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Speaker 1: Search Bloomberg Global News and shares A matteler trading lower today,
Speaker 1: down more than six percent, after the company said second
Speaker 1: quarter margins shrank due to inflation, higher supply chain costs,
Speaker 1: and royalty expenses. CEO Kries was on with our Bloomberg
Speaker 1: TV crew earlier and they talked about um how the
Speaker 1: company that did keep their forecast intact. Enon Cries as
Speaker 1: chairman and CEO of Mattel. He joined us on the
Speaker 1: phone from California right now. Enon, great to have you
Speaker 1: back with us. How are you right, TI? Hi? Carol?
Speaker 1: Right to be here we'll bring us to to the
Speaker 1: most recent quarter and what you're expecting for the rest
Speaker 1: of two because when when we've been able to talk
Speaker 1: to you over the last few months, you've been really
Speaker 1: confident that you can manage the supply chain challenges in
Speaker 1: the inflationary environment that we find ourselves in right now,
Speaker 1: that's right. So, first of all, on the quarter that
Speaker 1: we just completed, these were excellent results from Matail, without
Speaker 1: eight consecutive quarter of top line growth. Our profits also
Speaker 1: grew significantly, with adjusted operating income up despite high inflation
Speaker 1: and following a record first half. We expect to continue
Speaker 1: growing in the second half and are planning for increase
Speaker 1: in consumer demand in the holiday season. So all in all,
Speaker 1: we're very happy with the position we are in. We
Speaker 1: expect to win markets you are going forward, and we
Speaker 1: reiterated fullier guidance for strong top line growth, um increase profitability,
Speaker 1: a higher gross margin. UH and all of this is
Speaker 1: in spite of significant inflation and negative currency impact. So
Speaker 1: are you like, come on, investors, you still got it wrong. Look,
Speaker 1: we have very focused on managing the company. We have
Speaker 1: been growing now consistently. We're executing on our strategy we have.
Speaker 1: You know, we wren market share for two years in
Speaker 1: a row, and we expect to win market share this
Speaker 1: year as well. Our supply chain is in very good shape.
Speaker 1: All of our own and operated factories are fully fully operational.
Speaker 1: Product is flowing in, we're seeing we're expecting a second
Speaker 1: half retail sales to be above the first half levels.
Speaker 1: We're seeking the industry growing as well well. So, so
Speaker 1: you know what happened because one of the things that
Speaker 1: we Tim and I have always after we talk with you,
Speaker 1: were kind of blown away by your ability to be
Speaker 1: flexible with supply chains, move them ahead of kind of
Speaker 1: some of the constraints that we've seen in the last
Speaker 1: couple of years, and manage it really really well. So
Speaker 1: what happened in the last quarter, because I think it's
Speaker 1: safe to say that what is freaking out investors and
Speaker 1: it's been a top theme for all us here at Bloomberg,
Speaker 1: is what's happening with margins? What happened that your margins shrunk?
Speaker 1: That maybe even caught you guys by surprise. No, the
Speaker 1: margin impact was expected. It was factored into our guidance.
Speaker 1: We talked about it at the beginning of the year. Uh,
Speaker 1: and if anything, it's getting better actually because we did
Speaker 1: revise our guidance on gross margin UM, uh, not by much,
Speaker 1: but nevertheless a positive you know, uplift. We're able to
Speaker 1: upset currency negative currency impact and maintain and reiterate our
Speaker 1: guidance for the full year. So the margin, the margin
Speaker 1: UM reduction was very much expected and and the set
Speaker 1: you know, factored into into our guidance at the beginning
Speaker 1: of the year. Over time, over time, we do expect
Speaker 1: that the combination of pricing and cost savings will more
Speaker 1: than exceed the impact of inflation and contribute to margin expansion.
Speaker 1: And we do expect that we do expect inflation to
Speaker 1: moderate in twenty three. But you know, we also reiterated
Speaker 1: our goals for three where we talk about high single
Speaker 1: digit growth and constant currency adjusted operating in a margin
Speaker 1: of six and continue to grow our earning for share
Speaker 1: and exceed at our ninety So we're staying the course,
Speaker 1: continue to execute our strategy and seeing seeing it in
Speaker 1: the numbers. Give me an idea of what you're seeing
Speaker 1: with pricing power right now? Where are you able to
Speaker 1: raise prices so that consumers will continue to pay but
Speaker 1: you can better cover increasing costs on your side without
Speaker 1: destructing demand, as pricing is one of the options we
Speaker 1: consider in times of inflation. Uh. Sorry, this is not
Speaker 1: obviously unique to Mattel or unique to the toy industry.
Speaker 1: But we've said before, and we're being very consistent about it,
Speaker 1: is that when we raise prices, we always keep consumers
Speaker 1: in mind. We're being very thoughtful and strategic and are
Speaker 1: committed to maintaining the highest quality and best value for consumers.
Speaker 1: We haven't seen, um, you know, any negative impact for
Speaker 1: the pricing actions we two class year. We just took
Speaker 1: another action that will become that will be factored into
Speaker 1: our numbers in the second half. Um. And this is
Speaker 1: something that we previously announced, So this is not new news,
Speaker 1: and we haven't seen a negative impact. You know. These
Speaker 1: actions are very method calling thought to. So what's selling?
Speaker 1: I know in our Bloomberg story that you guys I
Speaker 1: think said on the conference call last night that you
Speaker 1: guys were seeing some softness and sales of higher priced
Speaker 1: items such as a Barbie dreamhouse I think, which costs
Speaker 1: around two hundred dollars, having owned one when I was younger. Um,
Speaker 1: But anyway, so what is selling? What is not where
Speaker 1: are you seeing maybe some consumer sensitivity because of the
Speaker 1: overall inflationary environment. Well, in the in the second quarter,
Speaker 1: we saw comprehensive growth, uh, you know two in constant currency. Uh,
Speaker 1: we were up in double digit strong double digits in
Speaker 1: North America, Emia and Latin America. We grew in all
Speaker 1: of our reported categories and in three in our three
Speaker 1: power brands, Barbie, Hot Wheels, and Fisher Price. So the
Speaker 1: performance was pretty pretty comprehensive with some really strong numbers.
Speaker 1: We did say that Hot Wheels, as an example, is
Speaker 1: on on track to achieve its fifth record year in
Speaker 1: a row. Uh. Barbie is just coming off an all
Speaker 1: time high, and we said that we expect to be
Speaker 1: sales for Barbie to be comparable. So we're holding a
Speaker 1: very high bar right, and a pretty pretty strong performance
Speaker 1: across the board. So we were talking about the Barbie
Speaker 1: movie on the call, and I know we've talked with
Speaker 1: that for you before. I think for what I've understand
Speaker 1: is that it's wrapped in terms of principal photography. What
Speaker 1: we've been wondering and I'm going to steal a question
Speaker 1: that actually Tim brought up on our call, but he said,
Speaker 1: you know, the point of do you anticipate making more
Speaker 1: money UM from the movie and your partnership on the
Speaker 1: Barbie movie, or more from the lift that the Barbie
Speaker 1: brand gets thanks to the movie. We absolutely see this
Speaker 1: opportunity as as incremental to our toy business. Our strategy
Speaker 1: to capture the full value of our IP is about
Speaker 1: participating in highly a creative business verticals that are adjacent
Speaker 1: to the toy industry and are also driven by big
Speaker 1: franchises and big brands, but we want them and expect
Speaker 1: them to be a creative in and of themselves. So
Speaker 1: the partnership or you know, the Barbie movie and the
Speaker 1: the the partnership that we have with Warner Brothers UM
Speaker 1: is such that we have a meaningful economic participation in
Speaker 1: the Barbie Movie as well as for that matter, all
Speaker 1: of our movie projects. We do have economic participation, and
Speaker 1: of course we understand that in success there will be
Speaker 1: a benefit for the toy business, but we do expect
Speaker 1: the economic participation outside of the toy aisle as well.
Speaker 1: What does meaningful economic participation mean? Does that mean that
Speaker 1: that you are that Mattels a producer of the movie,
Speaker 1: You're putting money into the movie, or does it mean
Speaker 1: that you get a percentage of ticket sales. It's uh,
Speaker 1: it's different economics, different types of participations. But we do
Speaker 1: not found the movie. We do not uh, you know,
Speaker 1: participate in in movie financing. This is not our expertise
Speaker 1: and not our business. But we do participate economically both
Speaker 1: as the I T owner, as the owner of the brand,
Speaker 1: and as a producer. We are a producer on all
Speaker 1: of our projects. Do you get a piece of the
Speaker 1: box office? You know, we haven't been specific on the
Speaker 1: commercial terms, but box office and research are part of
Speaker 1: the equation of uh of of you know, of typical participations. Hey,
Speaker 1: can we talk to you about SpaceX. We've been talking
Speaker 1: about this story all week long. UM, tell us about
Speaker 1: the collaboration. It's a multi year agreement that Mattel has
Speaker 1: announced with SpaceX to produce toys and collectibles. Yeah, this
Speaker 1: is an exciting partnership to create space exploration to and
Speaker 1: collectibles under the Matchbox brand. The toys will come out
Speaker 1: next year. The collectible uh toys will be available on
Speaker 1: matel creation or direct to consumer side. And this is
Speaker 1: really about um, you know, scaling our portfolio. UM, it's
Speaker 1: about innovation, It's about thinking out of the box and
Speaker 1: bringing new partners to the toy aisle. And this was
Speaker 1: one that people were you know, didn't expect and didn't
Speaker 1: see coming. And it is exciting because we are partnering
Speaker 1: with an exciting company in an exciting area. But you know,
Speaker 1: more than this partnership specifically, it is about how we
Speaker 1: continue to scale our portfolio work to position matel as
Speaker 1: a partner of choice major IP owners. Is there going
Speaker 1: to be a figure? That's what I want to know. Uh,
Speaker 1: it's uh, it's you know, obviously this uh, you know,
Speaker 1: we don't go into that level of resolution on the
Speaker 1: product side, but we always do to continue to innovate
Speaker 1: and delight our consumers and do it in fun and
Speaker 1: creative ways. I would imagine there is demand for that,
Speaker 1: so I guess we'll have to wait and see you.
Speaker 1: I would buy in Elan Dahl. I just think that
Speaker 1: would be kind of fun. Um Enon, thank you so
Speaker 1: much once again just giving us a nice junk of
Speaker 1: time and really leaning into the business and letting us
Speaker 1: know what's going on. Inenon cries. He is the chairman
Speaker 1: and chief executive officer of Mattel. Mattel Shares under pressure
Speaker 1: but as we mentioned, they are still up for the year.
Speaker 1: Here in two. This is Bloomberg Business Week with Carol
Speaker 1: Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio.
Speaker 1: It's a new way show Bloomberg Business Week Magazine at
Speaker 1: on newsstands, online and of course on the Bloomberg terminal.
Speaker 1: And in it is a story about the AI platform
Speaker 1: behind a Jeff Bezos back startups Vegan Burger. So I
Speaker 1: feel like him that there are so many big Macro
Speaker 1: themes of the day in this story said big Mac,
Speaker 1: which kind of makes sense. Did I say big big Macro?
Speaker 1: I heard you know, so I hear big macin next
Speaker 1: I'm always talking about food, He's always. Augusta Suriva is
Speaker 1: supply chain reporter for Bloomberg New She's with us right
Speaker 1: now in the Bloomberg Interactive, a broker's studio. Augusta, good
Speaker 1: to have you with us. What is this AI platform?
Speaker 1: Um with not company? Essay, thank you for having me on.
Speaker 1: And it's interesting that you said big Mac because they
Speaker 1: actually have a big deal with Burger king um. But
Speaker 1: this company is actually a Chilean start up. It was
Speaker 1: a big Mac McDonald's or Burger King, Big Mac is
Speaker 1: McDonald's Whoppers, Burger King. But there I'm getting picky, But
Speaker 1: they're they're kind of the counterparts of the restaurant. You
Speaker 1: gotta know your burger's carols. These are not burgers. They're
Speaker 1: not burgers literally, they're made out of potato chips. They're
Speaker 1: made out of sunflower oil. Everything that you would not
Speaker 1: expect to see on a burger is there? Okay? The
Speaker 1: problem though, is sunflower oil a little hard to come
Speaker 1: by these days? Yes, And when you're making alternatives to burgers,
Speaker 1: that's extremely needed because it goes on a third of
Speaker 1: all of the alternative burger out there. And because of
Speaker 1: the war in Ukraine and because all of the supply
Speaker 1: change shortages we've been hearing about over the past year,
Speaker 1: it's been hard to find. So what this company did,
Speaker 1: I mean, since they were already creating alternatives to everything,
Speaker 1: they just decided to make alternatives to the alternatives, right,
Speaker 1: So that's how they came up with the idea. And
Speaker 1: how does it work? Is it good? And does it
Speaker 1: taste right? Or it like wow? That's the point. They
Speaker 1: just started trying it out and if it works out,
Speaker 1: that's the plan. They want to sort of like revolutionize
Speaker 1: the industry. But right now, what they're doing is that
Speaker 1: they're using the algorithm, which they call Giu Zappe. It's
Speaker 1: sort of a nickname, and they're trying to use that
Speaker 1: to create on that somebody was in a lab. There
Speaker 1: was a little i don't know, to kill a going
Speaker 1: around and like, what are we gonna call this thing
Speaker 1: just or is there a reason behind it? There is
Speaker 1: a reason behind It's based on an Italian painter that
Speaker 1: would only paint using vegetables, So that's why there's the reason. Okay,
Speaker 1: So so I'm also imagining in my head like a
Speaker 1: little robot that kind of goes in and taste things
Speaker 1: and things to itself. Okay, this is what could be
Speaker 1: a meaningful alternative. But we're just talking about algorithms at
Speaker 1: a computer, right Yeah, in a way, it's just a computer,
Speaker 1: but it's sort of scans the product and then it
Speaker 1: breaks everything down, either if it's a recipe or if
Speaker 1: it's an ingredient the product. So it looks at let's
Speaker 1: say a lettuce leaf, and it's like, so what's here,
Speaker 1: what are the molecules? What is everything that is here?
Speaker 1: So that they look at that and then they're like,
Speaker 1: how can I recreate that using different things? Maybe lettice
Speaker 1: wasn't the best example because we don't actually need vegan
Speaker 1: alternatives to that, but maybe if you look at a burger,
Speaker 1: how do you take the animal out of the equation?
Speaker 1: So that's what the algorithm does. I keep thinking of,
Speaker 1: like this incredible white borders right, like, and here's what
Speaker 1: the traditional thing is, and what are some things that
Speaker 1: we can use to substitute that maybe give it the
Speaker 1: same kick nutritionally or because the bigger story here and
Speaker 1: this is why I get to the big mac story.
Speaker 1: The big macri story is we are looking at a
Speaker 1: world that is getting maxed out, and how do we
Speaker 1: don't feed the people that are currently on this earth?
Speaker 1: So how do we do it in the face of
Speaker 1: things like climate change that are really shifting where we
Speaker 1: traditionally farm and so on? So it's like, how do
Speaker 1: we do this? And and this is maybe part of
Speaker 1: the solution. Yeah, And that's exactly how Nacho was born.
Speaker 1: They were born not only to create alternatives. So it's
Speaker 1: not like oat milk that actually doesn't taste anything like milk, right,
Speaker 1: Their goal is to make alternatives that are good for
Speaker 1: the climate. They're good for people who do not eat meat,
Speaker 1: who try to avoid that, but they also want their
Speaker 1: products to taste like the real ones. So their milk,
Speaker 1: if you go and try them, it's made out of
Speaker 1: pineapple juice, but still it tastes like actual milk. It's
Speaker 1: pretty amazing that they're able to do that. Augusta, I'm
Speaker 1: I'm wondering about competitors in this space. We talked a
Speaker 1: lot about Beyond Meats, publicly traded company. This stock has
Speaker 1: been under a ton of pressure. We just had Dina
Speaker 1: Shanker on our program yesterday talking about the challenges that
Speaker 1: they're having with Pepperoni, and then if course Impossible Foods,
Speaker 1: which is still privately held. They sort of have their
Speaker 1: you know, secret recipes to try to replicate what the
Speaker 1: taste of a burger or animal protein is. Is this
Speaker 1: like a secret not a secret recipe, but is this
Speaker 1: like a secret sauce for this company, this algorithm to
Speaker 1: try to replicate it is? Indeed, uh, And that's the point.
Speaker 1: It's a private company, so at this point we don't
Speaker 1: really know where they're going with that. They actually had
Speaker 1: plans to go public next year, but with all the headwinds.
Speaker 1: That might not be the case, um, but as of now, yes,
Speaker 1: that's their secret ingredient right there, Big Max Sauce. It's
Speaker 1: kind of the next step when we keep thinking about
Speaker 1: It's so funny we're talking about Beyond Meat this week,
Speaker 1: and like when it first came on the scene, it
Speaker 1: was like, Okay, this is the answer, right, defeating the world.
Speaker 1: But this actually takes a much bigger picture, right and
Speaker 1: looks at all the elements and things, and like, how
Speaker 1: do we kind of figure out alternatives? Is that fair? Yes,
Speaker 1: it is fair, and that's what they're saying. They don't
Speaker 1: want to only revolutionize the one product. They want to
Speaker 1: revolutionize the industry. So maybe one day we're going to
Speaker 1: see that algorithm that jews app becoming the norm in
Speaker 1: the industry, but not right now. Yeah, exactly. It's got
Speaker 1: some big money behind it, right. We talked about Jeff
Speaker 1: Bezos is behind it, Danny Meyer, uh, and a few others. Okay,
Speaker 1: so we talked a little bit about taste. I'm wondering
Speaker 1: about being able to do this on a mass scale.
Speaker 1: Carol alluded to the challenges of feeding the world in
Speaker 1: a previous comment to you, Augusta and I'm wondering how
Speaker 1: we do this in a way that solves the problems
Speaker 1: that we're seeing right now, not just hunger, but of
Speaker 1: course climate change and the and the emissions that are
Speaker 1: associated with raising animals. Yes, and that's one of the
Speaker 1: reasons why we decided to take the supply chain angle
Speaker 1: for this story, right, because with everything that is going
Speaker 1: on nowadays, the disruptions, the war in Ukraine, it's so
Speaker 1: hard to find alternatives. And at the same time you
Speaker 1: have so much hunger going on. And when you think
Speaker 1: even the alternatives, right, even boat milk, the production of that,
Speaker 1: it takes so much water to produce. So even when
Speaker 1: you think of because feel guilty because I love my totally,
Speaker 1: yes I do too. So that's the point, right, can
Speaker 1: we ever get this right? And I think that's what
Speaker 1: this company is trying to do. Create an alternative that
Speaker 1: is good, that is fair, and that doesn't take a
Speaker 1: lot out of us. Well, and if you can start
Speaker 1: to compare like A from B, from C from D
Speaker 1: in terms of different ways of either producing things and
Speaker 1: food the impact on the climate, you can kind of
Speaker 1: figure out which is the most sustainable way. And also,
Speaker 1: you know, meeting the goals of feeding the world if
Speaker 1: you will, august to survive as she is supply chain
Speaker 1: reporter here at Bloomberg News. I love that we have
Speaker 1: a supply chain reporter so relevant and she's just awesome.
Speaker 1: She got to be on our team at quick Take
Speaker 1: for a few months as a rotator and we miss you, Augusta.
Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. A lot
Speaker 1: going on in the world of crypto, and what was
Speaker 1: interesting is we are seeing in some ways over the
Speaker 1: past ten days, investors scooping up about a billion dollars
Speaker 1: worth of crypto exposed companies as a cornd of report
Speaker 1: we've published on Wednesday by Vanda Tracks. So they were
Speaker 1: buying things Tim like Marathon digital coin based Global Riot blockchain.
Speaker 1: I mean, after the carnage, people are finding some opportunity.
Speaker 1: At the same time, Carol, we're starting to see some
Speaker 1: legal action taken against people. Three have been charged in
Speaker 1: the first ever cryptocurrency insider trading tipping scheme. To get
Speaker 1: some information on this and more when it comes to crypto,
Speaker 1: we turned to Kathy Craninger. She's a former director of
Speaker 1: the Consumer Protection Financial Bureau, also vice president of Regulatory Affairs.
Speaker 1: That's sold US Labs. Cathy, great to have you back
Speaker 1: with us, joining us once again from Washington, d C.
Speaker 1: How are you. I'm great, Thank you for having me back.
Speaker 1: It's definitely a busy time in crypto. Yeah. I want
Speaker 1: to start with this coin based news that three have
Speaker 1: been charged in the first ever cryptocurrency insider trading tipping scheme.
Speaker 1: Here are we going to start to see more legal
Speaker 1: action taken against those in the crypto industry. Well, this
Speaker 1: just demonstrates that this industry is in fact obviously regulated
Speaker 1: and subject to the law. And as was said by
Speaker 1: the U S Attorney, fraud is fraud. Um. So the
Speaker 1: indictments are are fairly clear. Um. You know, obviously we'll
Speaker 1: see how the case carries out, but it is critical
Speaker 1: to see rules be enforced. And I'd also note that
Speaker 1: you see in the indictment that coin based had policies
Speaker 1: in place and was in fact monitoring the behavior of
Speaker 1: their employees, which again is what a responsible, um you know,
Speaker 1: market participant would do and what you would hope and
Speaker 1: expect from them. So, UM, I think again, it just
Speaker 1: demonstrates that there are responsible actors in this space, and
Speaker 1: that the people who are engaged in wrongdoing and fraud
Speaker 1: should in fact space prosecution. Is it? Is it also?
Speaker 1: I mean, is there a silver lining to this in
Speaker 1: that it shows that the industry is growing up and
Speaker 1: it's essentially on solid footing in the sense that regulators
Speaker 1: are taking it serious. Now, I think that's that's that's true.
Speaker 1: You see definitely a maturation process regulators understanding the industry better.
Speaker 1: But but as I said, if you go back to
Speaker 1: the lesson here, I think it really is you know,
Speaker 1: fraud is fraud no matter where it happens, um and
Speaker 1: that's something that I think is important. And there are
Speaker 1: absolutely new and novel things about digital asset markets and
Speaker 1: ways that we need to, you know, Taylor things to
Speaker 1: make sure that you're treating, you know, like activities in
Speaker 1: a like way from a regulation standpoint. But some of
Speaker 1: these things, certainly are are things that you see across
Speaker 1: the board wherever there is an opportunity to make money
Speaker 1: and where people see an opportunity to you know, unfairly
Speaker 1: take advantage of others. I feel like it's not a
Speaker 1: new problem We've heard this before, Kathy Um. So alright,
Speaker 1: So three Charge in the first ever cryptocurrency Inside are Trading,
Speaker 1: one of the most read stories in the Bloomberg gets
Speaker 1: an exclusive and it talks about the three Arrow founder story,
Speaker 1: huge story, once high flying hedge fund saying that they're bungled,
Speaker 1: crypto speculation, unleashed, cascading margin, calls on loans that should
Speaker 1: never have been made. So as more things continue to
Speaker 1: come out in different ways, but showing continued carnage, if
Speaker 1: you will, in different ways in the crypto world. What
Speaker 1: are the key problems, the key vulnerabilities in the crypto
Speaker 1: world in your view, that need to be tackled by regulators.
Speaker 1: So there there are definitely things, as I noted, that
Speaker 1: make this space more unique in areas where there needs
Speaker 1: to be some more conversation. I think the Lamas Jilabrand
Speaker 1: bill certainly is an attempt at getting to some of
Speaker 1: those gaps in a more comprehensive treatment in the US,
Speaker 1: And there are other bills too, obviously, Senators Stabino and Bozeman,
Speaker 1: are I guess on the um really about to introduce
Speaker 1: something and you've got the House bills to uh where
Speaker 1: there's a lot of activity and even uh an imminent
Speaker 1: stable coin um regime perhaps coming, and so you know,
Speaker 1: that's that's all positive to see that bipartisan activity now again,
Speaker 1: whether it's something like that fifty digital asset bills and
Speaker 1: you know out there or something. I mean, if you
Speaker 1: had to pick one or two things that you're like, Okay,
Speaker 1: this is what we've got to get down in order
Speaker 1: for this industry to really kind of grow legitimately and
Speaker 1: comfortably and securely, one of them is definitely you know, uh,
Speaker 1: the way we talk about at the taxonomy, the terminology
Speaker 1: uh stable coins of course imply but they are stable
Speaker 1: and that that certainly implies backing in reserve. And so
Speaker 1: that's a conversation that obviously the stable Coin bill UM
Speaker 1: will will seek to address. And we're clearly new authority
Speaker 1: needs to be granted agencies in terms of requirements around
Speaker 1: that that really Congress is best place to act on.
Speaker 1: I guess that's that's one example would provide. So help
Speaker 1: us play that out and what that would would look like, Kathy,
Speaker 1: because I've been thinking a lot about stable coins because
Speaker 1: of the you know, collapse of of of Terra, and
Speaker 1: I'm wondering if all would basically say, okay, well this
Speaker 1: type of stable coin is allowed, maybe one that uses
Speaker 1: cash or you know, commercial paper cash equivalents in equal
Speaker 1: you know, in terms of like what people pull out
Speaker 1: of of tokens. You know, there's that an equal amount
Speaker 1: of money backing it up in a safe somewhere, on
Speaker 1: a balance sheet somewhere. But maybe the algorithmic stable coin
Speaker 1: that's not okay. So I am definitely not going to
Speaker 1: get into the weeds on that because I think it
Speaker 1: depends on how these things are set up and certainly
Speaker 1: again putting the disclosures out there to the public to
Speaker 1: show what is in fact behind I mean, I guess
Speaker 1: I can say there are good actors in this space
Speaker 1: who are demonstrating that they are in fact backing their
Speaker 1: stable coins their tokens, and that they are uh you
Speaker 1: know again engaged where you can you can actually hold
Speaker 1: the peg, and that people are actually getting the value
Speaker 1: out of them. And certainly for defy operations, stable claims
Speaker 1: are essential. Um so I think it really is definitely
Speaker 1: getting some of that out. I know, so that big
Speaker 1: debate is around me you know what what the role
Speaker 1: of banks in this, and so that is definitely a
Speaker 1: dynamic that the Congress is gonna is going to weigh
Speaker 1: in on. So, Cathy, I do wonder about something like
Speaker 1: crypto end or blockchain that it could really criss cross
Speaker 1: a lot of walks of our world. So who needs
Speaker 1: to oversee it? Or is there going to have to
Speaker 1: be a couple of um major departments within the federal
Speaker 1: government that have to oversee it our or in the
Speaker 1: regulatory side of our government. Yeah, it's a great question,
Speaker 1: and I'd say it really is a whole of government approach.
Speaker 1: I mean, there were things that the President's Executive Order
Speaker 1: demonstrated that there are facets of this that affect um
Speaker 1: certainly national security and financial crime. And then you look
Speaker 1: at all of the use cases for what blockchain can
Speaker 1: bring to any ledger process or or transaction process, and
Speaker 1: you think about healthcare and transportation and supply chain and
Speaker 1: so there are definitely a lot of different applications for
Speaker 1: the technology um and things that need to be thought
Speaker 1: about here. But certainly as it comes to financial services,
Speaker 1: you know, if you're engaged in this financial product space,
Speaker 1: you you have kind of the existing regulators that that
Speaker 1: are coming to bear and I think you know they're
Speaker 1: all working through how they can coordinate better, and that's
Speaker 1: something I would encourage because you know, you are going
Speaker 1: to have different regulators, there's no doubt about it, whoever roll.
Speaker 1: But it's how they coordinate together and then send that
Speaker 1: clear message to the industry about what the rules are. Okay, Cathy.
Speaker 1: One thing I've been thinking about an addition to algorithmic
Speaker 1: stable coins a lot is utility here when it comes
Speaker 1: to crypto. And I guess and not ask this question
Speaker 1: all the time because I think with the carnage that
Speaker 1: we've seen over the last few months, two trillion dollars
Speaker 1: in wealth just completely wiped out in billionaires lost money,
Speaker 1: but some people, you know, normal people lost everything, And
Speaker 1: I wonder about utility here beyond aculations sell us on
Speaker 1: the utility of this technology. So this is something that
Speaker 1: is definitely something that's been asked about over and over again.
Speaker 1: I mean that the blockchain technology really is, you know,
Speaker 1: secured by the token and and mining and you know,
Speaker 1: all of that mechanics, and that's where the digital market,
Speaker 1: the digital asset markets um are are base. And so
Speaker 1: you know, people are saying, what what is this in
Speaker 1: the future, I'd say it's again all of the use
Speaker 1: cases that we were just talking about our frankly, they
Speaker 1: don't they don't come without the token UH and the
Speaker 1: digital asset markets. And so that's the part that will
Speaker 1: be interesting to see so many parallels to you know,
Speaker 1: the nineties and and even with even you mentioned Kara
Speaker 1: with the two thousand dot com burst bubble burst then.
Speaker 1: But I would say it's really incumbent on the industry
Speaker 1: to move together smartly and and start demonstrating all of
Speaker 1: the things that will be built of this and the
Speaker 1: fact that we're operating, you know, with integrity, that we're
Speaker 1: providing disclosures and clarity and transparency UM. And you know
Speaker 1: that's where companies like Solidus Labs come into is we're
Speaker 1: really pressing market integrity right right and certainly UH in
Speaker 1: terms of surveillance and monitoring. Kathy Croningar, she's former director
Speaker 1: of the Consumer Protection Financial Bureau and vice president of
Speaker 1: Regulatory Fairs at solid Us Labs joining us on the
Speaker 1: phone from Washington, d C. As for bitcoin right now,
Speaker 1: thou dollars a hundred and thirty one dollar. If it's
Speaker 1: moving around fast. You're listening to Bloomberg Business Week with
Speaker 1: Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio.
Speaker 1: We just have about ten and a half minutes left
Speaker 1: in today's Friday trading session, so we're getting ready to
Speaker 1: wrap up the day and the week. We're just coming
Speaker 1: off our loads of this session. I'm looking at the
Speaker 1: last five days. I mean, we've had quite a rally
Speaker 1: underway this week. Yeah, we have look at that even
Speaker 1: the month, Carol, we're up five pent this month on
Speaker 1: the s even with being down more than one percent.
Speaker 1: To be afraid to open up before oh one case
Speaker 1: soon maybe maybe, I mean we're still sub forty four thousand.
Speaker 1: Let's get into it with Michael Sheldon. He's executive director
Speaker 1: in chiefment chief investment officer at High Tower r d
Speaker 1: M Financial Group, joining us on the phone from Westport, Connecticut. Michael,
Speaker 1: good to have you back with us. How are you good?
Speaker 1: Thanks very much for having me. Okay, so tough year
Speaker 1: two so far, but we've still got a few months left.
Speaker 1: We've wrapped up the first half of the year. Here
Speaker 1: we are in month seven at this point. Give us
Speaker 1: an idea of where you're seeing opportunities right now, because
Speaker 1: a lot of people we talked to say, hey, the choppiness,
Speaker 1: this is going to continue. Yeah, well this week was
Speaker 1: looking back this week, there were some encouraging signs I think,
Speaker 1: although it's still a little early to signally all clear. Uh.
Speaker 1: Some things we were watching this week was high beta
Speaker 1: stocks outperformed low volatility stocks um below investment grade bonds,
Speaker 1: so the credit side of things perked up a little bit.
Speaker 1: We saw some better performance in semiconductor stocks and consumer
Speaker 1: discretionary stocks, so those are all positive signs. And for
Speaker 1: the first time since the market high in January, we
Speaker 1: saw more than of stocks on the ny SCUM have
Speaker 1: a positive day. So that was on Tuesday, so those
Speaker 1: those are definitely something. Carol was off that day. Is
Speaker 1: there any correlation there, I'll leave that to the It
Speaker 1: is true when I'm away usually when the markets sell off,
Speaker 1: So I don't know what happened on that day. No,
Speaker 1: but our creedy GROUPDA talked about it earlier in the week. Right.
Speaker 1: When we see market moves, a thin market, our little
Speaker 1: participation either direction tells us one thing. But when we
Speaker 1: see a broadening of breath to the upside or downside,
Speaker 1: that tells us something significantly. And we saw broadening a
Speaker 1: breath to the upside this week, and that's a positive. Yeah,
Speaker 1: you're absolutely right, but I think you also have to
Speaker 1: look at the weight of the evidence. So we're still
Speaker 1: dealing with a lot of macro economic uncertainty. The yield
Speaker 1: curve is inverted right now, so that's a spread between
Speaker 1: two year and ten year notes. Unfortunately, Uh, that inversion
Speaker 1: is historically led to weaker economic data. The dollar continued
Speaker 1: to be fairly strong, and that's a headwind for US companies.
Speaker 1: A lot of companies are mentioning the dollar, and the
Speaker 1: reports and weekly jobless claims have started to trend higher
Speaker 1: after reaching I think it was the lowest level in
Speaker 1: fifty five years last year. So we still face some
Speaker 1: macro economic headwinds. Um. I think as we go through
Speaker 1: earning season, uh, so far things look okay. Starting the
Speaker 1: second quarter earning season, earnings estimates were for about a
Speaker 1: four percent increase and now we're at about four eight percent,
Speaker 1: so that's pretty good. And more importantly, looking ahead to
Speaker 1: two thousand twenty three, coming into this quarter, the earnings
Speaker 1: estimates for next year, we're about roughly nine point four percent.
Speaker 1: Today we're at eight point seven percent. So we are
Speaker 1: starting to see some of the earnings estimates come down,
Speaker 1: but not as much as you would expect considering the
Speaker 1: uncertainty we're facing. And so, Michael, what are the reasons
Speaker 1: where why it's still too earlate to signal the all clear?
Speaker 1: Is it because of things that you just mentioned, including
Speaker 1: those weekly jobless numbers coming out for the you know,
Speaker 1: three weeks in a row. Yeah, I mean, the U. S.
Speaker 1: Consumer represents about two thirds of the overall economy, so
Speaker 1: it's really important to sort of have your pulse on
Speaker 1: what's going on for the consumer. So so far this year,
Speaker 1: the U. S. Economy has generated about four undred and
Speaker 1: seventy five thousand jobs per month, and that's a pretty
Speaker 1: good number. However, weekly jobs claims, as I mentioned earlier,
Speaker 1: starting to drift higher, and that indicates, you know, you've
Speaker 1: heard comments from a number of technology companies that they're
Speaker 1: starting to either reduce their hirings or lay some workers off.
Speaker 1: And another thing we watch, which is more leading, is
Speaker 1: the Leading Economic Indicator, which came out this week, and
Speaker 1: that's declined in five of the six five of the
Speaker 1: past six months. And the reason that's important it tends
Speaker 1: to sort of forecast the direction and the economy looking
Speaker 1: ahead over the next few quarters. So right now, the
Speaker 1: FED is laser focused on reducing inflation, and as long
Speaker 1: as it does that, we're likely to study see somewhat
Speaker 1: weaker economic growth before things ultimately turn around when inflation
Speaker 1: peaks and and starts to come down when inflation peaks. Carroll, Yeah,
Speaker 1: that's the question. Well, and the thing is, you know,
Speaker 1: help me out here. Historically, I kind of I think
Speaker 1: I've been reading some things that I've talked about that
Speaker 1: once inflation does start to come down, it kind of
Speaker 1: comes down rather quickly. Are you anticipating that that's what
Speaker 1: we see, because I think there is also some concerns that,
Speaker 1: you know, the FET is going to end up being
Speaker 1: too aggressive and maybe overdoing it. But but it's but
Speaker 1: it's not you know, an exact game or exact science here.
Speaker 1: Right when it comes to rate moves and the impact
Speaker 1: on inflation, how quickly it comes down, Well, that's that's
Speaker 1: the challenging thing for investors and for the markets. Right now,
Speaker 1: we are starting to see some signs that inflation is peaking.
Speaker 1: I mean, right now, inflation the CPI number is at
Speaker 1: about nine point one, which is the highest level since
Speaker 1: one so we're at forty year high. So a lot
Speaker 1: of investors in the market today haven't seen this kind
Speaker 1: of inflation. But I think we're starting to see some
Speaker 1: signs that inflation maybe peeking. For example, the job market
Speaker 1: is starting to soften a little bit. Commodity prices are
Speaker 1: starting to come down, whether you look at things like copper, lumber, steel,
Speaker 1: and the housing market is also showing signs is flowing.
Speaker 1: Rate rates overseas for shipping goods are starting to soften.
Speaker 1: So you put this all together, and it seems likely
Speaker 1: that we should start to see softer economic, softer inflation
Speaker 1: data as we head through the fall. Well what about
Speaker 1: peak inflation here? We just heard from Steve Matthews in
Speaker 1: our Atlanta bureau, and he's got this survey of Bloomberg
Speaker 1: economists who are essentially saying that, okay, expect to seventy
Speaker 1: basis point rate next week, but then we're gonna start
Speaker 1: to see the Fed put the brakes on a little bit.
Speaker 1: Do you start to do you think we're going to
Speaker 1: see a cut in twenty three? You know, it's interesting
Speaker 1: you hear more and more economists actually calling for a
Speaker 1: peak in rates at the end of December. So that means,
Speaker 1: as you said, so we're likely to when the FED
Speaker 1: meets next week, we're likely to see another seventy five
Speaker 1: basis points an increase, so that would leave short term
Speaker 1: rates at about two and a half percent. And then
Speaker 1: we have three more meetings, so we could have a
Speaker 1: half point increase in September, I mean three, and then
Speaker 1: maybe two more quarter point rate hikes. Uh, and in
Speaker 1: the last two months of the year, which would leave
Speaker 1: rates at about three and a half percent at that point.
Speaker 1: I mean, that's that's an eternity from now uh looking
Speaker 1: at the markets, but at that point we could very
Speaker 1: well be in for a pause. It sort of depends
Speaker 1: a lot on the incoming economic data, and the FED
Speaker 1: is continued to say the monitoring the data. Yeah, I
Speaker 1: feel like this is going to be an important meeting
Speaker 1: in terms of if we do see j Powell starting
Speaker 1: to talk down that maybe you know, they could they
Speaker 1: could be a little bit less aggressive, but we will
Speaker 1: we will know in about five days time from now. Hey,
Speaker 1: Michael Sheldon, thank you, Executive director, chief investment Officer at
Speaker 1: High Tower r DM Financial Group, joining us once again
Speaker 1: on the phone from Westport, Connecticut. Thanks for listening to
Speaker 1: Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or
Speaker 1: Bloomberg dot com, and you can also listen to our
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