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.
Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast. Tim Stanebeck, along with Madison Mills, who's filling in for Carol Masser. Well a busy week in the rearview mirror. This after Apple and Amazon's latest earnings, a surprise downgrade to the US government's credit rating, and former President Donald Trump's indictment in a third separate criminal case. Coming up on the program, we're going to learn why a former Fed official thanks for very own US recession gage. She
may have created a monster. The CEO of the new bed Bath and Beyond says the brand may be shunning brick and mortar stores forever. And we'll learn why the record heat wave we saw in July could be an unwelcome sign of what's to come when it comes to
the global fight against climate change. All of that to come, We begin with the cover story in the special double issue of Bloomberg Business Week, available now on newsstands, online at Bloomberg dot com, slash BusinessWeek and I'm the Bloomberg Terminal. Senior editor for the magazine. Matthew Campbell takes us back to the twenty seventeen killings of pharmaceutical magnate Barry Sherman
and his wife Honey. They became two of the wealthiest people ever to be murdered, and while police still haven't identified the killers, there's no shortage of potential suspects and a family drama worthy of succession. Matt joins us now along with the editor of Bloomberg BusinessWeek, Joel Weber.
It basically became just this bare knuckle drama between the Sherman kids over the empire, and we're talking billions of dollars here, and what was left at the end of that fight was basically the company sold. The whole strategy that Barry had sort of tried to put in place was basically kind of brushed aside, and those siblings basically aren't even talking to each other. And the mystery of
the murder remains unsolved. There's one lead, but part of the drama of the story has been because the family had so much money they were able to actually do their own investigation, which created all kinds of tension with the Toronto Police Department.
One thing that was really shocking to me is Barry, for despite being a billionaire many times over, was a relatively frugal person for most of his life. What our reporting found was that he spent hundreds of millions of dollars in loans over many years, not just given to his family, but to other people who came to him for money. Talk a little bit about that.
Yeah, So part of the drama that Matt and or get into here is actually just kind of following where some of this money went. And some of these loans ended up actually going to his son, for one, who at a storage facility that he ran with a co owner. And then there were, you know, some business decisions that Barry made that he seemed you know, I think one of the things that the frugality stands out to me he drove a car that was basically kind of a beater,
even despite being a billionaire. But he also was I think pretty loyal. And there there's one individual in particular where he made he just kept handover fists supporting the gentleman's business decisions and endeavors for years, and actually part of the story was how eventually the family just had to write down all of those because there was no way to actually get any.
Of that money back.
And ultimately that was a person that Barry decided to cut off shortly before his death.
Actually, that's really interesting and it reminds me of exactly what you were saying about the point that this is succession, e Joel. One thing that we haven't talked about without getting too gruesome here is how the murders happened. It feels like an important part of this story. Can you kind of walk us through what we know?
Yeah, and so this is this kind of leans back into the first story because it was pretty gruesome scene and at that time it actually instigated what became this other investigation because the kids really just didn't believe in what the police department kind of laid out. But basically, the bodies were discovered in their home in Toronto near a swimming pool, and the Berrie's body was actually like
it was, it was clear that Honey was murdered. Berries was sort of a little bit mysterious, and so that led to sort of an inconclusive and unsatisfactory a police response from the family because they basically felt like they implicated Barry in Honey's death. They pushed back on that hard. There was a second autopsy, and eventually it ended up being that basically viewed currently as a as a double homicide.
But that handling of that is part of what led the Sherman kids to basically fund their own police investigation.
That's where I want to bring in Matthew Campbell, who co wrote this story along with Ari Altstetter. I want to talk a little bit about where Joel left off and this private investigation, the private investigation, the private investigators that the family hired, talk a little bit about how they've worked with or have not worked with, the Toronto Police Department, and what's going on with these hard drives.
Well, what ended up happening was, as Joe alluded to, the Sherman children, whose parents had just been killed, ended up hiring a bunch of retired cops actually which hired police detectives to conduct private investigation, which ended up coming to a very different conclusion from the one the police appeared to be at least heading toward, which was that
it would a murder suicide committed by Barry Sherman. The private investigation came with the conclusion that, in fact, this was a double murder that ultimately was accepted by the police.
But then we had this rather odd situation of two parallel investigations with considerable tension between them, the police really not appreciating having this private team, as they saw it, second guessing them, a very chilly relationship, a somewhat dysfunctional relationship, and then ultimately coming to an end in twenty nineteen when the private investigation was terminated for reasons we can get into.
Well, I wonder if you want to get into those now with us, now that we have you on the line.
Matthew, sure, yeah. So look what ended up happening was there was a significant split within the four Sherman children, and specifically there was a split between Jonathan, the one son, and Alexandra, his sister. And we understand from people familiar with this situation that Alexandra came to think that her brother Jonathan had something to do with this crime, that he was somehow involved with this double murder. And you know, according to our reporting, the police never really thought there
was any evidence behind that suspicion. But nonetheless that is the view that Alexandra had of her brother Jonathan in those conditions. As you can imagine, the idea of conducting a private investigation together kind of fell apart, and the siblings had this big rift to merge between them, which led to the end of this private investigation and in parallel, a battle over the future of the family business, the family fortune.
So, Matt, you know, one of the things that I think is just so. It's both the thing that transfixes you but also ultimately just leaves you wanting more in the story is where did the investigation end up and what is the closest thing to a suspect that anyone was able to determine?
Well, from our reporting we understand there are a few individuals the police were very interest get in. One was a man named Carrie winter At, Barry Sherman's cousin, who was in a long running financial dispute with him. Another was Jonathan, the son who had been one of the
principal financial beneficiaries of his parents dying. And a third was Frank TAngelo, who was a businessman and entrepreneur who Barry had really quite lavishly funded hundreds of millions of dollars in financing for his various businesses before Barry Sherman concluded he didn't want to do that anymore. So we understand the police did investigate these three individuals, but they weren't able to find hard evidence linking any of them
to the crime. They did end up, however, with someone who they did describe as a suspect, and that is this individual known as the walking Man, who was captured by surveillance cameras outside the Sherman's home on the night they were killed. Spent a suspicious amount of time right in the entity of the house during the relevant period. But the footage is terrible. You really can't make anything out about this person aside from the fact that he appears to be male and appears to be of sort
of average height. So the cops kind of ended up nowhere we are, five plus years on, without identified suspects and without charges, and.
So let's talk about what happened to the business empire a little bit more, because I mean, one of the things that's so fascinating about Barry is like he bootstrapped this empire basically a self made billionaire.
He was highly.
Litigious and you know, basically was self made. But what has happened to his fortune and the business since.
That's right, Choel, So Barry built this very large pharmaceutical company Apptect, never taking outside money, never going public, so he was in pretty much complete control. That control then passed to his children, but his children ended up being at odes. And this goes back to this rift between
Jonathan and Alexandra that I mentioned earlier. Around the same time that Alexandra had begun to suspect that her brother had something to do with these murders, Jonathan ended up clashing with the manager of the family holding company, a man numed alex Glassenburg. The sisters, including Alexandra, ended up siding with Glassenburg. While in this dispute and what became sort of legal threats bouncing back and forth, everyone threatening
to sue each other. Ultimately they ended up in professional mediation which resulted in the installation of a new board to smooth out this crisis, and then the company eventually was sold to a private equity FIRMSK Capital, something that I think a lot of people we spoke to feel would have horrified Barry Sherman Habitects with his baby. He built it, as Joel alluded to, really from not but his kids wanted to sell it and get the cash, and that's what they've now done.
