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Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul Swinge. You,

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Speaker 1: along with my co host Lisa Brahma wits each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. Let's get a little bit more

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Speaker 1: insight into the company Slack, and we do that we

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Speaker 1: bring in Man Deep. Seeing. Man Deep is senior tech

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Speaker 1: industry annalys for Bloomberg Intelligence. So we've talked a lot

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Speaker 1: Man Deep about the actual process of a direct listing,

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Speaker 1: but I wonder if you can just give us a

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Speaker 1: sense of what this company is really all about and

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Speaker 1: why investors are, you know, kind of I think pretty

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Speaker 1: interested in this in this new offering here. Sure. So,

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Speaker 1: Slack is a company that was born on the cloud

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Speaker 1: and it's writing this trend of mobility and shift to cloud.

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Speaker 1: When you think about their technology stack, you're really re

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Speaker 1: platforming from on premise environments to a cloud based environment.

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Speaker 1: And Black is a single product company. What it does

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Speaker 1: is real time messaging platform zoom IF, which went public

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Speaker 1: before Slack, it does you know, real time video communications.

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Speaker 1: So I feel like there is a lot of fragmentation

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Speaker 1: on the cloud now and what you're seeing is single

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Speaker 1: product companies doing very well because cloud, remember is a

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Speaker 1: recurring subscription model, so you have tons of visibilities. Once

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Speaker 1: you have a customer, it's very sticky, and I think

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Speaker 1: that's why these companies are getting a lot of premium

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Speaker 1: because there is growth, There is good growth, there is

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Speaker 1: predictable growth. But at the end of the day, I

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Speaker 1: think they're going to run against some Microsoft or a Google,

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Speaker 1: and that's where you're you're gonna say, Okay, how how

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Speaker 1: much RAM does this company have? And I feel like

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Speaker 1: they haven't hit that point yet, but it will be

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Speaker 1: very soon. I should note that Bloomberg Beta, the venture

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Speaker 1: capital arm of Bloomberg LP, is an investor in Slack,

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Speaker 1: So it kind of brings up one of the questions,

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Speaker 1: you know it it seems like a business that very

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Speaker 1: relatively early stages that is slack of their growth profile.

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Speaker 1: But we've seen in the past or somebod these you know,

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Speaker 1: cool technologies really hit that Microsoft Software or or Google

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Speaker 1: or an amaza. I can just come in and buy

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Speaker 1: them up. And do you think that's a reasonable scenario

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Speaker 1: here for a company like Slack. Sure, So that's a

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Speaker 1: great point. We've seen that beginning to happen now with

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Speaker 1: Salesforce buying Tableau. What it tells you is the cloud.

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Speaker 1: The large cloud companies like Salesforce, like Microsoft, even you

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Speaker 1: know you can put Service Now in the same bucket,

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Speaker 1: are looking for acquisitions because as a company, you don't

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Speaker 1: want to deal with fifty different vendors. If I have

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Speaker 1: a point product from Slack, point product from Atlastian, point

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Speaker 1: product from drop Box, that's not going to help me,

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Speaker 1: you know, manage my enterprise systems any easier on the cloud. Yes,

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Speaker 1: cloud is a better model with you know, subscriptions on demand.

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Speaker 1: But at the end of the day, you want to

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Speaker 1: see vendor consolidation. And I think with Slack, their revenue

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Speaker 1: is very growth is very strong, it's recurring. But at

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Speaker 1: the end of the day, how many customers can they

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Speaker 1: add for that single product, And that's a question that

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Speaker 1: investors want to know. Well about a month or so,

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Speaker 1: it seemed like we were talking to you a lot

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Speaker 1: about uber Um and Lift and one of the problems

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Speaker 1: was I from an investors perspective is they weren't profitable

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Speaker 1: and the path of profitability was very unclear. Is Slack profitable, No,

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Speaker 1: it's not. In fact, they spend a ton of money

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Speaker 1: on customer acquisition costs that the sales and marketing expenses

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Speaker 1: are really high. They have operating margins of negative negative

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Speaker 1: free casual margins. The good thing with Slack compared to

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Speaker 1: the right sharing guys you alluded to, is that they

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Speaker 1: have higher gross margins. Slack has typical you know, plus

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Speaker 1: gross margins. That's typical for any software company. And so

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Speaker 1: the only level they need to pull this to lower

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Speaker 1: their sales and marketing expenses and that way they can

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Speaker 1: be operating margin positive. The risk is if they do that,

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Speaker 1: then you know they're not going to acquire customers at

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Speaker 1: the same pace and that's the key to driving revenue growth. Interesting,

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Speaker 1: is this a global stories? Is a u S domestic?

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Speaker 1: So they have exposure in Europe. For most of the

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Speaker 1: software companies, especially the cloud ones, they are America and

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Speaker 1: Europe centric. They have very little exposure to China, and

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Speaker 1: so in this case they are thirty percent of their

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Speaker 1: revenue comes from Europe. Interesting, so it's we'll have to

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Speaker 1: take a look, Mandy, if you're gonna stay with us.

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Speaker 1: So we're gonna see how this stock opens that hasn't

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Speaker 1: open yet in the marketplace, um, but expected sometime later

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Speaker 1: this afternoon. UM. So we'll have to see other place

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Speaker 1: coming up. Of course, we have Emily Chang of Bloomberg Television.

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Speaker 1: She's sitting down with Slack CEO Stewart Butterfield and the

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Speaker 1: CFO Alan Shim at the New York Stock Exchange to

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Speaker 1: talk about this new offering, to talk about the future

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Speaker 1: of the company. So that'll be coming up in just moments.

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Speaker 1: But but clearly and highly anticipated transaction. Not only is

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Speaker 1: it a you know, a well known technology company, high growth,

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Speaker 1: lots of investor interest, but it's also direct listing way

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Speaker 1: of issuing shares to the public and is not an

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Speaker 1: I p O. It is a direct listing where your

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Speaker 1: secondary shareholders are offering shares in the public marketplace. Uh.

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Speaker 1: And buyers are being lined up and they're trying to

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Speaker 1: figure out the right price which they can open this stock.

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Speaker 1: So we will see that coming right now. Let's go

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Speaker 1: to Emily Chang of Bloomberg Television. Welcome to our Bloomberg

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Speaker 1: TV and radio audiences. After bumper crop of I p

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Speaker 1: O s either languishing or wildly exceeding expectations, Slack is

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Speaker 1: taking a route to the trading fuller, it hopes will

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Speaker 1: provide a much more well boring outcome a direct listing.

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Speaker 1: As we wait for the stock to start trading on

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Speaker 1: the New York Stock Exchange, I am joined from the

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Speaker 1: trading floor by the company's co founder and CEO Stewart Butterfield,

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Speaker 1: and CFO Alan Shim. Gentlemen, thank you for joining us.

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Speaker 1: Congratulation big milestone. We are waiting for first trade. The

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Speaker 1: stock indicated to open thirty to thirty four dollars a share,

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Speaker 1: which is higher than your reference price of twenty six

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Speaker 1: dollars a share. Stewart, how confident are you in this

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Speaker 1: moment as you wait there for this stock to start

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Speaker 1: trading about the process that the wreck listing was the

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Speaker 1: way to go. Um. We'll see, But I think for

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Speaker 1: at this point it has been working exactly the way

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Speaker 1: we're supposed to work. Um. And ultimately we'll open, we'll

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Speaker 1: have a high and a low today, we'll close, and

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Speaker 1: then the same thing is gonna happen tomorrow and the

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Speaker 1: next day and the next day, and we are very

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Speaker 1: much focused on the long term. Now, you're still paying

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Speaker 1: large fees to bankers. You still raised a lot of

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Speaker 1: money on the private market. So what problem are you

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Speaker 1: really solving Stewart by doing a direct listing versus the

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Speaker 1: traditional I P O. Well, the first one is that

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Speaker 1: no need to raise primary capital. We came into this

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Speaker 1: process with over million dollars on the balance sheet, so

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Speaker 1: the delusion to existing shareholders would have been tough. I

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Speaker 1: think we did get a little bit more freedom and

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Speaker 1: how we tell the story. So in addition to a

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Speaker 1: road show, but instead of only having a road show

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Speaker 1: in private rooms with the investors, we were able to

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Speaker 1: do an investor day, live stream it and make the

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Speaker 1: video available to everyone. Um, and that I think is

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Speaker 1: a pertition a better position. Now Alan Slack is still

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Speaker 1: unprofitable and the markets have rewarded profits even if they're

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Speaker 1: slim profits. How far out is profitability? Well, our primary

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Speaker 1: focus right now is to invest in growth, and as

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Speaker 1: we continue to build on what we think is a

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Speaker 1: new category, that's going to be our focus for a

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Speaker 1: long time. But we've also said to investors that our

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Speaker 1: near term priority is to drive towards cash will break even.

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Speaker 1: We have high confidence in the strong economics of our

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Speaker 1: business that we can still invest very aggressively while driving

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Speaker 1: towards that near term profitability market. So, then, Stewart, how

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Speaker 1: much of a priority would you say that profitability actually is.

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Speaker 1: I think, uh, I don't want to get you technical

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Speaker 1: about it. In sas there's a lot of deferred revenues,

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Speaker 1: so accounting profitability isn't that much of a priority. As

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Speaker 1: Alan was saying, bringing in more cash than we put

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Speaker 1: out on an ongoing basis is a priority because it

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Speaker 1: allows us to control our own destiny. The ideal for

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Speaker 1: us though, is that we continually find new ways and

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Speaker 1: new opportunities to invest to further grow the business, and

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Speaker 1: we don't need a lot of free cash flow, but

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Speaker 1: just a little bit. Now, Allen, revenue growth is slowing.

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Speaker 1: What are some new sources of revenue you're expecting to tap. Well,

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Speaker 1: we're very pleased with the revenue growth. I think what

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Speaker 1: you're seeing is also we're making great track when customers

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Speaker 1: and we've gotten customers today. Our enterprise customers are also

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Speaker 1: growing even faster, so we have six customers over hun

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Speaker 1: Kane revenue and I think what you're seeing is we're

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Speaker 1: scaling so at the base of revenue that we're right now.

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Speaker 1: Some of the revenue growth this mathematically will come down,

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Speaker 1: but we're very optimizing about the opportunity. We believe it's

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Speaker 1: a huge new category to be built and invested behind.

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Speaker 1: So we're focused on that now. Stewart, We've charted your

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Speaker 1: progress from the very beginning. I went back into our archives.

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Speaker 1: The first interview I did with you was inn when

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Speaker 1: you were CEO of Tiny Speck and you were making

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Speaker 1: a game called Glitch, which sort of became slack in

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Speaker 1: Jared Leto crashed our interview. I will never forget that. Um,

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Speaker 1: your employees, your users really love the sort of quirkiness

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Speaker 1: of Slack, which is an ethos very much inspired by you.

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Speaker 1: That said, you are becoming a public company. You're going

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Speaker 1: to be doing earnings calls every quarter. How do you

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Speaker 1: manage that transition with public investors holding your feet to

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Speaker 1: the fire. I think both Al and I have been

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Speaker 1: committed and this is not a recent thing, but over

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Speaker 1: the course of many years on building the kind of

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Speaker 1: internal controls and systems that would allow us to operate

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Speaker 1: as a public company. UM. So you know the financial

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Speaker 1: business operations side. That again a long time ago, and

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Speaker 1: we've been working with the whole company that kind of

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Speaker 1: transition in the limited number of ways that we do.

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Speaker 1: I mean, the we believe we can keep the same culture.

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Speaker 1: We can believe we can keep the same approach to

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Speaker 1: serving customers. If you think about our mission to make

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Speaker 1: people's working life simpler, more pleasant, and more productive, there's

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Speaker 1: a nice humility to it because we do want to

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Speaker 1: be of service. So there's also a huge ambition, and

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Speaker 1: I think the challenge for us or you know, like

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Speaker 1: kind of the what we're going to have to pull

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Speaker 1: off is bringing investors along on that ride and help

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Speaker 1: them understand what the long term vision is and what

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Speaker 1: we can truly do to support companies all over the world.

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Speaker 1: Now you're entering the volatile market. We're in the midst

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Speaker 1: of a trade war with China. You could imagine in

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Speaker 1: an economic downturn that businesses are going to cut budgets.

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Speaker 1: They might not cut email, they might not cut Microsoft Office,

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Speaker 1: they might cut the nice to haves, and they might

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Speaker 1: think that Slack falls into that category. Stewart, how big

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Speaker 1: a risk is that? I don't see any real risk

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Speaker 1: in that we have exceptional retention, so industry leading on

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Speaker 1: both the enterprise side and the SMB side. Um Our

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Speaker 1: customers tell us black is the kind of thing that

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Speaker 1: they didn't know they needed, but once they have it,

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Speaker 1: can't live without it. And if you can't live without Sudden,

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Speaker 1: it's not going to be one of the items that

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Speaker 1: are cut on a discretionary basis. So Alan would you say,

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Speaker 1: you know, how much do these market fluctuations? How much

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Speaker 1: are you following what's happening in the global economy. Well,

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Speaker 1: we we watched it like anybody, all us, but it

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Speaker 1: doesn't necessarily affect the way we are on our business.

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Speaker 1: We're building a new category. We have so many things

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Speaker 1: to focus on, supporting our customers and building this ambition

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Speaker 1: of a new way of working. So we've control we

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Speaker 1: can control, and the markets see what they need to

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Speaker 1: do now. Stewart analysts say that chat apps are a

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Speaker 1: dime of dozen. You've got huge competitors like Microsoft, like Facebook,

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Speaker 1: with deep pockets and billions of users over the longer term,

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Speaker 1: how do you differentiate yourself? How do you compete when

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Speaker 1: even you say in your own risk factors, you haven't

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Speaker 1: figured out the optimal price because it depends often on

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Speaker 1: what your competitors are doing. At Slack, we say we

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Speaker 1: are a competitor aware, but customer assessed, and I know

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Speaker 1: it's hard for me to imagine anything that any competitor

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Speaker 1: would do that would cause us to change our plans

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Speaker 1: um when those plans are all oriented around creating value

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Speaker 1: for our customers. So one of the things you want

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Speaker 1: to do is put ourselves in the position sets that

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Speaker 1: Slack the company becomes more valuable as the world uses

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Speaker 1: more software because Slack the product becomes more valuable for

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Speaker 1: each of our customers as they use more software because

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Speaker 1: of the platform, because of the integrations. Uh, you know,

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Speaker 1: there's a whole world out there of other software. The

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Speaker 1: number of categories continues to put there for it, the

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Speaker 1: number of dollars that companies investment software every year continues

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Speaker 1: to go up. So in that kind of market, and

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Speaker 1: in a world where we have ten million daily active

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Speaker 1: users out of the million plus that we believe would

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Speaker 1: benefits from Slock, it's just wide open all right. Shares

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Speaker 1: now indicated to open thirty two thirty four dollars a share,

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Speaker 1: So so we're getting a little bit higher. This means

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Speaker 1: that you know, investors, employees can sell their shares immediately. Alan,

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Speaker 1: should we be worried about a brain drain? Should we

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Speaker 1: be worried about a talent exodus once employees can sell

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Speaker 1: with no lock up. I think employees like investors, they're

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Speaker 1: appreciating how big of a category and opportunity this is.

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Speaker 1: We estimate this addressable market to be twenty billion dollars

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Speaker 1: and we're just getting started here at one where a

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Speaker 1: category and a product and a hub that values adoption

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Speaker 1: and use er engagement, you know, customer experience as well

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Speaker 1: as the thoughtless sort of alluded to which we think

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Speaker 1: is going to transform the way people work in the future.

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Speaker 1: Here now, Stewart, last quick question for you. You've been

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Speaker 1: very focused on building a diverse team. Slack punches above

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Speaker 1: its way on women and minorities that I know even

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Speaker 1: you admit that that you still have work to do. Unfortunately,

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Speaker 1: other CEOs still don't think diversity is a priority. How

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Speaker 1: has having a diverse team, having more voices in the

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Speaker 1: room helped you get to this moment, helped you improve

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Speaker 1: the bottom line? Well, I think that there's a bit

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Speaker 1: of an increasing return dynamic. So the better job we

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Speaker 1: do the easier it is to take the next step.

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Speaker 1: And so UM, there's a lot of early employees I

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Speaker 1: think who made really important contributions to the Slack culture

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Speaker 1: opened it up UM and brought in people from their network,

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Speaker 1: and that has allowed us to kind of continue, which

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Speaker 1: reduces some of the resistance because it can be very

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Speaker 1: difficult if company gets too big. Is that's something that

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Speaker 1: we're we're proud of, but you know, you said, we

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Speaker 1: have more work to do. It's uh, that doesn't end.

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Speaker 1: We're part of the larger culture, in the larger society UM,

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Speaker 1: and we do what we can. Uh. My hope is

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Speaker 1: that there are you know, a group of people who

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Speaker 1: graduate from SLOCK and go on to start other companies, UM,

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Speaker 1: to have careers at other companies and kind of spread

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Speaker 1: that way of working on all right, Stewart Butterfield, CEO

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Speaker 1: and co founder Slack Ellen Shim the CFO, we're waiting

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Speaker 1: for shares to start trading. Thank you both so much

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Speaker 1: for joining us. Back to you, Emily Chang, thank you

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Speaker 1: so much. That was Emily Chang of Bloomberg Television interviewing

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Speaker 1: Slack CEO Stewart Butterfield and CFO Allen Shim who were

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Speaker 1: on the New York Stock Exchange floors. The stock opens

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Speaker 1: begins to openfor trading. At some point later this this morning,

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Speaker 1: we still have man Deep seeing with us Man Deep

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Speaker 1: as the senior technology annals for Bloomberg Intelligence, So Manteep.

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Speaker 1: One of the things I thought was interesting was the

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Speaker 1: discussion around competition. Um. The question, I guess is there

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Speaker 1: are some big competitors in the marketplace. How do you

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Speaker 1: think Slack is positioned in that space? Sure? So, I

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Speaker 1: think when I look at, you know, the comparative landscape,

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Speaker 1: obviously Microsoft is the biggest one for Slack, and Microsoft

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Speaker 1: is still a hybrid company. It's you know, it's got

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Speaker 1: a huge legacy on premise customer base and it's got

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Speaker 1: a lot of new cloud offerings. I think what they're

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Speaker 1: trying to do, what Microsoft specifically is trying to do,

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Speaker 1: is to build their team's product which competes with Slack,

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Speaker 1: and Slack will have a tough time displacing a Microsoft

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Speaker 1: when it comes to you know, large enterprises. So I

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Speaker 1: think Stewart alluded to it that they're gonna keep spending on,

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Speaker 1: you know, acquiring new customers. That seems to be the

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Speaker 1: path to sustain revenue growth. Here, I would have wanted to,

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Speaker 1: you know, hear more around product expansion and how they

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Speaker 1: want to move into different areas of software versus just

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Speaker 1: focusing on chats, because there are a lot of chat

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Speaker 1: companies out there and it's hard to you know, sustain

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Speaker 1: your revenue growth just when you're a single product company. Yeah.

