WEBVTT - Health Care Must Insure the Young to Make it Work, Miller Says 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.880 you and your money, whether at the grocery store or 0:00:16.920 --> 0:00:20.680 the trading floor. Find the Bloomberg P L Podcast on iTunes, 0:00:20.840 --> 0:00:29.360 SoundCloud and at Bloomberg dot com. Well, we talk a 0:00:29.360 --> 0:00:32.680 lot about healthcare these days and how it may change 0:00:32.880 --> 0:00:37.400 due to UH new congressional efforts. But here someone is 0:00:37.760 --> 0:00:39.720 living with it and is in our studio right now. 0:00:39.760 --> 0:00:43.839 Alan Miller, chief executive officer of Universal Health Services, which 0:00:43.920 --> 0:00:46.400 is based in King of Prussia, Pennsylvania. But he is 0:00:46.479 --> 0:00:48.879 here with us in our Bloomberg eleven three oh studio. 0:00:48.960 --> 0:00:51.879 Thank you so much for joining us, Allen. Um. I 0:00:51.920 --> 0:00:56.160 want to start with your company, Universal Health. It shares 0:00:56.200 --> 0:01:00.320 her up almost eight so far this year. This doesn't 0:01:00.320 --> 0:01:02.680 really jibe with a lot of what we hear about 0:01:02.680 --> 0:01:04.920 the health care sector and how depressed it's been. What 0:01:05.040 --> 0:01:07.160 is your company doing? That has sort of led to 0:01:07.160 --> 0:01:09.360 these Well, we're not. We've been in business for thirty 0:01:09.400 --> 0:01:15.080 eight years. UM, we've grown every year. UM. We UM 0:01:15.400 --> 0:01:20.760 are diversified, we are in acute care. We're in behavioral health. 0:01:21.240 --> 0:01:24.120 We're a leader in the nation and behavioral health, and 0:01:24.200 --> 0:01:28.720 we are international in the UK. We've been growing there, 0:01:29.160 --> 0:01:35.679 so it's a nice diversified mix. We've done well financially. UM. 0:01:35.760 --> 0:01:39.640 We are in fast growing markets. That's our strategy. UH. 0:01:39.680 --> 0:01:44.080 And we're reliable. People know the company. UM. We are conservative. 0:01:44.480 --> 0:01:49.360 UM Our debt is less than FI many others are 0:01:49.600 --> 0:01:53.360 much much more leverage. So we've been doing this for 0:01:53.400 --> 0:01:57.160 a long time and I think people have become aware 0:01:57.200 --> 0:01:59.720 of us and they're comfortable that we're going to continue. 0:02:00.040 --> 0:02:03.120 Know we're gonna get to the political side of this 0:02:03.240 --> 0:02:05.640 in a minute, but I want to just touch on 0:02:05.840 --> 0:02:10.120 the situation for hospitals in general, acute care hospitals across 0:02:10.120 --> 0:02:13.800 the country. We've heard a lot about, UH, the vacancy 0:02:13.919 --> 0:02:18.240 rates in beds, the fact that reimbursements from medicated Medicare 0:02:18.280 --> 0:02:22.040 have been challenging. UH. And I'm wondering, would you buy 0:02:22.440 --> 0:02:25.440 an acute care hospital right now? We do. We just 0:02:25.480 --> 0:02:29.800 built one. Yeah, we we just opened Henderson in Las Vegas. 0:02:30.280 --> 0:02:35.400 It is our sixth acute care hospital in Las Vegas. UM. 0:02:35.400 --> 0:02:38.679 It is doing very well. We opened two years ago 0:02:38.760 --> 0:02:43.359 we opened into Mecuela in southern California. It's doing very well. 0:02:43.440 --> 0:02:46.680 Oh yes, we we buy hospitals and we build hospitals. 0:02:46.680 --> 0:02:48.640 So what's this you here? Why do we hear so 0:02:48.720 --> 0:02:53.120 much talk about the decline in hospitals. I don't understand 0:02:53.200 --> 0:02:57.800 that UM other than UM people are reflecting the fact 0:02:58.280 --> 0:03:05.440 that perhaps I'm sure UM Obamacare UM ensured twenty to 0:03:06.520 --> 0:03:11.040 million people who did not have insurance before, and so 0:03:11.160 --> 0:03:15.399 that has been very good for the hospitals because obviously 0:03:15.440 --> 0:03:18.440 when these people present themselves at a hospital, they have 0:03:18.560 --> 0:03:21.200 some sort of ability to pay where they may have 0:03:21.320 --> 0:03:24.120 not been able to do that in the past. So 0:03:24.160 --> 0:03:28.919 that's certainly very positive if your