WEBVTT - What Whole Foods Means for Amazon's Foray Into Food 0:00:05.800 --> 0:00:08.360 Welcome to the Bloomberg p m L Podcast. I'm pim 0:00:08.400 --> 0:00:11.440 Fox along with my co host Lisa Bramowitz. Each day 0:00:11.480 --> 0:00:15.000 we bring you the most important, noteworthy, and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:31.920 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. 0:00:31.960 --> 0:00:35.479 It's shira Ov day of Bloomberg Gadfly columnists joining us 0:00:35.479 --> 0:00:39.000 in the studio about the Amazon purchase of Whole Foods. 0:00:39.600 --> 0:00:42.239 Go ahead, give us your take on on this. Well, 0:00:42.240 --> 0:00:45.159 first of all, I was surprised. Seems to be everybody. Yes, 0:00:45.159 --> 0:00:46.879 it seems to everybody. I mean, we should say that. 0:00:46.880 --> 0:00:49.559 Our colleagues at Bloomberg News wrote a story in April 0:00:50.080 --> 0:00:54.640 that essentially said Amazon looked it talked internally about buying 0:00:54.640 --> 0:00:57.840 Whole Foods last fall, and they decided not to pursue it. 0:00:57.880 --> 0:01:00.120 But it shows you that this has been something that's 0:01:00.120 --> 0:01:02.800 been on Amazon's mind for a while. And the really 0:01:02.840 --> 0:01:06.679 interesting thing here is that grocery shopping is one of 0:01:06.720 --> 0:01:10.440 the biggest categories of consumer spending, but it has been 0:01:10.560 --> 0:01:13.360 very resistant to e commerce. Only about two or three 0:01:13.400 --> 0:01:17.560 percent of all grocery shopping happens online, and you know, 0:01:17.680 --> 0:01:20.120 that's the kind of thing that Amazon loves to attack. 0:01:20.160 --> 0:01:23.959 Here is a humongous market with eight hundred billion dollars 0:01:23.959 --> 0:01:28.120 in annual spending in the US alone, but it needs 0:01:28.160 --> 0:01:31.000 a kind of Amazon e commerce touch, and so that's 0:01:31.040 --> 0:01:34.479 what we're seeing here. What is that touch? To be honest, 0:01:34.600 --> 0:01:36.920 I do not know I have, because I mean they 0:01:37.240 --> 0:01:39.399 talks about that, but a lot of people have been 0:01:39.400 --> 0:01:42.600 trying to give it this touch, this online, including Amazon. 0:01:42.640 --> 0:01:45.520 It should be said that Amazon has a something called 0:01:45.560 --> 0:01:48.560 Amazon Fresh, which is an online grocery delivery service that 0:01:48.640 --> 0:01:52.040 it started rolling out ten years ago now um and 0:01:52.280 --> 0:01:55.160 starting in its hometown of Seattle, and since expanded to 0:01:55.200 --> 0:01:58.440 a number of markets. But even by Amazon's own admission, 0:01:58.600 --> 0:02:02.160 Fresh has not gonne extremely well. And Amazon more recently 0:02:02.200 --> 0:02:06.520 has tried some other grocery ideas. It just opened some 0:02:07.280 --> 0:02:10.959 pick up kiosks in Seattle again where you order online 0:02:11.240 --> 0:02:13.240 and then you drive up to these windows to kind 0:02:13.240 --> 0:02:15.800 of pick up your groceries. You know, it's opening a 0:02:15.800 --> 0:02:19.720 convenience store for food and other merchandise also in Seattle. 0:02:19.919 --> 0:02:22.720 So it's clear that Amazon has been very interested in grocery, 0:02:22.760 --> 0:02:25.720 but maybe not exactly sure how to do it. And 0:02:25.960 --> 0:02:28.200 to be honest, I don't know what their plans are 0:02:28.200 --> 0:02:30.639 for Whole Foods. Do they think the future of shopping 0:02:31.120 --> 0:02:33.840 is stores, Do they think it's online? Do they think 0:02:33.840 --> 0:02:35.840 it's a mix of both. This is exactly what I 0:02:35.880 --> 0:02:37.480 was wondering. I mean, is this going to change the 0:02:37.480 --> 0:02:39.840 Whole Foods experience dramatically? Are they going to leave it 0:02:39.880 --> 0:02:42.880 as is and sort of uh, you know, jump off 0:02:42.919 --> 0:02:45.640 of that. I would bet, and this is sort of 0:02:45.639 --> 0:02:48.959 a semi educated guess to be fair, I would bet 0:02:49.000 --> 0:02:51.600 that they would for now leave Whole Foods, you know, 0:02:51.639 --> 0:02:53.760 as a grocery chain, but they would use it as 0:02:53.960 --> 0:02:56.200 a kind of a test bed for new ideas. And 0:02:56.320 --> 0:02:59.799 I don't think that they're spending thirteen point seven billion 0:02:59.800 --> 0:03:03.080 dollars simply to buy a grocery chain. They're buying it 0:03:03.120 --> 0:03:08.040 because they want to figure out what the grocery shopping 0:03:08.080 --> 0:03:10.800 of the future is and then they want to control 0:03:10.919 --> 0:03:14.679 that and use Whole Foods as a way to kind 0:03:14.680 --> 0:03:19.200 of get them there. They also access all of this 0:03:19.360 --> 0:03:24.880 incredible data, correct, I mean, everything that gets scanned, whether 0:03:24.960 --> 0:03:27.200 it's a stock keeping unit, that's being put on the 0:03:27.200 --> 0:03:29.720 shelf or something that's being put into a bag as 0:03:29.760 --> 0:03:34.440 you check out. You may not even have a human cashier. Yeah, 0:03:34.440 --> 0:03:37.880 that's right. I think the data piece is is huge 0:03:37.920 --> 0:03:40.360 that they're suddenly going to get all this information not 0:03:40.560 --> 0:03:43.760 just about shopping behavior, but also about the kind of 0:03:43.840 --> 0:03:48.360 mechanics of running a grocery chain with distribution and dealing 0:03:48.400 --> 0:03:51.960 with suppliers and things like that. Again, our our Bloomberg 0:03:52.000 --> 0:03:54.680 News colleagues wrote this big piece about Amazon's kind of 0:03:54.720 --> 0:03:58.000 grocery ambitions a while ago, and one of the revelations 0:03:58.040 --> 0:04:00.560 there was Amazon had a problem with the kind of 0:04:00.600 --> 0:04:04.920 inventory and distribution in groceries that you know, bananas would 0:04:04.960 --> 0:04:07.400 go bad and things like that. So it's also getting 0:04:07.440 --> 0:04:10.800 some expertise on the back end of running food delivery 0:04:10.880 --> 0:04:13.920 food operations. I mean, it's interesting though that they chose 0:04:13.960 --> 0:04:17.520 Whole Foods of all places, because Whole Foods hasn't exactly 0:04:17.560 --> 0:04:21.400 been a seller example of distribution, and they've struggled with 0:04:21.520 --> 0:04:25.520 overpriced items and this has not been a grocery store 0:04:25.600 --> 0:04:28.840 chain that has done phenomenally well in the past few years. 0:04:29.400 --> 0:04:33.080 Is it because the valuation what made more sense for Amazon? 0:04:33.200 --> 0:04:37.119 Or was it because uh, they saw something else. Well, 0:04:37.360 --> 0:04:40.599 Whole Foods has some serious advantages. One is it it 0:04:40.680 --> 0:04:43.960 has a very good brand and that's certainly something that 0:04:44.080 --> 0:04:47.600 is valuable for Amazon. And also Whole Foods was uniquely 0:04:47.800 --> 0:04:51.400 vulnerable right that it's been attacked by johnah Partners, an 0:04:51.440 --> 0:04:55.560 activist investor recently, and so you know, it was in 0:04:55.560 --> 0:04:58.320 the position where Whole Foods needed a white Knight, and 0:04:58.440 --> 0:05:00.920 Jeff Bezos, I guess, was more then happy to swoop 0:05:00.920 --> 0:05:05.400 in and be that white night. The Amazon web services 0:05:05.440 --> 0:05:10.400 business is always cited as being this growing conglomerate inside 0:05:10.520 --> 0:05:13.640 of Amazon. Just give you twenty seconds to connect that 0:05:13.839 --> 0:05:17.760 with this purchase. Um. So, one thing that has been 0:05:17.800 --> 0:05:23.119 speculated is could Amazon Amazon's grocery ambitions be the next 0:05:23.240 --> 0:05:26.960 aws that it's if they manage to get the distribution 0:05:27.080 --> 0:05:30.040 of food right and the in store experience right, can 0:05:30.040 --> 0:05:33.640 they then sell that as software to other grocery companies. 0:05:34.279 --> 0:05:38.160 That's fascinating, Shara Ovida, always fabulous speaking with you Bloomberg 0:05:38.160 --> 0:05:41.920 Gadfly columnists. You put it so nicely, and it really 0:05:41.960 --> 0:05:43.880 gives us a sense of what could be at stake 0:05:43.920 --> 0:05:46.280 here and why this is being treated as such an 0:05:46.320 --> 0:06:02.040 industry disruptor Shara Ovida. Her columns are awesome, go read them. 0:06:02.080 --> 0:06:04.599 They have a new executive, but it has a very 0:06:04.720 --> 0:06:08.400 big problem that is coming to the new executive, John 0:06:08.400 --> 0:06:12.880 Flannery from Jeff Immult who just stepped down. And Katherine Klinsky, 0:06:13.440 --> 0:06:16.080 a bloom BERGNESE reporter, highlighted this in a recent story 0:06:16.160 --> 0:06:19.400 looking at how g E has a thirty one billion 0:06:19.440 --> 0:06:21.960 dollar deficit and its pension, which is the biggest among 0:06:22.120 --> 0:06:25.640 SMP five companies and this even more shockingly fifty percent 0:06:25.880 --> 0:06:30.560 greater than any other corporation in the US. Katherine, how 0:06:30.560 --> 0:06:32.960 did we get to this point? How is ge so 0:06:33.360 --> 0:06:37.880 desperately underfunded in its pension? Yeah, definitely, John Flannery has 0:06:37.920 --> 0:06:40.960 this big hole to feel. Um, Like most corporate pensions, 0:06:41.000 --> 0:06:43.520 the financial christ really wrecked them. That was when they 0:06:43.640 --> 0:06:47.039 fell underfunded, and it's it's been a hard time trying 0:06:47.080 --> 0:06:49.599 to recoup those losses over the years. I mean, interest 0:06:49.680 --> 0:06:52.560 rates have been really poor, and even if you've invested 0:06:52.560 --> 0:06:55.520 in other assets, you know, it's been a volatile market 0:06:55.560 --> 0:06:58.520 and it's hard to always kind of recoup those losses. Um. 0:06:58.520 --> 0:07:00.960 A lot of companies have instead and putting cash to 0:07:01.000 --> 0:07:03.920 their plans, or they've been offloading them to ensures, they've 0:07:03.960 --> 0:07:06.559 looked for kind of other solutions to try and shore 0:07:06.640 --> 0:07:10.120 up these pensions. UM. But with GE, it's just steadily 0:07:10.240 --> 0:07:14.680 trended down in terms of their shortfall. Now G has 0:07:14.680 --> 0:07:16.560 a lot of company, doesn't it. I mean it's not 0:07:16.640 --> 0:07:20.400 as if gees alone in not having a completely funded 0:07:20.400 --> 0:07:24.560 pension plan. Some of the most recognized and largest companies 0:07:24.600 --> 0:07:28.040 in the United States General Electric is writing about but 0:07:28.160 --> 0:07:31.000 General Motors, Boeing, ex On Mobile, A, T and T, 0:07:31.240 --> 0:07:37.520 Lockheed Martin. Is there no downside legally or financially to 0:07:37.720 --> 0:07:40.160 underfunding your pension plans? So they just go ahead and 0:07:40.480 --> 0:07:44.520 don't worry about it. Yeah. So, actually, if you hold 0:07:44.560 --> 0:07:47.000 an underfunded pension plan, you have to pay more fees 0:07:47.080 --> 0:07:49.680 to the PPGC, which is kind of the government agency 0:07:49.800 --> 0:07:53.040 that backstops these UM. So there is an immediate kind 0:07:53.040 --> 0:07:55.640 of financial cost to these plans. You know, it is 0:07:55.680 --> 0:07:58.920 important to recognize that these obligations are decades long. So 0:07:59.000 --> 0:08:02.840 if markets start to ali, yes, that might really help them, UM, 0:08:02.880 --> 0:08:05.320 as long as they're invested in the asset that actually 0:08:05.400 --> 0:08:08.480 rallies compared to the bonds that they have been buying. 0:08:08.520 --> 0:08:11.360 Because they were afraid to buy stocks. Definitely, So they 0:08:11.440 --> 0:08:13.600 I mean, they they're pretty well diverse. They have equity, 0:08:13.640 --> 0:08:16.840 they have debt, real estate, private equity. They actually own 0:08:17.200 --> 0:08:20.240 thirty million dollars or thirty million shares of g in 0:08:20.280 --> 0:08:23.080 fact um. But it's hard to always bet on that. 0:08:23.240 --> 0:08:26.200 And a lot of companies now are starting to say, 0:08:26.400 --> 0:08:28.360 you know, we're not going to wait for markets to 0:08:28.440 --> 0:08:30.400 kind of help us. A lot of companies are taking 0:08:30.440 --> 0:08:33.080 these actions. And you have big public pensions that have 0:08:33.200 --> 0:08:36.160 just come out out right and said, look, are long 0:08:36.200 --> 0:08:38.080 time assumption that we're gonna get seven and a half 0:08:38.080 --> 0:08:41.440 returns each year on our assets is going out the window. 0:08:41.440 --> 0:08:43.120 We're gonna have to lower that to six and a 0:08:43.160 --> 0:08:45.760 half to six point to five percent, whatever it is, 0:08:46.040 --> 0:08:50.520 which means more contributions in the part of both employees 0:08:50.559 --> 0:08:55.679 as well as possibly, uh, you know, the actual organization, right, 0:08:55.720 --> 0:08:58.240 I mean, but what strikes me about g E is 0:08:58.280 --> 0:09:01.520 that g E opted not to do what others were doing, 0:09:01.559 --> 0:09:04.760 not to make contributions, instead to give out forty five 0:09:04.840 --> 0:09:10.240 billion dollars basically two shareholders with buy backs instead, basically 0:09:10.280 --> 0:09:13.040 because of this activist pressure. I mean, at some point 0:09:13.360 --> 0:09:15.360 this is going to come back to bite them, because 0:09:15.400 --> 0:09:17.520 you have to wonder, are they just investing in risk 0:09:17.600 --> 0:09:20.560 your assets with the money from the pension in order 0:09:20.559 --> 0:09:23.320 to make up for the shortfall and crossing their fingers. Yeah, 0:09:23.360 --> 0:09:26.319 So they have been making some contributions about over the 0:09:26.360 --> 0:09:28.600 past two years, it's been about two billion dollars to 0:09:28.600 --> 0:09:31.559 their pension plan. But that's paltry compared to the forty 0:09:31.559 --> 0:09:34.679 five billion they've been spending on share repurchases. And while 0:09:34.679 --> 0:09:38.080 it's you know, while the pension plan could receive a 0:09:38.120 --> 0:09:40.520 great boost from interest rates, while it might be fine 0:09:40.640 --> 0:09:42.920 in the end, we argue that, you know, it's kind 0:09:42.920 --> 0:09:46.280 of this this uh, this tension between those short term 0:09:46.280 --> 0:09:50.120 effects of hey, let's appease these activist shareholders, make sure 0:09:50.160 --> 0:09:53.760 our investors are happy with this kind of growing hole 0:09:53.840 --> 0:09:56.080 that they have on their on their balance sheet, and 0:09:56.120 --> 0:10:00.240 it's hard to recoepe those losses. I was looks going 0:10:00.280 --> 0:10:02.040 to say, just to add to this idea that you're 0:10:02.040 --> 0:10:05.559 talking about, what these assets, what they're invested in, the 0:10:06.080 --> 0:10:08.880 various assets, because when you have interest rates that are 0:10:08.920 --> 0:10:12.000 as low as you describe, and we're all living through 0:10:12.040 --> 0:10:15.679 this um, there is no way that you're going to 0:10:15.840 --> 0:10:19.440 meet your benchmark, your target. Right, You're and that hasn't 0:10:19.480 --> 0:10:23.080 even been a sort of reality moment for many pension 0:10:23.120 --> 0:10:27.240 fund managers. Correct, correct, and um so G has lowered. 0:10:27.280 --> 0:10:29.760 They went from about nine percent in the early two 0:10:29.840 --> 0:10:32.920 thousand's to now seven point five, but it's still that's 0:10:33.040 --> 0:10:35.960 kind of a higher assumption for the way markets are doing. 0:10:36.240 --> 0:10:39.679 We've seen a lot of pension plans um either lower 0:10:39.720 --> 0:10:42.920 those even further or take steps to kind of better 0:10:42.960 --> 0:10:45.679 match their assets and their liabilities, kind of taking a 0:10:45.720 --> 0:10:48.959 traditional insurance view of it. Um and that has also 0:10:49.040 --> 0:10:52.400 helped at least mitigate the volatility, because sometimes you're just 0:10:52.480 --> 0:10:54.880 never going to make up those returns, but at least 0:10:55.040 --> 0:10:57.600 you don't want to. And they have to keep cashing, right, 0:10:57.640 --> 0:10:59.480 I mean, the Arissa rules say that you have to 0:10:59.520 --> 0:11:01.400 keep a certain amount of cash on hand in order 0:11:01.440 --> 0:11:04.920 to pay out current beneficiaries. Yeah, they definitely need UM 0:11:05.080 --> 0:11:07.280 cash to be able because some of these beneficiaries are 0:11:07.280 --> 0:11:10.160 already taking payments and but a lot of those obligations 0:11:10.240 --> 0:11:12.640 are decades long, so they'll still have, you know, a 0:11:12.640 --> 0:11:14.240 bunch of assets to kind of play with for a 0:11:14.320 --> 0:11:18.160 little bit. Is she the biggest pension or a company 0:11:18.160 --> 0:11:20.760 with a pension out there, they do. I mean they 0:11:20.760 --> 0:11:24.320 have a very sizable pension. So ninety four billion dollars 0:11:24.320 --> 0:11:27.840 in obligations and about sixty three and assets right now, 0:11:27.880 --> 0:11:30.120 what are the comparable kinds of what are the other 0:11:30.120 --> 0:11:33.160 companies with comparable pensions? Yeah, I mean it kind of 0:11:33.200 --> 0:11:36.160 sizes up with many industrial companies. Those tends to be 0:11:36.240 --> 0:11:38.520 kind of the larger pensions that we see. It's kind 0:11:38.520 --> 0:11:41.959 of those legacies of decades of kind of blue collar workers. UM, 0:11:42.000 --> 0:11:44.920 they're about sixty seven percent funded. That's kind of an 0:11:44.920 --> 0:11:48.439 important number to recognize, is UM. You know, their their 0:11:48.480 --> 0:11:51.280 obligations to kind of their assets that they have now. 0:11:51.840 --> 0:11:55.480 UM generally pension experts say eighty percent is where you 0:11:55.520 --> 0:11:58.240 tend to want to be UM and higher if you can, 0:11:58.360 --> 0:12:01.920 but is kind of a one to shoot for. Well, 0:12:01.960 --> 0:12:03.520 I was gonna say, if you guys also get a chance. 0:12:03.559 --> 0:12:07.480 Has a great uh piece of corporate research by Bob 0:12:07.880 --> 0:12:13.080 Coley over at Russell Investments. It's it's about this year's 0:12:13.120 --> 0:12:15.559 earlier this year, but it talks about the twenty billion 0:12:15.600 --> 0:12:18.920 dollar club, meaning you know, do you have liabilities that 0:12:18.960 --> 0:12:22.679 you're unmet by more than twenty billion and UM, well, 0:12:22.720 --> 0:12:24.800 you know you've got the General Electric as I said, 0:12:24.800 --> 0:12:26.559 General Motors, but just add to the list a T 0:12:26.720 --> 0:12:29.320 and T Dow Chemical. Well, we know what's happening there. 0:12:29.400 --> 0:12:32.440 Johnson and Johnson, thank you very much for bringing this 0:12:32.520 --> 0:12:35.240 to our attention. Really well done and uh look forward 0:12:35.280 --> 0:12:40.360 to more. Katherine Chiglinsky, US insurance reporter for a Bloomberg 0:12:51.800 --> 0:12:56.280 Well Insulin. Insulin is one of those drugs that is 0:12:56.360 --> 0:12:59.560 life sustaining and it is sold throughout the United States 0:12:59.559 --> 0:13:03.560 at races that have increased dramatically over the last decade. 0:13:03.640 --> 0:13:06.360 Here to tell us more about drug pricing is Michael Ray. 0:13:06.679 --> 0:13:08.920 He is the founder and the chief executive of our 0:13:09.080 --> 0:13:14.040 ex Savings Solutions and he joins us from Overland Park, Kansas. Michael, 0:13:14.040 --> 0:13:17.600 thanks for being with us. Can you comment on some 0:13:17.679 --> 0:13:21.360 moves in the state of Nevada, specifically with the Governor 0:13:21.400 --> 0:13:27.240 Brian Sandoval signing a law that is now the really 0:13:27.280 --> 0:13:32.079 the most strict requirement for the revelation of drug prices, 0:13:32.120 --> 0:13:36.360 which we strangely don't have. Yeah, it's great to be 0:13:36.400 --> 0:13:39.560 with you, Jim. I think that the legislation really shows 0:13:39.600 --> 0:13:42.959 the frustration and the desperation people feel. We've seen this 0:13:43.040 --> 0:13:47.520 public outcry about drug prices and you know, some recent 0:13:47.559 --> 0:13:50.360 examples really focused on influence. Um. I think it just 0:13:50.400 --> 0:13:54.080 demonstrates the pain people feel, um, financially, I think that 0:13:54.160 --> 0:13:57.760 it it's something that's a threat too, you know, just 0:13:57.920 --> 0:14:01.520 common health health care for the those diabetics, and it's 0:14:01.520 --> 0:14:03.800 it's a it's a really important topic. I think that 0:14:03.880 --> 0:14:07.200 the legislation, um, you know, is a is a great 0:14:07.840 --> 0:14:10.160 first step. I think that there there's much more and 0:14:10.160 --> 0:14:12.040 it's a much more complex issue that needs to be 0:14:12.040 --> 0:14:14.800 dealt with. Well, let's just talk certainly, let's let's clarify 0:14:14.840 --> 0:14:18.520 what this legislation actually said. The law required drug makers 0:14:18.559 --> 0:14:22.800 to annually disclose the list prices they set, profits they make, 0:14:22.960 --> 0:14:27.920 and adjustments to any kind of pricing due to inflation 0:14:28.040 --> 0:14:34.640 or otherwise, basically giving more transparency to how they set prices. Correct. Yeah, 0:14:34.680 --> 0:14:36.720 that's right, and I think from a macro approach it 0:14:36.800 --> 0:14:40.520 makes sense. But you know, the what the patient pays 0:14:40.520 --> 0:14:43.640 that the counter, coupled with what they're other therapetic options are, 0:14:43.640 --> 0:14:45.600 and what's going to be most impactful. Basically, what I'm 0:14:45.600 --> 0:14:48.560 saying is the data you know at years N is 0:14:48.600 --> 0:14:51.440 really going to have a little impact on what consumer 0:14:51.440 --> 0:14:53.440 experiences when they go to try to buy their influence. 0:14:53.640 --> 0:14:58.600 Is this law constitutional? Again, I'm sorry, is this law constitutional? 0:14:58.640 --> 0:15:01.840 Because I can imagine and and and just reading up 0:15:01.840 --> 0:15:04.640 on it, it it seems like some pharmaceutical companies are saying, 0:15:04.680 --> 0:15:08.880 you know, this might actually raise some some legal issues 0:15:09.000 --> 0:15:13.880 about whether whether the state can basically voiced this kind 0:15:13.920 --> 0:15:16.840 of requirement upon them. Yeah, I mean, I think it's 0:15:16.920 --> 0:15:19.200 it's uh, you know, it's kind of like bringing one 0:15:19.240 --> 0:15:22.080 stand back to a flood. Um. There's you know, it's 0:15:22.080 --> 0:15:24.880 going to have a limited effect because of the complexity 0:15:24.920 --> 0:15:27.200 of the system. You know, we're not just talking about manufacturers, 0:15:27.200 --> 0:15:30.360 but we're talking about an entire supply chain that's disrupted 0:15:30.840 --> 0:15:34.800 or um, you know, may adjust other parameters um. And 0:15:35.120 --> 0:15:37.440 I think that even if you look at the find 0:15:37.600 --> 0:15:40.040 the five thousand dollars a day that adds up to 0:15:40.040 --> 0:15:43.240 two million bucks um, that's really not not that much 0:15:43.280 --> 0:15:45.160 money in the grand scheme of things, even if they 0:15:45.160 --> 0:15:48.320 decided not to disclosed its state. But other states have 0:15:48.440 --> 0:15:53.880 also taken this up correct Vermont, for example, asking drug 0:15:53.920 --> 0:16:00.000 makers to justify certain price increases of fifteen percent or more. Uh, 0:16:00.240 --> 0:16:03.160 is there any reason to doubt that other states will 0:16:03.280 --> 0:16:05.800 look at this and say, gee, we want the same 0:16:05.840 --> 0:16:11.640 benefits for our UH citizens. Yeah, I think, Um, I 0:16:11.640 --> 0:16:14.240 think that's certainly possible. And again kind of back to 0:16:14.280 --> 0:16:17.400 the original point of this is on one drug or 0:16:17.520 --> 0:16:21.200 one set of drugs, Um, it's certainly important and impactful, um, 0:16:21.240 --> 0:16:24.400 But there's a much bigger system here. And you know, 0:16:24.480 --> 0:16:27.680 even if even if every state requires them to disclose 0:16:27.720 --> 0:16:31.720 the pricing, again, it's after the fact, um, And what 0:16:31.880 --> 0:16:35.080 is it going to mean ultimately to the individual consumer 0:16:35.120 --> 0:16:37.800 at the pharmacy counter There there's a lack of information, 0:16:37.840 --> 0:16:40.800 But from a therapy standpoint and a price standpoint, that's 0:16:40.840 --> 0:16:43.680 the ultimate problem that needs to be solved, um, so 0:16:43.800 --> 0:16:47.200 that the market forces can take over. Michael, you started 0:16:47.200 --> 0:16:49.880 out by saying that this move on the part of 0:16:50.000 --> 0:16:55.160 Nevada legislators shows this desperation of people to get pharmaceutical 0:16:55.240 --> 0:16:59.440 costs under control, and how desperate people UH feel throughout 0:16:59.520 --> 0:17:02.000 the coun treat How much is this an effort to 0:17:02.000 --> 0:17:06.520 put pressure on Washington to perhaps inject a little bit 0:17:06.560 --> 0:17:11.520 more of a collective bargating power when deciding or negotiating 0:17:11.760 --> 0:17:16.480 with pharmaceutical companies from Medicare and medicaid. Well, I think 0:17:16.640 --> 0:17:18.960 I think that this certainly is uh, that that's part 0:17:19.040 --> 0:17:21.439 of it. You know, everyone agrees that drug prices need 0:17:21.480 --> 0:17:23.960 to go down. Everyone agrees that, you know, people should 0:17:24.000 --> 0:17:26.800 have the right to to an access to this type 0:17:26.840 --> 0:17:29.520 of care. Uh. The question is what are the dollars 0:17:29.520 --> 0:17:32.639 and cents and who does it affect and how um 0:17:32.840 --> 0:17:34.720 in it? Again, it's a very complex. You've got a 0:17:34.760 --> 0:17:38.560 supply chain that includes not just pharma but wholesalers, TBMs, 0:17:38.560 --> 0:17:42.199 pharmacies themselves. Um, And so you've got to look at 0:17:42.240 --> 0:17:45.760 the entire system. UM. But I do think that there's 0:17:45.960 --> 0:17:48.200 you know, it's a it's a move to put further 0:17:48.240 --> 0:17:51.040 pressure on whether it's legal. I know is one question, 0:17:51.280 --> 0:17:53.520 um that I've heard said, it's you know, is this 0:17:53.600 --> 0:17:56.920 type of is this a precedent that can even be brought? Um? 0:17:56.960 --> 0:17:59.600 So I'm not sure to lead legally how that would 0:17:59.640 --> 0:18:02.919 play out. I'm sure there will be challenges to this, Michael, 0:18:03.240 --> 0:18:06.960 just quickly. I'm also as part of this move in Nevada, UH, 0:18:07.240 --> 0:18:12.520 nonprofit organizations that are working on behalf of either patients 0:18:12.600 --> 0:18:16.680 or funding medical research, they're going to have to reveal 0:18:16.880 --> 0:18:20.920 and disclose the donations that they received from pharmaceutical companies 0:18:21.160 --> 0:18:25.200 as well as insurance providers and benefit pharmacy benefit companies. 0:18:25.680 --> 0:18:30.359 Why isn't that something that already happens. That's a great question. Again, 0:18:30.400 --> 0:18:33.280 back to the complexity. It's a it's a very very 0:18:33.320 --> 0:18:37.200 deep web of of how money changes hands and who's 0:18:37.280 --> 0:18:39.680 changing hands from. You know, that's not a piece that 0:18:39.720 --> 0:18:43.240 I cited, but that's a fantastic example, um of of 0:18:43.320 --> 0:18:47.040 some of the you know, economic mechanics um and you know, 0:18:47.280 --> 0:18:49.760 if you're gonna have transparency, you can't have transparency just 0:18:49.800 --> 0:18:53.720 in one part. You need to have it everywhere. Thank 0:18:53.760 --> 0:18:56.159 you so much for joining us. Michael Ray, founder and 0:18:56.240 --> 0:18:59.240 CEO of r X Savings Solutions, which is based in 0:18:59.320 --> 0:19:02.680 Overland Park, Kansas, Thank you so much for joining us. 0:19:13.960 --> 0:19:17.040 Recent data shows that the housing market recovery in the 0:19:17.160 --> 0:19:21.400 US has been incredibly uneven. Big metropolitan areas like New 0:19:21.480 --> 0:19:27.280 York City, Miami, uh San Francisco have gained disproportionately, while 0:19:27.400 --> 0:19:31.240 other smaller municipalities have lagged behind. So what does a 0:19:31.320 --> 0:19:35.280 real estate investor do with this information? Terrell Gates joins 0:19:35.359 --> 0:19:38.240 US now. He's chief executive officer and founder of Virtues 0:19:38.800 --> 0:19:42.280 Real Estate Capital, which over sees about three billion dollars 0:19:42.280 --> 0:19:45.439 in real estate assets from Austin, Texas. Terrell, I'd love 0:19:45.480 --> 0:19:47.320 to get your take on this. When you see this 0:19:47.400 --> 0:19:51.200 bifurcated market that appears to be slowing down right now, 0:19:51.840 --> 0:19:54.960 do you avoid those municipalities that have gained the most, 0:19:55.200 --> 0:19:56.840 like the New York's of the world and the San 0:19:56.880 --> 0:19:59.679 Francisco's or do you think that those are the areas 0:19:59.720 --> 0:20:02.320 that are most resilient if there is another downturn in 0:20:02.320 --> 0:20:06.040 the near future. Yeah, that's a good question. I mean, certainly, 0:20:06.480 --> 0:20:10.000 entrance prising are cost to buy today is a major 0:20:10.119 --> 0:20:12.360 factor and where you're going to invest and where you're 0:20:12.359 --> 0:20:14.479 not going to invest. But you also have to think 0:20:14.520 --> 0:20:16.800 about sustainability of that income stream, and you have to 0:20:16.800 --> 0:20:19.560 think about the growth potential. And so one of the 0:20:19.640 --> 0:20:22.640 things that's been occurring over the last twenty to thirty 0:20:22.720 --> 0:20:25.800 years is this great urbanization movement of people coming back 0:20:25.840 --> 0:20:30.120 into the cities looking for more info locations, and that's 0:20:30.200 --> 0:20:33.760 driving up those valuations that you're talking about. Let's talk 0:20:33.800 --> 0:20:36.800 of if we can about some of the areas in 0:20:36.840 --> 0:20:40.120 which you have expertise. I want to start with student 0:20:40.200 --> 0:20:43.320 housing and I'm wondering if you could maybe use an example. 0:20:43.359 --> 0:20:46.720 I know this one at Rutgers University, Rockoff Hall. Uh, 0:20:47.040 --> 0:20:48.800 maybe you could use that as an example. How did 0:20:48.800 --> 0:20:52.800 you find that property and what attracts you to the 0:20:52.840 --> 0:20:56.720 student housing market, what makes it attractive? Well, our overall 0:20:56.760 --> 0:21:00.880 thesis here at Vertices we don't invest in aditional commercial 0:21:00.880 --> 0:21:03.600 real estate. We invest in property types that we believe 0:21:04.000 --> 0:21:06.320 our recession resilient. In other words, property types that can 0:21:06.320 --> 0:21:10.080 continue to perform even when there is an economic cycle 0:21:10.200 --> 0:21:14.639 downturn or a cappa market cycle um retreat. And we 0:21:14.680 --> 0:21:18.080 think student housing is one good example of that because 0:21:18.440 --> 0:21:22.240 when we go into recessionary period, university enrollments actually increase. 0:21:22.560 --> 0:21:26.240 Not surprising, right, because what that typically means is unemployment 0:21:26.240 --> 0:21:29.359 goes up, more people go back to school, and there's 0:21:29.400 --> 0:21:33.879 a greater need for housing. So the Rutgers University example, 0:21:34.240 --> 0:21:37.520 that's a property that's walking distance to the main campus 0:21:37.520 --> 0:21:40.280 of Rutgers University, which is one of the largest universities 0:21:40.280 --> 0:21:43.400 in the country. There's about sixty five enrollment at all 0:21:43.440 --> 0:21:46.480 of its campuses. And for that particular property, we did 0:21:46.480 --> 0:21:50.400 buy that one off market. It is the only private, 0:21:51.000 --> 0:21:55.200 lead built, purpose built student housing property in that particular market, 0:21:55.640 --> 0:21:57.720 and so we found it compelling because we felt like 0:21:57.760 --> 0:22:01.720 we could increase the performance of that secular property, driving 0:22:02.320 --> 0:22:06.280 revenue from that property and ultimately driving income evaluation. Terrell, 0:22:06.320 --> 0:22:08.440 if you're going to get into student housing, though, don't 0:22:08.440 --> 0:22:10.399 you have to consider a little bit more the whole 0:22:10.520 --> 0:22:13.639 backdrop of student debt and the fact that there is 0:22:13.680 --> 0:22:17.399 this growing concern that all of these students who are 0:22:17.440 --> 0:22:19.000 borrowing all this money are going to be able to 0:22:19.000 --> 0:22:21.399 pay it back. Does it matter to the real estate investors? 0:22:22.200 --> 0:22:25.520 It absolutely does, And you're hitting on a very important 0:22:25.520 --> 0:22:29.920 point there, because there is a very different experience and 0:22:30.040 --> 0:22:34.399 investing at different types of universities. So this backdrop of 0:22:34.440 --> 0:22:38.640 the student housing bubble, as well as online technology driving 0:22:38.960 --> 0:22:42.919 more lower cost education, is very much a factor. But 0:22:43.000 --> 0:22:45.520 what you will see is at the major tier one 0:22:46.080 --> 0:22:49.919 public flagship universities like a Rutgers or here in Texas 0:22:49.960 --> 0:22:52.000 where I'm from, into University of Texas at Austin and 0:22:52.040 --> 0:22:57.080 texasan m university, enrollment and demand for that quality education 0:22:57.160 --> 0:23:01.560 continue to increase, and so there just isn't enough housing. 0:23:02.119 --> 0:23:04.800