Target’s Plunge Shows Inflation’s Risk to Margins

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube search Bloomberg Global News. Shares of Target are having their worst day since Monday, October nineteenth, nineteen seven. We all know what happened on that day. That was Black Monday, where the Dow fell more than five hundred points at the time it was more than twenty percent of its

value was shed. Shares now down of Target. Uh. It's on pace for its worst stock drop since that time, after becoming just the second big retailer in just two days the other one was Walmart to trim its at forecast. Justin Zach's writes all about it. He writes a column for Bloomberg Taking Stock. Sign up to read it on the Bloomberg and at Bloomberg dot com as well, justin good to have you with us your Bloomberg New Equities Report.

In addition to writing the taking Stock column, I want to talk a little bit about the effect that targets disastrous quarter and earnings report is having on on the rest of the market. Here, margins of the concern. Inflation is the concern, and we're seeing it just ripple out across Yeah. I think a lot of UH investors had been positioned in companies like Walmart, who who also had a horrible earnings report yesterday and saw their largest stock drop since n as well on the exact same issue

margin problems. There was this idea that you know, consume went if inflation went up, then consumers in general may look to lower priced UH retailers like Target and Walmart UH, and that really hasn't happened because inflation really is a facting the lower income in the middle lower middle class the most. And so what has happened is those individuals end up shifting their spending UH to what they absolutely

have to have, like groceries. In a way from Uh, their discretionary spending and some of their you know, big box purchases, they may have made a target and that that caught everyone by surprise. And you highlight the fact that you know, this inflation risk we see really saw it in margins this this earning season. Uh. If I look past over the past two years, it feels like margins were sort of this shining star. I mean at the index level, it felt like there was a new

record hit every quarter in terms of profit margins. Uh, it feels like we're starting to see the tides finally start to turn on that. Yeah, it's at some point it's gonna be hard for these companies to pass along their costs every time, especially with uh, the wage inflation we're seeing and really low rates of unemployment. The workers wages are now really catching up, and there's only so much savings left from the COVID stimulus that people have

to spend. Uh. The other interesting part about this whole thing is, you know, the FED has really committed themselves to fighting inflation. And Jerome pop Pal, the chairman of the Federal Reserve Bank, spoke yesterday and said, basically, they're gonna do whatever it takes to tame inflation, and that could mean uh going past the neutral rate uh and and quite quickly. And so I think that is something that market participants have in mind when they see again

this type of inflation popping up. Well, justin you take a look at the S and P five hundred, and you see what's moving lower today. Target by far the worst performer. That's followed by Dollar Tree, Tractor Supply, Costco, Wholesale, Uh, Dollar General. You got Best Buy in there. You got companies like Auto Zone and their Walgreens in there as well.

I mean, it's pretty pretty ugly. These are companies though that people when they shop at these companies, when they shop at these stores, they shop there because they have to. And I'm wondering, you know, if if they're not necessarily gonna stop shopping there. But can't these companies pass along

these higher costs to the consumers because well they have to? Well, and I think they have on food And so the food inflation for these companies is up double digits year on year, and so people are again shopping for the food. But when you when you're going in to buy your new furniture set or your new stereo, perhaps you're now gonna wait, or perhaps you're gonna buy one level down. You'll switch from your favorite uh, you know, brand name

to something that is off label. Perhaps, so people are gonna make substitutions too, But you're right there going to continue to go to those stores. And when we think about, you know, what we learned in the past several weeks of earnings, I mean, clearly inflation, it's starting to bite for these companies, but it feels like we haven't necessarily seen demand to struction from consumers yet. Yeah, that's that's

that's very true. And I think what I said before is we still have a pretty good savings from the consumer that they've saved up from from the stimulus. And the other thing is now we're having this reopening and I think a lot of people have really been wanting to get out and spend their money. And we have seen a little bit of demand destruction on the online side, and we've seen Amazon get hit. But I think people are going to finally get out this summer and spend

that money, particularly on on on services. We're gonna see a shift from goods to services, which also is hurting UH companies like Walmart and Target. Because people will start to shift some of their discretionary spent towards airfare and hotels and other types of travel because they haven't traveled in two or three years. Yeah, we're talking to UH Hyatt Hotel CEO Mark Hoppolympzanian in a just a minute,

so we'll definitely ask him about that. Justin just in the last thirty seconds that we have with you, I'm wondering how Target got this so wrong and how Anna Us got this so wrong. I think the analysts in in perhaps Target everyone was so focused on UH supply chain problems being the only problem, and they didn't really realize that the ultimate UH customer is the is there

is their customer. The ultimate demand comes from their customer, and how how that customer behaves and what they spend on is is going to be more important than any smaller UH supply chain snaffood. Justin Zach is Bloomberg News Equities reporter. You can check out his column taking Stock, sign up to read it at the Bloomberg Terminal and at Bloomberg dot com. This is Bloomberg Radio. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg quick

takes Tim Stinovic on Bloomberg Radio. Hid Hotels reported results last week. The company beat on the top line and the bottom line loss was narrower than expected thanks to strong demand for leisure travel. The company said that it's our record levels of leisure demand and that it expects the recovery abroaden and strengthen in the mots ahead. Joining us now is Mark hoplamaze In the President and CEO of Hyatt Hotels. Mark joins us via Zoom from Plaia

del Carmen in Mexico. Mark, really good to have you with us. Uh, how are you well at the moment? I couldn't be better because I'm I'm sitting in the brand new Secrets Moche, which is just north of Plato Karmen. It's a magnificent new resort and it's a beautiful day. So I'm in good shape at the moment. Thank you.

How are you doing? Yeah, we're okay, I mean, and look, usually when people are in Pla del Carmen, they're not working at least if they're you know, if they don't live there, they're just traveling there to uh to have a good time. Um, we're good, but you know we're focused on the volatility and the sell off and inflation and what we're seeing. And I know that you talked about summer bookings being higher by fifty from one levels for all inclusive results, a lot of good signs coming up.

But that was last week and that was last quarter. I'm wondering what you're seeing right now on a day when the Nasdaq is down more than four point six percent, the S and P five hundred down three point seven percent. Does this volatility do the results from Target, the results

from Walmart? Does that concern you at all? Well? I think the connection point UH over a longer period of time to our consumer, which tends to be a higher end UH traveler at the higher end of each of the stegments that we serve UM is if there's a I guess, very long and persistent sell off in UH in public equities, because many of the customers that we serve are invested in the marketplace. But I don't think day day in and day out volatility actually changes UM

the booking behaviors on a real time basis. Right now, I think that there's a scarcity issue. People want to make sure that they've got their bookings for the holiday periods. Um, we're seeing booking levels across all of our hotels, not just resorts now for the summer holidays up between twenty for um Labor Day, fourth of July and Memorial Day,

and so I think that's one of the drivers. And the second thing is corporations and associations, which is a significant part of our business, are coming back to meetings in a meaningful way and the booking levels there are also rising. So UM, we do see booking levels maintaining at this point. And you know, I would say if there's a very long and drawn out bear market or or recession, then of course it's going to affect all businesses.

But I think our customer base, being relative at the relatively higher end of of the you know, income scale, are more resilient and less subject to volatility in terms of their travel patterns, especially for leisure and mark. I want to dig into that final point because obviously after the week of earnings that we've had, the consumer is definitely in focus how they might be shifting their spending, spending more on staples, less on sort of discretionary purposes.

And you mentioned that bookings obviously for the summer months up across the board. But I'm curious, have you seen any indications that revenue spending on vacations could be slowing down or shifting? No, Uh, not at all. On the contrary, I would say we've had, Um, we've had a significant increase in spend. Our rates are up significantly from twenty nine. A lot of this is really driven by pent up demand and by a really really strong human desire to

reconnect with people. So um, I think it's you know, people are making their decisions based on what they're going to be most fulfilled by and what matters the most to them, and that is reconnecting with with friends and family. Mark. I know that you do serve a higher and clientele, but everybody has their limits when it comes to spending. And I wonder about air fare prices. They are up

double digits from last month, double digits from last year. Uh. I don't know if you our listeners are familiar with this. Checking the price of flights right now, it's kind of mind boggling to see how much it is to fly a short distance thanks to you know, huge demand, lack of supply, and then of course oil prices as well. How do you think about that in the context of what a consumer spends when they do visit one of

your properties. Yeah. It. First of all, UM, I would just note that we UH we now own the largest tour operations tour operator platform in the UH in North America, so it's called a l G vacations UM. Back in they handled over three million passengers and it's mostly doing selling packaged UM travel, so airfare included UM and so

we tracked we're tracking this extremely closely UM. And I would say that there's no question that we have seen a significant increase in airfares, and I think that will persist for some period of time until supply demand starts to balance out a bit. And the supply demand I'm talking about right now has to do with schedules, how

many planes are in service UM. I would note that the air the air traffic, the total lift capacity into Cancoon and Punta Kana, which are too very large markets for US UM in a l G dcations are up UM as compared to levels. So it's clear that the airlines have have definitely clued in on where demand is and they've added capacity. UM. It is also true that air fares are up in that they're under some inflationary pressure.

So I think that the dynamics for them have in part to do with energy prices or you know, get gas for their their aircraft aviation guests. And for US, UM we look at how total unit value or total package prices are increasing, and they are. But again I think UM, I think as things start to stabilize in the oil and gas markets, and as we see supply being brought back with more schedules, more aircraft and more pilots um UH back into the industry, we'll start to

see a rebalancing. And that may that may take a number of months to do, but I think that that's the that's the inevitable outcome. And I want to talk about all inclusive resorts because you acquired one all reclusive result results can't talk today. UH. You acquired Apple Leisure Group last year and UH seems to be very popular, especially in UH the Caribbean. Do you have any plans to bring that model to your US hotels? Yeah? Actually right now, I would say that the focus remains in

Mexico and the Caribbean. UM. We've and are some of our key markets are Mexico first and foremost UM, the Dominican Republican Jamaica. We also have a large operation in Europe in the Balieric Islands and in the Canary Islands and in the southern coastal areas of Europe. UM we just UM we're just now engaging with owners and developers in the Middle East and ultimately in Asia. We think that all inclusive is a great format and can be

extended across the globe. UM. The the particular arena that we're playing in is luxurial Inclusive UM, which a LG, the Apple Leisure Group actually really created from schooch about twenty years ago, and so we are now the largest player in the world in luxurial inclusive and the the guest proposition is very very compelling because UM, you take a lot of the transactional elements that you might experience in a European plan hotel where everything is all a

cart Um, You're you're taking a bunch of transactional friction out of the equation and it's serves its purpose when you're on holiday. I do think that there's a that we can actually apply this format in the US. UM. We are not. I can't tell you that we've got a pipeline of such deals. But I think there are probably specific markets that would be really well suited to it at certain markets in in Florida and and probably

in Hawaii as well. And UM so we're we will investigate this, but right now we have a lot on our plate with respect to just growing um fulfilling up the pipeline that we already have to build more hotels in Mexico, the Caribbean. Mark just ten seconds left. You have all the employees you need? Do you have all the employees that you'll need this summer? You know that.

I'll tell you the American Hotel Lodging Association did a great benefit to the entire industry by working and successfully getting an increase in h two V visas UM these are temporary work visas for the summer that that is critical. So we're going to benefit from that, and we've we've made some changes in our hiring practices and we're seeing more success than being able to bring people back to

the hospitality industry. Mark Hoplmaze and President and CEO of Hiatt Hotels, joining us via zoom from Plaia del Carmen, Mexico. Not on vacation. I promise he's working. Well, he's there. Mark, Thanks so much for taking the time and joining us. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. It's been nearly fourteen years since Lehman Brothers collapsed and declared bankruptcy, marking

the beginning of the two thousand eight financial crisis. But it's not completely dead and just in a nod to the Princess Bride, just mostly dead. It's the cover story for the upcoming edition of Bloomberg Business Week. Jeremy Hill is the co author. He's bankruptcy and distress debt reporter for Bloomberg News, also with us as Joel Webber. Webber, he's the editor of Bloomberg Business Week. Both of them are with Katie Greifeld and me and the Bloomberg Interactive

Broker's studio in New York. Joel, I gotta tell you a little behind the scenes. Yesterday after our interview, you showed me the cover story. You shall be the cover of this, you know. I think because we're in the building it Joel can do anything he wants, and I saw that it was Lehman Brothers, and I'm thinking to myself, Joel, We're we're done with a financial crisis. We're in a

different crisis right now. Why a cover story on Lehman Brothers. Well, you know you had that great Princess Brad reference to something being mostly dead. Lehman is actually nearly dead, which is more than mostly I think. Uh. And and Jeremy who is on the Jeremy Hill who's on the Code violence.

The story with Luca de Paula. Luca actually called me, I don't know, six months ago and he's like, hey, I met this guy who's like caring for the state of Lehman and he's basically like working himself out of a job. He's been there for like fourteen years, ever since the bank went down, and you know, he's basically been tasked with like eking every last pinion out of this corpse. And I was like, you had me at Lehman, But okay, tell me the most of the story. Uh So, So, Jeremy,

who are these people? And you know the great iron here, Tam that you mentioned is like, you know, we're we're in some version of a of a sell off. Now, everyone's fearful that you know, the bottom could fall out at any moment and things get much worse. And here we are talking about, you know, the thing that kicked off a financial crisis all those years ago. Um, Jeremy,

how did how did you find a role in this story? Um? Yeah? So, as a bankruptcy and distress debt reporter, I'm always pouring through legal documents and looking for wonky court fights about this and that, who is old one and why they

are owded? And as you said, Luke actually got in touch with me about this, this case going on in the UK over these weird subordinated notes called e caps, and he's like sending me stories about how it's so interesting that you know, these guys they got these they got these scraps of debt for almost free, and they

might get a bunch of money. It's very complicated. But underneath all of this are these people that are ill in what are now small offices in the US and in the UK that are kind of overseeing the corps of Lehman Brothers. They're they're pushing paper, they're looking for good times to sell their remaining assets and uh, as you said, kind of eking out those those last pennies from the estate and Jeremy. You have a lot of great characters in here. Let's start with Darryl Radigan. Who

is he? Daryl Radigan? That was Luca spoke a lot with him. He has been in charge of UM some property assets in the UK and has done a fantastic job from what we can tell, because creditors there have done much much better than anybody expected. UM. So he was basically one of the people that was tasked with, rather than dumping all of the bad property assets when we went bankrupt, kind of waiting, letting those mature like a fine wine and then finding a good time to

sell them. So obviously there are a ton of bankrupts these every year, uh, none as big as Lehman. But what what else has distinguished Lehman's long, slow death. The size is, of course important, The length is extremely notable, because I mean we're talking about nearly fourteen years here.

Bankruptcy is often you know, even when they fade away from the headlines, there's a lot of clean up work to do UM But you know, mostly we're talking a few years, five years something sears for example, still going on in the background. There's things to sort out there. But I mean, this is more than a decade we're talking about. Everybody has not forgotten about Lehman. But I'm sure I wasn't aware that they still have an office space in the Bowery Savings Bank building in Midtown. People

so so kicking. It's their their whole life. They're living and breathing Lehman Brothers to this day. It is the cover story of the upcoming issue of Bloomberg Business weeken. It's a great read when you're actually reading it in the magazine, but it's also a really good read if you're reading it online because it's an interactive presentation, and I think it gives a really good ex planation of of how creditors are repaid Jeremy, for people who aren't familiar with it. Can you kind of sort of go

through that waterfall? Sure? Yes, when we talk about a waterfall in bankruptcy, uh, you wanna sort of imagine a stack of champagne flutes? Um that? By the way, Sorry about that, jo Joel? Did you hold on, hold on, hold on, Joel? Did you know that before you were ordering the art and doing the graphics. I like champagne, you know, and I like my champagne and more than yeah, you know, just so you're gonna drink it, drink it

right right? Sorry, go ahead, Well that's that's that's very okay. UM. So imagine a waiter pouring the champagne um into the glasses. I'm not even going to try to pronounce the correct word um. The people with the most senior debt we're talking about like secured loans, like a mortgage. UM on

the house is secured by the house itself. People who actually have claims to the assets, they get their cups filled up first, and then below the those their cups that have weaker claims to the estate or none at all, so they just get whatever is overflowing um. In the UK, there was way more champagne than anybody anticipated, so people at the very bottom ended up getting their fill um. And that's very unusual. I don't know. I'm still stuck on, Darryl.

I mean, how many people are You're still stuck on champagne? I mean, thank you. I hate I hate coop glasses. I have to say, they're so hard to drink out of it. But anyway, Darryl Radigan, how many just makes you drink it? Quicker. I don't know, just to get it at a level where you can actually use the glass. Then you guys are where it's my birthday tempt Yeah,

I'm surprised, Champagne, thank you. Um later after five, Jeremy, how many people are there, like Darryl Radigan that are just sort of helping to put Lehman finally in his final resting place. Sure, so let's talk about the US. UM. Not so long ago, a few years ago, there were a couple of hundred people that were still sort of acting as portfolio managers for this like used financial assets, sales, lot um. And now we're down to about twenty as

best as we can tell. UM. Not a lot of going into the office these days, as with many of us. But so we're all here. We are all here today, Jeremy, Is there any sense about how much money has been eaked out of this thing? Because one of the one of the things that surprises me is like it just seems like there were they were gyms in this thing, right, and everyone just assumes, oh, it's Lehman brothers, it's gone.

But it's like part of the reason this has taken so long is because there was so much value locked up in it, right, how much any sense of what was actually hidden in there? That's right. Yeah, So it's it's uh, it's hard to uh paying a complete picture of how much money has been paid out because there's so many different slices of of the estate. As part of why it has taken so long to sort out

all over the world, many different classes of creditors. One particularly important class has so far recruped about half of their money. And for that, for that class of creditors, we're looking at like forty billion dollars. That's double what Lehman itself estimated it will be able to pay out back in UM. But some people even did better. Those decaps notes that Luca was telling me about, the very

wonky pieces of financial engineering UM. Some of these notes were actually given away for free in recent years because they were so worthless. Thought to be so worthless, those free scraps of paper could end up being worth millions of dollars depending on how some court cases in the UK play out. I gotta go ahead. Well. One of the curiosity is so much of the story and Luca being based in London, a lot of the story takes

place there. You did mention the U S element? How do how do the UK and US elements relate to one another? Right? So, in the U S you've got the big parent company, like the ultimate uh yeah, the the ultimate parent of Lehman. But overseas in the UK they actually had their own deal that it's a subsidiary. But they're not run by the same people. In some cases they don't like each other because they each have their own creditor bodies that they're representing and that they

are trying to maximize value for. I do love the idea of how you measured the length of this bankruptcy for presidential administrations, I mean literally lifetimes ago and this thing is still going on, Jeremy, just in the last forty seconds that we have with you. What is the

legacy of the bankruptcy and the aftermath? My big takeaway from this reporting process, Um, things worked out a lot better for Lehman creditors than almost anybody would have predicted, except for the shrewd investors that as soon as Lehman went bust, when everybody else was freaking out and panicking, said this seems really interesting. It's a very complicated structure. Let's sharpen our pencils, figure out what this stuff is really worth. Because we have an edge the people they

were able to do that. Big asset managers specialize in distress vulture investors. Although they might not like to be called that, they did very very well to summon up in the word inconceivable. There we go. It all goes back to the Princess bride. Joe Weber, editor of Bloomberg Business Week, Jeremy Hill, Bankruptcy and Distress Debt reporter, both with us in the Bloomberg Interactive Broker Studio. Check out Jeremy's story. It's the cover of the upcoming issue of

Bloomberg Business Week magazine. Read it now in the Bloomberg and at Bloomberg dot Com. You're listening to Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. Well, the Tiger Couds, their audience is very familiar with them. They're so named because their founders all worked under the legendary investor Julian Robertson. Over at

Tiger Management. We're talking about comes companies like Tyler Global, Tiger Global Management, Co. To Management Loan Pine Capital, Maverick Capital, d One Capital, and more. It's something that Hamma Harmer writes about whose hedge fund reporter for Bloomberg near she's with us now in the Bloomberg Interactive Broker Studio. I mean on a day like today, Emma, where we're seeing you know, multi level multi year lows for the SMP

five hundred and multi month lows for the NASTAC one hundred. Uh. It's easy to say that, you know, nobody's really doing well right now, but how much more are the Tiger cubs hurting than the industries represent Yeah, the Tiger Cubs have been having a very difficult year. These are funds that typically focus on tech stocks or consumer stocks. Um. They were all trained un into julian Um and they have been known to sort of travel similarly travel impacts.

We are seeing a little bit more dispersion more recently, but some of the funds that have been hit the worst is Tiger Global. They're down, you know, in the year, which is putting them on track for their worst year ever. UM. I seeing d one who is a Tiger Grand Cub became from Viking, which itself as a Tiger cub and UM they're down you know, about twenty UM, so you're seeing double digit losses. Other funds are down, but maybe

not down quite as much in the tiger cubs. But generally, if you've got exposure to like tech giants, if you've got UM exposure to some of these consumer companies, UM, it's it's very it's been very, very painful. I feel like it's hard to feel bad for them because I mean the adage that I always here is that you know you have voluer markets, you have you know, blood on the streets if you will. That's when active managers,

when hedge funds should shine. So for years, if you remember, hedge funds were complaining about their not being in a volatility and then the past few years we've definitely seen volatility UM. So when they were complaining about them not being enough, you know, macro funds, we're really struggling then, and now macro funds are actually doing a lot better

because UM they've been able to capitalize on this volatility. UM. There's also good vall and bad vall, and so bad vall is when you just like you don't know what's happening, you don't see it coming. It comes up and down in spurts versus good volatile is a little bit more consistent,

and so you're able to make more money from it. Gosh, what really surprised me about reading this hemma was how much concentration there was, or maybe not concentration, but overlap there was between the stocks that these different hedge funds, these different Tiger cubs held. You know, companies like Door, Dash, Bar, Fetch, Netflix, see Shopify, Block the company formerly known as Square, all held by multiple of these firms. Well, how do you

explain that? So, because they were all trained under Julian Robertson, they take a similar approach. They focus on stocks versus more diversified stuff. They do some privates as well too. They've all been increasingly investing in privates. They focused on tech and consumer stocks um and so they tend to travel around these sames like Caravanna and Netflix. These are companies that you know, all the fangs for a long time, you saw them like going in and out of them.

What's interesting from the thirteen filings that we saw on Monday was Maverick and Co. To both increase their steak in Cavana, which, as you see now that is incredibly whisky and it clearly has not worked out well. Um, we saw Code to increase a steak in Netflix. We saw D One, Maverick, and Viking all increase their steak in Ribvian. So these are you know, companies that have had a very very difficult one. Um. On the flip side, they've you know, while Coachy increased steak and Netflix, Maverick

and Tiger Tiger Global decreased. So it's not like everyone's doing the same thing, and we are seeing more dispersion. Our story has shows some overlapping stocks and while you know, previous dus you might have seen more people in and out of the same you are seeing some splits, you know about even I think it was Microsoft three people, three of the funds sold those steak and three added. So it's but yes, it's generally the same type of

names that we're talking about here. And it's interesting you point out in your story that you know, for a long time the Tiger clubs, they really kind of went into the same names, but breaking apart a little bit. Now. Yeah, so um, other popular names like JD dot com that

was one where we saw some selling. About four of the six cubs sold in those UM meta platforms, So Facebook, about three funds sold while two added so UM and what was actually really interesting, So if you look at one of the tables in our story, we picked up on what were the two biggest new purchases like brand new steaks that these guys were investing in, and how do they do? And across the board, all of them

are down. So that's Dave for Tiger Global, that's Docu signed for co to UM, that's Atlasias Atlasian for d one Tea. Yeah, and so they're down like double digits. Now I should mention some of these could be private stakes that have turned public post and I p O and so they can't get out of them for several months. So they're stuck regardless. But um, you know it's clear it's not great. So the thirteen that we get their backward looking. So we don't know necessarily what these hedge

funds are doing right now. But what does your reporting tell you about their strategy moving forward for the rest of the year. How do they salvage this? So UM, yes, it's it's they file these documents because they have to, nobody wants to, and they follow them forty five days after the end of each quarter. So this gives us some insight as to how they would navigate those first three months. Um, we're definitely keeping a lookout to see what are they doing now? Are they increasing these stakes?

Are they decreasing them? Um, it's tough because you can't ditch it all right away. UM. I mean, I guess you could, but you're also losing on that side too. And then um, and did you look at their valuations on the private stuff? Um, you know, there's a lot of speculation over like how are those things gonna be marked down? As private markets are also a little bit complicated. Ham A Parmer is hedge fund reporter for Bloomberg News. She joins us from the Bloomberg Interactive Broker Studios. Check

out her story. It's written along with Tom Maloney, hedge Fund of Hell, how the tech crashes, clabbering the Tiger Cubs broad Journal. Yeah but you let me drive? Oh no, no, no, no, oh, I don't want to drive the Drive to the Clothes thing. Well up on Bloomberg Radio, it is the Drive to the clothes. Right now, the SMP five hundred having its worst day since June of it's down more than four percent. The nastac Can posit down four point seven percent, the

Down down three point six percent. Let's get into it and drive to the close with David Deet's managing principal and senior portfolio strategist at Pepack Private Wealth Management. He joins us on the phone from Summit, New Jersey. Peapack Private Wealth Management has got about ten point seven billion dollars in assets under management. David, how are you very good? Tim? Thank you? You are very good on a daylight today.

I mean it's pretty rough out there were you know, surprisingly the phones have not been ringing off the hook certainly all year UM investors have been very nervous and we've been holding a lot of hands. The problem for this year, Tim has been where do you go? Because people are all still looking at those bond holdings dropping close to ten percent as well UM the alternatives like

bitcoin have crashed, So, uh, there's only cash. But you know, with inflation close to eight percent, cash doesn't look very good at the long for the long haul either. So it's it's there real hand reading time for investors. So where should they go right now? Well, so you go back to your your your time frame. I think the first thing is you need to have a longer time

frame than just next month or even year end. The time for the day trading and for the for the rapid swipe right and make a lot of money, that's all gone. Um. Second, you need to be diversified. You know before of course, up until just this week, people said dismissed a lot of losses. Those crazy tech investors, those crazy crypto guys, um, those crazy new economy people. They're the ones that you know are losing big and

they deserve it because in potential to valuations. Now, of course you're seeing it's creeping into mainstream Dow stocks, you know, Walmart of course, Target disaster, so it's spreading out. See, you really need to be spread out. You can't hide in one area and say I'm safe. That's what I want to get into Walmart, Target. But I do want to say it is my birthday. I was born twenty nine years ago in Summit, New Jersey. So cool to

talk to you. But overlook overlook, right overlook hospital overlook. Yeah, absolutely, up on the hill overlooking. It's the name Summit, New Jersey. Yeah, yeah, you got it, you got it. But let's talk about Walmart and Target. And I mean you mentioned that investors in some of those more speculative names they're getting crushed. But I mean you just look at the declines that we're seeing in Target losing what a quarter of its value just Walmart also really falling by the move, just

some pretty amazing size and scopes. It's not an overreaction. I know it's bad out there, but man, those are some big numbers, you know, I'm not sure it is an overreaction. When you look at the magnitude of the miss by Target today, it was pretty um stunning. Uh well, so what did we learn? I think that um, although consumer demands seems reasonable, there was just the complete unwillingness or inability by Target to pass along the higher prices at seeing UM. And so that's disturbing for a number

of reasons. One is that a lot of bulls out there said, gee, you know, there's inflation, but inflation tends to favor stocks in um, companies can just increase prices with inflation not so much to worry about. Well, that kind of that story has been uh dismissed today. UM. You know. The second, of course, is the the idea that um that that the consumer was going to stay strong, that they still had big bank accounts from government transfer payments.

You know, we had this such strong employment wages going up that they could continue to spend. Well, that seems to have been dissipated today. The only thing people can hide behind is that the idea that consumers are now going to the experiential things, you know, they want to travel airbnbs, airlines and so forth, and they're moving away from uh, the just the goods. Uh that Target and

Walmart are selling. But I'm not sure that's so satisfying. Yeah, I mean, look, you sound like the CEO of Hyatt who we spoke too earlier in the program today, who did tell us that experiences and look talking you know, he's of course talking his book a little bit or a lot. But we are still seeing people, you know, buy those plane tickets, and we're hearing that from airlines

as well. The question is demand destruction, David Hey. Before we get to that, though, I want to talk about the bottom here because I'm curious if you are seeing signs that we're at the market bottom. Well, we're definitely seeing signs. The question is are all the boxes checked off. So some of the signs where we may be at the bottom is we're seeing extraordinarily low levels of sentiment among retail investors. Indeed, we're seeing huge cash pile ups

by institutional investors. By some measures, the biggest amount of cash is now being hoarded by fund managers since two thousand one of America survey that came out yesterday. Yeah, you know, the flip side is someone said that they're also buying a lot of calls just to hedge themselves in case there's a big rapid brought up in the in the triple QUS and aztecs, so maybe they're not so uh cautious as as that one METROC group suggests. We're seeing a number of days of course with sucks

down on heavy volume. Um, you know, so those are metrics that are suggesting that when your bottom. But the flip side is we saw the VIX, which is that fear indicator, sore to eighty five in the pandemic month of March two thousand twenty. Today it's below thirty. It hasn't gotten above thirty five for a long time, so that would suggest we haven't had that one huge panic waterfall, Uh, sale.

Of course, the other thing is bottoms maybe tougher here because in the past, and we had kind of a quick bottom, the FED was always coming to the rescue here, you know, just just yesterday. Basically, um Jerome Pile suggested that if the if the price of stomping out inflation was pain for consumers, so be it. But how can the consumers experience pain and there'd be no pain for investors? And David, I mean, do you think the FED does

step in at any point? I know that you know the FED puto has been written a bunch of times, but at what point do you think they would step in? And really have about forty seconds left? You know right now, you'd have to be cautious about predicting there being any FED put any time soon. In fact, I think some part of the strategy is to squash some of the

demand that the Marriott CEO is talking about. And how do you do that Because of the large bank accounts, you get them where it really hurts, which is their stock account. So they may want to see this market taken down a few more notches so that that will help cool some of the demand to high end in order to really get inflation out, so I don't think the FED what is anytime soon? All right? David Deed's managing principal and senior portfolio strategist at Peapack Private Wealth Management,

joining us on the phone from Summit, New Jersey. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube. Search to Bloomberg Global News