Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller.
Every business day, we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news.
Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. Let's switch gears and go to our Federal Reserve. It is Tuesday. We like to talk to Ira Jersey. He's the chief US interst rate strategist for Bloomberg Intelligence. And I really got some economic data today. I mean ISM, manufacturing still in below fifty, still contracting, It's better than last month. So the economy is, you know, trying to
keep kind of chugging along here. How do you think the Fed kind of us kind of the overall economy here?
Yeah, I think the Federal Reserve is actually pretty happy with the economy.
Their concern is still is inflation too high?
And well the data today with manufacturing maybe not as bad as it has been in recent month, will that mean that prices are going to go up? And interestingly, in that ISM data that we got just a couple of minutes ago, Paul.
Showed that prices paid was lower.
So actually the inflation component of the ISM Manufacturing survey suggested goods prices.
Might continue to come down.
But this week, Paul, most importantly obviously it's payrolls, but second to that in my book and the way that I am analyzing the economy right now is going to be Thursday's ISM Services report, So looking at prices paid in there as well as new orders and what's going on with some of the forward looking components of those data.
And IRA looking at treasuries pairing some of those losses on the ISM, but then also the Jolts jobs opening data, seeing that as far as those openings just dropping slightly in the quits rate ticking down in June. In that data, and looking over at what the ten years yielding close around four percent? What's your view on the direction of the tenure and where does Bloomberg Intelligence forecast to see it? At your end?
Yeah, so we just revised our FOURK asked this morning, actually, and so we do think that ten year yields are going to be lower than where they are now. I think currently the market's in a range and there's a couple of technical things going on as well. So firstly we saw today's move, the move about five base points higher in ten year yields was driven largely by what's going on in Europe and the hawkish or hawker's expectations out of Europe and the Bank of England in particular.
But importantly, tomorrow morning at eight thirty, we have the Treasury refunding announcement, and the Treasury Department will be increasing the size and the supply of treasuries coming to market. So I think some people are adjusting to that possibility and just thinking, hey, if there's more supply, maybe it'll be harder for market participants to digest the larger issuance sizes.
And so I think the market's adjusting to that.
But by the end of the year, you know, Anawog and Bloomberg Economics believes that they'll be at a recession. If there is a recession, you could expect ten year treasury yields to rally about seventy rasis points are so from current levels, and that's so our year on forecast is a three point three two percent if you want to be very.
So I wrote, when the government comes to refund their debt, which I know they're going to do here. I guess you know, in the next several days. Here they got to raise a lot of money. Because the deficits keeps growing, interest rates are higher, so the refinance becomes even more expensive. I mean, do we run the risk of having not failed auctions, but just disappointing auctions, which really causes some concern in the marketplace?
Yeah, I think we do.
You know what happened in twenty twenty two, we had some very weak auctions, and even earlier this year, particularly when a lot of people thought maybe yields weren't high enough, the Federal Reserve was continuing to hike interest rates pretty aggressively. You know now that it looks like the Federal Reserve is nearing or at the end of their hiking cycle. Some of the auctions more recently in the last two
months have actually been been reasonably well received. I'd say that the auctions are somewhat more mixed, But yeah, there is to your point, Paul, I think a real risk that if the government raises the size of some of these auctions too far, too fast, that it may be again difficult to digest. So some of the things you want to look at when we get to some of the auctions next week, is what's the bid to cover doing.
So how many bids, how many.
Offers are there to buy bonds are there compared to the amount on offer? And then secondly, you're indirect bidder, So these are investors, end users, central banks, pension funds, mutual funds who all bid through third parties, and if they come in strong, that means that end user demand is really good. Obviously the converse is true as well.
If those are relatively low compared to recent history, then you could expect there to be you know, maybe yields go a little bit higher because of the lack of demand.
IIRA explain to us what's going on when we're looking at how speculators were more bearish on treasury futures in this latest data that came obviously ahead of the FEDS just prior meeting that we just had, and what's happening as far as how they're boosting their net short exposure across this curve with the exception if you're looking at say five and ten year futures.
Yeah, it's a little bit it's a little bit difficult to tell, you know, when a hedge fund or a levered investor, and that's a prim So there's speculators, right, so we had no speculators versus hedgers.
That's one component.
But then they also there's another breakdown that's levered investors versus versus asset managers versus dealers. And when you look, it's almost all levered funds that are short. So the question is are they short treasuries because on the other side they happen to be long corporates or long equities, like is that a hedge to other assets that they might be might have a position in, And so it's
a little bit difficult to know that. I do suspect that there are people who just had taken advantage of the fact that we had rallied back to It wasn't that long ago that we were at three and a half percent in treasury, so now we've you know, sold off to four percent, So there could be some short covering that we see somewhere around the old yield highs around four.
Point nine percent. Four point oh nine percent.
That's a pretty important technical level at this point, and I suspect that as we get a little bit above four percent, you will see some short covering among those levered investors.
Ieric talked to us about liquidity in the marketplace.
If I'm a big mutual fund or hedge fund and that I want to dump a bunch of treasuries, I call it Morgan Stanley and Goldman Sachs, and I say, hey, bid me here, what kind of efficiency?
What kind of execution am I going to get?
Yeah, there's been these pockets of illiquidity that have cropped up, but liquidity over the last couple of weeks has actually been pretty decent. You've seen decent sizes in terms of on the screens.
Of what you're able to sell.
I think that the challenge for market participants is is everyone going the same way all at once, And we haven't seen that so much the last month or so. But you did see earlier this year when there were a lot of people rushing to buy securities. For example, in March during the SVB the banking inks that was going on. You know, you saw these pockets of illiquidity where no one wanted to sell their treasuries because everyone
thought the price was going to be higher. So you saw these big jumps in price and much lower yields very quickly, So I call the liquidity at.
This point as being fickle.
So it's like liquidity is really good until it's not, and then when it's not, it's really not good.
Right all right, Hira Jersey, thank you so much.
We appreciate it as always getting our lowdown on what our federal reserve is going to do in the treasure market. Ira Jersey, Chief US Interest rate Strategists for Bloomberg Intelligence.
You're listening to the Team Ken's Are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
We welcome now our Bloomberg Television audience and radio listeners. I'm Shanali Bassett standing alongside PJT partner CEO Paul Taubman, who joins me now for an exclusive interview.
Thank you for being here.
It's pretty rare for you to join us for television. It's also remarkable that eight years ago you started PJT, took it public, and now you've tripled your headcount. You're much bigger than you were and are having a record half year at a time where most investment banks are facing a prolonged slump in revenue.
So can you keep it up?
Well, I don't know if we can keep it up. We're going to certainly try to. But first of all, thank you for having me on this morning, Shanali. It's great to be here. It's almost eight years as you point out, and we have a plan and we're just
moving forward with the plan. But if you look at our first six months, it was driven by we have a leading restructuring practice and we're increasingly taking share from others, and we're trying to get at the forefront of liability management, trying to work with companies to reaquitize and restructure their balance sheets and deal with the fact that interest rates continue to grind higher. And we're growing out a leading
strategic advisory business that's still in the early innings. So even though we're dealing with a lot of the same macro headwinds that others are, we're able to gain share and continue to move forward and continue to advance our position.
You know, we'll talk more about that restructuring wave because seriously, these idea of higher interest rates are going to have some impacts over a long period of time. But also remarkable is that you're hiring. You are hiring at a pretty rapid clip at a time when most investment banks are letting people go by the tens of thousands. How significant are your hiring plans this year?
Oh, they're quite significant. So if you take a step back, we have tripled our headcount in eight years, we've tripled the revenues, share prices up nearly four times. And if you look at the size we are today, we're still a half to a third the size of many of our direct competitors, and where a fraction the size of the large banks. So we see tremendous art opportunity to grow. This is an incredibly conducive environment to grow. You need to see M and a slow down in order to
hire the best M and A bankers. And that's the ultimate paradox. And the reason for that, Shinali is because the switching costs are much lower when you're dealing with a low velocity environment trying to get a best in class M and A banker to leave in the midst of an M and a bull run when they're loaded up with a whole host of mandates the switching costs to extract themselves, they end up leaving their clients in
the lurch. So we're taking advantage of the fact that even though the environment is quite challenging in the near term, we know it's going to inflect. We know it's going to come back, and we want to continue to press forward and continue to grow the franchise.
Is this going to be a record hiring year and can some of this momentum continue even into next year?
Well, it's certainly going to be a record and we intend to continue to press forward. Now, how many individuals we attract to the platform, really we don't control fully because at the end of the day, we have a very clear sens as to who.
Would work well on the platform.
Who's best in breed, who's best in class, who shares our vision, shares our values, And you cannot end up turning this into a quota as to how many you hire each year. But there's no doubt that we're still relatively small compared to the opportunity set. So if you ask me, are we going to be much larger three five years from now, the answer is absolutely.
Bring us under the hood, because it's a pretty fascinating dynamic. You have such high profile bankers leaving Goldman, Sachs, and Credit Suez, all for different reasons, and so what are bankers telling you as you're having these conversations.
Well, if you step way back, there are a few trends which have been in evidence for the last decade. The first is that increasingly clients want to work with smaller firms, and we started to see that coming out of the global financial crisis. That's only picked up speed over time. So that's the first point is you need
to have buy in from your client base. I think the second, which is a corollary trend that most individuals didn't really pick up on, is if the most sophisticated, consequential companies around the globe are going to work with smaller firms, they're going to expect the sophistication of a larger firm. So that means you need to continue to build out the breadth of services, the caliber of individual You need to make sure that you can follow your
clients anywhere around the globe. So those two things have continued to prove out, and as bankers at bullsh bracket firms increasingly see that their clients would be highly supportive of.
A move to a smaller firm.
The question becomes, what's the catalyst, what's going to get you out of a comfortable position to take a jump, take a leap, do something different. And I like to say that we're in that exquisite sweet spot, which is we're big enough so that no one's going to miss
a beat. They're going to have access to working with some of the most sophisticated colleagues around the globe, but we have so much white space that they can get in early, not be jocking for position, and do what they love to do, which is be bankers, not managers.
Speaking of being a banker, bankers have been writing a lot on Wall Street, always, always, always, about everything. But you know, when you think about what they're actually talking about now it's returned to work. How often do they have to be in the building and how flexible do you have to be to keep them around?
Well, that's a great question. I made a commitment in the depths of COVID of two things. One was we were learning so much from how to work remotely that we were never going back precisely to how we did work pre COVID. On the other hand, if you're not in the office most of the time, and if you're not creating those personal connections, and if you're not learning through an apprenticeship model, you're not doing it the right way.
We've been continuing to evolve to is a model which starts with being in the office, because that's where you learn, that's the best way to support the clients, that's the best way to train and develop individuals, and there's no latitude for people not being back in the office. Having said that, you can't allow technology to continue to invade your personal space. Be on call seven days a week, be expected to get on a zoom call on a
moment's notice, and not have some release valve. So what we did about a year ago was we turned fridays in office to be optional. You could work from home on Fridays, but work from home starts with work. You may be home, but you're working, and in the dog days of summer, which is after the summer interns leave until Labor Day, we also have a work from home option.
And I think by acknowledging that we can use technology to be more productive, but making the centrality of being in the office, can try and find that that sweet spot.
It's about to get busier slowly after a big deal slump. How fast do you actually expect murders and acquisitions to start coming back to the market.
The pace of activity and dialogue is clearly picking up. We're looking at levels today that we haven't seen in more than a decade. So M and A volumes today are not much greater than they were coming out of the global financial crisis. If you benchmarket relative to GDP or market capitalizations, it's at low's we haven't seen I think ever, So I'm not really going out on a limb by saying it's going to get better from where we are today. There's no doubt about that. It can't
get worse. There's an old saying you can't get hurt jumping out of a basement. I don't think you know. We are in danger of going lower than where we are today. The question is how quickly does it inflect. And one of the things about M and A iss a pro cyclical business transaction activity begets more transaction activity.
There's the ultimate fomo fear of missing out, which is if your competitor is transacting, if they're growing, if they're investing, if another private equity firm in the alternative space is committing capital, it tends to lead to more activity. I think we have the conditions that are nearly ripe for that, and it wouldn't surprise me if sometime between now and the end of the year you see a very sharp inflection.
There is one place things could get worse. That is with restructuring, higher interest rates, a whole bunch of forces that are pushing companies to either restructure or go bankrupt. How significant is this wave of distress going to be?
What does it look like? Well, I think we're in for an extended wave of elevated restructuring relative to where we are today. But where we are today is at historic lows in terms of default rates and the like. We're still feasting off of the easy money environment, relatively low interest rates. But there's a day of reckoning and we're going to see a meaningful uptick in restructuring activity. But again, to put it in perspective, that's relative to
historic lows. And I often get asked the question, can an upswing in M and A coexist with an upswing in restructuring? And my answer is pretty simple, is right now they're both at historic lows. We're seeing historically low default rates and we're seeing historically low M and A volumes, And I think both of them can sort of snap back more to traditional long term levels and both start to be engines for our firm.
Now, Paul, before you left and started PJT, you were a very senior at Morgan Stanley. You were seen as a CEO candidate. Now fast forward more than eight years and you have Morgan Stanley going through its own CEO transition. What do you think the future of Morgan Stanley looks like?
Look, I think James has done a terrific job. I think the firm is firing on all cylinders, notwithstanding the difficult macro backdrop, and I have no doubt that they'll continue to thrive going forward. I think the question for our firm is what do we do do we thrive going forward? And I'm confident that we have so much open running space ahead of us that.
That's what I'm focused on.
That's where my attention is.
How are you thinking about number two already?
I'm always thinking about a succession. I'm always thinking about, you know, who's going to succeed me? Because We're building this firm to last, to be durable, to be sustainable, and that means that you need to be able to train develop a next generation. Most of our growth has come from external candidates, but that's reflective of the fact
that we're only eight years old. But the goal is over the next eight years as more and more of those individuals who join at the most entry level positions, they get to grow up in our firm, their train they're developed to be the world class banker and they have only one home and that's PJAT.
So that's what I'm.
Focused speaking of. This is the last week for the interns. The interns are starting to, you know, leave Manhattan now and all the cities they're in. Do you have any advice for them because there is a lot of anxiety about what jobs they can get coming out of these cycles.
Well, it's crazy. We have our firm nearly one hundred summer interns around the globe, and that's about one percent of the resumes that we get. We get close to ten thousand applications every year and about one hundred show up at our firm for the summer. And one of the things that we've initiated which I think is terrific, is that at the end of the program, every one of our interns is obligated to then spend time doing
community service in a project of their choice. And to me, that's one of the things that I would tell everyone on Wall Street to take away, which is you can go at it really hard, be very focused on your career, but there's a bigger world out there. You're part of a broader community, and find a way to do something to give back to your community.
Anchors are people too, Yanks. Absolutely, Paul, thank you so much for your time. It was great to sit with you in such a very interview with you at a really historic time for your company.
So thank you.
That is Paul Tauman. He is the CEO and founder and chairman of PJT Partners.
You're listening to the tape cats are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and.
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 Caterpillar our good friends. They reported some good numbers last night, stock up over seven percent. Caterpillar based in Irving, Texas, joining us Chris Chilino. He follows the stock on all that construction industry stuff for Bloomberg Intelligence.
Hey, Chris, talk to us about Caterpillar. What did this street like here?
A lot?
It was a really impressive quarter with pretty significant top and bottom line beats, really driven by strong pricing and better than expected volume growth doing part to some dealer inventory restocking, and really just continued strong execution as a supply chain continues to normalize. We actually saw enterprise margins strengthen sequentially in the period, which is kind of counter
to normal seasonality. But I think kind of beyond the stronger operating performance, both orders and backlog improved in the quarter, which was a little bit of a surprise to us, and retail sales accelerated, So I think that alleviates some of the concerns investors have around the cycle peaking here.
Yeah, that's kind of where I wanted to go.
I'm looking at the stock hitting an all time high.
So that's good for shareholders.
Then I look at the A n R function Analyst recommendations twelve buys fourteen holes in three cells. Half the analysts on the street missed this run here, this all time run up to an all time high. What's the concern if the business is so strong.
Yeah, the concern is really how sustainable are these results?
Right?
Is this as good as it gets? We're posting margins now above twenty percent, which they haven't done before. Margins are going to be at the high end of their long term framework. We have a record backlog. Pricing is phenomenally strong, but that will moderate in the back half of the year. Dealers will will start to de stock in the back half too, So I think the concern
is this sustainable. I think this quarter was kind of a step in the right directions, and I think we're looking at probably a structurally higher return business cycle over cycle. But the concern is if we're not at peak, we're probably pretty close.
And whenever I think of Caterpillar, obviously I think of those yellow bulldozers, but also the world's biggest producer when you are thinking of heavy machinery, can you really have a global recession with the way Caterpillar is performing at this point?
Yeah, So there certainly puts in takes that if you think globally. I mean, you know, North America continues to be very strong. Europe has hung in there, although it was a little bit weaker in the period. China, which is the largest construction equipment market globally, continues to deteriorate, took another leg down in the quarter, which really wasn't a surprise. We kind of expect that to bounce back next year. So there's a lot of moving pieces geographically speaking.
So I'm sorry, I'm just going to follow up on that because the CEO of Caterpillar actually said during the earnings call that the company does anticipate for the weakness and sales of the machines used specifically in Chinese construction projects.
So I would imagine when you're hearing something like that, what kind of indicators are you honing in on to see what that could mean for the company and obviously how that could potentially translate to its peers as well as what that means for the economy.
Yeah, so we've seen a lot of the macro indoses deteriorate over there. We've actually had a number of machinery companies globally reports, so we kind of had an inkling that China was weakening throughout the quarter. But in the big scheme of things. Remember, you know, China historically in a normal years five to ten percent of consolidated revenue. We're looking at a second year down with pretty significant decline. So it's going to be less than five percent of their total business this year.
All right, So, Chris, I hear my president talking about infrastructure here, members of Congress talking about infrastructure spending. I mean it sounds to me like, at least in North America, there's several years of growth a head for this industry and for CAT.
What does a company say about that?
Yeah, so they are starting to see over the past few quarters some of that infrastructure funds flow. And you're right, I mean, we have an immense amount of fiscal stimulus coming through the pipe here, So I think you're probably looking at a more resilient CAT through the next downturn. Just given this year vast amount of money that's going to be coming through, You're really not seeing customers in any kind of financial distress. They're in healthier positions compared
to other prior downturns. The services business continues to grow, so I think this helps, you know, helps offset some of maybe the cyclical weakness that we'll probably start to creep in into the business next year.
Talk to us about the cost cutting efforts the company has gone through and how does that translate to its margins and potentially its stock price as well.
Yeah, so, if you think about in the prior downturn, KAT did a phenomenal job of taking a lot of structural costs out of the business. They run at extremely lean levels compared to a lot of their peers, which is why they're able to put up best in class margins. We're looking at probably margins, you know, pushing up close to operating margins close to twenty percent this year, which would be a record for them.
Who has got to pull really compete against on a global basis.
If you think about it, it's a very solidated market. Kamatsu is probably their their biggest competitor both on the construction and the mining side. Mining is essentially duopoly with Kamatsu and KAT. When it comes to construction, there's other peers. Deers as a growing presence in the construction market. They made an acquisition of work in a number of years
back to kind of expand their global breadth. CNH Industrial a much smaller competitor on the construction side, Volvo, and then you have another number of regional competitors over in Asia.
All right, great stuff as always nice getting an update on one of our favorite companies, Caterpillar Irving, Texas construction equipment.
Chris Chieling a break in it all down for us. He covers all.
Those industrial things for Bloomberg Intelligence. Joining us from Princeton, New Jersey, the Global HQ, if you will, a Bloomberg Intelligence. That's what we founded this thing down in Princeton, New Jersey. Nobody's bothered as nobodyknew we.
Were there, and now we're four hundred strong all around the world.
You're listening to the Team Kenjerl program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
Timber, thanks so much for joining us here.
Boy twenty twenty three has been so much better than twenty twenty two, where you couldn't hide anywhere last year. How are you guys positioned coming into this year and maybe how has that changed since Boy markets have had such a good first seven months of the year.
Yeah, no, thank you for having me, and thank you, Paul for that question. Yeah, twenty twenty three has been a surprise to everyone coming into the year. You know, there's been widely expected calls of a recession economic slowdown, which is still missing in action. The economy is pretty resilient. As we came into the year, we have been very
concerned about the long term outlook. And the reason we say that is there are a number of trends that are coming together, Paul, which in the over the medium to long term we think means higher volatility and higher uncertainty in the markets. And let me just take a step back into why we say that. It's a convergence of number of mega trends that have been in making for a long time.
You know.
The number one thing that we see is there's an end to the cycle of almost like a decade of easy money, zero interest rates. All of a sudden, we have to we are contending with higher interest rates, tighter credit conditions. But then you overlay that with some of the longer term problems, such as all the things that we're seeing related to the ecological changes. I mean, you have heard we've experienced it ourselves, extreme weather, extreme heat, floods, droughts.
All that means is that we just don't know where the next shock is going to come from, all kinds of bottlenecks that we have to contend with. And then you know, there's increased social polarization and increased political polarization, all of that, and now we're at this very special inflection point for the artificial intelligence technology and how that's being disseminated and rolled out, and is that going to just widen the divisions that we have in our society.
All those things when we combine them, Yes, the economy is way more resilient than anybody expected in twenty twenty three. But longer term, that just tells us that we really need to be laser focused on managing risks for our client portfolios.
NIM.
With that type of backdrop in the economy, how are you positioning, what are you buying, what are you selling? When it comes to being a portfolio manager managing that money for your clients.
Yeah, absolutely so. For the equity portion of the portfolio, the best way we can manage risk for the client portfolios is to focus on high quality stocks. High quality stocks which are trying to to solve long term secular problems related to water and resource efficiency, related to aging demographics.
You know, those are the things that we're really focused on. Well, high quality companies run by very strong managements that are good stewards of capital and labor, and our adept at responded swiftly to any kind of changing trends that happen, be supply change, chain bottlenecks or anything else that might come up.
Right, what particular industries or sectors can you get into that to be more specific?
Yeah, absolutely so. Some of the companies that we really like a lot are the ones that are actually solving these problems related to water and energy efficiency. Some that come to mind right away are like a Schneider Electric. It's an European company based in France, one of the largest electrical products companies, and Schneider makes everything from switch gears,
circuit breakers, automation. They're providing products and solutions that are helping save energy, energy usage for companies, for buildings, for industrial processes. So that's a stock that we like very much. Similarly,
there's Eton PLC. Eton actually provided the results today this morning, again double digit growth in revenues, record margins, very strong backlock again very much driven by the same secular trends in decarbonization and increasing use of energy efficiency products because we're having this huge transition to a sustainable infrastructure, more demand for renewable transition to renewable energy sources and so forth.
And lastly, I will give you another small stock. Actually it's a company based in Milwaukee, Wisconsin, and it's Badger Meter and they make water meters, fluid meters, and their customers are utilities, moots of other type of businesses that are very focused on conserving water and providing high quality and pure water for customers. So again they're seeing record demand for their products and solutions as the demand for these types of products continues to grow.
So Nim, when you look at your across your portfolio, are you, guys, what's what's your waiting equity versus fixed income today and maybe and maybe other assets versus maybe more normalized time. Are you overweight equities underweight equities? How do you think about that now?
Yeah?
Absolutely so. One of the first things I'll say, Paul, we're the first to admit on the fertility of the short term macro forecast right. So we have a strategic asset allocation for equities and fixed income, and even though we have been coming into this year we were slightly underweight equities versus our strategic allocation target. One of the things that the equity portfolio has done quite well because
of the types of companies that we own. But looking forward, I think for us, we really don't want to get too worried about the tactical calls on equities versus fixed income. Fixed income is a very viable alternative for our clients now, much more viable than it has been for years, so
with a higher yield. So that's definitely close to our strategic weight on the fixed income there and for our equities, even though we don't see a major dislocation where we need to be overweight or even at benchmark, we want to have that drive powder available in cash, especially with the money market yields where you see them today, we want to have that small cushion available so that if there is a dislocation, we can continuously add that exposure.
Do you said money market funds? Something Paul and I discuss often, is it just as simply what you can yield in that space, and if so what's the catalyst for you to move that money toward equities?
Yeah, you know, Jess, it really comes down to you know, constantly we're evaluating the risk reward, right, so when we talk about being very risk aware, we're really focused on making sure that you know, what's the better alternative. So for the money markets, as a cash alternative has been yielding four and a half percent higher than that. That's
a pretty nice yield. So you know, if the catalyst to move that into fixed income would be if we start to see if we can long lock in higher yields than that over longer periods of time, that's always a catalyst. And then on equities if we see a major dislocation. So just to give you an example, some of our technology stocks. You know, as you know, the rally in the s P five hundred and and the major indices has been primarily driven by the Magnificent seven
so far. So and we've owned several of these stocks into this year. We will continue to own them because of the long term growth outlook, but we are rebalancing. We are taking profits on those stocks and putting them into some of the laggards for the year. So we will continue to take those opportunities, but we need to see a major dislocation inequities to start moving the yash.
All right, Hey Niamer, thanks so much for joining us. Neri kang Cio, Senior portfolio manager, north Star Asset Management, getting her call on this market that came in a little bit underweight this year.
You're listening to the tape can's our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and.
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.
Jasmin Good Paul Sweeney here in the Bloomberg Interactive Brokers studio, and we're gonna switch things up and do our c suite conversation of taking a look at what's happening with the first watch. This is Tickerson Paul FWRG. If you're looking at this stock up about two percent today after the earnings for the latest quarter. The profit in sales did beat, but they also did see some higher expenses there. But looking at this stock here date up more than
forty percent. So who better to chat with us about when it comes to this latest earnings report for the company as well as the outlook for the restaurant industry than Chris Tomasso, CEO at this breakfast and restaurant lunch chain here for first watch. Chris, thank you so much for joining us on zoom to chat with Paul and myself. I'll start off with talk to us and walk us
through this latest earnings report. And what you're seeing us for is when it comes to the consumer and spending, what it means for the economy.
Yeah, we had a great quarter. Overall. Top line performance was great. We were able to take a lot to the bottom line thanks to some relief from commodity inflation that we'd seen in previous quarters.
Our consumer has been extremely resilient.
You know, the restaurant industry has been challenged lately, but we haven't seen that. We've seen, you know, tremendous visitation and the consumer opting for the full experience when they come in our restaurants. They're ordering the beverages, they're ordering the add on. So, like I said, a great quarter by our team top to bottom.
All right, talk to.
Us about kind of where you guys are in your development here, how many restaurants you have owned versus franchisees and kind of what what's the growth plan.
Yeah, we have just over four hundred and thirty restaurants in twenty nine states. We're predominantly company owned. We're about ninety percent company owned. We have excuse me, eighty percent company owned. But we also announced with this earnings that we've acquired some franchise groups and converted those two company owned restaurants. So that's that's part of our overall value creation strategy as well.
We're exactly if you're looking more the demographics through the US, where are you based in what states?
So we're we're again we're in twenty nine states, but we're all the way from Florida up the East coast to New Jersey, over to you know, Illinois, Chicago, Milwaukee, and all the way out west to Denver, Colorado. But our big markets are Texas, Colorado, Arizona.
And Florida.
But we have a you know, a big presence in the Midwest as well.
So talk to us about I guess one of the issues just kind of inflation. How do you see it in your business model to what degree have you been able to pass along to your consumers?
How do you guys dealt with that?
Yeah, you know this this pass quarter, thankfully, we saw a lot of relief. We were in a unique situation last year where we because we're a breakfast and brunch restaurant, we obviously are heavily relyant on eggs and avian fluid was a issue for us last year. So we saw outsized commodity inflation last year and we're starting to see
that that temper. I will say that, you know, we were I would call us a laggard as it related to price increases compared to others in our industry, and in fact, in twenty twenty one, we didn't take any pricing at all, and our focus there really was on getting the consumer back in our restaurants, getting them back into a normal cadence of visiting us, and we didn't want price to be a factor that kept them from
doing that. So as we got out of COVID as a concept, we wanted to make sure that we came back strong, and so we've been very conservative in our pricing and we think that's what's led to our traffic increases over the past couple of years.
What are you seeing with labor costs in wages?
Labor costs continue to increase, We plan for that. We know what our labor and inflation is expected to be. Most of it comes from statutory minimum wage increases, specifically in three of those markets that I just mentioned to you that are big for us, which is Arizona, Colorado, and Florida. So we know what those increases are, those planned increases, and we know when they're going to hit, so we're able to plan appropriately.
On the competitive front, what is your or who was your kind of some of your main competition is like a Starbucks who's trying to brand you know, start of Coffee now offers so much more. Who would it really your competitors.
One of the most exciting things about our category, frankly, is that most of the meal occasions that at breakfast are still eating at home.
So that's our that's our main competition.
But if you think about it, you know anybody who's who's uh attracting a consumer in the morning hours as a competitor to ours, we really feel like we're differentiated. We have the speeding convenience of a of a quick server, a fast casual but in a in a full service environment using high quality ingredients. So we we offer a different occasion and a and a different opportunity for the consumer, and we think that's what's helped differentiate us for the forty years that we've been around.
How do you view the direction of the economy whenever customers are coming in spending.
So a typical bell weather for you know, seares of a consumer.
Pulled back, typically in the restaurant industry come from things like managing their check so maybe not ordering a beverage and having water and things like that. We've seen our dining room traffic actually increase over the last quarter, and also we're not seeing any check management whatsoever in the dining rooms. Where we've seen some pressure has been in the third party off premise channel, which exploded during COVID
and post COVID. In fact, we went from an off prem business that was about five percent of our overall sales to at one point upwards of twenty percent, and it's settled down now around eighteen. But you are starting to see not just with us, but in the industry in general, that third party delivery occasion, which is the most expensive way to use a restaurant starting to soften and we're seeing that as well.
So your company went public September thirty at twenty twenty one by our data here, talk to us about just discuss what was the IPO discussion for you guys. How did you decide upon an IPO and why did you do it with then and kind of what was the rationale for going public.
Yeah, So we've been the fastest growing full service restaurant company in America for the last three years, and I expect we'll get that title again this year with the growth that we have teed up.
We also have forty years of experience.
So we had been with three private equity partners and had just determined that it was the right time for us to go public as a way to you know, capitalize the business. And we had to wait for the right time with the market to be ready to accept the restaurant company IPO. And we feel like we kind of opened the door back to restaurant IPOs, which you've seen a number since then.
Hey, Chris, just about thirty seconds left.
But my restaurant analyst here Bloomberg just emailed in and said the one shift model is great for labor retention. Employees' work normal hours and love it. Talk to us about that real quick.
Well, your analyst is smart because it's it's definitely a key differentiator for us. Our folks work one shift to day, Our hours are only seven am to two thirds. They get to be home with their families at night, make a great living, and still have a work life balance and a quality of life that's really unrivaled in our industry.
Oh interesting, all right, Chris, thanks for joining us. Really appreciate you taking the time. Chris Tomasso, CEO First Watch Restaurant company. I was not aware of it. Now there's another one. I've got to go to.
Mars in New Jersey.
There are I looked at.
U did Sweet Green, yes yesterday. I'll do First Watch this weekend, and.
Then at some point Cava Cava. That's another on the list.
All right.
First Watch FWRG is a ticker stocks at a fifty two weeks high. They just reported some some good numbers, So everything's good there at First Watch based down.
In Florida, stock up over forty today. Yep, not too bad, happy shareholders.
You're listening to the tape Cat's Are Live program Bloomberg markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and 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.
Just men, Paul Sweeney here in our Bloomberg Interactive Brokers Studio, and of course we are live streaming this thing on YouTube. To just head over to YouTube and search Bloomberg Global News and that'll get you there. In our c suite discussion today, we'll talk reet. We do that with Jim Taylor, CEO Brixmore. Brickxmoor is a New York Stock Exchange traded company b RX as your symbol, about six point seven
billion dollars in market cap. I look at the comp function compel on the Bloomberg and it shows me over to the last five years, Bricksmoor has had a compound and on your return of about ten point four percent, and that compares very well with the Bloomberg Reat Index about three point six percent.
A good performance there.
The landlord behind retailer's TJ Max, Kroger, Dollar Tree Publics.
And also Jim thanks for joining us here in our studio. Thank you for having me.
Also, bed Bath and Beyond what I'm from the New Jersey so this is a this is a Jersey company.
They're gone.
How much exposure did you have the bed bath and beyond and what do you do with that space?
And what's the rent upside? Maybe I don't know, you know, the.
Rent upside is actually very significant. We're in a period of time where there's a supply demand balance that's very much in favor of landlords because there's been basically no new supply built over the last ten to fifteen years. So when we have tenant disruption, which you always have in this industry where a retail landlord, we're not a retailer, those tenants, when you get that space back, oftentimes present
a significant opportunity for upside for us. So we bring in better tenants, as I like to say, at better rents, specialty, grocer, value, apparel, fitness, health, wellness. These are the kind of uses that when you bring into what was a failing retailer, not only do you make a great return, but you help the balance of the shopping center and you drive docupency and rate on the small shops as you bring in a more relevant use, So I expect we'll continue to see some disruption. I
think the real question, and we've demonstrated it. Thank you for highlighting our returns is how you were on to it and is it an opportunity to create value for your stakeholders, which we see there it clearly is.
I didn't know this, he's a uva guy.
Oh there you go. What ships that have been crucial to your company have you seen over the past year? In what direction do you think this leaves the reed space moving forward over the next year.
Well, I think open air retail has been stronger for longer than people appreciate. I think it got caught up in the bricks and mortar retail is dead narrative for the last several years, which we weren't seeing. You know, our grocers were doing well, as you know, through the pandemic, they not only saw a bump, but after the pandemic they've retained it.
It's also a very profitable.
Channel for retailers wishing to connect with the customer. So as we move forward, you know, what's exciting for us is that we're seeing the funnel of potential uses to come in a shopping center as broad as it's ever been, so not only traditional uses like grocery and health and wellness, but all native retailers looking to come out of the mall, looking for lower costs of documancy, looking for more immediacy
with the customer. So as I look forward, I'm pretty bullish on the ability to continue to drive growth in returns given that basic supply demand picture.
What's a typical property for you? Guys like, what do you like to target?
So about seventy five percent or so of our properties are actually grocery anchored. What we like are larger open air centers, typically over one hundred and fifty thousand square feet, where you have a mix of anchors, junior anchors, and small shops. And the reason that mix is important is
you see demand fluctuating in those categories over time. Also with small shops, you're able to bring in vibrant small businesses and achieve better returns because you're able to grow rents and you see a little bit more turn than you see in the larger anchors. So that's why some of this anchor disruption is actually an exciting opportunity for us because it allows us to recapture that anchor space and put in a more relevant use.
It's interesting too that you're working also in the read space when it comes to these grocers like Albertson's that obviously has struggled a lot with rising costs, especially in recent years. What are you seeing in that space when you look at that particular company versus say, Publics and then Kroger.
You know, it's always been an intensely competitive space with very tight margins, and you're seeing a lot of innovation. Nonetheless, So you see the mainline grocers like Kroger and Albertson's and Publics doing well, capturing a lot of that pandemic bump and keeping it. But you're also seeing specialty grocers that offer a different value proposition. Sometimes it's more organic or higher ends. Sometimes it's just more value for the money.
So you're seeing folks like Sprouts, Whole Foods continue to grow, Aldi and others. In addition to you do have food being offered by some of the dollars stores as well. So an intensely competitive space in one that you know we've capitalized very well on.
All.
Right, If this next question sounds smart, it's because It came from Lindsay Dutch. She's a Bloomberg Intelligence ret an also covers your company, and she writes in and says, you came into the company at twenty sixteen, you transform the portfolio by updating centers, buying better ones.
And selling old ones.
So the question is how much is left to go in that transformation and how has the shutdown in the transaction market impact your plans to continue updating the portfolio.
Great question, Lindsay. So, we have about four hundred million of reinvestment underway today that's going to deliver at verioccreative yields, and as we've told the market, we have about another billion dollars of reinvestment opportunity behind that. Importantly, Paul, that's in what we own and control. We're starting to see the transaction market move our way in terms of valuations
of assets that we might look to acquire. Not anything yet, but I'm certainly optimistic that with the credit markets constrained, with asset level financing not as available as it once was, we may have an opportunity to continue to consolidate in a space that's actually owned about ninety percent in private hands, so the public companies collectively only own about ten percent of the shopping centers. So I'm hopeful and optimistic that
we'll see some exciting external growth. But importantly, we have a lot in what we own and control today.
Are there any red flags that are bubbling up at this point?
Well, I think you're seeing ongoing tenant disruption, but you know, that's an ongoing part of our business. And as I alluded to earlier, we're a retail landlord, not retailer, and it's important to appreciate that because we can see the retailer disruption coming from some time, and he gives us a chance to reposition put the company in a position to benefit from that disruption. But really, you know, the supply demand fundamentals are so healthy for retail landlords today.
I don't think that's as fully understood as it should be. I think people sort of cast retail real estate with the broad brush and sort of failed to see that there's been no new supply for the last ten to fifteen years.
Capital markets talked us about what it's like for your type of business.
You know, the capital markets remain open for us. We have access to the unsecured market, you know, don't like where our equities priced today, so not really thinking about that. But importantly, and it's a great point, we have access to capital and we have liquidity. We have over a billion three of undrawn capacity. We continue to reduce our leverage, We continue to harvest non core assets and have continued to park dry powder on the balance sheet.
Do you expect leasing activity to continue increasing?
It has in it? Well, you know, we have a forward leasing pipeline. This is robust, it's has ever been. We also have an additional fifty seven million of signed but not commenced rent, So these are commitments from retailers to open stores within our portfolio. That rent is coming onto our income statement over the next several quarters. So it gives us tremendous visibility on near term growth. And then behind that, as I mentioned, we have a very robust shadow pipeline.
Hey, Jim Bett, thirty seconds left. Oh, just gives a sense of kind.
Of what your geographical footprint looks like and maybe where the areas are for growth.
You know, we're a national company. We have large presence in the northeast down the coast into Florida. We also are significant in Texas southern California and the Upper Midwest. Our investment strategy has been to cluster our investments and markets.
Where we already are.
So if you look at our acquisitions that we have made, they're in markets like Florida, Southern California, Texas where we see opportunities for growth. But we've also seen pretty robust demand characteristics in the Upper Midwest as well. So expect us to not go into new markets, but the focus on those where we already have a presence.
All right, good overview, appreciate it. Jim Taylor, CEO of Brismore, New York Stock Exchange listed stock b r X is a ticker to load into your Bloomberg terminal and learn about the.
Retail landlord, not a retailer, but looking at how especially when you are the when it comes to Kroger, Albertson's, all these companies that it works with, it's really interesting to see how that space and the outlook is moving forward.
This is pretty good anchors to have in the marketplace.
You're listening to the tape catcher are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio. The tune in app Bloomberg dot Com.
And 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 Joining us now, The CEO of Uba, Dara Koshashahi and Blambagg's Emily chang with me on set in San Francisco.
Emily, thank you, and Dara, thank you so much for joining us. It's good to have you back. Look, I think investors are reacting to a bit of a revenue miss, but your first gap profit reported ever. Talk to us a little bit about the discipline here and what kind of choices you had to make to make this happen in this macro environment.
Yeah.
Absolutely, we're very excited about this.
It's a seminal moment for Uber to deliver gap operating profit free cash row of over a billion dollars just in the quarter, along with a really strong, strong top line. You look at a gross booking strow out that was thirty three point six billion dollars, up eighteen percent on
a constant currency basis. So I think the results both in terms of the top line and the bottom line have been second to none and certainly leading in our industry, and it has taken a lot of cost discipline in terms of really looking at making that perfect match between a rider and a driver, or an eater and a courier and a restaurant, and making sure everything in that transaction happens perfectly with no errors, no mistakes, no cancelations, et cetera. And at the same time it takes a
lot of cost discipline. In terms of overheads. Our headcount has been flat, and if you look at our headcount compared to twenty nineteen pre pandemic, our total cat count is up ten percent during those years, and our growth bookings in the core business has been up eighty percent versus headcount growth of ten percent. So it absolutely has taken that discipline. But at the same time, the company continues to innovate and gain category position, which is what it's all about.
Now you've formally announced that CFO Nelson Chai will be leaving the company, which Bloomberg reportart a few weeks ago. What is the interim plan and what are you looking for? Will this be an internal hire and external hire?
Yeah, so Nelson is going to be staying with us really through the balance of the year up until early January to make sure that we have a smooth succession plan. The next CFO is in seat and can be coached by Nelson as well. And really what I'm looking for
is another partner like Nelson. You know, Nelson came in in a very difficult time and teamed up with myself and the rest of the team, taking us through an environment of deep operating losses, taking us through the IPO, getting us a really strong balance sheet so that we could come out of the IPO and could deal with issues like the pandemic to where we are now, which
is a leading company. The next five years of her journey are about scaling and becoming that true global platform that can grow top line in a twenty percent range, can continue to innovate and continue to drive the kinds
of margins and the incremental margin growth that we've been driving. Historically, we told investors that incremental margins as a percentage of growth bookings growth will be seven plus percent, and consistently we've come in above that because we've been innovating but at the same time been disciplined at the bottom line. I'm looking for a partner who can deliver kind of the next chapter of our growth, just like Nelson did.
Ubertotot also to speak.
So let's talk about the executives wit, the broader executives. Weit in that next chapter. Your CTO left back in twenty twenty one was not replaced. How are you thinking about that role? Is there anyone particular in mind?
We actually our tech team is led by three different leaders. Sin Jeep Jaine, who's our chief product officer, really think about the rider app, driver app.
Eater app, etc.
Gus who's thinking about the core services, customer service, safety, insurance.
Et cetera.
And then Albert Greenberg, who runs the infrastructure. You know, we are at a core a technology company, and instead of having one tech leader, we have three tech leaders, and that team has come together to drive outsize innovation. When you look at driver upfront fares, when you look at our Uber teens product, when you look at taxi hailables, low cost, our entry into new verticals, there's no company in the industry that's innovating at our speed or scale.
And it's thanks thanks to the tech leaders that we have in house.
At this point.
To our global radio and television audience, you're listening to our conversation with the CEO, Dara Koshushahi following that earning sprint. You know, Dara, A look at the court of gone, number of trips, gross brookings, active drivers, demand and supply side all at records, strong gross booking forecast. Why isn't that enough to kind of raise expectations for adjusted a bit DON next year? You'd said in February, I believe it'd be around five billion.
Well, I'm not a stock analyst. I can focus on running the company. And we guided for Q three adjusted EBITDAL well above street estimates. We got her for nine hundred and seventy five million to a billion twenty five, which was a substantial increase versus expectations out there.
And consistently, if you look.
At our track record, we've put out targets, we've consistently beaten those targets, you know, by anywhere five ten plus percent. And we intend to beat that five billion dollar target, just as we've beaten every single target that we put in front of our investor. So we think continued discipline, execution, strong top line growth, increased margins and more of the same along with innovation is going to get us well beyond the five BILLI million dollars.
The innovation piece really interesting. I liked Emily's question about the tech leadership. M's been all around San Francisco and a cruise. I've been all around San Francisco in a Weyman, and I appreciate for our audience around the world. Jumping in a robotaxi with no driver is not yet a reality, but for lots of people that I asked on thread's Twitter LinkedIn, that's their question for you, Dara, when is Uber going to take that fleet of autonomous vehicles as more of a priority.
Well, we are very bullish on autonomous It's taking time. We have to make sure that the technology is saved and we're partnering amongst all of the significant verticals that
we have. What are the unique aspects of Uber is not only are we global, not only are we the largest platform with the biggest audience one hundred and thirty seven million consumers coming to us every single month, but we operate in every significant vertical for autonomous passenger vehicles with Uber delivery, food and grocery delivery, delivery with eats, and then freight as well. Autonomous trucks are absolutely going
to be a big part of our future. And if you look at each one of those verticals, we're partnering with leading companies Waymo for example in passenger vehicles, neuro and Serve, amongst others in delivery, and then in trucking of course Aurora, with which we have a strategic investment as well. So we absolutely believe that autonomous is going to be part of the future and we are working to expose our leading marketplace to autonomous technology as it develops in a safe, efficient manner.
Well, speaking of another kind of technology, artificial intelligence instacarts now out with the chatbot door dash as well. Is there an Uber bought in the works.
There's definitely going to be an Uber bought in the works. But I tell you that we have been working with machine learnings, artificial intelligence systems deep learning systems for.
Years and years and years.
Every time you get matched up with a car or get matched up with a courier, there are mL algorithms that are making that match. The pricing that happens time and day and distance. All of that is driven by machine learning algorithms. So that has been going on. Those algorithms only get better. In the data sets that we work with are the largest data sets globally, and the more data we have, the smarter we get, the more
personal we can get. We are now focused more on productivity applications, so for example, introducing GitHub copilot for our developers, or helping summarize situations for customer service agents so that they already know context of what's going on with a particular customer and how they can help. We will absolutely put our AI agents out there to help the consumer, but also don't forget about the driver drivers who are driving on our marketplace. They also want help. Where should
I go, what rod should I accept, et cetera. So we're also working on AI to power drivers and couriers so that they can make smarter decisions every day, to be able to earn flexibly, but to maximize their earnings based on their time.
So hang on, just to double down, there is an uber chat bought something that you're working on right now.
We're working on it right now, absolutely, but it's a very very small part of the AI ecosystem and.
Ver our global radio and television audience is listening to Uber.
CEO Dara Kushashahi.
Dara Uber is as close as anything the US and Europe has to an everything app, something akin to what you might see in Southeast Asia. So I'm curious how closely you're paying attention to your cross town neighbor, mister Musk and what X is doing within everything app.
Well, it's difficult to take your eyes off of what Musk is doing or read about what Elon is doing, and we do so because we want to learn and listen. It's pretty fun, but we are leading in terms of building out a super app. Remember to then in Southeast Asia, we have a very significant strategic investment in grab. Grab has has mobility delivery payments on their app, Kareem in which we have a big investment in middally same thing
mobility delivery payments payments as well. So we're very very familiar with a super app concept and in the West, I do think Uber is the closest to achieving that super app. We want to be that operating system for your everyday life. Wherever you're going, whatever you want to get delivered, Uber is going to be there for you.
And I think that we are steadily moving along the super at path, which is why we're gaining category or position against the competitors, both in mobility and delivery while delivering margins and being profitable as well.
Curious if freight is part of that super app plan, Dara. I mean even you pointed out today that that is the weakness in the business. It does seem to be a drag on the business. What's the plan there to sell it, to spin it off?
Well, the plan is to build at this point. So fred is absolutely suffering from the same kinds of trends that you see in terms of delivery of things in retail generally is a bit weaker than spend on services. You saw Yellow for example, big trucking firm go out of business yesterday. There's a lot of difficulty in terms of freight, in terms of freight raids, and freight is fighting its way through that. But we continue to innovate. Even today. The way that shippers connect to trucker is
incredibly outmotive. There's a lot of paper, there is so much data. The pricing, the routing, etc. Is based on technology that was built twenty twenty five years ago. As we continue to innovate and as we continue to focus on algorithmic pricing making that perfect match between a shipper and a trucker, we think over per the time we can build an asset of great value. So at this point it's heads down. The team is executing in a
tough environment. Our losses are decreasing. We think the second half on a bottom line basis, is going to be significantly better than the first half, and next year we're going to get back to growth.
Thanks to Bloomberg's Emily Chang in that conversation with Uber CEO Dara koshra Shahi.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
An on Fall Sweeney I'm on Twitter at Ptsweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.