Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanovk. We're here every day bringing
Speaker 1: you the latest news from the world to business and finance,
Speaker 1: plus technology, politics, economics, all parnessing the power of Business
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Speaker 1: can also listen to our radio show at two pm
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Speaker 1: search Bloomberg Global News. So Tim got to say a
Speaker 1: favorite event where we get to check in with what's
Speaker 1: on the minds of investment professionals, the trends they care about,
Speaker 1: that their clients want to know about, the voices they
Speaker 1: want to hear from, and just kind of how to
Speaker 1: get it all done. It usually happens at the annual
Speaker 1: bny Mail and Pershing Inside event. It's being held virtual
Speaker 1: this year, getting underway next Tuesday. So great to have
Speaker 1: with us and to be talking again with B and
Speaker 1: Y Mail and Pershing's CEO Jim Crowley. He's with us
Speaker 1: on the phone in New Jersey. Also with us is
Speaker 1: the company CEO, Emily Schlosser. She's on the phone in
Speaker 1: New York City, Jim, Emily, great to have you here
Speaker 1: with Tim and myself. Jim, I want to kick it
Speaker 1: off with you. How are you and what's the past
Speaker 1: year been like for you folks? Well, Carol, Tim, first,
Speaker 1: thanks for having us. It's a great pleasure to be back,
Speaker 1: and wish we were in person. It has been yeah,
Speaker 1: well two will be there. Um, it has been. You know,
Speaker 1: obviously the last fifteen months fifteen months have been quite
Speaker 1: a challenge, and you know, two priorities really. First was
Speaker 1: obviously the safeguarding, you know, the health and the well
Speaker 1: being of all of our people. That was priority one.
Speaker 1: And then, you know, the second thing, Carol, that really
Speaker 1: became clear to us is that there really is no
Speaker 1: substitute for business continuity planning and testing of your business
Speaker 1: continuity processing. Because it became clear in March when we
Speaker 1: left the office on March thirteenth, literally overnight, we were
Speaker 1: virtual working from home, and thankfully we didn't miss a
Speaker 1: true what was really tremendous volume and volatility. Emily, come
Speaker 1: on in here and talk a little bit about what
Speaker 1: it's been like for you as as chief operating officer. UM,
Speaker 1: what are the changes that you've made and how are
Speaker 1: you thinking that some of those changes are going to
Speaker 1: be permanent on the other side of this, Thanks him, Yeah,
Speaker 1: and thanks thanks to bilth to you for having us. Uh,
Speaker 1: it's been it's been quite a ride. As Jim pointed out,
Speaker 1: So I joined the company as chief operating officer last
Speaker 1: July in a fully virtual environment, which is interesting. UM.
Speaker 1: I did have the privilege of meeting Jim briefly before
Speaker 1: I started, but otherwise I've worked largely for the last
Speaker 1: year virtually with all of my new colleagues. UM. But
Speaker 1: it's been great. Like we we have adopted very quickly
Speaker 1: to the virtual environment, UH, and we are thinking very
Speaker 1: carefully about what does this mean for the future. And
Speaker 1: I think we're you know, we're seeing employees that are
Speaker 1: really getting accustomed to working from home and having that flexibility,
Speaker 1: and then also people who are a chained to get
Speaker 1: back in and and interact with people in person. So
Speaker 1: we're looking at options for how we continue with a
Speaker 1: hybrid work environment to achieve both of those needs, while
Speaker 1: you know, building the best environment to serve our clients.
Speaker 1: I just want to dive right into that because men
Speaker 1: Tim and I every day there are stories on the Bloomberg,
Speaker 1: especially within the financial community, that you are seeing a
Speaker 1: lot of. It feels like we've got to be back
Speaker 1: in the office. Uh. And it feels like the tone
Speaker 1: of the conversation Jim has changed a little bit from
Speaker 1: maybe a year ago we were like, well, maybe this
Speaker 1: hybrid stuff makes sense. Remember James Gorman thinking about maybe
Speaker 1: we give up some real estate space um to where
Speaker 1: everybody now says, way, we got to be back in
Speaker 1: the in the environment your financial community, you guys are
Speaker 1: working with folks that are dealing with you know, millions
Speaker 1: and millions of investor accounts globally on a daily basis.
Speaker 1: What are they saying? Are they hybrid or they back
Speaker 1: in the office? What what do they anticipate? Well, many
Speaker 1: of our clients, Carol, are back in the office. I
Speaker 1: can't say though, that there is any one client that
Speaker 1: is back in the office full time UM with their
Speaker 1: full staff. I think most people are still sort of
Speaker 1: working through this environment and trying to figure out how
Speaker 1: to be hybrid. Who really is essential in office and
Speaker 1: who really isn't necessary to be an office. And in fact,
Speaker 1: you know, for our clients, the most important thing for
Speaker 1: them is being in front of investors, being in front
Speaker 1: of their clients. And that's a lot more virtual going
Speaker 1: on with that, and people are clients comfortable with that, Jim,
Speaker 1: much more virtual though, I have to say though, clients,
Speaker 1: you know, particularly when you're talking about their investments and
Speaker 1: their life planning, they really do want to have a
Speaker 1: personal relationship. And having a personal relationship through a WebEx
Speaker 1: serve any other sort of form of video conferencing isn't
Speaker 1: the same as sitting across the table or meeting in
Speaker 1: the restaurant. And you know, I've actually myself and Emily
Speaker 1: we've been on a couple of business trips now where
Speaker 1: we've actually met with clients in offices and it's it's
Speaker 1: the energy so much better and the opportunity to communicate
Speaker 1: clearly and sort of get a sense for what the
Speaker 1: other person is feeling and thinking. It's much more valuable. Suddenly.
Speaker 1: What does that mean for well, yeah, jumping jump in,
Speaker 1: go ahead now, I was just gonna say, and we
Speaker 1: have seen their investors coming in and out of their
Speaker 1: their offices to write, so so we are seeing that
Speaker 1: interpersonal interaction happening again in their offices too with their clients. Hey, Emily,
Speaker 1: we only have about a minute left here and we're
Speaker 1: going to talk more about this on the other side
Speaker 1: of the break after we do some news, but talk
Speaker 1: a little bit about how programming for Insight twenty one
Speaker 1: is different this year, given the different needs and what
Speaker 1: you're hearing from clients. Yeah, so having a virtual conferences
Speaker 1: here actually gives us an awesome opportunity to reach a
Speaker 1: much broader range of participants. I think we will have
Speaker 1: attendance from well across the globe, and we are anticipating
Speaker 1: having many more people. Uh. We are focusing our topics
Speaker 1: on growth, driving technology and innovation. What does this new
Speaker 1: digital virtual world mean? Of course, we will hit topics
Speaker 1: like we always have, on market insights and investment solutions,
Speaker 1: and how we're thinking differently about organizational constructs in light
Speaker 1: of everything that's changed over the last fifteen months. Let's
Speaker 1: get back to our guests, B and Y, Melons Pershing
Speaker 1: CEO Jim Crowley. He's with us on the phone in
Speaker 1: New Jersey. Still with us also is being why Melons
Speaker 1: Pershing CEO Emily Schloss er. She's on the phone in
Speaker 1: New York City. It's all about being why Melon Pershing
Speaker 1: inside held virtually this year. It gets underway next Tuesday. Um, Jim,
Speaker 1: something we talk about on a daily basis here at Bloomberg.
Speaker 1: Even today we're looking at a MC. It's just kind
Speaker 1: of off the charts, these meme stocks and the right
Speaker 1: eyes of alternative investing platforms, whether it's Reddit, whether it's
Speaker 1: Robin Hood. Uh, we are really kind of watching this
Speaker 1: and how it's upending what seems to be kind of
Speaker 1: the mainstay financial community. What are your members, what are
Speaker 1: your you know, the groups that the folks that come
Speaker 1: to insight, what do they want to know about this? Yeah,
Speaker 1: so it's been quite quite interesting, Carol. You know, thankfully, Um,
Speaker 1: you know, our platform has through all the Reddit and
Speaker 1: beame stock. You know, volume volatility has performed quite well
Speaker 1: our clients. Interestingly enough, while we see elevated transaction volumes
Speaker 1: in these names, the overall dollar value notional value of
Speaker 1: the of the transactions and things that we're doing for
Speaker 1: our clients, it's relatively small because our clients are much
Speaker 1: more what I would call financial planning based, wealth based,
Speaker 1: and so while there may be some transaction activity in
Speaker 1: these names on all the basis is really it's a
Speaker 1: fraction of their overall what they're dealing with when they
Speaker 1: talk about the wealth of their clients. Jim, what about
Speaker 1: when it comes to SPACs. We interviewed Anthony Nodo yesterday.
Speaker 1: Here's the CEO of so far they went public vs
Speaker 1: back yesterday. If we're talking talking about this, you know,
Speaker 1: at the beginning of the pandemic last year, we probably
Speaker 1: wouldn't even have asked you about SPACs. Yeah, yeah, another
Speaker 1: another sort of rebirth. Rebirth, that's a good way of
Speaker 1: putting it, because it's not These are not new, right,
Speaker 1: We've seen them before and again I would say that
Speaker 1: if you were to talk to any one of our
Speaker 1: clients or a number of our clients, they would they
Speaker 1: have an interest obviously. I mean, this is it's an
Speaker 1: interesting vehicle for which clients are coming in public and
Speaker 1: coming to market and some very innovative companies and so um.
Speaker 1: You know, it's it's something that our clients have an
Speaker 1: interest in. But if you were to take again take
Speaker 1: a look at their overall portfolio, it's very small at
Speaker 1: what they're putting into portfolios, which is an interesting and
Speaker 1: that's good to get that perspective. Hey, Emily, come on
Speaker 1: back in on our conversation. You know you worked at Goldman.
Speaker 1: You were in charge of their global markets division. You
Speaker 1: operationally have had to look at b and Y, MAL
Speaker 1: and Pershing and you know, look at what the needs
Speaker 1: are for clients and your team around the globe. How
Speaker 1: do things look in terms of us getting on the
Speaker 1: other side of the pandemic. Yeah, you know, I think
Speaker 1: UM for I thought I could come from Goldman. I
Speaker 1: was in charge of change management there at their globle
Speaker 1: Markets division, and so I'm excited to bring much of
Speaker 1: my transformation expertise to Pershing. You know, some of the
Speaker 1: things that clients are looking for really around some digital capabilities,
Speaker 1: which not surprising and has certainly been accelerated by what
Speaker 1: we've seen through the course of pandemic. I think the
Speaker 1: clients are really looking for enhanced usability. I mean really,
Speaker 1: their expectations are being set by the ease with which
Speaker 1: they can do anything else in the digital world, from
Speaker 1: personal banking to ordering a new word and getting food
Speaker 1: and groceries delivered. Right, So we're seeing an elevated expectation
Speaker 1: around the ultimate UM usability and experience, and as such,
Speaker 1: we are uplifting our advisory and investment platforms to improve
Speaker 1: the way that our advisors can help their clients move
Speaker 1: money so they can onboard new accounts. UM. We're providing
Speaker 1: new modern look and field streamline navigation. So we're really
Speaker 1: excited about what we can bring to bear in terms
Speaker 1: of our our digital platforms. UM just got about thirty
Speaker 1: seconds left here, Jim or Emily. You guys have Dr Gupta,
Speaker 1: Sanjay Gupta, CNN, Leslie Autam Jr. I've met him at
Speaker 1: the Boston Pops. Really nice guy. I haven't even seen Hamiltons.
Speaker 1: I'm excited for you. I wish we were there, Jim,
Speaker 1: any thoughts on some of the speakers and just quickly, oh, okay,
Speaker 1: well look, one of the speakers I've been talking about
Speaker 1: is Adam Grant and m his his book that he
Speaker 1: got out, and Emily and I've been rethinking everything that
Speaker 1: we've been doing around around the company really to this
Speaker 1: topic of transformation and not assuming that we know what
Speaker 1: our clients are expecting. So it's been UM, it's been
Speaker 1: a great ride for the last fifteen months getting through
Speaker 1: this pandemic. Looking forward to getting to the other side. Yeah,
Speaker 1: and and and seeing you all hopefully in Dallas with
Speaker 1: us in June next year. Fingers crossed all of them.
Speaker 1: Uh So, looking forward to guys, have a great event.
Speaker 1: Good luck with it all. Jim Crowley, CEO at B
Speaker 1: and Y Malon's Pershing and Emily Schlosser, she's the chief
Speaker 1: operating officer at B and Y Melons pershing. You're listening
Speaker 1: to Bloomberg Business Week with Carol Masser and Bloomberg Quick
Speaker 1: Takes Tim Stinovic on Bloomberg Radio. In the current issue
Speaker 1: of Bloomberg business Week magazine is a story about the
Speaker 1: million dollar initiative Tim that is on a mi isssue
Speaker 1: to help less prosperous schools bridge the wealth gap through
Speaker 1: investments in late stage startups. We're really talking about accessing
Speaker 1: the venture scene. Yeah, and for a good reason, because
Speaker 1: HBCUs have a tiny fraction of the endowments of colleges
Speaker 1: and universities in the United States. Joining us as Janet Lauren,
Speaker 1: higher education finance reporter at Bloomberg News. She joins us
Speaker 1: on the phone from New York. Janet, before we get
Speaker 1: into into what HBCUs are doing right now, hystorically black
Speaker 1: colleges and universities. Yes, um, take us into the finances
Speaker 1: of higher education and who has the endowments and why
Speaker 1: they're so concentrated at the top. So the richest schools
Speaker 1: also happened to be some of the oldest school Harvard, Yale,
Speaker 1: and Princeton, for example, And they've been pretty sophisticated investors
Speaker 1: for a long time. Yale, for example, got into venture
Speaker 1: capital in nineteen seventy six, and some of their early
Speaker 1: investments in you know, VC firms have been quite fruitful.
Speaker 1: For example, if you look at their investment in LinkedIn
Speaker 1: of a few million dollars turned into about eighty five
Speaker 1: million dollars when Lincoln went public. And you know, you
Speaker 1: have to have money to make these out locations in
Speaker 1: in venture capital. UM. And these HBCUs, their their endowments
Speaker 1: are quite small. Um. You know, we mentioned a few
Speaker 1: in the story. Howard is the largest with about seven
Speaker 1: hundred million, but more more averages about is Florida A
Speaker 1: and M with about a hundred million. And you know,
Speaker 1: you can't make money in some ways if you don't
Speaker 1: have money, and it's hard to get access to some
Speaker 1: of the best funds if you can't if you don't
Speaker 1: have the money to invact. Well, before we get into
Speaker 1: the well, before we get into whether it's a good idea,
Speaker 1: because you do wonder about the exposure. If you're kind
Speaker 1: of a smaller school or school with a smaller endowment,
Speaker 1: you know, risk reward, but if things don't turn out well,
Speaker 1: it could really impact your endowment. But one thing that
Speaker 1: you make, Janet, that's so important. I think the point
Speaker 1: in your story why this matters, is that the difference
Speaker 1: in these endowments and the size of them, you know,
Speaker 1: impacts the ability to offer student aid, to attract students,
Speaker 1: top professors, build facilities. I mean there is a trickle down,
Speaker 1: trickle up, trickle across the side impact as a result. Absolutely,
Speaker 1: And you know a lot of these HBCUs. You look
Speaker 1: at the shaff students who are recipients of TELL grants
Speaker 1: for the lowest income students, and the shares are very high,
Speaker 1: and these schools would like to be able to offer
Speaker 1: a lot more financial aid, but you know, they're just
Speaker 1: trying to make the lights go on, and they don't
Speaker 1: have a lot of money for you know, not only
Speaker 1: building glorious stem buildings, but you know, making repairs to
Speaker 1: their you know, often hundred year old buildings. So for them,
Speaker 1: you know, they're operating on very same margins to function,
Speaker 1: you know, to give the aid they can to try
Speaker 1: to attract professors UM and they just don't have a
Speaker 1: lot of risk room to loose. So what are HBCUs
Speaker 1: doing or or what is Based ten partners doing to
Speaker 1: try to alleviate this. So they're trying to UM to
Speaker 1: entice h species to to to invest in a new fund.
Speaker 1: And what a unusual is they're not charging fees, which
Speaker 1: as you know, you know they're students could be quite high,
Speaker 1: especially when UM private equity and venturing are successful. You're
Speaker 1: paying fees UM and then they're giving some of the
Speaker 1: carry to create scholarships for these students, but also trying
Speaker 1: to help build the pipeline of recruiting intern tiring practice
Speaker 1: with job interviews for some of these students in the
Speaker 1: portfolio companies that they can UM invest. The mean they're
Speaker 1: also very interested in improving diversity and having assets to
Speaker 1: sudents that they tifically may not be recruiting from. Well.
Speaker 1: One issue though with venture capital is that you have
Speaker 1: to be in a position in order to be comfortable
Speaker 1: losing your entire investment, because that's what venture capital is
Speaker 1: for every Facebook or linked In, there are dozens of
Speaker 1: of bets that don't end up working out. Um, what
Speaker 1: are they doing to to try to offset some of
Speaker 1: that risk. Well, we're talking about later stage companies, not
Speaker 1: early stage companies that you know may likely fail. And
Speaker 1: I think that's part of the part of the a
Speaker 1: little bit of alleviating the risk, because if you are
Speaker 1: an endowment of about a hundred million, you often just
Speaker 1: don't have a lot of options. You know, if you were,
Speaker 1: you might put it in an index fun you know.
Speaker 1: We had a comment from part the former Carthage College
Speaker 1: CEO in Wisconsin who beat the pants off of Harvard
Speaker 1: his tenure average because he had a very simple formula
Speaker 1: of vanilla funds or if you could invest in some
Speaker 1: fund of funds but you're still paying sees. So, so
Speaker 1: tell us about this two and a fifty million dollar
Speaker 1: fund and the individual behind it all um So. He
Speaker 1: is a Stanford alum he um you know, has been
Speaker 1: successful um Aud and a Joe and he was really
Speaker 1: interested in moved by the death of George Floyd to
Speaker 1: try to help these companies these these schools. You know,
Speaker 1: as he said, systematic inequality is really about wealth inequality. UM.
Speaker 1: You know his he was born in Spain, he didn't
Speaker 1: have the typical UM experience growing up as an African
Speaker 1: American in the United States. He went to Stanford and
Speaker 1: made some connections and decided this was something that he
Speaker 1: wanted to do. How have HBCUs reacted and how have
Speaker 1: they embraced or not embraced the strategy. So some HBCUs
Speaker 1: have invested, including the schools we included in the story
Speaker 1: Howard and Florida, A and M. But you know, not everybody,
Speaker 1: if you're a small fifty million dollar in Diamond or
Speaker 1: a hundred million dollar Damon, you may not be familiar
Speaker 1: with the idea of venture capital UM, and you just
Speaker 1: may think it's too risky. You still have to turn
Speaker 1: the lights on every year of the school. Yeah, I mean,
Speaker 1: but you do think about you know, the conversation in
Speaker 1: many ways over the past year, right, tim has evolved
Speaker 1: from you know, we've learned it's not just about income gaps,
Speaker 1: it's about wealth gaps, and that can be generational and
Speaker 1: and and I do feel like, you know, don't you
Speaker 1: get to that in your story that you do think
Speaker 1: about these schools that maybe don't have the same access
Speaker 1: to the funds that some of the really wealthier schools do,
Speaker 1: that tend to be predominantly white, you know, and it
Speaker 1: just perpetuates a cycle that somehow it's gotta it's gotta change,
Speaker 1: all right. And if you look at say gale Um
Speaker 1: heard a lot of c i os, really big schools, Crinceton,
Speaker 1: m I T, Stanford, and they tend to invest together
Speaker 1: on the same deal. So again it's very it becomes
Speaker 1: very clubby and very insular. And if you didn't work
Speaker 1: in the Dale investment opportunity may not be invited to
Speaker 1: participate in these deals that you know, one of the
Speaker 1: other very wealthy schools found out about. But then again
Speaker 1: then you can't even make you can't write the test
Speaker 1: because you're endowment is so small. You know, what's the
Speaker 1: time horizon for an investment like this and when do
Speaker 1: we find out and when do they find out if
Speaker 1: this was a successful way to to grow their endowment? Um,
Speaker 1: you know, in some ways, it could be a couple
Speaker 1: of years or could be Kenny, It's in the typical
Speaker 1: life of a of a uh private equity fund. Yeah,
Speaker 1: but this is a really kind of thoughtful story and
Speaker 1: just thinking how you change the dynamics and the trends
Speaker 1: that we've seen for such a long time. Genal Lauren,
Speaker 1: thank you so much. Higher Education Finance Report at Bloomberg
Speaker 1: News on the phone from New York City too. Maybe
Speaker 1: it's because my daughter has gone through, you know, the
Speaker 1: college application process, and we've learned about a lot of schools.
Speaker 1: But you know, there's so much money involved in these endowments,
Speaker 1: and you do wonder about the advantages for those really
Speaker 1: really rich schools versus some other ones. Yeah, it was
Speaker 1: shocking to reading this story, the concentration of endowments of
Speaker 1: just the top ten schools. I mean, in some ways
Speaker 1: it really mimics the ultra wealthy in the United States
Speaker 1: and individuals. You control the vast majority of the welcoming country,
Speaker 1: a lot of wealth in the hands of a very few,
Speaker 1: whether you're talking about colleges, universities or individuals. This is
Speaker 1: Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes
Speaker 1: Tim Stinovik on Bloomberg Radio. All right, folks, we like
Speaker 1: to do a daily check on the virus and the
Speaker 1: vaccine rollout and one headline that just crossed catching our attention.
Speaker 1: We are seeing that New Jersey planning to shut some
Speaker 1: of the mega sites UH and New York City planning
Speaker 1: some school vaccines. So there's a lot still going on here,
Speaker 1: certainly in the US and on a global basis. One
Speaker 1: of our go to people. I don't know that he's
Speaker 1: gotten any sleep in the last twelve, thirteen, fourteen months,
Speaker 1: but he's back in our student He did the virus tracker.
Speaker 1: He and his team did the vaccine tracker. You saw
Speaker 1: his tweets each and every day. We created five vaccines.
Speaker 1: The man, the myth, the legend. Drew Armstrong is senior
Speaker 1: editor for US Healthcare for Bloomberg News. Didn't create the vaccines.
Speaker 1: I'm going to get in trouble, but I think he
Speaker 1: probably cut off. I think I think people know you
Speaker 1: were joking, UM, but we do love him anyway. He
Speaker 1: is senior editor for Your Southcare. Bloomberg News joins us
Speaker 1: from Bloomberg Interactive Broker Studios. Um, Drew, you mentioned that
Speaker 1: this is your first day back in the office. It is,
Speaker 1: it is since the fall September, but I feel like
Speaker 1: that symbolizes something so big for where we are as
Speaker 1: a city. Yeah, I think that's exactly right. I mean,
Speaker 1: you know, I was I got my second dose of
Speaker 1: maderna vaccine about a month ago. My wife and I
Speaker 1: immediately booked a trip to Mexico for exactly two weeks
Speaker 1: after my land does UM and and left our lovely
Speaker 1: children who we've seen so much of UM at home
Speaker 1: with Art Annie. And you know, here I am back
Speaker 1: in the office, and I've been talking to a lot
Speaker 1: of other people who's their first day back again UM
Speaker 1: as well. Yeah, I mean, you know, you look at
Speaker 1: some of the stats where you know, there's certainly a
Speaker 1: strong downward trend in cases, hospitalizations, deaths all around the country. UM.
Speaker 1: Certainly some underlying things to be worried about. And if
Speaker 1: you look around the globe, it's a very different picture
Speaker 1: in UM a lot of places. But you know, a
Speaker 1: lot of my attention, just as a as a news
Speaker 1: editor is really now focused elsewhere outside the United States
Speaker 1: in terms of where the story is and where the
Speaker 1: where the crisis is, and things are beginning to feel
Speaker 1: much much different here personally, and from everybody I I
Speaker 1: speak to and run across um UH and talking to
Speaker 1: people in some recent travels. Yeah, it's funny because we're
Speaker 1: gonna do the bigs Take story, the Blueboard Big Take,
Speaker 1: and it's about real estate investments office and basically where
Speaker 1: people are investing is like lab space because of what
Speaker 1: happened during the pandemic. So it's interesting to see where
Speaker 1: where we're going forward when you look around the globe
Speaker 1: for a while, Drew, we were thinking about whatever is
Speaker 1: going on in China kind of tells us to some extent,
Speaker 1: what's next for us. Um, what do you look towards
Speaker 1: to kind of get an idea of what's next and
Speaker 1: whether or not a new wave is kind of gum
Speaker 1: or what have you. Yeah, I think one of the
Speaker 1: things that we're really keeping a close eye on is,
Speaker 1: you know, some of these outbreaks in South America where
Speaker 1: you're seeing very significant, you know, COVID numbers and in
Speaker 1: some places despite quite real efforts to vaccine people, and
Speaker 1: you look at what's happening in Chile. They've got a
Speaker 1: better vaccination coverage in the United States, and yet they
Speaker 1: still have a pretty heinous outbreak that they're dealing with.
Speaker 1: You know, come, I think everybody's trying to figure that out.
Speaker 1: Isn't you know, certain subsets of the population. Is it
Speaker 1: an issue of you know, variant versus vaccine um. You know, likewise,
Speaker 1: go around the globe to places in Asia where they
Speaker 1: have far fewer cases than we have in the US,
Speaker 1: and yet are still kind of on on total lockdown
Speaker 1: in in some of these countries, or you know, you
Speaker 1: look at other places, some of our amazing reporters out
Speaker 1: in Hong Kong, we're just noting, you know, about how
Speaker 1: people aren't getting the vaccine there and it's been hard
Speaker 1: for you know, nightclubs and bars to open back up.
Speaker 1: So so much of what's going on in the globe
Speaker 1: right now is you know, as much about risk perception
Speaker 1: and risk tolerance as it is about the epidemic. When
Speaker 1: I think we when we look at how people are,
Speaker 1: how people are acting, how they're approaching vaccines, how they're
Speaker 1: approaching you know, the inevitable some level of existing disease
Speaker 1: in the community, um where they are, Uh, it's as
Speaker 1: much culture as it is science, I think at this point. Well,
Speaker 1: speaking of the science, and I'm curious as to how
Speaker 1: well the vaccines have proven to work, the MR and
Speaker 1: A vaccines specifically, because a big part of the conversation
Speaker 1: try over the last few months was Okay, well, this
Speaker 1: pandemic is not over until the world is vaccinated, and
Speaker 1: that's because there could be strains that develop in certain
Speaker 1: parts of the world that could be get through and
Speaker 1: get past vaccines. Is there any indication that some variants
Speaker 1: and mutations at this point can do that, not with
Speaker 1: the mRNA vaccines in a meaningful way. I think, you know,
Speaker 1: you are always going to see variants. We've there've been
Speaker 1: a bunch of them identified and some of you know,
Speaker 1: variants of concern um and it's not that they don't
Speaker 1: cause disease, because they do. I think what you're seeing though,
Speaker 1: is that they are not causing severe disease, at least
Speaker 1: in the cases of these. You know, mRNA vaccines have
Speaker 1: been proven highly highly effective. It's worth remembering that. You know,
Speaker 1: if you take covid and you turn it into a cold,
Speaker 1: that's a pretty good solution. You know, you can still
Speaker 1: have cases if they're old cases. You know, yeah, exactly,
Speaker 1: I mean, you know that's that is a manageable thing.
Speaker 1: It's still not great, but you know, the problem is
Speaker 1: more or less, you know, at that point it starts
Speaker 1: to go away. What I am thinking a lot about
Speaker 1: is do I need a booster? And do I need
Speaker 1: to mark my cal And we had doctor William Hazeltinea
Speaker 1: on and he's like, I've marked my calendar. You know,
Speaker 1: this is the guy who understands biotech and science in
Speaker 1: a big way. Do I need to be Do all
Speaker 1: of us need to be marking our calendar six months
Speaker 1: from our last shot to plan for a booster? I
Speaker 1: think it's a great question. I think the answers we
Speaker 1: don't know. Um you know, there's these vaccines are not
Speaker 1: old enough for us to really really really know how
Speaker 1: effective they will be in the real world, you know,
Speaker 1: at nine months, at a year, things like that. We
Speaker 1: just don't have a lot of great data on that.
Speaker 1: We have people from early on in the trials. I'm
Speaker 1: sure they're following very closely to see, you know, what
Speaker 1: are their antibody levels, what are their infection risks, on
Speaker 1: and so forth, But we really, frankly, you know, do
Speaker 1: not know yet. I'm sure. I mean, we have a
Speaker 1: you know, when we see mutations, when we see viruses
Speaker 1: that change the flu which is highly highly highly um
Speaker 1: uh that has a high rate of mutation, that's just
Speaker 1: why we get new flu shots every year, you know.
Speaker 1: But with this, I think we just don't honestly know yet,
Speaker 1: you know what exactly those boot ssters are going to
Speaker 1: look like. Will it be something more like they're you know,
Speaker 1: tailored to new mutations in a way, if that's if
Speaker 1: those end up being very problematic for the MR and
Speaker 1: a vaccines um, are they tailored? Are they done as
Speaker 1: a booster shot? I really think that's still gonna be
Speaker 1: up in there. I think a lot of people are
Speaker 1: very smartly betting that yes, we will need and get
Speaker 1: booster shots. But I wouldn't be surprised to see that
Speaker 1: dynamic and rollout look very very different than the kind
Speaker 1: of initial campaign has. So is it like we swing
Speaker 1: by the CBS or Walgreens and describe it or from
Speaker 1: our doctors, or is it like do we need these
Speaker 1: mega sites to be able to quickly ramp up again
Speaker 1: and just got about twenty seconds. I have a feeling
Speaker 1: it will be a lot more like getting the flu
Speaker 1: shot every year. You'll lower uptake and you know, people
Speaker 1: you know, kind of uptake faiths away as as the
Speaker 1: as the virus does until the next virus hits us right,
Speaker 1: because they're gonna come right. Oh yeah, we'll be doing
Speaker 1: this again at some point or other. Unfortunately that happy
Speaker 1: Wednesday's true go home. No, I'm just kidding. I'm just kidding.
Speaker 1: Yours to your arms during true Armstrong, he's senior editor
Speaker 1: for US Healthcare. He has really kept us on the
Speaker 1: straight and narrow, uh really throughout this pandemic here at
Speaker 1: Bloomberg News. So I must read his whole team. I'm
Speaker 1: ROMC a journal Yeah, but you let me drive? No, no, no,
Speaker 1: drive home please, I'll do the riding drivel. I want
Speaker 1: to drive. Just drive baby. The question dry, This is
Speaker 1: the drive to the globe. Thanks well, un on Bloomberg Radio. Yeah,
Speaker 1: we've got just about ten a half minutes left in
Speaker 1: today's trading session. Been an interesting day. It feels like
Speaker 1: the overall markets definitely some of the wind being kicked
Speaker 1: out of them, because we're definitely off our highs of
Speaker 1: the session, still just slightly. But nonetheless, if you look
Speaker 1: at one of the meme stocks, your AMC, it's just
Speaker 1: off the charts. So trying to make sense of it all.
Speaker 1: Great to have back with us. Been looking forward to
Speaker 1: a Doug Ramsey ch Chief investment officer of the Luthole Group. Uh,
Speaker 1: their core investment fund beating most of its peers year
Speaker 1: to date, up just about twelve or so in the
Speaker 1: past twelve months. Tug back with us from Minneapolis. Good
Speaker 1: to have you here. How are you? I'm doing well?
Speaker 1: How about you doing okay? Hanging in there, trying to
Speaker 1: make sense out of some of the uh kind of
Speaker 1: wackiness that continues to invade our markets while trying to
Speaker 1: focus on fundamentals. What are the fundamentals you're you're focusing on,
Speaker 1: especially because I know you just trimmed backed, uh your
Speaker 1: equity exposure a little bit. Well, you know, we've been
Speaker 1: concerned and this has been a long running concern and
Speaker 1: quite frankly a little bit of a premature concern on evaluations,
Speaker 1: especially US large caps. I mean, um, you know, whether
Speaker 1: you base it on forward earnings. You know, we do
Speaker 1: a lot with normalized earnings, you know, sort of the
Speaker 1: approach that Robert Schiller has popularized. We've been doing that
Speaker 1: here for decades. Uh. We're very close to the valuation
Speaker 1: peaks that we made back at the tech bubble heights
Speaker 1: twenty one years ago. Uh, and in the average stock
Speaker 1: so to speak. I mean, if you look at mid
Speaker 1: large and UH small is far more expensive than it
Speaker 1: ever was in the late nineties, So it's a very
Speaker 1: broadly expensive market. That's made it difficult. And now UH,
Speaker 1: you know, we've got inflation ticking up, which one would
Speaker 1: expect at some point might lift bond yields, but that's
Speaker 1: that's not been the case here in the past few months.
Speaker 1: So you've still got that very low discount, right that
Speaker 1: bullish investors can argue you support this valuation structure, but
Speaker 1: we're obviously skeptical. So if you're skeptical, what do you
Speaker 1: do in a situation like this? Do you go to
Speaker 1: a little bit of cash and sort of sit on
Speaker 1: the sidelines and wait for a pullback where you can
Speaker 1: get in at a less expensive price. Yeah, that's our
Speaker 1: thinking as a matter of fact. Rather than moving to cash,
Speaker 1: we've got a hedging strategy we've been managing for thirty years.
Speaker 1: Somehow we've been able to stay in the market shorting
Speaker 1: for thirty years, but that's because it's used as a hedge.
Speaker 1: Are our grizzly strategy UH targets vulnerable stocks, evaluation momentum,
Speaker 1: earnings estimate revision, earnings quality perspective, so we use that
Speaker 1: as a hedge, and that's that's how we uh, that's
Speaker 1: how we pulled back to I do expect a pretty
Speaker 1: good correction later this summer. Uh, part of the ten
Speaker 1: percent correction you're yeah, you know, certainly, I think it
Speaker 1: carried deeper than that, especially when you look at, you know,
Speaker 1: how far we've come off of those lows from last March.
Speaker 1: I mean, the normal first correction in a bowl market
Speaker 1: retraces a pretty good piece of that. And because that
Speaker 1: moment is so large, I'm not sure I want to
Speaker 1: talk about percentages just because we look at you know,
Speaker 1: we would then be looking for bottoming conditions. But the
Speaker 1: reason we cut back now is just because, um, you know,
Speaker 1: obviously it's difficult the time. But technicals still I think
Speaker 1: are very good. I think it's more a question of,
Speaker 1: you know, when our market's going to respond to this
Speaker 1: inflation pick up, and when might they conclude that it's
Speaker 1: a little bit more than than a transitory thing. Listen,
Speaker 1: So investors dealing with things like, Okay, is inflation transitory
Speaker 1: or not? Uh, and looking at the outlook. At the
Speaker 1: same time, you continue to have the administration making moves. Um,
Speaker 1: we just had a headline crossing present Biden planning to
Speaker 1: amend a US ban on investments and companies linked to
Speaker 1: China's military this week after the Trump eraor policy was
Speaker 1: challenged in court and left investors confused kind of about
Speaker 1: the extent of its reach to subsidiary from this according
Speaker 1: to people with the matter, So again amending President Trump's
Speaker 1: China blacklist. But uh, and that targeted key industry. So
Speaker 1: it's just a reminder that things continue to come out
Speaker 1: of this administration tim too that can impact investments. Thought,
Speaker 1: you know, investors thoughts about the outlook. Yeah, I'm wondering
Speaker 1: what it is. What is that signal that the market
Speaker 1: gets that really shows that inflation is here to stay?
Speaker 1: Is it wage growth? I certainly think that would be
Speaker 1: a piece of it. But I think, you know, the
Speaker 1: housing market remaining strong and house prices continuing to escalate.
Speaker 1: I mean you're talking about you know, extreme underbuilding in uh,
Speaker 1: the US housing market for the better part of a decade. UM.
Speaker 1: As a matter of fact, we've been in the home builders,
Speaker 1: I mean, we don't believe there's a housing bubble. We're
Speaker 1: also in another sector that's been undersupplied of late and
Speaker 1: the situation that's going to continue probably for a couple
Speaker 1: of years, and that semiconductor equipment. So I do think
Speaker 1: of the uh some of these areas is sort of
Speaker 1: you know, chronic, you know, not just the temporary uh
Speaker 1: COVID related supply shortages. I mean, they're just things that
Speaker 1: they're going to take a while to address. So I
Speaker 1: think the issue is, I mean, we will uh see
Speaker 1: that the five and maybe even six CPI inflation numbers
Speaker 1: we see in the next couple of months will be transitory.
Speaker 1: The issue is what if we settled down to three
Speaker 1: or three and a half. I mean, that's just clearly
Speaker 1: too high for the current level of bond yields and
Speaker 1: also the current level of most equity evaluations. Hey, I
Speaker 1: want to go back to just some what you said
Speaker 1: about the housing market. You said we're not in a
Speaker 1: housing bubble? Um? Why not? I mean, we're seeing that
Speaker 1: prices remain out of reach for many at the same
Speaker 1: time we see that homes are selling for significantly above
Speaker 1: asking prices. What tells you we're not in a bubble?
Speaker 1: That the undersupply of the last decade, I mean, we
Speaker 1: are still at a very low rate of housing starts
Speaker 1: just on a raw basis, let alone accounting for all
Speaker 1: the population growth in the last couple of decades. And
Speaker 1: actually the low that we made a year ago was
Speaker 1: right about in line with the average recession low in
Speaker 1: housing starts we've seen over all the recessions going back
Speaker 1: the last sixty years. And again that's not accounting for
Speaker 1: the expansion in in household formations that's occurred over that period. Hey,
Speaker 1: so just real quickly on inflation, because I think it's
Speaker 1: interesting what you said about we may not keep stay
Speaker 1: at five or six percent, right, um, but three and
Speaker 1: a half percent would be problematic. Larry Fink of Black Rock,
Speaker 1: we have a story out on the Bloomberg says that
Speaker 1: investors may be underestimating the potential for a spike inflation.
Speaker 1: Three and a half percent Is it problematic, especially if
Speaker 1: we see continued um fiscal policy that is stimulative. Absolutely.
Speaker 1: I mean, just considering I'm talking about from a market's perspective, Yes,
Speaker 1: I mean, the old rule of thumb used to be
Speaker 1: that the forward pe on the stock market should approximate
Speaker 1: a level of twenty minus the inflation rate. The old
Speaker 1: rule of twenty. I mean this was commonplace thirty years ago,
Speaker 1: back when inflat was less considered to be a problem,
Speaker 1: sort of disappeared from the lexicon because it's not been
Speaker 1: a problem until now. But even with the dramatic ratcheting
Speaker 1: up of forward earnings on the SMP, we're still at
Speaker 1: twenty two times forward earnings. So you know, if we're
Speaker 1: going to hit three and a half percent inflation, I
Speaker 1: mean that would uh, I mean that would imply him
Speaker 1: more than just a correction, right, I mean a bearer market.
Speaker 1: But again, and I think investors have become so convinced,
Speaker 1: I mean needed by FED speak that this is transitory,
Speaker 1: that there is waiting for the right the whites of
Speaker 1: the eyes of that three three and a half percent
Speaker 1: inflation to stick. So it could yet be a while.
Speaker 1: Hope springs eternal, listen, love having you on. Always do
Speaker 1: come back soon please, UM really appreciate it. Doug Ramsey,
Speaker 1: he is the chief investment officer at the Luthhole Group
Speaker 1: on the phone for Minneapolis, just really kind of has
Speaker 1: seen a lot of market cycles and understands when it
Speaker 1: comes to valuations and uh, you know, the different metrics
Speaker 1: to really kind of figure where the market goes from here.
Speaker 1: Thanks for listening to Bloomberg Business Week. Download the podcast
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