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.
Now we want to get to two key interviews. They have to do with earnings. Both shares are higher. Let's get to the first one. We're talking about Chipotle Mexican grill soaring to a record high. Right now, it's up about nine percent, so pretty much at its best levels of the session. Fourth quarter sales from profit feed expectations as both transactions and check sizes rose, really defining some of the fears of waning consumer sentiment. Same store sales growth, folks,
you know it. This is so key. A gauge that tracks restaurants that are open for more than a year. That was eight point four percent, surpassing the analyst expectations of seven point one percent. Revenue two point fifty two billion timp that also topped the two point forty nine billion average estimate.
Well, with more in the business, we welcome back Brian Nicol, chairman and CEO of Chipotle. He joins us on Zoom from Newport Beach, California. Brian, good to see you again. Good to have you with us. Investors are happy with this year or they're happy with the quarter. Analyst community is too. My question for you is who do you think you're taking share from right now?
You know, look, I think what we believe is happening is our operation is executing better than we ever have and frankly, we've just been on a journey to get back.
To executing this business to Chipotle standard.
So you know, we feel great about our staffing, we feel great about our culinary, we feel great about our speed, and I think that's why we're being rewarded with customers coming in. And you saw the comp that we delivered that was driven by transaction growth, right, That eight percent plus comp was driven by seven point four percent transaction growth. And I think that's a testament to what our teams are doing in our restaurants on all those areas that I just mentioned.
Brian, great to be talking with you and dig a little bit deeper for us. First of all, that same story of sales growth really blown away analyst expectations. Is that sustainable? You think in the current quarter and maybe throughout the year to see that kind of growth.
You know, what we've guided is mid single digits for the year in twenty twenty four. And you know, the way we take this approach is we want to make sure we've got a strong value proposition, which based on all our data, we continue get feedback that the value proposition is really strong. And then we want to make sure that when customers come in, they get the experience
that they want. And so what we've seen over the fourth quarter and as we walked into the first quarter is people are telling us they like what they see. You know, our teams are in position, our food is ready to go. The culinaries dial in. It tastes delicious, and we're working really hard on the speed aspect so that people don't have to stand in line too long so they can get down the line get to the
business of enjoying their breed over bowl. I think we stay focused on that, we'll continue to deliver really good results.
You know, I'm curious. You know, so others in the space, something like a McDonald's, they've talked about low income consumers pulling back on their spending. You guys, your consumer base what do you expect in terms of us consumer behavior this year? What can you tell us about how the consumer is doing and how they are spending Because you do talk about transactions up check size is rising, but what more can you give us in terms of how the consumer is Yeah, you know.
So we look at this very closely as well.
And first we start with what are people's perceptions of our brand? And the perceptions are really strong right now. You know, people are getting the idea that we're all about fresh food, we're all about food with integrity. They're getting the idea that, hey, this is a great value when I think about what I pay for what I get, the customization, the speed.
Okay.
And so when we look at this among different income cohorts, so less than forty thousand, between forty thousand, one hundred thousand, over one hundred thousand, we're seeing we're making progress in every income coport. So we've seen sales gains with every income group. Thing that I think is happening is especially the lowering consumer. You know, they are saying, hey, we're going to be really choosy with the money that we choose to spend.
You've got to give us what we want on our terms.
And one of the things that's really great is Chipotle's able to do that right. We can get you the exact food experience that you want, hopefully at a speed that delights you, and then when you walk away, you feel like you know, that was money well spent and I'm going to come do it again.
Well, let me go back to comp sales in terms of your outlook that you guys put Brian, why do you think you see growth though continuing but at a slower slightly slower space I mean pace.
Excuse you, I yeah, yeah, I look.
The way we think about this is we want to continue to focus on executing the basics. Obviously January we had to deal with some bad weather across the country. The good news is the days where we haven't seen bad weather, the businesses strengthened right back up, and so we're optimistic about where we can get to. You know, we've switched back to to what our pre pandemic practice was, was just guiding for the full year. You know, Hopefully
what happens is we're able to beat those expectations. That's always our goal, and we'll see how it all unfolds over the course of the year. But we're set up very well to open a lot of restaurants deliver I think really strong in store experiences and digital experiences, which hopefully we'll build on the momentum that we've achieved thus far.
Hey, Brian, let's talk more when it comes to labor. Fifteen percent of your restaurants are in California. You're joining us from Newport Beach right now. We saw California minimum wage raised this year to sixteen dollars per hour. It's going to continue to rise this year and over the next few years. How else, apart from raising prices, is Chipotle going to cope with California's new minimum wage law.
Yeah.
Look, I mean we're always working hard on what can we do to be more efficient so that we don't have to pull the pricing lever.
You know, you've heard us talk about things.
