all the time, all business
18:34
Speaker 2: all the the kids a day.
18:36
Speaker 1: They're not out there playing around, they're studying, working hard.
18:38
Speaker 1: Neil Sipes he's equity research channelist at Bloomberg Intelligence, homegrown,
18:42
Speaker 1: home trained, and now he's a rockst Army. Appreciate getting
18:45
Speaker 1: a few miutes just time to talk about some of
18:46
Speaker 1: these banks.
18:48
Speaker 6: Here you're listening to the tape. Cat's are Live program
18:51
Speaker 6: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
18:55
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18:57
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18:58
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19:01
Speaker 6: from our flagship New York station. Just say Alexa play
19:04
Speaker 6: Bloomberg eleven thirty.
19:08
Speaker 2: We're bringing now Christelle Rendu de Lin. She's the head
19:11
Speaker 2: of investments at Fonto Bell normally in Zurich. She joins
19:14
Speaker 2: us live in the Bloomberg Interactive Broker Studio. Great to
19:17
Speaker 2: have you here, Christelle. Let me first ask you what
19:21
Speaker 2: you make of these markets. You know, we saw so
19:24
Speaker 2: much volatility in the first three months and it just
19:27
Speaker 2: dropped down to nothing in April. Okay, yesterday we broke
19:30
Speaker 2: out of the range a little on the stock side,
19:33
Speaker 2: certainly not in fixed income. What's going on?
19:35
Speaker 9: Well, I think, I mean, you just nailed it. We
19:37
Speaker 9: are completely in the wait and see mode. The recession
19:41
Speaker 9: has been spoken about for about a year and it
19:45
Speaker 9: just is not materializing. It's very hard to find strong
19:49
Speaker 9: positive news that would you know, put you on risk on.
19:52
Speaker 9: But at the same time, you know you don't go
19:54
Speaker 9: risk off because it's it is just not crumbling down
19:57
Speaker 9: or certainly not as fast as people would have it.
20:00
Speaker 2: So, I mean, we were all focused so much on
20:03
Speaker 2: the FED. It was like Bloomberg surveillance twenty four to
20:06
Speaker 2: seven here until this week. Really, all of a sudden
20:11
Speaker 2: people started to care about caring about earnings and putting
20:13
Speaker 2: FED you know, forecasts on the back burner. Do you
20:18
Speaker 2: think we've shifted for good or are we going to
20:21
Speaker 2: go back to our incredible macro focus, you know, as
20:25
Speaker 2: soon as we get big economic data on Friday.
20:27
Speaker 9: Yeah, I think it's too soon to write up the
20:29
Speaker 9: macrol because actually this is the story. The earnings are
20:32
Speaker 9: the realization of what's happening on the macro, and the
20:36
Speaker 9: FED has a tough job now it's you know, inflation
20:39
Speaker 9: is still there. They still need to go. But you
20:42
Speaker 9: see the first cracks in the system. And the whole
20:44
Speaker 9: question is, you know, are they just isolated cracks or
20:47
Speaker 9: is it a sign of more to come? So I
20:50
Speaker 9: think the story is quarely in the macro camp still.
20:53
Speaker 1: So where do you guys have on topo come down
20:55
Speaker 1: on this whole thing? I mean, I think the FED.
20:58
Speaker 1: I guess the risk is the FED has gone to far,
21:00
Speaker 1: will go too far and in fact break this economy.
21:04
Speaker 1: Is that the side you've come down on. You think
21:06
Speaker 1: there's a risk here that this is there's gonna be recession,
21:08
Speaker 1: and it might be more than people are expecting.
21:10
Speaker 9: Yeah, the house view is indeed that we will go
21:13
Speaker 9: into into recession, not necessarily one that sees on employment
21:18
Speaker 9: going to the roof, but one that will be enough
21:21
Speaker 9: to stop the FED and potentially bring it onto a
21:25
Speaker 9: rate cut cycle. I think personally it's too early to
21:29
Speaker 9: go for that. I think they've got a job to
21:31
Speaker 9: do and they just can't let go just now. But
21:34
Speaker 9: we also history has told us that, let's say, if
21:36
Speaker 9: the cracks really materialize, they're gonna take this.
21:39
Speaker 2: It's gonna be difficult for the FED to stand up
21:42
Speaker 2: to the political pressure. Nonetheless, it does look like they're
21:45
Speaker 2: going well, certainly twenty five basis points more next week. Right,
21:49
Speaker 2: do you expect an increase after that? Because inflation looks
21:52
Speaker 2: pretty sticky, and Jerome Powell, if you take him as word,
21:56
Speaker 2: he is determined to break the back of inflation.
21:59
Speaker 9: Look, I think the sign for me it hasn't changed
22:02
Speaker 9: that they'd like to do as little as possible so
22:05
Speaker 9: that they don't break the economy. But they will have
22:08
Speaker 9: to do as much as needed to show that inflation
22:11
Speaker 9: has turned around. And so at the point that the
22:13
Speaker 9: Fed can say this is it, guys, you see inflation
22:17
Speaker 9: has durably peaked, then they will step off the pedal.
22:21
Speaker 2: But when is that? You know, when he has a
22:22
Speaker 2: press conference, reporters are trying to needle him to get
22:26
Speaker 2: him to say something. He just wants to get close
22:29
Speaker 2: to two. But does that mean three? Does that in four? Yeah?
22:33
Speaker 9: I think they just I think they probably just don't
22:35
Speaker 9: know when that is, you know, when we've really reached
22:37
Speaker 9: the peak. I don't think it will be a question level.
22:40
Speaker 9: I think it will be a question of really seeing, Okay,
22:43
Speaker 9: we can now say the peak is behind us. They've
22:46
Speaker 9: done five hundred basis point one shot. That's one of
22:49
Speaker 9: the fastest tightening cycles. You've got a few cracks here
22:52
Speaker 9: and there. I think when they can stop, they will,
22:56
Speaker 9: But they want if inflation has not topped.
