Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Let's
Speaker 1: bring in David pell Shall we epics seat and port
Speaker 1: folio manager David Rights. Have you with us? Thank you?
Speaker 1: The issues on your RATAR right now? What aren't they? Well?
Speaker 1: I think last year was just too driven by valuation.
Speaker 1: I mean, we had a good year from an earnings
Speaker 1: point of view, was high single digits, which is pretty
Speaker 1: good for the US economy. But you know, to get
Speaker 1: a twentysomething return, it's valuation that is going to be
Speaker 1: hard to continue unless rates continue to go down. And
Speaker 1: it really looks like we're in a fairly stable environment.
Speaker 1: And in fact, the market has gone from moderate to
Speaker 1: being on the expensive side. And there are specific pockets
Speaker 1: of excess for sure in speculative stocks. If you look
Speaker 1: at companies that don't earn money, they've actually done better,
Speaker 1: that is a bad sign. It really goes back to
Speaker 1: so this year should be driven by earnings. You want
Speaker 1: companies that can be profitable and it's probably just gonna
Speaker 1: be a single digit return year. Rice, has Apple, a
Speaker 1: company like Apple become a speculative stock. Yeah, Interestingly, we
Speaker 1: have honed it since the founding of our firm in
Speaker 1: two thousand four, and for almost all that time, Apple
Speaker 1: has grown faster than the market, but sold at a discount.
Speaker 1: Last year, sales declined, earnings declined, and the stock almost doubled.
Speaker 1: So something happened in the psyche of the market and
Speaker 1: we sold the stock. You sold the stock? When did
Speaker 1: you sound the stock? In mid year? So it had
Speaker 1: already rallied about which we thought was the fair value,
Speaker 1: and it just kept going. She has outstanding it down
Speaker 1: since bind back program is absolutely massive that some people
Speaker 1: listening by now holding onto the name is sank. You
Speaker 1: know what, David, You're wrong. The buybacks will continue, the
Speaker 1: shares outstanding will continue to go down. I want to
Speaker 1: carry on hold in this stock. Why shouldn't I? It's
Speaker 1: not that it's a bad company, it's just the valuation
Speaker 1: at this point assumes a double digit growth rate and
Speaker 1: the growth is all coming from return of capital. But
Speaker 1: how much are reaches back to the Tina trade? There
Speaker 1: is no alternative. With the fed UH potentially cutting rates
Speaker 1: once more this year, that's what's being priced into the market.
Speaker 1: I mean, it makes valuations look very different than they
Speaker 1: have historically. So for that point, Apple is now more
Speaker 1: expensive than Google, which has higher margins, double digit growth,
Speaker 1: it's going about top and bottom line, and it's cheaper
Speaker 1: than Apple. So there are alternatives. And then we get
Speaker 1: to financials, which are the cheapest sector of the market
Speaker 1: at and to twelve times earnings and free cash flow
Speaker 1: the way we would look at it, and they're returning
Speaker 1: a hundred percent of capital b of a literally is
Speaker 1: returning a hundred percent. And so if you take the
Speaker 1: dividend plus the earnings growth and the share buy back,
Speaker 1: you almost get a double digit earn without any valuation.
Speaker 1: Ton't expanding that, David Pearl, with this clepic Investments, welcome
Speaker 1: all of you on Bloomberg Radio Boston, Washington and New
Speaker 1: York as well in San Francisco in a very early
Speaker 1: morning and of course on Serious ex Chin on one
Speaker 1: nineteen and across Bloomberg Television today. David Pearl, I consider
Speaker 1: where you begin January one. You don't begin with the
Speaker 1: stock in a dividend. So to recapitulate what you just said,
Speaker 1: you look at a given stock is a dividend, the dividend, growth,
Speaker 1: the share buy back, and then the then what right.
Speaker 1: So really what we're doing is saying what kind of
Speaker 1: profit in this company generate during the year and what
Speaker 1: do they do with that profit. So, some really profitable
Speaker 1: companies have wasted all the money they re They basically
Speaker 1: plowed back in growth and get a low return on
Speaker 1: invested capital. So you put a dollar in, get eight
Speaker 1: cents back. You've wasted our money. All right. You're talking
Speaker 1: about financials too. You're saying that they're very cheap and more.
Speaker 1: About eight minutes away from the release of Morgan Stanley's
Speaker 1: earning you like Instanley, you like it more than Goldman Sacks. Why? Yeah,
Speaker 1: very simply, Morgan Stanley and Goldman used to be pretty
Speaker 1: much the same kind of business. They're very different now.
Speaker 1: More than half of their business is wealth and investment management,
Speaker 1: which is a very sticky, recurring business, and the margins
Speaker 1: for Morgan Stanley have actually been going up because they're
Speaker 1: managing cost so it's recurring. The investment banking and trading
Speaker 1: are very volatile and you really don't even get paid
Speaker 1: for it. Even if you have a good quarter, the
Speaker 1: market kind of discounts it. So Goldman has really become
Speaker 1: a trading black box. That's why they in the last
Speaker 1: couple of quarters they've tried to make it more transparent.
Speaker 1: They're moving into commercial of actually consumer banking. But the
Speaker 1: question is what does Goldman do that B of A
Speaker 1: and JP Morgan doesn't do, whereas Morgan Stanley really is
Speaker 1: the king of wealth management. They are really good at this.
Speaker 1: You said last year was a valuation story. The financial
Speaker 1: sector really rewrites it and rewrites it higher. Do you
Speaker 1: see that as more sustainable than what you see our
Speaker 1: swear is that a sustainable rewriting body's market on a
Speaker 1: sect of its lack for quite a wild yes. And
Speaker 1: you know, the biggest test, unfortunately, is if we go
Speaker 1: into another recession. Because frankly, financials have underperformed since the
Speaker 1: financial crisis. People are afraid that the next downturn they
Speaker 1: go bankrupt again, and it may take till another downturn
Speaker 1: to prove that they're well capitalized. They are super capitalized
Speaker 1: right now. That's why they can return capital because they're regulated,
Speaker 1: so they can only return capital because they have so
Speaker 1: much cash sitting there to protect them. So these are
Speaker 1: really good. And Morgan Stanley is still at eleven times
Speaker 1: earnings with the two and a half percent dividend defined
Speaker 1: scale then I mean, I mean, if if there's a
Speaker 1: dearth of revenue and revenue growth, there's an urge to merge.
Speaker 1: I get all that. That's McKinsey one on one, but
Speaker 1: define skill. Take that idea further. Yeah, I mean, you know,
Speaker 1: when it comes to like the lowest commodity product, which
Speaker 1: is an e t F passive et F, there's black
Speaker 1: Rock and then there's Vanguard. Nobody really can compete when
Speaker 1: you're giving stuff away like that, So then you have
Speaker 1: to be more specialized and wealth management there is scale.
Speaker 1: My crampons for those of you that on television and radio,
Speaker 1: John was looking at Mike still Crampons. You know, they're
Speaker 1: the ones with the foreign spikes. You remember what happened
Speaker 1: to me last year? Yeah? I remember what happened to
Speaker 1: you walked out of the restaurant. Absolutely, OK, let me
Speaker 1: total face plump. What it was? You guys need cameras
Speaker 1: the side of my body. Tom had to help me
Speaker 1: get back to a right David Scale back to scale
Speaker 1: Um about those things. Ken Leon was talking yesterday that
Speaker 1: he thinks Goldman Sachs needs to make a major purchase
Speaker 1: of an asset manager. Do you agree, Well, that would
Speaker 1: be a good strategy. There are other things they could do.
Speaker 1: They're actually huge in high net worth, they really are,
Speaker 1: but that's not big in off compared to the size
Speaker 1: of Goldman Sacks. So yes, that that's the Morgan Stanley strategy,
Speaker 1: which has worked for Morgan Stanley. The question is is
Speaker 1: Goldman's culture ready for that, because they are a trading
Speaker 1: and investment banking culture. In two days in a row,
Speaker 1: ft Lex the ALM snow words about it, f Lex.
Speaker 1: I don't know if it's because it's Lionel Barber's last day.
Speaker 1: You think he think. I don't know that. They really
Speaker 1: took speaking believe to do that next week at the piano. No,
Speaker 1: this is serious. The ft really took well, you know,
Speaker 1: for them to run a consumer bank just gonna work.
Speaker 1: It seems totally incongruous to Goldman Sacks and really the
Speaker 1: only way you're going to win businesses under price, I
Speaker 1: mean to get to go the Apple credit card. They
Speaker 1: probably are not making any money City Bank didn't even
Speaker 1: make money doing the Costco visa card. So this is
Speaker 1: a scale business and Goldman just doesn't have scaling consumer banking.
Speaker 1: David pol with thank you some watch with Epica Investments greatly,
Speaker 1: greatly appreciated. Right now. I've really been looking forward to this.
Speaker 1: Very Lovely is going to join us. She's with the
Speaker 1: Peterson Institute in Syracuse University and she has written with
Speaker 1: precision about China and America. I'm gonna steal some thunder
Speaker 1: from my colleague Lisa Bramo is Professor Lovely right now,
Speaker 1: which is on the enforceability of all we're doing. Let's
Speaker 1: do the history first. Is there everybody's history of enforceable
Speaker 1: or verification with China. Well, it's it's not only that
Speaker 1: it is a disagreement. Isn't unprecedented. Uh, this is an
Speaker 1: agreement that's going to rely on the players who are
Speaker 1: who are in the seats at the time. Uh. It's
Speaker 1: meant to be stricter than previous attempts at enforcement. As
Speaker 1: you say, we've had a long standing problem with China
Speaker 1: on it on its meaning, its obligations in some areas, UH,
Speaker 1: particularly related to its accession to the W t o UH,
Speaker 1: and it's meant to have more teeth. The problem is,
Speaker 1: of course, is that the escalation could happen very quickly.
Speaker 1: The end result would be the us UH putting on
Speaker 1: new tariffs or returning to the old tariffs, and at
Speaker 1: that point China can simply notify that it's quit the agreement.
Speaker 1: So we have an agreement that has teeth. We have,
Speaker 1: but those teeth mean that it can bite very quickly.
Speaker 1: And I think the problem then for businesses is do
Speaker 1: you go ahead and invest a little bit like Lucy
Speaker 1: in the football? Well, this is the tough part, isn't it?
Speaker 1: Plantic season for soybean starts in a couple of months time.
Speaker 1: What are the farmers in America to who marry? I
Speaker 1: don't know, and interviews I've heard with farmers show that
Speaker 1: they don't know either. It's very tempting. My best guests,
Speaker 1: since I'm pretty optimistic person, would be to go ahead
Speaker 1: and think that it's going to hold at least for
Speaker 1: the first year. But it's a problem because farmers want
Speaker 1: to get into a rhythm with their customers UH and
Speaker 1: they need the sales. So what do they do? Mary,
Speaker 1: You gotta hand it to the administration. They got China
Speaker 1: to the table and got them to agree to some
Speaker 1: big things. As you point out, though, follow through is
Speaker 1: the outstanding issue. Let's pick up on agg on food,
Speaker 1: seafood product annually the average important. Now it's got to
Speaker 1: be forty billion. Can they hit it? Do you think
Speaker 1: China can hit those kind of numbers? Well, there's been
Speaker 1: a little bit more wiggle room in the agreement now
Speaker 1: that we've seen it. For example, they could buy Boeing planes,
Speaker 1: have the sales recorded for this period, but not take
Speaker 1: delivery for say another two years. So there are some
Speaker 1: ways that they can hit this. One of the bigger
Speaker 1: problems is that we worry about diversion from our training
Speaker 1: partners and then friction with those partners UH in energy,
Speaker 1: in egg and manufacturing. So there doesn't seem to be
Speaker 1: enough wiggle room. I think the Chinese UH in the
Speaker 1: US feel that they can hit these targets. Otherwise we
Speaker 1: wouldn't have seen agreement, or at least that's what we hope.
Speaker 1: But you know, something can happen. Mary. People are pointing
Speaker 1: to what is being called a big win for Wall
Speaker 1: Street because one part of this less publicized part of
Speaker 1: the trade deal was an acceleration of the opening of
Speaker 1: China's capital system. How significant do you think that is?
Speaker 1: I do think it's important, although you know, there are
Speaker 1: a lot of things we were we were promised a
Speaker 1: long time ago, so in some sense of the wind,
Speaker 1: but it's also been you know, a lot of losses
Speaker 1: as we've waited, while Chinese uh particularly fin tank companies
Speaker 1: have gained strength. So I think it shows that China
Speaker 1: has a certain confidence that it can withstand the competition,
Speaker 1: or frankly, that it needs the products that the U
Speaker 1: S service companies want to sell. So I think it's important. Again,
Speaker 1: we have to see if they'll follow through. Mary, there's
Speaker 1: a criticism that's already coming saying was it worth it?
Speaker 1: Was this deal enough to offset the damage of the
Speaker 1: uncertainty and the tariffs that were put into place in
Speaker 1: the two years as this unfolded. But going forward there
Speaker 1: is a question and President Trump perhaps can say, look,
Speaker 1: the US is working with the European Union in Japan
Speaker 1: with a w t O to try to enforce some
Speaker 1: sort of reduction and how much China subsidizes its industrial sector?
Speaker 1: Do you buy that? I mean, is that sufficient to
Speaker 1: sort of move the ball? Forward regardless of Phase two talks. Well,
Speaker 1: that was the best news of the week actually the
Speaker 1: US was returning to working with its allies. That that
Speaker 1: clearly is the way forward. UH industrial subsidies. As I
Speaker 1: said before, our multilateral problem, um, we need all hands
Speaker 1: on deck to try to reach an agreement within the
Speaker 1: w t O or some other way. And it's not
Speaker 1: going to be easy because every country uses subsidies to
Speaker 1: some extent. How do you draw those lines? How do
Speaker 1: you adjudicate at those lines? What happens when UH countries
Speaker 1: move over those lies? You have to remember then w
Speaker 1: t O retaliation is basically you get to put on
Speaker 1: tariffs will be you know. So it's it's a hard
Speaker 1: problem and it's one that clearly is going to escalate
Speaker 1: as as China and other countries try to develop emerging
Speaker 1: technologies which are likely to be attached to very high profits.
Speaker 1: So there's going to be a lot of competition in
Speaker 1: a lot of spheres. Mary, thank you so much, Professor
Speaker 1: Lovely with the Peterson Institute in Syracuse University as well.
Speaker 1: Do you want to snappy MP Powerbost Senior investment strategist,
Speaker 1: your message to clients this morning down what is it well.
Speaker 1: And I think the thing to contrast is the risks
Speaker 1: and the concerns that we have this year compared to
Speaker 1: this same time at the beginning of last year, and
Speaker 1: then valuations A lot of the risks honestly aren't all
Speaker 1: that different. We know, we still need to worry about trade,
Speaker 1: We unfortunately still need to worry about Brexit. There's still
Speaker 1: questions about global growth, particularly in Europe. So that's really
Speaker 1: quite similar. The differences Now you've got the SMP five
Speaker 1: hundred at eighteen and a half time's earnings. You've got
Speaker 1: high yield bond spreads near ten year lows almost that
Speaker 1: we're investment great bond spreads, So the challenge is finding
Speaker 1: attractive places to invest. The risk is still there, but
Speaker 1: the valuations aren't. I'm gonna punt a question that John
Speaker 1: posed to me this morning. You said, what's the message
Speaker 1: from the bond market, because right now you're seeing a
Speaker 1: flattening yield curve. It seems to be a bearish tilled
Speaker 1: amid six straight days of record highs, and if today's
Speaker 1: futures are any indications, will be a seventh straight day
Speaker 1: of record highs. I'm wondering is the message from the
Speaker 1: bond market inconsistent with what we're seeing in equities. Well,
Speaker 1: I think what we're seeing from bond markets recently is
Speaker 1: probably more the dysformula on inflation, you know, which is
Speaker 1: kind of the perpetual puzzle that we've had. You know,
Speaker 1: we know that we have in a ployment rates at
Speaker 1: multidecade lows, but the pattern that you've seen across several
Speaker 1: sectors for wages in America is that you've had a
Speaker 1: deceleration in the rate of wage appreciation. So there's still
Speaker 1: wage growth is just not as strong as it was.
Speaker 1: It's been going that way for about six months now.
Speaker 1: That's had a follow through the c p I, which
Speaker 1: is disappointing. So I think that's probably what you're seeing
Speaker 1: more reflected in treasures right now. It's the inflation component
Speaker 1: of your nominal yield as opposed to the real rate component,
Speaker 1: which was really the story from last year. But we
Speaker 1: don't think this is going to persist. We're still expecting
Speaker 1: broadly stable rates around one point eight, give or take,
Speaker 1: for most of this year. There's a dissonance right now
Speaker 1: between the consensus call for emerging markets Europe to outperform
Speaker 1: the US given where we've seen the rally go uh
Speaker 1: and this sort of slow down that we're seeing certainly
Speaker 1: in the US but across the world. How do you
Speaker 1: sort of pair those ideas. I think if you want
Speaker 1: to compare certainly US versus Europe, you've got to distinguish
Speaker 1: between kind of broad tech, so include you not just
Speaker 1: the tech sector, but Amazon, Facebook, Google, all of that,
Speaker 1: and the rest of the market. Uh. The rest of
Speaker 1: the market performed absolutely in line between the US and
Speaker 1: Europe last year. There was no difference. They're both around
Speaker 1: UH for the whole year. They just tracked each other.
Speaker 1: What really led to the US performance was entirely the
Speaker 1: broad tech sector. So I think you need to have
Speaker 1: two separate allocations. What's your view on tech and then
Speaker 1: the rest of it. It's harder to call a big
Speaker 1: difference between the UN and Europe except for evaluations where
Speaker 1: the US is clearly much much higher. You're just joining us.
Speaker 1: Daniel Morris, BMP Pared BIOst Management. Where this as we
Speaker 1: look at the strategy for Dan Morris, what is the
Speaker 1: mode of institutions that didn't make twenty eight percent last year?
Speaker 1: If you're up eight percent, you're up twelve percent. Maybe
Speaker 1: you're on the efficient frontier under performing. What's the sweat
Speaker 1: factor right now to catch up? Well, I think it's
Speaker 1: the same sentiment that a lot of retail investors have
Speaker 1: to be feeling. I mean, you know, you haddemptions from
Speaker 1: equity funds throughout all of last year. You know, as
Speaker 1: a market was rising, you know, to be to be honest,
Speaker 1: that's the story that's been in place to sound degree
Speaker 1: since two thousand and nine. But I think after the
Speaker 1: optimistic span is at While a lot of that money
Speaker 1: did go into fixed income and obviously still did just fine,
Speaker 1: a much bigger share went into money market. So if
Speaker 1: we do see any kind of correction and equities, which
Speaker 1: we wouldn't be at all surprised to see over the
Speaker 1: next couple of months, there is a lot of cash
Speaker 1: on the sidelines that we think is going to go
Speaker 1: back into equities, but hopefully it more attractive valuations, because
Speaker 1: again the punamental outlook is still quite strong. A potential
Speaker 1: catalyst on the horizon. The MACE sparks some nervousness and
Speaker 1: risk assets down is what happens with the Federal reserves
Speaker 1: balance sheet. Later this year, there's this big debate that
Speaker 1: is still ongoing. A lot of people in fixed income
Speaker 1: tell us it is not QUI many people in the
Speaker 1: equity market access if it is, I just wanted down.
Speaker 1: If ultimately it doesn't matter what you think it is,
Speaker 1: the outcome is still the same risk assets of rallying.
Speaker 1: And there are many people out there listening to this
Speaker 1: program that thinks if the fedbacks off on the balance sheet,
Speaker 1: risk assets will get into trouble. What SAB had them, Well,
Speaker 1: you certainly think that was part of the story that
Speaker 1: happened at the end of twenty eighteen, when it was
Speaker 1: one of many things that went wrong. I mean, you
Speaker 1: certainly had the prospect of balance she'd run off an,
Speaker 1: you had the prospect of higher rates, and then you
Speaker 1: added some disappointment earnings results from Apple, You added the
Speaker 1: trade war, and that was enough to trigger it. I
Speaker 1: don't know at this point if if I think it
Speaker 1: changed in FED policy in and of itself would be enough.
Speaker 1: But if you eat a couple other little things that
Speaker 1: happened at the same time, there could be an unpleasant repeat.
Speaker 1: And yesterday on Bloomberg Television and Radio, Dallas FED President
Speaker 1: Robert Kaplan weighing in on this and basically saying, uh,
Speaker 1: he does think the FED should reduce it or at
Speaker 1: least pair the pace of its increase in balance sheet.
Speaker 1: This is this is sort of the most tepid endorsement
Speaker 1: of paring back the recent program because he's worried about
Speaker 1: acid bubbles. But it does raise a question, you know,
Speaker 1: what is the sort of perverse incentive that gets created
Speaker 1: as the FED reinflates at a time when the economy
Speaker 1: is told this is really important distinction. Daniel Morris Lisa says,
Speaker 1: as the FED reinflates, is there any evidence they can reinflate? Well,
Speaker 1: if you want to see that evidence in in higher
Speaker 1: core CPI inflation, you know, even getting back to a
Speaker 1: two percent average to present average CPI inflation, you know,
Speaker 1: it's hard to see that happening. I mean, remember back
Speaker 1: when you started quee, all the scare stories that you
Speaker 1: read about how that this was going to set off
Speaker 1: hyper inflation, and clearly that did not happen. So even
Speaker 1: after the trillions that you've had purchase in the US,
Speaker 1: in in in England, in Europe, and in Japan, you know,
Speaker 1: inflation nowhere to be seen. So it's just really hard
Speaker 1: to see, you know, any change that the FED can
Speaker 1: make having that big of a Danie Morris one final question,
Speaker 1: if we could, what metric matters to you right now
Speaker 1: when you go to the Bloomburger, when you're writing one
Speaker 1: of your twenty page jewels for BMP Perry. Is it
Speaker 1: price to sales? Is it price to cash flow? Is
Speaker 1: it some enterprise value ratio? What ratio matters right now?
Speaker 1: To Daniel Morris, I think what's concerning right now is
Speaker 1: pretty much any ratio you look at is one to
Speaker 1: one and a half standard deviations above the levels over
Speaker 1: the last ten years. So I think it's it's a
Speaker 1: fact that everything is kind of giving you the same
Speaker 1: signal things are really pricey. As long as the world
Speaker 1: is perfect, that's okay, But we suspect it's not. Daniel Moore,
Speaker 1: thank you so much for the briefing, and thanks to
Speaker 1: Verry by this morning. What's key there to his great
Speaker 1: mathematics is one and a half standard deviations under math
Speaker 1: is not a point of panic, It's a point of
Speaker 1: business as usual. Anxious with these reports whatsoever? So should
Speaker 1: I should I start buying? This doesn't change anything for anybody.
Speaker 1: That's just kind of push back to the big debate
Speaker 1: over the consumer. The next crack you see in the data,
Speaker 1: the battle pile back on again and say that cracks
Speaker 1: it back futures. At the moment, we're doing. Okay, Donna
Speaker 1: Petison joining US Now City Global Economists to weigh in
Speaker 1: on the date. It's Donna, great to have you with us,
Speaker 1: way and please sure. I think data are absolutely amazing
Speaker 1: for the US of low initial job of claims, meaning
Speaker 1: that there are two people getting laid off. It marries
Speaker 1: very well the data we're seeing. UH an arrogant with
Speaker 1: respect to payrolls. We do expect payrolls will flow a
Speaker 1: little bit over the course of the year, but still
Speaker 1: average one thirty five for the year. With retail sales again,
Speaker 1: as you were just saying, yes, we do see some
Speaker 1: cannibalization of of brick and mortar sales because of non
Speaker 1: store retail sales, but still at all, most people are
Speaker 1: still going physically to places to buy things and items
Speaker 1: and services, and so overall that's really great. And we're
Speaker 1: still expecting the consumers to contribute to the economy. Looking
Speaker 1: at an average two and a half percent growth in
Speaker 1: consumptions for this year and for the first quarter two
Speaker 1: points if you dig into the numbers, the retail sales
Speaker 1: X auto month over a month beat significantly. Actually, they
Speaker 1: were up zero point seven percent versus an estimate of
Speaker 1: zero point five percent. Similar with X auto and gas.
Speaker 1: When you look at that category, which sectors are picking
Speaker 1: up the slack? Were the auto industry, which continues to
Speaker 1: see weakness. Well, certainly we saw really strong sales and clothing, um,
Speaker 1: general merchandise. People are still going out to restaurants and
Speaker 1: eating and drinking, so it was really a lot of
Speaker 1: strength here. Well, look at retail where was it week?
Speaker 1: I mean, I see and the end of Scott Lammon's story, Dana,
Speaker 1: I see that department stores are negative five point five
Speaker 1: percent year over year. You do that two years in
Speaker 1: a row. That's a problem, isn't it. Well, I mean,
Speaker 1: I'm just looking at a string of negatives for that,
Speaker 1: And it's not surprising that these department stores are losing momentum.
Speaker 1: We've been hearing about that for several years now. And yes,
Speaker 1: they are losing market share to the non store retailers.
Speaker 1: But I think also when you look at the non
Speaker 1: store uh number, it's a mix, right, So you'll have
Speaker 1: some brick and mortar stores that have offline sales, and
Speaker 1: they just kind of mix them all together. You know, John,
Speaker 1: This is important because there used to be an academic
Speaker 1: discussion about institution on js Panay at five dollars a share.
Speaker 1: We're under a button. That's the marketing campaign they should
Speaker 1: be doing it. Institution, I mean, is an American institution
Speaker 1: and it's been in Is there an energy must go
Speaker 1: to a J. C. Penny a long time ago? John?
Speaker 1: Is there any equivalent London or UK institution to J C. Panny? Yeah,
Speaker 1: there's a couple of struggling department stores, House of Fraser,
Speaker 1: Evanon's couple of names for you in the United Kingdom
Speaker 1: that have really struggled over the last decade or so.
Speaker 1: The same shopping experience. You go into somebody's stores, Tom,
Speaker 1: and you're just not treated very well. The people in
Speaker 1: that look like you don't They don't want you there,
Speaker 1: so why should you be there? In fact, that applies
Speaker 1: also to luxury on on Fifth Avenue. Should I go
Speaker 1: on a rant because it really annoys me? Evidently we don't.
Speaker 1: When you go into my store on Fifth Avenue and
Speaker 1: you walk in and you're interested in buying something, because
Speaker 1: You've saved your money up and they look at you
Speaker 1: like you shouldn't be there. What is that about? It
Speaker 1: happens constantly. What is that about? It is why did
Speaker 1: they think that's okay? It is principles of these firms
Speaker 1: in America not reading the Riot Act to the help.
Speaker 1: It's absolutely ridiculous. We're talking about retail sales. We're not
Speaker 1: talking about Fifth Avenue for the most of it. And Dana,
Speaker 1: you know, there is a question, and I mean, look,
Speaker 1: I agree with you, it is service. But then there
Speaker 1: is a question, what are these retailers doing wrong? If
Speaker 1: retail sales are actually picking up, why are we seeing
Speaker 1: the likes of coals J C. Pier to Tom's point
Speaker 1: and tar J, I've got a great idea, and that's
Speaker 1: time you go into the department store. Yes, so bloomy
Speaker 1: Dale's talk to me like you want me there? That
Speaker 1: would that would help? I might actually want to spend
Speaker 1: some money in your in your department store. Well, how
Speaker 1: behind are they basically, you know, and and that's sort
Speaker 1: of you know, how much they have to invest, how
Speaker 1: much they have to pay people more, how much do
Speaker 1: they have to over you know, research. Also, I don't
Speaker 1: get lost walking around the store. I don't want to
Speaker 1: wait twenty minutes to get an Alephanka to address it's
Speaker 1: not difficult. I want to go to Dana Peterson on
Speaker 1: this with City Group. We're thrilled that she's well, this
Speaker 1: is warning Dana. This talks about the labor component, and
Speaker 1: the question is can retail continue forward in a fully
Speaker 1: employed America? I mean labor, labor and retail is a
Speaker 1: beginning job across all of America. Can they get the
Speaker 1: bodies forward to keep brick and mortar retail going or
Speaker 1: is it done well? I think an important thing that
Speaker 1: we should look at is big box doores. They've actually
Speaker 1: done extremely well, and they've just exploded in terms of
Speaker 1: the number of them and also their sales right alongside
Speaker 1: of your non store retailers. And that's because they are
Speaker 1: giving you the discounted price. And so we should look
Speaker 1: at the retails of a more differentiated market and understand that.
Speaker 1: You know, certainly, UM, when you're looking at labor, you
Speaker 1: need to have things that attract labor, such as benefits
Speaker 1: UM And certainly, if if you're big box stores not
Speaker 1: able to do I'm sorry if you're department stores aren't
Speaker 1: able to do that, then you're not going to get
Speaker 1: the best quality of labor. Well, but this goes actually
Speaker 1: the John's point, And I was, and I don't mean
Speaker 1: to downplay your point because it is important give service.
Speaker 1: I'm no, I mean I'm gonna build on it. Basically,
Speaker 1: how difficult is this situation amid this massive shift in
Speaker 1: retail where stores brick and mortar have to be investing
Speaker 1: substantially in their online businesses to compete with Amazon, while
Speaker 1: also paying up for staff, will also making sure that
Speaker 1: the actual experience is something special and exciting and not
Speaker 1: necessarily depressing on Fifth Avenue. For John Farroll, well, we
Speaker 1: can look at this as creative destruction. They're always going
Speaker 1: to be industry. So if we think about the whaling industry,
Speaker 1: that's no longer exists, right um, and the world still
Speaker 1: move forward the whaling industry, no comment there, um, but
Speaker 1: certainly uh, within the retail sector they left. Again, there's differentiation.
Speaker 1: You have luxury, you have your big box, you have
Speaker 1: your discounts discounters, which you're also doing very well, um,
Speaker 1: and then you have your brick and mortar, big department
Speaker 1: stores that aren't doing so well. And there are different
Speaker 1: aspects of it, and certainly if you are a retailer,
Speaker 1: you have to consider all these elements. Thank you so much,
Speaker 1: Dana Peterson, thank you very much. Thanks for listening to
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: on Twitter at Tom Keene before the podcast. You can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio