Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you,
Speaker 1: along with my co host Lisa Brahma wits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: that Bloomberg dot Com. Time for Bloomberg Opinion. You're joined
Speaker 1: by Bloomberg Opinion columnist Joe and the Sarah. Joe, thanks
Speaker 1: so much for joining us. You got a fascinating column
Speaker 1: a couple of days ago talking about you know, this
Speaker 1: whole concept of a lockdown and quarantine. This is something
Speaker 1: that we haven't necessarily done in some past epidemics in
Speaker 1: this country. And I guess as people think about opening
Speaker 1: up the economy, now there's really two camps out there.
Speaker 1: Those that are probably a little bit more aggressive about
Speaker 1: opening up the economy and those that are a little
Speaker 1: bit more conservative. Talk to us a little bit about
Speaker 1: kind of lockdowns and how effective they've proven to be
Speaker 1: in the past. Well, they've never been used in the past.
Speaker 1: This is the first time they never became uh, sort
Speaker 1: of uh policy, pandemic policy until two thousand six when
Speaker 1: George bush Um asked the government to come up with
Speaker 1: a pandemic plan, and the and the scientists who came
Speaker 1: up with the lockdown idea, Um, they were not infectious
Speaker 1: disease scientists. Um. Uh. And there was a lot of
Speaker 1: controversy about it at the time. Uh. There've been pandemics
Speaker 1: in nineteen fifty seven, there was one in nineteen sixty eight,
Speaker 1: of course the famous one in eighteen. Absolutely a lot
Speaker 1: of people stayed inside because they were terrified, but there
Speaker 1: was never an official and official lockdown. So so the
Speaker 1: answer is, um, there's no there's no previous science to
Speaker 1: know what good the lockdown does. And although it makes
Speaker 1: a lot of intuitive sense that you would stay inside
Speaker 1: and therefore avoid the virus, there's a lot of downsides,
Speaker 1: as we're about to find out when the economy starts
Speaker 1: to open. Yeah, this is what people are saying that basically,
Speaker 1: we don't know how effective it is to limit the spread,
Speaker 1: and we know that it creates it's a lot of
Speaker 1: problems when it comes to when it when it comes
Speaker 1: to the economy. That said, we are seeing a pretty
Speaker 1: strong correlation and I know, correlation is not causation, but
Speaker 1: it is becoming scientifically accepted that the economy is that
Speaker 1: shut down more aggressively and more quickly were those that
Speaker 1: managed to stave off some of the worst effects of
Speaker 1: this virus that we've seen in places like New York
Speaker 1: and Milan. So from that perspective, how can you dismiss
Speaker 1: that as showing the efficacy of this type of of shutdown. Well,
Speaker 1: I don't. I don't dismiss it. But you know, there's
Speaker 1: also this mass the social distancing. There's the fact that
Speaker 1: literally of the people who have died in this pandemic
Speaker 1: have been the elderly, you know, whether you're inside or
Speaker 1: outside um. And then you have states like Texas and
Speaker 1: Florida which have been very lax on lockdowns and and
Speaker 1: their numbers of death are extremely low. So I mean,
Speaker 1: I would argue that, you know, it's really unclear as
Speaker 1: to whether the lockdown is saving a lot of lives
Speaker 1: or not. All right, right there, where are you? Where
Speaker 1: where are you staying right now? I'm in Southampton, Okay,
Speaker 1: So you're not in the city, right correct? Okay? And
Speaker 1: my question is, let's say there were no state mandated
Speaker 1: locktowns of any sort. Would you feel comfortable going about
Speaker 1: your business the way that you had in the past
Speaker 1: and going on the subway? Um, I don't know. That's
Speaker 1: a good question. I think that I if I think
Speaker 1: if I had a mask and gloved, I would, And
Speaker 1: I also think that I would probably have to. I'm
Speaker 1: also sixty eight years old, so I'm in the high
Speaker 1: risk group. Um, there's a lot of Look. Look, you know,
Speaker 1: in March, there's no question I came out to the
Speaker 1: Hamptons because I was scared. But you know, you watch,
Speaker 1: you watch data, you watch things happening, you watch what's
Speaker 1: going to happen to the economy, and you think to yourself,
Speaker 1: you know, is this really the right way to continue
Speaker 1: to proceed. And one distinction that I've been making is
Speaker 1: between the hotspot states and cities like Detroit, UH and
Speaker 1: New York and New Orleans and places like Houston and
Speaker 1: Miami and San Diego which have very very very few Um.
Speaker 1: Death Yeah, well, look, Joe, he raised a really good point,
Speaker 1: and Paul, this I think is a really important thing.
Speaker 1: And I think that Joe, I feel like you want
Speaker 1: to chop my head off, you know. I I honestly,
Speaker 1: I've I'm totally jealous that you're in the Hampton's. I
Speaker 1: also think this is such a politically fraught issue, and
Speaker 1: the question is if they okay, I want to talk
Speaker 1: about that. That is so right, This is the big
Speaker 1: problem here, here's the big problem. It has become a
Speaker 1: political issue. And it's and and and It's like if
Speaker 1: my political party believes in lockdowns, and I believe in lockdowns,
Speaker 1: if my political party says lockdowns and BS, then I
Speaker 1: say that's BS. Nobody on either side is willing to
Speaker 1: just sit down and say, let's look at this with
Speaker 1: fresh eyes, let's think about this from a from a
Speaker 1: point of view of neutrality and science. It's not happening.
Speaker 1: Everybody on both sides says, you know, I'm following the science.
Speaker 1: I'm following the science. Well, what does that even mean
Speaker 1: with a lockdown? Where where? Where? There is where? The
Speaker 1: science is unclear? It's no. I think the issue here
Speaker 1: right now, you know, the conversation Joe is just, you know,
Speaker 1: the cost of the economic cost of lockdown versus the
Speaker 1: cost in lives. And that's kind of what the reopening
Speaker 1: debate seems to be evolving to. I think that's absolutely true.
Speaker 1: And um, let me let me let me ask you this.
Speaker 1: This is kind of how I ended my column yesterday.
Speaker 1: You know, it's quite likely that the virus will will
Speaker 1: fade in the summertime, because that's often what happens, and
Speaker 1: then it will probably come back with a vengeance in October.
Speaker 1: And if that happens and we're reopening the economy, are
Speaker 1: you gonna say, well, let's shut everything down again for
Speaker 1: three months, because back, I don't know that's gonna be
Speaker 1: really tough. I don't think. I don't think anybody's going
Speaker 1: to agree to that. I just don't think the society
Speaker 1: is gonna agree to that. And I think we're gonna
Speaker 1: have to learn to live with this thing with with
Speaker 1: measures like masks and social distancing that are less severe
Speaker 1: than a lockdown, we could wind up in a depression.
Speaker 1: Thanks so much for us. We gotta run, Joe, Joe No.
Speaker 1: Sarah Colums for Bloomberg Opinion. It's an awesome column. Check
Speaker 1: it out on Bloomberg dot Com, slash Opinion. All his
Speaker 1: great work. This is Bloomberg Markets with Lisa Abramowitz and
Speaker 1: Paul Sweeney on Bloomberg Radio. What I mean listening to
Speaker 1: healthcare officials, the big, big thing right now is to
Speaker 1: continue to test for the virus and then contact trace
Speaker 1: to see to kind of contain, uh, this spread of
Speaker 1: the virus. That's certainly important now and will be even
Speaker 1: more important. Ty Center is a second wave. And when
Speaker 1: you talk about the contact tracing, there's been a lot
Speaker 1: of apps that people have been talking about, mostly the
Speaker 1: Apple and Google approach, kind of a joint venture there,
Speaker 1: which is really in and of itself, has been getting
Speaker 1: most of the press, but a startup out there has
Speaker 1: also been they think they might have a better mouse trap,
Speaker 1: and that is a Jared all Good, co founder and
Speaker 1: chief strategy officer for the firm twenty. They're based in
Speaker 1: San Francisco. They've got their own app, Healthy Together, and
Speaker 1: in fact, the state of Utah is actually adopting it. Jared,
Speaker 1: thanks so much for joining us here. Tell us about
Speaker 1: your app and why say a state like Utah would
Speaker 1: select your app versus at Apple Google, which would seem
