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- [00:01]
Host
Oh, could this vintage store be any cuter?
- [00:03]
Denise Polonis
Right?
- [00:04]
Carol Massar
And the best part? They accept Discover.
- [00:06]
Reporter/Analyst
Except Discover in a little place like this?
- [00:09]
Carol Massar
I don't think so. Jennifer oh yeah, huh? Discover is accepted where I like to shop. Come on baby, get with the times.
- [00:16]
Reporter/Analyst
Right.
- [00:17]
Bloomberg Reporter
So we shouldn't get the parachute pants.
- [00:19]
Carol Massar
These are making a comeback, I think.
- [00:23]
Bloomberg Reporter
Discover is accepted at 99% of places.
- [00:26]
LifeLock Advertiser
That take credit cards nationwide, based on.
- [00:28]
Bloomberg Reporter
The February 2025 Nielsen report.
- [00:31]
Public Investing Advertiser
Support for the show comes from Public, the investing platform for those who take it seriously. On Public, you can build a multi asset portfolio of stocks, bonds, options, crypto and now generated assets which allow you to turn any idea into an investable index with AI. It all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S&P 500. Then you can invest in a few few clicks. Generated assets are like ETFs with infinite possibilities, completely customizable and based on your thesis, not someone else's. Go to public.com podcast and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com podcast paid for by Public Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC Advisory Services by Public Advisors, llc. SEC Registered Advisor Generated Assets is an interactive analysis tool. Output is for informational purposes only and is not an investment recommendation or advice. Complete disclosures available at public.com disclosures there's.
- [01:31]
Host
A fire inside you you can't ignore.
- [01:34]
Carol Massar
Stand still. Not a chance.
- [01:36]
Host
You're a lifelong learner who's come this far. Now we're here to help you keep going further. Capella University what can't you do? Visit capella.edu to learn more. Bloomberg Audio Studios Podcasts Radio News this is Bloomberg businessweek Daily reporting from the magazine that helps global leaders stay ahead with insight on people, companies and trends shaping today's complex economy. Plus global business, finance and tech news as it happens. The Bloomberg businessweek Daily Podcast with Carol Massar and Tim Stanweck on Bloomberg Radio.
- [02:18]
Bloomberg Reporter
Officials urged banks to limit purchases of U.S. government bonds and instructed those with high exposure to pare down their positions. The directive, though, does not apply to China's state holdings of U.S. treasuries. In this move, Carol framed around diversifying market risk rather than anything to do with geopolitical maneuvering or a Fundamental loss of confidence in US Creditworthiness.
- [02:36]
Carol Massar
Yeah, it makes me think about this idea and this argument that the US is increasingly becoming uninvestable. But let's see what Stuart Kaiser has to say about all this. He's head of equity trading strategy over at Citi. He joins us here in studio. Stuart, good to have you here. Welcome back.
- [02:49]
Stuart Kaiser
Thank you. Good to be here.
- [02:51]
Carol Massar
Hey, we were just talking with our Stuart Paul about Kevin Warsh's past support of a new accord between the treasury and the Fed. And this has to do with, with the balance sheet, which sounds like increased cooperation. We know in the past that Kevin Wash has wanted the Fed to shrink its balance sheet. So we're trying to make sense of what it is. And then we just talked about the Chinese regulators advising their financial institutions to rein in the holding of US Government bonds. Are Treasuries undergoing a reboot in your view, on the world stage when it comes to, you know, the United States being kind of a sure thing, if you will, in the financial world? And if so, what are the implications of that?
- [03:29]
Stuart Kaiser
I mean, look, I don't know if there's any real alternative for a lot of these, you know, countries to invest.
- [03:33]
Carol Massar
Their reserves because of the size and the liquidity.
- [03:36]
Reporter/Analyst
Right.
- [03:37]
Carol Massar
Like hands down.
- [03:38]
Stuart Kaiser
And look, there are, there is a risk out there in the long end of the government bond curves, I think. But that's globally. We've seen that happen in UK gilts, we've seen that happen in German bonds, we've seen it happen in Japanese JGBs. So I don't think really concerned about the impact of fiscal spending on the long end of the yield curve is unique to the US Nor is it something that's kind of snuck up on people. But it is a risk. And if you look at what has triggered those kind of events in other countries, it's generally been things related to fiscal policy, tax cuts, things of that nature. So it's something that's on our radar, is probably been on our radar since about last July when all of those 30 year bonds globally got above 3%. You know, as an equity guy, I'm going to let the bond markets tell me, you know, when and if this becomes a risk. But for now, the equity guys keep.
- [04:21]
Carol Massar
A watch on the bond market.
- [04:23]
Public Investing Advertiser
We do.
- [04:23]
Stuart Kaiser
But I would say if an equity guy knows when the bond auction is, you're in trouble. But big picture in this case, I think, you know, we have not seen the long end of the curve move significantly. We haven't seen bond volatility increase materially either. So for now, people seem pretty comfortable with things.
- [04:38]
Bloomberg Reporter
Well, speaking of the equity side of things, you were plenty busy last week with the rotation that we saw, the volatility that we saw, the moves down, then the moves up a week that sort of ended really close to where it started, but a lot happened in between with some big moves lower. When it comes to companies like software, what is your view on. On where. Where to be optimistic right now and where to stay away from.
- [04:59]
Stuart Kaiser
Yeah, we're still pretty positive US Equity risks in general. We've been pretty bullish on the cyclical parts of the, of the equity market since the beginning of the year. I think if you took a little bit of a step back though, you'd see that this quote unquote rotation sort of out of tech and growth and into value in cyclicals actually started back in November. It's not a new phenomenon. What happened last week is the moves accelerated and it got quite volatile and I think that impacted the way that folks manage risk. And it's also, to be honest with you, a pretty simple math question, right? You know, if you take the Mag 7 Plus Broadcom and a few others, you pretty quickly get close to about 50% of S& P market cap, right? So when you're selling those stocks, you have to find a home for them. And I think just the absolute size of the moves is really what concerned people last week, rather than a change to like the underlying U.S. equity outlook. I mean, U.S. gDP according to the Fed is tracking kind of mid 4, mid 4% range. Our economic surprise index is kind of off the chart. Earnings were solid. You're expecting some good tax refunds coming up. So the sort of fundamental underpinnings of the market look pretty good. What you're going through is some indigestion. After two years of buying tech and growth stocks, you're now kind of repositioning not whether you want to own US equities, but how. And that process has been a little bumpy, at least.
- [06:13]
Carol Massar
Well, we talked to you about the overperformance or performance of small caps. Last week they were up about 2.2%, certainly outperforming the large cap indices. The other thing is, you know, if you look at the equal weight, S and P is easily outperforming the S&P 505 and a half percent year to date for the equal weight to just under 2% for the widely quoted S&P 500. So again, that plays into what you're saying that we're Seeing money go elsewhere. But what's to stop the money going back to big cap Tech or those hyperscalers? Because it feels like the last two or three years, everyone's like, no, no, no. Time to diversify. And yet that's where the overperformance has been or outperformance.
- [06:55]
Stuart Kaiser
I mean, I think back in sort of October and November earnings season, you started to see a little bit of a change in this reaction function. Metta back then was the key one where they announced this very large capex spending program and the stock sold off.
- [07:06]
Carol Massar
Right?
- [07:07]
Stuart Kaiser
And that was probably the first time in the last couple of years where a company had been punished for spending more on AI. And look, lo and behold, this quarter we saw that repeat with a number of companies.
- [07:15]
Carol Massar
So Metta did well right off of their earnings because they're showing the, you know, they are all on, on this spend.
- [07:21]
Stuart Kaiser
They are. And that, and that's, that's the key, right? This CAPE spending is undergoing an audit or some other form of very invasive, invasive examination. And, but you know, Microsoft and Amazon were both kind of punished for more capex spending this quarter. So I think what you're really seeing is within the tech trade, the shift is moved kind of away from the spenders and to the beneficiaries of that spending. We like power generation and the data center build out as the way to express that. And then more broadly, to your point, you're also getting a little bit of a rotation out of growth into these cyclicals. So again, these things aren't necessarily negative for the market collectively, but they do cause a lot of pain in some, in some positions that people have had in their portfolios for 24 months minimum.
- [07:59]
Bloomberg Reporter
Alphabet embarks on a global bond spree to fund record spending borrowing far and wide to finance unprecedented spending plan on its ambitions. $20 billion, a US dollar bond offering on Monday, more than $15 billion than initially expected. Is this a signal of something? I mean, it's the same thing you're just talking about.
- [08:18]
Stuart Kaiser
You know, it's a signal that they have a lot of spending to do. I think, you know, you might have.
- [08:21]
Bloomberg Reporter
A lot of money.
- [08:22]
Stuart Kaiser
They do. But you know, Amazon, though, it looks like free cash flow, negative free cash flow after their announcement. So I think what folks are doing is you can generally carve out the Mag 7 and say their balance sheets are so big and strong that they can sustain the spending. They're all double A rated or better. You take a step, even a slight step down in credit rating to, let's say an Oracle. That's Triple B, right? And that examination is a little more harsh. So I think what you're seeing from Google, frankly is look, they're viewed as the current winner in the trade. Now clearly those winners are changing quarter to quarter. So I think folks are maybe a little more comfortable with them spending because to your point, they have the roi. They currently have the best AI model. If you can demonstrate acceptable return on the investment, the markets are okay with this. If it looks like it's going to be roe destructive, then right now you're getting punished for that a little bit. And I wouldn't expect that to change as this year goes on. I mean, there's a higher bar right now for what you're going to spend this money on.
- [09:17]
Bloomberg Reporter
Stay with us. More from Bloomberg Businessweek Daily coming up after this.
- [09:24]
Jacob Goldstein
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- [10:09]
Public Investing Advertiser
For the show comes from Public, the investing platform for those who take it seriously. On Public you can build a multi asset portfolio of stocks, bonds, options, crypto and now generated assets which allow you to turn any idea into an investable index. With AI. It all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year. You can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S&P 500. Then you can invest in in a few clicks. Generated assets are like ETFs with infinite possibilities, completely customizable and based on your thesis, not someone else's. Go to public.com podcast and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com podcast paid for by Public Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC Advisory Services by Public Advisors llc, SEC Registered Advisor Generated Assets is an interactive analysis tool. Output is for informational purposes only and is not an investment recommendation or advice. Complete Disclosures available@public.com Disclosures Are you a fraud paying American?
- [11:12]
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- [12:09]
Host
You're listening to the Bloomberg Businessweek Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube with a rundown.
- [12:24]
Bloomberg Reporter
On the latest headlines and sizing up the competitive landscape on GLP1. Our guru, Bloomberg News health reporter Madison Miller, joins us here in the studio. I just want to start with the lawsuit because I was pretty surprised last week when we got the news that they were going to do this because I thought there was no more. It wasn't legally allowed by the FDA to compound for companies to compound medicine anymore for, well, not any medicine but GLP1s because there's no longer a shortage. Wasn't that the loophole that these companies were using?
- [12:51]
Reporter/Analyst
Exactly. So it was a big, I mean, kind of a risky bet that HIMS was taking that the FDA just wouldn't do anything about it. But that is sort of what we've seen happen the last couple of years since the shortage ended. There's been really very little action from the FDA in terms of cracking down on this proliferation of compounded GLP1 drugs. And so HIMSS continued doing it. A lot of other companies have continued.
- [13:14]
Carol Massar
So they're breaking the law by doing it?
- [13:15]
Reporter/Analyst
That is the assumption, yes. But the problem is that the FDA really hasn't said much of anything. So it was, it was kind of up to these companies to interpret the law themselves. So in this gray area, they've continued doing it. And that's part of the problem is that it was a little bit unclear, at least to maybe the general public or to some people, what the FDA was really going to do. And so they've just continued to do it. Some companies have pulled back, like Roe, for example, stopped compounding after the shortages ended, and HIMSS has kept doing it. And so far, I mean, until now, there has been really little action either from Novo, from the fda. And finally, I think both of them said enough is enough.
- [13:56]
Carol Massar
All right, so Novo files this lawsuit. All right, So I guess it's gonna play out in the courts or there's gonna be negotiating or what?
- [14:02]
Reporter/Analyst
We don't really know.
- [14:03]
Carol Massar
Does the FDA have to come in here and make a ruling to like, figure out what the real rule or law is?
- [14:08]
Reporter/Analyst
Right. So Novo is suing on the grounds of patent infringement, which is something we haven't seen before. Novo and Lilly have both filed lawsuits against compounding pharmacies, telehealth companies, med spas that are selling these knockoff versions of the drugs, but they haven't gone after anyone for patent infringement yet. So this is actually the drug semaglutide, which is the active ingredient in both Ozempic and WeGovy. Novo is saying that Hims is violating that patent in the United States. So that's a big deal, that's a big escalation. And it sort of shows the more aggressive strategy that Novo is taking because they really are under a lot of pressure right now.
- [14:45]
Bloomberg Reporter
Why are they under pressure? And Eli Lilly's not as under much.
- [14:47]
Reporter/Analyst
Pressure, as much pressure, I mean, Novo.
- [14:49]
Bloomberg Reporter
So we're going to talk about some deal news a little later, but yeah.
- [14:52]
Reporter/Analyst
Yeah, Novo, they've had different problems even though the market, you know, they're the only two players really in this market. Novo has had more difficulty because one, their drugs are a little bit older, meaning that they do come off of patent outside of the US Sooner. Whereas Lilly has another decade of patent life on its drugs. Novo also has had more difficulties with these compounders because it did not get a handle on this supply shortage as soon as Lilly did.
- [15:18]
Bloomberg Reporter
So.
- [15:18]
Reporter/Analyst
So both companies drugs were in short supply. Novo had more issues, couldn't get a handle on it. Lilly got a handle on it more quickly and was more aggressive, really right off the bat going after these compounders, whereas Novo sort of, I mean, they're Danish, they're a little bit more, less aggressive, I think, than an American pharmaceutical company. But they've had to change that recently. And then in terms of next generation drugs, their pipeline is not quite as exciting. Exciting as Lilly's and so that doesn't set them up for the future quite as well.
- [15:48]
Carol Massar
I am shocked that we're already talking about like maybe a move towards generics or their patents coming off. When did they start? I'm like, I feel like it was just a few years ago.
- [15:57]
Reporter/Analyst
Right. I mean, that's the thing. So Novo's drug, Ozempic was approved, I think in 2017, launched in 2018. And so that's the same drug technically as WeGovy. WeGovy is just a higher dose version of that. So it's, that was the thing. It didn't really come onto the scene. People didn't start talking about it until a couple of years ago. But really the drug's been around for a while and so the clock has been ticking in that time.
- [16:20]
Bloomberg Reporter
Should we talk about the Eli Lilly deal?
- [16:22]
Host
Yeah.
- [16:23]
Bloomberg Reporter
Okay, so this is not a non GLP1 deal, which kind of speaks to the idea of these companies diversifying. The company agreeing to buy the closely held US biotech Orna Therapeutics to up to $2.4 billion in cash second deal in as many days as the country look to expand its pipeline beyond Zepbound. What does this do?
- [16:40]
Reporter/Analyst
I mean, this drug or this.
- [16:43]
Bloomberg Reporter
No, like, like it kind of speaks to this idea of, of going beyond. Yes, of going beyond this industry.
- [16:48]
Carol Massar
Because I thought they were going to.
- [16:50]
Host
Be living off this.
- [16:51]
Carol Massar
So did I, a long time.
- [16:52]
Bloomberg Reporter
But I guess we're. That's why we're not running a drug company.
- [16:55]
Carol Massar
Exactly why we're not.
- [16:56]
Bloomberg Reporter
Because I had the same reaction as you did. I thought like, okay, they're, they got it, they're going to tweak it, they're.
- [17:01]
Carol Massar
Going to make a pill, they're going to just kind of keep going.
- [17:03]
Reporter/Analyst
Well, Lilly has learned the hard way that resting on your laurels, which is sort of the problem that Novo is facing right now, doesn't work. I mean, drug companies are always, should always be looking toward the next big thing because patents expire. And that's the problem with, you know, the drug industry is you always have to be thinking about the next thing. Lilly is the one that brought Prozac to the market back in the 1990s. That was a massive drug. And for a while, Lilly was in a similar position where it was riding high on the Prozac fortune. And then after that, they really were so ultra focused on like, we're going to be A company that develops neuropsychiatric drugs and for psychiatric conditions. Whatever we're going to. This is what we're going to do. And then they didn't have a second act to follow it up. And so I've talked to the executives at Lilly who have said they're really being purposeful about we have to be thinking outside of just obesity. They're looking at immunology, cancer, genetic medicines. A third of their portfolio is gene therapies now. So they're trying to. They're still extremely focused on obesity. And they have, they're testing drugs for basically like everything in the obesity landscape, you know, from 5% weight loss to 30% weight loss. They want to have something for everyone, but they're also looking outside of obesity. And that's a really important part of their strategy.
- [18:18]
Carol Massar
Can I ask you something? Going back to. Because Novo is going to come off patent sooner, so should we assume that. So then there'll be all these copycats that folks that maybe were taking zepbound or something like we've talked with you, that they're not all the same, that they're just gonna run to the generics because they'll be cheaper or they're not gonna be able to medically because things are different. Not every drug is the same.
- [18:42]
Reporter/Analyst
I mean, they hypothetically would be able to, I mean, consulting with their doctor if their doctor's like, yeah, you know, generic semaglutide is fine for you, sure, that's great. If that's the most affordable option. That's what your insurance covers. But we also have this other side of this industry where there's a huge cash pay component. And the drug makers, Novo and Lilly, have both worked with the Trump administration to bring down prices for patients in Medicare and also cash pay prices. I think it's something like a third of patients in this market in general right now, in the US at least, are cash pay patients. So they're not going through insurance and they're paying these lower discounted prices that the drug makers offer through direct to consumer websites. And so the prices have come down much, much faster than we would normally see in such an ultra competitive market, usually that it doesn't happen this way. So patients maybe are already used to paying $200 a month for their Zepbound and they don't want to switch because that's what works for them. Even though there's a cheaper option on the market, it's sort of a question mark as to what happens next.
- [19:46]
Bloomberg Reporter
So we're talking about this in the context of the way that Americans have. Are looking for ways to lose weight. We'd be remiss if we didn't talk about some of the messaging in the super bowl last night, Mike Tyson ad from. It was like a maha ad out there talking about how processed food kills. And he's eating an apple at the end and he talks about his own struggle, his sister's struggle. Is there any. I mean, I know it's kind of a crazy question, but is there any chance that the messaging with that starts to work and it attacks the problem that some argue is where it starts, right? This idea that we're not necessarily eating healthy and therefore there won't be as much of a demand for these drugs moving forward.
- [20:30]
Reporter/Analyst
I mean, it would be great if I think, like everyone hopes, even Lilianovo say, that they hope that people will eat healthier, move more. Like, they say that that's an important part of these drugs too. But I think it's hard because it does. Obesity is a disease. And that's the message that these drug makers are also putting out is that, like, this is a thing that for some people, eating healthy doesn't fix. And even if you eat healthy, exercise, whatever, for some people that just doesn't, they have a certain genetic makeup or it's whatever, like they can't lose weight or it's really, really difficult for them to lose weight. So I think it's like not an either or situation. Both things should be happening, and hopefully both things will help bring down the obesity rates in this country.
- [21:16]
Carol Massar
But I wanted to ask you because I feel like when we started talking with you that we, you know, are like, this is the drug that's gonna solve everything. Can these drug makers get initial indications for the medications that expands their patents or something? Like, does that help?
- [21:30]
Reporter/Analyst
I mean, it helps with getting more insurance companies to cover it. So to pay for it. There are some things, like if you have a different formulation for the drug, like those types of things, sometimes pediatric indications will help give you a couple more years of patent life. But at the same time, it's like it's always. The clock is always ticking. It's not going to add much at this point. And you have patents at least for Semaglutide frozen go be falling sort of all over the world within the next year. And so you will have those generic generics out there in the world. Even if the US Patent hasn't expired yet, it's kind of only a matter of time before we get there.
- [22:08]
Carol Massar
I almost feel sorry. Like I know with like the R and D that goes into this stuff, like you kind of understand that argument having a brother that used to be in pharma. Like we used to talk about this all the time debate, you know.
- [22:18]
Reporter/Analyst
Right. And that's what I think. They're also like. They've really had a hard time with the compounding because it sort of circumstances invented that a little bit.
- [22:26]
Host
You're listening to the Bloomberg Businessweek Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [22:40]
Bloomberg Reporter
I want to bring in Joyce Wong, senior client portfolio manager at American Century Investments. The firm has about $315 billion in assets under management. She's back here in our Bloomberg Interactive Brokers studio. We haven't had a chance to speak to you since Kevin Wash was announced as President Trump's pick to chair the Fed. Perhaps he gets confirmed, perhaps he does replace Jay Powell. How does that change your outlook for the central bank?
- [23:04]
Joyce Wong
It doesn't really change our outlook because we did believe that it probably would have been one of the Kevin's and you know, the other one was kind of eliminated a few weeks ago. So we did have a strong feeling that it would be Kevin Wash. And the good thing is is unlike some of the other candidates, he does have a pretty long public history of his views and things like that. So if we anticipate that he continues to follow some of those paths with maybe a little bit more of a dovish bias given I was going to.
- [23:33]
Bloomberg Reporter
Say his history doesn't necessarily align with what he said over the last couple of years.
- [23:38]
Joyce Wong
Yes. But I do think that he is a pragmatic banker. Right. He has experience on both sides. So I do think that he will understand how the Fed does have a pretty narrow tightrope to walk. So we do believe that with him being confirmed as Fed chair, he is likely to cause yield curve steepening. So we are cautious about being very long in the yield curve. But at the same time, I think the last time I was here we were talking about being on the short end. Given that we do think even with Kevin Wash being confirmed, there probably won't be as many cuts as people are thinking.
- [24:17]
Carol Massar
I think what was interesting is we've been talking about this most read story on the Bloomberg about Kevin Wash and maybe kind of redefining the accord between the Fed and the treasury and that has been a little bit unsettling to the bond market. But what's Interesting is it would basically involve, you know, the Fed balance sheet and maybe being kind of a buyer when the treasury needed the Fed to do that. At the same time, Kevin Wash has been out there, as you say, there's a history where he has looked to reduce the Fed balance sheet. So like, which is it? How do you read between the tea leaves about really what kind of a Fed share he ultimately will be?
- [24:55]
Joyce Wong
Yes. And also we have to put forth the fact that, you know, since 08, the Fed's balance sheet has grown many, many times. Right. So it's not even just cutting back a little bit to pre Covid. Even going into Covid, the balance sheet was very bloated. Right. So that's why it's kind of like I can see his point where previously he said some things, now he's saying something else. It kind of makes sense. So I think it's to be determined exactly how it's going to play out. But overall, I think it is still positive for yields. They should remain higher. And so from the investors perspective, it's a great time to buy bonds higher.
- [25:33]
Carol Massar
Because inflationary pressures, some inflationary pressures.
- [25:37]
Joyce Wong
We do think that inflation, while it's down, you know, there's a chance it could remain closer to three than two. We'll see how January CPI comes out. Historically that's been a hot month. So, you know, we'll see how that plays out. But we do think yields are going to stay higher for longer.
- [25:55]
Carol Massar
Is it also. Some of it has to do with, I feel like people keep coming in and talking about these US Economy doing okay and that with some of the stimulus that's coming as a result of President Trump's the tax cuts and so on and so forth, that that's just going to provide more stimulus into the economy, which also means probably some inflationary pressures. But an economy that's doing okay.
- [26:16]
Joyce Wong
Yes, it's actually shockingly okay. It's better than okay. In fact, it's pretty strong.
- [26:21]
Carol Massar
It's not what we expected probably a year ago.
- [26:23]
Joyce Wong
It is not. So this time last year, American Century was definitely thinking more of a slowdown. Now we are sort of on the more positive side. Like we see, like you pointed out a lot of tailwinds for this re acceleration story. I mean, especially, you know, it's tax season soon. I think a lot of people are starting to calculate how big of a refund they're getting. Yeah, yeah. I don't think I'm in that camp, but some people are. So those tax effects from one big beautiful Bill should start to flow through and towards the second half of this year I think there will be stronger growth.
- [26:56]
Bloomberg Reporter
How do you look at companies such as Alphabet today embarking on this global bond spree to fund record spending? So Alphabet borrowing far and wide to finance the unprecedented spending plan to its ambitions set to raise $20 billion from a U.S. bond offering on Monday. More than $15 billion initially expected. It's also due to a rare sale of a 1 of 100 year bonds. It's the first time a tech company has tried such an offering in the dot com since the dot com frenzy of the late 1990s. How do you, how do you look at that?
- [27:25]
Joyce Wong
I think that speaks to the fact that companies also see yields possibly moving up right. Because they want to lock their issuing and coming to the market now because they anticipate in a year, two, three years it'll be higher. And one thing that we're thinking about is certainly Alphabet has the business and the cash flows to repay these bonds. However, we have seen a lot of AI related names making loans in the CLO market. In the private debt market. A lot of those loans are going to technology companies which may not be a solid.
- [28:00]
Bloomberg Reporter
I don't know, maybe you can convince me just $20 billion, it's a lot of money. But you're spending. Last week Alphabet said it's planning as much as $185 billion on capex this year. So that's like it doesn't such a small part.
- [28:13]
Carol Massar
Well it just shows that they're using right the debt market to do a little bit of it.
- [28:17]
Joyce Wong
Like during COVID when yields were basically at zero, Apple went to the bond market, right. Borrowed, they had plenty of cash on hand. But when the market is going to reward you, you might as well borrow.
- [28:29]
Carol Massar
Well, my money costs so little, right. Like why not not why not tap into it. What do you think is the best play in the fixed income world right now? And I almost curious. We were talking before we got going. You're traveling. I am curious what clients and investors are kind of saying. Here's what I want to know about right now.
- [28:44]
Joyce Wong
A lot of investors are being opportunistic. So while I think passive investing has made significant headwinds in the fixed income space, a lot of investors are seeing historically tight spreads across investment grade corporates, high yield corporates, securitized credit. It's all very tight. So active managers really have the edge the of here. We're thinking this year you're not going to see a big credit event where you're going to have this obvious opportunity to add lots of risk. So we're being strategic and when you get little blips, we have a shopping list ready to go. So our portfolio managers are being active, they're being opportunistic at these small spread widenings because like we said over the course of this year I think that will be rewarded.
- [29:27]
Carol Massar
So are they largely in a wait and see C mode at this point, ready to act if things start to whatever their exact targets are scenario?
- [29:35]
Joyce Wong
But we still favor higher quality corporates over high yields. But strategically adding to some of the.
- [29:39]
Carol Massar
High yield SAS names do you like? No, I mean the SaaS company goes to the debt market. Are you a little bit more suspect?
- [29:46]
Joyce Wong
Yes, yes for sure. Now it doesn't have the same effect. We haven't seen the same spread. Widening is on the equity side. Yeah, but of course again there are tech names we feel comfortable with and there are some that we we don't.
- [29:59]
Bloomberg Reporter
Stay with us. More from Bloomberg Businessweek Daily coming up after this.
- [30:06]
Jacob Goldstein
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- [31:51]
Carol Massar
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Carol Massar
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- [32:21]
Host
You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [32:35]
Bloomberg Reporter
I'm looking at shares of Sally Beauty. They climbed as much as 9.3% earlier in the session closed higher by 5.2%. This after the company reported adjusted earnings per share. Net sales for the first quarter that beat the average analyst estimate. Gross margin came in at 51.2%. That's what analysts were expecting. We got with us Denise Polonis, president and CEO of Sally Beauty Holdings. It's the 1.7 billion dollar market cap company. She joins us from Plano, Texas. Denise, welcome back. Welcome back. We spoke to you a few months ago just to remind everybody, professional beauty supplies, products for hair color, hair care, skin care, nails and more. You've got a team that does direct sales. You've got stores too. Armstrong McCall Cosmoprof. We like talking to you because you've got a really good idea of what this economy looks like in many parts of the country. Just give us what you're seeing.
- [33:27]
Denise Polonis
Yeah, thanks for having me back on. You know, first of all, I think we're seeing a very resilient customer base, right? For all the trials and tribulations they are still spending and in our world they're buying a lot of hair color. Hair color was up 8% for us in our Sally business. So our retail business in the quarter and campaigns like Save some Money, Skip the Salon are really resonating with customers out there who are trying to stretch their dollar.
- [33:51]
Carol Massar
That's interesting. So you said revenue was up because there is more being purchased or because the cost is higher or is a.
- [33:57]
Denise Polonis
Little bit of both now on, on the color front it's actually more being purchased. Units are up. It's not an aur challenge, it's more people are out there and engaging. We see growth in vivid colors as well as gray coverage. And a lot of people figuring out that they can DIY it themselves and save some money versus the salon.
- [34:16]
Carol Massar
I am curious, does a weather, does weather matter for you guys? Like do people then order stuff at the. Say I'm just going to do stuff at home?
- [34:23]
Denise Polonis
Yeah, we don't get, we don't get a lot of help from the weather. We get some hurt from the weather when our stores are closed. So you know, we're not one of those big benefitters but we do see a little bit of mix of maybe people getting ready to do their treatments while they're stuck at home.
- [34:37]
Bloomberg Reporter
Can you explain the proprietary brands you have and sort of the relationship that you have with the companies that, that, that make the other products that you sell? Because you have this interesting model where you do have your own brands. Ion Bond Bar, Strawberry Leopard and others. But then you also sell some of the other name brands that people recognize in your stores. Like what's the relationship there and what are you seeing with what people are buying? Are they trading up, are they trading down? You say they're resilient but, but talk to us about like actually what they're buying.
- [35:12]
Joyce Wong
Yeah.
- [35:12]
Denise Polonis
On the opens front, about 38% of our business is our own proprietary brands. You just listed at a few of them. And so then the rest of our branded business on our retail side certainly comes from great partners like, well, and others. It's a good relationship. You know, we play in a specific niche and space where we can bring value and give people a convenient set of solutions with some great products, great prices. But we grow with our, with our vendor partners as well. So they, when they bring great innovation, we love getting behind that and growing, growing that for us the benefit with our own brands. It's a nice gross margin business for us that comes through and our stores really know those products well. To sell them to our customer and offer value, we see customers really sticking with most of their routines. The one place where we've seen them trading down a bit is shampoo and conditioner. When you're that lower middle income consumer, you might not trade out hair Color, it's really important to you, but you might trade out a little bit more the basics where you can fill in with other things.
- [36:12]
Carol Massar
Where's the growth in the business the most? And I'm just curious because, right. You play into the commercial side. You have your stores. I'm just, I'm trying to understand exactly where the growth is.
- [36:21]
Denise Polonis
Yeah, the growth is in the retail business right now. Our pro business that we operate is a great, steady business. Great business, great profitability. Also saw nice growth in color. But the outsized performance really was with our Sally US business. It grew 1.3% in the quarter, which might not sound like a lot, but we did go through a government shutdown. That wasn't the easiest time period for some of our customers. So that growth in Sally is strong. We see it. We also entered the fragrance category in Sally in a thousand stores last quarter. Our e commerce business at Sally is up 20% in the quarter. And then we continue to grow on programs like licensed colorist on Demand, which is really a free one on one consultation to get the right color for your hair. And we saw color customer count up through 3% in the quarter. So lots of great strength on on that Sally retail side.
- [37:14]
Carol Massar
So the pro biz is just like a nice steady eddy.
- [37:17]
Stuart Kaiser
Right.
- [37:17]
Carol Massar
And you just like, what percentage is that of the business? You said outsize. Is the retail correct?
- [37:23]
Denise Polonis
Yeah. So the pro business is about 45% of our business. Steady Eddie being nice, single digit grower. Good, good profitability. A lot of innovation there. So our stylists really love haircuts care innovation in particular. So we continue to see growth with brands like K18 as well as strongholds like Moroccan Oil and color. Wow. Where that set of product and portfolio and newness is really important to them.
- [37:49]
Bloomberg Reporter
But again, you don't own Moroccan oil. You team up, you know, you distribute or sell their products.
- [37:58]
Denise Polonis
We do. On the pro side of our business, it's 100% of vendor support. That own brand is only on the retail side of our business.
- [38:05]
Carol Massar
What it's interesting is like color. Wow. Where full transparency. It's something we use in our makeup room, like, but you know, and it's certainly something I've used. I feel like a newer product. But these products are constantly changing. And I see it, like I said, in our makeup, hair room, like things just kind of, all right, we're in this and we're that for a couple of months or something and then something new comes out. You know how competitive this, this landscape is. I mean, I mean the Business too though in retail is having relationship with your suppliers. But are you constantly having to kind of flip and change and just go kind of where the consumer is going?
- [38:36]
Denise Polonis
We always are following the consumer. The great news is, is many of our suppliers are the suppliers who keep bringing out new innovation. So Schwarzkopf, one of our great color suppliers on the pro side, has fantastic product lineup, has been growing like crazy with us and we're really excited to keep that partnership going. We certainly introduce new brands and new partners, whether that be through a color WOW or a Moroccan oil or K18 and the parent companies behind all of those. So it is a constant chasing of innovation, just like you think across the cosmetics space that exists in hair as well. And the key, the key is maintaining great partnerships. It's win win relationships. When we grow, they grow and all of that translates into good business.
- [39:17]
Bloomberg Reporter
You know, looking at the FA Geo page on the Bloomberg terminal where I can see a breakdown of geographies in terms of revenue, the US and other countries has really stood kind of totally stable really since 2018. 81.8% of revenue last year came from the US 18.1, 18.2. Coming from outside of of the US are you looking to grow your business outside of the U.S. you know we.
- [39:43]
Denise Polonis
Have good business outside of our, our outside the US that we're looking to grow where we are. So we have a great business in Mexico and in Chile that we have continue to grow and we see store expansion in our Mexico market in particular and then our European business, we play mainly in the uk, Belgium, France and we like those businesses quite a lot. That business is very different where the pro and the retail customer shop in the same store for the same product. A very different demand profile than the US you will keep, we'll keep growing those businesses and place versus necessarily expanding into more countries.
- [40:20]
Carol Massar
Hey, just got about 20, 30 seconds here. I'm just curious, Denise. I'm looking at about 80% of your float is short. So it looks like investors are betting that your stock's going to go down. It's up almost 20% year to date. What do investors kind of press you on the most? Just quickly, you know, I think they're.
- [40:37]
Denise Polonis
Looking for top line growth. They absolutely want to see us low mid single digit growth. That's what we're very focused on, on driving and what we want to deliver in the coming quarters and years.
- [40:47]
Host
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. At cvs, it matters that we're not just in your community, but that we're part of it. It matters that we're here for you when you need us, day or night, and we want everyone to feel welcomed and rewarded. It matters that CVS is here to fill your prescription and here to fill your craving for a tasty and yeah, healthy snack. At cvs, we're proud to serve your community because we believe where you get your medicine matters. So Visit us@cvs.com or just come by our store. We can't wait to meet you. Store hours vary by location.
- [41:53]
Jacob Goldstein
This is Jacob Goldstein from what's yous Problem? Business software is expensive and when you buy software from lots of different companies, it's not only expensive, it gets confusing. Slow to use, hard to integrate. Odoo solves that because all Odoo software is connected on a single affordable platform. Save money without missing out on the features you need. Odoo has no hidden costs and no limit on features or data. Odoo has over 60 apps available for any needs your business might have, all at no additional charge. Everything from websites to sales to inventory to accounting, all linked and talking to each other. Check out odoo@O-O-O.com that's o-o o.com Discover.
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Host
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