Latest / Bloomberg Intelligence / Higher-End Housing In U.S. Could See 30-50% Price Drop (Podcast)

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Higher-End Housing In U.S. Could See 30-50% Price Drop (Podcast) · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. You know, Pim,
• 0:33
  Speaker 1: we're getting a risk on rally today, but there's one
• 0:36
  Speaker 1: sector that just keeps nagging at everyone. It's kind of
• 0:40
  Speaker 1: raising a red flag. You know, perhaps things are not
• 0:42
  Speaker 1: as good as raising a red flag from the roof,
• 0:45
  Speaker 1: from the roof, from the housing, from the house, from
• 0:48
  Speaker 1: the housing market. Joining us now to discuss that and
• 0:50
  Speaker 1: everything else under the sun. Genie Wyatt. She's Chief executive
• 0:53
  Speaker 1: Officer and chief investment Officer at South Texas Money Management
• 0:57
  Speaker 1: in the beautiful San Antonio, but she joins us here
• 1:00
  Speaker 1: in our eleven three oh studios. She manages about a
• 1:02
  Speaker 1: three point three billion dollars has been three point seven
• 1:05
  Speaker 1: three point seven billion. Excuse me, please forgive me um.
• 1:09
  Speaker 1: So grateful that you're here. I want to ask you
• 1:11
  Speaker 1: about the housing market and how you're viewing it because
• 1:14
  Speaker 1: we have gotten a slowdown in sales. Some areas have
• 1:19
  Speaker 1: seen even declines in certain prices. Are we at the
• 1:21
  Speaker 1: beginning of this Yes, good morning lista good morning PIM.
• 1:25
  Speaker 1: Now I do not think, um, we're at only the beginning.
• 1:27
  Speaker 1: I think this will be a long time UH sector
• 1:31
  Speaker 1: challenge for anything housing related. The mortgage bankers, UM, the
• 1:36
  Speaker 1: service providers to housing, and obviously the builders. UH. Not
• 1:43
  Speaker 1: only is it the interest rate increase and the FED
• 1:47
  Speaker 1: likely especially with these trade talks, is likely to stay
• 1:50
  Speaker 1: on a tightening track because our economy the outlook now
• 1:55
  Speaker 1: is to continue to have positive GDP, so interest rates
• 1:59
  Speaker 1: will likely continue to rise. But the challenge with housing
• 2:03
  Speaker 1: that I think is not fully appreciated is land prices
• 2:07
  Speaker 1: are now so expensive and UM owners of homes no
• 2:13
  Speaker 1: longer get the full tax benefit of the taxes that
• 2:16
  Speaker 1: they pay, which really penalizes them in states like New York,
• 2:21
  Speaker 1: like California, and so the affordability net net, the affordability
• 2:26
  Speaker 1: of housing now it's just no longer a value proposition.
• 2:30
  Speaker 1: That's the challenge. I'm wondering if you could just step
• 2:33
  Speaker 1: back and speak to the issue that investing is not
• 2:37
  Speaker 1: something that you should enjoy. Well, you should not be
• 2:44
  Speaker 1: emotional about your investing, but you must invest because stocks
• 2:51
  Speaker 1: are the best investment you can make. Because stocks reflect
• 2:58
  Speaker 1: UM growth in corporate earnings. It's not mysterious. Stocks reflect
• 3:04
  Speaker 1: UH growth and corporate earnings, which are amazing this year,
• 3:08
  Speaker 1: continue to be strong. And corporate earnings have a natural UM,
• 3:15
  Speaker 1: a natural UM succession plan because if if companies don't
• 3:23
  Speaker 1: produce good earnings, they will go away. So there's a
• 3:27
  Speaker 1: lot of pressure on managements to be competitive and to
• 3:30
  Speaker 1: succeed and to have good corporate earnings and thus their stocks.
• 3:35
  Speaker 1: Stocks overall broadly do very well long term, and they're liquid.
• 3:40
  Speaker 1: I just wanted for a second go back to the
• 3:42
  Speaker 1: housing issue just for one second. I'm curious you're saying
• 3:46
  Speaker 1: that the value proposition isn't there. Does that mean that
• 3:48
  Speaker 1: prices are going to tank or does it just mean
• 3:50
  Speaker 1: that it's going to go sideways? Well, um, I think
• 3:56
  Speaker 1: there's downside. There's downside for the home builders stocks or
• 4:00
  Speaker 1: for house prices. Are both for both? How much downside? Well, again,
• 4:06
  Speaker 1: we're in a um a good economic environment, so I
• 4:10
  Speaker 1: would say ten to fift downside on home prices. Now,
• 4:16
  Speaker 1: of course the lower priced homes probably have more downside
• 4:21
  Speaker 1: protection because there's huge demand across the country for homes
• 4:24
  Speaker 1: priced three hundred thousand dollars or less. But the higher
• 4:29
  Speaker 1: priced homes, I would say the downside there again, some states,
• 4:35
  Speaker 1: some counties could be as much as thirty including New York. Yes,
• 4:44
  Speaker 1: some some counties. Yes, that's got your attentions. That's daunting
• 4:51
  Speaker 1: clients in some areas in the Northeast. But that's only
• 4:54
  Speaker 1: if you can move very high priced. If it's a
• 4:59
  Speaker 1: very high priced home, and the taxes have been very
• 5:03
  Speaker 1: high and no longer can you ride off all of
• 5:06
  Speaker 1: those taxes. I want to turn your attention out of
• 5:11
  Speaker 1: something that maybe benefit benefiting from all this, which is
• 5:15
  Speaker 1: that you can work anywhere, live anywhere. Microsoft is one
• 5:19
  Speaker 1: of the stocks Microsoft. Microsoft has been so kind to us.
• 5:26
  Speaker 1: UM we started putting money into Microsoft. We buy both
• 5:31
  Speaker 1: value and growth stocks. So we started buying Microsoft in
• 5:35
  Speaker 1: two thousand twelve as a value stock, and it's up
• 5:40
  Speaker 1: over three since that point in time. But we still
• 5:44
  Speaker 1: get really good upside in Microsoft from this point. So
• 5:48
  Speaker 1: we're still putting new money in Microsoft and we get
• 5:51
  Speaker 1: over the next twelve to twenty four months upside and
• 5:57
  Speaker 1: Microsoft with the dividend, and that's as their cloud revenue
• 6:02
  Speaker 1: is accelerating. Microsoft Office is still performing well and um,
• 6:10
  Speaker 1: it's just being very very well managed. This today's Microsoft
• 6:14
  Speaker 1: again because of their cloud success there they are almost
• 6:21
  Speaker 1: as large of UH provider of servers as Amazon. So um,
• 6:29
  Speaker 1: we think again there's a lot of good upside remaining
• 6:32
  Speaker 1: in Microsoft. You're also buying General Electric? Right? Um? No, no,
• 6:38
  Speaker 1: are you not? So? Microsoft today is now a growth
• 6:43
  Speaker 1: stock for us. We borrowed his value, it succeeded, so
• 6:46
  Speaker 1: now is growth of value stock we are putting new
• 6:50
  Speaker 1: money into today. Is General Motors, General Motors one of
• 6:54
  Speaker 1: those beaten up G something so General motors, but not
• 6:58
  Speaker 1: General Electric, not in electric Okay, we have not been
• 7:03
  Speaker 1: in General Electric for years. For GM. You like love GM?
• 7:08
  Speaker 1: Love GM? Of course you know the broad market is
• 7:11
  Speaker 1: up today, but there's so much hype about we're at
• 7:15
  Speaker 1: peak auto sales. And yes, we're probably at a near
• 7:20
  Speaker 1: term cyclical peak and auto sales, but um, and a
• 7:24
  Speaker 1: lot of that is the millennials are saying they're not
• 7:27
  Speaker 1: going to buy cars. But millennials grow up, they form
• 7:31
  Speaker 1: families and and autos will become more important to them.
• 7:36
  Speaker 1: But really the story there for future auto sales is
• 7:40
  Speaker 1: the self driving vehicles, and GM has strong conviction in this.
• 7:46
  Speaker 1: In fact, they just moved their president, um Dan Ammand
• 7:51
  Speaker 1: to become head of Crews, which is the autonomous vehicle
• 7:56
  Speaker 1: area of GM. GM today has about three dred self
• 8:00
  Speaker 1: driving vehicles in San Francisco. I think we will all,
• 8:05
  Speaker 1: all of us, whether we're millennials or we're octagenarians, we
• 8:10
  Speaker 1: will love autonomous vehicles. Well, we'll be looking forward to
• 8:14
  Speaker 1: taking a trip in one of them with you. Thank
• 8:16
  Speaker 1: you very much. Genie Wyatt, Chief executive Officer, chief investment officer,
• 8:20
  Speaker 1: South Texas Money Management, based in San Antonio. We are
• 8:39
  Speaker 1: broadcasting live from the Bloomberg Interactive Broker's studios. After the
• 8:43
  Speaker 1: worst month in more than a decade, four crewed, we're
• 8:47
  Speaker 1: seeing a rebound today. Perhaps it's because of the trade truce,
• 8:52
  Speaker 1: the trade war truce that I guess was struck between
• 8:54
  Speaker 1: a President Trump and President Jijim Ping of China. But
• 8:58
  Speaker 1: there also are other as next to a joining US. Now.
• 9:01
  Speaker 1: Dr ellen Wald, president of Transversal Consulting, also a non
• 9:05
  Speaker 1: resident Senior Fellow with the Atlantic Council's Global Energy Center
• 9:07
  Speaker 1: in a Bloomberg Opinion contributor. Dr Wall thank you so
• 9:10
  Speaker 1: much for joining us. I want to just to ask
• 9:13
  Speaker 1: you why do you think oil is rallying today? Is
• 9:16
  Speaker 1: it because of a more positive backdrop geopolitically or is
• 9:20
  Speaker 1: it because of OPEC and the likely cuts that they
• 9:24
  Speaker 1: will implement to output later this week. I think it's
• 9:28
  Speaker 1: a combination of OPEX likely cuts, but also we have
• 9:32
  Speaker 1: an announcement from the premiere of Alberta that they're going
• 9:36
  Speaker 1: to be taking some pretty extraordinary measures to cut oil
• 9:40
  Speaker 1: production in Canada so as to relieve the incredible strain
• 9:45
  Speaker 1: on their stored oil, and that that has really helped
• 9:49
  Speaker 1: the price of Canadian oil rebound today. Dr Wald, do
• 9:54
  Speaker 1: you believe that the change at OPEC with the announcement
• 9:59
  Speaker 1: that Qatar wants to leave, will change the politics of oil.
• 10:05
  Speaker 1: I think it's possible that we could see um the
• 10:09
  Speaker 1: beginning of something important. And one of the interesting things
• 10:12
  Speaker 1: that we noticed is that after Qatar announced that it
• 10:16
  Speaker 1: is planning to leave the organization, and I think it
• 10:19
  Speaker 1: does make sense for Qatar. It's really had a lot
• 10:22
  Speaker 1: of problems politically with Saudi Arabia. Clearly they are under
• 10:26
  Speaker 1: an economic embargo from Saudi Arabia, and it probably feels
• 10:29
  Speaker 1: that it makes no sense politically domestically as well to
• 10:34
  Speaker 1: sit in meetings and be compelled to go along with
• 10:37
  Speaker 1: Saudi decisions when there's so much animosity focused on them
• 10:41
  Speaker 1: from Saudi Arabia, combined with the fact that they're really
• 10:44
  Speaker 1: a fairly small oil producer and they're big focus is
• 10:47
  Speaker 1: natural gas. However, this could kind of signal a maybe
• 10:52
  Speaker 1: a larger sense of unhappiness amongst these smaller oil producers
• 10:57
  Speaker 1: within OPEQUE. And if enough of them get together and say, hey,
• 11:01
  Speaker 1: we don't feel we're being we don't feel that the
• 11:03
  Speaker 1: larger producers like Saudi Arabia, UH and Iraq are really
• 11:07
  Speaker 1: taking our concerns into UH into consideration. If a bunch
• 11:12
  Speaker 1: of them leaves, that could really affect OPEC's ability to
• 11:16
  Speaker 1: play a role in the market. Well at this point,
• 11:19
  Speaker 1: I mean, perhaps perhaps it was emblematic that the Vladimir
• 11:25
  Speaker 1: Putin and the Saudi Arabian Prince greeted each other with
• 11:29
  Speaker 1: the happiest of hands, laps and and you know, smiles
• 11:35
  Speaker 1: over the weekend at the G twenty meeting in Buenos Aires.
• 11:39
  Speaker 1: I mean, is it does it sort of matter more
• 11:41
  Speaker 1: now the alliance between Russia and Saudi Arabia than even OPEC.
• 11:46
  Speaker 1: That is absolutely a big concern here because Saudi Arabia
• 11:50
  Speaker 1: and Russia are really the big players in this new
• 11:52
  Speaker 1: OPEC plus alliance, and Putin made this announcement that Russia
• 11:57
  Speaker 1: is planning to continue its participation in this alience. Now,
• 12:00
  Speaker 1: that doesn't indicate that Russia is necessarily on board with
• 12:03
  Speaker 1: whatever cut Saudi Arabia wants to make, but it does
• 12:06
  Speaker 1: indicate that they are interested in pursuing this partnership, and
• 12:11
  Speaker 1: that puts the rest of OPEC that really diminishes their
• 12:15
  Speaker 1: influence and importance UH in terms of OPEC going forward.
• 12:20
  Speaker 1: Dr walts, should we make a distinction between the natural
• 12:22
  Speaker 1: gas market and the oil market. I think we really
• 12:26
  Speaker 1: do need to in this case. And Cutter is particularly
• 12:28
  Speaker 1: influential in the liquefied natural gas markets, so it's not
• 12:32
  Speaker 1: quite the same as the United States, where natural gas
• 12:35
  Speaker 1: is very inexpensive and cheap. Cutter makes a lot of
• 12:39
  Speaker 1: money from its its natural gas and that's really where
• 12:42
  Speaker 1: it wants to focus its efforts going forward. And that's
• 12:46
  Speaker 1: very interesting because Saudi Arabia is also announced plans that
• 12:49
  Speaker 1: it wants to focus on its developing its natural gas resources.
• 12:53
  Speaker 1: That's mostly though, for Saudi internal use, for domestic use.
• 12:58
  Speaker 1: But still they have indicated they're interested in maybe becoming
• 13:02
  Speaker 1: an exporter of natural gas, and so Cutter may may
• 13:05
  Speaker 1: see that as a little bit threatening to their position.
• 13:08
  Speaker 1: So I'm just wondering from your perspective, if, as expected
• 13:12
  Speaker 1: on Thursday, OPAQ plus agrees to an output cut in
• 13:16
  Speaker 1: order to bolster prices and reduce supplies, how much do
• 13:20
  Speaker 1: you think oil prices could go up or do you
• 13:23
  Speaker 1: think that this is sort of false hope. Well, I
• 13:26
  Speaker 1: think it really depends on how much oil we see.
• 13:30
  Speaker 1: They could end up increasing production as much as UH
• 13:34
  Speaker 1: or sorry, cutting production as much as one and a
• 13:36
  Speaker 1: half million barrels per day, and that's not an insignificant amount,
• 13:42
  Speaker 1: and it could send prices rallying maybe for the rest
• 13:45
  Speaker 1: of the year. That The issue though, is we're still
• 13:48
  Speaker 1: you know, down in the brand in the low sixties,
• 13:52
  Speaker 1: not even yet hitting sixty one, and with w t
• 13:55
  Speaker 1: I is still UH fifty two. So I'm not really
• 13:58
  Speaker 1: sure that there's enough to really get us back into
• 14:02
  Speaker 1: the seventies before the end of the year. And it
• 14:05
  Speaker 1: does depend open may not be able to cut as
• 14:07
  Speaker 1: much as they think that they can. I want to
• 14:11
  Speaker 1: thank you very much for spending time with us. Dr
• 14:13
  Speaker 1: ellen Wald is the President of Transversal Consulting, nonresident Senior
• 14:18
  Speaker 1: Fellow at the Atlantic Council's Global Energy Center, also a
• 14:23
  Speaker 1: contributor to Bloomberg Opinion. Joining us now to tell us
• 14:39
  Speaker 1: all about the world of economics and particularly how it's
• 14:42
  Speaker 1: linked to trade is none other than Mike McDonagh. Michael
• 14:46
  Speaker 1: McDonagh is the chief economist for Financial Products for Bloomberg LP,
• 14:50
  Speaker 1: and he joins us here in studio. Mike, it's always
• 14:52
  Speaker 1: a pleasure. Thanks for coming in. Um, what happened last
• 14:56
  Speaker 1: week at the G twenty and over the weekend? Did
• 14:58
  Speaker 1: Did we really solve something or we just kind of
• 15:01
  Speaker 1: punted a little bit. Not that that's bad. If we
• 15:04
  Speaker 1: want to go with trade war analogies, I'd call it
• 15:06
  Speaker 1: a ceasefire. So I mean it's it's buying a little
• 15:11
  Speaker 1: time to try to come to a deal that's that's sustainable.
• 15:14
  Speaker 1: It takes the risk January one off of the tariff
• 15:18
  Speaker 1: level being escalated, so buyas time. Now we have to
• 15:20
  Speaker 1: see what happens with the time. Why why was there
• 15:24
  Speaker 1: such a softening in tone from President Trump? It probably
• 15:28
  Speaker 1: depends on who you asked, But my personal view on
• 15:30
  Speaker 1: this is, um, when you look at how markets have
• 15:33
  Speaker 1: been performing recently, UM, there's also, at the same time
• 15:36
  Speaker 1: been some signs of weakness uh in US economic growth
• 15:39
  Speaker 1: at least it might have been going in a direction
• 15:41
  Speaker 1: they don't want to see it go. Uh. And really,
• 15:43
  Speaker 1: when you have to ask yourself why, I mean, there
• 15:45
  Speaker 1: is an argument to be made that maybe the FED
• 15:47
  Speaker 1: was looking like they might be a little bit too aggressive.
• 15:50
  Speaker 1: But the big, other, other big uncertainty was trade with China, right,
• 15:54
  Speaker 1: and that these two things combined, Uh, we're reducing sentiment
• 15:57
  Speaker 1: a bit, and it pointed to potential. So you know,
• 16:00
  Speaker 1: so I guess that My other question then would be
• 16:03
  Speaker 1: has anything materially changed from the Chinese point of view
• 16:07
  Speaker 1: with respect to what they're offering as far as you
• 16:10
  Speaker 1: can tell, or is it just a willingness to make
• 16:12
  Speaker 1: a deal on President Trump side? You know, it's hard
• 16:15
  Speaker 1: to say. I I don't know a lot about what
• 16:18
  Speaker 1: they had been offering, but you know, we we saw
• 16:21
  Speaker 1: the agreement on the opioid exports fentanyl, Uh, that's something
• 16:26
  Speaker 1: that the president could hang his hat on and say.
• 16:27
  Speaker 1: You know, when you look at where President Trump is
• 16:30
  Speaker 1: on a lot of his agenda, I would say the
• 16:32
  Speaker 1: opioid wars arguably someplace where he's further behind than in
• 16:35
  Speaker 1: other areas. So this is something he could say, Look,
• 16:37
  Speaker 1: this is a win for us. This is something new.
• 16:40
  Speaker 1: I don't think that had really been discussed before. That's there.
• 16:42
  Speaker 1: Then there's the announcement today about auto tariffs. I believe
• 16:46
  Speaker 1: China had announced that they were reducing auto tariff from
• 16:50
  Speaker 1: fiftent back in May for everyone, but then they increased
• 16:54
  Speaker 1: it in retaliation of the US, I think, and now
• 16:56
  Speaker 1: they're saying, okay, we're gonna get rid of them entirely.
• 16:58
  Speaker 1: That's something. And when look at every deal President Trump
• 17:01
  Speaker 1: has done so far, autos has been involved, as has agriculture,
• 17:05
  Speaker 1: so the soybean part of it. So you know there
• 17:09
  Speaker 1: is something there. The question is, what will you know
• 17:12
  Speaker 1: President Trump's appetite? B Right, The issues we have with
• 17:15
  Speaker 1: China aren't really the deficit, uh, it's the you know,
• 17:19
  Speaker 1: openness of the Chinese economy to US companies. It's the
• 17:22
  Speaker 1: intellectual property theft. And these aren't easy things to fix, Like,
• 17:26
  Speaker 1: this isn't something trying to could just turn a switch
• 17:28
  Speaker 1: on and say okay, you invest in anything and we'll stop,
• 17:31
  Speaker 1: you know, the technology transfer. Uh So, it's hard to
• 17:34
  Speaker 1: see how you resolve a lot of this in ninety days.
• 17:37
  Speaker 1: Just to give the detail about the opioid and fencenel issue,
• 17:43
  Speaker 1: it has to do with China reclassifying them as a
• 17:46
  Speaker 1: controlled substance, right. Yeah, I don't know the details of
• 17:49
  Speaker 1: it personally, but it sounded yeah, it would sound it
• 17:51
  Speaker 1: sounded like it would make it illegal for Chinese distributors
• 17:55
  Speaker 1: to sell into the US. Yeah, that's the goal. Okay, Um,
• 18:00
  Speaker 1: how many products do you think that Chinese will have
• 18:03
  Speaker 1: to buy in order to be able to enable the
• 18:07
  Speaker 1: administration to declare victory and to have some kind of
• 18:11
  Speaker 1: come together moment. I think it's the difference is how
• 18:13
  Speaker 1: many do they say they'll need to buy and how
• 18:15
  Speaker 1: many they actually have to buy. I think that right, um,
• 18:18
  Speaker 1: soybean sales to China have basically gone to zero at
• 18:22
  Speaker 1: this point in time, So I think that you could
• 18:24
  Speaker 1: pretty quickly see those go back up, uh to two
• 18:27
  Speaker 1: levels that we had seen you know, last year before
• 18:30
  Speaker 1: these sars and that would be important because I think
• 18:31
  Speaker 1: that the soybean farmers are probably being hit most by
• 18:35
  Speaker 1: what's happening. So I think that, you know, I think
• 18:38
  Speaker 1: there will be promises of reducing I think I think
• 18:41
  Speaker 1: the promise of reducing the tariffs on auto and leveling
• 18:44
  Speaker 1: the playing field will go a long way. It's hard
• 18:46
  Speaker 1: to say how much will actually buy. The Europeans sell
• 18:49
  Speaker 1: a lot more cars in the China than the US does,
• 18:51
  Speaker 1: so I'll have to see They'll definitely be buying uh
• 18:54
  Speaker 1: more soybean because they've gone to zero so that they
• 18:57
  Speaker 1: have to I think you could see more purchase is
• 19:00
  Speaker 1: of airplanes, etcetera. But really, when you when you look
• 19:03
  Speaker 1: at trade with China, we actually run a surplus when
• 19:06
  Speaker 1: it comes to services. Uh So I think that part
• 19:10
  Speaker 1: of this would be making it a bit easier, if
• 19:13
  Speaker 1: not removing all restrictions for US companies to do business
• 19:17
  Speaker 1: in China. That would actually go a long way, right.
• 19:19
  Speaker 1: That doesn't show up in the the goods trade deficit,
• 19:23
  Speaker 1: but it shows often the overall transfer between the two countries.
• 19:26
  Speaker 1: So I mean, if you have more US companies in
• 19:29
  Speaker 1: China providing services, that could go a long way towards
• 19:32
  Speaker 1: off setting the goods balance, which everyone talks about a lot.
• 19:35
  Speaker 1: So how important is it that Lightheiser is in charge
• 19:38
  Speaker 1: of these negotiations? Now that's that's interesting because like when
• 19:41
  Speaker 1: you look at um, you know who tends to be
• 19:44
  Speaker 1: more hawkish and debbish. Uh In Trump's administration, Lighthouser tends
• 19:48
  Speaker 1: to be on the more hawkish side. So he's now
• 19:50
  Speaker 1: running these negotiations. Uh So I guess, like I said,
• 19:53
  Speaker 1: we have ninety days, we really need to be watching
• 19:55
  Speaker 1: these headlines. Uh So that it's not surprising. He is
• 19:59
  Speaker 1: a trade you know, negotiator, That's that's what he does.
• 20:02
  Speaker 1: So it will be interesting to see who he's working with.
• 20:04
  Speaker 1: What is rhetorick is like how frequently are they meeting,
• 20:07
  Speaker 1: who's meeting, what's coming out of the deals or the
• 20:10
  Speaker 1: meetings that they have Over the next ninety days, I
• 20:12
  Speaker 1: think there'll be a lot of signals. You were called.
• 20:14
  Speaker 1: The last time we were in this position, Um, there
• 20:16
  Speaker 1: were instances where they had meetings planned and then they said, well,
• 20:18
  Speaker 1: there's nothing we're going to agree on, so we're not
• 20:20
  Speaker 1: going to meet. So we'll have to read the tea
• 20:22
  Speaker 1: leaves for a while. Over the next ninety days, and
• 20:24
  Speaker 1: then we're going to read them again for the following
• 20:26
  Speaker 1: ninety days when it gets us further down. There's two
• 20:31
  Speaker 1: things we need to look at, China and the fit,
• 20:33
  Speaker 1: and we have Pal on Wednesday. Would be interesting to
• 20:35
  Speaker 1: see if he mimics his comments from last Wednesday, that
• 20:37
  Speaker 1: would be good and let's see what happens with China.
• 20:39
  Speaker 1: Mike McDonough, thank you so much for being with us.
• 20:41
  Speaker 1: As always, your perspective is always insightful and valuable. Mike
• 20:45
  Speaker 1: mcdonaldh's chief economist for financial Products at Bloomberg LP, talking
• 20:49
  Speaker 1: about the latest I guess easing or perhaps just kicking
• 20:53
  Speaker 1: the can down the road. We're broadcasting from the Bloomberg
• 21:09
  Speaker 1: Interactor Broker's studios. Let's turn our attention now to entrepreneurs
• 21:14
  Speaker 1: who make products that people seemingly want to buy, because boy,
• 21:18
  Speaker 1: this company, Califia Farms, is doing about a hundred million
• 21:22
  Speaker 1: dollars worth of business at least a year. It is
• 21:25
  Speaker 1: founded and run by Greg Stoulton Pole, who many in
• 21:29
  Speaker 1: the food and natural food market no as the one
• 21:33
  Speaker 1: of the founders of Odwallah, and he joins us here
• 21:36
  Speaker 1: in studio. Greg, thank you very much for being here.
• 21:38
  Speaker 1: I was reading a little bit about your background and
• 21:40
  Speaker 1: I can we connect your interest in juice and in
• 21:45
  Speaker 1: pressed uh drinks to your father and his love of
• 21:50
  Speaker 1: the world of citrus. What is that story? Well, you're
• 21:54
  Speaker 1: going way back. So um, my dad love to live
• 22:00
  Speaker 1: around orange trees and orange blossom California, Southern California. We
• 22:04
  Speaker 1: moved to California when I was seven, and we had
• 22:08
  Speaker 1: to keep moving because as the development of southern California grew,
• 22:12
  Speaker 1: they kept plowing down the orange groves and we had
• 22:15
  Speaker 1: to keep moving further and further towards the hills. So anyway,
• 22:18
  Speaker 1: I grew up with the romance of living in orange
• 22:21
  Speaker 1: grove and uh, just the smell of all those blossoms
• 22:25
  Speaker 1: and everything. So it goes pretty deep in my roots.
• 22:27
  Speaker 1: And we had to start every day with a glass
• 22:29
  Speaker 1: of fresh squeezed juice, which evolved into a juice company, Odwalla,
• 22:33
  Speaker 1: which you sold and then at Califia, which focuses on
• 22:37
  Speaker 1: plant based beverages almond milk, soy, etcetera. So I'm curious,
• 22:42
  Speaker 1: given the fact that you've sort of been part of
• 22:44
  Speaker 1: this evolution of the health foods in the in the
• 22:47
  Speaker 1: juice movement, where are we in that. I mean, is
• 22:50
  Speaker 1: it expanding or are we kind of hitting a plateau
• 22:52
  Speaker 1: where people are saying, forget this, come on, let's just
• 22:55
  Speaker 1: do whole milk or raw milk or whatever. Right. Well,
• 22:58
  Speaker 1: there's lots of different things going on, but um, underneath
• 23:02
  Speaker 1: it all, there's huge shifts in the food industry at large,
• 23:06
  Speaker 1: which I think are driving this. But what's driving those
• 23:10
  Speaker 1: shifts are really massive changes in the consumer and where
• 23:15
  Speaker 1: the consumer's head is at, and knowledge on the part
• 23:18
  Speaker 1: of the consumer, and also globalization of this kind of
• 23:23
  Speaker 1: gen zennial phenomena where you really have trends moving simultaneously.
• 23:30
  Speaker 1: When I started Duella back in the eighties, you know,
• 23:33
  Speaker 1: things would start on the West coast and in places
• 23:36
  Speaker 1: like Santa Cruz and San Francisco, and then you know,
• 23:39
  Speaker 1: takes some years to get to the East coast, and
• 23:41
  Speaker 1: then take a decade or longer to get to the
• 23:43
  Speaker 1: middle part of the country, and then other parts of
• 23:46
  Speaker 1: the world may take twenty thirty years. Now it's really happening.
• 23:52
  Speaker 1: A trend that can happen in natural products can spread
• 23:55
  Speaker 1: globally within a few years. So uh, now a consumer
• 24:00
  Speaker 1: is really driving the need for change and the industry
• 24:04
  Speaker 1: is behind where you know, more than thirty years ago.
• 24:09
  Speaker 1: When I got started, it was mainly like visionary people
• 24:13
  Speaker 1: like myself and my friends who were coming up with
• 24:16
  Speaker 1: these unique ideas and trying to convince people that this
• 24:19
  Speaker 1: was the right thing to do. Tell people about how
• 24:22
  Speaker 1: you're borrowing from other cultures in order to bring different
• 24:26
  Speaker 1: types of drinks to the public. And I'm thinking here
• 24:30
  Speaker 1: about Latino culture, Mexican culture, and horg Chatta. Right. Well,
• 24:37
  Speaker 1: first of all, our name, Califia Farms is named after
• 24:41
  Speaker 1: the origin of the state of California, which many Californias
• 24:45
  Speaker 1: don't even know, right, And even earlier, there was a novelist,
• 24:50
  Speaker 1: a Spanish novelist in the late fourteen hundreds who wrote
• 24:53
  Speaker 1: a book and created this character, Queen Califia, who was
• 24:57
  Speaker 1: the inspiration for the Spanish coming here. And she was
• 25:01
  Speaker 1: a beautiful black queen who was rumored to have tons
• 25:06
  Speaker 1: of gold. So nothing to motivate a conquistador more than
• 25:10
  Speaker 1: beautiful women in lots of gold, right. So anyway, the
• 25:13
  Speaker 1: romance of California spread to the agricultural heritage, and so
• 25:19
  Speaker 1: it's it's actually not that foreign, and uh, that influence
• 25:24
  Speaker 1: has always been in California, and California is now the
• 25:27
  Speaker 1: largest producer of almonds in the world, produces over eighties
• 25:31
  Speaker 1: something per cent. So that became the basis of our
• 25:34
  Speaker 1: first large commodity, so Odwalla was acquired by Coca Cola
• 25:39
  Speaker 1: in two thousand and one, I believe for a lot
• 25:42
  Speaker 1: hundred eighty one million dollars. But you've said that you
• 25:45
  Speaker 1: would never sell Califia and then entrepreneurs should not sell
• 25:50
  Speaker 1: their creations. Why well, I haven't actually said then I
• 25:55
  Speaker 1: can never sell because it's not just up to me,
• 25:57
  Speaker 1: and I'm unfortunately liam No not saying that at all.
• 26:03
  Speaker 1: But I also can't make a blanket statement. But but
• 26:08
  Speaker 1: I have been very verbal about what I've thought the
• 26:12
  Speaker 1: long term effect on O'dwalla's mission and vision were after
• 26:16
  Speaker 1: Coke acquired it. And I think it can be fairly
• 26:21
  Speaker 1: said that acquiring especially natural product food, the foods that
• 26:27
  Speaker 1: are coming out of a craft type movement by large
• 26:31
  Speaker 1: multinational corporations, there's not of extremely long history of success
• 26:36
  Speaker 1: in keeping the mission alive and keeping the purity of
• 26:40
  Speaker 1: those products first and foremost. So we're embarking on a
• 26:45
  Speaker 1: strategy and continuating strategy of trying to remain independent, and
• 26:49
  Speaker 1: in fact, we're the last fully independent plant based company
• 26:55
  Speaker 1: of any size left today, and we're one of the
• 26:58
  Speaker 1: only independent coffee companies of any scale today. So we
• 27:06
  Speaker 1: hope we can keep it that way, and the spirit
• 27:08
  Speaker 1: of that independence is I think important for the categories. Actually,
• 27:13
  Speaker 1: if we went to your factory, your facility in Bakersfield,
• 27:17
  Speaker 1: what would we see. Uh, It's it's a bit like
• 27:21
  Speaker 1: Willy Wonka, and that we do a lot of things
• 27:24
  Speaker 1: there in a pretty compressed amount of space. All of
• 27:28
  Speaker 1: a sudden imagined, you know, rivers of soy milk or
• 27:31
  Speaker 1: almond milk, and well, we we process a lot of
• 27:37
  Speaker 1: type of milk based commodities. So it's not just almonds.
• 27:40
  Speaker 1: We do ods, Uh, we do p We we do
• 27:44
  Speaker 1: other grains, and a lot of coconut, a lot of chocolate,
• 27:49
  Speaker 1: the hor chatta spices and and a lot of things
• 27:52
  Speaker 1: that go in our cold brew coffees. So the smells
• 27:55
  Speaker 1: are always changing and there's a constant different stream and
• 27:59
  Speaker 1: we have flexible path packaging lines, so we'll be doing
• 28:02
  Speaker 1: uh ice cold nitro brew on one line while we're
• 28:06
  Speaker 1: running the mainstream on sweet and almond on another line.
• 28:10
  Speaker 1: And chocolate chip coconut over on another one. So it's
• 28:15
  Speaker 1: pretty fun. It's um fairly automated, so we've dispensed from
• 28:21
  Speaker 1: our manufacturing and having a centralized control room, so everybody's
• 28:26
  Speaker 1: running around with iPads and I watches and keeping an
• 28:29
  Speaker 1: eye on all the machines. So it's a lot of
• 28:31
  Speaker 1: fun to have your own manufacturing. I'm just my imaginations
• 28:34
  Speaker 1: going wild. I'm just picturing the scene and Willy Wonka
• 28:38
  Speaker 1: the chocolate fountain. Greg Steals and Paul, thank you so
• 28:41
  Speaker 1: much for being with us. Really a pleasure having you on.
• 28:46
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 28:49
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 28:53
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 28:56
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at abramoids one.
• 29:01
  Speaker 1: Before the podcast, you can always catch us worldwide on
• 29:04
  Speaker 1: Bloomberg Radio.