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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along

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Speaker 1: with my co host of Bonnie Quinn. Every business day

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Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,

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Speaker 1: along with essential market moving news. Kind the Bloomberg Markets

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Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,

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Speaker 1: and on Bloomberg dot com with us now in studios

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Speaker 1: Sarah Ponzac, Bloomberg Cross Asset Reporter. We'd also like to

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Speaker 1: welcome Jennifer Ree, senior litigation analyst for Bloomberg Intelligence. Jen,

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Speaker 1: let me start with you because we got the filing

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Speaker 1: a little bit earlier. Google now actually officially being sued

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Speaker 1: for anti trust. Say, you know, problems, stuff that hurts

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Speaker 1: the consumer essentially in its search business. First of all,

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Speaker 1: the stalk isn't reacting. What's the sort of time frame

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Speaker 1: for how long these things can run? Oh, Bannie, these

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Speaker 1: things can go so long. I mean this is really

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Speaker 1: just the beginning of a marathon. Litigation is very slow

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Speaker 1: and in it can go for years. So I think

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Speaker 1: you know the absolute quickest where there could be a

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Speaker 1: district court opinion, it might be three years. That would

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Speaker 1: be the quickest. It's more likely to be four or

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Speaker 1: five years, and then whoever loses is likely to appeal.

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Speaker 1: When you think back about the last very big monopolization

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Speaker 1: suit by the dj which was against Microsoft, I mean

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Speaker 1: from start to finish, really the whole thing took about

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Speaker 1: ten years before we ultimately knew what was going to

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Speaker 1: happen and what the impact was. And I think this

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Speaker 1: won't be as long, but it will be many years.

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Speaker 1: So investors clearly aren't scared. Is the assumption that Google,

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Speaker 1: you know, is not doing harms to consumer, or that

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Speaker 1: it doesn't really matter whether Google is or isn't, or

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Speaker 1: whether any of these companies will follow zeus. It's that

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Speaker 1: they still make lots of money for their investors, right,

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Speaker 1: you know. I think it's a number of things. First,

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Speaker 1: this has been foreshadowed for a really long time and

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Speaker 1: it was expected, so it's no big surprise UM. And

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Speaker 1: I think the second thing is there are some analysts,

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Speaker 1: including Bloomberg Intelligence, UM equity analysts just under Warrell, who

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Speaker 1: believed that even if the worst case scenario happened and

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Speaker 1: the company is forced to break up, it might not

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Speaker 1: actually you know, hurt the valuation, that it could actually

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Speaker 1: be good UM and the second thing is the third

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Speaker 1: thing I guess is that these lawsuits are very hard

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Speaker 1: to win in court. The DJ has an uphill climb here,

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Speaker 1: and it has an even steeper uphill climb if it

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Speaker 1: actually did seek a breakup remedy, and it's just unlikely

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Speaker 1: that they're going to be able to get there at

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Speaker 1: the end of the day. So Sarah plants like Google

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Speaker 1: obviously one of the major large mega captics if you like,

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Speaker 1: this is clearly not going to have an impact on

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Speaker 1: this particular trade. But are we seeing this particular trade

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Speaker 1: fade just a little bit anyway in recent days. It

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Speaker 1: doesn't seem like it, especially I'm looking at the best

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Speaker 1: performers on a points basis right now in the SMP five,

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Speaker 1: your top names are Apple, Microsoft, Facebook, Amazon, Procter and Gamble,

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Speaker 1: which did report earnings today and raise its forecast, and

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Speaker 1: then Google parent Alphabet. So we're not seeing it reflected

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Speaker 1: in the near term trade. I will say that year

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Speaker 1: to date, if you look at the year to date

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Speaker 1: perform into some of these companies, Alphabet is at the

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Speaker 1: bottom of the pack, but still up still a very

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Speaker 1: strong gain in a year that really has been precluded

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Speaker 1: and dominated by a pandemic by a recession, so you

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Speaker 1: can't buy any means say that that is bad. But

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Speaker 1: as Jen said, it's a marathon. I wrote about antitrust

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Speaker 1: claims almost exactly a year ago for Business Week, and

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Speaker 1: I remember analysts saying then that it wasn't a worry.

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Speaker 1: And we are a year later, we have seen some progress,

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Speaker 1: and it still seems as though analysts are saying it's

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Speaker 1: not a worry now when you're not seeing it feed

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Speaker 1: through the stock prices. One point that I want to

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Speaker 1: pick up that Jen pointed out too, is that some

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Speaker 1: analysts do truly believe that the sum of Google's parts

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Speaker 1: will actually be worth more broken up. When you separate

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Speaker 1: Google Search, YouTube, Google Cloud, what is the valuation that

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Speaker 1: each of these fetch it. In some cases, some do

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Speaker 1: say that in the worst case scenario, if you want

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Speaker 1: to call it bad, if Google is broken up, it

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Speaker 1: doesn't necessarily mean a lower valuation. Some of the headlines

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Speaker 1: coming out the call that's actually ongoing. Advertisers must pay

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Speaker 1: a toll to Google Search. Potentially, the US is asking

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Speaker 1: the court to order Google to stop anti competitive conduct,

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Speaker 1: and that structural relief maybe needed to cure harm. Google

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Speaker 1: relief may need to go beyond stopping harm as well.

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Speaker 1: So the d o J is sort of looking for basically,

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Speaker 1: you know, penalties here, maybe even a break up of

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Speaker 1: parts of Google jen you know, we have something like

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Speaker 1: eleven eleven attorneys general on this, why these particular states,

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Speaker 1: and doesn't change post election? You know, I don't think

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Speaker 1: it changes post election. But I think what we could

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Speaker 1: see post election is actually another suit. Um. There are

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Speaker 1: other states that have been investigating Google and and don't

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Speaker 1: agree with the suit because they think it doesn't go

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Speaker 1: far enough and it should have additional allegations related to

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Speaker 1: other conducts, for instance within the ad tech market. So

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Speaker 1: it's a possibility what we could see is a separate

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Speaker 1: group of states that could file a lawsuit that mirrors

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Speaker 1: this and adds more allegations to it. I definitely think

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Speaker 1: that's the possibility, and I think that's why only eleven

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Speaker 1: states joined, because are the states that clearly think this

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Speaker 1: is the right suit, and there are other states that

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Speaker 1: think this business exactly the right suit. How is the

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Speaker 1: US going about this differently to Europe? I mean, obviously

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Speaker 1: it's an entirely different system, and so there needs to

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Speaker 1: be a different approach, but at the same time Europe

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Speaker 1: as an agglomeration of states as well in some ways,

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Speaker 1: and it's managed to do this. You know, I'm really

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Speaker 1: glad you brought that up, because this complaint is very

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Speaker 1: similar to what the EU charge school with Google with

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Speaker 1: two years ago. Now, the first thing is that the

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Speaker 1: way they've set it up, the states are sort of

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Speaker 1: the countries within the EU are a bit less sovereign.

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Speaker 1: Let's say in the States here, where the European Commission

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Speaker 1: is going to take on something, the states are then

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Speaker 1: the countries are then seeding that matter to the EU.

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Speaker 1: And that's what went on here with Google. But two

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Speaker 1: years ago the European Commation charged Google with the very

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Speaker 1: similar allegations here and didn't see fit to seek a

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Speaker 1: structural remedy. You know. What they said is Google, you

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Speaker 1: have to stop doing these things that are illegal, like

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Speaker 1: your exclusive agreements, or you're paying off companies to exclusively

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Speaker 1: install Google Search of the default, things like that. UM.

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Speaker 1: And they're still sort of working through that, But there

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Speaker 1: have been statements coming out of the EU that so

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Speaker 1: far they think that this has worked. UM. And that

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Speaker 1: would suggest to me it would be very difficult in

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Speaker 1: the United States Court to go beyond that, well, thanks

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Speaker 1: to both of you. Phenomenal. It's really these things. You

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Speaker 1: can dive into them for hours and you don't be

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Speaker 1: scratching the surface. There's so many lawyers I can tell

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Speaker 1: you're working on these cases right now, and we also

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Speaker 1: have our own January and Sara Pansa like working on

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Speaker 1: them as well. Jenuery, Senior Litigation analyst for Bloomberg Intelligence,

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Speaker 1: joining us and Sarah Ponzac, Bloomberg Cross Asset Reporter. What

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Speaker 1: is New York City without the bright lights? Is it

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Speaker 1: someplace that people will come even if there is no Broadway?

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Speaker 1: Or is that what really gives it its heart? Broadway,

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Speaker 1: Lincolns under Carnegie Hall, the public Theater, all of the

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Speaker 1: arts organizations that keeps the spirit of New York alive

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Speaker 1: and the people here, all of the performan's artists. Let's

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Speaker 1: bring in somebody who knows a little bit about a

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Speaker 1: lot of things when it comes to New York City,

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Speaker 1: from its real estate to its theater. Is Kenneth laub Is,

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Speaker 1: a producer, real estate developer, and composer. Ken Thanks for joining.

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Speaker 1: When you speak with your friends these days, what's the

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Speaker 1: thing that most comes up among you all. I mean,

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Speaker 1: obviously the pandemic and where we are in it. But

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Speaker 1: in terms of New York City and what gives it

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Speaker 1: its character, what do you all talk about? Well, let

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Speaker 1: me let me, for the benefit of your listeners, give

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Speaker 1: them a little bit background. New York City is, you

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Speaker 1: probably know, is the coachural center of the United States,

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Speaker 1: if not the world, and approximately three thousand jobs associated

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Speaker 1: directly or indirectly with Broadway communally, I'm not just talking

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Speaker 1: about performance dresses, directors and back state people, but also

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Speaker 1: the hotel's restaurants and the numerous other the people who

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Speaker 1: are at tached a Broadway for a living. You have

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Speaker 1: sixty million people visit New York City yearly, that's what

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Speaker 1: the tourists people put out, thirty million taking a show,

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Speaker 1: come from abroad or sixty and older. That's one point

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Speaker 1: eight billion dollars in revenue that comes from Broadway receipts.

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Speaker 1: So I guess you could say easily that Broadway is

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Speaker 1: a vital part of the New York City echo system,

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Speaker 1: and we talk about that a lot. So can you

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Speaker 1: know Broadway is closed until the end of May. That

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Speaker 1: means tourism, you know, it has to be down because

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Speaker 1: a lot of tourists come to New York specifically to

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Speaker 1: see a Broadway show, and you know, they spen spend

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Speaker 1: their time in Times Square because that's the theater district,

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Speaker 1: and as you say, stay in hotels off the Time Square,

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Speaker 1: and seniors all over the country come with deals to

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Speaker 1: visit Broadway and it's just it's wonderful, you know, And

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Speaker 1: that's that's just Broadway. I mean, technically you could suggest

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Speaker 1: that perhaps some of the other venues are more for locals,

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Speaker 1: but Broadways he brings people in from the outside. What

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Speaker 1: are Broadway producers thinking in terms of when there will

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Speaker 1: next to be a new production on Broadway. Well, the

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Speaker 1: arts are essential to the city's identity, economy, and quality

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Speaker 1: of life. We're living through the worst cultural recession in

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Speaker 1: our history. It's estimated that we will have lost about

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Speaker 1: thirty billion dollars from cultural institutions. So you might say

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Speaker 1: we've lost part of our city's hart and wallet. But

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Speaker 1: but it doesn't end there. There's a there's a much

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Speaker 1: bigger issue that we need to touch on here, and

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Speaker 1: that is we've heard these various dates about Broadway getting

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Speaker 1: up and running in the last one I had to

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Speaker 1: push back now to May of next year, and I'm

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Speaker 1: not sure if that's even going to be realistic. People

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Speaker 1: don't really understand that there are several issues here. Um,

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Speaker 1: let me give you some examples. The problems for theaters

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Speaker 1: and concert halls. Starts with a ventilation systems, which in

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Speaker 1: many cases in the it's updating. There are cramped courters

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Speaker 1: for artists and other workers in backstage areas, and there's

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Speaker 1: a lack so far of federal guidance about what safety

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Speaker 1: measures are required. Some of these theaters, like the Blasco,

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Speaker 1: of the Lys, the Huts, and others, are hundred years

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Speaker 1: old or more. They have narrow passageway dressing rooms sometimes

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Speaker 1: shared that are the size of closets, and actors who

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Speaker 1: do quick changes are in there with a lot of

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Speaker 1: other people who are helping them and assistance or breathing

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Speaker 1: the same cubic feet of oxygen. So they're going to

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Speaker 1: have to be new rules set forth here before we reopen.

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Speaker 1: And from what I've been told, the state and the

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Speaker 1: city are working on guidelines that will require mask or

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Speaker 1: fairish coverings for all staff and businesses, will require business

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Speaker 1: to maintain six feet of distance or more, he will

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Speaker 1: um end up putting in a limited visiting capacity, which

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Speaker 1: frankly is not a way for Broadway to make money.

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Speaker 1: They will be exactly And that's where I want to

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Speaker 1: go now in the time that we have left. Because

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Speaker 1: we all know that only the longest running shows make

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Speaker 1: money for their producers, right, you know, the hope is

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Speaker 1: that you'll make your money back. But for many of

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Speaker 1: these shows, even as good as they are, they just

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Speaker 1: call so much to put on that they don't get

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Speaker 1: you know, they don't make profits for their producers. But

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Speaker 1: at the same time, they're part of the cultural fabric.

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Speaker 1: Are their theaters that do not survive this in Broadway?

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Speaker 1: Would you repeat that question again? Are there theaters that

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Speaker 1: go away? So the Shubert family, for example, do they

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Speaker 1: need to close some of their theaters or will they

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Speaker 1: all survive this. I'm not sure the answer that question

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Speaker 1: unless they are able to make the appropriate changes that

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Speaker 1: meet with the state and city guidelines and that we

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Speaker 1: have a reliable vaccine that makes people comfortable returning even

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Speaker 1: on a limited base, even with discounted tickets. But for example,

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Speaker 1: so they may not have the rental problem that most

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Speaker 1: people have, right, they may have a thousand year deal,

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Speaker 1: or they may own the building. Do you know what

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Speaker 1: the situation is there? Ken, Well, I I think I

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Speaker 1: just answered your question. The situation is very simple. They

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Speaker 1: will do whatever it's necessary to get up and running,

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Speaker 1: but they haven't yet defined what that means, and they

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Speaker 1: will vary from one facility to another. A modern theater

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Speaker 1: will not have these problems, but some of the older

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Speaker 1: ones will have considerable difficulty meeting those guidelines. So can

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Speaker 1: final question, because you're also a real estate mogul for

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Speaker 1: many decades in the city, what do you see happening

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Speaker 1: with real estate in the center of the city. Do

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Speaker 1: we see prices drop substantially from here for buyers? They've

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Speaker 1: already dropped plenty. And I think there will be um

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Speaker 1: some stabilization UM, probably in to the election and going

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Speaker 1: into the next year. But I think that uh, commercial

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Speaker 1: real estate is going to be heard in a variety

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Speaker 1: of different ways, and there will be a lot of

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Speaker 1: potential foreclosures UH and dead issues that will emerge. UM.

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Speaker 1: All this has to be worked out over a period

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Speaker 1: of time. But let me add been closing this interview

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Speaker 1: that there's a there's an expression and this is applicable

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Speaker 1: to Broadway. Charlie Chaplin once said nothing is forever in

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Speaker 1: this world, and that includes our problems. So positive thinking

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Speaker 1: is a prerequisite here. Absolutely can we rely on you

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Speaker 1: for that. Thank you so much. Ken Laub, who is

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Speaker 1: a real estate developer, producer and composer part of the

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Speaker 1: fabric of Broadway, joining us there. And of course we

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Speaker 1: know that Broadway will be back. We know that we'll

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Speaker 1: see all of those shows again, and all those shows

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Speaker 1: that you missed first time around, you'll just just be

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Speaker 1: so happy to see them when it all happens again.

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Speaker 1: All we need is a vaccine. Tropical Smoothie Cafe. It

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Speaker 1: began in Atlanta and it is now an eighthound of

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Speaker 1: fifty plus fast casual franchise serving not just smoothies but

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Speaker 1: also all sorts of salads and drinks and wraps and sandwiches.

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Speaker 1: Let's bring in the person who is CEO of Tropical

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Speaker 1: Smoothie Cafe, and that is Charles Watson. Charles, thank you

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Speaker 1: for joining my pleasure. Bonnie. Thanks for having me talk

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Speaker 1: to us about how difficult it must be right now,

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Speaker 1: what the challenges are for Tropical Smoothie Cafe and how

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Speaker 1: many you've managed to keep open. Yes, absolutely well. I'd

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Speaker 1: say our story is actually a very positive one. Like

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Speaker 1: many restaurant chains, we fell off the COVID cliff about March,

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Speaker 1: and for our brand, we bottomed out in April in

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Speaker 1: terms of COPS sales, climb back up the sales ladder

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Speaker 1: in May, and we went positive COMPS sales to the

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Speaker 1: tune of twelve percent in June. So while it was

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Speaker 1: a very tenuous and difficult time, I tell you that

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Speaker 1: we are comping positively in and very happy with how

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Speaker 1: our franchisees have fought back amid deependent pandemic to serve

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Speaker 1: our guests. So we're actually in a relatively good space

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Speaker 1: and expect to beat our twenty nine teen COMPS sales

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Speaker 1: by shifting a lot of our business to focus on

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Speaker 1: convenience the anytime, any place for our guests to access

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Speaker 1: the brand through digital channels, third party delivery, our website, etcetera.

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Speaker 1: So we've done well in coming out of the pandemic

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Speaker 1: right and you're even opening new cafes across the US,

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Speaker 1: so very much congratulations. How have you done though? When

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Speaker 1: it comes to things like rents, franchise e s paying

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Speaker 1: you guys. I mean, have you had difficulties that way

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Speaker 1: that you've had to sort of overlook or you know,

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Speaker 1: make easier for franchise e s to pay their rent

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Speaker 1: or what have you. Sure, So we've done a lot

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Speaker 1: of work working with our franchisees and concerts to aid them.

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Speaker 1: So obviously, through the time the p p P loans,

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Speaker 1: our franchise development team and our real estate team really

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Speaker 1: turn into PPP and rental negotiation folks there for about

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Speaker 1: three months and that net we've come out of it

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Speaker 1: um and or not having any rental rate issues or

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Speaker 1: any default issues because the businesses bounced back in the

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Speaker 1: franchisees are cash flowing. That said, everyone is expecting rental

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Speaker 1: rates to come down precipitously. We have not seen that.

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Speaker 1: I think that landlords across the country, especially in the

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Speaker 1: prime retail spaces that we look for, especially those that

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Speaker 1: are in cap and drive through, they are really holding

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Speaker 1: onto the rental rates that they said in twenty nineteen

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Speaker 1: and haven't come off of those. The other big challenge

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Speaker 1: that we're having uh to the bottom line for our

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Speaker 1: franchise ease is the rapidly escalating triple net charges that

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Speaker 1: we're seeing is especially real estate taxes. In some markets,

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Speaker 1: we're seeing triple nets consistently a fifteen to twenty dollars

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Speaker 1: per square foot, so that's certainly a challenge, but we

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Speaker 1: hope that the real estate correction does come around to

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Speaker 1: provide some relief on those rental rates for our franchise's absolutely,

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Speaker 1: I mean particularly when you see you know, new places

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Speaker 1: that have come up for rent are obviously renting a

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Speaker 1: lug cheaper prices in some of the large major metropolitan

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Speaker 1: areas at least I don't know about around the country,

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Speaker 1: but certainly in New York and San Francisco and places,

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Speaker 1: there are discounts on on new rental properties. Do you

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Speaker 1: need more PPP money? We do not. We do not.

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Speaker 1: We're in a very very good position or franchise ease

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Speaker 1: or or cash flow positive. Many of our franchisees are

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Speaker 1: having having a fantastic year. Again, a very difficult year

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Speaker 1: and very fraud but we've been able to come through it.

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Speaker 1: So for our particular brand, and I don't speak for

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Speaker 1: all restaurant brands, because I know that there are many

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Speaker 1: many that are hurting and I feel for them, but

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Speaker 1: we do not currently know. So that's that's a great

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Speaker 1: success story. What about your hiring and layoffs. Did you

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Speaker 1: need to lay off people? Did you manage to hold

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Speaker 1: onto everybody? Well, we actually took it took the opportunity

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Speaker 1: to to reorganize this as we talk about the shift

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Speaker 1: to digital and the the underlying foundational changes that are

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Speaker 1: happening in the restaurant business. In order to provide guests

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Speaker 1: with the access and the convenience and the ease that

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Speaker 1: they're looking for, we had to make additional investments in

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Speaker 1: in digital properties. So we did have to restructure and

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Speaker 1: move some people around, but we did not have any

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Speaker 1: standard layoffs just to uh, just to keep our g

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Speaker 1: and A down. Yeah. I mean, it's really interesting the

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Speaker 1: way you say that what we originally started off as

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Speaker 1: a sort of a cafe enterprise almost became a real

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Speaker 1: estate type of enterprise. So I imagine you needed to

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Speaker 1: scale up in some areas or some of your employees did, right,

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Speaker 1: And indeed, so I would tell you it's the scale

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Speaker 1: up for us in the technology area the business and

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Speaker 1: also the development area of the business. We've opened eighty

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Speaker 1: restaurants so far this year, and we sold almost two

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Speaker 1: hundred franchises so back to your point about real estate.

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Speaker 1: What we found is for new development restaurants, of which

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Speaker 1: we have a pipeline of over five hundred, it's actually

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Speaker 1: getting the landlord's attention on doing new deals because they

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Speaker 1: are spending so much time working out with existing tenants.

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Speaker 1: So that's actually been a little bit of a headwind

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Speaker 1: for for us as a brand that's trying to sign

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Speaker 1: new leases and open new locations, which is relatively interesting. Yeah,

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Speaker 1: that's so interesting, Charles. Are you ready for more shutdowns?

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Speaker 1: We have, you know, epitying me all just saying we're

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Speaker 1: headed for a difficult three to six months. We are

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Speaker 1: ready for it. Again. I hate to be a broken record,

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Speaker 1: but it's the shift to digital. We think that we

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Speaker 1: can we can maintain and continue to move the business forward.

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Speaker 1: We certainly wish it on no one, consumers or anyone else.

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Speaker 1: We're prepared for it, and we do not think it

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Speaker 1: will be good. We think it will be a continued hit,

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Speaker 1: but we think that we can weather the storm much

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Speaker 1: much better based on the past six months of work

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Speaker 1: we've done as a brand. We're almost out of time,

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Speaker 1: But I am curious as to what your plans are.

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Speaker 1: Is this private equity of fact, might you ever go public?

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Speaker 1: How what will the exit look like? Oh? Good questions,

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Speaker 1: good questions. We're currently owned by Levine Likeman Capital Partners,

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Speaker 1: private equity firm based out of Los Angeles, fantastic partners

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Speaker 1: of ours, and what they do with us, no one knows,

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Speaker 1: So we'll see. I think I think a public option

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Speaker 1: is certainly possible, but I think that's uh, you know,

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Speaker 1: three or four, five years out. All right, Well, you

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Speaker 1: keep us posted. I'm sure we'll be the first to know. Charles,

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Speaker 1: thank you so much for joining on. Congratulations on the

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Speaker 1: success navigating through the pandemic for Tropical Smoothie Cafe once again,

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Speaker 1: started off in Atlanta and now across the country. That's

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Speaker 1: CEO Charles Watson. Back markets now, and let's bring in

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Speaker 1: David Kat's ce IO of Matrix Advisors. David, I want

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Speaker 1: to talk to you about the election, the outlook, the

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Speaker 1: VIX being close to thirty, and so on. But first

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Speaker 1: I have to ask you about Google, because we finally

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Speaker 1: got what we were anticipating, the d o J suits.

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Speaker 1: The stock didn't do much, except at a certain point

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Speaker 1: it did start to decline and now we're sort of

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Speaker 1: a flat does an investor care about a d o

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Speaker 1: J suit against Google, It's never a good thing. Now,

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Speaker 1: clearly this is going to be a headwind for a

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Speaker 1: number of years. If you look back at the IBM

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Speaker 1: suit maybe thirty or forty years ago, or the Microsoft

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Speaker 1: suit twenty years ago. Uh, these things are negative and

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Speaker 1: they definitely slow a company down. In terms of Google,

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Speaker 1: we expected to the same. Having said that, we think

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Speaker 1: that their prospects are very good. They're going to get

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Speaker 1: through this, and it is one of the cheap of

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Speaker 1: the high priced hot technology companies. So we would use

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Speaker 1: any weakness to either start positions in Google or add

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Speaker 1: positions in Google, because we do think they We're going

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Speaker 1: to get through this. But do understand it is negative. Yeah. Now,

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Speaker 1: given that you're willing to two positions and even enthusiastic

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Speaker 1: about adding two positions, should we extrapolate from not that

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Speaker 1: that that's the same cross quoth stocks for you? Um No,

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Speaker 1: We're actually pretty wary about growth stocks. If you look

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Speaker 1: at two thousand and twenty year to date performance, growth

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Speaker 1: stocks have had their greatest out performance versus value stocks

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Speaker 1: since nineteen seventy nine. Right now, they're selling it pretty

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Speaker 1: excessive valuations. Investors are piling money in because they look

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Speaker 1: for a repeat of this and that's simply not going

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Speaker 1: to happen. So we are pretty wary about growth stocks.

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Speaker 1: Whether it's a Netflix or a Zoom or Tesla. People

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Speaker 1: are buying them because the business prospects are good, which

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Speaker 1: they are, but are not paying any attention to the

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Speaker 1: valuation on them. And we think ultimately valuation and gravity

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Speaker 1: you're going to keep those stocks from rising at the

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Speaker 1: rates that they have been. So in general, this market

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Speaker 1: has proven extraordinarily resilient, David, Does it continue to do so?

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Speaker 1: I mean, whether we get stimitus or not. Is that

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Speaker 1: Is that a big factor in whether we continue to

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Speaker 1: see the resilience. Well, we think if you get the stimulus,

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Speaker 1: whether it's now or a few weeks from now, it's

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Speaker 1: going to happen. And we do think that's important for

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Speaker 1: the economy and then ultimately for the stock market. But

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Speaker 1: one of the reasons that the stock market has been

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Speaker 1: as resilient as it's been is both the Fed and

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Speaker 1: the federal government have been doing everything they can to

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Speaker 1: stabilize the economy. With interest rates to zero, there's tremendous liquidity.

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Speaker 1: That liquidity is flowing into the stock market. That's driving

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Speaker 1: stock prices higher. In addition, the first federal bailout program,

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00:22:52,480 --> 00:22:55,280
Speaker 1: the two point eight trillion dollars, has really been effective.

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Speaker 1: It's proved to be a lifeline for smaller and mid

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00:22:58,600 --> 00:23:02,320
Speaker 1: sized businesses, it's a life line for individuals. UH. Credit

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00:23:02,400 --> 00:23:05,000
Speaker 1: quality is still pretty good, so as long as the

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00:23:05,040 --> 00:23:07,399
Speaker 1: government continues to step up, and as long as you

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00:23:07,440 --> 00:23:11,040
Speaker 1: have this tremendous liquidity, we're pretty bullish on stocks for

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00:23:11,080 --> 00:23:13,600
Speaker 1: the next twelve to eighteen months. We think the economy,

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00:23:14,119 --> 00:23:16,680
Speaker 1: which was in an exceptionally deep procession, is going to

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00:23:16,800 --> 00:23:19,200
Speaker 1: come out of that, and we're in the recovery mode.

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00:23:19,240 --> 00:23:21,440
Speaker 1: And it really is not how fast the recovery is,

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00:23:21,680 --> 00:23:25,400
Speaker 1: but directionally we're recovering with zero interest rates. That's good

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00:23:25,400 --> 00:23:30,320
Speaker 1: for stocks. Does it matter who is the next president? UM?

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00:23:30,640 --> 00:23:32,360
Speaker 1: For a lot of reasons, it does, but in terms

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00:23:32,400 --> 00:23:34,720
Speaker 1: of the economy in the stock market, not so much.

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00:23:35,520 --> 00:23:38,640
Speaker 1: We looked at the period nineteen forty six to two

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00:23:38,720 --> 00:23:42,200
Speaker 1: thousand and nineteen in terms of having a democratic president

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00:23:42,359 --> 00:23:45,400
Speaker 1: or Republican president UH, and the results were pretty good

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00:23:45,440 --> 00:23:49,040
Speaker 1: for investors, which is stocks generally went up regardless of

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00:23:49,080 --> 00:23:52,000
Speaker 1: which administration is in UH, they did a little bit

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00:23:52,000 --> 00:23:55,160
Speaker 1: better for democrats. So we wouldn't change what you're doing

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00:23:55,160 --> 00:23:57,439
Speaker 1: in investing, but do take comfort that you don't have

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00:23:57,520 --> 00:24:01,119
Speaker 1: to sell stocks if a Democrat wins or for Republican wins.

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00:24:01,160 --> 00:24:03,200
Speaker 1: Stay the course, look at the long term and look

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00:24:03,200 --> 00:24:07,720
Speaker 1: at fundamentals and businesses rather than who's in charge. One

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00:24:07,840 --> 00:24:10,040
Speaker 1: area that's been a bit of a laggard this year,

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00:24:10,040 --> 00:24:12,400
Speaker 1: and I know it's interesting to you, is the dividend

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00:24:12,480 --> 00:24:18,080
Speaker 1: stock area. Money are still, as you say, performing pretty well.

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00:24:18,600 --> 00:24:21,240
Speaker 1: Do you anticipate that what they'll grow their dividends or

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00:24:21,400 --> 00:24:25,359
Speaker 1: or why is this such a curious area for you? Well,

460
00:24:25,480 --> 00:24:28,760
Speaker 1: right now this year, momentum stocks and growth stocks have

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00:24:28,840 --> 00:24:31,480
Speaker 1: done great. Everything else has been left for dead. Uh.

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00:24:31,600 --> 00:24:34,080
Speaker 1: Dividend stocks are a key part of that left for debt.

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00:24:34,119 --> 00:24:36,280
Speaker 1: So if you look at a lot of these companies, UH,

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00:24:36,320 --> 00:24:39,320
Speaker 1: they've been growing their earnings, they've been raising their dividend

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00:24:39,400 --> 00:24:42,840
Speaker 1: this year in a tremendous and deep recession, but they're

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00:24:42,840 --> 00:24:45,080
Speaker 1: not getting any credit for that now. The reason that

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00:24:45,119 --> 00:24:46,719
Speaker 1: we think is going to be very important in two

468
00:24:46,800 --> 00:24:49,600
Speaker 1: thousand and twenty one and beyond is that the fetest

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00:24:49,640 --> 00:24:52,040
Speaker 1: signal that they're going to keep rates at zero for

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00:24:52,080 --> 00:24:55,680
Speaker 1: the foreseeable future, maybe another three to five years. Money

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00:24:55,720 --> 00:24:59,000
Speaker 1: markets are paying zero, the tenure Treasury is paying points

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00:24:59,000 --> 00:25:02,080
Speaker 1: seven eight. At some point investors are gonna wake up

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00:25:02,080 --> 00:25:04,919
Speaker 1: and say, holy cow, I can't get anything on my money.

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00:25:04,920 --> 00:25:07,160
Speaker 1: Where can I go? And if you can go into

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00:25:07,320 --> 00:25:09,439
Speaker 1: very slow and steady stocks that are paying you a

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00:25:09,440 --> 00:25:13,119
Speaker 1: four or five percent yield, uh, with some earnings growth

477
00:25:13,119 --> 00:25:15,520
Speaker 1: and with dividend growth down the road, we think that's

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00:25:15,520 --> 00:25:17,720
Speaker 1: going to be a very very attractive place for people

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00:25:17,760 --> 00:25:19,639
Speaker 1: to put money to work. And the key is to

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00:25:19,680 --> 00:25:22,480
Speaker 1: get there now, not after they've had a great rally

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00:25:22,480 --> 00:25:25,680
Speaker 1: a year from now. Yeah, I mean, David, that begs

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00:25:25,680 --> 00:25:29,359
Speaker 1: the question, what's your return assumption? What are you looking

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00:25:29,520 --> 00:25:33,359
Speaker 1: for your portfolios to return? Well, we think a normal

484
00:25:33,440 --> 00:25:36,639
Speaker 1: return assumption for the next three to five years probably

485
00:25:36,640 --> 00:25:41,280
Speaker 1: goes back to eight, nine or ten UM. Yes. Uh.

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00:25:41,320 --> 00:25:45,320
Speaker 1: You know you're starting from a reasonable valuation on normalized

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00:25:45,359 --> 00:25:49,880
Speaker 1: earnings and rates are so low, which makes stocks one

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00:25:49,880 --> 00:25:52,080
Speaker 1: of the few games in town. And if stocks were

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00:25:52,119 --> 00:25:55,560
Speaker 1: thirty times earnings, we would not be particularly optimistic. But

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00:25:55,640 --> 00:25:57,960
Speaker 1: if you can buy a good portfolio stocks at fifteen

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00:25:57,960 --> 00:26:01,000
Speaker 1: times earnings with zero percent interest rates. We think that's

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00:26:01,000 --> 00:26:04,119
Speaker 1: a good background to make money. David, always a pleasure

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00:26:04,200 --> 00:26:07,240
Speaker 1: speaking with you. We always learned something new. David Katz

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00:26:07,320 --> 00:26:10,159
Speaker 1: is c I O of Matrix Advisers talking to us

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00:26:10,200 --> 00:26:13,960
Speaker 1: there about the stock market, and we appreciate it. Thanks

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00:26:13,960 --> 00:26:17,199
Speaker 1: for listening to Bloomberg Markets podcast. You can subscribe and

497
00:26:17,320 --> 00:26:21,080
Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform

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00:26:21,119 --> 00:26:24,600
Speaker 1: you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn,

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00:26:24,720 --> 00:26:27,120
Speaker 1: and I'm Paul Sweeney. I'm on Twitter at pt Sweeney.

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00:26:27,160 --> 00:26:29,840
Speaker 1: Before the podcast, you can always catch us worldwide at

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00:26:29,840 --> 00:26:30,639
Speaker 1: Bloomberg Radio