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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
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Speaker 2: This is Bloomberg Business Weekdaily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy. Plus global business, finance and tech news as it happens. The Bloomberg Business Weekdaily Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
00:00:31
Speaker 3: Keep you in close watch on cannabis stocks Advisor shares plus US Cannabis ETF Amplify, Alternative Harvest ef TF, Tilray, Aurora Cannabis, Chronos, Canopy Growth, Cure Leaf Holdings. I mean these are on our radar shares of these cannabis companies and ATF so I'm getting a bit of a reset dropping back today after soaring in the yesterday in yesterday's session, and that was on expectations at the Justice Department and DEA would move certain marijuana products to the less strictly controlled Schedule three, which is reserved for drugs with accepted medical uses and lower abuse potential. Well, that happened Tim earlier today.
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Speaker 1: Here to talk about the move and what if anything it changes for these companies. We've got the CEO, chairman and co founder of one of them. Boris Johnson is joining us. He is chairman, CEO, and co founder of cure Ly Foldings. He joins us from Europe.
00:01:22
Speaker 4: Boris.
00:01:22
Speaker 1: Good to have you on the program. So what does it mean that the Justice Department in DEA moves removes certain marijuana products or moves them to the less strictly controlled Scheduled three. What does that do for your company?
00:01:35
Speaker 4: Well, Tim, first, I want to correct just I'm not Boris Johnson, Boris Boris Jordan. Excuse me, much more, much more.
00:01:41
Speaker 1: I apologize. Thank you for that. Boris Jordan. Good to see, No no problem, Tim.
00:01:47
Speaker 4: Listen, this is a monumental move. It's been fifty five years since President Nixon on a political decision of scheduled cannabis as a Schedule one drug. It's a product that was used for hundreds and hundreds of years wellness product by many both in Europe and the United States. It was too long that Eli, Lilly and other pharmaceutical companies were selling cannabis extracts for medical reasons. So this reclassifies it from a Schedule one to a Schedule three drug. It has several major impacts. The first impact, of course, is that we will be allowed to do research working with medical institutions again federal grants to do that research on the product nationwide purely as the largest operator globally and working in Europe. Just finished phase one trials in neuropathic medication with cannabis in Europe in London, the UK, and moving on to phase two. We can now bring that to the United States. We couldn't do any of that work in the United States. We have a partnership with the University of Pennsylvania Medical Center, and so we will start doing that work here in the United States. The second aspect of it is that we had a capricious tax on basically a revenue tax on gross margin, which was about seventy two percent. That you know, it was almost impossibly a profitable company on that basis. Now that will go away as well, So we'll be taxed and treated as any other corporation in the United States, which will immediately make most of the larger players like your Relief, very profitable going forward.
00:03:13
Speaker 3: All right, so is the job done? Is this all you guys need to kind of move forward?
00:03:18
Speaker 4: No? I think that. So the current rescheduling is being done in two steps. The first step was under something called the United Nations Single Convention of Narcotics. That was the first step for medical because under the UN treaty you can only reschedule for medical reasons. The second will be a alj hearing was a process started under President Biden, which was halted at the beginning of the Trump presidency, and that will now be restarted on June twenty ninth. That will address the issue of adult use cannabis, rescheduling those products as well. Once that happens, what we expect to happen in the third quarter. Then for the most part, I would say this was the first step. Now we need to start working with the federal government on banking, on up listing two major exchanges in the United States, Okay, and so there'll be a lot more work to be done.
00:04:05
Speaker 1: So that's what I want to talk to you about, is the banking side of this and what it changes for banks. That are, if anything, does it change anything for banks or is the next step that there is something from the federal government that allows banks to do business in this industry.
00:04:19
Speaker 4: So using the proverbial, you know, broke the glass ceiling, this breaks the glass ceiling. Okay, this is the first piece of federal legislation that we've seen since the since twenty years ago when rohor Bacher Farr was passed protecting medical cannabis companies in the States. Now you have the rescheduling of cannabis. I believe that you're going to see action from the Treasury. We know that both Janet Yellen and I believe Scott Besen have both said they want major banking institutions to bank the cannabis sector. They also want to see these companies on US exchanges, and that will be a part of the process that may need some legislation from Congress. But also because of the fact that we will be applying for DA licenses that will make us federally legal as medical companies. Now that will most likely give us the ability to at least apply for uplisting on the US exchanges. Hey, credit cards, I think they're going to be a big deal which increase business dramatically. So all of these things I think are on the horizon going forward.
00:05:12
Speaker 3: Ay boris, But at the end of the day, if the Democrats take the House in November, do you think a future Congress can get along with President Trump to bring recreational changes.
00:05:23
Speaker 4: I think that we're not going to see a lot of recreational changes. I think the next step is going to be the whole financial services aspect of the business. So we've now rescheduled and now we'll see recreational I believe that get to legalize this recreationally nationally at a federal level, we need to do the work right. That's why they're reschedules. Will schedule in the schedule three. We need to do the work with the medical institutions in the countries to work on all of the aspects of the plant to make sure the plant is safe. We know it's safe, but we need to have evidence now because in Europe it's been proven in Israel and other places that this is a plant has a lot of wellness aspects to it. We now need to do that in the United States. I think that will take two to three years. So I more than likely suspect the full legalization will probably happen in the next administration. Not that Trump doesn't want to do it, but I believe just the steps that need to be taken are going to take two to three more years.
00:06:13
Speaker 3: Who's ever in the White House, who's ever in Congress in the next administration, you think it'll still go through.
00:06:19
Speaker 4: Yes, I think we're past the point where cannabis was, you know, stigmatized the way it was the Democrats. As we know, this polls at almost eighty percent in the country for legalization. Amongst Republicans, it's fifty nine to sixty percent. Amongst the whole country, it's almost eighty percent. So I pretty much feel that this is going to happen, but it will probably happen in two to three years on full legalization. But this is a major step forward.
00:06:42
Speaker 1: Boris, you mentioned the idea of moving from stock exchanges outside of the United States to the United States. Would you do that at cure Leaf?
00:06:49
Speaker 4: Yeah, cure Leaf today is the only major cannabis company global. Campus is going to be the trades on the TSX and in Canada, which is a major change in Canada, but still we don't trade on the NaSTA. I do believe that this will over the next couple of years, will more than allow us to uplist the US exchanges.
00:07:07
Speaker 5: Hey, what do you think happens in terms of the industry.
00:07:09
Speaker 3: So many times you start to see some consolidation of very smaller companies tying up together. Do you think that ultimately this is going to spur m and a activity, you know, the idea being that if more companies are getting the two ade tax relief, does it make it more attractive bores for the larger players to come in and buy up some of those smaller companies.
00:07:27
Speaker 4: Absolutely. I think you're going to see a tremendous amount of consolidators in going the second half of twenty six and twenty seven. This decision brings down the cost of capital. It will increase capitalizations even though we're seeing a correction today. I think it's a misunderstanding of the whole process. People are trying to digest it. But I do think it's going to widen the investor pool to convest in the sector. I think you're going to see more and more money coming into it, a re evaluation these companies, and on the back of that you are going to see consolidation there. You need this is a scale business. We need to consolidate these companies and create scale.
00:07:59
Speaker 5: What does it mean for surely?
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Speaker 3: So are you already taking calls thinking about strategizing, like who you might want to tie up with?
00:08:05
Speaker 4: I mean Curely, it's already the largest global player. We are definitely going to be acting on that consolidation. We are in talks with numerous both regional as well as larger companies. Were talks in Europe, where talks in the United States. We've been having them for a while because we knew this was coming. It was just a matter of when it was going to come. It has now happened. I think it creates certainty in the market from a balance sheet and cash flow perspective for these companies. So now I think it'll be a lot easier to make these transactions happen.
00:08:29
Speaker 3: All right, stock was up twenty six percent yesterday, it's down about twenty two percent today. Is it just a case that this is going to still take time?
00:08:37
Speaker 4: I think yes. You have to understand that the cannabis sector today does not have virtually no institutional money. This is largely algorithms and retail investors trading the in and out of these stocks. As we start to see large institutional investors come back into the sector, those that were there, For instance, when Curely went public in twenty eighteen, we had black Rock, we had Fidelity, we had all of these players in the IBO. Then they all had to exit because Sessions removed the col memo, which made it uncertain to invest in the sector. As those investors we acquaint on the back of this decision with the sector and they get permission to invest, I think you're going to see a dramatic reevaluation in these stocks. I think this is a massive buying opportunity. And if we weren't in the middle of a blackout period, I can tell you we have a buyback program, we would be doing it.
00:09:20
Speaker 1: Okay, Well, you got to come back when you're not going to build the blackout. Yes, speaking of buying buying for us, Jordan, I want to go back to what you said about M and A and the discussions they are having with companies all over the world and here in the United States too, pushing push deeper with for us with that, and like what kind of companies I know you probably can't say the names of the companies, but like, what specific types of company is attractive to you right now?
00:09:42
Speaker 4: I think you know given the current regulation, and I think we're looking at both retail, which is very unusual. Right now, we're looking at retail. Sixty five percent of our business is sold online. However, we still have to deliver the product from our delivery points. So think about Amazon and Whole Foods very similar or model where they both come into the store but mainly come in just to pick up what they bought online, and about thirty percent will buy actually buying the store. So we're looking for retail distribution points to continue to distribute these products throughout the country. So we're looking at tucking and acquisitions in the various states around the country now. And also we're looking at large scale companies because a lot of these companies because of historic state regulations, couldn't combine because they had limitations. Most of those limitations are gone now and the scale of we want to build scale and get cost savings from that scale, and we can do that today because the transactions couldn't happen till this day because there was too much uncertainty around the balance sheets because of the tax of rules. Now that that uncertainty has gone away, now that these companies will be largely significantly cash flow positive and profitable, it makes it much easier to do the transactions.
00:10:49
Speaker 3: All right, Good stuff as always, really great to check in with you once again.
00:10:52
Speaker 5: Boris Jordan, not Boris Johnson. Boris Jordan, Well, thanks for reminding me.
00:10:58
Speaker 4: That although he was a Primeateistrim of England and Mayor of London.
00:11:04
Speaker 5: Yes, it's a good comparison.
00:11:05
Speaker 4: And I'm the head of the Spectator editor.
00:11:08
Speaker 1: Yes, people forget about his journalists past, but Boris Jordan, we will never forget about you.
00:11:13
Speaker 5: That voice you're hearing is Boris Jordan.
00:11:15
Speaker 3: He's chairman, CEO, and co founder of the two point four billion dollar market cap company Cure Leaf Holdings.
00:11:21
Speaker 1: Stay with us more from Bloomberg Business Week Daily coming up after this.
00:11:28
Speaker 2: You're listening to the Bloomberg Business Weekdaily Podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple CarPlay and the Android Auto with the Bloomberg Business app, or watch us live on YouTube.
00:11:42
Speaker 3: Our next guest usually out there inner San Francisco Burea, but.
00:11:45
Speaker 1: He's back here in the Bloomberg Interactive Broker's studio. We're talking about Ed Ludlow shares an Intel right now up by more than fourteen percent, shares just surging, the company giving this strong sales forecast for the current period.
00:11:58
Speaker 5: There's the signal.
00:11:59
Speaker 1: Is that the companies be need a benefit from the build out of AI infrastructure. ED Love though, is with us from Bloomberg Tech. Ed, You've looked at this company for a long period of time, especially during this turnaround over the last few months.
00:12:11
Speaker 5: How's it doing well?
00:12:12
Speaker 3: So?
00:12:12
Speaker 6: Ian and I just had a good, pretty long phone call with lit Bu Tan and Dave's into the CFO and there's that. We have a lot of answers. Actually, you know, when there were so many headlines that hit, it's hard to see what the real driver was. I don't obviously the revenue guide really important. You know, for the current period. The story is really simple. CPU demand, the Xeon server processor is really really big, and so they are now in what they would describe as the enviable position where they can divert supply to feed that market. Kunjam was just talking about the PC market or the client market. We can talk a little about a bit about that. There are some unique factors there, but basically demand is strong, it is growing, and they are not yet able to meet it. And that is a good position for Intel to be in. One thing, I would say, by.
00:12:59
Speaker 5: The way, you want to be able to meet it, right, You want.
00:13:02
Speaker 4: To be able.
00:13:02
Speaker 6: And so this was the story quarters a quarter. What is the lipbutan effect? What does him becoming CEO and changing how the company works actually mean. It means not leaving any money on the table, you know, finding the CPUs that are coming from, finding the CPUs to meet the demand that's out there. And they're doing their absolute best for sure. Now, margins were really good in the quarter gone first quarter, not against history. You know, Intel's a company used to have margins at sixty percent. Now we're at thirty seven point five or maybe slightly beyond that on an adjusted basis. But I think what was so interesting is this is financial jargon. But they were honest that that's just because revenues were higher. You know, they're not necessarily finding the secret source yet nonprofit.
00:13:44
Speaker 3: So because the demand is strong, the supply isn't there, they can charge more.
00:13:48
Speaker 6: Yeah, And so Kunjam poses a question why I'd like to hear more about the PC market. This is what Intel sees in the PC market. In the first part of this year. The PC makers, the Client Group, were able to build up supply of memory chips. Remember, the backstory is that memory is being claimed by the data centers you know, it's very similar the type of memory chip that goes into a PC that goes into a server. The problem is is Intel sees it that in the second half of this year they're going to run out of that inventory of memory and they're going to have to be buying in the market spot prices, and that as far as Intel sees it, means half and half the second half of this year, the PC market will decline. That's the explanation. It's the behavior of the client group itself, the PC makers and what they have or have not been able to do in building up inventories and supply of memory chips.
00:14:38
Speaker 4: Interesting.
00:14:39
Speaker 1: And I want to go back to this question that Carol ask Koon John about the US investment. Yeah, it's just it is an interesting time for economic statecraft in the US. I mean, we are the third largest shareholder right before in video. Actually did the investment is I mean, is it even a possible question to answer? Did the US investment fundamentally change this company?
00:14:59
Speaker 5: Is it well port for the Ceokringjan.
00:15:02
Speaker 6: Talked about morale. I mean, remember that it was not the only if you look at it from this perspective, it was not the only balance sheet strengthening exercise that Boo's done. He's looked at it right in Nvidia, he's looked at the private markets or looked at working with private equity on projects. The goal was to strengthen the balance sheet to allow them to be nimble do the things that they wanted to do. As for US manufacturing, that's a different story, right. They don't name their foundry customers. There's a lot of question marks over Foundry. But what's so interesting is I asked Lip Bhutan about Elon Musk, and I was like, last night on his own earnings call, Elon Musk name checked you and said we will use Intel's fourteen A process, which on paper would be the first time anyone said that they'll use Intel's fourteen A process. And he declined to say anything about that. He was like, it's up to the customers to decide if they want to talk about that. We don't comment. Put that to one side. But what he said was, and what Dave's insterer said, is they think they'll get more out of working with Elon, then Elon Musk and his terrrafab project will get out of Intel. In other words, Elon's really good at stuff process, eliminating barriers and inefficiency, and that was their answer. We think we're going to really benefit from being in this partnership with Ela Musk. He's really good at that, and I thought that was interesting.
00:16:17
Speaker 3: That's fascinating, Like you wonder about that relationship right where it goes? Certainly from here twenty seconds top of mine, when you listen for the call with analysts.
00:16:27
Speaker 6: When he declined to comment to me about the implications of a project with Terrafab, you might answer it in more detail on the call. The dollar signs part of it at least.
00:16:36
Speaker 5: All right. I love that is going to stick around. Of course.
00:16:38
Speaker 3: He's the co host of Bloomberg Tech on Bloomberg Television Work.
00:16:42
Speaker 2: This is the Bloomberg Business Week Daily Podcast. Listen live each weekday starting at two pm Eastern on Apple Car Playing and the Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa played Bloomberg eleven thirty.
00:17:00
Speaker 1: We want to bring in the head of macro At, the active investment manager operating across the Europe, Asia and North America. Lombardodia investment. Florian Alpo back with us, joining us today from Geneva where it's late into the evening, after eight o'clock, So we appreciate you taking the time, Florian. The headline that we got that moved markets here in the US and moved oil too, was about Tehran activating its defense systems and explosions being heard. This is coming from Tehran, we should note, and from a newswire in Tehran. But I'm curious from you about the macroeconomic backdrop of a war that doesn't seem to where the ceasefire is holding at least right now.
00:17:38
Speaker 7: True, Hi Jim, I'm Carol.
00:17:40
Speaker 5: Thanks for having me again.
00:17:42
Speaker 7: I think it's important to start from the big disagreements which we can see from market. At the moment, the oil market is seeing risk when the equitity market is seeing risk on and go with the flow. So there's this disagreement going on to crazy. We're confronted in the strait of homos. Has this particularly that the longer it lasts, the higher the leverage basically.
00:18:11
Speaker 5: Urin have on the US.
00:18:12
Speaker 7: And that leverage is called inflation, meaning it's not war itself, is just a negative impact of this overall situation. So our own in situates are very simple. What you're saying that if you stay where we are at the moment for a period of three months, you're supposed to be eating about let's say, five to fifteen percent of your earnings voils, which is not huge, but still significant enough to let investors refing their exposure to the market at this point in time, in the here and now.
00:18:47
Speaker 5: Say that again.
00:18:48
Speaker 3: You said eating five percent of what I'm sorry, just if you could reiterate that or is.
00:18:54
Speaker 7: Five to ten percent of earnings growth, which is pretty much what's animating market at the moment, right. It's all about It was all about the earning season until now, and this earning season was coming with the good news of expanding earnings and strong earnings voice, and that was the best moments for the stock market to rally on the back of that. Now, well, basically we're still confronted with the temptation of taking profits because this inflation shock creates potentially a negative earning shock.
00:19:24
Speaker 3: You know, Florin something we talked about yesterday, this this new normal that our team wrote about Bloomberg economics, but basically no peace, no war, the new normal in the relationship between the United States and Iran. Is that what we're moving towards in your view, and is that going to be stable enough for investors, for CEOs, for heads of institutions and organizations to make decisions and move forward, and for economic global economic growth.
00:19:54
Speaker 7: It's a very botant question I'm going to answer from the investment perspective. Basically, I think this new normal makes a very strong difference between stocks which have a business model which is cyclical, and stocks which have a business model which will monetize in a few years, which you know, a longer term investment horizon. Of course, when I'm saying that I'm opposing value to growth, I'm opposing Europe to US essentially, and with the emerging world in the mess in the middle.
00:20:27
Speaker 5: Of this situation.
00:20:29
Speaker 7: So the new status quo basically is a goal for investors to refin the way the access equality markeet and maybe it growth is exactly the place where you want to be at at this point in time, because growth is the kind of styles that looks through short to medium terms issues, which is pretty much what we're confronted with.
00:20:49
Speaker 1: The growth everywhere, just growth in the US because one thing that we spend a lot of time, we have spent a lot of time talking about is the different way this energy shock is being dealt with by US companies versus by companies in Asia, for example, by companies in Europe for example.
00:21:03
Speaker 4: So what's your view there.
00:21:05
Speaker 7: Intreative coal, of course, is diversify. The one thing I would look at is what's called BEEG the price earning to earning growth ratio, so that to assess whether the valuation of your stocks is still outpaced by the growth rate of your earnings. And that's pretty much what's happening in the US at the moment. That's why the S and P those days is on a roll because basically the earnings growth we're getting from this Q one season is showing such a growth rate, a surprisingly high growth rate, that it outpaces the the expensiveness of the overall index. That expensiveness is weaker in the emerging world, but still still attractive. So let's say a combination between the two is potentially one way to say through the Gotts.
00:21:51
Speaker 3: So Florian, the AI revolution is a revolution in your view that needs to be treated as such. And I'm curious why those are your words? What that means, what do you mean treated? And I do also wonder does that revolution continue even if this war continues or some kind of stalemate, uneasy stalemate continues between the US and Iran.
00:22:14
Speaker 7: Of course, we're confronted with the technical revolution, and we've been there before. Simply the one technological revolutions we've seen in the past have come with a slow adoption rate until the Internet revolution. So basically, if you go back into the nineteenth century and you look at the performance of US s equities during the railway building, the electrification of the United States, the decades of that change was actually coming with negative stock returns, which is not good news, right. Actually, like a century ago, investors were fearing technological change. Now we're embracing it. And the difference between this two situations is adoption. The adoption rate of the Currench Revolution is cctually quite fast.
00:22:59
Speaker 2: It's war.
00:23:00
Speaker 7: It's for us for a reason, because let's say our demography goals full dot change, we have a slowing groys slowing groiz I'm sorry of a population globally, and yeah, sloping growth is actually one of the remedies. Is the tech change we're currently experiencing.
00:23:16
Speaker 5: All I do.
00:23:17
Speaker 3: All I hope is that artificial intelligence does shopping, because my understanding is the consumer is pretty important to certainly the US economy. All Right, we got to leave it there, Florin, Thank you so much. Florinielpo. He's the head of Macro at Lombard Oda Investment.
00:23:31
Speaker 4: Stay with us.
00:23:32
Speaker 1: More from Bloomberg Business Week Daily coming up after this.
00:23:39
Speaker 2: If you're listening to the Bloomberg Business Weekdaily podcast, catch US live weekday afternoons from two to five pm Eastern. Listen on Apple CarPlay and the Android Auto with the Bloomberg Business app, or watch US live on YouTube.
00:23:53
Speaker 1: Hey, South Past Airlines declined update it's full ye profit guidance. US carriers are contending with this soaring fuel prices amid that approach tracted war in the Middle East. American Airlines also lowered its full year earnings target, it said at May end twenty twenty six with a loss, and also our Bloomberg team exclusively reporting that Alaska and American are pursuing a potential revenue sharing agreement and other strategic partnerships. She hears the Southwest are lower, American are higher. There's a lot to get to and so there's Spirit Airlines too, right.
00:24:23
Speaker 5: Oh yeah, that's a big one. All right.
00:24:25
Speaker 3: So let's see what George Ferguson has to say. Glad that we could get him back. He's Bloomberg Intelligence senior Aerospace, Defense and Airlines analysts out there and BI headquarters in Princeton, New Jersey. Not quite sure where to begin? Southwest important tell us about that one. Let's go there because we definitely have seen the stock move.
00:24:44
Speaker 8: Yeah, I think it's very important. Right, So, Southwest is transitioning to a full service carrier kind of model we saw. I think nice revenue growth per seit revenue growth out of the carrier. So it seems like that a turnaround is effective. It's working, you know. I think they're and I think look as all the carriers in the marketplace, I think the ones that have the best opportunity to make a lot of money from loyalty, which is super important in this current market, are the big three full service in Southwest now the big four fold service, right so Southwest, United American and Delta. So I thought it was a I thought it was a good result from them. Everyone's got their own sort of thought and whether or not to provide guidance for the year, how to provide it United provided you know a range that you could have driven a seven forty seven through. Southwest has decided not to give us an updating guidance.
00:25:43
Speaker 1: Did Southwest say anything about the change in the way it's it seats customers and how customers are reacting to that, George, because that was a big issue it did.
00:25:53
Speaker 8: I mean, the CEO kind of called out the naysayers on it and said, you know, the revenue growth of the revenue per se growth they're seeing and the profitability they're seeing as a rebuttal of that, I agree. Look, I think everybody grets is a bit when things change. We all like things to be the same every morning. We it helps us understand things better. Even I like that every so often. But you know, I think the customer base had to get used to the idea that Sethwest wasn't going to give away bags for free, and the seating planner wasn't going to stay the same. You were going to have to sign up for the credit card in order to get some of those perks. And now Southwest gets to sell more of those miles to the credit card company, and that's kind of the current model that works the best. Right now, in airlines, it is the current model that works the best.
00:26:42
Speaker 3: Line all about increasing that revenue per existing core passenger.
00:26:45
Speaker 5: It's all about that.
00:26:46
Speaker 8: You got it, You got it?
00:26:48
Speaker 3: Okay, good for us? Right Hey, I want to go right over to Spirit Aviation. I man the conversations we're having in the newsroom. I'm a believer in capitalism. What is your take on the government intervening here or possibly intervening here?
00:27:04
Speaker 8: Yeah, A little surprised here, right. So, Spirit I don't see as sort of a systemically important airline to the US, to the US market. It was already having problems before fuel spiked. We kind of thought it was really at risk of surviving before that. We thought it was a lot of risk of surviving after the fuel spike. So I don't understand why the government thinks they're that important. I agreed that you never like to see people lose jobs, But again, in this case, it feels like the basic economy world had too much capacity, had too many competitors, and this was the beginning of fixing that problem. I think more capacities still had to come out, and I think what happens is when the government steps in like this, it slows the process of the market fixing that and look, it hurts the other participants, right, lowers return learns for the other participants, and that's not always good either.
00:28:03
Speaker 1: Well, why should Spirit get a bailout?
00:28:05
Speaker 4: If it does?
00:28:06
Speaker 1: If it does, and we talked about the news, but maybe Jet Blue? If Jet Blue were to face a similar situation, should it should it get that? You know, I mean, I think it raises a lot of questions too about the government picking picking winners and losers. Critics would argue, agreed, So well, go ahead, George, please. I was I was going to say, you know, if we think about it from the perspective of the actual business, like if the company is saved, like, you know, would there be conditions. Look again, this is.
00:28:32
Speaker 4: Very early days.
00:28:34
Speaker 1: We don't have an agreement yet at this point, but what would it be more effective if the company agreed to certain you know, business changes, like obviously this didn't work in the free market, and that sent a customer sent a message.
00:28:46
Speaker 8: Yeah, but I mean I think that you know, part of the process is you go in front of your your creditors and you tell them how you think it can restructure the business. They're very in touch with the industry. They look at your plan, a judge looks at your plan. You decide whether or not it makes a lot of sense. And if people are willing to contribute their own money to the turnaround, then I think you start to feel pretty good that, hey, there's an opportunity here to, you know, to turn this this business around. The governments, I think aren't just aren't as good at that, right, They're not as they don't use as much discretion before they deploy their capital. I think we all, you know, we all focus a lot more when it's coming out of our wallet, our pocketbooks. So again, I think that's kind of already, that's already happened, and I think the creditors that are in it are kind of done right. I think we've watched Spirit go through chapter eleven twice now, and so I think folks think, look, this model might just not work. It might not have the size, it might not have the potential for a loyalty program. There may be too many seats in the low end marketplace. This this competitor maybe to come out of the business.
00:29:57
Speaker 3: All right, So I've done a deep dive and I'm all right, Pan am Braniff, Trump, Shuttle TWA, Eastern Northwest, USAir America, West Value, Jet Continental, we know what happened to Continental people, Express, Air Trans Virgin. I mean this industry used has gone through these cycles.
00:30:17
Speaker 5: Is this the way it's supposed to be? Though?
00:30:19
Speaker 3: Where there's a small handful, it feels like George of carriers, I mean it's expensive.
00:30:25
Speaker 5: Planes are expensive?
00:30:25
Speaker 3: Feels expensive like or do we need to have some more competition back?
00:30:31
Speaker 8: I don't know that we need more competition, right, So, I mean there's so many things you buy in life every day that have two or three primary competitors for your dollar. You know, you got cocin PEPSI I guess you got Intel, a AMD for your chips. I don't know, you've got a couple of different providers of you know, phone sets, mobile phone sets. In the airline business, we have four full service I guess we're counting Southwest now right. We've got Jet Blue, We've got Alaska, We've got Frontier. There's some that aren't even listed seven or eight. You've got a lot of competition in the airline business. And the challenge I have in the business is it's I think one the barriers to entry are low airplanes. Airplanes are very very financeable, right, eighty percent financing. You can get on a typical airplane, so you don't always have to use you can use a lot of debt financing to do it. And I think it's it's very commodity, right, It's a seat to another destination. And now I think the big full service again are using these loyalty programs to really you got the credit card, you're getting a couple benefits for holding the credit card, getting lounge access, you're getting the ability to check your bag for free. So they pull you into being loyal that way. But without that anchor to loyal to make you loyal, I think there's not a lot of reason to be loyal in this business. Go get the cheapest seat to Orlando, and that's the challenge.
00:31:59
Speaker 1: Yeah, yeah, Well so then then it raises questions about about if you're not a big four, what the opportunity is and what the option actually is, Like how do you do that?
00:32:08
Speaker 5: Like you said, there's sorry, it's harder.
00:32:10
Speaker 8: It's yeah, harder, And look, I think they're part of the challenge here is there could be even more consolidation coming right like I could see you know, we've talked about a lot. Jet Blue and Alaska potentially getting together would fill out Alaska's East coast network. Those two brands, I think are pretty strong brands could bring some pretty good loyalty to it. So you know, you could see even more consolidation as the airlines that can bring that loyalty card to bear really use it. I think what it means is the low cost carriers have to keep pushing down on costs and provide a distinctly cheaper price point to get you on their airplane. They have to could be just on costs in the new in the new world, if they're gonna get you if they don't have a good loyalty program.
00:33:04
Speaker 3: Hey, last question you know on that in terms of consolidation, Lisa Bromoway, it's talking to United Airlines ce Scott Kirby. I think the first question she was like, so, what's gonna happen with American Airlines? And he declined to answer so very much sidestepping that question. Was that to you a message that maybe they are talking, they are talking who knows like or that they are like what you read on that.
00:33:30
Speaker 8: My personal opinion is Kirby was having some fun here. I think that United and American would be forty five percent of the domestic market and that would be far too much for the administration to take. If you listen to the American call from today, they totally rebuffed it again. And remember, Kirby used to work at an American, so so everyone knows each other in that little, you know game. And look, I think American's been a bit challenged lately, have been his big competitive earning.
00:34:00
Speaker 4: They look pretty good.
00:34:01
Speaker 8: Out of American reminded us that they are a competitor. They told us they'd stay in Chicago for the next one hundred years. Kirby's thinks he's going to kick him out. There's a little bit of a game going on between America and United.
00:34:11
Speaker 1: And then we should say the President even said the President even said this week that he's not wild about you know. Now, you know those two companies teaming.
00:34:19
Speaker 3: Up, just another CEOs having fun, right, is that what's going on?
00:34:23
Speaker 8: It's a little bit what I'm getting out of it, because I think Kirby knows there's just no way that's going to happen.
00:34:27
Speaker 3: All right, Shows of American, by the way, they were up as much as five and a half percent today right now again of about one point three percent, but we've seen the whole market kind of come down.
00:34:35
Speaker 5: George, Thank you again.
00:34:36
Speaker 3: George Ferguson, Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst out.
00:34:41
Speaker 5: There and at BI headquarters in Princeton, New Jersey.
00:34:43
Speaker 2: This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Isn't This app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal
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00:00:08
Speaker 2: This is Bloomberg Business Weekdaily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy. Plus global business, finance and tech news as it happens. The Bloomberg Business Weekdaily Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
00:00:31
Speaker 3: Keep you in close watch on cannabis stocks Advisor shares plus US Cannabis ETF Amplify, Alternative Harvest ef TF, Tilray, Aurora Cannabis, Chronos, Canopy Growth, Cure Leaf Holdings. I mean these are on our radar shares of these cannabis companies and ATF so I'm getting a bit of a reset dropping back today after soaring in the yesterday in yesterday's session, and that was on expectations at the Justice Department and DEA would move certain marijuana products to the less strictly controlled Schedule three, which is reserved for drugs with accepted medical uses and lower abuse potential. Well, that happened Tim earlier today.
00:01:09
Speaker 1: Here to talk about the move and what if anything it changes for these companies. We've got the CEO, chairman and co founder of one of them. Boris Johnson is joining us. He is chairman, CEO, and co founder of cure Ly Foldings. He joins us from Europe.
00:01:22
Speaker 4: Boris.
00:01:22
Speaker 1: Good to have you on the program. So what does it mean that the Justice Department in DEA moves removes certain marijuana products or moves them to the less strictly controlled Scheduled three. What does that do for your company?
00:01:35
Speaker 4: Well, Tim, first, I want to correct just I'm not Boris Johnson, Boris Boris Jordan. Excuse me, much more, much more.
00:01:41
Speaker 1: I apologize. Thank you for that. Boris Jordan. Good to see, No no problem, Tim.
00:01:47
Speaker 4: Listen, this is a monumental move. It's been fifty five years since President Nixon on a political decision of scheduled cannabis as a Schedule one drug. It's a product that was used for hundreds and hundreds of years wellness product by many both in Europe and the United States. It was too long that Eli, Lilly and other pharmaceutical companies were selling cannabis extracts for medical reasons. So this reclassifies it from a Schedule one to a Schedule three drug. It has several major impacts. The first impact, of course, is that we will be allowed to do research working with medical institutions again federal grants to do that research on the product nationwide purely as the largest operator globally and working in Europe. Just finished phase one trials in neuropathic medication with cannabis in Europe in London, the UK, and moving on to phase two. We can now bring that to the United States. We couldn't do any of that work in the United States. We have a partnership with the University of Pennsylvania Medical Center, and so we will start doing that work here in the United States. The second aspect of it is that we had a capricious tax on basically a revenue tax on gross margin, which was about seventy two percent. That you know, it was almost impossibly a profitable company on that basis. Now that will go away as well, So we'll be taxed and treated as any other corporation in the United States, which will immediately make most of the larger players like your Relief, very profitable going forward.
00:03:13
Speaker 3: All right, so is the job done? Is this all you guys need to kind of move forward?
00:03:18
Speaker 4: No? I think that. So the current rescheduling is being done in two steps. The first step was under something called the United Nations Single Convention of Narcotics. That was the first step for medical because under the UN treaty you can only reschedule for medical reasons. The second will be a alj hearing was a process started under President Biden, which was halted at the beginning of the Trump presidency, and that will now be restarted on June twenty ninth. That will address the issue of adult use cannabis, rescheduling those products as well. Once that happens, what we expect to happen in the third quarter. Then for the most part, I would say this was the first step. Now we need to start working with the federal government on banking, on up listing two major exchanges in the United States, Okay, and so there'll be a lot more work to be done.
00:04:05
Speaker 1: So that's what I want to talk to you about, is the banking side of this and what it changes for banks. That are, if anything, does it change anything for banks or is the next step that there is something from the federal government that allows banks to do business in this industry.
00:04:19
Speaker 4: So using the proverbial, you know, broke the glass ceiling, this breaks the glass ceiling. Okay, this is the first piece of federal legislation that we've seen since the since twenty years ago when rohor Bacher Farr was passed protecting medical cannabis companies in the States. Now you have the rescheduling of cannabis. I believe that you're going to see action from the Treasury. We know that both Janet Yellen and I believe Scott Besen have both said they want major banking institutions to bank the cannabis sector. They also want to see these companies on US exchanges, and that will be a part of the process that may need some legislation from Congress. But also because of the fact that we will be applying for DA licenses that will make us federally legal as medical companies. Now that will most likely give us the ability to at least apply for uplisting on the US exchanges. Hey, credit cards, I think they're going to be a big deal which increase business dramatically. So all of these things I think are on the horizon going forward.
00:05:12
Speaker 3: Ay boris, But at the end of the day, if the Democrats take the House in November, do you think a future Congress can get along with President Trump to bring recreational changes.
00:05:23
Speaker 4: I think that we're not going to see a lot of recreational changes. I think the next step is going to be the whole financial services aspect of the business. So we've now rescheduled and now we'll see recreational I believe that get to legalize this recreationally nationally at a federal level, we need to do the work right. That's why they're reschedules. Will schedule in the schedule three. We need to do the work with the medical institutions in the countries to work on all of the aspects of the plant to make sure the plant is safe. We know it's safe, but we need to have evidence now because in Europe it's been proven in Israel and other places that this is a plant has a lot of wellness aspects to it. We now need to do that in the United States. I think that will take two to three years. So I more than likely suspect the full legalization will probably happen in the next administration. Not that Trump doesn't want to do it, but I believe just the steps that need to be taken are going to take two to three more years.
00:06:13
Speaker 3: Who's ever in the White House, who's ever in Congress in the next administration, you think it'll still go through.
00:06:19
Speaker 4: Yes, I think we're past the point where cannabis was, you know, stigmatized the way it was the Democrats. As we know, this polls at almost eighty percent in the country for legalization. Amongst Republicans, it's fifty nine to sixty percent. Amongst the whole country, it's almost eighty percent. So I pretty much feel that this is going to happen, but it will probably happen in two to three years on full legalization. But this is a major step forward.
00:06:42
Speaker 1: Boris, you mentioned the idea of moving from stock exchanges outside of the United States to the United States. Would you do that at cure Leaf?
00:06:49
Speaker 4: Yeah, cure Leaf today is the only major cannabis company global. Campus is going to be the trades on the TSX and in Canada, which is a major change in Canada, but still we don't trade on the NaSTA. I do believe that this will over the next couple of years, will more than allow us to uplist the US exchanges.
00:07:07
Speaker 5: Hey, what do you think happens in terms of the industry.
00:07:09
Speaker 3: So many times you start to see some consolidation of very smaller companies tying up together. Do you think that ultimately this is going to spur m and a activity, you know, the idea being that if more companies are getting the two ade tax relief, does it make it more attractive bores for the larger players to come in and buy up some of those smaller companies.
00:07:27
Speaker 4: Absolutely. I think you're going to see a tremendous amount of consolidators in going the second half of twenty six and twenty seven. This decision brings down the cost of capital. It will increase capitalizations even though we're seeing a correction today. I think it's a misunderstanding of the whole process. People are trying to digest it. But I do think it's going to widen the investor pool to convest in the sector. I think you're going to see more and more money coming into it, a re evaluation these companies, and on the back of that you are going to see consolidation there. You need this is a scale business. We need to consolidate these companies and create scale.
00:07:59
Speaker 5: What does it mean for surely?
00:08:00
Speaker 3: So are you already taking calls thinking about strategizing, like who you might want to tie up with?
00:08:05
Speaker 4: I mean Curely, it's already the largest global player. We are definitely going to be acting on that consolidation. We are in talks with numerous both regional as well as larger companies. Were talks in Europe, where talks in the United States. We've been having them for a while because we knew this was coming. It was just a matter of when it was going to come. It has now happened. I think it creates certainty in the market from a balance sheet and cash flow perspective for these companies. So now I think it'll be a lot easier to make these transactions happen.
00:08:29
Speaker 3: All right, stock was up twenty six percent yesterday, it's down about twenty two percent today. Is it just a case that this is going to still take time?
00:08:37
Speaker 4: I think yes. You have to understand that the cannabis sector today does not have virtually no institutional money. This is largely algorithms and retail investors trading the in and out of these stocks. As we start to see large institutional investors come back into the sector, those that were there, For instance, when Curely went public in twenty eighteen, we had black Rock, we had Fidelity, we had all of these players in the IBO. Then they all had to exit because Sessions removed the col memo, which made it uncertain to invest in the sector. As those investors we acquaint on the back of this decision with the sector and they get permission to invest, I think you're going to see a dramatic reevaluation in these stocks. I think this is a massive buying opportunity. And if we weren't in the middle of a blackout period, I can tell you we have a buyback program, we would be doing it.
00:09:20
Speaker 1: Okay, Well, you got to come back when you're not going to build the blackout. Yes, speaking of buying buying for us, Jordan, I want to go back to what you said about M and A and the discussions they are having with companies all over the world and here in the United States too, pushing push deeper with for us with that, and like what kind of companies I know you probably can't say the names of the companies, but like, what specific types of company is attractive to you right now?
00:09:42
Speaker 4: I think you know given the current regulation, and I think we're looking at both retail, which is very unusual. Right now, we're looking at retail. Sixty five percent of our business is sold online. However, we still have to deliver the product from our delivery points. So think about Amazon and Whole Foods very similar or model where they both come into the store but mainly come in just to pick up what they bought online, and about thirty percent will buy actually buying the store. So we're looking for retail distribution points to continue to distribute these products throughout the country. So we're looking at tucking and acquisitions in the various states around the country now. And also we're looking at large scale companies because a lot of these companies because of historic state regulations, couldn't combine because they had limitations. Most of those limitations are gone now and the scale of we want to build scale and get cost savings from that scale, and we can do that today because the transactions couldn't happen till this day because there was too much uncertainty around the balance sheets because of the tax of rules. Now that that uncertainty has gone away, now that these companies will be largely significantly cash flow positive and profitable, it makes it much easier to do the transactions.
00:10:49
Speaker 3: All right, Good stuff as always, really great to check in with you once again.
00:10:52
Speaker 5: Boris Jordan, not Boris Johnson. Boris Jordan, Well, thanks for reminding me.
00:10:58
Speaker 4: That although he was a Primeateistrim of England and Mayor of London.
00:11:04
Speaker 5: Yes, it's a good comparison.
00:11:05
Speaker 4: And I'm the head of the Spectator editor.
00:11:08
Speaker 1: Yes, people forget about his journalists past, but Boris Jordan, we will never forget about you.
00:11:13
Speaker 5: That voice you're hearing is Boris Jordan.
00:11:15
Speaker 3: He's chairman, CEO, and co founder of the two point four billion dollar market cap company Cure Leaf Holdings.
00:11:21
Speaker 1: Stay with us more from Bloomberg Business Week Daily coming up after this.
00:11:28
Speaker 2: You're listening to the Bloomberg Business Weekdaily Podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple CarPlay and the Android Auto with the Bloomberg Business app, or watch us live on YouTube.
00:11:42
Speaker 3: Our next guest usually out there inner San Francisco Burea, but.
00:11:45
Speaker 1: He's back here in the Bloomberg Interactive Broker's studio. We're talking about Ed Ludlow shares an Intel right now up by more than fourteen percent, shares just surging, the company giving this strong sales forecast for the current period.
00:11:58
Speaker 5: There's the signal.
00:11:59
Speaker 1: Is that the companies be need a benefit from the build out of AI infrastructure. ED Love though, is with us from Bloomberg Tech. Ed, You've looked at this company for a long period of time, especially during this turnaround over the last few months.
00:12:11
Speaker 5: How's it doing well?
00:12:12
Speaker 3: So?
00:12:12
Speaker 6: Ian and I just had a good, pretty long phone call with lit Bu Tan and Dave's into the CFO and there's that. We have a lot of answers. Actually, you know, when there were so many headlines that hit, it's hard to see what the real driver was. I don't obviously the revenue guide really important. You know, for the current period. The story is really simple. CPU demand, the Xeon server processor is really really big, and so they are now in what they would describe as the enviable position where they can divert supply to feed that market. Kunjam was just talking about the PC market or the client market. We can talk a little about a bit about that. There are some unique factors there, but basically demand is strong, it is growing, and they are not yet able to meet it. And that is a good position for Intel to be in. One thing, I would say, by.
00:12:59
Speaker 5: The way, you want to be able to meet it, right, You want.
00:13:02
Speaker 4: To be able.
00:13:02
Speaker 6: And so this was the story quarters a quarter. What is the lipbutan effect? What does him becoming CEO and changing how the company works actually mean. It means not leaving any money on the table, you know, finding the CPUs that are coming from, finding the CPUs to meet the demand that's out there. And they're doing their absolute best for sure. Now, margins were really good in the quarter gone first quarter, not against history. You know, Intel's a company used to have margins at sixty percent. Now we're at thirty seven point five or maybe slightly beyond that on an adjusted basis. But I think what was so interesting is this is financial jargon. But they were honest that that's just because revenues were higher. You know, they're not necessarily finding the secret source yet nonprofit.
00:13:44
Speaker 3: So because the demand is strong, the supply isn't there, they can charge more.
00:13:48
Speaker 6: Yeah, And so Kunjam poses a question why I'd like to hear more about the PC market. This is what Intel sees in the PC market. In the first part of this year. The PC makers, the Client Group, were able to build up supply of memory chips. Remember, the backstory is that memory is being claimed by the data centers you know, it's very similar the type of memory chip that goes into a PC that goes into a server. The problem is is Intel sees it that in the second half of this year they're going to run out of that inventory of memory and they're going to have to be buying in the market spot prices, and that as far as Intel sees it, means half and half the second half of this year, the PC market will decline. That's the explanation. It's the behavior of the client group itself, the PC makers and what they have or have not been able to do in building up inventories and supply of memory chips.
00:14:38
Speaker 4: Interesting.
00:14:39
Speaker 1: And I want to go back to this question that Carol ask Koon John about the US investment. Yeah, it's just it is an interesting time for economic statecraft in the US. I mean, we are the third largest shareholder right before in video. Actually did the investment is I mean, is it even a possible question to answer? Did the US investment fundamentally change this company?
00:14:59
Speaker 5: Is it well port for the Ceokringjan.
00:15:02
Speaker 6: Talked about morale. I mean, remember that it was not the only if you look at it from this perspective, it was not the only balance sheet strengthening exercise that Boo's done. He's looked at it right in Nvidia, he's looked at the private markets or looked at working with private equity on projects. The goal was to strengthen the balance sheet to allow them to be nimble do the things that they wanted to do. As for US manufacturing, that's a different story, right. They don't name their foundry customers. There's a lot of question marks over Foundry. But what's so interesting is I asked Lip Bhutan about Elon Musk, and I was like, last night on his own earnings call, Elon Musk name checked you and said we will use Intel's fourteen A process, which on paper would be the first time anyone said that they'll use Intel's fourteen A process. And he declined to say anything about that. He was like, it's up to the customers to decide if they want to talk about that. We don't comment. Put that to one side. But what he said was, and what Dave's insterer said, is they think they'll get more out of working with Elon, then Elon Musk and his terrrafab project will get out of Intel. In other words, Elon's really good at stuff process, eliminating barriers and inefficiency, and that was their answer. We think we're going to really benefit from being in this partnership with Ela Musk. He's really good at that, and I thought that was interesting.
00:16:17
Speaker 3: That's fascinating, Like you wonder about that relationship right where it goes? Certainly from here twenty seconds top of mine, when you listen for the call with analysts.
00:16:27
Speaker 6: When he declined to comment to me about the implications of a project with Terrafab, you might answer it in more detail on the call. The dollar signs part of it at least.
00:16:36
Speaker 5: All right. I love that is going to stick around. Of course.
00:16:38
Speaker 3: He's the co host of Bloomberg Tech on Bloomberg Television Work.
00:16:42
Speaker 2: This is the Bloomberg Business Week Daily Podcast. Listen live each weekday starting at two pm Eastern on Apple Car Playing and the Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa played Bloomberg eleven thirty.
00:17:00
Speaker 1: We want to bring in the head of macro At, the active investment manager operating across the Europe, Asia and North America. Lombardodia investment. Florian Alpo back with us, joining us today from Geneva where it's late into the evening, after eight o'clock, So we appreciate you taking the time, Florian. The headline that we got that moved markets here in the US and moved oil too, was about Tehran activating its defense systems and explosions being heard. This is coming from Tehran, we should note, and from a newswire in Tehran. But I'm curious from you about the macroeconomic backdrop of a war that doesn't seem to where the ceasefire is holding at least right now.
00:17:38
Speaker 7: True, Hi Jim, I'm Carol.
00:17:40
Speaker 5: Thanks for having me again.
00:17:42
Speaker 7: I think it's important to start from the big disagreements which we can see from market. At the moment, the oil market is seeing risk when the equitity market is seeing risk on and go with the flow. So there's this disagreement going on to crazy. We're confronted in the strait of homos. Has this particularly that the longer it lasts, the higher the leverage basically.
00:18:11
Speaker 5: Urin have on the US.
00:18:12
Speaker 7: And that leverage is called inflation, meaning it's not war itself, is just a negative impact of this overall situation. So our own in situates are very simple. What you're saying that if you stay where we are at the moment for a period of three months, you're supposed to be eating about let's say, five to fifteen percent of your earnings voils, which is not huge, but still significant enough to let investors refing their exposure to the market at this point in time, in the here and now.
00:18:47
Speaker 5: Say that again.
00:18:48
Speaker 3: You said eating five percent of what I'm sorry, just if you could reiterate that or is.
00:18:54
Speaker 7: Five to ten percent of earnings growth, which is pretty much what's animating market at the moment, right. It's all about It was all about the earning season until now, and this earning season was coming with the good news of expanding earnings and strong earnings voice, and that was the best moments for the stock market to rally on the back of that. Now, well, basically we're still confronted with the temptation of taking profits because this inflation shock creates potentially a negative earning shock.
00:19:24
Speaker 3: You know, Florin something we talked about yesterday, this this new normal that our team wrote about Bloomberg economics, but basically no peace, no war, the new normal in the relationship between the United States and Iran. Is that what we're moving towards in your view, and is that going to be stable enough for investors, for CEOs, for heads of institutions and organizations to make decisions and move forward, and for economic global economic growth.
00:19:54
Speaker 7: It's a very botant question I'm going to answer from the investment perspective. Basically, I think this new normal makes a very strong difference between stocks which have a business model which is cyclical, and stocks which have a business model which will monetize in a few years, which you know, a longer term investment horizon. Of course, when I'm saying that I'm opposing value to growth, I'm opposing Europe to US essentially, and with the emerging world in the mess in the middle.
00:20:27
Speaker 5: Of this situation.
00:20:29
Speaker 7: So the new status quo basically is a goal for investors to refin the way the access equality markeet and maybe it growth is exactly the place where you want to be at at this point in time, because growth is the kind of styles that looks through short to medium terms issues, which is pretty much what we're confronted with.
00:20:49
Speaker 1: The growth everywhere, just growth in the US because one thing that we spend a lot of time, we have spent a lot of time talking about is the different way this energy shock is being dealt with by US companies versus by companies in Asia, for example, by companies in Europe for example.
00:21:03
Speaker 4: So what's your view there.
00:21:05
Speaker 7: Intreative coal, of course, is diversify. The one thing I would look at is what's called BEEG the price earning to earning growth ratio, so that to assess whether the valuation of your stocks is still outpaced by the growth rate of your earnings. And that's pretty much what's happening in the US at the moment. That's why the S and P those days is on a roll because basically the earnings growth we're getting from this Q one season is showing such a growth rate, a surprisingly high growth rate, that it outpaces the the expensiveness of the overall index. That expensiveness is weaker in the emerging world, but still still attractive. So let's say a combination between the two is potentially one way to say through the Gotts.
00:21:51
Speaker 3: So Florian, the AI revolution is a revolution in your view that needs to be treated as such. And I'm curious why those are your words? What that means, what do you mean treated? And I do also wonder does that revolution continue even if this war continues or some kind of stalemate, uneasy stalemate continues between the US and Iran.
00:22:14
Speaker 7: Of course, we're confronted with the technical revolution, and we've been there before. Simply the one technological revolutions we've seen in the past have come with a slow adoption rate until the Internet revolution. So basically, if you go back into the nineteenth century and you look at the performance of US s equities during the railway building, the electrification of the United States, the decades of that change was actually coming with negative stock returns, which is not good news, right. Actually, like a century ago, investors were fearing technological change. Now we're embracing it. And the difference between this two situations is adoption. The adoption rate of the Currench Revolution is cctually quite fast.
00:22:59
Speaker 2: It's war.
00:23:00
Speaker 7: It's for us for a reason, because let's say our demography goals full dot change, we have a slowing groys slowing groiz I'm sorry of a population globally, and yeah, sloping growth is actually one of the remedies. Is the tech change we're currently experiencing.
00:23:16
Speaker 5: All I do.
00:23:17
Speaker 3: All I hope is that artificial intelligence does shopping, because my understanding is the consumer is pretty important to certainly the US economy. All Right, we got to leave it there, Florin, Thank you so much. Florinielpo. He's the head of Macro at Lombard Oda Investment.
00:23:31
Speaker 4: Stay with us.
00:23:32
Speaker 1: More from Bloomberg Business Week Daily coming up after this.
00:23:39
Speaker 2: If you're listening to the Bloomberg Business Weekdaily podcast, catch US live weekday afternoons from two to five pm Eastern. Listen on Apple CarPlay and the Android Auto with the Bloomberg Business app, or watch US live on YouTube.
00:23:53
Speaker 1: Hey, South Past Airlines declined update it's full ye profit guidance. US carriers are contending with this soaring fuel prices amid that approach tracted war in the Middle East. American Airlines also lowered its full year earnings target, it said at May end twenty twenty six with a loss, and also our Bloomberg team exclusively reporting that Alaska and American are pursuing a potential revenue sharing agreement and other strategic partnerships. She hears the Southwest are lower, American are higher. There's a lot to get to and so there's Spirit Airlines too, right.
00:24:23
Speaker 5: Oh yeah, that's a big one. All right.
00:24:25
Speaker 3: So let's see what George Ferguson has to say. Glad that we could get him back. He's Bloomberg Intelligence senior Aerospace, Defense and Airlines analysts out there and BI headquarters in Princeton, New Jersey. Not quite sure where to begin? Southwest important tell us about that one. Let's go there because we definitely have seen the stock move.
00:24:44
Speaker 8: Yeah, I think it's very important. Right, So, Southwest is transitioning to a full service carrier kind of model we saw. I think nice revenue growth per seit revenue growth out of the carrier. So it seems like that a turnaround is effective. It's working, you know. I think they're and I think look as all the carriers in the marketplace, I think the ones that have the best opportunity to make a lot of money from loyalty, which is super important in this current market, are the big three full service in Southwest now the big four fold service, right so Southwest, United American and Delta. So I thought it was a I thought it was a good result from them. Everyone's got their own sort of thought and whether or not to provide guidance for the year, how to provide it United provided you know a range that you could have driven a seven forty seven through. Southwest has decided not to give us an updating guidance.
00:25:43
Speaker 1: Did Southwest say anything about the change in the way it's it seats customers and how customers are reacting to that, George, because that was a big issue it did.
00:25:53
Speaker 8: I mean, the CEO kind of called out the naysayers on it and said, you know, the revenue growth of the revenue per se growth they're seeing and the profitability they're seeing as a rebuttal of that, I agree. Look, I think everybody grets is a bit when things change. We all like things to be the same every morning. We it helps us understand things better. Even I like that every so often. But you know, I think the customer base had to get used to the idea that Sethwest wasn't going to give away bags for free, and the seating planner wasn't going to stay the same. You were going to have to sign up for the credit card in order to get some of those perks. And now Southwest gets to sell more of those miles to the credit card company, and that's kind of the current model that works the best. Right now, in airlines, it is the current model that works the best.
00:26:42
Speaker 3: Line all about increasing that revenue per existing core passenger.
00:26:45
Speaker 5: It's all about that.
00:26:46
Speaker 8: You got it, You got it?
00:26:48
Speaker 3: Okay, good for us? Right Hey, I want to go right over to Spirit Aviation. I man the conversations we're having in the newsroom. I'm a believer in capitalism. What is your take on the government intervening here or possibly intervening here?
00:27:04
Speaker 8: Yeah, A little surprised here, right. So, Spirit I don't see as sort of a systemically important airline to the US, to the US market. It was already having problems before fuel spiked. We kind of thought it was really at risk of surviving before that. We thought it was a lot of risk of surviving after the fuel spike. So I don't understand why the government thinks they're that important. I agreed that you never like to see people lose jobs, But again, in this case, it feels like the basic economy world had too much capacity, had too many competitors, and this was the beginning of fixing that problem. I think more capacities still had to come out, and I think what happens is when the government steps in like this, it slows the process of the market fixing that and look, it hurts the other participants, right, lowers return learns for the other participants, and that's not always good either.
00:28:03
Speaker 1: Well, why should Spirit get a bailout?
00:28:05
Speaker 4: If it does?
00:28:06
Speaker 1: If it does, and we talked about the news, but maybe Jet Blue? If Jet Blue were to face a similar situation, should it should it get that? You know, I mean, I think it raises a lot of questions too about the government picking picking winners and losers. Critics would argue, agreed, So well, go ahead, George, please. I was I was going to say, you know, if we think about it from the perspective of the actual business, like if the company is saved, like, you know, would there be conditions. Look again, this is.
00:28:32
Speaker 4: Very early days.
00:28:34
Speaker 1: We don't have an agreement yet at this point, but what would it be more effective if the company agreed to certain you know, business changes, like obviously this didn't work in the free market, and that sent a customer sent a message.
00:28:46
Speaker 8: Yeah, but I mean I think that you know, part of the process is you go in front of your your creditors and you tell them how you think it can restructure the business. They're very in touch with the industry. They look at your plan, a judge looks at your plan. You decide whether or not it makes a lot of sense. And if people are willing to contribute their own money to the turnaround, then I think you start to feel pretty good that, hey, there's an opportunity here to, you know, to turn this this business around. The governments, I think aren't just aren't as good at that, right, They're not as they don't use as much discretion before they deploy their capital. I think we all, you know, we all focus a lot more when it's coming out of our wallet, our pocketbooks. So again, I think that's kind of already, that's already happened, and I think the creditors that are in it are kind of done right. I think we've watched Spirit go through chapter eleven twice now, and so I think folks think, look, this model might just not work. It might not have the size, it might not have the potential for a loyalty program. There may be too many seats in the low end marketplace. This this competitor maybe to come out of the business.
00:29:57
Speaker 3: All right, So I've done a deep dive and I'm all right, Pan am Braniff, Trump, Shuttle TWA, Eastern Northwest, USAir America, West Value, Jet Continental, we know what happened to Continental people, Express, Air Trans Virgin. I mean this industry used has gone through these cycles.
00:30:17
Speaker 5: Is this the way it's supposed to be? Though?
00:30:19
Speaker 3: Where there's a small handful, it feels like George of carriers, I mean it's expensive.
00:30:25
Speaker 5: Planes are expensive?
00:30:25
Speaker 3: Feels expensive like or do we need to have some more competition back?
00:30:31
Speaker 8: I don't know that we need more competition, right, So, I mean there's so many things you buy in life every day that have two or three primary competitors for your dollar. You know, you got cocin PEPSI I guess you got Intel, a AMD for your chips. I don't know, you've got a couple of different providers of you know, phone sets, mobile phone sets. In the airline business, we have four full service I guess we're counting Southwest now right. We've got Jet Blue, We've got Alaska, We've got Frontier. There's some that aren't even listed seven or eight. You've got a lot of competition in the airline business. And the challenge I have in the business is it's I think one the barriers to entry are low airplanes. Airplanes are very very financeable, right, eighty percent financing. You can get on a typical airplane, so you don't always have to use you can use a lot of debt financing to do it. And I think it's it's very commodity, right, It's a seat to another destination. And now I think the big full service again are using these loyalty programs to really you got the credit card, you're getting a couple benefits for holding the credit card, getting lounge access, you're getting the ability to check your bag for free. So they pull you into being loyal that way. But without that anchor to loyal to make you loyal, I think there's not a lot of reason to be loyal in this business. Go get the cheapest seat to Orlando, and that's the challenge.
00:31:59
Speaker 1: Yeah, yeah, Well so then then it raises questions about about if you're not a big four, what the opportunity is and what the option actually is, Like how do you do that?
00:32:08
Speaker 5: Like you said, there's sorry, it's harder.
00:32:10
Speaker 8: It's yeah, harder, And look, I think they're part of the challenge here is there could be even more consolidation coming right like I could see you know, we've talked about a lot. Jet Blue and Alaska potentially getting together would fill out Alaska's East coast network. Those two brands, I think are pretty strong brands could bring some pretty good loyalty to it. So you know, you could see even more consolidation as the airlines that can bring that loyalty card to bear really use it. I think what it means is the low cost carriers have to keep pushing down on costs and provide a distinctly cheaper price point to get you on their airplane. They have to could be just on costs in the new in the new world, if they're gonna get you if they don't have a good loyalty program.
00:33:04
Speaker 3: Hey, last question you know on that in terms of consolidation, Lisa Bromoway, it's talking to United Airlines ce Scott Kirby. I think the first question she was like, so, what's gonna happen with American Airlines? And he declined to answer so very much sidestepping that question. Was that to you a message that maybe they are talking, they are talking who knows like or that they are like what you read on that.
00:33:30
Speaker 8: My personal opinion is Kirby was having some fun here. I think that United and American would be forty five percent of the domestic market and that would be far too much for the administration to take. If you listen to the American call from today, they totally rebuffed it again. And remember, Kirby used to work at an American, so so everyone knows each other in that little, you know game. And look, I think American's been a bit challenged lately, have been his big competitive earning.
00:34:00
Speaker 4: They look pretty good.
00:34:01
Speaker 8: Out of American reminded us that they are a competitor. They told us they'd stay in Chicago for the next one hundred years. Kirby's thinks he's going to kick him out. There's a little bit of a game going on between America and United.
00:34:11
Speaker 1: And then we should say the President even said the President even said this week that he's not wild about you know. Now, you know those two companies teaming.
00:34:19
Speaker 3: Up, just another CEOs having fun, right, is that what's going on?
00:34:23
Speaker 8: It's a little bit what I'm getting out of it, because I think Kirby knows there's just no way that's going to happen.
00:34:27
Speaker 3: All right, Shows of American, by the way, they were up as much as five and a half percent today right now again of about one point three percent, but we've seen the whole market kind of come down.
00:34:35
Speaker 5: George, Thank you again.
00:34:36
Speaker 3: George Ferguson, Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst out.
00:34:41
Speaker 5: There and at BI headquarters in Princeton, New Jersey.
00:34:43
Speaker 2: This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Isn't This app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal
