WEBVTT - ADP Report, Economy, Markets, Cannabis 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel podcast. I'm Paul swing you 0:00:05.360 --> 0:00:07.760 along with my co host Lisa Brahmas. Each day we 0:00:07.880 --> 0:00:10.399 bring you the most noteworthy and useful interviews for you 0:00:10.520 --> 0:00:12.640 and your money. Whether at the grocery store or the 0:00:12.640 --> 0:00:15.960 trading floor. Find a Bloomberg Penl podcast on Apple podcast 0:00:16.120 --> 0:00:18.040 or wherever you listen to podcasts, as well as at 0:00:18.079 --> 0:00:21.960 Bloomberg dot com. We're sitting here in our Bloomberg ter 0:00:21.960 --> 0:00:25.319 Active Broger Studios trying to peg what my co host 0:00:25.440 --> 0:00:28.960 and colleague very correctly called the smoking gun or the 0:00:28.960 --> 0:00:32.280 red flag with the smoking talking the smoking gun, smoking 0:00:32.280 --> 0:00:36.920 flag for why markets are feeling so low today. A 0:00:36.920 --> 0:00:40.600 lot of people pointing their fingers at the ADP report. Carracadana, 0:00:41.120 --> 0:00:44.800 who is the chief US economist for Bloomberg Economics, sitting 0:00:44.880 --> 0:00:47.800 here maybe agreeing right, I mean, is this is this 0:00:47.840 --> 0:00:52.040 a surprise? The disappointing ADP reproach showing the payrolls at 0:00:52.120 --> 0:00:54.680 US employers cooled in September. I don't think it is 0:00:54.720 --> 0:00:56.279 a surprise. I mean it's a little bit weaker than 0:00:56.320 --> 0:00:59.160 what the consensus was looking for, but not materially just 0:00:59.320 --> 0:01:01.800 a five thou in or so, but we are slowing 0:01:01.840 --> 0:01:04.479 down relative to what we saw earlier in the year. 0:01:04.920 --> 0:01:08.520 That being said, this kind of negative sentiment in the market, 0:01:08.959 --> 0:01:14.360 it was evident during Asia hours, intensified during europe trading hours, 0:01:14.400 --> 0:01:17.120 and then now what spreads into the US, although not 0:01:17.240 --> 0:01:19.520 quite to the same degree as what we saw in Europe. 0:01:19.560 --> 0:01:22.360 So I don't know that there's a single smoking gun. 0:01:22.480 --> 0:01:25.119 It's more of a confluence of events. So a DP 0:01:25.319 --> 0:01:28.360 tells us to labor markets a little weaker. Boris Johnson, 0:01:28.400 --> 0:01:36.160 continuing to try to wrangle hard break for today's everyone 0:01:36.360 --> 0:01:39.760 sings a few bars in this song. Right, you have 0:01:40.360 --> 0:01:44.559 W t O talking about trade sanctions with Europe over 0:01:44.880 --> 0:01:48.360 you know, squabbling over airbus and bowing and whatnot. So 0:01:48.840 --> 0:01:50.960 there's just a lot of little things adding up which 0:01:51.000 --> 0:01:53.280 kind of build on what we saw in yesterday, which 0:01:53.320 --> 0:01:56.560 was a big surprise in the manufacturing. I s m alright, Paul, 0:01:56.680 --> 0:01:59.280 some blame Boris Johnson, Yes, exactly. I always like to 0:01:59.320 --> 0:02:02.720 blame break another among others among others. So Carl, is 0:02:02.720 --> 0:02:05.400 this change you good folks down in Bloomber economics. You're 0:02:05.400 --> 0:02:09.120 crunching the numbers. You've seen the you know, the manufacturing 0:02:09.120 --> 0:02:11.160 are you know, the I s M for the latest 0:02:11.160 --> 0:02:14.160 month was weaker than expected. So we know that manufacturing 0:02:14.680 --> 0:02:17.240 UH is weak and probably weakening, certainly in the US, 0:02:17.280 --> 0:02:20.639 and we know what's happening internationally. Um. Sorry, you kind 0:02:20.639 --> 0:02:23.320 of taken down your outlook or preparing to take down 0:02:23.360 --> 0:02:27.240 your outlook is maybe the consumer isn't quite as strong 0:02:27.280 --> 0:02:29.640 as we thought. Well, we took our outlook down on 0:02:30.120 --> 0:02:34.000 August one when the next round of tariffs were announced 0:02:34.160 --> 0:02:36.239 back after the July FED meeting. The very next day, 0:02:36.400 --> 0:02:38.840 President Trump announced that the tariffs would go into effect 0:02:38.840 --> 0:02:41.680 at the start of August, start of October, excuse me, uh, 0:02:41.680 --> 0:02:45.760 and also again in in December, they moved that October 0:02:45.800 --> 0:02:49.200 first deadline back to October. But it does look like 0:02:49.240 --> 0:02:52.920 the tariffs will go up to in the middle of 0:02:52.960 --> 0:02:54.840 this month, it doesn't. You know, there've been very little 0:02:54.840 --> 0:02:57.040 indication that we're actually moving away from that at this 0:02:57.080 --> 0:02:59.360 point in time, and you see the impact of those 0:02:59.400 --> 0:03:01.440 trade for action showing up in things like the I 0:03:01.560 --> 0:03:05.679 s M survey yesterday. Additionally, another roughly a hundred and 0:03:05.760 --> 0:03:09.320 fifty billion of product subject to tariff in the middle 0:03:09.320 --> 0:03:12.160 of December, so the price tag on tariffs is about 0:03:12.240 --> 0:03:16.400 two and a half times larger in twenty nineteen compared 0:03:16.440 --> 0:03:19.000 to eighteen and so that does move the needle on growth. 0:03:19.080 --> 0:03:22.160 And we're in a slower moving economy already, so when 0:03:22.160 --> 0:03:25.560 you have slower growth, the economy is more susceptible to 0:03:25.600 --> 0:03:27.600 those types of shocks. That being said, I know there's 0:03:27.639 --> 0:03:31.160 been talked this morning about one handle on GDP and whatnot. 0:03:31.720 --> 0:03:35.360 We have been looking for about one point eight one 0:03:35.360 --> 0:03:37.920 point seven percent to GDP growth in the back half 0:03:37.920 --> 0:03:39.320 of the year, and we moved to that call back 0:03:39.360 --> 0:03:42.200 on August first, when the tariffs went into effect. So, uh, 0:03:43.520 --> 0:03:46.160 the tone we were seeing in the market was not 0:03:46.320 --> 0:03:49.440 consistent with sub two percent GDP growth. Now we're starting 0:03:49.440 --> 0:03:52.960 to see that reality set in as job creation, manufacturing 0:03:53.000 --> 0:03:56.720 activity all looks more consistent with US sub two percent number. 0:03:56.760 --> 0:03:59.920 But to answer your question, stall speed for the US economy, 0:04:00.000 --> 0:04:03.080 it's about one point four one point five percent growth, 0:04:03.120 --> 0:04:05.480 So we are closer to stall speed, but we're not 0:04:05.520 --> 0:04:07.640 there yet. And that's why my team thinks that we 0:04:07.680 --> 0:04:11.440 can actually muddle through this soft patch, thanks very much 0:04:11.480 --> 0:04:15.200 to consumers remaining resilient. So that was my question, right, 0:04:15.240 --> 0:04:17.320 at what point do you reach a tipping point. How 0:04:17.400 --> 0:04:19.719 much pessimism should be baked in right now. Is it 0:04:19.800 --> 0:04:23.120 a recession that we're facing, or is it simply uh, 0:04:23.320 --> 0:04:28.720 lower inflation, lower growth, and just lower asset increases. Well, 0:04:29.120 --> 0:04:32.120 it's not recession, uh, And it's not even growth recession. 0:04:32.120 --> 0:04:35.720 And there's a distinction between recession and growth recession. Everyone 0:04:35.720 --> 0:04:38.560 knows what recession is. Growth recession is a period where 0:04:38.560 --> 0:04:42.160 growth slows down so much, not that we fall into contraction, 0:04:42.400 --> 0:04:45.440 but actually that things start to unravel, like the unemployment 0:04:45.520 --> 0:04:48.640 rate starts to drift higher. I don't think we'll even 0:04:48.680 --> 0:04:51.039 get to a growth recession in the back half of 0:04:51.080 --> 0:04:54.839 this year. So labor market continues to produce job gains 0:04:54.880 --> 0:04:58.880 in excess of eighty five thousand per month, that will 0:04:58.920 --> 0:05:02.799 keep the unemployment rate out relatively steady at the current levels. 0:05:02.800 --> 0:05:05.880 So I think we're just accepting a reality of a 0:05:06.120 --> 0:05:09.280 of a much more sluggish profile to the economy here 0:05:09.320 --> 0:05:12.800 in the US, and then much weaker conditions abroad Germany 0:05:12.800 --> 0:05:16.679 probably slipping into technical recession uh UK on the cusp 0:05:16.760 --> 0:05:21.839 of recession once Brexit is executed. Boom Brick Economics have 0:05:21.839 --> 0:05:26.359 a GDP forecast. GDP growth will be about two to 0:05:26.440 --> 0:05:29.120 two and a quarter percent, So we're kind of refining 0:05:29.120 --> 0:05:31.480 things as we look at that. Um. That being said, 0:05:31.560 --> 0:05:33.400 one thing we should keep in mind here right everyone's 0:05:33.400 --> 0:05:36.760 talking about the R word. Uh. The ground is very 0:05:36.880 --> 0:05:41.440 fertile for a significant rebounded activity if these trade headwinds 0:05:41.440 --> 0:05:44.400 are removed. So the Fed has policy rates set in 0:05:44.680 --> 0:05:48.599 a very accommodative stance right there, giving the economy steroids, 0:05:49.040 --> 0:05:52.320 so to speak. So rates are accommodative, Corporate profit growth 0:05:52.400 --> 0:05:55.760 is positive, corporate balance sheets are in good condition. In 0:05:55.800 --> 0:05:58.200 the unemployment rate is the lowest sense of Vietnam Draft 0:05:58.279 --> 0:06:00.359 was in effect, So things are well posed. Issue that 0:06:00.400 --> 0:06:02.960 if we don't just squandered this all with increase in 0:06:03.000 --> 0:06:06.080 tariff after increase and tariff now the economy could rebound 0:06:06.320 --> 0:06:11.159 quite nicely and beyond. Carraco Donna, Chief economists for a 0:06:11.160 --> 0:06:13.520 Bloomberg Economics, thanks so much for joining us here on 0:06:13.520 --> 0:06:33.040 our Bloomberg Interactive Brokers studio. Today we're joined by opinion 0:06:33.080 --> 0:06:37.400 columnists Terres Rafael. She joins us from the London Bureau. 0:06:37.480 --> 0:06:40.440 So Terres, it looks like bars. Johnson today outlined his 0:06:40.480 --> 0:06:43.840 plan for new Brexit agreement and warned the European Union 0:06:43.920 --> 0:06:46.560 to compromise or watch the UK walk away from the 0:06:46.600 --> 0:06:49.200 talks and leave the block with added deal. How did 0:06:49.200 --> 0:06:52.200 that go over? Well, we're still waiting to hear an 0:06:52.240 --> 0:06:57.160 official EU response. UM the the EU said it wants 0:06:57.160 --> 0:07:00.960 to examine the details of the proposal, but the kind 0:07:00.960 --> 0:07:04.960 of early indications uh were that, uh, you know, we're 0:07:05.000 --> 0:07:08.599 not that warm to the deal because it's proposing what 0:07:08.839 --> 0:07:12.240 looks like a breach of the EU's read lines in 0:07:12.280 --> 0:07:15.400 that there is no way to do the Johnson uh 0:07:15.560 --> 0:07:19.240 deal without putting customs checks somewhere. Now he said they 0:07:19.280 --> 0:07:21.960 wouldn't be and we're talking about Ireland in the border 0:07:21.960 --> 0:07:24.680 between Northern Ireland the Republic of Ireland, which is the 0:07:24.800 --> 0:07:28.760 key to sort of unlocking this whole Brexit problem and 0:07:29.000 --> 0:07:30.800 getting a deal. And Johnson has said there will be 0:07:30.840 --> 0:07:33.560 no checks at the border. Um, they will honor the 0:07:33.560 --> 0:07:36.400 Good Friday peace agreement. However, he's also said they will 0:07:36.440 --> 0:07:38.760 have to be checked somewhere, and so I think the 0:07:38.800 --> 0:07:42.560 sticking point is how you actually do that. The other 0:07:42.600 --> 0:07:45.200 sticking point is that Boris Johnson is quickly losing support 0:07:45.240 --> 0:07:47.239 even from his own party. I mean, how much power 0:07:47.280 --> 0:07:50.920 does he have in setting this this this proposal over 0:07:50.960 --> 0:07:55.840 to EU. Well, he doesn't have power if you look 0:07:55.880 --> 0:07:58.760 at the number of sort of MPs that he commands 0:07:58.840 --> 0:08:03.040 in parliament. Um. However, the real, uh, you know, question 0:08:03.160 --> 0:08:05.280 is whether he would have enough support to get his 0:08:05.360 --> 0:08:10.920 deal through before October nineteenth, when parliamentary legislation requires him 0:08:10.960 --> 0:08:13.920 to seek an extension. Now, if the Northern Ireland Land 0:08:14.160 --> 0:08:17.880 Democratic Unionist Party go along with Johnson is say, has 0:08:18.200 --> 0:08:21.760 indicated so far they're open to doing, and he can 0:08:21.800 --> 0:08:26.200 reclaim Tory MPs that he expelled from the party, whip 0:08:26.240 --> 0:08:28.960 from from the sort of the voting part of the party. 0:08:29.160 --> 0:08:31.320 If he can get their support and a few Labor 0:08:31.440 --> 0:08:34.040 MPs on side, then he gets a deal through and 0:08:34.040 --> 0:08:36.520 then we're in very very different territory because he can 0:08:36.520 --> 0:08:41.000 then call an election claiming he's delivered Brexit and uh, 0:08:41.200 --> 0:08:43.319 you know, and then it's really game on for Johnson. 0:08:43.360 --> 0:08:45.640 But whether you know, the Labor Party is going to 0:08:45.760 --> 0:08:48.880 give him that you know, gift, whether the EU is 0:08:48.920 --> 0:08:51.679 going to give him enough to allow him to recommend 0:08:51.679 --> 0:08:54.520 the deal to Parliament, all those are unclear right now. 0:08:54.920 --> 0:08:57.600 So tre's can you just update this on the timing. 0:08:57.600 --> 0:09:00.120 I know we're kind of getting towards the thin at 0:09:00.160 --> 0:09:03.040 the end of this process, and somehow the Halloween holiday 0:09:03.120 --> 0:09:07.480 kind of is stuck in my mind. So okay, it's 0:09:07.520 --> 0:09:10.320 incredibly confusing, But you know, let's start by saying the 0:09:10.320 --> 0:09:12.960 next forty eight hours or key to find out how 0:09:13.000 --> 0:09:17.840 the EU responds to uh to Johnson's proposals. If they 0:09:18.040 --> 0:09:20.360 agree to negotiate, then we've got a sort of ten 0:09:20.440 --> 0:09:23.720 day period before the EU summit, which is happening on 0:09:23.760 --> 0:09:28.840 the seventeenth of October. Now, legislation passed in Parliament requires Johnson, 0:09:28.880 --> 0:09:30.960 if he cannot get a deal, to ask the EU 0:09:31.000 --> 0:09:35.359 for an extension by October nineteen. October thirty one, Halloween 0:09:35.880 --> 0:09:39.959 is Brexit Day. If nothing else happens. If there's no extension, 0:09:40.280 --> 0:09:43.599 the UK leaves the EU without a deal on October one. 0:09:43.679 --> 0:09:48.280 The parliamentary legislation is designed to make that impossible. It's 0:09:48.320 --> 0:09:51.200 triggered this request for an extension. Johnson is vowed that 0:09:51.280 --> 0:09:53.840 he will not seek that extension. He said it would 0:09:53.880 --> 0:09:56.400 signal the extinction of the Tory Party. So don't be 0:09:56.440 --> 0:09:59.440 surprised if this ends up where else but in court. Again. 0:10:00.200 --> 0:10:03.679 The other thing it could do, what about a second referendum, right. 0:10:03.679 --> 0:10:06.199 I mean, are we still talking about that or does 0:10:06.240 --> 0:10:08.679 that seem less likely more likely? Now I'll tell you 0:10:08.720 --> 0:10:11.200 who's talking about it. The Labor Party is talking about it. 0:10:11.240 --> 0:10:14.120 So at their conference which was a week ago, they 0:10:14.160 --> 0:10:17.680 agreed that the official Labor policy would be to win 0:10:17.760 --> 0:10:23.840 an election, uh, renegotiate a deal or renegotiate Theresa May's deal, 0:10:23.920 --> 0:10:26.000 so they would would be a Labor deal and then 0:10:26.040 --> 0:10:29.800 put it to the people in a referendum, with the 0:10:29.880 --> 0:10:33.080 Labor Party not specifying which way it would urge people 0:10:33.120 --> 0:10:35.680 to vote. So you could have a situation which they've 0:10:35.720 --> 0:10:39.640 negotiated the deal but but you know, campaign against it. 0:10:39.800 --> 0:10:42.319 So the Labor Party wants a referendum, that's very clear. 0:10:42.360 --> 0:10:46.280 The other two sort of major parties, mainly the Conservatives, 0:10:46.320 --> 0:10:48.280 they want to just get Brexit done is we've heard 0:10:48.280 --> 0:10:50.960 in their party conference. And the Liberal Democrats, who have 0:10:51.360 --> 0:10:56.160 been revived are campaigning to revoke Article fifty, that is 0:10:56.200 --> 0:10:59.800 canceled Brexit all together. So just real quickly, I know 0:10:59.840 --> 0:11:01.360 you said we're gonna were waiting on the EU, but 0:11:01.360 --> 0:11:04.840 they haven't given any indication that they're going to budge. Right, Well, 0:11:04.840 --> 0:11:06.920 I think the for the EU it's a very delicate 0:11:07.360 --> 0:11:10.520 UH point in this process. They don't want to be 0:11:10.960 --> 0:11:13.640 blamed for allowing a no deal Brexit to go ahead. 0:11:13.640 --> 0:11:16.000 Of course, they will be blamed if it happens. Johnson 0:11:16.040 --> 0:11:18.800 made very clear in his speech today and in his 0:11:18.960 --> 0:11:22.719 letter to UH European Commissioned President Jean claud Yonker. He 0:11:22.720 --> 0:11:24.679 says it would be a failure of state craft. So 0:11:24.760 --> 0:11:27.839 the EU wants to avoid the blame, which means so 0:11:28.240 --> 0:11:31.640 I think they're likely to engage to some extent um 0:11:31.800 --> 0:11:35.840 in negotiations. But this is a very big ask for them, 0:11:35.920 --> 0:11:40.080 because it's Johnson dismisses as a technicality what the EU 0:11:40.160 --> 0:11:43.000 regards is very fundamental, and that is maintaining the piece 0:11:43.240 --> 0:11:47.160 on UH in Northern Ireland by ensuring that there are 0:11:47.400 --> 0:11:50.360 no physical infrastructure that could be attacked by by terrorists 0:11:50.440 --> 0:11:53.360 or sectarian groups. Jos Raphael, thank you so much, as 0:11:53.400 --> 0:11:57.360 always for that insight on the morass that is Brexit. 0:11:57.520 --> 0:12:01.360 Teresa Hale is Bloomberg Opinion editor joining us from London. 0:12:19.320 --> 0:12:21.520 I remember after I had my first child, there was 0:12:21.559 --> 0:12:25.040 a game changing moment. Moment. It was when he was 0:12:25.160 --> 0:12:29.440 big enough to fit into an Ergo carrier. It was 0:12:29.600 --> 0:12:31.920 a carrier where I could carry him around, not have 0:12:31.960 --> 0:12:34.880 a stroller, get on the subway, go up and downstairs, 0:12:34.920 --> 0:12:37.080 and it was fine. And here we have a Lia 0:12:37.160 --> 0:12:39.840 Sabo who just joined us in our offices here, chief 0:12:39.840 --> 0:12:43.080 executive officer of Compass Diversified Holdings, and one of his 0:12:43.120 --> 0:12:47.560 portfolio companies is the Ergo company. So I I had 0:12:47.600 --> 0:12:49.760 to I had to sort of reminisce a little bit. 0:12:49.920 --> 0:12:52.160 But I want to just ask you about a company 0:12:52.200 --> 0:12:54.480 like that, which has expanded tremendously since the time when 0:12:54.520 --> 0:12:57.080 I had my first child. I'm wondering, how do you 0:12:57.280 --> 0:13:01.320 expand it when it's got such a specific focus, well, 0:13:01.920 --> 0:13:05.080 remaining true to the brand, but also getting big enough scale. 0:13:05.080 --> 0:13:07.080 And this is sort of a really key question right 0:13:07.120 --> 0:13:09.640 now as we look at say we Work, and some 0:13:09.720 --> 0:13:13.600 of these other companies that are struggling to do just that. Yeah, So, Lisa, 0:13:13.640 --> 0:13:17.080 it's one of the challenges that any consumer company has. 0:13:17.200 --> 0:13:19.840 And you know, in our business we invest in industrial 0:13:20.040 --> 0:13:23.320 and branded consumer companies. You know, a company like Ergo. 0:13:23.440 --> 0:13:26.000 When we acquired the business, it was from the founder 0:13:26.120 --> 0:13:29.320 car and Frost and Karen was looking for us to 0:13:29.360 --> 0:13:33.920 help build the business distribution wise globally, and so the 0:13:34.080 --> 0:13:38.360 first part of the playbook was to establish distribution in 0:13:38.360 --> 0:13:42.240 Europe and Asia, China being one of the faster growing 0:13:42.280 --> 0:13:45.400 markets that we have right now. And then, as with 0:13:45.559 --> 0:13:49.760 every consumer product business that we own, the lifeblood of 0:13:49.800 --> 0:13:52.600 it is innovation, So figuring out what are the pain 0:13:52.640 --> 0:13:55.960 points that consumers have with that product, how can we 0:13:56.080 --> 0:13:59.480 innovate to create, you know, a better product that better 0:13:59.520 --> 0:14:04.640 addresses the consumers needs. And then to understand what freedom 0:14:04.720 --> 0:14:07.280 the customer is going to give us to be able 0:14:07.320 --> 0:14:12.480 to extend, expend into adjacent markets without deluding down the 0:14:12.840 --> 0:14:15.400 you know, the core market that we're addressing. So last, 0:14:15.600 --> 0:14:19.720 your your company, Compass Diversifi Holdings is essentially a holding 0:14:19.720 --> 0:14:21.840 company and you you mentioned you have some brand new 0:14:21.880 --> 0:14:26.240 consumer uh companies that you own. So what we're seeing 0:14:26.240 --> 0:14:28.840 in the markets stay is concerned about the consumer, uh 0:14:28.880 --> 0:14:31.960 you know, and I think so from your perspective, what 0:14:32.120 --> 0:14:35.480 is your sense of how the consumer is right now? Yes, 0:14:35.560 --> 0:14:38.400 So the consumer has been strong, and the consumer has 0:14:38.440 --> 0:14:41.120 been strong over the course of twenty nineteen, and it's 0:14:41.120 --> 0:14:44.080 really been a carryover for a number of years. And 0:14:44.120 --> 0:14:47.240 what we're seeing is, you know, in today's market, the 0:14:47.240 --> 0:14:49.640 consumer has a lot of choices, so you have to 0:14:49.720 --> 0:14:52.600 give them reasons to want to buy. And how you 0:14:52.640 --> 0:14:57.040 connect to your consumer is changing dramatically. Clearly, the rise 0:14:57.080 --> 0:15:00.600 of digital media and social media is change changing the 0:15:00.600 --> 0:15:05.480 connectivity and how you interact. But generally the consumer feels strong. 0:15:06.000 --> 0:15:09.800 Labor markets continue to be very tight, wage gains continue 0:15:09.840 --> 0:15:13.320 to be strong, and that continues to fuel spending. And 0:15:13.400 --> 0:15:15.200 you know, at the same time, we have very easy 0:15:15.200 --> 0:15:17.800 financial conditions. So I think if you look at balance 0:15:17.840 --> 0:15:21.760 sheets of consumers today, they are incredibly strong. And so 0:15:21.800 --> 0:15:24.320 that would I would say, you know, from our standpoint, 0:15:24.400 --> 0:15:27.480 is the real pillar of strength in the economy. Luckily 0:15:27.520 --> 0:15:31.480 that represents the economy. So the economy is still you know, growing, 0:15:31.520 --> 0:15:34.200 but uh, you know, it's remained strong throughout the year. 0:15:34.360 --> 0:15:36.880 Well as how many of your portfolio companies sort of 0:15:36.920 --> 0:15:40.840 sit within this retail consumer facing category? Yeah, so we 0:15:40.920 --> 0:15:44.040 have four companies in the consumer facing and then we 0:15:44.080 --> 0:15:47.600 have four in the true industrial side. Okay, so of 0:15:47.640 --> 0:15:51.080 those four, how many do you think that the tariffs 0:15:51.080 --> 0:15:54.880 will be a serious concern if they do go into effect, 0:15:54.920 --> 0:15:59.080 the more serious or significant tariffs that have been proposed 0:15:59.080 --> 0:16:02.080 by President Trump in China. Yeah, so we're fortunate and 0:16:02.120 --> 0:16:06.600 that we have very little exposure to tariffs. We move 0:16:06.800 --> 0:16:10.200 production out of China years ago, so Ergo Baby would 0:16:10.200 --> 0:16:13.480 be a classic example. We moved into Vietnam many years 0:16:13.480 --> 0:16:16.120 ago for reasons that were totally different. There was a 0:16:16.160 --> 0:16:18.760 lot of IP theft. As we hear about a lot 0:16:18.800 --> 0:16:22.600 in these trade talks, we experienced at firsthand, and so 0:16:22.680 --> 0:16:25.960 as a result of that, we redomiciled where a production 0:16:26.000 --> 0:16:28.360 base was gonna be for Ergo and for all of 0:16:28.400 --> 0:16:32.520 our companies out of China. Now we've had some minor 0:16:32.560 --> 0:16:36.000 exposure where products are still produced in China, and on 0:16:36.080 --> 0:16:39.880 those instances, what we have found is with tariffs going 0:16:39.920 --> 0:16:44.400 into effect, the dollar is strengthened. Our vendors find that 0:16:44.480 --> 0:16:48.720 they have significant capacity in China. So the vast majority 0:16:48.760 --> 0:16:51.160 of the tariff has been pushed back on the vendor 0:16:51.600 --> 0:16:54.720 and dollar strength is enabling that some of the cost 0:16:54.760 --> 0:16:58.280 pressure that you do get. We've found receptivity with our 0:16:58.320 --> 0:17:01.800 retail partners and pushing through, but the vast majority, you know, 0:17:01.840 --> 0:17:05.080 has been pushed back to our our trade partners. So 0:17:05.119 --> 0:17:08.440 alias again about the four companies in the industrial space, 0:17:08.480 --> 0:17:12.520 four companies in the consumer space, Where is Compass diversified 0:17:12.520 --> 0:17:16.840 holdings looking now to deploy capital. Yeah, well, now is 0:17:16.840 --> 0:17:20.520 an interesting time and I would say we were looking 0:17:20.520 --> 0:17:23.679 out and as our strategic direction this year was we 0:17:23.680 --> 0:17:27.520 were looking to be more net divestors than investors. And 0:17:27.560 --> 0:17:30.439 the reason for that is we looked at risk that 0:17:30.560 --> 0:17:34.679 seemed elevated from the economy. Um, we have a trade 0:17:34.680 --> 0:17:38.120 war that's ongoing, we have a presidential election, we have brexit, 0:17:38.520 --> 0:17:42.000 you have seventeen trillion dollars of global negative rates, which 0:17:42.000 --> 0:17:43.680 probably tells you everything you need to know about the 0:17:43.680 --> 0:17:46.800 global economy and the health of it. And so we 0:17:46.880 --> 0:17:50.280 felt that the environment to be putting capital to work 0:17:50.320 --> 0:17:54.240 today was not conducive because at the same time, prices 0:17:54.280 --> 0:17:57.960 are extraordinarily high, and so that felt like a you know, 0:17:58.200 --> 0:18:01.879 upside down risk reward balance for us. Now that being said, 0:18:02.320 --> 0:18:05.680 we're constantly out there looking for new opportunities. I would 0:18:05.680 --> 0:18:09.120 say we principally are looking to invest through the eight 0:18:09.119 --> 0:18:13.119 different platform companies that we have to do add on acquisitions, 0:18:13.160 --> 0:18:16.520 and we still remain open to divestitures just as a 0:18:16.560 --> 0:18:19.959 broad strategy mandate. So, given your experience, what do you 0:18:20.000 --> 0:18:22.560 think the next downturn will look like? And this is 0:18:22.560 --> 0:18:24.040 The reason why I ask is because that's what's on 0:18:24.080 --> 0:18:27.760 everyone's mind today. Yeah, well, so, I guess this could 0:18:27.760 --> 0:18:29.560 be a bit of a you know, I don't know 0:18:29.600 --> 0:18:32.200 if it's contrarian or it maybe a little bit of 0:18:32.240 --> 0:18:36.080 an outlier. But you know, our view is the policies 0:18:36.160 --> 0:18:39.920 of the Federal Reserve have really pushed a lot more 0:18:40.119 --> 0:18:43.520 in terms of the you know, the money, the quantitative easing, 0:18:43.640 --> 0:18:46.640 the lowering of interest rates. We believe that it has 0:18:46.720 --> 0:18:49.399 pushed the cycles to be both stronger on the up 0:18:49.440 --> 0:18:52.639 cycle and longer in duration, but probably more violent on 0:18:52.680 --> 0:18:54.840 the downside. And I think you know, what we saw 0:18:54.840 --> 0:18:58.439 in two thousand and the first correction was a pretty 0:18:58.480 --> 0:19:03.040 significant you know, draw down in economic contraction. But then 0:19:03.320 --> 0:19:07.280 the policies that created the two thousand and two to 0:19:07.400 --> 0:19:11.680 two thousand and eight expansion, driven by you know, quantitative 0:19:11.720 --> 0:19:15.439 easing type policies, caused a much bigger draw down. I 0:19:15.480 --> 0:19:18.639 think today we fear that those could it could be 0:19:18.640 --> 0:19:24.040 an even bigger draw down. That would be our fear. Well, interesting, 0:19:24.240 --> 0:19:25.919 Elias say, well, thank you so much for joining us. 0:19:25.960 --> 0:19:29.280 Elias's chief executive officer accomplished diversified holdings, joining us here 0:19:29.280 --> 0:19:48.640 in a Bloomberg Interactive Brooker Studio. There has been a 0:19:48.680 --> 0:19:52.959 big question hovering over the cannabis and the tobacco industries 0:19:53.040 --> 0:19:55.840 over the past few months, and that is what will 0:19:55.920 --> 0:19:59.399 the vaping outbreak the deaths that are mounting in the 0:19:59.480 --> 0:20:02.960 United States tied to vaping due to their industries joining 0:20:03.000 --> 0:20:05.639 US now, Mark Zuglan, he is CEO of Canopy Growth 0:20:06.000 --> 0:20:09.960 joining us from Ontario. Mark, I want to start there 0:20:10.000 --> 0:20:13.040 because it's something that I'm sure all of your investors 0:20:13.040 --> 0:20:15.439 are asking, what do you do with the fact that 0:20:15.480 --> 0:20:19.280 the FDA has raised serious concerns about vaping devices and 0:20:19.359 --> 0:20:22.639 that fifteen people at least have been uh, have died 0:20:22.760 --> 0:20:25.600 in what has been linked to the cigarettes at a 0:20:25.640 --> 0:20:27.879 time when that is sort of the preferred vehicle for 0:20:28.000 --> 0:20:32.720 using cannabis right now. Yeah, I think you know, the 0:20:33.119 --> 0:20:34.920 stories that we're hearing, certainly out of the out of 0:20:34.920 --> 0:20:37.520 the US are are tragic, and I think you know, 0:20:37.760 --> 0:20:42.320 compounding um that tragedy is that um, there's still a 0:20:42.359 --> 0:20:45.480 lot of unknown people are still this many months later, UM, 0:20:45.520 --> 0:20:49.080 trying to gather the information and understand um, you know 0:20:49.119 --> 0:20:52.080 the role of of of the illicit market, whether it's 0:20:52.680 --> 0:20:55.199 people are tampering with products, whether it's you know, vitamin 0:20:55.280 --> 0:20:56.679 E is being added. You know, a lot of a 0:20:56.680 --> 0:20:59.199 lot of questions on on what's happening and so UM, 0:20:59.200 --> 0:21:01.320 it's very hard for me to speak to that particular 0:21:01.359 --> 0:21:03.840 set of details. But what I can do is speak 0:21:03.880 --> 0:21:06.639 to can Be growth and what's happening in Canada because 0:21:06.680 --> 0:21:09.600 as as you point out, in the next several months, um, 0:21:09.640 --> 0:21:12.680 you know, we will be launching bait products in Canada, 0:21:12.720 --> 0:21:15.000 and I think it's important to talk about what that 0:21:15.080 --> 0:21:18.800 structure looks like. Right in Canada, we have a fully 0:21:19.000 --> 0:21:22.159 regulated market, so the way we make our products, what 0:21:22.240 --> 0:21:25.320 goes into the products, where those products are sold, UM, 0:21:25.400 --> 0:21:28.120 all have rules that surround them and rules that we 0:21:28.240 --> 0:21:30.280 need to operate in. And you know, I think that 0:21:30.440 --> 0:21:32.440 the second thing if you look at you know, players 0:21:32.480 --> 0:21:35.000 like Canopy, you know we we did not go out 0:21:35.040 --> 0:21:37.200 to China and just source the first product we could 0:21:37.200 --> 0:21:39.160 find and ask somebody else to fill it and put 0:21:39.160 --> 0:21:41.520 our brand on it. Um. We've been building these products 0:21:41.560 --> 0:21:44.360 for two years and even you know, many many months ago. 0:21:44.400 --> 0:21:47.080 You know, the focus has been on consumer features and 0:21:47.119 --> 0:21:50.920 consumer safety. So our products, our tamper resistant, our products 0:21:50.920 --> 0:21:54.240 will be UL certified, meaning the heating elements are controlled 0:21:54.280 --> 0:21:57.680 and the battery is controlled. You will have you know, serialization, 0:21:57.720 --> 0:22:00.520 so God forbides something does happen, you're able to trace 0:22:00.600 --> 0:22:03.320 it back and immediately know what's happened. And again we 0:22:03.400 --> 0:22:06.399 control the full process. We control what goes in, so 0:22:06.440 --> 0:22:08.520 we can ensure it is only cannabis and it is 0:22:08.560 --> 0:22:12.920 only turpins, which which you know do naturally occur in cannabis. 0:22:12.960 --> 0:22:16.280 So there's a number of things so I think focused 0:22:16.280 --> 0:22:20.000 on and it comes down to threefold. One being transparent. 0:22:20.119 --> 0:22:22.600 There are unknowns and there are risks associate with vaping, 0:22:22.680 --> 0:22:25.080 and we need to be transparent about that. And we 0:22:25.119 --> 0:22:28.840 need to do research to understand more. To a regulated 0:22:28.960 --> 0:22:32.520 environment to control the products going out is essential. And 0:22:32.720 --> 0:22:36.240 three have companies that are investing long term to build 0:22:36.280 --> 0:22:39.400 products and brands. So Mark, just give us a sense 0:22:39.440 --> 0:22:42.520 of kind of in your experience and based upon your knowledge, 0:22:42.560 --> 0:22:48.440 how are consumers using vaping products with cannabis and is 0:22:48.480 --> 0:22:53.919