Home Building, Consumers, And Green Products (Podcast)

entire pandemic. The one area the economy that just powered on from day one was the housing market. Announcing a little bit of challenges out there in terms of higher interest rates and just other macro trends. But let's get the latest on what's going on in the world of construction, housing, construction, residential construction. Peter Jackson, chief financial officer of Builders First Choice. That is a New York Stock Exchange listed company b

l d R's a ticker you put into your Bloomberg terminal. Uh, it's got about a ten point seven billion dollar market cap here it's off off a couple of percent today at sixty eight cents per share. Bet thanks what for joining us here. We saw that housing start data here we'd love for you to just provide us kind of from your perspective of your company, kind of how do you view viewing the housing market today? Yeah, good morning, gentleman,

thank you for having me on UM. You know, this market has been really amazing for quite a long run, and Q two for us, we were really hitting on all cylinders, certainly seeing nice volumes, pricing, good volume, approad swath of the products that we sell. So it's certainly been a very nice trend over the recent past. But certainly we've been watching it the same way you have, and and the impacts of interest rates and inflation have

started to have an impact on consumers. Now we've been buffered a bit, certainly because of the youths under construction, but we've seen a bit of that pause, you know, some some lower end maybe first time buyers getting priced out, but also some thoughtfulness by home buyers and i'd say maybe a prudent reaction to by home builders to be thoughtful about how many homes are being built and what they're going to purchase those at what prices. So how

much damage is the Federal Reserve doing to this housing market? Well, they're an important component. No doubt. Um, you can't move mortgage rates that much without having a tempering impact. Um, certainly, we've we've had an impact as a results of inflation. You know, broadly speaking, building product costs have gone up quite a bit, and that combination has has certainly slowed

things down. But there's no question that capacity on the supply side have limited the available products available homes, and demand has really held up quite strong. We're confident in that demand in the mid to long term, even if fires are taking a pause right now. You know, on the you guys employ about twenty employees. That's what we show here on a Bloomberg terminal. Talk to us about labor and getting people on the you know, for your comp and it's just that we see it across the board.

Companies really really challenge in terms of labor. What's it like in your business, Yeah, you're right, it's challenging for us to you know, there's always a challenge to find great people. There's a challenge to fill roles that are critical to the business, things like both like drivers, roles like fabricators, and a lot of our manufactured product facilities. And there's a lot of competition out there for that type of excellence throughout the industry right and broader than

our industry. We continue to find ways to you know, lwer people in right looking for performance opportunities. We compensate very well. I think the opportunity to be part of the American dream certainly has an allure um you know, even if it maybe has some dark days at certain points. I think overall it's still a great industry to be in, and we continue to be able to recruit. Can you get uh? Is this stronger dollar helping you out? In terms of costs for commodities? You know, most of what

we do in commodities is domestic. You know, there's a bit that comes in from Canada. Certainly, probably about of the would that we that we use in this country comes from Canada, but most of it, most of its domestic,

So not that much impact from currentcy. You know. It's interesting we think about the housing market in the US, Peter and people say there's a there's a real shortage there, and I think, you know, as as I think about some of the you know, the homebuilding companies we talked to, you know, they talked about, you know, building these McMansions, if you will, because that's where the margin is. But how about you know, some of the starter homes are you what kind of activity are you seeing there in

terms of some of the entry level buildings. I think about some of these markets that are just exploding in the last couple of years, like in Austin, Texas, for example, they gotta awesome kind of starter homes, don't they. You're absolutely right, Yeah, starter homes has been a challenge, right, it's the it's the opportunity to allow people to take advantage of that American dream. And it's a challenge because they're they're smaller, right, there's less dollars available, there's left

opportunity for margin. But I think home builders have made really good progress in creating offerings that makes sense for people in that category, right that are you know, a bit smaller, maybe a bit simpler to build, fewer options. But certainly, you know, some of the large builders have really committed to it, and we see them staying committed to it, you know, even in a bit of a downturn like this, and I think you'll see more of that into the future because it is a critical part um.

That's not to say we don't like building the bigger houses who are certainly you know, a good way to build the higher margins. Leave the starter houses to Paul and his company exactly, all right, Peter, thanks so much for joining us. Really appreciate getting your thoughts there. Peter Jackson. He's a chief financial officer for Builders First Source as a New York exchange company. B L d R is a ticket you can put into your Bloomberg terminal. They're

based in Dallas, Texas doing the homebuilding stuff. You know what, I don't know, call me a glass half full kind of person, but we had some some pretty good jobs numbers a couple of weeks ago, inflation coming in a little bit better than expected. Maybe that's you know, kind of peeking. Um. One can make the argument that may you know, things aren't so bad at there, that the Fed, you know, may not have to be as aggressive as

we originally thought. That's kind of what some of the equity markets have been telling us over the last four or five weeks. Um, But let's check with somebody who does this stuff for a living. Ben Emmon's, managing director of Global macro Strategy at Medley Global Advisors, joins us. Live here in our Bloomberg Interactive Broker Studio. So Ben, you know again, I'm gonna be a half the glass

half full person. It seems pretty good out there. Can my Felter reserve maybe not be as aggressive in raising rates as maybe were originally thought Paul and math it's great to be here. Um well, I think we want to be cautious there, because you know, the inflation story

isn't done. I think that's what the equity market may have been assuming, is that as we started to turn in commodity prices around the mid June, and that now coming through headline inflation and no Master and um Brainard had guided the markets earlier saying okay, we want to see the client in headline inflation every month and then well maybe change our course. That the markets listened too much to that that the inflation picture isn't so changing

just yet. And I take note of like the gas prices in Europe spiking again, in Asia spiking again, Canadian inflation much stronger than expected the more this morning, which is by the way, effects are inflation. So I think you want to be somewhat cautious on that. The fat is just turning his course here. The communications come out obviously clear about what we want to try to reach four percent of a fat funds rate maybe higher. They're pushing back and the market hasn't listened so far to that,

and that's what everybody's looking at. There's a big di virgins again. But I think the inflation pressure is is not abating such that we're in a let's say, automatic descent and inflation the next months. I had, right, And if they go fifty instead of seventy five, isn't that a signal that they're soft that you could take it that way? Yeah, you know, I will. You could think about it like, okay, they are moderating the tightening paces powless set at some point they would do that. Um,

So it's a bit of a toss still here. Right, the market is actually priced right in the middle of fifty and seventy five for September. I think there is caution markets and the interest rates are at least thinking you can't take your chances that they may have to move seventy five to be sure that infacient is indeed in this descent lower from here. So I think the feathers is still in a tough position, definitely, given the the commodity picture, that's not like completely changed. I'm watching,

for example, what's happening in Europe yep. Alright, so f o MC meeting minutes tomorrow at two pm Wall Street time. My natural inclination is to ignore it. I probably shouldn't ignore it tomorrow, should I should pay a little with attention. You should always pay attention to it no matter what there's But it was very interesting discussions in there and information. Of course, this is the July meeting. They were debating the pace of tightening there. That will be in there.

They were debating there, maybe even the balance sheet and the outlook. I think it will be much about what we saw that press conference. Of what has come out so far since the press conference, by the likes of Cascari and Ballard and Master and others. Everyone is still on the same camp of about we move. We have to keep moving with rage. We can't stop, right, that's clearly, we can maybe even slow down. We can certainly not say what the market's price from going from September investigates

to November. That's probably not likely either. So I think a lot of that will be in the minutes tomorrow. The market reaction maybe muted because it's a lot of us communicated out there, but everybody's kind of edgy here. I think still about these surprises, right right, it's the minutes or the Jackson hole coming up. You mentioned the

balance sheet. What do you see when you look under the hood, you know, Paul and I just know about the headline rate, but there's a lot of other things that the Fed do, the discount window and money supply and what are they doing that, um maybe affecting financial conditions because they're certainly not bringing them down, you know, no, and the financial conditions of late have been particularly influenced by real interest rates right where at least in Julyman

they were falling as much to come up a bit from from since then, Um, yeah, the balance sheet is about an asset and liability site accounting entity. If you think about the liability sign in particular, you have reverse repos and you have these reserves, and there's a lot of analysis out there of how the feather is going

to manage to too. Because the experience was about money center banks, the big banks hoarding quote unquote reserves as the economy started to change, as they cut more cautious as they started to see that the foot and foot of a drawing liquating from the system. I think that's still a risk to mark gets in the sense of we've got repo disruptions from that. But there's also an effect on the economy in itself of banks heart reserves. They're not lending as much, credit is being more constrained.

That's one thing under the hood of the bounty I think to pay attention to. The Other part is that reverse repo facility that's so bloated because there's so limited supply of T bills at the moment that can change. I've always thought about that as a low hanging food for the fat to online that first and leave reserves alone and then manage the assets side. If that's the case, then that's a more benign strategy for markets. In terms of the bound sheet, some say that that's maybe the

direction we're heading. At the end of the day, the bound she is going to contract, and I think when Barkin was on the other day in one of the networks, he said, like, it's the bounc sheet and rad has are symmetric, so in other words, we're going to continue to wind it out ninetllion a month, and we're gonna keep raising rates. That's I think a viewing in the fat that's more broadly health. That's what they want to

stay on on that course. All right, Ben, we appreciate you coming to our studios here here at is your firm based at one World Trade World Trade Center? Yeah? What's it like? What's the one World Trade Center building? Like? I've not been in it. It's fantastic. It's like brand new, really hyper modern building. I went all the way up to the upper floor, right, fantastic. Yeah, it's really nice. Like is anybody in it? Yeah, it's a favorite of what's it like down in Lower manhatt I haven't been

down there in a long time. On a weekday, a work day, is there are there people there? I mean we we we look at the prep index, which manages traffic. You know, what's it like downtown on a weekday, It's it's I think it's fairly busy there. If you know, you can tell people are definitely behind the past the pandemic. No masks everybody. It's like, you know, walking around, it's not fully back to full occupancy. That's clear. Even on the office they're not fully occupied. Um, maybe after Libid

Day they want to change advice. Are the tourists coming back. I've definitely seen tourism even in midtown here right, that's just happening. You've got to get the man on the ground kind of view because I don't get to downtown.

We could just go down there, we could just do that, but I mean we just you know, I kind of kind of go back and forth the Bloomberg HQ, but you wonder about what different parts of the city and downtown you know, Um, the New seven World Trade that's where I worked when I was at Solomon Brothers, the old seven World Trade, the One World Trade, they got the whole. A couple of towers are up and running and looks just awesome down there, and the oculus and everything.

I mean, the rebuilding Lower Manhattan. Folks, if you haven't been to the city in a while, go down to the Lower Manhattan. The rebuilding there has just been awesome, anchored by One World Trade Center, which is just an awesome building. And uh and Ben Emmon's Managing Director Global macro Strategy at Medley Global Advisors uh MET that's where Medley is. They're based on One World Trade Center, forty seven floor. So we appreciate Ben coming into our Bloomberg

and Actors studios here in midtown. Uh, Manhattan, folks out and about Tuesday, Wednesday and Thursdays. This city is pretty bustling, all right. We had some retailer's report. Home Depot stocks up four percent today, Walmart a little bit better than expected, although they lower their expect their forecast twice. But that stocks up five percent today. But we've got somebody who does uh follow these big retailers, Jen Bartashes, senior equity

research analysts for Bloomberg Intelligence. Jen, you joined Bloomberg in two thousand two. This is twenty years for you. It's been a long time, that's for sure. Paul Nice and Jen's had leadership positions all throughout Bloomberg and you know, maybe ten years ago we we entice her to join Bloomberg Intelligence, and since then she's built this great franchise looking at some of these big retailers here. Uh, And

we appreciate Jen's research at b I Go. Jen talked to us about home Depot, Walmart, maybe what you expect from Target tomorrow. What are some of the takeaways from

these retailers? Well, thanks, Paul. You know, when I look at these big retailers, I think some of the big takeaways are that things are maybe not as bad as everyone was thinking, um, And that these retailers, especially Walmart in particular, is really getting better at managing their supply chain UM and that's helping to smooth things out throughout

the entire business UM. And so it does give a little bit of confidence that the second half of this year may actually turn out to be better than we additionally has anticipated, especially for retailers that cater to kind of the lower income to middle income consumer. So, Jen, one of the things that we had learned over the past several quarters is some of the retailers had some bloated inventories and that was kind of impacting their margins as I had to cut price to kind of move

that inventory. Is that still an issue? It is definitely still an issue. Um. We we heard Walmart talk about it this morning, but more importantly when we're looking and

turning it to look at Target for tomorrow. UM. You know, Target had a slightly different approach to handling their inventory than Walmart, and that they were choosing to sort of rip the band aid off and try to shed as much as their inventory in the second quarter as possible UM and so they were really looking to call that they were canceling some future orders in order to right size their inventory. UM and that does mean that their

their profit will be significantly crimp tomorrow. But if if the consumer is behaving a little bit better than expected, there may be a slight surprise for Target tomorrow on the upside. So what's the UM deal with the inventory issues that Walmart has been having? Target had had them as well. Do you think they're going to fare just

as poorly as Walmart on the home goods and electronic side. Well, you know, home goods and electronics are certainly two of the areas UM where Target actually has a little more exposure even than Walmart is on apparel because they are so strong in apparel. And you know, this is the time when they're selling through their excess summer inventory, when they're trying to clear out seasonal merchandise UM and so the discounting that's been happening is is higher than it

usually is this time of year because of that excess inventory. So, you know, the good news is that if they were successful in actually canceling orders, and Walmart mentioned this morning that they also canceled a lot of orders to sort of right size inventory. Then they should be set up, you know, pretty well for the second half of the year. All right, Jen, it's mid August. The last thing I want to think about are the holidays. But I know, you retail analyst people, you do, in fact think about

that at this time. So what are the retailers telling me about the back to school and the holiday season? Did they think it's going to be good, bad, or and different? Well, right now we're in the midst of back to school, Um, it seems that it will be a fairly solid season. Um. It's probably not going to be stellar, um, but but fairly solid. Um. But when you look at holiday, um, it's it's looking a little

better than it did even a month ago. Um. You know, as these retailers are showing that they're able to to work through some of their supply chain issues, UM, that

that gives a little bit of confidence. But but more importantly, on the macro side, we're seeing fuel prices come down, We're seeing food inflations start to stabilize in some categories, and that means that you know, the consumer pivoted very quickly when those costs escalated, and if the consumer pivots back just as quickly as those costs come down, that could really set us up for a nice strong holiday season this fall. Jen, I know you also follow the

supermarket business. Talk to us about the cost of food, kind of where are we how did the supermarkets think it's gonna trend over the next several months. I know you're pretty close to that industry. Yeah, and you know, food inflation is is slowly starting to stabilize. UM. But the issue that we really have is that the package food companies are still struggling to control their costs, and that means that they're passing through still additional price increases

to the retailers. And for the retailers then like the Krogers of the world, or the Albertson's of the world, and Walmart for that matter, who sells a lot of groceries. UM, it's very hard to to not pass prices on to consumers, and so there's a there's a lag effect that you know, when the actual commodity prices come down, it takes time to move through that whole food chain, from the manufacturers through the through to the retailers and then to the

consumer before we see some relief. And so you know, when we look out towards the end of the year, we see food inflation remaining elevated until we get into the early but it should become more manageable as the year progressive. Alright, So the stock does it recover to the highs that we saw before the profit warning? Your meaning target? Um? No, I'm talking about Walmart, but in

general retailers, I mean, did they come back? Well? I think that if if we have a good back to school season, that will create a lot of confidence in terms of investors for the holiday season. Um. I don't know that we'll recapture everything that was lost um year to date, um, given given the challenges that they've had, but there's certainly some cause for some optimism as we will towards the end of the year. And Jen just real quickly, thirty seconds are people going to the stores?

So when I have to look at the Walmart earnings is hard target earnings? Is that e commerce? Is that people going to the stores? Where are we on that trend? Yeah? People are definitely going back into stores more. Um. And actually one of the things that that differentiates Target above Walmart is the traffic that they bring into stores. UM. They historically outpaced Walmart by a huge margin in terms

of traffic growth UM. So e commerce is still continuing to grow UM, but people are a lot more comfortable being out and about UM, and so visits into stores is pretty strong. And it's you know, supporting people buying those impulse purchases when they're in the store as well. All Right, Jen, good stuff. As always, we can ask Jen anything about retail and she's got an informed opinion.

Jen Bartash a senior equity research analysts. She covers consumer staples, retail. Basically, we just bring her on to talk anything retail for Bloomberg Intelligence. Really one of our leaders at bloombergt Talents. We appreciate getting some of her time. All Right, let's talk eco friendly products, green products in the household, talking consumer products. Allison written Er, CEO of Seventh Generation, joins us. Allison,

thanks so much for taking the time here. I'd love to just start by you're right, it's right now, and let's let's let's say, Allison Allison, how do we pronounce your last name? You got it, It's right, Nor Thank you Okay, very good, I'll get it. Seventh generation. Tell us about what seventh generation is. What are you guys doing? Yeah? Great.

So we're a company that for more than thirty years has been on a mission to transform the world into a healthy, sustainable, and equitable place for the next seven generations. And we do that by way of household cleaning products. And so we really invest um in making sure we have the most sustainable plant based products and market and

that allows us then to invest back into advocacy work. Um, so work that we do with our partners to make sure that we're standing up for the climate crisis and making sure that we are taking active strides on fighting for climate justice every day. So, um, in terms of the products that you make, what does that mean? Are we talking about recycled materials? Are they the soaps biodegradable? Um? Uh? Do you know the wipes disintegrate? How? How does that work? Yeah? Great,

So you've got so much of that right. So. Um. You know, from from a product standpoint, we really focus on less impact, less, waste less materials and so what that means for us is that we strive to make everything one percent recyclable or recycled and our primary primarily our source of ingredients as plant based, which means we used the same type of ingredients as our competitors, that

we make them from plants, not petroleum. So, Alison, how from your businesses and your experience here over the last with seven generation during a pandemic, that people pivot more towards your types of eco friendly products away from it, because boy, the pandemic and being shut in your home and has really changed away people consume various products. Yes, I will say it's been a wild ride. Um SO.

Certainly through those early pandemic days we saw a huge spike in our household cleaning products um SO, cleaning sprays, um A, paper products, and and since then, I think, along with the category, we weathered, you know, some pretty volatile demand spikes, just as consumers have normalized the amount of products that they have at home. But the thing that's been most interesting for us in this is the fact that through this time UM more and more consumers

say that they are interested in environmentally friendly products. But what we've seen in practicality UM is that it's been harder for them to purchase it. So he think real life challenges like supply availability, UM financial challenges. You know, folks have a lot of things on their plate these days, and so I think really making sure that we're clothing that gap between intention and action has been the primary focus of our company. What about the prices, I mean,

obviously inflation is the hottest issue right now. UM. You know, the UH President's most recent climate bill is actually called the Inflation Reduction Act, just to show you how key inflation is. UM. Have you seen your input costs rise? Are you able to keep margins at a steady level? Can you still compete on price with the nonplant based kind of petroleum products or can you even undercut them? Yeah? Great?

So what I will say is that we have not been immune to a lot of the challenges that we've seen in our categories and through our competitors, and so I think we've been weathering the inflation storm like many UM and as a result of that. Actually, it's one of the things that I'm most proud about over the course of this year is that, well, we had to make a lot of hard choices about our business model.

I think the one thing that we have not done is taking the quality out of our products, and so we've ensure that we're continuing to invest in plant based products. We've continued to make sure that we're investing in a hundred percent recycled materials to make sure that we're really living through on the promise that we're creating for consumers that you know, they're really clear on what they're getting

when they buy into the company and the brand. So Alison matt was mentioned the Inflation Reduction Act and some folks are saying this is a historic move and climate justice. Do you buy into that or what do you make of it? Yeah, well, first of all, this is a super you know, super exciting time for us. Um. So I want to start with the fact that you know, we're about to approve unless four hundred billion to be allocated for climate change and energy efforts within our country,

which is absolutely remarkable. Right. So we've been in this work for a long time alongside with the front line communities and our partners, and so this is a historic step in the climate fight, especially with the fact now that we have a real path to reducing carbon emissions by Um that's said from right, that's right. But you know, progress, progress, progress is what I would say. And so, um, you know, for us the Climate Reduction Act. You know, while it's

a great step forward, it's not climate justice. And the fact that it still allows drilling for fossil fuels to happen period, Right, So we're continuing to put marginalized communities in places of drilling at risk, um, And we're asking, but wouldn't those communities also be at risk if they had to pay like six dollars a gallon for gas? I mean, they'd be stuck, wouldn't be able to get

to work or school. Yeah. So I mean, obviously there's an argument on on either side of this, but we've seen it play out, and we've seen it play out in real life as gas prices have soared, um, the low income communities had been the worst affected. They can't afford to put food on their table or drive to working back. So you've got to choose between that and drilling, right, Yeah, And I guess we choose to see a world, um where you don't have to compromise the short term in

the long term. And I think you know, the big picture for us around the i ra A is that

this is a huge step forward. But as simply as I can put it, it's it's about throwing up a balloon that still has a little bit of weak right, So there's continued work that needs to happen on the other side of that, and we're just here to, you know, to make sure that we're continuing to to rally um the the US around the fact that the climate work will continue and and protecting our community is to continue to be at climate risk is a key priority for

this company. All Right, Allison, good stuff. I really appreciate you taking the time to chat with us. Allison right, nor CEO of Seventh Generation making some eco friendly consumer products. They're owned by Unilever, which is a little bit of a bendeg summer products they had everything. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer.

I'm Matt Miller. I'm on Twitter at Matt Miller seventy three and on Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.