Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
Speaker 1: with my co host of Bonnie Quinn. Every business day
Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
Speaker 1: along with essential market moving news. Kind the Bloomberg Markets
Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,
Speaker 1: and on Bloomberg dot com with us now in studios
Speaker 1: Sarah Ponzac, Bloomberg Cross Asset Reporter. We'd also like to
Speaker 1: welcome Jennifer Ree, senior litigation analyst for Bloomberg Intelligence. Jen,
Speaker 1: let me start with you because we got the filing
Speaker 1: a little bit earlier. Google now actually officially being sued
Speaker 1: for anti trust. Say, you know, problems, stuff that hurts
Speaker 1: the consumer essentially in its search business. First of all,
Speaker 1: the stalk isn't reacting. What's the sort of time frame
Speaker 1: for how long these things can run? Oh, Bannie, these
Speaker 1: things can go so long. I mean this is really
Speaker 1: just the beginning of a marathon. Litigation is very slow
Speaker 1: and in it can go for years. So I think
Speaker 1: you know the absolute quickest where there could be a
Speaker 1: district court opinion, it might be three years. That would
Speaker 1: be the quickest. It's more likely to be four or
Speaker 1: five years, and then whoever loses is likely to appeal.
Speaker 1: When you think back about the last very big monopolization
Speaker 1: suit by the dj which was against Microsoft, I mean
Speaker 1: from start to finish, really the whole thing took about
Speaker 1: ten years before we ultimately knew what was going to
Speaker 1: happen and what the impact was. And I think this
Speaker 1: won't be as long, but it will be many years.
Speaker 1: So investors clearly aren't scared. Is the assumption that Google,
Speaker 1: you know, is not doing harms to consumer, or that
Speaker 1: it doesn't really matter whether Google is or isn't, or
Speaker 1: whether any of these companies will follow zeus. It's that
Speaker 1: they still make lots of money for their investors, right,
Speaker 1: you know. I think it's a number of things. First,
Speaker 1: this has been foreshadowed for a really long time and
Speaker 1: it was expected, so it's no big surprise UM. And
Speaker 1: I think the second thing is there are some analysts,
Speaker 1: including Bloomberg Intelligence, UM equity analysts just under Warrell, who
Speaker 1: believed that even if the worst case scenario happened and
Speaker 1: the company is forced to break up, it might not
Speaker 1: actually you know, hurt the valuation, that it could actually
Speaker 1: be good UM and the second thing is the third
Speaker 1: thing I guess is that these lawsuits are very hard
Speaker 1: to win in court. The DJ has an uphill climb here,
Speaker 1: and it has an even steeper uphill climb if it
Speaker 1: actually did seek a breakup remedy, and it's just unlikely
Speaker 1: that they're going to be able to get there at
Speaker 1: the end of the day. So Sarah plants like Google
Speaker 1: obviously one of the major large mega captics if you like,
Speaker 1: this is clearly not going to have an impact on
Speaker 1: this particular trade. But are we seeing this particular trade
Speaker 1: fade just a little bit anyway in recent days. It
Speaker 1: doesn't seem like it, especially I'm looking at the best
Speaker 1: performers on a points basis right now in the SMP five,
Speaker 1: your top names are Apple, Microsoft, Facebook, Amazon, Procter and Gamble,
Speaker 1: which did report earnings today and raise its forecast, and
Speaker 1: then Google parent Alphabet. So we're not seeing it reflected
Speaker 1: in the near term trade. I will say that year
Speaker 1: to date, if you look at the year to date
Speaker 1: perform into some of these companies, Alphabet is at the
Speaker 1: bottom of the pack, but still up still a very
Speaker 1: strong gain in a year that really has been precluded
Speaker 1: and dominated by a pandemic by a recession, so you
Speaker 1: can't buy any means say that that is bad. But
Speaker 1: as Jen said, it's a marathon. I wrote about antitrust
Speaker 1: claims almost exactly a year ago for Business Week, and
Speaker 1: I remember analysts saying then that it wasn't a worry.
Speaker 1: And we are a year later, we have seen some progress,
Speaker 1: and it still seems as though analysts are saying it's
Speaker 1: not a worry now when you're not seeing it feed
Speaker 1: through the stock prices. One point that I want to
Speaker 1: pick up that Jen pointed out too, is that some
Speaker 1: analysts do truly believe that the sum of Google's parts
Speaker 1: will actually be worth more broken up. When you separate
Speaker 1: Google Search, YouTube, Google Cloud, what is the valuation that
Speaker 1: each of these fetch it. In some cases, some do
Speaker 1: say that in the worst case scenario, if you want
Speaker 1: to call it bad, if Google is broken up, it
Speaker 1: doesn't necessarily mean a lower valuation. Some of the headlines
Speaker 1: coming out the call that's actually ongoing. Advertisers must pay
Speaker 1: a toll to Google Search. Potentially, the US is asking
Speaker 1: the court to order Google to stop anti competitive conduct,
Speaker 1: and that structural relief maybe needed to cure harm. Google
Speaker 1: relief may need to go beyond stopping harm as well.
Speaker 1: So the d o J is sort of looking for basically,
Speaker 1: you know, penalties here, maybe even a break up of
Speaker 1: parts of Google jen you know, we have something like
Speaker 1: eleven eleven attorneys general on this, why these particular states,
Speaker 1: and doesn't change post election? You know, I don't think
Speaker 1: it changes post election. But I think what we could
Speaker 1: see post election is actually another suit. Um. There are
Speaker 1: other states that have been investigating Google and and don't
Speaker 1: agree with the suit because they think it doesn't go
Speaker 1: far enough and it should have additional allegations related to
Speaker 1: other conducts, for instance within the ad tech market. So
Speaker 1: it's a possibility what we could see is a separate
Speaker 1: group of states that could file a lawsuit that mirrors
Speaker 1: this and adds more allegations to it. I definitely think
Speaker 1: that's the possibility, and I think that's why only eleven
Speaker 1: states joined, because are the states that clearly think this
Speaker 1: is the right suit, and there are other states that
Speaker 1: think this business exactly the right suit. How is the
Speaker 1: US going about this differently to Europe? I mean, obviously
Speaker 1: it's an entirely different system, and so there needs to
Speaker 1: be a different approach, but at the same time Europe
Speaker 1: as an agglomeration of states as well in some ways,
Speaker 1: and it's managed to do this. You know, I'm really
Speaker 1: glad you brought that up, because this complaint is very
Speaker 1: similar to what the EU charge school with Google with
Speaker 1: two years ago. Now, the first thing is that the
Speaker 1: way they've set it up, the states are sort of
Speaker 1: the countries within the EU are a bit less sovereign.
Speaker 1: Let's say in the States here, where the European Commission
Speaker 1: is going to take on something, the states are then
Speaker 1: the countries are then seeding that matter to the EU.
Speaker 1: And that's what went on here with Google. But two
Speaker 1: years ago the European Commation charged Google with the very
Speaker 1: similar allegations here and didn't see fit to seek a
Speaker 1: structural remedy. You know. What they said is Google, you
Speaker 1: have to stop doing these things that are illegal, like
Speaker 1: your exclusive agreements, or you're paying off companies to exclusively
Speaker 1: install Google Search of the default, things like that. UM.
Speaker 1: And they're still sort of working through that, But there
Speaker 1: have been statements coming out of the EU that so
Speaker 1: far they think that this has worked. UM. And that
Speaker 1: would suggest to me it would be very difficult in
Speaker 1: the United States Court to go beyond that, well, thanks
Speaker 1: to both of you. Phenomenal. It's really these things. You
Speaker 1: can dive into them for hours and you don't be
Speaker 1: scratching the surface. There's so many lawyers I can tell
Speaker 1: you're working on these cases right now, and we also
Speaker 1: have our own January and Sara Pansa like working on
Speaker 1: them as well. Jenuery, Senior Litigation analyst for Bloomberg Intelligence,
Speaker 1: joining us and Sarah Ponzac, Bloomberg Cross Asset Reporter. What
Speaker 1: is New York City without the bright lights? Is it
Speaker 1: someplace that people will come even if there is no Broadway?
Speaker 1: Or is that what really gives it its heart? Broadway,
Speaker 1: Lincolns under Carnegie Hall, the public Theater, all of the
Speaker 1: arts organizations that keeps the spirit of New York alive
Speaker 1: and the people here, all of the performan's artists. Let's
Speaker 1: bring in somebody who knows a little bit about a
Speaker 1: lot of things when it comes to New York City,
Speaker 1: from its real estate to its theater. Is Kenneth laub Is,
Speaker 1: a producer, real estate developer, and composer. Ken Thanks for joining.
Speaker 1: When you speak with your friends these days, what's the
Speaker 1: thing that most comes up among you all. I mean,
Speaker 1: obviously the pandemic and where we are in it. But
Speaker 1: in terms of New York City and what gives it
Speaker 1: its character, what do you all talk about? Well, let
Speaker 1: me let me, for the benefit of your listeners, give
Speaker 1: them a little bit background. New York City is, you
Speaker 1: probably know, is the coachural center of the United States,
Speaker 1: if not the world, and approximately three thousand jobs associated
Speaker 1: directly or indirectly with Broadway communally, I'm not just talking
Speaker 1: about performance dresses, directors and back state people, but also
Speaker 1: the hotel's restaurants and the numerous other the people who
Speaker 1: are at tached a Broadway for a living. You have
Speaker 1: sixty million people visit New York City yearly, that's what
Speaker 1: the tourists people put out, thirty million taking a show,
Speaker 1: come from abroad or sixty and older. That's one point
Speaker 1: eight billion dollars in revenue that comes from Broadway receipts.
Speaker 1: So I guess you could say easily that Broadway is
Speaker 1: a vital part of the New York City echo system,
Speaker 1: and we talk about that a lot. So can you
Speaker 1: know Broadway is closed until the end of May. That
Speaker 1: means tourism, you know, it has to be down because
Speaker 1: a lot of tourists come to New York specifically to
Speaker 1: see a Broadway show, and you know, they spen spend
Speaker 1: their time in Times Square because that's the theater district,
Speaker 1: and as you say, stay in hotels off the Time Square,
Speaker 1: and seniors all over the country come with deals to
Speaker 1: visit Broadway and it's just it's wonderful, you know, And
Speaker 1: that's that's just Broadway. I mean, technically you could suggest
Speaker 1: that perhaps some of the other venues are more for locals,
Speaker 1: but Broadways he brings people in from the outside. What
Speaker 1: are Broadway producers thinking in terms of when there will
Speaker 1: next to be a new production on Broadway. Well, the
Speaker 1: arts are essential to the city's identity, economy, and quality
Speaker 1: of life. We're living through the worst cultural recession in
Speaker 1: our history. It's estimated that we will have lost about
Speaker 1: thirty billion dollars from cultural institutions. So you might say
Speaker 1: we've lost part of our city's hart and wallet. But
Speaker 1: but it doesn't end there. There's a there's a much
Speaker 1: bigger issue that we need to touch on here, and
Speaker 1: that is we've heard these various dates about Broadway getting
Speaker 1: up and running in the last one I had to
Speaker 1: push back now to May of next year, and I'm
Speaker 1: not sure if that's even going to be realistic. People
Speaker 1: don't really understand that there are several issues here. Um,
Speaker 1: let me give you some examples. The problems for theaters
Speaker 1: and concert halls. Starts with a ventilation systems, which in
Speaker 1: many cases in the it's updating. There are cramped courters
Speaker 1: for artists and other workers in backstage areas, and there's
Speaker 1: a lack so far of federal guidance about what safety
Speaker 1: measures are required. Some of these theaters, like the Blasco,
Speaker 1: of the Lys, the Huts, and others, are hundred years
Speaker 1: old or more. They have narrow passageway dressing rooms sometimes
Speaker 1: shared that are the size of closets, and actors who
Speaker 1: do quick changes are in there with a lot of
Speaker 1: other people who are helping them and assistance or breathing
Speaker 1: the same cubic feet of oxygen. So they're going to
Speaker 1: have to be new rules set forth here before we reopen.
Speaker 1: And from what I've been told, the state and the
Speaker 1: city are working on guidelines that will require mask or
Speaker 1: fairish coverings for all staff and businesses, will require business
Speaker 1: to maintain six feet of distance or more, he will
Speaker 1: um end up putting in a limited visiting capacity, which
Speaker 1: frankly is not a way for Broadway to make money.
Speaker 1: They will be exactly And that's where I want to
Speaker 1: go now in the time that we have left. Because
Speaker 1: we all know that only the longest running shows make
Speaker 1: money for their producers, right, you know, the hope is
Speaker 1: that you'll make your money back. But for many of
Speaker 1: these shows, even as good as they are, they just
Speaker 1: call so much to put on that they don't get
Speaker 1: you know, they don't make profits for their producers. But
Speaker 1: at the same time, they're part of the cultural fabric.
