Speaker 1: This is Bloomberg Business Week inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio.
Speaker 1: All Right, yeah, you know, hey, we're living in funny times,
Speaker 1: interesting times. Bank runs Yep, they have happened last week,
Speaker 1: and this is what we're trying to figure out. How
Speaker 1: far there? How much further does some of the bank
Speaker 1: stress go right now? And I think there's a lot
Speaker 1: of questions out there. We know at least four banks
Speaker 1: have curbs on trades with Credit Suite. We got this
Speaker 1: from Reuter's First Republicans Bank, that thirty billion cash injection
Speaker 1: not calming down investors. And then you've got a most
Speaker 1: read and Bloomberg exclusive story right now on the alarms
Speaker 1: at the San Francisco FED that went off months ago.
Speaker 1: When it comes to Silicon Valley Bank, you know from
Speaker 1: this morning that SVB Financial did file Chapter eleven bankruptcy
Speaker 1: in year. So let's get an update and where we
Speaker 1: are and how we got here, because it's all important.
Speaker 1: Joining us right now is Bloomberg News finance reporter hand
Speaker 1: to eleven along with Herman chand he's senior Alice for
Speaker 1: US regional banks with our Bloomberg Intelligence team. So investors
Speaker 1: continue to sell bank stocks, including First Republic. And I'd
Speaker 1: want to start with you, where are we what's the
Speaker 1: assessment of kind of where we are in the banking
Speaker 1: sector right now? Yeah, Well that's the that's the question
Speaker 1: that investors are trying to figure out themselves, right Are
Speaker 1: these banks that we've seen, you know, having issues and
Speaker 1: the ones that were seized by regulators? Are those the
Speaker 1: problem ers at a warning sign of just you know,
Speaker 1: more to come. And that's the question. I mean, we've
Speaker 1: seen these just massive stock moves over the past couple
Speaker 1: of days that really speak to you know, investors kind
Speaker 1: of trying to figure that out themselves. In Herman, we
Speaker 1: are seeing shares of First Republic down a lot again
Speaker 1: today even after yesterday, with what happened with these big
Speaker 1: institutions coming in to try to rescue it. And you
Speaker 1: have a no doubt to day specifically about First Republic.
Speaker 1: Why hasn't that thirty billion dollars rescue basically quelled investors fears?
Speaker 1: Right now? Sure, that's right, there's a couple of issues
Speaker 1: with both the thirty billion dollars deposit. It's only for
Speaker 1: one hundred twenty days, so it's shortly viewed as a
Speaker 1: short term bridge to a long term solution. And what
Speaker 1: that solution is it remains to be seen. But I
Speaker 1: can tell you that First Republics update after the market
Speaker 1: closed yesterday was frankly a bit eye opening because in
Speaker 1: particular that they noted that they had borrowed up to
Speaker 1: one hundred and nine billion dollars from the Federal Reserve,
Speaker 1: and you compare that to only the thirty billion that's
Speaker 1: coming in from JP Morgan, Bank of America and others
Speaker 1: in the largest US banks, it just shows that there's
Speaker 1: a lot of the positive outflow that they still need
Speaker 1: the stem or they need to find some sort of
Speaker 1: strategic resolution that could appease regulators and really put the
Speaker 1: safety of their depositors and their customers eddies. Yeah, banks
Speaker 1: not apples to apples. First Republic is certainly one thing
Speaker 1: Silicon Valley Bank, you know, Hannah, it's amazing. It was
Speaker 1: what one we could ago yesterday that the shares of
Speaker 1: Silicon Valleys Holding Company, if you will just plummeted. They
Speaker 1: came tumbling down. You and the team a Bloomberg exclusive
Speaker 1: about what FED bank regulators, San Francisco Fed regulators new
Speaker 1: months ago tell us about it. Yeah, what a crazy
Speaker 1: week it's spent. Right, So, Silicon Valley Bank, it's supervision
Speaker 1: within the Federal Reserve system was done through the San
Speaker 1: Francisco FED branch, and that FED branch has a program
Speaker 1: for supervising what it calls community in regional banks, the
Speaker 1: smaller banks, and then one for the large banks. And
Speaker 1: the large thing supervisors are typically you know, the more
Speaker 1: the more senior team there. They're dealing with the bigger,
Speaker 1: mark complex banks. So remember Silicon Valley five years ago
Speaker 1: was just a fraction of the size that it ultimately was.
Speaker 1: Um you know at the time of its failure last week, Yeah,
Speaker 1: it really is. It really ballooned. Yeah, So it ballooned
Speaker 1: in size over the past couple of years. To start
Speaker 1: UM twenty twenty two, the bank was moved from the
Speaker 1: smaller of the community regional bank supervision group to the
Speaker 1: larger one. And you know, as that transition happened, those
Speaker 1: more senior examiners started firing off a series of warnings.
Speaker 1: These are confidential warnings that are part of the regulatory process,
Speaker 1: and they can you know, set up for for more
Speaker 1: um serious and public things like consent orders which we've
Speaker 1: seen you know those and complic consequences like even in
Speaker 1: the most extreme case cappin growth. UM. But so these
Speaker 1: these so called MRIs and MRIs are kind of the
Speaker 1: first step in that process. UM. And the FED that
Speaker 1: that new more seam your team fired off warnings about
Speaker 1: operations in technology and then also late last year flagged
Speaker 1: interest rate risks, which is ultimately, you know, the massive
Speaker 1: problem that contributed very heavily to the bank failure that
Speaker 1: we saw last week. Well, and I want to come
Speaker 1: on in on this because the interest rate risk is
Speaker 1: something that we're all trying to figure out. It feels
Speaker 1: like a lot of banks have this exposure potentially, well
Speaker 1: as Frickie was a big outlier because you had mentioned
Speaker 1: they had grown and ballooned their balance sheet, and that
Speaker 1: ballooning happened largely within their deposit franchise, and so they
Speaker 1: didn't have enough lending opportunities to absorb all those deposits,
Speaker 1: so they parked all this cash from the deposits into
Speaker 1: the securities portfolio when rates were really low. So as
Speaker 1: rates roves, the value of those securities decline, and ultimately
Speaker 1: they were sitting on a fifteen billion dollar loss paper
Speaker 1: loss position, which was really the reason why a lot
Speaker 1: of the investment community lost confidence with the bank after
Speaker 1: the announcement that they were going to raise capital and
Speaker 1: sell some of these securities. As First Republic others same exposure,
Speaker 1: not too much. So SPB was an at wire with
Speaker 1: the size of their portfolio. Signature was a bit of
Speaker 1: a different breed because they had crypto exposure and there
Speaker 1: was there was they were running down those crypto related
Speaker 1: deposits and got sucked into the vortex of the SVB fallout.
Speaker 1: First Republic doesn't have that same sort of issue. It's
Speaker 1: more the issue with First Republic was Signature and SVB
Speaker 1: is that they all have very chunky deposits. So when
Speaker 1: you have a large commercial or highnet worth relationship exit,
Speaker 1: that has a big effect on your ultimate deposit balances.
Speaker 1: So if you have a lot of those chunky deposit
Speaker 1: sleeves and that that does create a hole in your
Speaker 1: balance shot kind of So I want you to come
Speaker 1: back in here. So as we start, as you guys
Speaker 1: reported out and you're exclusive, you know what, officials certainly
Speaker 1: there were things on their radar. I mean, how are
Speaker 1: you thinking about, you know, what's the follow through or
Speaker 1: what's the next especially as this comes out there. I
Speaker 1: guess my point is regulators were where that there was
Speaker 1: stuff going on. So was it that the systems weren't
Speaker 1: in place, people weren't listening? Where did it break down? Yeah,
Speaker 1: So that's a fantastic question and definitely something that will
Speaker 1: be learning more about in the coming weeks. The FET
Speaker 1: itself has promised to investigate its own supervision of Silicon
Speaker 1: Valley Bank and publish the results by May first, so
Speaker 1: I will be very excited to read that one it
Speaker 1: hits report on. In the meantime, Carol and I were
Speaker 1: actually just talking about as far as going into this weekend,
Speaker 1: just thinking about what transpired last weekend. Where are we
Speaker 1: at heading into the weekend, Herman, as far as should
Speaker 1: we be prepared for potentially other headlines to come through. Well,
Speaker 1: I'll be on my Bloomberg term at seven o'clock on
Speaker 1: Sunday just waiting for something to pop up. So I'm
Speaker 1: anticipating something. I don't know if we should expect it,
Speaker 1: but we just should be vigilant in terms of something
Speaker 1: coming out of First Republic or from the regulators. So
Speaker 1: that's something to watch well. And what's interesting, you know, Hannah,
Speaker 1: just to bring you back in here, I mean, I'm
Speaker 1: looking at your story. I mean, the San Francisco FED
Speaker 1: had this program right for overseeing regional institutions, so they
Speaker 1: were on it. Yes, Um, that's true. But the large institutions,
Speaker 1: I mean we're talking like the you know, in the
Speaker 1: biggest example like Wells Fargo for example. So those are
Speaker 1: much larger, much more complex than some of the smaller banks,
Speaker 1: which is why the more the more senior people are
Speaker 1: the ones in the in the large fing gerups. So definitely,
Speaker 1: you know, in my understanding of it from talking sources
Speaker 1: and whatnot and my own research, it was a different
Speaker 1: level of scrutiny once Cilicon Valleybank moved into the new group, Okay,
Speaker 1: so that they were certainly getting looked at. And I
Speaker 1: would say, Silicon Valley, what's actually going to go through
Speaker 1: the annual stress test starting next year if they were around?
Speaker 1: So they just grew so fast that I think they're
Speaker 1: like Lakanna was saying that it took some time for
Speaker 1: the regulators to come together and realize what sort of
Speaker 1: institution SBB really was. I just feel like in some ways,
Speaker 1: and I feel like we've seen this movie before a
Speaker 1: little bit, and that things just are kind of moving
Speaker 1: so fast and regulators can't keep up. Herman Wade in
Speaker 1: on what he's watching out for. What are you watching
Speaker 1: out for us we go into a weekend. Yeah, you know,
Speaker 1: that's a great question. And I'll note it's only three
Speaker 1: sixteen pms, so a lot a lot could evolve between
Speaker 1: now and then. I mean, I'm watching all the things
Speaker 1: that we've talked about on this call. Um, you know,
Speaker 1: what happens with the other firms that people have been
Speaker 1: talking about, and whether there's any news on the front
Speaker 1: of what happens to I guess the corpses of Silicon
Speaker 1: Valley and Signature. Yeah, and let's not forget credit spieces
Speaker 1: holding weekend meetings, just as it's scenarios. Again, not all
Speaker 1: apples to apples, but it's just you kind of start
Speaker 1: to layer these things on top of each other. And
Speaker 1: this is why we are seeing stress, certainly within the
Speaker 1: banking sector and banking stocks in particular. Hey, guys, thank
Speaker 1: you so much different angles to the story, so we
Speaker 1: really appreciate you both weighing in. Hannah Levitt is financial
Speaker 1: porter at Bloomberg News and our interactive Nope, she was
Speaker 1: on the phone forgive me in our interactive broker studios.
Speaker 1: Herman Chan he has been a go to for us
Speaker 1: throughout the week and I know he will be next
Speaker 1: week as well. Senior analyst for regional banks in the
Speaker 1: United States at our Bloomberg Intelligence Team. Herman, thank you
Speaker 1: so much, really appreciate it. You're listening to the Bloomberg
Speaker 1: Business Week podcast. Catch us live weekday afternoons from three
Speaker 1: to six Eastern Listen on Bloomberg dot com, the Ion
Speaker 1: Radio app, and the Bloomberg Business app, or watch us
Speaker 1: live on YouTube. Well. Earlier this month, Octa reported earnings
Speaker 1: that sended stock storring some thirteen percent and gave an
Speaker 1: upbeat first quarter revenue forecast. Like many tech companies, though
Speaker 1: it is finding a focus on efficiency, it is paying
Speaker 1: off for the company. The stock by the way, up
Speaker 1: more than twenty percent year to date. So let's get
Speaker 1: to lots of questions for our next guest. Todd McKinnon
Speaker 1: is the CEO and founder of Octa. It's a fourteen
Speaker 1: year old software maker known for authentication services, count Sono, Assume, Hpe,
Speaker 1: and open Ai among its customers and lucky for us
Speaker 1: Todd's and our Blueberg Interactive broker studio. So nice to
Speaker 1: have you here. I do have a million questions that
Speaker 1: we're to cram into eight minutes. First of all, Silicon
Speaker 1: Valley Bank, tell us about the relationship you guys have
Speaker 1: had with them and how you see this situation. Silicon
Speaker 1: Dollars Bank is a key part of the tech ecosystem.
Speaker 1: It's for many companies ought to included. It was the
Speaker 1: first bank we had as a company. We raised our
Speaker 1: financing and we put it in there and started running
Speaker 1: the business. And over the years the relationship. Would you
Speaker 1: put more than two hundred and fifty thousand dollars on deposit?
Speaker 1: For sure? I mean our first our first seed round
Speaker 1: was a million dollars and the next round was ten
Speaker 1: million dollars and it went in all yeah in Silicon
Speaker 1: Valley Bank. Sorry yeah. And so over the years what
Speaker 1: happens is you grow and you in the big diversification
Speaker 1: point I think for a lot of companies is when
Speaker 1: they go international it's really you have to have a
Speaker 1: big diverse set of banking partners to pay internationally, to
Speaker 1: accept payments internationally. So that was the point of diversification.
Speaker 1: But for a company that's early in its life cycle,
Speaker 1: it's it was really a it's a serious issue for
Speaker 1: a company that has operationals. So a lifeline for you
Speaker 1: guys are crucial, right, Yeah, well we've evolved passing yeah
Speaker 1: in the early days, but once you get to a
Speaker 1: certain size and scale like we are, you're pretty diverse.
Speaker 1: But it did bring back memories if when we were
Speaker 1: Octa was founded in the right after the financial crisis
Speaker 1: fourteen years old, started in two thousand and nine, so
Speaker 1: it really brought back some memories of banks failing and
Speaker 1: you know, being that early stage of a company where
Speaker 1: you're trying to survive and trying to get product market fit.
Speaker 1: And the last thing you want to deal with as
Speaker 1: a small startup is you're something you trusted as being
Speaker 1: really something that could never go away, is to have
Speaker 1: a serious question about it. If it would be around
Speaker 1: Todd no Silicon Valley Bank, what does it mean then
Speaker 1: for entrepreneurs, like, what's what Todd McKinnon today do well?
Speaker 1: Entrepreneurs are by definition pretty adaptive and different. Todd McKinnon, Yeah,
Speaker 1: exactly exactly. They're pretty adaptive and they're good at navigating
Speaker 1: changes and uncertainty. If you wanted a stable, static environment,
Speaker 1: you'd never be an an entrepreneur. So I think other
Speaker 1: folks will step in to fill the wood, and I'm
Speaker 1: very optimistic in the opportunistic future of both the world
Speaker 1: in general and also Silicon Valley specifically. What are your
Speaker 1: overall thoughts of this collapse as it's been playing out.
Speaker 1: I just think it's fast. You know, I'm not I'm
Speaker 1: running a six thousand person, you know, five hundred million
Speaker 1: dollars plus a quarter enterprise software company. So the last
Speaker 1: thing I'm worried about is financial stability of the banking system.
Speaker 1: So you hear stories about it on Wednesday and on Thursday,
Speaker 1: all of your friends are talking about what they're going
Speaker 1: to do with their company finances and the treasury and
Speaker 1: are they moving money around. So it happened incredibly fast,
Speaker 1: and it's a little unsettling for I think every company's
Speaker 1: Do you think about your early days of a startup
Speaker 1: and what that means for other startups When you think
Speaker 1: about potential customers. You may have partners, how you're gonna
Speaker 1: We still use still Silicon Valley in parts of our business,
Speaker 1: relatively small parts now for us, Like I said, we're
Speaker 1: lucky enough to be able to diversify away and use
Speaker 1: our other banking partners. So it takes work by the team,
Speaker 1: but we're able to power through it. Why did you
Speaker 1: decide to still have certain parts work with SPB. It's
Speaker 1: just part of it's just a history of having that relationship.
Speaker 1: You integrate things, you wire up payment sites, and you
Speaker 1: have payroll relationships, and it just keeps going and going
Speaker 1: and going. I guess what gives you confidence. Are there
Speaker 1: particular segments, like what exposure is it to there that
Speaker 1: you think it's a bit more shielded and wouldn't be
Speaker 1: happening like these other people that had to go through
Speaker 1: these kind of deposit type nightmares. Well, I think it
Speaker 1: depends on the company, and I think to draw two
Speaker 1: broad categories. There's one companies that are single threaded with
Speaker 1: one banking partner, right, and there's companies that are big
Speaker 1: enough and diverse enough to have mini banking partners. And
Speaker 1: so I think it's really this is real an impact
Speaker 1: for the first category, which is small companies really just
Speaker 1: trying to find product market fit and aren't diversified in
Speaker 1: what they So I want to talk all right, So
Speaker 1: you put reported earnings before all of this started to happen,
Speaker 1: so investors liked what they heard. They set the stock soaring.
Speaker 1: Tell us a little bit about what you're seeing in
Speaker 1: terms of the business environment. You know, you have customers
Speaker 1: that we all know, we know the names. What does
Speaker 1: it feel like right now out there? It's what we
Speaker 1: do is very important for a lot of different areas
Speaker 1: of a company and initiatives that a company that a
Speaker 1: company is working on. And we're lucky enough to be
Speaker 1: not only mission critical for our customers, but also mission
Speaker 1: critical any economic environment. So simple example is if you're
Speaker 1: part of our portfolio workforce. Identity helps companies adopt new
Speaker 1: technology and make their workforce more efficient and give them
Speaker 1: the best tools and give them flexible, be flexible with
Speaker 1: different working environments. So in an economic time of uncertainty
Speaker 1: or macro conditions are not clear, or what's happening with
Speaker 1: the banking system, you want flexibility and you want efficiency,
Speaker 1: and you can do that with a good identity system.
Speaker 1: You can do that with access to the best technologies
Speaker 1: is which what identity does, and that's just part of
Speaker 1: our business. Another big part of our business is customer identity,
Speaker 1: so helping we're lucky enough to work with open ai
Speaker 1: to be the identity to be the log in for
Speaker 1: chat GBT. So no matter what's happening, no matter what
Speaker 1: there are in terms of economic concerns, the march of
Speaker 1: technology goes on and there's innovation. There's amazing breakthroughs like
Speaker 1: chat GBT, and so that's driving part of our business
Speaker 1: and that specific example. So we're broadly diversified across different
Speaker 1: types of businesses. Is that half and half that split,
Speaker 1: it's the split in our two businesses between workforce identity
Speaker 1: and customer identity right now is sixty forty sixty percent
Speaker 1: of the revenue is from workforce. But we think over
Speaker 1: time we're building this broad company that can address all
Speaker 1: of these identity use cases. We want to move that
Speaker 1: toward fifty fifty and have both of them be growing quickly.
Speaker 1: I'd say in general, I mean, I just think about
Speaker 1: what it takes every day to get into our systems
Speaker 1: and just increasingly I'm okay with it. I don't care
Speaker 1: how many layers, whether it's in getting into my own
Speaker 1: bank on my phone like bring it on. So I
Speaker 1: do feel like you're in kind of this sweet spot.
Speaker 1: In terms of a business, you mentioned chat GPT. What
Speaker 1: has changed in the dynamics of that side of the
Speaker 1: business since that Microsoft ten billion dollar investment in open Ai. Well,
Speaker 1: for our business customer identity, it's, like I mentioned, it's
Speaker 1: forty percent of our revenue. And the key thing to
Speaker 1: remember about this business is it's it's kind of a
Speaker 1: new market workforce identity. There's been traditional players you've you've
Speaker 1: purchased your identity technology from maybe in the past, from
Speaker 1: an IBM or an Oracle or companies like that, and
Speaker 1: so we are the cloud version or the modern architecture,
Speaker 1: the flexible modern architecture for that. On the customer identity side,
Speaker 1: it's more of a new market. It's this world where
Speaker 1: developers are innovating, they're building all these new solutions. Chat
Speaker 1: GPT is one example, but this is happening in every industry,
Speaker 1: the media industry, the financial services industry, the every industry
Speaker 1: technology of course, manufacturing. They're trying to retail, they're trying
Speaker 1: to get more closer to the customer, and to do that,
Speaker 1: they have to build websites and build mobile apps and
Speaker 1: deliver a better customer experience. And inevitably they have to
Speaker 1: provide a log in to a user, and they have
Speaker 1: to make sure that they make it easy for the
Speaker 1: user to log in and then make it easy for
Speaker 1: the customer to map that customer, to map that user
Speaker 1: to different backend systems and market to them and progress
Speaker 1: that relationship and track data an additional way for track
Speaker 1: data for sure, for for depending on what the business is,
Speaker 1: you know, it varies, but they want to have a
Speaker 1: great customer relationship and that's a really an identity problem.
Speaker 1: And so that's done by a developer, and our business
Speaker 1: in the merging customer at any segment is really good
Speaker 1: for developers. It's super easy to use. The open air
Speaker 1: example is a good one because two years ago when
Speaker 1: they started using our products, the reason they did is
Speaker 1: because it's really easy for that developer to use. They
Speaker 1: didn't know it was going to become chat GBT. But
Speaker 1: by having a great developer experience and getting in there early,
Speaker 1: you can provide value in the early days and then
Speaker 1: as it grows in scales. All Right, got to ask
Speaker 1: you glass half full, glass half empty right now, real
Speaker 1: quickly in terms of the outlook, I am a glass
Speaker 1: half full guy. Is it just because you are? Because
Speaker 1: you feel confident about the data points that are coming
Speaker 1: down in the news. I think there's a lot. I mean,
Speaker 1: I think in times of turbulence and times of change,
Speaker 1: the companies that can provide stability to the employees, to
Speaker 1: their customers and provide a path through things to a
Speaker 1: better a better tomorrow are the ones that are going
Speaker 1: to thrive. So that's what we stay focused on. Well,
Speaker 1: I's thinking about, you know, Metta and Mark Zuckerberg, your efficiency,
Speaker 1: It's making people in terms of where they spend, certainly companies.
Speaker 1: I really think about it a lot. This was so
Speaker 1: much fun. I'm so appreciated. Come back soon. Thanks for
Speaker 1: having me. It's great to be here. Todd McKinnon. He's
Speaker 1: co founder and chief executive officer of Octa, Joining us
Speaker 1: here in our Bloomberg Interactive Broker Studio. You're listening to
Speaker 1: the Bloomberg Business Week podcast. Catch us Long weekday afternoons
Speaker 1: from three to six Eastern on Bloomberg Radio, the Bloomberg
Speaker 1: Business app and YouTube. You can also listen live on
Speaker 1: Amazon Alexa from our flagship New York station, Just say
Speaker 1: Alexa playing Bloomberg eleven thirty. Gotta say, after a week
Speaker 1: like this one, it is nice to get a walk outside.
Speaker 1: Check out the sky as a blue. Yeah, they're a
Speaker 1: little bit hazy here in New York City, but I'm
Speaker 1: thinking about that well. I gotta say, earlier this week,
Speaker 1: we want to get a little bit of a check
Speaker 1: on the retail space, in consumer space. We did get
Speaker 1: a check on retail sales earlier this week. You might
Speaker 1: recall when we reported on US retail sales falling last
Speaker 1: month after surge in the prior month in January, suggesting
Speaker 1: consumer spending it's holding up. Yep, we got that, but
Speaker 1: it is getting challenged by continued high inflation, which is
Speaker 1: something we know the Fed will be addressing Jess next week.
Speaker 1: So our next guest has a great vantage point when
Speaker 1: it comes to consumers back with us. Ken Hicks, chairman,
Speaker 1: president and CEO of Academy Sports and Outdoors. The nearly
Speaker 1: five billion dollar market cap sporting goods company stock up
Speaker 1: roughly twenty percent so far here in twenty twenty three,
Speaker 1: and hit a record high yesterday following it's quarterly update,
Speaker 1: he joins us on the phone in Katie, Texas. Ken,
Speaker 1: good to have you back with us. How are you great? Great?
Speaker 1: Thank you for having me Carrol. Well, tell us a
Speaker 1: little bit about how things are going, and I want
Speaker 1: to if I can, before we kind of drool down
Speaker 1: into your business. Let's start macro. We've got this week.
Speaker 1: It feels unnerving. Although you look at some stocks and
Speaker 1: they certainly outperformed, we're focused on the bank sector. What
Speaker 1: impact is any of this, if at all, having on
Speaker 1: you guys. Well, I think it's one more pressure on
Speaker 1: the consumer, and while it may not be a pressure
Speaker 1: that they personally feel, it's one that makes them aware
Speaker 1: and more conservative about, you know, what they do with
Speaker 1: their money. And that's always a challenge when the customer
Speaker 1: is a little larious. So you see customers then pulling
Speaker 1: back a little bit. Now. Well, a couple of things
Speaker 1: that we're seeing. One is that they're more looking for
Speaker 1: more value and so we're seeing our private label businesses
Speaker 1: and when we do have a clearance or promotion, we're
Speaker 1: seeing that do well. And the other thing is we're
Speaker 1: seeing the consumers are focusing their buying on things that
Speaker 1: you know, they really enjoy and that's quite frankly helps
Speaker 1: us because you know, we sell fun and the Lord
Speaker 1: knows the world needs more fun, and that's that's good
Speaker 1: for us. And people are being more discriminatory about where
Speaker 1: they spend their discretionary money can and that's interesting specifically
Speaker 1: about discretionary because that's been the whole debate, especially looking
Speaker 1: at how the equity market is performing, and also what
Speaker 1: that means for the economy. If consumers are spending more
Speaker 1: toward either discretionary or stables. What exactly are you seeing
Speaker 1: with your products sports? Have you seen any specific shifts
Speaker 1: towards either side of that recently? Yeah, some of the
Speaker 1: categories that had big pushes during COVID, like fishing, exercise equipment,
Speaker 1: have slowed down. They're well above where they were before
Speaker 1: the pandemic, but they have dropped off. But where we're
Speaker 1: seeing people, you know, getting out and buying are team sports.
Speaker 1: So the kids, the families are still enjoying games, patio
Speaker 1: and barbecuing. They're out there trying to enjoy their backyard,
Speaker 1: maybe they've got a staycation. And apparel and footwear, those
Speaker 1: are some classifications where people are really focusing and they're
Speaker 1: running ahead of last year. Yep, I need some new
Speaker 1: footwear because my puppy's been chewing everything. Having said that, Ken,
Speaker 1: one thing, I'm curious how nimble are you guys in
Speaker 1: your supply chain and your inventories to that as you've
Speaker 1: seen the shift from what was going on in the
Speaker 1: pandemic to what is going on today, how able are
Speaker 1: you and how quickly to meet that latest demand by
Speaker 1: the consumer. The good news is the supply chain is
Speaker 1: pretty much back to running normally, and we are actually
Speaker 1: pretty nimble and we learned a lot during during COVID
Speaker 1: and how we were able to operate, speed up the inventory,
Speaker 1: move things around, and you know, we're in uh, we
Speaker 1: are in good shape. And I think overall retail is
Speaker 1: in better shape now because the supply chain is back
Speaker 1: to normal. Does that mean pricing pressures are back to normal?
Speaker 1: And are you raining in Are there prices you raised
Speaker 1: during the pandemic as you had to toe your margins? Yeah,
Speaker 1: we've been very, very thoughtful. We're a value retailer and
Speaker 1: so we've we've had to be really careful. Prices have
Speaker 1: gone up the cost of raw material as cotton, steel,
Speaker 1: things like that to go into our product, labor, and
Speaker 1: so what we've done is we've really focused on those
Speaker 1: key price points. For example, we've got a ninety nine
Speaker 1: dollars adult bike, a fifty nine kids bike, four dollar
Speaker 1: folding share. Those are all big categories for us. We're
Speaker 1: holding those price points and we're working a little bit
Speaker 1: shorter than we would have historically, but we want to
Speaker 1: make sure we have that value and we're being thoughtful
Speaker 1: of where we do take our price increases so that
Speaker 1: we don't hurt that consumer who's looking for value. Ken
Speaker 1: I'm from Texas, so I've definitely been inside those stores
Speaker 1: many different times. And it was curious as far as
Speaker 1: when you're talking about these supply chain issues obviously inflation,
Speaker 1: can you still keep the pace up to open new
Speaker 1: stores with everything that has been happening. Yeah, we are.
Speaker 1: You know, when you open a store, you're opening up
Speaker 1: for twenty or thirty years. And there's an expression about
Speaker 1: you don't pass cars on a dry track, you pass
Speaker 1: them on a wet track, and so if there's a
Speaker 1: wet track, this is a wet track, and so now's
Speaker 1: the time to open so that when the economy comes back,
Speaker 1: we're well positioned and ready to go as opposed to
Speaker 1: losing the time and when it does come back, and
Speaker 1: so the good news is our business throws off a
Speaker 1: lot of cash. We were able to support all these
Speaker 1: with operations were profitable. One of the things that we
Speaker 1: reported and why our stock reacted favorably yesterday when we
Speaker 1: reported our earnings were up. Even with sales that were
Speaker 1: down more than what we would have liked, our earnings
Speaker 1: were still up eleven percent and we had a record
Speaker 1: earnings per share for the year. So you're opening, you're
Speaker 1: going to continue to open news stores? Are you slowing
Speaker 1: though the paste down at all with them because of
Speaker 1: the volatility we've been seeing. No, we really aren't. We
Speaker 1: In fact, if we could open more, we could. But
Speaker 1: one of the challenges right now is the building stores
Speaker 1: is a challenge. Getting the sites, the labor that the
Speaker 1: you know, all the fixtures is taking a little bit
Speaker 1: longer than historically had But we really don't see at
Speaker 1: this point. We're doing it. We're doing it in a
Speaker 1: conservative manner. Anyway. We're not going out willy nilly. We
Speaker 1: opened nine stores last year this year will open thirteen
Speaker 1: to fifteen. We've got up our going out with our
Speaker 1: new annual plan, our new five year plan later this month,
Speaker 1: and we'll talk about how many we'll be opening over
Speaker 1: the next five years. But you know, we're positioning ourselves
Speaker 1: for the long term. Is the real estate space cheaper,
Speaker 1: there's space as you want to rent out. It depends,
Speaker 1: you know, it depends on the market. Now where we're
Speaker 1: looking are in some of the better markets, so some
Speaker 1: of the prices have gone up. But it's it's it's
Speaker 1: the real estate business. Isn't like it was five years
Speaker 1: ago where things were a lot cheaper. And are you
Speaker 1: still having to pay up for workers? Yeah, we have
Speaker 1: taken our salary up, our salaries up for the stores
Speaker 1: and for our distribution centers. We have not had a
Speaker 1: problem getting people because we offer a very competitive wage
Speaker 1: and it's it's a fun place to work, plus you
Speaker 1: get a discount on good stuff. I was curious about
Speaker 1: what you think that says about the direction of economy
Speaker 1: if you're not having a hard time getting workers. It's
Speaker 1: part of the Fed's challenge right now that you know,
Speaker 1: they think they're trying to slow the economy down, and
Speaker 1: the economy is not not slowing to have that much.
Speaker 1: You know, you just commented earlier about you know what
Speaker 1: what consumer? You know the consumers say ails are still
Speaker 1: still growing and you know that's continuing. Yeah, I wouldn't
Speaker 1: want to be the FED right now, right, you're watching
Speaker 1: that FED meeting quickly, just got about twenty seconds. Yes,
Speaker 1: we pay attention to what they do very closely, all right. Ken,
Speaker 1: always go to get a gut check with you and
Speaker 1: really appreciate it. Kenn Hicks. He's chairman, president and chief
Speaker 1: executive officer at Academy Sports and Outdoors. Joining us on
Speaker 1: the phone from Katie, Texas. You're listening to the Bloomberg
Speaker 1: Business Week podcast. Catch us live weekday afternoons from three
Speaker 1: to six Eastern Listen on Bloomberg dot com, the Ion
Speaker 1: Radio app, and the Bloomberg Business App, or watch us
Speaker 1: live on YouTube. Well, I gotta say another great economic
Speaker 1: indicator I always feel is anything and everything to do
Speaker 1: with transportation and the moving of things around in our
Speaker 1: global economy. So with that in mind, FedEx has certainly
Speaker 1: been on our radar today, the stock jumping the most
Speaker 1: and I think about nine months a two day rally
Speaker 1: of roughly fifteen percent ag an upgrade yesterday ahead of
Speaker 1: earnings and then on that quarterly update, the company boosting
Speaker 1: its profit outlook and more So, let's get to it.
Speaker 1: We've got a round table. Blueberg Markets correspondent Kreta Gupta
Speaker 1: joining us via zoom in New York City, and this
Speaker 1: has been on her radar. She's been like, hey, guys,
Speaker 1: don't forget FedEx for the last twenty four or so hours.
Speaker 1: And then also with us as Anthony de Ryder, he's
Speaker 1: senior analysts covering the company over at Third Bridge. He's
Speaker 1: on the phone in New York City as well. Krety,
Speaker 1: let's kick it off with you. You did give us
Speaker 1: a heads up. I feel like twenty four thirty hours
Speaker 1: ago or so ahead of FedEx FedEx big rally in
Speaker 1: the name. Tell us about the quarter and why the
Speaker 1: stocks shot up so much. Yeah, Carol, to your point,
Speaker 1: I've been really annoying about it because this is a
Speaker 1: really big deal. I think a lot of the spotlight
Speaker 1: has been on obviously the banking crisis, but look at
Speaker 1: the core of the issue is this idea of inflation.
Speaker 1: I think FedEx is such a great story to kind
Speaker 1: of talk about it. We think of FedEx as this
Speaker 1: bell weather stock. If shipping activity in the United States
Speaker 1: and around the world slows, that must mean the economy
Speaker 1: is too well this time around. Look, we know that
Speaker 1: consumers have been spending just a little bit less. The
Speaker 1: economy is slowing, perhaps not to the extent of panic,
Speaker 1: but slowing nonetheless, and that really showed up in FedEx's quarter. Here.
Speaker 1: The estimates going into those numbers after the bell yesterday
Speaker 1: was that they were going to see a pretty substantial
Speaker 1: volume decline and therefore profit decline, and that's exactly what
Speaker 1: they saw. A volume decline about six percent across the board,
Speaker 1: and then a revenue miss. And ordinarily, when you see
Speaker 1: those kind of stats, you would think, well, the stock
Speaker 1: should drop, right, the investors should kind of punish the
Speaker 1: company for missing their earnings. But it was their cost
Speaker 1: cutting measures that rescued the stock. The idea that they
Speaker 1: are going to be cutting headcount by twenty five thousand
Speaker 1: people by May, and that's on top of the ten
Speaker 1: percent headcount because they were already going to cut that
Speaker 1: they had announced in February. Now it's really important to
Speaker 1: put them into context because FedEx has about one hundred
Speaker 1: and ninety one thousand employees. That's a lot of whackers,
Speaker 1: a lot of whiskers. Yeah, that plus no buybacks, so yeah,
Speaker 1: pools cost cutting, right, Anthony, I want to bring you
Speaker 1: into the conversation because as we know, FedEx has been
Speaker 1: cutting costs already and we did get news in December
Speaker 1: about that additional one billion dollars in costs. And so
Speaker 1: there are smart in productive cost cuts, right, and then
Speaker 1: there are cuts that aren't necessarily going to mean anything.
Speaker 1: Help us out here make sense of it? Ya sure,
Speaker 1: thanks for having me guys. So you know everyone's focused
Speaker 1: on those cost cuts over in labor. I think you know.
Speaker 1: The people we speak to say, look, this is a
Speaker 1: short term P and L boost and it makes sense, right,
Speaker 1: you cut costs over in labor, and that helps out
Speaker 1: the P and L. But one thing that they point
Speaker 1: out is what is the students the company long term
Speaker 1: when it comes to attrition and productive labor going out
Speaker 1: the door following that labor that's just been cut, right.
Speaker 1: I mean FedEx is a place where they bleed purple.
Speaker 1: And you know there's this big culture of people come first,
Speaker 1: especially under mister Smith before rog. So now you're doing
Speaker 1: the opposite and people are from what I've heard from
Speaker 1: what we've heard is there's now this fear, this sphere
Speaker 1: that eats into the productivity outlook, which could hit FedEx
Speaker 1: moving forward. And then you know, outside of labor, we've
Speaker 1: got to think about. Look, they're talking about a billion
Speaker 1: in permanent cost cuts this year and then four billion
Speaker 1: under drive next fiscal period. Where are those costs going
Speaker 1: to come from? Because based on what we're hearing, a
Speaker 1: lot of that implementation is going to be really difficult
Speaker 1: because where do you find those costs that we can
Speaker 1: actually take out about sacrificing something else? Creedy, I'm curious
Speaker 1: about what it comes to air fleet, what's happening with that?
Speaker 1: Do we lose Creedy? All right, we're gonna go back
Speaker 1: to Anthony. Hey, Anthony, though Creedy was kind of actually
Speaker 1: even nudging us about, like, you know, a smart thing
Speaker 1: to look at it is the air fleet. So what
Speaker 1: are we seeing, Anthony when it comes to FedEx's air fleet. Absolutely?
Speaker 1: So that's actually the big one. You know, our network
Speaker 1: says that if you're gonna look for where to get
Speaker 1: your biggest cut, your biggest bang for buck with FedEx,
Speaker 1: it's going to come from your our fleet. I mean,
Speaker 1: you permanently cut a plane out of the fleet. You're
Speaker 1: saving yourself up to tens of millions and annual recurring
Speaker 1: off x right. And you know, I think that makes
Speaker 1: sense given what we saw from FedEx yesterday and they're called.
Speaker 1: They talked about how this year they're going to try
Speaker 1: and phase out or at least begin the process of
Speaker 1: phasing out their MD elevens and taking this delivery of
Speaker 1: these more efficient, better unit economics seven six sevens and
Speaker 1: triple sevens. Now, can you actually do that? And you
Speaker 1: know what we're hearing is that's really hard because you
Speaker 1: have things like minimum flying hours for the pilots. They're
Speaker 1: not going to be happy if you're basically taking out
Speaker 1: capacity and trying to take away their minimum flying hours.
Speaker 1: And secondly, you put at threat the air slots, the
Speaker 1: landing rights, right, and that's a long term potential loss.
Speaker 1: And I guess one place you're you're gonna see FedEx
Speaker 1: ideally not do that is Transpacific. That route is way
Speaker 1: too important for them. So where else can they do it? Well, Anthony,
Speaker 1: I gotta jump in here and ask about the strategy
Speaker 1: that FedEx has used. And we know that they have
Speaker 1: this massive warnings. I think take the whole market last
Speaker 1: ball in September, I believe. But at the same time,
Speaker 1: when they're competing with the likes of UPS or DHL.
Speaker 1: For example, FedEx didn't hike their prices when UPS and
Speaker 1: DHL did. They really invested in the head count. Do
Speaker 1: you think that's coming back to haunt them a little
Speaker 1: bit here? Well, I guess so, because you're starting to
Speaker 1: see that all these people X was reversing that capacity
Speaker 1: increase on the labor side, right, which obviously when you
Speaker 1: go wishy washy with how you're treating your labor and
Speaker 1: your head count, that doesn't send a great signal to
Speaker 1: the market. It sort of implies some sort of strategic missdirection.
Speaker 1: And also, I mean you're seeing now that with this
Speaker 1: twenty twenty three GRII of six point nine percent, which
Speaker 1: was matched by UPS. By the way, now they're trying
Speaker 1: to hold onto yield as volumes come down. How successful
Speaker 1: it will they be with that? Because we know, for example,
Speaker 1: that FedEx is not as strong as UPS and the
Speaker 1: SMB segment. That's part of UPS's sort of first off,
Speaker 1: I guess better not bigger and now better in Boulder
Speaker 1: strategies to focus on that higher returning customer segment. If
Speaker 1: FedEx isn't there, it means that they don't have the
Speaker 1: same quality of revenue. And if they're not getting that
Speaker 1: same I guess quality of revenue, and what that means
Speaker 1: for margins, It means they have to take I guess
Speaker 1: capacity out of the system, and as we pointed out
Speaker 1: just now, that's really difficult to do. Pretty I wanted
Speaker 1: to go back to you because, as you know, in September,
Speaker 1: FedEx did issue that profit warning due to declining packaging
Speaker 1: volumes around the world. What changed since then absolutely nothing. Actually, look,
Speaker 1: they are still getting package volumes across the board are
Speaker 1: sing declines, and their express unit and their ground unit,
Speaker 1: even their free unit. They've made that very very clear.
Speaker 1: I think the issue here more is why is FedEx
Speaker 1: no longer being seen as a kind of global bell weather?
Speaker 1: And I think the answer to that is, Look, it
Speaker 1: didn't necessarily take the market or have any effect on
Speaker 1: the market. I don't think it's just because the spotlight
Speaker 1: today was on the kind of the banking crisis. I
Speaker 1: think it was because FedEx is dealing with a lot
Speaker 1: of the same issues that a lot of other companies
Speaker 1: are dealing with. It's the inflationary COT at the end
Speaker 1: of the day, and that's kind of skewing the results
Speaker 1: when it comes to just how much profit and activity
Speaker 1: FedEx is seeing. Yeah, and maybe perhaps telling despite FedEx's rally,
Speaker 1: you know, ups down about six tents of a percent.
Speaker 1: So Anthony, just saving last words for you, got about
Speaker 1: thirty seconds. What are these companies telling us about the outlook? Yeah? Look,
Speaker 1: the role for FedEx is a bell Weather. I almost
Speaker 1: take it the other way. I mean, we're hearing that
Speaker 1: you've got to look at Ocean Frame what's happening there
Speaker 1: to figure out what's going on the FedEx and their
Speaker 1: volume outlook, which, by the way, we're thinking mid's high
Speaker 1: single digits draw. I think you've got to people have
Speaker 1: to be dialing into this April fifth call on Drive
Speaker 1: just to see how long. I guess how much legs
Speaker 1: this run has with regards to cost cutting, you know,
Speaker 1: volume outlook what it is, it's going to have to
Speaker 1: come from costs, And as I pointed out, there's a
Speaker 1: big question mark there. Can they take more out of costs,
Speaker 1: especially against this declining volume outlook? Yeah, I'm running a
Speaker 1: business just on cutting costs. I mean, I'm just thinking
Speaker 1: again an MBA like that's on how you do right?
Speaker 1: But interesting and we shall see. All right. Gonna leave
Speaker 1: with there, Anthony to writer, senior analysts over at Third
Speaker 1: Bridge and our own Credi Group to markets correspondent Bloomberg
Speaker 1: with that great heads up on FedEx. You're listening to
Speaker 1: the Bloomberg Business Week podcast. Catch us live weekday afternoons
Speaker 1: from three to six East there on Bloomberg Radio, the
Speaker 1: Bloomberg Business app and YouTube. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station Just
Speaker 1: Say Alexa playing Bloomberg eleven thirty. I don't know about
Speaker 1: you all, but I'm thinking about big time after this week,
Speaker 1: heading home from my pizza and wine. Are you ready
Speaker 1: to go? I know I am safe to say. The
Speaker 1: pandemic aide so many of us leading big time when
Speaker 1: it came to food in our homes. Much of that
Speaker 1: has stuck around um and this really relates to our
Speaker 1: next guest. Let's get to it with Amanda Hessler. She's
Speaker 1: founder and co CEO of Food fifty two. The company
Speaker 1: describes itself as a next generation cooking and a home company.
Speaker 1: It was one of Fast Company's most Innovative Companies for
Speaker 1: twenty twenty two. Amanda and author and former food editor
Speaker 1: over the New York Times. She joins us via zoom
Speaker 1: in Brooklyn, New York. Amanda really psyched to talk with you. Hey,
Speaker 1: tell us about your company, exactly what you all are doing. Sure, hi,
Speaker 1: and thank you so much for having me. So Food
Speaker 1: fifty two we started back in two thousand and nine,
Speaker 1: actually in the middle of over a recession. So these
Speaker 1: moments are feeling very familiar. And you know, we wanted
Speaker 1: to create this world that connected all the all the
Speaker 1: parts of your life that food touched, which we felt
Speaker 1: like was really vast. It was like food has a
Speaker 1: you know, impact on how you live in your home,
Speaker 1: the you know, the furniture you buy, the you know,
Speaker 1: where you shop for your groceries, where you travel, how
Speaker 1: you entertain and spend time with friends. And we wanted to,
Speaker 1: you know, create a company that supported people in this
Speaker 1: area of their life. And um, you know, we've we've
Speaker 1: grown the business, you know, brick by brick over the years,
Speaker 1: and you know, we've really expanded across the home and
Speaker 1: that's why we call ourselves now a cooking and home company,
Speaker 1: all right. So online social platform. You've got kitchens like
Speaker 1: help infrastructure or yes, I know, well it's it's it's
Speaker 1: complex these days, right. So we actually are about to
Speaker 1: open a new office in the Brooklyn Navy Yard where
Speaker 1: we'll have something like eight or ten kitchens where will
Speaker 1: be testing recipes, doing videos, creating photography. We also develop
Speaker 1: products there will you know, photograph all of our products there. Um,
Speaker 1: but we also have a whole network of creators are
Speaker 1: written not only around the nation but around the world.
Speaker 1: Old who you know, create videos for us, um uh,
Speaker 1: recipes for us, articles and uh just in in in
Speaker 1: our effort to really you know, cover this you know,
Speaker 1: really big landscape of food. So you have So we're
Speaker 1: on TikTok and we're on you know, Pinterest and Instagram
Speaker 1: and YouTube. You know, yes, yes and yes right Like
Speaker 1: like any modern media company, you know, we're everywhere, you know,
Speaker 1: we meet our audience where they are. Well, are you
Speaker 1: a media company? Are you a food company? Are you
Speaker 1: a retailer? We are a I mean this is why
Speaker 1: we say we are a you know, a cooking and
Speaker 1: home company because um, yes we have met. We are
Speaker 1: partly a media company, but we are also very much
Speaker 1: a commerce company. Uh, you know, commerce is the you know,
Speaker 1: vast majority of our revenue. But you know, the sort
Speaker 1: of business model is you know, matters too kind of
Speaker 1: like you know, under the hood us and investors. But
Speaker 1: you know what what matters most of us is how
Speaker 1: we're serving consumers. Right, And we feel like, actually that's
Speaker 1: that's what we where we have innovated because in the
Speaker 1: past companies have tended to be either a media company
Speaker 1: or a retailer. Um where in the in the category
Speaker 1: of food and home, Like, you need both of those together, right,
Speaker 1: you need inspiration and ideas and information and then the
Speaker 1: products that help you live better. And so we are
Speaker 1: just essentially integrating all of that into one company. Okay,
Speaker 1: So I know you have a subscription based model. Walk
Speaker 1: us through exactly how this works if I wanted to
Speaker 1: do this. How does this process work? So we're not
Speaker 1: we like, you don't have to subscribe to be a
Speaker 1: member of our site. We do have we're community driven,
Speaker 1: so anyone can become a member of our site and
Speaker 1: you can you know, receive our emails and you know,
Speaker 1: you can become you know, a VIP member and um,
Speaker 1: but you don't you don't have to pay to be
Speaker 1: a subscriber. Okay, so then how do you guys make money?
Speaker 1: Forgive us. I think we had some information that you
Speaker 1: guys had a subscriber model to your business. Sure so,
Speaker 1: and that's you know, it's actually something that you know,
Speaker 1: we we think we talk about a lot and something
Speaker 1: that we may work toward, um, but we're not We're
Speaker 1: not there yet. You know. The way we make money
Speaker 1: is we have brand We have brand partnerships, which is
Speaker 1: kind of more traditional advertising, and we sell we make
Speaker 1: and sell products. UM. So we sell everything from you know,
Speaker 1: blenders to table linens to uh, you know, plates, to
Speaker 1: tools to um you know, candles, laundry goods, storage and
Speaker 1: organization and actually you know, so that's food fifty two.
Speaker 1: We also own two other companies. One is called Schoolhouse,
Speaker 1: which is a us A home furnishing company. It's known
Speaker 1: for its lighting and hardware, and and Dance, which is
Speaker 1: a heritage home brand that is focused on tabletop and cookware.
Speaker 1: Something I was curious about is coming out of the pandemic.
Speaker 1: Obviously the pandemic, people were cooking from home. Then everybody
Speaker 1: was eager to go out and eat at restaurants. But
Speaker 1: then things got very expensive due to inflation. How has
Speaker 1: that affected your business and are you seeing more people
Speaker 1: coming back in because of high prices. Yeah, we definitely
Speaker 1: are seeing um, you know through you know, seeing a
Speaker 1: desire for content about like you know, how to eat
Speaker 1: on a on a budget and how to you know,
Speaker 1: And there had already been a movement towards like reducing
Speaker 1: food waste in people's kitchens, and I think people are
Speaker 1: now much more aware of that, right because you know,
Speaker 1: every stock of salary counts because it's you know it's
Speaker 1: more expensive, or every egg and the cart and counts
Speaker 1: and so um. You know, We've always as a company,
Speaker 1: I think when you're in the food space, first of all,
Speaker 1: it's you're constantly, um, kind of adapting to you know,
Speaker 1: the seasons. There's different foods in different seasons. There's lots
Speaker 1: of holidays through the year that you're cooking differently for
Speaker 1: and so that's been kind of part of our DNA
Speaker 1: is kind of reacting to what's what people are thinking
Speaker 1: about and anticipating what they will be thinking about in
Speaker 1: the near future and then serving them and so you know,
Speaker 1: I I would just say it's gotten magnified over recent years.
Speaker 1: You know when the when the pan MC first hit,
Speaker 1: it really was this moment where you know, in many ways,
Speaker 1: it validated our mission that we're like, we are here
Speaker 1: to support people right and help them eat better and
Speaker 1: live better. And it was something we could literally, like
Speaker 1: really tangibly do at this moment when so many people
Speaker 1: needed help. Amanda, one last question, because we're running out
Speaker 1: of time, I've only got about thirty seconds. What are
Speaker 1: you seeing any trends that consumers are getting a little
Speaker 1: bit more cautious in this environment? And just quickly, I
Speaker 1: would just say that you know, people, yes, are definitely
Speaker 1: aware that their grocery bill is going way up. They
Speaker 1: want food to go further, They want to be they
Speaker 1: need help, you know, knowing where they should be shopping,
Speaker 1: what they should what they could be, looking for alternatives
Speaker 1: to more expensive ingredients. How do they bring you know,
Speaker 1: if they are not eating out as much, how do
Speaker 1: they bring that experience home? And that's really what we're
Speaker 1: here to do. Well, really cool stuff and hopefully we
Speaker 1: can check back with you again in the future. Amanda Hesser,
Speaker 1: foundering co CEO of Food fifty two, joining sva Zoom
Speaker 1: from Brooklyn. You can check out more on their website
Speaker 1: just us search on food fifty two. But I do
Speaker 1: feel like this merging of food home, right, Like this
Speaker 1: kind of one stop shopping makes sense, right, and especially
Speaker 1: because we thought that would have been over when people
Speaker 1: coming out of the pandemic, but apparently not care some
Speaker 1: of it still continuing. All right, this is Bloomberg. I'm
Speaker 1: run a journal the radio. Yeah, but you let me drive.
Speaker 1: Oh no, no, no no, no, honey, please, I'll do the
Speaker 1: riding gravels. I want to drive. It's good question. This
Speaker 1: is the drive to the globe, coming well up, jogging
Speaker 1: down on Bloomberg Radio. All right, everybody, just about seventeen
Speaker 1: and a half minutes left today's trading session, and stocks
Speaker 1: just off their loads of the session, as you just
Speaker 1: heard watching that treasury trade, because bonds are up and
Speaker 1: yells are down on this Friday after quite a volatile week.
Speaker 1: So let's get to it with George Schultze. He's founder
Speaker 1: and CEO of Sulty Asset Management, on the phone from Harrison,
Speaker 1: New York. He's a distressed and special situations investor, which
Speaker 1: is why we knew he was a good person to
Speaker 1: talk to right now when it comes to the market environment, George,
Speaker 1: good to have you here with Jess and myself. Market volatility,
Speaker 1: bank stress concerns. We've had three banks collapse in the
Speaker 1: past week or two. We've got credit suites. They're having
Speaker 1: meetings over the weekend about kind of what's next. How
Speaker 1: distressing is this situation as an investor in your view? Well,
Speaker 1: Carol and Jess, thanks for having me bank. It's great
Speaker 1: to be here and happy to saynt Patrick's day to you. Yeah,
Speaker 1: this is this harkens back to two thousand and eight,
Speaker 1: seeing you know, one bank after the next drop, and
Speaker 1: they also have to have the same problem, which is
Speaker 1: they were long long dated treasury and with interest rates
Speaker 1: climbing so much last year, you know, all these books
Speaker 1: are worth twenty to forty percent less and so no
Speaker 1: matter what you do with a couple of banks, you know,
Speaker 1: you really have a balance sheet problem that is kind
Speaker 1: of systemic, frankly, and so you know, that's why we're
Speaker 1: seeing all this trouble. We're seeing it not just with
Speaker 1: regional banks. We're seeing it with even credit suites on
Speaker 1: the other side of the world. And you know, a
Speaker 1: lot of the big banks have exposure to this issue
Speaker 1: as well. But I think generally they did a better
Speaker 1: job of hedging it. So we'll see how this all
Speaker 1: plays out. I suspect will be more drama over the weekend.
Speaker 1: Maybe maybe First Republic will merge with somebody over the weekend.
Speaker 1: But but you know, it's really just day by day.
Speaker 1: And do you really think this is exactly like two
Speaker 1: thousand and eight, because many of said it's not two
Speaker 1: thousand and eight, Well it rhymes with two thousand and eight,
Speaker 1: not exactly like it. You know, back then we had
Speaker 1: a real estate crisis, you have, we had a lot
Speaker 1: of counterparty risk, there were a lot of facets. So yeah,
Speaker 1: I just want to be careful here as we cover this.
Speaker 1: We know, you know, the banking sector has certainly been understressed,
Speaker 1: But do you really think it's like two thousand and eight? Again,
Speaker 1: I think it rhymes with two thousand and eight, except
Speaker 1: this time the problem is treasury, the whole thing that
Speaker 1: are worth a lot less. Last time it was the
Speaker 1: real estate market, you know, it was worth a lot less.
Speaker 1: And then they're of course derivative. You know that's behind
Speaker 1: us now. But it's a different kind of problem, and
Speaker 1: it really rhymes with two thousand and eight. We'll see
Speaker 1: how it all plays out, though, and I think the
Speaker 1: next couple of days will be exciting for a bank investors.
Speaker 1: You know, look at these stocks going up and down
Speaker 1: like crazy, you know, and then one, you know, one
Speaker 1: bank after the next ultimately is going out of business.
Speaker 1: So it's really kind of shocking, I think, for particularly
Speaker 1: for equity investors. Can you set the scene for us
Speaker 1: and take it back either the last month or so,
Speaker 1: what sort of warning signs did you begin to notice,
Speaker 1: if at all, leading up to this past week with
Speaker 1: all of this unfolding. So I think it's pretty evident,
Speaker 1: and I think it's been pretty evident to investors in
Speaker 1: bank companies that their books were under water. You know.
Speaker 1: What was a bit of a surprise is how rapidly
Speaker 1: some of these regional ones just disappeared. For instance, you know,
Speaker 1: Silicon Valley Bank trading at two hundred and sixty seven
Speaker 1: dollars a share, next day trading at one hundred and
Speaker 1: five at the close, and then just never opening again.
Speaker 1: That was shocking, I think to most people. And you know,
Speaker 1: I wish I had known before um, But you know,
Speaker 1: I think if you did your fundamental analysis, if you
Speaker 1: looked at the balance sheets and read the footnotes. You know,
Speaker 1: it could be pretty evident, you know, a long time
Speaker 1: ago that they were underwater, and so it's just a
Speaker 1: question of, you know, how are they going to manage
Speaker 1: this and do to have liquidity? So throw on top
Speaker 1: of that excessive leverage and deposits that weren't on weren't ensured,
Speaker 1: and you know, you've created sort of a powder keg
Speaker 1: here with a run of the bank. Um. But I
Speaker 1: don't think the regulatory and commercial measurements so far, you know,
Speaker 1: have really solved the problem yet. I think there's still
Speaker 1: you know, a couple more shoes to drop, I would say, so,
Speaker 1: is there have you in the last week made a
Speaker 1: trade based on what's happening right now? Yeah, we have
Speaker 1: a number of trades. Um. We've actually sold off a
Speaker 1: root meaning long positions that we had in banks from
Speaker 1: you know, the two thousand and eight credit crisis. But
Speaker 1: but actually some very interesting new shorts with some of
Speaker 1: these companies from these regional banks. Is the first Republic
Speaker 1: among that short? Yeah, I think it's I'd rather not
Speaker 1: name the specific companies, but I do think on the
Speaker 1: long side, you know, there's a there's certainly a trade
Speaker 1: to do with precious metals also. I mean, you know,
Speaker 1: with all this uncertainty, you know, maybe you're not at
Speaker 1: the point of extreme counterparty risk, but you know there's
Speaker 1: certainly a flight to quality. UM. I question whether this
Speaker 1: time around the flights of quality and treasuries really makes
Speaker 1: sense because that's sort of ground zero for the problem.
Speaker 1: But I do think precious metals makes sense. Um. It's
Speaker 1: kind of surprising to see bitcoin rally, you know, but
Speaker 1: it's another it's acting as another safe haven asset right now. Um.
Speaker 1: Even though last year when FTX fails, we kind of
Speaker 1: had the Leman moment for crypta, but it's interesting to
Speaker 1: see that rally as well. Right now. Are you seeing
Speaker 1: more money coming in from investors in the past week
Speaker 1: just given this type of situation into where well into
Speaker 1: when you're talking about like the distress debt As far
Speaker 1: as do you see investors want to come in if
Speaker 1: there are those concerns and they want to change those
Speaker 1: types of trades and maybe go toward that corner of
Speaker 1: the market specifically, Yeah, it's certainly. I think it's certainly
Speaker 1: going to become a much more popular area for investors
Speaker 1: because you know there will be and there are opportunities
Speaker 1: to buy things at very attractive prices because the sellers
Speaker 1: are four sellers, and you know, the situation is highly
Speaker 1: uncertain right now with litigation and regulation and you know,
Speaker 1: it changing environment. And I think that's why you've seen
Speaker 1: you know, first of all, you've seen deposits lead you know,
Speaker 1: the shaky banks, but you've seen some pretty astute investors
Speaker 1: come in and try to buy the pieces, even as
Speaker 1: the deposits or some of these banks before some of
Speaker 1: the latest regulatory measurements were now. But yeah, I think
Speaker 1: for distressed securities investor with a nimble approach, for instance,
Speaker 1: sexual c asset management, with an ability to go long
Speaker 1: and short, I think this environment makes a lot of
Speaker 1: sense right now. And it's good, you know, perhaps diversification
Speaker 1: alternative for any portfolio. Hey, George, just got about forty
Speaker 1: five seconds left here. What about commercial real estate which
Speaker 1: has certainly been on a decline this year? If I
Speaker 1: look at the MSCI US reet index, certainly topping out
Speaker 1: like in early February, but we've seen quite a move
Speaker 1: to the downside. Are there distressed opportunities that you're investing
Speaker 1: into there? And again, just got now about forty seconds. Yeah,
Speaker 1: so we're not investing long in that in that market.
Speaker 1: But it terrifies me actually because it's one of the
Speaker 1: markets that you know, we'll see an impact from this,
Speaker 1: and you know, not just because money is getting higher
Speaker 1: and the economy is likely to slow down because of
Speaker 1: all these bank problems, but also just uh, you know,
Speaker 1: the secular change with more and more people working remotely.
Speaker 1: So that's that's the sector that certainly against the more
Speaker 1: US as well. Is it another shoot to drop five seconds?
Speaker 1: I think it is a good question, Carol. I think
Speaker 1: it is. Yeah, it certainly fits the mold. All right, listen,
Speaker 1: so appreciate your time. I know it's been a hectic week.
Speaker 1: In another hectic day, but appreciate getting your perspective into gainst. George,
Speaker 1: be well, take care, have a good weekend. George Schultze,
Speaker 1: founder and chief executive officer at Chelsea Asset Management, on
Speaker 1: the phone from Harrison, New York. This is the Bloomberg
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