WEBVTT - Surveillance: The Retail Transformation with Cowen's Chen 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:26.840 Bloomberg dot Com, and of course on the Bloomberg Do 0:00:26.880 --> 0:00:28.080 you want to get here in New York City on 0:00:28.080 --> 0:00:31.160 police to say, it's Carl Weinberg, high Frequency Economics founder 0:00:31.680 --> 0:00:34.240 and chief economists. Carl is great to see you to 0:00:34.320 --> 0:00:36.880 be here, John Sho. We begin with that data worldwide, 0:00:36.920 --> 0:00:39.080 out of China and out of Europe. Have we seen 0:00:39.120 --> 0:00:41.040 the worst of it? That's a question we've been debating 0:00:41.040 --> 0:00:42.760 over the last couple of weeks. What do you say 0:00:42.880 --> 0:00:46.640 in response, Yeah, not yet, not yet. You look at 0:00:46.680 --> 0:00:48.800 the churn of p M I that's very nice. China, 0:00:48.880 --> 0:00:51.680 we know, has problems. They've got the pork holding back 0:00:51.720 --> 0:00:55.720 the consumer, they've got the trade stuff holding down industrial production, 0:00:55.760 --> 0:00:58.480 they've got secular changes in their growth. Blah blah blah. 0:00:58.480 --> 0:01:00.520 That's all very nice. But when we look at the 0:01:00.560 --> 0:01:02.840 major economies in the world, and we look at the 0:01:02.880 --> 0:01:05.280 hard data, and we look at the stuff that economists 0:01:05.280 --> 0:01:08.200 should be focusing on the front page of high frequencies. 0:01:08.240 --> 0:01:11.600 Weekly Notes on the global economy today is all about inventories, 0:01:11.880 --> 0:01:15.120 and inventories are at a near record high, other than 0:01:15.200 --> 0:01:19.600 during the financial crisis in Germany, in Japan, in Canada, 0:01:19.959 --> 0:01:24.640 in Britain, in Europe, at the Mercedes lined up, that 0:01:24.640 --> 0:01:26.959 they care more than just Mercedes. It's too much to 0:01:27.000 --> 0:01:29.360 be just Mercedes. And certainly in Japan they don't have 0:01:29.440 --> 0:01:32.120 Mercedes lined up, and in Canada they don't have Mercedes 0:01:32.160 --> 0:01:35.640 lined up, and um, you know it's it's a backup 0:01:35.800 --> 0:01:39.039 of goods that have been not been sold. And typical 0:01:39.160 --> 0:01:42.400 traditional economic theory says that when you have high inventories, 0:01:42.720 --> 0:01:46.160 companies cut back production and they feel orders out of stock. 0:01:46.280 --> 0:01:48.160 So please give a narrative to this. Is this the 0:01:48.200 --> 0:01:51.160 global economy slowing or is it a shift away from 0:01:51.200 --> 0:01:55.600 stuff towards other types of purchases. Well, even if it 0:01:55.760 --> 0:01:58.360 is a shift, there's a mismatch between the amount of 0:01:58.400 --> 0:02:01.559 stuff they're making and the amount of stuff that's being bought. 0:02:01.880 --> 0:02:06.200 So while that mismatch occurs, companies will cut back on production, 0:02:06.440 --> 0:02:09.720 throw workers out of jobs, and that's how a recession begins. Well, 0:02:09.760 --> 0:02:12.919 I guess my question is really how concerned should people 0:02:12.919 --> 0:02:16.160 be about the recession in manufacturing? Is this a sort 0:02:16.200 --> 0:02:19.400 of telltale sign of a broader problem. Well, heckly so. 0:02:19.440 --> 0:02:21.920 We have a recession in manufacturing, let's not give it 0:02:21.960 --> 0:02:25.320 a different name. Industrial production in Japan reported on Friday, 0:02:25.360 --> 0:02:28.000 while we were all enjoying our turkeys, down four point 0:02:28.080 --> 0:02:31.840 seven percent in a single month. European production flat, German 0:02:31.880 --> 0:02:35.520 industrial production down, British industrial production down. I mean, it 0:02:35.560 --> 0:02:38.520 doesn't get worse than that. We have one. The question 0:02:38.680 --> 0:02:41.320 is when do we turn the corner and I say 0:02:41.360 --> 0:02:44.040 that we The way to use these inventory charts is 0:02:44.120 --> 0:02:46.520 to say, look at we're not going to emerge from 0:02:46.520 --> 0:02:49.720 this until these inventories are restored to more normal levels. 0:02:49.840 --> 0:02:52.480 And there's no sign of that happening. They're still rising. 0:02:52.639 --> 0:02:55.399 Now you want to get philosophical about it, you could say, well, 0:02:55.400 --> 0:02:59.000 maybe too low interest rates or zero or negative interest rates. 0:02:59.000 --> 0:03:01.880 In real terms, is it possible for firms to afford 0:03:01.919 --> 0:03:05.400 to hold up to build up inventories rather than fire workers. 0:03:05.400 --> 0:03:08.200 It's cheaper to build up stockpiles and to fire somebody, 0:03:08.360 --> 0:03:10.320 and that's how we got into this mess. I'm not 0:03:10.400 --> 0:03:12.760 ready to say that yet. That'll be for the historians. 0:03:12.800 --> 0:03:14.640 But for where we are right now, as long as 0:03:14.680 --> 0:03:17.400 the inventories are still rising, I don't see an end 0:03:17.440 --> 0:03:20.560 to the industrial recession. We've had three mini cycles through 0:03:20.560 --> 0:03:23.560 this expansion, out of oh nine, out of twelve, and 0:03:23.600 --> 0:03:26.359 out of sixteen as well, coming out of nineteen. Is 0:03:26.360 --> 0:03:28.200 a belief that we're in the early stages once again 0:03:28.240 --> 0:03:31.160 of another mini cycle within this expansion. Carl, I can 0:03:31.200 --> 0:03:33.240 hear you push him back against that, So put someone 0:03:33.280 --> 0:03:35.720 beat on those bones? Why is that the case? The 0:03:35.760 --> 0:03:38.520 meat on the bones is that maybe, just maybe what 0:03:38.600 --> 0:03:40.880 happened in two thousand and eight two thousand and nine 0:03:40.960 --> 0:03:43.280 isn't over yet. That if we look back to the 0:03:43.360 --> 0:03:48.440 Great Depression, everybody thinks, well, nine stocks failed, banks failed, 0:03:48.440 --> 0:03:50.720 everybody jumped out of windows, and it was over. But 0:03:50.800 --> 0:03:54.680 it was a ten year event with three distinct cycles 0:03:54.720 --> 0:03:59.600 of stock market crash, banking banking system failures, and economic recession, 0:03:59.640 --> 0:04:02.080 with a third one was the deepest of all of them. 0:04:02.120 --> 0:04:04.640 So I'm not so sure that we have adjusted our 0:04:04.680 --> 0:04:08.320 financial system. Certainly not in Europe, Certainly not in Japan, 0:04:08.720 --> 0:04:11.240 probably not in Britain where the two biggest banks are 0:04:11.280 --> 0:04:14.080 still owned by the state. All right, and Therefore we 0:04:14.120 --> 0:04:16.520 are looking at really what history will record as a 0:04:16.640 --> 0:04:20.200 depression that runs about so far twelve years and we 0:04:20.320 --> 0:04:23.640 still haven't bounced out of it. Then why are equities up? 0:04:23.680 --> 0:04:26.160 I get all you're saying. And you know, your your newsletter, 0:04:26.360 --> 0:04:29.280 your your research is acclaimed both your China note, your 0:04:29.400 --> 0:04:33.400 US note, your international great. But I believe we're in 0:04:33.440 --> 0:04:36.000 the greatest mother of all bull markets. Is it a 0:04:36.080 --> 0:04:39.960 bubble because it's manipulated or is it real? Well, you know, 0:04:40.080 --> 0:04:44.120 everybody talks about keeping interest rates too low for too long, 0:04:44.600 --> 0:04:47.920 creating a distortion of the allocation of resources, creating bubbles 0:04:47.920 --> 0:04:50.360 and markets. So we look at an investor and where 0:04:50.360 --> 0:04:53.440 does an investor put their money? Alright, with negative interest rates, 0:04:53.480 --> 0:04:57.040 bonds aren't attractive. With negative short term interest rates, cash 0:04:57.160 --> 0:04:59.640 isn't attractive. You know, where do you put your money 0:04:59.640 --> 0:05:02.360 to work to either take on more risk which increases 0:05:02.400 --> 0:05:04.680 the vulnerability of the system, that's the I left thing, 0:05:04.880 --> 0:05:06.560 or you buy stocks. So we have a wall of 0:05:06.600 --> 0:05:09.520 money going into stakes. And John this was very important 0:05:09.520 --> 0:05:12.040 one of the great insights last week in our conversations 0:05:12.040 --> 0:05:15.359 with Jeffrey you of ubs and that the money is 0:05:15.560 --> 0:05:18.880 unmeasurable that's waiting to go. So that's been the challenge 0:05:18.880 --> 0:05:21.360 of I think you can get the macro call right 0:05:21.400 --> 0:05:23.200 and then the market call very wrong. At the start 0:05:23.240 --> 0:05:25.200 of the year, if you called for a weaker global economy, 0:05:25.240 --> 0:05:27.760 you were right. If you called for lower global equity 0:05:27.800 --> 0:05:29.920 markets to go with that, you were dead wrong. Looking 0:05:29.920 --> 0:05:32.320 at the performance of sake Germany on the decks and 0:05:32.400 --> 0:05:34.560 here in the United States on the SMP five hundred, 0:05:34.800 --> 0:05:37.120 just a final word, car if you may, on the 0:05:37.200 --> 0:05:40.320 prospect of fiscal stimulus out of Europe and out of 0:05:40.320 --> 0:05:42.839 Germany more specifically. We'll talk about this in a little 0:05:42.839 --> 0:05:45.600 bit more detail through the program. But Chancellor Mirchle's coalition 0:05:45.640 --> 0:05:48.760 partner has a new leadership, and the new leadership would 0:05:48.760 --> 0:05:52.560 like some loosening of the black zero policy, that balanced budget. 0:05:52.800 --> 0:05:55.920 Do you see some loosening coming out of Germany anytime soon? Well, 0:05:55.960 --> 0:05:58.560 I think there will be. I don't think it will 0:05:58.600 --> 0:06:00.919 be as much as we would get to be. And 0:06:00.960 --> 0:06:04.080 the reason is is that the new SPD leadership only 0:06:04.080 --> 0:06:07.320 has limited leverage in what it can do. They can 0:06:07.440 --> 0:06:10.160 bring the government down and have elections, but the latest 0:06:10.160 --> 0:06:13.280 polls show that they're polling lower than the extreme right 0:06:13.279 --> 0:06:16.240 wing parties. So if they pull the government down, they're 0:06:16.320 --> 0:06:18.720 out and they're not going to get back in. So 0:06:19.200 --> 0:06:22.359 that pulling the government down would lead to a minority government, 0:06:22.360 --> 0:06:26.000 which is an untested political system within Germany. So I 0:06:26.040 --> 0:06:28.640 don't think they're prepared to pull the button on this 0:06:28.680 --> 0:06:32.039 whole thing. So they can negotiate some flexibility in order 0:06:32.080 --> 0:06:34.840 to keep peace and smoothness within the process. But it's 0:06:34.880 --> 0:06:36.400 not clear to me at all that they can get 0:06:36.400 --> 0:06:38.640 all of the fiscal stimulus that they want. Cal Wind. 0:06:38.680 --> 0:06:40.719 But great to see you this morning. I appreciate your time. 0:06:40.839 --> 0:06:58.240 High Frequency Economics founder and chief Economies. What a joy 0:06:58.320 --> 0:07:01.360 to wander in Oliver Chen when cow and he writes 0:07:01.520 --> 0:07:05.520 incredibly granular notes about big box and of course is 0:07:05.640 --> 0:07:08.080 well a tune to luxury retail all the stores that 0:07:08.160 --> 0:07:10.600 you and your family and loved ones are going in, 0:07:10.640 --> 0:07:12.520 and we're thrilled you could join us here. I want 0:07:12.520 --> 0:07:14.960 to get away from all the roads, cyber this and 0:07:14.960 --> 0:07:18.400 cyber that, and there's like eight ways to go here 0:07:18.440 --> 0:07:21.320 with a Tiffany Merger, Let's let's cut to the chase 0:07:21.440 --> 0:07:27.280 on something everyone's talking about, which is women renting clothes. 0:07:28.560 --> 0:07:32.160 Does the income statement work in that business. Yeah, what 0:07:32.240 --> 0:07:35.840 we're seeing is tons of growth here, growth revenue. That 0:07:35.960 --> 0:07:39.240 being said, a lot of these business models are really 0:07:39.240 --> 0:07:42.240 focused on customer lifetime value, so they have to leverage 0:07:42.240 --> 0:07:45.480 a lot of fixed costs in terms of turning profitable. 0:07:45.520 --> 0:07:47.760 To answer your questions, leverage fixed cost means they've gotta 0:07:47.800 --> 0:07:50.880 make a lot of revenue just to begin to be profitable. Rightly, 0:07:51.040 --> 0:07:52.600 are they gonna do it? Are they going to take 0:07:52.840 --> 0:07:57.920 enough social psychic market share of women in renting the 0:07:58.080 --> 0:08:02.640 runway to change your world forever? Well, our forecast calls 0:08:02.680 --> 0:08:06.200 for growth. You know, retail is struggling to be flat, 0:08:06.800 --> 0:08:10.400 so um we forecasts to continue to grow. And what's 0:08:10.400 --> 0:08:13.760 happening in retail is really the uberification of retail, which 0:08:13.800 --> 0:08:18.080 means rethinking clothing as a service. How do you rethink 0:08:18.120 --> 0:08:21.840 all material goods and other things in your life as services, 0:08:21.880 --> 0:08:26.960 including fashion and clothes? How small my classet is at 0:08:27.000 --> 0:08:32.960 home because we're uberfying. So you're scaling bang classic rent 0:08:33.000 --> 0:08:35.160 the runways where the focus is at the moment Oliver, 0:08:35.240 --> 0:08:37.320 it's one fifty nine a month for the unlimited plau 0:08:37.520 --> 0:08:39.400 listen to you, but you get it terms with a 0:08:39.480 --> 0:08:42.480 retail value of up to three tho dollars, And from 0:08:42.480 --> 0:08:44.360 what I see with Rent the Runway, which has been 0:08:44.400 --> 0:08:47.719 a massive success as I'm well aware, is there at 0:08:47.800 --> 0:08:51.240 three thousand dollars. This is the high end of the 0:08:51.360 --> 0:08:54.480 apparel market, and I'm wondering whether this works for clothing 0:08:54.640 --> 0:08:56.360 at the lower end. As H and M tries to 0:08:56.400 --> 0:08:58.520 sound in Sweden and others begin to make a push 0:08:58.520 --> 0:09:00.520 in the United States, can others do the same thing 0:09:00.760 --> 0:09:03.120 at a LEBA price point? Yeah, I mean we've seen 0:09:03.160 --> 0:09:07.720 business models like Castle. Castle powers many of the retailers 0:09:07.760 --> 0:09:12.120 like Bloomingdale's, Banana Republic, Scotch and Soda, and when they 0:09:12.160 --> 0:09:16.560 do this, this is a very profitable high royalty model 0:09:16.679 --> 0:09:20.240 where you really use the inventory effectively. Running a platform 0:09:20.280 --> 0:09:22.800 like Rent the Runway, profitability is more of a question, 0:09:22.880 --> 0:09:26.400 but Castle and outsourcing a lot of these capabilities, it 0:09:26.480 --> 0:09:30.160 can be very profitable for both parties because you really 0:09:30.600 --> 0:09:33.520 need someone that operates a lot of the back office, 0:09:33.600 --> 0:09:36.439 operates a lot of the dry cleaning and capital intensity. 0:09:36.480 --> 0:09:39.839 And these retailers have to go where customers are going. 0:09:40.240 --> 0:09:43.079 And this is an engagement play too, with new customers 0:09:43.080 --> 0:09:47.199 coming to the table. So the lrification of retail definitely ongoing, 0:09:47.280 --> 0:09:49.079 but still people buying a lot of stuff and this 0:09:49.160 --> 0:09:53.760 has been cyber uh Monday, Tuesday, Wednesday year decade. I'm 0:09:53.760 --> 0:09:57.520 trying to understand how to read the shift towards the 0:09:57.600 --> 0:10:01.640 online efforts and how we see the traffic declining in 0:10:01.840 --> 0:10:05.320 department stores. When do we hit rock bottom here? Well, 0:10:06.840 --> 0:10:10.120 m at different stores, we actually need to close more 0:10:10.240 --> 0:10:14.760 physical points of distribution. So it really depends on the retailer. 0:10:14.920 --> 0:10:18.280 Macy's for example, needs to close you know, fifty d 0:10:18.360 --> 0:10:22.920 stores in our estimation. UM, what's happening is blending the channels. 0:10:22.920 --> 0:10:25.920 So what will actually be important this season given their 0:10:25.920 --> 0:10:28.760 six year days is the immediacy of the store, the 0:10:28.800 --> 0:10:33.880 buy in line, pickup in store, boat channels working together. Um. 0:10:33.960 --> 0:10:37.040 At retailers like Target and Walmart, the unit story is 0:10:37.080 --> 0:10:40.439 fine because a lot is grocery. But for the foreseeable 0:10:40.480 --> 0:10:45.000 future we see in store traffic declining negative low single digit. 0:10:45.559 --> 0:10:48.600 That being said, UM, you can convert at a higher 0:10:48.679 --> 0:10:51.240 rate given that when you go into the store you're 0:10:51.320 --> 0:10:55.000 very purposeful. UM. So it's about managing both channels. But 0:10:55.080 --> 0:10:58.920 at some retailers it is about closing stores. This is 0:10:58.960 --> 0:11:01.920 when you're going to store. Brandy Melville is real purposeful. 0:11:02.200 --> 0:11:05.400 Are you complaining about your shopping trips? That right, it's 0:11:05.440 --> 0:11:07.560 so done. We can do that in a commercial brain. 0:11:08.320 --> 0:11:11.520 If let's talk about the successes of and it's not 0:11:11.559 --> 0:11:14.559 just bricks and morti verses online for many, it's how 0:11:14.600 --> 0:11:17.120 bricks and more to compliments your online presence and how 0:11:17.120 --> 0:11:20.280 your online presence complements your bricks and mortar presence. Who's 0:11:20.280 --> 0:11:22.520 doing that really really well at the moment. Well, the 0:11:22.840 --> 0:11:27.439 real reality of the future is curbside pickup. Curbside pickup 0:11:27.520 --> 0:11:30.640 is used by over ten percent of America very very quickly. 0:11:30.720 --> 0:11:33.800 And Walmart has been a real pioneer of enabling you 0:11:33.880 --> 0:11:37.720 to drive up, get your goods quickly and leave. That's 0:11:37.760 --> 0:11:43.240 been a very successful technology because customers are satisfied, customers 0:11:43.240 --> 0:11:46.280 are spending double the check size, and it's a younger 0:11:46.320 --> 0:11:49.120 customer using it, it's a wealthy customer using it, and 0:11:49.160 --> 0:11:54.280 it's highly highly convenient. So life and retails about saving money, 0:11:54.320 --> 0:11:59.559 saving time, and curbside pickup elegantly merges the online and 0:11:59.640 --> 0:12:02.760 the off flying as well as mobile. Mobile is the 0:12:02.800 --> 0:12:05.760 new mall, So rethinking retailing the context of mobile is 0:12:05.880 --> 0:12:10.440 very important. To Speaking of mobile, I just got in 0:12:10.520 --> 0:12:15.319 John for you Advos Canadida, Goose the ericson parkass Is 0:12:15.440 --> 0:12:18.880 John Ferrell, I love it when you're focused in the morning. 0:12:19.520 --> 0:12:22.160 We've lost you after twenty four minutes. You've just drifted. 0:12:22.160 --> 0:12:25.920 It's Monday to it's a big week aheads, please get engaged. 0:12:26.160 --> 0:12:29.320 I just getting he's mobile shopping for you. He's trying 0:12:29.320 --> 0:12:33.120 to you want to protect him. A little later Rost Friday, 0:12:33.160 --> 0:12:35.600 plenty of reason of your Jed Oliver Chen, thank you 0:12:35.640 --> 0:12:38.040 so much for being with us. A Cow and its 0:12:38.080 --> 0:12:45.640 senior equity research analyst. Happy holiday is happy if you 0:12:45.720 --> 0:12:47.760 had a bad weekend, I did not have a bad weekend. 0:12:47.760 --> 0:12:51.640 The TODs the to for a little bit, what's happened, Yeah, 0:12:51.640 --> 0:12:53.920 there's a little bit of that. I'm going I'm shopping 0:12:53.920 --> 0:13:10.640 a dead elephant when this is all over. Dane Smark 0:13:10.760 --> 0:13:12.680 joins us from Grandthorte, and of course she is a 0:13:12.760 --> 0:13:16.760 wonderful and important focused Midwest view. Diane, what is the 0:13:16.840 --> 0:13:20.680 distinction right now have the greater Middle West economy versus 0:13:21.000 --> 0:13:23.880 the focus we have on the two left and the 0:13:24.000 --> 0:13:26.760 right coast. Well, what we're seeing is, of course the 0:13:26.960 --> 0:13:30.160 rise and unemployment tied to terrorists and tariff uncertainty in 0:13:30.280 --> 0:13:34.719 some of the states Michigan, Ohio, Wisconsin doing better. Um. 0:13:34.720 --> 0:13:37.400 In fact, Wisconsin has been interesting because they've had some 0:13:37.520 --> 0:13:42.320 manufacturing increases even as plants have closed, and they've been 0:13:42.360 --> 0:13:44.600 trying to get it some of those workers to try 0:13:44.640 --> 0:13:46.560 to get them into the plants that are opening. But 0:13:46.920 --> 0:13:49.720 you really see the uneven performance here in the Midwest, 0:13:49.800 --> 0:13:52.400 much more uneven that gets masked as we get to 0:13:52.520 --> 0:13:54.880 the national data. If I had a cup of coffee 0:13:55.040 --> 0:13:58.240 with Charles Evans and you in Chicago, and I said 0:13:58.280 --> 0:14:02.640 to you, do we overemphasis size farm economics? Do we 0:14:02.800 --> 0:14:05.640 do that? Or is it valid that dairy farmers in 0:14:05.679 --> 0:14:08.959 Wisconsin flat on their back is a big deal. It's 0:14:09.000 --> 0:14:12.120 actually more valid that farmers across the board are um 0:14:12.400 --> 0:14:15.120 actually flat on their back and suffering from bankruptcies. The 0:14:15.240 --> 0:14:18.040 smaller farmers are not getting the subsidies that we're seeing. 0:14:18.040 --> 0:14:19.920 In fact, most of the subsidies are going to very 0:14:20.000 --> 0:14:22.080 large farms, which you guys had a very good article 0:14:22.480 --> 0:14:24.840 about out there over this week. And I think that's 0:14:24.880 --> 0:14:27.880 the real issue, is that there is collateral damage to 0:14:27.880 --> 0:14:30.040 bank balance sheets from that. So I know Charlie would 0:14:30.040 --> 0:14:33.800 certainly take that as something he's concerned about. Is the 0:14:33.920 --> 0:14:37.520 rise in bankruptcies that we've seen across the board. In 0:14:37.720 --> 0:14:40.040 bankruptcies in the farm sect or not. It doesn't mean 0:14:40.080 --> 0:14:42.640 as much jobs because not many people are employed on 0:14:42.720 --> 0:14:45.320 farms anymore, but it does mean something in terms of 0:14:45.360 --> 0:14:48.440 bank balance sheets in those areas. Yeah, one thing I'm 0:14:48.440 --> 0:14:50.480 struck by. I was reading this story in the New 0:14:50.560 --> 0:14:53.240 York Times how Amazon wove itself into the life of 0:14:53.240 --> 0:14:55.800 an American city, and I talked about how, yes, there 0:14:55.800 --> 0:14:58.120 are jobs, and they're growing number of jobs, but they're 0:14:58.120 --> 0:15:00.520 worse paid. And it talked about Amazon and how it's 0:15:00.560 --> 0:15:04.320 offering employment which is good, but at much lower price 0:15:04.440 --> 0:15:08.880 levels in terms of compensation than the labor unions of 0:15:08.960 --> 0:15:11.800 your How should we view this in terms of the U. 0:15:11.920 --> 0:15:16.760 S economy, this transformation to the Amazon amazon ification of retail. 0:15:17.040 --> 0:15:19.920 Is this generally going to be a negative just because 0:15:19.920 --> 0:15:22.800 of the amount that people are paid, or is this 0:15:22.840 --> 0:15:25.040 sort of a temporary blip as we try to rejigger 0:15:25.040 --> 0:15:27.680 to the new economy. Well, unfortunately, I think it's a 0:15:27.680 --> 0:15:30.120 long term trend. It actually started with Walmart. We called 0:15:30.160 --> 0:15:33.560 it Walmantization in the nineties and now it's Amazon, so 0:15:33.880 --> 0:15:36.120 you know, we've spread it from one to another. And 0:15:36.160 --> 0:15:37.920 the good news is they do have jobs. The bad 0:15:37.960 --> 0:15:40.480 news is, as you mentioned, they are much lower paid. 0:15:40.480 --> 0:15:42.680 And this gets into the Halloween out of the middle class. 0:15:42.720 --> 0:15:46.080 Another really key component of what's going on today with 0:15:46.120 --> 0:15:49.800 these large, very large retailers like Amazon and Walmart. They're 0:15:49.840 --> 0:15:52.360 paying more to their workers who are entry level workers, 0:15:52.640 --> 0:15:56.440 but they've actually cut and circumvented the move up in 0:15:56.600 --> 0:15:59.840 pay to management pay. They've actually either lowered management pay 0:16:00.200 --> 0:16:02.880 or reduce the number of managers they have, which is 0:16:02.960 --> 0:16:05.920 derailed something we usually see in an economy, and that 0:16:06.120 --> 0:16:08.640 is when low wages, that wages at the lowest end 0:16:08.640 --> 0:16:10.840 of the pay scale pick up, they tend to trickle 0:16:10.960 --> 0:16:13.720 up and move into middle class households. And so you've 0:16:13.760 --> 0:16:15.920 got that sort of double whammy of not only they're 0:16:15.920 --> 0:16:18.960 replacing jobs that once paid a lot more, but you're 0:16:19.000 --> 0:16:22.320 not seeing the mechanisms of moving up the wage scale 0:16:22.520 --> 0:16:25.600 that we once saw. And it's because these are such 0:16:25.720 --> 0:16:29.200 dominant players in our economy today. Dan nineteen minutes ines 0:16:29.200 --> 0:16:30.880 of the program, and I don't think any of our 0:16:30.920 --> 0:16:34.240 guests have mentioned the federal Reserve once. Steve Ingmander of 0:16:34.280 --> 0:16:36.080 Standard Shot and will be talking to me around about 0:16:36.120 --> 0:16:37.920 thirty minutes time. And he's made the point as well 0:16:37.960 --> 0:16:40.720 that he's just come back from Europe and hardly anybody 0:16:40.720 --> 0:16:42.680 spoke to him about the Federal Reserve and it's just 0:16:42.760 --> 0:16:46.600 not part of the conversation at the moment. Should it be? Well, 0:16:46.600 --> 0:16:48.520 I think the Fed's pretty happy about not being part 0:16:48.520 --> 0:16:51.400 of the conversation, given hop center stage. They've been particularly 0:16:51.400 --> 0:16:53.200 in tweets out there, so they like being on the 0:16:53.240 --> 0:16:56.640 sidelines and like being non existence. Um. I do think 0:16:56.640 --> 0:16:59.040 they will become more part of their conversation again as 0:16:59.080 --> 0:17:02.000 we get into twenty money. The critical issue is does 0:17:02.080 --> 0:17:05.560 the President pursue what he has been pursuing with trade 0:17:05.560 --> 0:17:07.960 with China, which would be an escalation in trade horse 0:17:08.119 --> 0:17:10.240 or can we really believe that we're going to get 0:17:10.280 --> 0:17:12.639 a pause in trade work which keeps the FED on 0:17:12.680 --> 0:17:14.560 the sideline. Can I ask you a quick question the 0:17:14.600 --> 0:17:20.080 show se Dion Swank, How close are we to stand 0:17:20.119 --> 0:17:25.600 Fisher's ultra accommodation? Nobody knows and there is life. The 0:17:25.800 --> 0:17:28.000 hard u answer of them all is that we just 0:17:28.080 --> 0:17:31.399 don't know. We do worry about um sort of juicing 0:17:31.440 --> 0:17:33.320 the economy a bit too much right now in the 0:17:33.359 --> 0:17:36.360 bubbles that do seem to be forming, particularly in corporate 0:17:36.359 --> 0:17:39.960 debt markets. That said, we don't know anymore, and the 0:17:40.000 --> 0:17:42.400 FED has finally gotten home eating the humble pie enough 0:17:42.440 --> 0:17:45.399 to say we're not sure ourselves. SWAK always great to 0:17:45.440 --> 0:17:47.639 get your thoughts on a program. Big week ahead for 0:17:47.680 --> 0:17:50.199 the global economy, and the US economic data will be 0:17:50.200 --> 0:17:52.360 coming through through the weight. We'll bring that to you 0:17:52.680 --> 0:18:07.720 right here on Bloomberg rightio. Okay, we're doing six minutes 0:18:07.760 --> 0:18:11.000 twelve seconds with somebody you need to listen to. Here's 0:18:11.000 --> 0:18:14.760 how it works. There's a percentile thing and it's pretty good. 0:18:14.800 --> 0:18:16.480 It's like you're in your class and what you do 0:18:16.520 --> 0:18:19.760 in this case with Bill Smeede, it's a value and 0:18:19.880 --> 0:18:22.000 like if it's a big number, that's a good number 0:18:22.080 --> 0:18:24.560 up to a hundred and I guess being in the 0:18:24.680 --> 0:18:31.240 nine six percentile is okay, Paul for three year and 0:18:31.280 --> 0:18:34.080 if you're in the five year percentile and you're in 0:18:34.680 --> 0:18:40.960 the percentile, that's like, that's okay. So let's in terms 0:18:41.000 --> 0:18:43.639 of the holiday greetings, say to the wonderful Bill Smeede, 0:18:44.040 --> 0:18:47.280 value guy, Bill, what's the number one determinant of that 0:18:47.520 --> 0:18:53.159 leads you to that excellence. Here overwhelming me. I'll give 0:18:53.200 --> 0:18:56.879 you overwhelming. You're in the nineties six percential for three years. 0:18:57.080 --> 0:19:00.919 How do you do it? The first thing is we 0:19:01.040 --> 0:19:05.040 looked to buy meritorious companies when they fall deep in 0:19:05.080 --> 0:19:10.440 the doghouse. And and uh, the courage to buy when 0:19:11.240 --> 0:19:13.760 you're you're almost nauseous when you put the orders in 0:19:13.760 --> 0:19:18.000 in the first place. Um is the starter. The second 0:19:18.040 --> 0:19:21.680 thing and maybe in the last Remember, we've been in 0:19:21.720 --> 0:19:24.760 a tenure bowl market that has been led by growth, 0:19:25.359 --> 0:19:29.480 and we we hold our winners to a fault. And 0:19:29.480 --> 0:19:33.240 and that is not the typical thing in the value world. 0:19:33.760 --> 0:19:36.480 Most value people buy a fifty cent dollar, it goes 0:19:36.560 --> 0:19:38.960 up to ninety cents, they sell it and go try 0:19:39.000 --> 0:19:42.400 to find another fifty cent dollar. Charlie Munger says, that's 0:19:42.440 --> 0:19:45.200 really difficult. What he just said. You and Walt Disney, 0:19:45.240 --> 0:19:47.040 I mean to get away from the show and Walt Disney. 0:19:47.080 --> 0:19:49.639 Just as one example, I gotta go to you and 0:19:49.720 --> 0:19:51.920 carl Icon. I know you and Icon are going back 0:19:51.960 --> 0:19:55.560 and forth on a daily basis. Occidental Petroleum off the 0:19:55.560 --> 0:20:00.280 anti Darco transaction ten year mediocrity negative three point four 0:20:00.359 --> 0:20:03.760 percent per year. The thing has been an unmistakable train 0:20:03.800 --> 0:20:08.800 wreck for a year and a half, and you like oxy. Yeah. 0:20:09.040 --> 0:20:13.760 You know what's funny about this, tom is I mentioned 0:20:13.760 --> 0:20:15.520 in a note to you folks that I think this 0:20:15.640 --> 0:20:18.960 is kind of the antithesis of ninety one. So, so 0:20:19.160 --> 0:20:22.320 what happened was we saw a chart that shows that 0:20:22.320 --> 0:20:24.960 that only four percent of the S and T is 0:20:25.000 --> 0:20:31.840 an energy. And in nineteen eighty one it was in 0:20:32.680 --> 0:20:37.240 one Dr Doom and Doctor Death Woe, jin Allower and 0:20:37.400 --> 0:20:40.960 Henry Kaufman said there's no end to this inflation insight 0:20:41.359 --> 0:20:44.040 and that rates were going to go to t And 0:20:44.080 --> 0:20:48.600 today the ECB and the Federal Reserve say there's virtually 0:20:48.680 --> 0:20:53.720 no inflation anywhere in sight. Uh So what that means 0:20:53.760 --> 0:20:57.360 to a contrarian like us is you want to exchange 0:20:57.520 --> 0:21:01.159 expensive debt for assets in the ground. So if you 0:21:01.240 --> 0:21:05.439 go back and look at the Occidental situation, uh, Chevron 0:21:05.960 --> 0:21:09.520 offered to exchange ten percent of their common stock and 0:21:09.840 --> 0:21:14.199 uh uh and eight billion dollars in debt for Anadarko 0:21:14.280 --> 0:21:19.520 Petroleum and instead Occidental paid five billion more by offering, 0:21:20.480 --> 0:21:23.640 you know, thirty three billion dollars in debt, including ten 0:21:23.680 --> 0:21:26.880 billion dollars of Warren and Charlie's uh, you know Berkshire 0:21:26.920 --> 0:21:31.400 Hathaway money, uh, and five billion of equity they gave 0:21:31.480 --> 0:21:35.239 up way less equity. This is too many numbers from 0:21:35.280 --> 0:21:38.679 Monday morning. Sorry, sorry, actually gonna go up. What does 0:21:38.760 --> 0:21:41.199 Carl Icon and Bill Smeat know that I don't know 0:21:41.240 --> 0:21:44.399 about oxy? Well, Carl the difference between Bill Smeat in 0:21:44.400 --> 0:21:48.720 this situation and Carl Icon. Carl Icon is a fantastic investor. 0:21:49.080 --> 0:21:51.520 He finds an undervalued security by the way he thought 0:21:51.600 --> 0:21:54.320 it was undervalued at fifty two dollars a share sixty 0:21:54.359 --> 0:21:56.960 dollars a share, and hopes to make in a year 0:21:57.000 --> 0:21:59.800 and a half about a fifty percent gain by in 0:22:00.040 --> 0:22:04.359 links influencing what the company does. What we do is 0:22:04.520 --> 0:22:07.320 we love to buy something that absolutely no one wants, 0:22:07.320 --> 0:22:09.480 that has merit. And let me tell you that oil 0:22:09.520 --> 0:22:12.040 in the ground has more merit. And let me tell 0:22:12.080 --> 0:22:15.320 you what, in the next ten years, the ninety million 0:22:15.480 --> 0:22:19.120 millennials in this country are gonna double their use of gasoline. 0:22:19.440 --> 0:22:21.760 And you know you're in the E. S. G. World. 0:22:21.800 --> 0:22:24.800