That was Bloomberg Business Week's Matthew Campbell on this week's cover story. Joe Weber is sticking around for our next segment. Coming up, we examine why a contemporary measure of US recession is so highly regarded and why it's creator wants to see your own rule broken.
She just feels that it's getting caught up in the maelstrom of his whole self lamming debate.
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First, we're going to put our economist hats on.
Tim I brought mind today, did you I did? Yeah? Took it on the train with you, on the train with me.
Here's the thing, A simple economics rule that helps us suss out whether the US is in a recession. It's getting called into question by its own creator. It's called the Psalm rule, and it's architects. The architect rather is worried that her creation has become a monster. That's the headline of the Business Week story we're focusing on today, which you can find on the terminal, of course, at
Bloomberg dot com. Here to discuss the breakdown with us is Bloomberg BusinessWeek editor Joel Weber and the reporter on this story and occurr in Joel, what's this?
It's all in the Did you describe this as a simple economic rule?
Is there such a thing? I just want to clarify it. Is there such a thing?
I won't pretend simple. I won't pretend I even fully understand the mechanics of it. So that's a brave call.
Okay, all right, So what does it feel better? And that makes me feel better?
I honestly I had never heard of the sam rule. So break it down for us, and what uh, you know what everybody's talking about here?
So the Clode's, first of all, she's a very accomplished economist. She had a long career at the FED. She had a stint in the White House as well, and at her time at a fed. In twenty nineteen, she published this now this rule or this measure, which essentially looks for increases in unemployment in a real time way and looks for how it looks for the increased relative to the average, the three month average compared to the low point of the year before point being it's a real
time weight to gauge. Oh, look, the job market might be turning. Jobs are being lost. And the second part of it is that that's a warning sign to governments or the US government in particularly, that they're we're in a recesion and so it's time to start getting money out to those who need it fast. So that's the key
point about it. It's a real time gauge. It looks at the labor market, and that's much faster than the current system of gauging when there's a recession, which is an eight member committee that come together and often don't diagnose it until a year after the event.
So how did she create a monster, because that's the fun part exactly.
Yeah.
So the issue here is that it's got it's got two things. First of all, people are kind of talking about it in the sense of forecasting this much wanted the US recession while it won't it. And our point is it's not a tool for forecasting sessions. It's an indicator to say when we're in a recession. And the second point of it is, it's just got tied up in this whole broader tug of war of will the US fall intercession?
Will it not?
What's the rule sam Room Rule telling us when her point is that this was meant to be an indicator that look, people are losing their jobs and the governments need to get money out straight away because that mitigates offsets, whatever damage your a session might be coming. So she just feels that it's getting caught up in the maelstream of this whole seft lamming debate.
Well, she said to you, the whole point of it was, Okay, we need to get people help, because if you can get in at the beginning of a recession, you can do so much to soften the blow. The issue is the consumer has been so resilient, The American consumer has been so resilient. So yeah, this has been pretty humbling, not just for her but for for so many economists.
Yeah, so in terms of you know the rule itself, you know this policy ad that she was giving say pre pandemic. Ultimately, it's what the Trumpet administration did is that when people are losing their jobs, they put money into people's households to upset the worst of their session. So it kind of did follow the policy prognosis. But you're right, the real crooxy this is where we are now.
You know, the job market is softening somewhat. There's a lot of tok that the economy will soften with claudiusam is making the point that, look, if unemployment was to go up somewhat and you know, mechanically trigger her rule, that suggests it's passing a threshold that the economy might be going into her session. So the jobless rate was to go up, but the actual economy doesn't go into
her session, She'll be fine with that. She doesn't mind if her rule is proven, is tested, so to speak, are even proven to be inaccurate in this occasion, as long as it means the US pulls off of self landing. And she's in the camp that there doesn't need to be your session to bring down inflation. At the moment she thinks inflation is on a glide path lower. You
don't need to blow up the job's market. She said, it's still possible that happens, but she thinks it's a path for self lanning, and that's her whole that's her whole point about it. If her rule is proven wrong this time, that the jobbles rate goes up a touch, but there is no recession, she'll be fine with that.
She also just sounds funny to me. She said that she created a monster. She said she never she was surprised she ended up at the FED, even though she's obviously genius and created this rule. She would love to see this break. What were your impressions of her?
Very Clothly's very accomplished the columns, like you just mentioned, a long career in the public sector, a lot of academic research, PhD from Michigan. She's proved, she has a proven track record behind her. Clodly also was on the front line of pushing for the diversity debate at the FED when she was there. We spoke a lot about that. She said, the institution has come a long way compared
to the time she was there. And of course we got into the world of social media, because that's also a big part of this story that the economic debate has moved from say the wholes of universities and maybe the opinion pages of newspapers into this real time back and forth sort of punch bowl on Twitter, et cetera. And Clonia herself.
Him like thinks he knows what he's talking about. I know, that's when you know we've got a problem.
Just wait till the Stenevec rule. Just wait until that happens.
Dye rules called five and I'm out of.
The area six six. But and you bring up a really good point, because she is, she's huge on Twitter, and she she does such spent she's I mean, I haven't I must confess I have taken a break from Twitter lately. But X whatever it's called. She she's and she writes for Bloomberg Opinion. I mean, she's out there.
He used to be very out there as well, very vocal. I mean, she wrote a blog post in twenty twenty that was highly critical of some very senior peers in the Eglomis field and she named them. So that caused a big star at time. And you know, she was on the front edge of a lot of sharp exchanges on Twitter as well. But you know, Clodia has pulled back from Twitter. She made that point. She took a couple of breaks, a couple of months off of it. She's back on it now just to publish her research.
She's not interested in getting involved in the back and forth the hot take debates. In fact, she said she stays off Twitter and the hot take days. The hot take day will obviously be the jobs Day on Friday. She's hearing well clear of that.
She's got all these rules. I wouldn't know the rest of the rules.
Actually, Okay, so you rate that if she gets get it right in economics, textbooks will be rewritten, get it wrong, and the credibility of central bank will be damaged in the US economy, doomed to stagflation.
Which way is it trending so far? And when will we know?
We got to?
You know, textbooks require some you know, forward planning.
Right here, right now, there's this window that the US can pull this off, that they can get inflation down, that Dad has been heading in the right direction. Inflation is coming off, and maybe they can navigate some sort of a soft landing without the kind of massiver session that some people were warning about. Now, if that happens, that puts your own Powell in the whole of legends up there with Vulkar in terms of global central bankers
who pulled off the impossible. But there are a lot of people who push back and say it's too soon to say mission accomplished. We don't yet know what the full impact of these rate hikes will be. We don't yet know if inflation is going to come all the way back down the word it should be in people on the street. They're feeling the impact of these price rises over the past few years. So there's another camp out there saying hang tight for another six months or so and see where we are.
Then wait, you just didn't vote to Volker.
I'm actually curious if pulls this off, who becomes more of a legend, Volker or Pale.
It's an interesting question. I think if Powell pulled this off, it would be seen to be quite a feat because there's a backstory. You could say, hang on, central banks missed how all this inflation was building up anyway, But when they went they went very hard to federally doing all those massive rate hikes seventy five bass points at a time. A lot of people being very critical, you're going to blow up the economy. Don't need to do this.
And if they do pull this off and get inflation an on a glide path, it looks like, you know, would put the US in pretty good order compared to some of its peer around the world. Pray of what's going on Europe, for example. And I think Powell then would maybe take something up a victory lot.
But I just retire just like I'm doone.
I think Joel brings up a good point end. I mean, because you know, Vulcar had to raise rates to what close to twenty percent in the early nineteen eighties, and if Powell pulls this off with rates around five percent.
And unemployment went to eleven percent, yeah, the Vulgar I mean. And you know under Powell, unemployment fell to three point four percent in February, which was the lowes since nineteen sixty nine, So fairly different circumstances. Maybe we're seeing the birth of the Powell rule here. We don't yet know.
Did you just coin that that's good?
Still original? I fear that I just jinxed everything.
Oh yeah, great, Joel crash Landing, Oh Weber, I would love.
For you to be the leading indicator of our economy.
Joel, Just you know, there are some people on Twitter x who have written how the Business Week covers are?
Are you know?
That's really I don't know about this.
Can you explain it once.
We talk about it. It means it's late and and everything.
Like once on the cover I we brought down the dollar.
The dollar was very strong, and then we did the cover story and it.
Was less strong.
I will push back on that. I think it's like, there's no perfect record here, but there's like, you know, there's a couple prominent ones.
Yeah, we get, we get.
You know, every once in a while.
We hold you is like an oracle.
Okay, speaking of oracles, can we talk about into some more?
Because he was busy this week and he wrote about Barbie.
Uh, I was hoping, Yeah, you know, let's just stay with cool things, like, I mean, some world pretty cool.
You didn't know about that, but maybe you knew.
About Barbie with tell us about what you wrote for today's newsletter.
End up.
Yeah, So the toy industry has been in a bit of a slowdown this year because you know, it's coming off to the highs of the pandemic when people are buying so much of that stuff. This year, stores have been running down to inventory le less buying of toys, especially I from age of course, so I touch base with a couple of manufacturers and said, how are things looking.
And one of those I spoke to is one of the biggest makers of toy dinosaurs in the world, and he said he can't wait for this year to be over. So the thinking is that the Barbie effects, the barbieffect might give all boats a lift. I mean Mattel themselves. They're talking about they're expecting a lift from the Barbie chain of products. And of course there's a thinking that that might get people back in the toy stores and spending money on other products too, And that's what it's
time maker I spoke to. He's making the point that he's hoping for a lift towards the end of the year, because certainly buying toys hasn't been an everyone's shopping list so far in twenty twenty three.
Wait a second, did you say the world's biggest manufacturer of dinosaurs one.
Of the biggest. Yeah, and he also makes chat him out of the talking Hamster.
He's got a rank product.
We've got questions about that, but let's stay with dinosaurs. So the dinosaur business is difficult right now.
Well, so he sells, he makes and sells for some of the biggest brands in the US. And his point was that they a lot of these stores have built up inventory. They bought so much back during the pandemic because they wanted to get ahead of supply chain problems and everything else. They needed to just get the stock in. But now, of course I have to run down through all of that stock. So his order book hasn't been good this year. That was the point he was making.
But he's hoping that it will turn now towards the end of the year with store report that inventory are being run down, and of course the US consumer is holding up stronger and expected. Throw a bit of Barbie magic, a bit of Barbie sprinkle on top of that, and maybe people might start splash splashing the plastic again on toys this year.
Okay, what was the hamster thing?
And he also has he also has a tucking hamster which he makes all of this. He makes all of this out of me a it's an old conduct of mind, but he sells it to Europe and the US and one of his products is a tucking hamster.
Is this is this, remember Tickle me Amoo?
Like?
Is this that's a throw hamster? Is this like?
Is this going to be like what everyone wants for the holiday?
I love it, abitrage make this in Asia sell You're talking hamsterday Europe.
Don't do it in the US.
Don't European big market.
Though, brutal.
So the idea here is that people are going to say, Okay, well, Barbie's still hot right now, We're gonna add Barbie to our shopping list for the holidays. And while we're at the toy store, well we're on I don't know why even say toy store. While we're online, we're going to add some other toys, some g I Joe's, some talking hamsters, and some dinosaurs to our.
That's certainly dinosaurs and Barbie seamless, but that's certainly the hope among a couple of manufacturers that I spoke to, Well, I wonderful.
Materializes Mattel's biggest product sales, as you know, and is it's hot wheels. It's not Barbie, right.
Yeah, but they were saying in their earnings report last week that they are hoping for pickup from Barbie to some increasing by.
The Barbie buy the hot wheel to go with it.
Also, it's really ip and that was you know exactly.
What the Barbie cover story in Bloomberg Business was week was about perhaps the leading indicator of the toy economy.
We'll find out more, yeah, in the weeks and.
Months ahead, and when we get the Super Mario Brothers movie expected in twenty twenty five, it'll.
It'll get moved forward because it's everybody wants more Mario shout out to two stories in one episode right now, that one segment that we've talked about.
Amazingly, he has.
More content in the magazine, like he's a busy guy. But we're not even going to talk about that one. Maybe we'll do another segment.
Yeah, all right, Well it's only Tuesday, so you got to come back. It's good to have you business guys this afternoon. And also Joel, always great to have you that voice you're hearing Bloomberg Business we get or Joel Weber and also Bloomberg Global Economy reporter and a current talking about the PM rule in Barbie only we can marry you know, Barbie in an economy.
That was a really good Josian Joel that.
Yeah, 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.
All right, we're going to switch gears a little bit because we have a great guest with us in studio here. I don't know if you've been on overstock dot Com today, Tim, but if you load that in, you're going to get redirected to the bed Bath and Beyond website because Overstock dot Com is now operating as bed Bath and Beyond in the US following the rebrand in Canada. And we are joined by the CEO, Jonathan Johnson in studio. Jonathan,
thank you so much for coming in today. I am currently shopping for some midcentury modern products on the website here. But also previously, while I was working, I did a video on bed Bath and Beyond and the title was Bedbath and Bankruptcy. How are you planning to leverage the assets and ip that you spent a little under twenty two million dollars on to veradge the brand without that same ending.
Yeah, that's a great question. You know, we've long liked and looked at bed Bath and Beyond as a brand and as a loyal customer base. We understand it's business fell on hard times. Our view is that management can kill companies, but not necessarily brands. And before we purchased the brand, we did some consumer research and we saw that in the home space, bed Bath and Beyond was still a top five brand, well known, well trusted, and
associated with home. Overstock, on the other hand, has a business model that really works, but a brand that was actually creating some headwind. We started two and a half decades ago as a liquidator, but it's been twenty years since we were a liquidator and a lot of our customers still were not and potential customer still we're not associating us with home products, home furniture. They were associating
with liquidations. So we thought, why don't we take our great business model and this great consumer, iconic consumer brand that is bed Bath and Beyond, put them together and it allows us to really rebrand in a way that's a lot less expensive, a lot less time consuming. Hasn't really been done before and when we did it started last month in Canada to test it. It really resonated well.
So let's see what's the impact on revenue.
Well, hard to know just yet. We've been kind of quiet about the impact on revenue in Canada, but it was significant.
What is significant, you know, I'm going to be I'm going to be very careful not to talk.
But we had our investor call last week. We didn't we didn't talk about it, but something significant enough that we wanted to rush and do this rebrand as soon as possible. In the US, the going out of business brick and mortar stores just closed and we're up and running today. That I think that tells you that it's meaningful for us.
So I'm curious about the experience that people have shopping at the new bed Bath and Beyond versus the old bed Bath and Beyond and versus that Overstock. Is the experience that you're going to get when you visit Overstock's website now goes to bed Bath and Beyond. Is that a bed Bath and Beyond experience or is it an Overstock experience?
I think it's a mix. And by the way, those customer sets have a lot of overlap in their behavioral demographic. You know today when you go to that site, it's gone from red the Overstock customer, to color to blue the bed Bath and Beyond color. The Overstock logo is still there today.
I see it. That's the Rewards Club logo.
Well, and it's the Rewards Club logo. We will sunset that over time. We just on our overstock legacy Overstock customer to feel comfortable. The taxonomy and the search will feel very comfortable, very familiar to or the Overstock customer.
There's a little bit more promotion and prominence to bed bath and kitchen products sure, so that the bed Bath and Beyond legacy customer feels comfortable there, but it will really feel like both for a time, but morphing to bed Bath because that's who we want to become.
You've also got the classic tried and true bed Bath and Beyond coupon offerings advertised at the top of the page. That is part of what people thought was a potential downfall for bed Bath and Beyond. So how are you thinking about some of the things that made bed Bath and Beyond so well known? But also we're a little bit of a tailwind or headwind rather for them.
So we are a promotion We've always been a promotional company with with site sales, with coupons. As we do this rebrand launch, the coupons are big their bed Bath and Beyond esque size. Over time, they won't be that big always because our prices have been sharper. But for that bed Bath and Beyond customer who has loved the coupon, what they really will love is the new bed Bath and Beyond mobile app. If you download that today, there's a nice coupon there. We will continue to push promotions
that way. That's been a hugely successful thing for overstock, and we want it to be that way for the new bed Bath and Beyond.
Bricks and mortar strategy, is there one?
Yeah, there is, and it's not to have it and so you know, we never say never, will continue to look at it. But we like our asset light business model. We think part of what brought the prior bed Bath and Beyond down was lots of leases, lots of inventory moving away from name band product to private label. We like our business model asset light, name brand.
Uh.
So we never say never, but we say never for now. If that oxymoron.
Makes sense, that makes sense but I do wonder because some of the products are so big, some of the products, people would argue you need to be tried. How do you get the consumer past that?
So I think Overstock has done really well at that. And so for the typical bed and bath product linens, small appliances, kitchen where that seems like it will fit really well. What Overstock has historically been good at area rugs, sofas, patio furniture.
This is the beyond.
Part of.
It is the bed, bed bath and beyond. We're good at the bed and the bath, and I would say Overstock was the beyond, and.
I would say it's a much bigger, better beyond now. The number of products that are available on the new bed Bath and Beyond site is much bigger and it's a lot of beyond. And so we think we've done well at that, even with the headwind of kind of this Overstock brand that didn't fit who we were. We think with Bed Bath and Beyond, that headwind turns into a tailwind.
So, as you know, revenue at Overstock and formerly bed Bath and Beyond had been falling year over year. I know you won't give a specific but what inning would you say we're in. When it comes to reversing that.
Well, I think the economy has been particularly tough for our industry. The pandemic was huge tailwind, you know, and everyone got that pandemic bounce, and then I think, well, the country may have avoided a recession. I think our industry did not. Furnithing and home furnishings have been in a recession. I think that's normalizing now to seasonal trends, but it's not back back to normal as far as what people are spending their money on. It's still very
much experiential. It's it's going to the Taylor Swift concert, It's it's doing those kinds of things that will come back. And I think our playing offense during this lower time in our industry cycle, when the cycle comes back, we'll be able to slingshot out bigger and stronger.
How would you feel if you became a meme stock a lot that, bath and beyond.
We don't want to be a meme stock. We want to we want to perform based on on we want to be rewarded based on performance. So when it's time to change our ticker, I can tell you one ticker we won't use and that's BBB Y because we don't want to go back to that place.
Yeah, how's the consumer right now?
The consumer is out there. Uh, they're looking for deals. And so for example, around fourth of July, we had a great fourth of July, we had a great Memorial Day. We expect to have a great Labor Day because it's big promotions that are going on. The consumer has money to spend, but they want to be careful and make sure they're getting a great deal.
Do you think there's going to be a recession.
Well, I'm hopeful there's not, particularly since I think this industry has been in its mini recession as it is. By the way, I think some of the things that are fending off a recession, like higher interest rates, are actually pushing us back down. When mortgage rates goes up go up, people aren't moving. It means they're not buying more furniture. It means they're not redecorating at the same level.
So what keeps the country out of a recession ultimately is good for us, but short term is probably a little makes it a little tougher.
It's really interesting to think about you guys being tied closely with the housing data that we cover as well. Thank you so much, Jonathan, really really appreciate your time joining us in studio today again overstock dot com. If you load that up right now, you're going to see bed, bath, and beyond on your screen. Really interesting talking with the CEO Jonathan Johnson here. Thank you so much for that.
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I am so excited for our next segment because we get to talk about a dream that I think will never come true for me, which is owning a home in New York City.
Well like a seven or ten million dollars penhouse, right right.
I mean, I don't know what am I going to do own like a studio, Like I'm going to be forty someday and I'm going to be in a studio, you know. But Tim, to me, you embody the classics of the American dream. You've got the beautiful family, You've got a home that you're quit to remind me as an apartment apartment.
So it doesn't count quickly outgrowing it.
Yes, yes, says you've got an another baby there, but here to help kind of potentially crush our anxiety levels when it comes to the real estate picture or fuel them. Who's to say is Francis Katson agent with Douglas Ellman. Francis has three billion in total sales, selling an excess of three hundred and fifty million annually, so a great pulse on the market. Francis, thank you for coming in studio with us. Talk to me about the outlook in New York City. Is there any any optimism for me out here?
Well, Madison, I think it depends on which side you're standing on. I mean, I think that the luxury sector over four million is having the most fun right now, to be candid, because there's the most opportunity. When there's this unknown variable, there's a lot more negotiability. They're a little bit less dependent on any rate. They're exempt from it, to be.
Honest, because they're paying with cash.
Correct And just to be clear, the sixty five percent more cash deals that we're seeing are not necessarily because there's more cash deals. It's just that the mortgage deals that were happening have slowed down, so those that sixty five percent just looks front and center.
It used to make sense even if you had for seven million dollars to spend on apartment on an apartment in cash rates were so it used to make sense to actually take out a mortgage because you can take out a mortgage for two point five three point five percent and then throw that other money in the s and P five hundred and you know, or do whatever you wanted with that other money. But now that's not the case.
So therefore cash is king because sellers are really wanting to take advantage of unloading the asset. They want to get out of New York, they want to downsize, whatever it is. And this is the opportunity because people have uncertainty, they're not sure, there's a malaise in the market, there's an unknown should I time it? But these ultra luxury buiers. There were three sales done over fifty million over the past week and a half, one in the West Village,
one in Gramercy. It's happening. People are doing it big time on the fifty million plus. But it's the entry market that has the least to spend the most to lose on the and are the most impacted right now.
In my opinion, what does that even start to look like in what way? Like who can buy a home at the entry level right now?
I think it's for parents. You can help bankroll the down payment, because that's the most illiquid part for these buyers. They can probably manage the mortgage and the common charges if they can make it work with the relationship of a lender that can give them a little bit like
a quarter or a half a point down. But at the end of the day, people are having to grieve and say goodbye to two point seventy five to three and a half percent rates and get ready to take six point eight to five percent rates, which is meaningful when you're carrying a certain income and you're hoping not to rank because you want to own equity. It's hard.
Francis. I wonder about just the lack of supply that we're seeing right now, and if the story in New York is at all different than the story in other parts of the country. And I go back to what fve Jo J. Powell said about and this is for starter homes. I mean, you know there's new construction coming online, their new development's happening all over the country because there's demand for them. We just don't have the space here
in New York. We're not going to be seeing like you know, Lenar come in and build a bunch of homes for example.
So here's what we're seeing. We're seeing bidding wars up seven point four percent around the country, but we're not necessarily seeing it in New York. But because there's a down, there's a down of inventory. It's about twenty three percent down on inventory for under four million. We're seeing that change in terms of bidding war for the lower the under luxury price point around the country. You're right, there are there is a level of need and supply and
demand New York. You're right, it's not getting any larger. But the problem is is that it's so expensive people can't make the numbers work. So New Jersey, Brooklyn, Long Island City become very interesting because there's people want to say they don't want to burn it all out, but but at the end of the day, people like to park their cash in New York City. It's it's a hub.
What are you seeing when it comes to foreign buyers right now?
The big time time really No, it's happening. I'm doing deals with Germany, London, Russia. It's happening. Yeah, Russia, yes, yes.
Go into detail please.
I can't, but suffice it to say, people want to get money out of certain countries and park it and it's happening. It's happening with Asia.
I just want to make sure we're allowed to do deals with Russia.
How does that We're not discussing anything other than to say it's happening.
And what's the How luxury are those.
We're talking fifteen million plus? Yeah, yeah, yeah, there's a lot of discretionary income. But it's more than that. It's a hub. We have a very different tax allowance here than we do for the actual New YORKA sure, go figure.
Yeah. What is that looking like in terms of the impact on availability of units for renters out there? Are we still seeing a lot of units that are sitting empty?
Because so that's a really good question, because last year in November, we had a vacancy rate less than two point seven percent and rentals were up forty percent. Now we're seeing the rents softened in the early part of twenty twenty three because we expected a big sale push but because the rates started to really impact that and the inventory was down because nobody wanted to let go of that really good rate that they had as a seller and have to take on almost double digit carry.
We sort of got back into the rental market. But the rental market went from one month op again to now fully no, we're not negotiating, but now again it's it's measured because parents are coming in and deployment of foreign investment coming in to offset that parents. So the rental market's moody.
We have thirty seconds left. But common charges are the killer. Yes, I talked to somebody, Yes, colleague kills trying to buy. Yes, and they just can't make the numbers work now of common charges.
But is it the common charges or is it the combination of the rate because the rate was so artificially low it offset the standard common charge of you know, fifty seven hundred bucks or thirty seven hundred bucks depending on the size, or twenty charges.
Yeah.
Wow, common charges, Mattie, are optimistic.
I mean, it's not.
Going to happen for me, you know, I just think, I just think how I mean, okay, what's happening with rent really quickly? Is my Is my rent going to get any better this year next years?
It depends on what happens with the rates. I think that quarter point hike sort of really pushed things over, even though inflation has steadily come down. So I think the rental market will adjust and we see rates adjust.
All right, got to time the market, I guess, tim timing.
Francis Katzen from a Douglas Element. Really good to have you with us this afternoon. You're listening to Bloomberg.
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I'm Tim Stenovak, along with Madison Mills, who's filling in for Carol Masser. Plenty ahead in our second hour of the weekend edition of Bloomberg Business Week, including a conversation with Chipotle COO Scott Boatwright on the fast casual giant's upbeat out look despite a quarterly sales miss. We'll also examine Mark Rowan's push for an image makeover at the private equity giant Apollo Plus. We'll find out how AI
is being used to prepare for future crises. First up this hour, we take a look at the brutal month of weather that is finally behind us, as heat waves and wildfires cause chaos across the globe, so much so that UN Secretary General Antonio Guterrez had this to say at his most recent press conference.
The era of global warming has ended the IDIA. The era of global boiling has arrived. The air is unbreathable, the heat is unbearable, and the level of fossil ful profits and climate innection is unacceptable.
Maddie, I got a true story for you last week.
Let's hear it.
Last week, I come into work and I'm soaking with sweat, and my colleague Alex Gielson says, Tim, how is your bike ride in this morning? And I was like, Alex, I took the subway in. This is how much I sweat when I walk from the subway to our office two blocks. And he was like, Oh, I'm sorry, you're so sweaty. I thought you rode your bike all the way from Brooklyn. No, that's just because this month has been really hot. All that to say June was hot.
In fact, it was the hottest June in recorded history, and this month it's the hottest ever July. It's not good news, but it's good that we have Eric Rosston all over this story. It's a big take from last week. An overheating planet requires supercharged climate solutions. Eric, good to have you with us. First, give us the bad news. Just how bad was July?
July was bad? You have characterized it well, it was the hottest month and recorded history. The temperature records go back to the middle of the nineteenth century. This year is likely to be the hottest year on record. The last nine years have been the hottest year on record, the hottest twenty twenty two of the hottest twenty three years have occurred this century, and every decade has been hotter than the last since the nineteen sixties.
Yeah, so not great.
How much more of this are we going to experience throughout the rest of this year? How much more heat can we anticipate? Is this going to happen through the end of twenty twenty three?
Even Well, we're helped out in some ways by the fact that July is the hottest month, and so as we spin around the sun toward fall and winter, temperatures
will retreat from the piece we've seen. On the other hand, we're also entering hurricane and wildfire Season's what's making this year unduly punishing is the coincidence of not only climate change, which just steps up all the time, but also in El Nino, which is this phenomenon of the Pacific Ocean sort of coughs up lots of heat every few years, and it makes temperatures hotter and throws weather in the chaos and different parts of the world.
It's pretty depressing, I gotta tell you.
Eric.
You know, we get a note from my kids nursery school that says AQI is over one hundred today, so we're not going to let the kids play outside. Meaning the air quality index from the wildfires in Canada a few weeks ago, a few months ago, and a few weeks ago, actually it happened twice recently prevented the kids from being able to play outside. But it's so hot that you've got to be blasting the air conditioner. Where does the electricity come from to blast the air conditioner? Well,
because it's not coming from nuclear anymore. Here in New York. It's coming from fossil fuels. It's creating this terrible cycle that we're in right now, which is you know, really my question is about solutions, because staying inside and blasting the ACA is not a viable solution. That's not going to keep sea levels from rising, that's not going to keep wildfires from happening, that's not going to keep the air clean. What do we do.
We need to get off fossil fuels, even though it's not said that bluntly in American political culture, fossil fuels cause called fossil fuel burning causes climate change, and until we get that under control, climate change will always be in its opening act. This will be a cold summer in twenty or thirty years, and that's ultimately this whole story. You know, this is not a complicated topic. We've known
for many decades that this is occurring. Scientists, you know, warned us for decades that you want to get on top of this before the symptoms start occurring. The symptoms are occurring. Fortunately, and this is the good news. We have the tools, right We have affordable solar, wind and battery technology. Solar is cheaper than coal in most of the world on a levelized cost basis, we have wild
investment into things that are not solved technologically. Yet this story, the reason this is the greatest story ever is that the stakes could not be higher. But you know, we have the fixes and all we need to do is the work to implement them. Like that's that's it. All we have to do is the work.
Can we reverse some of the damage that's already been done? Or when you said this is going to be viewed as a cool summer in twenty or thirty years, is that a foregone conclusion or can we fix it still?
The scientists have said, in a break from previous years, they think that as soon as we stop increasing the atmospheric concentration of greenhouse gases, that the warming will will stop pretty quickly thereafter. So let's what. You know, it's what passes for good news in this space. But you know, this is this is it's a situation, right, This is not it's not great news. We've known about it for a long time. We've made you know, we put it off for a long time, and that's just where we are.
I as someone who covers this, you know, we get climate reporters I think get this question a lot, which is how do you deal with it? And part of the part of it is by being in touch with everything that's going on. There's a way that kind of diffuses anxiety, you know, like if you can understand something, it makes it less scary. But the other thing is that, like again, I cannot over emphasize the excitement around clean
energy technologies. The rate of growth, the rate of the price declines, it's just phenomenal how quickly we can solve the problem if we decide to.
Nancy Lyons in our DC newsroom reminded me that the problem when it comes to renewables is consistent power supply. You know, when there is no wind, when there is no sun, when it's nighttime. How do we get to a place where we can actually store power that's generated in the day to offset fossil fuel use at night? Or is the answer just nuclear?
Both of the answer. The price declines in utility scale batteries have plummeted like the curve just like somebody looks like somebody just like dropped an egg on the chart of price to clients, right, it's just like very precipitous. So increasingly you see utility scale batteries and nuclear is an option that has been there the whole time, and it is a critical source of baseline electricity.
It's just there.
People just seem not to be able to build them. They're just they come in billions of dollars over budget and many years late. You know, when you look at the time crunch, we're in to have global emissions by twenty thirty, Like, you can't build nuclear in that time, or at least nobody has, so, you know, nuclear is you know, it's this tragedy of like having a carbon free source of power that you know, we've used for more more than half a century, but nobody will build them.
Yeah.
In our final minute with you here, I'm curious about legislation around this because you are in DC for us.
How effective has.
Legislation like the Inflation Reduction Act been at sort of solving some of the issues that you're talking with us about.
It's the most phenomenally important climate legislation that any country has ever passed. You know. The the International Energy Agency says we need to triple renewable deployment by twenty thirty, we need to double energy efficiency and the oil and gas sector needs to cut its methane emissions by seventy five percent. There are things in the Inflation Reduction app and now in copycat legislation in Europe that will incentivize
all of those things. So it is it's difficult to overstate the importance of how much that that legislation will help things along. There's still more that's needed. One interesting thing is like we're gonna build so much solar and wind in the US that like we can't keep up
with plugging it into the grid fast enough. And so it's interesting, like the federal government can you know, has UH can build pipelines and highways, but they can't build transmission right, So that's something Congress has to fix.
Eric, we got to run, but we love it when you join us. Thanks so much for doing this. That's Eric Roston, sustainabilitator at sustainability editor at Bloomberg News.
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We got with us right now, and we're very happy to have him here. It's Chipotle COO, Scott Boat right, he's the chief operating officer there. He's with us on zoom from Newport Beach, California. Scott, how are you this afternoon.
I'm well, thank you for having us on this afternoon.
So let's go through yesterday's numbers and you know what did disappoint analysts? Give us your take on the quarter.
You know, we still feel like we had a really strong quarter, up seven point four percent in comparable sales, the highest margins margin numbers we have produced as an organization in quite some time, coming in at twenty seven point five diluted innings per share at twelve thirty two.
All really in line with consensus.
We felt great about the quarter, specifically that the COMP number was driven primarily by transaction growth, and so we're still excited about Q three as we look at what Q three will be for all end up for our organization, where we're trending and what we anticipate. It's still driven by healthy transaction growth, and so our full year guidance still remains unchanged. I think analysts were a bit concerned
about the estimate COMP sales estimate for Q three. But keep in mind, there there are other things that we have in the pipeline. You know, we have We still have pricing leverage, which we believe as our economic model still holds up, we feel like the Chipotle.
Meaning you can use your confident you could still raise prices.
I think there's I say to that have to say, I think there's still room yet. And then we have a fourth quarter lto promotion that we will launch sometime probably around the September time frame. And so I say that to say we still feel great about the year. We feel great about the healthy transaction growth that's happening, that's driving our comparable sales growth. Uh, and the story still holds for the year. So we feel still feel confident.
How much.
Listen, you're the chief operating officer, so how things work and operate is really important, and how you can make the systems more productive and more efficient. Talk to us a little bit about some of the automation technology that
you guys are doing and playing with. About a year or so ago, I caught up with your CFO Jack Hartung and talked about, you know, the amount of hours and how were intensive it was dealing with avocados, because you guys are all about fresh guacamole and fresh avocados. So talk to a little bit about automation and how that helps the growth story going forward.
Yeah, it's a great question, Carol. I think there are a couple of things that really fuel.
Our economic model. One of those I'll speak to you
very quickly is around throughput. And we still have throughput advantages that have yet to be pulled through, and so we're working aggressively as an organization to get back to the throughput levels and efficiency levels we experienced in the brand back in twenty seventeen through twenty nineteen, really pre pandemic, before there was this massive shift to digital, and the new people in our organization today aren't accustomed to the speed at which we could deliver the Chipotle experience, and
so we're really leveraging that and flexing that muscle here in the upcoming quorder to really get back to our throughput prowls yet again, and also leveraging cobotics where it makes sense to really remove some of the routine, mundane tasks like coring and fitting avocados each day in our restaurant to really move that labor toward consumer facing.
Engagement and creates a.
Better experience for the team memory and a better experience for the consumer as well.
Satt Can you partner, can you just give us some numbers behind the automation the automation process when it comes to peeling or incloring avocados for that guacamole, Like, how long does it take a person to do it? And how long does it take a machine to do it?
Yeah, it takes one individual about fifty minutes to complete one batch of guacamole. That's starting with a fresh k K case of ripe avocados all the way through the hand mashing process. So we think autocado can remove about fifty percent of that time. Wow, and really make it increasingly more efficient to get through that process and get towards more guest facing activity.
Do you lose do you lose some of that that vegetable? Do you lose a little bit of it with the automated process?
You know, that's one of.
The things that we are testing for JAM is we think about autocados affect in restaurant. It's got to be able to deliver on a few things. Hey, it has to be able to protect this incredible ingredient. As we bring it into our restaurant, it has to continue to be as food safe as it can and should be in our restaurants.
And it has to deliver on our specification.
And so if it doesn't meet that criteria, then it doesn't move forward, and it's testing protocols. But early days, we're very excited about the opportunity and feel good about what the product is today.
All right, what about workers? That's the other thing, right. You don't want turnover. You want to train people and have them stay. So one of the things many years ago, I was very impressed with what was done by the company to hold on to workers, to promote workers, to keep them in the system. So talk to us a little bit about manager turnover and what you guys are seeing in the hourly turnover.
Yeah, great question.
I think those early investments that you're referencing, Carol, have pade huge dividends for our organization as it relates to retention and turnover specifically.
And then overall development for the organization. As you think about the growth that is ahead of us.
We are currently experiencing all time low turnover numbers for the brand and so and that's throughout our salary rates and our hourly team members, and so we feel like more and more team members are coming into the organization.
They see the opportunity for growth, advancement and to hit their career goals, and they're met with an organization that has very competitive wage rates across the industry, across the United States, and is very competitive in the industry and what I believe to be industry leading benefits in total that really capture things around financial health, mental health, and personal health.
Is there still pressure though, to raise wages? Give us an idea, I mean, that is such a big part of you know, we're coming off of FED media. We talk a lot about wage inflation and that is still sticky. Is that still you can't back off? It's are you paying up more or is it leveling off?
Carol.
There's always inflation in the wage markets, as you're well aware.
And we go through an.
Aaron twice annual merit process for our team members and that's a practice we've had for many, many years in the organization. We're experiencing about five percent wage inflation, which has anticipated and built into our annual plan, but nothing extraordinary.
Do those benefits that you talked about that are not directly impacting a higher hourly wage. Do those work? Do those create a stickier workplace?
It's a philosophical question. It's one that I talk about often, So thanks for asking the question.
If your wage rates aren't working hard enough for you, then the benefits conversation never comes into play.
And it's Maslow's hierty.
If you're not meeting the basic needs of your team members and your workforce, you can have all the benefits in the world, but if they're not able to meet the needs of making rent, having food on the table for their families, then those benefits can't work for you
in your behalf. And so what we try to do is maintain a competitive wage no matter what market we operated in the country, and that allows us to have a robust benefits conversation that really creates the employee value proposition, keeps people engaged, keeps them bought into our vision, our purpose of cultivating a better world and looking for more opportunity within the Chipotle brand.
All right, when you look at the horizon, six to twelve months feels a beat, a little cautious. How would you describe it?
I'll tell you Carol, I'm really bullish.
I know this summer there are a lot of US travelers that are out of the country, so we're seeing a little bit of softening in demand across retail and in the hospitality space. I think it rebounds very quickly in the fall. Consumer spending is still obviously a big part of our economy, is still driving our economy.
I feel good about.
Where we're situated from our value proposition perspective. We're still a low cost provider that provides abundance, proviety and.
A very high quality, great tasting meal in the four.
All right, well, so glad we got some time with you and our best to Brian as well as Jack Scott boat right, thank you so much, Chief Operating Officer to Botley Mexican Grill.
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So writes Alison McNeely, distressed debt reporter and a wonderful piece about how Mark Rowan is trying to change things at Apollo. It's today's most red feature on the Bloomberg terminal. She joins us here in our Bloomberg Interactive Brokers studio. Really good to have you with us, Allison, congratulations on the piece. What was Apollo before Mark Rowan?
Well, first of all, thank you for having me me so.
Apollo has long had a reputation in financial markets as being possibly the most aggressive private equity investor, and particularly they built their name on sort of really aggressive transactions, really aggressive maneuvers around distress companies and in bankruptcy court, and that legacy and that sort of image was really built up over the past thirty years, particularly under the leadership of former CEO Leon Black, who of course departed in twenty twenty one amid you know, sort of a
real uproar over his ties to Jeffrey Epstein.
And in the story you call that the Wall Street version of Game of Thrones. Can you tell me a little bit more about what that looked like?
Sure, Well, it was really an extremely difficult time for Apollo. Essentially, you know, these payments to Jeffrey Epstein made by Leon Black, came out in the press at the time, there was a sort of an investigation, and what the investigation found was that Apollo was not aware of these sort of payments, that there was no sort of connection to the firm.
But essentially the uproar were so significant that really, you know, Leon Black, I guess, could not stay in that role, or they felt that he couldnot stay in the role, and so it sort of became like a phasing out and eventually, you know, Mark Rowan came in a CEO in March twenty twenty one.
So let's talk let's fast forward to you know, August twenty twenty three and the transformation that at least Mark Rowan is trying to do at Apollo. Is this a where where is this desire to transform the company coming from? Is it coming from LPs? Is it coming from attracting and retaining talent? I guess we're talking private equity here, like totally. It's not warm and fuzzy, like he's not a kindergarten teacher like that. You know, these are the people who are the barbarians at the gate.
Sure, yeah, So I think it's coming from a bunch of different places. So there's sort of two prongs to the Apollo story. The first is the cultural piece we've touched on it. You know, the Epstein piece. Apollo was really caught up in a reckoning over working conditions on Wall Street that we saw during the pandemic, really really long hours and you know, just a really tough place
to work. Kind of the place where someone described it to me in the course of reporting the story is the kind of place where you have to put on your armor before you go to work, like put on you have to like suit up for battle kind of place. And so that there was like kind of that aspect. And to be clear, this was considered unique among private equity firms because as you know, you know, private equity is not exactly the most warm and fuzzy place, but.
This was sort of uniquely tough.
So there was that piece, and that was kind of tied with the Jeffrey Epstein news that was kind of creating some real noise around the firm, making it harder to you know, sort of attract talent that kind of thing. And then there was also the second piece around the investing strategy and long story short, Apollo built up such a difficult reputation or reputation for being difficult, rather that
essentially it started to cost them money. And when they were trying to find ants their biots in the leverage low market, in the bond market, they were sort of getting what people called the Apollo premium, which is essentially being charged fifty to one hundred basis points of additional interest compared to say a comparable deal in order to essentially be compensated for the trouble of lending the money.
Wow.
Okay, So once it started to hurt their bottom line was that the moment of like, maybe we should change our culture.
Sure, sure, exactly. And then the other piece here that's really important is the Athene angle, the insurance angle. So Mark Ron's baby quote unquote is the Athene insurance unit at Apollo when essentially that is an entity within the
firm that writes annuity policies for retirees. And Mark Rowan identified way back in two thousand and nine that there was a really interesting investing opportunity to be had essentially collecting the cash on annuities, investing that in a variety of credit, and then paying out to retirees and essentially becoming like sort of the middleman or the investment manager
for insurers. And so really since he took over CEO, he took the opportunity to expand into that business because he just and he's been on record about this repeatedly saying, you know, he feels that that's a much more attractive growth opportunity for the firm as it looks towards the future.
But is that a result of the end of zero interest rate policy as because this comes at a time when private equity is having to deal with interest rates that are higher than almost any other point in their history for some of these companies.
Yes, So the backdrop of you know, interest rates not being zero for the first time and I guess more than a decade is definitely a factor here, and that actually makes it very lucrative to be in the lending business right now. You know if previously you were, you know, fighting to get any interest you could, and now you can get I guess a minimum of five point five percent.
So that all raises the question should we even call Apollo a private equity firm?
They would say, no, Okay.
What would you say they? It would say, as you write in the piece, right, an alternative asset manager Yeah, what would you say.
So that is I actually, you know, I think I do think that's fair. I think you can call them both. I think you can call them a private equity firm, but I do think it's also fair to call them an alternative asset manager because you know, eighty percent of their assets under management are now credit or credit like assets. Their assets under management or just shive six hundred billion, only one hundred billion of that is private equity.
How much of that.
Changed after March and what we saw was some of the banking turmoil, or it has not been the.
Case for a while.
That has been the case for a while. It's been sort of this like ongoing shift and essentially, but you know, to your point, the banking crisis is definitely presenting lots of opportunities for firms like Apollo because they can sort of step in where the banks have stepped back or are being forced to step back. And so you know, they've identified that as a growth area for them.
Okay, so he's no longer on the forty third floor. He's got where he's wearing sweaters. He's not wearing suits, he's eating amongst the regular people.
The sweater the way I cackled eating the sweater as like the indicator that someone is in touch with their employees.
That was so funny.
Yeah, go ahead, Well, Mattie raises the exact point that I wanted to ask you, Alison. Is it working? Is it changing the culture? Is it changing the view of Apollo?
You know what, I think they have made progress. I think there's some genuous progress there. The impression that I got talking to people in the market, talking to current and former employees, was that yes, there's you know, people do think that Mark is Mark Ron the CEO, is moving the firm in a better direction. The sense I also get is that it's still very much a work in progress, but you know, yeah, he generally gets favorable to reviews.
Are people still sitting up their armor to go to work?
I think some people.
It's hard to shift a culture. It is at a huge company.
Yeah, in two years, it's extremely difficult.
And I guess the last thing I'd ask you is just about attracting and retaining talent, and to what extent this shift has to do with that. I know at the beginning you said it's sort of about everything, but you know, with all the departures that we saw and we only have about thirty seconds left. Over the last years, it's been tough. It's the jobs market is not as tough now, but it's been tough to attract and retain people.
Yeah, it has been. But private equity or alternative ASSI managers if you will, are actually in a really good point or position right now relative the banks. Banks are being forced to lay people off. Alternative ASSI managers are actually adding people or at least holding onto people because you know, everything that's going on with the banking crisis, interest rights uncertain US economy creates opportunities for opportunistic investors, which is really what private equity is.
Well, it's a great feature. I've said it a few times. You've got to go read. It's available in the Bloomberg Terminal. It's the most red on the Bloomberg terminal today. The story by Alison McNeely, distressed debt reporter. She joined us here in the Bloomberg Interactive Brokers studio. Allison, thanks for taking the time, really appreciate it.
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.
Tim, I don't know about you, but I feel like disaster has been.
Everywhere apocalyptic the past couple of years, right, Yeah, No, it really.
Has global pandemic, wildfire's, Russian invasion of Ukraine. It's all over the place. And our next guest wants to help us prepare for that. He's the founder of an AI nonprofit that's focused on disaster preparedness, and he joins us now to discuss the product and of course the AI space, because we've got to talk about that.
Phil.
Great to speak with you. Phil Sieble joining us on zoom here at Seagull rather the founder of Captor Center for Advanced Preparedness and Threat Response Simulation. Phil, thanks again for coming on. Start by just telling us a little bit about what your AI does.
So what we are is the intersection of artificial intelligence and gaming war gaming. The basic idea is to better prepare, we need to create a set of threats that are plausible that we some of which we've experienced, some of which we haven't experienced, and then run them through simulation games to train our our crisis management personnel, UH, and
our politicians and decision makers to make better decisions. And I think, you know, we could say, you know, with a lot of the types of crises we've had over the last several years, you know, maybe we have a fair amount of room for improvement. We use artificial intelligence both to generate these scenarios, UH and all so to help the quote unquote players in the game make better decisions.
What are some of the games that you've simulated.
Yeah, so we've done. We created a new virus and ran a game with the Rockefeller Foundation, like a.
Real virus, like a I mean, like a not a computer virus. We're talking like an actual you know, COVID like virus.
Yes, yes, it wasn't COVID like. It had a very different characteristic. It came from livestock in the US, which is actually quite common, but it had very different characteristics, and we ask scientists to figure out what was going on and whether or not it was going to be a high, medium, or low threat to a regional population.
We've created a game actually for City of Austin emergency management personnel to see how well the different departments that are supposed to respond to a threat like this would respond. And we we're building games right now for scientists who are members of a group at the New York Academy
of Sciences. So we're building a lot of games. We're using artificial intelligence to you know, really come up with some creative scenarios, but plausible scenarios, and that's you know, what we're seeing is that with more practice, just like pilots with a flight simulator, people do a better job when they practice.
All right, So obviously you are part of the AI bucket that we have become obsessed with in the first half of this year. So I do want to get your take on the space while we have you, because it's seems so much attention and I have to wonder if the fundamentals back up some of the prices that we've seen for these big names like the end videos
of the world. What is your calculation and your thinking when it comes to the AI rally that we've seen, and which of these names are going to continue to make it.
Yeah, So in my day job, I'm a private equity manager, so I think that you know, the old adage of picks and shovels kind of win in the early days is probably fairly true here. I think that I don't know whether you would say in Nvidia is over christ, but I would say that having it run up given it to the by far leader in the chip space, which is the ultimate pick and shovel here makes a lot of sense. There's other you know, products like that, or there's other pieces like their supply chain.
You've seen a lot.
Of run up in those stocks as well, and you know those seem we know those are going to benefit from what we're doing. Once you get past that, it gets a little murkier. I don't think we yet know whether the producers of the large language models, the the you know, the the ones that have made the big splash, are going to have viable business models.
Yet we haven't seen that.
In fact, it's not clear to me whether the large language model makers are going to be the winners or people who are experts at helping companies do small language models are going to be the winners in the space. So there's still a lot of uncertainty and cloudiness I think for the next several years.
Well, phil as you mentioned, your Jay job is in private equity. You've been an investor in private companies, venture backed companies, You've been a professor, you were a BCG as a managing director and partner for many years. Where does your passion for AI come from and for trying to create an organization that helps with disaster preparedness?
Yeah?
So I volunteered during the pandemic to work with BCG on helping some of their government clients respond to the COVID emergency and saw through that work that we have a lot of opportunity to practice. You know, again, I got I kind of thought about the analogy of when you get on an airplane, if you heard that your pilot hadn't been in a flight simulator, you'd be pretty alarmed. Yet, you know, with a lot of our disaster preparedness and crisis management, we aren't doing that type of work every
year we do. You know, obviously this group of people is highly educated and hard working, but I would like to see them every year spending time honing their skills so that they're more ready and better. And that was that was really what caused me to want to co found this, uh, this this ng O if you will, or nonprofit.
Well, where does where does the AI come from? And and are you at all concerned about AI in the sense of it being a threat to humanity.
Yeah, I I uh, well, that's two very different questions, so I'll focus on the second. I'm I'm less worried about the scenarios we see in the movies like I Robot or Terminator too, where the AI becomes sentient and on its own decides it's going to destroy humanity. I am very worried that bad actors are going to use these technologies and are already using these technologies to do bad acts, and that's what we need to be protecting against in the short term.
Thirty seconds, Phil, who are some of the companies and names that should not be jumping on AI and investing heavily into the AI space.
Yeah, it's a good question, and I'm not one hundred percent sure how to answer it other than to say I think there are some sectors where they really need to be thinking about, especially capital intensive sectors, where if they change the basic business model through investing in AI, they can lower the barriers to entry. They might have new entrants come in, whether it's the mining and exploration
industry and so forth. You don't want to bring in new entrants that you don't have to but on the other hand, you need to lower your operating costs, and so it's a race.
Yeah, and it's all about capital allocation. At the end of the day, Phil, thank you so much for joining us. We're going to have to bring you back on. Phil Siegel, founder of CAPTORS. That's the Center for Advanced Preparedness and Threat respond Simulation, among many other resume lines.
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