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Let's talk technology here. There's a lot happening again. The Bloomberg News story today, which is just amazing to me. Nvidia, Microsoft and Apple are bigger than the China stock market.
That's it.
I don't know who did that math, but that's like a good math. That makes a good story to me.
That's a great story. I mean, does it mean they're overvalued or China's undervalued?
All right, let me check in with somebody who might have an opinion here on Rock ran a Bloomberg Intelligence senior tech analyst on a Rock. I mean, ever since I've known you, this is we're going fourteen years. You've got like the easiest job on Wall Street. All you got to do is say tech spending is going up. Buy these things that's good for technology. Step back today, you walk into a portfolio manager's office here, and the portfolio manager he's been in he or she has been
in industrials their entire career. Now they're told they need to get some tech exposure. Where do you send them?
Yeah, so this is you know, you just made a comment that you know, eighteen months ago or so when you heard of AI, you said, go by in video and that's you know, that has worked out very well. But now the question is for the next leg of AI beneficiaries, do you go downstream or you still stick
to the hardware players? And that's a very tough question, frankly, but there are enough players in the software area, in the in the services area that have not seen the benefit of AI, and I think those are the companies they're going to see sales improve over the next you know, let's say a couple of years, because the downstream effect of all the increased spending has to reach them.
It's just a matter of time.
The difficult part is to put a real pulse on when that's going to happen.
Yeah, let me throw a fly into the ointment. Can the Justice Department screw all this up at some point?
Yeah, they will try very hard.
And you know, I think these companies are also getting smarter and smarter. But frankly speaking, I think what we saw after the financial crisis was banks did become much bigger, and I think unfortunately for the Justice Department and other regulators, I think the large tech companies will become much bigger because of AI, just because they have the capacity to
run these workloads. It's not easy to run them in your you know, backyard or so you really need powerful computers to do these processing and they have an unfair advantage here.
All right, Anrarag. We can't get you on the horn without talking about Apple.
And I know next week June tenth, I believe, will be the Developer Conference for Apple, and that's a you know, an event every year where people like John Tucker and I who don't know much about technology, we do pay attention because that tends to be when Apple introduces some cool stuff, maybe that it moves the stock of Apple, maybe it moves the socks in other tech companies. Give us a preview of June tenth at in Cupertino, California.
Yeah, so I would say that you know, these companies hold these events every year, but I would say for Apple, I don't think it has ever been so important than this year as to what big updates they're going to do their software because right now, Apples was caught off guard like most of the companies did when chat GPD came out and people figured out they are really behind the curve when it comes to AI adoption or their you know, investments in this area.
So Apple's been behind, there's no lying about it.
But we are expected to see you know, you could say alliance between Apple and Open Ai. We don't know if they're going to do a similar deal with with Google. That's pending, So there's going to be a lot of interesting stuff that shows up on Monday when Apple's going to showcase how this technology is going to get into your phone and make your life a little bit easier
than what it is. And if that, if that thing goes through, if it's executed, well, then the the shipment data or the unit unit sales data that we have seen for iPhones over the last three years, which has typically been flat, I mean, the Apple's not seen any improvement there.
I mean you could see a lift over there.
Let me ask you about Microsoft real quickly. What's the deal that they struck with this AI startup.
I think it's Inflection, Yeah, so basically they paid them a fee as you could say compensation to hire a lot of their employees and make them part of Microsoft's internal AI division.
And that's the you know, that's what it's been looked at because, as you know, larger companies cannot easily buy any companies at this point, or AI companies, so they are trying to see if they could.
They are you know, you could.
Say, skirting the rules around acquisitions by doing this end mass hiring folks.
One of the I think the real key advantages of Bloomberg Intelligence is that they have access to the best data for every industry that they cover in a technology space.
One of those data.
Providers Thatloomberg Intelligence has access to is id C. That is the gold plated provider of really independent data on tech spending, amongst other things a RAG. I know, you've worked a lot with the IDC folks. You use your the id data a lot in your research. What are you getting, What are you sensing in terms of total tech spend, in terms of what's incremental for AI and maybe what's just kind of taking from one tech you know, capex budget and.
Putting it into AI. What do we know?
Yeah, so at least this for this year, for twenty twenty four. It's more of a reallocation at this point, and you know, you have to really think you're long and hard and say whether that's going to be the same case in twenty five and twenty six.
We think things are going to improve.
Geopolitical conditions are not the best right now, so CIOs or CFOs are not that excited about ramping up their tech budgets. But we think tech as a percentagea of global GDP is still a small portion. It's you know, we talk about a lot, but it's not as big as let's say, healthcare spending in the US, for example, when you compare both the numbers.
So we really feel.
That, I mean, there are enough you could say, legs to this particular story out now. We think it's going to be in the form of more software spending over the next several years than services spending. Hardware is doing well, So I think that may continue or that may not. That it's a big question, but we think we think it's going to be incremental spent coming in the next few years.
The expectations are really high for technology. What if they don't meet the expectations, What's what's in the unexpected bin at this point and the potential downside.
Yeah, you see, you talked about two or three names, you know, Nvidia, Apple, and Microsoft. But if you look at other companies, let's say, if you were to pull a chart of salesforce or workday or accenture or you know tcs, they've all been going down or they have not seen the same benefit coming through. And that's where the allocation is being taken away from and going into the hardware areas. So those are the companies that you
know could see slight improvement next year. The sentiment is really bad in the software arena right now because of the lack of that spending. I think you know that may change next year if economic conditions improve, or I would say geopolitical conditions improve.
All right, Don Rod, thanks so much for joining us on Rod Rana. He's a senior technology channels for Bloomberg Intelligence based in that burgeoning tech hub of Chicago, Illinois. We appreciate him checking in there. So even HPE, you think about HP Hewlett Packard Enterprises, they actually came out with numbers yesterday were really strong and they cited AI servers. So there's a company like Dell. You think Dell PC's right.
You think HP PCs printer stuff like that. But they're doing these servers that are being used by these AI folks and boomits moving their numbers.
Are you saying, well you have to do is attach AI something else one of your products?
Well, one of the one of the things I'm thinking about when you think about AI, what we have not had like we had with Google and you know, kind of the Internet and all that kind of stuff. Where's that big IPO company that is the I AI ipo?
Like Google was, Oh how do I play the Internet? Oh? You go buy this Google thing or you buy Yahoo.
Back in the day, you know, there isn't that IPO that's coming out and everybody says, oh, this is the AI play.
Well, I think startups and where the angel investors are putting money right now, who's out there you've never heard of?
Right?
That's kind of where you know, I'm looking to the dan Ives of the world to say, hey, where's that next company that's going to come public that's going to be the AI play.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecard Play and Android Otto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
John Tucker sitting in for Alex Steele. Paul Swinge.
You're live here in a Bloomberg Interactive Brooker's studio so in New York City. Were streaming live on YouTube as well. So check us out there on Bloomberg Podcast. Is how you search for us there? As least was just reporting Lululemon has what Bloomberg first ward is saying, Lululemon jumps on quote better than feared ONEQBE reports. I think the expectations a little bit low there, but the stock's ratling
about two and a half three percent here today. But the shares of Lululemon are down thirty eight percent year to date. So let's figure out what's going on there in Lululemon. Again, I'm a big fan, but it's interesting the stock has really been under pressure. Punhum Goyle, she's a senior US retail analyst for Bloomberg Intelligence. She joins us via zoom from Princeton, New Jersey. Punham, what did you see in Lululemon's earnings and what does it tell you about maybe the retail consumer.
Sure, So I think the earnings are better than expected because well, we do see slow in growth at Lululemon, where it's decelerating from the mid teens to low double digits near ten percent. There is concern that is that because of a slower macro and the fact that Lulu Lemon is losing out to competition Alo Yoga, et cetera. We discovered that part of that is true, but part of that is not true, and I think that's why investors have a little more confidence.
How big is the US market for them? And are they selling overseas and how much?
Yeah, so the US market the America is eighty percent of their business. International is twenty percent, with China half of that.
And is demand picking up or slowing in China or is it new to the Lulu Lemon market.
So international was a bright spot this quarter. International sales grew about thirty five percent, and within that, China was up Mainland China was up forty five percent, So a lot of growth there. It's a bright spot for lul Lemon. International is part of their three pronged strategy to double sales into twenty twenty seven. It's been doing very very well and we expect that to continue.
All right.
So and folks, if you want the best research on the street on Lululan, Lululemon just gonna be I go and you can find Punam's research there.
And I'm looking at your research here. Punham.
You're talking about you know, when you talk about that doubling sales to twelve and a half million, you know by twenty twenty six the company, and you're saying strong international growth. Okay, I get that men's growth. Talk to us about Lululemon and men's I mean, it's just not John and I don't know where to go with this.
Do real men go to Lululemon?
Is what it's. Real men are going to Lululemon. You know, it's one of their bright spots right now. And they actually think that men's could become overtime. I think you'll say, take some time fifty percent of the business. So there's a lot of opportunity in men's. And you know when you walk those stores and I looked at the men's inventory, it actually looks great. It's not just about outfitting the
men to go to the gym. It's about outfitting the men to go into work with casual, comfortable where that they.
Can where everybody who listens to this program of views this on YouTube knows Paul is the company fashion police. Yes, if you saw somebody in like Lululemon come into the office, might have a.
Film, it might be a problem.
But I'm going to refer to Punum because she knows fashion here and she knows what works. So if I'm Lulu Lemon, talk to us just about what they're saying about the consumer out there, Punham.
So the consumer, We've been talking about this for a while now. The consumer is selective. They're choosing where to shop, when to shop, how to shop, and if they see the right product, they are still purchasing it. The one thing that struck out during the call was that traffic was up in the quarter, which means people are still
going to Lulu Lemon. They still have purchased intent. But there were some product missteps which they're working to correct into the second half of the year, where they didn't have the right colors, or they didn't have enough colors. I should say, they didn't have enough depth and sizes. They were running out of the small sizes. So these are problems that I would think are execution related and are being fixed and can be fixed into the back half.
So while there is still part of a macro problem, the story isn't that Lemon people are not going to shop there. People still are interested in the apparel. They just have to fix the product a little and really improve our execution into the back half.
They're known for form fitting, but just to get back to the men's fashion, they have anything for old fat guys.
Well, their ABC men's franchise is really popular and it's not form fitting. It's about the casual flare and they have done very well there. And you don't need to wear tight leggings for men's that's not the appeal there. That's for the women. But I'd say even for the woman, you know what worked really well in the corner where they're loose fitting pants and their biker shorts. So yes, leggings is a big business for them, but they are broadening that.
Hey, let's switch gears just a little bit.
I saw it yesterday reporting in a Wall Street journal Punum Dollar Tree is among the potential sales spin off of Family Dollar.
What is going on with the dollar stores here.
I would have thought that if a part of the consumer market is weak and the low end economically, that.
Perhaps that would be good for the dollar stores. But what's going on there?
So they're really two very different types of dollar stores. Gen Bartashus covers the space, but from my coverage over years ago, I can tell you that Dollar Tree targets everyone, right. I would shop at Dollar Tree, Paul. You would shop a Dollar Tree. You buy that one twenty five item there and you go treasure hunt. But a family Dollar customer, that's their principal discount store. That is where they buy their groceries, that is where they buy their day to
day needs. So as that customer's wallet is being stretched, that business does come into more pressure.
I'm going to tell you my Dollar Tree story. I bought a loaf of bread I brought to the counter and the casher said, sir, you don't want that. Apparently they had some sort of rat problem. I didn't know about it.
All right, Punam, thank you so much for joining us there.
Putnam Goyle, Senior US e Commerce and retail Anams Bloomberg Intelligence give us a breakdown on Lululemon again, some better than feared or results, and n actually lifted their guidance a little bit here. So some good news there for Lululemon stocks up about two and a half percent, but it's down pretty big this year, concerns about growth.
There.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple Car playing Android otto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
If you look at the equal weighted standard and Poor's index of about five percent, the question is kind of where do we go from here with We've got a FED that appears at.
Some point it's going to be cutting rates. You got that on one hand.
The other hand, you've got decent earnings growth That kind of seems pretty constructive here in the marketplace. Let's check in with somebody who does this stuff for a living. Nicole Webbs. She's the senior vice president. She's a financial advisor at Wealth Enhancement Group, joining us via that Zoom thing. So Nicole, is you sit down and talk to your clients here today. They've had a pretty good start to the year by and large. What are you telling them about the back half of this year.
