Markets, Labor, And Bonds (Podcast)

joining us. First off, what is the competence Center? What do you guys do there? Hi, Good morning. Well, what we do is um Bridge bridge different expertise areas we have within our within our business because we are a private bank. We're actually Europe's oldest banks. We are we're

a private bank. We're also an investment bank and have investment management, the institutional asset management where we deal a lot with the big funcion funds because the Dutch counsction sounds are very very big and bringing that all together to um see what the biggest intelligence comes out of battle and see how that can be helpful to our clients. It's actually cool looking at your resume, you worked at some of the oldest and most important banks in the world.

We're at Rothschild, You're at Goldman sachs Um, and now you're at van Lanche. What are you focused on right now? Annaka? I mean, there's so much to watch here in the US, we're so concerned about the FED, in the macro picture. In Europe obviously energy and inflation is insane um. And then in Asia we learned this morning there's another lockdown in China, in a city with twenty one million people.

Where do you look? Where do you look? I mean, there's there's so much to look at, and I think, you know, the only thing you can do is keep it very, very simple. And you know, the world's become obsessed with the latest inflation prints. The world is obsessed with how inflation prints are reacting to central bank policy rates moving, which almost every bank is, every central bank is doing the sides a few. That's that's what's different

this time around. And I think talking about keeping it simple, the main thing that I think we're very often missing the mark on is the fact that it's it's illogical, it's nonsensical to see, how you know, spot inflation print are an adverted comments responding to the latest seventy basis points by the FED or the latest fifty basis points by the ECB, because it simply doesn't work that way.

And I think the thing that we are most concerned about is the fact that central banks, particularly the FED, is so driven by trying to restore their credibility, so much so that they say, well, we continue to lift rate until inflation spot inflation near is our target of two. That's scary because there's a long work through mechanism and inflation today is a picture of you know, of of

what the conditions were like one two years ago. So give us a sense, just from your perch in Europe here, how how our markets discounting the European Central Bank, the Bank of England in terms of their response and maybe what their goals should be, because again you've so many challenges for the Europeanic enemy in including the war in Ukraine and the impact on commodities, had it unique the central bankers and you're are thinking about it, well, we

all forget actually the fact that around ECB actually started a strategic review and the reason they've charted a strategic reviewers they only have one mandate, it's not a dual mandate, and that mandates inflation full stop. And they had not been successful in getting inflation to the level they wanted. It was always too low. And suddenly, you know, out

of nowhere, we've got the reverse problem. And the point is that you know that the problem was actually much less complex then when they were already doing a strategic review. Now it's far more complex. And I think the issue is really well sums up by the fact that on one hand, it's more hawkish behavior. KIWI has only recently

just ended. Actually rates are obviously going up. On the other hand, you've got this, you know, this mechanism to protect southern Europe, which you could argue with nothing more than a sort of yield spread mechanism. But that feels like hitting the accelerator and the break at the same time. And I think that sort of sums up the troublesome situation in Europe. And you know what, Yeah, the murky picture that the ECB is trying to deal with. Murky is a great word to describe what the ECB has

has to do is doing. Does um I don't know where to go with that when I think about um economy in Europe, I'm more concerned about people operating on the ground, especially in the UK where you are. I mean, if you look at financing costs, they're just shooting higher. If you look at the value of the pound, it's dropping like a lead balloon. And imagine what kind of position that puts your average, you know, midsize business owner

in UM. He has to buy everything from France, Germany, Italy and uh, he has to finance in a in a climate that just makes it almost impossible to survive that. That must mean a huge recession ahead. And I mean compounded with that's you know, the sort of ripple effects of Brexit. You know, we're still figuring that out. Talk about just basic shipping, basic customs, delays, costs, I mean,

we're still we're still figuring that all out. So it is a to your point, So that with a local man woman on the ground, you know, just trying to do their thing, trying to do their business, it is a really really challenging environment. The only thing which is sort of odd, I think sitting in Europe, which we're all trying to kind of get our heads around. On one hand, you've got all of this, which is extremely scary.

On the other hands, try and book a restaurant on a Friday night, it's hopeless, you know, and obviously more in central London that is. But you know, try and book a holiday right during the holiday season. So it's this sort of bizarre situation where it doesn't look like a recession, it doesn't feel like one. When you want to go out and you know, get hold of a service somehow, or especially in the luxury goods market, I mean,

good luck finding a pair of shoes or something. But on the other hand, you've got all these sort of very very scary factors coming together. And that's why everyone is talking about a cold winter for Europe, because I think the summer period is all about let's just go have fun, enjoy the summer of you know, close our eyes to all the scary staff and enjoy the sun.

But what happens when the sun goes away? Or what happens when you book a flight on Luftanza flying in and out of Frankfort or her Munich tomorrow stranded there? Of course they're going on because they want Look, it makes perfect sense to me. I want a ten percent raise, right, wouldn't you if you look at inflation like that, you want you want that, you know, if you've got to if you want to stop it somewhere, stop it on profit margins. But that's just not as easy to do. Annika,

great having you on. Thanks so much for joining us. Annikatre On their managing director. She is the head of the Competence Center at Van Lanche at kemp and the oldest bank in Europe. It's very cool and great perspective getting in that from Anika. Get right to our next guest, Johnathan Hurdle. He's executive chairman Hurtle and call Hurtle, Callahan and Company. I mean he's all in Penn State Batchelor

degree mb A. Penn State opens the season. I believe tonight at per Due Penn State is a I think there are a three and a half point favorite to see. All right, John, thanks so much for joining us here. Um boy, you've been in this market a long time. You've seen the site longer than Paul, even longer than me, and that's saying something. What do you make about our current environment right here? Well, good morning Matt and Paul.

It's nice to talk to you again. You know, I think we're still in the equoffex from the from the COVID crisis, and so it's going to take us a while to work through. Here. We had this period of time where we had six trillion dollars of fiscal stimulation while we had the most flexible and supportive monetary policy in history, and there's a lot of ramifications for that. So that's what we're going through right now. We had,

you know, we have more than full employment. You think about the FED having a dual mandate full employment and contain inflation. Well, we have more than full employment. We've sort of overshot this and so now they're focused on percent on inflation control. And you know, we saw that with the Chairman's commentary. I'm actually in Jackson Hole right now, still out here, so you know, it was a you know, very clear message from the Chairman and that's what the

markets reacting to right now. What do you think about UM their willingness to hold firm, I mean, especially if we start to see real job losses, you know, real families who all of a sudden can't finance their American dream lives. Um is the FED going to continue to put them out of work on purpose in order to retain drain and inflation. Well, it's it's that's the dynamic. How much will employment where they're going to look at that unemployment number, and you know, the risk is that

they overshoot. We overshot in the pandemic, and that was understandable because I really think it's hard for people to turn back the clock and what was it like two years ago and how frightened everyone was, and we didn't know we were going to have a vaccine. But Jonathan, you made the point that we had six trillion dollars of fiscal stimulus. I mean, remember when TARP was unbelievably huge, that was eight billion. Six trillion dollars is absolutely loony tunes.

Six trillion And by the way, you know, you have to give Larry Summers credit because he said we were trying to fill a two trillion dollars gap was six So there was that the government's tend to overreact. We're they're very not very good at fine tuning, and so they overreacted. They put six trillion at the same when the FED was being aggressively flexible and supportive. So that combination in retrospect um is unprecedented. But we were facing

unprecedented times and to look backwards. This is a classic kind of a behavioral economics problem where we think it was more predictable than it was at the time. We look back global pandemic, World's coming to an end. We've got to be dramatic. We were too dramatic in retrospect. So it is a good investor supposed to do today. What are you telling your clients? Do you do you

have to be all macro all the time? By the way, John, I mean I know, well yeah, so I mean if you look at allocations, that's going to control about of the variability and performance over time. So your allocations most unless you've got a concentrated position in ten stocks. But if you're a traditional investor, you still want to be overweight stocks because bond rates are rising, and so we want to be short duration, relatively short duration, fully invested

