This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
So the FTC suding to block Amgin's twenty seven point eight billion dollar acquisition today. You know, it's just amazing. There's a lot of stuff that's coming out of the FTC. So let's get right to it because we have a blockbuster duo of Jennifer Ree, Bloomberg Intelligence Senior Litigation analyst here in a Bloomberg Interactive Brokers studio. Also with us is Bloomberg News Anti trust reporter leaet Nyland. She's on
camp from our DC bureau. Lea, I do want to just start with you, just lay out the news of what the FTC said and did.
Yeah.
So, the FTC suit today it's a block anjen from buying Horizon Therapeutics. It filed a lawsuit in Illinois federal court asking for a preliminary injunction. That just means that it's asking the court to pause the deal while the FTC would go through this in house process on whether
the deal is anti competitive. People were pretty shocked because for the past ten years, the FTC is routinely okay deals like this just by requiring pharmaceutical companies to divest any overlapping drugs they had, and instead, here they're moving for an outright block of the deal, something they haven't done since two thousand and nine.
So Jen, come on in on this. Were you shocked that they did this?
You know, I really was. I mean, Leah got it exactly right. She really knows this stuff. I did expect a suit like this, sort of non traditional, but I thought it would be Pheiser Segan, which is pending right now. I didn't expect it to be this one because really they have absolutely no horizontal overlap, at least in their marketed drugs. So it's surprising because the theory is just
so speculative. Yeah, I mean, thinking about what Amgen might do in the future with respect to bundling once it has horizons products.
So what's up with the FDC, you know.
Is just like a limit, like if any deal is more than twenty billion dollars, we're going to suit it lock it because they just don't want any big deals done.
So AI program that goes off and right exactly.
Well, you know, at the end of the day, it is kind of like that. I mean, they view most industries as overly consolidated today. And if you start with the view that we've already had too much consolidation, then your position is I want to stop further consolidation. And pharmaceuticals is a really sensitive area. I mean, prices are high.
We have a problem with that, and in particular, that's what anti trust is trying to avoid, you know, high prices and increased innovation, and they believe that the consolidation has reduced innovation and increased prices, and so they're trying to do the best they can to stem the tide. So at the end of the day, you know, it is a little bit of a default. If it's a big deal, if it's an in an industry that's consolidated, yeah, it's likely they're going to challenge.
I just feel like, you know, even though there is consolidation that goes on, but isn't that where regulators supposed to come in and kind of regulate and make sure that things are being done, right, Leah, come on in, So what's next here for Amjet.
And tell us. Also about the state of antitrust. I mean, this used to be a good thing. We were all for monopoly busting. We want antitrust to spur innovation and competition. It seems like, I don't know, the public is bummed out every time the FTC sues to block a giant, mega deal. Shouldn't we be cheering them on?
Well, I guess it depends who you ask. BUTTC is moving to block this, it'll have to go through a court challenge, so this will be an Illinois federal court in Chicago, Amjhen and Horizon so that they remain committed to the deal, which means that they're willing to litigate this. It is sort of, as Jen was saying, a little bit of a speculative theory. But some of the stuff that the FTC has been moving forward with is a
lot of concerns about innovation. You see this in their block of Microsoft Activision, which really focused on this cloud gaming market, which is a very nascent market that's not used by a lot of people.
Yet again, a lot of stuff we don't know yet.
Yeah, and I'm this the complaint is not yet unsealed it'll be unsealed later today, so we'll see a little bit more about some of the exact allegations. I had thought that there might be a little bit more about overlaps in the pipeline, because both Horizon and Amjen are working on some deals related to lupus and Exima that have some promise but are still pretty early on in the process. But so far, what the FTC has said is that they're just really concerned about bundling all of
these orphan drugs. Those are drugs that are for rare diseases and sort of the FDA has given monopoly too specific companies to encourage them to develop these drugs for rare diseases. They're very concerned about having so many orphan drugs in the hands of one company.
Jen.
For someone who really studies the law here and tries to understand, you know, what's going on and make sense of it all, I mean, how much of what you're looking at it feels like politics in you know, with another administration who's watching healthcare generally and what it means, pecially as we see private equity increasingly buying up medical practices.
There's a lot of stuff.
Going on where I think some would argue consumers are getting hurt, no doubt about it. So how do you see Is it much more politics in this one or is it a case of where the law we need to be careful here.
You know, when I think about it as politics, I think of it more as a position.
Right.
The current regulators, the heads of the anti trust divisions at DOJ and FDC, have a position that has been encouraged by the Biden administration, and that is that consumers are being harmed and they're on a mission to fix that.
Right.
You know, you were talking about deals that people might be happy to see. Challenge to the Department of Justice is challenging Jeff Blue's acquisition of spirit, and I think there are a lot of people that might be happy about that that have had really awful experiences flying. You know, they are trying to do the best they can for consumers, and their position is that the last twenty thirty years of anti trust enforcement has been.
Two lacks and we have this result.
Do you agree?
You know, I tend to agree in some industries, but not in all. You know, I agree that a new position needs to be taken. I think where I have a little bit of trouble is that I think it needs to be taken with nuance maybe rather than sort of with a sledgehammer, because I think if you want to make strare, so if you want to push the anti trust law, I think it needs to be done carefully.
And you know they're going to be in front of a judge that is I see appointed by Trump and was often on a member of the Federalist Society, and just at least superficially, that doesn't seem very good for the FTC on this one, and they're going to have a hard time.
On the other hand, Look, Leah, Microsoft is a two point three trillion dollar company. Do they really need to own the biggest and most played video game in the whole world?
I mean, if you're an investor and it's going to bring about growth, you're gonna say, yeah, maybe they do.
Of course, Well, monopolies are really helpful too, So for your investor, you'd probably love to have a huge monopoly. I'm sure if you're an investor you would love to break all the rules. But for the consumer, it's not necessarily healthy to give the biggest company in the world even bigger size, is it.
Yeah?
I mean That's a bit why the FTC has had a big focus on some of the large tech mergers. I mean, if you look, two of the things that they've challenged over the past year have been the Microsoft activision, and then they challenged one by Facebook over It was a very small sort of startup I deal over Within, which makes a virtual reality fitness app that probably a
lot of people had never even heard of. But this idea of like innovation wanting to make sure that there's still a lot of innovation across the economy is one that we keep seeing come up over and over again in a lot of the suits that the Justice Department, in particularly the FTC is filing. You know, the meta within challenges. I mentioned. They were really worried that, you know, Facebook was buying up this small competitor, sort of like it did with Instagram back in the day. And they said,
you know, Facebook is a huge company. If it really wanted to move into virtual reality, it could build some of these programs itself. That seems like maybe an argument that they're making here. You know, Amjen is not a small company. This is one of the largest acquisitions it has ever done. You know, maybe if it put that money towards developing a drug on its own, it could have some success.
Changens one hundred and twenty billion dollar company. They're making a thirty billion dollar acquisition.
It's a lot. It's a lot if you do the percentages there. So, Jen, how do you see what is kind of the balance? How do you think about it in terms of the law versus innovation, you know, and companies looking potentially for growth here.
We know there's a lot of question about innovation and how innovation's impacted. I mean, there are some that would argue a lot that would argue that we don't have enough competition, and competition spurs innovation, and that's certainly the
FTC's position, as Leah outlined. But there are others that say, well, innovation will be slowed because if a startup is basing their model, you know, starting their product with the idea that it's going to be able to sell out for a lot of money to a bigger company down the road, and they see that they can't do that, they're not going to start to begin with.
Although Uber, look what Uber is exactly, So I mean, I think that there's a debate and really, you know, there's no right answer.
But the bottom line is that there there is some evidence and economists have done studies showing that the rate of innovation has slowed down, particularly in pharma and in tech and the United States, and so it could be into the view is that it's part and parcel the lack of competition.
Interesting, got anything else there, buddy, Well, I'm just thinking about you know, the innovation that spurred the mRNA vaccines, right, didn't come from big pharma. That came from smaller players. Of course, they probably also.
Came with government backing. It came with government backing initially. Remember that, yes, messenger RNA technology was initially funded in part by government. I did not it was out there for four or five years.
And that's part of the FTC's theory here, because what they're concerned about is that amjen is going to thwart a foreclosed smaller rivals to push them out by being able to have a lot of money to give huge rebates to favor its drugs.
Although Big Farmer looks at those smaller rivals in a big way in terms of ultimately buying them up. And it's a tough, complicated anyway, we'll have more.
It is complicated and tough.
It is Jennry Love Love Love, senior litigation analyst at Bloomberg Intelligence Love Leoniland. She's anti trust reporter a Blomberg News. Check her out on the terminal and on Twitter.
You're listening to the Bloomberg Business Week podcast. Catch us Live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App, or watch us Live on YouTube.
So we know earlier this morning we got to read on US retail sales. Right up, it is a bad read steady consumer spending.
Why was it bad Home Depot?
Oh?
I thought you were talking about home Depot.
I'm so glad you listened to me.
Well, we did get a read on consumer sales from home Depot and it was bad.
Well, we got economic data right from the government retail sales.
Oh yeah, I trust that less than home deepo Okay.
And then we got where we saw most of the categories showing firmer sales in the month of April. And then we got Home Depot coming out and cutting us out look for the first.
Yes for the air, And that's like worrying. I think more worrying than because the economy numbers. Of course we wait and people trade on them. But the Home Depot forecast shows you what Corporate America sees go going forward, right, and it's not a pretty.
Picture, all right, So let's see what our guests has to say about it. Mary Luke Gardner is Associate partner for CpG Retail and Logistics at Emphasis Consulting. She drews us on zoom from Naples, Florida. Hey, Mary Luke, good to have you here with Matt and myself. So all right, tell us what's more important retail sales, the data or home depot or you can say both, or you can see me either.
Well, home depot is its own problem. So retail sales were really kind of just in line with the Consumer Price Index. There wasn't anything, you know, the expectations. They didn't quite meet, you know, they didn't meet the Wall Street expectations, but I don't think that they were not surprising. Home Depot on the other example, on the other side, is they really missed their estimates.
Right.
Their revenue dropped four point two percent. They did beat earnings, but their comp store growth was down. But that isn't that is a result of if you think about year over year, when people were stuck in their homes and they were, you know, looking around and saying, I need to make improvements, and people were spending more on big ticket items like appliances and grills and patio sets because
they were home a little bit more. So there was a lot of spending that you wouldn't necessarily repeat year over year. And there's also you know, while inflation is still very much on the mindes of consumers, lumber hit costs have gone down pretty significantly. So the combination of those two, those two and then triangulate it with the weather extremes on the West Coast really impacted some of
home depot's sales. So it'll be interesting to see. I know they took their guidance down, but it'll be interesting to see how long that new kind of that trend. And you know how people the consumers are spending in that particular sex.
So essentially, consumers are spending least on projects that require them to buy lumber, and lumber prices have fallen, so home depots fat margins are now a lot skinnier than they were before. Correct, Yes, what does the consumer look like to you right now. This is another thing that Carol and I have been talking about. We saw, obviously the savings rate has just plummeted to nothing, and we've
seen credit card debt balloon. What I can't get a handle on his bank balance is when we listen to people like Jamie Diamond, he says, they're still high, but surely they've come off. Otherwise consumers wouldn't need to be putting things on plastic.
Well, but yeah, exactly, and credit has gone through the roof, and now the challenges around that. They're going to be higher interest rates, we're going to be tightening credit limits
and so and there's a weaker job market. So you comminate all those things, consumers are starting to say, oh, you know, I need to be careful, and then you've got this, you know, you know, if we don't solve the debt ceiling problem, which hopefully we will, the news over the last hour at least appeared to be a little bit better that they're looking for a bipartisan solution, that if they don't, then we're in for an economic disaster.
So I think consumers right now are just waiting and making sure that you know that they're not going to be losing their four oh one k on top of their you know, whatever savings they might have left that they had accumulated, you know, during the COVID time.
So, Marri Lou, it's a big week for retail earnings, right We're going to hear from a bunch of companies throughout the week and then some But every retailer isn't the same, and we know that. So who do you think is best positioned considering the economic backdrop? Uh, you know, and if you look at individuals, you know, balance sheets, as Matt was just talking about, who do you think are the best positions? Who are not?
My bet is on Walmart. I think that you know, there's a lot of consensus out there that Walmart versus Target, the you know, their their orientation towards delivering value, plus the fact that they're a grocery retailer, so you have to go in there. There's you're more there's more traffic
driving through the Walmart door than the Target door. And so if you look at the Walmart Target debate right now, they've done a better job recovering from their problems that they had, you know, in the past year with inventory issues than Target has. So my bet would be in the Walmart that that they will come out hopefully with you know, better earnings, and then Target's got some work to do, I think, to regain that consumer and figure out,
you know, what are they going to do? Particularly if there is this you know they're they they're seen as the high end of the Walmart.
Yeah, I was gonna I was going to ask that merrily because I mean, we see we have Targets here in New York, so I get to go into at least smaller versions of I guess they must be bigger in the middle of the country, but there's no Walmarts around here. Is is Walmart a better bet if you're headed into a recession? Do they have lower prices? Is that one of those stores that consumers can go to if they can no longer afford the prices say at a Target? Or are they on a similar level.
Because it's interesting Walmart and Target if you look at their share prices are both up about five percent this year.
They are. But my bet right now is next we've bet? I think was it Walmart tomorrow or Target tomorrow?
Target tomorrow and then Walmart the day after.
I knew that they were with that that I think we're going to see that Walmart is winning that play right now. Target. Right the problem with Target is, you know, they haven't invested as heavily in private label and private label. We're seeing a lot of trade down from know the CpG companies, I mean P and G had earnings that really showed that they were losing the private label in this past year. And Walmart's done a really good job expanding their private label offerings. And well, Target has up
and up and they've got their their brand. I don't think they've done as good of a job there, and I don't think they've done a good job just with their their brand equity as it relates to value. And so right now when we're looking at that you know, value proposition in certain markets, I think, well Walmart is going to win.
Target, by the way, is out tomorrow before the market, before the bell, and then Walmart is out on Thursday morning before the bell correct And there's, like you mentioned, a ton of other tjmax Is out tomorrow, we get Bath and body Works on Thursday, raw stores on Thursday, so there's a lot of retail coming out. Do you think we're headed for a recession, Mary Lou, or are consumers girding for that?
I think, you know, people are so nervous about it, but hopefully we can stave it off. I'm not one hundred percent convinced we can. But the other interesting thing, you know, you're talking about all those retailers that and you were saying. You know, you're in the city, so you see target in their small formats, but the retail traffic in the cities has gone down significantly versus the
suburban areas. So there is this whole other dynamic happening right now because people aren't commuting into the cities at least not five days a week. You know, they're doing true a combination. So there's this whole other dynamic influencing retail right now, particularly in the urban markets where they do it's significant amount of volume where you've got retailers that are starting to pull out of certain markets or close stores.
So there's just on that. On that note, Mary Lou, I heard someone today say Low's is better positioned in terms of where they are. Do you think that's true as well? And we only got about twenty seconds here.
Ooh, I don't actually know Lowe's footprint as well as I know home Depots footprint, but they're different.
They'll come back to you on that one because they are in different places.
Home deepos down about ten percent this year. Low's has just called it flat. But I think from what I understand, home Depot plays a lot more to the contractor market. I have two brothers who are contractors, and that's a big business for them, and it's something that home depots specifically. So that's why maybe the lumber story.
Is really brothers on. Well, they come on, we John Vall.
Come on in. You know, we could do that. In the meantime, we do appreciate Mary Lou Gardner for coming on. She's associate partner for Considered Package Goods Retail Logistics of It Emphasis Consulting. Joining us via zoom from Naples, Florida.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg right now, the Bloomberg Business app and YouTube. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa to play Bloomberg eleven thirty.
All right, let's get to it. Let's switch gears a little bit. We want to get to a story that's in the upcoming new issue of Bloomberg Business Week. It talks about how the world we know needs more copper for batteries and electro grizz as it transitions away from fossil fuels. Chili is the world's number one copper producer, and yet there's some issues, some problems with it trying
to do that. So let's get to it with James Attwood, Bloomberg News senior Commodities reporter on Zoom from Santiago, Chile. Also here the editor of Bloomberg Business We Jill Weber here in our Bloomberg Interactive Brokers studio. I mean, Joel, you read the story the green energy transition. It should be good for Chili and yet not that straightforward.
Well, I think I've known for a while how important copper is to the Chilian economy, but I don't know if I appreciated just how instrumental it is. And Matt, you were talking about this earlier. Half the tax revenue in this economy comes from copper. But James, what was really frightening about the story is that copper is not exactly coming out of the ground at the rate that it was.
What's going on, that's right, Well, copper production in Chile has basically stagnated, so you know, basically in mining and copper specifically, you have to invest in minds to targets
richer veins of the deposit. So a combination of under investment in the case of Kadelco, which is the big state owned copper producer here in Chile and it accounts for about a half of production, and the fact that it's just getting more difficult, more expensive, slower to build new mines means that it's a tough task just to maintain production to learn, let alone increase it significantly.
And you kick off the story, by the way, talking about the chief engineer that saved those miners who were stuck underground for two months. It just illustrates the problems they faced. Right, some of these mines are over one hundred and what over one hundred and seventeen years old or something, So what is the problem. Is it the age of the minds, or is it that the actual supply of copper and the earth there is more scarce. What's the biggest issue? They face.
Well, that's right. The actual deposits or that the mines have been going from more than one hundred years obviously not at the same pace are now. So as mining operations mature, typically the ore quality deteriorates. So you start off mining the richer parts of the deposit, and then your all grades or the quality of the AAR starts falling, and that means you have to basically dig out more
rock to produce the same amount of metal. So unless you invest continually in a pretty significant way, then your grades will start deteriorating and you'll have to you know, basically use more volume to produce the same amount. That's what's been happening in Chile the last sort of ten years or so.
Sounds expensive, James.
It does. Yeah. So Kadelco, which is to say, is a state owned company. It's been. It was sort of born from a nationalization in the early seventies, and the military government continued, you know, didn't privatize again, kept it as a national state company, and governments over the last couple of decades have used the money from Kadelco and the mining industry more broadly to grow its economy and
develop its economy. Now there's been some under investment as a result, so basically the company is playing catch up to the tune of about thirty to forty billion dollars per decade just to maintain output.
Okay, So Kudelco, who's in charge.
There, Well, the CEO's Andrei Sigarette, who did ten sorry, thirteen years ago. Oversee, he was the chief engineer on the rescue of the thirty three Jillian miners years ago twenty ten, I think it will So he's an engineer turned manager and now he's in charge. And the chairman of the board is a governant of Maximo Pacheco, who has he's been an energy minister here in Chile as well as an executive for paper companies. So they're both very seasoned, capable leaders and so and.
The president is the most left leading leader they've had you wrote since Allende.
That's right, and that actually could help cause in that he's a bit more prepared to give funding to Kadoka to grow the business of strengthen it as a big states of national champion, So that could actually help the cause in terms of maintaining production.
So James, I thought one of the most interesting things, one of the most interesting issues that you covered in the story is the funding versus the execution or Pacheco right, the chairman says, you could send us six billion dollars additionally, but we would just give it back because it's not about the money we need to actually execute here. And the and the and the twist is that they're kind of distracted by also having to look for lithium.
That's right, I mean on your first point. So Pacheco and others will say, it's basically a bottleneck in terms of engineering and construction that was made far worse by the and then even worse by Russia's invasion the Ukraine. So it's just really tough to get the materials you need, the talent you need, and to get those big projects
pushed through. Now Koko is juggling four big project which projects within the copper business is a huge task, particularly in a small economy like Chili where labor is limited and resources. And that's right. So Chile has just announced this new public private lithium model and assigned Kadelko to be the representative of the state to negotiate with with
private companies and actually to lead those projects. Now, some opposition groups, opposition parliamentarians lawmakers say that that's going to DISTRACTO from the primary task of writing the ship. In terms of copper, Kodolko says, they have the experience in the resources and they won't undermine the excuse the pun copper ambitions.
Welcome, welcome when it's a really good butt that so okay, So James step back a little bit. What does all this mean for the global economy?
Well, basically that you know, you know, copper is one of the so called battery metals, so you use copper. Basically, copper is used for wiring predominantly, So if you're going to electrify the economy, you need a whole lot of copper, as well as nickel and lithium, graphite and others. So there's a lot of copper that goes into a rechargeable battery and to an electric car, into all the electric infrastructure that the world's trying to build out in a
fast way. So demand for copper is set to grow and supply is looking like it's going to struggle to grow at the same pace. Now is by no means an outlier. It merely reflects the challenges to the supply side to ramp up, and the stakes are a bit high with kaixist by far of the biggest what's the biggest company, the biggest copa producer, and it has the world's biggest reserves. So if it struggles, then it's it's a good indication that the whole industry is going to struggle to accompanying.
This story really puts this in uh I think in dark terms. It just shows how far and away Chile is as a copper producer in the world, producing almost twice as more than twice as much as Peru, well over China, d R c US all follow there. So if Chile is having problems here, it starts to make you wonder what this green energy transition actually.
Could look like.
Uh and it might require a little a little bit more uh more holes a new place.
In order to transition to green energy, you're gonna have to blow the face off the earth, right, Not.
Funny, Not funny, James, Thank you so much, so appreciate it. We know, what's the time difference in Santiago's a couple hours.
Same time we're on some New York time.
Okay, so good. We were just hoping we weren't keeping you up. Jims Atwood, Senior Commodities reporter at Bloomberg joining us as we said from Santiago, Chile, Jill Weber, Edit at Bloomberg BusinessWeek here on our Interactor Broker Studary studio. This is in the new issue of Bloomberg Business Week at our newsstands later this week, on the Bloomberg already and at Bloomberg dot com slash BusinessWeek.
Bromco a journal.
Now about you, let me drive?
Oh no, no, no, no, please, honey, please, I'll do the driving gravels.
Let's mate, I want to try it.
It's a good question time.
This is the Drive to the Clothes dot Com. I think we'll buy around on Bloomberg Radio.
All right, everybody, just under eighteen minutes left in today's trading session. Time to get to the Drive to the Clothes and back with us. As Hank Smith, head of investment strategy for Haverfrid.
Jack with us after twenty years for you.
I talked to Hank all the time.
I'm excited twenty years. Well back twenty years ago, you and I were doing a morning show and we had a young Hank Smith on. He was just kicking off his career. At har for full of vimen Vigor.
And now he's on the phone from Radnor, Pennsylvania.
Hank, how are you?
Was it really total? Did you tell Matt that you were? We were your first interview on television.
That is correct, on Bloomberg's Morning Call at six oh five in the morning. Oh my god, years ago.
Yeah, a long time ago. Man, what's happened in twenty years?
But I still have the vimen Vigor, Matt. And also I should say, welcome back to the US having done a lot.
Thank you Germany, thank you Vivien Vigor, and you have really important experience because we're at a place right now, Hank, that we haven't been since at least twenty eleven. Right, this debt ceiling debate has gotten worse than any time I've covered markets since twenty eleven. And I also think about the TARP vote when I think about, you know, mister market getting angry and throwing a tantrum and forcing Washington to do something. And that's what you talk talk to me about this morning.
You know, that's a that's a great analogy. And you know, I remember the Bond of Gilantes back in the early Clinton administration. But then the stock market can play the Gilante as well as they did in October of eight when Congress failed to pass TARP on the first vote, and you could just see the Dow declining and the acceleration of that decline, and I think it closed the day down about eight hundred and fifty points and continued declining.
And it was the stock market's way of saying, boys and girls in Congress, you have not made the right vote, and you need to reconvene, which they did a week later, and you have that risk happening right now. Is in fact again at Yellaen's correct in the X date is June first, you could see a collapse in the market as a way of the market expressing the Congress and the President, let's get this debt ceiling raised. So that is a distinct possibility, but it is kind of crazy.
Listen beyond the point. As somebody treated at me. I agree with Matt, Sorry, stop spending future generations money. That's a given here. But having said that, I feel like we go through this process so many times. I feel
like we're never going to get it right. I don't know, because politicians don't really want to do something differently Having said that, Hank, what do you have to do differently when it comes to investment strategy in this environment that creeps up every few years or is it every year that it happens? Yeah, I guess we have a debt seiling every year.
Well, yeah, on the previous administration, they did raise the debt ceiling without any strings attached, because that's the Trump administration was spending freely and so yeah. And in terms of again we have a long term focus. But I think in this environment, both with a slowing and the risk of you know, breaching the X state, I don't like to call it the risk of a default because I don't think they ever will default. They have enough money to pay interest and bills that are rolling over.
But in this environment, you want to have some defensive holdings that historically hold up in slower economic environments and also in more volatile environments. So you know, some of the healthcare names like the Johnson and Johnson's, some of the consumer names like a Dollar General or a Costco or a Pepsi that you know are going to do well on an earnings basis regardless of where we are in the economic cycle.
We have seen an earnings recession hank, so back to back quarters of a contraction in corporate profits. Do you think it's going to get worse throughout twenty twenty three? I mean, especially as the interest rate hikes that we've already seen and you know, with long and variable lags, just start to slam into the economy, the credit crunch gets worse. Consumers are spending their bank balances and borrowing much more on credit cards.
Are you concerned, Well, let's start with corporate earnings. I think there's some tailwinds to earnings that are underappreciated by the market. China reopening, improvement in the supply chain, very significant cost cutting as though we're already in the middle of a recession. Lean in theories that will ulbimently have to be filled and then the dec But is.
That preemptive the corporate moves kind of preemptive.
Yeah, it's corporate corporate confidence CEO confidence, and the way they're doing cost cutting is really indicative of being in a recession. But we're not in a recession right now.
Right Well, and having and you talked Matt, you said about individuals. I mean, we've talked about household balance sheets here we are still, you know how much out from the pandemic, and we've gotten reports that they're still doing okay. Individuals. Yeah, what do you what do you think?
I mean, if you look at all the data savings, bank account levels, credit card debt, how is the consumer doing well?
I think the consumer is doing okay, clearly not as in strong position as they were a year ago with all the transfer payments from the Cares Act and what have you, and the lack of spending. So you're seeing more spending, You're seeing a credit card debt go go up, but you point out bank savings are still strong, the consumer is still spending. The consumer is seventy percent of GDP services and consumer spending, but it certainly bears watching them.
Particularly lending standards continue to tighten to the point where we have a we have a credit crunch, but corporate balance sheets are pretty strong and spreads really haven't widened out, so that's not indicative of a near term of a near term recession. And of course, you know, the labor market is structurally very very strong, and anyone who wants a job can have a job. There's still plenty of job openings for those looking for it, and again that's
not indicative of a recessionary environment. And yet consumer confidence is at a level that's more consistent with a recession. So there are a lot of dichotomies here that the market has to sort out.
Matt, why you're sick?
I just think I know a lot of kids right now who are changing jobs and finding it more difficult than they'd imagine to find another to get a new one. And to be fair, they're all all the kids that I know in this situation. By kids, I mean people in their twenties are under.
The out of college.
They're all in tech, so that's a difficult place to find a right now. Also, I know that a lot of people, especially in their twenties and thirties, are worried that their college loans are about to kick back in. They've had time off from paying those bills and it's about to make their monthly not a little bit bigger.
Yeah, which means they're not going to have money to spend on other things.
Yeah.
To be continued. Hank Smith, though, thank you so much, head of investment strategy at Howe for Trust Company. As you know, someone that we've been talking to.
For decades, but now, I haven't talked to you enough lately, Hanks, so I'm looking forward to getting you back on as often as we can.
This is the Bloomberg Business Week Podcast. I'll a a little Apple, Spotify, and anywhere else you get your podcast. Listen live weekday afternoons from three to six Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg termatalone