Bloomberg Markets Full Show (05/13/2022)

Bloomberg Markets Full Show (05/13/2022)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It is 30 minutes into the U.S. trading day. Happy Friday the 13th. Here are the top markets stories that we're following for you at this hour. Musk's Twitter turbulence. Elon Musk puts his deal on Twitter on hold to examine fake accounts. He stays committed. Shares bounce off their lows. Capitulation fever causes. Bank of America says the mass exodus has begun as investors sold over 6 billion dollars in equities this week.

But now they rebound. On Friday the 13th and Merck's up against inflation war and a slowdown the company sees as much as 9 percent sales growth this year. We're gonna speak to the CEO about the risks bubbling up from New York and Alix Steel. My co-host in London Guy Johnson. Welcome everyone to Bloomberg Markets. Yeah we're up now. I don't know. Friday the 13th put nothing past the market. Happy Friday. The thought that doesn't go together in my mind.

But anyway. Well we'll see what happens like my expectations for this show pretty low. We'll see what occurs over the next couple of hours. The data initially aren't exactly giving us a great start. Alex so you mentioned breaking right now and it doesn't look particularly clever. Let me walk you through the numbers to show you what is happening here. The headline number comes through at fifty nine point one. That's down from sixty five point two. The markets the economists were looking for 64

current conditions down to 63 from 69. Market was looking for sixty nine point three. Expectations down to fifty six point three from sixty two point five. One year inflation expectations actually quite stable as are the five year expectations. Alex is that headline number that looks a bit scary. The consumer may be starting to get a little bit frightened here. Yeah I do find

interesting that the inflation expectations are unchanged. There are still quite high. In that one year at five point four percent but unchanged. So how we kind of peaked out in consumer inflation expectations and then is that kind of soften maybe their consumer sentiment going forward. I don't know that yet. But I my my two pence two cents on that is that the market is going to be a little bit nervous about that number because we're going from this this rate scare to this growth scare. And that

would maybe start to provide some some more evidence in terms of numbers that maybe things are turning a little bit more difficult but maybe it's just Friday the 13th anyway. That's one of our big stories. What is happening with the macro story. The other one is obviously a much more granular story and it's the one that pretty much everybody is obsessed with. So our question of the day is is Musk. Is Elon Musk really committed really committed to buying Twitter. I guess there's a dot dot dot after that which is at what price and on what terms. Joining us now to kick this around is Alex WEBER Bloomberg Quicktake and Bloomberg Technology correspondent at Ludlow joining us from San Francisco. Ed how would you answer that question. The market

thinks the probability of the deal happening is decreasing right I think as of the open the spread on this deal happening is at thirteen dollars 80 cents. That's a soft indication of sentiment that basically the spread of course being the gap between current share price and where Elon Musk offered fifty four dollars 20 cents. But ultimately this is a man that keeps us second guessing right. We have no idea what's going on inside Eagle mastheads. All we know is that he went on stage at the FTSE car conference and basically cost Dow because he was asked would you reinstate Trump. And he said well I'd reinstate Trump to the platform if I actually buy Twitter. It may not happen with his words. And then

he comes out this morning saying that temporarily the deal is on hold because he doesn't trust a regulatory filing Twitter put out which says that less than 5 percent of users on the platform of bots he's questioned date time and again and or we go to is the market reaction. So one part of that is saying OK. He wants a cheaper price. Alex the other part is that he just really didn't do his due diligence and that the tech sell off has hammered the shares so much that he's like OK I'm and get it for cheaper. But I don't want pay a breakup fee. Yeah I mean some of the theories are that he's tweeting this in order to test the market and see actually where Tesla where Twitter would would land if there was no deal in place. Sometimes I wonder whether we're crediting him with with too much 3-D chess if he's on the West Coast at the moment which is a big if. We don't know. He tweeted this at 244 in the morning. So you know it could just be he read a story. It maybe he just

tweeted something as a joke but he saw this story and said sure I'm going to cancel this deal because of this number. Like he meant that perhaps sarcastically. Is part of one of the problems with this communication by Twitter is that we don't get clarity on these things which means that then when you think about the FCC that's why they VIX public statements and they'd like statements to the market and therefore surely they will end up examining this with some vigor and potentially other things. Apple at 2 o'clock in the morning but will pop that thought for the time being. Would it be reasonable to have cold feet though. I mean for sure like part one of the big problems is that Twitter was already trading at a very generous multiple compared to its social media peers. It was trading at about 50 60 times 56 times its forward earnings. Facebook trades at 12 times its forward earnings. Now you could say that's because there was

