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Speaker 2: All right, everybody, you're listening and watching Bloomberg Business Week
Speaker 2: Carol Masser along with Matt Miller, Tim you know on leave.
Speaker 2: We're live in our Bloomberg Interactor Broker studio on YouTube
Speaker 2: on Bloomberg Originals. Now, Matt was kind of hot and
Speaker 2: heavy about doing the Apple debt offering.
Speaker 3: I mean, to me, it's huge because this company A
Speaker 3: already has one hundred and seventy billion dollars in cash.
Speaker 2: What does it need money for?
Speaker 4: Right?
Speaker 3: They don't seem to need money. Although if I if
Speaker 3: I type in DDIS on the terminal, I can see
Speaker 3: that they have forty four billion dollars in debt coming
Speaker 3: due over the next four years.
Speaker 2: So it's all about maybe just managing that debt right.
Speaker 2: The next round, let's see what Robert Schiffman has to say.
Speaker 2: He's senior credit analyst at Bloomberg Intelligence. He's here in
Speaker 2: our interact a broker studio. That's right. I mean we've
Speaker 2: all been reading your work that says they've got a
Speaker 2: fortress balance sheet, right, So why do they have to
Speaker 2: do this? Or is this just business as usual for Apple?
Speaker 5: Yeah, I sort of don't want to burst everybody's bubble,
Speaker 5: but this is a little bit of ho home. You know,
Speaker 5: Apple raising five and a quarter billion, it's almost a
Speaker 5: rounding error. And you know, if you look, you talked
Speaker 5: about how much debt Apple for Apple for of course, yes,
Speaker 5: now I live in a different world of megacap you know,
Speaker 5: in a lot over the last three years, Apple's raised
Speaker 5: forty billion dollars a debt. This is sort of just
Speaker 5: regular course of business for them, Like I, like I
Speaker 5: said to you earlier, Matt, Like, I'm just I'm wondering
Speaker 5: why they're just not raising a little bit more. You know.
Speaker 5: Maybe it's a play on rates. Maybe they think that
Speaker 5: three minutes from now, three months from now, three years
Speaker 5: from now, rates are going to be a little bit
Speaker 5: lower and the cost of capital be a little bit lower.
Speaker 2: That's what I'm wondering, right, why not wait even a
Speaker 2: little bit more, or just they have to do this?
Speaker 5: It's honestly it's it's reasonably it's it's five tranches, but
Speaker 5: it's reasonably short duration. You know, the first four tranches
Speaker 5: are three, five, sevens, and tens. So it's really not
Speaker 5: so much I think a play on rates. You know, Apple,
Speaker 5: if you think about it over time, with one hundred
Speaker 5: and ten odd billion dollars a debt, they're going to
Speaker 5: constantly need to refinance unless they want to take their
Speaker 5: debt levels down. And they've had one hundred and ten
Speaker 5: odd billion dollars a debt for the last decade, So
Speaker 5: what they're really well, we still have one notch to
Speaker 5: go at SMP doub plus, but Moodies did raise them
Speaker 5: to triple A in December of twenty twenty one. So listen,
Speaker 5: we've always talked about the mount rushmore credit. They're on it.
Speaker 5: Yeah there with Microsoft.
Speaker 3: Well, this is why I wanted to do this story.
Speaker 3: This is why I'm so hot and heavy on it,
Speaker 3: because Apple is putting another product out into the market
Speaker 3: that everybody has to have, right, everybody wants these bonds.
Speaker 3: If you can get five percent on thirty year debt
Speaker 3: in a completely risk free company, which this is as
Speaker 3: close as damn it to a completely risk free company.
Speaker 3: You want that, which is why they got oversubscribed. That's
Speaker 3: why they did five and a quarter instead of five
Speaker 3: and that's why they're got a spread of one hundred
Speaker 3: eight rather than one hundred and thirty five.
Speaker 2: Right, Yeah, listen, Apple.
Speaker 5: When you comp them versus their peers, they look pretty cheap.
Speaker 2: Yeah. I mean they trade.
Speaker 5: Wide to both Alphabet and Microsoft. The reason is not
Speaker 5: so much about credit quality, like you're really like mincing words.
Speaker 5: If you're thinking about what's the difference between a double
Speaker 5: A and a triple A. The real difference is technicals.
Speaker 5: Apple's got a lot more bonds out there than their peers,
Speaker 5: so people have a little bit of larger holding. It
Speaker 5: costs a little bit more to put another five or
Speaker 5: ten billion in people's pocket. But listen, if Apple wanted
Speaker 5: to raise fifty billion dollars today, the market would be
Speaker 5: there for them. It's just a matter of what that
Speaker 5: cost is.
Speaker 2: How much of this too is though having enough on
Speaker 2: the balance you. I mean, they've got we said a
Speaker 2: lot on the balance you. But they like to do buybacks,
Speaker 2: they like to do dividends, and if it's a questionable
Speaker 2: economic environment, potentially if anything slows down.
Speaker 3: They wish they did dividends.
Speaker 2: They could still do this and make shareholders happy.
Speaker 5: Yeah, listen, they pay a already fair dividend. The dividend
Speaker 5: yield is low, but on an absolute basis, you know,
Speaker 5: it's fifteen odd billion dollars, it's not like it's nothing.
Speaker 5: I will tell you though, I'm a was a bit surprised.
Speaker 5: It's pretty much every year during their their fiscal two
Speaker 5: Q is when they reauthorize a bigger buyback.
Speaker 2: So surprise they did it already.
Speaker 5: No, it's surprised that it wasn't bigger. It was ninety billion,
Speaker 5: which was similar to last year. I think if they
Speaker 5: really want to make hay on this cash neutral target,
Speaker 5: you know, they've got fifty seven billion dollars to get through,
Speaker 5: you know, why not announce one hundred and twenty five
Speaker 5: billion dollar authorization. Listen. I don't know if it's a
Speaker 5: call on their stock. I don't know if they need
Speaker 5: money for they don't need They don't need money. That's
Speaker 5: you know, they have one hundred billion dollars of annual
Speaker 5: free cashrob I just think it's managing a long term
Speaker 5: balance sheet. It looks like what they really want to
Speaker 5: shake out with is having enough cash on this balance
Speaker 5: sheet over time that they can do whatever they want.
Speaker 5: Right now, they can't do whatever they want. For instance,
Speaker 5: Microsoft is trying to buy Activision sixty nine billion cash.
Speaker 2: Uh.
Speaker 5: Pretty much governments around the world said no, you can't
Speaker 5: do it. At some point, maybe there's a different administration,
Speaker 5: maybe the M and A environment is different, and Apple
Speaker 5: can go out there and I don't know bya Netflix.
Speaker 5: I mean, it seems crazy nowadays. Well, Peloton though, doesn't
Speaker 5: move the needle. I actually I have my Peloton and
Speaker 5: I spend somewhat regularly. It's not moving my weight needle.
Speaker 5: It's just not big enough for for like these large
Speaker 5: cat names to do a transaction that actually makes a difference.
Speaker 5: It's got to be signed.
Speaker 2: I'm just thinking the whole health and wellness thing that
Speaker 2: they are looking. They see that as a.
Speaker 5: Growth that you know, that's actually a great point that
Speaker 5: you're making.
Speaker 2: You know.
Speaker 5: One of the ways that Apples can get to a
Speaker 5: triple A is they need to diversify their revenue stream,
Speaker 5: and they're doing that. Services have their best quarter ever.
