WEBVTT - Bloomberg Wall Street Week: Keating, Feeney, Drexler 0:00:00.240 --> 0:00:05.000 This is Bloomberg Wall Street Week. Market shruggle, higher consumer prizes. 0:00:05.040 --> 0:00:07.400 The economy is in the process of rebounding. Will the 0:00:07.400 --> 0:00:10.479 Federal Reserve have its own digital currency? The financial stories 0:00:10.520 --> 0:00:12.879 that cheap hard work. Many people think the eels are 0:00:12.880 --> 0:00:15.080 just going to keep marching up. We have more spending 0:00:15.120 --> 0:00:17.160 coming out of Congress. One of the big questions I 0:00:17.200 --> 0:00:19.880 think on investor's minds inflation through the eyes of the 0:00:19.880 --> 0:00:23.560 most influential voices. Larry Summer is the former Treasury Secretary 0:00:23.640 --> 0:00:27.240 Bryan Wynahan a backup America Will Saro CEO Charlie Sharp. 0:00:27.360 --> 0:00:31.560 Bloomberg wool Street Week with David Weston from Bloomberg Radio, 0:00:32.520 --> 0:00:36.280 Geopolitics to the forefront, even as the economy stays hot. 0:00:36.600 --> 0:00:39.760 This is Bloomberg Wall Street Week. I'm David Weston. It 0:00:39.840 --> 0:00:42.040 was a week when we woke up every morning and 0:00:42.080 --> 0:00:45.440 looked to see whether Europe was still intact with concerns 0:00:45.440 --> 0:00:49.120 about a possible Russian invasion of Ukraine, despite President Putin's 0:00:49.159 --> 0:00:51.720 protests to the contrary, even as he said he was 0:00:51.800 --> 0:00:54.760 running out of patients and appearing with the German Chancellor 0:00:54.840 --> 0:00:58.280 Schultz suggesting bombing might be necessary to stop what he 0:00:58.360 --> 0:01:01.880 called a genocide. We should allow me to add that 0:01:01.960 --> 0:01:04.440 in our assessments, what is happening now in the don 0:01:04.520 --> 0:01:09.480 Bass constitutes genocide. But while we were all focused on Ukraine, 0:01:09.640 --> 0:01:12.399 we had more indications of just how hot the U 0:01:12.440 --> 0:01:15.720 s economy really is, with retail sales nombers for January 0:01:15.760 --> 0:01:21.679 surprisingly high retail sales, a strong advance in January, a 0:01:21.760 --> 0:01:25.040 big rebound from what we saw in the month of December, 0:01:25.440 --> 0:01:28.880 and corporate earnings continue to pour in with mixed results 0:01:29.080 --> 0:01:32.679 from paramount CEO Bob Bakish falling short of expectations because 0:01:32.720 --> 0:01:37.000 of his streaming investments. We would have peak streaming losses 0:01:37.520 --> 0:01:42.400 UH in terms of investment in UH, and then they 0:01:42.440 --> 0:01:45.160 would improve from there, which would return the company to 0:01:45.240 --> 0:01:48.720 total earnings growth in twenty four and beyond. But in 0:01:48.800 --> 0:01:51.880 the end, the geopolitics and continued concern about the Fed 0:01:51.960 --> 0:01:54.600 one out over any positive news of the week, as 0:01:54.640 --> 0:01:57.080 the Spire was down for a second week in a row, 0:01:57.120 --> 0:01:59.440 this time by one point six putting it off by 0:01:59.520 --> 0:02:02.360 nine said for the year. Today, the NAZAC fell by 0:02:02.400 --> 0:02:05.120 one point seven six percent on the week, while bonds 0:02:05.200 --> 0:02:08.160 fluctuated but ended up not far from where they started 0:02:08.280 --> 0:02:10.600 with the yield in the tenure continue to hover just 0:02:10.800 --> 0:02:14.840 over one and oil actually was down despite all the 0:02:14.880 --> 0:02:17.840 anxiety over Ukraine, ending up at about ninety three dollars 0:02:17.840 --> 0:02:20.600 of barrel for Brent. To put this all in perspective. 0:02:20.639 --> 0:02:23.239 We welcome now Katherine Keating, she's CEO of b N 0:02:23.360 --> 0:02:27.360 y Melon Wealth Management and Joanne Feeny Advisers Capital Management 0:02:27.400 --> 0:02:30.120 portfolio Manager. Thank you both for being your welcome back 0:02:30.120 --> 0:02:31.760 to walstere Week. Joe, and let me start with you 0:02:31.800 --> 0:02:34.120 on this geopolitics. As you talked to your clients, how 0:02:34.160 --> 0:02:38.040 concerned are they about this? What do you tell them? Well, 0:02:38.040 --> 0:02:41.080 you know, in the last week, I've actually feeled a 0:02:41.160 --> 0:02:43.480 number of calls with clients and some of them ask, 0:02:43.560 --> 0:02:45.959 you know, why aren't more people talking a bit about 0:02:45.960 --> 0:02:49.240 this on the investment front. So they're clearly concerned about 0:02:49.320 --> 0:02:52.120 the you know, tensions in Ukraine, what we seem to 0:02:52.120 --> 0:02:55.360 be escalating um in addition to the concerns we've been 0:02:55.360 --> 0:02:57.640 talking about for months like inflation and interest rates and 0:02:57.720 --> 0:03:00.680 slowing economic growth. So you know, they want to know 0:03:00.919 --> 0:03:03.079 if they need to do anything different in their portfolios. 0:03:03.120 --> 0:03:05.359 Do we need to change things for them um or 0:03:05.400 --> 0:03:08.480 are they well positioned, and the answer that comes down to, really, 0:03:08.600 --> 0:03:11.680 you know, what's their time frame. We've seen the world 0:03:11.720 --> 0:03:16.680 confront pandemics, wars, recessions, the stock markets suffers for a 0:03:16.680 --> 0:03:20.000 while but eventually recovers. So the time horizon for the 0:03:20.040 --> 0:03:23.680 investor really matters here as well. There risk tolerance for 0:03:23.760 --> 0:03:26.639 suffering through the volatility. So there are solutions out there, 0:03:26.880 --> 0:03:31.160 and the solution really depends on the the individual investor. Yeah, 0:03:31.200 --> 0:03:32.960 I agree with that, Joanne. And in fact, when we 0:03:33.000 --> 0:03:36.120 think about geopolitical events, believe it or not, they tend 0:03:36.160 --> 0:03:39.160 to have very short lived impact on the markets. What 0:03:39.360 --> 0:03:42.680 really matters is the larger ecosystem in which they're happening. 0:03:42.680 --> 0:03:45.720 So if we think about nine eleven terrible, terrible tragedy, 0:03:46.320 --> 0:03:49.000 markets closed for four days. When they reopened the following week, 0:03:49.040 --> 0:03:51.680 you had a very significant sell off, but within two 0:03:51.720 --> 0:03:55.400 months that had actually been recovered. What was more important 0:03:55.560 --> 0:03:58.040 was the was the ecosystem that that happened, and we 0:03:58.040 --> 0:04:02.080 were already in a bear market on the tech bubble bursting, 0:04:02.440 --> 0:04:04.840 and that market continued for a couple of years. I 0:04:04.880 --> 0:04:07.400 think the other thing that is important when you're thinking 0:04:07.440 --> 0:04:11.360 about war is um you know, worst take time right, 0:04:11.480 --> 0:04:13.320 We've we've learned that as a country, they take time, 0:04:13.520 --> 0:04:17.640 they can really impact your fiscal budget for a very 0:04:17.640 --> 0:04:20.160 long time. Well. Part of the ecosystem, though, Catherine, order 0:04:20.279 --> 0:04:23.600 is just volatility. We already had volative because the uncertainty 0:04:23.600 --> 0:04:25.960 about the FED triggered by the inflation of the factors. 0:04:26.160 --> 0:04:29.840 So putting more volatility into that more uncertainty, what does 0:04:29.839 --> 0:04:31.640 that do to you as an investor? How do you 0:04:31.720 --> 0:04:34.320 how do you deal with that kind of volatility going forward? Catherine, 0:04:34.440 --> 0:04:36.880 so Joanne said it right, time horizon matters, and for 0:04:37.000 --> 0:04:39.640 most investors, their time horizon is actually quite long. They're 0:04:39.640 --> 0:04:42.640 saving for their retirement or maybe even their children and grandchildren, 0:04:42.920 --> 0:04:45.679 and so you can withstand volatility if your time horizon 0:04:45.760 --> 0:04:48.359 is long. The other thing I would say about volatility is, 0:04:48.640 --> 0:04:51.320 you know, when we come out of a recession at 0:04:51.320 --> 0:04:53.839 a bear market, as we did over the last two years, 0:04:54.240 --> 0:04:58.320 those early months and years, everything goes in the same direction, 0:04:58.360 --> 0:05:00.760 it goes up. You don't have the nor more volatility, 0:05:00.800 --> 0:05:03.080 and we haven't. But in fact, when you look at 0:05:03.080 --> 0:05:07.280 the s MP five hundred, the average intra year correction 0:05:07.400 --> 0:05:10.800 over time is and yet seventy percent of the time 0:05:10.800 --> 0:05:12.479 the market ends up by the end of the year. 0:05:13.120 --> 0:05:15.599 This is normal volatility. It just may not feel that 0:05:15.640 --> 0:05:18.960 way right now. Joanne entering Chasm just talked about a 0:05:18.960 --> 0:05:21.160 bear market. Is it possible we are entering into a 0:05:21.200 --> 0:05:23.039 bear market right now? Well, in some areas of the 0:05:23.040 --> 0:05:25.719 stock market, we're already in a bear market, alright. Look 0:05:25.760 --> 0:05:28.320 at info tech, look at other areas of growth, some 0:05:28.400 --> 0:05:31.680 areas of consumer discretionary communication services. A lot of these 0:05:31.720 --> 0:05:34.080 stocks have come down, you know, well more than ten 0:05:34.120 --> 0:05:37.359 percent um and there multiples have come down accordingly. And 0:05:37.400 --> 0:05:40.560 that started before really the UK intentions really heated up, 0:05:40.560 --> 0:05:43.000 and it was primarily triggered by the FED signaling that 0:05:43.040 --> 0:05:45.320 they were going to be raising rates and when rates 0:05:45.400 --> 0:05:48.600 actually rose. But you know, back to Catherine's point on 0:05:48.600 --> 0:05:52.080 on the environment in which this higher risk has now arrived. 0:05:52.520 --> 0:05:54.480 We we are the U S economy and the global 0:05:54.480 --> 0:05:56.640 economy still in the midst of a recovery from the 0:05:56.680 --> 0:05:59.880 worst of the pandemic. So we have a backdrop of 0:06:00.080 --> 0:06:05.520 production increasing, whether it's in industrials, consumer products, housing market, right, 0:06:05.560 --> 0:06:08.120 and these are all trends that are likely to continue 0:06:08.520 --> 0:06:11.839 despite what is happening in the Ukraine, because you know, 0:06:12.000 --> 0:06:14.840 there's more and more production coming online cars for example, 0:06:14.839 --> 0:06:17.760 it's really been held back and that should ease in 0:06:17.800 --> 0:06:20.919 the back half of the year, for example, as semiconductor production. 0:06:21.320 --> 0:06:23.839 A new factories come online starting in the middle of 0:06:23.880 --> 0:06:27.680 this year. So the economic environment is actually fairly positive. 0:06:28.000 --> 0:06:31.560 We worry, though, right about the Ukraine situation and how 0:06:31.600 --> 0:06:33.839 the sanctions that may end up being triggered if this 0:06:33.920 --> 0:06:38.080 really goes forward, will affect particularly the European economy. Thank 0:06:38.120 --> 0:06:40.039 you so much, Katherine Keating and Joe A. Fini. They're 0:06:40.040 --> 0:06:41.640 gonna be staying with us as we turned to the 0:06:41.680 --> 0:06:43.919 question of what we should expect from the rest of 0:06:43.960 --> 0:06:46.160 the year. That's gonna be up next on Wall Street 0:06:46.160 --> 0:06:58.680 Week on Bloomberg. This is Bloomberg Wall Street Week with 0:06:58.800 --> 0:07:03.240 David weston draw Bloomberg Radio. We are back with Joe 0:07:03.240 --> 0:07:06.400 and Feeni of Advisor's Capital Management and Katherine Keating of 0:07:06.440 --> 0:07:09.200 bny Melon Wealth Management. So Canton, when we come to you, 0:07:09.560 --> 0:07:11.640 we add this discussion, good discussion. I was going to 0:07:11.680 --> 0:07:12.800 ask you about the rest of the year where the 0:07:12.840 --> 0:07:16.320 sp forget that, what about inflation, because that's what everyone's 0:07:16.360 --> 0:07:18.760 talking about. Where do you see inflation now and where's 0:07:18.760 --> 0:07:20.200 it going the rest of the year. Do you think 0:07:20.600 --> 0:07:22.640 it is the most important question? Actually, and it's the 0:07:22.640 --> 0:07:24.600 first one on everybody's minds. And I think to really 0:07:24.680 --> 0:07:27.560 understand that, we have to step back and reflect for 0:07:27.600 --> 0:07:29.720 a moment on what we've been through. As I said, 0:07:29.760 --> 0:07:32.240 we were in a healthy business cycle that got interrupted 0:07:32.240 --> 0:07:35.560 by a health recession, not a normal recession, a health recession. 0:07:35.880 --> 0:07:38.160 People were getting sick from this terrible virus that made 0:07:38.200 --> 0:07:41.240 the economy sick. And then we got an unusual kind 0:07:41.240 --> 0:07:44.760 of medicine. Right, we got this six trillion dollars in 0:07:44.760 --> 0:07:49.040 fiscal stimulus in this country, which really changed some things 0:07:49.240 --> 0:07:51.640 in the recession. The first thing it changed is incomes 0:07:51.640 --> 0:07:55.200 didn't go down. That's very unusual. Incomes didn't go down, 0:07:55.520 --> 0:07:58.840 Spending didn't go down. That's very unusual. Normally in a pandemic, 0:07:58.880 --> 0:08:02.280 we tighten our belts. It happened was people kept spending, 0:08:02.280 --> 0:08:05.200 but they shifted their spending two goods. Right. We weren't 0:08:05.200 --> 0:08:07.880 buying services, we weren't going on vacation, but we were 0:08:07.920 --> 0:08:10.160 buying goods. All the things we needed to work at home. 0:08:10.240 --> 0:08:13.960 The UM laptops and computers and monitors and all of 0:08:14.000 --> 0:08:17.080 those things. UM and and all the things we needed 0:08:17.080 --> 0:08:19.040 to do life everything in our lives at home, and 0:08:19.040 --> 0:08:21.160 we're we're I think we're starting to get past some 0:08:21.240 --> 0:08:23.600 of that. We see some of the um. You know, 0:08:24.000 --> 0:08:26.320 it's sort of economics one oh one, right, you have 0:08:26.400 --> 0:08:28.640 all of this demand for goods and you don't have 0:08:28.680 --> 0:08:31.080 the supply to get them. We see that starting to 0:08:31.120 --> 0:08:33.280 correct a little bit. The fourth quarter was really a 0:08:33.320 --> 0:08:36.720 story about restocking inventories, and so I think the question 0:08:36.760 --> 0:08:41.400 about inflation is does the torrid pace of consumers buying 0:08:41.559 --> 0:08:44.640 goods start to come off of its peak and do 0:08:44.720 --> 0:08:48.520 we see more normal behavior which is shifting two services? 0:08:50.360 --> 0:08:53.760 Joe and aswer that question. Sure, that's exactly right. I'll 0:08:53.840 --> 0:08:56.079 put on my economists at here for a second. But 0:08:56.280 --> 0:08:59.880 uh yeah, when you have this demand so high, it's 0:09:00.000 --> 0:09:02.240 apply not able to catch up, and interest rates not 0:09:02.440 --> 0:09:06.160 rising for various reasons, the only place the pressure valve 0:09:06.240 --> 0:09:09.600 can you know, can be turned is on the inflation front. 0:09:09.920 --> 0:09:12.200 And we should, towards the middle of this year start 0:09:12.280 --> 0:09:15.840 to lack some of the biggest price increases. So with 0:09:16.000 --> 0:09:20.079 fiscal spending less um than last year, uh, and with 0:09:20.200 --> 0:09:23.040 a shift back over to services spending, we're already seeing 0:09:23.040 --> 0:09:26.400 that in the mobility data. More travel, more hotel bookings, 0:09:26.520 --> 0:09:29.400 more Airbnb bookings coming. That should take a lot of 0:09:29.400 --> 0:09:32.800 the pressure off inflation, uh is, particularly in the beginning 0:09:32.800 --> 0:09:35.080 of the year. Plus more supplies I mentioned before, more 0:09:35.160 --> 0:09:37.720 chips from the semiconductor companies mean more cars can be 0:09:37.760 --> 0:09:41.120 produced and everything else. Um. You know, on the other hand, 0:09:41.120 --> 0:09:42.880 that we have to worry a little bit about the 0:09:42.960 --> 0:09:46.840 labor situation because the pandemic did trigger an awful lot 0:09:46.880 --> 0:09:50.000 of people to just leave the workforce, particularly the baby 0:09:50.000 --> 0:09:52.760 boomer generation, and they're not likely to come back. So 0:09:52.800 --> 0:09:54.920 we have a shortage of labor. We're going to have 0:09:55.000 --> 0:09:57.640 higher wages. That's going to continue to keep the upward 0:09:57.640 --> 0:10:00.800 pressure on prices. But with the FEDS actions, with more 0:10:00.840 --> 0:10:03.400 supply coming on, with the shift over to services spending, 0:10:04.040 --> 0:10:06.640 you know, it's likely that the torrid pace of inflation 0:10:06.679 --> 0:10:09.200 does ease a little bit through the course of this year, 0:10:09.720 --> 0:10:12.480 but it's going to take some time. Probably inflation gets 0:10:12.480 --> 0:10:16.680 worse as the housing price increases start to filter into 0:10:16.720 --> 0:10:20.120 the measured inflation numbers UM, as they've begun to do. 0:10:20.160 --> 0:10:22.000 It's probably gonna get a little bit worse before it 0:10:22.040 --> 0:10:25.360 actually gets better. Yeah, we would agree with that. And 0:10:25.360 --> 0:10:27.600 you know, the thing about goods inflation is that it 0:10:28.200 --> 0:10:31.160 tends not to be very high. Right, there's so much competition, 0:10:31.280 --> 0:10:34.520 so many brands out there competing for consumer dollars. Uh. 0:10:34.640 --> 0:10:36.920 Sticky inflation is what we really worry about. So we 0:10:37.000 --> 0:10:40.880 worry about um, you know, rents and wages in particular. 0:10:40.880 --> 0:10:42.960 And if you asked us about the one thing we're 0:10:42.960 --> 0:10:46.120 most focused on, it is that increase in labor costs 0:10:46.120 --> 0:10:48.480 because it's running at about four percent a year right now. 0:10:48.920 --> 0:10:51.839 And what we need is for the FED to do 0:10:51.920 --> 0:10:54.319 what it will do, which is raizor rates a bit. 0:10:54.720 --> 0:10:56.920 We need employers to do what they want to do, 0:10:57.120 --> 0:11:01.000 which is manage their costs and grow their prof fits um. 0:11:01.040 --> 0:11:03.600 And we need employees to come back to the workforce. 0:11:03.679 --> 0:11:05.959 And there are things that we're missing, right. We didn't 0:11:05.960 --> 0:11:08.960 have the normal mobility and immigration over the last couple 0:11:09.000 --> 0:11:11.280 of years, which is which is very important. We didn't 0:11:11.280 --> 0:11:13.440 have mobility of people be able to move from one 0:11:13.440 --> 0:11:16.000 place to another to take a job. UM. I think 0:11:16.040 --> 0:11:19.200 the flexibility that a lot of businesses are adopting are 0:11:19.200 --> 0:11:22.839 going to invite will invite people back to the workforce. UM. 0:11:22.880 --> 0:11:26.200 And we need productivity, which actually we've been living a 0:11:26.240 --> 0:11:29.520 productivity boom. That's how you recover corporate earnings and recover 0:11:29.840 --> 0:11:32.720 all the GDP that was lost without with fewer workers. 0:11:32.720 --> 0:11:34.920 We still have three million fewer workers. Joy. And you 0:11:34.960 --> 0:11:38.240 talk about pressure on prices, what about pressure on portfolio managers? 0:11:38.480 --> 0:11:40.360 Because in a world where you've got to or three 0:11:40.360 --> 0:11:42.960 present inflation, a five percent return every year on your 0:11:42.960 --> 0:11:45.480 portfolio looks pretty good. In a world of seven present inflation, 0:11:45.600 --> 0:11:48.040 it doesn't look so good. Do you have investors basically saying, 0:11:48.120 --> 0:11:51.360 wait a second, how can I keep up with this inflation? Yeah? 0:11:51.360 --> 0:11:53.840 That's obviously more of a problem for those heavily exposed 0:11:53.880 --> 0:11:56.480 to fixed income, right, and that's where there's gonna be 0:11:56.480 --> 0:11:59.040 a real challenge in keeping up. But you know, when 0:11:59.040 --> 0:12:02.560 you think about inflation and stock prices, you recognize that 0:12:02.640 --> 0:12:06.800 the source of inflation is coming from companies raising prices. 0:12:07.240 --> 0:12:09.480 They raise prices, that means their revenue goes up, that 0:12:09.480 --> 0:12:13.360 means their earnings go up, and you know, commensurately, stock 0:12:13.400 --> 0:12:15.400 prices tend to follow that. So there's a lot of 0:12:15.400 --> 0:12:19.520 protection in stock prices for inflation. Plus you can always 0:12:19.559 --> 0:12:22.920 direct your portfolio more towards the sort of companies that 0:12:22.960 --> 0:12:25.960 do better when inflation and instrates are higher. That could 0:12:26.000 --> 0:12:27.959 be banks, that could be real estate companies, that could 0:12:27.960 --> 0:12:30.880 be energy companies. So there are ways to build protection 0:12:30.960 --> 0:12:33.080 and we've been doing that for clients for for actually 0:12:33.160 --> 0:12:35.120 quite a while now. So which stocks do you like 0:12:35.280 --> 0:12:39.040 right now? Well, it depends on the sort of clients. 0:12:39.080 --> 0:12:41.480 So for the sort of more conservative client, we're looking 0:12:41.520 --> 0:12:44.360 for stocks that will deliver some dividend yield, for example, 0:12:44.720 --> 0:12:47.880 but it also can appreciate. So in the tech world, 0:12:47.920 --> 0:12:51.679 a company like Qualcom or Cisco for a safer play 0:12:51.679 --> 0:12:53.840 of Philip Morris that has a very high dividend yield. 0:12:53.840 --> 0:12:56.360 Than in the energy world, we like Chevron, we like 0:12:56.480 --> 0:12:59.040 Kinder Morgan. You know, the energy demand is going to 0:12:59.120 --> 0:13:03.800 continue to be strong because we do think the recovery continues. Plus, 0:13:03.840 --> 0:13:05.559 by the way, that adds a little bit of insurance 0:13:05.920 --> 0:13:09.960 against this uh, this Ukraine Russia situation. So Catherine, take 0:13:10.000 --> 0:13:11.200 a look at the rest of the year. As you 0:13:11.240 --> 0:13:13.240 look out, we can't know for sure what do you 0:13:13.240 --> 0:13:16.040 anticipate And for the rest of it's been a rough 0:13:16.080 --> 0:13:17.720 start to the year. I think it's fair to say 0:13:17.880 --> 0:13:21.640 I think I would say that we anticipated coming back 0:13:21.679 --> 0:13:23.880 to a new normal. And what do I mean by that. 0:13:24.360 --> 0:13:27.120 I mean that we will still have economic growth, but 0:13:27.160 --> 0:13:29.520 it will be lower than it was right maybe four 0:13:29.600 --> 0:13:32.920 percent this year in the US, we continue to think 0:13:32.960 --> 0:13:35.800 that stocks can do well, but it will be lower 0:13:35.840 --> 0:13:38.040 than they were doing the last three years, actually when 0:13:38.040 --> 0:13:41.840 the SMP five almost doubled. Um. We think that we 0:13:41.880 --> 0:13:44.640 will have inflation, but we think we will transition to 0:13:44.720 --> 0:13:48.559 a lower inflation rate. And in fact, the end point 0:13:48.559 --> 0:13:51.000 of inflation really matters because if you if you have 0:13:51.040 --> 0:13:54.400 inflation between three and four percent, you know over time 0:13:54.720 --> 0:13:56.959 markets can do very well. That's what That's what it's 0:13:57.000 --> 0:13:59.720 been for most of our careers. So the endpoint for 0:13:59.800 --> 0:14:02.679 an lation really matters. Thank you so very much to 0:14:02.840 --> 0:14:05.640 Katherine Keating of CEO of b n y Moan Wealth 0:14:05.679 --> 0:14:09.120 Management and Joanne Pheenie and she's portfolio manager at Adviser's 0:14:09.320 --> 0:14:11.520 Capital Management. Thank you so much for being with Wall 0:14:11.559 --> 0:14:18.439 Street Week today. Coming up, retail sales are back up, 0:14:18.840 --> 0:14:21.360 but how long will it last? And what's the next 0:14:21.440 --> 0:14:25.720 new thing in retail? We ask retail guru Mickey Drexler. 0:14:26.560 --> 0:14:31.640 I think so is the enemy of any retail. This 0:14:31.760 --> 0:14:36.920 is Wall Street Week on Bloomberg. This is Bloomberg Wall 0:14:36.960 --> 0:14:42.520 Street Week with David Weston from Bloomberg Radio. Everything seems 0:14:42.520 --> 0:14:46.200 like it's going up. I still worry about prices increasing, 0:14:46.520 --> 0:14:49.280 consumers spending. When it comes to the U. S. Economy, 0:14:49.320 --> 0:14:51.760 it's one of the main indicators of how we're doing. 0:14:52.160 --> 0:14:54.760 So after retail sales trailed off at the end of 0:14:54.840 --> 0:14:58.000 last year, we breathed a collective sigh of relief when 0:14:58.040 --> 0:15:02.320 they bounced back strongly up three point five percent in January, 0:15:02.360 --> 0:15:05.200 although some of that was really from inflation an a 0:15:05.200 --> 0:15:08.120 phenomenal basis. I say that very deliberately, of course, because 0:15:08.120 --> 0:15:11.360 we saw also inflation spike in the month of January, 0:15:11.400 --> 0:15:14.800 so we're not used to seeing these inflation and additional 0:15:14.880 --> 0:15:18.560 juiced sales in retail sales. And the rest of two 0:15:18.640 --> 0:15:21.840 maybe a challenging one for retailers as money from that 0:15:22.040 --> 0:15:27.400 child tax credit expires. We are concerned that the expiration 0:15:27.400 --> 0:15:30.160 of the child tax credit leaves millions of families without 0:15:30.240 --> 0:15:33.360 that added source of income that they really need to 0:15:33.360 --> 0:15:35.720 be able to support their families. Of course, it's not 0:15:35.760 --> 0:15:38.480 only about how much we shop, but also about how 0:15:38.520 --> 0:15:41.800 we shop with brick and mortar stores taking the biggest 0:15:41.840 --> 0:15:44.680 hit in commercial real estate from the pandemic. And I 0:15:44.680 --> 0:15:48.240 think there will be some conversions UM where possible away 0:15:48.280 --> 0:15:51.480 from uses that are not slighted by one in more 0:15:51.560 --> 0:15:56.160 retail being the top one even as online sales grew dramatically. 0:15:59.080 --> 0:16:00.920 And when it comes to roots, OH, there's really only 0:16:01.000 --> 0:16:02.960 one person we want to talk to, and that is 0:16:03.000 --> 0:16:05.960 Mickey Drexler. He founded made Well an old Navy, He 0:16:06.120 --> 0:16:08.520 ran the Gap and J Crew and built them into 0:16:08.600 --> 0:16:11.040 behemus in the retail industry. And we're delighted to have 0:16:11.080 --> 0:16:12.880 him on Wall Street Week now. Mickey, thank you so 0:16:12.960 --> 0:16:15.680 much for joining us. Let's start with this pandemic. How 0:16:15.720 --> 0:16:19.400 did it change the retail business? Well, I think it 0:16:19.560 --> 0:16:23.840 changed it pretty dramatically. I also think the changes were 0:16:23.960 --> 0:16:28.400 passed two way too many stores in America, which is 0:16:28.400 --> 0:16:34.040 no secret overstowed UH. Certainly healthy online business around UH. 0:16:34.080 --> 0:16:37.480 And I think it changed also, And I don't think 0:16:37.520 --> 0:16:41.600 it's the pandemic that there's so many companies now UH 0:16:41.880 --> 0:16:46.680 taking UH paying a lot of attention to statistics, I 0:16:46.760 --> 0:16:52.440 think more than UH, more than merchandise. Lastly, I find 0:16:52.480 --> 0:16:56.440 it difficult UH that many companies in my industry, at 0:16:56.480 --> 0:17:00.560 least for them, are not going into an office every 0:17:00.640 --> 0:17:05.560 day when it's critically important to see and touch merchandise. 0:17:06.280 --> 0:17:08.040 But I think it's changed it that way. I think 0:17:08.240 --> 0:17:12.880 clearly changed the way people addressed for the last year 0:17:12.960 --> 0:17:17.040 or two, and this changes, dramatic change is always going on. 0:17:17.720 --> 0:17:19.720 For a year, we've been up against what I called 0:17:19.760 --> 0:17:25.360 a snowstorm easy year one, up against really bad numbers, 0:17:26.160 --> 0:17:30.320 and I felt that starting this month February, that it 0:17:30.359 --> 0:17:34.840 would get tougher again because the numbers aren't easy. People 0:17:34.880 --> 0:17:38.400 all had pretty good years, actually surprisingly good, but they 0:17:38.400 --> 0:17:41.439 really weren't that surprising if you figure what they were 0:17:41.560 --> 0:17:45.360 up against. Uh the money stopped flowing from the government. 0:17:46.119 --> 0:17:50.440 UH more difficult figures. And at the end of the day, 0:17:50.480 --> 0:17:53.480 for me and always has been, I think the merchandise 0:17:53.600 --> 0:17:57.159 matters the most. Business. What I hear, because you know, 0:17:57.359 --> 0:18:00.159 I'm a small part of it, what I hear is 0:18:00.240 --> 0:18:04.399 quite challenging and difficult. In February, and perhaps part of 0:18:04.840 --> 0:18:11.399 January supply chain issues. Price of cotton has gone up, 0:18:11.640 --> 0:18:16.520 I think about UH freight, so it's caused a lot 0:18:16.560 --> 0:18:20.440 of inflation in our out business, and I think obviously 0:18:20.720 --> 0:18:24.320 in the retail business, so it's not easier. I think 0:18:24.320 --> 0:18:27.840 we're headed for much more difficult times. But by nature 0:18:28.000 --> 0:18:31.480 I'm always pessimistic. Making Let me pick up on one 0:18:31.480 --> 0:18:34.119 thing you've been talking about, and that is seeing and 0:18:34.160 --> 0:18:36.600 feeling the merchandise. I know you, I know the kind 0:18:36.600 --> 0:18:38.760 of retailer you are. You would walk around your stores 0:18:38.800 --> 0:18:41.240 and get a real sense of the merchandise and the 0:18:41.240 --> 0:18:44.320 interaction with people. How does that survive in an online 0:18:44.440 --> 0:18:47.760 AI world where artificial intelligence, they're big data things like that, 0:18:47.960 --> 0:18:50.920 or is that a thing in the past. If it 0:18:51.119 --> 0:18:54.840 is the companies, I think, look, it's it's about product. 0:18:55.200 --> 0:18:58.399 It's the only thing I know. Our business is extremely 0:18:58.560 --> 0:19:01.639 song because you know we're small. But I sit with 0:19:01.680 --> 0:19:04.480 the merchants every day. I sit with design, not because 0:19:04.520 --> 0:19:06.680 I'm the one with all the answers, because I've been 0:19:06.680 --> 0:19:08.560 there and done it. I've seen the movie a lot, 0:19:08.880 --> 0:19:11.840 and I've made every mistake in the book. The very 0:19:11.880 --> 0:19:13.920 young people kind of think when I make a mistake, 0:19:14.160 --> 0:19:16.480 they like to repeat that I made a mistake. I like. 0:19:17.320 --> 0:19:21.320 But in retail, predicting what's going to sell is a 0:19:21.359 --> 0:19:23.359 really important part of it. And the other thing is 0:19:23.960 --> 0:19:26.720 knowing what's kind of a day and day have. This 0:19:26.920 --> 0:19:30.280 is year to year, but I think, uh, you can't 0:19:30.359 --> 0:19:34.760 be there in my opinion, without being and watching the 0:19:34.800 --> 0:19:39.680 goods and business spontaneity, a creativity that happens. I met 0:19:39.680 --> 0:19:41.640 a woman the other day who works in a company 0:19:41.680 --> 0:19:45.920 fifteen people, uh, no office at all, and I said, 0:19:45.960 --> 0:19:48.239 how can you run a retail business where you're not 0:19:48.680 --> 0:19:52.880 uh looking and communicating? It's not just merchandise. I think, 0:19:52.880 --> 0:19:55.919 I don't know the finances of your world, but I 0:19:55.960 --> 0:20:00.600 know in my world, Uh, the creativity flows regularly. You 0:20:00.600 --> 0:20:04.000 can get an idea anywhere, any place, at any time 0:20:04.400 --> 0:20:07.959 based on what excites you, simulates you, or gives you 0:20:08.080 --> 0:20:11.359 a bigger imagination. It's really great to have you with this, Mickey, 0:20:11.400 --> 0:20:13.280 But as I say, the one man we always want 0:20:13.280 --> 0:20:18.119 to hear from on retail that is Mickey Drexler. Coming up, 0:20:18.160 --> 0:20:20.600 we wrap up the week with our special contributor Larry 0:20:20.680 --> 0:20:26.200 Summers of Harvard. This is Wall Street Week on Bloomberg. 0:20:31.119 --> 0:20:35.120 This is Bloomberg Wall Street Week with David Weston from 0:20:35.240 --> 0:20:38.119 Bloomberg Radio. This is Wall Street Week. I'm David Weston, 0:20:38.200 --> 0:20:40.640 and we're joined once again by our very special contributor 0:20:40.720 --> 0:20:43.640 Larry Summers of Harvard. Larry, one of the things we've 0:20:43.680 --> 0:20:47.840 talked about is inflation, but very specifically, are the supply 0:20:47.920 --> 0:20:50.000 chain problems we're all seeing are they a cause of 0:20:50.040 --> 0:20:52.760 the effect. A friend of Yours Mind and the Program, 0:20:52.880 --> 0:20:54.760 Steve Rattner had a column New York Times to Day 0:20:54.880 --> 0:20:58.360 basically saying supply chain is a symptom, it's not the disease. 0:20:58.400 --> 0:21:00.440 What did you make of it? I think Steve broadly 0:21:00.520 --> 0:21:05.560 right in distilling what serious economists believe. First of all, 0:21:06.080 --> 0:21:09.240 the most of the goods where there's a bottleneck are 0:21:09.280 --> 0:21:14.400 having abnormally large quantity, not abnormally small quantity. So obviously 0:21:14.440 --> 0:21:16.679 if you have a big increase in demand, you're going 0:21:16.760 --> 0:21:21.080 to encounter capacity limits. Second, what the supply chain people 0:21:21.240 --> 0:21:25.000 ignore is that if more money is being spent, for example, 0:21:25.040 --> 0:21:28.920 on used cars, yes, that's associated with higher used car prices, 0:21:29.000 --> 0:21:31.560 but it means less money is being spent on other things, 0:21:31.840 --> 0:21:37.280 and so it means less inflation in uh those sectors. 0:21:37.320 --> 0:21:41.200