already growth expectation built into the Twitter share price. And so if that expectation is already built in. Where do you see it going from here. Now he seems we've got banks on board by saying that he does have a financial vision for this company. We don't quite know what that vision is. One of the things he admitted was something to do with spam swaps which then begs one further question. If it is if he's carrying out a review based on this spam bot data is it cause there are too many words

because there are too few. Because if there are more than he had expected then that might be the problem. If there are fewer than he's expected that reduces his upside because that's the problem he's trying to solve. ISE want to jump jumping that point guys. Yeah. That we're all forgetting one key point. Musk waived the due diligence on this in the very early stages of this deal. It came together very quickly. He waived the due diligence which was largely relating to his ability to look at the company's finances. Right. You remember he tweeted as well I don't need to look at it anymore but to now second guess the kind of quality of the platform. It's kind of inconsistent right. The only thing he has been

consistent about is that he wants to remove bots from the platform. If you think about his public appearances at TED talks the tweets that he's made other comments. What we know about the fundamental changes he wants to make is he wants to deal with this bots issue. But now he's come out this morning and questioned the level of thought. It kind of seems to be inconsistent right. Well that also raises my question too is we're ignoring Tesla in this conversation. And I also wonder how much of this is actually trying to put a floor under Tesla shares. Yeah. Yesterday was that we were looking at preferred equity versus a margin loan that was gonna be twelve billion that that's been reduced to six. That might be reduced to zero.

And I wonder how much that's playing into this. Yeah. For me this is really key that according to Bloomberg sources reported on Thursday he wants to boost the equity portion further by an additional 6 billion dollars or so in addition to the seventy one point one billion dollars of equity financing that were added to the structure of the deal a week ago. As you say Alex that the margin loan component from twelve point five billion dollars to six point to five billion dollars secured against a very hefty chunk of collateralized Tesla stock. And you see the kind of relief in test the shares this Friday morning. But

there's a bigger point here. Musk has always borrowed money against the value of his Tesla holdings. This Twitter deal is not the only mechanism which he does that he's always done it. He's joked about being cash poor and not taking a salary from either Tesla or Space X. Now you know we don't know what the margin call number is. We just don't know what it is on this particular deal. But the shares put up. We have data on those shares from a year ago. And since then the value of Tesla's stock has gone up. So he seems to be sitting pretty. Alex one final quick question. Will regulators going to see in

all of this is there a problem for Tesla in this if there is a problem with the bot numbers. I'm sorry Twitter. Is there a problem with Elon Musk in the way that he's conducting himself. Is there a regulatory problem here as well. So there are three things. Firstly if it's true that he is reviewing it then maybe he shouldn't be announcing on Twitter. So regulators look at it. If it is not true that he's reviewing it by announcing it on Twitter. Regulators will be looking at it. And the third thing is that I think that they agree. He's he's buying tests trying to buy

Twitter ostensibly to empower free speech. Well if he ends up with his speech heaping even further throttled as a consequence of this effort because they crack down on these tweets it for him personally might achieve the opposite effect. Really great conversation guys. Super appreciate. We'll be following this throughout the next couple hours. Ed Ludlow joining us San Francisco. And Alex Webb a Quicktake. Thanks guys. Well coming up we'll continue the conversation. How the tech world has changed dramatically since the Yvonne Man made his offer for Twitter. We're going to talk with the founder and president of

Vital Knowledge Media Adam Christopher Lee. Coming up next. This is Bloomberg. It is a question of the day is Elon Musk really committed to buying Twitter data. Not really. At what price. You have all equities in the green today. Nasdaq 100 up by almost 3 percent. Let's see what's happening now with Muss. Want to bring in founder and president of Vital Knowledge Media Adam Chris. Awfully Adam in the beginning when Musk announced this deal you said that 54 20 was actually too low to pay for Twitter. What do you think he's going to have to. What do you think is wind up paying now. Well I think the whole tech world has changed. The whole world has really changed but especially the tech world

since he came out with that offer. You've obviously seen a collapse in stocks for a variety of reasons. You've had some very disappointing earnings out of tech. You've had the backup in rates you've had a tightening. He'd had to shutdown situation in China. So all those contribute to a huge rerating in tech valuations. Most likely you know perhaps not a permanent one but one that will likely last for a very long time. So I think most saw what occurred the market. I think he saw what occurred with Tesla also which is a big foundation for you know the wealth that's

going to fuel has been I think he is angling for a cheaper price. So that's going to be the sixty thousand dollar question is what price gets the deal yet on. He certainly has a lot of negotiating leverage right now. Just given how there are few other buyers given what's happened with CAC and you've also seen a lot of changes within Twitter since the deal was announced. You had yesterday a couple of senior departures. So you know the company is is ready to be acquired. And I think Iran is you know attempting to kind of just lower the price here. OK. We don't know what that price will be but what we can do is try and work out what we think it's worth. Adam what do you think Twitter is worth right now.

It's really hard to say. You know you do have in the last couple of days. Yesterday you saw some buying in the big in in the tech stocks who have been really washed down out of favor. Obviously you have an extension of that rally again today. So you see somewhat of a floor getting put in underneath the stock. You know you're probably looking at something in the mid to high

30s. You know that that would probably be a floor as far as a Twitter valuation. But it's it's really up in the air. You know I think a lot of it will be dependent on the market. There's supposed to be a Twitter shareholder vote that that takes place when the offer is made. So you know he spoke earlier this week at the Financial Times event as your prior. You know as your as your prior conversation noted. And he sounded a bit ambivalent. And I think you know a lot of it just has to do with how in flux

tech markets are right now. And I think a big concern was also what was happening with Tesla shares. So this can obviously really create somewhat of a relief as far as concerned about sluggish sales on his part. Hey Adam do you think that this further emboldens any kind of short sellers here. I mean the Hindenburg research was already sort despite Musk's bid for Twitter giving it this kind of ramp that those positions up. It's hard. I mean you look you're doing you know with information that that is getting tweeted out you know at all hours of the day. So it's a really really difficult situation right now. I don't know if I would be aggressively shorted right now at

these levels but I certainly think 54 20 you know is looking very increasingly unlikely to be that to be the final bid to the extent there is an acquisition. He took the word to Lord. Sorry go ahead carry on. No go ahead. Is Twitter worth more. With less than five per cent spam bots or more than 5 per cent spam bots. You know presumably those bots are are skewing kind of the impressions as far as advertisers are concerned. So I think from the market perspective if they were to come out with a much

lower user figure that that would probably spook some people. But advertisers would probably appreciate the greater transparency and that can help attract more advertisers to the platform. So if the objective here is to provide a really thorough view of who is using Twitter to advertisers you know I think again that you could probably see ad rates actually tick higher. Markets again would be spooked maybe on the headline about you know a drop in monthly average users are daily average

users. But I think advertisers would probably appreciate you know a more cleaned up platform. And so Twitter's down. Tesla right. You know the Nasdaq 100 you're really flying high here 2.8 percent. S&P up by two percentage points. I was wondering how were you read through is of a Twitter and Tesla dynamic into the broader market. I think you know I think one of the contributors to the text on there has been many contributors has been this concern that that you would have to sell a big chunk of Tesla shares. So I think removing that overhang is one of the reasons why you're ticking higher today. You have a couple of other things as well including some of the news out of Shanghai overnight. But like I said tech the bombed out tech stocks have been acting well now for a second straight session which is somewhat encouraging as far as tech possibly finding a floor here. You know in which case then that you know that that could help

Twitter shareholders as far as the price cut that you want to seeking being a little bit lower than cleared. OK let's put you on the spot. Does the deal get done. Yes or no. I think it gets done but at a lower price. Lower price 54 20. Certainly certainly lower than 50 for 20 years. And in terms of it in terms of that that bomb doubts. Do you think we all bombed out now. Do you think we're getting there a flaw in tech valuations. Because if you take 2000 as a

precedent potentially we got a lot further to go. I think that you are at least for the near term you've had such aggressive violence selling that you are at a level where you're going to see some of these names find a floor. I don't think you're going to return back to the levels where we were just even a few months ago. I think you had a 90s like tech bubble that occurred during a pandemic that is pop. So a lot of these stocks are going to be trading at these current depressed valuations for a while. I thought the Interactive Corp. their earnings report they put out a very

interesting comment in their shareholder letter which I encourage people to read just talking about how they think that you've seen a permanent resetting lower in tech valuations. And this is something they actually work on you know because they you know they are looking to possibly add to their portfolio of Internet companies. So I think for a firm like data that takes a real hard look at doing a Monday in group I thought was an innocent comment meant to make that they think that these valuations are going to be permanently reduced for the foreseeable future. Yeah. For the foreseeable future and permanent may not go necessarily in the same sentence but I take your point. We could

be down for a while. Adam great to talk with you. Thank you very much indeed for joining us. Have a great weekend. Adam Christopher Lee vital knowledge media founder and president thank you very much indeed. Still ahead why market volatility isn't going away anytime soon. We're going to talk to the chief market strategist across Mark Capital Investments Victoria

Fernandez next. This is Bloomberg. Stocks are higher today with the S&P up by 2 percent. The capitulation was all the talk this week. Let's get another take on it. Victoria Fernandez Cross Mark Global Investments chief market strategist. Victoria. You had Michael Harnett of Bank of America saying that we could. This was the start of the max exit the exodus from equities six

billion plus from equity funds this week. What do you think. Well you know Alex when you have excess money in the market where does it go first. It goes into risk assets. And then when you have liquidity come out of the market that's the first place you see it come out of as well. So I don't think it's surprising that we saw a lot of the volatility we saw this week especially

when you look at some of the the crypto names or some of the more high flying tech names those high valuation names those riskier assets it makes sense that they would be the first to really kind of come down as liquidity starts to come down. But I think you have to watch. I'm not all in on the camp that we're having capitulation at this point in time or that we've hit a bottom. I mean nobody calls that exactly. But you look at the VIX the VIX is at a 30. And typically you don't see that capitulation until you get the VIX around 40. You usually have at least half of the S&P that is trading below its 65 day highs or 65 day averages. We're not at that number yet there either. So I think there might be some more volatility a little bit more to go here on the given take on a daily basis before we see true capitulation.

Victoria good morning it's guy. Our last guest was raising the possibility that what we're seeing here is a permanent reset lower for growth names and their valuations. Do you buy that. Is that an idea. Do you think that has some credibility. I think there's credibility in the fact that we're having a reset that's for sure. I don't know if it's what we would consider a new normal but definitely a reset from where we were during the pandemic. The heart of the pandemic I mean obviously we saw some of those growth names just have tremendous moves higher and they were unsustainable. So we knew that was going to have to come back. We actually think you can use that as an opportunity if you're underweight. Some names take this is your

chance to start building that position back up a little bit. I'm not sure we stay at these levels for an extended period of time but I do think you're getting a reset here. So use that when you're trying to build your portfolio as chances to make your shifts. So victory does that mean that you're going to be nibbling here at some of the longer term growth names like the big guys and versus say value. You know we have been we actually had an overweight to value for most of this year. We saw over the last few months kind of that benefit of value versus growth start to diminish a little bit. So we are picking up a few growth names here. Microsoft and Apple are names we hold in the portfolio. We continue to hold both of them. We actually nibbled

at Apple a little bit over this week because we saw the name come down and we had become underweight in our portfolio. So I mean you know we we're doing what we're telling other people to do. We are being opportunistic and nibbling at these names in order to build your positions. Victoria I was reading back through some of the notes you've sent us sent us over the last few months as we've interviewed you and I think it was back in September you started raising the possibility of picking up a little bit more cash in the portfolio. How much cash do you have in the portfolio right now. How defensive are you positioned in terms of where you would normally expect to be. Yeah we've raised our cash position a little bit but we're not taking a huge bet on cash right now guy and I think really for us it's more becoming a little bit more defensive maybe and some of the names that we have in the portfolio. So we've added to

some health care names which makes sense for us. When you look at our fixed income portfolios we actually have built a little bit more cash which has been beneficial to us even though we're still short duration. We're having a little more cash. Not only does it help you be a little more defensive and volatility but it gives you kind of some arrows in your quiver. So when you see a move that makes sense to you when you see a name it hits a valuation level and it's a name you've wanted to put in your portfolio. Then you have the ammunition to go ahead and move on that. We saw a consumer sentiment read from you Miss. Quite quite low decade low. What do you do with consumer stocks right now. You know it's interesting because the consumer has really been the heart of this economy. It's been driving the growth that

we've seen over the past few years. And so the consumer continues to be strong. I know sentiment comes down but the sentiment numbers that you get in some of these surveys are very different from someone sitting at home and spending their money. Obviously inflation is taking a hit with some of that but we're seeing credit card spending going up. We're seeing the loan pipeline at banks continue to do well and household balance sheets continue to be strong in this. So even though sentiment is a little wobbly at this point in time I still think you have to bet on the consumer and the strength that they have to support the economy. Great catch up Victoria. Thank you very much indeed. This Friday cross marks chief market strategist Victoria Fernandez. The S&P didn't miss a beat on that. University of Michigan data have say

we're at session highs. Coming up the outlook for retail in the time of inflation. We're going to talk to the CEO of e-commerce company Boxed JPY next. This is Bloomberg. We're an hour into the U.S. trading session no scary trading yet stocks flying higher. S&P having its best day since May 4th.

Abigail Doolittle is taking us through the latest Abigail. Well Alex we do really have a significant rally here on this Friday. The S&P 500 as you were mentioning having its best day. And this is true too for the Nasdaq 100 the best day in more than a week. Big gains here more than 2 percent for the S&P 500. The tech heavy NASDAQ doing even better. The Golden Dragon China index up seven point seven percent its best day since the middle of March. So the risk on that we are starting to see a little bit

at the end of yesterday the reversal for some of the tech stocks extending into today. Some of it had to do with Apple because Apple yesterday down its lows down more than 5 around 5 percent after 5 percent the previous days finishing off the lows. Today we have a rally up two and a half percent. This is very important if we take a look at a chart of Apple. We are going to see that this stock the heavyweight the biggest weighting to all of the indexes is holding critical support. This is a 10 year chart of Apple on a weekly basis. So what we're looking at here in red or pink that is the 50 week

moving average. Very important green the 100 week moving average. You can see that yesterday Apple hit it and is holding it like a glove. That's exactly what happened back in 2020. And then you had this 2 percent rally off of those levels. However other times when that level has not held it's gone down to the 200 week moving average right now. The dip buyers are holding Apple and to some

degree holding the markets up as well. But Apple and other tech stocks are getting a big help from the fact that on the weak yield they're doing something that they haven't done in a long time. And that is coming. And we have this 10 year yield right now. Debt down 20 basis points up today. But overall on the week lower. So tech stocks finally reacting. And then finally because we do have yields then we have the high beta stocks in play. Twitter in particular up for five point two percent. This of

course may have something to do with the fact that ISE has been covered all morning. Excuse me. Tesla up five point five percent having to do with the fact that Elon Musk's bid for Twitter is on hold. Maybe some thought that more attention will go to Tesla there. Take a look at the ARC Innovation Index or ETF. Up 10 percent. Cathy Woods ETF its best day ever going back to 2014. That's a degree of animal spirits pushing stocks higher. Rounding it out guy. Take a look at the meme stocks. We have GameStop up thirteen point seven percent after rallying about 10 10 percent yesterday. And Mullen up 19 percent. So it seems like the dip buyers the risk buying. It's certainly in full effect on this

Friday. All right. Good stuff. Thanks so much Abigail. Really appreciate it. At the same time you had consumer sentiment dropping to a decade low and that's not affecting the equity market. But there is a part of that story that we need to focus on and that is the consistent rising inflation. And yesterday you had the world agricultural supply and demand report out. And there was something very interesting that happened. Global wheat

stockpiles are going to decline to a six year low. There's many reasons for that. Obviously the war Russia's invasion of Ukraine is a big one. Weather is a big one. But this is quite significant if food prices may have rolled over a touch. But when you have this kind of shortage it's not going to get fixed anytime soon. Also corn planting may not as be as good as we thought. USDA is calling that sooner than they normally do. All of this adding to inflationary and price pressures that aren't going to be necessarily temporary guy. Yeah. And that's the issue that everybody's trying to figure out. How long is this going to last. How do I reposition my business to figure all all this

out. What are my input costs ultimately going to look like. And how strong is the consumer going to be in terms of buying my stuff. Food is is definitely front and center right now. There's a lot of articles being written over the U.K. about it right now. The era of cheap food may be starting to come to an end retail. So as I say lots to juggle. You got the other labor shortage you got the supply chain issues. You got the highest inflation in four decades. How do you how do you deal with that. Well let's talk to one company that's trying to do that right

now CEO of e-commerce company Boxed Jay Kwong. Joining us now to give us a take shape this is the issue. Everything is very very volatile right now. We don't know where the consumer is going. We don't know what the input story is going to look like. How are you managing it from your base at this point of view. Yeah. Guy it's a pretty wild time in the industry today. The good thing about food industry it's not it's not discretionary spending. People have to spend. People have to have for the people if you will have to have food on the table every single day every single night. So with that said what you're seeing is actually puts and takes. So consumers trading up in terms of quantity potentially buying in bulk. You know I know it's

self-serving but that's what we do. But also trading down as well to hard discounters to dollar stores. When you look traditionally at the data that's really what's happened during recessionary times or during inflationary times. Do you have a sense of if people are buying anything specifically differently. I understand kind of buying in bulk or buying on the cheap. But in terms of what they're buying is that sifting. Yeah. Yeah. We're starting to see a little bit of a shift

towards private brands. You're starting to see that. I guess industry wide. So that private brand that you might have skipped over when inflation wasn't so robust and also when the economy was potentially a little bit better. Now you're taking a second look to say hey you know what if it's a commodity product can I say five dollars this week with this. I thought it. Why not. A

lot of the private brand items that we sell and everyone sells are much better in quality these days. So what are you actually seeing. What is the consumer doing right now. We had some data out at the top of the hour that suggested that the consumer is feeling significantly less optimistic. What is happening already is this is this a kind of an idea for the future. The people are going to trade down and do and do that as they react to these these higher prices or are they doing it right now. I would say there's two data points I can give you guys. So one is we just announced earnings this past week where we showed actually Adobe our average order value was up over 16 percent year over year. So that's not just on prices but that's on units sold as well. So both coming in consolidating trips and actually

buying up and buying a bigger basket potentially save on that transportation costs. The second thing that we're starting to see is actually the click through rates and actually how consumers are responding to I guess re-engagement advertising or re-engagement emails or re-engagement push notifications. It's going up when the messaging is right when you're talking about inflation when you're talking about gas. This is very much the zeitgeist for everyone today. And you're seeing that in the click the rates. That's quite interesting. I wonder how sticky you feel like these changes for consumers are. Let me just take the other side of this. Let's pretend that all of a sudden inflation actually comes down quickly or the Fed actually works

in destroying inflation expectations to some extent. How quickly do you think consumers are going to go back to old spending habits. That's you know I can only speak on behalf of the data. Alex and so what we've been seeing throughout the pandemic is that of course there was a huge spike in twenty twenty twenty twenty one twenty twenty two. We saw a regression back to the mean. So folks are spending as if it was peak over days and we thought that was a good thing because we have a very sticky user base. What's interesting I know it's not the topic du jour today but our B2B business people are spending even more. So that's also something to keep an eye out on as the world opens up. Yes

there's puts and takes up sometimes you know with inflation going up but also offices returning back to normal. That business was up over 65 percent for us last quarter. Che do you think as people buy bigger baskets the delivery time becomes less important. We've been for the last few years progressing towards faster and faster delivery. Does that now go in reverse. For certain categories I think you definitely won things if it's

up you know a tiny pantry items that you needed yesterday. Yes definitely. You're going to see 20 minute delivery. That's that's a really great service for a certain amount of categories out there. I love that you ask the question guy because you know it's one of its own. Was it that you're in are kind of a management meetings. Because we debate that all the time. The reality is when we survey our customers 70 percent of whom are out in deep suburbs or rural America you know no one saying I need a 48 pack of toilet paper in the next 10 minutes. You know these are folks that are planning these are folks that are stocking up their pantries. So there isn't that pressing of a need that they need it in 15 or 20 minutes. Also real estate is

anything to say about it. If everyone moved out of cities and into big houses they actually have space. I can't imagine storing that in my New York City apartment. Well I was going to say today I have a question for you though about how you're running the business in terms of your visibility. There is so much uncertainty. Margins across the board are

coming under pressure in general for four different industries. How do you how confident are you in your ability to make investment decisions right now. I would say confident in the sense that we know what we can control. So at the end of the day there's a lot of things out of our control but execution on the factors that we can control are really important. So again talking about data or actual action items. So one is definitely. We just announced yesterday are our brand new kind of or extended partnership with FedEx. So being able to really leverage their network to provide seven day service and potentially even some margin gains. That's something we can

control and that's something the management team here executed on. The second thing is actually when you look at kind of overall service level service levels for the consumer and also the products that we sell. Keeping things on stock in stock and making sure that they're delivered in full. It's something well within our control. So investing in more fulfillment center

capacity investing in relationships like FedEx give us a competence that I think we're investing in the right way. In terms of what's happening with labor just one final quick question. How much are you investing in robotics right now. Is is the increasing wage story that we're seeing right now encouraging you to do that more. And if you want to do that more is the capacity within the industrial side to be able to build the. The robotics that you need. So

I love that you ask that question because I think it highlights the fact that we build our own robotics so remember of course we sell toilet paper and Oreo cookies but we also sell software and the entire end to end technology that powers our entire business. So on the robotics side we actually have hardware engineers so that the newest fulfillment centers that we have those robotics are actually engineered built in manufactured by us. So we do have the capacity to build more. But a lot of the third party robotics providers there is a long backlog. If you want to automate your domains that are now you're gonna get in line. So it's not just gonna be mine. Sometimes it's years of a waiting list for the key technologies. Say such a good insight.

Thanks a lot. I'll sign. Got your next management meeting. I take one back CEO. Good to see you. So for more on how inflation is hitting consumers. Check out Bloomberg's The Paycheck Podcast series on Apple podcast. Definitely. Check it out. It's a really great thing to chat and to listen to. We're going to have the latest on Twitter next as Elon Musk is rethinking his bid. He's

staying committed. But the question really is at what price. This is Bloomberg. This is Bloomberg Markets I'm Angel Feliciano and you you're looking at live pictures of the principal room. Silvio de Blonsky defines ETF CIO joins Bloomberg TV at 2 p.m. New York time. This is Bloomberg. Keeping you up today with the news from around the world here's the first word I'm Angel Feliciano. Some European Union nations say it may be time to consider delaying a push to ban Russian oil.

The problem is they can't persuade Hungary to back the embargo by putting the oil ban on hold. The EU could proceed with the rest of a proposed sanctions package. The Senate was forced to postpone final passage of a 40 billion dollar Ukraine aid package after Republican Senator Rand Paul refused to allow the vote. Paul is demanding that lawmakers add a provision to

appoint an official with oversight powers for the aid. The Senate is now expected to vote on the matter next week. And the stealth wave of Covid is making its way across the US. Those who have so far evaded the virus are falling ill and others are catching Covid for the second third or fourth time. Sell the rights of at home. Tests have made keeping accurate count of positive cases impossible. Experts say that it's difficult to know what's the next few

months will bring global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than a hundred and twenty countries. I made Feliciano. This is Bloomberg Alex. All right. Thanks so much. Angels NASDAQ. One hundred up I am was 3 percent. You also Twitter bouncing off the lows this session yet still up by about 9 percent. The world kind of awaits you on. Musk says his deal to acquire the company is on pause. Joining us to break down that impact is Bloomberg's Alex Webb and Sonali Basak. I want to start with you. What are the bankers telling you right now. I mean they have a lot of vested interest in this. Yeah they certainly do. And remember he had gone to a lot

of parties not only for that margin loan which our own Bloomberg Julian Tan had reported yesterday. He is trying to find new financing to reduce that margin loan quite a bit. So a lot of moving parts at the same time a lot of people who had been talking to you en masse to try to get this deal done. But again let's look at the merger arb spread here because that's where the money is to be made and lost in the near term for investors. You have shares really much lower than the offer price here. A lot of questions about whether Musk is going to drop the bid entirely or just renegotiate the offer price. Remember there is

a breakup fee in both directions Alex. If if Musk walks away it's a billion dollars. If Twitter walks away it's a billion dollars. So you know the question here is who stands to lose if this deal does not go through. At this point. Let's say it goes ahead Alex goes ahead at a lower price. How does that change the funding requirements that must needs to put in place. Can you just can you just use what is already there. Does he need to change that. How would he be thinking about how

would the bankers be thinking about a lower price in terms of the way that it changes the arithmetic in terms of the money that is needed to be raised. How much equity could be included. I mean presumably the issue is that if less money is needed that means that either you are requiring less than the banks because you're going to be taking a bigger share of it yourself or proportionately. That's still going to be supplying the same amount. Maybe they're even supplying a greater amount. The odds are they do not want to be probably taking a smaller if they're actually getting some equity out of this or you know get some rights directly. If it's preferred equity funding which is what the latest reporting suggests might be the case. They may not may not want to be taking huge amounts of dilution factors which don't really know. The difficulty is of course. Would they to

have a lower price. I'm sure they prefer to have a lower price. So what. Elan Elan do you Twitter. Twitter's investors and Twitter's board want a lower price. Well it's a different matter entirely. They were told that they didn't think the board was told that by that investor Mark because they did not think that the share price could without this bed reach 50 for 20 on its own anytime soon. There are still people who rate the shares sell side analysts who had price targets in the 60 to 70 dollar range. So there isn't even agreement on that point. Ultimately it's more confusion which is something the S.E.C. is not gonna

like. No I was going to say that this is going to be probably all over. This is not the first time that they've kind of gone after Elon Musk. Alex. I wonder what you think we're going to see out of D.C.. I think there's no way that the FCC will not look at this that if he has tweeted something as a joke which remains a distinct possibility then they will be looking at it. If he isn't tweeted something because he is re-evaluating the deal well that should probably have come through the form of a regulatory announcement. Say they'll be taking a look at it now. Of course it's only supposed to have a lawyer who evaluates all his tweets. But I think I'm right in saying that the FCC stipulations imposed a few years ago after the famous or infamous fund secured tweet only pertains to Tesla shares. And

this of course is not pertaining there at least the Tesla shares. It pertains to Twitter shares. So there was certainly a Tesla lawyer evaluating his tweets as it were if they have no relevance to the capital markets. This is about Twitter. So it's a little bit different. Maybe it's wiggle room on that particular stipulation. Should only just to come back to Alex's point about kind of how much the bankers are going to want as a share of the deal if it is reduced. But if you will take on that I think one part of this this is equity is not just the share of the deal. If it's reduced in terms of the equity partners and

many many equity partners who bought on in terms of investors. I think the preferred equity financing that we reported yesterday was also interesting 20 year maturity interest to be paid in kind at a rate of 14 percent. This is Apollo and 6th Street and talks for such a deal. So the structured financing here is definitely something we saw come to the fore you know in the middle of Covid when people needed financing and now in a much more aggressive way. One of the largest LBO of all time. You

know you guys were talking about what happens if a deal doesn't happen. I think this is also important if you look at what Callen and CO is estimating. They're using a 30 dollar downside for Twitter if this deal does not go through. I think what's interesting here is how is Musk going to get that value out of Twitter over that 20 year horizon over this. It is sad the scale of the preferred financing guy but also in that quick turnaround that he told bankers that he was he would potentially be able to accomplish if he could take Twitter public in a shorter timeframe as well. Yeah I have to wonder too Sonali just in

general how unusual is it for bankers to deal with sort of this key man risk a huge deal big breakup these and then this kind of volatility like they're not used to this kind of thing. No. And I think that's why when you look at the way people are creating structuring around this financing they're really protecting their downside. You're not seeing a walk in with an equity check. You're seeing them potentially walk in with preferred financing that protect themselves on the downside. And when I speak to bankers they felt the same way about the margin loan that they were trying to protect themselves while also getting in on one of the most exciting deals in technology perhaps of all time with the way that this is this is playing out. But remember I think one thing that's interesting is the amount of investors that said that they would still want to get into this. I had a conversation on Friday with Keith Rowe boy a founders fund who is an investor in Space X. And one of the things that

he said was that if he could get in legally he would. They have some conflicts there so they can't get in. There are investors who do want to get in despite the risk because they believe in Elan himself which is how the banks have felt about you on for a very long time. Absolutely and they'd be rewarded for that Wedbush now saying that the recent developments turning must spread into a quote circus show should only bounce. Alex Webb of Bloomberg Quicktake thank you very much indeed. This is Bloomberg Quicktake. Equities yes they're rallying say the Nasdaq 100 now up by 3 percent. However we're still looking at a weekly loss and we're looking at two consecutive six weekly losses for the Nasdaq 100. That's the worst that we've seen since 2012. Now another poster

child of that turbulence is Cathy Woods flagship fund the ARC Innovation ETF. Obviously you've been caught in the sweeping sell off of tech shares this week. Now that's leading the fund to argue that the market is mispricing the fundamentals of companies favorite by Woods and her team. She also blames the Fed for hiking too much too fast. But Cliff Aston is the co-founder of AQR Capital Management isn't buying that response and now deleted tweet. He told the ETF firm that they don't get

to use the word fundamentals and the AQR was right and what was wrong and that she and her team have no sense of irony. I mean sure. But let's be honest guy AQR had negative returns in five of the last six years. It feels a little early to be throwing some shade. Well I think his point is not on her performance. It's her math. It's kind of the methodology that he has an issue with. And the fundamental analysis she's talking about Cathy was talking about kind of deep value here. And I think Chris's point is that that that is not kind of what everybody else is seeing and that the

methodology that is being used here. He's with the equations is is erroneous now. And I think he's being very clear that he's not criticizing the performance because as you say he went through a very long period of time of underperformance. He's not having a having a pop there. He's just having a pop at kind of the whole idea of fundamentals and valuations and all of these tech stocks. He was inching so earlier on the hour. We were talking to a guest who was talking about a a permanence.

Obviously nothing is permanent but a but a sustained period in which these valuations for some of these big tech names are going to reset lower and stay lower. And I think that is the danger that Kathy would now faces here. Yeah. Yes. And I understand. But really like you know deep value and quiet. They're just they're just different. I just feel like it's a potato potato thing. Anyway. OK. Well part of the potato potato debates. I think we're going to continue with it but we'll do it in the next hour. Right now let me update you on what is happening with markets because as

Alec says we're a little off to the races this Friday maybe the 13th but it doesn't seem to be scaring the market very much. Equities are significantly higher. We're up by around one point nine percent. The euro is higher but still trading with a 1 to 3 handle. Brent crude is definitely flying. Brent is up trading 110 nearly one eleven point two percent of the gain. We'll talk to Matthew 70 next. This is Bloomberg.

2022-05-17 12:36

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