Speaker 1: This is Bloomberg Business Week. I'm Carole Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanovk. We're here every day bringing
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Speaker 1: You can also listen to our radio show at two
Speaker 1: pm Eastern Time on Bloomberg Radio, or watch us on
Speaker 1: YouTube search Bloomberg Global News. Just about one year ago,
Speaker 1: the Southern California inspired active where brand Vori got a
Speaker 1: four hundred million dollar investment from soft Bank, giving the
Speaker 1: company at that time a four billion dollar valuation. That
Speaker 1: brand founded in by Joe Couldla. We got Joe Kudla
Speaker 1: joining us now, founder and CEO of Vori joining us
Speaker 1: on the phone from New York City, trading one coast
Speaker 1: for the other coast. Joe, good to have you this
Speaker 1: with us this afternoon. How are you. I'm doing great,
Speaker 1: Thank you so much. Great to be here in New York. Hey, Well,
Speaker 1: thanks so much for joining us on this UM. So
Speaker 1: I want to talk about the company, but before we
Speaker 1: get to the company, I want to talk a little
Speaker 1: bit about the macroeconomic environment and get an understanding from
Speaker 1: you about how the consumer is faring around the world
Speaker 1: right now, because you guys are an expansion mode, which
Speaker 1: is definitely not the same thing as other companies that
Speaker 1: are out there right now that are pulling back a
Speaker 1: little bit. Absolutely, UM. You know, it's an interesting time.
Speaker 1: There is, without question we are you're we're dealing with
Speaker 1: complicated macro economic issues on a global scale, UM. But
Speaker 1: we do feel there's a bifurcation between you know, best
Speaker 1: in class brands that are leaders in their categories, that
Speaker 1: are innovating UM, and folks that are maybe called the
Speaker 1: middle of the pack, more legacy mass market brands UM,
Speaker 1: that are seeing you know, growth really slow as a
Speaker 1: result of this inflationary environment that we're in. You know,
Speaker 1: we feel very fortunate to be UM, you know, experiencing
Speaker 1: dynamic growth this year. I feel our our customer, are
Speaker 1: relationship with our customer has never been stronger. We're excited
Speaker 1: about Q four and holiday. When we look towards we
Speaker 1: are being optimistic but cautiously optimistic. We are planning for
Speaker 1: another year of dynamic growth. We are going to continue
Speaker 1: to expend our fleet of retail stores, but we're not
Speaker 1: trying to swing for the fences. We want to lock
Speaker 1: in a number that we're that we're really content with,
Speaker 1: not overinvest in the business, UM, and be be responsible
Speaker 1: with our growth because there are some macro factors that
Speaker 1: we're watching very closely, and UM, we just don't know
Speaker 1: how things will go. No, And you know it's interesting too.
Speaker 1: I think at the time about a year ago of
Speaker 1: that soft bank investment, which was just about a year ago, UM,
Speaker 1: it was reported that you plan to open more than
Speaker 1: a hundred stores in the US over five years. So
Speaker 1: as you look at those macro concerned, has that number
Speaker 1: been reduced or that plan that forecast been changed? You
Speaker 1: know it hasn't. Actually, you know, the performance of our
Speaker 1: stores today and has never been stronger. UM. We're still
Speaker 1: very bullish on our vertical retail expansion. UM. You know,
Speaker 1: four wall contribution payback still best in class, and you know,
Speaker 1: we're in the unique position because you know, relative to
Speaker 1: the size of the market, theory is still very much
Speaker 1: early stage. You know, we're in our seventh year of
Speaker 1: selling in market UM, and there's a lot of opportunity
Speaker 1: to gain market share UM as we grow into the
Speaker 1: years to come. So while we might be in a
Speaker 1: more challenged macro environment, I think that will be counterpunts
Speaker 1: by the growth and taking market share from some of
Speaker 1: the other more established players. So talk to us about
Speaker 1: growth metrics where Bloomberg we're nerdy, We leve all these numbers,
Speaker 1: so talked about top and bottom line growth. Give us
Speaker 1: an idea same store sales growth. What have you guys
Speaker 1: been seeing? Yeah, I mean this year where we're seeing,
Speaker 1: you know, the business is going to grow north of
Speaker 1: between seventy and upline UM at at a pretty sizeable scale.
Speaker 1: It's a number that we're very proud of. UM. You know,
Speaker 1: our same store sales are still comping very strong over
Speaker 1: prior years, demonstrating you know that you know, it's still
Speaker 1: very much early in our awareness curve. People are experiencing
Speaker 1: the brand, we're converting them into loyalists, they're shopping with
Speaker 1: us for years to come while acquiring more new customers.
Speaker 1: So we see really great year over year growth in
Speaker 1: our existing fleet UM. And then you know, as we
Speaker 1: expand the network across the country. You know, we're leveraging
Speaker 1: e commerce data so we can be really intelligent about
Speaker 1: where we go. UM and we tend to open strong.
