WEBVTT - U.S. Won't Default on Debt, But Expect a Shutdown, Steve Bell Says 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.239 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Will 0:00:32.280 --> 0:00:36.080 the US government be shut down? While President Donald Trump 0:00:36.120 --> 0:00:38.599 says he's threatening to shut down the government over the 0:00:38.800 --> 0:00:42.040 border wall funding? Here to explain more is Steve Bell. 0:00:42.159 --> 0:00:45.519 He is senior adviser the Bipartisan Policy Center. He's a 0:00:45.560 --> 0:00:50.120 former Senate Budget Committee staff director for Republican Pete Dominici. 0:00:50.159 --> 0:00:55.040 And that was in four eighties six. Steve Bell, Boy, 0:00:55.120 --> 0:00:58.720 that seems like ancient times, doesn't it. Well, it really 0:00:58.720 --> 0:01:03.279 does things. Nothing is golden except in our memories, but 0:01:03.840 --> 0:01:06.800 those were much easier years than now. Explain how the 0:01:06.920 --> 0:01:12.040 contrast has informed your understanding of what President Trump said 0:01:12.600 --> 0:01:16.039 in Phoenix about shutting down the government and connecting that 0:01:16.360 --> 0:01:21.160 to funding for a potential border wall. Well, he said 0:01:21.160 --> 0:01:23.560 it several times now, and so I'm beginning to think 0:01:23.560 --> 0:01:26.880 that he means it quite seriously. Uh, let me just 0:01:26.959 --> 0:01:31.119 distinguish between two things. Shutting Down the government would mean 0:01:31.160 --> 0:01:33.760 that we just didn't pass the twelve spending bills or 0:01:33.800 --> 0:01:38.520 appropriation bills for the upcoming fiscal year by October one. 0:01:38.959 --> 0:01:42.880 That is much different than defaulting on the debt. And 0:01:42.920 --> 0:01:44.720 I just want to make sure everyone understands there are 0:01:44.720 --> 0:01:48.440 two different things. Um, I think the President will if 0:01:48.480 --> 0:01:51.080 he doesn't get a bill that has funding directly for 0:01:51.080 --> 0:01:54.120 the wall, I think he will not sign it. And 0:01:54.240 --> 0:01:57.400 I think that we will have on the twenty nine 0:01:57.920 --> 0:02:00.560 um of September, I think we will have beginning of 0:02:00.560 --> 0:02:04.800 what I believe will be e relatively short government shutdown. So, Steve, 0:02:05.040 --> 0:02:07.680 can you talk about the distinction that you just mentioned, 0:02:07.720 --> 0:02:11.119 because when I look at bond markets, they certainly are 0:02:11.200 --> 0:02:14.120 not expecting any kind of default and they're not frankly 0:02:14.160 --> 0:02:16.520 expecting even a close call. I mean, I'm just looking at, 0:02:16.560 --> 0:02:19.840 for example, three months and six month treasury bills and 0:02:19.880 --> 0:02:22.760 they're not showing any distortions like we've seen in the past. 0:02:23.200 --> 0:02:25.680 So is there a show is explained to us how 0:02:25.720 --> 0:02:29.400 we could see a government shut down but not a default, 0:02:29.520 --> 0:02:31.800 and tell us why you think this would play well 0:02:31.840 --> 0:02:36.840 with President Trump's base, well, at least I think I 0:02:36.880 --> 0:02:40.440 think you saw in Phoenix a couple of nights ago. Uh, 0:02:40.639 --> 0:02:43.079 what the president is doing with the base. And if 0:02:43.120 --> 0:02:46.120 he had to shut down spending and shut down the 0:02:46.200 --> 0:02:50.480 government and the the swamp with all the bureaucracy because 0:02:50.520 --> 0:02:52.960 they wouldn't give him a border wall, I think that 0:02:53.000 --> 0:02:55.840 plays very well with his base, and I think it's 0:02:55.840 --> 0:02:59.120 something they'll remember. You can blame it on the Congress 0:02:59.400 --> 0:03:02.400 and um. I think that gets him a pretty much 0:03:02.400 --> 0:03:07.200 a free ride on that. But a different question is 0:03:07.240 --> 0:03:09.600 what happens if we have any kind of default in 0:03:09.639 --> 0:03:12.399 the debt, which I do not believe we will have. 0:03:12.760 --> 0:03:14.920 We will pass a debt extension. It may not be 0:03:15.360 --> 0:03:17.080 for a couple of years, it may only be for 0:03:17.200 --> 0:03:20.440 ninety days, but we will pass a debt extension in time. 0:03:20.960 --> 0:03:23.600 We will not pass, in my view, any of these 0:03:23.840 --> 0:03:27.040 twelve appropriation bills on time, and it will be something 0:03:27.080 --> 0:03:31.080 we call a big omnibus spending bill that will be 0:03:31.120 --> 0:03:34.160 sent to the president. If it doesn't have roll funding, 0:03:34.360 --> 0:03:37.000 I think it will fail and he will shut down 0:03:37.040 --> 0:03:39.320 the government. Steve, do you believe that there's going to 0:03:39.360 --> 0:03:44.320 be any movement, any activity on tax reform. I think 0:03:44.360 --> 0:03:46.560 it's going to be very, very difficult. I wrote something 0:03:46.640 --> 0:03:53.000 about this yesterday. Um, the challenges ahead are really very 0:03:53.000 --> 0:03:57.640 difficult because you need bipartisan support to get a tax 0:03:57.680 --> 0:04:00.280 bill out, and that means you're going to have to 0:04:00.360 --> 0:04:04.680 move towards whatever Democrats want in their tax bill. Will 0:04:04.760 --> 0:04:09.360 that be higher rates on the top five, Will that 0:04:09.520 --> 0:04:12.800 be an expansion of the earned income tax credit. No 0:04:12.840 --> 0:04:16.000 one really knows what they will demand, but it's pretty 0:04:16.000 --> 0:04:19.799 clear to most of us now that a Republican only 0:04:19.960 --> 0:04:25.080 tax plan cannot pass the Senate under current circumstances, and 0:04:25.160 --> 0:04:28.040 that's going to be I think a big time fight. 0:04:28.120 --> 0:04:31.200 I consider that to be something that might happen in 0:04:31.240 --> 0:04:34.400 the first quarter of two eighteen. But people should understand 0:04:34.760 --> 0:04:38.080 that the legislative process and the Senate on taxes is 0:04:38.320 --> 0:04:42.520 very complex. Uh, Steve, you're talking about the likelihood of 0:04:42.520 --> 0:04:48.240 a government shutdown and the likely unwillingness of Republican senators 0:04:48.360 --> 0:04:53.000 and House representatives to pass a bill that does have 0:04:53.839 --> 0:04:56.960 some kind of provision for the while funding. I'm wondering 0:04:57.240 --> 0:05:00.200 why would a government shut down due for the relation 0:05:00.000 --> 0:05:05.440 s ship between GOP senators and congressmen with President Trump? 0:05:05.520 --> 0:05:10.120 Especially as the evident battle between Mitch McConnell and President 0:05:10.160 --> 0:05:13.520 Trump Piazza up. Well, I think it would have more 0:05:13.520 --> 0:05:16.040 of an impact on the relationship, which is already quite 0:05:16.080 --> 0:05:22.920 poor between the Senate Republican Caucus and the President. Um. 0:05:22.960 --> 0:05:25.440 I think that this will have some impact, but not 0:05:25.520 --> 0:05:30.120 a lot on such things as the tax reform possibility, 0:05:30.880 --> 0:05:34.279 some sort of initiative on infrastructure, those kinds of things, 0:05:34.720 --> 0:05:38.080 but they're going to be delayed anyway. What what bothers 0:05:38.080 --> 0:05:41.240 me more is if what I'm saying comes through, we 0:05:41.279 --> 0:05:44.640 have a government shutdown, the President blames the Congress and 0:05:44.680 --> 0:05:47.280 says it's all over the law, you know, that kind 0:05:47.320 --> 0:05:51.960 of stuff, that it will probably endanger him getting anything 0:05:52.040 --> 0:05:56.760 done that he wants to get done, as far as 0:05:56.800 --> 0:06:01.640 sort of a big infrastructure initiative, spending more for defense, 0:06:01.680 --> 0:06:04.000 which I think already is a steep hield to climb. 0:06:04.760 --> 0:06:07.280 All in all, there are three people you ought not 0:06:07.320 --> 0:06:10.640 to make mad in this town. That's the intelligence community 0:06:10.640 --> 0:06:13.240 and he's done that, And it's the FBI and he's 0:06:13.279 --> 0:06:16.479 done that. And the third one is Mitch McDonald Because 0:06:17.520 --> 0:06:20.919 only Mr McConnell's desire to have a tax bill to 0:06:21.000 --> 0:06:24.560 help his senators get reelected next year. Only that one 0:06:24.680 --> 0:06:29.360 fact really helps the possibility of a tax bill passing. Steve, 0:06:29.400 --> 0:06:30.800 I just want to break in and just give you 0:06:30.839 --> 0:06:34.520 everyone this headline from Bloomberg that the smartphone maker HTC 0:06:34.760 --> 0:06:37.719 is said to explore strategic options. We'll get more details 0:06:37.800 --> 0:06:40.520 and pass them along, Steve once you to just continue 0:06:40.520 --> 0:06:44.280 because I'm sure you've got ongoing relationships friendships in d C. 0:06:44.520 --> 0:06:49.080 With lawmakers and staffers. What have you heard in their 0:06:49.120 --> 0:06:52.880 reaction to some of the President's comments about the border 0:06:52.960 --> 0:06:57.800 wall and in general about his relationship with the Republican leadership. 0:06:59.240 --> 0:07:02.599 His relationship with the Republican leadership is quite strained. You 0:07:02.720 --> 0:07:07.160 just don't take on a Jeff Flake Senator Flake uh 0:07:07.200 --> 0:07:09.800 and encourage a person to run against him in the 0:07:09.800 --> 0:07:13.000 primary and have a group associated with you raising money 0:07:13.000 --> 0:07:16.680 against him, and make friends with the Republican Senate caucus. 0:07:16.680 --> 0:07:19.960 And you don't do it with with Mr Heller in Nevada. 0:07:20.120 --> 0:07:23.440 So he's got about seven or eight people that he's 0:07:23.520 --> 0:07:28.600 directly made mad. The president has and in private, staff 0:07:28.640 --> 0:07:34.000 simply doesn't know how much real effort the President will 0:07:34.040 --> 0:07:38.840 put into a tax plan or into funding the wall 0:07:39.240 --> 0:07:41.480 will it be sort of like it was in healthcare, 0:07:41.520 --> 0:07:44.280 where ever so often he would talk about where we 0:07:44.320 --> 0:07:48.200 need to get the healthcare bill finished. Um, if we're 0:07:48.240 --> 0:07:49.600 going to get a help, if we're going to get 0:07:49.600 --> 0:07:52.840 a tax reform bill passed by the first quarter of 0:07:52.880 --> 0:07:55.880 this coming year, then the President is going to have 0:07:56.040 --> 0:07:59.360 to devote all of his energy and all of his 0:08:00.400 --> 0:08:03.640 remarks towards that goal. Otherwise there just will not be 0:08:03.760 --> 0:08:07.440 the momentum in six when we passed the tax bill, Remember, 0:08:07.480 --> 0:08:11.680 we had Reagan a hundred percent behind it, We had 0:08:11.760 --> 0:08:14.080 Congress that have been negotiating behind the scenes for a 0:08:14.120 --> 0:08:17.520 couple of years behind it, and it was still tough 0:08:17.560 --> 0:08:20.280 to do. Steve Bell, thank you so much for joining 0:08:20.360 --> 0:08:22.880 us and for your insights into this. Steve Bell as 0:08:22.920 --> 0:08:26.720 Senior adviser for the Bipartisan Policy Center, also a former 0:08:26.760 --> 0:08:32.920 Senate Budget Committee staff director for Republican Pete Dominici from six. 0:08:46.080 --> 0:08:49.079 There are a couple of new employment laws that are 0:08:49.120 --> 0:08:52.600 set to take effect in New York City later this year, 0:08:52.760 --> 0:08:55.000 and I'm very interested to learn more about them, because 0:08:55.000 --> 0:08:57.800 somehow they totally flew under my radar, and I'm sure 0:08:57.840 --> 0:08:59.199 that they have a lot of other people as well, 0:08:59.400 --> 0:09:01.760 Ronnie has said Home joins us now. She's a managing 0:09:01.840 --> 0:09:04.360 partner at set Home Law Group, which is based in 0:09:04.400 --> 0:09:07.400 New York, and has been tracking these changes which potentially 0:09:07.480 --> 0:09:12.440 could have some significant effects in particular businesses. So Ronnie, 0:09:12.480 --> 0:09:14.440 thank you so much for joining us. Can you just 0:09:14.520 --> 0:09:19.320 first lay out what the main rules are employment rules 0:09:19.320 --> 0:09:22.199 that you're tracking, and what the potential consequences in your 0:09:22.280 --> 0:09:26.360 view will be sure so effective. On Halloween, October thirty 0:09:26.400 --> 0:09:30.400 one interesting day to choose, employers will no longer be 0:09:30.480 --> 0:09:34.400 able to ask about salary history. And the theory behind 0:09:34.440 --> 0:09:38.320 this is that by not asking about salary history, women 0:09:38.320 --> 0:09:41.559 and minorities in particular will fare better. Now, as a 0:09:41.600 --> 0:09:43.480 woman who is a minority, I want us to all 0:09:43.520 --> 0:09:45.520 fare better, but I just don't see how this is 0:09:45.559 --> 0:09:49.080 going to to help us. Um wait, wait, just before 0:09:49.080 --> 0:09:50.680 we go on, So in another word, can you just 0:09:50.880 --> 0:09:53.760 elaborate why do you think that that it won't necessarily 0:09:53.760 --> 0:09:56.160 help the situation? Well, I think it's we need to 0:09:56.240 --> 0:10:00.240 change people's thinking and help them understand how benefit show 0:10:00.280 --> 0:10:02.160 it is to have women in the workplace and minorities 0:10:02.160 --> 0:10:05.520 in the workplace, and by simply not asking someone excuse me, 0:10:05.559 --> 0:10:09.000 how much are you currently making? It doesn't help them 0:10:09.040 --> 0:10:10.880 at all. I mean, for example, if you have no 0:10:10.960 --> 0:10:16.240 intention of hiring a female minority person and you're interviewing them. 0:10:16.280 --> 0:10:18.760 In your head, you're saying, Okay, this job, I'm going 0:10:18.840 --> 0:10:20.880 to be able to spend between eighty and a hundred 0:10:20.880 --> 0:10:25.360 and twenty thousand dollars on a salary in walks a 0:10:25.440 --> 0:10:29.359 female and in walks a white male. And you decide 0:10:29.440 --> 0:10:31.960 that you're going to only pay females and minorities the 0:10:32.000 --> 0:10:35.360 eighty thousand, never having asked a question about their previous 0:10:35.520 --> 0:10:37.760 salary history at all, and in your mind you are 0:10:37.760 --> 0:10:40.680 going to offer this white male a hundred and twenty thousand. 0:10:40.840 --> 0:10:42.120 Can you just give us a sense of what the 0:10:42.120 --> 0:10:44.439 other side of that is and why was it implemented? 0:10:44.480 --> 0:10:47.400 What was the thinking? Uh? Was it just simply that 0:10:47.920 --> 0:10:50.800 because there would be a sort of range, so that 0:10:50.880 --> 0:10:53.520 if somebody walked in and had been paid less than 0:10:53.559 --> 0:10:57.160 their prior job, which studies have shown that sometimes women 0:10:57.200 --> 0:11:00.480 and minorities have been paid less, that if they come in, 0:11:00.800 --> 0:11:02.640 if you have a range, then you have to stick 0:11:02.679 --> 0:11:06.360 with that range. That's exactly it. It's because when you 0:11:06.400 --> 0:11:08.920 are asked what are you currently making if you're a 0:11:08.960 --> 0:11:11.840 female or a minority, are likely making less. So even 0:11:11.840 --> 0:11:15.720 if you obtain a substantial raise, it's still substantially less 0:11:15.720 --> 0:11:18.880 than you would otherwise earn if you're a white male 0:11:18.920 --> 0:11:22.360 in the same position. But again, it's all about the mindset. 0:11:22.480 --> 0:11:25.600 Why not just not have such a large band? How 0:11:25.640 --> 0:11:27.760 about a band of one ten to one twenty in 0:11:27.840 --> 0:11:30.160 your head? I mean I just hired somebody and my 0:11:30.240 --> 0:11:33.560 band was about five thousand dollars. Well, I think also 0:11:33.600 --> 0:11:35.440 you just want to hire the best person. Well, of 0:11:35.480 --> 0:11:37.559 course you do, of course you do. And I think 0:11:37.559 --> 0:11:41.840 the real messages that females and minorities are just as 0:11:41.840 --> 0:11:44.400 great as others. Yeah, I mean I don't think that. 0:11:44.400 --> 0:11:46.520 I I you don't segregate people when they come in 0:11:46.559 --> 0:11:48.240 the door, you know, you go in one interview room 0:11:48.240 --> 0:11:50.720 in another interview room. Of course not. But I think 0:11:50.760 --> 0:11:54.000 that those individuals who are holding back, you know, minorities 0:11:54.000 --> 0:11:57.080 and females aren't going to be hindered simply because they 0:11:57.120 --> 0:12:00.600 can't ask one question. Instead of doing in posing a 0:12:00.640 --> 0:12:03.760 ban on a question help people think better. Well, hold 0:12:03.840 --> 0:12:05.280 on a second, there are a couple of other rules 0:12:05.280 --> 0:12:08.439 that are going into effect as well, at one effects 0:12:08.480 --> 0:12:12.640 fast food workers basically saying, uh that they need more 0:12:12.679 --> 0:12:16.160 advanced notice about their schedules and things can't just be 0:12:16.200 --> 0:12:18.880 shifted on them at the last minute. Then a similar 0:12:18.960 --> 0:12:21.160 type of thing within retail, and that you had a 0:12:21.200 --> 0:12:24.559 similar complaint in theory, I get you know, you get it, 0:12:24.640 --> 0:12:29.840 but it won't actually have the practical effect that was intended. 0:12:30.200 --> 0:12:31.920 Can I just get ask for a little bit of 0:12:31.960 --> 0:12:35.600 history into why these rules are getting implemented? Now? Who 0:12:35.679 --> 0:12:39.280 is behind them and who is the big lobby behind them? 0:12:39.320 --> 0:12:41.440 I guess is my other question? Well, I think you 0:12:41.480 --> 0:12:44.439 know union groups probably if I had to guess, I 0:12:44.440 --> 0:12:47.360 would say, you know, thirty two b JS is partially 0:12:47.520 --> 0:12:49.920 part of this. I think there's um a lot of 0:12:50.440 --> 0:12:53.800 progressive cooperatives for back of lack of a better term, 0:12:53.880 --> 0:12:56.560 that are behind it. I think the reason behind these 0:12:56.640 --> 0:12:59.600 laws are they're good, they're well intentioned. I just don't 0:12:59.640 --> 0:13:03.480 know if the lawmakers had enough foresight to understand how 0:13:03.520 --> 0:13:07.440 this is practically impacting companies. So, if you are working 0:13:07.440 --> 0:13:10.920 in retail as a salesperson not in the executive office, 0:13:10.960 --> 0:13:13.440 or you're working in a fast food chain in the 0:13:13.520 --> 0:13:16.800 same vein, you know at the store, at the restaurant, 0:13:16.920 --> 0:13:20.640 at the franchise. You're likely a low income wage earner, 0:13:21.120 --> 0:13:23.480 and right now you have no way of knowing how 0:13:23.520 --> 0:13:25.880 much you're going to make in a particular week. You 0:13:25.920 --> 0:13:28.760 could have forty hour shift, you could have a twenty 0:13:28.800 --> 0:13:31.760 hour shift. And of course it's difficult to make ends 0:13:31.800 --> 0:13:35.160 meet when you're living like that, paycheck to paycheck and 0:13:35.240 --> 0:13:37.760 not even knowing how steady it will be. So that's 0:13:37.800 --> 0:13:40.880 the reason. The reason is we want to help these 0:13:41.120 --> 0:13:44.160 you know, workers at least know how much they're going 0:13:44.200 --> 0:13:47.320 to earn, because you can't, you know, force them to 0:13:47.320 --> 0:13:49.720 get paid a certain amount, except with minimum wage, of course, 0:13:49.960 --> 0:13:51.840 but no one is telling you you have to employ 0:13:51.880 --> 0:13:54.640 them for fifty hours a week. The law says, if 0:13:54.679 --> 0:13:57.200 you're in fast food, you have to give someone their 0:13:57.200 --> 0:14:00.520 schedule fourteen days in advance, and if you don't, you 0:14:00.559 --> 0:14:03.120 have to pay a premium. Yeah, I have to wonder. 0:14:03.160 --> 0:14:06.560 I wonder if certain retailers and fast food restaurants will 0:14:07.280 --> 0:14:11.960 cut back on that. Maybe their response, you know, running 0:14:11.960 --> 0:14:13.760 I wo just want to get your the last point here, 0:14:13.760 --> 0:14:17.040 which is the Fair Work Week Act. This is about 0:14:17.040 --> 0:14:20.040 on call scheduling. What is that on call scheduling is 0:14:20.080 --> 0:14:22.440 when you it's in the retail space, you call it 0:14:22.520 --> 0:14:24.840 and you say hi, you know, I'm I'm calling in 0:14:24.840 --> 0:14:27.520 to see if there's a job for me today that's 0:14:27.520 --> 0:14:30.200 on call scheduling. You have to make yourself available. I 0:14:30.240 --> 0:14:32.960 think it's a term that came from the union labor 0:14:33.160 --> 0:14:35.720 field where they used to say you have to be ready, willing, 0:14:35.720 --> 0:14:38.200 and able, and he used to do something called shaping. 0:14:38.400 --> 0:14:40.000 It was the same thing. And this is this is 0:14:40.000 --> 0:14:43.480 going to be bad. Correct, This is the no, no more. 0:14:43.600 --> 0:14:46.840 I need to give you the schedule seventy two hours 0:14:46.840 --> 0:14:49.320 in advance if you're a retail employee. Thank you very 0:14:49.400 --> 0:14:52.600 much for being here and enlightening us. Well done. Set 0:14:52.640 --> 0:14:56.400 Home managing partner of set Home Law Group talking about 0:14:56.760 --> 0:14:59.440 three new laws that are going to be put into 0:14:59.440 --> 0:15:03.560 effect that really change the way employers and employees deal 0:15:03.640 --> 0:15:18.000 with each other. Thank you very much. Here a lot 0:15:18.080 --> 0:15:24.160 about big retailers trying to compete with the albatross of Amazon, 0:15:24.240 --> 0:15:29.160 but Costco is perhaps not playing the same game. Here 0:15:29.200 --> 0:15:32.800 to explain its approach and some of the controversy over 0:15:32.880 --> 0:15:35.760 it is Matt Boyle, us retail reporter for Bloomberg News 0:15:35.800 --> 0:15:38.760 who joins us in our Bloomberg eleven three oh studios. Matt, 0:15:38.920 --> 0:15:40.800 can you give us a little bit of a sense 0:15:41.080 --> 0:15:45.200 of why Costco is opting out of this race to 0:15:45.320 --> 0:15:49.640 online sales and what that has meant for its performance. Well, 0:15:49.680 --> 0:15:51.720 it really gets down to their business model. I mean, 0:15:51.760 --> 0:15:53.800 this is a company we've all I'm sure we've all 0:15:53.840 --> 0:15:56.400 shopped there. You know, you walk in, it's a treasure 0:15:56.440 --> 0:15:59.320 home experience. You've got your you know, your big tubs 0:15:59.320 --> 0:16:02.320 of mayo and your paper towels on the outside, and 0:16:02.360 --> 0:16:04.560 you grab those. But then it's all about the stuff 0:16:04.560 --> 0:16:06.240 you find in the middle of the store. You know, 0:16:06.320 --> 0:16:09.320 you could find a margarita maker, you could find a kayak. 0:16:09.400 --> 0:16:11.520 I mean there's stuff. They change the stuff out all 0:16:11.560 --> 0:16:13.880 the time, and a lot of it is tailor made 0:16:13.920 --> 0:16:16.720 us only available at Costco, So they know that people 0:16:16.760 --> 0:16:18.480 are going to be keep going in there for those 0:16:18.520 --> 0:16:21.440 treasure hunt items as well as the bulk purchases of 0:16:21.560 --> 0:16:23.880 you know, the really big tubs of mayo and the 0:16:24.000 --> 0:16:26.600 you know, forty packs of Gillette razors. But that is 0:16:26.600 --> 0:16:30.320 a business model that is not very conducive to selling online, 0:16:30.320 --> 0:16:33.040 particularly the treasure hunt model where your things are changing 0:16:33.360 --> 0:16:36.640 constantly like that, and so for those reasons, Costco has 0:16:36.680 --> 0:16:39.720 felt that, well, our store real estate is so valuable, 0:16:40.240 --> 0:16:41.920 we have so many more areas that we might be 0:16:41.920 --> 0:16:44.480 able to conquer. For example, they just opened in France, 0:16:44.520 --> 0:16:47.720 they just opened in Iceland. They've decided to too, and 0:16:47.760 --> 0:16:49.920 I think wisely thus far, to spend a lot of 0:16:49.960 --> 0:16:53.480 their capital expenditure on just expanding geographically in the US, 0:16:53.560 --> 0:16:57.120 in North America and also internationally, rather than going you know, 0:16:57.200 --> 0:16:59.840 hog wild on the web like other retailers have done. 0:17:00.080 --> 0:17:01.760 So is this going to benefit them? I mean, you know, 0:17:01.880 --> 0:17:04.480 we're raising the issue because everyone seems to be running 0:17:04.520 --> 0:17:07.200 scared from anything that Amazon touches. You've got to remember him. 0:17:07.200 --> 0:17:09.520 I mean, selling online is very it's very hard to 0:17:09.520 --> 0:17:11.960 be possible. Walmart is doing a lot online, but they're 0:17:12.000 --> 0:17:14.080 not making a heck of a lot of money online 0:17:14.280 --> 0:17:16.680 and they're making a lot of noise. They're buying Jet 0:17:17.160 --> 0:17:19.560 and they're doing you know, easy reorder, and had that 0:17:19.640 --> 0:17:23.159 agreement with Google. That then with Google this week, so 0:17:23.200 --> 0:17:26.320 they're now selling on on Google's online shopping mall. But 0:17:26.400 --> 0:17:29.680 it is still extremely hard to make money on these sales. 0:17:29.720 --> 0:17:32.000 You make a lot more money a lot more profits 0:17:32.160 --> 0:17:34.480 in your store, and Costco knows this well, but I 0:17:34.520 --> 0:17:36.720 think that a lot of the retailers, to be fair, 0:17:36.800 --> 0:17:39.919 the Walmarts and the targets of the world, aren't doing 0:17:39.960 --> 0:17:42.600 this for short term profits. When I say this, I 0:17:42.680 --> 0:17:45.600 mean doing it for long terms, right and for long 0:17:45.680 --> 0:17:48.280 terms of weather. They're beefing up their online presence is 0:17:48.280 --> 0:17:51.320 so that they can be a viable competitor to whatever 0:17:51.400 --> 0:17:55.600 Amazon morphs into. And it's sort of the question mark 0:17:55.640 --> 0:17:59.440 around Costco's model. Perhaps it's working now, perhaps it makes 0:17:59.480 --> 0:18:02.760 sense right now, but what happens when the consumer all 0:18:02.840 --> 0:18:04.960 of a sudden gets used to being able to order 0:18:05.040 --> 0:18:07.040 something and just go to the store and pick it 0:18:07.119 --> 0:18:09.720 up and not spend two hours hunting for treasure. That's 0:18:09.760 --> 0:18:11.439 the question we asked, and that's why we thought it 0:18:11.480 --> 0:18:13.920 was timely to do this story right now, because it's 0:18:13.920 --> 0:18:16.760 a fair question. Analysts are starting to ask it, especially 0:18:16.800 --> 0:18:19.480 in the wake of the Amazon whole food steal, where 0:18:19.520 --> 0:18:23.440 you now have Amazon going heavily into grocery and surveys 0:18:23.440 --> 0:18:25.639 have been done. The reason people go to Costco more 0:18:25.680 --> 0:18:27.639 than anything else. I know. I talked about kayaks and 0:18:27.680 --> 0:18:30.760 margarita machines, but people go to Costco for grocery. I 0:18:30.760 --> 0:18:33.120 mean they go there to buy big cuts of meat, 0:18:33.160 --> 0:18:36.160 They go there to buy produce that's fresh and very good. 0:18:36.200 --> 0:18:38.639 They go there to buy wine and cheese and all that, 0:18:38.760 --> 0:18:42.159 all those great items. And now with Amazon buying whole foods, 0:18:42.359 --> 0:18:44.280 people now have a reason. Wait a minute, do I 0:18:44.359 --> 0:18:47.800 need to go to Costco as often? Maybe not? And 0:18:48.160 --> 0:18:51.119 this is where an online offering would really help. But 0:18:51.440 --> 0:18:53.600 thus far Costco has really just kind of done the 0:18:53.600 --> 0:18:56.840 basics online. I was looking at the basics online and 0:18:56.920 --> 0:18:59.800 things like you can buy a shed from Costco for 0:19:00.080 --> 0:19:02.800 teen hundred bucks, but then you can also buy uh, 0:19:02.840 --> 0:19:07.080 you know, a Lenovo laptop for about a thousand bucks 0:19:07.080 --> 0:19:09.120 and then get a two ll rebate. So I mean 0:19:09.119 --> 0:19:11.840 their prices seem to be pretty comparable to what other 0:19:12.359 --> 0:19:15.720 issue is not. The prices are amazing, you know. That's 0:19:15.760 --> 0:19:18.159 why they are so sick. And they got their private 0:19:18.200 --> 0:19:20.760 label brand, Kirkland. Kirkland is a bona fide brand. I 0:19:20.760 --> 0:19:22.600 wouldn't even call it a private label. It is a 0:19:22.640 --> 0:19:25.160 bona fide brand and you could find it another store. 0:19:25.280 --> 0:19:27.879 K I think Kirkland is you know, a real brand 0:19:27.920 --> 0:19:31.000 like a Nike or Tiffany or something like that. So 0:19:31.040 --> 0:19:33.120 the issue is more about what they need to do 0:19:33.240 --> 0:19:35.359 in the long term. Do they need to be spending 0:19:35.359 --> 0:19:37.159 a little bit more. Do they need to be adding 0:19:37.280 --> 0:19:41.280 let's say, a online order pickup desk. And I asked 0:19:41.320 --> 0:19:43.320 the CFL of Costco this he said, and he's answered 0:19:43.359 --> 0:19:46.240 this question many times. He says, Look, our space in 0:19:46.280 --> 0:19:49.000 the store is so valuable. Whatever we put there is 0:19:49.000 --> 0:19:51.840 going to sell so quickly. I'd rather not sit somebody 0:19:51.880 --> 0:19:55.240 behind a desk and just deliver online orders because somebody 0:19:55.280 --> 0:19:57.280 coming in might just grab whatever they ordered online and 0:19:57.320 --> 0:19:59.600 then walk out. Costco doesn't want you walking out. They 0:19:59.600 --> 0:20:02.840 want you wandering around eating food samples, stuff like that. 0:20:03.040 --> 0:20:05.840 So far, does it seem like their sales are accelerating 0:20:05.880 --> 0:20:07.920 or are they starting to see someone? Their sales are 0:20:07.920 --> 0:20:10.119 doing very well. The issue that we've noted and we 0:20:10.119 --> 0:20:12.800 saw in the story is their online sales growth of 0:20:12.840 --> 0:20:17.320 about eleven twelve. It's well beyond Walmart, well beyond Target. 0:20:17.400 --> 0:20:20.920 It's even lower than the broader e commerce market, which 0:20:20.920 --> 0:20:23.359 is growing. And if you can't grow faster than the 0:20:23.400 --> 0:20:25.879 broader market, you know you might need to catch up 0:20:25.920 --> 0:20:28.159 a little bit. But they're in store sales what they 0:20:28.200 --> 0:20:30.320 called the same store sales, which is the key metric 0:20:30.359 --> 0:20:33.879 and retail they're they're doing gangbusters there, you know, five percent, 0:20:34.040 --> 0:20:36.840 six percent, those are numbers that any other retailer would 0:20:36.920 --> 0:20:40.280 kill for right now in the midst of this retail apocalypse. Well, 0:20:40.280 --> 0:20:42.680 I'm just looking at a comparison to Amazon sales, where 0:20:42.680 --> 0:20:45.520 we're talking about about a hundred and fifty billion a 0:20:45.640 --> 0:20:48.040 year right now. The run rate for Costco is about 0:20:48.040 --> 0:20:50.480 a hundred and twenty three billion, So you know there's 0:20:50.520 --> 0:20:54.919 there's some comparable uh business execution. Yeah, they you know, 0:20:55.280 --> 0:20:57.120 they do need to do a little bit more online. 0:20:57.119 --> 0:20:59.080 I think they acknowledge this. I think we'll see more 0:20:59.160 --> 0:21:02.280 from Costco in months ahead online, but you know, culturally, 0:21:02.359 --> 0:21:04.919 it's just something that they're a bit resistant to. Shares 0:21:04.920 --> 0:21:10.080 a Costco excuse me, shares a Costco down stock is 0:21:10.160 --> 0:21:12.400 up three and a quarter percent so far this year. 0:21:12.720 --> 0:21:14.600 Thanks very much for being with us. Always a pleasure, 0:21:14.600 --> 0:21:28.640 Matt Boyle. I want to bring in Stephen Englander, head 0:21:28.640 --> 0:21:32.040 of research and strategy at Rafiki Capital Management. He was 0:21:32.080 --> 0:21:35.960 formerly uh the head of G ten f X strategy 0:21:35.960 --> 0:21:39.440 at City Group, and Stephen joins us now Stephen, what 0:21:39.520 --> 0:21:43.760 do you make of this ongoing trade, especially uh, the 0:21:43.840 --> 0:21:46.960 idea that a lot of hedge funds are doubling down, 0:21:47.240 --> 0:21:51.240 that the US dollar will continue to weaken. Good morning, 0:21:51.320 --> 0:21:55.320 Lisa and Tim. Um. Look, you know, I think that 0:21:55.359 --> 0:21:59.600 a lot of things are changing here. In particular, UM, 0:21:59.640 --> 0:22:04.960 what's different. Setting aside the the you know, Trump election victory, UM, 0:22:05.000 --> 0:22:07.399 which is mostly fated from the market, I think the 0:22:07.720 --> 0:22:11.720