WEBVTT - Davidowitz: America's middle class has been decimated

0:00:03.360 --> 0:00:08.879
<v Speaker 1>This is Bloomberg Surveillance. If anybody needs capable management teams

0:00:08.880 --> 0:00:11.200
<v Speaker 1>for the future, it's the commercial banks, right, They're not

0:00:11.240 --> 0:00:13.600
<v Speaker 1>going to go away. The business isn't going to go away.

0:00:13.720 --> 0:00:17.520
<v Speaker 1>It's not as sign that the economy if not prosper

0:00:17.600 --> 0:00:19.959
<v Speaker 1>if the fact that in places only one passet, I

0:00:19.960 --> 0:00:21.560
<v Speaker 1>don't get it. The fourth Courter was bad in terms

0:00:21.600 --> 0:00:23.239
<v Speaker 1>of g d P, it was a bad in terms

0:00:23.280 --> 0:00:25.279
<v Speaker 1>of jobs. In fact, it was fantastic in terms of

0:00:25.360 --> 0:00:29.160
<v Speaker 1>jock growth. And that's what's the most important. Bloomberg Surveillance

0:00:29.440 --> 0:00:32.960
<v Speaker 1>your link to the world of economics, finance, and investment.

0:00:33.240 --> 0:00:37.360
<v Speaker 1>On Bloomberg Radio, Good morning everyone, Bloomberg Surveillance. Scarlet Foo

0:00:37.440 --> 0:00:40.280
<v Speaker 1>in for Michael mckeh on this Friday morning. I'm Tom Keene.

0:00:40.320 --> 0:00:45.640
<v Speaker 1>We welcome all of you. Bloomberg twelve Boston, Bloomberg FM, Washington,

0:00:45.640 --> 0:00:48.480
<v Speaker 1>Bloomberg eleven three on New York. Good early morning out

0:00:48.479 --> 0:00:51.080
<v Speaker 1>in San Francisco, the Bay Area, Bloomberg nine sixty. We

0:00:51.159 --> 0:00:55.080
<v Speaker 1>say good morning as well. A retail focus in this

0:00:55.240 --> 0:00:59.000
<v Speaker 1>our honor to bring you Howard di Vin Evans, who

0:00:59.000 --> 0:01:02.840
<v Speaker 1>has really been really, really, really quite good on the

0:01:02.960 --> 0:01:06.200
<v Speaker 1>challenges of retail. Boy did he get out front of

0:01:06.240 --> 0:01:08.920
<v Speaker 1>the challenges of Macy's and Coles and others, and we'll

0:01:08.959 --> 0:01:11.760
<v Speaker 1>talk to him. Get an update on the pulse of

0:01:12.080 --> 0:01:17.560
<v Speaker 1>retail America first, so we look quickly at foreign exchange. UH.

0:01:17.800 --> 0:01:20.360
<v Speaker 1>The four X Briefest morning brought you my Interactive Brokers

0:01:20.400 --> 0:01:23.639
<v Speaker 1>winner of f FX Weeks two thousand and fifteen award

0:01:23.720 --> 0:01:27.400
<v Speaker 1>for the best Retail for X trading platform visit ib

0:01:27.520 --> 0:01:32.080
<v Speaker 1>at ib kr dot com slash four x yen one

0:01:32.160 --> 0:01:34.960
<v Speaker 1>thirteen thirty nine week er yen three days in a row,

0:01:35.520 --> 0:01:38.880
<v Speaker 1>Euro under one one nine seventy four euro a weakness,

0:01:38.959 --> 0:01:43.400
<v Speaker 1>dollar strength off g DP movement, a little better GDP

0:01:43.560 --> 0:01:46.959
<v Speaker 1>number than expected. I think we'll leave it there this morning.

0:01:47.000 --> 0:01:52.120
<v Speaker 1>I mean, the Sterling doing better and as well, David.

0:01:52.120 --> 0:01:55.200
<v Speaker 1>I don't want to rip up your script, but um

0:01:55.360 --> 0:01:58.640
<v Speaker 1>Gap needs a miracle, right I mean? I mean, I mean,

0:01:58.640 --> 0:02:01.800
<v Speaker 1>if we're gonna have a Howard on on retail, can

0:02:01.840 --> 0:02:04.400
<v Speaker 1>you start with Gaffer? Is there something more important than

0:02:05.240 --> 0:02:07.600
<v Speaker 1>we can start there? Why not? They mean they need something,

0:02:07.640 --> 0:02:10.640
<v Speaker 1>no question. GAP shares down about two percent in early trading.

0:02:11.160 --> 0:02:14.919
<v Speaker 1>The largest US focused the pail retailer that's Gaps claimed

0:02:14.919 --> 0:02:17.560
<v Speaker 1>the fame they expect earnings for the current fiscal year

0:02:17.600 --> 0:02:19.320
<v Speaker 1>to be two dollars twenty five cents to share. It

0:02:19.400 --> 0:02:22.680
<v Speaker 1>best the high end of gaps forecast range, trailed analyst

0:02:22.760 --> 0:02:26.200
<v Speaker 1>averagessetment in the Bloomberg survey by nineteen cents. And then

0:02:26.240 --> 0:02:28.720
<v Speaker 1>you have J. C. Penny, which is up more than

0:02:28.800 --> 0:02:32.720
<v Speaker 1>fourteen percent in early trading. The department store chains fourth

0:02:32.800 --> 0:02:35.800
<v Speaker 1>quarter profit and sales topped analysts estimates, at least the

0:02:35.800 --> 0:02:38.600
<v Speaker 1>ones we surveyed here at Bloomberg UH, and the results

0:02:38.639 --> 0:02:41.440
<v Speaker 1>showed Penny chief executive Marvin Allison is making progress and

0:02:41.520 --> 0:02:45.240
<v Speaker 1>turning around the company looking beyond retail. You've got Kraft

0:02:45.320 --> 0:02:48.560
<v Speaker 1>Hinds up five and a half percent. The food makers

0:02:48.560 --> 0:02:51.080
<v Speaker 1>fourth quarter earnings and sales beat estimates. Craft Huns, of

0:02:51.080 --> 0:02:53.480
<v Speaker 1>course formed last year in a deal orchestrated by private

0:02:53.480 --> 0:02:56.840
<v Speaker 1>equity firm three G Capital and Warren Buffettsbergshire Hathaway, so

0:02:56.840 --> 0:02:59.840
<v Speaker 1>they're among the winners. In response to those results, Monster

0:03:00.000 --> 0:03:03.360
<v Speaker 1>evers O down five percent. The energy drake maker's profit

0:03:03.400 --> 0:03:05.800
<v Speaker 1>and revenue trail the average estates for the third time

0:03:05.840 --> 0:03:09.480
<v Speaker 1>in the past four quarters. UH some more well received

0:03:09.520 --> 0:03:13.120
<v Speaker 1>earnings reports. You've got the networking software maker Palo Alto

0:03:13.280 --> 0:03:16.880
<v Speaker 1>Networks up seven and a half percent. The data analysis

0:03:16.880 --> 0:03:22.079
<v Speaker 1>software makers Splunk of six months Splunk splk is the

0:03:22.120 --> 0:03:25.079
<v Speaker 1>ticker of sixty and a half percent, and Stamps dot

0:03:25.160 --> 0:03:28.000
<v Speaker 1>Com of twenty four and a half percent, all in

0:03:28.080 --> 0:03:30.880
<v Speaker 1>response to well receive so in South Andwestern Energy though

0:03:30.960 --> 0:03:33.440
<v Speaker 1>down eleven and a half percent, the shale producer with

0:03:33.480 --> 0:03:35.880
<v Speaker 1>a fourth quarter loss as revenue trail estimates, and then

0:03:35.920 --> 0:03:38.920
<v Speaker 1>you have son Edison a lot of pieces to this story.

0:03:39.000 --> 0:03:42.760
<v Speaker 1>Stocks up thirty percent in early trading. Hatchman manager David

0:03:42.760 --> 0:03:45.800
<v Speaker 1>Temper's attempt to block the company's proposed purchase of Vivian

0:03:45.880 --> 0:03:48.760
<v Speaker 1>Solar was turned away by a Delaware judge who well

0:03:48.800 --> 0:03:53.320
<v Speaker 1>the tempers Apolution management couldn't prove the deal hurts investors,

0:03:53.320 --> 0:03:57.560
<v Speaker 1>and son Edison's Terraform power unit now Vivin Solar, up

0:03:57.640 --> 0:04:01.040
<v Speaker 1>thirty seven and a half percent in early rating. Apple

0:04:01.080 --> 0:04:03.440
<v Speaker 1>Loosa has a nine and a half percent stake in

0:04:03.680 --> 0:04:06.120
<v Speaker 1>terror Form, and that stock is down eight and a

0:04:06.200 --> 0:04:10.800
<v Speaker 1>half percent. Weight Watchers International down twenty percent. The weight

0:04:10.880 --> 0:04:15.120
<v Speaker 1>loss company that partnered with Oprah Winfrey Land reported an

0:04:15.160 --> 0:04:17.720
<v Speaker 1>unexpected fourth quarter of loss. The number of act of

0:04:17.800 --> 0:04:22.560
<v Speaker 1>subscribers dropped four point eight percent, and finally, Republic Airways

0:04:22.600 --> 0:04:26.080
<v Speaker 1>Holdings not stock down eighty two percent, sixty two cents

0:04:26.080 --> 0:04:29.960
<v Speaker 1>to share the regional jet owner file for bankruptcy Republic

0:04:30.040 --> 0:04:32.200
<v Speaker 1>Side and effect of a lack of pilots during a

0:04:32.279 --> 0:04:35.560
<v Speaker 1>contract dispute last year. David Wilson, thank you so much.

0:04:35.600 --> 0:04:37.520
<v Speaker 1>Appreciate that. And now we're bring in a hard did

0:04:37.640 --> 0:04:42.039
<v Speaker 1>its associates who has given us just terrific perspective and

0:04:42.160 --> 0:04:45.440
<v Speaker 1>way out front Gap stores. Just as one example, folks,

0:04:45.440 --> 0:04:48.240
<v Speaker 1>I'll put the chart out on Bloomberg Radio Plus. Basically

0:04:48.240 --> 0:04:51.560
<v Speaker 1>it's made up eighty percent of the success coming out

0:04:51.560 --> 0:04:54.680
<v Speaker 1>of four five years ago. How how bad is it

0:04:54.839 --> 0:04:57.760
<v Speaker 1>out there? I want you to give me a reasoned

0:04:58.640 --> 0:05:03.279
<v Speaker 1>analysis of the state of retail getting out of the

0:05:03.440 --> 0:05:06.640
<v Speaker 1>ugly spring. They get to summer and they've got a

0:05:06.680 --> 0:05:11.320
<v Speaker 1>regroup for back to school. What's the strategy. Well, for Gap,

0:05:11.440 --> 0:05:14.719
<v Speaker 1>they're in a segment that is almost all bad American

0:05:14.800 --> 0:05:20.080
<v Speaker 1>eagloued Fit is gas. Yeah, I mean every in the

0:05:20.160 --> 0:05:25.000
<v Speaker 1>apparel chain business at Apochromie, you're gonna find very few

0:05:25.120 --> 0:05:28.560
<v Speaker 1>arrow posts that you're gonna find very few winners and

0:05:28.640 --> 0:05:32.200
<v Speaker 1>almost all loses Jay Crew a disaster, So they're in

0:05:32.279 --> 0:05:37.279
<v Speaker 1>a business where everybody is in collapse, including them. The

0:05:37.320 --> 0:05:40.119
<v Speaker 1>good news about the Gap is they're richer than everyone else.

0:05:40.560 --> 0:05:43.160
<v Speaker 1>They're balance sheet is a monster, sitting with a billion

0:05:43.200 --> 0:05:46.839
<v Speaker 1>in cash, no debt. So this is a powerhouse company

0:05:46.880 --> 0:05:50.240
<v Speaker 1>that is not going away. They're still making money, they

0:05:50.279 --> 0:05:53.120
<v Speaker 1>have positive cash flow, they got lots of money. They

0:05:53.200 --> 0:05:57.720
<v Speaker 1>just keep closing stores and the future is uncertain. That's

0:05:57.760 --> 0:06:00.320
<v Speaker 1>the problem with the Gap. A little headline coming out

0:06:00.360 --> 0:06:02.920
<v Speaker 1>love more on this Honeywell offers a hundred eight dollars

0:06:02.920 --> 0:06:07.359
<v Speaker 1>per share to quote re engage with U t X.

0:06:07.400 --> 0:06:09.919
<v Speaker 1>That's away from how our divid of its expertise, but

0:06:10.080 --> 0:06:14.440
<v Speaker 1>certainly important. U t X uh surging from eight seven

0:06:14.520 --> 0:06:18.239
<v Speaker 1>up to nine and the new wagers up another ten dollars.

0:06:18.279 --> 0:06:21.040
<v Speaker 1>Scarlett quickly, No. I wanted to get to Howard in

0:06:21.120 --> 0:06:24.360
<v Speaker 1>terms of what we see across the retailers. Is this

0:06:24.440 --> 0:06:28.279
<v Speaker 1>idea that these companies are big on promotions. When do

0:06:28.400 --> 0:06:31.440
<v Speaker 1>we or do we ever start to see margin expansion? Well,

0:06:31.440 --> 0:06:35.640
<v Speaker 1>we would never as long as you've got poverty doubling

0:06:35.680 --> 0:06:38.279
<v Speaker 1>in the last seven years, which of course has been

0:06:38.720 --> 0:06:40.840
<v Speaker 1>what we had one out of twelve in poverty. We

0:06:40.920 --> 0:06:43.359
<v Speaker 1>now have worn out of six and poverty seven years later.

0:06:43.560 --> 0:06:47.840
<v Speaker 1>As long as you've got that scarlet across America, as

0:06:47.920 --> 0:06:51.280
<v Speaker 1>long as Macy's is now building discount stores, as long

0:06:51.320 --> 0:06:54.440
<v Speaker 1>as North from fastest growth A discount stores, as long

0:06:54.480 --> 0:06:57.440
<v Speaker 1>as Sacks fastest growth a discount stores, as long as

0:06:57.520 --> 0:07:00.200
<v Speaker 1>d J d J Max is the most power full

0:07:00.200 --> 0:07:03.919
<v Speaker 1>of parel retailer in the United States by far, and

0:07:04.040 --> 0:07:07.480
<v Speaker 1>as long as traditional walls are closing, then as long

0:07:07.520 --> 0:07:11.440
<v Speaker 1>as the middle class is decimated, Uh, you've got a

0:07:11.520 --> 0:07:14.600
<v Speaker 1>smaller and smaller piece of America with money and the

0:07:14.640 --> 0:07:18.400
<v Speaker 1>aspirational middle class is killed forever because of on that

0:07:18.520 --> 0:07:21.800
<v Speaker 1>and everything else, it's not going to change. So retailing

0:07:21.880 --> 0:07:26.960
<v Speaker 1>has changed forever, and price it will be more important forever.

0:07:27.520 --> 0:07:30.560
<v Speaker 1>Bed Bathroom Beyond. Can you imagine a thinking of giving

0:07:30.640 --> 0:07:36.640
<v Speaker 1>up coupons because this sacrilege sound It is unbelievable sacrilege. Well,

0:07:36.680 --> 0:07:39.360
<v Speaker 1>speaking of bed bathroom Beyond, one of its rivals, certainly

0:07:39.360 --> 0:07:42.520
<v Speaker 1>on a higher end, would be restoration hardware. One thing

0:07:42.560 --> 0:07:45.680
<v Speaker 1>I found very interesting is the commentary from the CEO

0:07:46.400 --> 0:07:50.520
<v Speaker 1>Gary Freeman. He talked about how a bear market wouldn't

0:07:50.560 --> 0:07:53.680
<v Speaker 1>be all bad news for the company because it could

0:07:53.680 --> 0:07:56.520
<v Speaker 1>bring lower real estate prices, which would help the change.

0:07:56.560 --> 0:07:59.360
<v Speaker 1>Is that the I think that's one of the craziest comments.

0:07:59.400 --> 0:08:04.200
<v Speaker 1>I but look, Gary Friedman is a brilliant, brilliant guy.

0:08:04.320 --> 0:08:07.760
<v Speaker 1>He is a groundbreaking guy. He's done the most exciting

0:08:07.800 --> 0:08:10.960
<v Speaker 1>thing in furniture in fifty years. There is no there's

0:08:11.000 --> 0:08:14.840
<v Speaker 1>no one like them right now. If you take that

0:08:14.960 --> 0:08:18.320
<v Speaker 1>explanation and the real estate, that's a little looney, uh

0:08:18.640 --> 0:08:20.800
<v Speaker 1>what they don't think he is to change the real estate,

0:08:21.640 --> 0:08:26.240
<v Speaker 1>but he gave fifty reasons. He is the real One

0:08:26.240 --> 0:08:29.040
<v Speaker 1>of the key reasons that happened to him. He's in

0:08:29.080 --> 0:08:32.400
<v Speaker 1>a business that's out on the fashion edge. That's what

0:08:32.520 --> 0:08:35.600
<v Speaker 1>made him so great. Now, when you go out on

0:08:35.679 --> 0:08:40.920
<v Speaker 1>the fashion edge and the slightest ripple happens, you're screwed.

0:08:41.360 --> 0:08:44.800
<v Speaker 1>And that he he's in that kind of a business.

0:08:44.840 --> 0:08:48.280
<v Speaker 1>Did he expand too quickly? You've seen this a million times.

0:08:49.120 --> 0:08:52.600
<v Speaker 1>This is Gary Friedman. This guy is going wild. He's

0:08:52.920 --> 0:08:56.720
<v Speaker 1>opening up giant he's doing Okay, are there elements here

0:08:56.720 --> 0:09:01.560
<v Speaker 1>of an abercarbiean Fitch were a dominant met Neddick CEO

0:09:01.760 --> 0:09:06.520
<v Speaker 1>gets out in front of trends or his p and l. Yes. Possibly,

0:09:08.120 --> 0:09:11.840
<v Speaker 1>but but this guy has done so much good stuff,

0:09:11.880 --> 0:09:18.000
<v Speaker 1>all right, I'm hesitant to say that yet because he's

0:09:18.080 --> 0:09:22.440
<v Speaker 1>created America. I mean, he's chased his entire into Since

0:09:22.480 --> 0:09:26.520
<v Speaker 1>home Depot, we've never had anything like this the invention

0:09:26.559 --> 0:09:31.040
<v Speaker 1>of home depot actual depot fifteen years ago. Try and

0:09:31.160 --> 0:09:34.640
<v Speaker 1>threw away five million dollars in liquid. How how we're

0:09:34.679 --> 0:09:38.360
<v Speaker 1>gonna go to break in and and move forward very quickly? Howard,

0:09:38.440 --> 0:09:42.080
<v Speaker 1>we saw home Depot and lows with solid things store sales.

0:09:42.360 --> 0:09:48.160
<v Speaker 1>Can your world of retail pull over the home Depot excellence? Yeah?

0:09:48.200 --> 0:09:51.199
<v Speaker 1>I look the home sector. They're the kings of the

0:09:51.240 --> 0:09:54.520
<v Speaker 1>home sector. Now if you look at some other people

0:09:54.520 --> 0:09:58.320
<v Speaker 1>in the home sector, they're not so fantastic. But clearly

0:09:58.400 --> 0:10:01.000
<v Speaker 1>Home Depot and Lowe's have a formula. And here is

0:10:01.040 --> 0:10:05.760
<v Speaker 1>the difference between restorational lordwearing, Home Depot Home deep cells

0:10:05.800 --> 0:10:08.880
<v Speaker 1>what you have to have as hard whistling great, they

0:10:08.960 --> 0:10:11.440
<v Speaker 1>sell what you have. Now low cells what you have

0:10:11.600 --> 0:10:17.280
<v Speaker 1>to have you don't have to have anything in restoration hardware,

0:10:17.360 --> 0:10:21.200
<v Speaker 1>you don't have to have it. So he's when the

0:10:21.320 --> 0:10:27.319
<v Speaker 1>market gets volable, anything Restoration Hardware. Okay, Howard, this is phenomenal.

0:10:27.400 --> 0:10:29.560
<v Speaker 1>Stay with us. Hard to us with this. You heard

0:10:29.600 --> 0:10:33.720
<v Speaker 1>his support Mr Freeman over Restoration Hardware, which has been

0:10:33.760 --> 0:10:38.439
<v Speaker 1>a modest implosion, to say the least, futures the last restoration.

0:10:38.440 --> 0:10:40.280
<v Speaker 1>I've not been in the store, but I do do

0:10:40.400 --> 0:10:43.760
<v Speaker 1>things off their website. I think they're They're just I

0:10:43.760 --> 0:10:46.679
<v Speaker 1>don't know what they do. The furniture is too big.

0:10:46.800 --> 0:10:49.320
<v Speaker 1>I know I've seen the ceiling fan picture on your website.

0:10:49.360 --> 0:10:55.560
<v Speaker 1>On your all right, let's check in with John Tucker

0:10:55.679 --> 0:10:59.240
<v Speaker 1>for the news headlines. John find Scarlett. Donald Trump spent

0:10:59.440 --> 0:11:02.920
<v Speaker 1>eight months launching at parative insults over any on all.

0:11:03.000 --> 0:11:06.840
<v Speaker 1>Detractors of Marco Rubio's survived by staying mostly in the sidelines.

0:11:06.920 --> 0:11:09.839
<v Speaker 1>Rubio suddenly and urgently emerged from the shadows last night

0:11:10.120 --> 0:11:13.199
<v Speaker 1>to hammer the front runner. The House considering a bill

0:11:13.240 --> 0:11:15.880
<v Speaker 1>that would reverse the man on the sail or import

0:11:15.960 --> 0:11:19.760
<v Speaker 1>of ivory products on doing US fish and Wildlife rules

0:11:19.800 --> 0:11:24.000
<v Speaker 1>that were intended to halt the decline in wild elephant populations,

0:11:24.600 --> 0:11:28.000
<v Speaker 1>and the conventional wisdom was that California, especially the southern

0:11:28.040 --> 0:11:30.920
<v Speaker 1>part of the state, would be awash this winter with

0:11:31.080 --> 0:11:33.480
<v Speaker 1>rain and the valleys and deep snow in the mountains.

0:11:33.760 --> 0:11:35.760
<v Speaker 1>Almina was on the way to save the day. Well,

0:11:35.760 --> 0:11:39.560
<v Speaker 1>a California hydrologist now says the water supply forecast for

0:11:39.559 --> 0:11:43.800
<v Speaker 1>the spring period is falling like a stone. Global News

0:11:43.880 --> 0:11:46.880
<v Speaker 1>twenty four hours a day, powered by our twenty journalists

0:11:46.920 --> 0:11:49.480
<v Speaker 1>in more than one hundred fifty news videos around the world.

0:11:49.720 --> 0:11:52.760
<v Speaker 1>I'm John Tuckers Scarlet and to John, thank you so much.

0:11:52.760 --> 0:11:57.640
<v Speaker 1>Future futures up one oh for Tom Keene and Scarlet

0:11:57.640 --> 0:12:05.960
<v Speaker 1>Foo on your Friday edition. Bloomberg Surveillance Worldwide Market Driver

0:12:06.120 --> 0:12:08.439
<v Speaker 1>is brought to you by your Mercedes Benz Tri State dealer.

0:12:08.480 --> 0:12:10.520
<v Speaker 1>When it comes to winter elements, put your best four

0:12:10.520 --> 0:12:14.040
<v Speaker 1>wheels forward with Mercedes Benz Formatic all wheel Drive. Visit

0:12:14.080 --> 0:12:17.360
<v Speaker 1>your Mercedes Benz Tri State dealer for a test drive today.

0:12:17.440 --> 0:12:18.840
<v Speaker 1>This is Bloomberg Surveillance