WEBVTT - Digging Into Netflix, Tesla Earnings and Outlook 0:00:01.360 --> 0:00:05.720 This is Bloomberg business Week Inside from the reporters and 0:00:05.880 --> 0:00:09.440 editors who bring you America's most trusted business magazine, plus 0:00:09.520 --> 0:00:13.680 global business, finance and tech news. The Bloomberg Business Week 0:00:13.720 --> 0:00:18.640 Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 0:00:20.040 --> 0:00:22.640 Hey, now to the other stock that's definitely on our radar. 0:00:22.960 --> 0:00:25.560 It is nearly two percent of the Nasdaq one hundred 0:00:25.600 --> 0:00:27.440 and more than ten percent of the New York Stock 0:00:27.480 --> 0:00:30.360 Exchange is Fang Plus Index. We're talking, of course, about 0:00:30.360 --> 0:00:33.400 Netflix soaring today up eleven point eight percent now to 0:00:33.440 --> 0:00:36.280 its highest in more than two years. And that's what 0:00:36.400 --> 0:00:38.639 happens when it shows it can do what it did 0:00:38.720 --> 0:00:41.160 during COVID and when we're all stuck at home binging 0:00:41.200 --> 0:00:43.760 on Tiger King, Queen's dam Bit, Guilty Squid Games. Did 0:00:43.760 --> 0:00:44.319 you watch that one? 0:00:44.360 --> 0:00:44.720 I did not? 0:00:44.920 --> 0:00:48.400 Okay, you're just a little squamish, Okay, Yeah, and more. 0:00:48.920 --> 0:00:51.240 Just a reminder, Netflix reporting it's best quarter of growth 0:00:51.280 --> 0:00:53.360 since viewers were stuck at home in the early days 0:00:53.440 --> 0:00:54.200 of the pandemic. 0:00:54.240 --> 0:00:56.080 All right, the company, you know the number, signing up 0:00:56.120 --> 0:00:58.640 thirteen point one million new customers in the final three 0:00:58.680 --> 0:01:01.760 months of twenty t one. Three, exceeding Wall Street's estimate 0:01:01.800 --> 0:01:03.720 of eight point ninety one million. So it was a 0:01:03.720 --> 0:01:06.679 big beat, and in fact, it beat projections in every 0:01:06.880 --> 0:01:08.840 region of the world. We've got a great guest him. 0:01:09.000 --> 0:01:11.800 Yeah, Michael pact is joining us. He's managing director of 0:01:12.000 --> 0:01:15.120 Entertainment and Analysts at Wedbush Securities. He joins us on 0:01:15.160 --> 0:01:18.520 Zoom from Long Beach, California. Michael, good to have you 0:01:18.560 --> 0:01:20.080 with us. Good to talk to you again. I mean, 0:01:20.080 --> 0:01:21.840 this is a company you've been covering for more than 0:01:21.880 --> 0:01:24.040 a decade, and your view has certainly shifted. Let's talk 0:01:24.040 --> 0:01:25.600 about where your view is right now. You've got an 0:01:25.600 --> 0:01:28.240 outperform on the stock. You've up your twelve month price 0:01:28.319 --> 0:01:31.200 target to six hundred and fifteen dollars from five hundred 0:01:31.240 --> 0:01:33.600 and twenty five. Not quite a street high, but you're 0:01:33.600 --> 0:01:36.160 among the highest according to the analysts that are tracked 0:01:36.160 --> 0:01:37.520 by Bloombergh. 0:01:38.800 --> 0:01:42.480 Why the upgrade, Well, you know, we I've covered it 0:01:42.520 --> 0:01:44.720 for twenty years. In August, actually. 0:01:45.920 --> 0:01:48.760 We had a sell on it from roughly ten dollars 0:01:48.800 --> 0:01:53.760 to six ninety so wrong for ten years and out 0:01:54.040 --> 0:01:57.160 and then I've graded at one eight and we put 0:01:57.240 --> 0:01:58.560 on the best Ideas list. 0:01:58.400 --> 0:01:59.120 At three point thirty. 0:01:59.240 --> 0:02:02.800 So what I'm seeing is what I criticized ten years ago, 0:02:03.160 --> 0:02:06.680 thirteen years ago on the downgrade to sell. I'm seeing 0:02:06.720 --> 0:02:08.480 them do what I said they needed to do, which 0:02:08.560 --> 0:02:12.320 is stop being fixated on adding subs at all costs 0:02:12.360 --> 0:02:14.480 and start focusing on profitable subs. 0:02:14.840 --> 0:02:18.320 They're doing everything right. They're managing their spend properly. 0:02:18.480 --> 0:02:22.720 They're shifting their budget more toward television away from movies. 0:02:22.960 --> 0:02:24.960 You saw Scott Stupor left the other day. 0:02:25.680 --> 0:02:30.079 They are shifting their budget more toward international production, which 0:02:30.120 --> 0:02:33.119 costs about half as much as domestic. They are far 0:02:33.160 --> 0:02:37.160 more international. And what you're seeing now is that subscribers 0:02:37.160 --> 0:02:39.519 are coming in at very very high margins. You're seeing 0:02:39.560 --> 0:02:42.880 operating profits expand materially literally. 0:02:42.600 --> 0:02:44.919 Three hundred basis points a year, which. 0:02:44.720 --> 0:02:46.880 Means they're going to make a lot more money than 0:02:46.919 --> 0:02:49.639 anybody thinks in the next several years. So they traded 0:02:50.160 --> 0:02:53.320 a twenty something multiple. We have a thirty multiple price target. 0:02:53.400 --> 0:02:55.760 Could I be at forty or fifty or sixty? Sure, 0:02:55.800 --> 0:02:57.080 it really depends on how faster. 0:02:57.720 --> 0:02:59.360 Hey, Michael, we want to bring up a chart for 0:02:59.480 --> 0:03:01.920 all of our view viewers, and it shows just the 0:03:01.919 --> 0:03:06.880 blowout number of subscribers added in that last quarter. It 0:03:06.919 --> 0:03:08.679 looks like it could, you know, pull back a little 0:03:08.720 --> 0:03:10.520 bit in the next quarter in a big way. But 0:03:10.639 --> 0:03:13.000 as you are saying, it's not just the net number 0:03:13.040 --> 0:03:16.040 of subscribers, it's that the folks that they are signing up, 0:03:16.040 --> 0:03:18.080 they're making more money off of them. 0:03:18.440 --> 0:03:19.079 Absolutely. 0:03:19.160 --> 0:03:21.480 And you know, if you see that thirteen million number 0:03:21.960 --> 0:03:25.400 new subscribers, forty percent are signing up for the six 0:03:25.600 --> 0:03:29.760 ninety nine ad supported tier, but they're generating about sixteen 0:03:29.800 --> 0:03:33.160 dollars because the ad load is about ten bucks. So 0:03:33.520 --> 0:03:37.160 you know, they've shown that by lowering price and adding advertising, 0:03:37.640 --> 0:03:41.760 they're attracting people that couldn't afford fifteen dollars before. The 0:03:41.800 --> 0:03:45.880 balance of those people are largely coming from password sharing crackdown. 0:03:46.400 --> 0:03:49.160 And you know there are people whose kids, their adult 0:03:49.280 --> 0:03:50.600 children or their parents. 0:03:50.800 --> 0:03:53.320 Tim's brother included. We're just going to share that. We've 0:03:53.320 --> 0:03:56.440 shared that several times on it. I'm sorry Tim's brother again. 0:03:56.680 --> 0:03:57.600 That has a double win. 0:03:57.760 --> 0:03:59.760 You know, the people who shouldn't be using it or 0:03:59.800 --> 0:04:01.920 sign up on their own, people who you want to 0:04:01.960 --> 0:04:05.320 pay for My kids who are college grads, I'm paying 0:04:05.360 --> 0:04:07.160 for them. I pay for their cell phone, I'll pay 0:04:07.200 --> 0:04:11.560 for their Netflix subscription, so that expands average revenue per member, 0:04:11.880 --> 0:04:15.080 and it expands new members. You're seeing it all just 0:04:15.160 --> 0:04:19.680 dovetail nicely. And now they're doing something clever. They're adding gaming. 0:04:19.800 --> 0:04:22.280 They got they finally have figured out how to do it, 0:04:22.640 --> 0:04:24.359 and that makes the service stickier. 0:04:24.680 --> 0:04:27.279 You're less likely to quit if you've been on the 0:04:27.320 --> 0:04:28.760 Netflix Personal last month. 0:04:29.320 --> 0:04:32.080 Stuff like Grand Theft, Auto Trilogy gets people coming back. 0:04:32.320 --> 0:04:34.400 Andy Michael, I mean you're also a gaming analyst. We 0:04:34.400 --> 0:04:38.120 should note, so you covered this stuff really closely. What 0:04:38.240 --> 0:04:42.520 is Netflix doing that the other companies are not doing that? 0:04:42.600 --> 0:04:45.240 You know, the Disney's aren't doing, the Paramounts aren't doing 0:04:45.320 --> 0:04:48.479 the Peacocks aren't doing Like, why is Netflix executing so 0:04:48.600 --> 0:04:49.119 much better? 0:04:50.800 --> 0:04:54.880 First mover advantage is the biggest thing. They've kind of created. 0:04:54.920 --> 0:04:59.480 The fund that would buy licensed property, would license things 0:04:59.560 --> 0:05:03.000 like suit you know, from the other networks. The other guys, 0:05:03.040 --> 0:05:05.640 we're trying to go all proprietary all the time. The 0:05:05.640 --> 0:05:10.160 CBS content state on Paramount and NBC content state on Peacock, 0:05:10.440 --> 0:05:13.159 ABC state on Disney Plus, and they didn't have the 0:05:13.160 --> 0:05:17.520 critical mass to actually support giving away all that content 0:05:17.640 --> 0:05:20.960 without collecting subscription revenues. Netflix says two hundred and sixty 0:05:20.960 --> 0:05:22.960 million subscribers, they can pay up. 0:05:23.240 --> 0:05:24.839 They did this for WWE. 0:05:24.880 --> 0:05:27.839 It's a perfect example of something that took away from 0:05:27.920 --> 0:05:30.359 USA network and now they're going global with it. 0:05:30.839 --> 0:05:33.000 Their idea is, we're taking something. 0:05:32.760 --> 0:05:34.880 That has an audience of fewer than a million people 0:05:34.960 --> 0:05:36.720 a week, and we're going to expand that. 0:05:36.680 --> 0:05:37.719 To five million people. 0:05:37.800 --> 0:05:41.400 And when they do that, they leverage their subscriber base, 0:05:41.520 --> 0:05:42.840 they can afford to pay more. 0:05:43.279 --> 0:05:44.240 The network or. 0:05:44.160 --> 0:05:47.520 In this case, WWE says, of course, I'm taking more money. 0:05:48.040 --> 0:05:51.280 So the other guys are being dumb, you know, Peacock, Okay, 0:05:51.480 --> 0:05:53.920 one hundred and ten million dollars for one game, so 0:05:53.960 --> 0:05:57.440 we can all see Taylor Swift one game dumb, really dumb. 0:05:57.440 --> 0:05:59.880 I know they've got three million subscribers. All those people 0:05:59.880 --> 0:06:01.200 are going to quit another two weeks. 0:06:01.200 --> 0:06:04.440 Hey, noticeant on Taylor sweat here. Hey having said that, Michael, 0:06:05.760 --> 0:06:07.920 that's fair we all do. Hey, listen, we've got just 0:06:07.960 --> 0:06:10.960 about a minute left here, so you obviously are a beat. 0:06:11.000 --> 0:06:14.040 You like the WWE deal that they just did, and 0:06:14.160 --> 0:06:16.560 they kind of front ran earnings yesterday in a big way, 0:06:16.800 --> 0:06:19.880 having said that what would make you turn bearish again 0:06:19.920 --> 0:06:23.799 on Netflix? And again just got about thirty forty seconds valuation. 0:06:24.040 --> 0:06:26.520 I mean, if the stock gets to you know, much 0:06:26.600 --> 0:06:29.560 much more than it's worth, of course I would downgrade. 0:06:29.760 --> 0:06:33.400 I am very comfortable at six fifteen. I probably could 0:06:33.400 --> 0:06:35.800 be comfortable at a higher number if I see greater 0:06:35.880 --> 0:06:39.040 earnings growth that we have forecasts. But you know, if 0:06:39.040 --> 0:06:41.240 the stock ran to two thousand or five thousand, of 0:06:41.240 --> 0:06:41.520 course that. 0:06:41.520 --> 0:06:42.120 Would doubt grade. 0:06:43.600 --> 0:06:46.640 All right, Michael Pactor, Hey, you know what, it's okay 0:06:46.640 --> 0:06:48.919 that you pay for your kids Netflix. Okay, I'm just 0:06:48.920 --> 0:06:51.240 throwing it out there like that's fine. You're not the 0:06:51.279 --> 0:06:51.600 only one. 0:06:51.880 --> 0:06:53.680 Your kids are older and you're paying for everything. 0:06:53.880 --> 0:06:55.520 I just you know, I'm just wondering if the other 0:06:55.520 --> 0:06:58.040 streaming services are going to wise up soon to you know, 0:06:58.080 --> 0:07:00.360 crack down on password sharing the way Netflix has. Let's 0:07:00.360 --> 0:07:02.560 get the sense they are, but it's going to create 0:07:02.600 --> 0:07:03.760 a lot of changes in households. 0:07:03.880 --> 0:07:06.400 Well, you know, talking with our Geeta Ringing ofth On yesterday, 0:07:06.440 --> 0:07:08.360 I mean this whole idea that Netflix has figured out 0:07:08.360 --> 0:07:10.080 how to pivot right from when they used to be 0:07:10.160 --> 0:07:11.920 what the little red boxes and that you put him 0:07:11.920 --> 0:07:12.360 in the box. 0:07:12.480 --> 0:07:15.880 The DVDs you're talking about, the little red boxes hs's. 0:07:16.840 --> 0:07:18.320 They did never do it. They did never do it. 0:07:18.760 --> 0:07:19.640 No, they were all DVDs. 0:07:19.640 --> 0:07:20.600 It just feels like they did. 0:07:20.760 --> 0:07:22.120 They love it a lot, all right. 0:07:22.120 --> 0:07:24.360 You've got Netflix shares, folks, up almost twelve percent in 0:07:24.400 --> 0:07:25.520 the session. This is Bloomberg. 0:07:26.720 --> 0:07:30.280 You're listening to the Bloomberg Business Week podcast. Catch us 0:07:30.320 --> 0:07:33.559 live weekday afternoons from two to five pm Eastern Listen 0:07:33.600 --> 0:07:35.760 on Apple car Play and then brought auto with a 0:07:35.760 --> 0:07:38.440 Bloomberg Business act or watch us live on. 0:07:38.280 --> 0:07:43.440 YouTube once again. As you know, politics are front and center. 0:07:43.920 --> 0:07:46.560 As you know by now, former President Donald Trump put 0:07:46.600 --> 0:07:49.640 himself on the cusp of clinching the Republican presidential nomination 0:07:50.040 --> 0:07:52.640 after New Hampshire voters handled him a decisive victory in 0:07:52.680 --> 0:07:55.520 Tuesday's primary. We just talked about this with our Joe Matthew. 0:07:55.760 --> 0:07:58.640 Yeah, President Trump form. President Trump, I should say, comfortably 0:07:58.680 --> 0:08:02.160 dispatched his only remaining challenger, former UN Ambassador Nikki Haley, 0:08:02.520 --> 0:08:04.440 a little more than a week after his romp in 0:08:04.480 --> 0:08:08.000 the Iowa caucus, has forced his other main rival, Florida 0:08:08.040 --> 0:08:10.240 Governor Ron De Santis, out of the race. 0:08:10.280 --> 0:08:12.240 All right, So the back to back wins, putting the 0:08:12.240 --> 0:08:14.960 former president Donald Trump on track to deliver a knockout 0:08:14.960 --> 0:08:17.600 blow to Haley Nikki Haley next month in her home 0:08:17.640 --> 0:08:19.760 state of South Carolina. And then of course he turns 0:08:19.760 --> 0:08:22.560 to him his attention to an all but certain rematch 0:08:22.640 --> 0:08:23.800 with President Joe Biden. 0:08:23.960 --> 0:08:26.120 Well, a voice we wanted to get to and hear 0:08:26.160 --> 0:08:28.800 from again the interview this hour, who was on with 0:08:28.880 --> 0:08:30.600 us at the beginning of the year to talk all 0:08:30.600 --> 0:08:33.640 about the firm's top risks predictions for twenty twenty four 0:08:33.880 --> 0:08:36.240 in a year that the organization labeled as one of 0:08:36.240 --> 0:08:38.920 a quote grave concern with us again as your Asia 0:08:38.920 --> 0:08:42.160 Group Chairman Cliff Cupchen on Zoom from Washington, d C. Cliff, 0:08:42.200 --> 0:08:44.520 Good to have you back with us. Has your view 0:08:44.720 --> 0:08:47.160 changed at all over the last couple of weeks, given 0:08:47.559 --> 0:08:51.240 that it's increasingly looking like former President Trump will go 0:08:51.360 --> 0:08:52.960 head to head with President Biden. 0:08:54.880 --> 0:08:58.280 He doesn't changed, but you know the movies we're watching 0:08:58.320 --> 0:09:01.640 the movie now. He's very, very powerful, and he made 0:09:01.640 --> 0:09:06.520 that clear in New Hampshire, though, I do think polling 0:09:06.600 --> 0:09:09.520 data for both Iowa and from New Hampshire shows you know, 0:09:09.559 --> 0:09:11.680 he's got a pretty low feeling. He's going to have 0:09:11.679 --> 0:09:14.240 trouble getting independence and he needs them to get over 0:09:14.240 --> 0:09:17.800 the top. But I think people are going to start 0:09:17.840 --> 0:09:21.920 to realize if they haven't already. You know, Hayley drops out, 0:09:21.960 --> 0:09:24.480 I think she'd want a great campaign. I would be 0:09:24.520 --> 0:09:27.040 surprised if she makes it in South Carolina primary and 0:09:27.360 --> 0:09:28.679 twenty four to February, where. 0:09:28.480 --> 0:09:30.760 She's going to get really beaten if she does, beaten badly. 0:09:31.800 --> 0:09:33.440 So he's got the nomination, and I think what we 0:09:33.480 --> 0:09:35.440 wrote about is starting to happen. 0:09:35.840 --> 0:09:37.440 Hey, Cliff, we were struck when we talked to you 0:09:37.480 --> 0:09:39.920 earlier this year at the kickoff to twenty twenty four 0:09:40.000 --> 0:09:41.640 that the number one risk in the report that you 0:09:41.679 --> 0:09:44.839 guys put out was the United States versus itself. And 0:09:44.880 --> 0:09:47.400 here's what you guys all wrote. The US presidential election 0:09:47.440 --> 0:09:51.640 will worsen the country's political dysfunction, testing American democracy to 0:09:51.760 --> 0:09:54.120 a degree the nation has an experience in one hundred 0:09:54.120 --> 0:09:57.840 and fifty years in undermining US credibility on a global stage. 0:09:57.840 --> 0:10:00.720 Remind us how you guys came to that determination to 0:10:00.840 --> 0:10:02.559 call at the number one risk. 0:10:04.280 --> 0:10:08.439 Because President Trump would put the erosion of US democracy 0:10:09.080 --> 0:10:11.599 on jet Ski's I mean, look, if he wins, I 0:10:11.640 --> 0:10:13.240 think it's more lucky than not. 0:10:14.360 --> 0:10:15.400 That he will. 0:10:16.960 --> 0:10:21.800 Do so called schedule left, turn civil servants into political appointees, 0:10:22.480 --> 0:10:24.400 get rid of the people he doesn't like, and then 0:10:24.440 --> 0:10:28.200 go ahead to weaponize the Department of Justice and the FBI, 0:10:28.520 --> 0:10:32.079 and that will probably hurt American democracy. 0:10:32.120 --> 0:10:33.520 I think it will be another election. 0:10:33.880 --> 0:10:36.480 American democracy is going to continue, but it will be 0:10:36.520 --> 0:10:38.839 severely tested like it hasn't been since the Civil War. 0:10:39.040 --> 0:10:41.280 We've got another We've really got another civil war. 0:10:41.800 --> 0:10:44.640 Trump wins, another civil war on our hands. 0:10:45.040 --> 0:10:46.280 Yeah, what do you mean? What I mean? 0:10:46.960 --> 0:10:49.800 What I mean by that is that I think we 0:10:49.840 --> 0:10:54.600 will probably see unrest, significant unrests in the major cities 0:10:54.679 --> 0:10:55.520 on both coasts. 0:10:57.120 --> 0:10:59.920 That is the kind of you know, pulling it. 0:11:00.080 --> 0:11:02.599 The tissue of what makes us an American democracy in 0:11:02.640 --> 0:11:06.559 the American democracy is a tissue part you know, well 0:11:06.600 --> 0:11:10.040 the body survived. I hate to be sort of metaphorical 0:11:10.080 --> 0:11:13.600 about that, right, Yeah, but we're in for a tough ride. 0:11:13.360 --> 0:11:13.920 Hey, Cliff. 0:11:14.040 --> 0:11:17.720 To be fair, and you know, there's lots of polls 0:11:17.760 --> 0:11:20.680 out there that say that most Americans aren't really happy 0:11:20.679 --> 0:11:23.480 about either choices at this point. And as we often say, 0:11:23.480 --> 0:11:25.840 in the investment world, the past performance is no guarantee 0:11:25.880 --> 0:11:29.000 of future results. So we don't really know what a 0:11:29.080 --> 0:11:32.839 second term would be like for either Donald Trump or 0:11:32.880 --> 0:11:34.679 Joe Biden. But for Donald Trump, and to be fair, 0:11:34.720 --> 0:11:39.200 his policies, whether it's China, immigration or something that continue 0:11:39.400 --> 0:11:42.400 to be you know, talked about and dealt with. We 0:11:42.520 --> 0:11:45.240 understand that there are issues, significant issues even in the 0:11:45.280 --> 0:11:48.320 Biden administration, they have continued, so I guess, you know, 0:11:48.440 --> 0:11:51.439 to be fair, we don't exactly know what it would mean. 0:11:51.480 --> 0:11:54.080 But I wonder if you're saying that no matter who's 0:11:54.120 --> 0:11:56.920 in the White House, it's a test for democracy. 0:11:57.800 --> 0:12:01.920 I think this year will test democracy and that's sort 0:12:01.960 --> 0:12:04.480 of the front the front loaded part of what of 0:12:04.480 --> 0:12:07.840 what we were saying that this will be a very nativistic, 0:12:08.200 --> 0:12:13.160 very visceral campaign. And yeah, to be fair, I think 0:12:13.200 --> 0:12:17.920 some of the President Trump's former President Trump's policies we 0:12:18.280 --> 0:12:21.439 were good for markets and one could even say constructive 0:12:21.600 --> 0:12:21.880 in my. 0:12:21.840 --> 0:12:22.560 Own view, he was. 0:12:23.559 --> 0:12:25.839 I think Biden's been tough around China in many ways 0:12:25.960 --> 0:12:29.240 than Trump was. But I think this country is so 0:12:29.320 --> 0:12:33.280 polarized right now a that if Trump's elected, you'll have 0:12:33.360 --> 0:12:38.720 Democrats really not buying that he's legitimate president because he 0:12:38.720 --> 0:12:43.160 should have been in jail. And you know, b I 0:12:43.200 --> 0:12:46.360 think he's going to bring in uh, you know, the 0:12:46.400 --> 0:12:50.200 Heritage Foundation, that there's a lot of think tanks out 0:12:50.240 --> 0:12:52.440 there going to staff him. But I think I think 0:12:52.520 --> 0:12:55.080 more loyalists, far right people than he had the first 0:12:55.120 --> 0:12:59.200 time running. So I know, you know, I think there 0:12:59.240 --> 0:13:01.319 was a good chance that we're going to get more 0:13:01.360 --> 0:13:03.160 extream policies than we got the first. 0:13:03.120 --> 0:13:06.080 And to be fair, there's certainly several cases, many cases 0:13:06.120 --> 0:13:08.760 and ongoing litigation with the former president that we're kind 0:13:08.760 --> 0:13:11.920 of waiting ultimately for the outcome to see what happened. 0:13:11.960 --> 0:13:13.120 So just to kind of put. 0:13:12.960 --> 0:13:16.080 That center, he faces ninety one felony charges in four 0:13:16.120 --> 0:13:18.960 separate cases. They range from conspiring to defraud the US 0:13:19.040 --> 0:13:21.200 in his efforts to overturn the twenty twenty election loss 0:13:21.200 --> 0:13:23.720 to falsifying business records to cover a phush money paid 0:13:23.760 --> 0:13:25.840 to an adult film actress. So they really run the gamut. 0:13:25.880 --> 0:13:27.840 What I want to ask you is, how can we 0:13:28.120 --> 0:13:31.960 all as Americans, we are the voters, ultimately, we pay taxes, 0:13:32.120 --> 0:13:36.720 we employ everybody who's down there in Washington. How can 0:13:36.960 --> 0:13:40.120 what's the role that you think Americans need to play 0:13:40.440 --> 0:13:43.080 in this division or trying to fix this division. 0:13:43.960 --> 0:13:46.439 Yeah. Sure, that's a great question and what I love answering. 0:13:46.520 --> 0:13:50.480 So look, put up a little short. When I was 0:13:50.480 --> 0:13:55.319 on vacation recently, I was in West Virginia and called 0:13:55.440 --> 0:13:58.200 I won't say the county, but the executive committee of 0:13:58.200 --> 0:14:01.800 a Republican Party of conservative county. Met them with my 0:14:01.840 --> 0:14:04.240 fifteen year old son for lunch, and I think I 0:14:04.280 --> 0:14:07.880 told you guys, it's fascinating discussion with some West Virginians 0:14:07.880 --> 0:14:09.840 who felt like they had seceded into the United States 0:14:09.880 --> 0:14:13.439 of America. Hey, b I was the first first person 0:14:13.480 --> 0:14:16.400 from Washington they had ever talked, and they didn't want 0:14:16.440 --> 0:14:18.480 to seceed from United States of America. So I think 0:14:18.520 --> 0:14:20.640 there is a national conversation that we really need to have. 0:14:21.640 --> 0:14:23.600 I feel lonely when I call for that because the 0:14:23.600 --> 0:14:25.800 Democrats aren't calling for it and the Republicans aren't going 0:14:25.840 --> 0:14:29.080 for it. But I think this kind of national town 0:14:29.160 --> 0:14:32.400 hall would be a really constructive thing to try. 0:14:32.240 --> 0:14:34.720 Because Americans are good people. I think we're just really polarized. 0:14:35.240 --> 0:14:36.960 Oh go ahead, Carol, I just want to mention on 0:14:37.120 --> 0:14:41.120 AP News Alert United Autoworkers Union endorsing President Joe Biden 0:14:41.160 --> 0:14:43.840 for reelection as a Democrat works to win over the 0:14:43.920 --> 0:14:46.000 rank and file, so we know he has been many 0:14:46.000 --> 0:14:49.000 would say a friend to organized labor. We've seen him 0:14:49.000 --> 0:14:50.800 out there certainly supporting them. 0:14:50.840 --> 0:14:52.640 Well, CLI, speaking of business, I mean that's what you 0:14:52.680 --> 0:14:56.120 do at Eurasia Group. You advise businesses about how to 0:14:56.200 --> 0:15:00.480 handle the political climate, the geopolitical climate of the US 0:15:00.480 --> 0:15:03.920 and of the world. One, what are you hearing from 0:15:04.000 --> 0:15:06.680 CEOs right now about a potential Trump second term? And 0:15:06.720 --> 0:15:08.640 two how are you advising them to navigate it? 0:15:10.680 --> 0:15:15.320 The Well, what we're hearing is a lot of interest 0:15:15.440 --> 0:15:18.240 in you know, what a Trump two point zero would 0:15:18.320 --> 0:15:25.480 do on tariffs and on protecting certain sectors generally. Is 0:15:25.520 --> 0:15:30.800 there a trade to be made on uh ten percent 0:15:31.000 --> 0:15:35.080 universal tariff that kind of issue, or on revoking p 0:15:35.240 --> 0:15:38.000 M t R in trade bird trade status from China? 0:15:38.880 --> 0:15:39.280 Firstly. 0:15:39.520 --> 0:15:43.760 Secondly, there is a lot of concern in c suites 0:15:43.800 --> 0:15:49.960 and corporate boardrooms about issue of instability, on whether America's 0:15:49.960 --> 0:15:52.440 status is the ultimate safe haven for capital in the world, 0:15:52.520 --> 0:15:55.080 and capital is a coward you know, goes words comfortable? 0:15:55.640 --> 0:15:55.800 Is that? 0:15:56.280 --> 0:15:58.880 And I continue to be the United States if if 0:15:59.640 --> 0:16:02.160 Trump it's elected. I think there's a lot less there's 0:16:02.200 --> 0:16:04.160 an assumption that Biden two point zero would be like 0:16:04.400 --> 0:16:06.400 like Biden one pose. I got a lot less questions 0:16:06.440 --> 0:16:09.000 about Biden being reelected I do about Trump. A lot 0:16:09.080 --> 0:16:10.120 interests in Trump, though. 0:16:11.600 --> 0:16:14.000 Is there just in thirty seconds does it seem to 0:16:14.080 --> 0:16:18.200 be that executives are supporting Trump to a different degree 0:16:18.760 --> 0:16:21.120 than they were the first time around? Just thirty seconds left? 0:16:22.120 --> 0:16:26.680 I think that a lot of previous Trump voters are 0:16:26.720 --> 0:16:28.920 going to scratching their heads and saying, look, I prefer 0:16:29.000 --> 0:16:30.040 what this guy would do in. 0:16:31.520 --> 0:16:32.120 On markets. 0:16:32.560 --> 0:16:33.920 I prefer deregulation. 0:16:34.040 --> 0:16:34.480 I like that. 0:16:35.160 --> 0:16:36.720 But am I going to have to put up with 0:16:36.840 --> 0:16:41.480 a degree of instability and lack of confidenceness country that 0:16:41.600 --> 0:16:43.200 is going to hurt my bottom line? If you look 0:16:43.240 --> 0:16:45.720 triple net so, I think there's a lot there's more doubt, 0:16:45.720 --> 0:16:48.640 I would say, even among formerly pro Trump Republicans. 0:16:48.720 --> 0:16:50.000 All right, we're going to leave it on that note. 0:16:50.040 --> 0:16:52.320 So glad we got some time with you, Cliff, Thank 0:16:52.320 --> 0:16:54.800 you so much. Happy New Year again. Cliff Cupchain, chairman 0:16:54.880 --> 0:16:57.160 at Erase your group on zoom from Washington, DC. 0:16:59.200 --> 0:17:03.000 You're listening to the Bloomberg Business Week podcast. Listen live 0:17:03.160 --> 0:17:06.320 each weekdays starting a two pm Eastern on Applecar Play 0:17:06.359 --> 0:17:09.199 and Android Auto with the Bloomberg Business Ad. You can 0:17:09.280 --> 0:17:12.480 also listen live on Amazon Alexa from our flagship New 0:17:12.560 --> 0:17:16.160 York station, Just say Alexa Play Bloomberg eleven thirty. 0:17:23.680 --> 0:17:29.760 So I wonder if US consumers are kind of loving 0:17:30.119 --> 0:17:32.520 the outlook and how they're feeling about the world. 0:17:32.920 --> 0:17:36.720 Well, you may recall last week, US consumer sentiment soared 0:17:37.040 --> 0:17:39.320 in early January to the highest since twenty twenty one, 0:17:39.400 --> 0:17:43.800 that far exceeded expectations, short term inflation expectations, also slipping 0:17:43.840 --> 0:17:46.320 to a three year low. So I'd say, yeah, feeling 0:17:46.320 --> 0:17:46.719 pretty good. 0:17:46.760 --> 0:17:48.679 Yeah, at least by that mesh, that was a big number, right, 0:17:48.760 --> 0:17:51.119 kind of surprise the world, or at least folks here 0:17:51.160 --> 0:17:54.399 in the US. So consumers upbeat and on that. Our 0:17:54.440 --> 0:17:55.879 next guest and our team is out with a new 0:17:55.960 --> 0:17:58.760 consumer stress index. So let's get to it and really 0:17:58.840 --> 0:18:01.239 find out how stressed out cannsumers or or they might 0:18:01.320 --> 0:18:04.200 not be. Is Katie Thomas. She's head of the Carnie 0:18:04.240 --> 0:18:07.520 Consumer Institute. She's on Zoom from Pittsburgh, Pennsylvania. That Institute. 0:18:07.560 --> 0:18:09.440 By the way, it's a think tank of global strategy 0:18:09.600 --> 0:18:12.400 and management consultancy. Folks, Katie, good to have you here 0:18:13.040 --> 0:18:15.280 with Tim and myself on Bloomberg BusinessWeek. First of all, 0:18:15.359 --> 0:18:17.520 give us some background on the index. How you determine 0:18:17.560 --> 0:18:19.119 what needed to go into it, right, and this is 0:18:19.640 --> 0:18:22.040 the first read on it? Or give me some background here. 0:18:22.880 --> 0:18:25.320 Yes, so thanks Carol. Great to be back with you 0:18:25.400 --> 0:18:28.560 and Tim, And yes, exactly, this is our inaugural Consumer 0:18:28.640 --> 0:18:32.560 Stress Index, and really it is our take on consumer sentiment, 0:18:32.680 --> 0:18:35.760 but a little bit more expansive. So we were inspired 0:18:35.800 --> 0:18:40.280 by consumers increasingly being labeled as unpredictable because the behavior 0:18:40.480 --> 0:18:43.000 for a while up until recently wasn't tying out to 0:18:43.080 --> 0:18:46.760 traditional sentiment metrics. And really our challenge was two things. 0:18:46.880 --> 0:18:48.760 One was that we were looking a little bit too 0:18:48.920 --> 0:18:53.119 narrow on very specific economic and financial metrics, and the 0:18:53.240 --> 0:18:55.920 other piece was we weren't getting their input in a 0:18:56.400 --> 0:18:58.879 broader sense. So again it was very much like how 0:18:58.960 --> 0:19:01.720 do you feel about the not what's going on in 0:19:01.800 --> 0:19:04.359 your life, what are the other things that are perhaps 0:19:04.400 --> 0:19:07.640 stressing you out? Or in fact, we found the opposite, 0:19:07.720 --> 0:19:11.080 which is that consumers have this optionality that has allowed 0:19:11.160 --> 0:19:14.000 them to navigate some of these stresses a little bit 0:19:14.359 --> 0:19:16.600 better than perhaps we were giving them credit for. So 0:19:16.640 --> 0:19:19.560 it's really this comprehensive point of view on consumers and 0:19:19.600 --> 0:19:20.080 their stress. 0:19:20.240 --> 0:19:22.320 What's the optionality that they have that you're referring to. 0:19:23.480 --> 0:19:25.440 So when you think of something like, you know, we 0:19:25.560 --> 0:19:27.119 talked a lot, of course over the last couple of 0:19:27.160 --> 0:19:30.800 years about food inflation. When you talk to consumers, you realize, 0:19:30.880 --> 0:19:33.400 in fact, they feel like there's more flex there than 0:19:33.440 --> 0:19:36.400 you may think. So, yes, certainly they acknowledge the rising prices, 0:19:36.640 --> 0:19:39.240 but there's a lot of options in terms of where 0:19:39.359 --> 0:19:42.480 you shop, what brands you buy. You can try new brands, 0:19:42.520 --> 0:19:45.480 you can try different pack sizes, you can make. Maybe 0:19:45.520 --> 0:19:47.520 there's something you eliminate, you go out to eat a 0:19:47.560 --> 0:19:50.440 little bit less, but it's not all that upsetting you 0:19:50.640 --> 0:19:52.760 to you in the grand scheme of things, or similarly 0:19:52.840 --> 0:19:55.840 with interest rates, it's you know, yes, I acknowledge that 0:19:56.040 --> 0:19:58.680 I can feel the strain of these, but I don't 0:19:58.760 --> 0:20:01.600 feel like I'm unable to do anything about it. 0:20:01.840 --> 0:20:04.160 I'm curious to Katie, like, certainly in the investment world, 0:20:04.200 --> 0:20:06.919 our economic world, sometimes we create, something's created and they 0:20:07.000 --> 0:20:09.879 do back testing to see how great an indicator it 0:20:10.040 --> 0:20:12.960 is of whatever. And I'm just curious, is that what 0:20:13.040 --> 0:20:14.720 you guys did with this index? Were you able to. 0:20:16.480 --> 0:20:18.879 Not fully because of just the way that we built it. 0:20:19.000 --> 0:20:21.320 So we did the best we could. But in building 0:20:21.359 --> 0:20:23.520 out the index, so we have these five pillars, so 0:20:23.560 --> 0:20:28.520 we have consumer wallet and finances, but then health at education, 0:20:29.280 --> 0:20:35.280 innovation and technology, food in the environment, and geopolitics and 0:20:35.320 --> 0:20:37.640 government and some of those statistics just aren't as well 0:20:37.760 --> 0:20:41.280 tracked as economic statistics, as well as our consumer inputs 0:20:41.359 --> 0:20:45.119 in overlays. So we asked consumers forty survey questions and 0:20:45.240 --> 0:20:48.680 unfortunately can't go back in time, so we're optimistic that 0:20:48.960 --> 0:20:50.920 our research will only get better with age. 0:20:51.119 --> 0:20:52.520 Why did you think it was important though, to do 0:20:52.600 --> 0:20:55.400 it right now at this specific time here. You could 0:20:55.400 --> 0:20:56.720 have done it a couple of years ago. You could 0:20:56.760 --> 0:20:58.240 have done it prevent Like, I'm just curious. 0:20:59.160 --> 0:21:01.960 Yeah, I think truly, we felt like coming out of 0:21:02.040 --> 0:21:06.720 the pandemic, this is the most we've heard CEOs, even 0:21:06.800 --> 0:21:09.680 in calls, kind of say very fuzzy things about the 0:21:09.800 --> 0:21:13.320 consumer and not always wanting to fully admit unpredictability, but 0:21:13.640 --> 0:21:16.200 saying things like, oh, we're getting mixed data on the consumer, 0:21:16.359 --> 0:21:18.480 and it was really coming out of the pandemic and 0:21:18.560 --> 0:21:22.359 trying to understand as people's behaviors settled back down and 0:21:22.480 --> 0:21:25.320 again really those gaps that for a while the consumer 0:21:25.400 --> 0:21:28.960 sentiment numbers were down, but consumers were still spending, but 0:21:29.080 --> 0:21:31.040 if you talk to them, they were blue. But in 0:21:31.160 --> 0:21:33.480 reality they were still out there and just trying to 0:21:33.600 --> 0:21:35.920 rationalize some of those inconsistencies. 0:21:36.119 --> 0:21:38.320 So answer the question for us, based on this research 0:21:38.400 --> 0:21:41.240 that you guys recently did at Carney, how is the 0:21:41.280 --> 0:21:42.000 consumer doing? 0:21:43.680 --> 0:21:46.080 You know, right now, they're actually doing pretty okay. So 0:21:46.160 --> 0:21:49.439 in the US we have a baseline of one hundred 0:21:49.680 --> 0:21:53.520 since twenty nineteen, so we did do We backed the 0:21:53.640 --> 0:21:58.120 macroeconomic data till twenty nineteen as our foundational starting point, 0:21:58.440 --> 0:22:01.160 and the consumer right now is just about one oh three. 0:22:01.359 --> 0:22:04.520 So you know that was they're feeling okay. There's some stressors, 0:22:04.560 --> 0:22:07.480 but a lot of that, frankly, is driven by geopolitics 0:22:07.560 --> 0:22:10.159 and government. So one of the things we looked at 0:22:10.200 --> 0:22:13.320 when we talked about this optionality was does a consumer 0:22:13.480 --> 0:22:16.240 feel like with some of these stressors they're able to 0:22:16.400 --> 0:22:19.639 respond to or impact them at all? With things like 0:22:19.720 --> 0:22:23.080 global conflict or political polarization. Those are things that are 0:22:23.160 --> 0:22:24.840 weighing on them that they feel like they have very 0:22:24.880 --> 0:22:28.360 little control over, unsurprisingly, So that's something that I heard 0:22:28.400 --> 0:22:31.040 you you all mentioned the election coming into this. That's 0:22:31.080 --> 0:22:33.160 something we'll be keeping an eye on the next few 0:22:33.240 --> 0:22:36.119 quarters as we see how that impacts the overall stress. 0:22:36.200 --> 0:22:38.320 So if you say, overall, Katie, the consumer is doing 0:22:38.359 --> 0:22:41.720 pretty well, it seems to me that there's this disconnect 0:22:41.800 --> 0:22:45.520 between how consumers feel and how they say they're feeling well, 0:22:45.520 --> 0:22:48.080 at least when it comes to politics. Because what we 0:22:48.160 --> 0:22:50.000 do see over and over again, at least in the 0:22:50.080 --> 0:22:53.320 polling that Bloomberg has done in recent months in several 0:22:53.359 --> 0:22:56.000 swing states, is that when it comes to how consumers 0:22:56.000 --> 0:22:59.080 feel about the economy, it does seem like foreign President 0:22:59.280 --> 0:23:03.800 Trump is polling higher than President Biden. And we're trying 0:23:03.800 --> 0:23:06.560 to understand that disconnect at a time when well, the economy, 0:23:06.600 --> 0:23:10.439 by many measures, including your own, is actually doing pretty well. 0:23:10.440 --> 0:23:11.200 How do you explain that? 0:23:12.640 --> 0:23:15.440 Yeah, I mean there are some of these data points 0:23:15.480 --> 0:23:17.280 I agree with you, you know him, we're trying to 0:23:17.359 --> 0:23:20.359 validate as well, because there are studies that show that 0:23:20.560 --> 0:23:23.439 when you actually do a party line split on how 0:23:23.480 --> 0:23:26.520 people feel about the economy. The negative numbers are very 0:23:26.600 --> 0:23:30.320 much being driven by Republicans. So you're seeing whether yeah, 0:23:30.400 --> 0:23:32.879 so you're seeing whether that's you know, because they're in 0:23:33.440 --> 0:23:35.600 you know, perhaps just an echo chamber of kind of 0:23:35.680 --> 0:23:38.879 affirming you know, these affirming things are perhaps even you know, 0:23:39.320 --> 0:23:42.480 intentional sandbagging of those numbers as we think about where 0:23:42.480 --> 0:23:45.240 we're at politically in this country. I mean, that's part 0:23:45.320 --> 0:23:47.480 of what's driving some of this. And so that's why 0:23:47.640 --> 0:23:50.040 our aim with some of our questions was almost to 0:23:50.119 --> 0:23:54.760 ask very objective questions that didn't allow for that that 0:23:54.920 --> 0:23:58.960 again focused on this optionality as opposed to just focusing 0:23:59.040 --> 0:24:01.760 on the feeling, because otherwise you do end up with 0:24:01.800 --> 0:24:03.200 the say do gap you describe? 0:24:03.240 --> 0:24:06.080 Well, it is right, exactly, so interesting this idea that right, 0:24:06.160 --> 0:24:08.640 you say one thing but you do something completely opposite. 0:24:08.680 --> 0:24:11.000 So then all right, how good are the data points? 0:24:11.240 --> 0:24:14.120 Having said that, so, twenty four thousand consumers in twelve 0:24:14.200 --> 0:24:18.159 countries are who you spoke to, and so what did 0:24:18.200 --> 0:24:20.840 they find as the thing that was most stressful? 0:24:22.080 --> 0:24:22.240 Yeah? 0:24:22.280 --> 0:24:25.640 Absolutely, you know, we talked about geopolitics government that's really 0:24:25.760 --> 0:24:30.600 across countries. Right now, You think obviously Israel and Gaza, Ukraine, 0:24:31.040 --> 0:24:33.439 and you know all the different impacts of that. If 0:24:33.480 --> 0:24:36.280 you're in Europe, you're feeling perhaps and that's you know, 0:24:36.400 --> 0:24:38.800 what we were building with this index too, was the 0:24:38.880 --> 0:24:42.480 interconnectivity of those five pillars. So in Europe you're feeling 0:24:42.520 --> 0:24:45.240 this stress perhaps of Ukraine, but also the impact on 0:24:45.320 --> 0:24:48.560 your energy prices and similarly, you know that's really and 0:24:48.640 --> 0:24:51.320 again it goes back to that struggle for control and 0:24:51.480 --> 0:24:54.119 just the lack of it. But what we're really tracking 0:24:54.240 --> 0:24:57.720 for looking forward and for our brands and clients is 0:24:57.800 --> 0:25:00.359 what does that mean? So comes up to top it's like, 0:25:00.640 --> 0:25:03.800 you know, purchasing behavior, How is that affecting how people 0:25:03.840 --> 0:25:06.760 are purchasing things. Brand boycotts we've seen in the US 0:25:06.920 --> 0:25:09.359 more and more lately, So it's really working through some 0:25:09.560 --> 0:25:12.560 of those risks and helping to prioritize. 0:25:12.240 --> 0:25:14.560 From politics perspective, what stresses. 0:25:14.160 --> 0:25:14.840 People out. 0:25:16.640 --> 0:25:17.320 In the US. 0:25:17.880 --> 0:25:21.359 It usually is just that general feeling of polarization, like 0:25:21.440 --> 0:25:24.080 there's no path for Whard, there's no path of together just. 0:25:26.240 --> 0:25:29.160 At the Eurasi Yeah, I mean, he's he's very concerned 0:25:29.160 --> 0:25:31.280 about the divide in the country. He's concerned about a 0:25:31.280 --> 0:25:34.000 civil war breaking out exactly. 0:25:34.200 --> 0:25:36.200 I mean, I think that's really what we feel from 0:25:36.280 --> 0:25:38.480 people is just like far and away, those were the 0:25:38.560 --> 0:25:42.520 highest numbers we saw and just really weighing down on folks. 0:25:42.600 --> 0:25:45.840 And it's this generalized anxiety. You know, you can split 0:25:45.880 --> 0:25:48.800 a lot of these metrics as well into more generalized 0:25:48.840 --> 0:25:51.639 and then personal things, right, my personal finances, my personal 0:25:51.720 --> 0:25:54.320 situation with healthcare and education. You know, when it comes 0:25:54.320 --> 0:25:57.719 to politics, it's this like kind of shared sense of discomfort. 0:25:58.560 --> 0:26:00.480 You know, it's interesting too, and you get In a 0:26:00.560 --> 0:26:04.240 release that was also put out, the initial baseline Baseline report, 0:26:04.280 --> 0:26:07.800 excuse me, surfaced some interesting conclusions. For example, while stressors 0:26:07.880 --> 0:26:11.800 stressors associated with the consumer wallet pillar were most frequently cited, 0:26:12.000 --> 0:26:14.760 seventy percent of respondents did not listen as their primary concern, 0:26:15.280 --> 0:26:16.480 Like how do you cross that one? 0:26:17.480 --> 0:26:18.760 Well, that was the one. 0:26:18.920 --> 0:26:22.200 Honestly, one of our early big gives me big unlocks 0:26:22.240 --> 0:26:24.200 of this of this work was that you know, we 0:26:24.359 --> 0:26:28.360 have those five pillars and consumer wallet and finances did win. 0:26:28.440 --> 0:26:30.400 But the rest, you know, twenty percent of people said 0:26:30.440 --> 0:26:34.680 geopolitics and government. You know, another roughly fifteen to twenty 0:26:34.760 --> 0:26:37.920 percent said both health and education and food in the environment. 0:26:38.040 --> 0:26:40.440 So it's sort of one of those things like I'm 0:26:40.520 --> 0:26:43.240 not worried about interest rates as much as I'm worried 0:26:43.280 --> 0:26:46.680 about my food access or right now, I'm going through 0:26:46.720 --> 0:26:50.480 a healthcare situation and that's weighing me down more than 0:26:50.760 --> 0:26:53.840 you know, again, like even wages or as long as 0:26:53.880 --> 0:26:56.560 I'm employed, that's actually not my top concern right now. 0:26:56.800 --> 0:26:58.560 And that's exactly the kind of thing we wanted to 0:26:58.680 --> 0:27:02.040 uncover here, of just how people's kind of full plate 0:27:02.240 --> 0:27:04.399 was working in their mind and where those kind of 0:27:04.560 --> 0:27:06.199 trade offs and give and take was occurring. 0:27:06.240 --> 0:27:08.359 All right, So you all consult, you advise, you have 0:27:08.480 --> 0:27:11.639 clients who reach out to you. First of all, what 0:27:11.720 --> 0:27:13.080 are you hearing from your clients? 0:27:14.440 --> 0:27:17.240 No, I think that it's really just this comprehensive view 0:27:17.359 --> 0:27:20.040 that really excites them because it just brings on a 0:27:20.080 --> 0:27:23.040 lot of discussion around any kind of topic that may 0:27:23.280 --> 0:27:25.360 be on their mind. So one thing, for instance, we've 0:27:25.359 --> 0:27:28.080 been chatting with with some of our food manufacturers is 0:27:28.320 --> 0:27:31.640 thinking about the impacts of ozempic and other GLP ones, 0:27:31.880 --> 0:27:34.639 and so even this helps to frame a discussion around 0:27:34.840 --> 0:27:37.800 that's not just a conversation about food or basket size. 0:27:37.840 --> 0:27:41.680 It affects the healthcare system, it affects how people feel 0:27:41.720 --> 0:27:45.280 about their like physical and lifestyle choices, even their mental health, 0:27:45.600 --> 0:27:48.760 and so it really helps to draw some connectivity amongst 0:27:48.800 --> 0:27:51.160 these major topics that a lot of our clients were 0:27:51.160 --> 0:27:51.600 talking about. 0:27:51.720 --> 0:27:53.680 So it's interesting, Katie, because I think Tim think about 0:27:53.680 --> 0:27:55.359 some of the stories that we've done over the past year, 0:27:55.440 --> 0:27:59.000 certainly on a this ozepic craze, these new class of 0:27:59.040 --> 0:28:03.320 diet drugs, whether it is you know, clothing manufacturers, airplanes, 0:28:03.560 --> 0:28:07.040 airplane seats, airplane seats like airplanes, this being bullish for 0:28:07.080 --> 0:28:09.520 airlines because people way less so they use less fuel, 0:28:09.640 --> 0:28:12.440 people shopping differently in terms of obviously food and so 0:28:12.520 --> 0:28:14.280 on and so forth. I mean, it's kind of real, 0:28:14.359 --> 0:28:16.960 and it sounds like, you know, Katie, what you are hearing. 0:28:17.240 --> 0:28:19.000 That's true that companies are thinking about how they have 0:28:19.040 --> 0:28:20.200 to adjust their strategies. 0:28:21.400 --> 0:28:25.200 Absolutely. I mean there's always, you know, many aspects that 0:28:25.320 --> 0:28:28.679 it addresses and just downstream implications as well. For instance, 0:28:29.160 --> 0:28:31.560 the one that came up the lowest of consumer stress 0:28:31.720 --> 0:28:34.960 here was innovation and technology. So that's just ultimately not 0:28:35.160 --> 0:28:37.920 bubbling up in the US in most countries, but in 0:28:38.000 --> 0:28:41.720 particular in the US, people aren't as worried about generative 0:28:41.760 --> 0:28:44.720 AI as they are about again, some of the other 0:28:44.800 --> 0:28:46.880 things like putting food on the table, which makes sense, 0:28:47.000 --> 0:28:49.800 but there are still downstream implications there where it may 0:28:49.880 --> 0:28:52.360 not feel as immediate, but it still could have an 0:28:52.360 --> 0:28:55.920 impact on their job, on their life. So it's really 0:28:56.000 --> 0:28:58.880 trying to carve out all of these different key items 0:28:58.920 --> 0:29:02.000 that are really in acting a consumer at a macro level, 0:29:02.040 --> 0:29:03.800 but also that our clients need to think about. 0:29:04.040 --> 0:29:06.080 Hey, we've been spending a lot of time this week 0:29:06.160 --> 0:29:08.920 talking about the biggest risks that the economy is facing 0:29:09.200 --> 0:29:12.600 this year. In your opinion, based on this research, what 0:29:12.680 --> 0:29:13.320 do you think that is? 0:29:15.800 --> 0:29:17.720 You know, I do think one is going to be 0:29:17.800 --> 0:29:21.080 managing through the US election and other elections around the 0:29:21.160 --> 0:29:24.200 world and how we kind of navigate that and the 0:29:24.280 --> 0:29:28.640 resulting impact of consumers, you know, kind of reacting to that, 0:29:28.880 --> 0:29:31.440 and what we're working on is drawing that directly to 0:29:31.520 --> 0:29:34.400 consumer purchase behavior. So you know, our next run of 0:29:34.440 --> 0:29:37.080 this will be in March already we're hoping to see 0:29:37.120 --> 0:29:39.480 some changes there and see how some of these things 0:29:39.560 --> 0:29:42.239 may flow through. And then I do think from an 0:29:42.280 --> 0:29:44.960 immediac sense, We're still this year going to be keeping 0:29:44.960 --> 0:29:48.360 an eye on some of those financial metrics, so you know, 0:29:48.600 --> 0:29:51.200 keeping an eye on hous and cost, interest rates, how 0:29:51.800 --> 0:29:54.800 those continue to evolve, and making sure people still feel 0:29:54.840 --> 0:29:57.800 like that they have that optionality because if that goes away, 0:29:57.920 --> 0:29:59.719 that's when we'll see stress levels tick up. 0:30:00.040 --> 0:30:02.080 All right, we're going to leave it on that note. Hey, listen, Katie, 0:30:02.240 --> 0:30:03.760 so great to spend some time with you and do 0:30:03.800 --> 0:30:05.960 a deep dive on this. Katy Thomas is head of 0:30:05.960 --> 0:30:08.800 the Carney Consumer Institute. Jowning us on Zoom from Pittsburgh. 0:30:09.720 --> 0:30:14.040 This is Bloomberg Business Week inside from the reporters and 0:30:14.280 --> 0:30:17.800 editors who bring you America's most trusted business magazine, plus 0:30:17.960 --> 0:30:21.800 global business, finance and tech news as it happens. Bloomberg 0:30:21.920 --> 0:30:26.960 Business Week with Caro Messer and Tim Steneveek on Bloomberg Radio. 0:30:27.160 --> 0:30:28.960 All right, everybody, we are staying with Earning. It's just 0:30:28.960 --> 0:30:32.440 a quick headline IBM crossing fourth quarter revenue seventeen point 0:30:32.560 --> 0:30:35.280 three eight billion versus an estimate of seventeen point twenty 0:30:35.400 --> 0:30:37.840 nine billion. So I just want to mention that and 0:30:38.240 --> 0:30:40.120 we'll continue That stock is up about four percent in 0:30:40.160 --> 0:30:43.240 the aftermarket. Let's go back to Tesla because it's down 0:30:43.280 --> 0:30:46.520 about four percent in the aftermarket. Numbers just out and 0:30:46.560 --> 0:30:48.320 I think the real concern is about the outlook and 0:30:48.360 --> 0:30:51.360 what we might see ultimately tim here this year. 0:30:51.440 --> 0:30:53.680 Okay, so these numbers are worth repeating. Fourth quarter revenue 0:30:53.760 --> 0:30:56.240 coming in below estimates twenty five point one to seven 0:30:56.280 --> 0:30:58.920 billion versus estimates of twenty five point eight seven billion. 0:30:58.960 --> 0:31:01.680 Fourth quarter free cash flow hello, two point six billion. 0:31:01.720 --> 0:31:03.680 That was higher than estaments at one point four to 0:31:03.720 --> 0:31:06.040 five billion. Fourth quarter gross margin, though that took a 0:31:06.080 --> 0:31:08.840 real hit Carol, seventeen point six percent versus estimates of 0:31:09.080 --> 0:31:10.240 eighteen point one percent. 0:31:10.320 --> 0:31:12.720 All right, Tesla to start in a next generation platform 0:31:12.720 --> 0:31:15.600 production at its gigafactory in Texas, teams to work in 0:31:15.600 --> 0:31:18.120 a launch of a next generation vehicle at Tech Texas, 0:31:18.440 --> 0:31:20.959 and continue to make progress on a next generation platform. 0:31:21.040 --> 0:31:23.280 So a lot of stuff that that is to come. 0:31:23.360 --> 0:31:25.520 So let's get to it, because we've got a great roundtable. 0:31:25.600 --> 0:31:27.920 Red Brown is Bloomberg News earnings reporter. He covers the 0:31:28.000 --> 0:31:30.680 numbers and will give us some more insight into what 0:31:30.760 --> 0:31:33.040 we just got. Ross Gerber is with us President CEO 0:31:33.040 --> 0:31:35.920 of Gerber Kawasaki Wealth and Investment Management. They have about 0:31:35.920 --> 0:31:39.080 two point two billion in assets under management, including about 0:31:39.120 --> 0:31:41.720 eighty four million dollars worth of Tesla stock. You folks 0:31:41.760 --> 0:31:44.760 know him well, he owns Tesla's, he invests in the company, 0:31:44.840 --> 0:31:47.840 he sells at times. I do want to start with you, Ross, 0:31:48.800 --> 0:31:51.080 are you concerned stock still doubt about two point seven 0:31:51.080 --> 0:31:53.480 percent in the aftermarket. But when Tesla says twenty twenty 0:31:53.520 --> 0:31:56.880 four volume growth may be notably lower than twenty twenty three, 0:31:57.760 --> 0:31:59.480 I don't know. Does it worry you a little bit? 0:31:59.520 --> 0:32:01.040 Does it make you want to sell any stock? 0:32:02.720 --> 0:32:04.960 Well, I don't want to talk about our trading because 0:32:04.960 --> 0:32:06.640 I'm not allowed to. But if you look at our 0:32:07.440 --> 0:32:10.680 you know my fun GK. We've been selling the stock 0:32:10.960 --> 0:32:13.880 over the last several months as well as if you 0:32:13.920 --> 0:32:16.520 look at our public filings, we've been lowering our position 0:32:17.000 --> 0:32:19.480 over the last several months. So there's a lot of 0:32:19.520 --> 0:32:21.200 clients of mine who are very upset with some of 0:32:21.240 --> 0:32:23.400 the things Elon said and sold their stock in the 0:32:23.440 --> 0:32:25.719 two fifty, two hundred and fifty dollars range that are 0:32:25.720 --> 0:32:27.280 probably pretty happy they did that today. 0:32:27.920 --> 0:32:30.760 Russ, stick with this for a minute, because you've been 0:32:31.080 --> 0:32:34.360 pretty critical of Elon Musk lately, which has been a 0:32:34.480 --> 0:32:37.840 marked a mark difference from how you've been over the 0:32:37.880 --> 0:32:39.640 past few years. I mean, you were among the biggest 0:32:39.680 --> 0:32:43.720 Tesla bulls out there, but now you're concerned. You write 0:32:43.720 --> 0:32:48.200 that Elon's becoming the Kanye of business. Is this what's 0:32:48.280 --> 0:32:51.800 hitting the company's stock or is this a bigger question 0:32:51.880 --> 0:32:55.200 about what we were talking about earlier with evs, EV 0:32:55.320 --> 0:32:57.680 demand falling and what we're seeing from Ford, what we're 0:32:57.680 --> 0:32:59.760 seeing from GM. Is it a bigger issue outside of 0:32:59.800 --> 0:33:00.320 el Con? 0:33:01.840 --> 0:33:04.520 I think Elon's created the issue for evs across the 0:33:04.600 --> 0:33:08.920 board more than like it's an ev issue. But you know, 0:33:09.040 --> 0:33:11.320 the bottom line is, and you see it in the numbers, 0:33:11.360 --> 0:33:13.000 and this is what we were kind of waiting to see, 0:33:13.080 --> 0:33:16.800 is that margins continue to go lower. They're basically not 0:33:17.000 --> 0:33:20.520 able to sell cars unless they lower prices because Elon 0:33:20.600 --> 0:33:21.800 refuses to advertise. 0:33:21.880 --> 0:33:24.000 And then the advertising he's. 0:33:23.880 --> 0:33:28.520 Doing are trips with his child to Auschwitz and you know, 0:33:29.160 --> 0:33:33.240 anti Semitic and racist comments all the time, and him 0:33:33.560 --> 0:33:37.640 you know, basically using X as a platform for every 0:33:38.120 --> 0:33:41.200 political debate possible that he could get himself into, which 0:33:41.280 --> 0:33:45.240 is exactly how you not sell cars, so so god forbid. 0:33:45.320 --> 0:33:48.360 They actually got him off Twitter and advertised maybe Tesla's 0:33:48.360 --> 0:33:49.280 problems would be solved. 0:33:49.960 --> 0:33:51.880 Interesting, Hey, I want to bring you in red brown 0:33:52.760 --> 0:33:54.880 things that you're seeing and noticing. We've been breaking down 0:33:54.920 --> 0:33:57.920 the earnings with our TV colleagues. The key point that 0:33:57.960 --> 0:33:58.720 you're focusing on. 0:33:59.200 --> 0:34:02.800 Well, I think of the production target notably lower volumes 0:34:02.840 --> 0:34:06.320 for next year. It does raise some questions about this 0:34:06.480 --> 0:34:09.800 strategy of continuing to lower prices. They lower prices just 0:34:09.920 --> 0:34:12.239 last week again in Europe, so it seems like that 0:34:12.440 --> 0:34:15.160 is going to be the strategy going forward, but it 0:34:15.200 --> 0:34:17.480 doesn't seem to be kind of paying dividends in the 0:34:17.560 --> 0:34:20.800 company's view going forward in terms of actually selling cars. 0:34:20.840 --> 0:34:21.080 Still. 0:34:21.360 --> 0:34:23.839 Yeah, and Tesla les bullish on it's cyber truck, noting 0:34:23.840 --> 0:34:26.000 in the investor deck that it's ramp time will be 0:34:26.120 --> 0:34:29.440 longer than for the other models given its manufacturing complexity. 0:34:29.520 --> 0:34:33.880 So it's also adding that, all right, Ross, so can definitely, 0:34:34.080 --> 0:34:38.640 you know, respect your different tone here in Tesla. So 0:34:39.080 --> 0:34:41.520 I don't know, how do you think about this company 0:34:41.600 --> 0:34:45.400 going forward? Is it a case that it's hard to 0:34:45.560 --> 0:34:48.879 kind of remove the man and the creator from kind 0:34:48.920 --> 0:34:50.920 of the company, But how do you do that or 0:34:50.960 --> 0:34:52.120 do you do that at some point? 0:34:53.440 --> 0:34:55.680 Well, what I've been saying is that the Tesla story 0:34:55.760 --> 0:34:57.960 has just changed from what the story was a few 0:34:58.040 --> 0:35:02.640 years ago before Twitter. As long as investors are comfortable 0:35:02.719 --> 0:35:05.880 with that story, then the long term for Tesla of 0:35:05.960 --> 0:35:08.680 the story is still intact, whether it be charging energy 0:35:08.719 --> 0:35:13.680 ev you know, Tesla's the prime player in this climate change. 0:35:13.400 --> 0:35:14.800 Revolution that they began. 0:35:15.440 --> 0:35:18.640 And the real issue is the company is being mismanaged 0:35:18.680 --> 0:35:22.480 now by the CEO who's demanding a massive compensation package 0:35:22.640 --> 0:35:24.640 but won't do any of the things that the company 0:35:24.719 --> 0:35:26.920 needs to really like resolve. 0:35:26.600 --> 0:35:28.520 Their sales and margin issues. 0:35:28.920 --> 0:35:31.399 So I think as we move forward as investors, it's 0:35:31.440 --> 0:35:35.479 really about what is the right valuation for Tesla, Because 0:35:35.520 --> 0:35:38.360 Tesla has been the highest value of the mag seven 0:35:38.840 --> 0:35:41.720 or one of the highest valued tech stocks for years, 0:35:41.840 --> 0:35:44.720 you know, and before he bought Twitter, you know, traded 0:35:44.800 --> 0:35:48.520 one hundred times multiple of future earnings. Today it's trading 0:35:48.560 --> 0:35:51.920 at sixty times multiple of future earnings. But now that 0:35:52.080 --> 0:35:56.560 future earnings number is definitely in doubt, and does it 0:35:56.680 --> 0:35:59.440 really deserve a higher multiple than Nvidia and Microsoft? And 0:35:59.520 --> 0:36:03.320 I think that that's what's hurting the stock irrelevant of 0:36:03.480 --> 0:36:04.000 the company. 0:36:04.239 --> 0:36:07.000 Stock still down about two percent. Hey, Tesla also noting 0:36:07.480 --> 0:36:09.800 ross that they have reached the quote natural limit of 0:36:09.880 --> 0:36:12.920 cost town of our existing electric vehicle lineup. It's kind 0:36:12.920 --> 0:36:13.640 of corporate speed. 0:36:13.719 --> 0:36:15.759 But what does that mean euphemism for we can't lower 0:36:15.800 --> 0:36:16.480 prices anymore? 0:36:16.800 --> 0:36:20.960 Right, It's like we have reached maximum efficiency of production 0:36:21.480 --> 0:36:24.160 and so basically every time we discount, it's just going 0:36:24.200 --> 0:36:27.160 to cost shareholders more. Now, the good news is this 0:36:27.320 --> 0:36:30.040 is great for Earth because people are getting cheaper and 0:36:30.120 --> 0:36:31.000 cheaper you. 0:36:31.080 --> 0:36:33.400 Know, evs, which you know are great. 0:36:33.800 --> 0:36:36.920 The bad news is it's coming from shareholders pockets, and 0:36:37.080 --> 0:36:40.560 so if you're a shareholder, you know it's time to 0:36:40.640 --> 0:36:44.320 really assess, like does this company deserve a sixty multiple 0:36:44.320 --> 0:36:46.880 afford earnings? And I think that's what investors are going 0:36:46.960 --> 0:36:48.319 to be doing over the next several months. 0:36:48.360 --> 0:36:49.799 Okay, I want to bring back in red round because 0:36:49.800 --> 0:36:51.480 he's been watching the numbers come out red. What else 0:36:51.480 --> 0:36:53.680 sticks out to you? I know, the looking at the 0:36:53.960 --> 0:36:58.160 production numbers certainly sticks out any anything else in these numbers. 0:36:58.200 --> 0:37:00.520 Here we're seeing shares down about two percent as we speak. 0:37:01.600 --> 0:37:05.080 Yeah, I mean, it's just it's I think everything that 0:37:05.120 --> 0:37:07.160 we're seeing right here from the numbers is that this 0:37:07.360 --> 0:37:08.960 is kind of the cost you pay for the game 0:37:09.040 --> 0:37:12.400 that they're playing. Of continuing to cut these prices. They 0:37:12.760 --> 0:37:15.799 You're seeing a bigger and bigger disconnect between their top 0:37:15.880 --> 0:37:17.399 line growth and their earnings growth. 0:37:17.480 --> 0:37:17.600 Right. 0:37:17.840 --> 0:37:19.879 They did hit record revenue that's going to get lost 0:37:19.920 --> 0:37:23.360 in the shuffle here today, but it came at the 0:37:23.440 --> 0:37:26.080 expense of over forty percent drop in their earnings, right, 0:37:26.200 --> 0:37:30.400 So it's not it doesn't seem like it's the path forward. 0:37:31.000 --> 0:37:31.279 I think. 0:37:31.320 --> 0:37:33.880 I think Ross is hitting on some interesting topics here 0:37:33.920 --> 0:37:36.439 as well as kind of where does the growth come from? 0:37:37.080 --> 0:37:40.800 A lot of the share price is predicated on some 0:37:40.920 --> 0:37:42.960 of these sort of pie in the sky initiatives, be 0:37:43.040 --> 0:37:46.520 it AI huge question marks over that with whether or 0:37:46.520 --> 0:37:48.600 not Elon does that inside the company or not, so 0:37:48.840 --> 0:37:50.680 hopefully get some more insights on that when the call, 0:37:50.800 --> 0:37:51.840 when the call goes later. 0:37:51.719 --> 0:37:54.080 Today, Ross, what is the number one question on that 0:37:54.239 --> 0:37:55.359 call today? In your view? 0:37:57.440 --> 0:38:00.399 I think from my perspective, it's kind of what we're 0:38:00.440 --> 0:38:04.439 hitting on right now, which is where's the growth coming from? 0:38:04.600 --> 0:38:07.520 If you're not going to grow cars by a lot, 0:38:07.960 --> 0:38:10.080 you know like this is not a good thing. So 0:38:10.680 --> 0:38:12.759 I think my concern is forty six eighty. And this 0:38:12.920 --> 0:38:15.560 is the story behind the story, which is one of 0:38:15.600 --> 0:38:19.640 the scaling issues they're having with cyber and Semi is 0:38:19.719 --> 0:38:21.960 that forty six eighty is just not working as quickly 0:38:22.000 --> 0:38:24.240 as they had hoped. And they planned all of production 0:38:24.360 --> 0:38:27.640 in Texas around forty six eighty originally, and they've now 0:38:27.719 --> 0:38:30.880 had to pivot, and so this has caused extra costs, 0:38:31.160 --> 0:38:34.040 lots of complexity issues, and I don't think they've mastered 0:38:34.080 --> 0:38:37.640 forty six eighty at or even close for scaling and 0:38:37.760 --> 0:38:40.480 any mass level. And this is a huge detriment to 0:38:40.880 --> 0:38:43.480 Tesla moving forward because they have to get this technology 0:38:43.640 --> 0:38:46.319 right to ramp cyber and semi, which is where growth 0:38:46.320 --> 0:38:46.879 will come from. 0:38:47.040 --> 0:38:49.439 Hey, twenty seconds, really quickly, What do you mean forty 0:38:49.440 --> 0:38:50.560 six eighty really quickly. 0:38:51.120 --> 0:38:52.520 These are the new cells that. 0:38:54.040 --> 0:38:57.520 They built for EVS and these new cells are seven 0:38:57.560 --> 0:39:01.800 times more powerful, much more efficient, large, faster, and they're wonderful, 0:39:01.840 --> 0:39:04.440 but they haven't been able to scale them as quickly 0:39:04.440 --> 0:39:05.080 as they had hoped. 0:39:05.160 --> 0:39:07.279 All right, good stuff as always, so appreciate it. I 0:39:07.320 --> 0:39:09.600 know you've had a busy day. Our thanks to Ross Gerber, 0:39:09.640 --> 0:39:13.120 President CEO Gerbert Kawasaki Wealth and Investment Management, and then 0:39:13.160 --> 0:39:14.719 of course our thanks as well to our Red Brown. 0:39:14.719 --> 0:39:17.440 He's Bloomberg News earnings reporter right here in studio. Tesla 0:39:17.520 --> 0:39:20.560 shares back down about three point seven percent. We're seeing 0:39:20.560 --> 0:39:22.520 in the stock fall here in the aftermarket. 0:39:24.080 --> 0:39:30.120 Brom A journal, Now about you let me drive? 0:39:30.680 --> 0:39:32.600 No, no, no, no, pleasing to jug. 0:39:33.520 --> 0:39:35.879 Hory please, I'll do the driving, gravels. 0:39:36.280 --> 0:39:37.040 Let's wait, I. 0:39:37.120 --> 0:39:37.680 Want to try it. 0:39:39.960 --> 0:39:41.839 It's a good question, good time. 0:39:44.640 --> 0:39:47.360 This is the drive to the globe. Dot com t 0:39:47.520 --> 0:39:47.840 me a thing. 0:39:48.000 --> 0:39:49.160 We'll buy around to yell it. 0:39:49.239 --> 0:39:51.040 Don on Bloomberg Radio. 0:39:51.719 --> 0:39:56.000 All right, TikTok. Everybody just got about eighteen minutes, seventeen 0:39:56.040 --> 0:39:58.640 and a half minutes. Good keill it. Yeah, I'm watching them. 0:40:00.200 --> 0:40:02.000 Time continues as you speak, It. 0:40:02.080 --> 0:40:04.680 Does, it does, and there's like a little bit of 0:40:04.719 --> 0:40:07.040 a delay too. Yeah, it gets to our listeners. You know, 0:40:07.120 --> 0:40:09.160 it's got to go through the tubes, fly. 0:40:09.160 --> 0:40:11.759 Through the air for Kevin seventeen minutes away. 0:40:11.760 --> 0:40:13.560 Okay, Well that means it's time for drive to the clothes. 0:40:13.760 --> 0:40:16.400 For that, we go to Bryan ben Kronkite portfolio manager, 0:40:16.640 --> 0:40:19.840 at all Spring Global Investments. He joins us from Wisconsin 0:40:19.920 --> 0:40:22.480 this afternoon. Brian, good to have you with us. I 0:40:22.560 --> 0:40:25.239 want to know what worries you, because it doesn't seem 0:40:25.320 --> 0:40:28.040 like investors are worried about a lot right now. We're 0:40:28.080 --> 0:40:31.520 seeing a lot of records today, meta platforms, Microsoft, We're 0:40:31.520 --> 0:40:32.720 seeing Netflix surge. 0:40:33.760 --> 0:40:37.160 What's going on? Yeah, good to be with you again today. 0:40:37.880 --> 0:40:40.320 But I think the market really has embraced the optimism 0:40:40.440 --> 0:40:43.960 that comes with a typical monetary loosening policy. Right we're 0:40:44.000 --> 0:40:46.239 not even quite through the tightening in my mind, and 0:40:46.920 --> 0:40:49.400 the Fed has given us a reason to believe in 0:40:49.800 --> 0:40:53.800 a preemptive cut that's going to lead to stewing the economy. 0:40:53.840 --> 0:40:57.400 And we've had a classic playbook of buying cyclicals, buying beta, 0:40:57.560 --> 0:41:00.400 buying operating leverage, and that's played out. The stocks have 0:41:00.560 --> 0:41:02.359 rallied coming into the beginning of this year. Now we're 0:41:02.400 --> 0:41:03.560 starting to see that fade a little bit. 0:41:03.640 --> 0:41:05.320 Do you think the Fed? Don't you think, Briant? The 0:41:05.360 --> 0:41:07.200 Fed has been kind of rating everybody in. Although the 0:41:07.239 --> 0:41:09.400 Fed talk of saying wait a minute, slow down, you know, 0:41:09.560 --> 0:41:11.200 higher for longer, hire for longer. 0:41:12.080 --> 0:41:13.680 It was interesting, right, So they came out at the 0:41:13.760 --> 0:41:15.799 end of the year, giving you reason to be optimistic 0:41:15.840 --> 0:41:17.680 about the cuts. And I guess this is our what 0:41:17.880 --> 0:41:20.359 sixth iteration of the market trying to push the FED 0:41:20.440 --> 0:41:23.799 into this early early cut pattern that we're looking for now. 0:41:23.880 --> 0:41:26.279 But every time they come back and they walk us 0:41:26.360 --> 0:41:28.239 back and saying, oh wait, the data is still coming in. 0:41:28.320 --> 0:41:30.239 We're still not done yet. The risk is still that 0:41:30.280 --> 0:41:33.000 we haven't gone far enough. That's my view. My view 0:41:33.120 --> 0:41:35.360 is the market now is embttered a lot of optimism 0:41:35.480 --> 0:41:37.239 and the reality is we're not done yet. We're not 0:41:37.320 --> 0:41:39.359 sure what's going to happen, and so I don't want 0:41:39.400 --> 0:41:41.000 to own businesses today, and I don't want to buy 0:41:41.080 --> 0:41:43.960 sectors today that are reliant on the generosity of the FED. 0:41:44.120 --> 0:41:46.480 I want to buy businesses that are controlling their own destiny. 0:41:46.680 --> 0:41:48.960 They're navigating the markets by investing in growth. 0:41:49.280 --> 0:41:50.600 I want to get to some of those businesses in 0:41:50.719 --> 0:41:52.080 just a minute. But before we do that, I just 0:41:52.120 --> 0:41:53.799 want to know what you think the FED is going 0:41:53.880 --> 0:41:55.359 to do in terms of cuts this year. How many 0:41:55.400 --> 0:41:56.799 do you think the FED will do, if any? 0:41:57.760 --> 0:41:59.759 I think the reality is they have no idea, and 0:42:00.120 --> 0:42:02.040 I certainly have no idea, right I think they need 0:42:02.040 --> 0:42:03.800 to figure out what's happening still with inflation, does it 0:42:03.840 --> 0:42:06.560 sustainably come down where it is? What happens with labor markets, 0:42:06.560 --> 0:42:08.919 That's probably the biggest one. If we move too early 0:42:08.960 --> 0:42:12.520 from a monetary loosening standpoint and labor markets haven't resolved themselves, 0:42:12.600 --> 0:42:16.319 MU stupply demand situation, and wage growth then moves higher again. 0:42:16.640 --> 0:42:17.560 That's really bad. 0:42:17.800 --> 0:42:20.440 It's really bad from a sentiment standpoint, and once sentiment 0:42:20.520 --> 0:42:23.399 and expectations getta control, the wheels come off very quickly. 0:42:23.560 --> 0:42:25.960 So my view is the FED has no idea and 0:42:26.000 --> 0:42:28.319 they're gonna be very careful about being active during an 0:42:28.320 --> 0:42:31.160 election cycle. So they came out early saying this might happen, 0:42:31.760 --> 0:42:33.360 But the reality is they don't know yet, and I 0:42:33.400 --> 0:42:35.200 don't know yet, So guessing at it, I think, is 0:42:35.239 --> 0:42:36.000 a feudal effort. 0:42:36.480 --> 0:42:38.680 All right, So let's get to what I care about 0:42:38.920 --> 0:42:41.040 is when you actually somebody comes in with names and 0:42:41.160 --> 0:42:42.400 I want to know kind of where you would be 0:42:42.440 --> 0:42:45.879 committing money. Names, Carol, we get names, So let's get 0:42:45.880 --> 0:42:48.359 to it. You like, because we're gonna actually get sl 0:42:48.440 --> 0:42:52.880 Green a big place player in the market, especially New 0:42:52.960 --> 0:42:55.440 York commercial office real estate we're going to get those 0:42:55.440 --> 0:42:58.160 earnings after the closing bell. Cb are group, you like 0:42:58.320 --> 0:42:59.239 talk to us about that one. 0:43:00.120 --> 0:43:02.040 Yeah, CBI is a great business. We've owned for a 0:43:02.120 --> 0:43:05.239 long time, but recently have increased our position because we 0:43:05.440 --> 0:43:08.399 like what they're doing to navigate an otherwise very challenging time. 0:43:08.840 --> 0:43:11.640 Investors punished the stock as rates roles because there was 0:43:11.680 --> 0:43:14.279 a lack of price discovery. Buyers didn't want to sell 0:43:14.320 --> 0:43:17.719 properties at the lower rates that the higher levels that 0:43:17.719 --> 0:43:19.400 sellers wanted in vice versa, and so there was no 0:43:19.520 --> 0:43:23.239 transaction volume, and so the earnings of CBR fell as 0:43:23.360 --> 0:43:26.040 leasing and sales transactions dried up. But the reality is 0:43:26.040 --> 0:43:27.800 that's only half their business. The other half is a 0:43:27.920 --> 0:43:30.480 very high recurring cash flow business and they're using that 0:43:30.560 --> 0:43:32.759 cash flow and their great balance sheet to invest in 0:43:32.840 --> 0:43:36.120 the future. They recognize the macro slows down their business today, 0:43:36.360 --> 0:43:38.319 but the reality is, as a LAUNCHERM investor, what are 0:43:38.360 --> 0:43:41.200 they doing to drive much higher earnings power over the 0:43:41.280 --> 0:43:43.640 next two, three, four years. And what they're doing is 0:43:43.680 --> 0:43:46.000 going out there and hiring from the best talents and 0:43:46.120 --> 0:43:48.960 the best markets across the country. And as the great 0:43:49.000 --> 0:43:51.279 stabilized and transactions pick up, they're going to have a 0:43:51.360 --> 0:43:54.320 much higher market share, and as they're buying backstock, the 0:43:54.480 --> 0:43:56.520 per share earnings and cash flow power we think will 0:43:56.600 --> 0:43:58.839 double versus prior peak in just a few short years. 0:43:59.080 --> 0:44:01.279 That to me is a really interesting opportunity when the 0:44:01.320 --> 0:44:03.479 market's being very punished punishing their stock today. 0:44:03.640 --> 0:44:05.799 So is it a bet on lower rates which are 0:44:05.840 --> 0:44:08.680 good for the real estate names and an economy that's growing. 0:44:09.280 --> 0:44:10.400 Is that the bet you don't need that. 0:44:10.640 --> 0:44:12.080 You don't need that to win here? What we that 0:44:12.120 --> 0:44:15.239 would help right that would accelerate their value creation. But 0:44:15.320 --> 0:44:17.359 what we're doing right now is we're building a base 0:44:17.440 --> 0:44:20.680 of talent. We're building an opportunity set. The market's misspricing today. 0:44:20.760 --> 0:44:23.839 So when rates do stabilize, not fall, but when they stabilized, 0:44:24.040 --> 0:44:26.600 there will be more transaction volume and commercial real estate 0:44:26.640 --> 0:44:29.680 everything from offices to hotels to medical properties. 0:44:29.840 --> 0:44:31.719 But that's what I'm saying. Longer term, the bet is 0:44:31.840 --> 0:44:34.719 on that you've got an environment that's growing in terms 0:44:34.760 --> 0:44:38.000 of economic growth. But a lower rate environment doesn't have. 0:44:38.000 --> 0:44:39.799 To be lower, it needs to be stabley because when 0:44:39.800 --> 0:44:42.440 they're stable buyers and sellers, no expectations are and they 0:44:42.560 --> 0:44:44.520 meet I don't really care if they're selling their proppy 0:44:44.560 --> 0:44:46.480 for five hundred million or four hundred and fifty million, 0:44:46.560 --> 0:44:48.719 CBRE gets their cut and they're going to have a 0:44:48.760 --> 0:44:50.920 lot of cash off that I just need to stabilize 0:44:51.120 --> 0:44:52.839 and even one will then come to the table again. 0:44:52.880 --> 0:44:54.480 That's because they're on the service side of it, right, 0:44:54.600 --> 0:44:56.439 Is that why you say that they just get their. 0:44:56.360 --> 0:44:57.520 No, that's a transaction side. 0:44:57.600 --> 0:44:58.200 That's a transaction. 0:44:58.440 --> 0:45:02.279 Transaction remains stable growing. They're growing that double digits right now. 0:45:02.960 --> 0:45:05.120 But the focus from the market is on the transaction side. 0:45:05.160 --> 0:45:05.399 Again. 0:45:05.680 --> 0:45:08.759 Lower rates accelerates, it puts fuel on the fire. But 0:45:08.840 --> 0:45:10.879 we don't need to win well the next three years. 0:45:10.960 --> 0:45:14.000 We need a stable, predictable rate market and buyers themselves 0:45:14.040 --> 0:45:15.480 will come back to the table and transact. 0:45:16.000 --> 0:45:18.320 All right, So I'm want to move on to another stock. 0:45:18.400 --> 0:45:21.880 K Doctor Peer, get aeg from real estate too. 0:45:22.160 --> 0:45:27.040 How about some seven up Carol? How's that Arci Cola, 0:45:27.200 --> 0:45:31.280 Big Red of course, Kurig, Doctor Pepper, Snapple Tea, Canada 0:45:31.400 --> 0:45:33.960 Dry Green Mountain Coffee. The list certainly goes on with 0:45:34.120 --> 0:45:36.960 Curig Doctor Pepper. Why are you bullish on this company? 0:45:38.080 --> 0:45:40.040 I'm bullsh not because they've done a really good job 0:45:40.120 --> 0:45:43.120 managing two very different businesses. There's a cold business, which 0:45:43.120 --> 0:45:45.319 you talked about some Moost great brands. On the soda side, 0:45:45.600 --> 0:45:48.600 we're seeing tremendous pricing power. You're seeing demand stay stable, 0:45:48.800 --> 0:45:51.200 and they've navigated the pandemic and all the way past 0:45:51.280 --> 0:45:54.040 that really effectively. What the market doesn't like right now 0:45:54.200 --> 0:45:57.680 is how the hot side, the coffee side's been behaving 0:45:58.680 --> 0:46:03.120 at home. Consumption skyrocketed during the pandemics for obvious reasons, 0:46:03.160 --> 0:46:05.040 and it has come down a little bit. So volume 0:46:05.120 --> 0:46:07.920 growth in the pod side has slowed and also had 0:46:07.960 --> 0:46:11.320 issues with their pricing relative to their costs. In many industries, 0:46:11.360 --> 0:46:15.080 including the coffee manufacturing industry, costs and manufacture have gone up, 0:46:15.400 --> 0:46:17.800 but the contractual pricing agreements they have take time to 0:46:17.880 --> 0:46:20.640 roll through, and so margin's compressed in a pretty material way. 0:46:21.200 --> 0:46:22.880 We're almost through that now, Okay. 0:46:22.960 --> 0:46:24.040 So I was going to say, if you look at 0:46:24.080 --> 0:46:26.680 the stock, it's really been in a rut since the 0:46:26.840 --> 0:46:29.320 end of twenty twenty one, down about almost ten percent. 0:46:29.400 --> 0:46:31.640 It really kind of hasn't been able to kind of move. 0:46:31.719 --> 0:46:34.160 It's basically where it was a couple of years ago. 0:46:34.600 --> 0:46:36.600 So you're saying all of that is done, and we 0:46:36.640 --> 0:46:37.919 should see some upside here. 0:46:38.840 --> 0:46:39.520 Right around the corner. 0:46:39.600 --> 0:46:41.279 In my mind, it's also a function of what we've 0:46:41.280 --> 0:46:43.359 seen with the staples in general, and people get excited 0:46:43.400 --> 0:46:45.640 with the economy, why would you buy a consumer staple? Right, 0:46:45.719 --> 0:46:47.719 money has flown out of this category, but as it 0:46:47.840 --> 0:46:50.640 does for macro reasons. From a micro standpoint, it's our 0:46:50.719 --> 0:46:53.040 chance of stock pickers to really add alpha, and so 0:46:53.200 --> 0:46:54.839 in my mind, we're going to start to see one 0:46:54.840 --> 0:46:56.640 of a quarter or two here, we start to see 0:46:56.640 --> 0:46:59.399 that margin inflection on the coffee side, which should drive 0:46:59.440 --> 0:47:01.600 higher earning. Think get the market focusing on the true 0:47:01.640 --> 0:47:03.000 cash part of business longer term. 0:47:03.000 --> 0:47:04.800 All right, Well, fun to talk names as always, and 0:47:04.840 --> 0:47:07.080 good get your macro as well. Bryant, thank you so much. 0:47:07.200 --> 0:47:11.239 Be well, Bryant van konk Bryant van Cronkite. Excuse me, 0:47:11.560 --> 0:47:14.520 portfolio manager at all Spring Global Investments, joining us from 0:47:14.560 --> 0:47:18.080 a nominee Falls, Wisconsin. Interesting. I love talking names. 0:47:18.160 --> 0:47:20.080 I don't know how many times they've fed is going 0:47:20.120 --> 0:47:21.000 to cut rates this year? 0:47:21.320 --> 0:47:25.719 Well, I think that's a silly parlor game, partner. They're 0:47:25.760 --> 0:47:28.200 gonna do what they're gonna do. They're gonna watch the data. 0:47:28.360 --> 0:47:29.000 But that is why. 0:47:29.120 --> 0:47:32.440 I mean, that's literally what people are betting. It's betting 0:47:32.480 --> 0:47:32.960 on right now. 0:47:33.080 --> 0:47:34.960 I think it's gonna be a while. Yeah, I know, 0:47:35.239 --> 0:47:38.480 but I still think it's a silly I'd much rather 0:47:38.600 --> 0:47:40.760 play what is it? Tesla Bingo? 0:47:41.000 --> 0:47:41.400 No, you. 0:47:43.560 --> 0:47:45.560 Get out your Bingo card, get out your Bingo guards. 0:47:45.600 --> 0:47:46.920 Everybody, This is Bloomberg. 0:47:48.120 --> 0:47:52.719 This is the Bloomberg Business Week Podcast. A little Apple, Spotify, 0:47:52.920 --> 0:47:56.600 and anywhere else you get your podcast. Listen live weekday 0:47:56.640 --> 0:47:59.920 afternoons from two to five pm Eastern Bloomberg dot com, 0:48:00.320 --> 0:48:03.560 the iHeartRadio app, tune In, and the Bloomberg Business App. 0:48:03.680 --> 0:48:06.600 You can also watch us live every weekday on YouTube 0:48:06.880 --> 0:48:08.840 and always on the Bloomberg terminal