WEBVTT - Mars to Purchase Kellanova, US Inflation Eases 0:00:00.600 --> 0:00:07.240 Bloomberg Audio Studios, Podcasts, radio news. 0:00:09.960 --> 0:00:13.840 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:13.920 --> 0:00:16.560 weekdays at ten am Eastern on Apple car Play and 0:00:16.560 --> 0:00:19.640 Android Auto with the Bloomberg Business App. Listen on demand 0:00:19.680 --> 0:00:24.520 wherever you get your podcasts, or watch us live on YouTube. 0:00:25.120 --> 0:00:28.800 This is Bloomberg Intelligence Radio Malexy alongside Paul Sweeney. We 0:00:28.880 --> 0:00:31.479 cover all the main news and business economics and finance 0:00:31.520 --> 0:00:33.760 through our lens of our Bloomberg Intelligence folks. They cover 0:00:33.800 --> 0:00:36.479 two thousand companies and one hundred and thirty industries all 0:00:36.479 --> 0:00:40.120 around the world. And we finally get to the pressing question. 0:00:40.440 --> 0:00:43.360 Of the day, will we now have chocolate cheeses? 0:00:43.479 --> 0:00:45.800 And the only person asked about this is Jen Bartash's 0:00:45.840 --> 0:00:49.760 Bloomberg Intelligence senior analyst Retail Staples and Packaged Food is 0:00:49.880 --> 0:00:52.560 joining us. So Jen, seriously, we're actually kind of serious 0:00:52.640 --> 0:00:53.320 chocolate cheeses. 0:00:53.360 --> 0:00:54.040 Is that going to be a thing? 0:00:55.600 --> 0:00:58.920 You never know? I mean it certainly maybe Snickered flavor, 0:00:59.040 --> 0:01:02.200 Snickers flavored cheese its or eminem s micks. 0:01:02.320 --> 0:01:04.600 I don't know, Wait, what about like that have been 0:01:04.640 --> 0:01:07.679 Eminem's No, that'd be gross, that'd be gross, Like cho. 0:01:09.360 --> 0:01:12.319 Checks mix kind of thing where it's got eminem's and 0:01:12.400 --> 0:01:14.960 cheese its and everything all mixed together. You might see 0:01:15.000 --> 0:01:15.880 something like that. 0:01:15.880 --> 0:01:18.840 Why is this deal happening? What's give us a strategic 0:01:18.920 --> 0:01:20.440 ration now for this deal? 0:01:21.280 --> 0:01:23.880 Well, there's there's a couple of things. The first is, 0:01:23.959 --> 0:01:27.119 you know, from a Mars portfolio perspective, when it comes 0:01:27.160 --> 0:01:30.640 to the snacking category, they are heavily exposed to chocolate 0:01:31.360 --> 0:01:34.399 and the coco. You know, coco has been a structural 0:01:34.400 --> 0:01:37.039 issue in terms of cost for a while and we 0:01:37.080 --> 0:01:40.760 think that's going to continue indefinitely. And so this helps 0:01:40.800 --> 0:01:44.480 them diversify out that snacking side of their portfolio, and 0:01:44.560 --> 0:01:46.520 it also helps them do a little bit more in 0:01:46.560 --> 0:01:49.200 emerging markets. It's which is an area where Keilenova has 0:01:49.200 --> 0:01:49.760 some strength. 0:01:50.920 --> 0:01:54.840 So okay, so is it offense or defense from that perspective, 0:01:54.840 --> 0:01:56.760 because it feels like it could be a combination of both, 0:01:56.800 --> 0:02:00.440 like diversify away from just pure coco, but but also expand. 0:02:01.280 --> 0:02:03.640 Yeah, I think it's a combination of the two. It's 0:02:03.720 --> 0:02:05.640 it's on the cocoa side, it's a little bit of 0:02:05.720 --> 0:02:08.360 risk mitigation, you know, and helping to ease some of 0:02:08.360 --> 0:02:11.640 the costs they're feeling there and you know, traditionally chocolate 0:02:11.639 --> 0:02:14.000 has held up actually really well through the pandemic and 0:02:14.040 --> 0:02:16.679 after the pandemic, but we're finally starting to see a 0:02:16.720 --> 0:02:19.880 little bit of weakness and consumer demand for chocolate just 0:02:19.919 --> 0:02:23.680 because of food inflation, and so diversification will will certainly 0:02:23.680 --> 0:02:26.840 help with that. And then you know, on a global basis, 0:02:26.840 --> 0:02:29.079 Mars has leading you know, they're in the top three 0:02:29.120 --> 0:02:33.160 market share in almost every region in confectionery, and so 0:02:33.520 --> 0:02:36.079 having more of the salty snack side and getting more 0:02:36.080 --> 0:02:39.320 into that can only consolidate their market share position in 0:02:39.400 --> 0:02:41.560 a lot of leading global, you know, regions. 0:02:42.600 --> 0:02:45.000 Jen, What makes us deal really interesting for me is 0:02:45.280 --> 0:02:47.800 the Mars company because it's a private company. What do 0:02:47.840 --> 0:02:52.240 we know about Mars? Maybe I don't know the size capitalization. 0:02:53.320 --> 0:02:56.000 Did they ever talk to investors. 0:02:56.080 --> 0:02:59.360 Very rarely, you know, but what they have disclosed, you know, 0:02:59.360 --> 0:03:02.120 their annual revenue is a little over fifty billion dollars, 0:03:02.440 --> 0:03:06.640 so definitely a sizable company. And what I think is 0:03:06.720 --> 0:03:10.120 very interesting is when you break that revenue down, nearly 0:03:10.200 --> 0:03:13.520 sixty percent of their revenue is coming from pet food. 0:03:14.120 --> 0:03:17.919 So although everybody associates Mars with chocolate, the larger portion 0:03:18.000 --> 0:03:20.000 of their business is pet and so they own the 0:03:20.000 --> 0:03:23.920 Pedigree brand, they own the Whiskers brand, and that is 0:03:23.960 --> 0:03:26.920 a big powerhouse for them. And so when you know 0:03:27.040 --> 0:03:28.880 that's that's part of the reason we think there actually 0:03:28.880 --> 0:03:31.360 won't be a lot of FTC pushback on this because 0:03:31.360 --> 0:03:34.520 it's a smaller port of their portfolio and the products 0:03:34.520 --> 0:03:37.800 are there's really no overlap between what Kelenova does and 0:03:37.840 --> 0:03:38.560 what Mars does. 0:03:38.840 --> 0:03:40.640 Amazingly, I did not know that. I did not know 0:03:40.680 --> 0:03:42.480 that at all. Why we love Jen Bart. 0:03:44.040 --> 0:03:47.680 I mean, that would kill them, but sure right, dogs 0:03:47.680 --> 0:03:50.080 can't have chocolate from that thing. And so Jen, does 0:03:50.080 --> 0:03:51.560 this mean we're going to see a lot of other 0:03:51.800 --> 0:03:53.320 M and A in the space? And if so, sort 0:03:53.320 --> 0:03:55.080 of who and where would we see that? 0:03:56.200 --> 0:03:58.640 Well, we've seen, you know, we've seen a lot of 0:03:58.680 --> 0:04:01.600 a sentiment towards tuck in acquisitions over the last couple 0:04:01.600 --> 0:04:05.280 of years. But there are some pressures that are affecting 0:04:05.280 --> 0:04:08.000 the industry. So when you listen to what all of 0:04:08.080 --> 0:04:10.920 these package food companies are saying, their priority for twenty 0:04:10.960 --> 0:04:14.800 twenty four and headed into twenty twenty five is regaining volume. 0:04:16.200 --> 0:04:18.240 But the problem is that consumers not yet in a 0:04:18.279 --> 0:04:21.599 position where they're buying bigger volumes of food, and so 0:04:22.080 --> 0:04:25.039 M and A is a potential route to be able 0:04:25.080 --> 0:04:28.479 to better navigate the market. So you know, in this instance, 0:04:28.520 --> 0:04:30.760 with this deal, we're expecting over a billion dollars in 0:04:30.800 --> 0:04:35.560 synergies between Mars and Kelenova, coming from procurement, coming from manufacturing, 0:04:35.640 --> 0:04:38.599 things like that. So I think that this deal may 0:04:38.640 --> 0:04:43.920 spark some at least some consideration for larger deals again 0:04:44.040 --> 0:04:46.159 in the package food space, as they're trying to find 0:04:46.200 --> 0:04:51.320 ways to contain costs, expand their geographic and product footprint 0:04:51.360 --> 0:04:54.200 at a time when it's hard to spend to spur 0:04:54.320 --> 0:04:57.440 consumers into buying greater volumes, So it may be an 0:04:57.440 --> 0:04:58.520 alternative for them. 0:04:58.760 --> 0:05:00.880 Gen here's the big quest out there for I think 0:05:01.040 --> 0:05:04.600 most consumers, as John Tucker digs into a bag of cheese, 0:05:04.600 --> 0:05:08.920 it's in food inflation. You cover the package of good companies, 0:05:08.920 --> 0:05:13.080 You covered the grocery stores as well. Those prices while 0:05:13.120 --> 0:05:16.680 the rate of inflation has slowed, those prices ain't coming down, 0:05:16.720 --> 0:05:18.080 are they. 0:05:17.800 --> 0:05:20.960 They're coming down, but very very slowly. And so if 0:05:20.960 --> 0:05:23.320 you look on it on a basis, you know, comparison 0:05:23.360 --> 0:05:26.440 back to twenty nineteen food prices are still almost twenty 0:05:26.480 --> 0:05:30.560 percent higher than they were in twenty nineteen. Now in 0:05:30.920 --> 0:05:34.480 certain categories where there's been relief, especially from the cost 0:05:34.520 --> 0:05:38.160 of commodities, So as corn has come down, and soy 0:05:38.200 --> 0:05:40.760 has come down, and wheat has come down, sugar has 0:05:40.800 --> 0:05:43.719 come down, we've seen you know a little bit of 0:05:43.720 --> 0:05:46.240 price relief, but it's going to take some time for 0:05:46.480 --> 0:05:50.080 that to really translate into something that consumers feel in 0:05:50.120 --> 0:05:54.240 their pocketbook instead of just individual products being you know, 0:05:54.360 --> 0:05:58.039 either not getting increases or coming down slightly in price. 0:05:58.360 --> 0:06:00.480 So which company in your space do you feel like 0:06:00.600 --> 0:06:02.479 is doing pretty well on the margin and the top 0:06:02.520 --> 0:06:04.360 line side, because if margins are gonna get squeezed, you 0:06:04.400 --> 0:06:05.839 need the top line to grow. But the top line 0:06:05.839 --> 0:06:08.200 is still really struggling with consumers right now. So who's 0:06:08.200 --> 0:06:09.080 managing not the best? 0:06:10.400 --> 0:06:13.240 Well? You know, up until the probably the the you know, 0:06:13.320 --> 0:06:16.240 the last quarter or two, Mandalis has actually navigated that 0:06:16.320 --> 0:06:20.920 pretty well, you know, because the demand for suites and 0:06:20.960 --> 0:06:24.719 indulgences has had held up pretty well. You know, companies 0:06:24.760 --> 0:06:28.840 that do have that exposure to snacking, generally speaking, are 0:06:28.880 --> 0:06:31.599 doing better overall than companies that are more center store. 0:06:32.120 --> 0:06:34.160 And I would point to Kraft heines as an example 0:06:34.200 --> 0:06:37.040 of center store or Campbell Soup is a center store type. 0:06:37.120 --> 0:06:38.640 Center store. I have heard that before. 0:06:39.279 --> 0:06:41.960 So center store is when you're in a grocery store. 0:06:42.000 --> 0:06:44.400 Everything that's not on the not on the outside, so 0:06:44.600 --> 0:06:48.280 it usually is like shelf stable products. So think about 0:06:48.320 --> 0:06:53.080 your canned soups, your pasta, your pasta sauces, things like that, 0:06:54.160 --> 0:06:57.440 and and those are those are the pantry staples that 0:06:57.560 --> 0:07:00.680 most people you know purchase. And then the perimeter is 0:07:00.720 --> 0:07:02.920 of course all of your fresh you know, your fresh foods, 0:07:02.920 --> 0:07:04.960 your produce and your meat and your dairy and things 0:07:05.040 --> 0:07:05.280 like that. 0:07:05.360 --> 0:07:07.320 And I learned today that's why we love Jen. 0:07:07.400 --> 0:07:08.960 That's why we love Jen. Yeah, all right, Jen, thanks 0:07:08.960 --> 0:07:10.840 so much for joining us. Jen Bartash, I've senior retail 0:07:10.840 --> 0:07:13.920 analyst for Bloomberg Intelligence. But when I do, of course, 0:07:13.960 --> 0:07:15.960 when I see an M and A trade cross the tape, 0:07:16.000 --> 0:07:18.240 I go m A, go click on advisors and see 0:07:18.240 --> 0:07:21.160 which one of my banker buddies are getting paid for 0:07:21.320 --> 0:07:24.320 the acchoiry here from Mars. They were solely advised by 0:07:24.400 --> 0:07:27.000 City Group. Good for them, and then for the target, 0:07:27.040 --> 0:07:29.000 which is really where you want to be as an advisor. 0:07:30.320 --> 0:07:33.200 They had Goldman, Saxonell's art. So some blue chip names 0:07:33.200 --> 0:07:36.040 getting paid across the board on that big big trade 0:07:36.040 --> 0:07:38.080 there thirty six billion with including debt. 0:07:38.400 --> 0:07:41.000 And this was an easier fix, and that, like the 0:07:41.040 --> 0:07:43.840 anti trust issue is probably not there versus other companies 0:07:43.840 --> 0:07:45.040 where you know you're going to have it. 0:07:45.320 --> 0:07:47.160 Do you get in the Q now? Do you wait 0:07:47.160 --> 0:07:50.200 till after the election? What do you do? Increasingly you 0:07:50.360 --> 0:07:50.720 what do you do? 0:07:50.800 --> 0:07:53.200 Oh? Yeah, just get let's get move and get this enclosed. 0:07:53.560 --> 0:07:55.040 Yeah, but you're the banker, of course you're going to 0:07:55.080 --> 0:07:55.360 say that. 0:07:55.440 --> 0:07:57.640 Yeah, but they only I was reading Gen's research, a 0:07:57.720 --> 0:08:00.520 combind company only has like six point two percent global 0:08:00.600 --> 0:08:03.440 retail spend or whatever the metric is. I think the 0:08:03.480 --> 0:08:04.360 regulators will use. 0:08:04.400 --> 0:08:06.840 So it's akady yeah for that one. But for other companies, 0:08:06.840 --> 0:08:07.200 I don't know. 0:08:08.880 --> 0:08:12.760 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:08:12.840 --> 0:08:16.360 weekdays at ten am Eastern on applecar Play and Android 0:08:16.400 --> 0:08:19.559 Auto with the Bloomberg Business. You can also listen live 0:08:19.640 --> 0:08:22.840 on Amazon Alexa from our flagship New York station, Just 0:08:22.880 --> 0:08:26.480 say Alexa play Bloomberg eleven thirty. 0:08:27.120 --> 0:08:29.520 It was a nothing burger the CPI, But we could 0:08:29.560 --> 0:08:32.120 also make an argument we've already had a humongous move 0:08:32.160 --> 0:08:34.760 over the last couple of weeks. Volumes also light, so 0:08:34.800 --> 0:08:38.000 you're kind of in a different positioning stage. Emily Roland 0:08:38.040 --> 0:08:41.320 is co chief investment strategist for John Hancock Investment Management, 0:08:41.800 --> 0:08:42.240 joining us. 0:08:42.240 --> 0:08:44.040 Now, Hey, Emily, what do you make. 0:08:43.960 --> 0:08:45.839 Of the non reaction in the market, Like, what does 0:08:45.840 --> 0:08:47.840 that tell you about positioning and sentiment? 0:08:48.880 --> 0:08:52.560 Well, it tells us that the PPI report yesterday really 0:08:52.760 --> 0:08:56.200 sort of stole the show, coming in lighter than estimates, 0:08:56.200 --> 0:08:59.800 and you saw big moves in bond markets as well 0:08:59.840 --> 0:09:02.560 as across equity market. So I think today, you know, 0:09:02.640 --> 0:09:05.679 coming in right around in line with expectations. Of course, 0:09:05.720 --> 0:09:09.679 that sticky shelter or housing components still looking like the 0:09:09.720 --> 0:09:13.760 primary driver of inflation, and you know, we're seeing the 0:09:13.840 --> 0:09:16.200 housing data take a long time to slow down. 0:09:16.320 --> 0:09:17.880 Inventories are still really. 0:09:17.679 --> 0:09:21.200 Low, prices are still elevated, so we think that inflation 0:09:21.360 --> 0:09:24.040 is certainly coming down. That's great news for markets, but 0:09:24.120 --> 0:09:27.400 it's not happening in a straight line exactly. 0:09:27.480 --> 0:09:29.719 So what does that mean for our feder reserve here? 0:09:29.760 --> 0:09:33.360 I mean, it feels like this is kind of giving 0:09:33.360 --> 0:09:34.480 them some run by. I know, we have some more 0:09:35.160 --> 0:09:38.000 economic data between now and September, but boy, it seems 0:09:38.040 --> 0:09:39.560 like they could certainly go here. 0:09:40.240 --> 0:09:42.560 Yeah, this certainly gives the Fed the green light to 0:09:42.600 --> 0:09:45.240 go in September, which, of course the boondo market was 0:09:45.320 --> 0:09:50.800 already pricing in. The expectation shifted a little bit after 0:09:50.840 --> 0:09:55.280 the report. We went from fifty basis points being. 0:09:55.440 --> 0:09:57.959 Kind of the slight odds, and. 0:09:57.920 --> 0:10:00.560 Now it's back to twenty five basis points, which feels 0:10:00.960 --> 0:10:03.600 about right for us. Again, the Fed has noted that 0:10:03.640 --> 0:10:06.880 the labor market is seeing some cracks. They're confident that 0:10:06.960 --> 0:10:11.200 inflation's decelerating, and I think they certainly want to cut rates, 0:10:11.600 --> 0:10:14.520 and that's our expectation going into September. There's still some 0:10:14.559 --> 0:10:17.080 more data though, We're going to get another jobs report, 0:10:17.160 --> 0:10:19.880 another CPI report, and of course we have Jackson holl 0:10:20.000 --> 0:10:21.760 at the end of the month. So I think, kind 0:10:21.800 --> 0:10:24.640 of hemming and hawing about fifty versus twenty five, we've 0:10:24.640 --> 0:10:26.160 still got some time to go out here. 0:10:26.679 --> 0:10:26.920 Yeah. 0:10:26.960 --> 0:10:29.800 It's just also so interesting to point out that the 0:10:29.840 --> 0:10:32.720 Fed didn't change their tune, like they were still talking 0:10:32.720 --> 0:10:35.439 about we want to see more progress, we want to wait, 0:10:35.559 --> 0:10:36.000 want to wait. 0:10:36.040 --> 0:10:38.520 It was the markets that change their reaction function. 0:10:38.720 --> 0:10:42.719 So after we've kind of cleaned out positioning, here are 0:10:42.760 --> 0:10:45.520 we sort of on the same page markets, bond markets, 0:10:45.559 --> 0:10:46.880 equity markets, and the Fed. 0:10:47.920 --> 0:10:49.360 Yeah, I mean we're getting there. 0:10:49.480 --> 0:10:49.640 You know. 0:10:49.679 --> 0:10:52.240 We want to be patient here as it relates to bonds. 0:10:52.240 --> 0:10:56.280 We're seeing a lot of volatility across high quality bonds here. 0:10:56.640 --> 0:10:59.120 You know, again the data continue to chop around. 0:10:59.240 --> 0:11:03.319 We do want to lean into duration into high quality 0:11:03.360 --> 0:11:05.480 bonds here, but again it's not going to happen in 0:11:05.559 --> 0:11:06.319 a straight line, and. 0:11:06.280 --> 0:11:08.080 We've seen some massive moves. 0:11:08.400 --> 0:11:11.400 This is type of volatility around bonds is not normal, 0:11:12.160 --> 0:11:14.040 So we want to be patient here, but we do 0:11:14.120 --> 0:11:17.240 continue to like the income that's available the aggregate bond 0:11:17.280 --> 0:11:20.880 index yielding close to five percent. We like the idea 0:11:20.920 --> 0:11:24.040 of locking in that income stream for years, even if 0:11:24.080 --> 0:11:27.280 you're not getting paid yet on the duration component, you're 0:11:27.400 --> 0:11:30.440 still getting that income, which we think is really attractive 0:11:30.520 --> 0:11:34.120 in an environment where an economic contraction is likely in 0:11:34.240 --> 0:11:34.720 our view. 0:11:35.679 --> 0:11:38.160 So Emily, let's flash back to a week ago Monday. 0:11:38.200 --> 0:11:41.400 What did you and the good folks up at John 0:11:41.400 --> 0:11:44.480 Hancock Investment Management, what did you make about the volatility 0:11:44.520 --> 0:11:46.320 we saw on last Monday's trading. 0:11:47.160 --> 0:11:49.840 You know, it was so remarkable, and you know, everybody 0:11:49.920 --> 0:11:50.880 was kind of thinking. 0:11:50.640 --> 0:11:51.920 About the smoking gun. 0:11:52.000 --> 0:11:55.040 You know, was it that ism manufacturing data? 0:11:55.160 --> 0:11:56.800 Was it initial claims jumping? 0:11:56.880 --> 0:11:59.920 Of course, everybody scrambled to try and explain the yes 0:12:00.080 --> 0:12:03.880 and carry trade all of their clients and the unwind. 0:12:03.400 --> 0:12:05.880 Of that and the surprise move from the Bank of Japan. 0:12:05.920 --> 0:12:08.080 But I'll tell you the one thing that you couldn't 0:12:08.080 --> 0:12:11.960 point to was earnings. And over time, we all know 0:12:12.080 --> 0:12:15.079 that stock prices are going to follow profits, and we 0:12:15.160 --> 0:12:18.559 look at earning season, we're up about twelve percent year 0:12:18.600 --> 0:12:21.439 over years. Still a couple of big names to report here, 0:12:21.480 --> 0:12:24.160 but earnings have come in pretty solid. I think the 0:12:24.280 --> 0:12:27.480 challenge for investors on the earnings front is this impressive 0:12:27.559 --> 0:12:30.360 run up in prices that we saw prior to the 0:12:30.360 --> 0:12:33.400 earnings report, so you almost had to be perfect in 0:12:33.520 --> 0:12:36.360 order to see an outsize reaction from markets there. 0:12:36.360 --> 0:12:38.600 But earnings growth continues to come in solid. 0:12:38.640 --> 0:12:42.840 It's being driven by those megacap tech names communications. 0:12:42.040 --> 0:12:44.040 Services up there as well. 0:12:44.040 --> 0:12:47.040 We're seeing some broadening out in earnings, so the fundamental 0:12:47.080 --> 0:12:51.479 backdrop is remaining intact, which makes us know pretty optimistic. 0:12:51.559 --> 0:12:52.760 On the equity front. 0:12:52.920 --> 0:12:55.560 Does it also make us much more sensitive than to 0:12:55.720 --> 0:12:58.000 Nvidia's earnings since that's going to be one of the 0:12:58.040 --> 0:13:00.680 big earnings catalysts and you get Walmart on, I get that, 0:13:00.840 --> 0:13:04.280 But is it now like an Nvidia story for earnings 0:13:04.320 --> 0:13:04.960 and the market? 0:13:05.840 --> 0:13:08.960 Absolutely, And it's you know, it's funny how navidia is 0:13:09.000 --> 0:13:11.880 so far delayed versus everything else. You kind of think 0:13:12.040 --> 0:13:14.640 that earning seasons over and then you remember that this 0:13:14.800 --> 0:13:17.480 massive driver of the market is still yet to report. 0:13:17.600 --> 0:13:19.880 So that's really going to be I think the next 0:13:19.880 --> 0:13:22.360 big event, you know, coming up in a couple of weeks. 0:13:22.400 --> 0:13:27.160 Watching that Obviously, it's been incredibly important to markets, especially 0:13:27.160 --> 0:13:29.720 on the US equity front, so we'll learn a lot 0:13:30.160 --> 0:13:31.040 from that report. 0:13:31.080 --> 0:13:31.640 Absolutely. 0:13:32.600 --> 0:13:35.360 So, people we're talking to us earlier today about small 0:13:35.360 --> 0:13:37.640 cap stocks, if we are in fact going to see 0:13:37.679 --> 0:13:41.679 some rates coming down, this could maybe be an opportunity 0:13:41.720 --> 0:13:44.520 for small caps to perform. Are you willing to make 0:13:44.520 --> 0:13:45.760 that leap? Is that seem reasonable? 0:13:45.800 --> 0:13:47.960 And some of the small cap earnings like weren't terrible, 0:13:48.040 --> 0:13:49.200 like they delivered. 0:13:48.840 --> 0:13:50.800 Yep, yep, some of them did. 0:13:50.840 --> 0:13:53.160 But overall, if you look at small cap earnings, they're 0:13:53.200 --> 0:13:57.360 negative for this quarter versus large and mid cap equities. 0:13:57.640 --> 0:13:59.400 So we think it's a bit early to lean into 0:13:59.480 --> 0:14:02.240 small cap here. We would be looking for a shift 0:14:02.280 --> 0:14:04.120 into an early cycle environment. 0:14:04.280 --> 0:14:06.480 We'd want that contraction to play out. 0:14:06.760 --> 0:14:09.320 We never really bought into the idea of lower rates 0:14:09.400 --> 0:14:12.000 helping small cap equities. In fact, we have to remember 0:14:12.000 --> 0:14:14.360 that when rates are coming down and the Feds cutting, 0:14:14.679 --> 0:14:17.560 it's because something not great is going on and that 0:14:17.720 --> 0:14:21.200 should not benefit the more cyclical areas of the market. 0:14:21.280 --> 0:14:24.200 Small caps feature a lot of stocks that are unprofitable, 0:14:24.440 --> 0:14:27.480 some growth at any price names. In fact, about two 0:14:27.520 --> 0:14:30.360 thirds of the Russell two thousand index is comprised of 0:14:30.400 --> 0:14:33.760 companies that don't make money. Those names, again, they can 0:14:33.880 --> 0:14:37.520 rip when cyclicalities awarded in an early cycle environment, but 0:14:37.560 --> 0:14:40.080 we simply think it's too early to lean in there. 0:14:40.240 --> 0:14:43.000 We'd be moving up in cap. We'd be embracing quality. 0:14:43.080 --> 0:14:46.440 We want companies with great balance sheets, tons of cash. 0:14:46.440 --> 0:14:47.480 Great margins. 0:14:47.800 --> 0:14:51.560 Remember, yes, inflation coming down is great news for sure, 0:14:51.800 --> 0:14:55.080 especially for the consumer, but it also means revenue growth 0:14:55.160 --> 0:14:57.800 is slowing. So again we want to lean into quality 0:14:58.080 --> 0:15:01.400 for the reason. For that reason, because those companies can 0:15:01.400 --> 0:15:05.120 defend their margins better when revenue growth is coming down. 0:15:05.240 --> 0:15:08.360 So before we let you go, Emily quickly, aside from tech, 0:15:08.520 --> 0:15:09.480 where is that spot? 0:15:10.560 --> 0:15:13.520 Yeah, so we're looking at areas of the market that 0:15:13.560 --> 0:15:14.360 are cheaper. 0:15:14.480 --> 0:15:16.680 Think about quality at a reasonable price. 0:15:17.360 --> 0:15:20.280 Areas like US mid cap stocks, which are trading at 0:15:20.680 --> 0:15:24.320 the most significant discount to their large cap counterparts since. 0:15:24.080 --> 0:15:25.440 The late nineteen nineties. 0:15:25.800 --> 0:15:29.080 Midcaps also have an overweight to industrial stocks that are 0:15:29.120 --> 0:15:33.240 benefiting from on shoring in this manufacturing renaissance that we're 0:15:33.320 --> 0:15:36.360 having in the United States today. So it's really about again, 0:15:36.440 --> 0:15:38.280 I think we might have made this term up. I'm 0:15:38.320 --> 0:15:41.360 not sure, but quality at a reasonable price is really 0:15:41.400 --> 0:15:43.960 the sweet spot for us for the remainder of this year. 0:15:45.880 --> 0:15:47.560 All right, Emily, thank you so much for joining us. 0:15:47.560 --> 0:15:49.480 We always appreciate getting few minutes of your time. Emily 0:15:49.520 --> 0:15:53.680 Roland Co Chief investment Strategist, John Hancock Investment Management joining 0:15:53.760 --> 0:15:57.480 us via that zoom thing from Boston here. So I know, 0:15:57.520 --> 0:15:59.880 I guess one of the questions I have is, you know, 0:16:00.080 --> 0:16:02.280 twenty five basis points or fifty basis points if they 0:16:02.280 --> 0:16:06.600 do cut in September, and what would either of those 0:16:06.960 --> 0:16:09.800 tell us? It's fifty basis points. Would that suggest to 0:16:09.840 --> 0:16:13.840 the market, oh boy, something is wrong maybe, or will 0:16:13.840 --> 0:16:17.480 twenty five or will twenty five not suffice the market? 0:16:17.520 --> 0:16:19.400 You know, well that's so tricky, right, because you're right. 0:16:19.440 --> 0:16:21.360 If you do fifty, then the narrative is gonna be like, oh, 0:16:21.440 --> 0:16:23.680 things are a lot worse than we think. It didn't 0:16:23.680 --> 0:16:27.000 seem like the inflation was coming down. The disinflation story 0:16:27.160 --> 0:16:30.120 was coming down fast enough to justify the fifty basis 0:16:30.120 --> 0:16:32.560 point cut. But if you look at WORP, we're still 0:16:32.560 --> 0:16:35.520 pricing in over twenty five basis points, not fifty, but 0:16:35.600 --> 0:16:37.480 still over twenty five within the market. 0:16:37.520 --> 0:16:38.480 That's a different scenario. 0:16:38.760 --> 0:16:43.920 Yep. You're listening to the Bloomberg Intelligence Podcast. Catch us 0:16:43.960 --> 0:16:46.840 live weekdays at ten am Eastern on Apple car Play 0:16:46.880 --> 0:16:49.440 and then broud Otto with the Bloomberg Business app. Listen 0:16:49.520 --> 0:16:52.600 on demand wherever you get your podcasts, or watch us 0:16:52.680 --> 0:16:54.400 live on YouTube. 0:16:55.440 --> 0:16:58.120 All right, let's get to a story that is very 0:16:58.120 --> 0:17:00.920 widely read on the Bloomberg coming. John Tucker's been following 0:17:00.960 --> 0:17:04.720 it closely all day this he doesn't understand it. Yeah, 0:17:04.720 --> 0:17:06.440 I'm not. All I know is the store's not there 0:17:06.440 --> 0:17:08.520 across the street, and it was before Mary Ross Gilbert 0:17:08.600 --> 0:17:12.239 joins us Bloomberg Intelligence Senior Equeryanna. She covers retail and 0:17:12.240 --> 0:17:16.000 the story is Victoria's Secret has notd Rihanna Brands CEO 0:17:16.200 --> 0:17:19.120 to lead a turnaround there and I didn't know Victoria's 0:17:19.160 --> 0:17:21.600 Secret needed to turn around, but apparently it does in 0:17:21.680 --> 0:17:23.360 the area. Go that's why the store is no longer 0:17:23.440 --> 0:17:25.840 across the street from our office in that space has 0:17:25.880 --> 0:17:27.880 been vacant for like five years. There we go, there 0:17:27.880 --> 0:17:29.679 we go? All right, Mary Ross Gilbert, thanks so much 0:17:29.720 --> 0:17:31.480 for joining us. Here is this a big deal for 0:17:31.600 --> 0:17:32.479 Victoria's Secret? 0:17:35.119 --> 0:17:35.840 I think this is. 0:17:35.760 --> 0:17:39.919 A big deal for Victoria's Secret. Being a woman focused brand, 0:17:40.160 --> 0:17:42.679 we think that Hillary super And as you mentioned, she 0:17:42.920 --> 0:17:49.640 was just the CEO at Rihanna's brand fenty x Savage, 0:17:49.840 --> 0:17:53.160 and that's a lingerie company. It's a teeny, teeny tiny company. 0:17:53.680 --> 0:17:58.439 But Hillary has three decades of experience. She was the 0:17:58.600 --> 0:18:03.960 chief of the Anthropology brands. More recently and prior to that, 0:18:04.000 --> 0:18:07.240 she's worked at a number of other brands, including American Eagle. 0:18:07.280 --> 0:18:10.320 And speaking of competition to Victoria's Secret and why they've 0:18:10.359 --> 0:18:14.160 lost share, American Eagle has a brand called Airy and 0:18:14.440 --> 0:18:17.520 that's about you know, one point six billion dollar business. 0:18:17.920 --> 0:18:21.720 So Victoria's Secret has lost market share, but they have 0:18:22.000 --> 0:18:25.159 been in a turnaround mode for the past three to 0:18:25.240 --> 0:18:28.919 four years and we're starting to see some traction. But 0:18:29.080 --> 0:18:34.200 we really think that with Super's understanding of the consumer, 0:18:34.280 --> 0:18:37.840 working with multiple brands and really getting the brand heat, 0:18:38.480 --> 0:18:40.680 we think that she could really make a difference here 0:18:40.840 --> 0:18:41.399 at the HELM. 0:18:41.480 --> 0:18:42.760 So we think this is good news. 0:18:42.760 --> 0:18:44.760 And of course it comes as they say that they 0:18:44.960 --> 0:18:48.880 just beat two Q earnings. You know, they gave preliminary 0:18:49.000 --> 0:18:50.800 estimates for their second quarter. 0:18:51.200 --> 0:18:53.960 When did things really fall apart for Victoria's Secret? What 0:18:54.040 --> 0:18:54.600 was the trigger? 0:18:56.160 --> 0:18:58.560 Yeah, the trigger was really this sort of me too 0:18:58.760 --> 0:19:04.080 movement and given that it was a brand that was 0:19:04.560 --> 0:19:08.560 sort of focused on the perspective of what made women 0:19:08.800 --> 0:19:14.320 sexy from a male perspective rather than from the female 0:19:14.480 --> 0:19:16.440 consumer perspective. 0:19:16.280 --> 0:19:18.200 And that has has shifted. 0:19:18.680 --> 0:19:21.560 When it used to be part of Limited Brands, it 0:19:21.640 --> 0:19:25.280 was then spun off and Martin Waters, who has now 0:19:25.400 --> 0:19:28.360