patients can pay. And 0:03:29.200 --> 0:03:35.720 UM now with Obamacare in question because of the Republican 0:03:35.800 --> 0:03:40.320 parties saying that they would replace it, UH and their 0:03:40.360 --> 0:03:44.480 efforts have not been successful. At the first crack and 0:03:45.200 --> 0:03:48.360 UM without going through all of it, which I am 0:03:48.440 --> 0:03:53.680 very familiar with, UM, it did it did tend. It's complicated, 0:03:53.680 --> 0:03:59.560 it did tend to UM reduce coverage. That's what the 0:03:59.560 --> 0:04:03.160 big A back was, and a lot of people, including 0:04:03.520 --> 0:04:08.640 many Republicans in Congress, said we can't stop coverage or 0:04:08.680 --> 0:04:13.680 withdraw coverage, um from all these people that needed everyone 0:04:13.680 --> 0:04:17.240 should have coverage. Have any Republican leaders reached out to 0:04:17.400 --> 0:04:20.520 you to ask you advice on how to reshape or 0:04:20.839 --> 0:04:23.920 fine tune? Well, yes, Um, I wrote a book a 0:04:24.000 --> 0:04:26.680 number of years ago, and a number of those things, 0:04:27.000 --> 0:04:29.559 um or a number of the suggestions in the book 0:04:30.279 --> 0:04:34.120 are still applicable. One of them is selling across state lines. 0:04:34.160 --> 0:04:37.359 And you see that now, because that would get the 0:04:37.360 --> 0:04:41.159 insurance companies more competitive and they more of them would 0:04:41.200 --> 0:04:44.880 come into every market. So that makes a lot of sense. Um. 0:04:44.920 --> 0:04:49.760 I've always been very keen on tort reform because trial 0:04:49.880 --> 0:04:55.640 lawyers should not be uh involved in premiums of insurance 0:04:56.120 --> 0:04:59.520 and then needs to be a tort reform um on 0:04:59.560 --> 0:05:02.400 a nationtional basis, state by state. It's happened, Just to 0:05:02.440 --> 0:05:06.480 be clear, this is in order to cap potential medical practice. 0:05:06.680 --> 0:05:11.560 Laws of them give some sense of the premiums for say, 0:05:11.960 --> 0:05:14.159 you know a neurosurgeon, it's something like a hundred thousand 0:05:14.240 --> 0:05:16.760 dollars a year or something to ensure yourself, right, it's something, 0:05:16.839 --> 0:05:20.760 it's something pretty pretty tremendous. It's it's it's it's outrageous 0:05:20.800 --> 0:05:28.760 only because of the trial lawyers and UM situations where 0:05:28.800 --> 0:05:32.640 there's no cap on pain and suffering. We're not talking 0:05:32.680 --> 0:05:38.599 about UM people being reimbursed for care. We're talking about 0:05:39.279 --> 0:05:45.560 UM an outrageous situation in most cases where UM trial 0:05:45.640 --> 0:05:49.400 lawyers are are driving up insurance premiums. What about drug prices? 0:05:49.440 --> 0:05:52.440 There's been so much discussion about how high the cost 0:05:52.560 --> 0:05:55.800 is for pharmaceuticals. Do you feel like this issue is 0:05:55.839 --> 0:06:00.000 something that is overblown. Do you think that there are 0:06:00.040 --> 0:06:03.000 many savings that could come from some kind of agreement? 0:06:03.240 --> 0:06:06.520 I think what should happen, Well, what could happen is 0:06:06.880 --> 0:06:11.799 let the federal government UM and negotiate with the farmer 0:06:11.880 --> 0:06:16.600 industry UM. We buy out of a cooperative and so 0:06:16.680 --> 0:06:21.560 we do negotiate UM on an industry wide basis UM 0:06:21.600 --> 0:06:25.120 based on volume. Other than that, I'm not an expert. 0:06:25.160 --> 0:06:28.040 On hold on a second, what what kind of cooperative 0:06:28.120 --> 0:06:33.080 is this? It's called Premier and we buy through it. Yeah. Absolutely, 0:06:33.440 --> 0:06:36.359 And a number of hospitals are involved. And it's just 0:06:36.400 --> 0:06:40.120 a question of volume, which is basic business. If you 0:06:40.240 --> 0:06:42.719 have a lot of volume, the sellers are very interested 0:06:42.760 --> 0:06:45.920 in dealing with you. So how optimistic are you that 0:06:45.960 --> 0:06:50.320 there will be good changes? Made to Obamacare or a 0:06:50.320 --> 0:06:53.880 potential replacement to it. Well, I think that UM, the 0:06:54.000 --> 0:06:56.480 things I started to mention I did mention to you 0:06:57.200 --> 0:07:03.640 UM would be helpful. And the big thing is UM 0:07:03.800 --> 0:07:08.880 getting younger people to have insurance. UM. This enables the 0:07:08.920 --> 0:07:14.120 insurance companies their actuaries to not only be looking at 0:07:14.280 --> 0:07:18.240 older people who are sicker, but having younger people in 0:07:18.320 --> 0:07:22.000 the mix makes the insurance more affordable. And they have 0:07:22.160 --> 0:07:27.720 not been able to UM the mandates were too small 0:07:28.080 --> 0:07:33.000 to push these people to have insurance. We must have 0:07:33.240 --> 0:07:36.320 the younger people insured in order to make the whole 0:07:36.360 --> 0:07:40.520 insurance thing work. Allen Miller, thank you so much for 0:07:40.600 --> 0:07:43.400 joining us. Really is a wonderful to have you. Allen 0:07:43.480 --> 0:07:47.000 Miller is chief executive officer of Universal Health Services. It 0:07:47.080 --> 0:07:50.840 is based in King of Prussia, Pennsylvania, and it's a 0:07:51.000 --> 0:07:56.360 broad based, multifaceted company that owns behavioral health facilities, acute 0:07:56.360 --> 0:07:59.640 care hospitals, and ambulatory centers throughout the US, the UK, 0:07:59.760 --> 0:08:16.040 put RICO, and the Virgin Islands. Leverage in US stocks 0:08:16.240 --> 0:08:20.600 has risen to the highest level on record. How concerned 0:08:20.720 --> 0:08:23.560 our investors about this. I am honored to bring in 0:08:23.640 --> 0:08:27.520 David Lebovits global market strategist for JP Morgan, who's here 0:08:27.560 --> 0:08:30.160 with us in our Bloomberg eleven three oh studio and 0:08:30.440 --> 0:08:33.640 David we were just chatting about how much UH margin 0:08:33.720 --> 0:08:38.160 debt has increased in US stocks. This to me indicates 0:08:38.200 --> 0:08:41.640 an incredible amount of complacency, just that people are willing 0:08:41.640 --> 0:08:43.680 to double down on their bets. How are you taking this? 0:08:43.800 --> 0:08:45.599 And does this sort of a raise some kind of 0:08:45.640 --> 0:08:48.480 alarm to you? You know, I think that the biggest 0:08:48.520 --> 0:08:50.920 concern is what this means and what it tells us 0:08:51.280 --> 0:08:55.120 about investor sentiment. You know, our investors so excited about 0:08:55.120 --> 0:08:57.760 equities that they're willing to borrow money to pump even 0:08:57.840 --> 0:08:59.920 more into the stock market. And I think that it's 0:09:00.040 --> 0:09:02.440 it's it's reasonable to look at this and see the 0:09:02.520 --> 0:09:04.440 rate of change and see the levels that we're currently 0:09:04.440 --> 0:09:06.960 sitting at from a margin debt standpoint, and say, you know, 0:09:07.000 --> 0:09:10.200 has this market come too far too fast? And we 0:09:10.280 --> 0:09:12.360 have And that's the and that's the question. You know, 0:09:12.400 --> 0:09:15.000 we have seen we have seen quite a rally here, 0:09:15.040 --> 0:09:18.960 but it's our view that the underlying economic fundamentals actually 0:09:19.040 --> 0:09:22.800 look pretty good. You know, this rally really began um 0:09:22.920 --> 0:09:24.920 or at least we started to see yields rise and 0:09:24.920 --> 0:09:27.520 and give some more confidence to the equity market, you know, 0:09:27.880 --> 0:09:30.520 back in the late summer of two thousands sixteen. So 0:09:30.559 --> 0:09:32.640 the economic data has been getting better for a while. 0:09:33.000 --> 0:09:34.960 You know, I think that the pullback we've seen here 0:09:34.960 --> 0:09:37.160 in the market is probably justified. It's a little bit 0:09:37.160 --> 0:09:39.880 more of a backfill um as opposed to the beginning 0:09:39.880 --> 0:09:42.360 of something bigger. But what we're focused on is the 0:09:42.440 --> 0:09:45.079 upcoming earning season. You know. The question to our mind 0:09:45.240 --> 0:09:47.760 is are these companies making money? If the cash flows 0:09:47.760 --> 0:09:49.840 are there, if the earnings are there, I think stock 0:09:49.880 --> 0:09:52.440 prices can keep moving higher. If we see some weakness 0:09:52.440 --> 0:09:54.600 and earnings. I think that this thing is like margin debt, 0:09:54.679 --> 0:09:56.840 maybe maybe worth keeping an eye on. Well. I mean, 0:09:56.880 --> 0:09:58.800 we are seeing some other cracks. I mean, because we 0:09:58.800 --> 0:10:00.520 were just talking about how that seems to be the 0:10:00.520 --> 0:10:02.840 consensus right now that the economy is in fairly good 0:10:02.840 --> 0:10:06.440 shape that you know, despite some clouds around the edges. 0:10:06.440 --> 0:10:09.080 In general, things are chugging along. But we did see 0:10:09.120 --> 0:10:13.640 a pretty substantial decline in commercial and industrial loans on 0:10:13.920 --> 0:10:17.559 US bank balance sheets in a recent survey, and this 0:10:17.679 --> 0:10:21.280 raised some alarms that either banks were tightening up their 0:10:21.400 --> 0:10:24.800 lending criteria to such a degree that they're not allowing 0:10:25.120 --> 0:10:27.920 companies to get credit, or that there just isn't the demand, 0:10:27.960 --> 0:10:30.320 which suggests that the economy isn't growing that fast. How 0:10:30.320 --> 0:10:32.480 do you interpret this? You know, we think that it's 0:10:32.520 --> 0:10:35.040 not as much a bank issue. UM. Lending standards have 0:10:35.120 --> 0:10:38.280 been pretty tight, and you know, the quality of borrowers 0:10:38.280 --> 0:10:40.400 the banks of looking for has been pretty elevated for 0:10:40.440 --> 0:10:43.000 the better part of this business cycle. UM. Actually, one 0:10:43.040 --> 0:10:46.120 thing that we've found is that when you look at 0:10:46.360 --> 0:10:49.640 capital expenditures and you look at CNI loans UM, the 0:10:49.720 --> 0:10:53.920 capital expenditure data actually tends to lead some of the CNIDADA. 0:10:54.240 --> 0:10:56.120 So actually, what I think is going on here in 0:10:56.200 --> 0:10:58.599 terms of the decline in the lending data is and 0:10:58.720 --> 0:11:01.079 we went through this period from a two thousand fourteen 0:11:01.120 --> 0:11:04.400 to mid two thousand sixteen where manufacturing was under a 0:11:04.440 --> 0:11:07.800 tremendous amount of pressure because of lower commodity prices and 0:11:07.840 --> 0:11:10.040 a stronger dollar. I think we're just seeing some lagged 0:11:10.040 --> 0:11:12.720 effects of that and some of the pullback in investment 0:11:12.720 --> 0:11:15.880 that companies went through, and that's why we're seeing c 0:11:16.000 --> 0:11:17.880 ANY loans cool off a little bit here. We don't 0:11:17.960 --> 0:11:21.440 necessarily think again, it's the beginning of something bigger. More, 0:11:21.480 --> 0:11:23.480 we think it's a reflection of what's actually happened in 0:11:23.480 --> 0:11:25.680 the past. You know, given the fact that what you're 0:11:25.720 --> 0:11:29.400 saying is so coherent with when and jibs so directly 0:11:29.400 --> 0:11:30.800 with what a lot of other people are saying, which 0:11:30.840 --> 0:11:33.040 is the economy is doing fairly well. Some of these 0:11:33.040 --> 0:11:35.439 warning signs are a little concerning, but they're not anything 0:11:35.480 --> 0:11:38.480 that big. Uh. It seems like people are sort of 0:11:38.520 --> 0:11:41.959 pricing in the same scenario, which is sort of chugging 0:11:42.000 --> 0:11:44.680 along growth. Does this mean a that returns are going 0:11:44.720 --> 0:11:46.920 to be a lot lower because everybody is piling into 0:11:46.960 --> 0:11:48.640 the same trades and there isn't a lot of value 0:11:48.640 --> 0:11:51.560 to be found, or B that everybody's missing something and 0:11:51.600 --> 0:11:54.800 that the chance of of a substantial hiccup is getting greater. 0:11:55.240 --> 0:11:57.520 You know, I think that it's more the former than 0:11:57.600 --> 0:12:01.160 the ladder. I think that return expectations for US assets 0:12:01.160 --> 0:12:03.680 in general, both stocks and bonds, have certainly come down 0:12:03.720 --> 0:12:07.400 here the couple of years. So our view is that 0:12:07.480 --> 0:12:10.079 over the next ten to fifteen years, US equities should 0:12:10.080 --> 0:12:12.679 return you about five and a half percent a year um, 0:12:12.720 --> 0:12:15.480 which is, you know, a couple percent below the the 0:12:15.559 --> 0:12:18.319 seven and eight percent bogies that have been thrown around previously. 0:12:18.440 --> 0:12:21.200 But what I would say is just because there's not 0:12:21.360 --> 0:12:25.280 dwindling opportunity, perhaps less opportunity from a return standpoint in 0:12:25.320 --> 0:12:29.720 the US, we're thinking much more seriously about opportunities in Europe, 0:12:29.880 --> 0:12:33.640 opportunities and emerging markets, places outside of the US where 0:12:33.679 --> 0:12:35.920 the potential for elevated return seems to be a little 0:12:35.960 --> 0:12:38.400 bit greater than here in the States. So where are 0:12:38.400 --> 0:12:41.640 you looking in particular, So within emerging markets, we like 0:12:41.840 --> 0:12:44.840 the Asian economies more than the Latin American economies. We 0:12:44.880 --> 0:12:48.600 like the manufacturers more than the commodity exporters. And then 0:12:48.679 --> 0:12:52.160 within Europe, you know, we're really focusing on the domestic 0:12:52.200 --> 0:12:54.800 recovery that's going on there. You have an unemployment rate 0:12:55.000 --> 0:12:56.880 which is backed down at the level where it was 0:12:56.960 --> 0:12:59.559 before the double dip back in two thousand twelve. You've 0:12:59.640 --> 0:13:02.560 capath city utilization which is up around its long term average. 0:13:02.600 --> 0:13:04.880 The p m I data, It is a survey, but 0:13:04.920 --> 0:13:06.920 the p m I data has been pretty solid there. 0:13:07.520 --> 0:13:10.240 So we think that playing this domestic recovery, thinking about 0:13:10.280 --> 0:13:12.719 some of the consumer companies in Europe is a good 0:13:12.720 --> 0:13:14.760 way of going about that. How hard is it to 0:13:14.800 --> 0:13:19.160 invest in Asia given the questions around the quality of 0:13:19.200 --> 0:13:21.160 some of the economic data that you get out of there, 0:13:21.760 --> 0:13:25.079 It's it's difficult. You know. China in particular is kind 0:13:25.080 --> 0:13:26.840 of a kind of a black box. They say we 0:13:26.920 --> 0:13:28.960 have the six and a half percent growth target, and 0:13:28.960 --> 0:13:31.280 magically they seem to come very close to six and 0:13:31.360 --> 0:13:33.520 a half. Well, did you read the art. I think 0:13:33.520 --> 0:13:37.600 it was black Rock using drones to look at factories 0:13:37.640 --> 0:13:40.400 in China to sort of assess growth in their own way. 0:13:40.600 --> 0:13:43.000 I have heard about the satellite images where people are 0:13:43.040 --> 0:13:45.000 counting the cars in the parking lot. You know, some 0:13:45.040 --> 0:13:46.640 of the things that we do is we look at, 0:13:46.679 --> 0:13:50.480 for example, the Taiwan import data from China rather than 0:13:50.480 --> 0:13:52.760 the China export data to Taiwan. So we try to 0:13:52.800 --> 0:13:54.920 square that circle in a couple of different ways. But 0:13:55.200 --> 0:13:58.240 you know the benefit for investors is they're getting access 0:13:58.280 --> 0:14:01.560 to more information. They're finding themselves with new and different 0:14:01.600 --> 0:14:04.559 ways of building a picture around what's going on in 0:14:04.640 --> 0:14:07.439 emerging markets. So the data has been an issue. The 0:14:07.520 --> 0:14:09.360 data will continue to be somewhat of an issue, but 0:14:09.400 --> 0:14:11.120 I think we're moving in the right direction, and I 0:14:11.160 --> 0:14:13.480 think that investors are able to get a better sense 0:14:14.000 --> 0:14:16.320 of the profitability of some of these companies. What's the 0:14:16.320 --> 0:14:19.600 biggest risk area right now in markets? So I think 0:14:19.640 --> 0:14:22.240 that there are a couple of risks right now. To me, 0:14:22.440 --> 0:14:25.480 the markets are standing on kind of two pillars. One 0:14:25.520 --> 0:14:28.400 of them is a political pillar and one of them 0:14:28.520 --> 0:14:31.600 is a nominal growth pillar. Now, the political pillar, you know, 0:14:31.680 --> 0:14:34.200 both in the US and abroad, is looking a little 0:14:34.200 --> 0:14:36.800 bit wobbly. We saw the UK, you know, begin their 0:14:36.800 --> 0:14:40.400 Brexit negotiations the other day. Um, we've had some disappointments 0:14:40.400 --> 0:14:42.880 here in the US in terms of the pace of 0:14:42.880 --> 0:14:45.840 of policy reform relative to what some people were expecting. 0:14:46.640 --> 0:14:49.680 But the nominal growth pillars still looks okay. So I 0:14:49.680 --> 0:14:52.040 think one of the biggest risks is that the nominal data, 0:14:52.080 --> 0:14:55.000 that the activity data, starts to deteriorate. Because you know, 0:14:55.040 --> 0:14:57.680 we're we're investors, right We're trying to follow the cash flows. 0:14:57.680 --> 0:15:00.560 We're trying to find the companies that are generating earnings, 0:15:00.920 --> 0:15:04.560 and if the economic data starts to deteriorate, that's a 0:15:04.600 --> 0:15:06.480 signal that it's going to be more difficult for these 0:15:06.520 --> 0:15:08.840 companies to generate profits going forward, and if we think 0:15:08.840 --> 0:15:11.360 back to the last time that happened again from mid 0:15:11.360 --> 0:15:14.120 fourteen to mid six team, right, the stock market didn't 0:15:14.160 --> 0:15:16.200 go anywhere. People always say to me, David, why didn't 0:15:16.200 --> 0:15:18.880 the stock market go anywhere from June fourteen until the 0:15:18.920 --> 0:15:21.320 middle of two thousand and sixteen. And my answer is, well, 0:15:21.360 --> 0:15:24.680 because earnings weren't growing. So the biggest risk in my view, 0:15:24.760 --> 0:15:27.320 is that the activity data rolls over and that passes 0:15:27.360 --> 0:15:30.360 through and hinder's corporate profitability. All right, thank you so 0:15:30.440 --> 0:15:32.200 much for joining us. Really, what I'm speaking with you 0:15:32.280 --> 0:15:35.920 David Lebovitz. He is the global market strategist for JP 0:15:36.120 --> 0:15:38.680 Morgan Investment Management, and he joins us here in our 0:15:38.680 --> 0:15:54.520 Bloomberg eleven three oh studio. Right now, I want to 0:15:54.560 --> 0:15:58.080 talk about a three day gathering that's happening in May 0:15:58.680 --> 0:16:01.760 that's going to be host it by Amazon and attended 0:16:01.840 --> 0:16:06.040 by executives from General Mills and Montalis, among others. Craig Giomana, 0:16:06.160 --> 0:16:08.960 who wrote this fantastic story, is here with us in 0:16:08.960 --> 0:16:12.680 our Bloomberg eleven three oh studio. Craig um this is 0:16:12.720 --> 0:16:16.040 a tremendously interesting story because it really highlights how Amazon 0:16:16.160 --> 0:16:18.560 is trying to take over the entire retailing sector. Can 0:16:18.600 --> 0:16:21.000 you tell us a little bit about this three day meeting? Yes, So, 0:16:21.080 --> 0:16:23.280 I mean you're right, the Amazon is trying to take 0:16:23.320 --> 0:16:25.640 over everything. They're the everything store and kind of the 0:16:25.680 --> 0:16:28.680 one area that they haven't really cracked is food. You know, 0:16:28.720 --> 0:16:31.440 they only e commerce for groceries is only like one 0:16:31.480 --> 0:16:34.440 point five percent of the market. Amazon has taken over 0:16:34.480 --> 0:16:36.240 everything else, and they're kind of looking at this really 0:16:36.280 --> 0:16:39.040 hard and comes We've come to find out that in 0:16:39.120 --> 0:16:42.360 May they're bringing you know, big companies sort of from 0:16:42.400 --> 0:16:45.200 the CpG world consumer package goods and household products out 0:16:45.240 --> 0:16:48.680 to Seattle to talk about logistics and supply chain stuff. 0:16:48.720 --> 0:16:51.880 And they're basically trying to get General Mills and Montolis 0:16:51.920 --> 0:16:54.040 and these companies that make our food to think about 0:16:54.040 --> 0:16:57.040 a world where e commerce is primary, So put it 0:16:57.080 --> 0:16:59.240 in different boxes and package it in a way that 0:16:59.280 --> 0:17:00.800 we can ship it to actly to people. So this 0:17:00.840 --> 0:17:04.119 is Amazon really muscling in more to the grocery stores, 0:17:04.160 --> 0:17:07.600 turf and just to be clear, right now, food goes 0:17:07.680 --> 0:17:11.360 largely through Walmart, Target or Costco and then it could 0:17:11.400 --> 0:17:14.639 potentially be ordered on Amazon. Right, There's there's plenty of 0:17:14.640 --> 0:17:16.440 delivery services that have popped up. I mean, I think 0:17:16.440 --> 0:17:18.119 in New York City that stuff is popular. But you 0:17:18.160 --> 0:17:20.239 gotta remember it's a big country out there, and like 0:17:20.240 --> 0:17:22.960 I said, one point five percent of the grocery market 0:17:23.000 --> 0:17:26.959 is online, So really we're talking about people still going 0:17:26.960 --> 0:17:30.440 to Kroger Albertson's safe way to shop for groceries. People 0:17:30.480 --> 0:17:34.480 don't buy food online at this point, but it's growing 0:17:34.680 --> 0:17:37.359 and it's clearly has gotten the attention of the general 0:17:37.359 --> 0:17:39.000 mills is of the world. These guys are struggling for 0:17:39.040 --> 0:17:42.280 sales growth and they really can't ignore Amazon, and they're 0:17:42.280 --> 0:17:45.240 trying to figure out, you know, a world where, like 0:17:45.240 --> 0:17:46.800 everything else, people used to say, we're never going to 0:17:46.840 --> 0:17:48.880 buy shoes online, we have to try them on, or 0:17:49.000 --> 0:17:50.760 we're not going to buy books online. But that's where 0:17:50.760 --> 0:17:52.479 we are with food. It's kind of the last frontier. Well, 0:17:52.520 --> 0:17:54.080 but to get a sense, I mean, because to your 0:17:54.119 --> 0:17:56.480 point you were saying, in this city it's pretty popular 0:17:56.560 --> 0:17:59.320 with Fresh Direct or even just other delivery services from 0:17:59.320 --> 0:18:02.320 grocery stores. It's more popular because people don't have cars. 0:18:02.359 --> 0:18:05.920 But in other places, I mean, what's the challenge for 0:18:06.160 --> 0:18:10.440 Amazon just with respected distribution of shipping fresh food, and 0:18:10.560 --> 0:18:13.960 and you know some organization like fresh Direct, how much 0:18:13.960 --> 0:18:16.880 penetration have they gotten outside of cities. But the shortager 0:18:16.960 --> 0:18:19.240 is not much. Fresh Direct does well in New York City. 0:18:19.280 --> 0:18:21.919 There's something called Pepod, which is owned by the company 0:18:21.920 --> 0:18:24.880 that owns Stop and Shop. They've done okay, but it's 0:18:24.880 --> 0:18:28.600 called the last mile. Basically, it's just incredibly expensive to 0:18:28.680 --> 0:18:31.119 run those trucks and to do it economically when you 0:18:31.160 --> 0:18:33.480 have one house on a block in the suburbs, to 0:18:33.560 --> 0:18:36.280 run a refrigerated truck out there, make sure the ice 0:18:36.280 --> 0:18:38.920 cream is cold, all the produce looks how the people wanted. 0:18:39.040 --> 0:18:41.480 The steak is what they want. Amazon has been trying 0:18:41.480 --> 0:18:44.080 this for years. Amazon has been going after fresh food 0:18:44.080 --> 0:18:46.080 for you know, a decade at least, and it just 0:18:46.160 --> 0:18:48.960 hasn't worked. So now they're really stepping up those efforts. 0:18:48.960 --> 0:18:50.960 So is this do you expect that at this three 0:18:51.040 --> 0:18:55.080 day meeting part of the discussion will be how they 0:18:55.080 --> 0:19:00.160 can more efficiently transport these goods to people's houses other 0:19:00.200 --> 0:19:02.199 than to the stores. Yes, I mean, I think what 0:19:02.240 --> 0:19:04.920 we know about it is it's Amazon saying to these 0:19:04.960 --> 0:19:07.480 big companies, hey, let's come out and let's talk about 0:19:07.560 --> 0:19:11.080 a world where you're thinking not necessarily about the store first, 0:19:11.160 --> 0:19:14.639 but about selling stuff direct to consumers online. So the 0:19:14.760 --> 0:19:17.399 Cheerios box, think about that, that's set up to catch 0:19:17.440 --> 0:19:20.280 your eye in a store. You know, years and years 0:19:20.359 --> 0:19:23.199 decades of people grocery shopping that way. That's how the 0:19:23.280 --> 0:19:25.720 box is designed. So Amazon is going to say, let's 0:19:25.760 --> 0:19:28.119 think about, we don't need this box like this necessarily, 0:19:28.200 --> 0:19:29.800 Let's put it in a box that we can take 0:19:29.880 --> 0:19:33.119 real quick and ship it out. So it's just them getting, 0:19:33.359 --> 0:19:35.080 you know, trying to get these companies to change their 0:19:35.080 --> 0:19:37.760 mindset a bit. So the Walmart targets and Costcoats of 0:19:37.760 --> 0:19:41.200 the world, they must be fighting back. They are right, 0:19:41.200 --> 0:19:44.000 So Walmart. The big thing for Walmart is something called 0:19:44.080 --> 0:19:47.240 click and collect, where basically you're going to go online, 0:19:47.440 --> 0:19:50.160 order order your food, you drive up to the curb 0:19:50.320 --> 0:19:52.560 and they have it ready for you. Because Walmart wants 0:19:52.560 --> 0:19:54.119 to live in a world where you're still maybe going 0:19:54.160 --> 0:19:56.040 to go into that store. Plus, in a big part 0:19:56.040 --> 0:19:57.800 of the country, people are out on the weekends in 0:19:57.800 --> 0:19:59.440 their cars. Again, this is a bit of a sort 0:19:59.480 --> 0:20:01.840 of New York City San Francisco versus the rest of 0:20:01.880 --> 0:20:04.320 the country thing. It's still convenient for people to pick 0:20:04.400 --> 0:20:06.640 up those groceries in their cars. So you know, Walmart 0:20:06.680 --> 0:20:08.480 is just desperate to get you into the store where 0:20:08.520 --> 0:20:10.920 you start grabbing other stuff. That's how they make their margins. 0:20:11.040 --> 0:20:13.280 Is this the first time Amazon has held a meeting 0:20:13.320 --> 0:20:16.040 like this that we know of? That we know of? 0:20:16.280 --> 0:20:19.320 And I mean again, it's very very small part of 0:20:19.320 --> 0:20:22.359 the business, and you know, grocery stores aren't going away 0:20:22.400 --> 0:20:24.760 anytime soon. But I think why this is so interesting 0:20:24.760 --> 0:20:27.080 to everyone is that food is like the last thing 0:20:27.160 --> 0:20:31.959 that Amazon hasn't cracked. They've taken over electronics, clothes, books, 0:20:32.000 --> 0:20:34.600 all these other things, and now here they are coming 0:20:34.680 --> 0:20:37.639 hard for the food business and they've been unsuccessful to 0:20:37.680 --> 0:20:40.600 this point, but are clearly going after it. Craig Jamanna, 0:20:40.640 --> 0:20:42.359 thank you so much for coming in and talking with us. 0:20:42.359 --> 0:20:45.280 Thank It's really a fascinating story. The last frontier for 0:20:45.359 --> 0:20:48.320 Amazon and maybe the last frontier for some of these 0:20:48.359 --> 0:20:50.919 big retailers that want to keep a corner on this market. 0:20:50.920 --> 0:21:07.359 Craig is a consumer reporter here at Bloomberg News, fresh 0:21:07.440 --> 0:21:10.840 off the plane from Hong Kong. Mark Gabay, CEO of 0:21:10.880 --> 0:21:13.960 Asia Pacific LaSalle Investment Management, is here with US in 0:21:13.960 --> 0:21:16.080 our Bloomberg eleven three oh studio, and I am so 0:21:16.119 --> 0:21:19.359 excited to speak with you Mark about what the flows 0:21:19.400 --> 0:21:22.360 are doing right now from Asia to the US with 0:21:22.400 --> 0:21:25.359 respect to real estate. Uh. First, I want to start 0:21:25.400 --> 0:21:27.760 with these images that I'm sure a lot of people 0:21:27.800 --> 0:21:31.000 have seen, of these empty buildings that have been built 0:21:31.000 --> 0:21:34.399 in China with not enough people to fill them. Uh. 0:21:34.680 --> 0:21:37.399 This raises a lot of fear and expectation that the 0:21:37.400 --> 0:21:40.399 housing market in China is going to collapse. What do 0:21:40.480 --> 0:21:42.600 you tell your your clients in the U S who 0:21:42.600 --> 0:21:46.280 are looking to invest in China and how concerned are they? Right? So, 0:21:46.480 --> 0:21:49.199 first of all, it's true there are a lot of 0:21:49.200 --> 0:21:52.639 empty buildings and mostly the secondary cities in China, not 0:21:52.680 --> 0:21:55.359 so much the primary cities like a Shanghai or Beijing, 0:21:55.520 --> 0:21:57.920 but some of the other secondary city So it is 0:21:57.960 --> 0:22:00.920