Speaker 1: This is Bloomberg business Week Inside from the reporters and
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Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Hey, now to the other stock that's definitely on our radar.
Speaker 2: It is nearly two percent of the Nasdaq one hundred
Speaker 2: and more than ten percent of the New York Stock
Speaker 2: Exchange is Fang Plus Index. We're talking, of course, about
Speaker 2: Netflix soaring today up eleven point eight percent now to
Speaker 2: its highest in more than two years. And that's what
Speaker 2: happens when it shows it can do what it did
Speaker 2: during COVID and when we're all stuck at home binging
Speaker 2: on Tiger King, Queen's dam Bit, Guilty Squid Games. Did
Speaker 2: you watch that one?
Speaker 3: I did not?
Speaker 2: Okay, you're just a little squamish, Okay, Yeah, and more.
Speaker 2: Just a reminder, Netflix reporting it's best quarter of growth
Speaker 2: since viewers were stuck at home in the early days
Speaker 2: of the pandemic.
Speaker 3: All right, the company, you know the number, signing up
Speaker 3: thirteen point one million new customers in the final three
Speaker 3: months of twenty t one. Three, exceeding Wall Street's estimate
Speaker 3: of eight point ninety one million. So it was a
Speaker 3: big beat, and in fact, it beat projections in every
Speaker 3: region of the world. We've got a great guest him.
Speaker 2: Yeah, Michael pact is joining us. He's managing director of
Speaker 2: Entertainment and Analysts at Wedbush Securities. He joins us on
Speaker 2: Zoom from Long Beach, California. Michael, good to have you
Speaker 2: with us. Good to talk to you again. I mean,
Speaker 2: this is a company you've been covering for more than
Speaker 2: a decade, and your view has certainly shifted. Let's talk
Speaker 2: about where your view is right now. You've got an
Speaker 2: outperform on the stock. You've up your twelve month price
Speaker 2: target to six hundred and fifteen dollars from five hundred
Speaker 2: and twenty five. Not quite a street high, but you're
Speaker 2: among the highest according to the analysts that are tracked
Speaker 2: by Bloombergh.
Speaker 4: Why the upgrade, Well, you know, we I've covered it
Speaker 4: for twenty years. In August, actually.
Speaker 5: We had a sell on it from roughly ten dollars
Speaker 5: to six ninety so wrong for ten years and out
Speaker 5: and then I've graded at one eight and we put
Speaker 5: on the best Ideas list.
Speaker 4: At three point thirty.
Speaker 5: So what I'm seeing is what I criticized ten years ago,
Speaker 5: thirteen years ago on the downgrade to sell. I'm seeing
Speaker 5: them do what I said they needed to do, which
Speaker 5: is stop being fixated on adding subs at all costs
Speaker 5: and start focusing on profitable subs.
Speaker 4: They're doing everything right. They're managing their spend properly.
Speaker 5: They're shifting their budget more toward television away from movies.
Speaker 4: You saw Scott Stupor left the other day.
Speaker 5: They are shifting their budget more toward international production, which
Speaker 5: costs about half as much as domestic. They are far
Speaker 5: more international. And what you're seeing now is that subscribers
Speaker 5: are coming in at very very high margins. You're seeing
Speaker 5: operating profits expand materially literally.
Speaker 4: Three hundred basis points a year, which.
Speaker 5: Means they're going to make a lot more money than
Speaker 5: anybody thinks in the next several years. So they traded
Speaker 5: a twenty something multiple. We have a thirty multiple price target.
Speaker 5: Could I be at forty or fifty or sixty? Sure,
Speaker 5: it really depends on how faster.
Speaker 3: Hey, Michael, we want to bring up a chart for
Speaker 3: all of our view viewers, and it shows just the
Speaker 3: blowout number of subscribers added in that last quarter. It
Speaker 3: looks like it could, you know, pull back a little
Speaker 3: bit in the next quarter in a big way. But
Speaker 3: as you are saying, it's not just the net number
Speaker 3: of subscribers, it's that the folks that they are signing up,
Speaker 3: they're making more money off of them.
Speaker 4: Absolutely.
Speaker 5: And you know, if you see that thirteen million number
Speaker 5: new subscribers, forty percent are signing up for the six
Speaker 5: ninety nine ad supported tier, but they're generating about sixteen
Speaker 5: dollars because the ad load is about ten bucks. So
Speaker 5: you know, they've shown that by lowering price and adding advertising,
Speaker 5: they're attracting people that couldn't afford fifteen dollars before. The
Speaker 5: balance of those people are largely coming from password sharing crackdown.
Speaker 5: And you know there are people whose kids, their adult
Speaker 5: children or their parents.
Speaker 3: Tim's brother included. We're just going to share that. We've
Speaker 3: shared that several times on it. I'm sorry Tim's brother again.
Speaker 4: That has a double win.
Speaker 5: You know, the people who shouldn't be using it or
Speaker 5: sign up on their own, people who you want to
Speaker 5: pay for My kids who are college grads, I'm paying
Speaker 5: for them. I pay for their cell phone, I'll pay
Speaker 5: for their Netflix subscription, so that expands average revenue per member,
Speaker 5: and it expands new members. You're seeing it all just
Speaker 5: dovetail nicely. And now they're doing something clever. They're adding gaming.
Speaker 5: They got they finally have figured out how to do it,
Speaker 5: and that makes the service stickier.
Speaker 4: You're less likely to quit if you've been on the
Speaker 4: Netflix Personal last month.
Speaker 5: Stuff like Grand Theft, Auto Trilogy gets people coming back.
Speaker 2: Andy Michael, I mean you're also a gaming analyst. We
Speaker 2: should note, so you covered this stuff really closely. What
Speaker 2: is Netflix doing that the other companies are not doing that?
Speaker 2: You know, the Disney's aren't doing, the Paramounts aren't doing
Speaker 2: the Peacocks aren't doing Like, why is Netflix executing so
Speaker 2: much better?
Speaker 5: First mover advantage is the biggest thing. They've kind of created.
Speaker 5: The fund that would buy licensed property, would license things
Speaker 5: like suit you know, from the other networks. The other guys,
Speaker 5: we're trying to go all proprietary all the time. The
Speaker 5: CBS content state on Paramount and NBC content state on Peacock,
Speaker 5: ABC state on Disney Plus, and they didn't have the
Speaker 5: critical mass to actually support giving away all that content
Speaker 5: without collecting subscription revenues. Netflix says two hundred and sixty
Speaker 5: million subscribers, they can pay up.
Speaker 4: They did this for WWE.
Speaker 5: It's a perfect example of something that took away from
Speaker 5: USA network and now they're going global with it.
Speaker 4: Their idea is, we're taking something.
Speaker 5: That has an audience of fewer than a million people
Speaker 5: a week, and we're going to expand that.
Speaker 4: To five million people.
Speaker 5: And when they do that, they leverage their subscriber base,
Speaker 5: they can afford to pay more.
Speaker 4: The network or.
Speaker 5: In this case, WWE says, of course, I'm taking more money.
Speaker 5: So the other guys are being dumb, you know, Peacock, Okay,
Speaker 5: one hundred and ten million dollars for one game, so
Speaker 5: we can all see Taylor Swift one game dumb, really dumb.
Speaker 4: I know they've got three million subscribers. All those people
Speaker 4: are going to quit another two weeks.
Speaker 3: Hey, noticeant on Taylor sweat here. Hey having said that, Michael,
Speaker 3: that's fair we all do. Hey, listen, we've got just
Speaker 3: about a minute left here, so you obviously are a beat.
Speaker 3: You like the WWE deal that they just did, and
Speaker 3: they kind of front ran earnings yesterday in a big way,
Speaker 3: having said that what would make you turn bearish again
Speaker 3: on Netflix? And again just got about thirty forty seconds valuation.
Speaker 5: I mean, if the stock gets to you know, much
Speaker 5: much more than it's worth, of course I would downgrade.
Speaker 5: I am very comfortable at six fifteen. I probably could
Speaker 5: be comfortable at a higher number if I see greater
Speaker 5: earnings growth that we have forecasts. But you know, if
Speaker 5: the stock ran to two thousand or five thousand, of
Speaker 5: course that.
Speaker 4: Would doubt grade.
Speaker 2: All right, Michael Pactor, Hey, you know what, it's okay
Speaker 2: that you pay for your kids Netflix. Okay, I'm just
Speaker 2: throwing it out there like that's fine. You're not the
Speaker 2: only one.
Speaker 3: Your kids are older and you're paying for everything.
Speaker 2: I just you know, I'm just wondering if the other
Speaker 2: streaming services are going to wise up soon to you know,
Speaker 2: crack down on password sharing the way Netflix has. Let's
Speaker 2: get the sense they are, but it's going to create
Speaker 2: a lot of changes in households.
Speaker 3: Well, you know, talking with our Geeta Ringing ofth On yesterday,
Speaker 3: I mean this whole idea that Netflix has figured out
Speaker 3: how to pivot right from when they used to be
Speaker 3: what the little red boxes and that you put him
Speaker 3: in the box.
Speaker 2: The DVDs you're talking about, the little red boxes hs's.
Speaker 2: They did never do it. They did never do it.
Speaker 6: No, they were all DVDs.
Speaker 3: It just feels like they did.
Speaker 2: They love it a lot, all right.
Speaker 3: You've got Netflix shares, folks, up almost twelve percent in
Speaker 3: the session. This is Bloomberg.
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Speaker 3: YouTube once again. As you know, politics are front and center.
Speaker 3: As you know by now, former President Donald Trump put
Speaker 3: himself on the cusp of clinching the Republican presidential nomination
Speaker 3: after New Hampshire voters handled him a decisive victory in
Speaker 3: Tuesday's primary. We just talked about this with our Joe Matthew.
Speaker 2: Yeah, President Trump form. President Trump, I should say, comfortably
Speaker 2: dispatched his only remaining challenger, former UN Ambassador Nikki Haley,
Speaker 2: a little more than a week after his romp in
Speaker 2: the Iowa caucus, has forced his other main rival, Florida
Speaker 2: Governor Ron De Santis, out of the race.
Speaker 3: All right, So the back to back wins, putting the
Speaker 3: former president Donald Trump on track to deliver a knockout
Speaker 3: blow to Haley Nikki Haley next month in her home
Speaker 3: state of South Carolina. And then of course he turns
Speaker 3: to him his attention to an all but certain rematch
Speaker 3: with President Joe Biden.
Speaker 2: Well, a voice we wanted to get to and hear
Speaker 2: from again the interview this hour, who was on with
Speaker 2: us at the beginning of the year to talk all
Speaker 2: about the firm's top risks predictions for twenty twenty four
Speaker 2: in a year that the organization labeled as one of
Speaker 2: a quote grave concern with us again as your Asia
Speaker 2: Group Chairman Cliff Cupchen on Zoom from Washington, d C. Cliff,
Speaker 2: Good to have you back with us. Has your view
Speaker 2: changed at all over the last couple of weeks, given
Speaker 2: that it's increasingly looking like former President Trump will go
Speaker 2: head to head with President Biden.
Speaker 7: He doesn't changed, but you know the movies we're watching
Speaker 7: the movie now. He's very, very powerful, and he made
Speaker 7: that clear in New Hampshire, though, I do think polling
Speaker 7: data for both Iowa and from New Hampshire shows you know,
Speaker 7: he's got a pretty low feeling. He's going to have
Speaker 7: trouble getting independence and he needs them to get over
Speaker 7: the top. But I think people are going to start
Speaker 7: to realize if they haven't already. You know, Hayley drops out,
Speaker 7: I think she'd want a great campaign. I would be
Speaker 7: surprised if she makes it in South Carolina primary and
Speaker 7: twenty four to February, where.
Speaker 4: She's going to get really beaten if she does, beaten badly.
Speaker 7: So he's got the nomination, and I think what we
Speaker 7: wrote about is starting to happen.
Speaker 3: Hey, Cliff, we were struck when we talked to you
Speaker 3: earlier this year at the kickoff to twenty twenty four
Speaker 3: that the number one risk in the report that you
Speaker 3: guys put out was the United States versus itself. And
Speaker 3: here's what you guys all wrote. The US presidential election
Speaker 3: will worsen the country's political dysfunction, testing American democracy to
Speaker 3: a degree the nation has an experience in one hundred
Speaker 3: and fifty years in undermining US credibility on a global stage.
Speaker 3: Remind us how you guys came to that determination to
Speaker 3: call at the number one risk.
Speaker 7: Because President Trump would put the erosion of US democracy
Speaker 7: on jet Ski's I mean, look, if he wins, I
Speaker 7: think it's more lucky than not.
Speaker 6: That he will.
Speaker 7: Do so called schedule left, turn civil servants into political appointees,
Speaker 7: get rid of the people he doesn't like, and then
Speaker 7: go ahead to weaponize the Department of Justice and the FBI,
Speaker 7: and that will probably hurt American democracy.
Speaker 6: I think it will be another election.
Speaker 7: American democracy is going to continue, but it will be
Speaker 7: severely tested like it hasn't been since the Civil War.
Speaker 4: We've got another We've really got another civil war.
Speaker 2: Trump wins, another civil war on our hands.
Speaker 4: Yeah, what do you mean? What I mean?
Speaker 7: What I mean by that is that I think we
Speaker 7: will probably see unrest, significant unrests in the major cities
Speaker 7: on both coasts.
Speaker 4: That is the kind of you know, pulling it.
Speaker 7: The tissue of what makes us an American democracy in
Speaker 7: the American democracy is a tissue part you know, well
Speaker 7: the body survived. I hate to be sort of metaphorical
Speaker 7: about that, right, Yeah, but we're in for a tough ride.
Speaker 8: Hey, Cliff.
Speaker 3: To be fair, and you know, there's lots of polls
Speaker 3: out there that say that most Americans aren't really happy
Speaker 3: about either choices at this point. And as we often say,
Speaker 3: in the investment world, the past performance is no guarantee
Speaker 3: of future results. So we don't really know what a
Speaker 3: second term would be like for either Donald Trump or
Speaker 3: Joe Biden. But for Donald Trump, and to be fair,
Speaker 3: his policies, whether it's China, immigration or something that continue
Speaker 3: to be you know, talked about and dealt with. We
Speaker 3: understand that there are issues, significant issues even in the
Speaker 3: Biden administration, they have continued, so I guess, you know,
Speaker 3: to be fair, we don't exactly know what it would mean.
Speaker 3: But I wonder if you're saying that no matter who's
Speaker 3: in the White House, it's a test for democracy.
Speaker 7: I think this year will test democracy and that's sort
Speaker 7: of the front the front loaded part of what of
Speaker 7: what we were saying that this will be a very nativistic,
Speaker 7: very visceral campaign. And yeah, to be fair, I think
Speaker 7: some of the President Trump's former President Trump's policies we
Speaker 7: were good for markets and one could even say constructive
Speaker 7: in my.
Speaker 6: Own view, he was.
Speaker 7: I think Biden's been tough around China in many ways
Speaker 7: than Trump was. But I think this country is so
Speaker 7: polarized right now a that if Trump's elected, you'll have
Speaker 7: Democrats really not buying that he's legitimate president because he
Speaker 7: should have been in jail. And you know, b I
Speaker 7: think he's going to bring in uh, you know, the
Speaker 7: Heritage Foundation, that there's a lot of think tanks out
Speaker 7: there going to staff him. But I think I think
Speaker 7: more loyalists, far right people than he had the first
Speaker 7: time running. So I know, you know, I think there
Speaker 7: was a good chance that we're going to get more
Speaker 7: extream policies than we got the first.
Speaker 3: And to be fair, there's certainly several cases, many cases
Speaker 3: and ongoing litigation with the former president that we're kind
Speaker 3: of waiting ultimately for the outcome to see what happened.
Speaker 3: So just to kind of put.
Speaker 2: That center, he faces ninety one felony charges in four
Speaker 2: separate cases. They range from conspiring to defraud the US
Speaker 2: in his efforts to overturn the twenty twenty election loss
Speaker 2: to falsifying business records to cover a phush money paid
Speaker 2: to an adult film actress. So they really run the gamut.
Speaker 3: What I want to ask you is, how can we
Speaker 3: all as Americans, we are the voters, ultimately, we pay taxes,
Speaker 3: we employ everybody who's down there in Washington. How can
Speaker 3: what's the role that you think Americans need to play
Speaker 3: in this division or trying to fix this division.
Speaker 7: Yeah. Sure, that's a great question and what I love answering.
Speaker 7: So look, put up a little short. When I was
Speaker 7: on vacation recently, I was in West Virginia and called
Speaker 7: I won't say the county, but the executive committee of
Speaker 7: a Republican Party of conservative county. Met them with my
Speaker 7: fifteen year old son for lunch, and I think I
Speaker 7: told you guys, it's fascinating discussion with some West Virginians
Speaker 7: who felt like they had seceded into the United States
Speaker 7: of America. Hey, b I was the first first person
Speaker 7: from Washington they had ever talked, and they didn't want
Speaker 7: to seceed from United States of America. So I think
Speaker 7: there is a national conversation that we really need to have.
Speaker 7: I feel lonely when I call for that because the
Speaker 7: Democrats aren't calling for it and the Republicans aren't going
Speaker 7: for it. But I think this kind of national town
Speaker 7: hall would be a really constructive thing to try.
Speaker 4: Because Americans are good people. I think we're just really polarized.
Speaker 3: Oh go ahead, Carol, I just want to mention on
Speaker 3: AP News Alert United Autoworkers Union endorsing President Joe Biden
Speaker 3: for reelection as a Democrat works to win over the
Speaker 3: rank and file, so we know he has been many
Speaker 3: would say a friend to organized labor. We've seen him
Speaker 3: out there certainly supporting them.
Speaker 2: Well, CLI, speaking of business, I mean that's what you
Speaker 2: do at Eurasia Group. You advise businesses about how to
Speaker 2: handle the political climate, the geopolitical climate of the US
Speaker 2: and of the world. One, what are you hearing from
Speaker 2: CEOs right now about a potential Trump second term? And
Speaker 2: two how are you advising them to navigate it?
Speaker 7: The Well, what we're hearing is a lot of interest
Speaker 7: in you know, what a Trump two point zero would
Speaker 7: do on tariffs and on protecting certain sectors generally. Is
Speaker 7: there a trade to be made on uh ten percent
Speaker 7: universal tariff that kind of issue, or on revoking p
Speaker 7: M t R in trade bird trade status from China?
Speaker 6: Firstly.
Speaker 7: Secondly, there is a lot of concern in c suites
Speaker 7: and corporate boardrooms about issue of instability, on whether America's
Speaker 7: status is the ultimate safe haven for capital in the world,
Speaker 7: and capital is a coward you know, goes words comfortable?
Speaker 5: Is that?
Speaker 7: And I continue to be the United States if if
Speaker 7: Trump it's elected. I think there's a lot less there's
Speaker 7: an assumption that Biden two point zero would be like
Speaker 7: like Biden one pose. I got a lot less questions
Speaker 7: about Biden being reelected I do about Trump. A lot
Speaker 7: interests in Trump, though.
Speaker 2: Is there just in thirty seconds does it seem to
Speaker 2: be that executives are supporting Trump to a different degree
Speaker 2: than they were the first time around? Just thirty seconds left?
Speaker 7: I think that a lot of previous Trump voters are
Speaker 7: going to scratching their heads and saying, look, I prefer
Speaker 7: what this guy would do in.
Speaker 6: On markets.
Speaker 7: I prefer deregulation.
Speaker 5: I like that.
Speaker 7: But am I going to have to put up with
Speaker 7: a degree of instability and lack of confidenceness country that
Speaker 7: is going to hurt my bottom line? If you look
Speaker 7: triple net so, I think there's a lot there's more doubt,
Speaker 7: I would say, even among formerly pro Trump Republicans.
Speaker 3: All right, we're going to leave it on that note.
Speaker 3: So glad we got some time with you, Cliff, Thank
Speaker 3: you so much. Happy New Year again. Cliff Cupchain, chairman
Speaker 3: at Erase your group on zoom from Washington, DC.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 3: So I wonder if US consumers are kind of loving
Speaker 3: the outlook and how they're feeling about the world.
Speaker 2: Well, you may recall last week, US consumer sentiment soared
Speaker 2: in early January to the highest since twenty twenty one,
Speaker 2: that far exceeded expectations, short term inflation expectations, also slipping
Speaker 2: to a three year low. So I'd say, yeah, feeling
Speaker 2: pretty good.
Speaker 3: Yeah, at least by that mesh, that was a big number, right,
Speaker 3: kind of surprise the world, or at least folks here
Speaker 3: in the US. So consumers upbeat and on that. Our
Speaker 3: next guest and our team is out with a new
Speaker 3: consumer stress index. So let's get to it and really
Speaker 3: find out how stressed out cannsumers or or they might
Speaker 3: not be. Is Katie Thomas. She's head of the Carnie
Speaker 3: Consumer Institute. She's on Zoom from Pittsburgh, Pennsylvania. That Institute.
Speaker 3: By the way, it's a think tank of global strategy
Speaker 3: and management consultancy. Folks, Katie, good to have you here
Speaker 3: with Tim and myself on Bloomberg BusinessWeek. First of all,
Speaker 3: give us some background on the index. How you determine
Speaker 3: what needed to go into it, right, and this is
Speaker 3: the first read on it? Or give me some background here.
Speaker 8: Yes, so thanks Carol. Great to be back with you
Speaker 8: and Tim, And yes, exactly, this is our inaugural Consumer
Speaker 8: Stress Index, and really it is our take on consumer sentiment,
Speaker 8: but a little bit more expansive. So we were inspired
Speaker 8: by consumers increasingly being labeled as unpredictable because the behavior
Speaker 8: for a while up until recently wasn't tying out to
Speaker 8: traditional sentiment metrics. And really our challenge was two things.
Speaker 8: One was that we were looking a little bit too
Speaker 8: narrow on very specific economic and financial metrics, and the
Speaker 8: other piece was we weren't getting their input in a
Speaker 8: broader sense. So again it was very much like how
Speaker 8: do you feel about the not what's going on in
Speaker 8: your life, what are the other things that are perhaps
Speaker 8: stressing you out? Or in fact, we found the opposite,
Speaker 8: which is that consumers have this optionality that has allowed
Speaker 8: them to navigate some of these stresses a little bit
Speaker 8: better than perhaps we were giving them credit for. So
Speaker 8: it's really this comprehensive point of view on consumers and
Speaker 8: their stress.
Speaker 2: What's the optionality that they have that you're referring to.
Speaker 8: So when you think of something like, you know, we
Speaker 8: talked a lot, of course over the last couple of
Speaker 8: years about food inflation. When you talk to consumers, you realize,
Speaker 8: in fact, they feel like there's more flex there than
Speaker 8: you may think. So, yes, certainly they acknowledge the rising prices,
Speaker 8: but there's a lot of options in terms of where
Speaker 8: you shop, what brands you buy. You can try new brands,
Speaker 8: you can try different pack sizes, you can make. Maybe
Speaker 8: there's something you eliminate, you go out to eat a
Speaker 8: little bit less, but it's not all that upsetting you
Speaker 8: to you in the grand scheme of things, or similarly
Speaker 8: with interest rates, it's you know, yes, I acknowledge that
Speaker 8: I can feel the strain of these, but I don't
Speaker 8: feel like I'm unable to do anything about it.
Speaker 3: I'm curious to Katie, like, certainly in the investment world,
Speaker 3: our economic world, sometimes we create, something's created and they
Speaker 3: do back testing to see how great an indicator it
Speaker 3: is of whatever. And I'm just curious, is that what
Speaker 3: you guys did with this index? Were you able to.
Speaker 8: Not fully because of just the way that we built it.
Speaker 8: So we did the best we could. But in building
Speaker 8: out the index, so we have these five pillars, so
Speaker 8: we have consumer wallet and finances, but then health at education,
Speaker 8: innovation and technology, food in the environment, and geopolitics and
Speaker 8: government and some of those statistics just aren't as well
Speaker 8: tracked as economic statistics, as well as our consumer inputs
Speaker 8: in overlays. So we asked consumers forty survey questions and
Speaker 8: unfortunately can't go back in time, so we're optimistic that
Speaker 8: our research will only get better with age.
Speaker 3: Why did you think it was important though, to do
Speaker 3: it right now at this specific time here. You could
Speaker 3: have done it a couple of years ago. You could
Speaker 3: have done it prevent Like, I'm just curious.
Speaker 8: Yeah, I think truly, we felt like coming out of
Speaker 8: the pandemic, this is the most we've heard CEOs, even
Speaker 8: in calls, kind of say very fuzzy things about the
Speaker 8: consumer and not always wanting to fully admit unpredictability, but
Speaker 8: saying things like, oh, we're getting mixed data on the consumer,
Speaker 8: and it was really coming out of the pandemic and
Speaker 8: trying to understand as people's behaviors settled back down and
Speaker 8: again really those gaps that for a while the consumer
Speaker 8: sentiment numbers were down, but consumers were still spending, but
Speaker 8: if you talk to them, they were blue. But in
Speaker 8: reality they were still out there and just trying to
Speaker 8: rationalize some of those inconsistencies.
Speaker 2: So answer the question for us, based on this research
Speaker 2: that you guys recently did at Carney, how is the
Speaker 2: consumer doing?
Speaker 8: You know, right now, they're actually doing pretty okay. So
Speaker 8: in the US we have a baseline of one hundred
Speaker 8: since twenty nineteen, so we did do We backed the
Speaker 8: macroeconomic data till twenty nineteen as our foundational starting point,
Speaker 8: and the consumer right now is just about one oh three.
Speaker 8: So you know that was they're feeling okay. There's some stressors,
Speaker 8: but a lot of that, frankly, is driven by geopolitics
Speaker 8: and government. So one of the things we looked at
Speaker 8: when we talked about this optionality was does a consumer
Speaker 8: feel like with some of these stressors they're able to
Speaker 8: respond to or impact them at all? With things like
Speaker 8: global conflict or political polarization. Those are things that are
Speaker 8: weighing on them that they feel like they have very
Speaker 8: little control over, unsurprisingly, So that's something that I heard
Speaker 8: you you all mentioned the election coming into this. That's
Speaker 8: something we'll be keeping an eye on the next few
Speaker 8: quarters as we see how that impacts the overall stress.
Speaker 2: So if you say, overall, Katie, the consumer is doing
Speaker 2: pretty well, it seems to me that there's this disconnect
Speaker 2: between how consumers feel and how they say they're feeling well,
Speaker 2: at least when it comes to politics. Because what we
Speaker 2: do see over and over again, at least in the
Speaker 2: polling that Bloomberg has done in recent months in several
Speaker 2: swing states, is that when it comes to how consumers
Speaker 2: feel about the economy, it does seem like foreign President
Speaker 2: Trump is polling higher than President Biden. And we're trying
Speaker 2: to understand that disconnect at a time when well, the economy,
Speaker 2: by many measures, including your own, is actually doing pretty well.
Speaker 2: How do you explain that?
Speaker 8: Yeah, I mean there are some of these data points
Speaker 8: I agree with you, you know him, we're trying to
Speaker 8: validate as well, because there are studies that show that
Speaker 8: when you actually do a party line split on how
Speaker 8: people feel about the economy. The negative numbers are very
Speaker 8: much being driven by Republicans. So you're seeing whether yeah,
Speaker 8: so you're seeing whether that's you know, because they're in
Speaker 8: you know, perhaps just an echo chamber of kind of
Speaker 8: affirming you know, these affirming things are perhaps even you know,
Speaker 8: intentional sandbagging of those numbers as we think about where
Speaker 8: we're at politically in this country. I mean, that's part
Speaker 8: of what's driving some of this. And so that's why
Speaker 8: our aim with some of our questions was almost to
Speaker 8: ask very objective questions that didn't allow for that that
Speaker 8: again focused on this optionality as opposed to just focusing
Speaker 8: on the feeling, because otherwise you do end up with
Speaker 8: the say do gap you describe?
Speaker 3: Well, it is right, exactly, so interesting this idea that right,
Speaker 3: you say one thing but you do something completely opposite.
Speaker 3: So then all right, how good are the data points?
Speaker 3: Having said that, so, twenty four thousand consumers in twelve
Speaker 3: countries are who you spoke to, and so what did
Speaker 3: they find as the thing that was most stressful?
Speaker 5: Yeah?
Speaker 8: Absolutely, you know, we talked about geopolitics government that's really
Speaker 8: across countries. Right now, You think obviously Israel and Gaza, Ukraine,
Speaker 8: and you know all the different impacts of that. If
Speaker 8: you're in Europe, you're feeling perhaps and that's you know,
Speaker 8: what we were building with this index too, was the
Speaker 8: interconnectivity of those five pillars. So in Europe you're feeling
Speaker 8: this stress perhaps of Ukraine, but also the impact on
Speaker 8: your energy prices and similarly, you know that's really and
Speaker 8: again it goes back to that struggle for control and
Speaker 8: just the lack of it. But what we're really tracking
Speaker 8: for looking forward and for our brands and clients is
Speaker 8: what does that mean? So comes up to top it's like,
Speaker 8: you know, purchasing behavior, How is that affecting how people
Speaker 8: are purchasing things. Brand boycotts we've seen in the US
Speaker 8: more and more lately, So it's really working through some
Speaker 8: of those risks and helping to prioritize.
Speaker 2: From politics perspective, what stresses.
Speaker 6: People out.
Speaker 9: In the US.
Speaker 8: It usually is just that general feeling of polarization, like
Speaker 8: there's no path for Whard, there's no path of together just.
Speaker 2: At the Eurasi Yeah, I mean, he's he's very concerned
Speaker 2: about the divide in the country. He's concerned about a
Speaker 2: civil war breaking out exactly.
Speaker 8: I mean, I think that's really what we feel from
Speaker 8: people is just like far and away, those were the
Speaker 8: highest numbers we saw and just really weighing down on folks.
Speaker 8: And it's this generalized anxiety. You know, you can split
Speaker 8: a lot of these metrics as well into more generalized
Speaker 8: and then personal things, right, my personal finances, my personal
Speaker 8: situation with healthcare and education. You know, when it comes
Speaker 8: to politics, it's this like kind of shared sense of discomfort.
Speaker 3: You know, it's interesting too, and you get In a
Speaker 3: release that was also put out, the initial baseline Baseline report,
Speaker 3: excuse me, surfaced some interesting conclusions. For example, while stressors
Speaker 3: stressors associated with the consumer wallet pillar were most frequently cited,
Speaker 3: seventy percent of respondents did not listen as their primary concern,
Speaker 3: Like how do you cross that one?
Speaker 6: Well, that was the one.
Speaker 8: Honestly, one of our early big gives me big unlocks
Speaker 8: of this of this work was that you know, we
Speaker 8: have those five pillars and consumer wallet and finances did win.
Speaker 8: But the rest, you know, twenty percent of people said
Speaker 8: geopolitics and government. You know, another roughly fifteen to twenty
Speaker 8: percent said both health and education and food in the environment.
Speaker 8: So it's sort of one of those things like I'm
Speaker 8: not worried about interest rates as much as I'm worried
Speaker 8: about my food access or right now, I'm going through
Speaker 8: a healthcare situation and that's weighing me down more than
Speaker 8: you know, again, like even wages or as long as
Speaker 8: I'm employed, that's actually not my top concern right now.
Speaker 8: And that's exactly the kind of thing we wanted to
Speaker 8: uncover here, of just how people's kind of full plate
Speaker 8: was working in their mind and where those kind of
Speaker 8: trade offs and give and take was occurring.
Speaker 3: All right, So you all consult, you advise, you have
Speaker 3: clients who reach out to you. First of all, what
Speaker 3: are you hearing from your clients?
Speaker 8: No, I think that it's really just this comprehensive view
Speaker 8: that really excites them because it just brings on a
Speaker 8: lot of discussion around any kind of topic that may
Speaker 8: be on their mind. So one thing, for instance, we've
Speaker 8: been chatting with with some of our food manufacturers is
Speaker 8: thinking about the impacts of ozempic and other GLP ones,
Speaker 8: and so even this helps to frame a discussion around
Speaker 8: that's not just a conversation about food or basket size.
Speaker 8: It affects the healthcare system, it affects how people feel
Speaker 8: about their like physical and lifestyle choices, even their mental health,
Speaker 8: and so it really helps to draw some connectivity amongst
Speaker 8: these major topics that a lot of our clients were
Speaker 8: talking about.
Speaker 3: So it's interesting, Katie, because I think Tim think about
Speaker 3: some of the stories that we've done over the past year,
Speaker 3: certainly on a this ozepic craze, these new class of
Speaker 3: diet drugs, whether it is you know, clothing manufacturers, airplanes,
Speaker 3: airplane seats, airplane seats like airplanes, this being bullish for
Speaker 3: airlines because people way less so they use less fuel,
Speaker 3: people shopping differently in terms of obviously food and so
Speaker 3: on and so forth. I mean, it's kind of real,
Speaker 3: and it sounds like, you know, Katie, what you are hearing.
Speaker 3: That's true that companies are thinking about how they have
Speaker 3: to adjust their strategies.
Speaker 8: Absolutely. I mean there's always, you know, many aspects that
Speaker 8: it addresses and just downstream implications as well. For instance,
Speaker 8: the one that came up the lowest of consumer stress
Speaker 8: here was innovation and technology. So that's just ultimately not
Speaker 8: bubbling up in the US in most countries, but in
Speaker 8: particular in the US, people aren't as worried about generative
Speaker 8: AI as they are about again, some of the other
Speaker 8: things like putting food on the table, which makes sense,
Speaker 8: but there are still downstream implications there where it may
Speaker 8: not feel as immediate, but it still could have an
Speaker 8: impact on their job, on their life. So it's really
Speaker 8: trying to carve out all of these different key items
Speaker 8: that are really in acting a consumer at a macro level,
Speaker 8: but also that our clients need to think about.
Speaker 2: Hey, we've been spending a lot of time this week
Speaker 2: talking about the biggest risks that the economy is facing
Speaker 2: this year. In your opinion, based on this research, what
Speaker 2: do you think that is?
Speaker 8: You know, I do think one is going to be
Speaker 8: managing through the US election and other elections around the
Speaker 8: world and how we kind of navigate that and the
Speaker 8: resulting impact of consumers, you know, kind of reacting to that,
Speaker 8: and what we're working on is drawing that directly to
Speaker 8: consumer purchase behavior. So you know, our next run of
Speaker 8: this will be in March already we're hoping to see
Speaker 8: some changes there and see how some of these things
Speaker 8: may flow through. And then I do think from an
Speaker 8: immediac sense, We're still this year going to be keeping
Speaker 8: an eye on some of those financial metrics, so you know,
Speaker 8: keeping an eye on hous and cost, interest rates, how
Speaker 8: those continue to evolve, and making sure people still feel
Speaker 8: like that they have that optionality because if that goes away,
Speaker 8: that's when we'll see stress levels tick up.
Speaker 3: All right, we're going to leave it on that note. Hey, listen, Katie,
Speaker 3: so great to spend some time with you and do
Speaker 3: a deep dive on this. Katy Thomas is head of
Speaker 3: the Carney Consumer Institute. Jowning us on Zoom from Pittsburgh.
Speaker 1: This is Bloomberg Business Week inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news as it happens. Bloomberg
Speaker 1: Business Week with Caro Messer and Tim Steneveek on Bloomberg Radio.
Speaker 3: All right, everybody, we are staying with Earning. It's just
Speaker 3: a quick headline IBM crossing fourth quarter revenue seventeen point
Speaker 3: three eight billion versus an estimate of seventeen point twenty
Speaker 3: nine billion. So I just want to mention that and
Speaker 3: we'll continue That stock is up about four percent in
Speaker 3: the aftermarket. Let's go back to Tesla because it's down
Speaker 3: about four percent in the aftermarket. Numbers just out and
Speaker 3: I think the real concern is about the outlook and
Speaker 3: what we might see ultimately tim here this year.
Speaker 2: Okay, so these numbers are worth repeating. Fourth quarter revenue
Speaker 2: coming in below estimates twenty five point one to seven
Speaker 2: billion versus estimates of twenty five point eight seven billion.
Speaker 2: Fourth quarter free cash flow hello, two point six billion.
Speaker 2: That was higher than estaments at one point four to
Speaker 2: five billion. Fourth quarter gross margin, though that took a
Speaker 2: real hit Carol, seventeen point six percent versus estimates of
Speaker 2: eighteen point one percent.
Speaker 3: All right, Tesla to start in a next generation platform
Speaker 3: production at its gigafactory in Texas, teams to work in
Speaker 3: a launch of a next generation vehicle at Tech Texas,
Speaker 3: and continue to make progress on a next generation platform.
Speaker 3: So a lot of stuff that that is to come.
Speaker 3: So let's get to it, because we've got a great roundtable.
Speaker 3: Red Brown is Bloomberg News earnings reporter. He covers the
Speaker 3: numbers and will give us some more insight into what
Speaker 3: we just got. Ross Gerber is with us President CEO
Speaker 3: of Gerber Kawasaki Wealth and Investment Management. They have about
Speaker 3: two point two billion in assets under management, including about
Speaker 3: eighty four million dollars worth of Tesla stock. You folks
Speaker 3: know him well, he owns Tesla's, he invests in the company,
Speaker 3: he sells at times. I do want to start with you, Ross,
Speaker 3: are you concerned stock still doubt about two point seven
Speaker 3: percent in the aftermarket. But when Tesla says twenty twenty
Speaker 3: four volume growth may be notably lower than twenty twenty three,
Speaker 3: I don't know. Does it worry you a little bit?
Speaker 3: Does it make you want to sell any stock?
Speaker 9: Well, I don't want to talk about our trading because
Speaker 9: I'm not allowed to. But if you look at our
Speaker 9: you know my fun GK. We've been selling the stock
Speaker 9: over the last several months as well as if you
Speaker 9: look at our public filings, we've been lowering our position
Speaker 9: over the last several months. So there's a lot of
Speaker 9: clients of mine who are very upset with some of
Speaker 9: the things Elon said and sold their stock in the
Speaker 9: two fifty, two hundred and fifty dollars range that are
Speaker 9: probably pretty happy they did that today.
Speaker 2: Russ, stick with this for a minute, because you've been
Speaker 2: pretty critical of Elon Musk lately, which has been a
Speaker 2: marked a mark difference from how you've been over the
Speaker 2: past few years. I mean, you were among the biggest
Speaker 2: Tesla bulls out there, but now you're concerned. You write
Speaker 2: that Elon's becoming the Kanye of business. Is this what's
Speaker 2: hitting the company's stock or is this a bigger question
Speaker 2: about what we were talking about earlier with evs, EV
Speaker 2: demand falling and what we're seeing from Ford, what we're
Speaker 2: seeing from GM. Is it a bigger issue outside of
Speaker 2: el Con?
Speaker 9: I think Elon's created the issue for evs across the
Speaker 9: board more than like it's an ev issue. But you know,
Speaker 9: the bottom line is, and you see it in the numbers,
Speaker 9: and this is what we were kind of waiting to see,
Speaker 9: is that margins continue to go lower. They're basically not
Speaker 9: able to sell cars unless they lower prices because Elon
Speaker 9: refuses to advertise.
Speaker 6: And then the advertising he's.
Speaker 9: Doing are trips with his child to Auschwitz and you know,
Speaker 9: anti Semitic and racist comments all the time, and him
Speaker 9: you know, basically using X as a platform for every
Speaker 9: political debate possible that he could get himself into, which
Speaker 9: is exactly how you not sell cars, so so god forbid.
Speaker 9: They actually got him off Twitter and advertised maybe Tesla's
Speaker 9: problems would be solved.
Speaker 3: Interesting, Hey, I want to bring you in red brown
Speaker 3: things that you're seeing and noticing. We've been breaking down
Speaker 3: the earnings with our TV colleagues. The key point that
Speaker 3: you're focusing on.
Speaker 10: Well, I think of the production target notably lower volumes
Speaker 10: for next year. It does raise some questions about this
Speaker 10: strategy of continuing to lower prices. They lower prices just
Speaker 10: last week again in Europe, so it seems like that
Speaker 10: is going to be the strategy going forward, but it
Speaker 10: doesn't seem to be kind of paying dividends in the
Speaker 10: company's view going forward in terms of actually selling cars.
Speaker 6: Still.
Speaker 3: Yeah, and Tesla les bullish on it's cyber truck, noting
Speaker 3: in the investor deck that it's ramp time will be
Speaker 3: longer than for the other models given its manufacturing complexity.
Speaker 3: So it's also adding that, all right, Ross, so can definitely,
Speaker 3: you know, respect your different tone here in Tesla. So
Speaker 3: I don't know, how do you think about this company
Speaker 3: going forward? Is it a case that it's hard to
Speaker 3: kind of remove the man and the creator from kind
Speaker 3: of the company, But how do you do that or
Speaker 3: do you do that at some point?
Speaker 9: Well, what I've been saying is that the Tesla story
Speaker 9: has just changed from what the story was a few
Speaker 9: years ago before Twitter. As long as investors are comfortable
Speaker 9: with that story, then the long term for Tesla of
Speaker 9: the story is still intact, whether it be charging energy
Speaker 9: ev you know, Tesla's the prime player in this climate change.
Speaker 6: Revolution that they began.
Speaker 9: And the real issue is the company is being mismanaged
Speaker 9: now by the CEO who's demanding a massive compensation package
Speaker 9: but won't do any of the things that the company
Speaker 9: needs to really like resolve.
Speaker 6: Their sales and margin issues.
Speaker 9: So I think as we move forward as investors, it's
Speaker 9: really about what is the right valuation for Tesla, Because
Speaker 9: Tesla has been the highest value of the mag seven
Speaker 9: or one of the highest valued tech stocks for years,
Speaker 9: you know, and before he bought Twitter, you know, traded
Speaker 9: one hundred times multiple of future earnings. Today it's trading
Speaker 9: at sixty times multiple of future earnings. But now that
Speaker 9: future earnings number is definitely in doubt, and does it
Speaker 9: really deserve a higher multiple than Nvidia and Microsoft? And
Speaker 9: I think that that's what's hurting the stock irrelevant of
Speaker 9: the company.
Speaker 3: Stock still down about two percent. Hey, Tesla also noting
Speaker 3: ross that they have reached the quote natural limit of
Speaker 3: cost town of our existing electric vehicle lineup. It's kind
Speaker 3: of corporate speed.
Speaker 2: But what does that mean euphemism for we can't lower
Speaker 2: prices anymore?
Speaker 9: Right, It's like we have reached maximum efficiency of production
Speaker 9: and so basically every time we discount, it's just going
Speaker 9: to cost shareholders more. Now, the good news is this
Speaker 9: is great for Earth because people are getting cheaper and
Speaker 9: cheaper you.
Speaker 6: Know, evs, which you know are great.
Speaker 9: The bad news is it's coming from shareholders pockets, and
Speaker 9: so if you're a shareholder, you know it's time to
Speaker 9: really assess, like does this company deserve a sixty multiple
Speaker 9: afford earnings? And I think that's what investors are going
Speaker 9: to be doing over the next several months.
Speaker 2: Okay, I want to bring back in red round because
Speaker 2: he's been watching the numbers come out red. What else
Speaker 2: sticks out to you? I know, the looking at the
Speaker 2: production numbers certainly sticks out any anything else in these numbers.
Speaker 2: Here we're seeing shares down about two percent as we speak.
Speaker 10: Yeah, I mean, it's just it's I think everything that
Speaker 10: we're seeing right here from the numbers is that this
Speaker 10: is kind of the cost you pay for the game
Speaker 10: that they're playing. Of continuing to cut these prices. They
Speaker 10: You're seeing a bigger and bigger disconnect between their top
Speaker 10: line growth and their earnings growth.
Speaker 11: Right.
Speaker 10: They did hit record revenue that's going to get lost
Speaker 10: in the shuffle here today, but it came at the
Speaker 10: expense of over forty percent drop in their earnings, right,
Speaker 10: So it's not it doesn't seem like it's the path forward.
Speaker 6: I think.
Speaker 10: I think Ross is hitting on some interesting topics here
Speaker 10: as well as kind of where does the growth come from?
Speaker 10: A lot of the share price is predicated on some
Speaker 10: of these sort of pie in the sky initiatives, be
Speaker 10: it AI huge question marks over that with whether or
Speaker 10: not Elon does that inside the company or not, so
Speaker 10: hopefully get some more insights on that when the call,
Speaker 10: when the call goes later.
Speaker 3: Today, Ross, what is the number one question on that
Speaker 3: call today? In your view?
Speaker 9: I think from my perspective, it's kind of what we're
Speaker 9: hitting on right now, which is where's the growth coming from?
Speaker 9: If you're not going to grow cars by a lot,
Speaker 9: you know like this is not a good thing. So
Speaker 9: I think my concern is forty six eighty. And this
Speaker 9: is the story behind the story, which is one of
Speaker 9: the scaling issues they're having with cyber and Semi is
Speaker 9: that forty six eighty is just not working as quickly
Speaker 9: as they had hoped. And they planned all of production
Speaker 9: in Texas around forty six eighty originally, and they've now
Speaker 9: had to pivot, and so this has caused extra costs,
Speaker 9: lots of complexity issues, and I don't think they've mastered
Speaker 9: forty six eighty at or even close for scaling and
Speaker 9: any mass level. And this is a huge detriment to
Speaker 9: Tesla moving forward because they have to get this technology
Speaker 9: right to ramp cyber and semi, which is where growth
Speaker 9: will come from.
Speaker 3: Hey, twenty seconds, really quickly, What do you mean forty
Speaker 3: six eighty really quickly.
Speaker 6: These are the new cells that.
Speaker 9: They built for EVS and these new cells are seven
Speaker 9: times more powerful, much more efficient, large, faster, and they're wonderful,
Speaker 9: but they haven't been able to scale them as quickly
Speaker 9: as they had hoped.
Speaker 3: All right, good stuff as always, so appreciate it. I
Speaker 3: know you've had a busy day. Our thanks to Ross Gerber,
Speaker 3: President CEO Gerbert Kawasaki Wealth and Investment Management, and then
Speaker 3: of course our thanks as well to our Red Brown.
Speaker 3: He's Bloomberg News earnings reporter right here in studio. Tesla
Speaker 3: shares back down about three point seven percent. We're seeing
Speaker 3: in the stock fall here in the aftermarket.
Speaker 6: Brom A journal, Now about you let me drive?
Speaker 8: No, no, no, no, pleasing to jug.
Speaker 6: Hory please, I'll do the driving, gravels.
Speaker 8: Let's wait, I.
Speaker 6: Want to try it.
Speaker 2: It's a good question, good time.
Speaker 6: This is the drive to the globe. Dot com t
Speaker 6: me a thing.
Speaker 1: We'll buy around to yell it.
Speaker 6: Don on Bloomberg Radio.
Speaker 3: All right, TikTok. Everybody just got about eighteen minutes, seventeen
Speaker 3: and a half minutes. Good keill it. Yeah, I'm watching them.
Speaker 3: Time continues as you speak, It.
Speaker 2: Does, it does, and there's like a little bit of
Speaker 2: a delay too. Yeah, it gets to our listeners. You know,
Speaker 2: it's got to go through the tubes, fly.
Speaker 3: Through the air for Kevin seventeen minutes away.
Speaker 2: Okay, Well that means it's time for drive to the clothes.
Speaker 2: For that, we go to Bryan ben Kronkite portfolio manager,
Speaker 2: at all Spring Global Investments. He joins us from Wisconsin
Speaker 2: this afternoon. Brian, good to have you with us. I
Speaker 2: want to know what worries you, because it doesn't seem
Speaker 2: like investors are worried about a lot right now. We're
Speaker 2: seeing a lot of records today, meta platforms, Microsoft, We're
Speaker 2: seeing Netflix surge.
Speaker 6: What's going on? Yeah, good to be with you again today.
Speaker 11: But I think the market really has embraced the optimism
Speaker 11: that comes with a typical monetary loosening policy. Right we're
Speaker 11: not even quite through the tightening in my mind, and
Speaker 11: the Fed has given us a reason to believe in
Speaker 11: a preemptive cut that's going to lead to stewing the economy.
Speaker 11: And we've had a classic playbook of buying cyclicals, buying beta,
Speaker 11: buying operating leverage, and that's played out. The stocks have
Speaker 11: rallied coming into the beginning of this year. Now we're
Speaker 11: starting to see that fade a little bit.
Speaker 3: Do you think the Fed? Don't you think, Briant? The
Speaker 3: Fed has been kind of rating everybody in. Although the
Speaker 3: Fed talk of saying wait a minute, slow down, you know,
Speaker 3: higher for longer, hire for longer.
Speaker 11: It was interesting, right, So they came out at the
Speaker 11: end of the year, giving you reason to be optimistic
Speaker 11: about the cuts. And I guess this is our what
Speaker 11: sixth iteration of the market trying to push the FED
Speaker 11: into this early early cut pattern that we're looking for now.
Speaker 11: But every time they come back and they walk us
Speaker 11: back and saying, oh wait, the data is still coming in.
Speaker 11: We're still not done yet. The risk is still that
Speaker 11: we haven't gone far enough. That's my view. My view
Speaker 11: is the market now is embttered a lot of optimism
Speaker 11: and the reality is we're not done yet. We're not
Speaker 11: sure what's going to happen, and so I don't want
Speaker 11: to own businesses today, and I don't want to buy
Speaker 11: sectors today that are reliant on the generosity of the FED.
Speaker 11: I want to buy businesses that are controlling their own destiny.
Speaker 11: They're navigating the markets by investing in growth.
Speaker 2: I want to get to some of those businesses in
Speaker 2: just a minute. But before we do that, I just
Speaker 2: want to know what you think the FED is going
Speaker 2: to do in terms of cuts this year. How many
Speaker 2: do you think the FED will do, if any?
Speaker 11: I think the reality is they have no idea, and
Speaker 11: I certainly have no idea, right I think they need
Speaker 11: to figure out what's happening still with inflation, does it
Speaker 11: sustainably come down where it is? What happens with labor markets,
Speaker 11: That's probably the biggest one. If we move too early
Speaker 11: from a monetary loosening standpoint and labor markets haven't resolved themselves,
Speaker 11: MU stupply demand situation, and wage growth then moves higher again.
Speaker 6: That's really bad.
Speaker 11: It's really bad from a sentiment standpoint, and once sentiment
Speaker 11: and expectations getta control, the wheels come off very quickly.
Speaker 11: So my view is the FED has no idea and
Speaker 11: they're gonna be very careful about being active during an
Speaker 11: election cycle. So they came out early saying this might happen,
Speaker 11: But the reality is they don't know yet, and I
Speaker 11: don't know yet, So guessing at it, I think, is
Speaker 11: a feudal effort.
Speaker 3: All right, So let's get to what I care about
Speaker 3: is when you actually somebody comes in with names and
Speaker 3: I want to know kind of where you would be
Speaker 3: committing money. Names, Carol, we get names, So let's get
Speaker 3: to it. You like, because we're gonna actually get sl
Speaker 3: Green a big place player in the market, especially New
Speaker 3: York commercial office real estate we're going to get those
Speaker 3: earnings after the closing bell. Cb are group, you like
Speaker 3: talk to us about that one.
Speaker 11: Yeah, CBI is a great business. We've owned for a
Speaker 11: long time, but recently have increased our position because we
Speaker 11: like what they're doing to navigate an otherwise very challenging time.
Speaker 11: Investors punished the stock as rates roles because there was
Speaker 11: a lack of price discovery. Buyers didn't want to sell
Speaker 11: properties at the lower rates that the higher levels that
Speaker 11: sellers wanted in vice versa, and so there was no
Speaker 11: transaction volume, and so the earnings of CBR fell as
Speaker 11: leasing and sales transactions dried up. But the reality is
Speaker 11: that's only half their business. The other half is a
Speaker 11: very high recurring cash flow business and they're using that
Speaker 11: cash flow and their great balance sheet to invest in
Speaker 11: the future. They recognize the macro slows down their business today,
Speaker 11: but the reality is, as a LAUNCHERM investor, what are
Speaker 11: they doing to drive much higher earnings power over the
Speaker 11: next two, three, four years. And what they're doing is
Speaker 11: going out there and hiring from the best talents and
Speaker 11: the best markets across the country. And as the great
Speaker 11: stabilized and transactions pick up, they're going to have a
Speaker 11: much higher market share, and as they're buying backstock, the
Speaker 11: per share earnings and cash flow power we think will
Speaker 11: double versus prior peak in just a few short years.
Speaker 11: That to me is a really interesting opportunity when the
Speaker 11: market's being very punished punishing their stock today.
Speaker 3: So is it a bet on lower rates which are
Speaker 3: good for the real estate names and an economy that's growing.
Speaker 6: Is that the bet you don't need that.
Speaker 11: You don't need that to win here? What we that
Speaker 11: would help right that would accelerate their value creation. But
Speaker 11: what we're doing right now is we're building a base
Speaker 11: of talent. We're building an opportunity set. The market's misspricing today.
Speaker 11: So when rates do stabilize, not fall, but when they stabilized,
Speaker 11: there will be more transaction volume and commercial real estate
Speaker 11: everything from offices to hotels to medical properties.
Speaker 3: But that's what I'm saying. Longer term, the bet is
Speaker 3: on that you've got an environment that's growing in terms
Speaker 3: of economic growth. But a lower rate environment doesn't have.
Speaker 11: To be lower, it needs to be stabley because when
Speaker 11: they're stable buyers and sellers, no expectations are and they
Speaker 11: meet I don't really care if they're selling their proppy
Speaker 11: for five hundred million or four hundred and fifty million,
Speaker 11: CBRE gets their cut and they're going to have a
Speaker 11: lot of cash off that I just need to stabilize
Speaker 11: and even one will then come to the table again.
Speaker 3: That's because they're on the service side of it, right,
Speaker 3: Is that why you say that they just get their.
Speaker 11: No, that's a transaction side.
Speaker 6: That's a transaction.
Speaker 11: Transaction remains stable growing. They're growing that double digits right now.
Speaker 11: But the focus from the market is on the transaction side.
Speaker 6: Again.
Speaker 11: Lower rates accelerates, it puts fuel on the fire. But
Speaker 11: we don't need to win well the next three years.
Speaker 11: We need a stable, predictable rate market and buyers themselves
Speaker 11: will come back to the table and transact.
Speaker 2: All right, So I'm want to move on to another stock.
Speaker 3: K Doctor Peer, get aeg from real estate too.
Speaker 2: How about some seven up Carol? How's that Arci Cola,
Speaker 2: Big Red of course, Kurig, Doctor Pepper, Snapple Tea, Canada
Speaker 2: Dry Green Mountain Coffee. The list certainly goes on with
Speaker 2: Curig Doctor Pepper. Why are you bullish on this company?
Speaker 11: I'm bullsh not because they've done a really good job
Speaker 11: managing two very different businesses. There's a cold business, which
Speaker 11: you talked about some Moost great brands. On the soda side,
Speaker 11: we're seeing tremendous pricing power. You're seeing demand stay stable,
Speaker 11: and they've navigated the pandemic and all the way past
Speaker 11: that really effectively. What the market doesn't like right now
Speaker 11: is how the hot side, the coffee side's been behaving
Speaker 11: at home. Consumption skyrocketed during the pandemics for obvious reasons,
Speaker 11: and it has come down a little bit. So volume
Speaker 11: growth in the pod side has slowed and also had
Speaker 11: issues with their pricing relative to their costs. In many industries,
Speaker 11: including the coffee manufacturing industry, costs and manufacture have gone up,
Speaker 11: but the contractual pricing agreements they have take time to
Speaker 11: roll through, and so margin's compressed in a pretty material way.
Speaker 6: We're almost through that now, Okay.
Speaker 3: So I was going to say, if you look at
Speaker 3: the stock, it's really been in a rut since the
Speaker 3: end of twenty twenty one, down about almost ten percent.
Speaker 3: It really kind of hasn't been able to kind of move.
Speaker 3: It's basically where it was a couple of years ago.
Speaker 3: So you're saying all of that is done, and we
Speaker 3: should see some upside here.
Speaker 6: Right around the corner.
Speaker 11: In my mind, it's also a function of what we've
Speaker 11: seen with the staples in general, and people get excited
Speaker 11: with the economy, why would you buy a consumer staple? Right,
Speaker 11: money has flown out of this category, but as it
Speaker 11: does for macro reasons. From a micro standpoint, it's our
Speaker 11: chance of stock pickers to really add alpha, and so
Speaker 11: in my mind, we're going to start to see one
Speaker 11: of a quarter or two here, we start to see
Speaker 11: that margin inflection on the coffee side, which should drive
Speaker 11: higher earning. Think get the market focusing on the true
Speaker 11: cash part of business longer term.
Speaker 3: All right, Well, fun to talk names as always, and
Speaker 3: good get your macro as well. Bryant, thank you so much.
Speaker 3: Be well, Bryant van konk Bryant van Cronkite. Excuse me,
Speaker 3: portfolio manager at all Spring Global Investments, joining us from
Speaker 3: a nominee Falls, Wisconsin. Interesting. I love talking names.
Speaker 2: I don't know how many times they've fed is going
Speaker 2: to cut rates this year?
Speaker 3: Well, I think that's a silly parlor game, partner. They're
Speaker 3: gonna do what they're gonna do. They're gonna watch the data.
Speaker 9: But that is why.
Speaker 2: I mean, that's literally what people are betting. It's betting
Speaker 2: on right now.
Speaker 3: I think it's gonna be a while. Yeah, I know,
Speaker 3: but I still think it's a silly I'd much rather
Speaker 3: play what is it? Tesla Bingo?
Speaker 5: No, you.
Speaker 2: Get out your Bingo card, get out your Bingo guards.
Speaker 3: Everybody, This is Bloomberg.
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