Consumer Retail Spending Remains Resilient

This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.

We want to get back to what's really been dominant in the earning space this week, and that is the retail world.

And we've got a.

Great voice to walk us through the earnings we've gotten so far, the earning still to come this weekend next week with us is Dana Telsey. She's founder in the CEO of Telsey Advisory Group, a top rank to equity research Alice covering all things retail, and she has for a while and has such a great perspective. She's with us on zoom in New York City. Hey, Dana's so nice to have you here with Matt and myself. First

So far?

Is there broad theme? And I know not all retails the same, so maybe that's an unfair question, but how are you seeing the results so far?

First of all, thank you so much for having me, absolutely thrilled to be here, and yes, in terms of retail, we've gotten some results so far. I'd say the puts and takes bottom line is discretionary spending is still soft, and it's soft almost across the board. I'd say that traffic in stores has picked up. That was good to hear about both from Target and from TJX. The focus on value is definitely key, and we're seeing the continued

You mentioned AUR, so we're talking about average unit retail just for those listening in case you were wondering.

You know, I think exactly what you were saying about. You know, the pattern these companies are following is what is how I see Target. And I was telling Carol, you know before the show kicked off, this is something they might regret. You know, they're gonna have to cut their forecast down the road, because yes, they had a good Q one and now they're in the middle of a soft Q two, and I guess they're taking a gamble with holding their forecast steady, you know, and that

It's the highest that it's ever been.

Meanwhile, the savings rate has dropped substantially, and I can't get the bank balances up on my terminal, but I'm suspecting that they come down.

Yeah, that's the concern. I mean, the concern is, is a hockey stick of twenty twenty three gonna be realistic when the initial expectations for holiday twenty twenty three is not going to be as great as it was in holiday twenty two. The two offsets are the fact that we have reduced supply chain costs, lower ocean rates, using less air, So that's one element, and the second element

You know, we haven't even talked about kind of department stores and stuff. Well, how do you think about them data it's.

Going to be very interesting. Dillard's obviously reported last week and when one of the commentaries that Dillard said, which is meaningful for everyone, is the fact that consumer activity decelerated in the back half of the quarter. So that means that back half of the quarter basically at least the month of April. And we heard that March was weak, and so now to say April is week two, that's a concern. If you have to say the department stores,

All right, by the way, like on Q John Authurs just sent me a chart of US bank balances.

Or did he?

Really?

They're still very strong, So to me, it's a puzzle. I mean, they've come down that has come out with me. They come down a little bit, but they're still very strong. And then I wonder why are consumers putting so much on plastic Dana, do you know why we're utilizing credit cards? You know, at the highest pace that we have in at least ten years.

Well, in the near term, the savings rate has come down a little bit, and you are seeing people spending more on travel and experiences. Typically that spend goes on credit cards.

Good point. Good point is a good point, all right.

So when you look at the outlook here, if you had to say, and I'm thinking about the Bloomberg investor audience, who are the most vulnerable as we look at the kind of second half of the year into twenty twenty four, and who are the best position data?

Well, keep in mind we still have the majority of retailers yet to report their earnings and hear what the update to their guidance is. When we know in terms of who's who's been having challenges to begin with, you're definitely watching some of those department stores like a Nordstrum and likea Coohles. I think you're definitely continuing to watch some of the specialty retailers, for example, and watching how

Walmart.

We didn't even touch on Walmart. Truefore the bell yeap, what should we keep on our radar?

I mean, given that we had Target with a better than expected first quarter, and we know that Walmart is so essential focused, it almost feels as if we should have some decent results out of Walmart while looking towards what they're expecting for the second quarter and the back half of the year. They do have more international exposure. Everything we've heard about international lately has been good. You take a look at what TJX reported both on Canada and on international, and it was.

Strength if those you know, if we do go into a recession and it's deep enough to really feel it, which are the stores that benefit the most from, you know, consumers stepping down?

I can no longer afford to.

Go to I don't know the neighborhood Target, So do I drive out to Costco instead?

It could be.

Costco, it's the dollar stores, it's the off Pricers, and it's the discounters. So it could be your Walmart and Target, your Dollar General and Dollar Tree and five below. It is Costco, and it's also TJX Ross stores in Burlington.

You know, auto sales were very strong in April.

I was really surprised by how much Americans are willing to spend to buy new Is that the last hurrah for the automakers.

May not be? I mean you're certainly continuing to see the new enhancements and the new deals. And we know what consumers are focused on and if they're going to be traveling, how are they going to get there? We know what with Memorial Day weekend comes what that means to travel?

Hey, just got twenty five seconds left. I wanted to squeeze in. Matt. Initially on our morning call was talking about watches of Switzerland Group the top seller of Rolex time pieces. What is in twenty seconds stand of the thought about high end versus low end?

High end's moderating. Also, we've seen a moderation in high end. We need some of the foreign travelers and tourists to come over here, so there's a moderation at the high end too.

I also think Rolex is maybe a stone story. It's a very special story.

It is a special story more. You know. Actually, Bloomberg Business Week Pursuits has covered a lot in terms of watching.

And Andy Hoffman is our definitive voice on rolex.

Al right, so maybe we'll do Mark. But Dana is a definitive on retail. Dana Telsey of Tels the advisory thing.

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Last month, Bloomberg News putting out a story reporting that an international developer back by Tiger Woods and justin Timberlake, we're joining an effort to build a sprawling residential community with stores and a revamped golf course in Wellington. It's a South Florida equestrian town near Palm Beach. It's also Wellington has been, I guess, home to Microsoft co founder Bill Gates. I've heard of it, Tommy Lee Jones, Bruce Springsteen.

Tommy Lee Jones, the actor, that's the actor.

They've owned homes there, apparently. I don't know if they still do, but they have.

That is interesting kind of she I guess, so I'm not really a South Florida guy.

Did you like the keys?

You know, Palm Beach kind of nice.

Yeah, it's okay. I've been there. Okay, you know State of the Breakers did the whole golf thing kind of.

A kind of a New york A kind of price.

Yeah, it was pretty good. I mean, if I have vacation time, I'm going to go somewhere different.

Okay, if I want to go to the beach, it's about living to a secluded beach. If I want to move somewhere like, you know, I would rather have the mountains.

I'm more of a Montana person.

I have seen you wear a cowboy hates actually around cowboy boots. Do you have cowboy boots?

I have a two pairs of Cowboy every time I go to Dallas, you know, I tend to buy a pair. My goddaughter lives in Dallas, so I go there occasionally. I have to go watch the Giants play the Cowboys.

We want to talk South Florida with someone who knows a lot about what's going on when it comes to South Florida real estate. Daniel de la Vega, president of One Southby's International Reality joins us on Zoom from Miami. Daniel, good to be talking with you, uh, and great to have you here with Matt myself. Hey, talk to us a little bit about South Florida and what's going on. What are we seeing in terms of prices and valuations.

You know, South Florida is in an incredible place right now. First quarter was incredible. I want to talk about the numbers. I want to give you all the information that the viewers want. But first, Matt, what a segue into talking about South Florida.

We got to get you down here. Maybe you have not experienced it with me yet, so.

I think you know part of it.

Daniel's going to have things that you love.

I'm a little bit bitter because, to be honest, a lot of my friends from the Upper West Side, previously from the Upper West Side of New York City, are now living down in West Palm Beach, and it's like.

One after the other after the other, and now it's like I don't know anyone else up here.

Yeah, I mean, listen, We're representing Peer sixty six in Fort Lauderdale, which is Tabstock Development Group, which you previously mentioned in regards to the development in Wellington, and that is just the epitome of South Florida. Living with a marina with a hotel with residences. So they do a really, really great job. And I'm sure Wellington is going to be spectacular as well.

But look, South Florida is doing incredibly well.

Guys from another see he keep saying, yeah, give us some numbers because you keep saying incredible.

We saw we saw a major increase in closed sales, average sales price, new pending sales, months of inventory, yes, is up.

But in close sales in all of South Florida Q.

Four twenty two over Q one, we saw fourteen point seven percent increase average sales price. We saw a six point six percent increase. New pending sales were up sixty six percent. I mean, that's an incredible statistic, right, And again, months of inventory in both single family homes and condominiums are up on average twenty percent.

So that's good because as.

We see people moving to South Florida, we want them to feel like it's an affordable place for them to live. So as I see the increase in inventory as a positive for our market.

I mean, one of my best friends is a I won't say his name, but Morgan Stanley guy. He was up here now he's moved down there. His office is he says, just a couple of blocks away from his place in West Palm Beach. And he says, the restaurants and the bars that he and his you know, click No and love from up here all operate down there as well. So is it really just like a slice of Manhattan, you know in Florida?

Yeah.

I mean, look, we've always said Manhattan South, but I think we're becoming Manhattan more and more. I mean, we had one hundred and thirty new companies moved to Miami alone. We had we had twelve percent of the five point eight million new business application filed nationally happen in the state of Florida. A lot of that happening in South Florida. You just heard the numbers from Miami. So look, we've got twelve hundred and seventeen people moving here a day.

So it's people living here to live here.

So they want those things that you're talking about, man, and we're delivering them. I mean, look, just think West Palmer had lunch at the Bar at Alicia, an incredible restaurant.

It's a sister restaurant, the st Ambrose.

So everybody's thinking creatively, how how they can bring new brands to our market.

Daniel, how much of it is finance and financial types that are moving there?

Eighty percent of our transactions.

Are cash that was happening during the pandemic and we're still seeing that happen now.

No, no, no, no.

I mean how much of it is people from the financial sector, because we've done those stories a lot. How much that's okay, that's okay, Yeah.

It's it's you know, I would say it's about fifty fifty percent of the people moving in South Florida from the sector.

Yeah, it really is.

Like Wall Street has moved down, not just New York, right, but Chicago is one of the big citadel Ken Griffith Offices, Ken Griffin's company moving down there? Is it is it just pushing property values up in the surrounding communities as well. I imagine you know, I'm from a small town in Ohio, Grandville, right outside of Columbus. Intel build a fabric a factory near us, and all of a sudden, everybody's property values have like doubled.

Do you see that as well down there?

Yeah, it's the same here, and it's the secondary and tertiary markets as well within Stock Florida, not just the waterfront ultra luxury markets.

We have to deal with affordability. We are dealing with it with affordability.

There's some new legislation that's come down which allows for more density.

For certain I'm not an affordable guy, but you know, it's very.

Positive for our markets because I think it's something that's needed so we can really service every sector.

Daniel, I'm curious. I'm looking at your website. There are properties below a million dollars, and then there's properties that are for tens of millions of dollars or twenty five million dollars. So give me an idea in term of the type of activity you have, what types of properties are selling the most.

The ultra luxury market is probably trading for the highest prices per square foot we're seeing the most activity in the one to.

Five million dollar price point.

That's where you're seeing a lot of the inventory increases as well, whether you look at the Florida numbers or just the South Florida numbers or the.

Entire East Coast of Florida numbers where we operate.

So I would say that that's been the the segment where you're seeing the most amount of transactions stepinitely, And.

That's where you said how much what was the percentage that most of these are done in cash? Though most of this is done in cash.

Yeah, eighty percent of our transactions are done in cash. And we're still seeing that Q one, you know, with interest rates going up the way they are, which has definitely affected the market.

I think Q four saw it, you know.

I mean, we companies across the country were down, you know, over forty percent.

Think Guide you didn't.

Have me on then.

But if people are doing mostly right, they don't care about the interest rates.

They don't care about the interest rates so much.

In a lot of our new development products, whether it's Peer sixty six that I just mentioned, if we Lauderder or the Saint Regis residences here.

In Miami, on brickles.

These buyers have a longer sort of horizon as to when they're going to move in, right, So it's a three year, four year cycle, and they're okay because they know that interest rates are temporary.

Little footnote here when the hurricanes come in, this is not where they go, right is Miami is West Palm Beach. Those people are safer than like Naples.

Right.

Well, I would say that we're all in harm's way when mother nature wants to have their.

Way, but it's more up towards the gulf.

By what's happening traditionally, Yeah, not traditionally. What's happened over the last five years is most of them have been going through the golf or missing us here in South Florida and up the eastern, up the East coast. So we've been very lucky, and I pray that we continue to be lucky.

All right.

Got to leave it on that note. Hey, Daniel, great to check in with. You appreciate it. Daniel de la Vega, president of once Southeby's Intes getting a call when I come down on zoom from Miami.

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We want to talk a bit about the M and A environment, because the US government's aggressive stance on antitrust definitely chilling murger activity among the country's biggest companies. We saw that yesterday with the FTC soon to block am Jen's almost thirty billion dollars deal to buy Horizon Therapeutics. So there's a lot going on. M and A deals. I don't know if you saw this in North America mat down about thirty three percent year every year.

Yeah.

No, I mean if I look at mag that's what I did, right, and I see the value of all deals. Globally, we're at one point three trillion, but as we heard from I think an M and A reporter the other day told us it was well over five trillion at the height. Now that was for the full year, but we're halfway through, so it's been pretty slow.

We've had some big dollar deals go through the.

Last few in terms of announcements ending right, But you're right, the FTC seems dead set against allowing anything.

To go through that's over say thirty billion dollars.

All right, So let's see what our guest has to say when it comes to M and A activity or lack thereof. Mark Cooper is CEO of the investment bank Solomon Partners, and Mark joins us on Zoom from New York City. So, Mark, we're painting a little bit of a dire picture because it does feel like it's a little rough out there. We also saw it through some of the I feel like the big banks in terms of the reporting. When it came to M and A,

Within, So a frectiator M and A business probably more, or middle market private equity oriented in our focus, but all within the industry focus or industry areas that.

We focus on. So I think that number thirty three percent sounded a little light.

I think it was down forty five percent year of a year, at least for the first quarter. What we've seen, at least what we saw in April is a pick up, mainly a pickup in what we refer to as pitches or the opportunity to talk to sellers about other pe firms or companies about about putting more putting transactions on the marketplace.

That slowed down a bit.

But the big issue, the big issue in the marketplace is is price.

Is there is a These are the.

Moments that you have when interest rates go up or the economy shifts, that there's just a price discrepancy.

And we all know it through you know, the real estate market.

When the real estate market is booming, everyone thinks their house is worth top tick, and when the markets go down, they still think it's worth top tick until such time as they realize and they capitulate and they recognize they have to trade. We haven't reached that point, and we haven't reached the point where buyer and seller have recognized that interest rates have risen by five hundred basis points and that the economy is a bit weaker, and that therefore valuations need to be lower.

Once that happens, Once that moment happens, and maybe it's a little bit of a cork and a bottle kind of thing, m then I think you'll see activity in the M and A markets.

It's not about it's not about the need to trade, the need to buy, the need to sell. It's about having buyers and sellers who agree to what relative values are.

So are you telling this to your clients that are selling as well, because at some point you know that cork is going to come out of the bottle and they might as well get ahead of it.

Well, you could take you could take my position, because it's exactly correct. And so there's a bit the reason why there were so many pitches, so many transactions gearing up in April or the beginning of the first quarter and gearing up now is in fact, get ahead of this curve. And so there's going to be a huge backlocks if you think about it.

Third quarter, second third quarter of last year was tough. Fourth quarter it was pretty dead. First quarter was dead. So it's been a.

While since there's been an uptaken value. And when you take the private.

Equity community, they have to return capital to their limited partners.

They're in the business of putting money to work and raising new capital.

If they don't return capital the partners and they don't get the second pieces, they don't get the new money, so they have to transact, and the backlog is enormous, the backlog both in terms of companies that are ready for sale and where private equity wants to return that capital to their limiteds. And then the dry powder, as we always talk about, that proverbial pocket of money that's available for investment, is just sitting around.

Well, that's why I want to ask you how much you know, quote unquote dry powder is out there.

You hear conflicting reports, but you know it's in the trillions, like one point three trillion, and that's just looking at private equity. You've taken sovereign wealth funds, if you take in you know, you take in the reinvestment or the co investment funds from limited partners, it's enormous amount of money and it's not going down. In fact, it's going up now. I would say fundraising for new funds and fundraising has been very difficult, but that is a function

Fair amount of fundraising.

I think there's gonna be a fair amount of money that's going to be put to work at good prices.

Does it take a recession mark to get that? You know, realignment if you will between buyers and sellers, is that what will do it?

So?

So, no, a recession with delay things?

Okay, So if we it's all the events that affect value, that are that are anticipated in the marketplace is what causes the disconnect Once there's transparency between buyer and seller as okay, interest rates aren't going any higher, the economy is not getting any worse. Then you could price an asset when you're looking forward and there's a disagreement, well, I don't think there's going to be a recession and I don't think interest rates are going up, And the

Now.

I think the recession fears is not a big piece of what we're hearing. I think it's a lot about interest rates and their effect on valuations. And so we think when those interest rates for when it stops, we feel like they'll be a moment.

All right, we got it, run Mark, look forward to talking again. Mark Cooper, you CEO at Solomon Partners, joining us on zoom from New York City. This is Bloomberg.

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Think well. Broun Don on Bloomberg Radio.

All right, everybody, just under eighteen minutes left in today's trading session. We've got a rally underway. We've got each of the major equity averages, as you heard from Charlie, at more than one percent. Here so we're hovering just off our best levels of the session. Quick check on what we're doing in terms of the treasury curve. We've got that two year yield at four point fourteen, looking out out a little bit ten year at three point

It's tough, is the short answer.

You know.

Look, it's there's still a lot of uncertainty out there. You know, the the data is definitely still pretty mixed.

Right.

Things look a little bit better on the services side, Manufacturing not so much obviously, throwing the mix the debt ceiling, that's obviously I think a bit of you know, dampening sentiment, not today apparently, but we think that, you know, they're the bigger story here is that there are a lot better investment opportunities this year than there were last year. So as much as you know, I.

Think that the outlook is is still.

You know, unclear and maybe a little bit worrying.

But it was lousy for bonds and stock slaves.

It was I hope it And that's you know, one of the silver lining of the fact that you know, it was such a bad year for bonds is that this year just looks much better.

Right.

We have yields that we haven't had in more than a decade. So in terms of the opportunity to get into you know, high quality fixed income, we think it's it's a really great, great time. And you know, to that point in terms of you know, one of the questions that I get from clients a lot is, you know, when is the time to extend duration because obviously there's there's a lot of people sitting in cash and cash

So like twenty year treasury right now yielding almost four percent, Is that like an attractive yield that you're watching And do you think there's going to be any kind of capital appreciation there.

Or Yeah, And that's one of the things that we always have to remind people. I think after you know, the twenty tens is kind of go back to bond math, right, we didn't have the kind of income return that we are going to get on investments in bond portfolios right now. I'm not sure you necessarily need to go out to twenty years, you know. I think you can probably stay in the intermediate space and find some good opportunities.

But I'm just talking about gouveyes, right, because there you just don't get a decent yield or a comparable yield unless you go to twenties. The tens are at three and a half, so are the sevens and fives, right, So either you're in two months to two years or you're in twenty years to thirty years.

But you're talking about IG.

Debt, yeah, I am. I mean, we like sovereigns. We like high grade or high quality investment grade. And I think you know, one reason to not say go way out the curve is that you know, there's probably a pretty nice sweet spot in terms of your duration exposure in intermediate space. You know, you're you're mentioning that there there is a bit of a you know, upward slurping

Out the curve.

Do you also, I mean, again we go back to something Matt and I talked about earlier. Do you think that the FED or you guys your thesis in terms of the investment outlook and FED outlook that the federal cut rates this year.

So that's the thing you really don't need, really care.

Yeah, it's sort of not you know, critical to the thesis of bonds performing well because number one, the income component is going to be very strong. Even when rates peak, you generally start to see yields move lower, right because the market is going to I mean, we're already seeing the market paid pricing in those cuts. We don't think they're likely to come this year. But again, in terms of you know, getting that total return from bonb portfolios.

You don't need the cuts.

And that's kind of getting back to what I was saying in the twenty tens, we have to relearn bond math a little bit because we're dealing with a yield environment that is just much different than the twenty tens. We're not sitting at the zero lower bound. We don't think we're going to be sitting at the zero lower bound anytime soon, which means that that income component is just much more attractive. So you have to compare that against you know, other investment opportunities, and you do.

Like bonds better than equities right now, how do you tell investors to buy these?

Do you like ETFs or funds.

I mean, what's the best rapper or do you want to go and find an actual corporate bond?

Yeah, Well, the the answer you're not going to like is it depends on the investor. You know, people with different circumstances. Different investors have different needs, different you know, preferences for for liquidity, you know, what they can get in. Different rappers might be slightly different too. So unfortunately, the answer is it really depends and maybe the short answers that's what financial advisors are for.

Are you're looking over the next year or two, do you feel some confidence about where the environment goes? Where would you suggest folks place it?

Well, like I said, you know, we we think that you know, sovereigns look attractive. We think that within high quality investment grade.

Are there certain sectors within the investment grade space that you like?

Uh, well, companies, you know, I think some that are likely to be more durable going through a period of slowdown. So you might look to aerospace, you might look to pipe lines, things that are likely to not be tested as significantly during during a recession, because we do think that odds are in favor of a recession. Well, I shouldn't say favor nobody wants a recession, but we think that you know, at the end of a tightening cycle

The reason I asked about ECS is because I see quant all over your resume, right, I see systematic investing, you know, I see that that that you are focused on factor investing. So it seems to me that you would be interested in like buffer ETFs, But we don't enough.

Time for that.

Well, can you do something in twenty seconds? Sure?

Say it?

So.

The key the key factor during recessions is quality. Now, quality as a factor is kind of a handwavy term, but at the the end of the day, it's profitability. So it's those names that are stronger ro o wee, less leverage, go.

For the top tier.

Exactly.

All right, gotta short answer.

Got it, Ran.

You did it though, with a few seconds to scare check Jolly Ahead of Investment and Analysis at B and Y Mail and Investment Management here in studio. Thanks so much, appreciate it.

All right.

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