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Consumer Price Index Continues To Climb · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
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Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and
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Speaker 1: at Bloomberg dot com slash podcast. Just get over to
0:22
Speaker 1: David Kats right now. He is the president and c
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Speaker 1: i O at Matrix Asset Advisers affirmed that he uh
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Speaker 1: co founded as well. Um, David, I wonder what you
0:33
Speaker 1: think about the inflation number. Obviously that's probably our top
0:36
Speaker 1: headline today. Six point eight percent year over year is
0:39
Speaker 1: a big, hefty number. But as I can't remember his
0:42
Speaker 1: Critty or Chinale, one of them was telling us earlier
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Speaker 1: the month over month number was a little softer than
0:48
Speaker 1: maybe we expected. And also bad news. Looks like it's
0:50
Speaker 1: pretty good news for this market. Well, right now, all
0:54
Speaker 1: the news is good for this market. It's looking through
0:57
Speaker 1: a lot of things. You know, today's action a little
1:00
Speaker 1: bit surprising in terms of yields going lower, in stocks
1:03
Speaker 1: going higher on the worst inflation numbers since nine two. Um,
1:07
Speaker 1: we think what's happening is the market is looking through
1:10
Speaker 1: the current higher inflation. It was not worse than expectations,
1:15
Speaker 1: so people don't think it's going to cause the FED
1:17
Speaker 1: to change course. And from our perspective, while we do
1:21
Speaker 1: worry a lot about inflation, we think that it is
1:23
Speaker 1: going to calm down by next spring or summer under
1:27
Speaker 1: the three and a half percent level, so we don't
1:29
Speaker 1: think it derails the economy. Uh and interest rates will
1:33
Speaker 1: still say relatively low, so that's an okay environment for stocks.
1:36
Speaker 1: It's interesting that you say that any news is good
1:39
Speaker 1: news because I'm wondering if you could speak to the
1:42
Speaker 1: fear and the caution that still underpins this market. Well,
1:47
Speaker 1: you know, the market has been more volatile since September.
1:50
Speaker 1: You've had to five percent corrections, and that's more normal,
1:52
Speaker 1: and we think that's going to continue for some time.
1:55
Speaker 1: But at the moment, the market is looking through the
1:57
Speaker 1: negatives and focusing on the positives, and and the positives
2:00
Speaker 1: are pretty good. The economy is in very good shape,
2:03
Speaker 1: businesses are doing very well, Corporate earnings are coming in
2:06
Speaker 1: very nicely, and we think a significant driver of the
2:10
Speaker 1: stock market is there's just this enormous liquidity out there.
2:13
Speaker 1: There's just so much cash floating around, and as people
2:16
Speaker 1: throw that into stocks, that's just driving prices higher. So
2:20
Speaker 1: the key here from an investment perspective is not to
2:23
Speaker 1: chase the rallies. You know, we suggest putting money to
2:26
Speaker 1: work when you have these sell offs like you had
2:28
Speaker 1: in September or in the last month, rather than trying
2:31
Speaker 1: to throw money in after things have risen. Is do
2:36
Speaker 1: valuations not concern you here? Because we seem to be
2:39
Speaker 1: at a level where any little thing. For example, um,
2:44
Speaker 1: I think it was last Monday, we got a headline
2:46
Speaker 1: saying that an omicron case have been found in California,
2:50
Speaker 1: after we all knew that, oh Macron was out in
2:53
Speaker 1: the US. It wasn't a surprised and yet the market
2:55
Speaker 1: sold off. Right. The market is going to be pretty volatile.
2:59
Speaker 1: It's taking its cuse whether it's COVID news or FED
3:02
Speaker 1: news or government news. Either the market loves things or
3:06
Speaker 1: it hates things. So the key to being investor is
3:08
Speaker 1: just look beyond the day to day fluctuations. In terms
3:12
Speaker 1: of valuation, we think the overall market is modestly overvalued.
3:16
Speaker 1: We think many growth stocks are very significantly overvalued, and
3:20
Speaker 1: that's the area that we worry a lot about. The
3:22
Speaker 1: flip side is we think there are a lot of
3:24
Speaker 1: places that you can buy now and you should do
3:26
Speaker 1: well over the next twelve months, or a lot of
3:28
Speaker 1: areas like media, telecom, healthcare that have not done a lot.
3:33
Speaker 1: The businesses are doing well. Stocks are twelve thirteen times earnings.
3:37
Speaker 1: We think that's going to be the next place to
3:39
Speaker 1: make good money and do it in a lower risk way.
3:42
Speaker 1: You know, it's interesting. I was with Scott Minor yesterday
3:45
Speaker 1: who is the CEO of Guggenheim big bond investor, and
3:48
Speaker 1: he was saying that I need to brag about it.
3:50
Speaker 1: We know who Scott Minor. It is. Well, you know
3:53
Speaker 1: one interesting thing he said to me, and we'll hear
3:55
Speaker 1: more about this next week, is that he thinks that
3:57
Speaker 1: the market is telling us that there are afraid of
4:00
Speaker 1: a policy mistake when it comes to the Federal Reserve.
4:04
Speaker 1: What do you think that really means, David? And do
4:07
Speaker 1: you agree with that? Well, I think the market, while
4:11
Speaker 1: it might be afraid, it's truly not acting that way
4:14
Speaker 1: in terms of bonds or stock. So I think the
4:17
Speaker 1: fet has actually done a very good job inflation is
4:20
Speaker 1: much hotter than they had originally anticipated. We think a
4:23
Speaker 1: lot of that is coming from the labor market and
4:26
Speaker 1: from the logistics problems caused by COVID, and we think
4:29
Speaker 1: both of those are going to come under better control
4:32
Speaker 1: in the next six months or so. So you know,
4:35
Speaker 1: we're in the camp where we really like what the
4:37
Speaker 1: FET is doing. Yes, they probably are a little bit
4:40
Speaker 1: late to starting to taper um, but we don't think
4:43
Speaker 1: it's going to derail the economy, and we think they
4:45
Speaker 1: should be given a lot of credit for navigating a
4:48
Speaker 1: really difficult economic environment over the last two years. Almost
4:52
Speaker 1: seemed like they had to be right. Pal was super
4:55
Speaker 1: devish until he was reconfirmed and and then he and
5:00
Speaker 1: then he was like, actually, you know what, I don't
5:02
Speaker 1: think it's going to be transits all right, Um, all right,
5:06
Speaker 1: So what do you like here, David? I mean, if
5:08
Speaker 1: when you wake up in the morning, what do you
5:10
Speaker 1: get pumped about? Or if you're if your best friend
5:12
Speaker 1: asked you at the bar, um you know where he
5:14
Speaker 1: should be investing? What do you tell him? So we like,
5:18
Speaker 1: as I'd mentioned, the media, telecom, healthcare financials. Probably our
5:22
Speaker 1: favorite two stocks right now would be Comcast, which was
5:26
Speaker 1: off this week on what we think was a misunderstanding
5:30
Speaker 1: of the company communications. Uh, it's gonna have very nice
5:33
Speaker 1: earnings in the next year. It sells a thirteen and
5:34
Speaker 1: a half times earnings, great long term business, so we
5:38
Speaker 1: like that here Viacom is doing all of the right things.
5:41
Speaker 1: They are going to become a streaming force of stock
5:44
Speaker 1: sales at under nine times earnings. The CEO and the
5:47
Speaker 1: chairwoman just bought a great deal of stock, yet it
5:50
Speaker 1: sells at year lows at a great price, three percent yield,
5:54
Speaker 1: So things like that are pretty interesting. On the banking side,
5:57
Speaker 1: we like MMT Bank in US Bank Corps. In the
6:01
Speaker 1: healthcare side, we like Amgen and zimmer which makes knee
6:04
Speaker 1: and him replacements, has done pretty poorly of late. We
6:08
Speaker 1: think as COVID normalizes, as the world gets back to normal,
6:12
Speaker 1: that stock easily is sixty company. You're buying it at
6:16
Speaker 1: a hundred twenty five today. All those companies that I
6:18
Speaker 1: mentioned are selling well below market multiple, so you're not
6:22
Speaker 1: paying twenty and twenty five times earnings for these good businesses.
6:25
Speaker 1: All right, David Um, great to get some time with you.
6:28
Speaker 1: Really appreciate your insight. Thanks very much. David Kax As
6:32
Speaker 1: the President and chief investment officer at Matrix Asset Advisers
6:36
Speaker 1: talking to us about the markets, the Fed, and inflation.
6:45
Speaker 1: Jeffrey Cleveland coming up now. We promised that we would
6:47
Speaker 1: talk about inflation again and he is the director and
6:52
Speaker 1: chief economist for Peyton and Right, Gal, Jeffrey, thank you
6:54
Speaker 1: so much for joining us. What is your expectation for
6:59
Speaker 1: next week given this elevated inflation number we have, I
7:02
Speaker 1: know it is in line with estimates, but it is
7:05
Speaker 1: still high. Yeah, it's the tricky it's a very tricky
7:09
Speaker 1: situation for the fom C. I think very high inflation,
7:13
Speaker 1: higher than you know, policy makers they expected for the year. Also,
7:17
Speaker 1: I have to issue a medical book much higher than
7:19
Speaker 1: I had anticipated for the year. So we were also
7:22
Speaker 1: wrong in our forecast. Um, But in recent months looks
7:25
Speaker 1: like the market you know, expected higher inflation, was set
7:28
Speaker 1: up for that. So perhaps that's why you see the
7:30
Speaker 1: rally today. The taff for the Fed though, which is
7:32
Speaker 1: your question? They you know, they've delivered very explicit guidance
7:37
Speaker 1: on when they might lift off, right they say maximum employment,
7:42
Speaker 1: so um, with inflation very very high. Question is are
7:46
Speaker 1: they going to relax or somehow alter how they define
7:51
Speaker 1: maximum employment to say that, you know, we are much
7:53
Speaker 1: closer to it with you know, quit rates very high,
7:56
Speaker 1: with job opening is very high, with the unemployment rate
7:58
Speaker 1: at four? Is that close enough to open the door
8:02
Speaker 1: for liftoff? Um. That's that's the thing that they have
8:06
Speaker 1: to wrestle with. It's the key thing in my mind. Um.
8:08
Speaker 1: I I still think we're not at full employment or
8:11
Speaker 1: close to maximum employment in my view, what given where
8:15
Speaker 1: inflation is, maybe they adjust that their their take. I mean,
8:17
Speaker 1: if we're not at maximum employment, how is it that
8:21
Speaker 1: we saw fewer jobless claims UM this week than any
8:25
Speaker 1: time since Richard Nixon was president? Yeah? I think it
8:30
Speaker 1: all depends on how you define maximum right, which they
8:33
Speaker 1: did not give us an explicit, uh no numerical definition.
8:37
Speaker 1: But for me, you know, I look at I look
8:38
Speaker 1: at that, and it's great. We have very few layoffs,
8:40
Speaker 1: so that's good news. We have a labor force participation,
8:44
Speaker 1: right though, Matt, that's sixty one eight. We were on
8:48
Speaker 1: labor force participation over sixty three UM pre COVID. So yeah,
8:53
Speaker 1: some of those people probably retired early, but not all
8:56
Speaker 1: of those folks. You know, when you look at that
8:57
Speaker 1: chart of labor force. What is your view, Jeffrey of
9:00
Speaker 1: the great resignation? Um, I've We've written a story about it.
9:06
Speaker 1: Every major media outlet has has tried to figure out
9:09
Speaker 1: what's going on here. So many people are telling me,
9:12
Speaker 1: you know what, the kids are just uh fed up.
9:16
Speaker 1: They're just not getting paid enough to keep up with
9:18
Speaker 1: rising prices and they just are quitting. Is that how
9:21
Speaker 1: you see it? Too? Well? Where do you see a
9:24
Speaker 1: lot of the quicks in the data? Okay, it's it
9:27
Speaker 1: tends to be in some of the lower wage industries,
9:30
Speaker 1: so things like food service, bars and restaurants. So that
9:34
Speaker 1: could be just a situation where there are some better
9:37
Speaker 1: wage options that um, you know different employers and people
9:40
Speaker 1: are making the jump, like to be something like that.
9:43
Speaker 1: We looked yesterday, you know at the job openings data.
9:46
Speaker 1: Where are all the job openings available that that people
9:48
Speaker 1: can jump to the biggest increase in job openings since
9:53
Speaker 1: COVID began. You've got you know the reason on hospitality,
9:57
Speaker 1: which is of course where we saw the most job losses.
9:59
Speaker 1: So if we are coming out of this pandemic, it's
10:01
Speaker 1: not that unusual to see those job openings rise, but
10:05
Speaker 1: then also matt, manufacturing, trade, warehouse, all those areas that
10:09
Speaker 1: are tied in very closely to meeting the demand for
10:13
Speaker 1: goods that we've seen. We've seen this huge surge from
10:16
Speaker 1: consumers in the last eighteen months in demand for goods,
10:19
Speaker 1: and there's there's been a lot of job openings and
10:21
Speaker 1: hiring in that area. To me, though, that's really pandemic,
10:25
Speaker 1: unique to the pandemic. Once consumer spending normalizes, people go
10:29
Speaker 1: back to spending more on services less on goods. I mean,
10:32
Speaker 1: how many how many home jims do you need? Matt,
10:35
Speaker 1: The spending patterns will change, and then maybe demanding those
10:39
Speaker 1: industries will change, job openings will come down, So it
10:42
Speaker 1: could be some noise in the quits data and also
10:45
Speaker 1: in the job opening to right. I'm really curious here
10:48
Speaker 1: about labor as well, because we did see that news
10:51
Speaker 1: coming out of Starbucks and the union vote, and I'm
10:54
Speaker 1: wondering if we're going to see more like this. Are
10:58
Speaker 1: we going to see more unionization, more strikes, more people
11:01
Speaker 1: that are asking for more um as this labor market changes. Yeah.
11:08
Speaker 1: I mean, one thing we've learned over the years is
11:10
Speaker 1: when when the labor market gets hotter, Right, when you
11:13
Speaker 1: get the unemployment rate falls below five down to four.
11:16
Speaker 1: We think the unemployment rate will get to three point
11:18
Speaker 1: five next year. That's great for labor. That is usually
11:22
Speaker 1: great for the broad swath labor market. Um, so it
11:26
Speaker 1: does tip the scales if you will more in in
11:29
Speaker 1: favor of labor over over capital, which which as an
11:33
Speaker 1: employee I won't complain about. It just dawned on me that,
11:38
Speaker 1: I mean, mindset matters, right, You're the kind of person,
11:40
Speaker 1: Jeffrey who doesn't quit. You don't ever give up, as
11:45
Speaker 1: is obvious by the fact that you swam across the
11:47
Speaker 1: English Channel, the Catalina Channel, and around the island of Manhattan.
11:51
Speaker 1: But I wonder if there's a generation of kids now
11:54
Speaker 1: that has just said I can't I have had enough,
11:57
Speaker 1: I can't keep up. Yeah, or know there's there are
12:01
Speaker 1: other options available. So I think one interesting data series
12:05
Speaker 1: worth taking a look at, you know, of late is
12:07
Speaker 1: new business applications. So one of the predictions I think
12:11
Speaker 1: pre COVID was that capital wouldn't be available and then businesses,
12:15
Speaker 1: you know, would really suffer. But we've seen sort of
12:17
Speaker 1: a flourishing in new business applications through the COVID period.
12:21
Speaker 1: And even after here, So it could be that the
12:25
Speaker 1: entrepreneurial spirit in the US is alive and well and
12:28
Speaker 1: instead of working for the firm, you know, people can
12:32
Speaker 1: branch out and start their own operations, So that that
12:34
Speaker 1: could be a positive spin on this whole development. It's
12:36
Speaker 1: not necessarily a bad thing. Also a great point, Jeffrey,
12:40
Speaker 1: I love having you on. Thanks so much for joining us.
12:42
Speaker 1: Jeff Cleveland there is the director and chief economist over
12:45
Speaker 1: at Paydon and Regal. Next up, we have Marianne Miller.
12:52
Speaker 1: She's the vice president of Client Experience, vice president over
12:55
Speaker 1: Approve and she has the latest on cyber secure already
13:00
Speaker 1: amid this holiday shopping season, as we know that a
13:04
Speaker 1: lot of it is being done online. Marianne, thank you
13:07
Speaker 1: so much for joining us. What are some of the
13:09
Speaker 1: issues that you're most concerned about the season, Yes, a
13:13
Speaker 1: great UM, thank you, and it's great to be here
13:15
Speaker 1: with you and your audience today. UM. This holiday season
13:19
Speaker 1: is proving to be challenging for retailers, and I predict
13:23
Speaker 1: that I'm going to go on record here on your show,
13:25
Speaker 1: it's going to be the toughest here in history for
13:28
Speaker 1: retail loss prevention. UM. The pandemic really moved consumers to
13:33
Speaker 1: online retailers. We see continued other factors that are kind
13:38
Speaker 1: of continuing this trend this year. As this year closes
13:41
Speaker 1: and we're moving into um many of the factors that
13:45
Speaker 1: contributed to fraud during the pandemic. Importantly, the challenge of
13:50
Speaker 1: digital identity proofing are affecting re killers as well. But
13:55
Speaker 1: we also have some top headline fraud issues as well.
13:59
Speaker 1: And I'll yeah, I actually just got an email. I'm
14:03
Speaker 1: trying to sell a car here, and it's got an
14:04
Speaker 1: email from a captain in the U. S. Military. He's
14:08
Speaker 1: serving in Syria right now. He and his buddies just
14:10
Speaker 1: found six point two million dollars that they decided to
14:14
Speaker 1: keep instead, and now they're going to put it in
14:16
Speaker 1: a red cross box and send it to me. In return,
14:19
Speaker 1: I get fifteen percent, and all I need to do
14:22
Speaker 1: is send them a copy of my I D and
14:24
Speaker 1: my bank account details. It seems like a great deal.
14:27
Speaker 1: I don't want to miss out on it. Is there
14:28
Speaker 1: anything I should be concerned about? Yes, there's definitely things
14:32
Speaker 1: you should be concerned about. And that definitely sounds like
14:35
Speaker 1: a scam, and we know I gotta tell you Marian,
14:38
Speaker 1: I've had two two people saying that they found millions
14:41
Speaker 1: of dollars in boxes and wanted to send it to
14:43
Speaker 1: me by a Red Cross. This isn't the new like
14:45
Speaker 1: African Prince scam. I think, right, well, you know, when
14:49
Speaker 1: it's too good to be true, it's too good to
14:51
Speaker 1: be true. And and you know, if you look at
14:53
Speaker 1: some of the challenges that you see out there for
14:55
Speaker 1: consumers as well as retailers UM and you know a
14:58
Speaker 1: couple of things that we really want to focus on
15:01
Speaker 1: is UM. You know, the supply chain shortages are going
15:03
Speaker 1: to make fraud more prevalent. So fraudsters like to take
15:07
Speaker 1: advantage of you know, panicked online buying and setting up
15:11
Speaker 1: bake fishing sites to collect customers personal information and credit
15:16
Speaker 1: and debit card information. So just like you're experiencing Matt,
15:19
Speaker 1: there's just these you know, constant fishing attacks and these
15:23
Speaker 1: attacks of scamming are are are bringing consumers into the
15:26
Speaker 1: into the mix. And second, UM, the retailers have always
15:30
Speaker 1: had an element of shoplifting increased during the holiday, but recently,
15:35
Speaker 1: you know, the highly publicized sharp spikes and organized retail
15:38
Speaker 1: depth is putting stress on businesses. So this is increasing
15:42
Speaker 1: the cost of physical security insurance and and moves more
15:46
Speaker 1: shopping online and as retailers UM, you know, move more
15:50
Speaker 1: things off the shelves and in certain locations and move
15:53
Speaker 1: things online. And that's when we start to see the scams,
15:55
Speaker 1: Like you're starting to see an experience so and some
15:59
Speaker 1: so these UM law Enforcement task force have been set up,
16:02
Speaker 1: just a set up and retaining these activities. You know, Mary,
16:06
Speaker 1: unless look a couple of years into the future here
16:07
Speaker 1: real quick, because I'm wondering, if crypto continues to take off,
16:12
Speaker 1: does that make cybercrime easier or harder? Because in theory, yeah,
16:19
Speaker 1: I mean you know, how does that really end up
16:21
Speaker 1: playing out? Well, you know, any time that there's something
16:25
Speaker 1: and you know, in the fraud community, we always look
16:28
Speaker 1: at any time there's something new UM and and fraudsters
16:32
Speaker 1: love that. Actors love a new product or something new,
16:35
Speaker 1: and they're definitely taking advantage of the crypto environment and
16:40
Speaker 1: you know, the the crypto exchanges and we know that
16:43
Speaker 1: UM there's a lot of focus on getting new signals
16:47
Speaker 1: in those environments to make them safer. UM like device
16:51
Speaker 1: intelligence and phone identity signals, biometrics, machine learning, all of
16:56
Speaker 1: that's really important, you know, to make you known environment
16:59
Speaker 1: where it's better lost controls. Marianne, thank you so much
17:03
Speaker 1: for joining us on this. It's going to be a
17:04
Speaker 1: scary holiday season in some regards. This is the Big Take,
17:11
Speaker 1: the best of Bloomberg's in depth, original reporting from around
17:15
Speaker 1: the globe. We're running on a financial system that's running
17:17
Speaker 1: on old technology. We're seeing prices reach fresh recordized. What
17:22
Speaker 1: unfolds in mid terms, we will no doubt see again
17:25
Speaker 1: in the next presidential election. The Big Take on Bloomberg Radio.
17:31
Speaker 1: All right, let's get to our Big Take story of
17:33
Speaker 1: the day. Paul and I love these stories, but I'm
17:36
Speaker 1: sure Sheinali does as well. They are deeply reported long
17:41
Speaker 1: reads that we have for you on the Bloomberg terminal,
17:44
Speaker 1: but are also available often in Bloomberg Business Week. Today.
17:48
Speaker 1: Cam Simpson joins us. He wrote a story about well,
17:50
Speaker 1: the title is the E. S. G Mirage, and it's
17:53
Speaker 1: about M S C. I can you say it's a
17:55
Speaker 1: bland Wall Street company, But I have always uh loved
18:00
Speaker 1: MSDU because they helped me um so easily sort through
18:03
Speaker 1: a number of different verticals in the market. Of course,
18:07
Speaker 1: I've been reporting on markets for twenty years. I've been
18:09
Speaker 1: using it for a long time. What's the link between
18:12
Speaker 1: this company and E s G. Yeah, that's that's right. Thanks,
18:16
Speaker 1: it's you know, but this is kind of like a
18:19
Speaker 1: back office function on Wall Street that nobody it's not
18:21
Speaker 1: like a really terribly sexy stock That's what we've and
18:25
Speaker 1: then the CEO of the company rebranded it around their
18:29
Speaker 1: E s G business. They aren't by far the dominant
18:34
Speaker 1: ratings provided for E s G investing, which as you know,
18:38
Speaker 1: has become a multi trillion dollar excuse me business and
18:44
Speaker 1: the and the fastest growing segment of the global financial
18:47
Speaker 1: services industry in just the past few years. And these
18:50
Speaker 1: guys in terms of retail funds that people are able
18:53
Speaker 1: to invest in their ratings probably or underneath at least
19:00
Speaker 1: and the money and retail funds. I mean, it's not
19:01
Speaker 1: even close between them and their next competitor. They just
19:06
Speaker 1: completely dominate the space. So he rebranded the company in
19:09
Speaker 1: two thousand nineteen, at the beginning of two nineteen when
19:11
Speaker 1: he saw this taking off under you know, a new motto,
19:15
Speaker 1: which was either better investments for a better world are
19:18
Speaker 1: better portfolios for a better world? Really trying to hammer
19:21
Speaker 1: on this idea that investing in the SG funds is
19:25
Speaker 1: going to help save the planet from climate change. And
19:29
Speaker 1: you know, this really took off when you know, it
19:34
Speaker 1: was marketed around the social justice movement and that was
19:38
Speaker 1: happening in America on the streets and also the pandemic
19:42
Speaker 1: and dire warnings about the climate crisis, and so uh,
19:46
Speaker 1: they're they're really MSCI is at the foundation of this
19:50
Speaker 1: whole boom in in in sustainable funds in America through
19:56
Speaker 1: and globally through through their ratings. Yeam, it's so interesting.
19:59
Speaker 1: And you know one fact, m sc I used to
20:01
Speaker 1: be a part of Morgan Stanley back in the day.
20:03
Speaker 1: They have gotten a lot of heat from fund managers
20:06
Speaker 1: for not doing more. What is the issue at play
20:11
Speaker 1: here between M s c I and it's E s
20:14
Speaker 1: G push or you know the lack thereof in summers regards. Well,
20:20
Speaker 1: I think I think you know the issue is that
20:21
Speaker 1: that E s G is pretty much exactly the opposite
20:26
Speaker 1: of what Wall Street marketing has led people to believe
20:28
Speaker 1: that it is right. So E s G ratings, M
20:31
Speaker 1: s c I, G s G ratings are particular, They're
20:32
Speaker 1: all different, they're all different brands of magic and they're
20:36
Speaker 1: not regulated, and they all every s g rader produces
20:39
Speaker 1: completely different results on like a credit rating. You know,
20:43
Speaker 1: m SCI uses the credit rating standards of triple A, a
20:46
Speaker 1: a trouble bb junk, the stuff that Wall Street knows
20:49
Speaker 1: and recognizes the only ones to keep that and they
20:51
Speaker 1: get in order of credibility from that um that that
20:55
Speaker 1: nobody else gets. But instead they're looking at is not
20:59
Speaker 1: like what it's going to make a better world. The
21:01
Speaker 1: lens that they're looking at specifically is what matters to
21:04
Speaker 1: the bottom line. It's not the impact of the company
21:06
Speaker 1: on the world, it's the impact of the world on
21:09
Speaker 1: the company. So when you look at climate change, you
21:12
Speaker 1: could be a massive producer of greenhouse gases, and unless
21:15
Speaker 1: you're in a business that's going to be regulated for
21:18
Speaker 1: greenhouse gases, which is pretty much just the utility industry,
21:21
Speaker 1: these won't even really impact your your bottom line in
21:25
Speaker 1: any in any near kind of way, and so they're
21:27
Speaker 1: not even considered your rating. McDonald's had greenhouse gas emissions
21:32
Speaker 1: equal to Portugal or Hungary and its supply chain, which
21:35
Speaker 1: is where most of that comes from, because it's one
21:37
Speaker 1: of the biggest beef purchasers in the world, and it
21:41
Speaker 1: weighs zero percent in in M s c I E
21:44
Speaker 1: s G rating of them, they got into s G rating.
21:46
Speaker 1: They're going in the s G upgrade when there are
21:48
Speaker 1: emissions going up significantly and and M s c I
21:53
Speaker 1: recalculated its environment scored to remove emissions completely. So what
21:57
Speaker 1: we did was we went through like all the upgrades
21:59
Speaker 1: in the S and P during this heery period of
22:02
Speaker 1: record growth for sustainable industy, and we looked at what
22:05
Speaker 1: was actually underneathy upgrades. We both bespoke database to really
22:10
Speaker 1: get under the hood of these ratings and see what
22:12
Speaker 1: they were. And we were pretty surprised. I mean, we
22:14
Speaker 1: didn't know this was a pure exercise like where is
22:18
Speaker 1: it actually coming from, what does it actually mean? So
22:20
Speaker 1: to discover that it was kind of the opposite of
22:23
Speaker 1: what was being what investors are being pitched on, what
22:27
Speaker 1: the world is being pitched on, it was really, really,
22:30
Speaker 1: really surprising to us, and hopefully we were able to
22:34
Speaker 1: show that in a way that is meaningful for people.
22:37
Speaker 1: And the interesting thing cam is when we talked to
22:39
Speaker 1: E s G investors, they say, you can't separate E
22:42
Speaker 1: s G from the bottom line because things like, um,
22:45
Speaker 1: you know, the diversity that you have in terms of
22:48
Speaker 1: management effect how well you do financially. If you have
22:52
Speaker 1: a more diverse board, you're likely to sell your stuff
22:55
Speaker 1: to a more diverse and a bigger group of people.
22:59
Speaker 1: I guess what you're saying is that it's not always
23:01
Speaker 1: the case that E s G leads to a better
23:03
Speaker 1: bottom line. No. I think that the problem is the
23:08
Speaker 1: problem is the way that E s G is marketed,
23:10
Speaker 1: especially to ordinary retail investors, the idea that you're doing
23:13
Speaker 1: something to make the world better, right like climate change.
23:17
Speaker 1: I think especially for millennials who have really been driving
23:20
Speaker 1: this boom, you know, that's what matters to them the most,
23:24
Speaker 1: and the biggest chasm between the marketing of E s
23:26
Speaker 1: G and what the ratings actually represent change. We have
23:32
Speaker 1: to leave it there, but we'll Devin be following this more.
23:35
Speaker 1: Thank you so much. That's Camp Simpson, who's part of
23:37
Speaker 1: the big take of the day regarding the E s
23:39
Speaker 1: G mirage. Thanks for listening to the Bloomberg Markets podcast.
23:45
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
23:49
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
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Speaker 1: on Twitter at Matt Miller three pt on fal Sweeney.
23:57
Speaker 1: I'm on Twitter at pt sweeney before the podcast. You
23:59
Speaker 1: can always catch us worldwide at Bloomberg Gradient