Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
Speaker 1: All right, let's talk tech. The tech geeks are out
Speaker 1: in force today. MSFT put up some numbers. Let's bring
Speaker 1: in anaag Ran and man Deep Singh, our tech analyst
Speaker 1: at Bloomberg Intelligence. And we can't get rid of these guys.
Speaker 1: They keep sticking around. So on, rog, let's start with
Speaker 1: you Microsoft. I mean, this is a two trillion dollar
Speaker 1: market cap company and stocks up seven percent today. Talk
Speaker 1: to us first about the earnings and then second about activision.
Speaker 3: Yeah, you know, Paul, you've known that I've liked this
Speaker 3: company for many years. But frankly, going into the quota,
Speaker 3: I was a little worded that they were going to
Speaker 3: not only miss, but actually guide downwards. And the exact
Speaker 3: opposite happened. Almost every major product category performed better compared
Speaker 3: to last quarter, and you know, increasing revenue run rates,
Speaker 3: So I have no words. I mean, they just blow
Speaker 3: it out of the park.
Speaker 1: Frankly, all right, activision. Activision is big, I mean sucks big.
Speaker 2: Not hurting Microsoft, though, I should point out that, you know,
Speaker 2: Microsoft was up like eight percent in the pre market trade.
Speaker 2: Then the headline came across from the UK that the
Speaker 2: regulator there is going to bigfoot this sixty nine billion
Speaker 2: dollar purchase and Microsoft is still up seven percent.
Speaker 3: Yeah, that's fair, but they are up on you know
Speaker 3: numbers and not lets you know, not that it had
Speaker 3: nothing to do with the you know, the acquisition in
Speaker 3: our vue. But this is going to be a big
Speaker 3: problem in terms of how this thing gets settled. Now,
Speaker 3: it's going to be a lot of court fighting and
Speaker 3: legal issues. And I mean this just shows that regulators
Speaker 3: around the world don't want big tech companies to buy anything.
Speaker 3: I mean, this is so basically buybacks, more buybacks.
Speaker 1: I saw Jenary on Bloomberg Television. I get to see
Speaker 1: what she said. What is Jenry, who was our was
Speaker 1: our anti trust expert in Bloomberg Intelligence, What is she
Speaker 1: saying about it?
Speaker 3: She thinks it's just going to be an ongoing legal
Speaker 3: battle to try to get this resolved. I mean, that's
Speaker 3: it's just going to take a lot more time to
Speaker 3: figure out. Microsoft not going to back down anytime, honoring.
Speaker 2: Why does Microsoft need call of duty? You know, why
Speaker 2: do they need activision which makes call of duty? Now
Speaker 2: that they have AI powered bing?
Speaker 3: Well, you've told me this many times that you know
Speaker 3: the cloud gaming is not ready here right now, and
Speaker 3: you know maybe it will be ready three to five
Speaker 3: years from now, and the whichever company has more content
Speaker 3: is going to be dominant, is going to be one
Speaker 3: of the dominating force there. And gaming has been a
Speaker 3: big part of Microsoft since southiat Okoba.
Speaker 4: All right.
Speaker 1: Mendeed, Meta platform slash Facebook in this studio stock is
Speaker 1: up seventy seven year to date. I thought these guys
Speaker 1: had a problem with costs going crazy on something like
Speaker 1: called the metaverse, which I don't know what that is.
Speaker 1: Advertisers pulling back because there's a recession. How did they
Speaker 1: turn the narrative around here for meta.
Speaker 5: Well, it is still driven by cost cuts. Nothing has
Speaker 5: changed in terms of the top line expectations. I think
Speaker 5: what Alphabet did yesterday was to la fears that, you know,
Speaker 5: digital advertising was going down the cliff. I don't think
Speaker 5: that's happening anymore. And look, there will be at pricing headminds.
Speaker 5: Search is the most resilient, which is what the alphabet
Speaker 5: number showed. I do expect some at pricing headminds in
Speaker 5: the results tonight, But when you are cutting ten billion
Speaker 5: dollars in costs, I think it's always a good story
Speaker 5: to sell, given we know these models are so good
Speaker 5: in terms of you know, throwing out free cash flow.
Speaker 5: So that's what's driving the stock right now.
Speaker 2: Does Google have a weakness here? I know they dominate
Speaker 2: in search with something like ninety percent of the global
Speaker 2: search market right and Microsoft they're being had like six
Speaker 2: or seven percent. But now they've got this AI powered bing.
Speaker 2: I used it this morning to ask what kind of
Speaker 2: infrastructure upgrades are needed on the US electricity grid if
Speaker 2: people start adopting a higher share of evs rather than
Speaker 2: ic E cars. You asked chat, I asked bing in
Speaker 2: one in one sent in one you know search query,
Speaker 2: I said, what kind of infrastructure upgrade does the US
Speaker 2: electric grid need if we start buying more and more evs?
Speaker 1: And the and the and the.
Speaker 2: And the AI chat bot came back with an incredibly
Speaker 2: elegant UH and direct answer, citing three different sources saying, look,
Speaker 2: we're gonna need one and a half to two trillion
Speaker 2: dollars of infrastructure upgrades by twenty thirty just to maintain
Speaker 2: the electric grid where it is today. That's incredibly smart.
Speaker 2: Google couldn't do anything near that.
Speaker 5: Well, they will be, and that's the risk when you
Speaker 5: have a ninety percent share in search. It's like anything
Speaker 5: that comes on the horizon is always an imminent threat.
Speaker 5: So in this case, clearly.
Speaker 2: But there's never been anything on the horizon before.
Speaker 5: Well no, I would disagree because a lot of people
Speaker 5: and companies have tried PageRank. They've tried to copy Google's algorithm,
Speaker 5: but they've never been as good in search as Google.
Speaker 5: And that's why that mode has been penetrable, because no
Speaker 5: one has been as good in search. So clearly, this
Speaker 5: is something new on the horizon. It has a lot
Speaker 5: of promise. We think it's going to raise Google's cost
Speaker 5: of revenue because the cost of infrastructure goes up. But
Speaker 5: will it be as good and as simple to use
Speaker 5: as Google Search. The answer so far is no, and
Speaker 5: it hasn't heard their revenue, which is why search are
Speaker 5: performed last night.
Speaker 1: But Matt had a I can't believe Matt put that
Speaker 1: query in.
Speaker 5: That's pretty yes, And that's where the search market could
Speaker 5: grow because now you could search in terms of you know,
Speaker 5: long questions, which you weren't able to do before, and
Speaker 5: you don't have to browse through the links that they showing.
Speaker 5: You said, this is a better way to consume Internet
Speaker 5: content because you can search in paragraphs like long queries.
Speaker 1: And I just like liquor store near me. That was
Speaker 1: man so Ana Rod talk to us about just tech
Speaker 1: spending overall. I mean, you know, really over the last
Speaker 1: fifteen twenty years, it's just it seems like it's never slowed.
Speaker 1: You guys think you're smart, but reality is you're just
Speaker 1: you're just behind this great tech wave. I mean, anybody
Speaker 1: could do that. But now we actually have some headwinds
Speaker 1: to tech spending. Where are we seeing some of those headwinds?
Speaker 1: How pronounced are they How long do you think they'll
Speaker 1: they'll persist?
Speaker 3: See, before last night, I thought it would last by
Speaker 3: the end of the year. But to be very honest,
Speaker 3: after Microsoft, you know, we could already be at that
Speaker 3: pivot at this point, and you know it will take
Speaker 3: a few more couple of months more for us to
Speaker 3: figure it out. I have no doubt that once all
Speaker 3: of this thing you know, settles in next year or
Speaker 3: whenever that you know twelve month period is over, we're
Speaker 3: going to see a bounce back and a major bounce
Speaker 3: back in growth rates. Because the shift or digital sift
Speaker 3: to AI shift, all of these things is still in
Speaker 3: such early innings that there is no reason for companies
Speaker 3: not to spend on technology products.
Speaker 2: Mandy.
Speaker 1: I mean in your in the companies you cover, where
Speaker 1: you seeing some of the biggest growth in tech spending.
Speaker 1: Is there the next cloud out there? What's the next
Speaker 1: big thing?
Speaker 5: I think the next big thing is clearly large language
Speaker 5: models and generative AI. That's what these generative AI, generative
Speaker 5: generative AI, That's what Matt's query is about, you know,
Speaker 5: in terms of looking at content that's out there on
Speaker 5: the web and giving a smart long form results where
Speaker 5: you don't have to go through different types of links.
Speaker 5: And you can apply that concept with images, with different
Speaker 5: types of content, so it's not just text based searches.
Speaker 5: You can apply that framework to a lot of different
Speaker 5: types and I think every company right now is tinkering
Speaker 5: with it. Clearly there's a big infrastructure investment that and
Speaker 5: Rog was alluding to. So that's going into that tech
Speaker 5: spend is you have to upgrade your infrastructure. You can
Speaker 5: use your existing data centers and run those queries and
Speaker 5: that's a big, big tailwind for it spent.
Speaker 2: I just asked Bing how much of a problem is
Speaker 2: the rising rate environment in the United States for big
Speaker 2: technology companies and their spending plans. And Bing says higher
Speaker 2: interest rates can hurt growing tech companies in three ways. First,
Speaker 2: they increase the cost of borrowing more money to expand
Speaker 2: a business. That's bad news for high growth tech companies
Speaker 2: which are burning cash with widening losses. Second, it reduces
Speaker 2: long term estimates for a company's earnings and free cash flow. Third,
Speaker 2: it slows down businesses cash flows and stunts their reinvestment
Speaker 2: into innovation and growth prosperty.
Speaker 1: Good good job being Men Deep Seeing on Around Rock
Speaker 1: and a Bloomberg Intelligence.
Speaker 6: You're listening to the team Ken's our live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern.
Speaker 4: On Bloomberg dot com, the iHeartRadio app.
Speaker 6: And the Bloomberg Business App, or listen on demand wherever
Speaker 6: you get your podcasts.
Speaker 1: We have state of the art facilities, and we literally
Speaker 1: met and I sit at a round table, which means
Speaker 1: we can actually have rounds at tables with smart anamals.
Speaker 1: We just did it with the tech geeks on our agrana,
Speaker 1: Man Deep Sing from Bloomberg Intelligence, two of the best
Speaker 1: on the street. Now we do it with the banks.
Speaker 1: We have two other top analysts here, Herman Channey follows
Speaker 1: the regional banks, Neil Sipes. He follows the big boy banks,
Speaker 1: the money center banks, along with Alison Williams. We got
Speaker 1: them here at our Bloomberg Interactive Broker studio. We're round
Speaker 1: tabling this thing.
Speaker 5: Herman.
Speaker 1: Let's start with you're you're the problem child here in
Speaker 1: the banking space at this First Republic thing. It's down
Speaker 1: another gajillion percent today, it was down fifty percent yesterday.
Speaker 1: Is this thing a going concern? Is this something that
Speaker 1: the fdi SE has to come in and just say, okay,
Speaker 1: we're in charge now.
Speaker 2: Don't take going concern.
Speaker 1: I just did. I just did.
Speaker 7: At this point, the bank's running out of options. There's
Speaker 7: been reports from Bloomberg that they're looking to sew up
Speaker 7: to one hundred and fifty or one hundred billion dollars
Speaker 7: in assets. Which I think it's going to be a
Speaker 7: tough We talked about this earlier. They only have about
Speaker 7: fourteen billion dollars capital and any sort of haircut is
Speaker 7: going to eat in that capital, and so it's they
Speaker 7: don't have a lot of good negotiating power at this point.
Speaker 7: So it's we're gonna wait to see.
Speaker 1: So what does the FDI see? How does that organization work?
Speaker 1: How did they decide when to step Are they asked
Speaker 1: to step in? Do they look at the situation say
Speaker 1: we are stepping in?
Speaker 2: How does that work? At this point?
Speaker 7: The regulators are embedded into First Republic over I would
Speaker 7: say the past few weeks a month or so, and
Speaker 7: they're seeing all the numbers that are coming in in
Speaker 7: terms of deposit outflow, in terms of how they're managing
Speaker 7: the balance sheet, so that they have a pulse on
Speaker 7: the situation. And it's really up to their determination that
Speaker 7: if they want to come in and close the doors.
Speaker 1: And Mat I want to bring in Neil Sipes. This
Speaker 1: is a dude we hired as a summer associate in
Speaker 1: Bloomberg Intelligence. Now he's pretty much running the whole place.
Speaker 1: I mean, you know, so like Alison Williams, we love.
Speaker 1: She's kind of the rock star. But my you know,
Speaker 1: she's got people. You can't get through to her because
Speaker 1: she's got people to kind of shielder. So now we've
Speaker 1: got Neil Sypes. He's research chalnels covering some of the
Speaker 1: bigger banks, and.
Speaker 2: He studied in the great state of Ohio.
Speaker 8: Is that you're a DA flyer, that's right, that's right,
Speaker 8: one of the few.
Speaker 2: I was right next door at Antioch College, not studying,
Speaker 2: not studying.
Speaker 1: Yeah, the University of Dayton, home of a great healthcare analyst,
Speaker 1: former bi analyst Michael Manns. Now it's sit investments in Minneapolis.
Speaker 1: So nice lineage there of good analyst, research channels, command
Speaker 1: of Uniers of Dayton. You know, talk to us about
Speaker 1: what we've seen some of the bigger banks here. How
Speaker 1: are they performing in terms of just kind of the
Speaker 1: core banking business as well as their capital markets businesses.
Speaker 4: Yeah.
Speaker 8: Sure, And I think it is a little bit of
Speaker 8: a difference when you compare it with some of the
Speaker 8: regional peers that have had more idiosyncratic issues for themselves.
Speaker 8: And what we've seen is, you know, the larger banks
Speaker 8: have been able to weather this storm a little bit
Speaker 8: better than what you've seen at some of the regionals,
Speaker 8: or at least stay out of the headlines in the
Speaker 8: sense that they've been some of these have been the
Speaker 8: beneficiaries of some of these deposit flights what we're seeing
Speaker 8: across the industry. It's no question that deposits are on
Speaker 8: the decline, but ultimately some of these have some of
Speaker 8: these larger banks have much more diversified deposit franchises that
Speaker 8: can weather these storms and ultimately have a more diversified
Speaker 8: client base, which ultimately, you know, supports the businesses across
Speaker 8: whether it's investment banking, asset management, wealth management, et cetera,
Speaker 8: whereas some of these regionals are a little bit more narrow.
Speaker 1: Now, I like your coverage. You go over some of
Speaker 1: the smaller investment banks, and if I were to go
Speaker 1: back to the banking world, that's where I would go
Speaker 1: to the evercres, the moluses, maybe even ray j and
Speaker 1: Stefel talk goes out some of those smaller regional investment banks.
Speaker 1: How are they doing? How do they compete against the
Speaker 1: JP Morgans and the Morgan Stanleys of the world.
Speaker 8: Yeah, well, some of those boutique investment banks, they compete
Speaker 8: specifically in the advisory space, and like you said, that's
Speaker 8: the place you wanted to be. Maybe in twenty twenty one,
Speaker 8: maybe not so much right now, as we've seen deal
Speaker 8: activity pretty much on ice since the beginning of twenty
Speaker 8: twenty two. Keep in mind we were coming off that
Speaker 8: record twenty twenty one. But as we've seen interest rates rise,
Speaker 8: we've seen economic expectations sour a little bit, it's become
Speaker 8: a lot more difficult for deals to take place. Confidence
Speaker 8: is lower, market sentiment is weak. When you have volatility,
Speaker 8: it's a lot harder for buyers and sellers to come
Speaker 8: together on a price, and ultimately that's going to be
Speaker 8: an issue. Not to mention what we've seen with capital markets,
Speaker 8: it's a lot more difficult and a lot more expensive
Speaker 8: to raise.
Speaker 2: That capital Herman in terms of First Republic, obviously, the
Speaker 2: share price is in free fall right now, and it
Speaker 2: had been grouped together with a number of other regional banks,
Speaker 2: including pac West. Yesterday pack West was also decimated almost
Speaker 2: it was down by like nine percent. Today I noticed
Speaker 2: pac West bouncing like eighteen percent in the pre market
Speaker 2: and it's up right now another six percent. Why is that?
Speaker 2: Is it just that we thought, oh, maybe pack West
Speaker 2: isn't a doom loop as well, and now we realize
Speaker 2: they're okay.
Speaker 7: Well, they reported numbers yesterday and had some really encouraging numbers,
Speaker 7: specifically to deposits, and deposits were down twenty percent through
Speaker 7: March twentieth. They had pre announced that mid quarter, and
Speaker 7: at the end of the quarter deposits came back a
Speaker 7: little bit, and then through Friday a deposits came back
Speaker 7: more so. So the fear that that depositive flight was
Speaker 7: happening with with PacWest has been alleviated a bit, similar
Speaker 7: to what has happened with Western Alliance as well. So
Speaker 7: it does seem like the issues really are focused on
Speaker 7: First Republic.
Speaker 2: Well, and look, PacWest had a fifty two week high
Speaker 2: of about thirty bucks a year. They're down to ten,
Speaker 2: so taken down by two thirds. First Republic had a
Speaker 2: fifty two week high of one seventy right, and they're
Speaker 2: trading for five dollars a year, much worse. But I
Speaker 2: don't understand why yesterday's release prompted, you know, a fifty
Speaker 2: percent drop and another thirty percent drop today. I mean, yes,
Speaker 2: they had one hundred billion dollars of outflows in the
Speaker 2: first three months, but they only had one point seven
Speaker 2: percent of outflows in April, right, So it does look
Speaker 2: like they stemmed the bleeding.
Speaker 7: It looks like they stem the bleeding. But there's overly
Speaker 7: reliance now on higher cost CDs. We're talking four and
Speaker 7: a half five percent CDs that they have to rely on,
Speaker 7: and also wholesale funding borrowing from the discount window, borrowing
Speaker 7: from the FHLB that's costly as well. So where though
Speaker 7: the costlyer funding is going to squeeze their margins and
Speaker 7: spur negative earnings for the foreseeable future. So that's really
Speaker 7: what a spooking folks.
Speaker 2: Neil has it affected the companies that you cover. I mean,
Speaker 2: it's quite different from Stefel and Evercore obviously First Republic,
Speaker 2: but they have high net worth individual maybe they have
Speaker 2: bankers from Stefel in Evercore that got their zero percent
Speaker 2: mortgages there.
Speaker 8: Yeah, it's it's definitely a different story for stephl and
Speaker 8: Raymond James because when you think about these two institutions,
Speaker 8: it's more so a wealth manager that owns a bank
Speaker 8: rather than a bank that owns other division.
Speaker 2: But I just mean, are there any knock on effects?
Speaker 2: Are you hearing people from no doubt saying like hey,
Speaker 2: I have a plan, or we're taking assets from them,
Speaker 2: or you know.
Speaker 8: Well for sure, I mean you've seen the flight of
Speaker 8: some advisors from First Republic. When you have issues at
Speaker 8: the underlying bank, at someone like First Republic, you ultimately
Speaker 8: see the flight of some of those advisors and ultimately
Speaker 8: those client assets to some of these other competitors. But
Speaker 8: to be fair, the Stefil and Raymond James of the world,
Speaker 8: they're also seeing the same issues of deposits perhaps shifting
Speaker 8: between either lower cost bank accounts all the way up
Speaker 8: to those money market funds that are ultimately leaving the
Speaker 8: balance sheet. Steefeil, on one hand, has been very aggressive
Speaker 8: in sharing that interest rate increase with its clients. Others
Speaker 8: perhaps less so when you see those deposits leave the
Speaker 8: balance sheet.
Speaker 2: Herman Chan is such a rock stary.
Speaker 1: He had to leave because TV beckond they want to
Speaker 1: know what's going on the First Republic. So he just ran,
Speaker 1: literally ran to the TV studio. When Antorres says, get
Speaker 1: in studio, Yeah, get in studio. You do not mess around.
Speaker 2: And Torres is a Bloomberg television producer to whom you
Speaker 2: do not say no.
Speaker 1: Exactly right. So Neil, again you follow some of these
Speaker 1: regional investment banks, they focus really heavily on advisory work,
Speaker 1: as you said, more so than capital markets. There ain't
Speaker 1: no deals happening, man, What are they saying about the
Speaker 1: m and A environment out there?
Speaker 8: Yeah, and they're saying that there's not much happening. And unfortunately,
Speaker 8: you know, back in January, we were hearing a little
Speaker 8: bit of some positive comments of saying, look, markets had
Speaker 8: turned around a little bit in the fourth quarter and
Speaker 8: that was extending in the first quarter. So there were
Speaker 8: some growing opportunities, some green shoots, so to speak. But
Speaker 8: ultimately what they've said so far this quarter is March
Speaker 8: pretty much canceled that out right, the volatility that we
Speaker 8: saw around banks that spread across broader markets. Yes, we're
Speaker 8: still up on the year, but that inherent volatility and
Speaker 8: ultimately just the lack of clarity as to where monetary
Speaker 8: policy is going to be, how the economy is going
Speaker 8: to look, how inflation is trajecting throughout the rest of
Speaker 8: the year. That's ultimately going to continue away on deal announcements,
Speaker 8: which therefore ways on future fees.
Speaker 1: You know, on a scale one to ten, ten being
Speaker 1: the best. How was your experience at the University of Dayton.
Speaker 8: Yeah, no, hesitation.
Speaker 1: You're a big fan, right, yep?
Speaker 8: Yeah. I mean I can't speak highly enough of it.
Speaker 1: And you are you a high native?
Speaker 4: I am not.
Speaker 8: I'm a Connecticut native actually. Okay, So I did a
Speaker 8: little quick trip to the Midwest and sort of came back.
Speaker 8: But ultimately, I mean it's it's a great you know,
Speaker 8: education there, and they have a student run investment fund yep,
Speaker 8: and so they're able to, you know, kind of put
Speaker 8: that hands on experience with analysis.
Speaker 2: Did you ever get a milkshake at Young's Dairy Farm?
Speaker 8: I did not. I'm not familiar with them.
Speaker 2: Have you not be into Yellow Springs?
Speaker 4: I have not.
Speaker 8: Oh, I've driven through it.
Speaker 2: I think he's all business, all the time, all business
Speaker 2: all the the kids a day.
Speaker 1: They're not out there playing around, they're studying, working hard.
Speaker 1: Neil Sipes he's equity research channelist at Bloomberg Intelligence, homegrown,
Speaker 1: home trained, and now he's a rockst Army. Appreciate getting
Speaker 1: a few miutes just time to talk about some of
Speaker 1: these banks.
Speaker 6: Here you're listening to the tape. Cat's are Live program
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Speaker 6: Bloomberg eleven thirty.
Speaker 2: We're bringing now Christelle Rendu de Lin. She's the head
Speaker 2: of investments at Fonto Bell normally in Zurich. She joins
Speaker 2: us live in the Bloomberg Interactive Broker Studio. Great to
Speaker 2: have you here, Christelle. Let me first ask you what
Speaker 2: you make of these markets. You know, we saw so
Speaker 2: much volatility in the first three months and it just
Speaker 2: dropped down to nothing in April. Okay, yesterday we broke
Speaker 2: out of the range a little on the stock side,
Speaker 2: certainly not in fixed income. What's going on?
Speaker 9: Well, I think, I mean, you just nailed it. We
Speaker 9: are completely in the wait and see mode. The recession
Speaker 9: has been spoken about for about a year and it
Speaker 9: just is not materializing. It's very hard to find strong
Speaker 9: positive news that would you know, put you on risk on.
Speaker 9: But at the same time, you know you don't go
Speaker 9: risk off because it's it is just not crumbling down
Speaker 9: or certainly not as fast as people would have it.
Speaker 2: So, I mean, we were all focused so much on
Speaker 2: the FED. It was like Bloomberg surveillance twenty four to
Speaker 2: seven here until this week. Really, all of a sudden
Speaker 2: people started to care about caring about earnings and putting
Speaker 2: FED you know, forecasts on the back burner. Do you
Speaker 2: think we've shifted for good or are we going to
Speaker 2: go back to our incredible macro focus, you know, as
Speaker 2: soon as we get big economic data on Friday.
Speaker 9: Yeah, I think it's too soon to write up the
Speaker 9: macrol because actually this is the story. The earnings are
Speaker 9: the realization of what's happening on the macro, and the
Speaker 9: FED has a tough job now it's you know, inflation
Speaker 9: is still there. They still need to go. But you
Speaker 9: see the first cracks in the system. And the whole
Speaker 9: question is, you know, are they just isolated cracks or
Speaker 9: is it a sign of more to come? So I
Speaker 9: think the story is quarely in the macro camp still.
Speaker 1: So where do you guys have on topo come down
Speaker 1: on this whole thing? I mean, I think the FED.
Speaker 1: I guess the risk is the FED has gone to far,
Speaker 1: will go too far and in fact break this economy.
Speaker 1: Is that the side you've come down on. You think
Speaker 1: there's a risk here that this is there's gonna be recession,
Speaker 1: and it might be more than people are expecting.
Speaker 9: Yeah, the house view is indeed that we will go
Speaker 9: into into recession, not necessarily one that sees on employment
Speaker 9: going to the roof, but one that will be enough
Speaker 9: to stop the FED and potentially bring it onto a
Speaker 9: rate cut cycle. I think personally it's too early to
Speaker 9: go for that. I think they've got a job to
Speaker 9: do and they just can't let go just now. But
Speaker 9: we also history has told us that, let's say, if
Speaker 9: the cracks really materialize, they're gonna take this.
Speaker 2: It's gonna be difficult for the FED to stand up
Speaker 2: to the political pressure. Nonetheless, it does look like they're
Speaker 2: going well, certainly twenty five basis points more next week. Right,
Speaker 2: do you expect an increase after that? Because inflation looks
Speaker 2: pretty sticky, and Jerome Powell, if you take him as word,
Speaker 2: he is determined to break the back of inflation.
Speaker 9: Look, I think the sign for me it hasn't changed
Speaker 9: that they'd like to do as little as possible so
Speaker 9: that they don't break the economy. But they will have
Speaker 9: to do as much as needed to show that inflation
Speaker 9: has turned around. And so at the point that the
Speaker 9: Fed can say this is it, guys, you see inflation
Speaker 9: has durably peaked, then they will step off the pedal.
Speaker 2: But when is that? You know, when he has a
Speaker 2: press conference, reporters are trying to needle him to get
Speaker 2: him to say something. He just wants to get close
Speaker 2: to two. But does that mean three? Does that in four? Yeah?
Speaker 9: I think they just I think they probably just don't
Speaker 9: know when that is, you know, when we've really reached
Speaker 9: the peak. I don't think it will be a question level.
Speaker 9: I think it will be a question of really seeing, Okay,
Speaker 9: we can now say the peak is behind us. They've
Speaker 9: done five hundred basis point one shot. That's one of
Speaker 9: the fastest tightening cycles. You've got a few cracks here
Speaker 9: and there. I think when they can stop, they will,
Speaker 9: But they want if inflation has not topped.
Speaker 1: All right, So what are you telling you're coming? You're
Speaker 1: here in New York, first time you said in almost
Speaker 1: a decade. Yeah, so you're meeting with I'm guessing, shame
Speaker 1: on me in special investors here in New York. You
Speaker 1: sit down with some of the big players here in
Speaker 1: New York. What are you telling them to do in
Speaker 1: terms of, you know, investments over the next six, twelve,
Speaker 1: eighteen months.
Speaker 9: So the first thing I tell them is always the
Speaker 9: same thing, is just to start with not only to
Speaker 9: think about investment views, but about the portfolio construction. This
Speaker 9: is the one thing that is never talked about is
Speaker 9: if you get it wrong in your risk appetite, it's
Speaker 9: going to be wrong anyway. So that's the first thing.
Speaker 9: Where's your own risk appetite and tolerance to risk? And
Speaker 9: I would go balanced, to be honest, It's not for me.
Speaker 9: It's not an environment you go all cash unless you
Speaker 9: think all hell, you know it's going to break loose,
Speaker 9: and I don't think we're there. So I don't have equity,
Speaker 9: I don't have fixed income, And I actually think the
Speaker 9: big change is that Treasury will be back in town
Speaker 9: as a safe haven play. They haven't played their role
Speaker 9: last year for obvious reasons, but they will be back.
Speaker 2: You think investors worried about a recession are going to
Speaker 2: pile back in. I think is that going to drive
Speaker 2: rates down?
Speaker 9: I don't think they're gonna apply by kin, but I
Speaker 9: think they're not there, and so if we do get
Speaker 9: a recession, we're going to get a serious rady on
Speaker 9: those rates because people I'm not in and I think
Speaker 9: that makes them will still be at plate.
Speaker 2: I wonder what you think about You are an economist.
Speaker 2: You got your PhD at the London School of Economics.
Speaker 1: That's good.
Speaker 2: We have rates that, you know, relative to the levels
Speaker 2: we saw in the eighties, for example, don't look very high.
Speaker 2: But we didn't have this kind of debt load in
Speaker 2: the eighties. Right if you have to refinance, you know,
Speaker 2: today's debt versus debt back then, it's way more painful.
Speaker 2: Right at the US is now at what one hundred
Speaker 2: and twenty percent debt to GDP. Back in the early eighties,
Speaker 2: we were like twenty percent debt to GDP, So five
Speaker 2: percent now hurts a lot more than maybe seventeen percent
Speaker 2: then did Is that gonna change the the equation?
Speaker 9: Yeah, I think it's going to change the equation, And
Speaker 9: I think that's the reason we will not get back
Speaker 9: to the inflation rates that we've had for the last
Speaker 9: twenty years.
Speaker 2: We're not going back to I don't think so.
Speaker 9: I don't think so. I don't think so and you
Speaker 9: know what I mean, two percent was chosen. It was chosen.
Speaker 9: It can't be ten, it can't be six. But does
Speaker 9: it have to be two?
Speaker 2: I'm not sure.
Speaker 9: I mean we can live with three.
Speaker 4: All right.
Speaker 1: Christa, you're based in Zurich, you're from Geneva, so you
Speaker 1: are Swiss all the way through. What does it mean
Speaker 1: to an average Swiss citizen that ubs acquired credit? Swiss
Speaker 1: people are telling people are telling me it's a big
Speaker 1: deal for the average Swiss person.
Speaker 9: Well, it is a big deal, yeah, because it's the
Speaker 9: two largest banks getting together. So firstly, you know, you'd
Speaker 9: wish it hadn't happened. But secondly, the most important was,
Speaker 9: as always to stabilize market, and that was absolutely key.
Speaker 9: You know it from here as well. You cannot let
Speaker 9: crisis of confidence get get in the way. But I
Speaker 9: think the ink is not dry on all of that.
Speaker 1: People are angry, right, people are angry. Angry.
Speaker 9: Well, they're angry because you know, all of that happened
Speaker 9: very quickly in a sense, so the the government's decisions
Speaker 9: happened very quickly, and so you hear a lot of
Speaker 9: political voices saying, you know, we want that you look
Speaker 9: into the competition laws and and and things like that.
Speaker 9: So I think we we.
Speaker 1: Are lots of banks or but these are the two
Speaker 1: big ones. These are There's nothing else like that, There's
Speaker 1: not I mean, so this is really level.
Speaker 2: It's just is do you like Zermatt or Saint Maurritz? Like,
Speaker 2: where's the best place to ski for you? East side?
Speaker 2: West side?
Speaker 9: God, that is a really difficult one. You know, I'm
Speaker 9: a mad person, but since I've moved to Zurich, I
Speaker 9: have to say the anger in is wonderful as well.
Speaker 9: So I'm gonna draw my joker card.
Speaker 2: There's a good question.
Speaker 1: Yeah, I mean, just so many choices there in Switzer
Speaker 1: met We got a road trip this. Yes, we do
Speaker 1: a remote broadcast from Zurich a couple of days Geneva
Speaker 1: couple days start.
Speaker 2: I'll put the tick.
Speaker 9: Days and we'll hoast you up from Tobol.
Speaker 1: You see your guests absolutely. Christo Rendu Day Lindt, head
Speaker 1: of investments for Von Tobel based in Zurich.
Speaker 6: You're listening to the Team Ken's Our Line program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot com,
Speaker 6: the iHeartRadio app, and the Bloomberg Business app or listen
Speaker 6: on demand wherever you get your podcasts.
Speaker 1: Sat down to Washington, DC, talk about not being comfortable.
Speaker 1: We'll talk to Nathan Nathan Dean, he's a senior policy
Speaker 1: house of Bloomberg Intelligence, as well as Emily Wilkins, reporter
Speaker 1: for Bloomberg Government. They join us here to get the
Speaker 1: latest from DC. Nathan, let's start with you here. What
Speaker 1: does my Congress have to do here? I mean, we've
Speaker 1: got to continue to pay our bills and you know
Speaker 1: we're getting into May here. Give us just the latest
Speaker 1: on this debt ceiling and all that kind of stuff.
Speaker 10: Well, you know, so obviously you know, the House Republicans
Speaker 10: are coming together with a bill. You know, voter is
Speaker 10: expected later today. But you know, whether this bill passes
Speaker 10: or not, you know, this is represents the first step
Speaker 10: that I think the markets really want to see happen
Speaker 10: in Washington, and that's negotiations. I mean, they want to
Speaker 10: see Congress come together with the White House and get
Speaker 10: this done. So you know, this is one of those
Speaker 10: like chicken before you know, what comes first, the chicken
Speaker 10: or the egg? You know, does Congress negotiate or does
Speaker 10: the market freak out? And both are waiting for the
Speaker 10: other to do something, and you know, at least Congress
Speaker 10: is showing that they're doing something so the market can
Speaker 10: actually start preparing for that.
Speaker 2: Emily, let me ask you about the possibility of McCarthy's
Speaker 2: plan passing. I thought, you know, as a no brainer.
Speaker 2: The Republicans all want to be on, you know, one team,
Speaker 2: and they're going to take it to the White House
Speaker 2: with this plan. But now I hear that some Republicans
Speaker 2: are balking because they want subsidies, which totally confuses me
Speaker 2: because I grew up, you know, and Alex P. Keaton
Speaker 2: card caring Republican, and I thought small government and no subsidies.
Speaker 2: But why are Republican congressmen wanting to hold onto these
Speaker 2: government handouts.
Speaker 11: Because it's what's good for their district. A lot of
Speaker 11: these lawmakers who want to see more of these tax
Speaker 11: credits on round bile fuels, they come from places where
Speaker 11: ethanol is a big deal because their districts grow a
Speaker 11: ton of corn. You've got Nancy Mace, who has a
Speaker 11: lot of solar producing companies in her district. She wants
Speaker 11: to make sure that those subsidies are there. I mean, yeah, look,
Speaker 11: Republicans want to be unified, but what they want even
Speaker 11: more than that is to get reelected. And they know
Speaker 11: that because of the narrow margins, it's easier for them
Speaker 11: to go up and say, hey, we really want this,
Speaker 11: and if you want my vote, you have to do something.
Speaker 11: That's why we saw changes to the bill made at
Speaker 11: two o'clock in the morning last night to try and
Speaker 11: really firm up support for a potential vote today. But
Speaker 11: we still really don't know if Republicans actually have the votes.
Speaker 11: McCarthy said he felt confident, but when you're talking with
Speaker 11: Majority Leader Steve Scalice, he keeps saying the vote will
Speaker 11: be this week, but but he won't commit to bringing
Speaker 11: it to the floor today necessarily.
Speaker 2: It's just so crazy. When I was a kid, the
Speaker 2: Republican Party was about small government, free markets, no subsidies,
Speaker 2: what no government?
Speaker 1: And I'm into Republican Party that you could fill a
Speaker 1: show on that.
Speaker 2: Emily, you should do a show what happened to the
Speaker 2: Republican Party?
Speaker 1: Where did they go?
Speaker 11: Done?
Speaker 1: The one? Yeah, I mean my dad would still vote
Speaker 1: for Nixon if Nixon ran today.
Speaker 4: You know.
Speaker 1: That's but those I don't know, We'll see, uh So Emily.
Speaker 1: President Biden announced he's running. Kind of an odd way
Speaker 1: to do it with a videotape. It's like he's running
Speaker 1: for you know, school president.
Speaker 2: But under the radar, under the rax o'clock in the morning,
Speaker 2: right in the middle of the Fox News Tucker Carlson
Speaker 2: news cycle, Like so no one would notice. What did
Speaker 2: they did? They were they trying to sneak it out?
Speaker 11: Emily, Well, we all knew it was coming. We reported
Speaker 11: on the fact that it was coming. Look, I think
Speaker 11: everyone knew for a while that Biden was going to run,
Speaker 11: and it was just a matter of kind of making
Speaker 11: it official. Videos are now what all the cool kids
Speaker 11: are doing these days. Saw Tim's got put out one
Speaker 11: out there, and Nikki Haley put one out there, and look,
Speaker 11: I don't think it's a giant shock that Biden's running again.
Speaker 11: I just think that he had to make it official
Speaker 11: and get the message out there, because you know, last
Speaker 11: time he was like, look like, you know, I'm running
Speaker 11: kind of as an alternative to Trump, you know, to
Speaker 11: get government back on track. And now the message has
Speaker 11: to be we're finishing the job. And you know, at
Speaker 11: this point, we really it's been interesting, We really haven't
Speaker 11: seen any Democrats yet come out and support Biden, even
Speaker 11: though there are numerous polls out there that show that
Speaker 11: a lot of Democrats are concerned about Biden running again.
Speaker 11: They're concerned about his age, they want a fresh candidate.
Speaker 11: But at this point, no one's really come forward that
Speaker 11: seems to have the chance of seriously getting the nomination.
Speaker 2: Maybe they just think it's a vote for Harris.
Speaker 1: I mean, you didn't see much of the Tom free
Speaker 1: op ed in the Times today kind of goes to
Speaker 1: that issue.
Speaker 2: So we didn't see much of her at all in
Speaker 2: the video. But I think a lot of people are
Speaker 2: concerned that a vote for Biden or you know, optimistic
Speaker 2: to vote for Biden is a vote for Harris. I
Speaker 2: don't know where people fall on that, but you know.
Speaker 1: Hey, Nathan Speaker, Kevin McCarthy's Speaker of the House, how
Speaker 1: important is the next few weeks for the speaker? Here
Speaker 1: it feels like, man, this is a referendum on his leadership,
Speaker 1: just point blank.
Speaker 10: Well absolutely, I mean this was something that everybody knew
Speaker 10: was coming. You know, there was going to be a
Speaker 10: piece of legislation where he would need to get his
Speaker 10: party in order, and this is it. And so if
Speaker 10: he can show that he can get all of the
Speaker 10: GOP on board onto this deal, this is a big
Speaker 10: win for him. I mean, this gives him a lot
Speaker 10: more leverage in these negotiations over the dead ceialing. If
Speaker 10: somehow he doesn't, well, then you know, people are going
Speaker 10: to start chipping away at his leadership and their questions
Speaker 10: are going to be asked and so forth. And that's
Speaker 10: what the market doesn't like, and market doesn't like uncertainty,
Speaker 10: and so you know, we are actually just thinking that,
Speaker 10: you know, whether or not this bill passes or not,
Speaker 10: I'm sorry. If the bill passes, it's not going to
Speaker 10: go anywhere. I mean, all this is dead on arrival.
Speaker 10: But if the bill passes, at least the market can
Speaker 10: take to the point that negotiations are going to start
Speaker 10: in earnest. Now this gives them something to go to
Speaker 10: the White House and say let's start here. So, uh,
Speaker 10: you know, we haven't really seen market angst when it
Speaker 10: comes to the dead healing just yet. You know, as
Speaker 10: the X dat gets closer and closer, you're certainly going
Speaker 10: to see it both on the equity side and the
Speaker 10: fixed income side.
Speaker 2: Do the uh, you know, President Biden mentioned the Mago Republicans.
Speaker 2: He said they want to cut social Security. I'm not
Speaker 2: sure if that's true. But Emily, what role do does
Speaker 2: the you know, the right wing of the party play
Speaker 2: in this? What role do the you know, Marjorie Taylor
Speaker 2: Greens play in Kevin McCarthy's uh, you know, power in
Speaker 2: the House.
Speaker 11: I mean, certainly McCarthy has had to be very diligent
Speaker 11: right about catering to the Marjorie Taylor Greens, to those
Speaker 11: sort of on the conservative side, But at the same point,
Speaker 11: he has not been able to ignore the moderates. And really,
Speaker 11: what we had a good reminder of yesterday is that
Speaker 11: it's not just these ideological streams. It is literally any
Speaker 11: group of lawmakers can hold things up. There are four
Speaker 11: Republican members from the state of Iowa. Iowa grows a
Speaker 11: lot of corn, a lot of concern there about biofuels.
Speaker 11: All four Iowans were in McCarthy's office yesterday trying to
Speaker 11: get him to make changes on the bill that he
Speaker 11: ultimately did give a little bit of ground on. And
Speaker 11: so you can kind of see that it really just
Speaker 11: takes you and three of your buddies to wind up
Speaker 11: proposing a headache for Speaker McCarthy and to potentially stiny
Speaker 11: really important legislation.
Speaker 1: And Nathan thirty seconds left here. Let's assume that the
Speaker 1: dead ceiling gets done. What's next for Congress? Can they
Speaker 1: get anything really done here in this environment?
Speaker 10: Well, you know, I was just going to talk to
Speaker 10: the assault deduction. You know, I'm not going to say
Speaker 10: it's going to get done, but we saw a propos
Speaker 10: You know, we've seen statements from Republicans in moderate New
Speaker 10: York and California saying they want to move on this,
Speaker 10: and they can't move on salt deduction until after the
Speaker 10: death cealing. So for those of you in New York,
Speaker 10: I'm not saying it's going to get done, but momentum
Speaker 10: is beginning to tweak a little bit, so keep that
Speaker 10: in mind.
Speaker 2: I have one year, eight months, and four days until
Speaker 2: the salt deduction cap is retired.
Speaker 1: It's now back on my agenda because I'm now once
Speaker 1: again a homeowner in the great state of New Jersey.
Speaker 1: So I'll talk to my friends down in DC see
Speaker 1: if we can get something done here. Nathan Heggre, I'm sorry,
Speaker 1: Nathan Dean, thanks so much. Bloomberg Intelligence He covers all
Speaker 1: that Washington stuff that no one else, really, no one
Speaker 1: else wants to deal with, but he does it so well.
Speaker 2: And Emily Wilkins.
Speaker 1: Emily Wilkins.
Speaker 2: She is the host of the new program What Happened
Speaker 2: to the Republican hartypen to the Republican Party with Emily Wilkins.
Speaker 1: With Emily Wilkins coming to a station near you.
Speaker 6: You're listening to the tape Cat's are live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 6: tune in app, Bloomberg dot Com, and.
Speaker 4: The Bloomberg Business App.
Speaker 6: You can also listen live on Amazon Alexa from our
Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 1: All right, let's talk restaurants. Here is Emily mentioned. We
Speaker 1: had some some numbers come out from our good friends
Speaker 1: at Chipotle, Wendy's, all kinds of stuff. Here we check
Speaker 1: in with Mike klen He's a senior restaurant analyst with
Speaker 1: Bloomberg Intelligence. Mike talked to us about kind of some
Speaker 1: of these fast food restaurants are starting to hear some
Speaker 1: earnings coming out. Chipotle had some good number stock really
Speaker 1: rallying today on the news. What do you see.
Speaker 12: Yeah, so we've had just just too so far. Chipotle
Speaker 12: and McDonald's yesterday, and they both did well. And it's
Speaker 12: not really a surprise. They've both been really knocking to
Speaker 12: cover off the balls since the early days of the pandemic.
Speaker 4: You know.
Speaker 12: Chipotle was you know, they had a good quarter. The
Speaker 12: sales trend you know, they be pretty handily, but the
Speaker 12: trends actually only increased about fifty basis points on a
Speaker 12: four year basis. But what was really impressive was the
Speaker 12: margin expansion that they saw. So so they had a
Speaker 12: little bit of a dud with the limited time off
Speaker 12: in the fourth quarter, the garlic Guahillo steak, and they've
Speaker 12: they moved on to chicken out pastor in the first
Speaker 12: quarter and they've they said it was very successful.
Speaker 1: Uh.
Speaker 12: They also did well with their faheta case ideas that
Speaker 12: they were pushing on TikTok, you know, and and avocado
Speaker 12: prices eased a little bit of year over year, and
Speaker 12: you know, add it all up and it turned out
Speaker 12: to be a great, great quarter.
Speaker 1: So, Mike, for some of these fast food companies, how
Speaker 1: are they how effective are they able to pass along
Speaker 1: their their price increases to the consumer.
Speaker 12: Well, we're going to see this year so far, so good, right,
Speaker 12: We're going to see how that how you know about
Speaker 12: ten percent price increases from last year start to you know,
Speaker 12: we're going to see if there's gonna be any more
Speaker 12: pushback this year now that pretty much most of the
Speaker 12: stimulus is going to roll off, you know, the last
Speaker 12: of the stimulus is gonna is coming off. I think
Speaker 12: in May. That's the uh that's the moratorium on student
Speaker 12: loan payments, right and that and that's a big cohort.
Speaker 12: That eighteen to the thirty four year old cohort is
Speaker 12: very big for quick quick service customers. That's a big
Speaker 12: cohort for for them. So, you know, we're gonna see
Speaker 12: if there's if it's going to have any impact. You know,
Speaker 12: there's also some other things we're looking at. You know,
Speaker 12: credit card account bounces have have hit record hit record
Speaker 12: highs in the fourth quarter. We haven't had first quarter
Speaker 12: numbers yet. Real incomes have dropped every month for the
Speaker 12: last two years straight. So there's definitely some pressures we
Speaker 12: think around the corner and we'll see, we'll see how
Speaker 12: much consumers push back. But the thing about quick services
Speaker 12: right there, they're a much better space than the full
Speaker 12: service diners because it's a it's a cheaper meal occasion.
Speaker 12: So they'll have some people kind of fall out of
Speaker 12: the bucket, But then they'll also have some middle and
Speaker 12: upper income consumers that that might say, you know what,
Speaker 12: I'll skip out in the full service meal and I'm
Speaker 12: gonna visit Chipole or McDonald instead.
Speaker 2: By the way, Mike, I'm gonna throw you a little
Speaker 2: bit of a curveball here.
Speaker 3: Uh.
Speaker 2: It really grinds my gears when I go to one
Speaker 2: of these fast food places or like a salad bar
Speaker 2: and I pay with you know, I use Apple Pay
Speaker 2: or I or I pay with a credit card and
Speaker 2: the counter the cashier turns the little screen around and says, oh, here,
Speaker 2: just click an option of how much you want to tip?
Speaker 2: Do you want to give us fifteen percent, twenty percent,
Speaker 2: or twenty five percent. Don't worry, you can also give
Speaker 2: no tip. It's an option. Who allowed these people to
Speaker 2: put me on the spot like that and make me
Speaker 2: feel like either a jerk or force me to tip
Speaker 2: a fast food worker? Like why is that a thing?
Speaker 12: Because because a lot of restaurant employees are underpaid and
Speaker 12: restaurants are sure you're trying to figure out a way
Speaker 12: to to you know, to.
Speaker 2: Make me pay more for that. Look, why don't they
Speaker 2: just pay their employees more and charge me an extra
Speaker 2: dollar for my big Mac or whatever? It just seems
Speaker 2: so rude.
Speaker 12: Well because of paying that extra dollar. You know, you
Speaker 12: or I might not blink at the extra dollar for
Speaker 12: the meal, but a lot of people will, especially in
Speaker 12: Middle America. So that's that's their their apprehension about that.
Speaker 12: You know, Chipotle mentioned that they that they recently rolled
Speaker 12: out tipping on their apps, right, and the same thing.
Speaker 12: I ordered my son a burrito the other day and
Speaker 12: it was like, would you like to leave? You know,
Speaker 12: eighteen percent? Two percent? You know, uh, and it was
Speaker 12: a pickup order. We were doing the work.
Speaker 2: So, well, how does shareholders look at that?
Speaker 4: Mic?
Speaker 2: I mean, our shareholder is happy because Chipotle is getting
Speaker 2: the consumer to foot the bill for Chipotle's employees or
Speaker 2: you know, is there any concern that consumers are going
Speaker 2: to fight back against this?
Speaker 12: Well, listen, the consumer can fight back, but just by
Speaker 12: clicking no tip, right, So as long as it's helping
Speaker 12: the restaurant level and operating margins by keeping labor down.
Speaker 12: I think investors like it, right, I mean, Chipotle's getting
Speaker 12: back to you know, they might hit a twenty seven
Speaker 12: percent restaurant margin in the second quarter based on their guidance,
Speaker 12: and that that's that's the level we haven't seen in
Speaker 12: a very long time, since before you know, the e
Speaker 12: coli issues back in like twenty sixteen. So if you
Speaker 12: look at the stock today, up for team plus percent,
Speaker 12: I think of Vesta's like it.
Speaker 2: At Chipotle, it's safe to click no tip because you
Speaker 2: watch them make your food right before they present you
Speaker 2: with the option. But I was at Shakeshack the other
Speaker 2: day and the guy, the cashier was like, how much
Speaker 2: do you want to tip us? We really need your tip.
Speaker 2: We'd appreciate your tip. And then they're gonna make my
Speaker 2: food after they see what I've chosen, right, So then
Speaker 2: it gets a little bit sketchy.
Speaker 12: So that's a little aggressive, that's a little aggressive.
Speaker 1: One step up in the fast food I'm not you guys,
Speaker 1: I'm not sure what you guys call that, but just
Speaker 1: how's that segment of the restaurant business doing.
Speaker 12: Yeah, casual dining, yes, you know, we'll see I mean
Speaker 12: the numbers slowed in you know, in the first quarter
Speaker 12: as the quarter went on, so January, and we had
Speaker 12: some very easy comps based on lapping the Ober krown
Speaker 12: outbreak from last year. We had a couple of weeks
Speaker 12: of that also in February, but then in March that
Speaker 12: went away and SAMs sales only rose, you know, one
Speaker 12: point eight percent across the industry in March. We suspect
Speaker 12: there could be an additional slowing in April, and I
Speaker 12: think part of that could be that trade down that
Speaker 12: we were talking about where customers are saying, you know what,
Speaker 12: I'll save some money on the on the tip and uh,
Speaker 12: you know, and on drinks and advertisers and desserts and
Speaker 12: we'll just hit McDonald's instead of you know, name the chain,
Speaker 12: Chili's or Fridays or something like that. So we expect
Speaker 12: there to be a lot more pressure on the full
Speaker 12: service chains this year for that reason. And you know,
Speaker 12: we'll see nobody's nobody's reported yet on the first quarter.
Speaker 12: So right, we're anxiously awaiting, all.
Speaker 1: Right, good stuff. We'll get you back when we get
Speaker 1: some more results out of those retailers. Mike Klin, he's
Speaker 1: a restaurant analyst at Bloomberg Intelligence giving us the lowdown
Speaker 1: on the restaurant biz.
Speaker 6: You're listening to the tape can't Live program Bloomberg Markets
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Speaker 6: You can also listen live on Amazon Alexa from our
Speaker 6: flagship New York station Just Say Alexa playing Bloomberg eleven.
Speaker 4: Now. I have.
Speaker 2: Had an interesting experience back in twenty sixteen. I won
Speaker 2: a little bit of money.
Speaker 1: In a lottery.
Speaker 2: Let's just say I won some money, okay, and I thought, uh,
Speaker 2: I want to buy a Rolex watch. I've never had
Speaker 2: one before and I was, I don't know, forty five
Speaker 2: years old. So I went to uh Torneau here in
Speaker 2: the city. I think I'm Madison, right, yeah, yeah, And
Speaker 2: you just walked in and looked at the Rolex watches
Speaker 2: they had in the shop, and I picked one out
Speaker 2: and I bought it. Okay, easy, pasy, sure you know.
Speaker 2: Now fast forward to this week, I'm about to turn
Speaker 2: fifty and my wife has said, you know, maybe she'll
Speaker 2: buy me another one. I lost the first one in
Speaker 2: a motorcycle accident. But so I go into Torneau and
Speaker 2: I say, where are your Rolex watches? Oh, we don't
Speaker 2: have any for sale. What Torneau, it's like the biggest
Speaker 2: now it's called Booker, It's like the biggest Rolex dealer
Speaker 2: in America. I said, so, not in this store. Can
Speaker 2: I find one downtown? Is there gonna be one of
Speaker 2: the Westchester? No, there are no Rolexes for sale. They've
Speaker 2: got display pieces that they're not gonna sell. And then
Speaker 2: but what you do is you put your name and
Speaker 2: number down and I guess you like bribe the sales
Speaker 2: clerk and hope hopefully they call you back in a
Speaker 2: few months to a year and let you buy it. Wow,
Speaker 2: it's just so weird. And I don't understand if it's
Speaker 2: because demand has shot up, you know, with the stimmy
Speaker 2: checks and the pandemic, or if Rolex is pulling back supply. Anyway,
Speaker 2: I wanted to ask an expert, and it just so
Speaker 2: happens they had a watch guy. We have a watch
Speaker 2: guy in Geneva. Andy Hoffman wrote a great piece about
Speaker 2: the outperformance of the Rolex Daytona models. They put out
Speaker 2: a really cool I think white gold or platinum Daytona
Speaker 2: with a with a light blue face that's going for
Speaker 2: like one hundred grand wow, because no one can find
Speaker 2: them from MSRP. Andy Hoffman joins us right now to
Speaker 2: talk about this issue. Andy, what do you think is it?
Speaker 2: Are we in just a new era? Has Rolex engineered
Speaker 2: this perfectly? So the their products are you know, unfindable
Speaker 2: and that drives demand even higher.
Speaker 4: Well, good morning.
Speaker 13: This is a very complex and this is the you
Speaker 13: know question, and this is the question that everyone is asking,
Speaker 13: and indeed your experiences is not unusual. You cannot buy
Speaker 13: most Rolex professional models at retail at manufactured or manufacture price,
Speaker 13: and what that has created is a secondary market where
Speaker 13: Rolex watches sell for above the suggested retail price. Indeed,
Speaker 13: though Roles certainly says they are have not tried to
Speaker 13: create this situation. They don't want this situation. But at
Speaker 13: the same time, it's very difficult for them to increase production.
Speaker 13: They are increasing production marginally. We've written about this. There
Speaker 13: actually have a plans for a major new facility here
Speaker 13: in Switzerland and bull in twenty twenty nine, which is
Speaker 13: quite a way off. But indeed, because demand is so powerful,
Speaker 13: right now and so strong. They're going to build some
Speaker 13: temporary facilities beginning in twenty twenty four and launching in
Speaker 13: twenty twenty five that hopefully may increase production somewhat and
Speaker 13: maybe bring some relief to people like yourself who would
Speaker 13: like to buy a Rolex at the retailer. But they
Speaker 13: make over a million watches a year, one point two
Speaker 13: million by some estimates, So it's a lot of watches.
Speaker 1: Yeah, So I mean, is is it just a Rolex
Speaker 1: issue or is it just or is it brought it
Speaker 1: more broadly define a luxury watch issue.
Speaker 13: Yeah, it's a good question. It's not just a Rolex
Speaker 13: issue that you know, you cannot buy any new Protect
Speaker 13: Philipps models at retail, same with Odomarp Gay, any of
Speaker 13: those high demand super hype watches that you know sort
Speaker 13: of came to the forefront during the pandemic. And you're
Speaker 13: right to talk about the stimulus checks in the United States,
Speaker 13: and you're right to to to talk about the pandemic
Speaker 13: because you know, people were stuck at home, they had
Speaker 13: a lot more time on their computer. There's a lot
Speaker 13: of great information out there about luxury watches and sort
Speaker 13: of you know, the whole market kind of it was
Speaker 13: already growing and interest was increasing, but it really changed
Speaker 13: during the pandemic. And it's you guys in the US
Speaker 13: who are really driving this. This too, this is an
Speaker 13: American story.
Speaker 2: Well, I wonder about how much I can take Rolex
Speaker 2: at their word when you start to talk about the
Speaker 2: you know, ultra luxury, the big three vascher On, Constantine,
Speaker 2: Auto Mars or what was the other one, protect Philip.
Speaker 2: You know, it's such a specialized market. These are watches
Speaker 2: that only real watch people even know about, right Whereas Rolex,
Speaker 2: you know, every it's a household name, and they strongly
Speaker 2: suggest Andy, as you know well, that you only buy
Speaker 2: their watches from authorized dealers. And supposedly they're very serious
Speaker 2: about stopping authorized dealers from leaking their watches onto the
Speaker 2: gray market. But why is it, then that there are
Speaker 2: so many brand new Rolexes in the gray market. I
Speaker 2: just ran a search for the yacht Master forty two.
Speaker 2: It's a brand new model that hardly any stores even
Speaker 2: have in display, and yet there are two hundred and
Speaker 2: fifty eight unworn inbox with paper examples on Krono twenty four.
Speaker 2: Rolex just brought out a new GMT Master two that's
Speaker 2: being nicknamed the bat Girl because it's like the Batman
Speaker 2: GMT Master, but it's on the Jubilee bracelet. They're brand
Speaker 2: new and Krono twenty four has three hundred and twenty two.
Speaker 2: Where is the grain market getting all these watches if
Speaker 2: the authorized dealer isn't selling it to them, or if
Speaker 2: Rolex isn't slipping them out the back door.
Speaker 13: Well, it's a good question, and it's certainly you know,
Speaker 13: Rules is not a seller to consumer of watches. Authorized
Speaker 13: dealers are, and so the question is what happens at
Speaker 13: the authorized dealer level. And indeed, if you or I
Speaker 13: or a friend of yours has a good relationship with
Speaker 13: an authorized dealer, they may get an allocation for that
Speaker 13: Rolex that they want, and then that person has a choice,
Speaker 13: and you know, the way that the current secondary market
Speaker 13: is they can turn around and sell that Rolex for
Speaker 13: quite a tidy profit because prices on the secondary market
Speaker 13: are higher than at retail, and so that is a
Speaker 13: temptation and that is a business for many people. However,
Speaker 13: at the same time, whether it be Rolex or Protec
Speaker 13: or Odemar Piguey, all of these Swiss watchmakers try to
Speaker 13: police and try to have oversight over what dealers are doing,
Speaker 13: and if they are seen to be selling to flippers,
Speaker 13: they are penalized. I mean, we did an interview with
Speaker 13: Tierry Stern, who's the CEO or the president of Protect
Speaker 13: for Leap. His family owns protect for Leap, and you know,
Speaker 13: he said he buys about two hundred watches on the
Speaker 13: secondary market himself a year, or the company does figures
Speaker 13: out where they're from and figures out if the dealers
Speaker 13: who sold them were selling them to the wrong person.
Speaker 13: So this is a this is a problem that the
Speaker 13: brands recognize and they don't want this to happen.
Speaker 2: Andy, I wonder if we're getting set up for a
Speaker 2: fall here because the demand is so hot and as
Speaker 2: you say, a lot of people are just buying them
Speaker 2: and flipping them right away. And I go on the forums,
Speaker 2: the Rolex forum is very popular, and I hear one
Speaker 2: refrain from all of the collectors and enthusiasts. Prices never
Speaker 2: go down. And that's kind of like what we heard
Speaker 2: about home prices in two thousand and seven.
Speaker 4: Right.
Speaker 2: Is it possible, especially as Rolex is preparing to boost production,
Speaker 2: that we finally have a downturn if we enter a
Speaker 2: US recession.
Speaker 13: Absolutely, and you guys have been around business as long
Speaker 13: as I have, I'm sure, and we know that nothing
Speaker 13: goes up forever. And indeed we've seen prices on the
Speaker 13: secondary market already being have been declining for the past year.
Speaker 13: So that Rolex Daytona, that protect Nautilus, that ap Royal Oak,
Speaker 13: prices for those really hyped models are all down anywhere
Speaker 13: between twenty five and and you know, thirty five forty
Speaker 13: percent in the past year. The overall market indexes that
Speaker 13: track them, and indeed, we at Bloomberg have just launched
Speaker 13: something called the Bloomberg Subdial Watch Index, which you'll see
Speaker 13: us generate. It's called it's called the Bloomberg sub Dial
Speaker 13: Watch Index. And this is something that we've created with
Speaker 13: the news innovation team uh here and here in Europe
Speaker 13: and with a trader and pre owned dealer in London
Speaker 13: called sub Dial. Check them out. They're they're great, they're
Speaker 13: really cool and and and what they do is they
Speaker 13: scrape the data from you know, thousands of transactions for
Speaker 13: secondary on the secondary market for pre owned watches, and
Speaker 13: they come up with prices and so current market prices
Speaker 13: They're not the only people who do this, but uh,
Speaker 13: they do it quite well, and they've shared the data
Speaker 13: with us. And now we're generating stories and charts and
Speaker 13: things like that so we can track prices.
Speaker 1: Yeah, we gotta.
Speaker 2: We got to watch guy.
Speaker 1: Yeah, we're gonna call you more often. Yeah, we might
Speaker 1: even come over to Geneva where you are. We'll do
Speaker 1: some little primary research.
Speaker 2: Ry Zurich.
Speaker 13: I'm in I'm in Geneva.
Speaker 2: I'm in Niniva, right, yeah.
Speaker 1: All right, guys, we have friends in Geneva and we've
Speaker 1: got friends in Zurich. We'll come over, all right, Andy,
Speaker 1: thanks so much for joining us. Andy Hoffin, reporter for
Speaker 1: Bloomberg News.
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
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Speaker 2: at Matt Miller nineteen seventy three.
Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.
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