Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim
Speaker 1: Fox along with my co host Lisa Abramowitz. Each day
Speaker 1: we bring you the most important, noteworthy, and useful interviews
Speaker 1: for you and your money, whether you're at the grocery
Speaker 1: store or the trading floor. Find the Bloomberg P and
Speaker 1: L Podcast on Apple Podcasts, SoundCloud and Bloomberg dot Com. Well,
Speaker 1: we want to talk about one of the biggest deals
Speaker 1: in the food service and the food industry because there's
Speaker 1: distribution that may be involved, and to help us understand
Speaker 1: what's going on, We've got Bert Flickinger. And Bert, of
Speaker 1: course is an expert when it comes to retail. He's
Speaker 1: the managing director at Strategic Resource Group. Bert tell us
Speaker 1: about the companies involved, admonished me for how poorly I
Speaker 1: pronounced their names, and uh tell us about who the
Speaker 1: protagonists are Uhi. This this will be If McCormick is
Speaker 1: able to buy Record Record ben Kaiser Food division, which
Speaker 1: the crown jewels are French As Mustard and Frank's Hot Sauce,
Speaker 1: there will be one of the great acquisitions in the
Speaker 1: last fifteen years. Fast footnote. I've worked with mccormicks CEO
Speaker 1: Frank Curzy is since I started at zat Iran sleepy
Speaker 1: little New Orleans brand for years with Steve's eighties Millenn
Speaker 1: Pollock and colleagues at IPG. Lawrence and his team takes
Speaker 1: at Iran's from multi regional to national to international, and
Speaker 1: McCormick has done a lot of great things with with
Speaker 1: mayonnaise obviously spices, but with what they can do with
Speaker 1: Frank's hot sauce and UH taking French as mustard from
Speaker 1: UH distant almost non entity in major markets to a powerhouse.
Speaker 1: It's gonna be Kraft Heinz's worst nightmare. And it's people
Speaker 1: say it's overpaying, their underpaying that that's that's bold. And
Speaker 1: you say the people say that they're overpaying, I want
Speaker 1: to home in on that because they are paying four
Speaker 1: point two billion dollars for record UH Right now, McCormick
Speaker 1: shares down about five and a half percent, So indeed,
Speaker 1: shareholders do not think UH that they're going to UH
Speaker 1: compete with Kraft Heinz perhaps in the same level that
Speaker 1: you do. What gives you faith that you're right in
Speaker 1: the market's wrong. Because Laurence Lawrence Curzy has has been
Speaker 1: a brilliant brand builder and marketers his whole life. Lisa,
Speaker 1: see you look at French as um, you know, good
Speaker 1: good brand in Rochester where Wegmans is, but really hasn't
Speaker 1: achieved size and scale anywhere else. Lawrence Uh and other
Speaker 1: than the northeast, and Lawrence Curzy is will will make
Speaker 1: French as a power brand. All right, hang on, hang
Speaker 1: on Bird, hang on, that's all in the future. Can
Speaker 1: you just explain to me a little bit about the
Speaker 1: stock because at one time, I mean, this was just
Speaker 1: you know, a hundred and five bucks of share and
Speaker 1: the McCormick I mean, and unless I'm reading it wrong,
Speaker 1: I mean it has not been a pretty ride down
Speaker 1: to nine. Full disclosure, Pim. I've I've been a McCormick
Speaker 1: shareholder halfway to forever and I'm ecstatic about the deal.
Speaker 1: I've seen the stock drop in recent years as low
Speaker 1: as sixty eight. But mc McCormick needs more size and
Speaker 1: scale record Ben Kaiser never had. At the combination of
Speaker 1: the two companies gives it. Uh provides that size and scale,
Speaker 1: and they'll help the retailers profitably grow the sales in
Speaker 1: the departments and with the consumers, particularly millennials there in
Speaker 1: the sweet spot of categories that will take it from
Speaker 1: a routine category to a growth what the f Stein
Speaker 1: calls expandable consumption that the more people buy, they'll quickly
Speaker 1: consume it and and buy more. So you're you're portraying
Speaker 1: a world where just a wash in mustard and hot sauce,
Speaker 1: as well as perhaps some allspice. You know, I have
Speaker 1: to wonder given the fact that grocery chains have had
Speaker 1: quite a bit of trouble, given the depressed pricing on
Speaker 1: commodities on different food staples, as well as distribution challenges,
Speaker 1: right because we have Amazon buying whole foods, you know,
Speaker 1: how does this play into that and what challenges do
Speaker 1: they face that may uh you know, be a little
Speaker 1: bit more complicated than past challenges. Lisa, to your present points,
Speaker 1: let the key retailers in Texas or the fastest growing
Speaker 1: selling the Latino, African, American and Caucasian and Asian communities
Speaker 1: answer your question. McCormick's Mayonnaise is one of the fastest
Speaker 1: growing mayonnaisees uh craft both for miracle whip and craft
Speaker 1: mayonnaisees uh cut quality and being able to do a
Speaker 1: combination of mayo in In addition to spice product all
Speaker 1: the way across salet, snacks, condiments, uh, pickles, a lot
Speaker 1: of other things that McCormick can move quickly on. Retailers
Speaker 1: want this, They're excited about it. Consumer consumers will be
Speaker 1: very all right, hang on, hang on, hang on, let
Speaker 1: me ask, let me just let let let's just get
Speaker 1: your your detail. On another topic, I happen to do
Speaker 1: with Lawrence Curtis, right, he is the chief executive of McCormick.
Speaker 1: But he hasn't been in that role for very long,
Speaker 1: or has he. He's he's been for a few fist goals,
Speaker 1: and but Lawrence was in charge of marketing, uh, president
Speaker 1: and CEO for a long time. Okay, So this is
Speaker 1: something that that that a veteran because if he is
Speaker 1: a veteran of McCormick, I mean he's spent many many
Speaker 1: years there. Uh yeah, PIM and LI. So you could,
Speaker 1: you could, You can take any CpG company nationally internationally.
Speaker 1: Lawrence is one of the best marketers, executive leaders, and
Speaker 1: business builders anywhere any country. He can make this work.
Speaker 1: I sorry, can he make this deal work? Because I mean,
Speaker 1: right now you have a situation where their stock is
Speaker 1: down five and a McCormick stock is down five and
Speaker 1: a half percent. The record stock is up about one uh.
Speaker 1: And you know, you look at that chart of McCormick,
Speaker 1: it's not good by one. Courtys should make it. Make
Speaker 1: it work too. This will be this will be a
Speaker 1: stock even in an overvalued market. Uh. There will be
Speaker 1: up in two years. And it's an individual investor, I'd
Speaker 1: be buying more. And I don't say that lightly because
Speaker 1: there are very few stocks that that I'd recommend at
Speaker 1: this point. All right, Bert Flickinger is absolutely bullish on
Speaker 1: McCormack after this acquisition. Shareholders not so much right now,
Speaker 1: but we'll see if they joined Burnt in his enthusiasm
Speaker 1: for hot sauce and Mannise. Bert flickinjer managing director at
Speaker 1: Strategic Resource Group, coming to us on the phone. This
Speaker 1: is the era of data that just is more and
Speaker 1: more of it being churned out by huge companies. You're
Speaker 1: talking from Amazon to Google to IBM uh and it's
Speaker 1: getting more tricky to stored. All enter company called Looker,
Speaker 1: which is trying to assemble data from the variety of
Speaker 1: different places that companies have stored uh stored it without
Speaker 1: having to extract it from those platforms to give us
Speaker 1: more of a sense of what really this means, because
Speaker 1: I'm sure I butchered it. Frank b. N He is
Speaker 1: chief executive officer of Looker, which is based in Santa Cruz, California,
Speaker 1: and also joining us as man Deep Singh industry analysts
Speaker 1: at Bloomberg Intelligence, who's based Who's in Chicago today? Frank,
Speaker 1: did I totally butcher that? Can you explain a little
Speaker 1: bit better what it is that Looker is seeking to accomplish? Sure?
Speaker 1: Thanks a lot, I appreciate you having me on this morning. Um. Yeah,
Speaker 1: you know, look, there's a software product, I mean where
Speaker 1: a software as a service cloud product that helps companies.
Speaker 1: Think of it as putting data into the hands of
Speaker 1: everyone to make better decisions. You know, in the past,
Speaker 1: I think we served the c suite, or we we
Speaker 1: gave data to the CFO, or we gave data to
Speaker 1: the important people. And now what we're seeing is we're
Speaker 1: seeing companies who are who are disrupting their industries really
Speaker 1: put data into the hands of everyone so they can
Speaker 1: make better decisions. And and I mean we're doing like
Speaker 1: you said, we're doing it at interesting companies, you know,
Speaker 1: places like Amazon or the Economist or Sony Gaming, you know,
Speaker 1: Blue Apron, Twilio. So so it's the companies who are
Speaker 1: disrupting on data or finding if they if they give,
Speaker 1: if they give better information to the people in their
Speaker 1: organizations to make better decisions that they can they can
Speaker 1: actually you know, work more on on you know, fact
Speaker 1: rather than just intuition. Man Deep maybe just explained to
Speaker 1: us exactly where this fits in and what kind of
Speaker 1: growth the industry is seeing. We think bi analytics is
Speaker 1: about a fifteen to twenty billion dollar market growing at
Speaker 1: ten percent, and part of the growth, like Frank said,
Speaker 1: is coming from this wave around a self service analytics
Speaker 1: where companies are now letting their line of business users
Speaker 1: to leverage analytics and really do it on their own
Speaker 1: raw than giving it to an I T. Department to
Speaker 1: crank out reports. So that has really driven the market
Speaker 1: and I think it's it's there's a lot of upside
Speaker 1: to you know, just the growth Outlook, Frank, I'm trying
Speaker 1: to wrap my head around what exactly it means to
Speaker 1: give the consumer, the little guy, uh, the access to
Speaker 1: leverage data. Does that mean when somebody is looking up
Speaker 1: their Twitter statistics to find out how many of their
Speaker 1: users are fake or does it mean, uh, they can
Speaker 1: use Amazon data that they've accumulated to give them a
Speaker 1: personality profile of themselves. Yeah. It. You know, it doesn't
Speaker 1: even have to be that complex. You know, companies you
Speaker 1: know are operating, you know, with lots of systems. You know,
Speaker 1: they have customer support systems, and they have finance systems,
Speaker 1: and they have all of these things. But think think
Speaker 1: if I'm just a customer support person on the phone
Speaker 1: and I'm helping I'm helping people every day, I want
Speaker 1: to have access to exactly what's happening. I want to
Speaker 1: have access is the person I'm talking to? Are they
Speaker 1: not paying their bills? Are they behind? Are they you know,
Speaker 1: have they filed a lot of customer support tickets? What's
Speaker 1: their overall health? How should I be you know, kind
Speaker 1: of thinking about it when I'm talking to them in
Speaker 1: real time, you know, at that moment. And I think,
Speaker 1: you know, data has done well to serve the big
Speaker 1: science projects that you mentioned, you know, like what's happening
Speaker 1: on Twitter things like that, but it hasn't really been democratized, right,
Speaker 1: It hasn't really been put into the hands of everybody,
Speaker 1: and what we're trying to do a looker is put
Speaker 1: it into the hands of everybody, like those customer support
Speaker 1: people or or people on the warehouse floor taking pictures
Speaker 1: of merchandise. How are those pictures, you know, performing on
Speaker 1: the web really put it in the hands of everyone
Speaker 1: so they can they can you know, make better decisions
Speaker 1: every day. Frank, there's a tension here because on one level,
Speaker 1: it's important to have a certain democratization of information, and
Speaker 1: on the other hand there's some pretty big privacy concerns
Speaker 1: that this race is as well. How do you address that? Yeah,
Speaker 1: that's an interesting question. So data has been really decentralized,
Speaker 1: and there's been this proliferation of lots of like spreadsheet
Speaker 1: tools and workbook tools and and things that people carry
Speaker 1: around on their on their laptops. And that's a big
Speaker 1: security problem because you know, people go around with patient, private,
Speaker 1: private information on their laptops or things like that because
Speaker 1: they're downloading these spreadsheets. And what we're trying to do
Speaker 1: and look or is sort of bring control over all
Speaker 1: of that so that there's this single source of truth,
Speaker 1: but it's also managed and governed in their security around
Speaker 1: and I think that is a huge issue because we've
Speaker 1: really been suffering over the last ten years of a
Speaker 1: proliferation of small tools that let people walk around with
Speaker 1: stuff on on their desktops and laptops. Tell us about
Speaker 1: this language that you've developed, and why people should now
Speaker 1: go and have to learn another computer language, not more
Speaker 1: middleware please. Yeah, no, we're not. We're not, you know,
Speaker 1: saying that that business users would learn any kind of
Speaker 1: data language. But but you know, people coming out of
Speaker 1: school today who want to get into tech are often
Speaker 1: looking at data as a career. And you know, you
Speaker 1: have a lot of people are majoring in economics or
Speaker 1: business and and they're doing data stuff. It's one of
Speaker 1: the fastest growing career paths. Yeah, you end up taking
Speaker 1: that sequel server course right exactly. And what we want
Speaker 1: to do is we want to give those people interesting
Speaker 1: tools so they can better serve their companies. So the
Speaker 1: people in the company and the support team or the
Speaker 1: you know, the warehouse, they're not you know, learning a
Speaker 1: data language by any means. But we're sort of leveraging
Speaker 1: these people who are coming out of school with a
Speaker 1: bit of data background and allowing them to curate an experience, right,
Speaker 1: curate you know, a better application for those for those
Speaker 1: end business users, Man Deep, what's the barrier to entry here?
Speaker 1: Why aren't some of the behemoth tech companies coming up
Speaker 1: with their own analytics systems and UH and using them
Speaker 1: to democratize their offerings. I think right now, this is
Speaker 1: coming up bottom up, So you're you're seeing a lot
Speaker 1: of the startups, I mean a Tableau and Click are
Speaker 1: not startups anymore. But they really came up with a
Speaker 1: new way to think outside of the data warehouse realm.
Speaker 1: So a lot of this kind of functionality was done
Speaker 1: in a dataware housing platform. What these guys did was
Speaker 1: came up with this self service analytics platform where, like
Speaker 1: Frank said, you you can have the users crankout reports,
Speaker 1: analyzed the data. And this whole proliferation of cloud and
Speaker 1: AI is actually a tail wind for for this analytics wave.
Speaker 1: So the large behemoths are still catching up, you know,
Speaker 1: just integrating the new technologies, and they haven't really focused
Speaker 1: on the analytics aspect that much. Man Deep, can you
Speaker 1: just give us a little more detail about artificial intelligence?
Speaker 1: Give you about thirty seconds here, sure, So AI is
Speaker 1: really coming together in the sense that the basis of
Speaker 1: performing AI analytics is data and once you have data
Speaker 1: aggregated and you can process it in real time through cloud,
Speaker 1: it enables a lot of things in terms of doing
Speaker 1: things real time, which can drive our o I for
Speaker 1: a lot of industries. So that's really the genesis of
Speaker 1: this wave of self service analytics. Frank, I'm only going
Speaker 1: to give you ten seconds. Ai. Yeah, No, I think
Speaker 1: that you know, we're finally starting to see, you know,
Speaker 1: out of the benefit of the cloud platforms at Amazon
Speaker 1: and Google and whatnot, the ability for everyone to be
Speaker 1: like those organizations. And I think you'll see those kind
Speaker 1: of technologies go into the hands of smaller you know,
Speaker 1: or smaller companies. Thank you very much, Frank Bien. He
Speaker 1: is the chief executive of Looker. They are based in
Speaker 1: Santa Cruz and our thanks to man Deep Singh, industry
Speaker 1: analysts for Bloomberg Intelligence. One of the biggest movers today
Speaker 1: in the stock market is Scripts Networks Interactive, with a
Speaker 1: gain in its shares of about fourteen and a half percent.
Speaker 1: This comes after Discovery and via commercead to be talking
Speaker 1: about combining with this network and just for anyone who
Speaker 1: doesn't know, we're talking HDTV and food network. People want uh,
Speaker 1: some some food throwdowns and some renovations of their homes.
Speaker 1: Here to give us a little bit more of a
Speaker 1: sense of how realistic a deal is is Alex Sherman,
Speaker 1: Technology Media and Telecom Mergers and Acquisitions reporter for bloom
Speaker 1: Brick News. Alex, do you think, first of all, who
Speaker 1: do you think has the upper hand? Discovery or Viacom.
Speaker 1: So this is a tricky one because I think there
Speaker 1: are problems with both buyers um and that, and therefore,
Speaker 1: while the market seems to be pretty confident that a
Speaker 1: deal is going to happen here, I am less confident.
Speaker 1: I can look, I reported this story, so I can
Speaker 1: say that there is a sales process going on. But
Speaker 1: Scripts has been perennially for sale. Three years ago. Discovery
Speaker 1: almost bought Scripts and that deal fell apart. So there
Speaker 1: is some logic there that Discovery is at least interested.
Speaker 1: And Discovery has a lot of programming that is geared
Speaker 1: towards men in general, and Scripts has a lot of
Speaker 1: programming that is geared toward women in general. So there
Speaker 1: there is sort of a natural fit there. But that
Speaker 1: deal didn't get done for a reason, in part because
Speaker 1: there was a bid ask difference. And now if if
Speaker 1: Scripts is running a sales process, you'd imagine again Discovery
Speaker 1: would have to pay up. And Discovery is controlled or
Speaker 1: at least not quite controlled. But let's say thirty of
Speaker 1: the votes are controlled by John Malone, who is not
Speaker 1: known to bid up in auctions, So that is a
Speaker 1: problem with Discovery. Viacom's problem is if you take a
Speaker 1: look at Viacom shares, you don't You only have to
Speaker 1: go back until about March or so when Viacom was
Speaker 1: trading out about forty six dollars a share. They're now
Speaker 1: trading at thirty six dollars a share. So any deal
Speaker 1: with Viacom would probably be at least some component of
Speaker 1: it would be stock, and they sort of missed their
Speaker 1: chance to use their currency. Well uh, and now their
Speaker 1: company is about fourteen fourteen and a half billion dollar
Speaker 1: market cap company. Scripts is about let's say a nine
Speaker 1: point eight nine point nine is almost ten billion dollar
Speaker 1: market cap company. It would be a huge deal for Viacom,
Speaker 1: and they wouldn't be using their stock at its high price,
Speaker 1: So that's probably the problem with Viacom. They're just from
Speaker 1: a financial standpoint, this would be an enormous bet. Viacom
Speaker 1: almost merged with CBS. Is Scripts really the right bet?
Speaker 1: I don't know. Doesn't this also lead to Sherry Redstone,
Speaker 1: So there's control issues on both front to your point,
Speaker 1: because say you need a genealogical assistant here, because there
Speaker 1: are a lot of tangled right. So Summer Redstone is
Speaker 1: still alive, but not the only family, right. But ya, exactly,
Speaker 1: They're all run by families, which is, by the way,
Speaker 1: a bigger reason, even beyond Viacom, why any of these
Speaker 1: media deals haven't happened yet. So let me take a
Speaker 1: step back here. All of these media companies probably should
Speaker 1: consolidate with each other, and by all I mean a MC, Scripts, Discovery, Viacom.
Speaker 1: They're all challenged right now because cable providers are offering
Speaker 1: skinnier bundles where they for years and years and years,
Speaker 1: these companies have done phenomenally well because when it came
Speaker 1: time to negotiating contracts with the PayTV providers I mean
Speaker 1: the Comcast, Direct TV, Dish Network, etcetera of the world,
Speaker 1: how you get your TV. When it came down to
Speaker 1: negotiating contracts with them, the deal was you either take
Speaker 1: all of our channels or none. That is starting to
Speaker 1: happen less and less these days because the leverage has
Speaker 1: moved towards the PayTV providers who have basically said, we'll
Speaker 1: take none and then what are you gonna do about it? Uh?
Speaker 1: And the reason they're being that you can get a
Speaker 1: lot of these programming, the taped programming in other ways.
Speaker 1: You can get some on Netflix, you can get some
Speaker 1: on Hulu. Uh. You know, I want to just go
Speaker 1: a little bit broader. And when we're talking about h
Speaker 1: g TV, we're talking reality television shows, and I'm wondering
Speaker 1: how much their business model is being challenged by YouTube
Speaker 1: and the fact that the barrier to entry has just
Speaker 1: gone down so dramatically, So a lot of the programming
Speaker 1: has been challenged. The programming that has not been challenged
Speaker 1: is live programming because you can't get that on YouTube.
Speaker 1: But Discovery and and viacommon scripts they don't have live programming.
Speaker 1: So they are really in the crosshairs of how people
Speaker 1: watch TV changing and and and it's it's not it's
Speaker 1: it's not good for these companies, which is why theoretically
Speaker 1: they could merge and then they could sort of have
Speaker 1: a little bit more leverage because they could be like, well,
Speaker 1: we have these three channels that are still good, like HDTV,
Speaker 1: A lot of people still watch that. And you know,
Speaker 1: Discovery has a few channels that people still watch. And yeah,
Speaker 1: we have a bunch of these channels that nobody still watches.
Speaker 1: But if we put our combined forces together, we come
Speaker 1: up with a company that at least still has some average.
Speaker 1: Of course, you end up then with a huge company
Speaker 1: that has a lot of channels that nobody still watches too,
Speaker 1: So this runs both ways, where yeah, they get a
Speaker 1: little bit more leverage, But then what are you gonna
Speaker 1: do with the fourteen channels that no one's watching anymore? Wow?
Speaker 1: I don't know what I know. That is the challenge,
Speaker 1: I guess. But but Alex, can you just do a
Speaker 1: little family feud for us? I was on a family
Speaker 1: feud by the way, like literally on family. But we
Speaker 1: got to talk about that, all right, family, I love it, alright.
Speaker 1: So did you get to meet Richard Dawson. It was
Speaker 1: not Richard Dawson. It was Louis Anderson. I was not
Speaker 1: kissed on the cheek by Richard Dawson. All right, So
Speaker 1: who are the families involved here? So the families are
Speaker 1: the Redstone family, runs Viacom. Sumner Redstone is still alive.
Speaker 1: He's very ill. Sherry Redstone has basically been running the
Speaker 1: company and in his stead for years now. Scripts is
Speaker 1: also owned by a family, and it's the idea behind
Speaker 1: whether or not Scripts would sell has always been like, well,
Speaker 1: the family is on board if the price is right.
Speaker 1: Discovery is owned by John Malone. A MC is owned
Speaker 1: by the Dolan family. There are you know. CBS is
Speaker 1: sort of a free radical. That's the Deaths John Malone's
Speaker 1: term out there, but but only in the sense that
Speaker 1: the Redstones of course controls CBS two. They're only a
Speaker 1: free radical in the sense that less Moonvez maybe has
Speaker 1: more control than than most CEOs with that company. So
Speaker 1: some people think that CBS might be able to do
Speaker 1: something on the pure force of less Moonvez, the CEO
Speaker 1: of that company, even though he doesn't own it. So
Speaker 1: each of these families is owned. Each of these companies
Speaker 1: is owned by family, and yes they're publicly traded companies,
Speaker 1: but whether or not they actually trade depends really on
Speaker 1: whether or not the families want to keep owning the
Speaker 1: company or whether they're game to do a deal. As always,
Speaker 1: thank you very much, Alex Sherman. He is our mergers
Speaker 1: and acquisitions reporter for Bloomberg. Well, I want to turn
Speaker 1: to Ksey Matthews, an economist and the chief investment officer
Speaker 1: for U m B Bank with the responsibility for over
Speaker 1: eight billion dollars. They're based in Kansas City, and Casey Matthews,
Speaker 1: thanks very much for coming into our Bloombrook studio. Good morning,
Speaker 1: Good to see you. I'm wondering if you could. First
Speaker 1: of all, I'm outgunned here because I understand that there
Speaker 1: are two people in the studio who have connections to Wisconsin.
Speaker 1: That's right, grew up just outside Milwaukee, Wisconsin, all right,
Speaker 1: and Lisa Abrahmwitz. Come on. My mother's family is from Wiscon, Okay.
Speaker 1: So that reason I ask is what is the view
Speaker 1: of what is going on, not only with the politics
Speaker 1: and song, but with money and people's relationship. What do
Speaker 1: they think to feel confident that the stock market is
Speaker 1: going to stay moving higher? Well, yeah, let me let
Speaker 1: me start with maybe confidence in the business sector. I'm
Speaker 1: more of a mackerel stage, and we'll get into the micro.
Speaker 1: But it's interesting that when you look at some of
Speaker 1: the surveys the n F I b small business optimism. Clearly,
Speaker 1: business owners and executives feel good about things, but when
Speaker 1: you ask them, what are you gonna do about it,
Speaker 1: they're sitting on their hands because they're saying, tell me
Speaker 1: what my tax rate is going to be, tell me
Speaker 1: what my regulatory environment is going to be. So they
Speaker 1: feel good that there's a light at the end of
Speaker 1: the tunnel, but until they get some concrete evidence that
Speaker 1: confidence the lack of uncertainty, they're not going to take
Speaker 1: any action. And that's why you see a mediocre economy. Well,
Speaker 1: you know, I'm interested in in the fact that you
Speaker 1: start on this note because we were just talking about frankly,
Speaker 1: how the bump that we've seen in stocks has been
Speaker 1: less due to President Trump's election and the expected changes politically,
Speaker 1: but more due to the earnings growth that we've seen
Speaker 1: and the boom there. So it's sort of trusts with
Speaker 1: this sitting on the hands wondering what's going to happen.
Speaker 1: Mediocrity that you're describing when you're talking about the expected
Speaker 1: eight percent growth that you are looking for in the
Speaker 1: second quarter earnings and earnings growth in the second quarter,
Speaker 1: that's right. Well, if you go you have to go
Speaker 1: back to end of two thousand and fourteen, where we
Speaker 1: saw an earnings recession. In corporate America, we had seven
Speaker 1: quarters of earnings contraction. It's interesting the timing. It wasn't
Speaker 1: until the third quarter of two thousand and sixteen when
Speaker 1: we got the data, was middle of October through November.
Speaker 1: The election, right, all of a sudden, we saw this
Speaker 1: ray of sunshine. Earnings turned positive at whopping two percent
Speaker 1: in the fourth quarter they were eight or nine the
Speaker 1: first quarter of this year eighteen percent, and all of
Speaker 1: a sudden, stocks moved and a lot of people label
Speaker 1: at the Trump rally. Well, I call it an earnings rally.
Speaker 1: So do you think that people are conflating the election
Speaker 1: with the earnings growth that we saw really accelerate at
Speaker 1: the beginning of the year. So just translate this into
Speaker 1: market positioning. Does this mean that you are bullish on
Speaker 1: US stocks? And if so, which sectors in particular? And
Speaker 1: how much longer can this rally continue? Yeah, we are
Speaker 1: bullish on stocks. Were overweight risk based assets for a
Speaker 1: number of reasons. The macro data points to an improving economy.
Speaker 1: One thing I look at is the I s M
Speaker 1: new orders, very leading indicator when business owners and executives
Speaker 1: tell me they're placing orders, it tells me their business
Speaker 1: is good. Um, so we're at you know, two year
Speaker 1: highs on those numbers. The bond market gives us clues
Speaker 1: when you look at the shape of the yield curve.
Speaker 1: We have at a ninety basis point a slope between
Speaker 1: twos and tens. And typically when you start to see
Speaker 1: the yield curve flatten, which we started to see. Even
Speaker 1: when it gets flat, you still have twelve to twenty
Speaker 1: four months before the stock market reacts. So I believe
Speaker 1: that earnings will continue to support stock prices. That's not
Speaker 1: to say we won't see a correction. We haven't seen
Speaker 1: a correction a long time. They're normal and healthy. But
Speaker 1: longer term, I think stocks will outperform fixed income. In
Speaker 1: cash sectors, we like you know, you've seen some weakness
Speaker 1: in the dollar that will help exports those industrials. We
Speaker 1: do like finance finances sitting here waiting for a steep
Speaker 1: yield curve, higher interest rates, and regulation reform. So we're
Speaker 1: pretty broad based as far as our sector allocation. I
Speaker 1: want to ask you turned back to something you said
Speaker 1: about the business feels right that was the macro picture. Um,
Speaker 1: what if the macro picture is about ever increasing uncertainty.
Speaker 1: In other words, you're waiting for the dust to settle,
Speaker 1: and the companies that are making new strides and whatever
Speaker 1: it is, they're not waiting for the dust to settle
Speaker 1: because they realize that it doesn't settle anymore. You have
Speaker 1: too many market participants. You have too many uh companies
Speaker 1: that can come in with a laptop and you know,
Speaker 1: genius mind and disrupt the entire transportation industry like Uber
Speaker 1: or hotels like Airbnb. Well, I think what happens is
Speaker 1: if you don't get clarity on some of these issues,
Speaker 1: you're stuck in the mud at that two percent GDP growth.
Speaker 1: So yeah, but they're not going to do it for
Speaker 1: the health of the GDP grow They're going to do
Speaker 1: it because they know that they can make more money.
Speaker 1: That it's good for their business. Right. But so if
Speaker 1: the competition comes in, you know the guy down the
Speaker 1: street says, well, no, I'm gonna offer it better, faster, cheaper. Well,
Speaker 1: those are disruptors that are in the marketplace today. Amazon.
Speaker 1: Does that need to happen more? I mean, so I'm
Speaker 1: wondering why you would you be investing in, you know,
Speaker 1: like healthcare and biotechnology and technology. Is that not an
Speaker 1: area of where you want to put some of your chicks. Sure? Absolutely.
Speaker 1: Like I said, we're pretty much diversified across broad sectors
Speaker 1: because of that situation. But I think that's that healthy
Speaker 1: competition makes us better, makes corporations better, more efficient. It
Speaker 1: will increase earnings and of course revenue growth. But you've
Speaker 1: got the disruptors like Amazon, and you've got some of
Speaker 1: these other companies that um like Nelson Pelts to try
Speaker 1: in a blue apron. You know, some of these things
Speaker 1: show up and almost disappear. Well you know, uh not yet.
Speaker 1: It hasn't disappeared yet, but but it definitely is track. Yeah,
Speaker 1: it's on that track, you know. Casey. I want to
Speaker 1: just talk about how you're saying that the fundamentals look
Speaker 1: good and so the rally will continue. One problem that
Speaker 1: people raises that the markets have become broadly public markets anyway,
Speaker 1: have become broadly detached from fundamentals due to central banks stimulus.
Speaker 1: And now that the economy is improving, as central banks
Speaker 1: withdraw the stimulus, it doesn't matter that fundamentals are improving.
Speaker 1: It's going to cause a sell off that could potentially
Speaker 1: be more sustained or at least cap any future gains.
Speaker 1: I mean, are you concerned about that? Does that matter
Speaker 1: to you? I'm not. It's interesting some things we think
Speaker 1: about is does the FED really matter? And when you
Speaker 1: think about it, well, I would assume most CFOs have
Speaker 1: termed out their debt if they have access to either
Speaker 1: capital more keats, or if there's a lot of pressure
Speaker 1: on banks to term out their debt. Same thing with
Speaker 1: the consumer now today, something like ninety plus percent of
Speaker 1: mortgages are a fixed rate. Mortgages are not veritable rate
Speaker 1: like the housing crisis, So I think you're in a
Speaker 1: different environment. So I'm not sure the FED today with this,
Speaker 1: with seven years of monetary stimulus, really matters if rates,
Speaker 1: you know, move up slightly, I don't know if it
Speaker 1: really matters dramatically to corporate runnings. Really interesting, especially because
Speaker 1: for so long there was is there is no alternative
Speaker 1: trade where basically people weren't getting an yield in bonds,
Speaker 1: you might as well go to stocks. You know, there's
Speaker 1: a concern that people are going to rotate out of
Speaker 1: stocks and go back into bonds if yields get high enough.
Speaker 1: Especially because I mean realistically, if if yields can remain
Speaker 1: this low, that means that growth will not pick up
Speaker 1: that much. But you've got a long ways to go
Speaker 1: before people go out of stocks and into bonds because
Speaker 1: of the yield. Kasey Matthews, thank you so much for
Speaker 1: joining us. Truly a pleasure having you in the studio here.
Speaker 1: Casey Matthews is economist and chief investment officer. You m
Speaker 1: B Bank, which is based in Kansas City, Missouri, UH
Speaker 1: and manages over eight billion dollars need joins us here
Speaker 1: in our Bloomberg eleven three oh studios. Thanks for listening
Speaker 1: to the Bloomberg P and L podcast. You can subscribe
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Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter
Speaker 1: at pim Fox. I'm on Twitter at Lisa abramoids one.
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