Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Now, I want to
Speaker 1: get over to Marcus Morris, and Asian portfolio manager at
Speaker 1: Zeo Capital Advisors, and let's go over the data that
Speaker 1: we've had in the data to come. Marcus, starting with
Speaker 1: the jobs report, what do you make of the you know,
Speaker 1: strong numbers, but still we I guess relatively percip participation. UM,
Speaker 1: I'm out there. Uh, thanks for having me. Um. And
Speaker 1: you know, I thought the jobs number Friday was was
Speaker 1: was encouraging. Um. You definitely saw the beginning of you know,
Speaker 1: people coming back when not from a participation standpoint, but
Speaker 1: the hiring and taking place. UM. These A fifty three
Speaker 1: thousand probably tell you when cap thousands jobs added, UM
Speaker 1: two thirty five thousand and upper revisions. Very strong wage
Speaker 1: growth four point nine percent over the last year. I
Speaker 1: think that's up from anything we've seen over the last
Speaker 1: ten years prior UM and so there were some good
Speaker 1: things in the jobs report, um, I think to your point,
Speaker 1: one of the things that is somewhat discouraging is that
Speaker 1: the participation rate has stayed relatively flat. Um. And then,
Speaker 1: and one of the things we think about as we
Speaker 1: think about these jobs numbers is the role of the FED.
Speaker 1: And you saw minority underrepresented minority employment lag relative to
Speaker 1: the larger index, and so that for us causes the
Speaker 1: question in terms of like where the Fed is willing
Speaker 1: to step in, right, because obviously they've already acknowledged and
Speaker 1: pal did so last week that inflation is gonna run
Speaker 1: hotter for longer, even longer than they initially anticipated. But um,
Speaker 1: his their focus has really been on this underrepresented minority
Speaker 1: UM employment and if you look at the jobs report
Speaker 1: they came out Friday, there's still a ways to go there.
Speaker 1: Instead of the question I think that's on the top
Speaker 1: of our minds is just how long and what does
Speaker 1: the FED need to see before that full unemployment test
Speaker 1: has been met? Because I think throughout they can easily
Speaker 1: say that the unemployment test will be made in terms
Speaker 1: of the met in terms of their ability to raise
Speaker 1: rate mark. As you mentioned the wage data, I think
Speaker 1: something like five gain year on year, and you know,
Speaker 1: wage inflation is kind of representative of stickiness in inflation, right.
Speaker 1: But at the same time, you have the FED betting
Speaker 1: that we see this mass return to employment that will
Speaker 1: help ease inflation in the wrong run, because the supply
Speaker 1: side of the economy comes back on is the is
Speaker 1: the FED reading this data right in the interpretation of
Speaker 1: in the context of inflation. I think, again, there's so
Speaker 1: much noise, and I mean I think I do not
Speaker 1: envy the job j Pal has right now on the FED,
Speaker 1: largely because so much of big picture. I think they're
Speaker 1: right when they tried to say transitorial, because you know,
Speaker 1: we parted the word transitory five in a different ways.
Speaker 1: But what they're really trying to say is their inflation
Speaker 1: factors that are just abnormal. And if you think about it,
Speaker 1: we started with a complete shutdown of the economy when
Speaker 1: the pandemic hit. The federal government provided significant amount of stimulus.
Speaker 1: Um the FED has provided significant amount of monetary stimulus
Speaker 1: to businesses. And then when there was when we reopened,
Speaker 1: everyone had pens of demand. You know, everyone had been
Speaker 1: sitting in the house for anywhere from six months, you know,
Speaker 1: a year, not traveling, not having access to the goods
Speaker 1: and services that they're used to. And so you took
Speaker 1: a supply chain that you know was starting from zero,
Speaker 1: but the demand curve that was, you know, well beyond
Speaker 1: where we would have you know, started um where we
Speaker 1: would have ended before the pandemic, because there was so
Speaker 1: much pent up demand. And so the FED understands that
Speaker 1: a lot of the inflation we're seeing is simply that
Speaker 1: there is relation to this really strong demand, you know,
Speaker 1: matching up with basically the restarting of supply chains, throwing
Speaker 1: the fact that you've seen additional disruption overseas and in
Speaker 1: the US as virus cases have spiked the delta varian
Speaker 1: et cetera. And so there's an element of the FED
Speaker 1: that sitting there saying a lot of this inflation isn't real. Now, yes,
Speaker 1: I do think that the wage inflation that you're seeing
Speaker 1: is going to be a real element that is going
Speaker 1: to continue on. But there's still parts of this that
Speaker 1: the FED wants to part out to figure out, like
Speaker 1: what's real, what's fake. And I do think once you
Speaker 1: get supply chains fully online you will start to see
Speaker 1: some of those pressures ease, but again that could be
Speaker 1: well into two and wage the demand picture and wages
Speaker 1: aren't keeping up right. Um, right, what do you what's
Speaker 1: your view on the markets? Then when we look at
Speaker 1: right now all time high, doesn't seem like there's a
Speaker 1: lot of room left to run. Ed was talking about
Speaker 1: Goldman tacts. They think we're only going to by the
Speaker 1: end of next year. UB says we're only going to
Speaker 1: five thousand by the three What do you think, Um,
Speaker 1: you know, over the last few weeks, Uh, we had
Speaker 1: zeal I've been kind of bouncing around this idea of
Speaker 1: peak everything right, and it just feels that everything is
Speaker 1: at a peak. You've got wage growth at a peak
Speaker 1: that we've seen over the last team years. You've got
Speaker 1: the stock market at a peak. You've got inflation at
Speaker 1: peaks we haven't seen in a really long time. Um.
Speaker 1: It's a challenging market. And but you also have a
Speaker 1: backdrop in which you know companies are going to You know,
Speaker 1: to date, I think the S and P five hundred
Speaker 1: has generated higher earnings on a year over year basis,
Speaker 1: And even if you go back to three to nineteen
Speaker 1: before the pandemic. I think you're up about sixteen seventeen percent,
Speaker 1: which is of solid growth rate. So I mean there's
Speaker 1: a lot of competing forces in the market right now.
Speaker 1: The more the focus I think is on the bead
Speaker 1: that is basically said, we're watching inflation, but we're not worried,
Speaker 1: and then you have this strong earnings growth, so you
Speaker 1: are seeing these kind of record highs. But I think
Speaker 1: you know, our focus is the really has been on
Speaker 1: what are the risk of the downside, And I think
Speaker 1: the biggest risk of the downside is continued inflation, continue
Speaker 1: to supply, chain disruption, higher interest races we run and
Speaker 1: fixed them, come portfolio and so those are the things
Speaker 1: that we keep have been saying very mindful of. And
Speaker 1: you know, as we look at companies, one of the
Speaker 1: things we'd like to do is, as we've talked about
Speaker 1: this very tight wage environment, we've been looking at companies
Speaker 1: and how they historically have treated their employees, because I
Speaker 1: think in this environment, those companies that have historically paid
Speaker 1: their employees well, treated them well, and they had a
Speaker 1: high level of route has a significant competitive advantage going forward.
Speaker 1: All right, Marcus, thanks so much for joining us. Marcus
Speaker 1: Moore there from Zero Capital Advisors. This is Bloomberg. Let
Speaker 1: shift gears a little, mat Miller, let's talk about the
Speaker 1: retail sector and bringing Murray shaw seni XT analyst at
Speaker 1: Columbia fred Need to Investments. And this is interesting because
Speaker 1: what I hear is a lot of abolitionists on the
Speaker 1: street about the retail sector. And yeah, these are the
Speaker 1: same companies, the same industry that are kind of faring
Speaker 1: the brunt of these higher input costs. So first question, Marshal,
Speaker 1: what's the good news for wool Street about retail this
Speaker 1: week this coming week? Well, the good news is that
Speaker 1: overall sentiment from the companies remains very positive heading into
Speaker 1: the holidays. And I think we have to remember that
Speaker 1: these companies have been living with supply chain disruption for
Speaker 1: the past year and a half and they have been
Speaker 1: planning well for it, and the companies have proven to
Speaker 1: be quite resilient. And I think, um from the investor standpoint,
Speaker 1: we really need to give both the companies and the
Speaker 1: consumer the benefit of the doubt. So the consumer has
Speaker 1: UH saved up a lot during the pandemic, spent off
Speaker 1: some of that, but still has a ton of savings
Speaker 1: relative to you know the historical average um. There won't
Speaker 1: be any shortage of demand, will there or cash this
Speaker 1: holiday season? Absolutely not. We still feel really positive about
Speaker 1: the overall health of the consumer. Of course, at the
Speaker 1: lower end, we've seen stimulus that has driven um increase
Speaker 1: savings and now the return to work and higher minimum
Speaker 1: wages is a positive for that consumer. At the hire
Speaker 1: income level, the wealth effect has been very significant, and
Speaker 1: that plus still a very strong job market and income
Speaker 1: potential is really driving strengths across the board at all
Speaker 1: levels for the consumer. Very quickly. We're thinking about names
Speaker 1: the next ten days, like Walmart, like Target. There's all
Speaker 1: these reports out there about the pull forward of e
Speaker 1: commerce spending because of the pandemic. How well positioned to
Speaker 1: those companies in about thirty seconds to take advantage going
Speaker 1: into the holiday season. We feel really good about the
Speaker 1: companies that can use their scale to manage better through
Speaker 1: the current situation. And we've seen incredible share gains from
Speaker 1: both Target and Walmart throughout the pandemic, and we do
Speaker 1: think that those share gains will stick on the other
Speaker 1: side of it, especially as they are able to leverage
Speaker 1: their omni channel capabilities and their penetration across different categories,
Speaker 1: and so especially now as companies are dealing with UM
Speaker 1: increased distruction in the supply chain, we feel really good
Speaker 1: about companies like Target and Walmart being able to leverage
Speaker 1: their scale. All right, you gonna bear with me here, Uh,
Speaker 1: what's omni channel mean? Again? Omni channel is really the
Speaker 1: ability of the retailers to service the customer both in
Speaker 1: store and online. And if you look at what UM,
Speaker 1: some of the will really all retailers. But I would
Speaker 1: use Target as an example what they've done with their
Speaker 1: drive up and pick up in store that has been
Speaker 1: UM a huge competitive advantage for them throughout the pandemic.
Speaker 1: We kind of touched on this, but I want to
Speaker 1: dig into the psychology of the consumer. You know, yeah, okay,
Speaker 1: everyone's flush with cash, but we have all these higher
Speaker 1: input costs. What is the pain threshold for the consumer
Speaker 1: in your view, to absorb those higher costs, to accept
Speaker 1: the level that these companies will pass on the costs
Speaker 1: to the consumer. I think it really varies by category.
Speaker 1: I think there are certain categories like food where the
Speaker 1: prices are highly visible to the consumers. Think about things
Speaker 1: like milk and bananas that you're buying weekend and week out.
Speaker 1: You see when the price increases, and it's very easy
Speaker 1: to substitute and potentially trade down in the food category,
Speaker 1: but in more discretionary categories. I'm very confident in the
Speaker 1: company's ability to pass through higher pricing UM And the
Speaker 1: truth is that they have been a lot less promotional
Speaker 1: throughout the pandemic UM and that and the consumer has
Speaker 1: still been buying the goods, especially where they're strong brand
Speaker 1: and strong product innovation to UM to support the higher price.
Speaker 1: But the companies are all being very strategic and selective
Speaker 1: about the price increases that they do pass through. And
Speaker 1: and just by being less promotional, they're also in effect
Speaker 1: taking pricing. And again this is not something new, this
Speaker 1: is something that the companies have been doing for the
Speaker 1: past year or so, and I think that that's giving
Speaker 1: them the confidence to continue to UM selectively take pricing
Speaker 1: for some time to come, given that some of these
Speaker 1: cost pressures they're seeing now are transitory, but others like
Speaker 1: wage pressure that they're seeing are more structural. And well,
Speaker 1: you don't see those prices reverting back either, do you write?
Speaker 1: As soon as they get increases, even in milk or
Speaker 1: bread UM, those stick absolutely I think at some point
Speaker 1: we will see promotions start to normalize a little bit,
Speaker 1: especially when the supply comes back online, so you will
Speaker 1: see that happen. But again, I think the companies have
Speaker 1: really learned throughout the pandemic that they can do more
Speaker 1: with last and dry full price selling, and that has
Speaker 1: resulted in higher sales and gross margins. And that is
Speaker 1: something because something that the company do not want to
Speaker 1: give back. As you said, Mary, thanks so much for
Speaker 1: joining us for a pleasure having your insight today. Mary Shore,
Speaker 1: their senior equity analyst with Columbia thread Needles. Let's get
Speaker 1: over to Matthew Paula Zola right now. He's a senior
Speaker 1: analyst for property and casually insurance from Bloomberg Intelligence, and
Speaker 1: he's going to talk to us about Warren Buffett signaling
Speaker 1: a little bit of a wariness with a soaring stock
Speaker 1: market as he extends a selling streak. What do we
Speaker 1: know about Berkshire Hathaway, Matt, Yeah, we know that um
Speaker 1: Berkshire Hathaway's third quarter results were pretty good. They follow
Speaker 1: the trend of the general economy. Things started picking back
Speaker 1: up at the end of last year and kind of
Speaker 1: rolled through you know, to higher than average pre pandemic earnings.
Speaker 1: What I think is kind of a concern for the
Speaker 1: next couple of quarters is going to be the supply
Speaker 1: chain's impact on their kind of vast array of businesses
Speaker 1: going forward. I do want to touch on that, But
Speaker 1: let's talk about the big issue, the best issue anyone
Speaker 1: can possibly have. Warren Buffett and bucksh have Away, have
Speaker 1: Away have too much money. They have so much money
Speaker 1: that they don't know what to do with it, and
Speaker 1: they can't spend it on anything. Walk me through that one.
Speaker 1: So so yeah, I mean, because of a consequence of
Speaker 1: these good earnings, they're just piling up cash, right And
Speaker 1: from the beginning of the pandemic, Warren Buffett struck a
Speaker 1: very cautious tone on the market about the risk inherent
Speaker 1: in what's coming up. And they pretty much sat on
Speaker 1: the hands at the beginning of the pandemic. And at
Speaker 1: their last time You're leading, Buffett expressed remorse about doing that.
Speaker 1: So we should have we should have been more active.
Speaker 1: But then I feel like they kind of got caught
Speaker 1: in a little bit of a trap because valuations did
Speaker 1: nothing but go up since then, and it just makes
Speaker 1: things less attractive if you look at his um established philosophy.
Speaker 1: All that said, though, I do think he could ignore
Speaker 1: valuation and make a best in class business deal if
Speaker 1: he sees it. So where do we see those kinds
Speaker 1: of deals? It's a big size. You can't see these
Speaker 1: elephants everywhere, can't you. Yeah? No, I mean so their
Speaker 1: cash is a hundred and forty nine billion dollars, right,
Speaker 1: so they could pretty much buy almost anything they want. Um.
Speaker 1: I wouldn't want to speculate on where they're going to
Speaker 1: go because you know, it could be anything. You know
Speaker 1: Berkshire's businesses, you know, from owning a ton of apple stock,
Speaker 1: They make airplane parts, they sell candy, they do pretty
Speaker 1: much everything under the sun. And so I wouldn't be
Speaker 1: surprised to see something come out of left field that
Speaker 1: maybe no one's ever heard of, you know, for a
Speaker 1: couple of billion dollars here and there, But to make
Speaker 1: a huge damp in that cash pile, I don't think
Speaker 1: it's going to happen anytime soon. So let's go back
Speaker 1: to what you were discussing earlier. Bugsher Buffett view of
Speaker 1: the world. Because the conglomerate touches so many parts of
Speaker 1: the economy, so many different industries and associated supply chains.
Speaker 1: What do we learn on that? From the third quarter
Speaker 1: results were good? I mean, supply chain was mentioned several
Speaker 1: times in the ten queue. Uh, it's it's affecting all
Speaker 1: of their businesses. I think what remains to be seen
Speaker 1: is how much those businesses can pass through costs to
Speaker 1: the consumer. I think I think generally businesses are able
Speaker 1: to do that just because of the kind of strong
Speaker 1: economy that you know, people are willing to pay more
Speaker 1: for things UM. But I think because of their their
Speaker 1: vast the rate of businesses, there's going to be some
Speaker 1: things that they just can't push along. And they're in
Speaker 1: they're in home building, and you know, I don't know
Speaker 1: how much higher those prices can go if their materials,
Speaker 1: you know, keep going up. And in terms of an end,
Speaker 1: do we get any signal from Buffett or from Berkshire
Speaker 1: as to how the supply chain crisis is going? You know,
Speaker 1: how UM input costs are rising? Is this is this
Speaker 1: going to soften anytime soon? You know, they didn't really
Speaker 1: speculate on the future or the longevity of it. I
Speaker 1: think I think we can see these issues last easily
Speaker 1: through through next year. Given all the businesses they're in,
Speaker 1: then one of the biggest businesses is they make airplane parts,
Speaker 1: precision airplane parts. And you know that market, even though
Speaker 1: travel is coming back, uh, you know, the market has
Speaker 1: yet to rebound. And even if it does, they're having
Speaker 1: trouble um sourcing the parts for that business. Precision airplane
Speaker 1: parts are the best kind, you know, because I hate
Speaker 1: when people just make rough guesstimates and they're producing pieces
Speaker 1: for planes. It just doesn't work. Um, precision cast parts,
Speaker 1: what do they make? They make that? Those are those
Speaker 1: are the precision auto parts that they do make and
Speaker 1: that and that's that's kind of one of those businesses
Speaker 1: that that frankly you may have never heard of, but
Speaker 1: has this kind of huge global near monopoly in these
Speaker 1: kind of And when I say precision, you know it's
Speaker 1: there probably are parts on the plane that are not
Speaker 1: exactly precision, right Like if you're talking about just kind
Speaker 1: of a piece of metal for the wing, maybe that's
Speaker 1: not as precision as some of the instruments that go
Speaker 1: in the cockpit. I know, I was I was just
Speaker 1: joking around a little bit, but um, yeah, no, I've
Speaker 1: I've been flying a lot lately. Uh, I guess relative
Speaker 1: to during the lockdown, and I feel like a lot
Speaker 1: of it is imprecise. But yes, they don't crash, they
Speaker 1: don't fall out of the sky very often, so they
Speaker 1: should be put together pretty well. Matt's thanks so much
Speaker 1: for joining us. Great to get your inside on Berkshire Hathaway.
Speaker 1: Matthew Palazola. There is a senior analysts property and casually insurance,
Speaker 1: and of course Berkshire Hathaway is still in the insurance
Speaker 1: business as well as all of the other stuff that
Speaker 1: they do. Alright, you you mentioned vacation and I want
Speaker 1: to bring in our next guest right now. Matt Roberts
Speaker 1: joins us. He's the CEO of a case uh formerly
Speaker 1: um running open Table, so is he a lot of
Speaker 1: He has a lot of experience in these businesses. And Matt,
Speaker 1: I guess, um, the CASA is a portman too? Is
Speaker 1: that what it's called portmanteau portman. It's a combination of
Speaker 1: two words, I guess, vacation and casa. Right, what do
Speaker 1: you do? Yeah, that's that, that's right. Uh yeah, No,
Speaker 1: we're your focused on first, thanks for having me on.
Speaker 1: We are focused on the supply side of the vacation
Speaker 1: rental equation we both have. You know, we have over
Speaker 1: thirty parties, are the largest in the nation. UH. And
Speaker 1: what we do is we bring online UH nights for
Speaker 1: people to rent at vacation Rentals and so we then
Speaker 1: retail that on our own site, but we also do
Speaker 1: it on verbo Booking, AIRBNBA, et cetera. Matt, you heard.
Speaker 1: Matt and I are just talking about the great reopening
Speaker 1: of the Transatlantic route. What is the demand? You know,
Speaker 1: what are you seeing November eight on wood from Europeans,
Speaker 1: from Brits that want to come to the United States
Speaker 1: for vacation, to visit loved ones, whatever it may be. Yeah,
Speaker 1: really excited to see the reopening and it's going to,
Speaker 1: in our opinion, just add to the already incredibly strong
Speaker 1: demand that we're seeing. Our business is booming, and you know,
Speaker 1: we just happened to be focusing also on the hottest
Speaker 1: segment of the entire travel industry right now, which is
Speaker 1: vacation rentals. You know, what we're seeing is more and
Speaker 1: more people are going to travel over the holidays, especially
Speaker 1: folks with young children. I think that's like six are
Speaker 1: planning on travel ing. So this incremental demand on top
Speaker 1: of an already very very healthy market is a welcome
Speaker 1: to uh, you know, to all of us in this industry.
Speaker 1: Healthy and changing, right. I mean you mentioned um you
Speaker 1: do your own business, but you also work through Verbo
Speaker 1: and Airbnb. I had a wedding in Valencia last month,
Speaker 1: and so many guests were poo pooing the you know,
Speaker 1: uh standard hotel reservation and looking immediately instead for other rentals.
Speaker 1: So how much has this market changed? I think it's
Speaker 1: changed quite a bit. It has changed a lot, not
Speaker 1: just over the pandemic, but really over the last decade.
Speaker 1: It's grown at two times vacation rentals is two times
Speaker 1: the growth rate of traditional accommodations. And now that you're
Speaker 1: seeing post pandemic or in pandemic changes to the way
Speaker 1: people are working and traveling, there's more war day weekends available,
Speaker 1: people can work from anywhere. You know, homes are just
Speaker 1: the logical joy for that type of flexibility. Can we
Speaker 1: talk a little bit quickly about the holiday season? You know,
Speaker 1: it's really interesting. Is there any sort of geographical split
Speaker 1: for where the demand is in the United States? Is
Speaker 1: it literally holiday traffic, holiday season traffic that's driving sales.
Speaker 1: That's right, again a continuation of the strong demand we
Speaker 1: had all the way through the summer season. Uh. Travelers
Speaker 1: are still opting to drive to their destinations. So that
Speaker 1: part of the of the pandemic is is still really strong.
Speaker 1: Long way, it's a long way to appen. Yeah, a
Speaker 1: long way to over the value exactly. But we're also
Speaker 1: seeing just in general, confidence level is way up. Uh.
Speaker 1: And you know, before they said, like there was a
Speaker 1: spike in in any kind of COVID cases, only said
Speaker 1: they would change their plans, and that was compared to
Speaker 1: nearly sev would change your plans before. So there's just
Speaker 1: such an increased confidence level, not just in the holiday season,
Speaker 1: but six of Americans said that they would plan to
Speaker 1: take a trip in twenty two, and eighty two percent
Speaker 1: of those said they're going to travel more in twenty
Speaker 1: two than twenty one. Just people are very much excited
Speaker 1: to get back to a more normalized travel environment. Everybody
Speaker 1: wants to get out there. Everybody wants to do a
Speaker 1: spack merger. You have one of TPG pay solutions. Why
Speaker 1: do you choose that instead of a traditional IPO. Well, look,
Speaker 1: the end result is the same. We're gonna be trading
Speaker 1: on Natic under VP s a H. The approach was
Speaker 1: really partner based PPG pay Solutions has has just a
Speaker 1: great been great business partners for us. And and you
Speaker 1: know Carl Peterson was the co founder of hot Wire.
Speaker 1: He's gonna be joining our board. It very much looks
Speaker 1: like a traditional IPO though, I mean there's really there's
Speaker 1: no warrants, there's no selling shareholders, relatively low float relative
Speaker 1: to UH to the overall market cap, so I think
Speaker 1: it will perform very much like a traditional IPO in
Speaker 1: the end. Matt, thanks so much for joining us. Matt Roberts,
Speaker 1: they're the chief executive officer of a COSA talking to
Speaker 1: us about appl Ed Ludlow are in trepid and trepid
Speaker 1: tech reporter joining me this hour. Thank you very much
Speaker 1: out of San Francisco. This is Bloomberg. Thanks for listening
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
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Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three
Speaker 1: on fal Swoeeney, I'm on Twitter at pt Sweeney. Before
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