in patient here. Alright, So are there some sectors here that we should be focusing on? Um? Do I need to get orfully diversified? Yeah? What do I want to be fully diversified here? I want to stay fully diversified. But personally, because inflation is rising, I want to be with the companies the secular growth companies that have real pricing power. The best hedge against inflation over the long run is a diversified equity portfolio because the managers can

pass through the inflation increases in pricing. But you want to be with the companies who can do that so on the margin, not dramatically, but on the margin. I want to be with those high quality growth companies who have pricing power. By the way, we just got a minute left, but I'm looking at your resume. We see that you went straight out of the Marines to Goldman

Sachs and nowadays you know Goldman Sachs. The kids they're are making videos and posting them on TikTok about how they work too hard and they have to do it from home. They don't want to go into the office. What do you think about today's class of bankers, of young bankers. I think Golden Sacks is a wonderful company. I've been away from there for a long time, but I just would say this that you know, hard work matters, and uh, you know, whether they're working too hard or

not is deal specific. But we've gotta that's your apprenticeship, that's where you weren learn your trade and the people are going to work hard and smart or going to succeed. So you know, I realized. I also think that you mentioned earlier that we're getting people coming back to work. This is another part of that COVID echo effect. It's going to take a couple of years here for people to figure this out, but we're gonna have people back

at work. It's good. I'd like to describe it as two thousand nineteen No one improved and we're gonna go back to pre COVID, but it's we're going to have the ability to work more flexibly from home when we need to because we've all developed that. So that's a that's a very significant improvement in our lives. So we'll get there, all right, John, great stuff, as always, always appreciate getting your perspective. John Hurdle, Executive Chairman Hurdle, Callahan

and Company and a proud Nitnity lion. All right, let's talk the flowers business, and we talk to floral business, floors business. We talked to Chris McCann, who else. He's the CEO of one eight hundred Flowers. Chris, thanks so much for joining us here. Just tell us how your company one eight hundred flowers, how it kind of evolved and was impacted by the pandemic and kind of what's your outlook right here? Well, thank you, it's good to be here, gentlemen. It's been a turbulent couple of years,

that's for sure. The interesting thing is we pretty get down into the kind of these three categories, these three sectors pre COVID, during COVID, and post COVID. And during the pre COVID stage, we've been we committed to growing our business or increasing the growth rate from a low single digit to a double digit growth rate. We made

the appropriate investment to that and achieved that. That helped position us well for then the unprecedented surgeon demand that we saw during the pandemic where we set record levels and revenue record levels, and profits record levels and customers

customer database. And then we've moved now into the late stage COVID or or hopefully post COVID stage, and as we're coming out of that, we have the comps that we're dealing with which we're holding onto the business and retaining the business that we gained during the pandemic, but we're doing so in this inflationary environment. That's you know,

causing challenges for us on the close Morgent line. And well, and this is why, this is why I love having you on, Chris, because it's not just about the flower business. I think your business is representative of a lot of companies that have grown really successful brands. Um. You know, businesses that thrived during the lockdowns, but now are going to have trouble maintain the same growth in the face of higher labor costs, higher energy costs, um, you know,

supply chain issues. Where do you see uh or do you see any kind of light at the end of the tunnel in terms of that, I'm sure you've got people who want to be paid more. Um. Delivery costs must be higher and higher as gasoline, although they're coming down again, but gasoline prices went up um uh. And you know you've got to be getting these flowers from all over the world. Yeah, so we certainly see great

opportunity in front of us. Know. Well, you know, even though you pointed out people who you know, the challenges against copying, against the record us A we had, we still grew for the year four percent over last year, which was over the year just prior to the pandemic, so and we're holding onto that customer base, we're holding onto that higher revenue stream. So now we're dealing with the unprecedented cost persons that came in and we're mitigating

those as fast as we can. Good news is we're starting to see is I just heard the report, We're starting to see more and more indicators that the inflation is eating. We're seeing ocean freight rates drop, was seeing labor moderate and availability of labor getting better. So we're seeing the light at the end of the tunnel. But in addition to that, we're making sure that we're making

the investments in our business for the future. We're spending money to automate our facilities, are distribution centers, spending money to build inventory early and bring inventory in early to make sure we're helping without labor challenges that we've had. So, you know, a company like ours, we're not just sitting by and hoping things get better. We're making sure we change our business to meet through to come and demand today. So what is it like working in this rising rate environment?

Do you make sure UM You've got all your financing needs taken care of before rates get out of control? UM you know, is it. I mean, I'm sure you're generating a ton of cash, so it's not that as much of a problem for you as it is for

other businesses. But you still got to be looking at these rates right oh, constantly, and we're constantly in the conversations with our banks making sure that we have the appropriate banking facilities we need well, you know, for right now, for example, ramping out our inventory for the holiday season, so we rely on the appropriate revolval facilities for that

to make sure we can do that. In addition to the free cash flow that were generated, and we're looking to make sure that we continue to grow out business and make the investment for the long term because we see great opportunity in front of us. You know, the world changed with this pandemic, and one of the benefits of the change is that it's made people realize that we need to stay connected to each other and build and maintaining relationships. That's what our business does. We inspire

our customers to stay connected. So, Chris, talk to us about some of the challenges that you and are facing. I'm thinking labor number one. You mentioned number two, fertilizer. We hear a lot of inflation costs there, right, inflation costs there, and you know, supply availability talks just about some of the challenges from the supply side, you guys

aren't dealing with. The supply chain for us has been certainly has been challenging, and mostly he's on the food group side about business, not so much on the floral side. You mentioned fertilizer itself, that's close with some of our plants supplies the challenge, but it's not a major challenge. And on the fresh cut floral side, it's not been a major challenge for us. Again, I think that which is because just so people know it's not just flowers

that you're delivering. You also have obviously, you know, balloons and teddy bears and you know melon balls, right, that's what you're talking about, you know. In our food group, which is headlined by Harry and David um Cheryl's Cookies wanting to one a hundred baskets. Newest acquisition we just made a few months ago, Vital Choice sustainably caught seafood,

wild caught seafood. So we bring all these different Coli made foods to the table, and the packaging for that is where the supply chain gets disrupted a little bit, so we made made all of the adjustments when that necessary to make sure they were in a good position for this holiday and we're looking forward to It is the dollar at all, um, you know, a tailwind for you? It does it give you a little bit more strength to have this incredibly strong currency or do you operate

um in terms of purchases mostly in the US. Oh, it always helps to have a stong currency, but mostly where we operate within the US. We employed some products from Major and that's you know, caused problems last year. It's looking much better this year, both as far as cost to come out of these costs as well as shipping. But I'll always take the tail wind. If ever there was a time to buy a British or European company, Chris, now, is it? I don't know. I look at somebody inflation

rates that they're looking at over there. I'm not sure I can jump to that so quick. Hey, Chris, I'm just looking at your price chart. It looks like you're one of those, you know, um kind of a pandemic type of stock. You know people Your stock trade up dramatically up to close above thirty five on during the early days of the pandemic has traded down since what's kind of the message that you're you're giving your shareholders. Well, we've just keep focusing on the down the core of

the business. And again, as we look and we've doubled the size at a customer base in the last couple of years, we've doubled the size of the business overall, We've doubled the size of our passport loyalty membership program,

We've significantly expanded our product offering. And when we look at the underlying health of the business, we still see the relationships with building with the customers, customers cohorts that are buying from more than one brand coming back more frequently than like two to three times out of the

average customer. So that underlying health of the business tells us as we work through this challenging inflation every period, we are extremely well positioned company to get back go on tracks from a higher growth rate in a higher profitability rate. You're always gonna keep the one eight hundred. I just type in flowers dot com when I want to go to your website, but it's obviously one eight hundred flowers dot com. You own both domains. We own both do means the brand that we really built is

one hundred Flowers. It's a question we It's a question we go through all the time. We want to make sure our brands are always appropriate and elevant for the day. Level off already, all right, great stuff as always, Chris always loved getting h update on your business and the retail space in general. Chris McCann, he's the CEO of one eight hundred Flowers f l w S is the tigger to type into your Bloomberg terminal. Always a fascinating discussion.

One eight hundred Flowers. We all know the brand. Well. We did get some pretty good m manufacturing data this morning. Let's break it down with Tim Fury, the chairman of the Institute of Supply Management. Tim, I s M. Come in a little bit better expected, steady with last month. What do you make of it? We'd beat expectation, and I think you know, this is the third straight month of running about fifty three within a couple of tenths. It really feels like we're in a great fly path here.

We're not you know, flying sky high at sixty feet and we're not skimming across the mountaintops and we're so we're pretty level now. The sub indexes that go into that p M I indexes are shifting, but the shift is often the positive. You know, we've got manufacturing inventories coming down a little bit, Supplier deliveries are stable at fifty five. That's an appropriate tension. You've got new orders moving back into an expansion environment at not really great rates,

but that's the reason they're an expansion. Lead times came down a little bit, maybe to the low single digits, but lead times came down. Prices came down in the last couple of months. So we've gone for three months of suppliers getting easier to deliver to two months of prices easy and dramatically town. Now we're in a month

of lead time softening as well as employment expansion. So the month going into September, the period going into September from a production standpoint should be pretty positive because we're able to put people on the factory floor and the supplier materials are flowing better. Um. We saw we've been seeing job cuts in Silicon Valley for for months now, um, either hiring freezes or you know, companies taking out ten workforce. Today we see a manufacturer three m um going down

that road. Are we going to start seeing more of that? Do you hear from the manufacturers you talked to that that's on in the cards in terms of cost cuts? Well, I think that's what everybody's looking for. That's when we really know that we've slowed down the band, when companies start to lay off. I mean the Silicon Valley stuff are not manufacturing people, uh exactly. But today we got an industry, an industrial company doing it for you know. So that's what's kind of caught my eyes that this

is not um some social media you know weirdness. Yeah. Correct. But our panelists were eight to one hire to force manage, meaning nine companies, eight of them are hiring and the other one is either freezing or letting themselves a trip out. We actually improved on the quits rate. We had quits rate in the month of July. We're now down to which indicates to me that people are staying in their job more than they were a couple of months ago. And and the panel's indicated said that things are getting

easier to hire up from seven last months. So we're able to hire and keep people better than we have in the last nine months, and I think that's positive, positive movement, and it could very well be because there's a little bit of uncertainty out there. If I had some tenure at the company, I wouldn't be so inclined to jump. And the uncertainty is not only the economy, but it's also company's interest in letting people work from a hybrid standpoint. Good stuff, all right, Tim, thanks so

much for breaking it down force. Tim Fury, the chairman of the UH Institute of Supply Management. With some data out this morning better than expected on the manufacturing flint, let's get over to our chief correspondent for Global macro markets, Liz McCormick joins us to talk about, um, what we're seeing happen in the fixed income. On the fixed income side of things, Me and Paul are just done equity guys. So um, it's good to get too smart persons. Take yeah,

please use small words for us. UH. You have a story out today that jobs, the jobs data that we see tomorrow's potential to push the FED towards a third jumbo hike. So a third what seventy five basis point hike? If if if payrolls beat right, right, right. Well, you know, even like you saw the I S M numbers today, the sub index on employments showed it was, you know,

decently holding in some strength. So if if the job's number comes out, especially if it beats like you said, I mean, the data just seems to be building, that shows the FED has room to keep rising. Inflation is still a problem. Pal has said, I think the economy can withstand it. So while we get these numbers that kind of back that up for him, it seems to bode for that them going seventy five basis points the next time. So yeah, there's a lot of eyes on

payrolls tomorrow, you know. Vince Cignarella Bloomberg has a call here that basically the market is taken care of itself. It's taken care of inflation, and as a result, the Fed is should and it's likely to pause after this next rate heke, and that in and of itself is bullish for risk assets. I don't know. The market's not sure about that, do you think? Yeah? Yeah, I think it's uh, the markets in the quandary. Right, Um, there are some that we're saying, yeah, Fed's got to slow down.

There's a decent amount that say, hey, the FED can get the funds rate to maybe a little under four percent, and then like Vince says, they got to kind of slow down pause. And then there are others that even our Anna wag I keep bringing her upcomics, she says FED goes to five percent. The folks that Bridgewater have said FED goes even higher. So I think it's like, I hate to say it, but the truth is in the data. Does inflation really keep, you know, rolling over,

does the economy start to faulter or not? You know, there's a lot of data the Fed's got to sift through and to side. But they there there's a lot saying if they do another seventy BIPs that maybe they have to at least slow down the pace. You know, um, but we have to see. But what about turning around? Yesterday Mester said, you know what, in my opinion, we're not gonna cute, And that was kind of the Fed's message at Jackson Hole that to the market, like, hey, guys, seriously,

we're not going to cut next year. You're gonna keep raising and then we're gonna wait until inflation comes down. Cash Cary has been extremely hawkish and then yesterday Rich Miller had a piece out saying Powell is now aiming for something much more painful for the economy. Somebody wrote into me and said, the idea that one of the most powerful arms of the U. S. Government is purposely

aiming for pain. They're trying to put American people out of work, they're trying to raise unemployment is absolutely insane. If you see jobs starting to miss, if you see unemployment starting to go to five percent, don't they have to cut? Isn't the political pressure too strong? Well, you know, that's what Elizabeth Warren would say. She's been out saying, you know, we're worried about the FED is going to

crush the economy jobs. That's terrible. But the other argument, and I have to say I kind of lean to that, is what pal saying is, you know, kind of inflation is let's call it a cancer attacks on everyone that if that lasts and it is strong, that's worse than sadly some people losing their jobs. So it's a bit of a push pull that the FED, of course would love a soft landing. But I think you know, through

the months, Palace kind of moved away from that hole. Well, but Liz, what's the idea, what's the consentus on how great a tool monetary policy is to fight supply side driven inflation. Well, of course that's a lot of people say not a good tool at all. Right, so then what's the point. Well, the FED will say, well, if we slow down we can, we can affect what we can. That's demand, right, and let's say the supply stuff they

have limited control over. FED has admitted that, but if they slow down demand, that they'll slow what they can. So yeah, So if if the supply issues, and sadly with the war and the energy crisis in Europe, if all that energy sector, all that remains sticky with inflation, then the FED may not be able to bring down

that arm. But maybe, sadly, maybe it's going to crush the part that they can, which is you know, demand, and you know from the U. S. Consumer So I guess that, you know, the feeling is they've got to do what they can. But you're right, I mean, they and I think they've admitted that they can't control everything, but they I think if they sit on their hands,

they they're in big trouble. There's enough of this macro stuff I'm looking at the global agg here down basically from its highs, right, and this month we're just starting September today, Paul, huge month for issuance. Um, what's going on on the ground and the real you know financing markets? Well, first of all, companies need money, right, and summertime is usually a lull for issuance, not a good time, so they tend to come in after the summer's over. So

so they need some funding. And as bad as things are, and it's pretty brutal where yeah has been, Like you said, Um, if rates are only going higher, you would kind of like wanna get, yes, get some fixed rates. Three and a half may not be as bad as four and a half in a year. I don't know where it's going, but I think that's the thing. They need a certain amount of financing. It looks like rates are just at least for a while, going nowhere but up. So try

to get in there when you can. All right, Liz, good stuff as always. List McCormick, Chief correspondent Global macro Markets for Bloomberg News. 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 three. Put on false Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio