More States Likely To Pile On Google Post-Election: BI's Rie

welcome Jennifer Ree, senior litigation analyst for Bloomberg Intelligence. Jen, let me start with you because we got the filing a little bit earlier. Google now actually officially being sued for anti trust. Say, you know, problems, stuff that hurts the consumer essentially in its search business. First of all, the stalk isn't reacting. What's the sort of time frame for how long these things can run? Oh, Bannie, these things can go so long. I mean this is really

just the beginning of a marathon. Litigation is very slow and in it can go for years. So I think you know the absolute quickest where there could be a district court opinion, it might be three years. That would be the quickest. It's more likely to be four or five years, and then whoever loses is likely to appeal.

When you think back about the last very big monopolization suit by the dj which was against Microsoft, I mean from start to finish, really the whole thing took about ten years before we ultimately knew what was going to happen and what the impact was. And I think this won't be as long, but it will be many years. So investors clearly aren't scared. Is the assumption that Google, you know, is not doing harms to consumer, or that it doesn't really matter whether Google is or isn't, or

whether any of these companies will follow zeus. It's that they still make lots of money for their investors, right, you know. I think it's a number of things. First, this has been foreshadowed for a really long time and

it was expected, so it's no big surprise UM. And I think the second thing is there are some analysts, including Bloomberg Intelligence, UM equity analysts just under Warrell, who believed that even if the worst case scenario happened and the company is forced to break up, it might not actually you know, hurt the valuation, that it could actually be good UM and the second thing is the third thing I guess is that these lawsuits are very hard

to win in court. The DJ has an uphill climb here, and it has an even steeper uphill climb if it actually did seek a breakup remedy, and it's just unlikely that they're going to be able to get there at the end of the day. So Sarah plants like Google obviously one of the major large mega captics if you like, this is clearly not going to have an impact on this particular trade. But are we seeing this particular trade

fade just a little bit anyway in recent days. It doesn't seem like it, especially I'm looking at the best performers on a points basis right now in the SMP five, your top names are Apple, Microsoft, Facebook, Amazon, Procter and Gamble, which did report earnings today and raise its forecast, and then Google parent Alphabet. So we're not seeing it reflected

in the near term trade. I will say that year to date, if you look at the year to date perform into some of these companies, Alphabet is at the bottom of the pack, but still up still a very strong gain in a year that really has been precluded and dominated by a pandemic by a recession, so you can't buy any means say that that is bad. But

as Jen said, it's a marathon. I wrote about antitrust claims almost exactly a year ago for Business Week, and I remember analysts saying then that it wasn't a worry. And we are a year later, we have seen some progress, and it still seems as though analysts are saying it's not a worry now when you're not seeing it feed through the stock prices. One point that I want to pick up that Jen pointed out too, is that some analysts do truly believe that the sum of Google's parts

will actually be worth more broken up. When you separate Google Search, YouTube, Google Cloud, what is the valuation that each of these fetch it. In some cases, some do say that in the worst case scenario, if you want to call it bad, if Google is broken up, it doesn't necessarily mean a lower valuation. Some of the headlines coming out the call that's actually ongoing. Advertisers must pay

a toll to Google Search. Potentially, the US is asking the court to order Google to stop anti competitive conduct, and that structural relief maybe needed to cure harm. Google relief may need to go beyond stopping harm as well. So the d o J is sort of looking for basically, you know, penalties here, maybe even a break up of parts of Google jen you know, we have something like eleven eleven attorneys general on this, why these particular states,

and doesn't change post election? You know, I don't think it changes post election. But I think what we could see post election is actually another suit. Um. There are other states that have been investigating Google and and don't agree with the suit because they think it doesn't go far enough and it should have additional allegations related to

other conducts, for instance within the ad tech market. So it's a possibility what we could see is a separate group of states that could file a lawsuit that mirrors this and adds more allegations to it. I definitely think that's the possibility, and I think that's why only eleven states joined, because are the states that clearly think this is the right suit, and there are other states that think this business exactly the right suit. How is the

US going about this differently to Europe? I mean, obviously it's an entirely different system, and so there needs to be a different approach, but at the same time Europe as an agglomeration of states as well in some ways, and it's managed to do this. You know, I'm really glad you brought that up, because this complaint is very similar to what the EU charge school with Google with

two years ago. Now, the first thing is that the way they've set it up, the states are sort of the countries within the EU are a bit less sovereign. Let's say in the States here, where the European Commission is going to take on something, the states are then the countries are then seeding that matter to the EU. And that's what went on here with Google. But two years ago the European Commation charged Google with the very similar allegations here and didn't see fit to seek a

structural remedy. You know. What they said is Google, you have to stop doing these things that are illegal, like your exclusive agreements, or you're paying off companies to exclusively install Google Search of the default, things like that. UM. And they're still sort of working through that, But there have been statements coming out of the EU that so

far they think that this has worked. UM. And that would suggest to me it would be very difficult in the United States Court to go beyond that, well, thanks to both of you. Phenomenal. It's really these things. You can dive into them for hours and you don't be scratching the surface. There's so many lawyers I can tell you're working on these cases right now, and we also have our own January and Sara Pansa like working on them as well. Jenuery, Senior Litigation analyst for Bloomberg Intelligence,

joining us and Sarah Ponzac, Bloomberg Cross Asset Reporter. What is New York City without the bright lights? Is it someplace that people will come even if there is no Broadway? Or is that what really gives it its heart? Broadway, Lincolns under Carnegie Hall, the public Theater, all of the arts organizations that keeps the spirit of New York alive

and the people here, all of the performan's artists. Let's bring in somebody who knows a little bit about a lot of things when it comes to New York City, from its real estate to its theater. Is Kenneth laub Is, a producer, real estate developer, and composer. Ken Thanks for joining. When you speak with your friends these days, what's the thing that most comes up among you all. I mean, obviously the pandemic and where we are in it. But in terms of New York City and what gives it

its character, what do you all talk about? Well, let me let me, for the benefit of your listeners, give them a little bit background. New York City is, you probably know, is the coachural center of the United States, if not the world, and approximately three thousand jobs associated directly or indirectly with Broadway communally, I'm not just talking about performance dresses, directors and back state people, but also the hotel's restaurants and the numerous other the people who

are at tached a Broadway for a living. You have sixty million people visit New York City yearly, that's what the tourists people put out, thirty million taking a show, come from abroad or sixty and older. That's one point eight billion dollars in revenue that comes from Broadway receipts. So I guess you could say easily that Broadway is a vital part of the New York City echo system, and we talk about that a lot. So can you

know Broadway is closed until the end of May. That means tourism, you know, it has to be down because a lot of tourists come to New York specifically to see a Broadway show, and you know, they spen spend their time in Times Square because that's the theater district, and as you say, stay in hotels off the Time Square, and seniors all over the country come with deals to visit Broadway and it's just it's wonderful, you know, And

that's that's just Broadway. I mean, technically you could suggest that perhaps some of the other venues are more for locals, but Broadways he brings people in from the outside. What are Broadway producers thinking in terms of when there will next to be a new production on Broadway. Well, the arts are essential to the city's identity, economy, and quality of life. We're living through the worst cultural recession in our history. It's estimated that we will have lost about

thirty billion dollars from cultural institutions. So you might say we've lost part of our city's hart and wallet. But but it doesn't end there. There's a there's a much bigger issue that we need to touch on here, and that is we've heard these various dates about Broadway getting up and running in the last one I had to push back now to May of next year, and I'm not sure if that's even going to be realistic. People don't really understand that there are several issues here. Um,

let me give you some examples. The problems for theaters and concert halls. Starts with a ventilation systems, which in many cases in the it's updating. There are cramped courters for artists and other workers in backstage areas, and there's a lack so far of federal guidance about what safety measures are required. Some of these theaters, like the Blasco, of the Lys, the Huts, and others, are hundred years

old or more. They have narrow passageway dressing rooms sometimes shared that are the size of closets, and actors who do quick changes are in there with a lot of other people who are helping them and assistance or breathing the same cubic feet of oxygen. So they're going to have to be new rules set forth here before we reopen.

And from what I've been told, the state and the city are working on guidelines that will require mask or fairish coverings for all staff and businesses, will require business to maintain six feet of distance or more, he will um end up putting in a limited visiting capacity, which frankly is not a way for Broadway to make money. They will be exactly And that's where I want to

go now in the time that we have left. Because we all know that only the longest running shows make money for their producers, right, you know, the hope is that you'll make your money back. But for many of these shows, even as good as they are, they just call so much to put on that they don't get you know, they don't make profits for their producers. But at the same time, they're part of the cultural fabric. Are their theaters that do not survive this in Broadway?

Would you repeat that question again? Are there theaters that go away? So the Shubert family, for example, do they need to close some of their theaters or will they all survive this. I'm not sure the answer that question unless they are able to make the appropriate changes that meet with the state and city guidelines and that we have a reliable vaccine that makes people comfortable returning even

on a limited base, even with discounted tickets. But for example, so they may not have the rental problem that most people have, right, they may have a thousand year deal, or they may own the building. Do you know what the situation is there? Ken, Well, I I think I just answered your question. The situation is very simple. They will do whatever it's necessary to get up and running, but they haven't yet defined what that means, and they

will vary from one facility to another. A modern theater will not have these problems, but some of the older ones will have considerable difficulty meeting those guidelines. So can final question, because you're also a real estate mogul for many decades in the city, what do you see happening with real estate in the center of the city. Do we see prices drop substantially from here for buyers? They've

already dropped plenty. And I think there will be um some stabilization UM, probably in to the election and going into the next year. But I think that uh, commercial real estate is going to be heard in a variety of different ways, and there will be a lot of potential foreclosures UH and dead issues that will emerge. UM. All this has to be worked out over a period of time. But let me add been closing this interview that there's a there's an expression and this is applicable

to Broadway. Charlie Chaplin once said nothing is forever in this world, and that includes our problems. So positive thinking is a prerequisite here. Absolutely can we rely on you for that. Thank you so much. Ken Laub, who is a real estate developer, producer and composer part of the fabric of Broadway, joining us there. And of course we

know that Broadway will be back. We know that we'll see all of those shows again, and all those shows that you missed first time around, you'll just just be so happy to see them when it all happens again. All we need is a vaccine. Tropical Smoothie Cafe. It began in Atlanta and it is now an eighthound of fifty plus fast casual franchise serving not just smoothies but also all sorts of salads and drinks and wraps and sandwiches. Let's bring in the person who is CEO of Tropical

Smoothie Cafe, and that is Charles Watson. Charles, thank you for joining my pleasure. Bonnie. Thanks for having me talk to us about how difficult it must be right now, what the challenges are for Tropical Smoothie Cafe and how many you've managed to keep open. Yes, absolutely well. I'd

say our story is actually a very positive one. Like many restaurant chains, we fell off the COVID cliff about March, and for our brand, we bottomed out in April in terms of COPS sales, climb back up the sales ladder in May, and we went positive COMPS sales to the tune of twelve percent in June. So while it was a very tenuous and difficult time, I tell you that we are comping positively in and very happy with how our franchisees have fought back amid deependent pandemic to serve

our guests. So we're actually in a relatively good space and expect to beat our twenty nine teen COMPS sales by shifting a lot of our business to focus on convenience the anytime, any place for our guests to access the brand through digital channels, third party delivery, our website, etcetera. So we've done well in coming out of the pandemic right and you're even opening new cafes across the US,

so very much congratulations. How have you done though? When it comes to things like rents, franchise e s paying you guys. I mean, have you had difficulties that way that you've had to sort of overlook or you know, make easier for franchise e s to pay their rent or what have you. Sure, So we've done a lot of work working with our franchisees and concerts to aid them.

So obviously, through the time the p p P loans, our franchise development team and our real estate team really turn into PPP and rental negotiation folks there for about three months and that net we've come out of it um and or not having any rental rate issues or any default issues because the businesses bounced back in the franchisees are cash flowing. That said, everyone is expecting rental rates to come down precipitously. We have not seen that.

I think that landlords across the country, especially in the prime retail spaces that we look for, especially those that are in cap and drive through, they are really holding onto the rental rates that they said in twenty nineteen and haven't come off of those. The other big challenge that we're having uh to the bottom line for our franchise ease is the rapidly escalating triple net charges that

we're seeing is especially real estate taxes. In some markets, we're seeing triple nets consistently a fifteen to twenty dollars per square foot, so that's certainly a challenge, but we hope that the real estate correction does come around to provide some relief on those rental rates for our franchise's absolutely, I mean particularly when you see you know, new places that have come up for rent are obviously renting a lug cheaper prices in some of the large major metropolitan

areas at least I don't know about around the country, but certainly in New York and San Francisco and places, there are discounts on on new rental properties. Do you need more PPP money? We do not. We do not. We're in a very very good position or franchise ease or or cash flow positive. Many of our franchisees are having having a fantastic year. Again, a very difficult year and very fraud but we've been able to come through it.

So for our particular brand, and I don't speak for all restaurant brands, because I know that there are many many that are hurting and I feel for them, but we do not currently know. So that's that's a great success story. What about your hiring and layoffs. Did you need to lay off people? Did you manage to hold onto everybody? Well, we actually took it took the opportunity to to reorganize this as we talk about the shift to digital and the the underlying foundational changes that are

happening in the restaurant business. In order to provide guests with the access and the convenience and the ease that they're looking for, we had to make additional investments in in digital properties. So we did have to restructure and move some people around, but we did not have any standard layoffs just to uh, just to keep our g and A down. Yeah. I mean, it's really interesting the way you say that what we originally started off as a sort of a cafe enterprise almost became a real

estate type of enterprise. So I imagine you needed to scale up in some areas or some of your employees did, right, And indeed, so I would tell you it's the scale up for us in the technology area the business and also the development area of the business. We've opened eighty restaurants so far this year, and we sold almost two hundred franchises so back to your point about real estate.

What we found is for new development restaurants, of which we have a pipeline of over five hundred, it's actually getting the landlord's attention on doing new deals because they are spending so much time working out with existing tenants. So that's actually been a little bit of a headwind for for us as a brand that's trying to sign new leases and open new locations, which is relatively interesting. Yeah, that's so interesting, Charles. Are you ready for more shutdowns?

We have, you know, epitying me all just saying we're headed for a difficult three to six months. We are ready for it. Again. I hate to be a broken record, but it's the shift to digital. We think that we can we can maintain and continue to move the business forward. We certainly wish it on no one, consumers or anyone else. We're prepared for it, and we do not think it

will be good. We think it will be a continued hit, but we think that we can weather the storm much much better based on the past six months of work we've done as a brand. We're almost out of time, But I am curious as to what your plans are. Is this private equity of fact, might you ever go public? How what will the exit look like? Oh? Good questions,

good questions. We're currently owned by Levine Likeman Capital Partners, private equity firm based out of Los Angeles, fantastic partners of ours, and what they do with us, no one knows, So we'll see. I think I think a public option is certainly possible, but I think that's uh, you know, three or four, five years out. All right, Well, you keep us posted. I'm sure we'll be the first to know. Charles,

thank you so much for joining on. Congratulations on the success navigating through the pandemic for Tropical Smoothie Cafe once again, started off in Atlanta and now across the country. That's CEO Charles Watson. Back markets now, and let's bring in David Kat's ce IO of Matrix Advisors. David, I want to talk to you about the election, the outlook, the

VIX being close to thirty, and so on. But first I have to ask you about Google, because we finally got what we were anticipating, the d o J suits. The stock didn't do much, except at a certain point it did start to decline and now we're sort of a flat does an investor care about a d o J suit against Google, It's never a good thing. Now, clearly this is going to be a headwind for a number of years. If you look back at the IBM suit maybe thirty or forty years ago, or the Microsoft

suit twenty years ago. Uh, these things are negative and they definitely slow a company down. In terms of Google, we expected to the same. Having said that, we think that their prospects are very good. They're going to get through this, and it is one of the cheap of the high priced hot technology companies. So we would use any weakness to either start positions in Google or add positions in Google, because we do think they We're going

to get through this. But do understand it is negative. Yeah. Now, given that you're willing to two positions and even enthusiastic about adding two positions, should we extrapolate from not that that that's the same cross quoth stocks for you? Um No, We're actually pretty wary about growth stocks. If you look at two thousand and twenty year to date performance, growth stocks have had their greatest out performance versus value stocks

since nineteen seventy nine. Right now, they're selling it pretty excessive valuations. Investors are piling money in because they look for a repeat of this and that's simply not going to happen. So we are pretty wary about growth stocks. Whether it's a Netflix or a Zoom or Tesla. People are buying them because the business prospects are good, which they are, but are not paying any attention to the

valuation on them. And we think ultimately valuation and gravity you're going to keep those stocks from rising at the rates that they have been. So in general, this market has proven extraordinarily resilient, David, Does it continue to do so? I mean, whether we get stimitus or not. Is that Is that a big factor in whether we continue to see the resilience. Well, we think if you get the stimulus, whether it's now or a few weeks from now, it's going to happen. And we do think that's important for

the economy and then ultimately for the stock market. But one of the reasons that the stock market has been as resilient as it's been is both the Fed and the federal government have been doing everything they can to stabilize the economy. With interest rates to zero, there's tremendous liquidity. That liquidity is flowing into the stock market. That's driving stock prices higher. In addition, the first federal bailout program, the two point eight trillion dollars, has really been effective.

It's proved to be a lifeline for smaller and mid sized businesses, it's a life line for individuals. UH. Credit quality is still pretty good, so as long as the government continues to step up, and as long as you have this tremendous liquidity, we're pretty bullish on stocks for the next twelve to eighteen months. We think the economy, which was in an exceptionally deep procession, is going to come out of that, and we're in the recovery mode. And it really is not how fast the recovery is,

but directionally we're recovering with zero interest rates. That's good for stocks. Does it matter who is the next president? UM? For a lot of reasons, it does, but in terms of the economy in the stock market, not so much.

We looked at the period nineteen forty six to two thousand and nineteen in terms of having a democratic president or Republican president UH, and the results were pretty good for investors, which is stocks generally went up regardless of which administration is in UH, they did a little bit better for democrats. So we wouldn't change what you're doing in investing, but do take comfort that you don't have to sell stocks if a Democrat wins or for Republican wins.

Stay the course, look at the long term and look at fundamentals and businesses rather than who's in charge. One area that's been a bit of a laggard this year, and I know it's interesting to you, is the dividend stock area. Money are still, as you say, performing pretty well. Do you anticipate that what they'll grow their dividends or or why is this such a curious area for you? Well, right now this year, momentum stocks and growth stocks have

done great. Everything else has been left for dead. Uh. Dividend stocks are a key part of that left for debt. So if you look at a lot of these companies, UH, they've been growing their earnings, they've been raising their dividend this year in a tremendous and deep recession, but they're not getting any credit for that now. The reason that we think is going to be very important in two thousand and twenty one and beyond is that the fetest signal that they're going to keep rates at zero for

the foreseeable future, maybe another three to five years. Money markets are paying zero, the tenure Treasury is paying points seven eight. At some point investors are gonna wake up and say, holy cow, I can't get anything on my money. Where can I go? And if you can go into very slow and steady stocks that are paying you a four or five percent yield, uh, with some earnings growth and with dividend growth down the road, we think that's going to be a very very attractive place for people

to put money to work. And the key is to get there now, not after they've had a great rally a year from now. Yeah, I mean, David, that begs the question, what's your return assumption? What are you looking for your portfolios to return? Well, we think a normal return assumption for the next three to five years probably goes back to eight, nine or ten UM. Yes. Uh. You know you're starting from a reasonable valuation on normalized earnings and rates are so low, which makes stocks one

of the few games in town. And if stocks were thirty times earnings, we would not be particularly optimistic. But if you can buy a good portfolio stocks at fifteen times earnings with zero percent interest rates. We think that's a good background to make money. David, always a pleasure speaking with you. We always learned something new. David Katz is c I O of Matrix Advisers talking to us there about the stock market, and we appreciate it. Thanks

for listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio