Speaker 1: This is Bloomberg Business Wait inside from the reporters and
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Speaker 1: Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Jessa Nice for filling out the finishing out the day
Speaker 2: with some pretty good moves to the upside here in
Speaker 2: the after your.
Speaker 3: Markets, and then we'll going ahead to tomorrow jobs reports.
Speaker 2: Yes, exactly, it is.
Speaker 3: Obviously we've talked a lot about the blackout period for
Speaker 3: FED speakers this week, but we do have the jobs
Speaker 3: report coming tomorrow, so that will be very much on
Speaker 3: investors radars. Also, average hourly earnings will be a part
Speaker 3: of that report, which we know FED shared Jerome Powell
Speaker 3: and other policy makers are going to watch very closely
Speaker 3: ahead of their decision next Wednesday. And also ahead of
Speaker 3: that decision on Wednesday too, we have CPI next Tuesday fall,
Speaker 3: so still a number of indicators ahead of the Fed's decisions,
Speaker 3: so things we need to keep our eyes on.
Speaker 2: Yeah, and just taking a look at the nonfarm payrolls,
Speaker 2: one hundred and eighty five thousand is a consensus tomorrow,
Speaker 2: and that's up from one hundred and fifty thousand the
Speaker 2: prior period. So we'll keep that in mind. And average
Speaker 2: hourly earnings on a year of a year basis four
Speaker 2: percent increase, be a little bit of a decline from
Speaker 2: four point one percent last period, but still some pretty
Speaker 2: solid numbers. A little bit slower than what we had seen.
Speaker 2: But you know, I mean the unemployment rate three point
Speaker 2: nine percent is kind of the forecast there, and that
Speaker 2: sounds pretty good. But Michael McKee, he looks at it
Speaker 2: a little bit more, appeels a little bit more of
Speaker 2: the layers.
Speaker 3: That is the best to do it exactly right.
Speaker 2: So Michael, what are you going to be looking at tomorrow?
Speaker 2: And you know, when we get all this data on
Speaker 2: just kind of the labor market in general.
Speaker 4: Well, I think the market is going to focus, assuming
Speaker 4: we get somewhere near consensus number for job creation, you'll
Speaker 4: focus on unemployment and whether that goes up and why
Speaker 4: if it does, or more people coming into the labor force,
Speaker 4: which is not necessarily a bad thing, or are we
Speaker 4: starting to let people go.
Speaker 5: That'll be the primary question.
Speaker 4: And then people will be looking at average hourly earnings
Speaker 4: because they want to see if earnings growth is slowing
Speaker 4: down enough that the FED doesn't have to be worried
Speaker 4: about it continuing to contribute to inflation. We're forecast to
Speaker 4: hit four percent on a year over year basis, and
Speaker 4: the Fed thinks sustainable is about to three and a half,
Speaker 4: So getting close.
Speaker 5: Yep. So those are kind of the numbers that most
Speaker 5: people will be focusing on tomorrow.
Speaker 3: Well that report adjust anything for the Fed's decision next
Speaker 3: week or do you feel like that's pretty much already
Speaker 3: a done deal and it's more of just the forecast,
Speaker 3: the quarterly forecast, and obviously the dot plots we're going
Speaker 3: to come with that decision.
Speaker 5: Yeah, it's pretty much a done deal the Fed. It
Speaker 5: would take something.
Speaker 4: Going horribly wrong tomorrow and I'd be back on this
Speaker 4: show try to explain this time tomorrow the Fed is
Speaker 4: all but signaled they're done raising rates. It would it
Speaker 4: would require a lot for them to do something at
Speaker 4: this meeting, and probably not as much in tomorrow's report.
Speaker 5: As it would be the CPI next week.
Speaker 4: Right, So I don't think you're gonna have to worry
Speaker 4: about the Fed right out of tomorrow's report. It'll spur
Speaker 4: conversations about next year and when the fight might or
Speaker 4: might not cut rates, but not anything for next week.
Speaker 2: So the FED, I'm not sure what the right word is,
Speaker 2: but I guess they're prepared for the unemployment rate inch
Speaker 2: a little bit higher. Is there a point where it
Speaker 2: gets beyond where they're comfortable? Does it like have a
Speaker 2: five handle? And then they said, oh boy, and then
Speaker 2: they really need to be maybe a little bit more
Speaker 2: aggressive here.
Speaker 4: Well, they were forecasting four point one percent by the
Speaker 4: end of the year, so we're sort of in the
Speaker 4: range and can come in.
Speaker 5: Lower than that.
Speaker 4: But if it got above, if we had a jump
Speaker 4: like we did a couple of months ago of about
Speaker 4: three tenths and we went up to four point one
Speaker 4: percent from three point nine, or we went up to
Speaker 4: four point.
Speaker 5: Two, that would get their attention.
Speaker 4: If we got over four and a half, that would
Speaker 4: start to raise concerns there. The speed of it and
Speaker 4: the composition of it would also matter to the FED,
Speaker 4: and what else is happening with inflation.
Speaker 5: They are expecting.
Speaker 4: Unemployment to rise because their job is to squish down
Speaker 4: on demand, as if that, in theory, should lead to
Speaker 4: fewer employees needed, and so unemployment rises, but the speed
Speaker 4: would concern them if it was quick, and if it
Speaker 4: started to get too high, of course, by that time
Speaker 4: they would probably already be acting.
Speaker 3: I'm glad you're here because something I've been thinking about
Speaker 3: is the rotation for FED voting members each year. So
Speaker 3: Austin Goolsby, Patrick Harker, Luis Logan, and then Neil Kashkari
Speaker 3: currently voting members this year, but won't be next year.
Speaker 3: So then we're going to have Loredemester, Thomas Barkin, Rafael Boston,
Speaker 3: and then Mary Daily will come back as voting members
Speaker 3: for next year. How do you think this when you
Speaker 3: have those rotations, Because in recent years, especially as inflation
Speaker 3: was very elevated, it seemed like everybody had to have
Speaker 3: these unanimous votes as far as trying to tame inflation.
Speaker 3: But when you're going into a year and in stock
Speaker 3: investors are betting that they're going to be rate cuts,
Speaker 3: when you have a rotation changing like this, how do.
Speaker 2: You view that?
Speaker 3: Are things really going to be that different? Could that
Speaker 3: potentially change the expectations for how soon or later rate
Speaker 3: cuts could potentially come.
Speaker 4: I think people make too much of that. The people
Speaker 4: who are coming on are generally centrists, with the exception
Speaker 4: of Loretta Master, and she's leaving in June.
Speaker 5: So I don't know that we'll see a lot of pushback.
Speaker 5: You're right. We get a more unanimity when it's very
Speaker 5: obvious what the FED should be doing, which.
Speaker 4: For the last year or so has been very obvious
Speaker 4: that they should be raising rates. And when you get
Speaker 4: into a situation where it's a close call should we
Speaker 4: hold or should we cut rates, then you could see
Speaker 4: a dissenter to from whatever it is the FED decides
Speaker 4: to do. But I think we're not going to see
Speaker 4: any major splits among them. They're going to move slowly,
Speaker 4: even unless we have a recession, they're going to move slowly.
Speaker 4: So even if they do, it's not going to force
Speaker 4: a lot of people into an uncomfortable vote.
Speaker 2: So the University of Michigan some good football players there.
Speaker 5: So they'll tell you yes.
Speaker 2: And they also have some good economic data and they
Speaker 2: put that out and expectations and inflation outlook and things
Speaker 2: like that. Do economists do they care? Does a market
Speaker 2: really care about some of this data?
Speaker 4: The market doesn't really care about the and the FED
Speaker 4: doesn't really care about the sentiment indicator.
Speaker 5: How people are feeling. Alan Greenspan summed it.
Speaker 4: Up very well years ago when he said, we watch
Speaker 4: what they do, not what they say.
Speaker 5: I'm talking about consumers.
Speaker 4: The expectations for inflation have become moderately more important because
Speaker 4: the FED has made a big deal out of inflation expectations,
Speaker 4: being the anchor for inflation, and they don't want to
Speaker 4: see expectations rise too much, both on the consumer or
Speaker 4: market side. Market side right now is looking at two
Speaker 4: to two and a half percent inflation out four or
Speaker 4: five years, which is perfect for the Fed.
Speaker 5: But Americans are looking at four and a half percent now.
Speaker 4: The sentiment indexes people always overrate what inflation is, and
Speaker 4: if you go ask any American, they'll probably tell you
Speaker 4: now it's six or seven percent, just because they don't know.
Speaker 5: What inflation is.
Speaker 4: But even if you allow for that, it's a little
Speaker 4: bit higher than both the FED would like to see
Speaker 4: and that you would expect, given the fact that food
Speaker 4: prices have stabilized, gasoline prices are way down, and yet
Speaker 4: people are still thinking there's a lot of inflation. They're
Speaker 4: looking at price level rather than the rate of change,
Speaker 4: which the FED looks at. So there is kind of
Speaker 4: a difference there. But as long as people don't start
Speaker 4: thinking inflation is going to go so high they have
Speaker 4: to march into the boss's office and ask for money.
Speaker 5: Of course, we would never do no, could never never.
Speaker 2: Hey, you know, I was out gallivanting in the city,
Speaker 2: Midtown yesterday afternoon, yesterday evening.
Speaker 3: For your birthday.
Speaker 2: Yes, people, I did not know big birth People were
Speaker 2: out about spending.
Speaker 5: Streets were packed.
Speaker 2: You couldn't get near the Christmas Tree Rockefeller Center. I mean,
Speaker 2: people were out. It feels like the consumer this is
Speaker 2: pretty good shape.
Speaker 4: I don't know what people tell pollsters that the economy
Speaker 4: is lousy, but my situation is good.
Speaker 5: People have jobs.
Speaker 4: I mean, we have ninety seven percent employment, and so
Speaker 4: it isn't a terrible time.
Speaker 5: And it's kind of there's more and more talk of
Speaker 5: this as like poor Joe Biden.
Speaker 4: I mean, he's presiding over a good economy and people
Speaker 4: don't believe it for a variety of reasons. But things
Speaker 4: aren't bad right now. So Americans on their own, individually
Speaker 4: are quite happy to go out and buy Paula hot
Speaker 4: chocolate on his birthday exactly.
Speaker 2: That's how that's how we roll out there all right,
Speaker 2: mister McKay, thank you very much. We appreciate Michael McKee,
Speaker 2: International Economics and Policy correspondent and Jess. I mean again,
Speaker 2: the restaurants are packed, the bars are packed. The Fifth
Speaker 2: Avenue you could barely walk down. I mean that's how
Speaker 2: crazy it was.
Speaker 6: You know.
Speaker 3: We'll get actually an update on retail sales next Thursday,
Speaker 3: so the day after the FED decision for the month
Speaker 3: of November. So this will give us a read, especially
Speaker 3: on the holiday spinning. We already got a lot of
Speaker 3: that Cyber Monday and Black Friday data that we're at records,
Speaker 3: so we know it was really strong last month. But
Speaker 3: that's going to be interesting to see what that data
Speaker 3: looks like for the consumer.
Speaker 7: Paul.
Speaker 2: Yeah, and I'll shout out to the tree folks. Yeah,
Speaker 2: Rockefeller Center.
Speaker 8: It's amazing.
Speaker 2: I mean, we just worked by it.
Speaker 5: It looks awesome.
Speaker 3: We've got a tree, yes, big is that one.
Speaker 2: So if you're around the you know, the Bloomberg h
Speaker 2: you could come check out our tree in our court.
Speaker 2: Aren't cool? This is Bloomberg.
