WEBVTT - Tesla Growth Story May Be Shifting To Solvency Story 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg PENL Podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Waits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:25.119 at Bloomberg dot com. Tesla's shares absolutely tumbling to the 0:00:25.120 --> 0:00:29.040 lowest levels since two sixteen, tumbling below two dollars for 0:00:29.080 --> 0:00:31.920 the first time in more than two years. A former 0:00:32.080 --> 0:00:36.720 Tesla bulla said that Frankly, Elon Musk faces code read 0:00:36.800 --> 0:00:39.680 Joining us now is David Coudla, his chief executive officer 0:00:39.720 --> 0:00:43.959 in chief investment strategist at Mainstay Capital Management. I want 0:00:44.000 --> 0:00:46.960 to start with Tesla just to get your sense. Do 0:00:47.040 --> 0:00:50.600 you think right now that Tesla faces a tipping point 0:00:51.240 --> 0:00:54.120 where we really are going to see the shares going 0:00:54.200 --> 0:00:57.640 to free fall. I think they're already in free fall. 0:00:57.720 --> 0:01:01.880 Good morning. I think that, uh, you know, there's a 0:01:01.880 --> 0:01:04.560 couple of factors impacting the stock right now that have 0:01:04.760 --> 0:01:09.560 caused really a precipitous free fault from the two sixty 0:01:10.480 --> 0:01:14.720 seven level that that it was holding at several weeks ago. 0:01:15.920 --> 0:01:18.720 But the you know, when they came out with the 0:01:19.080 --> 0:01:21.479 kind of pull out all the stops cost cutting plan, 0:01:22.640 --> 0:01:25.039 that was kind of the code read condition. I think 0:01:25.040 --> 0:01:30.800 that the web Bush Securities uh letter or report referred 0:01:30.800 --> 0:01:34.640 to and and it's uh, it's I think that we're 0:01:34.640 --> 0:01:39.480 really just seeing the story continue to unravel. Uh, it's 0:01:39.520 --> 0:01:44.600 more than just the demand uh that continues to demand 0:01:44.840 --> 0:01:48.760 diminish for all models of the of Tesla vehicles that 0:01:48.800 --> 0:01:52.000 we talked about earlier this year. We're just we're just 0:01:52.040 --> 0:01:56.440 seeing that, you know, the liquidity and solvency issues, you know, 0:01:56.520 --> 0:01:59.040 coming back to the floor. So, David, are you of 0:01:59.080 --> 0:02:01.800 the opinion that Tesla is going to need to come 0:02:01.840 --> 0:02:07.080 back for more capital, maybe sooner rather than later. Well, 0:02:07.400 --> 0:02:10.560 you know they just did, right, they just had become 0:02:11.120 --> 0:02:13.040 in addition to that two point three billion that they 0:02:13.080 --> 0:02:15.120 just read, they say that's going to get into free 0:02:15.120 --> 0:02:17.440 cash flow positive. Are you in that park? Are you 0:02:17.480 --> 0:02:20.880 in that uh? Do you think that's correct? Or do 0:02:20.880 --> 0:02:23.720 you think they're gonna have to even come back again? Well, 0:02:23.720 --> 0:02:27.720 they probably will. You know, there's there's the school of 0:02:27.720 --> 0:02:31.239 thought out there that uh, they may they may be, 0:02:31.600 --> 0:02:34.320 if they may be constantly coming back to the capital 0:02:34.320 --> 0:02:38.200 markets to stay in business, if they can't build and 0:02:38.240 --> 0:02:42.000 sell enough vehicles to to achieve profitability, and that's the 0:02:42.040 --> 0:02:45.320 real question at this point. We question if they'll have 0:02:45.440 --> 0:02:49.680 a profitable quarter anytime this year and if if they 0:02:49.680 --> 0:02:54.919 can't achieve profitability at some point. Um, you know, it's 0:02:54.919 --> 0:02:58.240 not about a growth story anymore, it's about a solvency story. 0:02:58.600 --> 0:03:02.560 Tesla shares are currently down four point six per cent, 0:03:02.760 --> 0:03:05.640 so off the earlier lows, but still a pretty pretty 0:03:05.680 --> 0:03:09.800 rough day, especially after Friday's decline of seven point six percent. 0:03:09.880 --> 0:03:12.560 I want to shift gears to Ford because they announced 0:03:12.560 --> 0:03:15.800 that they were cutting seven thousand jobs in order to 0:03:16.800 --> 0:03:19.680 right size its business model or basically cut some of 0:03:19.720 --> 0:03:23.680 its management trim costs to increase profitability. Does this cause 0:03:23.720 --> 0:03:26.080 a surprise, especially given the fact that this is part 0:03:26.120 --> 0:03:30.720 of the restructuring announcements that they made last fall. No, 0:03:30.760 --> 0:03:36.560 not at all. It's it's interesting, Um, you know, we 0:03:36.560 --> 0:03:41.360 we had last fall a big announcement by General Motors 0:03:41.480 --> 0:03:46.080 of what was coming when they had their head count reduction. 0:03:46.880 --> 0:03:50.040 We didn't have that out of Ford. We had they 0:03:50.080 --> 0:03:53.520 had UM made reference to it, but we didn't have 0:03:53.600 --> 0:03:56.960 the detail. But that has been an evolutionary process. We've 0:03:57.000 --> 0:03:59.480 been talking about this with clients for months and working 0:03:59.480 --> 0:04:03.640 with our ants. It started at the highest tiers of management, 0:04:04.240 --> 0:04:07.200 uh several months ago, and they've been working through each 0:04:07.440 --> 0:04:10.560 each of the tiers of management down to the rank 0:04:10.640 --> 0:04:13.640 and file workers in the in the salary workforce. And 0:04:13.680 --> 0:04:17.080 we're actually now in the final stretch of that. Uh. 0:04:17.120 --> 0:04:19.200 You know, when this letter came out from Jim Hackett, 0:04:19.240 --> 0:04:21.920 when we've seen all the details as part of their 0:04:21.960 --> 0:04:26.000 global restructuring plan, you know, a multi year plan uh 0:04:26.080 --> 0:04:32.440 two of globally restructuring the corporation that in that seven 0:04:32.440 --> 0:04:40.000 thousand jobs cut globally, those in North America. Uh, some 0:04:40.040 --> 0:04:43.279 of those already accomplished fifteen hundred through the voluntary buyouts 0:04:43.880 --> 0:04:48.039 last year, and now these layoffs that have been happening 0:04:48.080 --> 0:04:51.960 through through this year already really really now it's just 0:04:52.080 --> 0:04:55.520 now we're hearing this big announcement of five hundred people 0:04:55.520 --> 0:04:58.160 that will be notified tomorrow. But this has been an 0:04:58.200 --> 0:05:01.839 evolutionary process that's been ha for months. So David, you know, 0:05:02.000 --> 0:05:05.599 there's only and there's obviously I'm sure a fair amount 0:05:05.600 --> 0:05:07.320 of costs that can be cut across you know, the 0:05:07.839 --> 0:05:09.920 global auto industry. But at some point they're gonna have 0:05:09.960 --> 0:05:12.599 to really start driving top line growth. Where do you 0:05:12.600 --> 0:05:15.960 think growth for Ford and maybe for GM can come from. 0:05:16.040 --> 0:05:18.240 Is it simply new products or do they have to 0:05:18.279 --> 0:05:20.479 go to new markets? Do you see a top line 0:05:20.480 --> 0:05:24.000 growth story for Ford? I think there is a top 0:05:24.040 --> 0:05:27.400 line growth story. I think that they've demonstrated that they 0:05:27.440 --> 0:05:30.960 continue to do well in the legacy business, and we 0:05:30.960 --> 0:05:33.960 we separate the business now the auto industry into two, 0:05:34.040 --> 0:05:37.039 the legacy business and the future of mobility and the 0:05:37.120 --> 0:05:45.400 legacy business of crossovers SUVs. In in the segments of crossovers, SUVs, trucks, 0:05:45.480 --> 0:05:49.279 they've done very well UH this year and their stock 0:05:49.360 --> 0:05:54.080 price reflects that with the gains in Ford stock in teen. 0:05:54.160 --> 0:05:57.440 It's been an outperformer in the UH in the segment 0:05:57.560 --> 0:06:01.799 and relatively S and P five, it's been a tremendous performer. 0:06:02.200 --> 0:06:04.440 And if we look at, you know, what's coming in 0:06:04.440 --> 0:06:07.840 addition to this global restructuring, what's coming in terms of 0:06:07.880 --> 0:06:13.799 autonomous UH, their UH, their investment in riviewing, their investment 0:06:13.880 --> 0:06:15.960 in their own investments and autonomous and some of the 0:06:15.960 --> 0:06:22.679 partnerships that they're working with Toxic UH, other automakers we're seeing. 0:06:22.720 --> 0:06:26.200 We're seeing that the some vision, that strategic vision out 0:06:26.200 --> 0:06:29.560 Afford UH and Auto two point out that we think 0:06:29.600 --> 0:06:32.400 the growth is there as they shore up their operations 0:06:32.440 --> 0:06:36.240 around the world for profitability and that davidising Business David Goodla, 0:06:36.320 --> 0:06:38.360 thank you so much for being with us, chief executive 0:06:38.360 --> 0:06:55.320 officer and chief investment strategistic mainstay Capital Management. Let's turn 0:06:55.360 --> 0:06:58.039 our focus to Deutsche Bank shares now at an all 0:06:58.160 --> 0:07:01.560 time record low. UH. There are a lot of reasons 0:07:01.600 --> 0:07:05.240 why people downgrading their profitability forecasts, the Commerce bank tie 0:07:05.279 --> 0:07:10.000 up that failed, but there also are some regulatory issues, 0:07:10.120 --> 0:07:15.880 money laundering concerns, management issues with how these issues are treated. 0:07:16.040 --> 0:07:19.120 And joining us here is Elliot Stein. He's senior litigation 0:07:19.160 --> 0:07:22.600 analyst for Bloomberg Intelligence. So Elliott I want to start 0:07:22.680 --> 0:07:26.440 with his New York Times story outlining how there were 0:07:26.520 --> 0:07:29.400 some bank who are tasked with the anti bank staff, 0:07:29.560 --> 0:07:32.360 who are tasked with the anti money laundering responsibilities, that 0:07:32.400 --> 0:07:35.520 flagged suspicious transactions related to President Trump and his son 0:07:35.520 --> 0:07:39.520 in law Jared Kushner, and that senior management didn't take 0:07:39.560 --> 0:07:42.920 them up on it. What did you make of the story. So, 0:07:43.080 --> 0:07:46.640 I think it's important to remember the context here in 0:07:46.680 --> 0:07:51.800 Deutsche Bank has been under cloud of money laundering investigations 0:07:51.840 --> 0:07:56.240 for a while. UM. They settled in seen with the 0:07:56.240 --> 0:07:59.280 New York Department Financial Services and the Federal Reserve over 0:07:59.400 --> 0:08:04.640 money launder issues, including transactions in Russia. UM. But what's 0:08:04.680 --> 0:08:06.600 interesting is that they did not settle with the Justice 0:08:06.640 --> 0:08:09.760 Department at that time, and so when that happened, UM, 0:08:09.800 --> 0:08:13.960 we expected that there would be continued investigations by d 0:08:14.000 --> 0:08:17.239 o J and ultimately settlements or fines at some point. 0:08:17.720 --> 0:08:21.560 What's happening now is that every time you see more 0:08:21.680 --> 0:08:25.840 links between Deutsche Bank and Trump related investigations, it adds 0:08:25.840 --> 0:08:29.240 a further cloud to those ongoing investigations, and as we 0:08:29.280 --> 0:08:32.360 saw the market react today, it adds to the headline 0:08:32.440 --> 0:08:35.120 risk for the bank. So what is the materiality in 0:08:35.160 --> 0:08:39.079 your perspective of some of these continuing money laundering issues 0:08:39.200 --> 0:08:43.200 for the company. Well, so overall, we based on their 0:08:43.520 --> 0:08:46.880 UM find the amount of their fins in tween UM 0:08:47.000 --> 0:08:51.840 and UM when they settled UH investigations related to sanctions 0:08:51.960 --> 0:08:56.280 violations which are similar but not exactly the same, we 0:08:56.320 --> 0:08:59.800 expect their ultimate UM exposure at this point to be 0:09:00.120 --> 0:09:02.840 to a billion dollars based on the amounts they paid 0:09:02.880 --> 0:09:05.520 to New York authorities. And we looked at um how 0:09:05.600 --> 0:09:08.880 much d J settlements usually are as a ratio compared 0:09:08.920 --> 0:09:11.199 to the New York settlements. Um, it could be a 0:09:11.200 --> 0:09:14.199 little lower than that. But you know, there's additional materiality 0:09:14.240 --> 0:09:17.720 going to your question, Paul, Um, if management in the 0:09:17.800 --> 0:09:23.280 bank intentionally suppressed suspicious activity reports because they wanted to 0:09:23.360 --> 0:09:28.200 keep Donald Trump's business, it does raise questions of intentionality. 0:09:28.760 --> 0:09:33.560 Um and uh, that could make an ultimate penalty worse. 0:09:34.400 --> 0:09:36.800 Just to put this in perspective, because you bring some 0:09:36.880 --> 0:09:39.400 really interesting insights here, the idea that the d o 0:09:39.520 --> 0:09:42.240 J did not sign off on an anti money laundering 0:09:42.280 --> 0:09:46.240 type of settlement with Deutsche Bank. How long has this 0:09:46.320 --> 0:09:50.360 gone on and when do people expect that to wrap up? Well, 0:09:50.679 --> 0:09:53.240 that's a great question, and as with almost all d 0:09:53.320 --> 0:09:56.000 o J investigations, you never really know what the timeline 0:09:56.040 --> 0:09:58.160 is because there's just not a lot of transparency. So 0:09:58.200 --> 0:10:00.400 I'm a little surprised that it's been going on for 0:10:00.480 --> 0:10:02.800 this long. I do think that maybe the Trump related 0:10:02.840 --> 0:10:07.080 investigations add a complication to these investigations that we haven't 0:10:07.120 --> 0:10:10.400 seen in you know, ever before when you have the president, 0:10:10.679 --> 0:10:13.320 um as part of these probes as well. UM, So 0:10:13.360 --> 0:10:16.959 we don't have a firm timeline. UM. So unfortunately I 0:10:16.960 --> 0:10:18.880 can't give you a better answer. So what's what's been 0:10:18.920 --> 0:10:21.240 the response from Deutsche Bank? It just seems like it's 0:10:21.280 --> 0:10:24.120 been years and years. I mean, you know, do they 0:10:24.160 --> 0:10:26.800 have any specific response to the latest allegations or is 0:10:26.800 --> 0:10:29.400 it just like we're trying to get our house in order. 0:10:29.880 --> 0:10:31.520 You know, yeah, I know a lot of it is that, 0:10:31.640 --> 0:10:34.320 and that they have taken remediation measures UM, and they've 0:10:34.320 --> 0:10:39.199 bolstered their compliance UM procedures. Uh. Their response in the 0:10:39.200 --> 0:10:43.400 New York Times article was that, UM, no person was 0:10:43.480 --> 0:10:47.280 ever restricted from escalating the issue. Further, of course, that 0:10:47.320 --> 0:10:52.000 doesn't necessarily absolve them if management decided to suppress the 0:10:52.200 --> 0:10:55.440 s a R S for nefarious reasons. We should just 0:10:55.480 --> 0:11:00.520 note that President Trump did tweet about the story this morning, uh, 0:11:00.800 --> 0:11:05.240 saying basically that it is fake news and talking about 0:11:05.320 --> 0:11:09.559 how the mainstream media is the true enemy of the people. Uh. 0:11:09.640 --> 0:11:11.480 So he was just saying, you know, the failing New 0:11:11.559 --> 0:11:14.560 York Times keep writing phony stories about how I didn't 0:11:14.600 --> 0:11:16.440 use money banks because they didn't want to do business 0:11:16.440 --> 0:11:18.520 with me. Wrong, it is because I didn't need money 0:11:18.679 --> 0:11:21.720 very old. So he is coming out against it. Just 0:11:21.760 --> 0:11:24.360 real quick, just your real quick here, Elliot. I'm wondering 0:11:24.360 --> 0:11:27.079 from your perspective, do you actually think that the shares 0:11:27.120 --> 0:11:29.679 are falling in light of this story or is it 0:11:29.720 --> 0:11:33.240 other issues? Well? I think there are multiple issues going 0:11:33.280 --> 0:11:35.600 on in the news. Um. You you alluded to some 0:11:35.640 --> 0:11:38.480 of them at the outset um. But I do think 0:11:38.559 --> 0:11:41.520 that every time you see these stories surface about Deutsche 0:11:41.520 --> 0:11:45.160 banks money laundering risks, it reminds the market that these 0:11:45.280 --> 0:11:48.679 issues are still outstanding, that we still expect a pecuniary 0:11:48.800 --> 0:11:51.520 fine at some point, and that there may be ongoing issues. 0:11:52.160 --> 0:11:54.160 Elliot Stein, thank you so much for joining us. Ellie 0:11:54.240 --> 0:11:57.440 is a senior litigation animals for Bloomberg Intelligence, joining us 0:11:57.480 --> 0:12:14.599 here in our Bloomberg eleven three oh studio. Well, we 0:12:14.720 --> 0:12:18.839 saw it beyond meat. The fact that there shares absolutely 0:12:19.000 --> 0:12:23.720 skyrocketed more than doubling after the initial public offering recently, 0:12:23.760 --> 0:12:27.160 it just shows how much demand there is for alternative 0:12:27.360 --> 0:12:30.640 food sources, for new ways to think about what we 0:12:30.679 --> 0:12:33.160 eat and how we eat. Joining us now is someone 0:12:33.160 --> 0:12:36.000 who invests in early stage companies that are trying to 0:12:36.160 --> 0:12:40.200 rethink the food that we eat here in America and worldwide. 0:12:40.240 --> 0:12:43.480 Jordan Gasper, she's managing partner of Excel Foods based in 0:12:43.559 --> 0:12:45.400 New York. Jordan, thank you so much for joining us 0:12:45.400 --> 0:12:47.920 here in a Bloomberg Interactive broker Studios. So why don't 0:12:47.920 --> 0:12:50.440 you just tell us what kinds of companies you actually 0:12:50.520 --> 0:12:53.600 invest in? Great, thank you so much for having me. UM. 0:12:53.640 --> 0:12:55.959 So we are a venture fund that's solely investment package 0:12:56.000 --> 0:12:57.880 food and beverage brands that are better for you, so 0:12:57.920 --> 0:13:01.160 all healthy living directed brands. UM. We have thirty six 0:13:01.200 --> 0:13:04.160 active portfolio companies and we typically invest in eight to 0:13:04.240 --> 0:13:07.199 ten new companies a year, and we can participate as 0:13:07.480 --> 0:13:11.960 those companies raise capital many times over as they grown. UM. 0:13:12.040 --> 0:13:15.120 The companies range in size from pre revenue to over 0:13:15.120 --> 0:13:17.640 a hundred million revenue UM and so it's a wide 0:13:17.720 --> 0:13:20.480 range of the different types of companies that we see. UM. 0:13:20.520 --> 0:13:23.520 All of them are available in distribution. They can be 0:13:23.520 --> 0:13:27.040 purchased at Whole Foods or car Toss Costco or Target 0:13:27.120 --> 0:13:29.920 or Walmart UM. But all of the usual places that 0:13:29.960 --> 0:13:32.520 we would hope to see great products like this. So 0:13:32.520 --> 0:13:35.440 what's maybe one of the cool one or two companies 0:13:35.440 --> 0:13:37.800 that you think is really kind of a unique story 0:13:38.000 --> 0:13:42.360 in your portfolio. Family Foods. You know, it's a company 0:13:42.440 --> 0:13:45.480 that's a Mexican American brand that has come up very 0:13:45.520 --> 0:13:48.520 quickly in the space. UM. It's a family owned company 0:13:48.520 --> 0:13:51.640 that recently took in its first investors. UM. We're very 0:13:51.640 --> 0:13:54.640 proud to be part of the company, and they really 0:13:54.640 --> 0:13:58.560 have an authentic story as they're creating the next generation 0:13:58.840 --> 0:14:01.400 of Latin foods. UM. And we think about, you know, 0:14:01.440 --> 0:14:06.240 products like chips and tortillas and taco shells. We haven't 0:14:06.280 --> 0:14:09.040 seen that much innovation in those categories. And so here 0:14:09.040 --> 0:14:13.360 we have grain free chips, we have dairy free casos, 0:14:13.480 --> 0:14:17.000 we have grain free taco shells. It's a totally different 0:14:17.080 --> 0:14:19.360 spin on what are staples that are in all of 0:14:19.360 --> 0:14:21.840 our diets. One thing that you were just saying off 0:14:21.920 --> 0:14:25.200 air was that those processed foods and the foods that 0:14:25.240 --> 0:14:28.520 we grew up with are not going to exist in 0:14:28.560 --> 0:14:31.040 the near future. What do you mean by that? So 0:14:31.120 --> 0:14:33.040 I think that it's important to understand that there's two 0:14:33.120 --> 0:14:36.520 different types of changes that are happening simultaneously in the space. 0:14:37.120 --> 0:14:39.320 The first is is we have a huge amount of 0:14:39.360 --> 0:14:41.760 authentic young brands that are coming into the space very 0:14:41.800 --> 0:14:45.320 quickly and scaling, and they're they're the the companies that 0:14:45.360 --> 0:14:48.400 are securing the shelf space at the major retailers. So 0:14:48.440 --> 0:14:51.600 those are you know, young brands that are telling different 0:14:51.640 --> 0:14:55.080 stories and have unique products. On the flip side, the 0:14:55.080 --> 0:14:58.920 incumbents are reformulating their holdings and so we're seeing the 0:14:59.080 --> 0:15:02.080 organic version of this or the better for you version 0:15:02.120 --> 0:15:05.480 of that, and their substitutions and the basic ingredients that 0:15:05.960 --> 0:15:10.280 processed foods are coming out as we're seeing um, you know, 0:15:10.400 --> 0:15:14.080 sort of better quality ingredients substituted. So you're talking about 0:15:14.200 --> 0:15:18.960 the cokes, the pepsis the proctor gamble is whoever creates 0:15:19.000 --> 0:15:22.560 food and puts it out their craft craft highs. You 0:15:22.600 --> 0:15:25.400 said also that some of the end games for some 0:15:25.480 --> 0:15:27.920 of these companies that you invest in might be acquisitions 0:15:27.960 --> 0:15:31.480 by some of these larger companies. How quickly is that happening, 0:15:31.520 --> 0:15:35.320 because it seems like right now there's still are a 0:15:35.400 --> 0:15:37.360 lot of processes, there's still are a lot of foods 0:15:37.360 --> 0:15:40.240 that you know, are familiar from ten twenty years ago 0:15:40.440 --> 0:15:43.720 still on the shelves. So it's happening very quickly. UM, 0:15:43.720 --> 0:15:45.760 and I think that from our perspective, our hope is 0:15:45.760 --> 0:15:48.600 is that all of our companies get acquired. So I'd 0:15:48.680 --> 0:15:51.640 say that, you know it, there's been more capital direct 0:15:51.680 --> 0:15:53.800 into the space than ever before. You know, we've seen 0:15:54.120 --> 0:15:56.560 a lot of institutional capital coming very quickly, which is 0:15:56.560 --> 0:15:58.480 a good sign that will have more and more brands 0:15:58.520 --> 0:16:00.960 that will grow larger because they'll have this sufficient capital 0:16:01.000 --> 0:16:05.240 to do so. UM. The strategics are more inquisitive, they 0:16:05.240 --> 0:16:08.840 are more excited and interested in partnering with young brands. UM. 0:16:08.840 --> 0:16:11.120 We certainly hear from most of them, and they all 0:16:11.280 --> 0:16:13.920 know let us know that they're excited to get involved 0:16:13.920 --> 0:16:16.040 in the space with earlier stage companies in a variety 0:16:16.040 --> 0:16:19.240 of different ways, whether it be funding them, acquiring them, 0:16:19.320 --> 0:16:22.400 or operationally assisting them. There's been the launch of many 0:16:22.480 --> 0:16:26.360 of these accelerator programs UM the venture capital arms. But 0:16:26.400 --> 0:16:29.600 there's also behind the scenes, there's the use of their resources, 0:16:29.640 --> 0:16:32.040 which is something that's pretty unique. And so some of 0:16:32.040 --> 0:16:34.400 these strategics will say, I've got trucks that can be 0:16:34.480 --> 0:16:37.680 used for distribution, or i have line time and manufacturing 0:16:37.720 --> 0:16:40.240 that can be used. So they're getting creative because they 0:16:40.280 --> 0:16:43.120 recognize that that the future of their businesses is in 0:16:43.200 --> 0:16:45.920 these young brands. Are there any food or maybe what's 0:16:45.960 --> 0:16:49.120 the next food category, or are there any food categories 0:16:49.520 --> 0:16:53.200 that haven't really innovated that we're there. You know, there's 0:16:53.240 --> 0:16:55.320 no new products, there's nothing there that you kind of 0:16:55.320 --> 0:16:57.720 think it might be interesting that it may be kind 0:16:57.720 --> 0:17:01.040 of approaching your firm for funding. UM. So we're big, 0:17:01.040 --> 0:17:03.280 big believers in grain free right now. It's the next 0:17:03.320 --> 0:17:07.000 evolution of gluten free and obviously the nutritional panel is 0:17:07.040 --> 0:17:10.119 just better for you UM, particularly in baked goods. UM. 0:17:10.160 --> 0:17:11.800 One of the things that you know, we've been excited 0:17:11.840 --> 0:17:14.840 about is, you know, baked goods have been pretty stale. UM. 0:17:14.920 --> 0:17:17.480 They haven't been good for you. I'm highly processed a 0:17:17.480 --> 0:17:20.480 lot of sugar, and we're seeing companies like Susie's, which 0:17:20.520 --> 0:17:23.560 is one of our portfolio companies that actually is a 0:17:23.840 --> 0:17:27.040 more paleo minded product, but it's almond based and so 0:17:27.119 --> 0:17:30.560 the panels actually clean UM and you know, there's better 0:17:30.640 --> 0:17:33.800 quality ingredients, more mindfulness in it, and so it's reflected 0:17:33.840 --> 0:17:35.480 and even in the way that the product has to 0:17:35.480 --> 0:17:39.200 be distributed, it's a frozen product because the ingredients aren't 0:17:39.200 --> 0:17:42.159 able to sit on shell for many, many weeks. Is 0:17:42.200 --> 0:17:45.480 this a regional issue? In other words, are these products 0:17:45.680 --> 0:17:48.119 being adopted on the coasts and then everywhere else in 0:17:48.160 --> 0:17:50.359 the United States? Not so much. I would have said 0:17:50.400 --> 0:17:52.560 that a couple of years ago. But if we look 0:17:52.600 --> 0:17:55.119 at one of our companies, Alpha Foods, which is our 0:17:55.160 --> 0:17:58.800 own plant protein company UM they launched last year as 0:17:58.840 --> 0:18:01.440 their first year, and all of the major retailers came 0:18:01.440 --> 0:18:06.040 in quickly, so it was Walmart, Target, Costco, Kroger, and 0:18:06.160 --> 0:18:09.000 it was all at once. So we saw mass and 0:18:09.000 --> 0:18:12.560 conventional move faster and natural then fascinating story. It's not 0:18:12.640 --> 0:18:15.520 just the uh the I p O of beyond meat, 0:18:15.560 --> 0:18:18.320 it's kind of all across the food spectrum and lots 0:18:18.359 --> 0:18:21.480 of cattle being allocated to that. Jordan Gaspar thank you 0:18:21.520 --> 0:18:23.800 so much for joining us. Jordan's managing partner of US 0:18:23.800 --> 0:18:26.199 Sell Foods based here in New York City, joining us 0:18:26.200 --> 0:18:45.240 in our Bloomberg Interactive Broker studio. Well. As a trade 0:18:45.280 --> 0:18:48.760 war escalates and terrorists flight back and forth between China 0:18:48.800 --> 0:18:52.800 and the US, China's textile industry looks particularly vulnerable, as 0:18:52.840 --> 0:18:55.280 the US is its biggest buyer. To get a sense 0:18:55.320 --> 0:18:57.880 of how big a deal this possibly could be. We 0:18:57.880 --> 0:19:01.040 welcome our next guest, Edward Hertzman. Word is the founder 0:19:01.080 --> 0:19:03.520 and president of Sourcing Journal, based here in New York City. 0:19:03.560 --> 0:19:07.160 He joins us in our Bloomberg Interactive Broker studio. Edward, 0:19:07.160 --> 0:19:10.720 thanks for joining us. When I think terrorifts on clothes 0:19:10.760 --> 0:19:15.000 and apparel, I'm thinking this is a big deal potentially. Yeah. 0:19:15.040 --> 0:19:18.720 I don't think anyone really realizes how um significant this 0:19:18.800 --> 0:19:23.600 can be. Too. Already a very fragile industry. Um, you're 0:19:23.600 --> 0:19:26.399 talking about when when we look at China, Uh, it 0:19:26.400 --> 0:19:30.080 accounts for almost fort of the exports of clothing, almost 0:19:30.080 --> 0:19:34.000 seventy of the exports for footwear, and and roughly around 0:19:34.760 --> 0:19:38.840 the exports for accessories coming into this country. So you're 0:19:38.880 --> 0:19:41.680 talking a lot of product made by a lot of retailers, 0:19:42.440 --> 0:19:45.960 which there isn't really a lot of places for people 0:19:46.000 --> 0:19:47.480 to go in a short you know, in a short 0:19:47.480 --> 0:19:50.960 period of time to mitigate this risk. So, um, this 0:19:51.000 --> 0:19:52.760 is going to have a real big impact Q three 0:19:52.760 --> 0:19:54.960 in Q four if it does happen. So how how 0:19:54.960 --> 0:19:57.360 big of an impact? I mean, how how substantial will 0:19:57.359 --> 0:20:01.600 the tariffs essentially be and how much will they be 0:20:01.840 --> 0:20:04.720 unable to pass on? To consumers. Well, if we look 0:20:04.760 --> 0:20:07.080 at it, we're just talking about top line, right, we're 0:20:07.080 --> 0:20:10.320 adding to the product coming into the country. Um. A 0:20:10.359 --> 0:20:12.520 lot of the orders for back to school and holiday 0:20:12.680 --> 0:20:15.800 have already been placed, so the wholesales and the retailers 0:20:15.840 --> 0:20:18.320 already have margin in mind that they're playing with. To 0:20:18.440 --> 0:20:22.160 add on that is something that the industry doesn't even 0:20:22.200 --> 0:20:25.000 have to work with. So the question is who can 0:20:25.119 --> 0:20:27.680 absorb some of it in the short term? Who could 0:20:27.800 --> 0:20:29.399 who's gonna have to pass it along. I mean you 0:20:29.400 --> 0:20:32.359 already have retailers like Walmart saying hey, we're gonna have 0:20:32.400 --> 0:20:35.320 to increase prices on things like furniture because that that 0:20:35.400 --> 0:20:39.040 just got hit. Um. I think the more price sensitive 0:20:39.080 --> 0:20:41.119 you are, the more of an impact that's going to 0:20:41.160 --> 0:20:43.080 have in the short term because you just don't have 0:20:43.160 --> 0:20:46.000 the margin to play with. And I think that the 0:20:46.040 --> 0:20:49.520 idea that we have these alternative sourcing destinations. Yes, we're 0:20:49.560 --> 0:20:51.639 going to see a migration to Vietnam, we're going to 0:20:51.720 --> 0:20:56.040 see more people going to places like India, Indonesia, Bangladesh. 0:20:56.080 --> 0:20:58.320 But let's not forget they're not foolish either. They only 0:20:58.359 --> 0:21:00.920 have so much capacity and with that comes and baked 0:21:00.920 --> 0:21:03.600 in inflation because there's gonna be a rush to go there. 0:21:04.160 --> 0:21:06.280 And a year ago, you know, we had the same 0:21:06.320 --> 0:21:10.720 conversation although nothing happened, people already started migrating, but a 0:21:10.800 --> 0:21:13.919 year over year still we're talking about very, very small 0:21:13.960 --> 0:21:18.679 percentage of migration out of China. And the the issue 0:21:18.760 --> 0:21:20.680 is that we've we've come to a period of time 0:21:20.680 --> 0:21:23.560 where people have stopped chasing the cheapest needle and they're 0:21:23.560 --> 0:21:26.360 now chasing the smartest needle. Because the conversation is kind 0:21:26.400 --> 0:21:30.480 of migrated to speed and flexibility and lowering inventory, which 0:21:30.560 --> 0:21:33.640 China is really the perfect place to be. So if 0:21:33.640 --> 0:21:36.320 we start moving to countries like Bangladesh, while we may 0:21:36.359 --> 0:21:41.320 save money, we lose the flexibility and quick turn replenishment. 0:21:41.400 --> 0:21:43.119 So there's a lot of factors that are gonna that 0:21:43.160 --> 0:21:44.880 are gonna hurt this industry. So give us a sense 0:21:44.880 --> 0:21:47.000 of kind of where we are with these tariffs here, 0:21:47.040 --> 0:21:49.680 that these are proposed tariffs coming up and we don't 0:21:49.680 --> 0:21:53.200 even know what retail goods are, which clothing and apparel 0:21:53.200 --> 0:21:56.880 goods will potentially be subject to these terroriforts. Correct, Yeah, 0:21:56.920 --> 0:21:59.080 So the you know, the technical term the tranche for 0:21:59.640 --> 0:22:02.119 if this goes into effect to technically hit all the 0:22:02.200 --> 0:22:06.000 remaining imports from from China, and included in that list 0:22:06.000 --> 0:22:10.479 would be apparel, footwear, and some textiles. Um, So in 0:22:10.520 --> 0:22:12.880 that case, it would be you know, all the products 0:22:12.880 --> 0:22:17.040 that we're talking about right now. Um, the point you 0:22:17.080 --> 0:22:20.480 made is it's suggested that this will come up in 0:22:20.520 --> 0:22:23.280 the summer. If it does pass, it will probably hit 0:22:23.320 --> 0:22:25.960 around Labor Day and so the goods that are coming 0:22:25.960 --> 0:22:29.480 into the country around that time will be affected. We're hoping, 0:22:29.920 --> 0:22:34.119 you know, that this is posturing. Um, we're in a 0:22:34.200 --> 0:22:37.920 situation where, uh, you know, I'm not a political analyst, 0:22:37.960 --> 0:22:40.600 so I can't say for sure, but the economy still 0:22:40.640 --> 0:22:44.320 is showing strong signs of things are pretty positive. Why 0:22:44.320 --> 0:22:46.480 does he want to mess around and create a global 0:22:46.880 --> 0:22:50.920 you know, trade war which will negatively negatively impact the economy. 0:22:51.000 --> 0:22:53.440 So some people are hoping that somehow this will be 0:22:53.520 --> 0:22:56.840 resolved before the summertime. A lot of people are pricing 0:22:56.880 --> 0:23:00.159 that in currently to markets certainly that it will be 0:23:00.240 --> 0:23:03.240