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Transcript

DoorDash Frenzy Shows Big Need For Retail Access to Pre-IPO Shares · Bloomberg Intelligence

• 0:01
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
• 0:04
  Speaker 1: with my co host of Bonnie Quinn. Every business day
• 0:06
  Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
• 0:10
  Speaker 1: along with essential market moving news. Kind the Bloomberg Markets
• 0:13
  Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,
• 0:17
  Speaker 1: and on Bloomberg dot com. We're waiting for door Dash
• 0:20
  Speaker 1: to start trading under the taker d A. S h
• 0:23
  Speaker 1: and also Airbnb expected a price later today above the
• 0:26
  Speaker 1: fifty to sixty dollar range according to Dow Jones. In
• 0:29
  Speaker 1: the last few minutes, let's bring in somebody who knows
• 0:31
  Speaker 1: a lot about I p O s and what happens
• 0:34
  Speaker 1: before they started trading and what happens after. Brian Lynch
• 0:38
  Speaker 1: has head of Business Development and Partnerships at Equity Zen,
• 0:41
  Speaker 1: which is a marketplace for buying pre I p O
• 0:44
  Speaker 1: shares for late stage VC back to companies. So exactly
• 0:47
  Speaker 1: what we're talking about, Brian, if one of us were
• 0:50
  Speaker 1: allowed to buy the shares of door Dash or get involved,
• 0:53
  Speaker 1: is it too late to do that not today? Yeah,
• 0:57
  Speaker 1: that's an interesting question, one that we've talked a lot
• 1:00
  Speaker 1: about here at Equities. Then we've seen the share price
• 1:04
  Speaker 1: go up in the private markets. There's obviously a lot
• 1:07
  Speaker 1: of demand um and it's pretty wild to see that
• 1:10
  Speaker 1: a company that raised capital just this summer at a
• 1:13
  Speaker 1: sixteen billion dollar valuation is now targeting a thirty eight
• 1:16
  Speaker 1: billion dollar valuation. There's indications that the stock could trade
• 1:21
  Speaker 1: or open around one one thirty. Uh So it's a
• 1:25
  Speaker 1: big question considering that this year has been a year
• 1:28
  Speaker 1: of such explosive growth, but growth that is likely not
• 1:31
  Speaker 1: repeatable in the long future. So it's interesting. I mean
• 1:36
  Speaker 1: that this I p O market's gonna be a banner
• 1:38
  Speaker 1: year for I p O s and given all the
• 1:40
  Speaker 1: uncertainty in the world, I guess that's a pleasant surprise.
• 1:44
  Speaker 1: What are you hearing from some of the companies you
• 1:47
  Speaker 1: deal with? How are they thinking about, uh, the I
• 1:50
  Speaker 1: P O market today? Given the world we live in. Yeah,
• 1:53
  Speaker 1: I think a lot of these private companies have seen
• 1:56
  Speaker 1: that this is a very opportune time to test the
• 1:59
  Speaker 1: public market. I p O s have returned over a
• 2:02
  Speaker 1: hundred eleven percent here to date versus sixteen or so
• 2:06
  Speaker 1: percent for the SMP five hundred and this current environment
• 2:10
  Speaker 1: where uh we have two vaccines on the way, the
• 2:13
  Speaker 1: election is behind us and some of that volatility and
• 2:16
  Speaker 1: the market has rallied to all time highs. A lot
• 2:19
  Speaker 1: of companies think this is kind of a prime environment
• 2:22
  Speaker 1: to make their public market debut, so we expect to
• 2:25
  Speaker 1: see more companies making these same moves, especially now that backs,
• 2:30
  Speaker 1: direct listings and other options are available to them as well.
• 2:33
  Speaker 1: So Brian Equities N is the secondary marketplace, so you
• 2:37
  Speaker 1: sell pre I p O shares not the minimum investment
• 2:40
  Speaker 1: is ten tho dollars. But retail investors can buy these shairs.
• 2:43
  Speaker 1: So are are you busy? Today? Is the secondary marketplace?
• 2:47
  Speaker 1: You know, full of people buying and selling these shairs today. Yeah,
• 2:52
  Speaker 1: So Equities N's marketplace has been been here than ever
• 2:56
  Speaker 1: over the past few quarters. We've seen records demand um
• 3:00
  Speaker 1: and there's a big need in the retail accredited market
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  Speaker 1: to have access to these types of companies before they
• 3:07
  Speaker 1: go public. We've seen over the past ten years that
• 3:10
  Speaker 1: a lot of the growth um and return potential for
• 3:13
  Speaker 1: these companies has happened in the private markets given the
• 3:16
  Speaker 1: abundance of venture capital available. So it's really important for
• 3:21
  Speaker 1: investors to be able to participate in that growth to
• 3:24
  Speaker 1: achieve you know, successful outcomes for their investment portfolios. So, Brian,
• 3:28
  Speaker 1: what are the the trends here? You know, companies like
• 3:32
  Speaker 1: you are just you know, are kind of relatively new
• 3:34
  Speaker 1: phenomena where you can provide pre market trading for a
• 3:37
  Speaker 1: lot of these private companies here. What's been kind of
• 3:41
  Speaker 1: the activity level? Are people looking to get more liquidity
• 3:45
  Speaker 1: prior to the IPO? Is these IPOs seem to be
• 3:47
  Speaker 1: put off longer and longer because they don't companies don't
• 3:50
  Speaker 1: really need to go public in many cases. So are
• 3:52
  Speaker 1: you seeing increased demand for market making that you guys provide.
• 3:57
  Speaker 1: You're absolutely right, and we talk to shareholders day in
• 4:01
  Speaker 1: and day out who are looking for liquidity. A lot
• 4:04
  Speaker 1: of these shareholders are early employees who have been with
• 4:08
  Speaker 1: these companies for a long time. And for many of
• 4:11
  Speaker 1: these employees, the vast majority of their net worth is
• 4:14
  Speaker 1: tied up in the shares of the company they work for.
• 4:17
  Speaker 1: So from a pure portfolio diversification perspective, that's a risky
• 4:22
  Speaker 1: position to be in. And also these employees may be
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  Speaker 1: looking to pay off loans or put a down payment
• 4:27
  Speaker 1: on a house, so there is that need for liquidity
• 4:30
  Speaker 1: pre I p O and equity sense mission is to
• 4:32
  Speaker 1: be able to provide that to shareholders across the spectrum
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  Speaker 1: which busy or Airbnb or door does. Yeah, Brion, which
• 4:42
  Speaker 1: is busy or Airbnb or door does. We've seen demand
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  Speaker 1: for both in the private market, um, and I think
• 4:49
  Speaker 1: investors both today and tomorrow in the public markets are
• 4:53
  Speaker 1: very excited to be able to participate. Well, Brian Lynch,
• 4:56
  Speaker 1: thank you so much for joining us. Really great to
• 4:59
  Speaker 1: chat with you here as we have door Dash about
• 5:01
  Speaker 1: ready to trade later today an Airbnb to mar Brian Lynch,
• 5:05
  Speaker 1: head of Business Development in Partnerships at Equity Zen. Again,
• 5:09
  Speaker 1: indication for door Dash just an extraordinary move off of
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  Speaker 1: the uh, you know, the trading range that they had
• 5:16
  Speaker 1: set prior to the offering here. So again the demand
• 5:19
  Speaker 1: indicating that demand very very strong there for door Dash.
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  Speaker 1: So we'll see how that trades today. Bodes well for Airbnb,
• 5:26
  Speaker 1: which looks to price after the close at tonight. We've
• 5:32
  Speaker 1: just had an auction and we have a ten year
• 5:35
  Speaker 1: yield at above ninety four basis points. We also have
• 5:37
  Speaker 1: lots of Federal Reserve things to talk about with our
• 5:41
  Speaker 1: next guest, who is Jim Vogel of f H and
• 5:44
  Speaker 1: Financial and Jim, welcome from Memphis, Tennessee today to talk
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  Speaker 1: to us. But I do have to start Jim with this.
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  Speaker 1: This I p o that we're waiting on trading for
• 5:53
  Speaker 1: a dash, door Dash. It's up to one seventeen now, Jim,
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  Speaker 1: On days like this, what do you see around you
• 6:00
  Speaker 1: in the marketplace? I mean, are people even paying attention
• 6:02
  Speaker 1: to treasuries? Yes, we're always paying attention to treasuries. There's
• 6:07
  Speaker 1: good flows this morning, but we're we're not moving in
• 6:11
  Speaker 1: multiple basis points or percentage points for every minute right now,
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  Speaker 1: the way door dash might be so, uh, Jim. Jamie
• 6:20
  Speaker 1: Diamonds have some comments recently where he said he would
• 6:23
  Speaker 1: not touch treasuries with a ten foot pole. Do you
• 6:28
  Speaker 1: agree with Mr Diamond? Well, a lot of people do.
• 6:32
  Speaker 1: But those same people that agree with him also own
• 6:36
  Speaker 1: a lot of treasuries. Okay, it's not ironic that, uh,
• 6:41
  Speaker 1: Jamie diamond says that when out of a path a
• 6:44
  Speaker 1: trillion dollar investment portfolio that is in treasuries at his
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  Speaker 1: own institution. So why would he say that? I mean,
• 6:52
  Speaker 1: is he trying to, you know, warn people about what's coming.
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  Speaker 1: Is he complaining that, you know, net interest margins aren't
• 7:00
  Speaker 1: all outgrade at as buying? What what what is the
• 7:02
  Speaker 1: impetus of that? You know what? We've to a degree
• 7:07
  Speaker 1: people are still in shock that rates have gone this
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  Speaker 1: low and stayed this low. We were supposed to be
• 7:13
  Speaker 1: seeing the Fed taking rates up to three and a
• 7:15
  Speaker 1: half percent perhaps this year. We were looking forward to
• 7:20
  Speaker 1: a new administration, more stimulus, a different economy, and instead
• 7:25
  Speaker 1: rates are extraordinarily low. So I took his comments to
• 7:27
  Speaker 1: just simply mean, what's going on? This cannot be right?
• 7:33
  Speaker 1: But actually what what is not right is the enormous
• 7:36
  Speaker 1: amount of savings that are in bank institutions right now. So, Jim,
• 7:42
  Speaker 1: one of the things that continues to be a question
• 7:45
  Speaker 1: mark for all investors, but certainly in the treasury market,
• 7:48
  Speaker 1: is what kind of fiscal stimulus are we going to
• 7:51
  Speaker 1: get out of Washington if any um? And it looks
• 7:55
  Speaker 1: like Secretary Unition is inserted the White House back into
• 7:58
  Speaker 1: the discussion. May maybe that's good. New is what are
• 8:00
  Speaker 1: you kind of kind of fearing into your calculus here? Well, unfortunately,
• 8:05
  Speaker 1: with all the things that are going on around the
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  Speaker 1: country in terms of possible or excuse me, very real
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  Speaker 1: and potentially worse pandemic slowdowns. The size of the stimulus
• 8:15
  Speaker 1: at nine billion or six billion may have been adequate
• 8:19
  Speaker 1: this summer, it's going to be inadequate for the first
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  Speaker 1: quarter of one at the rate we're going right now.
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  Speaker 1: So that's part one, right, and part two thanks. Part
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  Speaker 1: two is that, uh, the idea is the idea of
• 8:37
  Speaker 1: targeted stimulus without broader moves really doesn't work either because
• 8:42
  Speaker 1: by the time you can get targeted stimulus out, um,
• 8:46
  Speaker 1: it's going to be early February and it's not going
• 8:50
  Speaker 1: to do all that much. What does work are cash
• 8:54
  Speaker 1: payments and cash and people's bank accounts in January. It's
• 8:59
  Speaker 1: unlikely that we're going to get there based on the
• 9:02
  Speaker 1: situation as of this morning, was entering, CNN is reporting
• 9:08
  Speaker 1: that ten thou American restaurants will likely close in the
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  Speaker 1: next three weeks. So, boy, if I'm a lawmaker down
• 9:15
  Speaker 1: in Washington and that that would get my attention here.
• 9:19
  Speaker 1: What do you think, um, Jim, that the FED can
• 9:23
  Speaker 1: do that? It seems like the FED has done pretty
• 9:24
  Speaker 1: much everything that it can do. Do you expect anything else?
• 9:28
  Speaker 1: Or just kind of steady as she goes here? Um,
• 9:32
  Speaker 1: steady as it goes The one thing I think after
• 9:35
  Speaker 1: everything we've seen in the last couple of weeks, is
• 9:37
  Speaker 1: we should anticipate next week's dot plot looks almost exactly
• 9:41
  Speaker 1: like Septembers. That's interesting. We have had some warnings about
• 9:47
  Speaker 1: inflation taking off. Jim, what are your thoughts on that? Uh?
• 9:51
  Speaker 1: That if the Fed staff is taking a good bit
• 9:55
  Speaker 1: different look at inflation, they're very concerned that the core
• 9:59
  Speaker 1: will stay low. They're measuring inflation relative to where it
• 10:03
  Speaker 1: is right now. The people talking about higher inflation next
• 10:06
  Speaker 1: year are frequently going doing a year over year comparison,
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  Speaker 1: which absolutely is going to be higher after inflation fell
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  Speaker 1: in the first half of last year. Excuse me of
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  Speaker 1: this year? All right? So, Jim, thirty seconds, where do
• 10:21
  Speaker 1: you see value anywhere along the yield curve here? Given
• 10:24
  Speaker 1: what we've we see in the marketplace, and given what
• 10:27
  Speaker 1: we hear from FED Chairman Pal about his view of
• 10:30
  Speaker 1: the interestring environment, the the entire uh pretty much zero
• 10:35
  Speaker 1: to five year part of the curve is fair value
• 10:37
  Speaker 1: at this point. The five years a little steep relative
• 10:39
  Speaker 1: to FED policy, which right now means that the best
• 10:43
  Speaker 1: values are in seven years. We talked about that a lot,
• 10:45
  Speaker 1: but we reran all of our numbers and analytics this
• 10:48
  Speaker 1: morning and closed above sixty five basis points on seven
• 10:52
  Speaker 1: year treasuries um. They're the best risk adjusted value out
• 10:57
  Speaker 1: there right now. Hey, Jim, thanks so much for joining us.
• 11:00
  Speaker 1: As always, Jim Vogel, interest rate strategist for f H
• 11:04
  Speaker 1: and UH Financial. And it's interesting to try to find
• 11:07
  Speaker 1: some value VANNIE in the credit markets here giving out
• 11:11
  Speaker 1: tight a lot of things are trading and again given
• 11:13
  Speaker 1: where FET chairman Palace says he expects rates to be.
• 11:16
  Speaker 1: And you just heard Jim saying, you know how much
• 11:19
  Speaker 1: savings there are in bank accounts, It's really really fascinating.
• 11:23
  Speaker 1: If you wanted to be safe and uh, you know
• 11:26
  Speaker 1: you don't have that much choice, you may as well
• 11:28
  Speaker 1: leave it in the bank account exactly right. So just
• 11:30
  Speaker 1: looking at our good friends at door dash gets your
• 11:33
  Speaker 1: price quote again still not open bid ask one seventy
• 11:37
  Speaker 1: to one seventy five. Well. Tom Keane often talks about
• 11:43
  Speaker 1: the courage to be in the market and with an
• 11:46
  Speaker 1: equity indices at or near all time highs, that is
• 11:50
  Speaker 1: certainly an app discussion point right here. Particularly we think
• 11:53
  Speaker 1: about John Lynch, chief investment officer for Co America Asset Management,
• 11:59
  Speaker 1: joins the now, John, I'd love to step back thirty feet.
• 12:03
  Speaker 1: We've had a Despite all the craziness of this year,
• 12:06
  Speaker 1: equity markets, risk markets in general have done, you know,
• 12:09
  Speaker 1: surprisingly well. What is your view of the equity markets
• 12:13
  Speaker 1: right here, right now, Hey, Paul, good morning. Yes, the
• 12:19
  Speaker 1: rally has been unbelievable since uh last February, last March,
• 12:23
  Speaker 1: but too specifically to your question right now, I think
• 12:26
  Speaker 1: we're five or six percent overvalued. Um. You know, I
• 12:29
  Speaker 1: always want to make sure of the math works when
• 12:31
  Speaker 1: making forecasts, and I think the S and P five hundred,
• 12:36
  Speaker 1: for example, can do earnings of about a hundred and
• 12:39
  Speaker 1: thirty five dollars this year, and really you're starting to
• 12:42
  Speaker 1: stretch multiples past thirty my estimation. I have to ask
• 12:45
  Speaker 1: you about doortosh. We are now reporting that it's indicated
• 12:48
  Speaker 1: to open and get this you you probably aren't even
• 12:50
  Speaker 1: up to date yourself, even if you've been watching it.
• 12:53
  Speaker 1: One to one hundred sixty dollars a share. It's been
• 12:57
  Speaker 1: jumping in five dollar increments, which is more than typical ibeos. Yes,
• 13:02
  Speaker 1: there's a morning, Vonnie. I think there's a couple of
• 13:05
  Speaker 1: things investors have to keep in mind. Um, you know,
• 13:08
  Speaker 1: while I believe we might be five or six percent
• 13:10
  Speaker 1: overvalued in the near term, Uh, there are a variety
• 13:13
  Speaker 1: of areas that show the market is not overvalued. We
• 13:16
  Speaker 1: don't necessarily see uh, you know, fund flows into equities.
• 13:21
  Speaker 1: I don't see significant or alarming M and A activity.
• 13:24
  Speaker 1: But one area that could be a red flag would
• 13:27
  Speaker 1: be the I p O market. And Uh, as you
• 13:30
  Speaker 1: suggested this morning, Um, it's just amazing the pre market
• 13:35
  Speaker 1: bids or the pre opening bids on on that I
• 13:38
  Speaker 1: p O. Well, just as in the last two minutes,
• 13:41
  Speaker 1: sixty five is a bit spread there on the Bloomberg terminal. Um.
• 13:45
  Speaker 1: You know, I just loved John to get your thoughts here.
• 13:48
  Speaker 1: Just about one of the bigger discussions that we've heard
• 13:50
  Speaker 1: over the last several months is kind of okay. I
• 13:53
  Speaker 1: get the bullish column the market. We've got a lot
• 13:55
  Speaker 1: of pent up de man in the economy. Vaccines are
• 13:58
  Speaker 1: are coming, interest rates are oh and I'm likely to
• 14:00
  Speaker 1: stay a little. I've heard all that. Now it's a
• 14:02
  Speaker 1: question of how do I want to play it. Do
• 14:04
  Speaker 1: I want to stay with the tried and true, great
• 14:07
  Speaker 1: top line growth stories that have propelled this market really
• 14:09
  Speaker 1: since a financial crisis or do I rotate into some
• 14:12
  Speaker 1: of the more cicklical names, maybe even some of the
• 14:14
  Speaker 1: smaller cat names. How how do you guys think thinking
• 14:17
  Speaker 1: about that America, Yeah, we're very much in Look, we
• 14:21
  Speaker 1: made sure we included a chart of the equally weighted
• 14:24
  Speaker 1: s and P five relative to the cap weighted index.
• 14:27
  Speaker 1: And I think one way investors can view it is
• 14:30
  Speaker 1: the Big five versus the other four. And the Big
• 14:34
  Speaker 1: five was able to grow this year on a combination
• 14:37
  Speaker 1: of PE expansion, valuation expansion, as well as profits. The
• 14:42
  Speaker 1: other four didn't really have profits uh in their back
• 14:45
  Speaker 1: pocket if you will, And uh, it was very much
• 14:48
  Speaker 1: a valuation game. But as we do the reopening rotation trade, uh,
• 14:54
  Speaker 1: you know, I still think we're gonna have a come
• 14:56
  Speaker 1: up and in the first quarter UM with targeted restrictions
• 14:59
  Speaker 1: and lower than anticipated growth, but nonetheless spreading that out,
• 15:05
  Speaker 1: you know, and you make you make a point about rates.
• 15:08
  Speaker 1: The FED has said one thing, right, but look at
• 15:10
  Speaker 1: look at what break evens are doing. Look what the
• 15:12
  Speaker 1: ten years doing, even though we're seeing uh, increased cases,
• 15:17
  Speaker 1: increase hospitalizations and unfortunately increased deaths. So from that standpoint, UM,
• 15:23
  Speaker 1: I think what you're going to see as we as
• 15:25
  Speaker 1: the reopening fundamental, if you will, the trend gathers roots,
• 15:30
  Speaker 1: say in the end of the first quarter, early second quarter.
• 15:32
  Speaker 1: It's very much a value game. It's very much a industrials, energy,
• 15:38
  Speaker 1: the nancials, materials. The reopening trade I think will be
• 15:42
  Speaker 1: will be very important, and I think that will be
• 15:44
  Speaker 1: a healthy development because as you all know, growth is
• 15:47
  Speaker 1: dramatically outperformed value when the FED was essentially just printing money.
• 15:51
  Speaker 1: But now that we are really transitioning from monetary leadership,
• 15:56
  Speaker 1: and if we can get through this nine billion dollar bickering,
• 15:59
  Speaker 1: indeed see right now, it will be more of a
• 16:02
  Speaker 1: fiscal leadership, if not fiscal dependency. But that either way,
• 16:07
  Speaker 1: that infrastructure aspect of that should bode very well to
• 16:09
  Speaker 1: the value and the industrials and some of the other
• 16:12
  Speaker 1: sectors that I just highlighted. Speaking of reopening, John, you're
• 16:17
  Speaker 1: down there in beautiful Charlotte, North Carolina. Tell us how
• 16:20
  Speaker 1: the economy is and have you seen an influx of
• 16:22
  Speaker 1: people from larger cities perhaps, or you know, have the
• 16:25
  Speaker 1: outskirts seen that. You know, it's amazing. The housing market
• 16:31
  Speaker 1: has been much like uh, you know, the rest of
• 16:34
  Speaker 1: the nation. But certainly you'll see in the in the
• 16:36
  Speaker 1: warmer climates like the Carolina is uh, you know, very
• 16:40
  Speaker 1: very strong housing market. Uh, it's not It's not unusual
• 16:45
  Speaker 1: to see multiple bids in a in a single afternoon. Uh.
• 16:48
  Speaker 1: So the housing market is moving very quickly. And I
• 16:51
  Speaker 1: think you know one thing that corporate among many things
• 16:56
  Speaker 1: that corporations have learned in is that this remote work
• 17:01
  Speaker 1: you know, has teeth, has traction. And to the degree
• 17:05
  Speaker 1: the warmer climates uh will play into that, I think
• 17:08
  Speaker 1: that will continue to bode well for the southeast and
• 17:11
  Speaker 1: the southwest. Hey, John, just just real quickly the the
• 17:15
  Speaker 1: the presidential election change your outlook or kind of how
• 17:20
  Speaker 1: are you viewing that? Yes, well, we were looking for
• 17:24
  Speaker 1: either way, we were looking for some degree of infrastructure.
• 17:29
  Speaker 1: I understand fully that we still need to have relief.
• 17:33
  Speaker 1: And I like to make the distinction between a relief
• 17:35
  Speaker 1: package and an infrastructure package, because a relief package really
• 17:39
  Speaker 1: is income replacement, right, and when you see the transfer payments,
• 17:42
  Speaker 1: when you see personal incomes not largely affected in spite
• 17:47
  Speaker 1: of all that's happened, right with ten or fifteen million
• 17:49
  Speaker 1: fewer people working, that income replacement was a necessity, but
• 17:54
  Speaker 1: I think for the reopening rotation um really to become
• 18:02
  Speaker 1: more of an economic fundamental grower, you need to see infrastructure.
• 18:07
  Speaker 1: And I think the team that Boden has assembled, particularly
• 18:09
  Speaker 1: with jan at Yale and the Treasury, the Arkansians, and
• 18:12
  Speaker 1: they're gonna be very much focused on the multiplier of infrastructure. Well, John,
• 18:16
  Speaker 1: we certainly hope that we will speak to you again
• 18:19
  Speaker 1: before all of that has put in place. John Lynch's
• 18:21
  Speaker 1: CEO of America Asset Management, based in beautiful Charlotte, North Carolina.
• 18:28
  Speaker 1: All Right, So I'm running some errands yesterday and I'm
• 18:30
  Speaker 1: at the UPS store and I see the UPS guy
• 18:33
  Speaker 1: out front with the truck loading and unloading boxes. But
• 18:36
  Speaker 1: it wasn't the brown UPS truck. It was a U
• 18:39
  Speaker 1: Haul truck. And I was chatting with the guy and
• 18:41
  Speaker 1: he says, yeah, they have so much demand that they
• 18:44
  Speaker 1: ran out of trucks, and so they're out there renting
• 18:47
  Speaker 1: U haul trucks AVIS trucks. And I said, how often
• 18:50
  Speaker 1: has that happen? He says, well, it happens a lot
• 18:52
  Speaker 1: during the peak holiday season. But he said he's been
• 18:54
  Speaker 1: driving a U haul truck since March because the plan
• 18:58
  Speaker 1: has just been incredible. So I said, I have to
• 19:01
  Speaker 1: talk to Lee Classical. Lee Classicals, our senior transportation ANIMs
• 19:04
  Speaker 1: for Bloomberg Intelligence. Lee, Um, you know what's going on
• 19:08
  Speaker 1: out there? Are the boxes getting delivered? Are the FedEx
• 19:11
  Speaker 1: and UPS guys? Are they able to keep up? Uh?
• 19:14
  Speaker 1: You know it is a challenge, and you know services definitely, UM,
• 19:18
  Speaker 1: you know, suffering a little bit. But I would say
• 19:21
  Speaker 1: the industries and doing a really good job. The industry
• 19:24
  Speaker 1: is facing a prolonged peak season. I mean typically have
• 19:27
  Speaker 1: peak a little before Thanksgiving through Christmas, but because of
• 19:31
  Speaker 1: the pandemic and stay at home orders and people just
• 19:34
  Speaker 1: you know, buying a lot more stuff online. Uh, there's
• 19:38
  Speaker 1: been a prolonged peak really since the second quarter. Uh.
• 19:41
  Speaker 1: And then UPS and FedEx have have done a really
• 19:45
  Speaker 1: good job at managing their their networks to handle that
• 19:48
  Speaker 1: because you know, those home deliveries tend to have um,
• 19:52
  Speaker 1: a smaller margin and a typical B two B delivery. Uh.
• 19:56
  Speaker 1: So what they've been doing is they've been increasing prices.
• 19:59
  Speaker 1: They've been a search charges. Uh, and some of the
• 20:02
  Speaker 1: investments that they've made over the years that you know,
• 20:05
  Speaker 1: the market is probably questioned because they had some accelerated
• 20:09
  Speaker 1: CAPEX spend really seems to be paying off, and a
• 20:13
  Speaker 1: lot of that is through automation and technology. Uh, and
• 20:16
  Speaker 1: it's providing some relief when the network is jammed. And
• 20:21
  Speaker 1: also both that xt ups are offering a weekend deliveries,
• 20:25
  Speaker 1: something they really didn't do for a long time, and
• 20:28
  Speaker 1: just to be more competitive with that second day delivery
• 20:31
  Speaker 1: that we all expect given you know what Amazon does,
• 20:35
  Speaker 1: They're able to do that now and deliver you know,
• 20:37
  Speaker 1: your your your whatever you're ordering online on a Saturday
• 20:41
  Speaker 1: or Sunday, and it kind of smooths out their network. Solely,
• 20:46
  Speaker 1: will this be a leading indicator for what happens to
• 20:49
  Speaker 1: our behavior post pandemic? Have that x cpsd HL and
• 20:53
  Speaker 1: so on. Have they started to try to buy more
• 20:56
  Speaker 1: for their fleet or are they continuing to n from
• 20:58
  Speaker 1: the likes of view Hall and on all these other
• 21:00
  Speaker 1: places that Paul saw evidence of. Well, I think that
• 21:04
  Speaker 1: they're doing both because you know, you don't want to
• 21:06
  Speaker 1: build the church for Easter service, so uh, you know
• 21:09
  Speaker 1: what they're doing is, you know, they're probably investing more
• 21:14
  Speaker 1: in equipment, but they're also you know, not necessarily jumping
• 21:18
  Speaker 1: in head first because the reality is that the pandemic
• 21:21
  Speaker 1: is probably pushed forward e commerce penetration by three or
• 21:25
  Speaker 1: five years. UM. So there is going to be some
• 21:27
  Speaker 1: secular changes once we get back to a more quote
• 21:30
  Speaker 1: unquote normalized lifestyle. UM. But you know, more people are,
• 21:35
  Speaker 1: you know, um, buying things online that they might have
• 21:38
  Speaker 1: not prior to the pandemic. UM. And you have that
• 21:41
  Speaker 1: coupled with the fact that the like I said earlier,
• 21:45
  Speaker 1: the industry is operating six or seven days a week. UM.
• 21:48
  Speaker 1: There have a lot more in terms of automation. We're
• 21:51
  Speaker 1: able to handle more packages. And the good news for
• 21:54
  Speaker 1: FedEx gups is that, you know, as they do more
• 21:57
  Speaker 1: home deliveries at increases their density. And as I mentioned earlier,
• 22:01
  Speaker 1: those margins tend to be a little lighter than to
• 22:04
  Speaker 1: be too be as you add density, that does improve
• 22:07
  Speaker 1: the margin. UM. So you know, you could see some
• 22:10
  Speaker 1: some decent margin expansion next year as things normalize in
• 22:14
  Speaker 1: their in FedEx's ground business or ups is that domestic business.
• 22:20
  Speaker 1: So I'm looking at the stocks in here today performance
• 22:22
  Speaker 1: fed X up two week high today, Uh, ups up
• 22:27
  Speaker 1: about it looks like I missed my trade here. What's
• 22:31
  Speaker 1: the outlook for these names over the next couple of years. Well,
• 22:35
  Speaker 1: I'll tell you, you know, there's there's a lot of
• 22:37
  Speaker 1: folks out there that are extremely bullish on the south
• 22:40
  Speaker 1: side on on fed X uh and and and maybe
• 22:43
  Speaker 1: a little lux or so on. Ups. A lot of
• 22:45
  Speaker 1: people have jumped on the bandwagon for for fed X recently.
• 22:49
  Speaker 1: You know, we we've been relatively optimistic on the name
• 22:52
  Speaker 1: for a long time. Um. You know, what I would
• 22:55
  Speaker 1: say is that we're probably uh way too early. But
• 22:59
  Speaker 1: you know what the name is starting to do is um,
• 23:02
  Speaker 1: they're just really the investments that they've made in the
• 23:05
  Speaker 1: past are really starting to pay off because of that
• 23:08
  Speaker 1: new density that they're getting and also the you know,
• 23:11
  Speaker 1: the unsung hero and what we don't know yet it's
• 23:14
  Speaker 1: how good is the T and T acquisition that they
• 23:16
  Speaker 1: made a couple of years ago going to be in
• 23:18
  Speaker 1: a post pandemic world. You know, we think that the
• 23:21
  Speaker 1: integration benefits that they've been doing and getting really haven't
• 23:24
  Speaker 1: come to the surface because of the backdrop of you know,
• 23:28
  Speaker 1: we be two b business uh in Europe. But as
• 23:31
  Speaker 1: that comes back, you know, we do believe that it
• 23:34
  Speaker 1: will be a not only a competitive advantage for FedEx
• 23:37
  Speaker 1: to get more freight onto its network. That will also
• 23:40
  Speaker 1: be able to really improve the T and T business,
• 23:43
  Speaker 1: which was kind of a lagger within the global industry solely.
• 23:47
  Speaker 1: What's the outlook for the likes of a door Dash then?
• 23:50
  Speaker 1: I mean, I know that that's not exactly the type
• 23:52
  Speaker 1: of company that you you cover, but there is this
• 23:55
  Speaker 1: sort of similar relationship. I mean, if if this is,
• 23:57
  Speaker 1: as you say, easter time in religion, then then does
• 24:02
  Speaker 1: that mean that a door dash will also see a
• 24:04
  Speaker 1: drop off when this goes away? I mean, I don't
• 24:08
  Speaker 1: cover the name, but I would just guess that people's
• 24:11
  Speaker 1: buying habits will change. You know, you will have people
• 24:13
  Speaker 1: that will, uh, you know, continue to buy from door dash,
• 24:16
  Speaker 1: but maybe instead of doing it five days a week,
• 24:18
  Speaker 1: they're only doing it once a week. So um, you know,
• 24:21
  Speaker 1: I know, personally speaking and a totally speaking, I can't
• 24:24
  Speaker 1: wait to go to a restaurant again. Um you know,
• 24:27
  Speaker 1: I I really miss, you know, having a a well
• 24:31
  Speaker 1: cooked meal. H Not to say that I don't cook
• 24:33
  Speaker 1: well myself, but like it's always better out with friends.
• 24:36
  Speaker 1: So um, you know, they definitely will have somewhat of
• 24:39
  Speaker 1: an impact. Hatley. One thing is that I've noticed really
• 24:42
  Speaker 1: this Christmas season is how many Amazon Prime trucks there
• 24:47
  Speaker 1: are on the road. It seems like they're just everywhere.
• 24:49
  Speaker 1: What does that mean for the ups is and the
• 24:52
  Speaker 1: Fedexes of the world. Yeah, so you know what Amamon's
• 24:55
  Speaker 1: doing and argue it is something that Walmart UM, uh
• 24:58
  Speaker 1: you know, in the sixty seventies and eighties, you know,
• 25:01
  Speaker 1: they built out their own transportation network. Walmart operates one
• 25:04
  Speaker 1: of the largest truckload fleets in America, you know, and
• 25:07
  Speaker 1: it's a kind of dwarfs some of the publicly traded
• 25:10
  Speaker 1: UM truckload fleets that that we cover in terms of size. So,
• 25:14
  Speaker 1: you know what, what what Amazon is trying to do
• 25:16
  Speaker 1: is they're trying to control their their purchase transportation costs
• 25:19
  Speaker 1: and they're doing that by outsourcing with UM you know, uh,
• 25:24
  Speaker 1: with contractors, exclusive contractors that that just worked for Amazon,
• 25:30
  Speaker 1: and you know, it is somewhat of a similar model
• 25:33
  Speaker 1: that athetics does. It means FedEx ground employees are or
• 25:37
  Speaker 1: FedEx ground UM drivers and delivery people are un employees
• 25:42
  Speaker 1: of FedEx. They're they're independent contractors. So it's not a
• 25:45
  Speaker 1: new model. Uh, you know, they will UM. Amazon wants
• 25:49
  Speaker 1: to control more of their supply chain. It will still
• 25:52
  Speaker 1: be a big buyer transportation for ups that X not
• 25:55
  Speaker 1: so much. It's it's a lot bigger part of ups
• 25:58
  Speaker 1: and than it is FedEx Um. But you know, they're
• 26:01
  Speaker 1: just looking to diversify and control their own costs, and
• 26:04
  Speaker 1: they're doing that with careers and they're doing that with
• 26:06
  Speaker 1: an air fleet as well. All right, Slee, thank you
• 26:09
  Speaker 1: so much for all of the intelligence literally comes from
• 26:11
  Speaker 1: Bloomberg Intelligence. He's their senior transport, logistics and shippings analysts
• 26:15
  Speaker 1: and we appreciate it. Thanks for listening to Bloomberg Markets podcast.
• 26:20
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
• 26:24
  Speaker 1: or whatever podcast platform you prefer. I'm Bonnie Quinn. I'm
• 26:27
  Speaker 1: on Twitter at Bonnie Quinn. And Paul Sweeney I'm on
• 26:30
  Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always
• 26:33
  Speaker 1: catch us worldwide at Bloomberg Radio