22:59
Speaker 1: All right, So what are you telling you're coming? You're
23:01
Speaker 1: here in New York, first time you said in almost
23:03
Speaker 1: a decade. Yeah, so you're meeting with I'm guessing, shame
23:05
Speaker 1: on me in special investors here in New York. You
23:08
Speaker 1: sit down with some of the big players here in
23:10
Speaker 1: New York. What are you telling them to do in
23:12
Speaker 1: terms of, you know, investments over the next six, twelve,
23:15
Speaker 1: eighteen months.
23:15
Speaker 9: So the first thing I tell them is always the
23:17
Speaker 9: same thing, is just to start with not only to
23:21
Speaker 9: think about investment views, but about the portfolio construction. This
23:24
Speaker 9: is the one thing that is never talked about is
23:26
Speaker 9: if you get it wrong in your risk appetite, it's
23:29
Speaker 9: going to be wrong anyway. So that's the first thing.
23:31
Speaker 9: Where's your own risk appetite and tolerance to risk? And
23:34
Speaker 9: I would go balanced, to be honest, It's not for me.
23:38
Speaker 9: It's not an environment you go all cash unless you
23:41
Speaker 9: think all hell, you know it's going to break loose,
23:43
Speaker 9: and I don't think we're there. So I don't have equity,
23:47
Speaker 9: I don't have fixed income, And I actually think the
23:49
Speaker 9: big change is that Treasury will be back in town
23:53
Speaker 9: as a safe haven play. They haven't played their role
23:57
Speaker 9: last year for obvious reasons, but they will be back.
24:00
Speaker 2: You think investors worried about a recession are going to
24:03
Speaker 2: pile back in. I think is that going to drive
24:06
Speaker 2: rates down?
24:07
Speaker 9: I don't think they're gonna apply by kin, but I
24:09
Speaker 9: think they're not there, and so if we do get
24:11
Speaker 9: a recession, we're going to get a serious rady on
24:14
Speaker 9: those rates because people I'm not in and I think
24:18
Speaker 9: that makes them will still be at plate.
24:20
Speaker 2: I wonder what you think about You are an economist.
24:22
Speaker 2: You got your PhD at the London School of Economics.
24:25
Speaker 1: That's good.
24:26
Speaker 2: We have rates that, you know, relative to the levels
24:29
Speaker 2: we saw in the eighties, for example, don't look very high.
24:33
Speaker 2: But we didn't have this kind of debt load in
24:36
Speaker 2: the eighties. Right if you have to refinance, you know,
24:40
Speaker 2: today's debt versus debt back then, it's way more painful.
24:44
Speaker 2: Right at the US is now at what one hundred
24:47
Speaker 2: and twenty percent debt to GDP. Back in the early eighties,
24:50
Speaker 2: we were like twenty percent debt to GDP, So five
24:53
Speaker 2: percent now hurts a lot more than maybe seventeen percent
24:56
Speaker 2: then did Is that gonna change the the equation?
25:02
Speaker 9: Yeah, I think it's going to change the equation, And
25:04
Speaker 9: I think that's the reason we will not get back
25:06
Speaker 9: to the inflation rates that we've had for the last
25:09
Speaker 9: twenty years.
25:09
Speaker 2: We're not going back to I don't think so.
25:11
Speaker 9: I don't think so. I don't think so and you
25:13
Speaker 9: know what I mean, two percent was chosen. It was chosen.
25:17
Speaker 9: It can't be ten, it can't be six. But does
25:19
Speaker 9: it have to be two?
25:20
Speaker 2: I'm not sure.
25:21
Speaker 9: I mean we can live with three.
25:22
Speaker 4: All right.
25:23
Speaker 1: Christa, you're based in Zurich, you're from Geneva, so you
25:26
Speaker 1: are Swiss all the way through. What does it mean
25:29
Speaker 1: to an average Swiss citizen that ubs acquired credit? Swiss
25:34
Speaker 1: people are telling people are telling me it's a big
25:37
Speaker 1: deal for the average Swiss person.
25:39
Speaker 9: Well, it is a big deal, yeah, because it's the
25:42
Speaker 9: two largest banks getting together. So firstly, you know, you'd
25:46
Speaker 9: wish it hadn't happened. But secondly, the most important was,
25:50
Speaker 9: as always to stabilize market, and that was absolutely key.
25:55
Speaker 9: You know it from here as well. You cannot let
25:59
Speaker 9: crisis of confidence get get in the way. But I
26:03
Speaker 9: think the ink is not dry on all of that.
26:04
Speaker 1: People are angry, right, people are angry. Angry.
26:08
Speaker 9: Well, they're angry because you know, all of that happened
26:11
Speaker 9: very quickly in a sense, so the the government's decisions
26:14
Speaker 9: happened very quickly, and so you hear a lot of
26:17
Speaker 9: political voices saying, you know, we want that you look
26:20
Speaker 9: into the competition laws and and and things like that.
26:23
Speaker 9: So I think we we.
26:26
Speaker 1: Are lots of banks or but these are the two
26:29
Speaker 1: big ones. These are There's nothing else like that, There's
26:31
Speaker 1: not I mean, so this is really level.
26:36
Speaker 2: It's just is do you like Zermatt or Saint Maurritz? Like,
26:41
Speaker 2: where's the best place to ski for you? East side?
26:44
Speaker 2: West side?
26:46
Speaker 9: God, that is a really difficult one. You know, I'm
26:48
Speaker 9: a mad person, but since I've moved to Zurich, I
26:51
Speaker 9: have to say the anger in is wonderful as well.
26:54
Speaker 9: So I'm gonna draw my joker card.
26:57
Speaker 2: There's a good question.
26:59
Speaker 1: Yeah, I mean, just so many choices there in Switzer
27:01
Speaker 1: met We got a road trip this. Yes, we do
27:04
Speaker 1: a remote broadcast from Zurich a couple of days Geneva
27:07
Speaker 1: couple days start.
27:09
Speaker 2: I'll put the tick.
27:10
Speaker 9: Days and we'll hoast you up from Tobol.
27:12
Speaker 1: You see your guests absolutely. Christo Rendu Day Lindt, head
27:17
Speaker 1: of investments for Von Tobel based in Zurich.
27:21
Speaker 6: You're listening to the Team Ken's Our Line program Bloomberg
27:25
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot com,
27:28
Speaker 6: the iHeartRadio app, and the Bloomberg Business app or listen
27:31
Speaker 6: on demand wherever you get your podcasts.
27:35
Speaker 1: Sat down to Washington, DC, talk about not being comfortable.
27:38
Speaker 1: We'll talk to Nathan Nathan Dean, he's a senior policy
27:41
Speaker 1: house of Bloomberg Intelligence, as well as Emily Wilkins, reporter
27:44
Speaker 1: for Bloomberg Government. They join us here to get the
27:46
Speaker 1: latest from DC. Nathan, let's start with you here. What
27:49
Speaker 1: does my Congress have to do here? I mean, we've
27:51
Speaker 1: got to continue to pay our bills and you know
27:53
Speaker 1: we're getting into May here. Give us just the latest
27:56
Speaker 1: on this debt ceiling and all that kind of stuff.
27:58
Speaker 10: Well, you know, so obviously you know, the House Republicans
28:01
Speaker 10: are coming together with a bill. You know, voter is
28:04
Speaker 10: expected later today. But you know, whether this bill passes
28:08
Speaker 10: or not, you know, this is represents the first step
28:11
Speaker 10: that I think the markets really want to see happen
28:13
Speaker 10: in Washington, and that's negotiations. I mean, they want to
28:16
Speaker 10: see Congress come together with the White House and get
28:18
Speaker 10: this done. So you know, this is one of those
28:21
Speaker 10: like chicken before you know, what comes first, the chicken
28:23
Speaker 10: or the egg? You know, does Congress negotiate or does
28:26
Speaker 10: the market freak out? And both are waiting for the
28:28
Speaker 10: other to do something, and you know, at least Congress
28:32
Speaker 10: is showing that they're doing something so the market can
28:34
Speaker 10: actually start preparing for that.
28:37
Speaker 2: Emily, let me ask you about the possibility of McCarthy's
28:41
Speaker 2: plan passing. I thought, you know, as a no brainer.
28:45
Speaker 2: The Republicans all want to be on, you know, one team,
28:49
Speaker 2: and they're going to take it to the White House
28:50
Speaker 2: with this plan. But now I hear that some Republicans
28:53
Speaker 2: are balking because they want subsidies, which totally confuses me
28:58
Speaker 2: because I grew up, you know, and Alex P. Keaton
29:01
Speaker 2: card caring Republican, and I thought small government and no subsidies.
29:05
Speaker 2: But why are Republican congressmen wanting to hold onto these
29:08
Speaker 2: government handouts.
29:10
Speaker 11: Because it's what's good for their district. A lot of
29:12
Speaker 11: these lawmakers who want to see more of these tax
29:15
Speaker 11: credits on round bile fuels, they come from places where
29:18
Speaker 11: ethanol is a big deal because their districts grow a
29:20
Speaker 11: ton of corn. You've got Nancy Mace, who has a
29:22
Speaker 11: lot of solar producing companies in her district. She wants
29:25
Speaker 11: to make sure that those subsidies are there. I mean, yeah, look,
29:29
Speaker 11: Republicans want to be unified, but what they want even
29:31
Speaker 11: more than that is to get reelected. And they know
29:34
Speaker 11: that because of the narrow margins, it's easier for them
29:37
Speaker 11: to go up and say, hey, we really want this,
29:39
Speaker 11: and if you want my vote, you have to do something.
29:42
Speaker 11: That's why we saw changes to the bill made at
29:44
Speaker 11: two o'clock in the morning last night to try and
29:47
Speaker 11: really firm up support for a potential vote today. But
29:50
Speaker 11: we still really don't know if Republicans actually have the votes.
29:54
Speaker 11: McCarthy said he felt confident, but when you're talking with
29:57
Speaker 11: Majority Leader Steve Scalice, he keeps saying the vote will
30:00
Speaker 11: be this week, but but he won't commit to bringing
30:02
Speaker 11: it to the floor today necessarily.
30:04
Speaker 2: It's just so crazy. When I was a kid, the
30:06
Speaker 2: Republican Party was about small government, free markets, no subsidies,
30:11
Speaker 2: what no government?
30:13
Speaker 1: And I'm into Republican Party that you could fill a
30:15
Speaker 1: show on that.
30:17
Speaker 2: Emily, you should do a show what happened to the
30:19
Speaker 2: Republican Party?
30:20
Speaker 1: Where did they go?
30:22
Speaker 11: Done?
30:23
Speaker 1: The one? Yeah, I mean my dad would still vote
30:25
Speaker 1: for Nixon if Nixon ran today.
30:27
Speaker 4: You know.
30:28
Speaker 1: That's but those I don't know, We'll see, uh So Emily.
30:32
Speaker 1: President Biden announced he's running. Kind of an odd way
30:35
Speaker 1: to do it with a videotape. It's like he's running
30:37
Speaker 1: for you know, school president.
30:38
Speaker 2: But under the radar, under the rax o'clock in the morning,
30:41
Speaker 2: right in the middle of the Fox News Tucker Carlson
30:44
Speaker 2: news cycle, Like so no one would notice. What did
30:47
Speaker 2: they did? They were they trying to sneak it out?
30:49
Speaker 11: Emily, Well, we all knew it was coming. We reported
30:52
Speaker 11: on the fact that it was coming. Look, I think
30:55
Speaker 11: everyone knew for a while that Biden was going to run,
30:57
Speaker 11: and it was just a matter of kind of making
30:59
Speaker 11: it official. Videos are now what all the cool kids
31:01
Speaker 11: are doing these days. Saw Tim's got put out one
31:03
Speaker 11: out there, and Nikki Haley put one out there, and look,
31:06
Speaker 11: I don't think it's a giant shock that Biden's running again.
31:09
Speaker 11: I just think that he had to make it official
31:10
Speaker 11: and get the message out there, because you know, last
31:13
Speaker 11: time he was like, look like, you know, I'm running
31:15
Speaker 11: kind of as an alternative to Trump, you know, to
31:17
Speaker 11: get government back on track. And now the message has
31:20
Speaker 11: to be we're finishing the job. And you know, at
31:22
Speaker 11: this point, we really it's been interesting, We really haven't
31:25
Speaker 11: seen any Democrats yet come out and support Biden, even
31:29
Speaker 11: though there are numerous polls out there that show that
31:31
Speaker 11: a lot of Democrats are concerned about Biden running again.
31:34
Speaker 11: They're concerned about his age, they want a fresh candidate.
31:38
Speaker 11: But at this point, no one's really come forward that
31:40
Speaker 11: seems to have the chance of seriously getting the nomination.
31:43
Speaker 2: Maybe they just think it's a vote for Harris.
31:45
Speaker 1: I mean, you didn't see much of the Tom free
31:49
Speaker 1: op ed in the Times today kind of goes to
31:51
Speaker 1: that issue.
31:51
Speaker 2: So we didn't see much of her at all in
31:53
Speaker 2: the video. But I think a lot of people are
31:56
Speaker 2: concerned that a vote for Biden or you know, optimistic
32:00
Speaker 2: to vote for Biden is a vote for Harris. I
32:02
Speaker 2: don't know where people fall on that, but you know.
32:05
Speaker 1: Hey, Nathan Speaker, Kevin McCarthy's Speaker of the House, how
32:09
Speaker 1: important is the next few weeks for the speaker? Here
32:12
Speaker 1: it feels like, man, this is a referendum on his leadership,
32:14
Speaker 1: just point blank.
32:16
Speaker 10: Well absolutely, I mean this was something that everybody knew
32:19
Speaker 10: was coming. You know, there was going to be a
32:21
Speaker 10: piece of legislation where he would need to get his
32:23
Speaker 10: party in order, and this is it. And so if
32:26
Speaker 10: he can show that he can get all of the
32:28
Speaker 10: GOP on board onto this deal, this is a big
32:31
Speaker 10: win for him. I mean, this gives him a lot
32:32
Speaker 10: more leverage in these negotiations over the dead ceialing. If
32:36
Speaker 10: somehow he doesn't, well, then you know, people are going
32:39
Speaker 10: to start chipping away at his leadership and their questions
32:41
Speaker 10: are going to be asked and so forth. And that's
32:43
Speaker 10: what the market doesn't like, and market doesn't like uncertainty,
32:47
Speaker 10: and so you know, we are actually just thinking that,
32:50
Speaker 10: you know, whether or not this bill passes or not,
32:53
Speaker 10: I'm sorry. If the bill passes, it's not going to
32:55
Speaker 10: go anywhere. I mean, all this is dead on arrival.
32:58
Speaker 10: But if the bill passes, at least the market can
33:00
Speaker 10: take to the point that negotiations are going to start
33:03
Speaker 10: in earnest. Now this gives them something to go to
33:06
Speaker 10: the White House and say let's start here. So, uh,
33:09
Speaker 10: you know, we haven't really seen market angst when it
33:10
Speaker 10: comes to the dead healing just yet. You know, as
33:13
Speaker 10: the X dat gets closer and closer, you're certainly going
33:16
Speaker 10: to see it both on the equity side and the
33:17
Speaker 10: fixed income side.
33:18
Speaker 2: Do the uh, you know, President Biden mentioned the Mago Republicans.
33:23
Speaker 2: He said they want to cut social Security. I'm not
33:26
Speaker 2: sure if that's true. But Emily, what role do does
33:31
Speaker 2: the you know, the right wing of the party play
33:33
Speaker 2: in this? What role do the you know, Marjorie Taylor
33:36
Speaker 2: Greens play in Kevin McCarthy's uh, you know, power in
33:40
Speaker 2: the House.
33:42
Speaker 11: I mean, certainly McCarthy has had to be very diligent
33:45
Speaker 11: right about catering to the Marjorie Taylor Greens, to those
33:49
Speaker 11: sort of on the conservative side, But at the same point,
33:52
Speaker 11: he has not been able to ignore the moderates. And really,
33:55
Speaker 11: what we had a good reminder of yesterday is that
33:58
Speaker 11: it's not just these ideological streams. It is literally any
34:01
Speaker 11: group of lawmakers can hold things up. There are four
34:05
Speaker 11: Republican members from the state of Iowa. Iowa grows a
34:08
Speaker 11: lot of corn, a lot of concern there about biofuels.
34:10
Speaker 11: All four Iowans were in McCarthy's office yesterday trying to
34:14
Speaker 11: get him to make changes on the bill that he
34:16
Speaker 11: ultimately did give a little bit of ground on. And
34:19
Speaker 11: so you can kind of see that it really just
34:21
Speaker 11: takes you and three of your buddies to wind up
34:23
Speaker 11: proposing a headache for Speaker McCarthy and to potentially stiny
34:27
Speaker 11: really important legislation.
34:30
Speaker 1: And Nathan thirty seconds left here. Let's assume that the
34:32
Speaker 1: dead ceiling gets done. What's next for Congress? Can they
34:36
Speaker 1: get anything really done here in this environment?
34:39
Speaker 10: Well, you know, I was just going to talk to
34:40
Speaker 10: the assault deduction. You know, I'm not going to say
34:44
Speaker 10: it's going to get done, but we saw a propos
34:46
Speaker 10: You know, we've seen statements from Republicans in moderate New
34:49
Speaker 10: York and California saying they want to move on this,
34:51
Speaker 10: and they can't move on salt deduction until after the
34:53
Speaker 10: death cealing. So for those of you in New York,
34:55
Speaker 10: I'm not saying it's going to get done, but momentum
34:57
Speaker 10: is beginning to tweak a little bit, so keep that
35:00
Speaker 10: in mind.
35:00
Speaker 2: I have one year, eight months, and four days until
35:05
Speaker 2: the salt deduction cap is retired.
35:07
Speaker 1: It's now back on my agenda because I'm now once
35:10
Speaker 1: again a homeowner in the great state of New Jersey.
35:11
Speaker 1: So I'll talk to my friends down in DC see
35:13
Speaker 1: if we can get something done here. Nathan Heggre, I'm sorry,
35:16
Speaker 1: Nathan Dean, thanks so much. Bloomberg Intelligence He covers all
35:19
Speaker 1: that Washington stuff that no one else, really, no one
35:21
Speaker 1: else wants to deal with, but he does it so well.
35:23
Speaker 2: And Emily Wilkins.
35:24
Speaker 1: Emily Wilkins.
35:25
Speaker 2: She is the host of the new program What Happened
35:27
Speaker 2: to the Republican hartypen to the Republican Party with Emily Wilkins.
35:30
Speaker 1: With Emily Wilkins coming to a station near you.
35:33
Speaker 6: You're listening to the tape Cat's are live program Bloomberg
35:36
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
35:40
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35:42
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35:43
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35:46
Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
35:52
Speaker 1: All right, let's talk restaurants. Here is Emily mentioned. We
35:55
Speaker 1: had some some numbers come out from our good friends
35:57
Speaker 1: at Chipotle, Wendy's, all kinds of stuff. Here we check
36:01
Speaker 1: in with Mike klen He's a senior restaurant analyst with
36:03
Speaker 1: Bloomberg Intelligence. Mike talked to us about kind of some
36:07
Speaker 1: of these fast food restaurants are starting to hear some
36:09
Speaker 1: earnings coming out. Chipotle had some good number stock really
36:12
Speaker 1: rallying today on the news. What do you see.
36:15
Speaker 12: Yeah, so we've had just just too so far. Chipotle
36:19
Speaker 12: and McDonald's yesterday, and they both did well. And it's
36:21
Speaker 12: not really a surprise. They've both been really knocking to
36:24
Speaker 12: cover off the balls since the early days of the pandemic.
36:29
Speaker 4: You know.
36:29
Speaker 12: Chipotle was you know, they had a good quarter. The
36:33
Speaker 12: sales trend you know, they be pretty handily, but the
36:36
Speaker 12: trends actually only increased about fifty basis points on a
36:40
Speaker 12: four year basis. But what was really impressive was the
36:45
Speaker 12: margin expansion that they saw. So so they had a
36:48
Speaker 12: little bit of a dud with the limited time off
36:50
Speaker 12: in the fourth quarter, the garlic Guahillo steak, and they've
36:56
Speaker 12: they moved on to chicken out pastor in the first
36:58
Speaker 12: quarter and they've they said it was very successful.
37:01
Speaker 1: Uh.
37:01
Speaker 12: They also did well with their faheta case ideas that
37:05
Speaker 12: they were pushing on TikTok, you know, and and avocado
37:09
Speaker 12: prices eased a little bit of year over year, and
37:11
Speaker 12: you know, add it all up and it turned out
37:13
Speaker 12: to be a great, great quarter.
37:15
Speaker 1: So, Mike, for some of these fast food companies, how
37:18
Speaker 1: are they how effective are they able to pass along
37:21
Speaker 1: their their price increases to the consumer.
37:25
Speaker 12: Well, we're going to see this year so far, so good, right,
37:27
Speaker 12: We're going to see how that how you know about
37:29
Speaker 12: ten percent price increases from last year start to you know,
37:34
Speaker 12: we're going to see if there's gonna be any more
37:35
Speaker 12: pushback this year now that pretty much most of the
37:38
Speaker 12: stimulus is going to roll off, you know, the last
37:40
Speaker 12: of the stimulus is gonna is coming off. I think
37:42
Speaker 12: in May. That's the uh that's the moratorium on student
37:46
Speaker 12: loan payments, right and that and that's a big cohort.
37:50
Speaker 12: That eighteen to the thirty four year old cohort is
37:54
Speaker 12: very big for quick quick service customers. That's a big
37:57
Speaker 12: cohort for for them. So, you know, we're gonna see
38:01
Speaker 12: if there's if it's going to have any impact. You know,
38:03
Speaker 12: there's also some other things we're looking at. You know,
38:05
Speaker 12: credit card account bounces have have hit record hit record
38:10
Speaker 12: highs in the fourth quarter. We haven't had first quarter
38:12
Speaker 12: numbers yet. Real incomes have dropped every month for the
38:15
Speaker 12: last two years straight. So there's definitely some pressures we
38:19
Speaker 12: think around the corner and we'll see, we'll see how
38:22
Speaker 12: much consumers push back. But the thing about quick services
38:25
Speaker 12: right there, they're a much better space than the full
38:27
Speaker 12: service diners because it's a it's a cheaper meal occasion.
38:30
Speaker 12: So they'll have some people kind of fall out of
38:32
Speaker 12: the bucket, But then they'll also have some middle and
38:34
Speaker 12: upper income consumers that that might say, you know what,
38:37
Speaker 12: I'll skip out in the full service meal and I'm
38:39
Speaker 12: gonna visit Chipole or McDonald instead.
38:41
Speaker 2: By the way, Mike, I'm gonna throw you a little
38:43
Speaker 2: bit of a curveball here.
38:44
Speaker 3: Uh.
38:45
Speaker 2: It really grinds my gears when I go to one
38:50
Speaker 2: of these fast food places or like a salad bar
38:55
Speaker 2: and I pay with you know, I use Apple Pay
38:58
Speaker 2: or I or I pay with a credit card and
39:01
Speaker 2: the counter the cashier turns the little screen around and says, oh, here,
39:08
Speaker 2: just click an option of how much you want to tip?
39:11
Speaker 2: Do you want to give us fifteen percent, twenty percent,
39:13
Speaker 2: or twenty five percent. Don't worry, you can also give
39:15
Speaker 2: no tip. It's an option. Who allowed these people to
39:20
Speaker 2: put me on the spot like that and make me
39:23
Speaker 2: feel like either a jerk or force me to tip
39:26
Speaker 2: a fast food worker? Like why is that a thing?
39:31
Speaker 12: Because because a lot of restaurant employees are underpaid and
39:35
Speaker 12: restaurants are sure you're trying to figure out a way
39:37
Speaker 12: to to you know, to.
39:39
Speaker 2: Make me pay more for that. Look, why don't they
39:41
Speaker 2: just pay their employees more and charge me an extra
39:44
Speaker 2: dollar for my big Mac or whatever? It just seems
39:46
Speaker 2: so rude.
39:47
Speaker 12: Well because of paying that extra dollar. You know, you
39:50
Speaker 12: or I might not blink at the extra dollar for
39:53
Speaker 12: the meal, but a lot of people will, especially in
39:56
Speaker 12: Middle America. So that's that's their their apprehension about that.
40:00
Speaker 12: You know, Chipotle mentioned that they that they recently rolled
40:03
Speaker 12: out tipping on their apps, right, and the same thing.
40:07
Speaker 12: I ordered my son a burrito the other day and
40:09
Speaker 12: it was like, would you like to leave? You know,
40:11
Speaker 12: eighteen percent? Two percent? You know, uh, and it was
40:15
Speaker 12: a pickup order. We were doing the work.
40:16
Speaker 2: So, well, how does shareholders look at that?
40:19
Speaker 4: Mic?
40:19
Speaker 2: I mean, our shareholder is happy because Chipotle is getting
40:22
Speaker 2: the consumer to foot the bill for Chipotle's employees or
40:26
Speaker 2: you know, is there any concern that consumers are going
40:29
Speaker 2: to fight back against this?
40:31
Speaker 12: Well, listen, the consumer can fight back, but just by
40:34
Speaker 12: clicking no tip, right, So as long as it's helping
40:38
Speaker 12: the restaurant level and operating margins by keeping labor down.
40:42
Speaker 12: I think investors like it, right, I mean, Chipotle's getting
40:45
Speaker 12: back to you know, they might hit a twenty seven
40:47
Speaker 12: percent restaurant margin in the second quarter based on their guidance,
40:50
Speaker 12: and that that's that's the level we haven't seen in
40:52
Speaker 12: a very long time, since before you know, the e
40:55
Speaker 12: coli issues back in like twenty sixteen. So if you
40:58
Speaker 12: look at the stock today, up for team plus percent,
41:00
Speaker 12: I think of Vesta's like it.
41:02
Speaker 2: At Chipotle, it's safe to click no tip because you
41:05
Speaker 2: watch them make your food right before they present you
41:09
Speaker 2: with the option. But I was at Shakeshack the other
41:12
Speaker 2: day and the guy, the cashier was like, how much
41:15
Speaker 2: do you want to tip us? We really need your tip.
41:17
Speaker 2: We'd appreciate your tip. And then they're gonna make my
41:20
Speaker 2: food after they see what I've chosen, right, So then
41:24
Speaker 2: it gets a little bit sketchy.
41:26
Speaker 12: So that's a little aggressive, that's a little aggressive.
41:29
Speaker 1: One step up in the fast food I'm not you guys,
41:32
Speaker 1: I'm not sure what you guys call that, but just
41:33
Speaker 1: how's that segment of the restaurant business doing.
41:36
Speaker 12: Yeah, casual dining, yes, you know, we'll see I mean
41:40
Speaker 12: the numbers slowed in you know, in the first quarter
41:43
Speaker 12: as the quarter went on, so January, and we had
41:45
Speaker 12: some very easy comps based on lapping the Ober krown
41:49
Speaker 12: outbreak from last year. We had a couple of weeks
41:51
Speaker 12: of that also in February, but then in March that
41:53
Speaker 12: went away and SAMs sales only rose, you know, one
41:57
Speaker 12: point eight percent across the industry in March. We suspect
42:02
Speaker 12: there could be an additional slowing in April, and I
42:04
Speaker 12: think part of that could be that trade down that
42:06
Speaker 12: we were talking about where customers are saying, you know what,
42:09
Speaker 12: I'll save some money on the on the tip and uh,
42:13
Speaker 12: you know, and on drinks and advertisers and desserts and
42:15
Speaker 12: we'll just hit McDonald's instead of you know, name the chain,
42:19
Speaker 12: Chili's or Fridays or something like that. So we expect
42:22
Speaker 12: there to be a lot more pressure on the full
42:24
Speaker 12: service chains this year for that reason. And you know,
42:27
Speaker 12: we'll see nobody's nobody's reported yet on the first quarter.
42:31
Speaker 12: So right, we're anxiously awaiting, all.
42:34
Speaker 1: Right, good stuff. We'll get you back when we get
42:35
Speaker 1: some more results out of those retailers. Mike Klin, he's
42:38
Speaker 1: a restaurant analyst at Bloomberg Intelligence giving us the lowdown
42:41
Speaker 1: on the restaurant biz.
42:43
Speaker 6: You're listening to the tape can't Live program Bloomberg Markets
42:46
Speaker 6: weekdays at ten am Eastern on Bloomberg Radio, the tune
42:50
Speaker 6: in app, Bloomberg dot Com, and.
42:51
Speaker 4: The Bloomberg Business App.
42:53
Speaker 6: You can also listen live on Amazon Alexa from our
42:56
Speaker 6: flagship New York station Just Say Alexa playing Bloomberg eleven.
43:02
Speaker 4: Now. I have.
43:04
Speaker 2: Had an interesting experience back in twenty sixteen. I won
43:08
Speaker 2: a little bit of money.
43:10
Speaker 1: In a lottery.
43:12
Speaker 2: Let's just say I won some money, okay, and I thought, uh,
43:16
Speaker 2: I want to buy a Rolex watch. I've never had
43:18
Speaker 2: one before and I was, I don't know, forty five
43:20
Speaker 2: years old. So I went to uh Torneau here in
43:25
Speaker 2: the city. I think I'm Madison, right, yeah, yeah, And
43:28
Speaker 2: you just walked in and looked at the Rolex watches
43:30
Speaker 2: they had in the shop, and I picked one out
43:32
Speaker 2: and I bought it. Okay, easy, pasy, sure you know.
43:35
Speaker 2: Now fast forward to this week, I'm about to turn
43:39
Speaker 2: fifty and my wife has said, you know, maybe she'll
43:42
Speaker 2: buy me another one. I lost the first one in
43:44
Speaker 2: a motorcycle accident. But so I go into Torneau and
43:49
Speaker 2: I say, where are your Rolex watches? Oh, we don't
43:52
Speaker 2: have any for sale. What Torneau, it's like the biggest
43:55
Speaker 2: now it's called Booker, It's like the biggest Rolex dealer
43:59
Speaker 2: in America. I said, so, not in this store. Can
44:01
Speaker 2: I find one downtown? Is there gonna be one of
44:03
Speaker 2: the Westchester? No, there are no Rolexes for sale. They've
44:07
Speaker 2: got display pieces that they're not gonna sell. And then
44:10
Speaker 2: but what you do is you put your name and
44:12
Speaker 2: number down and I guess you like bribe the sales
44:15
Speaker 2: clerk and hope hopefully they call you back in a
44:17
Speaker 2: few months to a year and let you buy it. Wow,
44:19
Speaker 2: it's just so weird. And I don't understand if it's
44:22
Speaker 2: because demand has shot up, you know, with the stimmy
44:27
Speaker 2: checks and the pandemic, or if Rolex is pulling back supply. Anyway,
44:31
Speaker 2: I wanted to ask an expert, and it just so
44:33
Speaker 2: happens they had a watch guy. We have a watch
44:35
Speaker 2: guy in Geneva. Andy Hoffman wrote a great piece about
44:38
Speaker 2: the outperformance of the Rolex Daytona models. They put out
44:41
Speaker 2: a really cool I think white gold or platinum Daytona
44:44
Speaker 2: with a with a light blue face that's going for
44:46
Speaker 2: like one hundred grand wow, because no one can find
44:49
Speaker 2: them from MSRP. Andy Hoffman joins us right now to
44:52
Speaker 2: talk about this issue. Andy, what do you think is it?
44:55
Speaker 2: Are we in just a new era? Has Rolex engineered
44:58
Speaker 2: this perfectly? So the their products are you know, unfindable
45:03
Speaker 2: and that drives demand even higher.
45:08
Speaker 4: Well, good morning.
45:09
Speaker 13: This is a very complex and this is the you
45:13
Speaker 13: know question, and this is the question that everyone is asking,
45:16
Speaker 13: and indeed your experiences is not unusual. You cannot buy
45:21
Speaker 13: most Rolex professional models at retail at manufactured or manufacture price,
45:30
Speaker 13: and what that has created is a secondary market where
45:35
Speaker 13: Rolex watches sell for above the suggested retail price. Indeed,
45:40
Speaker 13: though Roles certainly says they are have not tried to
45:47
Speaker 13: create this situation. They don't want this situation. But at
45:52
Speaker 13: the same time, it's very difficult for them to increase production.
45:55
Speaker 13: They are increasing production marginally. We've written about this. There
46:01
Speaker 13: actually have a plans for a major new facility here
46:04
Speaker 13: in Switzerland and bull in twenty twenty nine, which is
46:08
Speaker 13: quite a way off. But indeed, because demand is so powerful,
46:13
Speaker 13: right now and so strong. They're going to build some
46:17
Speaker 13: temporary facilities beginning in twenty twenty four and launching in
46:21
Speaker 13: twenty twenty five that hopefully may increase production somewhat and
46:28
Speaker 13: maybe bring some relief to people like yourself who would
46:30
Speaker 13: like to buy a Rolex at the retailer. But they
46:34
Speaker 13: make over a million watches a year, one point two
46:37
Speaker 13: million by some estimates, So it's a lot of watches.
46:40
Speaker 1: Yeah, So I mean, is is it just a Rolex
46:43
Speaker 1: issue or is it just or is it brought it
46:44
Speaker 1: more broadly define a luxury watch issue.
46:48
Speaker 13: Yeah, it's a good question. It's not just a Rolex
46:51
Speaker 13: issue that you know, you cannot buy any new Protect
46:55
Speaker 13: Philipps models at retail, same with Odomarp Gay, any of
47:01
Speaker 13: those high demand super hype watches that you know sort
47:06
Speaker 13: of came to the forefront during the pandemic. And you're
47:09
Speaker 13: right to talk about the stimulus checks in the United States,
47:12
Speaker 13: and you're right to to to talk about the pandemic
47:15
Speaker 13: because you know, people were stuck at home, they had
47:18
Speaker 13: a lot more time on their computer. There's a lot
47:22
Speaker 13: of great information out there about luxury watches and sort
47:26
Speaker 13: of you know, the whole market kind of it was
47:28
Speaker 13: already growing and interest was increasing, but it really changed
47:33
Speaker 13: during the pandemic. And it's you guys in the US
47:36
Speaker 13: who are really driving this. This too, this is an
47:40
Speaker 13: American story.
47:41
Speaker 2: Well, I wonder about how much I can take Rolex
47:46
Speaker 2: at their word when you start to talk about the
47:49
Speaker 2: you know, ultra luxury, the big three vascher On, Constantine,
47:54
Speaker 2: Auto Mars or what was the other one, protect Philip.
47:59
Speaker 2: You know, it's such a specialized market. These are watches
48:04
Speaker 2: that only real watch people even know about, right Whereas Rolex,
48:08
Speaker 2: you know, every it's a household name, and they strongly
48:12
Speaker 2: suggest Andy, as you know well, that you only buy
48:16
Speaker 2: their watches from authorized dealers. And supposedly they're very serious
48:21
Speaker 2: about stopping authorized dealers from leaking their watches onto the
48:24
Speaker 2: gray market. But why is it, then that there are
48:28
Speaker 2: so many brand new Rolexes in the gray market. I
48:32
Speaker 2: just ran a search for the yacht Master forty two.
48:34
Speaker 2: It's a brand new model that hardly any stores even
48:37
Speaker 2: have in display, and yet there are two hundred and
48:40
Speaker 2: fifty eight unworn inbox with paper examples on Krono twenty four.
48:45
Speaker 2: Rolex just brought out a new GMT Master two that's
48:49
Speaker 2: being nicknamed the bat Girl because it's like the Batman
48:53
Speaker 2: GMT Master, but it's on the Jubilee bracelet. They're brand
48:57
Speaker 2: new and Krono twenty four has three hundred and twenty two.
49:00
Speaker 2: Where is the grain market getting all these watches if
49:03
Speaker 2: the authorized dealer isn't selling it to them, or if
49:05
Speaker 2: Rolex isn't slipping them out the back door.
49:09
Speaker 13: Well, it's a good question, and it's certainly you know,
49:11
Speaker 13: Rules is not a seller to consumer of watches. Authorized
49:16
Speaker 13: dealers are, and so the question is what happens at
49:19
Speaker 13: the authorized dealer level. And indeed, if you or I
49:24
Speaker 13: or a friend of yours has a good relationship with
49:27
Speaker 13: an authorized dealer, they may get an allocation for that
49:30
Speaker 13: Rolex that they want, and then that person has a choice,
49:34
Speaker 13: and you know, the way that the current secondary market
49:37
Speaker 13: is they can turn around and sell that Rolex for
49:41
Speaker 13: quite a tidy profit because prices on the secondary market
49:45
Speaker 13: are higher than at retail, and so that is a
49:49
Speaker 13: temptation and that is a business for many people. However,
49:53
Speaker 13: at the same time, whether it be Rolex or Protec
49:56
Speaker 13: or Odemar Piguey, all of these Swiss watchmakers try to
50:01
Speaker 13: police and try to have oversight over what dealers are doing,
50:07
Speaker 13: and if they are seen to be selling to flippers,
50:11
Speaker 13: they are penalized. I mean, we did an interview with
50:13
Speaker 13: Tierry Stern, who's the CEO or the president of Protect
50:17
Speaker 13: for Leap. His family owns protect for Leap, and you know,
50:21
Speaker 13: he said he buys about two hundred watches on the
50:24
Speaker 13: secondary market himself a year, or the company does figures
50:28
Speaker 13: out where they're from and figures out if the dealers
50:33
Speaker 13: who sold them were selling them to the wrong person.
50:36
Speaker 13: So this is a this is a problem that the
50:39
Speaker 13: brands recognize and they don't want this to happen.
50:42
Speaker 2: Andy, I wonder if we're getting set up for a
50:45
Speaker 2: fall here because the demand is so hot and as
50:49
Speaker 2: you say, a lot of people are just buying them
50:51
Speaker 2: and flipping them right away. And I go on the forums,
50:54
Speaker 2: the Rolex forum is very popular, and I hear one
50:58
Speaker 2: refrain from all of the collectors and enthusiasts. Prices never
51:03
Speaker 2: go down. And that's kind of like what we heard
51:06
Speaker 2: about home prices in two thousand and seven.
51:09
Speaker 4: Right.
51:10
Speaker 2: Is it possible, especially as Rolex is preparing to boost production,
51:14
Speaker 2: that we finally have a downturn if we enter a
51:17
Speaker 2: US recession.
51:19
Speaker 13: Absolutely, and you guys have been around business as long
51:23
Speaker 13: as I have, I'm sure, and we know that nothing
51:26
Speaker 13: goes up forever. And indeed we've seen prices on the
51:29
Speaker 13: secondary market already being have been declining for the past year.
51:34
Speaker 13: So that Rolex Daytona, that protect Nautilus, that ap Royal Oak,
51:39
Speaker 13: prices for those really hyped models are all down anywhere
51:43
Speaker 13: between twenty five and and you know, thirty five forty
51:47
Speaker 13: percent in the past year. The overall market indexes that
51:51
Speaker 13: track them, and indeed, we at Bloomberg have just launched
51:55
Speaker 13: something called the Bloomberg Subdial Watch Index, which you'll see
51:58
Speaker 13: us generate. It's called it's called the Bloomberg sub Dial
52:03
Speaker 13: Watch Index. And this is something that we've created with
52:07
Speaker 13: the news innovation team uh here and here in Europe
52:11
Speaker 13: and with a trader and pre owned dealer in London
52:16
Speaker 13: called sub Dial. Check them out. They're they're great, they're
52:20
Speaker 13: really cool and and and what they do is they
52:22
Speaker 13: scrape the data from you know, thousands of transactions for
52:29
Speaker 13: secondary on the secondary market for pre owned watches, and
52:34
Speaker 13: they come up with prices and so current market prices
52:37
Speaker 13: They're not the only people who do this, but uh,
52:40
Speaker 13: they do it quite well, and they've shared the data
52:42
Speaker 13: with us. And now we're generating stories and charts and
52:46
Speaker 13: things like that so we can track prices.
52:48
Speaker 1: Yeah, we gotta.
52:50
Speaker 2: We got to watch guy.
52:51
Speaker 1: Yeah, we're gonna call you more often. Yeah, we might
52:54
Speaker 1: even come over to Geneva where you are. We'll do
52:56
Speaker 1: some little primary research.
52:58
Speaker 2: Ry Zurich.
52:59
Speaker 13: I'm in I'm in Geneva.
53:00
Speaker 2: I'm in Niniva, right, yeah.
53:01
Speaker 1: All right, guys, we have friends in Geneva and we've
53:03
Speaker 1: got friends in Zurich. We'll come over, all right, Andy,
53:05
Speaker 1: thanks so much for joining us. Andy Hoffin, reporter for
53:07
Speaker 1: Bloomberg News.
53:08
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
53:11
Speaker 2: subscribe and listen to interviews on Apple Podcasts or whatever
53:15
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
53:19
Speaker 2: at Matt Miller nineteen seventy three.
53:22
Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.
53:24
Speaker 1: Before the podcast, you can always catch us worldwide at
53:27
Speaker 1: Bloomberg Radio