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Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane

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Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Let's

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Speaker 1: bring in David pell Shall we epics seat and port

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Speaker 1: folio manager David Rights. Have you with us? Thank you?

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Speaker 1: The issues on your RATAR right now? What aren't they? Well?

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Speaker 1: I think last year was just too driven by valuation.

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Speaker 1: I mean, we had a good year from an earnings

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Speaker 1: point of view, was high single digits, which is pretty

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Speaker 1: good for the US economy. But you know, to get

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Speaker 1: a twentysomething return, it's valuation that is going to be

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Speaker 1: hard to continue unless rates continue to go down. And

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Speaker 1: it really looks like we're in a fairly stable environment.

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Speaker 1: And in fact, the market has gone from moderate to

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Speaker 1: being on the expensive side. And there are specific pockets

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Speaker 1: of excess for sure in speculative stocks. If you look

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Speaker 1: at companies that don't earn money, they've actually done better,

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Speaker 1: that is a bad sign. It really goes back to

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Speaker 1: so this year should be driven by earnings. You want

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Speaker 1: companies that can be profitable and it's probably just gonna

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Speaker 1: be a single digit return year. Rice, has Apple, a

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Speaker 1: company like Apple become a speculative stock. Yeah, Interestingly, we

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Speaker 1: have honed it since the founding of our firm in

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Speaker 1: two thousand four, and for almost all that time, Apple

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Speaker 1: has grown faster than the market, but sold at a discount.

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Speaker 1: Last year, sales declined, earnings declined, and the stock almost doubled.

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Speaker 1: So something happened in the psyche of the market and

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Speaker 1: we sold the stock. You sold the stock? When did

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Speaker 1: you sound the stock? In mid year? So it had

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Speaker 1: already rallied about which we thought was the fair value,

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Speaker 1: and it just kept going. She has outstanding it down

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Speaker 1: since bind back program is absolutely massive that some people

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Speaker 1: listening by now holding onto the name is sank. You

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Speaker 1: know what, David, You're wrong. The buybacks will continue, the

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Speaker 1: shares outstanding will continue to go down. I want to

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Speaker 1: carry on hold in this stock. Why shouldn't I? It's

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Speaker 1: not that it's a bad company, it's just the valuation

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Speaker 1: at this point assumes a double digit growth rate and

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Speaker 1: the growth is all coming from return of capital. But

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Speaker 1: how much are reaches back to the Tina trade? There

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Speaker 1: is no alternative. With the fed UH potentially cutting rates

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Speaker 1: once more this year, that's what's being priced into the market.

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Speaker 1: I mean, it makes valuations look very different than they

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Speaker 1: have historically. So for that point, Apple is now more

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Speaker 1: expensive than Google, which has higher margins, double digit growth,

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Speaker 1: it's going about top and bottom line, and it's cheaper

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Speaker 1: than Apple. So there are alternatives. And then we get

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Speaker 1: to financials, which are the cheapest sector of the market

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Speaker 1: at and to twelve times earnings and free cash flow

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Speaker 1: the way we would look at it, and they're returning

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Speaker 1: a hundred percent of capital b of a literally is

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Speaker 1: returning a hundred percent. And so if you take the

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Speaker 1: dividend plus the earnings growth and the share buy back,

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Speaker 1: you almost get a double digit earn without any valuation.

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Speaker 1: Ton't expanding that, David Pearl, with this clepic Investments, welcome

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Speaker 1: all of you on Bloomberg Radio Boston, Washington and New

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Speaker 1: York as well in San Francisco in a very early

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Speaker 1: morning and of course on Serious ex Chin on one

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Speaker 1: nineteen and across Bloomberg Television today. David Pearl, I consider

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Speaker 1: where you begin January one. You don't begin with the

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Speaker 1: stock in a dividend. So to recapitulate what you just said,

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Speaker 1: you look at a given stock is a dividend, the dividend, growth,

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Speaker 1: the share buy back, and then the then what right.

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Speaker 1: So really what we're doing is saying what kind of

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Speaker 1: profit in this company generate during the year and what

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Speaker 1: do they do with that profit. So, some really profitable

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Speaker 1: companies have wasted all the money they re They basically

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Speaker 1: plowed back in growth and get a low return on

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Speaker 1: invested capital. So you put a dollar in, get eight

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Speaker 1: cents back. You've wasted our money. All right. You're talking

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Speaker 1: about financials too. You're saying that they're very cheap and more.

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Speaker 1: About eight minutes away from the release of Morgan Stanley's

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Speaker 1: earning you like Instanley, you like it more than Goldman Sacks. Why? Yeah,

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Speaker 1: very simply, Morgan Stanley and Goldman used to be pretty

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Speaker 1: much the same kind of business. They're very different now.

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Speaker 1: More than half of their business is wealth and investment management,

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Speaker 1: which is a very sticky, recurring business, and the margins

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Speaker 1: for Morgan Stanley have actually been going up because they're

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Speaker 1: managing cost so it's recurring. The investment banking and trading

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Speaker 1: are very volatile and you really don't even get paid

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Speaker 1: for it. Even if you have a good quarter, the

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Speaker 1: market kind of discounts it. So Goldman has really become

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Speaker 1: a trading black box. That's why they in the last

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Speaker 1: couple of quarters they've tried to make it more transparent.

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Speaker 1: They're moving into commercial of actually consumer banking. But the

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Speaker 1: question is what does Goldman do that B of A

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Speaker 1: and JP Morgan doesn't do, whereas Morgan Stanley really is

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Speaker 1: the king of wealth management. They are really good at this.

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Speaker 1: You said last year was a valuation story. The financial

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Speaker 1: sector really rewrites it and rewrites it higher. Do you

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Speaker 1: see that as more sustainable than what you see our

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Speaker 1: swear is that a sustainable rewriting body's market on a

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Speaker 1: sect of its lack for quite a wild yes. And

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Speaker 1: you know, the biggest test, unfortunately, is if we go

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Speaker 1: into another recession. Because frankly, financials have underperformed since the

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Speaker 1: financial crisis. People are afraid that the next downturn they

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Speaker 1: go bankrupt again, and it may take till another downturn

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Speaker 1: to prove that they're well capitalized. They are super capitalized

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Speaker 1: right now. That's why they can return capital because they're regulated,

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Speaker 1: so they can only return capital because they have so

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Speaker 1: much cash sitting there to protect them. So these are

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Speaker 1: really good. And Morgan Stanley is still at eleven times

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Speaker 1: earnings with the two and a half percent dividend defined

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Speaker 1: scale then I mean, I mean, if if there's a

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Speaker 1: dearth of revenue and revenue growth, there's an urge to merge.

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Speaker 1: I get all that. That's McKinsey one on one, but

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Speaker 1: define skill. Take that idea further. Yeah, I mean, you know,

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Speaker 1: when it comes to like the lowest commodity product, which

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Speaker 1: is an e t F passive et F, there's black

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Speaker 1: Rock and then there's Vanguard. Nobody really can compete when

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Speaker 1: you're giving stuff away like that, So then you have

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Speaker 1: to be more specialized and wealth management there is scale.

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Speaker 1: My crampons for those of you that on television and radio,

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Speaker 1: John was looking at Mike still Crampons. You know, they're

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Speaker 1: the ones with the foreign spikes. You remember what happened

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Speaker 1: to me last year? Yeah? I remember what happened to

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Speaker 1: you walked out of the restaurant. Absolutely, OK, let me

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Speaker 1: total face plump. What it was? You guys need cameras

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Speaker 1: the side of my body. Tom had to help me

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Speaker 1: get back to a right David Scale back to scale

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Speaker 1: Um about those things. Ken Leon was talking yesterday that

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Speaker 1: he thinks Goldman Sachs needs to make a major purchase

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Speaker 1: of an asset manager. Do you agree, Well, that would

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Speaker 1: be a good strategy. There are other things they could do.

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Speaker 1: They're actually huge in high net worth, they really are,

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Speaker 1: but that's not big in off compared to the size

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Speaker 1: of Goldman Sacks. So yes, that that's the Morgan Stanley strategy,

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Speaker 1: which has worked for Morgan Stanley. The question is is

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Speaker 1: Goldman's culture ready for that, because they are a trading

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Speaker 1: and investment banking culture. In two days in a row,

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Speaker 1: ft Lex the ALM snow words about it, f Lex.

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Speaker 1: I don't know if it's because it's Lionel Barber's last day.

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Speaker 1: You think he think. I don't know that. They really

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Speaker 1: took speaking believe to do that next week at the piano. No,

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Speaker 1: this is serious. The ft really took well, you know,

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Speaker 1: for them to run a consumer bank just gonna work.

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Speaker 1: It seems totally incongruous to Goldman Sacks and really the

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Speaker 1: only way you're going to win businesses under price, I

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Speaker 1: mean to get to go the Apple credit card. They

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Speaker 1: probably are not making any money City Bank didn't even

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Speaker 1: make money doing the Costco visa card. So this is

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Speaker 1: a scale business and Goldman just doesn't have scaling consumer banking.

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Speaker 1: David pol with thank you some watch with Epica Investments greatly,

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Speaker 1: greatly appreciated. Right now. I've really been looking forward to this.

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Speaker 1: Very Lovely is going to join us. She's with the

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Speaker 1: Peterson Institute in Syracuse University and she has written with

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Speaker 1: precision about China and America. I'm gonna steal some thunder

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Speaker 1: from my colleague Lisa Bramo is Professor Lovely right now,

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Speaker 1: which is on the enforceability of all we're doing. Let's

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Speaker 1: do the history first. Is there everybody's history of enforceable

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Speaker 1: or verification with China. Well, it's it's not only that

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Speaker 1: it is a disagreement. Isn't unprecedented. Uh, this is an

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Speaker 1: agreement that's going to rely on the players who are

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Speaker 1: who are in the seats at the time. Uh. It's

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Speaker 1: meant to be stricter than previous attempts at enforcement. As

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Speaker 1: you say, we've had a long standing problem with China

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Speaker 1: on it on its meaning, its obligations in some areas, UH,

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Speaker 1: particularly related to its accession to the W t o UH,

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Speaker 1: and it's meant to have more teeth. The problem is,

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Speaker 1: of course, is that the escalation could happen very quickly.

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Speaker 1: The end result would be the us UH putting on

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Speaker 1: new tariffs or returning to the old tariffs, and at

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Speaker 1: that point China can simply notify that it's quit the agreement.

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Speaker 1: So we have an agreement that has teeth. We have,

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Speaker 1: but those teeth mean that it can bite very quickly.

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Speaker 1: And I think the problem then for businesses is do

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Speaker 1: you go ahead and invest a little bit like Lucy

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Speaker 1: in the football? Well, this is the tough part, isn't it?

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Speaker 1: Plantic season for soybean starts in a couple of months time.

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Speaker 1: What are the farmers in America to who marry? I

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Speaker 1: don't know, and interviews I've heard with farmers show that

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Speaker 1: they don't know either. It's very tempting. My best guests,

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Speaker 1: since I'm pretty optimistic person, would be to go ahead

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Speaker 1: and think that it's going to hold at least for

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Speaker 1: the first year. But it's a problem because farmers want

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Speaker 1: to get into a rhythm with their customers UH and

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Speaker 1: they need the sales. So what do they do? Mary,

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Speaker 1: You gotta hand it to the administration. They got China

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Speaker 1: to the table and got them to agree to some

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Speaker 1: big things. As you point out, though, follow through is

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Speaker 1: the outstanding issue. Let's pick up on agg on food,

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Speaker 1: seafood product annually the average important. Now it's got to

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Speaker 1: be forty billion. Can they hit it? Do you think

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Speaker 1: China can hit those kind of numbers? Well, there's been

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Speaker 1: a little bit more wiggle room in the agreement now

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Speaker 1: that we've seen it. For example, they could buy Boeing planes,

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Speaker 1: have the sales recorded for this period, but not take

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Speaker 1: delivery for say another two years. So there are some

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Speaker 1: ways that they can hit this. One of the bigger

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Speaker 1: problems is that we worry about diversion from our training

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Speaker 1: partners and then friction with those partners UH in energy,

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Speaker 1: in egg and manufacturing. So there doesn't seem to be

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Speaker 1: enough wiggle room. I think the Chinese UH in the

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Speaker 1: US feel that they can hit these targets. Otherwise we

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Speaker 1: wouldn't have seen agreement, or at least that's what we hope.

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Speaker 1: But you know, something can happen. Mary. People are pointing

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Speaker 1: to what is being called a big win for Wall

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Speaker 1: Street because one part of this less publicized part of

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Speaker 1: the trade deal was an acceleration of the opening of

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Speaker 1: China's capital system. How significant do you think that is?

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Speaker 1: I do think it's important, although you know, there are

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Speaker 1: a lot of things we were we were promised a

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Speaker 1: long time ago, so in some sense of the wind,

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Speaker 1: but it's also been you know, a lot of losses

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Speaker 1: as we've waited, while Chinese uh particularly fin tank companies

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Speaker 1: have gained strength. So I think it shows that China

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Speaker 1: has a certain confidence that it can withstand the competition,

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Speaker 1: or frankly, that it needs the products that the U

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Speaker 1: S service companies want to sell. So I think it's important. Again,

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Speaker 1: we have to see if they'll follow through. Mary, there's

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Speaker 1: a criticism that's already coming saying was it worth it?

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Speaker 1: Was this deal enough to offset the damage of the

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Speaker 1: uncertainty and the tariffs that were put into place in

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Speaker 1: the two years as this unfolded. But going forward there

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Speaker 1: is a question and President Trump perhaps can say, look,

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Speaker 1: the US is working with the European Union in Japan

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Speaker 1: with a w t O to try to enforce some

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Speaker 1: sort of reduction and how much China subsidizes its industrial sector?

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Speaker 1: Do you buy that? I mean, is that sufficient to

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Speaker 1: sort of move the ball? Forward regardless of Phase two talks. Well,

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Speaker 1: that was the best news of the week actually the

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Speaker 1: US was returning to working with its allies. That that

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Speaker 1: clearly is the way forward. UH industrial subsidies. As I

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Speaker 1: said before, our multilateral problem, um, we need all hands

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Speaker 1: on deck to try to reach an agreement within the

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Speaker 1: w t O or some other way. And it's not

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Speaker 1: going to be easy because every country uses subsidies to

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Speaker 1: some extent. How do you draw those lines? How do

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Speaker 1: you adjudicate at those lines? What happens when UH countries

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Speaker 1: move over those lies? You have to remember then w

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Speaker 1: t O retaliation is basically you get to put on

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Speaker 1: tariffs will be you know. So it's it's a hard

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Speaker 1: problem and it's one that clearly is going to escalate

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Speaker 1: as as China and other countries try to develop emerging

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Speaker 1: technologies which are likely to be attached to very high profits.

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Speaker 1: So there's going to be a lot of competition in

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Speaker 1: a lot of spheres. Mary, thank you so much, Professor

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Speaker 1: Lovely with the Peterson Institute in Syracuse University as well.

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Speaker 1: Do you want to snappy MP Powerbost Senior investment strategist,

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Speaker 1: your message to clients this morning down what is it well.

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Speaker 1: And I think the thing to contrast is the risks

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Speaker 1: and the concerns that we have this year compared to

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Speaker 1: this same time at the beginning of last year, and

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Speaker 1: then valuations A lot of the risks honestly aren't all

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Speaker 1: that different. We know, we still need to worry about trade,

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Speaker 1: We unfortunately still need to worry about Brexit. There's still

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Speaker 1: questions about global growth, particularly in Europe. So that's really

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Speaker 1: quite similar. The differences Now you've got the SMP five

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Speaker 1: hundred at eighteen and a half time's earnings. You've got

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Speaker 1: high yield bond spreads near ten year lows almost that

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Speaker 1: we're investment great bond spreads, So the challenge is finding

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Speaker 1: attractive places to invest. The risk is still there, but

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Speaker 1: the valuations aren't. I'm gonna punt a question that John

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Speaker 1: posed to me this morning. You said, what's the message

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Speaker 1: from the bond market, because right now you're seeing a

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Speaker 1: flattening yield curve. It seems to be a bearish tilled

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Speaker 1: amid six straight days of record highs, and if today's

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Speaker 1: futures are any indications, will be a seventh straight day

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Speaker 1: of record highs. I'm wondering is the message from the

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Speaker 1: bond market inconsistent with what we're seeing in equities. Well,

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Speaker 1: I think what we're seeing from bond markets recently is

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Speaker 1: probably more the dysformula on inflation, you know, which is

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Speaker 1: kind of the perpetual puzzle that we've had. You know,

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Speaker 1: we know that we have in a ployment rates at

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Speaker 1: multidecade lows, but the pattern that you've seen across several

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Speaker 1: sectors for wages in America is that you've had a

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Speaker 1: deceleration in the rate of wage appreciation. So there's still

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Speaker 1: wage growth is just not as strong as it was.

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Speaker 1: It's been going that way for about six months now.

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Speaker 1: That's had a follow through the c p I, which

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Speaker 1: is disappointing. So I think that's probably what you're seeing

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Speaker 1: more reflected in treasures right now. It's the inflation component

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Speaker 1: of your nominal yield as opposed to the real rate component,

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Speaker 1: which was really the story from last year. But we

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Speaker 1: don't think this is going to persist. We're still expecting

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Speaker 1: broadly stable rates around one point eight, give or take,

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Speaker 1: for most of this year. There's a dissonance right now

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Speaker 1: between the consensus call for emerging markets Europe to outperform

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Speaker 1: the US given where we've seen the rally go uh

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Speaker 1: and this sort of slow down that we're seeing certainly

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Speaker 1: in the US but across the world. How do you

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Speaker 1: sort of pair those ideas. I think if you want

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Speaker 1: to compare certainly US versus Europe, you've got to distinguish

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Speaker 1: between kind of broad tech, so include you not just

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Speaker 1: the tech sector, but Amazon, Facebook, Google, all of that,

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Speaker 1: and the rest of the market. Uh. The rest of

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Speaker 1: the market performed absolutely in line between the US and

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Speaker 1: Europe last year. There was no difference. They're both around

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Speaker 1: UH for the whole year. They just tracked each other.

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Speaker 1: What really led to the US performance was entirely the

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Speaker 1: broad tech sector. So I think you need to have

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Speaker 1: two separate allocations. What's your view on tech and then

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Speaker 1: the rest of it. It's harder to call a big

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Speaker 1: difference between the UN and Europe except for evaluations where

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Speaker 1: the US is clearly much much higher. You're just joining us.

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Speaker 1: Daniel Morris, BMP Pared BIOst Management. Where this as we

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Speaker 1: look at the strategy for Dan Morris, what is the

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Speaker 1: mode of institutions that didn't make twenty eight percent last year?

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Speaker 1: If you're up eight percent, you're up twelve percent. Maybe

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Speaker 1: you're on the efficient frontier under performing. What's the sweat

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Speaker 1: factor right now to catch up? Well, I think it's

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Speaker 1: the same sentiment that a lot of retail investors have

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Speaker 1: to be feeling. I mean, you know, you haddemptions from

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Speaker 1: equity funds throughout all of last year. You know, as

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Speaker 1: a market was rising, you know, to be to be honest,

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Speaker 1: that's the story that's been in place to sound degree

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Speaker 1: since two thousand and nine. But I think after the

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Speaker 1: optimistic span is at While a lot of that money

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Speaker 1: did go into fixed income and obviously still did just fine,

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Speaker 1: a much bigger share went into money market. So if

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Speaker 1: we do see any kind of correction and equities, which

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Speaker 1: we wouldn't be at all surprised to see over the

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Speaker 1: next couple of months, there is a lot of cash

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Speaker 1: on the sidelines that we think is going to go

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Speaker 1: back into equities, but hopefully it more attractive valuations, because

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Speaker 1: again the punamental outlook is still quite strong. A potential

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Speaker 1: catalyst on the horizon. The MACE sparks some nervousness and

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Speaker 1: risk assets down is what happens with the Federal reserves

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Speaker 1: balance sheet. Later this year, there's this big debate that

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Speaker 1: is still ongoing. A lot of people in fixed income

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Speaker 1: tell us it is not QUI many people in the

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Speaker 1: equity market access if it is, I just wanted down.

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Speaker 1: If ultimately it doesn't matter what you think it is,

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Speaker 1: the outcome is still the same risk assets of rallying.

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Speaker 1: And there are many people out there listening to this

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Speaker 1: program that thinks if the fedbacks off on the balance sheet,

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Speaker 1: risk assets will get into trouble. What SAB had them, Well,

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Speaker 1: you certainly think that was part of the story that

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Speaker 1: happened at the end of twenty eighteen, when it was

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Speaker 1: one of many things that went wrong. I mean, you

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Speaker 1: certainly had the prospect of balance she'd run off an,

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Speaker 1: you had the prospect of higher rates, and then you

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Speaker 1: added some disappointment earnings results from Apple, You added the

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Speaker 1: trade war, and that was enough to trigger it. I

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Speaker 1: don't know at this point if if I think it

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Speaker 1: changed in FED policy in and of itself would be enough.

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Speaker 1: But if you eat a couple other little things that

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Speaker 1: happened at the same time, there could be an unpleasant repeat.

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Speaker 1: And yesterday on Bloomberg Television and Radio, Dallas FED President

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Speaker 1: Robert Kaplan weighing in on this and basically saying, uh,

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Speaker 1: he does think the FED should reduce it or at

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Speaker 1: least pair the pace of its increase in balance sheet.

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Speaker 1: This is this is sort of the most tepid endorsement

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Speaker 1: of paring back the recent program because he's worried about

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Speaker 1: acid bubbles. But it does raise a question, you know,

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Speaker 1: what is the sort of perverse incentive that gets created

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Speaker 1: as the FED reinflates at a time when the economy

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Speaker 1: is told this is really important distinction. Daniel Morris Lisa says,

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Speaker 1: as the FED reinflates, is there any evidence they can reinflate? Well,

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Speaker 1: if you want to see that evidence in in higher

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Speaker 1: core CPI inflation, you know, even getting back to a

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Speaker 1: two percent average to present average CPI inflation, you know,

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Speaker 1: it's hard to see that happening. I mean, remember back

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Speaker 1: when you started quee, all the scare stories that you

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Speaker 1: read about how that this was going to set off

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Speaker 1: hyper inflation, and clearly that did not happen. So even

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Speaker 1: after the trillions that you've had purchase in the US,

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Speaker 1: in in in England, in Europe, and in Japan, you know,

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Speaker 1: inflation nowhere to be seen. So it's just really hard

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Speaker 1: to see, you know, any change that the FED can

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Speaker 1: make having that big of a Danie Morris one final question,

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Speaker 1: if we could, what metric matters to you right now

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Speaker 1: when you go to the Bloomburger, when you're writing one

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Speaker 1: of your twenty page jewels for BMP Perry. Is it

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Speaker 1: price to sales? Is it price to cash flow? Is

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Speaker 1: it some enterprise value ratio? What ratio matters right now?

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Speaker 1: To Daniel Morris, I think what's concerning right now is

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Speaker 1: pretty much any ratio you look at is one to

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Speaker 1: one and a half standard deviations above the levels over

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Speaker 1: the last ten years. So I think it's it's a

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Speaker 1: fact that everything is kind of giving you the same

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Speaker 1: signal things are really pricey. As long as the world

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Speaker 1: is perfect, that's okay, But we suspect it's not. Daniel Moore,

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Speaker 1: thank you so much for the briefing, and thanks to

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Speaker 1: Verry by this morning. What's key there to his great

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Speaker 1: mathematics is one and a half standard deviations under math

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Speaker 1: is not a point of panic, It's a point of

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Speaker 1: business as usual. Anxious with these reports whatsoever? So should

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Speaker 1: I should I start buying? This doesn't change anything for anybody.

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Speaker 1: That's just kind of push back to the big debate

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Speaker 1: over the consumer. The next crack you see in the data,

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Speaker 1: the battle pile back on again and say that cracks

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Speaker 1: it back futures. At the moment, we're doing. Okay, Donna

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Speaker 1: Petison joining US Now City Global Economists to weigh in

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Speaker 1: on the date. It's Donna, great to have you with us,

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Speaker 1: way and please sure. I think data are absolutely amazing

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Speaker 1: for the US of low initial job of claims, meaning

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Speaker 1: that there are two people getting laid off. It marries

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Speaker 1: very well the data we're seeing. UH an arrogant with

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Speaker 1: respect to payrolls. We do expect payrolls will flow a

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Speaker 1: little bit over the course of the year, but still

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Speaker 1: average one thirty five for the year. With retail sales again,

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Speaker 1: as you were just saying, yes, we do see some

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Speaker 1: cannibalization of of brick and mortar sales because of non

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Speaker 1: store retail sales, but still at all, most people are

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Speaker 1: still going physically to places to buy things and items

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Speaker 1: and services, and so overall that's really great. And we're

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Speaker 1: still expecting the consumers to contribute to the economy. Looking

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Speaker 1: at an average two and a half percent growth in

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Speaker 1: consumptions for this year and for the first quarter two

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Speaker 1: points if you dig into the numbers, the retail sales

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Speaker 1: X auto month over a month beat significantly. Actually, they

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Speaker 1: were up zero point seven percent versus an estimate of

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Speaker 1: zero point five percent. Similar with X auto and gas.

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Speaker 1: When you look at that category, which sectors are picking

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Speaker 1: up the slack? Were the auto industry, which continues to

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Speaker 1: see weakness. Well, certainly we saw really strong sales and clothing, um,

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Speaker 1: general merchandise. People are still going out to restaurants and

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Speaker 1: eating and drinking, so it was really a lot of

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Speaker 1: strength here. Well, look at retail where was it week?

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Speaker 1: I mean, I see and the end of Scott Lammon's story, Dana,

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Speaker 1: I see that department stores are negative five point five

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Speaker 1: percent year over year. You do that two years in

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Speaker 1: a row. That's a problem, isn't it. Well, I mean,

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Speaker 1: I'm just looking at a string of negatives for that,

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Speaker 1: And it's not surprising that these department stores are losing momentum.

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Speaker 1: We've been hearing about that for several years now. And yes,

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Speaker 1: they are losing market share to the non store retailers.

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Speaker 1: But I think also when you look at the non

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Speaker 1: store uh number, it's a mix, right, So you'll have

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Speaker 1: some brick and mortar stores that have offline sales, and

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Speaker 1: they just kind of mix them all together. You know, John,

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Speaker 1: This is important because there used to be an academic

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Speaker 1: discussion about institution on js Panay at five dollars a share.

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Speaker 1: We're under a button. That's the marketing campaign they should

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Speaker 1: be doing it. Institution, I mean, is an American institution

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Speaker 1: and it's been in Is there an energy must go

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Speaker 1: to a J. C. Penny a long time ago? John?

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Speaker 1: Is there any equivalent London or UK institution to J C. Panny? Yeah,

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Speaker 1: there's a couple of struggling department stores, House of Fraser,

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Speaker 1: Evanon's couple of names for you in the United Kingdom

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Speaker 1: that have really struggled over the last decade or so.

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Speaker 1: The same shopping experience. You go into somebody's stores, Tom,

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Speaker 1: and you're just not treated very well. The people in

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Speaker 1: that look like you don't They don't want you there,

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Speaker 1: so why should you be there? In fact, that applies

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Speaker 1: also to luxury on on Fifth Avenue. Should I go

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00:23:40,440 --> 00:23:42,760
Speaker 1: on a rant because it really annoys me? Evidently we don't.

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Speaker 1: When you go into my store on Fifth Avenue and

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Speaker 1: you walk in and you're interested in buying something, because

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00:23:50,400 --> 00:23:52,479
Speaker 1: You've saved your money up and they look at you

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00:23:52,560 --> 00:23:55,720
Speaker 1: like you shouldn't be there. What is that about? It

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00:23:55,840 --> 00:24:00,320
Speaker 1: happens constantly. What is that about? It is why did

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Speaker 1: they think that's okay? It is principles of these firms

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00:24:04,440 --> 00:24:08,200
Speaker 1: in America not reading the Riot Act to the help.

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Speaker 1: It's absolutely ridiculous. We're talking about retail sales. We're not

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Speaker 1: talking about Fifth Avenue for the most of it. And Dana,

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Speaker 1: you know, there is a question, and I mean, look,

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Speaker 1: I agree with you, it is service. But then there

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00:24:20,080 --> 00:24:23,560
Speaker 1: is a question, what are these retailers doing wrong? If

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Speaker 1: retail sales are actually picking up, why are we seeing

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Speaker 1: the likes of coals J C. Pier to Tom's point

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Speaker 1: and tar J, I've got a great idea, and that's

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Speaker 1: time you go into the department store. Yes, so bloomy

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Speaker 1: Dale's talk to me like you want me there? That

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Speaker 1: would that would help? I might actually want to spend

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Speaker 1: some money in your in your department store. Well, how

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00:24:41,760 --> 00:24:44,160
Speaker 1: behind are they basically, you know, and and that's sort

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00:24:44,200 --> 00:24:45,679
Speaker 1: of you know, how much they have to invest, how

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00:24:45,720 --> 00:24:47,439
Speaker 1: much they have to pay people more, how much do

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Speaker 1: they have to over you know, research. Also, I don't

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Speaker 1: get lost walking around the store. I don't want to

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Speaker 1: wait twenty minutes to get an Alephanka to address it's

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Speaker 1: not difficult. I want to go to Dana Peterson on

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Speaker 1: this with City Group. We're thrilled that she's well, this

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00:25:00,280 --> 00:25:03,320
Speaker 1: is warning Dana. This talks about the labor component, and

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00:25:03,359 --> 00:25:06,679
Speaker 1: the question is can retail continue forward in a fully

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00:25:06,680 --> 00:25:09,480
Speaker 1: employed America? I mean labor, labor and retail is a

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00:25:09,560 --> 00:25:13,159
Speaker 1: beginning job across all of America. Can they get the

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00:25:13,240 --> 00:25:17,439
Speaker 1: bodies forward to keep brick and mortar retail going or

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00:25:17,480 --> 00:25:20,359
Speaker 1: is it done well? I think an important thing that

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00:25:20,400 --> 00:25:22,920
Speaker 1: we should look at is big box doores. They've actually

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Speaker 1: done extremely well, and they've just exploded in terms of

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Speaker 1: the number of them and also their sales right alongside

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Speaker 1: of your non store retailers. And that's because they are

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00:25:32,800 --> 00:25:35,399
Speaker 1: giving you the discounted price. And so we should look

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00:25:35,440 --> 00:25:39,560
Speaker 1: at the retails of a more differentiated market and understand that.

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00:25:39,600 --> 00:25:43,119
Speaker 1: You know, certainly, UM, when you're looking at labor, you

480
00:25:43,160 --> 00:25:45,719
Speaker 1: need to have things that attract labor, such as benefits

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Speaker 1: UM And certainly, if if you're big box stores not

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Speaker 1: able to do I'm sorry if you're department stores aren't

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00:25:51,040 --> 00:25:52,360
Speaker 1: able to do that, then you're not going to get

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Speaker 1: the best quality of labor. Well, but this goes actually

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00:25:54,840 --> 00:25:56,800
Speaker 1: the John's point, And I was, and I don't mean

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Speaker 1: to downplay your point because it is important give service.

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Speaker 1: I'm no, I mean I'm gonna build on it. Basically,

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00:26:03,000 --> 00:26:06,720
Speaker 1: how difficult is this situation amid this massive shift in

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Speaker 1: retail where stores brick and mortar have to be investing

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Speaker 1: substantially in their online businesses to compete with Amazon, while

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00:26:14,200 --> 00:26:17,280
Speaker 1: also paying up for staff, will also making sure that

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Speaker 1: the actual experience is something special and exciting and not

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Speaker 1: necessarily depressing on Fifth Avenue. For John Farroll, well, we

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Speaker 1: can look at this as creative destruction. They're always going

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00:26:28,040 --> 00:26:30,919
Speaker 1: to be industry. So if we think about the whaling industry,

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00:26:30,960 --> 00:26:33,760
Speaker 1: that's no longer exists, right um, and the world still

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00:26:33,800 --> 00:26:39,840
Speaker 1: move forward the whaling industry, no comment there, um, but

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00:26:39,960 --> 00:26:45,280
Speaker 1: certainly uh, within the retail sector they left. Again, there's differentiation.

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Speaker 1: You have luxury, you have your big box, you have

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00:26:48,280 --> 00:26:51,960
Speaker 1: your discounts discounters, which you're also doing very well, um,

501
00:26:52,040 --> 00:26:55,200
Speaker 1: and then you have your brick and mortar, big department

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00:26:55,240 --> 00:26:57,320
Speaker 1: stores that aren't doing so well. And there are different

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Speaker 1: aspects of it, and certainly if you are a retailer,

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00:27:01,080 --> 00:27:03,920
Speaker 1: you have to consider all these elements. Thank you so much,

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Speaker 1: Dana Peterson, thank you very much. Thanks for listening to

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Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on

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00:27:11,960 --> 00:27:17,800
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm

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00:27:17,840 --> 00:27:21,080
Speaker 1: on Twitter at Tom Keene before the podcast. You can

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Speaker 1: always catch us worldwide. I'm Bloomberg Radio