1 00:00:03,720 --> 00:00:06,480 Sean Aylmer: Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. 2 00:00:06,870 --> 00:00:10,720 Sean Aylmer: Our very first guest in 2022, back in January, was 3 00:00:10,720 --> 00:00:14,150 Sean Aylmer: Rich Nuzum, the president of wealth at Mercer. Mercer is 4 00:00:14,150 --> 00:00:17,640 Sean Aylmer: a global giant with almost $ 400 billion US of assets 5 00:00:17,640 --> 00:00:22,090 Sean Aylmer: under management, and more than $ 17 trillion US under advisement. 6 00:00:22,420 --> 00:00:24,460 Sean Aylmer: Rich did a brilliant job of laying out the global 7 00:00:24,460 --> 00:00:26,880 Sean Aylmer: investment landscape. I'm pleased to say he's agreed to join 8 00:00:26,880 --> 00:00:29,410 Sean Aylmer: US again today from New York. Rich, welcome back to 9 00:00:29,410 --> 00:00:29,810 Sean Aylmer: Fear and Greed. 10 00:00:30,310 --> 00:00:31,430 Rich Nuzum: Thanks for having me back, Sean. 11 00:00:31,800 --> 00:00:33,580 Sean Aylmer: It's been quite the three or four months since we 12 00:00:33,580 --> 00:00:34,500 Sean Aylmer: last spoke, hasn't it? 13 00:00:34,700 --> 00:00:37,010 Rich Nuzum: It sure has. A lot of risks that we talked 14 00:00:37,010 --> 00:00:39,240 Rich Nuzum: about three or four months ago, unfortunately, have come to 15 00:00:39,240 --> 00:00:43,440 Rich Nuzum: pass on the downside. So volatility is very high, markets 16 00:00:43,440 --> 00:00:47,330 Rich Nuzum: are lower, and the world is a bit scarier place, 17 00:00:47,330 --> 00:00:50,420 Rich Nuzum: with a major humanitarian crisis underway, than it was three 18 00:00:50,420 --> 00:00:51,070 Rich Nuzum: or four months ago. 19 00:00:51,670 --> 00:00:54,130 Sean Aylmer: Okay. Let's start with the big one, which is inflation 20 00:00:54,130 --> 00:00:58,070 Sean Aylmer: and US interest rates. We're basically likely to get a 50- basis- 21 00:00:58,070 --> 00:01:01,930 Sean Aylmer: point increase next month from the Fed. Inflation has certainly 22 00:01:02,070 --> 00:01:06,150 Sean Aylmer: soared in the US. That's set the cat amongst the pigeons in 23 00:01:06,150 --> 00:01:09,550 Sean Aylmer: global markets, certainly. How do you see that playing out? 24 00:01:09,950 --> 00:01:13,890 Rich Nuzum: The markets are betting that the Fed and other monetary 25 00:01:13,890 --> 00:01:18,190 Rich Nuzum: authorities will be able to bring inflation under control without 26 00:01:18,230 --> 00:01:22,810 Rich Nuzum: raising interest rates by catastrophic amounts. Let's take the US 27 00:01:22,810 --> 00:01:25,760 Rich Nuzum: dollar nominal yield curve as an example. The 10- year 28 00:01:25,760 --> 00:01:28,630 Rich Nuzum: treasury, as I entered today's call, was trading at around 29 00:01:28,630 --> 00:01:32,980 Rich Nuzum: 2.8%. The yield curve was inverted between midterm and long 30 00:01:32,980 --> 00:01:35,569 Rich Nuzum: bonds. What that's basically telling us is that the market 31 00:01:35,569 --> 00:01:38,620 Rich Nuzum: thinks the Fed can raise interest rates in a series 32 00:01:38,620 --> 00:01:42,959 Rich Nuzum: of moves to something like 3, 3. 25, 3.5%, get inflation 33 00:01:42,959 --> 00:01:46,760 Rich Nuzum: under control, and then reduce short term interest rates. So 34 00:01:46,760 --> 00:01:51,260 Rich Nuzum: the market's actually betting that the monetary authorities globally are 35 00:01:51,260 --> 00:01:55,309 Rich Nuzum: highly competent and can bring inflation under control by changing 36 00:01:55,310 --> 00:01:58,400 Rich Nuzum: investor expectations. What I mean by that, not just investor 37 00:01:58,530 --> 00:02:02,480 Rich Nuzum: expectations, but real economic expectations. So the bet that we're 38 00:02:02,480 --> 00:02:05,620 Rich Nuzum: all collectively making at this point is we don't need 39 00:02:05,620 --> 00:02:09,419 Rich Nuzum: interest rates at 10%. We don't need a massive recession with 40 00:02:09,419 --> 00:02:13,160 Rich Nuzum: unemployment rates above 10%. That as people see the Fed 41 00:02:13,160 --> 00:02:17,549 Rich Nuzum: do, for example, a 50- basis- point increase, and communicate 42 00:02:17,550 --> 00:02:20,290 Rich Nuzum: to the markets it's willing to do six, seven, eight 43 00:02:20,290 --> 00:02:22,780 Rich Nuzum: interest rate increases, it's willing to do what it takes, 44 00:02:23,060 --> 00:02:26,549 Rich Nuzum: and other monetary authorities also communicate, " We're willing to do 45 00:02:26,550 --> 00:02:30,919 Rich Nuzum: what it takes," that that will bring inflation expectations under 46 00:02:30,919 --> 00:02:33,690 Rich Nuzum: control, that individuals will be less likely to seek a 47 00:02:33,690 --> 00:02:36,710 Rich Nuzum: wage increase, that companies will be less likely to seek 48 00:02:36,710 --> 00:02:40,799 Rich Nuzum: a price increase, because they believe that inflation is going 49 00:02:40,800 --> 00:02:44,040 Rich Nuzum: to be brought under control relatively quickly and relatively easily. 50 00:02:44,680 --> 00:02:47,639 Rich Nuzum: That's a huge bet to make against historical experience. The 51 00:02:47,639 --> 00:02:50,609 Rich Nuzum: monetary authorities, in recent decades, have become more and more 52 00:02:50,610 --> 00:02:55,580 Rich Nuzum: competent at managing inflation expectations, and communicating well with the 53 00:02:55,580 --> 00:02:59,560 Rich Nuzum: markets to avoid surprises. But the fact that volatility is 54 00:02:59,560 --> 00:03:02,260 Rich Nuzum: elevated, that the VIX, which is a measure of one 55 00:03:02,260 --> 00:03:06,119 Rich Nuzum: month forward S& P volatility, is trading in the 30s, 56 00:03:06,120 --> 00:03:08,410 Rich Nuzum: which is actually higher than it was during the early 57 00:03:08,410 --> 00:03:11,730 Rich Nuzum: stages of the Ukraine/ Russia war, says that there's still 58 00:03:11,730 --> 00:03:14,470 Rich Nuzum: confidence that this will happen, but less confidence than there 59 00:03:14,470 --> 00:03:15,750 Rich Nuzum: was the last time we spoke. 60 00:03:16,240 --> 00:03:18,420 Sean Aylmer: You're not worried about a boom/ bust scenario? 61 00:03:18,780 --> 00:03:21,760 Rich Nuzum: Oh, I think we're in it. We've had the boom. 62 00:03:22,010 --> 00:03:25,210 Rich Nuzum: Labor markets are as tight as I think they've been, 63 00:03:25,669 --> 00:03:27,930 Rich Nuzum: certainly globally for developed markets, as tight as they've been 64 00:03:27,930 --> 00:03:30,329 Rich Nuzum: in our lifetime, tighter than they've ever been. We have 65 00:03:30,830 --> 00:03:35,330 Rich Nuzum: record low unemployment levels, even though labor force participation is 66 00:03:35,330 --> 00:03:39,190 Rich Nuzum: rising in many European countries, and the types of low 67 00:03:39,190 --> 00:03:41,970 Rich Nuzum: unemployment and really a labor force shortage in developed markets. 68 00:03:42,470 --> 00:03:47,720 Rich Nuzum: That's despite the impact on demand and confidence of the 69 00:03:47,720 --> 00:03:50,750 Rich Nuzum: zero COVID policy in China, and disruptions of the supply chain, 70 00:03:50,750 --> 00:03:53,410 Rich Nuzum: both in China and more generally, and then the Russia/ 71 00:03:53,410 --> 00:03:57,220 Rich Nuzum: Ukraine crisis, and disruptions on supply chain and confidence from 72 00:03:57,220 --> 00:04:01,410 Rich Nuzum: that, and high energy prices. Despite some economic headwinds, and 73 00:04:01,410 --> 00:04:05,570 Rich Nuzum: concern about possible recession coming out of these monetary authority 74 00:04:05,570 --> 00:04:09,339 Rich Nuzum: actions to rein in inflation, we have a booming economy. 75 00:04:09,340 --> 00:04:13,180 Rich Nuzum: We actually have a secular overheating economy. The underlying trend 76 00:04:13,810 --> 00:04:17,210 Rich Nuzum: is a secular overheating economy. Then on top of that, 77 00:04:17,210 --> 00:04:19,900 Rich Nuzum: we have these two (inaudible) of zero COVID in 78 00:04:19,900 --> 00:04:25,700 Rich Nuzum: China and Russia's unprovoked invasion of Ukraine, with associated disruption 79 00:04:25,700 --> 00:04:28,210 Rich Nuzum: to global supply chains and global growth in the first 80 00:04:28,210 --> 00:04:32,500 Rich Nuzum: instance for China, and then for Russia, disruption to energy 81 00:04:32,500 --> 00:04:35,450 Rich Nuzum: supplies and supplies of other key materials, and even in food 82 00:04:35,450 --> 00:04:39,490 Rich Nuzum: supplies, given Russia and Ukraine's major role in the world 83 00:04:39,490 --> 00:04:40,910 Rich Nuzum: agricultural markets pre- war. 84 00:04:41,480 --> 00:04:44,110 Sean Aylmer: Okay. So just quickly on these, because I don't want 85 00:04:44,110 --> 00:04:47,890 Sean Aylmer: to spend too much time on Ukraine and China, but is it 86 00:04:47,890 --> 00:04:50,900 Sean Aylmer: the fact that, with the invasion of Ukraine, we're getting 87 00:04:50,900 --> 00:04:52,770 Sean Aylmer: used to it, and markets are taking it a little 88 00:04:52,770 --> 00:04:53,740 Sean Aylmer: bit more in their stride? 89 00:04:54,500 --> 00:04:56,330 Rich Nuzum: I think you're right, but I'll take a second to 90 00:04:56,330 --> 00:05:01,600 Rich Nuzum: comment that the humanitarian crisis is huge and occupying thoughts 91 00:05:01,600 --> 00:05:04,740 Rich Nuzum: for a lot of people, including investors. But when they 92 00:05:04,820 --> 00:05:09,450 Rich Nuzum: then look at the economic implications, the markets did relatively 93 00:05:09,450 --> 00:05:12,390 Rich Nuzum: quickly factor in the risk and other impact of the 94 00:05:12,390 --> 00:05:16,250 Rich Nuzum: invasion. I think it was three weeks after the invasion 95 00:05:16,250 --> 00:05:19,099 Rich Nuzum: started, markets were trading higher, stock markets, than the night 96 00:05:19,100 --> 00:05:22,440 Rich Nuzum: before the invasion. And the volatility index was back down 97 00:05:22,440 --> 00:05:24,230 Rich Nuzum: to a lower level than the night before the invasion. 98 00:05:24,230 --> 00:05:27,360 Rich Nuzum: So the fact that this did not become a shooting 99 00:05:27,360 --> 00:05:31,039 Rich Nuzum: war between NATO and Russia, thank God, or at least 100 00:05:31,040 --> 00:05:34,290 Rich Nuzum: has not yet, the markets didn't get their worst case 101 00:05:34,290 --> 00:05:39,159 Rich Nuzum: scenario. I recognize, saying that, that the humanitarian crisis is 102 00:05:39,160 --> 00:05:42,810 Rich Nuzum: huge. But yeah. Markets largely factored it in. Now, markets 103 00:05:42,810 --> 00:05:46,529 Rich Nuzum: are still factoring lower growth for Western Europe as Western 104 00:05:46,529 --> 00:05:50,120 Rich Nuzum: Europe tries to move itself away from Russian energy supplies, 105 00:05:50,120 --> 00:05:54,440 Rich Nuzum: and dependence on Russian gas in particular, and Russia's most 106 00:05:54,440 --> 00:05:57,410 Rich Nuzum: recent announcement of cutting off gas supplies or disrupting gas 107 00:05:57,410 --> 00:06:01,070 Rich Nuzum: supplies to Poland and Bulgaria. Last time we talked, I 108 00:06:01,160 --> 00:06:03,589 Rich Nuzum: think I opined that I hoped Putin wouldn't move forward 109 00:06:03,589 --> 00:06:06,390 Rich Nuzum: with the invasion, because it would be horrible for Russia 110 00:06:06,390 --> 00:06:08,260 Rich Nuzum: that Russia would get kicked out of the global economic 111 00:06:08,260 --> 00:06:12,060 Rich Nuzum: system. I don't think I foresaw how quickly and thoroughly 112 00:06:12,060 --> 00:06:16,100 Rich Nuzum: that would happen, the level of sanctions coordination. But cutting 113 00:06:16,100 --> 00:06:19,810 Rich Nuzum: off gas supplies to two neighbors that are already worried 114 00:06:19,810 --> 00:06:24,110 Rich Nuzum: about your aggressive tendencies, that's just going to accelerate energy 115 00:06:24,110 --> 00:06:27,960 Rich Nuzum: independence in Poland and Bulgaria, and in Western Europe. That's not 116 00:06:27,960 --> 00:06:32,359 Rich Nuzum: an easy thing for democratic governments to navigate, to tell 117 00:06:32,360 --> 00:06:36,200 Rich Nuzum: their citizens, " Hey. We're going to do something really painful 118 00:06:36,200 --> 00:06:38,219 Rich Nuzum: for our economy. You're going to see your prices go 119 00:06:38,220 --> 00:06:39,700 Rich Nuzum: up. You may even not be able to afford to 120 00:06:39,700 --> 00:06:41,670 Rich Nuzum: heat your home. But we're going to do it for 121 00:06:41,670 --> 00:06:44,700 Rich Nuzum: the greater good." That would've been tougher if it were 122 00:06:44,700 --> 00:06:47,410 Rich Nuzum: for the Ukrainian people than if it's in response to 123 00:06:47,529 --> 00:06:50,089 Rich Nuzum: really aggressive action by Russia, including actually cutting off the 124 00:06:50,089 --> 00:06:52,170 Rich Nuzum: supplies. When you say to people, " We want to do 125 00:06:52,170 --> 00:06:53,820 Rich Nuzum: this for the greater good," that's tough. When you say, " 126 00:06:53,820 --> 00:06:55,690 Rich Nuzum: We have to do this, because our neighbor just cut 127 00:06:55,690 --> 00:06:58,820 Rich Nuzum: off our supplies," well, that's a national call to action. 128 00:06:58,820 --> 00:07:02,849 Rich Nuzum: That unifies people. So once again, Putin's engaged in activity 129 00:07:02,850 --> 00:07:05,339 Rich Nuzum: that's actually unifying his enemies, and going to realize his 130 00:07:05,339 --> 00:07:08,290 Rich Nuzum: worst case scenario more quickly than if he'd not taken 131 00:07:08,290 --> 00:07:08,730 Rich Nuzum: that action. 132 00:07:09,100 --> 00:07:10,800 Sean Aylmer: Stay with me, Rich. We'll be back in a minute. 133 00:07:16,490 --> 00:07:19,520 Sean Aylmer: I'm speaking to Rich Nuzum, president of wealth at Mercer. 134 00:07:20,000 --> 00:07:23,560 Sean Aylmer: Okay. Closer to home, the zero COVID policy followed by 135 00:07:23,560 --> 00:07:28,040 Sean Aylmer: Beijing. Obviously, that has hit commodities, which affects Australia directly. 136 00:07:28,590 --> 00:07:31,590 Sean Aylmer: The question for Australia particularly is how fast will China 137 00:07:31,590 --> 00:07:35,230 Sean Aylmer: grow in the next year or two, and do you think it 138 00:07:35,230 --> 00:07:38,760 Sean Aylmer: will stick to the zero COVID policy, because that has economic 139 00:07:38,760 --> 00:07:39,740 Sean Aylmer: growth implications. 140 00:07:40,340 --> 00:07:42,070 Rich Nuzum: I don't know if it will stick to the zero 141 00:07:42,070 --> 00:07:46,300 Rich Nuzum: COVID policy. I think there are two underlying uncertainties on 142 00:07:46,300 --> 00:07:50,270 Rich Nuzum: that. One is who's advising Chinese leadership. Is it an 143 00:07:50,270 --> 00:07:55,040 Rich Nuzum: echo chamber, or will they get diverse views? So the 144 00:07:55,040 --> 00:07:58,500 Rich Nuzum: idea that the economic harm being done by zero COVID 145 00:07:58,590 --> 00:08:01,710 Rich Nuzum: is bigger than the economic harm of opening things up 146 00:08:01,710 --> 00:08:04,890 Rich Nuzum: and letting the virus run its course, will that debate 147 00:08:04,890 --> 00:08:07,300 Rich Nuzum: happen in an open, transparent way, as it has in 148 00:08:07,300 --> 00:08:10,260 Rich Nuzum: other nation states? We've ended up now pretty much opening 149 00:08:10,260 --> 00:08:12,930 Rich Nuzum: up and letting the pandemic become endemic and run its 150 00:08:12,930 --> 00:08:16,330 Rich Nuzum: course. Will that debate happen in China and have the 151 00:08:16,330 --> 00:08:20,370 Rich Nuzum: same result? The other uncertainty is how well the domestic 152 00:08:20,370 --> 00:08:26,190 Rich Nuzum: Chinese vaccines actually work. The conspiracy theory that market strategists 153 00:08:26,190 --> 00:08:29,530 Rich Nuzum: are really worried about is is the problem actually that 154 00:08:29,600 --> 00:08:33,001 Rich Nuzum: the Chinese vaccines don't work as well as the (inaudible) 155 00:08:33,001 --> 00:08:37,329 Rich Nuzum: Chinese vaccines. The Chinese government knows that, and will 156 00:08:37,330 --> 00:08:40,500 Rich Nuzum: not let the pandemic become endemic, because its population doesn't 157 00:08:40,500 --> 00:08:43,210 Rich Nuzum: have the resistance that much of at least the developed 158 00:08:43,210 --> 00:08:46,090 Rich Nuzum: world has built up through vaccination. So by letting it 159 00:08:46,090 --> 00:08:48,340 Rich Nuzum: rip, they'd have a much worse health outcome than we've 160 00:08:48,340 --> 00:08:52,520 Rich Nuzum: seen in Australia, Western Europe, North America, from letting the 161 00:08:52,520 --> 00:08:56,820 Rich Nuzum: virus run its course. Now, the virus may dictate ... not 162 00:08:56,820 --> 00:08:59,809 Rich Nuzum: policy, but the virus may run its course anyway. It's 163 00:08:59,809 --> 00:09:01,970 Rich Nuzum: become more and more transmissible as time has come on. 164 00:09:01,970 --> 00:09:05,109 Rich Nuzum: It's not clear that the lockdowns ... They may restrict growth 165 00:09:05,110 --> 00:09:07,300 Rich Nuzum: in cases, but they don't ultimately keep the virus from 166 00:09:07,300 --> 00:09:11,360 Rich Nuzum: spreading, even in the Chinese case, with fairly draconian policy. 167 00:09:11,800 --> 00:09:15,590 Rich Nuzum: So lots of uncertainties there. Longterm, China will grow quickly 168 00:09:15,590 --> 00:09:20,270 Rich Nuzum: and be a locomotive for the global economy. But how 169 00:09:20,270 --> 00:09:24,410 Rich Nuzum: quickly China relaxes the one COVID policy, there's no certainty 170 00:09:24,410 --> 00:09:28,429 Rich Nuzum: about that, because we don't know, to start with, what 171 00:09:28,429 --> 00:09:31,010 Rich Nuzum: that policy debate will result in. But then the underlying 172 00:09:31,230 --> 00:09:34,309 Rich Nuzum: science of both progress of the virus and effectiveness of 173 00:09:34,309 --> 00:09:37,170 Rich Nuzum: the Chinese vaccines, again, open questions about both. 174 00:09:37,170 --> 00:09:39,790 Sean Aylmer: Okay. Now, Rich, I can't not ask you about tech 175 00:09:39,790 --> 00:09:42,809 Sean Aylmer: stocks. Earnings season in the US has actually been pretty 176 00:09:42,809 --> 00:09:47,340 Sean Aylmer: good. Mind you, the market hasn't reflected straight out earnings. 177 00:09:47,840 --> 00:09:50,850 Sean Aylmer: The tech stocks, it just seems to me they're extremely 178 00:09:50,850 --> 00:09:55,580 Sean Aylmer: volatile, but the good companies, with diverse income streams, seem 179 00:09:55,630 --> 00:09:57,470 Sean Aylmer: to be doing okay. The others aren't. 180 00:09:58,170 --> 00:10:01,059 Rich Nuzum: Yeah. I think, in a way, it's a return to 181 00:10:01,059 --> 00:10:04,559 Rich Nuzum: fundamentals. It's heartening, even though, if you're a tech stock 182 00:10:04,559 --> 00:10:07,559 Rich Nuzum: investor, you've had a rough ride year to date. What's 183 00:10:07,559 --> 00:10:11,360 Rich Nuzum: basically happened is that the companies that have missed earnings 184 00:10:11,400 --> 00:10:16,270 Rich Nuzum: projections, or taken their revenue curves down, have gotten absolutely 185 00:10:16,270 --> 00:10:19,109 Rich Nuzum: hammered by the stock market, because much of their stock 186 00:10:19,110 --> 00:10:22,470 Rich Nuzum: price is reliant on expectations for future growth and earnings, 187 00:10:22,740 --> 00:10:26,230 Rich Nuzum: not current earnings yields. And companies like Microsoft, that beat 188 00:10:26,230 --> 00:10:29,040 Rich Nuzum: earnings, have been rewarded, at least on a relative basis. 189 00:10:29,040 --> 00:10:32,510 Rich Nuzum: So it's a return to fundamentals of if you deliver 190 00:10:32,510 --> 00:10:34,890 Rich Nuzum: what the street expects, and your business model is working, 191 00:10:35,190 --> 00:10:38,360 Rich Nuzum: you can maintain a high valuation. If you miss, or 192 00:10:38,360 --> 00:10:41,360 Rich Nuzum: you change expectations because your business model's being impacted in 193 00:10:41,360 --> 00:10:44,900 Rich Nuzum: a way that you hadn't told your investors about yet, 194 00:10:45,110 --> 00:10:47,810 Rich Nuzum: then your stock price is going to get hammered quickly. 195 00:10:48,220 --> 00:10:51,590 Rich Nuzum: I think also the rise in nominal long term yield 196 00:10:51,590 --> 00:10:54,319 Rich Nuzum: curves with what we talked about earlier on monetary policy 197 00:10:54,320 --> 00:10:57,300 Rich Nuzum: and expectations about that. Again, it's not long term US 198 00:10:57,300 --> 00:11:01,000 Rich Nuzum: dollar yields at 6% or 10%, but even a rise from 199 00:11:01,000 --> 00:11:04,800 Rich Nuzum: sub 2% to high 2s. That discounts those future earnings of 200 00:11:04,900 --> 00:11:08,120 Rich Nuzum: the tech companies at a much higher rate. So their 201 00:11:08,120 --> 00:11:10,510 Rich Nuzum: prices were going to be hurt more than companies that 202 00:11:10,510 --> 00:11:13,200 Rich Nuzum: are very reliant on current earnings yields. But I think, 203 00:11:13,450 --> 00:11:15,970 Rich Nuzum: really, the volatility in the sector, and as you flag 204 00:11:16,190 --> 00:11:18,500 Rich Nuzum: the big gap between what's happening to stock prices of 205 00:11:18,500 --> 00:11:22,740 Rich Nuzum: winners versus losers, it's all dependent on what is management 206 00:11:22,740 --> 00:11:26,069 Rich Nuzum: telling their investor community about how the business model is 207 00:11:26,070 --> 00:11:28,770 Rich Nuzum: working and is going to work, and really, the quarterly 208 00:11:28,770 --> 00:11:31,370 Rich Nuzum: scorecard of what earnings and what cash flows are they 209 00:11:31,370 --> 00:11:35,350 Rich Nuzum: actually delivering. The companies where that story is maintained are 210 00:11:35,350 --> 00:11:38,350 Rich Nuzum: doing fine on a relative basis, even if the overall 211 00:11:38,350 --> 00:11:40,790 Rich Nuzum: market's down. The companies where there's a disappointment in that 212 00:11:40,790 --> 00:11:44,230 Rich Nuzum: or a change, where, for example, pandemic reopening takes your 213 00:11:44,230 --> 00:11:46,650 Rich Nuzum: number of subscribers down instead of up in a business 214 00:11:46,650 --> 00:11:50,939 Rich Nuzum: model where everybody expected subscriber growth to continue, you're going 215 00:11:51,100 --> 00:11:53,630 Rich Nuzum: to see a big change in your valuation, but still 216 00:11:53,630 --> 00:11:56,929 Rich Nuzum: have a profitable business and still have growth. None of 217 00:11:56,929 --> 00:12:00,580 Rich Nuzum: this changes the appetite of the institutional investors we advise 218 00:12:00,580 --> 00:12:03,970 Rich Nuzum: to invest in venture capital, early stage growth, tech in 219 00:12:03,970 --> 00:12:08,290 Rich Nuzum: general, or of strategic companies, big companies to pursue digitalization. 220 00:12:08,890 --> 00:12:11,760 Rich Nuzum: Those trends are all alive and well, and running under 221 00:12:11,760 --> 00:12:14,679 Rich Nuzum: the surface, but there are individual winners and losers at 222 00:12:14,679 --> 00:12:15,329 Rich Nuzum: the company level. 223 00:12:16,790 --> 00:12:20,720 Sean Aylmer: Okay. The other trend, and the final one I just want to mention, is ESG. We heard so much 224 00:12:20,720 --> 00:12:23,580 Sean Aylmer: about it last year. It's come off the boil, at 225 00:12:23,580 --> 00:12:26,340 Sean Aylmer: least in terms of the media headlines, as much as 226 00:12:26,340 --> 00:12:29,790 Sean Aylmer: anything because of oil and gas prices, but in terms 227 00:12:29,790 --> 00:12:32,590 Sean Aylmer: of investors, it remains as important as ever? 228 00:12:33,050 --> 00:12:37,001 Rich Nuzum: It sure does. Not just E and, in particular, (inaudible) 229 00:12:37,001 --> 00:12:42,320 Rich Nuzum: , but S with labor practices and the practices of 230 00:12:42,320 --> 00:12:45,020 Rich Nuzum: the nation states that are hosting the companies that you're 231 00:12:45,020 --> 00:12:48,210 Rich Nuzum: investing in. I think that's gotten greater scrutiny post Russia's 232 00:12:48,330 --> 00:12:51,410 Rich Nuzum: horrible actions towards Ukraine. But I think what's changing in 233 00:12:51,620 --> 00:12:56,689 Rich Nuzum: ESG is a shift away from simplistic divest or be 234 00:12:56,690 --> 00:13:00,240 Rich Nuzum: named and shamed, one size fits all approaches, to a 235 00:13:00,240 --> 00:13:05,140 Rich Nuzum: view that actually ... For example, the traditional energy companies need 236 00:13:05,140 --> 00:13:08,750 Rich Nuzum: to be part of the solution. They're not the problem 237 00:13:08,750 --> 00:13:11,449 Rich Nuzum: per se. The problem is we have a global economy 238 00:13:11,450 --> 00:13:14,520 Rich Nuzum: that's relying on carbon emitting energy sources. A lot of 239 00:13:14,520 --> 00:13:17,770 Rich Nuzum: the supply chains we need to access with renewable technologies 240 00:13:17,770 --> 00:13:21,010 Rich Nuzum: to fix that. A lot of the really smart scientists 241 00:13:21,190 --> 00:13:24,589 Rich Nuzum: that would commercialize in renewable technology, and get that energy 242 00:13:24,590 --> 00:13:27,160 Rich Nuzum: in the hands of consumers and businesses, are working for 243 00:13:27,160 --> 00:13:30,660 Rich Nuzum: the traditional energy companies. The traditional energy companies, by and 244 00:13:30,670 --> 00:13:33,940 Rich Nuzum: large, are playing a really important role in migrating power 245 00:13:33,940 --> 00:13:38,020 Rich Nuzum: grids and energy away from the worst carbon emitting sources 246 00:13:38,020 --> 00:13:41,870 Rich Nuzum: towards renewables. We don't yet have the battery technology. We 247 00:13:41,870 --> 00:13:44,120 Rich Nuzum: don't yet have the volume of production. We don't yet 248 00:13:44,120 --> 00:13:46,820 Rich Nuzum: have the cost curves down to where the global economy 249 00:13:46,820 --> 00:13:49,579 Rich Nuzum: can switch to 100% renewables, but we're definitely on that 250 00:13:49,580 --> 00:13:55,020 Rich Nuzum: path. So a naive divest all the traditional energy companies 251 00:13:55,020 --> 00:13:58,920 Rich Nuzum: and only invest in renewables, in my opinion, doesn't work. 252 00:13:58,920 --> 00:14:02,440 Rich Nuzum: It doesn't fix the problem. If everybody did that, and 253 00:14:02,440 --> 00:14:05,130 Rich Nuzum: we had no traditional energy companies, we'd have massive poverty. 254 00:14:05,580 --> 00:14:08,210 Rich Nuzum: I think one thing we've seen is that when an 255 00:14:08,210 --> 00:14:12,699 Rich Nuzum: economy's doing well, a democratic capitalist country can adopt ESG 256 00:14:12,700 --> 00:14:17,030 Rich Nuzum: policies, and pursue transition in its power grid, and do 257 00:14:17,030 --> 00:14:20,360 Rich Nuzum: other things that help fix this problem. When an economy 258 00:14:20,360 --> 00:14:23,740 Rich Nuzum: goes into recession and has unemployment, even the US economy 259 00:14:23,740 --> 00:14:27,290 Rich Nuzum: under the first Obama administration ... As an example, the Obama 260 00:14:27,290 --> 00:14:30,590 Rich Nuzum: administration came in with the intent of putting a price 261 00:14:30,590 --> 00:14:33,850 Rich Nuzum: on carbon, and doing things on climate. The economy went 262 00:14:33,850 --> 00:14:36,850 Rich Nuzum: into recession. And that policy could not, as a practical 263 00:14:36,850 --> 00:14:41,780 Rich Nuzum: political matter, be pursued. We have the strong, underlying economic 264 00:14:41,780 --> 00:14:44,880 Rich Nuzum: growth, the overheating that we talked about earlier. We've got 265 00:14:44,880 --> 00:14:47,010 Rich Nuzum: some things to get through in terms of supply chains, 266 00:14:47,010 --> 00:14:50,970 Rich Nuzum: and inflation, and energy price disruption. But to the extent 267 00:14:50,970 --> 00:14:52,910 Rich Nuzum: the global economy continues to do well, that will create 268 00:14:52,910 --> 00:14:57,020 Rich Nuzum: room to solve the climate issue. I'm very optimistic about 269 00:14:57,020 --> 00:15:00,550 Rich Nuzum: disruptive technology. I follow the cost curves closely, because our 270 00:15:00,550 --> 00:15:03,250 Rich Nuzum: clients are invested heavily in clean tech and green tech. 271 00:15:04,320 --> 00:15:06,520 Rich Nuzum: We can see the renewable energy cost curves coming down 272 00:15:06,520 --> 00:15:09,729 Rich Nuzum: below traditional energy sources. The issue then is how do 273 00:15:09,730 --> 00:15:13,020 Rich Nuzum: you get that energy to where it needs to be. 274 00:15:13,420 --> 00:15:16,690 Rich Nuzum: There needs to be further innovation and generation and batteries 275 00:15:16,690 --> 00:15:18,979 Rich Nuzum: and so on. But a lot of that technology and 276 00:15:18,980 --> 00:15:21,740 Rich Nuzum: knowhow is with the traditional energy companies. So most of our 277 00:15:21,740 --> 00:15:25,040 Rich Nuzum: clients are pursuing brown to green, and partnering with traditional 278 00:15:25,040 --> 00:15:28,050 Rich Nuzum: energy companies to make renewables happen, as opposed to a 279 00:15:28,050 --> 00:15:31,120 Rich Nuzum: more naive approach of, " You guys are evil. You guys 280 00:15:31,120 --> 00:15:32,900 Rich Nuzum: are good. We're only going to invest with the good." 281 00:15:33,470 --> 00:15:34,970 Sean Aylmer: Rich, thank you for talking to Fear and Greed. 282 00:15:35,490 --> 00:15:36,270 Rich Nuzum: Thank you for having me again. 283 00:15:36,850 --> 00:15:40,210 Sean Aylmer: That was Rich Nuzum, president of wealth at Mercer. This is 284 00:15:40,210 --> 00:15:42,420 Sean Aylmer: the Fear and Greed Daily Interview. Join us every morning 285 00:15:42,420 --> 00:15:48,070 Sean Aylmer: for the full episode of Fear and Greed, Australia's most popular business podcast. I'm Sean Aylmer. Enjoy your day.