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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller. Every business day, we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. Man Deep sings here.

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Speaker 1: He's a senior analyst covers all things technology for Bloomberg Intelligence.

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Speaker 1: And there's a lot to get to. Let's first go

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Speaker 1: to Intel. I'm looking at I NTC Equity Go and

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Speaker 1: then I hit the f A function for financial analysis.

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Speaker 1: I got revenue going from seventy five billion last year

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Speaker 1: to sixty five billion this year. I got free cash

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Speaker 1: along going from ten billion last year to negative three

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Speaker 1: point four billion this year. What's going on with Intel?

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Speaker 1: I thought this was the steady eddie of all technology stocks. No,

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Speaker 1: I mean, look at the management changes they've had over

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Speaker 1: the years. They brought back Pat gould Singer, and the

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Speaker 1: reason was Intel has been behind both in terms of

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Speaker 1: chip manufacturing as well as chip designed. Remember there were

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Speaker 1: the vertically integrated players. Moore's law was really all about law,

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Speaker 1: which is like every something every year gets I mean

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Speaker 1: basically the transit. You can pack more transistors in a

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Speaker 1: chip because of Moore's law, and that Moore's law paces declining.

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Speaker 1: But that should affect everyone. The problem with Intel is

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Speaker 1: it's really trailed on the process, not technology, the geometries

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Speaker 1: that enable more transistors to fit in that chip. And

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Speaker 1: that's where t SMC has really hive on semiconductors. So

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Speaker 1: Apple and Video, A, m D, all the fabless chip makers,

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Speaker 1: they give their designs to t SMC. T SMC makes

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Speaker 1: them and that is why they're doing so well in

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Speaker 1: terms of market share. Until on the other hand, is

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Speaker 1: losing its relevance in CPUs because of processed note as well.

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Speaker 1: As you know the nature of computing is changing now

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Speaker 1: we keep talking about more and more AI. AI is

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Speaker 1: done is done not just using CPUs but also GPUs

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Speaker 1: and other types of custom chips. So lots of job cuts.

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Speaker 1: Who cuts jobs in Silicon Valley? Well, it's inevitable here everybody, Yes, everybody.

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Speaker 1: I think you make a great point, Matt. You will

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Speaker 1: see that with big tech across the board, and Intel

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Speaker 1: more so, because clearly something is not working in terms

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Speaker 1: of you know, their designs as well as manufacturing. And

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Speaker 1: even though they bought a company Tower Semi, that was

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Speaker 1: a recent acquisition to you know, scale up on the

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Speaker 1: foundry side, I think they have a lot of inefficiencies

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Speaker 1: in just how the companies run. So I wouldn't be

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Speaker 1: surprised if you see ten to fifteen percent in fixed

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Speaker 1: cost custs and we estimate that to be you know,

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Speaker 1: around two to three billion just in cost. I think

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Speaker 1: one of the things that's hard for us man deep

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Speaker 1: wrap our heads around is over the last couple of years, um,

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Speaker 1: no one could sell enough products to match demand because

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Speaker 1: nobody had chips. And it didn't matter what segment you

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Speaker 1: were in. If you're talking about cars, mobile phones, refrigeration, eiders,

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Speaker 1: you didn't have enough chips, so you couldn't meet demand.

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Speaker 1: Demand was so high and your uh, your your production

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Speaker 1: was too low because you couldn't access these things. Now,

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Speaker 1: this year I look at the Socks Philadelphia Semiconductor Index.

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Speaker 1: These guys who were the most in demand product like

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Speaker 1: in the world for last two years, every single one

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Speaker 1: of them is down. There's not one of the thirty

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Speaker 1: semiconductor manufacturers on the Philadelphia Index that's had a game

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Speaker 1: for the year. Why, Well, because this is a cyclical sector.

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Speaker 1: You you go and you know this time is no different.

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Speaker 1: But it's like it turned on a dime. It was

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Speaker 1: boom and then bands and that's where I think you

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Speaker 1: have to go segment by segments. So Qualcom really is

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Speaker 1: big on the mobile chips side. Apple does their own chips,

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Speaker 1: but on the PC side it's Intel. On the AI

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Speaker 1: side it's in video, and then m D to an

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Speaker 1: extent as well. You know, they have diversified both on

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Speaker 1: the server side as well as the client PCs and gaming.

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Speaker 1: So clearly all of those names. Who I'm just saying,

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Speaker 1: who are the winner? Intels down year to date, and

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Speaker 1: videos down sixty one percent year to date, a m

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Speaker 1: D is down sixty year to date. Who one are

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Speaker 1: the winners here? Who's up? Well? Long term, you know

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Speaker 1: there will be more demand for AI and machine learning,

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Speaker 1: these kind of workloads, and that's why and videos still

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Speaker 1: trades at a premium to a m D and everyone

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Speaker 1: else in the group because they have the highest share

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Speaker 1: over there. So if you go by that token, the

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Speaker 1: market is already rewarding in video with a horror multiple.

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Speaker 1: But clearly expectations are coming down because we are in

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Speaker 1: that blood situation that I mentioned. Our former colleague on

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Speaker 1: Entrini Bouston, he taught me, like they won when I

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Speaker 1: was asking about Semis, this is a this is a

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Speaker 1: this is not a place for you know, the pain

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Speaker 1: of heart, because these things move big, and they move

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Speaker 1: in these big cycles, and you've got to be in

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Speaker 1: front of the cycle. You're gonna get crushed. Look at

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Speaker 1: memory yep, you know, down just because of the blood situation.

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Speaker 1: It's a commodity at the end of the day, all right,

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Speaker 1: So real quick on Intel, finish up Intel. It's a

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Speaker 1: big name, you know, a hundred billion dollar market cap.

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Speaker 1: It's got a five point eight percent dividende. I like that,

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Speaker 1: but that's is that at risk here when I look

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Speaker 1: at a company with negative free cash flow? Absolutely, and

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Speaker 1: I think the fact that they're talking about cutting costs,

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Speaker 1: I mean and and obviously they were a beneficiary of

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Speaker 1: the chip sacked. They are getting those government subsidies. If

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Speaker 1: they continue with the dividend, I think there will be

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Speaker 1: questions asked around why they are going out with such

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Speaker 1: a big you know, uh cost cuts. So clearly I

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Speaker 1: do expect, you know, given the negative free cash flow.

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Speaker 1: And it's not as if you know, when Sammy's come back,

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Speaker 1: which again, Sammy's a cyclical things will come back. But

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Speaker 1: then Intel's problems are more than you know, the cyclical

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Speaker 1: nature of this semi cycle that we are witnessing their position. Yes,

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Speaker 1: so the dividend is at risk. I mean that's the

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Speaker 1: scariest part. I mean, think about like original Silicon Valley companies.

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Speaker 1: You think into else Santa Clara, California, UM, some of

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Speaker 1: the you know in the garage kind of thing, but

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Speaker 1: you know, as Mandeep suggests, you know, in the very

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Speaker 1: beteen garage, a spotless garage with zero particles per million exactly.

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Speaker 1: Sing Senior Annals covering technology for Bloomberg Intelligence, joining us

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Speaker 1: Live and our Bloomberg Intelligence studio. He does not mail

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Speaker 1: it in, he comes in. We appreciate that. Well, we

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Speaker 1: got earnings kicking off in Earnest Friday when the banks

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Speaker 1: kick us off here, and we'll have it for the

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Speaker 1: next few weeks. But it really just feels like the

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Speaker 1: this market is really focused on one thing and one

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Speaker 1: thing only, and that is the photo reserve. How high

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Speaker 1: will the FED take rates and how quickly will they

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Speaker 1: do that. Let's have a little roundtable discussion on that.

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Speaker 1: We bring in Vince Signarolla, global macro strategist with Bloomberg

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Speaker 1: News and and along chief US economists with Bloomberg Economics,

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Speaker 1: and let's start with you. You had and your economics

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Speaker 1: team had a really bold call, I'm gonna say a

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Speaker 1: couple of months ago, and you said that you think

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Speaker 1: the Fed funds rate might go up to his high

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Speaker 1: is five when I think the consensus is probably somewhere

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Speaker 1: in a three three plus range. It kind of feels

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Speaker 1: like you're on the right side of that trade. Here.

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Speaker 1: What is your call about how high or how aggressive

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Speaker 1: this Federal reserve will be? Right? So, Um, the reason

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Speaker 1: why we thought the terminal rate would be five percent,

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Speaker 1: so the Fed will have to rate raise rates to

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Speaker 1: five percent around in late spring next year. The reason

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Speaker 1: is because we think that the Fed is very concerned

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Speaker 1: about a potential wage price spiral. Um. And in their

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Speaker 1: reaction function there they are basically assuming a natural rate

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Speaker 1: of unemployment or some people call it nehru uh to

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Speaker 1: to be four point four percent rather than the you know,

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Speaker 1: before the pandemic it's around four percent and and um,

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Speaker 1: so if you make that assumption, then five percent would

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Speaker 1: be the optimal monetary policy. So that's why we arrived

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Speaker 1: at that number. And I do see risk that they

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Speaker 1: could have they might have to go higher than that. Um,

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Speaker 1: if the neighbor really is more more around the ballpark

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Speaker 1: of five, as Larry Summers is suggesting. All right, Vince,

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Speaker 1: you've had access to Anna's research for months. Where did

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Speaker 1: you get it wrong? Where did I get it wrong?

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Speaker 1: I don't think I got it wrong. Didn't you think

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Speaker 1: the Fed was going to turn around and and start

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Speaker 1: to cut? I mean, shouldn't we be at a point

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Speaker 1: where they are done now? I think the Fed may

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Speaker 1: have one more in them, but I think that that's

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Speaker 1: about the last one they're going to have in them. Um,

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Speaker 1: we're closing in on a potential recession. The numbers don't

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Speaker 1: look good. Uh. Today's price PPI numbers were really mixed.

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Speaker 1: And the market right now is actually trading off the

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Speaker 1: yield of tenure guilts, not really trading off us inflation.

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Speaker 1: When UK ten you're guilts at a two thousand eight high. Uh,

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Speaker 1: this market tanks and I think people looked at that

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Speaker 1: and thought, oh, well, we're reacting to the PPI numbers.

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Speaker 1: That is not the case. Now we're see down in

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Speaker 1: the S and P and the green and that's because

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Speaker 1: UK ten, your guilts are off twelve basis points from

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Speaker 1: their eves. It's it's about financial conditions and the risk

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Speaker 1: that is what's wearing financial markets right now. And if

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Speaker 1: the Fed wood raised to five percent, I think they

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Speaker 1: would crush financial conditions and close an all out jailbreak

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Speaker 1: on risk. And I don't see how they could would

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Speaker 1: would be able to stay in higher rates in that scenario.

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Speaker 1: I mean this this started with Balley. Frankly, what I

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Speaker 1: would say were your responsible comments yesterday by basically saying

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Speaker 1: to pension funds, you've got three days before we close

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Speaker 1: the door on you. But they've known that for weeks. Yeah,

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Speaker 1: But I mean, you know, the hope in these financial

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Speaker 1: markets is that they will always give them more time

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Speaker 1: if the situation persists. But you've got to have some spine,

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Speaker 1: right as a central banker, You've got to have some backbone.

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Speaker 1: You can't let the markets wag you around all day long.

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Speaker 1: I mean, in the in the last fifteen years, when

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Speaker 1: have they had it? No. I think that's the precisely

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Speaker 1: what J Powell is trying to reinstate here. Um, they're

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Speaker 1: gonna raise rates until they break inflation and break the

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Speaker 1: idea that there's a FED put and if you're on

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Speaker 1: the wrong side of that trade, it's gonna hurt. I

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Speaker 1: think they're gonna break a lot of other things before

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Speaker 1: they break inflation, very likely coming from it seems like

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Speaker 1: they know that as well. That's that's part of the trade. Well,

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Speaker 1: I don't see how that's a FED mandate that they

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Speaker 1: need to break everything just to get inflation down where

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Speaker 1: it's most of the inflation is food and energy, and

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Speaker 1: it's out of their control. I don't see how razy

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Speaker 1: weights is going to lower the price of gasoline or

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Speaker 1: lower the price of groceries. I mean, what how you

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Speaker 1: know Volker did the same thing and he's he's hailed

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Speaker 1: as a hero these days. Completely completely. He broke a lot,

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Speaker 1: went over, you know, the country went crazy. People were

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Speaker 1: throwing bricks through the window the Federal Reserve. He still

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Speaker 1: did it, and he won. This is not the seventies,

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Speaker 1: trust me. Um. What led to the inflation of nineteen

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Speaker 1: seventies was part Mr Burns. Every time, every time a

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Speaker 1: component of the CPI would go up, he would remove

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Speaker 1: it from the CPI, so the CPI number would re

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Speaker 1: maintain it's I would argue that this is a difference

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Speaker 1: between PC and CPR, when when Greenspan removed food and

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Speaker 1: energy and by moving over the core PC instead of CPR,

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Speaker 1: he did exactly the same thing. He took out the

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Speaker 1: components that that are essentially what are driving inflation right now,

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Speaker 1: and may things look to him for a long time

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Speaker 1: today if they could so, Anna, Anna, do you share

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Speaker 1: the concern that this FED may go too far? Well,

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Speaker 1: you know, I'm actually on the side that I think

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Speaker 1: Powell and and his colleagues might lose their nerves and

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Speaker 1: could possibly decide to to cut late in three or

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Speaker 1: four if the recession is deep. Keep in mind that

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Speaker 1: during Bulker's era, Bulker did a change the monetary policy

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Speaker 1: operation to allow um you know, instead of discretionary um

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Speaker 1: UM FED funds right targeting, he moved to reserve targeting.

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Speaker 1: So actually he took that really uh that that that

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Speaker 1: that decision of raising rates to off his hand. It's

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Speaker 1: not his doing, he can claim to the politicians and

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Speaker 1: you know main stream back then, it's not not our

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Speaker 1: fault because we we didn't raise it to this automatic,

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Speaker 1: you know, algorithm working in the background, whereas today Powell

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Speaker 1: has to make the decision whether they have to keep raising.

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Speaker 1: And if you look at the dot plot in September,

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Speaker 1: you can see that in four there's actually a dispersion

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Speaker 1: of views among the f O m C members as

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Speaker 1: to how much to cut so and and in their

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Speaker 1: projections they only have unemployment rate at worse to you know,

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Speaker 1: four point four to four point six percent. So I

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Speaker 1: think that if unemployment rate turns out to rise to

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Speaker 1: like five or five point five, they might lose their nerve. Okay,

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Speaker 1: we'll have to see. It's a we'll see if they

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Speaker 1: can keep their nerve. There, great stuff, great round table

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Speaker 1: of Insignarella, global macro strategist with Bloomberg News and An Alan,

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Speaker 1: chief US Economists with Bloomberg Economics. Matt, we've got a

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Speaker 1: special guest in the student. Yes we saw, I saw

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Speaker 1: you run over there. Yeah, into the TV studio and

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Speaker 1: grab him and bring him in here for ray. Well,

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Speaker 1: this guy you heard Chief market Economists UM or chief

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Speaker 1: economists at banks. Gary Shilling was the first one. He

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Speaker 1: started that. If I'm not incorrect, UM after what after Stanford? No,

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Speaker 1: I I worked for Santral New Jersey first that was

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Speaker 1: now uh standard, and then went to Merrill Lynch. Okay, so,

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Speaker 1: but it was Merrill Lynch, Pierce Fenner and Smith. That's

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Speaker 1: he did it back before? Is that right? Okay? Carling's

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Speaker 1: first being and then Smith because wyn Smith was short

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Speaker 1: of the modern farmer of the firm. In any case, Um,

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Speaker 1: fast forward to the Great Financial Crisis, and you were

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Speaker 1: one of the big bears, one of the few people,

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Speaker 1: um warning as we were also sighted and buying five houses,

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Speaker 1: fully levered up and I thought the prices would never

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Speaker 1: go down. You were one of the few people warning

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Speaker 1: of that. What do you think now as we are

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Speaker 1: entering another crisis of sorts, right? I mean we had

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Speaker 1: the pandemic, which was something completely different. Um, then we

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Speaker 1: I guess spent printed and spent as much money as

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Speaker 1: we could. And now we're going to pay the price

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Speaker 1: for that. We're gonna get the hangover for that party

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Speaker 1: that we had. Right. Well, we we don't have anything

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Speaker 1: huge like the dot com uh nonsense of the late

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Speaker 1: of the late uh the unities early two thousand's, and

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Speaker 1: we're certainly in housing. You know, we've had a bubble

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Speaker 1: and housing you've had the flight from city apartments to

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Speaker 1: the suburbs, rural areas with a pandemic, and a big

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Speaker 1: run in single family housing. But it's it just doesn't

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Speaker 1: compare with the with the subprime mortgage nonsense that we

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Speaker 1: saw a decade ago. So but it's it's more a

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Speaker 1: little of this, a little of that. And again I

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Speaker 1: think that I think the overall arching theme is there's

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Speaker 1: just been too much money in the economy pumped out

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Speaker 1: by the UH Congress administration in response to the pandemic,

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Speaker 1: and then of course the FED just I mean, you know,

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Speaker 1: there are assets went from from four billion to nine

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Speaker 1: billion in a matter of five years, I mean traillion.

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Speaker 1: It's unbelievable. And of course what the problem now is

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Speaker 1: the FED is embarked on the on the mission to

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Speaker 1: get rid of that liquidity. Now, how much they're going

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Speaker 1: to get rid of Uh, they're taking Their target is

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Speaker 1: a month, but just add that up and see how

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Speaker 1: many years they were taking it to even go to

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Speaker 1: trillion back it's uh, it's what do you think? And

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Speaker 1: and it wasn't even five years by the way I'm

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Speaker 1: looking at If you type FED val so f E

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Speaker 1: D space B A l go on the Bloomberg terminal,

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Speaker 1: you can see the one I learned their balance sheet.

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Speaker 1: We went from UH in two years three point six trillion,

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Speaker 1: let's say two eight point five trillion, so in two years, um,

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Speaker 1: So what is the FED now? It seems that Powell

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Speaker 1: is intent and we were just talking about this within

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Speaker 1: Signarella and along, intent on raising rates until he breaks

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Speaker 1: inflation and doesn't care what else he breaks. Is that

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Speaker 1: the right interpretation. The one thing he doesn't want to

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Speaker 1: break has already bent is FED credibility. I think that's

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Speaker 1: the whole, the whole secret to the FED action. They

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Speaker 1: were behind the curve. They clearly did not recognize that

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Speaker 1: inflation was more than just supply chain disruptions reopening the

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Speaker 1: economy very ephemeral UH features and so they they really

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Speaker 1: are playing catch up. And and you know, Paul Is,

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Speaker 1: he's made it clear he's he's an effect said we're

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Speaker 1: going to do this recession or no recession. And of

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Speaker 1: course he's also fighting the string of puts, the Greens

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Speaker 1: fan put, the Bernankee put, the yelling put, and everybody

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Speaker 1: thought there was going to be a pole put, you know,

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Speaker 1: was the FED would bail out Wall Street and so

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Speaker 1: he has he was really behind the behind the a

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Speaker 1: brill there and and uh, I think it's as they say,

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Speaker 1: the FED normally, uh turns towards ease even before the

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Speaker 1: peak in business. They never know where the peak in

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Speaker 1: business is until National Bureau Economic Research says so, and

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Speaker 1: that a year later, and that's you know, and when

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Speaker 1: you find out it's about those hand as a pocket

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Speaker 1: in your underwear because it's three or four quarters later.

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Speaker 1: But their point is, Uh, the FED, when they see

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Speaker 1: that they've done the dirty deed and precipitated recession, they

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Speaker 1: ease off. This time. I think they're going to continue.

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Speaker 1: We and we probably are already in the recession, but

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Speaker 1: I think they're going to continue. And they really want

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Speaker 1: to see confirmation that inflation is down and that their

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Speaker 1: credibility is re established. And you know, I think there's

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Speaker 1: still a lot of of question is whether Fed and

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Speaker 1: the and the and whether Paul and the Fed half

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Speaker 1: teeth right. So I mean we're speaking with Gary Shilling,

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Speaker 1: President a Gary Shilling and Company. Gary, how about the consumer?

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Speaker 1: It seems like the consumers still hanging in there, buying stuff,

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Speaker 1: going on trips. You know, it doesn't feel like the

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Speaker 1: consumers really uh Bloomberg column a few weeks ago, pointing

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Speaker 1: out that it's the real economy declining. The nominal economy

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Speaker 1: isn't well when you get eight point three rear inflation,

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Speaker 1: you know, if if that that that's on top, that's

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Speaker 1: the that's the veil of inflation. And this is what

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Speaker 1: we had in the late sixties and nineteen seventies. Uh.

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Speaker 1: You know, I can remember back then, Uh the uh,

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Speaker 1: the gal Jones industrials were skirting back and forth around

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Speaker 1: a thousand for uh for ten years in real terms,

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Speaker 1: in real terms, it declined. It declined seventy percent. Yeah,

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Speaker 1: And it's the same thing here. And I think I

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Speaker 1: think the media is And that's why I wrote that

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Speaker 1: column when we're calum because I think the media is

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Speaker 1: very off base and not realizing that the real economy

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Speaker 1: is real. Real retail sales are down, real hourly wages

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Speaker 1: are down. Uh and and and you know the consumer

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Speaker 1: is is really retrenching and there and the consumer doesn't

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Speaker 1: have a lot of spending power a lot. I mean

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Speaker 1: maybe that's what is driving the Fed here. Got to

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Speaker 1: get that inflation down. Well oh yeah, oh yeah, oh yeah,

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Speaker 1: they've got the bit. They've gotten their bit and their teeth.

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Speaker 1: But you know, you look at the consumer and they

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Speaker 1: they've spent a lot of that of that, uh the

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Speaker 1: money they got from uh pandemic, uh stimulus and where

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Speaker 1: else where what else they got? Housing? House prices are declining,

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Speaker 1: stocks stocks are collapsing, So people really don't have the money,

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Speaker 1: you know. Obviously the guys on the top are okay,

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Speaker 1: but the rest are are are in trouble. And so

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Speaker 1: we're gonna we're gonna see further declines in real spending.

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Speaker 1: In all likelihood, no more money, But we got honey.

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Speaker 1: When's the next batch coming out? Garry is also the

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Speaker 1: probably the most famous apiarist on Wall Street, Is that right? Okay? Yeah?

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Speaker 1: You keep bees in I think two different places, right yeah. Well,

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Speaker 1: I've got some out on Fire Island, Beach House, most

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Speaker 1: of them in New Jersey, a couple of locations. But

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Speaker 1: I gotta tell you, this is the worst year for

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Speaker 1: honey I've ever had. We normally, we normally take off

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Speaker 1: three or four thousand of those one pound jars that

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Speaker 1: we hand around you guys, and this year we got

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Speaker 1: si wow, WHOA, Well, we'll have to I'm glad. I

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Speaker 1: don't try to make my living in agriculture. All right, Gary,

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Speaker 1: thank you so much for joining Gary Shilling. He's president

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Speaker 1: of a Gary Shilling and Company. Joining us live in

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Speaker 1: his Bloomberg Interactive Broker's studio because Matt Miller went and

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Speaker 1: grabbed him from the television studio. I'm going is that

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Speaker 1: I want to get right to our next guest, Matt Winkler.

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Speaker 1: He's the editor in chief emeritus founder of Bloomberg News.

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Speaker 1: He's usually in our Bloomberg and Actor Brooker studio, best

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Speaker 1: in our San Francisco Bureau, which is a phenomenal office

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Speaker 1: by the way, right on the wharf. They're overlooking the

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Speaker 1: Bay Bridge. Good stuff there. Who knows what kind of

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Speaker 1: trouble he's getting into, Matt. I hope he's going to

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Speaker 1: Humphrey Slocum, No Hill, No Humphrey Slocum. That's the ice

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Speaker 1: cream place that's near the office. And I'm gonna say,

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Speaker 1: if you get a chance, stop by there and order

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Speaker 1: a scoop of secret breakfast ice cream. Okay, so there's

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Speaker 1: actually he needs to go to Taddich Grill. That is

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Speaker 1: the oldest restaurant in San Francisco. It is awesome and

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Speaker 1: I think it's right up. Matt's Ali, Matt, You've got

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Speaker 1: a great column out today about Israel. Ignore Israel politics.

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Speaker 1: It's economy is thriving. When I think Israel economy, I

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Speaker 1: think technology. What's what's driving Israel these days? Well, you

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Speaker 1: just nailed it. It's great to be with you, and

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Speaker 1: it is technology. And and essentially what happened is during

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Speaker 1: the past decade, corporate Israel, if you like which is

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Speaker 1: you know more than six companies, was transformed to something

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Speaker 1: much more diverse. And the diversity is really what's driving

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Speaker 1: the economy. Where Israel ten years ago was mostly you know,

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Speaker 1: if you like pharmaceutical Tiva is obviously the name comes

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Speaker 1: to mind. And you know some industrial companies today you're

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Speaker 1: talking about UM. You know dozens of companies with more

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Speaker 1: than a billion dollars of capitalization market capitalization, and they're

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Speaker 1: in tech and it's food tech, and it's every other

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Speaker 1: kind of water tech, it's climate change, it's sustainability. UM.

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Speaker 1: Everywhere you look, there's innovation and that really has transformed

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Speaker 1: the economy. As you said, I think that you know,

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Speaker 1: to me, innovation is the key. I UM consistently see

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Speaker 1: companies that aren't afraid to take risk coming out of REEL. Lately,

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Speaker 1: there's been a spate of documentaries as well on cannabis

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Speaker 1: research and hallucinogenics, and it seems that they lead the

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Speaker 1: world and research. They're not just saying that because those

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Speaker 1: things sound fun, but because they don't have this kind

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Speaker 1: of puritanical UM sort of regulatory system that we have

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Speaker 1: in the West. What do you what do you think

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Speaker 1: allows them to get out there and do this kind

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Speaker 1: of innovation. I think there are two things. One is,

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Speaker 1: as you just said, it's there is a lack of

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Speaker 1: fear of failure. There just is no fear of failure

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Speaker 1: in Israel. People just do what they think UM has potential,

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Speaker 1: and they don't worry about whether it's going to fail

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Speaker 1: or not. The second thing is probably UM they're often creating,

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Speaker 1: if you like, solutions for problems that have yet to

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Speaker 1: be defined. If that sounds crazy, uh, that is very

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Speaker 1: much a characteristic And an example of that is if

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00:23:56,119 --> 00:24:01,840
Speaker 1: you go back to UM when Mobile I. UM really

427
00:24:01,880 --> 00:24:04,600
Speaker 1: came about UM and Mobile I today is you know,

428
00:24:06,760 --> 00:24:10,040
Speaker 1: of the auto market, cars everywhere around the world are

429
00:24:10,240 --> 00:24:16,080
Speaker 1: using the mobile I equipment for driver assistance and UM

430
00:24:16,119 --> 00:24:21,600
Speaker 1: you can't miss a mobile eye product really in any vehicle, um,

431
00:24:21,640 --> 00:24:27,959
Speaker 1: anywhere and so UM at the time that invention, if

432
00:24:28,040 --> 00:24:32,480
Speaker 1: you like, was dismissed. UM, and people were very skeptical.

433
00:24:32,520 --> 00:24:35,639
Speaker 1: And so it's a good example of you know, Israel

434
00:24:35,800 --> 00:24:39,359
Speaker 1: doing things really way ahead of where the world is

435
00:24:39,440 --> 00:24:42,200
Speaker 1: at the moment. And Matt, you've, as always you've got

436
00:24:42,240 --> 00:24:44,359
Speaker 1: some great charts and some great data in your columns.

437
00:24:44,359 --> 00:24:47,320
Speaker 1: I'm looking at one here, just amazing. I never even

438
00:24:47,440 --> 00:24:51,159
Speaker 1: thought about it, but among the thirty one currencies mobily

439
00:24:51,240 --> 00:24:54,840
Speaker 1: that trade against the dollar actively over the last ten years,

440
00:24:54,920 --> 00:24:59,560
Speaker 1: only one has outperformed the US dollar, and that's Israeli shuckle.

441
00:24:59,640 --> 00:25:02,000
Speaker 1: That tells you that the market really believes in this

442
00:25:02,160 --> 00:25:07,439
Speaker 1: Israel story. Yeah, that's really, if you like, the leading indicator,

443
00:25:07,560 --> 00:25:11,880
Speaker 1: and a very consistent one. Um. You know, if if

444
00:25:12,080 --> 00:25:14,360
Speaker 1: I told you ten years ago that the shekel would

445
00:25:14,400 --> 00:25:19,680
Speaker 1: be the top performing currency in the world, um all yeah,

446
00:25:19,720 --> 00:25:24,280
Speaker 1: when the dollar is as robust as it is, um,

447
00:25:24,280 --> 00:25:27,600
Speaker 1: you know that that just would have been dismissed out

448
00:25:27,600 --> 00:25:31,480
Speaker 1: of hand. And yet Um, as you say, it underlies

449
00:25:31,600 --> 00:25:34,840
Speaker 1: really what's going on in the economy. Um, and most

450
00:25:34,880 --> 00:25:37,760
Speaker 1: people are really not paying attention to it because we've

451
00:25:37,760 --> 00:25:42,280
Speaker 1: got these perennial headlines about you know, West Bank clashes,

452
00:25:42,720 --> 00:25:46,920
Speaker 1: missiles from Hamas and Gaza, and of course a nuclear

453
00:25:46,960 --> 00:25:51,520
Speaker 1: showdown with Iran, and you know there far too often,

454
00:25:51,640 --> 00:25:54,119
Speaker 1: you know, the stories that we read and listen and watch,

455
00:25:54,760 --> 00:25:58,840
Speaker 1: and yet um, the real story is the innovation and

456
00:25:58,880 --> 00:26:02,199
Speaker 1: the strength of the Israeli economy and how stable it is.

457
00:26:02,520 --> 00:26:07,240
Speaker 1: I'm curious also about the academic institutions there, because you know,

458
00:26:07,320 --> 00:26:12,119
Speaker 1: research is often rooted in universities. You touch on Hebrew University,

459
00:26:12,160 --> 00:26:15,800
Speaker 1: but I see uh, tons of researchers. It's almost like

460
00:26:15,800 --> 00:26:20,000
Speaker 1: they have a whole system of Stanfords there. Yeah, um,

461
00:26:20,040 --> 00:26:23,400
Speaker 1: you know, I didn't mention this, but um, it's well known.

462
00:26:24,560 --> 00:26:27,960
Speaker 1: You know, everyone in Israel who is um, you know

463
00:26:28,119 --> 00:26:33,760
Speaker 1: eighteen or so goes into the armed forces and it's

464
00:26:33,840 --> 00:26:39,120
Speaker 1: part of their requirement national service, and you know when

465
00:26:39,119 --> 00:26:41,639
Speaker 1: they come out, they then go into university. But there

466
00:26:41,680 --> 00:26:44,879
Speaker 1: already is a if you like a focus on a

467
00:26:44,920 --> 00:26:48,840
Speaker 1: maturity level, uh, that you find in Israeli universities, and

468
00:26:48,920 --> 00:26:51,520
Speaker 1: it's not you know, anyone in particular, it's all of them.

469
00:26:52,160 --> 00:26:54,679
Speaker 1: And out of that comes the innovation that we're talking

470
00:26:54,720 --> 00:26:59,080
Speaker 1: about Yeah, and Matt, I wonder you say something that

471
00:26:59,119 --> 00:27:03,800
Speaker 1: geolitical risk investing in Israel, but they seem to attract

472
00:27:03,800 --> 00:27:07,280
Speaker 1: the investment dollars despite those risks. Right, there isn't a

473
00:27:07,280 --> 00:27:11,280
Speaker 1: company that you know about that doesn't have R and

474
00:27:11,359 --> 00:27:15,480
Speaker 1: d uh in Israel. You know, whether it's Alphabet, whether

475
00:27:15,680 --> 00:27:20,320
Speaker 1: it's Apple, whether it's Microsoft, there's there isn't a company

476
00:27:20,359 --> 00:27:25,560
Speaker 1: that is in technology that doesn't have uh, something significant

477
00:27:25,680 --> 00:27:29,040
Speaker 1: as a presence in Israel. And that's because of the

478
00:27:29,080 --> 00:27:34,040
Speaker 1: engineering that's that's vested there, and uh, you know, that's

479
00:27:34,080 --> 00:27:38,439
Speaker 1: probably an asset that just continues to grow. Alright, good stuff.

480
00:27:38,480 --> 00:27:41,520
Speaker 1: As always appreciate getting a time from Matt Winkler, editor

481
00:27:41,520 --> 00:27:45,479
Speaker 1: in chief emeritus and founder of Bloomberg News, calling in

482
00:27:45,560 --> 00:27:49,120
Speaker 1: from our studios in San Francisco. I will I will

483
00:27:49,160 --> 00:27:53,640
Speaker 1: again say, definitely get some ice cream, Matt Humphrey Slocum.

484
00:27:53,720 --> 00:27:56,679
Speaker 1: It's right next to the office, and they have My

485
00:27:56,760 --> 00:28:00,640
Speaker 1: favorite flavor is called Secret Breakfast Delicious. I think cocktail

486
00:28:01,400 --> 00:28:03,800
Speaker 1: cocktails at Tatach Grill later in the day, Matt, thank

487
00:28:03,800 --> 00:28:08,360
Speaker 1: you so much. We appreciate it. I want to talk

488
00:28:08,359 --> 00:28:12,240
Speaker 1: about the airline business. Um. You know, people will definitely.

489
00:28:12,240 --> 00:28:15,600
Speaker 1: We're back on the flights on the planes this summer

490
00:28:15,640 --> 00:28:18,560
Speaker 1: in a big way. Every people traveling everywhere, taking advantage

491
00:28:18,560 --> 00:28:20,400
Speaker 1: of the strong dollar heading over to Europe and other

492
00:28:20,440 --> 00:28:23,600
Speaker 1: parts of the world. The question, though, is, you know,

493
00:28:24,000 --> 00:28:26,159
Speaker 1: how profitable are these airlines going to be in this

494
00:28:26,200 --> 00:28:30,320
Speaker 1: new world. George Ferguson covers Airlines Aerospace for Bloomberg Intelligence

495
00:28:30,880 --> 00:28:33,280
Speaker 1: and one of the airlines that I have not flown

496
00:28:33,359 --> 00:28:36,160
Speaker 1: because i'm you know, I'm in a new work person

497
00:28:36,200 --> 00:28:40,479
Speaker 1: in Neworks all about United Airlines is Frontier Airlines. George

498
00:28:40,920 --> 00:28:43,960
Speaker 1: talked to us about Frontier Airlines. What are your thoughts here?

499
00:28:45,280 --> 00:28:48,640
Speaker 1: So with the merger of Jet Blue and Spirit will

500
00:28:48,680 --> 00:28:51,920
Speaker 1: be the only ultra low cost carrier in the US

501
00:28:52,960 --> 00:28:56,400
Speaker 1: right now. I'm sure another one will rise, uh, you know,

502
00:28:56,480 --> 00:28:59,480
Speaker 1: to to compete with them. Um. They lease a lot

503
00:28:59,480 --> 00:29:03,960
Speaker 1: of their fleet, which means that it's great for growth, right.

504
00:29:03,960 --> 00:29:05,920
Speaker 1: There's no cash out when you take airplanes. You can

505
00:29:05,960 --> 00:29:09,440
Speaker 1: expand pretty quickly. The challenges in a downturn when you

506
00:29:09,440 --> 00:29:12,400
Speaker 1: want to lay off capacity, it's really hard because you've

507
00:29:12,400 --> 00:29:14,720
Speaker 1: gotta pay rental payments and everything you got out on

508
00:29:15,640 --> 00:29:18,000
Speaker 1: you know, on the tarmac. It's not like you have

509
00:29:18,040 --> 00:29:20,000
Speaker 1: airplanes your own out there that you can park and

510
00:29:20,040 --> 00:29:22,400
Speaker 1: not have the painting against it. So it gets hard

511
00:29:22,400 --> 00:29:26,320
Speaker 1: to knock down capacity, which means they're typically an adder

512
00:29:26,360 --> 00:29:31,000
Speaker 1: of capacity, you know, or or maintaining capacity again through

513
00:29:31,080 --> 00:29:34,680
Speaker 1: ups and downs, and that can be very dilutive unfares

514
00:29:35,600 --> 00:29:38,000
Speaker 1: in soft periods, and so that may be a challenge

515
00:29:38,000 --> 00:29:40,760
Speaker 1: for them as we as you're going to economic slowdown

516
00:29:41,400 --> 00:29:44,120
Speaker 1: as we get into the you know now through the

517
00:29:44,200 --> 00:29:47,280
Speaker 1: end of the year, begave in the year, but they,

518
00:29:47,440 --> 00:29:50,800
Speaker 1: um do they you know, the benefit of leasing, at

519
00:29:50,840 --> 00:29:53,320
Speaker 1: least I know from cars is that you always have

520
00:29:53,520 --> 00:29:57,840
Speaker 1: the newest and best and most fuel efficient thing. Is

521
00:29:57,880 --> 00:30:01,400
Speaker 1: that the case with their fleet as well? Yeah, a

522
00:30:01,440 --> 00:30:03,520
Speaker 1: lot of what they're leasing is the is the newest,

523
00:30:03,920 --> 00:30:08,360
Speaker 1: uh airplanes, which are most most fuel efficient for sure.

524
00:30:08,920 --> 00:30:12,000
Speaker 1: Uh yeah, So I mean it's absolutely advantage Again, it's

525
00:30:12,440 --> 00:30:14,440
Speaker 1: it's one of those things where you can expand faster

526
00:30:14,440 --> 00:30:17,280
Speaker 1: because there's no cash out. You definitely have most fuel

527
00:30:17,280 --> 00:30:20,800
Speaker 1: efficient equipment. But if you get to a downturn and

528
00:30:20,880 --> 00:30:24,080
Speaker 1: you've got to park airplanes, it gets very painful. Are

529
00:30:24,120 --> 00:30:26,640
Speaker 1: we coming to a downturn? I don't know, you tell

530
00:30:26,680 --> 00:30:29,920
Speaker 1: me it looks like the tenure Treasury is telling me that,

531
00:30:31,200 --> 00:30:33,120
Speaker 1: and and inflation tell me I said, was to keep

532
00:30:33,200 --> 00:30:35,920
Speaker 1: raising rates and that's got to slow things down. So

533
00:30:36,000 --> 00:30:40,200
Speaker 1: I think they're so stepping back, Georgia. On the airline business,

534
00:30:40,200 --> 00:30:43,920
Speaker 1: what are the companies telling you about kind of their demand? Again,

535
00:30:43,920 --> 00:30:47,240
Speaker 1: they had a presumably from a traffic perspective, of a

536
00:30:47,280 --> 00:30:50,000
Speaker 1: strong summer. What do they think about the next six

537
00:30:50,320 --> 00:30:52,360
Speaker 1: or three to six months? Maybe? Yeah, So, I mean,

538
00:30:52,520 --> 00:30:54,760
Speaker 1: you know, we're getting ready to go into earning season here,

539
00:30:54,880 --> 00:30:58,480
Speaker 1: we'll get Delta tomorrow. Um. But we had American sort

540
00:30:58,480 --> 00:31:01,040
Speaker 1: of pre announced most of their results earlier this week,

541
00:31:01,600 --> 00:31:03,520
Speaker 1: and what you know what I thought interesting? One, they're

542
00:31:03,720 --> 00:31:07,320
Speaker 1: they're all touting the fact that they're beating UM levels

543
00:31:07,360 --> 00:31:12,600
Speaker 1: of revenue. They are American beat. Two, the revenue was

544
00:31:12,720 --> 00:31:18,440
Speaker 1: up fourteen against that, but costs are up to and

545
00:31:18,480 --> 00:31:21,960
Speaker 1: so profitability still lacks twenty nine. So was it a

546
00:31:21,960 --> 00:31:27,000
Speaker 1: strong summer from the volume of you know flyers they carried? Absolutely,

547
00:31:27,120 --> 00:31:30,040
Speaker 1: that was good. Costs are costs are higher, right, and

548
00:31:30,120 --> 00:31:34,760
Speaker 1: that's why revenues are higher. Fuel right up sevent depends

549
00:31:34,760 --> 00:31:36,800
Speaker 1: at what point in the in the quarter you wanted

550
00:31:36,800 --> 00:31:39,280
Speaker 1: to measure it uh and labor. Right, there's a lot

551
00:31:39,320 --> 00:31:41,720
Speaker 1: of labor inflation out there. The airlines aren't. I the

552
00:31:41,760 --> 00:31:45,360
Speaker 1: into that we kind of dial in five to ten

553
00:31:45,440 --> 00:31:49,280
Speaker 1: percent kind of labor inflation, and that means that they're

554
00:31:49,280 --> 00:31:52,560
Speaker 1: against still lagging their twenty levels of profitability. I mean,

555
00:31:52,600 --> 00:31:55,160
Speaker 1: I think if they're carrying close to twenty nine levels

556
00:31:55,200 --> 00:31:57,280
Speaker 1: of passengers, they ought to be able to find a

557
00:31:57,320 --> 00:32:00,840
Speaker 1: way to get back to that profitable profitability level. They

558
00:32:00,880 --> 00:32:03,000
Speaker 1: haven't yet. They've got to drive more efficiency into their

559
00:32:03,000 --> 00:32:07,880
Speaker 1: businesses when you look at when you look across the sector, um,

560
00:32:08,040 --> 00:32:11,560
Speaker 1: who's got the biggest who's the best positioned in America?

561
00:32:11,920 --> 00:32:14,200
Speaker 1: You know? So I think that as we go into

562
00:32:14,200 --> 00:32:18,560
Speaker 1: the winter here and the business travel recovery continues, I

563
00:32:18,600 --> 00:32:22,400
Speaker 1: think the airlines focused on some of those more premium travelers,

564
00:32:22,400 --> 00:32:27,080
Speaker 1: business travelers, high end leisure. I think they're better situated, right,

565
00:32:27,120 --> 00:32:30,760
Speaker 1: and so American Delta United, Right, They're going to continue

566
00:32:30,800 --> 00:32:34,520
Speaker 1: to gain from more overseas travel, from more business travel.

567
00:32:35,040 --> 00:32:37,680
Speaker 1: And I think the more that you're catering to leisure,

568
00:32:38,360 --> 00:32:40,880
Speaker 1: especially low end leisure, which I think is getting pinched

569
00:32:41,360 --> 00:32:45,000
Speaker 1: the most by inflation, the more challenging challenging is going

570
00:32:45,040 --> 00:32:48,240
Speaker 1: to get and those airlines like Frontier and Spirit will

571
00:32:48,360 --> 00:32:51,120
Speaker 1: be putting all their capacity in the marketplace instead of

572
00:32:51,120 --> 00:32:53,200
Speaker 1: cutting some of it short. And that means it's going

573
00:32:53,240 --> 00:32:55,240
Speaker 1: to get very competitive at the bottom end of the market.

574
00:32:55,320 --> 00:32:57,680
Speaker 1: So where are we, George, in terms of capacity? And

575
00:32:58,080 --> 00:33:00,440
Speaker 1: you know, are are there enough planes? Are there pilots?

576
00:33:00,480 --> 00:33:03,040
Speaker 1: Are there enough baggage handlers? Where are we? Again is

577
00:33:03,080 --> 00:33:06,400
Speaker 1: an industry capacity versus pre pandemic, you know, so they

578
00:33:06,800 --> 00:33:08,840
Speaker 1: you know, the airline's kind of started the summer out

579
00:33:08,840 --> 00:33:12,160
Speaker 1: trying to fly about twenty levels of capacity, maybe a

580
00:33:12,200 --> 00:33:16,280
Speaker 1: couple of percents shure. Now we're ten to fifteen percent

581
00:33:16,800 --> 00:33:19,640
Speaker 1: below twenty nine levels for lots of the carriers, you know,

582
00:33:19,680 --> 00:33:22,960
Speaker 1: the ultra low cost are they're above, but they're they've

583
00:33:22,960 --> 00:33:26,760
Speaker 1: been growing throughout the pandemic um and so that that's

584
00:33:26,800 --> 00:33:30,440
Speaker 1: relaxed things a bit on the marketplace. I think there

585
00:33:30,480 --> 00:33:32,880
Speaker 1: are plenty of airplanes. I'm just looking at Boeing's report

586
00:33:33,280 --> 00:33:37,360
Speaker 1: for deliveries this month. They've delted fourteen airplays into in

587
00:33:37,400 --> 00:33:40,400
Speaker 1: the Southwest in the last month. Um, they've got more

588
00:33:40,440 --> 00:33:42,320
Speaker 1: parked than the tarmac out there. If you need some

589
00:33:42,400 --> 00:33:45,040
Speaker 1: so I don't think there's a sort of of airplanes.

590
00:33:45,120 --> 00:33:47,280
Speaker 1: Pilots are a bit of a challenge, but again I

591
00:33:47,280 --> 00:33:51,240
Speaker 1: think at these lower capacity levels they shouldn't be too bad.

592
00:33:51,280 --> 00:33:53,200
Speaker 1: But they're a bit of a challenge. And everybody's got

593
00:33:53,240 --> 00:33:55,800
Speaker 1: a problem with labor. But again I hear there's less

594
00:33:55,840 --> 00:33:58,880
Speaker 1: hiccups right now. So I think operations are stabilized a bit,

595
00:33:58,880 --> 00:34:01,760
Speaker 1: and some of that that stuff is when more stabilized,

596
00:34:01,960 --> 00:34:03,959
Speaker 1: maybe I'll go to pilot school, Matt, and you know,

597
00:34:04,120 --> 00:34:06,000
Speaker 1: get my pilots lace and I'm gonna fly some of

598
00:34:06,000 --> 00:34:10,200
Speaker 1: these big birds. I think it's it's difficult. I mean,

599
00:34:10,239 --> 00:34:12,640
Speaker 1: it's probably fun to get your pilots license, but then

600
00:34:12,680 --> 00:34:15,080
Speaker 1: to fly some of the big planes that might might

601
00:34:15,120 --> 00:34:18,439
Speaker 1: be past myspired day, those are the most fun. Those

602
00:34:18,440 --> 00:34:21,480
Speaker 1: are the most fun, exactly right. George Ferguson he covers

603
00:34:21,520 --> 00:34:25,400
Speaker 1: airlines aerospace for Bloomberg Intelligence. He's been doing it for decades.

604
00:34:25,480 --> 00:34:27,360
Speaker 1: Before he was a Wall Street guy, he was actually

605
00:34:27,360 --> 00:34:29,279
Speaker 1: in the United States Army, believe it or not, an

606
00:34:29,280 --> 00:34:33,720
Speaker 1: intelligence officer of all things, which go figure. George Ferguson,

607
00:34:33,880 --> 00:34:41,640
Speaker 1: UH aerospace analysts, Bloomberg Intelligence, PepsiCo. They reported some better

608
00:34:41,680 --> 00:34:45,520
Speaker 1: and expected numbers because people still despite inflation, despite a

609
00:34:45,560 --> 00:34:49,080
Speaker 1: blooming recession, or still drinking the pepsicola, still eating their fritos,

610
00:34:49,440 --> 00:34:51,680
Speaker 1: which are my favorite snack. By the way, for those

611
00:34:51,719 --> 00:34:54,200
Speaker 1: who care, Ken scha he does his stuff for a living.

612
00:34:54,200 --> 00:34:56,520
Speaker 1: He's a senior equity analyst for Bloomberg Intelligence. He's been

613
00:34:56,520 --> 00:35:01,840
Speaker 1: covering knees, you know, beverage, tobacco, cannab stocks for decades.

614
00:35:01,920 --> 00:35:05,960
Speaker 1: Tons of experience. So I can should I be surprised

615
00:35:06,200 --> 00:35:09,160
Speaker 1: with PepsiCo? They just reported some better and expected numbers.

616
00:35:09,760 --> 00:35:12,360
Speaker 1: Business seems to be okay? Should I be surprised? Or

617
00:35:12,400 --> 00:35:14,799
Speaker 1: is this what these companies do kind of in and

618
00:35:14,840 --> 00:35:17,360
Speaker 1: out of different cycles. Yeah, hi, Paul, gait to be

619
00:35:17,400 --> 00:35:20,279
Speaker 1: with you today. Um, no, you shouldn't be surprised. You know,

620
00:35:20,320 --> 00:35:24,240
Speaker 1: I you ran the numbers and today represented PepsiCo's twenty

621
00:35:24,480 --> 00:35:28,879
Speaker 1: straight EPs beat. So this is a company that has

622
00:35:28,960 --> 00:35:33,360
Speaker 1: really leveraged it's uh diversity by product line, geographic reach,

623
00:35:33,440 --> 00:35:36,520
Speaker 1: by channel. We did they beat your estimates as well?

624
00:35:37,080 --> 00:35:41,440
Speaker 1: They did, And you know, next time you estimate Pepsi earnings,

625
00:35:41,440 --> 00:35:44,960
Speaker 1: why don't you just add if they beat everybody twenty

626
00:35:44,960 --> 00:35:47,719
Speaker 1: times in a row, then there's a problem. You know,

627
00:35:47,800 --> 00:35:50,279
Speaker 1: you've got a point there, um, but you know it

628
00:35:50,320 --> 00:35:52,319
Speaker 1: speaks to the strength of its brands. And these are

629
00:35:52,440 --> 00:35:55,719
Speaker 1: iconic brands, as you mentioned Paul Prito Lay, Cheetahs, you know,

630
00:35:55,800 --> 00:35:59,080
Speaker 1: Lady Chips, Quicker Roads. And what we learned is, even

631
00:35:59,080 --> 00:36:03,480
Speaker 1: though they're effective, net pricing was up a real eye

632
00:36:03,480 --> 00:36:07,520
Speaker 1: popping number of volumes are only down one. So consumers,

633
00:36:07,640 --> 00:36:10,399
Speaker 1: you know, they accepted the price increases. They treat these

634
00:36:10,440 --> 00:36:14,960
Speaker 1: brands as necessities and uh, it's it's no it's no

635
00:36:15,080 --> 00:36:19,040
Speaker 1: surprise that the shares are up and other consumer staple

636
00:36:19,120 --> 00:36:25,719
Speaker 1: stocks are benefiting today from you know this good news. So, um,

637
00:36:25,760 --> 00:36:30,560
Speaker 1: what kind of innovation or or or you know, other

638
00:36:30,640 --> 00:36:34,480
Speaker 1: products as pepsi out with them. Obviously we're addicted to cola,

639
00:36:34,719 --> 00:36:39,600
Speaker 1: soda and salty snacks. What else are they doing? Well,

640
00:36:39,640 --> 00:36:42,799
Speaker 1: they have something called nitro soda. If you but if

641
00:36:42,800 --> 00:36:45,080
Speaker 1: you pour, it comes out and you'll follow me. It

642
00:36:45,160 --> 00:36:46,879
Speaker 1: doesn't like it doesn't it sound like a big deal.

643
00:36:47,040 --> 00:36:51,840
Speaker 1: But for you know, loyal consumers of these products, you know,

644
00:36:51,920 --> 00:36:54,120
Speaker 1: little things like that do make a difference. Gives them

645
00:36:54,160 --> 00:36:57,640
Speaker 1: another reason to go down the soda io and try

646
00:36:57,680 --> 00:37:02,520
Speaker 1: it out. Um, and you know the company's innovation, particularly

647
00:37:02,840 --> 00:37:05,960
Speaker 1: lays chips, you know they had the campaigns are going

648
00:37:05,960 --> 00:37:08,320
Speaker 1: down for a while now about you know, asking consumers

649
00:37:08,360 --> 00:37:13,040
Speaker 1: what your favorite flavor is, and you know they respond is, Uh,

650
00:37:13,200 --> 00:37:15,920
Speaker 1: that's where the company's strength is. It's it's willingness to

651
00:37:16,560 --> 00:37:19,520
Speaker 1: stick its neck out and take some chances with different flavors,

652
00:37:19,800 --> 00:37:22,680
Speaker 1: you know, different formats and things like that, and consumers

653
00:37:22,680 --> 00:37:25,560
Speaker 1: love that. You know, these are fun, these are fun products.

654
00:37:25,640 --> 00:37:28,160
Speaker 1: These are not you know and assesses like you know,

655
00:37:28,239 --> 00:37:30,920
Speaker 1: motor oil. These are uh, you know, fund So I

656
00:37:31,000 --> 00:37:34,759
Speaker 1: have to be entertaining as well as you know, pursuable.

657
00:37:35,400 --> 00:37:39,359
Speaker 1: So all right, let's switch over to another beverage company here.

658
00:37:39,360 --> 00:37:41,640
Speaker 1: All right, So when we talk about like these energy

659
00:37:41,719 --> 00:37:45,600
Speaker 1: drinks like Red Bull and Monster, I never got into that.

660
00:37:45,680 --> 00:37:47,800
Speaker 1: I don't think I'm the demo. I think it's some

661
00:37:47,920 --> 00:37:49,920
Speaker 1: more of the younger folks. But I look at Monster

662
00:37:50,000 --> 00:37:53,440
Speaker 1: Beverage Corps. It's a publicly traded company. M and st

663
00:37:53,880 --> 00:37:56,160
Speaker 1: is this taking to put into your Bloomberg terminal. This

664
00:37:56,239 --> 00:37:59,319
Speaker 1: thing's got a forty seven billion dollar market cap. It's

665
00:37:59,360 --> 00:38:01,239
Speaker 1: outperforming the market this year. Like a lot of the

666
00:38:01,280 --> 00:38:04,800
Speaker 1: consumer staples down only about six talk to us about

667
00:38:04,840 --> 00:38:08,760
Speaker 1: that that segment, Kennedy. It's it's a really big segment

668
00:38:08,760 --> 00:38:12,360
Speaker 1: of the beverage market. It really is. UM energy is

669
00:38:12,480 --> 00:38:17,080
Speaker 1: a fifteen sixteen billion dollar category or so Monsters had

670
00:38:17,120 --> 00:38:20,440
Speaker 1: the biggest share for a long long time. Very quietly.

671
00:38:20,480 --> 00:38:25,479
Speaker 1: You know, energy has been uh the strongest segment within

672
00:38:25,560 --> 00:38:28,640
Speaker 1: the beverage category for a quite a number of years now,

673
00:38:28,680 --> 00:38:31,680
Speaker 1: and that's why you're seeing companies like Coca Cola, which

674
00:38:31,719 --> 00:38:36,400
Speaker 1: owns about Monster by the way, but particularly UM PepsiCo

675
00:38:36,600 --> 00:38:38,719
Speaker 1: you know, just bought you know, Red Bull last year.

676
00:38:38,719 --> 00:38:42,400
Speaker 1: It's got a new PepsiCo Red Bull, you know, the

677
00:38:42,840 --> 00:38:48,480
Speaker 1: PepsiCo bought um Rock Star Star Uh and they have

678
00:38:48,520 --> 00:38:51,239
Speaker 1: a deal with Celsius Holdings, which is an up and

679
00:38:51,280 --> 00:38:55,560
Speaker 1: coming energy drink taking the healthy energy angle. But they've

680
00:38:55,560 --> 00:38:57,879
Speaker 1: been more aggressive in the energy space because it's done

681
00:38:57,920 --> 00:39:02,279
Speaker 1: so well and so Monster though, bat your question is

682
00:39:02,320 --> 00:39:05,040
Speaker 1: that they remain the leader. They have a very asset

683
00:39:05,120 --> 00:39:08,440
Speaker 1: light model, so they really leverage just that category and

684
00:39:08,520 --> 00:39:11,120
Speaker 1: kind of outsourced you know, distribution of Coca Cola. They

685
00:39:11,160 --> 00:39:15,160
Speaker 1: even distribution, UH outsource a lot of their co packing

686
00:39:15,840 --> 00:39:18,239
Speaker 1: and so UM it's really been a pure play on

687
00:39:18,400 --> 00:39:22,320
Speaker 1: energy and it's worked out really well for shareholders. Um. Alright,

688
00:39:22,360 --> 00:39:25,120
Speaker 1: so Paul and I, neither one of us really needs

689
00:39:25,320 --> 00:39:28,440
Speaker 1: any of that energy stuff. I don't need drink coffee.

690
00:39:28,440 --> 00:39:30,719
Speaker 1: You're in coffee, but I haven't express everyone. I mean

691
00:39:30,760 --> 00:39:35,239
Speaker 1: coffees for closers anyway. UM, I prefer to mellow out

692
00:39:35,280 --> 00:39:37,520
Speaker 1: a little bit. When are these companies going to come

693
00:39:37,560 --> 00:39:43,160
Speaker 1: out with some THHC infused beverages? Well, um, when the

694
00:39:43,200 --> 00:39:46,440
Speaker 1: FDA provides better clarity on what they can do with it.

695
00:39:47,120 --> 00:39:49,399
Speaker 1: You have us DA came out a while ago and said, yeah,

696
00:39:49,440 --> 00:39:52,600
Speaker 1: you know, you can grow hemp by CBD products and

697
00:39:52,600 --> 00:39:55,520
Speaker 1: so on. But the FDA quickly stepped in as a

698
00:39:55,520 --> 00:39:57,640
Speaker 1: few years ago and said, you know what, that's great,

699
00:39:57,800 --> 00:39:59,840
Speaker 1: but when it comes to a package product and in

700
00:40:00,000 --> 00:40:04,399
Speaker 1: testing these products, we need to have more testing. So

701
00:40:04,520 --> 00:40:06,600
Speaker 1: you know, it's one of those gray areas, like many

702
00:40:06,640 --> 00:40:10,400
Speaker 1: things in cannabis where some states where it's state legal. Um,

703
00:40:10,600 --> 00:40:18,920
Speaker 1: you have generally small beverage companies selling CBD infused beverages. Uh.

704
00:40:19,040 --> 00:40:21,120
Speaker 1: In Canada you have quite a bit of th HC

705
00:40:21,239 --> 00:40:24,120
Speaker 1: AND's beverages. They're not legal in the US. Haven't seen

706
00:40:24,160 --> 00:40:27,879
Speaker 1: any th HC beverages here yet? Um, which th HC

707
00:40:28,200 --> 00:40:31,960
Speaker 1: that's the th HC is the one that makes you high.

708
00:40:32,360 --> 00:40:34,440
Speaker 1: And C b D is the one that I guess

709
00:40:34,480 --> 00:40:37,319
Speaker 1: like there are some THHC beverages in it, but again

710
00:40:37,360 --> 00:40:40,120
Speaker 1: it's it's state by state. These are small producers. You

711
00:40:40,160 --> 00:40:42,600
Speaker 1: don't know the big guys in there yet. I guess

712
00:40:42,600 --> 00:40:44,839
Speaker 1: The bottom line, ken is are we going to get

713
00:40:44,880 --> 00:40:48,759
Speaker 1: the Safe Banking Act past? This is what everybody's waiting for,

714
00:40:48,840 --> 00:40:52,719
Speaker 1: some real federal regulations so that these companies which have

715
00:40:53,520 --> 00:40:59,320
Speaker 1: you know, tremendous growth and revenue streams can bank. Well,

716
00:40:59,360 --> 00:41:02,160
Speaker 1: you know it, it's hard to predict, you know, Um,

717
00:41:02,200 --> 00:41:06,560
Speaker 1: you know, our track record predicting the safe banking hasn't

718
00:41:06,600 --> 00:41:08,759
Speaker 1: been you know, spot on like everybody else's, you know,

719
00:41:09,280 --> 00:41:12,040
Speaker 1: like like many things are cannabis, it's been much delayed.

720
00:41:12,640 --> 00:41:16,200
Speaker 1: And I think hope is the key word with cannabis.

721
00:41:16,200 --> 00:41:18,319
Speaker 1: We know that people like to consume these products. We

722
00:41:18,360 --> 00:41:21,520
Speaker 1: know it's legal in many states. But until we get

723
00:41:21,520 --> 00:41:24,720
Speaker 1: that federal legalization or at least a loosening of laws

724
00:41:25,440 --> 00:41:29,680
Speaker 1: in a more minor way like safe banking or whatever, um,

725
00:41:29,800 --> 00:41:31,600
Speaker 1: you're going to get a lot of skepticism out there.

726
00:41:31,600 --> 00:41:34,840
Speaker 1: These companies have a tough time growing when they're fighting

727
00:41:34,840 --> 00:41:37,720
Speaker 1: things like I R s to a D, which prevents

728
00:41:37,800 --> 00:41:40,799
Speaker 1: them from taking normal business business expenses. They have a

729
00:41:40,800 --> 00:41:45,360
Speaker 1: tiny valuation, like it's I haven't seen anything else like it.

730
00:41:45,360 --> 00:41:48,719
Speaker 1: They're trading for two time sales. Yeah, well, you know,

731
00:41:48,840 --> 00:41:52,400
Speaker 1: because they're buying large unprofitable. They're profitable on the E

732
00:41:52,480 --> 00:41:54,680
Speaker 1: but online, they would point out. But because of two

733
00:41:54,719 --> 00:41:58,480
Speaker 1: A D and their inability to shield themselves from from

734
00:41:58,600 --> 00:42:02,719
Speaker 1: federal taxes, um, a lot of them are unprofitable. And there's,

735
00:42:02,920 --> 00:42:04,719
Speaker 1: like I said, there's limited growth, and there's a lot

736
00:42:04,760 --> 00:42:07,200
Speaker 1: of limitations of what they can do. They can't, you know,

737
00:42:07,920 --> 00:42:12,280
Speaker 1: take products across state bounds, which means they state boarders,

738
00:42:12,320 --> 00:42:14,360
Speaker 1: which means you can't have the economies of scale that

739
00:42:14,400 --> 00:42:17,799
Speaker 1: are typical you know, consumer product goods company can have.

740
00:42:18,320 --> 00:42:19,759
Speaker 1: All right, so we can I guess, you know, I

741
00:42:19,800 --> 00:42:21,239
Speaker 1: guess the point now it's just kind of you know,

742
00:42:21,400 --> 00:42:24,240
Speaker 1: for this is just continue to wait for federal legislation.

743
00:42:24,280 --> 00:42:27,319
Speaker 1: Ken Sa, senior equity analysts for Bloomberg Intelligence, walking us

744
00:42:27,320 --> 00:42:34,200
Speaker 1: through all things consumer products, including the cannabis business. Thanks

745
00:42:34,239 --> 00:42:37,680
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe

746
00:42:37,719 --> 00:42:41,400
Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast

747
00:42:41,480 --> 00:42:45,040
Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at

748
00:42:45,080 --> 00:42:48,680
Speaker 1: Matt Miller three. Pet On Ball Sweeney I'm on Twitter

749
00:42:48,760 --> 00:42:51,600
Speaker 1: at pt Sweeney. Before the podcast, you can always catch

750
00:42:51,640 --> 00:42:53,200
Speaker 1: us worldwide at Bloomberg Radio