Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
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Speaker 1: Search Bloomberg clovel News. Shares of Levi. They are certainly
Speaker 1: an outperformer, up almost nine percent in two day's session,
Speaker 1: and this is after a third quarter sales top Wall
Speaker 1: Street expectations. The company also boosting its full year profit outlook,
Speaker 1: authorized a two hundred million dollars share buyback program. So
Speaker 1: great to have with us, Levi Strauss and Company CEO Chipberg, Hey, Chip,
Speaker 1: so nice to have you here on Bloomberg. Um, how
Speaker 1: are you And it seems like you guys had a
Speaker 1: pretty good quarter. Yeah, it was a great quarter. It's
Speaker 1: great to be here with you, Carol, thank you very
Speaker 1: much for having me. We're really pleased with the quarter,
Speaker 1: especially when you consider the macro economic headwinds that we've
Speaker 1: been facing, supply chain challenges and everything else. Our team
Speaker 1: around the world is just doing an exceptional job executing.
Speaker 1: We've delivered sales growth of versus last year. But importantly, UM,
Speaker 1: we were up three versus pre pandemic, and um you
Speaker 1: know we expect to be up versus in the fourth
Speaker 1: quarter as well. So really good quarter on strong profit delivery.
Speaker 1: But you know, we've we've just done a great job
Speaker 1: navigating all of the challenges that are facing the industry.
Speaker 1: I can hear it in your voice. I think both
Speaker 1: Tim and I are looking at them. So tell us
Speaker 1: about the challenges. I mean, what is it that you
Speaker 1: can't get, What is it that you have to pay
Speaker 1: a lot more for? Tell us about that? Well, I
Speaker 1: think you know, supply chain challenges have been in the
Speaker 1: news and have affected really all of the soft line
Speaker 1: UH and apparel stocks over the last three three months
Speaker 1: or so. UH pork challenges are obviously an issue. COVID
Speaker 1: is impacting a number of countries in Asia. Many factories
Speaker 1: are shut down. But what we've got going for us.
Speaker 1: Is I actually believe our global supply chain is a
Speaker 1: competitive advantage. UM. We have a huge amount of scale. UM.
Speaker 1: We source. We made a decision a long long time
Speaker 1: ago that we were not going to put all of
Speaker 1: our eggs in one basket. UM. We source from twenty
Speaker 1: four different countries. No country represents more than our total
Speaker 1: volume UM. And we also cross source. About half of
Speaker 1: all of our volume is crosssource, meaning we could make
Speaker 1: that same product in different factories in different countries, which
Speaker 1: gives us an incredible amount of agility. So that if
Speaker 1: a factory shuts down unfortunately because of COVID, we've can
Speaker 1: quickly move that production h to somewhere else that's still operating.
Speaker 1: So that's given us a ton of agility. I mean,
Speaker 1: just to dimensionalize that, the vietnamsment in the news a
Speaker 1: lot here lately. UM, we're importing less than four percent
Speaker 1: of our product right now from Vietnam UM UH and
Speaker 1: so that's that's big. We've also been really agile on
Speaker 1: the on the shipping front. In fact, we've locked up
Speaker 1: about sevent our shipping through the first half of next
Speaker 1: year of the compacity that we need UH. And we've
Speaker 1: been able to, you know, ship deliveries from the West
Speaker 1: coast to the East coast given the West coast court challenges.
Speaker 1: So our diversified supply chain and the team that we've
Speaker 1: got really is a big competitive advantage. We left, you know,
Speaker 1: we did one and a half billion dollars of revenue
Speaker 1: in the quarter. We left ten million dollars of revenue
Speaker 1: on the table from unfilled orders. Really a great really
Speaker 1: a great job. Common prices have surge year of a year,
Speaker 1: according to Bloomberg in Intelligence, shipping prices I know for
Speaker 1: you have increased. You did say yesterday, levis indicated that
Speaker 1: you have pricing power and you're able to pass on
Speaker 1: some of these increased costs that you face two consumers.
Speaker 1: How much pricing power do you have? How much more
Speaker 1: our customer is going to pay for their levis? Well,
Speaker 1: a couple of things to first of all, Um, you know,
Speaker 1: there's it's clear inflation is here. And it's not just cotton,
Speaker 1: it's everything. It's labor costs, it's shipping costs, it's truck costs,
Speaker 1: it's it's really everywhere. Um. We saw it coming over
Speaker 1: a year ago and we took pricing. We've been taking
Speaker 1: pricing for the last year. Our au R s are
Speaker 1: up pretty significantly over the last two years, and it's
Speaker 1: because we saw inflation coming and we've been pricing ahead
Speaker 1: of inflation and have been successful. It's sticking and so
Speaker 1: a lot of that, and that's part of the reason
Speaker 1: you're seeing such high gross margins fifty seven and a
Speaker 1: half percent gross margins this past quarter. We've been in
Speaker 1: the fifty seven's for the last three quarters, UM. And
Speaker 1: it's because as we've successfully passed on pricing. We don't
Speaker 1: buy cotton, we buy fabric from mills, and we've already
Speaker 1: negotiated our cost of good soul through the first half
Speaker 1: of two with a low single digit one percent cost
Speaker 1: inflation built into our cost of goods. We're in the
Speaker 1: midst of negotiating for the second half. I expect that's
Speaker 1: going to be higher. Obviously, given what's happening to cotton,
Speaker 1: we're expecting it's gonna be somewhere in the mid single
Speaker 1: digit area. UM. If it's more than that, we may
Speaker 1: have to take additional pricing, but priced ahead of inflation,
Speaker 1: and feel that we're in a pretty good place right now.
Speaker 1: We're also confident in the strength of the brand that
Speaker 1: if we need to take more pricing, we can do
Speaker 1: that very surgically and and you know, and recover the
Speaker 1: higher costs to maintain your margins basically exactly. Hey, listen,
Speaker 1: you said, I thought it was interesting to have you said, um,
Speaker 1: that you saw inflation coming about two years go. Are
Speaker 1: you saying that there were problems in the supply chain
Speaker 1: pre pandemic, because I think this speaks to we are
Speaker 1: trying to figure out inflation transitory or not. Right, it's
Speaker 1: the big big question of the day. What would you
Speaker 1: say someone who has to manage your supply chain so carefully?
Speaker 1: Is this a bigger deal that lasts that stays with
Speaker 1: us longer. Yeah, it wasn't really two years ago we
Speaker 1: saw coming. It was about right, kind of coincidental with
Speaker 1: the pandemic and the lockdowns. We knew that there was
Speaker 1: already going to be pressure from a labor standpoint. We
Speaker 1: were seeing that here in the US in particular. Um,
Speaker 1: you know, I know there's a lot of debate about
Speaker 1: whether inflation is transitory or not. I personally believe it's
Speaker 1: here to stay. And that's why we started taking pricing
Speaker 1: action early. Is you know, instead of a big, huge
Speaker 1: leap and prices. It's it's better to get the consumer
Speaker 1: there slowly over a series of price increases, and and
Speaker 1: and so we got going on it early, and I
Speaker 1: think we're out ahead of the curve. Are a U
Speaker 1: R s are up kind of in the mid high
Speaker 1: single digit area versus a year ago and two years ago. Um,
Speaker 1: so I believe it's here to say. I mean, we're
Speaker 1: looking at higher labor cost. Wage wages are going up
Speaker 1: pretty significantly around the world. There's shortage of of labor
Speaker 1: for different types of skills. So I think we're looking
Speaker 1: at this for at least the next couple of years.
Speaker 1: Really quickly, ten seconds, am I gonna troll getting my
Speaker 1: Levi's for Christmas? Now there will be Leavis underneath your
Speaker 1: Christmas tree. We're spending more on air freight this quarter
Speaker 1: than we'll we typically do in a normal year. We're
Speaker 1: gonna do everything we can to make sure we service
Speaker 1: the demand that is out there. We're chasing inventory right now.
Speaker 1: And you know, I jokingly say we're spending so much
Speaker 1: on air freight, we could probably buy a seven board
Speaker 1: and seven Funny it's under your tree, and I hope
Speaker 1: you'll be giving lots of levives for others to under
Speaker 1: their tree. Got it, got it well here Sant has
Speaker 1: done well in the stock market, so he can afford
Speaker 1: to uh spend a little bit more to get it
Speaker 1: all here. Hey, listen, thank you so much to come
Speaker 1: back soon, because your story is an incredible one. Levi
Speaker 1: Strauss and Company CEO Chipberg. This story, the story the
Speaker 1: stock also one of the outperformers of the day. This
Speaker 1: is Bloomberg Business Week with Carol Masser and Bloomberg Quick
Speaker 1: Takes Tim Stinovic on Bloomberg Radio. So this week's cover story,
Speaker 1: it also happens to be today's Bloomberg Big Take on
Speaker 1: the Bloomberg Terminal. It is about tether. It's the world's
Speaker 1: most popular stable coin. Is a type of cryptocurrency that
Speaker 1: is favored by traders to mainly because it's backed by
Speaker 1: really U S dollars. Yeah, but where maybe not? Is
Speaker 1: it backed by US real real U S dollars? That's
Speaker 1: the question. It's this week's cover story. Joining us now
Speaker 1: is Zeke Fox. He's a financial investigations reporter at Bloomberg News.
Speaker 1: He's with us in the Bloomberg Interactive Broker Studio is he.
Speaker 1: I don't even know where the start. We have inspector gadget,
Speaker 1: a retired plastic surgeon, a star of the Mighty Ducks,
Speaker 1: all being characters in a story that trails multiple continents. Yeah,
Speaker 1: so it's it's been a mystery for years. There's always
Speaker 1: been this cryptocurrency called tether that's worth a dollar because
Speaker 1: each coin is supposedly backed by a dollar in the bank.
Speaker 1: But there have always been these critics who are saying,
Speaker 1: where are these dollars? Really? Does this company really have
Speaker 1: the money it claims? And this year they've been printing
Speaker 1: like a crazy amount of tether's, so there's now sixty
Speaker 1: nine billion of them, which means the company is supposed
Speaker 1: to have sixty billion of real dollars somewhere, of real
Speaker 1: US cash. It needs to be backed by real US
Speaker 1: cash exactly. That's what they've promised. And I went out
Speaker 1: to try and figure out, all, right, where is this money,
Speaker 1: what have they done with it? On how much of
Speaker 1: it did you find? Chill Webber, joining US editor about
Speaker 1: Business Week, was a little disappointed because I was hoping
Speaker 1: there would just be like a pile of gold somewhere,
Speaker 1: but I realized that that's not uh, that's not really
Speaker 1: how how money work. Yeah. Um. But it turns out
Speaker 1: that they're one of the biggest banks is down in
Speaker 1: the Bahamas, and I went and met with the chairman
Speaker 1: of the bank. It's called Dell Tech, and he said
Speaker 1: that they hold about fifteen billion I think he said
Speaker 1: of the of the sixty nine, but he's not quite sure.
Speaker 1: He can't speak for He said that money safe, it's
Speaker 1: here with us, but he can't speak for the rest
Speaker 1: of it. Um. So I mean, the reason this is
Speaker 1: really important is that, uh, tether is sort of like
Speaker 1: at the center of the cryptocurrency world. You might think
Speaker 1: it's kind of like pointless, like why would you even
Speaker 1: want a cryptocurrency that wasn't going to make you rich? Um,
Speaker 1: But this is the one that you use to send
Speaker 1: money from one exchange to the other to place your
Speaker 1: bets at the exchange. Essentially, if you think of the
Speaker 1: cryptocurrency exchanges as like giant casinos, these are the chips,
Speaker 1: and all the casinos make you get the same chips,
Speaker 1: which are tethers. So it's like the connection between all
Speaker 1: the different parts of the cryptocurrency world. And so if
Speaker 1: these coins aren't worth one dollar. It could throw all
Speaker 1: these markets out of whack, would be like a huge
Speaker 1: deal for for all of crypto worth mentioning what he
Speaker 1: did before he was a Bahamed bahamaed binker. Yes, so
Speaker 1: very impressive, dude, Jean Chalapin, the chairman of Deltech. He
Speaker 1: actually the first big success was creating the cartoon about
Speaker 1: the cyborg cop inspector gadget or cyboards with my childhood. Yeah,
Speaker 1: um world. So he got he got very rich from
Speaker 1: from that and making also some other cartoons. He uh
Speaker 1: sold his studio, moved to the Bahamas, where he bought
Speaker 1: this beautiful pink colonial mansion that you probably saw in
Speaker 1: the James Bond Foam Casino Royale. It was the it
Speaker 1: was the it was the villains. It was the villain's
Speaker 1: house in that and it's certainly nice enough to be that.
Speaker 1: And he then bought this bank in the Bahamas. And
Speaker 1: I mean, the whole thing is kind of is hugely
Speaker 1: hard to wrap your mind around, but essentially tether needs
Speaker 1: to have it needs banks. It needs banks to hold
Speaker 1: money because people send tether real money to get the
Speaker 1: tether coins. And they've had a lot of trouble over
Speaker 1: the years finding banks that will do business with them,
Speaker 1: because a lot of banks have just not wanted to
Speaker 1: do business with cryptocurrency companies in general. And so he
Speaker 1: this Dell Tech Bank of the Bahamas was one of
Speaker 1: the few that would and really save them at a
Speaker 1: time when they were struggling to figure out what to
Speaker 1: do with their money. Might this be a Ponti scheme?
Speaker 1: So that's what some of the harshest critics have said.
Speaker 1: I mean, the information that I got is that, um,
Speaker 1: they are taking this money and investing it, and rather
Speaker 1: than it just being totally a giant scam, it's all
Speaker 1: made up. It's more about a conflict of interest where
Speaker 1: when you buy a tether coin, you really want it
Speaker 1: to be safe. You really want to get your dollar
Speaker 1: back no matter what if you uh yeah, But if
Speaker 1: you're the it turns out that the the way it structured,
Speaker 1: the owner of the tether company, he's not sitting on
Speaker 1: sixty billion dollars. He can invest that money in different things,
Speaker 1: and any earnings on those investments go to him. So
Speaker 1: even if he earns like one that's six and ninety
Speaker 1: million dollars, and uh, there's not much expenses in running
Speaker 1: this company. It's a really small operation, so his incentive
Speaker 1: is to invest in weird stuff to try and make
Speaker 1: some money. And what I found was that in fact,
Speaker 1: a fair amount of it billions was invested in Chinese
Speaker 1: commercial paper, which is kind of like, uh, something that
Speaker 1: people on Wall Street really avoid. Like there's a most
Speaker 1: commercial papers held by money market funds and they just
Speaker 1: basically will not buy Chinese commercial paper. There's very few
Speaker 1: of them have much of it. Um So this is
Speaker 1: like a big risk. So what's at risk for crypto
Speaker 1: and maybe the rest of us if you can't trust tether?
Speaker 1: So all of the on some of the biggest exchanges
Speaker 1: to the trades are denominated in tether, and it's becomes
Speaker 1: so natural that people almost forget it. But like you're
Speaker 1: buying your bitcoin versus tether, and so if the if
Speaker 1: people no longer trusted tether, they would all, uh, I
Speaker 1: want to dump tether for to buy whatever they could
Speaker 1: with it before if they're worried that like it could
Speaker 1: go to zero. Um. So it kind of bizarrely on
Speaker 1: those exchanges, it would probably drive up the price of
Speaker 1: cryptos in a short term, but it would it would
Speaker 1: be uh uh, at least in tether terms um, but
Speaker 1: it'd be like a huge disruption because still, even like
Speaker 1: almost a decade into this whole cryptocurrency boom, a huge
Speaker 1: part of the economy, the crypto economy rests on these
Speaker 1: weird stable coins instead of real dollars, and it's something
Speaker 1: that the traders kind of take for granted. But like, well,
Speaker 1: stable coin like talk about the messaging there, and we
Speaker 1: think that there could be uh some news in the
Speaker 1: near future out of DC around stable coins, right just quickly. Yeah,
Speaker 1: so there's like uh Treasury Department commissioned a report about
Speaker 1: state bookcoins all. Basically every financial regulator has said somebody's
Speaker 1: got to do something about this, and it's not clear
Speaker 1: exactly what they're gonna do, but it seems unlikely that
Speaker 1: they'll just uh let it ride. Where you have the
Speaker 1: whole cryptocurrency world relying on this unregulated sixty nine billion
Speaker 1: dollar quasi bank thing called tether well on the money
Speaker 1: trail from Taiwan to Puerto Rico, the French revie of
Speaker 1: mainland China and the Bahamas. He didn't go to all
Speaker 1: the places, but he didn't go to some. It is
Speaker 1: an amazing story. It's the cover story of Bloomberg Business
Speaker 1: Week magazine. Zeke Fox, financial investigations reporter here at Bloomberg News,
Speaker 1: along with Joeld Webber, editor of Bloomberg Business Week. Check
Speaker 1: it out. It's the new issue of Business Week. You're
Speaker 1: listening to Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio. Well, we told
Speaker 1: you about some of the COVID headlines that were in
Speaker 1: the stories that we are following, specifically the story about
Speaker 1: heart damage and rocking COVID survivors a year after the
Speaker 1: after they get infected. Joining us now is senior scholar
Speaker 1: from John's Hawkins Center for Health Security and the Bloomberg
Speaker 1: School of Public Health. Dr g g. Gronville joins us
Speaker 1: on the phone from Baltimore. Dr Gronvall, It's great to
Speaker 1: have you back with us. One thing that I've been
Speaker 1: thinking a lot about when it comes to UH, when
Speaker 1: it comes to where we are in the pandemic, is
Speaker 1: testing and the evolution of testing. And we did hear
Speaker 1: from the Biden administration that they are making a significant
Speaker 1: push to increase the availability of home tests this week,
Speaker 1: and I wonder to what extent you think that that
Speaker 1: will help us get to the other side of the
Speaker 1: pandemic if we can easily get home tests. Yeah. So
Speaker 1: home testing is really important and I think, um it's
Speaker 1: been uh demanded by lots of people. Um that's why
Speaker 1: you haven't seen them on the shelves recently. UM. So
Speaker 1: this move to increase manufacturing and to you know, get
Speaker 1: more than them a little bit more cheap so that
Speaker 1: people can actually afford to use them, um will be
Speaker 1: a really welcome change. And it's something that other countries
Speaker 1: been doing, so it's really good that the US is
Speaker 1: finally doing this as well. Okay, help me understand though.
Speaker 1: These are not PCR tests that we will have access
Speaker 1: to at home, right, No, No, they these are a
Speaker 1: tests that um that look for the look for the
Speaker 1: amount of virus basically that you have in your nose
Speaker 1: at that moment. So you get a result umty minutes
Speaker 1: depending on the test after you take it. And so
Speaker 1: it's really it doesn't have the amplification step that PCR has,
Speaker 1: so that it can't it can't detect like really weak
Speaker 1: signals and tell you that you might be infectious in
Speaker 1: two or three days, but it can tell you if
Speaker 1: you're infectious right now, which is really a key thing
Speaker 1: for public health. I do think that's a challenge. Carol
Speaker 1: and I are, you know, traveling for the first time
Speaker 1: in a long time, and we have to get a
Speaker 1: PCR test within what a certain number of hours before
Speaker 1: we go to this event. I think it's like three days,
Speaker 1: two or three days. Well, And I have to say
Speaker 1: I was googling last night and this morning and looking
Speaker 1: at boosters and what the CDC says about who's allowed
Speaker 1: to it, and it says, you know, if you are
Speaker 1: likely to be around a population where you increase your
Speaker 1: chance maybe if I think getting COVID. I was, I
Speaker 1: really was trying to understand because I have to say,
Speaker 1: I'm a little I'm coming to the six month point
Speaker 1: of my second vaccination and trying to understand. I really
Speaker 1: don't want to be one of those people who really
Speaker 1: aren't approved at this point to go get a third shot.
Speaker 1: But I am thinking about it. Do I need to
Speaker 1: be concerned? And some of what I've read is said
Speaker 1: you've got immunity and your body has this great memory
Speaker 1: response that if you do get COVID, it will react
Speaker 1: and take care of you so that you won't be hospitalized.
Speaker 1: I mean, that's the science behind it. But nonetheless, I
Speaker 1: get a little nervous when people say, even if you
Speaker 1: get COVID there could be long haul UM complications. That
Speaker 1: freaks me out. What's your advice to all of us? Yeah,
Speaker 1: I think it's important for people to not overthink this.
Speaker 1: And we don't have a supply issue right now, so UM,
Speaker 1: you know there there if you get a shot, do
Speaker 1: you get a booster shot? It's not like that shot
Speaker 1: UM would have gone to somebody else who really needed it.
Speaker 1: There's really good data to support UM older people UH
Speaker 1: to to get the booster shot. That that's clear, that's UM.
Speaker 1: The science is there for that. It's a little murkier
Speaker 1: for people who are not seniors UM, whether or not
Speaker 1: they need it. But these are safe and effective vaccines. UM.
Speaker 1: You know, if if if you think that you might
Speaker 1: UM at least give you a piece of mind, then
Speaker 1: go ahead and get it. Because because the guidance right
Speaker 1: now is so broad UM that you know, you probably
Speaker 1: are encountering people who you are being being put into
Speaker 1: positions where you might be UM at higher risk. Who
Speaker 1: knows UM, But you know, there's it's not like, it's
Speaker 1: not like there's a supply issue at stake here. Is
Speaker 1: it a mistake that there's not more clear federal guidelines
Speaker 1: and guidance on who should get these and when they should?
Speaker 1: And I asked because I know people who are work
Speaker 1: in education who are in their thirties and doctors in
Speaker 1: the thirties who have or are getting boosters soon, But
Speaker 1: people in their fifties or sixties who don't haven't gotten
Speaker 1: any guidance about it. Right, Yeah, I think they left.
Speaker 1: So there's the science, and then there's a limit to
Speaker 1: what you can say based on the science. And then
Speaker 1: there's the policy decision, which is that you know, right
Speaker 1: now the door is kind of open for people who
Speaker 1: want to have a booster to have it. So, yeah,
Speaker 1: it is. It is vague, but they have been as
Speaker 1: clear as they can about what the science supports. And
Speaker 1: I agree it's it's it's vague, but it's nobody is
Speaker 1: going to be, I think, prohibited from getting a booster
Speaker 1: as long as there's six months out from their second shot.
Speaker 1: All right, that's good guidance because we were we were
Speaker 1: really wondering about it. Hey, how often do you there's
Speaker 1: been some great research that our team has done about
Speaker 1: the next wave, the fourth wave COVID nineteen. Uh, the
Speaker 1: immune escape variants. How many conversations are you guys having
Speaker 1: at Hopkins about that? And just got about forty five seconds? Sure, So, um,
Speaker 1: you know, every time the virus replicates with the chance
Speaker 1: to mutate, so you have to worry that there's going
Speaker 1: to be additional variants. Um, right now, we can just
Speaker 1: need to do what we can to get transmission under control.
Speaker 1: So that means unvaccinated you need to get vaccinated. We
Speaker 1: need more testing so that people who are infectious can
Speaker 1: limit their possibility to spread. So, um, we just have
Speaker 1: to keep doing what we're doing, and globally it's not easy.
Speaker 1: This is the hardest pandemic I've ever been exactly. Hey,
Speaker 1: Dr Gronville, thank you so much. We appreciate your time
Speaker 1: and everybody over at Hopkins for really helping create so
Speaker 1: much and clarity for us on this subject. She's Senior
Speaker 1: Scholar at Johns Hopkins Center for Health Security, the Bloomberg
Speaker 1: School of Public Health, supported by Michael R. Bloomberg, founder,
Speaker 1: Bloomberg ALP and Bloomberg Philanthropies. On the phone from Baltimore,
Speaker 1: So are you convinced you're gonna get a Yeah, you're
Speaker 1: gonna do it and get that. I'm thinking about it
Speaker 1: getting that booster because it is kind of vague, and
Speaker 1: I'm thinking we're gonna be around a ton of I'm
Speaker 1: going to be around a lot of people in the
Speaker 1: next month. Did you get on a Fridays of Saturdays?
Speaker 1: You don't feel great? Okay, we'll talk about the suraday.
Speaker 1: You are listening to Bloomberg I'm road, yeah, but you
Speaker 1: let me drive? Oh no, no, no, no, this is
Speaker 1: not a twin home A right, please, I'll do good
Speaker 1: riding revels. I want to drive? Which good question? Drive?
Speaker 1: This is the drive to the globe dawn on Bloomberg Radio.
Speaker 1: Isn't heed Friday's eve? The next stay at the beginning? Well,
Speaker 1: that's because your mind is still thinking that, you know,
Speaker 1: Thursday's go Friday. I'm working on that with the team
Speaker 1: Suggestion Box. Watching the market trade, your Charlie say that
Speaker 1: we are coming off our highs. We're definitely have moved
Speaker 1: down in the last hour or so, but still higher
Speaker 1: when it comes to those major equity average. So let's
Speaker 1: get to it. Charles Lemonids is founder and chief investment
Speaker 1: officer at the investment manager Value Works. They focus, as
Speaker 1: you would expect, on a value to the plan. He
Speaker 1: joins us once again on the phone in New York City.
Speaker 1: How are you very good? Thank you very much for
Speaker 1: having me. Well, we have seen some interesting market gyrations.
Speaker 1: There's definitely a bit more volatility back into the market.
Speaker 1: But we have seen what three days of gains now
Speaker 1: on the S and P five hundred. What's your outlook here, Charles. Yeah,
Speaker 1: we've seen three days of gains UM, but we've seen
Speaker 1: a really rough September coming into those three days of gains.
Speaker 1: So yeah, my view is that the past month and
Speaker 1: a half we've sort of consolidated UM the big upward
Speaker 1: move we had earlier in the year. Markets have been
Speaker 1: sort of churning at these higher levels UM gave giving
Speaker 1: back a little and now maybe making a push to
Speaker 1: new highs. Look, it was really important to have the
Speaker 1: noise out of Washington toned down a little bit. UM.
Speaker 1: You know, as we get close to debt ceiling UM
Speaker 1: and these budget um crisis moments, you know, the markets
Speaker 1: tend to stall. We've pushed that off a little bit
Speaker 1: and our investors can start focusing on what's happening in
Speaker 1: the real economy, what is happening in the real economy,
Speaker 1: and we get the jobs for tomorrow, economists expecting five
Speaker 1: thousand um, that would be, that would be that would
Speaker 1: look pretty good, that's right, And you know that that's
Speaker 1: a big number for for us. We're going to care
Speaker 1: about that a lot, and it means a lot um.
Speaker 1: And then right after that we're gonna start hearing a
Speaker 1: lot of earnings releases from companies. And the sum was
Speaker 1: very interesting because things were really percolating along very very
Speaker 1: well for the economy until the sort of mid late
Speaker 1: August and into September, when the impact of what was
Speaker 1: happening in the COVID crisis in the delta variant really
Speaker 1: hit the economy and you saw that in some retailers
Speaker 1: results that have already come out so far. But we're
Speaker 1: gonna hear a lot more from companies, you know, as
Speaker 1: earnings releases come out next week in the week after.
Speaker 1: Talking about whether that was a six weeks bump in
Speaker 1: the economy and whether things are already re accelerating, which
Speaker 1: I sort of think is the most likely case, or
Speaker 1: if that that little bit of a slowdown is broughtening out,
Speaker 1: My sense is that we're seeing past the worst of
Speaker 1: the of the delta variant disruption to the economy, and
Speaker 1: so I think you could be hearing from companies next
Speaker 1: week and the week after that earnings for the for
Speaker 1: the last quarter. We're good, that inflation is picking up
Speaker 1: in their businesses, that there's a lot of demand and
Speaker 1: there's a lot of growth in front of us, of course,
Speaker 1: until the fourth wave happens and then we get those
Speaker 1: variants that the vaccines. Sorry, I don't mean to be
Speaker 1: such a bummer, but you are our San Fizzelli, really
Speaker 1: smart writing about this. I'm sorry, what do you I mean,
Speaker 1: do we need to think about that or just deal
Speaker 1: with it when and if it happens, and hopefully it doesn't,
Speaker 1: we do need to think about it. But you know,
Speaker 1: two years ago when this all started, um, you know,
Speaker 1: there were people saying, hey, you know, sometimes these pandemics
Speaker 1: go on a couple of years. Um, here we are,
Speaker 1: and here we are two years in, and you know,
Speaker 1: maybe this is the end of it, you know, And
Speaker 1: I mean, look, I've been thinking it was the end
Speaker 1: of it for you know, six weeks in front of us,
Speaker 1: for the past two years, so you know, it may
Speaker 1: or may not be um contra done in six weeks?
Speaker 1: Have be done in six weeks? Well, I do, though
Speaker 1: I do wonder. You know, we we talked a lot
Speaker 1: about the quote unquote new normal, and at least the
Speaker 1: way that I'm thinking about a lot of my friends
Speaker 1: are thinking about it. We're learning to live with it.
Speaker 1: And it's not great, like I don't like, you know,
Speaker 1: getting my son tested every week and you know, waiting
Speaker 1: in line to do that. But we do that and
Speaker 1: then we go on with our day and we continue
Speaker 1: to buy things, and we continue to go visit friends,
Speaker 1: and we're careful. But we have adapted, and I think
Speaker 1: people have adapted and they've adapted their spending habits as
Speaker 1: a result. I think the question is do they get
Speaker 1: back to work? And do they go back to work?
Speaker 1: And that's where half a million jobs, you know, in
Speaker 1: the month of September would be an interesting data point.
Speaker 1: I think the answer is yes. The other thing that
Speaker 1: we've seen that's been very, very concrete is that economic demand,
Speaker 1: demand for goods and services has been pretty robust. And
Speaker 1: it's not because we are aren't impacted by the COVID epidemic.
Speaker 1: It's because we've had a tremendous amount of stimulus from
Speaker 1: a federal government, both in monetary and fiscal policy. So
Speaker 1: you know, we've got dollars in our pockets and we
Speaker 1: want to spend them. And you know, the challenge for
Speaker 1: companies is being able to deliver the cars that we want,
Speaker 1: the boats that we wanted over the summertime, um and
Speaker 1: and so you're seeing pressure on all sorts of costs
Speaker 1: and you're probably going to see a lot more of
Speaker 1: that in the weeks ahead in these earning results. So, Charles,
Speaker 1: if we get that five print on non farm payrolls tomorrow,
Speaker 1: that would be a strong indicator of the strength and
Speaker 1: the economy and jobs coming back. At the same time,
Speaker 1: it would also lend more support to the FED easing
Speaker 1: back when it comes to asset purchases. And maybe you know,
Speaker 1: at some point they'll start to think, you know, get
Speaker 1: get more specific about when rates start to go higher.
Speaker 1: How might though, was strong jobs report translate into the
Speaker 1: equity trade tomorrow. Well, you know, your point is a
Speaker 1: very very good one, because that's exactly what is on
Speaker 1: everyone's mind. Will the FED be as accommodative as they
Speaker 1: said they're going to be or will they again, you know,
Speaker 1: start tightening conditions a little too quickly. They've been telling
Speaker 1: us that they're going to stay loose for long, and
Speaker 1: I am inclined to believe them. I think the FED
Speaker 1: is likely to let this economy run really hot for
Speaker 1: you know, another year or so before they you know,
Speaker 1: at all starts to pull in the reins. And and
Speaker 1: in my experience, it takes a couple of years before
Speaker 1: FED tightening actually hits the economy, you know, reacts to
Speaker 1: two news of FED tightening really fast. But what tends
Speaker 1: to happen is that the economy continues to to move
Speaker 1: aggressively um expanding, and so then the market catches up
Speaker 1: to the economy. And and it takes a couple of
Speaker 1: years for FED tightening to slow economic growth. So I
Speaker 1: think we could have economic growth for four more years,
Speaker 1: s just real quick in the last thirty seconds that
Speaker 1: we have. How hot do you think the Fed is
Speaker 1: willing to let the economy run? Steve Minustian telling around
Speaker 1: David Weston earlier today that he's worried this is going
Speaker 1: to be ongoing inflation and we could end up with
Speaker 1: three point five percent ten year treasuries. Well, look, if
Speaker 1: that happens, you better not be a treasuries and you
Speaker 1: better not be in cash. So I guess you better
Speaker 1: be in equities, you know, if that's the environment we
Speaker 1: go into, you know, I think you get a return
Speaker 1: on equities next year, and I think that's a very
Speaker 1: very real risk. Yeah, it's all timing and how this
Speaker 1: all plays. And as you said, uh, FED policy is
Speaker 1: a delayed impact. But certainly investor psychology about what the
Speaker 1: Fed may do, even if it's not actually happening, can
Speaker 1: certainly also impact the trade. We've seen that before. Hey, Charles,
Speaker 1: thank you so much. Charles Lemonides, he's founder and chief
Speaker 1: investment officer at Value Works on the phone in New
Speaker 1: York City. Thanks for listening to Bloomberg Business Week. Download
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