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Speaker 3: So wait, what is up with the ECB? The global
Speaker 3: mond market losing some steam after notching its longest winning
Speaker 3: run this year after the European Central Bank raised its
Speaker 3: inflation forecasts after delivering a widely expected rate cut. It
Speaker 3: made us be like, yeah, wait.
Speaker 4: What okay, it was a historic move. It saw the
Speaker 4: ECB slashing borrowing costs ahead of the FED meeting next week. Officials,
Speaker 4: led by President Christine Legard, said that while the inflation
Speaker 4: outlook has improved quote markedly, they'll keep policy rates sufficiently
Speaker 4: restrictive for as long as necessary.
Speaker 3: All right, with what you need to know? Why you
Speaker 3: should care? Back in studio with us Bloomberg International Economics
Speaker 3: and Policy correspondent Michael McKee, Mike, so widely expected, but
Speaker 3: it seemed like, why do you cut rates when you
Speaker 3: think inflation is going up?
Speaker 5: Well, the couple of things. One they think that the
Speaker 5: inflation path is becoming more clear, that they can make
Speaker 5: these revised forecasts with more confidence that that's actually going
Speaker 5: to happen, that over the long run, inflation will come
Speaker 5: down to target. The other thing they point out is
Speaker 5: that the real rate, as inflation comes down, goes up.
Speaker 5: So the argument today from the ECB management was that
Speaker 5: they are basically just keeping policy as tight as it
Speaker 5: was because inflation's come down a lot, and even though
Speaker 5: they cut rates, the restraint on the economy has gone
Speaker 5: up because real rates are higher. Okay, does that make
Speaker 5: sense to you, Well, it makes sense to me. This
Speaker 5: is a debate that Paul Krugman is waiting into it
Speaker 5: in the New York Times today, saying the Fed's behind
Speaker 5: the curve because the ECB did the right thing. You
Speaker 5: are going to have people on both sides arguing, and
Speaker 5: kind of the bottom line is twenty five basis points
Speaker 5: isn't going to make a difference one way or another.
Speaker 5: It's a bit more about the psychology of the markets
Speaker 5: and how they take it and what's going to happen
Speaker 5: in the future. The ECB today, Christine Leguard, was very
Speaker 5: cagey about that, which is why everybody's calling it a
Speaker 5: hawkish cut because they didn't make any promises and they did,
Speaker 5: as you said, talk about keeping rates high for longer.
Speaker 5: The FED, on the other hand, is probably not going
Speaker 5: to do anything, but they will come out with a
Speaker 5: new dot plot and that will set the direction for
Speaker 5: the markets in the US.
Speaker 4: Okay, well, speaking of that, this is ahead of the
Speaker 4: US Jobs report tomorrow, the CPI report next Wednesday in
Speaker 4: the US, the same day that the FED finishes up
Speaker 4: its meeting and gives its update on economic and rate projections,
Speaker 4: which you just referred to. Does what we saw from
Speaker 4: the ECB today mean anything to fed A officials.
Speaker 5: Now, both of the ECB and the FED have the
Speaker 5: advantage of being the central banks for huge economies, so
Speaker 5: they really are able to focus on their own economies
Speaker 5: and do what they need to do for them. If
Speaker 5: you're in a small country, you're going to be affected
Speaker 5: by either one or both because the big trading partners,
Speaker 5: they're going to be affecting the value of your currency.
Speaker 5: But in this case, it didn't, It didn't really, it
Speaker 5: doesn't really have an impact. The FED and the ECB
Speaker 5: will do what they have to do for their own economies.
Speaker 3: All right, So now we want to get into a
Speaker 3: little bit more when it comes to payroll because we
Speaker 3: obviously have the monthly read tomorrow at eight thirty am
Speaker 3: Wall Street Time. Mike's going to stay with us. We
Speaker 3: want to bring into the conversation Bloomberg News Economics reporter
Speaker 3: Rich Miller. He is in our Washington DC bureau. Rich,
Speaker 3: You've got a great story that's out on the Bloomberg
Speaker 3: and it gets into why US payroll gains may not
Speaker 3: be as robust as reported, What gives and what is
Speaker 3: the data that points this out?
Speaker 6: With me a second. It's a little complicated, but.
Speaker 3: We like complicated.
Speaker 6: Good, good good. There's something called the Quarterly Census Unemployment Wages.
Speaker 6: It's basically a compilation of that the Labor Department has
Speaker 6: of unemployment insurance tax records filed by businesses. This covers
Speaker 6: like twelve more than twelve million businesses as opposed to
Speaker 6: the Monthly Payrolls Report, which is a survey of about
Speaker 6: one hundred and nineteen hundred and twenty thousand. So this,
Speaker 6: this quarterly report, which is commonly called among the geeks
Speaker 6: as qc W, suggests that the Monthly Payrolls Report last
Speaker 6: year was overstated by about sixty thousand per month. That means,
Speaker 6: you know, the labor market may not be quite as
Speaker 6: sturdy as j Powell thinks, as Joe Biden hopes, and
Speaker 6: that kind of raises the stakes for the Fed as
Speaker 6: it tries to sort of balance cooling off the labor
Speaker 6: market but not killing.
Speaker 4: It rich the QCW, you know, the new piece that
Speaker 4: the data are eventually used in annual revisions to the
Speaker 4: monthly data. Right, does the dispersion that we saw with
Speaker 4: the data released earlier today match dispersions that we've seen
Speaker 4: in other quarters and other years when it comes.
Speaker 6: To the data traditionally, if this holds, and the qc
Speaker 6: QCW data is also occasionally revised, but if this difference holds,
Speaker 6: it would be one of the biggest revisions in the
Speaker 6: payrolls data that we've seen. For example, last year. Last year,
Speaker 6: there was again there was a lot of concern about
Speaker 6: a big downward revision in payrolls for the imperious year.
Speaker 6: As it turned out, the revision wasn't all that big.
Speaker 6: It came in less than twenty thousand, so it's still
Speaker 6: only the Department will give sort of an early estimate
Speaker 6: of how what it thinks the revision will be in August,
Speaker 6: so we're still a number of months away from that,
Speaker 6: and that's when we get a sort of final tally
Speaker 6: about how much the numbers were off.
Speaker 3: Bring I want to bring my king because no disk
Speaker 3: of the qc W, and I like wonky and I
Speaker 3: like nerding out here on economic data points. But Mike,
Speaker 3: we've had a lot of conversations with you. I feel
Speaker 3: like this doesn't come up. Why is it coming up?
Speaker 5: Because the data just came out yesterday. A preliminary data
Speaker 5: was released in May.
Speaker 3: So it's new data sets.
Speaker 5: Well, basically what they do is they release a report
Speaker 5: every quarter for the previous quarter, so well actually for
Speaker 5: a quarter and a half back because the May data
Speaker 5: and the data we got today incorporated the final quarter
Speaker 5: of twenty twenty three and then the first quarter of
Speaker 5: this year, and we have not had such a huge
Speaker 5: as Rich was saying, such a possible huge change. But
Speaker 5: as you know, last year there was some of this
Speaker 5: worry going around in the economics community and it didn't
Speaker 5: really prove out. And by August it is possible the
Speaker 5: current QCW numbers could get revised lower as well. But
Speaker 5: what we get in August is one giant number. So
Speaker 5: this is the whole amount for the year through March,
Speaker 5: and then they have to divide it up, which we
Speaker 5: won't get till the next February. Month by month, So
Speaker 5: you could see some of these months where we got
Speaker 5: three hundred thousand jobs, you get two hundred and forty thousand.
Speaker 5: That's gonna not look too bad. But if you had
Speaker 5: something like one hundred thousand jobs and you lose.
Speaker 3: Sixty thousand, you would say fed your pond.
Speaker 5: Or they could say that particular month you lost every
Speaker 5: job and it was negative, and that's Bloomberg Economics is
Speaker 5: saying that's a possibility, and they're all worried about that.
Speaker 4: So we're in a blackout period ahead of the Federal
Speaker 4: Reserve meeting next week.
Speaker 3: I've been counting you down for the last.
Speaker 4: Month, and we're finally there, Carol, We're finally there. Sorry,
Speaker 4: but Mike, you I mean you talk to Fed officials
Speaker 4: all the time.
Speaker 3: This is data.
Speaker 4: How do you think they're taking this into account ahead
Speaker 4: of the policy meeting.
Speaker 5: Well, I'm sure they are, and I'm sure they've done
Speaker 5: the math and tried to figure out for themselves exactly
Speaker 5: what it might mean. But as we said yesterday earlier
Speaker 5: this week, the head has to deal with the numbers
Speaker 5: that it has at the time it has them to
Speaker 5: make their decisions. This could be another input, but you know,
Speaker 5: is it going to come through in which case maybe
Speaker 5: you wanted to cut rates or is it not, in
Speaker 5: which case you're maybe moving too soon. Because this is
Speaker 5: just an if at this.
Speaker 3: Point, Rich, how do you kind of think about it
Speaker 3: against what the Fed might do? And also kind of
Speaker 3: I feel like there was I think a story on
Speaker 3: the Bloomberg turn al today from our Bloomberg Economics team.
Speaker 3: It just about kind of the continuation of like seeing
Speaker 3: softer and softer economic points, whether it's on the consumer,
Speaker 3: on the labor, Like we are starting to see some softness,
Speaker 3: not necessarily everything falling apart, But so how are you
Speaker 3: thinking about this? This new survey the qc e W
Speaker 3: against kind of the broader backdrop of what we are
Speaker 3: seeing anecdotally are actual.
Speaker 6: I mean, it just I mean, it just adds to
Speaker 6: the confusion, right basically, Uh, you know, we've got all
Speaker 6: these conflicting signals. I mean, the trouble is they're trying
Speaker 6: to cool things off, but they don't want to cool
Speaker 6: them off too much. So the thing is, you know,
Speaker 6: you're constantly asking you a question. Are things slowing? First, Yes,
Speaker 6: they're slowing, but are they slowing too much? Oh, we're worried.
Speaker 6: We're worried. So I mean, and this just you know,
Speaker 6: puts one nugget or one sand on the side of
Speaker 6: we're slowing too much, but there are other sands on
Speaker 6: the side of you know, this looks like a soft landing.
Speaker 6: I think it just makes it much more difficult, and unfortunately,
Speaker 6: you know, raises the risk that you know, the FED
Speaker 6: can make them, you know, a mistake, either that it's
Speaker 6: you know, it cuts too soon or cuts too late.
Speaker 6: It just makes their job, which is already done difficult
Speaker 6: even more more difficult.
Speaker 3: What I want to ask Mike and come on back in.
Speaker 3: It's like, why couldn't the Fed okay, oops, maybe things
Speaker 3: are slowing down faster. Do fifty basis points versus a quarter?
Speaker 3: Is it such a shock to the system, Like if
Speaker 3: they feel like they're getting behind, what's the difference of
Speaker 3: doing something like that versus like a quarter of a
Speaker 3: point gradually and really forecasting the head?
Speaker 5: Well, if they did feel that the economy was falling
Speaker 5: off cliff, they would probably go fifty. Not inconceivable, they
Speaker 5: could go.
Speaker 4: More and they wouldn't have to wait to a meeting.
Speaker 5: They they went fifty and seventy five in two thousand
Speaker 5: when the tech bubble burst, But they wouldn't surprise with
Speaker 5: that because then the problem becomes for the markets, what
Speaker 5: do they know that we don't know? I mean, how
Speaker 5: bad really is it? And obviously during COVID it was
Speaker 5: really bad, which is why they were to seventy five
Speaker 5: basis points, But there were millions of people dying, and
Speaker 5: I mean, it was very opt to everyone that the
Speaker 5: FED could do that, and they sort of telegraph that
Speaker 5: they would so they could do fifty. And that's one
Speaker 5: of the arguments they make for holding is it's easy
Speaker 5: to cut rates and stimulate the economy, and we know
Speaker 5: how to do that, so if we're behind, we can
Speaker 5: catch up. Now you can argue about that, but that's
Speaker 5: their their argument, their feeling.
Speaker 4: Hey, Rich, I just want to wrap up with the
Speaker 4: idea of something that you flick out at the end
Speaker 4: of your piece of undocumented migrants in the way that
Speaker 4: they could be or not be accounted for in this
Speaker 4: data what did you find with the sources you spoke
Speaker 4: with when you're reporting this out?
Speaker 6: Well, I mean, this is all too pretty confusing. But
Speaker 6: some people argue that the QCW data because it's you know,
Speaker 6: companies reporting effectively to the IRS on their unemployment insurance
Speaker 6: taxes that they might not want to if they have
Speaker 6: undocumented workers on their payroll, they might not want to
Speaker 6: say anything about that and they and they wouldn't anyway,
Speaker 6: they wouldn't be covered by the unemployment insurance system. So
Speaker 6: therefore that the argument is that unlike in past years
Speaker 6: when we didn't have a big surgeon immigrants, uh, these
Speaker 6: QCW data are basically understating what the true level is.
Speaker 6: But that you know, that's open to debate and yet
Speaker 6: another thing that the FED is wrestling with.
Speaker 3: Yeah, talk about wrestling, right, it's like kind of conflicting. Rich,
Speaker 3: Thank you so much, really appreciate your reporting. Rich Miller,
Speaker 3: economics reporter at Bloomberg News, joining us there in our Washington,
Speaker 3: DC bureau. You bet, Rich, Thank you, Mike Ricki, thank
Speaker 3: you so much.
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Speaker 3: New Yorkers who liked to debate a lot of things
Speaker 3: and count congestion pricing is one of those topics. It
Speaker 3: can get kind of heated when you bring up the topic.
Speaker 3: Some are definitely cheering New York Governor Kathy Hochele's last
Speaker 3: minute decision this was yesterday to definitely indefinitely halt a
Speaker 3: congestion pricing plan. Others remind us of the possible consequences
Speaker 3: of that move. I have to say, you know, when
Speaker 3: it crossed, I thought this was kind of a doune thing.
Speaker 3: I was kind of shocked reading my phone.
Speaker 4: I think shocked is a good way to describe, and
Speaker 4: I think way a lot of people felt, including perhaps
Speaker 4: our next guest simply put, New Yorkers maybe headed for
Speaker 4: the summer of hell. The story on this among our
Speaker 4: most read today on the Bloomberg terminal. Here with more
Speaker 4: Bloomberg News New York Politics reporter Laura Namius, along with
Speaker 4: Michelle Caski, who's reporter too here at Bloomberg. Both are
Speaker 4: joining us on this Thursday afternoon. Okay, so Laura, I
Speaker 4: just want to start with you and remind everybody how
Speaker 4: we got to this place, and also give us your
Speaker 4: reaction to seeing this news yesterday morning.
Speaker 7: I think it's fair to say that everyone in New
Speaker 7: York and even further beyond, was totally shocked by the
Speaker 7: governor's decision. Everyone I spoke to yesterday, people in politics,
Speaker 7: well known transit advocates, said they got no heads up
Speaker 7: about it. They were totally totally surprised. And this came
Speaker 7: about It's been many years in the making. I mean,
Speaker 7: the idea was first proposed decades ago, but it was
Speaker 7: passed by the legislature and signed by Governor Cuomo in
Speaker 7: former Governor Cuomo in twenty nineteen, and then there've been
Speaker 7: a series of things that have delayed environmental assessments, you know,
Speaker 7: various federal approvals that needed to be passed and signed.
Speaker 7: And it was scheduled to start on June thirtieth.
Speaker 3: Or The totally gantries right or in place. They are
Speaker 3: the streets of New York City.
Speaker 7: The signs are in place, Yes, truly stunning. People at
Speaker 7: the MTA were stunned. Hard to find anybody who knew
Speaker 7: this was going to happen before she officially made the announcement.
Speaker 3: Michelle CASKI, we want to bring you. You're a reporter
Speaker 3: to here at B LIBERG. You've been out on the
Speaker 3: streets and it sounds like you've been talking to folks
Speaker 3: about this. What are you hearing?
Speaker 8: Well, definitely, the surprise is definitely real. And now the
Speaker 8: issues what does the MPa do next? And they were
Speaker 8: relying on they were counting on a billion dollars a
Speaker 8: year coming in from congestion pricing. So the issue is
Speaker 8: how do they pay for their infrastructure? Now?
Speaker 3: Well before we get there, because it's like I said,
Speaker 3: New York's left to debate things. There's two sides to
Speaker 3: this story. Let me, lord, let me go back to
Speaker 3: you for a moment. I mean, why was she maybe
Speaker 3: right to pause? I mean we were talking with our
Speaker 3: Michael mckeeth. There are people where this cost will be
Speaker 3: a problem, an issue in an environment where things are
Speaker 3: costing a lot more.
Speaker 7: Right, So that was the rationale that the governor offered
Speaker 7: in a short video message that she released yesterday, and
Speaker 7: recent polling had found that although a majority of New
Speaker 7: Yorkers supported the measure before it was passed in twenty nineteen.
Speaker 7: In recent weeks and months, a majority of New Yorkers
Speaker 7: don't like it. I think the numbers were something like
Speaker 7: sixty three maybe sixty eight percent disapproved of.
Speaker 3: It, a growing number of New Yorkers. Yeah.
Speaker 7: But the caveat there is that there's all of this
Speaker 7: social science research and people familiar with similar polling plans
Speaker 7: that have been enacted in other cities in other countries
Speaker 7: all found that the polling was really negative right before
Speaker 7: something is implemented, because you're about to pay the real cost,
Speaker 7: but you aren't seeing the benefits yet. So there was
Speaker 7: a hope among people in the know that people would
Speaker 7: get used to it and they would start to like
Speaker 7: it more like you know, an analogy as the smoking
Speaker 7: ban in New York City was really people didn't like
Speaker 7: that before it took effect, and then eventually they grew
Speaker 7: to love it.
Speaker 3: Move on to the summer of hell. We can't wait
Speaker 3: to talk about. But to be fair, like we Tim,
Speaker 3: you bring this up off in this poll of like,
Speaker 3: stock market doing well, economy is still doing well, tight
Speaker 3: labor market, and yet so many Americans don't feel good
Speaker 3: about their own economic plight. Michelle, come on back in
Speaker 3: here before we get into what the MTA has to do,
Speaker 3: I mean your thoughts on right, like, for some Americans,
Speaker 3: this is another additional cost to you know, a pocketbook
Speaker 3: or wallet that's already strained.
Speaker 8: That's definitely true. As much as you know, there's millions
Speaker 8: of people a day who use New York City's transit's
Speaker 8: just you know, charging most drivers fifteen dollars to enter
Speaker 8: into midtown Manhattan. That really does add up. For some
Speaker 8: people who have no choice but but need to take
Speaker 8: a car for whatever reason, they have to take a
Speaker 8: car and not just maybe once a week or twice
Speaker 8: a week, but maybe five times a week. There was
Speaker 8: you know, I recently, number of weeks ago, was on
Speaker 8: the East Side, Midtown east Side, and I was at
Speaker 8: a medical facility and the people there, the nurses and
Speaker 8: the staff, we're talking about how some of them who
Speaker 8: live in deep in New Jersey, they have to drive
Speaker 8: to get to that location. And you know, some of
Speaker 8: them were wondering if might they might even need to
Speaker 8: look at other jobs because that's fifteen dollars a day,
Speaker 8: five times a week.
Speaker 7: Does that up?
Speaker 4: Well, Michelle, what about the other costs associated with this?
Speaker 4: Not the cost that would be the result of congestion pricing.
Speaker 4: But the cost now on the MTA and to the
Speaker 4: writers who might be stuck underground on broken subways with
Speaker 4: signal malfunctions, late to appointments and late to work, the
Speaker 4: loss of productivity from a crumbling subway here in New
Speaker 4: York City. What about that cost?
Speaker 8: Yeah, it's definitely real. People are already, you know, they're
Speaker 8: feeling it already. The system is more than a hundred
Speaker 8: years old. And you know, back in February, even the
Speaker 8: MTA had to suspend entering into new contracting work because
Speaker 8: of the uncertainty with the congestion pricing revenue given there
Speaker 8: have been these legal challenges against congestion pricing, and so
Speaker 8: they couldn't promise work to contractors because they just really
Speaker 8: couldn't move forward with that yet. And you know what
Speaker 8: that means is they can't already, you know, before Cochl's decision,
Speaker 8: they were stalling on really necessary work to help modernize
Speaker 8: the system, to fix it, to repair it, to get it.
Speaker 8: You know, the thing about the signal upgrades that helps
Speaker 8: the trains, that really decreases delays, helps the trains run faster.
Speaker 8: That's improved service, right, there.
Speaker 3: I got to say, in the last few months, we've
Speaker 3: all had those moments and then we had some tapings
Speaker 3: and it's like nobody's here because we just can't get here.
Speaker 3: We're just kind of stuck. Laura back to Governor Hokeel
Speaker 3: and you know how they make up the shortfall? Now,
Speaker 3: if they're not getting money from congestion pricing, what is
Speaker 3: the governor proposing that they can do?
Speaker 7: She is proposing, and this also astonished people, replacing the
Speaker 7: revenue from the congestion tolling program with a payroll mobility tax.
Speaker 7: Our understanding is that it's something similar to a tax
Speaker 7: that was enacted in under former Governor Patterson and then
Speaker 7: partly repealed in twenty ten because it was so unpopular.
Speaker 7: It actually ended up resulting in or was blamed for
Speaker 7: the losses of a bunch of Democrats in the state
Speaker 7: Senate in suburban districts in twenty ten. And the legislature,
Speaker 7: although they're discussing this right now, the last day of
Speaker 7: the legislative session for this year is tomorrow. Very unlikely
Speaker 7: they get anything passed by tomorrow, or a bill drafted
Speaker 7: or even a discussing. Yeah, it's it's politically could be
Speaker 7: a really heavy lift to enact a totally new tax
Speaker 7: to cover the shortfall. So we'll see what hap.
Speaker 3: We talked about with Michael.
Speaker 8: Guys, I'm sorry if I could just piggyback off of
Speaker 8: Laura there. Yeah, So the businesses in New York City
Speaker 8: and seven surrounding counties have been paying this payroll mobility
Speaker 8: tax for a few years now. Just what's really really
Speaker 8: surprising is that last year the state lawmakers actually increased
Speaker 8: that tax on the largest New York City businesses, and
Speaker 8: so it's just it's surprising that the legislature is actually
Speaker 8: has an appetite to at least consider raising this tax again.
Speaker 8: This is going back to the business community again to
Speaker 8: help offset the loss of the contest and at a.
Speaker 4: Time when you know, story after story we see businesses
Speaker 4: moving out of the city and make you know, moving
Speaker 4: employees to other states. Michelle, real quick, the budget shortfall
Speaker 4: that the MTA will see this year that it was
Speaker 4: already relying on, where's that going to come from?
Speaker 8: Yeah, definitely. So the if if state lawmakers, if they
Speaker 8: really do pass an increase on the payroll mobility tax,
Speaker 8: that could then offset the loss from the congestion but
Speaker 8: if they don't, they don't. And also remember the deficit
Speaker 8: that the whole now is in and he is capital plan.
Speaker 8: So this isn't their operating budget, which you know, keeps
Speaker 8: the lights on and and you know, pays their workers
Speaker 8: and all that good stuff. This is the capital budget,
Speaker 8: which pays for you know, all the infrastructure updates, infrastructure needs.
Speaker 3: Yeah, kind of make some fixes and stuff. Laura, definitely,
Speaker 3: Laura ten seconds. Is this really ever not going to
Speaker 3: happen in New York City or who knows? We don't know.
Speaker 7: The governor hasn't said that it's totally over, but she
Speaker 7: definitely delayed it. It is limping along on life support
Speaker 7: right now. But the blowback that she's receiving from some
Speaker 7: people in the legislature and advocates.
Speaker 3: I don't know.
Speaker 7: We'll see the next couple of weeks should be critical.
Speaker 6: All right.
Speaker 3: We'll be watching Laura Namius, New York Politics reporter here
Speaker 3: at Bloomberg News in studio, Michelle Caski, reporter at Bloomberg News,
Speaker 3: out there on the streets with the latest on congestion pricing.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 3: I'll give a little I'll give a little bit my
Speaker 3: love to you.
Speaker 4: Well, Kell, you might recall the story from The Bloomberg's
Speaker 4: Channet Lauren last month about Bob and Ellen Thompson, a
Speaker 4: couple in their nineties who are donating one hundred and
Speaker 4: twenty one miss billion dollars to expand a scholarship program
Speaker 4: at Bowling Green State University in Ohio.
Speaker 3: Right, great, sounds incredible. Absolutely. There are, however, some strings
Speaker 3: attached to make sure recipients earned degrees. According to the terms,
Speaker 3: eighty percent of the students receiving support must graduate within
Speaker 3: four years. Otherwise the public school team there has to
Speaker 3: foot the bill for each extra semester of tuition.
Speaker 4: We've got with us Rodney Roger, the president of Bowling
Speaker 4: Green State University, joining us from Bowling Green, Ohio, as
Speaker 4: well as our own Bloomberg News higher education reporter Janet Lauren,
Speaker 4: who joins us here in the Bloomberg Interactive Brokers Studio.
Speaker 4: Jan I do want to start with you. We know
Speaker 4: the story, we've talked about it, but I do want
Speaker 4: you to remind everyone about the donation and give us
Speaker 4: sort of the nitty gritty of the strings that are
Speaker 4: attached here.
Speaker 1: Well, what I found remarkable about this donation there were
Speaker 1: several things this ninety year old couple had met at
Speaker 1: Bowling Green in the fifties, I believe graduated. Long story short,
Speaker 1: Bob Thompson entered the business of an uncle, a road
Speaker 1: paving business at the time when Dwight Eisenhower decided they
Speaker 1: needed roads paved in the United States. Interstate Highway don't do.
Speaker 3: But anyway, you know what they say, there's gold in the.
Speaker 1: Streets is Interstate Highway Act. And Bob's business was quite successful,
Speaker 1: and then they sold it in nineteen ninety nine for
Speaker 1: over four hundred million dollars. And they became noteworthy because
Speaker 1: they gave about one hundred million dollars to their employees,
Speaker 1: you know, often to help them start get start retirement funds,
Speaker 1: which is also amazing. And at the same time, they
Speaker 1: heard from their alma mater, Bowling Green, that they just
Speaker 1: hadn't had a relationship within almost fifty years, and at
Speaker 1: a football game, this relationship was rekindled. University of Michigan
Speaker 1: crushed Bowling Green, but there was a nice relationship that
Speaker 1: came out of it, and they started donating money and
Speaker 1: eventually they decided they wanted to create this scholarship program
Speaker 1: to help kids finish schools and in four years and
Speaker 1: Bobompson pressure tested this program, you know, that was a
Speaker 1: term he used in business, just to make sure the
Speaker 1: school could handle getting this huge influx of money and
Speaker 1: to make sure the kids could finish. And then over
Speaker 1: time he had some great investments. They were actually bond investments,
Speaker 1: and they had more money, and he met with President
Speaker 1: Rogers and wanted to hear about his long term goals
Speaker 1: with the school.
Speaker 3: Would he be.
Speaker 1: Sticking around and they decided they wanted to give more money.
Speaker 1: It has to be spent within the next fourteen I
Speaker 1: think years, get these kids through. It won't be an endowment.
Speaker 1: It has to be spent interesting and the school has
Speaker 1: to match it. And if the kids don't graduate within
Speaker 1: four years, Bowling Green will pay the tuition for each
Speaker 1: semester for the students who are still sticking around after
Speaker 1: four years.
Speaker 3: Well, Rodney Rodgers is with us. So Rodney, first off,
Speaker 3: just what this means for the school, the direction of
Speaker 3: your school, the future of your school.
Speaker 9: Well, this gift is certainly transformational to Bowling Green, but
Speaker 9: more importantly, it's transformational to the over six thousand students
Speaker 9: that it's going to serve over this next decade plus years.
Speaker 9: It allows us to serve modest so students from modest
Speaker 9: income families who want to get that college degree, minimize
Speaker 9: their debt and be prepared to go out and do
Speaker 9: some amazing things in our communities. So it means a lot,
Speaker 9: especially to our students.
Speaker 1: So why is it so hard to finish for kids
Speaker 1: to finish college? There was a statistic like only sixty
Speaker 1: two percent graduate within four years.
Speaker 9: You know the challenge that we have today as the
Speaker 9: cost of education has increased because of decline in investment
Speaker 9: from many states across the nation, and there is an
Speaker 9: escalating cost any students, especially students coming from more modest
Speaker 9: income families. They work two three jobs, they need to borrow,
Speaker 9: They worried as we all do, about the level of debt,
Speaker 9: and so I think all of those sorts of things
Speaker 9: kind of get in the way of completing college in
Speaker 9: a timely way. So that's one reason this program, which
Speaker 9: is really a three way partnership. So, as Janet had mentioned,
Speaker 9: the Thompson Foundation is providing some funding. The university needs
Speaker 9: to find ways to match that funding. It is not
Speaker 9: a free college, Bob and Ellen made it clear. This
Speaker 9: is a free college. We want the students to have
Speaker 9: some skin in the game. So while the majority of
Speaker 9: tuition is covered by this scholarship program, there is about
Speaker 9: ten percent that is covered by the student and the
Speaker 9: student has to do twenty hours of community service each
Speaker 9: year to pay it forward. So everybody's got a little
Speaker 9: bit of skin in the game here. As Janna mentioned,
Speaker 9: if they don't graduate in four years, the university's on
Speaker 9: the hook to cover the tuition until they do graduate.
Speaker 9: So we are highly motivated, the student is highly motivated,
Speaker 9: and we certainly have found this to be very effective,
Speaker 9: increasing that graduation rate during this pressure testing period to
Speaker 9: nearly ninety percent four year graduation.
Speaker 3: I love the skin in the game. I think it's
Speaker 3: really smart.
Speaker 1: So the students also get a coach to work with
Speaker 1: them as part of the requirements, And how does coaching
Speaker 1: help these students finish within four years, perhaps finding jobs
Speaker 1: or internships or making sure they get their right classes
Speaker 1: so they can finish in four years.
Speaker 10: Yeah.
Speaker 9: An initiative we've started here at the university called Life Design,
Speaker 9: and it's an initiative that's really available to all the students,
Speaker 9: but the Thompson Scholars absolutely must take advantage of it
Speaker 9: because it's part of the requirement. What it does is,
Speaker 9: using design thinking principles, we help students navigate. We empower
Speaker 9: the student to navigate this collegiate experience as they transition here.
Speaker 9: Many of our students here at Bowling Green are still
Speaker 9: first gen students, thirty five percent of our student bodies
Speaker 9: first generation students, and those students especially sometimes need a
Speaker 9: little bit extra support on how to navigate. But what
Speaker 9: we do is give them the toolbox to navigate it
Speaker 9: using design thinking principles. And a big part of that
Speaker 9: is prototyping, beginning to think about the kind of life
Speaker 9: you want to lead, the kind of career you want
Speaker 9: to want to lead or to be involved in, and
Speaker 9: how do you prototype those experiences, which is all about
Speaker 9: internships and co ops, and so it feeds nicely into
Speaker 9: the transition from college to life as.
Speaker 4: Well, President Rogers, what's the typical four year graduation rate
Speaker 4: at the school right now? How long does it typically
Speaker 4: take students to r.
Speaker 9: Yeah, our four year graduation rate is closer to fifty percent.
Speaker 4: So that's going to be some serious work to ensure
Speaker 4: that these students. Do you graduate in four years?
Speaker 9: Yes?
Speaker 4: Well, what are you sorry? What are you budgeting in
Speaker 4: in terms of students not being able to do that?
Speaker 9: Well, from a total dollar amount, we assume there's probably
Speaker 9: five percent of this group of students that we may
Speaker 9: need to have some extra skin in the game. But
Speaker 9: I'll tell you Tim what we've learned honestly the pressure
Speaker 9: testing of this and this is why we are willing
Speaker 9: to be held accountable for this type of philanthropy. And
Speaker 9: that's what I think is a key story here. This
Speaker 9: is very much about accountable philanthropy and why we are
Speaker 9: willing to be accountable. During the pressure test, we found
Speaker 9: that we can act if we help take away the
Speaker 9: financial challenge the student has they want to graduate in
Speaker 9: four years or less because they want to begin their career.
Speaker 3: I do have a question though, and I'm wondering in
Speaker 3: terms of is this going to change, like the admissions
Speaker 3: process of who you accept because of the importance of
Speaker 3: making sure these kids get through in four years.
Speaker 9: Well, we are a selective admission university to begin with,
Speaker 9: so we only we're admitting students who we believe can
Speaker 9: be successful at the university. So they have hit an
Speaker 9: appropriate kind of academic admission standard where we believe they
Speaker 9: can be successful here. This program basically takes away the
Speaker 9: majority of the financial need though, and by taking that away,
Speaker 9: students can focus on their collegiate experience and.
Speaker 1: How does it help in terms of figuring out what
Speaker 1: you want to do, What is a class path, what
Speaker 1: courses it take, so you're not wasting time in your major.
Speaker 3: And President Rogers, we only have about thirty seconds left
Speaker 3: real quick.
Speaker 9: The Life Design initiative, from the first time they step
Speaker 9: on campus, they meet with a design coach. They lay
Speaker 9: out what we call the Falcon flight plan, which is
Speaker 9: basically where the Falcons that's our mascot. The flight plan
Speaker 9: really takes them through that four years and they learn
Speaker 9: how to navigate that from day one to thinking about
Speaker 9: what's surprised at the end.
Speaker 3: We're looking forward to checking back with you and Janet
Speaker 3: on this as these students progress. Rodney Rogers. He's a
Speaker 3: president of Bowling Green State University, along with Bloomberg News
Speaker 3: Higher education reporter Janet lauren Er. Thanks to both of you.
Speaker 6: Brother the journal.
Speaker 1: Don't you let me drive?
Speaker 8: Oh no, no, no, no, who's going to drive?
Speaker 10: Honry?
Speaker 5: Please, I'll gravel ease?
Speaker 3: Wat I want to drive.
Speaker 4: It's a good question.
Speaker 2: Try This is the drive to the Globe.
Speaker 3: Dot com for me?
Speaker 2: I think well, Bern on Bloomberg Radio.
Speaker 3: All right, everybody, we've got on just about eighteen minutes
Speaker 3: left in today's trading session. It's kind of an interesting day.
Speaker 3: I feel like we're getting ready for the monthly jobs
Speaker 3: report tomorrow, so the economy US economy is certainly front
Speaker 3: of mind. And this, of course, we've got a FED
Speaker 3: meeting next week, so watching what they might say about
Speaker 3: the future rate environment to come. So I'm curious what
Speaker 3: our next guest has to say.
Speaker 6: Yeah.
Speaker 4: Martin Escobari is co president and head of Global Growth
Speaker 4: Equity at the private equity firm General Atlantic. He joins
Speaker 4: us here in our Bloomberg Interactive Brokers studio. The firm
Speaker 4: has approximately ninety billion dollars in assets under management. When
Speaker 4: people hear General Atlantic, they think private equity. So talk
Speaker 4: to us about the public equity side of this, the
Speaker 4: growth equity side of this.
Speaker 10: Listen, We've been doing growth equity for forty three years,
Speaker 10: and what growth equity is is late stage venture capital.
Speaker 10: It's investing in high growth companies. Our companies are growing
Speaker 10: thirty forty fifty percent per year. Majority of them are
Speaker 10: already profitable, and we're helping them scale to the next level.
Speaker 10: We take them public and we hold them while they're public.
Speaker 10: But the ninety percent of what we have in the
Speaker 10: portfolio on the ninety billion that you talked about is
Speaker 10: still private. Yeah, and in about ten percent of what
Speaker 10: we do is public because we took them public most often.
Speaker 4: How has that activity been in a higher interest rate
Speaker 4: environment over the last couple of years.
Speaker 10: It is the worst of times and the best of
Speaker 10: times for growth equity today. Unpack that why it's the
Speaker 10: worst of times because the IPO markets have been shut
Speaker 10: down effectively for two years. That hasn't happened since two thousand.
Speaker 3: Some say it's not going to necessarily come back to
Speaker 3: the levels that we've seen just because companies don't need
Speaker 3: to go public.
Speaker 10: It will never be as euphoric as twenty nineteen to
Speaker 10: twenty one, just like it didn't become a fork as
Speaker 10: a fougus nineteen to one. Since ninety eight two oh one,
Speaker 10: it was too easy to go public immature companies.
Speaker 3: When publics are messy, it was.
Speaker 10: Messy and not good for the industry, not good for
Speaker 10: those companies. The IPO market will come back, but the
Speaker 10: minimum is scale to be public is dramatically higher, and
Speaker 10: that is good for the industry, and that is.
Speaker 1: Good for the company.
Speaker 3: What does that mean? In other words, you mean like
Speaker 3: profitability metrics, Like.
Speaker 10: That's predictability, predictability, profitability and a minimum market cup. In
Speaker 10: our view, the idea you can be a successful public
Speaker 10: and trader company with a market cup of under a
Speaker 10: billion dollars, it's not consistent with the world today. I
Speaker 10: think in our mind you have to be three four
Speaker 10: five billion dollar market cup with a free flow north
Speaker 10: of a billion, to have equity research coverage, to have
Speaker 10: institutional support, and to have the maturity to be able
Speaker 10: to communicate with the market in a way that's understandable,
Speaker 10: and have enough liquidity. Is that small moves in supply
Speaker 10: and the man of stock don't plummet or cause a
Speaker 10: massive high class the one we were seeing and you
Speaker 10: were just commenting with the other.
Speaker 4: Company, Martine. In the growth equity space at General Atlantic.
Speaker 4: Are the exits in your world typically IPOs or could
Speaker 4: they be other types of exits sold to another private
Speaker 4: equity firm for example.
Speaker 10: That's a great question, thank you, Tim. If you take
Speaker 10: the twenty year view, fifty percent of the time we're
Speaker 10: exiting to a strategic or to another private and typically
Speaker 10: in a control transaction.
Speaker 3: That's a lot.
Speaker 10: Fifty percent is in the public markets. That's the average,
Speaker 10: and the averages, you know, is always deceiving. In twenty
Speaker 10: nineteen to twenty one, it was eighty percent through the
Speaker 10: public markets because the markets were very welcoming and as
Speaker 10: you said, messy and disorganized but easy to find me
Speaker 10: very receptive. Over the last three years, eighty percent is
Speaker 10: to strategics. On average, it looks like fifty percent, but
Speaker 10: the day to day flooded cats a lot.
Speaker 3: Wow, that's a lot. I am curious though, you said
Speaker 3: about the growth your portfolio companies are seeing growth of
Speaker 3: thirty to forty to fifty percent. I'm assuming that's a
Speaker 3: year over year year year year every year. Is that continuing?
Speaker 3: I'm just curious if there are any kind of markdowns
Speaker 3: that you're going to have to take because of kind
Speaker 3: of a reset when it comes to a higher rate environment.
Speaker 10: There was a big risk reset in valuations. So the
Speaker 10: multiples we're being asked to pay today relative to what
Speaker 10: we were asked to pay in twenty twenty one sixty
Speaker 10: percent below. Okay, we've reset to a new reality. Some
Speaker 10: would say it's overcompensated. To the downside. The growth, the
Speaker 10: engines of growth which we can talk about what's driving
Speaker 10: the growth in the portfolio, are undimmed and remain extremely strong.
Speaker 10: So when I say it was the worst of time
Speaker 10: we were talking about the difficulties in getting going public,
Speaker 10: it is the best of times because the engine of growth,
Speaker 10: which is driven primarily about technology, is alive and well
Speaker 10: and we're not seeing it, with rare exceptions, any degradation
Speaker 10: in the growth of the companies.
Speaker 3: Martin, When you talk technology, you know, Tim and I
Speaker 3: talk about this all the time. We have a guest,
Speaker 3: I mean, technolog is a big bucket. What's the technology
Speaker 3: where you are seeing that thirty forty fifty percent growth
Speaker 3: that you guys are investing in.
Speaker 10: If you take a step back, we believe we as
Speaker 10: a growth equity are benefiting from three revolutions, and it's
Speaker 10: indirectly answering your question. The first revolution is digital transition.
Speaker 10: More industries are doing more of their interactions with their
Speaker 10: customers and they're with the suppliers digitally. It's a trend
Speaker 10: that's twenty five years in the making, now accelerated by AI.
Speaker 10: Truly transformed. That's one driver of growth and it has
Speaker 10: to do with the transition to a digital world. The
Speaker 10: second revolution is healthcare innovation. The healthcare system today is
Speaker 10: not functioning correctly. Are in the US, for example, and
Speaker 10: we're global US about forty five percent of what we
Speaker 10: do in the US healthcare spen has gone from twelve
Speaker 10: percent of GDP to twenty four percent of the GDP
Speaker 10: before the baby boomers get into the really expensive phase
Speaker 10: of their life. From a healthcare perspective, the system which
Speaker 10: pays for services is doing too much service and not
Speaker 10: enough health. It is only with technology can we get
Speaker 10: better service at the right place, at the right price
Speaker 10: and improve healths spend while reducing costs. Technology has a
Speaker 10: role to do. At the same time, we believe we're
Speaker 10: in the golden age of biology there's a whole revolution
Speaker 10: happening with biotech. Forty five percent of the disease burden
Speaker 10: of the world has a biologic solution in clinical trials
Speaker 10: somewhere in the world, and we're in the very early
Speaker 10: indians of that revolution, which is got twenty years.
Speaker 3: Left, so it's not tapping into DNA, but you're talking
Speaker 3: about companies that already have some kind of solution that
Speaker 3: they're on the early stages, on the early stage, because
Speaker 3: we've done a whole story on twenty three and me
Speaker 3: who believe that, you know, we're hoping to kind of
Speaker 3: write monetize kind of the mapping of the genome.
Speaker 10: But it just kind of has that's about therapeutics to
Speaker 10: address Alzheimer's and cancer and other diseases in parkinson that
Speaker 10: probably over the next twenty years we'll figure it out,
Speaker 10: and that's super exciting. That rate of innovation now again
Speaker 10: turbo charge BII is going to happen faster and for
Speaker 10: people my age is great news. Couldn't come longevity.
Speaker 4: What's the common thread that sort of unifies your investments,
Speaker 4: Like if there's one characterization of a company that you
Speaker 4: could make it says, okay, well, every one of the
Speaker 4: companies that I've invested in and for growth Equity has this.
Speaker 10: One thing entrepreneurial, innovative, global.
Speaker 4: Yeah, so size doesn't matter, So.
Speaker 10: We start really small. We'll write checks of twenty five
Speaker 10: to fifty million dollars of a company that could be
Speaker 10: growing very faster with a small base. But we try
Speaker 10: to find people who are having a part in one
Speaker 10: of these revolutions with a mousetrap. That's interesting, it's generating
Speaker 10: economic value. It's it's a mousetrap that is defensible meanings,
Speaker 10: it won't be eroded over time, and it has a
Speaker 10: team that is ready for the mission.
Speaker 4: What's your success rate?
Speaker 10: So we lose money three percent of the time to
Speaker 10: some extend ninety seven percent of the time, we get
Speaker 10: at least our capital back. Ten percent of the time
Speaker 10: we have a blockbuster outcome and ten percent of deals
Speaker 10: generated about half of our richard And that's been true
Speaker 10: for decades. And where to reflect what are the common
Speaker 10: characteristics of those ten percent they have? They share a
Speaker 10: couple of careths. They're going after very large markets.
Speaker 3: Just got about fifteen seconds, go ahead.
Speaker 10: Okay, large markets, great business model and good team.
Speaker 3: Sorry, yeah, I got it. Yeah, you can work with us.
Speaker 3: I didn't want to have you cut off. Martin. Thank
Speaker 3: you so much. Look forward to checking in with you again.
Speaker 3: Martin Escobari he's co president, head of Global Growth Equity
Speaker 3: over the private equity from General Electric, joining us here
Speaker 3: in General Atlantic.
Speaker 1: Wow.
Speaker 6: Ge.
Speaker 3: Sorry that was from the past.
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