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Speaker 1: This is Bloomberg business Week Inside from the reporters and editors who bring you America's most trusted business magazine, plus gloom oall business finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. And now to the other stock that's on our radar today, Macy's hire after the company said a twenty one dollars per share takeover offer from Our House Management and Brigade Capital Management lacks quote compelling value. Our House CEO and managing partner Gabriel Kohan on Bloomberg TV a little earlier, saying he is hopeful that it can increase Macy's offer and that it has close to fifty percent of equity to close the Macy's deal. All right, so let's get to it. As we said, Macy's up about two point six percent in the trade off. It's highs of the session, but still trending higher. We've got with us Bloomberg Intelligence Senior Retail Aliss Mary Ross Gilbert. She's joining us from our LA bureau. All right, Mary, what do we need to know here? Macy's got to feel good that it got an offer but I they're not very happy with it. Is it just they're not happy at this price? Or I don't know, how are you thinking about it and how are you analyzing it? Yeah, So one of the things that we've done when we've looked at the department stores is we took the time to value the real estate. And so for Macy's, we valued the real estate at eight billion. So when you look at this transaction, and this transaction it's you know, the twenty one dollars per share that actually works out to a total enterprise value of about eight billion. So it's basically saying that they're going to get the retail business for free. So that's how we look at it. But it's also a little more complex when you think about how do we extract the value from that real estate. And this was something that was explored in the past by previous you know investors. For example, Starboard back in twenty sixteen had proposed taking Macy's real estate and spinning it into another entity. And at that time they were saying, hey, maybe the stock is worth something like sixty dollars a share time macy stock was trading around forty. In this instance, you have our house who's saying, yeah, we might raise our bid, right. Macy's is very constructive here, and you know they've obviously brought in all their advisors, which included real estate advisors, and they looked at it very closely. And I think that, you know, they need to see something more serious. Hey, Mary, when I hear about a takeover and spinning off real estate, I think of Eddie Lampert and Kmart and Sears and all that good stuff which did not work out well. I was going to say, how did that go? And that's about apples to apples, apples to oranges. We shouldn't even be thinking that here. No, that was a total disaster. Okay, yeah, I know I And that's and look if you look at the different investors that have targeted real estate. So for example, more recently you had Franchise Group which made an offer and they do own, they do have a portfolio of companies, and they're retail oriented. So when they went after Cohle's, yes, there's the real estate value, but they were also interested in the retail concept and the potential there, and they of course had a serious bid, and then Cohles rejected it, and now the stock's down about sixty percent since that time. Hey, Mary, JB. Morgan Analysts put a fifty to fifty odds on this deal actually happening. What are your odds? Do you think it's going to happen? I don't see it. Not at the current proposal, Absolutely not. First of all, I think it's low and second of all, it doesn't sound like we have definitive financing. You know, when you go through how it was going to be structured, they were talking about twenty five percent equity. Ourk House in that interview you refer to earlier said no, it's really going to be fifty percent. But there must be some sort of nuance on how they're classifying what constitutes equity to get to that fifty percent. If Macy's is saying no, it was really twenty five percent, and then how real is the financing and what would that structure really look like? So Mary, you know, outgoing and longtime CEO of Macy's Jeff Gannett, putting out a statement on Sunday, says Macy's continues to be open to opportunities that are in the best interests of the company and all our shareholders. So I don't know what are the opportunities that you think are most likely from Macy's going forward, And we just got about forty seconds left here. Yeah, so, I mean, obviously the management team has to continue to execute on their plan, and they've really done a great job, I think, really improving the overall execution of the business. But there's more to go, and I think they're just really challenged with the mall platform that they have in the department store structure itself, and I think some of the ideas that they have could work, but it's just going to take a long time to get there from what we can tell. And I think that Tony Spring, the incoming CEO, is really going to up the game. But we'll learn more, you know what that involves. We already have the layoffs announced. That makes sense. You need to streamline, especially when revenues are lower as they were in twenty twenty three. But you know, could they get a bid from someone else. That's always possible. Yeah, it's really interesting, all right, And I should point out Macy's shares while they're up today, they're down almost ten percent so far here in twenty twenty four. Bloomberg Intelligence Senior retail alis Mary Ross Gilbert, thank you so much, really appreciate you weighing in on this Monday, she, of course joining us from our LA bureau. She mentioned the layoffs three point five percent of its workforce that was announced last week. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple car Play and then Bright Auto with a Bloomberg Business app, or watch us live on YouTube. We do have a headline crossing the Bloomberg terminal. The FED Inspector General issuing its report on two former members of the Federal Reserve System, and we're talking about Boston FED Chief Eric Rosengren and also Dallas President Robert Kaplan. Remember they stepped down in September of twenty twenty one. So we're getting that report crossing. Having said that, let's bring in Bloomberg's Mike McKee because he's also seeing these headlines as they cross. Well, I've just been reading the report and according to the Inspector General with regard to mister Kaplan, he says, we did not find that his trading activities violated laws, rules, regulations, or policies related to trading activities. His twenty twenty form A Federal Reserve Bank Confidential Financial Disclosure Report did not publicly disclose the specific dates of his trading activities, nor did it specify transactions that involved the selling of stock option contracts, and that lack of information, in the Inspector General's opinion, did not support public confidence in the impartiality and integrity of the policymakers. As far as Eric Rosengrin, the Inspector General found that he did not report multiple trades on his twenty twenty form A. Additionally, they foundultiple discrepancies between the transactions reflected in his brokerage statements and trading data and what he reported on that form A. Moreover, in the Inspector General's opinion, they say mister Rosengren's trading activities in real estate investment trusts during a time of financial market volatility that prompted the Federal Reserve to authorize the purchase of agency mortgage backed securities created a quote appearance of a conflict of interest that could cause a reasonable person to question mister Rosengren's impartiality under the Federal Reserve Boards Code of Conduct. They go on to say that the rules in effect at the time did not sufficiently support confidence in the impartiality and integrity of the policymakers. Those rules have been changed, So Net Mike, I know this is just your first reaction, but was it a conflict of an interest or merely an appearance of a conflict of interest? What's the report saying. It's hard to say exactly with regard to Eric Rosengrim, because it sounds like there may have been a conflict of interest, but the Inspector General does not highlight the fact that there is one, but it could appear that way. In Kaplan's case, there wasn't a conflict of interest and he didn't violate the rules, but the fact that he didn't completely dot every eye and across every t suggests that it could have had an impact on how people think about the FED. And that's kind of what this report, I think is going to be saying when you read it all it's twenty four pages. I'll get to it, but basic we can help it well, basically it's a question of can you trust the FED? And that this seems to sort of say there were problems well, and we have a great voice on this former new York FED President Bill Dudley is with us. He's also, of course, a Bloomberg opinion columnist. Bill is joining us on zoom in New York. Feel so great to have you here across our Bloomberg platforms. Can we trust the FED? Based on what the Inspector General the report that they just released. Do you feel confident about the US Central Bank? Yes? I do. I think the change in procedures as far as reporting and trading, what you're allowed to do from a trading perspective has been tightened up considerably in light of what happened, and I think that the regime today is far better than what we had before. Bill, How damaging overall over the last couple of years? Was this to the Federal Reserve, or at least the appearance of the Federal Reserve? Well, I mean anything that caused them to question the impartiality of the FED or the idea that the FED was somehow people were trading on information that wasn't public. Obviously, that's terrible. The good thing is it sounds like this report, which I haven't had a chance yet to read, sounds like that there were no actual violations of rules and regulations, but Certainly, the appearance of the conflict is a bad thing because they can undercut to the credibility of the Central Bank. Bill key here, I'm just wondering if you if you felt at the time, if anybody felt at the time that either President Rosengrad or President Kaplan had done anything wrong. The stories we have at the time suggested there was no pressure from the Federal Reserve for them to resign, But was it the right thing for them to do. I'm not going to appint on that. What I will appint on is that you need to have a regime in place that creates confidence in the Federal Reserve system, and that regime needs to be robust. I mean, I think the thing that's sort of remarkable about this, frankly, is how long it's taken for the expector general to come out with these findings. I mean, it seems to me like this was something that could have been expedited much more quickly. So I'm not really sure why this took so long to become public. That's a fair question. I also do wonder is it a fair question to say, or fair kind of assessment to say this should never have happened. It should have never even been a concern or cause for worry about. Well. I think there's always you know, with the mane of the hindsight, everything you know, you know, it looks it looks obvious. I'll give you an example. When I was the president of the Near FED or when I was the head of the the marketsprop Near FED, there were very few restrictions on the training activities of people within within the bank, and you know, you couldn't do things around FOC meetings. But you know, people were in possession of non public information at other times, and the regime just wasn't very robust. And so when I became president, I changed that. I put in a much to a tougher regime because I didn't think that the regime that we had in place was you know, robust to you know, you know, people were behaving on their own, but you want something, you want governance and controls above that. I think the key headline here at the bottom line is that according to the Inspector General, Rob Kaplan and Eric Rosengren did not do anything legally wrong. So it's more of an appearance of a conflict. Now. We also had issues at the same time with J. Powell and Richard Clareda, is that do you think behind the FED now? Is this you mentioned how long it took to get this report. Is this sort of ancient history and the Fed's moved on. Well, I think it's ancient history in the sense that the FEDS changed all their rules. You can't do these things now that you could have done before. That's the same thing that I did when as a president of ther fedias and said, this is a regime in place that allows too many things that could potentially happen, that could create the appearance of conflict. Let's just tighten this up a lot. So there's no question, there's no question, there's no risk, and I think that's what the Federal Reserve has done. So I don't think there's much risk of anything happening in the future. But you know, it would be nice if you would tighten up the regime before this happened rather than that. All right, We're going to pivot a little bit because the reason we really initially wanted to talk to you was about what the FED does next. And we're looking at the markets, where we had another record on the S and P five hundred investors continuing to embrace maybe this risk on trade on expectations build that we're going to have a pretty aggressive FED and they're pricing in or it seems to be pricing in a fair amount of FED rate cuts this year. What are you seeing when you look at the markets and what do you think FED officials are thinking and seeing when they see the move up, especially on the equity side of things. Well, I think the reason why the markets are doing well is because the probability of a soft landing has gone up. I mean, what basically happened is the comments continued to grow and that's kept the labor market type. But the tightness of the labor market is not leading to acceleration and wage inflation or an increase in ongoing prices for goods and services. So it's sort of like the best of all worlds. So we had we brought inflation down without much there are you saying goldilocks? Are you saying definitely a soft landing here? No? Not at all. So far, so good. So I don't think the story has been fully written yet, and we'll have to see where we go. I mean, it's very difficult for the FED to generate a soft landing because you basically need growth weak enough to keep the comming from overheating, but strong enough to keep the commy out of recession. And that margin for aero right now is very, very small. So I think it's really too soon to conclude that we're on this golden path. But the chances of a soft landing definitely have gone up, and that's what the market's reacting to. A month We're sorry. Well, a month ago you wrote a column for Bloomberg Opinion that said that the pivot is a pretty big gamble and that there's a significant chance there won't be a soft landing. Would you say there's still a significant chance or if not, what data has come in to show you that there is a better soft landing. Well, I think there's risks on both sides. Number One, mantary policy might not be as tight as the Fed thinks it is. And if that's the case, the economy keeps growing, the layer market stays tight, and we don't get inflation all the way back to two percent and so the Fed reserve. That's that's sort of the no landing scenario. The other scenario, course, is that if it keeps Matrey policy a little too tight for too long, the labor market deteriorates. And once the labor market starts to deteriorate, that usually tends to be fairly sizable rather than small. The rules, every time the unemployer rate goes up by more than a half a percent, you have a full blown recession. So you know, the Fed is trying to find the exactly right guidepath. And you know, when Paul's you know, does this press conference, I think everone's going to ask the questions about what are you going to do in March? What are you going to do to May? And the answer is they don't know at this point, because the economic information is going to tell them whether they're in the on the right guidepath or not. If the economy is weaker than expected, the layer market has more slacked than expected than the Federal Reserve will cut rates sooner and by more. If the economy is stronger than expected and inflation stays a little bit higher than expected than the Federal Reserve will keep manitary policy on hold. And relatively small differences in the growth trajectory right now are going to have pretty big implications for the interest rate path. That's why the market's very volatile is reacting to each piece of incoming information, because each piece of incoming information affects the probability of these different these three different outcomes. Bill, We're talking a lot about politics these days, with the primaries and caucuses underway, and I'm i question, I know the answer to your basic answer to if I ask you, will politics of this election your play into FED decision making, You're going to tell me no, the FED doesn't let that happen. But we know from the transcripts that it gets talked about. And given the fact that one of the candidates has said a lot of nasty things about the Federal Reserve, would the FED prefer, if it knows it's going to be cutting interest rates to do it before the September meeting to sort of stay out of the headlines and politics. I think at the end of the day, the Federal Reserve will set manitary policy on what they think is the right formula to generate the best possible combination of full employment and price stability. FED can't take pay attention to politics because if they start to pay attention to politics, that politicizes the FED and makes the FED vulnerable to attack. This is why Chirpo when he's asked about fiscal policy, tax cuts and things of that sort, you never want to talk about any of those things because he doesn't want the FED involved in the political debate, and so I think the FED will stay very a political my own experience, I was at the Federal Reserve for eleven and a half years around the FMC table. Never what did politics come up as a reason to adjust entree policy, either more slowly or more quickly. I just did you ever feel any sort of internal pressure as a human being thinking about what your decision might mean in the context of how voters react. I think at the end of the day, you just have to be, you know, blind to that. I mean, I think the only way it might come up is there are there are have been cases in the past where the election has been right after the right after an FMC meeting. So maybe that c meeting that's a couple of days before the election. You know, maybe that's one that you take a pass on. But you know that onlyccurs every once in a while, because a lot of times the meeting happens after the election. You know, the election is the first Tuesday in November, and FED has an FMC meeting around that time, and where that fit FMC meeting falls could maybe have a very very very very marginal FED. But I think beyond that, I think there's just nothing there because if the FED starts going down this path, where does it end? Then the FED gets accused of being political. Then people start to talk about, well, maybe we need to rein in the Fed's independence. Fed loses independence, then it loses its ability to conduct monetary policy in a way best design to achieve it's dual mandate objectives. So it's a slippery slope. You don't want to go start going down that slippery slope. But safe to say Donald Trump, if he is and everything is pointing to him being the Republican presidential candidate again, if he you know, he has not been shaly about his feelings, certainly about the FED and Jay Palace specifically, should j Powllin FED officials worry though possibly about becoming part of the campaign, whether they like it or not, Well it wouldn't surprise me at all. If you know, the candidate Trump started to you know, attack the FED for cutting interest rates, arguing that that was somehow aiding the Biden you know, reelection chances, so that certainly could come up. I mean, that wouldn't surprise me at all, but the FED reserve would be No, We're doing what we think is appropriate to achieve our dual mandate objectives. All right, so your best bet and we totally get it data dependent. We're going to move from data point to data point. Having said that, our investors' markets not being smart and not including in their thinking that the FED could actually raise rates again, or how do you think about that? Well? I think that the likelihood of the FED raising rates from here is very low, and I think the reason is that FED already thinks monetary policy is quite restrictive, so they would have to be convinced that monitar policy is not restrictive. I think if if it turns out that the ecmmomy is stronger than expected, inflation is higher than expected, it's more likely to just stay at the current level for longer as opposed to move to actually start to hype rates again. I think the bar to raising rates at this point is pretty high. Why does it seem to you that the dot plot kind of shows that FED officials are all over the place over the next couple of years. What kind of uncertainty. Does that suggest It does suggest that there are real camps of doves and hawks. I think that this is just a very uncertain outlook. I mean, how many times have we had recoveries from pandemics and the economy having lots of inflation with the Federals are being very slow to tighten mantary policy. And that's so that's sort of the bad news, and then the good news. It seems like it's working out pretty well so far. So the Fed is caught up, economy has slowed a bit, inflation has come down. So I think you know the reason why, you know, it's just a very tricky and tricky environment. I think that you know, FED officials probably disagree mostly about the economic outlook. You know that it certainly it is about the economic outlook. I think in terms of how they would respond to the same economic outlook, I probably imagine the reaction function how they would respond probably doesn't vary as much. So, but I think it's mostly and certain about the economic outlook. Hey, Bill just got about one minute left here. We're getting ready for read on GDP here in the United States. That's later on this week. And then of course the FED meeting next week. What do you think is the smart conversation, smart thought mark, or smart metric that you think investors should be watching ahead of all of that to kind of figure out where we go from here. Well, I think the GDP news this is sort of old news. It's like describing what happened in the fourth quarter, and that's really not really that important from the FED perspective is really where are we going from here? Right? So I don't think the GDP news is going to be very very important in terms of influencing the Fed. I think what's really going to be important is number one, what happens in the labor market, what's having to pay all employment, what's having to the unemployer rate, what's having to wages? And number two, what's happening to inflation? Is the hot final mile on inflation actually going to be harder or not so hard? That's really the cool question on the table. All right, well, Bill Dudley, so appreciate your time on this Monday with the breaking news and then of course getting your outlook and thought on the US Central Bank. Bill Dudley, of course, former president of the New York Fed. Bloomberg Opinion columnist, and of course our Michael McKee, who covers the FED and everything going on with interest rates. Bill, by the way, will be part of the Bloomberg Radio and TV special on the Fed Decides. That's on Wednesday, January thirty first. That starts at one thirty pm Wall Street Time. You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty All right, LIBE. Investors not so keen on the cannabis sector last year. The advisor Shares Pure US Cannabis ETF little changed in twenty twenty three, after dropping seventy three percent twenty twenty two. This year, however, as a whole tim the group is up about twenty percent. As measured by that ETF, we have seen the group pop this year. Investors seem optimistic about a possible reclassification and potential regulatory changes that could benefit the cannabis industry. After the Department of Health and Human Services released some two hundred and fifty two pages of documents asking the DEA and to ease its position on cannabis. We're talking, of course, about the Drug Enforcement Agency. This according to Bloomberg News over the summer. Yeah, a lot of pages. What's key and for the first time, the HHS recommending that the DEA reschedule cannabis from Schedule one to Schedule three. It gets a little wonky under the Controlled Substances Act, but it's significant. To do this, HHS had to find that cannabis had acceptable medical uses and relatively low potential for abuse and dependence. Many people reporting the Wall Street Journal kind of noting this out specifically as to why this is so significant. Yeah, net net the AHHS recommending sweeping changes to federal marijuana laws, and yet we've seen this industry high before, and then societal norms and politics have their say. Politics a big part of those, absolutely, So let's get more on the industry. We welcome back Jordan. He's executive chairman at cure Leaf here with us in our Bloomberg Interactive Brokers studio. Cure Leaf shares. By the way, they're up about seventeen percent year to date after three down years. With the stock losing more than seventy percent, it's a high on February tenth, twenty twenty one. We know it's been tough going, but much different tone this week and this year. I should say pours. First of all, Happy new year. Good to have you back in the studio. You're great to be back in the studio. You walked in. This is the first time since COVID. Right, yep, first time since COVID back in the studio. All right, talk to us about the mood this year. We got a little wonky in terms of what is going on with regulators, the DEA and HHS. But this is significant potentially, this is literally a game changer. I think that in many ways if you read it, and I actually spent the all payable days reading two hundred and fifty pages, and the thing that I took out with the most is this was largely an apology almost by the federal government about cannabis for the last fifty years. Well because if you look back at it when they rescheduled, when they scheduled cannabis to schedule one, you know, there was a tremendous amount of paper written, how awful it was, how terrible it was for your health, that there were no medical benefits, that this was the root of all evil. And if you think about it today, not even drugs like cocaine or fenton or are scheduled one right, things that actually kill people. I mean alcohol isn't even scheduled, which has a lot worse effects on the human body than cannabis. Book classification right, of these, it's a classification, and I think in many ways that are also not only are they following the people in the country, you know the fact that you know, eighty percent of the country now has access to either medical or recreational cannabis and it is frankly using it, but also you have major countries like Canada and Germany. Germany on the twenty second of February is going to be voting to take cannabis off their narcotics list, not rescheduling from Schedule on too Schedule three, but taking it off completely. So you have major countries around the world that are starting to recognize the medical benefits of cannabis and are taking it off the list. Is Germany's approached the right approach in your opinion, I personally think, you know, every country has its own approach. I think for Germany they have decided that that's the right approach. They want to take it off. And what that allows them to do in Germany at least, is that all doctors will now be able to prescribe cannabis. And more importantly, today in Germany, under their current law, you have to try other drugs before you can try cannabis. So now that won't be the case. You can go use cannabis as a primary drug and you can have any doctor prescribe it under the new legislation. So what about the timing for the potential dea rescheduling of marijuana burs How are you thinking about it? So it was a timing. Do you have any clarity on that because I'm hearing reading upbeat stuff, but they're also saying slow it down everybody. Yeah, I think what you said in your introduction was right. I think this is very political now we are going into political season. This is something particularly with the Democratic Party to get out the younger vote. The younger vote is very much pro cannabis. We all know they're using a lot more cannabis than they are alcohol. Alcohol sales in all states or cannabis is now legal are downs you know, ten to fifteen percent. So this is a real, real vote getter potentially, and so I think this is going to be tied to politics. If that's the case, if we're right on that, then the latest they can really come out with this is mid April. And the reason for that is you have to have a sixty day comment period after the recommendation and then you have to have sixty day legislative period sixty legislative under our calculations, about three months before it can be before it become active. And so that means if they want it active before the election, if this is really political in nature, then they really hit The latest they can do this is really April. However, if it's not political, then they can you know, they can take it out nine years. I mean we've seen that before. Which one do you think they'll do. I personally think that they wouldn't do all of this if this was going to be, you know, a nine year thing. I think that they are going to probably make the recommendation reschedule sometime in the next three months. All right, So if that happens, what does it mean for curely specifically, what's the securely if it's an absolute game changer for a variety of reasons. For instance, on twenty twenty four numbers, we would pay an extra two hundred million cash in taxes to the federal government and above our normal corporate tax rate, which would be equal to everybody else's. So largely the cannabis industry, and one of the reasons that these stocks have been down is people have realized that the cannabis industry is working for the federal government. Anything we make gets paid out in taxes to the federal government, so we can virtually not produce positive numbers on the bottom line. Explain that because we our effective tax rate is over seventy percent, and the reason for that is we cannot write off any expenses, which is, by the way, really bad for benefits for employees. Anything we try to do for employees is not we can't have irais we can't do anything because of this tax system. And so you know today we can't write off any expenses, so that brings us to an effective tax rate of seventy plus percent is what we're paying. How do you run a business like that? If that's the case, that shows you how well these companies are actually run the fact that they can actually survive in an atmosphere where we're paying seventy plus percent taxes. Okay, beyond the tax benefits, which I know you've talked about in the past and have been well documented, how do you pivot your business into new areas? Do you start selling things differently? Do you start doing things differently unrelated to time? So a lot will depend and this is the big unknown. A lot will depend on what the DOJ says after this rescheduling. So we're expecting a DOJ memo. The code word for it is called the Garland memo that's going to come out, very similar to the Cole memo under Obama, which will then describe what they mean by this reschedule, like what are the rules going to be in the marketplace. And there's a lot of unknowns because at the moment, the states control the regulation of cannabis. Right, it's still federally legal. Rescheduling doesn't make it federally legal. It just rescheduled from Schedule one to Schedule three. So now we need to see what is the DOJ going to say On the back of that, we also have safer banking that's going through Congress right now, it's now in joint committee. Many people don't realize that my entire career is I'm just going to say, right, but it's been a big since we've been talking about It's literally I've been looking at this for ten years. I'm just as frustrated. But I will tell you what I learned last Friday. This is absolute enjoint committee between the Senate and the House. That's never happened before. Since the beginning, they are now negotiating aspects of that bill, and they're looking to bring it in March. I believe that's also part of the coordination. So you're not worried about November elections in terms of how that plays out and could affect this, because do you think a lot of it's going to be done prior to that. I think they're going to try to get a lot of it done prior to that. I mean, we have two candidates right now that are front runners that are both anti cannabis. Let's be honest, both Trump and Biden are not necessarily pro cannabis, and so a lot of this that's happening today is happening by the Biden campaign and by pressure because of the political situation, you know, even against all the lobbying by pharma and interest groups that are against cannabis, this thing is really starting a grain traction. So tell us a little bit about your business and what people are buying. You know, are we moving beyond flower and buds? Are we moving into vaping? Like? What are you selling the most of I have to say, the industry is really matured, you know, if you take a look, and it's different in the US and Europe PURELYEF is the only company that's got US company that has a very substantial presence in Europe. We're selling cannabis in four different countries in Europe, and in Europe it's very medical, it's almost pharmaceutical in nature. So we're selling a lot of formulated pills. We're selling a lot of products, but also flour, and flour is very popular with doctors in Europe as well. In the United States has a much broader array of products. It's much less regulated in Europe, and so we sell a whole assortment the product. One product that's really gaining and I said this a year ago, is drinks. Drinks are really starting Seltzer waters are really starting to gain iced teas with cannabis, ess that where the growth is. The growth is definitely in products, but flour is still the door opener, the bulk of your business. The fifty percent of our business is flour and for all cannabis company. But when I started it was ninety percent and today it's fifty. So that forty percent has largely been formulated products, so it's stayed constant. Everything else has grown, that's right, or that's gone down. I think the whole industry has been expanding, so I would say that's right. Okay. I'm wondering about your thoughts on the rising concerns over high potency THHC products, addiction and associated with that psychosis associated with that high potency. Is there any sort of threat when it comes from a regulatory perspective in certain states about potency caps. So I'm going to get criticized from the industry by my comments. I'm fully in agreement that there needs to be regulation around potency. That's my view. I mean, we run the largest company in the world in this area. We want to be the responsible company to push this. I personally think that there should be potency caps. I actually think that the THC is not the most important part of the product. I think a lot of the terpenes on these products are actually more important in terms of entourage effect than THHC, meaning those other things are the things that make people have the feelings of being or relaxed or working with anxiety. Like we're doing a lot of R and D right now, and cannabinoids outside of THHC that are in the cannabis plant. Think that. I mean, for the most part, the evidence of addiction on THHC is really anecdotal. There's no real evidence the THHD is addictive psychosis part though, but the psychosis part is a problem. And so in my personal opinion, as we need to do science and what rescheduling will allow. By the way, that's probably the biggest benefit of rescheduling. It will allow federal dollars to finally flow into R and D around the cannabis plant, because today there is no federal dollars around R and D. This is going to be a game changer because we can now openly do R and D working with the government on issues like potency. I am curious. We've been talking a lot about elections and I want to go back there. I know we talked a little bit about it with you already. But does the industry like one candidate over another, and let's assume that it is a repeat of the Trump Biden matchup, Is there one candidate that the industry likes going into this? Does everyone have that reaction? I'll tell you, because the industry industry is just like all of us. We're Americans, and we're all tired of the political part. I can tell you we're just getting started. I ask, is there one that is There's no question. Historically the Democrats have been more favorable, but for the most part through lip service, not necessarily through action, but at least on the political side, the Democrats have been more open to try and push through regulatory change on cannabis. So yes, I think the industry would err on the side of Democrats for the most part over the Republican body. I always like to ask about actually using the product. CEOs and executives of companies, how do you use cannabis? What products do you use? So I'm a user every day. I use it for sleep, So I travel a lot. I've got a lot of jet lag, a lot of stress, anxiety. Being in the cannabis industry and having five children definitely adds that. Uh. I use it every single evening for sleep and it has changed my life. Okay, I don't want to blow up your spot or anything, but how do you travel with it? You know? I just put it in my necessary and I travel with it. Okay, Sorry, sorry for blowing up your spot. You know, in the United States, the worst thing that the TSIX will do to you, is TSA will do to you is actually have you throw it out. That's what they'll do, right And for the most part though, when it comes to edibles in our problement, if you're traveling with flour or something like that, they may have an issue with it. I have found that edibles are not something that they really have an issue with. Really interesting, very quickly, what's the one risk to all of this since we have been here before, we've had a lot of optimism only to kind of have the rug pulled out for There's two things that I would say at risk because first of all, political will will they actually is this again lip service for politics, but they won't take it to the finish line because what this industry is all about now is show me. It's about show me. I mean if you look at cure Leaf when public in twenty eighteen at a four billion dollar market cap. At that time, we were doing seventy million dollars in revenue. We're going to do over one point five billion this show year, and we're trading at a market cap of three point six billion, So we're actually down on our IPO five years ago, even though we've grown the business fifteen times. All right, Right, so it's an amazing thing. Is there any other risks or did you get them all away? I think that the main risk is a political one as well, they'll do it. And two is you know the lobbying, you know by the pharmaceutical industry that doesn't want to see cannabis because it is a replacement product for a lot of the pain medicines. We're doing a lot of R and D in that area in Europe, and I can tell you we're about to launch a drug that will address pain medication out of it. We're working together with the Imperial College of London on this and it's a game changer and that will be a big competitor to opiates. We'll come back and talk more about that. With that and love to hear more about what's to come on Boris Jordan, thank you so much, Happy new year. Good to have you back, and it's good to be back in the studio and good to get to know like the personal loaddown on how you use your products. He's founder an executive chairman of Curely, joining us here in our interactive brokers studio a journal. Now about you let me drive? Oh no, no, no no, no, who's a right please, I'll do the gravel wat I want to it's good question. This is the drive to the clothes thing well by yod it on on Bloomberg Radio. TikTok, everybody, Just under eighteen minutes left in today's training session. We've got equity still higher across the board, but we're definitely off our best lovers in the session. Just heard Charlie breaking it down. Our next guest, though, hmm, has something interesting to say. She always does tex stocts being the new defensive names Tim. She also says, you've got to zoom out. You know, when you talk about last year's great returns, you got to look at that in the context of what happened over the last couple of years. For a drive to the closed this afternoon We're very pleased to have back with us. Nancy Tangler, chief investment officer at Laffert Tangler Investments, also the author of the Women's Guide to Successful Investing. She's here in the Bloomberg Interactive studio. How are you good, tim How are you welcome back? Thank you? It's so good to be here. Is it? It's cold and you're like used to warm places? No, I'm a native San Francisco, so Arizona, like these are the places you like, right, It's supposed to be cold and wet in the winter, so I'm happy to be here. Okay, Well, we're happy to have you here. Thank you. So tech the new defensive, Yeah, well, these are companies that are reliable earnings growers. Like just think back in twenty twenty two, you had Service Now turning in twenty to twenty five to twenty nine percent earnings and revenue growth, and still it's sold off. So I think you want to be able to expose yourself to companies that are going to be able to deliver earnings in a slowing economic environment. You look skeptical. I am a little skeptical because you think of these like tech companies, they're the ones that go lower when there's concern about high rates. There are concerns about you know, companies with a strong dollar, and a lot of them make their you know, Microsoft is so much make so much revenue outside of the US, Like just doesn't strike me as defensive fortress balance sheets. Microsoft has doubled cash in quarter over quarter thanks to earnings and free cash flow growth, but also to higher interest rates. So these companies are actually benefiting from higher interest rates. And if you think about that old saw that when rates go high tech goes down or growth goes down, that that really is related to companies that don't have earnings. So that's what I was discounting that basket unprofitable tech companies. Right, companies have pretty rubuster. Yeah, I mean you're talking about the company like Microsoft, so dule down. You mentioned Microsoft, Palo Alto Networks, Amazon Broadcom Service. Now, I mean these are names that you think if what investors should add money to Nancy on a pullback or how are you thinking about that's right, Carol? Yeah, I mean they're in our twelve best ideas portfolio, which was up forty one percent last year. So when you take your best ideas in my experience and put them in its own portfolios. It's a little gutsy because we only have twelve names in there, but those are names that we have high levels of conviction on and I think you want to be just remember that. Since the IPO, Amazon is up one hundred and seventy five thousand percent. So when was it too late to get in? But it was questionable for a long time and you had to be very touch. We talk about do you remember what a big deal it was when I recorded a profit? Yeah? And I was one that missed out because I was classically trained, right, And we're like, where are the earnings? How can you value this company on not nothing but revenues? And so I think you have to step back. And then there's a secondary item which is share buybacks. Oh, go back for a second, because you said, like, these companies have to be making earnings, but right for a long time Amazon did not, So like, how do you look for those outliers that you're going to have to be really patient with that might become the Amazon of tomorrow Because, like you said, you missed out on a lot of early games because you you know, I was too skeptical. It doesn't have earnings, yeap, So we use relative price to sales ratio. That was something we added back in and we look at it on actually on our Bloomberg terminals that you guys created the charts for us, and so we have relative price to sales ratio. When the relative price to sales ratio is low based on history and compared to the market, that's how you buy companies that don't have earnings. You want to because they're selling a lot of stuff. Yeah, you want to pay as little as possible for a future or point of revenue or dollar of revenue. And typically what happens is that the stock prices go up so fast that you're able to buy them for a really long period of time. And it's because it's eratio, so it's you know, it's inverse to what you might think. So we use that as a way to identify and then if we get our secondary metric confirming, that's even better. So that was Apple and twenty twelve where the relative yield was super high. Remember the yield was at three percent almost above the ten year back then, and we were buying it as fast as we could. Would you ever make an ETF based on your twelve ideas I would love to. We have the TGLR, which is it follows our equity income strategy. So we launched that about I don't know, three months at the worst time, at the top of the market, and so it's now come back. We are looking at doing that. But tfs are all about distribution, so we offer to our clients in there, you know, in their portfolios, but we are looking for a partner to do just That's a great question. How are you thinking about kind of what happens here? We are getting ready next week for the first FED meeting of the year, not really expecting anything. We had Bill Dudley on earlier talking to him this whole idea of data dependent. But how does what the US Central Bank may do, Nancy, kind of impact your strategy at this point, if at all? It doesn't, Carol, I think we've we've found that the FED has been super unreliable and messaging. They're now talking about, you know, quantitative easing, if you will, by letting securities roll off. That is a precursor in my view too. They're going to cut sooner than they may be letting. And and I hate saying this, but I think they've become political animals and they're not terribly independent. Something we talked about a lot with Bill. Yeah, yes, sorry, that's okay, you can and we're busy. You're busy. I know you're well, send it to you. But he but he was I think he was very about how he answered that question, Carol, And he said, you know, the FED like, he never felt pressure when he was at the Fed, he told us. And you even't pushed him on that and said, and he said, you know, you said, you're a human being like and he just you said, you never he never feels felt that pressure. What gives you the indication that they're being political? So I curious story. I interviewed for a position there, totally unqualified. It was a debacle of an interview, but I got some insight into the way things operate. The first question I was asked was did you have you ever said anything negative about President Trump? Now, if that's not political, I don't know what is. But if you look and I said, well, actually, I don't think in writing. So that was the end of my interview. But if you think about gives you a good story, if you think about when how long Chairman Powell waited. There was this whole transitory business. There was no reason for that. He allowed a controlled burn to turn into a wildfire. He was waiting to get reappointed. I'm not alone in thinking I hate saying it, but I think it's true, and I think they'll cave again. I think we'll see more cutting than they're alluding to, maybe not as much as the market thinks. Well, let me put it this way, more easing. So whether it comes through the balance sheet or cutting, it's another story. But they're not going to let this continue, all right, just got thirty seconds. We always want more time with you. But the run up that we've seen from late last year, would it be expected to see a bit more of a breather here on the equity side of things, I hope so to you sentworth once a year we get a ten percent correction. I think that would be healthy. But remember two years the nastac's actually down through the end of last year on the trailing two year basis, so this isn't crazy to widen out. Yeah, and compared to the nineties, Microsoft was trading at fifty one times peak girnings, it's trading at thirty times, So don't tell me this is frothy, out of controlled valuation. All right, we're going to leave it there. Oh my god, that went too fast. Come back soon. Thank you. Stay warm, so appreciate it. Nancy Tangler, chief investment officer at Laffer Tangler Investments. You know her new book, The Women's Guide to Successful Investing. It is out to check it out. You're good. We always love it when you. I always love you, guys. I get energy. I do listen all the time. I just been traveling today. I had to go to connecty love well. Thank you so much for travel. You are listening and watching Bloomberg Business Week. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple card Play and Android Auto with a Bloomberg Business app, or watch us live on YouTube
Speaker 1: This is Bloomberg business Week Inside from the reporters and editors who bring you America's most trusted business magazine, plus gloom oall business finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. And now to the other stock that's on our radar today, Macy's hire after the company said a twenty one dollars per share takeover offer from Our House Management and Brigade Capital Management lacks quote compelling value. Our House CEO and managing partner Gabriel Kohan on Bloomberg TV a little earlier, saying he is hopeful that it can increase Macy's offer and that it has close to fifty percent of equity to close the Macy's deal. All right, so let's get to it. As we said, Macy's up about two point six percent in the trade off. It's highs of the session, but still trending higher. We've got with us Bloomberg Intelligence Senior Retail Aliss Mary Ross Gilbert. She's joining us from our LA bureau. All right, Mary, what do we need to know here? Macy's got to feel good that it got an offer but I they're not very happy with it. Is it just they're not happy at this price? Or I don't know, how are you thinking about it and how are you analyzing it? Yeah, So one of the things that we've done when we've looked at the department stores is we took the time to value the real estate. And so for Macy's, we valued the real estate at eight billion. So when you look at this transaction, and this transaction it's you know, the twenty one dollars per share that actually works out to a total enterprise value of about eight billion. So it's basically saying that they're going to get the retail business for free. So that's how we look at it. But it's also a little more complex when you think about how do we extract the value from that real estate. And this was something that was explored in the past by previous you know investors. For example, Starboard back in twenty sixteen had proposed taking Macy's real estate and spinning it into another entity. And at that time they were saying, hey, maybe the stock is worth something like sixty dollars a share time macy stock was trading around forty. In this instance, you have our house who's saying, yeah, we might raise our bid, right. Macy's is very constructive here, and you know they've obviously brought in all their advisors, which included real estate advisors, and they looked at it very closely. And I think that, you know, they need to see something more serious. Hey, Mary, when I hear about a takeover and spinning off real estate, I think of Eddie Lampert and Kmart and Sears and all that good stuff which did not work out well. I was going to say, how did that go? And that's about apples to apples, apples to oranges. We shouldn't even be thinking that here. No, that was a total disaster. Okay, yeah, I know I And that's and look if you look at the different investors that have targeted real estate. So for example, more recently you had Franchise Group which made an offer and they do own, they do have a portfolio of companies, and they're retail oriented. So when they went after Cohle's, yes, there's the real estate value, but they were also interested in the retail concept and the potential there, and they of course had a serious bid, and then Cohles rejected it, and now the stock's down about sixty percent since that time. Hey, Mary, JB. Morgan Analysts put a fifty to fifty odds on this deal actually happening. What are your odds? Do you think it's going to happen? I don't see it. Not at the current proposal, Absolutely not. First of all, I think it's low and second of all, it doesn't sound like we have definitive financing. You know, when you go through how it was going to be structured, they were talking about twenty five percent equity. Ourk House in that interview you refer to earlier said no, it's really going to be fifty percent. But there must be some sort of nuance on how they're classifying what constitutes equity to get to that fifty percent. If Macy's is saying no, it was really twenty five percent, and then how real is the financing and what would that structure really look like? So Mary, you know, outgoing and longtime CEO of Macy's Jeff Gannett, putting out a statement on Sunday, says Macy's continues to be open to opportunities that are in the best interests of the company and all our shareholders. So I don't know what are the opportunities that you think are most likely from Macy's going forward, And we just got about forty seconds left here. Yeah, so, I mean, obviously the management team has to continue to execute on their plan, and they've really done a great job, I think, really improving the overall execution of the business. But there's more to go, and I think they're just really challenged with the mall platform that they have in the department store structure itself, and I think some of the ideas that they have could work, but it's just going to take a long time to get there from what we can tell. And I think that Tony Spring, the incoming CEO, is really going to up the game. But we'll learn more, you know what that involves. We already have the layoffs announced. That makes sense. You need to streamline, especially when revenues are lower as they were in twenty twenty three. But you know, could they get a bid from someone else. That's always possible. Yeah, it's really interesting, all right, And I should point out Macy's shares while they're up today, they're down almost ten percent so far here in twenty twenty four. Bloomberg Intelligence Senior retail alis Mary Ross Gilbert, thank you so much, really appreciate you weighing in on this Monday, she, of course joining us from our LA bureau. She mentioned the layoffs three point five percent of its workforce that was announced last week. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple car Play and then Bright Auto with a Bloomberg Business app, or watch us live on YouTube. We do have a headline crossing the Bloomberg terminal. The FED Inspector General issuing its report on two former members of the Federal Reserve System, and we're talking about Boston FED Chief Eric Rosengren and also Dallas President Robert Kaplan. Remember they stepped down in September of twenty twenty one. So we're getting that report crossing. Having said that, let's bring in Bloomberg's Mike McKee because he's also seeing these headlines as they cross. Well, I've just been reading the report and according to the Inspector General with regard to mister Kaplan, he says, we did not find that his trading activities violated laws, rules, regulations, or policies related to trading activities. His twenty twenty form A Federal Reserve Bank Confidential Financial Disclosure Report did not publicly disclose the specific dates of his trading activities, nor did it specify transactions that involved the selling of stock option contracts, and that lack of information, in the Inspector General's opinion, did not support public confidence in the impartiality and integrity of the policymakers. As far as Eric Rosengrin, the Inspector General found that he did not report multiple trades on his twenty twenty form A. Additionally, they foundultiple discrepancies between the transactions reflected in his brokerage statements and trading data and what he reported on that form A. Moreover, in the Inspector General's opinion, they say mister Rosengren's trading activities in real estate investment trusts during a time of financial market volatility that prompted the Federal Reserve to authorize the purchase of agency mortgage backed securities created a quote appearance of a conflict of interest that could cause a reasonable person to question mister Rosengren's impartiality under the Federal Reserve Boards Code of Conduct. They go on to say that the rules in effect at the time did not sufficiently support confidence in the impartiality and integrity of the policymakers. Those rules have been changed, So Net Mike, I know this is just your first reaction, but was it a conflict of an interest or merely an appearance of a conflict of interest? What's the report saying. It's hard to say exactly with regard to Eric Rosengrim, because it sounds like there may have been a conflict of interest, but the Inspector General does not highlight the fact that there is one, but it could appear that way. In Kaplan's case, there wasn't a conflict of interest and he didn't violate the rules, but the fact that he didn't completely dot every eye and across every t suggests that it could have had an impact on how people think about the FED. And that's kind of what this report, I think is going to be saying when you read it all it's twenty four pages. I'll get to it, but basic we can help it well, basically it's a question of can you trust the FED? And that this seems to sort of say there were problems well, and we have a great voice on this former new York FED President Bill Dudley is with us. He's also, of course, a Bloomberg opinion columnist. Bill is joining us on zoom in New York. Feel so great to have you here across our Bloomberg platforms. Can we trust the FED? Based on what the Inspector General the report that they just released. Do you feel confident about the US Central Bank? Yes? I do. I think the change in procedures as far as reporting and trading, what you're allowed to do from a trading perspective has been tightened up considerably in light of what happened, and I think that the regime today is far better than what we had before. Bill, How damaging overall over the last couple of years? Was this to the Federal Reserve, or at least the appearance of the Federal Reserve? Well, I mean anything that caused them to question the impartiality of the FED or the idea that the FED was somehow people were trading on information that wasn't public. Obviously, that's terrible. The good thing is it sounds like this report, which I haven't had a chance yet to read, sounds like that there were no actual violations of rules and regulations, but Certainly, the appearance of the conflict is a bad thing because they can undercut to the credibility of the Central Bank. Bill key here, I'm just wondering if you if you felt at the time, if anybody felt at the time that either President Rosengrad or President Kaplan had done anything wrong. The stories we have at the time suggested there was no pressure from the Federal Reserve for them to resign, But was it the right thing for them to do. I'm not going to appint on that. What I will appint on is that you need to have a regime in place that creates confidence in the Federal Reserve system, and that regime needs to be robust. I mean, I think the thing that's sort of remarkable about this, frankly, is how long it's taken for the expector general to come out with these findings. I mean, it seems to me like this was something that could have been expedited much more quickly. So I'm not really sure why this took so long to become public. That's a fair question. I also do wonder is it a fair question to say, or fair kind of assessment to say this should never have happened. It should have never even been a concern or cause for worry about. Well. I think there's always you know, with the mane of the hindsight, everything you know, you know, it looks it looks obvious. I'll give you an example. When I was the president of the Near FED or when I was the head of the the marketsprop Near FED, there were very few restrictions on the training activities of people within within the bank, and you know, you couldn't do things around FOC meetings. But you know, people were in possession of non public information at other times, and the regime just wasn't very robust. And so when I became president, I changed that. I put in a much to a tougher regime because I didn't think that the regime that we had in place was you know, robust to you know, you know, people were behaving on their own, but you want something, you want governance and controls above that. I think the key headline here at the bottom line is that according to the Inspector General, Rob Kaplan and Eric Rosengren did not do anything legally wrong. So it's more of an appearance of a conflict. Now. We also had issues at the same time with J. Powell and Richard Clareda, is that do you think behind the FED now? Is this you mentioned how long it took to get this report. Is this sort of ancient history and the Fed's moved on. Well, I think it's ancient history in the sense that the FEDS changed all their rules. You can't do these things now that you could have done before. That's the same thing that I did when as a president of ther fedias and said, this is a regime in place that allows too many things that could potentially happen, that could create the appearance of conflict. Let's just tighten this up a lot. So there's no question, there's no question, there's no risk, and I think that's what the Federal Reserve has done. So I don't think there's much risk of anything happening in the future. But you know, it would be nice if you would tighten up the regime before this happened rather than that. All right, We're going to pivot a little bit because the reason we really initially wanted to talk to you was about what the FED does next. And we're looking at the markets, where we had another record on the S and P five hundred investors continuing to embrace maybe this risk on trade on expectations build that we're going to have a pretty aggressive FED and they're pricing in or it seems to be pricing in a fair amount of FED rate cuts this year. What are you seeing when you look at the markets and what do you think FED officials are thinking and seeing when they see the move up, especially on the equity side of things. Well, I think the reason why the markets are doing well is because the probability of a soft landing has gone up. I mean, what basically happened is the comments continued to grow and that's kept the labor market type. But the tightness of the labor market is not leading to acceleration and wage inflation or an increase in ongoing prices for goods and services. So it's sort of like the best of all worlds. So we had we brought inflation down without much there are you saying goldilocks? Are you saying definitely a soft landing here? No? Not at all. So far, so good. So I don't think the story has been fully written yet, and we'll have to see where we go. I mean, it's very difficult for the FED to generate a soft landing because you basically need growth weak enough to keep the comming from overheating, but strong enough to keep the commy out of recession. And that margin for aero right now is very, very small. So I think it's really too soon to conclude that we're on this golden path. But the chances of a soft landing definitely have gone up, and that's what the market's reacting to. A month We're sorry. Well, a month ago you wrote a column for Bloomberg Opinion that said that the pivot is a pretty big gamble and that there's a significant chance there won't be a soft landing. Would you say there's still a significant chance or if not, what data has come in to show you that there is a better soft landing. Well, I think there's risks on both sides. Number One, mantary policy might not be as tight as the Fed thinks it is. And if that's the case, the economy keeps growing, the layer market stays tight, and we don't get inflation all the way back to two percent and so the Fed reserve. That's that's sort of the no landing scenario. The other scenario, course, is that if it keeps Matrey policy a little too tight for too long, the labor market deteriorates. And once the labor market starts to deteriorate, that usually tends to be fairly sizable rather than small. The rules, every time the unemployer rate goes up by more than a half a percent, you have a full blown recession. So you know, the Fed is trying to find the exactly right guidepath. And you know, when Paul's you know, does this press conference, I think everone's going to ask the questions about what are you going to do in March? What are you going to do to May? And the answer is they don't know at this point, because the economic information is going to tell them whether they're in the on the right guidepath or not. If the economy is weaker than expected, the layer market has more slacked than expected than the Federal Reserve will cut rates sooner and by more. If the economy is stronger than expected and inflation stays a little bit higher than expected than the Federal Reserve will keep manitary policy on hold. And relatively small differences in the growth trajectory right now are going to have pretty big implications for the interest rate path. That's why the market's very volatile is reacting to each piece of incoming information, because each piece of incoming information affects the probability of these different these three different outcomes. Bill, We're talking a lot about politics these days, with the primaries and caucuses underway, and I'm i question, I know the answer to your basic answer to if I ask you, will politics of this election your play into FED decision making, You're going to tell me no, the FED doesn't let that happen. But we know from the transcripts that it gets talked about. And given the fact that one of the candidates has said a lot of nasty things about the Federal Reserve, would the FED prefer, if it knows it's going to be cutting interest rates to do it before the September meeting to sort of stay out of the headlines and politics. I think at the end of the day, the Federal Reserve will set manitary policy on what they think is the right formula to generate the best possible combination of full employment and price stability. FED can't take pay attention to politics because if they start to pay attention to politics, that politicizes the FED and makes the FED vulnerable to attack. This is why Chirpo when he's asked about fiscal policy, tax cuts and things of that sort, you never want to talk about any of those things because he doesn't want the FED involved in the political debate, and so I think the FED will stay very a political my own experience, I was at the Federal Reserve for eleven and a half years around the FMC table. Never what did politics come up as a reason to adjust entree policy, either more slowly or more quickly. I just did you ever feel any sort of internal pressure as a human being thinking about what your decision might mean in the context of how voters react. I think at the end of the day, you just have to be, you know, blind to that. I mean, I think the only way it might come up is there are there are have been cases in the past where the election has been right after the right after an FMC meeting. So maybe that c meeting that's a couple of days before the election. You know, maybe that's one that you take a pass on. But you know that onlyccurs every once in a while, because a lot of times the meeting happens after the election. You know, the election is the first Tuesday in November, and FED has an FMC meeting around that time, and where that fit FMC meeting falls could maybe have a very very very very marginal FED. But I think beyond that, I think there's just nothing there because if the FED starts going down this path, where does it end? Then the FED gets accused of being political. Then people start to talk about, well, maybe we need to rein in the Fed's independence. Fed loses independence, then it loses its ability to conduct monetary policy in a way best design to achieve it's dual mandate objectives. So it's a slippery slope. You don't want to go start going down that slippery slope. But safe to say Donald Trump, if he is and everything is pointing to him being the Republican presidential candidate again, if he you know, he has not been shaly about his feelings, certainly about the FED and Jay Palace specifically, should j Powllin FED officials worry though possibly about becoming part of the campaign, whether they like it or not, Well it wouldn't surprise me at all. If you know, the candidate Trump started to you know, attack the FED for cutting interest rates, arguing that that was somehow aiding the Biden you know, reelection chances, so that certainly could come up. I mean, that wouldn't surprise me at all, but the FED reserve would be No, We're doing what we think is appropriate to achieve our dual mandate objectives. All right, so your best bet and we totally get it data dependent. We're going to move from data point to data point. Having said that, our investors' markets not being smart and not including in their thinking that the FED could actually raise rates again, or how do you think about that? Well? I think that the likelihood of the FED raising rates from here is very low, and I think the reason is that FED already thinks monetary policy is quite restrictive, so they would have to be convinced that monitar policy is not restrictive. I think if if it turns out that the ecmmomy is stronger than expected, inflation is higher than expected, it's more likely to just stay at the current level for longer as opposed to move to actually start to hype rates again. I think the bar to raising rates at this point is pretty high. Why does it seem to you that the dot plot kind of shows that FED officials are all over the place over the next couple of years. What kind of uncertainty. Does that suggest It does suggest that there are real camps of doves and hawks. I think that this is just a very uncertain outlook. I mean, how many times have we had recoveries from pandemics and the economy having lots of inflation with the Federals are being very slow to tighten mantary policy. And that's so that's sort of the bad news, and then the good news. It seems like it's working out pretty well so far. So the Fed is caught up, economy has slowed a bit, inflation has come down. So I think you know the reason why, you know, it's just a very tricky and tricky environment. I think that you know, FED officials probably disagree mostly about the economic outlook. You know that it certainly it is about the economic outlook. I think in terms of how they would respond to the same economic outlook, I probably imagine the reaction function how they would respond probably doesn't vary as much. So, but I think it's mostly and certain about the economic outlook. Hey, Bill just got about one minute left here. We're getting ready for read on GDP here in the United States. That's later on this week. And then of course the FED meeting next week. What do you think is the smart conversation, smart thought mark, or smart metric that you think investors should be watching ahead of all of that to kind of figure out where we go from here. Well, I think the GDP news this is sort of old news. It's like describing what happened in the fourth quarter, and that's really not really that important from the FED perspective is really where are we going from here? Right? So I don't think the GDP news is going to be very very important in terms of influencing the Fed. I think what's really going to be important is number one, what happens in the labor market, what's having to pay all employment, what's having to the unemployer rate, what's having to wages? And number two, what's happening to inflation? Is the hot final mile on inflation actually going to be harder or not so hard? That's really the cool question on the table. All right, well, Bill Dudley, so appreciate your time on this Monday with the breaking news and then of course getting your outlook and thought on the US Central Bank. Bill Dudley, of course, former president of the New York Fed. Bloomberg Opinion columnist, and of course our Michael McKee, who covers the FED and everything going on with interest rates. Bill, by the way, will be part of the Bloomberg Radio and TV special on the Fed Decides. That's on Wednesday, January thirty first. That starts at one thirty pm Wall Street Time. You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty All right, LIBE. Investors not so keen on the cannabis sector last year. The advisor Shares Pure US Cannabis ETF little changed in twenty twenty three, after dropping seventy three percent twenty twenty two. This year, however, as a whole tim the group is up about twenty percent. As measured by that ETF, we have seen the group pop this year. Investors seem optimistic about a possible reclassification and potential regulatory changes that could benefit the cannabis industry. After the Department of Health and Human Services released some two hundred and fifty two pages of documents asking the DEA and to ease its position on cannabis. We're talking, of course, about the Drug Enforcement Agency. This according to Bloomberg News over the summer. Yeah, a lot of pages. What's key and for the first time, the HHS recommending that the DEA reschedule cannabis from Schedule one to Schedule three. It gets a little wonky under the Controlled Substances Act, but it's significant. To do this, HHS had to find that cannabis had acceptable medical uses and relatively low potential for abuse and dependence. Many people reporting the Wall Street Journal kind of noting this out specifically as to why this is so significant. Yeah, net net the AHHS recommending sweeping changes to federal marijuana laws, and yet we've seen this industry high before, and then societal norms and politics have their say. Politics a big part of those, absolutely, So let's get more on the industry. We welcome back Jordan. He's executive chairman at cure Leaf here with us in our Bloomberg Interactive Brokers studio. Cure Leaf shares. By the way, they're up about seventeen percent year to date after three down years. With the stock losing more than seventy percent, it's a high on February tenth, twenty twenty one. We know it's been tough going, but much different tone this week and this year. I should say pours. First of all, Happy new year. Good to have you back in the studio. You're great to be back in the studio. You walked in. This is the first time since COVID. Right, yep, first time since COVID back in the studio. All right, talk to us about the mood this year. We got a little wonky in terms of what is going on with regulators, the DEA and HHS. But this is significant potentially, this is literally a game changer. I think that in many ways if you read it, and I actually spent the all payable days reading two hundred and fifty pages, and the thing that I took out with the most is this was largely an apology almost by the federal government about cannabis for the last fifty years. Well because if you look back at it when they rescheduled, when they scheduled cannabis to schedule one, you know, there was a tremendous amount of paper written, how awful it was, how terrible it was for your health, that there were no medical benefits, that this was the root of all evil. And if you think about it today, not even drugs like cocaine or fenton or are scheduled one right, things that actually kill people. I mean alcohol isn't even scheduled, which has a lot worse effects on the human body than cannabis. Book classification right, of these, it's a classification, and I think in many ways that are also not only are they following the people in the country, you know the fact that you know, eighty percent of the country now has access to either medical or recreational cannabis and it is frankly using it, but also you have major countries like Canada and Germany. Germany on the twenty second of February is going to be voting to take cannabis off their narcotics list, not rescheduling from Schedule on too Schedule three, but taking it off completely. So you have major countries around the world that are starting to recognize the medical benefits of cannabis and are taking it off the list. Is Germany's approached the right approach in your opinion, I personally think, you know, every country has its own approach. I think for Germany they have decided that that's the right approach. They want to take it off. And what that allows them to do in Germany at least, is that all doctors will now be able to prescribe cannabis. And more importantly, today in Germany, under their current law, you have to try other drugs before you can try cannabis. So now that won't be the case. You can go use cannabis as a primary drug and you can have any doctor prescribe it under the new legislation. So what about the timing for the potential dea rescheduling of marijuana burs How are you thinking about it? So it was a timing. Do you have any clarity on that because I'm hearing reading upbeat stuff, but they're also saying slow it down everybody. Yeah, I think what you said in your introduction was right. I think this is very political now we are going into political season. This is something particularly with the Democratic Party to get out the younger vote. The younger vote is very much pro cannabis. We all know they're using a lot more cannabis than they are alcohol. Alcohol sales in all states or cannabis is now legal are downs you know, ten to fifteen percent. So this is a real, real vote getter potentially, and so I think this is going to be tied to politics. If that's the case, if we're right on that, then the latest they can really come out with this is mid April. And the reason for that is you have to have a sixty day comment period after the recommendation and then you have to have sixty day legislative period sixty legislative under our calculations, about three months before it can be before it become active. And so that means if they want it active before the election, if this is really political in nature, then they really hit The latest they can do this is really April. However, if it's not political, then they can you know, they can take it out nine years. I mean we've seen that before. Which one do you think they'll do. I personally think that they wouldn't do all of this if this was going to be, you know, a nine year thing. I think that they are going to probably make the recommendation reschedule sometime in the next three months. All right, So if that happens, what does it mean for curely specifically, what's the securely if it's an absolute game changer for a variety of reasons. For instance, on twenty twenty four numbers, we would pay an extra two hundred million cash in taxes to the federal government and above our normal corporate tax rate, which would be equal to everybody else's. So largely the cannabis industry, and one of the reasons that these stocks have been down is people have realized that the cannabis industry is working for the federal government. Anything we make gets paid out in taxes to the federal government, so we can virtually not produce positive numbers on the bottom line. Explain that because we our effective tax rate is over seventy percent, and the reason for that is we cannot write off any expenses, which is, by the way, really bad for benefits for employees. Anything we try to do for employees is not we can't have irais we can't do anything because of this tax system. And so you know today we can't write off any expenses, so that brings us to an effective tax rate of seventy plus percent is what we're paying. How do you run a business like that? If that's the case, that shows you how well these companies are actually run the fact that they can actually survive in an atmosphere where we're paying seventy plus percent taxes. Okay, beyond the tax benefits, which I know you've talked about in the past and have been well documented, how do you pivot your business into new areas? Do you start selling things differently? Do you start doing things differently unrelated to time? So a lot will depend and this is the big unknown. A lot will depend on what the DOJ says after this rescheduling. So we're expecting a DOJ memo. The code word for it is called the Garland memo that's going to come out, very similar to the Cole memo under Obama, which will then describe what they mean by this reschedule, like what are the rules going to be in the marketplace. And there's a lot of unknowns because at the moment, the states control the regulation of cannabis. Right, it's still federally legal. Rescheduling doesn't make it federally legal. It just rescheduled from Schedule one to Schedule three. So now we need to see what is the DOJ going to say On the back of that, we also have safer banking that's going through Congress right now, it's now in joint committee. Many people don't realize that my entire career is I'm just going to say, right, but it's been a big since we've been talking about It's literally I've been looking at this for ten years. I'm just as frustrated. But I will tell you what I learned last Friday. This is absolute enjoint committee between the Senate and the House. That's never happened before. Since the beginning, they are now negotiating aspects of that bill, and they're looking to bring it in March. I believe that's also part of the coordination. So you're not worried about November elections in terms of how that plays out and could affect this, because do you think a lot of it's going to be done prior to that. I think they're going to try to get a lot of it done prior to that. I mean, we have two candidates right now that are front runners that are both anti cannabis. Let's be honest, both Trump and Biden are not necessarily pro cannabis, and so a lot of this that's happening today is happening by the Biden campaign and by pressure because of the political situation, you know, even against all the lobbying by pharma and interest groups that are against cannabis, this thing is really starting a grain traction. So tell us a little bit about your business and what people are buying. You know, are we moving beyond flower and buds? Are we moving into vaping? Like? What are you selling the most of I have to say, the industry is really matured, you know, if you take a look, and it's different in the US and Europe PURELYEF is the only company that's got US company that has a very substantial presence in Europe. We're selling cannabis in four different countries in Europe, and in Europe it's very medical, it's almost pharmaceutical in nature. So we're selling a lot of formulated pills. We're selling a lot of products, but also flour, and flour is very popular with doctors in Europe as well. In the United States has a much broader array of products. It's much less regulated in Europe, and so we sell a whole assortment the product. One product that's really gaining and I said this a year ago, is drinks. Drinks are really starting Seltzer waters are really starting to gain iced teas with cannabis, ess that where the growth is. The growth is definitely in products, but flour is still the door opener, the bulk of your business. The fifty percent of our business is flour and for all cannabis company. But when I started it was ninety percent and today it's fifty. So that forty percent has largely been formulated products, so it's stayed constant. Everything else has grown, that's right, or that's gone down. I think the whole industry has been expanding, so I would say that's right. Okay. I'm wondering about your thoughts on the rising concerns over high potency THHC products, addiction and associated with that psychosis associated with that high potency. Is there any sort of threat when it comes from a regulatory perspective in certain states about potency caps. So I'm going to get criticized from the industry by my comments. I'm fully in agreement that there needs to be regulation around potency. That's my view. I mean, we run the largest company in the world in this area. We want to be the responsible company to push this. I personally think that there should be potency caps. I actually think that the THC is not the most important part of the product. I think a lot of the terpenes on these products are actually more important in terms of entourage effect than THHC, meaning those other things are the things that make people have the feelings of being or relaxed or working with anxiety. Like we're doing a lot of R and D right now, and cannabinoids outside of THHC that are in the cannabis plant. Think that. I mean, for the most part, the evidence of addiction on THHC is really anecdotal. There's no real evidence the THHD is addictive psychosis part though, but the psychosis part is a problem. And so in my personal opinion, as we need to do science and what rescheduling will allow. By the way, that's probably the biggest benefit of rescheduling. It will allow federal dollars to finally flow into R and D around the cannabis plant, because today there is no federal dollars around R and D. This is going to be a game changer because we can now openly do R and D working with the government on issues like potency. I am curious. We've been talking a lot about elections and I want to go back there. I know we talked a little bit about it with you already. But does the industry like one candidate over another, and let's assume that it is a repeat of the Trump Biden matchup, Is there one candidate that the industry likes going into this? Does everyone have that reaction? I'll tell you, because the industry industry is just like all of us. We're Americans, and we're all tired of the political part. I can tell you we're just getting started. I ask, is there one that is There's no question. Historically the Democrats have been more favorable, but for the most part through lip service, not necessarily through action, but at least on the political side, the Democrats have been more open to try and push through regulatory change on cannabis. So yes, I think the industry would err on the side of Democrats for the most part over the Republican body. I always like to ask about actually using the product. CEOs and executives of companies, how do you use cannabis? What products do you use? So I'm a user every day. I use it for sleep, So I travel a lot. I've got a lot of jet lag, a lot of stress, anxiety. Being in the cannabis industry and having five children definitely adds that. Uh. I use it every single evening for sleep and it has changed my life. Okay, I don't want to blow up your spot or anything, but how do you travel with it? You know? I just put it in my necessary and I travel with it. Okay, Sorry, sorry for blowing up your spot. You know, in the United States, the worst thing that the TSIX will do to you, is TSA will do to you is actually have you throw it out. That's what they'll do, right And for the most part though, when it comes to edibles in our problement, if you're traveling with flour or something like that, they may have an issue with it. I have found that edibles are not something that they really have an issue with. Really interesting, very quickly, what's the one risk to all of this since we have been here before, we've had a lot of optimism only to kind of have the rug pulled out for There's two things that I would say at risk because first of all, political will will they actually is this again lip service for politics, but they won't take it to the finish line because what this industry is all about now is show me. It's about show me. I mean if you look at cure Leaf when public in twenty eighteen at a four billion dollar market cap. At that time, we were doing seventy million dollars in revenue. We're going to do over one point five billion this show year, and we're trading at a market cap of three point six billion, So we're actually down on our IPO five years ago, even though we've grown the business fifteen times. All right, Right, so it's an amazing thing. Is there any other risks or did you get them all away? I think that the main risk is a political one as well, they'll do it. And two is you know the lobbying, you know by the pharmaceutical industry that doesn't want to see cannabis because it is a replacement product for a lot of the pain medicines. We're doing a lot of R and D in that area in Europe, and I can tell you we're about to launch a drug that will address pain medication out of it. We're working together with the Imperial College of London on this and it's a game changer and that will be a big competitor to opiates. We'll come back and talk more about that. With that and love to hear more about what's to come on Boris Jordan, thank you so much, Happy new year. Good to have you back, and it's good to be back in the studio and good to get to know like the personal loaddown on how you use your products. He's founder an executive chairman of Curely, joining us here in our interactive brokers studio a journal. Now about you let me drive? Oh no, no, no no, no, who's a right please, I'll do the gravel wat I want to it's good question. This is the drive to the clothes thing well by yod it on on Bloomberg Radio. TikTok, everybody, Just under eighteen minutes left in today's training session. We've got equity still higher across the board, but we're definitely off our best lovers in the session. Just heard Charlie breaking it down. Our next guest, though, hmm, has something interesting to say. She always does tex stocts being the new defensive names Tim. She also says, you've got to zoom out. You know, when you talk about last year's great returns, you got to look at that in the context of what happened over the last couple of years. For a drive to the closed this afternoon We're very pleased to have back with us. Nancy Tangler, chief investment officer at Laffert Tangler Investments, also the author of the Women's Guide to Successful Investing. She's here in the Bloomberg Interactive studio. How are you good, tim How are you welcome back? Thank you? It's so good to be here. Is it? It's cold and you're like used to warm places? No, I'm a native San Francisco, so Arizona, like these are the places you like, right, It's supposed to be cold and wet in the winter, so I'm happy to be here. Okay, Well, we're happy to have you here. Thank you. So tech the new defensive, Yeah, well, these are companies that are reliable earnings growers. Like just think back in twenty twenty two, you had Service Now turning in twenty to twenty five to twenty nine percent earnings and revenue growth, and still it's sold off. So I think you want to be able to expose yourself to companies that are going to be able to deliver earnings in a slowing economic environment. You look skeptical. I am a little skeptical because you think of these like tech companies, they're the ones that go lower when there's concern about high rates. There are concerns about you know, companies with a strong dollar, and a lot of them make their you know, Microsoft is so much make so much revenue outside of the US, Like just doesn't strike me as defensive fortress balance sheets. Microsoft has doubled cash in quarter over quarter thanks to earnings and free cash flow growth, but also to higher interest rates. So these companies are actually benefiting from higher interest rates. And if you think about that old saw that when rates go high tech goes down or growth goes down, that that really is related to companies that don't have earnings. So that's what I was discounting that basket unprofitable tech companies. Right, companies have pretty rubuster. Yeah, I mean you're talking about the company like Microsoft, so dule down. You mentioned Microsoft, Palo Alto Networks, Amazon Broadcom Service. Now, I mean these are names that you think if what investors should add money to Nancy on a pullback or how are you thinking about that's right, Carol? Yeah, I mean they're in our twelve best ideas portfolio, which was up forty one percent last year. So when you take your best ideas in my experience and put them in its own portfolios. It's a little gutsy because we only have twelve names in there, but those are names that we have high levels of conviction on and I think you want to be just remember that. Since the IPO, Amazon is up one hundred and seventy five thousand percent. So when was it too late to get in? But it was questionable for a long time and you had to be very touch. We talk about do you remember what a big deal it was when I recorded a profit? Yeah? And I was one that missed out because I was classically trained, right, And we're like, where are the earnings? How can you value this company on not nothing but revenues? And so I think you have to step back. And then there's a secondary item which is share buybacks. Oh, go back for a second, because you said, like, these companies have to be making earnings, but right for a long time Amazon did not, So like, how do you look for those outliers that you're going to have to be really patient with that might become the Amazon of tomorrow Because, like you said, you missed out on a lot of early games because you you know, I was too skeptical. It doesn't have earnings, yeap, So we use relative price to sales ratio. That was something we added back in and we look at it on actually on our Bloomberg terminals that you guys created the charts for us, and so we have relative price to sales ratio. When the relative price to sales ratio is low based on history and compared to the market, that's how you buy companies that don't have earnings. You want to because they're selling a lot of stuff. Yeah, you want to pay as little as possible for a future or point of revenue or dollar of revenue. And typically what happens is that the stock prices go up so fast that you're able to buy them for a really long period of time. And it's because it's eratio, so it's you know, it's inverse to what you might think. So we use that as a way to identify and then if we get our secondary metric confirming, that's even better. So that was Apple and twenty twelve where the relative yield was super high. Remember the yield was at three percent almost above the ten year back then, and we were buying it as fast as we could. Would you ever make an ETF based on your twelve ideas I would love to. We have the TGLR, which is it follows our equity income strategy. So we launched that about I don't know, three months at the worst time, at the top of the market, and so it's now come back. We are looking at doing that. But tfs are all about distribution, so we offer to our clients in there, you know, in their portfolios, but we are looking for a partner to do just That's a great question. How are you thinking about kind of what happens here? We are getting ready next week for the first FED meeting of the year, not really expecting anything. We had Bill Dudley on earlier talking to him this whole idea of data dependent. But how does what the US Central Bank may do, Nancy, kind of impact your strategy at this point, if at all? It doesn't, Carol, I think we've we've found that the FED has been super unreliable and messaging. They're now talking about, you know, quantitative easing, if you will, by letting securities roll off. That is a precursor in my view too. They're going to cut sooner than they may be letting. And and I hate saying this, but I think they've become political animals and they're not terribly independent. Something we talked about a lot with Bill. Yeah, yes, sorry, that's okay, you can and we're busy. You're busy. I know you're well, send it to you. But he but he was I think he was very about how he answered that question, Carol, And he said, you know, the FED like, he never felt pressure when he was at the Fed, he told us. And you even't pushed him on that and said, and he said, you know, you said, you're a human being like and he just you said, you never he never feels felt that pressure. What gives you the indication that they're being political? So I curious story. I interviewed for a position there, totally unqualified. It was a debacle of an interview, but I got some insight into the way things operate. The first question I was asked was did you have you ever said anything negative about President Trump? Now, if that's not political, I don't know what is. But if you look and I said, well, actually, I don't think in writing. So that was the end of my interview. But if you think about gives you a good story, if you think about when how long Chairman Powell waited. There was this whole transitory business. There was no reason for that. He allowed a controlled burn to turn into a wildfire. He was waiting to get reappointed. I'm not alone in thinking I hate saying it, but I think it's true, and I think they'll cave again. I think we'll see more cutting than they're alluding to, maybe not as much as the market thinks. Well, let me put it this way, more easing. So whether it comes through the balance sheet or cutting, it's another story. But they're not going to let this continue, all right, just got thirty seconds. We always want more time with you. But the run up that we've seen from late last year, would it be expected to see a bit more of a breather here on the equity side of things, I hope so to you sentworth once a year we get a ten percent correction. I think that would be healthy. But remember two years the nastac's actually down through the end of last year on the trailing two year basis, so this isn't crazy to widen out. Yeah, and compared to the nineties, Microsoft was trading at fifty one times peak girnings, it's trading at thirty times, So don't tell me this is frothy, out of controlled valuation. All right, we're going to leave it there. Oh my god, that went too fast. Come back soon. Thank you. Stay warm, so appreciate it. Nancy Tangler, chief investment officer at Laffer Tangler Investments. You know her new book, The Women's Guide to Successful Investing. It is out to check it out. You're good. We always love it when you. I always love you, guys. I get energy. I do listen all the time. I just been traveling today. I had to go to connecty love well. Thank you so much for travel. You are listening and watching Bloomberg Business Week. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple card Play and Android Auto with a Bloomberg Business app, or watch us live on YouTube
