1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg pim L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Abramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p and L 6 00:00:20,840 --> 00:00:33,120 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Following 7 00:00:33,159 --> 00:00:38,640 Speaker 1: the conclusion of the Federal Reserve Open Market Committee meeting today, 8 00:00:38,800 --> 00:00:41,800 Speaker 1: the Central Bank will issue a rate Decision of policy 9 00:00:41,840 --> 00:00:45,320 Speaker 1: statement and updated forecasts on the economy and the path 10 00:00:45,440 --> 00:00:48,120 Speaker 1: of interest rates that'll take place at two pm Wall 11 00:00:48,159 --> 00:00:51,600 Speaker 1: Street time that will be covered live right here on Bloomberg. 12 00:00:51,880 --> 00:00:55,160 Speaker 1: And Jerome Powell, the Chairman of the Federal Reserve, will 13 00:00:55,400 --> 00:00:58,320 Speaker 1: have his first press conference that begins at the half 14 00:00:58,360 --> 00:01:03,080 Speaker 1: past two, also here live on Bloomberg. And surely one 15 00:01:03,120 --> 00:01:05,600 Speaker 1: gentleman who will be listening and watching all of this 16 00:01:05,680 --> 00:01:08,399 Speaker 1: is Kamal Shri Kamara. He is the president and the 17 00:01:08,440 --> 00:01:13,959 Speaker 1: founder of Shri Kamar Global Strategies and he joins us now. Shri, 18 00:01:14,120 --> 00:01:16,960 Speaker 1: thank you very much for being with us. And also 19 00:01:16,959 --> 00:01:19,840 Speaker 1: I should mention that you are a global Bloomberg profit 20 00:01:19,920 --> 00:01:25,840 Speaker 1: and you can be followed on Twitter at shri k Global. Um, 21 00:01:26,120 --> 00:01:28,200 Speaker 1: can you tell us what is going to be the 22 00:01:28,200 --> 00:01:32,000 Speaker 1: most important thing for you as regards today's events and 23 00:01:32,040 --> 00:01:36,320 Speaker 1: the Federal Reserve? Tim Those are great and timely questions. 24 00:01:36,400 --> 00:01:38,760 Speaker 1: First of all, I don't think there is any surprise 25 00:01:38,920 --> 00:01:42,560 Speaker 1: in terms of a quarter point hike. UM. If he 26 00:01:42,840 --> 00:01:46,480 Speaker 1: really wanted to shock the market, Chairman Powell can do 27 00:01:46,959 --> 00:01:50,800 Speaker 1: one of two things, maybe both things. First, if you 28 00:01:50,880 --> 00:01:54,840 Speaker 1: if you haven't a totally unexpected fifty point basis point 29 00:01:54,920 --> 00:01:58,440 Speaker 1: hike that would shock the market, both the bond market 30 00:01:58,720 --> 00:02:02,320 Speaker 1: and the equity market immediately. The second way to do 31 00:02:02,400 --> 00:02:06,160 Speaker 1: it is to give an extremely optimistic view of economic 32 00:02:06,200 --> 00:02:10,680 Speaker 1: growth ahead. His expectations that inflation is likely to quickly 33 00:02:10,720 --> 00:02:13,320 Speaker 1: go to the two percent FED target and go beyond, 34 00:02:14,040 --> 00:02:17,400 Speaker 1: and so that in turn would suggest four or even 35 00:02:17,520 --> 00:02:21,280 Speaker 1: higher a number of rate hikes during the year. My 36 00:02:21,360 --> 00:02:25,600 Speaker 1: expectation is we are going to stay pretty pedestrian in 37 00:02:25,720 --> 00:02:28,840 Speaker 1: terms of what the Chairman would say a twenty five 38 00:02:28,880 --> 00:02:33,240 Speaker 1: basis point hike, and not too optimistic in terms of 39 00:02:33,280 --> 00:02:36,639 Speaker 1: a view because he cannot afford to shock the equity 40 00:02:36,680 --> 00:02:40,280 Speaker 1: market into a big swoon soon after his speech. Yeah, 41 00:02:40,320 --> 00:02:43,080 Speaker 1: you know, it's interesting because the FED has had a 42 00:02:43,120 --> 00:02:46,359 Speaker 1: party line of not wanting to disrupt markets pretty steadily 43 00:02:46,760 --> 00:02:49,240 Speaker 1: for the past number of years. But Stale, I'm wondering 44 00:02:49,280 --> 00:02:53,720 Speaker 1: how much politics is starting to weigh on FED decisions. 45 00:02:53,760 --> 00:02:58,000 Speaker 1: We have a an administration that is cutting taxes, which 46 00:02:58,040 --> 00:03:00,600 Speaker 1: should give a boost to the U. S economy. The 47 00:03:00,680 --> 00:03:03,320 Speaker 1: j Powell could halt if he raises rates too quickly. 48 00:03:03,320 --> 00:03:06,040 Speaker 1: How much is this going to weigh on the decision? Lisa, 49 00:03:06,160 --> 00:03:09,000 Speaker 1: There are two ways in which the politics centers here. 50 00:03:09,160 --> 00:03:12,120 Speaker 1: First of all, as you said, the if do we 51 00:03:12,240 --> 00:03:15,160 Speaker 1: have a big stimulus as a result of the tax package, 52 00:03:15,720 --> 00:03:19,000 Speaker 1: and if you'll recall what happened after the quantitative easing 53 00:03:19,080 --> 00:03:22,200 Speaker 1: program of then FED Chairman Bernanky at the end of 54 00:03:22,200 --> 00:03:26,600 Speaker 1: two thousand eight. It was expected to boost prices substantially, 55 00:03:26,680 --> 00:03:30,160 Speaker 1: interest rates were going to rise, neither of which happened. 56 00:03:30,560 --> 00:03:34,079 Speaker 1: And I've been saying consistently that monetary growth does not 57 00:03:34,320 --> 00:03:37,720 Speaker 1: mean that inflation immediately picks up and that rates would 58 00:03:37,720 --> 00:03:40,360 Speaker 1: go up. I think you're going to have a similar 59 00:03:40,400 --> 00:03:44,400 Speaker 1: reaction now to the fiscal stimulus. Although the stimulus has 60 00:03:44,560 --> 00:03:48,720 Speaker 1: helped the equity markets just as quantitative easing did, I 61 00:03:48,760 --> 00:03:51,000 Speaker 1: don't think it is putting money into the hands of 62 00:03:51,080 --> 00:03:54,240 Speaker 1: people who would actually spend it. It is going more 63 00:03:54,440 --> 00:03:58,320 Speaker 1: into the hands of equity investors who are higher income groups, 64 00:03:58,360 --> 00:04:01,080 Speaker 1: and they typically tend to be more of savers and 65 00:04:01,160 --> 00:04:06,360 Speaker 1: investors rather than spenders. Wages have not increased significantly. We 66 00:04:06,400 --> 00:04:10,120 Speaker 1: saw that also in the most recent wage news. Retail 67 00:04:10,360 --> 00:04:15,480 Speaker 1: sales have fallen recently. This was again contrary to expectations. 68 00:04:16,000 --> 00:04:20,520 Speaker 1: I don't see where all the growth optimism is coming from. Sree. 69 00:04:20,680 --> 00:04:23,040 Speaker 1: What would you like to ask Jerome Powell if you 70 00:04:23,120 --> 00:04:26,159 Speaker 1: were in the room during the press conference, I would 71 00:04:26,200 --> 00:04:29,960 Speaker 1: ask him the second question PIM that comes forth as 72 00:04:30,000 --> 00:04:33,440 Speaker 1: a result of Lisa's point, which is, um, are you 73 00:04:33,640 --> 00:04:37,320 Speaker 1: going to be influenced by President Trump and Secretary minute 74 00:04:37,400 --> 00:04:41,080 Speaker 1: In in terms of future rate hikes? Clearly, the President 75 00:04:41,120 --> 00:04:44,680 Speaker 1: has said several times that he would prefer a week dollar. 76 00:04:45,760 --> 00:04:50,719 Speaker 1: He has also indicated that given his business background, he 77 00:04:50,880 --> 00:04:54,640 Speaker 1: prefers low interest rates. And we have a history in 78 00:04:55,120 --> 00:04:58,840 Speaker 1: the U s. Monetary policy PIM where presidents time and 79 00:04:58,960 --> 00:05:02,479 Speaker 1: time again have interfered with the FED policy. The FED 80 00:05:02,520 --> 00:05:06,400 Speaker 1: has hardly been independent. The question is is power going 81 00:05:06,440 --> 00:05:09,120 Speaker 1: to be different? Is he going to stand up to 82 00:05:09,240 --> 00:05:11,960 Speaker 1: all the job owning that's almost certain to take place 83 00:05:12,240 --> 00:05:14,640 Speaker 1: a tree I was. I thought I was compelling what 84 00:05:14,680 --> 00:05:17,920 Speaker 1: you said, that the optimism about the U. S economy 85 00:05:18,120 --> 00:05:22,000 Speaker 1: was overdone in your in your view, I want to 86 00:05:22,000 --> 00:05:24,839 Speaker 1: talk a little bit about that and another perspective of yours, 87 00:05:24,880 --> 00:05:28,400 Speaker 1: which is that treasuries hold value right now, perhaps even 88 00:05:28,440 --> 00:05:32,840 Speaker 1: more so than equities. Can you explain the reason for 89 00:05:33,120 --> 00:05:36,720 Speaker 1: treasuries coming out to be more attractive, Lisa, is because 90 00:05:36,960 --> 00:05:42,920 Speaker 1: treasury yields are basically dependent on two factors, inflationary expectations 91 00:05:43,440 --> 00:05:48,159 Speaker 1: and economic growth expectations. If you have a continuation of 92 00:05:48,240 --> 00:05:50,960 Speaker 1: the first quarter poor growth, that we're going to have 93 00:05:51,080 --> 00:05:54,120 Speaker 1: about one point eight percent according to the Atlanta Fed. 94 00:05:54,680 --> 00:05:56,560 Speaker 1: Even if it goes up to two to two and 95 00:05:56,600 --> 00:05:59,680 Speaker 1: a half percent in subsequent quarters, you're going to fall 96 00:06:00,040 --> 00:06:03,320 Speaker 1: way shot of three percent. And as I said, I 97 00:06:03,360 --> 00:06:06,599 Speaker 1: don't expect the fiscal stimulus to be helpful for the economy. 98 00:06:06,640 --> 00:06:10,160 Speaker 1: As to the financial market, the second part of it 99 00:06:10,200 --> 00:06:13,800 Speaker 1: is the expectation on inflation. We have not seen that 100 00:06:13,920 --> 00:06:17,080 Speaker 1: go up. And I thought the bound market panic in 101 00:06:17,120 --> 00:06:20,720 Speaker 1: early February was a false alarm, and it was quickly 102 00:06:20,760 --> 00:06:23,680 Speaker 1: reversed and we saw the bond yields come down from 103 00:06:23,680 --> 00:06:26,000 Speaker 1: the highs we reached earlier in the year. Were you 104 00:06:26,040 --> 00:06:29,160 Speaker 1: buying Are you buying? I would be buying. Yes. Did 105 00:06:29,240 --> 00:06:32,880 Speaker 1: you buy back in February? Uh? In terms of again, 106 00:06:32,960 --> 00:06:36,680 Speaker 1: I'm not specifically an investor in terms of the moves 107 00:06:36,720 --> 00:06:39,080 Speaker 1: that I make every time, Lisa, because I'm not a 108 00:06:39,120 --> 00:06:42,159 Speaker 1: short term trader, but I think clearly in terms of 109 00:06:42,279 --> 00:06:47,159 Speaker 1: long term expectations, my investments are built that way. Should 110 00:06:47,200 --> 00:06:48,960 Speaker 1: do you believe that we have entered an era of 111 00:06:49,040 --> 00:06:52,800 Speaker 1: trade wars and tariffs? I think we have. I think 112 00:06:52,800 --> 00:06:55,600 Speaker 1: it's already started, PIM. If you look at what happened 113 00:06:56,120 --> 00:06:59,680 Speaker 1: so far on the exports of soy beans, which by 114 00:06:59,720 --> 00:07:03,800 Speaker 1: the way, is as important and export as aircraft for 115 00:07:04,000 --> 00:07:08,680 Speaker 1: US exports to China, China has increased the restrictions on 116 00:07:08,720 --> 00:07:11,920 Speaker 1: the quality that will be accepted in terms of US 117 00:07:11,960 --> 00:07:15,320 Speaker 1: o beans going to China, and that essentially is a 118 00:07:15,320 --> 00:07:18,360 Speaker 1: form of a tariff. It's a form of trade restriction. 119 00:07:19,040 --> 00:07:22,960 Speaker 1: And if in fact the President imposes a tariff of 120 00:07:23,040 --> 00:07:26,240 Speaker 1: sixty billion dollars as much as this as early as 121 00:07:26,280 --> 00:07:29,840 Speaker 1: this Friday, as has been rumored, you can expect a 122 00:07:29,920 --> 00:07:33,240 Speaker 1: retaliation even by Saturday Sunday in terms of what the 123 00:07:33,320 --> 00:07:36,080 Speaker 1: Chinese would do. And I think you're going to that 124 00:07:36,240 --> 00:07:39,080 Speaker 1: is where I think the big risk to economic growth lies. 125 00:07:39,560 --> 00:07:43,320 Speaker 1: And if that happens. Going back to Lisa's question, the 126 00:07:43,400 --> 00:07:47,280 Speaker 1: fixed income or high the yield and treasuries as where 127 00:07:47,280 --> 00:07:49,640 Speaker 1: you want to hide And just a real quick I'm 128 00:07:49,640 --> 00:07:51,600 Speaker 1: looking at a thirty year yield right now three point 129 00:07:51,640 --> 00:07:54,320 Speaker 1: one two six. Where do you see it going by 130 00:07:54,360 --> 00:07:57,360 Speaker 1: the end of this year three point one to six 131 00:07:57,440 --> 00:08:01,080 Speaker 1: I would see again going down by anywhere from thirty 132 00:08:01,120 --> 00:08:04,239 Speaker 1: to fifty basis points. And if at the same time 133 00:08:04,760 --> 00:08:08,440 Speaker 1: you have a connection in equities, it makes it thirty 134 00:08:08,720 --> 00:08:12,520 Speaker 1: even more attractive. That's a really interesting call. Thank you 135 00:08:12,560 --> 00:08:14,520 Speaker 1: so much for being with us. We always enjoy a 136 00:08:14,600 --> 00:08:18,800 Speaker 1: Camal Street Kumar, President and founder of shriek Kumar Global Strategies, 137 00:08:18,840 --> 00:08:22,720 Speaker 1: also a Bloomberg profit. Perhaps he is recommending people hide 138 00:08:22,720 --> 00:08:27,000 Speaker 1: out in treasuries while growth expectations start to decline, but 139 00:08:27,040 --> 00:08:29,600 Speaker 1: he is hiding out Santa Monica, California, away from the 140 00:08:29,600 --> 00:08:48,880 Speaker 1: snowstorm here in New York City. Twitter and Facebook, as 141 00:08:48,880 --> 00:08:52,960 Speaker 1: well as other social media platforms, have been hit by 142 00:08:53,000 --> 00:08:56,760 Speaker 1: a variety of investigations, and this has to do, of 143 00:08:56,760 --> 00:09:00,720 Speaker 1: course with the information that people are volunteer the offering 144 00:09:00,960 --> 00:09:03,760 Speaker 1: to these organizations. Here to help us understand all this 145 00:09:03,800 --> 00:09:06,560 Speaker 1: is Jim Anderson. He is the chief executive of a 146 00:09:06,640 --> 00:09:10,120 Speaker 1: social Flow and in full disclosure, social Flow is a 147 00:09:10,200 --> 00:09:15,040 Speaker 1: platform that is used by Bloomberg for social media purposes. 148 00:09:15,360 --> 00:09:17,520 Speaker 1: Jim Anderson, thank you very much for being here in 149 00:09:17,559 --> 00:09:20,920 Speaker 1: our eleven three oh studios. How does this kind of 150 00:09:21,000 --> 00:09:24,480 Speaker 1: data mining work, or maybe it's better to say, how 151 00:09:24,520 --> 00:09:29,120 Speaker 1: does it differ from data mining that we hear about 152 00:09:29,240 --> 00:09:32,120 Speaker 1: when it comes to things like the preference that you 153 00:09:32,240 --> 00:09:36,080 Speaker 1: might have for the kind of detergent that your family uses, 154 00:09:36,240 --> 00:09:40,480 Speaker 1: or the kinds of news that you're interested in reading about. Yeah, Pam, 155 00:09:40,520 --> 00:09:42,520 Speaker 1: thanks for having me. There's a lot to unpack here. 156 00:09:42,520 --> 00:09:45,239 Speaker 1: So let's let's first start with the fact that Facebook 157 00:09:45,320 --> 00:09:47,520 Speaker 1: is a social network, right. I mean, we we get 158 00:09:47,559 --> 00:09:51,080 Speaker 1: onto Facebook to share and connect with our friends, and 159 00:09:51,120 --> 00:09:54,439 Speaker 1: so you know, in many ways, privacy and sharing are 160 00:09:54,520 --> 00:09:58,040 Speaker 1: diametrically opposed to each other, and so we do share 161 00:09:58,120 --> 00:10:01,240 Speaker 1: a lot of information with Facebook with our friends. On Facebook, 162 00:10:01,280 --> 00:10:03,520 Speaker 1: Facebook learns a lot about us and exactly what you 163 00:10:03,600 --> 00:10:06,880 Speaker 1: just said. The commercialization of that is really what's at 164 00:10:06,880 --> 00:10:09,040 Speaker 1: heart here. I mean that that information is quite valuable 165 00:10:09,080 --> 00:10:11,079 Speaker 1: to advertisers who want to sell us shaving cream and 166 00:10:11,120 --> 00:10:13,720 Speaker 1: laundry detergent and all the kinds of things that we buy. 167 00:10:13,840 --> 00:10:15,760 Speaker 1: And so that's really the crux of the issue. You 168 00:10:15,800 --> 00:10:18,080 Speaker 1: take that and you put it at the intersection of 169 00:10:18,120 --> 00:10:20,200 Speaker 1: some of the most heated political issues of our days, 170 00:10:20,320 --> 00:10:23,960 Speaker 1: the presidential election, uh, potential Russian interference, and you get 171 00:10:24,000 --> 00:10:26,360 Speaker 1: I think the mails from that we've got right now. Well, 172 00:10:26,480 --> 00:10:29,080 Speaker 1: but Jim, is there a difference between the data that 173 00:10:29,120 --> 00:10:31,800 Speaker 1: you willingly share with your friends, whether it's pictures of 174 00:10:31,840 --> 00:10:35,480 Speaker 1: your kids or what party you've gone to, and uh, 175 00:10:35,720 --> 00:10:40,440 Speaker 1: having data scraped from your emails from other systems that 176 00:10:40,520 --> 00:10:42,520 Speaker 1: you've been using that are not social media, that are 177 00:10:42,559 --> 00:10:49,600 Speaker 1: not public platforms, and using that for say, political advertisements. Yes, there, 178 00:10:49,600 --> 00:10:51,400 Speaker 1: I think there is a difference. Although to be clear, 179 00:10:51,440 --> 00:10:53,880 Speaker 1: and we're all speculating here about what may or may 180 00:10:53,920 --> 00:10:56,000 Speaker 1: not have happened, and I wasn't there, so I don't 181 00:10:56,040 --> 00:10:58,800 Speaker 1: know what Cambridge Analytica did, but what has been reported 182 00:10:59,240 --> 00:11:03,400 Speaker 1: is that they uh sort of unauthorized it took information 183 00:11:03,440 --> 00:11:05,720 Speaker 1: about people's friends. So it wasn't so much that they 184 00:11:05,720 --> 00:11:08,319 Speaker 1: scraped it from their email, It's that they did something 185 00:11:08,320 --> 00:11:11,959 Speaker 1: they weren't supposed to according to Facebook's policies. And then 186 00:11:12,000 --> 00:11:14,640 Speaker 1: the logical question that everybody's asking is, well, Facebook, you 187 00:11:14,679 --> 00:11:17,199 Speaker 1: had those policies, and you knew that some people might 188 00:11:17,240 --> 00:11:19,760 Speaker 1: not comply with them. What was your obligation to make 189 00:11:19,800 --> 00:11:22,960 Speaker 1: sure that Cambridge Analytical or anybody else complied with what 190 00:11:23,000 --> 00:11:24,719 Speaker 1: they were supposed to do? And so that's what I 191 00:11:24,720 --> 00:11:27,320 Speaker 1: think we're really talking about, is your your not only 192 00:11:27,320 --> 00:11:29,960 Speaker 1: your information, but your friends information, and your friends never 193 00:11:30,040 --> 00:11:33,480 Speaker 1: consented to have them do that. So let's say it's 194 00:11:33,559 --> 00:11:36,880 Speaker 1: not scraping. It's not a matter of scraping data from 195 00:11:37,000 --> 00:11:39,959 Speaker 1: other sites. Let's say it's just the information that people 196 00:11:40,000 --> 00:11:42,679 Speaker 1: put out there about themselves on Facebook. Do you know 197 00:11:42,800 --> 00:11:46,720 Speaker 1: anybody who's been upset by disclosure of information that they 198 00:11:46,760 --> 00:11:49,920 Speaker 1: have put out there publicly? Uh, certainly we all know 199 00:11:49,960 --> 00:11:51,840 Speaker 1: people who have been upset. I mean this is a 200 00:11:51,960 --> 00:11:55,960 Speaker 1: very emotional issue for a lot of people. Privacy. Uh, 201 00:11:56,080 --> 00:11:58,400 Speaker 1: you start talking about people's families and their kids. You know, 202 00:11:58,480 --> 00:12:00,520 Speaker 1: my kids information is on face this book and and 203 00:12:00,559 --> 00:12:01,920 Speaker 1: all of us. I think I'm a parent. All of 204 00:12:02,000 --> 00:12:04,280 Speaker 1: us who have kids wrestle with that kind of question 205 00:12:04,360 --> 00:12:06,880 Speaker 1: just by default. How much information do you put about 206 00:12:06,880 --> 00:12:08,480 Speaker 1: your children out? I mean, it's it's one thing for 207 00:12:08,520 --> 00:12:11,400 Speaker 1: your friends and family, uh to know about your children. 208 00:12:11,440 --> 00:12:14,400 Speaker 1: It's quite another for some anonymous third party to have 209 00:12:14,520 --> 00:12:17,360 Speaker 1: taken that information through no action of my own, but 210 00:12:17,440 --> 00:12:19,760 Speaker 1: maybe one of my friends downloaded one of their apps 211 00:12:19,760 --> 00:12:22,360 Speaker 1: and suddenly now they know things about me, my family, 212 00:12:22,400 --> 00:12:24,240 Speaker 1: and my kids. I think that's why you see such 213 00:12:24,280 --> 00:12:27,319 Speaker 1: an emotion here. Is is that information that you put 214 00:12:27,360 --> 00:12:29,640 Speaker 1: out there wasn't being done with the expectation that it 215 00:12:29,640 --> 00:12:33,160 Speaker 1: would be used for marketing or even political purposes. Now 216 00:12:33,200 --> 00:12:36,040 Speaker 1: this is not the first time, though, that Facebook has 217 00:12:36,160 --> 00:12:40,199 Speaker 1: had to deal with issues related to what many describe 218 00:12:40,240 --> 00:12:45,800 Speaker 1: as being genuine news or information that is available via 219 00:12:45,880 --> 00:12:49,280 Speaker 1: their website. They've had a program I believe that really 220 00:12:49,320 --> 00:12:52,280 Speaker 1: affected a lot of what it's called independent journalism in 221 00:12:52,320 --> 00:12:55,880 Speaker 1: many smaller countries such as Guatemala and Sri Lanka. You're 222 00:12:55,920 --> 00:12:58,600 Speaker 1: familiar with this, maybe just enlightened people a little bit 223 00:12:58,640 --> 00:13:00,760 Speaker 1: so that they understand that this is not a brand 224 00:13:00,760 --> 00:13:04,120 Speaker 1: new topic when it comes to Facebook and the information 225 00:13:04,200 --> 00:13:07,040 Speaker 1: that's shared on their network. Yeah, well, again, there's there's 226 00:13:07,120 --> 00:13:10,280 Speaker 1: multiple stories and news threads intersecting here, and so we 227 00:13:10,320 --> 00:13:11,920 Speaker 1: have we really have to untangle it. I think what 228 00:13:11,960 --> 00:13:14,800 Speaker 1: you're referring to is they ran tests in the news 229 00:13:14,800 --> 00:13:17,319 Speaker 1: feed in these some of these smaller countries, which by 230 00:13:17,360 --> 00:13:20,040 Speaker 1: the way, added up to almost exactly one point zero 231 00:13:20,080 --> 00:13:22,679 Speaker 1: percent of the world's population, So you could understand from 232 00:13:22,840 --> 00:13:26,280 Speaker 1: a testing standpoint, they wanted to experiment with the news 233 00:13:26,320 --> 00:13:29,440 Speaker 1: feeds of of people in you know, one point zero 234 00:13:29,480 --> 00:13:32,000 Speaker 1: percent of the world's population, which probably correlates to one 235 00:13:32,000 --> 00:13:34,880 Speaker 1: point zero percent of Facebook users around the world, and 236 00:13:34,880 --> 00:13:37,839 Speaker 1: they're trying to understand how people interact with content and 237 00:13:37,880 --> 00:13:40,120 Speaker 1: their news feed. And so the implication of that in 238 00:13:40,200 --> 00:13:44,360 Speaker 1: the an outcry was, wow, you have severely disadvantaged the 239 00:13:44,720 --> 00:13:48,079 Speaker 1: legitimate news media in those countries by doing your experiment. 240 00:13:48,600 --> 00:13:50,240 Speaker 1: You know, never mind what you think you might have 241 00:13:50,240 --> 00:13:52,280 Speaker 1: been able to accomplish or learn the experiment, did you 242 00:13:52,320 --> 00:13:54,880 Speaker 1: really think through the implications of of what that was 243 00:13:54,920 --> 00:13:56,960 Speaker 1: going to do to journalism and to news outlets in 244 00:13:56,960 --> 00:13:59,640 Speaker 1: those countries. And I think the answer that Facebook uhs 245 00:13:59,679 --> 00:14:02,240 Speaker 1: said itself is well, no, we didn't really think through that, 246 00:14:02,360 --> 00:14:04,640 Speaker 1: and we didn't intend to do that, and so we'll 247 00:14:04,720 --> 00:14:07,640 Speaker 1: we'll stop doing that and our experiment is done. I 248 00:14:07,679 --> 00:14:10,760 Speaker 1: just wanted to bring to the news that Mark Zuckerberg, 249 00:14:10,880 --> 00:14:14,600 Speaker 1: the head of Facebook, will address the public in the 250 00:14:14,640 --> 00:14:19,000 Speaker 1: next twenty four hours aimed at regaining trust. This, according 251 00:14:19,000 --> 00:14:22,240 Speaker 1: to Bloomberg News is Sarah Fryer just confirmed this. What 252 00:14:22,320 --> 00:14:25,200 Speaker 1: do you hope to hear from Mark Zuckerberg? Well, I 253 00:14:25,240 --> 00:14:29,880 Speaker 1: think me and everybody hopes to hear a clear explanation 254 00:14:30,080 --> 00:14:32,600 Speaker 1: of Facebook's position on this, and and and in all 255 00:14:32,880 --> 00:14:35,880 Speaker 1: fairness is an objective you know, observer trying to be 256 00:14:35,920 --> 00:14:39,080 Speaker 1: as objective as I can. It is a very complicated issue. 257 00:14:39,160 --> 00:14:41,160 Speaker 1: Right again, I said right at the at the top 258 00:14:41,200 --> 00:14:43,320 Speaker 1: of this, Uh, you know, Facebook is a social network, 259 00:14:43,400 --> 00:14:46,160 Speaker 1: right wet We put information out there. Every single Facebook 260 00:14:46,200 --> 00:14:48,600 Speaker 1: post has a share button on it even today, and 261 00:14:48,680 --> 00:14:52,120 Speaker 1: so sharing is built into the core of the platform. 262 00:14:52,240 --> 00:14:55,400 Speaker 1: So how does he and how does Facebook more broadly 263 00:14:55,520 --> 00:14:59,480 Speaker 1: view sharing versus privacy and how do they plan to 264 00:14:59,520 --> 00:15:03,560 Speaker 1: reconci aile those really quite contradictory perspectives, and I think 265 00:15:03,560 --> 00:15:05,880 Speaker 1: that's what everybody wants to hear. Jim Anderson, thank you 266 00:15:05,920 --> 00:15:07,960 Speaker 1: so much for being with us. Thank you Jim Anderson, 267 00:15:08,080 --> 00:15:12,040 Speaker 1: chief executive officer of Social Flow in New York, to 268 00:15:12,120 --> 00:15:15,080 Speaker 1: be fully disclosed here. Social Flow as a platform used 269 00:15:15,080 --> 00:15:19,440 Speaker 1: by Bloomberg for social media purposes, and it is confirmed 270 00:15:19,440 --> 00:15:22,800 Speaker 1: that we will be hearing from the previously absent er 271 00:15:22,880 --> 00:15:27,000 Speaker 1: up till now absent, Mark Zuckerberg about Facebook's response to 272 00:15:27,480 --> 00:15:46,840 Speaker 1: this data breach and their path forward. Tesla maybe the 273 00:15:46,960 --> 00:15:51,200 Speaker 1: poster child for this era, a company that burns through cash. 274 00:15:51,320 --> 00:15:55,080 Speaker 1: It has promise of technological prowess that has excited the 275 00:15:55,120 --> 00:15:58,840 Speaker 1: imaginations of many out there. The true story of this company, however, 276 00:15:59,280 --> 00:16:01,840 Speaker 1: may lie with its credit, And here to join us 277 00:16:01,960 --> 00:16:06,560 Speaker 1: is Joel Lovington, Senior credit analyst for Bloomberg Intelligence. You've 278 00:16:06,560 --> 00:16:11,640 Speaker 1: been digging into Tesla's credit. An interesting concept, this company 279 00:16:11,760 --> 00:16:15,920 Speaker 1: borrowing to burn cash. Um, This perhaps is the true 280 00:16:15,960 --> 00:16:19,080 Speaker 1: story and what is it telling us? Well, I think 281 00:16:19,080 --> 00:16:22,600 Speaker 1: what it's telling us is that the company will continue 282 00:16:22,640 --> 00:16:25,200 Speaker 1: to invest much like an Amazon did in trying to 283 00:16:25,240 --> 00:16:28,240 Speaker 1: build out its optionality. And as it does that, it 284 00:16:28,320 --> 00:16:31,640 Speaker 1: needs both costs financing and that's becoming more and more challenging, 285 00:16:31,760 --> 00:16:35,320 Speaker 1: which will make their drivers difficult and will also make 286 00:16:35,920 --> 00:16:39,520 Speaker 1: the ability to for that for their bonds to perform. Well, 287 00:16:40,120 --> 00:16:44,160 Speaker 1: so what kind of collateral would be valuable to an 288 00:16:44,200 --> 00:16:49,920 Speaker 1: investor here? Well, everybody loves receivables and uh, and it 289 00:16:50,080 --> 00:16:52,920 Speaker 1: has a tremendous brand name, and so I think that's 290 00:16:52,960 --> 00:16:56,800 Speaker 1: the concern is that, Uh, this past summer they issued 291 00:16:57,120 --> 00:17:01,240 Speaker 1: a billion aid of debt which is unsecure, and as 292 00:17:01,320 --> 00:17:04,720 Speaker 1: that bond has lagged, it makes it harder to finance. 293 00:17:04,760 --> 00:17:07,520 Speaker 1: So a cheaper way of doing it would be secured debt, 294 00:17:07,680 --> 00:17:10,200 Speaker 1: which would prime the current debt. In other words, it 295 00:17:10,200 --> 00:17:12,919 Speaker 1: would push it down on the capital structure UH and 296 00:17:12,960 --> 00:17:16,320 Speaker 1: make it worth make it less valuable. Well, if it 297 00:17:16,359 --> 00:17:20,919 Speaker 1: makes it less valuable, then what's the likelihood that, unless 298 00:17:20,920 --> 00:17:23,960 Speaker 1: they get these issues resolved, that they can continue to 299 00:17:24,000 --> 00:17:27,320 Speaker 1: go back to the market to borrow more money. Well, 300 00:17:27,560 --> 00:17:30,639 Speaker 1: that's that's the chicken and the egg game. Obviously, they 301 00:17:30,640 --> 00:17:33,679 Speaker 1: could go out and issue equity, it's an as if 302 00:17:33,720 --> 00:17:36,399 Speaker 1: their equity has a low valuation on it, or they 303 00:17:36,400 --> 00:17:39,720 Speaker 1: can use convertibles. I think what's interesting is that what 304 00:17:39,760 --> 00:17:42,119 Speaker 1: they said on their last call is that you know 305 00:17:42,160 --> 00:17:44,720 Speaker 1: that they can they could see cash flow becoming much 306 00:17:44,720 --> 00:17:47,560 Speaker 1: stronger over the next couple of years. And if they 307 00:17:47,600 --> 00:17:50,679 Speaker 1: really believe that using something like bank debt makes a 308 00:17:50,720 --> 00:17:53,560 Speaker 1: lot more sense than going out and issuing more unsecured 309 00:17:53,600 --> 00:17:57,760 Speaker 1: debt or giving away your or giving away your equity. 310 00:17:58,160 --> 00:18:01,919 Speaker 1: So Tesla is about eight and a half billion dollars 311 00:18:01,960 --> 00:18:05,560 Speaker 1: of debt currently. They've burned through more than a billion 312 00:18:05,600 --> 00:18:09,639 Speaker 1: dollars per quarter to sustain itself. They've clearly had a 313 00:18:09,640 --> 00:18:13,480 Speaker 1: lot of issues with respect to production snaff foods, UH. 314 00:18:13,520 --> 00:18:17,000 Speaker 1: They are currently contemplating our shareholders are anyway awarding Elon 315 00:18:17,080 --> 00:18:22,280 Speaker 1: Musk a two point six billion dollar compensation package. Just 316 00:18:22,320 --> 00:18:26,080 Speaker 1: how much more do they have to borrow? And what 317 00:18:26,280 --> 00:18:30,800 Speaker 1: happens if they can't? I mean, is that basically game over? Well, 318 00:18:31,520 --> 00:18:34,000 Speaker 1: I don't think it will be a question of if 319 00:18:34,000 --> 00:18:35,679 Speaker 1: they can or they can't. I think they will be 320 00:18:35,720 --> 00:18:39,000 Speaker 1: able to borrow. H they are fifty four billion dollar 321 00:18:39,640 --> 00:18:43,719 Speaker 1: cap company. It becomes how will they finance and how 322 00:18:43,800 --> 00:18:46,199 Speaker 1: much they'll need to finance? Lisa and I think at 323 00:18:46,240 --> 00:18:50,919 Speaker 1: least our model that we have on the terminal shows 324 00:18:50,960 --> 00:18:52,960 Speaker 1: that it should be about two and a half billion 325 00:18:53,000 --> 00:18:56,359 Speaker 1: dollars that they would that they'll be cash negative this year. 326 00:18:56,680 --> 00:18:59,359 Speaker 1: So if they want to keep their liquidity consistent, they 327 00:18:59,400 --> 00:19:01,560 Speaker 1: would need to you know, issue about two and a 328 00:19:01,560 --> 00:19:05,280 Speaker 1: half billion dollars worth of new debt. You know, it 329 00:19:05,560 --> 00:19:07,439 Speaker 1: doesn't bang. The question though, that if you are going 330 00:19:07,480 --> 00:19:10,159 Speaker 1: to be asked to do a leverage buyout with a 331 00:19:10,200 --> 00:19:12,800 Speaker 1: company like this or take it private, could you do 332 00:19:12,880 --> 00:19:16,960 Speaker 1: it based on the financials as they currently exist. That's 333 00:19:16,960 --> 00:19:18,919 Speaker 1: a great question him and I think the short answer 334 00:19:18,960 --> 00:19:22,720 Speaker 1: is no. The company at least again, like if the 335 00:19:22,720 --> 00:19:25,240 Speaker 1: way that we look at it, if they financed that 336 00:19:25,320 --> 00:19:27,800 Speaker 1: two and a half billion dollars shortfall this year with debt, 337 00:19:28,080 --> 00:19:30,360 Speaker 1: they'll be levered at eleven times, so they already look 338 00:19:30,440 --> 00:19:34,680 Speaker 1: like an extremely levered l b O. Bryan they going private, 339 00:19:35,440 --> 00:19:38,840 Speaker 1: So I don't really think that would be a mechanism, Uh, 340 00:19:38,880 --> 00:19:41,760 Speaker 1: that would be doable in any way. So you talked 341 00:19:41,800 --> 00:19:44,520 Speaker 1: about how it would be more attractive for them to 342 00:19:44,600 --> 00:19:47,320 Speaker 1: issue in the bank debt spaces is the leveraged loan market, 343 00:19:47,680 --> 00:19:50,720 Speaker 1: and I'm wondering, perhaps from Tesla's point of view, it's 344 00:19:50,760 --> 00:19:55,120 Speaker 1: more attractive. What about from an investor's standpoint, would you recommend? 345 00:19:55,200 --> 00:19:56,680 Speaker 1: And I know you can't recommend, so you're going to 346 00:19:56,760 --> 00:19:59,879 Speaker 1: totally punt on this, but uh, you know, our invest 347 00:20:00,240 --> 00:20:03,840 Speaker 1: is adequately compensated. At what point are they adequately compensated 348 00:20:03,880 --> 00:20:07,679 Speaker 1: with yield for buying something like that to finance this 349 00:20:07,720 --> 00:20:11,120 Speaker 1: cash burning car company. Sure? Well, what I would say 350 00:20:11,320 --> 00:20:14,960 Speaker 1: is that if you look at the triple c um 351 00:20:15,200 --> 00:20:18,879 Speaker 1: leverage loan market, UH, if you and you look at 352 00:20:18,880 --> 00:20:20,560 Speaker 1: similar dates to what they have in terms of their 353 00:20:21,240 --> 00:20:26,080 Speaker 1: five mon issue UH, those UH secured bank debt financings 354 00:20:26,080 --> 00:20:28,440 Speaker 1: tend to run between a hundred and a hundred twenty 355 00:20:28,480 --> 00:20:32,480 Speaker 1: five THESS points cheaper or tighter than what you would 356 00:20:32,480 --> 00:20:35,840 Speaker 1: get in the unsecured market, and so that would be 357 00:20:35,880 --> 00:20:38,840 Speaker 1: the cost savings to the company. I think the other 358 00:20:38,920 --> 00:20:41,919 Speaker 1: component of it it becomes that with bank debt you 359 00:20:41,920 --> 00:20:44,639 Speaker 1: can repay it quickly. So if they do believe that 360 00:20:44,640 --> 00:20:48,679 Speaker 1: they're going to be cashlow positive towards twenty nineteen, that 361 00:20:48,680 --> 00:20:51,040 Speaker 1: would give them the optionality of paying down that debt 362 00:20:51,040 --> 00:20:54,000 Speaker 1: without having any sort of call provision or feature in it, 363 00:20:54,520 --> 00:20:58,119 Speaker 1: which is different than a bond, which again would if 364 00:20:58,119 --> 00:21:00,520 Speaker 1: I was sending in the treasure re seat over at Tesla. 365 00:21:00,960 --> 00:21:02,320 Speaker 1: Those are the kinds of things that I would be 366 00:21:02,359 --> 00:21:05,760 Speaker 1: thinking about in how to reduce the cost UH in 367 00:21:05,840 --> 00:21:08,119 Speaker 1: terms of financing. That's gonna say would you would you 368 00:21:08,160 --> 00:21:10,320 Speaker 1: be interested in reducing the cost of the two point 369 00:21:10,400 --> 00:21:13,159 Speaker 1: six billion dollar compensation package that they're going to be 370 00:21:13,280 --> 00:21:16,840 Speaker 1: voting on. Yeah, well, you know, I'm a credit guy. 371 00:21:16,880 --> 00:21:20,320 Speaker 1: I have not. The credit guy says, no way, do 372 00:21:20,359 --> 00:21:22,960 Speaker 1: you expect them to get downgraded because I think that 373 00:21:23,000 --> 00:21:25,880 Speaker 1: they're rated in the single B area at this point. Yeah. 374 00:21:25,920 --> 00:21:28,480 Speaker 1: Let me just add on him that I hope that you, Lisa, 375 00:21:28,520 --> 00:21:31,240 Speaker 1: and I can all get a compensation package similar to that. 376 00:21:32,280 --> 00:21:36,400 Speaker 1: Thank you. But in terms of the ratings, I do 377 00:21:36,480 --> 00:21:39,480 Speaker 1: think that there is a big risk that they get 378 00:21:39,520 --> 00:21:43,439 Speaker 1: downgraded this year. They will not meet rader expectations. And 379 00:21:43,480 --> 00:21:46,399 Speaker 1: the reason that that is important is because as a 380 00:21:46,440 --> 00:21:50,640 Speaker 1: triple C bond, which is where the issue would go, 381 00:21:51,280 --> 00:21:55,800 Speaker 1: those bonds at similar maturities trade about seventy basis points tight, 382 00:21:56,160 --> 00:21:59,199 Speaker 1: seventy basis points wider than where the Tesla bond is. 383 00:21:59,520 --> 00:22:02,359 Speaker 1: That's worth about three points on a ninety two and 384 00:22:02,359 --> 00:22:05,679 Speaker 1: a half dollar bond. Just try to frame what that 385 00:22:05,800 --> 00:22:08,520 Speaker 1: risk might look like. Well done, Thanks very much for 386 00:22:08,600 --> 00:22:11,840 Speaker 1: enlightening us. Joel Levington is our senior credit analyst for 387 00:22:11,920 --> 00:22:18,160 Speaker 1: Bloomberg Intelligence, discussing the I don't know it's a debt picture, 388 00:22:18,320 --> 00:22:37,920 Speaker 1: it seems it's another word at TESLA. New rules from 389 00:22:37,960 --> 00:22:40,320 Speaker 1: the Department of a Labor having to do with tip 390 00:22:40,600 --> 00:22:44,760 Speaker 1: sharing and this of course affecting the restaurant industry. Let's 391 00:22:44,760 --> 00:22:47,359 Speaker 1: bring in Ben Penn. He's a labor reporter for Bloomberg 392 00:22:47,440 --> 00:22:51,240 Speaker 1: Law joining us from Arlington, Virginia. Ben just layout for 393 00:22:51,280 --> 00:22:54,280 Speaker 1: people that are not familiar with, what is the current 394 00:22:54,359 --> 00:22:58,000 Speaker 1: regulatory environment when it comes to tips and what does 395 00:22:58,040 --> 00:23:01,359 Speaker 1: the Labor Department have to say about this? Sure So, 396 00:23:01,840 --> 00:23:04,920 Speaker 1: in two thousand and eleven, the Obama Department of Labor 397 00:23:04,960 --> 00:23:08,280 Speaker 1: issued a regulation that stated what was what the department 398 00:23:08,280 --> 00:23:12,760 Speaker 1: intended to be clarifying it's long standing policy that employees 399 00:23:13,240 --> 00:23:16,320 Speaker 1: own the tips that they receive and that managers can't 400 00:23:16,359 --> 00:23:20,720 Speaker 1: skim those tips. Now, what happened last December is the 401 00:23:20,720 --> 00:23:24,600 Speaker 1: department issued a new rule proposal to reverse that two 402 00:23:24,640 --> 00:23:28,879 Speaker 1: thousand eleven rule. And that proposal, the intention behind it 403 00:23:28,920 --> 00:23:33,520 Speaker 1: is to allow restaurants to uh impose tip sharing arrangements 404 00:23:33,520 --> 00:23:36,360 Speaker 1: in which the front of house workers like servers and bartenders, 405 00:23:36,359 --> 00:23:40,080 Speaker 1: who directly earned tips can share those tips with the 406 00:23:40,080 --> 00:23:44,760 Speaker 1: backup house kitchen workers. UM. However, the issue that's really 407 00:23:44,800 --> 00:23:47,680 Speaker 1: caused quite a bit of contention, is that the rule 408 00:23:47,720 --> 00:23:51,119 Speaker 1: does not expressly forbid managers from taking apart in the 409 00:23:51,160 --> 00:23:54,960 Speaker 1: tip pull themselves. And uh, that's uh, that's what's happening. 410 00:23:55,080 --> 00:23:59,679 Speaker 1: And uh, the of course this only the controversy only escalated. 411 00:24:00,119 --> 00:24:03,680 Speaker 1: I reported less months that the Department had conducted an 412 00:24:03,680 --> 00:24:08,960 Speaker 1: internal analysis showing that six D forty million dollars per 413 00:24:09,040 --> 00:24:12,080 Speaker 1: year in tips could be transferred to businesses as a 414 00:24:12,119 --> 00:24:16,040 Speaker 1: result of the rule, and that they deleted that that 415 00:24:16,119 --> 00:24:20,199 Speaker 1: analysis from the proposal. And uh, now the next the 416 00:24:20,240 --> 00:24:23,439 Speaker 1: next word is that I reported today is how they 417 00:24:23,640 --> 00:24:27,360 Speaker 1: went about getting approval to do that. And basically what 418 00:24:27,400 --> 00:24:32,120 Speaker 1: you're reporting is that they didn't disclose certain data. Correct. Correct? 419 00:24:32,160 --> 00:24:36,639 Speaker 1: They stated instead under the regulatory impact Analysis section of 420 00:24:36,680 --> 00:24:39,919 Speaker 1: the rule that at this point the Department is unable 421 00:24:39,960 --> 00:24:44,159 Speaker 1: to quantify the transfer costs to businesses and uh, the 422 00:24:44,200 --> 00:24:47,280 Speaker 1: transfer costs from workers to businesses. And they asked the 423 00:24:47,440 --> 00:24:51,520 Speaker 1: public input to inform the analysis that would be included 424 00:24:51,520 --> 00:24:54,760 Speaker 1: in the final stage of the rule. And why do 425 00:24:54,800 --> 00:24:58,080 Speaker 1: you believe or what have you learned about the background 426 00:24:58,080 --> 00:25:02,280 Speaker 1: as to why the Department of Labor would do this? Well, 427 00:25:02,320 --> 00:25:05,240 Speaker 1: there are certainly a number of interesting theories. I think 428 00:25:05,720 --> 00:25:07,960 Speaker 1: what we do know for sure is what the Secretary 429 00:25:08,240 --> 00:25:11,760 Speaker 1: of Labor, alex A. Costa, said less earlier this month 430 00:25:11,800 --> 00:25:15,000 Speaker 1: when he was testifying on Capitol Hill, that he believes 431 00:25:15,040 --> 00:25:17,399 Speaker 1: that the Department, even though it made an attempt to 432 00:25:17,480 --> 00:25:20,760 Speaker 1: quantify the data at the proposed rule stage, that there 433 00:25:20,760 --> 00:25:24,080 Speaker 1: were assumptions in that proposal that he disagreed with that 434 00:25:24,119 --> 00:25:27,120 Speaker 1: he thought would be misleading to release to the public. 435 00:25:27,600 --> 00:25:30,160 Speaker 1: And uh, and that's why they felt instead it would 436 00:25:30,160 --> 00:25:34,400 Speaker 1: be best to solicit public input that would then inform 437 00:25:35,040 --> 00:25:38,680 Speaker 1: a more reliable estimate in the final rule. Of course, Um, 438 00:25:39,359 --> 00:25:43,320 Speaker 1: there are plenty of pushback there saying that they saw 439 00:25:43,359 --> 00:25:45,440 Speaker 1: a number. In fact, I had reported that the original 440 00:25:45,560 --> 00:25:50,160 Speaker 1: estimates compiled internally projected it would be in the billions, 441 00:25:50,200 --> 00:25:54,800 Speaker 1: before political leadership kept asking for new methodologies that gradually 442 00:25:54,880 --> 00:25:58,680 Speaker 1: lessened the anticipated impact, and now as a report today, 443 00:25:58,720 --> 00:26:03,919 Speaker 1: down to six forty million. So, UM, they're getting accused 444 00:26:03,960 --> 00:26:06,600 Speaker 1: now of you know, seeing the numbers that they don't like, 445 00:26:06,720 --> 00:26:10,840 Speaker 1: wanting to hide that from the public. Um. And uh, 446 00:26:11,400 --> 00:26:13,560 Speaker 1: so that you know, you take your pick of which 447 00:26:13,600 --> 00:26:16,119 Speaker 1: is the more plausible theory. But I want to I 448 00:26:16,119 --> 00:26:18,920 Speaker 1: want to just get your perspective on what the economic 449 00:26:19,040 --> 00:26:23,640 Speaker 1: reason would be behind forcing employees in the service industry 450 00:26:23,680 --> 00:26:27,600 Speaker 1: to share their tips and sort of why the Department 451 00:26:27,600 --> 00:26:31,880 Speaker 1: of Labor would want this. Sure, the Department of Labor 452 00:26:32,080 --> 00:26:35,280 Speaker 1: and the Restaurant Association, which is a big supporter of 453 00:26:35,320 --> 00:26:38,720 Speaker 1: this rule has uh they've both stated that what this 454 00:26:38,760 --> 00:26:43,160 Speaker 1: would accomplish is it would improve the the workplace camaraderie 455 00:26:43,200 --> 00:26:46,520 Speaker 1: because you have employees in the front of house and 456 00:26:46,560 --> 00:26:49,600 Speaker 1: workers in the back of house who are all working, uh, 457 00:26:50,000 --> 00:26:52,760 Speaker 1: you know, in a community to improve the customer experience, 458 00:26:52,760 --> 00:26:56,199 Speaker 1: and why not allow everyone who plays a role in 459 00:26:56,240 --> 00:26:59,840 Speaker 1: that process to benefit from it? And uh, so that 460 00:27:00,200 --> 00:27:03,000 Speaker 1: you know, that's the stated um benefit of the rule. 461 00:27:03,080 --> 00:27:06,520 Speaker 1: Now where it gets interesting is that front of house 462 00:27:06,560 --> 00:27:10,720 Speaker 1: workers do not make the full minimum wage. Typically they 463 00:27:10,760 --> 00:27:13,720 Speaker 1: earn as low as two thirteen per hour provided that 464 00:27:14,040 --> 00:27:18,600 Speaker 1: their tips combined with their hourly wage equal the full 465 00:27:18,600 --> 00:27:22,200 Speaker 1: minimum wage of at least whereas workers in the back 466 00:27:22,240 --> 00:27:26,520 Speaker 1: of house typically don't earn as much and uh they 467 00:27:26,560 --> 00:27:30,000 Speaker 1: get pay the full minimum wage, but frequently not that 468 00:27:30,119 --> 00:27:33,200 Speaker 1: much more than it. So you know, this is another 469 00:27:33,440 --> 00:27:36,359 Speaker 1: stated uh benefit of the rules, that this would allow 470 00:27:36,920 --> 00:27:40,040 Speaker 1: cooks and dishwashers to make more money. And of course 471 00:27:40,040 --> 00:27:43,520 Speaker 1: then the criticism is that why aren't the businesses themselves 472 00:27:43,720 --> 00:27:47,760 Speaker 1: uh giving those workers a race so real quick. The opponents, 473 00:27:47,760 --> 00:27:50,800 Speaker 1: I assume are the front office or the front of 474 00:27:50,800 --> 00:27:55,480 Speaker 1: house service workers. Now, yeah, well, I think it really 475 00:27:55,520 --> 00:27:58,879 Speaker 1: depends on the on the business. I've heard that there 476 00:27:58,920 --> 00:28:02,080 Speaker 1: there are some restaurant where workers would be happy to 477 00:28:02,400 --> 00:28:05,200 Speaker 1: uh to take partner tipple at the back of house, 478 00:28:05,280 --> 00:28:08,800 Speaker 1: of course, provided that they are paid a full minimum wage. 479 00:28:08,800 --> 00:28:10,800 Speaker 1: And you know, in some states now that full minimum 480 00:28:10,840 --> 00:28:13,639 Speaker 1: wage can be as high as getting close to fifteen 481 00:28:13,640 --> 00:28:16,000 Speaker 1: dollars per hours, so they would still be able to 482 00:28:16,080 --> 00:28:19,280 Speaker 1: earn uh, you know, a decent take home pay. But 483 00:28:20,160 --> 00:28:22,640 Speaker 1: you know, there are other places where they would feel that, 484 00:28:22,880 --> 00:28:27,320 Speaker 1: especially if they felt that their managers were allowed to 485 00:28:27,520 --> 00:28:30,879 Speaker 1: skim a portion of those tips, that this would you know, 486 00:28:31,000 --> 00:28:33,000 Speaker 1: this would just force them to move on to a 487 00:28:33,000 --> 00:28:35,400 Speaker 1: different restaurant. Ben Penn, thank you so much for being 488 00:28:35,400 --> 00:28:39,080 Speaker 1: with us. Really fascinating great scoops. Ben Pen, labor reporter 489 00:28:39,240 --> 00:28:44,520 Speaker 1: for Bloomberg Law, coming to us from Arlington, Virginia. Very controversial. 490 00:28:44,560 --> 00:28:48,320 Speaker 1: The idea of employees, usually in the service industry, having 491 00:28:48,320 --> 00:28:51,600 Speaker 1: to share their tips with everybody. Sort of raises a 492 00:28:51,720 --> 00:28:54,240 Speaker 1: question of what is the point of tips which were 493 00:28:54,240 --> 00:28:58,400 Speaker 1: meant sensibly to compensate for the quality of that service. 494 00:29:02,520 --> 00:29:05,040 Speaker 1: Thanks for listening to the Bloomberg P and L podcast. 495 00:29:05,400 --> 00:29:09,280 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 496 00:29:09,400 --> 00:29:12,880 Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm 497 00:29:12,920 --> 00:29:16,920 Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. 498 00:29:17,040 --> 00:29:19,640 Speaker 1: It's one before the podcast. You can always catch us 499 00:29:19,680 --> 00:29:21,240 Speaker 1: worldwide on Bloomberg Radio.