Like autocato, where we're automating how we cut core and screw avocados. We're working on some things automating our digital make line. We're also exploring things on how we could potentially cut our onions peppers in the restaurants in a more efficient fashion. So we're going to invest in those things The unfortunate fact is the wage increases moving much faster than these efficiencies that we're going to be able to find. So price will be part of the puzzle
in order to handle the inflation that's looming. But we're going to do everything we can to avoid having to pull that pricing lever. And you know, you'll continue to see us innovate on what we're calling cobotics so that hopefully we can make the job more efficient, more effective. Team members like it and it gives the great culinary output that our customers have come to expect.
Totally get it. Other costs, other input costs, coren avocados, the cost of ingredients. What are we seeing on that front? Are you seeing prices actually going down or increases not as significant as they were before? What can you tell us there?
Yeah, yeah, that's right.
Right, We're not seeing any deflation, but we've definitely seen a slowdown in the inflation.
You know, it's more in the load to mid single digits.
There's a couple of pockets where we're still watching things like on beef. We're always careful with where the avocado market might be moving. But for the most part, that's I would say started to normalize, with exception of a few pockets of inflation that we're still dealing with.
Brian, do you see yourself raising prices this year?
You know, we always try to wait till we get to about the end of the year to assess what we think we need to do. You know, obviously, this California minimum wage movement, we'll have to assess how that it really impacts the business and we'll take action accordingly.
But for the bulk of the business, we usually wait till around the end of the year.
See where all the inflation lands, see where our growth lands, see where our productivity lands, and then if we need to, we take pricing, usually in that one two to three percent range.
Hey.
One thing I'm thinking about also, and we saw it play out with some others about the impact of the Middle East East conflict. You guys last year talked about entering Kuwait and the UAE. This year, has the conflict in the Middle East, Brian impacted that timeline at all.
Yeah, not yet.
Our partner over there is the Alshinty Group, and they're a terrific operator. They have a lot of brands and a lot of experience of operating over there. So as of right now, we're still on schedule to open this year. Obviously, they will be the first.
Ones to tell us that if we need to change that timeline.
The good news is we think they're a great partner, we think they're a great operator, and I think the folks are going to love Chipotle when we're able to finally open our restaurant in that part of the world.
Hey, just got about a minute or so left. Speaking of timelines, I've got two quick questions for you. You have been at the company for almost I think you're coming up on your six year anniversary. How are you thinking about that timeline? I mean, investors are happy stock is up almost one thousand percent in that time, So how are you thinking about kind of the next leg of that timeline for you? Because I've got to imagine there are people knocking at your door saying, can you
do what you did for Jiboutle for us? And I'm also curious if there's any timeline for stocksplit because it's an expensive stock.
I got about a minute, Yeah, yeah, sure.
Look, what I hope is the next fix years are like what these last six years were from a total performance standpoint. I could do without some of the macro shocks. But you know, it's been a tremendous honor leading this brand. We've got wonderful people, We've got a terrific purpose and product that we provide, and I couldn't be happier to be leading this company.
And I'm really excited about all the growth that's in front of us.
You know, we're going to go from thirty five hundred restaurants to seven thousand restaurants. We're going after four million average unit volumes, so there's just tremendous growth in front of us, which I'm super excited about.
Yeah, you know, everybody asked us about the stock split. We'll have to wait and see what city raised.
It's now like a street high over three pet for you to yeah, briefly, is there a level real quickly?
You know what, We never have a defined level, but it's something we talk about and if it makes.
Sense, you will do all right.
Listen, you are always so generous with your time. We really appreciate it. Be well, and thank you so much. Brian Nickel, of course, he's the chairman and chief executive officer Chapotle Mexican Grill. The stock on a taire, as we said, hitting a record.
Twenty seven twenty seven to twenty five right now, up nine point five percent today.
All right, we really appreciate. We're going to check in with another CEO. We've got the CEO of CBS Health, Carolyn. She's coming our way in just a moment. You're listening and watching Bloomberg Business Week. This is Bloomberg.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple car Play and then brought auto with a Bloomberg Business app or watch us live on YouTube.
Now to another stock on the move, and it's related again to earning shares of CBS Health. They're up nearly five percent out their high today right now again of about two point four percent. CVS Health reported better fourth quot results than Wall Street expected, and it really did relieve some investor concerns about the impact of rising care expenses, particularly in the companies at an insurance.
Well, let's get to the outlook. Because the drugstore chain now expects annual adjusted earnings of at least eight dollars and thirty a share, down from at least eight to fifty a share. Cash flow from operations will be at least twelve billion dollars carrol, down from an earlier outlook of at least twelve point five billion dollar.
All right, delighted to have with us Karen Lynch. She's president CEFCVS Health, joining us on Zoom from the company's CVS headquarters in Wonsocket, Rhode Island. Hey, Karen, so nice to have you here with us. Let's start big broad if we may your business mide of three large revenue drivers. First of all, how would you describe the last quarter and where, you know, were the areas that made managing it a little bit more difficult, which were upbeat and our upside surprises if you will.
Yeah, Hi Carol, It's a pleasure to be here and thanks for having me. You know, in the fourth quarter, you know, we had strong results in our pharmacy Benefit management company. We had very strong results in our pharmacy and consumer Wellness segment, which essentially is our stores. And you know, we continue to demonstrate growth in our ATA
health and business. Where we had challenges in the quarter is really at the end of the year, we saw elevated trends in our medicare advantage business where we saw you know, trends in outpatient services you know, think hips and knees. We also saw an increase in utilization and dental and vision. But overall, as you said, you know, we ended the year strong. We delivered on our financial commitments.
We grew revenues of eleven and a half percent, and you know, we delivered EPs of eight point eight seventy four, which was a really strong result.
Yeah, investors, kudos because they have set your stock hired today. The results really do suggest that your insurance unit, you were able to manage those costs and drive the quarterly results. Can you continue to do so? Talk to us about kind of the stress and strain from doing that.
You know, obviously, you know, we have programs in place, whether it's the benefit designs that we put in place, whether it's our you know, care coordination programs that we have in place, you know, whether how we contract with our network and our physicians.
So you know, you know, we we feel very confident.
That we can continue to navigate this environment as we move into twenty twenty four. We haven't seen anything unusual in the early part of twenty twenty four, but things are you know, still emerging and will monitor it throughout the year.
What was unusual about last quarter? You said, hips and knees really dragged on the quarter at the end of the year. What was unusual about that and why why can't you really model for that moving forward?
Yeah, Well, we just what we saw was just an elevated utilization and you know, we you know, I think part of it is, you know, there is there's been some pent up demand over a period of time. What we've also seen is more capacity in the healthcare system, so you know, more outpatients. Clinics are staffed now, so they can have more you know, they have more.
Scheduling available to them. So there's a number of.
Factors that you know that we wouldn't have seen that you know, uh, started that elevated trend in the latter half of December.
Actually, hey, Karen, some other health insurers Humanity United Health for instance, who obviously are in this field as well, they have warned that these rising costs will mean raising prices to increase profit margins. Will you have to do the same.
Well, I think it all depends on the business that we're in. So for medicare, uh, you know, CMS essentially sets the rates, and so we received our first rate notice this past week, and so what we've said is, you know, we it was in line with the expectations, relatively flat flat, but it didn't cover the overall rising
medical trends. So we have the opportunity to go back to CMS and you know, give them comments, which we'll be doing in the upcoming week so that that price is really set, and then we design the benefits around the price that's set by CMS. So we'll be you know, modifying the benefits as we go, as we learn more about the final rate notice that comes out in April.
And then in our commercial business, we obviously have the ability to adjust prices to rising trends and we've been doing that all along through twenty three and into twenty four.
So this takes into account because I know you guys had had warned I think it was at the JP Morgan Healthcare Conference that your medical benefit ratio could be higher than expected in the fourth quarter. So I'm just wondering, so you're feeling like that you'll be able to manage that in the in the rest of the year or this year specifically.
Yeah, So yeah, So Carol.
In the fourth quarter, you know, we saw some of this emerging trend with medical benefit ratio. So as you saw, we were we expected. Our original guidance it was eighty six percent at the end of the year, which we've just reported today was eighty six point two percent, So it was a little bit higher, but we had anticipated it and talked about it at JP Morgan as we
turned the corner into twenty twenty four. We're watching these trends and we'll, you know, we'll we have lots of tools and techniques that we use to help people get the care they need when they need it, at the right at the right levels, at the appropriate sites of care, and you know, we help people navigate, you know, and coordinate their care.
Hey, Karen, I want to talk about a different part of the business, the second biggest part of the business, that's the pharmacy and consumer wellness segment. Talk to us a little bit about how the retail environment is right now. What you're seeing out there from the consumer, is the consumer healthy? You have a great view on the American consumer, so share with us those thoughts.
Yeah.
So, well, first of all, you know, stepping back, those stores are really another avenue for healthcare delivery. So when consumers are coming into CBS, more likely than not, they're coming in to fill a prescription. So we have seen an increase in you know, our script volume over the course of twenty three and starting in twenty twenty four, we built an immunization franchise, so people are coming to our stores for their RSPE vaccine, for their COVID vaccines,
for their flu vaccines, for their shingle vaccines. That's really creating you know, additional revenue streams for us, an additional value to the consumer because it offers a convenient place for people to get their immunizations. It's right usually right around the corner from your home. We've built digital assets so that you have the ability to schedule online, so we've made it very convenient for those individuals. And what we're seeing in the front of the store, you know,
we're obviously seeing consumer behavior. People are making choices for lower prices. We're seeing more of the CBS brand where so people are cost you know, just cost comparison, and we are starting to see people kind of leveraging the CBS brand products.
Okay, so going to generics a little bit, It sounds like, hey, let's talk about shrinkage. It's a huge, a huge problem over the last couple of years.
We all want products to be taken out of jail because it's so frustrating the retail jo.
Is it getting any better? Is it still a huge issue? Is there any improvement?
Yeah, I would say it's a concern for ours and first and foremost, we're very concerned about the safety of our colleagues, and we put a number of measures in place to make sure that our colleagues are safe.
And as you pointed.
Out, we lock things up so that we can deter some of the thieves from coming into our stores and stealing our products. And you know, we've seen it somewhat moderate, but we're working very closely with attorney generals with local law enforcement to really have people prosecuted when they are are stealing from our stores. And this is not just
a CVS health problem, this is a retail problem. And you know, we all are coordinated to really work with law enforcement so that you know, we can deter the theft. It is very costly to us, and my you know, my big concern is making sure that our colleagues are safe in our stores.
Totally get it, and I'm just curious. It sounds like you've answered it, but I want to ask you about pharmacist specifically walking out. How are you addressing those concerns and also just concerned about not having enough staff those pharmacists that have you know, talked about overlap and or not having enough overlap or just talking about burnout. How do you address that specifically because that's gonna be a big issue.
Yeah. You know what I say is, you know, there's a lot of media coverage on the pharmacy walkouts. We actually didn't really have pharmacy walkouts. We didn't close any stores. We were able to.
Staff all the stores.
But what, you know, what we have been doing is making sure that you know, we and the pharmacists you have one common goal, and that's to make sure that we are caring for our patients and they're getting the prescriptions that they need. We have been investing, you know,
a fair amount of wage investment for our pharmacies. We have also improved our technology, so we're making it more efficient and the operations more efficient, so the pharmacy pharmacists can actually do what they do best, and that's caring for the patients. We've been investing in recruiting and skill upskilling and skill development, and we've actually seen a reduction
in overall you know, attrition for our pharmacists. So I think, you know, we've been making really good progress over the course of the latter half of last year.
Karen, I feel like I'd be remiss if I didn't ask. You talked about script volume being up earlier. Is some of that because of the new weight loss the new class of weight loss drugs. I mean, what impact are you seeing kind of the activity are people paying for itself? Is it mostly be covered by insurers? And just unfortunately got about forty seconds forgive me.
Yeah, the weight loss drugs, you know, we have seen a lot of volume, and the weight loss drugs we know that they are effective for diabetes.
And for weight management.
There is a shortage and we're managing through through those shortages, but they are you know, we are seeing, you know, some of the volume coming from the weight loss drugs across our entire business.
Karen, A great snapshot of so much that is important to the economy. So thank you so much for carving some time out for us. Really really appreciated. Karen, Lynch, President, chief executive Officer CVS Health, joining us from company headquarters in Rhode Island. The stock still up about two point three percent.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Easter on applecar Play and Android Auto with the Bloomberg Business and you can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Well, history can teach us a lot. Forty years ago, another incumbent president was wrestling with lousy poll ratings, a recent recession in serious doubts about his age and electoral viability.
Yeah. This story featured in the new issue of Bloomberg BusinessWeek magazine. It's available on newsstands, It's on the Bloomberg already and at Bloomberg dot com, slash BusinessWeek.
Bloomberg Business National correspondent Josh Green wrote it. He's the author of The Rebels Elizabeth Warren, Bernie Sanders, AOC and The Rise of the New Left. He's also the author of the number one New York Times bestseller Devil's Bargain. Josh joins us on zoom Josh, good to see you, have you on the program this afternoon. So it's hard to imagine it being mourning for America for President Biden just a few months out from the November election. Why draw the parallels here now.
Well, because you know more and more when you look at at the direction of the economy and the timing of what's happening in the economy during this election cycle, the more it resembles Ronald Reagan's run free election back in nineteen eighty four. I should hasten to say that this column is not a prediction. It's really just kind of looking at at the similarities, and they really really are striking. You know, over the last couple of weeks,
we've all seen the economic numbers turn around. Jerdan Powell came out last week said the economy is in very good shape. It looks like Biden is going to be running for re election with an accommodative fed that most people expect to cut interest rates. Meanwhile, you know, as we've been reporting, stock market is hitting a record high. If you go back to nineteen eighty three, Oddly enough,
Reagan was in the similar situation to Joe Biden. The economy was then just coming off a deep, deep recession with a lot of inflation, Reagan was very unpopular. But in nineteen eighty three, in the beginning of nineteen eighty four, the economy started turning around. The Fed started cutting interest rates, all the economic numbers, consumer sentiments started pointing upward, and
eventually Reagan rocketed to a land slide re election. A big hope among the Biden people is that this economic turnaround that we see in the numbers is eventually pretty soon going to have a positive effect for Biden that will lead him much as it did Reagan in eighty four, when Reagan was an unpopular aging president who everybody thought for a brief moment was going to be a one termer. Biden is hoping that he'll be able to run that same playbook again in November.
And yet, as you say rightly you put in your story, Josh, you know, enter political polarization like we've never seen before, it feels like in this country. And then also just this idea, it's a different era in terms of how people kind of connect their political feelings with how they feel about the economy.
Yeah, that's totally right. As you said, that's a big and yet if you look at I mean, I think the neatest chart in the story, if you look at consumer sentiment in eighty three eighty four and what happened to it, and you look at it now with our economy at Biden is almost identical. But there is one big deal diference, and that is that back in nineteen eighty four, the American electorate wasn't as fiercely polarized as
it is today. Reagan ended up winning thirty three percent of Democratic voters in nineteen eighty four, and there isn't any chance that Biden is going to win thirty three percent of Republicans. And partly that's because people's political views have become what political scientists called calcified. Republicans continue to think that the economy is bad shape because there's a democratic president, the same way that Democrats did when Trump
was the Republican president. We're beginning to see democratic sentiment turn around strongly and that's helped Joe Biden recover a little bit in the polls. And if you really squint at the latest Gallop numbers, you can see a little bit of an upward trend from independent voters and Republican voters. But in speaking to pollsters and political scientists, it's going to take a lot in order for Biden to get the kind of wined in his sales going into the
election that Reagan had in nineteen eighty four. But it's not possible, and it's probably the best hope that Biden has going for him.
So for this story, you spoke to Mark Sandy over at Moody's Analytics, who they have a really interesting poll that came out recently that you include in the piece. What does it say about President Biden's electoral prospects, because we've done a lot of polling too here at Bloomberg, especially in swing states, and Trump is ahead of Biden in many of the issues.
Yeah, so, Xandy and Moody's did and it's actually an entire election model that they do every year, and what it showed, you know, it looks at a lot of historical markers, and basically what it said is that, you know, putting aside all the political factors, the economy looks to be in such a strong shape that their model predicts that Biden will win in November narrowly, based largely on the strength of the economy, And I think it's a good reminder that for all that the political press corps
focuses on polls and who's up this and who's down and whatever the scandal of ajuur is in Congress, economic fundamentals still matter a lot to people's electoral choices. And the fact is that if you look at history, the economy, in the direction of the economy, really does matter a lot when an incumbent president is running for reelection. So that's the best thing Biden has going for. I called up Zandia said, do you really think that that Biden
is going to win? And you know, he cautioned to say, Look, this is by no means a guaranteed prediction. This is just our model. Model turned out to be wrong in twenty twenty. But what it does show is the importance of having an accommodative fed in an election year. Sentiment turning around, inflation turning around, gas prices coming down. That was important for Reagan in nineteen eighty four, it's important
for Biden in twenty twenty four. So you know, right now things are trending in a positive direction for Biden in terms of the economy. What he needs to happen is for the politics to follow that direction.
Well, I'm so glad you left it on that now politics, because what's interesting in your story, Josh. You say, at the time many didn't regard Ronald Reagan is the heroic figure in the recovery. They ranked Paul Volker, head of the FED right, much more highly than they did Reagan. Well, here you have, though, a former president, Donald Trump, who's saying he wouldn't re elect Powell, questioning the current FED share.
So I wonder how that dynamic potentially also might you know, throw a wrench into the outcome here and play again.
It's a great question. I mean, I found a Gallup poll from when Reagan was running for reelection that surveyed corporate leaders business leaders, and by like a two to one margin, they said that Volker was the hero at the turnaround. I think if you polled corporate leaders today, a lot of them would say that Jay Powell is
the hero of this turnaround, not Joe Biden. Whether that has a broader effect on let's say, you know, voters in Michigan, Wisconsin, Pennsylvania, the swing states that are going to decide the election. I don't know. My hunch is that Powell just isn't a well enough and known figure for that to make a difference. But look on the margins and a close election, everything matters. So maybe there's a block of j. Powell voters out there that pollsters haven't measured yet, and I want to get out and
do so that could be decisive in the election. We'll see in November.
And Josh, look how quickly the economy, or at least the market has turned around in recent months. Look how quickly we're starting to see inflation come down in recent months. It's a reminder that there is a long way to go between now and the election. And even though gas prices have come down now, there is a lot of time between now and November.
Yeah, there is time for good and time for bad. I mean I went back, just out of curiosity and looked at inflation adjusted gas prices now versus November nineteen eighty four when Reagan ran. Right now, I think Triple A has them at three dollars and fifteen cents a gallon. In November nineteen eighty four, they were at three dollars and fourteen cents a gallon. So everything's lined up for
Joe Biden right now. But look, we could have an oil crisis, we could have, you know, some kind of a geopolitical event in the Middle East that could send those soaring. That would certainly cut against Reagan's chances, both
in the Bootie's model and probably anybody else's. But on the other hand, if you look directionally, especially given the expectation of multiple FED cuts, which you know Goldman Sachs predicts or forecast floor between now and the November election, that really is a tailwind that I think is going to help Joe Biden's chances. The big question is how entrenched is that artisanship among voters. There is some reason to believe that it still does affect even Republicans and independents.
Really, it's just something to think about. Josh Green, thank you so much. He is Bloomberg Business Week national correspondent, joining us on zoom On this Wednesday. You're listening and watching Bloomberg Business Week, and this is Bloomberg Radio.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple Cardplay and and brout Auto with a Bloomberg Business Act or watch us live on YouTube.
Okay, Carol, remember that Biden deep fake robocall a few weeks ago. Yeah, the call attempted to dissuade registered Dems from voting in the New Hampshire primary election. The call has actually been traced to a Texas company and its owner.
Yeah, I remember that. We talked about it so much. Well, the people responsible for that fake audio call could face criminal and civil charges. New Hampshire Attorney General John for Mela said, citing laws that prohibit voter suppression and displaying an accurate caller ID with the intent to cause harm. Great that these rules are in place, but it just reminds me that folks can get around them.
Still, Okay, So he described the episode as a real life example of using AI in an attempt to interfere with an election, and I guess you could say. The good news is that they were able to trace it and figure out where it came from. The not so good news is that this is just the beginning of deep fakes and politics, at least according to our next guest.
Get ready everybody, Wendy Thomas back with US President and chief Executive Officer of the publicly held cybersecurity and risk management firm Secure Works. He joins us on zoom from Atlanta. Hey, Wendy, so great to have you back with us. Yeah, walk to us, Walk us through kind of your expectations about deep fakes in politics, what you guys are seeing and anticipating.
Sure, thanks for having me back. And you know, when we spoke in December, this was the use of deep fakes was definitely my top of top concern because frankly, our lack of awareness, let alone preparedness, and so whether it's used in misinformation in an election campaigns.
Clearly we've got not just the US coming up with.
A presidential election in the fall, but nearly half the world's governments have elections this year. So the prevalence of the ability to use very low cost, low barrier to entry AI applications for nefarious purposes to misinform or to dissuade voters in some way is something that's top of mind for Secure Works.
What can Secure Works do to prevent this from actually happening? What can anyone do, Wendy, to prevent this from happening. It seems like there's nothing convince me that I'm wrong.
Well, I will commit to that you're wrong, and I will say importantly, I think it's got to be understood that AI is still absolutely primarily used for the good, for defenders, for great business purposes, for scaling organizations. But as we talked about before, there's always a power and a pail. And so what we see that companies can do, what organizations can do, what we as individuals can do
are a few things. I'm always going to say that awareness is the first line of defense, and so incorporating this awareness into training for folks, for individuals, for employees on your team is important. But there's also some simple tools to enable verification.
And these have been true for some time.
But what you're talking about now is social engineering that's been around for some time, whether it's emails or voice calls, just taken to the next level by compromising someone's identity. And so think about simple ways to ensure verification. Look for a for a small organization or even a family, kind of a nonsensical passphrase that just a few of you know, CEO, the CFO, you and your spouse that it truly is you is a great way to have a low tech version right away.
I don't know, Darrel, I'm not. I'm not you're asking You're asking us to be the last lines of defense, Okay, and like I'm not, I'm sorry, I'm I'm just not optimistic anyway, Caroll, I know you were going to ask someone.
You guys are publicly out this is your business. So how much demand are you seeing? Talk to us a little bit about, you know, the business side of the equation, how that translates these concerns translate into more business for you. Talk to us about growth, talk to us to about demand.
Sure.
So, so we just finished out our fiscal year in the last Friday, So I'm going to be careful about our quiet period here.
But we do.
See, both from our existing insights into incident responses that we're pulled into as well as conversations behind the scenes with law enforcement, that this type of next level, next generation of social engineering is real for companies and they
aren't ready. And so if you think about the business that we're in in terms of the ability to detect anomalist activity that in this case is also malicious and to respond quickly to both prevent this in the future, but to prevent any damage in the midst of a situation where maybe that first line of defense has failed and you've got two and three behind it. Right, that's
what secure Works does. Our ability to help customers both prevent this and not sustained damage from it is that is what secure Works does.
Hey, Wendy, what I do wonder too? The bulk of your business? Right, I think revenue in the United States largely, no doubt about it, But you also do a lot of business oversees. I am curious, you know, where is the growth market for you? I'm just curious about you know, I feel like a lot of US companies and folks have a lot of systems in place, and maybe that's not the case outside the US, but certainly if you're
dealing with kind of the emerging areas. But make me smarter, help me understand kind of where your demand is and who's really seeing an increase in problems.
Sure, we definitely still see demand in the US, particularly for more small and medium sized organizations who haven't necessarily invested at the levels that large companies have, simply because those companies were the first areas that were attacked. And
as we've talked about with with the emergence of ransomware. Really, anyone is vulnerable, a municipality, a small business, even a school or a hospital, and so the need relative to the risk has definitely increased in those those non traditional organizations that that are being attacked. We do see more growth outside of the US, simply because of the security maturity cycle in different organ in different in different regions
and frankly different regulatory regimes. But we see great growth in Europe and in Asia in particular Middle East as well, where the pipeline manufacturing sectors and frankly global cyber warfare along with kinetic warfare is causing other countries to really take.
Up their game in terms of security defenses.
I'm still stuck on this idea of this world that we're living in as being one where we're the like kind of the last lines of defense. I mean, it makes sense when it comes to fishing and stuff like that. Like, you know, we know not to click links anymore, but it still happens. Wendy, what's the way that we can spot deep fakes? As we enter election season and you know, we get robo calls? What we what are we what should we be on the lookout for?
Well, you should always be on the lookout for things that you didn't go to the source the call came to you versus you calling your bank or Amazon what have you. So always always be careful to never take an incoming caller email as who it is.
Go to the source.
And the big thing is trust your gut, right if something is off. What we see in these early deep fakes is that there is more pausing, like in an interactive video or voice call that's not pre recorded. It's just a little bit of a hesitation before the machine responds, if you will, or the pace at which they're speaking is not the same. So it's just absolutely being thoughtful about pausing and being thoughtful about accepting something as real.
And when you're talking about particularly where there's an inequality psychology, right, someone is.
Trying to rush you, to push you.
It's a title difference side of an organization, you absolutely can't fall into that psychology. And for leaders of organizations, you have to create a culture of challenge.
Right.
This is no longer the trust but verify, It is the do not trust and verify in multiple ways.
Yeah, I feel like we have to be constantly on guard. Wendy, thank you so much. Good to check in with you again. Wendy Tomas. She's president and chief executive officer of the publicly held cybersecurity and risk management firm Secure Works. Joining us on zero from Atlanta. This is Bloomberg.
I'm brothering Mac.
The journal. Now about you. Let me drive?
No, no, no, no, honey, please, I'll do the riding gravels.
Let's wat I want to try it.
It's a good question.
This is the drive to the globe.
Don coms me think well?
By around on Bloomberg Radio.
All right, everybody, we got just about seventeen minutes left, actually eighteen, let me do my math correctly. Eighteen it's left.
That's right, Carol.
We have the trading session. We got stocks pretty much neither high. You heard Charlie breaking it down. It's kind of interesting. Some enthusiasm back, certainly on the equity side of things. Once again. It's those those tech names. But the S and P five hundred of eight tenths of a percent. Now's a up almost one percent here, and we're looking we hit five thousand. I don't bring up
my numbers yet. I don't think we did either. Let me just pull it up on the Bloomberg noep for ninety nine point eighty nine.
Oh, you can't do it around those sush it over all? Right, it doesn't matter.
Come on, technicians, just do your part.
It's just a round number.
Okay.
Well, let's see what Larry Pokowski has to say. It's managing partner and portfolio manager at good Haven Capitol Nation. He joins us on Zoom from Millbourne, New Jersey. Larry, does it matter? Does five thousand matter to you?
Hi?
Everybody? Hi, Carol, hid Tim.
That kind of thing does not matter to us here at good Haven. We do, of course pay attention to the overall level of the market in relation to future earnings, just as a guidepost for how overvalued or undervalued things
might be in a big picture sense. But then we just go back to looking for a handful of things that we think we can understand, try and dig really deep to try and understand them, worry all the time about what could go wrong, and be opportunistic when there is trouble out there in the world to try and take advantage of it for us and our fellow shareholders.
Well, so, just going back to some numbers here on the market, you've got what an S and p five hundred, that's up almost five percent. Here a NASDAC that's up five and a half percent. And then you've got a tenure that's going to pay you four point one percent. So I'm just trying to figure out. I know it's not all apples to apples, but I'm just curious, when you look at the markets overall, is it the equity side of the universe or investing universe that you still find interesting?
You know, we are fortunate, Carol, that we've been able to construct a polio with the Good Haven fun We just published our annual reported We threw in some statistics about the multiples and the growth rates for our portfolio, which to us look a whole lot better than the overall market. Cheaper valuations, better growth rates. So there are still things to look at and do, even in a market that you know might be, you know, somewhere around fully valued. So we are fortunate to be able to
have been able to do that so far. And I think if one is not moving around one hundred billion dollars, there should still be some occasional pockets of opportunity.
Hey, we should note that the five year performance of the Good Haven Fund puts it in the ninety eighth percentile. Versus peers about two hundred and thirty million dollars in assets, average annual return of fourteen percent over that period of time.
Congratulations, really, thank you, great you both.
We are working.
We are working hard here at Good Haven for all fellow shareholders.
But thank you.
How do you get the AUM high?
I don't know.
We are making some efforts to raise awareness, but we figure if you build it, they will come to a great extent. We're less focused on that and more focused on just driving returns for us and our fellow shareholders. And we figure if we continue to do a good job, and Tim and Carroll continue to mention it.
On your show, well you're welcome. You're welcome.
Thank you that more new and like minded shareholders will gradually find us.
But I'm getting younger, so I'm not really that word.
All right, Well you have the secrets, then if you're getting out certain like as a metric, I feel like, right, you know, if we're going to have somebody on, we do have a viewer listener writing in and they say, what would you recommend to an investor considering investing a lumpsum into a mutual fund at this time, whether to break up the amount, do it over time, or do
it all at once. The concern being whether valuations as you address at this time are high and if a recession or other or it comes, it will bring down all our most stock prices. It's a really smart question.
It is a smart question. I have a very smart answer. I mean, the ability to time. It'd be great to have the ability to time the market. It woudn't have to work so hard. But I don't think I can do it.
I'm suspect if you know, many people can do it, and so you know we will just always, you know, try and leave some room when we're buying things in case the securities we're buying go lower and the fundamentals remain intact. But you know, we don't believe we have the ability to time the market that I wish we would.
Well, would you say to somebody who's looking to invest a lump sum right now, should they dollar cost average? Should they do it all at once?
Oh, we're not in the financial planning business, But I would always say there's nothing wrong with you know, investing you know gradually, but you know, you also you know there's wonderful studies about you know, if you've missed certain big days in the market over you know, a year or two, you really miss a lot of the So it's very hard to do. But so I really don't have a great answer, but you know, try and be gradual, but just don't really try and time.
It is as good of an answer as I've got.
Agreed, don't try and time the market, all right, Having said that, yes, I did.
I know.
I feel like my whole business career, everybody's always been like, don't time the market. Although I do think you can be smart.
It's easy to do it when you look back. But I also think October twenty twenty two would have been a great time to throw some money.
Well, one thing Carroll tim is is when there is you know, we try and potentially when we see smoke, we try and run towards it and see maybe there's really not a fire. So when there is more pain and suffering in a sector or in the market overall, and if you have some reserves, it is the potential time to get more aggressive, not less aggressive. And if there's complete and utter, you know, crazy euphoria, you know, you may want to consider becoming a bit less aggressive.
So I think that's a useful thing for people to think through as a mindset.
Well, having said that, then something like regional banks, would you run towards regional banks right now some of the names that are getting beat up or just the sector brought down because of concerns about New York community.
Well, it's a very good question, you know. In the fun shareholder letter which we just released, we said that the biggest addition to capital in twenty twenty three, which was mostly in the second half of twenty twenty three, was Bank of America, which was done on the back of the crisis that happened last spring with Silicon Valley Bank and Signature Bank and then later First Republic.
So we looked.
Around during that period and in the aftermath of it, we decided to dramatically increase our exposure to Bank of America.
And Bank of America is not a regional bank.
But you know, sometimes there are sectors where you know, the baby gets thrown out with the bathwater, so to speak. And we found what we think is a good opportunity and still looks Bank of America to us to be a good opportunity on the aftermath of what was the Spring of twenty twenty three crisis. So you know it's a good place always to be looking, you know, where there are headlines negativity and you know some dramatic potential declines.
Hey, just thirty seconds on Berkshire Hathaway. It's the biggest holding in the good Haven Fund. Up eleven percent year to year to date, fifty two week high today. What do you love about Berkshire.
We made Berkshire our biggest holding during the COVID, you know, the middle of twenty twenty. What's not to like about Berkshire, except, of course it's very big.
We still think it's undervalued.
We followed and own the company for many decades, and in that period middle of twenty twenty we thought the price was very attractive and we still think the price is undervalued. And we think they have laid out a forward thinking succession plan which makes sense to us.
Lari Pitcawski, thank you so much. Really appreciate siate it. This is Bloomberg.
This is the Bloomberg Business Week podcast, available on Apple, Spotify and anywhere else you get your podcasts. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal