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Corporate Chieftains Should Talk Less, Pay More: Kaissar · Bloomberg Intelligence

• 0:01
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
• 0:04
  Speaker 1: with my co host of Bonnie Quinn. Every business day
• 0:06
  Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
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  Speaker 1: along with essential market moving news. Find the Bloomberg Markets
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  Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,
• 0:17
  Speaker 1: and on Bloomberg dot com. It is time for Bloomberg
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  Speaker 1: Opinion Today. We're joined by Near Cassar, columns for Bloomberg Opinion,
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  Speaker 1: founder also of Union adviser's asset management firm. Uh. He's
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  Speaker 1: on the phone from Washington, d C. Near, Thanks so
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  Speaker 1: much for joining us here. You and your colleague Tim
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  Speaker 1: O'Brien from Bloomberg Opinion out with a really interesting column
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  Speaker 1: here talking about the pay disparity within corporate America. It
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  Speaker 1: seems like CEOs are having uh seeing you know, rising
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  Speaker 1: incomes year after year after year in terms of their
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  Speaker 1: total compensation, but reck and find employees not so much.
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  Speaker 1: What'd you find right, Well, I think I think CEOs
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  Speaker 1: um have a real problem on their hands because you
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  Speaker 1: know what or what we're finding out from the data
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  Speaker 1: is that we have millions, millions of workers in America
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  Speaker 1: that are just not making a living wage. You know,
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  Speaker 1: there are a number of reliable living wage calculators UM
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  Speaker 1: that are there, available to anyone with internet connection, and
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  Speaker 1: they all basically say the same thing, which is, in
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  Speaker 1: the cheapest places in America, a family requires about sixty
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  Speaker 1: to seventy thousand dollars a year to just pay for
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  Speaker 1: basic necessities, and probably double that in expensive places like
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  Speaker 1: San Francisco and New York. And yet millions of workers
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  Speaker 1: are making a fraction of that. So people are getting up,
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  Speaker 1: going to going to work, uh, and just not able
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  Speaker 1: to afford the basic necessities of life. And it just
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  Speaker 1: seems to me that that's just inherently sustainable situation and UM,
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  Speaker 1: and I think it's something that that corporate chief should
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  Speaker 1: be more concerned about. Yeah, even in normal times near it.
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  Speaker 1: It seems like that's something that would be obviously something
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  Speaker 1: they should be caring about, but clearly they don't. Can
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  Speaker 1: you tell us some metrics and why it should be
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  Speaker 1: very obvious to leaders at the business round table that
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  Speaker 1: it's not good enough for the richest country in the world. Yeah, Well,
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  Speaker 1: I mean, you know, there are there are a number
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  Speaker 1: of um, there are a number of metrics that we
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  Speaker 1: can point to UM. A lot of it comes from
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  Speaker 1: a few years ago. UH the SEC in the US
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  Speaker 1: basically past the regulation that required companies to disclose UM
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  Speaker 1: their their pay ratio, in other words, the pay of
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  Speaker 1: their CEO relative to their workers. And this created a
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  Speaker 1: trope of data around what what the median worker is
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  Speaker 1: actually making it many of these public companies, and what
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  Speaker 1: we're finding is, you know, the depending on you know who,
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  Speaker 1: which companies you put in the category, the media numbers
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  Speaker 1: can be anywhere between you know, twenty thousand dollars a
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  Speaker 1: year on the low end of forty thousand dollars a
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  Speaker 1: year on the high end, But there's somewhere in that range.
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  Speaker 1: The median pay for full time workers, for example, on
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  Speaker 1: Amazon is roughly thirty six thousand. At Walmart, which also
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  Speaker 1: includes part time workers, is roughly twenty two thousand. So
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  Speaker 1: you know, in in many of these cases, what you're
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  Speaker 1: seeing is the salary are are wholly inadequate to what
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  Speaker 1: actual Americans actually need to put food on the table.
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  Speaker 1: So near worst, you know, where's organized labor in all
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  Speaker 1: of this, I mean, this has been an issue we've
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  Speaker 1: seen you know, employee UH incomes, earnings take home earnings
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  Speaker 1: kind of flat to declining on a real basis for decades.
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  Speaker 1: Here is this reflective of the decline of unions in America?
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  Speaker 1: You know, that's a good question because a lot of
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  Speaker 1: people want to know why this is happening, and the
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  Speaker 1: truth is, we don't really know. We don't know exactly why.
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  Speaker 1: There are some popular theories, all of which have some merits.
