Speaker 1: This is Bloomberg Business Week inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Manser and Tim stinebec from Bloomberg Radio.
Speaker 1: As we promised, we wanted to get to a few
Speaker 1: of the most read stories on this Monday. This next
Speaker 1: one included. It's about how em and A bankers they're
Speaker 1: kind of busy again after the slowest start two year
Speaker 1: in two decades. I mean, Tim, there was a bunch
Speaker 1: of stuff going on over the weekend apparently, Yeah, more
Speaker 1: than forty billion dollars plus and potential transactions came to
Speaker 1: light over the weekend. And what does it say about
Speaker 1: deal activity in the broader market environment? Just a handful
Speaker 1: of the questions we want to get to with Bloomberg
Speaker 1: News Deal's reporter Crystal Ce, who's right here in the
Speaker 1: Bloomberg Interactive Broker's studio. Okay, So, so first up, um,
Speaker 1: just remind us how bad it was and where we
Speaker 1: are so far in so two was not great m
Speaker 1: and a volume for investment banks down thirty one percent
Speaker 1: last year, So bankers are getting smaller bonuses and January
Speaker 1: the last month there was a quite as like Harrow said,
Speaker 1: since two thousand and three for the beginning of the year.
Speaker 1: So it had lousy last year, right, it was bad.
Speaker 1: It was not good, and it was it was a
Speaker 1: couple of different reasons. People are not confident because of
Speaker 1: the financing market, and when you have a tough financing market,
Speaker 1: traditional lenders get very jittery about um, you know, giving
Speaker 1: out loans and a lot of banks actually incurred losses
Speaker 1: and these big LBO transactions and that made them even
Speaker 1: less confident later on in the year. So a lot
Speaker 1: of these reasons, combined with management not feeling like, you know,
Speaker 1: they could do a transaction easily, also made the mn
Speaker 1: A transaction volume go down. But this Monday we finally
Speaker 1: have a merger Monday, um in the second month of
Speaker 1: the year. So um, it's interesting. It's also across different sectors,
Speaker 1: so let's talk about it. Because mining see to be
Speaker 1: a big one. Mining is a big one. We don't
Speaker 1: really see many mining views, so when we do is
Speaker 1: gigantic and like this one. Um, there's the US and
Speaker 1: Australia angle here on New Amount and Australia's new Cast
Speaker 1: Mining announced the merger as the biggest deal this year,
Speaker 1: so for US seventeen billion. And we also see things
Speaker 1: across UM storage self storage. There is Financial Services with
Speaker 1: Rothschild family trying to take the company private. UM four
Speaker 1: billion US not the biggest deal but as a name
Speaker 1: that we all follow. Yeah, absolutely are there are there
Speaker 1: big pictures that it can paid for us about what
Speaker 1: is going to look like when it comes to the economy.
Speaker 1: Is there more certainty here? Finally, I think it all
Speaker 1: comes down to interest rate and the financing market. A
Speaker 1: lot of these steo's most LBOs hinge on leverage, leverage buyouts, right,
Speaker 1: So as long as the financing markets improves, we will
Speaker 1: see more deals come back, and we also see the
Speaker 1: comeback of UM private enders. A lot of these private
Speaker 1: equity firms now have credit um that they're willing to back,
Speaker 1: not their own but some of other people, so other
Speaker 1: start private credit market. Right. That really seems like everybody
Speaker 1: was talking about big time last year. That's right. So
Speaker 1: private credits an alternative resource the company can use to
Speaker 1: tap uh the m and a market. But also there's
Speaker 1: something called you know, seller's assistant. So if you're a
Speaker 1: friendly acquirer, you can negotiate with the seller and they
Speaker 1: can give you a little bit of a cushion, give
Speaker 1: you write a check, or you can pay them back
Speaker 1: later on. So there are many ways you can you
Speaker 1: can try to get a deal done, but you have
Speaker 1: to be creative in this market. We've certainly seen rates
Speaker 1: go down at least as a result of what you know,
Speaker 1: bond traders think is going to happen and what the
Speaker 1: feed is going to do. But at the same time
Speaker 1: j Powell has said, uh, you know, may not cut
Speaker 1: rates this year. We've got a lot of work to do.
Speaker 1: I've been kind of beating that drum for almost a
Speaker 1: week now. Has the has the credit market changed? Yeah,
Speaker 1: so financing market is still tough. It's not drastically improved
Speaker 1: compared to to last year. So I don't think immediately
Speaker 1: we will see a flurry of transactions and we will
Speaker 1: see many many murger mondays from now on. And you
Speaker 1: can also see that reflecting in Wall Street personnel changes.
Speaker 1: You see a lot of layoff across Wall Street and
Speaker 1: including in the deal space, including in the deal space
Speaker 1: M and A M and A bankers and not having
Speaker 1: us tough a time compared to the capital markets bankers.
Speaker 1: But you also see that, you know, banks are expecting
Speaker 1: less work in transactions and therefore they need less people.
Speaker 1: So just because we're seeing some activity doesn't necessarily mean
Speaker 1: we're going to see a bunch more this year. Not
Speaker 1: necessarily immediately, but um, a lot of dealmakers are saying
Speaker 1: that in the second half we could expect more. I
Speaker 1: am also curious that if we continue to see some rises.
Speaker 1: I know in equities were seeing a little bit of
Speaker 1: a different tone certainly today and I felt like you know,
Speaker 1: late last week. But if we continue to see markets
Speaker 1: go up, are we likely to see more kind of
Speaker 1: stock deals being done because they've just got a greater currency.
Speaker 1: I mean, obviously the targets, if they're public, potentially have
Speaker 1: gotten than more expensive as well, But does that often
Speaker 1: lead to more deals as well? Yeah, we're seeing some
Speaker 1: stock to It was actually just as sweet. Yesterday there
Speaker 1: was a hostel Um takeover. There was a bear hug
Speaker 1: letter where one storage company was trying to acquire the
Speaker 1: other one in an all stock merger. And not only
Speaker 1: are they giving stocks, they're also putting in an extra
Speaker 1: dividend as a sweetener. So there many ways you can
Speaker 1: structure deals and but equity, you know, it's not traditionally
Speaker 1: the most attractive, and when you have a shareholder on
Speaker 1: board members trying to evaluate these transactions, it's going to
Speaker 1: do less appealing than an all cash transaction. They talk
Speaker 1: a little bit more about private credit. Carroll alluded to
Speaker 1: that the fact that you know, I think you were
Speaker 1: referring probably to when we're at Milk and Carroll Private credit,
Speaker 1: Private market of last year. Yes, it was we talked
Speaker 1: so much about private credit. What does that look like? Yeah,
Speaker 1: private credit is a really really big topic. Every private
Speaker 1: equity firm that's well refirmed the start as a private
Speaker 1: refirm as pivoted well also diversified into private credit. And um,
Speaker 1: it's interesting because I mean, people talk about the potential
Speaker 1: conflict of interest here right when you're you're really pricing
Speaker 1: things properly. But it's obviously a huge pool of capital,
Speaker 1: and it adds on top of whatever private equity of
Speaker 1: already raised in their regular funds. So it's an interesting
Speaker 1: it's an interesting pool of resources. But obviously traditional investment
Speaker 1: banks lenders are still the bread and butter, or the
Speaker 1: still main source of capital in this M and A market, Chrystal,
Speaker 1: what are you hearing in terms of from bankers specifically?
Speaker 1: Are they saying, what, We've got a lot of things
Speaker 1: in the pipeline. People are just waiting to pull the trigger.
Speaker 1: We just want to kind of get a little bit
Speaker 1: more certainty about what the Fed is doing and what
Speaker 1: the economy is doing. Yeah, I think the joke is
Speaker 1: that you will never encounter banker that is not optimistic.
Speaker 1: So there are always something that they're working on. Um.
Speaker 1: I don't think anyone can very confidently say that there
Speaker 1: will be megat us in a for us half, but um,
Speaker 1: there's It's like what Neil Cashcari told the New York
Speaker 1: Times last month, right, and it's quoted in the cover
Speaker 1: of a business week. It's a notoriously optimistic crowd on
Speaker 1: Wall Street. It is true, right, right, there's optimism at there.
Speaker 1: So what are you keeping an eye on? Are there
Speaker 1: certain sectors that nonetheless you guys are reporting on stuff,
Speaker 1: you know, waiting for things to happen, But in the meantime,
Speaker 1: you know, you're also just kind of trying to read
Speaker 1: the tea leaves, So what what do you kind of follow?
Speaker 1: So there are a lot of activism going on right now. Um,
Speaker 1: we just came out of the salesforce Elliott that hasn't
Speaker 1: really entirely settled. Um this week there are some ip
Speaker 1: O coming back actually, um so green shoes of the
Speaker 1: markets coming back. There are three d O that supports
Speaker 1: Surprise just this week. So it's not really M and A.
Speaker 1: But people in the deals world are doing work. Are
Speaker 1: you watching Disney with the activism too as well? Yeah,
Speaker 1: Pels is getting really busy with that and with his
Speaker 1: consumer company. He's also in unit leaver um so destinitely
Speaker 1: it's a really interesting such what about when it comes
Speaker 1: to private equity firms that are going after targets that
Speaker 1: have been beat up in the public markets? Do you
Speaker 1: think we see more take privates. So a lot of
Speaker 1: the ip O that when the company that went public
Speaker 1: in the past two years, actually a lot of them
Speaker 1: are trading way below offer price and that means they
Speaker 1: could be prime target for private equity. And we have
Speaker 1: seen some of these studios pan out and even um
Speaker 1: the companies for instance like Webber, the Bobby Cue grow
Speaker 1: Company was taken private by the b DT, which was
Speaker 1: a private and they just went publicly just went public
Speaker 1: like they went public during the pandemic, right they did,
Speaker 1: went yes, And it was like the whole you know, Tragger, Webber,
Speaker 1: Solo Stove were all outside and carols outside grin grill
Speaker 1: and all are impossible and beyond burgers, that's a no,
Speaker 1: that's a no. Astud Well know, Um, I am curious.
Speaker 1: Are you hearing anything when it comes to deal activity
Speaker 1: interest in things AI related? Oh? Um, you could say no,
Speaker 1: although the stacks, I mean they're really on the move.
Speaker 1: Any kind a little player that's got an AI connection,
Speaker 1: Well we aren't, but I mean they can probably help
Speaker 1: us write some stories. And now I'm like, I don't
Speaker 1: say that. Don't say that. Um, Crystal, thank you so much.
Speaker 1: Gut check on what's going on with M and A.
Speaker 1: Crystal C. She's deals reporter here at Bloomberg News, here
Speaker 1: in our interactive broker studio. I mean, we're going to
Speaker 1: talk about this with our colleagues in a little bit.
Speaker 1: But those AI stocks are just it's like seen all
Speaker 1: over again when they put blockchain like what was that
Speaker 1: long island ice T blockchain company and then the stock
Speaker 1: shot up as a result of that. It's so remember
Speaker 1: that just be like blah blah blah blah blah AI. Yeah,
Speaker 1: and you're often running it's pretty incredible, um, some of
Speaker 1: these stocks. So if you take a look at the
Speaker 1: big picture, Carol, like back to the I p O days,
Speaker 1: like C three dot AI for example, Uh, it's not
Speaker 1: even close to where it was when I P NO.
Speaker 1: A little perspective right right exactly. And they're pretty small cap,
Speaker 1: microcap kind of companies. But nonetheless, all of a sudden
Speaker 1: investors are looking at the group in a big way.
Speaker 1: This is Bloomberg Business Wait inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: bloom Business Finance and tech news. The Bloomberg Business Week
Speaker 1: podcast with Carol Messer and Tim stinebec from Bloomberg Radio.
Speaker 1: It's safe to say we are all a bit obsessed
Speaker 1: with chat chpt right since Microsoft's tenderly in all our investment.
Speaker 1: We are hearing about it in earnings calls. Google did
Speaker 1: their own, albeit much smaller, a ideal. We talked about
Speaker 1: it with Kathy would last week. And then there is
Speaker 1: a Bloomberg Business Week story that you can find online
Speaker 1: that definitely takes it into account. Year Tim put Chat
Speaker 1: GPT to the test on a Warden exam with more
Speaker 1: We've got. Demetri casedis a senior editor at a Bloomberg
Speaker 1: News on the Phone in New York City, along with
Speaker 1: the editor of Bloomberg Business Week, Joel Webber in our
Speaker 1: Bloomberg Interactive Broker's studio. So, Joel, how did chat g
Speaker 1: GPT do on that Warden exam? Well, we're gonna find out.
Speaker 1: I do think just in general, um, it is causing
Speaker 1: existential crazies everywhere you look, right, speak for yourself, man, Yeah,
Speaker 1: it's all gonna be great. The and I think you
Speaker 1: know an NBA or tests in general, I've heard from
Speaker 1: some professors who are like, I've had to up end
Speaker 1: my entire curriculum to account for uh Chat GPT UM,
Speaker 1: so that you know, proving that you know, AI program
Speaker 1: didn't actually do the student's own work. Um, AI my homework.
Speaker 1: I think we'll get easy. Uh So take us to Wharton, um,
Speaker 1: and the professor who you based the story around. Yeah,
Speaker 1: I mean I think those are all good points. Christian
Speaker 1: Turwich teaches at Wharton. And you know, it started as
Speaker 1: kind of a fun conversation over the holidays with his sons,
Speaker 1: who both have dealt with other I programs. Um, you know,
Speaker 1: we're we're intrigued by our B schools. Coverage sometimes is
Speaker 1: about research that can seal very out of touch with
Speaker 1: what's going on in the real world. And Professor Tourach
Speaker 1: was very quick and nimble to say, hey, let me
Speaker 1: see what this this thing is about. All the hubbub,
Speaker 1: let me give it in an exam. But I've given
Speaker 1: to my students. Um. It did quite well, it did
Speaker 1: above average, it got to be minus UM. But it
Speaker 1: is not you know, the context of a business school course,
Speaker 1: in a business school exam is not the kind of
Speaker 1: context in which you know, students can realistically put the
Speaker 1: chatbot to take the exam for them. That's not to
Speaker 1: say that the concerns of educators across the country, as
Speaker 1: the professor noted to me, are not legitimate. I mean,
Speaker 1: there are many educators with far fewer resources than a
Speaker 1: warton professor who do have to contend with the reality
Speaker 1: of how students are going to use this. He used
Speaker 1: this as a way to see what it's all about,
Speaker 1: and then as a way to say, hey, this is
Speaker 1: very powerful, it's doing quite well. It's answering in ways
Speaker 1: that legitimately might pass as a student, how can we
Speaker 1: use something like this more creatively in our in our classroom.
Speaker 1: Our job as educators is to really think about how
Speaker 1: to bring education along and be more creative and really
Speaker 1: spark imagination. And so this is the first step of
Speaker 1: this one professor in trying to do that. Did the
Speaker 1: professor give you any idea how he would actually use
Speaker 1: it in a classroom? Well, I mean he gave me
Speaker 1: an idea off of something that we talked about in
Speaker 1: the conversation. Like let's say he was teaching philosophy for example,
Speaker 1: not business. But you can swap out people. And I
Speaker 1: mentioned this in the Q and A, and and he says,
Speaker 1: you know, I want you to go back to your
Speaker 1: libraries and to your apartments and research you know, the
Speaker 1: work we studied on Sarta or on you know CAMU
Speaker 1: and Sarta. Write me a five hundred word essay on
Speaker 1: the differences between these two. Um. You know, they might
Speaker 1: go home and decide to have chat GPT write the
Speaker 1: paper for them. But what he might do that would
Speaker 1: be even more effective is have chat GPT really engage
Speaker 1: in a conversation. That's what these chats do with students, um,
Speaker 1: and step in as the philosophers, the French philosophers, and
Speaker 1: do something that might spark some more creative ideas with
Speaker 1: the students. And so he, as the as the professor,
Speaker 1: could certainly be in position to introduce the use of
Speaker 1: the chatbot in that way. Um dmit I gotta jump
Speaker 1: in for a second, because how did it do when
Speaker 1: it came to which I bet the whole student body
Speaker 1: universe is saying, I hope we can do math? How
Speaker 1: did it do on math? Oh? It doesn't. They don't
Speaker 1: do well on math, at least in this instance. And
Speaker 1: he said that that's something that you know, I think
Speaker 1: we see that across the universe of stories that have
Speaker 1: been done by Bloomberg and many others. What you said
Speaker 1: is true. Everybody's kind of been a frenzy about this
Speaker 1: right now. Mathematics it did not do well. And I
Speaker 1: mean Professor Turvich was very funny about that. I mean,
Speaker 1: it's like your your computer, dude, like you can't actually
Speaker 1: like put some numbers together. Um. And in fact, numbers
Speaker 1: is where it was really tripped up. And it was
Speaker 1: more in language that it was far more impressive and
Speaker 1: in logic and application of logic UM. So it was
Speaker 1: all around super surprising to him. I think that he,
Speaker 1: as well as many others who are engaging with chat
Speaker 1: GPT right now, it's a little tough to do. You
Speaker 1: go to the website, it's so popular, there are so
Speaker 1: many users that generally what you're going to get as
Speaker 1: a message that says chat QPT is capacity right now.
Speaker 1: So you can't try it because the world is trying
Speaker 1: chat g bt UM. But he did it. He did
Speaker 1: it quickly. He wrote a paper and he said, I
Speaker 1: was really impressed, and I think I'm gonna try to
Speaker 1: think more creatively about how to use this. And I
Speaker 1: think that in that context, I mean, I want to
Speaker 1: be clear, we came at it with a very specific
Speaker 1: sort of context of B schools, you know, teaching business, teaching,
Speaker 1: taste management and so on. You know, there's probably going
Speaker 1: to be space for something like this. It will emerge
Speaker 1: in time. I don't think that we have the answers
Speaker 1: right now in terms of like this semester, how is
Speaker 1: CHATCHI going to um, you know, a stand in for
Speaker 1: something in the curriculum, like we're not we're not there yet,
Speaker 1: but take that take that computer not a d Yeah,
Speaker 1: but yeah, I mean everything's on a curve in business
Speaker 1: school anyway. Yeah, so you know, it kind of doesn't matter.
Speaker 1: So one of the things that stuck out to me
Speaker 1: Dmitro is him saying, we are not running out of work. Um,
Speaker 1: but it is shifting is the efficiency frontier? And I'm curious.
Speaker 1: You know, this would be an optimistic take, I think
Speaker 1: on chat GPT, but but what what is it? What
Speaker 1: is the potential here in a classroom? I mean again,
Speaker 1: I think that there are ways he thinks to use
Speaker 1: it and engage it to be added and I hate
Speaker 1: to use the word additive, but to engage brains and
Speaker 1: students in a way that that there isn't time enough
Speaker 1: in the classroom. But it's to extend the learning that's
Speaker 1: already happening. You're going to the internet, you're looking for
Speaker 1: videos of things as it is, you're looking up resources.
Speaker 1: So this might take it to another level in which
Speaker 1: is not as passive, though it might be more active. Um.
Speaker 1: He does have a far more or let's say, positive
Speaker 1: and optimistic view, which is that these things should be
Speaker 1: seen as tools that are very innovative and technologically advanced,
Speaker 1: that that we should not really be so fearful of
Speaker 1: them as replacements for actual people in many settings. I
Speaker 1: meant you wrote this Q and A, not chat GPT.
Speaker 1: Are you sure? Though I'm not sure? Did a robot
Speaker 1: do this interview? The Big secret Um? It's so funny.
Speaker 1: I mean, I was just reading an interview that a
Speaker 1: former colleague of mine from a time I worked at
Speaker 1: a company called The American Lawyer. He did a Q
Speaker 1: and A with chat GPT and just posted it on LinkedIn,
Speaker 1: and he's asking chat GPT like, if Mike wants to
Speaker 1: sponsor you, will you will you accept the sponsorship? And
Speaker 1: chat GPT is like, I am an open platform. I
Speaker 1: am not somebody who's going to give in to open
Speaker 1: spot to sponsorship by private interest. It's a very interesting
Speaker 1: it's a very interesting back and forth, and it's actually
Speaker 1: like a real engaged, like intelligent conversation that this individual has.
Speaker 1: Everyone sells for a price stroll right too. You know,
Speaker 1: it's not I can't wait for Google's bar, which you
Speaker 1: know is also in the headlines now to have a
Speaker 1: competition or a conversation that's ai optimistic name. We gotta run.
Speaker 1: Joel Dmitro, thank you you're listening to the Bloomberg Business
Speaker 1: Week podcast. Catch us live week days from two to
Speaker 1: five pm Eastern on Bloomberg Radio, the Bloomberg Business Band
Speaker 1: you Doo. You can also listen live to our flagship
Speaker 1: New York station, Just say Alexa, play Bloomberg even Dirty.
Speaker 1: All Right, I've got to say it's the thing we've
Speaker 1: talked a lot about. Is that captivated us for over
Speaker 1: a week. It was the opening skate for SNL this
Speaker 1: past weekend. What was that Chinese balloon really up to?
Speaker 1: What does it mean for the renewed tensions seemingly between
Speaker 1: Washington and Beijing after the U S shot down the
Speaker 1: vessel on Saturday. Very pleased to have back in our
Speaker 1: Bloomberg Interactive Broker's studio. Andy Brown, former editorial director at
Speaker 1: Bloomberg New Economy who spent three decades in Asia as
Speaker 1: both China editor and columnists for The Wall Street Journal.
Speaker 1: Andy leads the China Hub as a partner at Brunswick Group.
Speaker 1: It's a critical issues advisory firm. Uh Andy, good to
Speaker 1: have you with us. We've been so eager to talk
Speaker 1: to you about this. We spent a good portion of
Speaker 1: Friday afternoon talking about it what was going through your
Speaker 1: head as you looked up at images of the sky
Speaker 1: over the last week and saw this balloon floating over
Speaker 1: the United States. This is bizarre, This is really crazy. Um,
Speaker 1: nobody knows really what happened, and more importantly, it's hard
Speaker 1: to know what's going to happen next. I think we
Speaker 1: can say with some confidence that the image of this balloon,
Speaker 1: this crumpled Chinese airship shredded by a sidewinder missile collapsing
Speaker 1: into the Atlantic Ocean is a pretty apt metaphor for
Speaker 1: the state of US China relations and a wake up call.
Speaker 1: I think it's a real warning that we are one
Speaker 1: serious accident away from a major geopolitical crisis, and one
Speaker 1: that could spiral out of control. And I don't I
Speaker 1: don't want to make light of this balloon episode. I mean,
Speaker 1: it shouldn't have been in US space. It was obviously
Speaker 1: an invasion of US sovereignty. I mean, it was reckless,
Speaker 1: it was provocative, but you know, nobody died mercifully, nobody
Speaker 1: was injured. It didn't get much intelligence. The Pentagon even
Speaker 1: says this not much more than the Chinese gonna got
Speaker 1: from their own can already get from their own satellites,
Speaker 1: and in intelligence terms, there's gonna be a net plus
Speaker 1: for America. They're probably gonna scoop it all the bits
Speaker 1: and pieces off the bottom of the Atlantic and get
Speaker 1: a trove of information about Chinese spycraft. Not an accident
Speaker 1: by China, you know, And does that matter? I actually
Speaker 1: probably and more inclined to believe the cock up theory
Speaker 1: that you know. I mean, it's hard to imagine that
Speaker 1: the Chinese leadership deliberately went out to scuppa um a
Speaker 1: visit to Chin. They needed this visit, you know. I mean,
Speaker 1: they want to repair damage to with with their relations
Speaker 1: with with the West. You know. I think it's it's
Speaker 1: we know that China has a balloon program. They float
Speaker 1: these things off fairly regularly. It's quite possible that, you know,
Speaker 1: somebody who floats off the balloon didn't get the memo.
Speaker 1: You're not supposed to do this, Well, Anthony Blincoln is
Speaker 1: packing his bags to come to to Beijing. I mean,
Speaker 1: they're a darker theories. You know, maybe somebody did get
Speaker 1: the memo but decided that they wanted to sabotage the meeting.
Speaker 1: I don't know. It's not the first time that something
Speaker 1: insane like this has happened. Um, you know, I was
Speaker 1: in China in two thousand and eleven. Robert Gates, then
Speaker 1: Defense Secretary, was it was just about to have a
Speaker 1: meeting with then President Hu Jintao, and China tested two
Speaker 1: hours before his meeting, they tested a stealth fighter. This
Speaker 1: was a really big deal. It looked like a middle
Speaker 1: finger to two Gates. He went ahead with the meeting,
Speaker 1: gets into the meeting, says to hu Jintao basically, what
Speaker 1: the hell happened? And Hugentao looks completely mystified, obviously didn't
Speaker 1: didn't know. Looked at a general who was sitting there
Speaker 1: and said, well, you know what, what's the story? And
Speaker 1: the general sort of shuffles his feet. I mean, these
Speaker 1: things happened. This is what happens in a in a
Speaker 1: in a cold war. Andy, I'm pretty struck by the
Speaker 1: comment that you made that this image perfectly represents US
Speaker 1: China relations and we are just, you know, one sort
Speaker 1: of accident away from a serious escalation. Um, what has
Speaker 1: you concerned specifically just a match? What what what would
Speaker 1: happen if two aircraft collided a US aircraft in it
Speaker 1: and this did happen, by the way, in two thousand
Speaker 1: and imagine what would happen, UM, you know, if two
Speaker 1: ships collided at sea, UH, and there are hundreds of
Speaker 1: military warplanes UH, naval vessels churning and wheeling around Taiwan,
Speaker 1: South China, see East China sea around Japan. And unlike
Speaker 1: the Cold War between the Soviet Union and the United States,
Speaker 1: we don't have protocols, We don't have rules of the
Speaker 1: road for what I'd be very interested to find out,
Speaker 1: you know what what what messages were going back was
Speaker 1: and forwards while this thing was playing out, while the
Speaker 1: airship was sort of cavorting over over over over Montana.
Speaker 1: And in fact, this is precisely why Secretary of State
Speaker 1: Lincoln was going to Beijing to talk about god rails.
Speaker 1: After the two presidents she jimping and and UH President
Speaker 1: Biden met him Bali at the twenties you remember, at
Speaker 1: the end of last year, and agreed that you know,
Speaker 1: the two sides, and they acknowledged that there was a
Speaker 1: risk of conflict and they had to avert that possibility.
Speaker 1: This was what the Blincoln visit was all about. And
Speaker 1: now not only have we not arrested the downward spiral
Speaker 1: in relations but it's a relationship taken another another lunch,
Speaker 1: another lurch down. So Ken Blincoln go over there at
Speaker 1: some point in the future and things get fixed or yeah,
Speaker 1: I look, I think this this is this is fixable.
Speaker 1: We'll we'll see. There's going to be an awful law.
Speaker 1: There will be a lot of headlines in the next
Speaker 1: few days and weeks. They will be dredging up the
Speaker 1: bits that they can find from the airship. And and
Speaker 1: you look, the Chinese say it's it was. It was
Speaker 1: a weather a weather draph. Okay, you know, I mean,
Speaker 1: good cover story. Now we'll we'll find out. We'll find
Speaker 1: we'll find out sooner rather than later, right, I mean
Speaker 1: one one one way, one way or another. But yes, um,
Speaker 1: both sides, I think understand the risks and both are
Speaker 1: keen to d essay. But what is what really came
Speaker 1: out of this episode was how much political pressure UH
Speaker 1: was on the US president immediately right off the bat.
Speaker 1: You know, why aren't you shooting this down? How did
Speaker 1: you let it float around for so for so long?
Speaker 1: You showed weakness? You imagine what would happen in a
Speaker 1: serious crisis. The pressure on both leaders to look tough
Speaker 1: not to deescalate. So what do you think about next
Speaker 1: here in terms of this relationship or what do we
Speaker 1: watch out for. We know it's been a tricky relationship.
Speaker 1: I feel like now for some time right, it's always
Speaker 1: been complicated, but it does feel like it's been less friendly. Um,
Speaker 1: it's certainly through the Trump administration, and it feels like
Speaker 1: Biden has continued a lot of things. So I don't know,
Speaker 1: what do you You have clients, you have people that
Speaker 1: clients of clients and business people, and they're looking at
Speaker 1: that and they're obviously disappointed. Look, you know, they've been
Speaker 1: appling with a lot over the last two or three
Speaker 1: years with you know, the fallout from the from China's
Speaker 1: tacit support for for for for for for Russia, with
Speaker 1: COVID zero, with the with the Nancy Pelosi visit. In
Speaker 1: the aftermath of that, everybody is saying, my goodness, that
Speaker 1: we made the wrong bet on China. They have to
Speaker 1: now look at war plans, scenarios, you know, and and
Speaker 1: this this doesn't help. But here's what struck me last
Speaker 1: Weekendy Apples earnings were miserable. In the words of our
Speaker 1: own Mark German. One strength China. That company is so
Speaker 1: reliant on China, Disney, Nike, The list certainly goes on
Speaker 1: what does it mean for executives who have to do
Speaker 1: business with the country and in the country. That's a
Speaker 1: good question. So so you know Apple is in China
Speaker 1: and and you know extricating itself from China is impossible
Speaker 1: at least in any uh near term time frame. That
Speaker 1: trying at the margins, bits and pieces going down to Vietnam,
Speaker 1: India and so on. But yes, businesses have to engage
Speaker 1: with China, don't forget. Look, you know, China is the
Speaker 1: engine of the global economy. Last year group for three
Speaker 1: three three three percent. It was, it was eight percent
Speaker 1: in two thousand and twenty one. This year is supposed
Speaker 1: to grow five point five percent, and Bloomberg Economist reckoned
Speaker 1: that is adding the equivalent of a Nigeria. So look,
Speaker 1: China is an attractive market. You know, you you you
Speaker 1: have to beat that. But geopolitics is now weighing much
Speaker 1: much more on CEO minds than it ever did in
Speaker 1: the past. Is there a region of the world is it?
Speaker 1: Is it? The China sees that we're keeping an eye,
Speaker 1: like what are you watching geographically, that could be the
Speaker 1: thing that maybe complicates this even Taiwan, Taiwan. Everybody's looking
Speaker 1: at Taiwan, and I think that's that's what comes to
Speaker 1: mind anytime you have a crisis like this, even even
Speaker 1: a crisis on this scale, and you think to yourself, look,
Speaker 1: you know the big one is out there, and and
Speaker 1: and that is some kind of miscalculation over over Taiwan,
Speaker 1: and and tensions over Taiwan are ratcheting up. You know
Speaker 1: that Kevin McCarthy is potentially planning to visit there, that
Speaker 1: you Select Committee on China apparently is going to hold
Speaker 1: what they called some kind of field hearing on Taiwan
Speaker 1: in Taiwan. Um. So, yeah, and that that is that
Speaker 1: is precisely the the the the the problem that if
Speaker 1: you've got an accident occurring under those circumciss in that context,
Speaker 1: it could be really serious. Because you talked about the
Speaker 1: pressure on Biden that if something happens, how much pressure
Speaker 1: will be on him to react, and then and how
Speaker 1: much pressure on j jimping to react. There is no
Speaker 1: more important issue for him than Taiwan. Well, as Tim mentioned,
Speaker 1: coming into you, we really wanted to get you to
Speaker 1: weigh in on this. I know everybody's been having a
Speaker 1: lot of fun, but it felt very serious as this
Speaker 1: story was unfolding, and you really explained why. Andy. Thank you,
Speaker 1: thanks for having me. I always appreciate Andy Brown, his
Speaker 1: partner at Brunswick Group, joining us in our interactive broker
Speaker 1: studio on this Monday. This is Bloomberg Business Week Inside
Speaker 1: from the reporters and editors who bring you America's most
Speaker 1: trusted business magazine, plus bloom Business Finance and tech news.
Speaker 1: The Bloomberg Business Week Podcast with Carol Manser and Tim
Speaker 1: stinebec from Bloomberg Radio. All right, Tim, So, as we
Speaker 1: mentioned Shares a bed Bath and beyond, they're up nearly
Speaker 1: forty year today, still down more than from a high
Speaker 1: back in August two. It's been often grouped among the
Speaker 1: meme stocks actively traded by retail investors, and the company
Speaker 1: is indicated it's getting ready for a potential bankruptcy filing.
Speaker 1: How it got there and who's to blame that is
Speaker 1: the subject of another one of our most read stories
Speaker 1: on the Bloomberg Today. With more on her story, let's
Speaker 1: bring in Jeanette Newman, Bloomberg News US Luxury Retail and
Speaker 1: Personal Care Industries reporter. She's with us right now when
Speaker 1: our Bloomberg Interactive Broker's studio. So, Jeanette, who is to
Speaker 1: blame for what's happening at Bed Bath and Beyond? Well,
Speaker 1: there are many people, um to name is the is
Speaker 1: the short answer, And I think, I mean one one
Speaker 1: thing that is to blame is Amazon. But I think
Speaker 1: Amazon kind of you know, whenever there's retail bankruptcies, people
Speaker 1: kind of cat you know, this is another one bites
Speaker 1: the dust because of Amazon. And it's much more complicated
Speaker 1: than that because obviously there's a lot of retailers out
Speaker 1: there who are competing against Amazon and they're doing and
Speaker 1: they're doing fine. So Amazon is you know, somewhat to
Speaker 1: blame for Bedbad where Bed Bath and Beyond ended up,
Speaker 1: but it's a small portion of them of the blame.
Speaker 1: And just over over the past you know, several years,
Speaker 1: there's been a series of management missteps and miscalculations that
Speaker 1: led the company to where it is today. So it's
Speaker 1: it's um structural forces with Amazon, but also you know,
Speaker 1: mistakes by managers over the past several years. We'll talk
Speaker 1: to us about some of the mistakes because we've been
Speaker 1: talking about retail I feel like for over a decade
Speaker 1: in terms of how we got overstored too many strategies
Speaker 1: out there, and we've seen fall at I mean we
Speaker 1: even just see I mean, what's going on here post
Speaker 1: pandemic of just so many retail that have whittled down,
Speaker 1: you know, their stores, their brick and mortar stores. So
Speaker 1: what specifically in the bed, bath and beyond strategy asanet
Speaker 1: that they just kind of messed up with. So they
Speaker 1: definitely didn't invest enough in in online, so that that
Speaker 1: left them kind of, you know, flat footed competing against
Speaker 1: Amazon that omni channel. Right, I can go to the store,
Speaker 1: I can buy online from you guys and all that
Speaker 1: good stuff. Exactly. They didn't. They didn't. They didn't do
Speaker 1: that well. They spent a lot of money UM buying
Speaker 1: lots of companies, for example By By Baby, Christmas Tree Shops.
Speaker 1: They spent a ton of money billions and billions UM
Speaker 1: on share on share buy backs. That was kind of
Speaker 1: the previous leadership. Then a new CEO a couple of
Speaker 1: years ago UM took over. He was the former head
Speaker 1: UM chief Merchant at Target. So it's a really big deal.
Speaker 1: Mark Tritt and people were really excited about what he
Speaker 1: was going to do to potentially turn this uh, this
Speaker 1: company around and and in fact, he was not able
Speaker 1: to turn it around. And you know, long story, hopefully
Speaker 1: people can can read that, can read the story. But
Speaker 1: some of what he did was also double down on
Speaker 1: share buy backs, so spent a billion dollars at a
Speaker 1: time when the company didn't have necessarily that cash on hand,
Speaker 1: and also made a pivot to UM white label or
Speaker 1: private label brands. And that's something that for a retailer
Speaker 1: can actually make a lot of sense because essentially you're
Speaker 1: cutting out the middleman, right, so it's like you're going
Speaker 1: to the factory in China and you're sourcing the products UM.
Speaker 1: Doesn't it seem crazy in hindsight because it's the kind
Speaker 1: of story you like a meta candles or I need
Speaker 1: some towels, or I need a rug for the bathroom.
Speaker 1: I go in, bam, do it go right? Right? And
Speaker 1: so the private label thing can make sense because there's
Speaker 1: higher there's higher margins, is more profitable for companies. But
Speaker 1: they did it at right like when the pandemic hit,
Speaker 1: so they weren't able to effectively source all of their
Speaker 1: their new products from China. And also they ended up
Speaker 1: doing it at the expense perhaps unintentional, but at the
Speaker 1: expense of some of these well known brands that took
Speaker 1: people to the store for decades, Kitchen Aid, Oxo, all
Speaker 1: those brands. So now they had all their own new
Speaker 1: brands that people didn't know, didn't recognize, didn't resonate with
Speaker 1: the customer, and there wasn't the same availability of the
Speaker 1: kitchen Aids and the Oxos so customers. Then that that
Speaker 1: started the company on a downward spile. Right, Customers go there,
Speaker 1: they don't see, they don't see what they want. The
Speaker 1: company's burning cash cashes, you know, they're ashpile. Is is
Speaker 1: starting to dwindle. Suppliers start to get really nervous because
Speaker 1: they think that they're not going to get paid um,
Speaker 1: suppliers pull back, shelves end up being empty. Starts a
Speaker 1: vicious cycle where that if a shelf is empty. Yeah, yeah,
Speaker 1: So it's just it's this downward spiral that they got
Speaker 1: caught that they got caught in. And they've been known
Speaker 1: for having like, right, the inventory, you could just see
Speaker 1: it piled up. It was even more striking I think
Speaker 1: because of you know, it had been kind of like
Speaker 1: a stack at high and let it fly as what
Speaker 1: they would what they would call it in retail back
Speaker 1: in the back in the day, you know. So I
Speaker 1: think that that was one of the things that also
Speaker 1: it was just such a stark contrast to what the
Speaker 1: company had had been. And it's been in that downward
Speaker 1: spiral now for you know, um, nearly nearly a year,
Speaker 1: So a downward spiral that's very difficult to get out of.
Speaker 1: So how long is this downward spiral? And and what
Speaker 1: could happen? I mean, what could the future of bed
Speaker 1: Beth and Beyond look like on the other side? Is
Speaker 1: there another side? Um? There we have we have reported
Speaker 1: that our colleagues on the bankruptcy team have reported that
Speaker 1: liquidation is possible. So liquidation meaning you know, allah Barney's
Speaker 1: like a Barney's, you know, it doesn't exist. Circuit City
Speaker 1: does exist anymore. Um, towards arrest, at least in the
Speaker 1: US doesn't exist anymore. We have reported that that is
Speaker 1: possible because of the dire financial situation that they're in.
Speaker 1: Is there a winner in this? That's not? Um? And
Speaker 1: I just want to point out shares a, bed Bath
Speaker 1: and Beyond have been halted because of volatility stock right now?
Speaker 1: Is that okay? Okay? And there, I mean it's a
Speaker 1: it's a lot of meme stock. And and because this
Speaker 1: bankruptcy process has been the company itself said, uh, you
Speaker 1: know that they're likely that they could file for bankruptcy,
Speaker 1: and so kind of since that's happened, there's been a
Speaker 1: ton of volatility. But is there a winner if if
Speaker 1: people can't go to bed, bath and beyond or bye
Speaker 1: bye baby? Is it a company like Target? Is it Amazon?
Speaker 1: Who could some winners be because people need this stuff? Yeah?
Speaker 1: I think I think it's all. I think it's all
Speaker 1: of the above. I mean, in in past retail bankruptcy,
Speaker 1: is there often hasn't been a huge jump at any
Speaker 1: one retailer. You know, in Circuit City went out of
Speaker 1: went out of business. It wasn't like best Buy saw
Speaker 1: a huge jump. But because it's a slow decline of
Speaker 1: something where people have our have been going to those
Speaker 1: places anyway. Yeah, yeah, and sometimes people end up buying less.
Speaker 1: Like if you you you buy more because you have
Speaker 1: a store near you, and if you don't have that
Speaker 1: store near you, then some of the demand actually just
Speaker 1: also dissipates. So there's gonna be winners, Target, Amazon, But
Speaker 1: I don't think none of these companies are going to
Speaker 1: see this huge boost at all of the all of
Speaker 1: the traffic from bed bath is going to go to them. Um,
Speaker 1: my apartment is not so happy about this. Okay, so
Speaker 1: we got a baby on the way is yeah, yeah,
Speaker 1: we got a baby on the way, so we need
Speaker 1: bye bye baby. And then my wife really likes face values,
Speaker 1: which is part of the bed bathroom beyond the rerelative
Speaker 1: is it is. And and look, I mean a lot
Speaker 1: of people are not very happy, you know. I mean,
Speaker 1: this was a beloved brand. Um the famous coupons that
Speaker 1: drove that drove a lot of people to the to
Speaker 1: the store. And also you know, there's a lot of
Speaker 1: um in it's heyday. In two thousand seventeen, the company
Speaker 1: had sixty five thousand employees. Now it has less than
Speaker 1: thirty thousand. But those, you know, those people's jobs are
Speaker 1: at risk. We've written about how their severance payments they
Speaker 1: haven't they haven't received their severance pay So there's also
Speaker 1: a lot of workers and employees who are at risk here.
Speaker 1: I mean, I do wonder with you know, the growth
Speaker 1: at things like Target and other stores where and and
Speaker 1: online where it is so easy to get so many
Speaker 1: of the goods that they offer and get them pretty quickly.
Speaker 1: Is it just a case we didn't need that model.
Speaker 1: I'm curious what retail experts have said that just that
Speaker 1: model was just not needed anymore because it was kind
Speaker 1: of a one stop shopping for a lot of different things, right.
Speaker 1: I think that it at least what what what I
Speaker 1: have heard of what I have learned is that it's
Speaker 1: not necessarily that the model wasn't needed, is that the
Speaker 1: model wasn't well executed. I think there is still space
Speaker 1: for this model. And in terms of what might happen next,
Speaker 1: you might see the company might go into bankruptcy. Then
Speaker 1: sometimes like companies will buy up the intellectual property and
Speaker 1: you'll have an online version of Bad Bath and Beyond.
Speaker 1: That happened with Peer one, for example. There's no more
Speaker 1: Peer one stores left, but there's a peer one dot
Speaker 1: com and and and the toys r us so so
Speaker 1: how loved this is not baby is Bad Bath and Beyond?
Speaker 1: Apart from the master household, I think you know it was.
Speaker 1: It was one of the biggest home goods you know,
Speaker 1: still still is one of the biggest home good stores
Speaker 1: in in in the US. So I think that it
Speaker 1: is it is quite beloved, and I think that's what
Speaker 1: you know, creditors in the company right now are trying
Speaker 1: to hash out like how how much has it loved
Speaker 1: and how much is that going to pay? Essentially how
Speaker 1: much money do they have before they've got to do something.
Speaker 1: I mean they are they are actively in bankruptcy talks
Speaker 1: as as as as we are speaking, there in bankruptcy,
Speaker 1: there in bankruptcy talks. So they've been burning burning cash
Speaker 1: for about a year and you know, in the last
Speaker 1: quarter sales fell about year over year. I mean that
Speaker 1: that's that's that's a ton. All right, We're gonna leave
Speaker 1: it on that note, Jeanette, Thank you so much. Janette Newman.
Speaker 1: She is US luxury, retail and personal care industries reporter
Speaker 1: at Bloomberg News. Here in our interactive broker studio, this
Speaker 1: is Bloomberg business Week inside from the reporters and editors
Speaker 1: who bring you America's most trusted business magazine, plus global business,
Speaker 1: finance and tech news. The Bloomberg Business Week Podcast with
Speaker 1: Carol Messer and Tim Stinebec from Bloomberg Radio ROC Journal. Yeah,
Speaker 1: I bet you let me drive? Oh no, no, no,
Speaker 1: no home please, I'll do I want to drive. It's
Speaker 1: a good question. D This is the Drive to the
Speaker 1: Globe on Bluebird Radio. All Right, folks, just about sixteen
Speaker 1: and a half minutes left in today's trading session. We're
Speaker 1: bouncing around off our highs and lows, but we are
Speaker 1: right across the board, as you heard from Charlie, down
Speaker 1: the most when it comes to the NASA, down about
Speaker 1: one percent. It's very good to have it back with us.
Speaker 1: Amanda Gotti, chief investment officer at P and C Asset
Speaker 1: Management Group, joining us via zoom in Philadelphia. Amanda, how
Speaker 1: are you? I'm doing great? How are you doing? We're
Speaker 1: doing okay, trying to figure out what the FETE is saying,
Speaker 1: what j. Powell is going to say tomorrow, what a
Speaker 1: very much hotter than expected jobs report on Friday says
Speaker 1: about the feds path. What are you looking at? Well,
Speaker 1: it certainly is challenging to make sense of the market madness.
Speaker 1: That's how I'm sort of describing in these days. We've
Speaker 1: also been describing this market as being a little bit delusional,
Speaker 1: a little bit deranged, perhaps even unhinged. All with dramatic effect.
Speaker 1: But I think really at the end of the day,
Speaker 1: you know, what we're seeing in terms of leadership to
Speaker 1: start off this year really does not align with the outlook.
Speaker 1: It's the same outlook that was in place last year,
Speaker 1: and at the end of the day here the FED
Speaker 1: is still firmly in the driver's seat. So a really
Speaker 1: significant disconnected in terms of market. That's so interesting that
Speaker 1: you say that because a listener got in touch and
Speaker 1: sent me the bed Bath and Beyond price action today,
Speaker 1: which at one point was up triple digits and now
Speaker 1: is up and I'm thinking to myself, you know, this
Speaker 1: is like all over again. What do you think? Yeah, So,
Speaker 1: I think investors are really conditioned to everything moving at
Speaker 1: warp speed. We've been in a high volatility regime since
Speaker 1: the onset of the pandemic, and I think investors would
Speaker 1: just like this whole tep FED tightening cycle to be
Speaker 1: over with at warp speed. And so that's why we
Speaker 1: keep saying markets very much fighting the FED on this,
Speaker 1: But it's a longer, for longer dynamic here in play,
Speaker 1: especially with what we're seeing around inflation drivers being pretty
Speaker 1: sticky and certainly what we're seeing in that red hot
Speaker 1: jobs report, you know, potentially more rate hikes ahead, a
Speaker 1: higher terminal rate, just a longer overall tightening cycle. And
Speaker 1: so I think that's really where we're going to start
Speaker 1: to see some potential disconnects in terms of this market
Speaker 1: price action. Amandas too soon Our Steve Victory, our Steve
Speaker 1: Matthews cut off caught up with the President of the
Speaker 1: Federal res Or Bank of Atlanta, Raphael Bostic, who said
Speaker 1: that the strong jobs report for January raises the possibility
Speaker 1: that the Central Bank will need to increase interest rates
Speaker 1: to higher peak than policymakers had previously expect did um
Speaker 1: and just talking about doing a little more work. He
Speaker 1: doesn't vote on policy this year, but he said officials
Speaker 1: need to understand if the jobs report wasn't anomalous reading,
Speaker 1: in which case he would be inclined to look through
Speaker 1: this a bit, but said that the committee could also
Speaker 1: consider moving back to a fifty basis point hike if
Speaker 1: you needed to, though that's not his expectation, and he
Speaker 1: supported last week's downshift in rates. A lot of ifs
Speaker 1: and butts for candy nuts kind of a thing. Uh,
Speaker 1: there's just so many different scenarios that we could see.
Speaker 1: So at this point, how do you value the market?
Speaker 1: Are we fairly valued? Are we still overvalued? Are we
Speaker 1: a little undervalued in some areas well? I would say
Speaker 1: in general, we're still sitting at overvalued levels. There's no
Speaker 1: question that we're in a better place to start this
Speaker 1: year than we were last year. That feels like an understatement. Um,
Speaker 1: but we're certainly not priced that recessionary valuation levels. In fact,
Speaker 1: as we're seeing earnings growth start to come down as
Speaker 1: a function of Q four earning season, we're actually seeing
Speaker 1: this paradox of multiples expanding. So eighteen times of forward
Speaker 1: p on the SMP five nowhere near price stet recessionary
Speaker 1: valuation level. So we think there is probably another ten
Speaker 1: to fifteen percent downside here, especially if the Fed keeps going.
Speaker 1: Wait are you though, is that only if we get
Speaker 1: a recession or even no? Well, I would say it's
Speaker 1: sort of one and the same. So there's never really
Speaker 1: been a tightening cycle in history on the part of
Speaker 1: the Fed where they've raised rates too. But I guess
Speaker 1: it's five point one percent or higher as a function
Speaker 1: of the dot plot and the terminal rate without tipping
Speaker 1: us into recession. So my view and p n c's views,
Speaker 1: if we go that far or even higher, the recession
Speaker 1: becomes a foregone conclusion. So I think both of those
Speaker 1: catalyze a bit of a down draft here over the
Speaker 1: next few months. Do you say, you say a client
Speaker 1: from where we are in the right now well is
Speaker 1: considering how far we've moved to start the year. That's
Speaker 1: probably a little light in terms of downside, but that's
Speaker 1: that's basically what we think could happen. Well, what's interesting
Speaker 1: those I think it could be somewhat short lived because
Speaker 1: if we do get that eventual FED pause, even if
Speaker 1: we don't get a cut, I think there's a lot
Speaker 1: of power in a FED pause that could add back
Speaker 1: a couple evaluation multiple points, seemingly overnight. So it could
Speaker 1: be a very interesting returns profile for this year. Choppy
Speaker 1: down first half and then a bounce in the second half,
Speaker 1: and we might eke out positive returns for the year.
Speaker 1: But that's a huge if, and a lot of variables
Speaker 1: have to come together for that to play out. I
Speaker 1: just want to go back to uh this story that's
Speaker 1: on the Bloomberg terminal by our own Steve Matthews, who's
Speaker 1: who follows the Fed. He's a Bloomberg News economics reporter, uh,
Speaker 1: and he caught up in the Bloomberg News team caught
Speaker 1: up with the Federal Reserve Bank of Atlanta President Raphael Bostick.
Speaker 1: I mean, another thing, Amanda, that uh, Steve got from
Speaker 1: Bostick is that he expected inflation to be in the
Speaker 1: low threes this year, still well above the FEDS to
Speaker 1: percent target, you know, requiring rates to be hired for longer,
Speaker 1: but low threes. I mean that gets to start feel
Speaker 1: more normal. Right Historically? Oh absolutely. You know, if you
Speaker 1: think about the ten plus years leading up to the
Speaker 1: onset of the pandemic, we undershot in a big way
Speaker 1: in the inflation target. So I think there's definitely a
Speaker 1: period of time here where the pendulum can swing and
Speaker 1: stay not at current levels, but certainly stay at a
Speaker 1: more elevated level of inflation relative to that target. By
Speaker 1: the way, that three kind of handle on inflation scenario
Speaker 1: is actually really good for earnings growth and for valuation
Speaker 1: multiple expansion, So we think the backdrop can can handle
Speaker 1: that very well. I actually think landing there is probably
Speaker 1: better than hammering away at this and trying to get
Speaker 1: that two percent target. You said that was really good
Speaker 1: for earnings growth and what else, valuation multiple expansion. Okay,
Speaker 1: so that would be a much better uh level to
Speaker 1: be at. UM. Really great analysis and so great to
Speaker 1: be able to kind of get your reaction to what
Speaker 1: Raphael Bostak had to say to our Steve Matthews. Amanda Gotti,
Speaker 1: thank you, Thank you, Chief investment Officer at PNC Asset
Speaker 1: Management Group. Joining us via zoo. This is the Bloomberg
Speaker 1: Business Week podcast, available on Apple, Spotify, and anywhere else
Speaker 1: you get your podcast. Listen live each weekday starting at
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