Mark Vitner, senior economist at Wells Fargo Securities,

CEO of Waiter Holdings. Adam, thanks so much for joining us so in this food delivery business. First of all, tell us about Waiter Holding solus about the history of the company and kind of your strategy. Yeah, absolutely so. So Waiter was founded in Louisiana and we focus on small, medium sized markets around the US. So whereas in the big cities you have the big companies like door Dash, grub Hub, Uber Eats, and the small cities around the US you have Waiter and we operate another brand called

Bite Squad. There's a feeling that there's been too much hopium around the food delivery services. And I'm sure you've read all of these articles and I'm sure you shake your head and you say, they just don't get it. Uh. What do you think right now of some of the backlash that we've been getting from all of the investment in food delivery services. Yeah, it's it's a great question that the real crux of the of the arguments right

now is what is the sustainability of the space? You know, if consumers are expecting free delivery and you have to take a portion of the sale value from the restaurant, you know, where does this space live in its entire There's been so much money that's flown into it, and

are these businesses sustainable and can they be profitable? And and we really feel that Waiter, the focus needs to be around consistency and really aiming for a consistent customer experience so the customers stay sticky to the platform and stop jumping around from platform and the platform, and then focusing on the operational efficiens. Uh, in order for the sustainability and the long term profitability that there's consistency. That's important.

So is making money and that's proven to be difficult given the fact that there is competition including getting in your car or using your legs and going and getting the food yourself, right, I mean, how do you how have you found profitability? Well, there's a clear shift in the consumers willing to pay for convenience, So so the the competition of a consumer going to pick it up that that is a clear deviation. And what you're seeing in terms of consumer behavior, people are willing to value

their time, they're willing to pay for convenience. So food delivery isn't going anywhere. The question is what makes it sustainable and profitable and and in our system, what really drives that profitability is is the attachment of the customer base. You can't continuously be paying to acquire new customers, and that's really done through consistency and then the streamlining of the operations. And that's what gets you to that profitability.

And one of the items we use, which is dramatically different than our competitors, is we use W two drivers as opposed to contractors, which allows us to pull some of those operation levers that I can get into details if you like. All right, so let's talk about profitability. I'm looking at the Bloomberg terminal right now, the f A function and uh Waiter Holdings is not profitable. We even had so, and you guys been in the business for a few years. I'm looking at at the forecast

for still not forecasting to be profitable UH. I look at Uber which has got scale out the wise Zoo. They even say that their Uber Eats business is the weaker and the least profitable of relative to their ride business. What is the model to profitability? What levers have to be pulled? Well, there there's a couple of things. All of these groups just exploded in growth because of geographic expansion,

and you have to be in. Step one in being profitable is realizing you know what markets do you have that put you on a path to scale and profitability, that allow you to operationalize and bring in that sustainability with that scale. So one of the things we've actually done recently UH is pulled back on our market share or on our markets. We close thirty eight markets UH will be finishing in the next fifteen days or so

that we announced in our last quarterly call. You have to be very careful not to be over extended in this space. What's interesting to me also is how the consumer access is waiter right, I mean, do they go to waiters website or do they go to the restaurant that they want to order from and then there's a tab from waiter, So which is it? It's both, you know, you're trying to acquire customers and multiple fronts. We have an app, a mobile application, just like you know most

of the players in this space. We also put order now buttons on the restaurant's website which drive people to download the mobile app. Um. So there's multiple channels, but the primary channel that we receive all our orders as the mobile application. So it's interesting. So uber eats some of these bigger market ones grubub, are you finding that they are now coming down into your midden small size markets and if so, how do you compete against those

big companies? Yeah? Absolutely, So what you've seen is that, you know, in an effort to continue the rapid revenue growth, geographic expansion has been in the primary tactic. So you have almost in all of our markets you have two to three primary players. Now in food deliver you have grub uber waiter or grub door dash waiter, so you see multiple players in every market. The key to owning

that market again is around consistency of customer experience. Anybody can go into a market and start offering customers free food, and they're gonna get customers. If you don't have to pay for delivery, you're gonna start using or trying the platform. What's critical is the way to retain those customers is by consistently having a good experience on the delivery side. How much are people willing to pay for delivery? It

ranges based on markets. One of the nice things about smaller medium sized markets is you do get a larger appetite for paying for delivery fees, all right, because people are that much more willing to But it's still you know, I we recently changed in the in most of the way to brand in markets are delivery feed from five dollar support dollars because it resonates better with the customer.

So you see downward pressure in that consumer delivery fee that you have to adapt to on a market by market basis, Are you still I know you said you're downsizing closing some markets. Are you still adding some markets selectively? Round Now it's very selectively. One of the things when a space becomes highly competitive like this is you really

have to leverage your brand in geographic proximity. When you expand markets so so as you grow, you need to be very careful not to jump geographies and be overexposed to competitive pressure in that area and grow very organically, almost from a geographic stampliat. How often do you order in? I order in several times a week? Yeah, what about you, Paul rarely? Yeah? Do you go pick it up? Are you? Yeah?

Why are you driving? I know it's a good question, it's good no, But I also love the idea that it's um people like to value their time could also be translated into people are lazy and they don't want to get off the couch. But actually it is true, especially if you have a family or something like. Yeah, And that's what's beautiful about the small medium sized markets is it's a much higher concentration of families. So so you end up at time is our only finite resource.

So if anything, that should be the most valuable item that we have in our in our day to day lives. Thank you so much for being with us. Adam Price is a chief executive officer of Waiter Holdings, which is based in Louisiana. Joining us here in our Bloomberg Interactive Broker studios. Copium is the word of the week at least hopium that there will be some sort of deal,

despite the fact that we have no concrete evidence. We've seen this before, we've seen we have really we're really getting close, but we have nothing again and again and again. Joining us now to talk about with the hopium is real in or in terms of market reaction and how it should persist. Heading into David Kotok, Cumberland Advisor's Chief investment officer, David, I know that you've been bullish on equities.

Do you continue to be even after the recent leg higher in the recent new all time highs that we've seen. At the moment, I am getting very nervous. We entered the market, went to fully invested structure lisa UM the last week in August, and we have been there since then. And at this level with of markets and with the

current news flow, I'm very, very concerned. The market is discounting all the positive outcomes and it's being fueled by a very expansive federal reserve policy, which is creating huge liquidity that doesn't last forever. So the answer is am I concerned and worried? Absolutely? Yes? And would I be making changes? They could come at any time. So the changes, David, this is interesting because I think obviously, over the last several times we've had you on, you've been very correctly

in the bullish camp. So this is a from our perspective, a little bit of a turn for you. How do would you proceed if you were to continue to be cause it's kind of changes would you make. I would raise cash, lower equity exposure. I might consider switching to

more defensive, less aggressive sectors. Um Our quantitative work has been guiding us because it's capturing these um changes in market sentiment, and the market sentiment has become extended a variety of ways to estimate that we never know for sure, but we're seeing it. And our view is the market is reflecting changes in headlines which are affecting sentiment. Fear of wealth taxes, the Warren Sanders approach seems to be

subsiding as the politics change. Um whether impeachment would be conviction in the Senate seems to be subsiding the houses. Maybe an assumption, but the political risk is now the Clinton impeachment model, not the Nixon impeachment attempt model. So markets are making adjustments, and I think part of that is due to an assumption. The assumption is there will be some form of truth trade reduction of tension, and

that's necessary for economics to start to improve. The economic landscape is terrible because we see manufacturing sector shrinkage and all the news flow that your you report every day is sending that kind of a message. So to us it says, okay, we had a big pendulum swing where at all time new highs and I never saw a client complaint when you took a profit and put it in the bank. All right, So where would you take profits here? Well, I would cut back on the high

beta sectors which have really really raised ahead. So you cut back on Apple and yeah, the big names, the tech sector among them. Um um, the defense hasn't had a terrific run. Maybe it'll have more. I you know, these are This has to now become an e t F by E t F sector by sector, industry, industry

by industry decision. But for the run from August, the wind has been at our back because the we were in cash in our quantitative models from the end of February to August, and we have had a terrific year by having cash during a period of time of high volatility and uncertainty and the way we measure it, and then we had the triggers, so we went in an ox i. It's been a remarkable uh here and at this juncture you have to ask yourself, how much more

can you expect? I'm above my targets for year end on the S and P. It was a three thousand target, you may recall we've discussed it on the show over the years. Well, we're above it, and we look as like we have stability now in the monetary area, at least it appears, so you can't expect much improvement beyond that. And we are seeing little uptick signs in inflation and uptick signs in some of the bond interest rates. And what that suggests is the wind has been at our back,

but maybe it's now subsidy. Hey, David, thanks so much for joining us. We appreciate your color as always in that. Clearly we sensed a little bit of change in tone from you, so we appreciate your sharing that with us. David Kotak common Advisor's chief investment off So that was news for me, Lisa, because David's been consistently I think constructive and now he's saying, you know, he's had a

nice run here, as obviously has. The market has um and it's not the worst thing to perhaps take a little bit of money off the table, maybe get a little bit defensive. We've heard that from some people as well. Others are still saying, hey, we've got more to run in this market. But you know, a grizzled veteran like David Kotok say, let's get a little bit cautious. Very interesting change in tone for him. So we got retail sales out this morning, and they did gain, but they

were a little bit more muted in certain areas. That gave certain economists concerned that perhaps the consumer, the stalwart of the economic expansion, was running out of steam. Joining us now Mark Vitner, senior economist. It was Fargo Security, and Mark, I really do want to hone in here on the consumers, since it has been so pivotal in driving growth here in the United States. Do you view the retail sales that we got out this morning as potentially a warning sign? I don't know that it's that

much of a warning. We're coming off a lot of strength in the third quarter, and there's also there was some supply disruption in the auto sector, and I think that that may have weaken what would have been even stronger auto sales. So, you know, I think that the consumer seems to be in reasonably good shape. While job growth is slow, the unemployment rate is very, very low. There's no sign that layoffs are picking up, so folks aren't concerned about their job security, and wages and salaries

are are accelerating. So I actually think there's too much pessimism about the consumer. And if we had numbers just like this every month, every month, month after month, we would still be better off than what most folks have forecasts for the next year. So, Mark, how concerned are you about, uh? The manufacturing sector business investment continued weakness there. Yes, that's a smaller part of the U. S economy relative to the consumer, but how do you kind of view

that mosaic? Well, manufacturing is a smaller part of the economy, but it still accounts for most of the swing. When we went from two percent growth to three percent growth, two thirds of the acceleration came from manufacturing, and the move from three percent back to two two thirds of the acceleration has been because of a slowdown in the factory sector. Part of that is due to the ongoing uncertainty about where we're headed with trade negotiations with China.

If we get a trade deal with China, manufacturing out activity will probably pick up, investment will probably pick up um six months out. The other thing that has been happening is that when growth, when the economy was growing two percent, you needed less inventory than when we were growing three And now that we're back at two businesses have been reducing inventories, and that's weight on manufacturers. That that pool to manufacturing activity from from inventory d stocking

is now probably behind us. So I think in the very near term we're gonna see a little We're gonna see some better numbers on industrial production and better numbers in the ISM Manufactured Survey. The estimate for your over you GDP growth in the United States right now one point eight percent. For how close are we to stall speed here, well, one percent is about what we've averaged, what we average from two thousand ten to two thousand sixteen.

I guess if you look over the entire business cycle, we're right at two point three percent since the recession ended. So it's a little bit slower than where we've been. But if we grow one point eight percent per year, that's probably enough to keep the unemployment rates steady. And we're at three point six percent. So if not horrible, I would rather see growth somewhere more to two percent. I think the greater risk is that when growth slows,

we're more vulnerable to some sort of exogenous shock. If something bad were to happen somewhere in the world, maybe if China took a harder line on Hong Kong, um that that might tip the balance into recessions. We walk through that a little bit because we have been seeing these headlines about how things have been accelerating and tensions have been rising increasingly in Hong Kong with the death of a student. How does that end up being the

exogenous factor? Uh that disrupts the global economy more significantly. But you never really know what the exogenous factor is until it happens. That's why they're called black swans. But but my senses, if China did have to come in harshly than the than the response from the West would probably be trade sanctions and the economic sanctions on China, which would be far worse than the trade war, and

we saw how much the trade wars loclobal economy. So if if sanctions would have to be put in place on businesses doing business in China, then that that would be an all another ball game, which I think would would really slow the global economy. But that's there really wouldn't be any choice in the matter. Would be similar to what we saw in Russia with CRIMEA, So it would be, uh, you know, it would be similar circumstance

to that. So, Mark, do you think the Federal Reserve is taking the right tack here after that last rate cut to say, maybe a little bit of a pause here and we will take a look at the data as it comes in. Yeah, I think they are. I mean, and you know, and I don't want to you just say one last thing on China. That's certainly not something that we're looking for. I think that I really doubt that we would ever see a scenario like that. But but I think that the FETE is holding off to

see are we going to get a trade deal? And if we get a trade deal, does it cause the economy to re accelerate? And uh, if it does, then they're probably done. But I think a lot of folks think, hey, if we get a trade deal, the Feds done. I don't think it's that simple. I think we gotta get a trade deal and then we have to see if that trade deal actually impacts the economy in a meaningful way, and if it does, then they probably are done. But right now we still have another cut by the funds

rate in March. We have another quarter point cut in March. But they're clearly in a wait and see mode right now until we get to March. Do you think if we get if we don't get a trade deal, that the one point eight percent prediction for it seems right

or do you think it would be substantially lower. Well, when we came up with our forecast at one growth, we were we were assuming no trade deal or a minimal trade deal, and and so you know, I it's really hard to say, but I would say that the downside risk of the economy would certainly increase if we don't get a trade deal, because it's not it's not

just the immediate effects on the US economy. It really works through the dampening effects, the further dampening effects on global economic growth, and how that comes back to impact the US because the US really is not a We don't have much of our economy tied to the global economy, certainly not as much as as other industrialized nations do. So jobs has been a big part of supporting this consumer we've had to kind of slow down. Are you

concerned about jobs? I'm not as concerned about the slowdown in jobs, And actually the slowdown is greater than what the reported data indicate. Because in August we got the quarterly Senses of Employment wage data which showed the job growth from March of eighteen to March of nineteen, which is the source of the revisions that we get early next year. It was half a million jobs less then

was previously reported. Most of that downward revision is in retail trade because of the loss of jobs to online retailing, in the leisure and hospitality sector because of rising wages, total income earned from those jobs is actually stronger than have been previously reported, so that more than off. That's the fact that job brother is slower than the slow Mark Whittner, thank you so much for joining us. Mark Whittner, senior economists at Wells Fargo Securities. We works back in

the news coming across the Bloomberg terminal. Right now, WE Works is said to face SEC inquiry into possible rule breaches. Uh so we want to dig into that. Matt Robinson, Bloomberg News joins us here in a Bloomberg Interactive Broker Studios. Also a headline at that Roger Stone is guilty in US trial overlies about the leagues. So the headlines continue to break. But going back to WE Work, So what's going on here? What do you think this is? The

SEC is really looking in here? So when the SEC opens investigation, they're looking to see whether what was disclosed to investors was reflected in you know, private discussions what was going on in the company. So they're always looking for, um, you know, if you're saying something publicly that it matches

what you're saying privately. And given the sort of fall from grace from We Work over the last couple of months, certainly, you know, um sort of enterprising for security lawyers to be like they're going to make sure that they're kicking the tires and that everything that was you know, going

on in the company was known to potential investors. So there has been there have been other reports that the SEC was in close contact with we were leading up to the I p O saying your documents are insufficient. The whole community adjusted a bit that they changed to something else was problematic. You guys need to account for your finances in a better way. How instrumental will that be in this investigation? If at all? Well, you know, for something like this. And another thing to point out

is that often with these kinds of investigations they last years. Um, you know, the average investigation is like two or three years for the SEC. And um, there you know, they're sort of wrapping their arms around, like you know what was disclosed. I mean there's a lot. I mean, you know, the company was had to perspectus out for bonds. You know, there's a lot of information to sort of dive into, uh to make sure that, you know, investors were properly

informed of their business. So the deal never happened, okay, But still the SEC can cite them for some issues as it relates to just its registration statement and things like right. Right, So anytime you're raising money for a venture, that's a security. I mean that's a very general way to uh to sort of talk about it. But you know, venture capital m and if you're if you're raising money

for a venture and you're lying to sophisticate investors. That's you know, the SEC has brought cases in recent years, given how how much that market has been growing. What's the potential penalty for we work? It's hard to say. I mean, you know, this is something that's just just getting started. Um, you know most of the time, you know, the SEC is a civil regulator. They can't they look at you know, it's penalties or hey, we want you to improve this disclosure. Um, you know, so it's it's

it's very hard to say at this point though. So but you know, can the SEC like one of the things about we work when it did filets S one? There's a lot of governance issues there, you know about the UH corporate jets and leasing back space and so on and so forth. Are those some of the things now that those are disclosed? Are those some of the things that the SEC might look at and say, was it full disclosure? Or the you know, did you need

to do more? Right? Those? Are those are? Um, those are good questions that the SEC is gonna be asking because you know, those are sort of legal lawyer to lawyer questions. You know, what how do you define material? Was this you know explicit enough? But the SEC you know, has in the past they look at those kinds of transactions. Is this really a true arms length transaction? Is this you know, separate from you know, would you have given this deal or proposed deal to anyone else that you

know you didn't have a relationship with. Looking right now at we work bonds, they are implying a yield of fifteen percent or nearly fift seventy four a little bit less than seventy five cents on the dollar. These are bonds maturing in not long term day. They were trading it back in August, Yes, it is absolutely Uh. Well, actually they were trading back in September. They were trading at a seven point two percent yields, So yes, more

than double. And I'm just looking right now, and it raises questions about the financial feasibility of this company going forward. And I'm thinking, Matt, as you talk two to three year investigation by the SEC, is we work going to be around in two to three years to uh to account for whatever mouth feasans if there is any found. Yes, I mean even if you know, if that scenario would have happened you know, you're still obligated to deal with

you know, uh, securities laws. So I mean for um, you know, for them, they're gonna want to, you know, just be like, hey, you know, here is our full disclosure um in um you know, in in raising cash. It is already fallout for the investment banks and the law firms that advised we work on this underrating processes. It typically spill over to them generally. I mean, it

depends on what the government's looking at. If if uh, if the story is is that you know, this was a you know, a company that everyone was expecting great growth and it was you know, people really thought this was the value of the company, then it's it's hard to say there was some misrepresentation, right, there's there's people

believed in this story at the time. But if if in turn, it's like, well, actually they were you know, they were not being as explicit about their business, then you know, and and then who knew about that that that those are the kinds of things that the government wants to uh sort of investigate. Thank you so much for being with us. Really an interesting, uh interesting story, good Scoop. Thank you for joining Matt Robinson. Uh covers all things related to financial regulation and the SEC. For

us here at Bloomberg. We Work is said to be facing an SEC inquiry into rule violations, potentially over their disclosures being perhaps a little incongruous depending on who they're talking to. You. Yeah, it's interesting to see how this will playoff. But it just just one more just the news keeps coming for we Work. Um, you know, you know, think about the fall from grace for this company we started the year to where we are, uh now, it's

just extraordinary. And so the question really is, as you raised, I think at some point if I think we may be there right now, is what is the ongoing concern story with we Work here as you look at the balance sheet and you look at the cash burning, can they cut cost fast enough to get the profitability? Now they did bring you know, some of the profit forecasts a little bit forward, but it's still it's really under

under question. The news keeps coming. Also from Washington, d C. We should just say that Roger Stone, in the longtime Republican operative and early Trump booster, was convicted to lying to Congress, of lying to Congress, obstructing a Congressional probe, and witness tampering. This is just two days after House Democrats separately began public impeachment hearings, but this just came down as well, and we wanted to bring that to you. In the markets, we are seeing something of a rally,

although it's actually extending gains. You've got the Nastick up sixtents of a percent, similar with the smp UH and the DOAO, with optimism that there will be some sort of trade deal.