Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg And
Speaker 1: now to give us a little bit of perspective. When
Speaker 1: we see that the SMP five hundred is down twelve
Speaker 1: percent for the year, the nasdack down ten percent, the
Speaker 1: Dow Jones industrial leverage posting a decline of eleven and
Speaker 1: a half percent, we went looking under the tree for
Speaker 1: someone who is optimistic, and luckily we didn't have to
Speaker 1: go very far. Edward Stringham joins us now here in
Speaker 1: our studios. He's the president of the American Institute for
Speaker 1: econom Research. Edward Stringham, Merry post Christmas and Happy Boxing
Speaker 1: Day to you. I'm so glad that you're here because
Speaker 1: you are optimistic about the global economy in twenty nineteen.
Speaker 1: Give us some reasons why we should put the humbug aside.
Speaker 1: So I would say, uh, potentially, potentially we got it
Speaker 1: with a little hope. There's the there's a joke in
Speaker 1: the Soviet Union of the optimists and the pessimists. That
Speaker 1: the pessimist says, oh, things are so bad, they can't
Speaker 1: get any worse. The optimist says, no, don't be so pessimistic.
Speaker 1: Things can get a lot worse. So I hope that's
Speaker 1: in the past. So I I would say that there's
Speaker 1: a lot of things that could go wrong in two
Speaker 1: thousand nineteen, but there's just so much that could go well.
Speaker 1: So we're at right now record low unemployment rates, the
Speaker 1: lowest we've seen in the past fifty years. We've seen
Speaker 1: a lot of increase in UH certain sectors of the economy,
Speaker 1: like the financial sector due to I would say de
Speaker 1: regulation of the economy or the past couple of years,
Speaker 1: we've seen a lot of strength in our business due
Speaker 1: to lowering taxes and increasing corporate opportunity. On the other hand,
Speaker 1: there's a lot that is actually interfering, getting people upset.
Speaker 1: I would say things like the trade wars are scaring people.
Speaker 1: They're hammering markets in China. If you look at the
Speaker 1: stock indexes for for the Chinese stock markets, I feel
Speaker 1: very bad for them. So you know, there's a lot
Speaker 1: more than the Hank Sang is down more than this
Speaker 1: year it's just unbelievable. So that's what we would predict. However,
Speaker 1: when we see that people can gain from trade and
Speaker 1: then we see that that could be taken away from this,
Speaker 1: that's exactly what we would predict, is decreases in our
Speaker 1: major trading partners stock markets. All Right, I'm going to
Speaker 1: play the optimist for you here because I'm wondering whether
Speaker 1: the sort of imagination of investors has run away with
Speaker 1: them when they think about the repercussions from the trade
Speaker 1: confrontation between the United States and China, between the United
Speaker 1: States and the European Union, because it seems to be
Speaker 1: at least let's go down the list, be a little specific.
Speaker 1: The issue of intellectual property is one that no one,
Speaker 1: at least in the United States, Republican or Democrats, seems
Speaker 1: to have an issue with. Everybody sees the perspective that
Speaker 1: China has been stealing or at least misappropriating intellectual property
Speaker 1: not only from the United States but from other countries.
Speaker 1: It's I think a very interesting issue that has come
Speaker 1: up in light of these discussions about tariffs, and a
Speaker 1: lot of people say, oh, it's really not about restrictions
Speaker 1: on trade, it's these other things. But when the president
Speaker 1: came out a few weeks ago, I say, I am
Speaker 1: a tariff man. I think that that really shows deep
Speaker 1: down that he might be actually a tariff man, and
Speaker 1: that to me does worry me. So there's a lot
Speaker 1: of these I would say, I don't think it's just
Speaker 1: a political stand. I wanted to get Chinese to change
Speaker 1: the way they do business. I I don't know. A
Speaker 1: lot of my friends actually argue that that's what he's doing.
Speaker 1: It's part of his art of the deal, and he's
Speaker 1: really just bargaining. And if that ends up being the
Speaker 1: case and we end up with lower tariffs all around,
Speaker 1: then I will be thrilled and say yes two thousand nineteen,
Speaker 1: I think if they were to actually take their foot
Speaker 1: off of the throat of international trade, the government or
Speaker 1: take its foot off the throat of international trade, we
Speaker 1: would have a huge increase in markets, and that also
Speaker 1: could be potentially part of his strategy to actually open
Speaker 1: up unleash markets at a later date. What do you
Speaker 1: make of the argument that the reason we've seen this
Speaker 1: steady sell off in stocks is directly related to the
Speaker 1: US Federal Reserve, the increase in interest rates, and the
Speaker 1: wind down the ongoing wind down of the Federal Reserve's
Speaker 1: balance sheet. That's another very interesting and complicated issue. We've
Speaker 1: got a system where the Federal Reserve controls so much
Speaker 1: of the important parts of our economy, specifically the interest rate.
Speaker 1: We had a series of very loose monetary policy for
Speaker 1: over ten years, and people saying we've got to move
Speaker 1: away from that. We've had what I would say are
Speaker 1: very artificially low UH interest rates for so long, and
Speaker 1: the Federal Reserve said, basically, we can't continue this, and
Speaker 1: they've been easing off of this what I would call
Speaker 1: this overly loose monetary policy. So I think it had
Speaker 1: to happen at one point. We're going into this direction.
Speaker 1: And then the question is is this going to be
Speaker 1: distabling or destabilizing of the economy or not. You believe
Speaker 1: it will be destabilizing. I mean, it's really is this
Speaker 1: level of interest rates. I mean, you take a look
Speaker 1: at you know, three percent for the thirty year and
Speaker 1: all right, to take a look at the two year
Speaker 1: at two point five, that doesn't seem like an outsized
Speaker 1: increase in interest at all. I totally agree with you
Speaker 1: that we're we're talking about, you know, a quarter percent
Speaker 1: increase last week, and it's like, oh, the sky is falling.
Speaker 1: I just don't think that that is that the excuse
Speaker 1: for why people sell, but they don't have any other
Speaker 1: President said just the other day he said he said
Speaker 1: the only bad thing going on in the economy is
Speaker 1: a federal reserve. And I think that's trying to put
Speaker 1: point the finger too much at the federals. I'm not
Speaker 1: saying the federal reserve is great, but to say that
Speaker 1: they're responsible for all woes and the economy, I just
Speaker 1: don't buy it. Well, they can't rack up a trillion
Speaker 1: dollar deficit all by themselves, right, I mean, they need
Speaker 1: help from side, from the government. Do you believe that
Speaker 1: the increase in the debt and the deficits that the
Speaker 1: government is the U S Government is running, you think
Speaker 1: that this is going to really hurt the economy? In so,
Speaker 1: this is I would call a long term problem. We've
Speaker 1: got unsustainable deficits, unsustainably growing debt, and I think the
Speaker 1: longer this last, the more we're gonna have to be
Speaker 1: paying on interest servicing debt. But I do think that
Speaker 1: this is going to come in gradually and it's going
Speaker 1: to be more and more problematic. But I don't I
Speaker 1: can't predict that this is what everybody who is listening
Speaker 1: has already retired, and the children and grandnill do. Right.
Speaker 1: So I don't think tonight there's going to be this
Speaker 1: massive crisis. But but over time, certainly, as we go
Speaker 1: more and more into the realm of higher and higher debt,
Speaker 1: that isn't going to be increasingly a problem. Okay, so
Speaker 1: you've talked about the labor picture, which means more people working.
Speaker 1: You see help wanted signs, it's difficult to hire workers
Speaker 1: for certain jobs. Do you believe that that will help
Speaker 1: the economy in because if you're working, you're paying taxes,
Speaker 1: and that money also goes into the economy because you've
Speaker 1: got to spend it. Sure. Yeah, there's a very good
Speaker 1: labor market right now. There's increases in wages, and by
Speaker 1: all accounts, that's actually very positive. The more people we
Speaker 1: have hired, the more, as you said, the people are working,
Speaker 1: the more they're producing, the more everybody has. So so
Speaker 1: to what do you really ascribe the gloom that seems
Speaker 1: to have settled on financial markets, whether it's the debt market, treasuries, leverage, loans, equities, yeah,
Speaker 1: I I don't. I don't consider things like leverage loans
Speaker 1: to be the problem. I consider the problem to be policy.
Speaker 1: Uncertainty of bad government policy can really throw a wrench
Speaker 1: into things. It can interfere with businesses plans if all
Speaker 1: of a sudden the inputs of their products are more expensive.
Speaker 1: American corporations are now put at a competitive disadvantage worldwide.
Speaker 1: Consumers themselves are going to be buying fewer goods when
Speaker 1: they have to pay higher tariffs. So I certainly hope
Speaker 1: that this trade ward doesn't balloon and explode, But it's
Speaker 1: something that can cause a lot of alarm to to anybody.
Speaker 1: All right, So I'm just gonna before we let you go,
Speaker 1: I just got to assume that you came here either
Speaker 1: in some vehicle or you've taken a plane. In the
Speaker 1: last couple of days. We've got oil right now at
Speaker 1: forty three dollars of barrel trading on the nimax. It's
Speaker 1: up two percent today, but that's the minimus because it's
Speaker 1: six cents higher. If oil stays at forty three, is
Speaker 1: that going to be good for consumers and good for
Speaker 1: the economy, and good for the airlines and so on?
Speaker 1: That's a really difficult question. We've got so many prices
Speaker 1: in the world, and stock markets prices are determined by
Speaker 1: all factors, including current input crisis. So I think that,
Speaker 1: um uh, the oil. Oil is an important factor in
Speaker 1: the economy, but I think there's so many other, bigger,
Speaker 1: more important things that are in our control. The oil
Speaker 1: markets is kind of outside of our control in the
Speaker 1: short run at least. But what isn't our control is policy.
Speaker 1: Economic policy matters. All right, Well done, thanks very much.
Speaker 1: Edward Stringham is the president of the American Institute for
Speaker 1: Economic for Research. I'vean fine set. Tigers Financial Chief investment
Speaker 1: officer and director of Research joins us. Now, Ivan, it
Speaker 1: looks like a good open today, but what about a
Speaker 1: close for the year. Do you think that we're going
Speaker 1: to be able to rebound from these pretty steep sell
Speaker 1: offs and all the indexes? Well, I think now it
Speaker 1: is the time to take advantage of the after Christmas
Speaker 1: sale on Wall Street. I mean, there are some incredible
Speaker 1: values here. There's been, unfortunately, there's been a huge disconnect
Speaker 1: between how well the economy is doing and now how
Speaker 1: badly the stock market is doing. And there's been some
Speaker 1: near term issues I mean, the concern over the trade
Speaker 1: situation with China. Now the um uh government shutdown, and um,
Speaker 1: some concerning tweets from President Trump about the lack of
Speaker 1: confidence in the FED and uh, you know, and wanting
Speaker 1: to potentially remove Jerome Powell as the head of the FED. Yes,
Speaker 1: and his statement of the fact that the FED doesn't
Speaker 1: understand financial markets is is a little odd. That's like
Speaker 1: saying the doctor who's about to operate on you doesn't
Speaker 1: understand medicine. So, um, some of these near term things
Speaker 1: have been disappointing. And uh, two of the things that
Speaker 1: President Trump had going for him was the strength of
Speaker 1: the economy. Everybody liked the Trump economy and the Trump
Speaker 1: stock market, and unfortunately the Trump rally has faded. However,
Speaker 1: I still believe that the underlying economic strength in the
Speaker 1: US is still strong, and you know, just look at
Speaker 1: the strong holiday season that we had. And uh, for
Speaker 1: the most part, stocks are cheaper than they were a
Speaker 1: year ago at this time. Surely, But but I gotta
Speaker 1: pressed you, ivan, I mean, did you see this sell
Speaker 1: off coming? No, not not to this extreme point. Okay,
Speaker 1: So if you didn't see this, okay, So my point is,
Speaker 1: if you didn't see it coming. Many people didn't see
Speaker 1: it come. You've got a lot of company. Is it
Speaker 1: possible that the stock market and investors, like you know,
Speaker 1: the bookmakers, are telling the public something that they didn't
Speaker 1: know before, that they really are concerned about something in
Speaker 1: the future, and that it is a future looking machine
Speaker 1: that sometimes gets it right. Well, there is a lot
Speaker 1: of concern amongst investors about the decline in stocks, but
Speaker 1: they are more upset that the market is down, and
Speaker 1: not more upset that that not upset that they believe
Speaker 1: the economy is slowing. You know, everybody says the economy
Speaker 1: still looks good from various people's advantage point of you know,
Speaker 1: the companies they run, or the jobs they have, or
Speaker 1: the situations that they're in. They still say the economy
Speaker 1: is good. But this sell off in the stock market
Speaker 1: has been somewhat technical. I think we've seen a lot
Speaker 1: of margins selling recently, and a lot of UH forced
Speaker 1: selling by over leveraged hedge funds, and a lot of
Speaker 1: funds are in net redemption now, which has caused a
Speaker 1: lot of forced selling, and there's a lot of panic
Speaker 1: out there. Explain in a second, I've explained how that
Speaker 1: forced redemptions work because if you invest in an alternative
Speaker 1: such as a hedge fund, it's like you can just
Speaker 1: call them up on the phone or send them an
Speaker 1: email whatever it is, and say I want to get out,
Speaker 1: send me my check. It takes a while, doesn't it. Well.
Speaker 1: Usually some have, you know, minimum of thirty day notice
Speaker 1: to redeem. Others have a periodic redemptions that you have
Speaker 1: to get in line for. But I think with the
Speaker 1: poor performance and hedge funds that we've seen, um, they
Speaker 1: in theory underperform on the way up because their heads,
Speaker 1: but they're supposed to protect you on the way down,
Speaker 1: and many haven't and they are getting a lot of
Speaker 1: redemptions uh for the end of the year and have
Speaker 1: been forced to sell. Also, a lot of hedge funds
Speaker 1: use leverage and they have been in a significant deleveraging process.
Speaker 1: What do you make of the argument that the reason
Speaker 1: that stock prices have fallen is directly correlated to the
Speaker 1: Federal Reserve with drawing liquidity and buying power in the marketplace.
Speaker 1: They've raised rates and they have been contracting their balance sheet.
Speaker 1: But I don't really believe it has been a huge
Speaker 1: reduction in liquidity I think the point that Treasury Secretary
Speaker 1: Minution was making on Sunday night with his calls to
Speaker 1: the heads of all the big banks was that there
Speaker 1: is plenty of liquidity out there, so we really there's
Speaker 1: not really a liquidity issue. I think we've seen a
Speaker 1: buyer strike. People have just pulled back from buying, and
Speaker 1: when you have a lot of shares being dumped on
Speaker 1: the market, prices moved downward quickly. But I don't think
Speaker 1: that there's a lack of liquidity in any of the
Speaker 1: financial markets. So where do you believe this on the skyline? Okay?
Speaker 1: So where do you believe the new money will come
Speaker 1: from in order to boost stock prices because the only
Speaker 1: reason they go up is someone else is willing to
Speaker 1: pay more for the same share. Well, that's a good question.
Speaker 1: The first flow of money will begin on the middle
Speaker 1: of January when people start to get paid again and
Speaker 1: uh start to contribute into their four o one case
Speaker 1: because um, you know, during the course of a year
Speaker 1: you may reach the limit, and that for some people
Speaker 1: can be anywhere from the middle of the year toward
Speaker 1: you know, later on in the year. So we still
Speaker 1: maxing out your four oh one contribution you think that
Speaker 1: has an effect. That's number one, yes, yes, So you
Speaker 1: will see UM money flow back into four one case,
Speaker 1: which goes back into the stock market on a periodic
Speaker 1: basis one of the best ways to invest. The second
Speaker 1: catalyst for the upside I believe will be Q four earnings,
Speaker 1: which we start to get in towards the end of January,
Speaker 1: and the and the and two thousand nineteen outlooks, and
Speaker 1: we have not seen a huge reduction in corporate outlooks,
Speaker 1: and in fact, most CEOs are still very optimistic for
Speaker 1: two thousand nineteen. They haven't cut their outlook back. So
Speaker 1: you're looking at earnings being a boost when we receive
Speaker 1: those fourth quarter results. I think there's you know, two
Speaker 1: a catalysts. The flow of money that always begins in
Speaker 1: January into pensions in four O one case is always
Speaker 1: positive for the market. Second is uh, I think that
Speaker 1: earnings will be a positive catalyst. The third is I
Speaker 1: think we will get some type of UM trade deal
Speaker 1: with China. I've said for a long time President Trump
Speaker 1: had the upper hand for a while, as the Chinese
Speaker 1: stock market has declined significantly since the trade battle began
Speaker 1: in February, and now the decline in our market, which
Speaker 1: is partially caused by the uncertainty over trade with China.
Speaker 1: I think President Trump maybe a little bit more flexible
Speaker 1: in his negotiations. Uh, and he's probably as stubborn as
Speaker 1: President sigen Ping is too. So you have two sub
Speaker 1: negotiators that you know are being forced to the table
Speaker 1: because of current economic and market situations in their own countries.
Speaker 1: Speaking with Ivan fine Set, he is Tigris Financial's chief
Speaker 1: investment officer and director of Research, Ivan, are you surprised
Speaker 1: that there are not more bullish calls for equity, particularly
Speaker 1: when you see the price of fossil fuel of crude
Speaker 1: oil at forty two dollars a barrel. The one thing
Speaker 1: I have been right on and recently has been I've
Speaker 1: said oil was going to drop, and I believe the
Speaker 1: oil will go closer to forty dollars than many people
Speaker 1: calling for sixty dollars and lower oil prices is another
Speaker 1: positive thing for consumer discretionary spending, so that also is
Speaker 1: helpful the economy. Why do you think oil prices are
Speaker 1: gonna hit forty because they will not be able to
Speaker 1: support prices meaning OPEC with the recently announced UM production
Speaker 1: cuts and Uh, the US is now a wash and oil,
Speaker 1: and we are the world's biggest producer of oil now
Speaker 1: and the shale oil that keeps coming online is also
Speaker 1: helping keep prices lower. Russia, while they are not an
Speaker 1: OPEC member, they meet with OLPEC and try to have
Speaker 1: a consensus on production because obviously we have an interest
Speaker 1: in the price of oil. But they will pump what
Speaker 1: they want and when they want, and we just have
Speaker 1: a lot of supply. Also, company countries like Venezuela is
Speaker 1: in desperty to cash though they want to pump as
Speaker 1: much as they can. So um, the world is a
Speaker 1: wash and oil. It's supply and demand and right now
Speaker 1: we have an oversupply which should take prices for you
Speaker 1: know lower. Well, it just to give you thirty seconds,
Speaker 1: and I'd like you to spend some more time with us,
Speaker 1: and because I want to get your sort of specific
Speaker 1: views on the market which sectors. But is it possible
Speaker 1: that the decline in oil prices is linked to slowing
Speaker 1: demand and that's weaker economic output outside the United States? Well,
Speaker 1: there has been some concern that the decline in oil
Speaker 1: would be an indication of economic weakness. My guest is
Speaker 1: Ivan Fined set He is the chief investment officer and
Speaker 1: director of Research for Tigress Financial Show Ivan. It has
Speaker 1: been a brutal fourth quarter for stock investors. We know
Speaker 1: that we are approaching a decline in the S and
Speaker 1: P five currently at one. We'll wait to see what
Speaker 1: the open brings us. You have mentioned that you are
Speaker 1: bullish and you believe that there is a buying opportunity.
Speaker 1: So if you are an investor who has money to invest,
Speaker 1: where would you specifically be looking to put it to work?
Speaker 1: The first sector would be the tech sector. It's still
Speaker 1: the engine of growth for our economy and pretty much
Speaker 1: most global economies. And the sell off there has been
Speaker 1: the most dramatic companies like Amazon and Apple and UM,
Speaker 1: Intel and Microsoft and Nvidiah and along with many of
Speaker 1: the other chip stocks like Skyworks, Corbo and Quilcom. I
Speaker 1: think there are huge bargains there. And then retail Costco UH,
Speaker 1: Best Buy, UM, Target, UH, Nordstrooms and Macy's. And then
Speaker 1: in the industrials Caterpillar, Boeing, ALCOA, UM. There's just a
Speaker 1: tremendous number of companies that have good growth, pay good dividends,
Speaker 1: and have a huge amount of opportunity ahead of them.
Speaker 1: All right, let's take each one of these if we
Speaker 1: can just a little bit more detail. You mentioned technology.
Speaker 1: You spoke about Amazon dot Com, of course retail plus technology.
Speaker 1: Also you mentioned chip stocks and Apple. I didn't hear
Speaker 1: Facebook in there. Oh yes, I forgot face Facebook. You'd
Speaker 1: be buying Facebook at these levels. Absolutely. You don't believe
Speaker 1: that there's any concern about government regulation. Um not. I'm
Speaker 1: not overly concerned about it. I think that they are
Speaker 1: doing a lot to The two key issues are fake
Speaker 1: accounts and um pretty much false news, and they have
Speaker 1: hired about twenty people to oversee compliance and are heavily
Speaker 1: using artificial intelligence to ferret out a lot of the issues.
Speaker 1: But the most important driver is they have two point
Speaker 1: six billion monthly active users, and advertisers want to go
Speaker 1: to where the customers are, and the digital advertising continues
Speaker 1: to grow because you can use technology and target and
Speaker 1: measure your return on advertising invested dollar. And Facebook offers
Speaker 1: the best value and opportunity to the advertisers and that
Speaker 1: is the key. Al Right, So at a hundred and
Speaker 1: do a share, you're a buyer of Facebook. Absolutely. In
Speaker 1: Facebook is now at the cheapest level since the history
Speaker 1: of it being a public company. All right, so you're
Speaker 1: positive on Facebook. Make the case for Apple. When we
Speaker 1: heard from many analysts that the transition from hardware sales
Speaker 1: of iPhones to service revenue and software is going to
Speaker 1: be a challenge, Well, I don't know if it's going
Speaker 1: to be a challenge. It continues to happen. iPhone sales
Speaker 1: are slowing slightly, but they sold million phones in the
Speaker 1: last quarter. They have a active iPhone user base of
Speaker 1: seven and fifty million that they can sell additional services to.
Speaker 1: They could go to a subscription model for the sale
Speaker 1: of the phones, where uh, most people do buy their
Speaker 1: phones on a monthly basis as part of the contract
Speaker 1: with their service. They can go to a Amazon Pride
Speaker 1: type of membership for streaming media for iTunes um. They
Speaker 1: can also include the Apple Care warranty on a for
Speaker 1: a monthly fee as part of the purchase of the phone.
Speaker 1: There's a lot they can do to monetize this huge
Speaker 1: Apple customer base, and they continue to sell product. They
Speaker 1: continue to go through the ongoing upgrade cycle of the phones.
Speaker 1: They still sell max, they still sell iPads um. The
Speaker 1: demand for their products is strong, alright, So bullish on Facebook,
Speaker 1: bullish on Apple. Turn your attention to industrial as you
Speaker 1: mentioned them. Just give us one industrial stock to give
Speaker 1: you about the thirty seconds. What industrial company would you
Speaker 1: most like to own? They just raised their dividend. Is
Speaker 1: that part of the story. Yes, they just increased their dividend.
Speaker 1: They just increased their buy back by two billion dollars
Speaker 1: from eighteen billion billion. Plane that they have a backlog
Speaker 1: of plane demand for the next twenty years. Few companies
Speaker 1: have that kind of visibility. Uh. They just got a
Speaker 1: huge A fifty plane order from a subsidiary of Saudi
Speaker 1: Arabia Airlines worth almost six billion dollars. Uh. The UH
Speaker 1: seven thirty seven Max remains their best selling phone. Excuse me,
Speaker 1: past selling plane. They've had no loss of letters since
Speaker 1: the unfortunate Lion Air issue, which is now coming out.
Speaker 1: It was all right, he's got a trifecta. We've got
Speaker 1: to leave it there. Ivan find set the Chief investment Officer,
Speaker 1: Director of Research Tigers Financial, Bullish on Boeing, Apple and Facebook.
Speaker 1: If you happen to go through the lobby of just
Speaker 1: about any casino, perhaps the Tropicana in Atlantic City, what
Speaker 1: will you find signs that direct you to place your
Speaker 1: bets for sports. And here to tell us all about
Speaker 1: the industry is none other than our own expert, Brian Egger.
Speaker 1: Here's our Bloomberg Intelligence senior gaming analysts, and you can
Speaker 1: follow him on Twitter as we all do at Eggerantonomics.
Speaker 1: Alright at Egernomics, give us the lowdown on where you
Speaker 1: can legally bet on sports. Yeah, there's been this remarkable
Speaker 1: proliferation of where you could actually bet on sports. So
Speaker 1: in the last year, actually since May when the Supreme
Speaker 1: Court repealed the federal ban on sports betting. It now
Speaker 1: exists in Delaware, New Jersey, West Virginia, Mississippi, Rhode Island, Pennsylvania,
Speaker 1: and also one track in New Mexico. So it's seven
Speaker 1: other states other than Nevada. All right, So those seven
Speaker 1: other states, does the amount of money that is bet
Speaker 1: in those seven other states come close to what is
Speaker 1: bet in Vegas? So it's starting to and you really
Speaker 1: have to distinguish between the amount bet in Vegas uh
Speaker 1: as opposed to the amount that actually is retained as revenue,
Speaker 1: And that amount in Vegas actual annually is about two
Speaker 1: fifty million dollars as revenue, about five or center the
Speaker 1: amount wagered and so far in New Jersey, if you
Speaker 1: extrapolate the last few months for the brick and mortar
Speaker 1: sports books there, it's been a similar piece of revenue
Speaker 1: so far. All right, now, I'm looking at the sign
Speaker 1: that exists at the Tropicana in Atlantic City. It's a
Speaker 1: William Hill sign there the sports book You've got basketball, soccer, tennis, golf, baseball.
Speaker 1: But the biggest, the one that's most out front is football.
Speaker 1: Tell us about betting on football? Football is really the
Speaker 1: major sport. If you look at Nevada, the most well
Speaker 1: developed and long standing market, football accounts for about thirty
Speaker 1: six percent of annual sports betting revenue, and then basketball
Speaker 1: comes next at about a third of the total. So
Speaker 1: football is really, uh the big one, which is why
Speaker 1: these books wanted to get up and running if possible
Speaker 1: before the advent of the football season. Is there a
Speaker 1: dichotomy between the market for sports betting when it comes
Speaker 1: to physic all betting I mean going to a casino
Speaker 1: and placing the bet versus online betting using your smartphone?
Speaker 1: There is now The online betting markets vary in size
Speaker 1: by state. A lot of these states are new. But
Speaker 1: if you look at New Jersey, UH, the month of November,
Speaker 1: the most recent data we've got. It's kind of interesting
Speaker 1: because there are seven brick and mortar, seven casino affiliated
Speaker 1: sports books, and only two racetracks. Yet those two racetracks,
Speaker 1: Meadowlands and Monmouth Park, account fort of the total sports
Speaker 1: betting revenue so so far, um, the on the racetracks
Speaker 1: are winning this proportionally, and UH the online portion is
Speaker 1: also about so the big winners so far are the
Speaker 1: race tracks and the online betting sites, which are about
Speaker 1: about the total. Now, as someone that has been following
Speaker 1: this industry for a long time, do you believe that
Speaker 1: the actual physical betting locations, the casinos, the companies that
Speaker 1: provide the infrastructure to do it, are they really going
Speaker 1: to benefit or is it possible that we just have
Speaker 1: an online explosion like we've had in the retail world.
Speaker 1: So it's it's a really interesting question because sports betting
Speaker 1: historically has only accounted for about two percent of the
Speaker 1: total gaming revenue, UH coming out of Nevada. The rest
Speaker 1: comes from slot machines and table games. Likewise, in New Jersey,
Speaker 1: it's been kind of in the order of kind of
Speaker 1: three four percent, So as a revenue generator because the
Speaker 1: casino has only retained five percent of dollars wagered as
Speaker 1: when it's comparatively small compared to the slop machines and
Speaker 1: the table games. But it's really important as an ancillary
Speaker 1: traffic driver during those big UH sports betting weekends, football
Speaker 1: weekends and t double A basketball semifinals, World Series, etcetera.
Speaker 1: There's a lot of traffic flowing through from the sports
Speaker 1: books into the casino. So it's I think it's actually
Speaker 1: more important as a traffic driver of casino activity. There's
Speaker 1: an actual revenue source per se. Now I know that
Speaker 1: you spend some time at the Tropicana in Atlantic City recently.
Speaker 1: What did you see? Okay? And I should say I
Speaker 1: spend most of my time at my desk doing analysis.
Speaker 1: Of course you do, of course, But what I saw
Speaker 1: was we were there and that's why you have that
Speaker 1: the one armed bands exact screen exactly. UM. So what
Speaker 1: I saw there was, although it wasn't a very busy time,
Speaker 1: you saw a lot of sports books. It's interesting that
Speaker 1: William Hill, the UK bookmaker UM has so far three
Speaker 1: sports books in New Jersey, three physical ones UH. The
Speaker 1: Ocean Resort in Tropicana, Atlantic City and in Mommouth Park
Speaker 1: the race tracks. So a lot of the way these
Speaker 1: sports books have kind of emerged is through these allignances
Speaker 1: between race tracks and casinos and commercial gaming markets and
Speaker 1: some of the big betting houses like William Hill and
Speaker 1: of course the daily fantasy sports companies really involved. Also,
Speaker 1: I want to go back to something you said about
Speaker 1: the five percent take that the casinos have when it
Speaker 1: comes to the revenue, right that they get about five
Speaker 1: is that materially different than the table stakes as well
Speaker 1: as the slot machine business. So it's probably similar to
Speaker 1: the whole rate if you will, on slaw machines. The
Speaker 1: table game hold rates are are a little higher, you know,
Speaker 1: but that kind of activity is determined by UH competition.
Speaker 1: Nevada is a fairly competitive and developed sports market. But
Speaker 1: the reason, you know, we kind of point this out
Speaker 1: is if you were to look at the theoretical size
Speaker 1: of sports betting, UH, look at the amount of a
Speaker 1: legal betting that has taken place in this country, and
Speaker 1: assigned that five percent rate to it, you know, theoretically
Speaker 1: there's seven to eight billion dollars of revenue flowing to
Speaker 1: these legal sports books. But that's only if people give
Speaker 1: up their legal bookies. And of all these states legalized
Speaker 1: sports betting, is there a potential for more states to
Speaker 1: offer this kind of legal sports betting? Yeah, there is.
Speaker 1: I think we're only in the early innings of the
Speaker 1: legalization UH process to use a sports betting metaphor. So
Speaker 1: so far, we've had, recently within the last week, Washington,
Speaker 1: d c. Getting ready to roll it out next year,
Speaker 1: New York State likely to next year as his Massachusetts
Speaker 1: likely to consider it UH and Michigan had a kind
Speaker 1: of way development with an introduction of a sportsmaning bill
Speaker 1: that might gain traction during the twenty nineteen legislative session. Brian,
Speaker 1: if I were to say to you ten years ago
Speaker 1: that there would be legal sports betting in the United States,
Speaker 1: not just in Vegas but throughout the country, and you
Speaker 1: twin that with the legal cannabis market in the United States,
Speaker 1: would you have said I was crazy? Uh. I wouldn't
Speaker 1: have said you're crazy. But you have, with that great foresight,
Speaker 1: if you thought that was strong. Yes, far in mind
Speaker 1: that the you know, the various states have kind of
Speaker 1: taken upon themselves to legalize recreational cannabis, whereas this is
Speaker 1: actually a supreme Court case that a floodgates. You know,
Speaker 1: this is it may reflect changing social opinion and permissiveness,
Speaker 1: but this is something that New Jersey has been trying
Speaker 1: to get through since their early nineties to overturn the
Speaker 1: band that really restricted UM sports betting in a large
Speaker 1: part to Nevada. So it's really the Supreme Court that
Speaker 1: kind of came to the rescue of the commercial gaming industry.
Speaker 1: All right. The reason I bring this up is because
Speaker 1: of the revenue from the taxes that both of these
Speaker 1: activities would bring to the state's treasuries. Is that having
Speaker 1: an effect? You know, it's it's it's potentially significant over time.
Speaker 1: And the tax rates vary by state, as they do
Speaker 1: for the casino industry. It's about a percent in New Jersey.
Speaker 1: It's as high as thirty four percent of sports betting
Speaker 1: revenue in Pennsylvania. Uh And obviously from the perspective of
Speaker 1: the sports books, the lower the lower the tax rate,
Speaker 1: the better. But it is going to be an incremental
Speaker 1: source of gaming revenues. Bear mind again, for markets like Nevada,
Speaker 1: nine percent of that gaming revenue pie is coming from
Speaker 1: slab machines, table games, all the traditional stuff. Okay, we are,
Speaker 1: of course getting to that point in the season when
Speaker 1: people are looking towards the super Bowl and the estimates
Speaker 1: to how much money is going to be better this
Speaker 1: year on the super Bowl. I don't have an estimate
Speaker 1: and the n C Double A. Actually it's interest in
Speaker 1: American Gaming Association comes out with an estimate every year
Speaker 1: about how much money will we bet on the n
Speaker 1: C Double A basketball men's regional semifinals. That the super
Speaker 1: Bowl is certainly really big seasonal events. Sports betting is
Speaker 1: by its nature very seasonal, so I don't have an estimate.
Speaker 1: But what's unusual about this? First this next super Bowl
Speaker 1: and n C Double A tournament in twenty nineteen, it
Speaker 1: will be the first time these events have taken place
Speaker 1: amid the widespread proliferation of legalized sports betting. This means
Speaker 1: you're just going to be a lot busier this year. Finally,
Speaker 1: you mentioned William Hill, UK company that has a partnership
Speaker 1: with the Tropicana and many other casinos. Are there US
Speaker 1: companies that are good at doing this, so U S
Speaker 1: companies UM are are involved. There There are entities out
Speaker 1: there like UM Scientific Games ST Interactive, UH. There are
Speaker 1: the sports betting UM Sports daily fantasy sports companies. There's
Speaker 1: sp Tech in conjunction with Scientific Games. There's a number
Speaker 1: out there that involved but William Hill kind of really
Speaker 1: important um as ore and I mentioned one other thing too,
Speaker 1: you talk about US versus International patty power. Betfair now
Speaker 1: has a controlling steak uh In Fandel, So we're really
Speaker 1: seeing this convergence of the traditional UK European betting houses
Speaker 1: with the DELA fantasy sports companies working alongside the casinos.
Speaker 1: Thank you very much, Brian Edgar as always fascinating, interesting
Speaker 1: and worthwhile Bloomberg Intelligence senior gaming analysts. Well, if you're
Speaker 1: an American consumer, chances are your email inboxes filling up
Speaker 1: with what it's called boxing day sales or post Christmas sales.
Speaker 1: Flyers here to tell us about the state of the
Speaker 1: retail industry, Dana Telsey tells the Advisory Group chief executive
Speaker 1: and chief research Officer, Dana the sales are already starting,
Speaker 1: aren't they. They are. The sales are definitely beginning today
Speaker 1: as your As you mentioned, everyone's email boxes are filling up.
Speaker 1: But the early lead on holiday season sales from MasterCards
Speaker 1: from November thirty five one percent. Who's right in line
Speaker 1: with our forecast of five so it seems like we
Speaker 1: have a good season and now we want to see
Speaker 1: inventory levels cleared and what the margins look like. Okay,
Speaker 1: but that five percent, I understand comes with a little
Speaker 1: bit of a footnote for department stores, because the department
Speaker 1: store take actually fell more than one percent. It was
Speaker 1: down one preecent to department stores. And keep in mind
Speaker 1: you had a lot of closures, whether it was the
Speaker 1: Bontans closures, some of the Macy's closure closures, or J. C. Penny.
Speaker 1: I think that when you look at the Perl stores,
Speaker 1: they were up seven point nine percent, which is one
Speaker 1: of the best we've seen out there all of all,
Speaker 1: whether it was the slight decline and department stores, the
Speaker 1: increase in apparel stores, the consumer had more dollars to spend,
Speaker 1: the products were innovative, and we pulled out a good season.
Speaker 1: This doesn't mean that two thousand nineteen we're entering with
Speaker 1: an easy glide past. It's going to be more challenging
Speaker 1: in two thousand nineteen than it was an eighteen. All Right,
Speaker 1: we're going to get the two thousand nineteen in just
Speaker 1: a second. But I want to find out from you,
Speaker 1: what do you believe was the hottest offering in retail where?
Speaker 1: What was the trend? I think the trend you definitely
Speaker 1: had some of the electronics items like the Alexas out there.
Speaker 1: Drones are also quite popular. Dad sneakers were very popular,
Speaker 1: and also denim jeans continue to be strong. We're fortunate
Speaker 1: that we had a cooler season this year than in
Speaker 1: year's past. Out where, whether it was Canada, Goose, whether
Speaker 1: it was North Bace, we definitely saw strength and outwhere.
Speaker 1: And let's not forget thugs that goes along with that. Okay,
Speaker 1: so that seems to be something that is correlated a
Speaker 1: little bit to the weather. How about the online world,
Speaker 1: that was an increase at least from the Master Cards survey,
Speaker 1: the Spending Pulse survey, that was an increase of more
Speaker 1: than n for online sales. Yes, and that was better,
Speaker 1: it will touch better than the Adobe forecast also of
Speaker 1: eighteen percent. So it was a solid online selling season two.
Speaker 1: And I think the thing to take away is online
Speaker 1: and bricks and mortar go together, and you're seeing brands
Speaker 1: overall and retailers. The combination of the two is what
Speaker 1: was powerful. We saw buy online, pick up in store,
Speaker 1: drive more traffic and drive more sales. I think that's
Speaker 1: going to be one of the takeaways on the Holiday
Speaker 1: two eighteen season. If you are a new retailer or
Speaker 1: looking to establish a retail brand, what do you take
Speaker 1: away from the results of this season That you have
Speaker 1: a customer who's interested, if it's innovati the new, if
Speaker 1: you have a loyalty program and participate in social media
Speaker 1: to drive awareness, there's dollars out there for you to
Speaker 1: capture if you can create interest. Okay, now let's talk
Speaker 1: about the potential for interest in retail in twenty nineteen.
Speaker 1: What are going to be the big themes? The themes
Speaker 1: of retail. I think there's three words to capture the
Speaker 1: themes of retail. Where's the margin? I think we have
Speaker 1: a little bit more headwinds to face than tail winds.
Speaker 1: The headwinds whether it's tariffs, the uncertainty of tariffs, the
Speaker 1: potential for category extensions in tariffs. You have expense pressures
Speaker 1: from freight and labor, and you have camping. The camp
Speaker 1: comparisons are more challenging in Choose thousand, nineteen th eighteen.
Speaker 1: On the tail one side, I've got a full employment
Speaker 1: economy with a consumer as money to spend whereby withholding
Speaker 1: should be a benefit, particularly in the first half of
Speaker 1: two thousand nineteen. And I still have some moiler taxes,
Speaker 1: but there are more challenges and in two thousand nineteen
Speaker 1: you may not get the same rate of earnings growth
Speaker 1: that you had in two thousand eighteen. All right, now,
Speaker 1: to go back to your point about where are the margins?
Speaker 1: Are there specific companies that you track that are doing
Speaker 1: a better job of keeping those margins or expanding them.
Speaker 1: When you think about margins and where they're growing, we're
Speaker 1: seeing companies like lul Lemon continue to show nice margin
Speaker 1: increases and that's the real benefit for them. I think
Speaker 1: what you're seeing, particularly in the top line and some
Speaker 1: of the off prices, is certainly encouraging. What we're hearing
Speaker 1: about from some of the companies where there's catalysts, I
Speaker 1: mean the catalysts are potentially closing stores at gap and
Speaker 1: for example, leading to less losses, could help the margins
Speaker 1: over time. Dana Telsey is they're a case to be
Speaker 1: made for direct mail catalogs twinned with online offerings and
Speaker 1: in store pick up this three legged retail strategy. I
Speaker 1: think catalogs are tough to go by. I think that
Speaker 1: the world of paper these days is consolidating into online
Speaker 1: and we're seeing whether it's from magazines, whether it's from catalogs.
Speaker 1: The first thing consumers look at in the morning is
Speaker 1: their phones. The last thing they look at night is
Speaker 1: their phones. Capture the consumer where they are on their
Speaker 1: phones and in physical stores with experiences. I'd like to
Speaker 1: get your views on home furnishings companies such as Wayfair,
Speaker 1: and then perhaps at the other end, restoration Hardware or
Speaker 1: it used to be restoration Hardware now just our H.
Speaker 1: When you think about what r H is doing, they're
Speaker 1: really creating the experience the restaurants combined with the selling
Speaker 1: of furniture where they have at effects for designers to
Speaker 1: come in and have their offices there to bring clientele
Speaker 1: is compelling and I think that they're really creating a
Speaker 1: destination Wayfair and it'll be interesting to see does Wayfair
Speaker 1: ever get combined with a physical retailer. That combination to
Speaker 1: be powerful and probably one of the most powerful home
Speaker 1: retailers lately over the past few years that's taken share
Speaker 1: is home goods. What t j X has done with
Speaker 1: home goods and home sense is exciting, it's profitable, and
Speaker 1: it's driving inventory turns and more brands are selling in
Speaker 1: their stores. Do you see any big changes to the
Speaker 1: world of fast retail for apparel companies such as H
Speaker 1: and M and Zara. I do see changes there. I
Speaker 1: think it's become more competitive in that landscape. I think
Speaker 1: we're going to see H and M become a more
Speaker 1: fine tune machine given the fact that their inventory levels
Speaker 1: have been too high. I think that you have other
Speaker 1: companies competing on price and also quality stepped up a bit,
Speaker 1: so there's more competition. The old navies of the world
Speaker 1: are doing quite a good job, and you're also seeing
Speaker 1: when companies have targeted sales, it's taken some share from
Speaker 1: some of the fast fashion retailers. I think they have
Speaker 1: an evolution ahead of them in order to become more competitive.
Speaker 1: Thank you very much for spending time with us. As always,
Speaker 1: Dana's Telsey Telsey Advisory Group Chief executive and chief Research
Speaker 1: officer speaking about the world of retail and shopping. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform
Speaker 1: you prefer I'm on Twitter at Tom Keane before the podcast.
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio