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- [00:00]
Carol Massar
Bloomberg businessweek is brought to you by Evolving Money, a podcast that explores how cryptocurrency is the next logical evolution of the financial system. Follow the podcast, which is sponsored by Coinbase. Wherever you get your audio programs.
- [00:14]
Tim Stankewicz
There's no championship league for small business owners, but if there was, you'd be at the top of the standings. Because going pro with Lenovo Pro means.
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Erica Gessert
You'Ve got the winning formation.
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Tim Stankewicz
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Carol Massar
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Erica Gessert
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Chris Whalen
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Erica Gessert
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- [01:17]
Carol Massar
Bloomberg Audio Studios Podcasts Radio News this.
- [01:23]
Tim Stankewicz
Is Bloomberg businessweek Daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy. Plus global business, business, finance and tech news as it happens. The Bloomberg Business Week Daily podcast with Carol Massar and Tim Stanweck on Bloomberg Radio.
- [01:46]
Carol Massar
Hi everyone. Welcome to the Bloomberg BusinessWeken podcast. Well, this past week earnings from the king of the AI bellwethers amid nervousness over the artificial intelligence buildout and spend. Also concerns regarding credit stress in private markets. Plus the start again, Tim, finally, finally of some US Government economic data.
- [02:07]
Tim Stankewicz
We're just getting caught up when it comes to the releases.
- [02:10]
Carol Massar
We are. And it's they're coming in funny ways and on funny days. Like it's throwing us off.
- [02:15]
Tim Stankewicz
It is, it is. But it's okay. We'll bring you all the updates as we get them. So this hour on the US labor market, we're going to catch up with the CFO over at upwork. Also some of those risk concerns about the spending in circular financing of the AI buildout. We've been talking about that a lot. Also the not so transparent works of private credit. We turned to someone who we turn to a lot during the great financial crisis, the former investment banker Chris Whalen.
- [02:39]
Carol Massar
Plus also glad that we could catch up with the CEO of Connect One Bancorp again on lending on the Fed on affordable housing. That was a really fun part of the conversation. We did talk about rent stabilization and the business environments his bank is involved in affordable housing in New York City. So that was a fun part of that conversation.
- [02:58]
Tim Stankewicz
Plus, later on, how brilliant leaders unlock collective genius, Crypto feeling the pressure, and the inescapable business of beauty.
- [03:07]
Carol Massar
All of that to come. We begin with a look at the US labor market. Thursday of this past week, not on Friday, which is when we normally get monthly jobs reports from. The Bureau of Labor Statistics released its hotly anticipated long, long delayed September jobs report. And what was good about this data batch? Tim? They had actually collected, I think, all the data they need to do this report just before the government shut down. So it was pretty complete.
- [03:31]
Tim Stankewicz
What we found out. The job growth picked up in September, the unemployment rate ticked higher. Suggests that the labor market showed signs of stabilizing before the government shut down.
- [03:39]
Carol Massar
Meantime, the BLS also said it will not publish an October jobs report. It did, however, note it will incorporate those payroll figures into the November report. Are you keeping track?
- [03:51]
Tim Stankewicz
Yeah.
- [03:51]
Zach Pandel
No.
- [03:52]
Tim Stankewicz
This is why I'm glad I sit right next to Mike McKee, because if I ever have questions about this, I just turn around and I say, mike, what's going on with this?
- [04:00]
Carol Massar
Well, and keep in mind that November report will be published in December, but it comes after the Fed's final meeting of 2025. Did you catch that? Do you need the whiteboard screen? Do you need me to send a little note out?
- [04:11]
Tim Stankewicz
No, I don't because I have Eco go on the Bloomberg terminal and that's all I need.
- [04:15]
Carol Massar
All right, well, listen, we nonetheless, as the data starts to come out finally from the US Government, we relied once again on Erica Gessert. She's the chief financial officer at upwork who talked about the labor market. Yes, of course. She also gave us an update on the company's investor day.
- [04:29]
Erica Gessert
Our investor day was really timed perfectly for us. The reason our Stock went up 13% after our earnings report was at the end of 2024. We told our investors that we would take a year and really reinvest in our company and rebuild upwork. And we said that we would return to GSB in revenue growth in 2026. Well, we did that 2/4 early. What we told them then was that our results are going up and to the right right now. And that is because of really three investment areas. One is AI, one is SMB, expanding our relationships with SMB, and one is the outsized opportunity that we have with large enterprise.
- [05:03]
Tim Stankewicz
So I want to remind everybody, upwork is a hiring platform. You can go there to find talent in development and IT services, design and creative sales and marketing, admin and customer support. It's this two sided market. So.
- [05:14]
Erica Gessert
That's right.
- [05:14]
Tim Stankewicz
You have a good view on what exactly the type of job that companies are hiring for and then also the availability of that labor. What does that picture and that balance look like right now?
- [05:24]
Erica Gessert
The last few years have been, as we all know, tough on the, on the, the job market. And you know, most companies in our industry were down double digits over the past few years in terms of both volume and revenue. Upwork was relatively flat for the past couple of years. So we, you know, we were, we were gaining share against staffing companies, even other online marketplaces, but still relatively flat. And it's really these investments that we've made in AI, we're actually seeing both the AI category itself increase and that is really, like I say, accelerating. So this is, this is AI work on the platform, but also the investments on the front end. So if you think about the hiring process and how that works, there's a lot of friction to it. Right. A client comes onto our website, they post a job, they have to write it up, they have to search for talent, the talent has to write a job proposal. Well, now AI does all of that for both our clients and our talent and it's making them find each other faster and kind of fulfill these jobs and get them done quickly.
- [06:18]
Carol Massar
Those matches work like what percentage of the time or where is it that it's like not, not good?
- [06:24]
Erica Gessert
Well, no, so what the AI is doing is it's writing the job post, it's writing the job proposal and of course that, you know, there can be editing. Yeah, but, but now we do have AI interviewer and we also. One of our, one of our most successful very recent launches is uma, which is our, you know, our companion on our site is now recruiting talent. So, so the client asks for a certain type of talent. UMA goes out within our, you know, 18 million strong talent base and identifies the right talent for that job. Now we're seeing fill rates much higher using the AI recruiter than with a human recruiter. Why? It's good at spinning lots and lots of data. Right. And so, you know, we've been building, our platform is over 10 years old and we've been building this data set of, you know, what types of jobs match with which talent. You know, whether client is price sensitive or you know, maybe they're quality sensitive. And so the recruiter, the AI recruiter is much better at scanning across all of this data than a human can be.
- [07:19]
Tim Stankewicz
Are you Seeing demand stay stable, decrease or increase from the side of your platform that is looking for the workers.
- [07:28]
Erica Gessert
Yeah. So client demand, and I think, you know, what we are seeing is client demand has been where we have seen the biggest impact from. I would say the job market and the economy writ large.
- [07:38]
Tim Stankewicz
Meaning, like if the economy's softer, then demand will go down from the client side.
- [07:42]
Erica Gessert
Yes. And if you think about that, if you think about our online marketplace is primarily SMB customers. Right. And so small and medium sized business, small and medium sized business. So if you think about what's going on there, when inflation is high, you know, you know, this hits consumer wallets, it also hits SMB leaders and, and then also when interest rates are high, they have lower access to capital.
- [08:03]
Frank Sorrentino
Right.
- [08:04]
Erica Gessert
And so we do see the demand environment in terms of just pure volume of SMB hirers relatively flat in this, in this, you know, right now. But, you know, we are one of the few places where these SMB customers can actually access very high quality AI talent and afford, you know, in an affordable way and quickly. And so as they're trying to implement AI work within their businesses, this contingent marketplace that we offer is one of the best places they can find.
- [08:30]
Carol Massar
What's your take on AI and the impact it's going to have on the labor force?
- [08:34]
Erica Gessert
AI is not going to replace humans. Humans with AI will replace humans without AI.
- [08:39]
Carol Massar
Right.
- [08:39]
Erica Gessert
And so we're seeing AI replace very simple tasks, but not, you know, the larger, more complex work, because these agents are not that agentic. They have no judgment. They cannot complete complex tasks. So what we've seen over, well, what we've seen over the years is jobs that are $300 and lower. Those have, those have gone down on our platform. So about two years ago we had about 5% of our work was job $300 lower. Now it's about three and a half percent. But at the same time, the AI jobs on our platform, clients who engage in AI work spend about three times what our normal kind of platform work does. And so, you know, we see that growing and growing because that work is more complex. It requires humans and, you know, humans using agents, but it requires humans in the loop.
- [09:24]
Tim Stankewicz
That was Erica Gessert, CFO over at upwork.
- [09:27]
Carol Massar
Okay, so the US Economy continues to be front and center and what it means for Fed policy so important. But also this week, crucial earnings report from the largest market cap company in the world. We're talking about the king of the AI bellwethers, Nvidia.
- [09:41]
Tim Stankewicz
Nvidia delivered a surprisingly Strong revenue forecast. It pushed back on the idea that the AI industry is in a bubble. And I think for a lot of investors, it eased concerns that had spread across the tech sector. For some thoughts on the company and the warnings of an AI bubble, we lean on Dave Lee, Bloomberg Opinion's US Technology columnist.
- [09:59]
Chris Whalen
The question is no longer is this an AI bubble? Right. I think we've all come to the agreement. There is a bubble of some kind, but is it going to be a bubble like the Internet.com bubble, where there was just devastation when many of these companies that had, you know, suspect balance sheets turned out to be suspect companies? Jensen Huang, he is saying, look, there's huge hype, there's huge excitement. There's a lot of questions about how companies are going to use AI. But from where he's sitting, they're still seeing this incredibly strong demand for what they do, which is obviously create the world's best semiconductors.
- [10:33]
Carol Massar
To be fair, he's got a fiduciary responsibility. He's not going to sit right. Like, he's got to be careful in terms of how he quantifies or qualifies his business and the numbers. Many would say, yeah, there is still strong demand.
- [10:46]
Chris Whalen
Still strong demand. I think that it was interesting to see the reaction to the, to the earnings, because the immediate reaction was, wow, this really pushes back on the idea there's a bubble. The problems we were still worried about.
- [10:57]
Tim Stankewicz
Before, the earnings, they still exist despite.
- [10:59]
Chris Whalen
The earnings being so strong.
- [11:01]
Tim Stankewicz
What is your take on. On why the collective market sort of recognized something here? There's, there's no catalyst, at least to my knowledge, that, you know, no new information came to light.
- [11:11]
Chris Whalen
One of the defining parts of this new bubble so far has been, you know, whenever there's a slight clue as to the future, the reaction seems to be overstated. So you remember that that afternoon or that morning when Deep Seek was released, the reaction day back in January, I mean, just devastating. Everyone was sort of panicking. And then when people really thought about it, they thought, you know what, maybe this isn't so bad after all. The same is being, I think, could be said for sort of positive moves. And look, nobody was coming into Nvidia's earnings thinking, oh, this could be, you know, these could be bad, or everyone was expecting to be a great quarter. Now, it's stronger than some people have thought, obviously, based on, on the analyst estimates beforehand. But the dynamic that people are worried about isn't so much how Nvidia is doing, but how are their clients doing when they buy all this computing power, is it going to be worth it for them? And that's where the, that's where the.
- [12:00]
Carol Massar
ROI ultimate, the ira.
- [12:02]
Chris Whalen
Yes.
- [12:03]
Tim Stankewicz
Profit margin. I mean, you know, whenever we talk about bubbles in the, you know, the 1999 and late 90s, early two, what, what people come on, who were there tell us their pushback is. Yes, but these companies are now profitable.
- [12:18]
Chris Whalen
I think, you know, no one's, and I said this in my column, no one's calling Nvidia the next pets.com. right. Or the risk of that. But Nvidia's clients could be the next pets.com OpenAI. You know, there's a company burning billions of dollars with an unsure way of getting that money back. Core wave was a catalyst for a lot of the worries around, you know, just data centers in general. They're still very hard to build data centers. It's going to be a big problem finding the place to build them, finding the energy to power them. There's a lot of unknowns that, you know, could, could be at play here. And when we compare it to that.com bubble, I have to say I wasn't covering it. I was a child.
- [12:55]
Carol Massar
However, all right, I was covering it. And I will say there is a difference. And we talk about this, that there are companies with earnings. So I'm, I'm trying to understand the demand is there and you're saying we get it. They can't build the data centers fast enough. They don't have the energy to power them. Is that enough? Mean that this is not a real thing and that is not going to impact us and the spend continues.
- [13:20]
Chris Whalen
The timeline is the question.
- [13:21]
Zach Pandel
Right?
- [13:21]
Chris Whalen
Because when we look back at the, at the dot com bubble, they say, well, what about Amazon, right? There's a real company change the world.
- [13:28]
Carol Massar
Not profitable. Not profitable. Not profitable.
- [13:31]
Chris Whalen
Exactly. For years and years, years, I didn't recover from its.com slump for another eight years. After nine, eight years. I noticed that Cisco 25 years, only, only recovered from the dot com crash this week. And so sure, I could be as big as the Internet or even electricity as some people are saying, whether or not there'll be a slump in the meantime, that could take a huge amount of time to really recover. I think that might be one of the concerns that people should, should be having.
- [13:57]
Tim Stankewicz
That was Dave Lee, Bloomberg Opinion US Tech columnist. After the company's earnings call, CEO Jensen Huang sat down with Bloomberg Tech co host Ed Ludlow. They talked about the results. You can catch that online on the Bloomberg terminal and@Bloomberg.com all right, coming up.
- [14:11]
Carol Massar
We kind of stay with AI. We talk big bets, an uneasy economy and credit starting to buckle. That's a question mark because I think we're trying to figure it out. He was a go to voice for us during the great financial crisis. We leaned on him so much. Chris Whelan joins us next.
- [14:26]
Tim Stankewicz
You're listening to Bloomberg businessweek. This is Bloomberg.
- [14:34]
Carol Massar
Bloomberg businessweek is brought to you by Evolving Money, a podcast that explores how cryptocurrency is the next logical evolution of the financial system. The program investigates how traditional finance firms are integrating crypto into their operations now that Washington has begun to pass much needed regulations. Follow the podcast, which is sponsored by Coinbase. Wherever you get your audio programs.
- [14:58]
Tim Stankewicz
Pro drivers live for race day. But for small business owners, every day is race day. That's why going pro with Lenovo Pro matters one on one advice, IT solutions and customized hardware powered by Intel Core Ultra processors. Keep your business on the right track. Business goes pro with Lenovo Pro. Sign up for free@lenovo.com Pro Lenovo Lenovo. Hey everyone. Ed Helms here.
- [15:33]
Zach Pandel
And hi, I'm Kal Penn and we're the hosts of earsay, the Audible and I Heart Audiobook Club.
- [15:40]
Tim Stankewicz
This week on the podcast, I am sitting down with Jenny Garth, host of the iHeart podcast. I choose me to discuss the new Audible adaptation of the timeless Jane Austen classic Pride and Prejudice. This is not a trick question. There's no wrong answer. What role would I play?
- [16:01]
Carol Massar
You know what? I can see you as Mr. Darcy. You got a little Colin Firth.
- [16:06]
Tim Stankewicz
Okay, that's really sweet. I appreciate that. But are you sure I'm not the dad? I'm not Mr. Bennett here. Listen to HearSay, the Audible and iHeart Audiobook Club on the iHeartRadio app or wherever you get your podcasts. You're listening to the Bloomberg Businessweek Daily Podcast. Catch us live weekday afternoons from 2 to 5pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [16:40]
Frank Sorrentino
All right.
- [16:41]
Carol Massar
With Nvidia earnings this past week, it was no surprise that the AI trade and debate over a boom or bust remained front and center. Although I need to say that I feel like the idea of a boom was more front and center following Nvidia's earnings. Keep in mind, though, fears of an AI bubble bubbled up earlier in the week before Nvidia reported, and that was because of warnings from investors or continued warnings from investors, really, who believe the AI led rally has run Too hot. And that the industry could be due for somewhat of a correction, maybe even just a normal correction. Rothschild and co. Redburn's Alexander Heisel downgraded Microsoft and Amazon for the first time since a initiating coverage on the two names. That was back in June 2022. That was according to data compiled by Bloomberg. This got a lot of attention this past week, Tim.
- [17:24]
Frank Sorrentino
It did.
- [17:25]
Tim Stankewicz
It moved the company stocks too. Meantime, tech behemoths continue to spend so much on AI. Just this week Microsoft and Nvidia announced that they would invest up to a combined $15 billion in the open AI rival Anthropic. It's these types of deals that have investors increasingly concerned about so called circular financing within the AI spend and build. We should remind everybody the Microsoft portion of this is pretty significant given that Microsoft has such a big ownership stake of OpenAI. Yeah, and Anthropic is OpenAI's rival. So it's like the owner of your competitor investing in the competitor.
- [18:01]
Carol Massar
Amid all of this and questions around market and possible financial and credit stress, we leaned on a familiar voice. Chris Whalen was a go to for us during the great financial crisis. He is chairman of Whalen Global Advisors, a former investment banker, also editor of the Institutional Risk Analysts. It's a weekly newsletter that looks at the intersection of financial markets and public policy. This is a guy who spends a lot of time looking at financial balance sheets.
- [18:25]
Frank Sorrentino
The loss rates on many of these assets, Carol, and thank you for having me, is quite astounding. Remember that you had not just big private equity firms diving into private credit, but you had retail firms selling this to individual investors for the past couple of years. I, I think it just speaks to a, a decline in standards in the investment world. I've been a investment banker for 30 years, member of FINRA, and I gotta tell you, most of my astute clients, the banks I really have respect for, don't see anything that they like. They're using private markets to lay off credit risk, they're selling assets to raise cash. And I think that's frankly very consistent with what Jeff Gundlach is saying, which is that there's so much out there that needs to be fixed and the loss rates could be rather considerable. So I, I think it's only getting started. You saw the story on Bloomberg about Blue Owl. Yeah, we're going to see a lot more of that. So you know, just take that example and multiply it across the entire spectrum of private equity. One of the interesting statistics I saw the last couple of weeks is that something like two thirds of the existing private equity firms are never going to be able to raise money again because the losses on their portfolio are so profound. So I think we're seeing something episodic. And as good luck said, this is a commercial story this time. This is not about consumers and mortgages. This is purely institutional.
- [20:00]
Tim Stankewicz
So the question, well, the question I have is how it manifests. And do you believe it manifests in some sort of crisis? Does it become something that is systemic and has a effect on the entire financial system? Is it that big of an issue?
- [20:14]
Frank Sorrentino
It is that big. But remember, this is institutional investors. So a lot of it goes on behind the scenes. Lawyers and bankers sitting in conference rooms trying to figure out how to extract value from a situation. So when it impacts a public company, yes, when a bank has to fess up about a loss, you just saw one with Blackstone, a telecom company, which is going to cost them $150 million. Looks like the whole thing was a fraud from, from the word go. But over time, yes, you're going to see more disclosure from the public players, but the amount of loss is going to be much larger than what the typical investor, the typical media person actually sees, because so much of it is private. I'll give you an example. There's a really great publication called the Real Deal that covers commercial real estate. They can't even begin to cover all of the things that are going on. If you just read their headlines every morning, you get a sense for just how much restructuring there is going on in some pretty important and well located assets here in New York City and other cities around the U.S. assets. And it just continues. And yet the funny part is you have new investors jumping in to buy these assets after they've been marked down, thinking that they're getting a deal. Well, we'll see, you know.
- [21:35]
Carol Massar
Well, we will see, right? I mean, does the spending frenzy play into this?
- [21:43]
Frank Sorrentino
Oh, very much. I, I covered Silicon Valley for years, Carol, as a banker, right. And I have a lot of respect for real technologists as opposed to salespeople. I don't think AI, as is described to most investors today, is going to amount to anything except the convenience for consumer users of the Internet. When you talk about real intelligence on the part of a machine that is based on its ability to observe and integrate new information. That's not what we're doing here. We're simply taking existing language, existing words, and putting massive horsepower behind search. Okay, so they summarize the first page of Google results. That's it.
- [22:28]
Tim Stankewicz
So, so that to be fair, just to be, to make sure I understand this right, you're arguing that the. What we're seeing right now with, with LLM, such as Chat, GPT from OpenAI and Claude from Anthropic, that's the extent of the innovation that we're going to see when it comes to the investment in AI.
- [22:46]
Frank Sorrentino
The head of AI at Meta, who's a really smart man, I was watching some of his videos yesterday over the weekend, and, you know, he just dismisses this entire phase. And I understand what he's talking about. I used to cover companies that did what we called natural language processing, where we were trying to teach computers words and then be able to integrate those words. We're not even doing that with AI, we're just simply throwing muscular search at it and say, okay, what's the top 10 search results? Let's build a summary. That's not intelligence. So I think a lot of the spend, and you've heard this from other people, is going to end up being wasted. When it comes to AI.
- [23:29]
Carol Massar
That's a lot.
- [23:30]
Tim Stankewicz
That's a lot of money and that's a lot of big bets that in your view, in your view, will not.
- [23:35]
Frank Sorrentino
Don't get me wrong, I spent a.
- [23:36]
Tim Stankewicz
Lot of money on anything. Sorry, go ahead.
- [23:39]
Frank Sorrentino
Well, I don't think it will generate revenue proportional to the spend, let's put it that way.
- [23:45]
Carol Massar
So, okay, so I made a lot.
- [23:47]
Frank Sorrentino
Of money on Nvidia, don't get me wrong. And I love that stock, I love the company. But I think, you know, the desire for investable assets has just overwhelmed these opportunities. We see inflation everywhere we look in the financial markets today, and that is defined as too much money chasing too few opportunities.
- [24:08]
Carol Massar
I just, I want to push back a little bit, Chris. Like, you know, I've been talking about this piece that was on 60 Minutes about the founder of Anthropic.
- [24:16]
Frank Sorrentino
Yeah.
- [24:16]
Tim Stankewicz
Dario Amade.
- [24:17]
Carol Massar
Right. And he talks specifically about how like AI in health care, and I've talked to doctors too. We were at Boston Children's about the use of, of, you know, they can't keep up to date on everything. And that how AI can, data points and so on really come together to help create in terms of diagnoses, treatment and also in terms of innovation. But AMADE Saying on 60 Minutes, basically, he's talking about this thing of condensing, basically. Let me just look what he says. The compressed 21st century. That's the phrase he uses to describe what could happen. He says the idea would be the point that we can get AI systems to this level of power where they're able to work with the best human scientists, could we get 10 times the rate of progress and therefore compress all the medical progress that's going to happen throughout the entire 21st century in five or ten years? I realize it's his book, but, I mean, those of us who've started playing around with it are kind of blown away with it in terms of what it can do. But again, do you think it's just a productivity tool or something more that maybe creates at this stage?
- [25:25]
Frank Sorrentino
Yes, it's. Remember in the old days. Right. Chris Weil was one of the early advocates of AI, and he said, well, it's not intelligent. It simulated cognition. And he was right. But then he had so many people throwing money at him to go to conferences and speak that over time, he adopted a more liberal, more, you know, I guess, accepting view of this technological phenomenon. But to me, as a writer, when I use AI or use Google, for example, it's. It's nice if you know what you're looking for specifically, but I'll always ask the machine two or three times the same question. Differently worded.
- [26:04]
Carol Massar
Yeah.
- [26:05]
Frank Sorrentino
And you always get different outputs. So let me give you another example. Imagine using AI for a mortgage lender to deal with customers who are calling, you know, for a variety of reasons. And you want to use it to try and sift through those inquiries, answer the ones that you can in a reliable fashion. Also use it to do summations of phone calls that have to be reviewed and okayed before they're, you know, finalized. Right. These are all valid functions, but ultimately all we're really doing here is summarizing. And that's what computers do. They sort. They do summations and averages and everything else, but it's not intelligence. It's not the ability to learn on the fly, and particularly without a monitor and a. A companion, if you will, in a human sense. So for a lot of companies, they look at the horsepower, they look at the speed and the robustness of these AI tools. Right. But they don't quite get there in terms of rolling it out because of the high error rates. Well, so that's the thing.
- [27:10]
Carol Massar
Okay. Tim and I are, like, fighting who gets to ask the next question. Go ahead, Tim, because I'm gracious.
- [27:14]
Tim Stankewicz
So are you out of Nvidia then? Because if. If this doesn't amount to.
- [27:19]
Carol Massar
Everybody seems to be getting. Yeah, a lot of people.
- [27:21]
Frank Sorrentino
I. I got in a long while ago. I wrote it up Then I got out, then I got back in and each time it went up so much it got to be such a big percentage of my portfolio. But I had to stop it.
- [27:33]
Carol Massar
Well, the thing I want to ask you, Chris, is how does this end? Because I'm looking at Amazon did a big, their first US dollar bond offering in three years looking to raise 12 billion. But it tracks about 80 billion of.
- [27:46]
Tim Stankewicz
15 billion the size of US dollar bond offering. At 15 billion it's like.
- [27:49]
Carol Massar
And Meta did it. So how does this end? I mean, I mean it when we turn to you so many times during the great financial crisis and this was something that there was so much FOMO and people, you know, didn't want to miss the gains. But we know how it all ended. So how do you. I don't want to be alarmist, I want to be smart here. How does this potentially end? The AI component? Who's impacted?
- [28:13]
Frank Sorrentino
I think you're going to see a correction in some of these valuations simply because they've gone up so much in a relatively short period of time. Let me give you another interesting example company I actually like a lot. Sofi. So far it's the best performing bank stock in the United States. It has been for the last 18 months. You know what the next one is by the way, among big banks, Citi. The rest of the big guys have fallen behind. So why did so far do so well? Well, slowly they're growing into their overhead. Their overhead was massive. It's still too high relative to the size of the bank. It's about $50 billion in assets now. But they had a tech component, a Silicon Valley component, a little bit of bitcoin. You know, all of these pieces that made equity managers love it. And they drove the thing up over 100% over the last 12 months. I think stories like that are going to cool off. I think bitcoin frankly is in big trouble because it was kind of co opted by Wall street. When you see ETFs with Bitcoin, that's not a good thing. This was supposed to be a means of exchange, remember?
- [29:17]
Tim Stankewicz
Well, you know, I think all of.
- [29:19]
Frank Sorrentino
These markets are going to have to retreat a little bit. Carol, Will they go down way much like 2008? No. Because there's still too many dollars chasing these opportunities.
- [29:30]
Carol Massar
Yeah, there's a lot of liquidity out there. Chris. So, so glad already where my team is, like when can we get Chris back? Thank you so much. Really.
- [29:39]
Tim Stankewicz
Time to rebook. We have lots of follow up questions.
- [29:42]
Carol Massar
We have lots of follow up so far by the way is up almost it's up about 74% year to date. Citigroup's up about 40%. Comparison. JP Morgan also having a good year, but a gain of about 25% year to date. Chris Whalen, thank you, thank you. So appreciate it. Chris is chairman of Whelan Global Advisors.
- [30:03]
Tim Stankewicz
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- [30:12]
Erica Gessert
You'Ve got the winning formation.
- [30:13]
Tim Stankewicz
One on one advice IT solutions and customized hardware powered by Intel Core Ultra processors help you stay ahead of the competition. Business goes pro with Lenovo Pro Sign up for free@lenovo.com Pro Lenovo Lenovo. Hey everyone, Ed Helms here and hi.
- [30:39]
Zach Pandel
I'm Cal Penn and we're the hosts of Earsaver, the Audible and iHeart Audiobook Club.
- [30:46]
Tim Stankewicz
This week on the podcast, I am sitting down with Jenny Garth, host of the iHeart podcast. I choose me to discuss the new Audible adaptation of the timeless Jane Austen classic Pride and Prejudice. This is not a trick question. There's no wrong answer. What role would I play?
- [31:06]
Carol Massar
You know what? I can see you at the Mr. Darcy. You got a little Colin Firth.
- [31:12]
Tim Stankewicz
Okay, that's really sweet, I appreciate that. But are you sure I'm not the dad? I'm not Mr. Bennett here, listen to Earsay, the Audible and iHeart audiobook club on the iHeartradio app or wherever you get your podcasts. The world is buzzing with AI tools, but instead of making things easier, they've made things overwhelming. There's a better way. Meet Superhuman, the AI productivity suite that gives you superpowers so you can outsmart the word chaos with Grammarly mail and coda. Working together, you get proactive help across your workflow. No matter how you work, experience AI that meets you right where you are. Learn more@superhuman.com podcast that's superhuman.com podcast this is the Bloomberg Business Week daily podcast. Listen live each weekday starting at 2pm Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg 11:30.
- [32:21]
Carol Massar
All right, so we continue to try to make sense of the US Economy as we've been discussing. Growth is slowing, the job market is cooling, inflation has eased from its peak, but still above target. The Fed is still cautious again, and credit conditions show stress in places, even while banks overall look resilient. And I got to say, we are spending so much time, you and I. And I feel like when we do our planning calls in the morning of just, are there cracks when it comes to credit and any kind of financial stress?
- [32:47]
Tim Stankewicz
Well, one person that we regularly go to for his view on the economy and rates and building is Frank Sorrentino. He's chairman and CEO of the publicly held New Jersey based community bank, Connect One Bank Corp. It's the parent company of ConnectOne Bank Account. It counts small businesses and construction companies among its customers. It's got locations in New Jersey, New York and Florida. And what's unique about Frank is that he has a background as a builder. He actually studied construction in college. So we always like to talk to him about supply and demand when it comes to those physical things, buildings and homes.
- [33:21]
Carol Massar
We are at this moment where we're trying to figure out, I feel like I can say this a million times this year, like where we are in the US Economy, what's ahead, what kind of clarity do, do we have? Tell us about your business and what you're saying.
- [33:33]
Chris Whalen
The nice calm part of the pool and now we're into the rapids and turbulent it. When you look back before Liberation Day, okay, certainly, you know, we're seeing a lot of people have a lot of apprehension about where we stand right now. Right. So small businesses have a lot of concerns. There's so many things going on. There's so many different data points to look at or not look at or not have information in front of them. But you know, I, I know, I know we've talked about this before. I keep saying, I believe we're on a robust footing here with our economy.
- [34:10]
Carol Massar
Because you see it in terms of what loan generation or clients.
- [34:14]
Chris Whalen
You know, they discuss the issues of, you know, not being sure what to do next. Yet when you ask them, how are sales, what's going on? You know, are you, are your, are your revenues up? Are you thinking about expansion? Are there opportunities? Are you looking to hire people in our market anyway, in the New York metro market, which is the market we represent, and we're finding that people, the businesses, business owners here are doing quite well and they're continuing to do well. And there's so many inputs that are helping, that AI is helping in a lot of cases, just the amount of capital coming into this region, the amount of construction going on, the amount of heavy and highway work, just, you name it. Manufacturing. I think today there was a fact that came out about New York, manufacturing is on the rise. Something that was actually a little bit of a surprise to most not to me are our clients are telling us that business is continuing to improve, yet they have trepidation about, you know, where, where they settle right now. However, interestingly, if you ask them where they think they'll be in six months from now, everyone says they think they'll be in a better place. Oh, so, so everyone is counting on the economy getting better.
- [35:31]
Carol Massar
Right.
- [35:31]
Chris Whalen
And or at least their, their conception of what better may be from where they are today. What I say is they're in a now and it's going to continue to do better now. There's also the tale of two different stories here. There are some parts of our economy that are not doing as well as others. And I think we saw some of the reaction to that relative recently in some of the political events that have occurred. So I think we do need to take a look at this. What's the distribution of where wealth is being created and not created?
- [36:01]
Tim Stankewicz
As a New Yorker, it's nice to hear that things in the New York City area are looking good. But it also makes me think of the changing politics of the city and, and Mayor Elect Zoran Mamdani. And you know, this is not a political question. It's simply a question about how people should plan for the future. We reported that aides to President Trump have spent the days following Mamdani's victory in New York reviewing federal funds that benefit the city to potentially suspend or cancel, a White House official said, highlighting the threat of retribution over the Democratic socialist win. If we were to see in New York City and, or New York State funding cut off for some of these projects, would that have a big effect on the economy?
- [36:39]
Chris Whalen
Look, I would believe the answer would be yes, it will have some effect on the economy.
- [36:44]
Tim Stankewicz
Because you mentioned some infrastructure projects.
- [36:45]
Carol Massar
Sure.
- [36:46]
Chris Whalen
I don't, seeing, I don't know how big that would be and I don't know what the, you know, it seems to me in this economy, at least over the last 12 months or so, there seem to be so many inputs that have been maybe going in one direction, maybe a negative way and something else turns around and comes back in the other the other direction. So look, New York has always been New York and we've been through all different types of political environments and there have been ups and downs. But if you chart the growth of New York from 1609 or whenever, when the first settlement started here through to today, it has been an uphill, non stop, you know, economy. And so I have every confidence that New York is going to continue to be, be the place to be. Are there challenges here today about affordability and who can live here and you know, some of the changes that need to be made? Absolutely. I think we'll get those things right. What one thing I have learned from this administration, there are a lot of threats that are made and a lot of, you know, there's a lot of saber rattling. At the end of the day though, I think our president loves the city of New York. I can't see him doing anything that's generally going to be harmful to the city.
- [37:53]
Carol Massar
Frank, correct us if we're wrong though. We were talking with some of our folks who also covered like the banking area and our understanding is you do have some exposure to rent regulated. We do properties or apartments, I think via your cre lending. So with the Mamdani win here in New York City, how do you feel about that exposure and what he has said about, you know, his pledge to freeze rents.
- [38:17]
Chris Whalen
So look for those, you know, for those properties that we're trying to convert from rent regulated or rent stabilized rather than to market rent, those properties are going to have some challenges going forward because that's not going to happen. And part of that was the 2008, let's not forget the 2019 law made that change. And it was interesting, right? The candidate everybody wanted to win, which was Andrew Cromwell, he's the one who signed that law.
- [38:42]
Tim Stankewicz
So everybody's afraid of politics coming in.
- [38:45]
Chris Whalen
But yet, you know, it was the, it was the one who ran against him that brought that law to pass for the, for the balance of the rent stabilized properties that are out there that are already cash flowing and have been underwritten under those terms. I think they're going to be fine. As a matter of fact, the current mayor elect has spoken many times about programs possibly to lower property taxes for some of those property owners and come up with insurance programs to sort of help out to keep the rents at a lower rate rate. So if that's true, and you know, if there's going to be some level of negotiation around what to do or how to do it to keep the rent increases lower, I'm all for it. That's great. What we have found over the years is that there have been rent increases. There was just one passed recently for I think about 3% that went into effect in October. And let's not forget that the current mayor has six picks still on the rent guidelines board. And they're not, you know, they are supposed to look at the economy on the ground today where our expenses, you know, the city does Raise your taxes and your sewer fees and the cost of everything else goes up. So rents should go up appropriately as well, you know, based on inflation. So I do think there'll be a give and take there. And you know, at the end of the day, look, I think having affordable apartments is a very, very great thing for our city. I'd like to, to see us be able to do more in that regard here in New York City.
- [40:12]
Carol Massar
Why don't we do more? And I guess I asked that because.
- [40:15]
Chris Whalen
We would need a very long program to get into what, you know, there are cities and towns. New Rochelle is an example of that, where they've taken the opposite approach, which is let's build as many apartments as we can possibly build. Let's let the developers go build.
- [40:29]
Carol Massar
It stands.
- [40:30]
Chris Whalen
And they did that. And you know, the laws of supply and demand are sort of like gravity. Right. They, you can't, you can't undo them. And so they built a lot of supply.
- [40:40]
Carol Massar
Yeah.
- [40:41]
Chris Whalen
Guess what happened to the rents? They came down.
- [40:44]
Carol Massar
Yeah.
- [40:45]
Tim Stankewicz
They didn't go up.
- [40:45]
Zach Pandel
They.
- [40:45]
Tim Stankewicz
Yeah. We had the mayor, Yadira Ramos Herbert, on a few months ago talking about this and the zoning changes. You have background as a builder. You actually went to college for this before you were a banker. And I think it's fair to say that all. I'm not going to say all economists, most economists would agree the way to decrease housing prices is to build more houses. Housing. How do you do that in New York City and our developers going to do that in New York? Like, what would developers need in the next administration in order to do that apart from zoning changes? Like, what would they need to hear from city hall that says you guys can go ahead and build and build more housing?
- [41:19]
Chris Whalen
We would need zoning changes. We would need the ability to build housing that is affordable to build. You can't add on all of these issues. Listen, I come from a union family, so I love unionized workforces. But if you're going to, to force every small apartment builder to build using union labor, you're going to drive up the cost. If we're going to force buildings to not be able to use certain types of natural gas appliances or they got to meet certain environmental.
- [41:48]
Tim Stankewicz
These are all issues that New York City has faced and builders have faced here.
- [41:52]
Chris Whalen
And so they keep adding all of these things on and it makes the projects unaffordable. And if they're unaffordable, they don't get built.
- [42:00]
Carol Massar
Just one last question because I've got it where Bloomberg, we do have a last Fed meeting come December. What are you expecting? What do you think we do need based on? You sound pretty upbeat. Look, just got about 40 seconds.
- [42:10]
Chris Whalen
The Fed, the Fed's got a tough job ahead of them. On the one hand, you know, unemployment and the employment structure in the economy is giving some mixed signals.
- [42:19]
Frank Sorrentino
Yeah.
- [42:20]
Chris Whalen
You know, larger businesses may be hiring, smaller businesses may be laying off. That could be temporary. I'm in that camp. I do believe that the smaller businesses are going to catch up soon. I do think there is. I don't think there's a lot of inflation built into the economy. I think the tariffs are sort of skewing some of those numbers. I think they're going to have a tough call. My, my, my hope would be that they continue on the path and they cut rates another 25 basis points in December.
- [42:48]
Tim Stankewicz
Well, just another excuse for Frank to come and hang out with us again.
- [42:51]
Carol Massar
And get to the round.
- [42:52]
Tim Stankewicz
I'll be back in December 10th. That day when we get that decision from Jay Powell and the Federal Reserve.
- [42:57]
Carol Massar
You'Re just up the street. So come back soon.
- [42:59]
Frank Sorrentino
Will do.
- [42:59]
Carol Massar
Frank Sorrentino, chairman and chief executive officer of Connect One bank, joining us right here in our Bloomberg Interactive Broker Studio.
- [43:06]
Tim Stankewicz
You're listening to the Bloomberg Businessweek Daily Podcast. Catch us live weekday afternoons from 2 to 5pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [43:19]
Carol Massar
Plenty ahead in our second hour of the weekend edition of Bloomberg Businessweek, including how looking good became a $450 billion industry and how one retail behemoth is giving strip malls the major glow up. We're talking Ulta beauty.
- [43:32]
Tim Stankewicz
Plus, we'll hear from the behavioral psychologist with alternative thinking on what makes great leaders. It may just be time to throw out all those management books, at least according to John Levy. He's the author of Team Intelligence How Brilliant Leaders Unlock Collective Genius. And he joins us a little later.
- [43:48]
Carol Massar
First up this hour, the great crypto crash of 2025 entered a new phase on Wednesday as bitcoin plunged to its lowest level in seven months, extending the more than $1 trillion wipeout across the digital asset world. The day before that, on Tuesday, investors pulled more than half a billion dollars from BlackRock's iShares Bitcoin Trust, the largest single day outflow, Tim, since the fund's debut.
- [44:10]
Tim Stankewicz
The total market cap of cryptocurrencies peaked at about $4.3 trillion. Now now that was a little over a month ago. Back on October 6th at now hovers around $3.2 trillion. And much of that change reflects paper losses, not real world cash. Leaving hands to talk all things crypto, we were joined by Zach Pandel, head of research at the crypto asset manager, Grayscale Investments. Also Isabel Lee, Bloomberg News cross asset reporter.
- [44:34]
Carol Massar
And just one more thing, Grayscale recently filed for an IPO. So we know the company manages about 35 billion in assets with more than than 40 products giving exposure to over 45 tokens.
- [44:45]
Zach Pandel
What I see is a repricing of technology related assets across the board, whether it's some of the air names, satellite companies, quantum computing stocks. And crypto has been part of that story. So it really hasn't been a crypto specific sell off. It's been a frontier technology sell off. And so I see macro drivers behind that rather than crypto specific.
- [45:07]
Tim Stankewicz
But if we look at the sell off in the Nasdaq, what down about roughly 6% from, from all time highs. I mean we're down 30%.
- [45:14]
Zach Pandel
Bitcoin modest for the big indexes and some of the mega cap names. You see much larger declines in bitcoin and some of the again frontier technology type of names. And crypto is that sort of space. On the one hand, bitcoin is a major asset, a $2 trillion asset. Much of the asset class though still early stage technologies. I think it's fair to characterize it and it's definitely been trading with that part of the market. I think that has to do with concerns about the U.S. economy, questions about the Fed policy much more than what's happening in crypto specifically.
- [45:44]
Carol Massar
Well, how do you see grayscale and, or just crypto in general? Like is it a safe haven, is it a cryptocurrency, is it a currency, is it a commodity, is it an asset? Like how do you, like, how do you really define it?
- [45:57]
Zach Pandel
Crypto is a $4 trillion alternative asset class today. So it's a mid size alternatives cap category. And investors think about putting it in their portfolio in that way alongside hedge funds, private equity infrastructure bets. Crypto fits in that way with the.
- [46:14]
Carol Massar
Same amount of risk or no, not necessarily.
- [46:16]
Zach Pandel
It's definitely a higher volatility alternative and should be considered that way. But that fits very well for many investors with longer term portfolios. They're looking for many different ways to take risks in markets that don't have the same correlation with public market equity. Sometimes that means it outperforms stocks, sometimes that means it underperforms stocks. Has been a great diversifier over time.
- [46:36]
Tim Stankewicz
I know Isabel wants to jump in here in a second, but I just want to get one more in. And that's on this conversation. The idea of some of the other assets that you mentioned, okay, if we're talking about alternatives, you know, maybe we're talking private credit, maybe we're talking real estate. Sometimes those are hard assets, like real estate. Sometimes they're assets that produce cash, like private credit returns. You know, you loan money to people, they give you money back at a higher interest rate.
- [46:58]
Frank Sorrentino
Right?
- [46:59]
Erica Gessert
You hope.
- [46:59]
Tim Stankewicz
You hope. Yeah, we'll see if that happens in the future. With, with Bitcoin. That doesn't exist. There are no cash flows with Bitcoin.
- [47:10]
Zach Pandel
That's right. So we call it the crypto asset class. We could call it the blockchain asset class because that's what it's all about. Blockchain technology, that's what stitches together everything in the crypto asset class. And it has a diverse range of use cases. Digital money like Bitcoin, digital finance applications like decentralized finance, stablecoins, tokenization, all the things we've been talking about this year. It is all of those different things. And it will compete in some ways with commodity markets, in some ways it'll compete with equity markets. And so it is hard to give a tight answer because it is its own unique thing. A $4 trillion blockchain based digital finance and money asset class. How we think about it.
- [47:49]
Carol Massar
So grayscale is an early mover, actually when it comes to offering crypto funds, namely Bitcoin and Ether. They scored a legal victory. That's why we have this very successful dozen or so Bitcoin ETFs that we have seen. Ether ETFs, Dogecoin, Carol, Tim, everything really. How has the proliferation of ETFs reshaped the market? And do you think it's for better or for worse?
- [48:09]
Zach Pandel
Well, absolutely for better. I mean, it's broadening access to this asset class to a much wider range of investors and allowing them to access it in ways that's convenient for them with the same reason that they use ETFs for other purposes. You can included in tax advantaged accounts. It makes taxes easier, it makes estate planning easier. All of these reasons are why the ETFs have been so popular.
- [48:31]
Carol Massar
But what do you, what is your response when people say the whole premise of Bitcoin is to be decentralized and all the biggest holders of IBIT is blackrock as Harvard, Although we know that's not really a conviction bet. It could just be because of basis trade and all of that. But blackrock, all those big issues, grayscale.
- [48:48]
Zach Pandel
Yeah, that's right. The premise is that bitcoin mining which provides the security for this network is decentralized. And if for some reason that were to be questioned in the longer one, investors should question bitcoin because that's the thing that really matters, not who is holding the asset. And the same was for gold. Your nation states hold gold as a decentralized asset to store a value and they keep it in the basement of the New York Fed here in downtown Manhattan. So it's just convenient to hold it in the this same place. The ETFs or gold. It doesn't, that's not what gives it its value. It's really bitcoin mining that's core to the value.
- [49:22]
Tim Stankewicz
I've actually seen some of that gold by the way. Have you? I visited the Fed. Yeah, yeah. Years ago and I got to go underground and see the gold. They weren't, they wouldn't allow us to take pictures.
- [49:29]
Carol Massar
I bet they're going to see the gold.
- [49:31]
Tim Stankewicz
It's there, it's there. Didn't count it.
- [49:33]
Carol Massar
Why not just buy crypto directly? Like if the whole idea is this to be this kind of pure straight to it, very different from what the financial system has been. Zack, why do I need you guys or anybody else who's kind of a middle man or middle individual.
- [49:49]
Zach Pandel
The premise of this technology is taking intermediaries out of the financial system and we are going to drive huge efficiencies in the financial system over time through tokenization, stablecoins, all these different use cases. However, there will be a lasting role for certain types of intermediaries we think including fund managers and others investors. And we are just providing a convenient way to access these access for many types of investors. Again for taxes, for estate planning, for tax advantaged accounts. It makes it much more effective. But self custody, holding your crypto yourself is a core part of what the asset class is all about. And we certainly would encourage more sophisticated investors that have an understanding that to please go for it but don't crypto.
- [50:30]
Carol Massar
For cryptocurrencies to have value, don't we have to really be using them to do things? And we're still, no offense but I'm still, I don't know, still using dollars. So like I'm just trying to understand, like I understand blockchain. Like if you buy a house and you have, you know, rather than you know, the ownership and so on and so forth is all there, the papers. I understand the blockchain that value.
- [50:53]
Tim Stankewicz
But that hasn't happened yet by the way. But we're still doing old school titles.
- [50:56]
Carol Massar
That's right, thank you.
- [50:57]
Frank Sorrentino
Titles.
- [50:58]
Carol Massar
But I don't quite still yet the transacting that I will be doing. I think there's been research that it's still a lot of, of folks who want to keep things, you know, under the radar. Illegal activity. Yeah, I'm trying to understand.
- [51:10]
Zach Pandel
So I think you're going to be using stable coins. And we had, you know, a lot of people hearing more about this this year because we had a key piece of legislation in July, the Genius act, which provided a comprehensive regulatory framework for stablecoins here in the US and over time you will see many more payments use cases for this technology. You will also see stablecoins on corporate balance sheets. You will see stablecoins as collateral on the major US derivatives exchanges. So you will see this dollar based, blockchain based dollar ubiquitous in our system relatively soon.
- [51:42]
Tim Stankewicz
But if people are using, or companies are using stablecoin or stablecoins as collateral, aren't they just saying they're using Treasuries as collateral?
- [51:52]
Zach Pandel
Blockchain technology again is to take intermediaries out of the financial system.
- [51:56]
Tim Stankewicz
But those stablecoins are backed up by Treasuries, depending on where you buy it. But for the most part, if we're talking about the most well known stablecoins like USDC backed up by Treasuries.
- [52:03]
Zach Pandel
Yep, absolutely. The one for one. Backed one for one. And that is written in the regulation. And that's a very important piece of the whole story. If these technologies are going to be ubiquitous in the financial system, they need to be safe for consumers, safe for the financial system as a whole. That's why this regulation in July was so important.
- [52:20]
Carol Massar
So SEC chair Paul Atkins conceded that he promised a token taxonomy. For the longest time, people have been confused whether crypto is a security or commodity. And so this moves away from the fact that almost every digital token acts like a stock or something like that. How, how do you view that? Because the lawyers I've talked to, some viewed it as a win, but some didn't really.
- [52:40]
Zach Pandel
So the Senate is working on legislation. Exactly on this topic and I think will clarify a lot of these issues for investors over time. Look, Bitcoin is a commodity. It's a digital commodity. And that can maybe be hard to understand, but that's what it is, is it's a digital commodity like gold or copper or silver. It just in digital form. But there are other crypto Assets that look more like a claim of some kind. And I believe we will see more of that. That it will be common for large corporations to issue tokens as part of their capital structure. Alongside equity debt preferreds and other hybrid instruments, you will see tokens. And so there's a lot of different uses. It's all based again on that same technology. But it's hard to put a 1 label on how these assets.
- [53:25]
Carol Massar
I just feel like there's a bunch of smart people here and a lot of smart people at Bloomberg and we constantly are having conversations like kind of. I feel like a toddler.
- [53:32]
Frank Sorrentino
Why?
- [53:32]
Carol Massar
Why? Why? Like why is this needed?
- [53:35]
Tim Stankewicz
Well, that's why Zach is here to explain all the questions that we have that toddlers would ask. Hey, you know, I mentioned political tailwinds and one thing that I wanted to get your view on is obviously the regulatory environment is much better for cryptocurrency companies right now than it was during the previous administration. I mean, look at prices as, you know, as a result of that. But the Trump family and the Trump family's connections to the actual crypto industry, how do you view that?
- [54:00]
Zach Pandel
Look, it's not a crypto friendly administration. It's a crypto friendly nation or crypto friendly voter base.
- [54:06]
Tim Stankewicz
I don't know if I don't. I don't necessarily agree with that because here's why I don't agree with it. The in pushback on this, feel free. But the. Yes, a lot of the pro crypto candidates won in 2024. But the messaging that the crypto community pushed in their districts wasn't crypto messaging. Like if you look at the ads for Bernie Moreno who won in Ohio, it wasn't about crypto, it was about other issues that resonated with those voters. So I don't necessarily see it as a crypto friendly nation. Is that what you meant by crypto friendly nation? Like these people were voted in?
- [54:40]
Zach Pandel
What I mean is that holders of the technology, users of the technology are bipartisan. That is a global asset class. And we see comparable things happening all over the world that Democrats voted for the Genius act and the Clarity act that passed the House and I think will again vote for market structure legislation in the Senate. And this is really a key issue for us as an industry that it continues to be bipartisan. So that any change is. Changes are durable and they last well beyond any one individual.
- [55:09]
Tim Stankewicz
So. So the essentially you're saying is it doesn't really matter at this point. The administration doesn't really matter because these laws have been put into effect. It doesn't matter who SEC chair is.
- [55:18]
Zach Pandel
In the long run. It doesn't matter because this is innovative technology that's going to transform the financial system and how the politics shake out over time is hard to predict. But I have no doubt that in 10 and 20 years time that the technology and the assets will be everywhere in our financial system and we'll have clean regulation everywhere.
- [55:36]
Tim Stankewicz
And now you see Democrats as on board as Republicans were last year, increasingly on board.
- [55:40]
Zach Pandel
And I think that that's because their voters care about these issues. In our own survey data, slightly more Democrats hold crypto assets than Republicans. So we see it clearly as a bipartisan issue. And I think again, you see that in the House and Senate also.
- [55:52]
Carol Massar
Zach, I do wonder, I know it's about you wrote about the coming ipo and you know, I know you're probably limited in what you can say, but I do wonder about the market volatility volatility that we're seeing. And this is a big week. We're going to get in video earnings which will certainly play into the trade and enthusiasm or lack or pullback that we've seen in that. But will market volatility possibly change your timing on all of this and delay it?
- [56:14]
Zach Pandel
Yeah, as you know, I'm in a quiet period so we're limited to what we can say. But as soon as we have more to say, we will offer that. Look, what I would say is in the in the longer run, I'm incredibly enthusiastic about where this technology and where this asset class I to want. Wouldn't spend all my time on it if I if I wasn't. And it's hard to predict the short term in any asset class. I think it's a very great long term bet for many investors to allocate to crypto.
- [56:40]
Carol Massar
When will you have more information on the IPO tbd.
- [56:43]
Tim Stankewicz
All right, just check in.
- [56:45]
Carol Massar
Thank you so much. We really enjoyed this. Zach Pandel, he's head of research over at Grayscale Investments in our Bloomberg Interactive Broker studio along with the amazing Isabel Lee Cross asset reporter here at Bloomberg. Isabelle, thanks for coming.
- [57:00]
Tim Stankewicz
Pro drivers live for race day but for small business owners, every day is race day. That's why going pro with Lenovo Pro matters one on one advice IT solutions and customized hardware powered by Intel Core Ultra processors. Keep your business on the right track. Business goes probably with Lenovo Pro. Sign up for free@lenovo.com Pro Lenovo, Lenovo. Hey everyone, Ed Helms here and hi, I'm Cal Penn.
- [57:36]
Zach Pandel
And we're the hosts of Irsay The Audible and iHeart Audiobook Club.
- [57:42]
Tim Stankewicz
This week on the podcast, I am sitting down with Jenny Garfield, host of the I Heart podcast. I choose me to discuss the new Audible adaptation of the timeless Jane Austen classic Pride and Prejudice. This is not a trick question. There's no wrong answer. What role would I play?
- [58:03]
Carol Massar
You know what? I can see you as Mr. Darcy. You got a little Colin Firth.
- [58:08]
Tim Stankewicz
Okay, that's really sweet, I appreciate that. But are you sure I'm not the dad? I'm not Mr. Bennett. Here, listen to Earsay the Audible and iHeart Audiobook Club on the iHeartradio app or wherever you get your podcasts.
- [58:29]
Erica Gessert
When you're an HR pro facing a.
- [58:30]
Carol Massar
Furious frenzy of tasks and challenges, don't sweat it, because it's all bamboo able. What? Whatable, you ask?
- [58:37]
Erica Gessert
Bambooable.
- [58:37]
Frank Sorrentino
Bambooable.
- [58:38]
Carol Massar
Bamboohr combines oodles of power and a knack for making HR easier so that everything's bamboo able. Just name it.
- [58:45]
Erica Gessert
Payroll, that's Bambooable. Hiring, onboarding, both. Bambooable.
- [58:49]
Tim Stankewicz
Hello. Good to meet you.
- [58:50]
Erica Gessert
Performance management, that's bambooable.
- [58:53]
Carol Massar
So if you're losing sleep over compliance, that's bambooable. Or you're hiring a few dozen people in Ireland, that's bambooable. Or you want to join our thousands.
- [59:03]
Erica Gessert
Of customers who reported saving an average.
- [59:05]
Carol Massar
Of over over $46,000 a year with Bamboohr. That's bambooable too. Whatever people problem, data difficulty, or growing pain you have, they're all bamboo able.
- [59:16]
Erica Gessert
Want a hundred dollar gift card just for trying a free demo even?
- [59:19]
Carol Massar
That's bamboo able. All you have to do is visit bamboohr.com giftcard easy as that. That's bambooable.
- [59:27]
Erica Gessert
That's bamboohr.
- [59:30]
Tim Stankewicz
This is the Bloomberg Businessweek Daily Podcast. Listen live each weekday starting at 2:00pm Eastern on Apple Car and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play. Bloomberg 11:30.
- [59:48]
Carol Massar
Elon has it. So too does President Trump and Steve Jobs also as well.
- [59:54]
Tim Stankewicz
We're talking about leadership. I mean, these are all leaders. John Levy thinks about leadership a lot. He argues, though, that one thing all leaders have in common is not the thing that that we're told when it comes to these executive coaches or these business school courses, like, you know, empathy or humility, those sorts of things, he says. It's something else. John Levy is a behavioral scientist and New York Times bestselling author. He's got a new book out Team How Brilliant Leaders Unlock Collective Genius.
- [60:25]
John Levy
Let's think about it like this. Elon Musk or Steve Jobs, right? They weren't great at creating psychological safety or, or even getting consensus among their leadership, yet people still hold them up as these examples of amazing leaders. The problem is that what we've been sold is that, and mostly through universities like Harvard, Yale and so on, is that we have to have these essential skills if you want to be a leader, and if you pay them a whole lot of money, they'll teach you those skills and then you'll be a certified leader. Congratulations. The problem is it just doesn't track. When we really started looking at this, there was only one trait that was common across all leaders.
- [61:02]
Tim Stankewicz
What is it?
- [61:03]
John Levy
It's that they have followers. It's so self referential and it's kind of ridiculous. And so we really wanted to ask the question then, okay, what causes us to follow someone? Generally people say, okay, it's vision and charisma, but that doesn't make sense. There are plenty of people who have no vision and no charisma, and still people follow them.
- [61:23]
Frank Sorrentino
Yeah.
- [61:24]
John Levy
So the answer, it turns out, comes down to this. Do you remember how you felt when you were in high school? On Sunday at 6pm The Sunday Scaries. Now, I want you to think about this. You were free, you were at home, but you felt anxious. Friday at 1 o', clock, you were in class, but how did you feel?
- [61:40]
Carol Massar
Great.
- [61:41]
John Levy
Yeah. So excited.
- [61:42]
Carol Massar
Ecstatic.
- [61:43]
John Levy
And that's because human beings don't relate to the present, they relate to the future that they believe they have. If you can make me feel we.
- [61:50]
Tim Stankewicz
Don'T live in the moment, definitely up.
- [61:52]
John Levy
We believe we tend to have this association right now to what we think is about to happen. And so in high school on Sunday, what was going to happen was school the next day, or if you're about to leave for vacation, you might be sitting at work, but you're wildly excited. The reason we follow somebody is because when we interact with them or their media, they cause us to feel that there'll be a new and better future. That's so.
- [62:19]
Carol Massar
That's fascinating. So let's take it to somebody. President Trump, is that kind of his success or where he is today? It's because of that.
- [62:29]
John Levy
I would argue that people in general vote for whoever they feel will cause them to have a new and better future, whether it's President Trump or it's investing into Elon Musk's companies. Listen, when you read the reports of what he's like as a boss. Elon, right it's not the type of boss that we exemplify.
- [62:50]
Tim Stankewicz
I mean, you might not even have to read reports of what he's like as a boss. You could just follow him on social media, get a good understanding of his personality.
- [62:57]
John Levy
And when you do, you have to ask yourself, like, is this really the person I'd want to be reporting to? And the answer is maybe not. But what he's amazing at is he has a handful of super skills that nobody else has.
- [63:12]
Frank Sorrentino
Right.
- [63:12]
John Levy
He thinks at scale and moves faster than anyone in our society. And those super skills are so profound that when we interact with them, people will either say, hey, we'll give him a trillion dollar bonus. Right. Or we will come and work for you, or we want to launch things into space. But it's not because he's charismatic.
- [63:30]
Tim Stankewicz
Right. I mean, look at the example of when he pieced together the Doge team. What were the qualifications that he put out there?
- [63:36]
Frank Sorrentino
Right.
- [63:36]
Tim Stankewicz
You have to work 80 hours a week. You're not gonna get paid.
- [63:39]
Zach Pandel
Yeah.
- [63:40]
Tim Stankewicz
And, you know, sign me up. He had people from all over the country who not just wanted to work with him, but believed in his mission.
- [63:46]
Frank Sorrentino
Yeah.
- [63:47]
Carol Massar
It's really kind of fascinating. So. So the things that we get. So being nice and generous is not necessarily things that are gonna make a good leader. Like, it's.
- [63:56]
John Levy
So I want to separate two things, though.
- [63:57]
Carol Massar
Okay.
- [63:58]
John Levy
Let's separate being an effective leader from having followers.
- [64:01]
Carol Massar
Okay.
- [64:02]
John Levy
Having followers just means that people feel that you'll have a new and better. Or they'll feel.
- [64:06]
Carol Massar
Doesn't mean you will.
- [64:07]
John Levy
Correct. Because you could have somebody who's incompetent leading a bunch of morons, frankly, and get nowhere. When we actually started looking at the research of what causes teams to be really effective, it came from a woman named Anita Williams Woolley. And what she found in running a whole series of experiments is that none of the things that we actually thought actually make a team more effective. Effective, Right. So IQ of the smartest person. No effect. Average iq, no effect. How much people liked each other. Not a great predictor. Do you need to trust each other? Sure. Or think that somebody's competent. Yeah. But you don't necessarily need to want to invite everybody you work with to your wedding or something like that. The single greatest predictor. The number of women on the team. Yeah. And I want to be clear. It's not because they're women. It's not a chromosomal thing. We're not out of a job. Don't worry. It's.
- [65:01]
Tim Stankewicz
He was looking at me?
- [65:02]
Chris Whalen
Yeah.
- [65:03]
John Levy
It's because women index higher on emotional intelligence. And so there are plenty of men with high emotional intelligence, plenty of women who don't have any.
- [65:11]
Carol Massar
But this is, wait, this makes a better way. So more women on a team means what?
- [65:16]
John Levy
That on average you have more emotional intelligence on the team and then the team can function better because they can coordinate the better and then they outperform. Because when you have a single person sport, it's all about pure talent. Right. Or activity. But when you have a group, you've gone from taking your shots to passing either information or the ball. Now if I can't communicate with you, we are not going to be able to work well together.
- [65:39]
Carol Massar
Right.
- [65:39]
John Levy
Having that high emotional intelligence on the team means that we know when to push on a topic and when not to who to call on, even if they're being quiet and get the information.
- [65:49]
Tim Stankewicz
Now your, your behavioral. Well, what is your credential in this? Because you've, you've studied behavioral science.
- [65:56]
John Levy
Yeah.
- [65:56]
Tim Stankewicz
But you know, there are entire curricula that are dedicated to teaching leadership that ostensibly have evidence backed, you know, elements that are backed by studies that say this is the right way to do things. And you're essentially saying that's not really the right predictor here. We haven't been looking at the right thing. What's the evidence that you have have when it comes to number of followers or people who are actually following this charismatic personality that says this is the right outcome.
- [66:25]
John Levy
So let's separate a few things on the team stuff. There's a bunch of research I mentioned, Anita Williams, Willie, and there's several studies that back the same thing, that teams with more emotional intelligence outperform on the leadership side. When you actually look at all of the studies on people who've gotten MBAs versus those who'd they find that there is absolutely no improvement in performance whatsoever. Having an MBA versus not compared. And there's like several of these studies on the three year mark, five year mark, seven year mark. There's no evidence in better management skills or anything like that. And so the skills that we're told are essential, we might not really be able to train them in the way that these programs are running.
- [67:08]
Tim Stankewicz
The reason I ask about your. I don't know, you want to jump in. But the reason I ask about the credentialing here is because you have this background in having these dinners hosting thousands of people over the last 10 years.
- [67:21]
John Levy
15. Yeah, 15 people.
- [67:22]
Tim Stankewicz
15 years, 4,000 people.
- [67:24]
Zach Pandel
Yep.
- [67:24]
Tim Stankewicz
These are private influencer dinners where you have had Nobel laureates, Olympians, Grammy winning musicians, all at different times, show up and be together. What are the takeaways that you've been able to gather from getting this dispute group of people together and having them interact with one another?
- [67:43]
John Levy
So what? There's kind of two main things that I've, I've really noticed. The first is that all of them are at the top of their industry, whether they're commanding the International Space Station or they're running a major company. And none of them have the same characteristics at all. Malala does not produce results in the same way as a military commander, but people follow and will go very far in both cases.
- [68:10]
Frank Sorrentino
Right.
- [68:11]
John Levy
To support that cause. The second is, and this is kind of a wilder thing that people don't really notice, is that no matter how successful people are, they tend not to feel like they fit in or belong because the CEO knows that they've had three great quarters, but if the next two are off, they might be out of a job. And the Olympian knows that maybe they won at the last Olympics, but who knows if they'll even qualify at the next one and then no one will care. And so no matter what, there's this absolute factor that people feel a great desire to want to fit in and belong. Which brings me to my real desire to understand is clearly those leadership traits didn't matter. And if there's such a great desire to belong, it's because human beings tend to be best with each other.
- [68:57]
Frank Sorrentino
Other.
- [68:57]
John Levy
So let's try and understand at our core what will allow us to be best with each other. And that's what the book explores, which is what are the characteristics that makes teams smarter than the sum of their parts?
- [69:08]
Carol Massar
Okay, so why, if that is our driving force? When I look at Congress and I know you layer politics on things and things change, but if we are better.
- [69:21]
Tim Stankewicz
They cannot be studied.
- [69:22]
Carol Massar
If we are better as a group and a community and yes, indeed. Right. They have to vote on things. And so when they work together, things can actually move forward or at least move. Why does that not work its way out?
- [69:36]
John Levy
So that's, I think, a great question. And I want to be very clear. I don't study politics. I'm not an expert.
- [69:41]
Carol Massar
No. And full disclosure, like, you lay politics on everything and feel a little bit different.
- [69:46]
John Levy
I'm under the impression that things change. And this is what I've been told after Newt Gingrich was in Congress because he really pushed for less cooperation and also for people to spend more time in their home districts. Now when that occurs, then we have something called the mere exposure effect. The mere exposure effect is simply. Here's the funny thing. Have you ever. What would you consider the greatest painting of all time?
- [70:11]
Carol Massar
Well, people will say Mona Lisa.
- [70:13]
John Levy
Exactly. Do you know why?
- [70:15]
Tim Stankewicz
Isn't it the perfectly symmetrical?
- [70:16]
John Levy
That's what tell you. But that's frankly not true. In 1911, a man walked into the Louvre on a Monday while it was closed. The Louvre was protected by 11 mostly drunk legionnaires and walked into the Renaissance section, ripped the smallest painting he could off the wall, took it out of its frame and then wrapped it in a workman's mock and walked out.
- [70:39]
Carol Massar
That was the Mona Lisa, wasn't it?
- [70:40]
John Levy
Yeah, yeah. Newspapers around the world spread images of it and that's the first time almost anybody had ever heard of it. It was not considered a great painting. Three years later it was returned once again, newspapers around the world rejoiced. And it was a way to. It was the build up to World War I. So it was a way to make fun of the French government and its incompetence at the time. Now human beings tend to like and trust the things that they're familiar with, with. And when you see the person who might be across the aisle picking up kids at school and your kids are in the same class and you're at the same birthday parties and you develop familiarity and trust and all these other factors outside of that voting room, then suddenly you tend to treat people with more humanity and have a greater ability to work with them. And so, so much like the Mona Lisa is not really a great painting. If you actually speak to historians, the lack of that mere exposure and the trust that develops from interacting outside of these traditional negotiations, we've lost a lot of that.
- [71:48]
Carol Massar
Well, and we always bring up Alan Greenspan saying years ago about how when he was in Washington, people actually Democrats, Republicans, went to cocktail parties together. And so, you know, you have a glass of wine with somebody and you know, you kind of relate to. You're much more relatable, if you will. John, this was really, really fun. Hopefully we can catch up again in the future.
- [72:07]
John Levy
I'd be honored.
- [72:08]
Frank Sorrentino
Good.
- [72:08]
John Levy
Thank you for having me. Yeah.
- [72:09]
Carol Massar
John Levy, he's a behavioral scientist, New York Times best selling author. His new book is Team How Brilliant Leaders Unlock Collective Genius. Joining us right here in studio, were.
- [72:18]
Tim Stankewicz
You invited to one of the secret dinners ever?
- [72:20]
Carol Massar
It's secret, so I can't tell.
- [72:21]
Tim Stankewicz
Oh, okay. Yeah, same, same. Pro drivers live for race day, but for small business owners, every day is race day. That's why going pro with Lenovo Pro matters. One on one advice IT solutions and customized hardware powered by Intel Core Ultra processors. Keep your business on the right track. Business goes pro with Lenovo Pro. Sign up for free@lenovo.com Pro Lenovo Lenovo.
- [73:01]
Zach Pandel
Hey, audiobook lovers. This week on the podcast I'm sitting down with musician, producer and walking encyclopedia Questlove. We're talking about Mark Ronson's memoir Night how to be a DJ in 90s New York City. All right, like we talked about before, Mark Ronson found sanctuary in the DJ booth. What's a tool or piece of equipment in the studio or on stage that gives you the most control?
- [73:24]
Chris Whalen
So I have two microphones on stage.
- [73:27]
Tim Stankewicz
We have the microphone that you hear as the audience. Then we have a second microphone in which we communicate with each other. I feel like that second microphone kind.
- [73:36]
Chris Whalen
Of saved all of our friendships. No band likes each other after 20.
- [73:41]
Tim Stankewicz
Years or 25 years.
- [73:43]
Chris Whalen
The Beatles broke up in seven and.
- [73:46]
Tim Stankewicz
A half years and we're going on 35.
- [73:49]
Zach Pandel
Listen to Earsay, the Audible and iHeart Audiobook Club on the iHeartradio app or wherever you get your podcasts.
- [74:03]
Erica Gessert
When you're an HR pro facing a.
- [74:05]
Carol Massar
Furious frenzy of tasks and challenges, don't sweat it because it's all bamboo able.
- [74:09]
Zach Pandel
What?
- [74:10]
Carol Massar
Whattable, you ask? Bambooable. Bamboohr combines oodles of power and a knack for making HR easier so that everything's bambooable.
- [74:19]
Erica Gessert
Just name it. Payroll.
- [74:20]
Carol Massar
That's Bambooable.
- [74:21]
Erica Gessert
Hiring, onboarding, Both Bambooable.
- [74:24]
Tim Stankewicz
Hello. Good to meet you.
- [74:25]
Erica Gessert
Performance management.
- [74:26]
Carol Massar
That's bambooable. So if you're losing sleep over compliance, that's bambooable. Or you're hiring a few dozen people in Ireland, that's bambooable.
- [74:35]
Erica Gessert
Or you want to join our thunder? Thousands of customers who reported saving an.
- [74:39]
Carol Massar
Average of over $46,000 a year with BambooHR. That's bambooable too. Whatever people problem, data difficulty, or growing pain you have, they're all bamboo able.
- [74:50]
Erica Gessert
Want a $100 gift card just for trying a free demo even that's bamboo able.
- [74:55]
Carol Massar
All you have to do is visit bamboohr.com giftcard easy as that. That's bambooable.
- [75:01]
Erica Gessert
That's bamboohr.
- [75:03]
Tim Stankewicz
You're listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from 2 to 5pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. Let's talk about Ulta Beauty, because by some measures, it's the largest beauty retailer in the country. Yes, larger than Sephora, even though you see those stores everywhere, especially in like high density areas.
- [75:26]
Carol Massar
So true.
- [75:27]
Tim Stankewicz
But sometimes Ulta hides in plain sight. It stores primarily populating suburban and exurban shopping centers instead of thriving high end malls and pricey urban shopping districts.
- [75:36]
Carol Massar
All right, it is a story about Ulta, how big it is, what it's up to. It is the COVID story of the December issue of Bloomberg Business Week. It's written by Amanda Mull. She is Bloomberg Businessweek senior reporter and she joins us in New York City. We've been dying to talk to you about this, but it is true when I think cosmetics and stuff, you know, I think about the explosion of Sephora. But Ulta Beauty, I feel like it's been a quiet slee. It's massive.
- [76:01]
Erica Gessert
Yeah. I think especially for people who live in dense urban areas and especially perhaps New York City, Ulta sort of hides in plain sight. It opened its 1500th US location just just a couple of weeks ago. That's more than twice the locations that Sephora has in the U.S. the typical Ulta is 10,000 square feet, which is twice the size of the typical Sephora. And it's been around since 1990. It has sort of like quietly grown over the years. And in the last five or six years it's had like a real growth spike. In 2019, right before the pandemic, its annual revenue was $6 billion and in 2024 it had increased all the way to 11 billion. So it's a booming business, even though you might not notice it every day.
- [76:49]
Tim Stankewicz
What does it say about how Americans shop for beauty products? Because Sephora, for example, example, this is a, this is actually a case like a Harvard case study in business school. Like the experiential part, the way that they built these stores out. How do Americans shop when it comes to Ulta?
- [77:05]
Erica Gessert
Well, the beauty business is sort of fascinating, especially at this point in the retail landscape, because most other sectors of the consumer economy don't really have like a thriving multi brand retail scene. You know, department stores, things like that have really have really declined in a lot of places as well as like specialty retailers like electronics stores. But beauty is as a really in person business, you know, it is a tactile, fun thing to go shop for. And you want to be able to smell perfume, you want to be able to try a lipstick on or see if the certain foundation actually matches your skin tone, which makes it a really unique opportunity for companies that want to operate brick and mortar stores. And that has been a real a Real upside for Ulta and, and Ulta and Sephora sort of take separate approaches to beauty really. And they are like both quite successful. Ulta, you know, carries everything from drugstore products to Chanel perfume and Prada lip and Dior lip gloss and things like that. Sephora really concentrates at the upper end of the spectrum. But the Ulta theory is that, you know, women and beauty consumers in general shop across places, price points. There's very few who only shop at the drug store or who only shop from high end brands. So their theory is if you can put that all under one roof and make it really easy for people to go to, you know, when they're out, you know, buying dog food or out shopping for a coat or something like that at a, you know, at a discount store. Ulta is right there and you can just drive right up, park outside, hop in, get whatever you need.
- [78:39]
Carol Massar
Tell us about the Ulta beauty CEO who's actually been with the company for a while in some different positions.
- [78:49]
Erica Gessert
Yeah, so in January, the longtime CEO Dave Kimball stepped down and retired and Keisha Steelman, the current CEO, took his spot. She has been with Ulta since 2014 in a series of operations roles. Her background is in operations and, and she was most recently chief operations officer. And to me, her background is sort of fascinating because, you know, Ulta is a Fortune 500 company. And at the tops of these companies you usually find people with very similar types of backgrounds, people with elite educations, people who went through certain types of jobs, certain types of, you know, consulting firm work, lawyer work, things like that. Kesha came up through retail. Retail from working in stores. Her first job in her career was in a Target store. And she has worked in stores and then in the corporate governance of stores her entire career. She's from a very small town in Iowa and she's really, I think, sort of like the Ulta customer. She has a particular insight into how Ulta's customers want to shop. Ulta. Something interesting about them, I think, is that they, they open a lot of rural locations where you don't get Sephoras and you may not have like a Target even. So Ulta opens in a lot of places where they try to meet people.
- [80:11]
Carol Massar
Where they are such cool stuff. 30 seconds here. If you say Sephora, do they give you the evil eye?
- [80:19]
Erica Gessert
You know, a source that I talked to for this story describes Sephora and Ulta as frenemies. And you know, they, they, they, they carry a lot of the same products. There's at the high end especially and I think that there's this sort of silent rivalry between them. But because Sephora concentrates so much on like high end urban real estate and high end malls with like affluent customer bases. And Ulta just takes an opposite look at the, at the market. So they don't overlap that much.
- [80:50]
Carol Massar
I went to an Ulta recently for the first time and I was kind of blown away, although I still, it's just, yeah, the whole beauty industry just kind of blows my mind.
- [80:57]
Tim Stankewicz
Our thanks to Amanda Mole, Bloomberg businessweek Senior Reporter. Reminder. This is the COVID story of the December issue of Bloomberg businessweek. You can read it on the Bloomberg Terminal and at bloomberg.com/businessweek.
- [81:09]
Carol Massar
The beauty industry, though overall has several players. We talk about the growth, we talk about the profitability, we just talk about, you know, consumers. They're out there spending.
- [81:19]
Frank Sorrentino
Yeah.
- [81:19]
Tim Stankewicz
Let's talk a little bit about one of those companies. Sally Beauty Holding. Following the company's most recent earnings report, fourth quarter comp sales up 1.3%. That beat Wall street estimates. The company also beat estimates when it came to fourth quarter adjusted EPS and Q4 net sales. Delis Polonis is President and CEO of the $1.4 billion market cap Sally Beauty Holdings. She joins us from Texas. Shares up more than 38% so far this year. Denise, we want to talk about the company, but I want to start with just your views on the consumer right now. How is the consumer?
- [81:51]
Erica Gessert
Thanks for having me. Great to be on. You know, overall, the consumer that we're seeing is resilient but is choiceful. So resilient in total dollar spending, but very picky about what they're going to put their money into right now. Just knowing that they might have a limited, limited budget to spend.
- [82:06]
Carol Massar
What are they spending it on then? If they have a limited budget, Is it smaller item, things that cost less? I'm curious.
- [82:14]
Erica Gessert
I think what we see is we see people both splurging and then being frugal. So they'll splurge on experiences. They'll splurge on special products that are important to them. I expect that they'll splurge a bit on things like Thanksgiving dinner, but they'll pull back and say, you know, if I have enough of something in my pantry, maybe I won't buy three more bottles of shampoo or three more lipsticks. I'm going to lean in for what really matters to me.
- [82:39]
Carol Massar
Well, that's what I mean, though. So then I didn't mean. Yeah, no, I get it. That they might not spend, you Know they look at their whole wallet and what they could spend on, but so what are they really spending money on it? Sally Beauty I will tell you at.
- [82:49]
Erica Gessert
Sally Beauty the big thing is hair color. So our hair color business was up high single digits at Sally this quarter. And what we're really seeing is customers who have always done DIY for their hair continuing to do so. But more and more we're seeing customers who are splitting their time that they might regularly get done in a second salon, but they'll come in and do a fill in or an update, you know, to, to kind of stretch their wallet a little bit between those salon visits by coloring their hair, touching up their roots. And we've also see a reinvigoration of vivid colors as people I think want some fun in their lives and want that experience of pink or purple hair.
- [83:26]
Tim Stankewicz
Just remind us that where you play and where you meet the consumer. You call yourself the world's largest distributor and retailer of professional beauty products. Brands that might be and are probably known to most of our audience include Clairol, Conair, Hotshot Tools, Wella and more. Where do you, where do you meet the consumer? Because it happens at retail stores, but it also happens via salons.
- [83:48]
Erica Gessert
Does we meet them in two spots? So overall we're about a $4 billion sales player that split half and half between serving, serving a traditional consumer. With Sally, which is a public consumer retail stores that are out there and then we're service all of the beauty salon professionals. So you know all those folks who work as independent contractors or work in a salon taking care of folks, we're actually that largest distributor to that salon professional. And primarily what we do on both sides of our business is everything hair, hair color, hair care, accessories, tools, you name it, that's what we do.
- [84:23]
Carol Massar
Hey, I am curious with tariffs and so on and so forth, the global supply chain when it comes to beauty products, I think it's around the world. France, South Korea, the US asked China, Italy, Japan, how has that impacted the cost of things or your business?
- [84:36]
Erica Gessert
I think we're quite fortunate that 80% of our product comes from North America and the 20% that doesn't is kind of split equally between China and Western Europe. So we're a little bit more insulated than some other beauty players out there, which is great news for us when we think about what's most affected. For us it's things like blow dryer barriers or flatirons that might be coming in from China and have a little bit more of that tariff on it. But We've got some great relationships and we're navigating it quite nicely. I don't expect the consumer will see any notable increase to them as we're going through the holiday selling season on those products. With the cooperation we have with our vendors and how we're trying to navigate sourcing.
- [85:18]
Tim Stankewicz
The disconnect between Wall Street's expectations and what you delivered. I know a big part of any executive's job is managing expectations. It was a big beat pretty much across the board. Where did that come from, you know?
- [85:29]
Erica Gessert
Well, I will tell you, the team just did a fantastic job executing. We've got a few key initiatives that are working really well for us today, you know, namely starting with innovation, particularly on the pro side of our business. 35% of our sales in hair care this last year came from product that's new to us in the last 18 months or so. And that's three times higher in than it was a couple years ago where that was only 10% from newness. So that newness is resonating with our salon customers quite a bit. On the, on the retail side marketplaces, you know, we now participate with Uber Eats, DoorDash and Instacart in terms of kind of the non traditional marketplaces, you know, delivered to your door in two hours. It's been a great business growth opportunity for us. We, we laugh and internally that the fact is there's a lot of people who have an EyeLash emergency at 6 o' clock on a Saturday night before, you know, a big party.
- [86:24]
Tim Stankewicz
That was Denise Paulownis, president and CEO over at Sally Beauty Holdings.
- [86:28]
Carol Massar
And that wraps up the weekend edition of Bloomberg businessweek from Bloomberg Radio. Thank you so much for joining us.
- [86:33]
Tim Stankewicz
I'm Tim Stanweck.
- [86:34]
Carol Massar
And I'm Carol Massar. Have a good and safe weekend, everyone.
- [86:38]
Tim Stankewicz
This is the Bloomberg businessweek daily podcast, available on Apple, Spotify and anywhere else you get. Your podcasts listen live weekday afternoons from 2 to 5pm Eastern on bloomberg.com, the iHeartRadio app TuneIn and the Bloomberg Business App. You can also watch us live Every weekday on YouTube and always on the Bloomberg Terminal. There's no championship league for small business owners, but if there was, you'd be at the top of the standings because going pro with Lenovo Pro means you've.
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