Bloomberg Audio Studios, Podcasts, radio News. This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am
Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always I'm Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App. We're going to dive into the economic data right now. We've given Tiffany wild Over at PIMCO Newport Beach, California, time to do it. But Tiffany, I gotta rip up the script right now. The new CEO at Starbucks is going to stay in Newport Beach
instead of commute to Smarts. I mean, Tiffany, what is the attraction, the allure of beach versus him and the fam moving up to Seattle.
Well, I think it's your it's your favorite restaurant, Malarkey's Bye Bye by Fashion Island. But to be fair, the beaches here are are very gorgeous. It's like living in a resort community. It's it's very different than New York City. It's a very nice place to life, for sure. I'm not surprised they're killing me.
That's migrate to retail sales right now. It's just such a tough life for Tiffany. Wow, I got a nominal number here port and Tiffany as I got some revisions that are actually pretty quiescent. This is a constructive set of data, isn't it.
Yeah.
I mean, I think the bottom line is I'm just looking through this is is this completely confirms that the US was not in recession in July. And obviously the risks of that, or at least the the market's focus on the risks of that, were increased because of the unemployment report, and specifically the increase in the unemployment rate, which has triggered the so called SAM rule. Historically, this sm rule has been a good indicator that we are
in recession right now. But you know, as we've been discussing, there's good reasons to believe why this time is actually different with that rule. We've had pretty big supply side gains in the labor market over the last few years as a result of immigration and just folks coming back post pandemic, and that's not the markings of an economy that's in recession. This retail sales report just completely confirm that.
So on the retail sales at Tiffany again, I'm going to look at the control group. I'm not sure what's all excluded, but let's go with it. The control group positive zero point three percent. The consensus was a zero point one percent. What do you make of the US consumer these days?
Yeah, I mean, I think overall the consumer is still strong, you know, I do think that it's you have seen some deceleration in consumption at but that's okay.
We we were.
Living in an economy where you had a lot of above trend growth. Some of that was due to immigration, but some of that was due to just the fact that we had a lot of stimulus post pandemic. As that is wearing off, you're seeing things just normalized. So I would argue it's just a healthier environment for consumers. You're seeing them more picky, you know, with pricing. Obviously, we had the Amazon Prime Day and related promotions that
probably boosted nominal retail sales in July. But overall, I would say that we're getting back to normal for the consumer.
Okay, My problem is Tiffany, and it was the number one fight I had with a wonderful Alan Meltzer Cardegie Mellon. The average Newport Beach, California home price is three point three nine three million dollars. That's the average price wow off Zillow for the Tiffany wildhood three point ninety three million dollars. Tiffany, that's not America. How much of the buoyancy and retails sales is coming from ten percent of the public.
Yeah, No, you're you're absolutely right on the distribution of outcomes given wealth level, and we very clearly see that in the data. So you know, when we look at the retail sales number, that's the average consumer, and that hides a lot of you know, a lot of differentiation under the surface. And you're absolutely right. What we're seeing is that lower income consumers, you know, they they are struggling. You know, we are seeing more delinquencies on credit cards,
on auto loans and things like that. You know, but but you know, overall, you know, the consumer is doing quite well. The consumer in terms of its balance sheet. We came out of this recession, the pandemic related recession, with actually consumer balance sheets being stronger than where they were when we came in. That's something that never happens
in a recession. Consumers are also enjoying a lot of wealth that's been created in their the largest asset that they have their homes as a result of home prices increasing, you know, and a lot of them also have low mortgage rates still, so you know, I would say, you know, yes, there is some you know, differences you know, by income level, but overall, the consumers is doing quite well.
All right, the consumers doing quite well in general. We've got I guess inflation coming down moderating as we continue to see that in both the PPI and the CPI data. So what does that set up the Fed to do in September? Do you believe, Tiffany?
Yeah, I mean, I think I think there's when you have an economy that's getting back to normal, you need to have monetary policy that's also getting back to normal. And I think I think FED officials would argue that they think policy is in restrictive territory, you know, we would agree with them, you know, we do think it. Higher interest rates are restricting the economy to some degree, and just bringing that back to normal also makes sense.
And we think that's what they're going to start to do in September, you know, and they're you know, probably going to do that. You know, they could do it at varying degrees. You know, the market's obviously pricing in
some chain they cut rates by fifty basis points. You know, we we definitely we think twenty five is more likely, just because the economy is not going into recession, you know, so they can kind of do this in a you know, a measured paced way and get the economy back to back to normal.
And Tiffany, if you're sitting with the animals like Jerome Schneider and they're just snirling and they're angry, it's miserable out there at Pimco, Tiffan, You're you're talking to Jerome Schneider, and he goes, what's your GDP call quickly? Here? What's your real GDP call?
Up?
Twelve months?
Yeah, I mean so, so we're still looking for an economy that's doing quite well, you know, maybe not as well as last year. When it clocked three percent growth, but our forecast for this year is around two and a little bit below that, you know, in twenty twenty five.
Okay, so let's it's it's grim two point two percent. What portion of America is living Laurence Summer's stagflation beneath two percent or even feeling a recession when you're aggregating it two point x percent real GDP.
Well, I think that you know, the thing to remember is is that you know, looking back at the labor market statistics, the unemployment rate has been going up, not because people have been losing jobs on aggregate. We've actually had job growth over the time period that we've seen the unemployment rate rise. So you're seeing people that are coming back to the labor market, and folks that have entered the country entering the labor market, and the folks
that have jobs are keeping them. So that's not really the marketings of an economy that is stressed.
Tiffany, thank you. This is the Interview of the day from Newport Beach, California. She's a thousand miles from where she wants to be. Tiffany Wildly of PIMCO greatly appreciated in retail sales. Dana Telsea joins us right now. And for Lisa Matteo and Tom Keane who have children in All to Beauty, Why, Dana Telsey, you have an outperform on All to Beauty, Warren Buffet, listen to you. Why is alta beauty the future of my paycheck going out the door?
Because look what? First of all, thank you for having me. Tom. Great to hear and see you. I think, first of all, when you think about ALTI beauty in the beauty category, it basically appeals to so many different ages. You look at the categories within it, whether it's skincare, whether it's makeup, whether it's hair care. A lot of innovation. You see that your daughters, they're basically being attracted by all the new initiatives, all the new brands that are out there.
There's a sustainable, clean emphasis on it also, and people have fun with beauty, especially today given that we live more in a zoom society than we do a pre pandemic. So whether you're seeing people in person, whether you're seeing them on zoom, all the beauty gives the opportunity to look good with all different brands and all different categories.
I'm glad we have hair routines. You'll love their best back to school hairstyle. Great. What are they doing? Why are they distinctive versus Sephora to mister Buffett?
A couple things. First of all, the stocks come down a lot. It used to be trading it around forty times. Now it's trading below twenty times. You think about their customer base. They offer from mass to prestige, so a wide income span. They have hair salons, so people go there for services too. When you go for service, there's an attachment sale that rings up with it. When you look at their locations, they have very close destinations and there a lot of them are outside of them all
so they're convenient. And now with a new five thousand square foot box that they're testing, there's even potential to go into some smaller areas. So you've got breadth of categories. You've got closeness and convenience, and you have massd to prestige. And with that, the grandmother, the mom, and the daughter.
Hey Dan, I'm looking at Walmart here. They reported numbers here this morning, beating estimates. They raised their sale guidance for the full year. The stocks up nine percent pre market. What did you take away from our friends in Mettenville.
I thought, overall, excellent execution and look what they're doing. They're gaining share. If they can say they've gotten a bigger share of the wealthier consumer and they haven't seen any weakness in some of their core customers. What does that mean to me? The dollars that the consumer has they're allocating to Walmart, and their more effectiveness in their category offering and their price offering and the meaning of value their share gainer.
Dan, I want to talk about luxury here because there's a lot of negative talk about it, and there's other things doing well, different companies, selective, but I'm witnessing some a name I didn't even know, Roger Vivier. Basically, folks,
i've been editorial is on fire. They've got a thing where Laura Dern they're doing with their daughter, and their internet exposure of shoes nobody can afford is like unbelievable, Dana, tell us, just give us one vignette about how a brand like Roger Vivier gets a moonshot in the summer of twenty twenty four.
I think what you said a little bit of collaborations of who's wearing it like Laura Dern. Check out their store on Madison Avenue which they recently reopened, renovated, and you have a very iconic offering in terms of what their shoes are and certainly the emblem that's attached to it, and they've modernized it. This is an example of intentional buying. Brands is driving demand and you have intention there. It's an iconic offering and it's back in vogue again.
How can our listeners and viewers profit from things like Roger Vivier.
I think overall, when you think about some of the lux brands, you take a look today, Tapestries results were very very good, high gross margin, new customers are transacting
at a higher average unit retail selling price. So when you think of brands that have they say what they do, they do what they say, and they stand for something I think you have, whether it's LVMH, I don't think that while their sales growth may have slowed, the brands and how they innovate and create demand, it's something that's so unusual and compelling.
Dana is such a retail animal. Did you hear what she just said? She said customers are transacting. That's Dana Telsey talk for spending.
Months clear and Dana, I have no idea how Tom Kean knows about Roger Viva shoes. But the Vi skate metal bucket sneakers in soft leather and white retail one thousand, seventy five dollars. Yes, there you go, sneakers, one thousand dollars.
There you go.
So talk to us about data about in the in the luxury category, where's China? Where the Chinese consumers?
They say slowing down. The Chinese consumers are slowing down. They're spending within China, They're not traveling as much as they had a lot of them are buying some local Chinese brands and companies are having to work harder with their marketing dollars in order to win business from the Chinese customer. And you've seen it among many different brands
out there. There's still opportunity going forward in China, and I think the specific marketing to that core consumer within China is really what's going to win the day, and we're seeing companies refocus on that.
Are companies still I mean again, China's a huge market has been a huge driver of the luxury space. How do luxury companies how do they operate in China? Are they still investing in China because a lot of industries away from retail are really concerned about that.
They are concerned about it, but yes, they are still investing. The ability to have a physical footprint basically provides the brand awareness. Have goods that are exclusive to China is key because when these are traveling outside of China, they have to know that they're getting exactly what it looks like in China and its authenticity. So being able to show what that brand aesthetic means is key for getting them to transact in other places when they travel.
Dana Telsea Advisor your thoughts on walmart It's future out five.
Years, stronger and bigger and being able to capture a wider consumer base. The physical footprint will be even more omni channel than what it is today, and I think the marketplaces area and the whole omni channel initiatives are going to be made easier. I think the seamless ability of Walmart to capture more households what you're seeing now with even wealthier consumers buying from Walmart makes it easier. It's value and convenience that's the synonym for Walmart.
Dana Telsea. Thank you so much, just brilliant there. Particularly, I really appreciate the altered conversation. Lisa and I commiserate over that. Thank you for the international response to our covers of the Mars transaction with Kellogg's over their snack foods. We wanted to go out across Wall Street to the east side, not the cell side of the byside, but people that actually try the product, joining us now with their full teen coverage of cheese its amand align them for blackrock as well.
So jalapino is the way to.
Should I go with the duos where that I split it between a jalopino and the traditional.
But you do have to you do have to try the house.
Okay, we will try that at our house. Not for me, but howipinos is very big. I swear, folks. This is our final discussion of Jesus, other than congratulations to the Mars people, the Mars family thirty twenty nine billion dollar transaction, six billion dollars of debt, Good luck with that on the bond market is showing a new message off the equity panic of eight days ago? Is there a new tone to your fixed income space at Blackrock.
So actually, in good morning, thank you for having me. The credit markets resilience was probably the big takeaway over the volatility of the past two weeks. You saw markets, the volatility index, the VVIX, certain parts of global equity markets set new post financial crisis records or even pre financial crisis records. Actually credit spreads didn't even come close to their median or the average over the post financial
crisis period. So I would say the takeaway is that credit held in better than other asset classes all things considered, and actually we saw better buying on the little bit of widening that we did have, and we've at this point retraced depending on the asset class and the rating, around fifty to seventy five percent of the widening that we saw. I think there's a lot of kind of uh focus on the resilience of credit spreads and kind
of why this is happening. Obviously, lots of well telegraphed reasons for that in terms of sector shifts, in the composition of the index, rating shifts, but one of the points I think that's actually not discussed enough is that just companies are staying private for longer in this new cycle, and by the time they actually issue into the public markets, they're larger and more diversified.
And so that's why credit, we believe is holding in better.
How much credit risks do you want to take? I mean, I mean I considered it to your treasury where I'm happy to hang out at four percent here, how much creditists do I want to take?
We like owning, we like taking credit risk. I think one of the actual interesting things. And you can see this on the Bloomberg Intelligence data. Actually on the terminal, margins for high old credit have been improving over the past few quarters, which is a bit of a counterintuitive results.
What mean what does margins for credit?
So margins for your highield index you have the LF nine eight Highield Index l uac IG index. Actually in n aggregate, the margins for the high old universe have actually been improving. So in this in this kind of era, focusing on a higher cost of capital, a slow down in the economy, you would not expect ebit on margin.
How many basis points? How many percentage points do you pick up on a high yield Amanda.
Line M piece yes.
Versus full faith and credit or some triple A Microsoft.
So the spread, the actual spread on the highled indexes around three hundred and thirty eight basis points over treasuries. Yes, yes, but actually when high old investors are deploying, they're focusing more on the dollar price in the yield. The yield on the high old indexes around seven point five to five percent, so that's a meaningful cushion in terms of when you're actually deploying capital in this credit market that you're at, you're able to earn a pretty attractive on
yield in IG for comparison, that's around five percent. We've seen significant demand for IG at five and a half percent yield, so we're slightly below that given the rate move. But in general, I think so long as you expect trend or ideally above trend and growth and we're actually there, we're at above trend now, that's actually a pretty supportive outcome for credit.
For these credit people argus them, I understood that, I think Tom. I think if you're a salesman on Wall Street, you know, credit salesman, and you got a new issue, is the first company called black Rock?
Yeah it used to be, but you know, Larry's been working so you.
So you called black rock. What's your interest in new issues? When when Wall Street calls you with a new issue? What are the things you look at?
So, in general, new issues have been an attractive way to deploy capital because they often come at a discount to the existing debt.
We call that a concession.
Sometimes those concessions are large. More recently they've been quite modest, but still it's an attractive way to deploy capital. The really interesting thing, and we're actually writing about this this week, is that supply in the IG market has outpaced the monthly average every month so far this year, despite the higher rate environment. Right in high yield, it's outpaced most months. So what that tells you is that corporates are not being sidelined by high rates.
They're moving forward with what they need to do.
The other interesting point, strategic M and A acquisition activity is actually tracking well above the twenty twenty two and twenty twenty three pace, and it's actually only six percent below the tenure average. So there too, like the news that we've seen recently, corporates are moving forward with strategic plans despite the higher rate environment. But I think the one point on supply that I would make. It does feel like this is a bit of a pull forward
towards late in the year. We're running well above what would typically be implied for the summer, so I would expect to slow down, but we haven't seen it yet.
Okay, fine, But to get to the real world where Mars is a private company takes out holipedo cheese, it's yeah, I get that, and forget it. You know, Mars has their own way. How do people finance those large transactions? The big munk's out.
There, yes, yes, So it depends in aggregate. We've seen cash only deals represent fifty two percent of the year to date volume, which is actually slightly above the longer term trend.
Stock only deals are actually also.
Above the longer term trend, so that what's actually narrowed is the mix of cash and equity transactions. It's a little bit misleading to call it cash in debt though, because for a bondholder, when an acquisition is funded with cash, that can either deplete the excess liquidity on the balance sheet or ultimately it gets replaced with debt. So so from the perspective of a bondholder, we care how this is funded.
We're taking I'm taking here. Everybody in the room is just staring across the Javit Center and amand alne them going, it's not fair curve, Amandon, You're going to ruin the curve.
How about the private credit? How do you guys think about private credit? I mean, how does that impact your business?
So we actually think about private credit as this third and viable funding option for a wide range of corporates in addition to the traditional bank lending channel and the public debt markets.
That wasn't the case several years ago.
That's because private credit has now grown into a sizable and scalable asset class on its own right, so it can compete in areas where it previously could not. We think that that kind of ability to coexist peacefully with the public debt markets is here to stay. We expect the mixshift between the two markets to EBB and flow
over time, depending on market conditions. Probably the most notable thing that I've seen is that companies with demonstrated access to the public markets, either high old or loan, are actually choosing in some instances to refine in the sul Mars.
As Thomas just talking about the Mars transaction they're going to finance this, they said, with cash on hand and then with new borrowing. So presumably they're going to go to I think it's JP Morgan and City are their bankers on this transaction. They'll see what kind of I guess credit terms they get from them, maybe the public markets as well. They'll hear from their bankers about what they can do in the public markets. Will they also go out and put bids out for private credit use?
So leaving that transaction aside, it is common to see what we call dual track processes where corporates cfo's treasures evaluate their funding options in both markets, just like anyone would do in terms of do I issue a high
old bond or a leverage loan? Right, that whole kind of slate of financing opportunities isailable similar time to your point on the M and A funding mix, that's a decision that corporates make depending on what is the balance sheet capacity that they have to add debt at the ratings where they're comfortable, where is their stock price in aggregate, I would say that that funding mix for M and A is tracking in a fairly kind of benign way
for bondholders, meaning not skewed super strongly to debt, but it does matter a lot under the surface depending on the sector. And as you can imagine, there are certain kind of cash rich sectors like tech.
And pharma that are leaning more heavily on cash and debt.
What will mag seven do. I find it, from a z body at Boston University's standpoint, almost immoral that they haven't popped out to ten or twelve percent.
Yeah, Well, in general in the credit market, as you know, that's a much smaller section of the credit market relative equities leverage, net leverage is still really low for that sector in aggregate, So I think it's reasonable to assume that when they're adding debt, they're just moving closer to their leverage target as they build that up over time.
Amanda, thank you so much. I'm n aligning with us at black Reck just to clinic there, darn. Look at the front page is a Lisa matteo our What do you have?
All right?
So we just talked about you know, Starbucks new ceo not working in you know, Seattle. Google's x CEO. He's talking about the work from home. He's actually blaming it in the company's losing battle in the AI race, so he's saying, Eric Schmid, he's also the former executive chairman.
He said this during a talk at Stanford University. He was responding to a question about Google competing with Open Ai, and he said Google deciding that work life balance and going home early, working from home was more important than winning.
So that was a shot right there.
He also said startup work is important because people work like heck to get those startups going.
Yes, you gave me.
I did give it before you.
Know, but you're right. I mean, Lisa, I mean the startups. I mean he's right on that. I mean you talk to folks that work in the startup business. That's their entire life. They sues them day and night, and they're just it because it's make or break. You either make it or you go bust, and so they work like crazy.
To disclose a loop on this. To The Wall Street Journal yesterday, mister Schmidt said, quote, I misspoke about Google and their work hours. Schmid said wednesday in an email quote, I regret my error. They'll push back. Must have been something, yep.
But he joins a long list of corporate leaders including JP Morgan, Chase CEO, Jamie Diamond and testa CEO Elon Musk, who have complained about work from home policies, saying they make companies less efficient and less.
You know what it needs to do out Stanford Pellow alto go see you. Professor Booth Nicholas Booth has really led on this and actually studying the issue. In a lot of tycoons like Eric Schmidt will say I really don't care or I don't believe. But the answer is, at the minimum, it's raging debate. Ly's I see it in the streets of New York. I mean, I'm a thunderstruck at Lexington and Park Avenue. I mean, I know there's a summer slowdown. I get it, sure, but it was more Now work from home?
Next?
What do you have?
This new study shows gen Z voters don't want social media restrictions. Shocker here, gen Z voters they don't because there's all these talk about regulators trying to cut back and get some tough regulations on these social media apps to protect kids. But these kids gen Z, you know, I'm twelve to twenty seven, They're saying they don't want the restrictions. There was a sety out more than sixty percent new voters oppose requiring kids under sixteen to ask
for their parents permission to use social media. The reason why this is important, though, is because gen Zers more than are getting closer to that voting age, so they're starting to have a say in this. And there's such a huge proponent of social media. I mean, most of the gen z is the most active people on isn't the.
Biggest debate here on August fifteenth or whatever it is? This whole idea. A lot of schools now are saying leave your cell phone at the door. Yeah, to me, this is a lot bigger deal.
Yeah, yeah, exactly. I mean I think that's a lot of schools in a lot of states, but actually not a lot of states. I think there's about eight or nine states that have had some legislation saying, you know, you got to put your phone here in a secure place. You're not taking into the classroom.
Right like my daughter, Yeah for dinner, Yes, we do that too.
No cell phones, phones, households.
It is bill, all of you misskiing my phone. All of them get lined up good, but then we all dash for them afterwards.
I don't want to serve you go for the phone.
No, but it's true a lot of them, like even my daughters school. You got to keep it in the backpack. But there is notifications too, Like the kids turn on notifications for social media, so their phone's constantly dinging, you know when they get like some kind of posts or someone responds to them. So it's distraction. Okay, we've been talking about, you know, grocery stores, a growing grocery built well, grocery stores are now getting selective about their shelf space.
We talked about them leaving more space for the store brands because people are switching to the store brands that see you've done it, I've done it too. So you see the grocery aisles starting to change.
Now.
These major food.
Companies they're fighting for the shelf space. You know that they once had that major part of it, and now they're fighting for it for the store brands who are getting you know, some more greater competition there. They're trying new things, they're trying new products, they're trying to work to ensure they're packaging prices appeal to shoppers. But the thing is, yesterday.
I learned a new term that I had not heard before. It's called inner store. Jen Bartash to cover supermarkets grocery stores for Bloomberg Intelligence, just throughout this term innerstore, and like what's inner store. That's the stuff that's like in the core of the supermarket, and that's like the basics, soups and things like that. The outer of the store, the edges of the aisles, the ends of the aisles are the higher margin stuff and where they tend to
have maybe some promotions and things like that. Where the basics the stuff you just have to get every time that you don't need to promote, you don't need to do anything that's in there. I don't.
I'm in the camp that everybody's buying the same thirty seven products. Try to get a court or a half gallon of one percent milk. Good luck with that, all sold out. Butter gone. Everybody wants the same. It's an Irish butter yes, but.
More Yes.
Your favorite topic break dancing in the Olympics. So there's actually some controversy around it now because there's a breaker from Australia. Her name is Rachel Gunn her aka raygun She's from Sydney. She's a Sydney University professor. She did this dance it was called like the Kangaroo dance. She did some other weird moves, but she scored zero points. And the thing is that a lot of people are making zero a lot of people making fun of her. They went to the late night talk shows. But there's
actually an online petition that's criticizing her. So now you have the Australian Olympic Committee getting in the middle and saying, hey, leave this one alone, like she you know, we represent you know, we're we're behind her. They support her, But the question is will it come back to.
The elete some Olympic sports? How does something get approved of be an Olympic sports?
A lot of politics? I guess I don't know.
I mean, did Rich Truman agreed to say breakdancing?
I mean, I don't get how you have breakdancing you don't have like softball or basically, yes.
Potaged Lisa's hair in glam Rock, Yes, totally. Lisa is out on Long Island jon Jets playing Thursday Night. She's got the five inch platform, you know, the shoes on the glam Rock hare. We did boy bands yesterday. Although the emails are so kind. This is the Bloomberg Surveillance podcast bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube.
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