WEBVTT - Surveillance: Inflation Downturn with Emanuel (Podcast)

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<v Speaker 1>Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along

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<v Speaker 1>with Jonathan Ferrell and Lisa A. Brawmowitz Jailey. We bring

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<v Speaker 1>you insight from the best and economics, finance, investment, and

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<v Speaker 1>international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg

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<v Speaker 1>dot com, and of course on the Bloomberg terminal, Microsoft

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<v Speaker 1>in Alphabet, both reporting after the bell. We've been talking

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<v Speaker 1>about this throughout the day. It's about advertising, it's about

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<v Speaker 1>the consumer. Yes, it's also about the cloud. But John,

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<v Speaker 1>what happens to the index if big tech disappoints hasn't

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<v Speaker 1>been priced in? And that's what really is the big

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<v Speaker 1>question hanging over this week. We've got the perfect guest

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<v Speaker 1>for that, Judean Emmanuel in a studio here in New York,

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<v Speaker 1>a good friend of us, the chief equity and a

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<v Speaker 1>quantitive strategist at Evercore Race Si Judy and the big

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<v Speaker 1>tech players have pulled back on hiring intentions. Do you

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<v Speaker 1>expect some of that to show up in that guidance?

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<v Speaker 1>No doubt. And I think when you think about the

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<v Speaker 1>evolution of markets over the last couple of weeks, we've

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<v Speaker 1>actually gone from the pulling back from hiring to where

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<v Speaker 1>now Corporate America is announcing layoffs, automotive, social media. We're

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<v Speaker 1>gonna see a lot more of that, and that's really

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<v Speaker 1>why bond yields are back near multi month lows on

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<v Speaker 1>a daily basis. Julia Emmanuel, your morning note is the

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<v Speaker 1>most valuable three paragraphs I read. You quantify SMP earnings,

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<v Speaker 1>and you go through all the math. We don't need

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<v Speaker 1>to deal with that right now. What it means is

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<v Speaker 1>corporations are adjusting given ed Hyman's growth recession. E kind

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<v Speaker 1>of feel in the micro analysis you're acclaimed for. How

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<v Speaker 1>will corporations adjust over the next quarter. Well, they're they're

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<v Speaker 1>gonna have no choice because you know, you've got every

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<v Speaker 1>single thing coming at you. You've got the need to reshure,

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<v Speaker 1>the need to stock because your supply chains have been

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<v Speaker 1>broken and they're no longer dependable. But at the same time,

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<v Speaker 1>you've also got this fact that you know the world

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<v Speaker 1>is changing. Economic volatility is so much higher now than

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<v Speaker 1>it was the last thirty years, that all of these

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<v Speaker 1>factors are are really very different. I think what it

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<v Speaker 1>ends up meaning is that at the stock level, valuations

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<v Speaker 1>continue to ratchet lower. But again corporate America has always

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<v Speaker 1>found ways of you know, squeezing profit and figuring out

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<v Speaker 1>how to transform itself. We don't think it's different this time, Julian.

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<v Speaker 1>That's nice for companies that can actually do that. Yet

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<v Speaker 1>every stock analyst that we can do and I see

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<v Speaker 1>John laughing at anything, it's nice. Every stock analysts we

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<v Speaker 1>speak to is becoming a rate analyst and saying it's

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<v Speaker 1>all about the FED, whether the torpedo the overall economy

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<v Speaker 1>or not. And as much as the companies can adjust,

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<v Speaker 1>they cannot adjust in the face of vulcar. How much

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<v Speaker 1>does the fate of the SMP really depend entirely on

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<v Speaker 1>how far the FED has to go versus some of

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<v Speaker 1>these adjustments that each company can make. Well, it's really

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<v Speaker 1>at this point means a lot. Uh, We're we're at

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<v Speaker 1>a crossroads. If you look at it, the average recession

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<v Speaker 1>bearer market that loses for the average non recession bearer market.

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<v Speaker 1>You could argue we've already done that, But the fact

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<v Speaker 1>is is that we have not seen any indication other

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<v Speaker 1>than the FED is really concentrating on the single mandate

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<v Speaker 1>of the dual mandate, which is inflation, and from our

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<v Speaker 1>point of view, you've already started to see signs of

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<v Speaker 1>a turning down along with the economy weakening. And we

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<v Speaker 1>wonder whether, in a reverse logic of the last forty years,

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<v Speaker 1>the FED might step back and say, Okay, we have

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<v Speaker 1>more ammunition to hike if we need to later, knowing

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<v Speaker 1>that cutting rates next year is the single thing that

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<v Speaker 1>causes potential inflation expectations to become the anchored Judian. When

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<v Speaker 1>you sit around the type with that hyman and he's

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<v Speaker 1>expected bad news, do you sit there and think then

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<v Speaker 1>that math news is bad news for your market? Again?

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<v Speaker 1>That's what's uh really tricky about this current juncture because

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<v Speaker 1>you don't see the FED reacting to bad news because

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<v Speaker 1>inflation does not allow them right now to react to

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<v Speaker 1>bad news. We do think that looking at the next

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<v Speaker 1>couple of months, that dynamic could change. Julian, I want

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<v Speaker 1>to just clarify something that you said. A lot of

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<v Speaker 1>people think that if the FED doesn't go far now,

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<v Speaker 1>it's going to lead to inflation expectations becoming d anchored.

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<v Speaker 1>You just said the opposite that if the FED goes

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<v Speaker 1>too far now, pauses and then cuts rates, that's what's

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<v Speaker 1>going to cause inflation to become unanchored. How much pushback

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<v Speaker 1>do you get to that? Where do you get that

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<v Speaker 1>idea that goes back to the nineteen seventies something we

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<v Speaker 1>call the Burns blunder. If you look back the seventy five,

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<v Speaker 1>you had inflation really raging. You know, structural inflation arguably

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<v Speaker 1>somewhat different this time, and Chair Burns cut rates in

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<v Speaker 1>the middle of that surge to fight a recession, and

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<v Speaker 1>that caused literally another decade of inflation to become well anchored. Look,

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<v Speaker 1>part of the dynamic in markets is that we've all

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<v Speaker 1>been Pavlovian trained to expect stocks to rally when the

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<v Speaker 1>FED cuts rates. To the extent that we take that away,

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<v Speaker 1>you're actually doing a service and allowing to see the

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<v Speaker 1>fundamentals emerged. He was chief Marcus strut just at JP Morgan.

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<v Speaker 1>Do you remember that maybe d l J. I can't remember.

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<v Speaker 1>John pavlov was just outstanding. Jennia, Thank you, Jenny Emanuel

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<v Speaker 1>of Core High signed Sarah Malex Sages this morning, Chief

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<v Speaker 1>investment Officer of New Vene. Sarah, you have to readjust

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<v Speaker 1>and rewrite the market call for New van What what

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<v Speaker 1>category of readjustment are you thinking about right now? As

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<v Speaker 1>you see earnings and as you see the economic data

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<v Speaker 1>come in, we've been thinking that earnings could easily be

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<v Speaker 1>the next shoe to drop for the markets. If you

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<v Speaker 1>look at consensus estimates, they were up high single digits

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<v Speaker 1>coming into this quarter, and that's going to be the

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<v Speaker 1>issue going forward. You're seeing this with these companies. The

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<v Speaker 1>ones that have pricing power are going to be the

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<v Speaker 1>ones that when just talking about technology, they're dealing with

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<v Speaker 1>currency issues, macro issues, and potential estimate cuts and just

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<v Speaker 1>breaking down Alphabet and Microsoft, both of these companies have

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<v Speaker 1>outperformed the Tech index year to day. Um we think

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<v Speaker 1>Microsoft is more defensive. They have more of a resilient

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<v Speaker 1>commercial business and nice divid and deal with about one

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<v Speaker 1>percent to protect them. Alphabet likely runs into the same

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<v Speaker 1>ad related issues we saw with snapping. With Twitter, they've

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<v Speaker 1>investing investing heavily in their cloud and the and their

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<v Speaker 1>II business. This could hurt their margins. So within that world,

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<v Speaker 1>we think Microsoft probably puts a better numbers and outlook

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<v Speaker 1>than Alphabet does. Sarah, where does it leave an Amazon?

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<v Speaker 1>I mean, Amazon is a challenge. This is a company

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<v Speaker 1>that's been been making the right investments in the shorter

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<v Speaker 1>term they've taken so much control over their logistics business,

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<v Speaker 1>but they could easily run into that same retail problem

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<v Speaker 1>we're seeing with Walmart. The consumer is an issue because

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<v Speaker 1>they've been dipping into their savings in order to spend,

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<v Speaker 1>so the consumer is not as as resilient as they've

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<v Speaker 1>been in the past, the more sensitive to prices, and

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<v Speaker 1>we've seen that pretty rapid shift in spending from business services.

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<v Speaker 1>I think that could be an issue first Amazon in

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<v Speaker 1>the short term, but both Amazon and Alphabet are very

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<v Speaker 1>well positioned companies over the long run. So this is

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<v Speaker 1>just short term paying for a lot of these technology companies.

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<v Speaker 1>So given that you are seeing that, probably some of

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<v Speaker 1>the downward revisions are not being fully priced in. Where

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<v Speaker 1>do you see this earning seasons taking the SMP through

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<v Speaker 1>the end of this year. Given what we've seen so far,

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<v Speaker 1>it's interesting if you look at the prints for the

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<v Speaker 1>starning seasons overall, we're actually seeing moderate earnings be so

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<v Speaker 1>it looks like a good earning season on paper, it's

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<v Speaker 1>just the outlooks are murky and weighing all of that

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<v Speaker 1>together has to do and other things we're gonna see

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<v Speaker 1>this week, like GDP for example, that could come in

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<v Speaker 1>close to flat, it could easily come in negative. That

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<v Speaker 1>means we likely already arn our session. We're seeing cracks

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<v Speaker 1>and manufacturing data. Employment has been holding up. That that

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<v Speaker 1>tends to be a lagging indicator. All of us are

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<v Speaker 1>going to play into earning season and whether those estimates

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<v Speaker 1>can hold up going forward. We don't think that they can.

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<v Speaker 1>We think those estimates need to come down. That's the

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<v Speaker 1>one factor that really hasn't budged this year, while so

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<v Speaker 1>many other data points have deteriorated. I want to elaborate

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<v Speaker 1>a little bit more on something you said that we

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<v Speaker 1>probably already are in a recession. This is the political discussion,

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<v Speaker 1>is parsing the difference between the technical recession and a

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<v Speaker 1>real recession. How does this really shape your view your

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<v Speaker 1>belief that we're in a recession regardless of how you

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<v Speaker 1>define it, and that we may be climbing out of it,

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<v Speaker 1>but we're already there. Well, odds are we're either in

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<v Speaker 1>a mild recession, and we also feel like otherwise it's

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<v Speaker 1>going to be hard to skirt that recession. So then

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<v Speaker 1>we turn to market valuations in the conversation of what's

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<v Speaker 1>priced in here. I don't think everything is proceed to

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<v Speaker 1>these markets. We think the SMP likely stays in a

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<v Speaker 1>trading range of s and be thirty forty hundred until

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<v Speaker 1>something happens, and that is inflation breaks one way or another.

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<v Speaker 1>The good news is we are seeing it cooling or

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<v Speaker 1>the Fed pivots. There's expectations the Fed could pivot in

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<v Speaker 1>early three. That sounds optimistic to us. We're coming into

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<v Speaker 1>a seventy five basis point rate hike tomorrow. The interesting

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<v Speaker 1>thing out of the FOWC will what kind of guidance

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<v Speaker 1>do they give in terms of how far past neutral

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<v Speaker 1>they'll go and what a rate heights look like for

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<v Speaker 1>the rest of this year. Sea How do you think

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<v Speaker 1>we'd respond if the chairman acknowledge some of the weakness

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<v Speaker 1>in the economic data? Do you think I could get

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<v Speaker 1>problematic quickly? I think that would be mostly an expectation.

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<v Speaker 1>Seventy five basis points and the Fed admitting that economic

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<v Speaker 1>data is weakening and they'll stay data dependent would be

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<v Speaker 1>something I think the markets expect. What will be curious about, though,

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<v Speaker 1>is how much more are they going to tighten going forward?

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<v Speaker 1>How far past neutral that's going to be. The tea

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<v Speaker 1>leaves that everyone's reading to try to understand are they

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<v Speaker 1>becoming more hawkish or less hawkish? Sarah awesomeing to get

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<v Speaker 1>your view on things, particularly earn a little bit lighter

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<v Speaker 1>from Microsoft and Alphabet ceramatic. There of new than we're

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<v Speaker 1>gonna rib up the script down. We can do this

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<v Speaker 1>with french Hill to say he's a Republican from Arkansas.

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<v Speaker 1>Barely mentions his financial services life, his banking life. He

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<v Speaker 1>is hugely qualified and respected on Capitol Hill to talk

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<v Speaker 1>about our central bank, french Hill. One of the jewels

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<v Speaker 1>of Bloomberg is a guy named Craig Taurus. He's been

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<v Speaker 1>writing on the Federal Reserve for years and he sent

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<v Speaker 1>me a blistering note over when is there going to

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<v Speaker 1>be a transitory investigation? Let me cut to the chase.

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<v Speaker 1>Your Washington is transfixed with January six and there was

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<v Speaker 1>May one, two thousand nineteen where the word transitory was

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<v Speaker 1>launched by the chairman towards an inflation theory. Two Republicans

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<v Speaker 1>and Democrats have to investigate the path from transitor. Sorry,

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<v Speaker 1>I think so, Tom, and I don't disagree with that.

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<v Speaker 1>You know, a lot of the challenge that we have

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<v Speaker 1>now is that the Federal Reserves monetary policy is late.

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<v Speaker 1>In the face of the tremendous fiscal stimulus, they should

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<v Speaker 1>have begun shrinking the bound sheet in they should have

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<v Speaker 1>come off zero, And part of that was j Pal

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<v Speaker 1>and the Board agreeing in August to let inflation overshoot

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<v Speaker 1>their two percent targets, saying that they were not concerned

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<v Speaker 1>about it because for so many years they've been having

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<v Speaker 1>a hard time getting inflation to two percent. So I

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<v Speaker 1>think it deserves a thorough investigation. But I think we'll

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<v Speaker 1>find that the pandemic just jumbled the FED economic forecasts

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<v Speaker 1>and Congress's response. There has to be a respect for

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<v Speaker 1>the uncertainties of economics. Are we asking too much of

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<v Speaker 1>our institutions and particularly our central bank given the shock

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<v Speaker 1>of a once in a lifetime pandemic. Well, I think

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<v Speaker 1>that's that's conceivable, And I don't expect to take too

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<v Speaker 1>much pressure off the FED because I think a lot

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<v Speaker 1>of people Democrat and Republican, in the summer of the

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<v Speaker 1>fall of thought that we should stop buying a hundred

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<v Speaker 1>and twenty billion dollars a month to begin to taper

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<v Speaker 1>and maybe start setting out expectations for coming off zero.

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<v Speaker 1>And we did not do that. In the face of

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<v Speaker 1>tremendous fiscal stimulus. Again from well, given the economic uncertainty

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<v Speaker 1>that we currently face, regardless of what previous policies were,

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<v Speaker 1>do you think that it's better for the FED to

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<v Speaker 1>air on being much more aggressive and curtailing the inflation now,

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<v Speaker 1>even if it causes unemployment to go up, even if

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<v Speaker 1>it causes people to lose their jobs, which a lot

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<v Speaker 1>of people say is necessary, a necessary evil to bring

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<v Speaker 1>inflation down. Well, Lisa, I think we should focus on

0:12:52.360 --> 0:12:54.760
<v Speaker 1>price price stability at the FED. I think that should

0:12:54.760 --> 0:12:56.800
<v Speaker 1>be their core mission. They shouldn't have let it get

0:12:56.840 --> 0:12:58.720
<v Speaker 1>out of hand, and so they have to focus on

0:12:58.760 --> 0:13:02.599
<v Speaker 1>price stability to return earned their good judgment and their reputation.

0:13:02.960 --> 0:13:05.640
<v Speaker 1>But Congress and the executive branch can be focusing on

0:13:05.679 --> 0:13:09.160
<v Speaker 1>the supply side, getting any barriers away from people going

0:13:09.240 --> 0:13:13.400
<v Speaker 1>back to work, unleashing American industry, not adding to regulatory

0:13:13.440 --> 0:13:16.600
<v Speaker 1>burden at this critical moment, not proposing to raise taxes.

0:13:17.040 --> 0:13:19.000
<v Speaker 1>Those are all things on the supply side that I

0:13:19.040 --> 0:13:22.840
<v Speaker 1>think would be helpful as we navigate this tough time.

0:13:22.880 --> 0:13:26.200
<v Speaker 1>As Tom has described, an uncertain time between recession and

0:13:26.280 --> 0:13:29.679
<v Speaker 1>stopping inflation. The Congressman having the supply chain. Fixes are

0:13:29.679 --> 0:13:31.200
<v Speaker 1>going to take time. That is something that we have

0:13:31.240 --> 0:13:34.480
<v Speaker 1>seen repeatedly, even with passing potential bills having to do

0:13:34.520 --> 0:13:36.839
<v Speaker 1>a semiconductors and bringing some of the production back to

0:13:36.880 --> 0:13:40.000
<v Speaker 1>the United States. What do you do about an unemployment

0:13:40.080 --> 0:13:42.760
<v Speaker 1>rate that is expected to rise, a labor market that

0:13:42.800 --> 0:13:45.679
<v Speaker 1>many people say has to weaken in the face of

0:13:45.679 --> 0:13:47.880
<v Speaker 1>inflation in order to get us back to where we

0:13:47.920 --> 0:13:52.800
<v Speaker 1>need to be well. I think that's inevitably the cost,

0:13:52.880 --> 0:13:56.720
<v Speaker 1>as Tom says, of making mistakes in the past. We've

0:13:56.760 --> 0:13:59.920
<v Speaker 1>seen this movie before. It's very tough to put inflation

0:14:00.040 --> 0:14:03.319
<v Speaker 1>back in the bottle and cut expectations. The fit has

0:14:03.360 --> 0:14:06.400
<v Speaker 1>that obligation to price stability because inflation is a thief.

0:14:06.640 --> 0:14:10.280
<v Speaker 1>Families are also hurt by five dollar plus gas and

0:14:10.440 --> 0:14:13.960
<v Speaker 1>the effects of inflation. You're seeing Walmart's announcements today. Why

0:14:14.000 --> 0:14:17.480
<v Speaker 1>is it down. It's because consumers are being crushed by inflation.

0:14:17.960 --> 0:14:21.800
<v Speaker 1>So don't forget. These are two sides of the economic charts,

0:14:21.800 --> 0:14:23.960
<v Speaker 1>and they're both unpleasant. French chill and want you to

0:14:24.000 --> 0:14:26.480
<v Speaker 1>speak to Arkansas right now and the rest of the world.

0:14:26.560 --> 0:14:29.880
<v Speaker 1>What do we not get about your Bentonville, Arkansas? What's

0:14:29.880 --> 0:14:33.600
<v Speaker 1>the number one thing Global Wall Street doesn't get about

0:14:33.600 --> 0:14:39.320
<v Speaker 1>the pixie dust of Bentonville, Arkansas. The Ozarks an amazing place,

0:14:39.480 --> 0:14:42.600
<v Speaker 1>great food, great water. They didn't have any roads, Tom,

0:14:42.600 --> 0:14:45.960
<v Speaker 1>they had no infrastructure. When Sam Walton created Walmart, when J. B.

0:14:46.120 --> 0:14:49.600
<v Speaker 1>Hunt created j B. Hunt, When Don Tyson the elder

0:14:49.680 --> 0:14:52.200
<v Speaker 1>started Tyson Foods, it was just a country town. And

0:14:52.240 --> 0:14:56.880
<v Speaker 1>so to me, it's about American ingenuity, American perseverance, not

0:14:56.960 --> 0:14:59.920
<v Speaker 1>taking no for an answer, and that continues now. Six

0:15:00.000 --> 0:15:02.200
<v Speaker 1>the years later, John, that was a Chamber of Commerce

0:15:02.200 --> 0:15:06.760
<v Speaker 1>announcement from Arkansas. I think that was the problem. Congressman,

0:15:06.760 --> 0:15:19.360
<v Speaker 1>thank you. I think cash flow, uh stability, good quality

0:15:19.480 --> 0:15:22.960
<v Speaker 1>companies when this is all over, are going to be

0:15:23.080 --> 0:15:28.040
<v Speaker 1>valued once again. Nelson Pelts truly one of the most

0:15:28.200 --> 0:15:31.240
<v Speaker 1>interesting people in finance. We don't see enough from him,

0:15:31.240 --> 0:15:33.840
<v Speaker 1>we don't hear enough from him, and we do so

0:15:34.280 --> 0:15:37.880
<v Speaker 1>with David Rubinstein, this is a really interesting and frankly,

0:15:37.920 --> 0:15:43.440
<v Speaker 1>folks important interview on shareholder activism. Nelson Peltz with Mr

0:15:43.520 --> 0:15:47.240
<v Speaker 1>Rubinstein tonight at nine PM as well. David, congratulations on

0:15:47.360 --> 0:15:50.800
<v Speaker 1>dragging him out for some clear conversation. What is the

0:15:50.920 --> 0:15:57.320
<v Speaker 1>Nelson Peltz model from ingersoll ran out to the present day.

0:15:58.120 --> 0:16:01.440
<v Speaker 1>His model is to study consume more oriented companies or

0:16:01.480 --> 0:16:05.640
<v Speaker 1>companies that have pretty good businesses that are maybe underperforming.

0:16:05.880 --> 0:16:08.240
<v Speaker 1>Maybe they're too complicated, they've lost their way a bit.

0:16:08.600 --> 0:16:12.240
<v Speaker 1>He buys stock in the company, approaches the CEO, says,

0:16:12.280 --> 0:16:14.840
<v Speaker 1>I'd like to you to make some changes. Maybe I'll

0:16:14.840 --> 0:16:16.960
<v Speaker 1>go on the board, and he tries to increase the

0:16:17.040 --> 0:16:19.560
<v Speaker 1>value of the stock without taking over the company. And

0:16:19.600 --> 0:16:22.280
<v Speaker 1>it's worked quite well for him through his firm called

0:16:22.280 --> 0:16:26.040
<v Speaker 1>try On Partners. And what's important, David and correct me

0:16:26.080 --> 0:16:29.000
<v Speaker 1>if I'm wrong. There's not a lot of yelling and screaming.

0:16:29.120 --> 0:16:33.120
<v Speaker 1>He does this in a in a measured way. Am

0:16:33.120 --> 0:16:36.800
<v Speaker 1>I right on that? Correct? In the early days of

0:16:37.240 --> 0:16:40.520
<v Speaker 1>activist investors, let's say in the eighties, they tech took

0:16:40.560 --> 0:16:43.760
<v Speaker 1>stock positions, and they were fairly loud about trying to

0:16:43.760 --> 0:16:46.600
<v Speaker 1>take over the company or making changes. Today it's it's

0:16:46.680 --> 0:16:49.600
<v Speaker 1>very quiet. He doesn't really do much publicity. For what

0:16:49.640 --> 0:16:52.560
<v Speaker 1>he wants. He tells the CEO, the CEO agrees to

0:16:52.560 --> 0:16:55.080
<v Speaker 1>do it, then they don't really have any publicity. If

0:16:55.120 --> 0:16:57.720
<v Speaker 1>the CEO does not, he may sometimes do a proxy fight,

0:16:57.960 --> 0:17:01.360
<v Speaker 1>and that can get noisy. At times, but he's prevailed

0:17:01.440 --> 0:17:04.199
<v Speaker 1>generally and he's made companies much more valuable. He has

0:17:04.200 --> 0:17:07.040
<v Speaker 1>a fantastic quote as he's speaking to you talking about

0:17:07.040 --> 0:17:09.440
<v Speaker 1>why he dropped out of Wharton, saying that the best

0:17:09.440 --> 0:17:11.640
<v Speaker 1>advice he ever heard of his sales up, expenses down.

0:17:11.720 --> 0:17:13.440
<v Speaker 1>My father told me that, and that's why I dropped

0:17:13.440 --> 0:17:15.159
<v Speaker 1>out of Wharton. I knew I didn't need to know

0:17:15.280 --> 0:17:18.320
<v Speaker 1>much more. That said, from the granular to the macro.

0:17:18.520 --> 0:17:20.800
<v Speaker 1>He does have a macro column Big Tech that the

0:17:20.840 --> 0:17:24.040
<v Speaker 1>dominance of those stocks does seem to be on the wayne.

0:17:24.119 --> 0:17:27.800
<v Speaker 1>What's behind that? Well, his view is that you did

0:17:27.800 --> 0:17:29.840
<v Speaker 1>okay in the stock market in the last number of

0:17:29.880 --> 0:17:32.639
<v Speaker 1>years if you're in one of twelve different stocks, you know,

0:17:32.720 --> 0:17:35.240
<v Speaker 1>Amazon or Apple or things like that. But the rest

0:17:35.240 --> 0:17:37.680
<v Speaker 1>of the buy out, the rest of the world wasn't

0:17:37.720 --> 0:17:40.280
<v Speaker 1>doing so well, and many of these companies lost their way.

0:17:40.640 --> 0:17:43.960
<v Speaker 1>And he did very uh successful proxy fights and for

0:17:44.000 --> 0:17:46.520
<v Speaker 1>example a Procter and Gamble or and he got on

0:17:46.560 --> 0:17:48.159
<v Speaker 1>the board of Heinz. He got on the board of

0:17:48.359 --> 0:17:51.400
<v Speaker 1>other companies like DuPont, and he's not a quite quite

0:17:51.440 --> 0:17:54.919
<v Speaker 1>a successful job of increasing the value of the company

0:17:54.960 --> 0:17:56.760
<v Speaker 1>without having to try to take it over and leverage

0:17:56.840 --> 0:17:58.960
<v Speaker 1>up the company. David, we often get lost in the

0:17:59.000 --> 0:18:02.240
<v Speaker 1>macro discussions here and the difficulties in gaming out what's

0:18:02.240 --> 0:18:04.800
<v Speaker 1>going to happen in six months, let alone two years.

0:18:05.320 --> 0:18:08.640
<v Speaker 1>From his perspective, and frankly from your perspective as well,

0:18:09.200 --> 0:18:12.159
<v Speaker 1>is there a very simple, not game, but business to

0:18:12.280 --> 0:18:14.800
<v Speaker 1>play taking a look at the nuts and bolts of

0:18:14.800 --> 0:18:18.160
<v Speaker 1>a business regardless of what happens, and making smart decisions

0:18:18.160 --> 0:18:21.800
<v Speaker 1>and being able to identify the companies that are doing that. Yes.

0:18:22.000 --> 0:18:23.800
<v Speaker 1>His view is you take a company that, say like

0:18:23.840 --> 0:18:26.719
<v Speaker 1>Proper and Gamble, which had so many different products and

0:18:26.720 --> 0:18:29.400
<v Speaker 1>in his view, lost its way, wasn't spending enough money

0:18:29.440 --> 0:18:31.880
<v Speaker 1>on marketing or other kinds of things. And he goes

0:18:31.920 --> 0:18:35.280
<v Speaker 1>in and prevent presents his position about what they should do,

0:18:35.440 --> 0:18:38.120
<v Speaker 1>and tries to do it relatively quietly, and it's effectively

0:18:38.640 --> 0:18:41.320
<v Speaker 1>done now. Interestingly, he doesn't have enough money to do

0:18:41.359 --> 0:18:44.359
<v Speaker 1>it all by himself, so he does have third party investors,

0:18:44.400 --> 0:18:47.679
<v Speaker 1>just like other private equity firms do or venture firms do,

0:18:48.040 --> 0:18:50.639
<v Speaker 1>and he early on used his own money, but that

0:18:50.760 --> 0:18:52.440
<v Speaker 1>was not enough to do the kind of companies is

0:18:52.480 --> 0:18:55.639
<v Speaker 1>interested in now, David, A question for you, that I

0:18:55.680 --> 0:18:59.040
<v Speaker 1>would ask of Mr Peltz, and that is, do we

0:18:59.160 --> 0:19:02.399
<v Speaker 1>underestimate within the back and forth of the financial media

0:19:02.440 --> 0:19:05.640
<v Speaker 1>and the recession uproar right now, all the different news

0:19:05.640 --> 0:19:12.080
<v Speaker 1>flow going on, do we underestimate how corporations adjust? Are you?

0:19:12.600 --> 0:19:17.159
<v Speaker 1>Would you suggest rather that right now visible corporations in

0:19:17.200 --> 0:19:21.240
<v Speaker 1>the news today Walmart and McDonald's are adjusting and adapting

0:19:21.240 --> 0:19:25.560
<v Speaker 1>to the cards dealt them. There's no doubt that large companies,

0:19:25.560 --> 0:19:28.600
<v Speaker 1>like large organizations of any type, move more slowly. They

0:19:28.640 --> 0:19:31.000
<v Speaker 1>have bureaucracies, and it's not easy to get something done.

0:19:31.240 --> 0:19:33.200
<v Speaker 1>It's not easy to get something done to federal government

0:19:33.280 --> 0:19:36.240
<v Speaker 1>or state governments or large companies. So sometimes these companies

0:19:36.280 --> 0:19:38.520
<v Speaker 1>are not ahead of the curve. In some cases, good

0:19:38.520 --> 0:19:40.560
<v Speaker 1>managers have them ahead of the curve. But it's not

0:19:40.680 --> 0:19:43.680
<v Speaker 1>easy to anticipate a recession or exactly what you're gonna do,

0:19:43.800 --> 0:19:46.280
<v Speaker 1>or lay people off well before it's apparent that they

0:19:46.320 --> 0:19:48.160
<v Speaker 1>have to be laid off. So I would say these

0:19:48.240 --> 0:19:50.560
<v Speaker 1>large companies are ones that probably have to be brought

0:19:50.560 --> 0:19:53.040
<v Speaker 1>in a bit by somebody like Nelson Pelts. Given the

0:19:53.040 --> 0:19:55.040
<v Speaker 1>fact that you're talking about layoffs, I should do want

0:19:55.080 --> 0:19:57.800
<v Speaker 1>to just bring you this headline. Shopify just confirmed or

0:19:57.800 --> 0:19:59.879
<v Speaker 1>report initially in the Wall Street Hurtle that they are

0:20:00.000 --> 0:20:02.680
<v Speaker 1>saying to cut ten percent of their staff. They're supposed

0:20:02.720 --> 0:20:04.800
<v Speaker 1>to leave by the end of the day. This is

0:20:05.119 --> 0:20:08.200
<v Speaker 1>a significant part of their workforce, given the fact that

0:20:08.240 --> 0:20:09.720
<v Speaker 1>they were building up and they weren't one of the

0:20:09.800 --> 0:20:13.560
<v Speaker 1>darlings over the past couple of years. From your experience, David,

0:20:13.800 --> 0:20:16.359
<v Speaker 1>how much is this going to be the theme of

0:20:16.400 --> 0:20:19.200
<v Speaker 1>the next six to twelve months of companies cutting back

0:20:19.480 --> 0:20:25.760
<v Speaker 1>after expanding rapidly, doing to do to shifting preferences post pandemic. Well,

0:20:25.760 --> 0:20:27.440
<v Speaker 1>I think they'll see a lot of that because some

0:20:27.520 --> 0:20:30.640
<v Speaker 1>companies staffed up anticipating we would have growth for a

0:20:30.680 --> 0:20:32.359
<v Speaker 1>longer period of time that we're likely to have it,

0:20:32.920 --> 0:20:34.800
<v Speaker 1>whether we go into a recession or not. There's no

0:20:34.840 --> 0:20:37.200
<v Speaker 1>doubt there's an economic slowdown ahead of us, and we've

0:20:37.200 --> 0:20:39.280
<v Speaker 1>already slowed down a bit. So I think some people

0:20:39.280 --> 0:20:41.760
<v Speaker 1>have probably overstaffed, and I think the tech companies are

0:20:41.760 --> 0:20:45.040
<v Speaker 1>probably pretty good examples of that. Did Mr Pelts talk

0:20:45.080 --> 0:20:48.399
<v Speaker 1>about Madison Square Garden, small piece of real estate in

0:20:48.440 --> 0:20:51.200
<v Speaker 1>the island of Manhattan. He's got a knotting interest in that,

0:20:51.240 --> 0:20:54.800
<v Speaker 1>doesn't he he does, and uh, we didn't really get

0:20:54.840 --> 0:20:56.959
<v Speaker 1>into that very much, but it's something that he's been

0:20:57.000 --> 0:20:59.680
<v Speaker 1>involved with as well. And you know, he's a person

0:20:59.720 --> 0:21:02.000
<v Speaker 1>that takes on a couple of companies at a time,

0:21:02.160 --> 0:21:04.719
<v Speaker 1>one major one at a time, and focuses on it.

0:21:04.760 --> 0:21:06.600
<v Speaker 1>And when he goes on the boards of these companies,

0:21:06.760 --> 0:21:08.960
<v Speaker 1>he's generally listened to because he's had a pretty good

0:21:09.200 --> 0:21:11.960
<v Speaker 1>track record. I would say this wasn't the case early on.

0:21:12.200 --> 0:21:14.040
<v Speaker 1>Early on, people didn't know what he was all about.

0:21:14.080 --> 0:21:16.480
<v Speaker 1>But now I think his his motors operandi is pretty

0:21:16.480 --> 0:21:19.000
<v Speaker 1>well known. David. Thank you for the generous time this morning.

0:21:19.119 --> 0:21:21.280
<v Speaker 1>I really can't say no, folks about this interview with

0:21:21.359 --> 0:21:25.480
<v Speaker 1>Nelson Pelts. Not all that visible Rubinstein in Pelts, Bloomberg

0:21:25.520 --> 0:21:28.879
<v Speaker 1>will look for that. This is the Bloomberg Surveillance Podcast.

0:21:29.119 --> 0:21:32.480
<v Speaker 1>Thanks for listening. Join us live weekdays from seven to

0:21:32.600 --> 0:21:36.639
<v Speaker 1>ten am Eastern on Bloomberg Radio and on Bloomberg Television

0:21:37.000 --> 0:21:41.000
<v Speaker 1>each day from six to nine am for insight from

0:21:41.040 --> 0:21:45.600
<v Speaker 1>the best in economics, finance, investment, and international relations. And

0:21:45.680 --> 0:21:50.800
<v Speaker 1>subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg

0:21:50.880 --> 0:21:54.200
<v Speaker 1>dot com, and of course on the terminal. I'm Tom

0:21:54.280 --> 0:22:01.600
<v Speaker 1>Keene and this is Bloomberg. What is the mean