Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
Speaker 1: Jason Kelly. We're right here every day bringing you the
Speaker 1: latest news from the world's of business and finance, plus technology, politics, economics,
Speaker 1: all harnessing the power of Business Week reporters and editors.
Speaker 1: And of course Carol that's part of a team of
Speaker 1: twenty seven hundred journalists and analysts the more than a
Speaker 1: hundred and twenty countries and Jason. You can download Bloomberg
Speaker 1: Business Week on iTunes, SoundCloud, bl Bloomberg dot com. You
Speaker 1: can also listen to our radio show at two pm
Speaker 1: Eastern on Bloomberg Radio every weekday, or watch us on
Speaker 1: YouTube by searching Bloomberg Global News. Let's set the Business
Speaker 1: Week agenda, now a lot on it. Gina Martin Adams,
Speaker 1: Chief Equity Strategies for Bloomberg Intelligence. She's in New Jersey,
Speaker 1: as is Stave Wilson, Stocks Editor, author of the Chart
Speaker 1: and Stock of the Day. Gina, I want to start
Speaker 1: with you because it's a pretty gloomy picture across all
Speaker 1: the major indices. What are you seeing as you and
Speaker 1: your team really break it down? What's the big driver here? Yeah?
Speaker 1: I think it's have to articulate one driver or another.
Speaker 1: The SMP five opened this week testing key levels. We
Speaker 1: saw the index crush through its fifty day moving average
Speaker 1: as of Friday, so we knew we were in for
Speaker 1: some continuation of the corrective process when we woke up
Speaker 1: this morning. Irrespective of some of the news, in particular
Speaker 1: the news on Financial Spector and maybe some dubious nefarious
Speaker 1: behavior among participants being potentially pretty dangerous for that space,
Speaker 1: has been the big news of today, and that may
Speaker 1: have contributed to a broader a broader sell off than
Speaker 1: would have been likely otherwise. But I'd say the technicals
Speaker 1: were set up for a rough day to continue today.
Speaker 1: Now we may be looking at finally a capitulation point,
Speaker 1: which you know, for the first time since the end
Speaker 1: of August, we can say the index is nearing over
Speaker 1: soul levels. Um, so we want to watch through the
Speaker 1: clothes to see how broad the correction is. If we
Speaker 1: get to a fourteen day moving average or a fourteen
Speaker 1: day rs I back near over souled levels, that could
Speaker 1: represent a buying point for capital that's been looking to
Speaker 1: get into this market but waiting for an appropriate time
Speaker 1: to do so. Dave Wilson come on in on what
Speaker 1: you're seeing in the trade today. You know, there are
Speaker 1: a couple of things that jump out besides what's going
Speaker 1: on with the banks. You know, after this report from
Speaker 1: the International Consortium of Investigative Journalists talking about you know,
Speaker 1: how they may be handling or not handling suspicious transactions properly. So,
Speaker 1: uh that that's a piece of it. Beyond that, I mean,
Speaker 1: you look at what's going on with hospitals and with
Speaker 1: health insurers. All this so tied up with what happens
Speaker 1: to the Affordable Care Act now that the Supreme Court
Speaker 1: Justice Ruth Bader Ginsburg has passed, and you know, we
Speaker 1: may get a successor before election day, which would mean
Speaker 1: we'd have a successor when a week after election day
Speaker 1: the High Court here's arguments by the states trying to
Speaker 1: get rid of Obamacare. So you know, those stocks are
Speaker 1: especially weak in today's trading. And then there's the saga
Speaker 1: of Nicola, the electric truck developer, and yeah, the do
Speaker 1: you wonder they're sitting at General Motors saying whose the
Speaker 1: idea was this? I mean, they're still they're still more
Speaker 1: to know and I don't want to, you know, kind
Speaker 1: of they aren't doing it at GM. I can assure
Speaker 1: you GM shareholders at least some of them are asking
Speaker 1: that question. Because while Nichola is down nineteen percent, GM's
Speaker 1: off more than five and a half percent. And there's
Speaker 1: another company that's already working with Nicholas, c NH Industrial.
Speaker 1: Now they're big in two tractors and you know other
Speaker 1: types of sort of industrial machines. CNH is down almost
Speaker 1: eight percent. So there's definitely a toll being taken that
Speaker 1: goes beyond you know, this development stage company. And and
Speaker 1: so that's another one that jumps out, especially because Nicola
Speaker 1: is the product of, you know, a deal with one
Speaker 1: of these special persents, acquisition companies, backs, blank check companies,
Speaker 1: calling what you will, real black eye. Absolutely, we've been
Speaker 1: talking about those a ton uh Gina Martin Adams before
Speaker 1: we let you go the election, Paul Ticks, Is that
Speaker 1: starting to weigh on this market in a more meaningful way? Yeah, well, politics,
Speaker 1: I think they've already highlighted the Ginsburg passing and what
Speaker 1: that may mean for the Supreme Court and the a
Speaker 1: c a um sort of battle upcoming. So there certainly
Speaker 1: is a portion of politics. I would also say, though
Speaker 1: the election is absolutely getting priced into Vic's futures. I mean,
Speaker 1: we've seen over the last month VIX futures for November
Speaker 1: getting even more expensive than October, which says to me
Speaker 1: the market is trying to price for a very uncertain
Speaker 1: or highly followtile election season lasting right through the end
Speaker 1: of November, which would be very unusual. So I do
Speaker 1: you think it's part of this? But obviously there are
Speaker 1: a lot of moving parts, and it all started with
Speaker 1: the deflation of a mini tech bubble which is now
Speaker 1: extending into other issues. Right, all right, well, good, good
Speaker 1: context as always, Thank you so much. Gina Martin Adams,
Speaker 1: chief equity strategist for Bloomberg Intelligence, along with Dave Wilson,
Speaker 1: Stocks editor for Bloomberg, both joining us from New Jersey.
Speaker 1: This is Bloomberg Business Week with Carol Masser and Jason
Speaker 1: Kelly on Bloomberg Radio. One of the best stories and
Speaker 1: one of the best reporters. Candidly, I just love talking
Speaker 1: to him, love reading his stuff. Jeff Green, Managing Diversity
Speaker 1: reporter for Bloomberg. He joins us on the phone for
Speaker 1: Michigan to talk about a story it's in the upcoming
Speaker 1: edition of the magazine. It's about Southern Bank Corps. It's
Speaker 1: CEO named Darren Williams. He joins me as well as
Speaker 1: Joel Webber, the editor of Bloomberg Business Week. So Joel
Speaker 1: part of the equality issue, I believe, and this is
Speaker 1: a really really important piece of the puzzle when it
Speaker 1: comes to undoing a lot of the systemic racism, candidly
Speaker 1: going after the wealth gap and the lending gap to
Speaker 1: a large extent, that's right. And so Darren Williams um
Speaker 1: one of finances only black CEOs, and he's a CEO
Speaker 1: of of Southern Bank Corps, which Jeff is gonna tell
Speaker 1: about more in a second. What I found so interesting
Speaker 1: about this was it's like there's this void um in
Speaker 1: the country, uh, in the South in particular, where there
Speaker 1: are thousands of underbanked people and that has obviously limited
Speaker 1: their ability to not only get capital but also you know,
Speaker 1: move up in society. And that's a problem that UM
Speaker 1: UH Darren has sort of recognized and that UH Southern
Speaker 1: Bank work has moved to solve UM. And Jeff how
Speaker 1: I talked to us about how he's going about addressing
Speaker 1: this problem. Yeah, Well, it's it's really interesting that you know,
Speaker 1: it's the under underbanked about a quarter of the population,
Speaker 1: and they're predominantly they tend to skew heavily black UM
Speaker 1: and people of color in general, but mostly black UM.
Speaker 1: And it's the kind of thing that's somewhat hidden and
Speaker 1: it's a little bit intractable attractable because these are people
Speaker 1: that banks really can't lend money to, and thus they
Speaker 1: in up going to payday lenders, which makes them even
Speaker 1: higher credit risk because they have they have so much debt.
Speaker 1: So what there in and Southern we're trying to do,
Speaker 1: even before the pandemic, was a figure out a way
Speaker 1: to sort of bridge this, to bring these people into
Speaker 1: the banking system, help them to trust the banks, give
Speaker 1: them some sense that what they're doing with the payday lenders,
Speaker 1: they're never going to gain sort of the wealth that
Speaker 1: you get. You can't get a house, you can't get
Speaker 1: a mortgage until you kind of straighten that stuff out.
Speaker 1: So like that's his big goal is to put more
Speaker 1: people in a position to be able to have a
Speaker 1: bank account, gang credit and ultimately have a mortgage and
Speaker 1: have something we're wealth as accrued. And it was interesting
Speaker 1: because we started doing this a year ago, prior to
Speaker 1: the pandemic and the big frustrating thing for him was
Speaker 1: it was sort of in the background, and it was like,
Speaker 1: you knew this was a problem, you knew it was
Speaker 1: sucking the life out of people, but it was really
Speaker 1: hard for people to sort of understand just how momentous
Speaker 1: it was. And you know, then the pandemic hits, and
Speaker 1: you know, front and center are people dying at three
Speaker 1: times the rate in black communities, and it's like you
Speaker 1: start to say, Wow, this is not just esoteric philosophical discussion.
Speaker 1: This is life and death, and the death is really
Speaker 1: stunning to a lot of a lot of Americans. Well,
Speaker 1: and Jeff, I think then on top of that, in
Speaker 1: the aftermath of the killing of George Floyd and and
Speaker 1: this reckoning, this long overdue reckoning around all of those
Speaker 1: issues that you described, around the wealth gap that's been
Speaker 1: brought to the foe by the likes of John Rodgers
Speaker 1: over at Ariel and others. And I do wonder, you
Speaker 1: know how Darren Williams sees this and sort of to
Speaker 1: your point, like this has been hiding in plain sight
Speaker 1: for a long time. He's happy for the attention, but
Speaker 1: what do we do about What does he say we
Speaker 1: should be doing. What is he doing to sort of
Speaker 1: help the cause. Well, the solution that both you know,
Speaker 1: he sees because he is his bank is called the
Speaker 1: Consumer Development Financial Institution, which is sort of a specially
Speaker 1: chartered bank that is designed to try and bring money
Speaker 1: and you know, loans and financial wherewithal to the poorest
Speaker 1: people in the country. Um. It was something actually created
Speaker 1: by President Clinton in ninety four and the and Southern
Speaker 1: was the model for Hillary. Clinton was on the first
Speaker 1: version of the the Southern Board when it was formed, you know,
Speaker 1: more than a quarter century ago, so it's like a
Speaker 1: long standing pieces. This is not a new struggle. But
Speaker 1: his idea is to use the c d fys more effectively.
Speaker 1: In fact, Bank of America and Goldman Sachs were on
Speaker 1: a call with him and President Trump basically saying we
Speaker 1: need to do this, we need to do more of this.
Speaker 1: And it led to a big infusion of money to
Speaker 1: the c d f ies. And that is sort of
Speaker 1: the question is will discontinue. I mean, it was in
Speaker 1: a crisis moment, the paycheck Protection Plan was not getting
Speaker 1: to the people that needed to because the big banks
Speaker 1: didn't have the infrastructure. Meanwhile, here's Darren Williams working on
Speaker 1: the weekend with his staff getting you know, wrote fifty
Speaker 1: checks when other people hadn't even got an application yet.
Speaker 1: So that's sort of his hope is that now people
Speaker 1: know the c d I fis are, they're the big
Speaker 1: banks have kind of thrown some money their way. Netflix
Speaker 1: is involved, Google's involved. Will you get this to contin
Speaker 1: new so the focus stays on the c d fys.
Speaker 1: More money is available so they can do more loans.
Speaker 1: I mean that's the only way it works is they
Speaker 1: need basically below market rate money that they can then
Speaker 1: lend out to keep this moving. So Jeff, there there's
Speaker 1: a thousand of the c d f I s um
Speaker 1: out there that are in a position to help UM,
Speaker 1: and it's all been modeled on on on basically Williams
Speaker 1: and sort of in the model that they've adapted. I'm
Speaker 1: also curious what other ideas he has for how we
Speaker 1: could be helping UM vulnerable Americans right now. Well, I
Speaker 1: mean one of the key things is credit education. They
Speaker 1: were doing this. I mean I went with them to
Speaker 1: a class in this little town site in uh, you know,
Speaker 1: just off a cotton field, just you know, middle of nowhere.
Speaker 1: But twenty people. They're learning about credit and how it
Speaker 1: works and how interest cruise and debt and all those
Speaker 1: sorts of things. Basically just right at the grassroots level,
Speaker 1: trying to teach people, um, you know, how to get
Speaker 1: their finances in order. And then at the end of that,
Speaker 1: they would give them this nine percent loan, which you know,
Speaker 1: keep in mind, a payday loan is around, you know
Speaker 1: if you don't pay it off right away. So this
Speaker 1: nine percent loan at the time UM that they would keep,
Speaker 1: they would pay half of it, half of it would
Speaker 1: be available for them to pay bills and half to
Speaker 1: be held in sort of like a certificate of deposit.
Speaker 1: And that was like one of the tools. I mean,
Speaker 1: there's lots of things that he's basically saying, you need
Speaker 1: to just do the block and tackling UM in the
Speaker 1: communities to keep this going. And a lot of the
Speaker 1: big banks have pulled out, and he's like, great, you
Speaker 1: don't want to deal with it, Give me more money
Speaker 1: so that I can deal with this, so I can
Speaker 1: get the money to the people that needed, I can
Speaker 1: focus on the hardest hit communities UM with more effectiveness,
Speaker 1: right right, Well, And it's interesting and I highly recommend
Speaker 1: people read this story because there's an aspect of this
Speaker 1: and you alluded to this, Jeff, around the payday lenders.
Speaker 1: That's a really important piece to understand. The delta in
Speaker 1: the interest rates there is massive and game changing in
Speaker 1: a lot of ways. It's a terrific piece to reporting.
Speaker 1: As always from Jeff Green, Managing Diversity reporter for Bloomberg.
Speaker 1: He joined me on the phone from Michigan. Check out
Speaker 1: that story in the upcoming issue of Bloomberg Business Week.
Speaker 1: Can read it now on the Bloomberg and Bloomberg dot Com.
Speaker 1: My thanks as well to Joel Webber, the editor of
Speaker 1: Bloomberg Business Week. He joined from Massachusetts. This is Bloomberg
Speaker 1: Business Week with GARYL. Masser and Jason Kelly on Bloomberg Radio.
Speaker 1: All right, you are listening to Bloomberg Business Week, kicking
Speaker 1: off the three pm Wall Street time. Our Let's do
Speaker 1: a little business week economics if we can. Andy Brown
Speaker 1: is with this, editorial director for Bloomberg New Economy, joining
Speaker 1: us on the phone from New Hampshire, picking up where
Speaker 1: Doug Chrisner just left off. When it comes to TikTok
Speaker 1: Man this deal, and we've talked about it before, Andy
Speaker 1: is just headspinning, head scratching, however you want to put it.
Speaker 1: It's nothing like we've ever seen before, and it ain't
Speaker 1: over when it comes to getting done. What's the most
Speaker 1: important thing we need to understand about this because as
Speaker 1: I look at it at least, and I think you
Speaker 1: may agree, it's kind of a mess. It is a
Speaker 1: complete debacle and has been really right from the very beginning.
Speaker 1: And stuck in the middle of this U S China
Speaker 1: geo political tug of war is a company and investors
Speaker 1: that are desperately trying to figure a way out. On
Speaker 1: the one hand, they this is TikTok and its parent
Speaker 1: bike Dance. On the one hand, they've got the Chinese government,
Speaker 1: which essentially looks at what's happening as a politically inspired
Speaker 1: smash and grab raid by the Trump administration, and on
Speaker 1: the other hand by the Trump administration UM which is
Speaker 1: using the TikTok issue and we chat as a chip
Speaker 1: or as a bargaining chip in uh in in domestic politics,
Speaker 1: essentially beating up on China as a vote getting vote,
Speaker 1: vote getting ploy. And so they've been twisting this way
Speaker 1: and that way, and it now looks like this deal
Speaker 1: that they stitched together, which by the way, gets Trump
Speaker 1: almost nothing of what he wanted in the first place
Speaker 1: out of it. Um, and even that deal now looks shaky.
Speaker 1: It's not at all sure that the Chinese side are
Speaker 1: going to sign off on it, or whether Trump himself
Speaker 1: is satisfied with it, and so, knowing the intricacies of
Speaker 1: the governments and that nexus between the national governments and
Speaker 1: the national champions as it were, both of which I
Speaker 1: think you can argue you have on either side here.
Speaker 1: What went wrong? Was this just sort of too hard,
Speaker 1: too fast, or was everybody not on board to begin with?
Speaker 1: Like what do you make of it again, especially knowing
Speaker 1: some of the nuances of how each side interacts with
Speaker 1: the other. Well, it just the whole deal is is unprecedented. Um.
Speaker 1: We've never had a company caught up in this way
Speaker 1: before with kind of m and a UM being dictated
Speaker 1: literally out of the out of the Oval office. Um.
Speaker 1: So it's it's incredibly it's incredibly difficult. There are so
Speaker 1: many constituencies that need to be satisfied. Um. And in
Speaker 1: the end it looks like nobody is gonna be so.
Speaker 1: So Trump came into this, he said, look, I've got
Speaker 1: three things. Number One, this TikTok has got to be
Speaker 1: owned by a US company. Number Two, we have to
Speaker 1: make the data secure UM so that doesn't foll into
Speaker 1: the hands of the Chinese companist party and they have
Speaker 1: all this personal data on on on the US population.
Speaker 1: And three we want to have a big chunk of change.
Speaker 1: They're going to make a big payment to the U. S. Treasury. Well, actually,
Speaker 1: even under this new deal, any percent of the company
Speaker 1: after the I p O if it i p O
Speaker 1: S is still going to be owned by by byke
Speaker 1: Dance UM. The algorithm UM are going to be open
Speaker 1: to inspection by Oracle, the trusted technology partner. But it
Speaker 1: won't they won't in that sense sort of belong to
Speaker 1: any U S entity. Bite does has them and asked
Speaker 1: for this five billion dollar payment that Trump talks about. Um.
Speaker 1: You know, it turns out that this is kind of
Speaker 1: tax that they were going to be paying anyway to
Speaker 1: the U. S. Government. And there's some sort of vague,
Speaker 1: nebulous promise that they'll come up with a kind of
Speaker 1: some kind of patriotic education program, whatever that may mean
Speaker 1: for for US kids. UM. So, so he's got he's
Speaker 1: got actually very little of what he pushed for. So
Speaker 1: if if your concern with national security, this deal doesn't
Speaker 1: really do it for you, And so as you widen
Speaker 1: the aperture a little bit and think about this from
Speaker 1: the context of ongoing tensions, ongoing negotiations around trade and
Speaker 1: the broader relationship when the U with between the U
Speaker 1: S and China, what does this tell you? You know,
Speaker 1: if you're a Chinese company and you're thinking about making
Speaker 1: an investment in the US, um you're thinking strategically indeed
Speaker 1: about your global position. Or if you're an American company
Speaker 1: now and you're thinking about, you know, the China market
Speaker 1: and how you should be positioned there. This should really
Speaker 1: worry you because because it has been so unpredictable. I mean,
Speaker 1: we're in we're in uncharted territory. Um, there are no
Speaker 1: there are no real rules, at least under the old system,
Speaker 1: the CIFIERS system, this sort of you know, the screening process. Um,
Speaker 1: it was somewhat predictable. You knew what you were getting into.
Speaker 1: A lot of deals didn't get done because companies thought
Speaker 1: to themselves, well, it's not going to get through the
Speaker 1: U S screening committee, so we won't bother. This one
Speaker 1: just came right out of left field in surprise, surprise everybody.
Speaker 1: And so on the other side, if you're a US
Speaker 1: tech company, what do you think about this? Well? So,
Speaker 1: and actually it's not just tech right now, there's there's uh,
Speaker 1: there's a lot of talk about an entities list. So
Speaker 1: the Chinese could actually come up with a list of
Speaker 1: companies that could be subject to retribution, not necessarily US companies,
Speaker 1: So that could include tech companies, but banks, um, trading companies. Um.
Speaker 1: You know, China hasn't retaliated so far because it really
Speaker 1: needs foreign investment, it needs foreign technology. Um. But but
Speaker 1: you know, pushed, pushed far enough, they actually could start
Speaker 1: to take action against US companies, international companies in China. Wow.
Speaker 1: All right, Andy Brown, thank you so much. Andy Brown,
Speaker 1: of course is the editorial director for Bloomberg New Economy.
Speaker 1: He has been breaking down this deal trying to make
Speaker 1: sense of it alongside the rest of us. I have
Speaker 1: to say, Uh, this is something we've watched incredibly closely.
Speaker 1: We've had a global team working on it from all angles, corporate, dealmaking, political, international.
Speaker 1: It has touched all boxes and cantinues to evolve and
Speaker 1: change in this week. Seems like it will be a
Speaker 1: big week when it comes to that deal happening or
Speaker 1: not happening, And obviously a lot of it just comes
Speaker 1: down to the President United States and what he decides
Speaker 1: to do when it comes to TikTok our. Thanks to
Speaker 1: Andy Brown. This is Bloomberg Business Week with Carol Masser
Speaker 1: and Jason Kelly on Bloomberg Radio. Happy to welcome to
Speaker 1: this program. Pete Stavros, he's co head of America's for
Speaker 1: Private Equity for KKR. Heard of it. It's one of
Speaker 1: the best known private equity firms, and it's a firm
Speaker 1: that has been talking a lot over the past years
Speaker 1: about its various stakeholders, and that includes employees. At a
Speaker 1: time when we're more and more concerned about all of
Speaker 1: the constituencies involved in a company. Pete, you've got some
Speaker 1: news today to share with us about what you're doing
Speaker 1: with some of your portfolio companies. First, welcome, tell us
Speaker 1: what's going on at Ingersol RAMD. Thanks for having me, Jason.
Speaker 1: So today we celebrated a hundred and fifty million dollar
Speaker 1: equity award to non members of management. So these are
Speaker 1: mostly hourly employees who work in our factories and our
Speaker 1: distribution centers and earning ourly hourly wage. This is on
Speaker 1: top of a hundred million dollar grant we did at
Speaker 1: our I p O in two thousand and seventeen, which
Speaker 1: because the stock has performed so well, is now worth
Speaker 1: about a hundred and seventy eight million dollars. So you
Speaker 1: add both those up, it's more than three hundred million
Speaker 1: dollars of equity in the hands of hourly workers, and
Speaker 1: so very meaningful financially. And you know, we've got lots
Speaker 1: of kind of personal stories we've been able to to
Speaker 1: hear firsthand in terms of what it's meant for them,
Speaker 1: and then just as importantly in terms of outcomes for
Speaker 1: companies and for our investors. You know, we see higher
Speaker 1: employee engagement, better returns, better results, and better outcomes for
Speaker 1: our investors. Well, and let's talk about the personal side
Speaker 1: of this, and I'm going to start with you, because
Speaker 1: part of the genesis of this, I think is your
Speaker 1: own history and sort of growing up and understanding the
Speaker 1: industrial landscape, not just as now an investor, but as
Speaker 1: a kid from from your dad. Yeah, that's right. My
Speaker 1: my dad was a construction worker. He operated a road
Speaker 1: grader for his whole career in Chicago earned an hourly wage,
Speaker 1: and you know, I just saw firsthand the lack of
Speaker 1: incentive alignment. And if you think about it, if you're
Speaker 1: an hourly employee, really all you care about are getting
Speaker 1: more hours, so that can be at the expense of efficiency.
Speaker 1: If you're too efficient, you may work fewer hours and
Speaker 1: earn less money. And there was just constant conflict around hours.
Speaker 1: And my dad always dreamt about, you know, shared ownership
Speaker 1: or profit sharing at his um construction company with his union,
Speaker 1: and you know, unfortunately never happened, but that's certainly really
Speaker 1: stuck with me. And then as a graduate student, you know,
Speaker 1: years later, this is not still twenty years ago, but
Speaker 1: as as a young adult in graduate school, you get
Speaker 1: a lot of flexibility to study what interests you. And
Speaker 1: I had an opportunity to study broad based ownership for
Speaker 1: my second year in business school. And there was a
Speaker 1: hot topic in the nineteen seventies around ESOPs had really
Speaker 1: kind of cooled and I was interested to learn why
Speaker 1: it interest dissipated. Could it still be relevant today, could
Speaker 1: it be relevant to private equity? And then when I
Speaker 1: joined KKR back in oh five and and was fortunate
Speaker 1: enough to step into a leadership position running industrials. That
Speaker 1: was when I was able to kind of first put
Speaker 1: these ideas into action. And it's fascinating too because this,
Speaker 1: and I'm just gonna say it out loud, this cuts
Speaker 1: against candidly that the public profile of private equity uh
Speaker 1: in many ways that tends to enrich a few and
Speaker 1: and not think about the rest in many ways. So
Speaker 1: I do wonder what the conversations are like as you
Speaker 1: engage companies around this. Are they looking at you like,
Speaker 1: I don't know about this? Yeah, we do encounter some
Speaker 1: some skepticism, you know, maybe even some cynicism. Some of
Speaker 1: our companies we are buying from other private equity firms,
Speaker 1: and so we do get a little bit of I've
Speaker 1: been around the block. I've seen this before, you know,
Speaker 1: and I just don't believe that we're going to share
Speaker 1: an ownership and you're gonna do all these things you're
Speaker 1: telling us around investing in the facilities and investing in employees.
Speaker 1: So there is some uh, you've got some wood to
Speaker 1: chop at the outset. We overcome it by bringing in
Speaker 1: c e o s from companies that have run businesses
Speaker 1: for us before and telling them that this is this
Speaker 1: is real, We really mean it. We also do a
Speaker 1: lot to make that ownership feel real. So we print
Speaker 1: physical stock certificates. Often we will open up Fidelity accounts
Speaker 1: for people, even though the stock of their company might
Speaker 1: be private and not publicly traded. You know, we we
Speaker 1: do as our valuations internally changed for that company, we
Speaker 1: flow it through Fidelity and then they see value being
Speaker 1: created in their portfolio. So but but I have to say,
Speaker 1: even public companies Inger saw Ran, the predecessor company Gardner
Speaker 1: Denver when we took it, is a public company. In
Speaker 1: six thousand employees, eighty six people had ownership, which is
Speaker 1: very typical. One to two of a company typically takes
Speaker 1: up all the ownership. And so you know, even in
Speaker 1: public companies, we do come up up against the skepticism
Speaker 1: you're talking about. And so talk about other elements of this,
Speaker 1: because obviously the financial element is super important. But one
Speaker 1: of the things that we're increasingly talking about. We talked
Speaker 1: about it earlier on today, and it's part of the
Speaker 1: Business Week issue this week is not just about shared ownership,
Speaker 1: but basically sort of a holistic view of someone's finances
Speaker 1: and creating wealth and and I believe you've done some
Speaker 1: work with Operation Hope. John Brian Hope, John Hope Briant
Speaker 1: excuse me, has been a guest on this program. Uh,
Speaker 1: tell me a little bit more about what you're doing there.
Speaker 1: You're right, it does have to be broader than just ownership,
Speaker 1: because if it's just ownership and you just hand out
Speaker 1: the ownership and that's the end of the conversation, that's
Speaker 1: just compensation. And if what you're after is a better
Speaker 1: employee experience, more engaged employees, and better ultimate performance in
Speaker 1: the company, you've you've got to be broader than that.
Speaker 1: So even as it relates to ownership, the CEOs who
Speaker 1: do this well in our CEO of ingersoll Rand is
Speaker 1: exceptionally good at this, Vicentia Reynal. You've got to treat
Speaker 1: people like owners So you've got to share the business plan,
Speaker 1: share the vision where we headed, how are we going
Speaker 1: to get there? How are is everyone going to participate
Speaker 1: in the upside, you know, assuming we achieve our plans.
Speaker 1: But then beyond ownership, we do things around investing in
Speaker 1: the workforce, um improving the work environment, which starts with
Speaker 1: the basics like employee safety, but also we've extended to
Speaker 1: you know, we've brought in healthier food options to our
Speaker 1: manufacturing plants. Right now, we're building an on site medical
Speaker 1: clinic at one of our facilities because the employees have
Speaker 1: complained about having to drive so far for you know,
Speaker 1: basic um medical care you mentioned John Bryant. We work
Speaker 1: closely with Operation Hope to do first personal financial training.
Speaker 1: I mean, if you're gonna get about ownership and have
Speaker 1: people really have a shot at wealth creation, they're going
Speaker 1: to have to understand what, you know, get some basic
Speaker 1: training on what to do with it um, and that
Speaker 1: ranges from debt repayment to understanding the earned income tax
Speaker 1: credit to you know, how to invest money, you know,
Speaker 1: once they have some wealth. So um. The last part,
Speaker 1: by the way, is our companies also, I think do
Speaker 1: a nice job of engaging with the community. And this
Speaker 1: is all about building pride in the organization, showing employees, hey,
Speaker 1: this is about more than just making money. And so
Speaker 1: we've we've struck a number of really exciting partnerships with
Speaker 1: nonprofits as well. So, Pete, I would be journalistically negligent
Speaker 1: if I didn't ask you about the broader private equity world.
Speaker 1: You guys at KKR have been exceedingly busy. I think
Speaker 1: it's fair to say, putting a lot of money to work,
Speaker 1: doing a lot of deals during a time when the
Speaker 1: world is, to say the least, topsy turvy. What are
Speaker 1: you seeing out there now? Six months into a work
Speaker 1: from home environment where the economy remains a little uncertain.
Speaker 1: The stock market remains pretty resilient today, notwithstanding what are
Speaker 1: you seeing out there? Yeah, we were. We have remained
Speaker 1: active both on the investment side and on the distribution side,
Speaker 1: returning capital to our investors, and we're proud of having
Speaker 1: been able to accomplish both during this this COVID period
Speaker 1: of time. In terms of what we're seeing right now,
Speaker 1: you know, in the economy itself, it's as you would expect.
Speaker 1: There are some things doing well. Um, some aspects of
Speaker 1: retail are actually surprisingly doing quite well. Anything around housing,
Speaker 1: if you look at the exodus from urban areas to
Speaker 1: suburban areas, low interest rates, strong housing prices, anything touching that,
Speaker 1: building products, etcetera doing really well. Anything around travel, leisure, aerospace,
Speaker 1: people making manufacturing aerospace components. Obviously a much tougher environment
Speaker 1: in terms of what we're looking for. We're looking for
Speaker 1: either secular trends and themes we really believe in health
Speaker 1: and wellness, E commerce, etcetera. Or areas that are really
Speaker 1: in the crosshairs of COVID that if you've got a
Speaker 1: ten year horizon, you know you're gonna there's a lot
Speaker 1: of growth from here. Might not recover all the way back,
Speaker 1: but there's a lot of growth from here. So things
Speaker 1: like we invested in US Foods, great business that serves
Speaker 1: restaurants as a distributor. That's something that with the fullness
Speaker 1: of time, is going to come back. And so as
Speaker 1: you look at the end of this year and into
Speaker 1: twenty one, what's the biggest challenge for you as an investor?
Speaker 1: The biggest challenge I would say is just the lack
Speaker 1: of visibility. I mean, everything is changing so quickly, and
Speaker 1: there's so much going on between you know, you've got
Speaker 1: a potential spike and COVID coming, you know this fall,
Speaker 1: you've got the election, You've got trade issues with China.
Speaker 1: I mean, there's just a little bit. It's coming at
Speaker 1: you so fast it can be hard to separate the
Speaker 1: signal from the noise. I would say that's the biggest issue,
Speaker 1: and investor's got is the amount coming at you is
Speaker 1: a little bit, you know, unprecedented and more to come
Speaker 1: on this program where equity continues to go uh in
Speaker 1: deeper into the organizations you own. Definitely, this is something
Speaker 1: we're continuing to expand experiment with, try and constantly improve.
Speaker 1: You know, we we understand that this is not a
Speaker 1: perfect fit for every sector. You know, if you take
Speaker 1: retail as an example, average employee turnovers ad percent a year.
Speaker 1: If you walk in and start talking about a five
Speaker 1: year business plan, that's not going to be effective. So
Speaker 1: so yes, it's this is here to stay for us.
Speaker 1: We are going to be expanding it and continue to
Speaker 1: experiment with it. But again we're you know, we we
Speaker 1: understand that it's not going to be right for every situation. Alright,
Speaker 1: Pete stavrog is really good to catch up with you,
Speaker 1: cohead of America's Private equity for KKR. A novel solution
Speaker 1: to spreading the compensation and the ownership throughout the economy.
Speaker 1: My thanks to him. Journal. Yeah, but you let me
Speaker 1: do oh no, no, no no, no, home an please, I'll
Speaker 1: do the right vel. Ex I want to drive, just
Speaker 1: drive the question trying. This is the drive to the
Speaker 1: globe Commune. Thanks, we'll drying us down on Bloomberg Radio.
Speaker 1: It is time for the Drive to the close with
Speaker 1: us as Dave dona Vide and he's chief Investment Officer
Speaker 1: of CIBC Private Wealth Management roughly seventy four billion in
Speaker 1: assets under management, on the phone from Baltimore. Hey Dave,
Speaker 1: nice to have you here with Jason and myself. How
Speaker 1: do you explain the selling today? How do you see it? Well,
Speaker 1: I'll tell you it brings back bad memories from the
Speaker 1: COVID bear market of Februarrian March, not just because of
Speaker 1: the market down, but um, you know, we've got about
Speaker 1: of the stocks in the S and P five under
Speaker 1: it her up and it's the old stay at home stocks.
Speaker 1: It's e commerce, it's comfort foods, at home, entertainment, video gaming,
Speaker 1: even testing labs. That's about all that's up. And if
Speaker 1: you look at what's kind of getting crushed today, it's airlines, casinos,
Speaker 1: cruise lines. It's UH again rings very familiar to the
Speaker 1: dark days of Feborrian March, and so in some of
Speaker 1: that obviously emanates from the UH concerns coming out of
Speaker 1: Europe about a resurgence of of COVID nineteen and the
Speaker 1: notion that maybe again what hits there first will we'll
Speaker 1: we'll come here next. Right, a reminder we're not out
Speaker 1: of the woods yet. But having said that, we are
Speaker 1: off our loads of the session, our investors still out
Speaker 1: there thinking, okay, when there's a pullback, it's an opportunity
Speaker 1: for me to get in. I do, I do think
Speaker 1: that there there is definitely a significant you know, by
Speaker 1: the dip constituency out there, and the support behind that
Speaker 1: is liquidity, liquidity, liquidity. Right, there's the usual wall of
Speaker 1: worry in the market, what you know, what to worry about,
Speaker 1: like COVID and the economy and and so on, um,
Speaker 1: but the onslaught of liquidity provided by the Federal Reserve
Speaker 1: another central bank is kind of a constant reason to
Speaker 1: want to look to buy the dips. And so when
Speaker 1: you think about the election, it's forty three days away,
Speaker 1: as we keep reminding people today and we'll probably remind
Speaker 1: people as it gets to forty two and all the
Speaker 1: way down. How much does that figure into your calculus
Speaker 1: here and how much pause does it give you in
Speaker 1: terms of making any big moves. Dave, Yeah, I think that,
Speaker 1: you know, maybe the most important investor trait when you're
Speaker 1: considering marrying election implications to the market, maybe humility, simply
Speaker 1: because it is so difficult to forecast all the variables correctly.
Speaker 1: You know, wh who's going to win the White House,
Speaker 1: who's going to control the Senate, what will the immediate
Speaker 1: market reaction be, which sectors will will be, you know,
Speaker 1: kind of winners and losers. Threading that needle is ext
Speaker 1: really difficult, so we tend not to do a lot
Speaker 1: of positioning around election results. I will say, though, that
Speaker 1: the interplay between this Supreme Court battle and the election,
Speaker 1: I think does ramp up the potential volatility here. And
Speaker 1: that's because I think that the the fight over this
Speaker 1: Supreme Court seat is going to suck all the air
Speaker 1: out of Washington for the rest of the year. And
Speaker 1: I think it's now very unlikely that we see a
Speaker 1: significant fiscal support package. It's just been pushed to the side,
Speaker 1: and and that that is in the short term anyways,
Speaker 1: somewhat troubling to me, because I think the economy needs
Speaker 1: some of that to sustain his momentum through the fourth quarter. Yeah,
Speaker 1: I mean, it's interesting. Every economist we talked to it's
Speaker 1: not a matter of like, well, maybe you can make
Speaker 1: an argument against it. Just about every economist will tell
Speaker 1: you something more needs to happen. And I think we
Speaker 1: also worry, as you said at the top of the conversation,
Speaker 1: about a second wave, and if we see you know,
Speaker 1: furloughs or layoffs or slow down in spending, you know
Speaker 1: that's only going to become more pressing. Yeah, I think
Speaker 1: that's right. There's still an incredible amount of impairment in
Speaker 1: the economy. You just look at the number of of
Speaker 1: unemployed and a trend towards you know, the percentage of
Speaker 1: unemployed essentially being long term unemployed instead of just furloughed.
Speaker 1: And um, you know, we have this remarkable situation now
Speaker 1: where you know, g d P has been clabored, but
Speaker 1: disposable income is still up. That's all because of government support.
Speaker 1: Without that, um, you know, we would we would still
Speaker 1: be in a in a recession. That was what was
Speaker 1: getting worse as opposed to the beginning of a recovery.
Speaker 1: So this is a bit of a going to be
Speaker 1: a bit of a high wire act for the fourth quarter. Okay, yikes,
Speaker 1: So the potential to stay in recession, go back into
Speaker 1: recession I don't know what's the scenario. What are you
Speaker 1: what are the scenarios that you guys are playing out
Speaker 1: at your office. Well, the way I view it is,
Speaker 1: we were not in recession anymore. We're we're in recovery.
Speaker 1: And we'll see that, you know, kind of verified with
Speaker 1: third quarter, big jump in third quarter gdp UM. The
Speaker 1: question is when can we get to expansion? You know,
Speaker 1: when when? When? How long do we have to go
Speaker 1: before we just recover what was lost from COVID nineteen.
Speaker 1: I think that is probably you know, sometime late into
Speaker 1: one and and if things don't go well, you know,
Speaker 1: in the fourth quarter, you know, we're probably looking at
Speaker 1: two before we can even think about um an economic expansion.
Speaker 1: And that leads me to think that some of the
Speaker 1: quick upward revisions that have been having to corporate earnings
Speaker 1: maybe maybe ahead of themselves. Well, the Feds already told
Speaker 1: us right that they're going to keep rates low, and
Speaker 1: of course that can change, but they've said low for
Speaker 1: a long time. I mean, it's just kind of more
Speaker 1: of what we've had, you know, post financial crisis, but
Speaker 1: it just potentially continues for even longer. Yeah, I think
Speaker 1: that's right. I mean you can't ask too much more
Speaker 1: of the Fed in terms of clarity over not just
Speaker 1: the months, but the years. But I think there was
Speaker 1: the assumption that there would be some some fiscal support
Speaker 1: along away here, and that's what's really come into question now. Well,
Speaker 1: it seems like there was that assumption from j. Powell
Speaker 1: and his pals, So you know, they've been sort of
Speaker 1: saying it, whether it's in his testimony or whether it's
Speaker 1: in his statements or his statements to the press and
Speaker 1: his colleagues as they've talked to reporters and given speeches, etcetera.
Speaker 1: All Right, Dave Donavidian, thank you so much, Chief Investment
Speaker 1: Officer for c IBC Private Wealth Management, joining us on
Speaker 1: the phone from Baltimore. Thanks so much for listening to
Speaker 1: Bloomberg Business Week. Download the podcast on iTunes, South Cloud,
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