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Let's go right to the man himself, Michael Halen. He's a senior restaurant analyst for Bloomberg Intelligence. He's been all over busy, busy day today with the McDonald's news, with the Starbucks earnings. Hey, Mike, let's start with McDonald's here. Boy, if I were a long term shareholder of McDonald's I think I'd be buying stock here today because nothing's fundamentally changed other than this short term, really unfortunate incident out in the West.
Yeah.
I guess the question is going to be how short term is it?
Right?
Obviously it was a tragedy. Somebody's passed away. You have ten people in the hospital. That number could expand in the coming weeks. So yeah, I guess it's going to depend on when customers are going to feel comfortable going.
Back to McDonald's.
You know, we think, you know, we think that some negative sentiment could linger. Obviously, this company has gotten ahead of itself in terms of pricing, and customers, especially low income consumers have pushed back by visiting less this year, and so, you know, I think the timing of it was kind of bad in terms of where the stock's at.
I mean, the stock's been ripping higher over the last couple of months.
It makes us think that they finally kind of hit on value and we're able to track people back with this five dollars meal in the last quarter, right, but with the stock near all time highs man, that's that's you know, I guess that's a decision consumers investors are going to have to make today.
So for the next earnings report out of McDonald's, do you expect any type of hit either to the sales or any earnings metrics that has to do with this equal y outbreak news?
So this is gonna be, uh, this is gonna impact a fourth quarter. So we think this is gonna have a meaningful impact on the fourth quarter and it'll probably bleed into early twenty twenty five as well. We think traffic and Samsar sales are going to get it a hit because you know, I've been on TV four times already today. I'm sure all the major outlets are covering this story. And so it's gonna turn a lot of
people off from McDonald's. And I think there's gonna be a lot of people out there that just may not feel safe eating in their local McDonalds. So I think it's gonna it's gonna impact sales and traffic and earnings for at least a few quarters.
And Mike, aren't most I mean, like the vast majority of McDonald's. Aren't they franchised versus company owned?
Yes, yeah, they're They're ninety six percent franchised. So yeah, the largest impact is gonna be to the franchisees. That's a great point, Paul. Franchisees are gonna suffer the most, you know, because McDonald's is so heavily franchised. You know that they'll take a top line impact, but there's less operating leverage in that model, right, and so because of that, their earnings aren't going to get hurt.
You know.
The last big example of.
This was Chapotle.
Chapotle owned all their stores.
So when their same star sales drop twenty percent twenty seventeen, their margins got decimated, right, because there's just a lot more operating leverage in the model. So you know, for that reason, there's a lot less risk to the McDonald's story in this case versus what we saw the Chipotle back then.
So Michael Paul said that he's been ordering the same thing from McDonald since high school. I imagine that when he first lets going back ordered it, maybe the burger was two dollars fifty cent. I want to talk about pricing though, How is McDonald's doing right now with being able to raise prices with a consumer that is kind of constrained by higher interest rates and inflation right now?
Yeah, it's not just them, it's it's it's all of the restaurant, but especially quick service. Thirty percent of their
transactions are made by low income consumers. And there's this ke shaped economy right where if you own assets, right, if you have a lot of money in your four oh one k and you own a house, and you know you're doing pretty good, right, But inflation has squeezed the hell out of low income consumers now for four years, and they're they're just shopping at the grocery store more often.
They're cutting back on their visits.
You know, they're they're cutting back on their checks when they do go to the restaurants, right, and so McDonald's franchise ease because they're the ones that set the pricing, you know, and everyone else in the restaurant industry is struggling mightily to raise prices on their consumers this year.
And you know, and the rising you know, the seven since of fifty basis points cut commodity prices have just gone up since since September when we started pricing that in, right, and so that's a big concern for restaurant tours.
I think in twenty twenty five.
All right, Mike, let's switch gears. Look at Starbucks. Sbux is the ticker to put into your Bloomberg terminal stocks off about a half of one percent today. It's pretty much unchanged on the year, so badly, badly trailing the S and P five hundred, which is up about twenty two percent.
Here.
What's going on at Starbucks here, Michael?
Yeah, they they played catch up a bit once the appointment of Brian Nickel was the hiring of Brian Nichol was announced. You know, Brian Nickel started last month, and you know, he's moving quickly.
Man.
He's making a lot of management changes, and he's aggressively making moves to simplify operations. You know, they're going to rationalize, rationalized menu items, make it easier to execute, and try to bring.
Hospitality back to the coffee shops.
Right.
They want to free up their employees, their partners as they like to call them, to get back to knowing the names of their customers, right and being able to greet them with a smile and friendly service.
Right.
And so that's that's going to be job one, and then from there they're gonna expand on the marketing side. You know, Starbucks has historically only marketed to its rewards members, right, and Brian Nicol wants to expand that to everyone, right. And we think that's a smart plan. We think they've been under investing in marketing for a long time, and we expected to pay dividends as early as fiscal twenty twenty five.
What is the company said to explain the seven percent decline in same store sales? Because before you came on, we were talking about how you have to wait in a really long line to get your Starbucks. There's less drive, right, if you're doing it. There's I guess, well maybe some teams in the store, but there's less people in the store. What have they said about really what's driving that decline?
You know, part of what.
New CEO Brian Nichol has said this is like it's largely about the experience. You know, it's become largely transactional. Right, They've lost that customer service feel. They've had the trouble executing the orders. You know, a big part of it is, you know, and then he also mentioned that, you know, all of these new menu items that they added to
try to bring people in didn't work right. And then you know, to your point, pricing has gotten ahead of itself at Starbucks as well, and then China China, there's a huge price gap between the prices that they're charging. Sometimes they're charging three times as much as as some of their smaller competitors like Luck and Coffee and k Coffee. So, you know, prices has also been a big part of their issue, and it's something that they're they're going to address right away.
You know, I've seen some crazy graphics in various articles showing the permutations of the different orders that one could have, and if you're bar barbista. There's it's virtually impossible to learn all these Is there a sense that they kind of simplified just the menu a little bit?
Yeah, that was They issued a video yesterday after the close, and that was a big point of emphasis. It was like making the jobs of their barista is a lot easier and their employees a lot easier, right, And so you know when an.
Employee stressed, it's very hard for.
Them to provide the customer with a good experience, right. So this all flows downhill.
So making the barista's jobs easier.
Making it more and more enjoyable environment for them is going to flow down to the consumer, and then it's going to result in better traffic and same source sales.
We don't have a ton a ton of time left, but I was curious to get your thoughts, you know, Brian Nichols said. The company said that they're pulling back this guidance because the CEO needs more time to kind of think through all this. How unprecedented is that just thirty seconds?
Uh?
No, it would be This is very common.
Any any good CEO, we're worth his soul is gonna is going to suspend guidance. So they have more time to get their initiatives in place. This is a huge company. It's going to take a long time for momentum to start building in the right direction.
And this is a wise move, all right.
Michael Halen busy busy analysts today here with Starbucks McDonald's in the news. Michael Halen, senior restaurant and food service analysts for Bloomberg Intelligence, joining us from the BI office in Princeton, New Jersey.
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Family Graffeo sitting in for Alex steel On Paul Swinging. Were live here in our Boomberg Arrective Brokers studio and we're streaming live on YouTube as well. Bowing back in the news again today with some earnings not a good cash flow story, stocks down three and a quarter percent. Boeing CEO Kelly Ortberg provided an unvarnished view of his company at a crossolads absorbed by challenges ranging from huge debt to serious performance lapses that it needs to address
before it can consider developing a new aircraft. Take it Down Force. George Ferguson joins US Senior Aerospace, Airlines and Defense anels for Bloomberg Intelligence. So what did you see in this earnings release, George? What did you hear from new CEO Kelly Ortberg as you think about this Boeing story right now?
Yeah?
So I think you touched on the most important thing we heard on the call. I don't think it was that cash burn continues into twenty twenty five, you know, that worse than the front half of the year.
It's not like in the back half of the year cash.
There could be some generation, but it'll finish the year negative, which really leads to me to believe, right, they just got to raise They got to raise cash here shortly because they don't want to dip underneath that ten billion dollars, you know, amount they need to run the company. I think also I found it interesting away from his discussions on you know, the culture Boeing and how it needs to change. I think everybody understands that, we all agree.
I found it interesting too, you know, A couple of analysts went out of him about selling divisions, didn't get a lot out of them, I think on on selling parts of Boeing to raise money. Look, I know he's busy, he's been first couple of days. But my guess is they've looked at ways to raise cash, and you know, we didn't think there was much potential to sell big chunks and raise cash. And it didn't sound like Kelly had any of those on top of his list either, So I thought.
It was the most interesting stuff.
What did the CEO say about the serious performance lapses that Boeing has had over the last year.
Yeah, I mean you know what I heard was, you know, the serious lapses. You know, I guess he kind of owned up to them as well. But again I think we all knew that and that and that, you know, he thought companies still had, you know, potential for a very bright future. They're part of a duopoly, large backlog, and I think he understands that they need to bring back the machinist as soon as they can in a way where they're happy and ready to build product well,
and that's the path to success. And so but again I think he kind of owned again the problems of the company. But we've heard this before, right, I think now that the question is how do you change it?
And you turn it around? All right? The most immediate I guess mile post for this company is settling the striking. Today is the day the rank and file out there in the Pacific northwester they are going to vote today, and he consents us how this might go.
I'm not seeing any I mean, I'm I'm in the camp that it looks like he has a pretty good shot of it, because again, I think, you know, I've talked before that the union's been out now for about a month, so I'm sure they're starting to feel the pain of not having a paychecker at least a paycheck as large as they're used to coming in. They're pretty close to the terms that I think they're all looking for. The union might have been looking for forty percent. I
think they'll get. You know, thirty five sounds pretty darn close. I don't know if you really want to hold out for the extra five percent. And they sweetened up some of the four oh one k matching and some bonuses, so to me, it feels like they're pretty darn close and given the timeline, since they last all work, it kind of feels like he might get it tonight.
All right. So the long term challenge I think for this company, and I actually just happen to know a couple of you know, long time really right out of college engineers at Boeing, and it goes to that culture issue of you know, the engineering first, maybe not necessarily profitability metrics first, but engineering first, that there's a belief in at least by some that the company needs to get back there. A does a company believe that? And B is there any sense that they can actually do it?
Yeah?
I mean I do think they can. I think it again, it's going to take a wholesale I think change in attitude here. I do know people as well inside Boeing, and I hear a lot of stories about you know, non engineers running around with clipboards trying to figure out how to manage programs that are very technical, you know, in very technical programs. And so I think it will be hard to change. And I think they can't lose
sight of profitability. And I think even Kelly, as he tells you we got to get back to engineering and a manufacturing culture, he's canceling the seven to sixty seven because he thinks the prospects for the future aren't as good.
Right, he said, Look, this program was.
Coming to an end anyways, let's just get distractions away from us so they can't lose sight of profitability. But they yeah, they have to get back to engineering prowess and manufacturing skills.
The stock is down almost forty percent or over forty percent the year to date. Is there a sense in the investor community that this is we're near the bottom bowing?
So look the other day, I think Monday, when you saw the announcement of you know, the next proposal for the union and a vote coming, you saw the stock move, and so I think that that alone is an indicator that you know, look on Wall Street and financial markets, hope hope is eternal. And there are some folks out there that saying think they see value in this.
When do you if they do come to market with either debt or equity capital, George, when do you think that'll be now that they've got the earnings behind them, Seemingly they have the green light.
I think that they want to see the vote tonight, right, Okay, So my senses it's come in late this week, next week. I think they want to see the vote tonight and figure out what they think they need. Right if Kelly doesn't get the vote, if the vote doesn't go his way, it's going to be a larger chunk coming out of the coming out of.
The high see you're saying, yep, makes sense, all right, George, thanks so much once again, and for give us a few minutes of your time. George fur He's a senior aerospace,
defense and airlines animals for Bloomberg Intelligence. He's been our go to voice here on really the last several years on Boeing when they've had these you know, really serious safety issues and doors you know, flying off airplanes and things like that, cracks in the wings, and so they really need to, obviously, as they've been saying for a
long time, get that focus back on quality. But now they've got the I guess the shorter term issue of managing this strike here, which again is well, I guess into its fifth week right now. So they will have a critical vote the machinists tonight. Will they support what their union leadership has agreed to with the company and end their strike. So again a key key vote today for the striking workers and for the company, and for
the industry. And you think about all the supply chains that fall back from Boeing, all the suppliers that supply Boeing, they're pretty much on standby waiting for this thing. So it just affects a lot more people and a lot more companies than just Boeing. So keep an eye on that, and that'll be breaking news tonight in Bloomberg. Will certain they cover that as well.
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Let's talk about the market. Chare Carol Pepper joined his founder and CEO of Pepper International, Carol, A lot of folks have been climbing this wall of worry about the stocks. Book get the S and p F twenty two percent this year. What are you telling people who are concerned that are saying, oh boy, this market's too far over its skis.
What do you tell them?
I tell them relax, First of all, it's not too far over as skis.
There's a lot of good news in the market.
And really, as you guys know, I manage money for people with over one hundred million dollars, and we're starting to plan what should we be doing post election, post the next rate cup, because that's really where you want to look. Just like Wayne Gretzky said, don't skate to where the puck is, skate to where it's going to be. So we need to stop being focused on the election and terrified whoever wins it will be a fareom free election.
There will not be another January sixth, I don't believe.
So that means we really should be focusing on what is January twenty five going to look like and what's going to happen after the next rate cut, And that's all good news. The market is pricing in the fact that we will have lower rates, the election will be finally out of the way, so whoever's in will know how to position ourselves and there will be a relief rally.
So you want to be looking during these fearful days, these worried days, what can I buy that I don't have that will do well in the good times, because believe me, the good times are coming no matter who wins. I think we'll have a really strong first quarter next year. And so let's position for that, which to me means growth. Let's look at growth again because you know during fear days,
growth is what goes down. You see the nasdak drifting lower when people get scared, and then when people are excited, the nasdak shoots up. So when it's down, this is the time to look at your portfolio and say what am I under invested in? How do I get into the strong names that will do well when we're past the election?
So what does growth mean to you? Is that mag seven or is that taking on a new I guess definition?
Do you do?
You prescribe?
No, I think it's bag seven. I think it's in video.
I think it's things that are going to be working as we go into the future. So that means artificial intelligence, big tech, The big leaders are going to stay strong and get stronger. Names like Starbucks will come back, McDonald's will recover from this blip of you know, bad onions, and so I always say be bet on the big growth names because that's really where you're going to see the turbo charging when things are going well. And don't forget these big AI companies need to have a lot
of data centers. That's more manufacturing jobs. They need lower interest rates.
Those are coming.
So that is only even though in video looks like a crazy name with over five hundred percent return in three years, it's just getting started. Look at the long term turns of Microsoft and Amazon and some of the big names, how they've done over twenty years.
And you'll be very glad if you put some of these new big names in your portfolio and just close your.
Eyes, put the man on a fair day and leave them there and say, you know what, ten years from now, I'll.
Thank myself that I did that.
You also, so you have been consistent on your Nvidia call there for sure. Now you're talking to us a little bit about energy names, and I've looked at you know, we've seen WTA, cud oil just over the last several weeks really be volatile with some of the escalation intentions in the Middle East. What's your energy call here?
Yeah, I really think that energy is going to stay below one hundred, but stay above fifty. I really think we're going to be in that band for quite a long time, and you know I do. I'm a great believer in renewable energy. I'm a great believer in the new carbon markets that are going to get started. That will be a whole new asset class that we can talk about next year and in twenty six where we
are offsetting the emissions from these fossil fuels. But I do not believe fossil fuels are going away in any way, shape or form. It's just a question of have will all the various components of an energy market fit together. And for that reason, I think energy should be a core part of your portfolio. Will go up and we'll go down, but it's going to stay in a band certainly for the next ten years, and it's a great
dividend payer generally. So again, stick with the big names, stick with the exxons and groups that are going to do well. And frankly, a lot of those companies are very committed to renewable energies, fossil fuels, offsetting their carbon footprint.
They really have massive departments now who are doing that. That is not a conspiracy theory, that is a fact. And so for this reason, I think even for any ethical investors. It's an important part of your portfolio.
Carol. How dependent is your bull thesis that you've laid out here on more rate cuts from the FED? Because we've seen traders kind of pair back the level of I I guess the number of rate cuts that we're going to see this year potentially next year. How many rate cuts does your bull thesis need.
I don't think the number actually important. I think it's the trend and the trajectory. So is it four cuts over the next year or two? Is it three cuts? It will be fewer cuts if the market is strong, it will be more cuts if the market is weak. And where those numbers will turn out are up to
the FED. Frankly, nothing that we can really project. But I don't see a situation where they're going to start raising interest rates, certainly because I think they did a great job of getting us a soft landing that we need in I think we're getting that soft landing, and again technology, we can't discount what technology is doing in terms of increasing productivity without increasing costs, but at the same time, frankly, allowing for higher wages for the workers.
I mean, that's a nice sweet spot to be in.
Where you can raise your wages and have more productivity at the same time.
And I think we're going to see that trend continuing.
So not really dependent on a particular number of rate cuts, because of course, if the FED announced fewer rate cuts in the beginning, the market will go down and be upset for a week or two.
But the second there are good earnings coming out and we see that the corporations are still drow on, the market will come back.
Hey, Carol, thanks so much for joining us. Always appreciate getting a few minutes of your time. Carol Pepper, founder and CEO of Pepper intern National.
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Got Emily Graffeo sitting in for Alex Steel on Paul Sweeney. You live here in our Bloomberg and Director Broker Studio owners streaming live on YouTube as well, so check us out there. We had a deal in the data security business a couple of days ago, SOFOS. I think Tomo Bravo own Sofos acquiring secure Works in an all cash deal values the company secure Works about eight hundred and fifty nine million dollars. Secure Works as a publicly traded company SCWX is as symbol. We have Wendy Thomas. She
is the CEO of secure Works. When you talk to us about this transaction, why why sell to sofos and what's the pro former company look like?
Yes, good morning, Paul. This is a strategic combination of two longtime security market leaders. And so when you think about combining are two agnostic, very open platforms, decades of cybersecurity experience, and strong brands in the space. This is a way to really scale up and defeat the adversary at scale.
What does it say about the current market for cybersecurity companies that this acquisition is going through.
The market is really looking for a single partner for cybersecurity, sort of a consolidated platform play that a one organization can increasingly address multiple use cases for their security needs, from being proactive about vulnerability management to reactive to detection and response capabilities, the way to AI powered platforms that can predict the next cyber attack, and so the scale of R and D required to make that a reality
for customers is one that requires scale in organizations. So to take two cash low positive growing leaders in the space and put them together means more scaled R and D to be better, faster, stronger for customers.
All right, So what are your customers doing with cybersecurity these days? In terms of they're spending their investment.
They are increasingly moving from what I would call preventative cybersecurity investments to proactive cybersecurity posture and risk management. This is all about moving towards increasing prevention and the reason is that dwell times of thread actors in an organization's environment have gone from months to days to now hours.
So with the power of an AI powered platform, in order to really be able to keep constant visibility about potential holes in their attack surface, right, those unlocked doors, as I like to talk about, it requires technology to do that, technology to detect that someone's rattling that door handle and the ability to immediately protect the organization from someone getting in and taking those valuable data assets or encrypting their systems with ransomware.
So you're using an AI powered you're an AI powered security platform. I'm wondering how difficult it is right now to be a company that's using AI when it seems like demand is outpacing supply. Is that a challenge for you guys.
Well, if you think about AI, that's a pretty broad category. And while you know, natural language processing and generative AI is the is the hot topic right now, and it has its place in security in terms of things like changing cybersecurity detections into readable language of what's going on to a business person. We've been using AI for a
very long time in our platform. We started building it in twenty seventeen for things like machine learning, deep learning, statistical learning in order to sort through tremendous amounts of data and find patterns of behavior that we can match to thread actors, the way that they try to come into an environment, the software that they use in those tactics and techniques, and a platform like that that can filter through a lot of data and find those patterns
is the key to being able to protect an organization. So it's home built for both sofas and for secure works. Their hub platform and our Tage's platform. It just makes a ton of sense to be able to take the best of both worlds. And put those together.
All right, So you and I, Wendy, we first chatted back in twenty twenty one. How is your company? How has the industry changed over the last several years.
The industry is, I think, on a path for the first and a long time to really consolidate, and that is frankly as a result of customer demand to be able to run a holistic security program, understand, frankly, quantify their risk, demonstrate where they've protected against that risk, and then have the accountability around who is attacking their environment and how they've protected against it for their boards and
c suite. It's become a boardroom topic for the last couple of years, and so the ability of a security professional to elevate sort of a technical pursuit into the language of business and risk. It's probably the biggest change that I've seen over the last few years.
I want to zoom out and just talk about the cyber industry more broadly and how different corporations should be thinking about the current state of threat to their businesses when it comes to cybersecurity. Is are we worse off than we were maybe five years ago? As hackers get more advanced.
I would say that the great things about AI that have enabled us as businesses or security companies to leverage the power of that AI has also represented a certain amount of peril in terms of empowering those thread actors as well, and whether it's nation states or cyber criminals who are involved, their ability to use the same sort of natural language processing technologies to make that phishing email
much more believable. It really does look like it's coming from your bank or from a vendor that you use. And so the last line of defense, always beyond technology, is people and the need for all of us to become more educated and just cyber aware is more important than ever. So there's always is that human edge that can make the difference on top of technology to keep us all a little bit safer. When cyber criminals cannot make money off of global citizens, then we start to break that economic.
Model, all right, Wendy, thank you so much for joining us. Wendy Thomas, she's the CEO of Secure Works. That's a public traded company SCWX. Just recently, in the last couple of days, agreed to be acquired by private company Sofos and a deal for eight dollars and fifty cents per sharing cash, which was a pre solid premium to the pre deal talk there. And Sophos is owned by the private equity firm Toma Bravo, so more consolidation than the
data security business. That seems like an area that is just going to get significant investment for as far as I can see, because I mean, you have to continue to, I think invest in cybersecurity because as you mentioned, Emily, the you know, the state actors, the private actors are just getting smarter and smarter and more and more aggressive.
Exactly you imagine the threat just gets worse.
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Let's get a sense of what's happening with these markets, John just reporting we have a sell off in place here today, but otherwise we are at or near all time highs for these markets right smack in the middle of earning. So it looks like people feel pretty decent about the earnings that are coming about. Let's check in with somebody who does this stuff for a living. Loreen Gilbert, CEO of wealth Wise Financial, joins us via Dallas via zoom from Dallas, Texas. Laurene, thanks so much for joining
us here. How do you What are the discussions you're having with your clients these days? As they had a pretty good twenty twenty four a year to date both in stocks and even bonds are giving you some some pretty solid returns. What's the conversation like these days.
Well, it has been a really good year, and what's on everybody's mind is the upcoming election, and it's interesting to see how many people are holding this weight and see mentality on what to do with big life decisions, whether it's buying a house or making a move with a business. A lot of people are just playing wait and see. So the talk has been how will election
this election affect my portfolio? And to that question, we say there shouldn't be a lot of allocation changes based on the general election because we already know that this year is a positive year for the market, so we don't expect that to change. It's been a fantastic year across the board, and so the real question is what happens next year, and to that we look to Congress.
So more important for the markets would be what kind of legislation could be enacted in Congress, So who controls Congress could have an outcome as to what happens on corporate tax rates, on individual tax rates, on regulations. So all those things are of concern to people.
When you think about where we are right now in the business and economic cycle and markets, is there still room for this bull market to run? We just had six straight weeks of S and P five hundred gains. That was the best winning streak for the index all year. Where are we are We still early? Are we mid cycle? What do you think?
Well, we're in a light cycle, there's no doubt. But this rally now is two years really in the making. And the odds would say, or the history tells us in the markets that there is still room for this market to run. So where of the opinion that the market continues to run that we'll see right now we're
seeing a pause in the market. A lot of that is profit taking from stock So even you know, looking this morning at next stare that report and beat on earnings missed a little bit on revenue, but at the end of the day is still flat on the price, and so there's been definite profit taking. Coca Cola is another example of reporting and then the stock going down. So I think what we're seeing is some profit taking before your end a pause. And yet I will say,
we think there is definitely room to run. And fourth quarter expectations for earnings are very robout. So while third quarter is somewhat muted on your over year earnings, fourth quarter we're expecting quite a bit.
Lauren, I kind of grew up in the age of the sixty forty portfolio, but I know that's kind of a thing of the past that in fact, a lot of not just institutional investors, but retail investors like they have some alternatives in their portfolio, whether that's you know, hedge funds, private equity, private credit. How does that conversation go with you and your clients.
Alternatives definitely have a place in a space, and it all depends on the liquidity of the client and their risk tolerance. Definitely, equities, you know, public equities, there's nothing that can replace that because of liquidity and long term growth as well as dividend income, So your equities have
a place right now. We were talking about bonds have done very well, and the expectation is over the next five years we see the bond market being very robust as rates come down, and that trend will be our friend, so that we'll see long term you know what I mean is three years to five years some robust returns on fixed income, So we can't negate that or neglect it, and so then you are left with alternatives as well.
And what alternatives can do is diversify a portfolio. There are liquid alternatives and they're non liquid alternatives, so making sure you're using probably a combination of both of those, whether it's hedging a portfolio looking to commodities are considered in a sense an alternative looking at private equity as
a long term hold. So there's lots of different avenues and ways to play at macro looking at macro elements too, so lots of ways to play alternatives, and we believe in that we've got double digit allocation in alternatives in our portfolio.
I know you had mentioned that the election not really kind of a longer term concern for investors, especially those who have maybe a longer time horizon than traders. So when you do think about maybe the next year ahead, what are the risks to the market and your outlook.
Yeah, so it really is there is a risk. The risk is we go into recession, and looking at history during a rate cut cycle, most of the time that's very positive for equity markets. And the reason it's positive is if you can go into a rate cut cycle and avoid a recession, then the markets do quite well and have double digit returns. If the rate cut then we go into a recession, then we're going to see
negatives on stock market prices, no doubt. Now, we believe that we're going to still see continued growth in the economy. We don't see this economy even though the leading economic indicators we're seeing going down, we don't think that that means we're huating right now into a recession. So if we can avoid a recession, we see the stock market
doing quite well in twenty twenty five. So right now, our base case is that there's not a recession, that Pharaohserve continues low rates, and that the market will continue to rally.
All right, Lauren, thank you so much for joining us. Loreen Gilbert she's the CEO of wealth Wise Financial. Joining us fro Dallas, Texas via that zoom thing.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple card.
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Sometimes a headline gets your attention, boy, this one does. Crackskull, fractured bones, show danger at Rivian's factory. That draws you right in. So I want to get right to the reporter on this story. It's a big take story. We love the big takes stories, really cool stories, deeply deeply reported, resourced and sourced, I mean, and great graphics, all the kind of good stuff. So it makes sure good long form journalism. Kyle Porter joins US Industrials reporter for Bloomberg News.
Kyle talk to us about Rivian. I mean, I remember talking to Bloomberg Intelligence analysts years ago and they say, Hey, the technology of evs, that's one thing, but at some point they got to go start bending some metal. That's another whole thing, you know, entirely, and these companies don't have any experience in it. What did you find at Rivian.
The kind of really struggling to build a safety culture that they can be proud of. In short, there's been numerous incidents, some of which you start that in the headline, others which we didn't put into the story, or this which I haven't been investigated by OSHA. If you talk to people out.
There in normal Illinois, a lot of them.
Go to work every day because it's the best paid employer in the region, but they don't feel safe.
So I mean, again, they only have one plant here. I'm wondering how did Rivian, Like if I were starting up a new hot Cup and I'd just go over to Ford or GM or Stalantis, steal a bunch of their factory people and say, hey, guys, start building my car here. How did Rivian do it? How is Rivian kind of I guess learning on the job if you will.
Well, Rivian got a deal.
The original the plan that they have they purchased the sixteen million dollars have been abandoned by Mitsubishi when they were trying to make an electric car in the US. So it's sort of all fell into place. There were still workers from the time that it was owned by Mitsubishi that could come in work, so they felt that they could get some muscle memory. And then at the start they you know, it was designed to be a very niche carmaker, and then they got the Amazon deal.
Things exploded and they had to ramp up.
So what's the company responding, like, how they've kind of respond to this and do they have any policies in place to try to address this, because I'm just looking at another great graph you having a story that just shows a number of serious violation sited, and Rube's at the top of that list.
Yes it is, and as you pointed out, it's only one factory with eight thousand staff. Most of the companies on that list have multiple sites and tens of thousands of workers the company, I'm sorry, continued no go.
So I just want to know kind of how the companies responding here.
They're responded in great detail to us.
It's fair to say.
They pointed out that most of the serious citations that they were issued were ultimately downgraded or in a couple of cases, dismiss which is true of most people that go through the citation process, and they pointed this to things that they've done to improve their safety process. An indeed, Osher itself has commended the company for being open and looking to improve its health and safety.
So is Rivin any materially different than say a Tesla factory or you know the other ev makers.
Well, it currently only builds two types of vehicle. You have the Amazon truck and then you have the R one, which comes into several bottles. It's an SUV in a truck, and they're looking to ramp that up with an expansion with the R two next year. So it's smaller. It's I think it's aiming to produce now that you actually cut their forecast this year about fifty thousand vehicles, so the scale of it is much smaller.
Does Rivian have the money to invest in their plants into the safety because well, you look at the stocks of some of these companies that are just so volatile, and I wonder if they even really have the money to invest in safety protocols.
It's a question to ask the company that they say that they have a real commitment to safety and they are investing in it.
Is it is making an evy. I don't know, it seems like they're not building an internal combustion engine, so they're not actually building an engine, there is it? I would think the process is a lot different. Is it any more or less dangerous as the industry said versus say a you know traditional guess assembly plant.
Oh, given that you're building this thing from scratch, you know, from the engine upwards, there's a lot of process that has to be learned. There's a lot of things that need to be learned. Indeed, one of the things that the company was cited for was a movement vehicle that the engineers are designed and you know, wasn't safe for employees to use. They were telling employees to be careful until I she cited them and they figured out a
way to do it differently. And you could replicate that across a thousand examples, from how you attach the doors to how you put.
The glass in.
You could go on and on and on, and Ribbean's had to work out new and different ways of doing all these things for these new bespoke vehicles.
But the employees, I guess they are. Are they aware of the hazards when they take these jobs.
That's a very good question. It's rapidly becoming a company town. Most of the people that we spoke to for the story are one of several family members who work at the plant. They all talk about how when the plant first opened, it was very small, very welcoming. You saw members of senior management. It felt like a family. And as production as ramptup, that's gone away and there's been a pressure just to produce interesting.
All right, interesting story. Kyle Appreciate a Kyle Porter, industrials reporter for Bloomberg News. It's got the Big Take story about Rivian and working in their plant in Normal, Ohio, some of the safety concerns there. You can read more of this story on the Bloomberg and at bloomberg dot com slash Big Take. Looking at the stock of Rivian, it's down about two percent today, it's down fifty six
percent year to date. It's got a market cap of ten point three billion, so again reflecting some of the challenges of starting up some of these ev companies and the volatility around kind of the adoption of electric vehicles, which is really still i think pretty uncertain as to where the ultimate demand is for electric vehicles. We're seeing that in some different demand numbers we see out of some of these companies.
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