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Pervasive Pessimism Is a Reason to Be Bullish: Hyzy · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you.
0:05
Speaker 1: Along with my co host Lisa Brahma Waits. Each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
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Speaker 1: you and your money. Whether at the grocery store or
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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
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Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. Everyone hates this rally. I think
0:24
Speaker 1: it's fair to say this is probably one of the
0:26
Speaker 1: most hated rallies ever, although there are a growing number
0:29
Speaker 1: of people who say that the US equities can continue
0:32
Speaker 1: to melt up. Here with us to talk about his
0:35
Speaker 1: mid year outlook and what investors are looking to do
0:38
Speaker 1: heading into the second half is Chris Heisie. He's chief
0:40
Speaker 1: investment officer at Bank of America Global Wealth and Investment Management,
0:44
Speaker 1: And I want to start with this sort of hatred
0:47
Speaker 1: of this rally. There is a feeling that there's no
0:49
Speaker 1: way that after more than ten years of an incredible
0:53
Speaker 1: run and a slow growing economy, that this market can
0:56
Speaker 1: just keep chugging along for another year. Do you think
1:00
Speaker 1: that that is the most likely outcome that we will
1:02
Speaker 1: just continue to chug along for another year. Yeah, that's
1:06
Speaker 1: the most likely outcome in our view for a variety
1:08
Speaker 1: of reasons, but I think the biggest one is the
1:10
Speaker 1: fact that you hit it right off at the top there,
1:13
Speaker 1: which is the barish sentiment if you if you talk
1:16
Speaker 1: to people, uh, they feel like you know. Some of
1:20
Speaker 1: this rally, at least the latest portion of this rally
1:23
Speaker 1: is justified because of a stalemate on the trade front,
1:27
Speaker 1: no further tariffs that were about to hit UH, an
1:31
Speaker 1: easier FED, etcetera. But in action, the private investor is
1:35
Speaker 1: simply not in the market as much as they normally
1:38
Speaker 1: would be. That's point number one. Point number two is
1:41
Speaker 1: is when you get a FED that goes from literally
1:43
Speaker 1: hiking in December to an about face a big pivot
1:48
Speaker 1: two months later, starting in January that on that panel
1:52
Speaker 1: that share Powell did, and then now with the market
1:56
Speaker 1: suggesting at least three cuts between now and the end
2:00
Speaker 1: of the first quarter, that allows multiples to go up
2:04
Speaker 1: climb the wall of worry, and if the risks remain muted,
2:08
Speaker 1: that's where you get a pretty powerful surge between now
2:11
Speaker 1: and the end of the year. Even though we are
2:13
Speaker 1: pretty aggressively off of the lows um late last year. So, Chris,
2:17
Speaker 1: we're coming into the earnings period for the June quarter.
2:21
Speaker 1: How important is the near term earnings outlook for this market?
2:26
Speaker 1: You know it's uh. I think it's the tail of
2:28
Speaker 1: the tape. At this point. You've got a dual track
2:30
Speaker 1: economy UH, led by the U S consumer in the US,
2:34
Speaker 1: and you've got manufacturing and trade that is uh, the
2:37
Speaker 1: leverage of global economies. And you're gonna get a mixed
2:40
Speaker 1: bag in our view coming out of the industrial space
2:43
Speaker 1: versus the financials, versus tech versus retail or consumer discretionary.
2:48
Speaker 1: And when you roll it all up, the earnings numbers
2:51
Speaker 1: that are coming out now should be a small beat.
2:53
Speaker 1: Because of the low bar, a small beat is likely
2:56
Speaker 1: to support the market. Uh. And then it's gonna come
2:59
Speaker 1: down to guidance. It's all going to be guidance. Guidance
3:01
Speaker 1: guidance on a go forward basis. UH. So we can
3:05
Speaker 1: actually determine whether or not we're just bottoming out or
3:07
Speaker 1: are we actually going to get some growth in the
3:09
Speaker 1: second half. So, Chris, if you do think that we're
3:10
Speaker 1: going to chug along here on the US equity side
3:13
Speaker 1: for another twelve months, or so I'm wondering what that
3:15
Speaker 1: means for bonds because there has been something of a
3:18
Speaker 1: divergence with bond yields going lower and lower, typically a
3:21
Speaker 1: bearish sign, while equity markets continue to climb higher. And
3:25
Speaker 1: do you think that this is an incompatible reality that
3:27
Speaker 1: has to at one point, at some point mean that
3:30
Speaker 1: bonds are going to experience losses or stocks will? You know?
3:33
Speaker 1: It's a great point, because I think what we have
3:35
Speaker 1: to figure out is how long this can actually last
3:38
Speaker 1: where bond yields do at least remain close to record
3:41
Speaker 1: low levels or creep even lower from here with equities
3:44
Speaker 1: going up. Part of that is the fact that the
3:46
Speaker 1: multiple is going up as discount rates go down. But
3:49
Speaker 1: most importantly it's a flow argument. At this point, I
3:52
Speaker 1: think we've had the greatest divergence and flows uh probably
3:56
Speaker 1: ever if you think about close to four billion difference
3:58
Speaker 1: two into fixed income flows UH and two under billion
4:02
Speaker 1: out of equities, even though we're at all time highs
4:04
Speaker 1: on the equity side. So from our perspective, the big
4:08
Speaker 1: reason for the creep lower and yields has a lot
4:11
Speaker 1: to do with demographics around the world and the need
4:13
Speaker 1: for any kind of a yield. Given the fact that
4:16
Speaker 1: of the world's bond markets have a negative carrier negative
4:19
Speaker 1: yield to them, which is close to twelve twelve to
4:22
Speaker 1: thirteen trillion, people called, you know, Tina, there is no alternative.
4:26
Speaker 1: I don't really like to use that phrase because there's
4:28
Speaker 1: plenty of alternatives. But at the end of the day,
4:31
Speaker 1: if you can get a dividend yield um potential total
4:34
Speaker 1: return that's three times the tenure yield, UH, that's an
4:38
Speaker 1: attractive equity market backdrop on an absolute and relative basis. So, Chris,
4:43
Speaker 1: want to get your sense of valuation in the equity markets.
4:46
Speaker 1: We've had this big run up, and equity markets this year,
4:48
Speaker 1: earnings estimates for the most part have not risen. What
4:52
Speaker 1: is your sense of where we are in terms of
4:54
Speaker 1: valuation right here? It seems like we're borrowing a little
4:57
Speaker 1: bit from from next year or borrowing a little bit
5:00
Speaker 1: from the future in terms of returns, And that tends
5:02
Speaker 1: to happen if the FED makes an about face switch,
5:06
Speaker 1: and it's because there's the potential to create a soft landing.
5:10
Speaker 1: So the FED is seems to be doing. They seem
5:13
Speaker 1: to be trying to right size the curve. The yield curve.
5:16
Speaker 1: If that's the case, which is what we believe, and
5:19
Speaker 1: it's not a situation where the fed UM is raising
5:22
Speaker 1: rates last year to stop inflation, because that's simply not
5:25
Speaker 1: in the cards. But if they have to right size
5:27
Speaker 1: the curve and that is likely to go on, then
5:30
Speaker 1: you get earnings following later. You get multiple expansion first,
5:35
Speaker 1: liquidity first, multiple expansion second, and then earnings follow And
5:38
Speaker 1: that seems to be what UM investors that are coming
5:42
Speaker 1: back into the market are telling us. Where we think
5:44
Speaker 1: earnings are gonna come. Now, that's where comes into play.
5:47
Speaker 1: Where if earnings don't show four or five six percent
5:50
Speaker 1: earnings growth, that's where the market's got in ahead of itself. So, Chris,
5:53
Speaker 1: if you do think that perhaps we're building in some
5:56
Speaker 1: gains now, are borrowing from next year, what kind of
5:59
Speaker 1: return can people expect to other equity investments over the
6:02
Speaker 1: next twelve months. I think if you you put it well,
6:05
Speaker 1: if you look away from the calendar. I know everyone's
6:08
Speaker 1: patterned on the calendar. They ask you about year in
6:10
Speaker 1: price targets, etcetera. But if we just look at a
6:12
Speaker 1: rolling twelve month basis, we think earnings growth of around
6:15
Speaker 1: five percent between now and that twelve month rolling basis,
6:19
Speaker 1: plus the fact that yields should remain low, if not lower,
6:23
Speaker 1: from here, that should push the multiple up another point.
6:26
Speaker 1: And if we get five percent earnings growth, that gets
6:29
Speaker 1: you still double digits low double digit return potential in
6:33
Speaker 1: the next twelve months. So, Chris, one of the things
6:36
Speaker 1: we've heard from some investors is this expanding their search
6:39
Speaker 1: for yield and returns. What an alternative investments do you
6:42
Speaker 1: think people should be looking at at this point in
6:44
Speaker 1: the cycle. You know, I think, um, we have a
6:48
Speaker 1: risk out there in the next two years of getting
6:51
Speaker 1: too complacent on inflation. Meaning there's been an attempt to
6:57
Speaker 1: get to the two percent level a couple of times
6:59
Speaker 1: in the last eleven years, and we haven't really reached that,
7:03
Speaker 1: and said realizes that, and now they're willing to let
7:06
Speaker 1: things run hotter. So the big thing we have to
7:08
Speaker 1: worry about is do we get too complacent on inflation.
7:12
Speaker 1: That's number one, and then number two, when you just
7:14
Speaker 1: step back a little bit in terms of earnings guidance
7:17
Speaker 1: and earnings estimates, we have now pushed them too low.
7:21
Speaker 1: The analyst community is about to do the same thing,
7:23
Speaker 1: for they haven't pulled them back yet. Um. But as
7:27
Speaker 1: they pull them back and then we we borrow some
7:30
Speaker 1: future gains. At the end of the day, it's going
7:32
Speaker 1: to come down to what type of correction and what's
7:35
Speaker 1: the driver of it. UM. Typical years have two to
7:38
Speaker 1: three five percent pullbacks. One correction. We had that this year. UM.
7:44
Speaker 1: The question is is do we have another five percent
7:47
Speaker 1: pullback in the cards that's likely to be earnings driven,
7:50
Speaker 1: not necessarily FED driven, and that's a buy on weakness
7:53
Speaker 1: pullback from our perspective. Chrisze, thank you so much for
7:57
Speaker 1: joining us. Chris is the chief investment Officer for Bank
8:00
Speaker 1: of America Global Wealth and Investment Management, based in New
8:03
Speaker 1: York City. Well, we are ten plus years into this
8:22
Speaker 1: economic cycle. The FED appears to remain quite dubbish, and
8:25
Speaker 1: many investors are questioning how much risk they should be
8:28
Speaker 1: taken given the extraordinary performance of the first six months
8:32
Speaker 1: of this year. To get a better look at the
8:33
Speaker 1: state of the global fixed income markets, returned to Ted
8:36
Speaker 1: revel Tad as chief investment officer for fixed Income at
8:39
Speaker 1: TCW with a hundred seventy billion dollars under management, based
8:42
Speaker 1: in Los Angeles. H Tad thanks so much. For joining US.
8:45
Speaker 1: I wonder if we could just start off by getting
8:47
Speaker 1: a sense of your thoughts about allocation between you know,
8:51
Speaker 1: investment grade, high yield, emerging markets. Where are you on
8:54
Speaker 1: the risk curve here, Well, we're pretty defensive on the
8:57
Speaker 1: risk curve. I think that the investors are supposed to
9:02
Speaker 1: think about their asset allocation in terms of a protracted
9:06
Speaker 1: asset price cycle that we have experienced obviously, but that
9:10
Speaker 1: the time for taking enthusiastic risk with your fixed income
9:14
Speaker 1: portfolio is typically in the first few years of the cycle.
9:18
Speaker 1: That's when you want those big allocations to things like
9:20
Speaker 1: high yields, emerging markets, leverage loans, the most leverage parts
9:24
Speaker 1: of the capital structure. As you get into the later
9:27
Speaker 1: stages of the cycle, which I think there is abundant
9:29
Speaker 1: evidence that we are. In those late stages, you're supposed
9:32
Speaker 1: to be actually very cautious about making allocations to leveraged
9:36
Speaker 1: asset classes and against leverage business models. So that counsels
9:40
Speaker 1: a portfolio that has a significant character um with respect
9:45
Speaker 1: to using sovereign debt, using investment grade debt top of
9:49
Speaker 1: the capital structure, type of exposure, and asset backs meaning
9:53
Speaker 1: triple A triple a exposure and commercial mortgages and avoidance
9:57
Speaker 1: generally speaking of let's say, uh, much of the high
10:01
Speaker 1: yield market, and particularly the single be and below portions
10:05
Speaker 1: of that So ted, One thing that I find striking
10:09
Speaker 1: is that the vast majority of investment managers who we
10:12
Speaker 1: speak to echo the sentiment that you just had. And
10:15
Speaker 1: I'm wondering whether that in and of itself is a
10:17
Speaker 1: reason to be more bullish, uh than cautious, just because
10:20
Speaker 1: if so many people are baking in such caution, what
10:23
Speaker 1: exactly is going to cause this market to turn? And
10:26
Speaker 1: and the positioning isn't really there for something violent, right right? Yeah, Well,
10:31
Speaker 1: those are great questions. First of all, I'm I do
10:35
Speaker 1: sympathize with the observation that many people are talking the
10:39
Speaker 1: late cycle game in terms of caution in their asset allocations.
10:43
Speaker 1: I'm not sure how many our walk in the walk, though, Um,
10:47
Speaker 1: the pricing that exists in much of the the fixed
10:50
Speaker 1: income market doesn't suggest that that is actually the case.
10:53
Speaker 1: But as it relates to what might be a catalyst
10:56
Speaker 1: for turning the cycle and flushing out the risk, you
10:59
Speaker 1: don't have to look very far. Indeed, look back at
11:02
Speaker 1: the fourth quarter of last year, there wasn't really much
11:05
Speaker 1: of a catalyst. It's simply that there was a there
11:07
Speaker 1: was an abrupt shift in risk preferences, and you saw
11:10
Speaker 1: an abrupt widening of the high yield market to roughly
11:14
Speaker 1: five and a half or five and fifty basis points
11:17
Speaker 1: over treasuries from a level that I think had started
11:20
Speaker 1: the fourth quarter at about three hundred and today we're
11:23
Speaker 1: sitting at about three hundred and seventy. But I think
11:26
Speaker 1: that if you're looking for confirmation of the light cycle
11:29
Speaker 1: type of environment, you have your inverted yield curve. You
11:32
Speaker 1: have what may turn out to be a profits recession
11:36
Speaker 1: as divine, as defined by two consecutive quarters of of
11:41
Speaker 1: negative growth with respect to earnings, that potentially being this quarter.
11:45
Speaker 1: There's a slowdown in China going on, We've seen the
11:48
Speaker 1: statistics with respect to trade. There's a lot of leverage
11:51
Speaker 1: already built into the investment grade market. We have actually
11:54
Speaker 1: seen under performance in the triple ceas. And then you
11:57
Speaker 1: have this whole conundrum of negative yields, that of the
12:01
Speaker 1: global investment grade debt out there is yielding less than zero.
12:06
Speaker 1: Not exactly a compelling argument for taking risk in your portfolio.
12:10
Speaker 1: So tad. It kind of brings me into my next question,
12:13
Speaker 1: kind of what are you seeing as you look across
12:15
Speaker 1: UH your portfolio in terms of credit quality. Given where
12:18
Speaker 1: we are in the psychole, are you seeing anything any
12:21
Speaker 1: red flags popping up in terms of red flags in
12:25
Speaker 1: the market. Absolutely, arguably even as recent as this morning
12:30
Speaker 1: the news with the i p O that that failed
12:33
Speaker 1: with him and that I don't know if I should
12:35
Speaker 1: call it a failed i p O with in BEV,
12:37
Speaker 1: but certainly one that was shelved and pulled. UH. That
12:40
Speaker 1: is a relatively levered business model. That is one of
12:44
Speaker 1: those investment grade companies out there that I think is
12:46
Speaker 1: running at least four turns maybe closer to five turns
12:49
Speaker 1: of leverage, which is out of alignment with what you
12:52
Speaker 1: typically think of as an investment grade UH leverage level.
12:56
Speaker 1: The fact that the i p O was pulled and
12:58
Speaker 1: therefore the proceeds are not available for de leveraging tells
13:01
Speaker 1: you something about this specific credit but it also I
13:04
Speaker 1: think tells you a lot about the mood and the
13:05
Speaker 1: mind of the marketplace that the the need or the
13:09
Speaker 1: urgency to delever or to get your metrics back down
13:13
Speaker 1: to more in line for where they ought to be
13:16
Speaker 1: in a light cycle environment, isn't there. The reason this
13:19
Speaker 1: is important, at least in our judgment, is that when
13:21
Speaker 1: you look at past cycles, you'll actually see that something
13:24
Speaker 1: like between at the low end and at the high
13:28
Speaker 1: end of the triple bes. Okay, not the entirety of
13:32
Speaker 1: the investment grade corporate market, but about a quarter to
13:35
Speaker 1: a half of the triple B universe suffers downgrades to
13:38
Speaker 1: below investment grades gets junked uh into a into a
13:42
Speaker 1: de leveraging type of environment. Given how much triple bees
13:46
Speaker 1: have expanded in terms of their market value and the
13:49
Speaker 1: size of that market, it could have really devastating consequences
13:53
Speaker 1: for the pricing of below investment grade debt and leverage loans.
13:57
Speaker 1: So that's I think one avenue that you're supposed to
14:00
Speaker 1: be very thoughtful about the fallen angel risk that may
14:04
Speaker 1: exist in in the what would otherwise be thought of
14:07
Speaker 1: as a relatively conservative investment grade portfolio. Ted Earlier in
14:12
Speaker 1: the conversation, you were saying that a lot of people
14:15
Speaker 1: talk the talk, but they don't walk the walk, and
14:18
Speaker 1: they're not perhaps de risking as much as it may seem.
14:21
Speaker 1: Where in particular are you seeing this I think you're
14:24
Speaker 1: seeing it in the corporate markets primarily and in the
14:27
Speaker 1: leverage loan markets, and the leverage loan market, since we
14:30
Speaker 1: haven't spoken about it, is probably a really good place
14:33
Speaker 1: to focus on that. So, the leverage loan market has
14:37
Speaker 1: grown enormously over the course of this cycle and is
14:41
Speaker 1: would appear to be one of the primary vehicles of
14:44
Speaker 1: of choice as it relates to financing relatively leverage and
14:49
Speaker 1: smaller type type type businesses. What appears to be the
14:53
Speaker 1: case is that the covenant light structures and the very
14:56
Speaker 1: generous terms that exist in these loan agreements vias of
15:00
Speaker 1: that of the of the borrower, generous to the borrower.
15:03
Speaker 1: That is um our suggestive that the traditional originators of
15:08
Speaker 1: these loans are not putting them on their books. It's
15:11
Speaker 1: a it's a going back to the Mark Twain is
15:15
Speaker 1: um about cycles rhyming. In the last cycle, those that
15:18
Speaker 1: were very knowledgeable and very up close and personal with
15:22
Speaker 1: respect to the underwriting of sub prime mortgages weren't putting
15:25
Speaker 1: it on their own balance sheets. They were securitizing them
15:28
Speaker 1: and sending them into C d O type structures or
15:32
Speaker 1: somewhere else. In this particular cycle, you're seeing an inordinate
15:36
Speaker 1: amount of those leverage loans going into the CLO structure,
15:40
Speaker 1: but something like six of all of these leverage loans
15:44
Speaker 1: are not ending up on the balance sheets of the
15:46
Speaker 1: people who are presumptively underwriting them. That in and of
15:49
Speaker 1: itself should serve should serve to raise a question about
15:55
Speaker 1: why is that the case? And of course the answer
15:57
Speaker 1: is because there is cheap and a capital available in
16:01
Speaker 1: the CLO market. How knowledgeable uh, that some of those
16:06
Speaker 1: investors might be. I mean, obviously there are many investors
16:09
Speaker 1: in that space that are knowledgeable, but it's not all
16:12
Speaker 1: of them. Tad Revel, thank you so much. We could
16:14
Speaker 1: speak with you all day. We love that you came on.
16:16
Speaker 1: Tad Revel, chief investment officer for fixed income at TCW,
16:20
Speaker 1: coming to us from Los Angeles. Well, we got some
16:38
Speaker 1: economic data out of China overnight, and I guess the
16:41
Speaker 1: takeaway is that Chinese economy slow to the weakest paced
16:45
Speaker 1: since quarterly data began, but there was some signs of
16:49
Speaker 1: stabilization as well. To get the latest, we welcome Tom
16:52
Speaker 1: or like Tom's cheap economist for Bloombrick Economics. He joins
16:55
Speaker 1: us on the phone from Washington, d C. Tom, thanks
16:58
Speaker 1: so much for joining us. Kind of what your key
17:00
Speaker 1: takeaways from the most recent round of economic data out
17:03
Speaker 1: of China. I think you put it pretty well, Paul. Yes,
17:07
Speaker 1: this is the weakest number since back in six point
17:12
Speaker 1: two percent growth. Um. Yes, there are some signs of
17:17
Speaker 1: a little bit of additional resilience coming through in the
17:20
Speaker 1: more high frequency June data. We've got a bounce in
17:24
Speaker 1: retail sales, we've got a bounce in industrial output. But
17:28
Speaker 1: and this is the crucial caveat, I want to throw
17:31
Speaker 1: in a bunch of the factors which were behind that
17:35
Speaker 1: more optimistic June data aren't going to be very long lasting.
17:40
Speaker 1: Retail sales, for example, a big factor there was one
17:43
Speaker 1: off discounts to get rid of inventory of old cars
17:48
Speaker 1: sitting on dealer's lots. That drove a huge surge in
17:51
Speaker 1: car sales. That's not something which is going to be repeated. Um.
17:54
Speaker 1: So we think the June numbers might be a bit
17:57
Speaker 1: of a false dawn and there could be more weakening
17:59
Speaker 1: to come for China. Tom, how much can we trust
18:01
Speaker 1: these numbers as being accurate? So? Um, that's the perennial
18:05
Speaker 1: question with China's data Lisa UM And what we do
18:09
Speaker 1: is we run a bunch of different checks. We look
18:12
Speaker 1: at the GDP numbers against what we call the Leaka
18:16
Speaker 1: Chang Index that's based on rail freight, electricity UM and
18:22
Speaker 1: loan numbers UM. We look at it based on different
18:27
Speaker 1: private and academic gauges of how fast the Chinese economy
18:30
Speaker 1: is going. At different points in the past, there's been
18:33
Speaker 1: really wide deviation, especially back in two thousand and fifteen,
18:37
Speaker 1: the government was saying six point five seven percent growth.
18:41
Speaker 1: Are private gauges were saying now, Actually it's closer to
18:44
Speaker 1: three or four percent. Right now, our private gauges and
18:49
Speaker 1: the official numbers are actually matching up. So, Tom, you
18:53
Speaker 1: lived and worked in China in Beijing for many many years.
18:58
Speaker 1: Love to get your sense based upon your experience of
19:01
Speaker 1: where do you think China is right now as they
19:03
Speaker 1: think about trade negotiations with the US. We've got this
19:06
Speaker 1: latest batch of economic data. It's a sense of where
19:08
Speaker 1: you think they are and what they really want to achieve.
19:11
Speaker 1: So I was in Beijing for the week ahead of
19:14
Speaker 1: that G twenty negotiation between President she and President Trump
19:18
Speaker 1: and the week after UM and we spoke to to
19:22
Speaker 1: a bunch of people there, and I can tell you
19:24
Speaker 1: the mood after that G twenty agreement was I would
19:28
Speaker 1: say a combination of relief and caution. Relief that she
19:33
Speaker 1: and Trump had at least managed a handshake deal things
19:37
Speaker 1: didn't get any worse. Caution, because well, we've seen this show.
19:41
Speaker 1: Before the top leaders meet, they agree to get along,
19:45
Speaker 1: but once you get into the detailed negotiations of who's
19:48
Speaker 1: going to give up what, talks start breaking down. Um.
19:52
Speaker 1: So I think that's the view in Beijing right now.
19:54
Speaker 1: Relief things aren't getting worse immediately, Caution, concern that we're
19:59
Speaker 1: not far from the next blow up. Do we have
20:01
Speaker 1: a sense of how much of the slowdown is due
20:05
Speaker 1: to the trade, the tariffs and the trade wars, and
20:08
Speaker 1: how much has to do with just the fact that
20:10
Speaker 1: China has been slowing down as it shifts from an
20:13
Speaker 1: industrial economy to more of a service oriented economy. Yeah.
20:17
Speaker 1: So you've got three things going on at the same Timely, so,
20:20
Speaker 1: you've got the trade war, which is hitting exports directly
20:23
Speaker 1: but maybe more important having a big negative impact on sentiments. Um.
20:28
Speaker 1: Then you've got the government's deliveraging agenda, that awareness that
20:32
Speaker 1: they've taken on too much debt um and that needs
20:36
Speaker 1: to be managed down if they're going to steer clear
20:38
Speaker 1: of financial stability risks. And then you've just got the
20:41
Speaker 1: kind of natural inertia, the natural drag that comes when
20:46
Speaker 1: you've got a shrinking working age population UM and an
20:49
Speaker 1: economy which is trying to shift to a new set
20:52
Speaker 1: of growth drivers. All of these things are happening at
20:55
Speaker 1: the same time, UM, and I think that's what's weighing
20:58
Speaker 1: on growth. And until we see some more stimulus coming in,
21:02
Speaker 1: our concern is that we could see some more weakness
21:05
Speaker 1: in the months ahead. So Tom, just real quickly, maybe
21:07
Speaker 1: next thirty seconds. It's just how committed do you think
21:10
Speaker 1: the Chinese government is to this de leveraging issue. As
21:13
Speaker 1: you mentioned, eight taken on tremendous amount of debt over
21:15
Speaker 1: the last decade or so. So I think the thing
21:18
Speaker 1: which China has on their side when it comes to
21:21
Speaker 1: deleveraging is time. Yes, they've taken on a lot of debt,
21:25
Speaker 1: but it's all domestic and that means they can manage
21:28
Speaker 1: it down over a period of years, maybe even a decade.
21:32
Speaker 1: They're not going to be forced into doing it over
21:34
Speaker 1: a period a few months. UM. And so what we've
21:36
Speaker 1: seen in two thousand and eighteen and two thousand and
21:39
Speaker 1: nineteen is well, you know what, the trade war supporting growth,
21:43
Speaker 1: that's the bigger priority now. Deleveraging, Yes, we need to
21:47
Speaker 1: do it. We're not going to do it right now.
21:49
Speaker 1: Tom more Like, thank you so much, as always for
21:51
Speaker 1: your insights. Tom or Like as chief economist for Bloomberg Economics,
21:55
Speaker 1: talking about those GDP data out of China overnight, oh,
22:14
Speaker 1: a staggering forty two million people face hunger in the
22:16
Speaker 1: United States, while at the same time, roughly the food
22:20
Speaker 1: produced in America goes to waste. Our next guest is
22:24
Speaker 1: trying to address a small part of this problem. Matt
22:27
Speaker 1: jos mac jils We, act founder and executive director of
22:31
Speaker 1: Rethink Food NYC that is based in Brooklyn, joins us
22:35
Speaker 1: here in our Bloomberg Interactive Broker Studio. Matt, thanks so
22:38
Speaker 1: much for joining us. I wonder if you could just
22:40
Speaker 1: give us a sense of what your company does, Rethink
22:44
Speaker 1: Food NYC. What do you guys do? So basically, we
22:47
Speaker 1: take xx food that is you know, normally seen as unusable,
22:51
Speaker 1: we repurpose it and we distribute it to community service
22:54
Speaker 1: organizations to help alleviate the burden on running like you're
22:58
Speaker 1: you know, what you would think of as a sup kitchen.
23:00
Speaker 1: So we collect food from Goldman Sachs, the bank, the cafeterias,
23:03
Speaker 1: fine dining restaurants, um so how Stumbo House, and we
23:07
Speaker 1: bring it back to our kitchen. We make new meals
23:10
Speaker 1: out of it, and we bring them to other community
23:11
Speaker 1: service organizations and essentially cater them to alleviate that pressure,
23:15
Speaker 1: that's stress of having to produce food every day for
23:17
Speaker 1: hundreds of people. What's the economics here? I mean, how
23:20
Speaker 1: do you incentivize these companies to work with you and
23:25
Speaker 1: how do you fund yourself? So initially we're funded by
23:28
Speaker 1: you know, large scale donations. Um you know the eleven
23:31
Speaker 1: Madison Park guys have been really generous and helping us
23:33
Speaker 1: raise money and raise awareness. But what we're trying to
23:35
Speaker 1: do is help people realize that this food actually has
23:38
Speaker 1: tangible value. Like if you were to go to a
23:40
Speaker 1: restaurant like the Nomad and get like this beautiful roasted
23:43
Speaker 1: chicken and just because it's eleven o'clock and it doesn't
23:46
Speaker 1: mean that that chicken is now the value of that
23:47
Speaker 1: is zero. Other you know, businesses that operate that way.
23:51
Speaker 1: Like you know, the only one I can think of
23:52
Speaker 1: is concert tickets that go to the value of zero.
23:54
Speaker 1: But if you run a business like that, it's just
23:56
Speaker 1: never going to be successful. So we're trying to do
23:58
Speaker 1: is incentivized business owners to really truly realize the value
24:02
Speaker 1: in their product so that we can offer and suggest.
24:05
Speaker 1: We can't actually tell them what it's worth, but suggest
24:07
Speaker 1: higher in kind donation receipts so that the tax return
24:10
Speaker 1: is larger there in the air. So when you talk
24:13
Speaker 1: to restaurants, is it is there prime just give us
24:16
Speaker 1: a sense of what their motivation is for I guess
24:18
Speaker 1: entering into relationship with you and uh donating their food. Well,
24:22
Speaker 1: we all know, everybody knows it's a problem. I mean,
24:24
Speaker 1: you know, when we were chatting here before, you had
24:26
Speaker 1: some some options, you know, some situations where you know
24:29
Speaker 1: it was a problem, and we all do. Everybody sees it.
24:31
Speaker 1: Everybody knows, everybody is aware, we're all we're all we
24:33
Speaker 1: all know poverty exists. Um, we're simply just solving the problems.
24:36
Speaker 1: And everybody says, oh, the liability or this issue or
24:39
Speaker 1: that issue. We think it's just a problem solving organization.
24:41
Speaker 1: Every single food donor is different, and we take the
24:44
Speaker 1: time and really put in the effort to make sure
24:46
Speaker 1: that they you know, they get that food out safely.
24:49
Speaker 1: And what you're referring to is something when back in college,
24:53
Speaker 1: when I was working at a coffee shop and there
24:54
Speaker 1: was food left over at the end of the day
24:56
Speaker 1: and wanted to donate it to someone who is hungry,
24:58
Speaker 1: I was told that we wouldn't because it was a
25:01
Speaker 1: potential legal liability for us should the food be spoiled
25:04
Speaker 1: and someone gets sick from it. You're saying, that's not true,
25:07
Speaker 1: that's not true. So the Good Samaritan law protects you
25:09
Speaker 1: that if you donate food in good faith, um with
25:12
Speaker 1: the intent to feed the poor, that you are you're okay.
25:15
Speaker 1: So you have to donate it to a five O,
25:16
Speaker 1: one C three. So I'm sure in the neighboring area
25:18
Speaker 1: there was some soup kitchen. And the reason that you're
25:20
Speaker 1: you're the business owner didn't want to do that is
25:21
Speaker 1: he's protecting his brand. He's saying that, look, we made
25:24
Speaker 1: this product and we don't want to give it away
25:25
Speaker 1: for free, because if we spread it out into the ecosystem,
25:27
Speaker 1: it's going to eventually reduce its value. And what we're
25:30
Speaker 1: saying is that's not true. It's still just as valuable.
25:33
Speaker 1: You're just looking for the value in the wrong place,
25:35
Speaker 1: all right. So I like the way you phrased it.
25:36
Speaker 1: I'm sitting at a restaurant, beautiful meal in front of
25:39
Speaker 1: me that I paid sixty dollars for. When that restaurant
25:42
Speaker 1: closes that night at the stroke of eleven, in theory,
25:44
Speaker 1: that value goes to zero and and the and the
25:47
Speaker 1: restaurant owner would throw it away. What you guys do
25:50
Speaker 1: is you have, um, I guess, um, some type of
25:54
Speaker 1: method to really calculate the value of that meal, which
25:58
Speaker 1: then becomes important for the restaurant as the restaurant thinks
26:00
Speaker 1: about it, you know, the text deduction for it. So
26:03
Speaker 1: just give us a sense of what you guys do
26:04
Speaker 1: in terms of really assigning value to meals and food. Yeah.
26:09
Speaker 1: So it's a really kind of a complicated thing, and
26:10
Speaker 1: we we're still always working on it and still retooling
26:13
Speaker 1: it and still you know, always under review. But basically
26:15
Speaker 1: we say, you know, what is what portion of this
26:17
Speaker 1: meal is this is this going for? What's the quality
26:21
Speaker 1: of it? How labor intensive is it? And it's basically
26:23
Speaker 1: an algorithm that kind of measures these things in and
26:25
Speaker 1: we say, okay, how much food did you donate over
26:27
Speaker 1: the course of a month or a quarter, depending on
26:29
Speaker 1: how you want to do it. And this is what
26:31
Speaker 1: we we kind of think the value of this food is,
26:34
Speaker 1: and if we have to defend it, we will, but
26:37
Speaker 1: you know, we're just trying to give a better sense
26:38
Speaker 1: of it. What's important to note is that the average
26:41
Speaker 1: food donation value assessment system is a dollar a pound.
26:46
Speaker 1: So if you give me a watermelon, I tell you
26:48
Speaker 1: that six pound watermelon six dollars. If you give me
26:51
Speaker 1: six pounds of fua graw, it's also six dollars. If
26:55
Speaker 1: you give me six pounds of caviare, it's also six dollars.
26:58
Speaker 1: So it is completely nonsensical. So this is something for
27:01
Speaker 1: the accountants that you need to sit down with the
27:03
Speaker 1: accounts and figure this out fast. By well, I guess
27:07
Speaker 1: that I'm struggling to understand. Also, so do you have
27:09
Speaker 1: like what kinds of chefs you have in and and
27:12
Speaker 1: how you get to figure out which areas need the
27:15
Speaker 1: food the most. Considering the fact that the amount of
27:18
Speaker 1: food that you're going to be getting will vary at
27:20
Speaker 1: any given day. Yeah, that's a huge challenge. So what
27:24
Speaker 1: we've done is we're super data heavy one because we're
27:27
Speaker 1: super food safety heavy, so everything's monitored, all the temperatures,
27:30
Speaker 1: what comes in, where it's coming from, coming from, and
27:31
Speaker 1: all that stuff. So another issue we have is you're right,
27:34
Speaker 1: so people usually it's like a two day rule, so
27:36
Speaker 1: we'll get like huge spikes of food, not so much
27:38
Speaker 1: the next day, so we have to buy like five
27:40
Speaker 1: percent of our ingredients to supplement those lower valleys and
27:43
Speaker 1: then we get it out there. It's really not our decision,
27:45
Speaker 1: and we say this all the time, and we think
27:47
Speaker 1: we're not community service leaders, were not like, you know,
27:49
Speaker 1: trying to like out there trying to save the world. Basically,
27:52
Speaker 1: there are institutions already in place that are distributing food
27:55
Speaker 1: doing it well, and our job is to just help
27:59
Speaker 1: make it easier for them. That's it on both sides.
28:01
Speaker 1: So just real quick here, how can people donate if
28:04
Speaker 1: they want to? If people go to rethink Food dot NYC,
28:07
Speaker 1: there's a donate button at the top of the page. Also,
28:09
Speaker 1: you know, I don't know if I regret saying this,
28:11
Speaker 1: but my email address is actually on the page. If
28:12
Speaker 1: you want to get out. We were trying to solve
28:14
Speaker 1: this problem. We just need help and support, So reach
28:16
Speaker 1: out if you think you can help in any way possible.
28:18
Speaker 1: Matt Jobs we act just gave out his email address
28:21
Speaker 1: on live radio and sitting here looking deeply uncomfortable as
28:26
Speaker 1: a result. Matt jos React is founder and executive director
28:29
Speaker 1: of Rethink Food NYC, based in Brooklyn, bejoining us here
28:32
Speaker 1: in our eleven three oh studios talking about a problem
28:35
Speaker 1: that many people have noticed, which is food waste as
28:39
Speaker 1: well as hunger. The two things, you pair them up
28:41
Speaker 1: and perhaps you can solve both. Thanks for listening to
28:45
Speaker 1: the Bloomberg P and L podcast. You can subscribe and
28:47
Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform
28:50
Speaker 1: you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
28:53
Speaker 1: I'm Lisa Abram Woyds. I'm on Twitter at Lisa Abram
28:56
Speaker 1: Woyd's one before the podcast, you can always catch us
28:59
Speaker 1: worldwide on Blue Brook radioh