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Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot com, and of course, on the Bloomberg. Tonny

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Speaker 1: CHRISTENSI hoping we don't talk to him about Tesla Pimcoe's markets,

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Speaker 1: trying to just joins us around the table. Don't don't worry, Tonny,

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Speaker 1: We're not gonna do it. Do you want to talk

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Speaker 1: about Do you want to talk about tweeting and driving

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Speaker 1: or Ambian Well, I'm very careful, but I'm a I

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Speaker 1: drive with two feet, which I tell you not to do.

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Speaker 1: But I've not had an accident Knockwood in thirty years.

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Speaker 1: I'm a defensive driver. You're a defensive driver. What is it?

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Speaker 1: What is it? Drying on the break at all times

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Speaker 1: means I'm think I'll be safe against all dangerous. Tony

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Speaker 1: is great to have you with this. Let's talk about

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Speaker 1: the market, shall we. What's the conviction cod line for

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Speaker 1: you right now? The conviction is to go up in quality,

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Speaker 1: up in cash, and up in the the the capital

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Speaker 1: structure it is late cycle, meaning the U S expansion

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Speaker 1: is entering its tenth here. Once next June arrives, we'll

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Speaker 1: have seen the longest US peacetime expansion ever. And typically

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Speaker 1: in a case like this, they become an increase, there's

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Speaker 1: an increase in risk of recession, and in a recession,

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Speaker 1: of course, in equity, beta credit BATA. In other words,

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Speaker 1: some correlation in your portfolio to those markets becomes a

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Speaker 1: little more a little riskier, and so one would want

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Speaker 1: to be to fortify his or her or it's portfolio.

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Speaker 1: So it's interesting. I was reading through your Outside Allocation

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Speaker 1: report put out by PIMCO. Don't worry, I'm not going

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Speaker 1: to ask you about gold or equities, but I am

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Speaker 1: interested in finding out about the conviction call on non

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Speaker 1: agency mortgage backed securities. This is basically, uh, the mortgage

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Speaker 1: debt that is not backed by Fannie and Freddy May.

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Speaker 1: I'm just for Fanny May and Freddie Mac. I'm just wondering,

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Speaker 1: from your perspective, how you can have conviction in that

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Speaker 1: if we are at a late cycle and that's less

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Speaker 1: liquid debt. Well, if you think about it, um these loans,

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Speaker 1: of course, many of them, most almost all of them

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Speaker 1: were created before the crisis over ten years ago, so

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Speaker 1: this seasoned, if you will. The equity values of these

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Speaker 1: homes have gone up, and the amounts of loans, the

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Speaker 1: amount of the loans outstanding have gone down. In other words,

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Speaker 1: a loan to value ratios have gone down. Add another factor,

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Speaker 1: technical factor, the market trinking it's a half chillion it

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Speaker 1: used to be two chillion, So there's some scarcity element

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Speaker 1: there too. But the credit side, sorry, looks pretty good

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Speaker 1: right now. Can we just question the premise of this

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Speaker 1: conversation currently the light cycle? And I don't mean this

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Speaker 1: question to be flippant at all. I just want to

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Speaker 1: understand how you identify where we are in the cycle.

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Speaker 1: One could look at the count wonder and say it's

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Speaker 1: late cycle because we are entering entering the tenth year

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Speaker 1: of an economic expansion and that's only happened once since

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Speaker 1: World War Two. But perhaps we should be thinking about

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Speaker 1: it in a different way and thinking about the the

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Speaker 1: magnitude of increase in g d P. One could say

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Speaker 1: we're mid cycle based on that because economic growth has

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Speaker 1: been in the low two's historically it's been about three.

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Speaker 1: So based on that gauge in terms of where we

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Speaker 1: should be having seen in an economic EXPANISHIP for ten

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Speaker 1: years versus where we are GDP a twenty chillion. Perhaps

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Speaker 1: it should be twenty two chrillion, and there is ways

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Speaker 1: to go. And finally, um looking at the inflation story,

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Speaker 1: which has been benign wage story, perhaps there is more

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Speaker 1: room to run. So what is the return expectation that

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Speaker 1: you're trying to set for clients with a fixed in

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Speaker 1: com portfolio in the years after. It depends, of course,

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Speaker 1: and a PIMCO it absolutely depends because we run different

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Speaker 1: types of strategies. But one popular strategies want to be

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Speaker 1: in core investments the Bacleys, the Berg Barcley's aggregate UM

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Speaker 1: that's yielding today about three point three percent. Historically, managers

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Speaker 1: such as PIMCO have been able to gain alpha or

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Speaker 1: returns above the stated yield up to a hundred basis points.

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Speaker 1: So one could argue then that for core investments in

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Speaker 1: a fixing come portfolio, return has gone and going forward

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Speaker 1: basis since starting yield is the most important determinants of

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Speaker 1: future returns, potentially in the low fours, which is not

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Speaker 1: bad or even mid force not bad for a diversifier.

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Speaker 1: And of course where your returns are in other parts

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Speaker 1: of the fixed income market depend on the volatility and

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Speaker 1: the type of strategy you choose. Tony income become a

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Speaker 1: much more important component of total return. It has because

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Speaker 1: right now it's not The game is not as easy

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Speaker 1: it was as it was post crisis, believe or not.

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Speaker 1: Even though it was challenging back then, it was easy

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Speaker 1: in the sense that if you simply had a beta

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Speaker 1: or a connection to credit and equities you want. Today

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Speaker 1: one has to be thinking more about relative value and

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Speaker 1: if in fact, we could develop a portfolio great one

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Speaker 1: from the bottoms up simply looking at the securities and

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Speaker 1: saying we like this security, rather than the top down

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Speaker 1: having a beta to equities and credit, we would. So

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Speaker 1: we're looking for securities likely to mention, like non agencies

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Speaker 1: or bank capital securities or short dated corporate bonds. You know,

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Speaker 1: it's interesting, there's sort of attention right now because in

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Speaker 1: one hand, people are moving into less liquid securities that

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Speaker 1: offer that income that John was talking about. On the

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Speaker 1: other hand, a lot of people are plowing into private

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Speaker 1: equity funds and venture capital, and I'm just wondering, at

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Speaker 1: what point have we reached direct lending peak or you know,

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Speaker 1: too much of this that is destined for failure. Yesterday

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Speaker 1: it was in Atlanta, uh, and it was at an

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Speaker 1: all alternative investments form, and some very big players in

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Speaker 1: the game we're talking about that idea, and they all

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Speaker 1: seem to be themselves cautious and so uh. The yellow

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Speaker 1: flags already gone up for the big players in the sphere.

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Speaker 1: So it's not likely to get overly frothy, more than likely,

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Speaker 1: And there is still vigor in the global economy. Probably

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Speaker 1: grow in the low sixes nominally, meaning real growth of

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Speaker 1: three and a half. An inflation of two and a

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Speaker 1: half gives you six and that's that's good for real assets,

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Speaker 1: which is the pe climate, and venture capital climate depends

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Speaker 1: upon the environment, Tony. Just to wrap things up, it's

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Speaker 1: really interesting to me and I'm sure to our listeners

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Speaker 1: when we're talking about the confidence and the optimism in

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Speaker 1: the American economy right now, just how defensive fixed income

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Speaker 1: managers are becoming, Um dan iverson Cio of your shop,

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Speaker 1: interestingly turning cautious and defensive in the last couple of weeks.

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Speaker 1: And Tony, I'm trying to reconcile that with the with

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Speaker 1: the U S economy that we see in front of

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Speaker 1: our eyes right now. Well, because we're thinking about the

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Speaker 1: late cycle dynamics, and we did put it to some extent,

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Speaker 1: uh in in the context of the calendar, meaning we're

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Speaker 1: getting late in the expansion, and typically there's a recession

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Speaker 1: somewhere on the horizon, and one has to be fortifying potfolio.

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Speaker 1: In fact, the single best investment that you make in

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Speaker 1: your portfolio in the next year or so might be

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Speaker 1: the one you don't currently have. In other words, implicitly,

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Speaker 1: what I just said is that there could be a

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Speaker 1: moment of volatility, whether it be because markets think that

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Speaker 1: FED will go beyond what it's priced for, or whether

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Speaker 1: markets think that there's a recession somewhere on the horizon.

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Speaker 1: There'll be enough movement in markets that you'll put something

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Speaker 1: in a portfolio that that individually will will perform very well.

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Speaker 1: But how do you how are you able to do

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Speaker 1: that by today preparing by raising credit quality, raising cash levels,

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Speaker 1: and going higher in the capital structure. And so we

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Speaker 1: we they sit on what's the probabilities, and that's what

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Speaker 1: a manager has to go on. And the probability is

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Speaker 1: that over three year horizon or so, the chances of

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Speaker 1: recession are a little higher than they were a few

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Speaker 1: years ago. Tony, it's great, heavy with us, Thanks John

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Speaker 1: Pimcome is very young with some instant in the markets.

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Speaker 1: Last it's some fascinating stuff. And only compared to the

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Speaker 1: equity guys. Whenever I speak to anyone in fixed income,

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Speaker 1: they are starting to turn a little bit more cautious

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Speaker 1: and a little bit more defensive. Yeah, you know, here's

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Speaker 1: the here's a tension right now. Though you are entering

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Speaker 1: late cycle investing by almost all accounts, when do you

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Speaker 1: know we're in end cycle? And how do you know?

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Speaker 1: And could late cycle go on for the next I

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Speaker 1: don't know, three years potentially we haven't seen the inversion

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Speaker 1: of the yield curve, and typically some time after that

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Speaker 1: eighteen months, perhaps even two years. Yeah, this is like

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Speaker 1: the tension that I think is emerging. Yeah, I think

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Speaker 1: it's interesting too. We ran out of time with Tony,

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Speaker 1: but I would love to have asked him about whether

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Speaker 1: everyone is doing the same thing, piling into the front

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Speaker 1: end of the treachery curve and waiting for the downturn

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Speaker 1: that might not be coming anytime soon. So the tweet

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Speaker 1: coming from the President of the United States saying the following,

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Speaker 1: and speaking with some of the world's top business leaders,

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Speaker 1: I asked, what is it that would make businesses jobs

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Speaker 1: even better in the United States? Quote, stomp quarterly reporting

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Speaker 1: and go to a six month system, said, one that

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Speaker 1: would allow greater flexibility and save money. I've asked the

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Speaker 1: SEC to study Bloomberg's Marcus correspondent remain Bostick running into

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Speaker 1: the studio to talk to us about it. Remain your thoughts, Well,

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Speaker 1: it's interesting. I mean, look, I mean a lot of

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Speaker 1: CEOs have been pounding the table on this for a while. Um.

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Speaker 1: We know that, you know, people like Warren Buffett and

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Speaker 1: Jamie Diamond have been pretty vocal about the idea of

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Speaker 1: sort of at least scaling back the uh, the frequency

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Speaker 1: of providing quarterly guidance. Now, Trump's tweet obviously seems to

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Speaker 1: refer specifically to quarterly reporting as a whole. Um. You know,

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Speaker 1: there he might be conflating the two things. There is

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Speaker 1: a compelling argument though, that UH, the forward guidance that

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Speaker 1: companies feel compelled to give every quarter UH might not

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Speaker 1: really reflect the true long term strategy of the company,

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Speaker 1: and it becomes a little bit of a distraction. Although

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Speaker 1: I have to wonder now, at a time of near

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Speaker 1: peak profitability, of a profitability that that really is off

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Speaker 1: the charts, why companies are complaining about this to President

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Speaker 1: Trump is one of their top concerns. I mean, what

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Speaker 1: could it be about that? Well, well, look, I mean,

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Speaker 1: anytime we get to the top of these business cycles,

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Speaker 1: we've seen this over and over again, companies always trying

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Speaker 1: to push passions and reporting requirements and other things that

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Speaker 1: they feel makes their lives a little bit more onerous.

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Speaker 1: Because right now they're in the catbirds seat. They could

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Speaker 1: point to their job creation. They could point to the

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Speaker 1: court record quarterly profits, and they can say, you know, look,

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Speaker 1: cut us a little bit of slack here, and we

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Speaker 1: can make this economy grow even more. Do these individuals

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Speaker 1: need more control? It's my basic question. Off the back

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Speaker 1: of this, both Jamie Diamond and Warren Buffett, who wrote

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Speaker 1: a Wall Street Journal lop had earlier this year, they

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Speaker 1: are both CEO and shareman of their respective companies. That

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Speaker 1: could be a problem for many many people elsewhere. There's

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Speaker 1: a huge problem in the world of technology companies. More

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Speaker 1: and more companies listing duel class shares that give public

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Speaker 1: shareholders pretty much no voting rights whatsoever. Mark Zuckerberg this

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Speaker 1: earlier this year is a fantastic example perhaps lad with

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Speaker 1: too much control. Yeah, and I mean, look, I mean

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Speaker 1: we've talked a lot about this idea that that shareholder

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Speaker 1: rights have really sort of been eroded over the past

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Speaker 1: few years. And I mean you were talking about Elon

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Speaker 1: Musk earlier this morning, and just I mean you think

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Speaker 1: that this isn't just about Elon Musk. This is about

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Speaker 1: board independence and oversight and so all of the things

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Speaker 1: that investors depend on to sort of assess the health

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Speaker 1: of a company. A lot of that is baked into

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Speaker 1: this quarterly reporting cycle. It doesn't mean it doesn't, it hasn't,

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Speaker 1: it doesn't have its flaws, but there are so many

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Speaker 1: investors across the board that depend on this and the

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Speaker 1: animals that cover this, that depend on this, and to

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Speaker 1: roll that back you have to wonder what's going to

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Speaker 1: replace that. We're just gonna be in the dark for

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Speaker 1: six months. I mean, is there a precedent for this

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Speaker 1: from a place that has rolled it back? Well, you've

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Speaker 1: seen this in Europe and particularly in the UK, which

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Speaker 1: has sort of gone back and forth on this. And

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Speaker 1: keep in mind, you know, quite a few companies over

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Speaker 1: there only report on the same annual basis as well

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Speaker 1: as in Asia. But I would also argue though, too,

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Speaker 1: that the companies over there tend to be a little

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Speaker 1: bit different. I mean, you're talking about much more value

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Speaker 1: oriented companies that are much more slower growth industries. But

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Speaker 1: when you're talking about a market like the U S

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Speaker 1: where you have so many hyper growth companies and to

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Speaker 1: be kept in the dark for five or six months

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Speaker 1: about what's going on there, I think that would be

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Speaker 1: it would just create uh an era of so wild

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Speaker 1: speculation among investors. It would probably create more volatility. I'm

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Speaker 1: not sure what would be healthy here for the market.

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Speaker 1: The problem at the epicenter of all of this is

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Speaker 1: short termism. Short Termism is a problem that's something we

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Speaker 1: can all sit around this table and agree on. Where

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Speaker 1: I kind of differ with the people that are kind

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Speaker 1: of pushing this view too when courterly earnest guidance is

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Speaker 1: that the CEOs and chairmans of these companies have contributed

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Speaker 1: to short termism. They have given investors a little much

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Speaker 1: house to focus on, with the exception of quarterly earnest guidance,

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Speaker 1: because their contribution to how these companies around is being

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Speaker 1: ripped away from them over the last several years, isn't

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Speaker 1: that the problem? Yeah? And I mean let's talk about, uh,

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Speaker 1: the guidance too, because you know, I was looking at

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Speaker 1: this this past earning season and the thing is, not

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Speaker 1: a lot of companies actually do this. I mean not

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Speaker 1: the majority of them. I mean you're probably talking about

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Speaker 1: less than of the companies in the SMP actually provide

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Speaker 1: a regular quarterly earnings forward guidance. So a lot of

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Speaker 1: them can get away with just saying here are numbers

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Speaker 1: and then giving some sort of broader thematic about about

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Speaker 1: where they're going and investors seem to be happy with that.

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Speaker 1: But again, if you don't get this sort of area

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Speaker 1: of the laundry every quarter, uh, it's going to open

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Speaker 1: the door to a lot more speculation amongst market participants.

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Speaker 1: And I just don't see how that can And I

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Speaker 1: agree with you. Remind we should be drawn a line

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Speaker 1: between providing quarterly earnings guidance and providing quarterly earnings, and

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Speaker 1: that doesn't seem to be happening this morning. Get so

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Speaker 1: sure remain bosted Greg cat shop me this morning. Bloomberg's

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Speaker 1: very own in one of our finest dropping by the

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Speaker 1: studio to get us up to speed on an important

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Speaker 1: story this morningly So, Yeah, indeed, a really important story.

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Speaker 1: We will follow it as it evolves. Another important story

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Speaker 1: is taking a look back at what's been happen getting

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Speaker 1: in Turkey with the turmoil continuing today, the Lyria taking

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Speaker 1: another leg lower versus the dollar. The key question here

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Speaker 1: is how much is this an idiosyncratic issue and how

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Speaker 1: much does this represent some serious pain that is yet

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Speaker 1: to be felt in the emerging markets complex. There's a question,

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Speaker 1: especially as we talk about how the US deficit is

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Speaker 1: continuing to deepen and will probably expand by more than

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Speaker 1: a trillion dollars of the next decade, where are the

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Speaker 1: bond vigilantes here to talk with us about? That is

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Speaker 1: the person who coined the phrase himself, bond vigilantes back

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Speaker 1: in the eighties, Dr Edyar Denny, president of your Denny Research,

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Speaker 1: who cut his teeth at a variety of places including

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Speaker 1: the Federal Reserve, uh and Prudential Securities and Deutsche Bank.

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Speaker 1: Where are they? Why are we not seeing yields go

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Speaker 1: higher U S DEPP markets given how much debt the

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Speaker 1: US is selling. Yeah, these days, if you want to

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Speaker 1: find bond vigilanties, you probably have to go to Turkey

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Speaker 1: or Italy to to see how the financial markets are

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Speaker 1: responding to UH policy mistakes. But here in the United States,

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Speaker 1: you're absolutely right. Since the tax cuts at the end

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Speaker 1: of last year and the spending increases at the beginning

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Speaker 1: of this year, the outlook is for deficits to be

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Speaker 1: a trillion dollars a year over the next ten years

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Speaker 1: on average. So it's it's huge numbers, and the bond

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Speaker 1: market just doesn't seem to care. And I think the

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Speaker 1: vigilantes are not really the only players in the bond market.

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Speaker 1: There's also central banks, by the way, that for the

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Speaker 1: past ten years have been muscling into their territory. And

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Speaker 1: you've got the e c B and the b o

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Speaker 1: J with interest rates cyber negative and bond yells over

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Speaker 1: there close to zero. Do we can we glean any

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Speaker 1: lesson from what we're seeing in Italy as far as

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Speaker 1: when the central bank back stop no longer works, well, sure,

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Speaker 1: I mean it's it's conceivable that you know, the central

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Speaker 1: bankers don't have all the magic in the world. They've

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Speaker 1: certainly throwing a lot of ferry desks at the global

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Speaker 1: economy for ten years, and it actually seems to with

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Speaker 1: the benefit of hindsight work worked pretty well. You know,

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Speaker 1: here we are, with out a global recession, economy is

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Speaker 1: still growing. UM. I mean, at some point the deficits

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Speaker 1: may matter, But I'm I'm very empirical about these things.

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Speaker 1: When I when I start to see the bond vigilantes

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Speaker 1: kind of rise up and the protest the outlook for debt,

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Speaker 1: I'll be concerned. I think the bondby giants are first

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Speaker 1: and foremost focused on inflation. So I've I found historically,

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Speaker 1: and I've been doing this for forty years, the bondom

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Speaker 1: market just doesn't seem to be explainable that much by

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Speaker 1: supplied demand fundamental. So deficits just don't seem to matter

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Speaker 1: until they matter, and they typically matter when one way

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Speaker 1: or another they're they're contributing to an inflation problem. So

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Speaker 1: the concept of a bond vigilante was brilliant, and so

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Speaker 1: we should apply it across a variety of different assets. Um.

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Speaker 1: This morning, President Trump tweeted that the SEC should study

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Speaker 1: allowing companies to report earnings on a half year basis

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Speaker 1: right within a quarterly basis. And I'm wondering, are we

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Speaker 1: going to see DAL vigilantes and S ANDP vigilantes kind

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Speaker 1: of spring up in response to that and say, no,

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Speaker 1: no way, we want the transparency. Well, you know, I

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Speaker 1: don't think you're going to see the stock markets sell

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Speaker 1: off on this proposal. And even if the SEC said, okay,

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Speaker 1: you only after report every six months, I don't think

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Speaker 1: the stock market would sell off. I think investors, it's

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Speaker 1: particularly large institutionals said, you know, it's nice that the

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Speaker 1: regulators are saying you only have to do six months,

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Speaker 1: but we really want to quarterly. We kind of got

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Speaker 1: used to it, we expect it, and um industry analysts

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Speaker 1: are going to be pushing for continuation to quarterly estimates.

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Speaker 1: You think that companies are going to say, you know what,

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Speaker 1: we're fine with quarterly earnings. I think they are. Why

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Speaker 1: they're going to say they're fine because the investors that

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Speaker 1: they rely on are saying, we need we need those numbers,

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Speaker 1: we want those numbers, we expect those numbers. We want

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Speaker 1: to quarterly call and we want that to continue. Is

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Speaker 1: it significant that executives who are having dinner with President

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Speaker 1: Trump are graping about this right now? Well, you know,

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Speaker 1: a lot of people have had dinner with the President Trump,

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Speaker 1: and I've had a lot of conversations that, you know,

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Speaker 1: sometimes let's letton nothing more than dessert. Well, there you go.

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Speaker 1: I mean I think that there is a question though,

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Speaker 1: if this is they're on their wish list right now,

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Speaker 1: does it say we're kind of at a peak in

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Speaker 1: the power dynamics? Be flat footed on this one. I mean,

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Speaker 1: I I just heard this news like like two minutes ago,

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Speaker 1: as you did. So I'm saying I'm I'm flabergasted. I mean,

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Speaker 1: partly because I've got a personal bias. I mean, I

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Speaker 1: need these numbers to keep me busy. You know, if

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Speaker 1: I had to wait six months, the good news is,

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Speaker 1: I think analysts would continue to do what they do,

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Speaker 1: which is give us their expectations whether they get quarterly

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Speaker 1: updates or not, and I'll be tracking those willy nilly

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Speaker 1: as well. Investors. So let's talk about what you do,

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Speaker 1: which is come through the numbers and try to clean

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Speaker 1: broader trends in some kind of direction. I'm trying to

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Speaker 1: figure out. You know, people are worried about peak profitability.

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Speaker 1: As we watch profit margins rise to a record, do

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Speaker 1: you get any sense that we are at that point

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Speaker 1: or do you think that this cycle has a lot

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Speaker 1: more room to run. The people, well, this this is

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Speaker 1: this has been sort of an issue that's been bandied

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Speaker 1: about recently. There's a lot of sometimes uh, semantic inaccuracies here.

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Speaker 1: What does that mean exactly? And I think that what's

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Speaker 1: what what's meant is what what makes sense is that

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Speaker 1: the year over year percent change and earnings are peaking

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Speaker 1: this year. And I mean obviously, with a tax cut

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Speaker 1: as large as we had at the end of last year,

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Speaker 1: we're gonna get earnings of about on a year over

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Speaker 1: your basis, that's not going to continue. They're going to

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Speaker 1: settle down to the trend growth assuming no recession um

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Speaker 1: and that's me about five to seven percent. So in

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Speaker 1: terms of the growth rate, yeah, the growth rates peaked.

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Speaker 1: To me, it's not going to do double digits again

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Speaker 1: the next couple of years. But beyond that, there's no

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Speaker 1: reason why the market can continue to rise along with things.

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Speaker 1: And if market after this year goes up five to

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Speaker 1: seven I don't have a problem with that. Well, what

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Speaker 1: one variable here is wages, right, because we really haven't

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Speaker 1: seen wages increase. And when I talked to a number

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Speaker 1: of equity analysts. They say, when we start seeing companies

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Speaker 1: actually have to pay up to higher quality people, then

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Speaker 1: that's going to cut into profit margins, reduce their attractiveness.

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Speaker 1: But if they don't start paying people more, how long

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Speaker 1: can the consumers keep spending? Yeah, I mean you you

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Speaker 1: you raise another very important question on this profitability issue,

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Speaker 1: peak profitability. I mean, so we could talk about the

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Speaker 1: year of your growth rate and earnings and it's peaking

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Speaker 1: this year, but it will still grow next year, again

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Speaker 1: assuming as I do, there will be no recession. But

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Speaker 1: you also raise the issue of the profit margin, and

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Speaker 1: the profit margin, which bears have been saying has got

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Speaker 1: to revert to the mean fever since the bolt market

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Speaker 1: started almost um that that margin actually hit an all

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Speaker 1: time record high even for the SMP fourth quarter before

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Speaker 1: the tax cut, and then the tax got hits and

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Speaker 1: we're so, I think there's actually some room for the

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Speaker 1: margin to give, give some back to fund maybe some

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Speaker 1: wage increases, some more capital spending. But you know what

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Speaker 1: I mean, we've been waiting for good here for a

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Speaker 1: long time. With the labor market. Wage inflation just remains

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Speaker 1: extremely quiescent. And I think it's because ever since the

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Speaker 1: trauma two thousand and eight, corporations have been focused on

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Speaker 1: the profit margin. So given the fact that you seem

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Speaker 1: really positive on markets, and given the fact that we

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Speaker 1: talked with a lot of people who are starting to

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Speaker 1: get cautious. I mean, think about PIMCO, or you think

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Speaker 1: about a lot of the big asset managers. What's your

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Speaker 1: best contrarian call here? Well, Um, I guess that the

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Speaker 1: U S stock market will continue to outperform in a

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Speaker 1: relative basis all other stock markets around the world, major

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Speaker 1: stock markets. Um, And we'll do so even in an

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Speaker 1: absolute basis. So I mean, I've got on the SMP

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Speaker 1: five hundred by the end of the year. I've been

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Speaker 1: using that number since the beginning of the year. I

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Speaker 1: felt like a genius in in January and then put

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Speaker 1: like a complete idiot. What I'm gonna do with myself

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Speaker 1: when when the market took a dive there in early February.

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Speaker 1: I've been not feeling some my intelligence again again, I'm

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Speaker 1: feeling like genius again. Not a genius. I don't want

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Speaker 1: to go that far, you know, I always have to

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Speaker 1: be somewhat humble in this business. But yeah, thirty one

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Speaker 1: d by by your end or sooner there there, I've

429
00:22:27,680 --> 00:22:30,919
Speaker 1: been very possible optimistic on earnings. It wasn't hard to

430
00:22:30,960 --> 00:22:33,840
Speaker 1: do with a tax cut, but they're coming even stronger

431
00:22:33,880 --> 00:22:37,560
Speaker 1: than I had anticipated. What about people? Sort of the

432
00:22:37,600 --> 00:22:39,680
Speaker 1: consensus call right now is that we're going to see

433
00:22:39,680 --> 00:22:42,840
Speaker 1: a down term within the next probably in eighteen eighteen

434
00:22:42,880 --> 00:22:45,719
Speaker 1: months to two years. Do you disagree for the economy,

435
00:22:46,280 --> 00:22:48,600
Speaker 1: I don't know what they know that you know that

436
00:22:48,680 --> 00:22:50,240
Speaker 1: I've been missing here. I mean, I follow all the

437
00:22:50,240 --> 00:22:52,879
Speaker 1: same data that that they do. I don't think uh,

438
00:22:53,160 --> 00:22:56,240
Speaker 1: I think you know, there's suddenly I'm getting a lot

439
00:22:56,240 --> 00:22:59,080
Speaker 1: of questions about is this uh about to become the

440
00:22:59,119 --> 00:23:01,400
Speaker 1: longest bullmark? Good than if it is, it's because it's

441
00:23:02,160 --> 00:23:05,159
Speaker 1: discounting the fact that this will probably the longest expansion

442
00:23:05,480 --> 00:23:09,280
Speaker 1: next next, next July. And I don't know that. I

443
00:23:09,280 --> 00:23:12,760
Speaker 1: don't see the excesses busts are caused by booms, and

444
00:23:12,840 --> 00:23:15,760
Speaker 1: I don't see that we got an inflationary boom problem

445
00:23:15,840 --> 00:23:18,320
Speaker 1: right now. Well, there you have it. A note of

446
00:23:18,359 --> 00:23:22,160
Speaker 1: optimism ahead of a software open this morning from Dr

447
00:23:22,720 --> 00:23:24,800
Speaker 1: Edit your Denny, Thank you so much for being Thank you,

448
00:23:25,359 --> 00:23:28,280
Speaker 1: thanks very much. Dr Ediadini is president of your Denny

449
00:23:28,480 --> 00:23:34,040
Speaker 1: Regge Search, and he is a longtime market analyst, very respected,

450
00:23:34,480 --> 00:23:36,399
Speaker 1: cutting a seeth at the Federal Reserve as well as

451
00:23:36,400 --> 00:23:55,560
Speaker 1: predictional security is in Deutsche Banking UH Associates. Right now,

452
00:23:55,840 --> 00:24:00,399
Speaker 1: there is this divergence going on in the retails sector.

453
00:24:00,440 --> 00:24:03,679
Speaker 1: You have winners, big winners I'm thinking Walmart, and you

454
00:24:03,760 --> 00:24:06,360
Speaker 1: have big losers that have been losers for a long

455
00:24:06,400 --> 00:24:08,600
Speaker 1: time but are losing even more. The j C. Pennies

456
00:24:08,640 --> 00:24:11,000
Speaker 1: and sears is of the world joining us now and

457
00:24:11,040 --> 00:24:13,800
Speaker 1: pleased to say is Dana Telsey, chief executive and Chief

458
00:24:13,840 --> 00:24:18,280
Speaker 1: Research Office Officer of Telsey Advisory Group. Dana, thank you

459
00:24:18,320 --> 00:24:20,520
Speaker 1: so much for being with us. I want to start

460
00:24:20,560 --> 00:24:24,280
Speaker 1: with j C. Penny because a number of analysts are

461
00:24:24,320 --> 00:24:27,359
Speaker 1: downgrading their estimates to mere pennies on the dollar for

462
00:24:27,560 --> 00:24:30,399
Speaker 1: the shares of this company. Why is j C. Penny

463
00:24:30,520 --> 00:24:33,520
Speaker 1: still alive? And will this be the year that some

464
00:24:33,600 --> 00:24:37,400
Speaker 1: of the laggards that have been really kind of flagging

465
00:24:37,400 --> 00:24:40,359
Speaker 1: in performance for years when they finally have to face

466
00:24:40,359 --> 00:24:43,760
Speaker 1: a reckoning. I think, first of all, thank you very

467
00:24:43,800 --> 00:24:45,720
Speaker 1: much for having me on. I think overall, when you

468
00:24:45,760 --> 00:24:49,119
Speaker 1: see lagging retailers, takes a long time to kill a retailer,

469
00:24:49,359 --> 00:24:52,600
Speaker 1: whether it was Blockbuster, whether it's Radio Shack, or whether

470
00:24:52,680 --> 00:24:55,840
Speaker 1: it's Sears. They don't go away overnight with a retailer

471
00:24:55,960 --> 00:24:58,800
Speaker 1: like j. C. Penny. Certainly for this year, it seems

472
00:24:58,840 --> 00:25:01,280
Speaker 1: like they continue to have have over two billion dollars

473
00:25:01,280 --> 00:25:04,760
Speaker 1: in liquidity, hundred and sixty million dollars coming due over

474
00:25:04,960 --> 00:25:08,600
Speaker 1: the next two years, and even at their their peak,

475
00:25:08,680 --> 00:25:10,960
Speaker 1: they still have north of a billion and a half

476
00:25:10,960 --> 00:25:13,720
Speaker 1: of liquidity. So it takes a long time. The search

477
00:25:13,760 --> 00:25:17,960
Speaker 1: for CEO is essential. Completion of that search is definitely essential,

478
00:25:18,440 --> 00:25:22,200
Speaker 1: and let's see how their strategies evolve. But also, frankly,

479
00:25:22,200 --> 00:25:25,639
Speaker 1: what's happening with these weaker retailers. You're seeing others gain share.

480
00:25:26,000 --> 00:25:27,919
Speaker 1: I mean, look what you're seeing at Cole's, Look what

481
00:25:27,960 --> 00:25:30,159
Speaker 1: you've seen at Walmart, Look what you've seen at the

482
00:25:30,160 --> 00:25:35,280
Speaker 1: off Pricers. Retailer can be cyclical, alright, So you're talking

483
00:25:35,400 --> 00:25:37,639
Speaker 1: about how j C. Petty could survive even though it

484
00:25:37,680 --> 00:25:41,639
Speaker 1: shares dropped yesterday and are down nearly three percent ahead

485
00:25:41,640 --> 00:25:46,640
Speaker 1: of the open today. UM, I'm wondering going forward if

486
00:25:46,680 --> 00:25:49,200
Speaker 1: you think that any of the sort of beaten up

487
00:25:49,240 --> 00:25:52,760
Speaker 1: retailers are more attractive than they look to investors currently.

488
00:25:53,400 --> 00:25:55,480
Speaker 1: I think one of the ones that's that's interesting. I

489
00:25:55,480 --> 00:25:57,800
Speaker 1: think you have Gap out there, And keep in mind

490
00:25:57,840 --> 00:26:01,040
Speaker 1: forty percent of GAPS business is Old Navy, which has

491
00:26:01,080 --> 00:26:04,800
Speaker 1: been strong. You have the athletic business which is growing.

492
00:26:05,160 --> 00:26:08,000
Speaker 1: You have the GAP brand, which they're addressing the issues.

493
00:26:08,160 --> 00:26:11,240
Speaker 1: We know what the what the issues are, and typically

494
00:26:11,240 --> 00:26:15,159
Speaker 1: when that stock hits near thirty, it always is attractive

495
00:26:15,200 --> 00:26:18,200
Speaker 1: and it has that ability to move upwards to thirty nine.

496
00:26:18,560 --> 00:26:21,119
Speaker 1: The other one that's been beaten up recently that we

497
00:26:21,200 --> 00:26:24,040
Speaker 1: think is very attractive as Children's Place. They have a

498
00:26:24,160 --> 00:26:27,080
Speaker 1: dominant they have a dominant place in the market. They're

499
00:26:27,119 --> 00:26:30,159
Speaker 1: gaining share. They have done a very good job at

500
00:26:30,240 --> 00:26:34,840
Speaker 1: inventory planning and allocation and sell through whether it's online,

501
00:26:34,840 --> 00:26:38,240
Speaker 1: whether it's in stores, whether it's through Amazon. Their model

502
00:26:38,359 --> 00:26:42,119
Speaker 1: is very compelling. I have to confess something that I

503
00:26:42,280 --> 00:26:44,959
Speaker 1: shopped at Children's Place for my children, and the one

504
00:26:45,080 --> 00:26:48,560
Speaker 1: nice thing is it's not super expensive and they have staples.

505
00:26:48,600 --> 00:26:52,200
Speaker 1: And that sounds really obvious, but it's actually really hard

506
00:26:52,240 --> 00:26:55,040
Speaker 1: to find. I'm looking right now. It shares a Children's

507
00:26:55,040 --> 00:26:57,160
Speaker 1: Place in about a hundred thirty dollars a share. Where

508
00:26:57,160 --> 00:26:59,560
Speaker 1: do you see them going. I mean, I think there's

509
00:26:59,600 --> 00:27:03,000
Speaker 1: no reason why Children's Place isn't going to move higher

510
00:27:03,040 --> 00:27:05,919
Speaker 1: to at least hundred fifty, hundred and sixty and higher.

511
00:27:06,280 --> 00:27:08,720
Speaker 1: I think the opportunity over time for them to be

512
00:27:08,800 --> 00:27:12,720
Speaker 1: able to gain share is significant, and I mean I

513
00:27:12,760 --> 00:27:14,920
Speaker 1: think it's a hundred and sixty five dollar stock over

514
00:27:14,960 --> 00:27:17,560
Speaker 1: the next two years or so. Interesting. What about L

515
00:27:17,640 --> 00:27:20,560
Speaker 1: Brands Victoria's Secrets parent company. They've been really beaten up

516
00:27:20,640 --> 00:27:23,199
Speaker 1: this year. Uh do you see upside there or is

517
00:27:23,240 --> 00:27:26,639
Speaker 1: that a completely different story. I think they're working on

518
00:27:26,680 --> 00:27:31,440
Speaker 1: the Victoria's Secret business to update and enhance the product offering,

519
00:27:31,640 --> 00:27:35,040
Speaker 1: update and enhanced the brand messaging. They have a significant

520
00:27:35,080 --> 00:27:39,320
Speaker 1: share in the intimates business. The intimate category is very compelling,

521
00:27:39,720 --> 00:27:42,879
Speaker 1: and the combination of Bath and body Works and Victoria's

522
00:27:42,920 --> 00:27:46,600
Speaker 1: Secret frankly allows them to continue to navigate. We do

523
00:27:46,800 --> 00:27:50,439
Speaker 1: need to see consistency, stability, and an uptick in the

524
00:27:50,520 --> 00:27:54,119
Speaker 1: Victoria's Secret brand. I think the management team is working

525
00:27:54,240 --> 00:27:56,800
Speaker 1: very hard to make that happen. Yeah, AL Brands is

526
00:27:56,840 --> 00:28:01,359
Speaker 1: down so far a year today, I am wondering, though

527
00:28:02,040 --> 00:28:04,920
Speaker 1: you know, it wasn't so long ago. I believe maybe

528
00:28:05,200 --> 00:28:07,520
Speaker 1: even just a year ago, the people were warning of

529
00:28:07,560 --> 00:28:10,840
Speaker 1: the retail apocalypse that was coming to us to a

530
00:28:10,880 --> 00:28:13,560
Speaker 1: theater near you, and it has yet to materialize. And

531
00:28:13,560 --> 00:28:17,200
Speaker 1: now people are talking about the resurgence of even department stories.

532
00:28:17,240 --> 00:28:20,160
Speaker 1: I mean, Macy's has seen an incredible runny, even with

533
00:28:20,400 --> 00:28:24,480
Speaker 1: their recent decline after earnings. But I'm just wondering, you know,

534
00:28:24,560 --> 00:28:27,520
Speaker 1: what do people get wrong? Why? Why are retailers doing

535
00:28:27,560 --> 00:28:29,840
Speaker 1: so much better than so many people had to expected.

536
00:28:30,440 --> 00:28:33,040
Speaker 1: I think there's two things that's happening. The strength of

537
00:28:33,080 --> 00:28:36,840
Speaker 1: the consumers compelling, and it's not just the consumer, and

538
00:28:36,840 --> 00:28:40,360
Speaker 1: it's consumers of all ages, frankly, and all income levels.

539
00:28:40,360 --> 00:28:42,520
Speaker 1: In terms of what we've been seeing out there lately,

540
00:28:43,000 --> 00:28:45,240
Speaker 1: take a look at the unemployment rate which has been

541
00:28:45,280 --> 00:28:48,360
Speaker 1: so low, Look at disposable income which has been growing,

542
00:28:48,800 --> 00:28:53,720
Speaker 1: disposable income wage increases. Couple that with product innovation and

543
00:28:53,840 --> 00:28:56,920
Speaker 1: newness sets out there that's driving demand. We haven't had

544
00:28:56,960 --> 00:28:59,600
Speaker 1: an apparel cycle in a long time. And one of

545
00:28:59,640 --> 00:29:01,960
Speaker 1: the things we're seeing out there, marry it with the

546
00:29:02,000 --> 00:29:05,440
Speaker 1: government numbers. All of a sudden, you're seeing personal consumption

547
00:29:05,480 --> 00:29:09,560
Speaker 1: expenditure trends. Second quarter clothing and footwear spending grew by

548
00:29:09,600 --> 00:29:12,760
Speaker 1: four point one percent. That's up from two two point

549
00:29:12,840 --> 00:29:16,000
Speaker 1: seven percent in the first quarter. And even take a

550
00:29:16,040 --> 00:29:19,160
Speaker 1: look at clothing and accessory stores, they're up in the

551
00:29:19,200 --> 00:29:23,920
Speaker 1: second quarter around seven point three outpacing overall retail sales.

552
00:29:24,480 --> 00:29:27,880
Speaker 1: There's product out there, it's in demand at compelling prices,

553
00:29:28,240 --> 00:29:30,800
Speaker 1: and you're marrying that with ability to buy that in

554
00:29:30,960 --> 00:29:35,080
Speaker 1: different channels, both online and in physical stores, with inventory

555
00:29:35,160 --> 00:29:38,080
Speaker 1: levels that are clean, so it's driving more full price selling.

556
00:29:38,520 --> 00:29:41,440
Speaker 1: We have a season that's coming up that should be exciting,

557
00:29:41,920 --> 00:29:45,200
Speaker 1: really really interesting, especially given some of the pessimism that's

558
00:29:45,200 --> 00:29:47,760
Speaker 1: been baked into the death of brick and mortar that

559
00:29:47,880 --> 00:29:50,400
Speaker 1: just really has not happened to the extent that so

560
00:29:50,400 --> 00:29:53,080
Speaker 1: many people had expected. Data Telsea thank you so much

561
00:29:53,120 --> 00:29:55,959
Speaker 1: for being with us. Dana Telsea as chief executive officer

562
00:29:56,000 --> 00:30:05,440
Speaker 1: and chief research officer of Chelsea Advisory. Thanks for listening

563
00:30:05,480 --> 00:30:10,040
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews

564
00:30:10,080 --> 00:30:15,320
Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

565
00:30:15,840 --> 00:30:19,200
Speaker 1: I'm on Twitter at Tom Keene before the podcast. You

566
00:30:19,240 --> 00:30:22,640
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio