M&A Roars Back in $40 Billion Surge

in two decades. I mean, Tim, there was a bunch of stuff going on over the weekend apparently, Yeah, more than forty billion dollars plus and potential transactions came to light over the weekend. And what does it say about deal activity in the broader market environment? Just a handful of the questions we want to get to with Bloomberg News Deal's reporter Crystal Ce, who's right here in the

Bloomberg Interactive Broker's studio. Okay, So, so first up, um, just remind us how bad it was and where we are so far in so two was not great m and a volume for investment banks down thirty one percent last year, So bankers are getting smaller bonuses and January the last month there was a quite as like Harrow said, since two thousand and three for the beginning of the year. So it had lousy last year, right, it was bad. It was not good, and it was it was a

couple of different reasons. People are not confident because of the financing market, and when you have a tough financing market, traditional lenders get very jittery about um, you know, giving out loans and a lot of banks actually incurred losses and these big LBO transactions and that made them even less confident later on in the year. So a lot of these reasons, combined with management not feeling like, you know, they could do a transaction easily, also made the mn

A transaction volume go down. But this Monday we finally have a merger Monday, um in the second month of the year. So um, it's interesting. It's also across different sectors, so let's talk about it. Because mining see to be a big one. Mining is a big one. We don't really see many mining views, so when we do is gigantic and like this one. Um, there's the US and Australia angle here on New Amount and Australia's new Cast Mining announced the merger as the biggest deal this year,

so for US seventeen billion. And we also see things across UM storage self storage. There is Financial Services with Rothschild family trying to take the company private. UM four billion US not the biggest deal but as a name that we all follow. Yeah, absolutely are there are there big pictures that it can paid for us about what is going to look like when it comes to the economy. Is there more certainty here? Finally, I think it all

comes down to interest rate and the financing market. A lot of these steo's most LBOs hinge on leverage, leverage buyouts, right, So as long as the financing markets improves, we will see more deals come back, and we also see the comeback of UM private enders. A lot of these private equity firms now have credit um that they're willing to back, not their own but some of other people, so other start private credit market. Right. That really seems like everybody

was talking about big time last year. That's right. So private credits an alternative resource the company can use to tap uh the m and a market. But also there's something called you know, seller's assistant. So if you're a friendly acquirer, you can negotiate with the seller and they can give you a little bit of a cushion, give you write a check, or you can pay them back later on. So there are many ways you can you can try to get a deal done, but you have

to be creative in this market. We've certainly seen rates go down at least as a result of what you know, bond traders think is going to happen and what the feed is going to do. But at the same time j Powell has said, uh, you know, may not cut rates this year. We've got a lot of work to do. I've been kind of beating that drum for almost a week now. Has the has the credit market changed? Yeah, so financing market is still tough. It's not drastically improved

compared to to last year. So I don't think immediately we will see a flurry of transactions and we will see many many murger mondays from now on. And you can also see that reflecting in Wall Street personnel changes. You see a lot of layoff across Wall Street and including in the deal space, including in the deal space M and A M and A bankers and not having us tough a time compared to the capital markets bankers.

But you also see that, you know, banks are expecting less work in transactions and therefore they need less people. So just because we're seeing some activity doesn't necessarily mean we're going to see a bunch more this year. Not necessarily immediately, but um, a lot of dealmakers are saying that in the second half we could expect more. I am also curious that if we continue to see some rises.

I know in equities were seeing a little bit of a different tone certainly today and I felt like you know, late last week. But if we continue to see markets go up, are we likely to see more kind of stock deals being done because they've just got a greater currency. I mean, obviously the targets, if they're public, potentially have gotten than more expensive as well, But does that often lead to more deals as well? Yeah, we're seeing some stock to It was actually just as sweet. Yesterday there

was a hostel Um takeover. There was a bear hug letter where one storage company was trying to acquire the other one in an all stock merger. And not only are they giving stocks, they're also putting in an extra dividend as a sweetener. So there many ways you can structure deals and but equity, you know, it's not traditionally the most attractive, and when you have a shareholder on board members trying to evaluate these transactions, it's going to

do less appealing than an all cash transaction. They talk a little bit more about private credit. Carroll alluded to that the fact that you know, I think you were referring probably to when we're at Milk and Carroll Private credit, Private market of last year. Yes, it was we talked so much about private credit. What does that look like? Yeah, private credit is a really really big topic. Every private equity firm that's well refirmed the start as a private

refirm as pivoted well also diversified into private credit. And um, it's interesting because I mean, people talk about the potential conflict of interest here right when you're you're really pricing things properly. But it's obviously a huge pool of capital, and it adds on top of whatever private equity of already raised in their regular funds. So it's an interesting

it's an interesting pool of resources. But obviously traditional investment banks lenders are still the bread and butter, or the still main source of capital in this M and A market, Chrystal, what are you hearing in terms of from bankers specifically? Are they saying, what, We've got a lot of things in the pipeline. People are just waiting to pull the trigger. We just want to kind of get a little bit more certainty about what the Fed is doing and what

the economy is doing. Yeah, I think the joke is that you will never encounter banker that is not optimistic. So there are always something that they're working on. Um. I don't think anyone can very confidently say that there will be megat us in a for us half, but um, there's It's like what Neil Cashcari told the New York Times last month, right, and it's quoted in the cover of a business week. It's a notoriously optimistic crowd on

Wall Street. It is true, right, right, there's optimism at there. So what are you keeping an eye on? Are there certain sectors that nonetheless you guys are reporting on stuff, you know, waiting for things to happen, But in the meantime, you know, you're also just kind of trying to read the tea leaves, So what what do you kind of follow? So there are a lot of activism going on right now. Um, we just came out of the salesforce Elliott that hasn't

really entirely settled. Um this week there are some ip O coming back actually, um so green shoes of the markets coming back. There are three d O that supports Surprise just this week. So it's not really M and A. But people in the deals world are doing work. Are you watching Disney with the activism too as well? Yeah, Pels is getting really busy with that and with his

consumer company. He's also in unit leaver um so destinitely it's a really interesting such what about when it comes to private equity firms that are going after targets that have been beat up in the public markets? Do you think we see more take privates. So a lot of the ip O that when the company that went public in the past two years, actually a lot of them are trading way below offer price and that means they

could be prime target for private equity. And we have seen some of these studios pan out and even um the companies for instance like Webber, the Bobby Cue grow Company was taken private by the b DT, which was a private and they just went publicly just went public like they went public during the pandemic, right they did, went yes, And it was like the whole you know, Tragger, Webber, Solo Stove were all outside and carols outside grin grill and all are impossible and beyond burgers, that's a no,

that's a no. Astud Well know, Um, I am curious. Are you hearing anything when it comes to deal activity interest in things AI related? Oh? Um, you could say no, although the stacks, I mean they're really on the move. Any kind a little player that's got an AI connection, Well we aren't, but I mean they can probably help us write some stories. And now I'm like, I don't say that. Don't say that. Um, Crystal, thank you so much.

Gut check on what's going on with M and A. Crystal C. She's deals reporter here at Bloomberg News, here in our interactive broker studio. I mean, we're going to talk about this with our colleagues in a little bit. But those AI stocks are just it's like seen all over again when they put blockchain like what was that long island ice T blockchain company and then the stock shot up as a result of that. It's so remember

that just be like blah blah blah blah blah AI. Yeah, and you're often running it's pretty incredible, um, some of these stocks. So if you take a look at the big picture, Carol, like back to the I p O days, like C three dot AI for example, Uh, it's not even close to where it was when I P NO. A little perspective right right exactly. And they're pretty small cap, microcap kind of companies. But nonetheless, all of a sudden investors are looking at the group in a big way.

This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus bloom Business Finance and tech news. The Bloomberg Business Week podcast with Carol Messer and Tim stinebec from Bloomberg Radio. It's safe to say we are all a bit obsessed with chat chpt right since Microsoft's tenderly in all our investment. We are hearing about it in earnings calls. Google did their own, albeit much smaller, a ideal. We talked about

it with Kathy would last week. And then there is a Bloomberg Business Week story that you can find online that definitely takes it into account. Year Tim put Chat GPT to the test on a Warden exam with more We've got. Demetri casedis a senior editor at a Bloomberg News on the Phone in New York City, along with the editor of Bloomberg Business Week, Joel Webber in our Bloomberg Interactive Broker's studio. So, Joel, how did chat g GPT do on that Warden exam? Well, we're gonna find out.

I do think just in general, um, it is causing existential crazies everywhere you look, right, speak for yourself, man, Yeah, it's all gonna be great. The and I think you know an NBA or tests in general, I've heard from some professors who are like, I've had to up end my entire curriculum to account for uh Chat GPT UM, so that you know, proving that you know, AI program didn't actually do the student's own work. Um, AI my homework. I think we'll get easy. Uh So take us to Wharton, um,

and the professor who you based the story around. Yeah, I mean I think those are all good points. Christian Turwich teaches at Wharton. And you know, it started as kind of a fun conversation over the holidays with his sons, who both have dealt with other I programs. Um, you know, we're we're intrigued by our B schools. Coverage sometimes is about research that can seal very out of touch with what's going on in the real world. And Professor Tourach was very quick and nimble to say, hey, let me

see what this this thing is about. All the hubbub, let me give it in an exam. But I've given to my students. Um. It did quite well, it did above average, it got to be minus UM. But it is not you know, the context of a business school course, in a business school exam is not the kind of context in which you know, students can realistically put the chatbot to take the exam for them. That's not to say that the concerns of educators across the country, as

the professor noted to me, are not legitimate. I mean, there are many educators with far fewer resources than a warton professor who do have to contend with the reality of how students are going to use this. He used this as a way to see what it's all about, and then as a way to say, hey, this is very powerful, it's doing quite well. It's answering in ways that legitimately might pass as a student, how can we use something like this more creatively in our in our classroom.

Our job as educators is to really think about how to bring education along and be more creative and really spark imagination. And so this is the first step of this one professor in trying to do that. Did the professor give you any idea how he would actually use it in a classroom? Well, I mean he gave me an idea off of something that we talked about in the conversation. Like let's say he was teaching philosophy for example,

not business. But you can swap out people. And I mentioned this in the Q and A, and and he says, you know, I want you to go back to your libraries and to your apartments and research you know, the work we studied on Sarta or on you know CAMU and Sarta. Write me a five hundred word essay on the differences between these two. Um. You know, they might go home and decide to have chat GPT write the paper for them. But what he might do that would be even more effective is have chat GPT really engage

in a conversation. That's what these chats do with students, um, and step in as the philosophers, the French philosophers, and do something that might spark some more creative ideas with the students. And so he, as the as the professor, could certainly be in position to introduce the use of the chatbot in that way. Um dmit I gotta jump in for a second, because how did it do when it came to which I bet the whole student body universe is saying, I hope we can do math? How

did it do on math? Oh? It doesn't. They don't do well on math, at least in this instance. And he said that that's something that you know, I think we see that across the universe of stories that have been done by Bloomberg and many others. What you said is true. Everybody's kind of been a frenzy about this right now. Mathematics it did not do well. And I mean Professor Turvich was very funny about that. I mean, it's like your your computer, dude, like you can't actually

like put some numbers together. Um. And in fact, numbers is where it was really tripped up. And it was more in language that it was far more impressive and in logic and application of logic UM. So it was all around super surprising to him. I think that he, as well as many others who are engaging with chat

GPT right now, it's a little tough to do. You go to the website, it's so popular, there are so many users that generally what you're going to get as a message that says chat QPT is capacity right now. So you can't try it because the world is trying chat g bt UM. But he did it. He did it quickly. He wrote a paper and he said, I was really impressed, and I think I'm gonna try to

think more creatively about how to use this. And I think that in that context, I mean, I want to be clear, we came at it with a very specific sort of context of B schools, you know, teaching business, teaching, taste management and so on. You know, there's probably going to be space for something like this. It will emerge

in time. I don't think that we have the answers right now in terms of like this semester, how is CHATCHI going to um, you know, a stand in for something in the curriculum, like we're not we're not there yet, but take that take that computer not a d Yeah, but yeah, I mean everything's on a curve in business school anyway. Yeah, so you know, it kind of doesn't matter. So one of the things that stuck out to me Dmitro is him saying, we are not running out of work. Um,

but it is shifting is the efficiency frontier? And I'm curious. You know, this would be an optimistic take, I think on chat GPT, but but what what is it? What is the potential here in a classroom? I mean again, I think that there are ways he thinks to use it and engage it to be added and I hate to use the word additive, but to engage brains and students in a way that that there isn't time enough in the classroom. But it's to extend the learning that's

already happening. You're going to the internet, you're looking for videos of things as it is, you're looking up resources. So this might take it to another level in which is not as passive, though it might be more active. Um. He does have a far more or let's say, positive and optimistic view, which is that these things should be seen as tools that are very innovative and technologically advanced, that that we should not really be so fearful of

them as replacements for actual people in many settings. I meant you wrote this Q and A, not chat GPT. Are you sure? Though I'm not sure? Did a robot do this interview? The Big secret Um? It's so funny. I mean, I was just reading an interview that a former colleague of mine from a time I worked at a company called The American Lawyer. He did a Q and A with chat GPT and just posted it on LinkedIn, and he's asking chat GPT like, if Mike wants to

sponsor you, will you will you accept the sponsorship? And chat GPT is like, I am an open platform. I am not somebody who's going to give in to open spot to sponsorship by private interest. It's a very interesting it's a very interesting back and forth, and it's actually like a real engaged, like intelligent conversation that this individual has. Everyone sells for a price stroll right too. You know, it's not I can't wait for Google's bar, which you know is also in the headlines now to have a

competition or a conversation that's ai optimistic name. We gotta run. Joel Dmitro, thank you you're listening to the Bloomberg Business Week podcast. Catch us live week days from two to five pm Eastern on Bloomberg Radio, the Bloomberg Business Band you Doo. You can also listen live to our flagship New York station, Just say Alexa, play Bloomberg even Dirty. All Right, I've got to say it's the thing we've talked a lot about. Is that captivated us for over

a week. It was the opening skate for SNL this past weekend. What was that Chinese balloon really up to? What does it mean for the renewed tensions seemingly between Washington and Beijing after the U S shot down the vessel on Saturday. Very pleased to have back in our Bloomberg Interactive Broker's studio. Andy Brown, former editorial director at Bloomberg New Economy who spent three decades in Asia as both China editor and columnists for The Wall Street Journal.

Andy leads the China Hub as a partner at Brunswick Group. It's a critical issues advisory firm. Uh Andy, good to have you with us. We've been so eager to talk to you about this. We spent a good portion of Friday afternoon talking about it what was going through your head as you looked up at images of the sky over the last week and saw this balloon floating over the United States. This is bizarre, This is really crazy. Um, nobody knows really what happened, and more importantly, it's hard

to know what's going to happen next. I think we can say with some confidence that the image of this balloon, this crumpled Chinese airship shredded by a sidewinder missile collapsing into the Atlantic Ocean is a pretty apt metaphor for the state of US China relations and a wake up call. I think it's a real warning that we are one serious accident away from a major geopolitical crisis, and one that could spiral out of control. And I don't I

don't want to make light of this balloon episode. I mean, it shouldn't have been in US space. It was obviously an invasion of US sovereignty. I mean, it was reckless, it was provocative, but you know, nobody died mercifully, nobody was injured. It didn't get much intelligence. The Pentagon even says this not much more than the Chinese gonna got from their own can already get from their own satellites, and in intelligence terms, there's gonna be a net plus

for America. They're probably gonna scoop it all the bits and pieces off the bottom of the Atlantic and get a trove of information about Chinese spycraft. Not an accident by China, you know, And does that matter? I actually probably and more inclined to believe the cock up theory that you know. I mean, it's hard to imagine that the Chinese leadership deliberately went out to scuppa um a

visit to Chin. They needed this visit, you know. I mean, they want to repair damage to with with their relations with with the West. You know. I think it's it's we know that China has a balloon program. They float these things off fairly regularly. It's quite possible that, you know, somebody who floats off the balloon didn't get the memo. You're not supposed to do this, Well, Anthony Blincoln is packing his bags to come to to Beijing. I mean,

they're a darker theories. You know, maybe somebody did get the memo but decided that they wanted to sabotage the meeting. I don't know. It's not the first time that something insane like this has happened. Um, you know, I was in China in two thousand and eleven. Robert Gates, then Defense Secretary, was it was just about to have a meeting with then President Hu Jintao, and China tested two hours before his meeting, they tested a stealth fighter. This

was a really big deal. It looked like a middle finger to two Gates. He went ahead with the meeting, gets into the meeting, says to hu Jintao basically, what the hell happened? And Hugentao looks completely mystified, obviously didn't didn't know. Looked at a general who was sitting there and said, well, you know what, what's the story? And the general sort of shuffles his feet. I mean, these things happened. This is what happens in a in a

in a cold war. Andy, I'm pretty struck by the comment that you made that this image perfectly represents US China relations and we are just, you know, one sort of accident away from a serious escalation. Um, what has

you concerned specifically just a match? What what what would happen if two aircraft collided a US aircraft in it and this did happen, by the way, in two thousand and imagine what would happen, UM, you know, if two ships collided at sea, UH, and there are hundreds of military warplanes UH, naval vessels churning and wheeling around Taiwan,

South China, see East China sea around Japan. And unlike the Cold War between the Soviet Union and the United States, we don't have protocols, We don't have rules of the road for what I'd be very interested to find out, you know what what what messages were going back was and forwards while this thing was playing out, while the airship was sort of cavorting over over over over Montana. And in fact, this is precisely why Secretary of State Lincoln was going to Beijing to talk about god rails.

After the two presidents she jimping and and UH President Biden met him Bali at the twenties you remember, at the end of last year, and agreed that you know, the two sides, and they acknowledged that there was a risk of conflict and they had to avert that possibility. This was what the Blincoln visit was all about. And now not only have we not arrested the downward spiral in relations but it's a relationship taken another another lunch,

another lurch down. So Ken Blincoln go over there at some point in the future and things get fixed or yeah, I look, I think this this is this is fixable. We'll we'll see. There's going to be an awful law. There will be a lot of headlines in the next few days and weeks. They will be dredging up the bits that they can find from the airship. And and you look, the Chinese say it's it was. It was a weather a weather draph. Okay, you know, I mean,

good cover story. Now we'll we'll find out. We'll find we'll find out sooner rather than later, right, I mean one one one way, one way or another. But yes, um, both sides, I think understand the risks and both are keen to d essay. But what is what really came out of this episode was how much political pressure UH was on the US president immediately right off the bat. You know, why aren't you shooting this down? How did you let it float around for so for so long?

You showed weakness? You imagine what would happen in a serious crisis. The pressure on both leaders to look tough not to deescalate. So what do you think about next here in terms of this relationship or what do we watch out for. We know it's been a tricky relationship. I feel like now for some time right, it's always been complicated, but it does feel like it's been less friendly. Um, it's certainly through the Trump administration, and it feels like

Biden has continued a lot of things. So I don't know, what do you You have clients, you have people that clients of clients and business people, and they're looking at that and they're obviously disappointed. Look, you know, they've been appling with a lot over the last two or three years with you know, the fallout from the from China's tacit support for for for for for for Russia, with

COVID zero, with the with the Nancy Pelosi visit. In the aftermath of that, everybody is saying, my goodness, that we made the wrong bet on China. They have to now look at war plans, scenarios, you know, and and this this doesn't help. But here's what struck me last Weekendy Apples earnings were miserable. In the words of our own Mark German. One strength China. That company is so reliant on China, Disney, Nike, The list certainly goes on what does it mean for executives who have to do

business with the country and in the country. That's a good question. So so you know Apple is in China and and you know extricating itself from China is impossible at least in any uh near term time frame. That trying at the margins, bits and pieces going down to Vietnam, India and so on. But yes, businesses have to engage with China, don't forget. Look, you know, China is the engine of the global economy. Last year group for three three three three percent. It was, it was eight percent

in two thousand and twenty one. This year is supposed to grow five point five percent, and Bloomberg Economist reckoned that is adding the equivalent of a Nigeria. So look, China is an attractive market. You know, you you you have to beat that. But geopolitics is now weighing much much more on CEO minds than it ever did in the past. Is there a region of the world is it? Is it? The China sees that we're keeping an eye, like what are you watching geographically, that could be the

thing that maybe complicates this even Taiwan, Taiwan. Everybody's looking at Taiwan, and I think that's that's what comes to mind anytime you have a crisis like this, even even a crisis on this scale, and you think to yourself, look, you know the big one is out there, and and and that is some kind of miscalculation over over Taiwan,

and and tensions over Taiwan are ratcheting up. You know that Kevin McCarthy is potentially planning to visit there, that you Select Committee on China apparently is going to hold what they called some kind of field hearing on Taiwan in Taiwan. Um. So, yeah, and that that is that is precisely the the the the the problem that if you've got an accident occurring under those circumciss in that context,

it could be really serious. Because you talked about the pressure on Biden that if something happens, how much pressure will be on him to react, and then and how much pressure on j jimping to react. There is no more important issue for him than Taiwan. Well, as Tim mentioned, coming into you, we really wanted to get you to weigh in on this. I know everybody's been having a lot of fun, but it felt very serious as this story was unfolding, and you really explained why. Andy. Thank you,

thanks for having me. I always appreciate Andy Brown, his partner at Brunswick Group, joining us in our interactive broker studio on this Monday. This is Bloomberg Business Week Inside from the reporters and editors who bring you America's most trusted business magazine, plus bloom Business Finance and tech news. The Bloomberg Business Week Podcast with Carol Manser and Tim

stinebec from Bloomberg Radio. All right, Tim, So, as we mentioned Shares a bed Bath and beyond, they're up nearly forty year today, still down more than from a high back in August two. It's been often grouped among the meme stocks actively traded by retail investors, and the company is indicated it's getting ready for a potential bankruptcy filing. How it got there and who's to blame that is the subject of another one of our most read stories

on the Bloomberg Today. With more on her story, let's bring in Jeanette Newman, Bloomberg News US Luxury Retail and Personal Care Industries reporter. She's with us right now when our Bloomberg Interactive Broker's studio. So, Jeanette, who is to blame for what's happening at Bed Bath and Beyond? Well, there are many people, um to name is the is the short answer, And I think, I mean one one

thing that is to blame is Amazon. But I think Amazon kind of you know, whenever there's retail bankruptcies, people kind of cat you know, this is another one bites the dust because of Amazon. And it's much more complicated than that because obviously there's a lot of retailers out there who are competing against Amazon and they're doing and they're doing fine. So Amazon is you know, somewhat to blame for Bedbad where Bed Bath and Beyond ended up, but it's a small portion of them of the blame.

And just over over the past you know, several years, there's been a series of management missteps and miscalculations that led the company to where it is today. So it's it's um structural forces with Amazon, but also you know,

mistakes by managers over the past several years. We'll talk to us about some of the mistakes because we've been talking about retail I feel like for over a decade in terms of how we got overstored too many strategies out there, and we've seen fall at I mean we even just see I mean, what's going on here post pandemic of just so many retail that have whittled down, you know, their stores, their brick and mortar stores. So what specifically in the bed, bath and beyond strategy asanet

that they just kind of messed up with. So they definitely didn't invest enough in in online, so that that left them kind of, you know, flat footed competing against Amazon that omni channel. Right, I can go to the store, I can buy online from you guys and all that good stuff. Exactly. They didn't. They didn't. They didn't do that well. They spent a lot of money UM buying lots of companies, for example By By Baby, Christmas Tree Shops. They spent a ton of money billions and billions UM

on share on share buy backs. That was kind of the previous leadership. Then a new CEO a couple of years ago UM took over. He was the former head UM chief Merchant at Target. So it's a really big deal. Mark Tritt and people were really excited about what he was going to do to potentially turn this uh, this company around and and in fact, he was not able to turn it around. And you know, long story, hopefully

people can can read that, can read the story. But some of what he did was also double down on share buy backs, so spent a billion dollars at a time when the company didn't have necessarily that cash on hand, and also made a pivot to UM white label or private label brands. And that's something that for a retailer can actually make a lot of sense because essentially you're cutting out the middleman, right, so it's like you're going to the factory in China and you're sourcing the products UM.

Doesn't it seem crazy in hindsight because it's the kind of story you like a meta candles or I need some towels, or I need a rug for the bathroom. I go in, bam, do it go right? Right? And so the private label thing can make sense because there's higher there's higher margins, is more profitable for companies. But they did it at right like when the pandemic hit, so they weren't able to effectively source all of their

their new products from China. And also they ended up doing it at the expense perhaps unintentional, but at the expense of some of these well known brands that took people to the store for decades, Kitchen Aid, Oxo, all those brands. So now they had all their own new brands that people didn't know, didn't recognize, didn't resonate with the customer, and there wasn't the same availability of the kitchen Aids and the Oxos so customers. Then that that

started the company on a downward spile. Right, Customers go there, they don't see, they don't see what they want. The company's burning cash cashes, you know, they're ashpile. Is is starting to dwindle. Suppliers start to get really nervous because they think that they're not going to get paid um, suppliers pull back, shelves end up being empty. Starts a vicious cycle where that if a shelf is empty. Yeah, yeah, So it's just it's this downward spiral that they got

caught that they got caught in. And they've been known for having like, right, the inventory, you could just see it piled up. It was even more striking I think because of you know, it had been kind of like a stack at high and let it fly as what they would what they would call it in retail back in the back in the day, you know. So I think that that was one of the things that also it was just such a stark contrast to what the

company had had been. And it's been in that downward spiral now for you know, um, nearly nearly a year, So a downward spiral that's very difficult to get out of. So how long is this downward spiral? And and what could happen? I mean, what could the future of bed Beth and Beyond look like on the other side? Is there another side? Um? There we have we have reported that our colleagues on the bankruptcy team have reported that liquidation is possible. So liquidation meaning you know, allah Barney's

like a Barney's, you know, it doesn't exist. Circuit City does exist anymore. Um, towards arrest, at least in the US doesn't exist anymore. We have reported that that is possible because of the dire financial situation that they're in. Is there a winner in this? That's not? Um? And I just want to point out shares a, bed Bath and Beyond have been halted because of volatility stock right now? Is that okay? Okay? And there, I mean it's a

it's a lot of meme stock. And and because this bankruptcy process has been the company itself said, uh, you know that they're likely that they could file for bankruptcy, and so kind of since that's happened, there's been a ton of volatility. But is there a winner if if people can't go to bed, bath and beyond or bye bye baby? Is it a company like Target? Is it Amazon? Who could some winners be because people need this stuff? Yeah? I think I think it's all. I think it's all

of the above. I mean, in in past retail bankruptcy, is there often hasn't been a huge jump at any one retailer. You know, in Circuit City went out of went out of business. It wasn't like best Buy saw a huge jump. But because it's a slow decline of something where people have our have been going to those places anyway. Yeah, yeah, and sometimes people end up buying less.

Like if you you you buy more because you have a store near you, and if you don't have that store near you, then some of the demand actually just also dissipates. So there's gonna be winners, Target, Amazon, But I don't think none of these companies are going to see this huge boost at all of the all of the traffic from bed bath is going to go to them. Um, my apartment is not so happy about this. Okay, so we got a baby on the way is yeah, yeah, we got a baby on the way, so we need

bye bye baby. And then my wife really likes face values, which is part of the bed bathroom beyond the rerelative is it is. And and look, I mean a lot of people are not very happy, you know. I mean, this was a beloved brand. Um the famous coupons that drove that drove a lot of people to the to the store. And also you know, there's a lot of um in it's heyday. In two thousand seventeen, the company had sixty five thousand employees. Now it has less than

thirty thousand. But those, you know, those people's jobs are at risk. We've written about how their severance payments they haven't they haven't received their severance pay So there's also a lot of workers and employees who are at risk here. I mean, I do wonder with you know, the growth at things like Target and other stores where and and online where it is so easy to get so many of the goods that they offer and get them pretty quickly. Is it just a case we didn't need that model.

I'm curious what retail experts have said that just that model was just not needed anymore because it was kind of a one stop shopping for a lot of different things, right. I think that it at least what what what I have heard of what I have learned is that it's not necessarily that the model wasn't needed, is that the model wasn't well executed. I think there is still space for this model. And in terms of what might happen next,

you might see the company might go into bankruptcy. Then sometimes like companies will buy up the intellectual property and you'll have an online version of Bad Bath and Beyond. That happened with Peer one, for example. There's no more Peer one stores left, but there's a peer one dot com and and and the toys r us so so how loved this is not baby is Bad Bath and Beyond? Apart from the master household, I think you know it was.

It was one of the biggest home goods you know, still still is one of the biggest home good stores in in in the US. So I think that it is it is quite beloved, and I think that's what you know, creditors in the company right now are trying to hash out like how how much has it loved and how much is that going to pay? Essentially how much money do they have before they've got to do something. I mean they are they are actively in bankruptcy talks as as as as we are speaking, there in bankruptcy,

there in bankruptcy talks. So they've been burning burning cash for about a year and you know, in the last quarter sales fell about year over year. I mean that that's that's that's a ton. All right, We're gonna leave it on that note, Jeanette, Thank you so much. Janette Newman. She is US luxury, retail and personal care industries reporter

at Bloomberg News. Here in our interactive broker studio, this is Bloomberg business Week 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 Stinebec from Bloomberg Radio ROC Journal. Yeah, I bet you let me drive? Oh no, no, no, no home please, I'll do I want to drive. It's a good question. D This is the Drive to the

Globe on Bluebird Radio. All Right, folks, just about sixteen and a half minutes left in today's trading session. We're bouncing around off our highs and lows, but we are right across the board, as you heard from Charlie, down the most when it comes to the NASA, down about one percent. It's very good to have it back with us. Amanda Gotti, chief investment officer at P and C Asset Management Group, joining us via zoom in Philadelphia. Amanda, how

are you? I'm doing great? How are you doing? We're doing okay, trying to figure out what the FETE is saying, what j. Powell is going to say tomorrow, what a very much hotter than expected jobs report on Friday says about the feds path. What are you looking at? Well, it certainly is challenging to make sense of the market madness. That's how I'm sort of describing in these days. We've also been describing this market as being a little bit delusional,

a little bit deranged, perhaps even unhinged. All with dramatic effect. But I think really at the end of the day, you know, what we're seeing in terms of leadership to start off this year really does not align with the outlook. It's the same outlook that was in place last year, and at the end of the day here the FED is still firmly in the driver's seat. So a really

significant disconnected in terms of market. That's so interesting that you say that because a listener got in touch and sent me the bed Bath and Beyond price action today, which at one point was up triple digits and now is up and I'm thinking to myself, you know, this is like all over again. What do you think? Yeah, So, I think investors are really conditioned to everything moving at

warp speed. We've been in a high volatility regime since the onset of the pandemic, and I think investors would just like this whole tep FED tightening cycle to be

over with at warp speed. And so that's why we keep saying markets very much fighting the FED on this, But it's a longer, for longer dynamic here in play, especially with what we're seeing around inflation drivers being pretty sticky and certainly what we're seeing in that red hot jobs report, you know, potentially more rate hikes ahead, a

higher terminal rate, just a longer overall tightening cycle. And so I think that's really where we're going to start to see some potential disconnects in terms of this market

price action. Amandas too soon Our Steve Victory, our Steve Matthews cut off caught up with the President of the Federal res Or Bank of Atlanta, Raphael Bostic, who said that the strong jobs report for January raises the possibility that the Central Bank will need to increase interest rates to higher peak than policymakers had previously expect did um

and just talking about doing a little more work. He doesn't vote on policy this year, but he said officials need to understand if the jobs report wasn't anomalous reading, in which case he would be inclined to look through this a bit, but said that the committee could also consider moving back to a fifty basis point hike if you needed to, though that's not his expectation, and he supported last week's downshift in rates. A lot of ifs

and butts for candy nuts kind of a thing. Uh, there's just so many different scenarios that we could see. So at this point, how do you value the market? Are we fairly valued? Are we still overvalued? Are we a little undervalued in some areas well? I would say in general, we're still sitting at overvalued levels. There's no question that we're in a better place to start this year than we were last year. That feels like an understatement. Um,

but we're certainly not priced that recessionary valuation levels. In fact, as we're seeing earnings growth start to come down as a function of Q four earning season, we're actually seeing this paradox of multiples expanding. So eighteen times of forward p on the SMP five nowhere near price stet recessionary valuation level. So we think there is probably another ten to fifteen percent downside here, especially if the Fed keeps going. Wait are you though, is that only if we get

a recession or even no? Well, I would say it's sort of one and the same. So there's never really been a tightening cycle in history on the part of the Fed where they've raised rates too. But I guess it's five point one percent or higher as a function of the dot plot and the terminal rate without tipping us into recession. So my view and p n c's views, if we go that far or even higher, the recession

becomes a foregone conclusion. So I think both of those catalyze a bit of a down draft here over the next few months. Do you say, you say a client from where we are in the right now well is considering how far we've moved to start the year. That's probably a little light in terms of downside, but that's

that's basically what we think could happen. Well, what's interesting those I think it could be somewhat short lived because if we do get that eventual FED pause, even if we don't get a cut, I think there's a lot of power in a FED pause that could add back a couple evaluation multiple points, seemingly overnight. So it could be a very interesting returns profile for this year. Choppy down first half and then a bounce in the second half, and we might eke out positive returns for the year.

But that's a huge if, and a lot of variables have to come together for that to play out. I just want to go back to uh this story that's on the Bloomberg terminal by our own Steve Matthews, who's who follows the Fed. He's a Bloomberg News economics reporter, uh, and he caught up in the Bloomberg News team caught up with the Federal Reserve Bank of Atlanta President Raphael Bostick.

I mean, another thing, Amanda, that uh, Steve got from Bostick is that he expected inflation to be in the low threes this year, still well above the FEDS to percent target, you know, requiring rates to be hired for longer, but low threes. I mean that gets to start feel more normal. Right Historically? Oh absolutely. You know, if you think about the ten plus years leading up to the onset of the pandemic, we undershot in a big way

in the inflation target. So I think there's definitely a period of time here where the pendulum can swing and stay not at current levels, but certainly stay at a more elevated level of inflation relative to that target. By the way, that three kind of handle on inflation scenario is actually really good for earnings growth and for valuation multiple expansion, So we think the backdrop can can handle

that very well. I actually think landing there is probably better than hammering away at this and trying to get that two percent target. You said that was really good for earnings growth and what else, valuation multiple expansion. Okay, so that would be a much better uh level to be at. UM. Really great analysis and so great to be able to kind of get your reaction to what Raphael Bostak had to say to our Steve Matthews. Amanda Gotti, thank you, Thank you, Chief investment Officer at PNC Asset

Management Group. Joining us via zoo. This is the Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere else you get your podcast. Listen live each weekday starting at two pm Eastern on Bloomberg dot com, the I Heart Radio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal