Speaker 1: This is Bloomberg Business Week. I'm Carole Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanivik. We're here every day bringing
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Speaker 1: Eastern Time on Bloomberg Radio or watch us on YouTube
Speaker 1: search Bloomberg Global News. Let's bring in our next guest here,
Speaker 1: Melissa Baker. She's the founding partner of Fenwick Brands, a
Speaker 1: female led consumer focused investment firm. Melissa, thank you as
Speaker 1: always for joining us. How are you doing great, Happy
Speaker 1: to be with you all today. We're happy to have you. Well,
Speaker 1: let's dive right in here. Retail consumer package goods. I'm
Speaker 1: a market scale from a stock market perspective. These stocks
Speaker 1: have been doing really well because people are saying, in
Speaker 1: the time of recession, everyone's going to need food, Everyone's
Speaker 1: going to need these kind of basic items. So naturally
Speaker 1: you have to invest in those shares, but talk to
Speaker 1: us about the trends in this industry right now. Yeah,
Speaker 1: it's definitely an interesting time. I think, you know, if
Speaker 1: I put my investor head on, you know, we we
Speaker 1: are focused more on earlier stage consumer businesses and it's interesting.
Speaker 1: You know, we're coming off this period of what I
Speaker 1: would call, you know, over inflated and over invested markets
Speaker 1: where we saw a lot of capital come into the market,
Speaker 1: pressure to get it to work, causing really high valuations
Speaker 1: and really kind of gross prioritized over profit. You know.
Speaker 1: Fast forward to today. Um, you know, I think the
Speaker 1: positive news is we're starting to see some much needed
Speaker 1: course correction. You know, you're right, consumers need staples, um.
Speaker 1: But more importantly, we need these earlier stage businesses to
Speaker 1: build healthy and profitable companies, and I think we're starting
Speaker 1: to become prioritized to gaps. Melissa, Melissa, I just want
Speaker 1: to jump in here, is we don't have a ton
Speaker 1: of time. I'm wondering how you're seeing this course for
Speaker 1: should play out in the private side as a private
Speaker 1: equity investor, of what you're hearing from your portfolio companies,
Speaker 1: which include URSA, major let me shine Madison read back
Speaker 1: to the roots among others. Um, what are you hearing
Speaker 1: from them about course correction right now? Are they under pressure? Yeah?
Speaker 1: I think Look, everybody's under pressure to just maintain some
Speaker 1: consistent levels of growth. But I think we've got strong
Speaker 1: value propositions to the consumer. I think we're being much
Speaker 1: more thoughtful and discerney as we think about you know,
Speaker 1: omni channel models and where the product is and being
Speaker 1: with the consumer where they are in purchase. And I
Speaker 1: think all of our companies are well positioned, but definitely
Speaker 1: long term minded, right um, and really focused on loyalty
Speaker 1: and retention. So what are you worried about here? What
Speaker 1: keeps you up at night? Oh? Lots of thanks, um,
Speaker 1: But no, I think look, consumers are evolving, right and
Speaker 1: they purchased with their head in their heart. And I
Speaker 1: think the definition of brand and and the value of
Speaker 1: brand to the consumer um ever changing. And it's it's
Speaker 1: important for our companies to be well positioned, right. They
Speaker 1: have to solve for the purchase friction. They have to
Speaker 1: meet the consumers where they are in the head and
Speaker 1: the heart and well developed omni channels. And so for me,
Speaker 1: it's like Look, we've we've got good value propositions, but
Speaker 1: we just need to be with that consumer and the
Speaker 1: consumers changing, and that's a constant struggle and opportunity for
Speaker 1: our businesses and making sure we're well positioned. Melissa. You know,
Speaker 1: it's so funny. I I moderated panel at Milkin with
Speaker 1: a bunch of folks in private equity, and I think
Speaker 1: every single one of them was based in New York
Speaker 1: City and you're joining us from Birmingham, Alabama, where you're based,
Speaker 1: And I'm wondering how that goes. And I mean, if
Speaker 1: you think about it, you know, we see it so
Speaker 1: much of the focus here in New York City, So
Speaker 1: how does it help and how does it hinder you
Speaker 1: at points to be based there? Yeah, well, look, I
Speaker 1: think look we're hide Jim right, UM, and I think
Speaker 1: we've got a great portfolio. So I think our portfolio,
Speaker 1: our reputation, you know, speaks for UM itself. But I
Speaker 1: will say that we're very relational, and I think like
Speaker 1: sometimes being a non coastal UM, you know, we have
Speaker 1: a different approach to kind of Middle America. Lens On right,
Speaker 1: the consumer UM and the consumers not just in coastal cities,
Speaker 1: and I think we have right. We kind of leverage
Speaker 1: that mindset and being where we are to to our advantage,
Speaker 1: and I think we bring something right that's a little
Speaker 1: bit different to the to the table. Let's try and
Speaker 1: talk very quickly about just being a female lead investment firm.
Speaker 1: I think that's incredible. Walk us through perhaps a little
Speaker 1: bit of your perspective being a female founder in a
Speaker 1: private equity business. We got about a minute here. Yeah,
Speaker 1: I took a very unsimentional path, you know, the classical
Speaker 1: musician turn marketer turned, you know, sorry, classical musicians. Yes,
Speaker 1: what did you play violence? Ye? That second grade was
Speaker 1: not a classical musician. But nevertheless continue Lissa, Yeah, nonetheless,
Speaker 1: I'm not your typical kind of right PE pedigree. Um.
Speaker 1: You know, for me, it was about leveraging all of
Speaker 1: my in the trenches operating an expertise to small brands
Speaker 1: that needed help. We saw an inefficiency kind of in
Speaker 1: the funding market between VC and PE and where partnerships
Speaker 1: and value added capital really could could make a difference.
Speaker 1: Then I think for us, being a female lead firm,
Speaker 1: we're the consumer um the gain conviction of the product early,
Speaker 1: and I think we can bring more EQ to the
Speaker 1: partnership building companies is hard. It takes time. Um, I
Speaker 1: think there's lots of pivots, right, and I think it's
Speaker 1: not just a spreadsheet, but it's a relationship and a partnership,
Speaker 1: and I think we kind of can can bring a
Speaker 1: little more of the relationship and the empathy to the
Speaker 1: table with these companies and kind of what they're going through.
Speaker 1: And yes, we have the capital capital of the commodity,
Speaker 1: it's everywhere, but I think for us, it's like how
Speaker 1: you capitalize on the pivots and how you manage through
Speaker 1: growth inflection and I think that, um, you know, takes
Speaker 1: a lot of work in handholding and we bring that
Speaker 1: relate Schnell Peace to the public as well. Melissa Baker,
Speaker 1: really great to have you back on Bloomberg Business Week Radio.
Speaker 1: Thanks for joining us once again. She's founding partner of
Speaker 1: Fenwick Brands. Joining us on the phone from Birmingham, Alabama.
Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio. Well story featured
Speaker 1: in the new issue of Business Week magazine, written by
Speaker 1: Alex Barrinka, Technology reporter for Bloomberg News. Is all about
Speaker 1: how one of TikTok's biggest stars is roasting dudes for
Speaker 1: misogyny and racism. Alex Brinka's technology reporter for Bloomberg New.
Speaker 1: She joins us from our Los Angeles bureau. You can
Speaker 1: see her on YouTube if you're watching us there. Also
Speaker 1: with us is Joel Weber, the editor of Bloomberg Business Week.
Speaker 1: He's with us right now in the Bloomberg Interactive Broker studio. So, Joel,
Speaker 1: it's so funny. We're talking about a person named Drew F. Wallow,
Speaker 1: and you know, we think about the power of that
Speaker 1: people have with these platforms. She has got seven point
Speaker 1: five five million followers on TikTok. So it's fewer than
Speaker 1: Justin Bieber, but she's got like as many as Jimmy Fallon,
Speaker 1: almost as much as Jimmy Fallon, and and yet you know,
Speaker 1: not maybe not a household name, and it just speaks
Speaker 1: to how well uh, she owns TikTok. And on top
Speaker 1: of that, we're um and working on a special issue
Speaker 1: this week. You're gonna see some more stories that are
Speaker 1: gonna be thematically linked to this one. UM. This was
Speaker 1: the first out of the gate. Uh. And it was
Speaker 1: also just totally caught our attention from the moment that
Speaker 1: Alex of flagged. Uh. This is an option because uh,
Speaker 1: Drew in the aftermath of the Supreme Court decision, Uh
Speaker 1: that basically you know, upended Row versus Wade. Um. We're
Speaker 1: thematically talking about that. Uh. This this in this week's issue. Um.
Speaker 1: And this is a sort of a surprising silver lining
Speaker 1: to all of that, which is how laughter can actually
Speaker 1: become a weapon. Alex Philis more about Drew's approach here. Yeah,
Speaker 1: and you know, you say she's not a household name,
Speaker 1: but if you're on TikTok, she's absolutely a household name
Speaker 1: for better or for some of these, um, misogynistic type
Speaker 1: online trolls. For worse, Drew as a character who's really
Speaker 1: um increased in popularity over the last year. She we
Speaker 1: got to chat for this story. She is sharp, she
Speaker 1: is witty, but she also cares really deeply about women
Speaker 1: who she says she's protecting. On the platform, if you
Speaker 1: see a Drew video in your feed on TikTok, you'll
Speaker 1: be scrolling and um, a video of a guy will
Speaker 1: typically pop up saying some pretty awful things. There are
Speaker 1: the racists, their sexist, uh, they're fat phobic. And then
Speaker 1: all of a sudden, Drew's face will cut in, usually
Speaker 1: with her kind of trademark laughter, cackling at these men,
Speaker 1: and she basically kind of dismantles them, and she doesn't
Speaker 1: in a really interesting way. Drew is very smart and clever,
Speaker 1: and she makes some really like logical points and and
Speaker 1: basically picks apart these guys with logic. But she also
Speaker 1: takes these tactics that online trolls are really known for comedy,
Speaker 1: commenting on people's appearance, telling the guy he's already going
Speaker 1: bald and kind of wraps the logic in this wrapper
Speaker 1: of of the same tactics that online trolls like to
Speaker 1: use when they go after women on the platform. And
Speaker 1: I'll tell you, I've seen these guys takedown videos or
Speaker 1: just like completely delete their accounts. They don't take it
Speaker 1: as well um as maybe some of their victims do.
Speaker 1: So she's really kind of established this role for herself, almost,
Speaker 1: this like folk hero type role going after guys who
Speaker 1: are kind of awful on the internet, editorializing too much, Alex,
Speaker 1: you should know the minute you said balding, there was
Speaker 1: a major reaction in the control room and studio when
Speaker 1: I was not prepared for. I will admit, um, Alex,
Speaker 1: Let's talk about the the approach that TikTok takes here.
Speaker 1: The internet makes it very easy for people to say
Speaker 1: all sorts of things. It's also, I think something social
Speaker 1: media platforms have really tried to address walkers through how
Speaker 1: maybe that's not enough. Yeah, so the platforms are are
Speaker 1: a little bit reactive, right. They might ban certain words
Speaker 1: or allow creators to mute words or block people. Um,
Speaker 1: but these guys will um kind of take tactics that
Speaker 1: that stay step ahead or trolls to speak more generally.
Speaker 1: If they are banning things like, um like quote I
Speaker 1: hate fat women, and folks notice that that language is
Speaker 1: getting banned or taken down for bullying by the platforms,
Speaker 1: they'll change tact and say things like I only love
Speaker 1: men who weigh less women who weigh less than twenty pounds. So, um,
Speaker 1: the platforms are, whether it's TikTok, Instagram, Facebook, Twitter, they
Speaker 1: all have policies in place to kind of combat bullying.
Speaker 1: But frankly, um, these bad actors on the platform move
Speaker 1: a lot quicker and speak in different languages or use
Speaker 1: code that is very well recognized by people on the internet.
Speaker 1: But it's this little bit of a game of kind
Speaker 1: of whackable. Um. What Drew has been able to do
Speaker 1: is basically keep up with the times and kind of um,
Speaker 1: you know, uh, slide a knife through these guys UM
Speaker 1: online and keep up with what they're saying and how
Speaker 1: they're kind of skirting these rules. So there's some things
Speaker 1: out there. A lot of it depends on UM fans, followers,
Speaker 1: or people on the platforms to report things themselves. Um.
Speaker 1: But you know, if you can stay a step ahead,
Speaker 1: then maybe that hand to hand combat is a little
Speaker 1: bit more fierce. In the moment, it just feels like
Speaker 1: you she may have like no shortage of options to
Speaker 1: pick from. And I'm curious, did you put that towards Earlia?
Speaker 1: How does she pick who she takes down? Yeah, so
Speaker 1: initially she would kind of um, I'm talking a year
Speaker 1: and a half ago and she started this um uh
Speaker 1: this kind of half. She would look for guys and
Speaker 1: find them who are kind of saying awful things. These days,
Speaker 1: she wakes up to thousands and thousands of notifications across
Speaker 1: all platforms. She has those notifications turned off because there
Speaker 1: are so many of them. Um, but a lot of
Speaker 1: times now her fans, her followers will actually tag her
Speaker 1: in videos of people who are going after women or
Speaker 1: who are uh you know, um slewing racist, misogynistic or
Speaker 1: fat phobic comments on the platform. There's another camp. Um,
Speaker 1: there's a lot of folks who like to attack her.
Speaker 1: So those are coming straight into her notifications as well. Um,
Speaker 1: but you know, it seems like there's a lot out there.
Speaker 1: I will say, Um, she didn't tell me that it's
Speaker 1: getting a little bit tougher to find guys that she
Speaker 1: hasn't roasted before or subject matters she hasn't roasted before. Um,
Speaker 1: So you know, whether that's because she's doing her job
Speaker 1: too well as she sees it, or if things are
Speaker 1: cracking down a little bit, who knows. But a lot
Speaker 1: of these things are referrals. Yeah, she should come over
Speaker 1: to Twitter. I see a lot of this stuff there. Hey, Alex,
Speaker 1: just in the last minute that we have with you,
Speaker 1: can you talk a little bit about the business of
Speaker 1: of somebody with seven point million, seven point five million
Speaker 1: followers on TikTok, Like how does she make money? Yeah?
Speaker 1: Absolutely so, Drew wouldn't divulge exactly how much she makes,
Speaker 1: but she will say she's making a living off of it. Um.
Speaker 1: There are a few venues for somebody like her to
Speaker 1: make money. The platforms do pay out a small amount
Speaker 1: if you're in something like TikTok's creator fund um, but
Speaker 1: when I talk to creators across the platform outside of
Speaker 1: just Drew, they say that's basically coffee money or lunch money. UM.
Speaker 1: Where they make a lot of their money is on
Speaker 1: brand sponsorships, brand partnerships where they'll post sponsored post with
Speaker 1: clothing or other products. Drew also has a podcast, so
Speaker 1: folks will start to venture outside of the platforms as
Speaker 1: well for opportunities for advertisers or sponsors to work with her.
Speaker 1: So mostly platforms, sponsorships or other partnerships is where a
Speaker 1: lot of these folks are making money. Well, it's a
Speaker 1: great story. Al highlights a really important issue and certainly, uh,
Speaker 1: somebody think who's not a household name for people who
Speaker 1: are not on TikTok, including myself Alex Brinka, technology reporter
Speaker 1: for Bloomberg News. Check out our story in the new
Speaker 1: issue of Business Week magazine, on the Bloomberg and online.
Speaker 1: Now this is Bloomberg business Week with Carol Messer and
Speaker 1: Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio, Creating. When
Speaker 1: we talk about the health of the markets, we not
Speaker 1: only look at the equity market and the bond market,
Speaker 1: of course, but we also look at trends that we've
Speaker 1: seen this year I p O S, M and A
Speaker 1: and what's actually happening in the space. And it was
Speaker 1: interesting because in the first half of two we saw
Speaker 1: quite the decline when it came to when it came
Speaker 1: to I p O S and new deals. We are
Speaker 1: still seeing those some M and A activity. I mean,
Speaker 1: what comes to mind last week is the Frontier Sprint
Speaker 1: merger getting dropped and then Jeff Blue coming in and
Speaker 1: being the company that comes in and triest to make
Speaker 1: that acquisition. Let's get an update on the health of
Speaker 1: M and A right now. Mark Cooper is CEO at
Speaker 1: Solemn Partners Mark this afternoon, joins us on the phone
Speaker 1: from New York City, Mark, how are you doing pretty well?
Speaker 1: How are you doing pretty well? So if we were
Speaker 1: doing this conversation a year ago, I think our conversation
Speaker 1: would be a lot different because we would be coming
Speaker 1: off of this, you know, quarter, first half of the
Speaker 1: year that was just so hot. When it came to
Speaker 1: M and A, when it came to I p O.
Speaker 1: Spacks were on the decline BECAUSEY was kind of the
Speaker 1: peak for that. So we saw that coming. Help us
Speaker 1: understand where we are right now though, as we get
Speaker 1: into August. You know, I think we're in a reasonably
Speaker 1: good market. You know, you you can't look at two
Speaker 1: thousand twenty one and compare it to anything. It's a
Speaker 1: a once, it's a once in a generational market for
Speaker 1: M and A and was hitting on all filmsers for
Speaker 1: all kinds of reasons, which no, no need to go
Speaker 1: into right now. But the fact of the matter is, yeah,
Speaker 1: we're off considerably from last year, but we're tracking only
Speaker 1: modestly down down in the nineteen which would be the
Speaker 1: first sort of comparable clean year, if you will, which
Speaker 1: was a very good year. Are they are they different? Mark?
Speaker 1: Are they different types of deals happening this year than
Speaker 1: last year? Well? Yeah, I think you're seeing more going
Speaker 1: private transactions and that would be natural given stock prices
Speaker 1: has been lower. I think you're seeing a higher percentage
Speaker 1: of transactions being done by private equity buyers. Uh. And
Speaker 1: interestingly enough, you're seeing probably more in volume of mega
Speaker 1: transactions and they sold last year. Now that doesn't necessarily
Speaker 1: have anything to do with macroeconomic conditions. It could be
Speaker 1: everything about just specific transactions like you know, like Musk
Speaker 1: buying Twitter for four billion. That could move the needle
Speaker 1: pretty significantly. But the private equity community still has I
Speaker 1: don't know, trillion and a half dollars of excess capital
Speaker 1: or dound. And you know, one interesting aspect of the
Speaker 1: market this go around versus two thousand and eight is
Speaker 1: the whole private credit markets. It's the debt markets. So
Speaker 1: traditionally stock markets went down as they did, uh and
Speaker 1: infestrates go up as they are. The public debt markets
Speaker 1: just closed down. They shut which happened to happen, you know,
Speaker 1: for a couple of weeks or a couple of months
Speaker 1: this year. But what really is going on is the
Speaker 1: private credit markets are stepping in and picking up the slack.
Speaker 1: And the private correct credit markets don't care as much
Speaker 1: about near term volatility. What they care about is credit
Speaker 1: and return on capital. So while interests going up slightly,
Speaker 1: it's still still working well. Speaking of interest rates going
Speaker 1: up slightly slightly, as a feeling an understatement. But it's
Speaker 1: an't there this incentive built into the market here that
Speaker 1: if I mean, I think a five year old could
Speaker 1: say this. If you're say allowance is worth less tomorrow
Speaker 1: given an inflationary environment, and makes sense to spend it today,
Speaker 1: you're saying that a toddler can do time value of money.
Speaker 1: I'm saying you can. Yeah, if you tell can your
Speaker 1: daughter do this stuff? No? Okay, come on, this is
Speaker 1: like business school stuff. Keep continue, Please thank you if
Speaker 1: you give. If you give a child a quarter and
Speaker 1: say this quarter is not going to get you a
Speaker 1: Rubik's Cuba candy bar or whatever tomorrow, they're going to
Speaker 1: say I have to spend it today. It's true. I'm
Speaker 1: clearly steaking to a different anyways, Mark My point is
Speaker 1: that there's so much cash on the balance sheets right now.
Speaker 1: This is going to be worth less tomorrow. Just give
Speaker 1: them the inflationary environment. Why aren't we seeing more emine? Well,
Speaker 1: you know you got to be careful with that concept.
Speaker 1: It's worth less tomorrow unless you invested well. Right, So
Speaker 1: the answer is, we're not. Corporation are gonna essentially do
Speaker 1: M and A because they think it's the best, because
Speaker 1: they think it is as simply a good way to
Speaker 1: return on their capital. I mean, yes, of course ray
Speaker 1: return comes into play, but they're looking at strategic issues.
Speaker 1: They're looking at, you know, do they have more better
Speaker 1: investment opportunities within their existing business, So they look at
Speaker 1: a whole beriad of things. They're also looking at the
Speaker 1: health of their business. And frankly, the flip side of
Speaker 1: your argument is with inflation as it is, consumer demand
Speaker 1: dropping and the consumer driven companies, I mean, that could
Speaker 1: suggest that they're gonna have a fall off in their
Speaker 1: business and so they might want to be conservative. Now
Speaker 1: to your to to the ultimate point is if you
Speaker 1: look back on two thousand and eight, that was a
Speaker 1: great time to be a buyer, because when do you
Speaker 1: want to buy. You want to buy when things aren't
Speaker 1: so great. You're buying a better prices, uh theoretically, and
Speaker 1: hopefully you're buying assets that weren't necessarily available to you
Speaker 1: before when the markets were so robust then there was
Speaker 1: such a great demand. But Mark you said the best
Speaker 1: time to buy with two thousand eight and and and
Speaker 1: a lot of that, I mean going back to I
Speaker 1: think a very famous call made by the by Norway's
Speaker 1: major state fund is that you just you buy tech
Speaker 1: in two thousand eight and you do super well for
Speaker 1: I think up til now really and I'm wondering, but
Speaker 1: one of the biggest kind of tail winds for that
Speaker 1: trade was that Tech was really using a lot of
Speaker 1: the cash that they had in terms of acquisitions, which
Speaker 1: brings me back to the M and A story. You
Speaker 1: have so much cash on these tech balance sheets, they're
Speaker 1: not able to spend it because of the antitrust scrutiny,
Speaker 1: So how do you make any sense of that? So
Speaker 1: you brought up a couple of points. You're right. Antitrust
Speaker 1: is probably, in my view the biggest issue UH headwind
Speaker 1: issue that we have in M and A, or one
Speaker 1: of the biggest issues. Certainly obviously the economy being the
Speaker 1: other macroeconomic conditions obviously be being very important as it
Speaker 1: relates to UH tech. You know, tech buyers doing roll
Speaker 1: up strategies. I don't think that's stopping. We're talking about
Speaker 1: larger transactions now and as you do tuck ins, I
Speaker 1: mean you see it happen all the time, and they're
Speaker 1: continuing to do them now. Anti trust is the big issue,
Speaker 1: and that won't stop. In my view, and you're right,
Speaker 1: that was a great opportunity for success. And you're right
Speaker 1: two thousand and eight because it was a down year
Speaker 1: and it was a tough year obviously great recession. That
Speaker 1: was a great time to be a buyer. And I'm
Speaker 1: not suggesting it's not now a great time to be
Speaker 1: a buyer, but there are a lot of considerations. Mark,
Speaker 1: does it become a better time to be a buyer? Uh,
Speaker 1: in the remainder of rather into I mean, what's your
Speaker 1: call for this moving forward? So I think it's a
Speaker 1: good time. I think you have to be selective, and
Speaker 1: no one knows, uh, you know, are we in a
Speaker 1: recept shan or are we going to be in a recession?
Speaker 1: What's the demand profile gonna look like going forward? How
Speaker 1: business is going to perform? So far, earnings has been
Speaker 1: good for you two. You know, I'm bullish long term,
Speaker 1: and I don't know what long term means. So my
Speaker 1: attitude about buying is this is probably a pretty good
Speaker 1: time to buy if you've got staying power at a
Speaker 1: long hold period, and strategics obviously do and if they're
Speaker 1: doing something that is uh. Those attitudes to the business
Speaker 1: that has savings and synergies that pushes them in a
Speaker 1: positive direction. And the answer is yes. And from financial buyers,
Speaker 1: they are continuing to invest. They're not stopping. Mark, we
Speaker 1: only have twenty seconds left. Tell us some industries to
Speaker 1: keep an eye on. I think it's gonna be across
Speaker 1: the board. I think healthcare seems to be seems to
Speaker 1: be active, industrials seems to be active. Business services, which
Speaker 1: has been a great middle market business of an equity.
Speaker 1: And then finally, I think tech will continue to be important.
Speaker 1: All right, Mark Cooper, CEO of Solomon Partners this afternoon,
Speaker 1: joining us on the phone from New York City, talking
Speaker 1: all things m n A A Jolneal. Yeah, I bet
Speaker 1: you let me drive. Oh no, no, no, no, please
Speaker 1: do dravels. I want to drive. It's a good question.
Speaker 1: This is the Drive to the Clothes on Bluebird Radio.
Speaker 1: All right, well, here we go. We got nine minutes
Speaker 1: to go in trading today on this first day of August.
Speaker 1: We just heard the numbers from Charlie Pellett. But worth
Speaker 1: another check here is we're pretty much flat on the NAZAC.
Speaker 1: We're down just about a little more than one tenth
Speaker 1: of one percent on the S and p the dows
Speaker 1: in the green, but just ever so slightly. This comes
Speaker 1: after just a monstrous month, the best rally for stocks
Speaker 1: since in the month July. Really curious to hear what
Speaker 1: Lisa Shallatt has to think of it. She's Chief Investment
Speaker 1: Officer for Wealth Management at Morgan Stanley. Lisa joining us
Speaker 1: this afternoon on the phone from New York City. Lisa,
Speaker 1: how are you? Um? Fine? Thank you all right? So
Speaker 1: where are you when it comes to whether or not
Speaker 1: the bottom is in here? Are you in the Mike
Speaker 1: Wilson school or are you in the idea that okay,
Speaker 1: well we are we got a bottom in here? Absolutely not,
Speaker 1: So you know, Mike, Mike Wilson is a dear colleague
Speaker 1: of mine and heads up our Global Investment Committee along
Speaker 1: with us over here at the wealth management business at
Speaker 1: Morgan Stanley. UM and I think you know. Our our
Speaker 1: perspective is that investors um have made a lot of
Speaker 1: assumptions here, assumptions about inflation peaking, assumptions about UH peak fed,
Speaker 1: assumptions about the fact that you know, multiple should expand
Speaker 1: as you know interest rates um it uh. And our
Speaker 1: view is that, look, while some of that narrative may
Speaker 1: UH be beginning to take shape. Um, there's big elements
Speaker 1: of it that remain unknowns, And the single biggest element
Speaker 1: is what what where are we really in this earnings
Speaker 1: trajectory and can corporate earnings really hold up against this
Speaker 1: backdrop that that we're seeing. Um, you know, can are
Speaker 1: we really going to see corporations resist or recession if
Speaker 1: that's what the bond markets pricing? Um, we don't think
Speaker 1: so at leasta. How much of this is a waitings game,
Speaker 1: and that similar to when there was that amount of uncertainty,
Speaker 1: everyone just kind of flocked to big tech names that
Speaker 1: have a lot of cash on their balance sheets because
Speaker 1: it was the cash that could kind of cushion them
Speaker 1: from that recessionary blow. We're now in an environment where
Speaker 1: I would argue a lot of the SMP five companies
Speaker 1: have a ton of cash on their balance eat as
Speaker 1: a byproduct of those extremely low rates. So can't that
Speaker 1: help cushing it from any sort of recessionary blow? I
Speaker 1: think that I definitely think that that is the case,
Speaker 1: and we are quite bullish on the longer term outlook
Speaker 1: for the economy once we get through this FED rate
Speaker 1: hiking cycle because of the health of balance sheets but
Speaker 1: we do think that that um, what we've seen in
Speaker 1: Q two so far from companies UM is a little
Speaker 1: bit of of an illusion in terms of the read
Speaker 1: through being. Oh, look how resilient everybody is. Remember when
Speaker 1: Q two began, Uh, you know, the FED was really
Speaker 1: kind of at seventy basis points on FED funds. A
Speaker 1: lot has happened and policy operates with a lag. It
Speaker 1: still remains to be seen what real levels of demand
Speaker 1: are going to be for folks products. Um, if inflation
Speaker 1: is really rolling over, so is all this wonderful pricing
Speaker 1: power that comes and needs claimed to be taking as
Speaker 1: a way of helping them make the numbers. And the
Speaker 1: bottom line is when you really take a step back, UM,
Speaker 1: we're starting to see negative operating leverage, meaning sales of
Speaker 1: the SMP five are growing more quickly than profits. And
Speaker 1: that's what tends to happen just as inflation peaks. But
Speaker 1: our sense is that you know that that as quickly
Speaker 1: as that those pricing gains came in to corporate earnings,
Speaker 1: they're going to go out. And that's just not in
Speaker 1: the forward estimates. So at least that raises the question
Speaker 1: about where the opportunities are right now for our investor audience,
Speaker 1: if you get new money, how are you deploying it?
Speaker 1: Where are you putting it? Yeah, so we're you know,
Speaker 1: looking for places where the recession is already fully valued
Speaker 1: and they're very low expectations. Like you're saying there is
Speaker 1: going to be a recession. Um, we actually don't think
Speaker 1: that we know that for sure, and actually our base
Speaker 1: cases that we escape one. But that's why we're looking
Speaker 1: for areas of the market where expectations are washed out,
Speaker 1: where recession is already priced, whether we get one or not. Uh.
Speaker 1: And so we're finding that in some small and mid
Speaker 1: cap stocks. We're finding it in healthcare, we're finding it, uh,
Speaker 1: in financials. We're finding it in energy stocks, which we
Speaker 1: think are going to continue to surprise on the upside. Uh.
Speaker 1: So those would be some of the places that that
Speaker 1: we're looking. Hey, uh, Lisa, jump on, I want to
Speaker 1: go back to you. Well, I should say, fretty excuse me,
Speaker 1: I want to jump in here. Um. You know, a
Speaker 1: listener is getting in touch right now. He wants to
Speaker 1: know where inflation is turning over a comment that you
Speaker 1: made a little earlier. Where are you seeing that specifically?
Speaker 1: So we're seeing it in two places. So obviously at
Speaker 1: the gasoline pumping in uh, you know, oil prices more broadly,
Speaker 1: more broadly in commodities, those are things that the market
Speaker 1: is telling you have definitively rolled over as part of
Speaker 1: that commodities trade. We've seen industrial metals, things like copper rollover, etcetera.
Speaker 1: Perhaps more powerfully, we're seeing it in the manufacturing surveys,
Speaker 1: where manufacturers are now telling us that prices paid are
Speaker 1: coming down hard. For example, we got the I S
Speaker 1: M survey this morning, UH, and that uh index of
Speaker 1: prices paid UM came down really hard. UM. Last month
Speaker 1: we were running that index at seventy eight point five
Speaker 1: and today it came in at sixty versus an expectation
Speaker 1: of seventy four point three. So prices do look like
Speaker 1: on one level, uh, they are um moderating. Certainly, we
Speaker 1: haven't seen that in wages yet. We haven't fully seen
Speaker 1: it in housing prices and rents yet, as those tend
Speaker 1: to be you know, lagging. But we have begun to
Speaker 1: see the front end of some of those supply chain
Speaker 1: related problems in commodities and gasoline easing up. We something've
Speaker 1: got about a minute here, how concerned are you about
Speaker 1: liquidity as we talk about really unprecedented amount of quantitative
Speaker 1: tightening um very uh And and this is another element
Speaker 1: where I think the market maybe premature in its um
Speaker 1: conviction that the coast is clear. Um. You know, we
Speaker 1: are you know, going to move into a very dangerous
Speaker 1: seasonal time for the year. Uh. In the best of seasons, right,
Speaker 1: summer tends to be August in particular, tends to be
Speaker 1: a tough liquidity uh. Chapter we're accelerating and ramping up
Speaker 1: to t in the month of September and into October. UM.
Speaker 1: So liquidity here as these rates um kick in with
Speaker 1: a leg Um. We believe folks should you know, keep
Speaker 1: their seatbelt, keep their seat belts buckled, um, and wait
Speaker 1: and learn because we really haven't been here. These are
Speaker 1: somewhat unchartered waters. Lisa Shalit, chief investment Officer for Wealth
Speaker 1: Management at Morgan Stanley, joining us on the phone from
Speaker 1: New York City. Lisa, always great to chat with you.
Speaker 1: Thanks so much for taking the time. Thanks for listening
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