Speaker 1: This is Bloomberg business Week Inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio.
Speaker 1: All right, everybody, we did get a couple of reads
Speaker 1: on the labor market today. You know that layoffs announced
Speaker 1: by US employers quintupled in February from a year earlier,
Speaker 1: and we're the largest at the start of any year
Speaker 1: since oh nine, led by tech companies. That was from Challenger,
Speaker 1: Gray and Christmas and then Mike. We had a separate
Speaker 1: report that showed applications for unemployment benefits last week up
Speaker 1: to the highest since December, driven by spikes in California
Speaker 1: and New York, so suggesting maybe some softening in what
Speaker 1: is still though a tight labor market. Yeah, I mean
Speaker 1: historically though, two hundred and eleven thousand jobs claims in
Speaker 1: a week still pretty low. I mean, it is an uptick.
Speaker 1: It was more than expected. All of the other data,
Speaker 1: you know, the job's growth, the jolts, job openings, all
Speaker 1: that really pretty red hot. So something has to be
Speaker 1: the first to show the cracks and want to keep
Speaker 1: an eye on those jobless claims because they are the
Speaker 1: only thing we get every week, the only sort of
Speaker 1: you know, high frequency number that we can watch in
Speaker 1: real time. Right, yeah, yeah, So I think it is
Speaker 1: an interesting development that they've picked up a little bit
Speaker 1: off the loads. All right, Well, we have two great
Speaker 1: voices to really go through it and pass through it
Speaker 1: and give us a heads up on tomorrow's monthly jobs report.
Speaker 1: Julia Pollock is chief economist at ZIP Recruiter, and she
Speaker 1: joins us via zoom from Los Angeles. They've also done
Speaker 1: a survey of recently fired workers along with us. Also
Speaker 1: with US is Bloomberg News International Economics and Policy correspondent
Speaker 1: Mike McKee. He's on the phone in New York City. Mike,
Speaker 1: I do want to start with you, and we've been
Speaker 1: kicking around some of the data, certainly with our TV colleagues,
Speaker 1: but just first up, walk us through the data and
Speaker 1: will perhaps indicates something new on the US labor market. Well,
Speaker 1: it's start since you brought it up with the challenger
Speaker 1: rain Christmas Layoup notices they don't get a lot of
Speaker 1: attention from economists because they're basically just notices, and in
Speaker 1: many cases the companies don't follow through or the layoffs
Speaker 1: are really through attrition. And also they count wherever somebody
Speaker 1: is working, so many of the jobs that get into
Speaker 1: that number are overseas, so it doesn't really count a
Speaker 1: whole lot other than maybe in a general direction. The
Speaker 1: JAVAST claims today were kind of a problem because it
Speaker 1: turns out that when New York City, well New York
Speaker 1: State schools go on spring break or any other break
Speaker 1: than the school employees are eligible to file for javas's claims,
Speaker 1: and that's what happened last week, so they had We
Speaker 1: had a one week spike there that was largely caused
Speaker 1: by school workers who are now back at work, So
Speaker 1: it doesn't appear that jobless claims really moved at all.
Speaker 1: The biggest question is our Jolts starting to tell us anything,
Speaker 1: because there's been a lot of questions about whether or
Speaker 1: not we were going to see a slowdown in construction
Speaker 1: hiring because the business has started to dry up with
Speaker 1: higher mortgage rates, and yesterday the Jolts numbers shown us
Speaker 1: biggest decline in construction job openings in the history of
Speaker 1: that series. I realize I'm setting you up for your
Speaker 1: next guest, for your other guests. But we've also saw
Speaker 1: a loss of construction jobs in the ADP numbers. So
Speaker 1: if you're looking for a crack in the labor markets armament,
Speaker 1: it may be in the job openings side. All right,
Speaker 1: So let's bring in Julia Pollack, chief economists and ZIP recruiter. So, Julia,
Speaker 1: you heard what Mike had to say. You guys are
Speaker 1: doing your own research. You did a survey of recently
Speaker 1: laid off workers, with a lot of construction workers in
Speaker 1: that data. Yes, it was a nationally representative survey, and
Speaker 1: we do see that there are several industries where layoffs
Speaker 1: are sort of proportionate right now compared to the share
Speaker 1: of people employed in those industries. Still, mainly they're focused
Speaker 1: in tech and finance, and also in transportation and warehousing
Speaker 1: because consumers are shifting back to services from goods. But
Speaker 1: construction is definitely the area to watch in our marketplace.
Speaker 1: Construction job postings have fallen prey dramatically in the jolt
Speaker 1: Stata yesterday they fell forty nine percent in one month.
Speaker 1: And then we know historically that wait, your job postings
Speaker 1: are down forty nine percent in one month no, no no, no, no.
Speaker 1: The government data of the adults data yesterday showed that
Speaker 1: construction job openings went forty nine percent in one month.
Speaker 1: So it's the key industry to watch. We've all been
Speaker 1: talking about tech. It's a small portion of the labor market,
Speaker 1: not that significant when it comes to macro impacts, but
Speaker 1: construction is large. It's volatile, and we know that in
Speaker 1: recessions and in housing slowdowns in particular, it can shed
Speaker 1: millions of jobs. You know, Julie, I wanted to ask
Speaker 1: you about those tech layoffs because they always make the
Speaker 1: head lines. You know, eight thousand jobs here, ten thousand
Speaker 1: jobs there. It seems like something that should move the
Speaker 1: needle on numbers like unemployment or jobless claims. I get
Speaker 1: your point that it's a small segment, but I also
Speaker 1: wonder are those people just able to find a new
Speaker 1: job pretty quickly. I mean, after all, what company isn't
Speaker 1: a tech company these days and looking for programmers and
Speaker 1: tech savvy people even if they're not technically a tech company,
Speaker 1: you know what I mean, right, So they have sort
Speaker 1: of been a net neutral when you look at employment
Speaker 1: levels in tech related industries, there has been no decline
Speaker 1: yet in the national data which suggests that tech workers
Speaker 1: are finding jobs in other tech companies. In our laid
Speaker 1: off workers are the majority of people laid off in
Speaker 1: tech found new jobs quickly in about seven weeks, and
Speaker 1: most of them did find jobs in other tech companies,
Speaker 1: about seventy three percent or so. So they are finding
Speaker 1: new jobs within tech, and then those who aren't finding
Speaker 1: new jobs within tech are moving into fintech and retail
Speaker 1: and health insurance companies. Every single part if the US
Speaker 1: economy is increasingly having a tech department larger than most
Speaker 1: tech companies. So Mike, come on back in here, because
Speaker 1: as I'm listening to Julie, I'm thinking about tomorrow's report,
Speaker 1: and I know a lot of focuses on wage inflation.
Speaker 1: This is something that's certainly the FED is watching. But
Speaker 1: walk us through. I mean, if we get another hot print,
Speaker 1: what more than five hundred thousand jobs created the month before,
Speaker 1: I mean, is it one and done with? In terms
Speaker 1: of a FED being much more aggressive at that March meeting, Well,
Speaker 1: forget anything like we got the month before. Then it
Speaker 1: pretty much locked the FED into maybe doing fifty basis
Speaker 1: points at the March twenty second meeting. We'll still be
Speaker 1: watching very closely for what happens with the CPI report
Speaker 1: next week. But right now, the consensus is for two
Speaker 1: hundred and twenty five thousand jobs, and that may be overstated.
Speaker 1: We'll see because of what we've just been talking about here.
Speaker 1: If we get anything south of two hundred thousand, it
Speaker 1: probably keeps the FED on course for twenty five because
Speaker 1: it would at least put us back to trend, back
Speaker 1: to kind of where we were going before the January numbers.
Speaker 1: And we know there were statistical issues and weather issues
Speaker 1: with those numbers that maybe a one off. That's the question,
Speaker 1: was it one off? Do we revert back tomorrow or
Speaker 1: is there's something out there we're not understanding. Mike, you
Speaker 1: look at the jobs market, I mean all economic data obviously,
Speaker 1: but the jobs market from so many different angles. I'm
Speaker 1: just wondering, as you listen to Julia, do you have
Speaker 1: a question for her? Well, I guess besides the construction
Speaker 1: workers going down, there is there any sign that we're
Speaker 1: seeing large number of layoffs across a lot of different
Speaker 1: industries that would be cyclically sensitive sensitive to interest rates
Speaker 1: being this high. So the main action, Mike, right now,
Speaker 1: I think is not on the layoff front, but on
Speaker 1: pullbacks and hiring and those of us on the front
Speaker 1: lines of the labor market. Indeed LinkedIn zip Recruiter. We
Speaker 1: have seen a similar trend in our data. In the
Speaker 1: last few months. Job postings online across the US Web
Speaker 1: across thousands of websites have fallen steadily since June. There's
Speaker 1: still above pretty pandemic levels, but the direction is very
Speaker 1: very clear, and there's a broad based pullback. There are
Speaker 1: three industries where they're still growing, transportation, leisure, hospitality at healthcare,
Speaker 1: restaurants and airlines actually experienced a bit of a turning
Speaker 1: point in the middle of February with customer data at
Speaker 1: customer levels surpassing twenty nineteen levels for the first time
Speaker 1: in months since the pandemic. So there are parts of
Speaker 1: the economy that are still doing well, but outside of
Speaker 1: sort of personal care, transport, and restaurants, we're seeing a
Speaker 1: pretty serious pullback, and that tracks what we've seen in
Speaker 1: the GDP reports too. In twenty twenty two, we had
Speaker 1: a real growth fload and we had an outright decline
Speaker 1: in business investment in response to high interest rates. These
Speaker 1: high five hundred plus jobs report numbers are only going
Speaker 1: to be sustainable if businesses resume investments in new locations,
Speaker 1: new technology, new functions. If they're not doing that, they've
Speaker 1: just been a higher to replace turnover, and we could
Speaker 1: see overall employment levels fall as the FED is projected. Julie,
Speaker 1: the other big piece of the puzzle that's so important,
Speaker 1: important for the FED especially is that wage growth. You know,
Speaker 1: I'm looking at our estimates for tomorrow. Consensus estimate is
Speaker 1: actually that average hourly earnings ticked up a little bit
Speaker 1: from four point four percent of four point seven percent
Speaker 1: year over year. I understand that you guys are actually
Speaker 1: expecting a little bit lower than that. Could you talk
Speaker 1: to us briefly about why that is? And Jess got
Speaker 1: about thirty seconds to yeah, okay, So the lad market
Speaker 1: is still very tight. Wage growth pressures are still high.
Speaker 1: The FED wants to see wage growth of around three
Speaker 1: point five percent. That would be consistent with two percent inflation,
Speaker 1: right sent for inflation one point five percent for productivity growth.
Speaker 1: We're still far away from that. Even if we are
Speaker 1: seeing a moderate slowdown in wage growth, pressure largely driven
Speaker 1: by job seeker sentiment, by the fact that workers are
Speaker 1: worried about these layoffs and worried about losing job security.
Speaker 1: Mike saved you fifteen seconds. Are we seeing economists rotted
Speaker 1: up or down their estimates for the jobs report tomorrow
Speaker 1: just quickly? They really haven't moved a whole lot. We
Speaker 1: were a little lower league. We came up from about
Speaker 1: two fifteen to two twenty five, but that's within the
Speaker 1: statistical noise level. Whisper number was two forty seven on
Speaker 1: Wall Street this afternoon. We'll see if it holds through tomorrow,
Speaker 1: all right, or kind of on our on our pins
Speaker 1: and needles here waiting for tomorrow's monthly jobs report. Yeah,
Speaker 1: I love a good whisper number, don't we all have
Speaker 1: to say? Like this? Though? Exactly? Julia Pollock, she's chief
Speaker 1: economists at zip Recruiter via zoom in La and of
Speaker 1: course our own Bloomberg News International Economics and Policy correspondent
Speaker 1: Mike McKee on the phone in New York City, is
Speaker 1: going to be all over that eight thirty am Wall
Speaker 1: Street time number two tomorrow. This is Bloomberg Business Week
Speaker 1: Inside from the reporters and editors who bring you America's
Speaker 1: most trusted business magazine, plus global business, finance and tech news.
Speaker 1: The Bloomberg Business Week Podcast with Carol Messer and Tim
Speaker 1: Stenebec from Bloomberg Radio. All right, we did also want
Speaker 1: to get a check on the auto sector. All of
Speaker 1: these conversations, all of these earnings reports help us to
Speaker 1: give us more clarity about the economic outlook. Right now,
Speaker 1: we have with us, and back with us the CEO
Speaker 1: of the online seller of the aftermarket autoparts company. We're
Speaker 1: talking about carparks dot Com. David Mignon joining us via
Speaker 1: zoom from Torrens, California. David, nice to have you here
Speaker 1: with Mike Reagan and myself. Welcome back. Your stock rallied
Speaker 1: yesterday following earnings Tuesday night, fourth quarter revenue beat. Tell
Speaker 1: us about the quarter, tell us about the outlook. Tell
Speaker 1: us about the environment, the business environment. Are you thinking
Speaker 1: recession or not? Thanks for having Yeah, I'll tell you
Speaker 1: even more than the quarter. I'll tell you about the year.
Speaker 1: We know we've been in business for twenty five years,
Speaker 1: and twenty twenty two was a record year for us,
Speaker 1: both the top line and the bottom line. Our sales
Speaker 1: were up fourteen percent to six hundred and sixty one million.
Speaker 1: Our adjusted IBADAO was up more than fifty percent, and
Speaker 1: today as we sit, we're free cash flow positive, we're growing,
Speaker 1: and we're virtually debt free. Now. As far as the
Speaker 1: second part of the question, in terms of the economy,
Speaker 1: what we're seeing is that inflation is everywhere and the
Speaker 1: customer is still spending. However, what I'm feeling is that
Speaker 1: they're a lot more discipline as to where they spend,
Speaker 1: how much they spend, and when they spend. Yeah, So
Speaker 1: what does that signal to, David? You know, I'm trying
Speaker 1: to wrap my head around where a company like yours
Speaker 1: fits into the economic climate. You know, on one hand,
Speaker 1: you would think, like any business, sales would slow down.
Speaker 1: But on the other hand, is it actually a little
Speaker 1: bit resilient to an economic slowdown because people maybe will
Speaker 1: repair their car rather than buying a new one. Yeah. Point,
Speaker 1: And historically we see that our business and our company
Speaker 1: is you know, it's inflation. If inflation and recession resilient,
Speaker 1: you know, we sell a need and not a want. Now,
Speaker 1: the last three years have been an economic boom in
Speaker 1: terms of spending because of all the artificial dollars flowing
Speaker 1: into the system. But what we're seeing today, and at
Speaker 1: least for us at Carparts dot Com is an opportunity
Speaker 1: to double down on the customer. Like I said, because
Speaker 1: the customer is still very discipline as to where they spend.
Speaker 1: We have to focus on the value that we deliver
Speaker 1: to the customer. So for me, the last three years
Speaker 1: have been about availability and trying to figure out a
Speaker 1: way to connect the dot between the supply and the demand.
Speaker 1: But today it's more about what value can we deliver
Speaker 1: to the customer and how can we be there for
Speaker 1: them in times of needs? You know, Carol, it's funny
Speaker 1: is we talk to day, but I'm reminded I have
Speaker 1: a busted taillight on my Toyota Highlander. I think we'll
Speaker 1: have to talk after you can't I know a place
Speaker 1: quality direct to consumer, factory to warehouse warehouse? Do you
Speaker 1: Carparts dot Com? And I'll give you the VIP pricing? No, no, no,
Speaker 1: I can't. I can't accept that, But I do want
Speaker 1: to ask about those those warehouses. You know, a lot
Speaker 1: of suppliers have struggled to match inventory with demand over
Speaker 1: you know, the last three years, with the pandemic, the
Speaker 1: supply chain disruptions. How is the inventory situation with CARP
Speaker 1: Carparts dot Com are you back to sort of a
Speaker 1: normal supplying demand relationship? Are you ever supplied undersupplied? You know,
Speaker 1: is it a depend on what parts you're talking about.
Speaker 1: What's the sort of big picture there as far as
Speaker 1: inventories with car parts. So you're absolutely right. The last
Speaker 1: couple of years have been around you know, longer lead
Speaker 1: times and the need to carry additional inventory to fulfill
Speaker 1: the demand. And so if you look at our inventory
Speaker 1: position last year, we significantly flexed up in a lot
Speaker 1: of parts. Now today, to your point, we're in a
Speaker 1: much more normalized kind of inventory position. And you know,
Speaker 1: as of the end of last year, we sat at
Speaker 1: you know, about one hundred and thirty eight million dollars
Speaker 1: worth of inventor and that's the right level for the
Speaker 1: current environment for us. So ultimately, what we do is
Speaker 1: we try to focus on carrying the right parts close
Speaker 1: to the customers so that we can deliver that value
Speaker 1: as quickly as possible. So you guys are ahead of
Speaker 1: pre pandemic levels at this point. We are ahead of
Speaker 1: pre pandemic levels because our business has grown so pre pandemic. Actually,
Speaker 1: pre twenty nineteen, our business was sitting at around less
Speaker 1: than three hundred million dollars in sales, and like I said,
Speaker 1: twenty twenty two was six hundred and sixty millions. So
Speaker 1: we're a different company. We've opened a lot of buildings.
Speaker 1: You know, the last year was very exciting for us.
Speaker 1: We've delivered record results and so we're in a good
Speaker 1: spot today. So not pulling back in any way in
Speaker 1: terms of spending, expansion, none of it. So what we're
Speaker 1: doing is trying to be a little more intentional as
Speaker 1: to where we spend the money. And so there's a
Speaker 1: couple of areas where we're kind of taking away some
Speaker 1: of the spend in terms of that discretionary spend and
Speaker 1: reinvesting those dollars into customer centric initiatives. So its intentional
Speaker 1: the same as being cautious a little bit. It's cautious,
Speaker 1: it's aggressive mindset, but it's a defense playbook. David, what
Speaker 1: keeps you up at night? You know? I think what
Speaker 1: keeps me up at night today is how do we
Speaker 1: become the number one destination for our customer? You Know,
Speaker 1: the way I think about our industry is there's three
Speaker 1: hundred billion dollars of parts being sold in the United
Speaker 1: States and only four percent of that or five percent
Speaker 1: of that are online? How do we make it ten percent?
Speaker 1: How do we make it fifteen percent? Like apparel, like electronics.
Speaker 1: We want to be the number one. What keeps me
Speaker 1: up at night is trying to become number one. All right,
Speaker 1: can leave it there, David, thanks so much, appreciate the time.
Speaker 1: David Meagnon, CEO Carparks dot Com via zoom in California,
Speaker 1: you're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekdays from two to five pm Eastern on Bloomberg Radio.
Speaker 1: The Bloomberg Business a band you two. You can also
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Speaker 1: play Bloomberg Eleve and Dirty Well, we've got a devil Jovis.
Speaker 1: At Bloomberg Business we cover stories Firsteplet's to the domestic
Speaker 1: cover and the dawn of the induction age meaning induction ranges.
Speaker 1: With that story, let's get to Bloomberg business Week editor
Speaker 1: Joel Webber and Business Week freelance contributor Aaron Gale with
Speaker 1: us via zoom from upstate New York. Chill here in
Speaker 1: our interactive Brokers studio. How do we all get talking
Speaker 1: about induction versus gas here. Joel, Well, it became all
Speaker 1: the rage earlier this year and basically, you know, this
Speaker 1: lowly kitchen appliance who lit a culture war. And it
Speaker 1: all kind of actually began with some you know, a
Speaker 1: Bloomberg News reporter getting Richard Trumka of them the Consumer
Speaker 1: Product Safety Commission to say that any options on the
Speaker 1: table in terms of regulations and products that can't be
Speaker 1: made safe can be banned. It turns out gas stoves
Speaker 1: maybe you know, not the greatest thing to be breathing
Speaker 1: all day every day. But what that really kicked off
Speaker 1: was this culture war, like like I mentioned, and there
Speaker 1: could be all kinds of like you know, push back
Speaker 1: from the left and the right over what's better. But
Speaker 1: the thing that's emerged is sort of there's actually maybe
Speaker 1: a better technology out there, which is induction. And just
Speaker 1: as we've shown how electric cars are perhaps a better technology,
Speaker 1: maybe induction is also that. The thing is that most people,
Speaker 1: you know, if you've got a viking or a wolf
Speaker 1: in the center of your kitchen, you spent pretty good
Speaker 1: chunk of change for that, and it's not something that
Speaker 1: you think of changing out so easily, right, So that
Speaker 1: led us to just be like, Okay, what how do
Speaker 1: we tell this story? And it turns out Aaron was
Speaker 1: like just the right person to do that. So Aaron
Speaker 1: talked to us about where you went and what you
Speaker 1: learned to get us inside this funny little fight. Sure. Thanks. Well, first,
Speaker 1: I just want to say, you know, whatever people think
Speaker 1: of Commissioner Trump because comments or this incredible backlash, what
Speaker 1: I've found in my reporting is that it really jumped
Speaker 1: started a public conversation that's probably long overdue we should
Speaker 1: have been having a long time ago, which is just
Speaker 1: should we be piping this explosive gas through our neighborhoods
Speaker 1: and into our homes when there's a safer alternative that
Speaker 1: is much more popular in Europe and elsewhere. And so
Speaker 1: my thought was, you know, I realized when this began
Speaker 1: that there was this big kitchen in Bath trade show
Speaker 1: happening in Las Vegas the very week after, and so
Speaker 1: I decided to go out there and just get a
Speaker 1: feel for how the issue was playing among the industry,
Speaker 1: the appliance industry folks and also homebuilders, designers, architects and
Speaker 1: all the folks that attend that trade show. And what
Speaker 1: I found was that there was a real split. The
Speaker 1: appliance people, they all have some experience with induction, They
Speaker 1: really love it. The home builders and designers not so much.
Speaker 1: These folks really are very upset about Trumka's statement, and
Speaker 1: you know, eager to hold onto gas. But the other
Speaker 1: thing I found was that hardly any of them know
Speaker 1: what induction is. The ones that think they know what
Speaker 1: it is. Often people think they know and they actually don't.
Speaker 1: And one reason for that is because an induction cooktop
Speaker 1: looks exactly like what they call a resistance electric cooktop,
Speaker 1: which is the old fashioned kind that we've all probably
Speaker 1: had some experience. Yeah, everybody hates it's It's actually quite
Speaker 1: common in many many homes, but like, people don't love that.
Speaker 1: And so there is like a real marketing challenge for induction,
Speaker 1: which is that it looks just like something people hate.
Speaker 1: So how do you get around that? You know, Aaron,
Speaker 1: I'm going to date myself a little bit here, but
Speaker 1: I'm old enough that I was a kid the microwaves
Speaker 1: were still a novel technology. Yeah, and I remember my
Speaker 1: mom like refused to buy one for the longest time
Speaker 1: because she thought that we were all going to get
Speaker 1: cancer from microwaves, which it's kind of been settled, I
Speaker 1: guess to the benefit of the microwave makers. We all
Speaker 1: have one now anyway. But I'm wondering where where exactly
Speaker 1: is the science on guest of you know, you mentioned
Speaker 1: the risk of explosion, but it's it's more than that, right,
Speaker 1: there's a concern about the toxicity of the exhaust too.
Speaker 1: How long has the science really been sort of sounding
Speaker 1: an alarm about that, And what's the sort of consensus
Speaker 1: thinking in the community, the scientific community about what a
Speaker 1: what big of a risk it is? Yeah, well, I
Speaker 1: think there are a number of problems with gas, which
Speaker 1: people like to call natural gas, but maybe we need
Speaker 1: to get away from that a little bit because some
Speaker 1: of them, the byproducts of burning it, you know, are
Speaker 1: really quite toxic and there is a scientific, um, a
Speaker 1: lot of scientific research that shows that it can have
Speaker 1: negative impacts on our health. And you it's not really
Speaker 1: surprising when you think about it. Um, you wouldn't bring
Speaker 1: your Weber gas grill into your house and start grilling. Um.
Speaker 1: And yet we started to Sorry, but but you know,
Speaker 1: I think like we're just so used to the idea
Speaker 1: that this is normal, um, But in fact, it seems
Speaker 1: obvious that UM, that these these byproducts are harmful, and
Speaker 1: in particular, they've noted in one study that UM they
Speaker 1: they estimate that twelve percent or so of childhood asthma
Speaker 1: UM could be attributable to UM gas stoves. UM. Whether
Speaker 1: that's true or not, there's a debate about that, and
Speaker 1: certainly the American Gas Association has pushed back hard on
Speaker 1: that study. UM, So there's a little bit of back
Speaker 1: and forth. Earth. But the other thing that we know
Speaker 1: is that UM natural gas is made up mostly of methane,
Speaker 1: which is m a very powerful greenhouse gas that probably
Speaker 1: has like I think they estimate it's you know, twenty
Speaker 1: two one hundred times as harmful to the environment as
Speaker 1: UM as burning fossil fuels and so or as a
Speaker 1: CO two and so UM. That's sort of you know,
Speaker 1: one result of all of that is that you know,
Speaker 1: we're not we're not causing global warming by cooking scrambled
Speaker 1: eggs on our stoves. But I think like what the
Speaker 1: industry understands, and also people on the environmental side understand
Speaker 1: is that this is kind of like a proxy battle
Speaker 1: for a much bigger fight, which is, you know, the
Speaker 1: need to reduce fossil fuel use UM in all all
Speaker 1: of our applications, and mostly that in fludes head home
Speaker 1: like home heating and hot water and things like that
Speaker 1: that most people are really don't care or totally agnostic
Speaker 1: about how they're heating up their bathwater. They really care
Speaker 1: about how they're cooking, you know, if we can change. Yeah.
Speaker 1: One of the things I thought was also really interesting
Speaker 1: here is just this idea of like, you know, Tesla
Speaker 1: has obviously become synonymous with electric vehicles, very good at
Speaker 1: telling it. Yes, talks about climate, but really the secret
Speaker 1: was he just elon here really did make a cool,
Speaker 1: better car and that became what sold the car, created
Speaker 1: the company UM, and it has you know, made it
Speaker 1: the most valuable auto company. And interesting here there is
Speaker 1: just kind of a better technology, which is induction. And
Speaker 1: we've spent just a little bit of time talking here
Speaker 1: and it's worth mentioning that it is very difficult to
Speaker 1: photograph because it just looks like nothing. It's like, is
Speaker 1: this your justification for the cover? I think it speaks
Speaker 1: to something big, like, yes, we had to put this
Speaker 1: on the cover, UM, and we had to be very
Speaker 1: creative about you know, showing a magnet because induction ranges
Speaker 1: create a magnetic field and that's actually how it heats.
Speaker 1: But you can put your hand or your face on
Speaker 1: the on the stovetop and it's not going to do anything.
Speaker 1: It's all because you need uh metal in order for
Speaker 1: it to conduct that heat. So there is just a
Speaker 1: very cool tech story here. But from you walk in
Speaker 1: to buy, you know the Reagans go out shopping on
Speaker 1: Saturdays to buy a new range. You know, it's you've
Speaker 1: got an instant sale. If my wife any ideas that
Speaker 1: time of year. But I think you're prot I think
Speaker 1: you're a client salesman has as Aaron rights in the story,
Speaker 1: you're gonna sell a gas stove instantly, right, well, but
Speaker 1: let's explain yourself if you're gonna sell an induction But
Speaker 1: does this sort of change that sales pitch, you know,
Speaker 1: whether they're banned or not? Aaron, you know, do you
Speaker 1: think that this issue is enough to turn the tide
Speaker 1: towards induction stoves going forward? Is that test the moment coming?
Speaker 1: Just to wrap up? Yeah, I think it is. I
Speaker 1: mean a number of companies are really working hard on
Speaker 1: making the technology better. I think like one big, one
Speaker 1: big obstacle for a lot of people is that if
Speaker 1: you're changing from gas to induction, you generally need to
Speaker 1: have a two hundred and twenty volt plug to plug in,
Speaker 1: so that may mean hiring an electrician to upgrade your panel.
Speaker 1: There is money in the Inflation Reduction Act for that,
Speaker 1: so that's going to have a much bigger impact, probably
Speaker 1: than anything else we're talking about. But some of the
Speaker 1: companies are also trying to deal with that. I know
Speaker 1: two in particular startups, Channing Street Copper Company and Impulse
Speaker 1: Labs are small startups in Silicon Valley that have figured
Speaker 1: out you can put a battery in one of these stokes,
Speaker 1: and the benefit of that is that it's drawing power
Speaker 1: or when you're not cooking, and and then you can
Speaker 1: use it when you are, so you can plug it
Speaker 1: into a regular outlet, and then if power goes out, yeah,
Speaker 1: god forbid in your neighborhood, you can plug your refrigerator
Speaker 1: into that, or your phone or all kinds of other things.
Speaker 1: So there's a benefit to having something like that. Great
Speaker 1: well a convections to maybe come into a home near you. Um, Aaron,
Speaker 1: really great stuff. Aaron gall He's freelance contributor at Bloomberg
Speaker 1: Business Week. This is the domestic cover story our thanks
Speaker 1: to him. You're listening to the Bloomberg Business Week Podcast.
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Speaker 1: a journal Yeah, but you let me drive. Oh no,
Speaker 1: no, no no, no, honey, please, I'll do the riding drivel.
Speaker 1: I want to drive. It's a good question. Drive. This
Speaker 1: is the drive to the clothes comul thing Well, Brian
Speaker 1: Don on Bloomberg Radio. All right, everybody, let's get to it.
Speaker 1: We've got about seventeen minutes left in today's trading session,
Speaker 1: and we do have stocks bouncing off their loads of
Speaker 1: the session. Charlie just breaking down the trade um, some
Speaker 1: concerns over that week, jobs data today, and kind of
Speaker 1: a little bit of nervousness ahead of tomorrow's jobs reports.
Speaker 1: So let's get to it with Megan Hornaman. She's chief
Speaker 1: investment officer at Verden's Capital Advisors. They're a private wealth
Speaker 1: advisory and multi family office firm, and she joins us
Speaker 1: via Zoom from their headquarters in Hunt Valley, Maryland. Um, Megan,
Speaker 1: good to have you here with Mike and myself. Another
Speaker 1: interesting day. Feels orderly, but it does feel like a
Speaker 1: different tone that we are seeing in the markets over
Speaker 1: the last week or so. How do you see it? Well,
Speaker 1: I think this is a case of where, you know,
Speaker 1: some of the bad news is actually turning into bad
Speaker 1: news for the market. Remember that sometimes the bad news
Speaker 1: would be investors would think that the FED could hold off.
Speaker 1: But now we're seeing some bad news and that's resulting
Speaker 1: in some skittish skittishness I think in the overall market,
Speaker 1: and primarily it's from the banks. So we've had technology
Speaker 1: and growth be big leaders of the kind of decline
Speaker 1: in the market over the past year. But today when
Speaker 1: you start to hear about banks and their pressure on
Speaker 1: the bank, So that's when I think people start to
Speaker 1: get that rent reminder of maybe that two thousand and eight,
Speaker 1: two thousand and nine type of scenario. Yeah, Beck, and
Speaker 1: you know, it's it's easy to understand the pressure on
Speaker 1: a silver Gate or SVB, the Silicon Valley Bank. Is
Speaker 1: it an overreaction though to sort of take those issues
Speaker 1: that those banks are dealing with and apply them to
Speaker 1: the big megacap bank stocks. Yes, I do think that
Speaker 1: this is just, you know, again, it's any kind of
Speaker 1: news that we're starting to see crumbles where these these
Speaker 1: sectors or banks or companies that benefited from very low
Speaker 1: interest rates where it's now starting they're having to pay
Speaker 1: that price. It's going to have some impact. But I
Speaker 1: don't think this is the same situation as you're talking
Speaker 1: with the big banks. But it is just that ripple
Speaker 1: effect that feeds through the entire banking industry, all right,
Speaker 1: So I mean, how bad does it get? And I
Speaker 1: am curious you know what you are hearing from your
Speaker 1: clients who are obviously high net worth individuals. I'm sure
Speaker 1: they're investing for the long term. Maybe they're in the
Speaker 1: private markets versus public markets. I mean, are they getting nervous?
Speaker 1: Are they saying, let's put it in something safe. I
Speaker 1: don't need to earn a lot. I just don't want
Speaker 1: to lose any There are some clients that are concerned,
Speaker 1: especially when you're looking at interest rates where they are.
Speaker 1: So people look at a five percent on a two
Speaker 1: year treasury and say that's it. I'm out. I just
Speaker 1: want to buy, you know, the short term treasuries. You
Speaker 1: have to be very careful with that because we're not
Speaker 1: going to stay at a five percent forever and you
Speaker 1: could have some opportunity lost, especially if you are looking
Speaker 1: for the long run. We do think that you could
Speaker 1: see possibly like a ten percent correction from the recent
Speaker 1: peak that we saw in early February. That's because the
Speaker 1: market got way ahead of itself expecting that the Fed
Speaker 1: was going to be able to stop sooner and possibly
Speaker 1: even cut rates this year. We never thought that was
Speaker 1: the case, so we thought the market was getting a
Speaker 1: little too ahead of itself. Then we think the Fed's
Speaker 1: going to just continue to raise interest rates and then
Speaker 1: stay the interest rates are going to stay higher for longer,
Speaker 1: and what we're seeing over the past few weeks is
Speaker 1: the market trying to reprice that in. We do think
Speaker 1: there's probably still some more downside for that large cap growth,
Speaker 1: those areas of the market that have benefited from really
Speaker 1: low interest rates. I mean, keep in mind, we've seen
Speaker 1: about four or fifty basis points in rate hikes in
Speaker 1: just one year time, and let's put that in perspective.
Speaker 1: One year ago, we were sitting at point two five percent.
Speaker 1: So what we're seeing now is again more of that,
Speaker 1: I guess, filter into where the FED rate hikes are
Speaker 1: filtering into not only the ECCO, but also whether it's
Speaker 1: corporate earnings or the outlook for corporate earnings. Yeah, Megan,
Speaker 1: it has been such an aggressive interest rate hike campaign,
Speaker 1: and you know, the thing you hear all the time
Speaker 1: as well, there's a lagging effect. We might not feel
Speaker 1: the effects of this for some months later, but that
Speaker 1: one sector where you really start to feel it pretty
Speaker 1: quickly is housing. You know, we've seen definitely softness in
Speaker 1: housing prices, softness in the construction hiring industry. As our
Speaker 1: guest before you had mentioned what are you seeing in
Speaker 1: housing and how bad can we expect it to get? Yea,
Speaker 1: So definitely housing was the first shoe to drop, and
Speaker 1: you're seeing affordability still because interest rates now, thirty year
Speaker 1: interest rates are above seven percent, affordability is just very,
Speaker 1: very low. I don't think that the bottom and housing
Speaker 1: is really there yet. This is not two thousand and
Speaker 1: seven to two thousand and nine. This is a completely
Speaker 1: different housing market than we're in right now. But I
Speaker 1: still do think that there is some more downside in
Speaker 1: the housing market, prices if you look at certain indicators,
Speaker 1: have been falling on a month over a month basis
Speaker 1: for the past few months. I think you'll continue to
Speaker 1: see that until we get some equilibrium there as far
Speaker 1: as affordability coming back. And then remember, from a housing perspective,
Speaker 1: we still do have a structural issue with housing, so
Speaker 1: that's going to put a floor here on prices as
Speaker 1: well as activity in the housing market. The second shoe
Speaker 1: that we're starting to see to drop is some of
Speaker 1: those companies like like today these some of these banks
Speaker 1: that really just took advantage of that very low interest
Speaker 1: rate environment. We're starting to see some of that come
Speaker 1: to you know that those start to suffer right now.
Speaker 1: Speculative investments like the crypto world, we're seeing that suffer.
Speaker 1: The one area that we think still is not pricing
Speaker 1: in the magnitude of FED rate hikes is the credit market.
Speaker 1: That is a concern for us this year is just
Speaker 1: corporate debt, high yield debt. When you look at spreads.
Speaker 1: While the absolute yield has risen, spread have not reflected
Speaker 1: the big rise in interest rates, especially the refinancing schedule
Speaker 1: that you see over the next several years so this
Speaker 1: sounds like as an investor, kind of rotation and figuring
Speaker 1: out how to survive the environment, because you know, I
Speaker 1: was thinking about what we've been all focusing on banks
Speaker 1: and like, oh my god, you know what's going on.
Speaker 1: But I mean, if you take a look, I was
Speaker 1: looking at a Bloomberg story from last December. Wall Street's
Speaker 1: big banks scored a trillion dollars of profit in a decade, So,
Speaker 1: you know, making is it smart as we look at
Speaker 1: what's going on that markets are cyclical, economies are cyclical.
Speaker 1: We are still adjusting coming off the pandemic and unprecedented stimulus.
Speaker 1: So maybe the world isn't coming undone, but it's definitely
Speaker 1: going to be a different market going forward. Absolutely. I
Speaker 1: mean we're still seeing that. Like you mentioned, I mean,
Speaker 1: we haven't started to really feel the effects of the
Speaker 1: fed's aggressive cycle yet. We like we mentioned housing, we're
Speaker 1: starting to see it in some of these small banks.
Speaker 1: I don't think this is a big bank story. The
Speaker 1: consumer is the other area it's starting to feel it.
Speaker 1: You're seeing consumers pull back from taking out credit. You're
Speaker 1: starting to see delinquencies on things like auto loans rise.
Speaker 1: It's just starting to make its way into the economy,
Speaker 1: and unfortunately this is absolutely necessary in order to bring
Speaker 1: inflation down. So the Fed's job is starting to get done.
Speaker 1: It always has a lagged defect. That's why we figured
Speaker 1: that this year would be another very volatile and not
Speaker 1: great year. From echanowt grows standpoint, Yeah, it just might.
Speaker 1: It's definitely gonna cause some pain and unfortunately more for
Speaker 1: some than others. All Right, Megan Horneman, thank you so much.
Speaker 1: She's chief investment officer at Verden's Capital Advisors. Shotting us
Speaker 1: via zoom from Hunt Valley, Maryland. This is the Bloomberg
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