Bloomberg Audio Studios, podcasts, radio news. You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple Car playing Android.
Auto with the Bloomberg Business app.
Listen on demand wherever you get your podcasts, or watch us live on YouTube.
The one of the stocks in the news is Lorel, the cosmetics company. Put us some good numbers here. Let's break it down with deb Acon. She is a luxury goods analyst for Bloomberg Intelligence. She joins us from London via Zoom So, deb Lorel Cosmetics. I've come to understand just really through the pandemic from my observation of the Sepphor store across the street from Bloomberg headquarters. People buy cosmetics like, no matter what is going on in the world.
What did you learn from Loriel's numbers?
Feel good factor, right, Paul?
Yeah, So actually the number is I'm in above nine percent. So there was a big pickup from four Q where we had a solid first half and a shorter second half, a slower second half in twenty twenty three across the whole of the beauty industry, and so we had a big beat on the Q one just a sales number, but it was really about double digit growth in Europe. We then saw high single digit growth when we pull away anomalies in the US and then are definitely emerging
markets like fifteen sixteen percent growth there. And the other side of it was that mass market is also holding up because luxury right now in beauty is difficult if you're a company like Laurel or Estel Order or Biasedov's La Prairie with exposure in skin care in China, where in trade travel retail is still stuffed with skincare, so that still takes another quarter to normalize. But elsewhere mass market passing on price and do very well across makeup,
across fragrances in particular. Yeah, it's all going well.
Yeah, it's interesting.
And just talk to us about the cosmetics business in general. Again, I just was, you know, while everything was shutting down in New York City during the pandemic, there's a four store across the street stayed open, Number one and number two. There were people in there every day. I don't care what was going on in the world. They were there every day. Talk to us about just the overall cosmetics market, the growth characteristics of that market.
So typically we look at the market.
I'm as you know, I covered the luxury market too, and we're in this show. We're looking at a normalized growth rate in luxury goods of five to six percent, and you could say that we're looking at that rate too, and I'm fine to know over the last several years that the beauty industry is growing in line with the luxury industry. And that's because there's more and more premiumization and ultra high end and that is fined in the same growth rate and profitability in some cases as the
luxury industry. So you typically get a three to five percent growth rate from mass market and five percent upwards on premium and then super premium and luxury type products.
It's a feel good factor. It's for everyone, you know.
Over the last few years, so Forest Does, for example, are within a selective retailing division which sits in Alvimh, the owner Ofly with a Tom Murray Hennessy. So and then you know, it's about making sure that the product in there is innovative. There's a lot of new products coming out. Lorel talked about AI using it to look at the scalp look of look at Skincare, their professional hair care division was really high looking at the at the hair care and the scalp and what's going on there.
So it's been used.
In so many ways, and also because of social media in the way that you can really get to understand how the cosmetics products are in dermatology, for example, as grown. When I look at the Loreal, twenty to thirty percent plus every quarter for since twenty twenty, so it's now become twenty percent of their business very quickly, when a couple of years ago we were talking about it being ten percent. Well, yeah, so it's it's you know, it's having belief, it's it's feel good.
But it's also got like a healthy side to it as well.
Well, that's what my co host Alex Steele, that's what she always says. She invests in her face now guys like John Tucker and Joe Mysek and we obviously missed that train, so that's too late.
But yeah, I think that seems to be a thing.
All right, deb let's step back a little bit and just talk about what you're seeing in luxury overall. If I go to the high streets in London, in Paris, how's traffic out there.
How's business?
I think, well, what we've seen overall, certainly Europe has really been the surprise. Now for the third quarter, we're just starting with the ending season, but now for the third quarter more robust than we expected. Again a lot of local touris because I think if we think about Europe in particular, twenty two we had the dollar over here spending strength of the dollar into Europe beginning of twenty three, and that phased out the second half twenty
twenty three. But the Europeans are doing particularly well with new designs, new products, new designers. But it is really the very high end where you're getting and also what you know that quiet luxury, the view of products like
Laura Piano, Brunellocution Elly. We just had their results this week, very very strong, really really decent teams growth, and so there are brands out there, but it tends to be that they really are they really are the luxury price tag and it's value for money at that price point. You don't have many of those products in your wardrobe and you're proud to wear them, and they're the ones
that are driving the business. It's across all categories too, we're talking from Kashmir to very high end leather goods to high end fragrances. We're see more and more I suppose we see more and more momentum in very high end fragrances as well, with acquisitions coming through and IPOs as well.
Hey, deb you know when we talk about I know, just reading your research talking to you in the past, the Chinese consumer is really a big, big, important player in the world of luxury spending, both home in China but also abroad as the Chinese consumer travels to New York, to London, two Paris in Italy for example. Talk to us about China. Is that a net positive or net negative?
Where are we here?
Yeah, so net negative.
So if we think about let's focus pre pandemic, and we had a travel event last week in London, we're looking at.
Where the Chinese consumer was.
So in terms of the Chinese consumer as part of luxury goods, pre pandemic a third of the business. We now think they're back to around twenty three percent. But how that's changed in terms of geography. It used to be that they've scored less than So if we think about the luxury industry, around ten percent was Chinese spending at home. Now it's sixteen percent Chinese spending at home. So we have these conflict in numbers. China is up double digit, but China is still below where it was,
and that is true. But it's the US consumer and the European consumer who've taken a lot of the slack. And that's why the industry versus twenty nineteen. Over all, the luxury goods is around thirty five to forty percent bigger.
Than it was.
Really.
Yeah, wow, that's.
How that's how you know you've you've got double digit, high single digit growth growing annually.
All right, I mean I'll walk down the Penn Station today down Fifth Avenue or mont Madison Avenue and I'll see a lot of people in those stores here. All Dad, thanks so much for joining us. Their Debacon luxury Goods analys for Bloomberg Intelligence. She's based in London and she's really one of the best animals out there, covering a
lot of retail. We're really focusing on the luxury space and as deb says, you know, he's been telling us that's a mid good, solid mid the mid high single digit growth business, you know, well above GDP, and that kind of goes to some of the wealth creation out there and widening gaps there in wealth inequality. It's not just in the US or in the Western markets, it's also in Asia as well, so deb gives us some
of the best research out there. Loreal again, the cosmetics company reported some better than expected numbers and stock is up five percent today.
It's about flat for the year.
It's a big company, two hundred and forty billion euros in market caps, so just a huge company there.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecard.
Play and Android Auto with the Bloomberg Business app.
You can also listen live on Amazon Alex from our flagship New York station Just Say Alexa playing Bloomberg eleven.
Of course, the geopolitical issues globally are back on the forefront here overnight Israel retaliatory strike on Iran last night, many folks calling it a measured response, maybe proportionate, if you will.
I'm not sure how the fin all that.
I guess that's different for everyone. But let's check in with someone with feet on the ground, Ethan Bronner. He's the Israel Bureau chief and Senior Mid East editor for Bloomberg News. He joins us from tel Aviv via zoom Ethan, what's the feeling on the ground in tel Aviv today as it relates to Israel's strike on Iran last night?
I think you described it well.
I think that the view here is that it what Israel did was to sort of smack at Iran in a place that says we can get to you. There are where it hit was one of the air bases from which last weekends attack came, and also not far from nuclear sites.
So the Israelies their attitude, at least their claim.
I'd say the mainstream claim is that we we we we hit back in a way that said we want you to know that we can do this, and we're not going any further, and let's stop this here. There are those who are very upset that it wasn't sufficient. There are those who wanted nothing to happen. But I would say that you know, it is not being criticized too heavily except from from the far right.
Right now, Yeah, Ben Ben Gavier, the hawkish national security minister in Israel, tweeting just one word week.
Right, I mean that that word was a Hebrew praate word for meeting, more like lame or wimpy.
Yeah, yeah, very very critical.
I mean that that one word doing a lot of work here to suggest that not everyone is in agreement. And at the end of the day, Ethan, I mean, this is a big change from going Israel in ran in the shadows fighting to now out in the open and out and open conflict. So while markets are treating it as if it's over, I mean, this is a shift, isn't it.
It's a shift, of course, it's in many ways a shift that began not by Israel this week, but by Iran last week.
That was the beginning of the big shift.
Israel has been hitting on occasion inside Iran. No one's kind of acknowledged it, but two or three occasions and where with missiles and other and drones and other occasions where they have assassinated Iranian Iran nuclear scientists and so forth.
But the big change began last Saturday night when Iran said, okay, all of this stuff you guys are doing to us both of our proxies in Iraq, Seria, eleven on and so forth, and now us we're coming back at you directly that was the change, and now Israel hitting back saying we can't let this happen without some response. You know, the whole debate is should there have been a response?
All week, the Americans, the French, the Germans, the British were coming by personally on the phone and saying to Prime Minister in to Tanya, who let it go.
Take your win.
You stopped all those attacks last Saturday.
This is a win. You don't have to go back at them.
But the Israelis felt they did, and this was their response.
We'll see where it takes us. It isn't obvious that it's over.
But the Iranians have been saying publicly today they don't think much happened and they don't see any particular need to respond.
So all right, Ethan, let's get our focus back on kind of probably where it needs to be, which is in Gaza. What's the latest thinking about Israeli strategy in Gaza? It feels like a stalemate and status quo is there? What's the strategy here from the Israeli government.
So they're not being exceptionally open as you can imagine in the middle of their deliberations, and there are you know, It's like a Rubik's cube. There are all these things going on at once, including, of course what's happening with around that we've just talked about. That the Israelis began
their attacks six plus months ago. Recently they pulled many of their troops out, but there remains in southern Gaza, in the city of Raphach five to eight thousand Hamas troops in tunnels and so forth, and some hundred or
so Israeli hostages. Israel has been repeatedly saying that it needs to go in there eventually and take them out so that Hamas can no longer be the kind of force to do what it did on October seventh, and the Americans have been saying, be careful, please don't what about all the people who are a million plus people
who are taking shelter above ground in Rapha. So I think that my instinct at the moment is that there will be some time off here as we see whether this negotiation can get anywhere in Cairo about a piece about a ceasefire, and that Israel will begin to take steps to have the civilian in Rapa moved elsewhere for some kind of operation in the coming month or two its scale is very difficult for me to assess at.
This point, Ethan, if I could tie these two together, does the fact that Iran has struck Israel out in the open? Is there a sense to which this gives the Israelis more I don't know, more impetus to say, look, clearly, we need to be out there and we need to be strong. And again this more hawkish attitude towards Gaza and what they say Iranian proxies.
Yes, absolutely, but you see, it's like everything, it's it's not one force at worker.
And so what you said is true.
On the other side of the of the equation is the fact that last Saturday, all these countries, including Jordan, Saudi Arabia and other Arab states, helped Israel push Iran back. And Israel is feeling, you know, in the bosom of some kind of alliance and doesn't want.
To mess that up either.
So you know, I think that what it wants to do is sort of show restraint toward Iran on its mainland and get everyone to accept that it needs to do something in Gaza. And because as you say, AMASA is after all funded and paid for by Iran as well.
So Ethan.
You're based in Tel Aviv. You have a good sense of kind of the common person on the street. Is there any sense that among the people of Israel that there's a sense of fatigue setting in here? It's been six months here, they've basically occupied Gaza. Is there a sense of that maybe the people would like to move on to the next step.
There is some of that. I don't think it's overwhelming, though.
I have to tell you, Paul them and there really is a sense what happened on October seventh, it's very difficult for those abroad to grasp the sense of trauma and defeat that it created in this country, the sense that its very existence is its stake, its ability to allow people to live at the edges of its country and not feel that someone is going to come in
and carve them up and unprotected. It's been so overwhelming that I think that there remains a desire here among most Israelis to quote unquote finish with Kamas and make clear to other militias, proxies and enemies not far away that Israel is willing to fight for its existence. So I don't think that a fatigue is the overwhelming sentiment, although you are right that it exists, and there are many who say, we've done what we can, let's cut a deal, let's get out.
We can't do this forever. But I don't think it.
I think it's still leaning in the other direction for now.
Ethan, if I can quickly ask a military amateurish question, because this I don't understand, and maybe it's a minor point, but I'd just be interested to know when Israel we have reports of them launching the strikes, also a report of them striking a Syrian aerial defense position. Israel never confirms them. Their official line is always one of unconfirming.
Why is that, you know?
I think that their view in particular with regard to say around is that it in particular today, they view that it allows them some kind of rhetorical and strategic flexibility to not specifically say what they did. They certainly acknowledge when they attack and Lebanon and often in Syria, by the way, if they say these are his blove
positions that we have taken out. That goes on in terms of the sort of scariest stuff that goes on when they take out, you know, an alleged nuclear reactor or when they do what they did today, they they have found it useful.
To not to not talk about it publicly.
I mean, you know, Israel has nuclear weapons, that's had them for years, it has never officially acknowledged them.
Ethan, thank you so much for this reporting. Ethan Browner Israel Bureau chief and senior Mideast editor for Bloomberg News. He's based in our Tel Aviv bureau. There, so again, fluid situation there.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple Card playing Android Auto with the Bloomberg Business app, Listen on demand wherever you get your podcasts, or watch us live on YouTube.
We are here in a Bloomberg Interactive Broker studio, Danny Berger sitting in for Alex Steel, who's on holiday today and all of next week. We're here in a Bloomberg INTERACTI Brooker studio. We're streaming live on YouTube. That's the Internet, Danny YouTube, dot com search Bloomberg Podcast. Apparently that's what the kids are doing every day. We're on this YouTube thing.
Tom's all over. Tom Keeney's becoming a new person here in this Internet age talking about streaming kind of internet delivery of media.
It's all about Netflix.
Netflix is a two hundred and fifty billion dollar market cap company. It's up seventeen percent year to date, up seventy six percent over the past twelve months, but it's down six point six percent today. I'm not sure what's going on there. I thought they had good numbers last night. But let's chicken with somebody who gets paid to understand this stuff.
KEITHA.
Ranganathan. She is the the media analyst of Bloomberg Intelligence. She's done in our Princeton office. Keith, I thought it was a really good quarter in terms of you know, particularly the subscriber ads.
Why do you think there' stocks trading down today?
Yeah, it was not just a good quarter, Paul, it was an excellent quarter. I mean, they blew out subscribers. We were expecting, you know, four and a half million subscriber ads. They came in at over nine million. It was the best first quarter ever, you know, kind of
almost reminiscent of COVID times. But I think why investors are a little bit spooked ever since they reported is because they said that they're no longer going to be providing disclosure on their subscriber numbers as well as on our pools starting in the first ord of twenty twenty five. And I think what that really signals is that this
company is transitioning into this more mature phase. I mean, you know, well, investors in the market likes transparency, and anytime you reduce disclosure, it really kind of causes a lot of uncertainty, a lot of anxiety.
If it's entering a more mature phase. Gita, does that mean that this thing can no longer be priced as a growth stock, That the era of adding on huge amounts of subscribers growing like gangbusters, that that's over, and so this repricing in that scenario makes sense.
So, you know, there are a couple of different things here. I think with the whole streaming wars and the media landscape as a whole, I mean, there has been kind of this shift away from this hyper focus on just subscriber growth. I mean, there was going to be eventually some type of a wall or some type of a ceiling. The question was where it would be Again, that question is still an open question. But I think what you have to remember with Netflix is, yes, there is going
to be some limits to subscriber growth. Think we're going to see peak subscriber growth this year, it is going to start to decelerate a little bit. But I think what Netflix has managed to do being a first mover in this space is really scale and operating leverage. And we're seeing that in the profitability metrics. We're seeing that in the operating margin, We're seeing that in the free cash flow, and they are just way ahead of their peers.
And so I think, you know, you know, yes, valuation might have to take a little bit of a more modest kind of approach or has to be maybe a little bit more cautious here. But at the same time, I mean, this is a very different company from your traditional media company because most of them are still losing money on their streaming business. Meanwhile, you have Netflix generating close to about nine to ten billion dollars in profit this year with a twenty five percent operating margin.
Yeah, just amazing what they've done there in terms of getting to profitability, which beg begs a question at Githa, how about is there I mean, you can be a very profitable streaming company.
We see that with Netflix.
Do you think that paramount pluses of the world that Disney pluses the world, all the other pluses out there from the media companies, can they get to a similar level of profitability too, because right now, as you mentioned, the streaming business has been a money loser for most of the traditional media companies.
Yeah, so exactly to that point, Paul. Last year, when Netflix reported about seven billion dollars in profit, all of these other streamers combined reported the exact same amount in losses. So they lost about seven billion dollars, and you know, it's going to be a little bit different story for each one of them. I don't think all of them can necessarily get to profitability. So Disney is almost on the cusp of profitability. They're probably going to break even
in a couple of quarters. They have all the levers in place to kind of really make it a very profitable business. Of course, it's going to take them some time to get to the levels of a Netflix, but they definitely have the formula. When it comes to a paramount, I think that's going to be a completely different story. The company is still losing money. It will probably lose about a billion a billion two plus. They have too
many other distractions going on with Warner Brothers Discovery. Yes, they did turn a slight profit last year with you know, Max, But you know, Paul, you really have to kind of look at this in the context of the Warner Brothers Discovery business. I mean HBO in its heyday, and this is HBO, which is basically turned into the streaming business. In it's heday, was generating two billion dollars in ebitdah, and last year they reported one hundred million dollars on
their streaming business and ibadah. And you know, if they want the street to be excited about that, I'm not so sure. You know, investors are going to be too happy. So it's they're not going to be able to get to the level of profitability and definitely not going to be able to get to it in the timeframe that investors are hoping that they would.
So Netflix might have won the battle there, but get the one battle that seems yet to have been one is who's the dominant sports streaming place. You have Netflix with the WWE rod deal, and then you have this other platform which we heard be announced earlier in this year, which, to be honest, I feel like I've heard nothing of since the ESPN, Fox, Warner Bros. Discovery. I don't even think we still know what a name is. We don't know whether it's going to happen, whether Congress will even
allow it to happen. How is that shaping up in terms of who becomes the go to player to watch all of your live stream sports?
Yeah, that really is is the question the question right now? And Danny, you know, you kind of really hit the nail on the head there. We're gonna have to wait and see what happens with you know, the joint venture the ESPN Fox Warner Brothers. In the meantime, Disney has also said that they will take ESPN standalone over the top in twenty twenty five. But in the meantime, you do have all these tech giants kind of making a play for sports, right Amazon I think to date has
been the most aggressive. They have the Thursday night football package. You know, they've now introduced ads on their service, they have a lot of the football content from Europe, so you know, you know, they're definitely making a big play.
And as you mentioned Netflix too, I think the big thing that we are kind of really watching out for is this July twentieth event where they're kind of dipping into live sports a little bit with the Mike Tyson versus Jake Paul and that kind of then gives them, I think, allows them to gauge a little bit, you know what the appetite for for live sports is, because remember again ww's is a little bit quasi sports. It
is more what they call sports entertainment. But it's going to be interesting to see whether they really want to go charging, go really aggressive with sports. I think if they want to build their advertising business, I think it is a critical piece that is missing for them right now. And so there is this chatter and this speculation about whether they're even going to be this dark horse bidder for the NBA negotiations that are currently ongoing.
All right, gith, let's switch gears to our good friends at Paramount. The stocks up about ten percent today. The news, I guess is Paramount shares jump as Apollo and Sony are said to weigh a joint bid out there. What's the latest there? Are we going to get some kind of deal here for some of Paramount, all of Paramount?
How do you think it shakes out?
I certainly hope so, Paul.
I mean, it's Sony kind of getting into this equation. I think they are the most credible bidder to date, and you know, I really hope that they come in with something that kind of entices the Paramount board to engage with them, because remember the Apollo bid before for twenty six billion. I mean, there were just or at least the way management spun it was that, you know,
there were all these financing concerns. So this I think definitely, you know, we'll have a lot of firepower because the sky Dance deal, that Paramount is currently engaged, and there's just been so much of backlash against that deal because what most of the common shareholders have felt is that it is only going to benefit the Redstone family, it is going to dilute all of the other shareholders. So
there is all of that going on. Meanwhile, you had four board members that kind of left, you know suddenly again that kind of screams.
A hard no.
So the sky Dance deal as it stands right now really seems fraught with litigation risk, which is why I think Sony coming in is kind of a welcome change and investors will definitely cheer that.
But to be clear, share Redstone doesn't need to let the other shareholders have a say or have a vote, right and how this goes.
She doesn't need to, but she should. I mean, she does have a fiduciary responsibility.
That funny.
We were speaking Tom Keen and I earlier today with Chris Morangi, who's a co CIO at Gabelli Funds, and Gabelli is they own the control shares, they don't own the non voting they own the voting shares. They're the second largest owner after the Redstone trust here, and he seemed to imply that, you know, he thinks the company should treat all shareholders. I guess similarly, but again, as you mentioned, they don't have to, assuming they want to take some litigation risks.
Is that kind of how you think about Akita?
Yeah?
I think you know, that's what they don't have to. You're absolutely right. I mean, Sherry Redstone can pretty much do whatever she wants. The problem is, you know, the other shareholders are going to definitely revolve. There's already been so much of public protest and backlash. Not that that has stopped her, but again we'll have to see.
Yeah, it's amazing, and again I just rewind my investment banking clock. You know, five years, ten years, and what you could have gotten, what this company could have been paid for, or change and control, what it's been multiples of where we are today. It's just kind of sad to see how the value has declined.
And probably the idea of a dual class share back then was different. People are looking at it different than they are at this very moment.
Yeah, exactly.
It's been something that media investors have had to deal with for a long time.
Keitha wrong and nothing.
She thank you so much for joining us at Githa is the media anamals for Bloomberg Intelligence, one of the best media anaals out there on the stream. We love getting a few minutes of her time joining us from the Princeton campus of Bloomberg.
I've been down to the Bloomberg alses of Princeton, you know, I never have.
I got to just moved back to New York, Paul, You've got to give me time. Give me time. And how you're in London for almost seven years?
Wow?
Yeah, yeah, back in New York.
So now we'll do the bloomberg Y West road trip now that I'm back.
Very good.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Otto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty Janny.
We've talked about this market.
It's rally hard off the October lows, you know, one point up about twenty five percent off those October lows, and a lot of smart market people are saying, we do need to see some pullbacks and draw downs, maybe something more than two percent to kind of it's okay for a healthy market. So here we are today, we're down about four or half maybe five percent on the S and P five round of the question is that it?
I mean, is that kind of the pullback?
Nicole web joins, a senior vice president financial advisor for Wealth Enhancement Group, joining us here in our Bloomberg Interactive Broker Studio. So, Nicole, what do you tell your clients these days about kind of the you know, the ups and downs of this market. Again, we've had a nice strong move off those October lows. What do you tell them about where you think this market's going to go.
I mean, pauses and pullbacks are part of a healthy market. We can't run further from here. To think it would happen in a straight line is you know, that's what makes us uncomfortable. When we see things trajectory up into the right for two long that's when you start to get a little bit concerned about over enthusiasm. And so this pause for us is well warranted. I think the does the pullback have room from here? You know, I think there's a lot riding on big tech earnings and
I think we can't be overly dismissive of that. It has been the defensive play for many years in a row now and there's a lot riding on that forward guidance. And we're a bit of the camp that there's probably a de acceleration of earnings from those names and an acceleration of earnings and other sectors of the market in the back half of this year. And I think you saw a little bit of that play out with Netflix and there's a big response.
Yeah. Again, the irony is this idea that on the way up we're freaking out or not weps me freaking out that it can't go on and when it starts to fall, we freak out the other way. How much further will it have to fall? But it's interesting, you say, back half of the year, other companies pick up the mantle. So is this less of a sell off and more of a beginning of a leadership change?
Yeah?
I think.
I mean, there's a lot going on in markets today, and I think it's a truly incredible time to be an investor. Anytime you see the ten year pushing five percent, you have to have a real conversation with your clients and working on our side of the business, you know, we're not beholden to only one mandate. We're cross asset for families and so to us, you have to have real conversations about excess return above expectations from equities and
what you do with that. And when you have a ten year that is pushing five percent on a net real return after tax basis, you start to go, Okay, well, if I was expecting seven or eight from equities over that same ten year period, is it prudent of me now to start to think about repositioning? And so you know, I think this is one of those kind of the most overused word of twenty twenty four. This is another bifurcation of what are you doing right now? Is it
a long only strategy? Are you cross asset, are you invested across all sectors? And then how are you looking at? This market today is full of opportunity for that.
You have a sixty forty outlook.
Sixty percent of portfolio and equities forty percent in bonds. Is that something you guys do or do you just get a little bit more creative than that?
Definitely more prescriptive than that, and I would say, you know, we are big proponents of the third leg of that stool, which you know it would be in the world of alternative investments, real assets, you know, really looking at underlying risk. You know, the unique thing about equity markets today is that we have less shares available. There's just less publicly traded companies. And so when you take that into consideration, I think for people who have the access or the
lack of liquidity needs. You know that private investment spectrum has been a big part of overall acid allocation.
In terms of this idea that that higher yields, I get that all of a sudden have something that's an attractive alternative to equities, But just in the mechanism of that forcing equities to sell off. Is it different that the reason that we have higher yields is because the US economy is strong, and the US economy is strong enough that we don't need to cut Presumably that's again and aroundabout way a good thing for equities.
Yes. So, And this is where I was saying, there's so much unpack, you know, I think this is where the story of the inversion of the yield curve, which I've been talking about, I feel like since twenty eighteen, it's just a nauseum. But what if you really break it down to what is it telling us in the moment. It's telling us that there's long, long duration demand for US treasuries, and that the growth is so strong, and that the consumer has strength to the extent that we
want to slow them down. So when we think about earnings, and we think about earnings growth, which the end of the day should be a big part of the representation
of the valuation of the market. Well, then when we look at not just US GDP, but we start to focus further on the IMF global growth numbers, China GDP, China stimulus, this is where I think you start to really see, Okay, yes we're in a pullback and there's still likely room for this market to grow from here, but there's going to be fits and stops to that growth trajectory you mentioned.
On a fixed income side, you can get you a nice return on a two year on a ten year treasury.
How about going on and taking some credit risk.
Is that something you're advising your clients these days, whether it's investment grade or even high yield.
Yeah, And I think you have to be both tactical and active with your fixed income portfolio, you know. I think this is where you speak to anyone who works directly on the behalf of any families. You start to really look at that you know, net after tax equivalent
basis on your fixed income portfolio. And so you know, we have taken on, you know, credit risk across the spectrum, and we're just utilizing again going back to kind of that prescriptive mandate where we are a bit more creative because we work for families.
Cool.
I love how you put gold right now, saying that gold as an expression of discomfort. I think that's perfect because so many of us have been scratching our heads saying, what's up with gold? Is this kind of the only asset class to express that discomfort at the moment.
I mean, there's a lot if you look across the commodity spectrum right now, there's a there's a lot of reasons to feel uncomfortable. I mean I I was speaking to one of our analysts. I'm like, talk to me about commodities, and he's like, drought, drought, geopolitical drought, this and I'm just like, Okay, I just got uncomfortable. How
do I express my discomfort? You know, for us, gold doesn't really play a meaningful place in portfolio construction simply because you know of the components of what gold is. And so when we see a response like this, it's funny because gold can go in a couple of different ways. It can be both exuberant and it can also be discomfort, and right now we think it's an expression of discomfort across the commodity special.
Dare I suggest you have a viewing bitcoin, crypto, that kind of stuff the big having when your clients, when your clients call you up and he said they want to get exposure or crypto, what do you say, you know, I think crypto.
And this goes back to something we were all saying before we came on air, cryptocurrency, and I'm going to focus specifically on bitcoin, but it is a supply and demand mechanism. And so if you you know, the thing that hit me the hardest when I was learning about bitcoin over the years was, you know, if you believe that the demand for bitcoin is going to increase by more than two percent per year, because the supply is only going to increase by more than two percent per year,
then you should probably be long bitcoin. I'm not saying that. That's the advice I'm giving to indigital clients. So that's our firm's thesis on cryptocurrency. But you know, I think, you know what, you always want to boil things down, boil down what markets are, boil down what bitcoin is. And at the end of the day, you know, I think this conversation about having has a lot to do with that supply and demand mechanism long term.
Very good, Nicole, Thank you so much for joining us. Nicole Webb, senior vice president, the financial advisor at Wealth Enhancement Group, joining us live here in our Bloomberg Interactive Brooker Studio.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar.
Play and Android Auto with the Bloomberg Business Act.
You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Paul Sweeney live here in a Bloomberg Interactive Brooker's Studio in New York City.
We're also streaming live on YouTube.
Say head over to YouTube dot com and search Bloomberg Podcast, and that's where you'll find it.
All right.
A lot of market participants, a lot of market observers are saying, you know, part of a strong, healthy market is an occasional pullback, a drawdown, as the kids call it.
I'm not sure.
We're off about five percent here on the s and p five hundred from our recent highs. Does that qualify? It's checking with Barry Ridholts. He's a host of Masters in Business on Bloomer Radio. Is also the founder of Ritholt's Wealth of Management. He joins us via zoom here. Hey, Barry, I mean, do you ascribe to that kind of thinking that every good long term bull market needs some healthy pullbacks? And if so, are we in midst one of those.
Now do you think, Wait, markets go up and down. Nobody told me about this. I thought they just went straight up and it was easy to make a ton of money. Listen, this, this is the nature of a broad, deeply participated, enormous market capitalization exchange.
This is this is what happens.
You know, the ideas that drive markets kind of get tested out, they catch fire for a little while, then they sort of get overlooked, and then the narrative changes and you know, we've we've figured this out. I love the expression investing is a problem that's been solved. But investing is something that takes place over decades and month to month, week to week, day to day, tick to tick. That's fairly random. There's a lot of noise and a lot of emotion that weight. We're up twenty five percent
from the lows. Weight, we're down ten percent from the highs. It's everybody making their best guess as to the discounted cash flow of stocks and where profits are going to be in the future relative to the risk free red return of bonds.
And Barry mentioned where profits are going to be in the future. That brings our attention to earnings. It seems like the FED story is still out there, but the FED will be maybe less active in terms of cutting rates in the near near term, So maybe focus needs to go a little bit more towards earnings. What are you looking for in terms of earning share? What are you going to be listening for anything on some of these calls?
So I like to look at two things. I want to look at what is the overall all beat rate? Right most two thirds of the companies will beat earnings expectations. We always laugh at when an earnings report misses the expectations. I think everybody gets it backwards. The earnings report is the earnings report. Your forecasts were wrong. They are what it was you got it wrong. So I want to see how well how many companies are beating versus missing. I like to look at the overall level. Hey, what
are we growing really? Adding three four five percent to profits? We're pretty close to all time highs for profits for the S and P five hundred. But the thing that so many people find so challenging is it's not the number, it's not the data, it's what are the earnings relative to expectations? Netflix? Is a great example. I mean, that is a spectacular earnings report, the most new subscribers in a long time, revenue profits, everything moving in the right direction,
but apparently not as much as expected. And so despite you know, the really solid report, the initial response was, oh, this is disappointing, which it's always about, not the news, but how much of the news is already priced in?
And to that end, Barry, what do you think of companies providing kind of point guidance, whether it's a quarter out or a year out. I mean, is that something they should be doing to kind of manage the whole process or should they just run their business and let the street take care of it.
You know, I am not a big fan of you know, back in the old days when you pull, when you and I were first ye getting started, they used to be called whisper numbers. Before reg FD, a handful of favored analysts or axes on the stock would get a
very quiet conversation with the CFO or the CEO. Hey, you have us at seven cents a share, you should really be close in a nine sense of share, and you know, so everybody would be low and the one guy the day before would change his estimate, and lo and behold, everybody rushes to raise and the stock takes off. That sort of nonsense from when we were youngsters, the on trading desks, that's all gone, so now everybody has to get the disclosure at.
The same time.
And I wonder how helpful it is being that precise. I love hearing a CEO saying, hey, listen, you know, we're expecting to see growth this quarter similar last quarter, but we don't know what's happening with fill in the blank, the war in the Middle East or the Ukraine. There seems to be a lot of inflation stuck in the in the services part of the economy. So we're going to give you a range and try not to micromanage this. And I think that's just honest, because we really don't
know what the future holds. When someone pretends they're sending themselves up for failure, all.
Right, Barry, I'm looking at some social media from our good friend Matt Miller, and he's now showing it looks like he's test driving the Lamborghini HURKHN Strato, and he notes that it's among the last of the naturally aspirated v tens in production.
Whatever that is.
Does that kind of car get your attention?
So I am so I'm not a big Lambeau fan. That's not mine. It's a little too flashy for me, Paul, you know what a low key of course I am. And the Lambeau in that, like lime green, is a little too much for me. That said, I gotta give Lamborghini credit for saying, wait, a four hundred thousand dollars rocket ship, I know, Let's turn it into a decar
off road racer. Let's let raise it a few inches, put some plastic cladding and high intensity light beams and some off roads and let this seven hundred horsepower monster loose, you know, in the Sahara. Kudos to them for stepping out of their comfort zone. The crazy thing about this Serrado is not only does it have a giant premium over the usual Lamborghini Hurricanes, it sold out instantly.
Wow.
And every time people tell me, and admittedly this is not exactly a middle class purchase, but wherever I look, cars, watches, restaurant reservations, every part time someone tells me how bad the economy is? Where do you live? And I'm not just in New York, I'm around the country pretty regularly. I was just in Salt Lake City, I was in Vegas. I was in California and not like Beverly Hills, but like middle class parts exactly.
Yep.
The wealth effect is it's hard.
Yeah, it's hard not to look around and say, if you think this economy stays all right, we have to leave it there. But I think where you live.
Barry very much.
Thank you host a master's in business on Bloomberg Radio, founder of Ritholtz Wealth Management as well. Appreciate that little car talk to finish off your morning.
This is the Bloomberg Intelligence Podcast, available on apples, Spotify, and anywhere else you'll get your podcasts. Listen live each weekday ten am to noon Eastern on Bloomberg dot com, Beheartradio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.