WEBVTT - American Air’s Lackluster Profit Impacts Industry 0:00:01.280 --> 0:00:05.640 This is Bloomberg business Week Inside from the reporters and 0:00:05.840 --> 0:00:09.400 editors who bring you America's most trusted business magazine, plus 0:00:09.480 --> 0:00:13.640 global business, finance and tech news. The Bloomberg Business Week 0:00:13.680 --> 0:00:18.640 Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio. 0:00:19.720 --> 0:00:21.040 You do you want to talk a bit more about 0:00:21.079 --> 0:00:24.239 what's going on in those airline names, as Charlie mentioned, 0:00:24.239 --> 0:00:27.240 stock under pressure or the group I should say under 0:00:27.240 --> 0:00:29.639 pressure down about four and a half percent here, so 0:00:29.800 --> 0:00:33.559 just off their loads of the day. Thank you American Airlines, right, Mattie, 0:00:33.600 --> 0:00:36.480 I mean always thank you to American Airlines, but especially 0:00:36.600 --> 0:00:41.800 for giving us this really interesting story on potential forecast 0:00:41.880 --> 0:00:45.200 for airline earnings as they come up in the weeks 0:00:45.200 --> 0:00:48.159 to come. Watching the space on our Bloomberg Intelligence team 0:00:48.280 --> 0:00:51.839 is George Ferguson. He's senior Aerospace, Defense and Airlines analyst 0:00:51.920 --> 0:00:55.320 and he joins us from zoom in New Jersey. George, 0:00:55.320 --> 0:00:58.080 thank you so much for being here with us this afternoon. 0:00:58.280 --> 0:01:01.880 Let's start on the American Airlines news. What did you 0:01:01.920 --> 0:01:05.600 think was surprising to you on this news? I thought 0:01:05.640 --> 0:01:09.720 that everyone was flying, so I'm a little bit confused. Yeah, 0:01:09.760 --> 0:01:13.319 so you know, I think that the expenses kind of 0:01:13.319 --> 0:01:17.160 came in line with where we expected it. You know, 0:01:17.400 --> 0:01:19.920 we haven't been the most bullish on fairs, but there's 0:01:19.920 --> 0:01:22.600 a lot more people in the marketplace that have been 0:01:22.640 --> 0:01:25.520 and so I think the top line was probably weaker 0:01:25.520 --> 0:01:29.000 than most people wanted. And so I think that's why 0:01:29.040 --> 0:01:31.000 you see some of the response here. I don't think 0:01:31.000 --> 0:01:33.280 it I don't think it was terrible, but I think 0:01:33.280 --> 0:01:34.520 there may have been a lot of people in the 0:01:34.520 --> 0:01:39.600 marketplace that think fairs were even better than they than 0:01:39.760 --> 0:01:42.200 the airlines were letting on and potentially a you know, 0:01:42.240 --> 0:01:46.600 a source for for over performance here in the first quarter. George, 0:01:46.600 --> 0:01:48.160 what's going on with fairs? Because I mean I've been 0:01:48.160 --> 0:01:50.120 looking into some different things and I feel like, shoot, 0:01:50.280 --> 0:01:53.200 it's also expensive, but our fears starting to tick down, 0:01:54.240 --> 0:01:56.680 you know. So we we have a data set from 0:01:56.680 --> 0:01:59.320 Airline Important Corporation. We get it once a month. The 0:01:59.440 --> 0:02:02.520 last time looked at it in February, it actually looked 0:02:02.560 --> 0:02:05.600 quite strong. It had a nice rebound after what I 0:02:05.600 --> 0:02:10.520 would call a middling h January. But the bookings rates 0:02:10.520 --> 0:02:14.919 that we were seeing on you know, on this data set, 0:02:15.160 --> 0:02:18.000 we're about eighty percent of twenty nineteen where we have 0:02:18.040 --> 0:02:21.560 a lot of the airlines flying really close to one 0:02:21.639 --> 0:02:24.400 hundred percent of twenty nineteen schedules, So we felt like 0:02:24.400 --> 0:02:27.040 the booking rates were lagging. So maybe the airlines have 0:02:27.120 --> 0:02:30.320 been trying to keep fares higher, hoping that that booking 0:02:30.400 --> 0:02:33.240 rate would come along. You know, American didn't give us 0:02:33.240 --> 0:02:34.760 all the detail, right, they didn't give us all the 0:02:35.400 --> 0:02:38.919 fair detail. But I'm wondering again. I think that you know, 0:02:38.960 --> 0:02:41.240 the airlines are trying to hold fares up. They have 0:02:41.320 --> 0:02:44.160 higher costs coming down the pike. Right the pilot unions 0:02:44.160 --> 0:02:47.360 are in for pay increases. Delta has agreed to it 0:02:47.440 --> 0:02:51.720 already in eighteen percent pay increase or pilots quite sizeable, 0:02:51.720 --> 0:02:54.079 with another five percent coming for the pilots at the 0:02:54.160 --> 0:02:56.080 end of the year. We think that'll happen at the 0:02:56.120 --> 0:02:59.440 rest of the full service carriers and that they'll all 0:02:59.480 --> 0:03:01.680 all you have to step up to those higher costs. 0:03:02.040 --> 0:03:05.440 So they need to keep fares high because they've got 0:03:05.480 --> 0:03:08.760 higher costs coming as well because of comes this wage inflation. 0:03:09.760 --> 0:03:11.799 So again, we'll see when we get more detail on fares. 0:03:11.840 --> 0:03:14.320 But I suspect that's part of the problem is there's 0:03:14.360 --> 0:03:17.519 not enough demand to fill airplanes at that higher fare. 0:03:17.960 --> 0:03:20.520 So in your research note, you know a lot of 0:03:20.680 --> 0:03:24.240 issues that American airlines could be facing, Like you just said, labor, 0:03:24.880 --> 0:03:28.920 airline fares, capacity, potentially oil coming down the pipeline. But 0:03:29.040 --> 0:03:31.600 what would you say is the single biggest factor that's 0:03:31.680 --> 0:03:38.160 impacting profits for American airlines? Is it those increased labor costs? Yeah, well, 0:03:38.360 --> 0:03:41.160 I think it's really that fares aren't keeping up with 0:03:41.200 --> 0:03:44.360 the increased labor costs. But the increased labor costs they're 0:03:44.400 --> 0:03:47.080 kind of already here, and I think it's a it's 0:03:47.080 --> 0:03:49.600 a big challenge for all the airlines because to give 0:03:49.600 --> 0:03:52.320 the pilots that kind of wage increase, you're going to 0:03:52.400 --> 0:03:55.640 need to keep decent fares in order to pay for it. 0:03:56.040 --> 0:04:00.600 I will say, you know, oil prices have been coming off, 0:04:00.640 --> 0:04:03.040 you know, they're lower than we started the year out right, 0:04:03.360 --> 0:04:05.680 and they've relaxed, and that's a little bit of a 0:04:05.680 --> 0:04:09.480 tail for the airlines. It's if it stays down, continues 0:04:09.520 --> 0:04:13.840 to decline as we expect. Potentially, you know, the thing 0:04:13.920 --> 0:04:17.640 talked about a potential recession this year that could relax 0:04:17.720 --> 0:04:20.800 oil prices and that could be a positive for these 0:04:21.000 --> 0:04:23.520 these accom statements. Again, it's gonna be really difficult to 0:04:23.560 --> 0:04:27.320 keep fares high, especially in an economy that's slowing as well. 0:04:27.440 --> 0:04:31.559 Right consumers are already squeezed, especially lowline consumers, they won't 0:04:31.560 --> 0:04:34.080 want to spend as much on air travel. That will 0:04:34.120 --> 0:04:36.119 be the big challenge as fair as I think, George, 0:04:36.120 --> 0:04:37.560 how do you think about this cycle right now? And 0:04:37.560 --> 0:04:40.760 I think about you know, pre pandemic airlines had gotten 0:04:41.000 --> 0:04:43.920 so smart. I feel like in squeezing out excess capacity, 0:04:44.000 --> 0:04:46.960 they've gotten so good at charging me for every breath 0:04:46.960 --> 0:04:50.159 I take when I get it on an airplane. So 0:04:50.360 --> 0:04:52.880 help me out here, like, what is the cycle we're in? 0:04:53.000 --> 0:04:55.479 I think it's interesting what you said about higher costs 0:04:55.480 --> 0:04:57.720 in terms of unions and salaries, But how are you 0:04:57.800 --> 0:05:01.080 looking at this more broadly, at the space in terms 0:05:01.080 --> 0:05:04.599 of this airline cycle? And so we recently published a 0:05:04.680 --> 0:05:07.160 note on the airline's balance sheet to spend a little 0:05:07.160 --> 0:05:08.919 bit of time on it. They have a lot of 0:05:08.960 --> 0:05:13.120 cash US airlines do, so I think they're they're ready 0:05:13.160 --> 0:05:16.080 to weather a down cycle. They haven't sort of gotten 0:05:16.160 --> 0:05:19.719 rid of all that cash they took on during the pandemic. 0:05:20.640 --> 0:05:23.160 They do have more debt than they have they haven't had, 0:05:23.240 --> 0:05:25.760 so that's that's an additional challenge, but you know, it's 0:05:25.960 --> 0:05:29.560 it's pushed out, so we kind of see them again 0:05:29.640 --> 0:05:31.960 able to whether the cycle here and that will see 0:05:32.400 --> 0:05:36.160 a recession really hits you know, I think usually you'd 0:05:36.200 --> 0:05:39.120 think that the full service carriers would be you know, 0:05:39.120 --> 0:05:42.680 would be have the most difficulty in a recession because 0:05:42.680 --> 0:05:45.159 I think, you know, the consumer would drive to a 0:05:45.200 --> 0:05:48.200 lower price point. I will say we have not seen 0:05:48.240 --> 0:05:53.119 business travel come back to the twenty nineteen levels, still 0:05:53.160 --> 0:05:56.440 not as of February. We were kind of sixty five 0:05:56.600 --> 0:06:00.279 percent issues what we saw, So that could be a 0:06:00.360 --> 0:06:04.279 tailwin for the full service carriers as well. But it 0:06:04.360 --> 0:06:06.680 hurts out to have those full service travelers back because 0:06:06.680 --> 0:06:10.040 they're u you know, they pay the big fares, and 0:06:10.160 --> 0:06:11.839 you know, I'm hearing a lot of companies now talking 0:06:11.880 --> 0:06:15.000 about return to work more than three days a week, right, 0:06:15.400 --> 0:06:18.400 four days a week, maybe five at some companies. I 0:06:18.440 --> 0:06:20.880 think that will help business to travel out as well, 0:06:21.000 --> 0:06:23.680 because I think that's part of the drag there. But again, 0:06:23.720 --> 0:06:27.680 I think we think they're generally ready for a down cycle, 0:06:28.200 --> 0:06:30.960 especially if it's not too dramatic of a down cycle. 0:06:32.000 --> 0:06:33.839 You know, but it's going to be a challenge to 0:06:33.880 --> 0:06:36.880 fill airplanes when you've got a consumer that's a little 0:06:36.880 --> 0:06:39.680 bit squeezed, and that's gonna that's gonna, you know, it's 0:06:39.720 --> 0:06:43.520 gonna cause earnings pain. Hopefully not for the summer, because 0:06:43.560 --> 0:06:45.839 you know, the money making portion of the year is 0:06:45.960 --> 0:06:48.800 two Q three Q. We're into the heart of that. 0:06:49.480 --> 0:06:51.919 We'd like to see the consumer not running a gas 0:06:52.279 --> 0:06:55.760 during those quarters. Airlines could book decent profits in there 0:06:55.800 --> 0:06:58.520 if it doesn't, if they don't run into gas winter 0:06:58.680 --> 0:07:01.120 months or you know, they're always kind of challenge. Yeah, 0:07:01.120 --> 0:07:02.720 it's funny that you say about coming back to work. 0:07:02.760 --> 0:07:04.440 One of the most read stories in the Bloombergers about 0:07:04.480 --> 0:07:07.640 JPMorgan Chase telling its managing directors they now must be 0:07:07.640 --> 0:07:10.560 in the office every week day, so ending a hybrid 0:07:10.560 --> 0:07:14.000 work practice that rose during the mid they'll get back. 0:07:14.720 --> 0:07:16.840 Having said that, not all airlines are the same. So 0:07:16.880 --> 0:07:20.040 I'm looking at the S and P Supercomposite Airlines Index, 0:07:20.080 --> 0:07:22.000 which is down about four and a half percent or so. 0:07:22.560 --> 0:07:25.840 American obviously is the biggest lagger, down almost ten percent. 0:07:25.960 --> 0:07:29.320 Ul's down more than seven percent. But I look at Southwest, 0:07:29.320 --> 0:07:32.080 it's down about two percent, Delta is down about three percent. 0:07:32.360 --> 0:07:36.800 Who is best position to weather what's to come. Yeah, 0:07:36.800 --> 0:07:38.520 I think what you're seeing today is against some of 0:07:38.520 --> 0:07:42.720 those local cost carriers, not some of them, right, all 0:07:42.760 --> 0:07:45.640 of them are performing better than the two worst performers, 0:07:45.640 --> 0:07:48.760 Like you said, United in American on the day. You know, 0:07:48.840 --> 0:07:52.480 those low cost carriers. A squeezed consumer budget means the 0:07:52.560 --> 0:07:55.680 consumer probably looks to get more out of their air 0:07:55.720 --> 0:07:57.960 travel for less money. I think that you know, that 0:07:58.360 --> 0:08:02.080 helps the South Less, the Jeff Blues, the you know, 0:08:02.120 --> 0:08:05.360 the spirits, the frontiers, if you can, if that's the 0:08:05.360 --> 0:08:08.440 way you're willing to fly. And I think generally Delta 0:08:08.520 --> 0:08:12.360 does a better job in revenue than United An American 0:08:12.880 --> 0:08:14.800 we looked at Delta the other day, just posted a 0:08:14.880 --> 0:08:17.960 new earnings outlook for one queue. We thought they were 0:08:18.040 --> 0:08:20.600 a little bit you know, the cost of fuel was 0:08:20.600 --> 0:08:22.360 a little bit high and some of their guidance we 0:08:22.480 --> 0:08:24.840 lowered that it's a bit of a tail and for them. 0:08:24.880 --> 0:08:27.440 So maybe their one queue looks a little bit better 0:08:27.480 --> 0:08:30.120 and based on where they started their guidance. But yeah, 0:08:30.160 --> 0:08:31.880 I think the low cost carriers though, are probably the 0:08:31.880 --> 0:08:35.719 ones today. So heading into earning season we get Delta tomorrow. 0:08:35.920 --> 0:08:38.000 What are you going to be listening into on that 0:08:38.040 --> 0:08:40.720 earnings call. We have about forty five seconds here. Yeah, 0:08:40.760 --> 0:08:43.160 we're going to be all over domestic fairs, right, that's 0:08:43.160 --> 0:08:45.760 the most important thing for every US airline. Will be 0:08:45.800 --> 0:08:49.200 all over the split between that premium and non premium 0:08:49.240 --> 0:08:52.800 passenger and how that's holding up. And then probably the 0:08:52.800 --> 0:08:55.600 most important international markets will be looking at you know, 0:08:55.640 --> 0:08:59.400 the European Transatlantic is just a big market. Pacific is 0:08:59.400 --> 0:09:02.520 still you know, really low right now because China isn't 0:09:02.520 --> 0:09:05.280 fully open, and Latin America kind of applies more to 0:09:06.440 --> 0:09:08.559 you know, to American, but it applies to all of them. 0:09:08.559 --> 0:09:11.800 But we'll watch your European a lot. Well, thank you 0:09:11.800 --> 0:09:13.640 so much. We've got a really great setup now as 0:09:13.640 --> 0:09:16.760 those learning start to kick in. As Mattie said, Delta tomorrow, George, 0:09:16.760 --> 0:09:19.439 thank you, thank you, thank you. George Ferguson, senior Aerospace, 0:09:19.480 --> 0:09:23.080 Events and Airlines analyst at Bloomberg Intelligence, joining us on 0:09:23.240 --> 0:09:26.240 Zoom in New Jersey, SkyWest, by the way, with the 0:09:26.280 --> 0:09:31.160 smallest decline in the S and P Supercomposite Airlines industry index, 0:09:31.160 --> 0:09:33.560 it's down just about one point three percent, so, as 0:09:33.559 --> 0:09:36.400 he said, you know, some of those lower costs. If 0:09:36.440 --> 0:09:38.640 you're willing to fly. I'm sorry. It was just bad, 0:09:38.840 --> 0:09:40.880 he phrased it. If you're willing to do it, don't 0:09:40.920 --> 0:09:45.720 eat new pillow, be squeezed, any tiny, tiny chair for 0:09:45.880 --> 0:09:50.560 tiny people. So many. Right, you're listening to the Bloomberg 0:09:50.600 --> 0:09:54.520 Business Week podcast. Catch us live weekday afternoons from three 0:09:54.520 --> 0:09:57.840 to six Eastern Listen on Bloomberg dot com, the Ihard 0:09:57.920 --> 0:10:00.920 Radio app, and the Bloomberg Business App, or watch us 0:10:00.960 --> 0:10:05.200 live on YouTube. We mentioned Ward Buffett today waning in 0:10:05.280 --> 0:10:09.280 on banks and dumb decisions by bank managers. Excuse me. 0:10:09.440 --> 0:10:12.720 HE'SO called the electric carmaker by d Company extraordinary and 0:10:12.760 --> 0:10:17.840 said hit manufacturer ts MC Taiwan semi a fabulous enterprise. 0:10:18.000 --> 0:10:21.120 But Maddie, he has been actually selling shares of them, 0:10:21.840 --> 0:10:24.080 which is so interesting because I love one of the things. 0:10:24.080 --> 0:10:28.360 In our next guest note, she says that he loves 0:10:28.440 --> 0:10:30.839 b of A because he's friends with the CEO, and 0:10:30.880 --> 0:10:33.319 he just he likes the CEO. He likes Brian, So 0:10:33.679 --> 0:10:36.360 you know, all power to warm Buffett on on that 0:10:36.440 --> 0:10:39.880 being the decision maker there, but really interesting. We're going 0:10:39.920 --> 0:10:42.400 to get some thoughts on the company with our next guest, 0:10:42.520 --> 0:10:47.040 Kathy Seaffert, CFR, a research industry analyst. Kathy, thank you 0:10:47.080 --> 0:10:50.960 so much for joining us to talk about this. Let's 0:10:51.000 --> 0:10:53.560 just start broad here. What stood out for you most 0:10:54.320 --> 0:10:56.839 in Buffett's comments other than you know, we like to 0:10:56.920 --> 0:10:59.439 joke about the dumb decisions quote? But what was most 0:10:59.480 --> 0:11:02.840 important to you? Oh? Sure, and you know it's I've 0:11:02.920 --> 0:11:05.760 followed Berkshire Hathaway, I hate to admit it for almost 0:11:05.760 --> 0:11:09.199 thirty years now, and you know, from from the perspective 0:11:09.200 --> 0:11:11.720 of an analyst like myself, it's kind of frustrating when 0:11:11.760 --> 0:11:14.320 you have to sort of chase down these media reports 0:11:14.360 --> 0:11:18.520 because Buffett doesn't conduct analyst interview, so we're sort of 0:11:18.559 --> 0:11:22.000 forced to sort of hear what's on his mind. Um, 0:11:22.240 --> 0:11:25.600 you know in interviews like this. Um, so just to 0:11:25.720 --> 0:11:28.760 kind of frame some of the things that he said. Um, 0:11:28.840 --> 0:11:32.720 I think his comments about the banking space were accurate. Um. 0:11:32.920 --> 0:11:35.360 You know, I think he was spot on that. You know, 0:11:35.520 --> 0:11:37.800 the house view at our firm is that, you know, 0:11:37.840 --> 0:11:40.679 we're sort of neutral on regional banks. There is a 0:11:41.240 --> 0:11:45.120 problem or a potential problem at some firms with some 0:11:45.240 --> 0:11:50.280 of their assets liability management, and there's an accounting process 0:11:50.280 --> 0:11:52.560 that some banks sort of play a little fast and 0:11:52.679 --> 0:11:58.800 loose with UM, which doesn't necessarily portend that every bank 0:11:58.840 --> 0:12:00.760 that's going to do this is going to fail. So 0:12:00.880 --> 0:12:02.720 I think it's important to sort of look at that 0:12:02.760 --> 0:12:08.560 within the context of or more muted framework. I mean, 0:12:08.600 --> 0:12:12.160 but I think his second point about bank failures is 0:12:13.200 --> 0:12:16.680 that the SCIC is there is a back stop. I 0:12:16.720 --> 0:12:20.079 think the risk is if you have an uninsured deposit, 0:12:20.160 --> 0:12:21.720 and that was sort of, you know, one of the 0:12:21.800 --> 0:12:25.800 challenges at Silicon Valley Bank, which I don't necessarily Again 0:12:25.840 --> 0:12:28.320 I'm not a bank analyst. I followed Berkshire, but I 0:12:28.320 --> 0:12:32.080 don't I wouldn't necessarily say that they were a microcosm 0:12:32.200 --> 0:12:35.280 for the rest of the bank. Well, Kathy, if I 0:12:35.280 --> 0:12:36.840 could just jump in for a second, and again we 0:12:36.840 --> 0:12:39.199 should be fair. These comments were in an interview with 0:12:39.240 --> 0:12:42.520 CNBC in Tokyo earlier today. He's been actually talking to 0:12:42.520 --> 0:12:45.480 the media and he's been over in Japan, and Japan 0:12:45.559 --> 0:12:48.439 is another thing that has certainly been on Buffet's radar. 0:12:48.679 --> 0:12:50.360 You know. One of the things that we all kind 0:12:50.400 --> 0:12:54.120 of just you know, wait on everything that he says 0:12:55.040 --> 0:12:58.800 with bated breath, is that gives US an idea of 0:12:58.960 --> 0:13:03.640 maybe where he and his team are making investments are not. 0:13:04.200 --> 0:13:07.800 So does what we've been getting from him, whether it's 0:13:07.840 --> 0:13:11.720 on by D, whether it's on TSM, whether it's on 0:13:11.880 --> 0:13:13.840 his interest in Japan, Like, what does it tell you 0:13:13.880 --> 0:13:16.559 about kind of where he is allocating money and his 0:13:16.679 --> 0:13:20.040 interest is right now? Well, it's interesting because there's sort 0:13:20.080 --> 0:13:21.840 of like the adage, look what they do, not what 0:13:21.920 --> 0:13:25.040 they say, and see your point. Um, you know they 0:13:25.600 --> 0:13:29.080 the first quarter holdings filings haven't been released yet, so 0:13:29.480 --> 0:13:32.280 the publicly available data is as of the end of 0:13:32.280 --> 0:13:35.480 the year. And based on that, you know, he's lightened 0:13:35.559 --> 0:13:38.000 up his position in a couple of bank stocks. He 0:13:38.160 --> 0:13:41.480 sold Bank of Nee York, he sold Ally Financial, he 0:13:41.600 --> 0:13:47.880 sold US Bank Corps, kept his BAVE holdings. In fact, 0:13:48.280 --> 0:13:52.280 um Bave is one of his top holdings. Um, he 0:13:52.360 --> 0:13:56.400 did sell his time on semiconductor holding. UM. I think 0:13:57.200 --> 0:13:59.040 because the other you know, the purpose of the tip 0:13:59.280 --> 0:14:01.840 trip to Japan hands to sort of have this meeting 0:14:01.880 --> 0:14:06.120 with all of these trading company heads. And I think 0:14:06.200 --> 0:14:10.480 that was an interesting transaction and that's kind of classic buffets. 0:14:10.800 --> 0:14:13.880 These are companies that are conglomerates. Despite the fact that 0:14:13.920 --> 0:14:17.800 they're called trading companies, they're really conglomerates life workshare half away. 0:14:18.360 --> 0:14:22.040 The conglomerate structure is kind of an antiquated model here. 0:14:22.360 --> 0:14:25.480 It's more popular in Japan, but they also tend to 0:14:25.520 --> 0:14:30.240 sell it discounter valuations because it's a complicated structure. So 0:14:30.360 --> 0:14:34.800 in some respect, that transaction was sort of classic Buffet. 0:14:36.200 --> 0:14:38.280 You know. The other thing I would note is that 0:14:38.360 --> 0:14:42.800 we're coming into a situation where equity market conditions and 0:14:42.960 --> 0:14:47.120 economic conditions look like they're poised to weakend. I mean, 0:14:47.160 --> 0:14:50.520 we had some decent inflation numbers, but then some of 0:14:50.520 --> 0:14:53.880 the Fed minutes, you know, showed that the Fed is 0:14:53.880 --> 0:14:56.800 concerned we're going into a recession. This is sort of 0:14:56.880 --> 0:15:02.240 a prime environment for Buffet to start striking deals. And 0:15:02.320 --> 0:15:06.160 he's got over one hundred billion dollars. It's pass that 0:15:06.240 --> 0:15:08.480 he can deploy. He's not going to deploy all of it. 0:15:08.960 --> 0:15:11.960 So what you know, big or little? Right? Like? You know, 0:15:12.080 --> 0:15:14.200 he does a lot of a lot of buys a 0:15:14.240 --> 0:15:18.240 lot of smaller companies that aren't necessarily public. But where 0:15:18.280 --> 0:15:22.280 do you think he might be interested? Um, So it's 0:15:22.560 --> 0:15:27.200 I think it's important to separate his equity purchases, which 0:15:27.280 --> 0:15:31.040 tend to be in industries that he doesn't necessarily want 0:15:31.080 --> 0:15:35.840 to operate, So I would look for his equity holdings 0:15:35.880 --> 0:15:41.320 to be in you know, diversified industries, financial services, technology. 0:15:41.360 --> 0:15:45.400 I mean, Matt seems to be his equity holding strategy. 0:15:46.000 --> 0:15:50.840 On an operating basis, it tends to be more energy, 0:15:51.040 --> 0:15:56.400 consumer staples, consumer discretionary, and industrials so an insurance. His 0:15:56.600 --> 0:15:59.880 latest significant purchase, which I think they had a lot 0:15:59.880 --> 0:16:04.560 of sense, was Alleghany, which was kind of a Nini Berkshire. So, 0:16:04.680 --> 0:16:07.960 you know, I think from looking at those areas and 0:16:08.080 --> 0:16:12.480 as you know, as equity valuations perhaps deteriorate, I think 0:16:12.480 --> 0:16:15.440 it's you know, we could see him start to make 0:16:15.480 --> 0:16:19.040 some deals. I heard you say a continued interest in 0:16:19.120 --> 0:16:21.000 tech and one of the things that he talked about 0:16:21.120 --> 0:16:25.200 was AI and chat GPT. Do you see an acquisition 0:16:25.200 --> 0:16:29.080 in that space potentially happening or is that too out 0:16:29.080 --> 0:16:32.440 of the ordinary for him? I see, if he makes 0:16:32.480 --> 0:16:35.920 any acquisitions, I would see it as an equity investment, 0:16:36.120 --> 0:16:40.320 not a consolidated operating investment. I think they've been pretty 0:16:40.400 --> 0:16:45.760 clear in delineating what they feel comfortably what they feel 0:16:45.760 --> 0:16:49.600 comfortable owning when they have operating control versus what they'll 0:16:49.640 --> 0:16:52.960 invest in as investors. And again, you know there has 0:16:53.040 --> 0:16:56.120 been a changing as changing of the guard at Berkshire, 0:16:56.160 --> 0:16:59.000 and you've got to investment managers who are a generation 0:16:59.080 --> 0:17:02.200 younger than Warren, with a little bit of a different perspective. 0:17:02.240 --> 0:17:04.280 So I wouldn't be surprised to see them go down 0:17:04.320 --> 0:17:08.159 that route. But as an equity investment I love the 0:17:08.280 --> 0:17:14.480 passwords that Warren Buffett has used to describe bitcoin specifically. 0:17:14.640 --> 0:17:17.440 I think on in CNBC he called it a gambling token. 0:17:18.160 --> 0:17:21.320 I think he's also talked about not having any intrinsic 0:17:21.600 --> 0:17:24.080 value and so on. But it is you know, Kathy 0:17:24.240 --> 0:17:25.920 that gets to a good point. And he did talk 0:17:25.960 --> 0:17:30.320 about his air apparent and sending him some nice compliments. 0:17:31.000 --> 0:17:33.720 We're talking about Grey Gable. I do wonder about the 0:17:33.720 --> 0:17:37.800 conversations that around the table at Berkshire specifically because you 0:17:37.840 --> 0:17:40.159 know we've talked in the past about Berkshire getting into 0:17:40.200 --> 0:17:42.560 Apple at one point, you know that names that you 0:17:42.600 --> 0:17:46.040 would have never thought. But you're right, it's a younger 0:17:46.080 --> 0:17:50.080 guard and some different thinking there at Berkshire. Yep, absolutely, 0:17:50.920 --> 0:17:53.440 which means what then where do you think it leads? 0:17:53.520 --> 0:17:57.320 Potentially Mattie mentioned Ai specifically, but where do you think 0:17:57.359 --> 0:18:02.200 it maybe leads then Berkshire. It's interesting because I think 0:18:02.200 --> 0:18:04.040 it's going to be interesting, and I don't want to 0:18:04.080 --> 0:18:07.200 sort of speculate too much, but I think it's things 0:18:07.240 --> 0:18:11.080 to see what happens in a post buffet era, and 0:18:11.280 --> 0:18:14.320 I think that it's not out of the realm to 0:18:14.359 --> 0:18:18.720 see whether you know, I think number one, the role 0:18:18.720 --> 0:18:21.920 of chairman and CEO is likely to be split. There's 0:18:21.960 --> 0:18:24.960 actually a proposal right now that will be voted down. 0:18:25.080 --> 0:18:27.959 For sure controls, you know, the biggest block of voting. 0:18:28.160 --> 0:18:30.720 But there's a proposal at the annual meeting in a 0:18:30.720 --> 0:18:32.960 couple of weeks to split those roles. So I see 0:18:32.960 --> 0:18:36.840 that role being split. I see the consolidation of power 0:18:36.960 --> 0:18:40.439 that currently exists being spread out more like that of 0:18:40.440 --> 0:18:44.679 a typical corporate structure. But and again this is a 0:18:44.680 --> 0:18:47.200 little bit out there, but I don't think it's out 0:18:47.200 --> 0:18:49.840 of the realm to see an activist come in and 0:18:49.880 --> 0:18:55.040 call for a breakup of half Away to unlock some value. 0:18:55.640 --> 0:18:59.640 I mean, you know, for stock trades at a decent multiple, 0:18:59.680 --> 0:19:02.520 it's a premium to the market. But you know, if 0:19:02.560 --> 0:19:06.040 we kind of go along a conventional thinking that's not 0:19:06.160 --> 0:19:09.720 out of the realm as well. But your point about 0:19:09.760 --> 0:19:12.520 you know what to expect. I think we're already seeing 0:19:12.720 --> 0:19:18.240 some evidence of a changing of the guard and that's fair. Yeah. Yeah, hey, listen, 0:19:18.240 --> 0:19:20.560 we've got to run forgive us, just running out of 0:19:20.600 --> 0:19:23.359 time here, but really appreciate you weighing in on that 0:19:23.480 --> 0:19:25.840 flurry of headlines earlier today as a result of that 0:19:26.040 --> 0:19:29.440 Buffet interview with CNBC Kathy Seyffert, thank you so much. 0:19:29.600 --> 0:19:33.200 Industry Alice at CFRI Research joining us on the phone 0:19:33.280 --> 0:19:36.239 in New York City. It's just fun to talk all 0:19:36.240 --> 0:19:39.840 things Buffet, just his views on things well, he said earlier, 0:19:39.880 --> 0:19:42.600 the only thing chat gpt can't do is write a joke. 0:19:42.680 --> 0:19:45.879 And then someone used chat gpt to write warm buffet 0:19:45.920 --> 0:19:48.320 dairy queen jokes on Twitter. So go check it out 0:19:48.359 --> 0:19:50.560 if you want to have a little laugh this afternoon. 0:19:50.600 --> 0:19:54.919 It's a really good place. Yeah. You're listening to the 0:19:54.960 --> 0:19:59.200 Bloomberg Business Week Podcast. Catch us live weekday afternoons from 0:19:59.240 --> 0:20:03.120 three to six on Bloomberg Radio, the Bloomberg Business App, 0:20:03.200 --> 0:20:06.680 and YouTube. You can also listen live on Amazon Alexa 0:20:06.760 --> 0:20:10.160 from our flagship New York station jose Say Alexa playing 0:20:10.200 --> 0:20:15.920 Bloomberg eleven thirty. Check out this company's website and they 0:20:16.080 --> 0:20:18.160 are making a promise to their customers. It's all about 0:20:18.200 --> 0:20:20.879 making gear for good out dear gear, clothes that are 0:20:20.880 --> 0:20:23.960 in their words, as ethically and sustainably as possible, and 0:20:23.960 --> 0:20:26.679 then paying it all back. It's an idea that we know, 0:20:26.800 --> 0:20:30.680 we talk about increasingly matters to shoppers and society at large. 0:20:30.720 --> 0:20:33.119 So let's get into it. On the company, on the 0:20:33.119 --> 0:20:35.720 mission and the outlook. Joining us is Grace Sunset. She 0:20:35.840 --> 0:20:38.040 is Chief People an Impact Officer at Code of Paxi, 0:20:38.280 --> 0:20:40.879 and she joins us here in our Bloomberg Interactive Broker studio. 0:20:40.920 --> 0:20:43.360 Full disclosure. We met at a dinner or again at 0:20:43.359 --> 0:20:45.760 a dinner earlier this year and I'm like, you gotta 0:20:45.800 --> 0:20:48.000 come on, you gotta come on. How are you. I'm 0:20:48.040 --> 0:20:50.240 doing well. It's so great to see you. It's so great. 0:20:50.320 --> 0:20:52.840 Tell us about the company. And as I said before 0:20:52.960 --> 0:20:54.640 we got on air, you know one of our colleagues, 0:20:54.640 --> 0:20:55.719 it was like, oh my god, I can't believe you're 0:20:55.760 --> 0:20:58.160 having them on. I love their stuff. Tell us about 0:20:58.200 --> 0:21:00.880 Code of Paxi. Code of Paxie is an outdoor gear 0:21:00.960 --> 0:21:04.160 company that makes the majority of its products out of remnant, 0:21:04.240 --> 0:21:07.440 recycled and responsibly sourced material. So we start with that. 0:21:07.840 --> 0:21:10.720 But the most fascinating thing about Cotapaxi that draws people 0:21:10.720 --> 0:21:13.040 into the brand is that one percent of our product 0:21:13.040 --> 0:21:17.119 sales goes to the Cotopaxi Foundation that sole mission is 0:21:17.160 --> 0:21:20.399 to eradicate poverty in our lifetimes. So we're really broadening 0:21:20.440 --> 0:21:24.200 that definition of human sustainability to include people in society 0:21:24.240 --> 0:21:26.600 and ways that are new for the outdoor industry and 0:21:26.680 --> 0:21:30.520 certainly new for the fashion industry at large. Your supply 0:21:30.600 --> 0:21:33.720 chain and you talk about sustainable because before we got 0:21:33.760 --> 0:21:37.680 going again like the fashion industry not good on the environment. Yeah, 0:21:37.720 --> 0:21:40.800 how resilient is that supply chain? And talk to us 0:21:40.840 --> 0:21:42.720 a little bit about it and how it all works. Yeah, 0:21:42.880 --> 0:21:46.080 you know you're supplying from definitely, so we are supplying 0:21:46.200 --> 0:21:49.920 from you know, global markets like many retailers are. The 0:21:50.320 --> 0:21:52.840 way in which we make the products out of this remnant, 0:21:52.880 --> 0:21:57.440 recycled repurpose material means it's less resource intensive, it's less 0:21:57.440 --> 0:22:01.280 water intensive, it results really and less waste because of 0:22:01.320 --> 0:22:03.200 the quality of the product that we're bringing to market. 0:22:03.400 --> 0:22:06.720