WEBVTT - F45 Training Goes Public 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.640 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.160 at Bloomberg dot com slash podcast. Well, we had an 0:00:22.160 --> 0:00:26.640 I p O of this morning. Five Training Holdings fitness 0:00:26.680 --> 0:00:30.720 company went public at a sixteen dollars A share has 0:00:30.760 --> 0:00:34.960 not opened for trading. Bid bid his eighteen, ask his nineteen. 0:00:35.000 --> 0:00:38.000 So looking to open up here on the first trade. 0:00:38.360 --> 0:00:40.800 Adam Gilcrest, He's a co founder and CEO of F 0:00:40.920 --> 0:00:44.159 forty five Training. Uh he joins us now, Adam, thanks 0:00:44.200 --> 0:00:45.720 so much for joining us. I know you're having a 0:00:45.760 --> 0:00:48.600 busy day here watching to see when your stock opens. 0:00:49.200 --> 0:00:51.040 Love free to give us the kind of a thirty 0:00:51.360 --> 0:00:57.360 second view of F forty Training. What's the story? Well, Nessily, 0:00:57.520 --> 0:01:01.000 thanks very much for having me on your program. Obviously 0:01:01.040 --> 0:01:04.720 a very exciting day. And look at forty five is, 0:01:05.080 --> 0:01:08.039 you know, I think an incredible business. Because we tried 0:01:08.080 --> 0:01:10.399 to answer a really simple question, which was you know 0:01:10.440 --> 0:01:12.280 how do we get people to fall back in love 0:01:12.319 --> 0:01:15.360 with the gym, and really f forty five is a 0:01:15.400 --> 0:01:19.120 forty five minute workout. We do it in classes of 0:01:19.520 --> 0:01:22.720 seven up to thirty six people. A typical franchise e 0:01:23.360 --> 0:01:26.040 you know has you know, on average, two hundred members 0:01:26.520 --> 0:01:29.520 and we charge our members somewhere between fifty dollars and 0:01:29.560 --> 0:01:33.200 sixty dollars a week, so we're a premium brand um 0:01:33.240 --> 0:01:35.600 And it was built on three key pillars. Number one 0:01:36.440 --> 0:01:40.400 was innovation, where we have six thousand exercises in our 0:01:40.959 --> 0:01:43.640 exercise and cyclopedia, so every day you turn up, it's 0:01:43.640 --> 0:01:47.200 a different workout. Number two is motivation, like training in 0:01:47.240 --> 0:01:49.840 teams is just so much more enjoyable being, you know, 0:01:49.960 --> 0:01:53.280 in a community versus you know, sitting at home, you know, 0:01:53.360 --> 0:01:55.400 running on a treadmill or going for a run around 0:01:55.400 --> 0:01:58.360 a park by yourself. And the third key pillar was 0:01:58.760 --> 0:02:01.800 you know, what we describe as simply as results and 0:02:01.840 --> 0:02:05.920 results for us is via this simple modality of high 0:02:06.040 --> 0:02:10.440 intensity interval training. So the workouts being forty five minutes, 0:02:10.800 --> 0:02:13.360 you know, change each day, but it's it's often like 0:02:13.400 --> 0:02:16.760 forty seconds of work twenty seconds of rest, and you 0:02:16.800 --> 0:02:19.360 can really get some effective results in a in a 0:02:19.400 --> 0:02:22.560 short period of time. So look, we're great. It's a 0:02:22.560 --> 0:02:26.160 great business because we changed so many lives. People love 0:02:26.280 --> 0:02:29.920 coming to forty five and we've really achieved, you know, 0:02:30.080 --> 0:02:33.520 a wrap it up. One one major milestone is you know, 0:02:33.600 --> 0:02:37.079 having more visitations with our members than any other gym 0:02:37.080 --> 0:02:38.720 in the world, so they turn up on average two 0:02:38.760 --> 0:02:41.320 points seven times per week. I want to quickly just 0:02:41.360 --> 0:02:44.080 get to the market dynamics of what we're seeing. Notable, 0:02:44.120 --> 0:02:49.000 of course, actor Mark Wahlberg is an investor Franchises member 0:02:49.240 --> 0:02:52.120 of the board. A year ago in June, you tried 0:02:52.160 --> 0:02:56.639 to go public via a spack with Crescent Acquisition Corps. 0:02:56.680 --> 0:02:59.160 Today of course, trying to just take the traditional I 0:02:59.320 --> 0:03:04.400 p O route. Why this why the switch? We we 0:03:04.400 --> 0:03:06.880 we ran a dual process and we had a better 0:03:07.440 --> 0:03:11.840 um structure that we we accepted, and we believe that 0:03:12.040 --> 0:03:14.800 a traditional IPO would be you know, positioning the business 0:03:15.440 --> 0:03:19.000 um for more success. And you know, we're we're really 0:03:19.040 --> 0:03:21.320 pleased with where we're at at the moment, and you know, 0:03:21.360 --> 0:03:24.600 we're really excited to hopefully watch the first trade come 0:03:24.639 --> 0:03:26.880 through in the next half an hour. Hey, Adam, you 0:03:26.880 --> 0:03:28.760 know I'm here with Taylor Riggs, and she's one of 0:03:28.800 --> 0:03:32.200 those crazy nutty people that runs marathons all over the world. 0:03:32.280 --> 0:03:35.240 I just can't relate at all. I did, in fact, 0:03:35.360 --> 0:03:38.520 during the pandemic actually start getting on a peloton, so 0:03:38.520 --> 0:03:41.280 at least I'm getting some exercise. Talk to us about 0:03:41.360 --> 0:03:48.120 how your business has been impacted by this worldwide pandemic. Well, 0:03:48.160 --> 0:03:51.200 of course, it was an extremely challenging year last year, 0:03:51.440 --> 0:03:54.680 and you know, at one period of time we had 0:03:55.000 --> 0:03:59.160 our franchise is closed. Um. What we have noticed, however, 0:03:59.800 --> 0:04:02.080 is the fact that you know, people want to get 0:04:02.120 --> 0:04:05.160 back into the gym, but more importantly, people want to 0:04:05.160 --> 0:04:07.440 be part of communities. People don't want to sit at 0:04:07.480 --> 0:04:08.600 home on a bike. They don't want to sit at 0:04:08.640 --> 0:04:11.360 home and do zoom dinner parties when restaurants are reopened. 0:04:11.360 --> 0:04:13.440 I asked that question all the time. You know, when 0:04:13.480 --> 0:04:15.480 was the last time you had a zoom dinner party 0:04:15.520 --> 0:04:19.279 if restaurants have reopened. And what we're finding now is 0:04:19.360 --> 0:04:23.920 our cohorts that are two months reopened are performing better 0:04:23.960 --> 0:04:27.560 with visitation than they were pre COVID. So what that 0:04:27.600 --> 0:04:30.039 says to us is the fact that we're going to 0:04:30.120 --> 0:04:33.240 bounce back far stronger than what we were pre COVID, 0:04:33.720 --> 0:04:37.200 And look, we think the most important thing in life 0:04:37.360 --> 0:04:40.760 is obviously number one, your family, but you know number 0:04:40.760 --> 0:04:43.400 two should really be your health. And if you look 0:04:43.440 --> 0:04:46.080 at the importance of health. You know, we were talking 0:04:46.120 --> 0:04:49.560 about of Americans this year will die of heart disease, 0:04:50.760 --> 0:04:52.680 will die of cancer, and thirty percent of other things, 0:04:52.680 --> 0:04:56.279 but of that heart disease. You know, we we look 0:04:56.279 --> 0:04:58.359 at that and we say we can address that. We 0:04:58.400 --> 0:05:00.880 can change people's lives. We can you know, what we 0:05:01.000 --> 0:05:04.520 described as preventative health. So really, you know, we think 0:05:04.880 --> 0:05:09.480 this pandemic has been extremely challenging. We applaud our franchise 0:05:09.520 --> 0:05:12.360 Ease for pushing through it. We are the we're going 0:05:12.400 --> 0:05:15.680 to have the lowest rate of closures in the world, 0:05:16.080 --> 0:05:18.720 with less than one percent of our studios not reopening 0:05:18.800 --> 0:05:21.560 in comparison to the rest of the industry which is 0:05:21.760 --> 0:05:25.719 currently and that's really sad to see so many great 0:05:26.040 --> 0:05:28.600 you know, young entrepreneurs and business owners go broke. So 0:05:29.080 --> 0:05:32.479 we hate seeing the industry contract, but we will see 0:05:32.920 --> 0:05:37.320 some major beneficiaries. Forty five is one of them. Planet 0:05:37.400 --> 0:05:39.640 is another, and we're really fortunate. A few months ago 0:05:39.720 --> 0:05:43.520 that Entrepreneur magazine ranked US in front of Planet as 0:05:43.560 --> 0:05:46.680 the world's fastest growing fitness franchise or so when we 0:05:46.760 --> 0:05:49.680 sprinted past Planet, you know, that's one of the two 0:05:49.720 --> 0:05:52.919 milestones I said. Obviously I wanted to be a faster 0:05:52.960 --> 0:05:55.120 growing company in the Planet and the next one for 0:05:55.200 --> 0:05:57.039 us is going to be our earnings. So when we 0:05:57.080 --> 0:05:59.160 go past them in earning, that will be the next 0:05:59.160 --> 0:06:02.320 sort of goal that I've got for the head office here. 0:06:02.360 --> 0:06:05.280 On that note, of course, you're pricing the shares at 0:06:05.320 --> 0:06:08.239 sixteen dollars a piece right now indicated open anywhere between 0:06:08.279 --> 0:06:11.640 seventeen fifty eighteen fifty share. What are you doing with 0:06:11.680 --> 0:06:15.160 the proceeds um The first thing we're doing. I mean, 0:06:15.160 --> 0:06:18.480 we've been a very fiscally conservative company since two thousand 0:06:18.520 --> 0:06:22.680 and thirteen. In fact, there's no other company that's sold 0:06:22.680 --> 0:06:26.240 more franchises than us uh and and look, we're we're 0:06:26.240 --> 0:06:30.320 excited because we've never had an unprofitable quarter. And that 0:06:30.400 --> 0:06:33.880 fiscally conservative approach has now been applied to the capital 0:06:33.960 --> 0:06:38.239 raising where we're number one paying back all of our debt. 0:06:38.520 --> 0:06:41.080 So you know, that's that's that was my first and 0:06:41.279 --> 0:06:44.280 my ultimate goal. We will have a revolver in place 0:06:44.320 --> 0:06:47.160 of a hundred million dollars and we're going to thirdly 0:06:47.240 --> 0:06:50.720 also put some additional capital onto the balance sheet, so 0:06:51.160 --> 0:06:53.640 you know, we'll have horsepower of eighty million on the 0:06:53.680 --> 0:06:56.880 balance sheet, hundred million dollar revolver and you know, if 0:06:56.920 --> 0:06:59.200 you look at our earnings into the future, we are 0:06:59.320 --> 0:07:02.760 unleave it. So you know, our peers currently have you know, 0:07:03.200 --> 0:07:05.960 anywhere between four and six times, so we have a 0:07:06.000 --> 0:07:09.360 lot of capacity to look at opportunities in the future. 0:07:09.560 --> 0:07:13.400 We recently purchased Flywheel for five million dollars, which was 0:07:13.440 --> 0:07:17.560 an incredible buy. So you know, the secondary is one 0:07:17.640 --> 0:07:20.720 investor selling out. I'm not selling any any stock in 0:07:20.720 --> 0:07:24.000 this I p O and I think that really you know, 0:07:24.160 --> 0:07:26.520 spoke to the and really resonated with a lot of 0:07:26.520 --> 0:07:28.560 our investors because I said, look, I'm here for the 0:07:28.560 --> 0:07:32.520 long term. I'm not selling any stock. We're excited about 0:07:32.520 --> 0:07:36.400 our future, but more importantly that the pipeline of potential 0:07:36.440 --> 0:07:39.640 franchises buying has never been healthier. UM, so it's an 0:07:39.640 --> 0:07:42.560 exciting period for us. All right, Adam, thank you so 0:07:42.640 --> 0:07:44.560 much for joining us. We know you're having an incredibly 0:07:44.560 --> 0:07:47.520 busy day today as your company goes public on New 0:07:47.520 --> 0:07:50.120 New York Stark Exchange. Adam Gilchrist, co founder and CEO 0:07:50.120 --> 0:07:54.480 of FT Trading, again that stock is bidding bid asks 0:07:54.600 --> 0:07:56.640 seventeen and a half, eighteen and a half after pricing 0:07:57.120 --> 0:08:00.440 UH their shares at sixteen dollars to share. But it's 0:08:00.440 --> 0:08:04.120 interesting to see how that industry, um Taylor, is going 0:08:04.200 --> 0:08:08.000 to recover. You know, how will consumer behavior change in 0:08:08.080 --> 0:08:10.000 terms of going back to the gym and the innovation 0:08:10.080 --> 0:08:13.800 that's been going on in that industry. And you know, Paul, 0:08:14.560 --> 0:08:17.400 he was talking about those statistics around heart disease. I mean, 0:08:17.400 --> 0:08:20.640 that's another pandemic frankly that we've been ignoring. I think 0:08:20.800 --> 0:08:23.240 sitting around in this pandemic has made us realize we 0:08:23.280 --> 0:08:25.840 all need to get back to the gym exactly right. 0:08:25.880 --> 0:08:28.679 So hopefully again we saw a contraction. Hopefully that industry 0:08:28.680 --> 0:08:32.040 can continue to recover. Well, that more coming up. This 0:08:32.520 --> 0:08:38.520 is Bloomberg, all right. That was Charles Evans, the president 0:08:38.600 --> 0:08:41.000 and CEO of the Federal Reserve Bank of Chicago, speaking 0:08:41.000 --> 0:08:43.920 with Bloomberg's own Michael McKee. And we also had FED 0:08:44.000 --> 0:08:46.960 Chairman j Pal He was UH in front of Congress 0:08:47.200 --> 0:08:50.080 today making his comments as well. Let's get kind of 0:08:50.080 --> 0:08:51.800 an overview a little bit of a recap. But what 0:08:51.840 --> 0:08:53.600 we heard from these FED officials. We do that with 0:08:53.640 --> 0:08:57.960 carlver Cadonna. He's our top economist for Bloomberg Intelligence. So 0:08:58.040 --> 0:09:01.000 Carl kind of piecing together what we heard from Mr 0:09:01.080 --> 0:09:04.320 Evans of Chicago and FED Chairman Pal. It doesn't seem 0:09:04.360 --> 0:09:06.920 like this FEDS incented to do anything other than kind 0:09:06.920 --> 0:09:09.400 of stay the course here. They feel like they're they 0:09:09.440 --> 0:09:11.880 had the hand on the tiller. Yeah, that's a very 0:09:11.960 --> 0:09:14.440 key theme to focus in on here, the kind of 0:09:14.760 --> 0:09:18.400 central committee of the Open Markets Committee, so that the 0:09:18.679 --> 0:09:22.199 centrists are that you know that the key leadership really 0:09:22.320 --> 0:09:25.720 is not responding to the inflation data. Uh. The way 0:09:25.760 --> 0:09:27.960 that the kind of overall messaging from the Fed is 0:09:28.040 --> 0:09:30.559 a sounding like the Fed has taken up more hawkers shifts. 0:09:30.559 --> 0:09:32.880 So the hawks on the committee have become more vocal, 0:09:33.040 --> 0:09:36.480 more concerned about what's happening, whether it's commodity prices, gasoline 0:09:36.559 --> 0:09:40.319 or or consumer inflation. But that the j Pale's the 0:09:40.720 --> 0:09:44.760 Richard clarenas uh, the Chicago FED president, that Charles Evans, 0:09:44.760 --> 0:09:48.280 who's a voter this year. Uh, they are confident. Uh. 0:09:48.559 --> 0:09:51.800 And Evans specifically said he's confident that the inflation flare 0:09:51.880 --> 0:09:55.360 up will be transitory. Powell has echoed that theme. So 0:09:55.400 --> 0:09:59.080 they're acknowledging maybe that the price pressures have written more 0:09:59.080 --> 0:10:01.080 than they anticipate did and it looks like it will 0:10:01.120 --> 0:10:04.360 be able slightly longer duration than they anticipated. But they 0:10:04.360 --> 0:10:06.880 still are very much of the view that things will 0:10:06.920 --> 0:10:08.960 moderate in the back half of the year as we 0:10:08.960 --> 0:10:12.120 start to see some moderation in overall economic growth. We 0:10:12.120 --> 0:10:15.480 were chuckling a little bit yesterday. If members of the House, 0:10:15.679 --> 0:10:18.640 members of the Senate are asking about inflation, you know, 0:10:18.720 --> 0:10:22.559 it's something that their constituents are going to them and saying, hey, 0:10:22.840 --> 0:10:27.200 we're feeling this. There are real world inflation pressures. And 0:10:27.200 --> 0:10:32.480 then there's the economic models. How does Powell square the two? Well, 0:10:32.520 --> 0:10:35.400 I think the you know, the models anticipated that we 0:10:35.400 --> 0:10:38.719 would see an opening here, but they under anticipated the 0:10:38.760 --> 0:10:42.000 magnitude of the price pressure. So, you know, very difficult 0:10:42.000 --> 0:10:45.240 to model what reopening a twenty one trillion dollar economy 0:10:45.320 --> 0:10:50.320 looks like micro chip shortages and those sort of factors. So, 0:10:50.440 --> 0:10:52.480 you know, we kind of understand as we look at 0:10:52.520 --> 0:10:55.320 economic growth relative to potential growth, you know, how that 0:10:55.400 --> 0:10:58.880 inflation plays out. Um, But what's interesting here if we 0:10:58.960 --> 0:11:01.640 think of, you know, what the models would forecast, inflation 0:11:01.720 --> 0:11:05.240 is a lagging indicators. So if we're seeing great growth now, 0:11:05.920 --> 0:11:08.560 that's going to cause inflation further on down the road. 0:11:08.720 --> 0:11:11.160 And typically the lag is about six quarters, so a 0:11:11.240 --> 0:11:13.640 year and a half. Right. The inflation we're seeing now 0:11:13.760 --> 0:11:17.440 is not the result of an economy operating beyond its potential. 0:11:17.559 --> 0:11:20.640 It's just this kind of supply, the growing pains of 0:11:20.640 --> 0:11:23.840 of reopening, turning the key, and restarting the economy. So 0:11:23.840 --> 0:11:26.040 it's a very different type of inflation, and that's why 0:11:26.040 --> 0:11:28.679 the FED is responding it in such a different capacity. 0:11:29.280 --> 0:11:31.640 Another way of thinking of this, if we take you know, 0:11:31.679 --> 0:11:35.200 consumer inflation. So yes, prices are rising, but we have 0:11:35.280 --> 0:11:39.559 to divide between goods and services. Services are things the 0:11:39.640 --> 0:11:43.679 FED can very much control because service price pressure reflects 0:11:43.720 --> 0:11:46.680 what's happening in the domestic economy. A lot of goods 0:11:46.679 --> 0:11:51.000 sector inflation merely reflects what's happening with exchange rates or 0:11:51.080 --> 0:11:54.160 inflation coming from overseas. So the price of goods coming 0:11:54.240 --> 0:11:57.360 from China getting unloaded at the port of Long Beach 0:11:57.400 --> 0:12:00.360 on the West Coast. Uh, that's not an lation the 0:12:00.400 --> 0:12:02.920 FED can really control, nor do they want to control 0:12:03.000 --> 0:12:05.720 that inflation. If we look at what's happening right now, 0:12:06.120 --> 0:12:11.000 CPI goods is off the chart, flaring up, CPI services 0:12:11.320 --> 0:12:13.240 very much running in line with the average of the 0:12:13.640 --> 0:12:16.880 five years prior to the pandemic. Well, we just heard 0:12:16.880 --> 0:12:20.160 a real inflationary data point today, Greg Jarrett Bloomberg Radio 0:12:20.200 --> 0:12:23.600 in San Francisco paying more for his taco and his 0:12:23.640 --> 0:12:27.880 taco flower rice is an extra dollar. So it is real. 0:12:28.080 --> 0:12:29.880 I'm not sure, but I'm going to call you out 0:12:29.920 --> 0:12:33.720 here because this is food away from home, restaurant meals, 0:12:33.800 --> 0:12:36.800 which are part of this labor shortage that we're seeing 0:12:36.840 --> 0:12:40.839 in leisure and hospitality sector, restaurant whatnot. If we look 0:12:40.960 --> 0:12:44.600 at food at home, so grocery store prices, I continually 0:12:44.640 --> 0:12:46.760 hear everyone's saying, oh, prices are going up. Prices are 0:12:46.760 --> 0:12:48.600 going up. They're going up, but they are going up 0:12:48.640 --> 0:12:50.960 at a very very slow pace. So if we look 0:12:50.960 --> 0:12:54.640 at grocery food, we can see that there's actually a 0:12:54.720 --> 0:12:59.040 deceleration taking place. So we keep talking about categories that are, 0:12:59.200 --> 0:13:01.720 you know, part of the re opening, while there are 0:13:01.720 --> 0:13:05.280 some categories that are actually decelerating as we reopen. In 0:13:05.559 --> 0:13:09.280 grocery prices for the most part, are are in that category. 0:13:09.360 --> 0:13:11.400 So they were high during the pandemic when everyone was 0:13:11.440 --> 0:13:16.520 scrambling for grocery deliveries and whatnot. They are very significantly decelerating. 0:13:16.520 --> 0:13:18.960 And yesterday, as I was looking through the CPI basket 0:13:19.559 --> 0:13:22.320 looking at those food categories, most of them are running 0:13:22.360 --> 0:13:26.920 below one percent even so my kale is cheaper. Paul, Oh, 0:13:26.920 --> 0:13:30.040 good for you. I know what kale is. Come so Taylor, 0:13:30.080 --> 0:13:32.800 stop complaining about those restaurant prices and go home and 0:13:32.800 --> 0:13:37.599 cook your food. When we do see tapering, what's it 0:13:37.640 --> 0:13:41.760 gonna look like. I think it's gonna look very boring 0:13:42.320 --> 0:13:45.560 to financial market. So the Fed is being very clear 0:13:45.720 --> 0:13:48.200 that this will be signaled well in advance, and so 0:13:48.240 --> 0:13:50.760 they'll have time to refine that message if the market 0:13:50.800 --> 0:13:53.920 does kind of react to the news. But what we're 0:13:53.960 --> 0:13:57.080 hearing from folks like Evans and also from j. Powell, 0:13:57.640 --> 0:13:59.200 this is not something that we're going to be hearing 0:13:59.200 --> 0:14:01.760 about at the lie FO MC meeting right there. Going 0:14:01.800 --> 0:14:05.400 to discuss this for several meetings, so the July meeting 0:14:05.480 --> 0:14:08.800 into September, we might hear about it at Jackson Hole, 0:14:08.880 --> 0:14:11.440 we might hear about it at the September FOMC. I 0:14:11.520 --> 0:14:14.680 suspect that the delivery of that message is going to 0:14:14.720 --> 0:14:17.120 come later than a lot of market participants are thinking 0:14:17.559 --> 0:14:20.080 at the moment. I think still the best case scenario 0:14:20.160 --> 0:14:23.120 has probably deliver the message in the fall. UH start 0:14:23.200 --> 0:14:25.680 the program at the start of next year, so in 0:14:25.680 --> 0:14:30.000 early and you taper basically over the course of next year. 0:14:30.160 --> 0:14:33.920 So by the end of the FED will no longer 0:14:34.040 --> 0:14:37.200 be purchasing securities to expand their balance sheet. They'll just 0:14:37.240 --> 0:14:40.640 be replacing things that are maturing. Just quickly twenty seconds 0:14:40.840 --> 0:14:44.960 you go equal taper, nbs and treasuries. That's a very 0:14:45.000 --> 0:14:48.240 interesting question. J Pow was pushed on that a little 0:14:48.280 --> 0:14:52.000 bit today and he said that probably mortgage purchases are 0:14:52.000 --> 0:14:53.960 having more of an impact on the housing market than 0:14:53.960 --> 0:14:56.640 treasury purchases, although both are impacting. So I think that 0:14:56.720 --> 0:14:59.560 there is an incentive to move more aggressively on mortgages. 0:14:59.720 --> 0:15:04.040 All Right, car ricka Donna, senior economist for Bloomberg Intelligent 0:15:04.160 --> 0:15:06.640 joining us here helping us break it down. Here we 0:15:06.640 --> 0:15:09.640 have FED Chairman pal Uh and Mr Evans from Chicago 0:15:10.040 --> 0:15:14.560 FED looking at these markets. Here. Works just started, you know, 0:15:14.600 --> 0:15:16.480 week one of what is going to be a very 0:15:16.520 --> 0:15:19.680 active earning season, and again, a lot of investors are 0:15:19.760 --> 0:15:23.120 looking for numbers that come in really strong to kind 0:15:23.120 --> 0:15:27.360 of support the multiples we're seeing in this marketplace. Let's 0:15:27.400 --> 0:15:29.600 bring in a professional that does it for a living. 0:15:29.640 --> 0:15:32.560 Hugh Johnson, Chairman, ce IO and member of the Investment 0:15:32.640 --> 0:15:35.600 Strategy Committee of Hugh Johnson Advisors. It's about one point 0:15:35.640 --> 0:15:38.080 five billion dollars in assets under management based in Albody, 0:15:38.080 --> 0:15:40.480 New York. Here, thanks for joining us once again here, 0:15:40.520 --> 0:15:43.480 All right, what are you really looking for in this 0:15:43.520 --> 0:15:47.040 earning season? He needs to see some really big beats 0:15:47.080 --> 0:15:52.000 to justify these valuations. Uh, not real big beats, but 0:15:52.080 --> 0:15:54.800 certainly beats. We've gotten very used to the fact that 0:15:55.200 --> 0:15:57.160 when we've been looking at earnings, and I'm not talking 0:15:57.160 --> 0:15:59.880 about just this earning season, but we've had a continuous 0:16:00.840 --> 0:16:03.400 outpouring of earnings for the last three months, and in 0:16:03.440 --> 0:16:05.640 each case, the earnings have been coming in a little 0:16:05.680 --> 0:16:08.240 bit better than not significantly so, but a little bit 0:16:08.240 --> 0:16:11.400 better than expected. And every time we see that, um 0:16:11.440 --> 0:16:13.360 it gives a little bit of a boost to the market. 0:16:13.440 --> 0:16:16.200 So the market has been really driven by good earnings 0:16:16.200 --> 0:16:18.960 reports for the last three months, and I think really 0:16:18.960 --> 0:16:21.200 we're looking for the same thing in this earning season, 0:16:21.200 --> 0:16:23.720 a little bit of a let's just say, a beat 0:16:23.760 --> 0:16:27.120 on the upside. Now, Now, remember keep in mind that 0:16:27.240 --> 0:16:31.000 more recently, about a little bit less eight percent of 0:16:31.000 --> 0:16:33.920 the companies that have been reporting have been reporting earnings 0:16:33.920 --> 0:16:37.240 that have beaten estimates, and that compares with the number 0:16:37.280 --> 0:16:40.960 that's the long term number of six. So companies are 0:16:40.960 --> 0:16:44.000 getting used of reporting earnings a little bo expectations and 0:16:44.040 --> 0:16:47.120 that's kept the kept the bull market alive, even though 0:16:47.120 --> 0:16:50.720 we're a little bit concerned about valuation. Before we get 0:16:50.760 --> 0:16:53.720 to valuations, I wouldn't ask if we're in on earnings 0:16:53.760 --> 0:16:56.960 peak margins as we're thinking about some of these inflationary 0:16:57.040 --> 0:16:59.960 costs that ceo s are mentioning, and they are mentioned 0:17:00.040 --> 0:17:03.640 mean them a lot. They certainly are. And if you 0:17:03.720 --> 0:17:05.840 take a look at the Beige Book yesterday and the 0:17:05.920 --> 0:17:08.760 reports from all the districts of the Federal Reserve UM, 0:17:08.840 --> 0:17:10.679 that's the one thing that jumps out at you is 0:17:10.680 --> 0:17:13.199 that companies are telling us that there's a little bit 0:17:13.240 --> 0:17:15.879 of margin pressure. And there's a little bit of margin pressure, 0:17:15.960 --> 0:17:18.840 largely because the upward pressure that they're starting to see. 0:17:18.840 --> 0:17:21.720 It's not significant, But they're seeing upward pressure on wages. 0:17:21.800 --> 0:17:25.080 Number One, they've had to compete very very actively in 0:17:25.119 --> 0:17:26.919 the markets to try to get people to come to 0:17:26.960 --> 0:17:29.520 work for them. They've given a lot of non cash 0:17:29.560 --> 0:17:32.399 benefits for those to those people to get them to 0:17:32.480 --> 0:17:34.000 come to work for them. And then of course there's 0:17:34.040 --> 0:17:37.119 the supply problems, which we hear about every day. The 0:17:37.160 --> 0:17:40.120 supply problems of course, meaning that of course that they're 0:17:40.119 --> 0:17:43.840 not getting the supplies. The backlogs are very significant. Uh. 0:17:43.840 --> 0:17:46.360 And and that's creating some a little bit upward pressure 0:17:46.400 --> 0:17:49.520 on the prices that purchasing managers have to pay. So 0:17:50.040 --> 0:17:53.679 you bet margins are under pressure. And uh if we 0:17:53.760 --> 0:17:56.840 believe German Paul that a lot of these pressures, labor 0:17:56.880 --> 0:17:59.960 pressures as well as the supply pressures, are gonna obey 0:18:00.240 --> 0:18:02.880 as we moved through the remainder of two thousand twenty one. 0:18:03.440 --> 0:18:05.879 All Right, you, given that you're in the camp with 0:18:05.960 --> 0:18:11.600 that chairman Pow, where are you guys allocating capital these days? Um? 0:18:11.640 --> 0:18:14.199 Given where we are, well, I tell you, you know, 0:18:14.280 --> 0:18:16.800 it's a good, great question because we're still bullish on 0:18:16.800 --> 0:18:19.560 a long term basis. We really do believe in our 0:18:19.640 --> 0:18:22.240 sort of mantra, which is time not timing is a 0:18:22.280 --> 0:18:25.119 secret to success in the financial markets. But on a 0:18:25.160 --> 0:18:27.880 short term basis, we think things are a little bit high. 0:18:27.920 --> 0:18:30.520 You know, we've had really great markets and two thousand 0:18:30.600 --> 0:18:32.520 twenty and of course the first part of two thousand 0:18:32.560 --> 0:18:34.840 twenty one, and I think the markets a little bit 0:18:34.840 --> 0:18:38.160 ahead of itself. Particularly now. Remember we're we've really seen 0:18:38.240 --> 0:18:40.399 the peak and g d P and ernest growth in 0:18:40.400 --> 0:18:43.400 the second quarter, and they're those numbers are gonna still 0:18:43.400 --> 0:18:45.120 be positive, but they're gonna come down. We're not gonna 0:18:45.119 --> 0:18:47.760 see those kinds of growth rates. So we really think 0:18:47.760 --> 0:18:49.720 we're a little bit ahead of ourselves and they're due 0:18:49.760 --> 0:18:52.040 for I don't want to say a major correction, but 0:18:52.080 --> 0:18:53.600 a little bit of a pull back, and we're waiting 0:18:53.600 --> 0:18:55.920 for a pull back to prices that make a little 0:18:55.920 --> 0:18:59.160 bit more sense. When we do see that pullback, we're 0:18:59.200 --> 0:19:01.840 not going to be the inflation team. We're gonna be 0:19:01.880 --> 0:19:05.840 looking very hard at consumer discretionary stocks, very hard at 0:19:05.880 --> 0:19:09.200 communication services, some of those companies you know, the facebooks 0:19:09.200 --> 0:19:11.840 of this world. We're looking very hard at those, and 0:19:11.840 --> 0:19:13.439 those are where we're going to start to add to 0:19:13.480 --> 0:19:16.680 our portfolio. Google is another one. Apple is another one. 0:19:17.160 --> 0:19:19.399 We'd be adding to those, but not at these levels. 0:19:19.400 --> 0:19:20.640 We want to see a little bit of a pull 0:19:20.720 --> 0:19:22.920 back to levels that make a little bit more sense 0:19:22.920 --> 0:19:25.000 and a little more compelling. Are you going to be 0:19:25.080 --> 0:19:28.080 adding to those based on a call that yields may 0:19:28.119 --> 0:19:31.639 not rise. Yeah, we would be probably adding to them, 0:19:31.640 --> 0:19:33.640 and I would say in a longer term basis, keep 0:19:33.680 --> 0:19:36.440 in mind something very important, and that is when you're 0:19:36.480 --> 0:19:39.080 looking at Apple, Facebook, you're looking at these companies, some 0:19:39.160 --> 0:19:42.480 of them communication services, some of them technology. We've often 0:19:42.520 --> 0:19:46.240 referred to them as being volatile and economically sensitive, that 0:19:46.280 --> 0:19:49.520 they depend very heavily on the economy doing well. That's 0:19:49.560 --> 0:19:52.440 no longer the case. These companies have been doing well, 0:19:52.560 --> 0:19:55.040 giving us the kind of revenue growth, that kind of 0:19:55.119 --> 0:19:57.680 cash flow on their balance sheets, that kind of free 0:19:57.680 --> 0:20:01.240 cash flow, and their earnings reports that spen very steady, 0:20:01.440 --> 0:20:04.399 even though the economic conditions, as you know, have been 0:20:04.480 --> 0:20:07.320 very volatile and difficult. And and that's the kind of 0:20:07.359 --> 0:20:10.040 company that's almost I hate to say it, it's not 0:20:10.119 --> 0:20:13.040 an offensive or bowl. Market sectors. These are starting to 0:20:13.040 --> 0:20:16.200 act like defensive sectors are good places to be if 0:20:16.200 --> 0:20:18.439 the economy goes into a period which I think it's 0:20:18.480 --> 0:20:21.080 gonna and that is where we see the growth rates 0:20:21.119 --> 0:20:25.040 of the economy of earnings, employment, you name it, are 0:20:25.080 --> 0:20:27.240 gonna slow down. They're gonna be positive, but they're gonna 0:20:27.240 --> 0:20:29.119 slow down. And those are the kinds of companies I 0:20:29.119 --> 0:20:31.439 think you want to all Right, you thanks so much 0:20:31.440 --> 0:20:33.919 for joining us to really appreciate that. Hugh Johnson, Chairman 0:20:34.080 --> 0:20:36.560 CEE IO and member of the Investment Strategy Committee of 0:20:36.640 --> 0:20:40.040 Hugh Johnson Advisers, based in Albany, New York. It's gonna 0:20:40.040 --> 0:20:42.040 be interesting a tailor to see, how you know, to 0:20:42.080 --> 0:20:44.240 the extent we do get a pullback in this market, 0:20:44.280 --> 0:20:47.159 which some people are calling for, including Hugh Johnson. You know, 0:20:47.359 --> 0:20:49.639 where will people put their money? Will be still in 0:20:49.640 --> 0:20:52.280 that rotation trade into the cyclical names, it's the reopening 0:20:52.359 --> 0:20:54.840 names into the reflation trades, or will it be into 0:20:54.880 --> 0:20:57.720 the tried and true apples and amazons and facebooks of 0:20:57.720 --> 0:20:59.680