WEBVTT - Chipotle CFO on the Challenging Labor Environment 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.560 at Bloomberg dot com slash podcast. Now, I want to 0:00:21.640 --> 0:00:26.320 go to Chipotle for lunch after this program, and I 0:00:26.400 --> 0:00:28.479 don't know if I should go there or if I 0:00:28.520 --> 0:00:32.199 should order it online. This is a conundrum that I've 0:00:32.200 --> 0:00:36.840 started having post pandemic, because so many businesses have migrated 0:00:36.880 --> 0:00:39.919 to digital so well, and delivery is so fast and 0:00:39.920 --> 0:00:43.760 efficient now and uh, one of the biggest success stories, 0:00:43.800 --> 0:00:46.320 at least on the stock market has been Chipotle, Chipotle, 0:00:46.440 --> 0:00:52.040 Mexican Grill, Tickard, cmg UM absolutely soaring since releasing second 0:00:52.120 --> 0:00:55.160 quarter earnings on Tuesday. Stock now at what an all 0:00:55.200 --> 0:00:58.280 time high? At least if these two weekends all time high? Alright, 0:00:58.360 --> 0:01:01.960 let's bring in the see the CFO. Jack Hartongue joins 0:01:02.080 --> 0:01:05.720 us UM right now, chief financial officer forced to put Chipotle, Jack, 0:01:05.760 --> 0:01:07.720 what do you think should I order in or should 0:01:07.720 --> 0:01:09.840 I just walk down Third Avenue and pick it up. 0:01:10.640 --> 0:01:13.040 You know, it is a conundrum. Uh, you know, I 0:01:13.160 --> 0:01:15.840 had that choice yesterday and I actually was doing the 0:01:15.880 --> 0:01:18.120 same thing you did during the pandemic, ordering a lot 0:01:18.160 --> 0:01:19.880 of digital a lot of delivery. I dec had to 0:01:19.920 --> 0:01:22.240 go into the restaurant interact with the team, eat my 0:01:22.319 --> 0:01:24.679 ball right there in the restaurant. It was absolutely delicious, 0:01:24.760 --> 0:01:27.280 So um, I would encourage you to go into the restaurant. 0:01:27.840 --> 0:01:30.000 All right, Jack, we know you know sales have been 0:01:30.080 --> 0:01:32.560 very strong and we're just looking at your most recently 0:01:33.319 --> 0:01:35.640 released results there. I want to talk about the cost 0:01:35.720 --> 0:01:38.520 side and margins because I know you guys in the 0:01:38.560 --> 0:01:41.080 restaurant businesses are dealing with two challenges right now. One 0:01:41.200 --> 0:01:44.839 is rising food cost prices and number two is labor. 0:01:45.200 --> 0:01:47.520 Shortage of labor. Talk to us about those two issues 0:01:47.560 --> 0:01:50.600 and how they're impacting your margins. Yeah, you know, late 0:01:50.720 --> 0:01:53.320 labor in the US is a real challenge right now, 0:01:53.480 --> 0:01:55.480 and it's it's one of, if not the most challenging 0:01:55.560 --> 0:01:58.640 labor environments I've seen, where everybody at the same time 0:01:58.720 --> 0:02:01.800 needs to hire people. The economy is opening up, you know, 0:02:01.960 --> 0:02:04.120 we're opening up our dining rooms. People want to dine 0:02:04.160 --> 0:02:06.800 in Um. You know now that the pandemic is, you know, 0:02:06.920 --> 0:02:10.079 in the late stages, and so everyone's trying to hire 0:02:10.120 --> 0:02:12.160 at the same time, and at the same time employees 0:02:12.200 --> 0:02:15.679 are they've been cooped up for either working from home 0:02:15.960 --> 0:02:18.920 or for other reasons cooped up at home. They're really 0:02:19.080 --> 0:02:21.639 thoughtful and discerning about where they want to work and 0:02:21.680 --> 0:02:24.120 where they don't want to work. And so we had 0:02:24.160 --> 0:02:26.480 to take a big move a couple of months ago. 0:02:26.520 --> 0:02:29.040 We announced in May, and then we actually enacted in 0:02:29.200 --> 0:02:32.560 June a significant increase in wages where we went up 0:02:32.560 --> 0:02:37.839 about from somewhere around thirteen dollars plus to average rate 0:02:37.919 --> 0:02:41.440 of fifteen dollars. And it's worked really really well since then. 0:02:41.480 --> 0:02:45.040 Our application flow is increased dramatically, uh you know, the 0:02:45.120 --> 0:02:48.400 turnover are losing of people to other folks who were 0:02:48.440 --> 0:02:51.320 paying one or two dollars more has slowed down quite 0:02:51.320 --> 0:02:53.440 a bit, and so it's worked out really related well 0:02:53.480 --> 0:02:55.799 for us. Now, we did have to raise prices a 0:02:55.880 --> 0:02:58.520 bit um, you know, to fund that fifteen percent increase. 0:02:58.560 --> 0:03:01.720 We did raise prices about we're going to but we 0:03:01.840 --> 0:03:04.880 feel like that was a very fair trade. The customers 0:03:04.919 --> 0:03:07.520 who have commented so far have said they'll gladly pay 0:03:07.520 --> 0:03:10.760 an extra thirty cents for exactly to make sure that 0:03:10.880 --> 0:03:13.480 people can, you know, earn a living wage. And so 0:03:14.040 --> 0:03:15.400 we think that went really well. By the way, the 0:03:15.440 --> 0:03:17.160 people when they make more money, they spend more money, 0:03:17.160 --> 0:03:19.480 and we think that's good for the economy. So and well, 0:03:19.520 --> 0:03:21.679 there there's an old Henry Ford a lesson for you. 0:03:22.360 --> 0:03:25.679 My my thing is, and to be fair, you know, 0:03:26.280 --> 0:03:29.600 we're relatively wealthy. We have good jobs here, so um, 0:03:29.720 --> 0:03:31.480 you know there are some people in the country that aren't, 0:03:32.120 --> 0:03:34.359 that aren't able to But I'm happy to pay a 0:03:34.480 --> 0:03:36.760 couple of dollars more for a meal if I know 0:03:37.000 --> 0:03:42.200 that the employees are getting paid better. And usually I 0:03:42.320 --> 0:03:45.400 find the customer experience is much better if the employees 0:03:45.440 --> 0:03:46.840 are getting paid more. Do you I mean, I know 0:03:46.920 --> 0:03:48.880 you've got to keep your eye on costs, but do 0:03:49.000 --> 0:03:52.000 you find that you know, your workers are happier to 0:03:52.120 --> 0:03:57.640 serve food to customers if they if they're getting these raises. Listen, 0:03:57.680 --> 0:03:59.800 I think you can look at the business and look 0:03:59.800 --> 0:04:01.880 at the labor line as an expense, or you can 0:04:01.960 --> 0:04:04.720 look at labor as um. Those are your people, that's 0:04:04.760 --> 0:04:06.800 the lifeblood of your restaurant. In our case, we run 0:04:07.000 --> 0:04:09.280 all of our restaurants. We don't franchise any We have 0:04:09.360 --> 0:04:12.320 over ninety employees. And when we were able to attract 0:04:12.440 --> 0:04:14.800 great employees who really love to work in the kitchen, 0:04:14.840 --> 0:04:17.000 they love to serve customers, they love to be part 0:04:17.040 --> 0:04:20.920 of a team atmosphere, they are better employees. They make 0:04:21.000 --> 0:04:23.280 the team better and they make the customer experience better. So, 0:04:23.839 --> 0:04:26.520 you know, the investing in the higher wages along with 0:04:26.600 --> 0:04:29.520 other things we've done, like we've invested in offering debt 0:04:29.560 --> 0:04:31.800 free degrees to our folks. And you know, we have 0:04:31.880 --> 0:04:36.200 benefits in terms of physical health benefits and mental health benefits. 0:04:36.279 --> 0:04:38.880 And we're about to launch something to to help from 0:04:38.920 --> 0:04:41.520 a financial standpoint, to make sure that our our our teams, 0:04:41.920 --> 0:04:44.640 our individual employees are able to understand what it means 0:04:44.680 --> 0:04:47.480 to be financially healthy and make good financial decisions. These 0:04:47.520 --> 0:04:50.119 are all things that we make. Those investments in our folks, 0:04:50.400 --> 0:04:52.640 they make investments back. They want to stay with us, 0:04:53.200 --> 0:04:55.240 and they want to advance their career with us as well. 0:04:55.360 --> 0:04:57.080 And because we're a growth company, you know, we've got 0:04:57.120 --> 0:04:58.839 three thousand restaurants, but we know we can have at 0:04:58.920 --> 0:05:01.680 least six thousand in the US, and that doesn't doesn't 0:05:01.720 --> 0:05:05.560 even count outside the US. We need lots of future leaders, 0:05:05.680 --> 0:05:07.760 and we hire great people who are really bought into 0:05:07.800 --> 0:05:09.600 what we're trying to do today. They will be our 0:05:09.640 --> 0:05:11.800 future leaders tomorrow. That's kind of where I went to 0:05:11.800 --> 0:05:14.560 go Jack, Given some of those challenges that uh, you 0:05:14.640 --> 0:05:17.560 know we're seeing across this economy in terms of labor, 0:05:17.960 --> 0:05:21.080 What has that done to your store opening strategy here 0:05:21.160 --> 0:05:24.080 maybe you know, in the next six twelve months. Yeah, 0:05:24.160 --> 0:05:25.800 it really hasn't changed it a bit. You know, we've 0:05:25.839 --> 0:05:28.520 had a few interruptions here and there where we've had 0:05:28.560 --> 0:05:31.120 to delay in opening by maybe a week or ten 0:05:31.200 --> 0:05:32.760 days something like that, and that was just so we 0:05:32.800 --> 0:05:35.440 can make sure that we have the full complement of 0:05:35.560 --> 0:05:37.600 crew and their world trained. The thing you don't want 0:05:37.640 --> 0:05:39.240 to do. You don't want to rush and opening, and 0:05:39.920 --> 0:05:42.400 you know, if you target a July one day and 0:05:42.680 --> 0:05:44.400 you don't have the team up and ready to go 0:05:44.480 --> 0:05:47.239 and fully train, it's the right decision to wait until 0:05:47.400 --> 0:05:49.560 a week or ten days later. You only get a 0:05:49.680 --> 0:05:52.120 chance to make a first impression one time with new 0:05:52.160 --> 0:05:54.520 customers in a new trade area. And so we've had 0:05:54.640 --> 0:05:58.160 minor delays like that. But we actually just announced yesterday 0:05:58.279 --> 0:06:00.880 that that we're going to exceed the early year guidance. 0:06:00.920 --> 0:06:03.200 We give guidance of two restaurants that we would open 0:06:03.240 --> 0:06:05.360 this year. We now expect that we will not only 0:06:05.480 --> 0:06:07.240 hit that number, we will exceed that number. And so 0:06:07.680 --> 0:06:09.640 our development team they're doing a great job getting the 0:06:09.720 --> 0:06:13.520 sites up and running and constructed. And then are HR 0:06:13.600 --> 0:06:15.040 and our os folks are doing a great job and 0:06:15.120 --> 0:06:18.960 making sure that people trained to open those restaurants. All right, Jack, 0:06:19.000 --> 0:06:22.320 thanks so much for joining us. CAP is fifty billion 0:06:22.360 --> 0:06:25.880 dollars right now, this round number. It's it's a pleasure 0:06:25.920 --> 0:06:30.239 talking to you. And u uh. The story has been amazing. 0:06:30.279 --> 0:06:33.720 I've been following it, you know, for years, because we 0:06:33.839 --> 0:06:35.600 used to have a Chipotle here north and now we 0:06:35.640 --> 0:06:37.120 have them down south, and so I've been eating the 0:06:37.160 --> 0:06:38.760 food and that makes me want to follow a story 0:06:39.720 --> 0:06:42.839 all the more, Jack Carton, there is a chief financial 0:06:43.000 --> 0:06:49.400 officer of Chipotle. After um fantastic earnings, the street bids 0:06:49.440 --> 0:06:52.440 the stock up sighties six to an all time high. 0:06:52.880 --> 0:06:58.479 This is Bloomberg. Let's get over to David Kudla right now. 0:06:58.839 --> 0:07:01.720 We've been telling you um that he's that he's coming 0:07:01.800 --> 0:07:04.800 on with us, and now he's finally here. So we're 0:07:04.839 --> 0:07:08.680 happy all as always to talk to um David. He 0:07:08.720 --> 0:07:10.920 has a you know, as I was saying earlier, a 0:07:11.000 --> 0:07:15.840 big following in terms of, uh, the listeners just right 0:07:15.920 --> 0:07:19.160 into us whenever you come on, David. So UM, we're 0:07:19.360 --> 0:07:23.400 always grateful to get your insight. Mainstay Capital Management UM 0:07:23.520 --> 0:07:26.720 out on out in Michigan. There three not billion dollars 0:07:26.760 --> 0:07:30.280 of assets under management. The question I've been asking for 0:07:30.400 --> 0:07:33.000 weeks and I haven't gotten a sufficient answer to is 0:07:33.440 --> 0:07:35.720 what's going on with rates? Why are we at one 0:07:36.680 --> 0:07:40.360 on the tenure? Why is the real yield negative one 0:07:40.400 --> 0:07:44.600 per cent? What does it mean to you? Uh, it 0:07:44.720 --> 0:07:48.240 doesn't mean the same thing to me. Uh, good morning, 0:07:48.320 --> 0:07:50.720 Matt And and I hope the I hope the listeners 0:07:50.760 --> 0:07:53.440 are writing in good things about me, of course, but yeah, 0:07:53.760 --> 0:07:56.280 but it doesn't mean the same thing to me that 0:07:56.440 --> 0:07:59.640 it means to some people. I think that you know, Uh, 0:08:00.520 --> 0:08:02.760 there's still people that are that that are looking for 0:08:03.000 --> 0:08:08.120 signals from the bond market. Uh, like the old days. 0:08:08.120 --> 0:08:10.120 And when I say the old days, I mean before 0:08:10.240 --> 0:08:14.760 there was so much manipulation of rates by the federal reserve, 0:08:15.120 --> 0:08:17.880 and we could count on the bond market to send 0:08:17.960 --> 0:08:20.520 us signals about the economy and to send us signals 0:08:20.600 --> 0:08:24.480 and and you know, normal reaction functions that that could 0:08:24.520 --> 0:08:26.960 help us in our our investments and where we should 0:08:26.960 --> 0:08:30.080 be going in the markets. But especially in the past 0:08:30.160 --> 0:08:33.480 fifteen months, but even before that, UM, I think it 0:08:33.559 --> 0:08:36.839 says more about the amount of liquidity, the amount of 0:08:38.160 --> 0:08:41.240 asset purchases, but not just by our FED, but by 0:08:41.320 --> 0:08:45.040 the ECB and other central banks. They're just pushing yields 0:08:45.120 --> 0:08:50.280 down and it is just distorted. Um the pictures so much. 0:08:50.480 --> 0:08:52.839 If you think about back in the nineteen eighties when 0:08:52.920 --> 0:08:56.080 we were at five and a half percent inflation, where 0:08:56.200 --> 0:09:00.880 we're bond yields then compared to today, we're sitting here 0:09:01.679 --> 0:09:06.160 UH at UH one point to seven seven basis points 0:09:06.200 --> 0:09:10.280 on a ten year on a thirty year with inflation. 0:09:10.440 --> 0:09:13.559 Last read we had at five point four p UM. 0:09:13.800 --> 0:09:18.160 So it's it's not it's it's not about a reraction 0:09:18.240 --> 0:09:21.839 of the economy, iraction inflation. It's about the FED. We 0:09:21.920 --> 0:09:26.000 are just a wash with liquidity. The asset purchases mostly 0:09:26.120 --> 0:09:29.680 by the FED, bombs and NBS is mostly being purchased 0:09:29.720 --> 0:09:33.520 by the FED and just driving rates down. Hey, David, 0:09:33.559 --> 0:09:36.280 you know, the pandemic unfortunately is still with us. We 0:09:36.600 --> 0:09:37.880 a lot of folks feel like we're on the other 0:09:38.000 --> 0:09:41.040 side of it, but there's still that delta variant. How 0:09:41.120 --> 0:09:44.240 are you guys thinking about it from a stock selection 0:09:44.280 --> 0:09:47.839 perspective or sector perspective as it relates to Hey, this 0:09:48.040 --> 0:09:50.760 thing might be with us maybe a little bit longer. Well, 0:09:50.960 --> 0:09:54.480 you know, it was, it was it was an easy 0:09:54.880 --> 0:09:56.839 I'll just say it was an easy trade last year 0:09:56.880 --> 0:09:59.839 and not saying that in hindsight. Uh. You know, we 0:10:00.040 --> 0:10:03.800 went with the stay at home I T e. Commerce, uh, 0:10:03.880 --> 0:10:06.679 those trades last year, and I think a lot of investors, 0:10:06.679 --> 0:10:08.680 a lot of professionals did very well in that environment, 0:10:09.280 --> 0:10:11.920 and a lot of investors and professionals are frustrated this 0:10:12.080 --> 0:10:15.480 year with this, uh, this constant rotation back and forth 0:10:15.600 --> 0:10:19.120 between value and growth, whether it's a month to month, 0:10:19.160 --> 0:10:21.560 week to week, or like this week day to day, 0:10:21.840 --> 0:10:25.480 just the difference between Monday and Tuesday. And uh, you know, 0:10:25.760 --> 0:10:28.640 one of the things that we're looking at that that uh, 0:10:29.080 --> 0:10:32.679 we think makes sense for investors in their portfolios for 0:10:32.760 --> 0:10:36.920 two reasons. Uh, is you know, there's the this this 0:10:37.080 --> 0:10:40.800 constant argument where the leadership will be between growth and 0:10:40.960 --> 0:10:44.600 value is to look at defensives. And you know, defensives, 0:10:45.000 --> 0:10:48.480 we haven't had five per cent correction in the market 0:10:48.559 --> 0:10:52.120 or fire I should say pullback, uh since last October. 0:10:52.240 --> 0:10:55.040 We usually get or the averages at least three of 0:10:55.080 --> 0:10:59.839 those in a year, at least one crushing in a year, 0:11:00.480 --> 0:11:03.640 and so there's concerned about that. That's where defensive position 0:11:03.679 --> 0:11:07.120 in a portfolio can help. Also, um so one area's 0:11:07.120 --> 0:11:09.480 healthcare to look at is a good one for that. 0:11:10.120 --> 0:11:13.840 And with these renewed concerns about COVID with the delta variant, 0:11:14.640 --> 0:11:19.000 one area we like in particular is um is medical devices, 0:11:19.080 --> 0:11:23.679 medical technology and devices because as we saw and you've 0:11:23.679 --> 0:11:26.480 been reporting on the show, we are seven day average 0:11:26.480 --> 0:11:29.079 in cases in this country had gotten down at the 0:11:29.160 --> 0:11:32.000 end of June to about eleven thousand, and you know, 0:11:32.040 --> 0:11:34.360 we we've ramped back up to over forty with the 0:11:34.880 --> 0:11:38.120 delta variant. You I want. I was wondering because you're 0:11:38.160 --> 0:11:42.000 in um in Michigan near Detroit, right just north of 0:11:42.160 --> 0:11:45.719 Royal Oak there, and you have about three and a 0:11:45.880 --> 0:11:48.839 billion in assets under management, but you're one of the 0:11:48.880 --> 0:11:53.520 top one independent financial advisors for years and years um 0:11:54.120 --> 0:11:57.520 at Barons uh Forbes rates you one of the top 0:11:57.600 --> 0:12:00.920 one hundred wealth advisors. You want to Stanford and did 0:12:01.000 --> 0:12:04.000 all of everything that the super smart um Wall Street 0:12:04.240 --> 0:12:06.160 guys need to do. But you're not on Wall Street. 0:12:06.360 --> 0:12:09.080 What what's business like there? Is any different? Are your 0:12:09.160 --> 0:12:12.040 clients calling in from here or do you have a 0:12:12.160 --> 0:12:16.800 local base? So we have, I mean, we really consider 0:12:16.880 --> 0:12:19.959 ourselves a national advisor. We have we have clients and 0:12:20.200 --> 0:12:24.800 forty seven states and twelve other countries because of people, 0:12:25.320 --> 0:12:28.959 you know, businesses global these days. We have investors that 0:12:29.280 --> 0:12:32.160 that move around the country or from around the country 0:12:32.200 --> 0:12:34.920 and move around the world. Certainly we have a lot 0:12:35.280 --> 0:12:38.480 here in Michigan, a lot of clients that that are 0:12:38.520 --> 0:12:42.679 in the auto industry. Um, so we do I mean, 0:12:42.800 --> 0:12:48.480 but certainly represent you know, entire country. Yeah, in global business. 0:12:48.520 --> 0:12:50.040 All right, David, thank you so much for joining us. 0:12:50.080 --> 0:12:52.480 We always appreciate getting your insight. We appreciate your time. 0:12:52.559 --> 0:12:55.680 David Cood left, founder, CEO and chief investment strategist for Mainstake. 0:12:55.760 --> 0:12:57.400 We should ring there, you know, we should should go 0:12:57.480 --> 0:13:00.360 there at because there's obviously a lot of people for 0:13:00.440 --> 0:13:02.000 us to interview and then you could get David and 0:13:02.080 --> 0:13:08.560 do a round table. End we are going to talk 0:13:08.679 --> 0:13:11.240 stocks right now. We have got the senior US equity 0:13:11.320 --> 0:13:15.000 strategist from UBS Global Wealth Management, Nadia level with us 0:13:15.640 --> 0:13:21.400 and uh, what a market? I mean, where do we begin? Nadia? Um, 0:13:21.960 --> 0:13:24.120 It's been such an incredible run. I was reading about 0:13:24.240 --> 0:13:26.719 a really successful hedge fund manager this morning that was 0:13:26.800 --> 0:13:28.680 up seven percent year to date, and I thought, well, 0:13:29.160 --> 0:13:31.440 I would rather just be in the SNP five double 0:13:31.520 --> 0:13:34.960 that return. Does this continue? Do we continue to hit 0:13:35.080 --> 0:13:39.280 new highs? Yes, we think that you would continue to 0:13:39.360 --> 0:13:42.360 hit new highs from here. Our expectation is that the 0:13:42.520 --> 0:13:45.880 SNP five hundred will reach five hundred by year end. 0:13:46.320 --> 0:13:49.120 And what's really going to drive that is strong economic 0:13:49.240 --> 0:13:53.040 growth driven by the consumer and earning's upside. We're ready 0:13:53.160 --> 0:13:57.000 seeing that this week during earning season that earnings beaten 0:13:57.080 --> 0:14:00.280 too the upside. We look for that to continue. That's 0:14:00.320 --> 0:14:01.800 kind of where I wanted to go now here. Get 0:14:02.160 --> 0:14:04.040 just kind of getting into the meat of the earning 0:14:04.160 --> 0:14:06.800 season here, And I guess it's all important really about 0:14:06.840 --> 0:14:08.640 the guidance here, because a lot of folks have some 0:14:08.800 --> 0:14:12.000 valuation worries and and feel like you know a lot 0:14:12.120 --> 0:14:14.120 of these stocks, a lot of this market needs to 0:14:14.240 --> 0:14:17.079 earn its way into the multiple kind of big picture, 0:14:17.120 --> 0:14:19.360 what are you looking for earnings and growth and that 0:14:19.440 --> 0:14:23.520 type of thing. Absolutely, so, as you know so far, 0:14:23.600 --> 0:14:29.080 about of the SMP companies have reported and for a quarter, 0:14:29.240 --> 0:14:32.800 we are actually looking for earnings to grow about eighty 0:14:32.880 --> 0:14:36.200 percent year over year, and that's higher than where consensus is. 0:14:36.320 --> 0:14:41.360 Consensus coming into this season without about six uh this season, 0:14:41.720 --> 0:14:45.200 unlike last season, we are seeing companies awards for those feats. 0:14:45.240 --> 0:14:47.200 And so when we look out for the full year 0:14:47.320 --> 0:14:52.720 for twenty one, we expect earnest to grow over percent. 0:14:52.880 --> 0:14:55.440 That's the bove where consensus is, and we expect some 0:14:55.560 --> 0:14:59.680 of that momentum to continue into twenty two. Obviously they'll 0:14:59.720 --> 0:15:03.000 grow three role moderated twenty two because we're just coming 0:15:03.040 --> 0:15:04.960 off of a higher base, but we still look for 0:15:05.120 --> 0:15:09.400 healthy earliest growth in two of about ten percent. So 0:15:09.480 --> 0:15:12.080 what do you think when when people start talking about 0:15:12.120 --> 0:15:16.000 growth fears, A lot of people were attributing low rates 0:15:16.080 --> 0:15:19.160 that we're seeing two concerns that, um, we're not going 0:15:19.200 --> 0:15:21.720 to get a lot of growth. I think some JP 0:15:21.880 --> 0:15:25.440 Morgan analysts said, even though they expect three and a 0:15:25.520 --> 0:15:29.200 half percent growth over the next twelve months. The bond 0:15:29.280 --> 0:15:33.920 market is indicating zero point five percent. Yes, there's a 0:15:34.040 --> 0:15:38.160 disconnecting the bond, but some of that is technical in nature. 0:15:38.920 --> 0:15:41.200 All of you is the last month that you've seen 0:15:41.320 --> 0:15:44.400 this pullback in in yield and the flat and of 0:15:44.440 --> 0:15:47.160 the yield coat has to do with some technical factors. 0:15:47.480 --> 0:15:49.480 We think most of that is behind us, and so 0:15:49.640 --> 0:15:52.440 we look for the tenure to sort of trend back 0:15:52.520 --> 0:15:56.480 up higher. Our target for urine is two percent, and 0:15:56.680 --> 0:15:59.720 so we expect that the current is steepen and that's 0:15:59.800 --> 0:16:03.560 just you positive. We don't think that we are necessarily 0:16:03.720 --> 0:16:07.680 at peak growth. We might hit peak growth into three However, 0:16:07.880 --> 0:16:11.040 we do think that the economy will make above trend 0:16:11.160 --> 0:16:15.240 growth and that's what's important for markets. All Right, Donna, 0:16:15.280 --> 0:16:18.040 Given all that backdrop, what are some of the sectors 0:16:18.680 --> 0:16:21.160 that you guys at GBS are focusing on right now? 0:16:22.440 --> 0:16:25.440 You know, we continue to like value over growth and 0:16:25.840 --> 0:16:29.359 we have approach to capual tilt in our sect or preferences, 0:16:29.760 --> 0:16:35.040 so we favor consumer, discretionary, energy, financials, and industrials. I 0:16:35.240 --> 0:16:38.120 know that value has lacked over the last month or 0:16:38.200 --> 0:16:41.040 so due to the fall in interest rates in the 0:16:41.120 --> 0:16:43.040 flat and of cars. But we think, as I said, 0:16:43.080 --> 0:16:45.720 some of that what we're reverse in common months and 0:16:45.840 --> 0:16:48.920 that should save our value, particularly financials, as we know 0:16:49.080 --> 0:16:52.040 is a larger segment in value. And you believe inflation 0:16:52.200 --> 0:16:57.080 is transitory. I think that's consensus on the street and 0:16:57.880 --> 0:17:01.640 probably among the smartest economists in the world as well. However, 0:17:02.080 --> 0:17:04.320 I continue to hear from c e O S and 0:17:04.400 --> 0:17:07.160 I don't know if they're in a sense talking their book, 0:17:07.640 --> 0:17:13.640 but from Statlantis to uh Unilever input costs to Siemens, 0:17:13.760 --> 0:17:16.720 input costs are higher and they're passing those price increases 0:17:16.800 --> 0:17:20.960 onto their customers. We are in the camp that we 0:17:21.080 --> 0:17:24.000 think inflation will be transitory. However, it will take a 0:17:24.080 --> 0:17:27.000 few months for us to get past those high spices 0:17:27.040 --> 0:17:29.680 and inflation, and we think that we get there in 0:17:29.800 --> 0:17:32.000 the fall. But I think it was important for the 0:17:32.080 --> 0:17:34.119 markets and companies is as you know, that is the 0:17:34.160 --> 0:17:38.399 ability of companies to pass on those higher costs two consumers. 0:17:38.640 --> 0:17:41.840 We're seeing that happened broad based in the smp PI 0:17:41.960 --> 0:17:44.960 found to be able to protect margins and so from 0:17:45.000 --> 0:17:48.920 a market standpoint, we're not concerned about the increase in inflation. 0:17:49.080 --> 0:17:51.640 We think it will will subside as we head into 0:17:51.720 --> 0:17:54.600 the back half of the year, and we think that 0:17:54.720 --> 0:17:57.840 companies will continue to protect their margins. And more importantly, 0:17:57.880 --> 0:18:00.639 you want to also focus on companies that have powers 0:18:01.000 --> 0:18:06.199 that consumers. Got it, Nadia, thanks so much for joining us. 0:18:06.280 --> 0:18:10.560 Nadia level their senior US equity strategist at UBS Global 0:18:10.680 --> 0:18:15.200 Wealth Management. All right, Matt, it seems like the whole 0:18:15.240 --> 0:18:18.840 world's going to electric vehicles. We've got Mercedes benz Senor 0:18:18.880 --> 0:18:21.680 gonna spend forty seven billion dollars on their e V 0:18:22.720 --> 0:18:26.800 business over the next decade. And what happens to internal 0:18:26.840 --> 0:18:29.240 combustion engines? Is that going to be an extinct relic 0:18:29.280 --> 0:18:32.920 at some point? It's something I spend a lot of time, 0:18:33.119 --> 0:18:34.360 you know what. I spent a lot of time thinking 0:18:34.400 --> 0:18:36.320 about that and talking about Barry Riholtz. Do we have 0:18:36.359 --> 0:18:37.840 them on today? I think we can do that. I 0:18:37.880 --> 0:18:40.399 think we haven't at d N Yeah. Yeah. Let's chat 0:18:40.440 --> 0:18:42.640 with Michael Dean. He's an expert all this stuff. He's 0:18:42.680 --> 0:18:46.000 the auto analyst covering all the European autos for Bloomberg Intelligence. 0:18:46.040 --> 0:18:49.120 He's based in London. Is one of my faves over there. 0:18:49.200 --> 0:18:53.040 So Michael, this sounds big to me that Mercedes is saying, 0:18:53.040 --> 0:18:55.879 all right, we're putting all our chips in here on 0:18:56.040 --> 0:18:59.560 these evs. Tell us how big this is. Yes, So 0:18:59.760 --> 0:19:03.159 that doubled their target for x cvs, which which are 0:19:03.200 --> 0:19:07.200 plug in so include hybrids. By two thousand of the 0:19:07.240 --> 0:19:10.479 seals mixed they were, but now they're saying they want 0:19:10.520 --> 0:19:12.840 to go a hundred percent by two thousand and thirty. 0:19:13.119 --> 0:19:15.240 Now there was a caveat. It depends on the markets. 0:19:15.560 --> 0:19:17.320 And I don't know about you, but I don't think 0:19:17.359 --> 0:19:19.560 the US market is going to go a hundred percent 0:19:19.680 --> 0:19:22.040 by two thousand and thirty. But it's a very encouraging 0:19:22.119 --> 0:19:24.919 sign and it shows they're fully committed to electric vehicles. 0:19:25.800 --> 0:19:30.040 It's to me, I've wondered why, Um, none of the 0:19:30.080 --> 0:19:34.040 big carmakers has already done this, And I know Volkswagen 0:19:34.119 --> 0:19:36.520 kind of did, but I mean five years ago. You know, 0:19:36.560 --> 0:19:38.399 when I drove a Tesla for the first time in 0:19:38.480 --> 0:19:41.960 two thousand and ten with Jason Harper from Road and Track, 0:19:42.080 --> 0:19:45.960 I was like, damn, this is awesome. Um, and I 0:19:46.000 --> 0:19:48.040 think there's no there's no roar of the engine, so 0:19:48.240 --> 0:19:50.520 what do you can do with your Lamborghini, your or 0:19:50.600 --> 0:19:52.040 your Lambo when you get back here. I mean, if 0:19:52.080 --> 0:19:54.800 I have a Lamborghini, um, I would probably have another 0:19:54.920 --> 0:19:58.880 car too. So but Michael, why didn't any big car 0:19:59.000 --> 0:20:04.119 maker get this idea before the pandemic? What? They certainly 0:20:04.160 --> 0:20:06.680 didn't take Tesla seriously for many years. It wasn't until 0:20:06.720 --> 0:20:09.480 two thousands and seventeen. And part of that is because 0:20:09.520 --> 0:20:12.159 electric vehicles don't make any money. You can see from 0:20:12.200 --> 0:20:15.200 Tesla the majority of their profits come from selling regulatory 0:20:15.359 --> 0:20:19.159 credits and that's still the case. But because they're scaling 0:20:19.280 --> 0:20:22.200 up and because they see battery costs going to below 0:20:22.240 --> 0:20:24.240 a hundred dollars the killer what tow by two thousand 0:20:24.280 --> 0:20:27.120 twenty five, they can see those profits on the horizon. 0:20:27.520 --> 0:20:30.960 And so Daynler now saying that theirselves will be electric. 0:20:31.200 --> 0:20:34.560 They're still sticking to their double digits margin targets. So 0:20:34.680 --> 0:20:37.800 that is encouraging. So, Michael, just give us a sense 0:20:37.840 --> 0:20:40.840 of kind of the driving public in Europe. What's the 0:20:40.960 --> 0:20:44.120 embrace of evs. Because here in the U S it's 0:20:44.200 --> 0:20:46.959 it's it's coming. But until again you put a four 0:20:47.040 --> 0:20:50.480 D F one fifty fully EV you know, electrified, I'm 0:20:50.520 --> 0:20:52.800 not sure this market is gonna move that much. What's 0:20:52.840 --> 0:20:56.400 it like in Europe? Yeah, it's still modest, So it's 0:20:56.440 --> 0:20:59.920 about fift market share for plug ins, So that's literally 0:21:00.040 --> 0:21:03.240 evenly and that's really been pushed by government incentives. So 0:21:03.320 --> 0:21:05.119 in Germany you can get nine and a half thousand 0:21:05.200 --> 0:21:08.920 euros off a plug in car. Globally, if you look 0:21:08.960 --> 0:21:12.400 at BMW and Mercedes, the market shell battery electric vehicles 0:21:12.440 --> 0:21:16.040 is only three UM, so three percent battery electric, ten 0:21:16.119 --> 0:21:19.840 percent um plug in in total, and in Europe it's 0:21:19.840 --> 0:21:22.760 a probably double the market shell that it is. Globally, 0:21:23.160 --> 0:21:25.480 it does seem like it's picking up. It does seem 0:21:25.520 --> 0:21:29.040