Actors Strike Ends After 118 Days as Studios, Union Reach Deal

Published Nov 9, 2023, 10:06 PM

Bloomberg News Entertainment Reporter Thomas Buckley talks about Hollywood studios and the SAG-AFTRA union reaching an agreement to end the film and TV strike after 118 days. Doug Ramsey, CIO at Leuthold Group, shares his thoughts on market volatility. Bloomberg News Equities Reporter Alexandra Semenova explains why avoiding Tesla is a winning trade for fund managers. And we Drive to the Close with Nancy Tengler, Chief Investment Officer at Laffer Tengler Investments.
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Well, it's finally here, an end to the historic one hundred and eighteen days strike. But who's counting that alted TV production at delayed movie releases. It shut down much of the entertainment industry, Hollywood studios and the union representing some one hundred and sixty thousand actors have finally reached an agreement on a new three year contract. Remember, the writers who went on strike back in May have been back on the job for about a month. At the same time, we did see shares of Disney rallying. We heard that from Charlie Pellett after the company reported better than expected profit and vowed to cut two billion dollars more in expenses. For an update on all things Hollywood, we turned to Thomas Buckley, entertainment reporter here at Bloomberg News. Tom joins us on zoom from our LA bureau. Good to have you with us this afternoon. Give us the details of what we know, because there are still some details to be hashed out, which is my understanding of what we know about this new deal that ended the actor strike.

Absolutely, we'll greazy to be here.

You know.

You are suggesting who's counting. We've pretty much all been counting over the past one hundred eighteen days, you know, for this to come to a resolution. It looks like we're very much there now. So late yesterday see Shating Committee of the Segatric Union approved terms. So we're put to them by the studios and have recommended those of the boards. There'll be a board meeting tomorrow to ratify the deal, and my understanding at the moment is that the increase in the terms of the overall deal add up to about a billion dollars, So it's very significant win on the actor's side. It looks like they also sought very robust protections as it relates to the use of artificial intelligence concerning the actor's likeness. So more details of the deal will come out tomorrow once it's been ratified by the board at the meeting.

So, Thomas, you're saying, this is a win for the actor side, but we see Disney stock ups substantially in a down market. Obviously this has to be a positive. And that's before we even start looking at Netflix or Apple or Amazon anyone else with an interest in this. Why did this take so long to reach this agreement? Was this a win win?

It's a very good question. I think it certainly is a win overall for the town. I mean, Hollywood has been desperate to get back to work ever since the writers walked off the job back in May. I'm seeking better terms in their own contract. The DGA, which represents the directors was able to get more favorable terms and there was no need for a strike there, they argued, and then the actors themselves walked off the job in July, and since then the vast majority of Hollywood productions, be they TV or film, if they're not independently produced and have been shut down. So that's impeded really a ton of titles from progressing over the summer and ended up imperiling much of the autumn season for TV and the blockbuster season as relates to theatrical films for next year. So I think there is an immense sigh of relief that everybody can now return to the job really as early as today, given that the strike on the actor's side ended at twelve oh one last night. I think that the reason why we're also seeing Disney stock up is obviously that they had decent results yesterday, which is really driving a lot of the equity story there today.

Yeah, I want to talk more about Disney just a few minutes, Thomas, but I want to make sure we hit every constituency here. So we just had Barry ask you about the companies. You talked about the workers, What about people like me who after a long day at work, want to go home and stream something on Hulu, Netflix or HBO. I guess I gotta call it Max now I'll still call it HBO. Though. What happens to the release schedule of everything that was kind of put on hold over the last few months, When does that start to trickle out and hit the platforms.

Well, look, it's going to be very interesting to observe that. I mean, certainly on both the streaming side and on the theatrical release side. A number of people are going to be playing around with their schedules, maybe seeking better dates to accommodate productions that are going to be wrapping up later than planned, and really strategizing around what are the best titles to put out either as soon as possible if they're complete, those that will benefit from being promoted by the actors in them. That's going to be a number of conflicts, I think, certainly in trying to get actors both promoting existing titles and also shooting upcoming titles. So it's going to be very interesting to see how that plays out. I mean, even as early as yesterday we saw in the immediate aftermath of the deal being announced, Sony moved their Venom title by a few months, and I think it remains to be seen exactly what the film slate looks like for next year. On the basis that it's not necessarily affixed, I think a lot of studios will still be evaluating whether the current dates they set for their titles still makes sense for them.

So what do you make of what's been going on in the movies that have been out. We've seen some giant blockbusters. You had Oppenheimer, we had Barbie, we had Top Gun, and now the new Taylor Swift movie. But between those ten pole films, it's kind of been a vast wasteland. What does this say about the future of cinema as entertainment.

It's very good question. I think, you know, you're totally right to say that. Obviously, there were some huge block losses over the summer, with Barbie from All the Brothers and Oppenheimer from Universal really being standout films. Certainly as it released to Barbie, that was about one point four billion dollars in box office receipts, which is really, you know, Willer Brother's most successful film in its one hundred year history. So the summer hasn't been without success stories. That being said, as you rightly point out, since then, it's been a little bit of a dryer affair, And I think that without the actors being on hand to promote the films, either in press interviews or at red carpet premieres, it's been very difficult to build up the amount of buzz that's needed for these films to really travel properly.

So I want to go to I don't know, like really thinking about the potential long term effects of this. Were there any habit changes or will we know if people change their habits as a result of I mean, I think this is more about the writer striking, less about the act strike. But given that we had and it's all a similar labor story, Thomas, but given that we had such a long break from late night comedy shows, the late night talk shows, a lot of investment went into the reality shows. I'm wondering if we're going to start to see any sort of long term habit shifts as a result of this, people moving away from watching those things that were off air for so long.

It's an in question. I mean, certainly the same dynamic was observed, you know, during the writer strike of the late odds. I'm back in two thousand and seventy thousand and eight.

But there were fewer alternatives then. There wasn't you know, you couldn't go to Netflix, you couldn't go to Hulu.

Then that is certainly true, but nonetheless you did see a certain investment in reality TV shows, and you know, reality TV really had its moment I think in the back half of that decade, when everybody thought, you know what, this is where the future is and the money to be made, and it's also very good insurance policy against future strikes. The truth of it is, I think there's still a huge out of appetite for scripted content, and as a result of that, people will tend to gravitate back towards it, even after a period of reality TV shows. I think the difference, as you very rightly point out this time around, is the sheer availability of existing content on streaming services meant that people actually thought, you know what, despite their not being anything necessarily new out this week, on the basis there is a writer strike, I can nonetheless catch up on all the scripted content that I've been meaning to catch up to and wasn't able to over the past couple of years, given that we were still in the tail end of what I suppose you could call peak TV, with a volume of shows that is simply unprecedented for all of us to catch up on.

So Thomas, let's break some hearts and tell some secrets. Reality TV is often called unscripted TV, but those of us who in the business, so it turns out to be surprisingly scripted. How were they able to get around a writer strike when everything you see is edited, manipulated, structured, based on some showrunner driving the narrative, driving the storyline.

So that I couldn't possibly answer on the basis that I'm not on the sets when these decisions are made. That being said, maybe everybody involved in a quote on quote reality TV show was given their briefing notes and storylines early on in the process and knew exactly which line to track. But that's purely an assumption on my part and I'm speculating now. So yeah, with the absence of actually sitting on these sets, I couldn't possibly know.

Okay, Thomas, give me thirty seconds on Disney. I promised we'd save a little bit. You wrote the story on Earnings, you were on the call yesterday. We know about the cost cutting. Give us your take day two.

Yeah, it's very interesting. I mean, so Barbaiga has patched to cut an extra two billion dollars out of the business, bring the total tally of cost cuts on an annualized basis to seven point five billion dollars. And I think that what it really does is complicate the narrative for billion narractivists invest in Nelson Peltz because it seems as though Bulb has really taken the approach now to favorite operational gearing to get the company back to growth. And so I think that it complicates the narrative for the activists investors to come in and say, look, this is what I do differently, because it seems as though at this point Bulb is trying his best to activate from within.

Thomas Buckley, thank you so much for joining us. We love it when you join us. He's entertainment reporter at Bloomberg News. He's in our LA bureau. He knows all things when it comes to the writers strike that has ended more than a month ago, the actors strike that just ended, and then of course Disney, which he's been covering and writing about throughout the day.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App, or watch us live on YouTube.

Bob Bob Bob.

Well, until today, we had seen quite a rally in equities over the last ten As of earlier today when I wrote this, I should note stocks were up a whopping six point five percent since October twenty seventh. Our next guest, though, says that the strength of the megacap stocks is painting a false picture of the health of the market, and expects a recession to begin in the next few months. We're very pleased with us. Pleased. Well, we're not so pleased with us, but I'm very pleased with Doug Ramsey, our next guest. He's a CIO at the Leuthold Group. He joins us live in the Bloomberg Interactive Broker's studio. Doug, good to have you with us. I got to tell you I got a text from a friend this morning. We sometimes talk about investing, and you know, he likes to send me articles. I like to send him articles, and he sent me an article that had a headline that I've been hearing over and over from guests, which is like, Okay, enough with the S and P. Five hundred, focus on yes and P. Four ninety three, because the seven stocks that are getting that are responsible for so many of the moves that we've seen this year are getting way too much attention. Uh, they sure are.

I mean all year, they've painted this false picture of the market's internal strength, and that bothers me, especially with respect to the narrative that we've been in a new bull market for the last thirteen months. If we were in a new bull market, and you know, there's always a chance, but you'd expect to see the average stock trumping the relative safety of the broad cap weighted averages. You'd expect to see the Russell two thousand up fifty or sixty percent from its lows. And it's hovering here after the setback we've had the last few days here, you know, two or three percent above its spare market lows. It's just not bull market action. And I think you know, the smaller stocks are more credit sensitive, so it stands to reason they would start to respond to the tightening and financial conditions first.

So here's the pushback to the criticism, and I'm going to play a little Devil's advocate here. Hey, the Magnificent seven as people like to call them, one point eight trillion dollars in revenue of quarter trillion dollars in profits. They're best positioned to put AI into place. And this is the biggest I'll call it a supercycle, a platform, whatever buzzy word Silicon Valley likes these days. It's the next Internet. How do we contextualize those you know, Microsoft and Apple and Google and Facebook, those companies' ability to use this new technology and profit from it.

As businesses, I think the bulk of them are going to do fine. I mean the issue is they may have to grow into their price tags. And I mean unlike two thousand, I mean these these are much comparable, comparably bubbly valuations, but much bigger companies. So just you know, the law of large numbers is going to hit them more so even than it did like a Cisco back in two thousands. So I think that going to do fine as businesses, and if we have a recession, it may even buttress their businesses like it did during the shutdown three and a half years ago, and I think so there's sort of some reflexive buying of those stocks and owning of those stocks because of that memory of how well they did during the shutdown.

You're saying they're the new safe blue chips.

Yeah, exactly when you look at i mean, the behavior of consumer staples. I mean, obviously a lot of that is the ozempic effect, but yeah, I think there's sort of a surrogate for cash for these big portfolio managers that must remain fully invested.

What are your concerns about the economy. What leads you to think that we're going to hit a recession in the next few months. I'd love to.

Say it was some penetrating statistic deep in the Federal Reserve archives, or you know, different ways of looking at liquidity, but it is really the traditional.

Stuff, like meaning a recession is a natural Yeah, I mean, like just I mean, the the yield curve inversion and both. It's you know, people tend to say, I mean, they tend to look at the yield curve in a binary way. If it's in inverted, bad, if it's uninverted good. But it's the depth of this yield curve in version as a matter of fact, I mean it's sort of re inverted. I mean, after a lot of uninversion, a lot of you know, moving towards zero, it's sort of resteepened again. But I just think, you know, every day that negative spread between tens and we like to look at the ten year minuts, the three month. We also like to look at the near term forward spread both extremely deeply inverted. That is just hitting the economy every.

Day, and it you know clearly it's sitting in the mid and the small campstocks and even the equal weighted s and P five hundred down on the air.

What do you think of that? I mean, can we can we ignore that that inversion?

So it's I agree that it's not just I agree with Doug. It's not just the depth. It's the depth and the duration. We've been inverted for a long time. Although if you look at the academic research, the recession happens once the inversion right unwinds and then I think it's about one hundred.

But there's all that's a mixed record. I mean, the last recession that we had at this point was during the coronavirus pandemic, and that was and there was an inversion in the yield curve before that, but that recession was completely unrelated.

To Well, we don't know what would have happened without the coronavirus. The problem with the yield curve. The two big problems with the yield curve inversion as an economic indicator. One is it's been eight for eight, which is perfect, but eight is a very small sample set, and when we go out of sample, when we look at Europe, it's much less a reliable forecaster. Now, different economies, different sociology there, people tend to stress much less because, hey, they have healthcare. If there's recession, they get laid off. They don't care nationalize healthcare. So maybe that's why it doesn't work there. I'm just, you know, spit pulling a little bit. But it's kind of tough to look at. Is the yield curve an indicator of recession or does it, as Doug implied, cause recession because of that inversion?

Yeah, and I'm in that camp, and I'm even in that camp. And now here's here's something i'd like to see convert confirm that I should say, is a weaker stock market, Like right now, the stock market on a trailing twelve month basis is too strong for a business cycle top to occur right here. So we did this research. We basically asked, Okay, what did the stock market do SMP five hundred do on a twelvemonth trailing real basis leading in to the business cycle peak? And the answer is that on average, now excluding twenty twenty, again that was a different animal, but on average, the S and P five hundred was down in real terms ten percent at the previous eight business cycle peaks, and it was it was flat or down every single time, and then I think it was up like three four percent at the February twenty twenty business cycle peak. So I'm sort of saying that the best thing the market's got going for the market, well, is the market and the economy, I mean. And so when we do get to where stocks are roughly flat to down year over year on a real basis, that will be the negative wealth effect. That is sort of the final straw that breaks the camel's back.

So the last thing I want to ask about is when we're looking at the economy and I know these can just fall right off a cliff into a recession. GDP all right, that's kind of a one off number, just under five percent, four point nine. I think we all know this is really a three percent GDP economy, not a five percent. But unemployment has remained very low. We're pretty close to four percent, right, We're pretty close to fifty year lows. People of them getting wage gains. Inflation seems to be moderating dramatically.

I've heard the word. I didn't hear the word goldilocks coming out of your mouth.

Well, you know, the reason it's not goldilocks is a combination of how unusual it is coming out of the pandemic and then all of the geopolitical turmoil. How do you work that into your model?

Well just a couple points, you know. First, with regard to the unemployment rate, this would be like the unoptimized version of the Somme rule. Yeah, I mean, the unemployment rate has ticked up half a percent, and that's always the old school rule of thumb, not the moving average calculation. But that's that's confirmed eight of the nine last recessions, and not forecast them confirmed. And as a matter of fact, in four of the eight last recessions, that uptick of half a point and the unemployment rate was the exact month of the business cycle top and then two of the rate remaining four. It lagged by one month. So if you were going to try to call around it close to in real time the peak and the expansion, I would propose a half point increase and the unemployment rate as has been a pretty darn good one.

Three point four to three nine. There's you have f we already saw.

Yeah, it's happened, and then I think it will happen with a three month moving average triggering the some rule next month.

We got to get you back soon to see where see where things are? Check the progress here. Doug Ramsey, CIO at the Leuthold Group. Here's with us here in the Bloomberg Interactive Brokers studio.

You're listening to the Bloomberg Business Week Podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio, the Bloomberg Business App, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.

We should talk about something the fund. What we learned about fund managers from Bank of America Barry Active fund managers focused on large cap stock trades, not their biggest hit rate in two years last month. Are you an active manager?

Not really? I mean we're really an asset allocator. We own broad swaths of value, investing emerging markets, broad indexes. The only thing that we do actively is is tax loss harvesting, although we're not a pure passive manager, because there's no such thing. If you have Are you equal weight to the global market, probably not. Are you somewhat overweight to the US market? A little? You know, when you when you look around, you have to make some sort of decisions. But for the most part, we want to allow the market to work for us, rather than think we can beat the market. Because the data says after ten years, ninety nine percent of active managers fail to beat their benchmark net of fees. Why do I want to play for the losing you know, ninety nine percent? I would rather get what the market gives me. You do that consistently over twenty years, and you're in the top quartile of returns, and you know what.

Still, there are so many people who think that they can go out and beat the market each and every year, and we love them because we love talking about them here on Bloomberg and also I think it makes a market.

You know, I have a personal cowboy count, and we recommend this to people who have that itch. They feel that they can pick stocks or time sectors or you know, trade options or whatever it is. Take a couple of percent out of your liquid portfolio, set up a goofy account and.

Have at it.

Hey, if it goes up twenty x, that's fantastic. The reality was is that if it was all your money, yeah, you would never have the patience to let it do. And if it crashes and burns, hey it's two percent.

Who cares.

Well.

We got Alexander Semenova in here with us right now. She's equities reporter at Bloomberg News. She writes taking Stock quite frequently. Check out today's taking Stock because it's really interesting. It talks about the more than two thirds of US mutual funds with a bias toward bigger market caps outperformed. That brought brought he Russell one thousand benchmark in October. They had kind of a secret, though, alex What was their secret?

Yes, it's great to be on with you guys. Thank you so much for touting the column.

Tim.

We really appreciate it. So large cat managers did post their best hit rate in two years. That is the percentage of psians that have generated positive returns over a given period. And this happened for two reasons. The first is because they had a bias toward large cap stocks within the Russell one thousand index, which held up better during last month's route. And then the second is because they steered clear of Tesla. Sometimes avoiding a stock could really be the deciding factor in performance, and that was really the case last month because Tesla was down twenty percent, making it the biggest detractor from benchmark performance over the period.

So that's the key phrase there, benchmark performance. I have to ask the question how much of this hit rate is that these I'm using air quotes active managers are really close and indexers.

Yeah.

I mean what you were saying earlier is really interesting because everyone is talking right now about how it's the time to be a stock picker right after the massive rally that we had in the first.

You're a stock picker, right, I mean, that really got it right.

You know, after this massive rally, there's a lot of uncertainty about the staying power of what is for the rest of the year and into twenty twenty four. But the S and P five hundred is still up fourteen percent here todate.

And here we are ten months in change. Fourteen percent is a good year. Forget if we even get a Santa Claus rally, who knows what it's gonna look like. That said, we know the equal weight SMP is negative for the year, and the Russell two thousand looks pretty ugly, So it seems to be big cap or nothing these days. That's probably why these active managers that lean big did so well.

But why are they steering clear of Tesla right now? So that's a good point because a lot of the run up that some of the active managers had was because they took an early position in Tesla, and that thing turned into an oak tree.

When everybody figured out it was gonna be added to the S and P five hundred, they they front ran. But the question is, and this is my question, what is happening now that there's competition from other hybrid and EV manufacturers and what has his ownership of are done to his X it's called X.

Now.

I think a lot of as we're seeing, there are a lot of X owners of Tesla, I think you're.

Well before we get into Tesla's most specifically, I do want to point out because you guys mentioned that before it was just focusing on these big caps, which have obviously outperformed other names in the market. But now even within those names, we're starting to see a divergence. So before we had AI euphoria, everyone was really confident that we'd get a soft landing, and so these companies were moving in lockstep, and now there is focus on these individual names, and you can see that in the performance last month, with Tesla being that massive detractor while some of the other mega caps did hold up much better. And of course Tesla's problems have to do with the fact that there's uncertainty now about demand for electric vehicles given macroeconomic uncertainty. Broadly, of course, there are issues with Elon Musk's ownership of Twitter and how he's handling that company and whether he's taking away from Tesla today. Specifically, Tesla got a downgrade from HSBC. They specifically pointed out their concern about delivery timing on the cars. They also said something really interesting. They said that Elon Musk is pretty much essential to the company, but also a risk.

So that's fascinating. HSBC is saying that if you manufacture evs, owning the libs on social media is a bit strategy.

Is that apparently that might be Guess.

Hey, Alex, what else did you learn from this bank from Bank of America here?

Yeah, so that investors are really paying much closer attention to company metrics. They're looking at company fundamentals and growth prospects, and the growth prospects for the Magnificent seven are actually at an all time low. So we've seen we've seen this year, you know, this massive earnings rally, and next year we're not so sure that it's going to continue to twenty twenty four.

Do we ever really know what nixt shoes earning is are gonna look like? I love the uncertainty meme. I'm pretty certain I have no idea what's going to happen.

I got ten seconds, Alex.

I don't envy market forecasters. Obviously, we've been in a really topsy turvy market market, and it's going to be interesting whether the bulls or bears are right in the final less than two months of trading.

All right, Alex Semenova Equity's reporter at Bloomberg News. She writes about it in today's taking Stock. Everything we talked about just now check out taking Stock though each morning on the Bloomberg terminal, you're listening to Bloomberg Business Week, Tim Danebeck and Barry redholds in for Carol Master this afternoon, and this is Bloomberg.

Bro mac.

A journal.

Now about you let me drive?

Oh no, no, no, no, who's.

Honey?

Please, I'll gravel.

I want to drive.

It's a good question. This is the Drive to the Clothes.

Rock on Bloemberg Radio.

All right, well, it's hard to believe it is that time already. We are just about fourteen minutes away from the close of US trading here. As I mentioned, the Nasdaq is in the red, down about one percent, the S and B five hundred down close to nine tenths of one percent, of Doubt down seven tenths of one percent. It's time for us to drive to the clothes. We got Nancy Tangler, chief investment officer at Laffert Tangler Investments. She joins us on Zoom from Arizona this afternoon. Nancy, we should note also the author of the Women's Guide to successful in investing. It's good to have you back with us. Nancy. How are you.

I'm good, tim How are you? Thanks so much for shouting out the book.

Yeah, of course we're doing pretty well here. So I wanted just to get your thoughts before we get to your bigger macro thoughts about what's going on. I just give us your reaction to what we heard from Jay Powell over the last ninety minutes or so.

Yeah.

So I listened to the previous segment, and that's a smarter crowd than I am. I've been really, actually disappointed with the Fed's rhetoric from the get go. I mean, let's not forget. This is the third bear market that j. Powell has presided over. The first one was when he spooped the markets in October of twenty eighteen. He doesn't get credit for the COVID one nor blame at bear market, and then we had, you know, last year, and so I you know, it just astonishes me that the market sort of, you know, breathes a sigh of relief when they're dubvish, and then the next day someone comes out bear hawkish and we get this, you know, the same kind of reaction, and yet at every turning point, not only has the dot pot been wrong, but a lot of the Chairman's policies have been wrong, and things that he has said at one point turned out not you know, I'm not even thinking about thinking about raising rates. It won't be seventy five basis points. At seventy five base points, it's transitory. This data dependent FED, I think, has created a lot of problems that we could have avoided. So he may be being transparent, but I don't know why the market continues to react to every morsel that comes out of this committee and the FED Chairman.

Nancy Barry ridults here it was transitory. Transitory, just took much longer than any of us expected.

Isn't everything transitory, right?

I mean, in the long run, it's that's the Canes quote. In the long run, we're all transitory, exactly. But really, I think I take your criticism as they have been late every step of the way. They were late to get off their emergency footing, they were late to recognize inflation, they were late to begin raising, and now it feels like they're going to be late to recognize that they're done and could tip us into a recession. Is that your criticism or what is it? Specifically?

It is that I think Barry and you know, I look at this market as an analog to the nineteen nineties. I was managing money then. Not only was I alive, but I was managing money, and there's a lot of similarities. But in this environment that feds backward looking focus on data. I mean, we can't do that as portfolio managers. We can't say, oh, earnings were good last quarter and then extrapolate that out to infinity necessarily. I mean we have to be looking at everything that's coming down the pike, and I don't think they're doing that. I mean one of the things that I think they could be paying closer attention to is some of the inventory data. You know, we've seen a real surge in inventory. If you look at the SMP and this is Brian Reynolds's work, not mine. You look at the s and P, five hundred median days of inventory has has shot up to seventy eight and a half days, up twenty one percent in three years. So if you have that kind of inventory at the turn inventory turnovers slowed, I think you have to anticipate that that's going to be at the very least disinflationary. And yet we're hearing these, you know, responses to one day of data backward looking. I mean, god forbid we get a bad CPI number because who knows what we're going to see next week. But I just I think it's they've created volatility. POW's unwillingness to kind of at least go to Congress and say, hey, guys, why don't you stop spending. I mean he could, He's only half of the equation, right, And yet there's no mention it's not our business. But Vulgar did it, Greenspan did it, and I think there needs to be some acknowledgment that spending is really keeping inflation sticky.

Really fascinating, Nancy, I want to get your thoughts and just transition a little to where you see opportunities. So move from the macro to the micro a little. You've got some really interesting companies that you're keeping an eye on, that you think are doing really great work. I want to start with Starbucks right now. It's a company that's gone through transition. I think it's fair to say it's a company that wants to, you know, make a lot more coffee in a lot more places, even though it feels like wherever you go there is a Starbucks already. Talk to us a little about why you're seeing a lot of opportunity with Starbucks right now.

Cheers. I just had a step I think Laxman is and by the way, I'm going to call him Laxman because I haven't quite mastered his last name yet. But I think he has a lot of levers to pull. He understands that he's come in set reasonable expectations and he's delivered on them, and that's always tough for a new CEO, especially in the shadow of Howard Schultz. But you know, interestingly, I write about that in the book because I actually first bought it for myself in two thousand and seven after Schultz had left and they kind of saturated the market.

And left the first time.

Yeah, forty five, that's right, forty five to thirty, and I thought I was a genius because it immediately went up like twenty percent. And then we got the Great Financial Crisis and the stock traded down to seven, and I should have bought more. I didn't, but I did hold on, and since then the stocks returned about fourteen percent annualized versus the S and P around eight and a half annualized since two thousand and seven. So it is it is a great company that has a history of being able to turn the corner. I think the China story is going to be critical. They actually saw some pretty decent growth in China. They've got what they fit one of our themes, which is old economy companies that are embracing digitization. They've got seventy five now million users digital users, and that really drives margins. And they are really focused that the labor problems have improved somewhat, and they are really focused on innovation and margin improvement. And I think from here the stock has an opportunity to be once again a great growth company.

So not a surprise that the stock out shall lack during the lockdown period when people couldn't get to their local Starbucks. But we've really only recovered about half of that drop from let's call it a buck and a quarter to seventy five. We're now a little over one hundred. What's it going to take for Starbucks to clear that prior high and start trending upwards on a consistent basis again.

Yeah, and by the way we got out I think right before or COVID because it just got too expensive for us and then dipped back in. It's I think they've got to be able to prove that they can grow in China in a sustainable of fashion. They have to improve delivery times and product innovation, and I think and then the labor question, you know, it was it was like the you know, a triple threat. You had China breaking down, you had COVID, and then you had labor problems. And I think if they if he can, if he can smooth those edges, I think the company, you know, he's talking about fifteen to twenty percent earnings growth, and I think they can get there. I mean, at some point pricing goes away, right, I mean, you know, I just paid seven and a half dollars for the Starbucks. I'd rather have a Chipotle burrito.

You know, where can you burrito for seven to fifty? That's what I want to know.

That's what that's happened. Chipotle burrito for right, Chipotle, though, is going to be three times the size of whatever you're getting from Starbucks's a good point. What what's the next innovation? What's the next pumpkin spice latte that's going to drive sales for them.

Yeah, well, I mean that's the question, right, I'm going to leave that to them. But they have the cream cheese latte in China, so cream cheese cake, I think is what they call it.

So who knows.

But I do think that the cold brew pivot really and cold drinks in general, has really driven growth, and they have to solve the in store question as well and increased drive throughs, which is really what chipot Lanees did for Chipotle. Even though Starbucks is probably is ahead of chipolt Lay on that particular metric. They really need to just keep these smaller stores driving through because the sitting around and becoming a community Starbucks is a bit of a thing of the past.

And I'm going to assume you're not buying into the whole ozembic is killing Starbucks, Dorito's and McDonald's theme or is there anything there?

I don't really think there is. I mean, in the nineties we had fen fen and people stopped eating for a while. But you know, I understand that this is a lifestyle drug too, but a lot of people that I know that are on it are people that had gastric bypasses and then managed to gain the weight back anyway. So I think those old habits die hard. We own PEPSI I start my day with a handful of Cheetos every day.

Is that the secret? Nancy the breakfast of champions? I've never heard that.

It is oh good. In fact that at my firm they call him Nancy Tanglers because like.

Orange dustle over the laptop.

I love it.

Hey, Nancy, before we let you go, I just want to get some thirty seconds on Amazon right now, Andy Jasse, you know, inheriting this company, I think it's fair to say from Bezos and it's been a challenge there. Why are you bullish on Amazon?

Andy Jasse got tim cooked and we bought Apple in twenty thirteen. We're still own some, but we've been forced to sell much of it because of the valuation. But I think he had a lot of challenges that he has delivered on. You know, he laid people off, He improved growth in cloud at the expense of Google, it would seem or Microsoft is the one that really took share, which is our largest holding. But I like all of the aspects of the business, and we sold CVS because we just couldn't wrap our head around the model A while ago. I just shifted the few prescriptions that I utilized to Amazon. It is a dream, and I think they're going to start to take share, not only in pharmaceuticals but in the healthcare space to some extent. So you know the business, the retail business, we know that business. It doesn't have great market margins. The cloud business is still performing. They're employing AI, they're generating revenues from advertising. And I think he's gotten the rhythm as the CEO. The last call, that's pretty darn good, Nancy.

We're gonna have to leave it there. Really appreciate you taking the time This afternoon. That's Nancy Tangler, chief investment officer at Laffer Tangler Investments. She joins us on Zoom This Afternoon from Arizona. Nancy's also the author of The Women's Guide to Successful Investing.

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