Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
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Speaker 1: YouTube search Bloomberg Global News. They are the nation's biggest
Speaker 1: private employer, well known household corporate name, one known big
Speaker 1: time to our financial and investment audiences. We're talking about Walmart.
Speaker 1: It's also a company that is on a mission to
Speaker 1: become a regenerative company on all levels. So let's get
Speaker 1: into it with Walmart executive vice president and chief sustainability officer.
Speaker 1: She's also president of the Walmart Foundation, Kathleen McLoughlin, and
Speaker 1: she joins us on the phone from Canada. Kathleen, so
Speaker 1: nice to have you here on Bloomberg Business Week. How
Speaker 1: are you I'm great, Thanks Carol, thanks for having me.
Speaker 1: It's super to be here. Well, it's super to have
Speaker 1: you here because you guys see so much in our
Speaker 1: global economy, have to deal with so much in our
Speaker 1: global economy when it comes to supply chains. First of all,
Speaker 1: step back if we could, or look back past year.
Speaker 1: Tell us about the year on your world, uh, from
Speaker 1: your perspective at Walmart and the impact on e s
Speaker 1: G initiatives. Yeah, well, you know, our focus when it
Speaker 1: comes to e f G really is on shared value meeting.
Speaker 1: How do we as a business address the issues that
Speaker 1: are most important to our stakeholders, the societal issues that
Speaker 1: are relevant to our business important to the stakeholders, or
Speaker 1: we can make a difference through our business. And boy,
Speaker 1: what a year it's been. Um Covid obviously climates what
Speaker 1: we're hearing about nature, equity, economic opportunity for people. You know,
Speaker 1: we had it all and so you know, many ways
Speaker 1: when when COVID really struck, we thought, gosh, this is
Speaker 1: gonna make it things really challenging. Graphtakes step back. If anything,
Speaker 1: it's actually strength and their resolved and how us go
Speaker 1: faster on just about everything. Well, you know that's a
Speaker 1: great point, and I do wonder this last year laid
Speaker 1: bare things that we knew were already existing, existing in
Speaker 1: our society, but nonetheless kind of hit us bam in
Speaker 1: the face because we were all at home and kind
Speaker 1: of taking it in or feeling it. Has it helped
Speaker 1: in terms of the timelines and aggressiveness that you can
Speaker 1: apply to E s G goals at your company, Yeah,
Speaker 1: it has, you know, as you say, it really has
Speaker 1: been a moment when all of us, um, you know,
Speaker 1: I had to sit back and take notice. And I
Speaker 1: think we realized a few things. One is the power
Speaker 1: of individual action. You know, everybody acting together can really
Speaker 1: turn the corner on something that's global in scale. We
Speaker 1: learned that with COVID, we're seeing the same thing with
Speaker 1: climate or equity or other things. So it really did
Speaker 1: help us elevator ambition and in many ways we have
Speaker 1: moved faster. So you know, for example, in terms of
Speaker 1: the response to COVID, our first concern was associate safety
Speaker 1: and because we even continue to operate in terms of
Speaker 1: PPE and protective equipment, plexic glass, all those kinds of safeguards,
Speaker 1: additional emergency paid time off leave policies, hiring an additional
Speaker 1: five thousand people to put some slack in the system,
Speaker 1: will make it easier for folks to stay all that
Speaker 1: they felt they needed to and so on. So all
Speaker 1: of those kind of things. But in terms of our
Speaker 1: omni channel transformation to serve the customer well in a
Speaker 1: contact less way, we accelerated our expansion of O g
Speaker 1: P for example online grocery pickup sites, and we now
Speaker 1: offered that in three thousand, seven hundred to see locations,
Speaker 1: So we moved faster on that. You know. In terms
Speaker 1: of climate, we elevated our ambition. We were the first
Speaker 1: retailer years ago, back in two thousand sixteen to set
Speaker 1: a science based target for emissions reduction. Um, this last
Speaker 1: year we elevated our ambition and said, okay, let's set
Speaker 1: twenty forty as a date to get to zero emissions
Speaker 1: in our own operations. Not met zero, but euro and
Speaker 1: let's go faster. You know. UM, we did set out
Speaker 1: a broader aspiration to be to become a regenerative company,
Speaker 1: which for us means needing to go beyond just being
Speaker 1: sustainable but actually build back. Whether you're talking about climate,
Speaker 1: our natural ecosystems are equity and you know that's huge, right, Like,
Speaker 1: it's not just about reducing your impact, but then kind
Speaker 1: of bringing back our climate and our environment. Right, that's
Speaker 1: just one example. You know, we're now at a point
Speaker 1: we know from the science that we actually need to
Speaker 1: draw down emissions, you know, not just avoid further emissions.
Speaker 1: So it's a it's a higher bar. And similarly on equity,
Speaker 1: you know, we all felt the impact in a very
Speaker 1: visible way of what happened with George Floyd, and like
Speaker 1: many others, caused us to reconsider what could we do,
Speaker 1: What more could we do with the assets that we
Speaker 1: have When it's our jobs, our purchase orders around equity,
Speaker 1: and it's it's not a matter of holding steady on equity.
Speaker 1: We got a lot of work to do to elevate people,
Speaker 1: to address some of the wrongs of the past, and
Speaker 1: newly addressed your harbors of systemic racism. Hey, I wanted
Speaker 1: to ask you because you pointed out that you guys
Speaker 1: are working towards zero missions across your global operations by
Speaker 1: you know, without relying on all of those carbon offsets
Speaker 1: that a lot of companies put into effect and use.
Speaker 1: Why does it take help me out here? So that's
Speaker 1: what nineteen years from now. Um, part of me wants
Speaker 1: to say, and to be fair, I asked this of
Speaker 1: all the companies when we talk E. S G and
Speaker 1: all the big companies like yourself, why does it take
Speaker 1: so long? What is so difficult? Because most scientists are
Speaker 1: saying we're running out of time. If you look at
Speaker 1: what's going on the Pacific Northwest, just this like couple
Speaker 1: of weeks, the flooding in Germany, the flooding in China,
Speaker 1: we just maybe don't have another twenty years. Yeah, So
Speaker 1: let's be clear. Is the date will hit zero in
Speaker 1: scope one and two. It's not the date that you
Speaker 1: know we'll start working on stuff, right A. Scope one
Speaker 1: and two is direct impact and indirect impact like through
Speaker 1: suppliers and things. Correct. Um, that's go three. So our
Speaker 1: science based target covers all of it. Here's what we're doing,
Speaker 1: and here's to answer your question about So for our
Speaker 1: own operations, that includes the electricity to power our stores
Speaker 1: and our dcs you know, fulfillment centers and so on.
Speaker 1: It's our on site fuels, it's refrigeration equipment, refrigerants, and
Speaker 1: it's the tractor trailers you see on the road that
Speaker 1: our labeled Walmart. Right, it's the heavy rigs that are
Speaker 1: carrying products around. So all of that getting to zero
Speaker 1: takes time. Some of it goes fast, and by the way,
Speaker 1: we're working on it every day. So the science based
Speaker 1: target has us reducing emissions every year. It's not as
Speaker 1: if we wait. So you'll see if you look at
Speaker 1: our reporting, we've reduced our cumulative admission since two thousands,
Speaker 1: five teams substantially. You started on this, and every year
Speaker 1: we reduced for what will take the longest and what
Speaker 1: requires the technical breakthrough in those categories the long haul
Speaker 1: transportation and Kathleen, you know it is impressive. You go
Speaker 1: to your website and you look at the different you know,
Speaker 1: programs and initiatives that you guys are working on specifically
Speaker 1: and making progress. Uh. And when it comes to your
Speaker 1: impact on the environment, I do wonder when you set
Speaker 1: out goals. We had an interesting Bloomberg story last week
Speaker 1: that just said governments need to get more proactive, that
Speaker 1: we almost need a response to climate and e s G.
Speaker 1: We need the government to kind of create crisis programming
Speaker 1: just like they did for the pandemic, to get to
Speaker 1: be able to kind of help the world and companies
Speaker 1: get two goals faster. What's the company's take on that? Yeah,
Speaker 1: you know, absolutely, science based government policy that's consistent about
Speaker 1: a predictable operating environment and creates the appropriate incentive. You know,
Speaker 1: again align with the science is needed. Um. We saw
Speaker 1: it in COVID. I think the same can be said
Speaker 1: for climate. Um. Having some type of mechanism to encourage
Speaker 1: climate action is something we would really welcome. Well, and
Speaker 1: then are there any specific initiatives that you think that
Speaker 1: the government could be helpful on? Well, I think what
Speaker 1: you raised in terms of climate action, um, And you know,
Speaker 1: I'm not a policy maker. I don't know the specific
Speaker 1: public policy mechanisms that would be best, but something that
Speaker 1: would encourage climate action in line with what we need
Speaker 1: to get to around a one and a half degree
Speaker 1: warming scenario. You know, that's what we're shooting for through
Speaker 1: our own actions. And you know, I'd say we're going
Speaker 1: to do what we're doing in line with the science regardless.
Speaker 1: But I think it would help, especially in some of
Speaker 1: these areas. I mentioned transportation as one where we need
Speaker 1: technological innovation to actually achieve our goal by driving forty
Speaker 1: for certainly long haul transportation. Having favorable policy environment for
Speaker 1: something like the carbonizing transportation would be just an example. Well,
Speaker 1: it's interesting too because I've been talking m We had
Speaker 1: a Bloomberg Global Sustainable Summit here recently and talking with
Speaker 1: the Cisco CFO and the CFO over at a bm
Speaker 1: BEV in there chief sustainability officers as well, and you know,
Speaker 1: there's lots of conversations about, you know, using government policy
Speaker 1: maybe to impact truckers to some extent because they create
Speaker 1: the most usage and destruction, if you will, to our
Speaker 1: roadways when we're talking about infrastructure, and how by doing
Speaker 1: so that might help create more innovation right to a
Speaker 1: more sustainable way. And so I hear what you're saying
Speaker 1: when it comes to trucking, because that's a big initiative,
Speaker 1: and you do wonder whether you know government policy along
Speaker 1: those lines can make a difference, right right, So, and
Speaker 1: then you know, coming back something you're asking me before
Speaker 1: the break in terms of emissions reduction, Um, you asked
Speaker 1: a really good question, which is, gosh, doesn't twenty four
Speaker 1: you seemilate certainly would be late for the action. But
Speaker 1: the science based targets set out a trajectory that we
Speaker 1: are following that has us reducing, um, you know, day
Speaker 1: by days. So for example, our most recent reporting of
Speaker 1: our calendar year two dozen nineteen emissions, we're down over
Speaker 1: twelve percent where we started in our two fifteen baseline,
Speaker 1: and we're about to come out with our latest numbers
Speaker 1: for which you'll see that, you know, for the decrease.
Speaker 1: So um, please don't take me as to just wait
Speaker 1: till we're moving as quickly as we and day by
Speaker 1: day that's the that's the day we get to zero
Speaker 1: on our scope one and two. Well, I have to say,
Speaker 1: what really caught my attention, and we were talking about
Speaker 1: this in our planning, is you guys are committed to protecting,
Speaker 1: restoring fifty million acres of land, one million square miles
Speaker 1: of ocean. Uh, you know you're doing these things aggressively.
Speaker 1: You're thinking about our community at large? What really moves
Speaker 1: the needle? Do you think when it comes to reducing
Speaker 1: our world, our corporate world are everyone's impact on the
Speaker 1: environment And just got about forty seconds left here? Okay,
Speaker 1: well sorry, environmental goals we're now we're now learning that
Speaker 1: natural ecosystems are as challenge a climate. So that's why
Speaker 1: we set that goal and it is about rewiring food production,
Speaker 1: production of other products so that the way we do
Speaker 1: that is regenerative to nature. We enhance for our health,
Speaker 1: we can improve water quality, we can improve our diversity.
Speaker 1: That's what's needed in our secret sauce as Walmart, and
Speaker 1: we invite other companies to do this too. Is to
Speaker 1: connect the big goals that we have to achieve a
Speaker 1: society to the practical action we can take through you know,
Speaker 1: in our case, business to retail business. And it's true
Speaker 1: for any company. And that's really what he has He
Speaker 1: is about and recognizing that those things create value, financial
Speaker 1: value for the company as well as health society address
Speaker 1: these tough challenges absolutely. It's why you see, you know increasingly, right,
Speaker 1: the CFO and the chief Sustainability Officer like yourself working
Speaker 1: hand in hand, because they do go hand in hand. Um, Kathleen,
Speaker 1: I know it's a big world and a big conversation,
Speaker 1: but thank you so much, and I hope we can
Speaker 1: continue it in the future because it's certainly something I
Speaker 1: know our audience increasingly cares about. She is Kathleen McLoughlin.
Speaker 1: She's Walmart Executive vice president, chief Sustainability Officer. On the
Speaker 1: phone in Canada. You're listening to Bloomberg Business Week with
Speaker 1: Carol Measure and Bloomberg Quick Takes Tim Stenovic on Bloomberg
Speaker 1: Radio the World the financial markets. You know, we've been
Speaker 1: obsessed this week a bit with the COVID delta variant,
Speaker 1: and rightfully so. One story in the Bloomberg Today warning
Speaker 1: us that more variants are coming and the US is
Speaker 1: not ready to track them. This story also a Bloomberg
Speaker 1: Big Take and in the upcoming new issue of Bloomberg
Speaker 1: Business Week magazine on newsstands, online and on the Bloomberg
Speaker 1: All Happening Tomorrow. Let's get to it with Bloomberg Business
Speaker 1: Week editor Jill Webber and Bloomberg News US Healthcare reporter
Speaker 1: Cynthia Kons, both of them in our Interactive Broker studio. Um,
Speaker 1: it's a mustry. There's a lot of information here. Is
Speaker 1: it a feel good story? It's well no, I don't
Speaker 1: think so. There's a little bit of Colonel of Hope
Speaker 1: in here. But you know, the thing down we actually
Speaker 1: started talking about this story, um a while ago, and
Speaker 1: the thing that just made me um my ears perk
Speaker 1: cup was because at that time, variants, I don't they
Speaker 1: were not part of the bigger conversation, And in Cynthia
Speaker 1: was like, you know, there's this a threat that variants
Speaker 1: are going to come at us. We're gonna have more
Speaker 1: than one of them. But the bigger thing is we
Speaker 1: don't actually know how to track them the US. Other
Speaker 1: people actually do do a better job of this, But
Speaker 1: that sort of the takeaway from the story is genetic
Speaker 1: sequencing is not something that has really been prioritized in
Speaker 1: the US. So the little kernel of hope is that
Speaker 1: there is this little patchwork quilt that I think we're
Speaker 1: going to talk about a little bit. But but Cynthia,
Speaker 1: why is the US not doing genetic sequencing at scale
Speaker 1: and and why are we effectively flying blind without it? Yeah, well,
Speaker 1: it's a money issue. Um, there's no real center. Now.
Speaker 1: The CDC has some money from the Biden administration, but
Speaker 1: they're giving it out. It's not moving very quickly from
Speaker 1: what I hear from scientists in the field. But when
Speaker 1: it came down to it, we had these genomic labs
Speaker 1: at academic universities and they would seek, you know, grants,
Speaker 1: or they would apply for money and they would get rejected.
Speaker 1: And this happened to so many scientists. I know one
Speaker 1: turn to crowdfunding, but he didn't get much money from that,
Speaker 1: and their one actually was very dejected and about to
Speaker 1: run out of money, and someone who turned her down
Speaker 1: five months prior because they didn't realize the importance of
Speaker 1: variant tracking came back and said, wait, wait, we want
Speaker 1: to give you money. So she reapplied. So it was
Speaker 1: a lot of really slap dash getting money where and
Speaker 1: how you could. And it wasn't Hey, here's a substantial
Speaker 1: amount of money. It's going to be invested through academic
Speaker 1: centers and different parts of the healthcare system to get
Speaker 1: this done to well. First of all, I feel like
Speaker 1: you went through went out a rabbit hole when it
Speaker 1: came to labs that are trying to do this and
Speaker 1: put it together. Why is it so important that we
Speaker 1: do this sequencing? So this is how we find mutations,
Speaker 1: and so virus like COVID's changing all the time and
Speaker 1: you have to do a lot of sequencing to figure
Speaker 1: out what's important, and that there are tons of changes
Speaker 1: within the virus that don't matter, and to matter, it
Speaker 1: has to be, you know, significant in terms of its
Speaker 1: infectiousness or how it harms a person. Potentially they get
Speaker 1: sicker things of that nature, artifacts, younger patients worse, or
Speaker 1: something like that. There are distinct things that make mutations concerning,
Speaker 1: but the very virus is changing all the time, so
Speaker 1: you need to be keeping an eye on it in
Speaker 1: such a huge way in order to get enough data
Speaker 1: to say that this specific mutation is doing X, y
Speaker 1: or z to patients. And once you have that data,
Speaker 1: then you have a better handle on how to enact measures.
Speaker 1: This is how they decide, say the mask mandate may
Speaker 1: come back, or there may be longer quarantine time, versus
Speaker 1: waiting to see the impact on the population. We need
Speaker 1: to see it's too late because then the disease just
Speaker 1: continues to exactly exactly. That's kind of how you would
Speaker 1: think of it in terms of the best key scenario
Speaker 1: of public health officials had the information fast enough, they
Speaker 1: could lock it down really fast. Granted, it feels like
Speaker 1: we're in a post lockdown world, but not necessarily just
Speaker 1: in the US, it doesn't. It seems like that might
Speaker 1: not be the next That might be a strategy that's
Speaker 1: readily employed at this stage, but still it could be.
Speaker 1: If we know we have a highly infectious or highly
Speaker 1: deadly version things could be done to stop it from
Speaker 1: spreading too quickly. So the some of this sequencing is
Speaker 1: actually happening in New York in in Queens right. Talk
Speaker 1: to us about the Pandemic Response Lab and the work
Speaker 1: that they do. It's Pearl for those of us who
Speaker 1: are cool Jill so Pearl, as it's called. This was
Speaker 1: an effort by a company called opent Trons. They do
Speaker 1: they create robots that help automate labs, and they basically
Speaker 1: applied to be a COVID testing center and they became
Speaker 1: this pandemic Response Lab and they were a COVID testing
Speaker 1: center for New York City and they augmented the city
Speaker 1: health efforts and that started in the fall. And what
Speaker 1: happened was early on they thought, okay, but let's figure
Speaker 1: out what's going on mutations. So they tried to, you know,
Speaker 1: convene with health officials and figure out if they could
Speaker 1: get some money to start sequencing. And there was just
Speaker 1: no money for it. Again coming back to the initial
Speaker 1: issue of money. So because there's no money for it,
Speaker 1: but they were actually in a good position. They had
Speaker 1: a lot of the technology. They decided to set this
Speaker 1: up and do the sequencing on their own dime to
Speaker 1: start out, and so they're doing the sequencing, and they're
Speaker 1: giving New York all their data, and now they're participating
Speaker 1: in trying to get funding from other sources. But they
Speaker 1: did it basically on their own dime, which is pretty
Speaker 1: remarkable when you consider that's not how businesses typically operate.
Speaker 1: Right Who else is doing a good job of this
Speaker 1: in the US? There's states that are doing better than others,
Speaker 1: but they're still not There's still a lot of limitations
Speaker 1: within state based systems. But Michigan has a really strong system,
Speaker 1: but it still takes up to two weeks to identify
Speaker 1: and communicate a variant through the system that Michigan set up.
Speaker 1: But they are one of the bigger systems. There are
Speaker 1: some big labs around the country doing a lot of it,
Speaker 1: like Scripts in California. UM, there's different UM, the Chance
Speaker 1: Zuckerberg Group was doing it for a while. Now they're
Speaker 1: trying to move into helping educate labs around the country
Speaker 1: and get up and going. But there are definitely a
Speaker 1: lot of places that are doing it. The problem is
Speaker 1: there there's a lack of cohesion to create something that
Speaker 1: we would consider really a system through which these books
Speaker 1: are all participating in the same way. Well, if anything
Speaker 1: we've learned through the pandemic is that we need like
Speaker 1: a coordinated response, right, and somebody in charge of But
Speaker 1: where's the CDC or the U. S. Government on this
Speaker 1: saying well, wait a minute, we do not want this
Speaker 1: to happen again, So let's create a coordinated effort, maybe
Speaker 1: led by the CDC, and coordinate all these labs. Yeah. See,
Speaker 1: this is a piece of the CDC. And they did
Speaker 1: get this money and they are going to spend it.
Speaker 1: But they told me, for example, are supposed to set
Speaker 1: up centers Centers of Excellence as part of the Biden proposal,
Speaker 1: which would help bridge the gap between some academic research
Speaker 1: where this is going on, and commercial labs and so
Speaker 1: on and so forth state labs. But they're not going
Speaker 1: to fund that until next year, the next fiscal years.
Speaker 1: So that's a problem. It's there's there's money, but it's
Speaker 1: taking a long time to flow through the system. And
Speaker 1: so basically, you know, someone proposed something to be At
Speaker 1: one point in my reporting, I thought it was really
Speaker 1: quite an interesting idea, like should pandemic preparedness sit inside
Speaker 1: of these big government groups or should it be its
Speaker 1: own segment of the government. Should there be an agency
Speaker 1: around pandemic preparedness because if you look at it, and
Speaker 1: I've covered this through vaccines as well, it's pieces of
Speaker 1: pandemic preparedness are kind of scattered throughout different parts of
Speaker 1: the government. And we do have a lot of pieces
Speaker 1: of pandemic comparedness, but we don't have a lot of cohesion,
Speaker 1: not yet, even after all we've been through. Okay, so
Speaker 1: there's a little Like I said, there was a little
Speaker 1: bit of hope, it's not all bad, but you know,
Speaker 1: stuff we could fix now, um abroad, does anybody else
Speaker 1: do this better? You know, are effectively I feel like
Speaker 1: we're flying blind. We don't know what variants are out there,
Speaker 1: how bad they are, what the what their capacity spread is.
Speaker 1: But has anybody else figured out how to do this
Speaker 1: yet or just just about the UK has done a
Speaker 1: remarkable job that came out of the gate really early
Speaker 1: March April. They were doing a remarkable amount of sequencing.
Speaker 1: When we say there's a UK variant, that's just because
Speaker 1: they've done the work to discover something that easily could
Speaker 1: have come from somewhere else. Um, when you think about it,
Speaker 1: possibly that's the same story with South Africa. So there
Speaker 1: are some countries and places doing it. We definitely need
Speaker 1: more of this around the world. We need some flexibility.
Speaker 1: But technology is also moving quickly, and as we're developing
Speaker 1: smaller and smaller and more handheld or easily use sequencing devices,
Speaker 1: perhaps we can get this technology out into the field faster.
Speaker 1: But it's going to take you know, money and sinkers
Speaker 1: crossed and money. Money is what makes it all happen,
Speaker 1: all right, Jil Webber Cynthia Coon's check out that story
Speaker 1: in a new issue of the magazine. This is Blue Bark.
Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes. Tim Stinovic on Bloomberg Radio. Stop yourself in, everyone, because,
Speaker 1: as he writes, a sloppy summer for stocks is going
Speaker 1: to test investor's stomachs. Here with more on his thinking,
Speaker 1: Bloomberg Market Senior Editor Mike Reagan, he joins us on
Speaker 1: the phone in New Jersey. You know, this is one
Speaker 1: of those things, you know, Mike, where it's like Monday
Speaker 1: was one day in the markets, and then Tuesday was
Speaker 1: a completely different day in the markets, and it's kind
Speaker 1: of a continuation of what we're seeing today. I don't
Speaker 1: know when someone gives you a mission, especially like on Monday,
Speaker 1: what are they saying to Mike, Mike, are we coming undone?
Speaker 1: What's going on? Yeah, that's that's kind of it. I mean, obviously,
Speaker 1: you know, we wanted to make some sense of that
Speaker 1: told me on Monday. Only not just Monday, but it
Speaker 1: started I don't know a little bit more more than
Speaker 1: a week ago, last Monday. And but even if you
Speaker 1: go further back and look under the hood of the
Speaker 1: market as you full full, No, I'm sure, it's just
Speaker 1: been odd to see the shift and leadership. You know,
Speaker 1: I've seen there was a lot of optimism about the
Speaker 1: vaccine early in the year, and kind of the sense
Speaker 1: that you know, the vaccine would sort of be a
Speaker 1: switch that would end the buyers. We'd all get back
Speaker 1: to life is normal. These reopening stocks, you your cruise lines,
Speaker 1: your hotels, your airlines, anything else that you know involves
Speaker 1: just getting out of the house would really be in
Speaker 1: the leadership um. And you know, the bond market given
Speaker 1: a sick similar signal that you know, good times we're
Speaker 1: on the horizon. Yields for rising, so for months are
Speaker 1: all that is un land. It's it's just made a
Speaker 1: big U turn UM. So it's kind of a fascinating
Speaker 1: sort of thing because you know, the vaccines are progressing UM.
Speaker 1: But I think the big thing is that the reopening UM,
Speaker 1: rather than being full steam ahead, sort of flick a
Speaker 1: switch and everyone's back to normal. UM. It's kind of
Speaker 1: about two steps forward and step back thing, especially with
Speaker 1: this delta variant and and all the other variants UH
Speaker 1: that are cropping up and may crop up in the future,
Speaker 1: and that it's really kind of taking the life out
Speaker 1: of that reopening trade. So so the stories trying to
Speaker 1: trying to make sense of that. At the same time,
Speaker 1: you know, people are still buying stocks regardless. Right. The
Speaker 1: experience be tied over the last year and a half
Speaker 1: is the market keeps going up, but it's that sort
Speaker 1: of back and forth and volatili among the leadership that
Speaker 1: I think for a professional investors it's very frustrating and
Speaker 1: very hard to navigate true UM. And this week is
Speaker 1: a pretty prime example of that. I mean again we're
Speaker 1: seeing now we're seeing those sort of cyclical energy and
Speaker 1: financial stocks taking the lead once again, with bond yields
Speaker 1: coming back up a little bit, oil coming back up,
Speaker 1: but you know it's a it's another case where like
Speaker 1: you said, you wake up tomorrow and and and and
Speaker 1: see if it's take a step back day rather than
Speaker 1: take a step forward day in that reopening trade. Well,
Speaker 1: the bond market also fascinating right to juxtapose against the
Speaker 1: equity market, and they obviously go hand in hand. You've
Speaker 1: got to look at both of them in this environment.
Speaker 1: But it's interesting, Mike, in terms of how equity investors
Speaker 1: read the bond market. I mean, we've got the tenure
Speaker 1: went what close to her hit one thirty maybe earlier
Speaker 1: today we're now at um. But what's interesting is higher
Speaker 1: rates usually indicate some inflation, the economy getting back to normal,
Speaker 1: but that can free so there's some you know, left brain,
Speaker 1: right brain. Some equity investors say, that's good, we're getting
Speaker 1: back to normal and growth. That's what we want to see.
Speaker 1: But then there's the other side. Oh wait, now the
Speaker 1: Fed's going to back off. But we should want to
Speaker 1: see the fedback off, right, because the only reason Fed's
Speaker 1: been so low and doing all these you know, quantitative measures,
Speaker 1: is because we needed it because of the pandemic. So
Speaker 1: how do you look at the two sides of this
Speaker 1: financial market. I think it's a matter of Carol of
Speaker 1: and you're absolutely right. You know, Uh, interest rates spodules
Speaker 1: are rising very fastly. That's that's scary. That's the states
Speaker 1: are gonna rise and then we're gonna go the other
Speaker 1: way when everyone's buying. But it's like, oh, well, that's bad.
Speaker 1: Someone in the bond market knows that, you know, the
Speaker 1: growth is gonna slow and and you know this is
Speaker 1: all you know coming to an end. But to me,
Speaker 1: I think and I think, oh, there's a lot of
Speaker 1: research that sort of backs this up. Is what really
Speaker 1: um scares people in the equity market is when the
Speaker 1: bond market behaves in an unexpected way, uh, and in
Speaker 1: a fast way. If if rates are rising and everyone's
Speaker 1: comfortable that, okay, we've got a rising rate environment. Um,
Speaker 1: they're not going up too fast. But we know what
Speaker 1: kind of stocks will benefit in that. So so we'll
Speaker 1: load on into banks and other sort of reflationary trades
Speaker 1: and that will be our leader. Kip and the On
Speaker 1: the other side, you know, the traders in the bond
Speaker 1: market are taken similar in they're saying, well, let's short
Speaker 1: the treasury. Let's let's all load into shorts on the
Speaker 1: treasury market and bet that they'll go down. So then
Speaker 1: you know when that positioning turns out to be off size.
Speaker 1: When okay, all of a sudden, everybody is betting on
Speaker 1: on a drop in bond prices and a rising yields,
Speaker 1: and all of a sudden they start going the other way. Well,
Speaker 1: that really just catches everyone on the wrong side of
Speaker 1: the playing field, right, and so they have to cover
Speaker 1: those shorts, and I think that sort of then bounces
Speaker 1: back into the equity market to some degree. If you
Speaker 1: if you have to buy bonds to cover your shorts,
Speaker 1: well maybe if you're a multi asset hedge fund, you're
Speaker 1: selling stocks to do that. Pay just quickly seconds here,
Speaker 1: I mean, there's also so much cash slashing around still, right,
Speaker 1: that's got to be given some support to the equity
Speaker 1: markets just quickly. Yeah. To me, that's a big sort
Speaker 1: of undertold story. I looked at the amount of money
Speaker 1: on deposit at commercial banks, the US seventeen trillion dollars,
Speaker 1: a third above where it was at this time in
Speaker 1: two thousand and nineteen before the pandemic. So to me,
Speaker 1: that's you know, that's a lot of money burning a
Speaker 1: hole in people's pockets. That's going to get spent somewhere.
Speaker 1: All right, good, good, good, good reporting as always, and
Speaker 1: this is in uh Business Week magazine. Mike, thank you
Speaker 1: so much for that. Really appreciate it. Bloomberg Markets Editor
Speaker 1: Mike Reagan on the phone in New Jersey. I'm groom
Speaker 1: Macro journal now, but you let me drive. No, no,
Speaker 1: no home, honey please, I'll do the riding drivel. I
Speaker 1: want to drive, Just drive baby, good question trying. This
Speaker 1: is the drive to the Globe Commune. Thanks. We'll drying
Speaker 1: us down on Bloomberg Radio. Just about ten and a
Speaker 1: half minutes left in today's trading session. It's been an
Speaker 1: interesting week already. But again here we are two days
Speaker 1: in a row. We see stocks trading higher after a
Speaker 1: Monday sell off. Let's get to it. Drive to the
Speaker 1: close with David Dietz back with us, managing Principal and
Speaker 1: senior portfolio strategist at Peapack Private Wealth. Manage it once
Speaker 1: again on the phone from SEMIT, New Jersey. Nine point
Speaker 1: four billion dollars in assets under management. David, So, it's
Speaker 1: been an interesting week. Uh, there's been some concerns about
Speaker 1: the delta variant. There's concerns about economic growth here in
Speaker 1: the US peaking. How do you see it, especially as
Speaker 1: we are just kind of smack in the middle of
Speaker 1: corporate earnings. Yeah. Absolutely. I mean, you know, if you
Speaker 1: had taken Monday and Tuesday off, you come in today
Speaker 1: after Friday, you would have thought nothing had happened when
Speaker 1: we had a uh, you know, a terrible day in
Speaker 1: the markets on Monday. But now we've got two back
Speaker 1: to back days with up volume and risk assets in favor.
Speaker 1: Again see for me, Carol. I mean, basically, if that
Speaker 1: was the extreme focus on the spike in the COVID
Speaker 1: cases due to the delta variant got people very worried.
Speaker 1: We heard about more mass mandates, potential lockdowns and so forth.
Speaker 1: Plus the plummeting ten year treasury yield really spooked investors.
Speaker 1: But what we've seen here is with earnings overall expected
Speaker 1: to be up seventy percent year over year, the best
Speaker 1: we've seen in terms of you over year for well
Speaker 1: over a decade. Getting some good reports. People are saying, hey,
Speaker 1: look at these earnings. These companies are powering through. Um. Uh,
Speaker 1: you know, the concerns we have over the COVID virus,
Speaker 1: and uh, the bond market woke up to that. We
Speaker 1: went from close to one point one to well into
Speaker 1: our one point to eight area. Um, suggesting that you know,
Speaker 1: risk austs that there are back in favor earnings backward
Speaker 1: looking outlooks are not h In terms of what you're
Speaker 1: hearing on outlook commentary, does it say to you that
Speaker 1: the growth momentum continues? We expected second quarter numbers to
Speaker 1: be pretty impressive, correct, I mean, if if they didn't
Speaker 1: come in impressive, we'd really have some problems here. Um.
Speaker 1: But so in terms of what you're hearing from the
Speaker 1: corporate community about whether or not the growth continues the
Speaker 1: second half, does it give you enough confidence to say
Speaker 1: that the an ups that we continue to see inequities
Speaker 1: make sense? So, you know, that really is a great question,
Speaker 1: because yeah, the problem with now turning says they are
Speaker 1: in the rear view mirror and investors really care about what,
Speaker 1: uh it's gonna happen going forward here. But you know, unbalanced. Um.
Speaker 1: One of the things we're looking at is the amount
Speaker 1: of cast is on corporate balance sheets. Now it's huge
Speaker 1: because since about two thousand and eighteen, and we also
Speaker 1: like the fact that a lot of buy backs are
Speaker 1: being announced. So for example, you know, Prudential just sold
Speaker 1: the division, they're gonna buy back about eleven percent of
Speaker 1: it's company in the next thirty months. Stuff like that
Speaker 1: gives premendous support. And what we'd like about that is
Speaker 1: that shows confidence that they're not going to need that
Speaker 1: cash for a crisis going forward. It shows confidence in
Speaker 1: the current valuations of the stocks, and I think it
Speaker 1: gives investors confidence that there's some served floor under the market,
Speaker 1: right But it's not like they're putting it to building
Speaker 1: new facilities, hiring more workers, giving workers pay raises that
Speaker 1: trickle down into the economy. David On, you know that, well,
Speaker 1: you know that's true, um But I've got my investor
Speaker 1: had On here and and sometimes you like it when companies,
Speaker 1: um are are not pie in the sky in terms
Speaker 1: of what they can do with the money in terms
Speaker 1: expand their business. They're taking a very measured approach, which
Speaker 1: actually may be the best from an investing point of view.
Speaker 1: You know, it's great to expand if you know that
Speaker 1: demand is going to be there. But if you have
Speaker 1: some expansion, some return of capital. Historically that's been best
Speaker 1: for stock prices. What does it mean for easing some
Speaker 1: of the supply chain problems if companies are not willing
Speaker 1: to maybe step up and boost what's needed to meet
Speaker 1: those supply demands, or if they don't get those workers back,
Speaker 1: how much of a kind of draw down or pullback
Speaker 1: will that create on the system That might then pull
Speaker 1: in some of the economic growth expectations and realities. Well,
Speaker 1: that you just touched on a key worry going forward,
Speaker 1: But I think you have to analyze what are all
Speaker 1: these bottlenecks due to. And it's a myriad of factors,
Speaker 1: but I would submit that one of them is the
Speaker 1: fact that a lot of employees, potential employees are hesitant
Speaker 1: to go back to work. All sorts of small businesses
Speaker 1: in our community are having trouble finding employees. We know
Speaker 1: with the high unemployment rates that they're out there. But
Speaker 1: what's going to make them go back. Well, I think
Speaker 1: the opening up of schools. I think perhaps when a
Speaker 1: supplemental payments from the government start to wane. I think
Speaker 1: also when we can finally get COVID better under control.
Speaker 1: Knock on wood, please everyone get their vaccines done. I
Speaker 1: think that's going to help the bottle change right there.
Speaker 1: And of course some of it is is global um
Speaker 1: supply chains and easing of COVID. There was gonna help
Speaker 1: just when I mention a headline crossing the Bloomberg term
Speaker 1: and all we were expecting. The Senate Republicans blocking the
Speaker 1: start of a debate on infrastructure. The Republicans want to
Speaker 1: finalize the bill before starting that debate, check Schumer. Of course,
Speaker 1: Senate Majority leader can call another vote to debate the
Speaker 1: bill next week. They were currently voting on the motion
Speaker 1: to vote closure culture, on the motion to proceed with
Speaker 1: that massive infrastructure wide ranging infrastructure building and HR three
Speaker 1: six eight four. We're talking about aid for highways, safety
Speaker 1: programs on highways, transit programs and others. But again Senate
Speaker 1: Republicans blocking that start of a debate on infrastructure. Hey David,
Speaker 1: you know that has been I think one of the
Speaker 1: other macro trends that we've been watching. If we're looking
Speaker 1: for things to provide some stimulus to the economy and
Speaker 1: even the financial market trade is infrastructure, which I'm kind
Speaker 1: of tired of talking about because how many administrations do
Speaker 1: we have to talk about before whether or not we
Speaker 1: get something done. Ultimately, do we get something done? In
Speaker 1: your view? Yeah, I do. Um, I think there's a
Speaker 1: general consensus that you're basic traditional infrastructure, road bridges and
Speaker 1: things for the bring the internet to everyone will get done.
Speaker 1: I think what the market kind of life here is
Speaker 1: to talk about how to pay for it? Seems to
Speaker 1: be keep being put off. Um, people like my daughters say,
Speaker 1: you know why worry about a bundget deficits. It doesn't
Speaker 1: seem to matter here. And so I think tax hikes
Speaker 1: are not going to be anytime soon. And so basically,
Speaker 1: again does the positive tie win to the market, more
Speaker 1: government spending in the risk higher taxes spoiling the party
Speaker 1: seems to be receiving a little bit Carol, all right,
Speaker 1: So where would you commit new money right now? Hey,
Speaker 1: you know we still like tilting two stocks. I mean,
Speaker 1: here's the number one thing to know that David and
Speaker 1: yield the sp F one point three five. It's rare
Speaker 1: that it's above the tenier treasure, which means over the
Speaker 1: next ten years are gonna get a lot more incoming
Speaker 1: stocks and then abunk stocks. We would tilt towards value. Now,
Speaker 1: why would we do that is because valuations are so
Speaker 1: much favor value versus growth. Now always since growth stocks
Speaker 1: generate earnings faster, there they have higher p s. But
Speaker 1: in this case they're about twelve percentage points higher than
Speaker 1: growth in in in terms of price to earnings ratio,
Speaker 1: that's three times what we normally see. Yet actually um
Speaker 1: growth in terms of earnings and growth stocks isn't projected
Speaker 1: to beat that much more than value stocks for the
Speaker 1: next five years. So I think that value offers you
Speaker 1: better opportunities that don't forget that sector of the market
Speaker 1: and Viacom CBS, uh slumberg A, Wells Fargo. Yes, so
Speaker 1: Schlumberg A, Wells Fargo traditional reopening stocks. I think as
Speaker 1: the world reopens you have more energy. Man slumber j
Speaker 1: A is your blue chip in that area. Wells Fargo
Speaker 1: of course, as you're one of your best bank franchises
Speaker 1: trading not too far above book value coast to coast.
Speaker 1: They're cleaning up some mishaps over the past couple of years,
Speaker 1: so that's going to take advantage of ultimately higher interest rates.
Speaker 1: Viacom CBS, they're in talked to perhaps partner up with
Speaker 1: Comcast streaming overseas now Carols at a first day or
Speaker 1: something that is going to go a little further Uporizon
Speaker 1: just reported today great growth and subscribers. Um. If you
Speaker 1: want a five G play, which is your right, with
Speaker 1: a good dividend, you can't go wrong there. I gotta run. David.
Speaker 1: Thanks David, d It's managing principal, senior portfolio strategy at
Speaker 1: Pepack Private Wealth Management, on the phone in Summit, New Jersey.
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