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So this is the sixth meeting of the FOMC.
It's done, it is done, and we just wrapped up listening to Fedshair J. Powell talking about the decision and the economy and what's to come. Well, you know what, Carol, the Fed leaves rates unchanged, signals one more rate hike this year. Powell says, Central Bank to proceed carefully on a rate path, carefully how many?
It was like a drinking game. Every time you said careful or careful.
Hope you weren't drinking during that Wow, maybe some water you had been you would be drinking a lot. And then to your treasury yields, they went flat after that initial surge.
Unbelievable. All right, So let's get to it. I will say, the FED chief saying that there's so much uncertainty around the timing of rate cuts, and that was something I felt like in the press conference that reporters we're trying to pin him down to and he would not be pinned, although it does feel like higher for longer, all right,
So let's get to it. Let's get some analysis, because we did get an upbeat and upbeat I should say, an update on those economic projections from the Federal Reserve, and that was certainly something we were all focused on.
What we have with us or who we have with us.
A former Bloomberg colleague, Ylana Shalaeva, senior US economist at BnB party about on Zoom in New York City and in Bloomberg Economics US economist Stuart Paul. He's here in our Bloomberg Interactive Broker studio, Stuart, I do want to start with you, what are or were the key points of today's decision and what Jay Powell chose to stress in that press conference.
So Powell is definitely stressing that he's going to be maintaining a higher for longer posture. I think that some of the confusion that came from the price conferences that this is just a generally hawkish summary of economic projections. That's really the content of today's F one C decision is the summary of economic projections showing far fewer cuts
in twenty twenty four, more optimistic GDP growth path. But for some reason, Powell, when he took to the podium said that a soft lending is not his base case.
It's almost as I was very surprised.
See what does that mean? That means things are better?
It's timp I mean I took it as bad news. I took it as you know, things aren't as good as people think.
Well, we hear Bloomberg Economics think that there is some softness underneath the surface. I think that if we're trying to analyze the intent of the FED chairman here, we have to think that he's trying to invoke some sort of a memory of vulgar which is that he's willing to do what's necessary to break the back of inflation. Yes, he's optimistic about growth. That's why we or the median member of the FMC at least is optimistic about growth.
That's what helps to explain the median projection for the FED funds rate maintaining that higher for longer posture ending twenty twenty four at five point one percent, five to five in a quarter range. And if the Fed is ever going to have to rain and inflame. Maybe something might have to crack. That's what I think that he was alluding to when he says that soft landing isn't necessarily his base case.
And Bloomberger Economic Sana Wong writing officials also completely scrapped a recession forecast for this year, so definitely taking that off the table.
Hey'll initially Eteva come on in here a senior US economist at BNP Para, but also our former colleague here at Bloomberg Lane, How did you read into that comment from FED chair J.
Powell?
He would not call this soft landing a baseline expectation. What's your interpretation of that?
I think I think, you know, the chair is alluding to some event risk here, and I think there is a lot of things that could go wrong from now on. Yes, the you know, economic growth looks really strong if you look at the recent data, but we have a confluence of significant negative risks coming all at the same time in the in the fourth quarter of this year, you have student loan repayments restart, you have a possible shutdown,
Excess savings are depleting. So there are significant risks to the soft lending scenario that is reflected in the summer of economic projections, they're really seeing a stronger growth, lower unemployment rate, and at the same time much lower inflation. I think the event risks that will make them be cautious at the following meeting.
If you could have asked a question to the FED chair Yelena, what would it have been?
I think I wanted to hear a much clearer explanation of what he thinks about policy legs. He alluded to that a little bit in the opening remarks, but you know, the extent of how much policy previous policy tightening impacted economic growth would I would like to get a better sense of that. It seems like Chair himself believes that policy liks have not fully percolated through the economy and more impact is coming.
You know.
And Stuart, I want to ask you, you know, process of getting inflation to two percent has a long way to go. So do I read that as yep, we're not at two percent yet, so we get that, Chair palal or is it that that also means you guys still have work to do, and so cooleer jets everybody who's thinking of FED cuts.
You know, the projected path for the FED funds rate target range, at least for the median voter on the FMC seems to be almost separate apart from the economic fundamentals that they're showing in their projections. We're not getting to the two percent core PC target until twenty twenty six. So yes, the core PC forecast was modestly revised down for twenty twenty three. But we also see growth being revised up, we see unemployment being revised down, labor markets
staying tighter for us, staying tighter for longer. That's not the higher for longer, the tighter for longer that the Fed had been looking for. Right, So to those fundamental economic projections, those forecasts scream one more rate hike to you. I mean, it seems as though, to Elena's point that maybe these optimistic projections are just that, maybe they're just a little bit of a wish and something will crack in the background. Maybe it's something fundamental like Elena was
talking about that we've written about extensively. Maybe it's something like liquidity and we haven't heard anything about QT in multiple press conferences.
Well, Jelena store rais is a really good point. I mean, how seriously can you take the dot plot out two years. It's one thing to, you know, take the dot plot projections out for the remainder of the year, but it's an entirely different thing to look at it for the end of twenty twenty five. How do you look at different times there versus what they're saying.
I think, I think you really have to take it with a grain of even going into the next year. You know, we did notice that the range of projections for twenty twenty four narrowed, but it's still a very wide range of totally different projections. And even this year, I think the fact that the Fed downgraded inflation projections, but they still, I think, in our of you are
very high relative to what will likely happen. So in this sense, you know, if inflation surprises to the downside closer to the end of the year, that will give them a way out of the last projected hike of the cycle. We think that they will they have reached the terminal rate.
Is there a word that you see zon in terms of what came out of j.
Powell's mouth today, Elena.
In a sense, there were just you know you, so sometimes he uses a word over and over.
Sometimes there's a phrase and we.
All kind of you know, that's to be transitory.
It used to be transitory data dependent, right. How many times have we said that? Is there anything that came out of his mouth that you thought, okay, this is kind of where the sake a dependency?
But that has been the mantra for quite some time. I think that they just want to be cautious with those, you know, sticky words.
How about for you, Stewart, was there something there?
No, The thing that really stood out to me was that there that Jpewell didn't seem to strike, at least not to me, a single hawkish or dubbish tone. Usually, at least over the past few years, when the FOMC makes a decision, so in this case, the hold rate steady, he'll end up striking a more hawkish tone to compensate for the pause and raids, or if they were to hike, he ends up coming out a little bit dubvish during the press conference to sort of tone down any sort
of market reaction to the actual decision itself. That was not the case today during the press conference, at least not to my ear.
What did you hear? To my ear? He sounded a.
Little bit cautious. He used the word cautious multiple times, and they were just the same way that we see this sort of break between the fmc's medium forecast for the fund rate itself and it's forecast for the economic projections. It seems that there wasn't a cohesive narrative, at least not to me when I was listening to the press conference.
It's interesting, right.
Okay, to Stewart's point, if I mean, yes, there's a lot of risk management approach in what they are doing right now, not that they have achieved the goal, but they're very cautiously moving along. It's risk management that is driving the decision at the point.
All right, So okay, where do we go from here? And I guess it's you know, Elena, what are the next kind of focal points for you? Is it just be going to go from data point to data point? I mean, how do you think about November?
So we only get one with CPI CPI report and one more payrolls report before the November meeting. So I mean they're saying they're data dependent, but there's really not that much data that they're gonna get. I think what will keep them on hold at the next meeting is
really the event risk. So again I mentioned a lot of things that are coming that could influence their decision to be even more cautious in the medium in the near term, but I think by the time they get to the end of the year to the December meeting, they will we will probably get a lot of data showing a significant slow down in economic roles in UH and even further slow down in the labor market, and eventually that would stop them from going another time as
they are projecting in the Summary of Economic projections.
Stuet I like the way that Yolena described event risk. These things that we talk about that the FED absolutely has no control over. Something that j. Powell said, you know, higher oil prices, UAW strikes, student loan payments starting up. Once again, what's the biggest event risk on your radar right now?
Well, I'm not sure this is entirely an event itself. It is a catalyst that's starting, but it's well signaled. Right we know that student loan repayments are going to be starting. In fact, student borrowers have started those repayments already and flows into the Department of Education's coffers within the Treasury have already reached pre pandemic flows, so that typically shaved that should based on typical flows into the Department of Education, shave off something like fifty basis points
from PC spending on a monthly basis. I think that that's probably I think that that's what's biggest to me. Other things like the UAW strike. Imagine that that's temporary shave something like one percentage point off of industrial production. That's the sort of thing that you get back though when they fire up the assembly lines again. Same thing
goes with the government shutdown. We would not even see that show up in the establishment survey if any sort of federal agency still keeps workers on its payrolls, at least in so far as those workers will receive back pay when they are brought back to work at the end of a shutdown. Even a government shutdown wouldn't hurt non farm payroll growth that much. But the extent to look the Board of Governors is sitting there on Constitution Avenue.
It's the sort of thing that they would see firsthand when economic activity within the district slows to a halt during a government shutdown. So it's the sort of thing they can feel very scary to policymakers, right.
I always think about with these kind of things, it's either kind of a one off if it ends quickly. The longer these things lag on, I assume the economic impact is so much greater Elan. It was kind of fun, I guess to kind of watch J Powell deal with, you know, trying to be pressured into like when do we cut rates?
Like when does it come?
He says, going into twenty twenty four, the time will come it So I'm not saying when to cut interest rates, So he's very careful about that. How do you think about when we will start to cut rates?
So in our view, you know, we will slip into a recession, and that will be a modest recession in our view, but still that should push the Fed to start cutting rates. Another consideration is something that came up during the press conference is the level of real rates. So if inflation continues to slow down and it you know, falls rapidly, that would push real rates much higher from
where they are right now. They're already in a restrictive territory, and the FED will just not want to keep pushing real rates even higher into the restrictive policy stands, so at some point the FED will have to cut nominal rates just to keep real rates from rising further. So, and we think that that time will come sometime in the middle of next year.
You have any thoughts of that, No, I think that that's generally right. I think it's in the middle of the next year. I wouldn't be surprised to see something like twenty five bases points of meetings starting from June July. And it's exactly that. It's to maintain that constant spread between printed inflation and nominal policy rates, so that monetary
policy stays sufficiently restricted but not excessively restrictive. I think that just tim to your question earlier, thinking about any sort of catalyst that could be shocking that could materially change policy decisions.
It seems as though.
People have entirely stopped discussing liquidity, and they've entirely stopped discussing the consequences of QT. But the bank term funding program has maintained essentially a constant balance. Banks are still continuing to borrow from the federal home loan banks, and we're still seeing we're still seeing deposits leaving the banking system because rates are materially higher if.
You're talking about the out the fallout from the regional bank crisis.
Well even preceding the regional bank crisis as a consequence of quantitative tightening, the other aspect of monetary policy that's operating just sort of in the background, there is an attempt to soak up liquidity of the FED. And though we always focus on the Fed's dual mandate price stability in full employment or maximum employment, the sort of thing that could pop up in the background is a liquidity event, and those sort of events tend to be pretty convex.
We don't really have the foresight of saying, you know, student loan payments are starting in October. Again, they happen when they happen, and I'm surprised that it's the sort of thing that doesn't come up in press conferences anymore.
