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Speaker 2: Let's go right to the man himself, Michael Halen. He's
Speaker 2: a senior restaurant analyst for Bloomberg Intelligence. He's been all
Speaker 2: over busy, busy day today with the McDonald's news, with
Speaker 2: the Starbucks earnings. Hey, Mike, let's start with McDonald's here. Boy,
Speaker 2: if I were a long term shareholder of McDonald's I
Speaker 2: think I'd be buying stock here today because nothing's fundamentally
Speaker 2: changed other than this short term, really unfortunate incident out
Speaker 2: in the West.
Speaker 3: Yeah.
Speaker 4: I guess the question is going to be how short
Speaker 4: term is it?
Speaker 3: Right?
Speaker 5: Obviously it was a tragedy. Somebody's passed away. You have
Speaker 5: ten people in the hospital. That number could expand in
Speaker 5: the coming weeks. So yeah, I guess it's going to
Speaker 5: depend on when customers are going to feel comfortable going.
Speaker 4: Back to McDonald's.
Speaker 5: You know, we think, you know, we think that some
Speaker 5: negative sentiment could linger. Obviously, this company has gotten ahead
Speaker 5: of itself in terms of pricing, and customers, especially low
Speaker 5: income consumers have pushed back by visiting less this year,
Speaker 5: and so, you know, I think the timing of it
Speaker 5: was kind of bad in terms of where the stock's at.
Speaker 4: I mean, the stock's been ripping higher over the last
Speaker 4: couple of months.
Speaker 5: It makes us think that they finally kind of hit
Speaker 5: on value and we're able to track people back with
Speaker 5: this five dollars meal in the last quarter, right, but
Speaker 5: with the stock near all time highs man, that's that's
Speaker 5: you know, I guess that's a decision consumers investors are
Speaker 5: going to have to make today.
Speaker 6: So for the next earnings report out of McDonald's, do
Speaker 6: you expect any type of hit either to the sales
Speaker 6: or any earnings metrics that has to do with this
Speaker 6: equal y outbreak news?
Speaker 5: So this is gonna be, uh, this is gonna impact
Speaker 5: a fourth quarter. So we think this is gonna have
Speaker 5: a meaningful impact on the fourth quarter and it'll probably
Speaker 5: bleed into early twenty twenty five as well. We think
Speaker 5: traffic and Samsar sales are going to get it a
Speaker 5: hit because you know, I've been on TV four times
Speaker 5: already today. I'm sure all the major outlets are covering
Speaker 5: this story. And so it's gonna turn a lot of
Speaker 5: people off from McDonald's. And I think there's gonna be
Speaker 5: a lot of people out there that just may not
Speaker 5: feel safe eating in their local McDonalds. So I think
Speaker 5: it's gonna it's gonna impact sales and traffic and earnings
Speaker 5: for at least a few quarters.
Speaker 2: And Mike, aren't most I mean, like the vast majority
Speaker 2: of McDonald's. Aren't they franchised versus company owned?
Speaker 5: Yes, yeah, they're They're ninety six percent franchised. So yeah,
Speaker 5: the largest impact is gonna be to the franchisees. That's
Speaker 5: a great point, Paul. Franchisees are gonna suffer the most,
Speaker 5: you know, because McDonald's is so heavily franchised. You know
Speaker 5: that they'll take a top line impact, but there's less
Speaker 5: operating leverage in that model, right, and so because of that,
Speaker 5: their earnings aren't going to get hurt.
Speaker 3: You know.
Speaker 4: The last big example of.
Speaker 2: This was Chapotle.
Speaker 4: Chapotle owned all their stores.
Speaker 5: So when their same star sales drop twenty percent twenty seventeen,
Speaker 5: their margins got decimated, right, because there's just a lot
Speaker 5: more operating leverage in the model. So you know, for
Speaker 5: that reason, there's a lot less risk to the McDonald's
Speaker 5: story in this case versus what we saw the Chipotle
Speaker 5: back then.
Speaker 6: So Michael Paul said that he's been ordering the same
Speaker 6: thing from McDonald since high school. I imagine that when
Speaker 6: he first lets going back ordered it, maybe the burger
Speaker 6: was two dollars fifty cent. I want to talk about
Speaker 6: pricing though, How is McDonald's doing right now with being
Speaker 6: able to raise prices with a consumer that is kind
Speaker 6: of constrained by higher interest rates and inflation right now?
Speaker 5: Yeah, it's not just them, it's it's it's all of
Speaker 5: the restaurant, but especially quick service. Thirty percent of their
Speaker 5: transactions are made by low income consumers. And there's this
Speaker 5: ke shaped economy right where if you own assets, right,
Speaker 5: if you have a lot of money in your four
Speaker 5: oh one k and you own a house, and you
Speaker 5: know you're doing pretty good, right, But inflation has squeezed
Speaker 5: the hell out of low income consumers now for four years,
Speaker 5: and they're they're just shopping at the grocery store more often.
Speaker 4: They're cutting back on their visits.
Speaker 5: You know, they're they're cutting back on their checks when
Speaker 5: they do go to the restaurants, right, and so McDonald's
Speaker 5: franchise ease because they're the ones that set the pricing,
Speaker 5: you know, and everyone else in the restaurant industry is
Speaker 5: struggling mightily to raise prices on their consumers this year.
Speaker 5: And you know, and the rising you know, the seven
Speaker 5: since of fifty basis points cut commodity prices have just
Speaker 5: gone up since since September when we started pricing that in, right,
Speaker 5: and so that's a big concern for restaurant tours.
Speaker 4: I think in twenty twenty five.
Speaker 2: All right, Mike, let's switch gears. Look at Starbucks. Sbux
Speaker 2: is the ticker to put into your Bloomberg terminal stocks
Speaker 2: off about a half of one percent today. It's pretty
Speaker 2: much unchanged on the year, so badly, badly trailing the
Speaker 2: S and P five hundred, which is up about twenty
Speaker 2: two percent.
Speaker 4: Here.
Speaker 2: What's going on at Starbucks here, Michael?
Speaker 5: Yeah, they they played catch up a bit once the
Speaker 5: appointment of Brian Nickel was the hiring of Brian Nichol
Speaker 5: was announced. You know, Brian Nickel started last month, and
Speaker 5: you know, he's moving quickly.
Speaker 3: Man.
Speaker 5: He's making a lot of management changes, and he's aggressively
Speaker 5: making moves to simplify operations. You know, they're going to rationalize,
Speaker 5: rationalized menu items, make it easier to execute, and try
Speaker 5: to bring.
Speaker 4: Hospitality back to the coffee shops.
Speaker 7: Right.
Speaker 5: They want to free up their employees, their partners as
Speaker 5: they like to call them, to get back to knowing
Speaker 5: the names of their customers, right and being able to
Speaker 5: greet them with a smile and friendly service.
Speaker 3: Right.
Speaker 5: And so that's that's going to be job one, and
Speaker 5: then from there they're gonna expand on the marketing side.
Speaker 5: You know, Starbucks has historically only marketed to its rewards members, right,
Speaker 5: and Brian Nicol wants to expand that to everyone, right.
Speaker 5: And we think that's a smart plan. We think they've
Speaker 5: been under investing in marketing for a long time, and
Speaker 5: we expected to pay dividends as early as fiscal twenty
Speaker 5: twenty five.
Speaker 6: What is the company said to explain the seven percent
Speaker 6: decline in same store sales? Because before you came on,
Speaker 6: we were talking about how you have to wait in
Speaker 6: a really long line to get your Starbucks. There's less drive, right,
Speaker 6: if you're doing it. There's I guess, well maybe some
Speaker 6: teams in the store, but there's less people in the store.
Speaker 6: What have they said about really what's driving that decline?
Speaker 2: You know, part of what.
Speaker 5: New CEO Brian Nichol has said this is like it's
Speaker 5: largely about the experience. You know, it's become largely transactional. Right,
Speaker 5: They've lost that customer service feel. They've had the trouble
Speaker 5: executing the orders. You know, a big part of it is,
Speaker 5: you know, and then he also mentioned that, you know,
Speaker 5: all of these new menu items that they added to
Speaker 5: try to bring people in didn't work right. And then
Speaker 5: you know, to your point, pricing has gotten ahead of
Speaker 5: itself at Starbucks as well, and then China China, there's
Speaker 5: a huge price gap between the prices that they're charging.
Speaker 5: Sometimes they're charging three times as much as as some
Speaker 5: of their smaller competitors like Luck and Coffee and k Coffee. So,
Speaker 5: you know, prices has also been a big part of
Speaker 5: their issue, and it's something that they're they're going to
Speaker 5: address right away.
Speaker 2: You know, I've seen some crazy graphics in various articles
Speaker 2: showing the permutations of the different orders that one could have,
Speaker 2: and if you're bar barbista. There's it's virtually impossible to
Speaker 2: learn all these Is there a sense that they kind
Speaker 2: of simplified just the menu a little bit?
Speaker 5: Yeah, that was They issued a video yesterday after the close,
Speaker 5: and that was a big point of emphasis. It was
Speaker 5: like making the jobs of their barista is a lot
Speaker 5: easier and their employees a lot easier, right, And so
Speaker 5: you know when an.
Speaker 4: Employee stressed, it's very hard for.
Speaker 5: Them to provide the customer with a good experience, right.
Speaker 5: So this all flows downhill.
Speaker 4: So making the barista's jobs easier.
Speaker 5: Making it more and more enjoyable environment for them is
Speaker 5: going to flow down to the consumer, and then it's
Speaker 5: going to result in better traffic and same source sales.
Speaker 6: We don't have a ton a ton of time left,
Speaker 6: but I was curious to get your thoughts, you know,
Speaker 6: Brian Nichols said. The company said that they're pulling back
Speaker 6: this guidance because the CEO needs more time to kind
Speaker 6: of think through all this. How unprecedented is that just
Speaker 6: thirty seconds?
Speaker 3: Uh?
Speaker 4: No, it would be This is very common.
Speaker 5: Any any good CEO, we're worth his soul is gonna
Speaker 5: is going to suspend guidance. So they have more time
Speaker 5: to get their initiatives in place. This is a huge company.
Speaker 5: It's going to take a long time for momentum to
Speaker 5: start building in the right direction.
Speaker 4: And this is a wise move, all right.
Speaker 2: Michael Halen busy busy analysts today here with Starbucks McDonald's
Speaker 2: in the news. Michael Halen, senior restaurant and food service
Speaker 2: analysts for Bloomberg Intelligence, joining us from the BI office
Speaker 2: in Princeton, New Jersey.
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Speaker 2: Family Graffeo sitting in for Alex steel On Paul Swinging.
Speaker 2: Were live here in our Boomberg Arrective Brokers studio and
Speaker 2: we're streaming live on YouTube as well. Bowing back in
Speaker 2: the news again today with some earnings not a good
Speaker 2: cash flow story, stocks down three and a quarter percent.
Speaker 2: Boeing CEO Kelly Ortberg provided an unvarnished view of his
Speaker 2: company at a crossolads absorbed by challenges ranging from huge
Speaker 2: debt to serious performance lapses that it needs to address
Speaker 2: before it can consider developing a new aircraft. Take it
Speaker 2: Down Force. George Ferguson joins US Senior Aerospace, Airlines and
Speaker 2: Defense anels for Bloomberg Intelligence. So what did you see
Speaker 2: in this earnings release, George? What did you hear from
Speaker 2: new CEO Kelly Ortberg as you think about this Boeing
Speaker 2: story right now?
Speaker 3: Yeah?
Speaker 8: So I think you touched on the most important thing
Speaker 8: we heard on the call. I don't think it was
Speaker 8: that cash burn continues into twenty twenty five, you know,
Speaker 8: that worse than the front half of the year.
Speaker 4: It's not like in the back half of the year cash.
Speaker 8: There could be some generation, but it'll finish the year negative,
Speaker 8: which really leads to me to believe, right, they just
Speaker 8: got to raise They got to raise cash here shortly
Speaker 8: because they don't want to dip underneath that ten billion dollars,
Speaker 8: you know, amount they need to run the company. I
Speaker 8: think also I found it interesting away from his discussions
Speaker 8: on you know, the culture Boeing and how it needs
Speaker 8: to change. I think everybody understands that, we all agree.
Speaker 8: I found it interesting too, you know, A couple of
Speaker 8: analysts went out of him about selling divisions, didn't get
Speaker 8: a lot out of them, I think on on selling
Speaker 8: parts of Boeing to raise money. Look, I know he's busy,
Speaker 8: he's been first couple of days. But my guess is
Speaker 8: they've looked at ways to raise cash, and you know,
Speaker 8: we didn't think there was much potential to sell big
Speaker 8: chunks and raise cash. And it didn't sound like Kelly
Speaker 8: had any of those on top of his list either,
Speaker 8: So I thought.
Speaker 4: It was the most interesting stuff.
Speaker 6: What did the CEO say about the serious performance lapses
Speaker 6: that Boeing has had over the last year.
Speaker 8: Yeah, I mean you know what I heard was, you know,
Speaker 8: the serious lapses. You know, I guess he kind of
Speaker 8: owned up to them as well. But again I think
Speaker 8: we all knew that and that and that, you know,
Speaker 8: he thought companies still had, you know, potential for a
Speaker 8: very bright future. They're part of a duopoly, large backlog,
Speaker 8: and I think he understands that they need to bring
Speaker 8: back the machinist as soon as they can in a
Speaker 8: way where they're happy and ready to build product well,
Speaker 8: and that's the path to success. And so but again
Speaker 8: I think he kind of owned again the problems of
Speaker 8: the company. But we've heard this before, right, I think
Speaker 8: now that the question is how do you change it?
Speaker 2: And you turn it around? All right? The most immediate
Speaker 2: I guess mile post for this company is settling the striking.
Speaker 2: Today is the day the rank and file out there
Speaker 2: in the Pacific northwester they are going to vote today,
Speaker 2: and he consents us how this might go.
Speaker 8: I'm not seeing any I mean, I'm I'm in the
Speaker 8: camp that it looks like he has a pretty good
Speaker 8: shot of it, because again, I think, you know, I've
Speaker 8: talked before that the union's been out now for about
Speaker 8: a month, so I'm sure they're starting to feel the
Speaker 8: pain of not having a paychecker at least a paycheck
Speaker 8: as large as they're used to coming in. They're pretty
Speaker 8: close to the terms that I think they're all looking for.
Speaker 8: The union might have been looking for forty percent. I
Speaker 8: think they'll get. You know, thirty five sounds pretty darn close.
Speaker 8: I don't know if you really want to hold out
Speaker 8: for the extra five percent. And they sweetened up some
Speaker 8: of the four oh one k matching and some bonuses,
Speaker 8: so to me, it feels like they're pretty darn close
Speaker 8: and given the timeline, since they last all work, it
Speaker 8: kind of feels like he might get it tonight.
Speaker 2: All right. So the long term challenge I think for
Speaker 2: this company, and I actually just happen to know a
Speaker 2: couple of you know, long time really right out of
Speaker 2: college engineers at Boeing, and it goes to that culture
Speaker 2: issue of you know, the engineering first, maybe not necessarily
Speaker 2: profitability metrics first, but engineering first, that there's a belief
Speaker 2: in at least by some that the company needs to
Speaker 2: get back there. A does a company believe that? And
Speaker 2: B is there any sense that they can actually do it?
Speaker 3: Yeah?
Speaker 8: I mean I do think they can. I think it again,
Speaker 8: it's going to take a wholesale I think change in
Speaker 8: attitude here. I do know people as well inside Boeing,
Speaker 8: and I hear a lot of stories about you know,
Speaker 8: non engineers running around with clipboards trying to figure out
Speaker 8: how to manage programs that are very technical, you know,
Speaker 8: in very technical programs. And so I think it will
Speaker 8: be hard to change. And I think they can't lose
Speaker 8: sight of profitability. And I think even Kelly, as he
Speaker 8: tells you we got to get back to engineering and
Speaker 8: a manufacturing culture, he's canceling the seven to sixty seven
Speaker 8: because he thinks the prospects for the future aren't as good.
Speaker 4: Right, he said, Look, this program was.
Speaker 8: Coming to an end anyways, let's just get distractions away
Speaker 8: from us so they can't lose sight of profitability. But
Speaker 8: they yeah, they have to get back to engineering prowess
Speaker 8: and manufacturing skills.
Speaker 6: The stock is down almost forty percent or over forty
Speaker 6: percent the year to date. Is there a sense in
Speaker 6: the investor community that this is we're near the bottom bowing?
Speaker 8: So look the other day, I think Monday, when you
Speaker 8: saw the announcement of you know, the next proposal for
Speaker 8: the union and a vote coming, you saw the stock move,
Speaker 8: and so I think that that alone is an indicator
Speaker 8: that you know, look on Wall Street and financial markets,
Speaker 8: hope hope is eternal. And there are some folks out
Speaker 8: there that saying think they see value in this.
Speaker 2: When do you if they do come to market with
Speaker 2: either debt or equity capital, George, when do you think
Speaker 2: that'll be now that they've got the earnings behind them,
Speaker 2: Seemingly they have the green light.
Speaker 8: I think that they want to see the vote tonight, right, Okay,
Speaker 8: So my senses it's come in late this week, next week.
Speaker 8: I think they want to see the vote tonight and
Speaker 8: figure out what they think they need. Right if Kelly
Speaker 8: doesn't get the vote, if the vote doesn't go his way,
Speaker 8: it's going to be a larger chunk coming out of
Speaker 8: the coming out of.
Speaker 2: The high see you're saying, yep, makes sense, all right, George,
Speaker 2: thanks so much once again, and for give us a
Speaker 2: few minutes of your time. George fur He's a senior aerospace,
Speaker 2: defense and airlines animals for Bloomberg Intelligence. He's been our
Speaker 2: go to voice here on really the last several years
Speaker 2: on Boeing when they've had these you know, really serious
Speaker 2: safety issues and doors you know, flying off airplanes and
Speaker 2: things like that, cracks in the wings, and so they
Speaker 2: really need to, obviously, as they've been saying for a
Speaker 2: long time, get that focus back on quality. But now
Speaker 2: they've got the I guess the shorter term issue of
Speaker 2: managing this strike here, which again is well, I guess
Speaker 2: into its fifth week right now. So they will have
Speaker 2: a critical vote the machinists tonight. Will they support what
Speaker 2: their union leadership has agreed to with the company and
Speaker 2: end their strike. So again a key key vote today
Speaker 2: for the striking workers and for the company, and for
Speaker 2: the industry. And you think about all the supply chains
Speaker 2: that fall back from Boeing, all the suppliers that supply Boeing,
Speaker 2: they're pretty much on standby waiting for this thing. So
Speaker 2: it just affects a lot more people and a lot
Speaker 2: more companies than just Boeing. So keep an eye on that,
Speaker 2: and that'll be breaking news tonight in Bloomberg. Will certain
Speaker 2: they cover that as well.
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Speaker 2: Let's talk about the market. Chare Carol Pepper joined his
Speaker 2: founder and CEO of Pepper International, Carol, A lot of
Speaker 2: folks have been climbing this wall of worry about the stocks.
Speaker 2: Book get the S and p F twenty two percent
Speaker 2: this year. What are you telling people who are concerned
Speaker 2: that are saying, oh boy, this market's too far over
Speaker 2: its skis.
Speaker 9: What do you tell them?
Speaker 10: I tell them relax, First of all, it's not too
Speaker 10: far over as skis.
Speaker 7: There's a lot of good news in the market.
Speaker 10: And really, as you guys know, I manage money for
Speaker 10: people with over one hundred million dollars, and we're starting
Speaker 10: to plan what should we be doing post election, post
Speaker 10: the next rate cup, because that's really where you want
Speaker 10: to look. Just like Wayne Gretzky said, don't skate to
Speaker 10: where the puck is, skate to where it's going to be.
Speaker 10: So we need to stop being focused on the election
Speaker 10: and terrified whoever wins it will be a fareom free election.
Speaker 7: There will not be another January sixth, I don't believe.
Speaker 10: So that means we really should be focusing on what
Speaker 10: is January twenty five going to look like and what's
Speaker 10: going to happen after the next rate cut, And that's
Speaker 10: all good news. The market is pricing in the fact
Speaker 10: that we will have lower rates, the election will be
Speaker 10: finally out of the way, so whoever's in will know
Speaker 10: how to position ourselves and there will be a relief rally.
Speaker 10: So you want to be looking during these fearful days,
Speaker 10: these worried days, what can I buy that I don't
Speaker 10: have that will do well in the good times, because
Speaker 10: believe me, the good times are coming no matter who wins.
Speaker 10: I think we'll have a really strong first quarter next year.
Speaker 10: And so let's position for that, which to me means growth.
Speaker 10: Let's look at growth again because you know during fear days,
Speaker 10: growth is what goes down. You see the nasdak drifting
Speaker 10: lower when people get scared, and then when people are excited,
Speaker 10: the nasdak shoots up. So when it's down, this is
Speaker 10: the time to look at your portfolio and say what
Speaker 10: am I under invested in? How do I get into
Speaker 10: the strong names that will do well when we're past
Speaker 10: the election?
Speaker 6: So what does growth mean to you? Is that mag
Speaker 6: seven or is that taking on a new I guess definition?
Speaker 2: Do you do?
Speaker 6: You prescribe?
Speaker 7: No, I think it's bag seven. I think it's in video.
Speaker 10: I think it's things that are going to be working
Speaker 10: as we go into the future. So that means artificial intelligence,
Speaker 10: big tech, The big leaders are going to stay strong
Speaker 10: and get stronger. Names like Starbucks will come back, McDonald's
Speaker 10: will recover from this blip of you know, bad onions,
Speaker 10: and so I always say be bet on the big
Speaker 10: growth names because that's really where you're going to see
Speaker 10: the turbo charging when things are going well. And don't
Speaker 10: forget these big AI companies need to have a lot
Speaker 10: of data centers. That's more manufacturing jobs. They need lower
Speaker 10: interest rates.
Speaker 7: Those are coming.
Speaker 10: So that is only even though in video looks like
Speaker 10: a crazy name with over five hundred percent return in
Speaker 10: three years, it's just getting started. Look at the long
Speaker 10: term turns of Microsoft and Amazon and some of the
Speaker 10: big names, how they've done over twenty years.
Speaker 7: And you'll be very glad if you put some of
Speaker 7: these new big names in your portfolio and just close your.
Speaker 10: Eyes, put the man on a fair day and leave
Speaker 10: them there and say, you know what, ten years from now, I'll.
Speaker 7: Thank myself that I did that.
Speaker 2: You also, so you have been consistent on your Nvidia
Speaker 2: call there for sure. Now you're talking to us a
Speaker 2: little bit about energy names, and I've looked at you know,
Speaker 2: we've seen WTA, cud oil just over the last several
Speaker 2: weeks really be volatile with some of the escalation intentions
Speaker 2: in the Middle East. What's your energy call here?
Speaker 10: Yeah, I really think that energy is going to stay
Speaker 10: below one hundred, but stay above fifty. I really think
Speaker 10: we're going to be in that band for quite a
Speaker 10: long time, and you know I do. I'm a great
Speaker 10: believer in renewable energy. I'm a great believer in the
Speaker 10: new carbon markets that are going to get started. That
Speaker 10: will be a whole new asset class that we can
Speaker 10: talk about next year and in twenty six where we
Speaker 10: are offsetting the emissions from these fossil fuels. But I
Speaker 10: do not believe fossil fuels are going away in any way,
Speaker 10: shape or form. It's just a question of have will
Speaker 10: all the various components of an energy market fit together.
Speaker 10: And for that reason, I think energy should be a
Speaker 10: core part of your portfolio. Will go up and we'll
Speaker 10: go down, but it's going to stay in a band
Speaker 10: certainly for the next ten years, and it's a great
Speaker 10: dividend payer generally. So again, stick with the big names,
Speaker 10: stick with the exxons and groups that are going to
Speaker 10: do well. And frankly, a lot of those companies are
Speaker 10: very committed to renewable energies, fossil fuels, offsetting their carbon footprint.
Speaker 7: They really have massive departments now who are doing that.
Speaker 7: That is not a conspiracy theory, that is a fact.
Speaker 7: And so for this reason, I think even for any
Speaker 7: ethical investors. It's an important part of your portfolio.
Speaker 6: Carol. How dependent is your bull thesis that you've laid
Speaker 6: out here on more rate cuts from the FED? Because
Speaker 6: we've seen traders kind of pair back the level of
Speaker 6: I I guess the number of rate cuts that we're
Speaker 6: going to see this year potentially next year. How many
Speaker 6: rate cuts does your bull thesis need.
Speaker 10: I don't think the number actually important. I think it's
Speaker 10: the trend and the trajectory. So is it four cuts
Speaker 10: over the next year or two? Is it three cuts?
Speaker 10: It will be fewer cuts if the market is strong,
Speaker 10: it will be more cuts if the market is weak.
Speaker 10: And where those numbers will turn out are up to
Speaker 10: the FED. Frankly, nothing that we can really project. But
Speaker 10: I don't see a situation where they're going to start
Speaker 10: raising interest rates, certainly because I think they did a
Speaker 10: great job of getting us a soft landing that we
Speaker 10: need in I think we're getting that soft landing, and
Speaker 10: again technology, we can't discount what technology is doing in
Speaker 10: terms of increasing productivity without increasing costs, but at the
Speaker 10: same time, frankly, allowing for higher wages for the workers.
Speaker 7: I mean, that's a nice sweet spot to be in.
Speaker 10: Where you can raise your wages and have more productivity
Speaker 10: at the same time.
Speaker 7: And I think we're going to see that trend continuing.
Speaker 10: So not really dependent on a particular number of rate cuts,
Speaker 10: because of course, if the FED announced fewer rate cuts
Speaker 10: in the beginning, the market will go down and be
Speaker 10: upset for a week or two.
Speaker 7: But the second there are good earnings coming out and
Speaker 7: we see that the corporations are still drow on, the
Speaker 7: market will come back.
Speaker 2: Hey, Carol, thanks so much for joining us. Always appreciate
Speaker 2: getting a few minutes of your time. Carol Pepper, founder
Speaker 2: and CEO of Pepper intern National.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: Got Emily Graffeo sitting in for Alex Steel on Paul Sweeney.
Speaker 2: You live here in our Bloomberg and Director Broker Studio
Speaker 2: owners streaming live on YouTube as well, so check us
Speaker 2: out there. We had a deal in the data security
Speaker 2: business a couple of days ago, SOFOS. I think Tomo
Speaker 2: Bravo own Sofos acquiring secure Works in an all cash
Speaker 2: deal values the company secure Works about eight hundred and
Speaker 2: fifty nine million dollars. Secure Works as a publicly traded
Speaker 2: company SCWX is as symbol. We have Wendy Thomas. She
Speaker 2: is the CEO of secure Works. When you talk to
Speaker 2: us about this transaction, why why sell to sofos and
Speaker 2: what's the pro former company look like?
Speaker 11: Yes, good morning, Paul. This is a strategic combination of
Speaker 11: two longtime security market leaders. And so when you think
Speaker 11: about combining are two agnostic, very open platforms, decades of
Speaker 11: cybersecurity experience, and strong brands in the space. This is
Speaker 11: a way to really scale up and defeat the adversary
Speaker 11: at scale.
Speaker 6: What does it say about the current market for cybersecurity
Speaker 6: companies that this acquisition is going through.
Speaker 11: The market is really looking for a single partner for cybersecurity,
Speaker 11: sort of a consolidated platform play that a one organization
Speaker 11: can increasingly address multiple use cases for their security needs,
Speaker 11: from being proactive about vulnerability management to reactive to detection
Speaker 11: and response capabilities, the way to AI powered platforms that
Speaker 11: can predict the next cyber attack, and so the scale
Speaker 11: of R and D required to make that a reality
Speaker 11: for customers is one that requires scale in organizations. So
Speaker 11: to take two cash low positive growing leaders in the
Speaker 11: space and put them together means more scaled R and
Speaker 11: D to be better, faster, stronger for customers.
Speaker 2: All right, So what are your customers doing with cybersecurity
Speaker 2: these days? In terms of they're spending their investment.
Speaker 11: They are increasingly moving from what I would call preventative
Speaker 11: cybersecurity investments to proactive cybersecurity posture and risk management. This
Speaker 11: is all about moving towards increasing prevention and the reason
Speaker 11: is that dwell times of thread actors in an organization's
Speaker 11: environment have gone from months to days to now hours.
Speaker 11: So with the power of an AI powered platform, in
Speaker 11: order to really be able to keep constant visibility about
Speaker 11: potential holes in their attack surface, right, those unlocked doors,
Speaker 11: as I like to talk about, it requires technology to
Speaker 11: do that, technology to detect that someone's rattling that door
Speaker 11: handle and the ability to immediately protect the organization from
Speaker 11: someone getting in and taking those valuable data assets or
Speaker 11: encrypting their systems with ransomware.
Speaker 6: So you're using an AI powered you're an AI powered
Speaker 6: security platform. I'm wondering how difficult it is right now
Speaker 6: to be a company that's using AI when it seems
Speaker 6: like demand is outpacing supply. Is that a challenge for
Speaker 6: you guys.
Speaker 11: Well, if you think about AI, that's a pretty broad category.
Speaker 11: And while you know, natural language processing and generative AI
Speaker 11: is the is the hot topic right now, and it
Speaker 11: has its place in security in terms of things like
Speaker 11: changing cybersecurity detections into readable language of what's going on
Speaker 11: to a business person. We've been using AI for a
Speaker 11: very long time in our platform. We started building it
Speaker 11: in twenty seventeen for things like machine learning, deep learning,
Speaker 11: statistical learning in order to sort through tremendous amounts of
Speaker 11: data and find patterns of behavior that we can match
Speaker 11: to thread actors, the way that they try to come
Speaker 11: into an environment, the software that they use in those
Speaker 11: tactics and techniques, and a platform like that that can
Speaker 11: filter through a lot of data and find those patterns
Speaker 11: is the key to being able to protect an organization.
Speaker 11: So it's home built for both sofas and for secure works.
Speaker 11: Their hub platform and our Tage's platform. It just makes
Speaker 11: a ton of sense to be able to take the
Speaker 11: best of both worlds. And put those together.
Speaker 2: All right, So you and I, Wendy, we first chatted
Speaker 2: back in twenty twenty one. How is your company? How
Speaker 2: has the industry changed over the last several years.
Speaker 11: The industry is, I think, on a path for the
Speaker 11: first and a long time to really consolidate, and that
Speaker 11: is frankly as a result of customer demand to be
Speaker 11: able to run a holistic security program, understand, frankly, quantify
Speaker 11: their risk, demonstrate where they've protected against that risk, and
Speaker 11: then have the accountability around who is attacking their environment
Speaker 11: and how they've protected against it for their boards and
Speaker 11: c suite. It's become a boardroom topic for the last
Speaker 11: couple of years, and so the ability of a security
Speaker 11: professional to elevate sort of a technical pursuit into the
Speaker 11: language of business and risk. It's probably the biggest change
Speaker 11: that I've seen over the last few years.
Speaker 6: I want to zoom out and just talk about the
Speaker 6: cyber industry more broadly and how different corporations should be
Speaker 6: thinking about the current state of threat to their businesses
Speaker 6: when it comes to cybersecurity. Is are we worse off
Speaker 6: than we were maybe five years ago? As hackers get
Speaker 6: more advanced.
Speaker 11: I would say that the great things about AI that
Speaker 11: have enabled us as businesses or security companies to leverage
Speaker 11: the power of that AI has also represented a certain
Speaker 11: amount of peril in terms of empowering those thread actors
Speaker 11: as well, and whether it's nation states or cyber criminals
Speaker 11: who are involved, their ability to use the same sort
Speaker 11: of natural language processing technologies to make that phishing email
Speaker 11: much more believable. It really does look like it's coming
Speaker 11: from your bank or from a vendor that you use.
Speaker 11: And so the last line of defense, always beyond technology,
Speaker 11: is people and the need for all of us to
Speaker 11: become more educated and just cyber aware is more important
Speaker 11: than ever. So there's always is that human edge that
Speaker 11: can make the difference on top of technology to keep
Speaker 11: us all a little bit safer. When cyber criminals cannot
Speaker 11: make money off of global citizens, then we start to
Speaker 11: break that economic.
Speaker 2: Model, all right, Wendy, thank you so much for joining us.
Speaker 2: Wendy Thomas, she's the CEO of Secure Works. That's a
Speaker 2: public traded company SCWX. Just recently, in the last couple
Speaker 2: of days, agreed to be acquired by private company Sofos
Speaker 2: and a deal for eight dollars and fifty cents per
Speaker 2: sharing cash, which was a pre solid premium to the
Speaker 2: pre deal talk there. And Sophos is owned by the
Speaker 2: private equity firm Toma Bravo, so more consolidation than the
Speaker 2: data security business. That seems like an area that is
Speaker 2: just going to get significant investment for as far as
Speaker 2: I can see, because I mean, you have to continue to,
Speaker 2: I think invest in cybersecurity because as you mentioned, Emily,
Speaker 2: the you know, the state actors, the private actors are
Speaker 2: just getting smarter and smarter and more and more aggressive.
Speaker 6: Exactly you imagine the threat just gets worse.
Speaker 1: Yep, you're listening to the Bloomberg Intelligence podcast. Catch us
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Speaker 2: Let's get a sense of what's happening with these markets,
Speaker 2: John just reporting we have a sell off in place
Speaker 2: here today, but otherwise we are at or near all
Speaker 2: time highs for these markets right smack in the middle
Speaker 2: of earning. So it looks like people feel pretty decent
Speaker 2: about the earnings that are coming about. Let's check in
Speaker 2: with somebody who does this stuff for a living. Loreen Gilbert,
Speaker 2: CEO of wealth Wise Financial, joins us via Dallas via
Speaker 2: zoom from Dallas, Texas. Laurene, thanks so much for joining
Speaker 2: us here. How do you What are the discussions you're
Speaker 2: having with your clients these days? As they had a
Speaker 2: pretty good twenty twenty four a year to date both
Speaker 2: in stocks and even bonds are giving you some some
Speaker 2: pretty solid returns. What's the conversation like these days.
Speaker 12: Well, it has been a really good year, and what's
Speaker 12: on everybody's mind is the upcoming election, and it's interesting
Speaker 12: to see how many people are holding this weight and
Speaker 12: see mentality on what to do with big life decisions,
Speaker 12: whether it's buying a house or making a move with
Speaker 12: a business. A lot of people are just playing wait
Speaker 12: and see. So the talk has been how will election
Speaker 12: this election affect my portfolio? And to that question, we
Speaker 12: say there shouldn't be a lot of allocation changes based
Speaker 12: on the general election because we already know that this
Speaker 12: year is a positive year for the market, so we
Speaker 12: don't expect that to change. It's been a fantastic year
Speaker 12: across the board, and so the real question is what
Speaker 12: happens next year, and to that we look to Congress.
Speaker 12: So more important for the markets would be what kind
Speaker 12: of legislation could be enacted in Congress, So who controls
Speaker 12: Congress could have an outcome as to what happens on
Speaker 12: corporate tax rates, on individual tax rates, on regulations. So
Speaker 12: all those things are of concern to people.
Speaker 6: When you think about where we are right now in
Speaker 6: the business and economic cycle and markets, is there still
Speaker 6: room for this bull market to run? We just had
Speaker 6: six straight weeks of S and P five hundred gains.
Speaker 6: That was the best winning streak for the index all year.
Speaker 6: Where are we are We still early? Are we mid cycle?
Speaker 6: What do you think?
Speaker 12: Well, we're in a light cycle, there's no doubt. But
Speaker 12: this rally now is two years really in the making.
Speaker 12: And the odds would say, or the history tells us
Speaker 12: in the markets that there is still room for this
Speaker 12: market to run. So where of the opinion that the
Speaker 12: market continues to run that we'll see right now we're
Speaker 12: seeing a pause in the market. A lot of that
Speaker 12: is profit taking from stock So even you know, looking
Speaker 12: this morning at next stare that report and beat on
Speaker 12: earnings missed a little bit on revenue, but at the
Speaker 12: end of the day is still flat on the price,
Speaker 12: and so there's been definite profit taking. Coca Cola is
Speaker 12: another example of reporting and then the stock going down.
Speaker 12: So I think what we're seeing is some profit taking
Speaker 12: before your end a pause. And yet I will say,
Speaker 12: we think there is definitely room to run. And fourth
Speaker 12: quarter expectations for earnings are very robout. So while third
Speaker 12: quarter is somewhat muted on your over year earnings, fourth
Speaker 12: quarter we're expecting quite a bit.
Speaker 2: Lauren, I kind of grew up in the age of
Speaker 2: the sixty forty portfolio, but I know that's kind of
Speaker 2: a thing of the past that in fact, a lot
Speaker 2: of not just institutional investors, but retail investors like they
Speaker 2: have some alternatives in their portfolio, whether that's you know,
Speaker 2: hedge funds, private equity, private credit. How does that conversation
Speaker 2: go with you and your clients.
Speaker 12: Alternatives definitely have a place in a space, and it
Speaker 12: all depends on the liquidity of the client and their
Speaker 12: risk tolerance. Definitely, equities, you know, public equities, there's nothing
Speaker 12: that can replace that because of liquidity and long term
Speaker 12: growth as well as dividend income, So your equities have
Speaker 12: a place right now. We were talking about bonds have
Speaker 12: done very well, and the expectation is over the next
Speaker 12: five years we see the bond market being very robust
Speaker 12: as rates come down, and that trend will be our friend,
Speaker 12: so that we'll see long term you know what I
Speaker 12: mean is three years to five years some robust returns
Speaker 12: on fixed income, So we can't negate that or neglect it,
Speaker 12: and so then you are left with alternatives as well.
Speaker 12: And what alternatives can do is diversify a portfolio. There
Speaker 12: are liquid alternatives and they're non liquid alternatives, so making
Speaker 12: sure you're using probably a combination of both of those,
Speaker 12: whether it's hedging a portfolio looking to commodities are considered
Speaker 12: in a sense an alternative looking at private equity as
Speaker 12: a long term hold. So there's lots of different avenues
Speaker 12: and ways to play at macro looking at macro elements too,
Speaker 12: so lots of ways to play alternatives, and we believe
Speaker 12: in that we've got double digit allocation in alternatives in
Speaker 12: our portfolio.
Speaker 6: I know you had mentioned that the election not really
Speaker 6: kind of a longer term concern for investors, especially those
Speaker 6: who have maybe a longer time horizon than traders. So
Speaker 6: when you do think about maybe the next year ahead,
Speaker 6: what are the risks to the market and your outlook.
Speaker 12: Yeah, so it really is there is a risk. The
Speaker 12: risk is we go into recession, and looking at history
Speaker 12: during a rate cut cycle, most of the time that's
Speaker 12: very positive for equity markets. And the reason it's positive
Speaker 12: is if you can go into a rate cut cycle
Speaker 12: and avoid a recession, then the markets do quite well
Speaker 12: and have double digit returns. If the rate cut then
Speaker 12: we go into a recession, then we're going to see
Speaker 12: negatives on stock market prices, no doubt. Now, we believe
Speaker 12: that we're going to still see continued growth in the economy.
Speaker 12: We don't see this economy even though the leading economic
Speaker 12: indicators we're seeing going down, we don't think that that
Speaker 12: means we're huating right now into a recession. So if
Speaker 12: we can avoid a recession, we see the stock market
Speaker 12: doing quite well in twenty twenty five. So right now,
Speaker 12: our base case is that there's not a recession, that
Speaker 12: Pharaohserve continues low rates, and that the market will continue
Speaker 12: to rally.
Speaker 2: All right, Lauren, thank you so much for joining us.
Speaker 2: Loreen Gilbert she's the CEO of wealth Wise Financial. Joining
Speaker 2: us fro Dallas, Texas via that zoom thing.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 1: Bloomberg eleven thirty.
Speaker 2: Sometimes a headline gets your attention, boy, this one does. Crackskull,
Speaker 2: fractured bones, show danger at Rivian's factory. That draws you
Speaker 2: right in. So I want to get right to the
Speaker 2: reporter on this story. It's a big take story. We
Speaker 2: love the big takes stories, really cool stories, deeply deeply reported,
Speaker 2: resourced and sourced, I mean, and great graphics, all the
Speaker 2: kind of good stuff. So it makes sure good long
Speaker 2: form journalism. Kyle Porter joins US Industrials reporter for Bloomberg News.
Speaker 2: Kyle talk to us about Rivian. I mean, I remember
Speaker 2: talking to Bloomberg Intelligence analysts years ago and they say, Hey,
Speaker 2: the technology of evs, that's one thing, but at some
Speaker 2: point they got to go start bending some metal. That's
Speaker 2: another whole thing, you know, entirely, and these companies don't
Speaker 2: have any experience in it. What did you find at Rivian.
Speaker 9: The kind of really struggling to build a safety culture
Speaker 9: that they can be proud of. In short, there's been
Speaker 9: numerous incidents, some of which you start that in the headline,
Speaker 9: others which we didn't put into the story, or this
Speaker 9: which I haven't been investigated by OSHA. If you talk
Speaker 9: to people out.
Speaker 4: There in normal Illinois, a lot of them.
Speaker 9: Go to work every day because it's the best paid
Speaker 9: employer in the region, but they don't feel safe.
Speaker 2: So I mean, again, they only have one plant here.
Speaker 2: I'm wondering how did Rivian, Like if I were starting
Speaker 2: up a new hot Cup and I'd just go over
Speaker 2: to Ford or GM or Stalantis, steal a bunch of
Speaker 2: their factory people and say, hey, guys, start building my
Speaker 2: car here. How did Rivian do it? How is Rivian
Speaker 2: kind of I guess learning on the job if you will.
Speaker 7: Well, Rivian got a deal.
Speaker 9: The original the plan that they have they purchased the
Speaker 9: sixteen million dollars have been abandoned by Mitsubishi when they
Speaker 9: were trying to make an electric car in the US.
Speaker 9: So it's sort of all fell into place. There were
Speaker 9: still workers from the time that it was owned by
Speaker 9: Mitsubishi that could come in work, so they felt that
Speaker 9: they could get some muscle memory. And then at the
Speaker 9: start they you know, it was designed to be a
Speaker 9: very niche carmaker, and then they got the Amazon deal.
Speaker 9: Things exploded and they had to ramp up.
Speaker 2: So what's the company responding, like, how they've kind of
Speaker 2: respond to this and do they have any policies in
Speaker 2: place to try to address this, because I'm just looking
Speaker 2: at another great graph you having a story that just
Speaker 2: shows a number of serious violation sited, and Rube's at
Speaker 2: the top of that list.
Speaker 9: Yes it is, and as you pointed out, it's only
Speaker 9: one factory with eight thousand staff. Most of the companies
Speaker 9: on that list have multiple sites and tens of thousands
Speaker 9: of workers the company, I'm sorry, continued no go.
Speaker 2: So I just want to know kind of how the
Speaker 2: companies responding here.
Speaker 9: They're responded in great detail to us.
Speaker 4: It's fair to say.
Speaker 9: They pointed out that most of the serious citations that
Speaker 9: they were issued were ultimately downgraded or in a couple
Speaker 9: of cases, dismiss which is true of most people that
Speaker 9: go through the citation process, and they pointed this to
Speaker 9: things that they've done to improve their safety process. An indeed,
Speaker 9: Osher itself has commended the company for being open and
Speaker 9: looking to improve its health and safety.
Speaker 2: So is Rivin any materially different than say a Tesla
Speaker 2: factory or you know the other ev makers.
Speaker 9: Well, it currently only builds two types of vehicle. You
Speaker 9: have the Amazon truck and then you have the R one,
Speaker 9: which comes into several bottles. It's an SUV in a truck,
Speaker 9: and they're looking to ramp that up with an expansion
Speaker 9: with the R two next year. So it's smaller. It's
Speaker 9: I think it's aiming to produce now that you actually
Speaker 9: cut their forecast this year about fifty thousand vehicles, so
Speaker 9: the scale of it is much smaller.
Speaker 2: Does Rivian have the money to invest in their plants
Speaker 2: into the safety because well, you look at the stocks
Speaker 2: of some of these companies that are just so volatile,
Speaker 2: and I wonder if they even really have the money
Speaker 2: to invest in safety protocols.
Speaker 9: It's a question to ask the company that they say
Speaker 9: that they have a real commitment to safety and they
Speaker 9: are investing in it.
Speaker 2: Is it is making an evy. I don't know, it
Speaker 2: seems like they're not building an internal combustion engine, so
Speaker 2: they're not actually building an engine, there is it? I
Speaker 2: would think the process is a lot different. Is it
Speaker 2: any more or less dangerous as the industry said versus
Speaker 2: say a you know traditional guess assembly plant.
Speaker 9: Oh, given that you're building this thing from scratch, you know,
Speaker 9: from the engine upwards, there's a lot of process that
Speaker 9: has to be learned. There's a lot of things that
Speaker 9: need to be learned. Indeed, one of the things that
Speaker 9: the company was cited for was a movement vehicle that
Speaker 9: the engineers are designed and you know, wasn't safe for
Speaker 9: employees to use. They were telling employees to be careful
Speaker 9: until I she cited them and they figured out a
Speaker 9: way to do it differently. And you could replicate that
Speaker 9: across a thousand examples, from how you attach the doors
Speaker 9: to how you put.
Speaker 4: The glass in.
Speaker 9: You could go on and on and on, and Ribbean's
Speaker 9: had to work out new and different ways of doing
Speaker 9: all these things for these new bespoke vehicles.
Speaker 2: But the employees, I guess they are. Are they aware
Speaker 2: of the hazards when they take these jobs.
Speaker 9: That's a very good question. It's rapidly becoming a company town.
Speaker 9: Most of the people that we spoke to for the
Speaker 9: story are one of several family members who work at
Speaker 9: the plant. They all talk about how when the plant
Speaker 9: first opened, it was very small, very welcoming. You saw
Speaker 9: members of senior management. It felt like a family. And
Speaker 9: as production as ramptup, that's gone away and there's been
Speaker 9: a pressure just to produce interesting.
Speaker 2: All right, interesting story. Kyle Appreciate a Kyle Porter, industrials
Speaker 2: reporter for Bloomberg News. It's got the Big Take story
Speaker 2: about Rivian and working in their plant in Normal, Ohio,
Speaker 2: some of the safety concerns there. You can read more
Speaker 2: of this story on the Bloomberg and at bloomberg dot
Speaker 2: com slash Big Take. Looking at the stock of Rivian,
Speaker 2: it's down about two percent today, it's down fifty six
Speaker 2: percent year to date. It's got a market cap of
Speaker 2: ten point three billion, so again reflecting some of the
Speaker 2: challenges of starting up some of these ev companies and
Speaker 2: the volatility around kind of the adoption of electric vehicles,
Speaker 2: which is really still i think pretty uncertain as to
Speaker 2: where the ultimate demand is for electric vehicles. We're seeing
Speaker 2: that in some different demand numbers we see out of
Speaker 2: some of these companies.
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