Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
Speaker 1: Eastern on Applecarplay and Android Auto with the Bloomberg Business app.
Speaker 1: Listen on demand wherever you get your podcasts, or watch
Speaker 1: us live on YouTube.
Speaker 2: So here's a headline for you. Blacksuit cyber crime gang
Speaker 2: is blamed for major CDK ransomware attacks.
Speaker 3: So this is the deal.
Speaker 2: Fifteen thousand car dealerships across the US in Canada have
Speaker 2: gone days now without software systems that are crucial to
Speaker 2: running their business, and this is after multiple cyber attacks
Speaker 2: on CDK Global. Now that company's just a handful of
Speaker 2: dealer management systems that provide auto retailer's ability to basically function,
Speaker 2: schedule appointments, customer records, etc. And so apparently Blacksuit cyber
Speaker 2: crime Gang is blamed in that attack.
Speaker 4: It's a real deal.
Speaker 5: Buddy Mine manages a dealership in Jersey and he said
Speaker 5: it's definitely. It impacts everything they do. And the net
Speaker 5: result is it just takes longer to serve your customer,
Speaker 5: gives them.
Speaker 4: More time to walk out the door, and.
Speaker 5: So it's impacting, you know, a little bit of an
Speaker 5: impact on units sold per day they're noticing, so they
Speaker 5: need to get that fixed as quickly as possible.
Speaker 3: That's interesting.
Speaker 2: But also like when you go to a car dealership,
Speaker 2: you already spend half your day there, so you extended
Speaker 2: and like forget it. Steve Mann is Bloomberg Intelligence Global
Speaker 2: Auto is an industrials research analyst, and he joins us. Now, Steve,
Speaker 2: you've been following this and the hack.
Speaker 3: What happened?
Speaker 6: Oh, this is very significant. I mean, I mean, Paul
Speaker 6: just said he spoke to some of the dealership in
Speaker 6: New Jersey. If I've reached out to some of the
Speaker 6: dealerships that I've that I've talked to, the impact is significant.
Speaker 6: It's not just only sales, but it's also service and parts.
Speaker 6: You know, the systems interrupted to a point where they
Speaker 6: can't even get certain cars registered and delivered to their customers,
Speaker 6: the ones that's already sold. So you know, Inventor is
Speaker 6: gonna get a little pick up. It's gonna be you know,
Speaker 6: I don't know when it's gonna get fixed. They probably
Speaker 6: have to pay that fine, and I think they will
Speaker 6: pay that fine. But at the end of the day,
Speaker 6: I think if I look at from the automaker's perspective,
Speaker 6: it's it's a temporary, temporary blip. Inventory is gonna rise,
Speaker 6: but I think sales will be delayed, and hopefully when
Speaker 6: this gets resolved, customers will come back. More customers will
Speaker 6: come back to the to the showroom.
Speaker 5: And it seems I mean Bloomberg News reporting CDK plans
Speaker 5: to make the ransomware payment.
Speaker 4: Oh yeah, frustrating. It's just but I guess they kind
Speaker 4: of have to.
Speaker 5: I don't know, all right, Steve talked to us about
Speaker 5: China europe tariffs. We've got the European Union reporting you know,
Speaker 5: we talked to you last week initiating some tariffs here.
Speaker 5: Now Beijing's kind of responding here. What's the latest.
Speaker 6: Yeah, it's uh, it's it's a big deal for the Germans,
Speaker 6: especially the luck through automakers like BMW, Mercedes and Audi
Speaker 6: which Volkswagen owns Audi. Uh. You know, they have about
Speaker 6: eighty percent of the market, the luxury car market in China,
Speaker 6: so they sell a huge amount of cars in China.
Speaker 6: About a third to forty percent of these companies' revenues
Speaker 6: actually generate in China, so they yeah, so they want
Speaker 6: to make good with the Chinese. As you know, Germany
Speaker 6: has been against the tariffs. So if the Germans are
Speaker 6: able to get something from China and help ease some
Speaker 6: of the tariffs or China. You know, if China can
Speaker 6: get the Germans to help them ease some of the
Speaker 6: tariffs in the EU, I think it will benefit you know,
Speaker 6: potentially companies like Stilentis as well, which is which also
Speaker 6: has a new joint venture.
Speaker 2: But here's the thing that I get confused, is it
Speaker 2: China's making a pitch to individual countries versus the European
Speaker 2: Union trying to operate as one body in relation to tariffs,
Speaker 2: and I wonder how that's gonna work itself out.
Speaker 6: Yeah, I think it's it's that conquer, divine and conquer
Speaker 6: strategy they're they're taking. So but you know, I think
Speaker 6: the Germans probably has the most to lose out of
Speaker 6: the global automakers here. You know, about sixteen percent of
Speaker 6: their battery electric vehicles that are produced in China, it's
Speaker 6: actually shipped out globally. So China plays an important part
Speaker 6: for the BEEV market as a low cost producer. So
Speaker 6: you know, I don't think there's a lot of other
Speaker 6: automakers that are you know that have that many bev's
Speaker 6: produced in China and sold elsewhere around the world.
Speaker 5: And Steeve just a red headline crossing the Bloomberg terminal.
Speaker 5: Now Canada now gets into the game. Canada announces planned
Speaker 5: to curb imports of Chinese made evs.
Speaker 4: I mean, what's going on here?
Speaker 5: I mean, I mean, first of all, just give us
Speaker 5: a sense of how good, how competitive are these Chinese evs,
Speaker 5: because if you tell me they're good vehicles, let's bring
Speaker 5: them into the market.
Speaker 6: I don't know, Yeah, I think some if you talk
Speaker 6: to some of the al makers, they actually have the
Speaker 6: same thinking. Let's let's let's compete, right. I think competition
Speaker 6: will make the whole industry better. You saw that with
Speaker 6: Tesla being the you know, fourth or third automaker in
Speaker 6: the US and actually helped drive a lot of the
Speaker 6: b EV costs down. But you know, it's not surprising
Speaker 6: that Canada is is implementing tariffs. Uh. They are part
Speaker 6: of the US Mexico Canada Free Trade Agreement, and I
Speaker 6: think you know they have to close that that door,
Speaker 6: that back door where the Chinese evs can come in.
Speaker 6: It is it is very competitive. I think you know,
Speaker 6: Chinese evs are cheap enough that if you know, some
Speaker 6: argue that even with the tariffs, even with some engineering
Speaker 6: change to to so that they're they fit thet they
Speaker 6: fit the regulatory safety and mission rules here, is still
Speaker 6: be a very competitive price vehicle for North America.
Speaker 2: So then to that point, we're waiting for Mexico now, right,
Speaker 2: because I think we talked about this before. So not
Speaker 2: only is Canada gonna put tariffs on EV imports, they're
Speaker 2: also going to curb imports.
Speaker 3: Of Chinese made evs.
Speaker 2: The idea is that if Mexico doesn't have any of
Speaker 2: those restrictions, that they can just import EV's from China
Speaker 2: and then through Mexico go into the US. And that's
Speaker 2: a different way of operating. When do we get that
Speaker 2: from Mexico.
Speaker 6: I think there are some negotiation that's happening now with
Speaker 6: Mexico to kind of implement similar tariff. I've heard that
Speaker 6: VOVO is already kind of lobbying. VOVO is actually part
Speaker 6: of Chile, is actually lobbying the Mexican government to not implement,
Speaker 6: to not put tariffs in place. So then negotiations are ongoing.
Speaker 6: I don't think we were gonna wait, have to wait
Speaker 6: too long to hear any news from that.
Speaker 5: All right, So stepping back a little bit, give us
Speaker 5: the latest thinking out of Detroit and other auto capitals
Speaker 5: around the world about.
Speaker 4: EV's versus the hybrids.
Speaker 5: Is the hybrid going to be I guess the stepping
Speaker 5: stone to a pure EV environment? Do you think is
Speaker 5: that still the thinking?
Speaker 6: Yeah, I think that is still the thinking. I think
Speaker 6: with BEEV sales slowing down or growth slowing down, the
Speaker 6: automakers do need something else to meet the cafe, the
Speaker 6: few economy regulations, the emissions regulations. So hybrid is a
Speaker 6: stopgap measure. But if you talk to the all the
Speaker 6: automakers just still spending a lot of money on BEV.
Speaker 6: They think that is the future because at the end
Speaker 6: of the day, hybrid vehicles do still spill spell out
Speaker 6: pollution or greenhouse gases. So you know, as you know,
Speaker 6: these emission standards, these few economy standards, they're only going
Speaker 6: to get tighter and tighter.
Speaker 3: All right, Steve, we appreciate it, Thank you very much.
Speaker 2: I feel like your sector is moving so fast right
Speaker 2: now in terms of all the rules and regulations. Steve
Speaker 2: Man Bloomberg Intelligence, Global Autos and industrials research analyst.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple car.
Speaker 7: Play and Android Auto.
Speaker 1: With the Bloomberg Business app. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station Just
Speaker 1: Say Alexa playing Bloomberg eleven thirty.
Speaker 5: One of the pieces of news crossing the tape here,
Speaker 5: Alex just reaching is you know Apple, there's some concerns
Speaker 5: there at the European Union regulators once again looking at
Speaker 5: a big US tech company, in this case Apple, looking
Speaker 5: at their app store and maybe some abuses. Their Temlin
Speaker 5: Basent Joints is here. Temlin is a technologyannelst for Bloomberg Intelligence.
Speaker 5: He was in the US, but now he's in London.
Speaker 4: Get to London. I have no idea how that happened.
Speaker 4: I did not complane.
Speaker 3: I mean a ship would take a way too long.
Speaker 4: Yeah, I did not approve that.
Speaker 5: But anyway, Tamlin, thanks so much for joining us here.
Speaker 6: Talent.
Speaker 5: Tell us what's happening with Apple today as it relates
Speaker 5: to the European Union and some of the regulators there.
Speaker 8: Yeah. Sure, So what happened today is the European Commission
Speaker 8: announced preliminary findings in an investigation into Apple under the
Speaker 8: Digital Markets Act. This is the sweeping new competition rules
Speaker 8: that the European Union is sort of implemented in March
Speaker 8: of this year. Now, the findings of this probe relate
Speaker 8: to anti steering rules, so essentially to Apple's rules that
Speaker 8: it has in place to sort of prevent app developers
Speaker 8: from informing users of maybe cheaper subscription options outside of
Speaker 8: the app store. Now this might sound familiar because just
Speaker 8: in early March, before the DMA took effect, the Commission
Speaker 8: did find Apple one point eight billion euros over sort
Speaker 8: of the same anti steering. Now, what today their commission
Speaker 8: said is that Apple is still not complying now with
Speaker 8: the d m A in terms of really letting developers
Speaker 8: freely engage with users and direct them to cheaper options. Specifically,
Speaker 8: this kind of they want developers to be able to
Speaker 8: market within the app and show cheaper subscriptions within that.
Speaker 8: So it's really this is kind of more pressure on
Speaker 8: those sort of app store revenues that Apple.
Speaker 2: So what does Apple say to that, Like, well, what's
Speaker 2: their defense to that, because presumably they had months to
Speaker 2: kind of get it together.
Speaker 8: They did, and they haven't responded. What do they said
Speaker 8: is they think that they do comply with all of this.
Speaker 8: What's interesting about the DMA, though, is that this is
Speaker 8: the DMA that European Commission did play a strong role
Speaker 8: in drafting these rules, and it's also responsible for enforcing them,
Speaker 8: and there are a lot of sort of subjective interpretations
Speaker 8: in terms of first complying with it. So I think
Speaker 8: what we are going to see is probably the European
Speaker 8: Commission taking a very strict view of what's reasonable in
Speaker 8: these circumstances and probably really try to get strict adherance here.
Speaker 8: So it's going to be going to be up to
Speaker 8: them to decide whether Apple is complied or not, and
Speaker 8: then Apple can then sort of appeal to the courts.
Speaker 8: But I do think it's it's pretty likely we're going
Speaker 8: to see another fine in this and some behavioral remedies
Speaker 8: coming down the line.
Speaker 5: You know, Alex, I love talking to Tamlin. Good guy,
Speaker 5: smart guy, But you know what, it just doesn't matter.
Speaker 5: Apple stock up a tenths of one percent today, It's
Speaker 5: a nine percent year to date. We've seen this time
Speaker 5: and time again where the Europeans just start nitpicking at
Speaker 5: these US technology companies, Tamila, what's the feeling within the
Speaker 5: regulatory environment of Europe as to really what they're trying
Speaker 5: to do here, because it just doesn't seem like it's
Speaker 5: even relevant. I mean, it just at the end of
Speaker 5: the day, they just these whether it's Google or Facebook,
Speaker 5: or they just write checks here to make could all
Speaker 5: go away? I mean, is that kind of do European
Speaker 5: regulators recognize that it just doesn't seem to be that
Speaker 5: I material what they're doing.
Speaker 8: Right, Yeah, So I think if you look at this
Speaker 8: specific investigation, you know, this is one that sort of
Speaker 8: came out of sort of Spotify, which of course is
Speaker 8: headquartered in Europe, and the app developers are complaining that
Speaker 8: the Apple is squeezing them too hard. So I think
Speaker 8: in some of these instances, Europe is trying to protect
Speaker 8: some local players by sort of ordering a sort of
Speaker 8: loosening of these rules that sort of maybe benefit the
Speaker 8: gatekeeper on the NBA, which DNA, which would be at Apple, Google,
Speaker 8: Microsoft brothers, and they are sort of trying to show
Speaker 8: domestic industry that they are trying to pry open the markets.
Speaker 8: But I do think you're right that I think at
Speaker 8: this point investors are sort of kind of just shrugging
Speaker 8: this off. This is just one thing after another. I
Speaker 8: will point that may point out that a difference under
Speaker 8: the DMA is that the timeline is really much quicker
Speaker 8: than under sort of former case law, where it may
Speaker 8: take three four years until you got a result after
Speaker 8: an industiation. Here that this finding came just three months
Speaker 8: after the inquiry opened, and we're going to have sort
Speaker 8: of a final remedial measure by early next year. So
Speaker 8: I do think the timeline is faster. Whether or not
Speaker 8: this results and sort of the impact that the regulators
Speaker 8: might be looking for, I think definitely remains to be seen,
Speaker 8: and I think investors are definitely looking a little bit
Speaker 8: of skew at it and thinking maybe this is sort
Speaker 8: of just more of the same.
Speaker 5: And Alex, I mean, you know, it's really almost, maybe
Speaker 5: even more than thirty years ago that Microsoft started going
Speaker 5: through the same whole thing with the European Union, and
Speaker 5: again it investors became conditioned to it's no big deal.
Speaker 5: They just write it check and it kind of goes away.
Speaker 5: The tobacco industry, you know, investors kind of said, put
Speaker 5: it in context, it's not that big a deal, and
Speaker 5: you kind of wonder, you know, given that the US
Speaker 5: regulators have taken a very light touch to technology and
Speaker 5: then allowing these companies to get so big, like the
Speaker 5: Europeans are trying to do what they can to kind
Speaker 5: of rein it in, but it seems almost too little,
Speaker 5: too late, right.
Speaker 2: And also you can make the argument too that you know,
Speaker 2: Europe doesn't have a lot of technology companies. They have some,
Speaker 2: of course, like ASML for example, Yes, but yeah, exactly SAP,
Speaker 2: but I mean, can you name anymore? No, there's some,
Speaker 2: But I think that that's kind of the point. Maybe
Speaker 2: take a look at you know, European stocks versus the
Speaker 2: S and P and market cap like twenty years ago
Speaker 2: versus now, Oh my gosh, forget that different. Hey Tamlin,
Speaker 2: what's going on with Apple in general? Like it's it's
Speaker 2: it seems to be making a little bit of a
Speaker 2: comeback here. It's actually ups extensive one percent, despite you know,
Speaker 2: in video for example, down over two percent.
Speaker 3: What do you make of that?
Speaker 8: Yeah, I mean I think some of this comes some
Speaker 8: sort of the recent announcement to sort of build AI
Speaker 8: into the into the iPhone and maybe maybe sort of
Speaker 8: accelerate the recycle in terms of getting people to buy
Speaker 8: those phones. I do think it probably definitely. I don't
Speaker 8: think the regulatory headwinds are really causing it much damage
Speaker 8: right now. I will point out that although the US
Speaker 8: is definitely like ASSAD taking a light touch approach, the
Speaker 8: one area they are getting involved in is on sort
Speaker 8: of these apps for rules, where where Apple's obviously been
Speaker 8: in litigation with Epic for years and years and years.
Speaker 8: So I think on both sides of the Atlantic, there
Speaker 8: are some pressure on that on those services revenues that
Speaker 8: we might see shaking out over the next you know,
Speaker 8: nine to eighteen months to see how that plays out.
Speaker 5: So Timmley, you've you've been based both in the US
Speaker 5: and now in the UK. What's your view of kind
Speaker 5: of the technology and landscape and the ability for new
Speaker 5: technologies to kind of be developed and grow in in
Speaker 5: the UK and Europe. What's what's your view given your
Speaker 5: experience in the US.
Speaker 8: Yeah, well, I think the US probably probably has more
Speaker 8: of a fostering environment for that startups stage. I think
Speaker 8: that's why you've seen some of your US companies really flourished.
Speaker 8: I do think in Europe there's trying to create that
Speaker 8: fostering environment, specifically for the artificial intelligence field. I think
Speaker 8: you have seen some they are. There's an AI regulation
Speaker 8: that's taken effect. I don't think it's nearly as strict
Speaker 8: as it could have been. I think a large reason
Speaker 8: for that are lawmakers, specifically in France and Germany, really
Speaker 8: wanted to try to foster and incubate beat AI industries
Speaker 8: that they had going on. So I think we'll have
Speaker 8: to see whether that works out and whether we have
Speaker 8: the European large scale AI players. I think historically definitely,
Speaker 8: I think you've seen more of that sort of startup,
Speaker 8: startup fostering taking place in the US than Europe.
Speaker 3: All right, Tamlin, we really appreciate it. Thank you so much.
Speaker 3: Do you like living in Europe? By the way, are
Speaker 3: you enjoying the UK?
Speaker 1: Yeah?
Speaker 8: Quite nice?
Speaker 2: Excellent, right, I get you. It's not ninety two degrees there.
Speaker 3: Yeah, humidity. I'm just put that out there, all right, Tamlin.
Speaker 3: We appreciate you. Thank you.
Speaker 2: Tamlin based in joining US A Bloomberg Intelligence technology analyst
Speaker 2: from the UK. Here's my question for you, Paul, what
Speaker 2: do you think is going on with tech right now? Like?
Speaker 3: Is this like a rebalancing to the end of the
Speaker 3: cour order. Is this like a pause? Is there something
Speaker 3: more disastrous going on here? What do you think?
Speaker 5: I don't think so. I mean again, we just heard.
Speaker 5: I just got a note from Vince from out in
Speaker 5: the audience. Bid in stocks's quarter end window dressing. That's
Speaker 5: all he's hearing so far, Vince Cignarella kind of rating
Speaker 5: in here. So no, I think tech is you know,
Speaker 5: I just think it's a pause here.
Speaker 4: I mean, I think they're gonna be.
Speaker 5: The question for a lot of folks, is you know
Speaker 5: tech has been the leader in this stock market performance
Speaker 5: for years now?
Speaker 4: Can it continue to be?
Speaker 5: And I just think you look at the tech spending
Speaker 5: and you see where it continues to be a significant
Speaker 5: growth story, and just in terms of old total tech
Speaker 5: spending throughout the entire tech stack.
Speaker 4: Led by AI.
Speaker 5: So maybe the AI trade maybe got the sector a
Speaker 5: littlehead of itself. Maybe time for a pause, but boy,
Speaker 5: the longer term trend seems really solid.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Focar playing Endroyd Auto
Speaker 1: with the Bloomberg Business app. Listen on demand wherever you
Speaker 1: get your podcasts or watch us live on YouTube.
Speaker 2: And the NASDA gets flat on the day. I mean,
Speaker 2: go figure. I feel like we're definitely on our way back.
Speaker 2: Alleren Gilbert's CEO of Wealthfuised Financial, is joining us right
Speaker 2: now for her take. So, Alaren Paul and I were
Speaker 2: talking just earlier about what is going on. Is it
Speaker 2: a tech breather, is it rebalancing into the end of
Speaker 2: the quarter. Is last week kind of the start of
Speaker 2: something more severe?
Speaker 3: How do you view it?
Speaker 9: Yeah, I mean I think let's not forget it's starting
Speaker 9: to be summer. People are off to the Hamptons, off
Speaker 9: to international trips, et cetera. So part of this would
Speaker 9: be just seasonality. But another part is I think we're
Speaker 9: going through a shift when it comes to AI from
Speaker 9: development to deployment, and so I think with that, we're
Speaker 9: going to see a broadening out of the market, not
Speaker 9: just the companies like Nvidia that are the start of AI,
Speaker 9: but moving into how companies can monetize it. And so
Speaker 9: I think we're going to continue to see this broadening
Speaker 9: out with other companies that are able to actually profit
Speaker 9: from it.
Speaker 5: What are some of those companies on what are some
Speaker 5: of those sectors that can benefit from the actual deployment
Speaker 5: of this technology.
Speaker 9: Well, it goes across all sectors really, but you know,
Speaker 9: when we think about even even just industrials and how
Speaker 9: the technology here is going to be able to broaden out.
Speaker 9: You know, even companies like Caterpillar and John Deere are
Speaker 9: going to be able to use AI to improve efficiencies.
Speaker 9: So really it's across all sectors, whether it's healthcare or industrials,
Speaker 9: et cetera.
Speaker 3: So that's the AI play.
Speaker 2: And then you do like, plus, let's look at valuation
Speaker 2: and where we're at, what's a good bet?
Speaker 3: Like do you like industrials right now?
Speaker 9: I do like industrials. We think that that is going
Speaker 9: to be a backbone and when we look to add
Speaker 9: infrastructure spending, that is going to continue to be a theme. So,
Speaker 9: you know, and I think we have to take in
Speaker 9: mind where we are with the FED and that we're
Speaker 9: definitely about to see ray cuts, you know, and the
Speaker 9: question is just when do they start. But we know
Speaker 9: that trend is going to be our friend, and so
Speaker 9: I think you can't give up on technology. It's going
Speaker 9: to continue to be the driver here moving forward, and
Speaker 9: with interest rates that will go down. That's a risk
Speaker 9: on move in the market, so we have to be mindful,
Speaker 9: but it is all about what are you buying at
Speaker 9: what price?
Speaker 5: All right, Lauren, you're a graduate of the University of Texas,
Speaker 5: so that means by default you must have an energy call.
Speaker 5: What do you think what do you think energy stocks
Speaker 5: are going to be doing here? How do you think about,
Speaker 5: you know, investing in energy stocks.
Speaker 9: Yeah, we like energy a lot, and we like utilities.
Speaker 9: Looking at the play just continued expansion in the need
Speaker 9: for energy with regards to AI. If you look at
Speaker 9: those numbers, they're astronomical and so there has to be
Speaker 9: this continued build out and making energy more efficient. So
Speaker 9: we definitely like the energy play.
Speaker 2: Where in the energy play because this is something that
Speaker 2: I've been thinking about, Like oil companies aren't power companies,
Speaker 2: and power companies are the ones that are going to benefit,
Speaker 2: But utilities are regulated. So does that kind of change
Speaker 2: how you want to be investing in utility companies versus
Speaker 2: power companies.
Speaker 3: We're on that spectrum. It makes the most sense.
Speaker 9: Yeah, So it's true that utility companies are regulated, but
Speaker 9: what we're seeing is that there's going to be there's
Speaker 9: just so much demand that the demand versus supply is
Speaker 9: going to be the story there. So definitely there I
Speaker 9: agree with you, not so much just oil and gas companies,
Speaker 9: but really everything that is behind the idea of what's
Speaker 9: going to help with AI.
Speaker 5: All right, so how do we think about that's at equities?
Speaker 5: How about fixed income?
Speaker 8: Here?
Speaker 5: What are you telling your clients these days about bond market?
Speaker 9: Well, we love the bond market. It couldn't be you know,
Speaker 9: more excited about bonds, and who gets excited about bonds?
Speaker 9: So right now is a very good time because when
Speaker 9: you look at where we are once again with rates
Speaker 9: going to be going down, the story is that all
Speaker 9: that money that's sitting in money markets is going to
Speaker 9: be moving. It's already started to move a little bit,
Speaker 9: and while some of it may land in the equity markets,
Speaker 9: a lot of it's going to end up in the
Speaker 9: bond markets. And so with that, you know, now is
Speaker 9: the time to be moving money because for people that
Speaker 9: are going to be in money markets a year later,
Speaker 9: they're going to be very disappointed and moving into the
Speaker 9: bond markets. Now you have the yield, but you also
Speaker 9: have capital appreciation opportunities. We like preferred stock as well,
Speaker 9: other good play that's fixed income to equity. So keeping
Speaker 9: it though, I would say all high quality, not venturing
Speaker 9: into as our economy has been softening, keeping it on
Speaker 9: the high quality side.
Speaker 2: This brings up my question that I have is that
Speaker 2: why are we convinced that money market funds are going
Speaker 2: to go somewhere else? Because if we're in a rate
Speaker 2: normalization cycle, doesn't mean we're going to go back to
Speaker 2: one percent of the Fed funds rate, Like if we
Speaker 2: stay at four, I don't know, three and a half, Like,
Speaker 2: why would I maybe take on more resk when it
Speaker 2: can sit there and still make money.
Speaker 9: Well, because what you're doing is locking in to a
Speaker 9: higher rate for longer by moving into the fixed income
Speaker 9: markets versus seeing the rates continue to go down in
Speaker 9: money markets. So right now, if you move into just say,
Speaker 9: you know, a six year duration on your fixed income,
Speaker 9: you're looking at between you know, four to five percent
Speaker 9: on the yield with some capital appreciation opportunity that you
Speaker 9: can lock in for the next six years. That's what
Speaker 9: history tells us, So I'd liken it too. You know,
Speaker 9: if you could go back in time a couple of
Speaker 9: years ago and lock into a home mortgage rate at
Speaker 9: three percent, So if.
Speaker 3: You could be alan statically, yes, so Paul's we can
Speaker 3: go back in time and be me that's what you.
Speaker 9: Would do, be a static about that. And so similarly,
Speaker 9: right now we have the opportunity in fixed income to
Speaker 9: lock in at the higher rate for a period of
Speaker 9: time and instead of watching the rates go down.
Speaker 5: Uh, Lauren, you mentioned preferred stock, and we don't talk
Speaker 5: about prefers stock a lot.
Speaker 4: How do you use perfertock in your port portfolio? Why
Speaker 4: is it attractive right now?
Speaker 9: Yeah, so we use it as part of our fixed
Speaker 9: income allocation because you're getting a yield from it, but
Speaker 9: you also have equity like exposure with you know, some
Speaker 9: upside there. So it's this hybrid as it were, and
Speaker 9: it gives off a very nice yield while you're waiting.
Speaker 9: So it is kind of this more conservative way, more
Speaker 9: conservative approach and looks very attractive right now.
Speaker 3: What do you think of corporate credit, Well, you.
Speaker 9: Know, I think that we would prefer agency mortgage backed
Speaker 9: securities corporate credit. You know, in a diversified fixed income portfolio,
Speaker 9: you're going to have some corporate credit, but more so
Speaker 9: than that agency even treasury, but a smaller allocation I
Speaker 9: would say to corporate just with the softening of the economy.
Speaker 5: I mean I was speaking with a large group of
Speaker 5: registered investment advisers recently now surprised by how aggressive they
Speaker 5: were in terms of allocating their client's portfolio to alternative investments.
Speaker 5: While it's hedge funds, private equity, private credit, How do
Speaker 5: you view alternatives in a client's portfolio.
Speaker 9: Well, I think alternatives have their space, and we allocate
Speaker 9: to alternatives as well, but it is a smaller piece
Speaker 9: of the puzzle. So you know, we look at, you
Speaker 9: know how much between equity and fixed income and in
Speaker 9: all alternatives in general, we consider that part of the
Speaker 9: equity exposure that gives us more diversification than just going
Speaker 9: along on equity. But I think you have to be
Speaker 9: careful because some alternatives can lock you in for a
Speaker 9: very long time, so liquidity needs have to be considered.
Speaker 9: And the other thing is as they can be a diversifier,
Speaker 9: but that doesn't always mean that they're going to outperform
Speaker 9: other areas of the market. So yes, we use it,
Speaker 9: and we're always looking for what the opport tunities are.
Speaker 9: I think there's been there's been quite a bit of
Speaker 9: investment in private credit as an alternative investment. And I
Speaker 9: don't know how much more legs that really have.
Speaker 2: Great stuff really appreciated some counterintuitive views.
Speaker 3: They're so fun to get.
Speaker 2: Hullarene Gilbert, CEO of wealth Wise Financial, kind of you know,
Speaker 2: sort of tempering.
Speaker 3: Expectations when it comes to private credit. Maybe it's not
Speaker 3: the bazillion dollar industry that we all think in.
Speaker 5: Yeah, we'll see how the asset class performs here with
Speaker 5: these higher for longer interest rates, because you've got to,
Speaker 5: you know, now, some of the banks are kind of
Speaker 5: getting you know, maybe getting a little bit more aggressive
Speaker 5: in their leverage lending businesses here, trying to you know,
Speaker 5: kind of compete a.
Speaker 4: Little bit better with this private credit.
Speaker 5: But the private credit's done really well, particularly in the
Speaker 5: mid middle markets where maybe some of the regional banks
Speaker 5: have dialed back since a great financial crisis their risk
Speaker 5: taking environment.
Speaker 4: So keep an eye on that.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays ten am Eastern on applecar Play and Android Auto
Speaker 1: with the Bloomberg Business Act. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station. Just
Speaker 1: say Alexa playing Bloomberg eleven thirty.
Speaker 2: Malex Steel alongside pauls. We need this Bloomberg Intelligence Radio.
Speaker 2: We bring you all the top news and analysis with
Speaker 2: our analysts from Bloomberg Intelligence. They cover two thousand companies
Speaker 2: and one hundred and thirty industries worldwide. And Friday means
Speaker 2: the end of the second quarter, we will be halfway
Speaker 2: through the year. So it's that time where we're getting
Speaker 2: all the mid year outlooks, which are super helpful, particularly
Speaker 2: from Bloomberg Intelligence and joining us in studio as Michael Halen,
Speaker 2: He's consumer Products senior Bloomberg Intelligence industry analyst.
Speaker 3: Michael in studio, We're very excited about this.
Speaker 4: I'm excited too.
Speaker 3: Thanks for joining. He finally came in.
Speaker 2: Yeah.
Speaker 10: Yeah, I was digging through my junk drawer, but I
Speaker 10: found it.
Speaker 3: We found it. It was just important.
Speaker 2: Well, I mean, is New Jersey Transit even running? I
Speaker 2: think is more of the question.
Speaker 4: It's tough.
Speaker 3: Nice.
Speaker 2: Okay, So midyear outlook give us the broad sweeps, like
Speaker 2: what are you expecting for the back half, and then
Speaker 2: we can get to specific stocks.
Speaker 10: Yeah, sure, you know, broad sweeps. I'd say sales are
Speaker 10: probably looking a little bit better just because than they
Speaker 10: were in the first half. Because the year over year
Speaker 10: comparisons are getting easier. Higher income consumers should have money
Speaker 10: to spend, right, we see we see stock markets at
Speaker 10: all time highs, bitcoins having a rough day, but not
Speaker 10: far off the highs, and home prices have held in
Speaker 10: despite the higher rates, so that those should kind of
Speaker 10: buoy restaurants sales. But on the other end, the other
Speaker 10: end of the k, the low income consumers continue to struggle.
Speaker 10: You know, consumers under seventy five thousand were cited by
Speaker 10: Darden the other day on their earnings call is struggling,
Speaker 10: especially consumers you know that are earning less than fifty thousand.
Speaker 10: So we have kind of a push and a pull there.
Speaker 10: You know, Margins are okay, you know.
Speaker 4: We would like to see better sales because that's really.
Speaker 10: What drives most of the margin expansion in that business.
Speaker 10: Right There's a lot of operating leverage in the model,
Speaker 10: so so maybe some modest margin expansion. And the stocks
Speaker 10: generally haven't done so well this year, you know. You
Speaker 10: know what we wrote is that we we think we're
Speaker 10: going to see a larger spread between the stock market,
Speaker 10: you know, the market share winners and losers this year,
Speaker 10: you know, which we've largely seen in the first half.
Speaker 4: You've seen stocks like Chipotle, you.
Speaker 10: Know, actually absolutely knocked the cover off the ball again
Speaker 10: and and really appreciate where where other chains like Darden
Speaker 10: you know, actually, I'm sorry, Darden's done pretty well, like
Speaker 10: blooming I should say, is kind of struggled in the
Speaker 10: first half, and you've seen that stock, you know, sell
Speaker 10: off pretty precipitously.
Speaker 5: Talk to us about California and their new minimum wage law.
Speaker 5: What's the impact been on the fast food business?
Speaker 2: We have like a famous Hollywood restaurant closed because of that,
Speaker 2: like the famous like Hollywood Donalds or something.
Speaker 10: Oh, San Fran, Yeah, San Fran closed, Yeah, yeah, So
Speaker 10: it's not been.
Speaker 4: Good so far. April results were.
Speaker 10: Kind of in line with the US in terms of
Speaker 10: same star sales at quick service restaurants. But I think
Speaker 10: everybody went in April and then they had got sticker
Speaker 10: shock and they did not return in May.
Speaker 5: So the McDonald's are the world the restaurants in general California.
Speaker 5: Are they raising prices to cover their.
Speaker 10: Higher labor Yeah, high single digits is typical, which is
Speaker 10: a lot, and and that's not even covering it because
Speaker 10: the traffic loss that that that we've seen here in May,
Speaker 10: it's it's not even gonna cover it. So they may
Speaker 10: even have to raise prices again if they can.
Speaker 4: Quick Service.
Speaker 10: Uh, California Same Star sales underperformed by almost four hundred
Speaker 10: basis points in May versus the US. Yeah, so you know,
Speaker 10: what we wrote is that we expect quick service to
Speaker 10: continue to outperform casual dining just because it's a cheaper check.
Speaker 10: Even though it's gotten all the bad press about the
Speaker 10: eighteen dollars big Mac meal twenty two dollars smash Burger meal,
Speaker 10: it's still you can eat there a lot cheaper on
Speaker 10: the value menu and stuff like that. Also, you know,
Speaker 10: chains are starting to discount more Burger King and McDonald's
Speaker 10: five dollars meals, things of that nature. But California is
Speaker 10: definitely gonna weigh on quick service growth throughout your end
Speaker 10: for sure.
Speaker 2: So as the k shape recovery grows even wider, it
Speaker 2: feels like, so do the valuations of those companies that
Speaker 2: service those two lines.
Speaker 3: Is that a fair statement?
Speaker 1: Yeah?
Speaker 10: If you if you're a chain that can attract high end,
Speaker 10: can high income consumers like Chipotle's done such a good
Speaker 10: job of doing and McDonald's has done a good job
Speaker 10: of it as well since since the start of the pandemic.
Speaker 2: Chipotle is their Wednesday day, Paul, It varies, but it's
Speaker 2: seven one day week they get Chipotle.
Speaker 4: But here's a funny Chipotle story.
Speaker 5: They got slammed in social media for like underfilling their
Speaker 5: time and things like that. Now they've gone overboard and
Speaker 5: they overfilled them. So the net result for me, instead
Speaker 5: of getting three hard tacos with chicken and I'll give
Speaker 5: you the whole order later, I only get two.
Speaker 1: Oh, there you go.
Speaker 5: So it's got to be hurting their sales. So that
Speaker 5: is an interesting tidbit.
Speaker 10: Yeah, so we were thinking about doing some work into it,
Speaker 10: but we haven't done anything yet all right here, but
Speaker 10: there was definitely some heat and some shade thrown at
Speaker 10: Chipotle for a little while there.
Speaker 5: I'm gonna say a year and a half ago, somebody
Speaker 5: came in here. This is kind of the beginning of
Speaker 5: this whole AI thing, And somebody came in to this
Speaker 5: studio and said, one of the biggest areas is going
Speaker 5: to be like, for example, drive through going through a
Speaker 5: drive through McDonald's, it's gonna be all AI blah blah
Speaker 5: blah blah blah. So my question to you is, are
Speaker 5: local I don't know McDonald's or Burger Kings, did they
Speaker 5: have fewer employees because they're using technology or at all
Speaker 5: like that?
Speaker 10: Well, they have tried to cut labor hours in other ways,
Speaker 10: that's a goal using AI, for sure.
Speaker 7: Uh.
Speaker 10: It's been harder though at the drive through then anticipated
Speaker 10: a lot of things just like accents, you know, you know,
Speaker 10: something like that. You know, actually is is has caused
Speaker 10: some issues something else there. Uh, they're also using AI
Speaker 10: with these cameras that are using AI to see if
Speaker 10: orders are being played packaged correctly, you know, since takeout
Speaker 10: and delivery has become such.
Speaker 4: A big part of these businesses.
Speaker 10: But uh, you know, one of the companies that was
Speaker 10: doing that got caught using people in India watching like screens.
Speaker 4: Videos supposedly quote unquote AI.
Speaker 10: So we're not quite there yet with the AI in that.
Speaker 3: That's interesting.
Speaker 2: It's like the practical application, like how it really makes
Speaker 2: the difference. We may not quite be there yet. Here's
Speaker 2: my question if you and Ken Shae Fromloomberg Intelligence, who
Speaker 2: covers many things but in particular he covers all the
Speaker 2: cannabis companies got together, like what is your interplay between
Speaker 2: you guys?
Speaker 3: And I'm not actually trying to be that funny, but
Speaker 3: like you know, with all the.
Speaker 2: Weed stores coming up and you can get kind of
Speaker 2: cannabis anywhere in many places, Like, does that have a
Speaker 2: direct impact on the companies that you cover? Like have
Speaker 2: you noticed something along those lines?
Speaker 10: They haven't necessarily necessarily attributed any you know, lower alcohol
Speaker 10: sales to that, you.
Speaker 3: Know, or like more food sales or like runchy sales.
Speaker 1: Yeah.
Speaker 10: I mean, you know, we've had some of our companies
Speaker 10: like Jack in the Box and other companies that do
Speaker 10: a big late night business kind of lean into that
Speaker 10: stuff on their advertising. You know, they've used snoop you know,
Speaker 10: and some of their stuff. I think ice Cube now is.
Speaker 5: But on the flip side of that, is the GLP
Speaker 5: one situation true?
Speaker 4: Because is that real? Because your company has called it out.
Speaker 10: Yeah, but like the panic over it seems to have
Speaker 10: uh subsided.
Speaker 4: Is it real? Yeah? But there's still a lot of
Speaker 4: question marks.
Speaker 1: You know.
Speaker 10: Uh, there is definitely concern because like people are less
Speaker 10: likely to go to fast food restaurants like there's a
Speaker 10: lot of people saying they feel sick eating fast food
Speaker 10: on GLP ones.
Speaker 4: There's a lot lower alcohol.
Speaker 10: Consumption on GLP one. So it's definitely something that's being monitored.
Speaker 10: But right now it's still like such a small it's
Speaker 10: just had such small distributions so far. I think what's
Speaker 10: going to be more of a concern is once it's
Speaker 10: in a in a pill or something that's easier than
Speaker 10: a shot.
Speaker 4: Yeah, right, it's interesting.
Speaker 5: So I'm looking at the S and P Restaurant Index
Speaker 5: VAT member returns. The second worst performing stock for restaurants
Speaker 5: is cracker Barrel Old Country. That kills me because I'm
Speaker 5: a huge advocate for Cracker brow So I don't know
Speaker 5: why this stock's not working.
Speaker 4: All right, all right, I'm going to improve by breakfast.
Speaker 5: All right, Michael Halen, Bloomberg Intelligence, Thank you very much.
Speaker 4: This is Bloombergen.
Speaker 1: You're listening to the Bloomberg Intelligence podcast cat I have
Speaker 1: week days at ten am Eastern on applecar Play and
Speaker 1: Android Auto with the Bloomberg Business Act. You can also
Speaker 1: listen live on Amazon Alexa from our flagship New York
Speaker 1: station just Say Alexa playing Bloomberg eleven thirty.
Speaker 5: Well for the month of June, Bloomberg Radio is committed
Speaker 5: to bringing new segments and guests focus on the topic
Speaker 5: of equality. Today, we're speaking with Mike Heider, President and
Speaker 5: CEO of Executive Leadership Council. Mike, thanks so much for
Speaker 5: joining us here. Tell us what the Executive Leadership Council is.
Speaker 4: What are you guys doing over there?
Speaker 11: Well, it's good. Thank you for having me. It's nice
Speaker 11: to be here. I appreciate it. The Executive leaders of Council,
Speaker 11: otherwise known as the ELC, we're an organization of the
Speaker 11: highest ranking black executives in global organizations worldwide with a
Speaker 11: commitment to the leadership and development of talent in corporations.
Speaker 7: Been around thirty eight years.
Speaker 4: Right, good stuff.
Speaker 5: What are you finding these days? Just in terms of
Speaker 5: overall that DEI concept which had been ascending for many
Speaker 5: years and for some people feels.
Speaker 4: Like it may have peaked. How how do you view
Speaker 4: that commitment?
Speaker 11: Well, the diversity, equity and inclusion is and continues to
Speaker 11: be a very strong element and element for organizations that
Speaker 11: are beneficial for them. Unfortunately, there's a lot of heated
Speaker 11: rhetoric about the diversity, equity, inclusion I guess being perceived
Speaker 11: as reverse discrimination, which we don't. We fundamentally disagree with
Speaker 11: that assertion. It is failing to sort of readdress the
Speaker 11: facts that diversity equity inclusion has actually been benefited the
Speaker 11: United States economy over the years with its But it
Speaker 11: just has to be folks as properly if in order
Speaker 11: for that to happen.
Speaker 2: How do we do that, How does that? How is
Speaker 2: it focused properly? And one of the steps that need
Speaker 2: to be taken.
Speaker 11: Now the steps should be the diversity equity inclusion should
Speaker 11: be considered the impetus behind superior business performance, increase access
Speaker 11: and opportunity for development for all people, and that the
Speaker 11: focusing on increasing building corporate culture to increase and enhance
Speaker 11: the engagement of as many employees as possible is what
Speaker 11: diversity equity inclusion means.
Speaker 7: It doesn't mean lowering standards.
Speaker 11: So if it's applied as the significant contributed to the
Speaker 11: business driver that it is, then it's it will be
Speaker 11: strategically relevant in the organizations and less concerned as something
Speaker 11: that is being merely tolerated.
Speaker 5: So I mean, give us a sense how you think
Speaker 5: that about this, Miket and how your counsel thinks about
Speaker 5: this because again it seems like DEI is sharing a
Speaker 5: similar type of situation or environment as e SG is
Speaker 5: Environmental Social governance investing. As people are just kind of
Speaker 5: pushing back on both of those types of initiatives, whether
Speaker 5: it's from a political perspective.
Speaker 4: Or a business perspective.
Speaker 11: How do you think about that, Well, it's unfortunate that that's.
Speaker 7: Been the case.
Speaker 11: We're focusing on we want organizations need to be and
Speaker 11: shareholders and customers are expecting and employees are expecting companies
Speaker 11: to be peak performers. And specifically the ELC, we are
Speaker 11: corporate officers that are our executives and major corporations around
Speaker 11: the world.
Speaker 7: So where we.
Speaker 11: Look at the diversity equity inclusion as a piece of
Speaker 11: increasing the effectiveness of an organization's ability to be more
Speaker 11: profitable and be more successful as how we would suggest
Speaker 11: organizations focus on it as opposed to it being something
Speaker 11: that's perceived as a political issue.
Speaker 2: What do you think would be helpful, Mike, because to
Speaker 2: not politicize it just a few months before an election
Speaker 2: that will definitely politicize this. How do you sort of
Speaker 2: manage that?
Speaker 11: Yeah, that's an excellent question, and I guess the challenge
Speaker 11: of the day. Our assessment on managing it is staying
Speaker 11: focused on what is required to be functional on the
Speaker 11: ground in organizations and to be less I guess, less
Speaker 11: defined by other people's assessment about what it is or
Speaker 11: it isn't. That's the only way we think is the best.
Speaker 11: I guess the best avenue is to be consistent for
Speaker 11: addressing what I called this disparities in terms of numbers
Speaker 11: based on representation of talent within organizations, and to have
Speaker 11: talent strategies and development strategies that ensure that everybody is
Speaker 11: reaching their full potential in organizations as our suggestions for
Speaker 11: what organizations are to do, and to stay focused on
Speaker 11: that independent of what it's called or indefinitive of what
Speaker 11: the acronyms are that people are defining it.
Speaker 5: By Mike, you mentioned that the EOC is a global
Speaker 5: Council global entity. Giving your global view here, how does
Speaker 5: the US doing on DEI initiatives maybe versus some other
Speaker 5: parts of the world.
Speaker 7: I think it is mixed relative to other parts of
Speaker 7: the world, but I do believe that the.
Speaker 11: Focus on productivity and team benefits globally is much more
Speaker 11: pronounced and less it's less it's less defined by race
Speaker 11: and culture, and so it has less less baggage, I guess,
Speaker 11: if you will, relative to how it's perceived globally than
Speaker 11: it does here in the United States. I think team productivity,
Speaker 11: maximizing the contributions of all types of folks independent of
Speaker 11: their background or gender, sexual orientation, continues to be something
Speaker 11: that all organizations are striving towards. You know, they're some
Speaker 11: companies who are more effective at it globally than others.
Speaker 11: But you know, I just think the whole issue around
Speaker 11: the discussion that you all are referencing is primarily much
Speaker 11: more I guess, aggressive in the United States, because I
Speaker 11: think there is an over interpretation of this as a
Speaker 11: byproduct of a racial issue as opposed to something that
Speaker 11: is looked at as a full production of all types
Speaker 11: of people independent of race.
Speaker 7: In the United States.
Speaker 2: I think that's such a great point that it gets
Speaker 2: stuck on race versus all diversity, like you need full
Speaker 2: diversity in order to sort of deliver that profitability, to
Speaker 2: deliver synergies, et cetera. So, yeah, it's true, all right, Mike,
Speaker 2: we appreciate it.
Speaker 3: Thanks very much.
Speaker 2: Mike Hicher, President and CEO of Executive Leadership Committee ELC
Speaker 2: joining us excuse me, Leadership Council joining us on all
Speaker 2: the efforts through DEI. And you know, I wonder what
Speaker 2: this happens once we get past November, Paul, Like, what
Speaker 2: the result will wind up being?
Speaker 3: Does this conversation get easier, get harder?
Speaker 2: Can we refocus it into diversity is good for many reasons?
Speaker 2: Here are the numbers that show it versus making it
Speaker 2: a race issue.
Speaker 4: At the end of the day, yep, exactly.
Speaker 5: If you can put in the context of profitability and returns,
Speaker 5: let's probably get the board's attention.
Speaker 1: This is the Bloomberg Intelligence podcast, available on apples, Spotify,
Speaker 1: and anywhere else you'll get your podcasts. Listen live each
Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com,
Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app.
Speaker 1: You can also watch us live every weekday on YouTube
Speaker 1: and always on the Bloomberg terminal.