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Speaker 2: just met Paul Sweeney. We are live here in on
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Speaker 2: Bloomberg Radio. We're sitting in for Tim Stenwick and Carol Masser. Uh,
Speaker 2: let's talk. One of the really cool news items of
Speaker 2: the day. SpaceX tender offers said to boost value to
Speaker 2: one hundred and seven twenty five billion dollars, So I
Speaker 2: guess they're going to be tendering for some of the
Speaker 2: shares owned by employees. And the tender value again implies
Speaker 2: evaluation one hundred and seventy five billion. That's a lot
Speaker 2: for a space company, which is pretty cool. Katie Roof joins,
Speaker 2: and she's a VC deals reporter for Bloomberg New She
Speaker 2: joins us on zoom from Los Angeles. I know, Katie,
Speaker 2: you are used to numbers like this out there in
Speaker 2: Silicon you know, in California and LA and Silicon Valley.
Speaker 2: Talk to us about what SpaceX is doing here and
Speaker 2: how this is going to work.
Speaker 9: Sure, and so this is actually a record for a
Speaker 9: US private venture backed company, one hundred and seventy five billion.
Speaker 9: It's ninety five dollars a share for the tender offer.
Speaker 9: Just six months ago, they were valued at one hundred
Speaker 9: and fifty billion. A year ago, they were valued at
Speaker 9: one hundred and thirty seven billion. So this is a
Speaker 9: big increase for an already highly valued company. And it
Speaker 9: really is fucking the trend because as we've seen in
Speaker 9: Silicon Valley the last couple of years, the companies are
Speaker 9: struggling to maintain their billion dollar valuation. But people that
Speaker 9: I talk to are big believers in SpaceX.
Speaker 3: So talk to us about sort of the issues moving
Speaker 3: forward for SpaceX because they're in a unique situation right now.
Speaker 9: Sure, so they have two core businesses. They have their
Speaker 9: rocket launching business, but they also have Starlink, their internet
Speaker 9: business that's satellite related, and so they a lot of
Speaker 9: the investors tell me that the reason that they're investing
Speaker 9: is because they are really bullish on Starlink. It's our understanding,
Speaker 9: and we've reported that Starlink is eventually going to be
Speaker 9: spawn off of SpaceX and go public someday, and so
Speaker 9: a lot of the investors are trying to get in
Speaker 9: on that.
Speaker 2: Do either of you know where they launched their rockets from? No,
Speaker 2: Boca Chica, Texas? Wait? Really, yes, it's literally if you.
Speaker 3: Go to Boca Chica, it's.
Speaker 2: Literally the most southern part of Texas. Is like, right now,
Speaker 2: I feel.
Speaker 5: Like I should have known this.
Speaker 3: You shouldn't sell Texas's.
Speaker 2: I mean, who figures it's right on the border with Mexico.
Speaker 2: Apparently they're they're building all this infrastructure and they got
Speaker 2: rockets down there and it's amazing. Yeah, isn't that cool.
Speaker 3: I'm going to be down there this week, I think,
Speaker 3: going by and.
Speaker 2: Just swing Byoka Chica. So, I mean, Katie, how how
Speaker 2: often does it happen that a company will I guess
Speaker 2: give liquidity to its employees that you know, through these
Speaker 2: these tenders.
Speaker 9: So SpaceX does it more often than most. They've been
Speaker 9: doing it roughly every six months recently. But it's it's
Speaker 9: really a case by case spaces with companies. Uh, some
Speaker 9: companies don't want to do a lot of this because
Speaker 9: it makes it harder to have investor demand if they
Speaker 9: want to raise around for the company, if they've already
Speaker 9: they're already a lot of shares that have been available
Speaker 9: on the market. But what SpaceX is doing here is
Speaker 9: providing an opportunity for employees to go and buy the house,
Speaker 9: because if they don't sell these shares in a tender,
Speaker 9: they have to wait for an eventual IPO, otherwise their
Speaker 9: net worth is just on paper. So that this is
Speaker 9: really to help insiders have some liquidity, and they're able
Speaker 9: to do this because they have tremendous demand. And it
Speaker 9: goes without saying. Elon Musk, who is the founder of
Speaker 9: this business, is a very very controversial figure. He's recently
Speaker 9: made statements that have hurt advertisers on x formally known
Speaker 9: as Twitter. But we see still plenty of investor demand
Speaker 9: for SpaceX.
Speaker 2: Hey, Katy, do we know who buys these shares from
Speaker 2: the employees?
Speaker 9: A lot of them are vcs or other high net
Speaker 9: worth individuals. Accredited investors could be hedge funds, it could
Speaker 9: be broad groups of institutional investors, but it's a mix.
Speaker 3: That's interesting. So what do you think is sort of
Speaker 3: the timetable kind of moving forward here. As far as
Speaker 3: how all this ends up playing.
Speaker 9: Out, well, our understanding is that they just decided on
Speaker 9: the price, or they were on the verge of deciding
Speaker 9: the price when we got a hold of it. So
Speaker 9: the tender is just getting started. It's just underway. I
Speaker 9: would imagine that they're going to try to do as
Speaker 9: much as they can before the holidays, but I'm not
Speaker 9: sure if it will formally close before the end of
Speaker 9: the year.
Speaker 2: Katie, you're the VC deals reporter. Talk to us about
Speaker 2: your world these days, our VC companies getting funded. Can
Speaker 2: I if I have a really cool idea, can I
Speaker 2: go to Sandhill Road and raise some money? Here gives
Speaker 2: a sense of what the mornment is like.
Speaker 9: Well, if you're doing an AI related company, they're all
Speaker 9: ears and I'll be writing you checks before you know it.
Speaker 9: But for everything else, for other than outliers like SpaceX,
Speaker 9: it's been really slow this year, particularly at the growth stages,
Speaker 9: which I cover sometimes seeds stages. They're not as concerned
Speaker 9: about the broader macro environment because vcs tend to invest
Speaker 9: on a ten year time horizon, so they can be
Speaker 9: bullish about the future. But companies that raised in like
Speaker 9: twenty twenty one are often considered to be overvalued because
Speaker 9: the market you look at tech stocks, they've gone down
Speaker 9: for the most part considerably since then, and that's affected
Speaker 9: valuations throughout the whole ecosystem. So right now it's a
Speaker 9: tough time to be a startup that raised money, that
Speaker 9: wants more money. But if you're just getting started sometimes
Speaker 9: there's a room for opportunities still.
Speaker 3: For those who don't know, Katie Roof is one of
Speaker 3: our star reporters here at Bloomberg, constantly breaking news out
Speaker 3: of Silicon Valley from your purview being over there and
Speaker 3: what you were just walking us through, especially on the
Speaker 3: back of what happened with some of those regional bank
Speaker 3: issues back in the spring and a lot of those
Speaker 3: tied to different Silicon Valley banks. What is it like
Speaker 3: in the mood, in the atmosphere as far as how
Speaker 3: things have come and gone over the past nine months
Speaker 3: since then.
Speaker 9: So there's fewer holiday parties this year.
Speaker 8: Oh, we were talking about that earlier.
Speaker 3: Apparently there's a story on the terminal more pickable in glock, Katie.
Speaker 9: Yeah, So my understanding and talking to some venture firms,
Speaker 9: there's still some, but some felt that it was a
Speaker 9: bad book to throw a holiday party this year. You
Speaker 9: look at their last two years where there have been
Speaker 9: very few IPOs. The M and A is often very
Speaker 9: disappointing prices, so they're not bringing in a lot of money,
Speaker 9: and so they felt that it looked bad for some
Speaker 9: of them to be throwing big, splashy events. And Silicon
Speaker 9: Valley Bank actually used to be the sponsor of a
Speaker 9: lot of these events. Interestingly, I still see their name
Speaker 9: on some parties because they're still alive with their new owner.
Speaker 9: But I would imagine that it's a different scenario than
Speaker 9: it was two years ago.
Speaker 2: And are the VC funds are they Are they still
Speaker 2: out there fund of raising or is that also kind
Speaker 2: of slowed down?
Speaker 9: Sure, And so I think again it's a split between
Speaker 9: the stages. So the earliest stages, a lot of them
Speaker 9: have had great returns and have continued to raise new
Speaker 9: funds for seed stage investing. But what you're seeing is
Speaker 9: a lot of the crossover funds, the pre IPO investors
Speaker 9: really got burned in this market, and so what we're
Speaker 9: seeing is some of them struggling to raise new funds
Speaker 9: or raising smaller funds or trying to change their strategy
Speaker 9: to invest in either the earlier stages of VC or
Speaker 9: just go back to investing in the public markets if
Speaker 9: that's what they were doing before.
Speaker 5: Yeah.
Speaker 2: Interesting, it's just a tough time. I think people just uncertain.
Speaker 2: I'm just looking at the NASDAC, you know, still ten
Speaker 2: percent off of the high. So if your evaluation sensitive,
Speaker 2: that kind of number kind of gets your attention here,
Speaker 2: Katie Roof, thanks so much for joining us. Katy Roof,
Speaker 2: VC deals reporter for Bloomberg News, joining us on zoom
Speaker 2: from the awesome office.
Speaker 3: For Pemburg in I've heard about. I gotta go visit
Speaker 3: sometimes soon.
Speaker 8: Yeah, looking very cool.
Speaker 2: It's out there in Century City, a nice part of
Speaker 2: town there overlooking Bellair Country Club. I believe is the
Speaker 2: one kind of splash. It's what you would expect from
Speaker 2: Bloomberg News in La.
Speaker 3: I'm still thinking about what you told me about South
Speaker 3: Texas where the launch.
Speaker 2: Oh, Boka, Chica, we'll go.
Speaker 3: So I'm gonna be. I'm gonna be down South Texas
Speaker 3: this week and officiating a.
Speaker 2: Wedding, so I don't know how you get there.
Speaker 5: I'll figure it out.
Speaker 2: Flying to Houston and then I think you drive. You know,
Speaker 2: you can just keep driving. All right, We're gonna have
Speaker 2: more coming up. S and P five hundred ended up
Speaker 2: the date up eight ten. This is Bloomberg.
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Speaker 1: Just say Alexa playing Bloomberg eleven.
Speaker 10: Charlie, the part is over, They say that, all nice.
Speaker 8: I like that.
Speaker 2: This Bloomberg Business Week headline really got my attention because
Speaker 2: I'm all about, you know, flexing the corporate amex card
Speaker 2: or whatever we're using at the time. Here, era of
Speaker 2: eight hundred and I got a story about that. Solomon
Speaker 2: Smith Barney ooh.
Speaker 3: Some stories, I'm sure tell us.
Speaker 2: Rushing uh, era of eight hundred dollars dinners and luxury
Speaker 2: car bonuses is over at Salesforce. Joe Webber joins as
Speaker 2: he's the editor Bloomberg BusinessWeek, joining us here in our
Speaker 2: Bloomberg Interactive Brokers studio. Drake Bennett, Technology Reporter Bloomberg Business
Speaker 2: Week on zoom from Bloomberg headquarters in New York and
Speaker 2: Brodie Ford apparently somewhere enterprise reporter Bloomberg News on the
Speaker 2: phone somewhere undetermined, keeping a secret location. Serious, great story, Joel.
Speaker 2: I mean, first of all, Salesforce dot com. Everybody cares
Speaker 2: about Salesforce dot com, Benioff, all that kind of stuff,
Speaker 2: But you know, luxury car bonuses.
Speaker 11: It was a great time to be in tech sales.
Speaker 11: And actually the pandemic even made that.
Speaker 8: Even more so.
Speaker 11: Yeah, because they just staffed up and kept selling. But
Speaker 11: then some things started to change. And I've always been
Speaker 11: really fascinating, fascinated with Salesforce as a business, and it
Speaker 11: has become expansive and actually really you know, created a
Speaker 11: whole industry, and that's a big credit to its founder
Speaker 11: of Mark Bennioff. But this is sort of a new
Speaker 11: era for Salesforce. Tell us more, Brody.
Speaker 7: Yeah, at some point, you got to stop spending like
Speaker 7: a startup, and that's what investors told Salesforce this year.
Speaker 7: They pretty much said that, hey, if you can't keep
Speaker 7: growing sales the same way, you have to start cutting costs.
Speaker 7: And yeah, like the headline says, I mean somebody's orr
Speaker 7: eight hundred dollars dinners. And the more mundane stuff is
Speaker 7: the insane commissions you can get off of selling things.
Speaker 7: I Mean, I always say that I picked the wrong
Speaker 7: industry because I would speak to people who are about
Speaker 7: my age got into the same at the same time.
Speaker 7: They're now working in tech sales making four hundred, five
Speaker 7: hundred thousand dollars without a whole lot of experience, you know.
Speaker 7: I mean, it was just gangbusters. I mean, Benioff told
Speaker 7: me that selling software was never easy, except for during COVID.
Speaker 7: It was just firing on all cylinders.
Speaker 8: So what's happened?
Speaker 11: What's the change like within the company?
Speaker 7: Yeah, they've just had to get more serious. I mean
Speaker 7: they the obvious one is firing ten thousand people, right,
Speaker 7: I mean that's the one that most of us read about.
Speaker 7: But it's even simple stuff like Okay, now, when you
Speaker 7: sell a piece of software, you can't have ten people
Speaker 7: all get a commission off of that, right, You can't,
Speaker 7: as you said, have the eight hundred dollars dinners. And
Speaker 7: it's really trying to pair back all these expenses that
Speaker 7: made it such a distinctively fun place to work. In
Speaker 7: many ways, you.
Speaker 2: Know, twenty twenty three has been, even for the technology companies,
Speaker 2: a year of cutting costs. And I think the greatest
Speaker 2: example of that, or the one I think investors might
Speaker 2: know the most is Meta. Yeah, the stock just ripping
Speaker 2: this year on you know, Zuckerberg saying we're not going
Speaker 2: to spend like drunken sales on his metaverse, We're going
Speaker 2: to actually focus on costs. And I guess.
Speaker 11: That's it tends to go well with investors when you
Speaker 11: can bring in that cost and you know, show that
Speaker 11: there's a return on investment, but it can come at
Speaker 11: the expense of culture. So Drake, I want to just
Speaker 11: bring you in here and also just talk about the
Speaker 11: industry because ultimately what we're we're talking about is something
Speaker 11: that bending Off pulled out of his brain and then created,
Speaker 11: and that's SaaS. And so talk to us about, you know,
Speaker 11: just the economics of a business, a software sales business
Speaker 11: where you no longer have to have, you know, the
Speaker 11: typical kind of infrastructure, and what that kind of can
Speaker 11: can accomplish for investors.
Speaker 10: Yeah, I mean salesforce is I mean, I think for
Speaker 10: a lot of people, it's not like when people think
Speaker 10: about Silicon Valley Salesforce isn't necessarily the first company that
Speaker 10: comes to mind. And you know, there's this idea that
Speaker 10: Silicon Valley tells about itself to the world, which is
Speaker 10: that the value of its you know, all of its
Speaker 10: wealth and its growth comes from these like brilliant ideas
Speaker 10: that software engineers have. But there's kind of this other
Speaker 10: explanation for at least a lot of the recent growth there,
Speaker 10: which is these armies of UH salespeople that companies have,
Speaker 10: and Salesforce really pioneered this UH and as you point out,
Speaker 10: it's linked to this business model that they basically pioneered,
Speaker 10: which is, you know, rather than selling software you know,
Speaker 10: on like a CD ROM or a disc, like you
Speaker 10: put it on the cloud and then you go sell. Yeah,
Speaker 10: I mean software as a service is the you know SaaS
Speaker 10: is this thing that everyone's heard now with maybe without
Speaker 10: even kind of like fully realizing what nonsaas is. And
Speaker 10: you know, so there's all these companies that are basically
Speaker 10: modeled on Salesforce, which is like you sell enterprise software,
Speaker 10: you sell software to other.
Speaker 8: Companies H and you put the other salespeople right.
Speaker 10: And so there was this weird dynamic like salesforce grew
Speaker 10: an enormous amount of the last few years and especially
Speaker 10: during COVID, and what it was basically doing was selling
Speaker 10: these software leases to other companies that were using these
Speaker 10: tools for their growing salesforces. So it was kind of this, uh,
Speaker 10: I mean, it's yeah, Ponti scheme is an incorrect term,
Speaker 10: but it's basically like this weird dynamic where like everyone
Speaker 10: was growing and so salesforce was growing, and then basically
Speaker 10: at a certain point that reversed. And so what you
Speaker 10: saw was that as the as sort of all these
Speaker 10: other software companies were shrinking, salesforce had to shrink too.
Speaker 10: And so you know, part of what we were writing
Speaker 10: I was just this this this aspect of Silicon Valley
Speaker 10: that people don't really think about that much, and how
Speaker 10: it sort of shapes the culture of this company and
Speaker 10: how it shapes the culture of Silicon Valley more broadly, Bertie,
Speaker 10: I wanted to.
Speaker 3: Bring you back into this conversation and speaking of salespeople,
Speaker 3: y'all were writing about how some sales people were relying
Speaker 3: on aggression and pressure to close those deals, but also
Speaker 3: you just need to get people and customers to like
Speaker 3: you walk us through anecdotally in the reporting whenever you
Speaker 3: were speaking to people about how sort of this process works.
Speaker 7: It's a really funny dynamic that comes back to the
Speaker 7: business model. Because software it's a recurring contract. Essentially, you
Speaker 7: need people to stick around. You think about car sales,
Speaker 7: door to door sales, it's kind of old thing you're
Speaker 7: thinking of real hyped off jocks trying to get you
Speaker 7: to sign the paper, almost like physical coercion, right, but
Speaker 7: this is more like they just coming on an army
Speaker 7: of like, for lack of a better term, frat boys,
Speaker 7: just people with nice smiles that were just kind of
Speaker 7: show up and like, you know, hey, how's it going
Speaker 7: the software going good? You need any help? Are right cool?
Speaker 7: Or here when you need us?
Speaker 10: Wow?
Speaker 7: You know, And there were just armies of them, you know.
Speaker 7: They call it the clown car approach because one person
Speaker 7: had to pull up with sales software, one person had Slack,
Speaker 7: one person had the data viase software, and they were
Speaker 7: all getting paid really good. But again, at some point companies,
Speaker 7: when the interest rates started rising there'd been years of
Speaker 7: buying software gangbusters, the CFO started saying, well, why do
Speaker 7: we have all these smiles hanging around selling us millions
Speaker 7: of dollars in software. How did this happen? And so
Speaker 7: they really cut off the spickett of wealth. And that's
Speaker 7: really why we saw the style of sales here start
Speaker 7: to break down a little bit. And it's not just Salesforce.
Speaker 7: This is really an industry wide phenomenon.
Speaker 11: But what does it look like and feel like at Salesforce?
Speaker 7: Broddy, So our favorite source in this story, we call
Speaker 7: him Kenny because it's an alias. He still works there.
Speaker 7: You know, he said when he first joining, it was
Speaker 7: all parties. It was great. His phrase now kind of sucks.
Speaker 7: It's just it's hard to than it used to be.
Speaker 7: You're you're signing less big deals. You're uh, you know,
Speaker 7: your boss is calling all the time. If you don't
Speaker 7: make It used to be that you could not make
Speaker 7: quota for like a year and a half, two years.
Speaker 7: Maybe then you'd get fired.
Speaker 1: You know.
Speaker 7: Now if you don't make quota in a quarter or two,
Speaker 7: you're you're out of there. You've got leader boards. People
Speaker 7: are more cutthroat because not every baby can share commissions.
Speaker 7: It just it looks more like that kind of car
Speaker 7: sales environment, right. It looks more like the old school cutthroat.
Speaker 7: There's a movie Drakel likes to reference about when sales guitar?
Speaker 7: What is it?
Speaker 10: Glenn Gray, Glenn Roth.
Speaker 2: Yes, a yes, always be closing, Alec Baldwood. Yeah.
Speaker 11: So business became a little fun with that one. We
Speaker 11: were playing around with it with the headlines and the
Speaker 11: cover lines, and it became the headline inside the magazine,
Speaker 11: always be cost cutting.
Speaker 8: There's a new in town.
Speaker 11: But but Jake tell us more about what I mean,
Speaker 11: the Death of the Salesman. We talked about that years ago,
Speaker 11: decades ago, because Arthur Miller wrote a hell of a play.
Speaker 11: Had that era come for sales? Software and tech sales now?
Speaker 10: I think to a certain extent. I mean, one of
Speaker 10: the things that I loved getting into in the story
Speaker 10: was just this whole, like this whole culture of software sales,
Speaker 10: which you know, they're they're these sort of online influencers
Speaker 10: who would give you these kind of slightly scammy courses
Speaker 10: about like everything you need to know about software sales.
Speaker 10: There was there was just a salesforce sort of offered
Speaker 10: this whole curriculum about you know this kind of like
Speaker 10: Dale Carnegie style, you know, sales education. And I think
Speaker 10: a lot of that is froth and a lot of
Speaker 10: those skills probably weren't that useful. As you know. Brody
Speaker 10: pointed out that this sort of there was a sort
Speaker 10: of a self perpetuating cycle to this, where like if
Speaker 10: you hired more people, you needed more salesforce, software leases,
Speaker 10: and so it kind of didn't matter who was selling
Speaker 10: it to you. And so it may be the case
Speaker 10: that you know, you don't need quite as many people
Speaker 10: out there selling it, and you don't need to pay
Speaker 10: them that well.
Speaker 2: So, I mean, guys, I don't know what Brody is
Speaker 2: is this kind of the new normal now? I mean,
Speaker 2: is the party over over when you talk to these people.
Speaker 7: I think that's what we're seeing here. I think we're
Speaker 7: seeing this is all a big part of big tech
Speaker 7: losing it shine.
Speaker 3: Right.
Speaker 7: In the last couple of years, we saw big tech
Speaker 7: loodons it shine regular sort they said, wait, this might
Speaker 7: not be good for us psychologically. I think this year
Speaker 7: we see big tech loods that shine economically that wait
Speaker 7: a second, these business models are not impervious, they're not bulletproof.
Speaker 7: At some point, these jobs that were the golden standard
Speaker 7: have to become normal, right, I mean, I don't know,
Speaker 7: like working at GE in nineteen sixty is probably the
Speaker 7: gold the golden standard, and I think we're starting to
Speaker 7: see these tech giants become a more standard part of
Speaker 7: the economy and lose their kind of special edge in
Speaker 7: terms of being a great job. But they're still you
Speaker 7: can still make some money. It's still a good place
Speaker 7: to work, but it's not what it used to be.
Speaker 8: Yeah.
Speaker 10: One of my favorite details was like they're talking a
Speaker 10: lot about how they're gonna use AI, you know, and
Speaker 10: Mark Minneapolis talking about AI, but one of the things
Speaker 10: they're actually using for right now is basically finding when
Speaker 10: sales people are kind of like loosing their numbers and cheating.
Speaker 10: So it seems like, you know, that's the new reality.
Speaker 11: So what do we think Mark Binnioff's company looks like
Speaker 11: a year or two from now, Like, you know, the shed,
Speaker 11: the the tech sales guys and that cushy tech job Like,
Speaker 11: what what is that more hardcore sales force looking feel like?
Speaker 11: Since it's been such a cuddly friendly place up until now.
Speaker 7: I'm sure this is weird to hear for a tech company,
Speaker 7: but they're hiring engineer, you know, that's actually what their
Speaker 7: main focus is now.
Speaker 1: Is.
Speaker 7: I think they're really trying to invest in new products
Speaker 7: and figuring out where that next realm of growth is, right.
Speaker 7: I mean, the products that got them here are pretty
Speaker 7: mature at this point, and as Drake mentioned, like all companies,
Speaker 7: they're looking for AI to really accelerate it. I don't
Speaker 7: know if you've seen Matthew McConaughey on TV wearing the
Speaker 7: cowboy at but talking a bit about who's the tariff
Speaker 7: in town? That's Salesforce. I'm not sure I get what
Speaker 7: it means either, but that's Salesforce.
Speaker 3: Matthew McConaughey.
Speaker 11: Yeah, okay, So so just final question, which Drake, I
Speaker 11: want to bring it back to you. You've written out
Speaker 11: a lot of companies, different strategies, different sectors, different industries.
Speaker 11: You know, if you if you could, uh, you know,
Speaker 11: cast the movie for the Salesforce version of the story,
Speaker 11: Like do some casting for us.
Speaker 8: Who's the salesperson of the year.
Speaker 10: The salesperson that you mean, Like, who's Kenny?
Speaker 11: Yeah?
Speaker 10: Who was that guy? Giovanni Ribisi was like, is that
Speaker 10: like to obscure from the boiler room?
Speaker 8: No, he's awesome, Yeah, yeah, look very quick?
Speaker 10: Yeah yeah yeah, just like nice sort of like, you know,
Speaker 10: almost pathologically upbeat kind of person, just you know, indefatigable spellar.
Speaker 8: What about what about Benning Off in your in the
Speaker 8: in the movie version of your story.
Speaker 7: You know he'd probably agreed to do it himself.
Speaker 8: Yeah, that's right, that's right for anybody. I mean, how
Speaker 8: does he feel about the business?
Speaker 11: I mean the everything's performances is doing great? You know,
Speaker 11: like what, so how do you know your interactions with him?
Speaker 8: What do you have to say?
Speaker 7: I think he is very aware that they had a
Speaker 7: long stretch of bad headlines this year. His message right
Speaker 7: now is that, you know, they always say that it's
Speaker 7: in o'hana over there, that's some big phray. What he
Speaker 7: gave to me was, look, it's ohann at two point zero,
Speaker 7: all right there we.
Speaker 2: Had all right, brog We can't have to leave it
Speaker 2: there just for a time. Joe Webber, Drake Bennett, Brody Ford,
Speaker 2: Bloomberg Business Week. You can check that out on the newsstands.
Speaker 2: I got that great story cover issue cover, absolutely some
Speaker 2: good stuff.
Speaker 8: Check that out.
Speaker 2: This is Bloomberg.
Speaker 7: Brother Marco.
Speaker 9: A journal.
Speaker 1: How about you let me drive?
Speaker 5: Oh no, no, no, no, who's going to drive?
Speaker 4: Honey, please grat I want to drive.
Speaker 3: It's a good question.
Speaker 8: This is the drive to the globe.
Speaker 10: Don me Well, Bjoern on Bloomberg.
Speaker 3: Radio, Jessminton, Paul Sweeny here in the Bloomberg Interactive Broker Studio,
Speaker 3: filling in for Carol Masser and Tim Stenovik, who do
Speaker 3: have the day off. Not sure who's who? Who's Carol?
Speaker 3: Who's Tim? Here?
Speaker 2: Paul?
Speaker 3: But look at that good as a p five hundred
Speaker 3: a day, up seven tenths of a percent if you
Speaker 3: look on a weekly basis a little change, but this
Speaker 3: does come following a five week winning streak that was
Speaker 3: its longest since June. But who better to chat with
Speaker 3: us about their market outlook moving forward? Christoph Gleisch, President
Speaker 3: and Chief Investment Officer at Harbor Capital Advisors. Who's actually
Speaker 3: here in the Bloomberg Interactive Broker Studio. I know Paul
Speaker 3: always loves more people are here in office with us
Speaker 3: to discuss his outlook and also his investment strategy. I
Speaker 3: want to pick your brain now that we are into
Speaker 3: year end here, what's your take as far as positioning
Speaker 3: wise going into next week ahead of the FED decision?
Speaker 6: Well, thank you so much It's great to be here
Speaker 6: in person and live. I think this year has surprised
Speaker 6: a lot of people. It's called a lot of investors
Speaker 6: off side. If you think back where we were twelve
Speaker 6: months ago, Supposedly now we should be three or four
Speaker 6: rate cuts in as the FED is continuing to try
Speaker 6: and stimulate an economy coming out of a recession. We
Speaker 6: know how that sort of playbook played out. And I
Speaker 6: think what surprise investors is how resilient growth has been
Speaker 6: this year, how resilient markets have been this year. And
Speaker 6: you know, at the moment your colleague read out, there's
Speaker 6: a lot of green on the screens, camps off Landing
Speaker 6: is winning, and it's very much risk on environments at
Speaker 6: the moment as it has been in the last five weeks.
Speaker 2: How do you think about evaluation here, because I think
Speaker 2: that I'm just looking at my try to the s
Speaker 2: and P five hundred. Boy, that was a heck of
Speaker 2: a November there, and I'm wonderful we've kind of gotten
Speaker 2: a little bit two over our skis a little bit
Speaker 2: in terms of valuation. How do you guys think about that?
Speaker 6: So I'd say trying to time markets on a short
Speaker 6: term basis, what's going to happen this week or that
Speaker 6: is pretty difficult to do. I think valuations here probably
Speaker 6: say fair, and so we would recommend having a good
Speaker 6: allocation to equities for investors that are ultimately investing for
Speaker 6: the long term. Of course, it's a market of many
Speaker 6: different regions, many different market capitalization. I think there are
Speaker 6: areas of the market that are looking pretty cheap right now.
Speaker 3: You talk about in some of the notes you sent
Speaker 3: us don't hide out in cash. We've seen the fury
Speaker 3: into money market funds over the past year, being at
Speaker 3: a record here. What's your view on as far as
Speaker 3: what's the catalyst when people argue about, oh, well, we're
Speaker 3: going to put our money in money market funds for
Speaker 3: the yield. But then if you have these double digit
Speaker 3: gains in these major indexes, how do you square that away?
Speaker 3: And at what point does that we've only move out
Speaker 3: of money market funds and then into equities.
Speaker 6: So I think if you look at any long term
Speaker 6: investment chart over any time only over any reasonable time horizon,
Speaker 6: there's always a squiggly line at the bottom in decay,
Speaker 6: and that's always cash. Cash is the worst performing asset
Speaker 6: class over any reasonable time horizon. So what we would
Speaker 6: say is hold enough liquidity for your immediate liquidity needs
Speaker 6: as an investor, and what you're comfortable with as it
Speaker 6: pertains to you know, what's going to create some of
Speaker 6: that cash to come out. There's seven trillion dollars. Seven
Speaker 6: trillion is a huge number sat in money market funds,
Speaker 6: and I think in certain areas we just we've seen
Speaker 6: investors wait and wait on the sidelines for this supposed
Speaker 6: recession that hasn't come. And I think the longer that
Speaker 6: we continue with this soft landing scenario, at the moment,
Speaker 6: it's going to pull more investors. Are they going to
Speaker 6: begin to start putting money to work, And we're already
Speaker 6: beginning to see that, and specifically around small cap as well.
Speaker 6: I think it's pretty attractive entry point right now.
Speaker 5: I want to go there, we go that you.
Speaker 2: I mean, I hear small caps, mid caps, small caps,
Speaker 2: but man, that's a tough place to make money historically.
Speaker 1: Is it a.
Speaker 2: Valuation call that attracts you to the small cap space?
Speaker 2: Is it just that maybe they haven't performed? Kind of
Speaker 2: how do you think about that?
Speaker 6: So the answer that we hear most often, and we
Speaker 6: actually asked this, we held our global Market out Look
Speaker 6: call and the theme was in search of bright spots yesterday,
Speaker 6: and we asked our clients around small cap and the
Speaker 6: answer that got the biggest response was waiting for the
Speaker 6: recession before allocating to the asset class coming out of
Speaker 6: the other side. Okay, there's a lot to unpack there.
Speaker 6: You know, recessions are incredibly hard to kind of forecast
Speaker 6: and predict exactly, but we get it. We understand that mentality.
Speaker 6: If you look at small caps, they've effectively been in
Speaker 6: a recession for the last two years. Some colleagues of
Speaker 6: yours did some great analysis on the Bloomberg terminal the
Speaker 6: other day and I saw small caps are currently going
Speaker 6: through their second longest draw down in history. It's only
Speaker 6: coming out of the tech bubble, that's you can compare
Speaker 6: to this. So if you look at small caps, they
Speaker 6: are off in the region of thirty to forty percent
Speaker 6: off their peak, and you've begun to see a broadening
Speaker 6: of the markets, You've begun to see a bid for
Speaker 6: small caps, and I think investors are already beginning to
Speaker 6: come back in.
Speaker 3: Yeah, that's really interesting that you brought that up, because
Speaker 3: it's the worst a three year span relative to the
Speaker 3: S and P five hundred when you're looking at the
Speaker 3: Russell since the late nineteen nineties in the turn of
Speaker 3: the century, what sectors in particular when you're looking at
Speaker 3: small caps are attractive to you.
Speaker 6: So the way that we work at Harbor Capital is
Speaker 6: we work with boutique money managers across the world that
Speaker 6: we believe are experts in their own domain, so they
Speaker 6: do all the day to day stock selection. A couple
Speaker 6: of things I'd say about small cap is it's an
Speaker 6: area that we think is ripe for active, for skilled
Speaker 6: active managers to add value. We think a skilled active
Speaker 6: manager in small cap can add three or four percent
Speaker 6: net of fees, and ultimately you're outsourcing that day to
Speaker 6: day stock selection to those managers. I think some of
Speaker 6: our managers at the moment, particularly again, there's a bit
Speaker 6: of a contrarian call, like biotech has been absolutely hammered
Speaker 6: in that space, but there is some optimism building. You know,
Speaker 6: you can't fall too much further from the basement, and
Speaker 6: potentially what we might see is some more M and
Speaker 6: A in the healthcare sector that might put a bid
Speaker 6: on some of these biotech names. So that was one
Speaker 6: of the themes that out of our outlook call yesterday, how.
Speaker 2: About the ETF space, it's getting a ton of cash.
Speaker 2: How do you guys get exposure there?
Speaker 10: So we have.
Speaker 6: We've been in the ETFs now for two years. We
Speaker 6: launched two years ago. We're now fourteen ETF. We have
Speaker 6: about one point three billion dollars out of our fifty
Speaker 6: billion is in our inactively managed ETFs. And we think,
Speaker 6: you know, a lot of the innovation, a lot of
Speaker 6: the money flows are going to continue to go to ETFs,
Speaker 6: especially for taxable clients.
Speaker 2: All Right, it's interesting. I mean, that's just kind of
Speaker 2: where the capital is flowing. So you've got to have
Speaker 2: an exposure there.
Speaker 6: Ring absolutely, and specifically for us, where we've seen money
Speaker 6: put to work on our ETF lineup. We had one
Speaker 6: of our flagship strategies, the ticker has win wi NN.
Speaker 6: It's run by Jennison here in New York. It's a
Speaker 6: lot it's a large cap growth concentrated, fully active, transparent
Speaker 6: portfolio and it's look, it's done phenomenally well. It's up
Speaker 6: forty seven or so percent this year and has outperformed
Speaker 6: It's respected Benjamall by about a thousand basis points.
Speaker 2: Good stop there, good start. Christoph Gleisch, thanks so much
Speaker 2: for joining us. Christoph is a president chief investment officer
Speaker 2: of Harbor Capital Advisors. You get about fifty billion dollars
Speaker 2: in assets under management, and he joined us here in
Speaker 2: a Bloomberg Interactive Brokers studio, so he gets a special star.
Speaker 2: Their SP five hundred up three quarters of one percent.
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