Speaker 1: Are their theaters that do not survive this in Broadway?
Speaker 1: Would you repeat that question again? Are there theaters that
Speaker 1: go away? So the Shubert family, for example, do they
Speaker 1: need to close some of their theaters or will they
Speaker 1: all survive this. I'm not sure the answer that question
Speaker 1: unless they are able to make the appropriate changes that
Speaker 1: meet with the state and city guidelines and that we
Speaker 1: have a reliable vaccine that makes people comfortable returning even
Speaker 1: on a limited base, even with discounted tickets. But for example,
Speaker 1: so they may not have the rental problem that most
Speaker 1: people have, right, they may have a thousand year deal,
Speaker 1: or they may own the building. Do you know what
Speaker 1: the situation is there? Ken, Well, I I think I
Speaker 1: just answered your question. The situation is very simple. They
Speaker 1: will do whatever it's necessary to get up and running,
Speaker 1: but they haven't yet defined what that means, and they
Speaker 1: will vary from one facility to another. A modern theater
Speaker 1: will not have these problems, but some of the older
Speaker 1: ones will have considerable difficulty meeting those guidelines. So can
Speaker 1: final question, because you're also a real estate mogul for
Speaker 1: many decades in the city, what do you see happening
Speaker 1: with real estate in the center of the city. Do
Speaker 1: we see prices drop substantially from here for buyers? They've
Speaker 1: already dropped plenty. And I think there will be um
Speaker 1: some stabilization UM, probably in to the election and going
Speaker 1: into the next year. But I think that uh, commercial
Speaker 1: real estate is going to be heard in a variety
Speaker 1: of different ways, and there will be a lot of
Speaker 1: potential foreclosures UH and dead issues that will emerge. UM.
Speaker 1: All this has to be worked out over a period
Speaker 1: of time. But let me add been closing this interview
Speaker 1: that there's a there's an expression and this is applicable
Speaker 1: to Broadway. Charlie Chaplin once said nothing is forever in
Speaker 1: this world, and that includes our problems. So positive thinking
Speaker 1: is a prerequisite here. Absolutely can we rely on you
Speaker 1: for that. Thank you so much. Ken Laub, who is
Speaker 1: a real estate developer, producer and composer part of the
Speaker 1: fabric of Broadway, joining us there. And of course we
Speaker 1: know that Broadway will be back. We know that we'll
Speaker 1: see all of those shows again, and all those shows
Speaker 1: that you missed first time around, you'll just just be
Speaker 1: so happy to see them when it all happens again.
Speaker 1: All we need is a vaccine. Tropical Smoothie Cafe. It
Speaker 1: began in Atlanta and it is now an eighthound of
Speaker 1: fifty plus fast casual franchise serving not just smoothies but
Speaker 1: also all sorts of salads and drinks and wraps and sandwiches.
Speaker 1: Let's bring in the person who is CEO of Tropical
Speaker 1: Smoothie Cafe, and that is Charles Watson. Charles, thank you
Speaker 1: for joining my pleasure. Bonnie. Thanks for having me talk
Speaker 1: to us about how difficult it must be right now,
Speaker 1: what the challenges are for Tropical Smoothie Cafe and how
Speaker 1: many you've managed to keep open. Yes, absolutely well. I'd
Speaker 1: say our story is actually a very positive one. Like
Speaker 1: many restaurant chains, we fell off the COVID cliff about March,
Speaker 1: and for our brand, we bottomed out in April in
Speaker 1: terms of COPS sales, climb back up the sales ladder
Speaker 1: in May, and we went positive COMPS sales to the
Speaker 1: tune of twelve percent in June. So while it was
Speaker 1: a very tenuous and difficult time, I tell you that
Speaker 1: we are comping positively in and very happy with how
Speaker 1: our franchisees have fought back amid deependent pandemic to serve
Speaker 1: our guests. So we're actually in a relatively good space
Speaker 1: and expect to beat our twenty nine teen COMPS sales
Speaker 1: by shifting a lot of our business to focus on
Speaker 1: convenience the anytime, any place for our guests to access
Speaker 1: the brand through digital channels, third party delivery, our website, etcetera.