Speaker 5: But this is still a hardware company, so they need
Speaker 5: to continue to figure out new, different, better ways to
Speaker 5: make all of their products sticky, and that means that
Speaker 5: they're they're gonna have to find things that they're not
Speaker 5: used to doing. You can build.
Speaker 3: It, it's hard to get as sticky as the iPhone.
Speaker 1: I mean.
Speaker 3: Warren Buffett was pointing out he thinks people in America
Speaker 3: would rather have an iPhone than a second car. Yeah,
Speaker 3: And he said, if somebody comes to repoe your second
Speaker 3: car and it comes to giving up your iPhone, you say,
Speaker 3: take the car.
Speaker 5: Yeah, I listen. I don't think that he's wrong.
Speaker 3: One thing I don't get is why the dividend yield
Speaker 3: is so painfully low. I mean half a percent. I
Speaker 3: get that they spend a lot of money in dividends,
Speaker 3: but if I buy the shares, I would like a
Speaker 3: bigger dividend yield. It's something I can count on and
Speaker 3: something I can plan on, rather than hoping that they continue,
Speaker 3: you know, one hundred billion dollars of share buybacks every year.
Speaker 5: Yeah, Well, as a shareholder, you'd also hope that they
Speaker 5: bought back a trillion dollars worth of stock each year.
Speaker 5: You know, they're doing what's in the long run best
Speaker 5: financial case for the business. Quite frankly, the dividend also
Speaker 5: is a little bit ho hum, like, why does anyone
Speaker 5: have a one percent dividend yield? It's to check a
Speaker 5: box that you're in a variety of dividend funds, so
Speaker 5: people so so the name fits into various ETFs and industries.
Speaker 5: I don't think that's going to go up that much.
Speaker 5: You want to keep your flexibility really high. I think
Speaker 5: there's a benefit to be able to say next year,
Speaker 5: if we want to buy back one hundred and fifty
Speaker 5: billion of stock, we can do it. If you triple
Speaker 5: that dividend, it limits your flexibility over time?
Speaker 2: Am I an idiot? Always thinking that when you're doing
Speaker 2: buybacks it's just financial engineering? Right, You're reducing the amount
Speaker 2: of improve your EPs number? Like is it just? I
Speaker 2: know investors like it, I get it, But isn't it
Speaker 2: a form of financial engineering?
Speaker 6: Well?
Speaker 5: I wish I wish Tom was here because he would
Speaker 5: break out modic Leani and Miller. And that theory is
Speaker 5: that you know, it doesn't It doesn't make any difference.
Speaker 5: I will tell you though, because it doesn't. Weighted average
Speaker 5: cost of capital I think does matter. Apple's weighted average
Speaker 5: cost of capital it's reasonably high. It's because it's got
Speaker 5: such a large equity component, their debt component is effectively zero,
Speaker 5: and that to me argues they're supposed to be borrowing
Speaker 5: a lot more to buy back stock, which has a
Speaker 5: wait a cost of capital that's closer to ten percent.
Speaker 3: Are we seeing, though, a drop in the kind of
Speaker 3: demand that Apple would have previously seen? I mean, are
Speaker 3: investors out there more risk averse showing more patients when
Speaker 3: you look at the at the book building for this offering,
Speaker 3: wasn't it a little bit weaker than you may have expected?
Speaker 5: Now? I don't think it's being risk averse. I think
Speaker 5: it's part of being one of the largest non financial
Speaker 5: debt issuers in the market. At some point, it doesn't
Speaker 5: make a bit a difference how big you are. On
Speaker 5: the byside, you can only have so much exposure to
Speaker 5: individual names. And you know, this is Apple's probably most
Speaker 5: largest individual non financial exposure out there. So it just
Speaker 5: gets harder and harder to squeeze in that last dollar.
Speaker 5: But again, if they wanted to raise another ten or
Speaker 5: fifteen billion, they could do it. You just might have
Speaker 5: cost them another twenty five beeps across the curve.
Speaker 2: Hey, Robert, just broadening out right, We're obviously focusing on Apple,
Speaker 2: but there's a lot going on right the corporate issuance world.
Speaker 2: What are you keeping on your radar this and what
Speaker 2: does it tell you about kind of the economic outlook?
Speaker 5: Well, listen, I think corporate outlook. You know we've been
Speaker 5: saying this for the last couple of years, is I
Speaker 5: think that tech needs to be considered the corporate safe haven,
Speaker 5: and in fact, tech credit needs to be considered the
Speaker 5: market safe haven. We're seeing right now that banks certainly
Speaker 5: don't fit that. If you have a super highly rated
Speaker 5: financial institution with hundreds of billions of dollars of deposits
Speaker 5: that can go to zero, that's not a safe haven.
Speaker 5: We've also seen that with treasuries. The volatility that we're
Speaker 5: seeing your conversation about what the Fed has been doing
Speaker 5: and potentially, you know, breaking a debt limit is sort
Speaker 5: of mind boggling. So we've always talked about, you know,
Speaker 5: large tech companies that have massive cash positions that generate
Speaker 5: tens of billions dollars of cash a year, that have
Speaker 5: enormous competitive barriers to entry. Those are the safe havens.
Speaker 5: People tend to talk about tech is being violatile because
Speaker 5: stocks are violatile but tech bonds are not nearly as violatile.
Speaker 5: They trade tighter than just about every other sector for
Speaker 5: a good reason. It's because credit risk is really low.
Speaker 5: So what's happening is we're seeing more companies borrow to
Speaker 5: buy back shares. We just saw that with Meta.
Speaker 2: I was just gonna say Meta last week, right, just quickly,
Speaker 2: just got about twenty seconds.
Speaker 5: Yes, I think we're going to see more of this.
Speaker 5: And if Microsoft's deal with Activision ends up disappearing, I
Speaker 5: wouldn't be shocked to see seventy billion dollars of buybacks
Speaker 5: right off the bat. So you're going to see more
Speaker 5: of this. People. Tech credits are going to get on
Speaker 5: the back of their balance sheets, and they're gonna benefit shareholders.
Speaker 2: I love what you said about looking at the tech
Speaker 2: debt side of things. Robert Chiffin, Senior credit analyst at
Speaker 2: Bloomberg Intelligence, Making us smarter. On this Monday, you are
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Speaker 2: All right, let's get to it, because we just got
Speaker 2: the FED update on the financial stability of our system,
Speaker 2: specifically warning that banks concerns about slower growth could lead
Speaker 2: them to make fewer loans, accelerating an economic downturn. That's
Speaker 2: our headline on our story about Craig tour. So let's
Speaker 2: get to it with our team, Bloomberg Intelligence. Senior analyst
Speaker 2: for US regional banks, Herman Chan back with us in
Speaker 2: our interactive broker's studio on the phone in New York City,
Speaker 2: Chris Whale, and institutional risk analyst at Will and Global Advisors,
Speaker 2: someone who follows the financial sector, was with us during
Speaker 2: the crisis. Herman, I'm going to start with you.
Speaker 3: In a Great financial crisis during the.
Speaker 2: GFC exactly lean down him in a big way. Herman,
Speaker 2: Let's start with you. Among those two reports, the Senior
Speaker 2: Loan Officers as well as the Fed's report, what's important?
Speaker 2: What's a takeaway for you?
Speaker 5: Sure?
Speaker 7: So the Senior Loan Officer survey was interesting because it
Speaker 7: showed that commercial loan demand basically has cratered to the
Speaker 7: levels of the Great Financial Crisis, as you mentioned, So
Speaker 7: that's something that we weren't quite We were expecting a
Speaker 7: pullback in demand, but not quite to the same level
Speaker 7: as the survey indicated. And it also showed that credit
Speaker 7: is tightening across the board, across all loan types, so commercial, commercial,
Speaker 7: real estate, consumer. The banks are increasing spreads, being more
Speaker 7: cautious in terms of what loans they're putting on their
Speaker 7: balance sheet. And it just confirms the report, just confirms
Speaker 7: what we expected heading into the report.
Speaker 3: Chris Well, let me ask you, is this what the
Speaker 3: FED wants anyway? I mean, don't they want tighter financial conditions?
Speaker 3: You know, if they hadn't wanted banks to fail, wouldn't
Speaker 3: they have done something more serious about it ahead of time?
Speaker 3: Or is this all part of the plan.
Speaker 4: Well, I don't think the plan incorporates markets or banks
Speaker 4: in terms of the inputs. They're really focused on GDP
Speaker 4: modeling at the FED mat and I've confirmed with so
Speaker 4: of my former colleagues I worked at the FED in
Speaker 4: New York. They don't talk to the bank supervisory people
Speaker 4: at all.
Speaker 3: So one side is like firewalled off from the other.
Speaker 3: Monetary policy and financial stability.
Speaker 4: Yeah, and it's it's kind of concerning as far as
Speaker 4: I can see. But you know, I think the answer
Speaker 4: is no. They didn't model us at all, and they
Speaker 4: really didn't know what the equivalent of open market intervention
Speaker 4: is in interest rate terms, you know what I'm saying.
Speaker 4: So they had to guess and they went big thinking
Speaker 4: that was helpful, and in fact it's not helpful, as
Speaker 4: we can see. So, you know, there's this huge debate
Speaker 4: in the economics community right now about abundant reserves versus
Speaker 4: a more austere approach, and I think the austere approach
Speaker 4: is the right one, but we just have to fight
Speaker 4: our way through this.
Speaker 3: Matt, Yeah, well it looks like it looks like.
Speaker 4: Price in their balance sheets as fast as they can,
Speaker 4: but there's nothing they can do about assets.
Speaker 3: Well, you know, this brings up an interesting point that
Speaker 3: Tom Keane was talking about this morning, and that is
Speaker 3: scale and the lack thereof. Right, these banks are shrinking,
Speaker 3: and typically that's not great for investors in any company,
Speaker 3: in any industry. Right, is that just the reality of
Speaker 3: what's happening here on the KRI Do we have to
Speaker 3: look for all these regional banks to shrink, Well, you have.
Speaker 4: To look for the system to shrink, because as the
Speaker 4: FED shrink sits balance sheet. Every time a Treasury bond
Speaker 4: is redeemed on the books of the FED, a deposit
Speaker 4: disappears because the Treasury is in deficit, so they have
Speaker 4: to refinance that bond immediately your customer buys the bond,
Speaker 4: a deposit disappears, right. So the mechanics of this are
Speaker 4: very Darwinian, very you know, binary one to one. And
Speaker 4: at the same time, you see, the banks are very competitive.
Speaker 4: You've been the big guys that are out there for
Speaker 4: four and a half five percent now for one year,
Speaker 4: and it tells you they have to compete for money
Speaker 4: with the little guys. You know, it's the banks versus
Speaker 4: the treasury, and the Treasury is at what five point
Speaker 4: twenty this morning on one month, So you know that's
Speaker 4: the problem. People come to me, said Chris, if the
Speaker 4: FED doesn't do anymore, is it okay? And the answer
Speaker 4: is no, They've already done too much. You know, they
Speaker 4: could have maybe gotten FED funds a three and a
Speaker 4: half or four without breaking the China. But I think
Speaker 4: we're gonna break some china. I really do, Chris.
Speaker 3: You here, sorry, Herman Herman Chana Bloomberg Intelligence Regional Banks analysts.
Speaker 3: Are you hearing the same thing from the banks themselves?
Speaker 3: Are they at all pointing the finger at the FED?
Speaker 7: Well, they're not going to point the finger at the FED, because,
Speaker 7: as we talked about earlier here, the FED is also
Speaker 7: the regulator.
Speaker 3: So you're, yeah, but they don't do anything. They could
Speaker 3: be my regulator. I never heard from them.
Speaker 7: You know, right, Really, the FED creates the rules of
Speaker 7: the game, and the bank management team have to abide
Speaker 7: by those rules. So you have bie by credit rules,
Speaker 7: you buyed by interest rate rules, and if you don't,
Speaker 7: then you have a chance to break your bank. And
Speaker 7: that's really what's happened over the past couple of months.
Speaker 4: It's just a velocity of change. The time is so
Speaker 4: inadequate for these banks to actually adjust, you know what
Speaker 4: I mean, They roll off it maybe twenty percent a
Speaker 4: year if you think of it that way, so they
Speaker 4: can reply price twenty percent assets a year. Now. The
Speaker 4: deposits are headed for five right now this quarter, So
Speaker 4: that's going to be a remarkable shock I think for
Speaker 4: earnings and for net interest income for the whole industry.
Speaker 4: You know, if you look at our blog, we model
Speaker 4: it down thirty billion dollars and they'll still make money,
Speaker 4: don't get me wrong, but the you know, the search
Speaker 4: and cost for funding is going to be remarkable, I think.
Speaker 2: So, Chris, what's what's the regional bank industry look like
Speaker 2: on the other side of this? Well, well, but because
Speaker 2: it's interesting, you know, coming off in Milk and I
Speaker 2: was talking about this with Matt earlier, is that I'm
Speaker 2: just blown away by the role of the private market
Speaker 2: in so much, especially when it comes to smaller companies,
Speaker 2: mid sized companies. So I just wonder the big guys
Speaker 2: have been like pulling back for a long time. Regional
Speaker 2: banks maybe not so much to what happens to our
Speaker 2: financial system. More broadly, if we don't have those regional
Speaker 2: banks out there, well.
Speaker 4: You'll have more non bank involvement facing consumers because big
Speaker 4: banks don't want to face consumers. You know, think of
Speaker 4: the credit scale for FICO scores. Most big banks don't
Speaker 4: want to talk to anybody in the bottom half. It's
Speaker 4: just too much risk and too little reward. So particularly
Speaker 4: things like mortgages, Nah, they don't care. And that means
Speaker 4: that you know, the community banks, who were the ones
Speaker 4: who actually provide credit to communities right at the micro level,
Speaker 4: and particularly vulnerable communities that are not well served FAHA
Speaker 4: lending for example, that will go even more to non banks.
Speaker 4: And the irony, of course, is that the federal government,
Speaker 4: the home loan banks for example, don't deal with non banks,
Speaker 4: so three quarters of the industry is not supported.
Speaker 3: Right, This tighter credit is precisely what the Fed wants
Speaker 3: to do to slow downslation.
Speaker 4: They're going to get it because to your earlier points,
Speaker 4: they are stepping back. And it's not this loan office
Speaker 4: for survey, right, it's the treasurer walking into your office.
Speaker 4: You're the cfon. He says, I want to double cash
Speaker 4: by the end of the quarter.
Speaker 3: Well that makes sense.
Speaker 2: Look at everybody tapping the debt markets, right, yeah, but.
Speaker 4: The easiest way to raise cash is stop lending. Redemptions
Speaker 4: come in, you just don't redeploy them.
Speaker 3: I mean, for me, the ramifications seem like they could
Speaker 3: be amazing. Everyone's tightening credit as the price of money
Speaker 3: goes higher. Meanwhile, on the good side, we've been making
Speaker 3: trying to make as much stuff as we can. We're
Speaker 3: gonna end up with big fat inventories at the end
Speaker 3: of the year. I hope, in the form of much
Speaker 3: cheaper V eight engines from here because I've talked I
Speaker 3: talked to dealerships lately and they're like, they say the
Speaker 3: same thing that you do, Chris, about people with on
Speaker 3: the lower end of the ficos. They don't even want
Speaker 3: to hear about it. And right, they used to ask
Speaker 3: do you have a job? Now they want to know
Speaker 3: what job it is, and how much you get paid
Speaker 3: and how long you've worked there. They really care, well, they.
Speaker 4: Care, and also they know if they don't have more
Speaker 4: stringent standards, can't sell alone. Right, These loans are mostly
Speaker 4: originated for sale to investors, so you know, and a
Speaker 4: bank is even worse. The bank doesn't want to see
Speaker 4: a loan. It's not the middle of the fairway. So
Speaker 4: that's you know what I mean. The banks are even
Speaker 4: more picky than the cash investor.
Speaker 2: Which just means those who have been squeezed out of
Speaker 2: the financial system, locked out of the financial system, it's
Speaker 2: just even worse for them.
Speaker 7: Ultimately, you've seen some of the you've seen some of
Speaker 7: the growth.
Speaker 4: The FED approves mergers usually for wounded banks. You'll never
Speaker 4: forget Chase was bought by JP Morgan because it was
Speaker 4: gooded by Penn.
Speaker 2: Square right, say five seconds for you, Herman.
Speaker 7: I was just saying, you've seen some of the growth
Speaker 7: in some of the non banks, the AI type banks,
Speaker 7: like so far and you got it, Herman, Chris, thank you.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 2: Carol Master along with Matt Miller. Are you a chocolate
Speaker 2: or strawberry frosty kind of guy?
Speaker 3: Uh?
Speaker 6: Chocolate.
Speaker 3: This is an odd question because when I was a kid,
Speaker 3: there was only one kind of frosty, right, what there was,
Speaker 3: I didn't know if it was any specific flavor. It
Speaker 3: was just a frosty. So now when I go to
Speaker 3: Wendy's and I asked for a frosty, they asked me
Speaker 3: what flavor. I'm like, come on, there's only one flavor.
Speaker 3: But apparently you can get multiple flavors.
Speaker 2: Could get the flavor you don't want, all right, we are,
Speaker 2: of course talking about Wendy's. They do report earnings on
Speaker 2: Wednesday before the open. Something they've been doing and really
Speaker 2: other companies generally have been incorporating for years into their
Speaker 2: strategy and how they make financial decisions is ESG. We're
Speaker 2: talking about environmental, social, and governance issues, which we know
Speaker 2: is going through its own little reckoning. Weighing in though
Speaker 2: on that. First this afternoon is Liliana Esposito, chief Corporate
Speaker 2: Affairs and Sustainability Officer over at Wendy's, joining us on
Speaker 2: zoom from Dublin, Ohio. Lilliana, good to have you here
Speaker 2: with Matt and myself. We do want to talk about ESG.
Speaker 2: You've worked though, in the food industry for a long time,
Speaker 2: You've worked at Dean Foods, Mars. What's top of mind
Speaker 2: of you when you think about ESG and what needs
Speaker 2: to be done?
Speaker 6: Yeah?
Speaker 8: Great to be with both of you.
Speaker 9: And I will say, Matt, if you haven't tried to
Speaker 9: strawberry for us and yet they come back to our
Speaker 9: restaurants and you're missing out, So definitely definitely give that one.
Speaker 8: To try and look.
Speaker 9: I think that even the letters ESG are relatively new
Speaker 9: in terms of this area, but obviously companies Wendy's and
Speaker 9: others have been operating responsibly for decades, but I think
Speaker 9: what has changed is really the demands that those efforts
Speaker 9: really be formalized and that they be very goal based.
Speaker 9: And so you know, at Wendy's, we you know, we
Speaker 9: organize our ESG portfolio under the platform of good Done Right,
Speaker 9: and we've got some i think pretty aggressive public facing
Speaker 9: commitments around food, people in footprint and what we're trying
Speaker 9: to accomplish that we would essentially say is doing our
Speaker 9: fair share or more than our fair share too, to
Speaker 9: really demonstrate that we are operating our business in a
Speaker 9: responsible fashion.
Speaker 3: It seems to be a difficult business. I mean, like,
Speaker 3: if you want to do ESG, you don't want to
Speaker 3: be working at an oil producer or a hamburger seller
Speaker 3: because you know, that's one of the leading causes of
Speaker 3: climate change is raising beef. So how can you change that?
Speaker 8: Yeah, it's got to be a partnership.
Speaker 9: And so what you're referring to clearly are around greenhouse
Speaker 9: gas emissions. You know, we have set a science based
Speaker 9: target for greenhouse gas emissions reductions.
Speaker 8: And that will include scope one, two and three.
Speaker 9: So Scope one and two are the about four hundred
Speaker 9: restaurants that the company owns and operates ourselves. And then
Speaker 9: Scope three is our franchise restaurants, which generally look and
Speaker 9: operate like a company restaurant, they're just owned by a
Speaker 9: franchise e. But the biggest part of our footprint is
Speaker 9: of our greenhouse gas emissions foot print is our supply chain,
Speaker 9: and the biggest part of that is is proteins and
Speaker 9: specifically beef.
Speaker 8: And so you know, the encouragement is that, you know,
Speaker 8: many of.
Speaker 9: Our suppliers have already started down this path, even in
Speaker 9: advance of us, of setting their own science based targets.
Speaker 8: But we we know that we'll have to work together.
Speaker 9: It's not going to be just Wendy's changing that landscape,
Speaker 9: but but substantially improving the footprint, the environmental footprint of
Speaker 9: agricultural production, and with a heavy focus on protein is
Speaker 9: is definitely going to be necessary to achieve these targets.
Speaker 2: Leona, what about garbage? And I think about food waste
Speaker 2: in particular, So I mean it's.
Speaker 3: It's oh, food waste or plastic.
Speaker 2: Food waste in particular that ends up in dumps and
Speaker 2: the methane that's produced off of that and other which
Speaker 2: is more problematic.
Speaker 3: Food on your compost? Do you not compost that?
Speaker 2: No, people throw out a lot of stuff and it
Speaker 2: ends up in the dump. That's apparently compost I do
Speaker 2: at home.
Speaker 9: I actually am fortunate to live in a community that
Speaker 9: has curbsided food waste pickup. But that is unusual, and
Speaker 9: that's that's a really key piece is that. I will
Speaker 9: say for Wendy's Restaurants, we actually waste very little. And
Speaker 9: I think that's not unusual for a company of our
Speaker 9: type because it's just a small footprint. And so you know,
Speaker 9: our operators get very good and have gotten very good
Speaker 9: over the years of only ordering what we're going to
Speaker 9: prepare and only preparing what we're going to be able
Speaker 9: to serve.
Speaker 2: And really, guys are that tight, so you're not throwing
Speaker 2: out a lot of stuff.
Speaker 9: And we've actually done some audits on that and have
Speaker 9: found that. But there's always opportunities to, you know, to
Speaker 9: be better. But certainly as you look at the supply chain,
Speaker 9: that's where a lot of that that waste may be occurring,
Speaker 9: particularly in agricultural products.
Speaker 8: And so it absolutely is a it's absolutely a focus
Speaker 8: for us.
Speaker 9: It's interesting and you you know, you mentioned plastics, and
Speaker 9: maybe we'll get to packaging as well. One of the
Speaker 9: things we're doing right now in some of our Chicago
Speaker 9: area restaurants is we've actually got some initially two stream
Speaker 9: trash receptacles, so you know, landfill and recycling, and over
Speaker 9: time we may add composting to it. We did kind
Speaker 9: of a video study essentially of the waste produced by
Speaker 9: the restaurant, then did some education with our team members
Speaker 9: as well as with with customers, showing them what of
Speaker 9: our packaging in particular, and then for our our team
Speaker 9: members what of our backup house packaging could be recycled.
Speaker 9: And then on the back end of the pilot, we'll
Speaker 9: look at that same kind of video technology and see
Speaker 9: whether we were actually able to change behavior.
Speaker 2: Do we need to get rid of plastic?
Speaker 4: Then?
Speaker 3: Well, straws? What do you do about straws?
Speaker 2: Why'd you know? Haven't you gotten rid of straws already?
Speaker 8: Uh? No, we still have We still have straws.
Speaker 9: And I will say, you know, one of the commitments
Speaker 9: that we've made is that by twenty twenty six, one
Speaker 9: hundred percent of our customer facing packaging will be sustainably sourced.
Speaker 9: And so we're defining that as either recyclable, compostable, or reusable.
Speaker 9: And so we just put out our corporate Responsibility Report
Speaker 9: a couple of weeks ago and reported that we're now
Speaker 9: more than halfway towards that goal. A big part of
Speaker 9: that progress over the last year for us was actually
Speaker 9: transitioning our beverage cups from our former kind of paper
Speaker 9: based cups that had limited recyclability into a plastic.
Speaker 8: Format that is recyclable.
Speaker 9: And then we're also incorporating post consumer recycled content into
Speaker 9: those cups. We'll do that over time, and so, you know,
Speaker 9: one piece of the puzzle is the material making sure
Speaker 9: that you have a material that is recyclable or compostable,
Speaker 9: and then but then also making sure that you have
Speaker 9: the infrastructure. And we certainly don't control that, you know,
Speaker 9: at Wendy's, but certainly that's a great need of ensuring
Speaker 9: that there is infrastructure to be able to recycle or
Speaker 9: compost these materials when they're made available. And then the
Speaker 9: third piece is educating the consumer so that they know
Speaker 9: what to do, you know, with with the packages that
Speaker 9: they have.
Speaker 3: I so full disclosure, I'm from Columbus, right, so I
Speaker 3: love Wendy's with all my heart. I mean, I used
Speaker 3: to go and eat a store number one on Broad
Speaker 3: Street with my grandmother growing up, so I have a
Speaker 3: very special connection. But you definitely don't want to be
Speaker 3: giving out straws, do you. Isn't that the worst kind
Speaker 3: of possible CSR sin ESG sin straws.
Speaker 8: I don't. I don't think i'd agree with that.
Speaker 9: And and really, I mean, in the in the grand
Speaker 9: scheme of total package, you know, certainly items like you know,
Speaker 9: cups and wrappers and containers produce more more product challenge
Speaker 9: with straws and and and it's it's not unique to straws,
Speaker 9: but they're small, and so even if the material is
Speaker 9: technically recyclable, uh, you know, most facilities won't won't accept that.
Speaker 9: And so we've got some locations that have alternatives to
Speaker 9: plastic straws, and and certainly are looking at at other.
Speaker 8: Alternatives as well.
Speaker 9: But but a lot of consumers, you know, really prefer to,
Speaker 9: you know, to to have a lid.
Speaker 2: I don't know. I actually I walk around with a
Speaker 2: metal straw. I got my own little like reusable as
Speaker 2: washing them. That's what we do. Liliana, thank you so much.
Speaker 2: Liliana Esposito, chief Corporate Affairs and Sustainability Officer of at
Speaker 2: Wendy's on Zoom from Dublin, Ohio Chocolate Frosty's from Math
Speaker 2: Though this is Bloomberg.
Speaker 1: This is Bloomberg Business. Wait inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news. The Bloomberg Business This
Speaker 1: Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg
Speaker 1: Radio jab Donald Gary.
Speaker 2: You ready to talk about some airliners?
Speaker 3: Yes, Matthew Miller by the day, Steve Miller band I
Speaker 3: had this tape. I had the cassette back in the day.
Speaker 2: Did a break?
Speaker 3: I mean probably eventually. I don't have it anymore because it's.
Speaker 2: All right, We're going to talk about Airbus and Boeing,
Speaker 2: the rivalry. Nothing new, uh, and yet Arabus looking to
Speaker 2: tweak an existing plane laying out of course to really
Speaker 2: go after Boeing seven thirty seven. So let's get into
Speaker 2: this story. It's in the new issue current issue of
Speaker 2: Bloomberg Business Week, which is on newsstands, online at Bloomberg
Speaker 2: dot com, slash BusinessWeek, and of course on the Bloomberg terminal.
Speaker 2: Let's get to it. It's a story written by Bloomberg's
Speaker 2: Julie Johnson and also Phillip. Thank you, sir Darth Phillip,
Speaker 2: thank you for the assists there.
Speaker 3: Let's get to you Sid the I mean, we love
Speaker 3: Julie too.
Speaker 2: We love them both.
Speaker 3: Yes, they're both great reports. And we love Jewel.
Speaker 8: We do.
Speaker 3: Did you intro? Joel already? No?
Speaker 2: Okay, but that's okay, you can do it is the
Speaker 2: editor of Booberg Business Week. He's here in studio along
Speaker 2: with the BusinessWeek Assistant Managing edit Jim Ellis is on
Speaker 2: Zoom in New Jersey.
Speaker 10: We love Julie, we love said. We also love editors,
Speaker 10: Red Jim So yeah, editors today. So the Airbus bowing story, obviously,
Speaker 10: this is like a historic rivalry, right, and there's kind
Speaker 10: of just two that make planes now airplanes. And you know,
Speaker 10: if you look at the share prices of these companies
Speaker 10: going back to twenty twenty, they were tight, and then
Speaker 10: all of a sudden it was sort of like Airbus
Speaker 10: took a commanding lead and there could be more problems
Speaker 10: ahead for Boeing with what Airbus might have in store, right,
Speaker 10: Jim right.
Speaker 11: I mean, this is what's so interesting about this is that,
Speaker 11: you know, people have talked about Airbus finding a way
Speaker 11: to best Boeing for a long time, but you know, Boweing,
Speaker 11: because of the seven three seven, has basically been the
Speaker 11: go to supplier for most of the world's airlines. What's happened, though,
Speaker 11: is the seven three seven had a you know, it's
Speaker 11: had a bad run, I mean the Max with its crashes,
Speaker 11: the grounding failure, you know, of getting the plane back
Speaker 11: up in China, it's given an opening for Airbus to
Speaker 11: come in and say, hey, guys, maybe what we could
Speaker 11: do is to stretch one of our planes, a small plane,
Speaker 11: a newer plane called the A to twenty. And if
Speaker 11: that sounds not familiar, it's because it isn't us. The
Speaker 11: plane that's been a long time in Airbus is stable.
Speaker 11: This was the plane that Bombardier, the Canadian company, thought
Speaker 11: was going to be its ticket, It's meal ticket to
Speaker 11: becoming a big aircraft maker. It was a very good plane.
Speaker 11: The problem was that they were not cash rich enough
Speaker 11: to actually bring it to market in a big way,
Speaker 11: and so they sold the program to Airbus in twenty eighteen.
Speaker 11: Airbus has been running it. But they say, now, let's
Speaker 11: stretch that plane out and make it the same size
Speaker 11: as basically these seven thirty seven and then offer it
Speaker 11: up as an alternative to seven thirty seven that is
Speaker 11: more modern because the seven thirty sevens you know, thirty
Speaker 11: forty year old program, and this is going to be
Speaker 11: new with new wings, new engines, and it can steal
Speaker 11: business away and suddenly give Airbus a commanding lead. The
Speaker 11: issue is, you know, they think they can do that
Speaker 11: for not much money compared to a brand new plane.
Speaker 11: But there's plenty of risks there.
Speaker 10: Okay, so wait, why why would you just take an
Speaker 10: existing plane and stretch it rather than you know, create
Speaker 10: something new.
Speaker 2: Sound like just changing the buttons on a jacket, Jim,
Speaker 2: is it?
Speaker 9: Yeah?
Speaker 11: I mean there's a lot, But the big deal is
Speaker 11: the expense. I mean, the expense of developing a brand
Speaker 11: new plane, you know, sort of new on paper now
Speaker 11: could approach you know, eight ten billion dollars. The price
Speaker 11: of taking an existing plane, particularly if it's a fairly
Speaker 11: modern existing plane like the A to twenty and sort
Speaker 11: of you know, so tweaking it to be longer and
Speaker 11: maybe adding new wings to it to support the bigger
Speaker 11: frame and and maybe an ew engine. You could probably
Speaker 11: do that at the producer level for about two two billion,
Speaker 11: three billion maybe and then get a little come on
Speaker 11: from the engine makers that might have to put in
Speaker 11: a billion apiece. Either way, you know, you're talking about
Speaker 11: a third of the cost to coming up with a
Speaker 11: brand new plane. But this plane would still have the
Speaker 11: modern avionics and the modern cockpits that you know has
Speaker 11: made Airbus basically a big player in this market.
Speaker 3: And the A two twenty has a bathroom window.
Speaker 10: You can't underestimate.
Speaker 3: It's the only commercial plane with a bathroom window. So
Speaker 3: if that sounds weird to you, that's because it is
Speaker 3: no other plane.
Speaker 10: Actually, I have flown on it relatively recently, and it
Speaker 10: is weird when you're in the bathroom and you're like, wow,
Speaker 10: I can look out the window right now.
Speaker 3: I'm not weird, but good right.
Speaker 11: I mean, it's those types of consumer you know, sort
Speaker 11: of the things that you know, consumers pick up on
Speaker 11: that's been really successful for that plane. People like the interior,
Speaker 11: people like the fact that the windows within the plane,
Speaker 11: regular windows seem bigger to consumers, and you know, so
Speaker 11: the plane is very popular. It's been used by a
Speaker 11: lot of big airlines now like Delta France, you know,
Speaker 11: and so there is you know, there is a market
Speaker 11: out there if you could get a bigger plane, but
Speaker 11: air Bus is going to have to take a risk
Speaker 11: on putting that money up.
Speaker 3: Jim, what I My question is how important is the plane,
Speaker 3: you know, the tube and the wings as opposed to
Speaker 3: the engines because a lot of these planes will use
Speaker 3: engines from Rolls Royce or engines from Pratt and Whitney
Speaker 3: or you know, I don't g ge okay, g still
Speaker 3: make stuff. Is how how important is the plane is
Speaker 3: the wing compared to the engine in terms of fuel efficiency,
Speaker 3: because that's what the main concern is for the for
Speaker 3: the airlines, right, fuel efficiency.
Speaker 11: Every thing, Probably the engines the most important. And they're
Speaker 11: going to have to get the engine makers to you know,
Speaker 11: sort of play all to make this program work right now,
Speaker 11: you know sort of you know Pratt and and and
Speaker 11: and and and the other engine maker which is the
Speaker 11: joint venture, uh you know gans and and Saffron have
Speaker 11: a joint venture called CFM you right now, those are
Speaker 11: the ones that they would like to see both making
Speaker 11: you know, engines for it. The issue is that, you know,
Speaker 11: you're you're asking people to you on the engine maker
Speaker 11: to make a billion dollar bet that you're going to
Speaker 11: sell enough of the planes to merit their investment. So
Speaker 11: it's not just you know, Airbus convincing itself that it
Speaker 11: wants to put that money up. It has to convinced
Speaker 11: engine makers to do it as well.
Speaker 2: And Boeing just sits by idly doing nothing. Right, So
Speaker 2: I mean, what's what's happening on the flip side of
Speaker 2: this equation? Sorry for my sarcasm.
Speaker 11: Now, Boeing's issue is that, uh, you know, Boeing's already
Speaker 11: said that they will not introduce a new plane this decade,
Speaker 11: and I think that by saying that that has sort
Speaker 11: of made a lot of people think, Aha, this is
Speaker 11: Airbus's moment. They can come in if they're going to
Speaker 11: do anything. You know, this is the opportunity when they
Speaker 11: know they won't have something, you know, sort of there
Speaker 11: won't be a rejounder from from Boeing on it because
Speaker 11: Boeing has a lot of debt right now, It's had
Speaker 11: all sorts of operational problems and they still haven't worked
Speaker 11: through the sort of after Max, you know, problems that
Speaker 11: they have, and so this if you're going to do something,
Speaker 11: this is the time to do it, simply because they
Speaker 11: can't respond as aggressively as they might if they were
Speaker 11: in a better financial position.
Speaker 10: One of the things that struck me about this article, Jim,
Speaker 10: was the the A three twenty is obviously Airbus is
Speaker 10: very good at making those turns, out about fifty of
Speaker 10: them a month. Right now, it's only making about half
Speaker 10: a dozen of these two twenties, and then they're gonna
Speaker 10: have to lengthen it and just give us a sense of, like,
Speaker 10: you know, what what does it take to go from
Speaker 10: from making it at this scale to like the skill
Speaker 10: that they're potentially looking at.
Speaker 11: The problem won't be making the plane simply because you know,
Speaker 11: they're very proficient at making planes and they have Bama.
Speaker 3: By the way, isn't this I've been down to the factory.
Speaker 3: Don't they make this in Mobile?
Speaker 11: They've got pieces of this made in different places because
Speaker 11: of a deal with the Canadian government. They have a
Speaker 11: finishing plant in Canada, they have I mean, so these
Speaker 11: things are truly international pieces of equipment. The problem is
Speaker 11: that you need to have a potential volume of these
Speaker 11: that allows you to have the plants operate at a
Speaker 11: level high enough to actually mean that the production costs
Speaker 11: for each individual model isn't more than you can actually
Speaker 11: sell it. For That's why planes that you know, you
Speaker 11: sell a lot of, you know, like the A three eighty,
Speaker 11: the double decker, you can sell a lot of them.
Speaker 11: They never sold enough to actually make that a very
Speaker 11: profitable program because they didn't have the volumes up. So
Speaker 11: they made the plane well, but they just couldn't get
Speaker 11: the volume. And so that's what they think they can
Speaker 11: do with the two twenty simply because narrow planes or
Speaker 11: are single autplanes are the bread and butter of this business.
Speaker 11: They are the bread and butter Boeing's earnings and of
Speaker 11: airbuses earnings. Airbus is danger though, is the A three
Speaker 11: twenty is a cash cow. It is a program that's
Speaker 11: been around for years and it's just churning out money.
Speaker 11: If they bring the A two twenty stretched up to
Speaker 11: the size of an A three twenty, they then start
Speaker 11: pulling money not just from Boeing but also from their
Speaker 11: own cash cow. So it's a very very you know,
Speaker 11: sort of tricky thing they have to get right. What
Speaker 11: is the true demand on this airplane and is it
Speaker 11: big enough to you know, merit taking away from your
Speaker 11: cash cow and to stealing production space. So right from
Speaker 11: a plane that's already you know, churning out money.
Speaker 10: And to that end, you know, which are what kind
Speaker 10: of airlines are going to be looking at this and
Speaker 10: comparing it to Boeing seven thirty seven if they're you know,
Speaker 10: if it's one or the other. Right, what what kind
Speaker 10: of airlines are we talking about here?
Speaker 11: I think right now you're probably talking about the ones
Speaker 11: that are already big users of it, you know, Delta Air, France,
Speaker 11: Jet Blue. I mean, these are all good sizes for them,
Speaker 11: and narrow body is the bulk of the airline business.
Speaker 11: But you'll also probably get more European makers, you know,
Speaker 11: because it is air Bus. But also you know, something
Speaker 11: like some of the IAG units, which is the company
Speaker 11: that owns British Airways. I mean people like that have
Speaker 11: shown interest in a plane that has that distance and
Speaker 11: that size. The issue is, you know, nobody wants to
Speaker 11: make a commitment on that and unless they think that
Speaker 11: the manufacturer is going to go through with it. Now
Speaker 11: there's a big a couple of big air shows in
Speaker 11: the next few months, and that's going to be a
Speaker 11: lot of the buzz at both of those is behind
Speaker 11: the scenes talk between the manufacturer, you know, air Bus,
Speaker 11: the engine makers, and all the airlines that are there
Speaker 11: trying to see if they can scrape together enough business
Speaker 11: so they can go ahead and announce this plane so
Speaker 11: they can come out before you know, Boeing has an
Speaker 11: opportunity to say something.
Speaker 2: So, you know, Jim, what's interesting is you talk about
Speaker 2: this window of opportunity for Airbus and that this is
Speaker 2: good timing since Boeing, you know, isn't planning anything in
Speaker 2: the near future. But you also or the story also
Speaker 2: includes that there is a chance that if they don't
Speaker 2: get it out soon, right, and that this plane's going
Speaker 2: to be flying in the early twenty thirties, it still
Speaker 2: could be kind of one uped by Boeing and Boeing's
Speaker 2: next offering.
Speaker 11: Well, that's that's another one of the risks. The problem
Speaker 11: with airline programs is that even a program that's built
Speaker 11: on top of another one, like a stretch of this,
Speaker 11: is going to take some time to actually get up
Speaker 11: and running, particularly if you've got to develop a new
Speaker 11: engine and you can't just sort of sort of lop
Speaker 11: onto an engine's already out there. I mean there's talk
Speaker 11: that you know, maybe an engine that could run on
Speaker 11: a seven thirty seven Max might be able to be
Speaker 11: sort of you know, jigger to work on this, but
Speaker 11: most likely you're going to end up with new engines
Speaker 11: that are going to require some time to develop. So
Speaker 11: if you can get all this done in three four years, yeah,
Speaker 11: you're before Boeing can do anything. If you take years
Speaker 11: to make the decision to actually pull the trigger, then
Speaker 11: you're going to get back into that period when Boeing
Speaker 11: is saying it's willing to come back with a new program,
Speaker 11: And then who knows what that new program would be
Speaker 11: if it's a narrow body that goes head to head
Speaker 11: on this. A lot of people have a lot of
Speaker 11: Boeing equipment, and a lot of them don't want to
Speaker 11: switch out because it means retraining cockpit crew, it means
Speaker 11: having different sort of it means spare parts are difficult.
Speaker 11: Lot of people like to keep it all in the family, right.
Speaker 10: It actually the pricing conundrum here. It reminds me a
Speaker 10: little bit of Tesla, Right, Like you got this models
Speaker 10: Model Y, you have great success with those products, and
Speaker 10: then you bring out mass volume products that are you know,
Speaker 10: a fraction of the price. You flood the zone with them,
Speaker 10: and then suddenly it's like, you know, how many more
Speaker 10: s's and why and x's can you sell?
Speaker 1: Right?
Speaker 10: I think I said why earlier? Yeah, the sn X
Speaker 10: are the time. Yeah, but you have that S and
Speaker 10: that X problem. And then it's like, wait, you know,
Speaker 10: so you you could have this, you know, amazing plane
Speaker 10: in the A three eighty and yet you know your
Speaker 10: future might depend on something that doesn't look like that.
Speaker 3: Well that's the case with h with Boeing as well, right,
Speaker 3: I mean they had the seven eighty seven, but everybody wants,
Speaker 3: as Jim was telling us, the single aisle narrow body plate.
Speaker 10: It just comes back to the physics of that tube, right, like,
Speaker 10: how do you make the next plane? Let's just make
Speaker 10: the tube blonger, guys, and.
Speaker 2: The fuel efficiency. I mean, ultimately, that's what's driving a
Speaker 2: lot of this. All right, Jim, thank you so much.
Speaker 2: Jim ellis assistant Managing editor at Bloomberg BusinessWeek on zoom
Speaker 2: in New Jersey Joe Weber here in studio. He's of
Speaker 2: course editor a Bloomberg Business week, the story in the
Speaker 2: new issue that's out online, on the Bloomberg and on newsstands.
Speaker 2: This is Bloomberg Radio.
Speaker 11: Problem.
Speaker 1: A journal.
Speaker 9: No, how about you let me drive?
Speaker 3: Oh no, no, no, no, all right please, I'll.
Speaker 1: Wait.
Speaker 2: I want to drive.
Speaker 12: Good question good, this is good.
Speaker 1: Drive to the globe to me? Well, jug it on
Speaker 1: Bloomberg Radio.
Speaker 2: All right, everybody under eighteen minutes to go until we
Speaker 2: wrap up the Monday trading day.
Speaker 8: Let's get to it.
Speaker 2: Carol Master along with Matt Miller in our Bloomberg Interactive
Speaker 2: Broker Studio on YouTube, on Bloomberg Originals and with us
Speaker 2: right now is Alex Coffee Senior Trading Strategies at td Ameritrade,
Speaker 2: joining us on zoom from Chicago. Alex, good to have
Speaker 2: you here with Matt and myself. How are you and
Speaker 2: what do you make of the day's trade and really
Speaker 2: the more broader market environment right now?
Speaker 6: Yeah? Thanks Carol, thanks for having me.
Speaker 12: It's been kind of a boring day, kind of like
Speaker 12: watching pain drive, but sometimes boring is okay. It's going
Speaker 12: to be a pretty busy week, I think, once we
Speaker 12: get CPI and PPI later on.
Speaker 6: Of course consumer sentiment as well.
Speaker 12: But all things considered, I think a fairly straightforward day
Speaker 12: on sort of a minimal news headline day certainly can
Speaker 12: change any notice, though, what are you watching?
Speaker 3: What are you seeing when you when you look at
Speaker 3: the regional banks? Is it all just trading action with
Speaker 3: not a lot of fundamental backing. Does it matter to
Speaker 3: the wider market?
Speaker 6: I think it matters tremendously. I mean, I think it's
Speaker 6: right now.
Speaker 12: It's almost a sentiment gauge, right, So we're seeing sort
Speaker 12: of the ebbs and flows of the uncertainty as it
Speaker 12: kind of picks up in both directions, and oftentimes it's
Speaker 12: sort of steering the market. On the days where the
Speaker 12: banking fears really start to ramp up, those have been
Speaker 12: the big red days. Fortunately the last few though, a
Speaker 12: lot of that fear started to dissipate as some of
Speaker 12: the worst of the contagion didn't ultimately materialize. But again,
Speaker 12: I mean, I don't see this as a story that's
Speaker 12: necessarily over. I see this as one that's constantly kind of,
Speaker 12: you know, continue to transform and take us in different directions.
Speaker 2: Hey, Alex, so what's kind of the retail trade on
Speaker 2: a name likeke PacWest, which was up thirty percent at
Speaker 2: its highs and now is just up about three percent.
Speaker 2: That's quite a switch in one day.
Speaker 6: Yeah, no doubt.
Speaker 12: I think that this is a situation that's fairly typical
Speaker 12: for a stock that's plummeted as much as this one has.
Speaker 12: I mean, absence of negative news is going to lead to,
Speaker 12: you know, somewhat of an optimistic trade.
Speaker 2: But is the retail investor though, Is the retail investor
Speaker 2: in on this one?
Speaker 12: Alex or No, Nothing that's stuck out tremendously. But I
Speaker 12: would say that anytime something that's moving as much as
Speaker 12: some of these regional banks have, there's gonna be interest, right.
Speaker 12: The volatility drives interest. But First Republic and some of
Speaker 12: the other names kind of working towards zero ultimately going
Speaker 12: into receivership going out, I think has scared some investors.
Speaker 3: Are you watching the we We had the slews today
Speaker 3: and then we had the well we have coming up
Speaker 3: the Federal Reserves Financial Stability financial stability Report. Sorry, you
Speaker 3: know everyone is watching it today, but no one has
Speaker 3: ever watched the Federal Reserves Financial Stability Report before? So
Speaker 3: what do you think this tells us that we're all following?
Speaker 2: We needs to pull up the kre either.
Speaker 3: I never knew what sleuse was. I mean, I heard
Speaker 3: the summer Loan Officers survey, but yeah, yeah, is it.
Speaker 10: Making an impact?
Speaker 6: I think it is.
Speaker 12: And I think the reason is everybody's trying to figure out,
Speaker 12: you know, why is the market pricing in something for
Speaker 12: interest rate policy that seems so different than what we
Speaker 12: hear from the Federal Reserve.
Speaker 6: And we're looking for pieces to a puzzle to connect
Speaker 6: those two.
Speaker 12: Not to say that one is right or one is wrong,
Speaker 12: but right now, based off what the Fed has told us,
Speaker 12: in words, the only way you can get to December
Speaker 12: lower rates, which is basically a certainty based off of
Speaker 12: the market.
Speaker 6: Pricing, is something substantially changing.
Speaker 12: Is that credit tightening, is that more instability in the banks,
Speaker 12: or is that a tremendous downturn in the economy.
Speaker 6: I don't know. I don't know if we're.
Speaker 12: Getting any of those things, but right now, to me,
Speaker 12: that's what the market has to be pricing in for
Speaker 12: that divergence to exist.
Speaker 2: Hey, one of the reasons we love talk to you,
Speaker 2: Alex's we do get a feel of what retail investors
Speaker 2: are buying or selling. And you just just got your
Speaker 2: report in terms of what was going on in April.
Speaker 2: It's a backward looking report, but give us an idea
Speaker 2: of where investors were buying where they were selling.
Speaker 6: Yeah, thanks iMX.
Speaker 12: The Investor Movement Index did move up slightly three point
Speaker 12: seven two percent, three straight months of net buying of equities.
Speaker 6: But some of the specific names that stuck out.
Speaker 12: That I thought that were quite interesting is actually a
Speaker 12: move from the buying side.
Speaker 6: Of course, Tesla finds itself there.
Speaker 12: Obviously, stock struggled a little bit in April, but realty
Speaker 12: income and medical properties trust so some names getting some
Speaker 12: buying attention saw this as sort of contrarian. We've actually
Speaker 12: heard obviously some of the ramped up concerns around commercial
Speaker 12: real estate recently. Well, realty income of course, specializing in
Speaker 12: single tenant retail thanks seven to eleven, Thank Walgreens, some
Speaker 12: of those hybrid workforce environments that have disrupted commercial real
Speaker 12: estate not really affecting that company. Of course, medical properties
Speaker 12: more like hospital So I thought it was contrarian. I
Speaker 12: thought it was somewhat opportunistic by the client base, especially
Speaker 12: given the context of the of the greater interest rate
Speaker 12: conversation that we were having.
Speaker 3: You know, I was looking at the breakdown of the
Speaker 3: S and P and I thought, at first it looked
Speaker 3: bullish because they're buying consumer discretionary and they're selling the staples.
Speaker 3: But then I see commercial services is and they're selling,
Speaker 3: and they're selling i should say, the defensives, so utilities, industrials, healthcare,
Speaker 3: real estate all getting sold off. Then I saw though
Speaker 3: that they're buying communication services, which is I don't even know.
Speaker 2: It's a terrible category.
Speaker 3: It's a horrible category. But basically it's you know, the
Speaker 3: streamers to Warner Brothers, Netflix, Disney, and then Google as well.
Speaker 3: Are these like defensive stocks these days?
Speaker 12: Well, actually it's funny too because they also throw in
Speaker 12: the telecom game there too, And those are actually the
Speaker 12: ones that we saw with buying activities.
Speaker 6: So it's actually the Verizons and the.
Speaker 12: AT and ts that actually struggled quite quite a lot
Speaker 12: in April post earnings for AT and T in particular,
Speaker 12: and then Testlok Courses. Consumer discretionary, that's a name that
Speaker 12: it's pricing cuts have impact, that its margin's gone down,
Speaker 12: but it's pretty consistently a name that we see in
Speaker 12: the top traded be it buys or sells I actually
Speaker 12: saw this month in terms of the buying and selling
Speaker 12: is kind of a contrarian action by the Taameritrade client base,
Speaker 12: some of the ones that's stuck on the cell side,
Speaker 12: for example, Apple, Meta, Alphabet, Microsoft, All these names actually
Speaker 12: did really well in the month. In the case of
Speaker 12: Meta and Microsoft in particular, these are names that have
Speaker 12: done really well this year in general.
Speaker 2: Yeah, it's interesting. Despite everybody saying it's time to get
Speaker 2: out of the growth names, we hear that over and
Speaker 2: over again, and yet that's where investors have been piling into.
Speaker 6: Yeah.
Speaker 2: Final thoughts in terms of investors comfortable with this market,
Speaker 2: willing to take on some risk or not necessarily or
Speaker 2: it kind of feels like that they are. Based on
Speaker 2: what you're telling me, I.
Speaker 12: Would say cautiously optimistic would be would be my takeaway here.
Speaker 12: We're seeing a modest improvement, you know, month over months
Speaker 12: for several straight months after the iMX botmed out in
Speaker 12: November and December of last year, but it's still moderately
Speaker 12: below based on how we kind of section out in
Speaker 12: it's percentiles. So I would say costly optimistic. Definitely some
Speaker 12: positive takeaways, but a long ways to go.
Speaker 6: We're going to get back to where we won't work.
Speaker 2: All right, We're gonna leave it there. Hey, Alex thik
Speaker 2: so much. Alex Coffee, Senior Trading Strategies of at TD
Speaker 2: Ameritrade on zoom from Chicago.
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