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  Speaker 1: One is the weakening of labor unions. That's clearly something
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  Speaker 1: that's driving this. Some people point to lower productivity growth
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  Speaker 1: in the US over the decades and that that is
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  Speaker 1: keeping wages down. Some people point to shareholder primacy, the
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  Speaker 1: idea that companies should really exist for the benefit of
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  Speaker 1: shareholders and not necessarily their customers, employee suppliers and the like.
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  Speaker 1: And the last one is automation. A lot of some
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  Speaker 1: people are pointing to audition and saying, you know, there's
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  Speaker 1: been a bifurcation of jobs. High skilled jobs are getting
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  Speaker 1: higher wages. Low skilled jobs are just falling off a
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  Speaker 1: cliff in terms of wages, and that that's driving this.
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  Speaker 1: But you know, one thing that I would note is
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  Speaker 1: I don't know that the why really matters so much
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  Speaker 1: as the identifying the problem and finding a way to
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  Speaker 1: fix it, because ultimately it's hard to imagine a scenario
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  Speaker 1: where healthy economy can sustain itself. Like I said, when
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  Speaker 1: you have millions of people who aren't just not making
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  Speaker 1: a living, so obviously, you know, you would hope near
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  Speaker 1: that the round table will read this opinion beast by
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  Speaker 1: yourself and Timothy O'Brien. But if they were too busy,
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  Speaker 1: let's say, or if they said they were too busy,
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  Speaker 1: and you had to distill it into a point or
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  Speaker 1: two for them, what would that be. Well, you know,
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  Speaker 1: I would say to them that that many of the
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  Speaker 1: things that they're worried about, and they if you appear
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  Speaker 1: to be worried about a host of social and political issues,
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  Speaker 1: what I would say to them is a lot of
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  Speaker 1: those issues are informed, are set, and in some cases
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  Speaker 1: triggered by the fact that you have so many people
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  Speaker 1: in this country that aren't making a living, and that
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  Speaker 1: you know they are sitting on record profitability. It's not
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  Speaker 1: as if they can't afford to raise wages, and that
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  Speaker 1: that would be a good investment not only in their
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  Speaker 1: own workers, but also in the health of the country.
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  Speaker 1: Um and in many and indeed in many of the
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  Speaker 1: issues that they care about. This is something they can
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  Speaker 1: do something about. This isn't almost entirely within their control.
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  Speaker 1: It would have enormous positive knock on effects. And uh,
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  Speaker 1: and it's a good place for them to start, is
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  Speaker 1: what I would say. Well, near on the other side
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  Speaker 1: of the equation is CEO pay And we've heard about
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  Speaker 1: this for years about CEO pay is just you know, going, uh,
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  Speaker 1: it's just out of control. Is there any way to
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  Speaker 1: get a rain on that? Or is it just not
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  Speaker 1: really that much? You know, I guess political will for that.
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  Speaker 1: You know, it's it's sort of it's an interesting question,
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  Speaker 1: and it's sort of strange because, um, you know, on
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  Speaker 1: the one hand, it's not a good look for ceo
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  Speaker 1: s to make you know, in some cases a thousand
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  Speaker 1: times with their median worker makes you know, in any
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  Speaker 1: the averages are roughly two to three two three four
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  Speaker 1: under time, um, but in some cases there are more
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  Speaker 1: than that. On the other hand, that alone is not
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  Speaker 1: going to fix the problem because if you just take
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  Speaker 1: the CEO pay and distributed it to all the workers
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  Speaker 1: in the company, it's probably not going to bring them
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  Speaker 1: up to a living wage. So, you know, I would
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  Speaker 1: say I would say that we first have to start
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  Speaker 1: with a substantive problem, which is, I think companies have
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  Speaker 1: to say, we're gonna use some of our profits. We
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  Speaker 1: invest in many things as company, we should invest in
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  Speaker 1: our workers. We have the profits to do it, and
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  Speaker 1: we should do it. But I think also CEO should
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  Speaker 1: think about the optics of what they're um. Their paycheck
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  Speaker 1: looks like in you know, in the tens of millions
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  Speaker 1: of dollars relative to what their workers make, and I think,
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  Speaker 1: just as a matter of good let's just call it
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  Speaker 1: public relations, I think that they ought to be more
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  Speaker 1: careful about having a pay ratio that is a little
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  Speaker 1: bit more reasonable. It used to be a lot lower
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  Speaker 1: in the nineteen fifties and nineteen sixties, and it's just
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  Speaker 1: skyrocket in the interweeding decade near Do you see inequality
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  Speaker 1: changing in any way in terms of you know, percentages
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  Speaker 1: and so on in the coming years, And if not,
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  Speaker 1: when is breaking point? Well, you know, I'm worry that
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  Speaker 1: we're seeing breaking point now. And you know, if I
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  Speaker 1: might say this, this I think is really this should
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  Speaker 1: really come to everyone's attention. Based on these conversations that
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  Speaker 1: policymakers about are having about bailout. We're having these conversations
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  Speaker 1: about whether you know workers are getting the the the
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  Speaker 1: relief uh that that Congress is putting together is so
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  Speaker 1: much that it's disincentivizing people to work. And what that
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  Speaker 1: really should be telling people is that the relase is
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  Speaker 1: meant to put food on the table while COVID is
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  Speaker 1: going on UM and if that number is higher than
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  Speaker 1: what people are making on their job, then we have
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  Speaker 1: a fundamental problem. And and I and that coupled with
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  Speaker 1: a lot of the protests that you're seeing, like I said,
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  Speaker 1: many of them fed by UM, by these low wages,
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  Speaker 1: and in some cases instigated by the low wages, I
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  Speaker 1: think that should be a signal to us that we
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  Speaker 1: are pretty close and that we should do something about
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  Speaker 1: this before before you know, the fire gets higher. Yeah. Near,
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  Speaker 1: It's a point well taken and spoken about often these days.
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  Speaker 1: Near Casar and Timothy O'Brien have written a wonderful Bloomberg
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  Speaker 1: opinion piece today. It's called Corporate Chieftains Can Talk Less,
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  Speaker 1: pay More. Sure those a lot of people, especially in
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  Speaker 1: the work of ranks, that would hardly agree without even
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  Speaker 1: reading it, But I do urge everybody to read it.
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  Speaker 1: Our thanks to Near Casar of Bloomberg Opinion. Fascinating story
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  Speaker 1: I found on the terminal this morning, UH, with the
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  Speaker 1: headline busted retailers used bankruptcy to break leases by the thousands.
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  Speaker 1: The authors with us right now. Cat Doherty, high yield,
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  Speaker 1: distressed debt and bankruptcy reporter for Bloomberg News. Cat, thanks
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  Speaker 1: so much for joining us here. You know, I'm in
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  Speaker 1: the city today as first, one of the first times
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  Speaker 1: I've been here since March, and I'm just shocked by
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  Speaker 1: the number of empty stores and stores for rent where
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  Speaker 1: I know back in March, the last time I was here,
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  Speaker 1: they were thriving retailers there, at least I thought they
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  Speaker 1: were thriving. But your story is just amazing. They're using
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  Speaker 1: bankruptcy in certain cases to break the leases. Tell us
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  Speaker 1: about that. Yeah, that's right, um. And a lot of
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  Speaker 1: these retailers that have filed, we should note that they
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  Speaker 1: were experiencing troubles even before the pandemic. Um, So companies
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  Speaker 1: like Jay Crew, Neiman Marcus, they were already on a
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  Speaker 1: lot of investors watch list, Um, But the pandemic was
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  Speaker 1: really the point that pushed them towards the bankruptcy court
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  Speaker 1: and they've used the bankruptcy court and all of the
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  Speaker 1: the laws and the negotiation power that they have with
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  Speaker 1: the judges permission to get out of these leases. UM.
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  Speaker 1: But we've seen major retailers UM at least twenty five
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  Speaker 1: of note UM, including Men's Warehouse, UM, the parent tailored
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  Speaker 1: brands which filed recently UM, and also J. C. Penny.
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  Speaker 1: So what we're seeing is these companies that were experiencing
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  Speaker 1: financial strains UM and also seen their brick and mortar
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  Speaker 1: stores UH Clothes UM and and trying to figure out
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  Speaker 1: how to get out of these leases. So bankruptcy basically
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  Speaker 1: gives them a quicker option UM, and it allows them
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  Speaker 1: to cut these leases or renegotiate with their landlords if
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  Speaker 1: they're able to get a lower rent. It seems like
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  Speaker 1: everything about this pandemic has been set up for creditors benefits,
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  Speaker 1: because if you look at these retailers, they were they
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  Speaker 1: were headed for the exits, right they were. I mean
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  Speaker 1: it was it was going to be a difficult, protracted,
• 10:39
  Speaker 1: you know, maybe effort, but many of them are going
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  Speaker 1: to go away under this scenario. Some of them have
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  Speaker 1: even got P P P loans in order to help
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  Speaker 1: them through the bankruptcy process, and their creditors also don't
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  Speaker 1: end up with the you know, the rest of the
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  Speaker 1: lease to pay up or whatever that that would add
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  Speaker 1: to the discussions or the negotiations. Am I reading that right?
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  Speaker 1: So it really depends on the situation UM. These A
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  Speaker 1: lot of the main retailers UM that we've been focused
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  Speaker 1: on did not actually receive PPP loans UM. Some of
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  Speaker 1: the smaller ones have. But UM as you as you note,
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  Speaker 1: these retailers were already kind of UM on a on
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  Speaker 1: a fine line UM and and could have filed for
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  Speaker 1: bankruptcy even without the pandemic. Uh So, the the closures
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  Speaker 1: UM that are tied to these bankruptcy is a lot
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  Speaker 1: of it is because we're just seeing less folks shopping
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  Speaker 1: in store, and that was happening even before you had
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  Speaker 1: UM stay at home orders. So now that companies have
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  Speaker 1: filed a big part of their plans for reorganizing is
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  Speaker 1: which stores UM can we close down, which leases can
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  Speaker 1: we get out of? And on the note of what
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  Speaker 1: the creditors are getting, a lot of them are becoming
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  Speaker 1: the owners of these companies. A lot of them are
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  Speaker 1: able to negotiate so that they can get an equity
• 12:05
  Speaker 1: stake where they will eventually take over and can in
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  Speaker 1: some cases also UH dictate who in management is staying,
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  Speaker 1: who in management leave is leaving. Uh. They basically get
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  Speaker 1: a larger seat at the table. So kind we got
• 12:23
  Speaker 1: about thirty seconds here. It seems like the landlords are
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  Speaker 1: holding the bag here. What's their recourse? It's a it's
• 12:30
  Speaker 1: a good question. Often they don't have as big of
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  Speaker 1: a recourse or or any recourse in bankruptcy. UM. But
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  Speaker 1: I've also seen situations where retailers will go to their
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  Speaker 1: landlords and say, hey, look, we need to renegotiate. If
• 12:44
  Speaker 1: we can't get a lower rent, or if we can't
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  Speaker 1: get out of these costly leases, we're going to be
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  Speaker 1: forced to file, or we're going to choose to file.
• 12:52
  Speaker 1: So it's up to you what you want to do
• 12:54
  Speaker 1: with that information. That is a strategy that I think
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  Speaker 1: will will continue, um, even when the stores start to reopen.
• 13:02
  Speaker 1: There's a bit of a test case in the course
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  Speaker 1: as well. Isn't there a pull between Starbucks and some
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  Speaker 1: other retailers, And I think it's yet to be decided.
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  Speaker 1: He really is going to be left holding the bat
• 13:14
  Speaker 1: absolutely all right, Katherine, Thank you Katherine Dougherty covers all
• 13:17
  Speaker 1: things really credit related, bankruptcy related, retail related these days,
• 13:23
  Speaker 1: all the fun stuff, and boy has she been busy.
• 13:26
  Speaker 1: Katherine Dougherty with a K on your Bloomberg or at
• 13:29
  Speaker 1: Bloomberg dot com. Paul, you know, there's going to be many,
• 13:32
  Speaker 1: many years of stories that will emerge from this pandemic.
• 13:35
  Speaker 1: It's going to be a bit like the financial crisis,
• 13:36
  Speaker 1: where in you know, five years later, you're still discovering things. Yeah,
• 13:40
  Speaker 1: I think the economic impact here, what we're hearing from
• 13:42
  Speaker 1: a lot of economists, it's it's certainly not a v
• 13:44
  Speaker 1: and it's going to be a very long recovery here
• 13:47
  Speaker 1: on the back end of this. Yeah, we should suggest
• 13:50
  Speaker 1: not just financially, but also personally as well. The toll
• 13:53
  Speaker 1: will be a long time coming. Well, as we know now,
• 13:58
  Speaker 1: ammonium nitrate equivalent to eight hundred tons of T and
• 14:02
  Speaker 1: T was unloaded from a cargo ship back in two
• 14:04
  Speaker 1: thousand and fourteen out of port just on the side
• 14:09
  Speaker 1: of Lebanon. The major city in Lebanon now in devastation,
• 14:15
  Speaker 1: and we want to bring in I'm in camel to
• 14:18
  Speaker 1: talk to us a little bit about what happens next.
• 14:20
  Speaker 1: Obviously you know deaths and injuries and serious loads on
• 14:26
  Speaker 1: the emergency departments in the entire country. But I'm in now.
• 14:30
  Speaker 1: We have the French president, you know, on his way
• 14:32
  Speaker 1: to Beirute, and it's just really interesting because is he
• 14:36
  Speaker 1: welcome there? I think so. I think it's a humanitarian
• 14:42
  Speaker 1: catastrophy that the world hasn't seen for very for for
• 14:47
  Speaker 1: many years, and it's I think for the Lebanese people,
• 14:51
  Speaker 1: it's good to see that France is interested in supporting
• 14:54
  Speaker 1: the people. I think to visit UH is symbolic in
• 14:58
  Speaker 1: many ways, but the destruction, I think anyone that has
• 15:02
  Speaker 1: seen the picture, I think across the world will will
• 15:06
  Speaker 1: feel some level of sympathy here, even though there are
• 15:10
  Speaker 1: many incompetent government officials that have basically been the reason
• 15:15
  Speaker 1: why we have this crisis in the first place. Just clarify, though,
• 15:20
  Speaker 1: what is the point in the former colonists visiting Lebanon
• 15:25
  Speaker 1: if it's not to come with aid and even unconditional
• 15:28
  Speaker 1: aid about no, I think I would divide it up
• 15:32
  Speaker 1: into two. I think the human human here and aid
• 15:35
  Speaker 1: is coming, that that will happen, that is happening for
• 15:38
  Speaker 1: many nations in the international community at large, regional countries
• 15:43
  Speaker 1: as well. Everyone is supporting that aid effort. But I
• 15:47
  Speaker 1: think here France is willing to do its part in
• 15:50
  Speaker 1: terms of eight but it will be conditional of on
• 15:53
  Speaker 1: the Lebanese government doing reforms. That is really when we're
• 15:57
  Speaker 1: talking about a non humanitarian aid, financial support, long term support,
• 16:03
  Speaker 1: and I think each country will have to decide up
• 16:05
  Speaker 1: decide on its own what what what its policy will be.
• 16:09
  Speaker 1: Diams has its own view of Francis or has its
• 16:11
  Speaker 1: own view in many Arab countries have their own requirements.
• 16:15
  Speaker 1: But the key thing is that there is a consensus
• 16:20
  Speaker 1: within the international community that they do not want to
• 16:24
  Speaker 1: see any form of financial support over the long term
• 16:30
  Speaker 1: go into corruption, into corrupt network. They would like to
• 16:33
  Speaker 1: see some of this money end up in really use
• 16:36
  Speaker 1: constructing the reconstructing actually at this stage the Lebanese economy.
• 16:41
  Speaker 1: So I um, I've just over the last couple of days,
• 16:43
  Speaker 1: like many people, I've read a lot of social media
• 16:45
  Speaker 1: posts from Lebanese folks in Beirut and it's just the
• 16:49
  Speaker 1: rage they feel towards the corruption of the government is
• 16:54
  Speaker 1: just palatable. Is this an agent of change for in
• 16:58
  Speaker 1: the political structure of Lebanandi thing. Well, I think anger
• 17:03
  Speaker 1: is very legitimate the station most people are angry. I
• 17:06
  Speaker 1: think it is different this time. It will create the
• 17:10
  Speaker 1: seeds of some change in the political system. But really
• 17:13
  Speaker 1: the country in essence is still divided. Here. It is
• 17:17
  Speaker 1: divided amongst different religious groups. And although there is anger,
• 17:21
  Speaker 1: at the end, what really happens is each sectarian leader
• 17:26
  Speaker 1: blames another one from a different religious group and we
• 17:30
  Speaker 1: get into it an endless cycle of of blame. Really
• 17:34
  Speaker 1: not not a constructive approach. Real change in lebon And
• 17:39
  Speaker 1: I think we'll have to come through a new process
• 17:41
  Speaker 1: elections or or some real change in in in government,
• 17:46
  Speaker 1: something in much more institutional The real opportunity will not
• 17:50
  Speaker 1: be will not happen now. I think it will have
• 17:52
  Speaker 1: to be a new team of parliamentarians that are able
• 17:56
  Speaker 1: to equities, new voices in the Lebanese community. But society
• 18:00
  Speaker 1: at large, I think even today is very divided. I
• 18:04
  Speaker 1: am who is Lebanon aligned with in the so called
• 18:07
  Speaker 1: Middle East these days? And and and and for real,
• 18:10
  Speaker 1: I mean obviously there are so many you know, different
• 18:14
  Speaker 1: coalitions within you know government and in the country. But
• 18:17
  Speaker 1: in the main who is Lebanon alined with well, I
• 18:21
  Speaker 1: think that's part of the problem. Lebanon isn't aligned with
• 18:24
  Speaker 1: anyone is aligned. There are parties in Lebanon that are
• 18:27
  Speaker 1: aligned with different countries in the Middle East, so the
• 18:30
  Speaker 1: state in many respects is not independent. Soon these are
• 18:34
  Speaker 1: allied with Saudi Arabia, she has are allied with. You
• 18:37
  Speaker 1: want some Christians allied with France, and of course that's
• 18:41
  Speaker 1: that's to a certain extent and oversimplification of the reality.
• 18:45
  Speaker 1: But Lebanon as a state does not have a firm
• 18:49
  Speaker 1: policy of who it is allied with. The major problem
• 18:54
  Speaker 1: in the last few years has been that his Bollah
• 18:58
  Speaker 1: Lebanese Shia group has been indirectly involved in conflict in
• 19:03
  Speaker 1: many Middle Eastern countries. That has made Arab aids to Lebanon,
• 19:08
  Speaker 1: which which was always forthcoming, much more difficult. Uh. That's
• 19:13
  Speaker 1: part of the problem that we see today. Unless Lebanon
• 19:16
  Speaker 1: or his Balla becomes in some way more constrained, very
• 19:21
  Speaker 1: difficult to see international polities and regional towers as well
• 19:26
  Speaker 1: give robust support over the long term. I thank you
• 19:29
  Speaker 1: so much for that. We appreciate your perspective and your
• 19:32
  Speaker 1: experience on that very dangerous and unsettled part of the
• 19:35
  Speaker 1: war world, which is obviously still reeling from that explosion.
• 19:38
  Speaker 1: I have Kamal Practice head Middle East and North Africa
• 19:41
  Speaker 1: for the Eurasia Group, giving us his perspective there and Van.
• 19:45
  Speaker 1: You know, having read a lot just over the last
• 19:47
  Speaker 1: couple of days about this explosion, you just get that
• 19:51
  Speaker 1: background information about how difficult things are in that country
• 19:54
  Speaker 1: even before this catastrophe and this it's just, as I
• 19:58
  Speaker 1: am suggested, very fool to see some change there. It's
• 20:01
  Speaker 1: just heartbreaking. I mean, we don't concentrate on that part
• 20:04
  Speaker 1: of the world enough. But the financial impact of this,
• 20:07
  Speaker 1: beyond the devastation that Lebanon was already feeling economic and financially,
• 20:11
  Speaker 1: is just going to be decades in the undoing. Yeah,
• 20:14
  Speaker 1: absolutely so, we'll certainly fall up on this important story.
• 20:18
  Speaker 1: But discussion we've had pretty often over the last several
• 20:22
  Speaker 1: months is why is the stock market going up when
• 20:25
  Speaker 1: the economy is in such peril? And Barry rid Holtz
• 20:29
  Speaker 1: had a great column on this and it really opened
• 20:31
  Speaker 1: my eyes to a lot of the math behind that.
• 20:33
  Speaker 1: Barry Ridholts Bloomberg opinion columnists and host of Masters in
• 20:36
  Speaker 1: Business on Bloomberg Radio, also chairman and chief investment officer
• 20:41
  Speaker 1: of Ridholtz Wealth Management, Barry, your column was fascinating. Give
• 20:44
  Speaker 1: us kind of your key takeaways here As we try
• 20:46
  Speaker 1: to reconcile a strong risk on risky asset markets, including
• 20:52
  Speaker 1: the stock market, and an economy that's anything but sure,
• 20:56
  Speaker 1: this is the one single question that bubbles up from
• 21:00
  Speaker 1: clients more than anything else. We don't understand the economy
• 21:04
  Speaker 1: is so terrible, how is the stock market continuing to
• 21:08
  Speaker 1: go up? So based on that constant question, we had
• 21:11
  Speaker 1: to come up with a good answer. And so first
• 21:14
  Speaker 1: place you go to is dive into the data, and
• 21:18
  Speaker 1: the data is pretty compelling. Some of the worst sectors
• 21:22
  Speaker 1: in the economy turn out to be really tiny as
• 21:26
  Speaker 1: a component of major indices like the SMP five hundred
• 21:30
  Speaker 1: or the NASDAQ one hundred. I'll give you a couple
• 21:32
  Speaker 1: of quick examples. Everybody knows department stores have been under
• 21:36
  Speaker 1: a lot of pressure before the pandemic. The lockdown just
• 21:39
  Speaker 1: made it worse. They're down sixty something percent for the year.
• 21:43
  Speaker 1: They're turn out to be one one of a percent
• 21:47
  Speaker 1: of the SMPI index. Airlines barely any bigger. They're a
• 21:52
  Speaker 1: quarter of a percent of the SMP five hundred, and
• 21:57
  Speaker 1: you work your way down some of the word performing
• 22:00
  Speaker 1: industry sectors hotels and casinos, travel services, oil and gas.
• 22:06
  Speaker 1: Just work your way down. If you take the thirty
• 22:09
  Speaker 1: worst sectors um subsectors of the SMP five hundred, if
• 22:14
  Speaker 1: we were to delist all of them tonight tomorrow morning,
• 22:18
  Speaker 1: it would barely shave two off the entire index. That's fascinating,
• 22:24
  Speaker 1: but very you know, that's one explanation. But the other
• 22:27
  Speaker 1: explanation is that this pandemic is not hurting the people
• 22:32
  Speaker 1: that that companies need, if you like, for the most part.
• 22:39
  Speaker 1: So yes, consumer companies, of course, But you know those
• 22:42
  Speaker 1: with wealth will continue to have wealth post pandemic, and
• 22:46
  Speaker 1: that's great for the stock market. Well yes, and no,
• 22:49
  Speaker 1: if if you look at the savings rate, it's gone up.
• 22:51
  Speaker 1: If you look at consumer spending, it's off the lows,
• 22:55
  Speaker 1: but it's still down dramatically. I mean, the g d
• 22:58
  Speaker 1: P is off by a third. It's down um from
• 23:03
  Speaker 1: from quarter to quarter. So while wealthy people still have money, overall,
• 23:09
  Speaker 1: as an economy, we are spending much less money. We're
• 23:13
  Speaker 1: not going to entertainment, we're not going to the theme parks,
• 23:16
  Speaker 1: we're not going to movies or plays or concerts or
• 23:19
  Speaker 1: anything like that. We're not going out to eat, and
• 23:21
  Speaker 1: we're not shopping at retail, and so in terms of
• 23:25
  Speaker 1: the broad economy, a lot of these things they're not
• 23:29
  Speaker 1: publicly traded. If they are, they're very small relatively speaking.
• 23:34
  Speaker 1: But the disconnect is a form of denominator blindness. You
• 23:39
  Speaker 1: see your local personal um economy and it's not doing
• 23:45
  Speaker 1: especially well. But most people's local personal economy is not
• 23:50
  Speaker 1: publicly traded. And where all the strength in the market
• 23:54
  Speaker 1: is coming from are the biggest companies, and these tend
• 23:58
  Speaker 1: to be global in nature. Take the ten biggest tech
• 24:01
  Speaker 1: companies in the smp fid UH. They're up thirty seven
• 24:06
  Speaker 1: for the year, and none of them are heard in
• 24:09
  Speaker 1: because of of the lockdown. If anything, they're thriving. Look
• 24:13
  Speaker 1: look at Netflix, look at Microsoft, look at Amazon. They're
• 24:16
  Speaker 1: all doing really well because what other options do people have? So, Barry,
• 24:22
  Speaker 1: you've been in the markets for a long time, how
• 24:25
  Speaker 1: concerned are you that there's really a lack of breath
• 24:28
  Speaker 1: in this market? As you're just highlighting here that if
• 24:31
  Speaker 1: you take a look at just the indices, it's literally
• 24:34
  Speaker 1: a half a dozen names or something driving most of
• 24:36
  Speaker 1: the performance. Technically, that's not a healthy UH component or
• 24:41
  Speaker 1: healthy development for the market. So we we like to
• 24:44
  Speaker 1: see breath, meaning more companies participating in the upside the
• 24:49
  Speaker 1: advanced decline line. We want to see more advancers than decliners,
• 24:52
  Speaker 1: and we want that to be significant. The exception being
• 24:57
  Speaker 1: what happens when there's an externality and and really the
• 25:01
  Speaker 1: only thing that's comparable to the pandemic. Look at Fukushima,
• 25:06
  Speaker 1: Look at the tsunami in Japan, how that impacted their market.
• 25:11
  Speaker 1: You had specific sectors that just were temporarily on hiatus
• 25:17
  Speaker 1: until the country got back to normal six months later.
• 25:21
  Speaker 1: This is probably gonna last much longer than that. Another
• 25:25
  Speaker 1: parallel is look at seven You had something that wasn't
• 25:29
  Speaker 1: from within the economy. You had portfolio insurance and a
• 25:33
  Speaker 1: lot of um internal problems that the stock exchange that
• 25:37
  Speaker 1: led to the one day crash. It was really aberrational
• 25:42
  Speaker 1: and not driven by a weakening UM either employment or
• 25:46
  Speaker 1: GDP or retail spending or anything like that. It was
• 25:49
  Speaker 1: its own, its own externality. So I think we have
• 25:53
  Speaker 1: to look at this from a perspective. Investors are giving
• 25:58
  Speaker 1: UM the market sort of the benefit of the doubt
• 26:02
  Speaker 1: in terms of revenue and profits for this year. There
• 26:05
  Speaker 1: seemed to be looking over the valley towards UH and
• 26:09
  Speaker 1: everybody is hoping for a vaccine or a treatment before
• 26:12
  Speaker 1: the year's out, that that's going to be the big variable. Sorry,
• 26:15
  Speaker 1: we're almost at a time. But are you in Maine, pertense, No,
• 26:20
  Speaker 1: this year, I am not in Maine. And in fact,
• 26:23
  Speaker 1: when I went when I was preparing this column and
• 26:26
  Speaker 1: looking at various sectors, I looked at travel services and
• 26:29
  Speaker 1: airlines down as much as they were. And then I
• 26:31
  Speaker 1: went back and looked at all of the events, conferences,
• 26:35
  Speaker 1: speaking engagements, all that thing, those things I had, and
• 26:39
  Speaker 1: literally everything was canceled from March two thousand through June,
• 26:46
  Speaker 1: every event that I have scheduled. So makes perfect sense
• 26:49
  Speaker 1: that the airlines are getting hurt, the hotels are getting hurt.
• 26:53
  Speaker 1: They are not going to be able to recover until
• 26:55
  Speaker 1: people feel comfortable being in crowds again, and that's probably
• 27:00
  Speaker 1: lee a solid year away, right. Well, it's just that
• 27:03
  Speaker 1: because this would be the time of the year for
• 27:05
  Speaker 1: camp co talk David Kotalk camp and is it happening
• 27:08
  Speaker 1: virtually Barry Um. A handful of people went up, but
• 27:12
  Speaker 1: it's probably five percent of the usual crowd. Chris Whalen
• 27:15
  Speaker 1: is up there. I know David Kotak is not there.
• 27:20
  Speaker 1: Normally I would be arriving yesterday, the Wednesday before the
• 27:24
  Speaker 1: Friday jobs report, and this is going to be the
• 27:27
  Speaker 1: first August jobs report that I will be seeing away
• 27:31
  Speaker 1: from the state of Maine in probably twelve years. It's
• 27:34
  Speaker 1: amazing how we we measure our years and things like
• 27:37
  Speaker 1: Jackson Holes and camp Co talks and you know, souls conferences. Barry,
• 27:42
  Speaker 1: thanks for joining. It's always a fun time speaking with
• 27:45
  Speaker 1: Barry Riddles, founder of course of Riddles Oath Management. But
• 27:49
  Speaker 1: we know him maybe more so for Masters in Business
• 27:52
  Speaker 1: and also his Bloomberg opinion columns and Paul, you were
• 27:55
  Speaker 1: talking about his opinion column earlier. They always make some
• 27:57
  Speaker 1: kind of an impression. Yeah. Absolutely. This one kind of
• 28:00
  Speaker 1: broke down the math and really showed where the performance
• 28:02
  Speaker 1: and lack of performances in this market. Thanks for listening
• 28:06
  Speaker 1: to Bloomberg Markets podcast. You can subscribe and listen to
• 28:09
  Speaker 1: interviews at Apple Podcasts or whatever a podcast platform you prefer.
• 28:13
  Speaker 1: I'm Bonnie Quinn, I'm on Twitter at Bonnie Quinn, and
• 28:16
  Speaker 1: I'm Paul Sweeney. I'm on Twitter at pt Sweeney Before
• 28:19
  Speaker 1: the podcast, you can always catch us worldwide at Bloomberg
• 28:22
  Speaker 1: Radio