Speaker 1: This is Bloomberg Business. Wait inside from the reporters and
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Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast.
Speaker 2: Tim Stanebeck, along with Madison Mills, who's filling in for
Speaker 2: Carol Masser. Well a busy week in the rearview mirror.
Speaker 2: This after Apple and Amazon's latest earnings, a surprise downgrade
Speaker 2: to the US government's credit rating, and former President Donald
Speaker 2: Trump's indictment in a third separate criminal case. Coming up
Speaker 2: on the program, we're going to learn why a former
Speaker 2: Fed official thanks for very own US recession gage. She
Speaker 2: may have created a monster. The CEO of the new
Speaker 2: bed Bath and Beyond says the brand may be shunning
Speaker 2: brick and mortar stores forever. And we'll learn why the
Speaker 2: record heat wave we saw in July could be an
Speaker 2: unwelcome sign of what's to come when it comes to
Speaker 2: the global fight against climate change. All of that to come,
Speaker 2: We begin with the cover story in the special double
Speaker 2: issue of Bloomberg Business Week, available now on newsstands, online
Speaker 2: at Bloomberg dot com, slash BusinessWeek and I'm the Bloomberg Terminal.
Speaker 2: Senior editor for the magazine. Matthew Campbell takes us back
Speaker 2: to the twenty seventeen killings of pharmaceutical magnate Barry Sherman
Speaker 2: and his wife Honey. They became two of the wealthiest
Speaker 2: people ever to be murdered, and while police still haven't
Speaker 2: identified the killers, there's no shortage of potential suspects and
Speaker 2: a family drama worthy of succession. Matt joins us now
Speaker 2: along with the editor of Bloomberg BusinessWeek, Joel Weber.
Speaker 3: It basically became just this bare knuckle drama between the
Speaker 3: Sherman kids over the empire, and we're talking billions of
Speaker 3: dollars here, and what was left at the end of
Speaker 3: that fight was basically the company sold. The whole strategy
Speaker 3: that Barry had sort of tried to put in place
Speaker 3: was basically kind of brushed aside, and those siblings basically
Speaker 3: aren't even talking to each other. And the mystery of
Speaker 3: the murder remains unsolved. There's one lead, but part of
Speaker 3: the drama of the story has been because the family
Speaker 3: had so much money they were able to actually do
Speaker 3: their own investigation, which created all kinds of tension with
Speaker 3: the Toronto Police Department.
Speaker 2: One thing that was really shocking to me is Barry,
Speaker 2: for despite being a billionaire many times over, was a
Speaker 2: relatively frugal person for most of his life. What our
Speaker 2: reporting found was that he spent hundreds of millions of
Speaker 2: dollars in loans over many years, not just given to
Speaker 2: his family, but to other people who came to him
Speaker 2: for money. Talk a little bit about that.
Speaker 3: Yeah, So part of the drama that Matt and or
Speaker 3: get into here is actually just kind of following where
Speaker 3: some of this money went. And some of these loans
Speaker 3: ended up actually going to his son, for one, who
Speaker 3: at a storage facility that he ran with a co owner.
Speaker 3: And then there were, you know, some business decisions that
Speaker 3: Barry made that he seemed you know, I think one
Speaker 3: of the things that the frugality stands out to me
Speaker 3: he drove a car that was basically kind of a beater,
Speaker 3: even despite being a billionaire. But he also was I
Speaker 3: think pretty loyal. And there there's one individual in particular
Speaker 3: where he made he just kept handover fists supporting the
Speaker 3: gentleman's business decisions and endeavors for years, and actually part
Speaker 3: of the story was how eventually the family just had
Speaker 3: to write down all of those because there was no
Speaker 3: way to actually get any.
Speaker 4: Of that money back.
Speaker 3: And ultimately that was a person that Barry decided to
Speaker 3: cut off shortly before his death.
Speaker 5: Actually, that's really interesting and it reminds me of exactly
Speaker 5: what you were saying about the point that this is succession,
Speaker 5: e Joel. One thing that we haven't talked about without
Speaker 5: getting too gruesome here is how the murders happened. It
Speaker 5: feels like an important part of this story. Can you
Speaker 5: kind of walk us through what we know?
Speaker 3: Yeah, and so this is this kind of leans back
Speaker 3: into the first story because it was pretty gruesome scene
Speaker 3: and at that time it actually instigated what became this
Speaker 3: other investigation because the kids really just didn't believe in
Speaker 3: what the police department kind of laid out. But basically,
Speaker 3: the bodies were discovered in their home in Toronto near
Speaker 3: a swimming pool, and the Berrie's body was actually like
Speaker 3: it was, it was clear that Honey was murdered. Berries
Speaker 3: was sort of a little bit mysterious, and so that
Speaker 3: led to sort of an inconclusive and unsatisfactory a police
Speaker 3: response from the family because they basically felt like they
Speaker 3: implicated Barry in Honey's death. They pushed back on that hard.
Speaker 3: There was a second autopsy, and eventually it ended up
Speaker 3: being that basically viewed currently as a as a double homicide.
Speaker 3: But that handling of that is part of what led
Speaker 3: the Sherman kids to basically fund their own police investigation.
Speaker 2: That's where I want to bring in Matthew Campbell, who
Speaker 2: co wrote this story along with Ari Altstetter. I want
Speaker 2: to talk a little bit about where Joel left off
Speaker 2: and this private investigation, the private investigation, the private investigators
Speaker 2: that the family hired, talk a little bit about how
Speaker 2: they've worked with or have not worked with, the Toronto
Speaker 2: Police Department, and what's going on with these hard drives.
Speaker 4: Well, what ended up happening was, as Joe alluded to,
Speaker 4: the Sherman children, whose parents had just been killed, ended
Speaker 4: up hiring a bunch of retired cops actually which hired
Speaker 4: police detectives to conduct private investigation, which ended up coming
Speaker 4: to a very different conclusion from the one the police
Speaker 4: appeared to be at least heading toward, which was that
Speaker 4: it would a murder suicide committed by Barry Sherman. The
Speaker 4: private investigation came with the conclusion that, in fact, this
Speaker 4: was a double murder that ultimately was accepted by the police.
Speaker 4: But then we had this rather odd situation of two
Speaker 4: parallel investigations with considerable tension between them, the police really
Speaker 4: not appreciating having this private team, as they saw it,
Speaker 4: second guessing them, a very chilly relationship, a somewhat dysfunctional relationship,
Speaker 4: and then ultimately coming to an end in twenty nineteen
Speaker 4: when the private investigation was terminated for reasons we can
Speaker 4: get into.
Speaker 5: Well, I wonder if you want to get into those
Speaker 5: now with us, now that we have you on the line.
Speaker 4: Matthew, sure, yeah. So look what ended up happening was
Speaker 4: there was a significant split within the four Sherman children,
Speaker 4: and specifically there was a split between Jonathan, the one son,
Speaker 4: and Alexandra, his sister. And we understand from people familiar
Speaker 4: with this situation that Alexandra came to think that her
Speaker 4: brother Jonathan had something to do with this crime, that
Speaker 4: he was somehow involved with this double murder. And you know,
Speaker 4: according to our reporting, the police never really thought there
Speaker 4: was any evidence behind that suspicion. But nonetheless that is
Speaker 4: the view that Alexandra had of her brother Jonathan in
Speaker 4: those conditions. As you can imagine, the idea of conducting
Speaker 4: a private investigation together kind of fell apart, and the
Speaker 4: siblings had this big rift to merge between them, which
Speaker 4: led to the end of this private investigation and in parallel,
Speaker 4: a battle over the future of the family business, the
Speaker 4: family fortune.
Speaker 3: So, Matt, you know, one of the things that I
Speaker 3: think is just so. It's both the thing that transfixes
Speaker 3: you but also ultimately just leaves you wanting more in
Speaker 3: the story is where did the investigation end up and
Speaker 3: what is the closest thing to a suspect that anyone
Speaker 3: was able to determine?
Speaker 4: Well, from our reporting we understand there are a few
Speaker 4: individuals the police were very interest get in. One was
Speaker 4: a man named Carrie winter At, Barry Sherman's cousin, who
Speaker 4: was in a long running financial dispute with him. Another
Speaker 4: was Jonathan, the son who had been one of the
Speaker 4: principal financial beneficiaries of his parents dying. And a third
Speaker 4: was Frank TAngelo, who was a businessman and entrepreneur who
Speaker 4: Barry had really quite lavishly funded hundreds of millions of
Speaker 4: dollars in financing for his various businesses before Barry Sherman
Speaker 4: concluded he didn't want to do that anymore. So we
Speaker 4: understand the police did investigate these three individuals, but they
Speaker 4: weren't able to find hard evidence linking any of them
Speaker 4: to the crime. They did end up, however, with someone
Speaker 4: who they did describe as a suspect, and that is
Speaker 4: this individual known as the walking Man, who was captured
Speaker 4: by surveillance cameras outside the Sherman's home on the night
Speaker 4: they were killed. Spent a suspicious amount of time right
Speaker 4: in the entity of the house during the relevant period.
Speaker 4: But the footage is terrible. You really can't make anything
Speaker 4: out about this person aside from the fact that he
Speaker 4: appears to be male and appears to be of sort
Speaker 4: of average height. So the cops kind of ended up
Speaker 4: nowhere we are, five plus years on, without identified suspects
Speaker 4: and without charges, and.
Speaker 3: So let's talk about what happened to the business empire
Speaker 3: a little bit more, because I mean, one of the
Speaker 3: things that's so fascinating about Barry is like he bootstrapped
Speaker 3: this empire basically a self made billionaire.
Speaker 6: He was highly.
Speaker 3: Litigious and you know, basically was self made. But what
Speaker 3: has happened to his fortune and the business since.
Speaker 4: That's right, Choel, So Barry built this very large pharmaceutical
Speaker 4: company Apptect, never taking outside money, never going public, so
Speaker 4: he was in pretty much complete control. That control then
Speaker 4: passed to his children, but his children ended up being
Speaker 4: at odes. And this goes back to this rift between
Speaker 4: Jonathan and Alexandra that I mentioned earlier. Around the same
Speaker 4: time that Alexandra had begun to suspect that her brother
Speaker 4: had something to do with these murders, Jonathan ended up
Speaker 4: clashing with the manager of the family holding company, a
Speaker 4: man numed alex Glassenburg. The sisters, including Alexandra, ended up
Speaker 4: siding with Glassenburg. While in this dispute and what became
Speaker 4: sort of legal threats bouncing back and forth, everyone threatening
Speaker 4: to sue each other. Ultimately they ended up in professional
Speaker 4: mediation which resulted in the installation of a new board
Speaker 4: to smooth out this crisis, and then the company eventually
Speaker 4: was sold to a private equity FIRMSK Capital, something that
Speaker 4: I think a lot of people we spoke to feel
Speaker 4: would have horrified Barry Sherman Habitects with his baby. He
Speaker 4: built it, as Joel alluded to, really from not but
Speaker 4: his kids wanted to sell it and get the cash,
Speaker 4: and that's what they've now done.
Speaker 2: That was Bloomberg Business Week's Matthew Campbell on this week's
Speaker 2: cover story. Joe Weber is sticking around for our next segment.
Speaker 2: Coming up, we examine why a contemporary measure of US
Speaker 2: recession is so highly regarded and why it's creator wants
Speaker 2: to see your own rule broken.
Speaker 7: She just feels that it's getting caught up in the
Speaker 7: maelstrom of his whole self lamming debate.
Speaker 2: You're listening to Bloomberg Business Week. This is Bloomberg.
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Speaker 5: First, we're going to put our economist hats on.
Speaker 2: Tim I brought mind today, did you I did? Yeah?
Speaker 2: Took it on the train with you, on the train
Speaker 2: with me.
Speaker 5: Here's the thing, A simple economics rule that helps us
Speaker 5: suss out whether the US is in a recession. It's
Speaker 5: getting called into question by its own creator. It's called
Speaker 5: the Psalm rule, and it's architects. The architect rather is
Speaker 5: worried that her creation has become a monster. That's the
Speaker 5: headline of the Business Week story we're focusing on today,
Speaker 5: which you can find on the terminal, of course, at
Speaker 5: Bloomberg dot com. Here to discuss the breakdown with us
Speaker 5: is Bloomberg BusinessWeek editor Joel Weber and the reporter on
Speaker 5: this story and occurr in Joel, what's this?
Speaker 3: It's all in the Did you describe this as a
Speaker 3: simple economic rule?
Speaker 9: Is there such a thing? I just want to clarify it.
Speaker 9: Is there such a thing?
Speaker 7: I won't pretend simple. I won't pretend I even fully
Speaker 7: understand the mechanics of it. So that's a brave call.
Speaker 2: Okay, all right, So what does it feel better? And
Speaker 2: that makes me feel better?
Speaker 3: I honestly I had never heard of the sam rule.
Speaker 3: So break it down for us, and what uh, you
Speaker 3: know what everybody's talking about here?
Speaker 7: So the Clode's, first of all, she's a very accomplished economist.
Speaker 7: She had a long career at the FED. She had
Speaker 7: a stint in the White House as well, and at
Speaker 7: her time at a fed. In twenty nineteen, she published
Speaker 7: this now this rule or this measure, which essentially looks
Speaker 7: for increases in unemployment in a real time way and
Speaker 7: looks for how it looks for the increased relative to
Speaker 7: the average, the three month average compared to the low
Speaker 7: point of the year before point being it's a real
Speaker 7: time weight to gauge. Oh, look, the job market might
Speaker 7: be turning. Jobs are being lost. And the second part
Speaker 7: of it is that that's a warning sign to governments or
Speaker 7: the US government in particularly, that they're we're in a
Speaker 7: recesion and so it's time to start getting money out
Speaker 7: to those who need it fast. So that's the key
Speaker 7: point about it. It's a real time gauge. It looks
Speaker 7: at the labor market, and that's much faster than the
Speaker 7: current system of gauging when there's a recession, which is
Speaker 7: an eight member committee that come together and often don't
Speaker 7: diagnose it until a year after the event.
Speaker 3: So how did she create a monster, because that's the
Speaker 3: fun part exactly.
Speaker 2: Yeah.
Speaker 7: So the issue here is that it's got it's got
Speaker 7: two things. First of all, people are kind of talking
Speaker 7: about it in the sense of forecasting this much wanted
Speaker 7: the US recession while it won't it. And our point
Speaker 7: is it's not a tool for forecasting sessions. It's an
Speaker 7: indicator to say when we're in a recession. And the
Speaker 7: second point of it is, it's just got tied up
Speaker 7: in this whole broader tug of war of will the
Speaker 7: US fall intercession?
Speaker 9: Will it not?
Speaker 7: What's the rule sam Room Rule telling us when her
Speaker 7: point is that this was meant to be an indicator
Speaker 7: that look, people are losing their jobs and the governments
Speaker 7: need to get money out straight away because that mitigates offsets,
Speaker 7: whatever damage your a session might be coming. So she
Speaker 7: just feels that it's getting caught up in the maelstream
Speaker 7: of this whole seft lamming debate.
Speaker 2: Well, she said to you, the whole point of it was, Okay,
Speaker 2: we need to get people help, because if you can
Speaker 2: get in at the beginning of a recession, you can
Speaker 2: do so much to soften the blow. The issue is
Speaker 2: the consumer has been so resilient, The American consumer has
Speaker 2: been so resilient. So yeah, this has been pretty humbling,
Speaker 2: not just for her but for for so many economists.
Speaker 7: Yeah, so in terms of you know the rule itself,
Speaker 7: you know this policy ad that she was giving say
Speaker 7: pre pandemic. Ultimately, it's what the Trumpet administration did is
Speaker 7: that when people are losing their jobs, they put money
Speaker 7: into people's households to upset the worst of their session.
Speaker 7: So it kind of did follow the policy prognosis. But
Speaker 7: you're right, the real crooxy this is where we are now.
Speaker 7: You know, the job market is softening somewhat. There's a
Speaker 7: lot of tok that the economy will soften with claudiusam
Speaker 7: is making the point that, look, if unemployment was to
Speaker 7: go up somewhat and you know, mechanically trigger her rule,
Speaker 7: that suggests it's passing a threshold that the economy might
Speaker 7: be going into her session. So the jobless rate was
Speaker 7: to go up, but the actual economy doesn't go into
Speaker 7: her session, She'll be fine with that. She doesn't mind
Speaker 7: if her rule is proven, is tested, so to speak,
Speaker 7: are even proven to be inaccurate in this occasion, as
Speaker 7: long as it means the US pulls off of self landing.
Speaker 7: And she's in the camp that there doesn't need to
Speaker 7: be your session to bring down inflation. At the moment
Speaker 7: she thinks inflation is on a glide path lower. You
Speaker 7: don't need to blow up the job's market. She said,
Speaker 7: it's still possible that happens, but she thinks it's a
Speaker 7: path for self lanning, and that's her whole that's her
Speaker 7: whole point about it. If her rule is proven wrong
Speaker 7: this time, that the jobbles rate goes up a touch,
Speaker 7: but there is no recession, she'll be fine with that.
Speaker 5: She also just sounds funny to me. She said that
Speaker 5: she created a monster. She said she never she was
Speaker 5: surprised she ended up at the FED, even though she's
Speaker 5: obviously genius and created this rule. She would love to
Speaker 5: see this break. What were your impressions of her?
Speaker 7: Very Clothly's very accomplished the columns, like you just mentioned,
Speaker 7: a long career in the public sector, a lot of
Speaker 7: academic research, PhD from Michigan. She's proved, she has a
Speaker 7: proven track record behind her. Clodly also was on the
Speaker 7: front line of pushing for the diversity debate at the
Speaker 7: FED when she was there. We spoke a lot about that.
Speaker 7: She said, the institution has come a long way compared
Speaker 7: to the time she was there. And of course we
Speaker 7: got into the world of social media, because that's also
Speaker 7: a big part of this story that the economic debate
Speaker 7: has moved from say the wholes of universities and maybe
Speaker 7: the opinion pages of newspapers into this real time back
Speaker 7: and forth sort of punch bowl on Twitter, et cetera.
Speaker 7: And Clonia herself.
Speaker 3: Him like thinks he knows what he's talking about. I know,
Speaker 3: that's when you know we've got a problem.
Speaker 2: Just wait till the Stenevec rule. Just wait until that happens.
Speaker 9: Dye rules called five and I'm out of.
Speaker 2: The area six six. But and you bring up a
Speaker 2: really good point, because she is, she's huge on Twitter,
Speaker 2: and she she does such spent she's I mean, I
Speaker 2: haven't I must confess I have taken a break from
Speaker 2: Twitter lately. But X whatever it's called. She she's and
Speaker 2: she writes for Bloomberg Opinion. I mean, she's out there.
Speaker 7: He used to be very out there as well, very vocal.
Speaker 7: I mean, she wrote a blog post in twenty twenty
Speaker 7: that was highly critical of some very senior peers in
Speaker 7: the Eglomis field and she named them. So that caused
Speaker 7: a big star at time. And you know, she was
Speaker 7: on the front edge of a lot of sharp exchanges
Speaker 7: on Twitter as well. But you know, Clodia has pulled
Speaker 7: back from Twitter. She made that point. She took a
Speaker 7: couple of breaks, a couple of months off of it.
Speaker 7: She's back on it now just to publish her research.
Speaker 7: She's not interested in getting involved in the back and
Speaker 7: forth the hot take debates. In fact, she said she
Speaker 7: stays off Twitter and the hot take days. The hot
Speaker 7: take day will obviously be the jobs Day on Friday.
Speaker 7: She's hearing well clear of that.
Speaker 10: She's got all these rules. I wouldn't know the rest
Speaker 10: of the rules.
Speaker 3: Actually, Okay, so you rate that if she gets get
Speaker 3: it right in economics, textbooks will be rewritten, get it wrong,
Speaker 3: and the credibility of central bank will be damaged in
Speaker 3: the US economy, doomed to stagflation.
Speaker 9: Which way is it trending so far? And when will
Speaker 9: we know?
Speaker 10: We got to?
Speaker 9: You know, textbooks require some you know, forward planning.
Speaker 7: Right here, right now, there's this window that the US
Speaker 7: can pull this off, that they can get inflation down,
Speaker 7: that Dad has been heading in the right direction. Inflation
Speaker 7: is coming off, and maybe they can navigate some sort
Speaker 7: of a soft landing without the kind of massiver session
Speaker 7: that some people were warning about. Now, if that happens,
Speaker 7: that puts your own Powell in the whole of legends
Speaker 7: up there with Vulkar in terms of global central bankers
Speaker 7: who pulled off the impossible. But there are a lot
Speaker 7: of people who push back and say it's too soon
Speaker 7: to say mission accomplished. We don't yet know what the
Speaker 7: full impact of these rate hikes will be. We don't
Speaker 7: yet know if inflation is going to come all the
Speaker 7: way back down the word it should be in people
Speaker 7: on the street. They're feeling the impact of these price
Speaker 7: rises over the past few years. So there's another camp
Speaker 7: out there saying hang tight for another six months or
Speaker 7: so and see where we are.
Speaker 9: Then wait, you just didn't vote to Volker.
Speaker 3: I'm actually curious if pulls this off, who becomes more
Speaker 3: of a legend, Volker or Pale.
Speaker 7: It's an interesting question. I think if Powell pulled this off,
Speaker 7: it would be seen to be quite a feat because
Speaker 7: there's a backstory. You could say, hang on, central banks
Speaker 7: missed how all this inflation was building up anyway, But
Speaker 7: when they went they went very hard to federally doing
Speaker 7: all those massive rate hikes seventy five bass points at
Speaker 7: a time. A lot of people being very critical, you're
Speaker 7: going to blow up the economy. Don't need to do this.
Speaker 7: And if they do pull this off and get inflation
Speaker 7: an on a glide path, it looks like, you know,
Speaker 7: would put the US in pretty good order compared to
Speaker 7: some of its peer around the world. Pray of what's
Speaker 7: going on Europe, for example. And I think Powell then
Speaker 7: would maybe take something up a victory lot.
Speaker 9: But I just retire just like I'm doone.
Speaker 2: I think Joel brings up a good point end. I mean,
Speaker 2: because you know, Vulcar had to raise rates to what
Speaker 2: close to twenty percent in the early nineteen eighties, and
Speaker 2: if Powell pulls this off with rates around five percent.
Speaker 7: And unemployment went to eleven percent, yeah, the Vulgar I mean.
Speaker 7: And you know under Powell, unemployment fell to three point
Speaker 7: four percent in February, which was the lowes since nineteen
Speaker 7: sixty nine, So fairly different circumstances. Maybe we're seeing the
Speaker 7: birth of the Powell rule here. We don't yet know.
Speaker 9: Did you just coin that that's good?
Speaker 10: Still original? I fear that I just jinxed everything.
Speaker 2: Oh yeah, great, Joel crash Landing, Oh Weber, I would love.
Speaker 5: For you to be the leading indicator of our economy.
Speaker 3: Joel, Just you know, there are some people on Twitter
Speaker 3: x who have written how the Business Week covers are?
Speaker 9: Are you know?
Speaker 10: That's really I don't know about this.
Speaker 5: Can you explain it once.
Speaker 9: We talk about it. It means it's late and and everything.
Speaker 2: Like once on the cover I we brought down the dollar.
Speaker 10: The dollar was very strong, and then we did the
Speaker 10: cover story and it.
Speaker 9: Was less strong.
Speaker 2: I will push back on that. I think it's like,
Speaker 2: there's no perfect record here, but there's like, you know,
Speaker 2: there's a couple prominent ones.
Speaker 10: Yeah, we get, we get.
Speaker 9: You know, every once in a while.
Speaker 2: We hold you is like an oracle.
Speaker 3: Okay, speaking of oracles, can we talk about into some more?
Speaker 10: Because he was busy this week and he wrote about Barbie.
Speaker 3: Uh, I was hoping, Yeah, you know, let's just stay
Speaker 3: with cool things, like, I mean, some world pretty cool.
Speaker 9: You didn't know about that, but maybe you knew.
Speaker 3: About Barbie with tell us about what you wrote for
Speaker 3: today's newsletter.
Speaker 9: End up.
Speaker 7: Yeah, So the toy industry has been in a bit
Speaker 7: of a slowdown this year because you know, it's coming
Speaker 7: off to the highs of the pandemic when people are
Speaker 7: buying so much of that stuff. This year, stores have
Speaker 7: been running down to inventory le less buying of toys,
Speaker 7: especially I from age of course, so I touch base
Speaker 7: with a couple of manufacturers and said, how are things looking.
Speaker 7: And one of those I spoke to is one of
Speaker 7: the biggest makers of toy dinosaurs in the world, and
Speaker 7: he said he can't wait for this year to be over.
Speaker 7: So the thinking is that the Barbie effects, the barbieffect
Speaker 7: might give all boats a lift. I mean Mattel themselves.
Speaker 7: They're talking about they're expecting a lift from the Barbie
Speaker 7: chain of products. And of course there's a thinking that
Speaker 7: that might get people back in the toy stores and
Speaker 7: spending money on other products too, And that's what it's
Speaker 7: time maker I spoke to. He's making the point that
Speaker 7: he's hoping for a lift towards the end of the year,
Speaker 7: because certainly buying toys hasn't been an everyone's shopping list
Speaker 7: so far in twenty twenty three.
Speaker 3: Wait a second, did you say the world's biggest manufacturer
Speaker 3: of dinosaurs one.
Speaker 7: Of the biggest. Yeah, and he also makes chat him
Speaker 7: out of the talking Hamster.
Speaker 9: He's got a rank product.
Speaker 3: We've got questions about that, but let's stay with dinosaurs.
Speaker 3: So the dinosaur business is difficult right now.
Speaker 7: Well, so he sells, he makes and sells for some
Speaker 7: of the biggest brands in the US. And his point
Speaker 7: was that they a lot of these stores have built
Speaker 7: up inventory. They bought so much back during the pandemic
Speaker 7: because they wanted to get ahead of supply chain problems
Speaker 7: and everything else. They needed to just get the stock in.
Speaker 7: But now, of course I have to run down through
Speaker 7: all of that stock. So his order book hasn't been
Speaker 7: good this year. That was the point he was making.
Speaker 7: But he's hoping that it will turn now towards the
Speaker 7: end of the year with store report that inventory are
Speaker 7: being run down, and of course the US consumer is
Speaker 7: holding up stronger and expected. Throw a bit of Barbie magic,
Speaker 7: a bit of Barbie sprinkle on top of that, and
Speaker 7: maybe people might start splash splashing the plastic again on
Speaker 7: toys this year.
Speaker 9: Okay, what was the hamster thing?
Speaker 7: And he also has he also has a tucking hamster
Speaker 7: which he makes all of this. He makes all of
Speaker 7: this out of me a it's an old conduct of mind,
Speaker 7: but he sells it to Europe and the US and
Speaker 7: one of his products is a tucking hamster.
Speaker 2: Is this is this, remember Tickle me Amoo?
Speaker 1: Like?
Speaker 9: Is this that's a throw hamster? Is this like?
Speaker 2: Is this going to be like what everyone wants for
Speaker 2: the holiday?
Speaker 3: I love it, abitrage make this in Asia sell You're
Speaker 3: talking hamsterday Europe.
Speaker 9: Don't do it in the US.
Speaker 2: Don't European big market.
Speaker 10: Though, brutal.
Speaker 2: So the idea here is that people are going to say, Okay, well,
Speaker 2: Barbie's still hot right now, We're gonna add Barbie to
Speaker 2: our shopping list for the holidays. And while we're at
Speaker 2: the toy store, well we're on I don't know why
Speaker 2: even say toy store. While we're online, we're going to
Speaker 2: add some other toys, some g I Joe's, some talking hamsters,
Speaker 2: and some dinosaurs to our.
Speaker 7: That's certainly dinosaurs and Barbie seamless, but that's certainly the
Speaker 7: hope among a couple of manufacturers that I spoke to, Well,
Speaker 7: I wonderful.
Speaker 5: Materializes Mattel's biggest product sales, as you know, and is
Speaker 5: it's hot wheels. It's not Barbie, right.
Speaker 7: Yeah, but they were saying in their earnings report last
Speaker 7: week that they are hoping for pickup from Barbie to
Speaker 7: some increasing by.
Speaker 9: The Barbie buy the hot wheel to go with it.
Speaker 10: Also, it's really ip and that was you know exactly.
Speaker 3: What the Barbie cover story in Bloomberg Business was week
Speaker 3: was about perhaps the leading indicator of the toy economy.
Speaker 10: We'll find out more, yeah, in the weeks and.
Speaker 5: Months ahead, and when we get the Super Mario Brothers
Speaker 5: movie expected in twenty twenty five, it'll.
Speaker 3: It'll get moved forward because it's everybody wants more Mario
Speaker 3: shout out to two stories in one episode right now,
Speaker 3: that one segment that we've talked about.
Speaker 9: Amazingly, he has.
Speaker 3: More content in the magazine, like he's a busy guy.
Speaker 3: But we're not even going to talk about that one.
Speaker 3: Maybe we'll do another segment.
Speaker 2: Yeah, all right, Well it's only Tuesday, so you got
Speaker 2: to come back. It's good to have you business guys
Speaker 2: this afternoon. And also Joel, always great to have you
Speaker 2: that voice you're hearing Bloomberg Business we get or Joel
Speaker 2: Weber and also Bloomberg Global Economy reporter and a current
Speaker 2: talking about the PM rule in Barbie only we can
Speaker 2: marry you know, Barbie in an economy.
Speaker 5: That was a really good Josian Joel that.
Speaker 1: Yeah, you're listening to the Bloomberg Business Week podcast. Catch
Speaker 1: us live weekday afternoons from three to six Easter on
Speaker 1: Bloomberg Radio, the Bloomberg Business App, and YouTube. You can
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Speaker 1: York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 5: All right, we're going to switch gears a little bit
Speaker 5: because we have a great guest with us in studio here.
Speaker 5: I don't know if you've been on overstock dot Com today, Tim,
Speaker 5: but if you load that in, you're going to get
Speaker 5: redirected to the bed Bath and Beyond website because Overstock
Speaker 5: dot Com is now operating as bed Bath and Beyond
Speaker 5: in the US following the rebrand in Canada. And we
Speaker 5: are joined by the CEO, Jonathan Johnson in studio. Jonathan,
Speaker 5: thank you so much for coming in today. I am
Speaker 5: currently shopping for some midcentury modern products on the website here.
Speaker 5: But also previously, while I was working, I did a
Speaker 5: video on bed Bath and Beyond and the title was
Speaker 5: Bedbath and Bankruptcy. How are you planning to leverage the
Speaker 5: assets and ip that you spent a little under twenty
Speaker 5: two million dollars on to veradge the brand without that
Speaker 5: same ending.
Speaker 11: Yeah, that's a great question. You know, we've long liked
Speaker 11: and looked at bed Bath and Beyond as a brand
Speaker 11: and as a loyal customer base. We understand it's business
Speaker 11: fell on hard times. Our view is that management can
Speaker 11: kill companies, but not necessarily brands. And before we purchased
Speaker 11: the brand, we did some consumer research and we saw
Speaker 11: that in the home space, bed Bath and Beyond was
Speaker 11: still a top five brand, well known, well trusted, and
Speaker 11: associated with home. Overstock, on the other hand, has a
Speaker 11: business model that really works, but a brand that was
Speaker 11: actually creating some headwind. We started two and a half
Speaker 11: decades ago as a liquidator, but it's been twenty years
Speaker 11: since we were a liquidator and a lot of our
Speaker 11: customers still were not and potential customer still we're not
Speaker 11: associating us with home products, home furniture. They were associating
Speaker 11: with liquidations. So we thought, why don't we take our
Speaker 11: great business model and this great consumer, iconic consumer brand
Speaker 11: that is bed Bath and Beyond, put them together and
Speaker 11: it allows us to really rebrand in a way that's
Speaker 11: a lot less expensive, a lot less time consuming. Hasn't
Speaker 11: really been done before and when we did it started
Speaker 11: last month in Canada to test it. It really resonated well.
Speaker 5: So let's see what's the impact on revenue.
Speaker 11: Well, hard to know just yet. We've been kind of
Speaker 11: quiet about the impact on revenue in Canada, but it
Speaker 11: was significant.
Speaker 2: What is significant, you know, I'm going to be I'm
Speaker 2: going to be very careful not to talk.
Speaker 11: But we had our investor call last week. We didn't
Speaker 11: we didn't talk about it, but something significant enough that
Speaker 11: we wanted to rush and do this rebrand as soon
Speaker 11: as possible. In the US, the going out of business
Speaker 11: brick and mortar stores just closed and we're up and
Speaker 11: running today. That I think that tells you that it's
Speaker 11: meaningful for us.
Speaker 2: So I'm curious about the experience that people have shopping
Speaker 2: at the new bed Bath and Beyond versus the old
Speaker 2: bed Bath and Beyond and versus that Overstock. Is the
Speaker 2: experience that you're going to get when you visit Overstock's
Speaker 2: website now goes to bed Bath and Beyond. Is that
Speaker 2: a bed Bath and Beyond experience or is it an
Speaker 2: Overstock experience?
Speaker 11: I think it's a mix. And by the way, those
Speaker 11: customer sets have a lot of overlap in their behavioral demographic.
Speaker 11: You know today when you go to that site, it's
Speaker 11: gone from red the Overstock customer, to color to blue
Speaker 11: the bed Bath and Beyond color. The Overstock logo is
Speaker 11: still there today.
Speaker 2: I see it. That's the Rewards Club logo.
Speaker 11: Well, and it's the Rewards Club logo. We will sunset
Speaker 11: that over time. We just on our overstock legacy Overstock
Speaker 11: customer to feel comfortable. The taxonomy and the search will
Speaker 11: feel very comfortable, very familiar to or the Overstock customer.
Speaker 11: There's a little bit more promotion and prominence to bed
Speaker 11: bath and kitchen products sure, so that the bed Bath
Speaker 11: and Beyond legacy customer feels comfortable there, but it will
Speaker 11: really feel like both for a time, but morphing to
Speaker 11: bed Bath because that's who we want to become.
Speaker 5: You've also got the classic tried and true bed Bath
Speaker 5: and Beyond coupon offerings advertised at the top of the page.
Speaker 5: That is part of what people thought was a potential
Speaker 5: downfall for bed Bath and Beyond. So how are you
Speaker 5: thinking about some of the things that made bed Bath
Speaker 5: and Beyond so well known? But also we're a little
Speaker 5: bit of a tailwind or headwind rather for them.
Speaker 11: So we are a promotion We've always been a promotional
Speaker 11: company with with site sales, with coupons. As we do
Speaker 11: this rebrand launch, the coupons are big their bed Bath
Speaker 11: and Beyond esque size. Over time, they won't be that
Speaker 11: big always because our prices have been sharper. But for
Speaker 11: that bed Bath and Beyond customer who has loved the coupon,
Speaker 11: what they really will love is the new bed Bath
Speaker 11: and Beyond mobile app. If you download that today, there's
Speaker 11: a nice coupon there. We will continue to push promotions
Speaker 11: that way. That's been a hugely successful thing for overstock,
Speaker 11: and we want it to be that way for the
Speaker 11: new bed Bath and Beyond.
Speaker 2: Bricks and mortar strategy, is there one?
Speaker 11: Yeah, there is, and it's not to have it and
Speaker 11: so you know, we never say never, will continue to
Speaker 11: look at it. But we like our asset light business model.
Speaker 11: We think part of what brought the prior bed Bath
Speaker 11: and Beyond down was lots of leases, lots of inventory
Speaker 11: moving away from name band product to private label. We
Speaker 11: like our business model asset light, name brand.
Speaker 12: Uh.
Speaker 11: So we never say never, but we say never for now.
Speaker 11: If that oxymoron.
Speaker 2: Makes sense, that makes sense but I do wonder because
Speaker 2: some of the products are so big, some of the products,
Speaker 2: people would argue you need to be tried. How do
Speaker 2: you get the consumer past that?
Speaker 11: So I think Overstock has done really well at that.
Speaker 11: And so for the typical bed and bath product linens,
Speaker 11: small appliances, kitchen where that seems like it will fit
Speaker 11: really well. What Overstock has historically been good at area rugs, sofas,
Speaker 11: patio furniture.
Speaker 2: This is the beyond.
Speaker 1: Part of.
Speaker 2: It is the bed, bed bath and beyond. We're good
Speaker 2: at the bed and the bath, and I would say
Speaker 2: Overstock was the beyond, and.
Speaker 11: I would say it's a much bigger, better beyond now.
Speaker 11: The number of products that are available on the new
Speaker 11: bed Bath and Beyond site is much bigger and it's
Speaker 11: a lot of beyond. And so we think we've done
Speaker 11: well at that, even with the headwind of kind of
Speaker 11: this Overstock brand that didn't fit who we were. We
Speaker 11: think with Bed Bath and Beyond, that headwind turns into
Speaker 11: a tailwind.
Speaker 5: So, as you know, revenue at Overstock and formerly bed
Speaker 5: Bath and Beyond had been falling year over year. I
Speaker 5: know you won't give a specific but what inning would
Speaker 5: you say we're in. When it comes to reversing that.
Speaker 11: Well, I think the economy has been particularly tough for
Speaker 11: our industry. The pandemic was huge tailwind, you know, and
Speaker 11: everyone got that pandemic bounce, and then I think, well,
Speaker 11: the country may have avoided a recession. I think our
Speaker 11: industry did not. Furnithing and home furnishings have been in
Speaker 11: a recession. I think that's normalizing now to seasonal trends,
Speaker 11: but it's not back back to normal as far as
Speaker 11: what people are spending their money on. It's still very
Speaker 11: much experiential. It's it's going to the Taylor Swift concert,
Speaker 11: It's it's doing those kinds of things that will come back.
Speaker 11: And I think our playing offense during this lower time
Speaker 11: in our industry cycle, when the cycle comes back, we'll
Speaker 11: be able to slingshot out bigger and stronger.
Speaker 5: How would you feel if you became a meme stock
Speaker 5: a lot that, bath and beyond.
Speaker 11: We don't want to be a meme stock. We want
Speaker 11: to we want to perform based on on we want
Speaker 11: to be rewarded based on performance. So when it's time
Speaker 11: to change our ticker, I can tell you one ticker
Speaker 11: we won't use and that's BBB Y because we don't
Speaker 11: want to go back to that place.
Speaker 2: Yeah, how's the consumer right now?
Speaker 11: The consumer is out there. Uh, they're looking for deals.
Speaker 11: And so for example, around fourth of July, we had
Speaker 11: a great fourth of July, we had a great Memorial Day.
Speaker 11: We expect to have a great Labor Day because it's
Speaker 11: big promotions that are going on. The consumer has money
Speaker 11: to spend, but they want to be careful and make
Speaker 11: sure they're getting a great deal.
Speaker 2: Do you think there's going to be a recession.
Speaker 11: Well, I'm hopeful there's not, particularly since I think this
Speaker 11: industry has been in its mini recession as it is.
Speaker 11: By the way, I think some of the things that
Speaker 11: are fending off a recession, like higher interest rates, are
Speaker 11: actually pushing us back down. When mortgage rates goes up
Speaker 11: go up, people aren't moving. It means they're not buying
Speaker 11: more furniture. It means they're not redecorating at the same level.
Speaker 11: So what keeps the country out of a recession ultimately
Speaker 11: is good for us, but short term is probably a
Speaker 11: little makes it a little tougher.
Speaker 5: It's really interesting to think about you guys being tied
Speaker 5: closely with the housing data that we cover as well.
Speaker 5: Thank you so much, Jonathan, really really appreciate your time
Speaker 5: joining us in studio today again overstock dot com. If
Speaker 5: you load that up right now, you're going to see bed, bath,
Speaker 5: and beyond on your screen. Really interesting talking with the
Speaker 5: CEO Jonathan Johnson here. Thank you so much for that.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern Listen on
Speaker 1: Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 5: I am so excited for our next segment because we
Speaker 5: get to talk about a dream that I think will
Speaker 5: never come true for me, which is owning a home
Speaker 5: in New York City.
Speaker 2: Well like a seven or ten million dollars penhouse, right right.
Speaker 5: I mean, I don't know what am I going to
Speaker 5: do own like a studio, Like I'm going to be
Speaker 5: forty someday and I'm going to be in a studio,
Speaker 5: you know. But Tim, to me, you embody the classics
Speaker 5: of the American dream. You've got the beautiful family, You've
Speaker 5: got a home that you're quit to remind me as
Speaker 5: an apartment apartment.
Speaker 2: So it doesn't count quickly outgrowing it.
Speaker 5: Yes, yes, says you've got an another baby there, but
Speaker 5: here to help kind of potentially crush our anxiety levels
Speaker 5: when it comes to the real estate picture or fuel them.
Speaker 5: Who's to say is Francis Katson agent with Douglas Ellman.
Speaker 5: Francis has three billion in total sales, selling an excess
Speaker 5: of three hundred and fifty million annually, so a great
Speaker 5: pulse on the market. Francis, thank you for coming in
Speaker 5: studio with us. Talk to me about the outlook in
Speaker 5: New York City. Is there any any optimism for me
Speaker 5: out here?
Speaker 12: Well, Madison, I think it depends on which side you're
Speaker 12: standing on. I mean, I think that the luxury sector
Speaker 12: over four million is having the most fun right now,
Speaker 12: to be candid, because there's the most opportunity. When there's
Speaker 12: this unknown variable, there's a lot more negotiability. They're a
Speaker 12: little bit less dependent on any rate. They're exempt from it,
Speaker 12: to be.
Speaker 2: Honest, because they're paying with cash.
Speaker 12: Correct And just to be clear, the sixty five percent
Speaker 12: more cash deals that we're seeing are not necessarily because
Speaker 12: there's more cash deals. It's just that the mortgage deals
Speaker 12: that were happening have slowed down, so those that sixty
Speaker 12: five percent just looks front and center.
Speaker 2: It used to make sense even if you had for
Speaker 2: seven million dollars to spend on apartment on an apartment
Speaker 2: in cash rates were so it used to make sense
Speaker 2: to actually take out a mortgage because you can take
Speaker 2: out a mortgage for two point five three point five
Speaker 2: percent and then throw that other money in the s
Speaker 2: and P five hundred and you know, or do whatever
Speaker 2: you wanted with that other money. But now that's not
Speaker 2: the case.
Speaker 12: So therefore cash is king because sellers are really wanting
Speaker 12: to take advantage of unloading the asset. They want to
Speaker 12: get out of New York, they want to downsize, whatever
Speaker 12: it is. And this is the opportunity because people have uncertainty,
Speaker 12: they're not sure, there's a malaise in the market, there's
Speaker 12: an unknown should I time it? But these ultra luxury buiers.
Speaker 12: There were three sales done over fifty million over the
Speaker 12: past week and a half, one in the West Village,
Speaker 12: one in Gramercy. It's happening. People are doing it big
Speaker 12: time on the fifty million plus. But it's the entry
Speaker 12: market that has the least to spend the most to
Speaker 12: lose on the and are the most impacted right now.
Speaker 5: In my opinion, what does that even start to look
Speaker 5: like in what way? Like who can buy a home
Speaker 5: at the entry level right now?
Speaker 12: I think it's for parents. You can help bankroll the
Speaker 12: down payment, because that's the most illiquid part for these buyers.
Speaker 12: They can probably manage the mortgage and the common charges
Speaker 12: if they can make it work with the relationship of
Speaker 12: a lender that can give them a little bit like
Speaker 12: a quarter or a half a point down. But at
Speaker 12: the end of the day, people are having to grieve
Speaker 12: and say goodbye to two point seventy five to three
Speaker 12: and a half percent rates and get ready to take
Speaker 12: six point eight to five percent rates, which is meaningful
Speaker 12: when you're carrying a certain income and you're hoping not
Speaker 12: to rank because you want to own equity. It's hard.
Speaker 2: Francis. I wonder about just the lack of supply that
Speaker 2: we're seeing right now, and if the story in New
Speaker 2: York is at all different than the story in other
Speaker 2: parts of the country. And I go back to what
Speaker 2: fve Jo J. Powell said about and this is for
Speaker 2: starter homes. I mean, you know there's new construction coming online,
Speaker 2: their new development's happening all over the country because there's
Speaker 2: demand for them. We just don't have the space here
Speaker 2: in New York. We're not going to be seeing like
Speaker 2: you know, Lenar come in and build a bunch of
Speaker 2: homes for example.
Speaker 12: So here's what we're seeing. We're seeing bidding wars up
Speaker 12: seven point four percent around the country, but we're not
Speaker 12: necessarily seeing it in New York. But because there's a down,
Speaker 12: there's a down of inventory. It's about twenty three percent
Speaker 12: down on inventory for under four million. We're seeing that
Speaker 12: change in terms of bidding war for the lower the
Speaker 12: under luxury price point around the country. You're right, there
Speaker 12: are there is a level of need and supply and
Speaker 12: demand New York. You're right, it's not getting any larger.
Speaker 12: But the problem is is that it's so expensive people
Speaker 12: can't make the numbers work. So New Jersey, Brooklyn, Long
Speaker 12: Island City become very interesting because there's people want to
Speaker 12: say they don't want to burn it all out, but
Speaker 12: but at the end of the day, people like to
Speaker 12: park their cash in New York City. It's it's a hub.
Speaker 2: What are you seeing when it comes to foreign buyers
Speaker 2: right now?
Speaker 12: The big time time really No, it's happening. I'm doing
Speaker 12: deals with Germany, London, Russia. It's happening. Yeah, Russia, yes, yes.
Speaker 2: Go into detail please.
Speaker 12: I can't, but suffice it to say, people want to
Speaker 12: get money out of certain countries and park it and
Speaker 12: it's happening. It's happening with Asia.
Speaker 2: I just want to make sure we're allowed to do
Speaker 2: deals with Russia.
Speaker 12: How does that We're not discussing anything other than to
Speaker 12: say it's happening.
Speaker 5: And what's the How luxury are those.
Speaker 12: We're talking fifteen million plus? Yeah, yeah, yeah, there's a
Speaker 12: lot of discretionary income. But it's more than that. It's
Speaker 12: a hub. We have a very different tax allowance here
Speaker 12: than we do for the actual New YORKA sure, go figure.
Speaker 5: Yeah. What is that looking like in terms of the
Speaker 5: impact on availability of units for renters out there? Are
Speaker 5: we still seeing a lot of units that are sitting empty?
Speaker 12: Because so that's a really good question, because last year
Speaker 12: in November, we had a vacancy rate less than two
Speaker 12: point seven percent and rentals were up forty percent. Now
Speaker 12: we're seeing the rents softened in the early part of
Speaker 12: twenty twenty three because we expected a big sale push
Speaker 12: but because the rates started to really impact that and
Speaker 12: the inventory was down because nobody wanted to let go
Speaker 12: of that really good rate that they had as a
Speaker 12: seller and have to take on almost double digit carry.
Speaker 12: We sort of got back into the rental market. But
Speaker 12: the rental market went from one month op again to
Speaker 12: now fully no, we're not negotiating, but now again it's
Speaker 12: it's measured because parents are coming in and deployment of
Speaker 12: foreign investment coming in to offset that parents. So the
Speaker 12: rental market's moody.
Speaker 2: We have thirty seconds left. But common charges are the killer. Yes,
Speaker 2: I talked to somebody, Yes, colleague kills trying to buy. Yes,
Speaker 2: and they just can't make the numbers work now of
Speaker 2: common charges.
Speaker 12: But is it the common charges or is it the
Speaker 12: combination of the rate because the rate was so artificially
Speaker 12: low it offset the standard common charge of you know,
Speaker 12: fifty seven hundred bucks or thirty seven hundred bucks depending
Speaker 12: on the size, or twenty charges.
Speaker 13: Yeah.
Speaker 2: Wow, common charges, Mattie, are optimistic.
Speaker 12: I mean, it's not.
Speaker 5: Going to happen for me, you know, I just think,
Speaker 5: I just think how I mean, okay, what's happening with
Speaker 5: rent really quickly? Is my Is my rent going to
Speaker 5: get any better this year next years?
Speaker 12: It depends on what happens with the rates. I think
Speaker 12: that quarter point hike sort of really pushed things over,
Speaker 12: even though inflation has steadily come down. So I think
Speaker 12: the rental market will adjust and we see rates adjust.
Speaker 5: All right, got to time the market, I guess, tim timing.
Speaker 2: Francis Katzen from a Douglas Element. Really good to have
Speaker 2: you with us this afternoon. You're listening to Bloomberg.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Easter on Bloomberg Radio,
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 play Bloomberg eleven thirty.
Speaker 2: I'm Tim Stenovak, along with Madison Mills, who's filling in
Speaker 2: for Carol Masser. Plenty ahead in our second hour of
Speaker 2: the weekend edition of Bloomberg Business Week, including a conversation
Speaker 2: with Chipotle COO Scott Boatwright on the fast casual giant's
Speaker 2: upbeat out look despite a quarterly sales miss. We'll also
Speaker 2: examine Mark Rowan's push for an image makeover at the
Speaker 2: private equity giant Apollo Plus. We'll find out how AI
Speaker 2: is being used to prepare for future crises. First up
Speaker 2: this hour, we take a look at the brutal month
Speaker 2: of weather that is finally behind us, as heat waves
Speaker 2: and wildfires cause chaos across the globe, so much so
Speaker 2: that UN Secretary General Antonio Guterrez had this to say
Speaker 2: at his most recent press conference.
Speaker 14: The era of global warming has ended the IDIA. The
Speaker 14: era of global boiling has arrived. The air is unbreathable,
Speaker 14: the heat is unbearable, and the level of fossil ful
Speaker 14: profits and climate innection is unacceptable.
Speaker 2: Maddie, I got a true story for you last week.
Speaker 9: Let's hear it.
Speaker 2: Last week, I come into work and I'm soaking with sweat,
Speaker 2: and my colleague Alex Gielson says, Tim, how is your
Speaker 2: bike ride in this morning? And I was like, Alex,
Speaker 2: I took the subway in. This is how much I
Speaker 2: sweat when I walk from the subway to our office
Speaker 2: two blocks. And he was like, Oh, I'm sorry, you're
Speaker 2: so sweaty. I thought you rode your bike all the
Speaker 2: way from Brooklyn. No, that's just because this month has
Speaker 2: been really hot. All that to say June was hot.
Speaker 2: In fact, it was the hottest June in recorded history,
Speaker 2: and this month it's the hottest ever July. It's not
Speaker 2: good news, but it's good that we have Eric Rosston
Speaker 2: all over this story. It's a big take from last week.
Speaker 2: An overheating planet requires supercharged climate solutions. Eric, good to
Speaker 2: have you with us. First, give us the bad news.
Speaker 2: Just how bad was July?
Speaker 15: July was bad? You have characterized it well, it was
Speaker 15: the hottest month and recorded history. The temperature records go
Speaker 15: back to the middle of the nineteenth century. This year
Speaker 15: is likely to be the hottest year on record. The
Speaker 15: last nine years have been the hottest year on record,
Speaker 15: the hottest twenty twenty two of the hottest twenty three
Speaker 15: years have occurred this century, and every decade has been
Speaker 15: hotter than the last since the nineteen sixties.
Speaker 12: Yeah, so not great.
Speaker 5: How much more of this are we going to experience
Speaker 5: throughout the rest of this year? How much more heat
Speaker 5: can we anticipate? Is this going to happen through the
Speaker 5: end of twenty twenty three?
Speaker 15: Even Well, we're helped out in some ways by the
Speaker 15: fact that July is the hottest month, and so as
Speaker 15: we spin around the sun toward fall and winter, temperatures
Speaker 15: will retreat from the piece we've seen. On the other hand,
Speaker 15: we're also entering hurricane and wildfire Season's what's making this
Speaker 15: year unduly punishing is the coincidence of not only climate change,
Speaker 15: which just steps up all the time, but also in
Speaker 15: El Nino, which is this phenomenon of the Pacific Ocean
Speaker 15: sort of coughs up lots of heat every few years,
Speaker 15: and it makes temperatures hotter and throws weather in the
Speaker 15: chaos and different parts of the world.
Speaker 2: It's pretty depressing, I gotta tell you.
Speaker 8: Eric.
Speaker 2: You know, we get a note from my kids nursery
Speaker 2: school that says AQI is over one hundred today, so
Speaker 2: we're not going to let the kids play outside. Meaning
Speaker 2: the air quality index from the wildfires in Canada a
Speaker 2: few weeks ago, a few months ago, and a few
Speaker 2: weeks ago, actually it happened twice recently prevented the kids
Speaker 2: from being able to play outside. But it's so hot
Speaker 2: that you've got to be blasting the air conditioner. Where
Speaker 2: does the electricity come from to blast the air conditioner? Well,
Speaker 2: because it's not coming from nuclear anymore. Here in New York.
Speaker 2: It's coming from fossil fuels. It's creating this terrible cycle
Speaker 2: that we're in right now, which is you know, really
Speaker 2: my question is about solutions, because staying inside and blasting
Speaker 2: the ACA is not a viable solution. That's not going
Speaker 2: to keep sea levels from rising, that's not going to
Speaker 2: keep wildfires from happening, that's not going to keep the
Speaker 2: air clean. What do we do.
Speaker 15: We need to get off fossil fuels, even though it's
Speaker 15: not said that bluntly in American political culture, fossil fuels
Speaker 15: cause called fossil fuel burning causes climate change, and until
Speaker 15: we get that under control, climate change will always be
Speaker 15: in its opening act. This will be a cold summer
Speaker 15: in twenty or thirty years, and that's ultimately this whole story.
Speaker 15: You know, this is not a complicated topic. We've known
Speaker 15: for many decades that this is occurring. Scientists, you know,
Speaker 15: warned us for decades that you want to get on
Speaker 15: top of this before the symptoms start occurring. The symptoms
Speaker 15: are occurring. Fortunately, and this is the good news. We
Speaker 15: have the tools, right We have affordable solar, wind and
Speaker 15: battery technology. Solar is cheaper than coal in most of
Speaker 15: the world on a levelized cost basis, we have wild
Speaker 15: investment into things that are not solved technologically. Yet this story,
Speaker 15: the reason this is the greatest story ever is that
Speaker 15: the stakes could not be higher. But you know, we
Speaker 15: have the fixes and all we need to do is
Speaker 15: the work to implement them. Like that's that's it. All
Speaker 15: we have to do is the work.
Speaker 5: Can we reverse some of the damage that's already been done?
Speaker 5: Or when you said this is going to be viewed
Speaker 5: as a cool summer in twenty or thirty years, is
Speaker 5: that a foregone conclusion or can we fix it still?
Speaker 15: The scientists have said, in a break from previous years,
Speaker 15: they think that as soon as we stop increasing the
Speaker 15: atmospheric concentration of greenhouse gases, that the warming will will
Speaker 15: stop pretty quickly thereafter. So let's what. You know, it's
Speaker 15: what passes for good news in this space. But you know,
Speaker 15: this is this is it's a situation, right, This is
Speaker 15: not it's not great news. We've known about it for
Speaker 15: a long time. We've made you know, we put it
Speaker 15: off for a long time, and that's just where we are.
Speaker 15: I as someone who covers this, you know, we get
Speaker 15: climate reporters I think get this question a lot, which
Speaker 15: is how do you deal with it? And part of
Speaker 15: the part of it is by being in touch with
Speaker 15: everything that's going on. There's a way that kind of
Speaker 15: diffuses anxiety, you know, like if you can understand something,
Speaker 15: it makes it less scary. But the other thing is that,
Speaker 15: like again, I cannot over emphasize the excitement around clean
Speaker 15: energy technologies. The rate of growth, the rate of the
Speaker 15: price declines, it's just phenomenal how quickly we can solve
Speaker 15: the problem if we decide to.
Speaker 2: Nancy Lyons in our DC newsroom reminded me that the
Speaker 2: problem when it comes to renewables is consistent power supply.
Speaker 2: You know, when there is no wind, when there is
Speaker 2: no sun, when it's nighttime. How do we get to
Speaker 2: a place where we can actually store power that's generated
Speaker 2: in the day to offset fossil fuel use at night?
Speaker 2: Or is the answer just nuclear?
Speaker 15: Both of the answer. The price declines in utility scale
Speaker 15: batteries have plummeted like the curve just like somebody looks
Speaker 15: like somebody just like dropped an egg on the chart
Speaker 15: of price to clients, right, it's just like very precipitous.
Speaker 15: So increasingly you see utility scale batteries and nuclear is
Speaker 15: an option that has been there the whole time, and
Speaker 15: it is a critical source of baseline electricity.
Speaker 9: It's just there.
Speaker 15: People just seem not to be able to build them.
Speaker 15: They're just they come in billions of dollars over budget
Speaker 15: and many years late. You know, when you look at
Speaker 15: the time crunch, we're in to have global emissions by
Speaker 15: twenty thirty, Like, you can't build nuclear in that time,
Speaker 15: or at least nobody has, so, you know, nuclear is
Speaker 15: you know, it's this tragedy of like having a carbon
Speaker 15: free source of power that you know, we've used for
Speaker 15: more more than half a century, but nobody will build them.
Speaker 8: Yeah.
Speaker 5: In our final minute with you here, I'm curious about
Speaker 5: legislation around this because you are in DC for us.
Speaker 12: How effective has.
Speaker 5: Legislation like the Inflation Reduction Act been at sort of
Speaker 5: solving some of the issues that you're talking with us about.
Speaker 15: It's the most phenomenally important climate legislation that any country
Speaker 15: has ever passed. You know. The the International Energy Agency
Speaker 15: says we need to triple renewable deployment by twenty thirty,
Speaker 15: we need to double energy efficiency and the oil and
Speaker 15: gas sector needs to cut its methane emissions by seventy
Speaker 15: five percent. There are things in the Inflation Reduction app
Speaker 15: and now in copycat legislation in Europe that will incentivize
Speaker 15: all of those things. So it is it's difficult to
Speaker 15: overstate the importance of how much that that legislation will
Speaker 15: help things along. There's still more that's needed. One interesting
Speaker 15: thing is like we're gonna build so much solar and
Speaker 15: wind in the US that like we can't keep up
Speaker 15: with plugging it into the grid fast enough. And so
Speaker 15: it's interesting, like the federal government can you know, has
Speaker 15: UH can build pipelines and highways, but they can't build
Speaker 15: transmission right, So that's something Congress has to fix.
Speaker 2: Eric, we got to run, but we love it when
Speaker 2: you join us. Thanks so much for doing this. That's
Speaker 2: Eric Roston, sustainabilitator at sustainability editor at Bloomberg News.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern Listen.
Speaker 8: On Bloomberg dot com, the iHeartRadio app, and the.
Speaker 1: Bloomberg Business app, or watch us live on YouTube.
Speaker 2: We got with us right now, and we're very happy
Speaker 2: to have him here. It's Chipotle COO, Scott Boat right,
Speaker 2: he's the chief operating officer there. He's with us on
Speaker 2: zoom from Newport Beach, California. Scott, how are you this afternoon.
Speaker 6: I'm well, thank you for having us on this afternoon.
Speaker 2: So let's go through yesterday's numbers and you know what
Speaker 2: did disappoint analysts? Give us your take on the quarter.
Speaker 13: You know, we still feel like we had a really
Speaker 13: strong quarter, up seven point four percent in comparable sales,
Speaker 13: the highest margins margin numbers we have produced as an
Speaker 13: organization in quite some time, coming in at twenty seven
Speaker 13: point five diluted innings per share at twelve thirty two.
Speaker 6: All really in line with consensus.
Speaker 13: We felt great about the quarter, specifically that the COMP
Speaker 13: number was driven primarily by transaction growth, and so we're
Speaker 13: still excited about Q three as we look at what
Speaker 13: Q three will be for all end up for our organization,
Speaker 13: where we're trending and what we anticipate. It's still driven
Speaker 13: by healthy transaction growth, and so our full year guidance
Speaker 13: still remains unchanged. I think analysts were a bit concerned
Speaker 13: about the estimate COMP sales estimate for Q three. But
Speaker 13: keep in mind, there there are other things that we
Speaker 13: have in the pipeline. You know, we have We still
Speaker 13: have pricing leverage, which we believe as our economic model
Speaker 13: still holds up, we feel like the Chipotle.
Speaker 2: Meaning you can use your confident you could still raise prices.
Speaker 13: I think there's I say to that have to say,
Speaker 13: I think there's still room yet. And then we have
Speaker 13: a fourth quarter lto promotion that we will launch sometime
Speaker 13: probably around the September time frame. And so I say
Speaker 13: that to say we still feel great about the year.
Speaker 13: We feel great about the healthy transaction growth that's happening,
Speaker 13: that's driving our comparable sales growth. Uh, and the story
Speaker 13: still holds for the year. So we feel still feel confident.
Speaker 12: How much.
Speaker 16: Listen, you're the chief operating officer, so how things work
Speaker 16: and operate is really important, and how you can make
Speaker 16: the systems more productive and more efficient. Talk to us
Speaker 16: a little bit about some of the automation technology that
Speaker 16: you guys are doing and playing with. About a year
Speaker 16: or so ago, I caught up with your CFO Jack
Speaker 16: Hartung and talked about, you know, the amount of hours
Speaker 16: and how were intensive it was dealing with avocados, because
Speaker 16: you guys are all about fresh guacamole and fresh avocados.
Speaker 16: So talk to a little bit about automation and how
Speaker 16: that helps the growth story going forward.
Speaker 6: Yeah, it's a great question, Carol. I think there are
Speaker 6: a couple of things that really fuel.
Speaker 13: Our economic model. One of those I'll speak to you
Speaker 13: very quickly is around throughput. And we still have throughput
Speaker 13: advantages that have yet to be pulled through, and so
Speaker 13: we're working aggressively as an organization to get back to
Speaker 13: the throughput levels and efficiency levels we experienced in the
Speaker 13: brand back in twenty seventeen through twenty nineteen, really pre pandemic,
Speaker 13: before there was this massive shift to digital, and the
Speaker 13: new people in our organization today aren't accustomed to the
Speaker 13: speed at which we could deliver the Chipotle experience, and
Speaker 13: so we're really leveraging that and flexing that muscle here
Speaker 13: in the upcoming quorder to really get back to our
Speaker 13: throughput prowls yet again, and also leveraging cobotics where it
Speaker 13: makes sense to really remove some of the routine, mundane
Speaker 13: tasks like coring and fitting avocados each day in our
Speaker 13: restaurant to really move that labor toward consumer facing.
Speaker 6: Engagement and creates a.
Speaker 13: Better experience for the team memory and a better experience
Speaker 13: for the consumer as well.
Speaker 2: Satt Can you partner, can you just give us some
Speaker 2: numbers behind the automation the automation process when it comes
Speaker 2: to peeling or incloring avocados for that guacamole, Like, how
Speaker 2: long does it take a person to do it? And
Speaker 2: how long does it take a machine to do it?
Speaker 13: Yeah, it takes one individual about fifty minutes to complete
Speaker 13: one batch of guacamole. That's starting with a fresh k
Speaker 13: K case of ripe avocados all the way through the
Speaker 13: hand mashing process. So we think autocado can remove about
Speaker 13: fifty percent of that time. Wow, and really make it
Speaker 13: increasingly more efficient to get through that process and get
Speaker 13: towards more guest facing activity.
Speaker 2: Do you lose do you lose some of that that vegetable?
Speaker 2: Do you lose a little bit of it with the
Speaker 2: automated process?
Speaker 6: You know, that's one of.
Speaker 13: The things that we are testing for JAM is we
Speaker 13: think about autocados affect in restaurant. It's got to be
Speaker 13: able to deliver on a few things. Hey, it has
Speaker 13: to be able to protect this incredible ingredient. As we
Speaker 13: bring it into our restaurant, it has to continue to
Speaker 13: be as food safe as it can and should be
Speaker 13: in our restaurants.
Speaker 6: And it has to deliver on our specification.
Speaker 13: And so if it doesn't meet that criteria, then it
Speaker 13: doesn't move forward, and it's testing protocols. But early days,
Speaker 13: we're very excited about the opportunity and feel good about
Speaker 13: what the product is today.
Speaker 16: All right, what about workers? That's the other thing, right.
Speaker 16: You don't want turnover. You want to train people and
Speaker 16: have them stay. So one of the things many years ago,
Speaker 16: I was very impressed with what was done by the
Speaker 16: company to hold on to workers, to promote workers, to
Speaker 16: keep them in the system. So talk to us a
Speaker 16: little bit about manager turnover and what you guys are
Speaker 16: seeing in the hourly turnover.
Speaker 6: Yeah, great question.
Speaker 13: I think those early investments that you're referencing, Carol, have
Speaker 13: pade huge dividends for our organization as it relates to
Speaker 13: retention and turnover specifically.
Speaker 6: And then overall development for the organization. As you think
Speaker 6: about the growth that is ahead of us.
Speaker 13: We are currently experiencing all time low turnover numbers for
Speaker 13: the brand and so and that's throughout our salary rates
Speaker 13: and our hourly team members, and so we feel like
Speaker 13: more and more team members are coming into the organization.
Speaker 13: They see the opportunity for growth, advancement and to hit
Speaker 13: their career goals, and they're met with an organization that
Speaker 13: has very competitive wage rates across the industry, across the
Speaker 13: United States, and is very competitive in the industry and
Speaker 13: what I believe to be industry leading benefits in total
Speaker 13: that really capture things around financial health, mental health, and
Speaker 13: personal health.
Speaker 16: Is there still pressure though, to raise wages? Give us
Speaker 16: an idea, I mean, that is such a big part
Speaker 16: of you know, we're coming off of FED media. We
Speaker 16: talk a lot about wage inflation and that is still sticky.
Speaker 16: Is that still you can't back off? It's are you
Speaker 16: paying up more or is it leveling off?
Speaker 8: Carol.
Speaker 13: There's always inflation in the wage markets, as you're well aware.
Speaker 6: And we go through an.
Speaker 13: Aaron twice annual merit process for our team members and
Speaker 13: that's a practice we've had for many, many years in
Speaker 13: the organization. We're experiencing about five percent wage inflation, which
Speaker 13: has anticipated and built into our annual plan, but nothing extraordinary.
Speaker 2: Do those benefits that you talked about that are not
Speaker 2: directly impacting a higher hourly wage. Do those work? Do
Speaker 2: those create a stickier workplace?
Speaker 6: It's a philosophical question. It's one that I talk about often,
Speaker 6: So thanks for asking the question.
Speaker 13: If your wage rates aren't working hard enough for you,
Speaker 13: then the benefits conversation never comes into play.
Speaker 6: And it's Maslow's hierty.
Speaker 13: If you're not meeting the basic needs of your team
Speaker 13: members and your workforce, you can have all the benefits
Speaker 13: in the world, but if they're not able to meet
Speaker 13: the needs of making rent, having food on the table
Speaker 13: for their families, then those benefits can't work for you
Speaker 13: in your behalf. And so what we try to do
Speaker 13: is maintain a competitive wage no matter what market we
Speaker 13: operated in the country, and that allows us to have
Speaker 13: a robust benefits conversation that really creates the employee value proposition,
Speaker 13: keeps people engaged, keeps them bought into our vision, our
Speaker 13: purpose of cultivating a better world and looking for more
Speaker 13: opportunity within the Chipotle brand.
Speaker 16: All right, when you look at the horizon, six to
Speaker 16: twelve months feels a beat, a little cautious. How would
Speaker 16: you describe it?
Speaker 6: I'll tell you Carol, I'm really bullish.
Speaker 13: I know this summer there are a lot of US
Speaker 13: travelers that are out of the country, so we're seeing
Speaker 13: a little bit of softening in demand across retail and
Speaker 13: in the hospitality space. I think it rebounds very quickly
Speaker 13: in the fall. Consumer spending is still obviously a big
Speaker 13: part of our economy, is still driving our economy.
Speaker 6: I feel good about.
Speaker 13: Where we're situated from our value proposition perspective. We're still
Speaker 13: a low cost provider that provides abundance, proviety and.
Speaker 6: A very high quality, great tasting meal in the four.
Speaker 16: All right, well, so glad we got some time with
Speaker 16: you and our best to Brian as well as Jack
Speaker 16: Scott boat right, thank you so much, Chief Operating Officer
Speaker 16: to Botley Mexican Grill.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern on Bloomberg Radio,
Speaker 1: the Bloomberg Business App, and YouTube. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station,
Speaker 1: Just Say Alexa Play Bloomberg eleven thirty.
Speaker 2: So writes Alison McNeely, distressed debt reporter and a wonderful
Speaker 2: piece about how Mark Rowan is trying to change things
Speaker 2: at Apollo. It's today's most red feature on the Bloomberg terminal.
Speaker 2: She joins us here in our Bloomberg Interactive Brokers studio.
Speaker 2: Really good to have you with us, Allison, congratulations on
Speaker 2: the piece. What was Apollo before Mark Rowan?
Speaker 17: Well, first of all, thank you for having me me so.
Speaker 17: Apollo has long had a reputation in financial markets as
Speaker 17: being possibly the most aggressive private equity investor, and particularly
Speaker 17: they built their name on sort of really aggressive transactions,
Speaker 17: really aggressive maneuvers around distress companies and in bankruptcy court,
Speaker 17: and that legacy and that sort of image was really
Speaker 17: built up over the past thirty years, particularly under the
Speaker 17: leadership of former CEO Leon Black, who of course departed
Speaker 17: in twenty twenty one amid you know, sort of a
Speaker 17: real uproar over his ties to Jeffrey Epstein.
Speaker 5: And in the story you call that the Wall Street
Speaker 5: version of Game of Thrones. Can you tell me a
Speaker 5: little bit more about what that looked like?
Speaker 17: Sure, Well, it was really an extremely difficult time for Apollo. Essentially,
Speaker 17: you know, these payments to Jeffrey Epstein made by Leon Black,
Speaker 17: came out in the press at the time, there was
Speaker 17: a sort of an investigation, and what the investigation found
Speaker 17: was that Apollo was not aware of these sort of payments,
Speaker 17: that there was no sort of connection to the firm.
Speaker 17: But essentially the uproar were so significant that really, you know,
Speaker 17: Leon Black, I guess, could not stay in that role,
Speaker 17: or they felt that he couldnot stay in the role,
Speaker 17: and so it sort of became like a phasing out
Speaker 17: and eventually, you know, Mark Rowan came in a CEO
Speaker 17: in March twenty twenty one.
Speaker 2: So let's talk let's fast forward to you know, August
Speaker 2: twenty twenty three and the transformation that at least Mark
Speaker 2: Rowan is trying to do at Apollo. Is this a
Speaker 2: where where is this desire to transform the company coming from?
Speaker 2: Is it coming from LPs? Is it coming from attracting
Speaker 2: and retaining talent? I guess we're talking private equity here,
Speaker 2: like totally. It's not warm and fuzzy, like he's not
Speaker 2: a kindergarten teacher like that. You know, these are the
Speaker 2: people who are the barbarians at the gate.
Speaker 17: Sure, yeah, So I think it's coming from a bunch
Speaker 17: of different places. So there's sort of two prongs to
Speaker 17: the Apollo story. The first is the cultural piece we've
Speaker 17: touched on it. You know, the Epstein piece. Apollo was
Speaker 17: really caught up in a reckoning over working conditions on
Speaker 17: Wall Street that we saw during the pandemic, really really
Speaker 17: long hours and you know, just a really tough place
Speaker 17: to work. Kind of the place where someone described it
Speaker 17: to me in the course of reporting the story is
Speaker 17: the kind of place where you have to put on
Speaker 17: your armor before you go to work, like put on
Speaker 17: you have to like suit up for battle kind of place.
Speaker 17: And so that there was like kind of that aspect.
Speaker 17: And to be clear, this was considered unique among private
Speaker 17: equity firms because as you know, you know, private equity
Speaker 17: is not exactly the most warm and fuzzy place, but.
Speaker 12: This was sort of uniquely tough.
Speaker 17: So there was that piece, and that was kind of
Speaker 17: tied with the Jeffrey Epstein news that was kind of
Speaker 17: creating some real noise around the firm, making it harder
Speaker 17: to you know, sort of attract talent that kind of thing.
Speaker 17: And then there was also the second piece around the
Speaker 17: investing strategy and long story short, Apollo built up such
Speaker 17: a difficult reputation or reputation for being difficult, rather that
Speaker 17: essentially it started to cost them money. And when they
Speaker 17: were trying to find ants their biots in the leverage
Speaker 17: low market, in the bond market, they were sort of
Speaker 17: getting what people called the Apollo premium, which is essentially
Speaker 17: being charged fifty to one hundred basis points of additional
Speaker 17: interest compared to say a comparable deal in order to
Speaker 17: essentially be compensated for the trouble of lending the money.
Speaker 1: Wow.
Speaker 5: Okay, So once it started to hurt their bottom line
Speaker 5: was that the moment of like, maybe we should change
Speaker 5: our culture.
Speaker 17: Sure, sure, exactly. And then the other piece here that's
Speaker 17: really important is the Athene angle, the insurance angle. So
Speaker 17: Mark Ron's baby quote unquote is the Athene insurance unit
Speaker 17: at Apollo when essentially that is an entity within the
Speaker 17: firm that writes annuity policies for retirees. And Mark Rowan
Speaker 17: identified way back in two thousand and nine that there
Speaker 17: was a really interesting investing opportunity to be had essentially
Speaker 17: collecting the cash on annuities, investing that in a variety
Speaker 17: of credit, and then paying out to retirees and essentially
Speaker 17: becoming like sort of the middleman or the investment manager
Speaker 17: for insurers. And so really since he took over CEO,
Speaker 17: he took the opportunity to expand into that business because
Speaker 17: he just and he's been on record about this repeatedly saying,
Speaker 17: you know, he feels that that's a much more attractive
Speaker 17: growth opportunity for the firm as it looks towards the future.
Speaker 2: But is that a result of the end of zero
Speaker 2: interest rate policy as because this comes at a time
Speaker 2: when private equity is having to deal with interest rates
Speaker 2: that are higher than almost any other point in their
Speaker 2: history for some of these companies.
Speaker 17: Yes, So the backdrop of you know, interest rates not
Speaker 17: being zero for the first time and I guess more
Speaker 17: than a decade is definitely a factor here, and that
Speaker 17: actually makes it very lucrative to be in the lending
Speaker 17: business right now. You know if previously you were, you know,
Speaker 17: fighting to get any interest you could, and now you
Speaker 17: can get I guess a minimum of five point five percent.
Speaker 2: So that all raises the question should we even call
Speaker 2: Apollo a private equity firm?
Speaker 17: They would say, no, Okay.
Speaker 2: What would you say they? It would say, as you
Speaker 2: write in the piece, right, an alternative asset manager Yeah,
Speaker 2: what would you say.
Speaker 17: So that is I actually, you know, I think I
Speaker 17: do think that's fair. I think you can call them both.
Speaker 17: I think you can call them a private equity firm,
Speaker 17: but I do think it's also fair to call them
Speaker 17: an alternative asset manager because you know, eighty percent of
Speaker 17: their assets under management are now credit or credit like assets.
Speaker 17: Their assets under management or just shive six hundred billion,
Speaker 17: only one hundred billion of that is private equity.
Speaker 12: How much of that.
Speaker 5: Changed after March and what we saw was some of
Speaker 5: the banking turmoil, or it has not been the.
Speaker 12: Case for a while.
Speaker 17: That has been the case for a while. It's been
Speaker 17: sort of this like ongoing shift and essentially, but you know,
Speaker 17: to your point, the banking crisis is definitely presenting lots
Speaker 17: of opportunities for firms like Apollo because they can sort
Speaker 17: of step in where the banks have stepped back or
Speaker 17: are being forced to step back. And so you know,
Speaker 17: they've identified that as a growth area for them.
Speaker 2: Okay, so he's no longer on the forty third floor.
Speaker 2: He's got where he's wearing sweaters. He's not wearing suits,
Speaker 2: he's eating amongst the regular people.
Speaker 5: The sweater the way I cackled eating the sweater as
Speaker 5: like the indicator that someone is in touch with their employees.
Speaker 10: That was so funny.
Speaker 2: Yeah, go ahead, Well, Mattie raises the exact point that
Speaker 2: I wanted to ask you, Alison. Is it working? Is
Speaker 2: it changing the culture? Is it changing the view of Apollo?
Speaker 17: You know what, I think they have made progress. I
Speaker 17: think there's some genuous progress there. The impression that I
Speaker 17: got talking to people in the market, talking to current
Speaker 17: and former employees, was that yes, there's you know, people
Speaker 17: do think that Mark is Mark Ron the CEO, is
Speaker 17: moving the firm in a better direction. The sense I
Speaker 17: also get is that it's still very much a work
Speaker 17: in progress, but you know, yeah, he generally gets favorable
Speaker 17: to reviews.
Speaker 2: Are people still sitting up their armor to go to work?
Speaker 17: I think some people.
Speaker 2: It's hard to shift a culture. It is at a
Speaker 2: huge company.
Speaker 17: Yeah, in two years, it's extremely difficult.
Speaker 2: And I guess the last thing I'd ask you is
Speaker 2: just about attracting and retaining talent, and to what extent
Speaker 2: this shift has to do with that. I know at
Speaker 2: the beginning you said it's sort of about everything, but
Speaker 2: you know, with all the departures that we saw and
Speaker 2: we only have about thirty seconds left. Over the last years,
Speaker 2: it's been tough. It's the jobs market is not as
Speaker 2: tough now, but it's been tough to attract and retain people.
Speaker 17: Yeah, it has been. But private equity or alternative ASSI
Speaker 17: managers if you will, are actually in a really good
Speaker 17: point or position right now relative the banks. Banks are
Speaker 17: being forced to lay people off. Alternative ASSI managers are
Speaker 17: actually adding people or at least holding onto people because
Speaker 17: you know, everything that's going on with the banking crisis,
Speaker 17: interest rights uncertain US economy creates opportunities for opportunistic investors,
Speaker 17: which is really what private equity is.
Speaker 2: Well, it's a great feature. I've said it a few times.
Speaker 2: You've got to go read. It's available in the Bloomberg Terminal.
Speaker 2: It's the most red on the Bloomberg terminal today. The
Speaker 2: story by Alison McNeely, distressed debt reporter. She joined us
Speaker 2: here in the Bloomberg Interactive Brokers studio. Allison, thanks for
Speaker 2: taking the time, really appreciate it.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern Listen on
Speaker 1: Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 5: Tim, I don't know about you, but I feel like
Speaker 5: disaster has been.
Speaker 2: Everywhere apocalyptic the past couple of years, right, Yeah, No,
Speaker 2: it really.
Speaker 5: Has global pandemic, wildfire's, Russian invasion of Ukraine. It's all
Speaker 5: over the place. And our next guest wants to help
Speaker 5: us prepare for that. He's the founder of an AI
Speaker 5: nonprofit that's focused on disaster preparedness, and he joins us
Speaker 5: now to discuss the product and of course the AI space,
Speaker 5: because we've got to talk about that.
Speaker 12: Phil.
Speaker 5: Great to speak with you. Phil Sieble joining us on
Speaker 5: zoom here at Seagull rather the founder of Captor Center
Speaker 5: for Advanced Preparedness and Threat Response Simulation. Phil, thanks again
Speaker 5: for coming on. Start by just telling us a little
Speaker 5: bit about what your AI does.
Speaker 18: So what we are is the intersection of artificial intelligence
Speaker 18: and gaming war gaming. The basic idea is to better prepare,
Speaker 18: we need to create a set of threats that are
Speaker 18: plausible that we some of which we've experienced, some of
Speaker 18: which we haven't experienced, and then run them through simulation
Speaker 18: games to train our our crisis management personnel, UH, and
Speaker 18: our politicians and decision makers to make better decisions. And
Speaker 18: I think, you know, we could say, you know, with
Speaker 18: a lot of the types of crises we've had over
Speaker 18: the last several years, you know, maybe we have a
Speaker 18: fair amount of room for improvement. We use artificial intelligence
Speaker 18: both to generate these scenarios, UH and all so to
Speaker 18: help the quote unquote players in the game make better decisions.
Speaker 2: What are some of the games that you've simulated.
Speaker 18: Yeah, so we've done. We created a new virus and
Speaker 18: ran a game with the Rockefeller Foundation, like a.
Speaker 2: Real virus, like a I mean, like a not a
Speaker 2: computer virus. We're talking like an actual you know, COVID
Speaker 2: like virus.
Speaker 18: Yes, yes, it wasn't COVID like. It had a very
Speaker 18: different characteristic. It came from livestock in the US, which
Speaker 18: is actually quite common, but it had very different characteristics,
Speaker 18: and we ask scientists to figure out what was going
Speaker 18: on and whether or not it was going to be
Speaker 18: a high, medium, or low threat to a regional population.
Speaker 18: We've created a game actually for City of Austin emergency
Speaker 18: management personnel to see how well the different departments that
Speaker 18: are supposed to respond to a threat like this would respond.
Speaker 18: And we we're building games right now for scientists who
Speaker 18: are members of a group at the New York Academy
Speaker 18: of Sciences. So we're building a lot of games. We're
Speaker 18: using artificial intelligence to you know, really come up with
Speaker 18: some creative scenarios, but plausible scenarios, and that's you know,
Speaker 18: what we're seeing is that with more practice, just like
Speaker 18: pilots with a flight simulator, people do a better job
Speaker 18: when they practice.
Speaker 5: All right, So obviously you are part of the AI
Speaker 5: bucket that we have become obsessed with in the first
Speaker 5: half of this year. So I do want to get
Speaker 5: your take on the space while we have you, because
Speaker 5: it's seems so much attention and I have to wonder
Speaker 5: if the fundamentals back up some of the prices that
Speaker 5: we've seen for these big names like the end videos
Speaker 5: of the world. What is your calculation and your thinking
Speaker 5: when it comes to the AI rally that we've seen,
Speaker 5: and which of these names are going to continue to
Speaker 5: make it.
Speaker 18: Yeah, So in my day job, I'm a private equity manager,
Speaker 18: so I think that you know, the old adage of
Speaker 18: picks and shovels kind of win in the early days
Speaker 18: is probably fairly true here. I think that I don't
Speaker 18: know whether you would say in Nvidia is over christ,
Speaker 18: but I would say that having it run up given
Speaker 18: it to the by far leader in the chip space,
Speaker 18: which is the ultimate pick and shovel here makes a
Speaker 18: lot of sense. There's other you know, products like that,
Speaker 18: or there's other pieces like their supply chain.
Speaker 7: You've seen a lot.
Speaker 18: Of run up in those stocks as well, and you
Speaker 18: know those seem we know those are going to benefit
Speaker 18: from what we're doing. Once you get past that, it
Speaker 18: gets a little murkier. I don't think we yet know
Speaker 18: whether the producers of the large language models, the the
Speaker 18: you know, the the ones that have made the big splash,
Speaker 18: are going to have viable business models.
Speaker 7: Yet we haven't seen that.
Speaker 18: In fact, it's not clear to me whether the large
Speaker 18: language model makers are going to be the winners or
Speaker 18: people who are experts at helping companies do small language
Speaker 18: models are going to be the winners in the space.
Speaker 18: So there's still a lot of uncertainty and cloudiness I
Speaker 18: think for the next several years.
Speaker 2: Well, phil as you mentioned, your Jay job is in
Speaker 2: private equity. You've been an investor in private companies, venture
Speaker 2: backed companies, You've been a professor, you were a BCG
Speaker 2: as a managing director and partner for many years. Where
Speaker 2: does your passion for AI come from and for trying
Speaker 2: to create an organization that helps with disaster preparedness?
Speaker 7: Yeah?
Speaker 18: So I volunteered during the pandemic to work with BCG
Speaker 18: on helping some of their government clients respond to the
Speaker 18: COVID emergency and saw through that work that we have
Speaker 18: a lot of opportunity to practice. You know, again, I
Speaker 18: got I kind of thought about the analogy of when
Speaker 18: you get on an airplane, if you heard that your
Speaker 18: pilot hadn't been in a flight simulator, you'd be pretty alarmed. Yet,
Speaker 18: you know, with a lot of our disaster preparedness and
Speaker 18: crisis management, we aren't doing that type of work every
Speaker 18: year we do. You know, obviously this group of people
Speaker 18: is highly educated and hard working, but I would like
Speaker 18: to see them every year spending time honing their skills
Speaker 18: so that they're more ready and better. And that was
Speaker 18: that was really what caused me to want to co
Speaker 18: found this, uh, this this ng O if you will,
Speaker 18: or nonprofit.
Speaker 2: Well, where does where does the AI come from? And
Speaker 2: and are you at all concerned about AI in the
Speaker 2: sense of it being a threat to humanity.
Speaker 18: Yeah, I I uh, well, that's two very different questions,
Speaker 18: so I'll focus on the second. I'm I'm less worried
Speaker 18: about the scenarios we see in the movies like I
Speaker 18: Robot or Terminator too, where the AI becomes sentient and
Speaker 18: on its own decides it's going to destroy humanity. I
Speaker 18: am very worried that bad actors are going to use
Speaker 18: these technologies and are already using these technologies to do
Speaker 18: bad acts, and that's what we need to be protecting
Speaker 18: against in the short term.
Speaker 5: Thirty seconds, Phil, who are some of the companies and
Speaker 5: names that should not be jumping on AI and investing
Speaker 5: heavily into the AI space.
Speaker 18: Yeah, it's a good question, and I'm not one hundred
Speaker 18: percent sure how to answer it other than to say
Speaker 18: I think there are some sectors where they really need
Speaker 18: to be thinking about, especially capital intensive sectors, where if
Speaker 18: they change the basic business model through investing in AI,
Speaker 18: they can lower the barriers to entry. They might have
Speaker 18: new entrants come in, whether it's the mining and exploration
Speaker 18: industry and so forth. You don't want to bring in
Speaker 18: new entrants that you don't have to but on the
Speaker 18: other hand, you need to lower your operating costs, and
Speaker 18: so it's a race.
Speaker 5: Yeah, and it's all about capital allocation. At the end
Speaker 5: of the day, Phil, thank you so much for joining us.
Speaker 5: We're going to have to bring you back on. Phil Siegel,
Speaker 5: founder of CAPTORS. That's the Center for Advanced Preparedness and
Speaker 5: Threat respond Simulation, among many other resume lines.
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