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Speaker 1: The other thing I heard there which kind of concerned

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Speaker 1: me a little bit, is a discussion about profitability. This is,

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Speaker 1: you know, this the standard line from a lot of

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Speaker 1: these technology companies that they are going to continue to

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Speaker 1: invest in growth. And I think what we saw again

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Speaker 1: from Uber and Lift is investors are all for the

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Speaker 1: top line, but they least have to have some path

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Speaker 1: to profitability, a vision of how a company can get

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Speaker 1: to profitability, and arguably Uber and Left have not made

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Speaker 1: that clear to investors. Do you think investors are going

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Speaker 1: to give this company? I pass on this don't worry

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Speaker 1: about the profits right now story. I think as long

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Speaker 1: as they maintained the top line growth of over fifty

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Speaker 1: that's the key here, because the overall cloud market is

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Speaker 1: still growing over and we're talking about, you know, a

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Speaker 1: hundred and fifty billion plus market growing at this is

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Speaker 1: a company with four hundred million dollars in revenue, it

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Speaker 1: has to you know, grow at least fifty. As long

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Speaker 1: as they maintain that top line growth, it should be okay.

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Speaker 1: But I think where they're gonna struggle is we've got

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Speaker 1: good comps for Slack. You have a company like a

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Speaker 1: Classian that is operating margin positive. You have a company

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Speaker 1: like DocuSign that is operating margin positive. Box and drop

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Speaker 1: Box are trading at much lower multiples than Slack is.

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Speaker 1: So I think there will be a real challenge for

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Speaker 1: Slack to make sure investors are able to you know,

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Speaker 1: write in that growth story without them having a clear

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Speaker 1: path through profitability. Men Deep Seek, thank you so much.

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Speaker 1: A man Deep, senior tech analyst for Bluemberg Intelligence, joining

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Speaker 1: me here in the Bloomberg Interactor Brooker Studios. Trade back

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Speaker 1: on the front, Bernard, and I guess despite some deverished

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Speaker 1: comments by President Trump yesterday about trade tensions, remain high

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Speaker 1: concerns about what the impact will be on corporate America.

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Speaker 1: Now we're actually starting to see some of the leading

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Speaker 1: corporations in America kind of voicing their concerns to the

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Speaker 1: appropriate folks in Washington. So you get a sense of

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Speaker 1: what's going on there. We welcome Sarah How's Actually's a

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Speaker 1: retail colms for Bloomberg Opinion, usually based in d C,

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Speaker 1: but joining us today in our Bloomberg Interactive Broker Studio. Sarah,

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Speaker 1: thanks so much for being with us. So we think

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Speaker 1: about some of these big companies, big brands, how are

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Speaker 1: they trying to get their story about to the Washington

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Speaker 1: regulators about what could really impact their business if these

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Speaker 1: tariffs do in fact go through. So so far, they're

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Speaker 1: using a pretty traditional playbook. They're using their trade groups

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Speaker 1: in Washington, like the National Retail Federation. They're writing sternly

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Speaker 1: worded letters to the President that are signed by coalitions

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Speaker 1: of big name retailers UM and this week, what we're

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Speaker 1: seeing is that they are testifying at hearings for the

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Speaker 1: Office of the U. S. Trade Representative, trying to make

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Speaker 1: their case in that format. And I'm sort of wondering

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Speaker 1: if it's time for them to go off script here

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Speaker 1: and try something different, if it's time for these really

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Speaker 1: high profile consumer brands to get out there in a

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Speaker 1: more individual way and make their case directly to consumers

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Speaker 1: that these tariffs are not a good policy. Idea because

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Speaker 1: what we've not seen I don't believe is the you

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Speaker 1: know what we used to see in years past on

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Speaker 1: time maybe would be a you know, full page ed

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Speaker 1: in the New York Times or Walsh Journal, or television

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Speaker 1: ads or you know, a social media campaign. We haven't

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Speaker 1: really seen that yet, have we. That's exactly right, and

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Speaker 1: I think that we should imagine the power of Nike.

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Speaker 1: We all know it's marketing prowess. Imagine if they put

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Speaker 1: together a TV commercial sort of outlaying how this affects

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Speaker 1: them and their consumers. Imagine if you walked into a

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Speaker 1: retailer like Old Navy and they had a sign ups thing.

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Speaker 1: This ten dollar T shirt will be fifteen dollars in

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Speaker 1: November if this tariff policy is enacted. I think that

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Speaker 1: there's a fear out there that President Trump's brand is

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Speaker 1: so powerful that nobody wants to sort of go toe

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Speaker 1: to toe with him. But at the end of the day,

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Speaker 1: these retailers ought to remember their brands are really powerful too.

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Speaker 1: They serve millions of customers every day who have a

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Speaker 1: real loyalty to them, and that they should play on

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Speaker 1: that and try to get out there, get on the

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Speaker 1: Today Show, make their case directly to consumers. Is there

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Speaker 1: a sense that GF one or two big brands like

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Speaker 1: a Nike or something like that does it first, then

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Speaker 1: others will follow. I think that could certainly help. And

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Speaker 1: I just think that retailers have to remember that. I

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Speaker 1: think that we've just sort of seen Trump has a

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Speaker 1: willingness to put them in the center of all sorts

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Speaker 1: of issues that don't even relate to trade at this point.

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Speaker 1: We saw that most clearly with his threats on Mexico

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Speaker 1: right there. That's been averted temporarily, but that he was

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Speaker 1: going to put tariffs on all goods coming in from

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Speaker 1: Mexico to get his way on immigration. And so I

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Speaker 1: think whatever risk they see out there in speaking up

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Speaker 1: on this issue, the risk to being put in the

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Speaker 1: center of another one of these entanglements, I think for

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Speaker 1: them is far worse. Right. And what have you have

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Speaker 1: we seen anybody kind of maybe just do a little

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Speaker 1: bit more. Have we seen anybody do anything on this

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Speaker 1: front um or do you think maybe they're just waiting

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Speaker 1: to see what happens down the road, maybe the G

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Speaker 1: twenty or something like that. Now, I think we've seen,

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Speaker 1: you know, comments here and there on earnings calls like

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Speaker 1: Walmart just kept repeating something along the lines of uh,

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Speaker 1: there's no question that increased taxes result increased prices. But

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Speaker 1: they weren't saying any specific, anything specific. And I think

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Speaker 1: that's where it would really make a difference, Right if

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Speaker 1: consumers could hear on this particular item that I put

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Speaker 1: in my pantry every week, or on this particular item

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Speaker 1: I know I'm going to need to buy for my

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Speaker 1: kids back to school shopping, I'm going to see higher prices.

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Speaker 1: I think that could go a long way towards getting

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Speaker 1: people riled up. Um, And we're just not seeing action there.

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Speaker 1: I think the other thing to remember is that I

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Speaker 1: have covered so many of these collisions of retail and

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Speaker 1: politics over the years, going back to Chipotle saying we

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Speaker 1: don't want people to bring guns into our stores, going

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Speaker 1: back to Walmart's UH saying urging its governor in Arkansas

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Speaker 1: to Vito or religious freedom bill, um. And none of

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Speaker 1: this has long term impact on any of these retailers.

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Speaker 1: I think we just live in a moment where politics

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Speaker 1: and business are colliding more and they should speak up

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Speaker 1: on the stuff that matters to them. This is fascinating.

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Speaker 1: We'll have to see how that plays out, because clearly

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Speaker 1: the impact on retailers and big consumer companies could in

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Speaker 1: fact be substantial. Some of these tariffs do go through

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00:21:51,800 --> 00:21:55,480
Speaker 1: and likely, very likely could impact their businesses. Sarah Hawsak,

433
00:21:55,520 --> 00:21:57,840
Speaker 1: thanks so much for joining us in studio. We appreciate it.

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Speaker 1: Sarah's a retail calumnist for Bloomberg at Opinion. Well, equity

435
00:22:14,000 --> 00:22:17,240
Speaker 1: markets are certainly applauding the Fed's statement yesterday of likely

436
00:22:17,280 --> 00:22:19,640
Speaker 1: easing later this year. To get a sense of where

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Speaker 1: we go from here, we welcome Barry nap Berry is

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00:22:22,080 --> 00:22:26,240
Speaker 1: a managing partner for Iron Sides macro Economics, based in Westland,

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00:22:26,240 --> 00:22:29,480
Speaker 1: New Jersey, but now Vail, Colorado. Lucky Barry, Barry, thanks

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00:22:29,520 --> 00:22:31,880
Speaker 1: so much for joining us. Just wonder if you can

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00:22:31,960 --> 00:22:34,840
Speaker 1: give us kind of your takeaways from what we heard

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00:22:34,840 --> 00:22:41,080
Speaker 1: from Chairman Pal yesterday. Sure. Um, well, they seem absolutely

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00:22:41,200 --> 00:22:45,679
Speaker 1: committed to Uh, we're trying to resolve at least the

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00:22:46,320 --> 00:22:50,600
Speaker 1: low inflation that's so persistent in the economy. Um. I

445
00:22:50,640 --> 00:22:54,000
Speaker 1: think it's an exercise and utility. Quite frankly, we've done

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00:22:54,000 --> 00:22:56,919
Speaker 1: a lot of work on the correlation of the components

447
00:22:56,960 --> 00:23:01,360
Speaker 1: of GPI to convince ourselves that you me, what's causing

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00:23:01,400 --> 00:23:05,840
Speaker 1: that the low inflation is um innovation adoption in the

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00:23:05,880 --> 00:23:09,480
Speaker 1: service sector, and global excess capacity and goods. Even an

450
00:23:09,560 --> 00:23:14,040
Speaker 1: energy um shale has fundamentally changed the elasticity of supply

451
00:23:14,200 --> 00:23:17,720
Speaker 1: and likely dampen volatility and energy prices over time. So

452
00:23:18,000 --> 00:23:19,920
Speaker 1: all these things are out of the purview of the FETE,

453
00:23:20,000 --> 00:23:25,080
Speaker 1: but none. Nonetheless, they seem absolutely convinced that, uh, you know,

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00:23:25,119 --> 00:23:28,280
Speaker 1: they've got to try and ease policy to to boost

455
00:23:28,320 --> 00:23:33,560
Speaker 1: inflation backwards two percent. Now I'm trying to avoid falling

456
00:23:33,560 --> 00:23:35,359
Speaker 1: into the trap of sounding like a bit of a

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00:23:35,400 --> 00:23:39,560
Speaker 1: shrill and saying, well, this is going to cause um,

458
00:23:39,640 --> 00:23:42,920
Speaker 1: you know, impair creative destruction and cause asset bubbles and all.

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00:23:43,040 --> 00:23:45,400
Speaker 1: Both those things are certainly true in the long run,

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00:23:45,800 --> 00:23:48,000
Speaker 1: but in the near term, I don't think there's a

461
00:23:48,040 --> 00:23:50,000
Speaker 1: heck of a lot of risk to them easing from

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00:23:50,000 --> 00:23:52,959
Speaker 1: this point, and so I'm a I'm a bit indifferent

463
00:23:53,040 --> 00:23:56,000
Speaker 1: to the whole thing. Obviously, investors in the near term

464
00:23:56,040 --> 00:23:59,600
Speaker 1: cheered it though we're well off or high um. But

465
00:24:00,119 --> 00:24:04,040
Speaker 1: I think on balance, to really understand what's going on

466
00:24:04,119 --> 00:24:07,040
Speaker 1: with the FED and what happened last year, I think

467
00:24:07,080 --> 00:24:09,679
Speaker 1: you need to step back from conventional rate policy and

468
00:24:09,760 --> 00:24:13,439
Speaker 1: think about just that. The demand for bonds from the

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00:24:13,600 --> 00:24:17,080
Speaker 1: three major developed world central banks. So the e c B,

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00:24:17,280 --> 00:24:20,440
Speaker 1: b o J and FED bought two trillion dollars worth

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00:24:20,440 --> 00:24:25,160
Speaker 1: the bonds in ten they bought zero. And that really

472
00:24:25,320 --> 00:24:29,280
Speaker 1: accelerated around the September October time frame, when e C

473
00:24:29,400 --> 00:24:32,520
Speaker 1: D cut their purchases in half then reached their maximum

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00:24:32,560 --> 00:24:35,200
Speaker 1: caps for balance sheet runoff. The B o J had

475
00:24:35,200 --> 00:24:38,640
Speaker 1: altered their guield curve control program a bit, and there

476
00:24:38,680 --> 00:24:41,159
Speaker 1: was a provision in the tax bill that ended that

477
00:24:41,560 --> 00:24:44,280
Speaker 1: allowed companies to contribute to their pension plan at the

478
00:24:44,280 --> 00:24:48,240
Speaker 1: old rate. So really what you had was a liquidity shocked,

479
00:24:48,359 --> 00:24:51,880
Speaker 1: going from two trillion of demands to zero in demand,

480
00:24:52,160 --> 00:24:54,960
Speaker 1: and that's what caused what we've been calling the q T,

481
00:24:55,680 --> 00:24:58,359
Speaker 1: you know, stock market crash in the fourth quarter. It

482
00:24:58,400 --> 00:25:01,000
Speaker 1: wasn't that rates got too tight. There was no part

483
00:25:01,000 --> 00:25:06,199
Speaker 1: of the economy really that exhibited um signs that that

484
00:25:06,359 --> 00:25:09,200
Speaker 1: policy was quite even the housing market. We thought the

485
00:25:09,240 --> 00:25:12,440
Speaker 1: slowdown last year was attributable to the state and local

486
00:25:12,480 --> 00:25:17,640
Speaker 1: tax production elimination, not higher rates. So much so I'm balancing,

487
00:25:17,840 --> 00:25:20,760
Speaker 1: I'm sort of been different to FED policy here. I

488
00:25:20,800 --> 00:25:24,479
Speaker 1: think what's more important is the improvement in domestic demand

489
00:25:24,480 --> 00:25:27,560
Speaker 1: and the pick back up and consumption from that QUT

490
00:25:27,760 --> 00:25:31,600
Speaker 1: crash that's been so evident in retail sales in particularly

491
00:25:31,680 --> 00:25:34,679
Speaker 1: last week's numbers. All Right, So if the FED is

492
00:25:34,680 --> 00:25:36,639
Speaker 1: what it is here, it's on the sidelines at least

493
00:25:36,800 --> 00:25:39,720
Speaker 1: for the very near term and then likely to ease

494
00:25:39,800 --> 00:25:42,000
Speaker 1: a little bit later in the year. The other big

495
00:25:42,080 --> 00:25:45,119
Speaker 1: driver of the market's performance really, you know, over the

496
00:25:45,200 --> 00:25:48,640
Speaker 1: last six to nine months, has been global trade tensions

497
00:25:48,680 --> 00:25:50,439
Speaker 1: and then appears that they might be coming to a

498
00:25:50,480 --> 00:25:53,320
Speaker 1: head here with China. How do you think that plays

499
00:25:53,480 --> 00:25:56,720
Speaker 1: out and how should investors kind of be positioned for

500
00:25:57,040 --> 00:26:01,920
Speaker 1: How do you think trade discussions with China my playout? Um? Well,

501
00:26:02,200 --> 00:26:06,560
Speaker 1: I thought that last week's numbers from China were really

502
00:26:07,000 --> 00:26:11,440
Speaker 1: very telling inasmuch as um industrial production was weaker than expected,

503
00:26:11,600 --> 00:26:14,920
Speaker 1: fix ass and investment was weaker than expected. The import

504
00:26:14,960 --> 00:26:17,680
Speaker 1: component of the trade data was much weaker than expected,

505
00:26:18,119 --> 00:26:21,520
Speaker 1: and whatever strength there was was in their traditional heavy

506
00:26:21,520 --> 00:26:27,240
Speaker 1: industry state owned enterprise sectors so steel cement those sectors,

507
00:26:27,320 --> 00:26:31,560
Speaker 1: and consumer sectors like auto production was decidedly weak. Technology

508
00:26:31,680 --> 00:26:35,640
Speaker 1: was very weak, So I we expect that this really

509
00:26:35,720 --> 00:26:39,480
Speaker 1: strengthened the hands of her formers and led to President

510
00:26:39,600 --> 00:26:41,960
Speaker 1: she being willing to come back to the table and

511
00:26:42,000 --> 00:26:45,960
Speaker 1: restart negotiations. So we've placed a fairly high probability that

512
00:26:46,040 --> 00:26:48,720
Speaker 1: we get a trade to tant h next week and

513
00:26:48,760 --> 00:26:52,879
Speaker 1: that pushes UM any further tariffs down the road at

514
00:26:52,960 --> 00:26:56,119
Speaker 1: least still much later this fall. So I think on

515
00:26:56,320 --> 00:27:00,359
Speaker 1: balance that's the key driver of the recovery and business

516
00:27:00,400 --> 00:27:03,280
Speaker 1: confidence in the US. That's been evident in capital spending

517
00:27:03,320 --> 00:27:08,280
Speaker 1: plans and the National Federation of Small Business confidence measures,

518
00:27:08,440 --> 00:27:10,560
Speaker 1: as well as a pickup and labor market turnover. So

519
00:27:10,720 --> 00:27:14,800
Speaker 1: that to us is the most likely scenario now if

520
00:27:14,800 --> 00:27:17,040
Speaker 1: the deal falls apart or if there is no trade

521
00:27:17,040 --> 00:27:21,240
Speaker 1: to time, because the stock markets, the fries UM, we're

522
00:27:21,280 --> 00:27:25,080
Speaker 1: clearly more vulnerable than we than we had been, perhaps

523
00:27:25,119 --> 00:27:29,280
Speaker 1: even going into you know, the May trade tweets. Still

524
00:27:29,320 --> 00:27:33,560
Speaker 1: I think that's a low probability, but you know that

525
00:27:34,320 --> 00:27:36,760
Speaker 1: you know that the downside associated with that is even

526
00:27:36,800 --> 00:27:38,639
Speaker 1: greater now that we're back up at the high. Now

527
00:27:38,680 --> 00:27:40,400
Speaker 1: that we're back up at the high, Barry Nap, thanks

528
00:27:40,440 --> 00:27:43,160
Speaker 1: so much for joining us. Barry's managing partner at Iron

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00:27:43,200 --> 00:27:45,760
Speaker 1: Science of macro Economics joining us on the phone today

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00:27:45,840 --> 00:27:49,800
Speaker 1: from Lovely Vail, Colorado. We appreciate his comments. Thanks for

531
00:27:49,840 --> 00:27:52,040
Speaker 1: listening to the Bloomberg P and L podcast. You can

532
00:27:52,080 --> 00:27:54,919
Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever

533
00:27:54,960 --> 00:27:57,960
Speaker 1: podcast platform you prefer. On Paul Sweeney, I'm on Twitter

534
00:27:58,040 --> 00:28:01,600
Speaker 1: at pt Sweeney, Brahmway Time on Twitter at Lisa Abramo.

535
00:28:01,680 --> 00:28:04,080
Speaker 1: It's one before the podcast. You can always catch us

536
00:28:04,200 --> 00:28:05,760
Speaker 1: worldwide on Bloomberg Radio.