Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news.
Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com Slash podcast To switch skiers and go to the big banks. Allison Williams Bloomberg Intelligence. She's been founding these big banks for a long time. She's got an informed opinion. So, Allison, we've heard from some of the big ones here, what's
kind of the takeaway? I mean, I know business trends are tough there from investment banking and so on and so forth, but is trading enough and is wealth management enough to get these big firms through to better capital markets days?
So it was a software quarter for the investment bank, but fick with a highlight. It actually came in about stable with a year ago equities trading down about twelve percent across the US banks, and then these coming in down twenty to twenty five percent, which actually was a little bit better than feared and certainly better than you know, the almost fifty percent decline that we saw last year. I would say going forward, you know, the pipelines are
still healthy. We've been hearing that for several quarters now, and more and more of the banks are talking about a hope for the second half and twenty twenty four. Certainly, you know, clarity is what's needed to execute these deals. That the curve is pricing in some FED cuts towards the end of the year, and I think that has been something that the banks are looking for as a
catalyst for that activity. For banks, you know that the outperforming banks in terms of returns and revenue growth were really those more focused on lending, so Wells Fargo, Japon, Morgan, Bank America, and City. I would say that these four banks plus all of the regional banks, you know, the one thing we heard the universally deposits they're down, and the net interest income outlook is worsening because the costs of those deposits are rising. We did see some some terms of do you.
Think a little too ironic? Yeah, I really do think it's for years I was interviewing bank CEO's Allison, who were like, we can't make any money in this low interest rate environment, there's no way for us to make net interest margin with zero rates. And now that the head and other central banks have been like, okay, you know, here's five hundred bases points have increased rates, They're like, we can't make any money in these high interest rate environments.
I reget that they just move too quickly for them, But how does it look, you know, going out two or three quarters? Are they gonna are they gonna be raking in the net interest margin by Q four?
I mean, so keep in mind that it's all about sort of you know, the expectations and where we are. Right. So net interest income was up, I mean it's almost up fifty percent of JP Moore. Again, it was up to you know, forty five percent almost at Wells Fargo, twenty three to twenty five percent of our city group. So the net interest income growth is really strong, and
so it is contributing turnings growth. It's just that, you know, investors are looking for the peak, and so I we it was four Q perhaps for some banks, it might be one que for others. And so it's not that they're not making money, it's just that that the lift, right, So they got the lift on the on the on the prices of their loans, but now the prices of the deposits, so they're you know, cost of goods sold,
if you will, is finally starting to catch up. And so that's that's and that's coming in a little bit faster than people had anticipated. So you know, it's all about the expectations. So they are still making snipping an amount of money. Again, commercial real estate, that's the big thing we're focusing on. Everyone's focusing on credit. Credit is
still really solid. It's weakening at the margin. Commercial real estate, you know, is very early innings, but in general, you know, the returns this quarter were still pretty good.
Head Count, Allison, I mean, when you talk about some some weakness in these businesses, that seems to be the first place where these big banks can go to can reduce expenses. What are they saying about headcount going forward?
So starting to hear definitely on the investment banking side of things, you know, pockets of cuts. As I said that the pipelines have been there for a while, and there really weren't reductions last year because the banks keep holding out hope that that revenue is coming back. But we are starting to see some some reductions. We're also hearing, you know, more broadly so Goldman had had made some pretty sizable cuts, as we know at the very beginning
of the year. They're making cuts in their consumer bank. You know, Bank of America is actually talking about hiring people this year, but then things you know, topping out after that, and to some extent it is you know, sort of the attrition is also slowing because it's just not the same job market that it was a year ago.
Yep, absolutely, all right, Alison, thanks so much for jumping on with us. We appreciate it. And it's busy time of the quarterview with the banks reporting here, they tend to be one of the first groups out of the gate. Allison Williams, she's a senior bank's analyst for Bloomberg Intelligence. She's based in our Princeton University office. And again, I think what we've heard from a lot of the banks, the big banks as well as the regional banks is the business is okay at the moment, and they are
cautiously optimistic. But you know, I think i'd probably double underscore cautiously at this point when we hear from those bank management teams S and p. Five hundred. I'm gonna say it for Lisa Bromwins. It is unched on the day. Literally nothing going on out there in the SMP. But that's okay. It's a Friday yet, Yeah, because we've got options expiring at one pm Wall Street time.
You're listening to the team Ken's are Live program Bloomberg Markets at ten am Eastern on Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business app, or listen on demand wherever you get your podcasts.
Our next guest has perspective, let me put it that way. Very very expansive, resume, very impressive, and we need perspective in a big way here. Nancy Tangler joins us. She's a CIO of Laffer Tangler Investments.
Gets this.
She splits her time map between Lake Tahoe and Scottsdale. We, I mean, figured it out completely. Nancy, thanks so much for joining us here. We appreciate it coming to New York City to.
The Loma Point Loma University. Yeah, I know where Point Loma is.
How good is that?
That's another great time. Geographically, You've done very.
Fun, very well, and we're stuck here in midtown East I don't know how that works, all right, Nancy, You've seen these markets over cycles, over long periods of time. Here, we've just come out of a pandemic. We had some crazy fiscal stimulus. Now to stry to pull that stimulus away. The FED has raised rates at an unprecedented level over the past four quarters. How you guys kind of positioned yourself for this environment right here.
Yeah, So I've been pretty critical of Washington and the FED. You know, I wrote a piece in July of twenty twenty one that was entitled mister Magoo's Washington, and that is what they remind me of. They kind of walk along and there's destruction all around them, and somehow they come out of it clean. But I think if the last well, first of all, I wish the FED Reserve Board governors would stop talking.
And yeah, they talk way too much all the time, so many of them. I almost wonder they get paid for each speaking engagement because why.
I don't know, but I think a little mystique would go a long way. And the last press conference was very disappointing because the FED chair was asked, do you think monetary fiscal policy is too much? Should we could can you say something and he refuses to even correlation between the spending.
And you'd missed Alan Greenspan, right.
I know, I miss his briefcase.
I miss his I miss his testimony because he would freely comment on fiscal policy. And why wouldn't you, I mean, it's such an important component, right, and Vulker.
Did, Yeah, you weren't born yet, so you wouldn't know.
Oh that's so kind of you, so kind.
Yeah.
So what we've been doing is, first of all, we moved our clients out of bonds in the summer of twenty twenty when the ten year hit fifty bases point yield, and then we've been moving them back in recently and began adding risk back into our equity portfolios, though it
sounds counterintuitive last fall. So that was Technology and consumer discretionary, and those are names that we still like, but we've been trimming them because they've they've appreciated so much, and we're looking for companies that are Our investing theme is old economy companies that are embracing the digital revolution think McDonald's, Chipotle, Public Storage, and then the suppliers of the digital solutions.
So what are some of the names that. You know, again, we have a FED that's kind of at or close to peaking on rates, you know, so maybe some of that headwind for some of the tech and consumer names is kind of abating a little bit.
Let's go public storage because McDonald's and Chipotle, Paul and I are intimately familiar with public storage. We don't know so, well, why do you like them? What's that company about?
So they're engaging over fifty percent of their new clients digitally, so they never meet with an individual, They access their storage locker digitally, and so they've really levered up on productivity at the company and they've they paid a special dividend last year of thirteen dollars a share, and they raised the dividends. So we dislike it for a steady, stable earner in the portfolio to complement some of the riskier names that we have in there.
And you have you have Microsoft as well? Or do you like Microsoft? Because lately every company that has a difficult earnings report just has to mention AI to try and get back in. But Microsoft's been at this game for longer than you know.
Tsmc Well, we trimmed it, I mean because we bought more last fall, and it was one of our largest holdings across all of our strategies. But it went well above our guidelines. So we've pulled back on weakness. We'd be adding to it.
That's all those big giant megatech companies, Amazon, Microsoft, Oracle you held right, So are those companies that you've taken profits.
We've only taken profits so far in Salesforce and in Microsoft this round. But historically, you know, we've been at this for a long time. We were buyers of Apple in twenty thirteen, and so we've been a net seller of that stock for a long time, and we have it represents about three percent of our portfolio. The others are much larger portion of it. But yeah, I think now is a really interesting time to look at Amazon.
I thought Andy Jasse's shareholder letter was excellent. I think he's being Tim Cooked, which was you know, everyone doubted Tim Cook at Apple, and that's when you got it once in a lifetime opportunity to buy it at nine times earnings.
You know you mentioned one of your names buying on weakness is a name that's been in the news a lot, and that's Tesla. Yeah, I guess you had the stomach to you know, deal with Elon Musk. What's your tesla call here?
So we're going to be adding to it. I think, you know, the margin decline is meaningful, but he still has margins that are twice GM and three or four times FORD. What I think is important about Elon Musk is that he seems to be always going where the puck is going, not where it's been. And so the price kept cutting, and then today he announced price increases. That's going to drive people to the ecosystem, and I think, much like Apple, that's a really smart strategy. So he
doesn't mind being underestimated. I think I owned it once and sold it because that was when he was on the Joe Rogan podcast smoking.
Smoking weed, Yeah yesterday. It was four twenty so a lot of people were smoking yeah.
And I sold it because you know, he had his top management team turned over a number of times. He had that sec problem. And it went up four or five fold from there. So when we got an opportunity in January to buy it back on a relative price to sales ratio it's still attractive, we stepped in.
And it's also interesting that he's doing I mean, essentially you see GM and Ford and all the other legacy automakers raising prices on their you know, very expensive products, right, high margin products, and then doing everything they can to cut prices on their lower end products. And that's certainly what Musk is doing as well. But since it's all electric,
people don't differentiate this much. Right, He's raising prices on the one hundred and thirty thousand dollars SUV while he's cutting prices on the forty five thousand dollars you know Sedan. So it just makes this.
Yeah, it's kind of the LVMH of the auto industry, and.
It gets that kind of valuation. And I mean it did, right. It was at four hundred, now it's at one sixty. Yeah, so I guess this is the right time.
We've picked it off in at like one oh four, but we didn't buy enough. That's that's the perpetual dissatisfaction of being a portfolio manager.
All right, Nancy, next time, anytime you're in New York, you need to stop buy because but you're gonna be in Tahoe in Scottsdale. I'll put You're not in New York very often.
I am.
I'm here every month Okay, well come.
Back, let us know when you're coming back on week you here, we'll talk some more stocks and more names. I want to talk you about being a senior woman in a financial services industry. I know you're the author of the book The Woman's Guide to Successful Investing in your working on a second edition. Now we want to get you to talk to you a little bit about that because, as you know, you are somewhat unique in the financial services industry, and we appreciate.
That you're listening to the tape. Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Deb Bacon, she covers the detailers for Bloomberg Intelligence, is based in London. So we're going to talk to her about Procter and Gamble because she covers Procter and Gamble. But then I'm moving on very quickly to luxury because Deb is my go to voice, as she is for many institutional investors on the luxury business. But deb let's pay the bills here. Let's start with Procter and Gamble. The stocks up three point eight percent. It doesn't sound like a lot, but that's like the the stock never
moves that much. So they had some good numbers. Tell us what happened, right?
I think you know, I looked at these numbers and the market was already expecting decent sales growth, so there was a little beat on sales. But the big thing here is the amount of growth margin that they're accumulating. And when we think that we're going to see costs start to fall away and also for X headwinds start to transition over the coming quarters, that votes really well for the level of productivity that's there. They're volumes are down three percent, but that's kind of in line with
the market. So they're holding market share by value and volume. They're investing heavily in marketing spend, and it really bodes well for where their position going into next fiscal year.
What are the four X headwind transitions you're expecting? What are we looking for?
So the company expects five percent by year end for fiscal twenty twenty three, and this quarter we're already starting to see that come off. So it was one half way to this is their fiscal Q three pardon.
Me, five percent of five percent of.
What sorry, so on five percent of sales. So at the top line for fiscal twenty twenty three, you're going to see all in net sales, not one percent, because there's going to be about a five percent for X headwind fiscal twenty twenty three. But as as we've seen through the coming quarters, we see four percent for X headwind in the last Q three and that should go down some more in Q four, So bit by bit into next year, we'll see that headwind turn into tailwind.
And at the same time we've seen peak. Of course, we'll start to see some of those coming off, and that just really puts them in good positions for next year.
All right, deb, Matt Miller is more of a you know, practer and gamble guy. I'm more of a luxury goods guy. So talk to us about what's going on in the luxury good business. I know you follow all of those names. I want to get it from the angle of China reopening because you know everything I know about the luxury good business I learned by reading your research. But China's reopening, that's going to be a really big tailwind. When will some of the luxury good companies start to see that?
I mean in terms of share price, we're seeing that already right, some of the big So it was announced eight to January that that China would do a big reopening, a very big surprise, and already we start to see share price momentum on the back of that. So we've seen the likes of Air Mayres or Brunelo, Kushinelli up over thirty percent year today. So these companies are already swung quite well through second half of twenty twenty two, and then for the sector overall, it's becoming an outperformer.
And what we saw was January was still very difficult because people were hesitant to get back in in the marketplace,
product not in the right place. By February, these companies are saying that we're seeing traveling, we're seeing spending in stores, a return into the market, but still a drag for China overall in the Asia through the Q one into Q two, though we would expect if there are no big adversaries, that we see double digit growth starting to pick up through Q two year on year and through the rest of twenty twenty three.
Talk to us about just the supply chain for some of these luxury retailers. I mean, where do they source their product? Has it been a problem, is it getting better? So on the on the supply chain side, right.
So if we think about the heritage companies like ms like LVMH, the Italian traditional luxury makers, everything's produced locally so as in so I need to rephrase that everything is produced out of Europe, so France, Italy and others.
So their supply chain is particularly robust, and in fact they're having to probably raise fourty five percent capacity per year just to manage that double digit growth because they have had such an explosion that some of these companies have doubled their sales versus twenty eighteen, So they're fully compensated twenty nineteen, twenty twenty and through the lockdown and they're out at the other end, and they're bigger and stronger than ever. So they're having to build production and
build supply chain around that. The big move also has been that pre COVID we saw only around forty five percent of sales online and now that's very much more than doubled, and in the teams many makers, and they're working with big you know, some of the best in class in terms of of partners out there like Farfex, Alibaba Luxury Portals to really do things also online. So they're marketing to more clients baskets of bigger size, and also they're getting a younger generation on board more quickly.
So DEBI, I look at you know, the shares of hermez or ames up thirty eight percent this year fifty two week high, up sixty percent on a trailing twelve month basis. Have I missed that luxury trade?
You're going to be buying it for forty eight times next year's pe. But I've had so much interest in this stock over the week because the idea here is that you know, there are only three hundred stores worldwide. The company will opened two new production sites for leather goods this shure. They have another production site coming on board every year to twenty twenty seven, and so that's
how they're fulfilling their growth. They have waiting lists longer than some of the watch companies, and yet they're also using their one single individual brands to transition into very sizable and weighty sectors. They're doing very well and ready to wear of course into others, into jewelry, into homeware, homewhere is that right?
There's plenty of stuff, plenty of stuff for me to spend on Debacon. She's a senior anas covering luxury goods for Bloomberg Intelligence out of London, talking about the practer and gamble numbers very strong, talking about luxury, which means very strong. These stacks have been on an absolute terror in part due to a China reopening.
You're listening to the Team Cancer Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app Berg Business Happen or listen on demand wherever you get your podcasts.
John Tucker, thank you so much. We appreciate that. Now I kind of forgot about this deal. But it's a big one. Kroger Albertson's the supermarket chained twenty five billion dollar merger. It is winding its way through the regulatory process. We're going to get an update on that, and in order to do that, we have our expert in the Bloomberg Interactive Broker Studio. That's Jennifer Lee. She's a senior litigation analy She covers antitrust for Bloomberg. Intelligence absolutely indispensable.
When you get these big M and A trades that you know are just going to be looked at by the various regulatory authorities, it's good to get an expert opinion on that. So Jen, just give us the latest here Again, it's a big deal, supermarket business, twenty five billion dollars. Where are we in the review process? Is this deal going to get done?
Right?
Sure?
Well, you know they've been in the investigation phase. So the FTC started their in depth investigation early December, and it usually takes the companies four to five, maybe even six months to finish that up, and the news is quiet during that time. I mean, I think that's why
this has been sort of falling off the radar. But I'm thinking it's probably about time soon for the companies to finish that up, and that's when things sort of get into earnest in terms of talking about whether there's a remedy that might be sufficient for the Federal Trade Commission to agree to clear the deal.
What does the Federal Trade Commission want?
Well, they're going to want divestitures of stores and I think what this is going to come down to is how many stores will have to be sold and who the buyer will be, and whether or not that buyer's adequate. And I believe these companies face a really skeptical Federal Trade Commission on both of those, and I have a funny feeling they're probably not going to be able to come to terms on this, and if they can't, it means they're going to get a lawsuit to block the deal.
I mean, well, where is Kroger I mean, Alberts' is a West Coast chain.
Right, Kroger's in Columbus.
Yeah, Kroger's in Columbus in the South. I mean, they're not around here. So I don't even think about them. But it seems like it's an easy fix, Paul.
If you want the best of everything, including the price club program, okay, very good.
I would think you just have a big map, and where they overlap, you say you got to sell one of them, end of story. What's the big deal?
Right?
And that's the way it's always gone, Okay, And so here's sort of the fundamental problem that the Federal Trade Commission is facing and thinking about today. That is the way these deals have always gone. You have a map, you look at local regions one mile to ten miles. If they overlap and it's concentrated, you divest. You're good to go. But what that has resulted in in many different industries, according to this Federal Trade Commission, is too
much consolidation and overly concentrated industries. So they don't like that approach very much anymore. They've taken it in agriculture, you know, They've taken it in many different industries that are local in nature. So in this one, I think they're going to go beyond that. They're not just going to look at these local overlaps. I think they'll also define fairly narrow markets, which then increases concentration in those
local regions. But they may also look in regionally or nationally to see the impact of this combination on suppliers. They might go the other direction. Okay, right, so a package good.
Store, if I'm in an industry that has Walmart, I'm like, I got no problem. I mean, you're jumping on me because I'm hooking up with another regional supermarket chain when I compete against Walmart.
Right, And you know, part of the argument is that these companies need to combine to better compete with the Walmarts and the costcos of Coural. But you know what happens when they say, well, we need the scale, we need to combine because we need the scale to better compete against Walmart and Costco. Oh, but we think we can divest a handful of stores and they can succeed on their own without that scale. You know, it's difficult to make that argument. And that's really what they're going
to do here. You know, they're talking about three hundred stores or so, while in their divestiture agreement, Kroger has agreed to go all the way up to six hundred and fifty before it has the right to walk away from the deal. So I think the FTC is going to be looking for that six hundred and fifty number or more.
How long is this going to take? I mean they've just they're likely done responding to the FTC's inquiries now, right, And then you say, expect maybe a lawsuit at the end of the year next year.
When is it gonna No, I think it'll happen before then. So as of April fifth, they had not yet finished these what they call second requests. That's the investigation. They may be done now. Now technically as soon as they finish. The FTC only has thirty days, but it's pretty commonplace to enter into a timing agreement with the agency that gives it at least another sixty sometimes ninety more days
beyond that. So let's say they do that, they could get and they get the lawsuit, that would be around August timeframe. These kinds of lawsuits are for preliminary injunction, so they move quickly. The average timing, based on my calculations, is about five months from the filing of the complaint to a decision, So theoretically there could be a decision by the end of this year or even early. In one queue, all.
Right, this is what I always do when I'm talking at M and A. I go, M A go, I click on the deal and I click on the advisors. So the seller here has Credit Swiss and Goldman Sachs as their financial advisors. They have seven legal advisors. And I'm I'm not talking Mickey Mouse firms here, I'm talking Krevath, I'm talking White in case Walktel Lipton. I mean, the lawyers are getting paid here big time. It's just crazy
how that plays out. But I guess the question is, is this just the function This tough view of this deal is at a function of the democratic administration that if this were Republican administration, the FTC might be more inclined to let this deal go through, you know.
Possibly. I think there was sort of a change that began in anti trust actually during the Trump administration. It's not just this this administration. This one is certainly aggressive and activist, but there has been this movement generally and somewhat bipartisan, to strengthen up our M and A, the way we view M and A and the way we
scrutinize these deals because of anti trust exactly. Yeah, you know, And we also have this example, you know, from in twenty fourteen, Safeway and Albertson's merged, and it was a big failure. They cleared it, they divested stores, the company that bought the divested stores went bankrupt before a year, and then I'llson's brought back a bunch of those stores. I mean, that is a colossaliz.
Was it a failure in terms of because I think this administration right now has to think not only about antitrust, but also about inflation. So the question is with scale, are you able to keep prices down or with scale are you able to push higher prices onto consumers? Right, That's that's the crux of the argument that Biden has to worry about right now.
It's not Biden viously, but his regulators. But and that's exactly the issue. I mean, the companies say, with scale, this will trickle down to better prices.
And the companies say, we'll defend it to the regulators and to the customers, but to the shareholders they're like, hey, if we can get this scale, we're going to push through price increasing.
Exact customers exactly. And once upon a time an argument about efficiencies was really helpful in the anti trust context because the thought was if a company can gain efficiencies, that'll pass down to consumers too in better prices. But over time the regulators said, no, this isn't really happening. It's just better margins for the companies. It's really not
trickling down to the consumers. We're not going to give as much credence to these efficiencies claims or these claims that this scale will allow us to provide better prices.
All right, so we got this big supermarket deal out there. What else are you looking at? What else is you know in the lens of kind of this, you know, M and a litigation anti trust issues.
Well, I'm just waiting because I expect the Department of Justice is likely to sue to try to block the Adobe Figma transaction which has been floating out there.
Really, that's that's another big one right now.
Now, that's another big one, and I think twenty billion dollars I believe, and I suspect that's going to happen, and I think that could happen at any time.
Now.
You know, the Apartment of Justice has already sued to try to block Jet Blue in Spirit. So I'm watching that that's going to go into trial and we'll see what happens there. I think they have a pretty good argument, to be honest, in that case. I suspect the DOJ can be successful. Really, yes, because I think it's.
Jef bluent Spirit, I mean Spirit, who cares about Spirit?
Really? Do we?
Well?
The people who like an ultra low cost carrier option very much care about Spirit, and they're going to lose that option if Jet Blue takes over all of those routes. And I think that's the crux of the matter.
I will tell you, having lived in Europe for a long time, it's it was so awesome to be able to fly anywhere on the continent for like fifty bucks. Ye at any time that I've lived there, that I lived there over the last like seven years. Right then I come back here and I want to fly to Austin, and it's like, I gotta fly economy, you know, Oh
my god, that's just terrible. But but the flying economy on United to Austin still costs like ten times more than flying business on Ryanair to Valencia, you know, so.
Sort economy is not good for you.
Now. It's just painful for my knees, you know, especially at my age.
So that I guess they don't factor that into the spirit Jet Blue thing.
I want to hear something funny about Paul Until very recently he thought the picture of the guy on Alaska Airlines tail was Jerry Garcia. That's not a joke.
I really thought that I did, and I had.
A pilot Joy Garcia.
It may have been an Eskimo.
I don't know. Can we say Eskimo in a way be canceled?
Sorry?
I don't know. But next time you're at an airport and you see Alaska Airlines, tell me what you think. It's not so far off.
I'm gonna have to take a look, all right.
Jenry, thanks so much for joining us senior litigation analyst. She covers all the antitrust stuff for all the big M and A out there. Nobody else on the street has that kind of research we do at Bloomberg Intelligence and ssures closely with the industry in stock analys so that we get the best analysis out there to our clients. Jenry, thanks so much. We appreciate it.
You're listening to the tape Canser live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station just Say Alexa playing Bloomberg eleven thirty.
I think over the last several years there's been a big pusher or moved towards kind of reshoring a lot of operations and businesses on US soil, you know, by American that kind of thing. It's kind of gain momentum. It certainly exacerbated by the pandemic, but there are those that say, hey, let's not go so fast here. Maybe this global supply chain thing is still a thing. Dave Stalin, So those people from Taiwan, I don't know. We'll find out. Dave Stalin chill out a little bit exactly. He's the
CEO of the Telecommunications Industry Association. He's also a graduate of the US Naval Academy and a former infantry officer with the US Marine Corps. So we thank him for his service. Dave, thanks so much for joining us here. Again.
You think about over the last three four years pandemic, been a lot of talk about on shoring, and it kind of goes it's taken another level maybe with some of the technology, maybe a cold war brewing between the US and China on things on the telecommunications and technology space. What's your view of how things have kind of evolved.
Well, thanks for having me. Yeah, it's an interesting time. I think through the pandemic, we've recognized how important connectivity is. It's almost like the air we breathe, but we don't want it to be polluted air, right, So it's important that we're buying products and building networks from trusted suppliers.
But I mean, we are buying a lot of products and building networks with products out of China, certainly out of Taiwan, but also out of China. Should we be concerned about that?
Yeah, I definitely think there's a legitimate concern, and the administration has significant concerns about the concentration of ICT or technology manufacturing in China. But what's not clear is should government review outbound investment in a way that really forces companies to determine at a high level with heavy government review,
where they buy their products from. We're strong supporters of building product in America and we are definitely as an ICT industry trending in that direction more and more so. But it's probably hard to get everything built in America at a reasonable price.
Well what about a free market? You know, what about businesses being able to do whatever they want with their dollars? How much should the government be involved in this?
Yeah? So I'll go back to the point that everything is connected these days, from an IoT device in your home to a critical network to a broadband network, and we have to be careful with that level of connectivity to ensure we're buying products and services from trusted partners, and I think that's one of the roots of the issue. The other, of course, is the overall competitiveness around the globe. We first need to make sure that we're buying trusted products.
And TIA, as you mentioned, is an industry association that's been around for eighty years. We've obviously seen a ton of change and we create standards for the industry and we advocate with the government for the industry large companies, small companies, and we're very focused on ensuring that the networks that are getting built are going to become more and more trusted over time. But you have to verify trust,
you can't just assume it. And that's where the standard side of TIA comes into play, as we've developed the first cyber and supply chain security standard that's measurable for the industry.
So kind of going down that route, Dave, I mean the companies that you are, many of the companies that you represent have been, have done, and continue to do business in China. They just have to. That's just kind of where the supply chain takes You can't disengage from China. So what are some of the companies that you represent, what are they How have they changed their behaviors or their business models over the last several years.
Sure, it's a couple aspects. One is definitely companies are moving manufacturing out of China to other places in the world, some cases of the US, but to other places in the world. There are many trusted US trading partners out there Mexico, India and others that they're moving. They're manufacturing too. Number two, one of the big challenges we have is on the ICT space is anything that's electronics. We can make fiber cable here, and we do with companies such
as Corning and Comscope. That's not a problem. We can make cell towers here, we can make all the attachments. Obviously, the labor to build and to project manage these networks can be done here. But moving chips over is a
good first step, but it's not the only step. So the US government has recently about a year ago, introduce US as part of the IIJA, the Infrastructure Investment and Jobs Act, a really large, forty five billion dollar program to bring broadband to the unserved and underserved around the country.
One of the requirements is by America so there are by America laws in place that say, when you use US grant money, for example, the BAD program, the Broadband Equity Access Deployment Program, part of IJA, a lot of acronyms, you must follow the by America laws. Now, what we've asked for is a limited and a targeted waiver for certain parts of that and in essence, anything that has a chip in it is not effectively made in the US current So the labors no problem, the fiber cables
no problem, the towers, no problem. But anything that has a chip, in other words, electronics, anything with intelligence that has a chip in it is currently for the most part, not made in the US. Therefore, we need that waiver for this BEAD program.
By the way, as Paul is saying, you have a tremendous resume and obviously have served this country in the US military and in many different ways. After the Naval Academy, US Army Ranger School Distinguished Honor graduate, there were in the first, second, third, and fourth Marine divisions. I don't know if this is this question is pertaining to the Telecommunications Industry Association at all, but do you worry that even some of our military equipment has chips out of.
China, absolutely, and the US military, the DoD is very concerned about that as well, and they're putting tighter restrictions. We all know that the Biden administration also just set aside something like sixty five billion dollars to bring chip manufacturing back to the US standard that I alluded to, what we call SES nine thousand and one is the only measurable and certifiable cyber and supply chain security standard
out there. We look at the processes that somebody uses when they're developing a product to ensure that it's trusted. The software and the hardware. You have to go back to the route to ensure that you're developing a product that is secure. So you have to have third party verification that the software and hardware. There's so much open source software being used these days. You have to verify that those things are secure.
You know.
That's why I'm in this job. Many of my peers are sailing on a boat or digging in their garden in the backyard and long retired. But I am really passionate about this industry and passionate about the security of our country.
Well, we appreciate it. Dave I appreciate all your services in support of this country. Dave Stalen, CEO of the Telecommunications Industry Association, looking at the kind of the global technology trade, the global telecommunications trade, a lot of work to be done there to ensure these systems out there.
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Formula one. This is a big business globally. It's starting to get bigger here in the US, I think, and I know a little bit about this because the liberty media folks own it and they have big, big plans for growing Formula one. And we got a big, big race coming to Miami, Formula one Miami Grand Prix coming. That's a big news for I guess any city that hosts it. But let's get the latest with Hannah Elliott.
She's got a great story out on the Bloomberg Hannah covers the auto industry for US how to talk to us about Miami. It sounds like a fun event. It sounds like a must to event, must must see event and be seen event.
About mind, must see it? Yeah, totally must see and be seen is exactly right. There's there's a reason they call it the Magic City. That certainly applies to how Miami does Formula one. It is a spectacle unlike any other. Last year we saw that it f one brought three hundred and fifty million dollars into Miami, with people, you know, spending money on hotels, decadent nights out, uh, drinking, partying, eating culture, all of that, plus of course race tickets.
And not a little bit of money. Hannah, I mean I saw on You're sure lots of money. I mean some people are spending. Did you say there was like thirty or fifty thousand dollars bottle service?
Yeah. So you know, for instance, at the Club eleven, which maybe you've heard of before, it's a big Miami club, we've had this table. Tables start at five thousand dollars and they go up to two hundred thousand dollars. If you want a table with bottle service on the dance floor, that'll accommodate.
One hundred people.
But yeah, I mean, of course we've got h you've heard of Carbone, of course, the great Italian restaurant chain, Carbone is doing a pop up called Carbone Beach. They did it last year, they're going to do it again this year. Tickets cost three thousand dollars. Tables start at twenty four thousand dollars. That's for a dinner or a meal.
So this is yeah, this is just for going going out right now. I just came back from the Moto GP in Austin, which is motorcycles, of course, and it was far less crowded than Formula One was in Austin. But what everybody you want at the race is access, right You want to be in the paddock, you want to be able to walk up and down pit lane, you want to be able to peer into the garages. How much is that kind of access going to cost? If I can even get it at F one Miami.
So Padda Club tickets right now are costing over fourteen thousand dollars. I have seen prices as low as ten thousand, but according to my last check, I was emailing a couple people this week to confirm the final price. They're at fourteen thousand dollars right now. That gets you, of course access to these luxury suites with food and alcohol, and we'll get you pit access to in some cases. Then you have a lot of pride.
By the way, that was a tenth the price at the Moto GP in Austin, they were fourteen hundred.
You know Austin is I love Austin. Of course, Austin had the first formula and raised in a long time in the US. We love Austin. But Miami, you know, has quite a reputation for partying and they really have to live up to it, and the prices are reflecting.
That kind of talked to us about just Formula one in the US. I know, you know, the likes of you know, Matt Miller all into it. I'm sure you are as well. Where where is it just in terms of popularity and the growth of it?
How has it grown since the first race in Austin.
So it's been really interesting, you know, my Formula one has had some history in the US, starting in the late nineteen fifties. There have been random races everywhere from Michigan to California to New York, but it's never really got a foothold. Of course, the Austin Race started about twelve years ago. That was really the first one and
since then. This is the second year for Miami. Also this year we've got a race in Las Vegas coming, which is going to be potentially even bigger and more expensive than Miami, So we're getting a bit of a foothold. A big part of that is the fact that Liberty Media is now the owner and really prioritizes television. Of course, TV audiences are very important in America if you want
a big fan base exactly. I was just gonna say, you cannot underestimate the influence of Netflix's documentary series Drive to Survive. They've had I think they're in their fifth season now, and that is really humanized and drama dramaticized the drivers and the race and actually it's kind of been called the Kardashians on four wheels. It is kind of It's really interesting and it really has broad and
so it's very fair to say that television. Of course, television audiences are up every year by double digit percentages. We do have a lot of momentum, and Miami is a big part.
Of that all right.
Listen, Hannah, while we have you here, I want to get your take on some of the other issues in the car industry. More broadly, we've been talking so much about Tesla cutting prices six times in a row now for the cheaper models. Last night we heard their raising prices for the more expensive Model X and Model S. What's your take on Tesla right now? They've seen incredible top line growth, not as much as Elan as projected, but they have a lot of competition coming into the market.
Absolutely, I think the biggest problem that Tesla has right now is the connection to its owner, Elon Musk. I live in La. I can't tell you how many people say, I'm a little cringey when I drive my Tesla. I'm a little embarrassed about it. Because of some of the antics of the company owner. We can't disassociate Elon from Tesla right now, and I do think that's hurting the brand perception. Secondly, to your point, there are so many
worthy competitors now to Tesla. Tesla one hundred percent beat everyone to the punch, but that was ten years ago and now we have amazing electric vehicles from outing BMW, Mercedes, Pull Star, you know, Volvo. The list goes on Porsche, every every automaker, now Kie.
Ev Kia makes some kick can I say, I don't think kick butt EV's Hey? Listen one more on. Paul has like a two thousand and six fourteen twenty fourteen V it's a stick and he doesn't want to give it up, but he needs to buy a new car, and he said he can't find anything with a stick out there. What would you recommend to a sporty, successful former Wall Street gentleman like Paul Sweeney? What should he get with a stick? What's out there?
You can get a nine to eleven with the stick, you go, let's just call it how it is. You can still buy a nine to eleven with a manual transmission and you will love it.
Yeah, that sounds good.
I've been telling you for a while, but you know what, Why put it off when eventually.
A matter of time?
It's only a matter of time. You guys have got me red. Well, so, Hannah, what's the next thing on the what's the next car you really want to test drive out there?
I'll tell you what I'm gonna drive in a week and a half. And I'm actually very excited about it. It's the Lamborghini Hurricane Strato, which is their off quote unquote off road Lamborghini. I'm going to go out to Joshua Tree. We're gonna drive it in the desert.
We're gonna video it.
Yeah, they say off road. Instead of it being like an inch off the ground, it's like three inches off the ground.
Yeah, exactly, So you're not going down a dirt trail very slowly.
I'm still not sure you want to take that on in Manhattan Street with all the potholes.
I know, is Hannah's job. By the way, She's gonna go to Joshua Tree, probably with some rock star in a Lamborghini. They're gonna do shrooms, camp out. It's gonna be awesome, and she gets paid.
I will report that. You're welcome to join. You know, let's make a party of it.
That is that is very cool, And a lot of these car makers are coming out with, you know, off right road versions. You mentioned the nine to eleven. They have their what's it called the Decar and it's like two hundred and fifty grand. Is it really like an off road worthy vehicle?
I think so. I think so. Let's not forget. Lamborghini really does have sorry sorry, Porsche really does have a history of off road racing, of Raleigh racing. Of course, they're Rothman's cars, you know, decades ago were really successful and popular. So yeah, I believe it when Porscha says we've got an off road We've got a Safari style nine to eleven. I believe that.
You can even get that Rothman's livery painted on your nine to eleven to car. I think it's like a twenty three thousand dollars option.
The only thing about that is they changed the word to say rough roads instead of Rothman, even though delivery looks the same. Oh, which is yeah.
A little week.
Are there car makers, like luxury car makers that just say we're not gonna go ev Has anybody ever said that now?
Well, yeah, Ferrari has said that. Lamborghini said that. There have been a lot who say that, Okay, who swear up and down we will never go electric. I think at one time Rules Royce said that, you know, they a lot say it. A lot also said we will never make an suv. So whenever someone says never, I do take it with a grain of salt.
Yeah, we'll let you go. But the story I thought this week was hilarious or just really telling was Ford f one point fifty. They're bringing their electric truck to Norway, I mean.
Which is double funny if you remember those Will Ferrell commercials in Super.
Bowl exactly, So I'm like, I don't know where you're going to park that thing in EUROPEA Yeah, Henda Elliott, thanks so much for joining us. Really great stuff. We look forward to your reporting from Joshua Tree in a few weeks. Honda La she covers automotive stuff, and she actually gets to ride and test drive all these.
Cars, and she's gotten on the highest of high high end yes vehicles expecting She writes for Bloomberg Pursuits. Check it out on the web.
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One of the things that Matt and I like to do on this show is try to bring some perspective to these markets. Try to tap into some veterans who've been through a cycle or two in our Exicus certainly qualifies Chris Allman, He's the CIO of Colsters. What is Colsters? Is California State Teachers Retirement System? Is it big? Well? I think they got a portfolio valued three hundred and six billion as of every twenty eight, twenty three, So
the answers yes, and of course based in Sacramento, California. Chris, I mean, and it's also.
I think it's important to mention it's important, right, This is the retirement of teachers, the most underpaid people in our society, the most undervalued, and people like Chris helped to make sure that they can live well after they're done doing the service that they do for our for our society.
Absolutely, it's a big responsibility. So Chris, given that kind of build up, I mean, twenty twenty two year to forget for most investors a little bit better starting off this year, we where do we go from here?
Well, first off, thank you, gentlemen, thank you for that introduction, and you said term gentlemen loosely. Yes, Matt and Paul, it's been a long time. It is great to see you. I had to travel all the way to Berlin once just to see Matt on TV.
Though.
Hey, listen, guys, you know surprise saying my fiscal year is June thirty, so it is a positive year. We're up single digits, you know, high threes. That isn't a great year for us. We need to earn seven. But like you've been saying all day, everybody feels worried. Everybody is slightly negative. But the numbers aren't telling you that the stock market is up. Look at non US developed markets are up thirteen percent so far. They're up nine
percent just in twenty twenty three. So maybe, just maybe they're going to pull off a smooth landing.
We just talked with Phil Orlando over at Federated Hermes. He expects S and P earnings to total like one hundred ninety dollars, down from two nineteen last year. So there are some bears out there. What do you make of the sentiment in these markets, Chris.
You know, Matt, I am looking out and I gotta tell you, I'm worried. I had talked to a lot of global CIOs and we are all on I feel like we're on thin ice. Liquidity is very tight. You don't go from zero to five hundred well in case of the Miami Grand Prix, you don't go from zero to five hundred basis points in nine months without seeing some pain. Not just Silicon Valley Bank or Signature Bank.
But you know, the next shoe to drop is obviously probably going to be in commercial real estate office debt. People are seeing some of that debt roll and rates are higher and the buildings have to come down in value. We haven't seen any transactions, but just the cap rates have changed, so it's a tough market.
And people got to refinance. There's a wall of maturity coming do that we're all scared of. I find it fitting that the that the phrase the next shoot to drop comes from real estate. Yes, and it's from New York tenements basically back in the day the walls and the I guess ceilings and Florida threat then that you could hear someone taking off his shoes when he got into bed, and you just waited after the first one for the next shoe to drop.
That's good.
You guys are amazing. What history buffs shoes news.
You can use hue drops so so in terms of the Fed, how does Jerome How did Jerome Powell and co? Deal with this? We I guess I'll expect them to
raise rates at least one more time. The debate is as to whether they cut rates when things start getting really painful, if we have big problems in commercial real estate for the financial stability picture, if we have a jumping unemployment, if another one or two million people lose or if one or two million people lose their jobs when we get to like four and a half percent, which relatively is relatively low, but still that would that
would hurt for especially those losing the jobs. Does the FED have the resolve to keep fighting inflation or will they you know, blink and cut rates early?
Well, I can't read his mind. And you know, you got to believe Jay Powell. He's he's been consistent all the way back since last last year. I was going to say last summer he is willing to hurt the economy to reduce inflation. But so far inflation has come down. Oil prices and commodity prices have softened. You guys are just talking about doctor Copper about thirty minutes ago. And so I got to think that amazingly they are orchestrating,
even though it's hard to believe a soft landing. They are though going to raise rates obviously again at least once more. And as your last guest said, we're all going to be looking for the P word, the pauseword, and maybe they will. I don't think they're going to pivot this year. I think the market, the bomb market's overly optimistic about that. But I am amazed at how
uncomfortable investors feel. Yet the planes are full, people are shopping, they're going to the Grand Prix, they're buying bottle service. This economy is strong, not just here. But Matt explained to me Europe. That is amazing to me.
It is actually I mean, for months, Paul and I were terrified for Europeans on their behalf. We thought, oh my goodness, what are they looking forward to. It's going to be an awful winter. And it turned out, you know, the weather is what blessed them, I guess, and they seem to have avoided a recession. Also, you got the Chinese reopening, which was a surprise. With those things happening, I kind of expected a lift to commodities prices, right, and we still see oil now at seventy seven dollars
of aarrol, even after the surprise cut. Why don't we see you know, iron Ore was tanking this morning when I came in. Why don't we see a lift of these commodity prices. Why isn't the global economy expected to grow with all of with all these blessings from beyond?
You know, I'll tell you guys a secret. That's why I listened to your show every day when I drive in. You go, you know in California. You know, we're the graveyard shift of the financial markets. So we're coming in when the market's already open. But I listen to you guys because I'm baffled by this. You're right, I have been in Paul mentioned, I've been in this business a
heck of a long time. And this market is really a conundrum because so many people feel like there's some kind of a pothole, not an O eight, but a pothole coming a recession. It's the most anticipated recession in history, and I can't believe I'm saying this. But therefore it may not happen. We may just muddle our way back out of this. I find that hard to believe I've
been nervous. We have been defensive all year, and that's hurt us, not tremendously, but you know, every time there's a rally, we sell into it, and I see that in a lot of investors. The one thing I'm very concerned about is ill liquidity amongst major institutional investors, endowments. Certainly in there's no liquidation in private equity or in real estate, and those are two huge illiquid asset classes. We all count on some activity and cash flow and
nobody's seeing anything. So if you're a mature plan like we are, where people have negative cash flows, you know your cash is dear in this market and you're holding on to it.
All right, Chris, really appreciate getting a couple of minutes of your time. As always, next time you're in New York, please let us know. We'll get you in the studio here, have a proper discussion studio.
We'll take you out to launch Man exactly right. Yeah, this is the big town. We stayed into hotail hours, sure le service. Absolutely. Chris Alman. He's the CIO of Colsters.
They manage the money for the California State Teachers Retirement System been a longtime investor, really stage, we love getting his in the thoughts.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
And I'm Fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio