WEBVTT - Fed Delivers Fuzzier Rate Message 0:00:01.800 --> 0:00:04.440 This is Bloomberg Business Week. I'm Carol Masser and I'm 0:00:04.440 --> 0:00:07.280 Bloomberg Quick Takes Tim Stanibek. We're here every day bringing 0:00:07.280 --> 0:00:09.799 you the latest news from the world of business and finance, 0:00:09.840 --> 0:00:13.640 plus technology, politics, economics, all partnising the power of Business 0:00:13.640 --> 0:00:17.119 Week reporters and editors, not to mention our journalists and 0:00:17.160 --> 0:00:20.000 analyst in more than one twenty countries. You can download 0:00:20.000 --> 0:00:23.239 Bloomberg Business Week and iTunes, SoundCloud, or Bloomberg dot Com. 0:00:23.400 --> 0:00:25.160 You can also listen to our radio show at two 0:00:25.160 --> 0:00:28.360 pm Eastern Time on Bloomberg Radio, or watch us on YouTube. 0:00:28.400 --> 0:00:33.120 Search Bloomberg Global News. Well the US Central Bank top 0:00:33.120 --> 0:00:36.320 of mind today next FOMC decision just nine days away. 0:00:36.360 --> 0:00:39.560 This story is among our most read on the Bloomberg terminal. 0:00:39.600 --> 0:00:42.600 It's about how with half point interest rate increases all 0:00:42.640 --> 0:00:46.040 but certain in June and July, Photo Reserve officials are 0:00:46.040 --> 0:00:48.920 shifting the focus away from a destination on hikes to 0:00:49.040 --> 0:00:52.320 something that's trickier to determine and explain, and that is 0:00:52.360 --> 0:00:55.320 the broader impact of their policies on the economy. So 0:00:55.400 --> 0:00:57.360 let's get to it with Bloomberg News, Foederal Reserve and 0:00:57.440 --> 0:01:01.400 US Economy reporter he is Craig Tours and he's on 0:01:01.440 --> 0:01:03.720 the phone from Washington, d C. Craig, I love this 0:01:03.760 --> 0:01:05.600 story top of mine. I feel like it. It just 0:01:05.760 --> 0:01:08.679 meshes so well after although the recession talk we heard 0:01:08.720 --> 0:01:11.480 from so many last week tell us about kind of 0:01:11.520 --> 0:01:14.800 the shift in the narrative from J. Powell and Company 0:01:14.920 --> 0:01:18.520 or J Powell specifically. Yeah, so, Carol, we really saw 0:01:18.560 --> 0:01:21.160 it in the last press conference where he called this 0:01:21.360 --> 0:01:26.760 concept of the neutral rate UM imprecise and then mentioned 0:01:26.760 --> 0:01:31.720 the word financial conditions more than a dozen times. And 0:01:31.880 --> 0:01:35.119 you know, the tricky thing about financial conditions is they 0:01:35.120 --> 0:01:39.000 don't happen tighten, or loosen all at once. Right now, 0:01:39.920 --> 0:01:42.560 UM mortgage rates have gone up quite a bit. They're 0:01:42.560 --> 0:01:46.120 above five percent last I looked. But heck, if you 0:01:46.160 --> 0:01:51.400 were financing inventory UM and selling cars, you'd probably be 0:01:51.520 --> 0:01:56.560 financing three two right now. And that's not very tight. 0:01:56.800 --> 0:02:00.360 So you know, what they're trying to do is strict 0:02:00.360 --> 0:02:04.120 even further. And if you look at financial conditions in disease, 0:02:04.440 --> 0:02:07.360 we have one Chicago Fed as one Goldman as one 0:02:08.080 --> 0:02:11.760 they look pretty loose. Still. You know, Craig, as a 0:02:11.960 --> 0:02:14.600 stock market guy, I think of that, and I think 0:02:14.960 --> 0:02:18.600 you know, the Fed obviously wants to continue tightening conditions. 0:02:19.240 --> 0:02:21.720 Is there any way they can do that without causing 0:02:21.720 --> 0:02:23.840 the stock market to go back down to its lows 0:02:23.840 --> 0:02:31.720 of the year? Do you think? No, That's what I thought. Um, 0:02:31.760 --> 0:02:35.520 you know, because as you're raising borrowing costs for companies 0:02:35.840 --> 0:02:40.400 um or on consumer credit cards, eventually, I think you're 0:02:40.440 --> 0:02:44.799 going to be hurting earnings sooner or later, or at 0:02:44.840 --> 0:02:49.600 least earnings outlooks. So I mean, it's what they want 0:02:49.639 --> 0:02:52.519 to do. And part of the stock market going down 0:02:53.080 --> 0:02:57.919 that affects financial conditions by reducing portfolio wealth, which might 0:02:58.000 --> 0:03:01.919 reduce consumption a little bit. So yeah, I think they're 0:03:01.960 --> 0:03:06.760 fully intent. Um, I'm tightening further. And Carol and Mike, 0:03:06.919 --> 0:03:09.560 you know, you gotta take little brainers now the face 0:03:09.720 --> 0:03:14.560 chair and uh we had this comment from her last week. 0:03:14.639 --> 0:03:19.160 So you remember Mr Bostick in Atlanta. Dr Bostick, he said, well, 0:03:19.200 --> 0:03:23.560 we might pause and then financial conditions eased, so that 0:03:23.760 --> 0:03:27.600 you don't want financial conditions easing. And then little brainer 0:03:27.720 --> 0:03:31.280 came back and said, nah, pause looks quote very hard. 0:03:32.880 --> 0:03:36.320 In September, this is like one of those things like kids, look, look, 0:03:36.360 --> 0:03:38.200 this is just a reminder, right, that each of these 0:03:38.200 --> 0:03:40.800 FED speakers can kind of do their own thing right there, 0:03:41.040 --> 0:03:43.000 or is there Like I always wonder if there's a 0:03:43.000 --> 0:03:45.120 memo behind the scenes, like Leo you come out and 0:03:45.120 --> 0:03:52.680 say this, and Bostick you say this. I always wonder. Yeah, 0:03:52.920 --> 0:03:54.640 it doesn't seem like they all got the same memo 0:03:54.720 --> 0:03:57.800 this time if if there is, But you know, look, 0:03:58.240 --> 0:04:01.000 I'll say this, it's good that we not all simple 0:04:01.040 --> 0:04:05.000 things or is decentralized as ours? Um, the unique history 0:04:05.000 --> 0:04:08.840 of the United States were small business, businessmen and farmers. 0:04:09.320 --> 0:04:11.880 I've read these documents, by the way, they're in the 0:04:11.960 --> 0:04:17.880 University of Virginia, and you know, we didn't want centralized money. 0:04:18.000 --> 0:04:20.080 We didn't want a group of seven to have all 0:04:20.120 --> 0:04:23.120 the power so reserved. Thanks should have diverse views. That's 0:04:23.160 --> 0:04:26.080 a good thing, a good craig. I wonder, you know, 0:04:26.160 --> 0:04:29.839 obviously the consensus thinking is that we'll get a half 0:04:30.000 --> 0:04:33.520 percentage point increase at the next two meetings. Um, that's 0:04:33.560 --> 0:04:37.160 your point. Uh. Mr Bostick sort of indicated he might 0:04:37.200 --> 0:04:39.680 like to see a pause then in September. But if 0:04:39.720 --> 0:04:41.640 not a pause, is it possible that maybe they'll go 0:04:41.680 --> 0:04:44.359 back go back to basis points? Have they sort of 0:04:44.440 --> 0:04:49.479 ruled that out anyone else in the discussions lately. I 0:04:49.520 --> 0:04:54.400 think that's an interesting um possibility. Nothing's off the table. 0:04:55.240 --> 0:04:58.880 And Mike, what what I think they don't really understand 0:04:59.520 --> 0:05:03.359 is balance sheet runoff that starts this month. How that 0:05:03.640 --> 0:05:07.760 adds to financial conditions. Some people say you may add 0:05:07.800 --> 0:05:09.919 nothing at all. I mean we you know, when the 0:05:09.960 --> 0:05:14.000 FED buys an asset, it creates a liability in the 0:05:14.040 --> 0:05:16.280 form of coush in the banking system, and right now 0:05:16.320 --> 0:05:19.279 we have all this excess reserves, so much so that 0:05:19.400 --> 0:05:22.400 banks are just reparking it at the FED at a 0:05:22.440 --> 0:05:25.520 low interest rate. So it shouldn't make that much difference, 0:05:25.560 --> 0:05:28.600 but it might. We don't understand this fully how this works. 0:05:28.680 --> 0:05:30.800 One thing I like is how you said in your 0:05:30.800 --> 0:05:33.240 story that it may j Powell walking back from the 0:05:33.279 --> 0:05:36.360 concept of neutral, cautioning that the discussion had a sort 0:05:36.360 --> 0:05:38.919 of false precision, but he said, you're going to be 0:05:39.040 --> 0:05:40.920 kind of enquiring how all of this is affecting the 0:05:40.920 --> 0:05:44.240 economy through financial conditions. To me, that says their data 0:05:44.279 --> 0:05:48.440 dependent on everything. I'm just got thirty seconds. Is that fair? Like? 0:05:48.480 --> 0:05:50.080 I feel like they're going to go into every meeting 0:05:50.080 --> 0:05:52.240 and just kind of look at the current set of 0:05:52.320 --> 0:05:55.479 data points. I think what we want to hear in 0:05:55.560 --> 0:05:59.880 the next pros conference, um uh is what is clear 0:06:00.279 --> 0:06:05.080 and convincing evidence means to him three months of falling inflation. 0:06:05.360 --> 0:06:08.919 That's the key question. All right, Well, you gave us 0:06:08.960 --> 0:06:12.960 something to think about on another countdown to another important 0:06:12.960 --> 0:06:15.239 FED meeting, which I think many of us would argue 0:06:15.240 --> 0:06:19.880 that they're all important, certainly because it's just going to 0:06:20.000 --> 0:06:23.159 determine so much as you say, FED isn't It's not 0:06:23.200 --> 0:06:25.120 part of their mission to watch the financial or not 0:06:25.120 --> 0:06:27.120 at least not watch the equity market, but they certainly 0:06:27.160 --> 0:06:29.280 keep a watch on it. Bloomberg News Federal Reserve in 0:06:29.360 --> 0:06:32.440 US Economy reporter Craig Tourist joining us on the phone 0:06:32.880 --> 0:06:35.240 in Washington, d C. You are listening to Bloomberg Business 0:06:35.240 --> 0:06:37.560 Week Carol Master along with Mike Reagan, and we are 0:06:37.600 --> 0:06:42.040 Bloomberg Radio. This is Bloomberg Business Week with Carol Masser 0:06:42.240 --> 0:06:46.719 and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio shares 0:06:46.760 --> 0:06:48.839 a Twitter though under some pressure they were down as 0:06:48.920 --> 0:06:51.080 much as five point six percent, off that low, but 0:06:51.200 --> 0:06:54.680 still down just shy of two percent. Elon Musk as 0:06:54.680 --> 0:06:57.480 he said. Doug said believes Twitter is breaching their merger 0:06:57.520 --> 0:07:00.560 agreement but not meeting his demands for information, spam and 0:07:00.560 --> 0:07:05.039 fake accounts. There's the twists and turns of Ellen Musk 0:07:05.080 --> 0:07:07.719 in his pursuit of Twitter. It's just fascinating. Hey, let's 0:07:07.760 --> 0:07:09.840 get to it with our own. Kurt Wagner, he's technology 0:07:09.840 --> 0:07:11.720 reporter at Bloomberg News. He's with us on the phone 0:07:11.720 --> 0:07:14.000 from San Francisco. He's writing about this. So I just 0:07:14.040 --> 0:07:16.640 want to know, Kurt, do you just like stay glued 0:07:16.680 --> 0:07:19.160 to Twitter at Elon's account to find out what's next 0:07:19.200 --> 0:07:22.360 when it comes to Twitter? Yeah, I mean just constantly 0:07:22.440 --> 0:07:26.520 being online. It's it's reminiscent of the Donald Trump days 0:07:26.680 --> 0:07:31.360 right where you're just bombarded with news over Twitter at 0:07:31.400 --> 0:07:33.440 all hours of the day. I feel like that's kind 0:07:33.440 --> 0:07:35.960 of what we're at now, you know, Kurt. The gist 0:07:35.960 --> 0:07:38.960 of this seems to be that Twitter has stated in 0:07:39.000 --> 0:07:42.680 their filings uh with the SEC that they believe less 0:07:42.680 --> 0:07:46.840 than five percent of users are quote unquote bots, and 0:07:46.880 --> 0:07:52.080 that Ellen thinks the numbers something like or more. Is 0:07:52.120 --> 0:07:54.840 there any sort of independent third party that could you know, 0:07:55.160 --> 0:07:59.360 chime in here that you've heard and tell us who's right. Well, 0:07:59.400 --> 0:08:01.840 a few weeks we actually we wrote a story that 0:08:02.240 --> 0:08:04.680 UM kind of outline the fact that there are third 0:08:04.720 --> 0:08:08.440 parties that try to quantify this, but unfortunately they're they're 0:08:08.480 --> 0:08:10.760 just guesses, right. I mean, the only way to really 0:08:10.800 --> 0:08:13.280 know the answer to this is to have the data 0:08:13.360 --> 0:08:17.320 that that Twitter the company has, and uh, they're clearly 0:08:17.360 --> 0:08:20.360 not willing to hand over that raw data. Now. I'm 0:08:20.360 --> 0:08:24.040 told that they have shared their methodology for calculating this 0:08:24.120 --> 0:08:27.760 percentage with with Elon and his team. Um, they have, 0:08:28.120 --> 0:08:30.600 you know, to a certain extent, at at a very 0:08:30.680 --> 0:08:33.880 high level, even tweeted it publicly. Um, but they're not 0:08:34.000 --> 0:08:36.480 willing to hand over the actual raw data, which is 0:08:36.600 --> 0:08:38.680 I think the issue here. It's not so much that 0:08:38.880 --> 0:08:41.440 they're not willing to show their map, it's that Ellen 0:08:41.559 --> 0:08:46.240 doesn't think their approach or methodology makes much sense. I 0:08:46.280 --> 0:08:49.120 also wonder occurtis there's sort of a dispute over what 0:08:49.240 --> 0:08:51.400 the definition of a bot actually is. You know, if 0:08:51.440 --> 0:08:54.120 I'm if I'm running a social media campaign for a 0:08:54.120 --> 0:08:56.840 big company, and I have four or five different brands 0:08:56.840 --> 0:08:58.720 and all of a sudden, they're they're all tweeting the 0:08:58.760 --> 0:09:01.000 same thing. Is that am I a bot technically at 0:09:01.000 --> 0:09:04.040 that point? Yeah, I think there's a difference between a 0:09:04.160 --> 0:09:08.800 bot and a spam bot, right, because bots on their 0:09:08.800 --> 0:09:11.839 own are actually allowed on Twitter. It's not against the 0:09:11.920 --> 0:09:15.480 rules for there to be an automated account. So there 0:09:15.480 --> 0:09:17.760 are actually bots. I've I've written about them back when 0:09:18.080 --> 0:09:21.200 the vaccine first came out last year. There are actually 0:09:21.200 --> 0:09:23.360 some really helpful bots that would tell you when vaccine 0:09:23.360 --> 0:09:26.560 appointments were available and help people kind of get those 0:09:26.600 --> 0:09:29.320 and and at the time I was like, Hey, there 0:09:29.360 --> 0:09:31.400 are some Twitter bots that are actually pretty good and 0:09:31.440 --> 0:09:34.880 doing helpful things. Now the issue, of course is spam bots, right, 0:09:34.920 --> 0:09:37.200 those are different, different type, and those are the types 0:09:37.240 --> 0:09:39.480 of things I think Ellen means when he talks about 0:09:39.520 --> 0:09:42.920 bots broadly. Um, But again, I think really what this 0:09:43.000 --> 0:09:45.480 comes down to is like I don't actually think this 0:09:45.600 --> 0:09:47.720 is much of an issue about bots at all. I 0:09:47.760 --> 0:09:52.200 think this is probably Elon really looking for a reason 0:09:52.280 --> 0:09:55.120 to throw this deal into question. Um, you know, the 0:09:55.160 --> 0:09:57.920 price of Twitter is so much cheaper today than it 0:09:58.040 --> 0:09:59.960 was when he made the offer a few months ago. 0:10:00.600 --> 0:10:03.120 And if you're someone who's now in the hook to pay, 0:10:03.240 --> 0:10:05.640 you know, overpay for a company, what are you gonna do. 0:10:05.679 --> 0:10:07.240 You're gonna look to try and lower the price, and 0:10:07.320 --> 0:10:09.640 this fields like an effort to do that. Well, that's 0:10:09.640 --> 0:10:11.319 what I wanted to say, and I love what you said. 0:10:11.559 --> 0:10:14.559 One of my favorite things in your story today is 0:10:14.600 --> 0:10:18.199 about how it's just so similar to former President Donald 0:10:18.240 --> 0:10:21.040 Trump and could use social media to kind of get 0:10:21.040 --> 0:10:23.160 what he wanted or at least get a narrative going 0:10:23.160 --> 0:10:25.520 out there. And I do feel like Elon Musk is 0:10:25.559 --> 0:10:30.240 incredibly savvy about posting things, and is he just trying 0:10:30.240 --> 0:10:32.640 to get a cheaper price for this deal? And and 0:10:32.760 --> 0:10:35.960 we're a regulator saying you cannot do this. And where 0:10:36.040 --> 0:10:38.000 was he, you know, early on when he was doing 0:10:38.000 --> 0:10:41.720 his due diligence um and saying, hey, I got some 0:10:41.760 --> 0:10:44.240 problems with the bot stuff, let's figure that out before 0:10:44.240 --> 0:10:47.440 I actually put in an offer, Like, well, where where 0:10:47.559 --> 0:10:49.520 was he with the due diligence? Is that he didn't 0:10:49.520 --> 0:10:51.640 do due diligence, right, And that was part of the 0:10:51.920 --> 0:10:53.760 that was part of the deal, was that he didn't 0:10:54.200 --> 0:10:58.120 want to or need to supposedly look behind the curtain 0:10:58.160 --> 0:11:01.560 that Twitter's you know, non public information, right, And so 0:11:01.640 --> 0:11:06.520 now that's obviously um apparently becoming an issue for him. 0:11:06.559 --> 0:11:10.520 But again, is it really I'm not entirely sure that 0:11:10.559 --> 0:11:13.679 this is this is the body issue. It's it's instead, 0:11:13.800 --> 0:11:16.160 to your point, kind of lowering the price. And what 0:11:16.200 --> 0:11:18.079 does this mean for regulators? Now? I don't know about 0:11:18.080 --> 0:11:20.600 the regulation front, but I can say on Twitter side, 0:11:20.640 --> 0:11:24.520 they've said we intend to enforce this merger agreement, right, 0:11:24.600 --> 0:11:29.080 so Twitter can in theory, as long as they get 0:11:29.080 --> 0:11:33.360 shareholder approval and and other a couple other stipulations, they 0:11:33.360 --> 0:11:35.680 could go to Ellen and try to sue him to 0:11:35.800 --> 0:11:39.719 force him to complete his part of the agreement here. Now, 0:11:39.760 --> 0:11:41.679 that's obviously a ways down the road, and that could 0:11:41.720 --> 0:11:44.080 be very messy, and maybe something comes up to stop that. 0:11:44.600 --> 0:11:47.400 But there is a scenario here where Twitter actually sues 0:11:47.440 --> 0:11:49.960 Elon to try and make him buy this company that 0:11:50.000 --> 0:11:51.760 he agreed to buy a few months ago, like a 0:11:51.800 --> 0:11:57.080 really well, it's so messy, and as as Ellen has tweeted, 0:11:57.120 --> 0:12:01.400 he's gathering an army of street fighting at Arney's. I guess, uh, 0:12:01.440 --> 0:12:04.480 I guess with that in mind, but Kert quickly I wonder, um, 0:12:04.600 --> 0:12:06.760 I'm trying to think who would take the job of 0:12:06.840 --> 0:12:10.640 CEO if Elon does this takeover? Have there been any 0:12:10.760 --> 0:12:13.760 rumblings about that and whether or not he's he might 0:12:13.880 --> 0:12:16.920 have a difficulty finding a CEO given his sort of 0:12:17.000 --> 0:12:20.800 unpredictable and and uh contentious personality. And Kurt just got 0:12:20.840 --> 0:12:23.720 about twenty seconds. Yeah, well, he said that he's going 0:12:23.760 --> 0:12:26.680 to temporarily be CEO. The only name of someone that 0:12:26.840 --> 0:12:29.199 seems to keep coming up is Jack Dorsey, although he 0:12:29.280 --> 0:12:31.800 said he'd never be CEO again. You just have to 0:12:31.840 --> 0:12:33.400 remember there are a lot of people out there who 0:12:33.440 --> 0:12:36.800 really do still love and admire Elon Musk. So I 0:12:36.840 --> 0:12:39.920 think finding one person who's willing to take this job 0:12:39.920 --> 0:12:41.520 and work for him won't be that hard. It just 0:12:41.600 --> 0:12:43.959 depends on who that person is going to be. Well, 0:12:44.000 --> 0:12:48.640 it just continues to give and give and give. This story. Um, Kurt, 0:12:48.679 --> 0:12:51.000 thank you so much. Really appreciated, Kurt Wagner. He's technology 0:12:51.080 --> 0:12:52.960 port U Bloomberg News on the phone in San Francisco. 0:12:53.000 --> 0:12:54.760 Shares of Twitter, as I mentioned, they were down five 0:12:54.760 --> 0:12:57.400 point six percent at it's lows, still down about one 0:12:57.400 --> 0:13:01.880 point seven per cent. You're listening to Bloomberg Business Week 0:13:02.080 --> 0:13:06.079 with Carol Messer and Bloomberg Quick Takes Tim Stinovic on 0:13:06.200 --> 0:13:09.680 Bloomberg Radio. Alright, everybody. In the upcoming issue of Bloomberg 0:13:09.720 --> 0:13:12.040 business Week. Actually it's the back page. It's out later 0:13:12.080 --> 0:13:15.480 this week. It's a story on the industrial stalwart that 0:13:15.640 --> 0:13:18.559 is going all in on specialty software. So let's get 0:13:18.559 --> 0:13:22.000 to it. Bloomberg Opinion Deals and industrialist columnist brook Sutherland. 0:13:22.120 --> 0:13:24.800 Her columns on the industrial space always a must read, 0:13:25.200 --> 0:13:26.640 and she judge us on the phone in New York 0:13:26.679 --> 0:13:28.880 City along with Bloomberg Business Week nitor Joel Webber on 0:13:28.960 --> 0:13:31.600 the access line in Brooklyn. I love these kind of stories. 0:13:31.679 --> 0:13:34.040 It's like a kind of a tell, if you will, 0:13:34.080 --> 0:13:36.840 to our audience, Um, about a company maybe we don't 0:13:36.840 --> 0:13:38.439 talk about all the time, but maybe it's got to 0:13:38.480 --> 0:13:42.240 be on our radar. Yes, so yeah, I had to 0:13:42.280 --> 0:13:45.199 tell you. Oh wait, hang on, Brook, Well, let's bring Joel. 0:13:47.800 --> 0:13:51.400 So yeah. I'm always pleasantly surprised with what brook brings 0:13:51.400 --> 0:13:55.120 our way. And you totally uh, you described it perfectly, 0:13:55.160 --> 0:13:57.480 like Roper Industrial is not a name that I was 0:13:57.520 --> 0:14:01.960 familiar with until Brooke enlightened me. And what's interesting about 0:14:02.000 --> 0:14:05.680 this company is sort of, uh, it's leaving uh, sort 0:14:05.679 --> 0:14:08.360 of the domain of brook Sutherland and coming something else. Brooke, 0:14:08.400 --> 0:14:09.880 what what jumped out to you, and why did you 0:14:09.960 --> 0:14:13.320 choose to write about Roper? Sure, so it's the company 0:14:13.360 --> 0:14:15.400 I've been writing about for a couple of years now. 0:14:15.400 --> 0:14:18.079 But you're completely right that it is not a household 0:14:18.160 --> 0:14:20.920 name that most people typically think of. But what always 0:14:20.920 --> 0:14:23.480 took me as interesting about it is they really were 0:14:23.600 --> 0:14:27.880 ahead of the curve when it came to investing in software. UM. 0:14:27.920 --> 0:14:29.160 You know, it was a couple of years ago now, 0:14:29.200 --> 0:14:31.480 but back in ten we had this sort of mini 0:14:31.480 --> 0:14:34.960 wave where all of these industrial companies were talking about digital, 0:14:35.440 --> 0:14:39.920 some more instantively than others perhaps, UM. But Roper at 0:14:39.960 --> 0:14:42.360 that point was really, you know, already sort of far 0:14:42.440 --> 0:14:45.880 along down the past of really becoming a software company UM. 0:14:45.880 --> 0:14:49.120 And they did that through a takeover based strategy where 0:14:49.120 --> 0:14:53.520 they were to acquire these niche providers of software UM 0:14:53.560 --> 0:14:56.360 where there wasn't very much competition in the market. They 0:14:56.400 --> 0:15:00.200 could command high margins UM and good free cash low 0:15:00.240 --> 0:15:02.400 and then they would turn around and spend that free 0:15:02.400 --> 0:15:06.640 cash flow on yet more deals. Rachel, I did not know. 0:15:07.480 --> 0:15:11.520 I did not know that there was software that still 0:15:11.560 --> 0:15:13.680 had white space. What kind of software are we talking 0:15:13.680 --> 0:15:18.560 about here, Brookes? Uh, it is interesting and it's really 0:15:18.680 --> 0:15:21.480 niche and so we're talking about in you know, business 0:15:21.520 --> 0:15:25.280 management software for law firms. Uh, they bought a company 0:15:25.280 --> 0:15:30.040 that makes software that used to make visual effects for movies. Um. 0:15:30.240 --> 0:15:32.720 They have software that connects you know, different parts of 0:15:32.760 --> 0:15:37.239 the construction and building product industries, from building product manufacturers 0:15:37.240 --> 0:15:40.560 to architects. Um. It's in. All of these businesses don't 0:15:40.600 --> 0:15:43.400 necessarily have a lot to do with each other. Um. 0:15:43.400 --> 0:15:45.000 What they have in common is they tend to be 0:15:45.080 --> 0:15:48.320 software based. And then again they tend to generate very 0:15:48.360 --> 0:15:50.680 high margins and throw off a lot of free cash flow. 0:15:50.760 --> 0:15:52.840 So there are a bit more like a private equity 0:15:52.880 --> 0:15:55.880 firm in that respect, and that they're not necessarily hunting 0:15:55.920 --> 0:15:59.640 for strategic adjacencies. They're looking for businesses that have really 0:15:59.680 --> 0:16:03.320 good financial characteristics. Draw your right. You know, whenever I 0:16:03.320 --> 0:16:06.280 read a Brook column, I know it's about an industrial company, 0:16:06.400 --> 0:16:08.520 so I love it. I felt this was almost like 0:16:08.560 --> 0:16:12.240 an obituary of an industrial company. It's kind of sad, 0:16:12.440 --> 0:16:14.720 kind of sad. Read a little bit, But Brook, I 0:16:15.480 --> 0:16:17.880 want to get back to that notion of these companies 0:16:17.920 --> 0:16:21.000 they decided to acquire. I'm reading your story here and 0:16:21.120 --> 0:16:24.880 it sounds like the core company it makes pumps, compressors, 0:16:25.000 --> 0:16:30.800 and controls. Okay, classic industrial Uh, then business management software 0:16:30.840 --> 0:16:34.000 for law firms, and software used to create visual effects 0:16:34.000 --> 0:16:36.960 for the movie industry. So what's there a rhymer reason 0:16:37.200 --> 0:16:40.480 for these sort of bolt on acquisitions? Or was it 0:16:40.520 --> 0:16:44.160 was just a very acquisition focused management that when they 0:16:44.200 --> 0:16:46.480 saw a good deal they couldn't resist. Um? How do 0:16:46.520 --> 0:16:49.240 you end up with this sort of conglomerate of businesses 0:16:49.280 --> 0:16:52.520 all under one roof? Sure, so it definitely was an 0:16:52.560 --> 0:16:56.360 acquisition focused company. UM. They you know, have really sort 0:16:56.360 --> 0:16:59.600 of built their strategy around takeovers in the past couple 0:16:59.600 --> 0:17:01.560 of years. And I think, you know, if you take 0:17:01.560 --> 0:17:04.760 a step back, I think what the former CEO of 0:17:04.800 --> 0:17:08.119 the company, Brian Jellison, realizes that, you know, the growth 0:17:08.160 --> 0:17:12.320 opportunities are in software. Um, it's getting very difficult to 0:17:12.359 --> 0:17:15.160 grow in industrials. We keep talking about all of these 0:17:15.640 --> 0:17:18.560 reasons to be optimistic for industrial growth, and yet here 0:17:18.560 --> 0:17:21.679 we are again talking about potentially get another recession for 0:17:21.760 --> 0:17:24.240 this industry. UM. And I think you know, when you 0:17:24.280 --> 0:17:27.040 look at software, it's a lot less vulnerable to economic 0:17:27.080 --> 0:17:30.680 slings UM. And you know, it really preserves that free 0:17:30.680 --> 0:17:34.440 cash flow profile. But then makes this acquisition machine work UM. 0:17:34.480 --> 0:17:36.639 And what made me want to take another look at 0:17:36.640 --> 0:17:40.000 this company is they actually are doing a transaction to 0:17:40.040 --> 0:17:42.720 finally get out of their industrial businesses. They struck a 0:17:42.760 --> 0:17:46.439 deal with private equity firm Quate, Doublia and Rice to 0:17:46.640 --> 0:17:50.399 sell a majority interest in the remaining industrial assets UM 0:17:50.440 --> 0:17:52.119 and then they intend to sell down the rest of 0:17:52.160 --> 0:17:56.320 that stake over time. So they are formally transitioning away 0:17:56.440 --> 0:18:00.240 from the industrial manufacturing sector, which is really interesting because 0:18:00.240 --> 0:18:03.480 it's the capstone of really a multi decade strategy to 0:18:03.520 --> 0:18:06.400 transform this company here UM. And you know, one thing 0:18:06.400 --> 0:18:09.560 that's interesting is Brian Jellison had already sort of resisted 0:18:09.920 --> 0:18:12.520 getting out of these industrial businesses in part because they're 0:18:12.520 --> 0:18:16.080 not bad businesses. I mean, Rocher is a good company. 0:18:16.119 --> 0:18:19.520 They managed these assets well. These businesses, even in the 0:18:19.560 --> 0:18:22.680 oil and gas types, are tended to generate pretty good returns, 0:18:22.760 --> 0:18:26.159 even in times of uh, you know, economic cycles, and 0:18:26.280 --> 0:18:28.359 you know, they weren't bad assets to keep around. But 0:18:28.400 --> 0:18:31.000 to your point, they really didn't ask that much to 0:18:31.080 --> 0:18:33.879 do with software. And I think his successor, Neil Hunt, 0:18:34.200 --> 0:18:36.080 has been a lot more aggressive in getting rid of 0:18:36.080 --> 0:18:39.760 some of these more traditional assets and completing the company's transformation. 0:18:42.520 --> 0:18:45.760 So you trade one sector for another, that's a pretty 0:18:45.760 --> 0:18:50.119 incredible transformation. Uh. And what do you what do you 0:18:50.119 --> 0:18:52.200 look like now that you're in a new world. What 0:18:52.520 --> 0:18:55.120 does Roper? How does stack up with its new competitive set? 0:18:56.080 --> 0:18:58.200 I think that's what's going to be really interesting because 0:18:58.240 --> 0:19:00.960 the end their benefit of holding on to these industrial 0:19:01.040 --> 0:19:04.200 assets was that you've got to continue to be followed 0:19:04.520 --> 0:19:08.400 by industrial people like myself, but also you know Wall 0:19:08.440 --> 0:19:12.959 Street analysts and investors who have different attitudes towards business. 0:19:12.960 --> 0:19:16.280 I mean, because Roper had so much software, they didn't 0:19:16.320 --> 0:19:18.719 really look like an industrial company, and they had you know, 0:19:18.760 --> 0:19:21.640 off the chart margins, off the chart, return on invested 0:19:21.680 --> 0:19:23.840 capital um, and you know, you would talk to the 0:19:23.880 --> 0:19:26.399 industrial analysts and they really would get sort of stars 0:19:26.400 --> 0:19:28.879 in their eyes talking about this company because it really 0:19:29.040 --> 0:19:32.200 was such a standout in the industrial wells. Now they're 0:19:32.240 --> 0:19:33.760 going to be part of the S and P five 0:19:33.800 --> 0:19:37.679 under and Information Technology sector index. That's a little bit 0:19:37.720 --> 0:19:40.440 of a different ballgame. It's people who have different standards 0:19:40.440 --> 0:19:42.800 for what they expect from software companies. So, like I said, 0:19:42.920 --> 0:19:45.520 Roper has always been very well run. They have this 0:19:45.680 --> 0:19:49.119 fine tuned acquisition machine, This is a very good company 0:19:49.160 --> 0:19:52.480 that they are entering a different arena with different expectations. 0:19:52.600 --> 0:19:54.520 I gotta say that book. I do wonder with IoT 0:19:54.640 --> 0:19:58.159 and you know, the Internet of Big Things, whether or 0:19:58.200 --> 0:20:01.560 not we like, does the concept to industrial change a 0:20:01.600 --> 0:20:03.280 little bit, you know, in a new era? And just 0:20:03.280 --> 0:20:06.520 got about thirty seconds left. Sure, I mean it definitely 0:20:06.600 --> 0:20:08.520 is changing. Like I said, you had sort of that 0:20:08.600 --> 0:20:11.199 rush of industrial companies getting into digital and that is 0:20:11.240 --> 0:20:14.159 only continued. I will say these strategies have gotten a 0:20:14.200 --> 0:20:16.359 little bit more fine honed over the years. So I 0:20:16.359 --> 0:20:18.760 think it is sort of table stakes that industrials will 0:20:18.760 --> 0:20:21.639 have a digital strategy. But it fits um, you know, 0:20:21.760 --> 0:20:25.800 handed glove with their manufacturing, whereas ropers really going all 0:20:25.840 --> 0:20:27.760 in on software like we talked about, you know, business 0:20:27.800 --> 0:20:31.280 management software for law firms, where for the movie industry. 0:20:31.280 --> 0:20:35.239 It's not really industrial anymore. Transformation is happening all around us, 0:20:35.280 --> 0:20:38.720 all right. Brook Sutherland deals in industrials columnist Bloomberg Opinion 0:20:39.160 --> 0:20:40.960 on the phone in New York City. As we mentioned, 0:20:41.000 --> 0:20:42.920 this story we feature in the upcoming issue of Business 0:20:42.960 --> 0:20:44.879 Week magazine. You can read it now on the Bloomberg 0:20:44.880 --> 0:20:47.359 and a Bloomberg dot com slash business Week, and our 0:20:47.440 --> 0:20:50.280 thanks always to Tell Webber, he's the editor of Bloomberg 0:20:50.280 --> 0:20:53.240 Business Week magazine. Joining us from Brooklyn. You're listening to 0:20:53.240 --> 0:20:59.280 Bloomberg Radio. This is Bloomberg. This is Bloomberg Business Week 0:20:59.480 --> 0:21:03.399 with Carol Master and Bloomberg Quick Takes Tim Stenovic on 0:21:03.600 --> 0:21:08.080 Bloomberg Radio. We have seen so many Americans die from 0:21:08.160 --> 0:21:12.960 drug overdoses. Between nineteen yearly half a million Americans dying 0:21:13.200 --> 0:21:16.680 as part of the opioid epidemic. Opioid drugs probably contributed 0:21:16.720 --> 0:21:21.360 to an unprecedented decline in US life expectancy from seventeen. 0:21:21.840 --> 0:21:23.920 They've also hit the labor markets. We've seen a lot 0:21:23.960 --> 0:21:27.520 of estimates about the cost in so many different levels 0:21:27.720 --> 0:21:30.240