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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 1: my co host Matt Miller.

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Speaker 2: Every business day we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moving news. Find

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Speaker 2: the Bloomberg Markets Podcast called Apple Podcasts or wherever you

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Speaker 2: listen to podcasts, and at Bloomberg dot com Slash podcast.

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Speaker 3: We got those sticky inflation numbers this morning. I ran,

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Speaker 3: I want to start with you because the treasury trade

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Speaker 3: is what we're looking at most when it comes to

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Speaker 3: the debt ceiling impact. Talk to me about how that's

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Speaker 3: looking today as we head into this long weekend.

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Speaker 4: Yeah, so, you know, everyone is very hopeful that there's

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Speaker 4: going to be a some kind of deal. So you've

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Speaker 4: seen a little bit of a pullback in some of

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Speaker 4: the some of the t bills that had been trading,

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Speaker 4: you know, amazingly cheap to to other areas of the market,

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Speaker 4: and they still are right. So there still is this

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Speaker 4: risk priced into the market at the moment. I don't

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Speaker 4: think that that's going to change until we actually see

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Speaker 4: a deal. You know, risk managers and money market mutual

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Speaker 4: funds are just going to avoid these tea bills that

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Speaker 4: that potentially could have delayed payments because those investors just

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Speaker 4: need to have the daily liquidity and certainty that they're

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Speaker 4: going to get their money when it's promised, and if

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Speaker 4: if they don't, they're just going to avoid those. But

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Speaker 4: but then there's others, you know, there's other investors that

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Speaker 4: are speaking to are like, well, I'm okay if there's

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Speaker 4: a one or two day delayed payment, so I'll maybe

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Speaker 4: buy some of that instead of holding it in other

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Speaker 4: instruments that that are similar, like a bank account, for example,

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Speaker 4: which yields, you know, way less than what a what

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Speaker 4: a one week T bill is currently yielding.

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Speaker 5: And a hotbunt in here because I were just described

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Speaker 5: kind of the the bond trade there, talk to us

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Speaker 5: a little bit about what the US economy, the US

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Speaker 5: budget actually does look like if this deal does come through.

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Speaker 6: Right, So, the basic the deal looks like, the biggest

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Speaker 6: piece is the two year spending cap, and that will

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Speaker 6: basically be the element of that entire deal in terms

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Speaker 6: of its impact on the economy. I think that you know,

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Speaker 6: if it's a two year cap, then it means that

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Speaker 6: likely that the hit next year from the spending cap

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Speaker 6: would be about you know, taking away two underd k

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Speaker 6: of Josh relative to baseline. It's not a significant amount, right,

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Speaker 6: it's it's probably you know, it won't amount to too

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Speaker 6: much impact. But once they do lift the cap in

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Speaker 6: twenty twenty five, it will also generate some kind of recovery,

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Speaker 6: mild recovery. So yeah, it's just a it's not a

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Speaker 6: very big spending consolidation, so I would say, yeah, just

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Speaker 6: not that big.

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Speaker 3: All right, Well, we do have our Michael McKee in

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Speaker 3: studio now. Would never be joining us on the phone

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Speaker 3: on a big inflation day like this one, Mike, how

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Speaker 3: bad is the pc.

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Speaker 1: News for the Fed?

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Speaker 7: If you assume that their goal is to get interest

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Speaker 7: rates lower and the economy come in reasonably strong, that

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Speaker 7: it's not good news because you're going to probably have

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Speaker 7: to raise rates higher. That's the kind of the story

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Speaker 7: that inflation is telling us at this point. Now, we'll

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Speaker 7: get another CPI right before they're meeting on June fourteenth.

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Speaker 7: But the economy looks very strong. Consumer spending very strong

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Speaker 7: in the month of April, and business spending. The Durbal

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Speaker 7: goods orders were relatively strong, So you got a combination

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Speaker 7: of a strong economy and prices not going down, maybe

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Speaker 7: in part because businesses are taking advantage of the strong economy,

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Speaker 7: and it just tells the fact that what they have

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Speaker 7: done so far to put restraint in place hasn't worked.

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Speaker 7: The argument is that maybe it takes a while for

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Speaker 7: the cumulative effect to start to have an impact, but

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Speaker 7: right now it looks like the people who think they

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Speaker 7: need to do more may carry the day.

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Speaker 5: Well, McKee, we spoke this morning, and one of the

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Speaker 5: kind of concerns that I had was, Look, if you're

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Speaker 5: capping fiscal spending for two years in theory, shouldn't that

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Speaker 5: mean that the government spending kind of tail went to

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Speaker 5: the economy is capped as well, And isn't that a

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Speaker 5: reason for concern?

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Speaker 1: Tell me why I'm.

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Speaker 7: Wrong, Because they're not really cutting spending. This is the

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Speaker 7: standard Washington game where you move money around and sort

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Speaker 7: of shuffle where the pot comes from and where it

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Speaker 7: goes to. But it doesn't really change the amount that

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Speaker 7: the government is going to spend. You're going to put

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Speaker 7: spending caps on non defense discretionary spending, which is the

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Speaker 7: smallest part of the budget, the entitlement programs Medicare and

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Speaker 7: Social Security. They'll keep spending at the same rate that

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Speaker 7: they are because they're exempted, they have their own formulas

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Speaker 7: for how much they go up. And defense spending, according

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Speaker 7: to what we have seen reported about the deal, is

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Speaker 7: going to go up three percent as it was planned to.

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Speaker 7: So the amount of money that they're talking about cutting back,

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Speaker 7: they're really cutting back the increase in what was going

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Speaker 7: to be spent, rather than actually spending less.

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Speaker 4: Now, you know what's interesting about that, if I could

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Speaker 4: jump in here a little bit, is that when they

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Speaker 4: did something similar to this with sequestration back in twenty eleven,

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Speaker 4: it did have the effect of limiting budget deficits, right,

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Speaker 4: just because you wound up having growth be somewhat bigger

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Speaker 4: and higher than government spending increases. And I think that

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Speaker 4: in a way, that's the that's kind of the Goldilock

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Speaker 4: scenario here for budgetary hawks, right, people who want to

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Speaker 4: make sure that the debt doesn't continue to increase at

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Speaker 4: such a rapid pace. But making it, you know, a

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Speaker 4: two year deal also limits some of that some of

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Speaker 4: the inks that might occur around some of those you know,

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Speaker 4: bigger chunks of the pie. But like Mike said, things like,

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Speaker 4: you know, it's social Security spending for example. That's one

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Speaker 4: of the big things that is really driving some of

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Speaker 4: the debt limit aks that we have right now. Right, So,

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Speaker 4: there was some news yesterday that the Treasury Department is

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Speaker 4: going to be issuing net debt of sixty four billion

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Speaker 4: dollars that that matures next Thursday, and everyone's like, well,

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Speaker 4: how are they issuing net debt of sixty sixty four

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Speaker 4: billion dollars? Well, one of the ways is because sixty

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Speaker 4: billion dollars of non marketable debt is coming out of

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Speaker 4: the Social Security Trust Fund to pay effectively to pay

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Speaker 4: the social security payments that are due that day. So

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Speaker 4: that debt is going down. But at the same time,

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Speaker 4: the government doesn't have any cash in order to pay.

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Speaker 4: So that's why the public debt has to be increased.

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Speaker 4: So it's not that the government has more you know,

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Speaker 4: a bigger pot of extraordinary measures to use. It just

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Speaker 4: you know, basically taking from one hand giving to the other.

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Speaker 4: But that gets bigger and bigger as time goes on.

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Speaker 4: So to Mike's point, deficits are still going to be positive, right,

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Speaker 4: You're still you're still not going to have a balanced budget,

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Speaker 4: you know, but it does slow the growth of the

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Speaker 4: of the debt over time.

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Speaker 7: There is a problem that we haven't really focused on

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Speaker 7: coming up that I reckon comment done because right now

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Speaker 7: the Treasury has forty nine and a half billion. It

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Speaker 7: will have much less next week. But suppose we get

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Speaker 7: a deal, Treasury needs to build up his cast reserves

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Speaker 7: normally wants about five hundred billion in there. So according

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Speaker 7: to the Treasury at their last three funding announcement, they

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Speaker 7: said they anticipated having five hundred and fifty billion in

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Speaker 7: their account by the end of June. And as we

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Speaker 7: just noted, forty nine and a half of is all

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Speaker 7: that's there? So IRA, who's going to buy all that stuff?

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Speaker 7: And what is it going to cost?

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Speaker 4: Well, there's a couple of pieces to that. Actually, Number

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Speaker 4: one is it probably you know that five hundred and

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Speaker 4: fifty number assumed that the debt limit was going to

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Speaker 4: be raised when they had, you know, several hundred billion

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Speaker 4: dollars in cash already in the Treasury General account. So

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Speaker 4: one is I think demand will be pretty decent for

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Speaker 4: four bills at this point. You know, money funds and

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Speaker 4: ultra short ultra short money wants to kind of lock

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Speaker 4: in these higher rates now in the anticipate patient that

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Speaker 4: maybe in the future the feder Reserve is going to

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Speaker 4: ease interest rates, so there will be some of that.

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Speaker 4: Number one and number two, there will have to be

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Speaker 4: about five hundred million dollars in issues very very quickly,

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Speaker 4: and probably two hundred billion almost right away. And I think,

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Speaker 4: given where yields are right now, for some of that paper,

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Speaker 4: it'll be pretty well received. There'll be plenty. There is

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Speaker 4: an issue about what happened to the Fed's balance sheet,

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Speaker 4: because the reserve balances are likely to go down and

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Speaker 4: go down quickly, and we know that from September of

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Speaker 4: twenty nineteen. What can happen if reserves really go down

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Speaker 4: and the plumbing in the financial sector ends up being

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Speaker 4: a little bit squishy, It'll be really interesting to see

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Speaker 4: what happens in the repo market at that point.

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Speaker 5: Yeah, certainly a lot dies. And I gotta say, we

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Speaker 5: got to get Nana Wong's take on this. We're going

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Speaker 5: to bring her back shortly. Bloomberg Economics is Anna Wong,

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Speaker 5: Iour Jersey actuallyf us interest rate strategies, our Bloomberg Intelligence,

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Speaker 5: of course, our star player, Mike McKee, Bloomberg International Economics

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Speaker 5: and Policy correspondent.

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Speaker 1: We thank you as always interesting stuff.

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Speaker 5: Markets in the green folks, stick with us.

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Speaker 8: You're listening to the Team ken'sline program Bloomberg Markets weekdays

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Speaker 8: at ten am Eastern on Bloomberg dot Com, the iHeartRadio

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Speaker 8: wherever you get your podcasts.

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Speaker 5: Maddie, A lot to digest here in terms of Federal Reserve,

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Speaker 5: the debt ceiling, these markets. But I think at the

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Speaker 5: end of the day, it's really all about do we

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Speaker 5: or do we not hit a recession by the end

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Speaker 5: of the year.

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Speaker 1: Who better to bring in and to.

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Speaker 5: Talk about this is Philip colmar Am I saving that right,

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Speaker 5: Cort colmar It is managing partner and global strategist over

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Speaker 5: at MRB Partners. Philip for somethingk you for joining us

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Speaker 5: in the Studiosmini was here. He'd give you a gold star.

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Speaker 5: Talk to us about these recession onds.

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Speaker 9: Yeah, the marketplace too high of an expectations towards recession,

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Speaker 9: particularly following the SVV or banking system strains. More generally,

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Speaker 9: you know, our view, as has said, a recession is

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Speaker 9: not likely over certainly throughout this year and probably over

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Speaker 9: the next year. And the reason is, and I think

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Speaker 9: we're seeing it today in the data is the US

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Speaker 9: consumer is in a lot stronger shape than people give.

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Speaker 10: It credits for.

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Speaker 9: It's spent ten or fifteen years de leveraging, has healthy

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Speaker 9: balance sheets, has low debt burdens, and a tremendous amount

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Speaker 9: of cash transferred to it, but thanks to fiscal policy

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Speaker 9: during the pandemic, so it hasn't needed to tap into

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Speaker 9: credit to do It makes the US consumer a lot

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Speaker 9: less interest rate sensitive because the consumption is such an

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Speaker 9: important part something like seventy percent of GDP. It makes

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Speaker 9: the overall economy less interest rate sensitive. And I think

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Speaker 9: people have just chronically underestimated where that breaking point is

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Speaker 9: of interest rates or total cost of capital, whether that

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Speaker 9: be FED policy or bond yields. Before we tip into recession.

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Speaker 3: Did any of the retail earnings that we got change

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Speaker 3: your picture on the consumer? I know it was a

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Speaker 3: little bit muddied, but a Walmart, for example, seemed pretty

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Speaker 3: clear that the US consumers struggling. They're moving to those

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Speaker 3: lower margin food purchases because they just can't afford much else.

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Speaker 9: Yeah, I think you see some downshifting we saw in

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Speaker 9: the retail sales data in the past, as well, we've

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Speaker 9: seen a little bit affirming as a less print, but

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Speaker 9: we have seen some softening down in the consumer. Now,

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Speaker 9: we'd expect that coming off of sort of an economic

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Speaker 9: boom almost that we had. There's been a big down

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Speaker 9: shift in terms of economic activity from really boom like

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Speaker 9: dynamics fueled by fiscal and monetary policy, and so in

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Speaker 9: that boom, there's there's space for weakness. There's been higher inflation,

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Speaker 9: and all the wages are there. It's only now that

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Speaker 9: it's starting to turn into real wage growth, so there

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Speaker 9: was a bit of a bite. I think that that's

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Speaker 9: going to work for the consumer heading forward as inflation

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Speaker 9: moderates a bit, I don't. I think it's going to

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Speaker 9: stay a lot stickier as we saw today. Then certainly

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Speaker 9: the FED hopes and investors have been predicting, so watch

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Speaker 9: it for that bond market. But I do think the

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Speaker 9: consumer will ultimately be resilient ultimately, if even if downshifting here.

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Speaker 5: But do recessions happen kind of in a vacuum. It's

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Speaker 5: not the slow grind lower, it's a it's a very

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Speaker 5: sudden drop essentially. So if you're seeing a resilient consumer,

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Speaker 5: that doesn't necessarily mean that there isn't a sudden drop

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Speaker 5: in the near or distant future.

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Speaker 1: What would be kind of the canary and the coal

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Speaker 1: mine for you.

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Speaker 9: Yeah, so whenever you're normalizing interest rates or the cost

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Speaker 9: of capital is rising, you're going to blow up things.

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Speaker 9: That's just natural. So the difference between this cycle and say,

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Speaker 9: you know, the two thousand and eight cycle, is that

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Speaker 9: household sector gives you a really strong anchor to the

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Speaker 9: global economy or US and your area economy and there

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Speaker 9: for the global economy because they're so resilient. So that

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Speaker 9: makes the challenge of tipping us into recession harder. That

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Speaker 9: being said, when you lift up interest rates, you do

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Speaker 9: things like cause banking system strains, you take out some

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Speaker 9: zero yielding assets, You'll hit the private investment space and

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Speaker 9: those kind of things, and they can have ripple effects

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Speaker 9: through it. So it's these kind of weak links that

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Speaker 9: we monitor closely to see when you build up what

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Speaker 9: we call critical contagion to tip it over. People had

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Speaker 9: rightfully feared some elements of that with the banking system strains.

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Speaker 9: The problem was is the magnitude just wasn't anywhere on

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Speaker 9: compared to the you know, on size of the GFC.

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Speaker 9: It was a much smaller issue this time around, but

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Speaker 9: it's those kind of things you look for, is some

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Speaker 9: kind of contagion that's strangling through. I think the missstake

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Speaker 9: that a lot of the recession camp made, though, is

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Speaker 9: that they look for in dedicators and old rule of

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Speaker 9: thumb measures, particularly in the manufacturing confidence those kind of things.

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Speaker 9: They forget that that's shrunk in terms of size of

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Speaker 9: the overall economy, and the service sector has been accelerating.

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Speaker 9: It's been strong, and that's kind of thing. It's a

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Speaker 9: much bigger sector of the economy than manufacturing, and people

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Speaker 9: often forget their go to ism manufacturing index. It's dipped

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Speaker 9: below the fifty line. I think it is twelve times

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Speaker 9: if you count this one since eighty three and eight

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Speaker 9: of them have been headfakes. They haven't been recessions, so

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Speaker 9: it doesn't have a great batting average. Focus more on

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Speaker 9: the service sector doesn't have as much history, but it's

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Speaker 9: not signaling a recession at this point.

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Speaker 3: I love the optimism because I would rather us not

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Speaker 3: have to deal with a recession, particularly on the consumer side.

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Speaker 3: I'm going to try to get some extra credit on

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Speaker 3: this Friday, though, by pointing out the warp function on

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Speaker 3: the terminal warp for folks listening to us, and it

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Speaker 3: tells us the anticipation of rate hikes moving forward. In

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Speaker 3: June that went up to fifty four percent, saying a hike.

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Speaker 1: Tell me why you think they're wrong.

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Speaker 9: Well, I think the Fed is signaling that it wants

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Speaker 9: to to go to the sidelines, do a weight and

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Speaker 9: see mode, mostly because the banking systems strains a bit

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Speaker 9: of vasing and inflation. Obviously, today's numbers has been tough.

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Speaker 9: I think the real mistake in terms of interest rate

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Speaker 9: expectations is pricing in the deep rate cuts. Now we've

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Speaker 9: seen a lot of that come back out this month alone, right,

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Speaker 9: but there's still significant rate cuts, and that's predicated on

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Speaker 9: the recession camp. At this cost of capital. Back to

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Speaker 9: being the optimist or the optimist on the economy, it's

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Speaker 9: at this cost of capital we don't see the breaking point.

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Speaker 9: It doesn't necessarily mean the Fed has to do a

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Speaker 9: lot more.

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Speaker 10: It means the.

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Speaker 9: Distortion of the yield curve. In many ways, the lower

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Speaker 9: bond yields is subsidizing. Remember, a lot of the economy

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Speaker 9: borrows at the long end, not the short end of

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Speaker 9: the curve, and so the inversion of the yield curve,

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Speaker 9: even though recession or economic bears would point to that

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Speaker 9: as a recession signal, it's actually subsidizing economic growth here,

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Speaker 9: so it's actually preventing in many ways that recession. So

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Speaker 9: I think the caretful thing is is if you get

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Speaker 9: away from the recession camp, be careful in the bond market,

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Speaker 9: and of course that causes ripple effects and volatility through

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Speaker 9: the asset spectrums in general.

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Speaker 5: Are you worried at all about that bond volatility? I mean,

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Speaker 5: you're seeing such a a kind of selling baked into,

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Speaker 5: especially in T bills, but you're seeing it on the

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Speaker 5: front end of the curve as well, as you point

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Speaker 5: out the unwind of that in the next few weeks

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Speaker 5: or a few months. Are you at all concerned about

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Speaker 5: the volatility or the risk taking in the bond market

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Speaker 5: right now?

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Speaker 9: Yeah, I think that's I mean, bond volatility has been

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Speaker 9: a very big issue pretty much for the last couple

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Speaker 9: of years, and I continue to see that as an issue.

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Speaker 9: So there's a difference between if you're in a fixed

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Speaker 9: income investor, we'd be shorter on the duration and expecting

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Speaker 9: bondials go up. We've seen some of that. We still

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Speaker 9: see a move higher. Equities gets a little bit more mixed,

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Speaker 9: so well, we may not be in the recession camp

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Speaker 9: here at this cost of capital. So that's good for

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Speaker 9: equities as we reprice or do an upward shift in

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Speaker 9: terms of economic expectations. Keep an eye on the bond

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Speaker 9: market because that's the flip side of it. As bond

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Speaker 9: and yields come up, it hurts that discount rate. It

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Speaker 9: creates that volatility ripples back into the equity market. And

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Speaker 9: so we say with clients, you've got to be a

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Speaker 9: lot more selective in this environment on equities. Favorite places

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Speaker 9: where you get your valuation discount and places where you

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Speaker 9: get relative earnings upside. So I look at the market

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Speaker 9: right now. We get a bit of a frenzy going

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Speaker 9: on in tech. Again, some of it's AI driven, but

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Speaker 9: that's not the spot where you get your relative value discount,

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Speaker 9: and even relative earnings are eroding. You know, you flip

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Speaker 9: over and you look at large cap banks. They look

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Speaker 9: a lot better in terms of both of those things.

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Speaker 9: For the most part, that also lends itself outside of

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Speaker 9: the US into some of things like European markets and

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Speaker 9: stuff like that where you get better valuation discounts relative

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Speaker 9: earnings favoring. But selectivity is going to be the name

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Speaker 9: of the game here because of as you said, that

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Speaker 9: bond volatility and a fields continue to ratchet higher. That

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Speaker 9: takes a lot of wind out of the equity market.

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Speaker 3: Are the tech plays then in kind of the comps

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Speaker 3: and peers of companies that are going all in on AI?

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Speaker 1: Is that the move?

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Speaker 9: Yeah, I think there's there's a frenzy around that move

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Speaker 9: at this point. I think the tech starting you don't

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Speaker 9: like it, well, I think there's I think there's going

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Speaker 9: to be momentum behind it. So there's a trade probably

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Speaker 9: in that continuing. I think it's going to take time

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Speaker 9: to develop that technology and really try to materialize it

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Speaker 9: into profits, and so there's some of that. I think

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Speaker 9: the original tech rally started here even before a lot

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Speaker 9: of that in the context if we were in a

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Speaker 9: sluggish or week maybe even quasi recessionary growth backdob but

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Speaker 9: that we were going to get significant rate cuts. That's

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Speaker 9: those longer duration assets, the growth sphere or growth index

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Speaker 9: tends to benefit in that backdrob. But if we undwind

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Speaker 9: that recession risk we push up bond yield, then you

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Speaker 9: want to be in more of the value cohort rather

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Speaker 9: than some of this. And if you are going to

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Speaker 9: dip your toe into the growth cohort, we would recommend

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Speaker 9: communication services that spot where they got beaten up last

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Speaker 9: year and seems to have a better valuation support at

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Speaker 9: this point.

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Speaker 3: Okay, quickly in our final minute here, I'm working on

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Speaker 3: a story about what happens if the dollar dips. Can

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Speaker 3: you tell me if the dollar is going to dip

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Speaker 3: so I know whether or not I should be working

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Speaker 3: on that story.

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Speaker 9: Yeah, yeah, the dollar. I mean, I'm cyclically negative on

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Speaker 9: the dollars, so I would expect it to dip. It

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Speaker 9: was over sold recently and we got interest rate expectations

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Speaker 9: starting to wind up of the curve, so we got

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Speaker 9: some firmness in the dollar associated from that. But I

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Speaker 9: think you've got to catch up story on a relative

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Speaker 9: growth basis in the rest of the world, Europe and

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Speaker 9: in Asia from their lag openings. I still think the

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Speaker 9: you should has some work to do, but the FED

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Speaker 9: kind of goes on hold, so I think that the

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Speaker 9: dollar slides.

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Speaker 1: So yes, nice, oh man.

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Speaker 5: Just as we talk about the dollar, we gotta go.

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Speaker 5: I have so many follow up questions. Philip Colemar, Managing Partner,

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Speaker 5: Global Strategists over at MRB Partners, we thank you as

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Speaker 5: always coming in in studio without a time.

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Speaker 1: Might add though, is that allowed on a Friday? Apparently?

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Speaker 1: I'm told it is hard disagree on my end. Never less,

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Speaker 1: we'll forgive you. Have a good weekend.

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Speaker 5: Thanks Philip Colemar again MRB Partners. Folks, we are seeing

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Speaker 5: green on the screen. The S and P five hundred

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Speaker 5: higher by one percent. That rally has really taken off

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Speaker 5: in just the last thirty minutes or so, the Nasdaq

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Speaker 5: significantly outperforming, higher by one point four percent. The VICX

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Speaker 5: though we're a seventeen handle. There is a lot going

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Speaker 5: on this market. We're going to dive into it.

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Speaker 8: You're listening to the tape cans Are Line program Bloomberg

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Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the

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00:19:00,320 --> 00:19:03,560
Speaker 8: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

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00:19:03,560 --> 00:19:06,400
Speaker 8: You can also listen live on Amazon Alexa from our

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00:19:06,400 --> 00:19:11,440
Speaker 8: flagship New York station, Just say Alexa, Play Bloomberg eleven thirty.

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Speaker 5: Next guest is pretty exciting, Liz McCormick, our chief markets correspondent.

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Speaker 5: She has a little bit of everything over on Bloomberg News,

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Speaker 5: and she has this really interesting story about kind of

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Speaker 5: hedge fund trades and how they're navigating all of this

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Speaker 5: debt ceiling debate and how how kind of go wrong. So, Liz,

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Speaker 5: welcome to the show. Thank you for making time for

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Speaker 5: us on a Friday. How can some of these trades

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Speaker 5: go wrong?

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Speaker 11: By the way, saying yes to you was the easiest yes.

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Speaker 11: So wow, you know what.

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Speaker 1: I'm recording this and putting it in my email.

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Speaker 11: Well, so you know, Shanali, who you know well, and

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Speaker 11: several other of our great lady reporters are on this

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Speaker 11: story together just looking at you know it. You know

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Speaker 11: we've talked before. The basis trade is a long favorite

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Speaker 11: of hedge funds. But you know, there's a lot of

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Speaker 11: things we saw in March twenty twenty, especially when things

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Speaker 11: get bad, the march is not functioning, and especially when

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Speaker 11: repro rates go high, because these are trades that make

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Speaker 11: a little money but make a heck of a lot

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Speaker 11: more when they use a lot of leverage, which is

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Speaker 11: what these folks do. So that's long been an area

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Speaker 11: that regulators say, you know, we want some more oversight,

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Speaker 11: you know, and they've been trying to do things that

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Speaker 11: bring you know, hedge funds more under the fold of oversight.

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Speaker 11: But there are blind spots like the bilateral repo market,

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Speaker 11: which the Treasury's Office of Financial Research has done a

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Speaker 11: lot of good work on getting data but said that's

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Speaker 11: still kind of a blind spot, and that's how a

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Speaker 11: lot of this repo is done. So, you know, now

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Speaker 11: we're saying things are going to work out on the

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Speaker 11: debt ceiling. I hope it does. But some of the

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Speaker 11: chaos that people are worried may ensue is repro rates

436
00:20:49,200 --> 00:20:52,119
Speaker 11: could surge and things like that. So there that puts,

437
00:20:52,160 --> 00:20:53,480
Speaker 11: you know, kind of the risk. So that's why I

438
00:20:53,520 --> 00:20:56,600
Speaker 11: think there's been folks tapping around checking, you know, how's

439
00:20:56,600 --> 00:20:59,680
Speaker 11: the leverage positioning and things like that on we don't

440
00:20:59,680 --> 00:21:00,679
Speaker 11: want to know blow up.

441
00:21:01,880 --> 00:21:04,679
Speaker 3: This was the exact question that I wanted to ask you, Liz.

442
00:21:04,840 --> 00:21:08,920
Speaker 3: If the US's credit rating is impacted over these debt

443
00:21:08,960 --> 00:21:13,280
Speaker 3: ceiling debates, what does that do to these requirements?

444
00:21:14,800 --> 00:21:18,680
Speaker 11: Well, isn't that It's interesting because first of all, it

445
00:21:18,760 --> 00:21:21,680
Speaker 11: is number one, it's interesting to know what happens to treasury.

446
00:21:21,840 --> 00:21:25,280
Speaker 11: So as you guys remember in twenty eleven, SMP downgraded

447
00:21:26,400 --> 00:21:29,880
Speaker 11: just after the deal was done, but it yields went down.

448
00:21:29,920 --> 00:21:32,520
Speaker 11: There was like a flight to safety. People still wanted treasury,

449
00:21:32,640 --> 00:21:36,399
Speaker 11: So there is an expectation that probably treasuries, you know,

450
00:21:36,520 --> 00:21:38,840
Speaker 11: and that wasn't a default. So if we have a default,

451
00:21:38,880 --> 00:21:42,480
Speaker 11: that's a different ballgame, and that's kind of like uncharted territories.

452
00:21:42,840 --> 00:21:45,600
Speaker 11: But if there was just a downgrade, the system may

453
00:21:45,600 --> 00:21:47,920
Speaker 11: be able to withstand that because if your collateral is

454
00:21:48,680 --> 00:21:52,240
Speaker 11: treasuries and the value goes up, you're okay. But embedded

455
00:21:52,280 --> 00:21:54,159
Speaker 11: in these trades are the risks they don't you know,

456
00:21:54,200 --> 00:21:56,840
Speaker 11: because every time is different. So even on a downgrade,

457
00:21:57,160 --> 00:22:00,160
Speaker 11: if these you know, the longside of a basis, say

458
00:22:00,160 --> 00:22:02,920
Speaker 11: you're long to cash. If there are major issues and

459
00:22:02,960 --> 00:22:05,600
Speaker 11: the value goes down, there could be margin calls. So

460
00:22:05,680 --> 00:22:07,520
Speaker 11: that could be a recent you know, we've done a

461
00:22:07,520 --> 00:22:11,280
Speaker 11: few stories on you know, after twenty eleven, twenty thirteen,

462
00:22:11,440 --> 00:22:14,679
Speaker 11: FED Treasury made and the market participants, you know, the

463
00:22:14,840 --> 00:22:17,679
Speaker 11: overseers and let's call it like SIFMA, etcetera, made like

464
00:22:17,760 --> 00:22:20,600
Speaker 11: backup plans. How can the market function if there's a

465
00:22:20,600 --> 00:22:24,359
Speaker 11: delayed payment, but nothing has been tested yet, so you know,

466
00:22:24,480 --> 00:22:26,399
Speaker 11: we kind of hope to never go through that, but

467
00:22:26,440 --> 00:22:28,920
Speaker 11: hopefully things would function, but it's an unknown.

468
00:22:30,119 --> 00:22:33,560
Speaker 5: Speaking of unknowns, a lot of folks, Liz, and correct

469
00:22:33,560 --> 00:22:35,520
Speaker 5: me if I'm wrong. A lot of folks are obviously

470
00:22:35,600 --> 00:22:38,560
Speaker 5: off already on the road starting the Memorial Day weekend

471
00:22:38,680 --> 00:22:39,560
Speaker 5: a little bit earlier.

472
00:22:40,160 --> 00:22:42,520
Speaker 1: But there is a reason to pay attention to tonight.

473
00:22:42,560 --> 00:22:45,240
Speaker 5: Aren't a lot of the credit ratings updates coming out

474
00:22:45,240 --> 00:22:45,800
Speaker 5: Friday night?

475
00:22:47,040 --> 00:22:50,520
Speaker 11: Well they never tell us, you know. And but that's

476
00:22:50,560 --> 00:22:53,000
Speaker 11: what I was going to say, like, now, why are

477
00:22:53,000 --> 00:22:55,800
Speaker 11: we not off already on our long weekend? That's another story,

478
00:22:55,840 --> 00:22:58,240
Speaker 11: But I was going to say, like, ugh, that's all

479
00:22:58,280 --> 00:23:00,560
Speaker 11: we need is like we have to keep any open

480
00:23:01,080 --> 00:23:04,640
Speaker 11: for is there some let's just say that somebody else

481
00:23:04,640 --> 00:23:06,560
Speaker 11: could go on watch, you know, put them on watch,

482
00:23:06,560 --> 00:23:08,520
Speaker 11: because that's what Fitch did put the U. They didn't

483
00:23:08,560 --> 00:23:10,879
Speaker 11: downgrade the rating, but they put the US on like

484
00:23:10,880 --> 00:23:14,080
Speaker 11: a negative watch. And you haven't seen that for Moody's

485
00:23:14,160 --> 00:23:17,200
Speaker 11: or S and P. Now it looks like a deal's coming,

486
00:23:17,240 --> 00:23:19,440
Speaker 11: but if things break down over the weekend, You're right,

487
00:23:19,560 --> 00:23:21,720
Speaker 11: we could see that, even if it's not late tonight.

488
00:23:21,760 --> 00:23:24,240
Speaker 11: It they can do that at any time. So I

489
00:23:24,280 --> 00:23:26,359
Speaker 11: think they feel like if a deal gets done today,

490
00:23:26,400 --> 00:23:28,760
Speaker 11: there's enough time because they need about two days to

491
00:23:28,800 --> 00:23:31,000
Speaker 11: get you know, the bill signed, et cetera, and to

492
00:23:31,080 --> 00:23:33,960
Speaker 11: get you know, not hit that X state where treasury

493
00:23:34,040 --> 00:23:36,840
Speaker 11: runs out of cash. But you're right, if things fall

494
00:23:36,880 --> 00:23:40,440
Speaker 11: apart Saturday and everybody walks out and it, then you could,

495
00:23:40,560 --> 00:23:43,560
Speaker 11: you know, see some more ratings watches and who knows

496
00:23:43,800 --> 00:23:46,120
Speaker 11: Fitch could do more. I have no idea. They didn't

497
00:23:46,119 --> 00:23:48,399
Speaker 11: tell me, but it's a concern of course.

498
00:23:48,720 --> 00:23:51,399
Speaker 5: Well still Liz refresher memories here from kind of the

499
00:23:51,400 --> 00:23:54,040
Speaker 5: twenty eleven saga when we talked about these credit Ultimately

500
00:23:54,080 --> 00:23:56,680
Speaker 5: the credit downgrade, it kind of happened over the span

501
00:23:56,720 --> 00:23:58,760
Speaker 5: if I think like six weeks or something the downgrade

502
00:23:58,800 --> 00:24:01,240
Speaker 5: actually happened. I want to say, maybe mid August or

503
00:24:01,320 --> 00:24:04,600
Speaker 5: end of August. But the first warnings came out I

504
00:24:04,600 --> 00:24:08,080
Speaker 5: think in early July. So it feels like this could

505
00:24:08,160 --> 00:24:11,320
Speaker 5: still take a couple of weeks, right right.

506
00:24:11,240 --> 00:24:14,600
Speaker 11: And remember now, definitely not saying there's a repeat of

507
00:24:14,640 --> 00:24:17,119
Speaker 11: this happening, but S and P there was a deal

508
00:24:17,560 --> 00:24:20,560
Speaker 11: in SMB downgraded because they say they didn't like, you know,

509
00:24:20,600 --> 00:24:24,200
Speaker 11: they're looking at overall, how is the you know, the

510
00:24:24,320 --> 00:24:28,720
Speaker 11: nation's fiscal leaders functioning, how's the everything work, And they

511
00:24:28,800 --> 00:24:31,880
Speaker 11: were just very displeased with how things went. It didn't

512
00:24:31,920 --> 00:24:35,280
Speaker 11: vode well for the fiscal outlook for the US, so

513
00:24:35,320 --> 00:24:38,040
Speaker 11: they downgraded. Now, as you know, there was a lot

514
00:24:38,080 --> 00:24:41,919
Speaker 11: of pushback, et cetera. That's another story. But that happened

515
00:24:41,960 --> 00:24:44,920
Speaker 11: even though a deal had been been done with Obama

516
00:24:45,000 --> 00:24:48,919
Speaker 11: and you know the other side of the aisle. But

517
00:24:49,040 --> 00:24:52,359
Speaker 11: so I think, you know, the people are waiting. You know,

518
00:24:52,400 --> 00:24:55,159
Speaker 11: the outlook is one thing, but a downgrade is another.

519
00:24:55,240 --> 00:24:57,680
Speaker 11: And I think this thing has to fall apart hard

520
00:24:57,760 --> 00:25:00,359
Speaker 11: for that to happen. But twenty eleven, you know, Blomberg

521
00:25:00,440 --> 00:25:02,600
Speaker 11: even did a lot of stories afterwards. It was almost

522
00:25:02,680 --> 00:25:07,719
Speaker 11: kind of mind spinning that if rates go down, bonds

523
00:25:07,840 --> 00:25:11,080
Speaker 11: rally after downgrade, does that mean ratings matter? I mean,

524
00:25:11,119 --> 00:25:13,520
Speaker 11: clearly they do, because you know, they're front and center

525
00:25:13,560 --> 00:25:17,240
Speaker 11: of people's mind. But it was just kind of weird.

526
00:25:17,359 --> 00:25:19,920
Speaker 11: You know, I lived through that, and so it didn't

527
00:25:19,960 --> 00:25:21,160
Speaker 11: kind of go as you would think.

528
00:25:23,160 --> 00:25:25,880
Speaker 3: And Liz, just to go back to the story here

529
00:25:26,480 --> 00:25:29,359
Speaker 3: that you have that's so great. I wonder if you

530
00:25:29,400 --> 00:25:32,360
Speaker 3: can explain to you know, my mom listening to him

531
00:25:32,760 --> 00:25:37,000
Speaker 3: on this conversation, how this sort of risky trade might

532
00:25:37,080 --> 00:25:42,240
Speaker 3: impact consumers. Right, is, what is the end impact that

533
00:25:42,320 --> 00:25:46,040
Speaker 3: this might have on regular, everyday people who aren't on

534
00:25:46,080 --> 00:25:47,119
Speaker 3: Wall Street.

535
00:25:47,840 --> 00:25:50,919
Speaker 11: Well, yeah, your mom and my mom isn't particularly, they

536
00:25:50,920 --> 00:25:53,399
Speaker 11: wouldn't know and they wouldn't be so concerned about this

537
00:25:53,520 --> 00:25:57,800
Speaker 11: basis trade. But what will concern them is if it's

538
00:25:57,840 --> 00:26:00,480
Speaker 11: like when SVB went down, my mother, I know pool

539
00:26:00,520 --> 00:26:03,359
Speaker 11: who that was. Maybe some of us didn't either, but

540
00:26:03,840 --> 00:26:07,560
Speaker 11: it tightened the total credit conditions of the US economy,

541
00:26:07,600 --> 00:26:10,600
Speaker 11: the financial system, and that's not good. That may make

542
00:26:10,680 --> 00:26:13,040
Speaker 11: it you know, harder, you know, to get loans, to

543
00:26:13,080 --> 00:26:15,800
Speaker 11: be more costly, et cetera. I think with hedge funds

544
00:26:15,840 --> 00:26:17,600
Speaker 11: in the basis trade, if you have a blow up

545
00:26:17,640 --> 00:26:22,320
Speaker 11: where funds go under, then that is another kind of

546
00:26:22,359 --> 00:26:25,520
Speaker 11: like feeling of tightening of conditions and the financial system.

547
00:26:25,560 --> 00:26:28,159
Speaker 11: It's never good for funds that you know. You might say, oh,

548
00:26:28,200 --> 00:26:31,159
Speaker 11: that was a rich folks own those hedge funds. It

549
00:26:31,160 --> 00:26:33,720
Speaker 11: doesn't matter, but it kind of does because they helped

550
00:26:33,720 --> 00:26:36,760
Speaker 11: grease the wheels of the system. They provide you know,

551
00:26:37,320 --> 00:26:40,560
Speaker 11: both sides of a trade sometimes, So I think that's

552
00:26:40,640 --> 00:26:44,320
Speaker 11: where the regular mom and pop make care if they hear, oh,

553
00:26:44,440 --> 00:26:46,840
Speaker 11: another big firm, I don't know who that is, but

554
00:26:47,160 --> 00:26:49,480
Speaker 11: collapsed and you know that's not good. And you know,

555
00:26:49,560 --> 00:26:52,040
Speaker 11: sentiment is a lot of things, you know, for people.

556
00:26:52,119 --> 00:26:54,520
Speaker 11: So if they're feeling like, well, things are bad, It's

557
00:26:54,520 --> 00:26:56,800
Speaker 11: like when you hear all the headlines about layoffs, people

558
00:26:56,800 --> 00:26:59,240
Speaker 11: are like, oh boy, I better watch out and not

559
00:26:59,320 --> 00:27:01,400
Speaker 11: buy this thing. So I think it might be sentiment.

560
00:27:01,480 --> 00:27:05,160
Speaker 11: It might be tightening up financial conditions because these folks

561
00:27:05,240 --> 00:27:07,080
Speaker 11: don't really care about the nuance of the trade.

562
00:27:07,359 --> 00:27:11,160
Speaker 5: Yeah, bless you Liz McCormick for connecting the Wall Street

563
00:27:11,200 --> 00:27:13,640
Speaker 5: story with the Main Street story, because it does matter

564
00:27:13,720 --> 00:27:16,520
Speaker 5: to her point, not just trades in the bond market,

565
00:27:16,520 --> 00:27:17,919
Speaker 5: in the equity market as well. And I would say

566
00:27:17,920 --> 00:27:20,880
Speaker 5: every market that is out there, listener the last thirty

567
00:27:20,920 --> 00:27:25,240
Speaker 5: seconds when we're talking about kind of the unwind, how

568
00:27:25,359 --> 00:27:28,440
Speaker 5: much does liquidity that we've already seen the last few

569
00:27:28,440 --> 00:27:30,760
Speaker 5: months matter? Are we kind of set up for the

570
00:27:30,800 --> 00:27:34,040
Speaker 5: bond market to panic a little bit twenty seconds?

571
00:27:35,119 --> 00:27:38,200
Speaker 11: Yeah, a loss of liquidity would not be good, and

572
00:27:38,600 --> 00:27:41,280
Speaker 11: a panic is not good. And you know really quickly

573
00:27:41,320 --> 00:27:44,600
Speaker 11: if we do get a deal, there's some idiosyncratic things

574
00:27:44,640 --> 00:27:47,159
Speaker 11: happening with the Treasury having to rebuild their cash buffer

575
00:27:47,240 --> 00:27:49,600
Speaker 11: selling a lot of bills that's going to siphon liquidity

576
00:27:49,640 --> 00:27:52,359
Speaker 11: out anyway, So a blow up and basis and less

577
00:27:52,400 --> 00:27:55,040
Speaker 11: liquidity that would be a mixture that is not ideal.

578
00:27:56,400 --> 00:28:01,000
Speaker 5: Liz McCormick, our chief markets correspondent, true expert in all

579
00:28:01,000 --> 00:28:01,560
Speaker 5: things bonds.

580
00:28:01,560 --> 00:28:03,160
Speaker 1: We thank you as always.

581
00:28:04,400 --> 00:28:07,800
Speaker 8: You're listening to the team Ken's our live program, Bloomberg

582
00:28:07,840 --> 00:28:11,200
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg dot Com,

583
00:28:11,280 --> 00:28:14,440
Speaker 8: the iHeartRadio app and the Bloomberg Business app, or listen

584
00:28:14,520 --> 00:28:16,560
Speaker 8: on demand wherever you get your podcast.

585
00:28:19,080 --> 00:28:20,680
Speaker 1: It's get a little bit more on what someone was

586
00:28:20,720 --> 00:28:21,280
Speaker 1: just talking about.

587
00:28:21,320 --> 00:28:24,439
Speaker 5: Dana Telsey a true expert here, chief Research Officer and

588
00:28:24,520 --> 00:28:27,920
Speaker 5: CEO of Telsey Advisory Group. And look, if Paul Sweeney

589
00:28:28,000 --> 00:28:30,920
Speaker 5: was here, he'd say she is the best in the biz.

590
00:28:31,160 --> 00:28:31,919
Speaker 5: So I'm gonna say it.

591
00:28:31,960 --> 00:28:33,320
Speaker 1: She is the best in the biz.

592
00:28:33,520 --> 00:28:36,359
Speaker 5: Dana, thank you as always for joining us.

593
00:28:36,560 --> 00:28:37,560
Speaker 1: Let's talk about when the company.

594
00:28:37,560 --> 00:28:38,320
Speaker 12: Thank you for having me.

595
00:28:38,520 --> 00:28:41,040
Speaker 5: Of course, the pleasure was there one of the company

596
00:28:41,040 --> 00:28:43,920
Speaker 5: stories that someone was just talking about the Gap stories

597
00:28:44,120 --> 00:28:45,760
Speaker 5: really surprising to the ubsite.

598
00:28:45,880 --> 00:28:46,600
Speaker 1: Give us your take.

599
00:28:47,760 --> 00:28:50,840
Speaker 12: So my take is that you've had obviously years of

600
00:28:50,880 --> 00:28:54,200
Speaker 12: week results. Something's going on with the women's business, that

601
00:28:54,520 --> 00:28:56,880
Speaker 12: women are all of a sudden spending. You heard about

602
00:28:56,880 --> 00:29:00,200
Speaker 12: that both at the Gap brand, and you also hold

603
00:29:00,200 --> 00:29:02,280
Speaker 12: about it at the Old Navy brand in terms of

604
00:29:02,280 --> 00:29:06,080
Speaker 12: the strength and frankly, the cleanliness of the inventory, which

605
00:29:06,120 --> 00:29:08,719
Speaker 12: frankly was down around twenty seven and a half percent,

606
00:29:09,280 --> 00:29:11,760
Speaker 12: I think helped. I think it's helping to move the needle.

607
00:29:12,040 --> 00:29:14,720
Speaker 12: This does not say that the Gap is fixed by

608
00:29:14,720 --> 00:29:17,080
Speaker 12: any measure, but it says they're on the path of

609
00:29:17,160 --> 00:29:20,200
Speaker 12: progress and that even though they don't have the CEO,

610
00:29:20,640 --> 00:29:23,240
Speaker 12: they're not letting grass grow under their feet.

611
00:29:23,760 --> 00:29:26,960
Speaker 3: Dana, help me understand the bottom line here when it

612
00:29:27,000 --> 00:29:30,200
Speaker 3: comes to these retail Ooh, I'm sorry.

613
00:29:30,440 --> 00:29:34,400
Speaker 5: Well good, I'll take We'll take it from here, Dana,

614
00:29:34,480 --> 00:29:36,320
Speaker 5: talk to us. I think what Maddie was asking specifically

615
00:29:36,320 --> 00:29:38,479
Speaker 5: about the bottom line when it comes to Gap, and

616
00:29:38,520 --> 00:29:41,840
Speaker 5: we know they've had their own inventory issues as well

617
00:29:42,120 --> 00:29:43,440
Speaker 5: and certain partnerships.

618
00:29:43,680 --> 00:29:44,640
Speaker 1: What's the update there?

619
00:29:46,240 --> 00:29:47,520
Speaker 12: I'm sorry, Can you just repeat that?

620
00:29:47,840 --> 00:29:48,120
Speaker 1: Sure?

621
00:29:48,120 --> 00:29:50,200
Speaker 5: What is the update when it comes to inventory and

622
00:29:50,200 --> 00:29:52,440
Speaker 5: their partnerships on the bottom line.

623
00:29:52,480 --> 00:29:53,160
Speaker 1: For a company like.

624
00:29:53,120 --> 00:29:56,880
Speaker 12: Gap small, the inventory partnerships are first going to get

625
00:29:56,920 --> 00:30:00,280
Speaker 12: into the fold. You take a look at Mattel, what

626
00:30:00,320 --> 00:30:03,040
Speaker 12: they're doing the partnership with these are things in order

627
00:30:03,080 --> 00:30:05,840
Speaker 12: to drive brand relevance and drive brand heat to re

628
00:30:05,960 --> 00:30:09,760
Speaker 12: engage consumers. I think the inventory management that they're putting

629
00:30:09,760 --> 00:30:13,040
Speaker 12: in place in order to be closer and chase into

630
00:30:13,080 --> 00:30:16,520
Speaker 12: goods is really what is beginning to happen. We all

631
00:30:16,560 --> 00:30:19,640
Speaker 12: know that the headwinds of supply chain disruptions led to

632
00:30:19,720 --> 00:30:23,200
Speaker 12: over inventory last year that is first being positioned and

633
00:30:23,280 --> 00:30:25,680
Speaker 12: cleaned out. One of the key themes coming out of

634
00:30:25,720 --> 00:30:29,400
Speaker 12: retail earning season so far is inventories are coming down

635
00:30:29,520 --> 00:30:32,240
Speaker 12: and it seems by the second half of the calendar

636
00:30:32,360 --> 00:30:35,680
Speaker 12: year will be clean with inventory levels in line with

637
00:30:35,800 --> 00:30:36,479
Speaker 12: sales growth.

638
00:30:37,560 --> 00:30:40,000
Speaker 3: Dana, sorry about that, we were having some technical issues,

639
00:30:40,000 --> 00:30:43,560
Speaker 3: but excellent answer there. The other thing I wanted to

640
00:30:43,560 --> 00:30:46,440
Speaker 3: hear from you is, you know, what is the takeaway

641
00:30:46,440 --> 00:30:49,920
Speaker 3: from this earning season? After it felt like the Target

642
00:30:49,960 --> 00:30:52,840
Speaker 3: Walmart story made sense to me. The consumer is struggling,

643
00:30:52,880 --> 00:30:54,680
Speaker 3: But then we had beats. Like you said, we had

644
00:30:54,720 --> 00:30:57,920
Speaker 3: an Old Navy doing well, we had Abercrombie doing well Urban.

645
00:30:58,520 --> 00:31:00,560
Speaker 3: So what am I supposed to think about the health

646
00:31:00,600 --> 00:31:02,840
Speaker 3: of the consumer When I look at the totality of

647
00:31:02,880 --> 00:31:04,480
Speaker 3: these retail earnings.

648
00:31:04,800 --> 00:31:07,520
Speaker 12: I think you have to slice it up into the

649
00:31:07,520 --> 00:31:10,000
Speaker 12: income levels of the consumer. You have to slice it

650
00:31:10,120 --> 00:31:13,920
Speaker 12: up into where is the particular company. And I think

651
00:31:14,000 --> 00:31:17,440
Speaker 12: everyone is working to manage the headwinds of crime and

652
00:31:17,520 --> 00:31:21,200
Speaker 12: shrink that is out there, the uncertainty of the levels

653
00:31:21,200 --> 00:31:25,360
Speaker 12: of consumer demand, and the focus on product innovation to

654
00:31:25,480 --> 00:31:30,760
Speaker 12: drive conversion. I think conversion matters. I think essentials versus discretionary.

655
00:31:31,520 --> 00:31:33,960
Speaker 12: It hurts me to say that essentials is still winning

656
00:31:34,000 --> 00:31:37,880
Speaker 12: over discretionary. I can't wait until my world comes back

657
00:31:38,000 --> 00:31:41,680
Speaker 12: in discretionary. But we're going to need confidence and to

658
00:31:41,800 --> 00:31:45,520
Speaker 12: stability in the macro to drive discretionary well.

659
00:31:45,560 --> 00:31:49,000
Speaker 3: On that exact topic area. When it comes to discretionary,

660
00:31:49,320 --> 00:31:51,560
Speaker 3: some of my sources have told me that they see

661
00:31:52,000 --> 00:31:55,920
Speaker 3: the dollar continuing to descend because of these debt sealing

662
00:31:56,040 --> 00:32:00,320
Speaker 3: issues and that that might be good for consumer discretionary.

663
00:32:00,560 --> 00:32:02,240
Speaker 3: What is your outlook on that.

664
00:32:03,240 --> 00:32:06,280
Speaker 12: I think overall, for consumer discretionary, I think we're going

665
00:32:06,360 --> 00:32:09,120
Speaker 12: to get to lapping easier comparisons in the back half.

666
00:32:09,520 --> 00:32:12,240
Speaker 12: I think investors are going to look by the third

667
00:32:12,320 --> 00:32:15,200
Speaker 12: quarter out to twenty twenty four and will we be

668
00:32:15,240 --> 00:32:18,320
Speaker 12: going to begin to see some improvement. I think right now,

669
00:32:18,720 --> 00:32:22,160
Speaker 12: I think cautiousness is there, and even on the luxury end,

670
00:32:22,400 --> 00:32:26,400
Speaker 12: there's a moderation to spend. Even though from twenty nineteen

671
00:32:26,480 --> 00:32:30,320
Speaker 12: to today, luxury brands many of their revenues are up

672
00:32:30,560 --> 00:32:34,040
Speaker 12: fifty percent plus, but in a year over year basis,

673
00:32:34,160 --> 00:32:35,160
Speaker 12: you're seeing a moderation.

674
00:32:35,800 --> 00:32:38,280
Speaker 3: Are you thinking a lot about a dollar impact in

675
00:32:38,280 --> 00:32:39,000
Speaker 3: that calculation?

676
00:32:39,160 --> 00:32:42,560
Speaker 12: Though, yes, yes, I am. I think that's something to

677
00:32:42,600 --> 00:32:43,280
Speaker 12: be mindful of.

678
00:32:45,400 --> 00:32:49,520
Speaker 5: Dana expand on what you were saying about luxury specifically here,

679
00:32:50,160 --> 00:32:52,200
Speaker 5: it's largely a lot of the gains have been largely

680
00:32:52,400 --> 00:32:55,640
Speaker 5: China driven. Correct me if I'm wrong, But what happens

681
00:32:55,680 --> 00:32:59,520
Speaker 5: when you start to see a Chinese consumer moderate as well?

682
00:33:00,680 --> 00:33:00,880
Speaker 11: Well?

683
00:33:00,920 --> 00:33:04,120
Speaker 12: So far, there's the reopening in China is happening, and

684
00:33:04,160 --> 00:33:07,840
Speaker 12: it's pretty solid for some of the accessories companies. I

685
00:33:07,880 --> 00:33:10,920
Speaker 12: would say that the tourism track to hear in North

686
00:33:10,960 --> 00:33:13,920
Speaker 12: America will be the next benefit. We have not seen

687
00:33:13,960 --> 00:33:17,600
Speaker 12: that so far. We have not heard of moderation in

688
00:33:17,720 --> 00:33:20,640
Speaker 12: China on the luxury side, it's been more here in

689
00:33:20,680 --> 00:33:22,200
Speaker 12: North America that we've seen that.

690
00:33:23,840 --> 00:33:27,280
Speaker 5: And does that make up for the slowdown in the

691
00:33:27,320 --> 00:33:31,720
Speaker 5: American consumer? What is kind of the tug of war

692
00:33:31,840 --> 00:33:34,760
Speaker 5: essentially between the American consumer and the Chinese consumer when

693
00:33:34,800 --> 00:33:35,560
Speaker 5: it comes to read.

694
00:33:35,360 --> 00:33:38,080
Speaker 12: Through, I think the read through is that the Chinese

695
00:33:38,120 --> 00:33:41,080
Speaker 12: consumer hasn't been able to go out socially engage. They

696
00:33:41,120 --> 00:33:43,560
Speaker 12: are a year behind us in re engaging with social

697
00:33:43,560 --> 00:33:47,880
Speaker 12: occasions and events. Here in North America, the macro headwinds

698
00:33:47,880 --> 00:33:52,160
Speaker 12: and concerns over debt sealing, stock market volatility, and also

699
00:33:52,240 --> 00:33:56,840
Speaker 12: the allocation of capital to going out and experiences for

700
00:33:56,880 --> 00:34:00,560
Speaker 12: this core luxury consumer. At the super high end, mezzas

701
00:34:00,600 --> 00:34:03,760
Speaker 12: and Chanelle's are still winning and showing big games. I

702
00:34:03,800 --> 00:34:07,440
Speaker 12: think the others where it can be upper accessible, that's

703
00:34:07,480 --> 00:34:08,840
Speaker 12: where we've seen some of the moderation.

704
00:34:09,960 --> 00:34:11,720
Speaker 1: And for when you're.

705
00:34:11,560 --> 00:34:14,359
Speaker 5: Looking at the opposite end of the spectrum, must take

706
00:34:14,360 --> 00:34:16,400
Speaker 5: a look at say Walmart, for example, When you look

707
00:34:16,400 --> 00:34:20,200
Speaker 5: at the stock Dana, it's kind of almost an outperformer

708
00:34:20,280 --> 00:34:20,759
Speaker 5: in a lot of.

709
00:34:20,680 --> 00:34:21,960
Speaker 1: These recessionary periods.

710
00:34:22,760 --> 00:34:25,840
Speaker 5: Do you think that's kind of a worthy stock to

711
00:34:25,880 --> 00:34:28,160
Speaker 5: look at right now, We've got about let's just say

712
00:34:28,160 --> 00:34:29,200
Speaker 5: forty five seconds.

713
00:34:29,719 --> 00:34:32,000
Speaker 12: Yes, I do think so. They're having an investor day

714
00:34:32,040 --> 00:34:34,800
Speaker 12: next week. It's a worthy stock to look at. They

715
00:34:34,840 --> 00:34:37,839
Speaker 12: manage inventory as well, and look at the market share

716
00:34:37,920 --> 00:34:40,640
Speaker 12: opportunities they still have, even as big as they are.

717
00:34:41,160 --> 00:34:44,560
Speaker 5: Gotcha, Dana Telsey, we think you as always she covers

718
00:34:44,600 --> 00:34:46,960
Speaker 5: the gambit, but she had on my Paul Sweeny voice

719
00:34:47,000 --> 00:34:49,360
Speaker 5: here and say she is the best in the biz.

720
00:34:49,719 --> 00:34:53,320
Speaker 8: You're listening to the tape can't Live program Bloomberg Markets

721
00:34:53,400 --> 00:34:56,799
Speaker 8: weekdays at ten am Eastern on Bloomberg Radio, the tune

722
00:34:56,840 --> 00:34:59,759
Speaker 8: in app, Bloomberg dot Com, and the Bloomberg Business app,

723
00:35:00,000 --> 00:35:03,160
Speaker 8: and also listen live on Amazon Alexa from our flagship

724
00:35:03,239 --> 00:35:07,040
Speaker 8: New York station. Just say Alexa, play Bloomberg eleven thirty.

725
00:35:08,440 --> 00:35:12,000
Speaker 3: Now, just to update everyone who has been keeping a

726
00:35:12,120 --> 00:35:15,000
Speaker 3: key watch on this indicator, Krety and I are still

727
00:35:15,360 --> 00:35:18,560
Speaker 3: without rings on our left hands. So we are going

728
00:35:18,560 --> 00:35:22,160
Speaker 3: to have a great conversation next with birth Gerstein, CEO

729
00:35:22,320 --> 00:35:25,280
Speaker 3: at Brilliant Earth. We're going to talk about the wedding industry,

730
00:35:25,400 --> 00:35:29,160
Speaker 3: diamond prices, engagement rings, all those fun things. Just to

731
00:35:29,239 --> 00:35:31,360
Speaker 3: keep in mind for us creedy moving forward as we

732
00:35:31,480 --> 00:35:34,200
Speaker 3: as we you know, continue this journey. Hint, hello listener,

733
00:35:35,840 --> 00:35:38,040
Speaker 3: So let's get to it with Beth. Beth, thank you

734
00:35:38,160 --> 00:35:41,480
Speaker 3: so much for joining us on this holiday weekend. Just

735
00:35:41,560 --> 00:35:44,160
Speaker 3: kick us off by giving our audience a quick recap

736
00:35:44,239 --> 00:35:46,399
Speaker 3: on Brilliant Earth and what you guys do for those

737
00:35:46,520 --> 00:35:47,160
Speaker 3: not familiar.

738
00:35:48,200 --> 00:35:50,319
Speaker 10: Great and I'm happy to be here, thanks for having

739
00:35:50,320 --> 00:35:54,800
Speaker 10: me so. Brilliant Earth is the next generation fine jeweler

740
00:35:55,320 --> 00:35:59,319
Speaker 10: for today's consumer. We were founded on a mission for

741
00:35:59,560 --> 00:36:03,360
Speaker 10: sustain ability, transparency and inclusivity, so we've really been driven

742
00:36:03,400 --> 00:36:06,560
Speaker 10: by mission, our mission from the beginning. We also have

743
00:36:07,200 --> 00:36:10,080
Speaker 10: a very unique omni channel model, so at this point

744
00:36:10,080 --> 00:36:13,720
Speaker 10: we have thirty one showrooms. We are a digital first

745
00:36:13,880 --> 00:36:19,799
Speaker 10: company and we offer a really beautiful wide assortment of

746
00:36:20,520 --> 00:36:24,399
Speaker 10: engagement rings, wedding rings, and other fine jewelry products for

747
00:36:24,480 --> 00:36:27,000
Speaker 10: a wide variety of occasions beyond bridle.

748
00:36:28,520 --> 00:36:31,160
Speaker 5: What are you seeing in terms of the trends there?

749
00:36:31,200 --> 00:36:34,040
Speaker 5: I mean maybe two three years ago during COVID, it

750
00:36:34,080 --> 00:36:38,640
Speaker 5: felt like the big trend was pause, wait, like don't

751
00:36:38,800 --> 00:36:41,799
Speaker 5: get married just yet, postpone your wedding, and then there

752
00:36:41,880 --> 00:36:45,720
Speaker 5: was this influx of kind of booking some of these things.

753
00:36:45,800 --> 00:36:47,040
Speaker 1: Beth, where are we now on that?

754
00:36:48,239 --> 00:36:48,560
Speaker 10: Yeah?

755
00:36:48,600 --> 00:36:49,239
Speaker 1: Absolutely.

756
00:36:49,320 --> 00:36:52,560
Speaker 10: So last year was actually one of the biggest years

757
00:36:52,880 --> 00:36:55,920
Speaker 10: in weddings in decades. There were two point six million

758
00:36:55,960 --> 00:36:58,919
Speaker 10: weddings in the United States, and I think nineteen eighty

759
00:36:58,920 --> 00:37:01,640
Speaker 10: five is the last we'd seen such a boom. I

760
00:37:01,719 --> 00:37:04,080
Speaker 10: think part of that is just with COVID, a lot

761
00:37:04,080 --> 00:37:06,879
Speaker 10: of people were waiting to have the big day when

762
00:37:06,920 --> 00:37:10,680
Speaker 10: other people could gather. Obviously there was some disruption in

763
00:37:10,800 --> 00:37:15,040
Speaker 10: dating and how relationships formed. I think actually that through COVID,

764
00:37:15,200 --> 00:37:17,759
Speaker 10: it made those relationships tighter, and so you had a

765
00:37:17,760 --> 00:37:20,719
Speaker 10: lot of engagements as well, And so this year is

766
00:37:20,800 --> 00:37:23,400
Speaker 10: more of a normalizing year. I think one of the

767
00:37:23,400 --> 00:37:27,520
Speaker 10: great things about Bridle is it's a very recession resilient.

768
00:37:27,640 --> 00:37:31,600
Speaker 10: It's very overall resilient category. Like typically there's about two

769
00:37:31,640 --> 00:37:35,279
Speaker 10: point two million weddings in good times and bad and

770
00:37:35,520 --> 00:37:38,680
Speaker 10: I think just coming off of these peak years, we're

771
00:37:38,840 --> 00:37:42,759
Speaker 10: just in a phase where it's normalizing to a more

772
00:37:42,840 --> 00:37:44,680
Speaker 10: regular time period versus COVID.

773
00:37:45,280 --> 00:37:47,360
Speaker 3: Talk to me a little bit about your foot traffic.

774
00:37:47,400 --> 00:37:51,359
Speaker 3: I know that you've expanded your showroom footprint, going from

775
00:37:51,400 --> 00:37:55,279
Speaker 3: fifteen to thirty locations. But foot traffic is something that

776
00:37:55,320 --> 00:37:57,839
Speaker 3: I feel the wedding industry can really benefit from because

777
00:37:57,840 --> 00:37:59,560
Speaker 3: you got to go in person to try on the dress,

778
00:37:59,600 --> 00:38:02,640
Speaker 3: to try on the engagement rain. What numbers are you

779
00:38:02,760 --> 00:38:05,080
Speaker 3: seeing and how are you planning to grow them?

780
00:38:06,400 --> 00:38:09,480
Speaker 10: We think about things actually a little bit differently because

781
00:38:09,520 --> 00:38:11,720
Speaker 10: we really focus on this omnichannel model.

782
00:38:11,920 --> 00:38:12,720
Speaker 1: A lot of times.

783
00:38:12,760 --> 00:38:16,480
Speaker 10: The way that our consumer shops, they start the process online,

784
00:38:16,520 --> 00:38:20,040
Speaker 10: it's very education driven and then they'll often make an

785
00:38:20,040 --> 00:38:23,960
Speaker 10: appointment to come into one of our showrooms and then

786
00:38:24,080 --> 00:38:25,920
Speaker 10: you know, it's very seamless in terms of where they

787
00:38:25,960 --> 00:38:29,360
Speaker 10: end up purchasing. So foot traffic for us is a

788
00:38:29,440 --> 00:38:32,600
Speaker 10: little bit different because of that appointment driven model. You know,

789
00:38:32,640 --> 00:38:36,320
Speaker 10: we're seeing really nice overall traction in terms of people

790
00:38:36,400 --> 00:38:39,160
Speaker 10: making appointments, in terms of people walking in. We have

791
00:38:39,200 --> 00:38:41,200
Speaker 10: a variety of different formats, so some of them are

792
00:38:41,280 --> 00:38:44,640
Speaker 10: upper floor and we've just expanded more into some of

793
00:38:44,640 --> 00:38:48,480
Speaker 10: those ground floor locations where it's more easy to browse

794
00:38:48,520 --> 00:38:51,640
Speaker 10: the collection without an appointment and seeing really nice results

795
00:38:51,719 --> 00:38:54,120
Speaker 10: there as well. So one of the metrics that we

796
00:38:54,120 --> 00:38:56,960
Speaker 10: look at, for example, is we're really looking at how

797
00:38:57,480 --> 00:38:59,799
Speaker 10: the metro overall grows, and one of the things that's

798
00:38:59,840 --> 00:39:03,759
Speaker 10: really exciting for us is after a year period, we

799
00:39:03,840 --> 00:39:07,280
Speaker 10: see the bookings and the revenue in that metro actually double.

800
00:39:07,760 --> 00:39:11,040
Speaker 10: So it's more about how we can drive that incrementality

801
00:39:11,440 --> 00:39:13,960
Speaker 10: and offer a really seamless experience for our customer.

802
00:39:15,440 --> 00:39:15,680
Speaker 1: Beth.

803
00:39:16,000 --> 00:39:18,680
Speaker 5: Of of course, you are the CEO and co founder

804
00:39:19,000 --> 00:39:21,840
Speaker 5: of Brilliant Earth. It is also listed on the nasdeck.

805
00:39:21,880 --> 00:39:25,400
Speaker 5: By the way, b r LT is your ticker, Beth.

806
00:39:25,520 --> 00:39:27,839
Speaker 5: A lot of optimism around the wedding industry, trust me,

807
00:39:27,840 --> 00:39:30,040
Speaker 5: me and Madison. No, the amount of money we are

808
00:39:30,040 --> 00:39:32,839
Speaker 5: shelling out and just being yes at these weddings are

809
00:39:32,960 --> 00:39:36,640
Speaker 5: are kind of insane. But that being said, talk to

810
00:39:36,760 --> 00:39:38,319
Speaker 5: us a little bit about your stock performance here. If

811
00:39:38,360 --> 00:39:40,680
Speaker 5: you're looking at the last year or so, your shares

812
00:39:40,719 --> 00:39:42,799
Speaker 5: have really taken a little bit of a hit.

813
00:39:42,960 --> 00:39:44,520
Speaker 1: What's the stock market missing?

814
00:39:45,920 --> 00:39:48,840
Speaker 10: Well, I think that you know, one, we think that

815
00:39:48,880 --> 00:39:52,759
Speaker 10: there's a ton of value in Brilliant Earth, and you know,

816
00:39:52,800 --> 00:39:57,160
Speaker 10: we're not necessarily concerned with stock performance on any given day.

817
00:39:57,520 --> 00:40:01,919
Speaker 10: You know that said, we are a profitable company. We've

818
00:40:02,000 --> 00:40:06,120
Speaker 10: really been able to differentiate with our brand and being

819
00:40:06,200 --> 00:40:11,440
Speaker 10: the largest single brand independent jeweler in the industry have

820
00:40:12,400 --> 00:40:16,320
Speaker 10: very strong brand awareness. I think the figure I mentioned

821
00:40:16,320 --> 00:40:18,640
Speaker 10: in our last earnings call where we were at sixty

822
00:40:18,640 --> 00:40:21,360
Speaker 10: six percent aided brand awareness, which was a twelve point

823
00:40:21,960 --> 00:40:25,880
Speaker 10: increase over the same measurement a few years ago. So overall,

824
00:40:25,920 --> 00:40:29,640
Speaker 10: I think that we're continuing to gain share, we're profitable,

825
00:40:30,280 --> 00:40:34,799
Speaker 10: we're really differentiating ourselves in a fragmented industry. And yeah,

826
00:40:34,840 --> 00:40:37,840
Speaker 10: we're I think we were part of the twenty twenty

827
00:40:37,840 --> 00:40:41,840
Speaker 10: one IPO class. So I think oftentimes, you know, people

828
00:40:42,160 --> 00:40:45,719
Speaker 10: don't tend to understand our differences versus others. Perhaps that

829
00:40:45,960 --> 00:40:47,720
Speaker 10: when public that maybe shouldn't have.

830
00:40:49,840 --> 00:40:54,840
Speaker 3: And when it comes to the interest in specific products

831
00:40:54,840 --> 00:40:58,719
Speaker 3: that you offer from consumers, can you talk to me

832
00:40:58,880 --> 00:41:04,600
Speaker 3: about scifically sort of the ethically sourced diamond space and

833
00:41:04,640 --> 00:41:07,720
Speaker 3: how you're thinking about that and how the demand story

834
00:41:07,760 --> 00:41:08,720
Speaker 3: for that is going.

835
00:41:09,880 --> 00:41:12,399
Speaker 10: Yeah, you know, as I mentioned earlier, we really were

836
00:41:12,440 --> 00:41:16,560
Speaker 10: founded on the belief that the consumer deserves an ethically

837
00:41:16,600 --> 00:41:21,040
Speaker 10: sourced product for such an emotional purchase that really represents

838
00:41:22,040 --> 00:41:22,960
Speaker 10: love and commitment.

839
00:41:23,080 --> 00:41:24,359
Speaker 1: It was so important that.

840
00:41:24,560 --> 00:41:27,919
Speaker 10: We could trace the source that we were really transparent

841
00:41:28,440 --> 00:41:31,640
Speaker 10: about the offering that we had. We are really focused

842
00:41:31,680 --> 00:41:34,960
Speaker 10: on giving back. We have a brilliantarre foundation that gives

843
00:41:35,000 --> 00:41:38,080
Speaker 10: back to a lot of projects within mining and responsible

844
00:41:38,120 --> 00:41:41,920
Speaker 10: sourcing as well as climate change, and this resonates with

845
00:41:42,040 --> 00:41:46,640
Speaker 10: the younger consumer. I feel like sustainability, transparency or table stakes,

846
00:41:46,680 --> 00:41:51,440
Speaker 10: but customers, I think really appreciate buying from brands that

847
00:41:51,480 --> 00:41:54,440
Speaker 10: they believe in and that come across as authentic to.

848
00:41:54,400 --> 00:41:55,000
Speaker 1: Who they are.

849
00:41:55,480 --> 00:41:58,160
Speaker 10: And so that's what we've been about from the beginning.

850
00:41:58,400 --> 00:42:00,960
Speaker 10: And you know, we talk about this in a really

851
00:42:01,040 --> 00:42:05,600
Speaker 10: open way and I think our customers appreciate it. So

852
00:42:05,640 --> 00:42:07,200
Speaker 10: one of the things that we offer we have a

853
00:42:07,320 --> 00:42:10,200
Speaker 10: really nice selection of sustainably rated lab diamonds. We have

854
00:42:10,280 --> 00:42:13,919
Speaker 10: a really great selection of blockchain enabled diamonds. So we're

855
00:42:13,920 --> 00:42:18,200
Speaker 10: constantly investing in the technology and the underpinnings to show

856
00:42:18,239 --> 00:42:19,040
Speaker 10: to our customer.

857
00:42:19,320 --> 00:42:19,759
Speaker 11: So this is.

858
00:42:19,880 --> 00:42:22,120
Speaker 1: Very blockchain enabled diamonds.

859
00:42:22,480 --> 00:42:26,960
Speaker 10: I did, Yeah, we're using blockchain. We're using blockchain to

860
00:42:27,000 --> 00:42:30,600
Speaker 10: be able to really showcase the journey of a diamond

861
00:42:30,640 --> 00:42:34,000
Speaker 10: to a consumer, so you can understand the manufacturing practices.

862
00:42:34,080 --> 00:42:36,759
Speaker 10: You can understand everything from the rough carrot weight and

863
00:42:37,160 --> 00:42:40,799
Speaker 10: looking at a video of the rough diamond from when

864
00:42:40,840 --> 00:42:44,200
Speaker 10: it's unearthed from the mind. So, I think it's just

865
00:42:44,400 --> 00:42:47,960
Speaker 10: the technology is quite frankly, it's really state of the art,

866
00:42:48,520 --> 00:42:51,880
Speaker 10: and it shows that we're really investing in transparency and

867
00:42:51,880 --> 00:42:54,640
Speaker 10: traceability along the way for the consumer.

868
00:42:55,000 --> 00:42:56,920
Speaker 5: All Right, we'll certainly have to have you back on

869
00:42:57,120 --> 00:42:59,000
Speaker 5: to talk a little bit more about the updates there

870
00:42:59,080 --> 00:43:01,720
Speaker 5: they're seeing in the blockchain space. Bet Gerstein, the CEO

871
00:43:01,840 --> 00:43:05,080
Speaker 5: and co founder of Brilliant Earth, training on the Nasdaq

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00:43:05,160 --> 00:43:08,000
Speaker 5: with the ticker br l T. We thank you, as

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Speaker 5: always for your time.

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Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can

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Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever

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Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

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Speaker 2: at Matt Miller nineteen seventy three.

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Speaker 11: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.

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Speaker 2: Before the podcast, you can always catch us worldwide at

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Speaker 2: Bloomberg Radio.