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Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: So this is the sixth meeting of the FOMC.
Speaker 3: It's done, it is done, and we just wrapped up
Speaker 3: listening to Fedshair J. Powell talking about the decision and
Speaker 3: the economy and what's to come. Well, you know what, Carol,
Speaker 3: the Fed leaves rates unchanged, signals one more rate hike
Speaker 3: this year. Powell says, Central Bank to proceed carefully on
Speaker 3: a rate path, carefully how many?
Speaker 2: It was like a drinking game. Every time you said
Speaker 2: careful or careful.
Speaker 3: Hope you weren't drinking during that Wow, maybe some water
Speaker 3: you had been you would be drinking a lot. And
Speaker 3: then to your treasury yields, they went flat after that
Speaker 3: initial surge.
Speaker 4: Unbelievable. All right, So let's get to it. I will say,
Speaker 4: the FED chief saying that there's so much uncertainty around
Speaker 4: the timing of rate cuts, and that was something I
Speaker 4: felt like in the press conference that reporters we're trying
Speaker 4: to pin him down to and he would not be pinned,
Speaker 4: although it does feel like higher for longer, all right,
Speaker 4: So let's get to it. Let's get some analysis, because
Speaker 4: we did get an upbeat and upbeat I should say,
Speaker 4: an update on those economic projections from the Federal Reserve,
Speaker 4: and that was certainly something we were all focused on.
Speaker 2: What we have with us or who we have with us.
Speaker 4: A former Bloomberg colleague, Ylana Shalaeva, senior US economist at
Speaker 4: BnB party about on Zoom in New York City and
Speaker 4: in Bloomberg Economics US economist Stuart Paul. He's here in
Speaker 4: our Bloomberg Interactive Broker studio, Stuart, I do want to
Speaker 4: start with you, what are or were the key points
Speaker 4: of today's decision and what Jay Powell chose to stress
Speaker 4: in that press conference.
Speaker 5: So Powell is definitely stressing that he's going to be
Speaker 5: maintaining a higher for longer posture. I think that some
Speaker 5: of the confusion that came from the price conferences that
Speaker 5: this is just a generally hawkish summary of economic projections.
Speaker 5: That's really the content of today's F one C decision
Speaker 5: is the summary of economic projections showing far fewer cuts
Speaker 5: in twenty twenty four, more optimistic GDP growth path. But
Speaker 5: for some reason, Powell, when he took to the podium
Speaker 5: said that a soft lending is not his base case.
Speaker 3: It's almost as I was very surprised.
Speaker 2: See what does that mean? That means things are better?
Speaker 3: It's timp I mean I took it as bad news.
Speaker 3: I took it as you know, things aren't as good
Speaker 3: as people think.
Speaker 5: Well, we hear Bloomberg Economics think that there is some
Speaker 5: softness underneath the surface. I think that if we're trying
Speaker 5: to analyze the intent of the FED chairman here, we
Speaker 5: have to think that he's trying to invoke some sort
Speaker 5: of a memory of vulgar which is that he's willing
Speaker 5: to do what's necessary to break the back of inflation. Yes,
Speaker 5: he's optimistic about growth. That's why we or the median
Speaker 5: member of the FMC at least is optimistic about growth.
Speaker 5: That's what helps to explain the median projection for the
Speaker 5: FED funds rate maintaining that higher for longer posture ending
Speaker 5: twenty twenty four at five point one percent, five to
Speaker 5: five in a quarter range. And if the Fed is
Speaker 5: ever going to have to rain and inflame. Maybe something
Speaker 5: might have to crack. That's what I think that he
Speaker 5: was alluding to when he says that soft landing isn't
Speaker 5: necessarily his base case.
Speaker 4: And Bloomberger Economic Sana Wong writing officials also completely scrapped
Speaker 4: a recession forecast for this year, so definitely taking that
Speaker 4: off the table.
Speaker 3: Hey'll initially Eteva come on in here a senior US
Speaker 3: economist at BNP Para, but also our former colleague here
Speaker 3: at Bloomberg Lane, How did you read into that comment
Speaker 3: from FED chair J.
Speaker 1: Powell?
Speaker 3: He would not call this soft landing a baseline expectation.
Speaker 3: What's your interpretation of that?
Speaker 6: I think I think, you know, the chair is alluding
Speaker 6: to some event risk here, and I think there is
Speaker 6: a lot of things that could go wrong from now on. Yes,
Speaker 6: the you know, economic growth looks really strong if you
Speaker 6: look at the recent data, but we have a confluence
Speaker 6: of significant negative risks coming all at the same time
Speaker 6: in the in the fourth quarter of this year, you
Speaker 6: have student loan repayments restart, you have a possible shutdown,
Speaker 6: Excess savings are depleting. So there are significant risks to
Speaker 6: the soft lending scenario that is reflected in the summer
Speaker 6: of economic projections, they're really seeing a stronger growth, lower
Speaker 6: unemployment rate, and at the same time much lower inflation.
Speaker 6: I think the event risks that will make them be
Speaker 6: cautious at the following meeting.
Speaker 4: If you could have asked a question to the FED
Speaker 4: chair Yelena, what would it have been?
Speaker 6: I think I wanted to hear a much clearer explanation
Speaker 6: of what he thinks about policy legs. He alluded to
Speaker 6: that a little bit in the opening remarks, but you know,
Speaker 6: the extent of how much policy previous policy tightening impacted
Speaker 6: economic growth would I would like to get a better
Speaker 6: sense of that. It seems like Chair himself believes that
Speaker 6: policy liks have not fully percolated through the economy and
Speaker 6: more impact is coming.
Speaker 7: You know.
Speaker 4: And Stuart, I want to ask you, you know, process
Speaker 4: of getting inflation to two percent has a long way
Speaker 4: to go. So do I read that as yep, we're
Speaker 4: not at two percent yet, so we get that, Chair
Speaker 4: palal or is it that that also means you guys
Speaker 4: still have work to do, and so cooleer jets everybody
Speaker 4: who's thinking of FED cuts.
Speaker 5: You know, the projected path for the FED funds rate
Speaker 5: target range, at least for the median voter on the
Speaker 5: FMC seems to be almost separate apart from the economic
Speaker 5: fundamentals that they're showing in their projections. We're not getting
Speaker 5: to the two percent core PC target until twenty twenty six.
Speaker 5: So yes, the core PC forecast was modestly revised down
Speaker 5: for twenty twenty three. But we also see growth being
Speaker 5: revised up, we see unemployment being revised down, labor markets
Speaker 5: staying tighter for us, staying tighter for longer. That's not
Speaker 5: the higher for longer, the tighter for longer that the
Speaker 5: Fed had been looking for. Right, So to those fundamental
Speaker 5: economic projections, those forecasts scream one more rate hike to you.
Speaker 5: I mean, it seems as though, to Elena's point that
Speaker 5: maybe these optimistic projections are just that, maybe they're just
Speaker 5: a little bit of a wish and something will crack
Speaker 5: in the background. Maybe it's something fundamental like Elena was
Speaker 5: talking about that we've written about extensively. Maybe it's something
Speaker 5: like liquidity and we haven't heard anything about QT in
Speaker 5: multiple press conferences.
Speaker 3: Well, Jelena store rais is a really good point. I mean,
Speaker 3: how seriously can you take the dot plot out two years.
Speaker 3: It's one thing to, you know, take the dot plot
Speaker 3: projections out for the remainder of the year, but it's
Speaker 3: an entirely different thing to look at it for the
Speaker 3: end of twenty twenty five. How do you look at
Speaker 3: different times there versus what they're saying.
Speaker 6: I think, I think you really have to take it
Speaker 6: with a grain of even going into the next year.
Speaker 6: You know, we did notice that the range of projections
Speaker 6: for twenty twenty four narrowed, but it's still a very
Speaker 6: wide range of totally different projections. And even this year,
Speaker 6: I think the fact that the Fed downgraded inflation projections,
Speaker 6: but they still, I think, in our of you are
Speaker 6: very high relative to what will likely happen. So in
Speaker 6: this sense, you know, if inflation surprises to the downside
Speaker 6: closer to the end of the year, that will give
Speaker 6: them a way out of the last projected hike of
Speaker 6: the cycle. We think that they will they have reached
Speaker 6: the terminal rate.
Speaker 4: Is there a word that you see zon in terms
Speaker 4: of what came out of j.
Speaker 2: Powell's mouth today, Elena.
Speaker 4: In a sense, there were just you know you, so
Speaker 4: sometimes he uses a word over and over.
Speaker 2: Sometimes there's a phrase and we.
Speaker 3: All kind of you know, that's to be transitory.
Speaker 4: It used to be transitory data dependent, right. How many
Speaker 4: times have we said that? Is there anything that came
Speaker 4: out of his mouth that you thought, okay, this is
Speaker 4: kind of where the sake a dependency?
Speaker 6: But that has been the mantra for quite some time.
Speaker 6: I think that they just want to be cautious with those,
Speaker 6: you know, sticky words.
Speaker 4: How about for you, Stewart, was there something there?
Speaker 5: No, The thing that really stood out to me was
Speaker 5: that there that Jpewell didn't seem to strike, at least
Speaker 5: not to me, a single hawkish or dubbish tone. Usually,
Speaker 5: at least over the past few years, when the FOMC
Speaker 5: makes a decision, so in this case, the hold rate steady,
Speaker 5: he'll end up striking a more hawkish tone to compensate
Speaker 5: for the pause and raids, or if they were to hike,
Speaker 5: he ends up coming out a little bit dubvish during
Speaker 5: the press conference to sort of tone down any sort
Speaker 5: of market reaction to the actual decision itself. That was
Speaker 5: not the case today during the press conference, at least
Speaker 5: not to my ear.
Speaker 3: What did you hear? To my ear? He sounded a.
Speaker 5: Little bit cautious. He used the word cautious multiple times,
Speaker 5: and they were just the same way that we see
Speaker 5: this sort of break between the fmc's medium forecast for
Speaker 5: the fund rate itself and it's forecast for the economic projections.
Speaker 5: It seems that there wasn't a cohesive narrative, at least
Speaker 5: not to me when I was listening to the press conference.
Speaker 2: It's interesting, right.
Speaker 6: Okay, to Stewart's point, if I mean, yes, there's a
Speaker 6: lot of risk management approach in what they are doing
Speaker 6: right now, not that they have achieved the goal, but
Speaker 6: they're very cautiously moving along. It's risk management that is
Speaker 6: driving the decision at the point.
Speaker 4: All right, So okay, where do we go from here?
Speaker 4: And I guess it's you know, Elena, what are the
Speaker 4: next kind of focal points for you? Is it just
Speaker 4: be going to go from data point to data point?
Speaker 4: I mean, how do you think about November?
Speaker 6: So we only get one with CPI CPI report and
Speaker 6: one more payrolls report before the November meeting. So I
Speaker 6: mean they're saying they're data dependent, but there's really not
Speaker 6: that much data that they're gonna get. I think what
Speaker 6: will keep them on hold at the next meeting is
Speaker 6: really the event risk. So again I mentioned a lot
Speaker 6: of things that are coming that could influence their decision
Speaker 6: to be even more cautious in the medium in the
Speaker 6: near term, but I think by the time they get
Speaker 6: to the end of the year to the December meeting,
Speaker 6: they will we will probably get a lot of data
Speaker 6: showing a significant slow down in economic roles in UH
Speaker 6: and even further slow down in the labor market, and
Speaker 6: eventually that would stop them from going another time as
Speaker 6: they are projecting in the Summary of Economic projections.
Speaker 3: Stuet I like the way that Yolena described event risk.
Speaker 3: These things that we talk about that the FED absolutely
Speaker 3: has no control over. Something that j. Powell said, you know,
Speaker 3: higher oil prices, UAW strikes, student loan payments starting up.
Speaker 3: Once again, what's the biggest event risk on your radar
Speaker 3: right now?
Speaker 5: Well, I'm not sure this is entirely an event itself.
Speaker 5: It is a catalyst that's starting, but it's well signaled.
Speaker 5: Right we know that student loan repayments are going to
Speaker 5: be starting. In fact, student borrowers have started those repayments
Speaker 5: already and flows into the Department of Education's coffers within
Speaker 5: the Treasury have already reached pre pandemic flows, so that
Speaker 5: typically shaved that should based on typical flows into the
Speaker 5: Department of Education, shave off something like fifty basis points
Speaker 5: from PC spending on a monthly basis. I think that
Speaker 5: that's probably I think that that's what's biggest to me.
Speaker 5: Other things like the UAW strike. Imagine that that's temporary
Speaker 5: shave something like one percentage point off of industrial production.
Speaker 5: That's the sort of thing that you get back though
Speaker 5: when they fire up the assembly lines again. Same thing
Speaker 5: goes with the government shutdown. We would not even see
Speaker 5: that show up in the establishment survey if any sort
Speaker 5: of federal agency still keeps workers on its payrolls, at
Speaker 5: least in so far as those workers will receive back
Speaker 5: pay when they are brought back to work at the
Speaker 5: end of a shutdown. Even a government shutdown wouldn't hurt
Speaker 5: non farm payroll growth that much. But the extent to
Speaker 5: look the Board of Governors is sitting there on Constitution Avenue.
Speaker 5: It's the sort of thing that they would see firsthand
Speaker 5: when economic activity within the district slows to a halt
Speaker 5: during a government shutdown. So it's the sort of thing
Speaker 5: they can feel very scary to policymakers, right.
Speaker 4: I always think about with these kind of things, it's
Speaker 4: either kind of a one off if it ends quickly.
Speaker 4: The longer these things lag on, I assume the economic
Speaker 4: impact is so much greater Elan. It was kind of fun,
Speaker 4: I guess to kind of watch J Powell deal with,
Speaker 4: you know, trying to be pressured into like when do
Speaker 4: we cut rates?
Speaker 2: Like when does it come?
Speaker 4: He says, going into twenty twenty four, the time will
Speaker 4: come it So I'm not saying when to cut interest rates,
Speaker 4: So he's very careful about that. How do you think
Speaker 4: about when we will start to cut rates?
Speaker 6: So in our view, you know, we will slip into
Speaker 6: a recession, and that will be a modest recession in
Speaker 6: our view, but still that should push the Fed to
Speaker 6: start cutting rates. Another consideration is something that came up
Speaker 6: during the press conference is the level of real rates.
Speaker 6: So if inflation continues to slow down and it you know,
Speaker 6: falls rapidly, that would push real rates much higher from
Speaker 6: where they are right now. They're already in a restrictive territory,
Speaker 6: and the FED will just not want to keep pushing
Speaker 6: real rates even higher into the restrictive policy stands, so
Speaker 6: at some point the FED will have to cut nominal
Speaker 6: rates just to keep real rates from rising further. So,
Speaker 6: and we think that that time will come sometime in
Speaker 6: the middle of next year.
Speaker 5: You have any thoughts of that, No, I think that
Speaker 5: that's generally right. I think it's in the middle of
Speaker 5: the next year. I wouldn't be surprised to see something
Speaker 5: like twenty five bases points of meetings starting from June July.
Speaker 5: And it's exactly that. It's to maintain that constant spread
Speaker 5: between printed inflation and nominal policy rates, so that monetary
Speaker 5: policy stays sufficiently restricted but not excessively restrictive. I think
Speaker 5: that just tim to your question earlier, thinking about any
Speaker 5: sort of catalyst that could be shocking that could materially
Speaker 5: change policy decisions.
Speaker 3: It seems as though.
Speaker 5: People have entirely stopped discussing liquidity, and they've entirely stopped
Speaker 5: discussing the consequences of QT. But the bank term funding
Speaker 5: program has maintained essentially a constant balance. Banks are still
Speaker 5: continuing to borrow from the federal home loan banks, and
Speaker 5: we're still seeing we're still seeing deposits leaving the banking
Speaker 5: system because rates are materially higher if.
Speaker 3: You're talking about the out the fallout from the regional
Speaker 3: bank crisis.
Speaker 5: Well even preceding the regional bank crisis as a consequence
Speaker 5: of quantitative tightening, the other aspect of monetary policy that's
Speaker 5: operating just sort of in the background, there is an
Speaker 5: attempt to soak up liquidity of the FED. And though
Speaker 5: we always focus on the Fed's dual mandate price stability
Speaker 5: in full employment or maximum employment, the sort of thing
Speaker 5: that could pop up in the background is a liquidity event,
Speaker 5: and those sort of events tend to be pretty convex.
Speaker 5: We don't really have the foresight of saying, you know,
Speaker 5: student loan payments are starting in October. Again, they happen
Speaker 5: when they happen, and I'm surprised that it's the sort
Speaker 5: of thing that doesn't come up in press conferences anymore.
Speaker 3: I mean, COVID happened when it happened. March twenty twenty
Speaker 3: happened when it happened. These are things that you know,
Speaker 3: if you go back to twenty nineteen and the summary
Speaker 3: of economic projections, then right, nobody was foreseeing something like this,
Speaker 3: an event risk like this causing the FED to drop
Speaker 3: rates to zero.
Speaker 2: No, exactly exactly. I mean, I don't know.
Speaker 4: I mean, you think about this year, Yalane, and I
Speaker 4: feel like we've been all over the map right when
Speaker 4: it comes to we thought kind of the world was
Speaker 4: coming to an end many end, you know, with the
Speaker 4: regional bank crisis.
Speaker 2: But you know, we've dealt with crypto over the last year.
Speaker 4: I mean, there's been a lot of things that have
Speaker 4: certainly come at this market. But you know, here we
Speaker 4: have an environment where you see certainly equity strategist continuing
Speaker 4: just to kind of ratchet their estimates higher. But at
Speaker 4: the same time, you know, I'm looking at in stocks
Speaker 4: right now or down to their lows of the session,
Speaker 4: but I'm looking at you know, the rate moves today,
Speaker 4: your two year at five point one, four, ten year
Speaker 4: at four point three, I mean, five year at four
Speaker 4: point what five three? I mean, are these the rates
Speaker 4: that we should anticipate we'll continue to see certainly going
Speaker 4: into twenty twenty four.
Speaker 6: Well, at some point the Fed will have to cut
Speaker 6: rates and we will see some move on that front.
Speaker 6: I think one thing I would like to highlight though,
Speaker 6: is all these things that we mentioned in our discussion,
Speaker 6: like such as student loans and strikes and you know,
Speaker 6: the depletion of excess savings. We should not forget about that,
Speaker 6: even though we've been talking about it for a long time.
Speaker 6: Those things make the economy more vulnerable to exogenous shocks,
Speaker 6: so some type of liquidity events and other things that
Speaker 6: Stuart mentioned. So like, I think that the slowdown in
Speaker 6: the economy to the point at which it approaches somewhat
Speaker 6: some stall speed, that makes the economy really vulnerable to
Speaker 6: something that could happen that we cannot anticipate. And that's
Speaker 6: an important point, and this is something that we should
Speaker 6: be watching.
Speaker 2: Yeah, I mean there's a lot on the plate.
Speaker 4: It's certainly a lot covered by j Powell today, but
Speaker 4: a lot for us to kind of continue to moll
Speaker 4: over and we'll see how the financial markets continue to
Speaker 4: read it. Guys, Thank you so much, really appreciate it.
Speaker 4: I know you guys have had a busy afternoon watching
Speaker 4: all of this.
Speaker 3: So great to get you here late last night. I
Speaker 3: saw you on TV late last night. We were getting
Speaker 3: are you doing a preview Australia Daybreak? Oh yeah, Well,
Speaker 3: I mean somebody's got to do it.
Speaker 2: A lot of central banks right now, right making somebody.
Speaker 5: Needs to talk about starts in permit, somebody needs to
Speaker 5: talk about what to anticipate from the FED. So it's
Speaker 5: been a busy day for us. Lena, we miss you
Speaker 5: here at Bloomberg. Eliza says, hello.
Speaker 3: There you guys to well, you know what, we love
Speaker 3: it when you get to join us, Lena, and on
Speaker 3: FED day at any time. So it's awesome to have
Speaker 3: you back with us.
Speaker 2: Totally, totally, all right, be well, Jiolena sholl.
Speaker 4: Let you have a senior US economist at BNP party,
Speaker 4: but as you know, a former Bloomberg colleague and Stuart Paul,
Speaker 4: us economist at Bloomberg Economics, part of the Bloomberg Economics team.
Speaker 4: Elena was previously.
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Speaker 4: All right, As you know, FedEx just out with earning
Speaker 4: stock rallying in the after hours. It's also been on
Speaker 4: a tear this year, as we talked about earlier, up
Speaker 4: more than I think forty percent this year, put up
Speaker 4: another four percent in the aftermarket. Let's get to it.
Speaker 4: Let's see what our lead class cow has to say.
Speaker 4: He follows this company and the sector. He's Bloomberg Intelligence
Speaker 4: senior Transport, Logistics and Shipping analysts and he joins us
Speaker 4: at BI headquarters in Princeton, New Jersey, and he, like us,
Speaker 4: has just been going over the numbers. Why the optimism
Speaker 4: do you think in the aftermarket? Lead and first of all,
Speaker 4: thanks for being with us.
Speaker 8: Oh my pleasure. You know, they beat expectations, so that's
Speaker 8: obviously in that positive. They be by eighty cents. You know,
Speaker 8: they also increase the low end of the range of
Speaker 8: their guidance by fifty cents, which is another positive. And
Speaker 8: you know, the beat is what what's telling us is
Speaker 8: that management is beginning to execute on its strategy to
Speaker 8: cut around six billion dollars in and expenses. FedEx for
Speaker 8: a long time has been to show me story, and
Speaker 8: they're actually starting to, I guess, not show me, but
Speaker 8: show people that they're able to execute on their plans. So,
Speaker 8: you know, I think that's what's fueling the aftermarket increase
Speaker 8: that we saw. I think it's up like ten bucks
Speaker 8: right now.
Speaker 3: Okay, So that's the good news, because I'm looking through
Speaker 3: this release and I'm seeing a little bit of bad
Speaker 3: news in here, so correct me if I'm wrongly. But
Speaker 3: the improvement in operating results I'm reading this directly from
Speaker 3: FedEx's press release was partially offset by ongoing demand weakness.
Speaker 3: Talk to us about that demand weakness, where they're seeing
Speaker 3: it and how long it's going to last.
Speaker 8: Yeah, I mean that's a great question. I think demand
Speaker 8: expectations are going to be weak because you have to remember,
Speaker 8: demand is really normalizing from you know, some creamy highs
Speaker 8: that we saw during the pandemic when everyone was ordering
Speaker 8: things home. So you know, now that you know, people
Speaker 8: are getting back to normal. Obviously, people have been spending
Speaker 8: more on services versus goods. We've seen that trade happen already.
Speaker 8: So they're really going up against the fucal comparisons versus
Speaker 8: anything that might be, you know, in our view, like
Speaker 8: a real weakening of the consumer. We think the consumer
Speaker 8: remains relatively resilient. So you know, so that is really
Speaker 8: not a surprise. You know. The good news is what's
Speaker 8: offsetting that is what they're doing on the pricing side.
Speaker 8: So you know, they just recently announced that they're going
Speaker 8: to increase rates next year by five point nine percent.
Speaker 8: That's their general rate increase. Obviously, large shippers aren't going
Speaker 8: to pay the whole that whole increase. They'll probably pay
Speaker 8: discount of that. But what we're seeing is that they're
Speaker 8: going to be able to increase price to lower their
Speaker 8: inflationary pressures. And you can see, you know, what they're
Speaker 8: able to do on the cost side. They mentioned in
Speaker 8: the release that they reduce the cost per package and
Speaker 8: ground to ship those packages by around two percent, I believe,
Speaker 8: and so that's that's good news. So that means that
Speaker 8: they're getting productivity gains, they're cutting some of the fat
Speaker 8: that FedEx had, and you know, that's a good thing.
Speaker 8: So when demand does increase, when demand does go back
Speaker 8: to growth, they're going to be really well situated because
Speaker 8: that's really going to drive significant operation leverage and really
Speaker 8: good incremental margins going forward.
Speaker 4: You know, Lee, this was something we were just talking
Speaker 4: with our TV colleagues as we were breaking down the
Speaker 4: FedEx numbers as they cross the Bloomberg. You know, should
Speaker 4: we be rewarding this company because they're good at cost cutting?
Speaker 4: You know, this isn't about investing in cap X it
Speaker 4: doesn't feel like right or you know, putting money to work,
Speaker 4: or demand is up a lot, or you know, the
Speaker 4: top line is growing a lot, like you know what
Speaker 4: I'm saying that, you know, and they've got another buyback
Speaker 4: which always gets investors excited, or an additional buyback, so
Speaker 4: you know, or is it a case of yes, reward
Speaker 4: them because as you said, it's been a.
Speaker 2: Show me story.
Speaker 4: Now we're seeing the fruits of those efforts and now
Speaker 4: they can go on to hopefully, you know, growing into
Speaker 4: more demands. So I guess help us out here a
Speaker 4: little bit. Is it just the reward so much, because hey,
Speaker 4: you're good at cost cutting?
Speaker 8: Yeah, And also you have to remember it's coming off
Speaker 8: of a low base, right in terms of where their
Speaker 8: shares is today versus where it was a year ago.
Speaker 8: The street was really soured FedEx for a number of reasons.
Speaker 8: A lot of that was just for execution, and you know,
Speaker 8: they've come up with the plan. They're executing on the plan,
Speaker 8: which again is very key for them. They need to
Speaker 8: really show that they can execute. And if you look
Speaker 8: over the last five years, the shares actually underperformed its
Speaker 8: biggest competitor UPS. So you know, they are rewarding it today,
Speaker 8: but it's really it's really a function of catch up
Speaker 8: versus necessarily something something else.
Speaker 3: Talk to us about the labor differences. Carol alluded to
Speaker 3: this during our simulcast, the fact that UPS is a
Speaker 3: story that is really a labor story with a.
Speaker 4: Really strongly when I was doing a big deep dive
Speaker 4: into UPS and we talked a lot about the differences
Speaker 4: between the two companies.
Speaker 3: But I mean, you look at a FedEx ground truck,
Speaker 3: and you know, you look at the fine print and
Speaker 3: maybe I just I just look at the fine print.
Speaker 3: Maybe not everybody does this, and you see that it's
Speaker 3: it's run by a company that is not FedEx at all.
Speaker 3: It's contracted out. It's this contract labor. These are not
Speaker 3: actually FedEx employees. Talk to us about the labor differences here.
Speaker 8: Yeah, so I've to say, you know, there was in
Speaker 8: the news obviously a couple of months ago with the
Speaker 8: UPS kind of making a agreement with the teamsters. That's
Speaker 8: their union that that works and delivers all the packages.
Speaker 8: FedEx does have a union, but it's only their pilots.
Speaker 8: The rest are either employees or as you mentioned they're
Speaker 8: independent contractors. You know, FedEx was an air freight network
Speaker 8: that decided to go into the ground business and they
Speaker 8: did that in an asset light sort of way by by,
Speaker 8: you know, really relying on these independent contractors. And there's
Speaker 8: hundreds of them across the country. You know, they own
Speaker 8: certain regions, they're small business owners. They're able to sell
Speaker 8: those businesses to other people, so you know, they operates
Speaker 8: as a small business. What I would say is with
Speaker 8: the new UPS contract and the fact that you know
Speaker 8: UPS is unionized, you know, labor still is liberal, markets
Speaker 8: still are relatively tight, and if you're thinking about you know,
Speaker 8: that's something maybe you want to go do for a living,
Speaker 8: you know, working for a UPS where maybe you're getting
Speaker 8: a better uh you know race per hour and your
Speaker 8: benefits are better, it might be more appealing. So from
Speaker 8: a tract and retain employees, you know, UPS might have
Speaker 8: a leg up, but when terms of flexibility and maybe
Speaker 8: total cost per employee, FedEx side obviously has the benefit.
Speaker 8: But you know, if you look at the two differences,
Speaker 8: UPS's margins on the domestic ground side are a lot
Speaker 8: better than FedEx's margins right now, so you know that necessarily.
Speaker 8: That cost difference really is in showing up in the
Speaker 8: profitability and the p and L.
Speaker 4: You know, in the press release they talk about operating
Speaker 4: income up eighteen percent or on the quarter, as a
Speaker 4: nine percent decline in revenue is more than offset by
Speaker 4: reduced operating expenses. It's what we've been talking about. That
Speaker 4: nine percent to cline in revenue. Is that you talked
Speaker 4: about kind of getting back to pre pandemic levels, right,
Speaker 4: Things got distorted during the pandemic. We know that, and
Speaker 4: I guess we keep trying to remind everybody, Wait, we
Speaker 4: got to.
Speaker 2: Get back to kind of where we were, that's the reset.
Speaker 4: Does the FedEx numbers show that we are kind of
Speaker 4: closer back to that reset or the pre pandemic?
Speaker 8: I think the jury remains to be out. My guess
Speaker 8: is that I think that we are closer to that,
Speaker 8: you know, And I also think that, you know, some
Speaker 8: of the things you're seeing on the yield side, some
Speaker 8: of the lower yields might be related to to mix,
Speaker 8: but some of that business might still be more profitable
Speaker 8: for them, even though from a you know, a headline number,
Speaker 8: it might not look that great. And you also have
Speaker 8: to remember fuel search charges are kind of down from
Speaker 8: they were when they were a year ago, even though
Speaker 8: we're seeing you know, higher fuel rates. What I was
Speaker 8: surprised is the FedEx freight business, which is their lesson
Speaker 8: truckload business. They had a lot of opportunity to win
Speaker 8: some business when when Yellow went out went out of business,
Speaker 8: and so I thought there'd be more of a kind
Speaker 8: of a surprise on that on that side. But that
Speaker 8: segment actually, you know, missed expectations by a couple hundred
Speaker 8: basis points.
Speaker 3: Okay, So what's the question you'd ask on the call
Speaker 3: if you were on there.
Speaker 4: You're sitting down, Yeah, are you having Cognac with the CEO?
Speaker 4: And you're like, Hey, between you and me, what are
Speaker 4: you gonna ask them?
Speaker 8: I can't believe you knew I was a coniac kind
Speaker 8: of guy, all you know, I think I think I
Speaker 8: would want to know what inning they are are in
Speaker 8: the six billion dollars in cost reduction, and not only
Speaker 8: what inning they are in, but how much more can
Speaker 8: they really do, because that's that's really the key. You know,
Speaker 8: this company has to be really ready for the next
Speaker 8: generation of parcel. You know, they're facing increased competition from
Speaker 8: Amazon they're starting to do pickups, which is something that
Speaker 8: they had a test pilot project that they did before
Speaker 8: the pandemic and they paused it. Now they're redoing that.
Speaker 8: So they're facing competition from other other areas. So they
Speaker 8: really need to be more efficient, uh, and they really
Speaker 8: need to, you know, help their independent contractors be profitable
Speaker 8: so they reinvest in their businesses and they're able to
Speaker 8: keep those high service levels up.
Speaker 2: All right, so appreciate it as always.
Speaker 4: Lead Clasgow BI Senior Transport Districts and Shipping Analysts joining
Speaker 4: us there from Princeton. Stock Up by the way, FedEx
Speaker 4: four percent.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern on Bloomberg Radio,
Speaker 1: the Bloomberg Business App, and YouTube. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station,
Speaker 1: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 8: Well.
Speaker 4: Bloomberg News reporting earlier this month observing methane releases from
Speaker 4: global oil and gas operations that were thirty percent higher
Speaker 4: than what countries estimate in reports to the um is
Speaker 4: into a new study right and it analyzed satellite observations
Speaker 4: of the potent greenhouse gas.
Speaker 2: It's really important.
Speaker 9: Yeah.
Speaker 3: It is the world's four largest oil and gas emitters.
Speaker 3: The US, Russia, Venezuela and Turkmenistan account for most of
Speaker 3: the overall discrepancy. That's according to a report published last
Speaker 3: month in Nature Communications Satellite Data. It just challenges though,
Speaker 3: figures that reported to the UN, which rely on so
Speaker 3: called emissions factors. Those are estimates for how much methane
Speaker 3: equipment might normally release, applied to production and use rates.
Speaker 3: So it shows what you see in sort of one
Speaker 3: measurement correct might be different than what satellites pick up exactly.
Speaker 2: And satellites, folks, they're everywhere. They're doing all kinds of things.
Speaker 2: You know that.
Speaker 4: And we're going to put that question because our next
Speaker 4: guest knows a lot about this. Let's sad to Munich, Germany,
Speaker 4: where we find on zoom Peter Platzer. He's a physicist,
Speaker 4: founder and CEO two of the publicly traded microcap and
Speaker 4: global provider of space based data, analytics and space service.
Speaker 4: The company is called Spire Global. Peter's so nice to
Speaker 4: have you here on Bloomberg Business Week. Welcome, Welcome, tell
Speaker 4: us about your business and what you guys are doing.
Speaker 7: It's fantastic to be here. Thanks, thanks for having me.
Speaker 7: Spire was founded to leverage space and analytics to improve
Speaker 7: life on the Earth and infused with that vision, you know,
Speaker 7: we designed, built, and now operate. There was largest constellation
Speaker 7: of satellites that use radio frequency technology, the technology that
Speaker 7: empowers anything from mobile phones to the very show that
Speaker 7: we're on right now, to observe what is happening on
Speaker 7: and around Earth. We collect a lot of environmental data
Speaker 7: like like hurricane windspeeds and flooding and wildfires and other
Speaker 7: extreme weather events, and then we help our customers to
Speaker 7: improve their bottom line by reducing often the carbon footprint,
Speaker 7: all at the same point in time.
Speaker 3: Do you guys actually own satellites?
Speaker 7: Yes, we own the satellites. We own Earth that covered
Speaker 7: the Earth every fifteen minutes, all of Earth everywhere, twenty
Speaker 7: four to seven. And we.
Speaker 3: Oh, we got to get those satellites fixed so we
Speaker 3: can get this get this interview going, all right.
Speaker 2: I think are you back? Are you back with that?
Speaker 6: So?
Speaker 2: Okay, go ahead, continue what you were saying.
Speaker 7: Oh sorry, I was saying that, Yes, we built and
Speaker 7: designed all those satellites, and we invented all the technology
Speaker 7: that sits inside the satellites and the software.
Speaker 3: So explain how these satellites that you launch at spire
Speaker 3: Global are different or similar to ones that are launched
Speaker 3: by SpaceX's Starlink.
Speaker 7: So we call the satellites categories looking satellites, talking satellites,
Speaker 7: and listening satellites. Starlings is a talking satellite constellation. They
Speaker 7: transport data from one spot on Earth to another spot
Speaker 7: on Earth. They are data pipeline, so to speak. Fire
Speaker 7: is a listening company. We use radio frequency wave to
Speaker 7: observe what is happening around Earth. So when you have,
Speaker 7: for example mentioned earlier, you know, methane ambitions. You know,
Speaker 7: we are a platform for a customer that runs a
Speaker 7: sensor that measures methane emissions from space. You know, we
Speaker 7: have a sensor that uses radio frequency waves to measure
Speaker 7: hurricane wind speeds or flooding or rain or temperature. So
Speaker 7: we use our technology radio technology to literally observe what
Speaker 7: is happening on Earth.
Speaker 4: So I'm curious how much of your business revenues comes
Speaker 4: from government organizations around the globe.
Speaker 7: So about forty five percent, so a little bit less
Speaker 7: than half of our business is with government organizations. It
Speaker 7: has sometimes been a little bit more than this, it
Speaker 7: has sometimes been a little bit less. So maybe over
Speaker 7: a longer timeframe we say fifty to fifty, but right
Speaker 7: now it is about forty five percent from the government
Speaker 7: side and fifty five percent from commercial companies.
Speaker 4: So when when investors look at you as a company,
Speaker 4: as I mentioned, you're a microcap and let me just
Speaker 4: take a look real quick, one hundred and thirteen million
Speaker 4: dollars microcap. You're down about thirty three percent.
Speaker 2: For the year.
Speaker 4: But how should investors think about you? You know, we
Speaker 4: do classifications, we say information service is but it's interesting.
Speaker 4: I feel like you're playing into a lot of different fields.
Speaker 4: How should investors think of you? What kind of company
Speaker 4: are you?
Speaker 7: We are a classic SaaS company. You know, we sell
Speaker 7: data and analytics as a subscription. Our customer is extremely sticky.
Speaker 7: We have an at retension rate over one hundred and
Speaker 7: seventeen percent, so customers keep on buying more from us.
Speaker 7: We have guideline for this year is over one hundred
Speaker 7: and thirty million dollars of arr growth rate over the
Speaker 7: last six years is over one hundred percent, so we
Speaker 7: are classic data and subscription company with the same metrics
Speaker 7: as you will find with typical SaaS companies, with the
Speaker 7: one difference that we have an extremely efficient salesforce because
Speaker 7: we have these massive barriers to entry and we don't
Speaker 7: really have to spend as much on sales and marketing
Speaker 7: as you see with other SaaS companies.
Speaker 3: Peter, who launches your satellites?
Speaker 7: So there is a rocket going up on planet Earth
Speaker 7: every you know, three days or so. We have launched
Speaker 7: with at least ten different launch providers, you know, threety
Speaker 7: five launch campaigns. So we have launched with you know,
Speaker 7: anyone from from SpaceX that you mentioned earlier, to rocket Lab,
Speaker 7: to verge Into, to India, to the Europeans Vega. So
Speaker 7: our whole host of launch vehicles we have used to
Speaker 7: bring our satellites, our capabilities to orbit.
Speaker 3: I'm wondering what you would say to critics who argue
Speaker 3: that filling the sky with satellites. A lot of astronomers say,
Speaker 3: you know, it's really changing the night sky. It makes
Speaker 3: it look completely different than it looked just a few
Speaker 3: years ago. It's affecting the way that we can explore Earth.
Speaker 3: What would you explore the solar system, What would you
Speaker 3: say to them?
Speaker 7: So, I think it's absolutely true that space is a
Speaker 7: common environment, just like the oceans or peat lens that
Speaker 7: you monitor, which is a great carbon storage and has
Speaker 7: huge impact on climate change. Space is a shared a
Speaker 7: common good, and we have to treat it, you know,
Speaker 7: very very respectfully. Now, putting up very very large devices,
Speaker 7: for example, does have a massive astronomers. I would challenge
Speaker 7: any astronomers to see our satellites because there's signs of
Speaker 7: a bottle of wine and they're not very shiny, so
Speaker 7: they're really really, very very invisible. I think, I think
Speaker 7: you have to treat it respectfully, which which we certainly do.
Speaker 7: We clean ourselves up very very quickly, and we do
Speaker 7: have to look at the benefits as well as the
Speaker 7: cost of leveraging this common good space.
Speaker 2: All right, got it?
Speaker 4: Run Hey, good to check in with you, and hopefully
Speaker 4: we can do it again in the future. Peter Platter,
Speaker 4: he's a founder and CEO of Spire Global, joining us
Speaker 4: from Germany.
Speaker 3: A little sublime. Yeah, yeah, this is Bloomberg, all right.
Speaker 4: Well, there is definitely working in a coalmi and if
Speaker 4: you think about our history, right, not good conditions.
Speaker 3: Yeah, and there's also working low wage, low wage retail
Speaker 3: jobs in the United States in twenty twenty.
Speaker 2: Three, Carrol, I mean like at a Dollar General.
Speaker 3: That's exactly what I'm talking about.
Speaker 4: Yeah, maybe not exactly, like we're in a coal mine.
Speaker 4: But yeah, wait until we get into the story. Because
Speaker 4: ick based on this week's Bloomberg Business Week cover story,
Speaker 4: it also happens to be today's Bloomberg Big Take. You
Speaker 4: will find things like rat infestations, blocked fire exits, expired
Speaker 4: kids food, machete wielding, and watermelon throwing shoppers. It sounds funny,
Speaker 4: but it's really not a lot of nightmares at the
Speaker 4: biggest dollar chain tim in the United States.
Speaker 3: With more on the story, which is reported out by
Speaker 3: Bloomberg Josh Idelson and Brendan Case, let's bring in Brandon,
Speaker 3: Bloomberg News US retail reporter, joining us on zoom in
Speaker 3: our Dallas bureau, along with the editor of Bloomberg Business Week,
Speaker 3: Joel Webber here in our Bloomberg Interactive Broker's studio. The story,
Speaker 3: by the way, it is in the new issue of
Speaker 3: Bloomberg Business a Week. It's available on newsstands tomorrow. You
Speaker 3: can already read it though on the Bloomberg Terminal and
Speaker 3: at bloomberg dot com Slash BusinessWeek. One of the most
Speaker 3: read stories on the Bloomberg Terminal today, Joel, this is
Speaker 3: a deeply reported story with disturbing anecdote after disturbing anecdote.
Speaker 3: How does something like this come together?
Speaker 10: Who knew that a story, a story like this that
Speaker 10: has really changed how a lot of American shop I
Speaker 10: think I had this sign to it, and so one
Speaker 10: of the things that struck me about it is that
Speaker 10: we've talked I think for generation now about you know,
Speaker 10: how big of a presence Walmart has had in America,
Speaker 10: and it actually is like the story that Walmart sort
Speaker 10: of I think, you know, propelled into America for like
Speaker 10: these big box stores and changing small town America. Dollar
Speaker 10: General has actually taken a lot of that farther now.
Speaker 10: The stores have a much, much, much smaller footprint, which
Speaker 10: we described in the store in the story. The price
Speaker 10: points are amazingly affordable and seemingly inflation proof, as we
Speaker 10: also point out in the story. The cost of all
Speaker 10: of this, though, is that it turns out to be
Speaker 10: a really troubling place to work, and the people who
Speaker 10: actually work in.
Speaker 3: The stores retail job.
Speaker 10: Wow, the stuff that they've gone through, So Brendan, Josh Ronelson,
Speaker 10: but was the lead writer on this Brendan case also
Speaker 10: intimately familiar with it. Brendan, what was the what was
Speaker 10: the reporting tidbit that made you made you and Josh
Speaker 10: just really want to dig into this.
Speaker 9: There were a couple of things, and one of them
Speaker 9: was what we say at the very beginning of the story,
Speaker 9: which was that if you look at a lot of
Speaker 9: the fines that the Labor Department, through OSHA, has levied
Speaker 9: against Dollar General, one of the things that keeps coming
Speaker 9: up over and over again is blocked exits, which obviously
Speaker 9: matters a lot to OSHA. It harks back to the
Speaker 9: Triangle shirtwaist factory fire in New York.
Speaker 10: Which is actually a reminder OSHA was founded because of.
Speaker 11: That, right.
Speaker 9: Yeah, Yeah. And And the thing that one thing that
Speaker 9: surprised us was talking with an employee in New Orleans
Speaker 9: who said that in his case, the blocked exits were
Speaker 9: no accident. In fact, a manager had told him to
Speaker 9: purposely block exits to try to cut down on shoplifting,
Speaker 9: make it harder to get out of the store. That
Speaker 9: was one thing. Another thing that that that jumped out
Speaker 9: was just the lack of you know, heating and air conditioning.
Speaker 9: And we talked with people who had put ice packs
Speaker 9: down their pants when it got hot, wore you know,
Speaker 9: multiple coats and layers when it got cold, and one
Speaker 9: regional manager who you know, was fairly high up in
Speaker 9: the company who told us that she was just really
Speaker 9: shocked by how difficult it was to get to get
Speaker 9: funding for basic maintenance, basic upkeep.
Speaker 10: So on top of all that, there's this sense that
Speaker 10: Dollar General has just been in this incredible growth strategy.
Speaker 10: So talk about how how it's kind of swept the
Speaker 10: country a little bit.
Speaker 9: Brendan, Yeah, and it's really amazing how fast it's grown.
Speaker 9: To your point, it's a little bit sort of a
Speaker 9: creature of the Walmart era. You know, Walmart comes in
Speaker 9: and it wipes out a lot of retailers across the
Speaker 9: country and leaves a landscape that if you're not close
Speaker 9: to a Walmart or have a easy access to a car,
Speaker 9: you might not have as many retailers that you know,
Speaker 9: as you had before. And so in swoops Dollar General
Speaker 9: and many of its rivals and you know, opens up
Speaker 9: stores to the tune of typically you know, a thousand
Speaker 9: a year, and so you know, they've got more than
Speaker 9: nineteen thousand locations around the country right now. You compare
Speaker 9: that with a little more than five thousand for Walmart,
Speaker 9: including the Sam's Club locations, and you start to get
Speaker 9: a sense of how ubiqueless it is, especially in smaller towns.
Speaker 9: About eighty percent of its stores are in towns of
Speaker 9: twenty thousand people or fewer. And you know, you if
Speaker 9: you drive through you know, through the countryside in many states,
Speaker 9: particularly the Southeast, but in many other parts of the
Speaker 9: country as well, you'll see, you know, store after store.
Speaker 10: So we talked about the block fire, escapes, exits. Can
Speaker 10: we also talk about the baguana because there's some of
Speaker 10: that in the story. Brindin, I was waiting, how crazy
Speaker 10: are some of the reporting details that you found?
Speaker 9: Yeah, you know, the the issue of animals getting into
Speaker 9: the stores and befouling the merchandise is something that also
Speaker 9: came up over and over again. You know, there was
Speaker 9: one there was one case in Oklahoma where birds got
Speaker 9: in and you know, used sections of the store as
Speaker 9: you know, as a as a bathroom, and the store
Speaker 9: manager there told us that he was told to just
Speaker 9: take the merchandise home. Wash it in your washing machine
Speaker 9: if you have to, and bring it back and put
Speaker 9: it back on the shelves. You know. There was another
Speaker 9: another instance in which there was a an Iowa store.
Speaker 9: There was a worry about asbestos. But after inspection, you know,
Speaker 9: some state inspectors found out that it wasn't asbestos. That
Speaker 9: was the good news. The bad news was that it
Speaker 9: was stained from bad feces. I mean, this is all
Speaker 9: over a wall.
Speaker 3: It's pages and pages of disturbing anecdotes, but disturbing experiences
Speaker 3: that employees have had. I mean, one thing that really
Speaker 3: stuck out to me was the employee who you know,
Speaker 3: there's one employee in the store, the employee asking a
Speaker 3: customer to watch the store, Well, he or she went
Speaker 3: to the bathroom. I Mean, the thing that I was
Speaker 3: thinking through throughout this this piece is is that this
Speaker 3: is working for Dollar General. They're making a calculation that
Speaker 3: they can allow their stores to reach this condition, pay
Speaker 3: their employees this wage, have this few of employees in
Speaker 3: a single store because it's worked, especially over the past
Speaker 3: five years.
Speaker 9: Yeah, it's really worked for a long time, and they've had,
Speaker 9: you know, from a financial standpoint, a really strong record
Speaker 9: of sales increases and profit increases. One thing they're good
Speaker 9: at doing this is not true of all retailers, is
Speaker 9: opening new stores and fairly immediately having them contribute to
Speaker 9: the to the bottom line. Now, this year has been
Speaker 9: a different story for Dollar General, at least from a
Speaker 9: stock market perspective, where the shares have come way down.
Speaker 9: They've cut the profit forecast a couple times. One of
Speaker 9: the big problems, obviously is just the financial preckers on
Speaker 9: their customer base, which skews towards the lower income end
Speaker 9: of the spectrum. They have said, however, that they're going
Speaker 9: to spend more on labor uh and and that's at least,
Speaker 9: you know, that's that's certainly an acknowledgment that the store
Speaker 9: conditions are not where they want them, uh and that
Speaker 9: they're they're they're there's not only to spend money to
Speaker 9: try to improve things this year. Another thing that's driving
Speaker 9: that I think is just a stepped up competitive threat.
Speaker 9: For years, Dollar General was known as, you know, the
Speaker 9: big successful dollar store chain. Dollar Tree, its closest rival,
Speaker 9: was sort of an also ran. That company's in the
Speaker 9: middle of a turnaround, and so, you know, seems to
Speaker 9: be becoming a stronger competitor. And then you've got Walmart,
Speaker 9: which loss some ground to the dollar stores in the
Speaker 9: wake of the Great Recession. Really doesn't want that to
Speaker 9: happen again if the economy slows down and is rolling
Speaker 9: out a lot of initiatives, whether it's you know, pricing
Speaker 9: or delivery services that are designed to sort of counter
Speaker 9: competition on the lower end.
Speaker 4: Hey, Brendan, and the stock, as you said, down more
Speaker 4: than fifty percent this year, you know, trading at a
Speaker 4: fifty two week low. What does the company say about
Speaker 4: all of this?
Speaker 9: They reported earnings a couple of weeks ago, and you know,
Speaker 9: again cut their profit forecast. And interestingly, they had initially
Speaker 9: said that we're going to spend an extra one hundred
Speaker 9: million dollars on labor this year. They moved that number
Speaker 9: up to one hundred and fifty million last month. You know,
Speaker 9: so clearly, you know, clearly engaging with the idea that
Speaker 9: for their own customers, their own workers. You know, there
Speaker 9: are some things that are falling short right now. Whether
Speaker 9: that's enough remains a big question mark.
Speaker 4: But what I mean, but what I mean about all
Speaker 4: these specific things, I mean, this is pretty gross for
Speaker 4: workers and unsafe for workers, and you know, we talked
Speaker 4: about the New Orleans worker who were blocking you know,
Speaker 4: the fire exits, and there was a fire. Unfortunately nobody
Speaker 4: was there. But this stuff continues, and I'm curious that
Speaker 4: the company addressed any of these specifics.
Speaker 9: The company told us in a pretty we we send
Speaker 9: them a very detailed inquiry. They got back to us
Speaker 9: with with with a significant reply that that you know,
Speaker 9: repeated things they've said in the past, which you know,
Speaker 9: has to do with them saying that they want to
Speaker 9: provide stores that are safe to work in, they want
Speaker 9: to provide opportunity for their workers. I think that a
Speaker 9: lot of the details in the story show the ways
Speaker 9: in which they've come up short in those goals. The
Speaker 9: extra investment they're making suggests that you know, they they
Speaker 9: they you know, they're sort of acknowledging some of the shortcomings.
Speaker 9: But again, you know, like whether that turns out to
Speaker 9: be enough to really kind of turn things around. I
Speaker 9: think the proof will be in the putting.
Speaker 10: And this is in the story, but it really does
Speaker 10: kind of culminate with a shareholder meeting where the employees
Speaker 10: really did get their attention. So we'll see where that leads.
Speaker 10: I do think, you know, Brendan, when you just look
Speaker 10: at the incredible performance that the company has had on
Speaker 10: the stock market really intil this year, what's happened? Because
Speaker 10: you would think, like, with the economy being where it is,
Speaker 10: inflation being where it is, this looks like a pretty
Speaker 10: good value proposition to an American consumer. And yet you know,
Speaker 10: you look at that share price and it's like, you know,
Speaker 10: the ceiling of bat Iguano fell apart, and everything fell apart.
Speaker 10: What's happened?
Speaker 9: I pointed two things, and one of them is tougher competition.
Speaker 9: I think Dollar Tree. You know, Dollar Tree brought in
Speaker 9: a former CEO of Dollar General with backing from an
Speaker 9: activist investor, Mental Ridge. There there comparable sales numbers suggest
Speaker 9: that they're getting some traction there that people, you know,
Speaker 9: consumers out there are noticing improvements and responding. That's one thing.
Speaker 9: Another thing is the hole issue of trade down. You
Speaker 9: you know, in the wake of the financial crisis, you
Speaker 9: had a lot of trade down from middle income, higher
Speaker 9: income people doing just what you say, saying, you know, look,
Speaker 9: that's going to be a great bargain. I'm going to
Speaker 9: buy more stuff at Dollar General or Dollar Tree or
Speaker 9: other dollar stores. I think you're seeing a lot less
Speaker 9: of that right now, and where you're seeing it is
Speaker 9: in Walmart. And so I think that that whether it's
Speaker 9: competition from small box stores like other dollar stores, or
Speaker 9: competition from the really big ones out there, I think
Speaker 9: Dollar General is under a lot more pressure than it
Speaker 9: used to be now. At the same time, you know,
Speaker 9: by its own admission, it has this issue with sore conditions.
Speaker 9: You know, can it fix the store conditions it's fixing
Speaker 9: the store condition is going to be good enough to
Speaker 9: get back some of that business and get back onto
Speaker 9: a growth path in terms of comparable sales store by store.
Speaker 9: I mean, that's an open question.
Speaker 4: I just think about too, that these stores do play
Speaker 4: a role. That there are small communities around the country
Speaker 4: right that don't have anything.
Speaker 10: Don't and as the story also documents like some of
Speaker 10: these communities have actually resisted having Dollar General come in
Speaker 10: have lost some of those battles, So there's this tension there.
Speaker 10: I also just think the moment that we seem to
Speaker 10: be at with labor in this country, with UAW doing
Speaker 10: what it's doing, Hollywood doing what it's doing. Just to
Speaker 10: look at retail for a second and be like, oh, yeah,
Speaker 10: there's this world that I don't think we talk about
Speaker 10: enough business Week, but this is, you know, a landscape
Speaker 10: of what America really looks like and the people who
Speaker 10: are in the front lines actually dealing with some of
Speaker 10: these issues that you know, you don't expect to have
Speaker 10: to deal with a machete wielding customer, and yet at
Speaker 10: Dollar General, that's part of your job description.
Speaker 3: Even if you don't get training for it.
Speaker 2: It's not in the training.
Speaker 3: No, it's not. It mean that point.
Speaker 4: We laugh, but it's disturbing and it's real for some folks.
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Speaker 2: Of course, the editor of Bloomberg business Week magazine, Joel Weber.
Speaker 2: This is the cover story.
Speaker 7: I'm brother Marca, a journal How about you let me drive?
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Speaker 1: This is the drive to the clothes coming well, buy
Speaker 1: around on Bloomberg Radio.
Speaker 4: All right, everybody, it's what three forty seven on Wall
Speaker 4: Street here in New York City, and so we've just
Speaker 4: got about twelve minutes left in today's trading session a
Speaker 4: FED day.
Speaker 2: We've only got two FOMC.
Speaker 4: Meetings left November first December thirteenth. But the Fed done
Speaker 4: did not change its key interest rates, kept that unchanged,
Speaker 4: but did give an update in terms of its projections
Speaker 4: when it comes to the economy to inflation. So we
Speaker 4: did get kind of what the Fed is thinking and
Speaker 4: where things go from here.
Speaker 3: Yeah, it was hawkish. Nonetheless, twelve FED officials seeing one
Speaker 3: more hike this year, seven seeing rates on hold. The
Speaker 3: Fed also repeating language on the extent of additional policy firming.
Speaker 3: Let's hear what our next guest has to think about it.
Speaker 3: Larry Pitkowski is co founder, managing partner and portfolio manager
Speaker 3: at good Haven Capital Management. Larry joining us on Zoom
Speaker 3: from Milbourne, New Jersey this afternoon. Larry, how are you?
Speaker 11: I am well, How are you? And Tim?
Speaker 3: Yeah, we're doing pretty well. Really digesting not just what
Speaker 3: Jay Powell said, but also the market reaction to this.
Speaker 3: We should note that Nasdaq pretty much at its loads
Speaker 3: of the days down one point three percent, the S
Speaker 3: ANDPF happenor down eight tens of one percent. Stocks moving
Speaker 3: kind of all over the place when we heard from
Speaker 3: the FED chair, what's your assessment?
Speaker 12: You know, Tim, you had me on this show on
Speaker 12: a FED day because I get to use my three
Speaker 12: favorite words and investment, which is I don't know, okay,
Speaker 12: thank you, and that's not that's doesn't mean I didn't
Speaker 12: I would like to know. But there are many important
Speaker 12: and unknowable things in investing, and I think one can
Speaker 12: obsess over them all you like, but an enormous amount
Speaker 12: of energy may not yield you many results.
Speaker 11: And here at the good Haven Fun we try very
Speaker 11: hard to focus.
Speaker 12: On what is important and what is knowable, and what
Speaker 12: happened today with the FED seemed to be within the
Speaker 12: realm of what.
Speaker 11: Has been telegraphed before.
Speaker 12: You have to look at the environment and say, okay,
Speaker 12: I have higher risk free rates, I have a more
Speaker 12: constrictive policy. I have the economy slowing in some areas.
Speaker 12: And that is the backdrop. And we've been fortunate here
Speaker 12: at the Good Haven Fun We've had very good one,
Speaker 12: three and five year results. And none of it has
Speaker 12: been because we've been able to make slightly better guesses
Speaker 12: as to short term interest rates than the next person.
Speaker 12: So we will continue to try and do what we
Speaker 12: think bring we bring to the table.
Speaker 4: No, totally get it right, like you know, and all
Speaker 4: of this could change at the next fast machine to
Speaker 4: be really completely honest, right or depending on the next
Speaker 4: set of data points.
Speaker 2: But having said that, you guys do have to make decisions.
Speaker 4: So how do you First of all, do you pick
Speaker 4: like a three year timeframe in terms of when you're
Speaker 4: making or is it a one year, is it a
Speaker 4: five years, it a ten year?
Speaker 2: Is it shorter?
Speaker 4: What framework are you using to make investment decisions right now?
Speaker 12: Carol's very good question, and we are thinking very long
Speaker 12: term in anything that we purchase.
Speaker 11: We are stepping back.
Speaker 2: It's very long term. Is it ten? Is it ten? Fives?
Speaker 12: I would say anywhere from let's just say, let's imagine
Speaker 12: a three year on average holding period. I mean, our
Speaker 12: turnover ratio has been in the very low teens, so
Speaker 12: that would imply any longer holding period. But first, there
Speaker 12: are plenty of confusing macro things out there. The first
Speaker 12: thing that I say to myself is is this a
Speaker 12: period of an existential risk?
Speaker 11: The Great Financial Crisis? There are existential.
Speaker 12: Worries there, the COVID, the Tragic period, and the lockdown
Speaker 12: of the economy that was a potential existential risk. But
Speaker 12: what we are looking at today looks to me like
Speaker 12: one should assume this is the new normal, higher risk
Speaker 12: free rates that we've had.
Speaker 11: In a long time.
Speaker 12: The economy is slower in parts, but the sun is
Speaker 12: still coming up.
Speaker 11: In businesses, you know, things are still happening.
Speaker 12: And so once we conclude that there's not an existential worry,
Speaker 12: but there are things that are, you know, there's higher deficits,
Speaker 12: all kinds of things. Keep looking for businesses that one
Speaker 12: that we think can do well in such an environment
Speaker 12: and where we combine them with the margin of safety.
Speaker 12: And that has worked for us over the last bunch
Speaker 12: of years, and we hope we'll continue to What do.
Speaker 3: You think the consumer is doing right now? And I
Speaker 3: know this is you know, your your investments are five
Speaker 3: ten years down the road, but now's an important snapshot
Speaker 3: to make these decisions. How is the consumer doing?
Speaker 12: You know, the consumer, I would say, looks to be
Speaker 12: first of all, I've often said over the years that
Speaker 12: markets are much more volatile than the underlying business as
Speaker 12: they represent. Having said that, over the last couple of years,
Speaker 12: I've noticed and already quaking out here. Talk about this
Speaker 12: all the time, that the consumer and even business behavior
Speaker 12: is a little bit more volatile than it.
Speaker 11: Used to be.
Speaker 12: So I think the consumer in some parts of the
Speaker 12: economy seems much more constrained. Other parts of the economy,
Speaker 12: the consumer seems fine. So I think you have to
Speaker 12: take it. I think it's two consumer spending in some
Speaker 12: areas travel and leisure have been strong, certain goods have
Speaker 12: been weaker. Luxuries historically been you know, more resistant to
Speaker 12: some of these issues. So I don't think you can
Speaker 12: say the consumer, but I think it's a good question,
Speaker 12: and we then try and drill down a little bit
Speaker 12: beyond that.
Speaker 4: So a listener and a viewer, Michael, thank you first
Speaker 4: of all for writing in and reaching out to our
Speaker 4: producer Paul Brennan.
Speaker 2: He writes in and he.
Speaker 4: Asks, Laren, I'm curious if you can weigh in, hees,
Speaker 4: value investing hasn't worked for a long time, So how
Speaker 4: does an individual investor judge the past performance of a
Speaker 4: value oriented mutual fund when considering a purchase? Also, is
Speaker 4: value investing working in more recent times?
Speaker 12: Well, I like to first think that, and I'm sure
Speaker 12: you have the statistics there in front of your trusted
Speaker 12: bloomberate that value investing for us and for our fellow
Speaker 12: shareholders has worked quite nicely over the last one, three
Speaker 12: and five years, according to statistics that are right there
Speaker 12: in front of you. I think that value investing sometimes
Speaker 12: gets a little bit the you know, the term.
Speaker 11: Gets a little bit misused.
Speaker 12: There's nothing inconsistent in value investing with owning.
Speaker 11: Good quality, growing businesses.
Speaker 12: And I think what has worked well for us and
Speaker 12: for our fellow shareholders is being right about the things
Speaker 12: that we bought, buying them at good prices, and not
Speaker 12: having any big mistakes in the portfolio over the last
Speaker 12: bunch of years. So I don't see if you can
Speaker 12: execute on all those things, which is not easy, and
Speaker 12: why should it be easy. I don't see why value
Speaker 12: investing shouldn't always potentially work if you do a really
Speaker 12: good job at it. But of course those are caveats.
Speaker 12: But I can only speak for what we've been able
Speaker 12: to do recently.
Speaker 4: Yeah, I want to be commercial for you, But the
Speaker 4: Good Haven Fund, if I look at the one month,
Speaker 4: the year to date, the one year, the three year,
Speaker 4: or the five year, you are consistently either in for
Speaker 4: the most part, the ninety ninth percent, also basically beating
Speaker 4: all of your peers in that category. Look at the
Speaker 4: five year accorringa Bloomberg data on average annually returning eleven
Speaker 4: percent to shareholders, three year almost twenty percent to shareholders,
Speaker 4: one year twenty six percent to shareholders. And if I may,
Speaker 4: if I look at your holdings, it's Berkshire, Hathaway, It's Alphabet,
Speaker 4: It's Jeffrey's Financial Group, It's Leonard, It's Devin Energy, it's KKR.
Speaker 11: And these are names Builders first Storage, don't forget that.
Speaker 4: Oh sorry, which one? Oh what is builders for a source?
Speaker 4: That's what you're Yeah, that's a top holding.
Speaker 12: It's a top holding and an enormous contributor to a
Speaker 12: contributor to our recent results.
Speaker 11: It is a buildings Products.
Speaker 2: Up ninety six percent this year, Yeah, go ahead.
Speaker 12: Ninety six percent and still trading at a very modest
Speaker 12: forward multiple to earnings and free cash flow. And we
Speaker 12: we thank Paul Levy's the chairman of the board and
Speaker 12: the rest of the management team who has done a
Speaker 12: great job. And here's a shocking thing, Carol. The stock
Speaker 12: is up dramatically in the last six, seven, eight years.
Speaker 12: Guess what the earnings are up dramatically too. So when
Speaker 12: you get it right about the business and you buy
Speaker 12: it cheaply, wonderful things should happen to you eventually that
Speaker 12: the market will notice.
Speaker 4: Well, it's really interesting because this is a company that
Speaker 4: plays in to home building, which tells you a lot
Speaker 4: about the economy. Hey, do you want to mention instacart
Speaker 4: just real quickly, because we've had some IPOs.
Speaker 3: This rule, this is one of my decliners. Don't give
Speaker 3: it away.
Speaker 4: Well, it wasn't a decliner yesterday, but it's sliding what
Speaker 4: eleven percent to fall below the thirty dollars IPO price.
Speaker 4: People were talking about the low float on this one right,
Speaker 4: there wasn't a lot of shares out there, and.
Speaker 2: How that could be maybe problematic for investors. So we'll
Speaker 2: talk about it.
Speaker 4: Well, hey, Larry, we've got about thirty seconds left here
Speaker 4: the IPO market anything interesting? Does it tell you anything too?
Speaker 4: Also about the health of the overall market?
Speaker 2: Just quickly, now we have show that's why we like you.
Speaker 12: We have exposure to Jeffries, wonderfully run by the right talented,
Speaker 12: rich handler, and so we hope that if there are
Speaker 12: more IPOs, we fully expect that their bankers will get
Speaker 12: more than their fair share, and so we cheer them
Speaker 12: continuing to do a good job.
Speaker 11: If there is a more robust IPO market.
Speaker 12: IPOs are, you know, not necessarily the things that we've
Speaker 12: historically focused on the portfolio, but let's just I'll think
Speaker 12: of where we will be cheering for them, and that's
Speaker 12: as fellow owners of Jeffries, which has worked out.
Speaker 11: Very well for us.
Speaker 3: So interesting exposure at IPOs right absolutely one of the
Speaker 3: companies that one of the banks that handles underwriting brings money.
Speaker 2: Into those firms.
Speaker 4: Larry, we always enjoy talking to your specific You aren't bashful,
Speaker 4: and it's really fun to get you away in certainly
Speaker 4: on this fed Wednesday, Larry Pitcawski Magic Partner portfolio manager.
Speaker 4: He's also the co founder of good Haven Capital Management.
Speaker 4: On zoom for Milburn, New Jersey.
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