Speaker 1: to be the easy choice. Yeah, good, good morning, Paul
Speaker 1: and Liza, thanks for having me on um. Yeah. So,
Speaker 1: Healthy Together was developed to work in partnership and in
Speaker 1: conjunction with the public Health Department of the State of
Speaker 1: Utah UM. So they approached us several weeks ago UM
Speaker 1: and saw that we had some technology that was unique
Speaker 1: for helping to augment and automate certain parts of the
Speaker 1: manual contact tracing process. So we partner with them to
Speaker 1: develop the Healthy Together application both as a friend end
Speaker 1: application and also has back in services and tools that
Speaker 1: we deploy back into the Department of Health UM. So really,
Speaker 1: what we've built as a way for residents to UH
Speaker 1: to help the manual public health contact tracing effort by
Speaker 1: using an app on their phone that helps us UH
Speaker 1: and them identify where they've been and who they've been
Speaker 1: in contact with should they come out positive with COVID nineteen,
Speaker 1: so that manual contact go ahead. No. I find this
Speaker 1: so fascinating, this idea that people are are going to
Speaker 1: help the effort by volunteering to be tracked on their phones.
Speaker 1: It strikes me that the scope of data is important
Speaker 1: for this to be effective, that the greatest number of
Speaker 1: people need to be registered and tracked for this to
Speaker 1: actually prevent the virus from spreading. What's your advantage over
Speaker 1: say Google and Apple who also have an app and
Speaker 1: also have the host of data in the footprint. Yeah.
Speaker 1: So something that I would say to that is, first
Speaker 1: of all, Healthy Together is more than just a contact
Speaker 1: tracing application. UM. The State of Utah's strategy is to
Speaker 1: do assessing, testing and tracing. So the Healthy Together platform
Speaker 1: allows residents to assess themselves to find out if they
Speaker 1: should get tested for COVID nineteen uh and then if
Speaker 1: they should and we can refer them to, you know,
Speaker 1: the nearest testing resource through the application. And so just
Speaker 1: shortening the time from somebody becoming symptomatic to getting them
Speaker 1: into the testing process and then finding out if they're
Speaker 1: positive and then quarantining themselves is a huge part of
Speaker 1: the value proposition that we've delivered with the State of Utah. Now,
Speaker 1: as it pertains to contact tracing UM, our approach is
Speaker 1: actually not an opposition with the Google and Apple approach. UM.
Speaker 1: Google and Apple are, at least as we understand or not,
Speaker 1: coming out with applications. What they have built up as
Speaker 1: a set of APIs the application developers like us can
Speaker 1: integrate with to to tap into a broader network of
Speaker 1: contact tracing. And that's something that we see as a
Speaker 1: as a huge value add uh. We hope to to
Speaker 1: find a way to work and partner with Apple and
Speaker 1: Google to use those API s UM so that we
Speaker 1: can augment our current process. So you're in the state
Speaker 1: of Utah. Are there other states you're in discussions with? Yeah,
Speaker 1: of course. Look since UM, since we released just a
Speaker 1: few weeks ago in the state of Utah, UM, we've
Speaker 1: had a tremendous amount of inbound from other states who
Speaker 1: are interested, who are doing similar strategies in terms of
Speaker 1: standing up more manual contact tracing and then looking for
Speaker 1: tools and technology to augment and expedite that process. UM.
Speaker 1: So we had several conversations with other states. UM. We
Speaker 1: will be announcing some partnerships with other states coming soon. UM.
Speaker 1: And something that's been interesting to us that you know,
Speaker 1: we we we learned as we got into this UM
Speaker 1: is that businesses are also participating in contact tracing UM.
Speaker 1: Companies now have UH. You know, they're feeling the pressure
Speaker 1: to bring their employees back to work UM, and they
Speaker 1: need to do it in a safe way, and they
Speaker 1: need to communicate to their team members UM that they
Speaker 1: have a plan and a strategy for dealing with the
Speaker 1: occasion UM that somebody in their workforce turns out to
Speaker 1: be positive for COVID nineteen. And so we're seeing, um,
Speaker 1: you know, lots of interest from companies as well who
Speaker 1: want to implement tools and and just figure out the
Speaker 1: way to respond to this effort using manual and technological
Speaker 1: contact tracing as well. There's a tension for anyone who's
Speaker 1: creating a business in order to help facilitate the social
Speaker 1: distancing and prevention at this proNT of the pandemic. How
Speaker 1: you make money at a time when you're providing a
Speaker 1: service for the social good. How does that tension get
Speaker 1: resolved with you? Hi, Yeah, that's a great question. Look, UM,
Speaker 1: you know, as uh, you know, as you know, this
Speaker 1: was not our business. UM. You know, coming into this
Speaker 1: UM and we did not raise our hand and say,
Speaker 1: you know, we want to build contact tracing and sell
Speaker 1: it to the world. UM. The state of Utah, the
Speaker 1: Governor's office, reached out to us and identified us as
Speaker 1: a solution. UM, and you know, to be able to
Speaker 1: pivot our business and dedicate the number of resources engineers, designers,
Speaker 1: product managers UM to really build a high quality product
Speaker 1: both in the mobile application and also in these back
Speaker 1: end systems, and those things just cause resources to be
Speaker 1: able to do it um and so our goal is
Speaker 1: to serve as many you know, states and enterprises as
Speaker 1: we possibly can um and to do that and to
Speaker 1: scale up, it's just going to take money for us
Speaker 1: to be able to do it. Twenty co founder Jared
Speaker 1: all Good, thank you so much for being with us,
Speaker 1: talking about his Healthy Together contact tracing app, which has
Speaker 1: been deployed by the State of Utah. This is Bloomberg
Speaker 1: Markets with Lisa Ramowitz and Paul Sweeney on Bloomberg Radio.
Speaker 1: Certainly a lot of news coming out of China and
Speaker 1: Hong Kong in the last twenty four hours. We've seen
Speaker 1: some news here that it's uh, you know, really trying
Speaker 1: to really trying to reassert some or reassert more power
Speaker 1: and control over Hong Kong. To get a sense of
Speaker 1: what's really going on, what it means for Hong Kong,
Speaker 1: and it's economy and it's people. We welcome Yvonne Man.
Speaker 1: She's the anchor for Daybreak Asia and Bloomberg Markets China Open.
Speaker 1: She's in Hong Kong, and Tom or like chief economist
Speaker 1: for Bloombrick Economics, on the phone from Washington, d C.
Speaker 1: Tom spent a lot of time living in Beijing as well. So, Yvon,
Speaker 1: thanks so much for joining us. I want to start
Speaker 1: with you just give our listeners a sense of what
Speaker 1: actually happened between China and Hong Kong over the last
Speaker 1: twenty four hours. Well, it certainly has been quite an
Speaker 1: interesting twenty four hours fall And basically what has happened
Speaker 1: is that the NPC, the National People's Congress in Beijing,
Speaker 1: decided to enact this National Security Law which basically curbs
Speaker 1: DIO sessions addition for interference and terrorism in Hong Kong.
Speaker 1: It's also known as Article twenty three here in the city,
Speaker 1: and which was legislation that has basically been installed in
Speaker 1: the Legislative Council for for many years now, since two
Speaker 1: thousand and three. Back then when it was introduced, is
Speaker 1: fueled some widespread demonstrations. The government was then forced to
Speaker 1: scrap it. So we now see a very stronger and
Speaker 1: much more bold in Beijing than seventeen years ago. So
Speaker 1: they're taking matters into our own hands. They're frustrated by
Speaker 1: the months of unrest that it's hearth the economy. They're
Speaker 1: frustrated by lawmakers who have failed to get through this legislation.
Speaker 1: So the new strategy now from Beijing is to basically
Speaker 1: by pass Legislative Council here, skip the whole legislative process
Speaker 1: and do this. And they're from the MPC, so that's
Speaker 1: why this jokes so much outrage from those in the
Speaker 1: pro democracy side. Yvonne, you've done a great job of
Speaker 1: outlining this, and we thank you so much for staying
Speaker 1: so late to speak with us and lay it out
Speaker 1: for us here. Tom, I'd love your perspective from an
Speaker 1: economic viewpoint. Why Beijing is doing this now against a
Speaker 1: backdrop of a pandemic and a huge hit to its
Speaker 1: economic growth. Why is it not more concerned about the
Speaker 1: loss of Hong Kong as an international center and hub
Speaker 1: for finance and beyond UM So, I think what's what's
Speaker 1: really clear, Lisa, is that the politics is trumping the
Speaker 1: is trumping the economics UM and the national curiocy considerations
Speaker 1: the Beijing are more important than any risk to Hong
Speaker 1: kong status as a as a financial hub and a
Speaker 1: pathway for capital and expertise in trade between the mainland
Speaker 1: and the rest of the world. I think the other
Speaker 1: point to keep in mind about that the timing of
Speaker 1: this is, I mean, this is a move um, which
Speaker 1: in normal times would be expected to be controversial internationally. Right,
Speaker 1: a move which would be controversially in the United States,
Speaker 1: with the United Kingdom with its historic relationship with Hong Kong,
Speaker 1: Um with potentially some European countries as well. But at
Speaker 1: this particular moment in time, the world is in crisis, Um.
Speaker 1: Domestic leaders President Trump, Boris Johnson, Angelo Merkel, Um, they
Speaker 1: have other things on their mind. Right, They're dealing with
Speaker 1: a pandemic. They're dealing with economies in deep, in deep crisis. Um.
Speaker 1: So I don't have a crystal ball into the thinking
Speaker 1: of China's leadership, But potentially this is also a moment
Speaker 1: where they can make this controversial, mute move with perhaps
Speaker 1: less global repercussions than they would see in normal times. Yvonne,
Speaker 1: what is the expected response from those in China? Prior
Speaker 1: in Hong Kong, prior to the pandemic, the protesters were
Speaker 1: consistent week after week after week in their protests. Um,
Speaker 1: what is the expectation here for this move. Well, there's
Speaker 1: already some calls for people to hit the streets this
Speaker 1: weekend and the following uh A week after as well,
Speaker 1: and we've seen the activists already hitting the streets tonight
Speaker 1: handing out leaflets to the people in the streets educating
Speaker 1: about them about this national security law. So we have
Speaker 1: seen the anger resurface thing again and potentially we are
Speaker 1: could be saying the stage for a repeat of what
Speaker 1: we saw late last year. So the prospects aren't good
Speaker 1: at this moment. And it just seems like at this
Speaker 1: point from from the opposition side, they believe that by
Speaker 1: bypassing legislative process, that this is the end of one country,
Speaker 1: two systems, this is the end of Hong Kong's autonomy.
Speaker 1: So it's hard to see that this national security law
Speaker 1: could actually end the the unrest out there, even carry
Speaker 1: a LANDA chief executive herself said tonight that she doesn't
Speaker 1: expect protests to end amid this security law, and if anything,
Speaker 1: it's it's only feels more anger on the streets, especially
Speaker 1: now that this this outbreak and the coronavirus has eased
Speaker 1: a bit here in the city. It's it's calm down
Speaker 1: in terms of the numbers of local infections has been
Speaker 1: down for the last couple of weeks. Now that's given
Speaker 1: a little more comfortable people to come out again to
Speaker 1: you thought. I'm just wondering from your perspective, I saw
Speaker 1: that real estate stocks got hit the hardest in Hong Kong.
Speaker 1: I'm wondering how much you're seeing anecdotally or from data
Speaker 1: perspectives foreign money and will the money going out of
Speaker 1: the property sector in Hong Kong. Yeah, certainly was a
Speaker 1: concern late last year when when you were hearing people
Speaker 1: saying that they were pulling money out of Hong Kong
Speaker 1: and moving it to Singapore, for example. There's a lot
Speaker 1: of questions of whether Hong Kong status as an international
Speaker 1: finance hub is now under a question. Uh, and so
Speaker 1: markets really took this by surprise, the fact that the
Speaker 1: MPC we heard this type of legislation. Um, you know,
Speaker 1: at this point, we haven't seen a whole lot of
Speaker 1: those concerns or at least that type of movement just yet.
Speaker 1: But what's different now versus say, back in two thousand
Speaker 1: and eight, and what led to Hong Kong I should
Speaker 1: say stars not two thousand and eight, was that what
Speaker 1: led to a revival in the economy was the fact
Speaker 1: that they opened up the borders from mainland tourists to
Speaker 1: come that essentially gave it a v shaped recovery here
Speaker 1: in Hong Kong. Now that we're in a recession, a
Speaker 1: lot of economists say it's unlikely we're going to see
Speaker 1: that quick of a bounce back in the economy because
Speaker 1: we have been the mainline tours arrivals dwindle. In fact,
Speaker 1: I think they're they're in a single digit at most,
Speaker 1: so and given the anti China sentiment there is in
Speaker 1: the streets there, you can't exactly rely on Chinese tourists
Speaker 1: to revive the economy anymore. And they were key buyers
Speaker 1: in the property market as well, so potentially we could
Speaker 1: see thumb rupture there in in the property market. We
Speaker 1: haven't seen a whole lot of it just yet. It's
Speaker 1: actually been still quite table at this point. But you know,
Speaker 1: Tim will tell Tom just real quick here thirty seconds
Speaker 1: before we let you go, what are you looking for
Speaker 1: over the weekend? As Beijing has its annual power So
Speaker 1: we've already seen China step back from its growth target,
Speaker 1: that GDP target, which set the tone set expectations for
Speaker 1: the year UM. They've significantly ramps up fiscal stimulus, so
Speaker 1: that will provide some support to sentiment and demand UM
Speaker 1: in terms of Hong Kong is As Von said, I
Speaker 1: think the key thing to look for now is what's
Speaker 1: the reaction on the Hong Kong Street. Does this bring
Speaker 1: a very large number of people back out to protest?
Speaker 1: And if that happens, what then are the consequences for
Speaker 1: Hong Kong markets, real estate and the economy going forwards.
Speaker 1: Tom or Like chief economist for Bloomberg Economics, and Von Man,
Speaker 1: anchor of Daybreak Asia and Bloomberg Markets, which had to
Speaker 1: open for Bloomberg joining us, staying late to give us
Speaker 1: that report from Hong Kong. Definitely a historic seizure rupture
Speaker 1: here between Hong Kong and Beijing. Long time in the works,
Speaker 1: yet really raising questions about why now amid a backdrop
Speaker 1: of rising see no US tension. You're listening to Bloomberg
Speaker 1: Markets with Lisa Abrama Ed's and Paul Sweeney on Bloomberg Radio.
Speaker 1: We've talked a lot about how passive investing is all
Speaker 1: the rage and everyone wants to go into an index fund,
Speaker 1: and yet we often failed to discuss the very active
Speaker 1: process of composed using the underlying index, and that's very
Speaker 1: much in the forefront of people's minds right now. Is
Speaker 1: the SMP, which is the most tracked index bypassive funds,
Speaker 1: goes under potentially a pretty big overhaul. Joining us now
Speaker 1: to discuss this is Nick KOLs, co founder of Data
Speaker 1: Trek Research. Always great to get your thoughts, Nick, I
Speaker 1: want to start with why the SMP may have to
Speaker 1: rejigger which companies includes. Yes, the biggest reason, and you
Speaker 1: know we see this day to day, is that there
Speaker 1: are a lot of companies at the bottom end of
Speaker 1: this index in terms of market cap, that have fallen
Speaker 1: away below the typical levels where the SMP committee begins
Speaker 1: to think about replacing them. So, for example, Harley Davidson
Speaker 1: three billion dollar market cap, GAP stores at three point
Speaker 1: five billion dollar market cap, that's well below these five
Speaker 1: to eight billion dollars the committee tends to think about
Speaker 1: in terms of taking companies out of the index and
Speaker 1: replacing them with new ones. And it's a function of
Speaker 1: all the issues of the COVID crisis that we've seen
Speaker 1: in terms of how different companies are doing versus others. So, Nick,
Speaker 1: is the SMP that the committee there that looks at
Speaker 1: some of these companies. Are they trying to give some
Speaker 1: of these companies the benefit of the doubt and turn
Speaker 1: in a sense that hey, this is really related to
Speaker 1: this pandemic, and the pandemic is we think it will
Speaker 1: be a relatively short lived issue. And then once we
Speaker 1: get to the other side of this, these stocks were rebound.
Speaker 1: You know that that has to be part of their calculus,
Speaker 1: because one virtue of the five hundred is that it
Speaker 1: is pretty sticky. You only see twenty to thirty changes
Speaker 1: in the index a year, and they try to maintain
Speaker 1: a very low portfolio turnover because that's one of the
Speaker 1: advantages of index investing, is not having a lot of
Speaker 1: churned and transaction costs in the portfolio. But as we
Speaker 1: go through the balance of the year, some of this
Speaker 1: doesn't have their force their hand. How much longer do
Speaker 1: you want to wait before some of these companies that
Speaker 1: were already in structural decline, like anybody that sells stuge
Speaker 1: department stores, Gaps stores, or Harley Davidson. How long do
Speaker 1: you want to give them before you realize, Okay, they're
Speaker 1: not going to come back in any really serious form
Speaker 1: and we've got to move along. What's the reputational pressure
Speaker 1: for them? For the S ANDP Committee, the reputational issue
Speaker 1: is as you said at the top, this is the
Speaker 1: most widely followed, widely indexed measure of U S stocks
Speaker 1: anywhere in the world. It is the most popular, not
Speaker 1: just here in the US, but everywhere, largely because it's
Speaker 1: done so well relative to any of the same For example,
Speaker 1: M s C I EFA M S C I E M.
Speaker 1: You know, the ST five hundred has been an absolute
Speaker 1: horse of an investment over the last ten years, compounding
Speaker 1: at thirteen percent annually until the fall off the beginning
Speaker 1: of two thousand and twenty. Done far better than everything else.
Speaker 1: So it's really important from an indexing perspective, from a
Speaker 1: business perspective, that this index continue to hold that structural
Speaker 1: advantage over every other measure of global stocks. So, Nick,
Speaker 1: I know there are traders out there that like to
Speaker 1: kind of, you know, speculate on aims that are going
Speaker 1: to come into the SMP. Conversely, also and also names
Speaker 1: that that will come out of the index. Are we
Speaker 1: seeing some higher volatility around some of those names? You know,
Speaker 1: it has been hard to measure. We did look at
Speaker 1: that for our client. Note it was very hard to
Speaker 1: pick out what the volatility from the macro environment has
Speaker 1: been versus what you really point out is a very
Speaker 1: common kind of index ad index um delete kind of mentality.
Speaker 1: So hard to tell right now, but if you look
Speaker 1: at I'm looking at the bottom ten names in the
Speaker 1: SMP right now, Haynes Brands, Harley Davidson, Norwegian Crews, L Brands,
Speaker 1: PVH Clow, Serve, H and R, Block, Discovery, and Xerox.
Speaker 1: Those are at the very bottom of the list, all
Speaker 1: brand names, all things we know, some of them. I
Speaker 1: would assume we're going to leave the index in the
Speaker 1: next year, just because there's gonna be new names that
Speaker 1: the committee wants to add. I'm struck, Nick by a
Speaker 1: point that you made in your recent research, which I
Speaker 1: thought was really fantastic, which is this concept that yes,
Speaker 1: people want to invest passively in broad markets, and yet
Speaker 1: the decision and how to how to count that market
Speaker 1: is very subjective, the sort of active quality of index composition.
Speaker 1: What types of subjective measures does the SMP committee have
Speaker 1: to consider were deciding on some of these issues. Yeah,
Speaker 1: it's it is to me the most fascinating points in
Speaker 1: all this because it is ultimately a choice. You know,
Speaker 1: the committee has a very well, you know historically, you know,
Speaker 1: very precise measure of what they want to add. There's
Speaker 1: profitability requirements as market cap requirements. I would kind of
Speaker 1: take the conversation a little bit different direction, and just
Speaker 1: everybody considered the fact that Tesla is not in the
Speaker 1: SP five hundreds, but Hard Davidson is um which to
Speaker 1: me is a central irony, and the issue is one issue,
Speaker 1: It is profitability. Tesla has not yet had a sequence
Speaker 1: of four quarters with a strunk together a profitable four
Speaker 1: quarter trailing. They could have done it this quarter, they
Speaker 1: miss by about a hundred and twenty four million dollars,
Speaker 1: and so as a result, they're not going to be
Speaker 1: an index for a while. Now, that's a hundred and
Speaker 1: fifty billion dollar plus market cap company that could have
Speaker 1: been added when it was ten or twelve or even
Speaker 1: fifty billion dollars and added a hundred billion dollars of
Speaker 1: values the index, and yet because of that profitability measure,
Speaker 1: they're not, And given what's going on in the world,
Speaker 1: they're not gonna be there for a while. So does
Speaker 1: that kind of suggest Nick that the SMP needs to
Speaker 1: rethink some of this as you think about some of
Speaker 1: the technologies out there, you know, like a Tesla, like
Speaker 1: some other tech companies that are just huge, and they're
Speaker 1: focusing more on market share gains than profitability, and the
Speaker 1: market seems to be okay with that and rewarding that.
Speaker 1: So should not the name like Tesla be in there?
Speaker 1: It absolutely should be, But I understand the committee's tension
Speaker 1: because for every test that there's an uber or lift
Speaker 1: or if you had added those, you know it would
Speaker 1: not have had the same results. You've got to take
Speaker 1: good with the bad in the end. You know, the
Speaker 1: SMP Committee may one day decide, okay, let's add an
Speaker 1: ear G overlay to some of our decision making. And
Speaker 1: if a company is clearly relevant from saying E standpoint,
Speaker 1: then it should have some weight against the lack of profitability.
Speaker 1: But the committee is not there yet. And these are
Speaker 1: things that take a long time to develop, but I
Speaker 1: think they're going to have to get there just real quick. Nick,
Speaker 1: I wonder how much the reconsideration here of the SMP
Speaker 1: Committee comes in the heels of NAZDAC success. Is that
Speaker 1: part of it? You know, that is definitely a part
Speaker 1: of it. And I would also say, look at, for example,
Speaker 1: what the Hong Kong the Hang Sang is thinking about
Speaker 1: in terms of adding some Chinese companies purely based on
Speaker 1: whether or not they have enough stock listed in Hong Kong.
Speaker 1: Hang Sang is a big property and bank index, and
Speaker 1: that's not really where the world is going. So I
Speaker 1: think every index provider and every exchange is thinking about
Speaker 1: how do we pull things into something that we can
Speaker 1: index because the world has not so passive and it's
Speaker 1: become a much more important conversation. And Nick, thanks so
Speaker 1: much for joining us. We appreciate you taking some time
Speaker 1: here before the three day weekend, Nicholas kofe under Data
Speaker 1: Trek Research giving us some always some interesting food for thought, Lisa,
Speaker 1: and that is, you know, kind of looking at that
Speaker 1: SMP five hundred, the components of the SMP five hundred,
Speaker 1: and Nick brought up a great point that Harley Davidson,
Speaker 1: with a five billion dollar market cap is in there,
Speaker 1: but uh Tesla is not. Yeah, but how do you
Speaker 1: even determine who the winners and the losers are going
Speaker 1: to be in this environment when you've got no forward guidance,
Speaker 1: you have such an uncertain backdrop. It becomes a very
Speaker 1: difficult decision to make for the longer term. Yeah, it
Speaker 1: really does. And I think as Nick was suggesting the
Speaker 1: SMP Committee favors some stability and stability and profitability, so
Speaker 1: but interesting to see how that plays out. For Lisa
Speaker 1: Bramo it's on Paul Sweeney that does it for Bloomberg
Speaker 1: markets for this week and during the weekend. This is Bloomberg.
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