Speaker 1: So we've done well in coming out of the pandemic
Speaker 1: right and you're even opening new cafes across the US,
Speaker 1: so very much congratulations. How have you done though? When
Speaker 1: it comes to things like rents, franchise e s paying
Speaker 1: you guys. I mean, have you had difficulties that way
Speaker 1: that you've had to sort of overlook or you know,
Speaker 1: make easier for franchise e s to pay their rent
Speaker 1: or what have you. Sure, So we've done a lot
Speaker 1: of work working with our franchisees and concerts to aid them.
Speaker 1: So obviously, through the time the p p P loans,
Speaker 1: our franchise development team and our real estate team really
Speaker 1: turn into PPP and rental negotiation folks there for about
Speaker 1: three months and that net we've come out of it
Speaker 1: um and or not having any rental rate issues or
Speaker 1: any default issues because the businesses bounced back in the
Speaker 1: franchisees are cash flowing. That said, everyone is expecting rental
Speaker 1: rates to come down precipitously. We have not seen that.
Speaker 1: I think that landlords across the country, especially in the
Speaker 1: prime retail spaces that we look for, especially those that
Speaker 1: are in cap and drive through, they are really holding
Speaker 1: onto the rental rates that they said in twenty nineteen
Speaker 1: and haven't come off of those. The other big challenge
Speaker 1: that we're having uh to the bottom line for our
Speaker 1: franchise ease is the rapidly escalating triple net charges that
Speaker 1: we're seeing is especially real estate taxes. In some markets,
Speaker 1: we're seeing triple nets consistently a fifteen to twenty dollars
Speaker 1: per square foot, so that's certainly a challenge, but we
Speaker 1: hope that the real estate correction does come around to
Speaker 1: provide some relief on those rental rates for our franchise's absolutely,
Speaker 1: I mean particularly when you see you know, new places
Speaker 1: that have come up for rent are obviously renting a
Speaker 1: lug cheaper prices in some of the large major metropolitan
Speaker 1: areas at least I don't know about around the country,
Speaker 1: but certainly in New York and San Francisco and places,
Speaker 1: there are discounts on on new rental properties. Do you
Speaker 1: need more PPP money? We do not. We do not.
Speaker 1: We're in a very very good position or franchise ease
Speaker 1: or or cash flow positive. Many of our franchisees are
Speaker 1: having having a fantastic year. Again, a very difficult year
Speaker 1: and very fraud but we've been able to come through it.
Speaker 1: So for our particular brand, and I don't speak for
Speaker 1: all restaurant brands, because I know that there are many
Speaker 1: many that are hurting and I feel for them, but
Speaker 1: we do not currently know. So that's that's a great
Speaker 1: success story. What about your hiring and layoffs. Did you
Speaker 1: need to lay off people? Did you manage to hold
Speaker 1: onto everybody? Well, we actually took it took the opportunity
Speaker 1: to to reorganize this as we talk about the shift
Speaker 1: to digital and the the underlying foundational changes that are
Speaker 1: happening in the restaurant business. In order to provide guests
Speaker 1: with the access and the convenience and the ease that
Speaker 1: they're looking for, we had to make additional investments in
Speaker 1: in digital properties. So we did have to restructure and
Speaker 1: move some people around, but we did not have any
Speaker 1: standard layoffs just to uh, just to keep our g
Speaker 1: and A down. Yeah. I mean, it's really interesting the
Speaker 1: way you say that what we originally started off as
Speaker 1: a sort of a cafe enterprise almost became a real
Speaker 1: estate type of enterprise. So I imagine you needed to
Speaker 1: scale up in some areas or some of your employees did, right,
Speaker 1: And indeed, so I would tell you it's the scale
Speaker 1: up for us in the technology area the business and
Speaker 1: also the development area of the business. We've opened eighty
Speaker 1: restaurants so far this year, and we sold almost two
Speaker 1: hundred franchises so back to your point about real estate.
Speaker 1: What we found is for new development restaurants, of which
Speaker 1: we have a pipeline of over five hundred, it's actually
Speaker 1: getting the landlord's attention on doing new deals because they
Speaker 1: are spending so much time working out with existing tenants.
Speaker 1: So that's actually been a little bit of a headwind
Speaker 1: for for us as a brand that's trying to sign
Speaker 1: new leases and open new locations, which is relatively interesting. Yeah,
Speaker 1: that's so interesting, Charles. Are you ready for more shutdowns?
Speaker 1: We have, you know, epitying me all just saying we're
Speaker 1: headed for a difficult three to six months. We are
Speaker 1: ready for it. Again. I hate to be a broken record,
Speaker 1: but it's the shift to digital. We think that we
Speaker 1: can we can maintain and continue to move the business forward.
Speaker 1: We certainly wish it on no one, consumers or anyone else.
Speaker 1: We're prepared for it, and we do not think it
Speaker 1: will be good. We think it will be a continued hit,
Speaker 1: but we think that we can weather the storm much
Speaker 1: much better based on the past six months of work
Speaker 1: we've done as a brand. We're almost out of time,
Speaker 1: But I am curious as to what your plans are.
Speaker 1: Is this private equity of fact, might you ever go public?
Speaker 1: How what will the exit look like? Oh? Good questions,
Speaker 1: good questions. We're currently owned by Levine Likeman Capital Partners,
Speaker 1: private equity firm based out of Los Angeles, fantastic partners
Speaker 1: of ours, and what they do with us, no one knows,
Speaker 1: So we'll see. I think I think a public option
Speaker 1: is certainly possible, but I think that's uh, you know,
Speaker 1: three or four, five years out. All right, Well, you
Speaker 1: keep us posted. I'm sure we'll be the first to know. Charles,
Speaker 1: thank you so much for joining on. Congratulations on the
Speaker 1: success navigating through the pandemic for Tropical Smoothie Cafe once again,
Speaker 1: started off in Atlanta and now across the country. That's
Speaker 1: CEO Charles Watson. Back markets now, and let's bring in
Speaker 1: David Kat's ce IO of Matrix Advisors. David, I want
Speaker 1: to talk to you about the election, the outlook, the
Speaker 1: VIX being close to thirty, and so on. But first
Speaker 1: I have to ask you about Google, because we finally
Speaker 1: got what we were anticipating, the d o J suits.
Speaker 1: The stock didn't do much, except at a certain point
Speaker 1: it did start to decline and now we're sort of
Speaker 1: a flat does an investor care about a d o
Speaker 1: J suit against Google, It's never a good thing. Now,
Speaker 1: clearly this is going to be a headwind for a
Speaker 1: number of years. If you look back at the IBM
Speaker 1: suit maybe thirty or forty years ago, or the Microsoft
Speaker 1: suit twenty years ago. Uh, these things are negative and
Speaker 1: they definitely slow a company down. In terms of Google,
Speaker 1: we expected to the same. Having said that, we think
Speaker 1: that their prospects are very good. They're going to get
Speaker 1: through this, and it is one of the cheap of
Speaker 1: the high priced hot technology companies. So we would use
Speaker 1: any weakness to either start positions in Google or add
Speaker 1: positions in Google, because we do think they We're going
Speaker 1: to get through this. But do understand it is negative. Yeah. Now,
Speaker 1: given that you're willing to two positions and even enthusiastic
Speaker 1: about adding two positions, should we extrapolate from not that
Speaker 1: that that's the same cross quoth stocks for you? Um No,
Speaker 1: We're actually pretty wary about growth stocks. If you look
Speaker 1: at two thousand and twenty year to date performance, growth
Speaker 1: stocks have had their greatest out performance versus value stocks
Speaker 1: since nineteen seventy nine. Right now, they're selling it pretty
Speaker 1: excessive valuations. Investors are piling money in because they look
Speaker 1: for a repeat of this and that's simply not going
Speaker 1: to happen. So we are pretty wary about growth stocks.
Speaker 1: Whether it's a Netflix or a Zoom or Tesla. People
Speaker 1: are buying them because the business prospects are good, which
Speaker 1: they are, but are not paying any attention to the
Speaker 1: valuation on them. And we think ultimately valuation and gravity
Speaker 1: you're going to keep those stocks from rising at the
Speaker 1: rates that they have been. So in general, this market
Speaker 1: has proven extraordinarily resilient, David, Does it continue to do so?
Speaker 1: I mean, whether we get stimitus or not. Is that
Speaker 1: Is that a big factor in whether we continue to
Speaker 1: see the resilience. Well, we think if you get the stimulus,
Speaker 1: whether it's now or a few weeks from now, it's
Speaker 1: going to happen. And we do think that's important for
Speaker 1: the economy and then ultimately for the stock market. But
Speaker 1: one of the reasons that the stock market has been
Speaker 1: as resilient as it's been is both the Fed and
Speaker 1: the federal government have been doing everything they can to
Speaker 1: stabilize the economy. With interest rates to zero, there's tremendous liquidity.
Speaker 1: That liquidity is flowing into the stock market. That's driving
Speaker 1: stock prices higher. In addition, the first federal bailout program,
Speaker 1: the two point eight trillion dollars, has really been effective.
Speaker 1: It's proved to be a lifeline for smaller and mid
Speaker 1: sized businesses, it's a life line for individuals. UH. Credit
Speaker 1: quality is still pretty good, so as long as the
Speaker 1: government continues to step up, and as long as you
Speaker 1: have this tremendous liquidity, we're pretty bullish on stocks for
Speaker 1: the next twelve to eighteen months. We think the economy,
Speaker 1: which was in an exceptionally deep procession, is going to
Speaker 1: come out of that, and we're in the recovery mode.
Speaker 1: And it really is not how fast the recovery is,
Speaker 1: but directionally we're recovering with zero interest rates. That's good
Speaker 1: for stocks. Does it matter who is the next president? UM?
Speaker 1: For a lot of reasons, it does, but in terms
Speaker 1: of the economy in the stock market, not so much.
Speaker 1: We looked at the period nineteen forty six to two
Speaker 1: thousand and nineteen in terms of having a democratic president
Speaker 1: or Republican president UH, and the results were pretty good
Speaker 1: for investors, which is stocks generally went up regardless of
Speaker 1: which administration is in UH, they did a little bit
Speaker 1: better for democrats. So we wouldn't change what you're doing
Speaker 1: in investing, but do take comfort that you don't have
Speaker 1: to sell stocks if a Democrat wins or for Republican wins.
Speaker 1: Stay the course, look at the long term and look
Speaker 1: at fundamentals and businesses rather than who's in charge. One
Speaker 1: area that's been a bit of a laggard this year,
Speaker 1: and I know it's interesting to you, is the dividend
Speaker 1: stock area. Money are still, as you say, performing pretty well.
Speaker 1: Do you anticipate that what they'll grow their dividends or
Speaker 1: or why is this such a curious area for you? Well,
Speaker 1: right now this year, momentum stocks and growth stocks have
Speaker 1: done great. Everything else has been left for dead. Uh.
Speaker 1: Dividend stocks are a key part of that left for debt.
Speaker 1: So if you look at a lot of these companies, UH,
Speaker 1: they've been growing their earnings, they've been raising their dividend
Speaker 1: this year in a tremendous and deep recession, but they're
Speaker 1: not getting any credit for that now. The reason that
Speaker 1: we think is going to be very important in two
Speaker 1: thousand and twenty one and beyond is that the fetest
Speaker 1: signal that they're going to keep rates at zero for
Speaker 1: the foreseeable future, maybe another three to five years. Money
Speaker 1: markets are paying zero, the tenure Treasury is paying points
Speaker 1: seven eight. At some point investors are gonna wake up
Speaker 1: and say, holy cow, I can't get anything on my money.
Speaker 1: Where can I go? And if you can go into
Speaker 1: very slow and steady stocks that are paying you a
Speaker 1: four or five percent yield, uh, with some earnings growth
Speaker 1: and with dividend growth down the road, we think that's
Speaker 1: going to be a very very attractive place for people
Speaker 1: to put money to work. And the key is to
Speaker 1: get there now, not after they've had a great rally
Speaker 1: a year from now. Yeah, I mean, David, that begs
Speaker 1: the question, what's your return assumption? What are you looking
Speaker 1: for your portfolios to return? Well, we think a normal
Speaker 1: return assumption for the next three to five years probably
Speaker 1: goes back to eight, nine or ten UM. Yes. Uh.
Speaker 1: You know you're starting from a reasonable valuation on normalized
Speaker 1: earnings and rates are so low, which makes stocks one
Speaker 1: of the few games in town. And if stocks were
Speaker 1: thirty times earnings, we would not be particularly optimistic. But
Speaker 1: if you can buy a good portfolio stocks at fifteen
Speaker 1: times earnings with zero percent interest rates. We think that's
Speaker 1: a good background to make money. David, always a pleasure
Speaker 1: speaking with you. We always learned something new. David Katz
Speaker 1: is c I O of Matrix Advisers talking to us
Speaker 1: there about the stock market, and we appreciate it. Thanks
Speaker 1: for listening to Bloomberg Markets podcast. You can subscribe and
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Speaker 1: you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn,
Speaker 1: and I'm Paul Sweeney. I'm on Twitter at pt Sweeney.
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