Retail Sales and Previewing the Fed Decision

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Our Conversation of the Day in the equity market with Alisia Levine of BNY Prodigious Math Skills, and we're going to go to that right now for Global at Wall Street. I have never seen a market like this. What happened to Oracle last week? I know you don't do individual stocks. Never have I seen the jump condition we saw an Oracle. We are at Peter roorzag at Wizard is great about glide Pass. They all seem to be thrown out the window. How do we invest in a two part SMP five hundred.

Look at what happened last week was extraordinary and it reignited never the excitement over the AI trade. And also that it's broadening. It's not just for the same time.

You see it's broadening.

I see it broaden.

You and Jeff you agree on this.

Yes, I see it broadening, and the market the market actually is broadening.

I mean, that's the.

Talk about small caps, and it's definitely indication the equally weighted SMP is at all time highs as well.

I did not know that. Yes, let's the Alicia Levine magic.

So there is a broadening here. But yes, the move last week was extraordinary. And you have seen a market like this, and it was in the late nineties, and the question is are we in ninety five or we in ninety Ok, let's go.

There, let's rip it up. We're going to fundamental analysis right now. I'm sorry.

It's radically different than the late nineties because of free cash flow general directions, they're actually am I right, there's not going to be twenty twenty seven. Oh they actually weren't making profits in twenty twenties.

Okay, So on a relative basis, the tech stocks are cheaper than they were twenty five years ago. On a cash flow basis, they are just batting it out of the park on free cash flow margins. And on the operator you can.

Say, Aaron Judge, you won't insulveank.

So, I mean, these are different companies, but you know, keep the main point, the main point, which is that the FED is cutting into an increased earnings cycle. Okay, S and B earnings estimates are moving higher. The FED is cutting into it. Banks that are at are at all time highs.

Hence the melt up is about lead with us here.

There's interesting you say that the rally is brought in because we have critics saying and criticizing the fact that the top five stocks are driving twelve percent of the games this year. But given that we have Back of America releasing their fund manager survey, they said that equity allocation is at a seven month high. There's just a big jump in global growth optimism. But at the same time there's a record fifty eight percent saying that stocks are overvalued.

How do you square those two?

Well, because you have to be in the game.

I mean, when you manage a live portfolio and you're under allocated and you're waiting for that S and P target of whatever, fifty eight hundred and it's not happening, you've got to get invested in.

So far behind her.

Active managers right now to Isabelle's great questions.

So, I think in the US less they think they're less under allocated, but I think global managers are under allocated because the flee America conversation was everywhere. I actually wrote a piece about how ridiculous the Flea America trade is, because where where else are you going for innovation and global and growth and margins and earnings?

Power is about Lee Actually read your piece, so you know is about lead with this folks, and for Paul Sweety today, I see your nefarious deed here you are asking questions of the equity giant Alicia Levine for your print stories today.

I see what you're doing here.

I always watch Alicia.

She's such a smart talking head and she's also a fantastic female. We were just talking about shopping in France. But back to market.

It's luxury back. Oh, it's a sector back.

Luxury is back. Luxury is back. Look what's happened to household net worth? Okay, household net worth is up about seventy trillion dollars since the beginning of twenty twenty. That means households with financial assets housing and equities and socks and bonds and private equity are doing quite well.

We have the case. We do have the K shaped consumer here, but we've had it.

This is not new.

What's happening is that the top three Quinn tiles are seeing their net worth growing, supporting consumption even in the face of a weaker labor market.

Did you see that that, Tom, we have the most number of millionaires in New York than ever before, or something like that. I just know I'm working towards being one of them. But going back to luxury, how do you assess the health of American consumer? Do you look at luxury or mid tier or value? What is your favorite tier to look at?

Well?

Who luxury is everybody's favorite tier, let's just say that, but you really have to look at the mid range as well. We're going to get retail sales today, so we'll see where it's happening. I imagine there's some slow down. I think there is some anxiety in the labor market, particularly for the younger cohort and that's why the FED is cutting. But I'd say that, you know, for the most part, it's better than feared.

Right, And the conversations had gotten so negative.

I mean, we sat around this table, you know, the apocalypse in April, and you just invest right.

Through the number one negative folks.

Dana Telsea with this at eight twenty five, Alicia, if you want to stay around.

For forty minutes in the green room. You can come in and do Dana Telsis.

I love Data Telsa on luxury.

But to speak of the gloom China flat on their back.

And I believe we've got an equity lift in China and of course to Dana Telsea's luxury sector, that will bring a recovery there as a theory.

Right right, and because there'll be more stimulus as well, they'll be more stimulus from the Chinese government.

Let's get back to the bigger picture. What do people do?

You go into a meeting for BNY and I can't imagine the percentage of the people that have missed this greater Christmas Eve twenty eighteen bull market.

That's right, how do you catch up?

So we always say it's time in the market and not timing the market. So if you're completely under allocated and you come to us with cash, we'd say do a full portfolio allocation over the next three to four months, so you know, one third, one third, one third or twenty five percent, twenty five percent and do a full portfolio allocation. Whatever your risk tolerance, whatever your growth uh, you know, goals are. That's what we would say, it's

And what do we have.

We had spreads at historic tights. We have equity markets making new highs every day and very hard to get in. So where are we today. We're broaching the sixty seven hundred price target on the SMP that was actually my price target for year end.

We're there.

I think the good news is in, can there be a selloff on the news on the Fed? Like the FED cuts are already in the market, so it's hard to play future FED cuts like it's there. That's why you've had this voracious rally in the last four weeks, really since August first, since that first terrible jobs report and.

The revisions good one market.

It's actually incredible how the price targets are being revised higher and higher. I want to talk about one concern you have in your note. You said it's the monetization of capex and hyperscalers.

That seems so specific to me. Why is that your biggest concern?

So, because it goes back to the concentration of what's happening in the S and P, the margins on the S and P and the pre cash flow margins and being driven by the hyperscalers.

Right, So the large cab.

Tech operating profit is twenty seven percent, that's double the rest of the SMP. If they keep on spending on the capex and at some point don't bring that to earnings or bring that to a revenue line, then you have to question whether this is going anywhere.

We're not there yet.

You're getting paid to wait, but you have to see the monetization of all that CAPEC spent. So you're starting to see it with Oracle right like it's starting to happen in other companies as well. The market will soon choose winners from the AI race. Don't know when that'll be a dislocation of sources. But overall, the main thing is the main thing. Growth is inflecting upwards, not downwards. For twenty twenty six, consumer stimulus is coming from the

We are, Alicia, thank you so much. I'm serious.

If you want to stay around for Dana Kelsey, please you know it'd be great. I mean, we can spend the whole show just on Dior. If you know there's two front doors to Dior on fifty seventh Street.

I did not know that.

One is where you go through with the visit of Hayford All and the others are Missus King goes through to be greeted back.

We love well. I'll join Dana at your.

Yeah Data at your Alicia Luvin. Thank you so much. Stay with us.

More from Bloomberg Surveillance coming up after this.

You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern. Listen on Applecarplay and Android Atto with the Bloomberg Business app, or watch us live on YouTube now.

Two hour conversation in the eight minutes, plus retail sales at eight thirty with Dana Telsea. It is an annual visit in celebration of how thick Bazarre Magazine is. For this September issue, how did Giorgio Armani change the corner of fifty seventh and fifth Avenue incredible?

I mean, frankly, thank you for having me. Georgia Amani is to me is the one who brought luxury into the US on a European framework.

He brought Europe to America day. Thank you, Richard gear I mean that's basically what happened.

Yes, look at what he's developed, whether it is with stores, whether it's his whole be in terms of what it is, and yes, I think the later years were tougher than the beginning years, but there's always a place for ARMANI are you long luxury now?

As China finally tanked, and so the luxury that's tanked is going to be a buying opportunity.

I think it will be a buying opportunity over time. I don't think we're totally there yet. I still think you're having pressure points there. I think what you've seen is where anything's new and anything's innovative, consumers will purchase same old, same old.

Doesn't happen these days.

So Tom kept on talking about Dior and I really need to go in there, But for now, let's go to Tapestry. They had their investor a day last week. What were to takeaways that you got? How are the health of the American consumers through the lens of Tapestry.

Through the lens of Tapestry. It was a very productive investor day. The outlook is solid for the next few years. I would say that the core Coach brand and the way that they've been able to put in different items of collections like Tabby and Brooklyn have made it appealing. Plus they're capturing the younger customer. Every brand today needs to always be able to market to capture new customers, keep the old, expand with the new.

So Tapestry, there's Coach, there's Kate Spade, and it's the word Whitesman. I think there's gone with They're.

Sold Strut Whitesman that was sold to Kolaris a couple of months ago.

It's Coach and Kate Spade.

The playbook of Coach is going to be applied to Kate Spade and let's see what happens going forward.

What about Ralph Lauren they're having to investor day today. I feel like they say they're seeing revenue growth similar to reason rates over the next three years.

So is that good or bad? How do you read?

I think overall, when you think about Ralph Lauren and I'll be at their investor today, this day, today, this morning, I.

Think it's good.

I think how would you not want to go to? Both brand legacy and brand history hard to find, but Ralph Lauren, solid average unit retail price growth, You've got solid expansion of categories, whether it's women's, whether it's out ofwear, whether it's accessories. You've got global reach because frankly, in Asia they'll looked upon as.

Higher end still in that body, Yes they are Asia, and they've expanded their customer base.

Dana Telsea with a Telsey Advisor, a group.

I can't say enough about what she's done for securities analysis in New York City. It is an annual kickoff visit for September economic data. Here in two minutes, Okay, I look at the entire thing and at gunpoint missus Keane made me watch the Anderson launch it Dior the other night, a video and it's all the beautiful people. I was looking for you in the third, second, third row there, Dana Telsea with you. I don't even know who the half the actors are that were there. Everybody's churning.

Is are they going to sell off the brands? That aren't working. Is that the new.

New from that's I don't know if that's the new new for luxury and maybe for some of the accessible luxury brands.

Look what you had just announced.

Yesterday, v F Corps sold Dickie's workware, not a luxury brand. But you're seeing portfolio enhancement. You want to call a portfolio optimization. How do we get more from existing brands?

All the control room is Dickie's luxury ware? Is that a luxury stock? I think Dickie's is a luxury stock, isn't it. Yeah they're saying, yeah, yeah it is. So there's a restructuring in fashion. Is it still aspirational where people want the stuff?

Yes, it definitely is still abspirational.

And you know what's changed these days when you have TikTok, when you have Instagram, seeing it on real people makes it accessible to all.

And you're the one who told me that even if you can't afford the bags, you can afford the lipstick or the perfume, and that makes it fast exactly.

Well, you heard about lvmah, the Louis Vuitton lipstick one hundred and sixty dollars.

Let's come back and talk about the LVMH lipstick in one hundred and sixty dollars. We're a Dana Telsea this morning on Retail America, and you've got a revision where retail sales were revised higher. In the previous month. The control group was a zero point four statistic and it came in at a buoyant zero point seven. Some equity lift to the market and yields higher. Is well, where is it coming in retail? Is it big box retail? Walmart's just killing it? Is it a lost middle area

Bloomberg st I think the retail prop is in value.

The retail pop is with Walmart, it's with Costco, it's with the off pricers. You've seen a trading down of even higher end consumers and they're going to some of these value stores. And you saw it in second quarter earnings. Second quarter earnings which were reported the end of August essentially showed that even so far in the current quarter, sales are better than expected. Show them something new and they will buy.

So then how do you assess the health of the consumer when it comes to big box retail is like Walmart or Target. We've seen a divergence quite recently, right, and that was surprising to me because I usually clump them in one yep.

One of the differences there's basically micro relative to the company. Target has worked to do to improve their assortment, to improve their operations. There's a lot of store standards that need to be adjusted. Walmart is hitting on all cylinders and is taking share.

Well, they have a forty multiple. How does Joe Feldman, your colleague, respond to a single digit revenue growth? Making solid but you know, normal retail profits trading it a pe of forty. That's not in my textbook.

It's not in the textbook.

But the consistency of it, the market share gains that they have, the pricing that they offer, the value that they offer.

They unique in the world of retail.

Which companies are best positioned to absorb higher cast when it comes to this entire tire regime, and I suspect there might be a lot the top of mind, Can you name maybe two?

Well, I think of companies that can absorb pricing, pricing. The off pricers can absorb pricing because they're the umbrella for everyone else, So TJX, the Ross of Burlington, and of course.

Walmart Burlington socks. I always that was the socks they were when I was little.

Are they passing? Are they passing on tariff? Say at TJ Max.

You're beginning to see teriffs be passed on.

But it all starts from if the full price retailer passes on, then it goes to others. Also, it's expected that price increases, for the most part, will come fully into play in the fourth quarter.

One final question I got to ask, and I guess it's you know, I got to go to the New York City Angle a couple of years on. Is Tiffany worked out for mister Arnault.

I think it is working out.

They're getting more traffic, they're getting new designs. The new stores that they've remodeled have given a lift that they want't have seen before.

Are they still popping? In Japan? And I stood outside the Tiffany's store there in.

The Did you see the news store on the on the Ginza that has the blue outside?

Yeah?

Pretty yeah.

We supposed to fly over and look at it. And I'm like, no, I don't think so okay. And finally Isabelle was talking about this earlier. The Deer's Store is spectacular. Is that going to be the future of European investment in the island of Manhattan.

Is to do a door part of it?

Yes, I think for the ultra luxury companies, and that do your Store is going to be replicated in Beverly Hills because that one's opening in just a couple.

Of weeks after Lucas show. Will want to know about that.

Danny Telsey brilliant always in September important. She's with a Telsea advisory group with Joe Feldman on Big Box Stay with us. More from Bloomberg Surveillance coming up after this.

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven on Apple, Cocklay 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.

This is a joy as you get the markets open here at today. We usually talked to her by batphone. You know about the zoom out to Hollywood and Los Angeles.

Lisa Crawford is how to securitized research at TCW.

I got to ask you one question.

There's double majors in America, and I give Warden great credit for really to me doing the first double major. But Yale around Jonathan Spence and China's Studies and all that piece together a double major years ago called Political Science and International Studies, which is just phenomenal.

What was it like doing a double barreled thing at Yale?

Absolutely?

So, I chose international studies because I was raised to be a citizen of the world by my dad's We moved around a decent amount that was important to me that was only offered as a second major. So I originally had econ for my primary Maidie Sure. Then I looked up and I had a four point zero and POLYCI, So I decided I'd be POLYCI for my first major.

So you you you you changed your major because Schiller gave you a quality C.

I changed my major because I started applying to finance jobs and it looked more competitive to have a higher GPA for your for your primary.

Ruthless, What a modern discussion. I mean, it's just does everybody get a's today? Is there anybody get a B anymore?

I don't know.

I don't know any young folks, but some are doing past fail pass fail.

Don't get me going lazy craft for this or thrilled. She's in studio with us and it's on the fixed income market. How is your world of trust company the West? How is securitized research linked to the Fed?

Oh? Absolutely so.

Rates are obviously very important in multiple ways. I'll touch on too. So first and foremost, we've seen a nice rally and treasury and that's been beneficial for the agency mortage backed securities market and a lot of our positioning there.

You've got current coupon spreads.

Around high one tens right now versus that was as wide as kind of one nineties area late twenty twenty three before the Fed signals they were pressing.

So I've yeeled down to perfection.

It's beautiful.

How do you expect refinancing risks to evolve though in this year landscape?

Given the higher interest rate?

Sure on the commercial real estate side, we've had a great market to take advantage of for the last few years because of the dislocation from higher rates higher rates, it's established a bit of a K shaped recovery. So weaker assets that have seen significant value decline and have

Let's not jump to asset backs.

Find us because your notes were really robust that this space is not something I'm super inexpret in, but your notes are very helpful.

So in the ABF space, what.

Are some opportunities you're seeing and quote the different flavors of profile when it comes to that, any key risks in mind for sure.

So the acid back finance is the new term that everyone likes to use for less liquid securitized exposure, and we've always used it as a tool in our toolkit, whether it's to pick up incremental spread or scale access loans for better capital treatment for some investors. And then now we're seeing more of our acid allocator clients focus on dedicated exposure. They're typically trying to solve for better diversification in their portfolios, less mark to market volatility, higher

Yeah, that's what they said in two thousand and six.

Remember your clos and colos, squares and all that under whatever you said, asset based whatever. Give us an example. Is it like aircraft leasing or tractor trailers?

Yeah, so if I were to buy a collateral pool of aircraft loans or exposure to aircraft leases in a less liquid form, we could call that acid backed finans. You also see asset back finance active in fund finance more broadly, whether that's net asset value loans or subscription.

Line loans killing me.

I know, I know. Secure size is so fun.

Yes, And then you'll also see things like syndicated warehouse. I thought you might appreciate that as well, and you can add structure to that.

Syndicated where else they play toads in New Haven?

Back when you're there where Eliza Crawford, she's with Trust Company of the West tc W. Mark Pittman owned your world for Bloomberg. He won every award out there. His death was far too soon for all of us at Bloomberg. Mark Pittman would ask this question today, where are the shadows within the belief, the faith, the intellectual reach to do securitized finance where's the worry points like in two thousand and six.

Yes, so we're always mindful about what the underlying cash flows look like and what the principal value of anything we're lending on is. And so when you get into too much structural complexity, you need to very sharp on figuring out what your rights are, what your cash flows look like in your ultimate return on investment. So that's ongoing, and so there are creative structures out there that don't make sense.

So critically David Goldbenex Bank of America was iconic on this. It's a study of trunches. Yeah, where is the trunch risk?

Now?

Is it the garbage at the bottom of the deck or is it trunch risk in the price to perfection area?

It's really more I frame it more the bottom of the capital structure. So there's especially when we think about less liquid or if you call that shadows. You've got plenty of things that are considered private ig and private investment grade, and those are very high quality. But if you are to take something that might have a little more operational risk, or it might have a little more market risk than expected, and you trunch that up and you're taking first loss risk.

You are exposed if.

Something goes wrong with that originator or that collateral profile, that idiosyncratic risk, so you're exposed.

I was younger in two thousand and six. It's the same kindsation.

Continue in your note this got my interest. You talked about digital infrastructure. So within structured finance, do you think that digital infrastructure securitization will become a permanent asset class.

I do think it will be. We've seen it grow.

I think the first asset backed security was twenty eighteen, the first commercial MORGE backed security was twenty twenty two. There's so much need for in particular data center financing, that it's going to come through every debt pipe in the market. And then that being said, we're mindful for two reasons. One, there are better profiles and weaker profiles and different ways to take advantage of the market. And then additionally, the supply serge should at some point put

Is there a leverage in there hidden that we don't see, that we don't know?

All speak to the asset backside of private credit and the leverage that you might that might be more blatant. Is more of that kind of warehouse financing. Right, Ultimately, warehouse is levered profile.

So can you use the word mezzanine.

Yes, and mezzanine is live and well and so really it's picking your spots for the collateral profile that you're you've got some sort of exposure to and feeling high conviction about both the performance of that collateral and then your rights upon an event of default or some type of distress in the performance.

Eliza, thank you so much. LESA.

Crawford is of Securitized Research at TCW.

Stay with us.

More from Bloomberg Surveillance coming up after this.

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

Is about Lidan for Paul Sweeney this morning. That's a good thing. Is about Lian for David Gerr. That's an even better thing. Is about here this morning? And we do newspapers. Lisa Manteo all night's been working on it.

What do you got.

Okay, I want to start with this because this is about Amazon's Prime Vision. It's going to make its first appearance in the UK tonight. Yes, it's for the first round of the UEFA Champions League matches. The Tots will be there, okay, villere playing exactly. That's why I put it on you. So this is basically a feed for football or soccer fans that's going to have data graphics

The NHL does.

Something like this similar on there on their online and they started it in twenty twenty two in the US with the NFL and it really worked for them because it attracted that younger audience.

So yes, exactly.

Because Amazon has a momentum bar that shows which team.

Is more likely to score next.

Right, so all these kind of things playing part, they're saying that this is really gonna you know, they're trying it out in the UK.

It's amazing.

As in our control room for Bloomberg Surveillance, they have a moment.

The bar legs off pract and sends a message the momentum is lacking. On the momentum Barli Isabelle, you could jump in here on the newspapers.

I'm excited.

What Lisa, we'll talk about next? She sent us her notes early.

Oh yeah, orientation for Bloomberg surveillance. Next.

Here it is Okay, this is Washington, d C's first phone free bar.

It has opened up.

Okay.

It's called Hush Harbor.

And basically they want the owner wanted people to get back to the old days, you know, when you actually had conversations and listen to people and talk to them, and a girl gave you your number and you had to memorize it or write it down in a nap in, you know.

Like that kind of thing.

Please.

So basically, you come in and you take your phone, and the host gives you a little bag. You put it vacuum sale it magnetized it, and you can't unlock it until you leave.

Wow, that's the teation.

This is interesting because I've seen laptop free cafes, but I think that's really meant for folks not to hog the tables and so that they don't strived. Just six dollars and three hours there without spending anything more. But I like this because everyone is always on their phone. Sometimes when I hang out with my friends, we say put your phones in the middle.

Obviously that never happens to you.

It's tragic.

Somebody was saying to me, how do we set up the structure for Bloomberg surveillance? And I said, you know, some of it was longer interviews like Charlie Rose and Chris Matthews and others, but a lot of it is what Joe Scarborough invented over at Morning.

Joe, which is basically four.

People sitting in the student union at a given college with no phones. Can you imagine student unions today with cell phones to be terrible?

Brilliant?

One more, it was okay, Isabella, hear you're a bad Bunny fan? Are you? Are you?

Maybe I like him.

I learned at him because he was Kendall Jenner's boyfriend.

You know, Kendall boyfriend.

Now they're so encouraged.

I love it, ex boyfriend, I love it.

Okay. So he had this residency concert right in Puerto Rico.

It's been going on the last one is on Saturday, and some people, like my self, war fans haven't been able to go see it. So Tom, I'm going to play a little music here just because it gives me an excuse to play it.

My love.

Okay, now I set the tone right, Okay.

So this is it.

So basically, on Saturday, it's the last concert and now Amazon Prime is going to stream it live. It's going to be there so everyone can now see it. So whether you have Amazon Music, app, Prime Video, Twitch, it starts at eight thirty pm Eastern on Amazon Prime or any of those and you can watch it because people haven't been able to go and travel and go see it, so now everyone can enjoy the experience.

And this is this is like, yeah, this is another leveraging in this that Lucas Shaw talks about.

It's screen time, but this is also smart because I love how bad Bunny just really performed mostly in Puerto Rico. He really wanted to celebrate the culture. He didn't perform in the US, unlike all the big artists. Next he will go to Latin America and Japan.

There was a reason why, because he was afraid of ice agents coming and using as an opportunity to grass.

Oh yes, yes, and.

Some other artists have done the same thing.

So that's why he brought up We'll.

Talk about this later. I had this conversation last night and it wasn't funny. Good morning across the nation newspapers and Lisa Mantel, Yes you and we survived.

This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, seven to ten am Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal