1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:26,840 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Do 5 00:00:26,880 --> 00:00:28,080 Speaker 1: you want to get here in New York City on 6 00:00:28,080 --> 00:00:31,160 Speaker 1: police to say, it's Carl Weinberg, high Frequency Economics founder 7 00:00:31,680 --> 00:00:34,240 Speaker 1: and chief economists. Carl is great to see you to 8 00:00:34,320 --> 00:00:36,880 Speaker 1: be here, John Sho. We begin with that data worldwide, 9 00:00:36,920 --> 00:00:39,080 Speaker 1: out of China and out of Europe. Have we seen 10 00:00:39,120 --> 00:00:41,040 Speaker 1: the worst of it? That's a question we've been debating 11 00:00:41,040 --> 00:00:42,760 Speaker 1: over the last couple of weeks. What do you say 12 00:00:42,880 --> 00:00:46,640 Speaker 1: in response, Yeah, not yet, not yet. You look at 13 00:00:46,680 --> 00:00:48,800 Speaker 1: the churn of p M I that's very nice. China, 14 00:00:48,880 --> 00:00:51,680 Speaker 1: we know, has problems. They've got the pork holding back 15 00:00:51,720 --> 00:00:55,720 Speaker 1: the consumer, they've got the trade stuff holding down industrial production, 16 00:00:55,760 --> 00:00:58,480 Speaker 1: they've got secular changes in their growth. Blah blah blah. 17 00:00:58,480 --> 00:01:00,520 Speaker 1: That's all very nice. But when we look at the 18 00:01:00,560 --> 00:01:02,840 Speaker 1: major economies in the world, and we look at the 19 00:01:02,880 --> 00:01:05,280 Speaker 1: hard data, and we look at the stuff that economists 20 00:01:05,280 --> 00:01:08,200 Speaker 1: should be focusing on the front page of high frequencies. 21 00:01:08,240 --> 00:01:11,600 Speaker 1: Weekly Notes on the global economy today is all about inventories, 22 00:01:11,880 --> 00:01:15,120 Speaker 1: and inventories are at a near record high, other than 23 00:01:15,200 --> 00:01:19,600 Speaker 1: during the financial crisis in Germany, in Japan, in Canada, 24 00:01:19,959 --> 00:01:24,640 Speaker 1: in Britain, in Europe, at the Mercedes lined up, that 25 00:01:24,640 --> 00:01:26,959 Speaker 1: they care more than just Mercedes. It's too much to 26 00:01:27,000 --> 00:01:29,360 Speaker 1: be just Mercedes. And certainly in Japan they don't have 27 00:01:29,440 --> 00:01:32,120 Speaker 1: Mercedes lined up, and in Canada they don't have Mercedes 28 00:01:32,160 --> 00:01:35,640 Speaker 1: lined up, and um, you know it's it's a backup 29 00:01:35,800 --> 00:01:39,039 Speaker 1: of goods that have been not been sold. And typical 30 00:01:39,160 --> 00:01:42,400 Speaker 1: traditional economic theory says that when you have high inventories, 31 00:01:42,720 --> 00:01:46,160 Speaker 1: companies cut back production and they feel orders out of stock. 32 00:01:46,280 --> 00:01:48,160 Speaker 1: So please give a narrative to this. Is this the 33 00:01:48,200 --> 00:01:51,160 Speaker 1: global economy slowing or is it a shift away from 34 00:01:51,200 --> 00:01:55,600 Speaker 1: stuff towards other types of purchases. Well, even if it 35 00:01:55,760 --> 00:01:58,360 Speaker 1: is a shift, there's a mismatch between the amount of 36 00:01:58,400 --> 00:02:01,559 Speaker 1: stuff they're making and the amount of stuff that's being bought. 37 00:02:01,880 --> 00:02:06,200 Speaker 1: So while that mismatch occurs, companies will cut back on production, 38 00:02:06,440 --> 00:02:09,720 Speaker 1: throw workers out of jobs, and that's how a recession begins. Well, 39 00:02:09,760 --> 00:02:12,919 Speaker 1: I guess my question is really how concerned should people 40 00:02:12,919 --> 00:02:16,160 Speaker 1: be about the recession in manufacturing? Is this a sort 41 00:02:16,200 --> 00:02:19,400 Speaker 1: of telltale sign of a broader problem. Well, heckly so. 42 00:02:19,440 --> 00:02:21,920 Speaker 1: We have a recession in manufacturing, let's not give it 43 00:02:21,960 --> 00:02:25,320 Speaker 1: a different name. Industrial production in Japan reported on Friday, 44 00:02:25,360 --> 00:02:28,000 Speaker 1: while we were all enjoying our turkeys, down four point 45 00:02:28,080 --> 00:02:31,840 Speaker 1: seven percent in a single month. European production flat, German 46 00:02:31,880 --> 00:02:35,520 Speaker 1: industrial production down, British industrial production down. I mean, it 47 00:02:35,560 --> 00:02:38,520 Speaker 1: doesn't get worse than that. We have one. The question 48 00:02:38,680 --> 00:02:41,320 Speaker 1: is when do we turn the corner and I say 49 00:02:41,360 --> 00:02:44,040 Speaker 1: that we The way to use these inventory charts is 50 00:02:44,120 --> 00:02:46,520 Speaker 1: to say, look at we're not going to emerge from 51 00:02:46,520 --> 00:02:49,720 Speaker 1: this until these inventories are restored to more normal levels. 52 00:02:49,840 --> 00:02:52,480 Speaker 1: And there's no sign of that happening. They're still rising. 53 00:02:52,639 --> 00:02:55,399 Speaker 1: Now you want to get philosophical about it, you could say, well, 54 00:02:55,400 --> 00:02:59,000 Speaker 1: maybe too low interest rates or zero or negative interest rates. 55 00:02:59,000 --> 00:03:01,880 Speaker 1: In real terms, is it possible for firms to afford 56 00:03:01,919 --> 00:03:05,400 Speaker 1: to hold up to build up inventories rather than fire workers. 57 00:03:05,400 --> 00:03:08,200 Speaker 1: It's cheaper to build up stockpiles and to fire somebody, 58 00:03:08,360 --> 00:03:10,320 Speaker 1: and that's how we got into this mess. I'm not 59 00:03:10,400 --> 00:03:12,760 Speaker 1: ready to say that yet. That'll be for the historians. 60 00:03:12,800 --> 00:03:14,640 Speaker 1: But for where we are right now, as long as 61 00:03:14,680 --> 00:03:17,400 Speaker 1: the inventories are still rising, I don't see an end 62 00:03:17,440 --> 00:03:20,560 Speaker 1: to the industrial recession. We've had three mini cycles through 63 00:03:20,560 --> 00:03:23,560 Speaker 1: this expansion, out of oh nine, out of twelve, and 64 00:03:23,600 --> 00:03:26,359 Speaker 1: out of sixteen as well, coming out of nineteen. Is 65 00:03:26,360 --> 00:03:28,200 Speaker 1: a belief that we're in the early stages once again 66 00:03:28,240 --> 00:03:31,160 Speaker 1: of another mini cycle within this expansion. Carl, I can 67 00:03:31,200 --> 00:03:33,240 Speaker 1: hear you push him back against that, So put someone 68 00:03:33,280 --> 00:03:35,720 Speaker 1: beat on those bones? Why is that the case? The 69 00:03:35,760 --> 00:03:38,520 Speaker 1: meat on the bones is that maybe, just maybe what 70 00:03:38,600 --> 00:03:40,880 Speaker 1: happened in two thousand and eight two thousand and nine 71 00:03:40,960 --> 00:03:43,280 Speaker 1: isn't over yet. That if we look back to the 72 00:03:43,360 --> 00:03:48,440 Speaker 1: Great Depression, everybody thinks, well, nine stocks failed, banks failed, 73 00:03:48,440 --> 00:03:50,720 Speaker 1: everybody jumped out of windows, and it was over. But 74 00:03:50,800 --> 00:03:54,680 Speaker 1: it was a ten year event with three distinct cycles 75 00:03:54,720 --> 00:03:59,600 Speaker 1: of stock market crash, banking banking system failures, and economic recession, 76 00:03:59,640 --> 00:04:02,080 Speaker 1: with a third one was the deepest of all of them. 77 00:04:02,120 --> 00:04:04,640 Speaker 1: So I'm not so sure that we have adjusted our 78 00:04:04,680 --> 00:04:08,320 Speaker 1: financial system. Certainly not in Europe, Certainly not in Japan, 79 00:04:08,720 --> 00:04:11,240 Speaker 1: probably not in Britain where the two biggest banks are 80 00:04:11,280 --> 00:04:14,080 Speaker 1: still owned by the state. All right, and Therefore we 81 00:04:14,120 --> 00:04:16,520 Speaker 1: are looking at really what history will record as a 82 00:04:16,640 --> 00:04:20,200 Speaker 1: depression that runs about so far twelve years and we 83 00:04:20,320 --> 00:04:23,640 Speaker 1: still haven't bounced out of it. Then why are equities up? 84 00:04:23,680 --> 00:04:26,160 Speaker 1: I get all you're saying. And you know, your your newsletter, 85 00:04:26,360 --> 00:04:29,280 Speaker 1: your your research is acclaimed both your China note, your 86 00:04:29,400 --> 00:04:33,400 Speaker 1: US note, your international great. But I believe we're in 87 00:04:33,440 --> 00:04:36,000 Speaker 1: the greatest mother of all bull markets. Is it a 88 00:04:36,080 --> 00:04:39,960 Speaker 1: bubble because it's manipulated or is it real? Well, you know, 89 00:04:40,080 --> 00:04:44,120 Speaker 1: everybody talks about keeping interest rates too low for too long, 90 00:04:44,600 --> 00:04:47,920 Speaker 1: creating a distortion of the allocation of resources, creating bubbles 91 00:04:47,920 --> 00:04:50,360 Speaker 1: and markets. So we look at an investor and where 92 00:04:50,360 --> 00:04:53,440 Speaker 1: does an investor put their money? Alright, with negative interest rates, 93 00:04:53,480 --> 00:04:57,040 Speaker 1: bonds aren't attractive. With negative short term interest rates, cash 94 00:04:57,160 --> 00:04:59,640 Speaker 1: isn't attractive. You know, where do you put your money 95 00:04:59,640 --> 00:05:02,360 Speaker 1: to work to either take on more risk which increases 96 00:05:02,400 --> 00:05:04,680 Speaker 1: the vulnerability of the system, that's the I left thing, 97 00:05:04,880 --> 00:05:06,560 Speaker 1: or you buy stocks. So we have a wall of 98 00:05:06,600 --> 00:05:09,520 Speaker 1: money going into stakes. And John this was very important 99 00:05:09,520 --> 00:05:12,040 Speaker 1: one of the great insights last week in our conversations 100 00:05:12,040 --> 00:05:15,359 Speaker 1: with Jeffrey you of ubs and that the money is 101 00:05:15,560 --> 00:05:18,880 Speaker 1: unmeasurable that's waiting to go. So that's been the challenge 102 00:05:18,880 --> 00:05:21,360 Speaker 1: of I think you can get the macro call right 103 00:05:21,400 --> 00:05:23,200 Speaker 1: and then the market call very wrong. At the start 104 00:05:23,240 --> 00:05:25,200 Speaker 1: of the year, if you called for a weaker global economy, 105 00:05:25,240 --> 00:05:27,760 Speaker 1: you were right. If you called for lower global equity 106 00:05:27,800 --> 00:05:29,920 Speaker 1: markets to go with that, you were dead wrong. Looking 107 00:05:29,920 --> 00:05:32,320 Speaker 1: at the performance of sake Germany on the decks and 108 00:05:32,400 --> 00:05:34,560 Speaker 1: here in the United States on the SMP five hundred, 109 00:05:34,800 --> 00:05:37,120 Speaker 1: just a final word, car if you may, on the 110 00:05:37,200 --> 00:05:40,320 Speaker 1: prospect of fiscal stimulus out of Europe and out of 111 00:05:40,320 --> 00:05:42,839 Speaker 1: Germany more specifically. We'll talk about this in a little 112 00:05:42,839 --> 00:05:45,600 Speaker 1: bit more detail through the program. But Chancellor Mirchle's coalition 113 00:05:45,640 --> 00:05:48,760 Speaker 1: partner has a new leadership, and the new leadership would 114 00:05:48,760 --> 00:05:52,560 Speaker 1: like some loosening of the black zero policy, that balanced budget. 115 00:05:52,800 --> 00:05:55,920 Speaker 1: Do you see some loosening coming out of Germany anytime soon? Well, 116 00:05:55,960 --> 00:05:58,560 Speaker 1: I think there will be. I don't think it will 117 00:05:58,600 --> 00:06:00,919 Speaker 1: be as much as we would get to be. And 118 00:06:00,960 --> 00:06:04,080 Speaker 1: the reason is is that the new SPD leadership only 119 00:06:04,080 --> 00:06:07,320 Speaker 1: has limited leverage in what it can do. They can 120 00:06:07,440 --> 00:06:10,160 Speaker 1: bring the government down and have elections, but the latest 121 00:06:10,160 --> 00:06:13,280 Speaker 1: polls show that they're polling lower than the extreme right 122 00:06:13,279 --> 00:06:16,240 Speaker 1: wing parties. So if they pull the government down, they're 123 00:06:16,320 --> 00:06:18,720 Speaker 1: out and they're not going to get back in. So 124 00:06:19,200 --> 00:06:22,359 Speaker 1: that pulling the government down would lead to a minority government, 125 00:06:22,360 --> 00:06:26,000 Speaker 1: which is an untested political system within Germany. So I 126 00:06:26,040 --> 00:06:28,640 Speaker 1: don't think they're prepared to pull the button on this 127 00:06:28,680 --> 00:06:32,039 Speaker 1: whole thing. So they can negotiate some flexibility in order 128 00:06:32,080 --> 00:06:34,840 Speaker 1: to keep peace and smoothness within the process. But it's 129 00:06:34,880 --> 00:06:36,400 Speaker 1: not clear to me at all that they can get 130 00:06:36,400 --> 00:06:38,640 Speaker 1: all of the fiscal stimulus that they want. Cal Wind. 131 00:06:38,680 --> 00:06:40,719 Speaker 1: But great to see you this morning. I appreciate your time. 132 00:06:40,839 --> 00:06:58,240 Speaker 1: High Frequency Economics founder and chief Economies. What a joy 133 00:06:58,320 --> 00:07:01,360 Speaker 1: to wander in Oliver Chen when cow and he writes 134 00:07:01,520 --> 00:07:05,520 Speaker 1: incredibly granular notes about big box and of course is 135 00:07:05,640 --> 00:07:08,080 Speaker 1: well a tune to luxury retail all the stores that 136 00:07:08,160 --> 00:07:10,600 Speaker 1: you and your family and loved ones are going in, 137 00:07:10,640 --> 00:07:12,520 Speaker 1: and we're thrilled you could join us here. I want 138 00:07:12,520 --> 00:07:14,960 Speaker 1: to get away from all the roads, cyber this and 139 00:07:14,960 --> 00:07:18,400 Speaker 1: cyber that, and there's like eight ways to go here 140 00:07:18,440 --> 00:07:21,320 Speaker 1: with a Tiffany Merger, Let's let's cut to the chase 141 00:07:21,440 --> 00:07:27,280 Speaker 1: on something everyone's talking about, which is women renting clothes. 142 00:07:28,560 --> 00:07:32,160 Speaker 1: Does the income statement work in that business. Yeah, what 143 00:07:32,240 --> 00:07:35,840 Speaker 1: we're seeing is tons of growth here, growth revenue. That 144 00:07:35,960 --> 00:07:39,240 Speaker 1: being said, a lot of these business models are really 145 00:07:39,240 --> 00:07:42,240 Speaker 1: focused on customer lifetime value, so they have to leverage 146 00:07:42,240 --> 00:07:45,480 Speaker 1: a lot of fixed costs in terms of turning profitable. 147 00:07:45,520 --> 00:07:47,760 Speaker 1: To answer your questions, leverage fixed cost means they've gotta 148 00:07:47,800 --> 00:07:50,880 Speaker 1: make a lot of revenue just to begin to be profitable. Rightly, 149 00:07:51,040 --> 00:07:52,600 Speaker 1: are they gonna do it? Are they going to take 150 00:07:52,840 --> 00:07:57,920 Speaker 1: enough social psychic market share of women in renting the 151 00:07:58,080 --> 00:08:02,640 Speaker 1: runway to change your world forever? Well, our forecast calls 152 00:08:02,680 --> 00:08:06,200 Speaker 1: for growth. You know, retail is struggling to be flat, 153 00:08:06,800 --> 00:08:10,400 Speaker 1: so um we forecasts to continue to grow. And what's 154 00:08:10,400 --> 00:08:13,760 Speaker 1: happening in retail is really the uberification of retail, which 155 00:08:13,800 --> 00:08:18,080 Speaker 1: means rethinking clothing as a service. How do you rethink 156 00:08:18,120 --> 00:08:21,840 Speaker 1: all material goods and other things in your life as services, 157 00:08:21,880 --> 00:08:26,960 Speaker 1: including fashion and clothes? How small my classet is at 158 00:08:27,000 --> 00:08:32,960 Speaker 1: home because we're uberfying. So you're scaling bang classic rent 159 00:08:33,000 --> 00:08:35,160 Speaker 1: the runways where the focus is at the moment Oliver, 160 00:08:35,240 --> 00:08:37,320 Speaker 1: it's one fifty nine a month for the unlimited plau 161 00:08:37,520 --> 00:08:39,400 Speaker 1: listen to you, but you get it terms with a 162 00:08:39,480 --> 00:08:42,480 Speaker 1: retail value of up to three tho dollars, And from 163 00:08:42,480 --> 00:08:44,360 Speaker 1: what I see with Rent the Runway, which has been 164 00:08:44,400 --> 00:08:47,719 Speaker 1: a massive success as I'm well aware, is there at 165 00:08:47,800 --> 00:08:51,240 Speaker 1: three thousand dollars. This is the high end of the 166 00:08:51,360 --> 00:08:54,480 Speaker 1: apparel market, and I'm wondering whether this works for clothing 167 00:08:54,640 --> 00:08:56,360 Speaker 1: at the lower end. As H and M tries to 168 00:08:56,400 --> 00:08:58,520 Speaker 1: sound in Sweden and others begin to make a push 169 00:08:58,520 --> 00:09:00,520 Speaker 1: in the United States, can others do the same thing 170 00:09:00,760 --> 00:09:03,120 Speaker 1: at a LEBA price point? Yeah, I mean we've seen 171 00:09:03,160 --> 00:09:07,720 Speaker 1: business models like Castle. Castle powers many of the retailers 172 00:09:07,760 --> 00:09:12,120 Speaker 1: like Bloomingdale's, Banana Republic, Scotch and Soda, and when they 173 00:09:12,160 --> 00:09:16,560 Speaker 1: do this, this is a very profitable high royalty model 174 00:09:16,679 --> 00:09:20,240 Speaker 1: where you really use the inventory effectively. Running a platform 175 00:09:20,280 --> 00:09:22,800 Speaker 1: like Rent the Runway, profitability is more of a question, 176 00:09:22,880 --> 00:09:26,400 Speaker 1: but Castle and outsourcing a lot of these capabilities, it 177 00:09:26,480 --> 00:09:30,160 Speaker 1: can be very profitable for both parties because you really 178 00:09:30,600 --> 00:09:33,520 Speaker 1: need someone that operates a lot of the back office, 179 00:09:33,600 --> 00:09:36,439 Speaker 1: operates a lot of the dry cleaning and capital intensity. 180 00:09:36,480 --> 00:09:39,839 Speaker 1: And these retailers have to go where customers are going. 181 00:09:40,240 --> 00:09:43,079 Speaker 1: And this is an engagement play too, with new customers 182 00:09:43,080 --> 00:09:47,199 Speaker 1: coming to the table. So the lrification of retail definitely ongoing, 183 00:09:47,280 --> 00:09:49,079 Speaker 1: but still people buying a lot of stuff and this 184 00:09:49,160 --> 00:09:53,760 Speaker 1: has been cyber uh Monday, Tuesday, Wednesday year decade. I'm 185 00:09:53,760 --> 00:09:57,520 Speaker 1: trying to understand how to read the shift towards the 186 00:09:57,600 --> 00:10:01,640 Speaker 1: online efforts and how we see the traffic declining in 187 00:10:01,840 --> 00:10:05,320 Speaker 1: department stores. When do we hit rock bottom here? Well, 188 00:10:06,840 --> 00:10:10,120 Speaker 1: m at different stores, we actually need to close more 189 00:10:10,240 --> 00:10:14,760 Speaker 1: physical points of distribution. So it really depends on the retailer. 190 00:10:14,920 --> 00:10:18,280 Speaker 1: Macy's for example, needs to close you know, fifty d 191 00:10:18,360 --> 00:10:22,920 Speaker 1: stores in our estimation. UM, what's happening is blending the channels. 192 00:10:22,920 --> 00:10:25,920 Speaker 1: So what will actually be important this season given their 193 00:10:25,920 --> 00:10:28,760 Speaker 1: six year days is the immediacy of the store, the 194 00:10:28,800 --> 00:10:33,880 Speaker 1: buy in line, pickup in store, boat channels working together. Um. 195 00:10:33,960 --> 00:10:37,040 Speaker 1: At retailers like Target and Walmart, the unit story is 196 00:10:37,080 --> 00:10:40,439 Speaker 1: fine because a lot is grocery. But for the foreseeable 197 00:10:40,480 --> 00:10:45,000 Speaker 1: future we see in store traffic declining negative low single digit. 198 00:10:45,559 --> 00:10:48,600 Speaker 1: That being said, UM, you can convert at a higher 199 00:10:48,679 --> 00:10:51,240 Speaker 1: rate given that when you go into the store you're 200 00:10:51,320 --> 00:10:55,000 Speaker 1: very purposeful. UM. So it's about managing both channels. But 201 00:10:55,080 --> 00:10:58,920 Speaker 1: at some retailers it is about closing stores. This is 202 00:10:58,960 --> 00:11:01,920 Speaker 1: when you're going to store. Brandy Melville is real purposeful. 203 00:11:02,200 --> 00:11:05,400 Speaker 1: Are you complaining about your shopping trips? That right, it's 204 00:11:05,440 --> 00:11:07,560 Speaker 1: so done. We can do that in a commercial brain. 205 00:11:08,320 --> 00:11:11,520 Speaker 1: If let's talk about the successes of and it's not 206 00:11:11,559 --> 00:11:14,559 Speaker 1: just bricks and morti verses online for many, it's how 207 00:11:14,600 --> 00:11:17,120 Speaker 1: bricks and more to compliments your online presence and how 208 00:11:17,120 --> 00:11:20,280 Speaker 1: your online presence complements your bricks and mortar presence. Who's 209 00:11:20,280 --> 00:11:22,520 Speaker 1: doing that really really well at the moment. Well, the 210 00:11:22,840 --> 00:11:27,439 Speaker 1: real reality of the future is curbside pickup. Curbside pickup 211 00:11:27,520 --> 00:11:30,640 Speaker 1: is used by over ten percent of America very very quickly. 212 00:11:30,720 --> 00:11:33,800 Speaker 1: And Walmart has been a real pioneer of enabling you 213 00:11:33,880 --> 00:11:37,720 Speaker 1: to drive up, get your goods quickly and leave. That's 214 00:11:37,760 --> 00:11:43,240 Speaker 1: been a very successful technology because customers are satisfied, customers 215 00:11:43,240 --> 00:11:46,280 Speaker 1: are spending double the check size, and it's a younger 216 00:11:46,320 --> 00:11:49,120 Speaker 1: customer using it, it's a wealthy customer using it, and 217 00:11:49,160 --> 00:11:54,280 Speaker 1: it's highly highly convenient. So life and retails about saving money, 218 00:11:54,320 --> 00:11:59,559 Speaker 1: saving time, and curbside pickup elegantly merges the online and 219 00:11:59,640 --> 00:12:02,760 Speaker 1: the off flying as well as mobile. Mobile is the 220 00:12:02,800 --> 00:12:05,760 Speaker 1: new mall, So rethinking retailing the context of mobile is 221 00:12:05,880 --> 00:12:10,440 Speaker 1: very important. To Speaking of mobile, I just got in 222 00:12:10,520 --> 00:12:15,319 Speaker 1: John for you Advos Canadida, Goose the ericson parkass Is 223 00:12:15,440 --> 00:12:18,880 Speaker 1: John Ferrell, I love it when you're focused in the morning. 224 00:12:19,520 --> 00:12:22,160 Speaker 1: We've lost you after twenty four minutes. You've just drifted. 225 00:12:22,160 --> 00:12:25,920 Speaker 1: It's Monday to it's a big week aheads, please get engaged. 226 00:12:26,160 --> 00:12:29,320 Speaker 1: I just getting he's mobile shopping for you. He's trying 227 00:12:29,320 --> 00:12:33,120 Speaker 1: to you want to protect him. A little later Rost Friday, 228 00:12:33,160 --> 00:12:35,600 Speaker 1: plenty of reason of your Jed Oliver Chen, thank you 229 00:12:35,640 --> 00:12:38,040 Speaker 1: so much for being with us. A Cow and its 230 00:12:38,080 --> 00:12:45,640 Speaker 1: senior equity research analyst. Happy holiday is happy if you 231 00:12:45,720 --> 00:12:47,760 Speaker 1: had a bad weekend, I did not have a bad weekend. 232 00:12:47,760 --> 00:12:51,640 Speaker 1: The TODs the to for a little bit, what's happened, Yeah, 233 00:12:51,640 --> 00:12:53,920 Speaker 1: there's a little bit of that. I'm going I'm shopping 234 00:12:53,920 --> 00:13:10,640 Speaker 1: a dead elephant when this is all over. Dane Smark 235 00:13:10,760 --> 00:13:12,680 Speaker 1: joins us from Grandthorte, and of course she is a 236 00:13:12,760 --> 00:13:16,760 Speaker 1: wonderful and important focused Midwest view. Diane, what is the 237 00:13:16,840 --> 00:13:20,680 Speaker 1: distinction right now have the greater Middle West economy versus 238 00:13:21,000 --> 00:13:23,880 Speaker 1: the focus we have on the two left and the 239 00:13:24,000 --> 00:13:26,760 Speaker 1: right coast. Well, what we're seeing is, of course the 240 00:13:26,960 --> 00:13:30,160 Speaker 1: rise and unemployment tied to terrorists and tariff uncertainty in 241 00:13:30,280 --> 00:13:34,719 Speaker 1: some of the states Michigan, Ohio, Wisconsin doing better. Um. 242 00:13:34,720 --> 00:13:37,400 Speaker 1: In fact, Wisconsin has been interesting because they've had some 243 00:13:37,520 --> 00:13:42,320 Speaker 1: manufacturing increases even as plants have closed, and they've been 244 00:13:42,360 --> 00:13:44,600 Speaker 1: trying to get it some of those workers to try 245 00:13:44,640 --> 00:13:46,560 Speaker 1: to get them into the plants that are opening. But 246 00:13:46,920 --> 00:13:49,720 Speaker 1: you really see the uneven performance here in the Midwest, 247 00:13:49,800 --> 00:13:52,400 Speaker 1: much more uneven that gets masked as we get to 248 00:13:52,520 --> 00:13:54,880 Speaker 1: the national data. If I had a cup of coffee 249 00:13:55,040 --> 00:13:58,240 Speaker 1: with Charles Evans and you in Chicago, and I said 250 00:13:58,280 --> 00:14:02,640 Speaker 1: to you, do we overemphasis size farm economics? Do we 251 00:14:02,800 --> 00:14:05,640 Speaker 1: do that? Or is it valid that dairy farmers in 252 00:14:05,679 --> 00:14:08,959 Speaker 1: Wisconsin flat on their back is a big deal. It's 253 00:14:09,000 --> 00:14:12,120 Speaker 1: actually more valid that farmers across the board are um 254 00:14:12,400 --> 00:14:15,120 Speaker 1: actually flat on their back and suffering from bankruptcies. The 255 00:14:15,240 --> 00:14:18,040 Speaker 1: smaller farmers are not getting the subsidies that we're seeing. 256 00:14:18,040 --> 00:14:19,920 Speaker 1: In fact, most of the subsidies are going to very 257 00:14:20,000 --> 00:14:22,080 Speaker 1: large farms, which you guys had a very good article 258 00:14:22,480 --> 00:14:24,840 Speaker 1: about out there over this week. And I think that's 259 00:14:24,880 --> 00:14:27,880 Speaker 1: the real issue, is that there is collateral damage to 260 00:14:27,880 --> 00:14:30,040 Speaker 1: bank balance sheets from that. So I know Charlie would 261 00:14:30,040 --> 00:14:33,800 Speaker 1: certainly take that as something he's concerned about. Is the 262 00:14:33,920 --> 00:14:37,520 Speaker 1: rise in bankruptcies that we've seen across the board. In 263 00:14:37,720 --> 00:14:40,040 Speaker 1: bankruptcies in the farm sect or not. It doesn't mean 264 00:14:40,080 --> 00:14:42,640 Speaker 1: as much jobs because not many people are employed on 265 00:14:42,720 --> 00:14:45,320 Speaker 1: farms anymore, but it does mean something in terms of 266 00:14:45,360 --> 00:14:48,440 Speaker 1: bank balance sheets in those areas. Yeah, one thing I'm 267 00:14:48,440 --> 00:14:50,480 Speaker 1: struck by. I was reading this story in the New 268 00:14:50,560 --> 00:14:53,240 Speaker 1: York Times how Amazon wove itself into the life of 269 00:14:53,240 --> 00:14:55,800 Speaker 1: an American city, and I talked about how, yes, there 270 00:14:55,800 --> 00:14:58,120 Speaker 1: are jobs, and they're growing number of jobs, but they're 271 00:14:58,120 --> 00:15:00,520 Speaker 1: worse paid. And it talked about Amazon and how it's 272 00:15:00,560 --> 00:15:04,320 Speaker 1: offering employment which is good, but at much lower price 273 00:15:04,440 --> 00:15:08,880 Speaker 1: levels in terms of compensation than the labor unions of 274 00:15:08,960 --> 00:15:11,800 Speaker 1: your How should we view this in terms of the U. 275 00:15:11,920 --> 00:15:16,760 Speaker 1: S economy, this transformation to the Amazon amazon ification of retail. 276 00:15:17,040 --> 00:15:19,920 Speaker 1: Is this generally going to be a negative just because 277 00:15:19,920 --> 00:15:22,800 Speaker 1: of the amount that people are paid, or is this 278 00:15:22,840 --> 00:15:25,040 Speaker 1: sort of a temporary blip as we try to rejigger 279 00:15:25,040 --> 00:15:27,680 Speaker 1: to the new economy. Well, unfortunately, I think it's a 280 00:15:27,680 --> 00:15:30,120 Speaker 1: long term trend. It actually started with Walmart. We called 281 00:15:30,160 --> 00:15:33,560 Speaker 1: it Walmantization in the nineties and now it's Amazon, so 282 00:15:33,880 --> 00:15:36,120 Speaker 1: you know, we've spread it from one to another. And 283 00:15:36,160 --> 00:15:37,920 Speaker 1: the good news is they do have jobs. The bad 284 00:15:37,960 --> 00:15:40,480 Speaker 1: news is, as you mentioned, they are much lower paid. 285 00:15:40,480 --> 00:15:42,680 Speaker 1: And this gets into the Halloween out of the middle class. 286 00:15:42,720 --> 00:15:46,080 Speaker 1: Another really key component of what's going on today with 287 00:15:46,120 --> 00:15:49,800 Speaker 1: these large, very large retailers like Amazon and Walmart. They're 288 00:15:49,840 --> 00:15:52,360 Speaker 1: paying more to their workers who are entry level workers, 289 00:15:52,640 --> 00:15:56,440 Speaker 1: but they've actually cut and circumvented the move up in 290 00:15:56,600 --> 00:15:59,840 Speaker 1: pay to management pay. They've actually either lowered management pay 291 00:16:00,200 --> 00:16:02,880 Speaker 1: or reduce the number of managers they have, which is 292 00:16:02,960 --> 00:16:05,920 Speaker 1: derailed something we usually see in an economy, and that 293 00:16:06,120 --> 00:16:08,640 Speaker 1: is when low wages, that wages at the lowest end 294 00:16:08,640 --> 00:16:10,840 Speaker 1: of the pay scale pick up, they tend to trickle 295 00:16:10,960 --> 00:16:13,720 Speaker 1: up and move into middle class households. And so you've 296 00:16:13,760 --> 00:16:15,920 Speaker 1: got that sort of double whammy of not only they're 297 00:16:15,920 --> 00:16:18,960 Speaker 1: replacing jobs that once paid a lot more, but you're 298 00:16:19,000 --> 00:16:22,320 Speaker 1: not seeing the mechanisms of moving up the wage scale 299 00:16:22,520 --> 00:16:25,600 Speaker 1: that we once saw. And it's because these are such 300 00:16:25,720 --> 00:16:29,200 Speaker 1: dominant players in our economy today. Dan nineteen minutes ines 301 00:16:29,200 --> 00:16:30,880 Speaker 1: of the program, and I don't think any of our 302 00:16:30,920 --> 00:16:34,240 Speaker 1: guests have mentioned the federal Reserve once. Steve Ingmander of 303 00:16:34,280 --> 00:16:36,080 Speaker 1: Standard Shot and will be talking to me around about 304 00:16:36,120 --> 00:16:37,920 Speaker 1: thirty minutes time. And he's made the point as well 305 00:16:37,960 --> 00:16:40,720 Speaker 1: that he's just come back from Europe and hardly anybody 306 00:16:40,720 --> 00:16:42,680 Speaker 1: spoke to him about the Federal Reserve and it's just 307 00:16:42,760 --> 00:16:46,600 Speaker 1: not part of the conversation at the moment. Should it be? Well, 308 00:16:46,600 --> 00:16:48,520 Speaker 1: I think the Fed's pretty happy about not being part 309 00:16:48,520 --> 00:16:51,400 Speaker 1: of the conversation, given hop center stage. They've been particularly 310 00:16:51,400 --> 00:16:53,200 Speaker 1: in tweets out there, so they like being on the 311 00:16:53,240 --> 00:16:56,640 Speaker 1: sidelines and like being non existence. Um. I do think 312 00:16:56,640 --> 00:16:59,040 Speaker 1: they will become more part of their conversation again as 313 00:16:59,080 --> 00:17:02,000 Speaker 1: we get into twenty money. The critical issue is does 314 00:17:02,080 --> 00:17:05,560 Speaker 1: the President pursue what he has been pursuing with trade 315 00:17:05,560 --> 00:17:07,960 Speaker 1: with China, which would be an escalation in trade horse 316 00:17:08,119 --> 00:17:10,240 Speaker 1: or can we really believe that we're going to get 317 00:17:10,280 --> 00:17:12,639 Speaker 1: a pause in trade work which keeps the FED on 318 00:17:12,680 --> 00:17:14,560 Speaker 1: the sideline. Can I ask you a quick question the 319 00:17:14,600 --> 00:17:20,080 Speaker 1: show se Dion Swank, How close are we to stand 320 00:17:20,119 --> 00:17:25,600 Speaker 1: Fisher's ultra accommodation? Nobody knows and there is life. The 321 00:17:25,800 --> 00:17:28,000 Speaker 1: hard u answer of them all is that we just 322 00:17:28,080 --> 00:17:31,399 Speaker 1: don't know. We do worry about um sort of juicing 323 00:17:31,440 --> 00:17:33,320 Speaker 1: the economy a bit too much right now in the 324 00:17:33,359 --> 00:17:36,360 Speaker 1: bubbles that do seem to be forming, particularly in corporate 325 00:17:36,359 --> 00:17:39,960 Speaker 1: debt markets. That said, we don't know anymore, and the 326 00:17:40,000 --> 00:17:42,400 Speaker 1: FED has finally gotten home eating the humble pie enough 327 00:17:42,440 --> 00:17:45,399 Speaker 1: to say we're not sure ourselves. SWAK always great to 328 00:17:45,440 --> 00:17:47,639 Speaker 1: get your thoughts on a program. Big week ahead for 329 00:17:47,680 --> 00:17:50,199 Speaker 1: the global economy, and the US economic data will be 330 00:17:50,200 --> 00:17:52,360 Speaker 1: coming through through the weight. We'll bring that to you 331 00:17:52,680 --> 00:18:07,720 Speaker 1: right here on Bloomberg rightio. Okay, we're doing six minutes 332 00:18:07,760 --> 00:18:11,000 Speaker 1: twelve seconds with somebody you need to listen to. Here's 333 00:18:11,000 --> 00:18:14,760 Speaker 1: how it works. There's a percentile thing and it's pretty good. 334 00:18:14,800 --> 00:18:16,480 Speaker 1: It's like you're in your class and what you do 335 00:18:16,520 --> 00:18:19,760 Speaker 1: in this case with Bill Smeede, it's a value and 336 00:18:19,880 --> 00:18:22,000 Speaker 1: like if it's a big number, that's a good number 337 00:18:22,080 --> 00:18:24,560 Speaker 1: up to a hundred and I guess being in the 338 00:18:24,680 --> 00:18:31,240 Speaker 1: nine six percentile is okay, Paul for three year and 339 00:18:31,280 --> 00:18:34,080 Speaker 1: if you're in the five year percentile and you're in 340 00:18:34,680 --> 00:18:40,960 Speaker 1: the percentile, that's like, that's okay. So let's in terms 341 00:18:41,000 --> 00:18:43,639 Speaker 1: of the holiday greetings, say to the wonderful Bill Smeede, 342 00:18:44,040 --> 00:18:47,280 Speaker 1: value guy, Bill, what's the number one determinant of that 343 00:18:47,520 --> 00:18:53,159 Speaker 1: leads you to that excellence. Here overwhelming me. I'll give 344 00:18:53,200 --> 00:18:56,879 Speaker 1: you overwhelming. You're in the nineties six percential for three years. 345 00:18:57,080 --> 00:19:00,919 Speaker 1: How do you do it? The first thing is we 346 00:19:01,040 --> 00:19:05,040 Speaker 1: looked to buy meritorious companies when they fall deep in 347 00:19:05,080 --> 00:19:10,440 Speaker 1: the doghouse. And and uh, the courage to buy when 348 00:19:11,240 --> 00:19:13,760 Speaker 1: you're you're almost nauseous when you put the orders in 349 00:19:13,760 --> 00:19:18,000 Speaker 1: in the first place. Um is the starter. The second 350 00:19:18,040 --> 00:19:21,680 Speaker 1: thing and maybe in the last Remember, we've been in 351 00:19:21,720 --> 00:19:24,760 Speaker 1: a tenure bowl market that has been led by growth, 352 00:19:25,359 --> 00:19:29,480 Speaker 1: and we we hold our winners to a fault. And 353 00:19:29,480 --> 00:19:33,240 Speaker 1: and that is not the typical thing in the value world. 354 00:19:33,760 --> 00:19:36,480 Speaker 1: Most value people buy a fifty cent dollar, it goes 355 00:19:36,560 --> 00:19:38,960 Speaker 1: up to ninety cents, they sell it and go try 356 00:19:39,000 --> 00:19:42,400 Speaker 1: to find another fifty cent dollar. Charlie Munger says, that's 357 00:19:42,440 --> 00:19:45,200 Speaker 1: really difficult. What he just said. You and Walt Disney, 358 00:19:45,240 --> 00:19:47,040 Speaker 1: I mean to get away from the show and Walt Disney. 359 00:19:47,080 --> 00:19:49,639 Speaker 1: Just as one example, I gotta go to you and 360 00:19:49,720 --> 00:19:51,920 Speaker 1: carl Icon. I know you and Icon are going back 361 00:19:51,960 --> 00:19:55,560 Speaker 1: and forth on a daily basis. Occidental Petroleum off the 362 00:19:55,560 --> 00:20:00,280 Speaker 1: anti Darco transaction ten year mediocrity negative three point four 363 00:20:00,359 --> 00:20:03,760 Speaker 1: percent per year. The thing has been an unmistakable train 364 00:20:03,800 --> 00:20:08,800 Speaker 1: wreck for a year and a half, and you like oxy. Yeah. 365 00:20:09,040 --> 00:20:13,760 Speaker 1: You know what's funny about this, tom is I mentioned 366 00:20:13,760 --> 00:20:15,520 Speaker 1: in a note to you folks that I think this 367 00:20:15,640 --> 00:20:18,960 Speaker 1: is kind of the antithesis of ninety one. So, so 368 00:20:19,160 --> 00:20:22,320 Speaker 1: what happened was we saw a chart that shows that 369 00:20:22,320 --> 00:20:24,960 Speaker 1: that only four percent of the S and T is 370 00:20:25,000 --> 00:20:31,840 Speaker 1: an energy. And in nineteen eighty one it was in 371 00:20:32,680 --> 00:20:37,240 Speaker 1: one Dr Doom and Doctor Death Woe, jin Allower and 372 00:20:37,400 --> 00:20:40,960 Speaker 1: Henry Kaufman said there's no end to this inflation insight 373 00:20:41,359 --> 00:20:44,040 Speaker 1: and that rates were going to go to t And 374 00:20:44,080 --> 00:20:48,600 Speaker 1: today the ECB and the Federal Reserve say there's virtually 375 00:20:48,680 --> 00:20:53,720 Speaker 1: no inflation anywhere in sight. Uh So what that means 376 00:20:53,760 --> 00:20:57,360 Speaker 1: to a contrarian like us is you want to exchange 377 00:20:57,520 --> 00:21:01,159 Speaker 1: expensive debt for assets in the ground. So if you 378 00:21:01,240 --> 00:21:05,439 Speaker 1: go back and look at the Occidental situation, uh, Chevron 379 00:21:05,960 --> 00:21:09,520 Speaker 1: offered to exchange ten percent of their common stock and 380 00:21:09,840 --> 00:21:14,199 Speaker 1: uh uh and eight billion dollars in debt for Anadarko 381 00:21:14,280 --> 00:21:19,520 Speaker 1: Petroleum and instead Occidental paid five billion more by offering, 382 00:21:20,480 --> 00:21:23,640 Speaker 1: you know, thirty three billion dollars in debt, including ten 383 00:21:23,680 --> 00:21:26,880 Speaker 1: billion dollars of Warren and Charlie's uh, you know Berkshire 384 00:21:26,920 --> 00:21:31,400 Speaker 1: Hathaway money, uh, and five billion of equity they gave 385 00:21:31,480 --> 00:21:35,239 Speaker 1: up way less equity. This is too many numbers from 386 00:21:35,280 --> 00:21:38,679 Speaker 1: Monday morning. Sorry, sorry, actually gonna go up. What does 387 00:21:38,760 --> 00:21:41,199 Speaker 1: Carl Icon and Bill Smeat know that I don't know 388 00:21:41,240 --> 00:21:44,399 Speaker 1: about oxy? Well, Carl the difference between Bill Smeat in 389 00:21:44,400 --> 00:21:48,720 Speaker 1: this situation and Carl Icon. Carl Icon is a fantastic investor. 390 00:21:49,080 --> 00:21:51,520 Speaker 1: He finds an undervalued security by the way he thought 391 00:21:51,600 --> 00:21:54,320 Speaker 1: it was undervalued at fifty two dollars a share sixty 392 00:21:54,359 --> 00:21:56,960 Speaker 1: dollars a share, and hopes to make in a year 393 00:21:57,000 --> 00:21:59,800 Speaker 1: and a half about a fifty percent gain by in 394 00:22:00,040 --> 00:22:04,359 Speaker 1: links influencing what the company does. What we do is 395 00:22:04,520 --> 00:22:07,320 Speaker 1: we love to buy something that absolutely no one wants, 396 00:22:07,320 --> 00:22:09,480 Speaker 1: that has merit. And let me tell you that oil 397 00:22:09,520 --> 00:22:12,040 Speaker 1: in the ground has more merit. And let me tell 398 00:22:12,080 --> 00:22:15,320 Speaker 1: you what, in the next ten years, the ninety million 399 00:22:15,480 --> 00:22:19,120 Speaker 1: millennials in this country are gonna double their use of gasoline. 400 00:22:19,440 --> 00:22:21,760 Speaker 1: And you know you're in the E. S. G. World. 401 00:22:21,800 --> 00:22:24,800 Speaker 1: That's got to bring tears to somebody's eyes. But we 402 00:22:24,840 --> 00:22:27,840 Speaker 1: have good research from fund Straft that shows that the 403 00:22:27,920 --> 00:22:31,200 Speaker 1: largest popular adult population group is gonna double its use 404 00:22:31,240 --> 00:22:34,480 Speaker 1: of oil and gasoline. How does the price of something 405 00:22:34,520 --> 00:22:37,919 Speaker 1: go down when ninety million out of three thirty million 406 00:22:37,960 --> 00:22:40,399 Speaker 1: Americans are going to use twice as much of the 407 00:22:40,400 --> 00:22:44,160 Speaker 1: product as they used to. So so this is just 408 00:22:44,560 --> 00:22:48,600 Speaker 1: a dream set up. And Buffett has got warrant at 409 00:22:48,600 --> 00:22:50,960 Speaker 1: six fifty. If he makes money, We're going to make 410 00:22:51,000 --> 00:22:53,680 Speaker 1: an awful lot of money. We got to leave it there. Bill, 411 00:22:54,000 --> 00:23:11,920 Speaker 1: You're going on for everyone Ox. That was Alin. If 412 00:23:11,920 --> 00:23:15,000 Speaker 1: you're on Global Wall Street, certainly American Wall Street. This 413 00:23:15,080 --> 00:23:18,160 Speaker 1: is the conversation of the morning. She's our chief financial correspondent, 414 00:23:18,359 --> 00:23:22,280 Speaker 1: Sali Basic January nine. They're gonna do an investor's dog 415 00:23:22,280 --> 00:23:25,600 Speaker 1: and pony at Golden Sacks. Mr Solomon is gonna get 416 00:23:25,680 --> 00:23:28,040 Speaker 1: up and is the ft article which is the talk 417 00:23:28,080 --> 00:23:30,760 Speaker 1: of Global Wall Street this morning. Laura Noonan killed it. 418 00:23:30,880 --> 00:23:32,800 Speaker 1: Mike Mayo quoted, We'll get to that in a moment. 419 00:23:33,400 --> 00:23:37,399 Speaker 1: This is a Golden Sacks struggling with their future. Are 420 00:23:37,440 --> 00:23:40,960 Speaker 1: they struggling with their future because of the now? Are 421 00:23:40,960 --> 00:23:44,040 Speaker 1: they struggling with their future because of a past which 422 00:23:44,080 --> 00:23:47,720 Speaker 1: is four point four total return per year. Both. I 423 00:23:48,359 --> 00:23:51,680 Speaker 1: know that that's not satisfying, But when when the past 424 00:23:51,760 --> 00:23:54,440 Speaker 1: was all trading, and that's a business that's in seeing 425 00:23:54,440 --> 00:23:56,800 Speaker 1: a lot of headwinds across all of Wall Street? How 426 00:23:56,800 --> 00:24:00,000 Speaker 1: do you change? Everyone was hoping that this big consumer business, 427 00:24:00,040 --> 00:24:02,560 Speaker 1: this would be the future of Goldman Sachs. But everyone 428 00:24:02,640 --> 00:24:04,919 Speaker 1: setting expectations now that this is going to take another 429 00:24:04,960 --> 00:24:08,520 Speaker 1: ten years to be effective. Let alone, they're not going 430 00:24:08,520 --> 00:24:10,639 Speaker 1: to become a tricky Morgan a Bank of America? Is 431 00:24:10,720 --> 00:24:13,960 Speaker 1: this you know, what's the gossip here on this Mr 432 00:24:14,080 --> 00:24:17,200 Speaker 1: Solomon having a moment of wisdom, the clouds parting and 433 00:24:17,200 --> 00:24:19,520 Speaker 1: and saying we're going back to the original thing. Or 434 00:24:19,600 --> 00:24:23,280 Speaker 1: is this his partner's rebelling? Well, remember everyone that Mr 435 00:24:23,320 --> 00:24:25,760 Speaker 1: Solomon put into place was of his own making, and 436 00:24:25,800 --> 00:24:27,840 Speaker 1: so those are a lot of investment bankers. I think 437 00:24:27,880 --> 00:24:31,040 Speaker 1: something interesting about the strategy is, according to the ft 438 00:24:31,160 --> 00:24:33,800 Speaker 1: this morning, they're going to focus on their asset manager. 439 00:24:34,040 --> 00:24:36,639 Speaker 1: They're going to focus on their that's original idea. So 440 00:24:36,680 --> 00:24:38,720 Speaker 1: what do they become James you know, are they going 441 00:24:38,760 --> 00:24:41,879 Speaker 1: to do James Gorman light? I mean, come on, that's 442 00:24:41,920 --> 00:24:45,359 Speaker 1: that's that's their best idea. The asset manager. That there's 443 00:24:45,359 --> 00:24:48,080 Speaker 1: a challenge with focusing on that, right, and it's that 444 00:24:48,119 --> 00:24:50,960 Speaker 1: they have way more than a trillion under management, but 445 00:24:51,800 --> 00:24:53,600 Speaker 1: they have a lot of low feed products, So how 446 00:24:53,640 --> 00:24:56,760 Speaker 1: do you make that a really profitable growth story? Um, 447 00:24:56,840 --> 00:24:59,720 Speaker 1: My former boss, Christine Harper once told me Goldman has 448 00:24:59,760 --> 00:25:02,480 Speaker 1: been focusing on their asset management. Work for Christine. I 449 00:25:02,520 --> 00:25:05,280 Speaker 1: worked for Christine Harper. How do you can guys got 450 00:25:05,320 --> 00:25:11,159 Speaker 1: so smart talk work? She um? But she she had said, 451 00:25:11,200 --> 00:25:13,040 Speaker 1: she mentioned once. You know, they've been focusing on asset 452 00:25:13,040 --> 00:25:15,040 Speaker 1: management since they won public. So can they make this 453 00:25:15,080 --> 00:25:17,520 Speaker 1: a significant part of the story moving forward. It's interesting 454 00:25:17,520 --> 00:25:19,800 Speaker 1: because you think about Goldman Sacks. I had competed against 455 00:25:19,840 --> 00:25:23,199 Speaker 1: them my whole career and such formal competitors. But I mean, 456 00:25:23,400 --> 00:25:27,240 Speaker 1: at their core their investment banking, they're trading their institution. 457 00:25:28,119 --> 00:25:30,600 Speaker 1: Is there a sense that the consumer business is gonna 458 00:25:30,600 --> 00:25:33,120 Speaker 1: be anything more than just a side show for this firm. 459 00:25:33,160 --> 00:25:35,920 Speaker 1: Here's what my sources are telling me. It's that thing 460 00:25:35,920 --> 00:25:38,679 Speaker 1: about it. The consumer business helps lower their cost of 461 00:25:38,760 --> 00:25:40,520 Speaker 1: capital at the end of the day, and this is 462 00:25:40,520 --> 00:25:43,320 Speaker 1: why the ft story is so surprising. For them to 463 00:25:43,400 --> 00:25:46,720 Speaker 1: not focus on profitability targets. That's the number. That's the 464 00:25:46,760 --> 00:25:50,240 Speaker 1: only story in the business right So um for the So, 465 00:25:50,640 --> 00:25:52,560 Speaker 1: what I think they're trying to say here is they're 466 00:25:52,600 --> 00:25:56,280 Speaker 1: shying away from giving big proclamations on what profitability will 467 00:25:56,320 --> 00:25:59,040 Speaker 1: look like. Paul, this is in your wheelhouse. God. This 468 00:25:59,119 --> 00:26:02,520 Speaker 1: is from Laura Noon and uh Patrick Jenkinson, David Crowe. 469 00:26:03,400 --> 00:26:07,120 Speaker 1: Goldman is set to detail it's ambition to become an 470 00:26:07,119 --> 00:26:12,000 Speaker 1: asset management powerhouse to rival the likes of black Stone 471 00:26:12,720 --> 00:26:16,520 Speaker 1: for black Rock. I don't know which black but I 472 00:26:16,560 --> 00:26:20,560 Speaker 1: don't know that's five times, that's four or five times, 473 00:26:20,600 --> 00:26:23,439 Speaker 1: but bigger. You're telling me Golden Sex wants to do 474 00:26:23,520 --> 00:26:26,800 Speaker 1: what Credit Suites, Morgan Stanley and everybody else wants to do. 475 00:26:27,040 --> 00:26:29,760 Speaker 1: That's not the Goldman Sex, I know, it's it's an 476 00:26:29,800 --> 00:26:33,040 Speaker 1: interesting strategy right now. Asset management for some perspective is 477 00:26:33,080 --> 00:26:36,439 Speaker 1: less than of their revenue trading that old business that 478 00:26:36,440 --> 00:26:39,840 Speaker 1: you were talking about, thirty six of their revenue. So 479 00:26:39,880 --> 00:26:42,080 Speaker 1: how do you change It's interesting. You know before under 480 00:26:42,119 --> 00:26:45,760 Speaker 1: the Mr blank find the prior CEO, they were out 481 00:26:45,760 --> 00:26:48,040 Speaker 1: there with the five billion dollars in extra revenue by 482 00:26:48,320 --> 00:26:51,239 Speaker 1: next year and they set that in I guess are 483 00:26:51,240 --> 00:26:52,840 Speaker 1: they going to kind of back away from that? And 484 00:26:52,880 --> 00:26:56,240 Speaker 1: if so, is that saying maybe these consumer businesses aren't 485 00:26:56,280 --> 00:26:57,960 Speaker 1: as big as we thought they were going to be. Well, 486 00:26:58,000 --> 00:26:59,960 Speaker 1: that's that's a big question. To what extent do you 487 00:27:00,000 --> 00:27:02,560 Speaker 1: say we're abandoning it completely. If you're David Solomon, you 488 00:27:02,600 --> 00:27:05,240 Speaker 1: can look back and say, wait, that was my predecessor's plan. 489 00:27:05,320 --> 00:27:07,199 Speaker 1: That was a blank find Pan. But what do I 490 00:27:07,320 --> 00:27:10,840 Speaker 1: do now right when a Wall Street is expecting Goldman 491 00:27:10,880 --> 00:27:14,600 Speaker 1: Sachs to have two billion dollars less in revenue this 492 00:27:14,720 --> 00:27:17,399 Speaker 1: year almost at the end of this year, how do 493 00:27:17,440 --> 00:27:19,280 Speaker 1: you then come in next January and say we want 494 00:27:19,280 --> 00:27:22,160 Speaker 1: to make five billion more? Steven Aaron's and I'm still 495 00:27:22,240 --> 00:27:26,000 Speaker 1: talking about this, folks. Bloomberg Markets magazine the single best 496 00:27:26,040 --> 00:27:30,440 Speaker 1: readable concise article and Mr Saving of Deutsche Bank, if 497 00:27:30,480 --> 00:27:33,000 Speaker 1: you were Mr Aaron's or Christine Harper, whatever you are, 498 00:27:33,119 --> 00:27:36,560 Speaker 1: great finance team, if they wrote an article on David 499 00:27:36,640 --> 00:27:39,399 Speaker 1: Solomon right now, what would it say? What would be 500 00:27:39,440 --> 00:27:43,439 Speaker 1: the angle of that article? How do you create golden 501 00:27:43,440 --> 00:27:46,240 Speaker 1: How do you recreate Goldman Sachs to make sense? What 502 00:27:46,359 --> 00:27:48,960 Speaker 1: is he trying to take it away from? What Mr 503 00:27:48,960 --> 00:27:52,640 Speaker 1: blank findd I think so far, everything we've ever heard 504 00:27:52,640 --> 00:27:55,680 Speaker 1: about Goldman Sachs, every executive tells us, listen, we lean 505 00:27:55,720 --> 00:27:57,600 Speaker 1: on our heart. We lean on where our heart is, 506 00:27:57,640 --> 00:28:01,880 Speaker 1: which is trading, it's investment banking, it's core institutional, it's 507 00:28:01,920 --> 00:28:05,280 Speaker 1: Henry Paulson in Chicago. And you know, I talked to 508 00:28:05,320 --> 00:28:08,400 Speaker 1: Secretary Pa about this once and Jeff, this was an 509 00:28:08,400 --> 00:28:12,720 Speaker 1: off Mike comment about the glory of getting on the 510 00:28:12,840 --> 00:28:18,119 Speaker 1: plane and going out across this great country. Is that 511 00:28:18,240 --> 00:28:20,879 Speaker 1: still the plan? Oh? Yeah, I mean, remember, investment bankers 512 00:28:20,920 --> 00:28:23,240 Speaker 1: are still running. Goldman Sachs told me they want to 513 00:28:23,240 --> 00:28:25,240 Speaker 1: be an asset management. That's what they want to be. 514 00:28:25,280 --> 00:28:27,240 Speaker 1: But you know, if they think about it, like I said, 515 00:28:27,240 --> 00:28:30,200 Speaker 1: if trading is less and less of their revenue every year, 516 00:28:30,400 --> 00:28:32,800 Speaker 1: and investment banking they're already number there's still number one 517 00:28:32,840 --> 00:28:34,720 Speaker 1: this year, they are still number one. I'll tell you 518 00:28:34,880 --> 00:28:37,240 Speaker 1: a black Rock model would not be the worst way 519 00:28:37,240 --> 00:28:39,080 Speaker 1: to go if they can get there. But now they're 520 00:28:39,120 --> 00:28:41,560 Speaker 1: talking about creating this merchant bank, putting their investment bank, 521 00:28:41,600 --> 00:28:44,840 Speaker 1: their asset manager together with a zillion dollars of assets 522 00:28:44,880 --> 00:28:47,160 Speaker 1: under management, if they can start maybe driving some of 523 00:28:47,160 --> 00:28:49,640 Speaker 1: the returns that we see out of black Rock, then 524 00:28:49,680 --> 00:28:51,880 Speaker 1: maybe you got something. But you know, again, it kind 525 00:28:51,880 --> 00:28:54,120 Speaker 1: of raises the question of the consumer. And I guess, 526 00:28:54,160 --> 00:28:56,480 Speaker 1: as you mentioned, the consumer is a great source of 527 00:28:56,600 --> 00:28:58,880 Speaker 1: low cost capital. And Tom, I think you know what 528 00:28:58,920 --> 00:29:02,360 Speaker 1: you're saying here too, is what else right they do banking, 529 00:29:02,400 --> 00:29:04,880 Speaker 1: they do trading. People want to know what the next 530 00:29:04,960 --> 00:29:07,600 Speaker 1: leg is because that consumer business is not going to 531 00:29:07,680 --> 00:29:09,840 Speaker 1: play out tomorrow. It's not going to play out in 532 00:29:09,880 --> 00:29:11,800 Speaker 1: the next couple of years. It'll take a long time 533 00:29:11,800 --> 00:29:13,200 Speaker 1: and it might still be a very small part of 534 00:29:13,200 --> 00:29:18,560 Speaker 1: the business. Looking at the SMP versus Goldman Sacks versus Blackrock, 535 00:29:18,600 --> 00:29:22,800 Speaker 1: over the last uh ten years, Goldman Sacks has been 536 00:29:22,840 --> 00:29:26,040 Speaker 1: the laggard, uh you know the price to book as well. 537 00:29:26,040 --> 00:29:27,920 Speaker 1: They mentioned that in the FT article. I mean, yeah, 538 00:29:28,040 --> 00:29:31,560 Speaker 1: I just I'm I'm not baffled. I think it was 539 00:29:32,360 --> 00:29:35,440 Speaker 1: mentioned it for Mr Solomon, is how do you redefine 540 00:29:35,520 --> 00:29:38,120 Speaker 1: Goldman Sacks for the next ten or fifteen years, because 541 00:29:38,160 --> 00:29:40,560 Speaker 1: I guess they're suggesting it isn't just going to be 542 00:29:40,640 --> 00:29:44,280 Speaker 1: investment banking and trading bonds and currencies. So they were 543 00:29:44,320 --> 00:29:47,080 Speaker 1: doing retail right and Morgan Stanley they were able to 544 00:29:47,160 --> 00:29:50,360 Speaker 1: bring that big wealth manager to play here. Can you know? 545 00:29:50,560 --> 00:29:56,200 Speaker 1: Will Goldman do a big deal, make them bigger? My 546 00:29:56,280 --> 00:29:59,200 Speaker 1: Monday more interesting? Will they buy a b n Y Melton? 547 00:29:59,280 --> 00:30:05,120 Speaker 1: Will they buy You're starting the people are scribbling down 548 00:30:05,160 --> 00:30:09,880 Speaker 1: in in in, you know, train stuffs nationwide analysis. I 549 00:30:09,920 --> 00:30:12,280 Speaker 1: feel like a Rockefeller or like the wealth managers of 550 00:30:12,280 --> 00:30:14,280 Speaker 1: the world that have spun out on their own, like 551 00:30:14,480 --> 00:30:16,760 Speaker 1: being alone. So I can't and you know, I can 552 00:30:16,760 --> 00:30:19,200 Speaker 1: see that being a harder sell for Goldman. Could they 553 00:30:19,240 --> 00:30:23,640 Speaker 1: Could they buy Fidelity with a Johnson family. I'm just 554 00:30:23,720 --> 00:30:28,920 Speaker 1: busting your child. Thank you so much and get out 555 00:30:28,920 --> 00:30:32,480 Speaker 1: of here. It's to bask our chief financial correspondent there 556 00:30:32,480 --> 00:30:36,720 Speaker 1: in Goldman, Sex. Thanks for listening to the Bloomberg Surveillance podcast. 557 00:30:37,080 --> 00:30:42,000 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 558 00:30:42,160 --> 00:30:46,480 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom 559 00:30:46,560 --> 00:30:50,480 Speaker 1: Keane before the podcast. You can always catch us worldwide. 560 00:30:50,920 --> 00:30:52,000 Speaker 1: I'm Bloomberg Radio.