Speaker 1: And I think that that trend is really accelerating as
Speaker 1: the brand builds more and more awareness. Joe, how are
Speaker 1: you doing with inventory right now? We saw inventory challenges
Speaker 1: of course from Nike just in the last couple of weeks,
Speaker 1: not to mention, you know, companies that we can't necessarily
Speaker 1: compare you to, like Target for examp ample, How are
Speaker 1: you managing inventory? Yeah, it's a great question. You know,
Speaker 1: we have definitely seen impacts from this complicated supply chain environment. UM,
Speaker 1: although we are seeing it begin to normalize, especially on
Speaker 1: the logistics side of the supply chain, you know, getting
Speaker 1: your product in containers, getting it on boats and delivering
Speaker 1: on time. That has become much more normalized. The cost
Speaker 1: of a container, you know, from Asia to the West
Speaker 1: coast of the United States. You know, pre pandemic was
Speaker 1: you know, called three thousand dollars. It went up as
Speaker 1: high as eighteen thousand dollars. Now back to pre pandemic
Speaker 1: levels or materially close to pre pandemic level. So the
Speaker 1: logistics aspects of supply chain have normalized, where we're still
Speaker 1: seeing a lot of challenges in the ability to source
Speaker 1: raw materials um and get them delivered to your factory
Speaker 1: partners on time. So what happened to the larger marketplaces?
Speaker 1: You know, your spring deliveries delivered late. That created promotion
Speaker 1: as we transition and from spring and summer into fall,
Speaker 1: and then you saw the same thing happen, you know,
Speaker 1: and it was it was a double whammy with the
Speaker 1: deliveries of fall being material delayed for a lot of
Speaker 1: our peers, and that's putting a lot of pressure on
Speaker 1: inventory levels. That's why a lot of folks anticipate highly
Speaker 1: promotional holiday coming up. Viewer. While we're not immune to
Speaker 1: these challenges, we've stayed very close to our supply chain.
Speaker 1: We've dealt with delays, but nothing that's been catastrophic, and
Speaker 1: we've been able to maintain our full price business, which
Speaker 1: has been a goal of ours since we launched in
Speaker 1: the spring of two thousand and fifteen. And we don't
Speaker 1: anticipate in overly promotional holiday. So you probably you probably
Speaker 1: know better than anybody else the competition that's out there,
Speaker 1: whether it's you know, those giant brands, including Nike, You've
Speaker 1: got Lulu Lemon, You've got under Armour. I mean, it's
Speaker 1: a super competitive market that could be on track for
Speaker 1: some slowing growth because you know, what we're seeing is
Speaker 1: people are going back to the office. I've stopped wearing
Speaker 1: my yoga pants during work. You know, I'm back wearing
Speaker 1: you know what I would call grown up clothes um
Speaker 1: in a big way. So tell us, you know how,
Speaker 1: what's the competitive advantage that gives you the optimism that
Speaker 1: you can continue on your growth trajectory. Yeah, I think
Speaker 1: those Yeah, it's a great point, you know. And it's
Speaker 1: it's interesting. When we launched the brand, we were facing
Speaker 1: this competition and we saw nothing but open space. And
Speaker 1: I think it's due to our product positioning, our brand positioning,
Speaker 1: the ethos of the brand, which is built to move
Speaker 1: in style for life. And it all comes down to
Speaker 1: building product that will support you in a workout, but
Speaker 1: it will transition and work across multiple aspects of your life.
Speaker 1: And so we prioritize fabrications that are have performance at
Speaker 1: their core, but they're incredibly soft. We design all of
Speaker 1: our products with a more modern athletics fit that works
Speaker 1: across multiple aspects of your life, and we design our
Speaker 1: product with an aesthetic, color story um that is sophisticated,
Speaker 1: that doesn't identify you as somebody going to the gym,
Speaker 1: are going to compete in a sport, but it just
Speaker 1: again works across multiple aspects of your life. That was
Speaker 1: always the premise of the brand, and we applied it
Speaker 1: first and foremost to activewear product that you would move
Speaker 1: and sweat in. But the brand has really evolved and
Speaker 1: when you look at our assortment and where we're growing,
Speaker 1: it's evolved from core fitness into outdoor, which is rooted
Speaker 1: in outerwear, and the fastest growing segment of our brand
Speaker 1: is travel commute, which is taking the lessons those technical
Speaker 1: fabrications and constructions that we applied to activewear and applying
Speaker 1: it to everyday sports where and that's one of the
Speaker 1: fastest growing segments of our collection. And those are the
Speaker 1: products that you're wearing to the office, you're wearing to travel,
Speaker 1: you're wearing on the golf course. And so I think
Speaker 1: our vision to build a more well rounded collection that
Speaker 1: speaks to multiple aspects of your life is really benefiting us.
Speaker 1: As you see the preferences of the consumer change. So
Speaker 1: there are a couple of different directions that it seems
Speaker 1: like the company could go at this point in terms
Speaker 1: of trajectory. One of them is the Lulu Lemon route
Speaker 1: where you go public. Another one and forgive me, but
Speaker 1: this has happened before. I think of a company like
Speaker 1: Outdoor Voices, which you know, five years ago was the
Speaker 1: talk of the town of the town and has gone
Speaker 1: through several CEO transitions and a New York Times profile
Speaker 1: that essentially said that it imploded after raising about fifty
Speaker 1: million dollars in funding. How do you avoid the fate
Speaker 1: of a company like Outdoor Voices. It all comes down
Speaker 1: to your people, incredible leadership, alignment of your people, but
Speaker 1: higher talent to people that are much better than yourself.
Speaker 1: That's been our ethos from day one is building an incredible,
Speaker 1: incredible team that can see around those corners, you know,
Speaker 1: and prioritizing making incredible products. You know, we are maniacal
Speaker 1: about our products, our level of service. You know, the
Speaker 1: the NPS scores in our stores are off the charts,
Speaker 1: and I think that's the most important thing. You know,
Speaker 1: it's hard comparison. You look at a brand like Outdoor
Speaker 1: Voice is in theory. You know, I wasn't great at
Speaker 1: raising capital in the early days. Admittedly um I didn't
Speaker 1: have a background building an apparel business, and so the
Speaker 1: little capital that I did get, I had to make
Speaker 1: it stretch a long way. And so we prioritized, you know,
Speaker 1: the basics of business, the fundamentals of you know, acquiring
Speaker 1: customers profitably from day one, and we built a business
Speaker 1: that was profitable from early stage and we never had
Speaker 1: to sacrifice that profitability for growth over the years. And
Speaker 1: I think that's why theory received. You know, one of
Speaker 1: the highest private market apparel valuations ever is because we've
Speaker 1: been able to demonstrate a commitment to growth, doing it
Speaker 1: profitably and also responsibly with our commitment to E s
Speaker 1: G and making decisions that prioritize the planet UM as
Speaker 1: we're as we're building, which is an important part. Increasingly
Speaker 1: for consumers, we know that they look at what a
Speaker 1: company stands for their impact on the environment. Hey, Joe,
Speaker 1: just before we wrap up, So what's the endgame here?
Speaker 1: Is it ultimately to go public at some point? I
Speaker 1: think that could be a viable outcome. Right now, we're
Speaker 1: very heads down building the business. We're having a lot
Speaker 1: of fun. I'm a young man. I've got a lot
Speaker 1: of energy for the business. We've got big plans for
Speaker 1: growth both here in the in the US as well
Speaker 1: as abroad, and so today that's what we're focused on.
Speaker 1: But you know, we want to optimize the business and
Speaker 1: provide the best return for our shareholders. A public offering
Speaker 1: could be a viable option down the road. All right,
Speaker 1: We're going to leave it on that note. Great stuff, Joe,
Speaker 1: and stay in touch so that we can, uh, you know,
Speaker 1: here more as you guys continue to grow the business
Speaker 1: here in the US and certainly outside. They're based in Encinitas, California,
Speaker 1: which is like the best place in the world. Okay,
Speaker 1: somebody from southern California like Encinitas is great. I know
Speaker 1: you're kind of talking your book there, Tim Stinovic. All right,
Speaker 1: Joe could thank you so much. Founder and c F
Speaker 1: Vori joining us on the phone in New York City.
Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes. Tim Stinovic on Bloomberg Radio. Well, we mentioned
Speaker 1: earlier you know what's past is prologue, which gets us
Speaker 1: to a story in the upcoming issue of Bloomberg Business Week.
Speaker 1: It'll be a new double issue out later this week.
Speaker 1: It's a story about Paul Woker's inflation fight and how
Speaker 1: it hints at what lies ahead for the current Fed
Speaker 1: chief J. Powell. Yeah, the Fed had to inflict a
Speaker 1: lot of pain in the eighties to convince markets. It
Speaker 1: was serious. We've got just a fantastic guest with us
Speaker 1: this afternoon. Christine Harper is Executive editor of Finance and
Speaker 1: Investing at Bloomberg Editorial. She joins us live in the
Speaker 1: Bloomberg Interactive Broker Studio. She's also, along with Paul Woker,
Speaker 1: the co author of Keeping at It, The Quest for
Speaker 1: Sound Money and Good Government. It's paul workers memoir. So, Christine,
Speaker 1: you spent a lot of time, um with the late
Speaker 1: former Chairman of the Federal Reserve. I just want to
Speaker 1: start with with that as some context here, give us
Speaker 1: an idea of you know how he would in your interpretation, Um,
Speaker 1: look at the inflation fight that's J Powell is doing today. Well,
Speaker 1: I can tell you when he was writing his memoir
Speaker 1: back in eighteen No, but he was playing attention to inflation.
Speaker 1: In fact, if they were at all, it was in
Speaker 1: an effort to get more inflation right, So he was
Speaker 1: quite concerned that people were underestimating the risks, and so
Speaker 1: part of the mission of the book was to remind
Speaker 1: people of how important the central bank's role is in
Speaker 1: in in keeping inflation down and maintaining that credibility that
Speaker 1: he fought so hard to maintain. I mean, he had
Speaker 1: been involved in getting the dollar off the gold standard,
Speaker 1: and after that the dollar was not it was not
Speaker 1: connected to any actual value, and so when inflation took root,
Speaker 1: he had to drive interest rates up to unprecedented levels,
Speaker 1: caused all kinds of pain for people, for financial institutions
Speaker 1: and and um. The result was there was more credibility
Speaker 1: in the dollar. It some people talked about it when
Speaker 1: on the Vulcar standard from the gold standard, but you know,
Speaker 1: that's something you can't squander because he fought so hard.
Speaker 1: So it's kind of like having gone to war to
Speaker 1: fight a fight, you know, to win a battle, and
Speaker 1: then discover that your future, you know, commanders are allowing
Speaker 1: you to give up the territory again. So he he
Speaker 1: would have been very upset that inflation was allowed to
Speaker 1: get to where it was. We're talking like Christine Harper
Speaker 1: and as we mentioned this is in the upcoming new
Speaker 1: double issue of Bloomberg Business Week out later this week.
Speaker 1: Also with us is the editor of Bloomberg Business Week,
Speaker 1: Joel Webber. Christine, thank you for this remarks. Uh also
Speaker 1: just wanted to ask, you know, and you might have
Speaker 1: to extrapolate here a little bit, but I mean you
Speaker 1: you got to know Mr Vocal very well. I'm curious
Speaker 1: what you think, if anything, Powell might have learned from
Speaker 1: from him, and if not him directly, then the book.
Speaker 1: Oh yeah, well, I mean, you know, as you and
Speaker 1: I have discussed. I mean, one of the things that's
Speaker 1: so interesting is how often FED Chairman Powell invokes not
Speaker 1: only you know, Volker himself, who he says he's a
Speaker 1: great admirer of, but but the book. I mean, he
Speaker 1: talks about everybody should read it. And he he has
Speaker 1: used this phrase keep at it, which people see as
Speaker 1: an echo of the title keeping at it um let
Speaker 1: one more time keeping at it um And you know, uh,
Speaker 1: the thing that I think Powell sees, and I mean
Speaker 1: one thing that Vulgar made clear was when I was
Speaker 1: speaking to him, was how how much he's he supported
Speaker 1: Powell as FED chairman because he liked the fact that
Speaker 1: Powell had this similar to Vulcar had this experience of
Speaker 1: having worked in the finance in a private financial institution.
Speaker 1: In Vulcar's case it was Chase, in Powell's case it's
Speaker 1: Carlisle and other places, and also working at the Treasury Department.
Speaker 1: So understanding markets, understanding the government is really important to
Speaker 1: being practical in the job, and not just being an
Speaker 1: academic theorist. So I think um Powell shares that sort
Speaker 1: of recognition that you have to win credibility from the markets,
Speaker 1: from the government, all these sides, and be practical in
Speaker 1: your approach and not just you know, not just trust
Speaker 1: all the economists around Christie. How tough was it for
Speaker 1: Vulcar two hike rates? Like what were some of the
Speaker 1: conversations that you all had about that, which was going
Speaker 1: against what everybody wanted, But it was necessary in order
Speaker 1: to write the situation well to that point. I mean,
Speaker 1: he he said that when he came into the role,
Speaker 1: it was clear. I mean the reason he he was
Speaker 1: brought in really was to do something about inflation that
Speaker 1: his predecessors hadn't really succeeded in bringing down. Even so
Speaker 1: at that point the economist had to FED were forecasting recession,
Speaker 1: so he had to sort of ignore that and just
Speaker 1: say we're gonna raise rates. There was a split on
Speaker 1: the on the Federal Reserve Board on the second time
Speaker 1: they voted, and so the markets didn't believe there would
Speaker 1: be any stronger action. They thought the FED was going
Speaker 1: to lose their spine, and so he turned to this
Speaker 1: monitorist approach of just targeting the money supply, and that
Speaker 1: essentially told people, we're tying our hands and we're gonna
Speaker 1: let interest rates go where they have to go. And
Speaker 1: they went up to like, what do you present? You know,
Speaker 1: there's a name in here that I did not expect
Speaker 1: to see that I wanted to ask about Larry Cutlow.
Speaker 1: He was quoted by the Associated Press at the time,
Speaker 1: um and he was at bear Sterns. Then what what
Speaker 1: did Mr Kudlow have to say? Well, I mean, it
Speaker 1: was funny looking back at the clips because when Paul
Speaker 1: Vulker was telling me about this fourth ree vote and
Speaker 1: nobody believed it, and he didn't see under understand really
Speaker 1: why nobody believed it, because he knew that people were
Speaker 1: supporting him would keep supporting him, but the markets didn't so,
Speaker 1: and you know, I did some research and found these
Speaker 1: comments that were made in the press at the time,
Speaker 1: including from then FED bear Sterns economist Larry Cudlow, saying
Speaker 1: that essentially the fact that the vote had split on
Speaker 1: the f O m C showed that there would be
Speaker 1: very timid approach going forward. The markets just didn't see
Speaker 1: the FED being able to stick to their guns. Okay,
Speaker 1: So I gotta ask a question because this this book
Speaker 1: almost had a different title. Oh yes, and we got
Speaker 1: to talk about that, because it's just this little easter egg.
Speaker 1: Can you talk to us about the sharett Sure, of course.
Speaker 1: Um So. As I mentioned earlier, when we started working
Speaker 1: on the book, you know, nobody was really paying a
Speaker 1: time into some of the central parts of Paul Walker's legacy,
Speaker 1: including inflation, and so he was feeling a little I
Speaker 1: think overlooked. And uh so he opened the book with
Speaker 1: this very funny joke about a parrot, a wise parrot
Speaker 1: who's known as the Chairman. And I encouraged people to
Speaker 1: look at the book because it's a very funny little story.
Speaker 1: But um but he went so far as saying he
Speaker 1: wanted to title the book The Wise Old Parrot speaks Now.
Speaker 1: The marketing Department and I all agree that was not
Speaker 1: a great title for this book. So we spent weeks
Speaker 1: trying to offer him other ideas, all of which he rejected.
Speaker 1: He hated all the pompous, kind of you know, pretentious
Speaker 1: titles that a lot of other economists and people use
Speaker 1: on their their books. So we were really going back
Speaker 1: and forth. It was very It was one of the
Speaker 1: most difficult things of working with him because he was
Speaker 1: so stubborn on this. And so finally one day I
Speaker 1: was going through this long list of titles i'd come
Speaker 1: up with, you know, I found a phrase from the
Speaker 1: Fed Minutes at that time, sustained commitment. And he looked
Speaker 1: and he stopped and he said, keeping at it. And
Speaker 1: it was great because that really was him, you know,
Speaker 1: he believed in speaking plainly, and you know, so he
Speaker 1: took the kind of jargoning, jargony phrase and translated it. Um.
Speaker 1: But I do think it would be funny if Powell
Speaker 1: was having to deal with the wise old parrot. Everyone
Speaker 1: just goes to show everyone needs a really good editor.
Speaker 1: That's what it comes down exactly. Hey, Christine, I just
Speaker 1: want to talk a little bit, a little bit about
Speaker 1: his legacy from a market's perspective and from an investing
Speaker 1: perspective as well. Given what we know about the nineteen
Speaker 1: eighties and what markets did and what inflation did after
Speaker 1: he raised rates so significantly, what's in store this time around? Well,
Speaker 1: I mean, I think everybody is seeing that interest rates
Speaker 1: are going to go up. UM. The you know, policymakers
Speaker 1: are making it very clear they're not going to back
Speaker 1: down on this UM if they show any signs of,
Speaker 1: you know, weakness. I think people understand what will happen
Speaker 1: is kind of what happened to Paul Wolker's predecessor. So
Speaker 1: I think that is an example of where Powell sees
Speaker 1: he has to be steadfast. But Um, as you would
Speaker 1: see reading the book, UM, the chapters that follow the
Speaker 1: inflation fight are a series of financial crises that UM
Speaker 1: Paul Wolkers Fed had to deal with in the wake
Speaker 1: of the interest rate increases. And so you know, when
Speaker 1: you hear these experts come on Bloomberg radio and television
Speaker 1: talking about something might break, I think, you know, what
Speaker 1: we saw back in the eighties was a lot of
Speaker 1: things broke, a lot of things weren't. We're sort of
Speaker 1: a lot of risks were built up, everything from the
Speaker 1: Hunt Brothers speculation on silver to Continental Illinois Savings and loans,
Speaker 1: all these different banks that when when belly up and
Speaker 1: so the ultimate one was the Latin American debt crisis,
Speaker 1: and uh that was so bad that in a D two,
Speaker 1: I think that was really what caused Volker to say, Okay,
Speaker 1: we've got it, back off and and and stop the
Speaker 1: inflation fights. So ultimately it is often let something breaks
Speaker 1: that there's a financial crisis. I think it's interesting on
Speaker 1: a day when the I m F has revised its
Speaker 1: estimates and the concern is about global central banks not
Speaker 1: doing enough, it fits right in to your story and
Speaker 1: certainly um your book. Christine. Thank you so much, Christine Harper.
Speaker 1: Check out our story in the new issue of Bloomberg
Speaker 1: Business Week, and of course our thanks to Joel Weber,
Speaker 1: the editor of the magazine. Christine is editor of Bloomberg
Speaker 1: Markets Magazine. This is Bloomberg Business Week with Carol Masser
Speaker 1: and Bloomberg Quick Takes, Tim Stinovic on Bloomberg Radio, Uber
Speaker 1: and Lift Tumbling. Today, after the Biden administration issue that
Speaker 1: proposal for a federal rule that would change the way
Speaker 1: it to approaches workers employment standards. It's a move that
Speaker 1: could up end the right hailing companies business models, since,
Speaker 1: as you know, they rely on millions of gig workers.
Speaker 1: I mean, it's pretty incredible to see the way that
Speaker 1: these shares the companies are moving. Were worth repeating these numbers.
Speaker 1: Uber down more than we got left down more than
Speaker 1: twelve percent, Door dashes down as well. Lift is my decliner,
Speaker 1: That's what I chose. But door dash and and Uber
Speaker 1: are down just the same. Um. Jackie Davalos this technology
Speaker 1: reporter for Bloomberg News. She joins us on the phone
Speaker 1: from Washington, d C. Jackie, why did this news catch
Speaker 1: investors so off guard? You know, I think that it
Speaker 1: was a long time coming. Even companies themselves said they
Speaker 1: were expecting this proposal to come out from the administration's
Speaker 1: first day in power. And so I think investors are
Speaker 1: really starting to grapple with what a gig worker friendly
Speaker 1: administration will really mean in practice, and this proposal is
Speaker 1: kind of the first start of that. Even though it
Speaker 1: was on companies, radars, labor activists radars um, it doesn't
Speaker 1: substantially change the way companies operate in the immediate term.
Speaker 1: But just the risk that it poses for for their
Speaker 1: business models is still very much lingering, which is why
Speaker 1: you're seeing shares fall so much today. You know, it's
Speaker 1: so funny. I keep going back to this comment that
Speaker 1: David Einhorn of green Light said that, you know, we
Speaker 1: really don't know what anything is worth, and he was
Speaker 1: really putting that against you know, investments, against kind of
Speaker 1: the big macro stories that are out there. But you
Speaker 1: take it something like lift in uber or anybody else's
Speaker 1: part of this gig economy. What does a gig right?
Speaker 1: You take a gig and you do other things. That's
Speaker 1: what it's all about. But you do have to think
Speaker 1: that if these workers are classified as regular workers with
Speaker 1: all the benefits that come along with it, that's increased
Speaker 1: costs for the company, and it's going to change how
Speaker 1: they are valued. It will have to. It has to.
Speaker 1: And you know, the argument that UM companies and labor
Speaker 1: activists have actually made is that, you know, the way
Speaker 1: we classify employees are it is rooted in a law
Speaker 1: that just doesn't account for the rise of digital work.
Speaker 1: These laws were made, uh, you know, in a post
Speaker 1: World War two era, not when you know you're ordering
Speaker 1: food and hailing a ride just from your phone, and
Speaker 1: so the landscape has totally changed. Or absolutely right, Caroline,
Speaker 1: that everyone in some capacity has a connection to gig work,
Speaker 1: whether or you're the one ordering or you're the one,
Speaker 1: um actually delivering something to someone's doore steps. So UM,
Speaker 1: this rule I think is the first step in which
Speaker 1: the administration is really looking to broaden that definition. UM.
Speaker 1: There's not a whole ton of guidance that we have
Speaker 1: on you know, will companies eventually have to fully reclassify um,
Speaker 1: but you know Uber has a little bit of experience
Speaker 1: and that you know, they had to do something similar
Speaker 1: in London a Supreme Court ruling basically said that their
Speaker 1: drivers were full time employees and and had to be
Speaker 1: given certain benefits and way to protections. The company didn't tumble.
Speaker 1: You know, it's still it's still alive. And so what
Speaker 1: a lot of um uh legal experts are saying now
Speaker 1: is that you know, this is really gonna be hashed
Speaker 1: out more so in the courts where this rule is
Speaker 1: now going to be the interpretation, uh, in the basis
Speaker 1: which you know that labor law is then applied. What
Speaker 1: I find so incredible about that Uber and Lift story
Speaker 1: is they entered these markets as disruptors and in many places,
Speaker 1: including New York City, just decimated the incumbents the taxi industry.
Speaker 1: Now we're at a place and I think anyone who's
Speaker 1: tried to take an uber or lift from the airport
Speaker 1: recognizes this. Where you're getting into one of these cars
Speaker 1: to get back from the airport. It's costing so much
Speaker 1: more than it ended up costing a yellow cab if
Speaker 1: you were to take a yellow cab. But you can't
Speaker 1: get a yellow cab these days because you know, those
Speaker 1: drivers aren't necessarily around. Yeah, Jack, you talk a little
Speaker 1: bit about the way the landscape has changed and what
Speaker 1: ends up happening here, because it does seem like at
Speaker 1: the end of the day, the way the companies are
Speaker 1: able to pay for this is through higher fares. Absolutely,
Speaker 1: and that's exactly what um. You know, the industry groups
Speaker 1: who don't want to change, well, we'll tell you that,
Speaker 1: you know, we should keep things the way they are
Speaker 1: because then it means that consumers will will bear the cost.
Speaker 1: And um, you know, while that might be kind of
Speaker 1: the extreme version, it's certainly going to be you know,
Speaker 1: part of the reality. Um, when you think about uh,
Speaker 1: you know, the protections that in the benefits that any
Speaker 1: employee has, whether it's you know, a sick day or
Speaker 1: workers compensation. A lot of these drivers have to put themselves,
Speaker 1: um sometimes in harm's way without you know, knowing that
Speaker 1: that's what they're signing up for. And and that's kind
Speaker 1: of this um this debate. Now it's not going to
Speaker 1: be one or the other. It's going to be some
Speaker 1: kind of hybrid, and investors are kind of pricing that
Speaker 1: in companies as well. I think Uber has kind of
Speaker 1: come out at the forefront of this now that they've
Speaker 1: had to contend with us in Europe that you know,
Speaker 1: they're open to what they call an independent contractor plus model.
Speaker 1: So we may not you know, have you be uh
Speaker 1: full time employees, but hey we'll throw some benefits your way. Yeah.
Speaker 1: This is like innovation disruption, pupping up against kind of
Speaker 1: the established models. We'll see how it plays out. Jackie
Speaker 1: Devolos Technology, Ploomberg News, the Journal. Now that you let
Speaker 1: me drive, Oh no, no, no no, no, please, I'll do.
Speaker 1: I want to drive. It's a good question. D This
Speaker 1: is the drive to the Clobe. Don on Bloomberg Radio.
Speaker 1: All right, everybody just about under ten minutes left in
Speaker 1: today's trading session and another volatile day bouncing around. We're
Speaker 1: certainly off our highs and loads of the session. Those
Speaker 1: Bank of England Governor comments Mr Bailey, that certainly has
Speaker 1: put some pressure on the trade today and we saw
Speaker 1: market reaction. We've got a great guest actually in studio.
Speaker 1: It has been a long time since we've had him
Speaker 1: in studio. I can't believe this is the first time
Speaker 1: I've gotten to meet him in person, and two years
Speaker 1: doing this. Doug Ramsey is chief investment officer at the
Speaker 1: Louthold Group. He joins us right now in the Bloomberg
Speaker 1: Interactive Broker studios. Doug, good to have you with us.
Speaker 1: Is this your first time back to the city. It
Speaker 1: is the pandemics here end of February, just as things
Speaker 1: were starting to erupt. Welcome back, it's going to have
Speaker 1: to be back in the city. Great vibe here in
Speaker 1: the blue Berg building as well, not a grade vibe
Speaker 1: in the markets. No, no, Well, spend on your perspective.
Speaker 1: I mean opportunities are being creative for created here for
Speaker 1: flexible managers. Well what does that mean? So I agree?
Speaker 1: Right like when everybody's running for the exits. That's when
Speaker 1: you find opportunities much smarter investors than we have said that,
Speaker 1: and you know you're saying it too. So are you
Speaker 1: saying that we're nearer bottom when it comes to the
Speaker 1: equity dropout or No? But even the selling so far
Speaker 1: provides some great opportunities. No, I think there's a ways
Speaker 1: to go. But I mean the valuations are far better
Speaker 1: than they were coming into this year. That's especially true
Speaker 1: for for mid and small company stocks. Um. You know,
Speaker 1: we tracked evaluations across the landscape and globally, but mid
Speaker 1: caps and small caps are now uh somewhat below their
Speaker 1: long term valuation averages and we haven't been able to
Speaker 1: say that for quite a while, so that that's encouraging.
Speaker 1: So I think there's a buying opportunity that is developing.
Speaker 1: It's not yet there. I mean, if we are going
Speaker 1: to get one invaluation terms on large caps, we've still
Speaker 1: got some distance to go. And that's normally the way
Speaker 1: things unfold in a bear market is large caps have
Speaker 1: better liquidity, they tend to be more defensive in nature.
Speaker 1: They are really the last to fall in a cyclical
Speaker 1: bear market. And I still think we have that that
Speaker 1: phase ahead of us. But I am encouraged by some
Speaker 1: of the valuations I see in pockets of the market
Speaker 1: for a later buying opportunity. What about when it comes
Speaker 1: to the large caps, When do you think we'll get
Speaker 1: to a buying opportunity for those? Uh? I don't like
Speaker 1: to get too focused in and really either on time
Speaker 1: horizon or price levels. I mean, I do think what's
Speaker 1: gonna evolve over the next several months is we'll have
Speaker 1: the best buying opportunity we've had in the stock market
Speaker 1: for over a decade. I mean, not back to two
Speaker 1: thousand nine levels, but I think it will be a
Speaker 1: very good buying opportunity. But just in terms of numbers,
Speaker 1: And again I mean it's well known that valuations are
Speaker 1: not a timing tool, but just for some perspective, Um,
Speaker 1: if we were to put in a bear market low
Speaker 1: that matched the valuations we saw in March of which
Speaker 1: was by far the most expensive bear market low in
Speaker 1: terms of valuations, uh, we'd still have to sink the spire.
Speaker 1: And again I don't want to get two locked into
Speaker 1: price levels here because the sps about seventeen or about
Speaker 1: seventeen point five, so still high. Well, we look at
Speaker 1: I mean, we certainly look at at four p s,
Speaker 1: but the number was really referring to like the average
Speaker 1: of multiple different valuation statistics. And we do something akin
Speaker 1: to what Robert Schuller does with the ten year pe.
Speaker 1: We've been doing it for decades using five year normalized earnings.
Speaker 1: I'm just adjusting for the fact that earnings dramatically can
Speaker 1: overshoot as they did in one and then they get
Speaker 1: crushed during recessions. Let's just try to see through that
Speaker 1: by smoothing out earnings for the cylicality of that earnings
Speaker 1: can have. So on that basis, yeah, we'd have to
Speaker 1: drop our multiple on the basis of normalized earnings is
Speaker 1: still around twenty three. That's a pretty big drop from here. Yeah,
Speaker 1: well you'd have to go from twenty three to eighteen
Speaker 1: to match again what will be the highest valuation we've
Speaker 1: ever seen, and then we supplement that with work on
Speaker 1: you know, the price to sales ratio, price to cash flow. Um,
Speaker 1: is there anything different about this market environment other than
Speaker 1: we're coming out of a pandemic that none of us
Speaker 1: have lived through before, Like, is there something you know
Speaker 1: the old adage, you know, it's different this time around,
Speaker 1: it's not different this time around. Is there something different
Speaker 1: about this market environment? Though? Well, I mean the abrupt
Speaker 1: change and not just monetary policy, but also in fiscal
Speaker 1: I mean just the delta versus a year ago. I mean,
Speaker 1: we blew out the the trailing twelve month federal deficit
Speaker 1: to as high as eighteen of GDP. Now it's about four.
Speaker 1: And you know, we all talk about q T and
Speaker 1: the rate hikes, but the degree of swing and fiscal
Speaker 1: stimulus has been every bit as great, So Doug in
Speaker 1: terms of the way we're thinking about this moving forward
Speaker 1: into the federal reserves role here, Um, how are you
Speaker 1: looking at the terminal rate? How are you thinking about
Speaker 1: what the Fed is doing when it comes to tightening
Speaker 1: in the context of the investment decisions that you're making.
Speaker 1: We don't necessarily have a forecast I guess for where
Speaker 1: that funds rate might peak. I mean we are assuming
Speaker 1: they've already overdone it. And it's the emphasis. They are
Speaker 1: data dependent. The question is are they the right data points?
Speaker 1: I mean they are coincident to lagging data points. I
Speaker 1: mean our work would say that inflation has probably peaked
Speaker 1: out the leading inflation indicators is why you say Powell
Speaker 1: doesn't need to be vulcar Uh. There are a number
Speaker 1: of reasons well along those lines, and this is maybe
Speaker 1: trying to take some good notes here. This is some
Speaker 1: good stuff, Carrol. That's what they say in the biz.
Speaker 1: This is some good stuff. You know. Even though we're
Speaker 1: cautious on the stock market in the economy, we do
Speaker 1: think that inflation is peaked and it's going to come
Speaker 1: down significantly. One reason is the stock market itself. It's
Speaker 1: the negative wealth effect, and Bill Dudley in the spring
Speaker 1: came very close to like mentioning that term exactly. It's
Speaker 1: the fact that you know, we've had a stock market decline.
Speaker 1: The issue is, don't think about it just in terms
Speaker 1: of the percentage decline in the index. Think about how
Speaker 1: large the stock market was in relation to GDP at
Speaker 1: its peak coming into this year. It was more than GDP.
Speaker 1: So this relatively moderate decline is a big deal in
Speaker 1: terms of the wealth destructure. We never have enough time
Speaker 1: with you, and I hope you got your notes there,
Speaker 1: Tom twenty second, So what do you will say we're
Speaker 1: near bottom? I know you don't really to serve a number,
Speaker 1: but what kind of field we have? You have to
Speaker 1: be quick, uh lower evaluations, a big relative crack in
Speaker 1: the blue chips where small caps and mid caps they
Speaker 1: probably still go to new lows, but maybe show some
Speaker 1: relative strength, so giving and maybe a give up. And
Speaker 1: we've seen it in the utilities. But when you start
Speaker 1: to see the defensive crack, that's a sign that people
Speaker 1: are selling what they can and we may be near
Speaker 1: um a complete capitulation, which I think is still ahead.
Speaker 1: Get your notes, you'll you'll hear in a couple of
Speaker 1: minutes what I have to say. We love talking with you,
Speaker 1: so come back anytime on phone in persons even better,
Speaker 1: but m safe trips back. Doug Ramsey, chief investment Officer
Speaker 1: at the Luthholl Group. Thanks for listening to Bloomberg Business Week.
Speaker 1: Download the podcast on iTunes, SoundCloud or Bloomberg dot com,
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