WEBVTT - The Fed, ECB, M&A, And Rising Prices 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.560 with essential market moving news. Find the Bloomberg Markets podcast 0:00:15.560 --> 0:00:18.439 called Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.120 at Bloomberg dot com slash podcast. Matt, I have no 0:00:22.200 --> 0:00:24.000 idea where we're gonna do with this next segment, so 0:00:24.200 --> 0:00:27.080 I'm thrown it. Well. I have been waiting for at 0:00:27.160 --> 0:00:29.400 least a week um to get Neil Grossman back in 0:00:29.480 --> 0:00:33.040 here since the fed UM decision. He has worn many 0:00:33.120 --> 0:00:37.200 hats on Wall Street as a prop trader at JP Morgan. 0:00:37.400 --> 0:00:39.720 He took risk for the No August Bank, the Central 0:00:39.720 --> 0:00:43.200 Bank of Norway. Um he ran a hedge fund. Yeah, 0:00:43.240 --> 0:00:44.880 for sure, Well he was. I told you he was 0:00:44.880 --> 0:00:47.680 a road road for Cambridge. I saw a gretty picture 0:00:47.760 --> 0:00:51.280 from must have been the seventies over the weekend. But um, 0:00:51.320 --> 0:00:54.720 now he is a vintner and an historical fiction author. 0:00:54.760 --> 0:00:58.600 Neil Grossman joins us in the Interactive Broker Studio. Neil, 0:00:59.160 --> 0:01:02.120 I want to get your take first on UM, the 0:01:02.120 --> 0:01:06.320 FEDS inflationary goals because they already were aiming for two percent. 0:01:07.200 --> 0:01:08.520 A lot of people have a problem with that to 0:01:08.560 --> 0:01:13.039 begin with. But now we've well overshot that, and if 0:01:13.080 --> 0:01:15.360 we ever want to get the average back to two percent, 0:01:16.240 --> 0:01:18.880 it's gonna take years. Well, let's start with why you 0:01:18.880 --> 0:01:22.959 should get the average back. Mr Powell and before him 0:01:23.000 --> 0:01:25.720 Mr Bernankey spent a lot of years explained to us 0:01:25.760 --> 0:01:28.560 that having inflation a little under two percent was not 0:01:28.680 --> 0:01:32.280 really good. Um, despite the fact, of course that their 0:01:32.280 --> 0:01:36.959 statutory mandate is actually zero price stability. That's just what 0:01:37.000 --> 0:01:39.400 Congress says. But they can do whatever they want, right. 0:01:39.840 --> 0:01:42.360 That's well, we can argue that too. That's not yes, 0:01:42.360 --> 0:01:44.119 they do whatever they want. That's not really the idea. 0:01:44.160 --> 0:01:47.200 But they spent a lot of time and then arguing 0:01:47.200 --> 0:01:49.240 that they wanted to let the economy run a little 0:01:49.280 --> 0:01:51.800 hot to push up inflation over to so you could 0:01:51.840 --> 0:01:54.800 average it. So let's using that as a baseline. Now 0:01:54.880 --> 0:01:57.440 that the fact is is that they let it run 0:01:57.440 --> 0:02:00.840 a mock to get it back to a two percent average, 0:02:00.920 --> 0:02:04.120 let's use a reasonable time frame like ten years. You're 0:02:04.160 --> 0:02:07.160 gonna end up this year probably about twelve to four 0:02:08.160 --> 0:02:10.960 over what the two percent trajectory was which means you're 0:02:10.960 --> 0:02:13.679 going to really have to have inflation average like one 0:02:13.720 --> 0:02:16.280 percent for eight years or something like that to get 0:02:16.320 --> 0:02:19.360 you even close to the two percent. And that's, let's 0:02:19.400 --> 0:02:21.880 face it, kind of a pipe dream. Well they're not 0:02:21.880 --> 0:02:24.440 talking about that. Mr Powell has said I want to 0:02:24.440 --> 0:02:27.400 get inflation just back to two percent, and let's talk 0:02:27.440 --> 0:02:29.799 about the probability of what that takes. I mean, Paul 0:02:29.880 --> 0:02:33.200 Valker got rates into the twenties and it took twenty 0:02:33.200 --> 0:02:35.920 five years pretty much to get a stable two percent 0:02:36.040 --> 0:02:39.040 ambient environment. I mean, you had your moments down, but 0:02:39.600 --> 0:02:41.560 for the nineties we were still averaging three to three 0:02:41.560 --> 0:02:44.880 and a half percent. If let's not anybody's business other 0:02:44.919 --> 0:02:46.720 than than Congress is they're the ones who have to 0:02:46.760 --> 0:02:49.520 just say that's not right. I I actually think that 0:02:49.560 --> 0:02:52.920 there's a legitimate reason for having low inflation. It creates 0:02:52.919 --> 0:02:57.239 an extraordinarily healthy environment. Done right, it minimizes volatively Matt. 0:02:57.400 --> 0:02:59.680 Matt and I were doing some calculus this morning about 0:03:00.240 --> 0:03:03.680 how to maximize the area inside of a fixed geometrical 0:03:04.120 --> 0:03:06.919 This is interesting if you take if you I can 0:03:07.080 --> 0:03:11.440 see doing that any any four sided shape, right, I 0:03:11.440 --> 0:03:15.399 would have thought the area. Um. You know, if if 0:03:15.440 --> 0:03:20.640 the total uhs around the perimeters, say thirty six inches, 0:03:20.680 --> 0:03:22.239 I would have thought, it doesn't matter. You can stretch 0:03:22.240 --> 0:03:24.360 a rectangle out, make it a square. It's all gonna 0:03:24.360 --> 0:03:27.520 be the same area. It's not a square. Is the 0:03:27.560 --> 0:03:30.840 maximal area and and and and any end gone, you know, 0:03:31.000 --> 0:03:35.200 cube or whatever else you want. The maximual area is 0:03:35.200 --> 0:03:40.080 equal size, which applies to returns on your investments, and 0:03:40.160 --> 0:03:44.680 it also applies to things like compounding of inflation. So, 0:03:44.720 --> 0:03:47.240 for example, if if I say to you, over a 0:03:47.240 --> 0:03:50.240 ten year period, you can choose either ten percent returns 0:03:50.280 --> 0:03:52.920 each year, or you can have eleven percent this year, 0:03:53.000 --> 0:03:55.080 nine percent next year, eleven percent the year after that, 0:03:55.160 --> 0:03:57.280 nine percent the year after that, eleven year after that nine. 0:03:58.080 --> 0:04:01.640 You're much better off choosing ten percent each year. In fact, 0:04:01.680 --> 0:04:03.480 is an RB. I would take the ten in short, 0:04:03.560 --> 0:04:06.080 the eleven nine for for eternity, and I walk away 0:04:06.160 --> 0:04:09.360 richer than Bill Gates. Um. But but the point is 0:04:09.400 --> 0:04:11.640 that this applies to things like what the FED should 0:04:11.680 --> 0:04:14.400 be doing to manage the economy. The FED should find 0:04:14.760 --> 0:04:18.520 reasonable trajectories of g d P inflation and everything else, 0:04:19.000 --> 0:04:21.680 and that and even the stock market and you want 0:04:21.720 --> 0:04:27.760 to find a sustainable trajectory where you're minimizing the variability, 0:04:27.839 --> 0:04:30.760 minimizing the volatility. That's actually how you get the maximum 0:04:30.800 --> 0:04:35.160 long term. But in the I don't I don't think that. Well, 0:04:35.240 --> 0:04:37.760 that that their mind. Well, two percent an interesting issue. 0:04:37.880 --> 0:04:41.120 Two percent is a two factor optimization, right. They have 0:04:41.200 --> 0:04:45.760 to mandates employment, full employment, and price stability, and they're 0:04:45.760 --> 0:04:49.880 not totally consistent. So two percent has become their sort 0:04:49.920 --> 0:04:53.680 of maximum of both. At the same time they beat that. 0:04:53.680 --> 0:04:55.880 That was the sad thing they were. They were ahead 0:04:55.880 --> 0:04:59.159 of that about eight six, seven years ago. They didn't 0:04:59.200 --> 0:05:01.680 like that right. As my first sales manager, Pain Webber 0:05:01.760 --> 0:05:03.800 would say, after I went through my big pitch about 0:05:03.839 --> 0:05:05.600 what I wanted to do with Meatia stocks, he would 0:05:05.640 --> 0:05:08.120 just interrupt me and say, Paul, are we buying him 0:05:08.160 --> 0:05:10.799 or we selling him? What are we doing here? I'm well, 0:05:11.120 --> 0:05:13.960 last time, two times ago I was on, I was short, 0:05:14.279 --> 0:05:16.720 I went a little long, and yesterday I started going 0:05:16.760 --> 0:05:19.640 short again. I think the market's got a lot more downstays. 0:05:19.640 --> 0:05:21.480 And by the way, I think this is also quite healthy. 0:05:22.000 --> 0:05:25.599 You need sort of a washout to equilibrate, and that 0:05:26.080 --> 0:05:27.920 without that, I think we're gonna have a lot more 0:05:28.000 --> 0:05:31.839 volatility going forward. I think you need to just get 0:05:31.960 --> 0:05:34.360 some of the energy out of this system, and then 0:05:34.480 --> 0:05:36.480 I think, at least for a while, you can be 0:05:36.640 --> 0:05:38.760 you can be quite positive. Remember yesterday I was telling 0:05:38.760 --> 0:05:40.839 you Neil Neil's target for the SMP at the end 0:05:40.839 --> 0:05:42.719 of the year seventeen No, no no, no, that's my that's 0:05:42.720 --> 0:05:45.719 my target probably next year, next year or whatever. Seventeen 0:05:45.800 --> 0:05:48.320 seventy six. We're trading at four thousand. Think about it, 0:05:48.440 --> 0:05:51.000 and I am a patriot, I get it, But you 0:05:51.080 --> 0:05:53.640 do honestly think that we're going down. I think we're 0:05:53.640 --> 0:05:55.880 going down, and I think we're gonna go down a 0:05:55.960 --> 0:05:59.000 larger than people, partially because once you start to go down, 0:05:59.440 --> 0:06:02.360 because the arkets are still functionally long and over invested. 0:06:03.279 --> 0:06:05.600 The fact is that people have to be forced out 0:06:06.120 --> 0:06:09.320 and to reduce their exposure. And when that process happens, 0:06:09.400 --> 0:06:13.279 markets extend and over extend, so you can pick what 0:06:13.360 --> 0:06:15.760 you want. I think the earnings are too high estimates. 0:06:16.080 --> 0:06:20.599 I think that that the bottom line is that, um, 0:06:20.640 --> 0:06:23.279 the pees are too high. And again, going back to 0:06:23.320 --> 0:06:26.320 one last thing, interest rates at the long end have 0:06:26.440 --> 0:06:30.000 to go higher, all right, That's good stuff. Here's what 0:06:30.040 --> 0:06:31.560 you have to do if you get Neil and Adam 0:06:31.600 --> 0:06:35.080 in together, John, because they are also friends, but they 0:06:35.080 --> 0:06:40.480 fundamentally disagree because Adams yes, Okay, there we go. Neil Grossman, 0:06:40.520 --> 0:06:43.400 co founder, former CIO t k n G Capital, Thanks 0:06:43.440 --> 0:06:48.720 so much for joining us. You know, Matt, here's the 0:06:48.720 --> 0:06:51.520 theme of the day. People you know, like Neil Grossman 0:06:51.640 --> 0:06:53.560 and our next guest, Ted Smith. They get all these 0:06:53.600 --> 0:06:56.880 fancy degrees in engineering, but I don't see anybody building 0:06:56.920 --> 0:07:00.839 anything or like, you know, building that's true. Both of 0:07:00.880 --> 0:07:03.120 them are vintners. Well, I don't know. I think it's 0:07:03.120 --> 0:07:07.160 a scanner. I've watched Neil put together his vineyard over 0:07:07.200 --> 0:07:10.600 the last ten years, and it takes a ton of 0:07:10.600 --> 0:07:14.520 work and planning and forethought, and I think these are 0:07:14.560 --> 0:07:18.520 just misspent educations. So he gets Ted Smith, co founder 0:07:18.520 --> 0:07:21.160 and president of Union Square Advisors. He gets his engineering 0:07:21.240 --> 0:07:23.559 stuff from Notre Dame, and then he goes to Wall Street. 0:07:23.600 --> 0:07:25.920 I mean, go figure that, Ted, Thanks so much for joining. 0:07:26.000 --> 0:07:28.600 You're in our bloom Bloomberg Interactive Broker Studio. We appreciate 0:07:28.640 --> 0:07:30.160 that you're based on the West Coast, but you're here 0:07:30.160 --> 0:07:32.440 in New York. Talk to us about M and A here, 0:07:32.480 --> 0:07:35.480 because before we get to that, let's let's talk about 0:07:35.480 --> 0:07:37.480 this engineer, like what did you do when you first 0:07:37.480 --> 0:07:40.320 got to the street, Because if you're putting together analytical 0:07:40.360 --> 0:07:43.920 models or if you're trading derivatives, I feel like that's 0:07:43.960 --> 0:07:46.800 really helpful to have an engineering degree. It was very 0:07:46.800 --> 0:07:48.920 helpful for me. Carter McClellan, who had started the tech 0:07:48.960 --> 0:07:51.080 group at Morgan Stanley, had the bright idea of hiring 0:07:51.080 --> 0:07:53.520 more engineers into the new tech investment banking group to 0:07:53.680 --> 0:07:56.360 understand what our clients actually did. I thought I was 0:07:56.400 --> 0:07:57.720 going to be a two year stop and then go 0:07:57.760 --> 0:08:00.400 back and finish my PhD. In thirty three years later, 0:08:00.440 --> 0:08:03.480 I haven't gone back. Still. You still have time building 0:08:03.520 --> 0:08:05.360 and just you know, kind of making some wine. M 0:08:05.440 --> 0:08:07.720 and A boy, we look at the equity markets, of 0:08:07.800 --> 0:08:10.720 fixing the markets here, just brutal, brutal, brutal. How about 0:08:10.760 --> 0:08:12.080 the M and A market? What do you see out there? 0:08:12.440 --> 0:08:14.680 We're certainly down from last year. We're off a little 0:08:14.680 --> 0:08:17.120 over a third from where we were this time last year. 0:08:17.680 --> 0:08:20.560 Last year a little bit, yeah, But but I think 0:08:20.600 --> 0:08:23.040 the key is deals are still getting done, right. I 0:08:23.040 --> 0:08:25.240 think you have to look through the headlines as you 0:08:25.280 --> 0:08:27.600 guys do. That's the whole point of the show. Uh, 0:08:27.600 --> 0:08:29.760 And understand that even though the markets on both the 0:08:29.760 --> 0:08:32.520 equity and the dead side are volatile, deals are getting done. 0:08:32.520 --> 0:08:34.880 The big strategics want to do deals. The large private 0:08:34.880 --> 0:08:38.079 equity firms are awash and capital, they're continuing to look 0:08:38.080 --> 0:08:41.280 for transactions and we're still very busy advising on transaction. 0:08:41.360 --> 0:08:43.440 So so things are happening, they're just taking a little 0:08:43.440 --> 0:08:45.640 bit longer. And you know, certainly things that were at 0:08:45.679 --> 0:08:48.040 the margin that could have gotten done six to twelve 0:08:48.040 --> 0:08:52.319 months ago won't get done. Now, what's the rising rate environment? 0:08:52.640 --> 0:08:54.800 What kind of effect does that have or does it 0:08:54.880 --> 0:08:57.840 not have an effect? I mean, if you're company looking 0:08:57.880 --> 0:09:00.880 to a fairly sizeable acquisition, you know, maybe you got 0:09:00.880 --> 0:09:03.320 all your ducks in a row financially already and you're 0:09:03.320 --> 0:09:08.679 not worried about rates today rather rates six months ago. Right, So, 0:09:08.720 --> 0:09:10.840 if you're one of the large acquirers, you probably in 0:09:10.880 --> 0:09:13.120 tech at least you're a wash in cash. You know, 0:09:13.160 --> 0:09:15.960 whether whether you're earning you know, fifty basis points or 0:09:16.080 --> 0:09:18.559 you know, on that cash that you let go out 0:09:18.559 --> 0:09:20.199 the door to do an acquisition, probably not going to 0:09:20.320 --> 0:09:22.520 change your P and L too much. Where it does 0:09:22.559 --> 0:09:24.480 have an impact or will over the long haul have 0:09:24.520 --> 0:09:26.800 an impact is on private equity when they're doing buyouts 0:09:26.800 --> 0:09:28.520 and they're using some of the you know, some debt 0:09:28.880 --> 0:09:31.280 to ultimately finance those. But again, we haven't seen a 0:09:31.320 --> 0:09:34.280 slowdown yet. They're taking this interest rate in stride or 0:09:34.320 --> 0:09:36.520 this interest rate environment, I should say in stride, and 0:09:36.520 --> 0:09:39.160 they're continuing to do deals. That could change if we see, 0:09:39.440 --> 0:09:44.120 you know, continue to see seventy five BIPs changes as 0:09:44.160 --> 0:09:46.600 the norm here through the end of the year, maybe 0:09:46.600 --> 0:09:48.840 we'll see some slowdown, but so far hasn't happened, I guess. 0:09:48.840 --> 0:09:51.720 Also it depends on your view of the path of 0:09:51.760 --> 0:09:54.520 interest rate increases into the future, right. I mean so 0:09:54.559 --> 0:09:57.040 many people come on and say, I remember in the 0:09:57.040 --> 0:09:59.400 eighties I was paying a seventeen percent mortgage or I 0:09:59.440 --> 0:10:03.160 bought tried is yielding. Um, if you think that we're 0:10:03.200 --> 0:10:07.679 headed there, yeah, then what we're saying for mortgages before 0:10:08.640 --> 0:10:11.960 take that out right, lock it in right? And and 0:10:11.960 --> 0:10:13.720 what what do you see is where do you see 0:10:13.800 --> 0:10:16.920 rates going? Um, we certainly see it's gonna it's gonna 0:10:16.920 --> 0:10:19.240 get more challenging, even this year, you know, a couple 0:10:19.320 --> 0:10:22.320 more times at least, we think the Fed is going 0:10:22.360 --> 0:10:25.640 to be pragmatic about not overreaching. But there's still obviously 0:10:25.679 --> 0:10:27.960 a lot of debate amongst the governors about where this 0:10:27.960 --> 0:10:29.440 should go and what they want to see with it. 0:10:29.840 --> 0:10:32.079 But again to your point, man, I think we see 0:10:32.320 --> 0:10:36.160 relatively still quite cheap. Capital is available from a broad 0:10:36.280 --> 0:10:38.600 range of sour if it's particularly in the direct lender market, 0:10:39.200 --> 0:10:41.959 which is now a multi trillion dollar asset class. Um. 0:10:42.040 --> 0:10:45.480 So deals, deals are getting done, and those big buyout firms, look, 0:10:45.480 --> 0:10:46.880 if they have to do a little more equity and 0:10:46.920 --> 0:10:48.800 a little less debt to make their deals work, they 0:10:48.800 --> 0:10:50.480 have the capital to do it. That's what I was 0:10:50.520 --> 0:10:53.200 gonna say. There's so much money in the pe space. 0:10:53.320 --> 0:10:55.240 I mean, Matt and I we just read stories day 0:10:55.280 --> 0:10:58.520 after day after day about another big fund being raised. 0:10:58.600 --> 0:11:00.720 There's always stories about they have like one point seven 0:11:00.720 --> 0:11:03.480 trillion dollars in dry powder. I mean, it's just to 0:11:03.520 --> 0:11:05.760 the point where it doesn't make any sense anymore. So, 0:11:05.800 --> 0:11:08.640 but if they have dollars, think about how many yen 0:11:08.720 --> 0:11:11.040 they have. Now they have dollars, think about how many 0:11:11.080 --> 0:11:13.040 euros or pounds. We saw the pound go to the 0:11:13.120 --> 0:11:16.199 loan of nineteen eighty five. Um, you probably hadn't even 0:11:16.200 --> 0:11:19.640 got your degree at that point. So what is that? 0:11:19.800 --> 0:11:21.679 Is that? A is that a tailwind for m and 0:11:21.760 --> 0:11:24.080 at first for American companies? Certainly it must be. If 0:11:24.120 --> 0:11:26.120 you want to buy something in Japan, it's at a discount, 0:11:26.280 --> 0:11:30.120 right well, and just the general valuation environment. Things are 0:11:30.160 --> 0:11:32.000 a discount relative to where we were six or twelve 0:11:32.040 --> 0:11:35.400 months ago, right, So slightly more expensive debt capital, but 0:11:35.520 --> 0:11:38.640 offset by cheaper valuations generally and the very strong dollar. 0:11:38.679 --> 0:11:40.600 I think this is the age where American pe firms 0:11:40.600 --> 0:11:42.400 are looking to go shopping around the world. I know, 0:11:42.559 --> 0:11:44.920 I just I mean, we talked about what's a pint 0:11:44.920 --> 0:11:46.960 of beer cost in London? These guys will talk about 0:11:46.960 --> 0:11:49.760 what's a company costs? Uh in London? Ted Smith, thanks 0:11:49.760 --> 0:11:51.480 so much for joining us, too short a time. We'll 0:11:51.520 --> 0:11:53.480 get you back. Ted Smith, he's a co founder and 0:11:53.480 --> 0:11:56.599 president of Union Square Advisors. Talking about some M and 0:11:56.679 --> 0:12:00.840 A and tech space. A misspent education, no doubt about it. 0:12:00.880 --> 0:12:02.880 Electrical engineering from Notre Dame and it goes to be 0:12:02.880 --> 0:12:05.080 an investment banker. Go figure that. But what would you 0:12:05.280 --> 0:12:07.560 I mean, what would you do? With an electrical engineering degree. 0:12:07.679 --> 0:12:10.880 You learn to look at systems, you learn to analyze things. 0:12:10.920 --> 0:12:13.360 You know, you know, go to like a defense contract there, 0:12:13.640 --> 0:12:15.240 you know, and make I don't know whatever they make 0:12:15.280 --> 0:12:17.920 submarines or something like that. That that that that would 0:12:17.960 --> 0:12:23.760 be cool. That would be pretty cool too. That's jewelry. 0:12:23.800 --> 0:12:26.840 I mean I I'm not a jewelry guy, per se 0:12:26.920 --> 0:12:30.439 are you you're not? Really? Well, you've got a class ring. Well, 0:12:30.480 --> 0:12:33.040 I have a Signet ring because my dad always had one, 0:12:33.400 --> 0:12:36.160 because his dad always had one because his dad had one. 0:12:36.240 --> 0:12:38.480 So just like a thing when you're a little kid, 0:12:38.679 --> 0:12:40.560 you see your dad having it and then you want it. 0:12:40.600 --> 0:12:42.880 But no, I don't wear other jewelry, all right, a 0:12:42.920 --> 0:12:45.640 lot of but apparently it's a great category within retail. 0:12:45.800 --> 0:12:48.720 Jennet Drosos joins us. She's a CEO of Signet Jewelers. 0:12:49.000 --> 0:12:52.080 Signet is a public company trades upon the Big Board 0:12:52.080 --> 0:12:54.280 of the New York Stock Exchange. S I G is 0:12:54.320 --> 0:12:55.719 a symbol to put it, do you you buy a lot 0:12:55.720 --> 0:12:58.200 of jewelry? Yeah? I'm with you on that, you know, 0:12:58.240 --> 0:13:00.839 because my my wife loves to wear. Her family is 0:13:00.880 --> 0:13:04.840 in the jewelry business in Spain. Really, but h I 0:13:04.920 --> 0:13:08.360 still like stuff for her over here? Sure? Why not? Jenna, 0:13:08.360 --> 0:13:09.840 Thanks so much for joining us here in our Bloomberg 0:13:09.880 --> 0:13:12.640 Interactive Broker studio. Matt, something is to change, man. People 0:13:12.679 --> 0:13:15.000 are coming into the studio like it's an exciting day. 0:13:15.040 --> 0:13:16.800 It's an exciting day, saying Jenna, thanks so much for 0:13:16.920 --> 0:13:20.520 joining us here. University of Georgia alum NBA from some 0:13:20.640 --> 0:13:25.520 school down in Philadelphia. UM talked about the jewelry business. 0:13:26.000 --> 0:13:29.600 How did it fare during the pandemic? Well, thanks for 0:13:29.640 --> 0:13:31.320 having me and it is great to be in person. 0:13:31.840 --> 0:13:33.920 Uh So, if I dial back to last year on 0:13:33.920 --> 0:13:36.600 our record growth in the jewelry category, we think the 0:13:36.679 --> 0:13:41.800 category was up about last calendar year, UM Signet was 0:13:42.240 --> 0:13:46.000 grew our revenues about fifty so we gained significant market share. 0:13:46.040 --> 0:13:49.280 We went from uh six and change to nine point 0:13:49.320 --> 0:13:52.720 three percent share of the category and continue to be 0:13:52.760 --> 0:13:55.199 overdeveloped in the bridle part of the category, where we 0:13:55.240 --> 0:13:57.920 have about a thirty percent share. And that's a big 0:13:57.920 --> 0:14:01.640 competitive And what does that mean engagement ring swdding rings exactly. 0:14:01.640 --> 0:14:03.800 And this is the year of the wedding. Two point 0:14:03.920 --> 0:14:06.959 five million weddings this year the highest and forty years 0:14:07.200 --> 0:14:10.320 and that's gotta be the biggest spend, right, because yes, 0:14:10.360 --> 0:14:13.000 I got married last year, yes, in October, and I 0:14:13.000 --> 0:14:17.720 bought my wife, uh, you know, another engagement ring and um, 0:14:18.360 --> 0:14:20.880 fortunately her parents made us the engagement rings. But are 0:14:20.880 --> 0:14:23.640 there are the wedding rings? But uh, that's got to 0:14:23.640 --> 0:14:27.600 be the biggest spend that a typical family, a typical 0:14:27.640 --> 0:14:31.760 household does in the jewelry category, right it is. By 0:14:31.800 --> 0:14:34.680 the way, I got married last year in October two. Congratulations, 0:14:34.760 --> 0:14:39.000 and my team made me a beautiful that is gorgeous. Wow, 0:14:39.120 --> 0:14:40.560 this is one of those times I wish were on TV. 0:14:40.680 --> 0:14:44.840 That's beautiful. Thanks, Yes, the craftsmanship was really excellent. And 0:14:45.000 --> 0:14:47.080 so why do you think the revenue growth was so 0:14:47.160 --> 0:14:50.160 strong last year? Is it because, um, you know, we 0:14:50.240 --> 0:14:53.840 had household savings built up, we got stimulus checks, etcetera. 0:14:53.960 --> 0:14:56.800 Or is it because the market rallied so hard and 0:14:57.120 --> 0:14:59.840 went to an all time high? What what drove that? 0:15:00.280 --> 0:15:03.840 All of those things impact category growth and jewelry. So 0:15:04.040 --> 0:15:07.680 number one was pent up demand for getting engaged. Uh, 0:15:07.840 --> 0:15:11.040 couples who had chosen to live together, a quarantine together 0:15:11.120 --> 0:15:15.360 during COVID, um, you know, became closer wanted to get engaged. 0:15:15.400 --> 0:15:18.160 But a lot of people postponed the engagement until they 0:15:18.360 --> 0:15:20.720 can have a view towards when they might have a wedding, 0:15:21.040 --> 0:15:23.560 and with COVID still going on, they couldn't invite families, 0:15:23.560 --> 0:15:27.160 So pent up demand for engagements was one. Second, with stimulus, 0:15:27.520 --> 0:15:32.200 that really impacted primarily the lower end of the market. Uh. 0:15:32.720 --> 0:15:36.080 Three big journeys that customers go on in jewelry. One 0:15:36.160 --> 0:15:40.000 is the bridal journey. You're exactly right. Uh, Buying an 0:15:40.040 --> 0:15:42.960 engagement ring is often the most expensive purchase a couple 0:15:43.000 --> 0:15:46.440 has made together. It's very considered purchase. It's a wonderful 0:15:46.480 --> 0:15:51.640 time to build a lifetime relationships with a couple, exactly. Fantastic. Second, 0:15:51.760 --> 0:15:55.680 romantic gifting. Uh, couples who were living together couldn't go 0:15:55.720 --> 0:15:58.480 out and celebrate, you know, with dinner, or you know, 0:15:58.520 --> 0:16:01.640 couldn't go to a concert. We're buying jewelry for each other, 0:16:01.680 --> 0:16:04.760 which was great. And then stimulus really contributed to the 0:16:04.760 --> 0:16:08.040 self purchased journey, especially at the lower end. So all 0:16:08.080 --> 0:16:11.640 those things came together to drive record market growth. So 0:16:11.840 --> 0:16:13.040 one of the things that Met and I talked about 0:16:13.040 --> 0:16:15.240 when we have CEOs here in the studio is it 0:16:15.280 --> 0:16:19.560 seems like every business every sector has supply chain issues. 0:16:19.640 --> 0:16:21.520 Is that true in the jewelry business? I mean, don't 0:16:21.560 --> 0:16:23.960 you guys get a lot of diamonds from Russia and 0:16:24.120 --> 0:16:27.720 other places like that, so it's not free for Signet UM. 0:16:27.800 --> 0:16:31.600 We were a scale player where the world's largest specialty 0:16:31.640 --> 0:16:35.800 retailer of diamond jewelry were vertically integrated. So we buy 0:16:36.320 --> 0:16:39.320 um a portion of our rough diamonds directly from the 0:16:39.440 --> 0:16:42.280 beers from the mind we cut and polish those ourselves. 0:16:42.800 --> 0:16:46.600 Responsible sourcing UM is something that Signet has pioneered for 0:16:46.680 --> 0:16:49.480 more than a decade. Uh and as soon as in fact, 0:16:49.520 --> 0:16:52.960 even before the war broke out in Ukraine, we stopped 0:16:52.960 --> 0:16:57.119 purchasing any diamonds that have Russian origin, and we've maintained 0:16:57.160 --> 0:16:59.920 that all the way through the conflicts. So customers can 0:16:59.920 --> 0:17:03.280 be very comfortable buying diamonds at Signet and knowing that 0:17:03.320 --> 0:17:06.359 those UM you know, have in no way been part 0:17:06.359 --> 0:17:09.200 of the conflict that's going on. What does your dealership 0:17:09.240 --> 0:17:11.439 network look like? And I only say that because I 0:17:11.480 --> 0:17:14.600 think in cars and motors, sure, but I mean it's 0:17:14.640 --> 0:17:16.680 the same thing, right, You've got retail outlets all over 0:17:16.720 --> 0:17:18.879 the place, You've got an online presence how does that 0:17:18.880 --> 0:17:22.679 break down? Yes, so we have UM. We we have 0:17:23.040 --> 0:17:26.800 banners retail banners that exist here in the US market. 0:17:26.840 --> 0:17:30.600 For example, we just purchased Blue Nile a couple of 0:17:30.600 --> 0:17:33.480 weeks ago, and we also have James Allen. Those sit 0:17:33.520 --> 0:17:36.240 at the top of our portfolio more of an accessible 0:17:36.320 --> 0:17:40.240 luxury online pure play and a big online play exactly 0:17:40.280 --> 0:17:44.560 our biggest banners. K We also have Zails and Jared, 0:17:44.840 --> 0:17:49.080 so those sitting in the mid market, and then UM 0:17:49.119 --> 0:17:51.679 at our our more value end of the spectrum. We 0:17:51.720 --> 0:17:55.200 have Banter by Piercing, Pagoda, and we also last year 0:17:55.240 --> 0:17:58.480 bought rocks Box, which is the leader in rental jewelry. 0:17:58.560 --> 0:18:01.760 So we have quite a wide range, and we've differentiated 0:18:01.800 --> 0:18:06.080 those banners. They're carrying different merchandise, targeting different customers. That's 0:18:06.119 --> 0:18:08.760 one of the success stories behind our share growth. So 0:18:08.880 --> 0:18:11.919 online somebody will pop down five or ten dollars for 0:18:11.960 --> 0:18:16.399 a diamond ring without actually seeing it. Interestingly, in the 0:18:16.480 --> 0:18:20.359 second quarter price points above ten thousand dollars worth of 0:18:20.400 --> 0:18:25.040 fastest growing for all of our banners. So okay, sales shared, Yes, 0:18:25.400 --> 0:18:28.199 I'd say James Allen the website, I have spent some 0:18:28.320 --> 0:18:31.960 time on it, and it's beautiful, and it's it's it's 0:18:31.960 --> 0:18:35.199 so user friendly, and it pulls you deeper into it. 0:18:35.320 --> 0:18:37.840 So once you go on there and start looking at things, 0:18:38.240 --> 0:18:40.320 you actually spend more time than you may have planned 0:18:40.359 --> 0:18:41.919 to do in the first place. You do spend a 0:18:41.920 --> 0:18:45.440 lot on marketing as well, because I see K's Zales 0:18:45.680 --> 0:18:47.800 ads all over the place where I hear them on radio. 0:18:48.520 --> 0:18:53.359 So how important is that? Which outlets do you choose? Well, 0:18:53.560 --> 0:18:56.200 you know, it's it's interesting. We've been on a five 0:18:56.280 --> 0:18:59.880 year transformation plan and so I think the cumulative impact 0:19:00.040 --> 0:19:02.640 of that is really putting us in a great position. Now. 0:19:02.720 --> 0:19:06.320 One of the areas we've transformed as marketing. So historically 0:19:06.320 --> 0:19:09.480 the company has been on TV advertising, mostly in November December, 0:19:09.560 --> 0:19:12.560 mostly on the NFL, targeting guys who were, you know, 0:19:12.640 --> 0:19:17.760 buying buying a holiday gifts. We did we make the 0:19:17.800 --> 0:19:21.280 Hall of Fame ranks, which is great. Yes, so so 0:19:21.400 --> 0:19:24.960 really exciting. But been anyway, we've really changed that marketing model, 0:19:25.040 --> 0:19:27.520 so we're always on We're talking to our customers all 0:19:27.600 --> 0:19:31.920 year long, more and more personalized and targeted, influencer marketing 0:19:31.960 --> 0:19:36.320 and social media, online video, educational videos and YouTube. So 0:19:36.400 --> 0:19:39.520 we've considerably broadened that mix, and as a result, our 0:19:39.520 --> 0:19:43.480 return on advertising spend has grown significantly over the last 0:19:43.560 --> 0:19:46.200 number of years. So it's a competitive advantage to us 0:19:46.200 --> 0:19:48.760 to have a large portfolio and be a leading marketer. 0:19:48.880 --> 0:19:52.080 But we've we've done that in a way that's highly personalized. Jennet, 0:19:52.119 --> 0:19:54.760 great stuff. Thanks for coming into the Bloomberg Interactive workers. 0:19:54.840 --> 0:19:59.080 Due to Jenna Dress, she is the CEATO of Signet Jewelers. Again, 0:19:59.119 --> 0:20:01.440 the symbol the trade on New York Stock Exchange. You 0:20:01.600 --> 0:20:04.680 popped this into your Bloomberg Professional terminal s I G 0:20:05.359 --> 0:20:08.119 is the symbol to get that there. So good stuff 0:20:08.200 --> 0:20:11.160 on the jewelry business. Pretty solid business. I mean, yeah, 0:20:11.280 --> 0:20:16.200 we've been digging into it, so I think it's really 0:20:16.240 --> 0:20:20.000 fascinating and um, we didn't get to it, but uh, 0:20:20.040 --> 0:20:21.760 it'd be great to get. Next time we have Jenna on, 0:20:21.880 --> 0:20:25.479