Markets, Travel, and Cannabis (Podcast)

Street got pretty blindsided on. We want to talk about all of this with Kelly Cox. Of course he's going to be joining US US investment analyst over at Toro and CALLI as we sort of digest what was a brutal cross asset year in two? Are you licking wounds at this moment? Are you thinking more optimistically about three? Where you stand? Well, Hey, I'm a cup hatful person

and I think it's hard to say that. Yeah, it's hard to be these days, but I think it's hard to say that two wasn't painful because of that cross asset sell off. Just the pain we saw a cross a bunch of different markets. But I think that that could pretend good things in knowing that investors are sufficiently anxious and they're probably hedged going into I mean, the whole talk of the whole talk of the economy this

year was about whether a recession is coming. So I do take some comfort in the fact that a lot of us are braced for that, and you know, weakness may not catch us off guard. Caroline, I have a real problem with Kelly Cox. She is a proud alum of the University of North Carolina at Chapel Hill, and as a duke person, this is really troubling. I will try to power my way through it as a gentleman. Kelly.

You know, a lot of folks are saying there's still earnings risk in this market, and this is still something to market ass to deal with. How do you guys think about that? Well, Paul, First of all, I respect duke. It's a great grade school. We have a healthy arrival. Yes, I think there is quite a bit of earnings risk there. We haven't seen earnings estimates come down too much UM, and I think that's partially because companies have been resilient

UM and demand has been much healthier than expected. But we're still watching federate hikes and a bunch of other risks to matriculate throughout the market. Um and companies are like we talked about at Goldman companies are responding. They are, you know, putting their guards up a little bit, just to make sure that they are prepared. If we do see more weakness, again, that's a good thing that could

keep a floor under earnings. But I don't think the weakness is quite priced in yet, and that could lead to new market loads if we see some recessionary price or some recessionary being priced in, Go global for US Keddy, because perhaps more weakness to come in US stocks? What about global stocks more broadly? Have we seen enough of the pain trade there already? And then likes a europe and Asian or no, so globally, I think there are a lot of opportunities for U S investors if they're

willing to think outside of their borders. Obviously, the global economy is in a more precurious position right now, with some bright spots China reopening being the brighter one going

into the new year. But the fact that the global economy is out of step with the US economy could allow for some interesting diversification opportunities going into you know, the fact also that you know, European markets and Asian markets have priced in a lot more pain, uh, does make them right for you know, more of a rebound, especially if we see ourselves come out of this weakness.

Hey Kelly, you know, really, since I don't know the Great Financial Crisis, what's really been driving this market in large part with technology stocks and maybe you know more narrowly defined to fang stocks and things like that, but do you exp what kind of role do you expect big tech to play in the next market moved to the extent that we get a little bit of a lift and maybe sometime in well. So tech is an interesting space right now. Obviously there are a lot of

different flavors of tech. The big tech companies look a lot different than the more speculative tech companies, and we've seen that in performance throughout this year. Uh. You know, as we step forward to a FED pause most likely um, you know, potential rate cuts in the future, because the FED is insistent on getting inflation down, uh, and there

could be a policy change after that. I'm talking very far into the future, but as we step forward to that, as we prepare it for you know, a potential market after this. It could be interesting to you know, maybe look at those more quality tech companies, uh, you know, big tech with strong balance sheets to get some exposure to a market that's looking ahead. We don't necessarily think rate cuts are on the horizon, and you know tech

in a higher interest rate environment. Uh, there could be a lot of pain still there for a lot more for the more speculative companies. But at the same time, you really have to be thinking ahead here and big tech could be an interesting spot to do that. And then as DAK currently ap almost two percentage we speak thanks to the likes of Apple, Microsoft, Tesla even getting in on the action again today with an eight point net change on the benchmark. But talk to us go

cross asset. As we see in many ways the correlations of this year has been when the bond market has sold off, fields risen, Nazzac has sold off, and sympathy. What do you make of the bond market for coming three all, we like to see yields being capped out at these sorts of levels, and we like to start to see a little bit of buying it these sorts

of numbers. Well, we're in a weird environment, but I think we can all agree that inflation is slowing and it's going to take a lot to you know, get it back to the peak that we saw this summer, and I think that's good news for bond investors, especially if we do see a recession in three, which definitely is not out of the question. Here, we could see bonds returned to their traditional role of being that safe

haven asset, especially around the world for global investors. And that goes back to the global economy being out of step with the US economy. Um, lots of pain there, but also lots of opportunity. So you know, we see opportunity along bonds. Obviously shorter bonds, shorter term bonds following what the FET is doing. And it doesn't look like the fens gonna be hiking much more from here, so we could see a return to, you know, a more

traditional asset correlation. All right, Kelly Cox, great stuff, Thank you very much for taking the time. I guess good luck to the u NC tart heels are going forward this season kind of US investment analysts that tour. We appreciate getting her thoughts. Ken Sha, He's Bloomberg Intelligence. He covers the the consumer stuff, including cannabis for Bloomberg Intelligence. He joins us via Zoom, and Whitney Batty, Josephine and Billy's Cannabis Speakeasy joins us via Zoom from Los Angeles.

Whitney loved to get with you first here all right, we'll go to Ken Shay first because he is our rock rock stars. It relates to kind of covering the business of cannabis can How big is this for New York City? Um, you know, getting its first legal pot shop and kind of how do you think that's going to evolve it in New York? Yeah, Hi Paul, Happy holiday, is good to see you again. Um, it is really

a big deal. I mean New York, it's a huge Market's a highly visible market, and I think a lot of other populous areas in the United States that haven't legalized are gonna be watching us closely to see how it pulls it off, how it does. Um, New York is a large market and it has high hopes and no pun intended. It looks to its neighbor New Jersey. New Jersey you know legalized recreational only. Back in April, it's already up to a one billion dollar run rate

in sales. New York's have twice the population. So you put the math together and you have a really big industry out of the gate. The demand is going to be there. Product has been around a long time, um, and so yeah, all eyes around New York. It's well, themo is a visible market. To really get a sense

of what's going on. You do some great analysis for us, and we always love it that sort of bringing together some of the issues that perhaps still the spending bill didn't have the marijuana banking element to it, and we saw a lot of potstocks fall in the back of that. That many still say to really grow this industry, they need to be able to get bank loans, They need to be able to get more easier access to capital.

But I'm interested in your perspective of why we've already seen the ability when I walk outside of Bloomberg to cross the store, a cross across the street and I can go and get edibles, I can go and buy sat marijuana related food and consumption. What is that still doing now and why has it been able to do

that ahead of this sort of legalization. Well, New York is has taken a different approach, put it that way than many markets, and allowing you know, the social justice theme to allow some flexibility and put it that way to some operators that won't exist in many other markets. And that's gonna at the consternation of the legal operators and the legal operators. And look, we're paying all these taxes, we're going jumping through all these hoops, we're doing a

lot of things here. Help us out by enforcing the laws on the books that you know, you can't have someone down the street selling it legally and avoiding taxes if you're going if they're regulated in that eas's going to compete. Well. So that's that's really going to be a key issue going forward. And it also made uh, you know, also discourage some other big entities from getting into the New York, New York market until they enforce

those rules. Really interesting that you bring up social equity there, and we thank you so much, can say, of course, Bloeme Megantelligence, and we want to dovetell into that exact point because what's so interesting with this development of the cannabis market here in New York is that Kathy Hokele and the governor have been trying to think about how it's ensured that the people who have been the past perhaps been targeted for cannabis and fractions now actually managed

to benefit from the legalization with jobs of the opportunity. And they set up a two on a million dollar New York Social Equity Cannabis Investment Fund. This is something that we've seen perhaps in Illinois as it started to embrace legalization. How can they try to foster growth, particularly among people of color, ensure that they're leading businesses. It's not always worked that well of late within the licensing process, particularly in Allinois. Let's talk about how it's working in

l A. We've got a perfect guest. Whitney Beauty is with us founder and CEO Josephine and Billy's. It's the first cannaby Speak easy in the US. That's for women of color targeted there. You took checks from jay Z Cannabis investor the parent company as well. Just talk to us about your journey, Whitney, how have you found yourself

able to lead this sort of a business. I mean, it has definitely not been easy to get into this space, um and particularly you know, even with social equity being what it is, it's really um hard for us without having access to that capital to grow our businesses. I mean I applied for social equity in Los Angeles in

twenty nineteen. UM our program here UM had a lot of delays, and unfortunately we were required to hold property through all of those delays, which was incredibly difficult for us, you know, to sit and pay for two years UM, you know, on a place that we were not allowed

to sell cannabis out of UM. That really hurt, especially when we're talking about population that is, you know, the idea of equity is that communities of color were disproportionately disenfranchised by the War on drugs and thus deserved prioritization and legalization and so UM. That really kind of drained our funding. And when we're talking about especially equity businesses, we don't have that much access to capital, as you mentioned, I mean, I can't go down and get uh lone

from Bank of America. The s b A isn't offering loans. Were stuck in the world where we have to be able to raise money from either angel investors, which a lot of people of color don't have in their networks, or vcs and We know that vcs are giving about two percent of their money to women led businesses and points there was, there was, there was six to women of color, and that is you know, abysmal numbers. It makes it really hard for us to compete. So we need give us a sense of kind of where your

business is now, what's the outlook is? As you look ahead to the new year, I mean we're you know, it becomes really difficult for us on a couple of different levels. It's you know, being able to have raised enough money. We've raised a million dollars, but really we need to in order to be able to compete with big MSOs that are there on the market. It's also really difficult for us because of the tax structure here.

I you know, as a legal cannabis business, I can't write anything off because of two a d um you know, so that overhead is sitting on us. And also I'm competing again with the illicit market. Um, you know, if I'm going to have to you know, they're charging you a hundred dollars and I have to charge you a hundred thirty seven dollars because we have thirty seven percent

tax here. It makes it less attractive for people to be able to buy from the legal market, and it also makes it less attractive for those people in the listit market to come into the legal market. Um. So we're you know, we're concerned about what the future looks like, especially as we see the price of plantfall um, you know, tremendously. I mean we're talking about you know, the pounds that we're going for four thousand dollars now, um, you know,

sub five hundred dollars. So what we were looking at as we're building projections in is not necessarily what we're seeing now in twenty two. We need a lot of the obstacles you outline there so eloquently. What about some of the help you therefore need. Is it about cracking down on the illegal side of the business is coming from the government. Is it about having more funds coming from government as we're seeing here in New York to

be able to buy businesses such as he is. Is Is it about educating vcs about angel investors to a show that you are raising too many and rather than one. It's about all of those things. We definitely have to see taxes go down. It's it's critical and we need the community to understand why that is so important. A lot of people so legalization on the ability to tax the heck out of us, but that's not gonna allow this industry to survive. We have to see more capital

coming into this space and have access to it. Um for you know, these equity businesses. Whether that means that the state allows us to be able to have more grant programs, more um you know, loan programs. I'm happy to take the loan. The fact is that I cannot do that. We don't have access to that. We definitely needed more education on the VC side, UM you know, businesses ran by women, businesses um ran by black women, and we do have great success rates. We do have

the skill set out there. We just don't have the access to capital in order to compete with someone who is sitting on millions of dollars who can definitely drop the price of an ape and weigh us out as we die and then collect those licenses up. So we need all of those things in line. And also for equity in particular, we need technical assistance um you know, within the community. Because the cannabis industry is highly regulated.

I'm dealing with compliance issues on a daily basis, So if we don't have the skill set, you know, especially because there's not necessarily a role map. This UH industry is incredibly new. So being able to have a technical assistance that's going to allow people to be able to be compliant and be successful in their businesses is what it's gonna take, UM for equity businesses to succeed. So when it sounds like an extraordinarily challenging outlook, is there

any relief that you see after? What keeps you going? What keeps me going is um, the people that I'm helping at the end of the day. I came to cannabis because I had a doctor who suggested that I try to deal with anxiety. Um. You know, I didn't use it when I was younger. Nancy Reagan told me to say not to dregs. I believe sure. UM. So it took me a while to come to this space, and I had to do a lot of research on the plant, learning about how to use it effectively and

also about why I felt so negatively about it. And I didn't want the next person to have to do that much research or have such a hard time because what if we know for sure is that especially when you're talking about our demographic, women are more stressed than men, and women of color are the least most stressed cohort out there, And yet we have the least access to healthcare.

And we do have health care. We know that the doctors aren't necessarily listening to us, That's what the data is saying, and we might not have money to cover that. So being able to have safe access to affordable cannabis

within our community is also public health. Is being able to offer that to people with anxiety was t PTS with all the things that we know that cannabis is good for, and so waking up and knowing that I'm offering that in my community and giving them education that isn't available elsewhere is what keeps me moving within this space. All right, Whitney, we we should the best of luck challenging situation about some interesting opportunities out there, Whitney, Baby,

Josephine and Billy's cannabis speak easy. Joining us VIA's room from Los Angeles. So let's talk about or when you're on your airplane, you've managed to make it to the destination of choice, how are you feeling, how are you spending, where are you going to spend it. Well, is it a hotel group? Please to welcome a key CEO from that space. Larry Kakul is President CEO b w H Hotel Group. You knowd of course at Best Western Hotels and Resorts, but also you're talking economy, mid scale, upscale,

upper upp up scale. I'm liking to see that that's a turn of phrase, but also luxury and boutique segments like you've got eighteen brands, I think it is, Larry, are they all full? Where are you seeing the most exuberance as we head into the new year. Well, we're seeing exuberance across all of our markets, of course and segments. The demand for travel is robust. We are experiencing a tremendously successful holiday season, and we anticipate and are projecting

our most successful New Year's weekend ever as well. So Larry talked to us about the day to day operations. I'm gonna go was something that I've noticed. No, uh, you know, service to service the room for three four days. Now, I know that was a byproduct of the pandemic. Are we gonna get daily housekeeping back into the business model or is the industry moved on to something that's maybe every two days, every three days, every four days. At

Best Western, we encourage our hotel ears to offer everyday service. UM. Guests have the option to request that they don't have that service if they have their personal concerns. But we understand that guests have diverse requests and requirements with regard to overnight service. UM. You it's not just the COVID I'll call it a COVID result. You also see the hotel industry having labor challenges, which is also influencing that overnight service that's being offered. But we encourage our hotel

yers to offer overnights of this. So one of the things, UH Larry's as we think about travel is the leisure travel seemed to come back pretty darn quickly, business travel a little bit less. So what are you seeing from your perspective for business travel as you hit into twenty three and we're focused on midweek business, which is that business travel UM, while it has lagged, leisure travel coming back, we're seeing that UM businesses recognize the importance of face

to face meetings, conferences, and UM. While it's been i'll call it lagging, the leisure return, we're looking forward to it coming back um um two pre pandemic levels, and which also have to consider is there's this push for international travel as well, which plays an important role with regard to midweek and international business travel. Let's talk about

the international travel. Let's talk about the news. It is so fresh this week, the fact that China has basically done a massive U turn and is now going against its COVID zero policy. They now want to be issuing passiplets, issuing an ability to not only enter China, but also for the Chinese people to be back in the skies and visiting well New York, London, different international destinations. You excited, trepidation. What does that mean for you in your business? Well,

we're excited about it. We think Asia is a tremendous opportunity um for the rebound, and Chinese travel plays a

major role in that. You know, we understand China has lessened its restrictions, but you also have to understand while you can be optimistic in that regard, there will be some my call it compression associated with lessening in those restrictions, and you can see that happening already with the United States, India, Japan, Italy putting in place I'll call them testing requirements with

regard to inbound Chinese travel. So while it should have a positive impact on international business travel and international leisure travel, you have to be cautiously optimistic because the will be countries that are concerned with regard to the health, welfare and safety of their citizens. What is number one on your sort of consumers concerns or hopes right now? Is it that they're worried about COVID? Is it more of the inflationary pressures? How are you expecting that to impact

post New Year? Are we going to be as desirous to get out to spend as potentially this global recession starts to buy. We think there's still that pent up demand post the challenges of the pandemic that hasn't yet been unleashed. Um, so we are optimistic about traveling again. You have to be cautious with regard to the impact of the Ukraine War, of inflation, fear of a recession, which can influence consumer confidence, their supply challenges, labor challenges.

There are a lot of of unknowns that can i'll call it influence outcome. But we're optimistic because what we have seen is by way of example, January, February and March exceeding pre pandemic performance with regard to occupancy and also with regard to rate average daily rate. So while we're very confident that we have early signs of a tremendous three, you have to continue to monitor the pressures on that confidence that I just mentioned. Are you mentioned

labor before? I love to get a sense of just kind of what you're experiencing right now across your hotel groups. Is those labor challenges, are they moderating or is this something you're baking baking into your model for we're I

don't I wouldn't say baking it into our model. About what we're doing is trying to help our hoteliers as much as we can with regard to those labor challenges by providing them assistance, training, and support with regard to those hoteliers becoming an employer of choice UM through a program like Because We Care program and Best Western being a family of independent hotel owners that recognize the importance of being good citizens in their communities and as a

result of that they can become that employer of choice that can successfully overcome labor challenges. Larry, which hotel. You're going to be out for me here, I'm going to be at home. Thank you. That's a non rocking the boat answer. We thank you. Have a wonderful time at home celebrating in this new year, and one that seems pretty optimistic. All right, let's switch gears. Let's take a look at the US and European economy here as we head into a lot of challenges that are common to

other parts of the world. But of course they also have the geopolitical issues in Ukraine as well, and that's impacting kind of I think forecast for a lot of folks and outlook for We're gonna check in today with Dean Turner. He is the chief Eurozone and UK economists for UBS Global Wealth Management, joining us from London via zoom. Dean, thanks so much for joining us here. You know, I guess that the economic discussion does your is recession? No recession?

How deep will it be for the UK and Eurozone? What's your call here for that's things stand, We still expect to see a recession in both the Eurozone and the UK. I wouldn't be expecting a particularly deep procession, you know, Pike, the trough of somewhere around one percent. But that said, I think a couple of things have

changed in the last last few weeks. The first being that incoming data has actually been a bit better than what we were expecting certainly, so you know, that places some upside risks, certainly to the fourth quarter numbers, perhaps in the first quarter as well. And I think the other thing that, as you mentioned, you know, the war in Ukraine and the impact that that's had on on

the our economies via the via the energy price. I find it very interesting at the moment if you're looking at the charts for gas prices in particular how far they fallen in recent weeks, and you know, if that is continued, then that probably places another bit of upside risk in terms of the growth forecast. So as things stand, I would still be looking for a slowdown, but I think we have to accept that slowdown may maybe even

shallower than what we previously thought. How interesting just to tell us about how European economy is, the UK economy getting the grips of the inflation and what might be soothing a little bit. As you say, when gas prices start to fall, we have seen an awful lot of labor tension at the moment, not most acutely in the UK as as we so know well, but also in Europe as well. I mean we're starting to see it

here in US as well, strike action. How much we likely to see that being an implication to slowdown in economies or is this really something more that grabs the media headlines rather than impacts economies more generally. I think we you know, we have to say that the economic impact so far has been limited, and I would be my expectation that going forward, um, we will we will see more industrial action. I think that's that that's a given. But is it going to be enough to because a

wider shock to the labor market. I don't think that's the case. You know, this is not the nine seventies. The percentage of workers who are unionized is much less today. Moreover, the bargaining position of workers is it's it seems to still be relatively weak. And you know the reason I say that is that, yes, we are seeing um wage increases coming through in the data, workers are successfully negotiating a pay rise, but they're still negotiating a real terms

pay cut. So you know, until that changes, I know I'm reluctant to change my outlook in terms of the impact that some of the labor market titles we're seeing we'll have over the medium term. It's here for now, but I wouldn't expect it to build into something that a problem over the longer term. It didn't. We actually have the Bank of Japan just a week or so ago kind of throwing the towel, if you will, and say, okay,

we're want to let rates go higher. Following you know, the rest of the central banks around the world, the Bank of England, the European Central Bank, what's your outlook for kind of their actions in going into the new year. I still think we we should be expecting that the central banks are going to increase rates as we go

through the first quarter. Um. You know, certainly from the e CPS perspective, I think that meeting in December provide us all with a number of serprises there and if you take them at their word, um, interest rates are going to three percent at least in the euro Zone. UM. I would also argue the same for the UK. You know, we're probably looking at rates going north of four percent UM in the first quarter of next year. But you know, that said, we are against this backdrop of economic growth

is slowing, inflation pressures are easing. Two factors are driving that. Let's be clear about this. You know, the first is the base effects that we're seeing in terms of higher energy prices from last year are starting to way down

on headline indices. But also we could demand you know, I find it interesting when we're looking at the sum of the survey data, which you know, survey data we have to take with as a certain degree of caution, but I do find it interesting that, you know, companies already flagging a reluctance on the behalf of consumers to accept further price rises at the current rate, so that we could demand out look, I think is going to

compound that that downward pressure on inflation. So I'd still be of the view that you know, the peak is probably were well, we're closer to the peak that you know, the end of this hike ing cycle than we are the beginning. Accepted, there's a little bit of uncertainty around where we're going, but I think market pricing is probably still a little bit too aggressive for both both the Eurozone and the UK markets. Looking for three and a half, we suspect that that the that the ECB stops close

to three. So we've sort of talked about almost the mandate of the central banks at the moment, the inflation of pressures that we've talked about, the labor that we've talked about, and indeed where you see the central banks actions going. What about more broadly, therefore, the resiliency at the moment, that the feeling in the market that you get in terms of opportunities to be putting money to work, and indeed whether the economies are likely to whether a

storm better or not. Do you think overall we are starting to see people see value at this time or really is a sentiment and just just still on the floor. Well, as you take the surveys um some of the investor surveys at face value, it would still seem that most investors are still pretty cautious, and indeed our own positioning

is still quite a cautious one. You know, we're focused on defensive, focused on value, focused on protecting for the downside because as things stand from current levels, we think there's probably you know, still still quite a high chance

that that that that we do see further volatility. But that said, you know what what what is starting to come through we think is that you know, sentiment is likely to turn sooner rather than later, and our companies a company is looking as wrong as they are perhaps here in the have they got the right balance sheets in place to whether it I think across the board, if you know, I'm looking at macro data and it would my senses, the corporate leverage for example, isn't isn't

particularly high or worrisome levels. The other the other thing I'd note as well is the profit margins are holding up and being far more resilient than the most people are expecting. So yeah, perhaps there is a bit of upside risk there, but short term we still think it's better to be positioned a bit more defensively and a bit more cautiously in these markets. Dean, great stuff. We really appreciate you taking the time. Dean Turner, chief Eurozone

and UK economist at UBS Global Well Management. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Boss Whinnie, I'm on Twitter p. T. Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio m