WEBVTT - Interest Rates, Supply Chain, and Marc Rowan Interview (Radio) 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 0:00:11.520 --> 0:00:15.560 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:23.120 at Bloomberg dot com slash podcast. All right, the question 0:00:23.160 --> 0:00:25.840 here for this felto reserve to what extent can it 0:00:26.000 --> 0:00:30.520 in fact fight inflation? Is it's something more than just rates. Uh, 0:00:30.600 --> 0:00:32.800 isn't a supply chain issue out there that's really kind 0:00:32.800 --> 0:00:35.200 of a challenge? Pre A Miserab, Managing director and Global 0:00:35.240 --> 0:00:38.080 head of rate Strategy at TV Securities, joins us Um. 0:00:38.159 --> 0:00:41.040 I guess my question is does the FED have the 0:00:41.120 --> 0:00:44.960 tools to curb inflation create a soft landing that I 0:00:44.960 --> 0:00:48.600 think people would like to see. So I think the 0:00:48.680 --> 0:00:51.440 FED does have the tool of interest rates both the 0:00:51.560 --> 0:00:54.200 rate channel as well as QT, and they have the 0:00:54.240 --> 0:00:58.520 ability to slow demand aggregate demand. Does that bring inflation 0:00:58.600 --> 0:01:01.240 down to two percent? I do struggling with that as 0:01:01.280 --> 0:01:03.960 you talked about their supply chain issues as commodity price 0:01:04.040 --> 0:01:07.200 increases because of Russia. So I don't think they can 0:01:07.240 --> 0:01:09.880 achieve the two percent target in the very near term, 0:01:10.080 --> 0:01:12.640 but they can absolutely slow aggregate demand, and they can 0:01:12.640 --> 0:01:15.440 tighten financial conditions, and the market is already doing some 0:01:15.520 --> 0:01:17.800 of that work for them. So now, really I think 0:01:17.800 --> 0:01:19.920 that you see, the market didn't really react to even 0:01:19.920 --> 0:01:22.000 as them the fact that it came in weaker than 0:01:22.040 --> 0:01:26.000 expected because the market is giving greater weight to inflation 0:01:26.040 --> 0:01:27.840 and the fact that the Fed will have to respond 0:01:27.880 --> 0:01:29.920 to these very high readings. Yeah, and that kind of 0:01:29.920 --> 0:01:32.320 brings up, you know, the topic that's been you know, 0:01:32.319 --> 0:01:34.680 on people's minds are really less several weeks a couple 0:01:34.720 --> 0:01:38.480 of months, is stagflation. You look at China, uh, and 0:01:38.800 --> 0:01:41.080 there are various levels of lockdown, and that seems to 0:01:41.080 --> 0:01:43.319 be an ongoing issue. Then of course you've got Russia 0:01:43.319 --> 0:01:45.360 and Europe and what it means for commodities and other 0:01:45.720 --> 0:01:49.840 products here that kind of suggests that stagflation is a thing. 0:01:49.840 --> 0:01:52.640 Here are How concerned are you about that? So it 0:01:52.760 --> 0:01:55.480 is a nightmare scenario for the FED because in the 0:01:55.680 --> 0:01:59.240 two mandates pull in different directions, you know, because we 0:01:59.320 --> 0:02:02.840 think that as always inflation starts to decelerate, say the 0:02:02.920 --> 0:02:06.200 monthly readings go from point six point seven right now 0:02:06.480 --> 0:02:09.360 CPI two point three point four. We think the Fed 0:02:09.400 --> 0:02:12.080 at that point will probably be more tolerant of these 0:02:12.400 --> 0:02:16.360 slightly higher than than target inflation and not overdo it. 0:02:16.560 --> 0:02:18.280 But that is a call that the FED will have 0:02:18.320 --> 0:02:20.040 to make closer to your end when they get to 0:02:20.160 --> 0:02:23.880 neutral on the funds rate. QT is continuing. If inflation 0:02:23.919 --> 0:02:27.600 just gives them the ability to push out that when 0:02:27.639 --> 0:02:30.280 they reach their target, we don't think they'll overdo it. 0:02:30.320 --> 0:02:32.440 That's why our end point of the hiking cycle is 0:02:32.480 --> 0:02:35.080 not as high as the market. But there is another 0:02:35.120 --> 0:02:38.000 scenario where inflation really doesn't decelerate and the FED has 0:02:38.040 --> 0:02:40.840 to go significantly about neutral, you know, three and a 0:02:40.840 --> 0:02:43.560 half or higher on the funds rate along with QT. 0:02:44.080 --> 0:02:47.040 That's when I really worry about thet inflation because I 0:02:47.080 --> 0:02:50.600 don't think that the soft landing in that scenario where 0:02:50.639 --> 0:02:53.760 there's so much tightening through monetary policy. I thing is 0:02:53.800 --> 0:02:56.919 a very tough um, you know, aim for the FED. 0:02:57.280 --> 0:03:01.160 So it's only if they're able to tolerate slightly high inflation, 0:03:01.240 --> 0:03:03.520 and I sort of hope they make that call near 0:03:03.560 --> 0:03:06.160 your end. Or that's our basic case, but it depends 0:03:06.160 --> 0:03:10.160 on some deceleration and that inflation momentum. Yeah, I've got 0:03:10.160 --> 0:03:12.480 to ask about the balance sheet here, because this is 0:03:12.480 --> 0:03:15.400 something that there's still a lack of clarity on what 0:03:15.520 --> 0:03:18.200 can we expect on the balance sheet? What is the 0:03:18.240 --> 0:03:20.840 worst case and best case scenario in terms of what 0:03:20.880 --> 0:03:23.880 we hear about that sure, And I completely agree with you. 0:03:23.919 --> 0:03:26.160 I think it's hard for the market to price in 0:03:26.240 --> 0:03:28.960 the balance sheet because there's a nonlinear effect of the 0:03:29.000 --> 0:03:31.280 balance sheet. I would argue that the balance sheet run 0:03:31.280 --> 0:03:33.919 off initially is not a big deal because we are 0:03:33.919 --> 0:03:37.560 far from neutral because supply only picks up slowly. They 0:03:37.600 --> 0:03:40.520 face it in when you get closer to your end, 0:03:40.680 --> 0:03:43.520 when you know the funds rate is closer to normal 0:03:43.720 --> 0:03:46.400 or neutral, and the balance sheet at this point is 0:03:46.480 --> 0:03:49.240 running off almost a hundred billion a month, I think 0:03:49.240 --> 0:03:51.720 the effects starts to grow a lot more, and the 0:03:51.760 --> 0:03:54.840 impact really comes from higher long and real rates. And 0:03:54.840 --> 0:03:57.400 you've already seen a rise in long and reil rates, 0:03:57.440 --> 0:04:00.640 which is I think ultimately what's tightening financial cans. So 0:04:00.680 --> 0:04:03.400 I think that's the channel through which you see the 0:04:03.440 --> 0:04:06.200 tightening in conditions. You see the movement in mortgage rates, 0:04:06.240 --> 0:04:08.800 which starts to impact housing, and I think that it's 0:04:08.840 --> 0:04:11.600 working in the fashion the FED wants it to. But 0:04:11.760 --> 0:04:14.600 I think that's the hard part, calibrating balance sheet which 0:04:14.600 --> 0:04:16.880 they are not nimble on the balance sheet once it starts, 0:04:17.240 --> 0:04:20.119 it's supposed to operate in the background, and then making 0:04:20.120 --> 0:04:22.599 sure that they don't overdo it on the rate hikes channel. 0:04:22.640 --> 0:04:24.560 I think that's the key one. But you know, I 0:04:24.560 --> 0:04:27.440 think what we hear this week will be likely the 0:04:27.480 --> 0:04:29.719 same caps that were talked about in the minute. I 0:04:29.760 --> 0:04:32.920 think that's pricedon. It's really the flow effect of supply 0:04:33.240 --> 0:04:36.360 month after month that starts to I think have impact 0:04:36.680 --> 0:04:38.680 later on in the year. I think that's when we 0:04:38.800 --> 0:04:41.400 see more of that impact of balance sheet run off. 0:04:41.560 --> 0:04:43.840 All right, thank you so much for joining us. Always 0:04:43.880 --> 0:04:47.640 appreciate getting your perspective. Prem Israe, Managing director and global 0:04:47.680 --> 0:04:54.800 head of rate Strategies over there at TV Securities. In 0:04:54.839 --> 0:04:56.640 case you haven't heard it, there's a chip shortage out 0:04:56.640 --> 0:04:59.159 there and it's affecting pretty much every industry out there, 0:04:59.200 --> 0:05:01.360 and we see it hear it on these conference calls 0:05:01.360 --> 0:05:03.000 being called out all the time as a reason for 0:05:03.480 --> 0:05:06.479 supply issues, and to be honest with you, I don't 0:05:06.480 --> 0:05:10.240 get it. Baba babash Bala Christian that joins us. He's 0:05:10.279 --> 0:05:13.400 the CEO and president of Power Integrations. Maybe he can 0:05:13.440 --> 0:05:17.159 answer the question follow I envision all these semiconductor chip 0:05:17.240 --> 0:05:21.839 makers have rows and rows and rows of desks filled 0:05:21.839 --> 0:05:26.000 by nbas who do nothing but forecast chip demand five 0:05:26.040 --> 0:05:28.480 ten years out. Why do we have such a chip 0:05:28.520 --> 0:05:33.200 shortage right now? I don't get it. Good morning, Paul 0:05:33.279 --> 0:05:36.719 and pretty and thanks for inviting me. Uh, excellent question. 0:05:37.160 --> 0:05:39.679 I think part of the reason is that people got 0:05:39.880 --> 0:05:43.400 so used to squeezing everything out of the supply chain. 0:05:44.440 --> 0:05:48.919 They introduced what's known as just in time manufacturing, which 0:05:48.960 --> 0:05:51.640 is actually very risky. What you're saying is everything has 0:05:51.640 --> 0:05:54.200 to work perfectly for you to be able to manufacture 0:05:54.200 --> 0:05:57.920 a car or a product and appliance, and now they're 0:05:57.960 --> 0:06:05.120 seeing the effect for such you know, tight uh supply chain. Uh. 0:06:05.120 --> 0:06:07.480 I would say, if you go back about fifty years 0:06:07.560 --> 0:06:11.599 or so, everybody carried inventory at different stages. So that's that's, 0:06:11.720 --> 0:06:14.680 you know, part of the problem. The second is, I 0:06:14.800 --> 0:06:19.160 really don't think anybody expected the amount of electronics that 0:06:19.360 --> 0:06:22.960 goes into some of the products, whether it's appliance or 0:06:23.480 --> 0:06:28.400 industrial products, or the electrification which is you know, electric cars, 0:06:28.440 --> 0:06:32.000 buses and so on, they are really computers on wheels, 0:06:32.080 --> 0:06:37.040 and I think they miscalculated the amount of capacity needed. 0:06:37.640 --> 0:06:42.560 And when we had the the COVID situation, everybody stopped, 0:06:42.600 --> 0:06:46.400 I mean literally, automotive companies stopped ordering and so there 0:06:46.480 --> 0:06:50.160 was nothing in the inventory, and they stopped manufacturing vapors 0:06:50.200 --> 0:06:51.880 because they thought the whole world is going to come 0:06:52.279 --> 0:06:55.000 to the end in terms of demand. And now we're 0:06:55.000 --> 0:06:59.560 seeing the effects of it. So how do you predict 0:07:00.080 --> 0:07:03.760 or model out some of this demand with the volatility 0:07:03.920 --> 0:07:06.360 of the COVID lockdowns. Now that we are two years 0:07:06.360 --> 0:07:09.320 into this, we know the about China zeroor COVID policy. 0:07:09.840 --> 0:07:15.600 How is that modeling or that forecasting changing. Well, I 0:07:15.640 --> 0:07:19.600 think what is happening right now is the huge amount 0:07:19.680 --> 0:07:24.600 of capacity being put into vapor vapor fabrications. You know, 0:07:24.760 --> 0:07:28.400 vapor plans take a long time, They take three to 0:07:28.480 --> 0:07:31.960 four years established. So this is very typical of a 0:07:32.080 --> 0:07:35.600 stomic and recycle with you know, they put a lot 0:07:35.640 --> 0:07:38.960 of investment and I won't be surprised if three or 0:07:39.000 --> 0:07:43.560 four years will be floating in vapor capacity. UM I 0:07:43.880 --> 0:07:47.760 would say we have been much more we meaning power 0:07:47.800 --> 0:07:51.920 Integrations has been much more careful in planning this. So 0:07:51.960 --> 0:07:55.080 I am happy to say please to say that we 0:07:55.160 --> 0:07:59.320 have not had a supply chain problem for multiple reasons. 0:07:59.320 --> 0:08:05.680 One is a unique boundary model. Secondly, we are multiple 0:08:05.760 --> 0:08:10.800 source into multiple geographies and so that has really helped us. 0:08:10.800 --> 0:08:13.920 Probably the most important if it's never stopped manufacturing wafers. 0:08:14.000 --> 0:08:16.680 Even when there was a downturn in the beginning of 0:08:18.960 --> 0:08:21.520 we kept building inventory. We had so much inventory that 0:08:21.560 --> 0:08:25.040 we had no problems applying when the demand came right back. 0:08:26.360 --> 0:08:28.200 You know, at the beginning of this, I guess the 0:08:28.240 --> 0:08:31.080 beginning of the pandemic, the beginning of the supply chain challenges. 0:08:31.160 --> 0:08:35.640 There's a lot of talk about on shoring chip manufacturing 0:08:35.720 --> 0:08:39.640 in the United States now it's mainly centered in Asia. 0:08:40.720 --> 0:08:43.640 Do you think that's a viable strategy. Is that happening? 0:08:46.160 --> 0:08:49.520 It is a viable strategy. It is happening because as 0:08:49.559 --> 0:08:53.320 far as vapor fabrication goals, it doesn't matter where you 0:08:53.360 --> 0:08:55.400 put it. The cost is about the same because it 0:08:55.480 --> 0:09:00.640 was dominated by um equipment costs, not labor costs. So 0:09:00.800 --> 0:09:04.120 there is no reason to have it in UH low 0:09:04.200 --> 0:09:08.880 cost countries, low cost labor countries. So Uh, it was 0:09:08.960 --> 0:09:11.480 too bad as so much of the capacity went away 0:09:11.480 --> 0:09:13.959 from US, and finally it's good to see that it's 0:09:14.000 --> 0:09:16.800 coming back. Europe is doing the same thing. And by 0:09:16.800 --> 0:09:20.120 the way, we have been very careful not to put 0:09:20.280 --> 0:09:24.440 our technology which we own into countries where we don't 0:09:24.440 --> 0:09:28.240 have intellectual property protection like in China, like Taiwan and Korea. 0:09:28.679 --> 0:09:30.960 As a result, we had in a much better place. 0:09:31.000 --> 0:09:33.360 So you know, we have most most of the foundaries 0:09:33.360 --> 0:09:37.120 that in Japan, some in US and some in Europe. 0:09:38.800 --> 0:09:42.120 I've got to ask about once again the geopolitics of 0:09:42.120 --> 0:09:46.920 this all because I think pre pandemic the story. Paul, 0:09:46.960 --> 0:09:48.400 correct me if I'm wrong here, but I think the 0:09:48.520 --> 0:09:52.199 story was the trade war, right, tariffs that haven't necessarily 0:09:52.240 --> 0:09:55.439 disappeared with the Biden administration. So I have to ask, 0:09:56.240 --> 0:09:59.080 as it takes years, and I believe it will take 0:09:59.160 --> 0:10:01.319 years to bring some of that more of that capacity 0:10:01.400 --> 0:10:05.439 back domestically or onto Europe. I mean, how do how 0:10:05.480 --> 0:10:09.440 do companies like yours and and others navigate the tariff environment, 0:10:09.440 --> 0:10:14.920 the geopolitical environment. Well, that's a good question. As I said, 0:10:15.000 --> 0:10:18.320 we are in a different position, so we are actually 0:10:18.360 --> 0:10:21.920 not capacity limited. We were not capacity limited last year 0:10:21.960 --> 0:10:24.719 and we are not this year either, which is an 0:10:24.800 --> 0:10:28.200 enviable position. So there are a couple of things we 0:10:28.240 --> 0:10:31.120 are doing hopefully other people can follow on. That is 0:10:31.160 --> 0:10:33.480 that we only ship to real demand. We don't ship 0:10:33.559 --> 0:10:36.839 to any orders that are placed. We look at what 0:10:36.880 --> 0:10:39.760 they were buying before, and we only shipped to the 0:10:39.840 --> 0:10:42.040 run rate of what they were buying, or maybe a 0:10:42.040 --> 0:10:46.840 little bit higher because the demand is higher. Secondly, we have, 0:10:47.000 --> 0:10:49.480 as I said, we have a unique boundary model where 0:10:49.679 --> 0:10:55.080 we put our technology into companies in Japan, US and 0:10:55.160 --> 0:10:59.440 Europe where we have a long term contract to keep 0:10:59.440 --> 0:11:01.960 the capacity be and we are able to do that 0:11:02.000 --> 0:11:05.000 because we continue to build it. We continue to build 0:11:05.080 --> 0:11:08.160 during downturns. We did that in two thousand two nine, 0:11:08.679 --> 0:11:12.720 and of course in two thousand we did that again 0:11:12.880 --> 0:11:17.360 during the COVID situation, and we group forty four last year. UM. 0:11:18.000 --> 0:11:21.920 I think it really comes down to making sure that 0:11:21.960 --> 0:11:25.800 you have sufficient inventory, and that's where I think people 0:11:25.920 --> 0:11:29.320 cut too short because they were trying to manage the 0:11:29.440 --> 0:11:33.959 supply chain way too close, and supply chains are incredibly 0:11:33.960 --> 0:11:38.200 complex in in in when it comes to chips. So 0:11:38.280 --> 0:11:41.040 going forward, I think what they have to learn is 0:11:41.360 --> 0:11:47.479 just in time is not a uh not a lowish proposition. 0:11:47.880 --> 0:11:50.520 There's very high risk when you do just in time manufacturing. 0:11:51.200 --> 0:11:53.080 So how do you think just in time be about 0:11:53.120 --> 0:11:54.760 third thirty seconds left? How do you think just in 0:11:54.800 --> 0:11:59.040 time inventory will evolve? I guess I think what will 0:11:59.080 --> 0:12:02.280 happen is everybody will caddies some level of inventory, including 0:12:02.280 --> 0:12:06.280 the automotive companies, appliance companies. UH. That way they are 0:12:06.800 --> 0:12:11.160 buffered from UH you know, disasters or in this case, 0:12:11.200 --> 0:12:15.480 pandemic or you know, any of the supply chain interruptions. 0:12:16.160 --> 0:12:18.640 All right, Ballo, thank you so much for joining us there. 0:12:18.679 --> 0:12:22.199 Bo Bala Krishnan, he's a CEO and president of Power Integrations, 0:12:22.240 --> 0:12:26.040 a semiconductor UH company out there giving us his thoughts 0:12:26.120 --> 0:12:29.080 on the chip market. Again, it's been an issue here 0:12:29.120 --> 0:12:31.880 from pretty much every company in every industry when they 0:12:31.880 --> 0:12:34.319 talk about shortages or supply chain challenges. One of the 0:12:34.400 --> 0:12:37.320 key area is UH they focus on is the semiconductors. 0:12:40.679 --> 0:12:43.280 All right, Well, last Friday, while I had my toes 0:12:43.320 --> 0:12:48.000 in the sand, Amazon stock and it's because one day 0:12:48.080 --> 0:12:51.840 drops since July two thousand six, just extraordinary. So the 0:12:51.880 --> 0:12:53.920 questions what does that mean for Amazon? What does that 0:12:53.960 --> 0:12:56.600 mean for e commerce? What does that mean for retail 0:12:56.640 --> 0:12:58.600 in general as most of the world comes out on 0:12:58.640 --> 0:13:01.160 the other side of this pandemic re Checking with Nikki Baird, 0:13:01.480 --> 0:13:04.760 vice president of strategy at Aptose Retail, Nikki, just, first 0:13:04.760 --> 0:13:08.360 of all, what do you make of Amazon's report and 0:13:08.360 --> 0:13:11.760 then the market reaction to said report. Yeah, I wasn't 0:13:11.880 --> 0:13:17.160 too surprised by the report, certainly from our perspective, our 0:13:17.240 --> 0:13:23.800 retailers are seeing much stronger store sales and much less 0:13:23.840 --> 0:13:26.920 on the e commerce side. I think the reaction was 0:13:27.360 --> 0:13:31.440 was definitely a stronger reaction than I would have expected. Uh, 0:13:31.559 --> 0:13:34.560 you know, just in general, I nobody, I think should 0:13:34.559 --> 0:13:37.040 expect that e commerce is going to continue to grow 0:13:37.160 --> 0:13:39.960 from pandemic highs. It's got to come back at least 0:13:39.960 --> 0:13:42.360 a little bit as consumers ship some of their spending 0:13:42.360 --> 0:13:46.920 back to stores. I've got to ask about how Amazon 0:13:47.040 --> 0:13:50.319 is even a proxy perhaps for broader retail, and that 0:13:50.440 --> 0:13:53.200 Amazon's kind of turning into a logistics business expanding their 0:13:53.240 --> 0:13:55.920 shipping services to the likes of Etsy, to Walmart, to 0:13:56.040 --> 0:13:58.960 other third party retailers. Is if you're to really use 0:13:59.080 --> 0:14:02.480 Amazon as kind of this beacon for broader retail, spending. 0:14:03.640 --> 0:14:06.640 I think it's definitely still fair to use them for that. 0:14:07.000 --> 0:14:10.600 While it is true that they are incredibly good at 0:14:10.679 --> 0:14:13.400 taking services that they used to run their own business 0:14:13.400 --> 0:14:16.760 and monetizing those by offering them to others. Uh, you know, 0:14:16.880 --> 0:14:21.760 it is still definitely the destination shopping force for consumers. 0:14:22.200 --> 0:14:24.280 You know, a lot of people will refer to it 0:14:24.360 --> 0:14:26.880 as the Google of products. So when you have that 0:14:26.960 --> 0:14:32.360 kind of market presence in terms of just capturing consumer attention, Uh, yeah, 0:14:32.440 --> 0:14:35.840 I think you can still use them as a good proxy. Nikki, 0:14:35.880 --> 0:14:38.040 give us your sense of kind of how the consumer 0:14:38.400 --> 0:14:41.440 is doing here again coming out on the at least 0:14:41.440 --> 0:14:45.160 here in in the US of this pandemic um dealing 0:14:45.200 --> 0:14:49.160 with the really intense inflation pressures. How's the consumer doing 0:14:49.200 --> 0:14:53.320 in your mind? You know, I am looking forward to 0:14:53.360 --> 0:14:57.360 getting more feedback on April sales because I think that's 0:14:57.360 --> 0:14:59.320 going to be the first place that we really see 0:14:59.760 --> 0:15:03.600 an indicator of how consumers are going to be looking ahead. 0:15:03.720 --> 0:15:06.400 I think, you know, for the first quarter of the year, 0:15:06.480 --> 0:15:10.280 we saw that then they were relatively unimpacted by inflation 0:15:10.640 --> 0:15:13.280 by uh, you know, any of the concerns that were 0:15:13.320 --> 0:15:16.440 driven from that, and you know, an opening up of 0:15:16.560 --> 0:15:20.160 the economy as people are getting more and more comfortable 0:15:20.280 --> 0:15:23.240 with the stage of the pandemic that we're apparently in 0:15:23.880 --> 0:15:27.640 um But but looking ahead, I think I'm starting to 0:15:27.720 --> 0:15:32.160 hear anecdotally consumers noticing, you know, that inflation is definitely 0:15:32.160 --> 0:15:34.880 starting to bite in their budgets. And I think there's 0:15:34.880 --> 0:15:38.480 anticipation that some of the text credits that were given 0:15:38.560 --> 0:15:41.800 during the depths of the pandemic are are kind of 0:15:41.800 --> 0:15:45.800 reducing the tax refund that consumers are expecting to get 0:15:45.840 --> 0:15:48.360 this year, uh, and that that will start to show 0:15:48.480 --> 0:15:51.720 up in April spending and info may well. What really 0:15:51.760 --> 0:15:54.720 strikes me here is that this was the exact conversation 0:15:54.760 --> 0:15:59.120 we were having September where you had this massive sell off. 0:15:59.280 --> 0:16:01.320 A lot of you will blame no seasonality, some people 0:16:01.360 --> 0:16:04.120 saying that the end of fiscal stimulus was the end 0:16:04.240 --> 0:16:06.480 of what was going to happen at the end of summer. 0:16:06.960 --> 0:16:09.800 It didn't really happen until I would say, you know, 0:16:09.960 --> 0:16:13.760 more recently. But this is a conversation that was almost 0:16:13.800 --> 0:16:17.640 inevitable and something that I think the market had expected. 0:16:18.120 --> 0:16:23.280 So why such a strong reaction. Yeah, I I honestly, 0:16:23.400 --> 0:16:26.160 I'm with you. I don't understand the reaction. I would 0:16:26.160 --> 0:16:28.880 have expected that this kind of responds to be priced in. 0:16:28.960 --> 0:16:32.280 And when you look at the you know, the way 0:16:32.320 --> 0:16:35.760 that consumers are getting up their spending, store sales are 0:16:35.800 --> 0:16:40.320 still incredibly strong and not even just against pandemic numbers 0:16:40.320 --> 0:16:45.880 but against So it's not like retail overall is really hurting. Uh, 0:16:46.000 --> 0:16:49.240 it's it's e commerce is coming back off of you know, 0:16:50.000 --> 0:16:53.600 rapidly accelerated growth that happened during the pandemic, and that 0:16:53.680 --> 0:16:56.680 really should be expected. I mean, I think one of 0:16:56.720 --> 0:17:00.320 the dimensions of this is definitely the cost structure, even 0:17:00.360 --> 0:17:03.240 for e commerce. And in some ways e commerce is 0:17:03.320 --> 0:17:07.960 uniquely vulnerable because they depend very much on digital as 0:17:08.000 --> 0:17:11.080 their pathway for consumers to find them. And you know, 0:17:11.320 --> 0:17:15.119 while we've been talking about logistics costs and um, you know, 0:17:15.160 --> 0:17:18.919 inflation and and everything that reflects in the price of 0:17:18.960 --> 0:17:22.879 the product that the consumer pays, marketing costs online also 0:17:22.960 --> 0:17:26.200 have been hit really hard. By some estimates, there ten 0:17:26.359 --> 0:17:30.960 times customer acquisition costs that companies were paying before the pandemic. 0:17:31.119 --> 0:17:34.960 So when you look at those costs and where you're 0:17:35.040 --> 0:17:37.920 literally getting a tent of the bang for your buck 0:17:38.359 --> 0:17:41.200 in terms of acquiring or driving customers to your site. 0:17:41.920 --> 0:17:45.120 I could see that that's driving some outside concern over 0:17:45.200 --> 0:17:48.760 the longer term health of e commerce. So, Nikki, if 0:17:48.800 --> 0:17:50.840 I do go to the store, which I try to 0:17:50.840 --> 0:17:53.280 avoid at all costs, um am, I going to find 0:17:53.359 --> 0:17:56.480 stuff on the shelves. How's the supply chain and inventory 0:17:56.600 --> 0:18:00.679 right now? You know it is better and it was 0:18:01.240 --> 0:18:04.600 uh and you kind of have to differentiate again, you know, 0:18:04.760 --> 0:18:08.840 essential versus non essentials. Right, So there's some additional things 0:18:08.840 --> 0:18:12.600 that are happening in the food supply chain that stay complex. 0:18:12.640 --> 0:18:16.680 But as far as discretionary spending goes, retailers are are 0:18:17.040 --> 0:18:21.520 fairly well stocked. Probably not as exciting of assortments as 0:18:22.040 --> 0:18:24.520 they really would want them to be. But if you 0:18:24.560 --> 0:18:28.800 go to the store, I think you're going to find stuff, well, 0:18:28.840 --> 0:18:31.440 thank God for that. Yeah, absolutely, all right, we'll see 0:18:31.440 --> 0:18:33.040 how that goes, all right, Nicki Baird, thanks so much 0:18:33.119 --> 0:18:35.879 for joining us there. Nicky Baird, vice president of Strategy 0:18:36.359 --> 0:18:44.159 for Aptose Retail. We're going to head over to the 0:18:44.200 --> 0:18:48.560 Milk and Institute's Global Conference in Los Angeles or Bloommark's BusinessWeek. 0:18:48.640 --> 0:18:52.119 Eric Shatsker interviews Apollo Global Asset manager, CEO and co 0:18:52.200 --> 0:18:55.919 founder Mark Romans. Tick listen, Mark, great to see you, 0:18:56.040 --> 0:18:59.399 good morning, see you. Everybody. Delighted to be back at 0:18:59.400 --> 0:19:01.919 the Milk and Gloo conference and kicking it off with 0:19:02.000 --> 0:19:07.840 this conversation. I did want to comment Mark on on 0:19:07.920 --> 0:19:12.520 the following if anybody needed a lesson and how much 0:19:12.520 --> 0:19:15.639 has changed over the course of the pandemic. It's the 0:19:15.680 --> 0:19:19.399 private equity CEO who's in khakis and a sweater this morning, 0:19:19.400 --> 0:19:23.680 and the journalist who's wearing a tie. Um, well, it's 0:19:23.720 --> 0:19:26.240 consistent with the ethos I've had for a very long time. 0:19:26.280 --> 0:19:28.439 I know, I know, if you are elected to a 0:19:28.520 --> 0:19:30.879 national office and I'm seeing you in your office, I 0:19:30.920 --> 0:19:33.520 wear a tie, or if you're my regulator, I'm wearing 0:19:33.520 --> 0:19:38.320 a tie. Other than that, I don't worry about it. Um. 0:19:38.359 --> 0:19:42.040 As I mentioned, Mark, I went around the audience before 0:19:42.080 --> 0:19:44.600 we began and did what I should do, which is 0:19:44.600 --> 0:19:48.480 to ask your friends and colleagues what they would ask 0:19:49.480 --> 0:19:53.480 if they were me, And they all gave me a 0:19:53.640 --> 0:19:57.119 version of the same question. Uh. And maybe it's not 0:19:57.240 --> 0:20:02.000 surprising given the times we're living in. What are you 0:20:02.080 --> 0:20:05.960 most worried about the same thing I'm always most worried 0:20:05.960 --> 0:20:11.640 about people always. Um, I'll be honest. Um, the business, 0:20:11.720 --> 0:20:15.560 the markets, the things that we're talking about today, inflation, 0:20:15.680 --> 0:20:18.840 the correction in the stock market, I don't worry about 0:20:18.880 --> 0:20:21.480 so much. I mean, if people don't see this as 0:20:21.520 --> 0:20:27.199 the logical conclusion to fourteen years of money printing, I 0:20:27.240 --> 0:20:30.840 don't know where they've been. We've printed money for fourteen years. 0:20:30.920 --> 0:20:33.880 Rates went down, stocks went up. The more risk you took, 0:20:33.920 --> 0:20:35.639 the further out on a growth curve, you were the 0:20:35.640 --> 0:20:39.040 better off you did. Okay, it's now about to run 0:20:39.080 --> 0:20:45.920 in reverse. So SMP. Last I looked the end of nineteen, 0:20:45.960 --> 0:20:52.680 it was three thousand SNPPE today one long term average sixteen. 0:20:53.560 --> 0:21:00.639 It's just not that bad people power of the business. Okay, 0:21:00.840 --> 0:21:05.440 you've brought up the market context. It's probably worth us 0:21:05.600 --> 0:21:08.240 spending it a few minutes at the very least talking 0:21:08.800 --> 0:21:14.800 about that. Um. People would probably say it feels like 0:21:14.840 --> 0:21:17.600 a challenging time to invest for some of the reasons 0:21:17.640 --> 0:21:21.120 that you just enumerated. Right, there's a lot of inflation, 0:21:21.400 --> 0:21:25.560 the most we've seen in four decades. There's war, there's 0:21:25.560 --> 0:21:28.600 the prospect of rising rates. There's quantitative tightening. We haven't 0:21:28.600 --> 0:21:33.360 seen that really. Uh, in a serious way. Yet, um, 0:21:33.440 --> 0:21:35.480 you mentioned that there's a correction in the equity market. 0:21:35.480 --> 0:21:38.320 There's a correction in the credit market too. What kind 0:21:38.359 --> 0:21:41.840 of future are you preparing for? Of all the one 0:21:42.160 --> 0:21:45.160 I mean, but I start with you know, sometimes I'm 0:21:45.160 --> 0:21:48.200 asked to explain what our strategy is and I put 0:21:48.280 --> 0:21:53.399 it in three words, purchase price matters. So if I 0:21:53.440 --> 0:21:57.879 can buy a fundamentally good business today at less than 0:21:57.880 --> 0:22:01.119 I could buy it three months ago, that feels like 0:22:01.200 --> 0:22:03.920 a good outcome. Will there be bumps along the way 0:22:03.960 --> 0:22:07.399 where there be deviations, of course there will be, But 0:22:07.520 --> 0:22:11.200 I think the notion of purchase price matters. Some call 0:22:11.240 --> 0:22:14.520 it value in the extreme. You can be like Laurren 0:22:14.520 --> 0:22:18.800 Buffett and Charlie Monger, But I think it's a strategy 0:22:18.880 --> 0:22:23.720 that's built for multiple market cycles. In the equity business, 0:22:23.720 --> 0:22:26.440 it's the price you pay, it's the companies you buy. 0:22:26.520 --> 0:22:30.040 And in the credit business, it's being senior secured, it's 0:22:30.080 --> 0:22:34.240 not being long duration, being floating rate. There are lots 0:22:34.240 --> 0:22:37.080 of ways still to protect yourself. Maybe it doesn't feel 0:22:37.080 --> 0:22:39.880 as good given what we've been through and just how 0:22:39.920 --> 0:22:43.760 positive the last decade has been. No, it certainly doesn't 0:22:43.800 --> 0:22:47.359 feel as good. Um. But on the subject of purchase 0:22:47.480 --> 0:22:57.800 price mattering and value as a concept and time, there's 0:22:57.840 --> 0:23:03.840 something of an unknown. Uh, it's enough if you can 0:23:03.880 --> 0:23:06.720 buy something for less right now, might you be able 0:23:06.720 --> 0:23:10.280 to buy it for less six months from now? Perhaps? 0:23:11.119 --> 0:23:14.160 I mean, this is always the question of what's cheap 0:23:14.240 --> 0:23:18.240 enough and what what what's what's worth doing? Um? I 0:23:18.280 --> 0:23:21.399 think we have more to go or in what sense? 0:23:21.480 --> 0:23:24.520 I think there's more of a correction to come? I think, 0:23:24.760 --> 0:23:29.160 you know, being a macroeconomics prognosticator is not what we do. 0:23:29.600 --> 0:23:35.400 But understanding fundamentally good businesses that maybe had more options 0:23:36.040 --> 0:23:39.919 three months ago and have fewer options today. We'll find 0:23:40.640 --> 0:23:43.320 that category of things that makes sense for us to do. 0:23:44.040 --> 0:23:51.040