Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
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Speaker 1: search Bloomberg glovel News. Carol Masser along with Mike Reagan
Speaker 1: in for Tim Stanovic on this Thursday, and as we
Speaker 1: mentioned at the top, really uh the news heard round
Speaker 1: the world, and that was the resignation of UK Prime
Speaker 1: Minister Liz Trust a top story without a doubt. So
Speaker 1: with what you need to know in the implications of
Speaker 1: the instability, let's get to ed Price principle for geopolitical
Speaker 1: forecasting at Ergo, it's a global consulting and forecasting firm.
Speaker 1: Ed is a former British trade official representing the UK
Speaker 1: government to Wall Street and the U S official sector
Speaker 1: that was from A one, and he has also advised
Speaker 1: members of the European and British parliaments and worked in
Speaker 1: the City of London. I laid all that because this
Speaker 1: is why you want to listen to him, He joins
Speaker 1: us in our Bloomberg Interactive Broker studio. Welcome. How are you.
Speaker 1: I've been better busy man these days, I imagine I
Speaker 1: feel slightly busy, I have to say. Going around the
Speaker 1: news room, we've all kind of laughed and not laughed
Speaker 1: that this whole idea of what's going on in the
Speaker 1: UK is making the US and it's politics that are
Speaker 1: not always so stable as well, um looking rather good
Speaker 1: at this point. Explain what is going on in the UK? Okay,
Speaker 1: so what's going on in the UK is that a
Speaker 1: prime minister has resigned after twenty minutes, which is never
Speaker 1: a good look. For twenty minutes you can read forty
Speaker 1: five days depending on how you count. Um. And that
Speaker 1: obviously is the result of a period of some confusion
Speaker 1: over the UK fiscal policy. The former Chancellor Quasi Quartein
Speaker 1: decided that it would be a good idea to cut
Speaker 1: taxes during an inflationary spiral. The macro text books will
Speaker 1: tell you that to not in fact a very good
Speaker 1: idea which he which he found out unfortunately. But now
Speaker 1: we're seeing that filter through into the Prime Minister and
Speaker 1: really see her sort of bear the brunt of that
Speaker 1: on a delayed action, you know. And I think the
Speaker 1: most surprising news event of the day for me after
Speaker 1: Liz Trust's resignation, was the possibility of that Boris Johnson
Speaker 1: might throw his hat in the ring. You know. I
Speaker 1: have this image of Boris when he was Mayor of
Speaker 1: London on that zip line with the two British flags.
Speaker 1: You know, what are the odds of him actually zip
Speaker 1: lining on the Downing Street again and uh and taking
Speaker 1: the job. I'm sorry that image is still in I'd
Speaker 1: like to apologize on the behalf of the trouble troubled nation. Um,
Speaker 1: I think they're relatively low. They're very high that he
Speaker 1: will stand. It's very it's a very high chance in
Speaker 1: my mind that a lot of people will think, let's
Speaker 1: get him back in. I mean, that's not that's not
Speaker 1: something that hasn't happened. Churchill was out and back in,
Speaker 1: Heath was out and back in, so the so called
Speaker 1: big beasts have done it before, but it does seem
Speaker 1: to me if you look at the betting houses that
Speaker 1: Rishi Sunac is lee, which I mean, you guys, tell
Speaker 1: me that seems like a problem in its own right,
Speaker 1: because of course she just lost the popular vote within
Speaker 1: the Conservative Party to Liz Trust. And if there's something
Speaker 1: about Brexit, it's it's democracy and populism. So I don't
Speaker 1: know if that I don't know if that's quite gonna work.
Speaker 1: So help us understand what went so wrong so quickly
Speaker 1: for Liz Trust. Is it a case of unpopular policies?
Speaker 1: I mean, I get the whole idea of as someone
Speaker 1: who studied economics, like there's just certain policies you don't
Speaker 1: do in certain environments. But is it her misread bad
Speaker 1: advisors what went went so wrong? Because safe to say,
Speaker 1: all leaders, many leaders and developed nations are in a
Speaker 1: tricky spot right now. We feel in the United States
Speaker 1: with high inflation, tox of recession, you know, global central
Speaker 1: bankers continue to raise rates. It's not popular. Well that's
Speaker 1: a that's a profound point, Like the outcome of populism
Speaker 1: isn't necessarily popular, But that doesn't mean that populism won't
Speaker 1: continue apace if indeed it might actually be pushed further
Speaker 1: because of that, because of those wobbles. What went wrong? Ideology? Uh,
Speaker 1: you don't get to decide what the bond markets think.
Speaker 1: That's the whole point of the bond markets. They don't.
Speaker 1: They decide for themselves. Um. And I know a lot
Speaker 1: of advisors in the UK system, and I know a
Speaker 1: few bond traders. They're pretty smart people. What you don't
Speaker 1: do is get up in front of everybody and say
Speaker 1: this is how it will be. We have a forty
Speaker 1: five and then forty three billion unfunded tax cut. Everything's
Speaker 1: going to be fine. Because my copy about the shrub
Speaker 1: told me it was going to be fine. It does
Speaker 1: It doesn't work like that, right, Am I wrong? No?
Speaker 1: She totally disregarded so much right within the system in
Speaker 1: the UK system and probably warnings right and understanding what
Speaker 1: the implications were for her policies. I think that's I
Speaker 1: think it's that simple and so but you know, I
Speaker 1: think there's a there's an optimistic tone to take, which
Speaker 1: is that the systems wrenched arount. So you know, we
Speaker 1: can't do that with peuting, we can't do that with
Speaker 1: huge in pit. You know, the system, the markets, the
Speaker 1: democracy that we have. It's turned around and it said, no,
Speaker 1: that doesn't quite work. Reality check. It's time for the
Speaker 1: next person. So it looks bad on the surface. And
Speaker 1: I'm not going to tell you other word, but you know,
Speaker 1: a smart fiscal policy is such a lynch pin of
Speaker 1: British politics, I guess politics everywhere in general. And I wonder,
Speaker 1: does this give labor sort of the upper hand, you know,
Speaker 1: enough to sort of change the balance in the next election,
Speaker 1: or our attention spans short enough that it shouldn't matter.
Speaker 1: You're asking me if the Labor Party is going to
Speaker 1: win the next life Basically, yes, I think. I think
Speaker 1: we've got to the project. In an objective opinion, of course,
Speaker 1: that's my that's my forecasting. And so well, look the
Speaker 1: Tories have been in for twelve years. I mean, if
Speaker 1: we if a cast of minds back to Thatcher, she
Speaker 1: began her supply side reforms at the very start of
Speaker 1: a political cycle, so she had time for that pain
Speaker 1: to go through the labor market and for things to adjust.
Speaker 1: Trust was of course at the end of the political cycle,
Speaker 1: which means that I would have thought the Labor Party
Speaker 1: would win whatever was going on regardless of whether or
Speaker 1: not the Prime Minister has been compared to a Lettice
Speaker 1: on television. Right, So, yes, I think the Labor Party
Speaker 1: I was obsessed with a lettis I'm just going to
Speaker 1: say bit weird continual. It's a bit weird and maybe
Speaker 1: unfair to the Lettuce. But but I think that what's
Speaker 1: interesting is that the Labor Party is going to have
Speaker 1: a mess to clear up. And if I was being cynical,
Speaker 1: I would say to myself or maybe now is the time,
Speaker 1: if you're a conservative, to sort of wash your hands
Speaker 1: of it, say well, let the other guys clean it up,
Speaker 1: because this is a sort of two three year process
Speaker 1: at least. Well, here's our Bloomberg story. Whoever you know
Speaker 1: wins or loses trust a successor to inherit a grim
Speaker 1: UK economy, like you can't change any of that, and
Speaker 1: there's some tough things that need to be done. Correct
Speaker 1: again correct, Yes, I'm not gonna like to So the
Speaker 1: O E C D is forecasting zero percent growth. Your
Speaker 1: listeners are mathematicians and finances they all know that zero
Speaker 1: is a bad number. That's probably optimistic. Okay, But but
Speaker 1: again I'll go back, and of course I would say this.
Speaker 1: Given my background, I think that the UK is is
Speaker 1: very good at imposing shocks on itself early. It's kind
Speaker 1: of ahead of the globalization curve every time. So this
Speaker 1: does look ugly. Sterling has taken a hit obviously, and
Speaker 1: probably parities cable rate parities is something that we should
Speaker 1: talk about. But I don't look at the country and think, right,
Speaker 1: it's completely finished. I think, right, this, this shock that
Speaker 1: it's going through, you know, in the manner of thatcher before,
Speaker 1: will result in something else. And I think I know
Speaker 1: the answer to this question, given your your resume and uh,
Speaker 1: you know work as a trade official. Part does did
Speaker 1: practice make this situation? The Brexit makes this situation worse
Speaker 1: or better for for Britain right now. So so Brexit
Speaker 1: was always going to be a short term hit to GDP.
Speaker 1: Brexit was always going to take the form of a
Speaker 1: supply shock. Um. It wasn't always a parent in my
Speaker 1: mind exactly how the policy mechanisms would respond, because on
Speaker 1: the one side, you could say, well, look, that's going
Speaker 1: to be inflationary, because supply shocks inflationary, so that the
Speaker 1: central bank will have to hike. On the other hand, um,
Speaker 1: it might have been that sort of demand destruction and
Speaker 1: a recession had a different response. But it was always
Speaker 1: going to be something that was tricky. I don't think
Speaker 1: that Brexit's the only factor. Of course, we had this.
Speaker 1: We had COVID. I'm sorry to remind everyone we had COVID.
Speaker 1: We still have it. Actually we still have the vaccine
Speaker 1: line that I saw last night. I've probably got it
Speaker 1: right now, to be honest with you, chuck this guy out. Yeah,
Speaker 1: just kidding, but but it's also not kidding. You're not kidding.
Speaker 1: It's a British COVID, though it's much more charming, that's right.
Speaker 1: But then the war in Ukraine, Well that's a big,
Speaker 1: huge factor. I mean it's you know, every day we
Speaker 1: come in here and we just think we figured out
Speaker 1: the big macro things that we're facing, and then something like,
Speaker 1: of course earlier this year, the war in Ukraine. So
Speaker 1: how do you factor that, you know? And then today
Speaker 1: it's of course not surprised, but to see the resignation
Speaker 1: of trust. Um, so how do you factor Ukraine then
Speaker 1: into all of this? Well, I think that Ukraine is
Speaker 1: is a sort of signal to everyone that you're not
Speaker 1: necessarily safe, right, And I think it's the first time.
Speaker 1: I mean it's like tank battles in Eastern Europe. I
Speaker 1: mean it's wild. That's from seasons one and two. Right,
Speaker 1: It's it's crazy that it's back. So my father, who
Speaker 1: fought in World War Two and his brothers, well like
Speaker 1: it's like, that's what it's crazy. My family too. We
Speaker 1: lost people in both of those wars. Right. Um, But
Speaker 1: I think that that's that's number one, spooking people to
Speaker 1: some degree, spooking markets. That's part of why the dollar
Speaker 1: is so strong. I would imagine, including fed hiking. But
Speaker 1: I think it's also something that it's it's sort of
Speaker 1: feeding into the zeitgeists in another way, which is, well,
Speaker 1: let's stress test everything. I mean, let's really think about
Speaker 1: how safe we are or are not. And I would
Speaker 1: suggest to you that maybe that's what Sterling is going through.
Speaker 1: So now we've back to your point on brekxfit. People
Speaker 1: are looking at Sterling and thinking, well, does it really
Speaker 1: deserve to be one to one with the dollar? Um,
Speaker 1: So if you're asking me how that affects, does it, well,
Speaker 1: I would I would say probably not, probably not. I
Speaker 1: imagine that we're going to see parity and how will
Speaker 1: that be received on the ground in Britain, you know,
Speaker 1: is that is that considered a disaster or does the
Speaker 1: old trope that you know, weaker currency is going to
Speaker 1: help the domestic economy. Will people rally be behind that
Speaker 1: or will they say, oh, boy, were at parody with
Speaker 1: the Americans, this is a disaster. Well yeah, go back,
Speaker 1: I mean go back to O E c D forecast
Speaker 1: and that zero figure. If you break it down, it
Speaker 1: looks like point seven positive for government consumption. It looks
Speaker 1: like point seven negative for loss of exports. So if
Speaker 1: you're if you're thinking about a sort of medium term correction,
Speaker 1: if you're thinking about global Britain, if you're thinking about
Speaker 1: the reason that we did exit the European Union or
Speaker 1: orbit purportedly the purported reason a part of that was
Speaker 1: trading in the world and trying to get our exports back.
Speaker 1: I'm not sure that that factor because it will be
Speaker 1: on a lag. Of course, it's a supply side issue.
Speaker 1: It takes a long time to build capacity. I'm not
Speaker 1: sure that that issue is as important as the psychology
Speaker 1: of not being able to visit Fifth Avenue at Christmas
Speaker 1: really powerful, right, We felt that certainly during COVID right
Speaker 1: when all of a sudden things that we just took
Speaker 1: for granted UM shut down. So, as I said, you
Speaker 1: have advised UM. You represent the UK government, you know,
Speaker 1: representing and talking to folkus on Wall Street. We've got
Speaker 1: a very smart investment audience. So what would be your
Speaker 1: takeaway or something for them to think about over the
Speaker 1: next couple of weeks as we continue to see what's
Speaker 1: playing out in the UK and then more broadly about
Speaker 1: what's going on in Europe. Okay, well, I mean I'll
Speaker 1: take the UK first, and of course I would say
Speaker 1: what I'm about to say, which is, don't count the
Speaker 1: UK out. This is the country that brought uniteteen forty.
Speaker 1: Democracies look messy, but the markets and elections are four.
Speaker 1: There are messy. There are messy indeed, yes I stand correct,
Speaker 1: they are messy, UM. But but I think it's going
Speaker 1: to be okay medium term. And I wouldn't write the
Speaker 1: UK off because, as I said previously, we're very good
Speaker 1: at corrections. We're very good at them in ways that
Speaker 1: you know, let's segue into Europe. I don't think that
Speaker 1: other other countries are. So I think that while there's
Speaker 1: a question over the value of sterling, and that's a
Speaker 1: justified question. There's still a question mark over the existence
Speaker 1: of the euro. And if we start to see those
Speaker 1: bomb spreads wide and again, which I imagine we will
Speaker 1: at some point, you guys again, tell me if I'm wrong. Um,
Speaker 1: then then I think the the capricious attention of markets
Speaker 1: will sort of drift away from the UK and start
Speaker 1: looking at the your area again. Well, right now, the
Speaker 1: spreads are about thirty basis points in the favor of
Speaker 1: the guilt market, while blow treasury yields. Do they belong there?
Speaker 1: Do you think? Um? I think guilts look healthier if
Speaker 1: I can put it like that. I mean, what the
Speaker 1: ten years three point nine and the thirty years three
Speaker 1: point nine five, that's better. I think their reaction to
Speaker 1: to trust his resignation was met in a way. I
Speaker 1: don't think that they worried about it too much. You
Speaker 1: can't do that. I always say, meth do you copyright?
Speaker 1: I've broken? Copyright comes up with COVID takes my lines. Now,
Speaker 1: you know, just got about a minute left here, and
Speaker 1: I do think about you know, here in the United States,
Speaker 1: we look over at the UK in terms of politics
Speaker 1: and we're like oh my god, it's crazy. But in
Speaker 1: some ways it does feel like when something's not working,
Speaker 1: it's like next and let's figure it out. Is that air?
Speaker 1: Is there efficiency to it? Well? I think so. I
Speaker 1: mean I'm someone, maybe I'm maybe I'm based subjective. Yeah, yes,
Speaker 1: I'm totally subpecting, totally biased. But I look at the
Speaker 1: UK and I think to myself, well, this is a wobble.
Speaker 1: This is what we would call a wobble. It's not good, um,
Speaker 1: But but wobbles end. And so I would again say
Speaker 1: to you, our cycles seem a bit nastier. We've gone
Speaker 1: through any number of moments in our history where it
Speaker 1: looked like it looked like game over. If I'm being
Speaker 1: a frank right, um, but I think we left out
Speaker 1: The most important question is you wrote it up at
Speaker 1: recently you talk about the possibility of fourteen pound pints
Speaker 1: in the pub? Did I must have forgotten about it?
Speaker 1: Was that maybe someone else, maybe someone else fourteen pound pints?
Speaker 1: Are you trying to you're trying to give me a
Speaker 1: heart on air? What are the odds of fourteen pound
Speaker 1: points in the pubs in London? If listen, if if
Speaker 1: the point goes to fourteen pounds. I will go back
Speaker 1: and stand myself with one platform and one platform only,
Speaker 1: which is getting the price of a point back down
Speaker 1: to five and you will have people voting for that
Speaker 1: platform um at price. Thank you so much, really a
Speaker 1: pleasure principle at Ergo. I told you about his background Google,
Speaker 1: Let me can hear more former British trade official and
Speaker 1: so much more. Joining us here in our Bloomberg Interactive
Speaker 1: Broker Studio. You're listening to Bloomberg Business Week with Carol
Speaker 1: Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio.
Speaker 1: Well inflation and rising labor costs will increase US national
Speaker 1: healthcare spending by three seventy billion in the next five years.
Speaker 1: Is according to a McKinsey report. Consumer prices are rising
Speaker 1: faster than health care inflation, but general inflation has recently
Speaker 1: driven up healthcare supply input costs. So when thoughts on
Speaker 1: that and more with us as he is every week.
Speaker 1: Dr Ian LUs beda clinical professor of medicine at n
Speaker 1: y U Land, going back with us on the phone
Speaker 1: in New York City. Ian, we love having you here.
Speaker 1: Great to have you here on this Thursday with Mike
Speaker 1: Reagan and myself. How are you a pleasure? Thanks, guys.
Speaker 1: Hope everyone is staying healthy and well with the new
Speaker 1: COVID variance out there, but it seems to be under control.
Speaker 1: But what's not under control, unfortunately, is healthcare inflation. We're
Speaker 1: seeing rises of over six percent a year. Healthcare is
Speaker 1: twenty of the GDP, over four trillion dollars a year
Speaker 1: and really estimated by two be up to six point
Speaker 1: eight trillion dollars a year. And there are a lot
Speaker 1: of reasons, unfortunately why we're seeing healthcare inflation, and we
Speaker 1: can talk about that, but certainly part of the problem
Speaker 1: is our our per capita costs. You know, it's about
Speaker 1: twelve tho dollars per person per year. Other countries like France,
Speaker 1: Canada about half that, five to six thousand a year.
Speaker 1: So the real question is why or our costs higher
Speaker 1: than other countries. That guy would like to unpack a
Speaker 1: little bit. Some of the main drivers of that inflation,
Speaker 1: you know, my guests, would be that there were so
Speaker 1: many health insurance claims for COVID, whether it be testing
Speaker 1: or treatment. Is that one of the big drivers of
Speaker 1: the increase in particularly health insurance costs. Yeah, they're really
Speaker 1: a number of drivers. One is hospital care, which is
Speaker 1: very expensive. You know, you can just look at the
Speaker 1: bills from even an e er visit. That's about thirty
Speaker 1: of the cost. The workforce is about of the healthcare costs.
Speaker 1: And we're really seeing wage pressure, you know, both physicians
Speaker 1: and r n s because there's a labor shortage. A
Speaker 1: number of physicians have retired, a number of nurses are
Speaker 1: leaving the workforce, so there's really wage pressure in that area.
Speaker 1: And definitely illness things like the pandemic and aging population
Speaker 1: and unhealthy population. About of the US is obese, overweight.
Speaker 1: They use a lot of resources diabetes, hypertension, more technology. Also,
Speaker 1: you know, we have robotic surgery and all of those
Speaker 1: are very very expensive. They're high quality, high tech, but
Speaker 1: also very expensive. So we're really seeing a combination of things.
Speaker 1: And the pandemic did not help with resource utilization. All
Speaker 1: of those nasal swabs that people are doing sometimes on
Speaker 1: a daily or weekly basis really add up the nets,
Speaker 1: you know, government money that's been printed in order to
Speaker 1: give out those um kits. So we've really had a
Speaker 1: number of forces that are raising prices and there are
Speaker 1: not a lot of market forces competition, advertising prices to
Speaker 1: help lower that. That's part of the challenge. So not
Speaker 1: a new right. We talked about this for a long time,
Speaker 1: the cost of healthcare, But Ian, I do feel like
Speaker 1: there's expectations among Americans that I want a certain level
Speaker 1: of care when I walk into hospital, I want X
Speaker 1: y Z. I mean, how do we change the thinking
Speaker 1: or how do we really constructively get the price of
Speaker 1: healthcare down? You know, you're exactly right, Carol the the
Speaker 1: we want Cadillac care, and we do have amazing high
Speaker 1: tech care, really the state of the art UM, but
Speaker 1: we don't really want to pay for it, and we,
Speaker 1: unfortunately we will have to choose. In other countries, there
Speaker 1: are delays. If you need hip, elective, hip surgery, knee replacement,
Speaker 1: you can't walk in if you're eighty five years old
Speaker 1: and get it the next week. In the US we can.
Speaker 1: So I think we need to shift expectations and really say,
Speaker 1: without rationing care per se, can we change our expectations.
Speaker 1: We certainly want high quality care, but if we give
Speaker 1: high quality care to everybody all the time, UM, without
Speaker 1: any competition or cost uh market forces, we're going to
Speaker 1: be in trouble with higher percent of our budget. Alright,
Speaker 1: thirty seconds left. I gotta ask you because I want
Speaker 1: to know I'm double boosted and double vaxed. I've seen
Speaker 1: the lines to the vaccine. Who should get that next
Speaker 1: booster just quickly and when we yeah, yeah, the by
Speaker 1: vay want, which is the B four and five are
Speaker 1: is important to get. Certainly if you have chronic medical
Speaker 1: issues or if you're older above sixty, it makes sense.
Speaker 1: It is available for everyone young and old, um, but
Speaker 1: certainly the tar a good audience should be people with
Speaker 1: underlying medical problems. There are a couple of new variants
Speaker 1: out there to which may be a bigger problem. You
Speaker 1: don't really know how effective the new vaccine is for those,
Speaker 1: but probably will help. Certainly, if you have medical issues,
Speaker 1: it makes sense to get it. How how long do
Speaker 1: you wait after you've had COVID? Yes, I'm asking you
Speaker 1: Dr las beta for me, just quickly. Your antibodies and
Speaker 1: T cells are good for at least three to four months,
Speaker 1: so I would not rush to get the vaccine if
Speaker 1: you had COVID within the last few months. There's really
Speaker 1: no data on that. Your body should be fined for
Speaker 1: at least three months. Thank you, So much as always,
Speaker 1: and smart to talk about inflation in healthcare because it's
Speaker 1: certainly something that's very persistent. Dr Ian las Beta over
Speaker 1: at n y Landgown Medical Center. This is Bloomberg Business
Speaker 1: Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic
Speaker 1: on Bloomberg Radio. Well, stepping away from the turmoil in
Speaker 1: the UK government for a moment, and yet I gotta say,
Speaker 1: what's going on there is just another one of the
Speaker 1: geopolitical concerns that impact anyone and everyone that it's a company,
Speaker 1: we talk about it all the time with leaders. So
Speaker 1: we're curious to see what our next guest has to
Speaker 1: say about the macro environment. And so great to have
Speaker 1: back with us. Joe Preston, President CEO at New Balance
Speaker 1: Privately Held, spending some time with our editorial teams here
Speaker 1: at Bloomberg headquarters. He is here in our interactive broker
Speaker 1: studio and it is so nice because I think if
Speaker 1: it was a year ago or two years ago, we
Speaker 1: would probably be doing something remotely. Um, how are you.
Speaker 1: I'm doing well, Thank you, It's nice to be here
Speaker 1: in person. It's great to have you here. Um, what's
Speaker 1: it like running a business? Right? Now in this macro environment,
Speaker 1: but coming off, thank god, the worst of the pandemic. Well,
Speaker 1: it's a challenge, there's no question, because there are just
Speaker 1: so many different things that are being thrown at any
Speaker 1: company out there for the past two and a half years,
Speaker 1: and I think for us, the biggest challenges balancing the
Speaker 1: momentum that we have, which we're seeing here in the
Speaker 1: US and around the globe with those macro economic trends,
Speaker 1: because we don't want to miss the run that we
Speaker 1: feel like we're on right now. The brand is resonating
Speaker 1: with a younger consumer like never before. We've just had
Speaker 1: strongest back to school in our history, and we can
Speaker 1: see from who's buying on New Balance dot com, the age,
Speaker 1: the demographics that are that are coming into the brand
Speaker 1: for the first time. And then we're in close contact
Speaker 1: with our customers trade trade partners and they're telling us
Speaker 1: the same thing. So with that being said, we also
Speaker 1: know that with interest rate heights in the inflationary pressures
Speaker 1: and all of that, and the supply chain still is
Speaker 1: particularly from a logistics standpoint, is still struggling, and so
Speaker 1: we're trying to balance all of those, all of those
Speaker 1: pieces together, which I wanted to ask you about those
Speaker 1: supply chains. I think New Balance is somewhat unique in
Speaker 1: that you have some big factories here in the US
Speaker 1: in Massachusetts and Maine. Does that make dealing with these
Speaker 1: supply chain issues easier or harder when you have your
Speaker 1: your actual factories in the US, Well, I mean they're
Speaker 1: they're they're challenging throughout the past couple of years, There's
Speaker 1: no question about it. But yes, we have five factories
Speaker 1: in the US. We're the only athletic brand that has
Speaker 1: a presence here in the US. We also have a
Speaker 1: fact are in the UK, and again the only athletic
Speaker 1: brand to have a factory over there. And it's a
Speaker 1: it's a limited portion of our overall revenue in pairs,
Speaker 1: but it's an important piece of our business. We think
Speaker 1: it helps our quality scores and it just allows us
Speaker 1: to be a better partner with our contract manufacturers because
Speaker 1: of the fact that we're making shoes and we know
Speaker 1: the processes and then we can pass along those tips
Speaker 1: to them as well. Is it more expensive though? Like
Speaker 1: I always think about, I love talking about anybody who's
Speaker 1: manufacturing in the United States because we're all trying to
Speaker 1: we're talking about more companies doing it. Is it more expensive? Well,
Speaker 1: the labor is definitely more expensive. The cost of the
Speaker 1: materials are the cost of the materials, so it really
Speaker 1: resides in labor. So if you look at it strict
Speaker 1: strictly from a P and L standpoint, you could make
Speaker 1: one decision. But there's also getting closer to the consumer.
Speaker 1: There's also the fact that you can run your inventories
Speaker 1: leaner because you're not relying on a supply line that's
Speaker 1: halfway around the globe. And what's a factor in time
Speaker 1: to try, you know, right, ship it and so on
Speaker 1: and so forth lely and then the you know, the
Speaker 1: costa capital is rising as well, which makes all of
Speaker 1: the contract manufacturing a little bit more expensive because you're
Speaker 1: financing at some point. You know, John, I have to
Speaker 1: tell you so, I come from Philadelphia and uh in
Speaker 1: two thousand and nineteen, I had my heart absolutely broken
Speaker 1: by a man named Kawai Leonard of the Toronto Raptors
Speaker 1: hit what's been known as the shot to knock my
Speaker 1: six Sars out of the Eastern Coast finals. If you
Speaker 1: can't say I'm still a little sore about that, but
Speaker 1: I know new Bouncer New Bounce is famous for its
Speaker 1: running shoes mostly, But you are in the basketball market
Speaker 1: now with a Klai Kwaie Leonard shoe. I'm guessing it's
Speaker 1: not selling so great in Philadelphia, I gotta say, but
Speaker 1: but but how's it doing naturally? And how's the basketball
Speaker 1: business for you? Is that is that an area of growth?
Speaker 1: Do you think? Well? I think first of all, I
Speaker 1: guess what is the expression? I'm sorry, I'm not sorry,
Speaker 1: but yeah, we we re entered basketball. We actually we
Speaker 1: were the first brand to to uh endorse a NBA
Speaker 1: play with a million dollar contract. It was James Worthy
Speaker 1: back in the day, that's right, I remember. So then
Speaker 1: a number of a number of things transpired. We got
Speaker 1: out of the endorsement element of it, and then we
Speaker 1: got into baseball about ten years ago and today about
Speaker 1: in Major League players wear New Balance, and then that
Speaker 1: led us to getting into global football or soccer, and
Speaker 1: we have two of the top five players in the
Speaker 1: world in Saudio Money and Raheem Sterling wearing a product.
Speaker 1: And then we got into basketball with with Kawai Leonard
Speaker 1: being the the the Brandon basket I hear his name.
Speaker 1: It's been really good. Yes, I mean that moves the needle.
Speaker 1: Those collaborations are having that the sports, the professional sports
Speaker 1: aspect of it, There's no question, you know, young younger
Speaker 1: athletes are looking to what they're what is being worn
Speaker 1: at the major league level, whether it's baseball or football
Speaker 1: or basketball, and so I definitely think that's that's helped us.
Speaker 1: I got I just want to say, and just to follow,
Speaker 1: I mean, I have a teenage daughter in college now,
Speaker 1: but I mean sneakers are like a consumer staple for
Speaker 1: her and numerous kinds like that's her footwear. And you
Speaker 1: talked about the growth in the younger audience. Is it
Speaker 1: those collaborations with athletes or what is it that you
Speaker 1: think is all of a sudden getting a younger generation,
Speaker 1: which you know can switch in a time in terms
Speaker 1: of their preferences. Why do you think they're they're attracted
Speaker 1: to the New Balance brand. I think it's the brand.
Speaker 1: I think the brand efforts that our marketing team has
Speaker 1: been doing have just been excellent. But you can't just market,
Speaker 1: you have to have products. So we have multiple new
Speaker 1: products that we've been introducing that have been resonating. We
Speaker 1: have been using collaborations with athletes and entertainers that have
Speaker 1: provided energy, there's no question about that. That combination as
Speaker 1: well as the other things that we've done to attract
Speaker 1: the consumer and then make it a more seamless consumer
Speaker 1: experience when they come onto our website or come through
Speaker 1: our stores. We also know that is part of why
Speaker 1: we are successful today. You know, Joe. Obviously here at
Speaker 1: Bloomberg we are laser focused on Wall Street, and obviously
Speaker 1: New Balance is a ivate company. But I have to
Speaker 1: wonder how often some bankers shows up at your doorstep,
Speaker 1: you know, with a flashy suit and New Balance sneakers
Speaker 1: on and tries to get you to go public or
Speaker 1: has an M and a offer for you. Is that
Speaker 1: a common experience for you? And what do you tell
Speaker 1: them when they show up? Well, over time, it's obviously
Speaker 1: been pretty common. But you know, the company is owned
Speaker 1: by the Davis family and it's uh, you know, Jim
Speaker 1: bought the company in nineteen seventy two. Is initially founded
Speaker 1: in nineteen oh six. It's had three owners since then,
Speaker 1: and Jim just celebrated Jim and and just celebrated fifty
Speaker 1: years with the company. And that absolutely no no um
Speaker 1: no plans. Well as someone who works the two of
Speaker 1: us working at a privately held company. You understand kind
Speaker 1: of the perks and the positives of being privately held.
Speaker 1: What does that allow you guys to do? And we've
Speaker 1: just got about forty seconds left. Well, it allows you
Speaker 1: to take a longer view. And I think domestic manufacturing
Speaker 1: is a perfect example. We've seen public companies in our
Speaker 1: space come in make make statements that they're going to
Speaker 1: make product here and free. Quarters later they're trying to
Speaker 1: explain it to an analyst and and suddenly it quietly
Speaker 1: goes away. When you're private, you can take a longer view.
Speaker 1: One last question thirty seconds. If you had to describe
Speaker 1: the environment for the next six to twelve months, what's
Speaker 1: one or two words that you would use to describe it?
Speaker 1: Or three words? Uncertain? I think that is definitely one
Speaker 1: that you have to keep in mind. And for us,
Speaker 1: it's balanced. It's about balancing the momentum that we have
Speaker 1: with the macro economic headwinds that are out there. You're
Speaker 1: using that because your brand is new. Balance, that's that.
Speaker 1: What's going on here is that little um. What a
Speaker 1: pleasure and so nice to have you in studio. Be well,
Speaker 1: and we look forward to you coming back real soon.
Speaker 1: Joe Preston, he's president and chief executive officer of New Balance,
Speaker 1: joining us here in our interactive broker studio. I'm Macro
Speaker 1: a journal Yeah, but you let me drive? Oh no, no, please,
Speaker 1: I want to drive. It's a good question. Driving is
Speaker 1: good ride to be closed radio. I just got about
Speaker 1: not in a half minutes left in today's trading session,
Speaker 1: and we are certainly well off our highs that we
Speaker 1: saw earlier in the day. In fact, we're just hovering
Speaker 1: off our loads of the sessions. So as you heard
Speaker 1: from Charlie, really the S and P feeling the most
Speaker 1: on a percentage basis down about seven tents of a
Speaker 1: percent following what's going on in the UK. But also
Speaker 1: really weighing on the US markets is the continued expectation
Speaker 1: of a hawk ish FED as FED officials continue to
Speaker 1: fight inflation. So let's get to it with Eddie Perkin,
Speaker 1: chief investment officer for Equity Already eaton Vance Management. He
Speaker 1: is with us on the phone from Boston. Eddie, nice
Speaker 1: to have you here with Mike Regan and myself. First
Speaker 1: of all, uh, the story of the day, or at
Speaker 1: least one of the geopolitical stories of the day UK turmoil.
Speaker 1: How is that if at all factoring into your investment outlook.
Speaker 1: I don't think it really is. I suppose you could
Speaker 1: argue that the UK is un a canary in the
Speaker 1: coal mine with respect to the bond market vigilantes and
Speaker 1: what happened in the guilt market a couple of weeks ago. Uh,
Speaker 1: I guess a few weeks ago now where this austerity
Speaker 1: package or sorry not non austerity package lead to a
Speaker 1: bond market selloffs? At least that's the narrative. I think
Speaker 1: there was a lot more to it than that. I
Speaker 1: think the UK's uh, you know, relatively isolated from what's
Speaker 1: going on elsewhere in the world. It certainly makes for
Speaker 1: interesting headlines, interesting story, something we talked about and chat
Speaker 1: about with our team in London, but not something that's
Speaker 1: impacting investment decisions on a day to day basis, you know, Eddie,
Speaker 1: I think the big question this year that just lingers
Speaker 1: throughout the year is how do you play defense in
Speaker 1: this market? You know, your traditional defensive sectors are are
Speaker 1: pretty you know, richly valued at the moment. What's looking
Speaker 1: like a good defensive play in the equity markets? You
Speaker 1: given this stubbornly high inflation, and if this rates that
Speaker 1: just do not appear to be going lower anytime soon.
Speaker 1: I'm going to challenge the premise of the question a
Speaker 1: little bit. I'm not sure that I want to play
Speaker 1: defense right now. You've already had a big market sell off.
Speaker 1: As you say, the most of the defensive sectors are expensive,
Speaker 1: so I think you want to avoid the expensive defensives. UH,
Speaker 1: utilities would fit the build there. We're seeing a lot
Speaker 1: of infloens et f inflows into the utility sector. Valuations
Speaker 1: look fairly rich to us. That's not where I would
Speaker 1: be hiding. If you really need to be defensive, I
Speaker 1: think healthcare is probably your best bet. Um you get
Speaker 1: good solid growth and good defensiveness. Could dividend yields out
Speaker 1: of pharmaceutical companies you don't have to pay a lot
Speaker 1: for them. So that's the one defensive sector I like.
Speaker 1: But otherwise, incrementally at the margin, I'd be looking to
Speaker 1: play more offense by buying things that are beaten up,
Speaker 1: both cyclical stocks in the US and some of the
Speaker 1: European names that are now looking very cheap relative to history.
Speaker 1: You know, Eddy, we've seen the beginning of earning season
Speaker 1: here kind of a mixed bag, you know, some good
Speaker 1: news and bad news. Uh, everyone I've talked to is
Speaker 1: sort of bracing for a nasty revision two estimates in
Speaker 1: this quarter for the rest of the year. And how
Speaker 1: are you thinking about that? UM? Is that priced in
Speaker 1: already for the most part or is there more sort
Speaker 1: of pain to come in the market because of it.
Speaker 1: I think it's the most over discussed topic of the market. Actually,
Speaker 1: you know, I think if I if I had a
Speaker 1: dollar for every strategy strategist I've heard say, hey, two
Speaker 1: forty on the spree numbers not right, the real numbers
Speaker 1: two hundred, If I had a dollar for every time
Speaker 1: I heard that, I probably have two hundred dollars UM.
Speaker 1: And uh, everyone knows the numbers two hundred or maybe
Speaker 1: it's one ninety or two ten. But we all know
Speaker 1: earnings have to be cut. Anyone who doesn't hasn't been
Speaker 1: paying attention. And the markets forward looking, so some of that,
Speaker 1: maybe all of that is already in the price. And
Speaker 1: I think you have to look through that and ask yourself,
Speaker 1: what is the underlying earnings power beyond three of these companies?
Speaker 1: If three is a recession year, then you don't want
Speaker 1: to be putting a p multiple on that number because
Speaker 1: that's a trough number. So what is the normalized through
Speaker 1: the cycle earnings power of these companies? Has it been
Speaker 1: permanently impaired by COVID or geopolitics or anything else that's
Speaker 1: going in the world. I think the answer is no
Speaker 1: for the most part in most cases, and therefore you
Speaker 1: should be capitalizing a number higher than two hundred for
Speaker 1: the smt uh in putting you know, whatever you want
Speaker 1: times on that, and you're into a you know, a
Speaker 1: price target for the SMP that starts with a four.
Speaker 1: Does that mean we eventually revert back to that sort
Speaker 1: of that, you know, pre COVID leadership with tech and
Speaker 1: growth and and that sort of thing being the real
Speaker 1: drivers of the of the index is higher. I think
Speaker 1: that's a good question. My answer is it's it's rare
Speaker 1: when you get a big market sell off that coming
Speaker 1: out of that you have the same leadership as you
Speaker 1: had before. So uh, you know, technology companies, growth, growth,
Speaker 1: tech is they're great companies there, but they were very
Speaker 1: rich coming into this, and I think we probably have
Speaker 1: had a regime change where it's now going to be
Speaker 1: more about value stocks. That means financial stocks, particularly the banks.
Speaker 1: It means commodity stocks like energy, which is but performed
Speaker 1: very well this year and yet is still under owned
Speaker 1: by most investors. And it means finally finally investing overseas
Speaker 1: Europe and Japan. Uh. International stocks to me look more
Speaker 1: compelling on evaluation basis. Granted, the economic news is pretty ugly.
Speaker 1: And one thing I'm curious, Eddie, I mean, you guys
Speaker 1: eating Vans portfolio. There's a lot of choices for investors
Speaker 1: out there, fixed income side, equity side. Where is the
Speaker 1: money flowing right now? In and out? Uh? You know,
Speaker 1: I think you see a lot of investors want to
Speaker 1: avoid anything that's credit sensitive. So uh, you know, I
Speaker 1: think the bank loan category, so mutual funds that invest
Speaker 1: in bank loans are seeing outflows across the industry. Uh.
Speaker 1: And I think most active equity funds you're seeing outflows
Speaker 1: as well. Um, we run Calvert funds, so Calvert branded
Speaker 1: e SG funds, and we're seeing good inflows in a
Speaker 1: number of those Calvert equity strategies. Well, Eddie, uh, is
Speaker 1: it a fool errand to try to time this market
Speaker 1: right now quickly? I think we got about Mike, you
Speaker 1: know the answer to throw them a softball car. I
Speaker 1: think it's always a fool errand to try and time
Speaker 1: the market. I think that's what everyone's trying to do.
Speaker 1: You have a lot of people who recognize that a
Speaker 1: sentiment is very negative, cash levels are very high, and
Speaker 1: you have a lot of people saying, hey, early, the
Speaker 1: market is going to rip. The problem is if you
Speaker 1: wait for the perfect moment, you might miss it. And
Speaker 1: so the best advice is the simplest, stay diversified, dollar
Speaker 1: cost average your way in relieve yourself of the psychological
Speaker 1: imperative to time the market perfectly and just make sure
Speaker 1: you're there at the bottom when it comes. And you
Speaker 1: do that by dollar cost averaging. I believe it in
Speaker 1: cash for a little bit longer, until you really get
Speaker 1: some clarity. I'm going dare I say, dare I say? Um? Eddie,
Speaker 1: thank you so much. Eddie Perkin, chief Equity Investment office
Speaker 1: there for Equity at eight Advance, joining us on the
Speaker 1: phone from Boston. But uh, I do you know? I
Speaker 1: do wonder though, like a at a moment where there
Speaker 1: is still so many questions, I know you can't time it,
Speaker 1: but you can certainly, do you know, preserve something, you know,
Speaker 1: what's in your portfolio? Well, yeah, and your your point
Speaker 1: about cash, I mean, it's finally has a yield, a
Speaker 1: real yield on it. You know, I'm not a real
Speaker 1: yield above inflation, but a noticeable yield that doesn't round
Speaker 1: down the zero percent. So it makes that decision a
Speaker 1: little tougher to to try to take on risk exactly.
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