Latest / Bloomberg Intelligence / U.S Tech, Lululemon Earnings

Transcript

U.S Tech, Lululemon Earnings · Bloomberg Intelligence

• 0:02
  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
• 0:10
  Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
• 0:15
  Speaker 1: Eastern on Apple Car playing Android Auto with the Bloomberg
• 0:18
  Speaker 1: Business app. Listen on demand wherever you get your podcasts,
• 0:21
  Speaker 1: or watch us live on YouTube.
• 0:25
  Speaker 2: Let's talk technology here. There's a lot happening again. The
• 0:28
  Speaker 2: Bloomberg News story today, which is just amazing to me. Nvidia,
• 0:32
  Speaker 2: Microsoft and Apple are bigger than the China stock market.
• 0:35
  Speaker 3: That's it.
• 0:35
  Speaker 2: I don't know who did that math, but that's like
• 0:37
  Speaker 2: a good math. That makes a good story to me.
• 0:39
  Speaker 4: That's a great story. I mean, does it mean they're
• 0:41
  Speaker 4: overvalued or China's undervalued?
• 0:43
  Speaker 2: All right, let me check in with somebody who might
• 0:45
  Speaker 2: have an opinion here on Rock ran a Bloomberg Intelligence
• 0:47
  Speaker 2: senior tech analyst on a Rock. I mean, ever since
• 0:51
  Speaker 2: I've known you, this is we're going fourteen years. You've
• 0:53
  Speaker 2: got like the easiest job on Wall Street. All you
• 0:55
  Speaker 2: got to do is say tech spending is going up.
• 0:59
  Speaker 2: Buy these things that's good for technology. Step back today,
• 1:02
  Speaker 2: you walk into a portfolio manager's office here, and the
• 1:05
  Speaker 2: portfolio manager he's been in he or she has been
• 1:08
  Speaker 2: in industrials their entire career. Now they're told they need
• 1:11
  Speaker 2: to get some tech exposure. Where do you send them?
• 1:14
  Speaker 5: Yeah, so this is you know, you just made a
• 1:15
  Speaker 5: comment that you know, eighteen months ago or so when
• 1:18
  Speaker 5: you heard of AI, you said, go by in video
• 1:20
  Speaker 5: and that's you know, that has worked out very well.
• 1:22
  Speaker 5: But now the question is for the next leg of
• 1:25
  Speaker 5: AI beneficiaries, do you go downstream or you still stick
• 1:29
  Speaker 5: to the hardware players? And that's a very tough question, frankly,
• 1:32
  Speaker 5: but there are enough players in the software area, in
• 1:35
  Speaker 5: the in the services area that have not seen the
• 1:37
  Speaker 5: benefit of AI, and I think those are the companies
• 1:39
  Speaker 5: they're going to see sales improve over the next you know,
• 1:42
  Speaker 5: let's say a couple of years, because the downstream effect
• 1:45
  Speaker 5: of all the increased spending has to reach them.
• 1:48
  Speaker 6: It's just a matter of time.
• 1:49
  Speaker 5: The difficult part is to put a real pulse on
• 1:52
  Speaker 5: when that's going to happen.
• 1:53
  Speaker 4: Yeah, let me throw a fly into the ointment. Can
• 1:56
  Speaker 4: the Justice Department screw all this up at some point?
• 2:00
  Speaker 6: Yeah, they will try very hard.
• 2:01
  Speaker 5: And you know, I think these companies are also getting
• 2:04
  Speaker 5: smarter and smarter. But frankly speaking, I think what we
• 2:07
  Speaker 5: saw after the financial crisis was banks did become much bigger,
• 2:12
  Speaker 5: and I think unfortunately for the Justice Department and other regulators,
• 2:15
  Speaker 5: I think the large tech companies will become much bigger
• 2:18
  Speaker 5: because of AI, just because they have the capacity to
• 2:21
  Speaker 5: run these workloads. It's not easy to run them in
• 2:23
  Speaker 5: your you know, backyard or so you really need powerful
• 2:27
  Speaker 5: computers to do these processing and they have an unfair
• 2:30
  Speaker 5: advantage here.
• 2:31
  Speaker 3: All right, Anrarag. We can't get you on the horn
• 2:34
  Speaker 3: without talking about Apple.
• 2:35
  Speaker 2: And I know next week June tenth, I believe, will
• 2:38
  Speaker 2: be the Developer Conference for Apple, and that's a you know,
• 2:41
  Speaker 2: an event every year where people like John Tucker and
• 2:42
  Speaker 2: I who don't know much about technology, we do pay
• 2:46
  Speaker 2: attention because that tends to be when Apple introduces some
• 2:49
  Speaker 2: cool stuff, maybe that it moves the stock of Apple,
• 2:52
  Speaker 2: maybe it moves the socks in other tech companies. Give
• 2:56
  Speaker 2: us a preview of June tenth at in Cupertino, California.
• 3:00
  Speaker 5: Yeah, so I would say that you know, these companies
• 3:02
  Speaker 5: hold these events every year, but I would say for Apple,
• 3:05
  Speaker 5: I don't think it has ever been so important than
• 3:08
  Speaker 5: this year as to what big updates they're going to
• 3:10
  Speaker 5: do their software because right now, Apples was caught off
• 3:13
  Speaker 5: guard like most of the companies did when chat GPD
• 3:17
  Speaker 5: came out and people figured out they are really behind
• 3:19
  Speaker 5: the curve when it comes to AI adoption or their
• 3:23
  Speaker 5: you know, investments in this area.
• 3:25
  Speaker 6: So Apple's been behind, there's no lying about it.
• 3:28
  Speaker 5: But we are expected to see you know, you could
• 3:31
  Speaker 5: say alliance between Apple and Open Ai. We don't know
• 3:35
  Speaker 5: if they're going to do a similar deal with with Google.
• 3:38
  Speaker 5: That's pending, So there's going to be a lot of
• 3:40
  Speaker 5: interesting stuff that shows up on Monday when Apple's going
• 3:44
  Speaker 5: to showcase how this technology is going to get into
• 3:47
  Speaker 5: your phone and make your life a little bit easier
• 3:50
  Speaker 5: than what it is. And if that, if that thing
• 3:53
  Speaker 5: goes through, if it's executed, well, then the the shipment
• 3:57
  Speaker 5: data or the unit unit sales data that we have
• 3:59
  Speaker 5: seen for iPhones over the last three years, which has
• 4:02
  Speaker 5: typically been flat, I mean, the Apple's not seen any
• 4:05
  Speaker 5: improvement there.
• 4:06
  Speaker 6: I mean you could see a lift over there.
• 4:08
  Speaker 4: Let me ask you about Microsoft real quickly. What's the
• 4:10
  Speaker 4: deal that they struck with this AI startup.
• 4:13
  Speaker 7: I think it's Inflection, Yeah, so basically they paid them
• 4:19
  Speaker 7: a fee as you could say compensation to hire a
• 4:24
  Speaker 7: lot of their employees and make them part of Microsoft's
• 4:27
  Speaker 7: internal AI division.
• 4:29
  Speaker 5: And that's the you know, that's what it's been looked
• 4:31
  Speaker 5: at because, as you know, larger companies cannot easily buy
• 4:36
  Speaker 5: any companies at this point, or AI companies, so they
• 4:39
  Speaker 5: are trying to see if they could.
• 4:41
  Speaker 6: They are you know, you could.
• 4:42
  Speaker 5: Say, skirting the rules around acquisitions by doing this end
• 4:45
  Speaker 5: mass hiring folks.
• 4:47
  Speaker 2: One of the I think the real key advantages of
• 4:49
  Speaker 2: Bloomberg Intelligence is that they have access to the best
• 4:54
  Speaker 2: data for every industry that they cover in a technology space.
• 4:58
  Speaker 3: One of those data.
• 4:58
  Speaker 2: Providers Thatloomberg Intelligence has access to is id C. That
• 5:03
  Speaker 2: is the gold plated provider of really independent data on
• 5:07
  Speaker 2: tech spending, amongst other things a RAG. I know, you've
• 5:11
  Speaker 2: worked a lot with the IDC folks. You use your
• 5:13
  Speaker 2: the id data a lot in your research. What are
• 5:17
  Speaker 2: you getting, What are you sensing in terms of total
• 5:19
  Speaker 2: tech spend, in terms of what's incremental for AI and
• 5:24
  Speaker 2: maybe what's just kind of taking from one tech you know,
• 5:27
  Speaker 2: capex budget and.
• 5:28
  Speaker 3: Putting it into AI. What do we know?
• 5:31
  Speaker 5: Yeah, so at least this for this year, for twenty
• 5:33
  Speaker 5: twenty four. It's more of a reallocation at this point,
• 5:36
  Speaker 5: and you know, you have to really think you're long
• 5:39
  Speaker 5: and hard and say whether that's going to be the
• 5:41
  Speaker 5: same case in twenty five and twenty six.
• 5:43
  Speaker 6: We think things are going to improve.
• 5:45
  Speaker 5: Geopolitical conditions are not the best right now, so CIOs
• 5:49
  Speaker 5: or CFOs are not that excited about ramping up their
• 5:53
  Speaker 5: tech budgets. But we think tech as a percentagea of
• 5:55
  Speaker 5: global GDP is still a small portion. It's you know,
• 5:59
  Speaker 5: we talk about a lot, but it's not as big
• 6:01
  Speaker 5: as let's say, healthcare spending in the US, for example,
• 6:04
  Speaker 5: when you compare both the numbers.
• 6:06
  Speaker 6: So we really feel.
• 6:07
  Speaker 5: That, I mean, there are enough you could say, legs
• 6:10
  Speaker 5: to this particular story out now. We think it's going
• 6:14
  Speaker 5: to be in the form of more software spending over
• 6:16
  Speaker 5: the next several years than services spending. Hardware is doing well,
• 6:20
  Speaker 5: So I think that may continue or that may not.
• 6:22
  Speaker 5: That it's a big question, but we think we think
• 6:25
  Speaker 5: it's going to be incremental spent coming in the next
• 6:27
  Speaker 5: few years.
• 6:28
  Speaker 4: The expectations are really high for technology. What if they
• 6:32
  Speaker 4: don't meet the expectations, What's what's in the unexpected bin
• 6:36
  Speaker 4: at this point and the potential downside.
• 6:39
  Speaker 5: Yeah, you see, you talked about two or three names,
• 6:42
  Speaker 5: you know, Nvidia, Apple, and Microsoft. But if you look
• 6:45
  Speaker 5: at other companies, let's say, if you were to pull
• 6:48
  Speaker 5: a chart of salesforce or workday or accenture or you
• 6:52
  Speaker 5: know tcs, they've all been going down or they have
• 6:55
  Speaker 5: not seen the same benefit coming through. And that's where
• 6:58
  Speaker 5: the allocation is being taken away from and going into
• 7:01
  Speaker 5: the hardware areas. So those are the companies that you
• 7:04
  Speaker 5: know could see slight improvement next year. The sentiment is
• 7:07
  Speaker 5: really bad in the software arena right now because of
• 7:10
  Speaker 5: the lack of that spending. I think you know that
• 7:12
  Speaker 5: may change next year if economic conditions improve, or I
• 7:16
  Speaker 5: would say geopolitical conditions improve.
• 7:19
  Speaker 2: All right, Don Rod, thanks so much for joining us
• 7:20
  Speaker 2: on Rod Rana. He's a senior technology channels for Bloomberg
• 7:23
  Speaker 2: Intelligence based in that burgeoning tech hub of Chicago, Illinois.
• 7:28
  Speaker 2: We appreciate him checking in there. So even HPE, you
• 7:31
  Speaker 2: think about HP Hewlett Packard Enterprises, they actually came out
• 7:35
  Speaker 2: with numbers yesterday were really strong and they cited AI servers.
• 7:39
  Speaker 2: So there's a company like Dell. You think Dell PC's right.
• 7:42
  Speaker 2: You think HP PCs printer stuff like that. But they're
• 7:46
  Speaker 2: doing these servers that are being used by these AI
• 7:48
  Speaker 2: folks and boomits moving their numbers.
• 7:51
  Speaker 4: Are you saying, well you have to do is attach
• 7:53
  Speaker 4: AI something else one of your products?
• 7:56
  Speaker 2: Well, one of the one of the things I'm thinking
• 7:57
  Speaker 2: about when you think about AI, what we have not
• 7:59
  Speaker 2: had like we had with Google and you know, kind
• 8:03
  Speaker 2: of the Internet and all that kind of stuff. Where's
• 8:05
  Speaker 2: that big IPO company that is the I AI ipo?
• 8:10
  Speaker 3: Like Google was, Oh how do I play the Internet? Oh?
• 8:12
  Speaker 3: You go buy this Google thing or you buy Yahoo.
• 8:15
  Speaker 2: Back in the day, you know, there isn't that IPO
• 8:17
  Speaker 2: that's coming out and everybody says, oh, this is the
• 8:20
  Speaker 2: AI play.
• 8:21
  Speaker 4: Well, I think startups and where the angel investors are
• 8:25
  Speaker 4: putting money right now, who's out there you've never heard of?
• 8:28
  Speaker 8: Right?
• 8:28
  Speaker 2: That's kind of where you know, I'm looking to the
• 8:30
  Speaker 2: dan Ives of the world to say, hey, where's that
• 8:31
  Speaker 2: next company that's going to come public that's going to
• 8:33
  Speaker 2: be the AI play.
• 8:36
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 8:40
  Speaker 1: weekdays at ten am Eastern on applecard Play and Android
• 8:43
  Speaker 1: Otto with the Bloomberg Business App. You can also listen
• 8:46
  Speaker 1: live on Amazon Alexa from our flagship New York station.
• 8:50
  Speaker 1: Just say Alexa play Bloomberg eleven thirty.
• 8:54
  Speaker 3: John Tucker sitting in for Alex Steele. Paul Swinge.
• 8:57
  Speaker 2: You're live here in a Bloomberg Interactive Brooker's studio so
• 9:00
  Speaker 2: in New York City. Were streaming live on YouTube as well.
• 9:02
  Speaker 2: So check us out there on Bloomberg Podcast. Is how
• 9:04
  Speaker 2: you search for us there? As least was just reporting
• 9:06
  Speaker 2: Lululemon has what Bloomberg first ward is saying, Lululemon jumps
• 9:10
  Speaker 2: on quote better than feared ONEQBE reports. I think the
• 9:13
  Speaker 2: expectations a little bit low there, but the stock's ratling
• 9:17
  Speaker 2: about two and a half three percent here today. But
• 9:20
  Speaker 2: the shares of Lululemon are down thirty eight percent year
• 9:24
  Speaker 2: to date. So let's figure out what's going on there
• 9:26
  Speaker 2: in Lululemon. Again, I'm a big fan, but it's interesting
• 9:30
  Speaker 2: the stock has really been under pressure. Punhum Goyle, she's
• 9:32
  Speaker 2: a senior US retail analyst for Bloomberg Intelligence. She joins
• 9:35
  Speaker 2: us via zoom from Princeton, New Jersey. Punham, what did
• 9:39
  Speaker 2: you see in Lululemon's earnings and what does it tell
• 9:43
  Speaker 2: you about maybe the retail consumer.
• 9:45
  Speaker 8: Sure, So I think the earnings are better than expected
• 9:47
  Speaker 8: because well, we do see slow in growth at Lululemon,
• 9:50
  Speaker 8: where it's decelerating from the mid teens to low double
• 9:54
  Speaker 8: digits near ten percent. There is concern that is that
• 9:57
  Speaker 8: because of a slower macro and the fact that Lulu
• 10:01
  Speaker 8: Lemon is losing out to competition Alo Yoga, et cetera.
• 10:04
  Speaker 8: We discovered that part of that is true, but part
• 10:07
  Speaker 8: of that is not true, and I think that's why
• 10:09
  Speaker 8: investors have a little more confidence.
• 10:12
  Speaker 4: How big is the US market for them? And are
• 10:15
  Speaker 4: they selling overseas and how much?
• 10:17
  Speaker 8: Yeah, so the US market the America is eighty percent
• 10:20
  Speaker 8: of their business. International is twenty percent, with China half
• 10:24
  Speaker 8: of that.
• 10:26
  Speaker 4: And is demand picking up or slowing in China or
• 10:28
  Speaker 4: is it new to the Lulu Lemon market.
• 10:31
  Speaker 8: So international was a bright spot this quarter. International sales
• 10:35
  Speaker 8: grew about thirty five percent, and within that, China was
• 10:39
  Speaker 8: up Mainland China was up forty five percent, So a
• 10:42
  Speaker 8: lot of growth there. It's a bright spot for lul Lemon.
• 10:45
  Speaker 8: International is part of their three pronged strategy to double
• 10:48
  Speaker 8: sales into twenty twenty seven. It's been doing very very
• 10:52
  Speaker 8: well and we expect that to continue.
• 10:55
  Speaker 3: All right.
• 10:55
  Speaker 2: So and folks, if you want the best research on
• 10:59
  Speaker 2: the street on Lululan, Lululemon just gonna be I go
• 11:02
  Speaker 2: and you can find Punam's research there.
• 11:04
  Speaker 3: And I'm looking at your research here. Punham.
• 11:06
  Speaker 2: You're talking about you know, when you talk about that
• 11:08
  Speaker 2: doubling sales to twelve and a half million, you know
• 11:11
  Speaker 2: by twenty twenty six the company, and you're saying strong
• 11:14
  Speaker 2: international growth. Okay, I get that men's growth. Talk to
• 11:17
  Speaker 2: us about Lululemon and men's I mean, it's just not
• 11:20
  Speaker 2: John and I don't know where to go with this.
• 11:21
  Speaker 4: Do real men go to Lululemon?
• 11:24
  Speaker 8: Is what it's. Real men are going to Lululemon. You know,
• 11:28
  Speaker 8: it's one of their bright spots right now. And they
• 11:30
  Speaker 8: actually think that men's could become overtime. I think you'll say,
• 11:33
  Speaker 8: take some time fifty percent of the business. So there's
• 11:36
  Speaker 8: a lot of opportunity in men's. And you know when
• 11:39
  Speaker 8: you walk those stores and I looked at the men's inventory,
• 11:41
  Speaker 8: it actually looks great. It's not just about outfitting the
• 11:44
  Speaker 8: men to go to the gym. It's about outfitting the
• 11:47
  Speaker 8: men to go into work with casual, comfortable where that they.
• 11:51
  Speaker 4: Can where everybody who listens to this program of views
• 11:56
  Speaker 4: this on YouTube knows Paul is the company fashion police. Yes,
• 12:00
  Speaker 4: if you saw somebody in like Lululemon come into the office,
• 12:04
  Speaker 4: might have a.
• 12:04
  Speaker 3: Film, it might be a problem.
• 12:05
  Speaker 2: But I'm going to refer to Punum because she knows
• 12:07
  Speaker 2: fashion here and she knows what works. So if I'm
• 12:11
  Speaker 2: Lulu Lemon, talk to us just about what they're saying
• 12:15
  Speaker 2: about the consumer out there, Punham.
• 12:18
  Speaker 8: So the consumer, We've been talking about this for a
• 12:20
  Speaker 8: while now. The consumer is selective. They're choosing where to shop,
• 12:24
  Speaker 8: when to shop, how to shop, and if they see
• 12:26
  Speaker 8: the right product, they are still purchasing it. The one
• 12:29
  Speaker 8: thing that struck out during the call was that traffic
• 12:32
  Speaker 8: was up in the quarter, which means people are still
• 12:35
  Speaker 8: going to Lulu Lemon. They still have purchased intent. But
• 12:38
  Speaker 8: there were some product missteps which they're working to correct
• 12:41
  Speaker 8: into the second half of the year, where they didn't
• 12:43
  Speaker 8: have the right colors, or they didn't have enough colors.
• 12:45
  Speaker 8: I should say, they didn't have enough depth and sizes.
• 12:48
  Speaker 8: They were running out of the small sizes. So these
• 12:50
  Speaker 8: are problems that I would think are execution related and
• 12:53
  Speaker 8: are being fixed and can be fixed into the back half.
• 12:56
  Speaker 8: So while there is still part of a macro problem,
• 12:58
  Speaker 8: the story isn't that Lemon people are not going to
• 13:02
  Speaker 8: shop there. People still are interested in the apparel. They
• 13:04
  Speaker 8: just have to fix the product a little and really
• 13:07
  Speaker 8: improve our execution into the back half.
• 13:09
  Speaker 4: They're known for form fitting, but just to get back
• 13:12
  Speaker 4: to the men's fashion, they have anything for old fat guys.
• 13:17
  Speaker 8: Well, their ABC men's franchise is really popular and it's
• 13:21
  Speaker 8: not form fitting. It's about the casual flare and they
• 13:24
  Speaker 8: have done very well there. And you don't need to
• 13:28
  Speaker 8: wear tight leggings for men's that's not the appeal there.
• 13:31
  Speaker 8: That's for the women. But I'd say even for the woman,
• 13:33
  Speaker 8: you know what worked really well in the corner where
• 13:35
  Speaker 8: they're loose fitting pants and their biker shorts. So yes,
• 13:39
  Speaker 8: leggings is a big business for them, but they are
• 13:41
  Speaker 8: broadening that.
• 13:43
  Speaker 3: Hey, let's switch gears just a little bit.
• 13:44
  Speaker 2: I saw it yesterday reporting in a Wall Street journal
• 13:47
  Speaker 2: Punum Dollar Tree is among the potential sales spin off
• 13:51
  Speaker 2: of Family Dollar.
• 13:52
  Speaker 3: What is going on with the dollar stores here.
• 13:55
  Speaker 2: I would have thought that if a part of the
• 13:57
  Speaker 2: consumer market is weak and the low end economically, that.
• 14:01
  Speaker 3: Perhaps that would be good for the dollar stores. But
• 14:04
  Speaker 3: what's going on there?
• 14:06
  Speaker 8: So they're really two very different types of dollar stores.
• 14:10
  Speaker 8: Gen Bartashus covers the space, but from my coverage over
• 14:14
  Speaker 8: years ago, I can tell you that Dollar Tree targets everyone, right.
• 14:17
  Speaker 8: I would shop at Dollar Tree, Paul. You would shop
• 14:19
  Speaker 8: a Dollar Tree. You buy that one twenty five item
• 14:21
  Speaker 8: there and you go treasure hunt. But a family Dollar customer,
• 14:25
  Speaker 8: that's their principal discount store. That is where they buy
• 14:29
  Speaker 8: their groceries, that is where they buy their day to
• 14:31
  Speaker 8: day needs. So as that customer's wallet is being stretched,
• 14:34
  Speaker 8: that business does come into more pressure.
• 14:37
  Speaker 4: I'm going to tell you my Dollar Tree story. I
• 14:40
  Speaker 4: bought a loaf of bread I brought to the counter
• 14:43
  Speaker 4: and the casher said, sir, you don't want that. Apparently
• 14:48
  Speaker 4: they had some sort of rat problem. I didn't know
• 14:51
  Speaker 4: about it.
• 14:53
  Speaker 3: All right, Punam, thank you so much for joining us there.
• 14:55
  Speaker 2: Putnam Goyle, Senior US e Commerce and retail Anams Bloomberg
• 14:58
  Speaker 2: Intelligence give us a breakdown on Lululemon again, some better
• 15:02
  Speaker 2: than feared or results, and n actually lifted their guidance
• 15:04
  Speaker 2: a little bit here. So some good news there for
• 15:07
  Speaker 2: Lululemon stocks up about two and a half percent, but
• 15:09
  Speaker 2: it's down pretty big this year, concerns about growth.
• 15:13
  Speaker 4: There.
• 15:15
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 15:19
  Speaker 1: weekdays at ten am Eastern on Apple Car playing Android
• 15:22
  Speaker 1: otto with the Bloomberg Business app. Listen on demand wherever
• 15:26
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 15:31
  Speaker 2: If you look at the equal weighted standard and Poor's
• 15:33
  Speaker 2: index of about five percent, the question is kind of
• 15:36
  Speaker 2: where do we go from here with We've got a
• 15:38
  Speaker 2: FED that appears at.
• 15:40
  Speaker 3: Some point it's going to be cutting rates. You got
• 15:42
  Speaker 3: that on one hand.
• 15:43
  Speaker 2: The other hand, you've got decent earnings growth That kind
• 15:45
  Speaker 2: of seems pretty constructive here in the marketplace. Let's check
• 15:48
  Speaker 2: in with somebody who does this stuff for a living.
• 15:50
  Speaker 2: Nicole Webbs. She's the senior vice president. She's a financial
• 15:52
  Speaker 2: advisor at Wealth Enhancement Group, joining us via that Zoom thing.
• 15:57
  Speaker 2: So Nicole, is you sit down and talk to your
• 15:58
  Speaker 2: clients here today. They've had a pretty good start to
• 16:02
  Speaker 2: the year by and large. What are you telling them
• 16:04
  Speaker 2: about the back half of this year.
• 16:07
  Speaker 9: Yeah, you know, I think the back half is a
• 16:09
  Speaker 9: little bit to be determined, But in the interim, we
• 16:13
  Speaker 9: expect it to be pretty choppy. And I say that,
• 16:16
  Speaker 9: you know, for a myriad of reasons. You know, I
• 16:19
  Speaker 9: think the first being, there was so much expectation that
• 16:22
  Speaker 9: entering this year and your lead in was so perfect,
• 16:26
  Speaker 9: was that you know, we're going to see this broadening
• 16:28
  Speaker 9: out in the market, a breath that would come through
• 16:31
  Speaker 9: the first two quarters of twenty twenty four, and that's
• 16:34
  Speaker 9: not really been the case. And actually over the last
• 16:37
  Speaker 9: couple of weeks which we've seen is less breath and
• 16:40
  Speaker 9: more leadership in mega technology again, and so you know,
• 16:45
  Speaker 9: probably to get that next stickiness the next run from here,
• 16:50
  Speaker 9: one would expect that we need more confidence throughout the
• 16:53
  Speaker 9: cap spectrum, not just concentrated in technology. And then you
• 16:57
  Speaker 9: couple that with the fact that we've had a lot
• 16:59
  Speaker 9: of interest rate volatility. I mean, really even in the
• 17:02
  Speaker 9: last five, six, seven trading days, the tenure has moved
• 17:06
  Speaker 9: a lot, and so you know, there's there's some underpinnings
• 17:09
  Speaker 9: to this market right now that we expect to keep
• 17:13
  Speaker 9: it choppy for the coming weeks ahead.
• 17:15
  Speaker 4: The data that we've been getting, does that show slowing
• 17:19
  Speaker 4: that indicates, uh, interest rate cut that's going to be
• 17:22
  Speaker 4: good for equities, or does it show slowing of the
• 17:26
  Speaker 4: economy that's going to be bad for corporate profits.
• 17:30
  Speaker 9: You know, our stance on cuts is that it kind
• 17:35
  Speaker 9: of circles back to the ECB today, which I I
• 17:38
  Speaker 9: loved that their words were a bit hawkish in tone,
• 17:42
  Speaker 9: but their actions were that they want to see rate stabilize.
• 17:47
  Speaker 4: Yeah, they ec be cut, but at the same time
• 17:50
  Speaker 4: Lagarn also said there were inflation concerns or if she
• 17:54
  Speaker 4: doesn't know how close they are to the neutral radar
• 17:57
  Speaker 4: words to that effect exactly.
• 17:59
  Speaker 9: And so you know, I think as we keep seeing
• 18:01
  Speaker 9: economic data that is in support of you know, many
• 18:05
  Speaker 9: consumers that are slowing, but then many who are benefiting
• 18:08
  Speaker 9: from the run in the markets also clipping five percent
• 18:12
  Speaker 9: coupons on risk free assets, and you kind of need
• 18:15
  Speaker 9: to start hearing a tone from our FED that we
• 18:18
  Speaker 9: need to start the process of normalization of rates because
• 18:22
  Speaker 9: there are certain elements of the inflationary trends around us,
• 18:27
  Speaker 9: some of these pockets of stickiness and service, the undersupply
• 18:31
  Speaker 9: in housing that simply probably can't be fixed by leaving
• 18:35
  Speaker 9: rates as restrictive as they are. And so, you know,
• 18:38
  Speaker 9: I think it was a really balanced message from the
• 18:40
  Speaker 9: ECB and one that we would love to see, you know,
• 18:44
  Speaker 9: the Fed here take more of that stance on. You
• 18:47
  Speaker 9: can remain hawkish in your tone, but you can start
• 18:52
  Speaker 9: to move towards normalization and do it at a slow
• 18:56
  Speaker 9: and steady pace, versus continuing this narrative of going into
• 18:59
  Speaker 9: a cutting cycle, which you know, sounds very different.
• 19:03
  Speaker 10: It sounds like fixing a new problem.
• 19:06
  Speaker 3: So Nicole, talk to us about valuation here.
• 19:09
  Speaker 2: I'm looking at kind of s and P earnings growth
• 19:11
  Speaker 2: kind of ten eleven maybe twelve percent over the you know,
• 19:14
  Speaker 2: next year or so. Is that enough to support this
• 19:17
  Speaker 2: valuation in the market or do you feel like you
• 19:20
  Speaker 2: need to maybe get a little defensive in valuation.
• 19:25
  Speaker 10: There?
• 19:25
  Speaker 9: You know, there's there's this convergence of themes, one of
• 19:30
  Speaker 9: them being we went in to the year with earning expectation,
• 19:35
  Speaker 9: you know, consensus among analysts. Generally, you see analysts start
• 19:42
  Speaker 9: to cut those earnings forecasts, which in the first month
• 19:45
  Speaker 9: or two we did, and then we've seen a steady
• 19:47
  Speaker 9: increase in those earnings expectations and where we think this
• 19:50
  Speaker 9: market is going to take us. You know, again, though,
• 19:53
  Speaker 9: I go back to the earlier comment, which is we
• 19:56
  Speaker 9: need more than just the support of mega technology or
• 20:00
  Speaker 9: that next leg or the next wave of this bull market,
• 20:04
  Speaker 9: or to have more confidence in it.
• 20:06
  Speaker 10: But at the same time.
• 20:08
  Speaker 9: It's pretty clear that you need a lot of free
• 20:12
  Speaker 9: cash flow, that there's going to be a huge capex
• 20:14
  Speaker 9: expenditure over the next many years to build the new infrastructure,
• 20:20
  Speaker 9: to build the AI factories, and that the megatech companies
• 20:26
  Speaker 9: are the ones who have the cash flow and the
• 20:29
  Speaker 9: access to do that. And so you know, aside from
• 20:33
  Speaker 9: more government intervention or more fiscal money put at building
• 20:37
  Speaker 9: out this infrastructure, we do believe that you're probably going
• 20:41
  Speaker 9: to continue to see multiples that are substantiated by both
• 20:45
  Speaker 9: the investment.
• 20:46
  Speaker 10: Towards future growth the breadth of that growth.
• 20:50
  Speaker 9: And then you know, also, though, when do you start
• 20:54
  Speaker 9: to see some of those productivity reshoring metrics for further
• 20:59
  Speaker 9: se access again down that cap spectrum within the s
• 21:02
  Speaker 9: and P five hundred, And then as we think even
• 21:05
  Speaker 9: further about the broadening out of the market, it really
• 21:08
  Speaker 9: does seem like until the FED starts to enter a
• 21:12
  Speaker 9: normalization narrative around interest rates that we're not going to
• 21:16
  Speaker 9: get that further support from mid and small cap, which
• 21:19
  Speaker 9: again has just been very volatile amongst you know, the
• 21:23
  Speaker 9: consumer data, the inflation data, and then again interest rate volatility.
• 21:28
  Speaker 4: Do you move beyond the big megacap stocks and maybe
• 21:33
  Speaker 4: into the derivatives of artificial intelligence? Do you have to
• 21:37
  Speaker 4: be more strategic in that area now?
• 21:40
  Speaker 9: Overall, you know, we think it's really important to think
• 21:45
  Speaker 9: about artificial intelligence, the build out of the infrastructure as
• 21:51
  Speaker 9: being future.
• 21:52
  Speaker 10: Table stakes among many companies.
• 21:54
  Speaker 9: So if we think, you know, of the Internet, at
• 21:58
  Speaker 9: one point it was incredibly interesting and now it's as
• 22:02
  Speaker 9: if you would never run a business without it. And
• 22:04
  Speaker 9: I know that is a little bit cliche and simplified,
• 22:07
  Speaker 9: but I do think you have to look beyond just
• 22:11
  Speaker 9: the productivity within each company and think more about end benefactors.
• 22:17
  Speaker 9: So right now there's so much onus put on the suppliers.
• 22:21
  Speaker 9: We've seen the pressure on software because there's a lot
• 22:24
  Speaker 9: of curiosity about you know, is that more of a
• 22:27
  Speaker 9: middleman that gets gets stripped out of this equation. But
• 22:31
  Speaker 9: you know, we think of and it's a very easy
• 22:34
  Speaker 9: example would be you know, John Deere, you know things
• 22:38
  Speaker 9: that become end benefactors in terms of access to you know,
• 22:45
  Speaker 9: robotic arms and the ability for artificial intelligence instead of
• 22:51
  Speaker 9: fertilizing entire fields.
• 22:53
  Speaker 4: It's the tractor that doesn't need a farmer.
• 22:56
  Speaker 10: It is the tractor that doesn't need a farmer.
• 22:58
  Speaker 9: Thank you.
• 22:58
  Speaker 10: You got there faster than I could.
• 23:00
  Speaker 9: And so you have to think about what are businesses
• 23:03
  Speaker 9: that are truly revolutionized and what businesses just become table
• 23:08
  Speaker 9: stakes owners of you know AI as part of its
• 23:12
  Speaker 9: operating technology.
• 23:14
  Speaker 2: Nicole, I'm guessing you probably get some phone calls from
• 23:17
  Speaker 2: your clients saying, hey, I can just buy a two
• 23:18
  Speaker 2: year treasury and get close to five percent here. That's
• 23:21
  Speaker 2: not a bad place to be. What do you tell
• 23:23
  Speaker 2: them about fixed income these days?
• 23:25
  Speaker 9: Yeah, you know, it is the I never thought that
• 23:31
  Speaker 9: I would spend so much of my time for consecutive
• 23:34
  Speaker 9: years talking about treasuries.
• 23:35
  Speaker 10: It is incredibly interesting.
• 23:37
  Speaker 9: And you know, I would say post the Great Financial Crisis,
• 23:41
  Speaker 9: we started to really change the way we ran financial
• 23:44
  Speaker 9: models because we sat in a zero percent interest rate
• 23:48
  Speaker 9: environment for so long, and effectively you had to think
• 23:51
  Speaker 9: about how you then modeled total return as a component
• 23:54
  Speaker 9: of that. And so now if you were running projections
• 23:59
  Speaker 9: at five six percent, maybe seven, but someone can clip
• 24:03
  Speaker 9: five point four on the short end, it becomes really
• 24:06
  Speaker 9: hard to get them to take equity premium risk over
• 24:10
  Speaker 9: that risk free rate. And so it's really a combination
• 24:14
  Speaker 9: of thinking about public markets, private markets, and then how
• 24:21
  Speaker 9: much duration are you going to build into your portfolio today?
• 24:27
  Speaker 9: You know how far out are you going to go?
• 24:28
  Speaker 9: Because for many the tax equivalent yield on a tenure
• 24:31
  Speaker 9: is still incredibly lucrative, and so that is becoming a
• 24:36
  Speaker 9: bigger part of the overall conversation.
• 24:39
  Speaker 2: All right, Nicole, thank you so much for joining us.
• 24:40
  Speaker 2: As always, Nicole Web She's a senior vice president financial
• 24:43
  Speaker 2: advisor at Wealth Enhancement Group. Joining us from New York
• 24:47
  Speaker 2: via zoom.
• 24:48
  Speaker 1: Here, you're listening to the Bloomberg Intelligence Podcast. Catch us
• 24:53
  Speaker 1: live weekdays at ten am Eastern on applecar Play and
• 24:56
  Speaker 1: Android Auto with the Bloomberg Business App. You can also
• 25:00
  Speaker 1: and live on Amazon Alexa from our flagship New York station,
• 25:03
  Speaker 1: Just Say Alexa, playing Bloomberg eleven thirty.
• 25:08
  Speaker 3: For the month of June.
• 25:09
  Speaker 2: Bloomberg Radio is committed to bringing new segments and guests
• 25:12
  Speaker 2: focused on the topic of equality. Today, we're speaking with
• 25:16
  Speaker 2: Norman chen CEO of the Asian American Foundation. He joins
• 25:19
  Speaker 2: us via zoom from San Francisco. Norman, thanks so much
• 25:22
  Speaker 2: for joining us here. I love to just start at
• 25:23
  Speaker 2: the really basics here. Tell us what you do at
• 25:26
  Speaker 2: the Asian American Foundation, what's the focus and how are
• 25:30
  Speaker 2: you guys impacting this environment.
• 25:33
  Speaker 11: Well, first, thanks for having me. The Asian American Foundation
• 25:36
  Speaker 11: is a three year old organization that was formed at
• 25:39
  Speaker 11: the peak of anti Asian hate in twenty twenty one,
• 25:42
  Speaker 11: where we work together across the country, across all sectors
• 25:45
  Speaker 11: on safety, belonging, and prosperity for our community.
• 25:48
  Speaker 4: Does the China rhetoric, which in Washington has been focused
• 25:52
  Speaker 4: on technology and trade, does something as subtle as that
• 25:58
  Speaker 4: does that conversation need to to change or at least
• 26:01
  Speaker 4: acknowledge that it can result in what you see in
• 26:06
  Speaker 4: terms of hate speech and hate action against the AAPI community.
• 26:14
  Speaker 11: Yeah, language is really important, as we saw during COVID
• 26:17
  Speaker 11: rhetoric blaming China for COVID kung flu Wuhan virus severely
• 26:22
  Speaker 11: affected our community, leading to thousands and thousands of attacks
• 26:25
  Speaker 11: that continue today. While they are legitimate competitive issues with
• 26:29
  Speaker 11: China that need to be addressed. Inappropriate or inflammatory language
• 26:33
  Speaker 11: does lead to perceptions and misperceptions of our community that
• 26:36
  Speaker 11: continues to lead to feelings that Asian Americans are threats
• 26:40
  Speaker 11: in this country, that we're more loyal to Asia than
• 26:43
  Speaker 11: to the US, and other misunderstandings.
• 26:47
  Speaker 2: So, practically speaking, Norman, think you practically speaking Norman, how
• 26:51
  Speaker 2: do you guys go about trying to affect change?
• 26:54
  Speaker 6: How do you do that?
• 26:56
  Speaker 11: Yeah, we have four pillars to achieve safety belonging to prosperity.
• 27:00
  Speaker 11: Number one is to address the immediate hate and tax
• 27:02
  Speaker 11: against our community. And we work with a network of
• 27:05
  Speaker 11: fifty six national partners or partners across the country and
• 27:08
  Speaker 11: fourteen cities that provide care to victims and survivors that
• 27:12
  Speaker 11: have suffered these terrible attacks. So those partners are on
• 27:16
  Speaker 11: the ground. They provide medical, financial, legal support to those
• 27:20
  Speaker 11: who have been traumatized by these incidents. But longer term,
• 27:23
  Speaker 11: we work in education and narrative change. So we promote
• 27:26
  Speaker 11: the teaching of Asian American history in schools around the country,
• 27:30
  Speaker 11: and now seven states have mandated the teaching of Asian
• 27:33
  Speaker 11: American history because Asian American history is a critical part
• 27:36
  Speaker 11: of American history. And then on our Narrative Change piece,
• 27:39
  Speaker 11: we're working to tell more authentic stories about Asian Americans
• 27:43
  Speaker 11: and less the stereotypical kinds of stories. One survey that
• 27:46
  Speaker 11: we did as people around the country, can you name
• 27:49
  Speaker 11: a prominent or famous Asian American And for most people
• 27:52
  Speaker 11: in the country, they cannot, were largely invisible to them.
• 27:55
  Speaker 11: The number one name that has come up over the
• 27:57
  Speaker 11: past four years, over twenty thousand Peace book is Jackie Chan,
• 28:02
  Speaker 11: who is actually not even Asian American, He's from Hong Kong.
• 28:05
  Speaker 11: And then it's Bruce Lee. So you can see the
• 28:07
  Speaker 11: impact that movies and TV shows have on the general psyche,
• 28:12
  Speaker 11: and so that's really important to address that as well.
• 28:15
  Speaker 4: The Alan Mole shooting that was what a little more
• 28:18
  Speaker 4: than a year ago at this point, where Young targeted
• 28:22
  Speaker 4: Texas location because presumably, at least we're told by authorities
• 28:27
  Speaker 4: because of its aa PI population in Texas. Can you
• 28:31
  Speaker 4: tell us what the response has been.
• 28:34
  Speaker 11: Yeah, we have wonderful partners in Texas that are really
• 28:36
  Speaker 11: advocating for the teaching of Asian American history. They're also
• 28:40
  Speaker 11: fighting against land laws that prohibit Asian Americans from buying
• 28:43
  Speaker 11: property in Texas, so wonderful partners. There's a real activity
• 28:48
  Speaker 11: in Texas, and we also work with corporate partners that
• 28:51
  Speaker 11: are helping to promote Asian American programs in that state.
• 28:55
  Speaker 4: Yeah, you mentioned the property, but I believe there was
• 28:57
  Speaker 4: also a bill in Georgia that I think had the
• 29:01
  Speaker 4: backing of Governor Brian Kemp that would ban for Asian
• 29:06
  Speaker 4: foreign nationals Chinese foreign nationals from owning property in the state.
• 29:10
  Speaker 4: Can you give us an update on that.
• 29:13
  Speaker 11: Yeah, there's legislation and multiple states around the country. Unfortunately,
• 29:16
  Speaker 11: there has been fear mongering, as you pointed to earlier,
• 29:19
  Speaker 11: that people who are Chinese nationals shouldn't own property, and
• 29:24
  Speaker 11: they're trying to focus it around certain military or sensitive institutions.
• 29:28
  Speaker 11: While there are legitimate national security issues that need to
• 29:30
  Speaker 11: be addressed, this perception that Asian buyers Chinese buyers are
• 29:35
  Speaker 11: potentially a threat really affects the market, so that realtors
• 29:39
  Speaker 11: in these markets now are afraid or hesitant to bring
• 29:42
  Speaker 11: on Asian buyers, and so that really has a ripple
• 29:46
  Speaker 11: effect to the broader community. The sense that somehow Asians
• 29:49
  Speaker 11: are not loyal to America, that will provide and provide
• 29:52
  Speaker 11: risks to America, and we're really trying to fight that.
• 29:54
  Speaker 4: Yeah, you sound like we can go back to World
• 29:57
  Speaker 4: War two and Hawaii interment of Asian Americans exactly.
• 30:03
  Speaker 11: Yes, one hundred and twenty thousand Japanese Americans, seventy percent
• 30:06
  Speaker 11: who are citizens, were incarcerated for three years because people
• 30:09
  Speaker 11: thought that they were going to be disloyal, and it
• 30:11
  Speaker 11: turns out there was no proof at all during that
• 30:14
  Speaker 11: time that any of those people or any national security
• 30:17
  Speaker 11: risk of the country.
• 30:17
  Speaker 4: It's an unfortunate a long history of the United States.
• 30:21
  Speaker 2: Norman talk to us about is there a role for
• 30:24
  Speaker 2: you know, corporations, businesses and their leaders to kind of
• 30:29
  Speaker 2: get involved here.
• 30:29
  Speaker 3: What are we seeing?
• 30:31
  Speaker 11: Yeah, well, thanks for the question. So one very interesting
• 30:35
  Speaker 11: fact about TAP is that we were formed by prominent
• 30:38
  Speaker 11: Asian American business people such as Joe Tai, owner of
• 30:41
  Speaker 11: the Brooklyn Nets, Joe Bay co CEO of KKR, Jerry Yang,
• 30:46
  Speaker 11: co founder of Yahoo. So we have very much a
• 30:49
  Speaker 11: DNA with business background. And so one of the real
• 30:53
  Speaker 11: strengths of TAFF is that we are working across all sectors,
• 30:56
  Speaker 11: so not just nonprofit or philanthropy, but also across the
• 30:59
  Speaker 11: corporate sector, across government sector, and also with media and entertainment,
• 31:04
  Speaker 11: and in our gatherings around the country. We have such
• 31:07
  Speaker 11: a mix of people with who all want to support
• 31:09
  Speaker 11: our community but come at it from different backgrounds. So
• 31:12
  Speaker 11: our fourth pillar, which I didn't mention, is called representation
• 31:15
  Speaker 11: and resources, and a lot of that is focused on
• 31:17
  Speaker 11: our corporate partners.
• 31:18
  Speaker 3: So what does that mean.
• 31:19
  Speaker 11: We know from our Status Index research that feelings that
• 31:23
  Speaker 11: Asian Americans are the least likely to feel like we
• 31:25
  Speaker 11: truly belong in this country, and in fact, only eighteen
• 31:28
  Speaker 11: percent believe we truly belong and are accepted. Major reasons
• 31:32
  Speaker 11: for that are discrimination, racism. Clearly someone spits at you
• 31:35
  Speaker 11: or insult you, you don't feel very good, but also because
• 31:37
  Speaker 11: we don't see enough of our people in senior positions.
• 31:40
  Speaker 11: Asian Americans make up fifteen to thirty percent of workforces,
• 31:44
  Speaker 11: but only three percent of the c suite. Despite the
• 31:47
  Speaker 11: model minority myth which makes people believe that, oh, Asian
• 31:50
  Speaker 11: Americans are highly successful in business, it's not proportional across
• 31:55
  Speaker 11: the organization. So we're working with our corporate partners to
• 31:58
  Speaker 11: not only add and increase the presence of Asian Americans
• 32:02
  Speaker 11: on boards right at the c suite level, even among ergs,
• 32:06
  Speaker 11: but also working with our corporates to funnel more resources
• 32:09
  Speaker 11: to our community to make these changes.
• 32:12
  Speaker 2: Norman, thanks so much for joining us. Really appreciate getting
• 32:14
  Speaker 2: some of your time. Norman Chen, he's the CEO of
• 32:16
  Speaker 2: the Asian American Foundation.
• 32:18
  Speaker 3: Joining us via zoom from San Francisco.
• 32:24
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 32:28
  Speaker 1: weekdays at ten am Eastern on applecard Play and Android
• 32:31
  Speaker 1: Auto with the Bloomberg Business app. You can also listen
• 32:34
  Speaker 1: live on Amazon Alexa from our flagship New York station,
• 32:38
  Speaker 1: Just say Alexa Play Bloomberg eleven.
• 32:40
  Speaker 2: Thirty John Tucker, He's sitting in for Alex Steel today
• 32:44
  Speaker 2: on Paul Sweeney.
• 32:45
  Speaker 3: We're live here on Bloomberg Interactive Brokers Studio.
• 32:47
  Speaker 2: We're also streaming on YouTube, so you can head over
• 32:49
  Speaker 2: to YouTube dot com and search Bloomberg Podcast.
• 32:52
  Speaker 3: John. I don't know.
• 32:52
  Speaker 2: I'm at the point of my life here. All the
• 32:54
  Speaker 2: kids are out of the house. I'm eating out more
• 32:57
  Speaker 2: in restaurants than they ever have, and maybe.
• 32:58
  Speaker 3: It's also a post COVID type of thing.
• 33:01
  Speaker 2: I don't know, restaurants I think are packed. I mean,
• 33:04
  Speaker 2: I think the restaurant business is doing pretty good. I
• 33:06
  Speaker 2: know there's different levels of well.
• 33:07
  Speaker 4: The restaurants you're going to are different than the restaurants
• 33:11
  Speaker 4: like somebody like me and Charlie Pellett go to.
• 33:13
  Speaker 2: You think I'll go into the squad tavern tonight, Pete's
• 33:16
  Speaker 2: and Beer Knight.
• 33:16
  Speaker 3: That's what I'm doing tonight.
• 33:17
  Speaker 2: But anyway, Barry Ridholts, he's got a piece out on
• 33:22
  Speaker 2: this whole restaurant thing. What does it mean as an
• 33:23
  Speaker 2: economic indicator? So someone in the touch base with Barry
• 33:26
  Speaker 2: and see what he's doing there. Barry Ridholts hosts of
• 33:27
  Speaker 2: Masters in Business on Bloomberg Radio. Fantastic podcast folks, if
• 33:32
  Speaker 2: you want a business podcast markets all that kind of stuff.
• 33:34
  Speaker 2: He gets the greatest guest. It's called a Master's in Business.
• 33:38
  Speaker 2: He's also got a day job. He's a founder of
• 33:39
  Speaker 2: Ridholts Wealth Management. He joins his via zoom. Barry, I
• 33:43
  Speaker 2: know you've been known to go to a restaurant or
• 33:45
  Speaker 2: to maybe not the kind that John Tucker goes to.
• 33:49
  Speaker 2: But how do you look at the restaurant business as
• 33:52
  Speaker 2: just an indicator of the economy?
• 33:55
  Speaker 12: These issues whenever you hear me complaining about some terrible
• 33:58
  Speaker 12: bit of economic and nowais or discussion. It's because some
• 34:02
  Speaker 12: clients said, Hey, I know you've been constructive on stocks
• 34:06
  Speaker 12: for the past two years, but look at this video
• 34:08
  Speaker 12: a friend just sent me. The restaurant industry is collapsing.
• 34:12
  Speaker 12: We have to get out of stocks. And you know,
• 34:15
  Speaker 12: I go look at the video, and not only is
• 34:17
  Speaker 12: it mostly incorrect, it violates every rule of statistical analysis.
• 34:23
  Speaker 12: It's filled with band information and denominator blindness, and so
• 34:28
  Speaker 12: it sends me down the rabbit hole of hey, what's
• 34:32
  Speaker 12: really happening in the world to restaurants. And as it
• 34:34
  Speaker 12: turns out, the restaurant industry is on target. In twenty
• 34:40
  Speaker 12: twenty four, it will be the US restaurant industry's biggest
• 34:44
  Speaker 12: year ever in sales one point one trillion dollars by
• 34:48
  Speaker 12: the end of December, and that's based on the first
• 34:52
  Speaker 12: half a year of actual sales and then estimates from
• 34:56
  Speaker 12: the Restaurant Association National Restaurant Association for the rest of
• 34:59
  Speaker 12: the year. Now, again, I'm a little skeptical when people
• 35:03
  Speaker 12: are forecasting a five point four percent increase in revenue,
• 35:07
  Speaker 12: maybe inflation adjusted. Some of that's right, but when they
• 35:12
  Speaker 12: survey restaurant operators, about a third of them said they're
• 35:15
  Speaker 12: expecting to see higher real sales for the full year,
• 35:20
  Speaker 12: and two thirds of them have said the restaurants in
• 35:22
  Speaker 12: their area have rebounded from the pandemic fully. So, you know,
• 35:27
  Speaker 12: it's taken a while for this sector the.
• 35:29
  Speaker 4: Economy to recover.
• 35:32
  Speaker 12: But man, you try and make reservations at a decent restaurant,
• 35:36
  Speaker 12: you'd better be looking out two or three weeks or
• 35:39
  Speaker 12: you're not going to get in.
• 35:40
  Speaker 4: It also depends on where you're located. Barry, I think
• 35:42
  Speaker 4: you did an interview with Bobby Flay some years ago
• 35:46
  Speaker 4: who was saying it's almost impossible for a restaurant owner
• 35:50
  Speaker 4: an individual to turn a profit in a place like
• 35:52
  Speaker 4: Manhattan because the rents are so high.
• 35:55
  Speaker 12: Right, Well, first of all, it's a very difficult business
• 35:59
  Speaker 12: no matter where you are. It's razor thin profits. The
• 36:04
  Speaker 12: Restaurant Industry Association says that two thirds of restaurants will
• 36:09
  Speaker 12: fail in the first five years. It is tough. You know,
• 36:13
  Speaker 12: a great restaurant is a really good business, but restaurants
• 36:18
  Speaker 12: and as an industry, are incredibly competitive, incredibly difficult. Now,
• 36:24
  Speaker 12: the interesting thing about the discussion with Bobby Flay, where
• 36:28
  Speaker 12: I'm a giant fan of my wife and I have
• 36:30
  Speaker 12: his cookbooks.
• 36:30
  Speaker 4: We've missed.
• 36:32
  Speaker 12: Back when Miracle Grill was his first restaurant and I
• 36:35
  Speaker 12: was living on twenty seventh Street, we would go over there,
• 36:39
  Speaker 12: and that was before Mesa and some of his other
• 36:41
  Speaker 12: bigger restaurants. But given what's been taking place with work
• 36:48
  Speaker 12: from home and how empty office spaces are, the proposal
• 36:53
  Speaker 12: I've made is, hey, if you're an office building owner
• 36:56
  Speaker 12: and you want to get more office space rented, well,
• 37:00
  Speaker 12: then you better cut a deal with your ground floor
• 37:03
  Speaker 12: tenants to make sure it's filled. Because nothing reduces the
• 37:07
  Speaker 12: value of an office floor than coming in and seeing
• 37:10
  Speaker 12: a boarded up restaurant or a a null retailer on
• 37:14
  Speaker 12: the ground floor. I think retail as a service, restaurants
• 37:18
  Speaker 12: as a service is something that the major urban areas
• 37:21
  Speaker 12: need to consider because their bread is buttered ll upon
• 37:25
  Speaker 12: intended with the twenty year office leases that they're gonna
• 37:31
  Speaker 12: you know, sell tens of thousands of dollars worth over
• 37:36
  Speaker 12: the next twenty years, tens of thousands of square foot.
• 37:38
  Speaker 12: A restaurant that's down on the corner, a deli, a
• 37:41
  Speaker 12: half decent restaurant, even a high end restaurant. They need
• 37:44
  Speaker 12: to be a whole lot more flexible than they've been.
• 37:47
  Speaker 12: And they really have to think about this in a
• 37:49
  Speaker 12: very different way.
• 37:51
  Speaker 3: You know.
• 37:51
  Speaker 2: I saw a article on the Bloomberg yeshay, I've been
• 37:53
  Speaker 2: waiting waiting to read and it finally came out.
• 37:56
  Speaker 3: I say about San Francisco and how.
• 37:58
  Speaker 2: There are signs at San Francisco is bottoming and turning
• 38:02
  Speaker 2: for the first year. Last year they actually added people
• 38:07
  Speaker 2: in San Francisco, eight hundred and forty additional.
• 38:10
  Speaker 3: People on the on you know, it was positive. They
• 38:13
  Speaker 3: got to start somewhere. I mean, Barry, what do you
• 38:15
  Speaker 3: think about a market?
• 38:16
  Speaker 2: I know, you spend a lot of time in San Francisco,
• 38:18
  Speaker 2: a lot of you know, there's a lot of ingenuity there,
• 38:21
  Speaker 2: a lot of money there. How do you think about
• 38:23
  Speaker 2: a city like San Francisco, which, in my opinion, before
• 38:27
  Speaker 2: the pandemic was a jewel of this country in terms
• 38:30
  Speaker 2: of you gotta go there.
• 38:32
  Speaker 12: How do you think one of the most beautiful cities
• 38:34
  Speaker 12: in the country, No doubt, you know there there are
• 38:38
  Speaker 12: everybody wants that one answer, like a binary yes or no.
• 38:41
  Speaker 12: And here's a solution. We have a lot of problems
• 38:46
  Speaker 12: that are multi factor. There are a lot of things
• 38:49
  Speaker 12: driving it. When you look at when you look at
• 38:51
  Speaker 12: a city like New York or San Francisco, nimby is
• 38:55
  Speaker 12: a giant problem. The all the rules that prevent a
• 39:00
  Speaker 12: additional building and construction that that's an ongoing issue.
• 39:05
  Speaker 3: Like there isn't a.
• 39:06
  Speaker 12: Whole lot of things that can't be solved when prices
• 39:09
  Speaker 12: are too high. You know, the old joke is the
• 39:12
  Speaker 12: cure for high prices is high prices. You either have
• 39:14
  Speaker 12: to lower your prices or bring on more supply. We're
• 39:18
  Speaker 12: starting to see that in suburbia. It hasn't quite happened
• 39:23
  Speaker 12: in New York City or San Francisco, at least not rapidly.
• 39:28
  Speaker 12: And I have vivid recollections of watching the entire Lower
• 39:32
  Speaker 12: Manhattan region following September eleventh completely pivot from uptown downtown
• 39:39
  Speaker 12: to much more of a residential area. And I think
• 39:43
  Speaker 12: that has to happen in more cities. Yes, I know
• 39:45
  Speaker 12: a lot of these buildings don't lend themselves to fast
• 39:49
  Speaker 12: and easy conversions. Let a few half a billion or
• 39:52
  Speaker 12: billion dollar buildings go into receivership. You'll see how fast
• 39:56
  Speaker 12: and easy. They get converted. They'll get converted to residential.
• 40:00
  Speaker 12: And I think we have to recognize that what the
• 40:04
  Speaker 12: pandemic taught us, which is we are no longer in
• 40:07
  Speaker 12: a you know, nine to five Monday to Friday, nineteen
• 40:12
  Speaker 12: fifties mad men era of office work. That ship has sailed.
• 40:18
  Speaker 12: There are some firms that insist on five days a week.
• 40:21
  Speaker 12: For us, we give employees a whole lot more flexibility.
• 40:24
  Speaker 12: We think that's a great recruiting and retention advantage over
• 40:28
  Speaker 12: some larger firms. But it's pretty obvious the hybrid methodology
• 40:33
  Speaker 12: is here to stay, and that means we have too
• 40:36
  Speaker 12: much office space and too little residential in these urban centers.
• 40:41
  Speaker 2: Yep, all right, great stuff has always Barry, appreciate your perspective.
• 40:44
  Speaker 2: Barry Redholts, host Semester's in Business on Bloomberg Radio and
• 40:46
  Speaker 2: also founder of Ritholtz Wealth Management.
• 40:48
  Speaker 1: This is the Bloomberg Intelligence Podcast, available on apples, Spotify,
• 40:53
  Speaker 1: and anywhere else you will get your podcasts. Listen live
• 40:56
  Speaker 1: each weekday ten am to noon Eastern on Bloomberg dot Com,
• 41:00
  Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You
• 41:03
  Speaker 1: can also watch us live every weekday on YouTube and
• 41:06
  Speaker 1: always on the Bloomberg Terminal