Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim
Speaker 1: Fox along with my co host Lisa Bramowitz. Each day
Speaker 1: we bring you the most important, noteworthy, and useful interviews
Speaker 1: for you and your money, whether you're at the grocery
Speaker 1: store or the trading floor. Find the Bloomberg p m
Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com.
Speaker 1: We're broadcasting for the Bloomberg Interactor Broker Studios. I'm Kim
Speaker 1: Fox along with Romaine Bostick. I want to bring in
Speaker 1: Stephen Serge Gilfoil. He is the founder and the president
Speaker 1: of Serge nine eight six l l C. Joining us
Speaker 1: from the New York Stock Exchange. Serge always a pleasure.
Speaker 1: Happy Christmas and New Year to you and your family.
Speaker 1: What do you say to them? What do you say
Speaker 1: to your family or relatives when they ask you why
Speaker 1: does stocks go up and down? You know that answer
Speaker 1: is evolved over time. They don't say why do stocks
Speaker 1: go up and down? Now because the way they used to,
Speaker 1: Because they used to just ask the question the way
Speaker 1: you just did, and I would try to explain to
Speaker 1: them how price discovery works at a certain point of sale.
Speaker 1: Now they would ask probably wider stocks and down go
Speaker 1: Why do stocks move up and down so quickly and
Speaker 1: so violently? And now it's largely a function of electronic
Speaker 1: trading and trading in fractions of pennies. It's well, it's
Speaker 1: a kind of throwing a piece, maybe a tree trunk,
Speaker 1: into a wood chipper and just watching the spray behind
Speaker 1: the machine. That's kind of how I explained stock trading
Speaker 1: these days. And Steven, so yesterday, after the decline we
Speaker 1: had yesterday, you know, I've reached out to a lot
Speaker 1: of traders that I know, and none of them were around,
Speaker 1: none of them were working. So I'm who's trading this week?
Speaker 1: What's behind these big movements that we're having. Well, maybe
Speaker 1: they don't have to presently where they used to have
Speaker 1: to be in an office in Manhattan or on the
Speaker 1: floor of the New York Stock Exchange or or someplace
Speaker 1: close to the NASDAQ market side like they used to.
Speaker 1: They could probably be in Iowa or or out of
Speaker 1: the country and still have their their machines working for them,
Speaker 1: will even be making decisions, even if they do it
Speaker 1: in slow motion like I do, still working through a computer.
Speaker 1: I really I can't imagine taking off when the when
Speaker 1: the volumes you know are going to be light, because
Speaker 1: that's when you're at your largest risk. Really, and I
Speaker 1: think you you really have to defend yourself. I'm probably
Speaker 1: working more hours these days that I do normally. Well,
Speaker 1: you've got an assistant there, I think, who's got four legs,
Speaker 1: So that's probably adding to the energy in the office place.
Speaker 1: That's okay. So what well, what do you if an
Speaker 1: investor comes to you and says, how do you make
Speaker 1: sense of a one thousand, nearly an eleven hundred point
Speaker 1: gain in the Dow Jones Industrial Average and then the
Speaker 1: next day you see a decline Right now we're talking
Speaker 1: about a drop of over four hundred points. How do
Speaker 1: you explain in rational terms evaluation based on those changes? Well,
Speaker 1: you you you really cannot justify this through the laws
Speaker 1: of supply and demand. But what you have to do
Speaker 1: is explain to your clients or your friends, or whoever's
Speaker 1: asking you that the machines are designed to overshooting both directions,
Speaker 1: or they're almost I feel they're designed to cause instability.
Speaker 1: What you have to do as a trader, is you
Speaker 1: you even if you prefer fundamental analysis, like that's how
Speaker 1: I came into this business from a fundamental angle, on
Speaker 1: a macro angle. But now you really do have to
Speaker 1: learn technical analysis because the guys who control of the algorithms,
Speaker 1: who they hire guys like me who know how to
Speaker 1: read charts. So if you can learn how to read
Speaker 1: the charts, you're you're almost in their heads a little bit.
Speaker 1: And what you have to do as a trader is
Speaker 1: narrow your book, and you have you have to focus
Speaker 1: short term instead of long term. You've always been taught
Speaker 1: to be a long term investor. Well it's okay if
Speaker 1: you do that to some degree, but you have to
Speaker 1: be a short term trader on days like this because
Speaker 1: because technicals are the only way to get out of
Speaker 1: this without a big, big minus sign on your portfolio. Well,
Speaker 1: I mean, when you look at the drop that we've
Speaker 1: had in the market, you know, seventent or so on
Speaker 1: the SMP since the beginning of October, do you think
Speaker 1: this has been a fair repricing of some of these
Speaker 1: assets when you look at some of those fundamental measures, Uh,
Speaker 1: this is a fair repricing if indeed we are headed
Speaker 1: into a recession in late the transports, it, down commodities,
Speaker 1: down stocks have been violently devalued. I think they're about
Speaker 1: just barely fifteen times before we're looking earnings now, and
Speaker 1: that's only if those earnings are actually decent or or
Speaker 1: as expected. So yes, if we are slowing down to
Speaker 1: the point where we probably will experience a recession, maybe
Speaker 1: globally but domestically at least the then items are being
Speaker 1: fairly priced at this point, and it's probably more to go.
Speaker 1: I would think that as we move into the new year,
Speaker 1: we're gonna we might see a little seasonal bouncy. We
Speaker 1: got some of that yesterday. There's going to be a
Speaker 1: rebound going into the end of the year. So next
Speaker 1: week you might feel good about your stocks, but it's
Speaker 1: probably going to be short lived because we're going to
Speaker 1: be up against some serious headline risk regarding politics, geo politics,
Speaker 1: the trade wars. All of these are going to produce
Speaker 1: negative headlines multiple times and likely or likelihood before they
Speaker 1: produce any possibility of a positive outcome, and the market
Speaker 1: will die a thousand deaths over that time. Unless you
Speaker 1: know how to defend yourself. Sorge. Let's just assume that
Speaker 1: there's an investor out there who's willing to wait five years.
Speaker 1: What would you recommend they do. All right. I would
Speaker 1: actually tell that that investor to split his book in
Speaker 1: two ways. One, you want you want the income, so
Speaker 1: you need to go to the dividend names. Maybe not
Speaker 1: utility names, but you need you need dividend names in
Speaker 1: your book. Is you need to provide income while you wait,
Speaker 1: and you don't want to completely exclude yourself and growth.
Speaker 1: So you actually want to expose yourself a little to
Speaker 1: energy because even though it's dangerous right now, they still
Speaker 1: pay the dividend and if they're they're the only dividend
Speaker 1: payers out there that if there is growth, they're gonna
Speaker 1: grit with it. And you need the cloud. You need
Speaker 1: the cloud because that's where potential growth is going to be.
Speaker 1: And they're not exposed to China for the most part.
Speaker 1: So this is this is the part of technology that
Speaker 1: will survive much better than semi conductors because they're oversupplied
Speaker 1: right now. Yeah, I tell you about but a little
Speaker 1: bit more about the growth side of this, because I mean,
Speaker 1: obviously you know this bull market, it was easy to
Speaker 1: find growth, and now we're at a stage where even
Speaker 1: though we're not falling off a cliff, it's a lot
Speaker 1: harder to find those growth socks. Is there anywhere else
Speaker 1: other than just some of the cloud software companies where
Speaker 1: we can find that well cloud and like and like
Speaker 1: I said the energy, because I think the energy is
Speaker 1: kind of it's it's a double edged sword. You're gonna
Speaker 1: die with the commodity. But if you can wait, they're
Speaker 1: gonna pay you five six percent. So don't turn you
Speaker 1: back completely on oil right now, even though it seems difficult.
Speaker 1: I've actually been buying oil last week and this week
Speaker 1: got at these horrendous prices, and most of these names
Speaker 1: are actually against those purchases already. But I do know
Speaker 1: that I'm that Royal Dutch Shell is going to pay
Speaker 1: me six percent, that Excel is going to pay me
Speaker 1: five percent, that British Petroleum is gonna pay me five percent.
Speaker 1: So I have a little ligor room here. I can
Speaker 1: take a little bit of a lass before I'm actually
Speaker 1: in trouble. So I think I actually think at these
Speaker 1: prices that energy becomes your the best way to both
Speaker 1: provide income and a little bit of growth. Many thanks
Speaker 1: Stephen Serge Gilfoil. He is the founder of the President's
Speaker 1: Serge nine eight six LLC. The floor of the new
Speaker 1: York Stock Exchange and just taking a look right now,
Speaker 1: remain at the dividend deal the BP it is six
Speaker 1: point seven percent Romaine. You know, whatever anybody says is
Speaker 1: going to turn into a year of questioning whether the
Speaker 1: market can digest very large initial public offerings. Right. I
Speaker 1: mean we've heard about Lift, We've heard about Uber Valenteer.
Speaker 1: This is like a huge list of companies that want
Speaker 1: to go public. Yeah, and and I mean, you know,
Speaker 1: who would have thought that this is the environment they're
Speaker 1: going to try to sell into, assuming they go through
Speaker 1: with it. But you know there's an appetite out there, right,
Speaker 1: very good point. Let's find out if there is indeed
Speaker 1: an appetite. Joining us now is a Tich Davta. He
Speaker 1: is the chief executive of Equity Zen A Tich. Thanks
Speaker 1: for being here. Just give us the outlook for the
Speaker 1: kinds of companies and the characteristics that they display that
Speaker 1: you believe are going to go public in Yeah, twenty
Speaker 1: nineteen is going to be a year where we're not
Speaker 1: going to see any records being said, with the number
Speaker 1: of IPOs that we see, it's going to be nowhere
Speaker 1: near the activity we saw in teen. We might not
Speaker 1: even hit the i p o s that were slated
Speaker 1: to prices this year. What we are going to see though,
Speaker 1: are some blockbuster I p o s, those companies that
Speaker 1: are over ten years old now and it's time to
Speaker 1: move out of the parents basement, out of the private
Speaker 1: markets into the public markets. I'm talking about names like Uber, Airbnb, Slack.
Speaker 1: But you talk about moving out of the parents basement
Speaker 1: the old days of I p o s, These companies
Speaker 1: moved out of their parents basement at a pretty young age.
Speaker 1: And I feel like all of these companies you mentioned,
Speaker 1: particularly Uber for example, are are pretty weathered companies. On
Speaker 1: one hand, I guess that could be a good thing,
Speaker 1: but once you go into the public markets, particularly for
Speaker 1: the secondary investors, what are they really getting out of this?
Speaker 1: Hasn't all the growth sort of taken place with these
Speaker 1: companies that so you're absolutely right in that these companies
Speaker 1: are a lot more mature than they used to be,
Speaker 1: you know, twenty years ago when when when companies won public.
Speaker 1: You know, equisons business is that of conducting secondary transactions
Speaker 1: while these companies are still private. So, you know, with
Speaker 1: not talking about any company in particular, we've now helped
Speaker 1: well over a hundred firms conduct these secondary transactions, over
Speaker 1: a dozen of them. A couple dozen of them actually
Speaker 1: have gone public since then. And what we see is
Speaker 1: a growing appetite while these companies are still private, uh
Speaker 1: in people wanting to invest in these companies and existing
Speaker 1: shareholders wanting liquidity from these from these companies shares, and
Speaker 1: as they go public, you know, effectively you can expand
Speaker 1: the pool of people can access it outside of just
Speaker 1: accredited investors. Do you see do you see more activity
Speaker 1: uh on on your platform nowadays with some of the
Speaker 1: insiders maybe wanting to sort of you know, take some
Speaker 1: of the uh you know, whatever potential profits they've already gotten.
Speaker 1: Has that increased or is it just about the same.
Speaker 1: You know, our business has kept growing, so I wouldn't
Speaker 1: say it's specific to anyone company, and we're seeing more
Speaker 1: activity now than before. I think we're generally seeing more activity.
Speaker 1: But frankly, I think a lot of this has to
Speaker 1: do with education to the broader public that look, before,
Speaker 1: unless you had ten million dollars, there was no way
Speaker 1: you can access this asset class in the first place. Uh.
Speaker 1: You know, you could call up your broker at Goldman
Speaker 1: or private wealth manager Morgan Stanley. But outside of that,
Speaker 1: you had no options today with a business like equities,
Speaker 1: and we can allow these accredited investors to invest as
Speaker 1: little as ten thousand dollars into these late stage private companies.
Speaker 1: What we do see though, is people saying, look, exactly
Speaker 1: as you said, you know the values being created in
Speaker 1: the private market. Why am I sitting on the sidelines?
Speaker 1: Why do you have to continue to wait until this
Speaker 1: company's public? And by the way, worth potentially five times
Speaker 1: more than what I already know is a good stock today.
Speaker 1: Where's the money going to come from to buy these
Speaker 1: initial public offerings at a time when people are looking
Speaker 1: at their year to date performance. For let's say, the
Speaker 1: SMP five hundred approaching a drop of ten percent, you
Speaker 1: might have to correct that in about an hour from now.
Speaker 1: You no, Look, it's a good point. I think what
Speaker 1: we're seeing here is long term and short term minded
Speaker 1: investors coming together. And what we see is long term
Speaker 1: minded investors. Basically, the reason a lot of these companies
Speaker 1: try to go public in the first place, the reason
Speaker 1: they try to pursue the I P or route, is
Speaker 1: so that they can lock in these you know, these
Speaker 1: cornerstone investors these anchor investors, the mutual funds out there well,
Speaker 1: but also they come on to be honest, they just
Speaker 1: want to get out. I mean, if you've invested, you've
Speaker 1: been waiting, waiting, waiting, you want a big pay day,
Speaker 1: and whether it's Uber or air b and B, you
Speaker 1: want to get out. That always raises the question if
Speaker 1: it's such a great investment, why are you selling it?
Speaker 1: So you know, it definitely used to be the case
Speaker 1: that the I p O was the liquidity event for
Speaker 1: all these insiders. I think what we've what we've seen
Speaker 1: in the last five, six, seven, eight years. EQUITISN has
Speaker 1: been around for the last six years. What we've seen
Speaker 1: is not only the the c suite but also the
Speaker 1: rank and file be able to get that pay day,
Speaker 1: you know, over time in bits and piece. Because if
Speaker 1: you've got a thirty billion valuation for something like Airbnb, boy,
Speaker 1: I mean, why wait? You want to be able to
Speaker 1: take that money and run well, and you're hoping that
Speaker 1: the thirty billion dollar valuation hopefully can be even bigger,
Speaker 1: So you want to at least take a few chips
Speaker 1: off the table, right, and that liquidity we can go
Speaker 1: towards paying off your loans or buying a house or
Speaker 1: buying a second house or what have you. It certainly
Speaker 1: used to be the case that that wasn't possible before.
Speaker 1: Now it's possible even in the private markets. The I
Speaker 1: p O. Isn't this discrete event that it used to
Speaker 1: be quite as much. Uh you know, but before it
Speaker 1: was like, oh, you haven't grab duated yet, boom you've
Speaker 1: you've graduated into the public markets. Now it's a little
Speaker 1: more continuous than that. And I think what we're gonna
Speaker 1: see is, uh, you know, a lot of capital coming
Speaker 1: from individuals who are saying, well, I'm not accredited, I
Speaker 1: couldn't access this investment before. I still believe this valuation
Speaker 1: is going to increase from here. Otherwise we wouldn't have
Speaker 1: seen a lot of sophisticated investors coming too these stocks
Speaker 1: while we were still pro Are you hearing or sending
Speaker 1: hearing or seeing any issues with regards to the valuations
Speaker 1: on some of these private companies Because we've had at
Speaker 1: least some of the bigger investors that have been required
Speaker 1: to disclose their stakes and some of these private companies,
Speaker 1: we have some some of those valuations ratcheted down a
Speaker 1: little bit. What are you saying, you know, you see
Speaker 1: mutual funds. You know that after report at least quarterly,
Speaker 1: if non monthly, basically mark their book to market. What
Speaker 1: we see is they their accuracy uh leaves a little
Speaker 1: bit to be desired in terms of valuing these private companies.
Speaker 1: I mean, they're the ones that mark down Dropbox right
Speaker 1: before Drawbucks announced it was going to go public. Uh.
Speaker 1: And so there's just not a very strong know they're
Speaker 1: just not a very strong predictor. It is, of course,
Speaker 1: still a signal. And what we're seeing on the private
Speaker 1: side as far as equities on goes is as we
Speaker 1: see the order books effectively and legally it's a different
Speaker 1: structure of course, but effectively, as we see the supply
Speaker 1: and the demand on the private side start to build up,
Speaker 1: we can start to see that, you know, where the
Speaker 1: pricing is going to shake out. This happened quite a
Speaker 1: bit before Spotify went through with its direct listing, uh,
Speaker 1: and we were able to get a pretty decent price
Speaker 1: um level on that. We gotta leave it there. I
Speaker 1: want to thank you very much. A teacher doctor, chief
Speaker 1: executive equity Zen talking all about initial public offerings. This
Speaker 1: is Bloomberg. I'm Pim Fox along with Romaine Bostick, and
Speaker 1: we're broadcasting from the Bloomberg Interactor Broker's studios. You know,
Speaker 1: remain today Saudi Arabia's King Salmon. He named the former
Speaker 1: finance minister, Ibrahim Alasaf as the foreign minister. He becomes
Speaker 1: the kingdom's top diplomat. And here to tell us more
Speaker 1: about changes at the top of the governing pyramid in
Speaker 1: Saudi Arabia is Dr Ellen Wald, President of Transversal Consulting.
Speaker 1: Dr Wald is also a nonresident Senior Fellow at the
Speaker 1: Atlantic Council's Global Energy Center. Dr Wald, thank you very
Speaker 1: much for being with us. What did these changes in
Speaker 1: Saudi Arabian's leadership mean? So it's not unexpected that he
Speaker 1: was that they were going to reshuffle the Saudi cabinet um,
Speaker 1: particularly given what the Saudias have gone through this past year. UM.
Speaker 1: I think it's significant, uh that certain individuals have remained
Speaker 1: um Holida Fali, the oil minister, and um the current
Speaker 1: Finance minister, staying at their post. These are really key
Speaker 1: positions for the Saudias, and it does seem like the
Speaker 1: Saudis are very pleased with how they've been been handling
Speaker 1: them this year um UH Foreign Minister Ada al Jubert,
Speaker 1: who was used to be the ambassador to the United States,
Speaker 1: has been reappointed UM. I would I would say that
Speaker 1: this is an interesting move because he was you know, young,
Speaker 1: very well educated. Um it really able I think to
Speaker 1: connect with UM with foreigners, and he is being replaced
Speaker 1: with someone who's older, maybe more experienced, but someone who
Speaker 1: was detained in the writs for for quite some time.
Speaker 1: So it's an interesting move. I would say that perhaps
Speaker 1: they were not particularly satisfied with the way that at
Speaker 1: al Jubert handled UH the issues surrounding the Kashogi affair,
Speaker 1: although I'm not really sure he could have handled them
Speaker 1: any better than than he did, so it'll be interesting
Speaker 1: to see how this how this falls out. It also
Speaker 1: seems that they're kind of trying to separate UH and
Speaker 1: and make sure that it seems at least from the
Speaker 1: outside that King Salmon is playing a greater role, whether
Speaker 1: he really is playing a greater role, but I do
Speaker 1: think that this definitely shows the outside world that King
Speaker 1: Salmon is definitely UM taking a more prominent role in
Speaker 1: the government. Well, well, that's that was the thing that
Speaker 1: struck out struck me the most about that the motion
Speaker 1: I guess of al Gibert. Is this really a sign
Speaker 1: that maybe MBS is being reined in a little bit
Speaker 1: considering what happened with the show Gi affair. You know, frankly,
Speaker 1: I've always thought that King Salmon was really always you know,
Speaker 1: kind of behind behind the scenes, and that he shouldn't
Speaker 1: have been underestimated. But um, it does seem like this
Speaker 1: is perhaps the reaction. Perhaps they want someone who, um
Speaker 1: has maybe a longer presence, someone who's h He's been
Speaker 1: described as kind of very calm and kind of stay present,
Speaker 1: and perhaps that's what they're going for. It's definitely a
Speaker 1: change because the Saudi's traditionally kept their foreign ministers in
Speaker 1: their posts for very long time, as supposed to having
Speaker 1: these rapid change is. But we're really we're gonna have
Speaker 1: to see how this goes. Some people have said that
Speaker 1: it reflects kind of a desire to in a sense,
Speaker 1: rehabilitate the individuals who were detained in the risks. I'm
Speaker 1: not necessarily sure that that's what's really going on here.
Speaker 1: Dr Wall, can you explain the US's involvement in Saudi
Speaker 1: Arabia's war in Yemen? And how this could affect the
Speaker 1: U S. Saudi relations. Well. The War Yemen is very
Speaker 1: problematic from the US point of view because, uh, first
Speaker 1: of all, it hasn't achieved the objectives that it was
Speaker 1: supposed to achieve. The entire idea was to eliminate the
Speaker 1: Iranian backed militia type presence in Yemen. And it's well
Speaker 1: known that the Iranians are supplying the the forces in
Speaker 1: Yemen with weapons. And it just seems that this war
Speaker 1: in a sense, has been going on and on and on.
Speaker 1: I think the US perspective was they want combat Iranian
Speaker 1: expansion in this way, but they want to win actually,
Speaker 1: and the Tinies haven't necessarily been winning at this and
Speaker 1: so I think the US perspective at this point is
Speaker 1: this war needs to be wound down, even if it
Speaker 1: is not h a case of every every objective has
Speaker 1: been achieved or the um whopies have been defeated. A
Speaker 1: negotiated settlement for this point at the US would probably
Speaker 1: be preferable, given the fact that public opinion has really
Speaker 1: turned against the US involvement in this essentially humanitarian catastrophe.
Speaker 1: When you look at the landscape of the Middle East,
Speaker 1: the political landscape, the military landscape, the pullback of the
Speaker 1: US from from a lot of areas in that region,
Speaker 1: the decline and influence of Saudi Arabian OPEQ in the
Speaker 1: oil markets. Who has the most influence in terms of
Speaker 1: country leaders, Who has the most influence over that region
Speaker 1: as a whole right now? Well, right now, I think Iran.
Speaker 1: Iran is definitely playing a major role here. They in
Speaker 1: a sense, they're calling the shots, and a lot of
Speaker 1: other powers are essentially reacting to what Iran does. So
Speaker 1: there's always this threat Iran seems to like to make
Speaker 1: that oh maybe it will send its military and close
Speaker 1: the straits before moons to shipping, and that's that's really
Speaker 1: not a threat that Iran can seriously follow through on,
Speaker 1: But just the fact that it likes to make this
Speaker 1: threat and kind of send everyone into this great hubbub
Speaker 1: of oh my goodness, what are we going to do? Uh?
Speaker 1: You know, Militarily, the U. S. Navy could certainly combat
Speaker 1: that in a very short amount of time and it
Speaker 1: wouldn't cause any dislocation. But the fact that Iran likes
Speaker 1: to make these threats and everyone kind of reacts to them,
Speaker 1: I think shows that Iran certainly has the upper hand
Speaker 1: when it comes to creating um dessenter or fomenting instability
Speaker 1: in the region. Dr Wad. We've learned that the United
Speaker 1: Arab Emirates, which is a US ally has reopened its
Speaker 1: embassy in Damascus, and in a report, the U a
Speaker 1: E says that the reason that they are normalizing relations
Speaker 1: with Syria is to quote curb the risks of regional
Speaker 1: interference in Arab Syrian affairs, and that is described as
Speaker 1: a reference to Iran's expansionist policies in Syria. Do you
Speaker 1: agree with that? Well, I think that that makes a
Speaker 1: lot of sense from the U a E, UH and
Speaker 1: other Gulf country's perspectives, is they see the US is
Speaker 1: kind of drawing back and that leaves the primary forces
Speaker 1: in UH Syria right now as Russia and Iran. And
Speaker 1: if they don't want Syria to become an Iranian outpost essentially,
Speaker 1: then they've got to get in there and do something.
Speaker 1: And so opening an embassy is is a very small
Speaker 1: step towards that, but it's certainly a step, and I
Speaker 1: do think that in some sense that is actually what
Speaker 1: the US would like to see. They would like to
Speaker 1: see their powers in the Middle East, that they are
Speaker 1: friendly with the U a UH, Saudi Arabia, Egypt, perhaps
Speaker 1: go in there and play a larger role in UM
Speaker 1: in pushing for US goals. So I don't see that
Speaker 1: necessarily as as something that is negative, but rather they
Speaker 1: want to play a greater counterpart to Iranian and perhaps
Speaker 1: even Russian influence in that area. Thanks very much for
Speaker 1: being with us as always. Dr ellen Wald is the
Speaker 1: president of Transversal Consulting, a Bloomberg opinion columnist, and non
Speaker 1: resident Senior Fellow at the Atlantic Council's Global Energy Center.
Speaker 1: You're listening to Bloomberg Markets. I'm Pim Fox. He's Romaine Bostick.
Speaker 1: I'm Pim Fox. He's Romaine Bostick. We are broadcasting from
Speaker 1: the Bloomberg Interact of Broker's Studios and Romaine, how much
Speaker 1: shopping did you do during this season? Oh? Way too much.
Speaker 1: I always go overboard always, yeah, really yeah. You got
Speaker 1: a lot of brown boxes, a lot a lot of
Speaker 1: brown boxes. We packed them up, put them in the
Speaker 1: recycling bend. Now we'll go wherever they go. And you
Speaker 1: even said that sometimes you don't even open the presence
Speaker 1: because you got so much. Well, you know sometimes you lucky.
Speaker 1: Let's find out if that's a trend that people all
Speaker 1: around the United States are experiencing. We've got Craig Johnson.
Speaker 1: He is the president of Customer Growth Partners. They are
Speaker 1: based in New Canyan, Connecticut, but he joins us here
Speaker 1: in studio. Craig, great to see you. I know this
Speaker 1: is your busiest, busiest time of the year. What can
Speaker 1: you tell us about the health of the consumer? First.
Speaker 1: We'll get to the actual retailers in this in a moment.
Speaker 1: But the consumers have more money in their pocket to spend.
Speaker 1: They not only have more money money to spend, they
Speaker 1: are as fiscally sound as have been in years and otherwids.
Speaker 1: They've de leverage since the whole cratering of the recession
Speaker 1: UH brought the debt down. Credit card dead is going
Speaker 1: up a little bit since then, but on a per
Speaker 1: capita basis, that's still way way down UM. And they
Speaker 1: have money to spend. And unlike ten years ago when
Speaker 1: people are going crazy on the credit bubble, you know,
Speaker 1: charging up Christmas presence off of home equity or off
Speaker 1: a plastic which is not a good way to spend
Speaker 1: their work, they're spending out of current income, which is
Speaker 1: the right way to do it. And we've seen those
Speaker 1: current incomes go up or at least be eighted in
Speaker 1: somewhere or another. They're up three point one percent, wages
Speaker 1: are up three point one percent, and um that's the
Speaker 1: strongest growth in a decade. And then but it's not
Speaker 1: simply wages growing up. It's also the fact that versus
Speaker 1: last year, there's two and a half a million more
Speaker 1: full time jobs. So those combinations of the two vectors
Speaker 1: the job growth, that's not unemployment, right, it's the employment
Speaker 1: number of people, millions of employed that's up two and
Speaker 1: a half million hips and full time jobs, and wage
Speaker 1: growth is up. That combines to about a five increase
Speaker 1: in real disposable person income overall household and come and
Speaker 1: that in turns what drives what i was our initial
Speaker 1: forecast to five point one percent growth, which we said,
Speaker 1: this is a good season, maybe ben very good. And
Speaker 1: now what's happening. It's going from good to great good
Speaker 1: too great for for whom? Is it for big box retailers? Well,
Speaker 1: first of all, it's good for the consumer, this is
Speaker 1: this is positive, but but for retailers it's very very
Speaker 1: positive and the winners are not always just the usual
Speaker 1: suspect because a rising tide lists all but you know,
Speaker 1: most but not all boats. And so the big box
Speaker 1: guys are doing fine. And this is whether it's the
Speaker 1: big box discounters, UM, Walmart, Costco, Target, They're doing fine,
Speaker 1: the big box off pricers, t J's, Burlington Ross all
Speaker 1: having strong seasons, UM and some other sectors doing well too. Well.
Speaker 1: What about the luxury UH retailers and the luxury brands,
Speaker 1: because well, you know, I'm a man of refined tastes.
Speaker 1: What can I say? And not? But we saw that,
Speaker 1: you know, some of these companies kind of ran into
Speaker 1: a little bit of trouble in their most recent earnings report. UH.
Speaker 1: Seemed they had like they had more to do of
Speaker 1: a global issue rather than a US domestic consumer issue. Well,
Speaker 1: how's that holding up? Well, you mentioned global, and that
Speaker 1: is part of the issue. Wanted. Luxury has been you know,
Speaker 1: really pretty good this year, and it'll grow mid single digits,
Speaker 1: but we don't see double digit growth occurring there. Some
Speaker 1: individual categories are great, in other words, UM like luxury outerwear,
Speaker 1: I think Canada, Goose, think Montclair very very fine. Uh,
Speaker 1: Tiffany's will do okay, we believe you know, they've been
Speaker 1: doing a little bit better. But in general, there's a
Speaker 1: little bit of softness, just a touch of softness in luxury,
Speaker 1: heavily due to the foreign tourism issue, meaning mostly that
Speaker 1: it's a Chinese folks tourism and tourism spinning is a
Speaker 1: little on the soft side versus past years. You sounded
Speaker 1: very upbeat here at a time when the stock market
Speaker 1: is showing a different story. And indeed, right now we're
Speaker 1: getting word that the euro stocks fifth has dropped more
Speaker 1: than one percent, entering the bear market. When or if
Speaker 1: this continues, does that have an effect on the retail
Speaker 1: market well to a limited extent. But but what we've
Speaker 1: seen is as a major disconnect between Wall Street and
Speaker 1: Main Street. You know, Wall Streets running around the chickens
Speaker 1: with a head cut off that and then you know
Speaker 1: Mr and Mrs main Street is out there spending. They're happy,
Speaker 1: they have jobs, they're employed, and their wages are up,
Speaker 1: and so they tune out a lot of the Washington nonsense,
Speaker 1: the stock market gyrations, and they're just focusing on what
Speaker 1: they have in their pocket. And even that's been helped
Speaker 1: because of the plunging gasolene prices down six or two
Speaker 1: cents a gallon and barely two months. It's unbelievable. And
Speaker 1: let's put extra money in people's pocket. What do you
Speaker 1: see as the outlook now? Uh? And on the short
Speaker 1: term basis for the retail environment, now that we're sort
Speaker 1: of past the frenzy of buying for Christmas and the
Speaker 1: other holidays, you what happens when we get to January? Well,
Speaker 1: we see, you know, when you know, we've done this
Speaker 1: for twenty years, and so we see what's driving the growth? Uh?
Speaker 1: And is are the drivers of it? The fundamentals are
Speaker 1: they safe and sound? And again, when you go back
Speaker 1: to the last time we had, you know, two consecutive
Speaker 1: years of five percent growth, which is two thousand, five
Speaker 1: and six. So much of that growth was you know,
Speaker 1: out of you know, by by leveraging yourself up off
Speaker 1: of home equity. Now people are spending out of current income.
Speaker 1: And as long as people still have jobs, and this
Speaker 1: job growth is still continuing, and as long as wages
Speaker 1: keep rising, they may not always rise three point one percent,
Speaker 1: but you know, somewhere positive, those are the key drivers
Speaker 1: that create the household cash flow that people spend out
Speaker 1: but on spending wisely, that's sounds spending. Craig Johnson. Athletisure.
Speaker 1: This is an acronym that I were, a compound word
Speaker 1: that I guess I'll have to learn how to use
Speaker 1: and more refined context. What is ath leisure and isn't
Speaker 1: doing well? Uh? Yes? And what it is it's doing well.
Speaker 1: But another word for it is performance where and so
Speaker 1: it's basically athletic oriented apparel. And the classic companies to
Speaker 1: think of are like UM, Lululemon, the athletic brand of Gap,
Speaker 1: which is Gaps, smallest of their four big brands but
Speaker 1: the fastest growing UM. But also think outer where, Goose Canada,
Speaker 1: Goose and Montclair. Uh that those are all the types
Speaker 1: of companies that comprise it. But youu a cells at
Speaker 1: under Armor, cells at Nike, cells obviously Athletisure, Adidas, UM
Speaker 1: and it's a very hotgoing category. Apparel in general is
Speaker 1: having its best year in seven years. Um it's gonna
Speaker 1: be up about at least about six and you know,
Speaker 1: the final returns aren't in yet. This we're now in
Speaker 1: retail second season the week between Christmas and New Year's
Speaker 1: and this could be a very important week of the year. Um,
Speaker 1: but athletes, you're in general is in particularly doing good,
Speaker 1: and apparel in general is doing good. But people aren't
Speaker 1: wearing this apparel for performance reasons. I mean, part of
Speaker 1: the whole appeal is that it's so you don't have
Speaker 1: to go to the gym. You put it on and
Speaker 1: you lose the weight and you get fit without you say,
Speaker 1: we're in the second season now, and I actually bought
Speaker 1: something the other day. I bought some towels they were off,
Speaker 1: and I'm very proud of myself. But so do we
Speaker 1: see this surge of spending uh in this second period?
Speaker 1: Is that going to be run mainly by discounts or
Speaker 1: just again, is this just a consumer Uh? Well, the
Speaker 1: nature of the Christmas to New Year's week to sit
Speaker 1: what we call it second seeds. The second season of
Speaker 1: retail has changed over the years. He used to be
Speaker 1: a place time for returns, exchanges and clearance sounds. Now
Speaker 1: a lot of smart merchants are actually putting on the
Speaker 1: floor new fresh merchandise. Nobody wants to go into the
Speaker 1: store and get a bunch of picked over stuff that's
Speaker 1: left over that they saw that three weeks ago. Much appreciated,
Speaker 1: thanks very much and thanks for your insight as always.
Speaker 1: Craig Johnson, President, Customer Growth Partners. They're based in New Canaan, Connecticut.
Speaker 1: Thanks for listening. I'm Pim Fox. He's Romaine Bostic, and
Speaker 1: this is Bloomberg. Thanks for listening to the Bloomberg P
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Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm
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