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.
We're looking at the impact of the bank collapses that we've seen this year on the startup world. For that, we want to bring in Jack Selby. He is the managing director over at Teal Capital. He joins us on the telephone from Phoenix, Arizona. Jack, great to get some of your time today. We've had a couple months to digest the the the collapses from Silvergate and SVB to Signature and First Republic. A lot of these banks obviously very tech focused, and a lot of startups and UH
and VC's count counted on their funding. How is it playing out thus far, you know, two and a half months out.
Yeah, Paul Matt, thanks again for having me. I appreciate it. You know, I think there's some there have been some really interesting takeaways, especially from the SVB collapse. So I think, on the one hand, to do the discredit, I would say of Silicon Valley and the tech world overall. It was pretty amazing after the fact for us all to learn that we had so much concentration risk with one institution.
And so, you know, the analogy I would give you, like, imagine if every corn farmer in Iowa had money at you know, the first Bank of Des Moines and then you know, there was a dry season that obviously would
be an exceptional crisis. And that's effectively what has happened, you know, with us in Silicon Valley having so much exposure to one to one bank and so, you know, shame on us from a fiduciary responsibility perspective, and I think it's a really eye opening outcome, and I think going forward, we will definitely pay a lot more attention, you know, to kind of the sleepy world of treasury and how we manage our cash, both within you know,
our various funds and how our portfolio companies manage the cash as well.
So Jack, we're trying to move on from that. I'm sure the VC community is trying to move on from that. In your world in Arizona, I know you've got a fund there that focuses on Arizona gives us give us kind of like the the pros and cons of the VC environment community in Arizona.
Sure. So yeah, I started one hundred and fifteen million dollars fund AZBC here in Arizona that launched last August. And so you know, really what I'm trying to do is fill what I think is the biggest void in the local Arizona ecosystem. So, as an example, Phoenix is the fifth largest city in the United States. We have people moving here every single day. Americopa County, I believe, has been the largest growing or the fastest growing county in the United States for the last decade, and so
we're growing by leaps and bounds. But at the same time, to give a balance, you know, this has not been historically a top tier capital market city. So as an example, you know, like when we were doing our PayPal Ipo roadshow many years ago, you know, you would never stop through Phoenix on that road show. You'd go through smaller cities like Minneapolis and Philadelphia and Boston certainly, but Phoenix, you know, for whatever it's worth, has just not been
a top notch capital marketplace. And so having lived here since we sold PayPal, you know twenty plus years ago, I wanted to figure out a way to solve that void. And so I figured that after kind of studying the market here and trying to figure out the best way, you know, my end result was to do it myself. And so that's why we launched the fund. And I think there's a great opportunity here just because again this is a population center that again has not had the capital capital of the match.
By the way, tell us about how you made that decision. I mean, you killed it as a member of the PayPal mafia.
I hope you don't.
Mind that term, but I love it. And then and then you pick Phoenix, which is an awesome place. I've been there a couple of times.
Wait.
Wait, it's one hundred degrees today. Tomorrow it's going to be one hundred degrees and it's gonna be one hundred degrees jack until I come from my annual holiday in mid November when it's a lovely eighty eighty five degrees.
But it's still it's such a cool place.
Have you been to Phoenix, Paul, all the time we go to I love it too, sir, I mean Scottsdale.
You can get to Tempe Flagstaff, Like, what made you pick Phoenix.
Well, first, of course, I have to say as a good Arizona and it's a dry gentleman.
Yes, of course I knew that was go.
That aside. You know, it was really a family reason for me. My dad was a mad Men era advertiser who worked for Jay Walter Thompson.
Some stories.
We moved, Yeah, we moved a ton during my childhood. We moved seven different times. And actually the summer time was in the middle of my senior year of high school and my dad came down to Phoenix to take a job, and so I stayed where I was, which was in suburb Detroit, to get through high school and get through graduation, I should say, but my dad moved out here. My younger brother, as sensibly, grew up here in Scottsdale, And so if you fast forward today, my
dad lives five minutes away from me. My brother has a house here, and so it was just a really easy choice to come back and be New York family because I knew the place pretty well, and I you know, and I still have to go back and forth to California quite a bit, but proximity matters, and so I think that's one of the big things that Arizona is going to benefit from because you know California. You know, one of our favorite sports here in Arizona is to
California Bash. So I won't get on that that topic too much, but I think the exodus out of California has a long way to go. And not everyone's moving to Austin, certainly, not everyone's moving to Miami. And if you can drive to Phoenix in five and a half hours, or if you can fly there on a forty five minute Southwest flight, proximity makes a big difference. And that's why, again another bullish reason, I think for our techncosystem, we've got a long way to run, all.
Right, So tell us about some of the coolest businesses that you're into. You know what, what's coming out of Phoenix that's going to change the game for America.
You know, it's a great question. And so I think, you know, as I look at the fund that we've raised here, we have, I think aid investments so far, there's really no rhyme or reason in terms of the different sectors that we've invested in to date. And I think it's just because the ecosystem here is so nascent, and if you ask me, the same question in five years, I could probably give you a much more sector specific answer,
just based on where we've deployed capital. But frankly, I'm just looking for rockstar entrepreneurs and if I can wrap my head around what they're doing, then we'll take a look. And I think what Arizona will be good at is that where traditional industry is meeting technology for the first time. So, for example, you know, think about the biggest outcome that we've had here in terms of a publicly treaded technology company. So that company's Carbona, and so what is carbona? Carvana
is a used car marketplace. That seems like a perfectly reasonable type of technology company to come out of Arizona. To put it conversely, do I think the next Open AI is going to come out of Phoenix? You know? Frankly, I don't. I think that's going to be the domain of the Stanford pal Alto Boston crowd. And I don't think there's anything wrong with that. But I think we just have to understand here in Arizona what we have a stripe then, and and where we may not.
All right, Jack, great spending some time with you. I hope we can get you back on the show again. Maybe we'll take it on the road. Yeah, we'll head out there and get down there.
Hold back.
Yeah, it's nice out there.
It's fantastic. Jack Selby, managing director at Teal Capital, talking to us also about ac VC, which is the one hundred and fifteen million dollar fun that kicked off last August in the heart there of Arizona, and looking forward to seeing what they can come up with because it is an incredible region of the United States and a great place to visit and probably to live as well, if you're down with the dry heat.
This is Bloomberg Business Week with Carol Messer and Jim Stenebek on Bloomberg Radio.
Every Way, all right, Jerry Smith is taking care of business as the CEO of ODP Corporation, that is the parent company of Office Depot, which is why I mentioned that as a brand here. As we're throwing around some names, Paul pulls out Converse. Why why did you say Converse?
Chuck Taylor's the all time classic shoe. I just bought a new pair this weekend. That's the top of mind.
That's cool. So you don't wear loafers all the time.
No, I don't the case go a little casual.
That's interesting.
I love see Paul swinging on the weekend. Well, maybe you put on those Chuck Taylors to go pick up a shredder or paper cutter or a fax machine.
And it's the toner that gets you though. I mean that, yes, the print, yes, ink for the printer.
It's the Yeah, the printer ink. I'm always like, every few weeks I'm back at an office depot or a best Buy looking for that, because if you don't print every day, it runs out quick. Let's get to Jerry Smith right now on Zoom from Boca Ratona, Florida. Jerry, thanks so much for joining us talk to us about the transformation. I mean, obviously people aren't gonna be coming
to office Depot for fax machines anymore. I don't know why I said that, but they are gonna need the printer inc What else are we looking for at office depot? And how does office depot look different now than it did when I went there, say, ten years ago.
Yeah, thanks Paul Matt for having me for I've been here about six years and let me talk about the transformation. We have a strong B two C business. Our office depot brand that you know, it's about a four and a half billion dollar company. We're going into category expansions, whether it's you know, party supplies, dorms, tech, furniture, copy and print, so we have wide range of products. Again,
that's about a four a half billion dollar business. We call it our first horizon, a start cash engine for the company. But we have a four billion dollar B to B business that's growing. Are we crushed our earnings? We we we met top line. We beat both a operating income e as well as earnings per share of by forty percent and really good free cash flow as well.
We also have a supply chaining.
Services businesiness as well as we're creating a new category called Verrus, which is a B to B procurement platform. The team that developed the twenty five thirty five billion dollar Amazon Amazon Business Platform. Now we're here ODP, we're running virus, and we're building a direct B to B procurement relationship that will be all indirects. Ben I love hearing you guys talk about all the different products you can buy to run the business. That's exactly help what
Verrus is. We launched that platform in October, just early days, but we're wrapping that now. But we're really excited with the new office depot. We think, honestly think we're super undervalued. We're less than four times even from a multiple perspective, and I've got.
A growing B to B half.
Our business is B to B and growing both top line and bottom line. And we have these two non valued assets we think are going to be worth a ton of money in the future as well.
Hey, Jerry, When I think of office depot and I think about the growth drivers of your business, I often think about new small business formation. I got have I got to get that right. Where are we now in the economy potentially one going to recession. How do you guys think about new small business kind of formation?
Great?
Great question, And we saw a lot of strength in Q one. I was listening to you guys as before we came on, and we saw strength and small business.
We saw both on.
Our B to B business ODP business solutions as well. If we have three segments on the retail site, we have home office, we have small business and education and small business across the board.
I think it's behaving stronger than the consumer.
A little bit of sto office and a consumer, not a lot, but we're seeing a lot more strength and small business. We actually saw small business come out of COVID faster than the other business, so we see a lot of We still see a ton.
Of strength and small business and medium business.
And so why we have these four different routes to market and we think it's a big available market, but we're still seeing strength.
We are being cautiously optimistic. Of course.
We have a net cash positive balance sheet. We've saved over five hundred million dollars of expense over the last six years. And I'm always talking about the low cost model, So we're not going to ahead of our skis. We're going to make sure we're conservative and again having a strong balance sheet compared to some of the other retailers you were talking about before. You know, we're in a really strong position. We're a true omni channel company and so we think we're positioned well.
But small business is an.
Area we're focused on really hard. We're excited with the potential there.
Who are your big competitors. As Paul Sweeney knows, I like to pull up a comp screen on the Bloomberg just as a standard gives me a five year look at your stock performance, and if I put you up against Home Depot and bed Bath and Beyond, which are two companies, I would think of you crushed them. You know, you doubled over the past five years, whereas Home Depot's only up seventy two percent, bed Bath and Beyond is only up eight percent. Who else are you looking out for?
I mean, should I be running you against an Amazon for example? Is that your biggest competitor?
Well, I think we have a pencils which space of our go to market. So we have these four but different business units from a retail perspective.
I think you're I think it's good analysis right there.
Obviously, Staples is private on the as a company now, so hard for a compare on the B to B side.
You know it's Staples, it's W. B.
Mason, both private companies as well as a little bit if you look at some of the you know, Fastenals or the Grangers of the world. From an MRO space, they come down sometimes, but it's pretty open space from
a competition side. And because the fact we have our very supply chain business unit, we have nine million square feet of distribution space, six hundred trucks, we're one of the few companies that delivers next day and ninety nine percent of the ZIP codes and not just to the back dock to the desktop, which is a really competitive advantage. Only US and the other guys up in Massachusetts really
can go off and have that type of delivery. So for that Fortune's five hundred account, that's our only competitor. And then from a supply chain services space, we're ramping.
That business up. We have all that asset.
Obviously it's traditional three pls and I want to call out Varus and we'll come back in the future as Varus wramps up more of it. This is a category recreation. No one's enter into space. We think it's a huge space. That team came over because they saw the opportunity and we think it's about a four hundred billion dollar space
of indirect spend B to B across the US. And so that from a competitor space, we're really excited year two, year three, or four, that's going to be a huge value opportunity for the company.
Hey, Jerry, Matt and I are probably outliers here.
We come into the office every day of the week.
That's just how we roll.
Plus we were told to do that. We don't have a choice, but most people are kind of really embracing this hybrid thing, you know, three four days or whatever it is, home office, home office. So how did that impact your business over the last three to four years and kind of how about going forward?
Yeah, great question.
Obviously during COVID when everything we were shut down, yea, we you know, a bit of everyone had the dip, and we obviously focus on costswell, but hybrid's awesome for us. And so we're back to our on our traditional B to B business almost our twenty nineteen pre COVID levels before and that's that.
You know, we get a lot of data.
We're looking at badge swipes, so that's all about fifty to fifty five percent.
But we do believe hybrid.
I don't think people buy office supplies when they have a hybrid business anymore.
I think they come in they're using the office supplies in the office and we love that. So obviously that helps our B to B business on the sea side.
Obviously COVID was really good for that, and so as that's why we're focused on home office as well as small business on our B to C side. Varius is online and that obviously is very i'll say inflection proof in the future as we go through that. And so again having that supply chain business, they can deliver the next day, they can deliver to a store, they can deliver to it the consumer, they delivered to a small business.
But we're really optimistic right now.
Obviously with the return for office as a tailwind, you see more and more people going from every day I see in another company announcing I saw Delta day announcing they're going to go.
Back to more of a hybrid, and so hybrid is really really.
Good for our business and a tailwind, and we've adapted our business to have that flexibility. For example, our retail stores is the only one in the country that has a twenty minute guarantee when you order online to pick up in stores that we'll give you twenty dollars and so we will put a lot of work and effort
by that, and we think that's a huge differentiator. People do want to go and they need something I to our store team will do a great job and we run the seventy seven Net Promoter Score, which is world class from.
A customers experience perspective as well.
So we're happy with the tailwinds. Obviously, if everyone returns the office, it gets even better. But we think we're in a really position well across all our routes to market.
Jerry, fascinating stuff. Great to have you on the program. Thanks so much for joining us. Jerry Smith there the chief executive officer of ODP Corp. It's the parent company of Office Depot And you know, I wouldn't have known that they doubled the stock over the past five years had I not no, I know, looked up the company there. I also wouldn't have known about Varis because it's a B to B digital platform. It's not something that the public kind of sees and of course analysts will know
about it. But this is why we do these kind of interviews.
An.
It's an exciting product obviously for Jerry, and they've got, you know, big competition in Ali Baba and Amazon, but they have it looks like the brain power, the people power to really move that market.
Yeah, we have these company CEOs on I tend to cheat a little bit. I'll message the bi an also say hey, you got a couple of smart questions. You knew smart virus. I knew so Jen bartashes Bloomberg Intelligence. He's got all the research on ODP is the ticker to put in there, so interesting stuff.
We're down with ODP.
Sure, yeah, you know me exactly.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business app, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Now we can get to Joel and full I've been looking forward to this all day. Slash angry about it since I read the story, and you know, I moved back. A little personal note before we get into it. I moved back here from Berlin a couple of years ago, not expecting childcare to be such an incredibly expensive and frustrating proposition because in Germany. In Germany, you know, it's
free and it's wonderful from the age of one. That's when you get into Kita and they have like clowns and bio organic food and field trips and it's amazing. But here it's like twenty five thousand dollars a year to put your kid in the basement of a Chinese church. So that's what I'm facing, and that's a good option, exactly the best I could come up with. Let's get
right now to full of a kanibi. He is, I guess your official title is Municipal Finance Reporter and this is means Matt loves physic by the way that we can do the f and Joe Webber's editor in chief at Bloomberg BusinessWeek. So Joel set the story up for us because it's about as I kind of as I kind of talked about it for a moment.
Yeah pre K like a good JV crew would.
Yes, Yes, you did great.
So the story is really about this thing that I think New Yorkers really quickly have taken for granted, and that is one of the very few successes of the Deblasio administration was this universal pre K program that came
into being under Deblasio's watch. He gets most of the credit for putting it together, and then during the pandemic, managed to while he's almost on the way out, expanded and turn a three K program pilot program into something that was supposed to grow under Eric Adams as the new York City mayor that same pre K energy has
been almost non existent. The funding that and the relationship that the program requires and the relationships with some of these small businesses that are integral to the program, they have not been paying bills and so we've seen some of these providers go out of business already, and it creates a system where we say, he is starving the
city of this. I think the economic implications of this, something that we didn't totally go into here, are actually going to be really fraught and interesting.
And there's a lot of parents in Full.
I know you've heard from some of them already who are like, wait, what, so what is going on behind the scenes? Full And how did you get into reporting this story?
Well?
I got into the story just listening to some of what the administration has said about pre K and preschool. And one of the things that one of the points that they've made, you know, throughout this is that well, there's not a desire, there's not a need for the number of seats into Blasio and the previous administration set out. And you know, that struck me. It's strange because I'm like,
who doesn't want free childcare? So you know, I dug in from there, and what I found was that on one end of the thing, on one end of things, their administration seems to be pulling back. They're making cuts to the three year old program right there. They're cutting five hundred and seventy million over the next few years from the preschool system.
And that's on top of the bills that they're just not paying right now.
Yes, and then on the other hand, yes, they simply aren't paying the contracted providers of pre K services. This program is run through contracts with daycare centers and preschools, and at a basic level, they're just not paying their bills. One estimate put the number at four hundred million dollars. And you know, I asked it administration repeatedly, how much is outstanding? How much do you owe these providers? And they wouldn't give me a number.
So you call up Eric Adams, or you call up the chancellor David Banks, and you say, hey, guys, why are you not paying your bills? You owe people money, right and you need to hold up your end of the oblig and they say, or the.
Providers go out of business.
And that's some of what's happened.
Yeah, I mean, these providers are struggling again, Like like Joe said, I mean, these are these are small businesses and and and there are folks who are who are not the highest paid folks out there, and they're they're taking care of kids, they're providing education to kids. And you know, some of the providers I talked to are taking out some some are taking out personal loans, some are some are having to take out these small business loans.
Some are having to lay off teachers. Uh, and some are some have closed outright, a two hundred year old nonprofit this this past winter closed And yeah, that that those are the stakes. You know, these places are closing.
So what's happening within the city government instead, Because it's a matter of priorities and that's basically what that Adams administration says.
Yeah, I mean, so we've seen the administration make multiple rounds of cuts to to city agencies, and you know, it is a matter of priorities, and and you know, this program is three hundred million dollars a year. This this city budget it's one hundred and seven billion dollars, so it's it's a lot of money. But yeah, it's
a question of what the administration wants to do. We've seen the NYPD has gone more than is projected to go, more than three hundred million dollars over their overtime budget alone. And I mean again, we're talking about three hundred dollars for childhood early childhood education, which you know, for all intensive purposes we've seen as a program that that works.
Right. It's amazing that the city's priority isn't three year old kids, because that would be my first priority, and then I would come to police down the line. And also, we don't have to get into it.
But if you take care of old kids, you're getting into it.
If you take care of three year old kids, then in fifteen years, you don't need to fund the police with so much money, right because if we give them the food and education and love they need, they're going to be much better citizens down the line. It just grinds my gears, Paul, I know, it really grinds my gears.
Let me let me put it this way. You believe, based upon your reporting that this is more of a political issue that this administration doesn't share the same values as maybe the Doblasio or is it economics, there's just not enough money for everybody, and so everybody's gonna feel the pain.
So so to be fair to the Adam's administration, I mean, uh, this expansion into into three year olds, to have a universal program for three year olds. What build Deblasio did was he he used the federal Coronavirus Aid to fund this program, to fund the beginning of it, thinking probably that well, a previous or future sorry, a future administration would uh you know, see this program as something that's necessarily important and they'll just figure it, figure it out,
They'll find the three hundred million dollars somewhere. Obviously that that hasn't been the case. Assumption, Yeah, that that that that was a bad assumption.
Which worth mentioning a little bit more there, like you can't take something that could be a permanent thing and funded with temporary dollars like those are you're gonna set yourself up for something. So in typical maybe Deblasio fashion, like maybe this wasn't fully thought through and there was some enthusiasm for a good idea, but wasn't really based in a reality that was supported by long term financial backing either.
Right, right, and and and at the same time you know that said the problems with paying providers. That's not a financial issue. I mean this is simply like a bureaucratic and administrative failure. I mean they're just feeling are there.
Other bills that the city isn't paying? Like do they just pay the bills they feel like paying or is there a limit where they stop paying?
So that's somewhere where I do want to do more reporting, because there are other places where the city does not pay its bills and where the city is laid playing paying its bils.
So yeah, this is not this is not the are these providers are They supposed to be for profit entities? Like if I'm opening up a pre K facility, it's not like an academic it's a for profit business, right so.
So so yeah, some of them are are for profit. I mean some of them are like one off, like like a like a daycare provider, a child childcare provider will contract with the city to provide these services.
Right.
Some of them are also very large nonprofit organizations.
Okay, there's both.
I want to play with Matt's gears some more because that's entertaining. When he gets when he gets hot about that and the machine runs a little hot, you know, well, the other interesting thing about this was New York under Deblasio really pulled this off, and it was it showed that there was some momentum for it, hence his attempt to expand and get into three K. There was also a national discussion that was happening for a second, So what does this mean on that more national scope of this.
If New York can't do it, can anybody do it?
Yeah?
I mean the New York City program under Deblasio was seen as a model. And you know, in his first year in office in twenty fourteen, the program was pretty small. There's around nineteen thousand kids and mostly a half day, mostly in half day services. And by the end of his first year, there were fifty thousand kids and they had a full day offering. And so this was really the blueprint. This is like the largest jurisdiction to do this and to make this attempt. So this was a
blueprint for how to set this up. Text, this is how to do it. And so, you know, talking to folks at the Department of Education, they were I mean, those folks are really got it, and they really care about this and believe in this program. And so for them to see it undermined in this way. I can only it's extremely First.
It was something though that was floated nationally, right, and then the administration also failed to come through with that campaign PROMOMSS. Wasn't wasn't Biden also offering some pre K you know, he wanted to make pre K education important nationally.
Yeah, there's about two hundred million dollars in a plan. I believe it's the American Family's Plan, I believe is what it was called. And yeah, there's money for programs like this, and it would have been a pass through. So it's like the federal government would have passed this money through to state governments and then to local governments to run their programs and so again, like because New York City had such an infrastructure in place, like they were seen as a model.
Where's the State of New York in this? Do they have any role? Or is this just city money, city resources?
The State of New York share some of the costs for for for you, But they're not going to come to any rescue. They're not going to come to rescue here.
Yeah.
Remember that whole thing that we went through with splasia and somebody.
Upstate, Yeah, didn't love each other, not love each other.
It was made for good headlines, yea, so full of Where does this leave the city of New York and the parents and the teachers who are all behind the scenes and intimately involved with all of this. Where does it stand now? As we head towards the end of the school year and into next school year.
So you know, the programs, you know, to be sure the programs are still here and they're still available, and so you know, I guess all the parents out there definitely, uh, you sign up and try to try to get your seat. But you know, as as the dysfunction continues, I mean, and you know, our reporting shows that that providers still are not being paid. And so as this continues, you know, more providers will have to cut teachers, They'll have to in some cases fold, and that that will make the
system smaller. It's just getting smaller and smaller. And then it's not a universal program anymore, is it?
Like, as the two overriding issues are as a society, how much do we care about kids before kindergarten?
Right?
It doesn't seem like much in America, but really we should because that's the prime time to give them what they need. I mean, if we're gonna scamp on anything, we should skimp on like high school, right and give them care while they're developing at this early age. The other thing is as city officials, bureaucrats, administrators, is it okay that they're just scoff laws? Is it okay that Eric Adams and what's this guy's name, David Banks just decide not to pay bills that they're obliged to pay.
If they don't have to pay, maybe I don't have to pay money that I own New York City, right, you know? And then society falls apart.
The gears man the gears, the gears, the administration.
To be fair to them, they have they have been trying to make catchup payments, but again there they have case, right, and they have made some ketchup payments, but again, I mean they're a year and a half almost going on two years. If you're if you're too late, you're too late, and so it's it's it's truly an administrative Is.
There an event?
Is there a marker mile marker?
Where?
Boy, when we get to this event, somebody just have to really choose what they're gonna do, Like, is it the budget time, you know, because are we just going to drift into next year with this as you described that kind of an ever shrinking pre k opportunity here in New York City.
So so the City Council, so New York City right now is in the midst of a budget negotiations, budget discussions, uh Mayork Adams has proposed at one hundred and seven billion dollar budget for the coming fiscal year. And so yeah, it's it's big and and so the city council.
But it's okay if he doesn't have to pay the parts he doesn't want to write.
What is budget.
The city Council has, you know, decided on three K is an issue that they want to push back on. They're asking for this money back and they're asking for you know, they've been holding hearings to try to hold the administration take out here. So you know, we'll see what that what that, But you know how that plays out.
And I think the bigger thing is sort of how education really fits in with the Adams set of priorities. Right we know where policing stands, education seems to be something that he's willing to get pretty petty with and even not Babe bills with so all eyes on on this budget stuff that with the timeline.
For this so so the budget has to be passed by June thirtieth, and the new fiscal year starts to July first.
And so she's no, we keep this guy on the story.
Yeah, I think there's more to be done. He's the person gets this fired up.
Well, I just think, Look, we are a network that serves investors in large part, right, And if you want to get the best ROI the best return on investment in the humans that we're making, we need to invest in them at the age you know, at this age, three years old, four years old, five years old, and we need to be giving them all the things they need then in order to make them better people and
more productive members of society later. And it real want to give this story with money in the long term.
I want to give the story of the plugging it it deserves if you'll let me. Sorry, all right, fullest story will be featured in the upcoming issue of BusinessWeek magazine. You can read it now on Bloomberg on the Bloomberg terminal and at this thing called the internet Bloomberg dot com slash business. We go there check this story out read it and then you know, form your own opinions. But you'll certainly be enlightened. I'll say, I'll tell you
that Joel Webber, he's the editor for Bloomberg Business. He's responsible for all this stuff here, he joins us. Here in a Bloomberg Interactive Broker studio full of a Kenneedy. I'm going with that pronunciation. That's where you're gonna go with municipal financial reporter, but so much more.
He's of this story.
Bloomberg News also want a Bloomberg Interactive Brokers studio, some really good reporting as we become a custom.
Broomco the journal. How about you let me drive?
Oh no, no, no, no, who's.
Honey?
Please gravel? I want to drive.
It's a good question that drives.
This is the Drive to the Clothes don on Bloomberg Radio.
All right, Matt Miller here in for Tim Cenovic. Paul Sweeney is filling in for Carol Sweeney.
I wouldn't do that one.
I'm just kind of we're think Warman's I know, we're the guest hosts, which is taking over?
Yeah, uh, I well for one day. I am looking forward to talking to Stacy Sears right now, senior vice president and portfolio manager a small cap growth fund at Emerald Advisors, on zoom from Pennsylvany, because there's so much going on, but it seems like markets aren't moving much at all on a broader, you know, index level. Of course, it may be different when you're looking at a small cap growth fund. But Stacy, thanks so much for joining us. Let me first get your take on what the biggest
driver is right now. Are you really that worried about the debt ceiling?
The Fed is on pause.
We're in an earnings recession, but it's kind of me what are you looking for to move this market?
Yeah, so from our perspective, you know, ultimately it's going to come down to earnings. I think in the short run, you're right, you know, we are likely in a trading range until we get some resolution to the debt ceiling. But in you know, full transparency, you know, the debt ceiling is the devil that we know to a certain degree, everyone would prefer not to have to deal with the risk.
But it's not like we haven't been here before. So in the interim, you know, the way that we're looking at the world, I think the rhetoric surrounding the debate is likely to continue to create some volatility, but we ultimately expected to be resolved. Debt ceiling will be raised, and we'll move forward. Admittedly, volatility here in the short run probably some risk to rates, but ultimately we think the path forward was going to be driven ultimately by earnings, corporate earnings.
So Stacia, our notes here just say that you're from Pennsylvania, but I think you're from Leola, Pennsylvania. My right, that's correct, And now Leola, Pennsylvania. I had to google it, so this is not just off you know, the top of my head. Yeah, seventy five miles due west of Philadelphia is a way I phrase it.
So is that?
I mean you guys? Is that do you guys go to Philly for? Are you like Philly fans and stuff like that, Eagles and all that.
Yes, absolutely, I grew up outside. I grew up in Philadelphia.
Actually, all right, I'll love it.
So, yes, this stuff.
Patsylvania is a huge state.
By the way, I dude, I drive to Ohio. I'm from the great state of Ohio. So every time I have to go back and forth, which you.
Basically spend your entire trip in Ohio.
I mean Pen Pennsyvannsylvania exactly. They see.
So I know, you guys there at Emerald Advisors look at small cap. You're a PM on the small Cap Growth Fund. Give us a sense of how small caps have done recently versus the rest of the market, and kind of how you're positioning small caps for some of your clients.
Especially like year to date. It's interesting because Stacy, the S and P is up eight percent year to date, but the Russell two thousand is unched.
That's correct, you know, we really small caps got off to a very strong start through February. Economy was improving, economic surprise data was positive. We were seeing I think some encouraging earnings revisions to the positive. You know, fast forward to March. The advent of banking stresses and the failure of Silicon Valley and Signature Bank really changed the landscape for small cap.
During the month.
Small Caps, as you know, are the more risk averse area of the market, and I think you know, what we were seeing just from a broad perspective was risk inversion as the market was concerned of how the tightening of lending standards would roll through the small cap would roll through the small cap universe, so that has put
us behind a little bit. Then on a year to date basis, as you mentioned, we'reunched compared to the S and P. But I think if you dig below the surface, there's some really interesting things going on, particularly within the small cap growth area. The small cap growth area is actually outperforming the Russell Index overall, up about three point nine percent on a year to date basis versus the Russell two thousand, as you said, is unched, and within
that we're finding a tremendous amount of opportunity. I know, March and over the last month and a half, a lot of the press has been focused on what's been going on megacap tech. We have seen megacap tech largely outperform broadly, but under the surface, you know, we're really seeing some interesting opportunities within healthcare, particularly within biotechnology. I know, the conversation prior to my joining was, you know, on Serepta and the advancements that we're seeing there in DeShane
muscular dystrophy. We think it's broader than that. There's a tremendous amount of innovation again that's really propelling growth in that sector, and it's an area that we're really excited about, you know, beyond just biotech, but medical and medical devices as well. Just a tremendous amount of innovation in orthopedics, diagnostics, testing, transplantation, for example. There's a lot of positive things going on in the small cap growth universe today as we see it.
It's interesting. I look at the Rustle two thousand broken down into groups, and obviously financials are the biggest laggard on the year, down nineteen percent. Energy is down ten percent. But the biggest winners consumer discretionary, even ahead of healthcare. I mean, you mentioned the healthcare stocks, Stacey, but a bunch of I guess consumer discretionary kind of broadly defined, has really been killing it. Arlow Technologies, thread Up, Neo Games,
Green Brick Partners. These are companies for the most part that I've never heard of. A couple standouts are Dual Lingo and Cinemak Hovnanian. But it looks like you've got some runaway winners. I guess that's always the case in the small smaller caps, right You've got these I guess one hit wonders or just knock out of the park home runs that you couldn't have guessed beforehand.
Well, there is a truth to that, right, I mean, small cap is great for enabling niche niche companies to exploit opportunities, and we definitely see that in the consumer sector and particularly on the services side of the economy. Right, we've been talking a lot about wallet share shift from consumption perspective, the consumer over consume goods over the better part of the last you know, two years post COVID, we've seen some renormalization of behavior and patterns spending back
towards services that's still durable from our perspective. We're seeing it in restaurants, We're seeing it in leisure, we're seeing it in recreational services. So while overall consumer spending is likely going to slow, we believe those services areas of the economy are likely to be more resilient and have identified significant opportunity there as well.
So Stacy just about thirty seconds here. Small cap banks staying away from them for the moment.
We have been avoiding small cap banks. We lowered our exposures significantly entering this year. Again from our perspective, profitability concerns, deposit beta banks were paying up more for deposits coming into the year that was going to have an impact on lending, going to have an impact on yields, So we were a little bit ahead of the curve there.
Admittedly did not see the stress quite the level of stress that matter infested itself in March, but we do think on a relative basis that area is going to be more challenged at least for the visible future.
Stacy, great to have you with us. Hope we can get you back again. Thanks so much. Stacy Sears there. She is the senior vice president and a portfolio manager of Small Cap Growth, the Small Cap Growth Fund at Emerald Advisors. Matt Miller here in the studio with Paul Sweeney.
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