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. I'm seeing red on
Speaker 1: the screen, but I need to see some green at
Speaker 1: some point. But let's talk to a professional who does
Speaker 1: this stuff for a living. Natalie Wolfson, CEO at Asset Mark. Natalie,
Speaker 1: thanks so much for taking the time to join us here.
Speaker 1: I love to get your thought here as we kind
Speaker 1: of put a bow on uh two, what do we
Speaker 1: do for? Because I got crushed in my equities, I
Speaker 1: got crushed in my bonds. I have a big barrel
Speaker 1: of oil in my house. I'm okay there, But what
Speaker 1: do you do? You know? It's it's interesting, um as
Speaker 1: a result of sort of of the feds um really
Speaker 1: relentless tightening in the second half of this year, they're
Speaker 1: actually interesting opportunities right now in short term treasuries. If
Speaker 1: you want to build a short term treasury portfolio with
Speaker 1: the duration of you know, roughly half a year you
Speaker 1: can get four point six percent in yield. And so
Speaker 1: right now, I think all of us, whether you're a
Speaker 1: CEO looking to manage your cost structure or an investor
Speaker 1: looking into next year, feeling a little risk averse and
Speaker 1: maybe like we want to wait and see, and so
Speaker 1: that's a good way to do that. But is that
Speaker 1: I mean I heard the same thing from my financial
Speaker 1: advisor recently. Is that the only thing out there? I mean,
Speaker 1: are there do you have some riskier ideas that maybe
Speaker 1: higher return because four point six percent is great, especially
Speaker 1: if it's completely risk free. I love it, and so short, Um,
Speaker 1: but what else you know, it's it's interesting. Um, clearly
Speaker 1: there's a lot, you know, going on right now in
Speaker 1: the alternative side of the arena. So if you look
Speaker 1: at some of the investments that private equity is making
Speaker 1: right now, if you're willing to hold it for the
Speaker 1: long term, um, that's clearly a part of the market
Speaker 1: that has historically done well, and markets this where things
Speaker 1: are a little volatile on the public side. So I
Speaker 1: would absolutely absolutely look there. Um. In addition to that,
Speaker 1: you know, if you're willing to take a little risk
Speaker 1: in the first year post a bear market. In that
Speaker 1: first year, fifty percent of the total bell bear returns
Speaker 1: it's actually forty eight percent, but roughly fifty percent of
Speaker 1: the total bear returns on average happen in that first year.
Speaker 1: So legging into equities, even if you want to do
Speaker 1: it in a passive way, UM, as long as you're
Speaker 1: willing to stay the course if things get a little
Speaker 1: worse from here, you won't miss that first year, which
Speaker 1: is really important. Natalie are you you're based in California?
Speaker 1: I am What are you doing in New York? Then?
Speaker 1: I am here for a board meeting? Okay, all right,
Speaker 1: I just want to check you know, people coming into tourists.
Speaker 1: You're coming back big time, Matt. I was kind of
Speaker 1: out and about Midtown yesterday and they are out. I mean,
Speaker 1: every language on the planet's being spoken. Here is the
Speaker 1: last place I want to be right now? Why not?
Speaker 1: The weather is off? Please, it's it's the greatest. Talk
Speaker 1: to us about asset mark. I mean, you work with
Speaker 1: independent advisors. What do they sing? Are they seeing money
Speaker 1: come their way? What do you guys, asset mark? Where
Speaker 1: where do you add value? How do you try to
Speaker 1: help your clients as Mark helps our clients by helping
Speaker 1: them compete at any size, and so we provide outsourced
Speaker 1: and investment services, technology and support, the support and entrepreneur
Speaker 1: needs to run a thriving business for our advisors. And
Speaker 1: as a result, advisors who use us have on average
Speaker 1: about fourteen points more operating leverage than their competition if
Speaker 1: you look at publicly available data UM, which is great
Speaker 1: because advisors can use that fourteen points to invest in
Speaker 1: areas that are really important to their clients, which helps
Speaker 1: them grow. So are advisor groups Are they leaving the
Speaker 1: Merrill Lynch platforms, the Smith Barney platforms and all that
Speaker 1: and kind of going out on their own. Is that
Speaker 1: still a trend? Yes, the move to independence is still
Speaker 1: a trend. In addition, advisors often they start, they get
Speaker 1: their uh c f A or c a P certification
Speaker 1: and they start and they want to be an entrepreneur
Speaker 1: and serve clients and their local community. I have one
Speaker 1: advisor who decided that she wanted to move away um
Speaker 1: from UH that he I'm sorry, I wanted to move
Speaker 1: away from the auto manufacturing industry and become an advisor.
Speaker 1: And now he serves clients in that industry because no
Speaker 1: one understands it better than him. Interesting, what what do
Speaker 1: you think about value stocks right now? I see first
Speaker 1: eagle on your resume? Yes, yes, uh, first eagle. I
Speaker 1: clearly value is near and dear to my heart, and um,
Speaker 1: you know I always love value stocks that you know,
Speaker 1: it's important to understand the companies you're investing in, and
Speaker 1: at the heart of the matter, that's value. So I
Speaker 1: like that. Right now, how do you define value? Do
Speaker 1: you go to the typical price, earnings price the book?
Speaker 1: How do you think of value? Because I guess values
Speaker 1: a relative term for a lot of people. Yeah, so
Speaker 1: for me, it's definitely more price to book and then
Speaker 1: looking at sales, making sure you really understand what's driving
Speaker 1: sales and what's driving revenue growth. Are there tools newer tools?
Speaker 1: I'm thinking about et F, But maybe there's something else
Speaker 1: that you think are trending up for for the right
Speaker 1: reasons right now? Um. So, one thing that I think
Speaker 1: is really important is personalization is finally coming to investing,
Speaker 1: and so I'm a really big believer in direct indexing
Speaker 1: as being a trend that's going to stay with us.
Speaker 1: Um And the reason for that is I think in
Speaker 1: in every part of investors lives. They're able to personalize
Speaker 1: what they do. Why not with their investments. You know,
Speaker 1: if you're if you're feeling that you don't want to
Speaker 1: invest in a particular part of the market because of
Speaker 1: a value you have, or you really want to double
Speaker 1: down on that part of market, you should be able
Speaker 1: to do it and still have a portfolio that has
Speaker 1: um return characteristics that you're comfortable with. Direct indexing, you
Speaker 1: can basically build your own index, right. You can take
Speaker 1: someone else's index and say, um, you don't want Google
Speaker 1: or Facebook in your SMP. You can just pull them
Speaker 1: out and have the rest of the SMP um. I mean,
Speaker 1: you can do anything you want, right, that's right, and
Speaker 1: you can pull them out and then you can put
Speaker 1: something in that has a similar return characteristic, or you
Speaker 1: can double weight something that has a similar return characteristics,
Speaker 1: so you still have um you know, on paper roughly
Speaker 1: the performance of the SMP. Not as a retail investor,
Speaker 1: but this is something that the advisors with whom you
Speaker 1: work can do and that offer their clients both actually
Speaker 1: advisors with whom my work can help retail investors build
Speaker 1: the index that's perfect for them and it's extremely important
Speaker 1: for an investor to understand, you know, tracking error and
Speaker 1: concepts that might not be immediately evident um. But also
Speaker 1: investors can do it directly using several retail platforms. All right,
Speaker 1: good stuff cool. Natalie Wolfson, CEO of Asset Mark, joining
Speaker 1: us live here in our Bloomberg Interactive Broker studio in
Speaker 1: from California. Marijuana stocks are tumbling today after Senate Minority
Speaker 1: Leader Mitch McConnell criticized attempts to add a marijuana banking
Speaker 1: bill the National Defense Authorization Acts. So we said, let's
Speaker 1: talk about the cannabis biz. Does Mitch McConnell have against weed?
Speaker 1: He just doesn't look like a weed friendly dude when
Speaker 1: you look at him, you know, So it doesn't true.
Speaker 1: They grow some of the best weed in the whole country.
Speaker 1: There absolutely some good bourbon too. Josh Joseph joins us.
Speaker 1: He's the CEO and founder of Big Plan Holdings. Josh,
Speaker 1: thanks so much for joining us here. I love for
Speaker 1: you to give us just kind of the lay of
Speaker 1: the land. What do you guys do at Big Plan Holdings.
Speaker 1: I don't believe Josh is there. I don't believe Josh
Speaker 1: is there. Somebody's gotta push like the button that brings
Speaker 1: Josh back. But so to I'm lo gonna till ray
Speaker 1: the stock is off today. That's like one of the
Speaker 1: big weed companies. UM, Josh Joseph CEO and founder Big
Speaker 1: Plan Holdings. You there, my friend, can you hear me? Okay,
Speaker 1: yes we can absolutely. We're just talking cannabis here. We we
Speaker 1: we love to get a sense of what you guys
Speaker 1: at Big Plan Holdings are up to these days. All
Speaker 1: right today guys much appreciated, and you have to jump
Speaker 1: into a Big Plan Holdings and you know what we're
Speaker 1: what we're all about is UH a family office diversified
Speaker 1: in many different investment verticals. UH, you know, with one
Speaker 1: of our primary focals, UH focal points certainly based in
Speaker 1: the cannabis and UH and CBD industries. UM, coming out
Speaker 1: of a great deal of experience in cannabis. It's two
Speaker 1: thousand fourteen. So you've been what you did? You start
Speaker 1: off in real estate and then get into we'd real
Speaker 1: estate and then go to Big Plan Holdings. Yeah. Yeah,
Speaker 1: my my quick professional track and I'll give you you
Speaker 1: guys an abbreviated version of that is have specialized in
Speaker 1: commercial real estate around the country probably for about twenty
Speaker 1: six or twenty seven years, all facets of real estate
Speaker 1: from uh, you know, development to straight up ownership of
Speaker 1: existing assets to a lot of bankruptcy and distressed real
Speaker 1: estate sales and transacted and you know, probably forty or
Speaker 1: forty five states around the country. So I've had a
Speaker 1: very very fortunate run in the commercial real estate sector.
Speaker 1: That that then evolved into jumping into the state of
Speaker 1: Illinois UH their cannabis program in two thousand fourteen as
Speaker 1: an applicant UH and successfully securing seven of the initial
Speaker 1: fifty medical retail dispensary licenses. UM, which also cannabis, also
Speaker 1: has a very very big overlap within real estate as well.
Speaker 1: You can't have a dispensary or a growth facility or
Speaker 1: extraction or manufacturing facility or anything without real estate. So
Speaker 1: they really did go hand in hand. But what's the
Speaker 1: infrastructure look like, Josh um in terms of the grow
Speaker 1: I mean, Humble County is so famous in California. I know,
Speaker 1: UM Athens, Ohio, and we were just talking about Kentucky. UM,
Speaker 1: you know used to grow some pretty good weed when
Speaker 1: I was in high school. So what what's it look
Speaker 1: like now where where where is? Uh? Where the best operations?
Speaker 1: You know, you know this, this has become a real
Speaker 1: big business. You know when when when I got involved
Speaker 1: in two thousand THO team, it was it was still
Speaker 1: really an incubator in a very very immature industry. You
Speaker 1: fast forward to two thousand twenty two. Uh, this industry,
Speaker 1: the cannabis industry as a whole, is um dramatically different,
Speaker 1: dramatically more mature. Still has a significant amount of runway
Speaker 1: to it, I think in many many respects. But you
Speaker 1: know what you're seeing now is you're seeing the technology.
Speaker 1: You're seeing real R and D. You're seeing real science
Speaker 1: take place with the larger with the larger cannabis operators around. Um.
Speaker 1: You know, whether they be the public companies, whether they
Speaker 1: be the private companies that remain um yet to go
Speaker 1: public or yet to sell to larger, larger operators. Uh.
Speaker 1: You know again, guys, remember you know, the whole cannabis industry.
Speaker 1: We can talk about this for hours, but you know
Speaker 1: it violates federal law still yet today. So it's a
Speaker 1: federal ob versus state law issue. And then when when
Speaker 1: states enact legislation, they will typically get what they will
Speaker 1: always out of the gate, always, always, always go medical
Speaker 1: with a medical program first, you know, That's how they
Speaker 1: dip their toe in the water. Uh. With a medical program,
Speaker 1: they usually typically give it twelve or twenty four months.
Speaker 1: They then go to adult use, which is also known
Speaker 1: as recreational use, and then that process kind of evolves,
Speaker 1: if you will. Um. Well, I was just trying to
Speaker 1: pin down because this is the reason I wanted to
Speaker 1: talk about it today. We thought that the Safe Act,
Speaker 1: the you know, Marijuana Banking Act, was going to get
Speaker 1: put into a defense bill and make it a lot
Speaker 1: easier for you guys to do business. Um, it got
Speaker 1: taken out. So I'm wondering, when you look at just this,
Speaker 1: um the skeleton of the marijuana business around North America,
Speaker 1: is it still you know, scary looking Greg Almond dudes
Speaker 1: with shotguns and pickup trucks that are growing up? Or
Speaker 1: is it nothing nothing near that, nothing near that whatsoever.
Speaker 1: This is a real industry that's not going anywhere. This
Speaker 1: is a heavily politicized and polarized, um, you know situation
Speaker 1: as it relates to the Safe Banking Act and and
Speaker 1: and the number of other nuances and really key elements
Speaker 1: to the industry being able to continue to grow successfully
Speaker 1: in this country. No, this is that this is not
Speaker 1: the old school head shop approach, if you will with
Speaker 1: h you know the cartel and uh you know the
Speaker 1: the gangs, and you know there certainly is still a
Speaker 1: black market out there without question. But no, this is
Speaker 1: a real deal, professional industry that has UH, that has
Speaker 1: stabilized itself in many many ways, and we need safe
Speaker 1: banking to pass. So it must so. And there's still
Speaker 1: I think some optimism and analystic Cowan said, he thinks
Speaker 1: it's going to get done by the end of the year.
Speaker 1: When that happens and you're running uh, you know UH
Speaker 1: UM invest an investment office here, What do you like
Speaker 1: if I look in UM for example the e t F,
Speaker 1: I see til Ray as a huge UH player, innovative
Speaker 1: industrial canopy growth. What what do you like out there?
Speaker 1: Company wise? Is that what you're talking about? Yeah? So
Speaker 1: so I'm a I'm a big I'm a big fan.
Speaker 1: I founded a company called Grassroots Canabas based out of Chicago.
Speaker 1: Today we are either the number one or number two
Speaker 1: largest exit it has taken place in the cannabis industry.
Speaker 1: We sold our company July twenty to cure a Leaf.
Speaker 1: At the time of that sale, we're the largest privately
Speaker 1: held cannabis company in the US and including all the
Speaker 1: pub codes you can only be public up in Canada.
Speaker 1: Right now we're probably the third or fourth largest cannabis
Speaker 1: company in the country. Pure A Leaf, who is the
Speaker 1: largest cannabis company in the world. They happen to be
Speaker 1: baked based in Wakefield, Massachusetts, but they have a very
Speaker 1: large European footprints as well. Um you know, came in
Speaker 1: and they acquired us. And so here's what I here's
Speaker 1: what I see. I see the stronger going to survive
Speaker 1: in this in this industry, Like a lot of industry,
Speaker 1: I think at the end, at the end of all
Speaker 1: of this, when we fast forward five years, ten years,
Speaker 1: fifteen years, I think what we're gonna see is we're
Speaker 1: going to see companies like Kira Leaf, g t I,
Speaker 1: Green Thumb Industry is you know, known as g T I, Cressco.
Speaker 1: I think we'll see True Leave. I think we'll see Murano.
Speaker 1: I think we'll see um, you know, I think we'll
Speaker 1: see you know, maybe another couple out there. We'll see somewhere.
Speaker 1: We'll see somewhere guys between five and ten of the
Speaker 1: big of the big boys and girls, if you will,
Speaker 1: that will be the industry leaders. I think there's gonna
Speaker 1: be a significant drop off, and we call those tier
Speaker 1: one m s os in in in our world in cannabis.
Speaker 1: I think when you drop down to the tier two
Speaker 1: and the tier three m s o s, a lot
Speaker 1: of those folks are gonna be gobbled up over time.
Speaker 1: I think some will continue to survive and they'll be successful. Um,
Speaker 1: but I think a lot of those will you know,
Speaker 1: will be gobbled up over time. As regulatory hurdles are
Speaker 1: are you know, continue to kind of you know, unwrap
Speaker 1: if you will. You know, right now we are all
Speaker 1: as large M s o s um we are. We
Speaker 1: are stuck with certain regulation caps, if you will, on
Speaker 1: the numbers of licenses that we can have in the state.
Speaker 1: So um, you know, once those once those things changed,
Speaker 1: for example, and you can have more than for as
Speaker 1: in Illinois, you cannot have more than ten dispensaries in
Speaker 1: the state of Illinois. Once that's lifted or that's modified,
Speaker 1: if you will, and you can flex up to fifteen
Speaker 1: or twenty or thirty or unlimited, You're going to see
Speaker 1: a major, major push towards your consolidation of the large
Speaker 1: of the large companies, the large MSOs coming in and
Speaker 1: buying the smaller companies in my opinion, Thanks very much,
Speaker 1: Josh Joseph there. Well, the investment banks were in the
Speaker 1: news this week. Gold Sas had their annual conference, financial
Speaker 1: services conference, all the big I know, it almost like
Speaker 1: a set up. Yeah, like they're talking recessions, they're talking
Speaker 1: laying off people, cutting bonus pools. It was a real downer.
Speaker 1: Shelly Bassett was there, I put something to blame on?
Speaker 1: Was there? She like lad the whole conference. I know,
Speaker 1: she had some awesome interviews. So we've got the bass
Speaker 1: Bloomberg News Wall Street reporter here in our studio, as
Speaker 1: well as Alison Williams, senior banks analyst at Bloomberg Intelligence.
Speaker 1: So Chanali, let's start with you. You were at the
Speaker 1: Goldman conference. Boy, the Bloomberg News stories your interviews coming
Speaker 1: across the Bloomberg television sounded kind of like a bummer.
Speaker 1: What was it? You know, it's interesting this is the
Speaker 1: thirty third year of the conference. It's not over. It's
Speaker 1: still on today. And I was told at the conference
Speaker 1: that every year is either like a super happy year,
Speaker 1: super gloomy gloomy one, and this year was definitely gloomy. Um,
Speaker 1: but is that so surprising most of the folks, they
Speaker 1: are expecting a recession. In every conversation was how to
Speaker 1: prepare for that? And it seemed like every conversation was
Speaker 1: bank ceo telling his star performers to get ready for
Speaker 1: crappy bonus on background, guys, something so interesting. I was wait, wait,
Speaker 1: this is live well on background to employee other banks
Speaker 1: from me the record, Yes, live radio now on background.
Speaker 1: A lot of other folks arrivals of Goldman Sachs would
Speaker 1: tell me they were hoping that Solomon would be very negative.
Speaker 1: Why because if he set the bar low, it made
Speaker 1: it easier for everybody else to also do that. Yeah,
Speaker 1: so Alice, Because when Paul goes to his manager, um,
Speaker 1: you know, and says I want to raise The manager says,
Speaker 1: it's been a crappy year. I'm sorry, we're giving you
Speaker 1: a cut, and he says, I'm going across the street.
Speaker 1: The manager says, hey, dude, did you hear Shinali Bastic's
Speaker 1: interview with David Solomon. Don't go over there. Did you
Speaker 1: see Rich Handler's note don't go over there, So I
Speaker 1: sulk back to my desk and table between man legs. Alison,
Speaker 1: you've got your three outlooks out like most of the
Speaker 1: other Bloomberg Intelligence analysts. What's your out look for some
Speaker 1: of these big banks next year? I mean, we got
Speaker 1: rates rising, that's a good thing from an interest market.
Speaker 1: The markets can't be any worse. Something work this year,
Speaker 1: I think. I mean it's all about we have a recession.
Speaker 1: How deep is the recession? When the recession right, I
Speaker 1: would say that, um, you know the banks are prepared, right,
Speaker 1: So I think that's the point that they were making,
Speaker 1: is like, oh, there's a lot of negative there's risks
Speaker 1: out there. But I have a question for Alison. Sure
Speaker 1: trading is up, trading is up, but not as much
Speaker 1: as fees are down. Yeah, and that's does volatility still
Speaker 1: keep that trading a head when next year? I think
Speaker 1: it does? I mean keep in mind, right, so macro
Speaker 1: trading is at record levels, right, Equity trading is down
Speaker 1: five from record levels. Investment banking, yes, down from record levels.
Speaker 1: So going but going into next year, right, if something's
Speaker 1: down for a few percent, it's half is important to
Speaker 1: your bottom line next year? And there will be some recovery.
Speaker 1: I think it's going to be all about for the fees.
Speaker 1: It's all gonna be about one queue. What can they
Speaker 1: push out in the seasonally strong recorder. I think there
Speaker 1: is some you know, there's this term labor hoarding. I
Speaker 1: think they're bank reboarding. Right. So we've heard about cuts,
Speaker 1: but they're like very small cuts, and again after a
Speaker 1: scramble to add talent, they're hesitant to let them go.
Speaker 1: And you have people like Daniel Pinto, who's the head
Speaker 1: of JP Morgan c ib saying, you know, we're gonna
Speaker 1: cut comp but we're gonna keep heads, you know, after
Speaker 1: all the work we did to get the people in place.
Speaker 1: My suspicion here is that a few star traders who
Speaker 1: are going to get higher bonuses still I mean, at
Speaker 1: the end of the day they have to write or
Speaker 1: they where they go to hedge funds. There's a hedge
Speaker 1: funds still high. They go to hedge funds, and I
Speaker 1: mean hedge funds it's not a great year either. They
Speaker 1: have a lot of outflows, but macro hedge funds have
Speaker 1: had a pretty good year. Commodities hedge funds there's I mean,
Speaker 1: there's always opportunities sponsor back and places like hedge funds
Speaker 1: and you know these you know boutiques. It's much more
Speaker 1: to eat what you kill. And so if you r
Speaker 1: a star trader, there's a big opportunity for you. What
Speaker 1: are the returns Allison in your investment banking world these days?
Speaker 1: I mean when you and I were there, we were
Speaker 1: generating high teens, low twenties. Are those days because those
Speaker 1: are the days of leverage? But I would say that
Speaker 1: you know, if you so if we look at like
Speaker 1: sort of the the the are we on the global
Speaker 1: investment banking units of say like the top ten to
Speaker 1: thirteen banks, you know, we hit like fifteen per cent
Speaker 1: last year excluding our goes that you know, that would
Speaker 1: be like a hundred and ten basis point hit. But
Speaker 1: you know that was the best we've seen since before
Speaker 1: the crisis. So that was pretty good. You know, this
Speaker 1: year obviously that's that's going to come down, but we
Speaker 1: think still double digit and that's really what you know
Speaker 1: from the bank investors standpoint for next year. The bottom
Speaker 1: line is the profitability is still good because we had
Speaker 1: this we had this huge revenue. We didn't hire that
Speaker 1: we you know, we hired, but not nearly as much
Speaker 1: as uh, you know, as much as the revity grew
Speaker 1: up to the profitability is something we haven't seen in
Speaker 1: a long time. Like if they have to adjust some
Speaker 1: of their longer term targets, JP Morgan said, sev right,
Speaker 1: if they don't hit that next year, I think you know,
Speaker 1: Crimie River, it's it's a recession, right, that's fine. But
Speaker 1: if they start to have to say, Okay, this is
Speaker 1: not something that we can hit at a more meaningful rate,
Speaker 1: then that's when you have questions about what businesses in
Speaker 1: the longer term are going to make the most sense
Speaker 1: into this new economy, right right, And I think you
Speaker 1: know with JP Morgan, the most interesting things is going
Speaker 1: to be what happens on the cost side. That's where
Speaker 1: we got the big surprise this past January, huge upticking costs.
Speaker 1: You know, people are you know, they sort of signaled like, look,
Speaker 1: this isn't going away anytime soon. But that was in
Speaker 1: the beginning of the year. So could those costs, could
Speaker 1: that guidance be a lever for next year in terms
Speaker 1: of actually with tech tech talent is getting cheaper too.
Speaker 1: That's the reality. Also, that's a huge, huge, huge thing
Speaker 1: that all Street. You know, I had a big competitive
Speaker 1: challenge from absolutely young kids coming out of school, even
Speaker 1: everybody Jane Street for f t X. That's turned around.
Speaker 1: That's real. So what was the feeling at your at
Speaker 1: the Goldman conference about just crypto just generally? I it
Speaker 1: was funny. I was on radio with um, you know,
Speaker 1: Alex and Guy, and I made this comment about how
Speaker 1: nobody in that room was going to cry a river
Speaker 1: about cryptocurrencies falling off a cliff, and very senior bank
Speaker 1: executive walks over to me and hears me say that
Speaker 1: and just starts laughing and walks away. So yeah, I
Speaker 1: mean they're pretty thrilled because that talent war for them
Speaker 1: is gone. And another executive told me everyone that left
Speaker 1: their bank Goldman Sachs is now calling back again and
Speaker 1: saying what can I come back, which is, as you know,
Speaker 1: not a common practice of these branks. All Right, Sanelli Baskett,
Speaker 1: thank you so much. We appreciate it. Selie bast she's
Speaker 1: our Wall streetporter. She was at the Goldman conference getting
Speaker 1: some great, great interviews Brian moynihan, Mr Solomon and Goldman,
Speaker 1: so some good good stuff. We appreciate that. Alison Williams
Speaker 1: as always Bloomberg Intelligence. She's our senior banks analysts, covers
Speaker 1: everything anything you want to know about the banks. She
Speaker 1: knows that she's been doing this, uh four decades. We
Speaker 1: appreciate getting both of them here in our Bloomberg Interactive
Speaker 1: Broker's studio. Now, let's get to Kevin Tynan right now.
Speaker 1: He is our automotive senior automotive analysts from Bloomberg Intelligence.
Speaker 1: He's somewhere in the armpit of America? Is he in
Speaker 1: New Jersey? That you keep playing that game. I'm just messing.
Speaker 1: We've got enough people in. I'm just messing with you.
Speaker 1: I'm just messing with you. Kevin Um What a ride
Speaker 1: for especially dealers? Right? UM last year was insane? Uh.
Speaker 1: In terms of inventory, they had troubles. In terms of pricing,
Speaker 1: it was off the charts. And then there were some
Speaker 1: stocks like Carbonna which were crazy easy. What was the
Speaker 1: trading it like three d and now um an analyst
Speaker 1: is slashing it down to one dollar? Is this? Uh?
Speaker 1: This is not an industry problem with Carbona, right, this
Speaker 1: is a company specific issue. Yeah. I believe so. I
Speaker 1: mean I think when you look at it fundamentally and
Speaker 1: part of the problem, amongst many other things with carbon
Speaker 1: is that they are used vehicle only, right and and
Speaker 1: one of the things I like about the retail automotive
Speaker 1: space is that a full line legacy dealer can diversify
Speaker 1: its revenue and sort of hop to the hot business units.
Speaker 1: So when new vehicle margin was gross margin was below five,
Speaker 1: you started to see a push towards the used vehicle market,
Speaker 1: where that gross margin could be double UM. And that's
Speaker 1: where legacy dealerships would create private label CARBONNA, pops up,
Speaker 1: room shift and all these other things. Uh. The problem
Speaker 1: is as that market shifts, UH, supply is constrained on
Speaker 1: the new side and gross margin goes to twelve on
Speaker 1: new vehicles, Carbon can't go anywhere right there. CarMax is
Speaker 1: a similar story right there, only doing used vehicles, so
Speaker 1: they have less flexibility to kind of go where the
Speaker 1: margin is. And I would also put parts in service
Speaker 1: in that as well, where legacy dealers can do that business.
Speaker 1: Where CARBONA and CarMax are beholden only to use vehicle market, Kevin,
Speaker 1: are the US automakers Are they producing as many cars
Speaker 1: as they want to use? The supply chain cleaned up?
Speaker 1: Do they have enough labor. Are they producing where they
Speaker 1: want to produce in terms of volume? Yeah, I think
Speaker 1: so we're getting back there. I just looked at the
Speaker 1: December one inventory levels in the US and it was
Speaker 1: about one point seven million dollar units, and that was
Speaker 1: that's about double right at the bottom. It was under
Speaker 1: a million. At the peak it was over four million.
Speaker 1: So obviously we're not anywhere near oversupplied in historical terms. Um.
Speaker 1: But but that kind of inventory level, like a one
Speaker 1: point seven million if you think about it, the the
Speaker 1: industry will average about one to one point five million
Speaker 1: unit transactions per month, So we're kind of appropriate supplied. Uh,
Speaker 1: you want to be a little bit above thirty days supply.
Speaker 1: We're getting back to that, but you don't want to
Speaker 1: be where we were, which was days. But you also
Speaker 1: don't want to be, um, looking at lots that are
Speaker 1: all completely full and having buyers come in and um,
Speaker 1: you know, try and get five or ten thousand dollars
Speaker 1: off the price. Are we going to ever get back
Speaker 1: to that? Um? Well, ever is a long time. But
Speaker 1: are we going to get back to that in the
Speaker 1: next couple of years? I? I don't think so. And
Speaker 1: and look, it's just it's bad for everybody, right, It's
Speaker 1: bad for the manufacturers, it's bad for the dealerships that
Speaker 1: carrying costs um. So I think that the not it's
Speaker 1: not random, right, it's not just the way the market moves,
Speaker 1: and the dealers and the manufacturers are just stuck in
Speaker 1: this loop of over supply. They control the output um,
Speaker 1: the manufacturers do, and then the dealers can only sell
Speaker 1: what they're given. And I think everybody has seen the
Speaker 1: light in terms of price and margin in this environment
Speaker 1: and said, this is actually a pretty good place to be.
Speaker 1: I think we're in that window where we're tweaking it
Speaker 1: a little bit. Let's get a couple more units on
Speaker 1: the ground and not lose sales um. But we certainly
Speaker 1: don't want to go back to four million units on
Speaker 1: the ground. All right, I gotta talk to you about
Speaker 1: something that kind of grinds my gears. Using a good metaphor,
Speaker 1: we have a situation with some carmakers. Mercedes is one,
Speaker 1: Volvo is another. BMW infamously another where they're making people
Speaker 1: pay for over the air updates to access features that
Speaker 1: are already in the car. For example, BMW wants you
Speaker 1: to subscribe to heated seats. Yeah, so your seats and
Speaker 1: you buy the car from them, right, your seats have
Speaker 1: heating capability, but unless you give them eight dollars a
Speaker 1: month or something, they won't let you turn it on
Speaker 1: through over the air software updates. Now, recently I saw
Speaker 1: a situation where Mercedes was doing the same thing with horsepower.
Speaker 1: They're they're gonna sell you a car that has I
Speaker 1: don't know the exact numbers, but like three hundred horse
Speaker 1: power and if you want four hundred horse power, you
Speaker 1: need to be giving them like a thousand dollars a year.
Speaker 1: Or Volvo um is doing the same thing, although fortunately
Speaker 1: at least they're doing it as a one time charge.
Speaker 1: This is a horrible new Frontier Kevin, it is, And
Speaker 1: and think about what that would do to the used
Speaker 1: vehicle market, right, what are you actually buying is is
Speaker 1: every vehicle wiped clean when you see it on the lot.
Speaker 1: So essentially you have to menu up your vehicle if
Speaker 1: you're buying pre owned also, so it's a strange thing,
Speaker 1: you know, And then think about how how are you
Speaker 1: um buying wholesale vehicles? Like is everything go back to
Speaker 1: a base vehicle when it changes hands? And then and
Speaker 1: as a consumer, do my heated seats that I paid
Speaker 1: BMW four come with me to my next one? Or
Speaker 1: you know, it's it's a strange thing, and I've yet
Speaker 1: to believe that it can actually work over the long term.
Speaker 1: All right, and that your industry continues to go under
Speaker 1: tremendous change. Kevin Tiden, senior autos analysts with Bloomberg Intelligence
Speaker 1: with some great stuff. Uh there? All right? So I
Speaker 1: want to talk technology because you know, when he came
Speaker 1: out of the last quarters earnings, to me, it felt
Speaker 1: like there are a lot of disappointments around the tech
Speaker 1: space and I'm wondering if the tech sector has lost
Speaker 1: its leadership role in this market. I want to talk Apple, Amazon, Google,
Speaker 1: all that kind of stuff. So we're gonna roundtable this thing, folks.
Speaker 1: Mark German, he's a reporter. He covers Apple, that covers
Speaker 1: all the consumer tech and hardware. Is that in our
Speaker 1: San Francisco office? Usually sometimes I find him in the
Speaker 1: desert doing stuff. I don't know what's going on there
Speaker 1: with rockets and stuff. Um and then also on rock Rona.
Speaker 1: He is our senior technology analyst for Bloomberg Intelligence. Um. So, Mark,
Speaker 1: I want to start with you because there's a lot
Speaker 1: of news add on Apple here today. I'm not I
Speaker 1: don't get this fully autonomous car thing from the get go.
Speaker 1: But Apple seem to throw it's hat in the ring
Speaker 1: there a while back. But are they kind of pulling
Speaker 1: back from that here? And if so, why they're pulling
Speaker 1: back initially? So Tim Cook gets asked this all the
Speaker 1: time when Apple comes out with the new products. What
Speaker 1: took you so long? Right? Other companies have had phones, watches,
Speaker 1: sets up boxes, etcetera, tablets forever and now you guys
Speaker 1: are doing that. What's the difference? What he likes to say,
Speaker 1: and what is in my opinion absolutely true, is we
Speaker 1: wanted to be the best, not the first. We wanted
Speaker 1: to do things a little bit differently. Right, So the
Speaker 1: iPhone wasn't the first smartphone, but there was nothing before.
Speaker 1: You can see the same about the iPod to the
Speaker 1: MP three player. The Apple watched the smart watch, etcetera, etcetera,
Speaker 1: And so they wanted to come at the car with
Speaker 1: the same approach, and they, along with every other car manufacturer,
Speaker 1: decided that the real holy grail, the real differentiator for
Speaker 1: how you can make a car different than anything that's
Speaker 1: come before it is level five full self driving, tell
Speaker 1: the car where you want to go, it gets you there,
Speaker 1: no issue. Right, that is just not possible. It's not feasible,
Speaker 1: and it's probably not going to be feasible for twenty
Speaker 1: thirty years, if not even in our lifetime. So in
Speaker 1: order to get something on the road this decade, because
Speaker 1: that is going to be a hot area, they needed
Speaker 1: to pair back. And so what they're doing is they're
Speaker 1: moving to a level four design, which means they're scrapping
Speaker 1: their vision of no steering wheel and no pedals. They're
Speaker 1: going to have those key parts of the car as
Speaker 1: we all know, and it's only going to have self
Speaker 1: driving functionality in places like highways and freeways. So that
Speaker 1: is a major shift, and they're really going to have
Speaker 1: to compete on area technology, on industrial design, on software
Speaker 1: and other features that you might want in a car
Speaker 1: in the future. And handling. You know, one of the
Speaker 1: things I love about my iPhone is how it handles,
Speaker 1: and I want a car that handles just as well.
Speaker 1: So I mean, who are they going to work with.
Speaker 1: Is it a Porsche or is it a Kia. That's funny, Yes,
Speaker 1: I definitely want an Apple car. That will you can
Speaker 1: get me whoever I want to go at as fast
Speaker 1: as I can, right, I'll always take a need for
Speaker 1: speed type of of car. I think it's going to
Speaker 1: be something closer to a Porsche. I think it's something
Speaker 1: that's probably going to cost around a hundred thousand per unit.
Speaker 1: This is going to be a consumer car. It's probably
Speaker 1: going to be in the same territory as a baseline
Speaker 1: Tesla models. Originally they were going to go for a
Speaker 1: higher price point that would put it in the Porsche
Speaker 1: take Hand range, selling on the higher end take Hands
Speaker 1: in the north of a hundred and fifty thousand US,
Speaker 1: but now they're downscaling. Uh. There had been rooms about
Speaker 1: them doing something more on the Kia spectrum, even working
Speaker 1: with con Day and Kia. I'm told those rumors were
Speaker 1: never true and they were probably floated by those companies
Speaker 1: in Asia. There has been some accusations that I heard
Speaker 1: about trying to you know, inflate their stock prices. But
Speaker 1: who really knows. The truth of the matter is it
Speaker 1: will be something closer to a model as I think
Speaker 1: it will probably do incredibly well. And I'm sure you'll
Speaker 1: ask on rock this, but the quickest way for Apple
Speaker 1: to sort of triple its revenues over time is to
Speaker 1: come out with a hundred thousand dollar product, right, So yeah,
Speaker 1: exact way that they're going to inflate their own revenue.
Speaker 1: What do you think about it? Yeah, let's hope they
Speaker 1: don't come up with a model because you can't make
Speaker 1: any money off of it. You know, in my view,
Speaker 1: you don't want to go down the you know, the
Speaker 1: price point. They will go out for whatever product they
Speaker 1: go out at at a you know, gross mog and
Speaker 1: that's the style Apple goes. It doesn't care about markets
Speaker 1: here from a any point of view. It care about
Speaker 1: gross profit margins. And I'm you know, very optimistic that's
Speaker 1: what they're focusing on. And they don't you know, cheapen
Speaker 1: the car, so so an just across the text space,
Speaker 1: I mean, it's the rose the bloom kind of came
Speaker 1: off the roads a little bit for me at least,
Speaker 1: and I'm wondering if it's true for the market. After
Speaker 1: the last quarters earnings, we had some disappointments, some cautious
Speaker 1: outlooks as you talk to institutional investors, kind of what's
Speaker 1: the feeling out there about tech in general? So I
Speaker 1: think Paul. In all honesty, I think the cell side
Speaker 1: truly forgot what a recession or slowdown looks like. If
Speaker 1: I look at the top twenty software company, they have
Speaker 1: been growing sales at the rate of twenty percent per
Speaker 1: year for the past six years. So you know, there
Speaker 1: has to be a time when when the economic activity
Speaker 1: slows down that people will pull back onto eke spending.
Speaker 1: And I don't think anybody remembers eight oh nine, And
Speaker 1: I think this is the time that they are coming
Speaker 1: back to the realization that everything slows down in a downturn.
Speaker 1: And I think, frankly speaking, at this point, I see
Speaker 1: numbers for next year, I feel a little bit happier
Speaker 1: than I did prior to the last quarter. But if
Speaker 1: we get into a deep procession, um I mean, probably
Speaker 1: the first thing that people do when they tighten their
Speaker 1: belts is not buy a new iPhone, right, I mean,
Speaker 1: you only buy one when you absolutely have to, if
Speaker 1: you can't justify. He always buys the newest model. He
Speaker 1: always buys the newest model because he has a great
Speaker 1: job with a great company. But if he loses his job,
Speaker 1: he's probably not going to Um no, absolutely right, Yeah,
Speaker 1: you have it, right, I mean see from an enterprise
Speaker 1: point of view, it's the same argument that you make.
Speaker 1: But frankly speaking, one of the things you also have
Speaker 1: to think about is the technologies that you're spending with Microsoft,
Speaker 1: with Google, with the likes of it, take sales Force
Speaker 1: or Workday or Shopify. These companies are critical to making
Speaker 1: your company go digital. It's not as if this is
Speaker 1: these are you know, an ad hoc product that you
Speaker 1: get just because you know it's a shiny new object
Speaker 1: and what we think is going to happen. You know,
Speaker 1: we saw that the a w IS very clearly. During
Speaker 1: the pandemic, growth slowed down because the sectors that operate
Speaker 1: with them slowed down. But the year after that we
Speaker 1: saw a massive bounce back because digital spending has to
Speaker 1: be done. You have to go digital. It's it's not
Speaker 1: something it's not a fashion, it's something that's required for
Speaker 1: you to do. So we think if you thinks slow
Speaker 1: down in twenty three, we think a massive bounce back. Hey,
Speaker 1: Mark your base in l A, San Francisco. I thought
Speaker 1: in l A, Mark, Yeah, yeah, So it changes my
Speaker 1: entire vision of Mark German. Well, he's just he's m
Speaker 1: Mr California in general. I mean, what's the feeling a
Speaker 1: lot of your companies that you cover, Mark, A lot
Speaker 1: of the consumer technology companies, they've been laying some people off.
Speaker 1: Here is is it? Is it a thing? Wow? It's
Speaker 1: definitely a thing. Who would have ever thought that Amazon
Speaker 1: and Meta would start cutting north to five seven, ten
Speaker 1: thousand people right when you know the economy is really
Speaker 1: in the in the trash? Is if Apple starts cutting people.
Speaker 1: To date, they have not started cutting people. They're not hiring,
Speaker 1: which is a really really big deal. There's a complete
Speaker 1: pause there. But they're not firing or laying off anyone.
Speaker 1: All right, Mark, good stuff? Mark German. Uh. He is
Speaker 1: our consumer tech uh reporter out there in l A
Speaker 1: covering all that cool consumer tech stuff. Big big focus
Speaker 1: on Apple because why not. It's a huge company. And Anagrana,
Speaker 1: he's our senior technology analysts for Bloomberg Intelligence kind of
Speaker 1: round table and you're talking about tech. You know, it's
Speaker 1: it's been such a leader in this market for such
Speaker 1: a long period of time. Um, But as Anorag suggested, Um,
Speaker 1: they're impacted by the headwinds of a recession as well.
Speaker 1: Maybe not as much as other industries, but certainly there
Speaker 1: is an impact, and kind of where we're seeing it
Speaker 1: is in the head count, seeing a lot of headcount
Speaker 1: being like a technology, so I have to keep an
Speaker 1: eye on that. Thanks for listening to the Bloomberg Markets podcast.
Speaker 1: You can subscribe and listen to interviews of Apple Podcasts
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
Speaker 1: on Twitter at Matt Miller three. Put on fall Sweeney.
Speaker 1: I'm on Twitter at pt Sweeney Before the podcast. You
Speaker 1: can always catch us worldwide at Bloomberg Radio.