P&L: Chipotle Has Lost Its Way

of Lakeview Asset Management. He joins us now and Scott, you've been a veteran coming on the program to give us your thoughts about the retail industry, the restaurant industry and so on. But well, I noticed that a lot of it has to do obviously with the consumer. And let's start off. Where do you think right now the consumers spending money and not spending money visa these these areas of the market. Well, I think the consumers spending money on a lot of household items. I think finally,

consumers are after many years, are buying houses, fixing up houses. Look, you know they took a terrible hit in two thousand and two. A lot of people were displaced from their houses. But the market is coming back and people starting to buy durable goods, washing machines. Um. There they have been buying cars for all. I think that's that's beginning to

kind of you know. Uh. And in terms of the surgeon in the purchase of of those items, the one the one area that that they continued to stay away from his apparel and and that is really been boggling a lot of investors and analysts because the apparel market continues to be UM, very difficult to invest in. UM. And of course what what invest what? What? What the consumers continues to invest in? Are these electronic gadgets, um,

whether it's games, or it's smartphones or tablets. Uh. But wearables is a big market that is only going to expand in time. So UM, you invest money on behalf of wealthy individuals. You also are a professor at Seton Hall University, UM, looking at this environment. How do you determine where the opportunities are when there's such a macro overlay on this, not only from the consumer spending standpoint, but also from technological advancements. And how how quickly some

of these even retailers have to catch up. Right, Well, there's a lot of disruptive events that are taking place in the retail markets. Okay, probably the one that people are most familiar with is online. Amazon is probably the most DISRUPTI development versus Walmart dot Com, Yes, versus everyone today Warren Buffett, you know, exiting more of his Walmart steak and it makes sense. Um, look I by Walmart. Uh, you know, I I look at Walmart for the dividend.

I might buy it if it came down a little bit for our dividend strategy, because it meets some of the criteria for our different strategy in terms of growth. Is no growth in Walmart. Um. So, so we have Amazon is one of the disrupt dividend just a fair two point percent prices seventy bucks a share, right, yes, and and and and I'd rather see that dividend close to three percent, but a two point percent it's beating the SNP average divent which is just around two percent,

maybe even slightly less than that right now. Although you have treasure yields rising, So if you just want the dividend, you can just invest in a tenure treasury and get three percent. You could, but then you won't get the benefit of economic growth. Um. And if you invest in the tenure treasure, you'll be locked into that for the next ten years. And if you need to take your money out of that treasury's interest rates rise, you're gonna wind up as a lot of people are learning that

the price of bonds can go down. All right, So let's go some names. All right, let's go through some names. Right, So Walmart you like for the dividend? Who else? Let's go to I was thinking Sonic years of the three years I think of that. That's that's okay. So yeah, um look, you know we we we run a restaurant portfolio. Um, the name that always comes up is Chipalti. What's going on with what happened? But you know Chipalte has lost its way. Um I put Chipaldi in in in in

the penalty box. After they had all these problems in terms of uh, you know, the diseases that people were getting but eating there, but and and and the CEO came out yesterday and said, look, we're just not providing the type of service that is consummate with what people are expecting from us. But this is the company that's lost its way. Now I'm gonna be very cynical with him.

About to say stocks down's going lower? Right? Um? I mean you know they're they're they're starting to develop these smaller concepts like shop House, which is an Asian fusion concept, a pizzeria concept. Uh. And now they're gonna going to the burger market. Um. And I'm telling to myself, why, um, why are they doing all this? Why are you going into the pizza and burger market, two of the most saturated markets out there. You know, what what edge does

chappolt they have? And in the meantime, I look at the Chapulti restaurants itself, and the menu hasn't changed in years. You know, Pim and I we've talked about McDonald's at nauseam. I think, and what helped McDonald's from two thousand and three to two thousand and thirteen was that they changed the menu. They didn't mind taking with what they did the McCafe and then they're even now trying to retransition

the roll it out. It's independent like. But but I think Chapolty, um, they need to take a second look. And I know that that they talked about food with integrity, But the problem with Chapulti is that, um that's coming around to haunt them right now. Um, one of the fastest growing menu items if you go to restaurants UM is fish tacos, so I said a long time ago on on this program. As a matter of fact, you know what all for a fish. So for Chipotle, the

fish tackle will be the egg McMuffin for McDonald. Scott Rothbert, thank you so much for being with us. Scott Rothbert, President and founder of Lakeview Asset Management, uh PIM FOX. We have been talking a lot today about the drop in biotech shares, the end of the uh fervor in the wake of Donald Trump's election as the next US president.

Somebody who has been predicting this for weeks now is Max Neeson of Bloomberg Gadfly, and we are lucky enough to have him in studio with us to talk a little bit about whether this is just the beginning of a sell off or or whether you know what we can glean from today. So Max, thanks so much for joining us. So can you just set the set the backdrop here? It was a tweet by Trump. Yeah, of course, thanks so much for having me. So what happened is.

In an interview with Time, Trump was quoted as saying I'm going to bring down drug prices. I don't like what's happened with drug prices. So I think this is really a bit of a return to reality for the sector, which had something of a rally in the aftermath of Trump selection. There's kind of this blanket assumption that Trump is better than Clinton. Um more Leanian drug pricing policy, fewer nasty tweets about price hikes. They kind of expected.

Trump to government is a kind of adoption of Republican Well, lo and behold, he's a populist. People hate high drug prices and they hate drug price hikes, so it's not all that surprising to me that he would kind of pick up on this as an issue to kind of make a run at Fiser down two and a half percent, ab Vied down three and a half percent, Bristol Myers squib down two and a half percent, Eli Lily down one and a half. I could keep going Mark down

to Johnson and Johnson down. Is this a buying opportunity? Um, you know, I'm not sure that it is, because even those big names that you mentioned, well, they haven't done the sort of extreme price hiking that you saw from kind of more notorious form firms like Valiant, they do to some extent rely on your kind of annual bi annual ten or more percent price hikes on some of their older drugs as they try to kind of fill

in the gaps in their research pipelines. So there's kind of a fundamental drug pressure drug pricing pressure even beyond what you're seeing from you know, rhetorically or potentially on the policy side, as a pharmacy benefit managers get more aggressive about leavering competition and negotiating price prices down on drugs, so that there's really fundamental pressure, it's not just noise. I think President elect Trump is one thing, and it's unclear how much exactly he'll have his hands in the

day to day policies that govern drug pricing. But we do know that Dr Tom Price, Georgia Republican representative is going to be the head of the Department of Health and Human Services. Barring something unexpected, do we have a sense of what his policy is with respect to drug pricing. So I think it would be a bit more of a surprise if he was particularly aggressive on the policy front.

And that's really the big question right now. If Trump's comments today actually feed through into his administration's policy or into how he directs price and UM, you know, it's a little bit hard to imagine that the Senate lawmakers and Price or something going to reverse course and really aggressively start to legislate on drug prices, or for Trump to join hands with Senate Democrats to do something about it.

But I think something that we've really learned over the course of this campaign in the past years that it doesn't necessarily take concrete policy action to drive down the prices of these shares. All it takes is a tweet. Also takes is this kind of common and I think if we see more of this over the next few years, this sense of uncertainty, the sense that you might pop off at any point, I don't think it will necessarily matter quite so much that that price has not been

an outspoken critic of drug prices. Um. Is there a particular company, biopharmaceutical company that will suffer the most from potential restrictions of of drug price heights? Um. I think it's pretty broadly based because everyone's exposed. You've got these big companies like Fiser that high prices on their older drugs, and you've got new companies that are hoping to set

their prices really high when they actually hit the market. Um. And then you've got companies with drugs on the market that are seeing the uptake of their drugs restricted basically, and the really unfortunate tradeoff when it comes to lowering drug prices. If you want to lower prices, you have to lower access for people. If everyone can get all the drugs they want, um, and you don't put any restrictions in place, it becomes really hard to enforce any

lower drug prices. So I think it's really going to be a broad based issue. Can I take you down to the health insurance industry for just a second and absolute get me, get to get us all your thoughts there, because I'm just looking for example, that Humana shares it down about one and a quarter percent. Who benefits? Then? I mean, is it? Is it the insurance companies? What

about them? Um? They might see some benefit from lower prices if they get a bit more power to push for rebates or generally start to pay less for drugs, that's good. But in a broader sense for insurers, I think this is just a This is a case where it might be a buying opportunities to general sell off in healthcare stalks. Nothing in particular that would indicate that

this has any negative read through to insures um. You know, Max, something that you were talking about, the fact that shares would drop so much and so uniformly on one Twitter post is indicative in and of itself, and I think that that's an important point. I mean, biotech was accused back in two thousand fifteen of being in a bubble?

Have the FED actually naming the biotech industry specifically? It has come down substantially since then, But does this sort of underscore how difficult it is to really place a value on some of these companies and how that's a problem for stock investors. I mean, it couldn't possibly be more difficult that. That's what's so much fun about the sector that there there's such a wide variety of things. I mean, you're you have companies they're placing you know,

they're completely binary propositions. The trial is going to read out or won't. The drug will be commercially successful or you won't. And you're really making your best guests because you know, unless you're a trained scientists with particular insight into a company's drug candidate. You know, you're you're really kind of making a broadcast. So it's it's really risking

a bet on the sector. It's just such a kind of a risk on move that you know, we we think this is gonna go well, or there's gonna be a broad policy which it's gonna help these things. So anything negative um really has a disproportionate effect. And I think we're seeing that today and I've seen that through at the year. Any any hope for these investors, I mean,

just get out now. I think there is some hope that you know, this is probably a bit of you know, you know, so this thing we thought was, yeah, that the GOP was gonna you know, the Trump and the GUP we're gonna be way more friendly. Now it might not. Everyone kind of panics, but it might um in the Great Trunk tradition be be all words and no actions. So that's something definitely to watch out for. And if

you're an optimist to maybe bet on well. And also if you're a chief executive, just be aware that you're going to be kept on your toes. I guess with this barrage of communication via tweet. Yeah, and then as biotech index is down more than since the peak last year on July fifteen. Something to note, Max Neeson, thanks very much for coming in and sharing all your knowledge with as always some pleasure. Max Neison expert when it comes to pharmaceuticals, healthcare and all things science from us

here at Bloomberg. Taking a look. In North Dakota, there's been an ongoing confrontation between protesters and law enforcement over the Dakota Access Pipeline. Sunday, the U. S. Army Corps of Engineers, the direction of Obama and his administration. President Obama said that it would refuse to grant the final permit needed to complete the three point eight billion dollar project.

I want to bring in Brandon Barnes. He's senior litigation analyst for Energy at Bloomberg Intelligence, coming to us from Washington, d C. Brandon, isn't likely that the Dakota Access Pipelines owners could overturn this refusal in short order. In other words, how big is the hurdle for them to now move forward with this project? Well, it's their pathways have changed a little bit. Now they're kind of down to two.

So they've got one in the courtroom, which has been ongoing since the tribes actually sued Army Corps earlier in the year, and that continues. There's a status conference coming up at the end of this week. They also have the opportunity, potentially, if President elect Trump wants to reverse the decision on the Army Corps, for him to influence that decision and revisit that once he's in office. Now, let's just set this scene here. This is bachan shale oil that is going or the plan is to pipe

it underneath the Mississippi River. Correct, that's okay, And there are already pipelines underneath the Mississippi River in the vicinity of where they have cited this Dakota pipeline. That's right. They'd be running parallel to an existing natural gas pipeline. So if it would be running in parallel to an existing natural gas pipeline, why has this become such a

big issue? As am I I was just reading, by the way, op ed piece in the Walster Journal by the Congressman Cramer Kevin Kramer of he's a Republican from North Dakota. He says it doesn't even touch tribal land. That's right. It's so there are a lot of different conceptions flowing out there, and and a lot of them are misconceptions. So the threat here from crude is different than what you would have from natural gas if it were to leak out of a pipeline, because natural gas

dissipates relatively quickly when it hits water. So, um, this is all about water worries and those who are downstream of this pipeline crossing, which would be the Standing Rock tribe and others. Um, So what what is this dispute

really about? Well, it depends whether you're on the ground with the protesters and sort of the more celebrity aspect with the public, or if you're in the courtroom, because I think once it boils down to the legal fight is this is whether the tribe actually can come in and assert some of these issues in front of a court when it's not actually crossing their land, and to what extent Army Corps has authority to move the pieces around once it appears that they've already made their decisions. So,

in other words, do they have standing? Do they have standing to even block this well? And then and do they have the kind of claims without the crew actually leaking to come in and ask the court to do something right to forestall something that may or may not

happen in the future exactly. The question then to you is do they already have other legal actions against the pipeline operators because that are already upstream from that water supply, Because it seems as though you've got refined product, as you said, gas transmission lines and so on. Isn't that all upstream of the water. Yes, certainly they've and there have been fights over water and water withdrawals in the past related to to these reservations, to these reservations and

these tribes. But this UM, you know, this is sort of the first concerned effort we've seen from UM from one of the tribes in the Middle West and in that area where most of the opposition we've seen has come out of the northeast. Interesting. So, just based on the legal issues standing UM, what do legal experts give as far as the chances that this will keep going

through and it will be a reality. Well, if we're talking about just the courts, UM E. T p UH and and Dakota Access the project have filed a motion for summery in judgment, which is basically emotion and the

case on just the legal aspects of it. And they have a pretty good argument that Army Corps has in effect constructively already issued this easement based on everything they've already said and the decisions they've reached on other permits um And so I think that the odds right now favorite et P and the and the project in the courts. Brendan Barnes, thank you very much as senior litigation analyst

for Bloomberg Intelligence. All Right, when we want results when it comes to technology and the confluence of money and technology, we turn. We turned to Shira ov Day and she is our Bloomberg Gadfly columnist and joins us now in studio. Great to see you as always here. Thanks for being here.

I want you to just dial back the news cycle for just a moment and tell us what you believe or what we know about a meeting between President elect Donald Trump and mash Yoshi San who is the founder of soft Bank, which happens to also I believe, be

the majority show shareholder controlling interest in Sprint. That's right, So the two met yesterday and Trump Tower during this you know, endless series of Trump e meetings and afterwards, Donald Trump tweeted that Muscle Son committed to investing fifty billion dollars in the United States and to creating fifty thousand jobs in this country. Did massa Son edify or

or sort of confirm President Elected Trump's tweets? So, like most political policy statements given in a hundred and forty character bursts, uh, this one from Donald Trump has um lots of bogus elements. So let's take the fifty billion

dollar number first. So massa Son confirmed later that the fifty billion dollar figure was basically a reference to a pre existing announcement that they he and others made in earlier this fall about a hundred billion dollar investment fund in startups around the world includes money from Saudi Arabia. For correct, includes money from Saudi Arabia. In fact, the majority of money and that fund is not from soft

Bank itself, but from Saudi Arabia and others. So the fifty billion figure seems merely to be confirming that they'll spend half or so of that hundred billion dollar fund in the United States, which natural given the prevalence of the tech industry here in the U. Okay, but I mean it is true or or it is at least possible in the way that possibly it is possibly it is possibly true, yes, which is you know, not not nothing, although again I don't know that Trump can claim credit

for that. Fifty is correct. Well, Talking just more broadly about President elect Trump's engagement with the tech industry, He's holding a meeting with a lot of tech executives. Um, are we getting any hints of what different sides are hoping will come of that? It should be very interesting to see what happens when the tech community and Trump get together. This is a technology as an industry that maybe more than any other, was horrified by the election

of Donald Trump. You know, they sort of felt both politically and culturally that Trump does not stand for what

they believe The tech industry stands for. A lot of them a posed Trump's campaign publicly with their checkbooks also, so it'll really be interesting public in his support of former Secretary of State Hillary Clintons, as I recall, I want to just get thoughts just a little bit more on Sprint, you know, connected with a soft bank Sprint shares after that was announced in the tweet, I guess

up one and a half percent. Uh, Now you've got the shares are up about six percent, So clearly somebody believes that there is a value in having the ear of the president elect. That's exactly right. So the issue here is that Muscleson has made no secret of his desire to merge Sprint with T Mobile to mobile companies that under the Obama administration that has not been possible

for regulatory reasons. So the hopes are that with this new administration in Washington soon can finally make that merger, which would probably lead to significant savings at Sprint um ironically probably via I think in job losses, and it would be something based maybe on your reporting that John Ledger, the chief executive T Mobile, has already entertained let's say, Yeah, I think probably there's desire on the part of both Sprint and T Mobile to do that merger if regulators

would allow it. That's just so fascinating and would would would President elect Trump, you know, latterly be able to sort of see that thing through. Yeah, I mean, it's hard to know, right, These are decisions that are made by regulatory bodies, not the White House. But obviously the President of the United States has control over who runs federal agencies like the FCC just just to switch topics

is a little bit. Since we have you here, Verizon announced yesterday that it plans to sell twenty nine of its data centers for three point six billion dollars. And typically when you hear data centers and this, you know, you sort of like your eyes glaze over and it's like we care why, um, but you made it really interesting. It depends for you. Are you wrote a story that had the most fantastically ever, here's a curse to hurl at your worst enemy. May you be forced to operate

data centers? Why is it such a problem. Yes, it's a little bit ironic because nobody thinks about data centers. I agree with you. Great you cover tech and you can understand why people's eyes glaze over. I hear you. It is not uh, you know, jet packs and and drones delivering packages to your door. It is boring. But data centers are the essential components of everything we do online. These are you know, giant buildings packed with computer servers. Without them, we could not order an uber, or we

cannot send an email. We could not do anything. The problem is the economics of the computer industry are changing to the point where Owning these essential engines of the digital age is an incredibly difficult business unless you are Google, Amazon, Facebook, and a handful of other rich tech companies. And Verizon found that out basically, and I believe at one point they were putting server farms in cold locations in order to save money and also to increase perform elements because

it mattered. I mean, that is part of the innovation that the giant tech companies have brought to this business. That one of the biggest expenses of owning buildings packed with computer servers is that those servers get really, really hot from all the calculations they're doing. And it is cheaper if you put those buildings in cold weather locations

where you pay less to cool down those buildings. You're talking Canada and Canada, Scandinavia, Oregon, right, and I think and just before we got to ask you the uh Qualcom Intel, I keep thinking Snapdragon for Qualcom because that's what goes in the mobile phone. But there's a different kind of chip. Yeah, this is this is a big deal, another one of these nerdy tech things that no one will care about, but it is incredibly important. So quality.

Intel is the computer chip company that makes every personal computer chip and has basically on market share of the computer chips that go in those computer servers and data centers, and that's been a great business for Intel. Central thesis of investing in Intel is because of their dominance in

these computer server chips. So Qualcom, which is Intel's big rival, said today, we have produced these chips for computer servers that at least in principle, are competitive with what Intel is doing, and that should be um A a big scare. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm out there on Twitter at pim Fox. I'm out there

on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.