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F45 Training Goes Public · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. Well, we had an
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Speaker 1: I p O of this morning. Five Training Holdings fitness
0:26
Speaker 1: company went public at a sixteen dollars A share has
0:30
Speaker 1: not opened for trading. Bid bid his eighteen, ask his nineteen.
0:35
Speaker 1: So looking to open up here on the first trade.
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Speaker 1: Adam Gilcrest, He's a co founder and CEO of F
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Speaker 1: forty five Training. Uh he joins us now, Adam, thanks
0:44
Speaker 1: so much for joining us. I know you're having a
0:45
Speaker 1: busy day here watching to see when your stock opens.
0:49
Speaker 1: Love free to give us the kind of a thirty
0:51
Speaker 1: second view of F forty Training. What's the story? Well, Nessily,
0:57
Speaker 1: thanks very much for having me on your program. Obviously
1:01
Speaker 1: a very exciting day. And look at forty five is,
1:05
Speaker 1: you know, I think an incredible business. Because we tried
1:08
Speaker 1: to answer a really simple question, which was you know
1:10
Speaker 1: how do we get people to fall back in love
1:12
Speaker 1: with the gym, and really f forty five is a
1:15
Speaker 1: forty five minute workout. We do it in classes of
1:19
Speaker 1: seven up to thirty six people. A typical franchise e
1:23
Speaker 1: you know has you know, on average, two hundred members
1:26
Speaker 1: and we charge our members somewhere between fifty dollars and
1:29
Speaker 1: sixty dollars a week, so we're a premium brand um
1:33
Speaker 1: And it was built on three key pillars. Number one
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Speaker 1: was innovation, where we have six thousand exercises in our
1:40
Speaker 1: exercise and cyclopedia, so every day you turn up, it's
1:43
Speaker 1: a different workout. Number two is motivation, like training in
1:47
Speaker 1: teams is just so much more enjoyable being, you know,
1:49
Speaker 1: in a community versus you know, sitting at home, you know,
1:53
Speaker 1: running on a treadmill or going for a run around
1:55
Speaker 1: a park by yourself. And the third key pillar was
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Speaker 1: you know, what we describe as simply as results and
2:01
Speaker 1: results for us is via this simple modality of high
2:06
Speaker 1: intensity interval training. So the workouts being forty five minutes,
2:10
Speaker 1: you know, change each day, but it's it's often like
2:13
Speaker 1: forty seconds of work twenty seconds of rest, and you
2:16
Speaker 1: can really get some effective results in a in a
2:19
Speaker 1: short period of time. So look, we're great. It's a
2:22
Speaker 1: great business because we changed so many lives. People love
2:26
Speaker 1: coming to forty five and we've really achieved, you know,
2:30
Speaker 1: a wrap it up. One one major milestone is you know,
2:33
Speaker 1: having more visitations with our members than any other gym
2:37
Speaker 1: in the world, so they turn up on average two
2:38
Speaker 1: points seven times per week. I want to quickly just
2:41
Speaker 1: get to the market dynamics of what we're seeing. Notable,
2:44
Speaker 1: of course, actor Mark Wahlberg is an investor Franchises member
2:49
Speaker 1: of the board. A year ago in June, you tried
2:52
Speaker 1: to go public via a spack with Crescent Acquisition Corps.
2:56
Speaker 1: Today of course, trying to just take the traditional I
2:59
Speaker 1: p O route. Why this why the switch? We we
3:04
Speaker 1: we ran a dual process and we had a better
3:07
Speaker 1: um structure that we we accepted, and we believe that
3:12
Speaker 1: a traditional IPO would be you know, positioning the business
3:15
Speaker 1: um for more success. And you know, we're we're really
3:19
Speaker 1: pleased with where we're at at the moment, and you know,
3:21
Speaker 1: we're really excited to hopefully watch the first trade come
3:24
Speaker 1: through in the next half an hour. Hey, Adam, you
3:26
Speaker 1: know I'm here with Taylor Riggs, and she's one of
3:28
Speaker 1: those crazy nutty people that runs marathons all over the world.
3:32
Speaker 1: I just can't relate at all. I did, in fact,
3:35
Speaker 1: during the pandemic actually start getting on a peloton, so
3:38
Speaker 1: at least I'm getting some exercise. Talk to us about
3:41
Speaker 1: how your business has been impacted by this worldwide pandemic. Well,
3:48
Speaker 1: of course, it was an extremely challenging year last year,
3:51
Speaker 1: and you know, at one period of time we had
3:55
Speaker 1: our franchise is closed. Um. What we have noticed, however,
3:59
Speaker 1: is the fact that you know, people want to get
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Speaker 1: back into the gym, but more importantly, people want to
4:05
Speaker 1: be part of communities. People don't want to sit at
4:07
Speaker 1: home on a bike. They don't want to sit at
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Speaker 1: home and do zoom dinner parties when restaurants are reopened.
4:11
Speaker 1: I asked that question all the time. You know, when
4:13
Speaker 1: was the last time you had a zoom dinner party
4:15
Speaker 1: if restaurants have reopened. And what we're finding now is
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Speaker 1: our cohorts that are two months reopened are performing better
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Speaker 1: with visitation than they were pre COVID. So what that
4:27
Speaker 1: says to us is the fact that we're going to
4:30
Speaker 1: bounce back far stronger than what we were pre COVID,
4:33
Speaker 1: And look, we think the most important thing in life
4:37
Speaker 1: is obviously number one, your family, but you know number
4:40
Speaker 1: two should really be your health. And if you look
4:43
Speaker 1: at the importance of health. You know, we were talking
4:46
Speaker 1: about of Americans this year will die of heart disease,
4:50
Speaker 1: will die of cancer, and thirty percent of other things,
4:52
Speaker 1: but of that heart disease. You know, we we look
4:56
Speaker 1: at that and we say we can address that. We
4:58
Speaker 1: can change people's lives. We can you know, what we
5:01
Speaker 1: described as preventative health. So really, you know, we think
5:04
Speaker 1: this pandemic has been extremely challenging. We applaud our franchise
5:09
Speaker 1: Ease for pushing through it. We are the we're going
5:12
Speaker 1: to have the lowest rate of closures in the world,
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Speaker 1: with less than one percent of our studios not reopening
5:18
Speaker 1: in comparison to the rest of the industry which is
5:21
Speaker 1: currently and that's really sad to see so many great
5:26
Speaker 1: you know, young entrepreneurs and business owners go broke. So
5:29
Speaker 1: we hate seeing the industry contract, but we will see
5:32
Speaker 1: some major beneficiaries. Forty five is one of them. Planet
5:37
Speaker 1: is another, and we're really fortunate. A few months ago
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Speaker 1: that Entrepreneur magazine ranked US in front of Planet as
5:43
Speaker 1: the world's fastest growing fitness franchise or so when we
5:46
Speaker 1: sprinted past Planet, you know, that's one of the two
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Speaker 1: milestones I said. Obviously I wanted to be a faster
5:52
Speaker 1: growing company in the Planet and the next one for
5:55
Speaker 1: us is going to be our earnings. So when we
5:57
Speaker 1: go past them in earning, that will be the next
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Speaker 1: sort of goal that I've got for the head office here.
6:02
Speaker 1: On that note, of course, you're pricing the shares at
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Speaker 1: sixteen dollars a piece right now indicated open anywhere between
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Speaker 1: seventeen fifty eighteen fifty share. What are you doing with
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Speaker 1: the proceeds um The first thing we're doing. I mean,
6:15
Speaker 1: we've been a very fiscally conservative company since two thousand
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Speaker 1: and thirteen. In fact, there's no other company that's sold
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Speaker 1: more franchises than us uh and and look, we're we're
6:26
Speaker 1: excited because we've never had an unprofitable quarter. And that
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Speaker 1: fiscally conservative approach has now been applied to the capital
6:33
Speaker 1: raising where we're number one paying back all of our debt.
6:38
Speaker 1: So you know, that's that's that was my first and
6:41
Speaker 1: my ultimate goal. We will have a revolver in place
6:44
Speaker 1: of a hundred million dollars and we're going to thirdly
6:47
Speaker 1: also put some additional capital onto the balance sheet, so
6:51
Speaker 1: you know, we'll have horsepower of eighty million on the
6:53
Speaker 1: balance sheet, hundred million dollar revolver and you know, if
6:56
Speaker 1: you look at our earnings into the future, we are
6:59
Speaker 1: unleave it. So you know, our peers currently have you know,
7:03
Speaker 1: anywhere between four and six times, so we have a
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Speaker 1: lot of capacity to look at opportunities in the future.
7:09
Speaker 1: We recently purchased Flywheel for five million dollars, which was
7:13
Speaker 1: an incredible buy. So you know, the secondary is one
7:17
Speaker 1: investor selling out. I'm not selling any any stock in
7:20
Speaker 1: this I p O and I think that really you know,
7:24
Speaker 1: spoke to the and really resonated with a lot of
7:26
Speaker 1: our investors because I said, look, I'm here for the
7:28
Speaker 1: long term. I'm not selling any stock. We're excited about
7:32
Speaker 1: our future, but more importantly that the pipeline of potential
7:36
Speaker 1: franchises buying has never been healthier. UM, so it's an
7:39
Speaker 1: exciting period for us. All right, Adam, thank you so
7:42
Speaker 1: much for joining us. We know you're having an incredibly
7:44
Speaker 1: busy day today as your company goes public on New
7:47
Speaker 1: New York Stark Exchange. Adam Gilchrist, co founder and CEO
7:50
Speaker 1: of FT Trading, again that stock is bidding bid asks
7:54
Speaker 1: seventeen and a half, eighteen and a half after pricing
7:57
Speaker 1: UH their shares at sixteen dollars to share. But it's
8:00
Speaker 1: interesting to see how that industry, um Taylor, is going
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Speaker 1: to recover. You know, how will consumer behavior change in
8:08
Speaker 1: terms of going back to the gym and the innovation
8:10
Speaker 1: that's been going on in that industry. And you know, Paul,
8:14
Speaker 1: he was talking about those statistics around heart disease. I mean,
8:17
Speaker 1: that's another pandemic frankly that we've been ignoring. I think
8:20
Speaker 1: sitting around in this pandemic has made us realize we
8:23
Speaker 1: all need to get back to the gym exactly right.
8:25
Speaker 1: So hopefully again we saw a contraction. Hopefully that industry
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Speaker 1: can continue to recover. Well, that more coming up. This
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Speaker 1: is Bloomberg, all right. That was Charles Evans, the president
8:38
Speaker 1: and CEO of the Federal Reserve Bank of Chicago, speaking
8:41
Speaker 1: with Bloomberg's own Michael McKee. And we also had FED
8:44
Speaker 1: Chairman j Pal He was UH in front of Congress
8:47
Speaker 1: today making his comments as well. Let's get kind of
8:50
Speaker 1: an overview a little bit of a recap. But what
8:51
Speaker 1: we heard from these FED officials. We do that with
8:53
Speaker 1: carlver Cadonna. He's our top economist for Bloomberg Intelligence. So
8:58
Speaker 1: Carl kind of piecing together what we heard from Mr
9:01
Speaker 1: Evans of Chicago and FED Chairman Pal. It doesn't seem
9:04
Speaker 1: like this FEDS incented to do anything other than kind
9:06
Speaker 1: of stay the course here. They feel like they're they
9:09
Speaker 1: had the hand on the tiller. Yeah, that's a very
9:11
Speaker 1: key theme to focus in on here, the kind of
9:14
Speaker 1: central committee of the Open Markets Committee, so that the
9:18
Speaker 1: centrists are that you know that the key leadership really
9:22
Speaker 1: is not responding to the inflation data. Uh. The way
9:25
Speaker 1: that the kind of overall messaging from the Fed is
9:28
Speaker 1: a sounding like the Fed has taken up more hawkers shifts.
9:30
Speaker 1: So the hawks on the committee have become more vocal,
9:33
Speaker 1: more concerned about what's happening, whether it's commodity prices, gasoline
9:36
Speaker 1: or or consumer inflation. But that the j Pale's the
9:40
Speaker 1: Richard clarenas uh, the Chicago FED president, that Charles Evans,
9:44
Speaker 1: who's a voter this year. Uh, they are confident. Uh.
9:48
Speaker 1: And Evans specifically said he's confident that the inflation flare
9:51
Speaker 1: up will be transitory. Powell has echoed that theme. So
9:55
Speaker 1: they're acknowledging maybe that the price pressures have written more
9:59
Speaker 1: than they anticipate did and it looks like it will
10:01
Speaker 1: be able slightly longer duration than they anticipated. But they
10:04
Speaker 1: still are very much of the view that things will
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Speaker 1: moderate in the back half of the year as we
10:08
Speaker 1: start to see some moderation in overall economic growth. We
10:12
Speaker 1: were chuckling a little bit yesterday. If members of the House,
10:15
Speaker 1: members of the Senate are asking about inflation, you know,
10:18
Speaker 1: it's something that their constituents are going to them and saying, hey,
10:22
Speaker 1: we're feeling this. There are real world inflation pressures. And
10:27
Speaker 1: then there's the economic models. How does Powell square the two? Well,
10:32
Speaker 1: I think the you know, the models anticipated that we
10:35
Speaker 1: would see an opening here, but they under anticipated the
10:38
Speaker 1: magnitude of the price pressure. So, you know, very difficult
10:42
Speaker 1: to model what reopening a twenty one trillion dollar economy
10:45
Speaker 1: looks like micro chip shortages and those sort of factors. So,
10:50
Speaker 1: you know, we kind of understand as we look at
10:52
Speaker 1: economic growth relative to potential growth, you know, how that
10:55
Speaker 1: inflation plays out. Um, But what's interesting here if we
10:58
Speaker 1: think of, you know, what the models would forecast, inflation
11:01
Speaker 1: is a lagging indicators. So if we're seeing great growth now,
11:05
Speaker 1: that's going to cause inflation further on down the road.
11:08
Speaker 1: And typically the lag is about six quarters, so a
11:11
Speaker 1: year and a half. Right. The inflation we're seeing now
11:13
Speaker 1: is not the result of an economy operating beyond its potential.
11:17
Speaker 1: It's just this kind of supply, the growing pains of
11:20
Speaker 1: of reopening, turning the key, and restarting the economy. So
11:23
Speaker 1: it's a very different type of inflation, and that's why
11:26
Speaker 1: the FED is responding it in such a different capacity.
11:29
Speaker 1: Another way of thinking of this, if we take you know,
11:31
Speaker 1: consumer inflation. So yes, prices are rising, but we have
11:35
Speaker 1: to divide between goods and services. Services are things the
11:39
Speaker 1: FED can very much control because service price pressure reflects
11:43
Speaker 1: what's happening in the domestic economy. A lot of goods
11:46
Speaker 1: sector inflation merely reflects what's happening with exchange rates or
11:51
Speaker 1: inflation coming from overseas. So the price of goods coming
11:54
Speaker 1: from China getting unloaded at the port of Long Beach
11:57
Speaker 1: on the West Coast. Uh, that's not an lation the
12:00
Speaker 1: FED can really control, nor do they want to control
12:03
Speaker 1: that inflation. If we look at what's happening right now,
12:06
Speaker 1: CPI goods is off the chart, flaring up, CPI services
12:11
Speaker 1: very much running in line with the average of the
12:13
Speaker 1: five years prior to the pandemic. Well, we just heard
12:16
Speaker 1: a real inflationary data point today, Greg Jarrett Bloomberg Radio
12:20
Speaker 1: in San Francisco paying more for his taco and his
12:23
Speaker 1: taco flower rice is an extra dollar. So it is real.
12:28
Speaker 1: I'm not sure, but I'm going to call you out
12:29
Speaker 1: here because this is food away from home, restaurant meals,
12:33
Speaker 1: which are part of this labor shortage that we're seeing
12:36
Speaker 1: in leisure and hospitality sector, restaurant whatnot. If we look
12:40
Speaker 1: at food at home, so grocery store prices, I continually
12:44
Speaker 1: hear everyone's saying, oh, prices are going up. Prices are
12:46
Speaker 1: going up. They're going up, but they are going up
12:48
Speaker 1: at a very very slow pace. So if we look
12:50
Speaker 1: at grocery food, we can see that there's actually a
12:54
Speaker 1: deceleration taking place. So we keep talking about categories that are,
12:59
Speaker 1: you know, part of the re opening, while there are
13:01
Speaker 1: some categories that are actually decelerating as we reopen. In
13:05
Speaker 1: grocery prices for the most part, are are in that category.
13:09
Speaker 1: So they were high during the pandemic when everyone was
13:11
Speaker 1: scrambling for grocery deliveries and whatnot. They are very significantly decelerating.
13:16
Speaker 1: And yesterday, as I was looking through the CPI basket
13:19
Speaker 1: looking at those food categories, most of them are running
13:22
Speaker 1: below one percent even so my kale is cheaper. Paul, Oh,
13:26
Speaker 1: good for you. I know what kale is. Come so Taylor,
13:30
Speaker 1: stop complaining about those restaurant prices and go home and
13:32
Speaker 1: cook your food. When we do see tapering, what's it
13:37
Speaker 1: gonna look like. I think it's gonna look very boring
13:42
Speaker 1: to financial market. So the Fed is being very clear
13:45
Speaker 1: that this will be signaled well in advance, and so
13:48
Speaker 1: they'll have time to refine that message if the market
13:50
Speaker 1: does kind of react to the news. But what we're
13:53
Speaker 1: hearing from folks like Evans and also from j. Powell,
13:57
Speaker 1: this is not something that we're going to be hearing
13:59
Speaker 1: about at the lie FO MC meeting right there. Going
14:01
Speaker 1: to discuss this for several meetings, so the July meeting
14:05
Speaker 1: into September, we might hear about it at Jackson Hole,
14:08
Speaker 1: we might hear about it at the September FOMC. I
14:11
Speaker 1: suspect that the delivery of that message is going to
14:14
Speaker 1: come later than a lot of market participants are thinking
14:17
Speaker 1: at the moment. I think still the best case scenario
14:20
Speaker 1: has probably deliver the message in the fall. UH start
14:23
Speaker 1: the program at the start of next year, so in
14:25
Speaker 1: early and you taper basically over the course of next year.
14:30
Speaker 1: So by the end of the FED will no longer
14:34
Speaker 1: be purchasing securities to expand their balance sheet. They'll just
14:37
Speaker 1: be replacing things that are maturing. Just quickly twenty seconds
14:40
Speaker 1: you go equal taper, nbs and treasuries. That's a very
14:45
Speaker 1: interesting question. J Pow was pushed on that a little
14:48
Speaker 1: bit today and he said that probably mortgage purchases are
14:52
Speaker 1: having more of an impact on the housing market than
14:53
Speaker 1: treasury purchases, although both are impacting. So I think that
14:56
Speaker 1: there is an incentive to move more aggressively on mortgages.
14:59
Speaker 1: All Right, car ricka Donna, senior economist for Bloomberg Intelligent
15:04
Speaker 1: joining us here helping us break it down. Here we
15:06
Speaker 1: have FED Chairman pal Uh and Mr Evans from Chicago
15:10
Speaker 1: FED looking at these markets. Here. Works just started, you know,
15:14
Speaker 1: week one of what is going to be a very
15:16
Speaker 1: active earning season, and again, a lot of investors are
15:19
Speaker 1: looking for numbers that come in really strong to kind
15:23
Speaker 1: of support the multiples we're seeing in this marketplace. Let's
15:27
Speaker 1: bring in a professional that does it for a living.
15:29
Speaker 1: Hugh Johnson, Chairman, ce IO and member of the Investment
15:32
Speaker 1: Strategy Committee of Hugh Johnson Advisors. It's about one point
15:35
Speaker 1: five billion dollars in assets under management based in Albody,
15:38
Speaker 1: New York. Here, thanks for joining us once again here,
15:40
Speaker 1: All right, what are you really looking for in this
15:43
Speaker 1: earning season? He needs to see some really big beats
15:47
Speaker 1: to justify these valuations. Uh, not real big beats, but
15:52
Speaker 1: certainly beats. We've gotten very used to the fact that
15:55
Speaker 1: when we've been looking at earnings, and I'm not talking
15:57
Speaker 1: about just this earning season, but we've had a continuous
16:00
Speaker 1: outpouring of earnings for the last three months, and in
16:03
Speaker 1: each case, the earnings have been coming in a little
16:05
Speaker 1: bit better than not significantly so, but a little bit
16:08
Speaker 1: better than expected. And every time we see that, um
16:11
Speaker 1: it gives a little bit of a boost to the market.
16:13
Speaker 1: So the market has been really driven by good earnings
16:16
Speaker 1: reports for the last three months, and I think really
16:18
Speaker 1: we're looking for the same thing in this earning season,
16:21
Speaker 1: a little bit of a let's just say, a beat
16:23
Speaker 1: on the upside. Now, Now, remember keep in mind that
16:27
Speaker 1: more recently, about a little bit less eight percent of
16:31
Speaker 1: the companies that have been reporting have been reporting earnings
16:33
Speaker 1: that have beaten estimates, and that compares with the number
16:37
Speaker 1: that's the long term number of six. So companies are
16:40
Speaker 1: getting used of reporting earnings a little bo expectations and
16:44
Speaker 1: that's kept the kept the bull market alive, even though
16:47
Speaker 1: we're a little bit concerned about valuation. Before we get
16:50
Speaker 1: to valuations, I wouldn't ask if we're in on earnings
16:53
Speaker 1: peak margins as we're thinking about some of these inflationary
16:57
Speaker 1: costs that ceo s are mentioning, and they are mentioned
17:00
Speaker 1: mean them a lot. They certainly are. And if you
17:03
Speaker 1: take a look at the Beige Book yesterday and the
17:05
Speaker 1: reports from all the districts of the Federal Reserve UM,
17:08
Speaker 1: that's the one thing that jumps out at you is
17:10
Speaker 1: that companies are telling us that there's a little bit
17:13
Speaker 1: of margin pressure. And there's a little bit of margin pressure,
17:15
Speaker 1: largely because the upward pressure that they're starting to see.
17:18
Speaker 1: It's not significant, But they're seeing upward pressure on wages.
17:21
Speaker 1: Number One, they've had to compete very very actively in
17:25
Speaker 1: the markets to try to get people to come to
17:26
Speaker 1: work for them. They've given a lot of non cash
17:29
Speaker 1: benefits for those to those people to get them to
17:32
Speaker 1: come to work for them. And then of course there's
17:34
Speaker 1: the supply problems, which we hear about every day. The
17:37
Speaker 1: supply problems of course, meaning that of course that they're
17:40
Speaker 1: not getting the supplies. The backlogs are very significant. Uh.
17:43
Speaker 1: And and that's creating some a little bit upward pressure
17:46
Speaker 1: on the prices that purchasing managers have to pay. So
17:50
Speaker 1: you bet margins are under pressure. And uh if we
17:53
Speaker 1: believe German Paul that a lot of these pressures, labor
17:56
Speaker 1: pressures as well as the supply pressures, are gonna obey
18:00
Speaker 1: as we moved through the remainder of two thousand twenty one.
18:03
Speaker 1: All Right, you, given that you're in the camp with
18:05
Speaker 1: that chairman Pow, where are you guys allocating capital these days? Um?
18:11
Speaker 1: Given where we are, well, I tell you, you know,
18:14
Speaker 1: it's a good, great question because we're still bullish on
18:16
Speaker 1: a long term basis. We really do believe in our
18:19
Speaker 1: sort of mantra, which is time not timing is a
18:22
Speaker 1: secret to success in the financial markets. But on a
18:25
Speaker 1: short term basis, we think things are a little bit high.
18:27
Speaker 1: You know, we've had really great markets and two thousand
18:30
Speaker 1: twenty and of course the first part of two thousand
18:32
Speaker 1: twenty one, and I think the markets a little bit
18:34
Speaker 1: ahead of itself. Particularly now. Remember we're we've really seen
18:38
Speaker 1: the peak and g d P and ernest growth in
18:40
Speaker 1: the second quarter, and they're those numbers are gonna still
18:43
Speaker 1: be positive, but they're gonna come down. We're not gonna
18:45
Speaker 1: see those kinds of growth rates. So we really think
18:47
Speaker 1: we're a little bit ahead of ourselves and they're due
18:49
Speaker 1: for I don't want to say a major correction, but
18:52
Speaker 1: a little bit of a pull back, and we're waiting
18:53
Speaker 1: for a pull back to prices that make a little
18:55
Speaker 1: bit more sense. When we do see that pullback, we're
18:59
Speaker 1: not going to be the inflation team. We're gonna be
19:01
Speaker 1: looking very hard at consumer discretionary stocks, very hard at
19:05
Speaker 1: communication services, some of those companies you know, the facebooks
19:09
Speaker 1: of this world. We're looking very hard at those, and
19:11
Speaker 1: those are where we're going to start to add to
19:13
Speaker 1: our portfolio. Google is another one. Apple is another one.
19:17
Speaker 1: We'd be adding to those, but not at these levels.
19:19
Speaker 1: We want to see a little bit of a pull
19:20
Speaker 1: back to levels that make a little bit more sense
19:22
Speaker 1: and a little more compelling. Are you going to be
19:25
Speaker 1: adding to those based on a call that yields may
19:28
Speaker 1: not rise. Yeah, we would be probably adding to them,
19:31
Speaker 1: and I would say in a longer term basis, keep
19:33
Speaker 1: in mind something very important, and that is when you're
19:36
Speaker 1: looking at Apple, Facebook, you're looking at these companies, some
19:39
Speaker 1: of them communication services, some of them technology. We've often
19:42
Speaker 1: referred to them as being volatile and economically sensitive, that
19:46
Speaker 1: they depend very heavily on the economy doing well. That's
19:49
Speaker 1: no longer the case. These companies have been doing well,
19:52
Speaker 1: giving us the kind of revenue growth, that kind of
19:55
Speaker 1: cash flow on their balance sheets, that kind of free
19:57
Speaker 1: cash flow, and their earnings reports that spen very steady,
20:01
Speaker 1: even though the economic conditions, as you know, have been
20:04
Speaker 1: very volatile and difficult. And and that's the kind of
20:07
Speaker 1: company that's almost I hate to say it, it's not
20:10
Speaker 1: an offensive or bowl. Market sectors. These are starting to
20:13
Speaker 1: act like defensive sectors are good places to be if
20:16
Speaker 1: the economy goes into a period which I think it's
20:18
Speaker 1: gonna and that is where we see the growth rates
20:21
Speaker 1: of the economy of earnings, employment, you name it, are
20:25
Speaker 1: gonna slow down. They're gonna be positive, but they're gonna
20:27
Speaker 1: slow down. And those are the kinds of companies I
20:29
Speaker 1: think you want to all Right, you thanks so much
20:31
Speaker 1: for joining us to really appreciate that. Hugh Johnson, Chairman
20:34
Speaker 1: CEE IO and member of the Investment Strategy Committee of
20:36
Speaker 1: Hugh Johnson Advisers, based in Albany, New York. It's gonna
20:40
Speaker 1: be interesting a tailor to see, how you know, to
20:42
Speaker 1: the extent we do get a pullback in this market,
20:44
Speaker 1: which some people are calling for, including Hugh Johnson. You know,
20:47
Speaker 1: where will people put their money? Will be still in
20:49
Speaker 1: that rotation trade into the cyclical names, it's the reopening
20:52
Speaker 1: names into the reflation trades, or will it be into
20:54
Speaker 1: the tried and true apples and amazons and facebooks of
20:57
Speaker 1: the world. You know. John author is of our bloom
20:59
Speaker 1: Bergers Opinion out with a great note this morning saying
21:02
Speaker 1: that guilds aren't behaving the way we might think. If
21:05
Speaker 1: you think inflation is going to be higher, maybe you
21:08
Speaker 1: get some of that cyclical trade. Yields should be risering,
21:11
Speaker 1: but they're not. So are we pricing in a Fed
21:14
Speaker 1: policy mistake? Really really good column here debating the future
21:19
Speaker 1: of yields. Yeah, exactly right, And you know it's it's
21:21
Speaker 1: tough to see where a pullback comes. We've had so
21:24
Speaker 1: much uncertaint yet the market continues to pool hire. Would
21:26
Speaker 1: there be a mistake perhaps from the Federal Reserve? Would
21:29
Speaker 1: that be the catalyst? We'll have to see more coming up,
21:32
Speaker 1: This is Bloomberg. Let's bring in David Diets here. He's
21:38
Speaker 1: managing principal senior portfolio manager at Pepack Private Wealth Management,
21:42
Speaker 1: nine point four billion dollars under management, located in Bucolic Summit,
21:47
Speaker 1: New Jersey. Hey, David, let's start with the bond market. Boy,
21:51
Speaker 1: ten year one point three four, the thirty year still
21:55
Speaker 1: below two percent at one point nine. What's the treasury
21:59
Speaker 1: market telling us about growth? Do we need to be
22:02
Speaker 1: concerned about growth on the back side of this pandemic? Well,
22:05
Speaker 1: I think you put your finger on it. This is
22:07
Speaker 1: the most perplexing problem because we've got all sorts of
22:10
Speaker 1: metrics suggesting there's inflation. All the economists are telling us
22:14
Speaker 1: that we're coming out of the pandemic induced slumber and
22:18
Speaker 1: growth is ahead of us for seeing great corporate earnings.
22:21
Speaker 1: But that bond market that yields just keep falling, and
22:24
Speaker 1: typically yields fall when fixed income investors see, uh, the
22:30
Speaker 1: lack of inflation, lack of growth, and so which is
22:34
Speaker 1: right here? I still think that all signs point for
22:39
Speaker 1: and expanding economy. And here's the thing. If you go
22:42
Speaker 1: a year ago, uh, Matt, you know you're you're interest
22:45
Speaker 1: rate to attain your treasury about a half of one percent.
22:48
Speaker 1: At the start of the year, we're under one percent.
22:51
Speaker 1: Now that is true. We ratchet quickly all the way
22:54
Speaker 1: up to about one point seven top in March. Now
22:56
Speaker 1: we're just over one point three. But still I think
22:59
Speaker 1: the end is up. Remember two thousand nineteen we saw
23:04
Speaker 1: the ten years highest two point nine. All signs are
23:07
Speaker 1: saying that ultimately we're going to normalize, maybe not in
23:10
Speaker 1: the next three months, but over the next twelve months.
23:12
Speaker 1: So I gotta see interest rates ultimately moving up. And
23:15
Speaker 1: I think actually the stock investors will appreciate that. Are
23:19
Speaker 1: you positioning a portfolio for higher inflation? Because I hate
23:23
Speaker 1: to say it, every single question that Powell is getting
23:26
Speaker 1: it's on inflation. Um, so you know, no one knows
23:32
Speaker 1: for sure whether it's transitory or more permanent. I mean,
23:36
Speaker 1: in some things, everything in life is transitory ultimately. But
23:39
Speaker 1: I think it's it's a risky game that they're playing here,
23:43
Speaker 1: because if it turns out that it's not transitory, the
23:46
Speaker 1: problem with monetary policy is to act for the lag
23:48
Speaker 1: and so they would be very much behind the eight ball.
23:51
Speaker 1: And of course the real wild card is how to
23:53
Speaker 1: consumers act here. If consumers start to think inflations around
23:58
Speaker 1: the corner and they rush out the stuff and order,
24:01
Speaker 1: it will become self fulfilling. So we are certainly tilting
24:05
Speaker 1: towards areas of the market I think can benefit UH
24:09
Speaker 1: from inflation. I think if there's inflation, ultimately higher interest rates,
24:13
Speaker 1: that's manner from heaven for the financials. Of course, you've
24:16
Speaker 1: got your cyclicals, your industrials, your materials, your energy place
24:20
Speaker 1: all should do it better with prices going up. All right,
24:23
Speaker 1: higher interest rates in your scenario good for financials, as
24:26
Speaker 1: you just mentioned. I know in the past we've talked
24:28
Speaker 1: about Wells Fargo, that's a name you've liked, and that
24:30
Speaker 1: they reported some numbers this week stock's done really well
24:33
Speaker 1: this year, up nearly fift What is your calling the
24:36
Speaker 1: financials and Wells? Well, so, the financials, I do think
24:41
Speaker 1: that they are trading at about discount in terms of
24:44
Speaker 1: price to earnings, price to book than they normally do,
24:47
Speaker 1: and of course the overall stock markets elevated, so I
24:49
Speaker 1: think that financials could provide an opportunity. But I do
24:53
Speaker 1: think it all comes down to the economy and interest rates.
24:56
Speaker 1: If the economy picks up, then the loan demand will
24:59
Speaker 1: kick in. That the kind of a thorn in the
25:00
Speaker 1: side right now, not a lot alone demand. Of course,
25:03
Speaker 1: they're build to charge higher rates. The fitnesstrants to go up,
25:06
Speaker 1: So then uh like generally would overwege financials drilling down
25:10
Speaker 1: why Wells Fargo? You know, Wells Fargo has one of
25:13
Speaker 1: the best franchises here in the country. Coast to coast,
25:16
Speaker 1: gives the tremendous economies to scale. I actually like the
25:19
Speaker 1: fact that they're not focused on a lot of trading
25:23
Speaker 1: activity that some of the New York banks focused on
25:25
Speaker 1: because that tends to be cyclical. They're kind of middle
25:27
Speaker 1: market um consumer lending and so forth, and historically they've
25:32
Speaker 1: been good judges of credit quality have been conservative. Uh,
25:36
Speaker 1: they've of course still associated with a lot of bad activities.
25:39
Speaker 1: A couple of years ago, a new guy in there
25:42
Speaker 1: from Bank of New York I think is writing that ship.
25:44
Speaker 1: And of course, as you pointed out, just had a
25:46
Speaker 1: great earnings announcement. They got they went through the stress
25:49
Speaker 1: test with flying colors, They doubled the dividend. They announced
25:53
Speaker 1: the stock buyback of eighteen billion. That's about ten percent
25:56
Speaker 1: of the value the overall companies. Another ten percent of
25:59
Speaker 1: the shares go away. That's good for stock investors. Finally,
26:04
Speaker 1: here when we talk about some of the loan demand
26:06
Speaker 1: with the banks, you have to talk about housing prices
26:08
Speaker 1: and some of the housing stocks that have started to
26:10
Speaker 1: roll over. I'm just taking a look at the I
26:12
Speaker 1: t B for example, the E t F of housing stocks,
26:15
Speaker 1: as lumber has also started to roll over. What do
26:19
Speaker 1: you make of the housing sector? Well, you know, I
26:22
Speaker 1: think it's a little bit like with the the the
26:24
Speaker 1: interest rates and the tenure treasury. I think there was
26:27
Speaker 1: too much acceleration too quickly. We're seeing a pullback. Marcus,
26:32
Speaker 1: do not go on a straight line. I gotta believe
26:35
Speaker 1: that the two or three years from now lumber prices
26:38
Speaker 1: will be higher. Of course that's a tricky indicator because
26:41
Speaker 1: of relationships between Canada United States. Um. You, you are
26:46
Speaker 1: absolutely right. The housing stocks, the paulties and Lenar's have
26:51
Speaker 1: kind of come back down here, but remember they practically
26:54
Speaker 1: doubled from a year ago, so they were due for
26:56
Speaker 1: a pause here. Um uh. In with with better employment situation,
27:02
Speaker 1: I think people that demand for housing will continue to
27:04
Speaker 1: stay strong. All right, David, Thanks as always for checking
27:07
Speaker 1: in with us. We always appreciate getting your thoughts and opinions.
27:10
Speaker 1: David dts And, Managing Principal Senior PM for p Peck
27:14
Speaker 1: Private Wealth Management, getting his thoughts on this market. Still
27:17
Speaker 1: likes the cyclical trade, still likes that reflation trade, that
27:20
Speaker 1: reopening trade, and again with rates where they are lots
27:24
Speaker 1: of questions there, but we'll have more coming up. Thanks
27:27
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe
27:31
Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast
27:34
Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at
27:38
Speaker 1: Matt Miller three. On fal Sweeney, I'm on Twitter at
27:42
Speaker 1: pt Sweeney. Before the podcast, you can always catch us
27:45
Speaker 1: worldwide at Bloomberg radio