I mean, COVID happened when it happened. March twenty twenty happened when it happened. These are things that you know, if you go back to twenty nineteen and the summary of economic projections, then right, nobody was foreseeing something like this, an event risk like this causing the FED to drop rates to zero.
No, exactly exactly. I mean, I don't know.
I mean, you think about this year, Yalane, and I feel like we've been all over the map right when it comes to we thought kind of the world was coming to an end many end, you know, with the regional bank crisis.
But you know, we've dealt with crypto over the last year.
I mean, there's been a lot of things that have certainly come at this market. But you know, here we have an environment where you see certainly equity strategist continuing just to kind of ratchet their estimates higher. But at the same time, you know, I'm looking at in stocks right now or down to their lows of the session, but I'm looking at you know, the rate moves today, your two year at five point one, four, ten year at four point three, I mean, five year at four
point what five three? I mean, are these the rates that we should anticipate we'll continue to see certainly going into twenty twenty four.
Well, at some point the Fed will have to cut rates and we will see some move on that front. I think one thing I would like to highlight though, is all these things that we mentioned in our discussion, like such as student loans and strikes and you know, the depletion of excess savings. We should not forget about that, even though we've been talking about it for a long time. Those things make the economy more vulnerable to exogenous shocks, so some type of liquidity events and other things that
Stuart mentioned. So like, I think that the slowdown in the economy to the point at which it approaches somewhat some stall speed, that makes the economy really vulnerable to something that could happen that we cannot anticipate. And that's an important point, and this is something that we should be watching.
Yeah, I mean there's a lot on the plate.
It's certainly a lot covered by j Powell today, but a lot for us to kind of continue to moll over and we'll see how the financial markets continue to read it. Guys, Thank you so much, really appreciate it. I know you guys have had a busy afternoon watching all of this.
So great to get you here late last night. I saw you on TV late last night. We were getting are you doing a preview Australia Daybreak? Oh yeah, Well, I mean somebody's got to do it.
A lot of central banks right now, right making somebody.
Needs to talk about starts in permit, somebody needs to talk about what to anticipate from the FED. So it's been a busy day for us. Lena, we miss you here at Bloomberg. Eliza says, hello.
There you guys to well, you know what, we love it when you get to join us, Lena, and on FED day at any time. So it's awesome to have you back with us.
Totally, totally, all right, be well, Jiolena sholl.
Let you have a senior US economist at BNP party, but as you know, a former Bloomberg colleague and Stuart Paul, us economist at Bloomberg Economics, part of the Bloomberg Economics team. Elena was previously.
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, the Bloomberg Business app, or wants us live on YouTube.
All right, As you know, FedEx just out with earning stock rallying in the after hours. It's also been on a tear this year, as we talked about earlier, up more than I think forty percent this year, put up another four percent in the aftermarket. Let's get to it. Let's see what our lead class cow has to say.
He follows this company and the sector. He's Bloomberg Intelligence senior Transport, Logistics and Shipping analysts and he joins us at BI headquarters in Princeton, New Jersey, and he, like us, has just been going over the numbers. Why the optimism do you think in the aftermarket? Lead and first of all, thanks for being with us.
Oh my pleasure. You know, they beat expectations, so that's obviously in that positive. They be by eighty cents. You know, they also increase the low end of the range of their guidance by fifty cents, which is another positive. And you know, the beat is what what's telling us is that management is beginning to execute on its strategy to cut around six billion dollars in and expenses. FedEx for a long time has been to show me story, and they're actually starting to, I guess, not show me, but
show people that they're able to execute on their plans. So, you know, I think that's what's fueling the aftermarket increase that we saw. I think it's up like ten bucks right now.
Okay, So that's the good news, because I'm looking through this release and I'm seeing a little bit of bad news in here, so correct me if I'm wrongly. But the improvement in operating results I'm reading this directly from FedEx's press release was partially offset by ongoing demand weakness. Talk to us about that demand weakness, where they're seeing it and how long it's going to last.
Yeah, I mean that's a great question. I think demand expectations are going to be weak because you have to remember, demand is really normalizing from you know, some creamy highs that we saw during the pandemic when everyone was ordering things home. So you know, now that you know, people are getting back to normal. Obviously, people have been spending more on services versus goods. We've seen that trade happen already.
So they're really going up against the fucal comparisons versus anything that might be, you know, in our view, like a real weakening of the consumer. We think the consumer remains relatively resilient. So you know, so that is really not a surprise. You know. The good news is what's offsetting that is what they're doing on the pricing side. So you know, they just recently announced that they're going to increase rates next year by five point nine percent.
That's their general rate increase. Obviously, large shippers aren't going to pay the whole that whole increase. They'll probably pay discount of that. But what we're seeing is that they're going to be able to increase price to lower their inflationary pressures. And you can see, you know, what they're able to do on the cost side. They mentioned in the release that they reduce the cost per package and ground to ship those packages by around two percent, I believe,
and so that's that's good news. So that means that they're getting productivity gains, they're cutting some of the fat that FedEx had, and you know, that's a good thing. So when demand does increase, when demand does go back to growth, they're going to be really well situated because that's really going to drive significant operation leverage and really good incremental margins going forward.
You know, Lee, this was something we were just talking with our TV colleagues as we were breaking down the FedEx numbers as they cross the Bloomberg. You know, should we be rewarding this company because they're good at cost cutting?
You know, this isn't about investing in cap X it doesn't feel like right or you know, putting money to work, or demand is up a lot, or you know, the top line is growing a lot, like you know what I'm saying that, you know, and they've got another buyback which always gets investors excited, or an additional buyback, so you know, or is it a case of yes, reward them because as you said, it's been a.
Show me story.
Now we're seeing the fruits of those efforts and now they can go on to hopefully, you know, growing into more demands. So I guess help us out here a little bit. Is it just the reward so much, because hey, you're good at cost cutting?
Yeah, And also you have to remember it's coming off of a low base, right in terms of where their shares is today versus where it was a year ago. The street was really soured FedEx for a number of reasons. A lot of that was just for execution, and you know, they've come up with the plan. They're executing on the plan, which again is very key for them. They need to really show that they can execute. And if you look over the last five years, the shares actually underperformed its
biggest competitor UPS. So you know, they are rewarding it today, but it's really it's really a function of catch up versus necessarily something something else.
Talk to us about the labor differences. Carol alluded to this during our simulcast, the fact that UPS is a story that is really a labor story with a.
Really strongly when I was doing a big deep dive into UPS and we talked a lot about the differences between the two companies.
But I mean, you look at a FedEx ground truck, and you know, you look at the fine print and maybe I just I just look at the fine print. Maybe not everybody does this, and you see that it's it's run by a company that is not FedEx at all. It's contracted out. It's this contract labor. These are not actually FedEx employees. Talk to us about the labor differences here.
Yeah, so I've to say, you know, there was in the news obviously a couple of months ago with the UPS kind of making a agreement with the teamsters. That's their union that that works and delivers all the packages. FedEx does have a union, but it's only their pilots. The rest are either employees or as you mentioned they're independent contractors. You know, FedEx was an air freight network that decided to go into the ground business and they did that in an asset light sort of way by by,
you know, really relying on these independent contractors. And there's hundreds of them across the country. You know, they own certain regions, they're small business owners. They're able to sell those businesses to other people, so you know, they operates
as a small business. What I would say is with the new UPS contract and the fact that you know UPS is unionized, you know, labor still is liberal, markets still are relatively tight, and if you're thinking about you know, that's something maybe you want to go do for a living, you know, working for a UPS where maybe you're getting a better uh you know race per hour and your
benefits are better, it might be more appealing. So from a tract and retain employees, you know, UPS might have a leg up, but when terms of flexibility and maybe total cost per employee, FedEx side obviously has the benefit. But you know, if you look at the two differences, UPS's margins on the domestic ground side are a lot better than FedEx's margins right now, so you know that necessarily. That cost difference really is in showing up in the profitability and the p and L.
You know, in the press release they talk about operating income up eighteen percent or on the quarter, as a nine percent decline in revenue is more than offset by reduced operating expenses. It's what we've been talking about. That nine percent to cline in revenue. Is that you talked about kind of getting back to pre pandemic levels, right, Things got distorted during the pandemic. We know that, and I guess we keep trying to remind everybody, Wait, we got to.
Get back to kind of where we were, that's the reset.
Does the FedEx numbers show that we are kind of closer back to that reset or the pre pandemic?
I think the jury remains to be out. My guess is that I think that we are closer to that, you know, And I also think that, you know, some of the things you're seeing on the yield side, some of the lower yields might be related to to mix, but some of that business might still be more profitable for them, even though from a you know, a headline number,
it might not look that great. And you also have to remember fuel search charges are kind of down from they were when they were a year ago, even though we're seeing you know, higher fuel rates. What I was surprised is the FedEx freight business, which is their lesson truckload business. They had a lot of opportunity to win some business when when Yellow went out went out of business, and so I thought there'd be more of a kind
of a surprise on that on that side. But that segment actually, you know, missed expectations by a couple hundred basis points.
Okay, So what's the question you'd ask on the call if you were on there.
You're sitting down, Yeah, are you having Cognac with the CEO? And you're like, Hey, between you and me, what are you gonna ask them?
I can't believe you knew I was a coniac kind of guy, all you know, I think I think I would want to know what inning they are are in the six billion dollars in cost reduction, and not only what inning they are in, but how much more can they really do, because that's that's really the key. You know, this company has to be really ready for the next
generation of parcel. You know, they're facing increased competition from Amazon they're starting to do pickups, which is something that they had a test pilot project that they did before the pandemic and they paused it. Now they're redoing that.
So they're facing competition from other other areas. So they really need to be more efficient, uh, and they really need to, you know, help their independent contractors be profitable so they reinvest in their businesses and they're able to keep those high service levels up.
All right, so appreciate it as always.
Lead Clasgow BI Senior Transport Districts and Shipping Analysts joining us there from Princeton. Stock Up by the way, FedEx four percent.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern 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 playing Bloomberg eleven thirty.
Well.
Bloomberg News reporting earlier this month observing methane releases from global oil and gas operations that were thirty percent higher than what countries estimate in reports to the um is into a new study right and it analyzed satellite observations of the potent greenhouse gas.
It's really important.
Yeah.
It is the world's four largest oil and gas emitters. The US, Russia, Venezuela and Turkmenistan account for most of the overall discrepancy. That's according to a report published last month in Nature Communications Satellite Data. It just challenges though, figures that reported to the UN, which rely on so called emissions factors. Those are estimates for how much methane equipment might normally release, applied to production and use rates.
So it shows what you see in sort of one measurement correct might be different than what satellites pick up exactly.
And satellites, folks, they're everywhere. They're doing all kinds of things. You know that.
And we're going to put that question because our next guest knows a lot about this. Let's sad to Munich, Germany, where we find on zoom Peter Platzer. He's a physicist, founder and CEO two of the publicly traded microcap and global provider of space based data, analytics and space service. The company is called Spire Global. Peter's so nice to have you here on Bloomberg Business Week. Welcome, Welcome, tell us about your business and what you guys are doing.
It's fantastic to be here. Thanks, thanks for having me. Spire was founded to leverage space and analytics to improve life on the Earth and infused with that vision, you know, we designed, built, and now operate. There was largest constellation of satellites that use radio frequency technology, the technology that empowers anything from mobile phones to the very show that we're on right now, to observe what is happening on
and around Earth. We collect a lot of environmental data like like hurricane windspeeds and flooding and wildfires and other extreme weather events, and then we help our customers to improve their bottom line by reducing often the carbon footprint, all at the same point in time.
Do you guys actually own satellites?
Yes, we own the satellites. We own Earth that covered the Earth every fifteen minutes, all of Earth everywhere, twenty four to seven. And we.
Oh, we got to get those satellites fixed so we can get this get this interview going, all right.
I think are you back? Are you back with that?
So?
Okay, go ahead, continue what you were saying.
Oh sorry, I was saying that, Yes, we built and designed all those satellites, and we invented all the technology that sits inside the satellites and the software.
So explain how these satellites that you launch at spire Global are different or similar to ones that are launched by SpaceX's Starlink.
So we call the satellites categories looking satellites, talking satellites, and listening satellites. Starlings is a talking satellite constellation. They transport data from one spot on Earth to another spot on Earth. They are data pipeline, so to speak. Fire is a listening company. We use radio frequency wave to observe what is happening around Earth. So when you have, for example mentioned earlier, you know, methane ambitions. You know, we are a platform for a customer that runs a
sensor that measures methane emissions from space. You know, we have a sensor that uses radio frequency waves to measure hurricane wind speeds or flooding or rain or temperature. So we use our technology radio technology to literally observe what is happening on Earth.
So I'm curious how much of your business revenues comes from government organizations around the globe.
So about forty five percent, so a little bit less than half of our business is with government organizations. It has sometimes been a little bit more than this, it has sometimes been a little bit less. So maybe over a longer timeframe we say fifty to fifty, but right now it is about forty five percent from the government side and fifty five percent from commercial companies.
So when when investors look at you as a company, as I mentioned, you're a microcap and let me just take a look real quick, one hundred and thirteen million dollars microcap. You're down about thirty three percent.
For the year.
But how should investors think about you? You know, we do classifications, we say information service is but it's interesting. I feel like you're playing into a lot of different fields. How should investors think of you? What kind of company are you?
We are a classic SaaS company. You know, we sell data and analytics as a subscription. Our customer is extremely sticky. We have an at retension rate over one hundred and seventeen percent, so customers keep on buying more from us.
We have guideline for this year is over one hundred and thirty million dollars of arr growth rate over the last six years is over one hundred percent, so we are classic data and subscription company with the same metrics as you will find with typical SaaS companies, with the one difference that we have an extremely efficient salesforce because we have these massive barriers to entry and we don't really have to spend as much on sales and marketing as you see with other SaaS companies.
Peter, who launches your satellites?
So there is a rocket going up on planet Earth every you know, three days or so. We have launched with at least ten different launch providers, you know, threety five launch campaigns. So we have launched with you know, anyone from from SpaceX that you mentioned earlier, to rocket Lab, to verge Into, to India, to the Europeans Vega. So our whole host of launch vehicles we have used to bring our satellites, our capabilities to orbit.
I'm wondering what you would say to critics who argue that filling the sky with satellites. A lot of astronomers say, you know, it's really changing the night sky. It makes it look completely different than it looked just a few years ago. It's affecting the way that we can explore Earth. What would you explore the solar system, What would you say to them?
So, I think it's absolutely true that space is a common environment, just like the oceans or peat lens that you monitor, which is a great carbon storage and has huge impact on climate change. Space is a shared a common good, and we have to treat it, you know, very very respectfully. Now, putting up very very large devices, for example, does have a massive astronomers. I would challenge any astronomers to see our satellites because there's signs of a bottle of wine and they're not very shiny, so
they're really really, very very invisible. I think, I think you have to treat it respectfully, which which we certainly do. We clean ourselves up very very quickly, and we do have to look at the benefits as well as the cost of leveraging this common good space.
All right, got it?
Run Hey, good to check in with you, and hopefully we can do it again in the future. Peter Platter, he's a founder and CEO of Spire Global, joining us from Germany.
A little sublime. Yeah, yeah, this is Bloomberg, all right.
Well, there is definitely working in a coalmi and if you think about our history, right, not good conditions.
Yeah, and there's also working low wage, low wage retail jobs in the United States in twenty twenty.
Three, Carrol, I mean like at a Dollar General.
That's exactly what I'm talking about.
Yeah, maybe not exactly, like we're in a coal mine. But yeah, wait until we get into the story. Because ick based on this week's Bloomberg Business Week cover story, it also happens to be today's Bloomberg Big Take. You will find things like rat infestations, blocked fire exits, expired kids food, machete wielding, and watermelon throwing shoppers. It sounds funny, but it's really not a lot of nightmares at the biggest dollar chain tim in the United States.
With more on the story, which is reported out by Bloomberg Josh Idelson and Brendan Case, let's bring in Brandon, Bloomberg News US retail reporter, joining us on zoom in our Dallas bureau, along with the editor of Bloomberg Business Week, Joel Webber here in our Bloomberg Interactive Broker's studio. The story, by the way, it is in the new issue of Bloomberg Business a Week. It's available on newsstands tomorrow. You can already read it though on the Bloomberg Terminal and
at bloomberg dot com Slash BusinessWeek. One of the most read stories on the Bloomberg Terminal today, Joel, this is a deeply reported story with disturbing anecdote after disturbing anecdote. How does something like this come together?
Who knew that a story, a story like this that has really changed how a lot of American shop I think I had this sign to it, and so one of the things that struck me about it is that we've talked I think for generation now about you know, how big of a presence Walmart has had in America, and it actually is like the story that Walmart sort of I think, you know, propelled into America for like
these big box stores and changing small town America. Dollar General has actually taken a lot of that farther now. The stores have a much, much, much smaller footprint, which we described in the store in the story. The price points are amazingly affordable and seemingly inflation proof, as we also point out in the story. The cost of all of this, though, is that it turns out to be a really troubling place to work, and the people who actually work in.
The stores retail job.
Wow, the stuff that they've gone through, So Brendan, Josh Ronelson, but was the lead writer on this Brendan case also intimately familiar with it. Brendan, what was the what was the reporting tidbit that made you made you and Josh just really want to dig into this.
There were a couple of things, and one of them was what we say at the very beginning of the story, which was that if you look at a lot of the fines that the Labor Department, through OSHA, has levied against Dollar General, one of the things that keeps coming up over and over again is blocked exits, which obviously matters a lot to OSHA. It harks back to the Triangle shirtwaist factory fire in New York.
Which is actually a reminder OSHA was founded because of.
That, right.
Yeah, Yeah. And And the thing that one thing that surprised us was talking with an employee in New Orleans who said that in his case, the blocked exits were no accident. In fact, a manager had told him to purposely block exits to try to cut down on shoplifting, make it harder to get out of the store. That was one thing. Another thing that that that jumped out was just the lack of you know, heating and air conditioning.
And we talked with people who had put ice packs down their pants when it got hot, wore you know, multiple coats and layers when it got cold, and one regional manager who you know, was fairly high up in the company who told us that she was just really shocked by how difficult it was to get to get funding for basic maintenance, basic upkeep.
So on top of all that, there's this sense that Dollar General has just been in this incredible growth strategy. So talk about how how it's kind of swept the country a little bit.
Brendan, Yeah, and it's really amazing how fast it's grown. To your point, it's a little bit sort of a creature of the Walmart era. You know, Walmart comes in and it wipes out a lot of retailers across the country and leaves a landscape that if you're not close to a Walmart or have a easy access to a car, you might not have as many retailers that you know,
as you had before. And so in swoops Dollar General and many of its rivals and you know, opens up stores to the tune of typically you know, a thousand a year, and so you know, they've got more than nineteen thousand locations around the country right now. You compare that with a little more than five thousand for Walmart, including the Sam's Club locations, and you start to get a sense of how ubiqueless it is, especially in smaller towns. About eighty percent of its stores are in towns of
twenty thousand people or fewer. And you know, you if you drive through you know, through the countryside in many states, particularly the Southeast, but in many other parts of the country as well, you'll see, you know, store after store.
So we talked about the block fire, escapes, exits. Can we also talk about the baguana because there's some of that in the story. Brindin, I was waiting, how crazy are some of the reporting details that you found?
Yeah, you know, the the issue of animals getting into the stores and befouling the merchandise is something that also came up over and over again. You know, there was one there was one case in Oklahoma where birds got in and you know, used sections of the store as you know, as a as a bathroom, and the store manager there told us that he was told to just take the merchandise home. Wash it in your washing machine if you have to, and bring it back and put
it back on the shelves. You know. There was another another instance in which there was a an Iowa store. There was a worry about asbestos. But after inspection, you know, some state inspectors found out that it wasn't asbestos. That was the good news. The bad news was that it was stained from bad feces. I mean, this is all over a wall.
It's pages and pages of disturbing anecdotes, but disturbing experiences that employees have had. I mean, one thing that really stuck out to me was the employee who you know, there's one employee in the store, the employee asking a customer to watch the store, Well, he or she went to the bathroom. I Mean, the thing that I was thinking through throughout this this piece is is that this
is working for Dollar General. They're making a calculation that they can allow their stores to reach this condition, pay their employees this wage, have this few of employees in a single store because it's worked, especially over the past five years.
Yeah, it's really worked for a long time, and they've had, you know, from a financial standpoint, a really strong record of sales increases and profit increases. One thing they're good at doing this is not true of all retailers, is opening new stores and fairly immediately having them contribute to the to the bottom line. Now, this year has been a different story for Dollar General, at least from a stock market perspective, where the shares have come way down.
They've cut the profit forecast a couple times. One of the big problems, obviously is just the financial preckers on their customer base, which skews towards the lower income end of the spectrum. They have said, however, that they're going to spend more on labor uh and and that's at least, you know, that's that's certainly an acknowledgment that the store conditions are not where they want them, uh and that they're they're they're there's not only to spend money to
try to improve things this year. Another thing that's driving that I think is just a stepped up competitive threat. For years, Dollar General was known as, you know, the big successful dollar store chain. Dollar Tree, its closest rival, was sort of an also ran. That company's in the middle of a turnaround, and so, you know, seems to be becoming a stronger competitor. And then you've got Walmart, which loss some ground to the dollar stores in the
wake of the Great Recession. Really doesn't want that to happen again if the economy slows down and is rolling out a lot of initiatives, whether it's you know, pricing or delivery services that are designed to sort of counter competition on the lower end.
Hey, Brendan, and the stock, as you said, down more than fifty percent this year, you know, trading at a fifty two week low. What does the company say about all of this?
They reported earnings a couple of weeks ago, and you know, again cut their profit forecast. And interestingly, they had initially said that we're going to spend an extra one hundred million dollars on labor this year. They moved that number up to one hundred and fifty million last month. You know, so clearly, you know, clearly engaging with the idea that for their own customers, their own workers. You know, there
are some things that are falling short right now. Whether that's enough remains a big question mark.
But what I mean, but what I mean about all these specific things, I mean, this is pretty gross for workers and unsafe for workers, and you know, we talked about the New Orleans worker who were blocking you know, the fire exits, and there was a fire. Unfortunately nobody was there. But this stuff continues, and I'm curious that the company addressed any of these specifics.
The company told us in a pretty we we send them a very detailed inquiry. They got back to us with with with a significant reply that that you know, repeated things they've said in the past, which you know, has to do with them saying that they want to provide stores that are safe to work in, they want to provide opportunity for their workers. I think that a lot of the details in the story show the ways
in which they've come up short in those goals. The extra investment they're making suggests that you know, they they they you know, they're sort of acknowledging some of the shortcomings. But again, you know, like whether that turns out to be enough to really kind of turn things around. I think the proof will be in the putting.
And this is in the story, but it really does kind of culminate with a shareholder meeting where the employees really did get their attention. So we'll see where that leads. I do think, you know, Brendan, when you just look at the incredible performance that the company has had on the stock market really intil this year, what's happened? Because you would think, like, with the economy being where it is, inflation being where it is, this looks like a pretty
good value proposition to an American consumer. And yet you know, you look at that share price and it's like, you know, the ceiling of bat Iguano fell apart, and everything fell apart. What's happened?
I pointed two things, and one of them is tougher competition. I think Dollar Tree. You know, Dollar Tree brought in a former CEO of Dollar General with backing from an activist investor, Mental Ridge. There there comparable sales numbers suggest that they're getting some traction there that people, you know, consumers out there are noticing improvements and responding. That's one thing.
Another thing is the hole issue of trade down. You you know, in the wake of the financial crisis, you had a lot of trade down from middle income, higher income people doing just what you say, saying, you know, look, that's going to be a great bargain. I'm going to buy more stuff at Dollar General or Dollar Tree or other dollar stores. I think you're seeing a lot less of that right now, and where you're seeing it is
in Walmart. And so I think that that whether it's competition from small box stores like other dollar stores, or competition from the really big ones out there, I think Dollar General is under a lot more pressure than it used to be now. At the same time, you know, by its own admission, it has this issue with sore conditions.
You know, can it fix the store conditions it's fixing the store condition is going to be good enough to get back some of that business and get back onto a growth path in terms of comparable sales store by store. I mean, that's an open question.
I just think about too, that these stores do play a role. That there are small communities around the country right that don't have anything.
Don't and as the story also documents like some of these communities have actually resisted having Dollar General come in have lost some of those battles, So there's this tension there. I also just think the moment that we seem to be at with labor in this country, with UAW doing
what it's doing, Hollywood doing what it's doing. Just to look at retail for a second and be like, oh, yeah, there's this world that I don't think we talk about enough business Week, but this is, you know, a landscape of what America really looks like and the people who are in the front lines actually dealing with some of these issues that you know, you don't expect to have to deal with a machete wielding customer, and yet at Dollar General, that's part of your job description.
Even if you don't get training for it.
It's not in the training.
No, it's not. It mean that point.
We laugh, but it's disturbing and it's real for some folks. Incredible cover story Brendan Case, Bloomberg News US retail repert.
Of course, the editor of Bloomberg business Week magazine, Joel Weber. This is the cover story.
I'm brother Marca, a journal How about you let me drive?
Oh no, no, no, no please gone and job honey, please, I'll do the riding gravel.
Let's wat I want to drive.
It's a good question.
This is the drive to the clothes coming well, buy around on Bloomberg Radio.
All right, everybody, it's what three forty seven on Wall Street here in New York City, and so we've just got about twelve minutes left in today's trading session a FED day.
We've only got two FOMC.
Meetings left November first December thirteenth. But the Fed done did not change its key interest rates, kept that unchanged, but did give an update in terms of its projections when it comes to the economy to inflation. So we did get kind of what the Fed is thinking and where things go from here.
Yeah, it was hawkish. Nonetheless, twelve FED officials seeing one more hike this year, seven seeing rates on hold. The Fed also repeating language on the extent of additional policy firming. Let's hear what our next guest has to think about it. Larry Pitkowski is co founder, managing partner and portfolio manager at good Haven Capital Management. Larry joining us on Zoom from Milbourne, New Jersey this afternoon. Larry, how are you?
I am well, How are you? And Tim?
Yeah, we're doing pretty well. Really digesting not just what Jay Powell said, but also the market reaction to this. We should note that Nasdaq pretty much at its loads of the days down one point three percent, the S ANDPF happenor down eight tens of one percent. Stocks moving kind of all over the place when we heard from the FED chair, what's your assessment?
You know, Tim, you had me on this show on a FED day because I get to use my three favorite words and investment, which is I don't know, okay, thank you, and that's not that's doesn't mean I didn't I would like to know. But there are many important and unknowable things in investing, and I think one can obsess over them all you like, but an enormous amount of energy may not yield you many results.
And here at the good Haven Fun we try very hard to focus.
On what is important and what is knowable, and what happened today with the FED seemed to be within the realm of what.
Has been telegraphed before.
You have to look at the environment and say, okay, I have higher risk free rates, I have a more constrictive policy. I have the economy slowing in some areas. And that is the backdrop. And we've been fortunate here at the Good Haven Fun We've had very good one, three and five year results. And none of it has been because we've been able to make slightly better guesses as to short term interest rates than the next person.
So we will continue to try and do what we think bring we bring to the table.
No, totally get it right, like you know, and all of this could change at the next fast machine to be really completely honest, right or depending on the next set of data points.
But having said that, you guys do have to make decisions.
So how do you First of all, do you pick like a three year timeframe in terms of when you're making or is it a one year, is it a five years, it a ten year?
Is it shorter?
What framework are you using to make investment decisions right now?
Carol's very good question, and we are thinking very long term in anything that we purchase.
We are stepping back.
It's very long term. Is it ten? Is it ten? Fives?
I would say anywhere from let's just say, let's imagine a three year on average holding period. I mean, our turnover ratio has been in the very low teens, so that would imply any longer holding period. But first, there are plenty of confusing macro things out there. The first thing that I say to myself is is this a period of an existential risk?
The Great Financial Crisis? There are existential.
Worries there, the COVID, the Tragic period, and the lockdown of the economy that was a potential existential risk. But what we are looking at today looks to me like one should assume this is the new normal, higher risk free rates that we've had.
In a long time.
The economy is slower in parts, but the sun is still coming up.
In businesses, you know, things are still happening.
And so once we conclude that there's not an existential worry, but there are things that are, you know, there's higher deficits, all kinds of things. Keep looking for businesses that one that we think can do well in such an environment and where we combine them with the margin of safety. And that has worked for us over the last bunch of years, and we hope we'll continue to What do.
You think the consumer is doing right now? And I know this is you know, your your investments are five ten years down the road, but now's an important snapshot to make these decisions. How is the consumer doing?
You know, the consumer, I would say, looks to be first of all, I've often said over the years that markets are much more volatile than the underlying business as they represent. Having said that, over the last couple of years, I've noticed and already quaking out here. Talk about this all the time, that the consumer and even business behavior is a little bit more volatile than it.
Used to be.
So I think the consumer in some parts of the economy seems much more constrained. Other parts of the economy, the consumer seems fine. So I think you have to take it. I think it's two consumer spending in some areas travel and leisure have been strong, certain goods have been weaker. Luxuries historically been you know, more resistant to some of these issues. So I don't think you can say the consumer, but I think it's a good question, and we then try and drill down a little bit beyond that.
So a listener and a viewer, Michael, thank you first of all for writing in and reaching out to our producer Paul Brennan.
He writes in and he.
Asks, Laren, I'm curious if you can weigh in, hees, value investing hasn't worked for a long time, So how does an individual investor judge the past performance of a value oriented mutual fund when considering a purchase? Also, is value investing working in more recent times?
Well, I like to first think that, and I'm sure you have the statistics there in front of your trusted bloomberate that value investing for us and for our fellow shareholders has worked quite nicely over the last one, three and five years, according to statistics that are right there in front of you. I think that value investing sometimes gets a little bit the you know, the term.
Gets a little bit misused.
There's nothing inconsistent in value investing with owning.
Good quality, growing businesses.
And I think what has worked well for us and for our fellow shareholders is being right about the things that we bought, buying them at good prices, and not having any big mistakes in the portfolio over the last bunch of years. So I don't see if you can execute on all those things, which is not easy, and why should it be easy. I don't see why value investing shouldn't always potentially work if you do a really good job at it. But of course those are caveats.
But I can only speak for what we've been able to do recently.
Yeah, I want to be commercial for you, But the Good Haven Fund, if I look at the one month, the year to date, the one year, the three year, or the five year, you are consistently either in for the most part, the ninety ninth percent, also basically beating all of your peers in that category. Look at the five year accorringa Bloomberg data on average annually returning eleven percent to shareholders, three year almost twenty percent to shareholders,
one year twenty six percent to shareholders. And if I may, if I look at your holdings, it's Berkshire, Hathaway, It's Alphabet, It's Jeffrey's Financial Group, It's Leonard, It's Devin Energy, it's KKR.
And these are names Builders first Storage, don't forget that.
Oh sorry, which one? Oh what is builders for a source? That's what you're Yeah, that's a top holding.
It's a top holding and an enormous contributor to a contributor to our recent results.
It is a buildings Products.
Up ninety six percent this year, Yeah, go ahead.
Ninety six percent and still trading at a very modest forward multiple to earnings and free cash flow. And we we thank Paul Levy's the chairman of the board and the rest of the management team who has done a great job. And here's a shocking thing, Carol. The stock is up dramatically in the last six, seven, eight years.
Guess what the earnings are up dramatically too. So when you get it right about the business and you buy it cheaply, wonderful things should happen to you eventually that the market will notice.
Well, it's really interesting because this is a company that plays in to home building, which tells you a lot about the economy. Hey, do you want to mention instacart just real quickly, because we've had some IPOs.
This rule, this is one of my decliners. Don't give it away.
Well, it wasn't a decliner yesterday, but it's sliding what eleven percent to fall below the thirty dollars IPO price. People were talking about the low float on this one right, there wasn't a lot of shares out there, and.
How that could be maybe problematic for investors. So we'll talk about it.
Well, hey, Larry, we've got about thirty seconds left here the IPO market anything interesting? Does it tell you anything too? Also about the health of the overall market?
Just quickly, now we have show that's why we like you.
We have exposure to Jeffries, wonderfully run by the right talented, rich handler, and so we hope that if there are more IPOs, we fully expect that their bankers will get more than their fair share, and so we cheer them continuing to do a good job.
If there is a more robust IPO market.
IPOs are, you know, not necessarily the things that we've historically focused on the portfolio, but let's just I'll think of where we will be cheering for them, and that's as fellow owners of Jeffries, which has worked out.
Very well for us.
So interesting exposure at IPOs right absolutely one of the companies that one of the banks that handles underwriting brings money.
Into those firms.
Larry, we always enjoy talking to your specific You aren't bashful, and it's really fun to get you away in certainly on this fed Wednesday, Larry Pitcawski Magic Partner portfolio manager. He's also the co founder of good Haven Capital Management. On zoom for Milburn, New Jersey.
This is the Bloomberg Business Week podcast.
I'll a little.
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