Speaker 1: This is Bloomberg Business Week. I'm Karl Masser and I'm
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Speaker 1: Eastern Time on Bloomberg Radio, or watch us on YouTube
Speaker 1: search Bloomberg Global News. All right, gotta say this story
Speaker 1: caught my attention reading in this morning, especially as I
Speaker 1: keep trying to understand Russian President Vladimir Vladimir Putin's ultimate
Speaker 1: intentions and his rational rationalizations for the invasion in war
Speaker 1: with Ukraine. Most would argue there are no rationalizations for
Speaker 1: this um, but it leads us to this Bloomberg Opinion
Speaker 1: columnist by Leonide Borshitski, who writes about this today. Leonard
Speaker 1: Borshitski is a column this or Bloomberg Opinion. He joins
Speaker 1: us now on the phone from London. The opinion column
Speaker 1: available on the Bloomberg terminal and blue dot com. Putin's
Speaker 1: new alter ego is Igor Stralkov uh Igor Stralkov Leonard.
Speaker 1: It's also known as Igor Ghirkin, his name that he's
Speaker 1: known by his Stralkov though. Who is he Um? He's
Speaker 1: a Russian UM veteran of both the military and special services,
Speaker 1: and he's a historian by education, and he's got a
Speaker 1: UM a pretty long history as a volunteer and all
Speaker 1: sorts of local concerts from Yugoslavia to transm Austria. UM.
Speaker 1: He's a you know, a Russian US from nationalistm monarchist,
Speaker 1: and he Um basically single handed we started the war
Speaker 1: in eastern Ukraine and two thousand fourteen, according to both
Speaker 1: himself and many others who were you know, who covered
Speaker 1: those events, m he Um crossed the Russian Ukrainian border
Speaker 1: April from thousand fourteen with a tiny force of about
Speaker 1: fifty people and went on very quickly to become the
Speaker 1: defense minister the so called Dominic People's Republic, which is
Speaker 1: one of these unrecognized stateless in the east of Ukraine
Speaker 1: that Russia has backed and that Russia is basically waging
Speaker 1: this war extensively to defense. Lean, did we know you're
Speaker 1: at an event in London? So we really appreciate you
Speaker 1: squeezing in because I really feel like this is such
Speaker 1: an important column to bring to our Bloomberg audience. Why
Speaker 1: is it that you think it's important that we understand about,
Speaker 1: as you termed it, Putin's new alter ego? Is this guy?
Speaker 1: Why is it important that we understand about this guy?
Speaker 1: I mean, are they friends? And how does he ultimately
Speaker 1: potentially impact Vladimir Putin, whether in his thinking or in
Speaker 1: his actions? Um? Well, he UM still coost motivation UM
Speaker 1: always had to do with a sort of vision of
Speaker 1: an imperial Russia that has never really existed outside of
Speaker 1: UH certain nostalgic literature. UM. And this is the empire
Speaker 1: that uh he has always wanted to put into rebuild.
Speaker 1: And that's what by going into Ukraine into thousand fourteen,
Speaker 1: he tried to provoke Russia into doing into invading um
Speaker 1: all of Ukraine, and UH the nexting large parts of
Speaker 1: Ukraine that are Russian speaking. And so he had um
Speaker 1: sort of the ideological way, the ideological foundations of what
Speaker 1: Putting is actually doing. Eight years later, UM, he's uh
Speaker 1: sort of carrying out a plan that Croppo will back
Speaker 1: and fourteen, but that wasn't really accepted. Uh so was
Speaker 1: considered too much of a sort of a romantic French
Speaker 1: figure for the Kremlin. And the Kremlin was much more
Speaker 1: pragmatic back then, and once it's keep working relationship with
Speaker 1: the West, didn't want to subject itself to um, you know,
Speaker 1: to to hell Is sanctions, and so the men's deals
Speaker 1: were made in two thousands, fourteen months fifteen um. Now
Speaker 1: that it is all out the window and so Putton
Speaker 1: has basically gone all out so both Well, that's something
Speaker 1: that really stuck out to me from this column, Leonard.
Speaker 1: You wrote that the President Putin appears to be past
Speaker 1: caring about the open economy. He certainly cares little about
Speaker 1: the fortunes of the wealthiest Russians, those billionaires who have
Speaker 1: been sanctioned by the United States, the EU and the UK.
Speaker 1: This term though, empire or death. That really stuck out
Speaker 1: to me. What does that mean to Vladimir Putin? Well,
Speaker 1: that is it's it's really a new kind of behavior
Speaker 1: for him. He was always a cautious risk taker. Uh
Speaker 1: he never went far enough to to break off ties
Speaker 1: um with the with the West. Uh, and to completely
Speaker 1: cut off the Rustional League from the West and the
Speaker 1: rest of the Tienship as well. Um. It's you know,
Speaker 1: it was always seen as a kind of okay, a
Speaker 1: strong and maybe that someone with strong authoritarian tendences, maybe
Speaker 1: even a dictator, but uh, still a European ruler. You
Speaker 1: could compare him with someone like the Toorban and Hungary
Speaker 1: or the the Polish nationalists. Uh uh, but this is
Speaker 1: no longer true. Um. He has sort of crossed every
Speaker 1: read line. He doesn't care about. Um. You know what
Speaker 1: people think of him externally, and this is you know,
Speaker 1: this is Russia turning inward in one sense and expanding
Speaker 1: militarily in another. Uh, rebuilding the empire, thanking everything on
Speaker 1: this on this um um you know, the military advent
Speaker 1: right if it certainly feels like defeat is no option. Um.
Speaker 1: Leonid Bressitski, thank you so much, really appreciate you weaning in.
Speaker 1: He is columnist of Bloomberg Opinion, joining us on the
Speaker 1: phone from London. A Bloomberg Opinion colonist, he was also
Speaker 1: a founding out of the Russian business deliver. Maatski also
Speaker 1: did the recent translation of This Is Bloomberg. You're listening
Speaker 1: to Bloomberg Business Week with Carol Measure and Bloomberg Quick
Speaker 1: Takes Tim Stinovic on Bloomberg Radio. Top two stories on
Speaker 1: the Bloomberg in the past sixty minutes. They have to
Speaker 1: do with Apple. Apple working to bring more financial services
Speaker 1: in house. That's an exclusive, buyer Mark German. Also that
Speaker 1: Apple and Meta giving user data to hackers who fortunately
Speaker 1: go requests also a Bloomberg exclusive. Mark German is a
Speaker 1: technology reporter. He covers all things Apple, Peloton and more.
Speaker 1: He joins us live from the Bloomberg Los Angeles Bureau.
Speaker 1: Mark another day, another exclusive. Grateful to have you with
Speaker 1: us this afternoon. When you say financial services, what do
Speaker 1: you mean when it comes to Apple? What are they
Speaker 1: working on? Yes, so Apple's working on a few new
Speaker 1: fintech services. One would be a buy now later service
Speaker 1: to compete with the firm and some of the other companies,
Speaker 1: allowing you to buy something and pay for it over time.
Speaker 1: Other elements of financial services would be their iPhone hardware
Speaker 1: subscription service that they're developing. Um By financial services in
Speaker 1: the house, what means the underlying fintech infrastructure right Apple
Speaker 1: has been using partners like Golden Sack, some Core Card,
Speaker 1: and green Dot Bank to power their current financial offer offerings,
Speaker 1: which is basically Apple pay Um and some of their
Speaker 1: other offerings like a wallet app and the Apple Card.
Speaker 1: And then they're also working to create their own payment processor,
Speaker 1: right that is the very core of credit cards or
Speaker 1: other fin sech platforms sending transactions to banks for approval. Right,
Speaker 1: So they're going to be bringing that all in the
Speaker 1: house over the long term. What's the endgame mark for
Speaker 1: Apple here? What's what's the big aspirations with this? The
Speaker 1: big aspiration is to own the whole widget, right Apple,
Speaker 1: as you've seen with their software and their hardware, they
Speaker 1: like to do everything in the house, right, So that's
Speaker 1: owning all the underlying components. Now Apple wants to do
Speaker 1: the same thing with it for their financial services because
Speaker 1: they know how critical that is to the company's future
Speaker 1: and all these other buy now, pay later, debit card,
Speaker 1: all the other things that they're that they're working toward. Okay,
Speaker 1: are they going to alienate some some partners here? Goldman
Speaker 1: Sachs is the company that they work with on the
Speaker 1: Apple card, right, Well, you'll see it's probably likely that
Speaker 1: when they expand the Ample cards to other regions, they
Speaker 1: won't be working with Golden Secs. Core Card is their
Speaker 1: payment processor for the Apple Card. They probably won't be
Speaker 1: working with them for future fintech products. They'll be using
Speaker 1: their own core processor for that. Uh. And then when
Speaker 1: you see green dot bank for the Apple Cash card
Speaker 1: in the US, you'll probably see different partners outside of
Speaker 1: the US, right, no, go ahead, I'm sorry. Yeah, I
Speaker 1: don't think those three partners are going to disappear today
Speaker 1: or in the near term for like the current offerings,
Speaker 1: but for future offerings you'll see new partners. How much
Speaker 1: of this mark too, that was about making the iPhone,
Speaker 1: which come on to be fair is pretty expensive and
Speaker 1: making it more accessible to a wider audience. Perhaps you
Speaker 1: might pass because of the cost. The definitely the buy now,
Speaker 1: pay later and the iPhone hardware subscription service that those
Speaker 1: are both designing to allow people to buy not only
Speaker 1: Apple products, but third party products right from third party
Speaker 1: merchants to be able to buy products and pay for
Speaker 1: them over time in order to drive down the upfront cost.
Speaker 1: So this is definitely gonna help their revenue, right, this
Speaker 1: is gonna juice revenues. They're gonna be making more per
Speaker 1: customer on an annual basis because of this, and they're
Speaker 1: also going to be driving traffic to more merchants because
Speaker 1: of this. So I think it's a win win for Apple,
Speaker 1: for mergency and for consumers. Is it a surprise that
Speaker 1: all that Apples moving further into this, I mean it
Speaker 1: was a big deal when Apple launched the Apple Card
Speaker 1: and partner with Golden Sacks toad and did Apple Pay. Yeah,
Speaker 1: I don't think so. I think over time they like
Speaker 1: to expand their offerings. So when they first entered Apple Pay,
Speaker 1: they said their goal was to replace everything in your wallet,
Speaker 1: and they're doing so much now, from digital i ds
Speaker 1: to this wallet app to Apple Pay, to Apple Cash,
Speaker 1: to peer to peer payments. So it makes a lot
Speaker 1: of sense to me that they're going to be, you know,
Speaker 1: sort of spreading their wings here. And I'm interesting interested
Speaker 1: to see how well Apple Pay later, this by now
Speaker 1: pay leader service they're working on takes off mark what
Speaker 1: we have you want to get you too, just in
Speaker 1: the last minute that we have you to touch on this.
Speaker 1: Another exclusive about Apple, this one by our colleague William Turton,
Speaker 1: about Apple and Meta giving user data to hackers who
Speaker 1: forged legal requests. Um, what do we know about what
Speaker 1: happened here? This is actually fascinating. So right now, if
Speaker 1: you're a law enforcement agency, you can reach out to
Speaker 1: Apple or Meta or other companies to get data if
Speaker 1: you're doing a criminal investigation. And so what these hackers
Speaker 1: did is they pretended to be law enforcement. They contacted
Speaker 1: Apple and other companies asking for data on you know,
Speaker 1: random people or random to us, but not random to them,
Speaker 1: I'm sure, and in some of these cases that data
Speaker 1: was actually received. Obviously, this is a big breach, um
Speaker 1: and so great story by William on that I would
Speaker 1: encourage anyone to read that as well. Unbelievable. All right, Um,
Speaker 1: Mark Ivan, thank you so much, So glad we could
Speaker 1: get to the stories we mentioned. The top two stories
Speaker 1: on the Bloomberg terminal at this hour has to do
Speaker 1: with Mark's exclusive on for j Moore into financial services
Speaker 1: bringing them in house Apple, and then of course on
Speaker 1: that Apple Meta giving out some data from their users
Speaker 1: to hack tow hackers, and unbelievable Mark story moving stocks,
Speaker 1: payment stocks slumping this afternoon after Mark wrote that story. Yeah, exactly.
Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stenovic on Bloomberg Radio. This week's international
Speaker 1: cover of Bloomberg business Week magazine. Quite a cover image,
Speaker 1: I might point out as well, about the financial vultures
Speaker 1: tapping into what maybe the opportunity of a lifetime. Here
Speaker 1: come the vulture. That's the cover of the international edition
Speaker 1: at Bloomberg Business Week. The story. It's by Eric Schatzker,
Speaker 1: Editor at Large at Bloomberg Bloomberg News. He's with us
Speaker 1: in the Bloomberg INTERACTI Broker Studio. Also joining us remotely
Speaker 1: Joel Webber, editor at Bloomberg Business Week. So, Joel, what
Speaker 1: is the opportunity that some hedge funds are seeing when
Speaker 1: it comes to Russia's invasion of Ukraine. Let me just
Speaker 1: say that this is a product of first and foremost
Speaker 1: returned to office. So for all of those bosses out
Speaker 1: there wondering why r t O is a thing, is
Speaker 1: a product of Eric and I having a brief conversation
Speaker 1: about Russian dead and me saying like who is buying stuff? Oh,
Speaker 1: Meaning that the only reason this story came together is
Speaker 1: because you guys physically saw each other in person. Well,
Speaker 1: when Joel and I you know, hang out by the
Speaker 1: water cooler, we typically talk about Russian dead I hope
Speaker 1: the and and Eric was like, you know, let me
Speaker 1: make some calls and see what we can come up with.
Speaker 1: And and it is a story that I think we've
Speaker 1: all been wondering about, because this stuff is the thing
Speaker 1: that if, if there's ever going to be a buying opportunity,
Speaker 1: Russian debt could be a thing that, as as Eric writes,
Speaker 1: becomes a once in a lifetime thing. But you know,
Speaker 1: really this is a there's a whole morality quandary that
Speaker 1: comes into play because it's it's really something that you
Speaker 1: want to profit off of. And the answer is if
Speaker 1: the numbers are probably big enough, yes, right Eric, Hey,
Speaker 1: it's complicated. Um, you definitely do have to get over
Speaker 1: the moral hump um. And then of course you have
Speaker 1: to do what every credit investor does, which is evaluate
Speaker 1: the various scenarios that may unfold and and figure out
Speaker 1: whether you're gonna get paid or not one way or
Speaker 1: the other, whether you get paid by coupon, whether you
Speaker 1: get repaid in principle, or whether you end up having
Speaker 1: to go to court and try to seize assets from somebody.
Speaker 1: But that you know that standard distressed fair. What makes
Speaker 1: this so unusual and perhaps even a maybe I wouldn't
Speaker 1: even say, perhaps a more extreme case than others, such
Speaker 1: as say Venezuela or sovereign defaults like Ecuador for example,
Speaker 1: is that this is a product of a hostile invasion.
Speaker 1: We haven't seen anything like this in the Western world,
Speaker 1: as many people have said, since World War Two. And
Speaker 1: that's a whole different calculus than deciding whether you want
Speaker 1: to do business with a dictator, for example, that's what
Speaker 1: some people think of Nicolas Manduro and Venezuela as or
Speaker 1: whether you want to profit off what other people may
Speaker 1: describe as a humanitarian crisis in a country like Sudan.
Speaker 1: Those are different calculations. This is something altogether unfamiliar well,
Speaker 1: and we know in the financial community though, where there's
Speaker 1: money to be made, you can find people who want
Speaker 1: to tap into that. In your conversations, though, Eric, you know,
Speaker 1: was it overwhelmingly people like this is an opportunity for us?
Speaker 1: Or were there those who said, I don't even want
Speaker 1: to touch this. Both, Uh, there are more people who
Speaker 1: are not touching this for a couple of reasons. Then
Speaker 1: there are people who are touching it. The two reasons
Speaker 1: are I just can't go near this, as Hans Humes,
Speaker 1: whom I quote, or distrust. That investor whom I quote
Speaker 1: in the story says, this is just to grotesque for
Speaker 1: me um. And there are others who are being told
Speaker 1: by their clients pension funds, for example, or endowments that
Speaker 1: have a principled stance on this issue. I want you
Speaker 1: to sell down Russia right now. It is difficult to
Speaker 1: find people who are buying Russian debt, which is not
Speaker 1: because they're not buying. It's because they're not talking about
Speaker 1: it and they don't want to be public about it.
Speaker 1: Nobody wants to be public about it. In fact, that
Speaker 1: people whom I spoke to who are buying Russian debt
Speaker 1: would only speak to me on the condition of anonymity
Speaker 1: because they know that there is this public approprium waiting
Speaker 1: out there for them. You know, they're gonna be called vultures,
Speaker 1: They're gonna be hanged in the court of public opinion
Speaker 1: at least now. But yet there's still this is a
Speaker 1: there is a textbook, sort of distressed debt playbook here,
Speaker 1: Eric and and when you talk to the people who
Speaker 1: are are skilled at wielding that that playbook. What are
Speaker 1: they what are they exactly looking for? And where are
Speaker 1: they what are they snatching up? What they want is
Speaker 1: again confidence that this is gonna be money good UM.
Speaker 1: And of course the most extreme scenario in any distressed
Speaker 1: play is do I have to go to court and
Speaker 1: do I have to try to arrest assets from the debtor?
Speaker 1: And in this case, they're looking at Russian companies that
Speaker 1: have significant operations in the West, like Luke Oil, for example,
Speaker 1: We've all seen those gas stations UM, which has assets
Speaker 1: in the United States, it has assets in Italy, it
Speaker 1: has assets in Spain, its assets in Bulgaria. Luke Oil
Speaker 1: issued bonds in the Netherlands under British law. So in
Speaker 1: that scenario, and Luke Oil isn't the only one, maybe
Speaker 1: I don't have to bet on the Russian sovereign, which
Speaker 1: may even to some distressed guys feel distasteful. I can
Speaker 1: buy a Russian corporate and if Luke Oil were to default,
Speaker 1: I can go to a court that's operating under British
Speaker 1: law and I might quite reasonably gain control of some
Speaker 1: very valuable assets in the process. Now that's a long
Speaker 1: term play. They're clearly hoping to make money in a
Speaker 1: different way. Either they just get paid out in big
Speaker 1: fat coupons because they bought when the yields were high,
Speaker 1: or they get their money back because actually low oil
Speaker 1: doesn't default. Or perhaps the bonds get re rated because
Speaker 1: the rest of the world begins to see things through
Speaker 1: the same lens and the bonds trade up in value,
Speaker 1: And that in fact has been happening. So it's possible
Speaker 1: that some of these people who got in in the
Speaker 1: early days of March are already out. You feature a
Speaker 1: tweet from Bill Browd or the anti Kremlin activist who said,
Speaker 1: it's like asking if you should buy German equities during
Speaker 1: the Holocaust, So a big no from him. Even though
Speaker 1: these folks spoke to you, uh without the on the
Speaker 1: condition of anonymity, how do they rationalize there? And they
Speaker 1: don't see it quite the same way. It's so interesting,
Speaker 1: how you know, the just the arguments in favor of
Speaker 1: the justification, if you will, is very interesting, and you
Speaker 1: can choose to subscriub gribe to it or not. But
Speaker 1: for example, as I said, some of them say, I'm
Speaker 1: willing to participate in Russian corporate debt, but I won't
Speaker 1: touch Russian sovereign debt. I also won't touch Russian equities
Speaker 1: because being a source of equity capital for the Russian market,
Speaker 1: in their mind, is tantamount to supporting the regime. But
Speaker 1: buying the bonds when all you want is to be
Speaker 1: paid back is different. And it's different as well because
Speaker 1: again in their calculus and their rationalization, if you allow
Speaker 1: Russian oligarchs to walk away from their all obligations, who
Speaker 1: wins there? Right? That's that's part of Now there's a
Speaker 1: counter argument to that. I'm not going to go into it,
Speaker 1: but that's some of the reasoning that gets applied, uh
Speaker 1: to sort of counter if you will, the moral weight
Speaker 1: of opposition. Well, this is this week's international cover story.
Speaker 1: Are thanks to Eric Shasker, Editor at large up Bloomberg,
Speaker 1: and of course I thanks to Joe Webber, editor of
Speaker 1: the magazine. You're listening to Bloomberg Business Week with Carol
Speaker 1: Masser and bloom Burg Quick Takes Tim Stinovic on Bloomberg Radio.
Speaker 1: So chief financial officers, Yeah, they now play a critical
Speaker 1: role in shaping corporate strategy and really positioning organizations to
Speaker 1: meet future challenges. Bloomberg's new monthly Program's called Chief Future
Speaker 1: Officer on Bloomberg TV. It profiles these leaders and explores
Speaker 1: the impact they're making on their companies and industries. For
Speaker 1: this week's episode, I caught up at Chippotle CFO Jack
Speaker 1: hard Tongue. In this excerpt, he talks about higher costs
Speaker 1: and more. You'll also hear from Nicole Miller Regan. She's
Speaker 1: a Piper Standard analyst. She too weighs in on the company.
Speaker 1: And the other thing I think is to make sure
Speaker 1: you have a strong balance sheet to make sure you
Speaker 1: can weather the storm. And we've had a strong balance sheet.
Speaker 1: We've never had debt. We've a always had more cast
Speaker 1: in the balance sheet than we need for our normal
Speaker 1: ongoing business. And that has come in you know great,
Speaker 1: you know, really handy. Chipotle carries no long term debt
Speaker 1: and it's free cash flow almost tripled in When you
Speaker 1: think about the future, how do you take advantage of this?
Speaker 1: And it is the flexibility that that enables. What it
Speaker 1: really affords us is we're going to be able to
Speaker 1: invest in our future no matter what. Like we accelerated
Speaker 1: are Open, We accelerated our pursuit of new restaurant sites
Speaker 1: during the pandemic when some of the restaurant companies were
Speaker 1: laying off their development team. Chipotle not only expanded its
Speaker 1: footprint over the last two years, it reshaped its restaurants.
Speaker 1: A ventured to drive through dining that began several years
Speaker 1: ago became a thriving profit center when the pandemic struck.
Speaker 1: The thing that's changed the most is just most of
Speaker 1: our restaurants and now have a Chipotle lane. So three
Speaker 1: years ago we had maybe five or six Chipotle lanes,
Speaker 1: and now we have over three, and of our new
Speaker 1: openings have each pow lane. The sales and our chipot
Speaker 1: Land restaurants are higher, and our margins are higher too,
Speaker 1: because the digital orders are our highest margin transaction. And
Speaker 1: when you can serve the customer through the spot lane
Speaker 1: without the delivery fees that we pay in the customers pay,
Speaker 1: it's it's it's a great margin opportunity for us. The
Speaker 1: convenience of Chipotle lanes contributed to soaring digital sales in
Speaker 1: There was little erosion in even as in restaurant sales
Speaker 1: return to levels. Meanwhile, membership and loyalty programs has boomed,
Speaker 1: giving Chipotle valuable insight into its customers. Omni channel preferences.
Speaker 1: What we've seen is that our digital customers, they come
Speaker 1: the most often and they spend the most of its
Speaker 1: time they come. Customer loyalty could face a test if
Speaker 1: inflation continues to push higher. Chipotle hiked menu prices roughly
Speaker 1: nine Jack Hartung says, it's not just wages and food
Speaker 1: costs that are putting on the pressure. It's hitting everything.
Speaker 1: Sitting materials too for our restaurants or a new restaurants
Speaker 1: are costing more as well. You guys have had incredible
Speaker 1: pricing power. Is there kind of a tipping point where
Speaker 1: it's like enough? We haven't seen it. Um. Why is that? Jack? Well,
Speaker 1: part of it is um. We've over the year has
Speaker 1: been slow to raise prices. We've always tried not to
Speaker 1: go to the menu board to raise prices. Whenever we've
Speaker 1: had a challenge from a cost standpoint, we'll do other
Speaker 1: things to try to find efficiencies somewhere along the line.
Speaker 1: We raise prices. In the second quarter of last year,
Speaker 1: we did that just to cover the cost of raising wages.
Speaker 1: We raise wages up the fifteen dollars. It was an
Speaker 1: average of increase and we raise prices just to cover
Speaker 1: the dollar costs of that, so we didn't increase our margins.
Speaker 1: Our margins actually went down, but our profitability stayed the same.
Speaker 1: Our customers actually said, we really applaud what you're doing.
Speaker 1: We're fine with a four percent price increase, not a
Speaker 1: chicken brito that's thirty cents, but the fact that you
Speaker 1: increase wages to that extent, we like to eat a more.
Speaker 1: Chole CEO Brian Nicol has warned that Chipotle may raise
Speaker 1: prices again if cost pressures intensify. With the cost of
Speaker 1: eating out already at historic levels, consumers may just have
Speaker 1: to get used to paying more. The industry is used
Speaker 1: to tep in inflation, call it two you know um
Speaker 1: level of inflation. They take, you know, a little bit
Speaker 1: of price to offset it flows through and margins are
Speaker 1: just naturally restored. The fact of the matter is labor
Speaker 1: was the pressure point. So the industry today is definitely
Speaker 1: sitting on a high single digit price versus what is
Speaker 1: typically a low single digit price inflation or level of
Speaker 1: menu price increase in relative terms. Everyone has to do this.
Speaker 1: In fact, I would say, Carol, we we could be
Speaker 1: more patient than others because we own all of our restaurants.
Speaker 1: When you're a franchise organization. When you have franchise z
Speaker 1: s that have borrowed to invest in their business, they
Speaker 1: can't necessarily afford to let inflation eat away at their
Speaker 1: at their ability to pay the debt for very long.
Speaker 1: It is full speed ahead when it comes to store growth.
Speaker 1: Chipotle just up to its goal to seven thousand from
Speaker 1: six thousand restaurants in the US, thanks in large part
Speaker 1: to strong performance at seeing its smaller towns based on
Speaker 1: we're are already in more than a hundred of them.
Speaker 1: Based on the ones that we're in, based on the
Speaker 1: results so far with our extraordinary we think there is
Speaker 1: as many as almost a thousand more restaurants. And so
Speaker 1: even though you talking about a small town was you know,
Speaker 1: maybe thousand people, the sales volumes are almost the same
Speaker 1: as if you you know, we're in a city like
Speaker 1: Chicago or a Chicago subber. But the investment costs are lower,
Speaker 1: the rents are certainly lower, and the operating costs are lower,
Speaker 1: so you end up getting higher margins and higher returning
Speaker 1: Chipolai reaps the full benefit of these returns since it
Speaker 1: owns and operates all its stores, and advantage that's not
Speaker 1: lost on Wall Street. It's extremely unusual, and not only restaurants,
Speaker 1: but from a restaurant stock perspective, to have a large
Speaker 1: cap stock that's growing its unit level economic model, meaning
Speaker 1: the revenues are getting better and the margins are getting
Speaker 1: better as growth is accelerating. It's just it's like almost
Speaker 1: unheard of. So there's little reason for Chipotle to begin
Speaker 1: franchising in the United States, but for the chains forty
Speaker 1: five international restaurants, Bloomberg Intelligence notes that partnering with local
Speaker 1: operators overseas might boost margins and accelerate expansion. We're open
Speaker 1: to the idea of some kind of franchise model. UM.
Speaker 1: You know, there are areas of the world where it's
Speaker 1: going to be harder for us to to own UM
Speaker 1: and to run the businesses ourselves. When their process of
Speaker 1: bringing our digital system to Europe that's going really, really well.
Speaker 1: We've also opened up some alternative sites. It gives us
Speaker 1: great optimism that international is going to be a growth
Speaker 1: vehicle for us, and you know, hopefully not to distemputure.
Speaker 1: And that was Chipotle a CFO Jack Hardtime. You also
Speaker 1: heard the voice of Nicole Miller Regan. She's managing director
Speaker 1: of at Pipers Stanley. You can catch the entire interview
Speaker 1: and episode of Chief Future Officer That's to night at
Speaker 1: nine pm Wall Street Time on Bloomberg TV and of
Speaker 1: course on our Bloomberg YouTube. Did you eat any chicken burritos?
Speaker 1: We did? Will you're out there? So I had some
Speaker 1: Guawk had had a bowl breada ball. I'm jealous right now.
Speaker 1: Good stuff. Hey, that's really great. I'm looking forward to
Speaker 1: watching it. Thank you. It's really interesting to see the
Speaker 1: history that Jack has had with that company pre I
Speaker 1: p O and more so catch at pm tonight on
Speaker 1: Bloomberg TV. Yeah, but you let me drive? Oh no,
Speaker 1: no, no no, no, all right please, I'll do the bride revels.
Speaker 1: I don't want to drive. It's good question. This is good.
Speaker 1: Drive to the clothes un on Bluebird Radio. We are
Speaker 1: driving towards the close on this Wednesday, bouncing around a
Speaker 1: little bit off our highs of the session, bouncing off
Speaker 1: our lows, but really tech stocks in particular Tim taking
Speaker 1: it on the chin down about Charlie mentioned more than
Speaker 1: two points down one point four percent, a little bit
Speaker 1: of a reversal than what we saw over the last
Speaker 1: four days. Carol four day rally on the sp F.
Speaker 1: So taking a little pause here. Aaron Kennon is co
Speaker 1: founder and at CEO at Clear Harbor Asset Management. Eron
Speaker 1: manages at Clear Harbor over one billion dollars in assets.
Speaker 1: He joins us down on the phone from Stanford, Connecticut, Aaron,
Speaker 1: how are you due? Just fine? Tim, I hope everyone's
Speaker 1: well there. Yeah, we're doing well. Thank you. We'll help
Speaker 1: us make sense of this market here, because we certainly
Speaker 1: st I'm doing okay, but we don't know. It's a
Speaker 1: of environment. Let's be fair, all right, It's true there
Speaker 1: is sort of the dark there. True, but you know,
Speaker 1: to be honest, there is a dark cloud not just
Speaker 1: you know, kind of hanging over international relations, but but
Speaker 1: also we're seeing that play out in the markets as well. Yeah,
Speaker 1: for sure. I mean looking at this market picture is
Speaker 1: sort of interesting. You know. We've rallied off of that
Speaker 1: early low achieved in in March by call it nine
Speaker 1: or Tim and Carol, and we're only down called three
Speaker 1: to five percent on the equity side this year, whether
Speaker 1: you're talking about the MSc I all World or the
Speaker 1: smp AT. We're in the midst of a war. We
Speaker 1: have spiking rates since the beginning of the year. I
Speaker 1: think two's have gone from point seven three percent to
Speaker 1: where are they right now? To thirty one and uh
Speaker 1: stubbornly high inflation picture along with wages, eye energy. And
Speaker 1: yet you know, the equity market has been somewhat resilient.
Speaker 1: And I do worry that the ebbing of liquidity that
Speaker 1: we will still very much see this year, that is
Speaker 1: to say, higher FED funds rates by more than two
Speaker 1: basis points, is already in the cards. And a disappearance
Speaker 1: of the fiscal stimulus which was extraordinary in two thousand
Speaker 1: and twenty and twenty one. Well, well will eventually come
Speaker 1: to the four, into the psyche and into the market
Speaker 1: as it pertains to how investors think about equity valuations. Wait,
Speaker 1: so you think that the Fed, in terms of the
Speaker 1: moves that we will get this year already factored in
Speaker 1: aaron in terms of the equity side. And no, no,
Speaker 1: I I worry that that we've seen this sort of
Speaker 1: shortcovering rally that the equity market um rally from from
Speaker 1: March eight to to date, which has been somewhat significant
Speaker 1: in the midst of all this negative news is is
Speaker 1: a bit of a head fake while we are very
Speaker 1: much of the view that time in the market is
Speaker 1: more than important than time in the market. Um, you know,
Speaker 1: I think we're heading into stormy or weather over the
Speaker 1: next several weeks and perhaps months, and uh, I think
Speaker 1: investors are to be prepared for that. What do they
Speaker 1: need to do to prepare well? It's interesting, I think
Speaker 1: the sixty forty portfolio, at least year to date hasn't
Speaker 1: worked because you have fixed income that's off actually more
Speaker 1: than equities. But I do think we're at a point
Speaker 1: where you've seen a significant rise in yields and the
Speaker 1: two year part of the curve, and you've seen ten
Speaker 1: year treasury yields rise as well, And so I think
Speaker 1: I think we're probably approaching a point over the next
Speaker 1: couple of months where fixed income probably becomes a little
Speaker 1: more anchored and a little more resilient, particularly if the
Speaker 1: growth profile decelerates in the U. S economy and the
Speaker 1: global economy, which is what we expect. So I think
Speaker 1: the the sort of anti fragile asset that has historically
Speaker 1: been fixed income and perhaps gold and a couple of
Speaker 1: other things from time to time may come back into
Speaker 1: the four But we need to see a softening and
Speaker 1: a thawing on the inflation front, in addition to a
Speaker 1: reduction in the in the trajectory of growth for that
Speaker 1: fixed income as a class to sort of serve as ballast,
Speaker 1: which it hasn't here to date. Well, and I do wonder,
Speaker 1: you know, Aaron, one of the I feel like every
Speaker 1: day we have this conversation, you know, have stocks bottomed,
Speaker 1: have yields topped out? So it sounds to me like
Speaker 1: what you're saying in terms of yields that maybe we
Speaker 1: have topped out a little bit. Well, I think we're
Speaker 1: certainly well, certainly, I suspect we're closer to the top
Speaker 1: than we are the bottom. And I know that there
Speaker 1: are some other prognosticators out there who believe that this
Speaker 1: inflation will remain sticky for not just quarters but perhaps
Speaker 1: years that due to deglobalization and other dynamics that play
Speaker 1: that we're going to be at a significantly higher sort
Speaker 1: of trend inflation rate. And I think if you look
Speaker 1: at long term inflation expectations as defined in the market
Speaker 1: through various metrics like inflation break evens and five or
Speaker 1: five year floating to fix metrics, even on the Bloomberg terminal,
Speaker 1: you'll see that inflation is Yes, it's risen for long
Speaker 1: term expectations, but it's still somewhat anchored. And I think
Speaker 1: if that holds um, yes, perhaps we slightly higher inflation dynamic,
Speaker 1: But the notion that we're going to see runaway inflation,
Speaker 1: I think it's ultimately going to turn the FED from
Speaker 1: moving from an extraordinarily hawkish posture which will see this
Speaker 1: here into a slightly more significant, maybe even devish posture
Speaker 1: in two thousand and twenty three. When you say inflation
Speaker 1: is anchored, you know, some people might be like, what right, Well, no,
Speaker 1: you know, so so like are you saying that inflation
Speaker 1: is anchored? And I would argue, I mean it's going
Speaker 1: to come down, like it's not going to stay where
Speaker 1: it is. Correct. So if you look at, for example,
Speaker 1: spot oil prices today relative to even one year from
Speaker 1: now the futures market, there's backwardation. That's the case for
Speaker 1: even a lot of the soft commodities like like wheat, um,
Speaker 1: even even natural gas and so um. If you look
Speaker 1: at even the supply chain dynamic, which has led to
Speaker 1: a lot of inflation. The port of Long Beach, we're
Speaker 1: seeing significant thawing on the supply chain front. There. On
Speaker 1: the other hand, we're seeing COVID related problems in Asia
Speaker 1: which are leading to supply chain dynamics not not thawing.
Speaker 1: But I think if you look ahead, if you take
Speaker 1: a sort of a more slightly more glass half full
Speaker 1: perspective here, and you look into two thousand, twenty three,
Speaker 1: twenty four in a post COVID world, god hope, a
Speaker 1: a post war in Ukraine world. I suspect the inflation
Speaker 1: picture will improve somewhat dramatically over the next twelve to
Speaker 1: twenty four months. Do you think inflation peaks? I do,
Speaker 1: When do we start to see it go down? Well,
Speaker 1: I think the geopolitical uncertainty factor is certainly weighing on
Speaker 1: a part of that, which is the the energy component inflation,
Speaker 1: which is about depending on which inflation index you're looking at,
Speaker 1: And then the wage side. In the US, we've had
Speaker 1: an interesting dynamic. The labor participation rate is still not
Speaker 1: backed where it was pre COVID. It is in places
Speaker 1: like Canada, for example, but not the US. It's it
Speaker 1: improved the last time around. We're gonna see nice doubt
Speaker 1: on Friday. Hopefully it indicates further improvement. But part of
Speaker 1: the inflation picture is wage concern wage stickiness, which can
Speaker 1: impact corporate margins. If labor participation rate increases and continues
Speaker 1: on trend to increase, I think that will probably alleviate
Speaker 1: some of those concerns as well. Yeah. Interesting perspective and
Speaker 1: feels pretty grounded. Um, Aaron, thank you so much, Really
Speaker 1: appreciate Aaron Kennon, co founder in chief executive officer at
Speaker 1: Clear Harvard Asset Management roughly abilion in assets under management
Speaker 1: once again on the phone from Stanford, Connecticut. You know,
Speaker 1: he talks about the ebbing of liquidity. It's something we
Speaker 1: talked about with Abigail at the start, that there's still
Speaker 1: some nine trillion inequity out there, but you do wonder
Speaker 1: how quickly that gets sucked out of the system. Yeah,
Speaker 1: that's a really good question. Um. Also interesting what he
Speaker 1: had to say about the rally that we've seen of late. Yeah, exactly,
Speaker 1: we've had quite a bounce back. Thanks for listening to
Speaker 1: Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or
Speaker 1: Bloomberg dot com, and you can also listen to our
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