Speaker 1: This is Bloomberg business Week Inside from the reporters and
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Speaker 1: You do you want to talk a bit more about
Speaker 1: what's going on in those airline names, as Charlie mentioned,
Speaker 1: stock under pressure or the group I should say under
Speaker 1: pressure down about four and a half percent here, so
Speaker 1: just off their loads of the day. Thank you American Airlines, right, Mattie,
Speaker 1: I mean always thank you to American Airlines, but especially
Speaker 1: for giving us this really interesting story on potential forecast
Speaker 1: for airline earnings as they come up in the weeks
Speaker 1: to come. Watching the space on our Bloomberg Intelligence team
Speaker 1: is George Ferguson. He's senior Aerospace, Defense and Airlines analyst
Speaker 1: and he joins us from zoom in New Jersey. George,
Speaker 1: thank you so much for being here with us this afternoon.
Speaker 1: Let's start on the American Airlines news. What did you
Speaker 1: think was surprising to you on this news? I thought
Speaker 1: that everyone was flying, so I'm a little bit confused. Yeah,
Speaker 1: so you know, I think that the expenses kind of
Speaker 1: came in line with where we expected it. You know,
Speaker 1: we haven't been the most bullish on fairs, but there's
Speaker 1: a lot more people in the marketplace that have been
Speaker 1: and so I think the top line was probably weaker
Speaker 1: than most people wanted. And so I think that's why
Speaker 1: you see some of the response here. I don't think
Speaker 1: it I don't think it was terrible, but I think
Speaker 1: there may have been a lot of people in the
Speaker 1: marketplace that think fairs were even better than they than
Speaker 1: the airlines were letting on and potentially a you know,
Speaker 1: a source for for over performance here in the first quarter. George,
Speaker 1: what's going on with fairs? Because I mean I've been
Speaker 1: looking into some different things and I feel like, shoot,
Speaker 1: it's also expensive, but our fears starting to tick down,
Speaker 1: you know. So we we have a data set from
Speaker 1: Airline Important Corporation. We get it once a month. The
Speaker 1: last time looked at it in February, it actually looked
Speaker 1: quite strong. It had a nice rebound after what I
Speaker 1: would call a middling h January. But the bookings rates
Speaker 1: that we were seeing on you know, on this data set,
Speaker 1: we're about eighty percent of twenty nineteen where we have
Speaker 1: a lot of the airlines flying really close to one
Speaker 1: hundred percent of twenty nineteen schedules, So we felt like
Speaker 1: the booking rates were lagging. So maybe the airlines have
Speaker 1: been trying to keep fares higher, hoping that that booking
Speaker 1: rate would come along. You know, American didn't give us
Speaker 1: all the detail, right, they didn't give us all the
Speaker 1: fair detail. But I'm wondering again. I think that you know,
Speaker 1: the airlines are trying to hold fares up. They have
Speaker 1: higher costs coming down the pike. Right the pilot unions
Speaker 1: are in for pay increases. Delta has agreed to it
Speaker 1: already in eighteen percent pay increase or pilots quite sizeable,
Speaker 1: with another five percent coming for the pilots at the
Speaker 1: end of the year. We think that'll happen at the
Speaker 1: rest of the full service carriers and that they'll all
Speaker 1: all you have to step up to those higher costs.
Speaker 1: So they need to keep fares high because they've got
Speaker 1: higher costs coming as well because of comes this wage inflation.
Speaker 1: So again, we'll see when we get more detail on fares.
Speaker 1: But I suspect that's part of the problem is there's
Speaker 1: not enough demand to fill airplanes at that higher fare.
Speaker 1: So in your research note, you know a lot of
Speaker 1: issues that American airlines could be facing, Like you just said, labor,
Speaker 1: airline fares, capacity, potentially oil coming down the pipeline. But
Speaker 1: what would you say is the single biggest factor that's
Speaker 1: impacting profits for American airlines? Is it those increased labor costs? Yeah, well,
Speaker 1: I think it's really that fares aren't keeping up with
Speaker 1: the increased labor costs. But the increased labor costs they're
Speaker 1: kind of already here, and I think it's a it's
Speaker 1: a big challenge for all the airlines because to give
Speaker 1: the pilots that kind of wage increase, you're going to
Speaker 1: need to keep decent fares in order to pay for it.
Speaker 1: I will say, you know, oil prices have been coming off,
Speaker 1: you know, they're lower than we started the year out right,
Speaker 1: and they've relaxed, and that's a little bit of a
Speaker 1: tail for the airlines. It's if it stays down, continues
Speaker 1: to decline as we expect. Potentially, you know, the thing
Speaker 1: talked about a potential recession this year that could relax
Speaker 1: oil prices and that could be a positive for these
Speaker 1: these accom statements. Again, it's gonna be really difficult to
Speaker 1: keep fares high, especially in an economy that's slowing as well.
Speaker 1: Right consumers are already squeezed, especially lowline consumers, they won't
Speaker 1: want to spend as much on air travel. That will
Speaker 1: be the big challenge as fair as I think, George,
Speaker 1: how do you think about this cycle right now? And
Speaker 1: I think about you know, pre pandemic airlines had gotten
Speaker 1: so smart. I feel like in squeezing out excess capacity,
Speaker 1: they've gotten so good at charging me for every breath
Speaker 1: I take when I get it on an airplane. So
Speaker 1: help me out here, like, what is the cycle we're in?
Speaker 1: I think it's interesting what you said about higher costs
Speaker 1: in terms of unions and salaries, But how are you
Speaker 1: looking at this more broadly, at the space in terms
Speaker 1: of this airline cycle? And so we recently published a
Speaker 1: note on the airline's balance sheet to spend a little
Speaker 1: bit of time on it. They have a lot of
Speaker 1: cash US airlines do, so I think they're they're ready
Speaker 1: to weather a down cycle. They haven't sort of gotten
Speaker 1: rid of all that cash they took on during the pandemic.
Speaker 1: They do have more debt than they have they haven't had,
Speaker 1: so that's that's an additional challenge, but you know, it's
Speaker 1: it's pushed out, so we kind of see them again
Speaker 1: able to whether the cycle here and that will see
Speaker 1: a recession really hits you know, I think usually you'd
Speaker 1: think that the full service carriers would be you know,
Speaker 1: would be have the most difficulty in a recession because
Speaker 1: I think, you know, the consumer would drive to a
Speaker 1: lower price point. I will say we have not seen
Speaker 1: business travel come back to the twenty nineteen levels, still
Speaker 1: not as of February. We were kind of sixty five
Speaker 1: percent issues what we saw, So that could be a
Speaker 1: tailwin for the full service carriers as well. But it
Speaker 1: hurts out to have those full service travelers back because
Speaker 1: they're u you know, they pay the big fares, and
Speaker 1: you know, I'm hearing a lot of companies now talking
Speaker 1: about return to work more than three days a week, right,
Speaker 1: four days a week, maybe five at some companies. I
Speaker 1: think that will help business to travel out as well,
Speaker 1: because I think that's part of the drag there. But again,
Speaker 1: I think we think they're generally ready for a down cycle,
Speaker 1: especially if it's not too dramatic of a down cycle.
Speaker 1: You know, but it's going to be a challenge to
Speaker 1: fill airplanes when you've got a consumer that's a little
Speaker 1: bit squeezed, and that's gonna that's gonna, you know, it's
Speaker 1: gonna cause earnings pain. Hopefully not for the summer, because
Speaker 1: you know, the money making portion of the year is
Speaker 1: two Q three Q. We're into the heart of that.
Speaker 1: We'd like to see the consumer not running a gas
Speaker 1: during those quarters. Airlines could book decent profits in there
Speaker 1: if it doesn't, if they don't run into gas winter
Speaker 1: months or you know, they're always kind of challenge. Yeah,
Speaker 1: it's funny that you say about coming back to work.
Speaker 1: One of the most read stories in the Bloombergers about
Speaker 1: JPMorgan Chase telling its managing directors they now must be
Speaker 1: in the office every week day, so ending a hybrid
Speaker 1: work practice that rose during the mid they'll get back.
Speaker 1: Having said that, not all airlines are the same. So
Speaker 1: I'm looking at the S and P Supercomposite Airlines Index,
Speaker 1: which is down about four and a half percent or so.
Speaker 1: American obviously is the biggest lagger, down almost ten percent.
Speaker 1: Ul's down more than seven percent. But I look at Southwest,
Speaker 1: it's down about two percent, Delta is down about three percent.
Speaker 1: Who is best position to weather what's to come. Yeah,
Speaker 1: I think what you're seeing today is against some of
Speaker 1: those local cost carriers, not some of them, right, all
Speaker 1: of them are performing better than the two worst performers,
Speaker 1: Like you said, United in American on the day. You know,
Speaker 1: those low cost carriers. A squeezed consumer budget means the
Speaker 1: consumer probably looks to get more out of their air
Speaker 1: travel for less money. I think that you know, that
Speaker 1: helps the South Less, the Jeff Blues, the you know,
Speaker 1: the spirits, the frontiers, if you can, if that's the
Speaker 1: way you're willing to fly. And I think generally Delta
Speaker 1: does a better job in revenue than United An American
Speaker 1: we looked at Delta the other day, just posted a
Speaker 1: new earnings outlook for one queue. We thought they were
Speaker 1: a little bit you know, the cost of fuel was
Speaker 1: a little bit high and some of their guidance we
Speaker 1: lowered that it's a bit of a tail and for them.
Speaker 1: So maybe their one queue looks a little bit better
Speaker 1: and based on where they started their guidance. But yeah,
Speaker 1: I think the low cost carriers though, are probably the
Speaker 1: ones today. So heading into earning season we get Delta tomorrow.
Speaker 1: What are you going to be listening into on that
Speaker 1: earnings call. We have about forty five seconds here. Yeah,
Speaker 1: we're going to be all over domestic fairs, right, that's
Speaker 1: the most important thing for every US airline. Will be
Speaker 1: all over the split between that premium and non premium
Speaker 1: passenger and how that's holding up. And then probably the
Speaker 1: most important international markets will be looking at you know,
Speaker 1: the European Transatlantic is just a big market. Pacific is
Speaker 1: still you know, really low right now because China isn't
Speaker 1: fully open, and Latin America kind of applies more to
Speaker 1: you know, to American, but it applies to all of them.
Speaker 1: But we'll watch your European a lot. Well, thank you
Speaker 1: so much. We've got a really great setup now as
Speaker 1: those learning start to kick in. As Mattie said, Delta tomorrow, George,
Speaker 1: thank you, thank you, thank you. George Ferguson, senior Aerospace,
Speaker 1: Events and Airlines analyst at Bloomberg Intelligence, joining us on
Speaker 1: Zoom in New Jersey, SkyWest, by the way, with the
Speaker 1: smallest decline in the S and P Supercomposite Airlines industry index,
Speaker 1: it's down just about one point three percent, so, as
Speaker 1: he said, you know, some of those lower costs. If
Speaker 1: you're willing to fly. I'm sorry. It was just bad,
Speaker 1: he phrased it. If you're willing to do it, don't
Speaker 1: eat new pillow, be squeezed, any tiny, tiny chair for
Speaker 1: tiny people. So many. Right, you're listening to the Bloomberg
Speaker 1: Business Week podcast. Catch us live weekday afternoons from three
Speaker 1: to six Eastern Listen on Bloomberg dot com, the Ihard
Speaker 1: Radio app, and the Bloomberg Business App, or watch us
Speaker 1: live on YouTube. We mentioned Ward Buffett today waning in
Speaker 1: on banks and dumb decisions by bank managers. Excuse me.
Speaker 1: HE'SO called the electric carmaker by d Company extraordinary and
Speaker 1: said hit manufacturer ts MC Taiwan semi a fabulous enterprise.
Speaker 1: But Maddie, he has been actually selling shares of them,
Speaker 1: which is so interesting because I love one of the things.
Speaker 1: In our next guest note, she says that he loves
Speaker 1: b of A because he's friends with the CEO, and
Speaker 1: he just he likes the CEO. He likes Brian, So
Speaker 1: you know, all power to warm Buffett on on that
Speaker 1: being the decision maker there, but really interesting. We're going
Speaker 1: to get some thoughts on the company with our next guest,
Speaker 1: Kathy Seaffert, CFR, a research industry analyst. Kathy, thank you
Speaker 1: so much for joining us to talk about this. Let's
Speaker 1: just start broad here. What stood out for you most
Speaker 1: in Buffett's comments other than you know, we like to
Speaker 1: joke about the dumb decisions quote? But what was most
Speaker 1: important to you? Oh? Sure, and you know it's I've
Speaker 1: followed Berkshire Hathaway, I hate to admit it for almost
Speaker 1: thirty years now, and you know, from from the perspective
Speaker 1: of an analyst like myself, it's kind of frustrating when
Speaker 1: you have to sort of chase down these media reports
Speaker 1: because Buffett doesn't conduct analyst interview, so we're sort of
Speaker 1: forced to sort of hear what's on his mind. Um,
Speaker 1: you know in interviews like this. Um, so just to
Speaker 1: kind of frame some of the things that he said. Um,
Speaker 1: I think his comments about the banking space were accurate. Um.
Speaker 1: You know, I think he was spot on that. You know,
Speaker 1: the house view at our firm is that, you know,
Speaker 1: we're sort of neutral on regional banks. There is a
Speaker 1: problem or a potential problem at some firms with some
Speaker 1: of their assets liability management, and there's an accounting process
Speaker 1: that some banks sort of play a little fast and
Speaker 1: loose with UM, which doesn't necessarily portend that every bank
Speaker 1: that's going to do this is going to fail. So
Speaker 1: I think it's important to sort of look at that
Speaker 1: within the context of or more muted framework. I mean,
Speaker 1: but I think his second point about bank failures is
Speaker 1: that the SCIC is there is a back stop. I
Speaker 1: think the risk is if you have an uninsured deposit,
Speaker 1: and that was sort of, you know, one of the
Speaker 1: challenges at Silicon Valley Bank, which I don't necessarily Again
Speaker 1: I'm not a bank analyst. I followed Berkshire, but I
Speaker 1: don't I wouldn't necessarily say that they were a microcosm
Speaker 1: for the rest of the bank. Well, Kathy, if I
Speaker 1: could just jump in for a second, and again we
Speaker 1: should be fair. These comments were in an interview with
Speaker 1: CNBC in Tokyo earlier today. He's been actually talking to
Speaker 1: the media and he's been over in Japan, and Japan
Speaker 1: is another thing that has certainly been on Buffet's radar.
Speaker 1: You know. One of the things that we all kind
Speaker 1: of just you know, wait on everything that he says
Speaker 1: with bated breath, is that gives US an idea of
Speaker 1: maybe where he and his team are making investments are not.
Speaker 1: So does what we've been getting from him, whether it's
Speaker 1: on by D, whether it's on TSM, whether it's on
Speaker 1: his interest in Japan, Like, what does it tell you
Speaker 1: about kind of where he is allocating money and his
Speaker 1: interest is right now? Well, it's interesting because there's sort
Speaker 1: of like the adage, look what they do, not what
Speaker 1: they say, and see your point. Um, you know they
Speaker 1: the first quarter holdings filings haven't been released yet, so
Speaker 1: the publicly available data is as of the end of
Speaker 1: the year. And based on that, you know, he's lightened
Speaker 1: up his position in a couple of bank stocks. He
Speaker 1: sold Bank of Nee York, he sold Ally Financial, he
Speaker 1: sold US Bank Corps, kept his BAVE holdings. In fact,
Speaker 1: um Bave is one of his top holdings. Um, he
Speaker 1: did sell his time on semiconductor holding. UM. I think
Speaker 1: because the other you know, the purpose of the tip
Speaker 1: trip to Japan hands to sort of have this meeting
Speaker 1: with all of these trading company heads. And I think
Speaker 1: that was an interesting transaction and that's kind of classic buffets.
Speaker 1: These are companies that are conglomerates. Despite the fact that
Speaker 1: they're called trading companies, they're really conglomerates life workshare half away.
Speaker 1: The conglomerate structure is kind of an antiquated model here.
Speaker 1: It's more popular in Japan, but they also tend to
Speaker 1: sell it discounter valuations because it's a complicated structure. So
Speaker 1: in some respect, that transaction was sort of classic Buffet.
Speaker 1: You know. The other thing I would note is that
Speaker 1: we're coming into a situation where equity market conditions and
Speaker 1: economic conditions look like they're poised to weakend. I mean,
Speaker 1: we had some decent inflation numbers, but then some of
Speaker 1: the Fed minutes, you know, showed that the Fed is
Speaker 1: concerned we're going into a recession. This is sort of
Speaker 1: a prime environment for Buffet to start striking deals. And
Speaker 1: he's got over one hundred billion dollars. It's pass that
Speaker 1: he can deploy. He's not going to deploy all of it.
Speaker 1: So what you know, big or little? Right? Like? You know,
Speaker 1: he does a lot of a lot of buys a
Speaker 1: lot of smaller companies that aren't necessarily public. But where
Speaker 1: do you think he might be interested? Um, So it's
Speaker 1: I think it's important to separate his equity purchases, which
Speaker 1: tend to be in industries that he doesn't necessarily want
Speaker 1: to operate, So I would look for his equity holdings
Speaker 1: to be in you know, diversified industries, financial services, technology.
Speaker 1: I mean, Matt seems to be his equity holding strategy.
Speaker 1: On an operating basis, it tends to be more energy,
Speaker 1: consumer staples, consumer discretionary, and industrials so an insurance. His
Speaker 1: latest significant purchase, which I think they had a lot
Speaker 1: of sense, was Alleghany, which was kind of a Nini Berkshire. So,
Speaker 1: you know, I think from looking at those areas and
Speaker 1: as you know, as equity valuations perhaps deteriorate, I think
Speaker 1: it's you know, we could see him start to make
Speaker 1: some deals. I heard you say a continued interest in
Speaker 1: tech and one of the things that he talked about
Speaker 1: was AI and chat GPT. Do you see an acquisition
Speaker 1: in that space potentially happening or is that too out
Speaker 1: of the ordinary for him? I see, if he makes
Speaker 1: any acquisitions, I would see it as an equity investment,
Speaker 1: not a consolidated operating investment. I think they've been pretty
Speaker 1: clear in delineating what they feel comfortably what they feel
Speaker 1: comfortable owning when they have operating control versus what they'll
Speaker 1: invest in as investors. And again, you know there has
Speaker 1: been a changing as changing of the guard at Berkshire,
Speaker 1: and you've got to investment managers who are a generation
Speaker 1: younger than Warren, with a little bit of a different perspective.
Speaker 1: So I wouldn't be surprised to see them go down
Speaker 1: that route. But as an equity investment I love the
Speaker 1: passwords that Warren Buffett has used to describe bitcoin specifically.
Speaker 1: I think on in CNBC he called it a gambling token.
Speaker 1: I think he's also talked about not having any intrinsic
Speaker 1: value and so on. But it is you know, Kathy
Speaker 1: that gets to a good point. And he did talk
Speaker 1: about his air apparent and sending him some nice compliments.
Speaker 1: We're talking about Grey Gable. I do wonder about the
Speaker 1: conversations that around the table at Berkshire specifically because you
Speaker 1: know we've talked in the past about Berkshire getting into
Speaker 1: Apple at one point, you know that names that you
Speaker 1: would have never thought. But you're right, it's a younger
Speaker 1: guard and some different thinking there at Berkshire. Yep, absolutely,
Speaker 1: which means what then where do you think it leads?
Speaker 1: Potentially Mattie mentioned Ai specifically, but where do you think
Speaker 1: it maybe leads then Berkshire. It's interesting because I think
Speaker 1: it's going to be interesting, and I don't want to
Speaker 1: sort of speculate too much, but I think it's things
Speaker 1: to see what happens in a post buffet era, and
Speaker 1: I think that it's not out of the realm to
Speaker 1: see whether you know, I think number one, the role
Speaker 1: of chairman and CEO is likely to be split. There's
Speaker 1: actually a proposal right now that will be voted down.
Speaker 1: For sure controls, you know, the biggest block of voting.
Speaker 1: But there's a proposal at the annual meeting in a
Speaker 1: couple of weeks to split those roles. So I see
Speaker 1: that role being split. I see the consolidation of power
Speaker 1: that currently exists being spread out more like that of
Speaker 1: a typical corporate structure. But and again this is a
Speaker 1: little bit out there, but I don't think it's out
Speaker 1: of the realm to see an activist come in and
Speaker 1: call for a breakup of half Away to unlock some value.
Speaker 1: I mean, you know, for stock trades at a decent multiple,
Speaker 1: it's a premium to the market. But you know, if
Speaker 1: we kind of go along a conventional thinking that's not
Speaker 1: out of the realm as well. But your point about
Speaker 1: you know what to expect. I think we're already seeing
Speaker 1: some evidence of a changing of the guard and that's fair. Yeah. Yeah, hey, listen,
Speaker 1: we've got to run forgive us, just running out of
Speaker 1: time here, but really appreciate you weighing in on that
Speaker 1: flurry of headlines earlier today as a result of that
Speaker 1: Buffet interview with CNBC Kathy Seyffert, thank you so much.
Speaker 1: Industry Alice at CFRI Research joining us on the phone
Speaker 1: in New York City. It's just fun to talk all
Speaker 1: things Buffet, just his views on things well, he said earlier,
Speaker 1: the only thing chat gpt can't do is write a joke.
Speaker 1: And then someone used chat gpt to write warm buffet
Speaker 1: dairy queen jokes on Twitter. So go check it out
Speaker 1: if you want to have a little laugh this afternoon.
Speaker 1: It's a really good place. Yeah. You're listening to the
Speaker 1: Bloomberg Business Week Podcast. Catch us live weekday afternoons from
Speaker 1: three to six on Bloomberg Radio, the Bloomberg Business App,
Speaker 1: and YouTube. You can also listen live on Amazon Alexa
Speaker 1: from our flagship New York station jose Say Alexa playing
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Speaker 1: always talk about the importance of partnerships in achieving those goals.
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Speaker 1: stakeholders and they include society and environment. So we have
Speaker 1: a board, we have a management team that we are
Speaker 1: a public benefit corporation. CODEAPAXI is a public benefit corporation,
Speaker 1: and we have the legal structure that actually enables us
Speaker 1: to behave this way. And oftentimes you see ESG put
Speaker 1: in a corner, put in a department. Maybe it's a
Speaker 1: part of marketing or a part of the brand, and
Speaker 1: it's not integrated in the business model. And that's what
Speaker 1: I think is so exciting watching that people keep talking, well,
Speaker 1: that's right, and that's what I think is so exciting
Speaker 1: about CODAPAXI. It plays a role in our recruiting and
Speaker 1: our retention, getting people on board to be a part
Speaker 1: of something that's truly bigger than ourselves. I was going
Speaker 1: to ask about it exactly that, because I've also heard
Speaker 1: from different employers that talent retention and climate goals are
Speaker 1: directly linked because young talent they just won't sign on
Speaker 1: for a job where that's not part of the business mission.
Speaker 1: Are you hearing that from the folks that you hire
Speaker 1: as well? Oh? Absolutely, And I think, to be honest,
Speaker 1: I think that's what draws a lot of talent to
Speaker 1: the outdoors industry in general. We have a pretty good
Speaker 1: reputation for being leaders in that area. But what's unique
Speaker 1: about Coda Paxie is it's creating, through its color and
Speaker 1: its optimism and its joy, a much more inclusive approach
Speaker 1: to this as well, and attracting underrepresented communities to kind
Speaker 1: of join us and have the outdoors be a greater
Speaker 1: part of their life. That's not always the case, because right,
Speaker 1: sometimes the outdoor industry can be right, a little exclusiontimidat
Speaker 1: averse communities, right yeah, Right, You see someone that doesn't
Speaker 1: look like the three of us here, you know, scaling
Speaker 1: a mountain or doing something heroic, and you say to yourself, well,
Speaker 1: I can't be a part of that. So Coda Paxi's
Speaker 1: brand mission and brand goal is to allow for adventure
Speaker 1: to be anywhere in all different types of forms, and
Speaker 1: that we can do good everywhere together. All right, So
Speaker 1: you know we're bloomberg. So I'm going to ask you,
Speaker 1: I mean, what's kind of the conversations you guys are
Speaker 1: having about the current kind of consumer environment, economic environment,
Speaker 1: market environment. You know, internally we talk a lot about,
Speaker 1: you know, how can we preserve our growth. I mean,
Speaker 1: Codapaxy was very lucky last year. We grew nearly one
Speaker 1: hundred percent year over year in our top line. There's
Speaker 1: something that we're doing that's working, and so we want
Speaker 1: to double down on that. We want to be true
Speaker 1: to our core values and be mindful and sensitive about
Speaker 1: dynamics that are you know, out of our control. You know,
Speaker 1: we air fraighted you know, some product and we didn't
Speaker 1: like doing it last year. We're going to be doing
Speaker 1: it less of this year, and I'm looking at opportunities
Speaker 1: across our supply chain to have that impact that's true
Speaker 1: to our mission and our vision. And it's global, you say, right,
Speaker 1: and your your supply chain. Yes, we work. We work
Speaker 1: with suppliers all over the world in designing our product,
Speaker 1: and we empower our workers that are affiliated with our brand,
Speaker 1: with our in our supply base to make you know,
Speaker 1: even better design decisions around our products. The Delda bag,
Speaker 1: which is known for its bright colors and its remnant material,
Speaker 1: is often designed by the workers at the site. We
Speaker 1: empower them to come up with the designs and the
Speaker 1: way that things should look. So we have a smaller
Speaker 1: supply base, kind of a concentrated group of suppliers that
Speaker 1: we work very very closely with. We'll work with them
Speaker 1: on in setting projects we've done, you know, organic gardens,
Speaker 1: in different sorts of projects to improve the quality of life,
Speaker 1: living wages, and working with Fair Trade USA to certify
Speaker 1: some of our suppliers to uphold their standards as well.
Speaker 1: And I guess what I was curious about that in
Speaker 1: this line of questioning, is is it getting easier meaning
Speaker 1: that there's more, you know, entities out there around the
Speaker 1: world that do have a sustainable mission or thinking about
Speaker 1: their impact on the environment and impact on people. Are
Speaker 1: there more out there that give you more choices? Is
Speaker 1: that growing? I'm going to be optimistic and say we're
Speaker 1: removing in that direction. And I think in the industry
Speaker 1: it's still tough. But in this industry, you're seeing a
Speaker 1: lot of great brands come together to try to grow
Speaker 1: the pie and work together to create solutions, which I'm
Speaker 1: really optimistic about. And that's where COTAPAXI plays. I think
Speaker 1: that's that's so cool, and I feel I also wanted
Speaker 1: to talk to you about like inflation and consumer demand,
Speaker 1: but we're a little low on time to get into
Speaker 1: all of it. With the inflation is still a problem
Speaker 1: for you guys real quickly. Oh for I mean for sure,
Speaker 1: and I think that we book at pricing and we
Speaker 1: look at what's reasonable to charge for a jacket or
Speaker 1: a pack. We've always been, you know, really thoughtful about
Speaker 1: how we managed the P and L, how we manage cash.
Speaker 1: We've been profitable for years, which is sort of less
Speaker 1: heard of in a high, high growth consumer business, and
Speaker 1: we've been super you know, kind of sensitive to passing
Speaker 1: along any increases that we're having to our fans and
Speaker 1: our consumers as well. So much fun, Come back soon,
Speaker 1: Thank you, Thank you for so good. Grace Sunset, she's
Speaker 1: Chief People an Impact Officer at CO of Paxi. Joining
Speaker 1: us here in our interactive Folkers studio. You're listening in
Speaker 1: watching Bloomberg Business Week, and this is Bloomberg Radio. 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
Speaker 1: business finance and tech news. The Bloomberg Business Week. Punk
Speaker 1: asked with Carol Messer and Tim Stenebec from Bloomberg Radiomen, yes, Tamen,
Speaker 1: all right everybody. Yeah, we're going to talk about the
Speaker 1: taxmen and women that are out there, truant taxpayers, decrepit technology,
Speaker 1: and a broken system that former IRS tax auditors say
Speaker 1: that cannot be fixed with the eighty billion dollars it's
Speaker 1: been allocated by federal government to do just that. This
Speaker 1: story found online up Bloomberg dot com slash business Week
Speaker 1: and on the Bloomberg and at Bloomberg dot com Slash
Speaker 1: business Week. I said that twice on the Bloomberg terminal.
Speaker 1: It's that kind of a day. Um anyway, It's not
Speaker 1: like I'm going to get an audit or something and
Speaker 1: I'm freaking out here with more. Let's get to it.
Speaker 1: Bloomberg News Wealth reporter Ben Steve Roman incredible deep dive
Speaker 1: along with the editor of Bloomberg Business Week. Do Webber
Speaker 1: here in our Bloomberg Interactive Broker studio. Yeah, that would
Speaker 1: scare the heck out of me. That audits coming. They
Speaker 1: got eighty billion dollars to play with at the rs UM.
Speaker 1: But actually, what we set out to find in this
Speaker 1: story with Ben Steeperman at the Helm, was you know,
Speaker 1: what's it really like to work there? How bad is it? Really?
Speaker 1: We know it's bad, that's a given, but like, really, really, really,
Speaker 1: how about is it? And you know, if you were
Speaker 1: to fix it or to you know, give some pointers
Speaker 1: to people normal Americans, what would those fixes and pointers
Speaker 1: be And would you find? Ben? What I found was
Speaker 1: that part of the issue here is money. Obviously, UM
Speaker 1: this these are folks who have been suffering through decades
Speaker 1: of budget cuts. Um. It's the agency is a shadow
Speaker 1: of its former self in a lot of ways. It's
Speaker 1: probably the worst funded government agency. Um. Technology doesn't work,
Speaker 1: systems crash. We've been running on nineteen sixties computer programming languages.
Speaker 1: It's just basic analyzes auth or is that like cards?
Speaker 1: Like what is it? Sorry, I don't know the name
Speaker 1: of the language, but yeah, it's like one of these
Speaker 1: things where you need special training to uh, well they
Speaker 1: have they have these like veterans who like learn this stuff,
Speaker 1: and um, it's not very applicable to other software tech companies.
Speaker 1: And so it's it's bad and money can help. But
Speaker 1: there's also a culture problem. There's a culture shift that
Speaker 1: needs to happen there because this is like, this is
Speaker 1: an agency that's been demonized for fifty years, and they
Speaker 1: have this bunk i mentality and they have a really
Speaker 1: hard time even communicating with the public or or had
Speaker 1: to call that I RS. I understand what they're dumonized. Yeah,
Speaker 1: and yet there's this incredible loyalty that you kind of
Speaker 1: discovered among the people who have worked there. A lot
Speaker 1: of a lot of the people you spoke to were farmers,
Speaker 1: and that just really stuck out to me. It was like, yeah,
Speaker 1: you know, you blugend the heck out of an agency
Speaker 1: that until it's like despised, and yet the people who
Speaker 1: are there, like I feel like they're like clinging to
Speaker 1: each other almost. Yeah, it's like they're like bonding in
Speaker 1: the trenches. Maybe. But I think what realized what surprised
Speaker 1: me maybe was I think because of the demonization, there's
Speaker 1: a sense that like an IRS auditor, Oh, there's somebody
Speaker 1: who would be like politically motive, seemed politically motivated, or
Speaker 1: or like might want to squeeze tax the rich taxpayers.
Speaker 1: I mean, maybe that's why you go into it, because
Speaker 1: you get to like take rich people down a peck
Speaker 1: I didn't get any of that vibe. In fact, what
Speaker 1: I got from these people is that they're big tax nerds,
Speaker 1: Like they just love the tax code and there's something
Speaker 1: really fun about if you're if you are a tax
Speaker 1: nerd of like being in government service and working on
Speaker 1: that and the hours are saying, it's a union shop,
Speaker 1: retirement benefits are good, Like, so all you have to
Speaker 1: do is understand this really complicated tax code. Yeah, it
Speaker 1: just gets more and more complicated. Right, and also like
Speaker 1: be kind of embarrassed to tell people where you work.
Speaker 1: And I'm only saying that because you put it in
Speaker 1: your story, So this is this is editorially sound, but
Speaker 1: like that's kind of a tough pill to swallow. Yeah,
Speaker 1: So when multiple people told me, I kept asking, what
Speaker 1: do you tell people if if they ask you what
Speaker 1: do you do at a party and they're they're like, oh,
Speaker 1: I'm an accountant or I work at the Treasury Department.
Speaker 1: They had also, everybody had like a different strategy for
Speaker 1: like basically killing the conversation and not basically trying to
Speaker 1: trying to sound boring, and so people move on to
Speaker 1: a different conversation. Right, but everything's going to change, right
Speaker 1: eighty billion dollars. Well, they have a new commissioner, they
Speaker 1: do have eighty billion for now. Republicans in the House
Speaker 1: at least would like to rescind a lot of that money,
Speaker 1: especially for enforcement. Um, they're probably not going to get
Speaker 1: their way at least in the next couple of years,
Speaker 1: but we'll see. But yeah, they need to hire a
Speaker 1: lot now, and that's a child lee. I mean, the
Speaker 1: onboarding process can take months. And also they're paying government
Speaker 1: a government pay scale, and they're competing against the private sector,
Speaker 1: which obviously unemployment is low. And if you have some
Speaker 1: SAX skills, you can make a lot more money by
Speaker 1: going to an accounting for a meal law firm. But
Speaker 1: one thing I don't understand is that it's important like
Speaker 1: how many tax sheets are there? Are there estimates because
Speaker 1: I would think that a very rigorous IRS would be
Speaker 1: a good thing in terms of bringing tax revenue, justify revenue.
Speaker 1: In part of the goal here, right, it's like maybe
Speaker 1: modernize this place and let them do the job that
Speaker 1: they're supposed to be doing exactly correct that spot they
Speaker 1: can hire that could maybe of them out. So there
Speaker 1: is one study that the IRS does and it just
Speaker 1: came out. They do it every every few years. They
Speaker 1: found that almost five hundred billion dollars is missing compared
Speaker 1: to you know, if you compare what is owed to
Speaker 1: what is actually paid. They think it's peggeted about five
Speaker 1: hundred billion. But that is an estimated that is several
Speaker 1: years old. It is based on random audits that might
Speaker 1: not be conducted very well. They're they're not that asn't
Speaker 1: include crypto, it doesn't include all sorts of offshore game
Speaker 1: playing that that could be happening. So there are people
Speaker 1: who think, like academics, who think that much much more
Speaker 1: money could be hidden from the IRS by wealthy people
Speaker 1: in business owners. To be clear, like salaried workers like
Speaker 1: you and me find it very difficult, if not impossible,
Speaker 1: to cheat because our income is reported directly to the IRS,
Speaker 1: and that matching software is actually very simple. What they
Speaker 1: want to develop is some kind of AI and machine
Speaker 1: learning and really crunch the data on what's going on
Speaker 1: with investment flows and wealthy people and try to find
Speaker 1: cheaters that way and be much more sophisticated, sophisticated about
Speaker 1: who they audit in the first place. Okay, so you
Speaker 1: actually did get to talk to some people who had
Speaker 1: recently joined the agency and recently left the age and
Speaker 1: then yes, yes, so what was their experience like because uh,
Speaker 1: you know they came in for maybe different reasons, but
Speaker 1: you know these are these are new hires and new exits, right,
Speaker 1: so what was their experience? Yeah, so you know you
Speaker 1: could argue that well, one of my sources did argue
Speaker 1: that auditing is basically the toughest job you can possibly imagine.
Speaker 1: I mean, you're going in there and you're trying to
Speaker 1: figure out is there something like you're investigating somebody, um,
Speaker 1: based on their tax return and that could be thousands
Speaker 1: of pages, and then you're comparing that with the tax
Speaker 1: code and that can be that is like tens of
Speaker 1: thousands of pages, Like how do you find how do
Speaker 1: you find that? And to begin with um so um. Unfortunately,
Speaker 1: the last few years, especially with the pandemic, it's really
Speaker 1: been hard to bring people on and train them in
Speaker 1: that and training virtual training in taxes like can you
Speaker 1: imagine it's so apparently they have very good instructors, but um,
Speaker 1: you think that it would be Anyways, I am I
Speaker 1: was in awesome of these stories these people told about
Speaker 1: coming in and basically it's sink or swim and they
Speaker 1: sunk like it was really hard. It was emotionally stressful
Speaker 1: to deal with taxpayers, especially low income taxpayers who are
Speaker 1: it's often connected with health issues, financial issues like poor people, um,
Speaker 1: and then all the way up to the higher I'm
Speaker 1: thinking about everything. Jamie Lee Curtis is not or and
Speaker 1: it's like so sad, but I mean we've been joking,
Speaker 1: but in all seriousness, you do profile people who talk
Speaker 1: about going into people's lives who are struggling and having
Speaker 1: to fight them on their taxes, like and and add
Speaker 1: the ad in the political environment right like you are
Speaker 1: a representation. Literally the talking point from folks on the
Speaker 1: right in the last year has been that this is
Speaker 1: Biden is creating this new army of IRS agents that's
Speaker 1: going out there with weapons to poke through people's finances.
Speaker 1: That can feel very threatening if that's the message that's
Speaker 1: going out there, and if if you believe it, and
Speaker 1: then someone shows up at your house or your business
Speaker 1: and these people are not armed. To be clear, the
Speaker 1: vast vast majority, except for some criminal investigators, a very
Speaker 1: very few, they do not have weapons. They have basically
Speaker 1: a laptop and that's it. And maybe that laptop doesn't work.
Speaker 1: There was some amazing stories that, like one guy said
Speaker 1: his laptop broke and then they didn't they didn't have
Speaker 1: the budget to like buy a new one. There wasn't
Speaker 1: a replacement in the office, so he had to mail
Speaker 1: it from Florida to Texas to be repaired and then
Speaker 1: wait for it to be sent back, and he was
Speaker 1: he did not have a job to do for three weeks,
Speaker 1: because you can't do a job without a computer in
Speaker 1: twenty twenty three or whatever. It does speak to another
Speaker 1: element of the story that I found fascinating, which is
Speaker 1: so much of the job is actually the agents and
Speaker 1: auditors taking them upon themselves to do things and learn
Speaker 1: things that maybe they haven't ever been exposed to in
Speaker 1: the course of the job, right, So talk about those contours,
Speaker 1: because that it takes a certain someone to be like, Okay,
Speaker 1: I'm gonna government job, and actually I need to like
Speaker 1: do a little bit more work to understand what I'm
Speaker 1: supposed to do. Yeah. I found many instances of people
Speaker 1: paying for a course out of their own pocket. Again,
Speaker 1: these are tax nerds, so like that they're interested in
Speaker 1: it maybe to begin with, but also they felt like
Speaker 1: they couldn't do their job. And that's the running theme,
Speaker 1: is it. And so many of these people at the
Speaker 1: RS just told me I did not have the tools
Speaker 1: to do my job properly. And that can be very demoralizing.
Speaker 1: Even if you get along with their colleagues and like them,
Speaker 1: it can be just really just demoralizing. You can't fulfill
Speaker 1: your mission. What do they get paid. It's a government
Speaker 1: pay scale, and I think it's capped it like the
Speaker 1: hot like high hundred thousand basically, yeah, yeah, yeah, one
Speaker 1: hundred thousand or so, one hundred thousand or so. I
Speaker 1: could be wrong about that. There might be some bumps.
Speaker 1: The IRS now that they're hiring is thinking, well, maybe
Speaker 1: we should hire because of remote work, Maybe we can
Speaker 1: hire more in like markets that are less expensive, like
Speaker 1: other than DC, New York, the Bay Area, like higher
Speaker 1: auditors in other places. And maybe that's one of the
Speaker 1: strategies are coming up with to try to get some
Speaker 1: talent in there. But like, it's basically these people can
Speaker 1: leave in DC or New York and get paid four
Speaker 1: times more, five times more by going to the private sector.
Speaker 1: It's interesting too that you know, in terms of the
Speaker 1: things that IRS is doing well diversity. It seems like
Speaker 1: they're killing it on gender equity and you know, just
Speaker 1: having an inclusive hiring practice. What did you make of that?
Speaker 1: Did that surprise you? Surprise me a little bit? Um?
Speaker 1: What I heard from veterans is that they maybe they
Speaker 1: came out of law school in way back in the eighties,
Speaker 1: the longstanding thing, you know, they maybe they came out
Speaker 1: of law school in the eighties and it wasn't was
Speaker 1: not a top tier law school, and they were able
Speaker 1: to get a job at the IRS and um, and
Speaker 1: then found it pretty meritocratic. And I think that basically
Speaker 1: almost I think almost a third of the workforce is black.
Speaker 1: There's two thirds as women, so it's a very diverse
Speaker 1: workforce and it much more than other even other government jobs. Right.
Speaker 1: I just found that so surprising and interesting. Yeah. The
Speaker 1: other thing that is worth mentioning here is one of
Speaker 1: the main reasons, in addition to being able to leave
Speaker 1: and get high paying job elsewhere, is retirements, right, which
Speaker 1: has been a huge force of change at DIRS because
Speaker 1: so many of the people who are there and have
Speaker 1: have effectively tenure are retiring. So you know that there's
Speaker 1: this drain loss, brain loss, draining brain, brain drain, brain drain. There.
Speaker 1: It is that And I'm curious what you're reporting bore
Speaker 1: out about that topic because that can have huge not
Speaker 1: only kind of cultural implications, but also you know, institutional ones. Yeah,
Speaker 1: so people told me about what the time when they
Speaker 1: joined the organization, say two decades ago, there would be
Speaker 1: a guy who was in an office in the DC
Speaker 1: in DC who was the expert on section forty two
Speaker 1: point k what they were the world expert. And that
Speaker 1: is actually an advantage for the tax collector that the
Speaker 1: private sector doesn't necessarily have. They have the ability because
Speaker 1: it's it really is eighty four thousand people in this workforce.
Speaker 1: It's a big workforce, much bigger than any firm. They
Speaker 1: have the ability to really master the minutia of this
Speaker 1: incredibly complicated tax code. Well, if those people leave, and
Speaker 1: they have been leaving in droves because basically in a
Speaker 1: lot of departments, the IRS didn't high for years and
Speaker 1: years and years. Um, we actually think that there's going
Speaker 1: they think that there's going to be about fifty thousand
Speaker 1: of those eighty thousand employees are either going to quit
Speaker 1: or retire in just the next several years. So no
Speaker 1: more audits than for us, like so it just underlines
Speaker 1: how much they need to hire to replace these people
Speaker 1: and how and then it's going to take several years
Speaker 1: to ramp up. I mean it's amazing. Yeah, now that
Speaker 1: these people are on the outside, a lot of them
Speaker 1: are helping clients deal with the IRS, and they're saying
Speaker 1: they're just holding their heads. I mean, they are just
Speaker 1: in horror of what they're encountering because they're encountering auditors
Speaker 1: who've been on the job for a year or two
Speaker 1: and they do not know what they're doing. And we
Speaker 1: brought all this to the IRS and they did not
Speaker 1: push back on this. I mean, there is worse incompetent audits. Um,
Speaker 1: you just get stuck in this customer service hell and
Speaker 1: never exited. Unbelievable. Ben Steverman, Wealth reporter at Bloomberg News,
Speaker 1: Joe Weber, Editor Bloomberg Business Week. Check it out online.
Speaker 1: I'm Broomca a journal radio now, but you let me drive? No, no, no, no, honey, please,
Speaker 1: I'll do the riding gravels. I want to drive. It's
Speaker 1: good question. This is the drive to the globe down
Speaker 1: timulate things well, jog down on Bloomberg Radio. All right, everybody,
Speaker 1: just about eighteen minutes left in the trading session. We've
Speaker 1: got stocks definitely off their best levels of the session.
Speaker 1: As Charlie just mentioned, down across the board, UH tech
Speaker 1: stocks once again taking the biggest hit on a percentage basis,
Speaker 1: just down about seven tenths of a percent. So let's
Speaker 1: get to our drive to the closed. Guest Brendo O'Connor
Speaker 1: want us is with us. She's senior vice president and
Speaker 1: financial advisor at UBS Global Wealth Management based in Florida,
Speaker 1: but here in our Bloomberg Interactive Broker's studio here at
Speaker 1: Bloomberg Headquarters. So nice to have you here. How are you?
Speaker 1: Thank you? It's I think I brought the good Miami
Speaker 1: weather to New York, so you guys can thank me
Speaker 1: for that. Thank you, thank you. We really appreciate it.
Speaker 1: Having said that, maybe clear outside in terms of the weather,
Speaker 1: it feels like at least for today, But the cross
Speaker 1: currents on the markets are pretty tricky, and I think
Speaker 1: that's why we have such a tight range, or we
Speaker 1: have for the last couple of days than low volume
Speaker 1: when it comes to the equity trade, and even treasuries
Speaker 1: feel like they're tight. Trying to figure out what's next.
Speaker 1: What do you think is next? Right? And obviously today
Speaker 1: it's all about the CPI numbers. There was a fixation
Speaker 1: a few days ago on the payrolls on Friday. All
Speaker 1: seems to be trending in the right direction when you
Speaker 1: look through the headline and focus on the core, though
Speaker 1: the messaging is not as clear, and so I think
Speaker 1: that gives ammunition to the FED to raise another twenty
Speaker 1: five in May. The problem is May is a long
Speaker 1: time away, right, So there's a lot of additional data
Speaker 1: that can come out here that can shift the narrative.
Speaker 1: And we're going into earning seasons, so that is an
Speaker 1: interesting place where that narrative could be shifted again. Yeah,
Speaker 1: well in one of those potential you know, another issue
Speaker 1: in this hurricane of data is the credit crunch. So
Speaker 1: I wonder what you're looking at and what clients are
Speaker 1: asking you about when it comes to the credit crunch
Speaker 1: and the impact that could have on the FED. Right,
Speaker 1: So I think two things here, And in terms of risks,
Speaker 1: we are looking at domestic risk for the first time
Speaker 1: in a long time. We're not focusing on you, Crede,
Speaker 1: We're not focusing on China, we're focusing on the knock
Speaker 1: on Its amazing right in a year like go Ahead,
Speaker 1: we're focusing on the knock on effects from the banking
Speaker 1: crisis as well as the dead ceiling. So I would
Speaker 1: say in terms of the credit crisis, you know, we
Speaker 1: have relative stability now, but the fact is the price
Speaker 1: and availability of credit has changed. So we're going to
Speaker 1: see some of that permeate some of the bank earnings,
Speaker 1: maybe not this session, but maybe in Q two. The
Speaker 1: bigger stress is what does this due to other parts
Speaker 1: of the market and commercial real estate becomes really exposed.
Speaker 1: You know, there's a comment of I think was Jeffrey
Speaker 1: Rosenberg on black Rock earlier today and surveillance, and that
Speaker 1: was this whole point. We know credit, we know what's
Speaker 1: going on in terms of credit. We know it's tightening up,
Speaker 1: we know the direction, we just don't know the magnitude.
Speaker 1: And I do feel like what we get let's go
Speaker 1: back to earnings, which you talked about at the top
Speaker 1: bank earnings, how key is that and kind of getting
Speaker 1: a tone of maybe how much things are kind of
Speaker 1: being brained in when it comes to credit. And I
Speaker 1: think that more than usual, investors are going to be
Speaker 1: paying very close attention to the bank earnings because the
Speaker 1: messaging of how this will impact the broader economy is
Speaker 1: going to be We're going to start to see that.
Speaker 1: And I really think about it in two ways. So,
Speaker 1: first of all, we see evidence of tightening lending standards.
Speaker 1: Number one, how does that change the calculus for the FED?
Speaker 1: Because we know that credit contraction is deflationary, So how
Speaker 1: are they going to incorporate that into their thinking? How
Speaker 1: is that going to impact the path of ray cuts.
Speaker 1: The other bigger thing, and you highlighted this a little bit,
Speaker 1: is what is the economic contagion in the broader economy
Speaker 1: specifically to those small and mid sized businesses. We know
Speaker 1: that they are so dependent on access to credit, which
Speaker 1: had some stories already about a bally. So how pervasive
Speaker 1: is this problem? And we won't see that on Friday
Speaker 1: with the big bank earnings, but as we go through
Speaker 1: the cycle here, we're going to see that in some
Speaker 1: of the regional banks. Are you concerned about contagion into
Speaker 1: the tech sector specifically when it comes to that credit crunch? Well,
Speaker 1: the tech sector is interesting, and I bring this back
Speaker 1: to what we've seen in the market so far. You know,
Speaker 1: the narrative in Q one was not what people were expecting. Everyone,
Speaker 1: or for the most part, a lot of market participants
Speaker 1: were expecting a softer q Q Q one and Q
Speaker 1: two with market strength in the back half, and that
Speaker 1: wasn't the case. You saw this broad based rally at
Speaker 1: first glance, but when you look under the hood, it
Speaker 1: really was driven by seven names. These were all big talk,
Speaker 1: big tech, and that really was driving a lot of
Speaker 1: the games. And so, you know, we've seen tech rally,
Speaker 1: but I don't think that we should assume that that
Speaker 1: rally is going to stay permanent. Brenda Having said that,
Speaker 1: how many times do people like it's not in the
Speaker 1: gross docks. You gotta get out of them, and then
Speaker 1: investors pile back in and that is where you see
Speaker 1: the growth though, when it comes to top and bottom line.
Speaker 1: So I do wonder how you think about that. When
Speaker 1: I think about my world, what it's you know, made of,
Speaker 1: it's a lot of apple stuff. I use Google all
Speaker 1: the time, Like I think about that a lot. How
Speaker 1: do you think about the tech space in terms of
Speaker 1: where the real you know, next wave of growth opportunities are.
Speaker 1: Is it those big established names or is it going
Speaker 1: to be names we just don't know about yet. Well,
Speaker 1: I mean, big tech is not necessarily the real growth
Speaker 1: and a lot of those names are now consumer staples.
Speaker 1: That's true. So you know where there's going to be
Speaker 1: really interesting opportunity is in the earlier stage stuff. It's
Speaker 1: at times when markets dislocate that some of these really
Speaker 1: innovative and creative technologies emerge. So they're going to be
Speaker 1: earlier stage. I just think that from a broad equity positioning.
Speaker 1: You know, it hurt us a little bit that we
Speaker 1: were underweight growth in tech, but I still think we're
Speaker 1: only one quarter in. There's still a lot of this
Speaker 1: year we need to see. So where do you want
Speaker 1: to be right now? In terms of strategy? Right so,
Speaker 1: I think fixed income is the big call. I know
Speaker 1: you've had a lot of conversations about bonds, and I
Speaker 1: would say they're in fixed income. We're in fixed income,
Speaker 1: and so I think that really we're staying away from
Speaker 1: high yield, we're staying away from senior loans. We're doing
Speaker 1: two things. We're doing high quality investment grade and we're
Speaker 1: extending duration. And if you think about it this way,
Speaker 1: fixedencome was not a good investment last year right. I
Speaker 1: saw the USAG down thirteen percent through zero diversification benefit there,
Speaker 1: but that's we've been re established, so investors will benefit
Speaker 1: from that. Also in terms of what the Fed is
Speaker 1: going to do, no one knows the clear timing, but
Speaker 1: you know, for the CPI data showed us today that
Speaker 1: we're closer to that ninth inning, and so there's an
Speaker 1: opportunity again high quality to lock in attractive yields and
Speaker 1: also benefit from capital appreciation as the FED potentially comes
Speaker 1: down later in the air. So high quality corporate, high
Speaker 1: quality corporates. Yeah, okay, no sovereign or no treasure. Well,
Speaker 1: so treasuries, we do have an allocation. You're doing kind
Speaker 1: of a carbel approach on treasuries. I think the interesting
Speaker 1: thing that we're watching in this space has to do
Speaker 1: actually with the deat ceiling. So in terms of the
Speaker 1: debt ceiling, unfortunately, we think this is going to go
Speaker 1: down to the wire simply because the Democrats are not
Speaker 1: going to be willing to do any of those speciss
Speaker 1: how it plays exactly. A deal will likely get done,
Speaker 1: but we're looking at the treasury market for indication of
Speaker 1: any pervasive weakness. I think next week could be interesting
Speaker 1: as those tax receipts start to come in. We don't
Speaker 1: really have a clear understanding of the drop dead date,
Speaker 1: but we could in the coming weeks really smart, so
Speaker 1: real quickly. SVB didn't change your calculation on fixed income now,
Speaker 1: I think broadly what it did is two things. So
Speaker 1: for investors, it really just reinforced the view that you
Speaker 1: need to have multiple providers. And there was also a
Speaker 1: movement towards a bigger bank, more established bank names. So
Speaker 1: it did not really affect our calculus. There are so
Speaker 1: many other drivers now that are going to impact both
Speaker 1: fixed income and equity movement people though, investors, and I
Speaker 1: got about fifteen seconds comfortable committing new money right now. Yeah,
Speaker 1: so I think there is And you know, you have
Speaker 1: to do a few things. So you have to still
Speaker 1: invest in short term treasuries, okay, to keep your powder dry.
Speaker 1: You can selectively go into parts of the equity market
Speaker 1: non us. So you're seeing, you guys are still seeing
Speaker 1: that absolutely your money come in interesting come back soon.
Speaker 1: Let's say, Travis, please, Carol loved it. Loved it. Brend
Speaker 1: O'Connor want us, Senior VP, Financial advisor at UBS Global
Speaker 1: Wealth Management. As we said, based in Florida, but here
Speaker 1: in our Bloomberg Interactive Broker studio. This is Bloomberg. This
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