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Powell’s Dark Tone Designed To Pressure Fiscal Policy: Dutta · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you
• 0:05
  Speaker 1: along with my co host Lisa brahma Witz. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money, whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Earlier this morning, we heard some
• 0:21
  Speaker 1: really interesting discussion uh with FED Chairman j Pale to
• 0:25
  Speaker 1: Peterson Institute talking about the impact of the coronavirus on
• 0:28
  Speaker 1: the economy, and Chairman Pal warns of a broad virus
• 0:32
  Speaker 1: danger and he certainly batted down any expectations of negative
• 0:36
  Speaker 1: rates out there, but certainly a somber longer term view
• 0:40
  Speaker 1: from the chairman to get a sense of kind of
• 0:41
  Speaker 1: what some of the details are there that we should
• 0:44
  Speaker 1: be paying attention to. We welcome Neil Dada ahead of
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  Speaker 1: US Economics at Renaissance Macro Research. So Neil, thanks so
• 0:49
  Speaker 1: much for joining us. What was the key takeaway or
• 0:52
  Speaker 1: key takeaways for you from what we heard from Chairman
• 0:55
  Speaker 1: Pal this morning. Well, I think the most important takeaway
• 0:59
  Speaker 1: is that he's leaning into fiscal authorities quite hard. U.
• 1:04
  Speaker 1: He sounded pretty somber and um, you know, downbeat about
• 1:07
  Speaker 1: the outlook. In my view, I think he kind of
• 1:10
  Speaker 1: needs to do that. It's almost by design. If he
• 1:12
  Speaker 1: sounds upbeat, that takes the pressure off on the heat
• 1:15
  Speaker 1: off the ciscal authorities. If he sounds more negative, UM,
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  Speaker 1: I think he keeps the pressure on them. So UM.
• 1:23
  Speaker 1: So to me, that, well, that's what was important. I
• 1:25
  Speaker 1: also thought it was quite interesting they talked about how
• 1:28
  Speaker 1: liquidity crises now can evolve into solvency problems later. Um. Again,
• 1:33
  Speaker 1: that sort of speaks to this idea that the less
• 1:36
  Speaker 1: they do now, the more pain there can be later.
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  Speaker 1: So that kind of speaks to the sort of second
• 1:40
  Speaker 1: and third order effects from the initial shock um that
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  Speaker 1: I think a lot of people are worried about right now.
• 1:44
  Speaker 1: So UM, I thought it was a pretty um you know.
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  Speaker 1: I mean, like like I said, I think I think
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  Speaker 1: he's negative. I think it's by design. Um. I think
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  Speaker 1: I think it's important for fiscal um you know, for
• 1:57
  Speaker 1: our politicians to kind of um not declare victory too soon.
• 2:03
  Speaker 1: And in my view that means really two things. And
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  Speaker 1: the most immediate term, UM, it means we need some
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  Speaker 1: kind of a stay in local aid package. UM, you know,
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  Speaker 1: from the federal government, you need to kind of backstop
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  Speaker 1: the revenue shortfalls that states are seeing. And UM, I
• 2:22
  Speaker 1: think number two in the summer, when things presumably will
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  Speaker 1: feel a little bit better than they do right now. UM,
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  Speaker 1: we've kind of set up a cliff type scenario with
• 2:33
  Speaker 1: with respect to fiscal policy, because we're going to see
• 2:37
  Speaker 1: a robust unemployment insurance program evaporate for many millions of people.
• 2:41
  Speaker 1: And these are individuals in many cases that UM work
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  Speaker 1: in industries like leaving, hospitality, retail that will be slow
• 2:51
  Speaker 1: to come back. UM. And they also have very high
• 2:54
  Speaker 1: propensities to consume. They usually spend what they get. So UM,
• 2:58
  Speaker 1: those are the two things I think on the fiscal
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  Speaker 1: side that I'm kind of keeping an eye on right now.
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  Speaker 1: And I think Powell's right to kind of say that, UM,
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  Speaker 1: you know, while their costs to doing this, UM, the
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  Speaker 1: benefits probably away the cost at this point. Neil, I
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  Speaker 1: love speaking with you because when I sometimes feel gloomy,
• 3:17
  Speaker 1: you often bring an optimistic view to the table, and
• 3:21
  Speaker 1: I'm trying to find the optimistic view right now, especially
• 3:25
  Speaker 1: after fed Share Powells testimony. I know that this is
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  Speaker 1: by design, but some of the statistics themselves all throughout
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  Speaker 1: one among people who are working in February, almost of
• 3:35
  Speaker 1: those in households making less than forty tho dollars a
• 3:38
  Speaker 1: year had lost a job in March. Meanwhile, Stan druck
• 3:41
  Speaker 1: and Miller, the billionaire who has been very successful, said
• 3:45
  Speaker 1: that the risk reward calculation for equities right now is
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  Speaker 1: the worst he's seen in his career. What do you
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  Speaker 1: have to say about that? So? I think, Um, I
• 3:55
  Speaker 1: don't buy into this idea that the markets have priced
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  Speaker 1: in some kind of of you know, glory V shaped
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  Speaker 1: style of recovery and it's off to the races. Um.
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  Speaker 1: I think that's sort of a red herring that people
• 4:06
  Speaker 1: are talking about. It's like everyone's looking for a V
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  Speaker 1: shaped recovery except for me. You know, I don't. I
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  Speaker 1: don't buy that at all. I mean, I think the
• 4:14
  Speaker 1: markets in the economy are more or less telling you
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  Speaker 1: the same thing. We've done a reasonably good job of
• 4:19
  Speaker 1: clipping off the left tail rist scenario. I don't think
• 4:22
  Speaker 1: in L shape recovery is likely to happen on the
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  Speaker 1: other end of this. At the same time, we've opened
• 4:27
  Speaker 1: things up a little, things have loosened a bit. Um.
• 4:31
  Speaker 1: The process is going slowly and gradually, and we've had
• 4:35
  Speaker 1: our initial bounce off belows and we're kind of treading water.
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  Speaker 1: So I think the stock market and the economy are
• 4:40
  Speaker 1: more or less giving you the same message you asked
• 4:43
  Speaker 1: for something optimistic. There's always been somewhere Lisa, and um
• 4:48
  Speaker 1: and and and I'll tell you that. You know, it's
• 4:50
  Speaker 1: pretty obvious to me that the economy bottomed sometime in
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  Speaker 1: the middle of April, meaning the level of activity isn't
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  Speaker 1: getting any worse. If you look at specific sectors, loively, housing,
• 5:01
  Speaker 1: there's some evidence that things are reviving a little bit
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  Speaker 1: more rapidly than originally anticipated. As an example, mortgage purchase
• 5:08
  Speaker 1: applications are up now four weeks in a row. This
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  Speaker 1: preceded the sort of expiration of some of these formal
• 5:15
  Speaker 1: shels formal formal shelter in place orders, right, So, um,
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  Speaker 1: the housing market recovery started even before these orders went,
• 5:24
  Speaker 1: you know, expired, and it's still recovering. It's up four
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  Speaker 1: weeks in a row. Um, we've recouped about two thirds
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  Speaker 1: of the loss since mid March. So um, that's that's
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  Speaker 1: a surprise. Um, and it's you know, I mean the
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  Speaker 1: fact that homebuying demand is picked up. I think it's
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  Speaker 1: a it's a good thing, it's an interesting sign. So
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  Speaker 1: it's something we're keeping an eye on. Yeah, Neil Data,
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  Speaker 1: thank you so much for being with us as always. Uh,
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  Speaker 1: it's always wonderful to get your perspective, Neil Data, head
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  Speaker 1: of US economics at Renaissance Macro Research. And I will
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  Speaker 1: tell you in the housing market, Paul, I wonder how
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  Speaker 1: bifurcated it is with now on urban centers getting the
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  Speaker 1: bulk of the purchasing right now. We hear so much
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  Speaker 1: about this in Denise PELAGRENI was talking about this how
• 6:07
  Speaker 1: people are looking to get out of the city right now,
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  Speaker 1: perhaps because they've been sheltering in place in a studio
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  Speaker 1: or concerned about the density factor, but that seems to
• 6:15
  Speaker 1: be something persistent. I wonder if it's going to be
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  Speaker 1: your diehard city personally, you're not considering leaving the city. Well,
• 6:21
  Speaker 1: I'm I'm born and raised here and I've lived outside
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  Speaker 1: of the city, but you know, for for the time being,
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  Speaker 1: I'm here, and it will be interesting to see how
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  Speaker 1: the city transforms, especially if it gets cheaper for individuals
• 6:33
  Speaker 1: to live here. How that affects things especially, I'm not
• 6:36
  Speaker 1: going to get into it. Vanguard is known as the
• 6:41
  Speaker 1: firm that really pioneered the index fund, that really has
• 6:45
  Speaker 1: led the charge into passive investing. So it came as
• 6:48
  Speaker 1: a surprise to some people in February when it announced
• 6:52
  Speaker 1: a partnership with Harbor Vest UH Strategic Partnership to provide
• 6:55
  Speaker 1: qualified investors with access to private equity, which is decidedly
• 6:59
  Speaker 1: not indexible in the same kind of way as public equities.
• 7:02
  Speaker 1: The question is, then the world got turned on its head.
• 7:06
  Speaker 1: What is the opportunity now in private equity joining us now?
• 7:10
  Speaker 1: I'm so glad to say fran Can i Ree, principle
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  Speaker 1: and global head of Private Investment at Vanguard frand thank
• 7:16
  Speaker 1: you so much for being with us. I would love
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  Speaker 1: to start just first with how strong or weak demand
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  Speaker 1: has been for private equity at a time when some
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  Speaker 1: of the smaller businesses that these firms invest in are
• 7:28
  Speaker 1: getting incredibly challenged by the pandemic and related shutdowns. Oh yes,
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  Speaker 1: thank you. And the supply coming in and the client
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  Speaker 1: interests coming in continues, despite as you mentioned, the health
• 7:43
  Speaker 1: crisis and the market volatility. UM. I think a lot
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  Speaker 1: of investors see the case for private equity UM. The
• 7:50
  Speaker 1: case also has extended in full and bear markets. So
• 7:54
  Speaker 1: private equity tends to be a replacement to public equity
• 7:58
  Speaker 1: or a compliment. And we've seen in other bear market
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  Speaker 1: environments where private equity has held its own. So Frank
• 8:05
  Speaker 1: gives a sense of kind of the thinking behind at Vanguard. Again,
• 8:08
  Speaker 1: as Lisa was saying earlier, you guys are the big
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  Speaker 1: giant player and indexing, and what's the thinking behind getting
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  Speaker 1: into the private equity business. Yeah, thanks, Um. I think
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  Speaker 1: most people may now mel us as indexing, but when
• 8:22
  Speaker 1: we started Vanguard, Jack Bogel started Vanguard, we started as
• 8:26
  Speaker 1: an actively managed shop and our first offerings were active
• 8:32
  Speaker 1: uh in nature. And so while we get very well
• 8:35
  Speaker 1: known for our indexing, I'm very proud of our indexing franchise.
• 8:38
  Speaker 1: We're actually one of the largest active investors on the
• 8:42
  Speaker 1: public equity side. We're also by far one of the
• 8:45
  Speaker 1: largest active managers on the fixed income side, both taxable
• 8:49
  Speaker 1: fixed income and tax exempts. So for us, we've always
• 8:53
  Speaker 1: been a very large, vibrant, active shop, and private equity
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  Speaker 1: just extends that from the public markets. For the private
• 9:01
  Speaker 1: markets fran This was the rage heading into this crisis,
• 9:05
  Speaker 1: or right before it, where a vast amount of money,
• 9:08
  Speaker 1: record sums were flooding into private equity firms public private
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  Speaker 1: debt funds, the idea being that public markets were still
• 9:16
  Speaker 1: flush with cash, that really the private markets were the
• 9:19
  Speaker 1: ones that still held opportunity. I'm wondering, though, liquidity and
• 9:25
  Speaker 1: solvency are different, and there are people who are saying
• 9:28
  Speaker 1: that private equity hasn't sold off to the same degree
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  Speaker 1: that public markets have, but it's simply a function of
• 9:33
  Speaker 1: there not trading as much. Would you agree with that?
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  Speaker 1: Do you think that private equity has seen the same
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  Speaker 1: scope of declines, we just may not be able to
• 9:41
  Speaker 1: see them in the same way. Yeah, that's probably correct.
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  Speaker 1: There's three maybe main components. One, you have appraisal based
• 9:50
  Speaker 1: valuation versus with the public markets are priced instant caneatives
• 9:54
  Speaker 1: for liquidity at that second, so it's the price that
• 9:58
  Speaker 1: will clear supply and demand. And whereas private equity is
• 10:01
  Speaker 1: a much longer duration investment, so the investors and the
• 10:06
  Speaker 1: investments themselves are much longer duration investments and they don't trade,
• 10:11
  Speaker 1: so a very small amount trades relative to its float,
• 10:16
  Speaker 1: which is very different from the public equity market. So, Frank,
• 10:20
  Speaker 1: give us a sense of kind of as you look
• 10:21
  Speaker 1: at the market today, it must be really difficult to
• 10:24
  Speaker 1: get a sense of where true value is. How are
• 10:28
  Speaker 1: you and in your team kind of trying to work
• 10:30
  Speaker 1: through that challenge. But the great thing for us at Vanguard,
• 10:34
  Speaker 1: we launched on March five, and so for us, it's
• 10:38
  Speaker 1: for us it's a new uh. So we actually have
• 10:42
  Speaker 1: no money in the ground, So we actually see this
• 10:45
  Speaker 1: as very opportunistic for Vanguard investors because we're not We
• 10:49
  Speaker 1: were not buying in November, December, January. We would have
• 10:53
  Speaker 1: if we were in the market, but we are entering
• 10:55
  Speaker 1: actually at a pretty good time because the valuations have reset.
• 11:00
  Speaker 1: So where are you seeing the potential opportunities here? So
• 11:05
  Speaker 1: we very much like our roots on the public equity
• 11:09
  Speaker 1: side and public fixed income side, are offering is going
• 11:12
  Speaker 1: to be very broad based, very global. Um will likely
• 11:17
  Speaker 1: have thirty to forty gps inside this offering, with seven
• 11:24
  Speaker 1: to eight hundred different holding companies, it'll globally diversified. I
• 11:29
  Speaker 1: don't want to interrupt you, Fran, but this sounds a
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  Speaker 1: lot like an index fund of private equity is that
• 11:34
  Speaker 1: what it's aiming to be? Did we just lose frand
• 11:38
  Speaker 1: did he just hang off on that question He was saying,
• 11:42
  Speaker 1: I don't think so. I think we just lost him.
• 11:44
  Speaker 1: But that's sort of the question that some people have
• 11:46
  Speaker 1: is that are we going to end up getting some
• 11:49
  Speaker 1: sort of indexing factor among private equity funds and could
• 11:53
  Speaker 1: Vanguard's entrance into it be that. I mean, that's not
• 11:56
  Speaker 1: what he said. We didn't get his response on that.
• 11:59
  Speaker 1: We will have to have him back to discuss it,
• 12:01
  Speaker 1: because it is a really interesting point. In other words,
• 12:04
  Speaker 1: how much mainstreaming are you gonna end up seeing in
• 12:07
  Speaker 1: the private equity industry? Paul, Yeah, And you know some people,
• 12:10
  Speaker 1: you know, they see Vanguard and the likes of the Vanguards,
• 12:12
  Speaker 1: you know, get into private equity that say top of
• 12:15
  Speaker 1: the market when you know, as you were mentioning earlierly. So,
• 12:18
  Speaker 1: there's so much capital flowing into the private equity space
• 12:21
  Speaker 1: in the in the period before the pandemic, and there's
• 12:23
  Speaker 1: not that many places to find good deals, and we
• 12:26
  Speaker 1: saw this cash kind of piling up on the sidelines
• 12:29
  Speaker 1: and the question is is there too much cast chasing
• 12:31
  Speaker 1: too few deals? Uh? Pushing the prices up and returns down.
• 12:36
  Speaker 1: I think the days of getting I R are those
• 12:39
  Speaker 1: are certainly gone. And the questions can you get double
• 12:42
  Speaker 1: digit consistent returns in the private equity market? If anything, though,
• 12:46
  Speaker 1: Paul I will say that this downturn gives certain private
• 12:49
  Speaker 1: equity firms certainly raising funds now a better chance of
• 12:53
  Speaker 1: getting that I are going forward just given some of
• 12:56
  Speaker 1: the valuations. Yes, and I think we're seeing a lot
• 12:59
  Speaker 1: of money flow into a stress credit funds and uh,
• 13:02
  Speaker 1: you know, you really if you can do your credit work, Uh,
• 13:04
  Speaker 1: you know, certainly some returns there. So we thank fran
• 13:07
  Speaker 1: Fran Canary, principle and global head of Private Investments at Vanguard,
• 13:10
  Speaker 1: joining us here to talk about the private equity business
• 13:13
  Speaker 1: and the opportunities in a pandemic world. This is Bloomberg.
• 13:20
  Speaker 1: The people are starting to debate how this coronavirus and
• 13:24
  Speaker 1: the will change economic will change consumer behavior? Is it
• 13:28
  Speaker 1: changing consumer behavior and to what degree and across which
• 13:31
  Speaker 1: activities you know, people are you know, as it relates
• 13:34
  Speaker 1: to purchasing goods and services, people are doing more and
• 13:37
  Speaker 1: more of it online and then when they do, in
• 13:39
  Speaker 1: fact venture out to the stores, are they using more
• 13:41
  Speaker 1: or less cash, deborit cards, credit cards, all that type
• 13:44
  Speaker 1: of things. Fascinating to see how this pandemic will impact
• 13:48
  Speaker 1: consumer behavior going forward as we think about payments and
• 13:51
  Speaker 1: how we actually buy stuff when we're out in the stores. Uh.
• 13:55
  Speaker 1: We're really fortunate to have Lynda Kirkpatrick, President for the
• 13:58
  Speaker 1: U s issuers at MasterCard UH joining us. So, Lynda,
• 14:01
  Speaker 1: give us a sense of what you're seeing in terms
• 14:04
  Speaker 1: of the credit and debit card activity on your network.
• 14:07
  Speaker 1: How is consumer behavior changing? Thanks? Called, Well, we've seen
• 14:12
  Speaker 1: an increase in contactless payments in particular over the past
• 14:16
  Speaker 1: couple of months. And you know, the payments industry has
• 14:19
  Speaker 1: been investing in contact with capabilities for a while. So Linda,
• 14:23
  Speaker 1: sorry to interrupt, but you know, to find what is
• 14:26
  Speaker 1: contactless payments, because I find that it's much less prevalent
• 14:29
  Speaker 1: in the US than it is, saying Europe. Yeah, that's right.
• 14:32
  Speaker 1: Calls contactless is where you have technology that's embedded into
• 14:36
  Speaker 1: a typical credit or debit cards that allows a consumer
• 14:40
  Speaker 1: to tap their card at a terminal rather than inserting
• 14:44
  Speaker 1: it or swiping it and avoiding contact with the terminal altogether.
• 14:48
  Speaker 1: So it's using technology that prevents that contact with the
• 14:52
  Speaker 1: with the register and it's just the safe and secure
• 14:55
  Speaker 1: is every other product on the marketing fact that it
• 14:58
  Speaker 1: has the safest UH technology embedded into into the card.
• 15:04
  Speaker 1: UH and it's really a fast and easy way for
• 15:06
  Speaker 1: consumers to go about their day and their purchases UH
• 15:11
  Speaker 1: in general. So in with those with those payments, we've
• 15:14
  Speaker 1: seen them in crease over the past few months. UH
• 15:17
  Speaker 1: and and we believe this is a reflection of the
• 15:19
  Speaker 1: current environment. We wanted to really under better understand how
• 15:23
  Speaker 1: these consumer behaviors were changing and how we can support
• 15:27
  Speaker 1: consumers and merchants as we moved through uh COVID nineteens.
• 15:31
  Speaker 1: So we actually conducted a survey seventeen thousand people nineteen
• 15:34
  Speaker 1: countries around the globe and UH of those we've surveyed,
• 15:37
  Speaker 1: nearly of consumers say that they're now using some form
• 15:42
  Speaker 1: of contactless payments and they cite safety, health and security
• 15:46
  Speaker 1: reasons as as key drivers of that. And you know,
• 15:49
  Speaker 1: Mastercard's own data shows that our contactless transactions grew twice
• 15:54
  Speaker 1: as fast globally and three times as fast in the
• 15:57
  Speaker 1: US as non contactless transactions in grocery and drug stores
• 16:01
  Speaker 1: in particular. UH. So we are seeing arise in contactless
• 16:06
  Speaker 1: both here in the US as well as markets outside
• 16:08
  Speaker 1: the US. Even in our in our first quarter contactless
• 16:11
  Speaker 1: transactions group forty per cent. I'm wondering, Linda, how easy
• 16:17
  Speaker 1: it is to determine the shifts in the market right now,
• 16:21
  Speaker 1: given how many people are staying at home and aren't
• 16:24
  Speaker 1: spending as much, And if you could just speak to
• 16:27
  Speaker 1: the not spending as much aspect a little bit as well,
• 16:30
  Speaker 1: that might give people a sense of just how much
• 16:33
  Speaker 1: spending has contracted. Yeah, you know what we're seeing with
• 16:37
  Speaker 1: respect to consumer spending is it's really being focused in
• 16:41
  Speaker 1: the food and pharmacy areas. So people are still absolutely spending.
• 16:45
  Speaker 1: If you look at our transaction data and our purchase
• 16:48
  Speaker 1: volume data, we're seeing, uh, we're seeing spend and we're
• 16:52
  Speaker 1: seeing growth as of the end of the first quarter
• 16:56
  Speaker 1: and into the second, but we're seeing it very concentrated
• 16:59
  Speaker 1: in category that are everyday items and necessity items, and
• 17:03
  Speaker 1: certainly digital and e commerce transactions have grown exponentially as well,
• 17:09
  Speaker 1: So we've really seen a shift from uh, certain categories
• 17:13
  Speaker 1: to other categories. But we are seeing sustained periods of
• 17:17
  Speaker 1: spend and growth, and again, contactless Uh, ways to pay
• 17:22
  Speaker 1: are are really on the rise because it you know,
• 17:25
  Speaker 1: it's a product that lends itself to an environment where uh,
• 17:29
  Speaker 1: you know, the CDC and other health officials are encouraging
• 17:32
  Speaker 1: consumers not to come in contact with with cashiers and terminals.
• 17:36
  Speaker 1: It's it's really the rough product at the right time, Linda,
• 17:39
  Speaker 1: I'm wondering how difficult it is to get some of
• 17:42
  Speaker 1: the stores that you partner with to invest in contact
• 17:46
  Speaker 1: lists equipment now given their cash struggles. Yes, so the
• 17:51
  Speaker 1: good news is that most merchants in the US have
• 17:55
  Speaker 1: invested in contact with capability already. The upgraded the terminals
• 18:01
  Speaker 1: to accept ship several years ago, and at this point
• 18:05
  Speaker 1: we have six of our volume at MasterCard, actually close
• 18:08
  Speaker 1: to sixty happening at terminals that have contactless capabilities. So
• 18:14
  Speaker 1: acceptance by and large is is there. Uh. And we
• 18:18
  Speaker 1: actually had great commitments from are issuing financial institutions to
• 18:23
  Speaker 1: issue those contactless cards, and many of them now are
• 18:26
  Speaker 1: already in market. Uh. So we're now seeing the benefit
• 18:30
  Speaker 1: of that investment on the merchant side and the bank
• 18:33
  Speaker 1: side as consumers are using these products more readily. You know,
• 18:36
  Speaker 1: we wouldn't have anticipated when we started this journey UH
• 18:41
  Speaker 1: several years ago towards you know, chip and contactless that uh,
• 18:45
  Speaker 1: that we would have a pandemic that would make it
• 18:47
  Speaker 1: ever more relevant. But but certainly now we have the
• 18:50
  Speaker 1: health benefits in additions to safety and security benefits that
• 18:53
  Speaker 1: contactless spring. Linda Kirkpatrick, thank you so much for being
• 18:57
  Speaker 1: with US. President of US issue or as at MasterCard
• 19:00
  Speaker 1: based in New York, Well shares of grub Hub yesterday
• 19:06
  Speaker 1: searched as much as thirty nine percent after reports that
• 19:10
  Speaker 1: Uber was planning to buy the food delivery company grub Hub.
• 19:15
  Speaker 1: The question is a will it get through and be
• 19:17
  Speaker 1: What is the goal in the combination of both of
• 19:21
  Speaker 1: these companies joining US now as man Deep Singh, senior
• 19:23
  Speaker 1: tech industry analyst at Bloomberg Intelligence, So what would Uber
• 19:27
  Speaker 1: be looking to do with an acquisition of grub Hub. Sure,
• 19:32
  Speaker 1: so one of the things that they are targeting is
• 19:36
  Speaker 1: you know, positive even profitability. Obviously they set the goal
• 19:41
  Speaker 1: for for Q twenty. We don't think that's going to
• 19:43
  Speaker 1: happen even by the way, a whole lot of second,
• 19:46
  Speaker 1: I'm not letting you get away with that. Basically, they're
• 19:48
  Speaker 1: hoping to actually turn a profit at some point in
• 19:50
  Speaker 1: life while they were trying to. But I think they
• 19:55
  Speaker 1: were hit really badly with this COVID situation. Uh, Sadara
• 19:59
  Speaker 1: say his businesses recession proves, but it seems, uh, you know,
• 20:04
  Speaker 1: the volumes are done about fifty to sixt in core
• 20:07
  Speaker 1: ride sharing, and now it's a matter of can this
• 20:11
  Speaker 1: be a growth company? And investors are rethinking the whole
• 20:15
  Speaker 1: notion of you know, Uber having a long addressable market
• 20:19
  Speaker 1: where it can keep growing you know, every year. That
• 20:23
  Speaker 1: is out of the window simply because white sharing at
• 20:26
  Speaker 1: its core is declining, like I said, in volume, and
• 20:30
  Speaker 1: we don't know when it will come back. Yes, the
• 20:33
  Speaker 1: social distancing will be in effect for the foreseeable future,
• 20:37
  Speaker 1: and even if things open up, the volumes are not
• 20:40
  Speaker 1: going to come back right away. So we are talking
• 20:42
  Speaker 1: about desoleration of pronounced deceleration in top line. And I
• 20:47
  Speaker 1: think this is just an attempt to boost in organic growth.
• 20:50
  Speaker 1: So grub hub kind of gives them one point five
• 20:53
  Speaker 1: billion dollars in revenue, It helps them consolidate market share
• 20:57
  Speaker 1: and really lower cash burn. That's key because they were
• 21:01
  Speaker 1: losing fifty cents on every dollar of revenue in Uber red.
• 21:05
  Speaker 1: So this kind of at least helps them lure that
• 21:08
  Speaker 1: cash burn, which I think is extremely important given you know,
• 21:12
  Speaker 1: the concern around liquidity for both Uber and Left so
• 21:16
  Speaker 1: many deposition you know, acquisition, potential acquisition of growth hub.
• 21:21
  Speaker 1: Kind of a tacit admission that the core right sharing
• 21:24
  Speaker 1: business will not return to the growth rates it was
• 21:29
  Speaker 1: before the pandemic, that maybe consumer behavior will be permanently altered,
• 21:33
  Speaker 1: and one of the areas that may be altered. Is
• 21:35
  Speaker 1: this the whole concept of right sharing. I wouldn't call
• 21:39
  Speaker 1: it permanently altered, but I think for the foreseeable future,
• 21:43
  Speaker 1: right sharing isn't coming back to the historical levels we
• 21:47
  Speaker 1: have seen. And the fact that Uber is doubling down
• 21:51
  Speaker 1: on food delivery, which is a lower growth margin business
• 21:55
  Speaker 1: where they're losing money, just goes to show how desperate
• 21:59
  Speaker 1: they are to at least push that top line. Because
• 22:02
  Speaker 1: the last thing you want as Uber, you know, a
• 22:05
  Speaker 1: company that has got scale and network effects, is to
• 22:10
  Speaker 1: have you know, decline in top line growth. And that
• 22:13
  Speaker 1: is very much of a possibility if this doesn't happen,
• 22:17
  Speaker 1: because the core business is, like I said, declining at
• 22:22
  Speaker 1: least for the next two quarters. There's a question Mandy
• 22:25
  Speaker 1: it's a larger question about whether the sharing economy that
• 22:29
  Speaker 1: was touted by so many of these tech startups and
• 22:32
  Speaker 1: growth companies is dead in an era post pandemic. When
• 22:37
  Speaker 1: you talk to individuals and when you look at the
• 22:39
  Speaker 1: actual traffic at Uber and Left and how it's starting
• 22:43
  Speaker 1: to recover in places that might be exiting the lockdown.
• 22:46
  Speaker 1: There aren't many where Uber and Left have presents, But
• 22:49
  Speaker 1: just in terms of the path forward, what are you
• 22:52
  Speaker 1: hearing on that front? Well, so look at Airbnb and
• 22:57
  Speaker 1: you know pretty much everybody, uh you know on the
• 23:01
  Speaker 1: food delivery side is also part of the economy, and
• 23:04
  Speaker 1: I think they do serve a purpose at the end
• 23:08
  Speaker 1: of the day. They're all part of going digital and
• 23:11
  Speaker 1: you know, helping improve utilization. The problem is just the
• 23:16
  Speaker 1: cash burn. These business models are just not sustainable, and
• 23:19
  Speaker 1: I think what covid situation has done is really brought
• 23:23
  Speaker 1: the whole aspect you know of these companies just burning
• 23:26
  Speaker 1: through cash quarter after quarter, not even trying to generate
• 23:30
  Speaker 1: a profit. And really now the question is who can
• 23:34
  Speaker 1: hold on to the cash for long enough? And we
• 23:37
  Speaker 1: think Lift, for example, is really in a precarious situation
• 23:41
  Speaker 1: where they're burning about two million dollars of cash every
• 23:46
  Speaker 1: month and they have you know, about two point five
• 23:48
  Speaker 1: billion dollars in liquidity, so it just takes them up
• 23:51
  Speaker 1: to a year if the situation doesn't change. And I
• 23:55
  Speaker 1: think liquidity is really the main focus right now for
• 24:00
  Speaker 1: investors who can survive this period, which is at least
• 24:03
  Speaker 1: going to be you know, I believe sticks to a
• 24:06
  Speaker 1: twelve months if not, you know what, you know what
• 24:09
  Speaker 1: this feels like to me? It feels like people are
• 24:11
  Speaker 1: going to be paying a lot more to get the
• 24:13
  Speaker 1: food delivered. I think so, yeah, exactly, And and it
• 24:17
  Speaker 1: kind of goes to the point, uh, may man deep
• 24:19
  Speaker 1: as we compare Uber to Lift, which investors are are
• 24:22
  Speaker 1: wont to do? You know, lift that the Lift story
• 24:25
  Speaker 1: was were simplified, were core ride sharing? Uh? To the
• 24:29
  Speaker 1: extent that that business maybe permanently altered or maybe not
• 24:32
  Speaker 1: permanently but certainly significant offered over a longer period of time.
• 24:35
  Speaker 1: What's the feeling about the Lift story now? Is it
• 24:37
  Speaker 1: still the clear story or to still the one that
• 24:39
  Speaker 1: needs to diversify? Yeah, I think the diversification aspect is
• 24:45
  Speaker 1: clearly not being diversified is clearly hurting them right now.
• 24:49
  Speaker 1: And I will compare you know, Lift to somebody like Amazon.
• 24:52
  Speaker 1: You know, both Uber and Lift have been uh cutting costs.
• 24:57
  Speaker 1: They have been laying off employees. There is Zone is
• 25:01
  Speaker 1: hiring hundred house and employees. Both of them are doing
• 25:05
  Speaker 1: last mild delivery. So and and granted, uh, you know,
• 25:09
  Speaker 1: Lift is a more one sided business model where they're
• 25:12
  Speaker 1: just doing right sharing. But why can't they adapt? I'm
• 25:16
  Speaker 1: just kind of really baffled here that they weren't able to,
• 25:21
  Speaker 1: you know, offer grocery delivery quick enough to offset that
• 25:25
  Speaker 1: they decline in right volume. Why did they have to
• 25:28
  Speaker 1: just go in the towel and start laying off people.
• 25:31
  Speaker 1: And and I think their business model there kind of
• 25:35
  Speaker 1: premise all along was personal mobility and they haven't really fulcated.
• 25:39
  Speaker 1: This is just you know, a one dimensional company just
• 25:43
  Speaker 1: doing white sharing where they're they're supposed to have a
• 25:46
  Speaker 1: lot of data where they can anticipate the demand and adapt.
• 25:51
  Speaker 1: You know, they should have been able to do grocery
• 25:54
  Speaker 1: delivery too, delivery much more quickly than than they have.
• 25:57
  Speaker 1: And and that to me is surprising. Here Men Deep Seeing,
• 26:00
  Speaker 1: thanks so much for joining us. We appreciate you bringing
• 26:03
  Speaker 1: us up to date on Uber Grubhub, Lift and all
• 26:05
  Speaker 1: that ride as sharing. Uh, it's going to be interesting
• 26:08
  Speaker 1: to see how this shakes out. Man Deep seeing senior
• 26:11
  Speaker 1: tech industry analys for Bloomberg Intelligence, and it's interesting. Lisa.
• 26:15
  Speaker 1: You know, I kind of was always joking with friends.
• 26:16
  Speaker 1: I just said, you know, Uber and Lift, the whole
• 26:18
  Speaker 1: ride sharing thing was one of the greatest inventions of
• 26:20
  Speaker 1: all time, never thinking that it would have to deal
• 26:22
  Speaker 1: with something like a pandemic and how that might you know,
• 26:25
  Speaker 1: really really alter the way people do some of these
• 26:29
  Speaker 1: sharing activities like rides and or Airbnb. Yeah. I'm hesitant
• 26:34
  Speaker 1: to make sweeping characterizations or extrapolations from this moment because
• 26:39
  Speaker 1: the world changes when there is some sort of vaccine
• 26:41
  Speaker 1: and people feel comfortable going out and about that's you know,
• 26:44
  Speaker 1: the big caveat here. Yeah, exactly, So we'll see. But
• 26:47
  Speaker 1: the you know, uh, Uber definitely dug doubling down on
• 26:50
  Speaker 1: that diversification to food delivery business to Uber Eats, with
• 26:53
  Speaker 1: potentially an acquisition of competitor grow Up. So will follow
• 26:57
  Speaker 1: that story as it develops going forward, along with Lee
• 27:00
  Speaker 1: so Bramo Wits. I'm Paul Sweeney and this is Bloomberg.
• 27:04
  Speaker 1: Thanks for listening to the Bloomberg pen L podcast. You
• 27:07
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts or
• 27:10
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• 27:13
  Speaker 1: Twitter at pt Sweeney. I'm Lisa Abram. Why it's I'm
• 27:15
  Speaker 1: on Twitter at Lisa Abram. Whit's one before the podcast.
• 27:18
  Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio