August 19, 2024 • 37 mins
Watch Carol and Tim LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg News Deals Reporter Crystal Tse discusses Couche-Tard making an offer for 7-Eleven Stores. Bloomberg Originals Chief Correspondent Jason Kelly shares the details of his Businessweek Magazine story What NFL Players Really Think About Sports Gambling. Avi Hasson, CEO of Startup Nation Central, talks about the impact of the Israel-Hamas war on Israel's economy and business community. And we Drive to the Close with Dan Skelly, Head of Wealth Management Market Research & Strategy Team at Morgan Stanley.
Hosts: Tim Stenovec and Emily Graffeo. Producer: Paul Brennan.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg business
Week Inside from the reporters and editors who bring you
America's most trusted business magazine, plus global business, finance and
tech news. The Bloomberg Business Week Podcast with Carol Messer
(00:23):
and Tim Stenebek from Bloomberg Radio.
Speaker 2 (00:26):
Alamantashion Pushtar, the operator of Circle K and Canada's most
valuable retailer, making a proposal to take over the much
larger rival and seven to eleven owners Seven and I Holdings.
A merger would create the world's top operator of roughly
one hundred thousand convenience stores. Shares of Seven and I
Holdings jumped twenty three percent today. That company, by the way,
was valued at the equivalent of thirty one billion dollars
(00:48):
before news of the offer emerged. Let's get to it
with Crystal C Bloomberg News Deal's reporter. She joins us
from Switzerland. Crystal, I want to talk about this deal
in particular, but then branch out and talk about the
deal space and particular, especially what happened in July and
what that could suggest for the deals moving forward. What
do we know about this particular deal because Kush tar
(01:09):
has not given many details.
Speaker 3 (01:13):
So much detail. We don't know the price so far.
We know that Kushar has submitted a friendly offer to
seven and I it's not a hostel takeover. It is
going to be a negotiated transaction. If anything were to
come to any kind of fruition, I guess a company
can hash out kind of management roles as well as
(01:36):
how units are going to be to be operated. And
speaking of you know, just Emanation's action, Like you said,
since July, it's been a flurry of deal making and
which is a very interesting timing as everybody looks at
the end of the year there's an election looming, but
still there are a lot of deals that are that
seems to be cooking.
Speaker 2 (01:54):
Up so much for bankers and lawyers being on vacation
right now. You mentioned the idea of a friend takeover
versus a hostile takeover. Just remind our audience the difference
between the two and what we should be watching for
in a friendly type of deal.
Speaker 3 (02:09):
Yeah. So, I think in a friendly transaction, you just
get to have a more you know, like a lot
more happened behind a scene, whereas in a hostel takeover,
a company just put an offer, and a lot of
that would play out in public statements what the target
would say, Okay, this isn't a good enough offer, or
we're evaluating this, evaluating data. But if this were to
(02:31):
go as planned like how Kushat and Seven and I
had described, it would most likely be mostly played out
behind the scene, which is which is difficult for us
but great for the companies in some way.
Speaker 4 (02:42):
So Crystal, this merger would create the world's top operator
of roughly one hundred thousand convenience stores. I'm wondering where
across the world are these stores spread out. Obviously we
know seven eleven is in the US, but give us
a little bit more of a sense of just how
global this deal is.
Speaker 3 (03:00):
So seven and I is traded, is trading in Tokyo,
and a lot of its operation is in Tokyo. Seven
eleven brand started in Texas, but actually had had a
global footprint now and you remember seven and I also
had tried to had ten made a takeover approach a
couple of years ago to buy the Speedway convenience store
gas stations in the US. So they actually have a
(03:20):
really good footprint in the US, across Asia and parts
of Europe, Kushat it's mostly within Europe and in Canada,
So you're actually going to see a very global portfolio
of convenience store which is actually a very very hot
space at the moment. There are a couple of other
players across Europe across the US that could all be
(03:44):
prime for takeover, especially if this deal were to happen.
Speaker 2 (03:49):
Is the deal going to happen though, I mean some
analysts are saying this actually might not end up, you know,
coming to fruition listening, the deal might not be signed.
Speaker 3 (04:03):
So a lot of people who have followed this space
for a while will remember that this is actually not
the first attempt. There have been a couple of times
where these two company flurted with the idea of merging
with each other. And not just that, like if you
name all the possible combination their company, like eg Group
Parkland in Canada, I mean that every possible combination that
could be explored had been explored at some point. And
(04:26):
the biggest thing here is anti trust. Like I said,
it's such a global operation, you're actually going to need
regulatory approval in many regions, and given how much scrutiny
you could face, especially in US and Europe. This could
well be a very challenging deal. Even if it gets signed,
it may not take shape as the way that they're
(04:47):
proposing right now. A lot of these deals end up
having very very big divestiture plans where a third player
would come in and buy up some of the remaining
some of the stores that are not approved because of
anti trust reason. This is a long process. Even if
this DOO gets signed, doesn't mean that ends there.
Speaker 4 (05:05):
On the seven and I side. Why has it been
under pressure from activist fund Value Act Capital Management? And secondly,
how do you think that activist investor is thinking about
this proposal?
Speaker 3 (05:19):
So we haven't heard from a value Act. Value Act
actually ran a proxy campaign in Japan last year at
seven and I and it was unsuccessful in adding board
members to seven and I. So, Jeff, Japan is a
very unique market as we know, and a lot of
the retail investors, a lot of the stocks are retail investors,
and then the retail investors usually tend to support the management.
(05:41):
So now to activate change in Japan, it's actually really
difficult and you have to be very culturally sensitive to
do so. In this particular instance, Value wasn't able to
make that change. But then the argument that they had
that the company underperformed, that a company could see a
highest stock price, that I guess exactly is what Kushai
is seeing as well. With the yend being depreciated. That
(06:04):
is a really good opportunity, a really good timing for
Cruise Shot to make a move, or for anyone else.
So we should bear in mind that again, there are
so many play into space. Everybody has looked at everyone else,
so anything could happen, maybe like another buy could emerge,
But we should expect value Ac to have some sort
of comment at some point, given they so have a
(06:24):
stake in the company.
Speaker 2 (06:25):
Okay, Crystal, speaking of timing, what has been happening when
it comes to timing in the deal space of late
I mean it was just a week ago that we
were talking about Marsa Green to buy Kelenova. We have
Boeing buying parts supplier Spirit Aerosystems. We have Bosh's acquisition
of eight billion dollars in air conditioning assets. What's going
on when it comes to where we are in the
cycle and what you're seeing with deals.
Speaker 3 (06:48):
Yeah, a lot of the dew makers have commented that
this is an unusually busy summer. Since you're live, we've
seen a flurry of dew making and like I said,
it's really unusual, first of all, for someone to be
this busy. A lot of the deal makers themselves or
company executives tend to take time off and not this year.
I guess probably is to deal with us to do
with that the election at the back end of the year,
(07:09):
it's really going to put a hurdle on a lot
of deals. You don't really want to be caught in
any sort of market cycle. So if you were to
deal a deal this year, you either get it done
before September before it gets too close to the election,
or your way till twenty twenty five. So this could
be the last stretch of deals that we're seeing. And
as you see, there are quite a few consumer retail
transactions like Helenova, like this one. It could also indicate
(07:32):
that there are arguments to be made about the consumer's strength. Potentially,
it's that size and scale really does matter as a
consumer retail company at this point more than anything else.
Speaker 4 (07:43):
Yeah, talk a little bit more about you know what
kind of macro signals we can learn from this uptick
in deal activity. Does that mean that the consumer's weakening
if these companies have to merge together.
Speaker 3 (07:57):
Yeah, a lot of companies have actually passed on a
lot of costs in a pasked with years to consumer
just by raising prices, and that's where the growth have
been coming from. And a lot of the companies have
felt that they have kind of maxed out on passing
that cost to consumers. And for now, if you were
to generate extra growth, you kind of have to be
in the domain of deal making, in organic growth by
(08:19):
buying someone else, by getting bigger, and by going into
regions and like geography that you're not already in. So
that's that's another reason why some of these deals, mainly
a lot of them are geographic. This one is particularly
is a geographic expansion Kelenover, it's a portfolio expansion where
Mars wanted to get into diversify into savory snacks versus
(08:42):
just like sweet convectioneries. So again it's it's a consumer play.
But then also the really interesting thing, perhaps with Kelenova
and not so much here, is that the effect of
o zen pic is on everyone's mind as well. So
if you see that everyone everyone is expecting the end
pick in the well. Everyone is expecting ozampic to have
some sort of effect in the not so healthy category
(09:05):
of food. And if you think about convenience store, convenience
store it's also selling mostly confectioneries dictator chips. And if
you expect in a long run ozempic to have a
bigger effect, you may as well have a bigger market
share so that you can, like withstand that weather a
little bit better.
Speaker 2 (09:25):
Hey, Crystal, before we let you go, just about forty
five seconds left, talk to us just a little bit
about the idea of what your sources are telling you
moving forward. Given that we could see a rate cut
in September, maybe two more rate cuts before the end
of the year, do we expect deal activity to increase
when the Fed does lower rates.
Speaker 3 (09:45):
Yeah. I think the interest rate has been a huge
topic in the past nine months, and then for now,
I think most of the discussions has been whether we're
getting too closer the election. Interest rate still remains a topic,
but then it's not as important, perhaps as something like
an anti trust when you do a big transformative acquisition
like this one.
Speaker 2 (10:05):
All right, a big thank you to Crystal see Bloomberg
News Deals Reporter she joins us from Switzerland. Check out
her stories on the Bloomberg Terminal and of course, also
at Bloomberg dot com.
Speaker 1 (10:16):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from two to five pm Eastern Listen
on Applecardplay and then brout Auto with a Bloomberg Business app,
or watch us live on YouTube.
Speaker 2 (10:29):
We'll touch sports because NFL players are grappling the big, complex,
new reality. They're aware of the money being bet on
every catch, run, touchdown, and let's be honest more and
generally it's good for the league's and thus their own
financial health. But they're also, if you can even say
this about a professional football player, scared on a personal
level and generally freaked out about running.
Speaker 5 (10:50):
A foul of league rules.
Speaker 2 (10:52):
Those words from Jason Kelly, who writes in Bloomberg a
BusinessWeek all about the relationship that current and former players
have with the league, embracing sports betting. Jason as chief
correspondent for Bloomberg Originals. His story is featured in the
fourth coming issue of the magazine, but read it now
in the Bloomberg Terminal and at Bloomberg dot com. Slash
BusinessWeek a football player.
Speaker 5 (11:13):
Being scared Yeah, wild right? Why?
Speaker 2 (11:16):
I mean, there are signs apparently everywhere as you write,
no betting allowed in their locker rooms, when they travel,
they can't do. What are they scared about, specifically?
Speaker 5 (11:23):
I think what they are They're worried about a couple
of things.
Speaker 6 (11:26):
One is that the punishment for running a foul of
the rules is harsh. Calvin Ridley is the player that
everybody points to. He was playing for the Atlanta Falcons.
He was injured, he placed a bet on football while
he was not playing, and was suspended indefinitely, a suspension
that ultimately lasted a year. He got cut from the Falcons.
(11:47):
He's now back in the league. But the swiftness, swiftness
and the severity of the punishment really made these guys
sit up and think. The other is that because there's
now so much money on the line, there are a
lot of people who are, shall we say, expressing their
opinions to them on social media in person about when
(12:07):
they don't perform the way that maybe someone bet.
Speaker 2 (12:10):
They would never read the replies at.
Speaker 5 (12:12):
Least, yes, stay away from the comments.
Speaker 2 (12:15):
The Washington Commander's running back, I think share some good, yes,
good anecdotes about what people say to him online.
Speaker 5 (12:21):
Yeah, absolutely so, Austin Eckler.
Speaker 6 (12:23):
He is on the cover of the upcoming edition of
Bloomberg BusinessWeek. He is a very you know, well decorated
running back for the Washington Commanders. As you say, he's
a really interesting case in part because a few years
ago he saw a lot of this coming when it
came to fantasy football, which was sort of the way
(12:44):
that this all started, at least in the United States,
where you know, you draft a team that a lot of.
Speaker 5 (12:49):
This is actually going on right now. People are getting together.
Speaker 6 (12:52):
My son was drafting his team with his buddies till
one in the morning last night, and you know, so
you know you it's a friend some friendly wagers that
go on. Austin saw that he actually hosted his own
podcast to sort of lean into it. So he started
to understand the economics here. Fantasy is a different world though,
because what players can do there is actually spelled out
(13:14):
pretty well.
Speaker 5 (13:14):
There's a cap.
Speaker 6 (13:15):
They can't make more than two hundred and fifty dollars
on it, so it's really just for fun. But what
it did open up for him is this notion of Wow,
people are really paying attention in an entirely different way,
and that part actually is good for them, as you
said in the intro.
Speaker 4 (13:31):
Yeah, so why is it good? Like, what good is
it doing for the players that now sports betting is
legal in more than thirty states in the US.
Speaker 5 (13:39):
It's a great question.
Speaker 6 (13:40):
And the issue for them is that it's essentially the
rising tide.
Speaker 5 (13:45):
So it helps them in a couple ways.
Speaker 6 (13:48):
One is that the NFL, along with other leagues, has
done these very lucrative partnerships with the sports books, with
DraftKings and FanDuel and others, and so all of that
revenue is ultimately shared with the players. It sort of
goes down collective bargaining sort of dictates that that's happening.
So that's one. The second is you just have more
people paying attention to the games in a different way.
(14:11):
So take Austin Eckler again as an example. There are
a lot of people who sort of only slightly care
who he's playing for. They are either picking him for
fantasy or they're betting on his individual performance. So he
was playing for the Los Angeles Chargers, now he's playing
for the Washington Commanders. You have a lot of people
tuning into games that they might not otherwise be interested in.
(14:32):
Because if you live in New York, do you really
care about the Dallas Green Bay game if.
Speaker 5 (14:38):
You're a fan, I mean you do if you put
money on it, exactly.
Speaker 6 (14:41):
And so that's the point is that you're paying attention,
you're watching TV, revenue goes up and revenue accruised everybody.
Speaker 2 (14:47):
Hey, just how strict are these rules for the players?
Because man, one anecdote that one of the players that
you and the team profiled in the piece talks about
not even being able to play ping pong at an
away game, like you know, when they're just hanging out
in the locker room. So this is betting five bucks.
Speaker 5 (15:04):
On it exactly.
Speaker 6 (15:05):
So this was a really interesting I did not know
this until we worked in this story. So the rules
about betting, so you cannot bet if you're an NFL player,
You cannot bet full stop on the NFL, certainly your
own team at all. If you're an active player, like
can't go there. You can bet on other sports except
(15:25):
if you are in a team facility or in any
way conducting team business. And so the example that was
given was if you're on a essentially a business trip.
So you play for the Washington Commanders, you're at an
away game in Atlanta and you're you know, you're sitting
in the ritz Carlton.
Speaker 5 (15:42):
There is probably where you're staying.
Speaker 6 (15:44):
You're on your bed and you're like, oh, a ping
pong game, Like I just saw this online, Like, I'm
going to bet five bucks against the rules. You can
get fined, you can get suspended. It is absolute against rules.
So if you are in any way, if you're on
a team bus, can't bet. So there It is very strict.
And the reason it's strict is because the NFL has
to protect the integrity of the game, because if there's
(16:05):
any sense that the games are fixed or they're they're
in any way compromise, the entire thing falls apart. This
is the most lucrative league in the entire world.
Speaker 4 (16:16):
What did you learn about the impact on the states
in which sports betting is now legalized, the kinds of
tax revenues that they're now generating from this activity.
Speaker 6 (16:28):
So revenues certainly are up for the states, And it's
one of the reasons. You know a lot, I mean,
this is a tale as old as time. Lotteries, sports betting,
all of that a lot of the revenue accrues to
the states. My colleague Rahan Harmanci, she writes extensively in
this package, in this cover package about the social impact
(16:51):
on this. It's and I will say, it's one thing
that the players that I interview talked a lot about.
And they think a lot about this because they have
the wherewithal and they have a lot of rules around
them to stay away from it. But they say to
each other, and they say to anyone who will listen,
don't do it. Like even though it ultimately accrues to them,
they have real reservations about this as a practice.
Speaker 2 (17:14):
Okay, so let's just talk about that very briefly. The
idea of pushback that we could get to sort of
the watershed moment a few years ago where we saw
the ability of states on their own to approve sports betting. Yeah,
are we going to start seeing pushback?
Speaker 6 (17:28):
It is the question, you know, I mean, I think
the question is going to become do regulators, do lawmakers?
Do other people weigh the cost benefit analysis of the
money coming in versus the social impact. There are you know,
studies that point to higher levels of personal bankruptcies. You know,
(17:51):
people can really get in trouble. They can get addicted
to sports gambling. It is very, very easy to pull
up your phone and place a bet, especially where it's legal.
Speaker 2 (18:02):
Hey, Jason, on a different subject, just thirty seconds. Yeah,
pour Player's Summit happening here in New York City in
just a couple of weeks. Tickets available, still.
Speaker 5 (18:11):
Yep, tickets available.
Speaker 6 (18:12):
It's gonna be a great program here in the building
in New York City, September fifth, right around the US Open,
which I know you're going to be involved in, not playing,
but covering.
Speaker 5 (18:21):
I think maybe you're playing.
Speaker 1 (18:22):
I don't know.
Speaker 6 (18:23):
I mean, who's to say. So, we're gonna have a
lot of really interesting folks on hands. C. Pelayuka, who
you know well, owner of the Boston Celtics, is one
of the headliners.
Speaker 5 (18:32):
So more to come. Check it out on our website.
Speaker 2 (18:34):
All right, we're looking forward to that. Still winning on
my wildcard entry into the US Open.
Speaker 5 (18:38):
By the way, I'm bullet for you.
Speaker 2 (18:39):
All right, thanks, I appreciate that. Jason Kelly, he's chief
corresponding for Bloomberg Originals. Check out his story. It's in
the forthcoming issue of BusinessWeek magazine. You can read it now.
Though on the Bloomberg terminal and at Bloomberg dot com slash
a business Sweek.
Speaker 1 (18:53):
You're listening to the Bloomberg Business Week podcast. Listen live
each weekdays starting at two pm Eastern car Play and
Android Auto with the Bloomberg Business ad. You can also
listen live on Amazon Alexa from our flagship New York
station Just Say Alexa, playing Bloomberg eleven thirty well.
Speaker 2 (19:12):
US Secretary of State Anthony Blincoln said Israeli Prime Minister
Benjamin and Yaho has accepted a ceasefire proposal to halt
the war in Gaza, and the next step is for
Hamas to say yes as the Biden administration look to
bring an end to the ten month conflict at last.
Lincoln is on his ninth trip to the region since
Hamas attacked Southern Israel back on October seventh, and called
(19:33):
the proposed accord quote a bridging agreement and acknowledge that
not everything is spelled out in detail, but it does
build on a proposal that President Joe Biden put forward
in late May, which both sides had bulked at. The
reason I'm talking about this is because we are going
right to Tel Aviv to speak with Avis Shan, who's
CEO of Startup Nation Central. It's a nonprofit that works,
(19:55):
in its own words, to promote the Israeli innovation ecosystem
around the world. As also Israel's former Chief Scientist of
the Ministry of Economy and the founding chairman of the
Israel Innovation Authority. Avia, I want to get your your
comments on the latest out of that we just heard
from Anthony Blincoln, but also taking a step back, how
(20:18):
things have shifted in your role post October seventh. So
first on the breaking news.
Speaker 7 (20:27):
Yeah, so obviously, you know, we look forward hopefully to
have a success of these negotiations that brings the hostages
home and really brings us closer to cease fire. So
we're truly grateful for the involvement of the US administration
and the support that it has been showing, and hopefully
this pressure will also work well on the other side,
(20:49):
which still has to concede to the proposed deal. If
that happens, then you know, we will start thinking about
the day after. There's a lot to do and basically
is certainly going to play a big part also in
that recovery.
Speaker 4 (21:05):
How has Israel's economy responded over the last few months
to the threat of a potential attack from Amas.
Speaker 7 (21:15):
Yeah, so we're very lucky, Emily that the israel economy
actually came into this war in a very very strong position.
If we look at too, the macro indicator, in the
past five years or so, we've seen a tremendous growth
of Israel's GDP, a very very low debt to GDP
compared to other countries, very low unemployment, very managed inflation
(21:37):
basically thanks to the strength of the high tech sector.
And remarkably, when we'll look on the macro indicator ten
months after the horrible day of October seventh, while we
do see drop and some slowness in the markets, the
resilience of the Israeli economy as a whole, specifically of
the high tech sector, has been astounding. And by the way,
(21:59):
Israel's high tech is the country's business plan. Twenty percent
of our GDP comes from high tech.
Speaker 2 (22:06):
So, AUVI, have you know? We got it? We get great.
One of the things that I love about our program
is we get great feedback and questions from members of
our audience who are listening and watching around the world.
Our producer sending me a question from one of the
members of our audience asking a really important one. I
(22:26):
think have you seen the business community community put pressure
on the Israeli government to end the war?
Speaker 7 (22:37):
I think, you know, war is not good for business.
It's uncertainty not to talk about the direct impact of
having you know, at the height it was about ten
percent of the high tech workforce that had been enlisted
to active reserve duty. You add to that, you know,
the problems with are traveling to Israel and so on.
And it's obvious that you know, certainly from an economic
(22:58):
point of view as well as from me humanitarian one,
ending this war and moving into you know, back the
business in many aspects is something that the business community
aspires and as such, yes, of course they've been vocal
with the government to push that forward. And unfortunately, you know,
tim for war, you don't necessarily indeed both sides participating.
(23:21):
So both sides need to agree really on finishing this
round of conflict and moving forward. I have to say
that if I need to choose one word that will
characterize what the Israeli business community and high tech specifically
has shown, it will be resilience. Because if we just
look at the numbers and just look at the output
(23:43):
coming out of that set, the over five billion dollars
raise by its really startups in the first half of
twenty twenty three, making it twenty twenty four, excuse me,
making it very very similar to the US trends, you know,
really putting that Israeli factor to a minimum, showing that resilience,
showing that spirit which in many aspects characterize these really
(24:05):
innovators and is probably the main reason why four hundred
and fifty multinational companies have chosen to set up their
innovation centers in here and have been growing throughout the
six month even due to the war A taking place.
Speaker 4 (24:18):
Yeah, that was really interesting. I'll repeat that stat because
you had sent it over to us in your notes.
Private funding in the first half of twenty twenty four
saw a thirty one percent increase, amounting to five point
one billion US dollars. Talk a little bit about where
that funding is going. What kinds of startups specifically are
seeing the most investment.
Speaker 7 (24:41):
Yes, you know, Israel is a home to over seventy
five hundred startups, so really leave the world in terms
of startups, entrepreneurs, venture firms who were called the startup
nation for a reason. If we try to look into
the sectors that have drawn most of the investment in
the first half of twenty twenty four, cybersecurity certainly stands out.
And when it comes to cybersecurity is really truly a superpower,
(25:04):
you know, punching way above our weights. There's a lot
happening in the cybersecurity sector in the world, and most
of what we've seen in Israel is just a reflection
of that. There's an armed race of the big players
within cybersecurity, you know, the Palo Alto's crowdstrikes, the thease scalers,
the ciscos and the likes. That has caused a lot
(25:24):
of m and A to take place. And if you
try to look for innovations, certainly in this specific sector,
Israel is one of the places well you will be
doing that, and this is why we saw a lot
of investment flowing in. You know, to mention, just one
company with Wiz raised one billion dollar in a signal round,
still a private company, but certainly one that is you know,
(25:47):
doing a lot of great things. But we've seen over
three hundred and twenty rounds as part of that number
that you mentioned, and not just in cyber so Israelis
really has a diversified ecosystem and at the end of
the day, what people are looking for, you know, when
I talk to either the CEOs or the large companies,
(26:08):
the gentan wang, the Patkel singers, the Sappha cuts, it's
mostly about the spirit and the culture. There are a
lot of places in the world where innovation takes place,
but we do it slightly different.
Speaker 3 (26:21):
You know.
Speaker 7 (26:22):
Sometimes we'd like to call it in patient innovation. And
I know that patience is a virtue and it really
as I guess are notoriously an impatient bunch of people.
But if you think about it, when it comes to
innovation and the problems we all societies and economies are
coping with, we need a little bit of that healthy
disregard for protocol. We need a little out of that boldness, crappiness,
(26:45):
just jumping into action.
Speaker 3 (26:46):
That's very is raally.
Speaker 7 (26:47):
We've seen that in the war. I think that's one
of the reasons why civil society and the private sector
have self mobilized sometimes too, you know, create solutions that
you know are either complementary to the government or instead
of the government. And is that spirit of innovation that
attracts the world's best investors and really the CEOs of
(27:08):
the greatest companies to both invest in his ready companies
and acquires ready companies.
Speaker 5 (27:14):
So we've seen a.
Speaker 7 (27:14):
Lot of M and A activity in the first six months,
which again if you think about it during wartime, is
not intuitive.
Speaker 1 (27:22):
Abby.
Speaker 2 (27:22):
I know that Israel's famous for certain startups, including ways
that Google bought years ago, Mobile I and Intel of course,
but also cybersecurities you mentioned. Help us move this forward
a little bit just in the last forty five seconds
that we have with you, what's sort of the next
(27:43):
frontier of innovation that you see emerging from Israel.
Speaker 7 (27:48):
So certainly when we see the next upcoming sectors, they
really refer to the global challenges that we all cope with,
you know, as human beings. So there are three times
more health tech startups in it then cybersecurity startups. In Israel.
There are about one thousand startups dealing with sustainability, energy,
you know, climate and so on. And if you think
(28:08):
about the utility technology AI is driving all of these
change so either as platform horizontal solutions or applied in
vertical solutions, from agritech and flud tech to health that
we mentioned before Ai is driving this forward and Israel,
you know, it's right there at the forward, taking an
(28:29):
advantage of a well developed ecosystem that has matured in
the past thirty years to have that fountain of innovation
continuing regardless of crisis. And you know, are pretty optimistic
that after we've finished this war, hopefully sooner rather than later,
we will see a baby boom or start a boom
actually bringing you know, both innovation that was relevant and
(28:52):
putting the test during this confic, but also just bold
new ideas taken by Israel's entrepreneurs in the world.
Speaker 2 (29:00):
Aviy we got to leave it there, Abvy, CEO of
Startup Nation Central in Tel Aviv, m.
Speaker 7 (29:07):
Brother Marco.
Speaker 1 (29:11):
Journal.
Speaker 7 (29:12):
How about you let me drive?
Speaker 2 (29:14):
Oh no, no, no, no, please going to drive, honey, please
do gravels.
Speaker 3 (29:19):
Let's wat I want to try it. It's a good
question that.
Speaker 1 (29:28):
This is the Drive to the Clothes.
Speaker 3 (29:30):
Dot com think well, Janda Don on.
Speaker 4 (29:33):
Bloom Bird Radio and it's time for the Drive to
the Clothes. We're joined today with Dan Skelley, head of
Wealth Management Research and Strategy team at Morgan Stanley. He
joins us on Zoom from New York City. Dan We've
been talking all day about how this is the eighth
straight day of gains for the S and P five hundred,
the largest or the biggest winning streak of twenty twenty four.
(29:56):
What do you think is driving this rebound here in
the equity market?
Speaker 8 (30:01):
Thanks for having me, Emily, And look, I think the
last week of gains following what had been obviously a
week or so or a couple of weeks of weakness,
reminds me that the economy and company fundamentals tend to
move more like a cruise liner, whereas stock prices tend
(30:23):
to zip around more like a speedboat. And frankly, I
think when you think about that set up related to
the August period where liquidity tends to wane anyway, the
unwine of the Japanese yen carry train, as we all know,
has been talked about extensively, I think you just ran
(30:44):
into a situation where market liquidity, conditions, technicals, and some
rotation out of the prior leadership into new pockets of
the market. We're all part and parcel related to what
drove the market.
Speaker 2 (31:00):
What do you say to those folks out there, Dan,
who say, all right, I want to buy stocks, I
want to buy large cap equities. But I'm a little
concerned that the S and P five hundred is looking
a little frothy right now.
Speaker 8 (31:14):
So I've been listening to people describe the SMP as
frothy for a year, and I think, frankly, when you
think about what had driven that valuation premium, As you know,
it was the third of the market that was technology
based that got caught up with the AI excitement, but
frankly and quite practically had very strong earnings revisions. And
(31:38):
so look what I would say is, given the reality
around the FED cutting amid a positive economy has started
to take and take hold more ingrained in investors' minds.
Given the SMP four ninety three earnings are improving and
it's not just a magnificent seven earnings story anymore. And
given that the days of the suspension of disbelief around
(32:02):
AI return and the capital spending, tremendous capital spending that's
gone into that particular theme is now starting to elicit
more scrutiny from the markets. I think to your question,
the opportunity set outside of the magnificent seven, outside of
the index level is about as strong as it has
been over the last year.
Speaker 4 (32:24):
So where exactly are you seeing those opportunities. Is it,
you know, going smaller down the market cap spectrum, or
just broadening out on a sector level but still remaining
in large cap.
Speaker 8 (32:37):
So that's an excellent question. I would say it's more
of the latter. So when you look at the vicious
rally in small caps a month ago, we were actually
saying to fade that because even though rates are going
to come down per my comments earlier, the resting heart
rate of inflation and the cost of capital in this
cycle will simply be higher than it was versus the
(32:58):
post to eight cycle. Thus, you need better financially positioned
equity exposure in large cap versus small and Second, while
none of us really know ultimately when AI is going
to start to show up in large cap companies productivity
and earnings streams, what we think all could argue is
that it's more likely than not that quality large cap
(33:22):
names with cash flow will participate in the investment cycle
around AI, whereas small caps that don't have that same
cash flow likely will not. So to answer your question,
we are encouraging investors today to look outside of the
magnificent seven into more large cap quality value ideas like financials,
(33:43):
like industrials in some cases like healthcare. We also, emily
are telling investors and clients to look outside the US.
And I'll give a nod to Lisa shalat our CIO
a week ago who said to buy Japan after what
had been obviously a fairly volatile period for Japanese docs,
and that call has proven to be fairly prescian so far.
Speaker 2 (34:06):
Hey, Dan, Democratic National Convention kicks off. Politics is front
and center for us for the next eighty days or so.
How are you thinking about political risk when it comes
to your portfolio and what you're thinking about the composition
not just of who's in the White House come January
twenty twenty five, but who are in the halls of
(34:27):
Congress too.
Speaker 8 (34:29):
So I joked with John and Lisa when I was
on your Peers Studio TV studio about six weeks ago
that we're basically getting that question on the hour. So
you know, we're pretty we're pretty versed in our response.
But look, it's all jokes aside. It always plays a
factor in markets in the short run, right, whether or
(34:52):
not certain policies get enacted, or sentiment around certain politicians
gets reflected in markets, it has a short run ect.
Having said that, looking at decades and decades of data,
I think it's quite evident that, as we always say,
the business cycle and the profit cycle oftentimes tends to
supersede any one year, one month political impact. So having
(35:17):
said all of that, you asked clearly an important question
around how are we thinking about this election? And look,
what we would argue is if you do see a
potential red sweep where the odds were frankly higher a
month ago than they are today given changes in the
Democratic ticket lineup. But if you were to see that
(35:37):
red sweep, that's where we see the widest band of
outcomes in terms of maybe some positives related to deregulation,
but maybe some uncertainties related to tariff trade and immigration
policy which could disrupt the goldilocks disinflation thesis. And so
that's where you see the widest bands of market and
(35:59):
economic impact. On the other hand, in the blue sweep scenario,
we liken that to frankly, more of the same, more
of the status quo. So that's how we are starting
to think tactically about those two different outcomes. Very last
thing I would say is I think It's been particularly
notable that long rates have been coming down ever since
(36:21):
the June twenty seventh debate outcome, and as we all know,
following that outcome, the red odds, the red sweep oods
went up, but rates went down. So quite obviously rates
are the markets are paying attention to something else, which
is a little bit of mixed economic data, but more
certainty around the path of disinflation. So I have found
that rates visa the politics and betting odds betting markets
(36:45):
to be fairly notable.
Speaker 2 (36:46):
All right, well, we're gonna have to get you back
on before November for an update on how things may
have shifted, at least according to polling Dan Skelly love
it when you join us, head of wealth Management, research
and Strategy team over at Morgan Stanley, joining us from
New York City.
Speaker 1 (37:01):
This is the Bloomberg Business Week 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 Business App.
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Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg business
Week Inside from the reporters and editors who bring you
America's most trusted business magazine, plus global business, finance and
tech news. The Bloomberg Business Week Podcast with Carol Messer
(00:23):
and Tim Stenebek from Bloomberg Radio.
Speaker 2 (00:26):
Alamantashion Pushtar, the operator of Circle K and Canada's most
valuable retailer, making a proposal to take over the much
larger rival and seven to eleven owners Seven and I Holdings.
A merger would create the world's top operator of roughly
one hundred thousand convenience stores. Shares of Seven and I
Holdings jumped twenty three percent today. That company, by the way,
was valued at the equivalent of thirty one billion dollars
(00:48):
before news of the offer emerged. Let's get to it
with Crystal C Bloomberg News Deal's reporter. She joins us
from Switzerland. Crystal, I want to talk about this deal
in particular, but then branch out and talk about the
deal space and particular, especially what happened in July and
what that could suggest for the deals moving forward. What
do we know about this particular deal because Kush tar
(01:09):
has not given many details.
Speaker 3 (01:13):
So much detail. We don't know the price so far.
We know that Kushar has submitted a friendly offer to
seven and I it's not a hostel takeover. It is
going to be a negotiated transaction. If anything were to
come to any kind of fruition, I guess a company
can hash out kind of management roles as well as
(01:36):
how units are going to be to be operated. And
speaking of you know, just Emanation's action, Like you said,
since July, it's been a flurry of deal making and
which is a very interesting timing as everybody looks at
the end of the year there's an election looming, but
still there are a lot of deals that are that
seems to be cooking.
Speaker 2 (01:54):
Up so much for bankers and lawyers being on vacation
right now. You mentioned the idea of a friend takeover
versus a hostile takeover. Just remind our audience the difference
between the two and what we should be watching for
in a friendly type of deal.
Speaker 3 (02:09):
Yeah. So, I think in a friendly transaction, you just
get to have a more you know, like a lot
more happened behind a scene, whereas in a hostel takeover,
a company just put an offer, and a lot of
that would play out in public statements what the target
would say, Okay, this isn't a good enough offer, or
we're evaluating this, evaluating data. But if this were to
(02:31):
go as planned like how Kushat and Seven and I
had described, it would most likely be mostly played out
behind the scene, which is which is difficult for us
but great for the companies in some way.
Speaker 4 (02:42):
So Crystal, this merger would create the world's top operator
of roughly one hundred thousand convenience stores. I'm wondering where
across the world are these stores spread out. Obviously we
know seven eleven is in the US, but give us
a little bit more of a sense of just how
global this deal is.
Speaker 3 (03:00):
So seven and I is traded, is trading in Tokyo,
and a lot of its operation is in Tokyo. Seven
eleven brand started in Texas, but actually had had a
global footprint now and you remember seven and I also
had tried to had ten made a takeover approach a
couple of years ago to buy the Speedway convenience store
gas stations in the US. So they actually have a
(03:20):
really good footprint in the US, across Asia and parts
of Europe, Kushat it's mostly within Europe and in Canada,
So you're actually going to see a very global portfolio
of convenience store which is actually a very very hot
space at the moment. There are a couple of other
players across Europe across the US that could all be
(03:44):
prime for takeover, especially if this deal were to happen.
Speaker 2 (03:49):
Is the deal going to happen though, I mean some
analysts are saying this actually might not end up, you know,
coming to fruition listening, the deal might not be signed.
Speaker 3 (04:03):
So a lot of people who have followed this space
for a while will remember that this is actually not
the first attempt. There have been a couple of times
where these two company flurted with the idea of merging
with each other. And not just that, like if you
name all the possible combination their company, like eg Group
Parkland in Canada, I mean that every possible combination that
could be explored had been explored at some point. And
(04:26):
the biggest thing here is anti trust. Like I said,
it's such a global operation, you're actually going to need
regulatory approval in many regions, and given how much scrutiny
you could face, especially in US and Europe. This could
well be a very challenging deal. Even if it gets signed,
it may not take shape as the way that they're
(04:47):
proposing right now. A lot of these deals end up
having very very big divestiture plans where a third player
would come in and buy up some of the remaining
some of the stores that are not approved because of
anti trust reason. This is a long process. Even if
this DOO gets signed, doesn't mean that ends there.
Speaker 4 (05:05):
On the seven and I side. Why has it been
under pressure from activist fund Value Act Capital Management? And secondly,
how do you think that activist investor is thinking about
this proposal?
Speaker 3 (05:19):
So we haven't heard from a value Act. Value Act
actually ran a proxy campaign in Japan last year at
seven and I and it was unsuccessful in adding board
members to seven and I. So, Jeff, Japan is a
very unique market as we know, and a lot of
the retail investors, a lot of the stocks are retail investors,
and then the retail investors usually tend to support the management.
(05:41):
So now to activate change in Japan, it's actually really
difficult and you have to be very culturally sensitive to
do so. In this particular instance, Value wasn't able to
make that change. But then the argument that they had
that the company underperformed, that a company could see a
highest stock price, that I guess exactly is what Kushai
is seeing as well. With the yend being depreciated. That
(06:04):
is a really good opportunity, a really good timing for
Cruise Shot to make a move, or for anyone else.
So we should bear in mind that again, there are
so many play into space. Everybody has looked at everyone else,
so anything could happen, maybe like another buy could emerge,
But we should expect value Ac to have some sort
of comment at some point, given they so have a
(06:24):
stake in the company.
Speaker 2 (06:25):
Okay, Crystal, speaking of timing, what has been happening when
it comes to timing in the deal space of late
I mean it was just a week ago that we
were talking about Marsa Green to buy Kelenova. We have
Boeing buying parts supplier Spirit Aerosystems. We have Bosh's acquisition
of eight billion dollars in air conditioning assets. What's going
on when it comes to where we are in the
cycle and what you're seeing with deals.
Speaker 3 (06:48):
Yeah, a lot of the dew makers have commented that
this is an unusually busy summer. Since you're live, we've
seen a flurry of dew making and like I said,
it's really unusual, first of all, for someone to be
this busy. A lot of the deal makers themselves or
company executives tend to take time off and not this year.
I guess probably is to deal with us to do
with that the election at the back end of the year,
(07:09):
it's really going to put a hurdle on a lot
of deals. You don't really want to be caught in
any sort of market cycle. So if you were to
deal a deal this year, you either get it done
before September before it gets too close to the election,
or your way till twenty twenty five. So this could
be the last stretch of deals that we're seeing. And
as you see, there are quite a few consumer retail
transactions like Helenova, like this one. It could also indicate
(07:32):
that there are arguments to be made about the consumer's strength. Potentially,
it's that size and scale really does matter as a
consumer retail company at this point more than anything else.
Speaker 4 (07:43):
Yeah, talk a little bit more about you know what
kind of macro signals we can learn from this uptick
in deal activity. Does that mean that the consumer's weakening
if these companies have to merge together.
Speaker 3 (07:57):
Yeah, a lot of companies have actually passed on a
lot of costs in a pasked with years to consumer
just by raising prices, and that's where the growth have
been coming from. And a lot of the companies have
felt that they have kind of maxed out on passing
that cost to consumers. And for now, if you were
to generate extra growth, you kind of have to be
in the domain of deal making, in organic growth by
(08:19):
buying someone else, by getting bigger, and by going into
regions and like geography that you're not already in. So
that's that's another reason why some of these deals, mainly
a lot of them are geographic. This one is particularly
is a geographic expansion Kelenover, it's a portfolio expansion where
Mars wanted to get into diversify into savory snacks versus
(08:42):
just like sweet convectioneries. So again it's it's a consumer play.
But then also the really interesting thing, perhaps with Kelenova
and not so much here, is that the effect of
o zen pic is on everyone's mind as well. So
if you see that everyone everyone is expecting the end
pick in the well. Everyone is expecting ozampic to have
some sort of effect in the not so healthy category
(09:05):
of food. And if you think about convenience store, convenience
store it's also selling mostly confectioneries dictator chips. And if
you expect in a long run ozempic to have a
bigger effect, you may as well have a bigger market
share so that you can, like withstand that weather a
little bit better.
Speaker 2 (09:25):
Hey, Crystal, before we let you go, just about forty
five seconds left, talk to us just a little bit
about the idea of what your sources are telling you
moving forward. Given that we could see a rate cut
in September, maybe two more rate cuts before the end
of the year, do we expect deal activity to increase
when the Fed does lower rates.
Speaker 3 (09:45):
Yeah. I think the interest rate has been a huge
topic in the past nine months, and then for now,
I think most of the discussions has been whether we're
getting too closer the election. Interest rate still remains a topic,
but then it's not as important, perhaps as something like
an anti trust when you do a big transformative acquisition
like this one.
Speaker 2 (10:05):
All right, a big thank you to Crystal see Bloomberg
News Deals Reporter she joins us from Switzerland. Check out
her stories on the Bloomberg Terminal and of course, also
at Bloomberg dot com.
Speaker 1 (10:16):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from two to five pm Eastern Listen
on Applecardplay and then brout Auto with a Bloomberg Business app,
or watch us live on YouTube.
Speaker 2 (10:29):
We'll touch sports because NFL players are grappling the big, complex,
new reality. They're aware of the money being bet on
every catch, run, touchdown, and let's be honest more and
generally it's good for the league's and thus their own
financial health. But they're also, if you can even say
this about a professional football player, scared on a personal
level and generally freaked out about running.
Speaker 5 (10:50):
A foul of league rules.
Speaker 2 (10:52):
Those words from Jason Kelly, who writes in Bloomberg a
BusinessWeek all about the relationship that current and former players
have with the league, embracing sports betting. Jason as chief
correspondent for Bloomberg Originals. His story is featured in the
fourth coming issue of the magazine, but read it now
in the Bloomberg Terminal and at Bloomberg dot com. Slash
BusinessWeek a football player.
Speaker 5 (11:13):
Being scared Yeah, wild right? Why?
Speaker 2 (11:16):
I mean, there are signs apparently everywhere as you write,
no betting allowed in their locker rooms, when they travel,
they can't do. What are they scared about, specifically?
Speaker 5 (11:23):
I think what they are They're worried about a couple
of things.
Speaker 6 (11:26):
One is that the punishment for running a foul of
the rules is harsh. Calvin Ridley is the player that
everybody points to. He was playing for the Atlanta Falcons.
He was injured, he placed a bet on football while
he was not playing, and was suspended indefinitely, a suspension
that ultimately lasted a year. He got cut from the Falcons.
(11:47):
He's now back in the league. But the swiftness, swiftness
and the severity of the punishment really made these guys
sit up and think. The other is that because there's
now so much money on the line, there are a
lot of people who are, shall we say, expressing their
opinions to them on social media in person about when
(12:07):
they don't perform the way that maybe someone bet.
Speaker 2 (12:10):
They would never read the replies at.
Speaker 5 (12:12):
Least, yes, stay away from the comments.
Speaker 2 (12:15):
The Washington Commander's running back, I think share some good, yes,
good anecdotes about what people say to him online.
Speaker 5 (12:21):
Yeah, absolutely so, Austin Eckler.
Speaker 6 (12:23):
He is on the cover of the upcoming edition of
Bloomberg BusinessWeek. He is a very you know, well decorated
running back for the Washington Commanders. As you say, he's
a really interesting case in part because a few years
ago he saw a lot of this coming when it
came to fantasy football, which was sort of the way
(12:44):
that this all started, at least in the United States,
where you know, you draft a team that a lot of.
Speaker 5 (12:49):
This is actually going on right now. People are getting together.
Speaker 6 (12:52):
My son was drafting his team with his buddies till
one in the morning last night, and you know, so
you know you it's a friend some friendly wagers that
go on. Austin saw that he actually hosted his own
podcast to sort of lean into it. So he started
to understand the economics here. Fantasy is a different world though,
because what players can do there is actually spelled out
(13:14):
pretty well.
Speaker 5 (13:14):
There's a cap.
Speaker 6 (13:15):
They can't make more than two hundred and fifty dollars
on it, so it's really just for fun. But what
it did open up for him is this notion of Wow,
people are really paying attention in an entirely different way,
and that part actually is good for them, as you
said in the intro.
Speaker 4 (13:31):
Yeah, so why is it good? Like, what good is
it doing for the players that now sports betting is
legal in more than thirty states in the US.
Speaker 5 (13:39):
It's a great question.
Speaker 6 (13:40):
And the issue for them is that it's essentially the
rising tide.
Speaker 5 (13:45):
So it helps them in a couple ways.
Speaker 6 (13:48):
One is that the NFL, along with other leagues, has
done these very lucrative partnerships with the sports books, with
DraftKings and FanDuel and others, and so all of that
revenue is ultimately shared with the players. It sort of
goes down collective bargaining sort of dictates that that's happening.
So that's one. The second is you just have more
people paying attention to the games in a different way.
(14:11):
So take Austin Eckler again as an example. There are
a lot of people who sort of only slightly care
who he's playing for. They are either picking him for
fantasy or they're betting on his individual performance. So he
was playing for the Los Angeles Chargers, now he's playing
for the Washington Commanders. You have a lot of people
tuning into games that they might not otherwise be interested in.
(14:32):
Because if you live in New York, do you really
care about the Dallas Green Bay game if.
Speaker 5 (14:38):
You're a fan, I mean you do if you put
money on it, exactly.
Speaker 6 (14:41):
And so that's the point is that you're paying attention,
you're watching TV, revenue goes up and revenue accruised everybody.
Speaker 2 (14:47):
Hey, just how strict are these rules for the players?
Because man, one anecdote that one of the players that
you and the team profiled in the piece talks about
not even being able to play ping pong at an
away game, like you know, when they're just hanging out
in the locker room. So this is betting five bucks.
Speaker 5 (15:04):
On it exactly.
Speaker 6 (15:05):
So this was a really interesting I did not know
this until we worked in this story. So the rules
about betting, so you cannot bet if you're an NFL player,
You cannot bet full stop on the NFL, certainly your
own team at all. If you're an active player, like
can't go there. You can bet on other sports except
(15:25):
if you are in a team facility or in any
way conducting team business. And so the example that was
given was if you're on a essentially a business trip.
So you play for the Washington Commanders, you're at an
away game in Atlanta and you're you know, you're sitting
in the ritz Carlton.
Speaker 5 (15:42):
There is probably where you're staying.
Speaker 6 (15:44):
You're on your bed and you're like, oh, a ping
pong game, Like I just saw this online, Like, I'm
going to bet five bucks against the rules. You can
get fined, you can get suspended. It is absolute against rules.
So if you are in any way, if you're on
a team bus, can't bet. So there It is very strict.
And the reason it's strict is because the NFL has
to protect the integrity of the game, because if there's
(16:05):
any sense that the games are fixed or they're they're
in any way compromise, the entire thing falls apart. This
is the most lucrative league in the entire world.
Speaker 4 (16:16):
What did you learn about the impact on the states
in which sports betting is now legalized, the kinds of
tax revenues that they're now generating from this activity.
Speaker 6 (16:28):
So revenues certainly are up for the states, And it's
one of the reasons. You know a lot, I mean,
this is a tale as old as time. Lotteries, sports betting,
all of that a lot of the revenue accrues to
the states. My colleague Rahan Harmanci, she writes extensively in
this package, in this cover package about the social impact
(16:51):
on this. It's and I will say, it's one thing
that the players that I interview talked a lot about.
And they think a lot about this because they have
the wherewithal and they have a lot of rules around
them to stay away from it. But they say to
each other, and they say to anyone who will listen,
don't do it. Like even though it ultimately accrues to them,
they have real reservations about this as a practice.
Speaker 2 (17:14):
Okay, so let's just talk about that very briefly. The
idea of pushback that we could get to sort of
the watershed moment a few years ago where we saw
the ability of states on their own to approve sports betting. Yeah,
are we going to start seeing pushback?
Speaker 6 (17:28):
It is the question, you know, I mean, I think
the question is going to become do regulators, do lawmakers?
Do other people weigh the cost benefit analysis of the
money coming in versus the social impact. There are you know,
studies that point to higher levels of personal bankruptcies. You know,
(17:51):
people can really get in trouble. They can get addicted
to sports gambling. It is very, very easy to pull
up your phone and place a bet, especially where it's legal.
Speaker 2 (18:02):
Hey, Jason, on a different subject, just thirty seconds. Yeah,
pour Player's Summit happening here in New York City in
just a couple of weeks. Tickets available, still.
Speaker 5 (18:11):
Yep, tickets available.
Speaker 6 (18:12):
It's gonna be a great program here in the building
in New York City, September fifth, right around the US Open,
which I know you're going to be involved in, not playing,
but covering.
Speaker 5 (18:21):
I think maybe you're playing.
Speaker 1 (18:22):
I don't know.
Speaker 6 (18:23):
I mean, who's to say. So, we're gonna have a
lot of really interesting folks on hands. C. Pelayuka, who
you know well, owner of the Boston Celtics, is one
of the headliners.
Speaker 5 (18:32):
So more to come. Check it out on our website.
Speaker 2 (18:34):
All right, we're looking forward to that. Still winning on
my wildcard entry into the US Open.
Speaker 5 (18:38):
By the way, I'm bullet for you.
Speaker 2 (18:39):
All right, thanks, I appreciate that. Jason Kelly, he's chief
corresponding for Bloomberg Originals. Check out his story. It's in
the forthcoming issue of BusinessWeek magazine. You can read it now.
Though on the Bloomberg terminal and at Bloomberg dot com slash
a business Sweek.
Speaker 1 (18:53):
You're listening to the Bloomberg Business Week podcast. Listen live
each weekdays starting at two pm Eastern car Play and
Android Auto with the Bloomberg Business ad. You can also
listen live on Amazon Alexa from our flagship New York
station Just Say Alexa, playing Bloomberg eleven thirty well.
Speaker 2 (19:12):
US Secretary of State Anthony Blincoln said Israeli Prime Minister
Benjamin and Yaho has accepted a ceasefire proposal to halt
the war in Gaza, and the next step is for
Hamas to say yes as the Biden administration look to
bring an end to the ten month conflict at last.
Lincoln is on his ninth trip to the region since
Hamas attacked Southern Israel back on October seventh, and called
(19:33):
the proposed accord quote a bridging agreement and acknowledge that
not everything is spelled out in detail, but it does
build on a proposal that President Joe Biden put forward
in late May, which both sides had bulked at. The
reason I'm talking about this is because we are going
right to Tel Aviv to speak with Avis Shan, who's
CEO of Startup Nation Central. It's a nonprofit that works,
(19:55):
in its own words, to promote the Israeli innovation ecosystem
around the world. As also Israel's former Chief Scientist of
the Ministry of Economy and the founding chairman of the
Israel Innovation Authority. Avia, I want to get your your
comments on the latest out of that we just heard
from Anthony Blincoln, but also taking a step back, how
(20:18):
things have shifted in your role post October seventh. So
first on the breaking news.
Speaker 7 (20:27):
Yeah, so obviously, you know, we look forward hopefully to
have a success of these negotiations that brings the hostages
home and really brings us closer to cease fire. So
we're truly grateful for the involvement of the US administration
and the support that it has been showing, and hopefully
this pressure will also work well on the other side,
(20:49):
which still has to concede to the proposed deal. If
that happens, then you know, we will start thinking about
the day after. There's a lot to do and basically
is certainly going to play a big part also in
that recovery.
Speaker 4 (21:05):
How has Israel's economy responded over the last few months
to the threat of a potential attack from Amas.
Speaker 7 (21:15):
Yeah, so we're very lucky, Emily that the israel economy
actually came into this war in a very very strong position.
If we look at too, the macro indicator, in the
past five years or so, we've seen a tremendous growth
of Israel's GDP, a very very low debt to GDP
compared to other countries, very low unemployment, very managed inflation
(21:37):
basically thanks to the strength of the high tech sector.
And remarkably, when we'll look on the macro indicator ten
months after the horrible day of October seventh, while we
do see drop and some slowness in the markets, the
resilience of the Israeli economy as a whole, specifically of
the high tech sector, has been astounding. And by the way,
(21:59):
Israel's high tech is the country's business plan. Twenty percent
of our GDP comes from high tech.
Speaker 2 (22:06):
So, AUVI, have you know? We got it? We get great.
One of the things that I love about our program
is we get great feedback and questions from members of
our audience who are listening and watching around the world.
Our producer sending me a question from one of the
members of our audience asking a really important one. I
(22:26):
think have you seen the business community community put pressure
on the Israeli government to end the war?
Speaker 7 (22:37):
I think, you know, war is not good for business.
It's uncertainty not to talk about the direct impact of
having you know, at the height it was about ten
percent of the high tech workforce that had been enlisted
to active reserve duty. You add to that, you know,
the problems with are traveling to Israel and so on.
And it's obvious that you know, certainly from an economic
(22:58):
point of view as well as from me humanitarian one,
ending this war and moving into you know, back the
business in many aspects is something that the business community
aspires and as such, yes, of course they've been vocal
with the government to push that forward. And unfortunately, you know,
tim for war, you don't necessarily indeed both sides participating.
(23:21):
So both sides need to agree really on finishing this
round of conflict and moving forward. I have to say
that if I need to choose one word that will
characterize what the Israeli business community and high tech specifically
has shown, it will be resilience. Because if we just
look at the numbers and just look at the output
(23:43):
coming out of that set, the over five billion dollars
raise by its really startups in the first half of
twenty twenty three, making it twenty twenty four, excuse me,
making it very very similar to the US trends, you know,
really putting that Israeli factor to a minimum, showing that resilience,
showing that spirit which in many aspects characterize these really
(24:05):
innovators and is probably the main reason why four hundred
and fifty multinational companies have chosen to set up their
innovation centers in here and have been growing throughout the
six month even due to the war A taking place.
Speaker 4 (24:18):
Yeah, that was really interesting. I'll repeat that stat because
you had sent it over to us in your notes.
Private funding in the first half of twenty twenty four
saw a thirty one percent increase, amounting to five point
one billion US dollars. Talk a little bit about where
that funding is going. What kinds of startups specifically are
seeing the most investment.
Speaker 7 (24:41):
Yes, you know, Israel is a home to over seventy
five hundred startups, so really leave the world in terms
of startups, entrepreneurs, venture firms who were called the startup
nation for a reason. If we try to look into
the sectors that have drawn most of the investment in
the first half of twenty twenty four, cybersecurity certainly stands out.
And when it comes to cybersecurity is really truly a superpower,
(25:04):
you know, punching way above our weights. There's a lot
happening in the cybersecurity sector in the world, and most
of what we've seen in Israel is just a reflection
of that. There's an armed race of the big players
within cybersecurity, you know, the Palo Alto's crowdstrikes, the thease scalers,
the ciscos and the likes. That has caused a lot
(25:24):
of m and A to take place. And if you
try to look for innovations, certainly in this specific sector,
Israel is one of the places well you will be
doing that, and this is why we saw a lot
of investment flowing in. You know, to mention, just one
company with Wiz raised one billion dollar in a signal round,
still a private company, but certainly one that is you know,
(25:47):
doing a lot of great things. But we've seen over
three hundred and twenty rounds as part of that number
that you mentioned, and not just in cyber so Israelis
really has a diversified ecosystem and at the end of
the day, what people are looking for, you know, when
I talk to either the CEOs or the large companies,
(26:08):
the gentan wang, the Patkel singers, the Sappha cuts, it's
mostly about the spirit and the culture. There are a
lot of places in the world where innovation takes place,
but we do it slightly different.
Speaker 3 (26:21):
You know.
Speaker 7 (26:22):
Sometimes we'd like to call it in patient innovation. And
I know that patience is a virtue and it really
as I guess are notoriously an impatient bunch of people.
But if you think about it, when it comes to
innovation and the problems we all societies and economies are
coping with, we need a little bit of that healthy
disregard for protocol. We need a little out of that boldness, crappiness,
(26:45):
just jumping into action.
Speaker 3 (26:46):
That's very is raally.
Speaker 7 (26:47):
We've seen that in the war. I think that's one
of the reasons why civil society and the private sector
have self mobilized sometimes too, you know, create solutions that
you know are either complementary to the government or instead
of the government. And is that spirit of innovation that
attracts the world's best investors and really the CEOs of
(27:08):
the greatest companies to both invest in his ready companies
and acquires ready companies.
Speaker 5 (27:14):
So we've seen a.
Speaker 7 (27:14):
Lot of M and A activity in the first six months,
which again if you think about it during wartime, is
not intuitive.
Speaker 1 (27:22):
Abby.
Speaker 2 (27:22):
I know that Israel's famous for certain startups, including ways
that Google bought years ago, Mobile I and Intel of course,
but also cybersecurities you mentioned. Help us move this forward
a little bit just in the last forty five seconds
that we have with you, what's sort of the next
(27:43):
frontier of innovation that you see emerging from Israel.
Speaker 7 (27:48):
So certainly when we see the next upcoming sectors, they
really refer to the global challenges that we all cope with,
you know, as human beings. So there are three times
more health tech startups in it then cybersecurity startups. In Israel.
There are about one thousand startups dealing with sustainability, energy,
you know, climate and so on. And if you think
(28:08):
about the utility technology AI is driving all of these
change so either as platform horizontal solutions or applied in
vertical solutions, from agritech and flud tech to health that
we mentioned before Ai is driving this forward and Israel,
you know, it's right there at the forward, taking an
(28:29):
advantage of a well developed ecosystem that has matured in
the past thirty years to have that fountain of innovation
continuing regardless of crisis. And you know, are pretty optimistic
that after we've finished this war, hopefully sooner rather than later,
we will see a baby boom or start a boom
actually bringing you know, both innovation that was relevant and
(28:52):
putting the test during this confic, but also just bold
new ideas taken by Israel's entrepreneurs in the world.
Speaker 2 (29:00):
Aviy we got to leave it there, Abvy, CEO of
Startup Nation Central in Tel Aviv, m.
Speaker 7 (29:07):
Brother Marco.
Speaker 1 (29:11):
Journal.
Speaker 7 (29:12):
How about you let me drive?
Speaker 2 (29:14):
Oh no, no, no, no, please going to drive, honey, please
do gravels.
Speaker 3 (29:19):
Let's wat I want to try it. It's a good
question that.
Speaker 1 (29:28):
This is the Drive to the Clothes.
Speaker 3 (29:30):
Dot com think well, Janda Don on.
Speaker 4 (29:33):
Bloom Bird Radio and it's time for the Drive to
the Clothes. We're joined today with Dan Skelley, head of
Wealth Management Research and Strategy team at Morgan Stanley. He
joins us on Zoom from New York City. Dan We've
been talking all day about how this is the eighth
straight day of gains for the S and P five hundred,
the largest or the biggest winning streak of twenty twenty four.
(29:56):
What do you think is driving this rebound here in
the equity market?
Speaker 8 (30:01):
Thanks for having me, Emily, And look, I think the
last week of gains following what had been obviously a
week or so or a couple of weeks of weakness,
reminds me that the economy and company fundamentals tend to
move more like a cruise liner, whereas stock prices tend
(30:23):
to zip around more like a speedboat. And frankly, I
think when you think about that set up related to
the August period where liquidity tends to wane anyway, the
unwine of the Japanese yen carry train, as we all know,
has been talked about extensively, I think you just ran
(30:44):
into a situation where market liquidity, conditions, technicals, and some
rotation out of the prior leadership into new pockets of
the market. We're all part and parcel related to what
drove the market.
Speaker 2 (31:00):
What do you say to those folks out there, Dan,
who say, all right, I want to buy stocks, I
want to buy large cap equities. But I'm a little
concerned that the S and P five hundred is looking
a little frothy right now.
Speaker 8 (31:14):
So I've been listening to people describe the SMP as
frothy for a year, and I think, frankly, when you
think about what had driven that valuation premium, As you know,
it was the third of the market that was technology
based that got caught up with the AI excitement, but
frankly and quite practically had very strong earnings revisions. And
(31:38):
so look what I would say is, given the reality
around the FED cutting amid a positive economy has started
to take and take hold more ingrained in investors' minds.
Given the SMP four ninety three earnings are improving and
it's not just a magnificent seven earnings story anymore. And
given that the days of the suspension of disbelief around
(32:02):
AI return and the capital spending, tremendous capital spending that's
gone into that particular theme is now starting to elicit
more scrutiny from the markets. I think to your question,
the opportunity set outside of the magnificent seven, outside of
the index level is about as strong as it has
been over the last year.
Speaker 4 (32:24):
So where exactly are you seeing those opportunities. Is it,
you know, going smaller down the market cap spectrum, or
just broadening out on a sector level but still remaining
in large cap.
Speaker 8 (32:37):
So that's an excellent question. I would say it's more
of the latter. So when you look at the vicious
rally in small caps a month ago, we were actually
saying to fade that because even though rates are going
to come down per my comments earlier, the resting heart
rate of inflation and the cost of capital in this
cycle will simply be higher than it was versus the
(32:58):
post to eight cycle. Thus, you need better financially positioned
equity exposure in large cap versus small and Second, while
none of us really know ultimately when AI is going
to start to show up in large cap companies productivity
and earnings streams, what we think all could argue is
that it's more likely than not that quality large cap
(33:22):
names with cash flow will participate in the investment cycle
around AI, whereas small caps that don't have that same
cash flow likely will not. So to answer your question,
we are encouraging investors today to look outside of the
magnificent seven into more large cap quality value ideas like financials,
(33:43):
like industrials in some cases like healthcare. We also, emily
are telling investors and clients to look outside the US.
And I'll give a nod to Lisa shalat our CIO
a week ago who said to buy Japan after what
had been obviously a fairly volatile period for Japanese docs,
and that call has proven to be fairly prescian so far.
Speaker 2 (34:06):
Hey, Dan, Democratic National Convention kicks off. Politics is front
and center for us for the next eighty days or so.
How are you thinking about political risk when it comes
to your portfolio and what you're thinking about the composition
not just of who's in the White House come January
twenty twenty five, but who are in the halls of
(34:27):
Congress too.
Speaker 8 (34:29):
So I joked with John and Lisa when I was
on your Peers Studio TV studio about six weeks ago
that we're basically getting that question on the hour. So
you know, we're pretty we're pretty versed in our response.
But look, it's all jokes aside. It always plays a
factor in markets in the short run, right, whether or
(34:52):
not certain policies get enacted, or sentiment around certain politicians
gets reflected in markets, it has a short run ect.
Having said that, looking at decades and decades of data,
I think it's quite evident that, as we always say,
the business cycle and the profit cycle oftentimes tends to
supersede any one year, one month political impact. So having
(35:17):
said all of that, you asked clearly an important question
around how are we thinking about this election? And look,
what we would argue is if you do see a
potential red sweep where the odds were frankly higher a
month ago than they are today given changes in the
Democratic ticket lineup. But if you were to see that
(35:37):
red sweep, that's where we see the widest band of
outcomes in terms of maybe some positives related to deregulation,
but maybe some uncertainties related to tariff trade and immigration
policy which could disrupt the goldilocks disinflation thesis. And so
that's where you see the widest bands of market and
(35:59):
economic impact. On the other hand, in the blue sweep scenario,
we liken that to frankly, more of the same, more
of the status quo. So that's how we are starting
to think tactically about those two different outcomes. Very last
thing I would say is I think It's been particularly
notable that long rates have been coming down ever since
(36:21):
the June twenty seventh debate outcome, and as we all know,
following that outcome, the red odds, the red sweep oods
went up, but rates went down. So quite obviously rates
are the markets are paying attention to something else, which
is a little bit of mixed economic data, but more
certainty around the path of disinflation. So I have found
that rates visa the politics and betting odds betting markets
(36:45):
to be fairly notable.
Speaker 2 (36:46):
All right, well, we're gonna have to get you back
on before November for an update on how things may
have shifted, at least according to polling Dan Skelly love
it when you join us, head of wealth Management, research
and Strategy team over at Morgan Stanley, joining us from
New York City.
Speaker 1 (37:01):
This is the Bloomberg Business Week podcast, available on Apple, Spotify,
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