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Speaker 2: Alex Ci alongside Paul Sweeny, Welcome to Bloomberg Intelligence Radio.
Speaker 2: We are broadcasting to you live from Interactive Brokers Studio
Speaker 2: right here in Midtown Manhattan. Also check us out on
Speaker 2: YouTube as well. What do you do in the market?
Speaker 2: I mean the Nastak one hundred is up by two percent.
Speaker 2: It has been an extremely difficult week in the market
Speaker 2: if you count last Friday, just in terms of understanding
Speaker 2: where we are, where positioning is and is the market complacent?
Speaker 2: I mentioned the Vicks at twenty five. Joining us now
Speaker 2: is Brian Whale and chief investment officer and a generalist
Speaker 2: portfolio manager over at TCW joins US now. Hey, Brian,
Speaker 2: are we complacent here at this point or is this
Speaker 2: a buying opportunity?
Speaker 3: I think it's a buying opportunity in the bond market.
Speaker 3: We've had a little bit of a backup. I think
Speaker 3: everything we saw you know, earlier this week Sunday night
Speaker 3: into Monday was it was a bit of panic. You know,
Speaker 3: we've been in the very barished camp with regards to
Speaker 3: the economy. But even we would were dismissing the notion
Speaker 3: of some intermeding cut. We thought that was that was
Speaker 3: a foolish way to think about the world. So I
Speaker 3: think this is this is kind of calm, This is
Speaker 3: the market kind of settling in here a little bit.
Speaker 3: You know, even though we've backed off in bond yields
Speaker 3: since the lows on Monday morning, if if you just
Speaker 3: take a step back for a second, you know, the
Speaker 3: five year as just kind of an indicator of yields
Speaker 3: has come down fifty basis points since we started the quarter,
Speaker 3: so since you know, since July one, and that's a
Speaker 3: big move. And I think that's very much in line
Speaker 3: with you know, the the notions and everyone in the
Speaker 3: fairytale camp of no landing kind of being shaken a
Speaker 3: little bit. We've seen a couple of months of of
Speaker 3: slowing economic data and the one economic kind of data
Speaker 3: point that had been holding up that no landing camp,
Speaker 3: which was the headline payrolls number, you know, that got
Speaker 3: knocked off a little bit on Friday, and so if
Speaker 3: you kind of forget the noise early in the week,
Speaker 3: this looks like a kind of the right place to
Speaker 3: settle in Brian.
Speaker 4: When you walked out onto the TCW trading floor on
Speaker 4: Monday morning, what were your traders telling you?
Speaker 3: It was, you know that metrics didn't make sense. Things
Speaker 3: were moving all over the place. Liquidity was very poor.
Speaker 3: You know, you saw the vicks. You know, I think
Speaker 3: at one point it was that you know, in toyday
Speaker 3: was well over fifty, which looked it was in a sixties. Yeah,
Speaker 3: it looked more like an apple. It looked like it
Speaker 3: looked like an It looked like a like a stock
Speaker 3: market crash.
Speaker 1: It didn't.
Speaker 3: It did not look like a market where a headline employee.
Speaker 3: You know, the rate should have been one hundred and
Speaker 3: seventy five thousand growth on the payrolls number, and it
Speaker 3: came in one hundred and fourteen thousand, and the unemployment
Speaker 3: rate went from you know, four point one to four
Speaker 3: point three. I mean, that's that's that's indi indicative of
Speaker 3: a slowing economy and a slower labor for worse than
Speaker 3: maybe one that's weaker than the market was expecting, and
Speaker 3: it probably will cause the FED to have to cut
Speaker 3: more aggressively than the market was pricing beforehand. But sure,
Speaker 3: it sure wasn't panic.
Speaker 5: Well what did you make of the ten year auction yesterday?
Speaker 5: It wasn't good.
Speaker 2: It just was pretty bad again, thirty year coming today?
Speaker 2: The three year was fine. You know, our jersey tells
Speaker 2: me I should care about these things.
Speaker 6: I know, yeah, I know.
Speaker 5: What did you make that?
Speaker 3: You know, it's it's it's it's the same thing I
Speaker 3: make of what I this morning. You know, it's it's
Speaker 3: gappy price action. It's it's it's a nervous market. I mean,
Speaker 3: you saw, you know, a little bit of supply. You know,
Speaker 3: the street pushes it around. You got a higher yield
Speaker 3: this morning. You know, initial jobless games come in just
Speaker 3: a hair under expectations. Although the four week moving average
Speaker 3: keeps moving up, continue it continued claims continues to stay hi.
Speaker 3: So the fact that we're off ten basis points in
Speaker 3: the market is just it's a market trying to find
Speaker 3: its footing, almost trying to you know, almost trying to
Speaker 3: catch its breath a little bit, which is which is
Speaker 3: a healthy thing. I think what we would contend is,
Speaker 3: you know, this is maybe not the breath you take
Speaker 3: because everything is going to be all right, more like
Speaker 3: the breath you take before you take the punch. And
Speaker 3: so you know, over the next few over the next
Speaker 3: few months, what we're probably going to see, at least
Speaker 3: we expect is is more of the same, which is
Speaker 3: the economic data continuing to slow and the FED is
Speaker 3: going to have to react to that.
Speaker 4: Brian, where do you see opportunities in the fixing can
Speaker 4: market here? Given some of the volatility we've seen over
Speaker 4: the last several days.
Speaker 3: It's a boring answer. I'd say the opportunities maybe agency
Speaker 3: mortgages aside, but at a high level of the opportunities
Speaker 3: is in duration and in liquidity, like keep keep your
Speaker 3: powder dry, because you know, I'm not saying we're going
Speaker 3: to have vixed days of you know, of north of
Speaker 3: sixty again. But if we enter the fall and the
Speaker 3: narrative and you start reading more about a recession and
Speaker 3: the job market turns from one of where companies are
Speaker 3: just not hiring but actually starts to fire, what you're
Speaker 3: going to see then is concerned about earnings growth and
Speaker 3: the ability of companies to service their debt, and then
Speaker 3: there's going to be conversation around downgrades and what happens
Speaker 3: then in terms of pricing and like our trading floor
Speaker 3: and the opportunities we're looking for. Corporate bonds are going
Speaker 3: to get cheaper relative to treasuries, highyield bonds, emerging market bonds,
Speaker 3: they're all going to get cheaper. And that's the that's
Speaker 3: a really nice buying opportunity because in the bond world now,
Speaker 3: not only can you kind of buy cheap credit and
Speaker 3: get the benefits of spread duration and that's another conversation,
Speaker 3: but you can also get carry and you can also
Speaker 3: get the advantage of like diversification into portfolio because you know,
Speaker 3: with yields across the curve right now at four percent,
Speaker 3: you know, bonds can be bonds again, so they can
Speaker 3: act as that hedge of that offset into an environment
Speaker 3: where we get volatility and equities to cline.
Speaker 5: So two things with corporates.
Speaker 2: One, we saw a record amount of issuance yesterday in
Speaker 2: the investment grade market all year. And then also the
Speaker 2: spreads have not blown out at all like in the
Speaker 2: last few days. Yeah, they moved up, but we haven't
Speaker 2: blown out. And I'm just wondering if there's more priced
Speaker 2: appreciation here to come.
Speaker 3: Definitely, it's a trillion dollars a little over a trillion
Speaker 3: dollars of issuance year to date, which is very high.
Speaker 3: But yeah, look like just to put things in kind
Speaker 3: of context for everybody here and watch this stuff day
Speaker 3: to day. I mean, you know, investment, great corporate bonds
Speaker 3: kind of on the tight end, meaning like the amount
Speaker 3: of yield you get over treasuries doesn't get much tighter
Speaker 3: than about point eight percent, you know, eighty basis points.
Speaker 3: We're sitting at about one hundred basis points. Historical averages
Speaker 3: just even excluding like big moves like the Great Financial Crisis,
Speaker 3: historical averages are about one hundred and twenty one hundred
Speaker 3: and twenty five basis points. So you know that was
Speaker 3: kind of us too on Monday when it's like, look
Speaker 3: the market, everybody's got to calm down a little bit. Like,
Speaker 3: you know, at one hundred basis points over, corporate bonds
Speaker 3: still look expensive. So be patient. You know, this this
Speaker 3: may not be a recession that we kind of jump
Speaker 3: into in and overnight. This just may be an old
Speaker 3: fashioned recession where we're just going to have to walk
Speaker 3: our way into it. So as an investor, you've got
Speaker 3: to keep that kind of long term perspective in mind
Speaker 3: and preserve that capital. You know, if you've got that cash,
Speaker 3: that's worth a lot because you'll be able to spend
Speaker 3: it in very wise ways, probably throughout the remainder of
Speaker 3: the year and into early next year.
Speaker 4: So, Brian, when the phone calls do from Wall Street
Speaker 4: with these new issues, what kind of calls do you take?
Speaker 6: Do you take everything?
Speaker 4: I mean, because you've got capital deploy are you focusing
Speaker 4: just on the highest quality stuff? What kind of phone
Speaker 4: calls do you take from Wall Street these days?
Speaker 3: I think the way I've described is like, don't call
Speaker 3: us when you think we need you, call us when
Speaker 3: you need us. You know that that's that is That
Speaker 3: is like a good way to describe what we call
Speaker 3: like the liquidity premium, which is and I was talking
Speaker 3: about cash before, like you know, if you want the
Speaker 3: opportunities when people are calling you on the phone and
Speaker 3: saying we've got a problem or somebody needs to sell
Speaker 3: and et cetera, and it's like, Okay, what you hear
Speaker 3: seems like going on to like a dealer's like a
Speaker 3: car lot, you know, somebody's like, look, I got to
Speaker 3: get rid of this thing, you know, blah blah. Same thing. Like,
Speaker 3: as an investor, you want to wait for the opportunities
Speaker 3: where Wall Street calls you and says, look, here's an opportunity.
Speaker 3: Here's the price. I know, you know where regular market
Speaker 3: pricing is, and you know, what do you think? And
Speaker 3: that's that's what you wait for. It It happens kind
Speaker 3: of infrequently, but that's where you can make the big money.
Speaker 5: Where do you think we're going to see the most volatility?
Speaker 3: That's a good question, you know. In the short term,
Speaker 3: you know, we'll see it uh in uh and obviously
Speaker 3: in interest rates. I think the next thing that would
Speaker 3: probably be a your what we call these high data
Speaker 3: parts of fixed income, like like high yield and emerging markets.
Speaker 3: I think down the line, you know, so so the
Speaker 3: public liquid markets will react first, and that's where you
Speaker 3: will see the vall also throw you know, they'll probably
Speaker 3: see some some currency volatility in there too. But down
Speaker 3: the line, if we do get a true recession, there'll
Speaker 3: be a shake up, you know, in in everybody's favorite
Speaker 3: market today, which is private credit, and there's there's some
Speaker 3: you know, private credits here to stay and and you know,
Speaker 3: there's some some great things about it. However, it's been
Speaker 3: too easy for too long uh and there's going to
Speaker 3: have to be a shakeout uh And and that's a
Speaker 3: healthy thing for the market in the long term. And
Speaker 3: so in the short term, focus on those kind of
Speaker 3: liquid markets like like like high yield bonds for instance,
Speaker 3: UH currencies, and then in the longer term that'll probably
Speaker 3: roll into less liquid parts of the market.
Speaker 4: All Right, Brian, thanks so much for joining us. Really
Speaker 4: appreciate Brian Whalen. He's a chief investment officer. That means
Speaker 4: he's a big dude and a generalist portfolio manager TCW.
Speaker 4: I tell you I've worked at TCW when I was
Speaker 4: on a cell side twenty some odd years.
Speaker 6: I knew I had like four or five relationships good
Speaker 6: relationships there.
Speaker 5: Oh, really smart, super smart.
Speaker 6: Yeah, I mean like across.
Speaker 4: The board, like I avoided the fixicing floor, like the plague.
Speaker 4: I went to the equity floor because that's they were.
Speaker 7: You know.
Speaker 2: That's so I think people are really smart when they
Speaker 2: can break things down in language that I understand. Like
Speaker 2: that's the pure sign, Like you're so smart you can
Speaker 2: dumb it down right, And.
Speaker 3: That's how Brian Wentlest principle was where can I make
Speaker 3: the most money?
Speaker 6: Where can I make the most.
Speaker 5: Money as he should? Exactly as he should.
Speaker 4: I tell you go to Los Angeles. There's two meetings.
Speaker 4: You have to get TCW and Capitol Group. Everything else
Speaker 4: is just gravy.
Speaker 6: If you get that, that's like.
Speaker 4: Eighty percent of the votes, eighty percent of the commission
Speaker 4: dollars out of those two shops.
Speaker 5: Yeah, duh, Tucker, he didn't know that, Geese.
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Speaker 4: All right, let's check in with our good friend Claudia Sam.
Speaker 4: She's a chief economist, that New Century Advisor's former Federal
Speaker 4: Reserve economist, and a Bloomberg opinion columnist. And she's got
Speaker 4: this thing called the Sam Rule. Now, I'm not an economist.
Speaker 4: I think marginal revenue, marginal cost. That's my extensive knowledge
Speaker 4: of economics.
Speaker 6: Claudia, thanks so much, for joining us here.
Speaker 4: Can you just summarize for our listeners our viewers what
Speaker 4: the sum rule says and was it triggered on Friday
Speaker 4: with the job support.
Speaker 7: So it's a recession indicator. So it uses changes in
Speaker 7: the unemployment rate over a year to it has a
Speaker 7: threshold and compares that to historical episodes of recessions. And
Speaker 7: you know that's when it turns on. It has turned
Speaker 7: on historically inside in the early months of not a forecast,
Speaker 7: in the early months of a recession. And with the
Speaker 7: employment report on July it the som rull crossed the
Speaker 7: half a percentage point threshold, and so it's indicating a recession.
Speaker 7: Are we in a recession my expert opinion looking broadly
Speaker 7: as no, we are not, but that increasing unemployment rate
Speaker 7: that we have seen over a year plus is very
Speaker 7: disconcerting and we're not pointed in the right direction in
Speaker 7: terms of where we're trending.
Speaker 2: This is why I really loved your Bloomberg opinion piece yesterday,
Speaker 2: because it feels like a lot of people are coming
Speaker 2: on talking about your rule and how that is de
Speaker 2: facto then we're in a recession. As reason for the
Speaker 2: FED to do something, maybe bigger or an emergency way,
Speaker 2: and you come out with an article that says US
Speaker 2: isn't in a recession despite the indicator, my recession rule
Speaker 2: was meant to be broken.
Speaker 5: What does that mean.
Speaker 7: When we think about this cycle from the pandemic on
Speaker 7: the last four and a half years, the disruptions to
Speaker 7: the US economy have been in many ways unprecedented, and
Speaker 7: in particular, we've had some really big disruptions to supply,
Speaker 7: which are typical boom and bust indicators recession, high inflation,
Speaker 7: low inflation. Those are about demand and so the some
Speaker 7: rule I, in my opinion, is getting overstated by some
Speaker 7: of the really abrupt shifts and labor supply in the
Speaker 7: last several years. And that's just some of the unployment
Speaker 7: rate increase is the good kind. It's people who come
Speaker 7: in want to work, they will get jobs. It'll be growth.
Speaker 7: But in the interim that looks like the unemployment rate
Speaker 7: rising in the recession, there's some of the bad unemployment
Speaker 7: in there too. So that's where it gets really hard,
Speaker 7: and you know, it's difficult to hear. I'm happy to
Speaker 7: have sparked a robust conversation. This is really really important
Speaker 7: to know if we're in or headed towards a recession
Speaker 7: because our policy actions that can be taken, and so
Speaker 7: you know, it's it's I'm using the tool and other
Speaker 7: data just like anybody else.
Speaker 4: So, Claudia, what do you make of an unemployment rate
Speaker 4: of four point three percent?
Speaker 6: To me, in my experience, that's still low.
Speaker 4: I guess if you want to get concerned about the trend,
Speaker 4: I e.
Speaker 6: It's moving higher, that's a concern.
Speaker 4: But in and of itself four point three percent, how
Speaker 4: does that kind of stack up for you?
Speaker 3: Right?
Speaker 7: So, if if our concern is about the direction we're
Speaker 7: pointed in, are we headed towards the recession? Are we
Speaker 7: enter recession? The relevant metric is the change and the
Speaker 7: unemployment rate. The level is important. Sometimes it's unsustainably low,
Speaker 7: like earlier when we had the labor shortages, the unemployment
Speaker 7: rate in the United States, when I got down to
Speaker 7: three point four percent, that was because we were missing
Speaker 7: some workers too, right, Like that wasn't going to stick.
Speaker 7: So sometimes, like you know, within bounds, sometimes the level
Speaker 7: does tell us something. But at four point three percent,
Speaker 7: this is very much consistent with the demographics of our
Speaker 7: We have an older, more experienced workforce four percent unemployment
Speaker 7: that that's much more like you would expect or predict,
Speaker 7: So that we're not four point three is not like,
Speaker 7: oh wow, this is really low. It's not sustainable. And
Speaker 7: we've gone into recessions in the past with lower unemployment
Speaker 7: than now and also higher so the level itself is
Speaker 7: not a protection against a recession.
Speaker 2: Paul pointing to himself when he said older workforce seasoned,
Speaker 2: we think season experience, Claudia to that point, how do
Speaker 2: I understand the fact that you had a huge move
Speaker 2: in the bond market when initial jobless claims came out.
Speaker 2: They're volatile, their seasonality, they change, and yet we're still
Speaker 2: having such market sensitivity to that.
Speaker 5: Where does that kind of tell you about where we are?
Speaker 7: Right? Well, this is very much this question about the
Speaker 7: dynamics the recession, right, It's not this isn't about this
Speaker 7: hole rule, but it captures it.
Speaker 8: Right.
Speaker 7: This is why this almost worked historic is you get
Speaker 7: periods where the unemployment rate starts coming up gradually, and
Speaker 7: then it picks up steam, and then it goes up
Speaker 7: a lot. And we had some signals that were in
Speaker 7: this stage. It's been going up slowly and gradually, and
Speaker 7: with the July employment report, things look like they were
Speaker 7: picking up steam in the wrong way, and so that's
Speaker 7: the concern. And then then what we're looking for and
Speaker 7: claims data is is that momentum there or was it
Speaker 7: just the weather or this that you know? And so
Speaker 7: I think that's this reaction because we're kind of on this.
Speaker 7: It's not like we're on the knife's edge, but the
Speaker 7: dynamics are like it makes a big difference at this
Speaker 7: point if the increase in the unemployment rates speed up
Speaker 7: or not, because once they get going, they tend to
Speaker 7: you have these negative feedback loops and then you're not
Speaker 7: talking about a half a percentage point increase and then
Speaker 7: employment you're talking about a three percentage point increase.
Speaker 4: Claudia talked to us about the migration component to the
Speaker 4: labor market. How has that impacted the number because again
Speaker 4: we've had a surge in migration on the southern border.
Speaker 6: For the last several years. How's that impacted the numbers?
Speaker 6: Do you think?
Speaker 3: Right?
Speaker 7: Well, first thing, having the immigration and we've had other
Speaker 7: prime age labor force participation that is higher in the
Speaker 7: US right now than it's been in general. So it's
Speaker 7: not just about immigrants. But we it was very important
Speaker 7: to have more labor supply address these labor shortages that
Speaker 7: we'd had, and this has taken prior pressure off of
Speaker 7: wages and inflation and so like that's very good. And
Speaker 7: then we have more supply of workers and that and
Speaker 7: hiring has moderated, right like, the pace has slow down some.
Speaker 7: So now we're in the opposite direction of the jobs
Speaker 7: need to catch up to the workers. So if you
Speaker 7: think about that, this is all in adjustment right like
Speaker 7: where it's it's more of a timing issue. And when
Speaker 7: the reason that the labor supply causing increasing unployment rates
Speaker 7: a good thing is when they when those new workers
Speaker 7: do get jobs, they help us expand the economy, which
Speaker 7: is the exact opposite of this kind of recession watch contracting.
Speaker 7: But I will say, you know, employers have different margins
Speaker 7: to adjust labor demand writ large, and we have seen
Speaker 7: the hiring rates at employers come down to levels that are,
Speaker 7: you know, line up with much higher unemployment rates than
Speaker 7: in the past. So it could be just employers are
Speaker 7: not wanting to lay off as much because they got
Speaker 7: burned in this crisis, and so we're seeing you know,
Speaker 7: it's harder if you're coming in labor force to get jobs.
Speaker 7: So this is really tricky labor market treat and that
Speaker 7: means every single scrap of data we get on the
Speaker 7: labor market is a big deal.
Speaker 2: So Claudia, before I let you go in, but a
Speaker 2: minute left. I'm looking at WERP WRP on the terminal.
Speaker 2: It's looking at twenty five basis points of cuts in
Speaker 2: the next three meetings.
Speaker 5: Is that fair pricing? Right now?
Speaker 7: That is my baseline. I think that's fair fair pricing
Speaker 7: the FED. There is more slowing in the labor market
Speaker 7: than I think is comfortable. We don't need to get
Speaker 7: into a recession for the FED to start acting, So
Speaker 7: I think a little picking up the pace some in
Speaker 7: like three consecutive cuts makes sense. But they're going to
Speaker 7: be very attuned to you know, we've got more information
Speaker 7: on labor market between now in September.
Speaker 4: All right, Claudia, thank you so much for joining us.
Speaker 4: Really appreciate getting some of your time. Claudia sam she
Speaker 4: is the chief economist at New Century Advisors, former Federal
Speaker 4: Reserve economist, and a Bloomberg Opinion opinion writers. We appreciate
Speaker 4: getting some of her time. She's a creator of the
Speaker 4: Psalm rule, a recession indicator, which says, maybe it's not
Speaker 4: tripped today, but it's certainly suggesting that the risks of
Speaker 4: a recession or higher certainly.
Speaker 6: In your term.
Speaker 2: But I love her candor of like, look, I think
Speaker 2: some people are taking this and running with us like
Speaker 2: a little bit too far. There's some more nuances. I
Speaker 2: love that because you don't get that very often, particularly
Speaker 2: in a market that for so long appeared so one
Speaker 2: sided in terms of positioning, that that kind.
Speaker 5: Of nuance is quite important.
Speaker 2: And I have to wonder how complacent and are we still?
Speaker 2: I mean that fade yesterday was not a good sign.
Speaker 6: No it wasn't.
Speaker 4: But again we got the SMP, you know, up one
Speaker 4: point six percent here today, the Russell up one and
Speaker 4: a half percent, the NASTAC up one point eight percent,
Speaker 4: so kind of per some broad market moves hired today.
Speaker 5: Yeah, and the visit twenty five. I remember those days
Speaker 5: where it was twelve, like two weeks ago.
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Speaker 2: Alex Steel here alongside Paul Sweeney. This is Bloomberg Intelligence Radio.
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Speaker 5: We also like to dig deep.
Speaker 2: Into the amazing reporting here that we have throughout Bloomberg News.
Speaker 2: And there's a couple of things on that point. One
Speaker 2: is we're going to go to Madison Mueller, who's going
Speaker 2: to talk about Eli Lilley earnings, because that was quite interesting.
Speaker 5: The other is we're going to talk about ozempic town.
Speaker 5: It's a big take.
Speaker 2: You can check it out on our podcast, you can
Speaker 2: check it out in Bloomberg Business Week as well, but
Speaker 2: it's saying it found the biggest town in the United
Speaker 2: States that uses ozempic. It was really cool, great anecdotal evidence,
Speaker 2: and I have lots of questions. Madison joins us now
Speaker 2: in studio verses. Take us through Eli Lily earnings. Is
Speaker 2: this a pure like market share grab from Novo to Ali?
Speaker 9: Not quite yet, So that's what we're We're We've been
Speaker 9: closely watching. Lily is narrowing the gap with Novo Nordisk.
Speaker 9: The sales are coming quite close. I mean, Lily had
Speaker 9: one point two billion in sales of zep Bound, which
Speaker 9: only launched a few months ago, and Novo Nordists had
Speaker 9: one point seven billion in sales of its weight loss
Speaker 9: drugg we Go V, which they reported yesterday. And we
Speaker 9: Gov's been on the market for several years. So Lily
Speaker 9: is like really moving fast. Sales are ramping up extremely quickly,
Speaker 9: and we are watching closely to see what happens.
Speaker 4: I guess the next step for these drugs is I
Speaker 4: guess an oral yea, exactly where are we on that?
Speaker 6: What are the companies saying?
Speaker 9: Both companies have been working on pills, which obviously they
Speaker 9: think could help not only expand the market in the US,
Speaker 9: but expand x US because there are certain markets that
Speaker 9: research has shown prefer pills over shots.
Speaker 10: Japan is one of them, interestingly, so that's kind of
Speaker 10: the next step here. Both of the companies are studying
Speaker 10: these drugs.
Speaker 9: Novo, though, has had a lot of trouble with supply
Speaker 9: and particularly making enough of the active ingredient that's used
Speaker 9: in their drugs. The pill uses the same active ingredient
Speaker 9: and it uses more of it, so they're kind of
Speaker 9: struggling right now. They can't really launch that pill until
Speaker 9: they get a handle on supply.
Speaker 2: Let's go to the big philps are about that didn't
Speaker 2: turn on my mic. Let's go to the big take
Speaker 2: because that was quite interesting and it feeds into the
Speaker 2: whole story. And the title is what it's like when
Speaker 2: o zepic takes over an entire town.
Speaker 4: Wait, great story, thank you, thank you, because I spent
Speaker 4: a ton of time in Bowling Green, Kentucky.
Speaker 10: Really, I know of what you.
Speaker 4: Speak and I send it to a buddy who lives there.
Speaker 4: She knows half the people in the article.
Speaker 10: That's really Oh that's awesome.
Speaker 3: Wow.
Speaker 5: I'm just really curious as to how you found this town.
Speaker 9: So we worked with the data team on this story,
Speaker 9: and we got data at the three zip code levels,
Speaker 9: so we're looking at, you know, cities and sort of
Speaker 9: their surrounding areas, and we were looking all across the country.
Speaker 9: A few other spots came up, like Huntsville, Alabama, and
Speaker 9: we kind of were digging around to see just if
Speaker 9: people were talking about the drugs online. You know if
Speaker 9: there were doctors in the area that were prescribing them.
Speaker 9: And we honed in on Bowling Green specifically because Kentucky
Speaker 9: as a state has the highest concentration of weight loss
Speaker 9: drug users in the country. So we were like, oh, well,
Speaker 9: if this city is showing up in our data, this
Speaker 9: is probably a good a good place to go and
Speaker 9: see what's happening. And so started talking to people there
Speaker 9: and like you know, it kind of spreads like wildfire.
Speaker 9: You talk to one person who's on the drugs and
Speaker 9: they're like, oh, talk to my friend, talk to my neighbor.
Speaker 9: They're on the drugs too, And it just kind of
Speaker 9: was easy to find people after that.
Speaker 6: Why is that?
Speaker 4: Why is it the use so concentrated in a place
Speaker 4: like Kentucky. Is that just simply because there's more people
Speaker 4: there that qualify from a I guess a weight perspective.
Speaker 10: Right, I Mean, that's a piece of it, which is
Speaker 10: actually a good thing.
Speaker 9: I Mean, we hear so much about the drugs in
Speaker 9: New York and in Hollywood, but when we're looking at
Speaker 9: actual obesity rates, those aren't the places that have the
Speaker 9: highest concentration of people with obesity or diabetes. In Kentucky,
Speaker 9: there are high rates of obesity and diabetes. There's also
Speaker 9: there were large employers in the area that were covering
Speaker 9: the drugs so people could get access to them. Bowling
Speaker 9: Green in particular is a very middle class area, so
Speaker 9: when people couldn't get coverage for the drugs, they were
Speaker 9: willing to pay out of pocket for it. So that
Speaker 9: kind of made the conditions ripe for these drugs to
Speaker 9: take off in Bowling Green.
Speaker 2: When when you write the article, you also talk about
Speaker 2: compound drugs here, just walk us through what a compound
Speaker 2: drug is, why it's allowed, and is it legit.
Speaker 9: Yeah, I mean that has been a really big thing
Speaker 9: and a really big part of this weight loss drug
Speaker 9: market as of recently because you know, and that fits
Speaker 9: in with this supply issue. LILLI and Novo have really
Speaker 9: been struggling to keep up with supplies. So when drugs
Speaker 9: are in shortage. Officially, these compounding pharmacies are allowed to
Speaker 9: make similar versions, copycat versions, we call them, to help,
Speaker 9: you know, patients who are unable to get prescriptions.
Speaker 10: For the drugs.
Speaker 9: But what's happened is, you know, in this gap, it's
Speaker 9: kind of allowed these compounding pharmacies to proliferate, and not
Speaker 9: all of them are exactly legitimate. And so there's a
Speaker 9: lot of medical spas that are using the compounding drugs,
Speaker 9: telehealth companies that are selling the compounding drugs, like Hymns
Speaker 9: and hers is one that comes up, and in Bowling
Speaker 9: Green it's really taken off as well. There's like all
Speaker 9: of these medical spas popping up, weight loss clinics popping
Speaker 9: up that are offering compounded or just illegitimate versions of
Speaker 9: the drugs, and you know, that's become a big thing
Speaker 9: there as well.
Speaker 4: Well for the compounded drugs, are they are they as effective?
Speaker 6: Are they safe? What do we know about them?
Speaker 9: That's kind of the problem is because you know, pharmaceutical
Speaker 9: products are so tightly regulated and require so many studies
Speaker 9: from these drug makers, but the compounded drugs are not
Speaker 9: studied and they're not regulated in the same way.
Speaker 10: There's not the same FDA oversight.
Speaker 9: So when we think about are these drugs as effective,
Speaker 9: the answer is like, we don't really know because we don't.
Speaker 10: Have studies that prove that indefinitely, Why would.
Speaker 5: That ever be allowed?
Speaker 2: I don't mean understand like it's it's a tight supply
Speaker 2: shortage YadA YadA. But then why is it like, here's
Speaker 2: an option take a drug that you don't really know work,
Speaker 2: So what's in it?
Speaker 10: Why is that allowed?
Speaker 9: It's because, I mean, normally, like compounding, the reason that
Speaker 9: it exists is more on like an individual basis.
Speaker 10: So if a person is allergic to a certain.
Speaker 9: Ingredient or like a coloring and a drug, compounding pharmacies
Speaker 9: can you know, tailor make those drugs for that specific patient.
Speaker 9: Or if a drug is in shortage and a person
Speaker 9: can't get access to it. It's not really supposed to be.
Speaker 9: They're not supposed to be acting like drug makers. But
Speaker 9: that's kind of what we're seeing happening with these weight
Speaker 9: loss drugs because of the demand for them.
Speaker 4: I mean, great stuff, Madison Moeller, your cohorts, co authors
Speaker 4: Devin Leonard and Tanna's mayor Johnny MCGANI yet mcganni, Okay,
Speaker 4: that's the big take story today a Bloomberg Business Week,
Speaker 4: what it's like when ozepic takes over an entire town.
Speaker 4: In this case, they focused on Bowling Green, Kentucky.
Speaker 2: I did like in the story, I talked about how
Speaker 2: there was like a wellness thing, and then you also
Speaker 2: like Botox next door because it's a zempic.
Speaker 5: Face everyone talks about.
Speaker 2: But like you lose all that weight really fast, but
Speaker 2: then you got all the skin kind of flapping around everywhere.
Speaker 5: The botox to fix it.
Speaker 4: Bowling Green, Kentucky. They make Chevrolet Corvette's and they make underwear.
Speaker 6: Thank you, thanks for the loom Is Baby loom In.
Speaker 7: Really yeah, so that's what.
Speaker 5: Let's also go there.
Speaker 6: That's awesome.
Speaker 5: Okay, so we have like a working.
Speaker 6: Scabrola everyone to thanks.
Speaker 4: Health reporter Bloomberg News, join's life here in a Bloomberg
Speaker 4: Interactive Brokers studio, doing some great reporting on these weight
Speaker 4: loss drugs, which are really really becoming a big phenomenon
Speaker 4: in the healthcare space.
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Speaker 2: Let's keep going on an under armor here that stock
Speaker 2: up by twenty percent of quinnam Goyle, a senior US
Speaker 2: e commerce and retail analyst of Bloomberg Intelligence, She joins us,
Speaker 2: Now what part of this is like, who if it
Speaker 2: could have been worse versus we really like the stock
Speaker 2: and its growth.
Speaker 11: I think, you know they're executing right. This is the start,
Speaker 11: but make no mistake, they have a long long way
Speaker 11: to go. I think the fact that they beat expectations
Speaker 11: is a good sign that they've stopped the bleeding and
Speaker 11: it's getting better. But getting to positive sales is still
Speaker 11: going to be a long while. In fact, before we
Speaker 11: see actually some meaningful improvement in product, which is a
Speaker 11: key part of the story, it's not going to be
Speaker 11: for another nine to twelve months, so there's still a
Speaker 11: lot of time. The environment is still very fickle, and
Speaker 11: you know, when you look at their guidance, which they
Speaker 11: did raise, it doesn't suggest that things are getting materially better.
Speaker 11: In fact, there's a little bit of caution built into
Speaker 11: the guidance as they expect Asia Pacific region to get weaker.
Speaker 11: They're having freight expense pressures and also four X pressures,
Speaker 11: so it's not all rosy as it seems looking at
Speaker 11: the share price. But they are making improvement.
Speaker 4: What do they need to restricture here or do they
Speaker 4: just need to have more cooler stuff in the stores.
Speaker 11: I think it's everything. It's definitely product product disking. In retail,
Speaker 11: they do need to improve their product positioning as well
Speaker 11: as what they offer. Aside from that, they also have
Speaker 11: to improve how they market this product. Under Armour has
Speaker 11: gone through these restructuring efforts multiple times now, so this
Speaker 11: isn't something new to them. They've overpenetrated in the off
Speaker 11: price category, they've over discounted, They've become basically a promotional banner,
Speaker 11: and now they're trying to do what they tried to
Speaker 11: do again previously, is to restructure themselves as a more
Speaker 11: premium brand. Can they do it, yes, but it's going
Speaker 11: to take effort and time and they have the means
Speaker 11: to do it. They have the expertise. But remember there
Speaker 11: are much smaller brand than a Nike and Adida, so
Speaker 11: they don't have those deep pockets to help them. But
Speaker 11: it will take time for them to actually get this underway.
Speaker 2: So isn't this like a really rough time to try
Speaker 2: and like rebe a premium brand.
Speaker 11: It's tough, but under Armour isn't a dead brand, right.
Speaker 11: Everyone still recognizes under Armour and it isn't a brand
Speaker 11: that has kind of died and is not coming back
Speaker 11: to life. People recognize the name, people still use it
Speaker 11: in sports. They have seventy athletes across twenty eighteens and
Speaker 11: the Olympics right now. So it's not dead and yes
Speaker 11: it can be repositioned, but it will take time.
Speaker 4: So in this part of the retail space that you cover, Punum,
Speaker 4: the Nikes, the Underarmers of the world, the Adidas, which
Speaker 4: is correct way to pronounce.
Speaker 5: It, Oh, Matt Miller, is that you yes, off, how's.
Speaker 6: The consumer there in that part of the world.
Speaker 11: So the consumer isn't in the best place today. We've
Speaker 11: seen the consumer indicators, whether it's the unemployment rate, which
Speaker 11: we closely watch is now over four percent. They're lofty.
Speaker 11: Amazon said it on their call just last week that
Speaker 11: they do expect consumer volatility and macro pressures to build.
Speaker 11: There will be more discounting. So you know, the consumer
Speaker 11: is choosing, they're being picky, they're trading down, they're pulling back.
Speaker 11: It's not the best consumer environment heading into the back half.
Speaker 2: So how much time do we need to give, then, say,
Speaker 2: under armour to fix all of this? Because what is
Speaker 2: in neusyncratic versus the macro environment. That feels like it's
Speaker 2: going to draw this process out a bit.
Speaker 11: It's definitely going to draw it out a little bit,
Speaker 11: especially if at worsens. We heard them say that promotions
Speaker 11: will tick up, which was a major driver to better
Speaker 11: gross margins in the second quarter. That was really a
Speaker 11: large part of the outperformance there. But that said, you're
Speaker 11: talking about a ten percent decline in North America, double
Speaker 11: digit declines in the quarter. Is still expecting double digit
Speaker 11: declines in the rest of the year, their fiscal year.
Speaker 11: It's a long way before we can see, you know,
Speaker 11: continuous positive growth. That's say, you know, definitely well over
Speaker 11: a year, if not longer.
Speaker 6: Put them oil. Thank you so much. We appreciate it.
Speaker 6: Putt them oil.
Speaker 4: She has our senior anamals covering all the retail stuff
Speaker 4: for Bloomberg Intelligence. Given the latest here on our good
Speaker 4: friends at under Armour based in Baltimore, Maryland. Kevin Plank
Speaker 4: is the founder of that thing. Pretty good story there overall,
Speaker 4: but as Puna mentioned, a lot of competition.
Speaker 6: They need to restructure a little bit there.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live
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Speaker 6: I'll tell you what's not working today, Warner Brothers Discovery.
Speaker 3: I don't know.
Speaker 4: When I covered these stocks, they were ripping. But I
Speaker 4: don't know this new generation of media analysts. I don't
Speaker 4: know what they're doing here. Kevin here, he joins us here.
Speaker 4: He's a senior media associate for Bloomberg Intelligence. He works
Speaker 4: with my good buddy Getha ranganathin covering the media space. Here, Kevin,
Speaker 4: this is a tough one here. I mean, talk to
Speaker 4: us about what's happening with Warner Brothers Discovery taking a
Speaker 4: big write down today.
Speaker 6: What was the write down for exactly?
Speaker 8: Exactly?
Speaker 6: Thanks for me on Paul.
Speaker 3: It was.
Speaker 8: It's it's bad, it's not great. Obviously, we're still in
Speaker 8: a very transitory period and media expectations were certainly tempered
Speaker 8: coming into the quarter. I think they've been that way
Speaker 8: for a little while now. Obviously, Warner stopped giving us
Speaker 8: adjusted ebit a guidance at the beginning of the year,
Speaker 8: but that said, you know, it was worse than expected,
Speaker 8: and it's really really I think the headline is on
Speaker 8: the network side, as you just said, that's where that
Speaker 8: nine billion dollar write down was coming from. And the
Speaker 8: visibility isn't great. You know, they're they're going to be
Speaker 8: losing it's all of it's certain they're gonna be losing
Speaker 8: the NBA contract in twenty twenty five, twenty six. So
Speaker 8: it's really been a game for a long time for
Speaker 8: traditional media. Can they scale up their streaming services while
Speaker 8: PayTV continues to melt. But it's it's tough, but.
Speaker 5: They're streaming wasn't terrible.
Speaker 2: It was really just the traditional ad business and also
Speaker 2: the movie business like done too fine, Like I'll see it,
Speaker 2: but please you ain't.
Speaker 5: A don't pool.
Speaker 8: It's exactly right, that's exactly right. The ads were really
Speaker 8: where they're filling a lot of the weakness as you know,
Speaker 8: those linear ad dollars are moving towards connected TV.
Speaker 6: Streaming was was pretty good.
Speaker 8: They had some nice international launches during the quarter, So
Speaker 8: those net ads came in above expected and they are
Speaker 8: actually one of the few that are are starting to
Speaker 8: get to the inflection point where we're starting to see
Speaker 8: some profit, but again it's so much smaller compared to
Speaker 8: their legacy TV business that's still.
Speaker 6: The bread and butter.
Speaker 8: And on the studio side, you're right, they had some good,
Speaker 8: good results with Dune. They had a good launch with
Speaker 8: Godzilla x Kong. They also had some misses. Furiosa was
Speaker 8: one that didn't quite do as well. And of course
Speaker 8: on the video game side, that's also been quite weak,
Speaker 8: especially of some against some difficult comps against last year
Speaker 8: with the Hogwarts legacy.
Speaker 4: All right, sixteen point seven billion dollar market cap, that's
Speaker 4: one thing, but then you look at the balance sheet
Speaker 4: and they got forty billion dollars of debt. Oh my god,
Speaker 4: what is this company? I mean, John Malone's a shareholder,
Speaker 4: an agent of change.
Speaker 6: If nothing else.
Speaker 4: Is there an expectation the marketplace, Kevin, that this is
Speaker 4: a company that needs to.
Speaker 6: Be restructured, split up, acquired.
Speaker 8: I mean, it's certainly been speculated on management. Of course,
Speaker 8: you know, declined to comment on on rumors like that.
Speaker 8: At they're certainly prioritizing their cash flow to to pay
Speaker 8: down their debt right now. Certainly a lot of that
Speaker 8: is going towards their their interest payments. It's it's difficult
Speaker 8: to say, you know, it's really really difficult. Obviously when
Speaker 8: you look across kind of the media landscape. They are
Speaker 8: partnering together with with bundling. Obviously we have Venue Sports
Speaker 8: coming this fall, so.
Speaker 5: That again help me understand that one.
Speaker 8: It's it's the streaming sports JV. Essentially they're going to
Speaker 8: be it's like a skinny paid TV bundle. So essentially
Speaker 8: you know you're getting those cable TV channels, but it's
Speaker 8: all over the internet. Right, So again, that's Warner that's Fox,
Speaker 8: that's that's Disney's ESPN. But it's not NBC Universal, it's
Speaker 8: not NBC Universal, it's not Paramount CBS Sports.
Speaker 6: It's a disaster. It's a digster.
Speaker 4: We had when I was running this industry, we had
Speaker 4: people paying their cable operator one hundred bucks a month.
Speaker 4: The cable operator made money, and the cable operator paid
Speaker 4: a lot of money to the Viacoms and Warner Brothers
Speaker 4: Discoveries of the world for their cable networks. They made money,
Speaker 4: lots of big audiences, advertisers made money.
Speaker 6: Everything was good.
Speaker 4: And then the young guy folks come into the industry
Speaker 4: and they change it. They start the streaming service and
Speaker 4: now they're scrambling for dollars. Is there an expectation, Kevin,
Speaker 4: that we're somewhere near a point where it all shakes
Speaker 4: out or something.
Speaker 8: Yeah, I think so, And then you make it sound
Speaker 8: so wonderful fact that money there Again, if you look
Speaker 8: at a I mean, certainly Netflix is crushing right now,
Speaker 8: you know. There their their margins are are so great.
Speaker 8: You know, they just up their margin guidance, cash flow
Speaker 8: really really strong and certainly seemed to be winning these
Speaker 8: streaming wars. But again, you know, it's it's evolving, right,
Speaker 8: it's it's continuing. We're looking at price increases. Obviously, when
Speaker 8: you're looking at you know, kind of a more mature
Speaker 8: market like the US, the focus is on urpoop, So
Speaker 8: how are you going to raise arpoo there? There are
Speaker 8: a few different levers exactly exactly there it is, uh
Speaker 8: so you can do that. They're just price raises. Obviously,
Speaker 8: they're trying to build out their advertising like we were
Speaker 8: talking about before. And then the other big lever is
Speaker 8: the password crackdown. So Netflix did that last year. Disney's
Speaker 8: going to be implementing that in earnest and.
Speaker 6: Has that been material like did that.
Speaker 10: Oh no, it really helped, yeah, very much.
Speaker 4: So yeah, okay, when you offspring, we're upset because they've
Speaker 4: been skating on my coattails for a long time.
Speaker 5: I guess also them.
Speaker 2: The question is, at some point, I don't know if
Speaker 2: we're here yet, people are just gonna get fed up
Speaker 2: with all the pricing increases which I cannot keep track,
Speaker 2: and they're gonna do the thing where they go through
Speaker 2: and they're like no, no, no, yes, yes, and they're
Speaker 2: gonna start cutting.
Speaker 5: Have we seen that yet a little bit?
Speaker 8: A little bit again. You know, if you look at Netflix,
Speaker 8: their their turn levels are so low compared to their peers.
Speaker 8: But you do see a lot of those serial churners.
Speaker 8: You know, they'll sign up, they'll watch a show that
Speaker 8: they like, and then they'll cancel. Right, So they're they're
Speaker 8: trying to combat that. They're still keeping you know, again,
Speaker 8: they they being you know, most of these streamers, they're
Speaker 8: still keeping that competitive entry price with their ad supported tires.
Speaker 8: So what they're trying to do is either you have
Speaker 8: to pay a lot for a premium product or pay
Speaker 8: less and watch ads.
Speaker 6: All right, Kevin, good stuff, you can come back. You
Speaker 6: passed the test.
Speaker 4: Kevin Near, senior media associate analysts that Bloomberg can telepressure.
Speaker 4: I didn't hire them, but Geitha did, so that's good
Speaker 4: enough for me.
Speaker 6: That's all I need.
Speaker 4: He's here at Bloomberg Interactive Broker Studio, and most importantly.
Speaker 6: He's based in New York City.
Speaker 4: None this Princeton stuff.
Speaker 6: You want to be a player, you got to be
Speaker 6: in big town. That's what I always say. Kevin here,
Speaker 6: Thanks for joining us here.
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