Yeah, you know, I think the back half is a little bit to be determined, But in the interim, we expect it to be pretty choppy. And I say that, you know, for a myriad of reasons. You know, I think the first being, there was so much expectation that entering this year and your lead in was so perfect, was that you know, we're going to see this broadening out in the market, a breath that would come through the first two quarters of twenty twenty four, and that's
not really been the case. And actually over the last couple of weeks which we've seen is less breath and more leadership in mega technology again, and so you know, probably to get that next stickiness the next run from here, one would expect that we need more confidence throughout the cap spectrum, not just concentrated in technology. And then you couple that with the fact that we've had a lot
of interest rate volatility. I mean, really even in the last five, six, seven trading days, the tenure has moved a lot, and so you know, there's there's some underpinnings to this market right now that we expect to keep it choppy for the coming weeks ahead.
The data that we've been getting, does that show slowing that indicates, uh, interest rate cut that's going to be good for equities, or does it show slowing of the economy that's going to be bad for corporate profits.
You know, our stance on cuts is that it kind of circles back to the ECB today, which I I loved that their words were a bit hawkish in tone, but their actions were that they want to see rate stabilize.
Yeah, they ec be cut, but at the same time Lagarn also said there were inflation concerns or if she doesn't know how close they are to the neutral radar words to that effect exactly.
And so you know, I think as we keep seeing economic data that is in support of you know, many consumers that are slowing, but then many who are benefiting from the run in the markets also clipping five percent coupons on risk free assets, and you kind of need to start hearing a tone from our FED that we need to start the process of normalization of rates because there are certain elements of the inflationary trends around us, some of these pockets of stickiness and service, the undersupply
in housing that simply probably can't be fixed by leaving rates as restrictive as they are. And so, you know, I think it was a really balanced message from the ECB and one that we would love to see, you know, the Fed here take more of that stance on. You can remain hawkish in your tone, but you can start to move towards normalization and do it at a slow and steady pace, versus continuing this narrative of going into a cutting cycle, which you know, sounds very different.
It sounds like fixing a new problem.
So Nicole, talk to us about valuation here.
I'm looking at kind of s and P earnings growth kind of ten eleven maybe twelve percent over the you know, next year or so. Is that enough to support this valuation in the market or do you feel like you need to maybe get a little defensive in valuation.
There?
You know, there's there's this convergence of themes, one of them being we went in to the year with earning expectation, you know, consensus among analysts. Generally, you see analysts start to cut those earnings forecasts, which in the first month or two we did, and then we've seen a steady increase in those earnings expectations and where we think this
market is going to take us. You know, again, though, I go back to the earlier comment, which is we need more than just the support of mega technology or that next leg or the next wave of this bull market, or to have more confidence in it.
But at the same time.
It's pretty clear that you need a lot of free cash flow, that there's going to be a huge capex expenditure over the next many years to build the new infrastructure, to build the AI factories, and that the megatech companies are the ones who have the cash flow and the
access to do that. And so you know, aside from more government intervention or more fiscal money put at building out this infrastructure, we do believe that you're probably going to continue to see multiples that are substantiated by both the investment.
Towards future growth the breadth of that growth.
And then you know, also, though, when do you start to see some of those productivity reshoring metrics for further se access again down that cap spectrum within the s and P five hundred, And then as we think even further about the broadening out of the market, it really does seem like until the FED starts to enter a normalization narrative around interest rates that we're not going to get that further support from mid and small cap, which again has just been very volatile amongst you know, the
consumer data, the inflation data, and then again interest rate volatility.
Do you move beyond the big megacap stocks and maybe into the derivatives of artificial intelligence? Do you have to be more strategic in that area now?
Overall, you know, we think it's really important to think about artificial intelligence, the build out of the infrastructure as being future.
Table stakes among many companies.
So if we think, you know, of the Internet, at one point it was incredibly interesting and now it's as if you would never run a business without it. And I know that is a little bit cliche and simplified, but I do think you have to look beyond just the productivity within each company and think more about end benefactors. So right now there's so much onus put on the suppliers. We've seen the pressure on software because there's a lot of curiosity about you know, is that more of a
middleman that gets gets stripped out of this equation. But you know, we think of and it's a very easy example would be you know, John Deere, you know things that become end benefactors in terms of access to you know, robotic arms and the ability for artificial intelligence instead of fertilizing entire fields.
It's the tractor that doesn't need a farmer.
It is the tractor that doesn't need a farmer.
Thank you.
You got there faster than I could.
And so you have to think about what are businesses that are truly revolutionized and what businesses just become table stakes owners of you know AI as part of its operating technology.
Nicole, I'm guessing you probably get some phone calls from your clients saying, hey, I can just buy a two year treasury and get close to five percent here. That's not a bad place to be. What do you tell them about fixed income these days?
Yeah, you know, it is the I never thought that I would spend so much of my time for consecutive years talking about treasuries.
It is incredibly interesting.
And you know, I would say post the Great Financial Crisis, we started to really change the way we ran financial models because we sat in a zero percent interest rate environment for so long, and effectively you had to think about how you then modeled total return as a component of that. And so now if you were running projections at five six percent, maybe seven, but someone can clip five point four on the short end, it becomes really hard to get them to take equity premium risk over
that risk free rate. And so it's really a combination of thinking about public markets, private markets, and then how much duration are you going to build into your portfolio today? You know how far out are you going to go? Because for many the tax equivalent yield on a tenure is still incredibly lucrative, and so that is becoming a bigger part of the overall conversation.
All right, Nicole, thank you so much for joining us. As always, Nicole Web She's a senior vice president financial advisor at Wealth Enhancement Group. Joining us from New York via zoom.
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For the month of June.
Bloomberg Radio is committed to bringing new segments and guests focused on the topic of equality. Today, we're speaking with Norman chen CEO of the Asian American Foundation. He joins us via zoom from San Francisco. Norman, thanks so much for joining us here. I love to just start at the really basics here. Tell us what you do at the Asian American Foundation, what's the focus and how are you guys impacting this environment.
Well, first, thanks for having me. The Asian American Foundation is a three year old organization that was formed at the peak of anti Asian hate in twenty twenty one, where we work together across the country, across all sectors on safety, belonging, and prosperity for our community.
Does the China rhetoric, which in Washington has been focused on technology and trade, does something as subtle as that does that conversation need to to change or at least acknowledge that it can result in what you see in terms of hate speech and hate action against the AAPI community.
Yeah, language is really important, as we saw during COVID rhetoric blaming China for COVID kung flu Wuhan virus severely affected our community, leading to thousands and thousands of attacks that continue today. While they are legitimate competitive issues with
China that need to be addressed. Inappropriate or inflammatory language does lead to perceptions and misperceptions of our community that continues to lead to feelings that Asian Americans are threats in this country, that we're more loyal to Asia than to the US, and other misunderstandings.
So, practically speaking, Norman, think you practically speaking Norman, how do you guys go about trying to affect change?
How do you do that?
Yeah, we have four pillars to achieve safety belonging to prosperity. Number one is to address the immediate hate and tax against our community. And we work with a network of fifty six national partners or partners across the country and fourteen cities that provide care to victims and survivors that have suffered these terrible attacks. So those partners are on the ground. They provide medical, financial, legal support to those who have been traumatized by these incidents. But longer term,
we work in education and narrative change. So we promote the teaching of Asian American history in schools around the country, and now seven states have mandated the teaching of Asian American history because Asian American history is a critical part of American history. And then on our Narrative Change piece, we're working to tell more authentic stories about Asian Americans
and less the stereotypical kinds of stories. One survey that we did as people around the country, can you name a prominent or famous Asian American And for most people in the country, they cannot, were largely invisible to them. The number one name that has come up over the past four years, over twenty thousand Peace book is Jackie Chan, who is actually not even Asian American, He's from Hong Kong.
And then it's Bruce Lee. So you can see the impact that movies and TV shows have on the general psyche, and so that's really important to address that as well.
The Alan Mole shooting that was what a little more than a year ago at this point, where Young targeted Texas location because presumably, at least we're told by authorities because of its aa PI population in Texas. Can you tell us what the response has been.
Yeah, we have wonderful partners in Texas that are really advocating for the teaching of Asian American history. They're also fighting against land laws that prohibit Asian Americans from buying property in Texas, so wonderful partners. There's a real activity in Texas, and we also work with corporate partners that are helping to promote Asian American programs in that state.
Yeah, you mentioned the property, but I believe there was also a bill in Georgia that I think had the backing of Governor Brian Kemp that would ban for Asian foreign nationals Chinese foreign nationals from owning property in the state. Can you give us an update on that.
Yeah, there's legislation and multiple states around the country. Unfortunately, there has been fear mongering, as you pointed to earlier, that people who are Chinese nationals shouldn't own property, and they're trying to focus it around certain military or sensitive institutions.
While there are legitimate national security issues that need to be addressed, this perception that Asian buyers Chinese buyers are potentially a threat really affects the market, so that realtors in these markets now are afraid or hesitant to bring on Asian buyers, and so that really has a ripple effect to the broader community. The sense that somehow Asians are not loyal to America, that will provide and provide risks to America, and we're really trying to fight that.
Yeah, you sound like we can go back to World War two and Hawaii interment of Asian Americans exactly.
Yes, one hundred and twenty thousand Japanese Americans, seventy percent who are citizens, were incarcerated for three years because people thought that they were going to be disloyal, and it turns out there was no proof at all during that time that any of those people or any national security risk of the country.
It's an unfortunate a long history of the United States.
Norman talk to us about is there a role for you know, corporations, businesses and their leaders to kind of get involved here.
What are we seeing?
Yeah, well, thanks for the question. So one very interesting fact about TAP is that we were formed by prominent Asian American business people such as Joe Tai, owner of the Brooklyn Nets, Joe Bay co CEO of KKR, Jerry Yang, co founder of Yahoo. So we have very much a
DNA with business background. And so one of the real strengths of TAFF is that we are working across all sectors, so not just nonprofit or philanthropy, but also across the corporate sector, across government sector, and also with media and entertainment, and in our gatherings around the country. We have such a mix of people with who all want to support
our community but come at it from different backgrounds. So our fourth pillar, which I didn't mention, is called representation and resources, and a lot of that is focused on our corporate partners.
So what does that mean.
We know from our Status Index research that feelings that Asian Americans are the least likely to feel like we truly belong in this country, and in fact, only eighteen percent believe we truly belong and are accepted. Major reasons for that are discrimination, racism. Clearly someone spits at you or insult you, you don't feel very good, but also because we don't see enough of our people in senior positions. Asian Americans make up fifteen to thirty percent of workforces,
but only three percent of the c suite. Despite the model minority myth which makes people believe that, oh, Asian Americans are highly successful in business, it's not proportional across the organization. So we're working with our corporate partners to not only add and increase the presence of Asian Americans on boards right at the c suite level, even among ergs, but also working with our corporates to funnel more resources to our community to make these changes.
Norman, thanks so much for joining us. Really appreciate getting some of your time. Norman Chen, he's the CEO of the Asian American Foundation.
Joining us via zoom from San Francisco.
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Thirty John Tucker, He's sitting in for Alex Steel today on Paul Sweeney.
We're live here on Bloomberg Interactive Brokers Studio.
We're also streaming on YouTube, so you can head over to YouTube dot com and search Bloomberg Podcast.
John. I don't know.
I'm at the point of my life here. All the kids are out of the house. I'm eating out more in restaurants than they ever have, and maybe.
It's also a post COVID type of thing.
I don't know, restaurants I think are packed. I mean, I think the restaurant business is doing pretty good. I know there's different levels of well.
The restaurants you're going to are different than the restaurants like somebody like me and Charlie Pellett go to.
You think I'll go into the squad tavern tonight, Pete's and Beer Knight.
That's what I'm doing tonight.
But anyway, Barry Ridholts, he's got a piece out on this whole restaurant thing. What does it mean as an economic indicator? So someone in the touch base with Barry and see what he's doing there. Barry Ridholts hosts of Masters in Business on Bloomberg Radio. Fantastic podcast folks, if you want a business podcast markets all that kind of stuff. He gets the greatest guest. It's called a Master's in Business. He's also got a day job. He's a founder of
Ridholts Wealth Management. He joins his via zoom. Barry, I know you've been known to go to a restaurant or to maybe not the kind that John Tucker goes to. But how do you look at the restaurant business as just an indicator of the economy?
These issues whenever you hear me complaining about some terrible bit of economic and nowais or discussion. It's because some clients said, Hey, I know you've been constructive on stocks for the past two years, but look at this video a friend just sent me. The restaurant industry is collapsing. We have to get out of stocks. And you know, I go look at the video, and not only is it mostly incorrect, it violates every rule of statistical analysis.
It's filled with band information and denominator blindness, and so it sends me down the rabbit hole of hey, what's really happening in the world to restaurants. And as it
turns out, the restaurant industry is on target. In twenty twenty four, it will be the US restaurant industry's biggest year ever in sales one point one trillion dollars by the end of December, and that's based on the first half a year of actual sales and then estimates from the Restaurant Association National Restaurant Association for the rest of the year. Now, again, I'm a little skeptical when people are forecasting a five point four percent increase in revenue,
maybe inflation adjusted. Some of that's right, but when they survey restaurant operators, about a third of them said they're expecting to see higher real sales for the full year, and two thirds of them have said the restaurants in their area have rebounded from the pandemic fully. So, you know, it's taken a while for this sector the.
Economy to recover.
But man, you try and make reservations at a decent restaurant, you'd better be looking out two or three weeks or you're not going to get in.
It also depends on where you're located. Barry, I think you did an interview with Bobby Flay some years ago who was saying it's almost impossible for a restaurant owner an individual to turn a profit in a place like Manhattan because the rents are so high.
Right, Well, first of all, it's a very difficult business no matter where you are. It's razor thin profits. The Restaurant Industry Association says that two thirds of restaurants will fail in the first five years. It is tough. You know, a great restaurant is a really good business, but restaurants and as an industry, are incredibly competitive, incredibly difficult. Now, the interesting thing about the discussion with Bobby Flay, where I'm a giant fan of my wife and I have his cookbooks.
We've missed.
Back when Miracle Grill was his first restaurant and I was living on twenty seventh Street, we would go over there, and that was before Mesa and some of his other bigger restaurants. But given what's been taking place with work from home and how empty office spaces are, the proposal I've made is, hey, if you're an office building owner and you want to get more office space rented, well, then you better cut a deal with your ground floor
tenants to make sure it's filled. Because nothing reduces the value of an office floor than coming in and seeing a boarded up restaurant or a a null retailer on
the ground floor. I think retail as a service, restaurants as a service is something that the major urban areas need to consider because their bread is buttered ll upon intended with the twenty year office leases that they're gonna you know, sell tens of thousands of dollars worth over the next twenty years, tens of thousands of square foot. A restaurant that's down on the corner, a deli, a
half decent restaurant, even a high end restaurant. They need to be a whole lot more flexible than they've been. And they really have to think about this in a very different way.
You know.
I saw a article on the Bloomberg yeshay, I've been waiting waiting to read and it finally came out.
I say about San Francisco and how.
There are signs at San Francisco is bottoming and turning for the first year. Last year they actually added people in San Francisco, eight hundred and forty additional.
People on the on you know, it was positive. They got to start somewhere. I mean, Barry, what do you think about a market?
I know, you spend a lot of time in San Francisco, a lot of you know, there's a lot of ingenuity there, a lot of money there. How do you think about a city like San Francisco, which, in my opinion, before the pandemic was a jewel of this country in terms of you gotta go there.
How do you think one of the most beautiful cities in the country, No doubt, you know there there are everybody wants that one answer, like a binary yes or no. And here's a solution. We have a lot of problems that are multi factor. There are a lot of things driving it. When you look at when you look at a city like New York or San Francisco, nimby is a giant problem. The all the rules that prevent a additional building and construction that that's an ongoing issue.
Like there isn't a.
Whole lot of things that can't be solved when prices are too high. You know, the old joke is the cure for high prices is high prices. You either have to lower your prices or bring on more supply. We're starting to see that in suburbia. It hasn't quite happened in New York City or San Francisco, at least not rapidly. And I have vivid recollections of watching the entire Lower Manhattan region following September eleventh completely pivot from uptown downtown
to much more of a residential area. And I think that has to happen in more cities. Yes, I know a lot of these buildings don't lend themselves to fast and easy conversions. Let a few half a billion or billion dollar buildings go into receivership. You'll see how fast and easy. They get converted. They'll get converted to residential. And I think we have to recognize that what the pandemic taught us, which is we are no longer in a you know, nine to five Monday to Friday, nineteen
fifties mad men era of office work. That ship has sailed. There are some firms that insist on five days a week. For us, we give employees a whole lot more flexibility. We think that's a great recruiting and retention advantage over some larger firms. But it's pretty obvious the hybrid methodology is here to stay, and that means we have too much office space and too little residential in these urban centers.
Yep, all right, great stuff has always Barry, appreciate your perspective. Barry Redholts, host Semester's in Business on Bloomberg Radio and also founder of Ritholtz Wealth Management.
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