Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Do
Speaker 1: you want to get here in New York City on
Speaker 1: police to say, it's Carl Weinberg, high Frequency Economics founder
Speaker 1: and chief economists. Carl is great to see you to
Speaker 1: be here, John Sho. We begin with that data worldwide,
Speaker 1: out of China and out of Europe. Have we seen
Speaker 1: the worst of it? That's a question we've been debating
Speaker 1: over the last couple of weeks. What do you say
Speaker 1: in response, Yeah, not yet, not yet. You look at
Speaker 1: the churn of p M I that's very nice. China,
Speaker 1: we know, has problems. They've got the pork holding back
Speaker 1: the consumer, they've got the trade stuff holding down industrial production,
Speaker 1: they've got secular changes in their growth. Blah blah blah.
Speaker 1: That's all very nice. But when we look at the
Speaker 1: major economies in the world, and we look at the
Speaker 1: hard data, and we look at the stuff that economists
Speaker 1: should be focusing on the front page of high frequencies.
Speaker 1: Weekly Notes on the global economy today is all about inventories,
Speaker 1: and inventories are at a near record high, other than
Speaker 1: during the financial crisis in Germany, in Japan, in Canada,
Speaker 1: in Britain, in Europe, at the Mercedes lined up, that
Speaker 1: they care more than just Mercedes. It's too much to
Speaker 1: be just Mercedes. And certainly in Japan they don't have
Speaker 1: Mercedes lined up, and in Canada they don't have Mercedes
Speaker 1: lined up, and um, you know it's it's a backup
Speaker 1: of goods that have been not been sold. And typical
Speaker 1: traditional economic theory says that when you have high inventories,
Speaker 1: companies cut back production and they feel orders out of stock.
Speaker 1: So please give a narrative to this. Is this the
Speaker 1: global economy slowing or is it a shift away from
Speaker 1: stuff towards other types of purchases. Well, even if it
Speaker 1: is a shift, there's a mismatch between the amount of
Speaker 1: stuff they're making and the amount of stuff that's being bought.
Speaker 1: So while that mismatch occurs, companies will cut back on production,
Speaker 1: throw workers out of jobs, and that's how a recession begins. Well,
Speaker 1: I guess my question is really how concerned should people
Speaker 1: be about the recession in manufacturing? Is this a sort
Speaker 1: of telltale sign of a broader problem. Well, heckly so.
Speaker 1: We have a recession in manufacturing, let's not give it
Speaker 1: a different name. Industrial production in Japan reported on Friday,
Speaker 1: while we were all enjoying our turkeys, down four point
Speaker 1: seven percent in a single month. European production flat, German
Speaker 1: industrial production down, British industrial production down. I mean, it
Speaker 1: doesn't get worse than that. We have one. The question
Speaker 1: is when do we turn the corner and I say
Speaker 1: that we The way to use these inventory charts is
Speaker 1: to say, look at we're not going to emerge from
Speaker 1: this until these inventories are restored to more normal levels.
Speaker 1: And there's no sign of that happening. They're still rising.
Speaker 1: Now you want to get philosophical about it, you could say, well,
Speaker 1: maybe too low interest rates or zero or negative interest rates.
Speaker 1: In real terms, is it possible for firms to afford
Speaker 1: to hold up to build up inventories rather than fire workers.
Speaker 1: It's cheaper to build up stockpiles and to fire somebody,
Speaker 1: and that's how we got into this mess. I'm not
Speaker 1: ready to say that yet. That'll be for the historians.
Speaker 1: But for where we are right now, as long as
Speaker 1: the inventories are still rising, I don't see an end
Speaker 1: to the industrial recession. We've had three mini cycles through
Speaker 1: this expansion, out of oh nine, out of twelve, and
Speaker 1: out of sixteen as well, coming out of nineteen. Is
Speaker 1: a belief that we're in the early stages once again
Speaker 1: of another mini cycle within this expansion. Carl, I can
Speaker 1: hear you push him back against that, So put someone
Speaker 1: beat on those bones? Why is that the case? The
Speaker 1: meat on the bones is that maybe, just maybe what
Speaker 1: happened in two thousand and eight two thousand and nine
Speaker 1: isn't over yet. That if we look back to the
Speaker 1: Great Depression, everybody thinks, well, nine stocks failed, banks failed,
Speaker 1: everybody jumped out of windows, and it was over. But
Speaker 1: it was a ten year event with three distinct cycles
Speaker 1: of stock market crash, banking banking system failures, and economic recession,
Speaker 1: with a third one was the deepest of all of them.
Speaker 1: So I'm not so sure that we have adjusted our
Speaker 1: financial system. Certainly not in Europe, Certainly not in Japan,
Speaker 1: probably not in Britain where the two biggest banks are
Speaker 1: still owned by the state. All right, and Therefore we
Speaker 1: are looking at really what history will record as a
Speaker 1: depression that runs about so far twelve years and we
Speaker 1: still haven't bounced out of it. Then why are equities up?
Speaker 1: I get all you're saying. And you know, your your newsletter,
Speaker 1: your your research is acclaimed both your China note, your
Speaker 1: US note, your international great. But I believe we're in
Speaker 1: the greatest mother of all bull markets. Is it a
Speaker 1: bubble because it's manipulated or is it real? Well, you know,
Speaker 1: everybody talks about keeping interest rates too low for too long,
Speaker 1: creating a distortion of the allocation of resources, creating bubbles
Speaker 1: and markets. So we look at an investor and where
Speaker 1: does an investor put their money? Alright, with negative interest rates,
Speaker 1: bonds aren't attractive. With negative short term interest rates, cash
Speaker 1: isn't attractive. You know, where do you put your money
Speaker 1: to work to either take on more risk which increases
Speaker 1: the vulnerability of the system, that's the I left thing,
Speaker 1: or you buy stocks. So we have a wall of
Speaker 1: money going into stakes. And John this was very important
Speaker 1: one of the great insights last week in our conversations
Speaker 1: with Jeffrey you of ubs and that the money is
Speaker 1: unmeasurable that's waiting to go. So that's been the challenge
Speaker 1: of I think you can get the macro call right
Speaker 1: and then the market call very wrong. At the start
Speaker 1: of the year, if you called for a weaker global economy,
Speaker 1: you were right. If you called for lower global equity
Speaker 1: markets to go with that, you were dead wrong. Looking
Speaker 1: at the performance of sake Germany on the decks and
Speaker 1: here in the United States on the SMP five hundred,
Speaker 1: just a final word, car if you may, on the
Speaker 1: prospect of fiscal stimulus out of Europe and out of
Speaker 1: Germany more specifically. We'll talk about this in a little
Speaker 1: bit more detail through the program. But Chancellor Mirchle's coalition
Speaker 1: partner has a new leadership, and the new leadership would
Speaker 1: like some loosening of the black zero policy, that balanced budget.
Speaker 1: Do you see some loosening coming out of Germany anytime soon? Well,
Speaker 1: I think there will be. I don't think it will
Speaker 1: be as much as we would get to be. And
Speaker 1: the reason is is that the new SPD leadership only
Speaker 1: has limited leverage in what it can do. They can
Speaker 1: bring the government down and have elections, but the latest
Speaker 1: polls show that they're polling lower than the extreme right
Speaker 1: wing parties. So if they pull the government down, they're
Speaker 1: out and they're not going to get back in. So
Speaker 1: that pulling the government down would lead to a minority government,
Speaker 1: which is an untested political system within Germany. So I
Speaker 1: don't think they're prepared to pull the button on this
Speaker 1: whole thing. So they can negotiate some flexibility in order
Speaker 1: to keep peace and smoothness within the process. But it's
Speaker 1: not clear to me at all that they can get
Speaker 1: all of the fiscal stimulus that they want. Cal Wind.
Speaker 1: But great to see you this morning. I appreciate your time.
Speaker 1: High Frequency Economics founder and chief Economies. What a joy
Speaker 1: to wander in Oliver Chen when cow and he writes
Speaker 1: incredibly granular notes about big box and of course is
Speaker 1: well a tune to luxury retail all the stores that
Speaker 1: you and your family and loved ones are going in,
Speaker 1: and we're thrilled you could join us here. I want
Speaker 1: to get away from all the roads, cyber this and
Speaker 1: cyber that, and there's like eight ways to go here
Speaker 1: with a Tiffany Merger, Let's let's cut to the chase
Speaker 1: on something everyone's talking about, which is women renting clothes.
Speaker 1: Does the income statement work in that business. Yeah, what
Speaker 1: we're seeing is tons of growth here, growth revenue. That
Speaker 1: being said, a lot of these business models are really
Speaker 1: focused on customer lifetime value, so they have to leverage
Speaker 1: a lot of fixed costs in terms of turning profitable.
Speaker 1: To answer your questions, leverage fixed cost means they've gotta
Speaker 1: make a lot of revenue just to begin to be profitable. Rightly,
Speaker 1: are they gonna do it? Are they going to take
Speaker 1: enough social psychic market share of women in renting the
Speaker 1: runway to change your world forever? Well, our forecast calls
Speaker 1: for growth. You know, retail is struggling to be flat,
Speaker 1: so um we forecasts to continue to grow. And what's
Speaker 1: happening in retail is really the uberification of retail, which
Speaker 1: means rethinking clothing as a service. How do you rethink
Speaker 1: all material goods and other things in your life as services,
Speaker 1: including fashion and clothes? How small my classet is at
Speaker 1: home because we're uberfying. So you're scaling bang classic rent
Speaker 1: the runways where the focus is at the moment Oliver,
Speaker 1: it's one fifty nine a month for the unlimited plau
Speaker 1: listen to you, but you get it terms with a
Speaker 1: retail value of up to three tho dollars, And from
Speaker 1: what I see with Rent the Runway, which has been
Speaker 1: a massive success as I'm well aware, is there at
Speaker 1: three thousand dollars. This is the high end of the
Speaker 1: apparel market, and I'm wondering whether this works for clothing
Speaker 1: at the lower end. As H and M tries to
Speaker 1: sound in Sweden and others begin to make a push
Speaker 1: in the United States, can others do the same thing
Speaker 1: at a LEBA price point? Yeah, I mean we've seen
Speaker 1: business models like Castle. Castle powers many of the retailers
Speaker 1: like Bloomingdale's, Banana Republic, Scotch and Soda, and when they
Speaker 1: do this, this is a very profitable high royalty model
Speaker 1: where you really use the inventory effectively. Running a platform
Speaker 1: like Rent the Runway, profitability is more of a question,
Speaker 1: but Castle and outsourcing a lot of these capabilities, it
Speaker 1: can be very profitable for both parties because you really
Speaker 1: need someone that operates a lot of the back office,
Speaker 1: operates a lot of the dry cleaning and capital intensity.
Speaker 1: And these retailers have to go where customers are going.
Speaker 1: And this is an engagement play too, with new customers
Speaker 1: coming to the table. So the lrification of retail definitely ongoing,
Speaker 1: but still people buying a lot of stuff and this
Speaker 1: has been cyber uh Monday, Tuesday, Wednesday year decade. I'm
Speaker 1: trying to understand how to read the shift towards the
Speaker 1: online efforts and how we see the traffic declining in
Speaker 1: department stores. When do we hit rock bottom here? Well,
Speaker 1: m at different stores, we actually need to close more
Speaker 1: physical points of distribution. So it really depends on the retailer.
Speaker 1: Macy's for example, needs to close you know, fifty d
Speaker 1: stores in our estimation. UM, what's happening is blending the channels.
Speaker 1: So what will actually be important this season given their
Speaker 1: six year days is the immediacy of the store, the
Speaker 1: buy in line, pickup in store, boat channels working together. Um.
Speaker 1: At retailers like Target and Walmart, the unit story is
Speaker 1: fine because a lot is grocery. But for the foreseeable
Speaker 1: future we see in store traffic declining negative low single digit.
Speaker 1: That being said, UM, you can convert at a higher
Speaker 1: rate given that when you go into the store you're
Speaker 1: very purposeful. UM. So it's about managing both channels. But
Speaker 1: at some retailers it is about closing stores. This is
Speaker 1: when you're going to store. Brandy Melville is real purposeful.
Speaker 1: Are you complaining about your shopping trips? That right, it's
Speaker 1: so done. We can do that in a commercial brain.
Speaker 1: If let's talk about the successes of and it's not
Speaker 1: just bricks and morti verses online for many, it's how
Speaker 1: bricks and more to compliments your online presence and how
Speaker 1: your online presence complements your bricks and mortar presence. Who's
Speaker 1: doing that really really well at the moment. Well, the
Speaker 1: real reality of the future is curbside pickup. Curbside pickup
Speaker 1: is used by over ten percent of America very very quickly.
Speaker 1: And Walmart has been a real pioneer of enabling you
Speaker 1: to drive up, get your goods quickly and leave. That's
Speaker 1: been a very successful technology because customers are satisfied, customers
Speaker 1: are spending double the check size, and it's a younger
Speaker 1: customer using it, it's a wealthy customer using it, and
Speaker 1: it's highly highly convenient. So life and retails about saving money,
Speaker 1: saving time, and curbside pickup elegantly merges the online and
Speaker 1: the off flying as well as mobile. Mobile is the
Speaker 1: new mall, So rethinking retailing the context of mobile is
Speaker 1: very important. To Speaking of mobile, I just got in
Speaker 1: John for you Advos Canadida, Goose the ericson parkass Is
Speaker 1: John Ferrell, I love it when you're focused in the morning.
Speaker 1: We've lost you after twenty four minutes. You've just drifted.
Speaker 1: It's Monday to it's a big week aheads, please get engaged.
Speaker 1: I just getting he's mobile shopping for you. He's trying
Speaker 1: to you want to protect him. A little later Rost Friday,
Speaker 1: plenty of reason of your Jed Oliver Chen, thank you
Speaker 1: so much for being with us. A Cow and its
Speaker 1: senior equity research analyst. Happy holiday is happy if you
Speaker 1: had a bad weekend, I did not have a bad weekend.
Speaker 1: The TODs the to for a little bit, what's happened, Yeah,
Speaker 1: there's a little bit of that. I'm going I'm shopping
Speaker 1: a dead elephant when this is all over. Dane Smark
Speaker 1: joins us from Grandthorte, and of course she is a
Speaker 1: wonderful and important focused Midwest view. Diane, what is the
Speaker 1: distinction right now have the greater Middle West economy versus
Speaker 1: the focus we have on the two left and the
Speaker 1: right coast. Well, what we're seeing is, of course the
Speaker 1: rise and unemployment tied to terrorists and tariff uncertainty in
Speaker 1: some of the states Michigan, Ohio, Wisconsin doing better. Um.
Speaker 1: In fact, Wisconsin has been interesting because they've had some
Speaker 1: manufacturing increases even as plants have closed, and they've been
Speaker 1: trying to get it some of those workers to try
Speaker 1: to get them into the plants that are opening. But
Speaker 1: you really see the uneven performance here in the Midwest,
Speaker 1: much more uneven that gets masked as we get to
Speaker 1: the national data. If I had a cup of coffee
Speaker 1: with Charles Evans and you in Chicago, and I said
Speaker 1: to you, do we overemphasis size farm economics? Do we
Speaker 1: do that? Or is it valid that dairy farmers in
Speaker 1: Wisconsin flat on their back is a big deal. It's
Speaker 1: actually more valid that farmers across the board are um
Speaker 1: actually flat on their back and suffering from bankruptcies. The
Speaker 1: smaller farmers are not getting the subsidies that we're seeing.
Speaker 1: In fact, most of the subsidies are going to very
Speaker 1: large farms, which you guys had a very good article
Speaker 1: about out there over this week. And I think that's
Speaker 1: the real issue, is that there is collateral damage to
Speaker 1: bank balance sheets from that. So I know Charlie would
Speaker 1: certainly take that as something he's concerned about. Is the
Speaker 1: rise in bankruptcies that we've seen across the board. In
Speaker 1: bankruptcies in the farm sect or not. It doesn't mean
Speaker 1: as much jobs because not many people are employed on
Speaker 1: farms anymore, but it does mean something in terms of
Speaker 1: bank balance sheets in those areas. Yeah, one thing I'm
Speaker 1: struck by. I was reading this story in the New
Speaker 1: York Times how Amazon wove itself into the life of
Speaker 1: an American city, and I talked about how, yes, there
Speaker 1: are jobs, and they're growing number of jobs, but they're
Speaker 1: worse paid. And it talked about Amazon and how it's
Speaker 1: offering employment which is good, but at much lower price
Speaker 1: levels in terms of compensation than the labor unions of
Speaker 1: your How should we view this in terms of the U.
Speaker 1: S economy, this transformation to the Amazon amazon ification of retail.
Speaker 1: Is this generally going to be a negative just because
Speaker 1: of the amount that people are paid, or is this
Speaker 1: sort of a temporary blip as we try to rejigger
Speaker 1: to the new economy. Well, unfortunately, I think it's a
Speaker 1: long term trend. It actually started with Walmart. We called
Speaker 1: it Walmantization in the nineties and now it's Amazon, so
Speaker 1: you know, we've spread it from one to another. And
Speaker 1: the good news is they do have jobs. The bad
Speaker 1: news is, as you mentioned, they are much lower paid.
Speaker 1: And this gets into the Halloween out of the middle class.
Speaker 1: Another really key component of what's going on today with
Speaker 1: these large, very large retailers like Amazon and Walmart. They're
Speaker 1: paying more to their workers who are entry level workers,
Speaker 1: but they've actually cut and circumvented the move up in
Speaker 1: pay to management pay. They've actually either lowered management pay
Speaker 1: or reduce the number of managers they have, which is
Speaker 1: derailed something we usually see in an economy, and that
Speaker 1: is when low wages, that wages at the lowest end
Speaker 1: of the pay scale pick up, they tend to trickle
Speaker 1: up and move into middle class households. And so you've
Speaker 1: got that sort of double whammy of not only they're
Speaker 1: replacing jobs that once paid a lot more, but you're
Speaker 1: not seeing the mechanisms of moving up the wage scale
Speaker 1: that we once saw. And it's because these are such
Speaker 1: dominant players in our economy today. Dan nineteen minutes ines
Speaker 1: of the program, and I don't think any of our
Speaker 1: guests have mentioned the federal Reserve once. Steve Ingmander of
Speaker 1: Standard Shot and will be talking to me around about
Speaker 1: thirty minutes time. And he's made the point as well
Speaker 1: that he's just come back from Europe and hardly anybody
Speaker 1: spoke to him about the Federal Reserve and it's just
Speaker 1: not part of the conversation at the moment. Should it be? Well,
Speaker 1: I think the Fed's pretty happy about not being part
Speaker 1: of the conversation, given hop center stage. They've been particularly
Speaker 1: in tweets out there, so they like being on the
Speaker 1: sidelines and like being non existence. Um. I do think
Speaker 1: they will become more part of their conversation again as
Speaker 1: we get into twenty money. The critical issue is does
Speaker 1: the President pursue what he has been pursuing with trade
Speaker 1: with China, which would be an escalation in trade horse
Speaker 1: or can we really believe that we're going to get
Speaker 1: a pause in trade work which keeps the FED on
Speaker 1: the sideline. Can I ask you a quick question the
Speaker 1: show se Dion Swank, How close are we to stand
Speaker 1: Fisher's ultra accommodation? Nobody knows and there is life. The
Speaker 1: hard u answer of them all is that we just
Speaker 1: don't know. We do worry about um sort of juicing
Speaker 1: the economy a bit too much right now in the
Speaker 1: bubbles that do seem to be forming, particularly in corporate
Speaker 1: debt markets. That said, we don't know anymore, and the
Speaker 1: FED has finally gotten home eating the humble pie enough
Speaker 1: to say we're not sure ourselves. SWAK always great to
Speaker 1: get your thoughts on a program. Big week ahead for
Speaker 1: the global economy, and the US economic data will be
Speaker 1: coming through through the weight. We'll bring that to you
Speaker 1: right here on Bloomberg rightio. Okay, we're doing six minutes
Speaker 1: twelve seconds with somebody you need to listen to. Here's
Speaker 1: how it works. There's a percentile thing and it's pretty good.
Speaker 1: It's like you're in your class and what you do
Speaker 1: in this case with Bill Smeede, it's a value and
Speaker 1: like if it's a big number, that's a good number
Speaker 1: up to a hundred and I guess being in the
Speaker 1: nine six percentile is okay, Paul for three year and
Speaker 1: if you're in the five year percentile and you're in
Speaker 1: the percentile, that's like, that's okay. So let's in terms
Speaker 1: of the holiday greetings, say to the wonderful Bill Smeede,
Speaker 1: value guy, Bill, what's the number one determinant of that
Speaker 1: leads you to that excellence. Here overwhelming me. I'll give
Speaker 1: you overwhelming. You're in the nineties six percential for three years.
Speaker 1: How do you do it? The first thing is we
Speaker 1: looked to buy meritorious companies when they fall deep in
Speaker 1: the doghouse. And and uh, the courage to buy when
Speaker 1: you're you're almost nauseous when you put the orders in
Speaker 1: in the first place. Um is the starter. The second
Speaker 1: thing and maybe in the last Remember, we've been in
Speaker 1: a tenure bowl market that has been led by growth,
Speaker 1: and we we hold our winners to a fault. And
Speaker 1: and that is not the typical thing in the value world.
Speaker 1: Most value people buy a fifty cent dollar, it goes
Speaker 1: up to ninety cents, they sell it and go try
Speaker 1: to find another fifty cent dollar. Charlie Munger says, that's
Speaker 1: really difficult. What he just said. You and Walt Disney,
Speaker 1: I mean to get away from the show and Walt Disney.
Speaker 1: Just as one example, I gotta go to you and
Speaker 1: carl Icon. I know you and Icon are going back
Speaker 1: and forth on a daily basis. Occidental Petroleum off the
Speaker 1: anti Darco transaction ten year mediocrity negative three point four
Speaker 1: percent per year. The thing has been an unmistakable train
Speaker 1: wreck for a year and a half, and you like oxy. Yeah.
Speaker 1: You know what's funny about this, tom is I mentioned
Speaker 1: in a note to you folks that I think this
Speaker 1: is kind of the antithesis of ninety one. So, so
Speaker 1: what happened was we saw a chart that shows that
Speaker 1: that only four percent of the S and T is
Speaker 1: an energy. And in nineteen eighty one it was in
Speaker 1: one Dr Doom and Doctor Death Woe, jin Allower and
Speaker 1: Henry Kaufman said there's no end to this inflation insight
Speaker 1: and that rates were going to go to t And
Speaker 1: today the ECB and the Federal Reserve say there's virtually
Speaker 1: no inflation anywhere in sight. Uh So what that means
Speaker 1: to a contrarian like us is you want to exchange
Speaker 1: expensive debt for assets in the ground. So if you
Speaker 1: go back and look at the Occidental situation, uh, Chevron
Speaker 1: offered to exchange ten percent of their common stock and
Speaker 1: uh uh and eight billion dollars in debt for Anadarko
Speaker 1: Petroleum and instead Occidental paid five billion more by offering,
Speaker 1: you know, thirty three billion dollars in debt, including ten
Speaker 1: billion dollars of Warren and Charlie's uh, you know Berkshire
Speaker 1: Hathaway money, uh, and five billion of equity they gave
Speaker 1: up way less equity. This is too many numbers from
Speaker 1: Monday morning. Sorry, sorry, actually gonna go up. What does
Speaker 1: Carl Icon and Bill Smeat know that I don't know
Speaker 1: about oxy? Well, Carl the difference between Bill Smeat in
Speaker 1: this situation and Carl Icon. Carl Icon is a fantastic investor.
Speaker 1: He finds an undervalued security by the way he thought
Speaker 1: it was undervalued at fifty two dollars a share sixty
Speaker 1: dollars a share, and hopes to make in a year
Speaker 1: and a half about a fifty percent gain by in
Speaker 1: links influencing what the company does. What we do is
Speaker 1: we love to buy something that absolutely no one wants,
Speaker 1: that has merit. And let me tell you that oil
Speaker 1: in the ground has more merit. And let me tell
Speaker 1: you what, in the next ten years, the ninety million
Speaker 1: millennials in this country are gonna double their use of gasoline.
Speaker 1: And you know you're in the E. S. G. World.
Speaker 1: That's got to bring tears to somebody's eyes. But we
Speaker 1: have good research from fund Straft that shows that the
Speaker 1: largest popular adult population group is gonna double its use
Speaker 1: of oil and gasoline. How does the price of something
Speaker 1: go down when ninety million out of three thirty million
Speaker 1: Americans are going to use twice as much of the
Speaker 1: product as they used to. So so this is just
Speaker 1: a dream set up. And Buffett has got warrant at
Speaker 1: six fifty. If he makes money, We're going to make
Speaker 1: an awful lot of money. We got to leave it there. Bill,
Speaker 1: You're going on for everyone Ox. That was Alin. If
Speaker 1: you're on Global Wall Street, certainly American Wall Street. This
Speaker 1: is the conversation of the morning. She's our chief financial correspondent,
Speaker 1: Sali Basic January nine. They're gonna do an investor's dog
Speaker 1: and pony at Golden Sacks. Mr Solomon is gonna get
Speaker 1: up and is the ft article which is the talk
Speaker 1: of Global Wall Street this morning. Laura Noonan killed it.
Speaker 1: Mike Mayo quoted, We'll get to that in a moment.
Speaker 1: This is a Golden Sacks struggling with their future. Are
Speaker 1: they struggling with their future because of the now? Are
Speaker 1: they struggling with their future because of a past which
Speaker 1: is four point four total return per year. Both. I
Speaker 1: know that that's not satisfying, But when when the past
Speaker 1: was all trading, and that's a business that's in seeing
Speaker 1: a lot of headwinds across all of Wall Street? How
Speaker 1: do you change? Everyone was hoping that this big consumer business,
Speaker 1: this would be the future of Goldman Sachs. But everyone
Speaker 1: setting expectations now that this is going to take another
Speaker 1: ten years to be effective. Let alone, they're not going
Speaker 1: to become a tricky Morgan a Bank of America? Is
Speaker 1: this you know, what's the gossip here on this Mr
Speaker 1: Solomon having a moment of wisdom, the clouds parting and
Speaker 1: and saying we're going back to the original thing. Or
Speaker 1: is this his partner's rebelling? Well, remember everyone that Mr
Speaker 1: Solomon put into place was of his own making, and
Speaker 1: so those are a lot of investment bankers. I think
Speaker 1: something interesting about the strategy is, according to the ft
Speaker 1: this morning, they're going to focus on their asset manager.
Speaker 1: They're going to focus on their that's original idea. So
Speaker 1: what do they become James you know, are they going
Speaker 1: to do James Gorman light? I mean, come on, that's
Speaker 1: that's that's their best idea. The asset manager. That there's
Speaker 1: a challenge with focusing on that, right, and it's that
Speaker 1: they have way more than a trillion under management, but
Speaker 1: they have a lot of low feed products, So how
Speaker 1: do you make that a really profitable growth story? Um,
Speaker 1: My former boss, Christine Harper once told me Goldman has
Speaker 1: been focusing on their asset management. Work for Christine. I
Speaker 1: worked for Christine Harper. How do you can guys got
Speaker 1: so smart talk work? She um? But she she had said,
Speaker 1: she mentioned once. You know, they've been focusing on asset
Speaker 1: management since they won public. So can they make this
Speaker 1: a significant part of the story moving forward. It's interesting
Speaker 1: because you think about Goldman Sacks. I had competed against
Speaker 1: them my whole career and such formal competitors. But I mean,
Speaker 1: at their core their investment banking, they're trading their institution.
Speaker 1: Is there a sense that the consumer business is gonna
Speaker 1: be anything more than just a side show for this firm.
Speaker 1: Here's what my sources are telling me. It's that thing
Speaker 1: about it. The consumer business helps lower their cost of
Speaker 1: capital at the end of the day, and this is
Speaker 1: why the ft story is so surprising. For them to
Speaker 1: not focus on profitability targets. That's the number. That's the
Speaker 1: only story in the business right So um for the So,
Speaker 1: what I think they're trying to say here is they're
Speaker 1: shying away from giving big proclamations on what profitability will
Speaker 1: look like. Paul, this is in your wheelhouse. God. This
Speaker 1: is from Laura Noon and uh Patrick Jenkinson, David Crowe.
Speaker 1: Goldman is set to detail it's ambition to become an
Speaker 1: asset management powerhouse to rival the likes of black Stone
Speaker 1: for black Rock. I don't know which black but I
Speaker 1: don't know that's five times, that's four or five times,
Speaker 1: but bigger. You're telling me Golden Sex wants to do
Speaker 1: what Credit Suites, Morgan Stanley and everybody else wants to do.
Speaker 1: That's not the Goldman Sex, I know, it's it's an
Speaker 1: interesting strategy right now. Asset management for some perspective is
Speaker 1: less than of their revenue trading that old business that
Speaker 1: you were talking about, thirty six of their revenue. So
Speaker 1: how do you change It's interesting. You know before under
Speaker 1: the Mr blank find the prior CEO, they were out
Speaker 1: there with the five billion dollars in extra revenue by
Speaker 1: next year and they set that in I guess are
Speaker 1: they going to kind of back away from that? And
Speaker 1: if so, is that saying maybe these consumer businesses aren't
Speaker 1: as big as we thought they were going to be. Well,
Speaker 1: that's that's a big question. To what extent do you
Speaker 1: say we're abandoning it completely. If you're David Solomon, you
Speaker 1: can look back and say, wait, that was my predecessor's plan.
Speaker 1: That was a blank find Pan. But what do I
Speaker 1: do now right when a Wall Street is expecting Goldman
Speaker 1: Sachs to have two billion dollars less in revenue this
Speaker 1: year almost at the end of this year, how do
Speaker 1: you then come in next January and say we want
Speaker 1: to make five billion more? Steven Aaron's and I'm still
Speaker 1: talking about this, folks. Bloomberg Markets magazine the single best
Speaker 1: readable concise article and Mr Saving of Deutsche Bank, if
Speaker 1: you were Mr Aaron's or Christine Harper, whatever you are,
Speaker 1: great finance team, if they wrote an article on David
Speaker 1: Solomon right now, what would it say? What would be
Speaker 1: the angle of that article? How do you create golden
Speaker 1: How do you recreate Goldman Sachs to make sense? What
Speaker 1: is he trying to take it away from? What Mr
Speaker 1: blank findd I think so far, everything we've ever heard
Speaker 1: about Goldman Sachs, every executive tells us, listen, we lean
Speaker 1: on our heart. We lean on where our heart is,
Speaker 1: which is trading, it's investment banking, it's core institutional, it's
Speaker 1: Henry Paulson in Chicago. And you know, I talked to
Speaker 1: Secretary Pa about this once and Jeff, this was an
Speaker 1: off Mike comment about the glory of getting on the
Speaker 1: plane and going out across this great country. Is that
Speaker 1: still the plan? Oh? Yeah, I mean, remember, investment bankers
Speaker 1: are still running. Goldman Sachs told me they want to
Speaker 1: be an asset management. That's what they want to be.
Speaker 1: But you know, if they think about it, like I said,
Speaker 1: if trading is less and less of their revenue every year,
Speaker 1: and investment banking they're already number there's still number one
Speaker 1: this year, they are still number one. I'll tell you
Speaker 1: a black Rock model would not be the worst way
Speaker 1: to go if they can get there. But now they're
Speaker 1: talking about creating this merchant bank, putting their investment bank,
Speaker 1: their asset manager together with a zillion dollars of assets
Speaker 1: under management, if they can start maybe driving some of
Speaker 1: the returns that we see out of black Rock, then
Speaker 1: maybe you got something. But you know, again, it kind
Speaker 1: of raises the question of the consumer. And I guess,
Speaker 1: as you mentioned, the consumer is a great source of
Speaker 1: low cost capital. And Tom, I think you know what
Speaker 1: you're saying here too, is what else right they do banking,
Speaker 1: they do trading. People want to know what the next
Speaker 1: leg is because that consumer business is not going to
Speaker 1: play out tomorrow. It's not going to play out in
Speaker 1: the next couple of years. It'll take a long time
Speaker 1: and it might still be a very small part of
Speaker 1: the business. Looking at the SMP versus Goldman Sacks versus Blackrock,
Speaker 1: over the last uh ten years, Goldman Sacks has been
Speaker 1: the laggard, uh you know the price to book as well.
Speaker 1: They mentioned that in the FT article. I mean, yeah,
Speaker 1: I just I'm I'm not baffled. I think it was
Speaker 1: mentioned it for Mr Solomon, is how do you redefine
Speaker 1: Goldman Sacks for the next ten or fifteen years, because
Speaker 1: I guess they're suggesting it isn't just going to be
Speaker 1: investment banking and trading bonds and currencies. So they were
Speaker 1: doing retail right and Morgan Stanley they were able to
Speaker 1: bring that big wealth manager to play here. Can you know?
Speaker 1: Will Goldman do a big deal, make them bigger? My
Speaker 1: Monday more interesting? Will they buy a b n Y Melton?
Speaker 1: Will they buy You're starting the people are scribbling down
Speaker 1: in in in, you know, train stuffs nationwide analysis. I
Speaker 1: feel like a Rockefeller or like the wealth managers of
Speaker 1: the world that have spun out on their own, like
Speaker 1: being alone. So I can't and you know, I can
Speaker 1: see that being a harder sell for Goldman. Could they
Speaker 1: Could they buy Fidelity with a Johnson family. I'm just
Speaker 1: busting your child. Thank you so much and get out
Speaker 1: of here. It's to bask our chief financial correspondent there
Speaker 1: in Goldman, Sex. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio.