Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news.
Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. All right, let's talk tech. The tech geeks are out in force today. MSFT put up some numbers. Let's bring in anaag Ran and man Deep Singh, our tech analyst at Bloomberg Intelligence. And we can't get rid of these guys. They keep sticking around. So on, rog, let's start with you Microsoft. I mean, this is a two trillion dollar
market cap company and stocks up seven percent today. Talk to us first about the earnings and then second about activision.
Yeah, you know, Paul, you've known that I've liked this company for many years. But frankly, going into the quota, I was a little worded that they were going to not only miss, but actually guide downwards. And the exact opposite happened. Almost every major product category performed better compared to last quarter, and you know, increasing revenue run rates, So I have no words. I mean, they just blow it out of the park.
Frankly, all right, activision. Activision is big, I mean sucks big.
Not hurting Microsoft, though, I should point out that, you know, Microsoft was up like eight percent in the pre market trade. Then the headline came across from the UK that the regulator there is going to bigfoot this sixty nine billion dollar purchase and Microsoft is still up seven percent.
Yeah, that's fair, but they are up on you know numbers and not lets you know, not that it had nothing to do with the you know, the acquisition in our vue. But this is going to be a big problem in terms of how this thing gets settled. Now, it's going to be a lot of court fighting and legal issues. And I mean this just shows that regulators around the world don't want big tech companies to buy anything. I mean, this is so basically buybacks, more buybacks.
I saw Jenary on Bloomberg Television. I get to see what she said. What is Jenry, who was our was our anti trust expert in Bloomberg Intelligence, What is she saying about it?
She thinks it's just going to be an ongoing legal battle to try to get this resolved. I mean, that's it's just going to take a lot more time to figure out. Microsoft not going to back down anytime, honoring.
Why does Microsoft need call of duty? You know, why do they need activision which makes call of duty? Now that they have AI powered bing?
Well, you've told me this many times that you know the cloud gaming is not ready here right now, and you know maybe it will be ready three to five years from now, and the whichever company has more content is going to be dominant, is going to be one of the dominating force there. And gaming has been a big part of Microsoft since southiat Okoba.
All right.
Mendeed, Meta platform slash Facebook in this studio stock is up seventy seven year to date. I thought these guys had a problem with costs going crazy on something like called the metaverse, which I don't know what that is. Advertisers pulling back because there's a recession. How did they turn the narrative around here for meta.
Well, it is still driven by cost cuts. Nothing has changed in terms of the top line expectations. I think what Alphabet did yesterday was to la fears that, you know, digital advertising was going down the cliff. I don't think that's happening anymore. And look, there will be at pricing headminds. Search is the most resilient, which is what the alphabet
number showed. I do expect some at pricing headminds in the results tonight, But when you are cutting ten billion dollars in costs, I think it's always a good story to sell, given we know these models are so good in terms of you know, throwing out free cash flow. So that's what's driving the stock right now.
Does Google have a weakness here? I know they dominate in search with something like ninety percent of the global search market right and Microsoft they're being had like six or seven percent. But now they've got this AI powered bing. I used it this morning to ask what kind of infrastructure upgrades are needed on the US electricity grid if people start adopting a higher share of evs rather than
ic E cars. You asked chat, I asked bing in one in one sent in one you know search query, I said, what kind of infrastructure upgrade does the US electric grid need if we start buying more and more evs?
And the and the and the.
And the AI chat bot came back with an incredibly elegant UH and direct answer, citing three different sources saying, look, we're gonna need one and a half to two trillion dollars of infrastructure upgrades by twenty thirty just to maintain the electric grid where it is today. That's incredibly smart. Google couldn't do anything near that.
Well, they will be, and that's the risk when you have a ninety percent share in search. It's like anything that comes on the horizon is always an imminent threat. So in this case, clearly.
But there's never been anything on the horizon before.
Well no, I would disagree because a lot of people and companies have tried PageRank. They've tried to copy Google's algorithm, but they've never been as good in search as Google. And that's why that mode has been penetrable, because no one has been as good in search. So clearly, this is something new on the horizon. It has a lot of promise. We think it's going to raise Google's cost of revenue because the cost of infrastructure goes up. But will it be as good and as simple to use
as Google Search. The answer so far is no, and it hasn't heard their revenue, which is why search are performed last night.
But Matt had a I can't believe Matt put that query in.
That's pretty yes, And that's where the search market could grow because now you could search in terms of you know, long questions, which you weren't able to do before, and you don't have to browse through the links that they showing. You said, this is a better way to consume Internet content because you can search in paragraphs like long queries.
And I just like liquor store near me. That was man so Ana Rod talk to us about just tech spending overall. I mean, you know, really over the last fifteen twenty years, it's just it seems like it's never slowed. You guys think you're smart, but reality is you're just you're just behind this great tech wave. I mean, anybody could do that. But now we actually have some headwinds to tech spending. Where are we seeing some of those headwinds?
How pronounced are they How long do you think they'll they'll persist?
See, before last night, I thought it would last by the end of the year. But to be very honest, after Microsoft, you know, we could already be at that pivot at this point, and you know it will take a few more couple of months more for us to figure it out. I have no doubt that once all of this thing you know, settles in next year or whenever that you know twelve month period is over, we're going to see a bounce back and a major bounce
back in growth rates. Because the shift or digital sift to AI shift, all of these things is still in such early innings that there is no reason for companies not to spend on technology products.
Mandy.
I mean in your in the companies you cover, where you seeing some of the biggest growth in tech spending. Is there the next cloud out there? What's the next big thing?
I think the next big thing is clearly large language models and generative AI. That's what these generative AI, generative generative AI, That's what Matt's query is about, you know, in terms of looking at content that's out there on the web and giving a smart long form results where you don't have to go through different types of links. And you can apply that concept with images, with different types of content, so it's not just text based searches.
You can apply that framework to a lot of different types and I think every company right now is tinkering with it. Clearly there's a big infrastructure investment that and Rog was alluding to. So that's going into that tech spend is you have to upgrade your infrastructure. You can use your existing data centers and run those queries and that's a big, big tailwind for it spent.
I just asked Bing how much of a problem is the rising rate environment in the United States for big technology companies and their spending plans. And Bing says higher interest rates can hurt growing tech companies in three ways. First, they increase the cost of borrowing more money to expand a business. That's bad news for high growth tech companies which are burning cash with widening losses. Second, it reduces
long term estimates for a company's earnings and free cash flow. Third, it slows down businesses cash flows and stunts their reinvestment into innovation and growth prosperty.
Good good job being Men Deep Seeing on Around Rock and a Bloomberg Intelligence.
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We have state of the art facilities, and we literally met and I sit at a round table, which means we can actually have rounds at tables with smart anamals. We just did it with the tech geeks on our agrana, Man Deep Sing from Bloomberg Intelligence, two of the best on the street. Now we do it with the banks. We have two other top analysts here, Herman Channey follows the regional banks, Neil Sipes. He follows the big boy banks, the money center banks, along with Alison Williams. We got
them here at our Bloomberg Interactive Broker studio. We're round tabling this thing.
Herman.
Let's start with you're you're the problem child here in the banking space at this First Republic thing. It's down another gajillion percent today, it was down fifty percent yesterday. Is this thing a going concern? Is this something that the fdi SE has to come in and just say, okay, we're in charge now.
Don't take going concern.
I just did. I just did.
At this point, the bank's running out of options. There's been reports from Bloomberg that they're looking to sew up to one hundred and fifty or one hundred billion dollars in assets. Which I think it's going to be a tough We talked about this earlier. They only have about fourteen billion dollars capital and any sort of haircut is going to eat in that capital, and so it's they don't have a lot of good negotiating power at this point. So it's we're gonna wait to see.
So what does the FDI see? How does that organization work? How did they decide when to step Are they asked to step in? Do they look at the situation say we are stepping in?
How does that work? At this point?
The regulators are embedded into First Republic over I would say the past few weeks a month or so, and they're seeing all the numbers that are coming in in terms of deposit outflow, in terms of how they're managing the balance sheet, so that they have a pulse on the situation. And it's really up to their determination that if they want to come in and close the doors.
And Mat I want to bring in Neil Sipes. This is a dude we hired as a summer associate in Bloomberg Intelligence. Now he's pretty much running the whole place. I mean, you know, so like Alison Williams, we love. She's kind of the rock star. But my you know, she's got people. You can't get through to her because she's got people to kind of shielder. So now we've got Neil Sypes. He's research chalnels covering some of the bigger banks, and.
He studied in the great state of Ohio.
Is that you're a DA flyer, that's right, that's right, one of the few.
I was right next door at Antioch College, not studying, not studying.
Yeah, the University of Dayton, home of a great healthcare analyst, former bi analyst Michael Manns. Now it's sit investments in Minneapolis. So nice lineage there of good analyst, research channels, command of Uniers of Dayton. You know, talk to us about what we've seen some of the bigger banks here. How are they performing in terms of just kind of the core banking business as well as their capital markets businesses.
Yeah.
Sure, And I think it is a little bit of a difference when you compare it with some of the regional peers that have had more idiosyncratic issues for themselves. And what we've seen is, you know, the larger banks have been able to weather this storm a little bit better than what you've seen at some of the regionals, or at least stay out of the headlines in the sense that they've been some of these have been the beneficiaries of some of these deposit flights what we're seeing
across the industry. It's no question that deposits are on the decline, but ultimately some of these have some of these larger banks have much more diversified deposit franchises that can weather these storms and ultimately have a more diversified client base, which ultimately, you know, supports the businesses across whether it's investment banking, asset management, wealth management, et cetera, whereas some of these regionals are a little bit more narrow.
Now, I like your coverage. You go over some of the smaller investment banks, and if I were to go back to the banking world, that's where I would go to the evercres, the moluses, maybe even ray j and Stefel talk goes out some of those smaller regional investment banks. How are they doing? How do they compete against the JP Morgans and the Morgan Stanleys of the world.
Yeah, well, some of those boutique investment banks, they compete specifically in the advisory space, and like you said, that's the place you wanted to be. Maybe in twenty twenty one, maybe not so much right now, as we've seen deal activity pretty much on ice since the beginning of twenty twenty two. Keep in mind we were coming off that record twenty twenty one. But as we've seen interest rates rise, we've seen economic expectations sour a little bit, it's become
a lot more difficult for deals to take place. Confidence is lower, market sentiment is weak. When you have volatility, it's a lot harder for buyers and sellers to come together on a price, and ultimately that's going to be an issue. Not to mention what we've seen with capital markets, it's a lot more difficult and a lot more expensive to raise.
That capital Herman in terms of First Republic, obviously, the share price is in free fall right now, and it had been grouped together with a number of other regional banks, including pac West. Yesterday pack West was also decimated almost it was down by like nine percent. Today I noticed pac West bouncing like eighteen percent in the pre market and it's up right now another six percent. Why is that?
Is it just that we thought, oh, maybe pack West isn't a doom loop as well, and now we realize they're okay.
Well, they reported numbers yesterday and had some really encouraging numbers, specifically to deposits, and deposits were down twenty percent through March twentieth. They had pre announced that mid quarter, and at the end of the quarter deposits came back a little bit, and then through Friday a deposits came back more so. So the fear that that depositive flight was happening with with PacWest has been alleviated a bit, similar
to what has happened with Western Alliance as well. So it does seem like the issues really are focused on First Republic.
Well, and look, PacWest had a fifty two week high of about thirty bucks a year. They're down to ten, so taken down by two thirds. First Republic had a fifty two week high of one seventy right, and they're trading for five dollars a year, much worse. But I don't understand why yesterday's release prompted, you know, a fifty
percent drop and another thirty percent drop today. I mean, yes, they had one hundred billion dollars of outflows in the first three months, but they only had one point seven percent of outflows in April, right, So it does look like they stemmed the bleeding.
It looks like they stem the bleeding. But there's overly reliance now on higher cost CDs. We're talking four and a half five percent CDs that they have to rely on, and also wholesale funding borrowing from the discount window, borrowing from the FHLB that's costly as well. So where though the costlyer funding is going to squeeze their margins and spur negative earnings for the foreseeable future. So that's really what a spooking folks.
Neil has it affected the companies that you cover. I mean, it's quite different from Stefel and Evercore obviously First Republic, but they have high net worth individual maybe they have bankers from Stefel in Evercore that got their zero percent mortgages there.
Yeah, it's it's definitely a different story for stephl and Raymond James because when you think about these two institutions, it's more so a wealth manager that owns a bank rather than a bank that owns other division.
But I just mean, are there any knock on effects? Are you hearing people from no doubt saying like hey, I have a plan, or we're taking assets from them, or you know.
Well for sure, I mean you've seen the flight of some advisors from First Republic. When you have issues at the underlying bank, at someone like First Republic, you ultimately see the flight of some of those advisors and ultimately
those client assets to some of these other competitors. But to be fair, the Stefil and Raymond James of the world, they're also seeing the same issues of deposits perhaps shifting between either lower cost bank accounts all the way up to those money market funds that are ultimately leaving the balance sheet. Steefeil, on one hand, has been very aggressive in sharing that interest rate increase with its clients. Others perhaps less so when you see those deposits leave the balance sheet.
Herman Chan is such a rock stary.
He had to leave because TV beckond they want to know what's going on the First Republic. So he just ran, literally ran to the TV studio. When Antorres says, get in studio, Yeah, get in studio. You do not mess around.
And Torres is a Bloomberg television producer to whom you do not say no.
Exactly right. So Neil, again you follow some of these regional investment banks, they focus really heavily on advisory work, as you said, more so than capital markets. There ain't no deals happening, man, What are they saying about the m and A environment out there?
Yeah, and they're saying that there's not much happening. And unfortunately, you know, back in January, we were hearing a little bit of some positive comments of saying, look, markets had turned around a little bit in the fourth quarter and that was extending in the first quarter. So there were some growing opportunities, some green shoots, so to speak. But ultimately what they've said so far this quarter is March pretty much canceled that out right, the volatility that we
saw around banks that spread across broader markets. Yes, we're still up on the year, but that inherent volatility and ultimately just the lack of clarity as to where monetary policy is going to be, how the economy is going to look, how inflation is trajecting throughout the rest of the year. That's ultimately going to continue away on deal announcements, which therefore ways on future fees.
You know, on a scale one to ten, ten being the best. How was your experience at the University of Dayton.
Yeah, no, hesitation.
You're a big fan, right, yep?
Yeah. I mean I can't speak highly enough of it.
And you are you a high native?
I am not.
I'm a Connecticut native actually. Okay, So I did a little quick trip to the Midwest and sort of came back. But ultimately, I mean it's it's a great you know, education there, and they have a student run investment fund yep, and so they're able to, you know, kind of put that hands on experience with analysis.
Did you ever get a milkshake at Young's Dairy Farm?
I did not. I'm not familiar with them.
Have you not be into Yellow Springs?
I have not.
Oh, I've driven through it.
I think he's all business, all the time, all business all the the kids a day.
They're not out there playing around, they're studying, working hard. Neil Sipes he's equity research channelist at Bloomberg Intelligence, homegrown, home trained, and now he's a rockst Army. Appreciate getting a few miutes just time to talk about some of these banks.
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We're bringing now Christelle Rendu de Lin. She's the head of investments at Fonto Bell normally in Zurich. She joins us live in the Bloomberg Interactive Broker Studio. Great to have you here, Christelle. Let me first ask you what you make of these markets. You know, we saw so much volatility in the first three months and it just dropped down to nothing in April. Okay, yesterday we broke out of the range a little on the stock side, certainly not in fixed income. What's going on?
Well, I think, I mean, you just nailed it. We are completely in the wait and see mode. The recession has been spoken about for about a year and it just is not materializing. It's very hard to find strong positive news that would you know, put you on risk on. But at the same time, you know you don't go risk off because it's it is just not crumbling down or certainly not as fast as people would have it.
So, I mean, we were all focused so much on the FED. It was like Bloomberg surveillance twenty four to seven here until this week. Really, all of a sudden people started to care about caring about earnings and putting FED you know, forecasts on the back burner. Do you think we've shifted for good or are we going to go back to our incredible macro focus, you know, as soon as we get big economic data on Friday.
Yeah, I think it's too soon to write up the macrol because actually this is the story. The earnings are the realization of what's happening on the macro, and the FED has a tough job now it's you know, inflation is still there. They still need to go. But you see the first cracks in the system. And the whole question is, you know, are they just isolated cracks or is it a sign of more to come? So I think the story is quarely in the macro camp still.
So where do you guys have on topo come down on this whole thing? I mean, I think the FED. I guess the risk is the FED has gone to far, will go too far and in fact break this economy. Is that the side you've come down on. You think there's a risk here that this is there's gonna be recession, and it might be more than people are expecting.
Yeah, the house view is indeed that we will go into into recession, not necessarily one that sees on employment going to the roof, but one that will be enough to stop the FED and potentially bring it onto a rate cut cycle. I think personally it's too early to go for that. I think they've got a job to do and they just can't let go just now. But we also history has told us that, let's say, if the cracks really materialize, they're gonna take this.
It's gonna be difficult for the FED to stand up to the political pressure. Nonetheless, it does look like they're going well, certainly twenty five basis points more next week. Right, do you expect an increase after that? Because inflation looks pretty sticky, and Jerome Powell, if you take him as word, he is determined to break the back of inflation.
Look, I think the sign for me it hasn't changed that they'd like to do as little as possible so that they don't break the economy. But they will have to do as much as needed to show that inflation has turned around. And so at the point that the Fed can say this is it, guys, you see inflation has durably peaked, then they will step off the pedal.
But when is that? You know, when he has a press conference, reporters are trying to needle him to get him to say something. He just wants to get close to two. But does that mean three? Does that in four? Yeah?
I think they just I think they probably just don't know when that is, you know, when we've really reached the peak. I don't think it will be a question level. I think it will be a question of really seeing, Okay, we can now say the peak is behind us. They've done five hundred basis point one shot. That's one of the fastest tightening cycles. You've got a few cracks here and there. I think when they can stop, they will, But they want if inflation has not topped.
All right, So what are you telling you're coming? You're here in New York, first time you said in almost a decade. Yeah, so you're meeting with I'm guessing, shame on me in special investors here in New York. You sit down with some of the big players here in New York. What are you telling them to do in terms of, you know, investments over the next six, twelve, eighteen months.
So the first thing I tell them is always the same thing, is just to start with not only to think about investment views, but about the portfolio construction. This is the one thing that is never talked about is if you get it wrong in your risk appetite, it's going to be wrong anyway. So that's the first thing. Where's your own risk appetite and tolerance to risk? And I would go balanced, to be honest, It's not for me.
It's not an environment you go all cash unless you think all hell, you know it's going to break loose, and I don't think we're there. So I don't have equity, I don't have fixed income, And I actually think the big change is that Treasury will be back in town as a safe haven play. They haven't played their role last year for obvious reasons, but they will be back.
You think investors worried about a recession are going to pile back in. I think is that going to drive rates down?
I don't think they're gonna apply by kin, but I think they're not there, and so if we do get a recession, we're going to get a serious rady on those rates because people I'm not in and I think that makes them will still be at plate.
I wonder what you think about You are an economist. You got your PhD at the London School of Economics.
That's good.
We have rates that, you know, relative to the levels we saw in the eighties, for example, don't look very high. But we didn't have this kind of debt load in the eighties. Right if you have to refinance, you know, today's debt versus debt back then, it's way more painful. Right at the US is now at what one hundred
and twenty percent debt to GDP. Back in the early eighties, we were like twenty percent debt to GDP, So five percent now hurts a lot more than maybe seventeen percent then did Is that gonna change the the equation?
Yeah, I think it's going to change the equation, And I think that's the reason we will not get back to the inflation rates that we've had for the last twenty years.
We're not going back to I don't think so.
I don't think so. I don't think so and you know what I mean, two percent was chosen. It was chosen. It can't be ten, it can't be six. But does it have to be two?
I'm not sure.
I mean we can live with three.
All right.
Christa, you're based in Zurich, you're from Geneva, so you are Swiss all the way through. What does it mean to an average Swiss citizen that ubs acquired credit? Swiss people are telling people are telling me it's a big deal for the average Swiss person.
Well, it is a big deal, yeah, because it's the two largest banks getting together. So firstly, you know, you'd wish it hadn't happened. But secondly, the most important was, as always to stabilize market, and that was absolutely key. You know it from here as well. You cannot let crisis of confidence get get in the way. But I think the ink is not dry on all of that.
People are angry, right, people are angry. Angry.
Well, they're angry because you know, all of that happened very quickly in a sense, so the the government's decisions happened very quickly, and so you hear a lot of political voices saying, you know, we want that you look into the competition laws and and and things like that. So I think we we.
Are lots of banks or but these are the two big ones. These are There's nothing else like that, There's not I mean, so this is really level.
It's just is do you like Zermatt or Saint Maurritz? Like, where's the best place to ski for you? East side? West side?
God, that is a really difficult one. You know, I'm a mad person, but since I've moved to Zurich, I have to say the anger in is wonderful as well. So I'm gonna draw my joker card.
There's a good question.
Yeah, I mean, just so many choices there in Switzer met We got a road trip this. Yes, we do a remote broadcast from Zurich a couple of days Geneva couple days start.
I'll put the tick.
Days and we'll hoast you up from Tobol.
You see your guests absolutely. Christo Rendu Day Lindt, head of investments for Von Tobel based in Zurich.
You're listening to the Team Ken's Our Line program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app or listen on demand wherever you get your podcasts.
Sat down to Washington, DC, talk about not being comfortable. We'll talk to Nathan Nathan Dean, he's a senior policy house of Bloomberg Intelligence, as well as Emily Wilkins, reporter for Bloomberg Government. They join us here to get the latest from DC. Nathan, let's start with you here. What does my Congress have to do here? I mean, we've got to continue to pay our bills and you know we're getting into May here. Give us just the latest on this debt ceiling and all that kind of stuff.
Well, you know, so obviously you know, the House Republicans are coming together with a bill. You know, voter is expected later today. But you know, whether this bill passes or not, you know, this is represents the first step that I think the markets really want to see happen in Washington, and that's negotiations. I mean, they want to see Congress come together with the White House and get this done. So you know, this is one of those like chicken before you know, what comes first, the chicken
or the egg? You know, does Congress negotiate or does the market freak out? And both are waiting for the other to do something, and you know, at least Congress is showing that they're doing something so the market can actually start preparing for that.
Emily, let me ask you about the possibility of McCarthy's plan passing. I thought, you know, as a no brainer. The Republicans all want to be on, you know, one team, and they're going to take it to the White House with this plan. But now I hear that some Republicans are balking because they want subsidies, which totally confuses me because I grew up, you know, and Alex P. Keaton card caring Republican, and I thought small government and no subsidies.
But why are Republican congressmen wanting to hold onto these government handouts.
Because it's what's good for their district. A lot of these lawmakers who want to see more of these tax credits on round bile fuels, they come from places where ethanol is a big deal because their districts grow a ton of corn. You've got Nancy Mace, who has a lot of solar producing companies in her district. She wants to make sure that those subsidies are there. I mean, yeah, look, Republicans want to be unified, but what they want even
more than that is to get reelected. And they know that because of the narrow margins, it's easier for them to go up and say, hey, we really want this, and if you want my vote, you have to do something. That's why we saw changes to the bill made at two o'clock in the morning last night to try and really firm up support for a potential vote today. But we still really don't know if Republicans actually have the votes.
McCarthy said he felt confident, but when you're talking with Majority Leader Steve Scalice, he keeps saying the vote will be this week, but but he won't commit to bringing it to the floor today necessarily.
It's just so crazy. When I was a kid, the Republican Party was about small government, free markets, no subsidies, what no government?
And I'm into Republican Party that you could fill a show on that.
Emily, you should do a show what happened to the Republican Party?
Where did they go?
Done?
The one? Yeah, I mean my dad would still vote for Nixon if Nixon ran today.
You know.
That's but those I don't know, We'll see, uh So Emily. President Biden announced he's running. Kind of an odd way to do it with a videotape. It's like he's running for you know, school president.
But under the radar, under the rax o'clock in the morning, right in the middle of the Fox News Tucker Carlson news cycle, Like so no one would notice. What did they did? They were they trying to sneak it out?
Emily, Well, we all knew it was coming. We reported on the fact that it was coming. Look, I think everyone knew for a while that Biden was going to run, and it was just a matter of kind of making it official. Videos are now what all the cool kids are doing these days. Saw Tim's got put out one out there, and Nikki Haley put one out there, and look, I don't think it's a giant shock that Biden's running again.
I just think that he had to make it official and get the message out there, because you know, last time he was like, look like, you know, I'm running kind of as an alternative to Trump, you know, to get government back on track. And now the message has
to be we're finishing the job. And you know, at this point, we really it's been interesting, We really haven't seen any Democrats yet come out and support Biden, even though there are numerous polls out there that show that a lot of Democrats are concerned about Biden running again. They're concerned about his age, they want a fresh candidate. But at this point, no one's really come forward that seems to have the chance of seriously getting the nomination.
Maybe they just think it's a vote for Harris.
I mean, you didn't see much of the Tom free op ed in the Times today kind of goes to that issue.
So we didn't see much of her at all in the video. But I think a lot of people are concerned that a vote for Biden or you know, optimistic to vote for Biden is a vote for Harris. I don't know where people fall on that, but you know.
Hey, Nathan Speaker, Kevin McCarthy's Speaker of the House, how important is the next few weeks for the speaker? Here it feels like, man, this is a referendum on his leadership, just point blank.
Well absolutely, I mean this was something that everybody knew was coming. You know, there was going to be a piece of legislation where he would need to get his party in order, and this is it. And so if he can show that he can get all of the GOP on board onto this deal, this is a big win for him. I mean, this gives him a lot
more leverage in these negotiations over the dead ceialing. If somehow he doesn't, well, then you know, people are going to start chipping away at his leadership and their questions are going to be asked and so forth. And that's what the market doesn't like, and market doesn't like uncertainty, and so you know, we are actually just thinking that, you know, whether or not this bill passes or not, I'm sorry. If the bill passes, it's not going to go anywhere. I mean, all this is dead on arrival.
But if the bill passes, at least the market can take to the point that negotiations are going to start in earnest. Now this gives them something to go to the White House and say let's start here. So, uh, you know, we haven't really seen market angst when it comes to the dead healing just yet. You know, as the X dat gets closer and closer, you're certainly going to see it both on the equity side and the fixed income side.
Do the uh, you know, President Biden mentioned the Mago Republicans. He said they want to cut social Security. I'm not sure if that's true. But Emily, what role do does the you know, the right wing of the party play in this? What role do the you know, Marjorie Taylor Greens play in Kevin McCarthy's uh, you know, power in the House.
I mean, certainly McCarthy has had to be very diligent right about catering to the Marjorie Taylor Greens, to those sort of on the conservative side, But at the same point, he has not been able to ignore the moderates. And really, what we had a good reminder of yesterday is that it's not just these ideological streams. It is literally any group of lawmakers can hold things up. There are four
Republican members from the state of Iowa. Iowa grows a lot of corn, a lot of concern there about biofuels. All four Iowans were in McCarthy's office yesterday trying to get him to make changes on the bill that he ultimately did give a little bit of ground on. And so you can kind of see that it really just takes you and three of your buddies to wind up proposing a headache for Speaker McCarthy and to potentially stiny really important legislation.
And Nathan thirty seconds left here. Let's assume that the dead ceiling gets done. What's next for Congress? Can they get anything really done here in this environment?
Well, you know, I was just going to talk to the assault deduction. You know, I'm not going to say it's going to get done, but we saw a propos You know, we've seen statements from Republicans in moderate New York and California saying they want to move on this, and they can't move on salt deduction until after the death cealing. So for those of you in New York, I'm not saying it's going to get done, but momentum is beginning to tweak a little bit, so keep that in mind.
I have one year, eight months, and four days until the salt deduction cap is retired.
It's now back on my agenda because I'm now once again a homeowner in the great state of New Jersey. So I'll talk to my friends down in DC see if we can get something done here. Nathan Heggre, I'm sorry, Nathan Dean, thanks so much. Bloomberg Intelligence He covers all that Washington stuff that no one else, really, no one else wants to deal with, but he does it so well.
And Emily Wilkins.
Emily Wilkins.
She is the host of the new program What Happened to the Republican hartypen to the Republican Party with Emily Wilkins.
With Emily Wilkins coming to a station near you.
You're listening to the tape Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and.
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All right, let's talk restaurants. Here is Emily mentioned. We had some some numbers come out from our good friends at Chipotle, Wendy's, all kinds of stuff. Here we check in with Mike klen He's a senior restaurant analyst with Bloomberg Intelligence. Mike talked to us about kind of some of these fast food restaurants are starting to hear some earnings coming out. Chipotle had some good number stock really rallying today on the news. What do you see.
Yeah, so we've had just just too so far. Chipotle and McDonald's yesterday, and they both did well. And it's not really a surprise. They've both been really knocking to cover off the balls since the early days of the pandemic.
You know.
Chipotle was you know, they had a good quarter. The sales trend you know, they be pretty handily, but the trends actually only increased about fifty basis points on a four year basis. But what was really impressive was the margin expansion that they saw. So so they had a little bit of a dud with the limited time off in the fourth quarter, the garlic Guahillo steak, and they've they moved on to chicken out pastor in the first quarter and they've they said it was very successful.
Uh.
They also did well with their faheta case ideas that they were pushing on TikTok, you know, and and avocado prices eased a little bit of year over year, and you know, add it all up and it turned out to be a great, great quarter.
So, Mike, for some of these fast food companies, how are they how effective are they able to pass along their their price increases to the consumer.
Well, we're going to see this year so far, so good, right, We're going to see how that how you know about ten percent price increases from last year start to you know, we're going to see if there's gonna be any more pushback this year now that pretty much most of the stimulus is going to roll off, you know, the last of the stimulus is gonna is coming off. I think in May. That's the uh that's the moratorium on student loan payments, right and that and that's a big cohort.
That eighteen to the thirty four year old cohort is very big for quick quick service customers. That's a big cohort for for them. So, you know, we're gonna see if there's if it's going to have any impact. You know, there's also some other things we're looking at. You know, credit card account bounces have have hit record hit record highs in the fourth quarter. We haven't had first quarter numbers yet. Real incomes have dropped every month for the
last two years straight. So there's definitely some pressures we think around the corner and we'll see, we'll see how much consumers push back. But the thing about quick services right there, they're a much better space than the full service diners because it's a it's a cheaper meal occasion.
So they'll have some people kind of fall out of the bucket, But then they'll also have some middle and upper income consumers that that might say, you know what, I'll skip out in the full service meal and I'm gonna visit Chipole or McDonald instead.
By the way, Mike, I'm gonna throw you a little bit of a curveball here.
Uh.
It really grinds my gears when I go to one of these fast food places or like a salad bar and I pay with you know, I use Apple Pay or I or I pay with a credit card and the counter the cashier turns the little screen around and says, oh, here, just click an option of how much you want to tip? Do you want to give us fifteen percent, twenty percent, or twenty five percent. Don't worry, you can also give
no tip. It's an option. Who allowed these people to put me on the spot like that and make me feel like either a jerk or force me to tip a fast food worker? Like why is that a thing?
Because because a lot of restaurant employees are underpaid and restaurants are sure you're trying to figure out a way to to you know, to.
Make me pay more for that. Look, why don't they just pay their employees more and charge me an extra dollar for my big Mac or whatever? It just seems so rude.
Well because of paying that extra dollar. You know, you or I might not blink at the extra dollar for the meal, but a lot of people will, especially in Middle America. So that's that's their their apprehension about that. You know, Chipotle mentioned that they that they recently rolled out tipping on their apps, right, and the same thing. I ordered my son a burrito the other day and it was like, would you like to leave? You know, eighteen percent? Two percent? You know, uh, and it was
a pickup order. We were doing the work.
So, well, how does shareholders look at that?
Mic?
I mean, our shareholder is happy because Chipotle is getting the consumer to foot the bill for Chipotle's employees or you know, is there any concern that consumers are going to fight back against this?
Well, listen, the consumer can fight back, but just by clicking no tip, right, So as long as it's helping the restaurant level and operating margins by keeping labor down. I think investors like it, right, I mean, Chipotle's getting back to you know, they might hit a twenty seven percent restaurant margin in the second quarter based on their guidance, and that that's that's the level we haven't seen in a very long time, since before you know, the e
coli issues back in like twenty sixteen. So if you look at the stock today, up for team plus percent, I think of Vesta's like it.
At Chipotle, it's safe to click no tip because you watch them make your food right before they present you with the option. But I was at Shakeshack the other day and the guy, the cashier was like, how much do you want to tip us? We really need your tip. We'd appreciate your tip. And then they're gonna make my food after they see what I've chosen, right, So then it gets a little bit sketchy.
So that's a little aggressive, that's a little aggressive.
One step up in the fast food I'm not you guys, I'm not sure what you guys call that, but just how's that segment of the restaurant business doing.
Yeah, casual dining, yes, you know, we'll see I mean the numbers slowed in you know, in the first quarter as the quarter went on, so January, and we had some very easy comps based on lapping the Ober krown outbreak from last year. We had a couple of weeks of that also in February, but then in March that went away and SAMs sales only rose, you know, one
point eight percent across the industry in March. We suspect there could be an additional slowing in April, and I think part of that could be that trade down that we were talking about where customers are saying, you know what, I'll save some money on the on the tip and uh, you know, and on drinks and advertisers and desserts and we'll just hit McDonald's instead of you know, name the chain, Chili's or Fridays or something like that. So we expect there to be a lot more pressure on the full
service chains this year for that reason. And you know, we'll see nobody's nobody's reported yet on the first quarter. So right, we're anxiously awaiting, all.
Right, good stuff. We'll get you back when we get some more results out of those retailers. Mike Klin, he's a restaurant analyst at Bloomberg Intelligence giving us the lowdown on the restaurant biz.
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Now. I have.
Had an interesting experience back in twenty sixteen. I won a little bit of money.
In a lottery.
Let's just say I won some money, okay, and I thought, uh, I want to buy a Rolex watch. I've never had one before and I was, I don't know, forty five years old. So I went to uh Torneau here in the city. I think I'm Madison, right, yeah, yeah, And you just walked in and looked at the Rolex watches they had in the shop, and I picked one out and I bought it. Okay, easy, pasy, sure you know. Now fast forward to this week, I'm about to turn fifty and my wife has said, you know, maybe she'll
buy me another one. I lost the first one in a motorcycle accident. But so I go into Torneau and I say, where are your Rolex watches? Oh, we don't have any for sale. What Torneau, it's like the biggest now it's called Booker, It's like the biggest Rolex dealer in America. I said, so, not in this store. Can I find one downtown? Is there gonna be one of the Westchester? No, there are no Rolexes for sale. They've
got display pieces that they're not gonna sell. And then but what you do is you put your name and number down and I guess you like bribe the sales clerk and hope hopefully they call you back in a few months to a year and let you buy it. Wow, it's just so weird. And I don't understand if it's because demand has shot up, you know, with the stimmy checks and the pandemic, or if Rolex is pulling back supply. Anyway, I wanted to ask an expert, and it just so
happens they had a watch guy. We have a watch guy in Geneva. Andy Hoffman wrote a great piece about the outperformance of the Rolex Daytona models. They put out a really cool I think white gold or platinum Daytona with a with a light blue face that's going for like one hundred grand wow, because no one can find them from MSRP. Andy Hoffman joins us right now to talk about this issue. Andy, what do you think is it? Are we in just a new era? Has Rolex engineered
this perfectly? So the their products are you know, unfindable and that drives demand even higher.
Well, good morning.
This is a very complex and this is the you know question, and this is the question that everyone is asking, and indeed your experiences is not unusual. You cannot buy most Rolex professional models at retail at manufactured or manufacture price, and what that has created is a secondary market where Rolex watches sell for above the suggested retail price. Indeed, though Roles certainly says they are have not tried to
create this situation. They don't want this situation. But at the same time, it's very difficult for them to increase production. They are increasing production marginally. We've written about this. There actually have a plans for a major new facility here in Switzerland and bull in twenty twenty nine, which is quite a way off. But indeed, because demand is so powerful,
right now and so strong. They're going to build some temporary facilities beginning in twenty twenty four and launching in twenty twenty five that hopefully may increase production somewhat and maybe bring some relief to people like yourself who would like to buy a Rolex at the retailer. But they make over a million watches a year, one point two million by some estimates, So it's a lot of watches.
Yeah, So I mean, is is it just a Rolex issue or is it just or is it brought it more broadly define a luxury watch issue.
Yeah, it's a good question. It's not just a Rolex issue that you know, you cannot buy any new Protect Philipps models at retail, same with Odomarp Gay, any of those high demand super hype watches that you know sort of came to the forefront during the pandemic. And you're right to talk about the stimulus checks in the United States, and you're right to to to talk about the pandemic because you know, people were stuck at home, they had
a lot more time on their computer. There's a lot of great information out there about luxury watches and sort of you know, the whole market kind of it was already growing and interest was increasing, but it really changed during the pandemic. And it's you guys in the US who are really driving this. This too, this is an American story.
Well, I wonder about how much I can take Rolex at their word when you start to talk about the you know, ultra luxury, the big three vascher On, Constantine, Auto Mars or what was the other one, protect Philip. You know, it's such a specialized market. These are watches that only real watch people even know about, right Whereas Rolex, you know, every it's a household name, and they strongly suggest Andy, as you know well, that you only buy
their watches from authorized dealers. And supposedly they're very serious about stopping authorized dealers from leaking their watches onto the gray market. But why is it, then that there are so many brand new Rolexes in the gray market. I just ran a search for the yacht Master forty two. It's a brand new model that hardly any stores even have in display, and yet there are two hundred and fifty eight unworn inbox with paper examples on Krono twenty four.
Rolex just brought out a new GMT Master two that's being nicknamed the bat Girl because it's like the Batman GMT Master, but it's on the Jubilee bracelet. They're brand new and Krono twenty four has three hundred and twenty two. Where is the grain market getting all these watches if the authorized dealer isn't selling it to them, or if Rolex isn't slipping them out the back door.
Well, it's a good question, and it's certainly you know, Rules is not a seller to consumer of watches. Authorized dealers are, and so the question is what happens at
the authorized dealer level. And indeed, if you or I or a friend of yours has a good relationship with an authorized dealer, they may get an allocation for that Rolex that they want, and then that person has a choice, and you know, the way that the current secondary market is they can turn around and sell that Rolex for quite a tidy profit because prices on the secondary market are higher than at retail, and so that is a
temptation and that is a business for many people. However, at the same time, whether it be Rolex or Protec or Odemar Piguey, all of these Swiss watchmakers try to police and try to have oversight over what dealers are doing, and if they are seen to be selling to flippers, they are penalized. I mean, we did an interview with Tierry Stern, who's the CEO or the president of Protect
for Leap. His family owns protect for Leap, and you know, he said he buys about two hundred watches on the secondary market himself a year, or the company does figures out where they're from and figures out if the dealers who sold them were selling them to the wrong person. So this is a this is a problem that the brands recognize and they don't want this to happen.
Andy, I wonder if we're getting set up for a fall here because the demand is so hot and as you say, a lot of people are just buying them and flipping them right away. And I go on the forums, the Rolex forum is very popular, and I hear one refrain from all of the collectors and enthusiasts. Prices never go down. And that's kind of like what we heard about home prices in two thousand and seven.
Right.
Is it possible, especially as Rolex is preparing to boost production, that we finally have a downturn if we enter a US recession.
Absolutely, and you guys have been around business as long as I have, I'm sure, and we know that nothing goes up forever. And indeed we've seen prices on the secondary market already being have been declining for the past year. So that Rolex Daytona, that protect Nautilus, that ap Royal Oak, prices for those really hyped models are all down anywhere between twenty five and and you know, thirty five forty
percent in the past year. The overall market indexes that track them, and indeed, we at Bloomberg have just launched something called the Bloomberg Subdial Watch Index, which you'll see us generate. It's called it's called the Bloomberg sub Dial Watch Index. And this is something that we've created with the news innovation team uh here and here in Europe and with a trader and pre owned dealer in London
called sub Dial. Check them out. They're they're great, they're really cool and and and what they do is they scrape the data from you know, thousands of transactions for secondary on the secondary market for pre owned watches, and they come up with prices and so current market prices They're not the only people who do this, but uh, they do it quite well, and they've shared the data with us. And now we're generating stories and charts and things like that so we can track prices.
Yeah, we gotta.
We got to watch guy.
Yeah, we're gonna call you more often. Yeah, we might even come over to Geneva where you are. We'll do some little primary research.
Ry Zurich.
I'm in I'm in Geneva.
I'm in Niniva, right, yeah.
All right, guys, we have friends in Geneva and we've got friends in Zurich. We'll come over, all right, Andy, thanks so much for joining us. Andy Hoffin, reporter for Bloomberg News.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews on Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
And I'm fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio