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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along
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Speaker 2: drive the China story forward in economics, finance, and investment.
Speaker 2: Joining us right now, Virginia Mass New Global Cio Equity
Speaker 2: at Alion's as well. Virginny. I'm sure you've done this,
Speaker 2: but if you're at at the restaurant Cafe Monsieur diorg
Speaker 2: at Montana thirty Montaigna in Paris, and you know you
Speaker 2: sat down with mister Arnaut's offspring and said, what about China?
Speaker 2: How would you brief the Arnold family now and the
Speaker 2: vibrancy in the future of China consumption?
Speaker 3: Well, thank you that's a great I love the staging here.
Speaker 3: It's quite quite fun. Listen. I think China clearly has
Speaker 3: gone through a tough time and when you see particularly
Speaker 3: demanding luxury good and the substitution that we start seeing
Speaker 3: within China, luxury is finding it quite tough. However, there
Speaker 3: is a lot of negative sentiment on China, and I
Speaker 3: think the packages that they've put yesterday are still underestimated
Speaker 3: by a lot of investors, particularly because of the impact
Speaker 3: it could have a domestic consumption confidence as it relates
Speaker 3: to the property market.
Speaker 2: Do you just assume fiscal stimulus to come. We're ago
Speaker 2: and canes today. When the facts change, Beijing changes.
Speaker 3: Yeah, I think fiscal stimulus is needed. The current package
Speaker 3: is quite big, as you know, in terms of support
Speaker 3: to property and capital market. But what I would like
Speaker 3: to see is an AMC for property, basically an asset
Speaker 3: management company, the same way we had remember in some
Speaker 3: of the previous crisis, to help with the banks and pls.
Speaker 3: I'm not saying this is going to be announced, but
Speaker 3: what I'm saying is it would make a lot of
Speaker 3: sense as the next step. And you can see how
Speaker 3: China has timed the release of this package after the
Speaker 3: fat cut, so that the impact on the currency versus
Speaker 3: the dollar was not too strong, and so I think
Speaker 3: we'll have more coming.
Speaker 4: We say good morning to your no family and everyone
Speaker 4: else listening in the eighth in Paris. For let me
Speaker 4: ask you just about the market reaction to all of
Speaker 4: this and baked into these plans announced by the PBOC
Speaker 4: in China or was this stock stabilization fund our friend
Speaker 4: John Authur's are colleg John authors referring to that is
Speaker 4: kind of like a FED put in effect.
Speaker 5: You look at how this.
Speaker 4: Is rippling out through Asia, not really rippling out through
Speaker 4: throughout Europe and the US, as one might think, how
Speaker 4: do you see the market effects the knock on effects
Speaker 4: of what's happened in China over these last couple of days.
Speaker 3: Yeah, so I think it's not only China. I think
Speaker 3: it's you know, we're at an interesting point in the
Speaker 3: markets with key things in the macroeconomy, the political economy,
Speaker 3: and the financial economy. So on one hand, you have
Speaker 3: had all those announcements, and of course positive sentiment on
Speaker 3: China has an impact on Asia, but you also have
Speaker 3: the impact of the FED rate cuts, which of course
Speaker 3: is going to have an impact on areas that are
Speaker 3: strongly anchored around property, and you can see that with
Speaker 3: Hong Kong for ext So I think it's the convergence
Speaker 3: of those two trends that is supporting markets.
Speaker 4: Love to pull back and look at the United States
Speaker 4: as well, and you've written about this tension that exists
Speaker 4: between the political cycle and the economic cycle here in
Speaker 4: the United States. Where do you see most of that
Speaker 4: tension lying is in terms of tax policy, tariff's policy,
Speaker 4: if we want to keep with the China theme that
Speaker 4: we're having this morning. I think a lot of people
Speaker 4: downplay the sort of role that an election might have
Speaker 4: just exclusively. But when you look at policy going forward
Speaker 4: under either of these two administrations, what stands out to
Speaker 4: you the most, what's likely to have the biggest effect.
Speaker 3: Yeah, So I think on one hand, you have continuity.
Speaker 3: On the other hand, you have unknown with a lot
Speaker 3: of potential announcements that if you actually look at the
Speaker 3: announcement and the impact on finances of the country or
Speaker 3: the realistic the pragmatic view of how you implement those
Speaker 3: a little bit more questionable. I would say, so we
Speaker 3: would look at inflation through tariffs if we have one
Speaker 3: administration versus another That sustainability has been a big topic
Speaker 3: of mind for over twelve months now. As you know,
Speaker 3: if you have a continuation of the corporate tax rate cut,
Speaker 3: you know that's about five six trillion dollars. But if
Speaker 3: you have more happening, you know, how do we financing
Speaker 3: at the time where we were quite leveraged, and of
Speaker 3: course the cost of financing that that is coming down,
Speaker 3: but the long end is not coming down as much.
Speaker 2: Right, Virginie, What is the cost of having too much
Speaker 2: cash in a portfolio right now into twenty twenty five
Speaker 2: if the facts change, So I've got to look differently
Speaker 2: at cash, triple leverage or that. Yeah.
Speaker 3: So, as you know, most of our clients in inequities
Speaker 3: have maximum cash generally five percent. So but you can
Speaker 3: absolutely be there. You're still getting some interesting returns on
Speaker 3: your cash. But I think the way to navigate that
Speaker 3: volatility is really more about balancing. So in the developed market,
Speaker 3: you know, having that balanced portfolios between the cyclical aspect
Speaker 3: of the stocks who might do well on those rate
Speaker 3: cuts and a more defensive, you know element of the portfolio.
Speaker 3: Continuing however, to have your your tech long term long
Speaker 3: term stocks right. At the same time, what you're seeing
Speaker 3: is exposure, more opportunistic exposure, perhaps in emerging markets or China.
Speaker 3: In Asia, we still like Japan, and we like China
Speaker 3: as really an area of the market that's very emptiqu consensus.
Speaker 2: Virginie, thank you so much to you at Montania thirty
Speaker 2: there in the New York Cathe virginias a mention of
Speaker 2: Paris and of course always of Alliance as well. One
Speaker 2: of the great moments of late September in the early
Speaker 2: and I will go back as far as a gentleman
Speaker 2: from Iowa who supported FDR and then became a conservative
Speaker 2: Republican and moved to the center to get elected. His
Speaker 2: name was Ronald Reagan. And maybe that's a moment we
Speaker 2: are with these two candidates, is they frame out who
Speaker 2: to move to the center. The governor from Connecticut is
Speaker 2: more than skilled at this discussion. We should point out
Speaker 2: that Governor Lamont's wife, Annie Lamont, serves as a board
Speaker 2: member of Bloomberg LP, the parent company of Bloomberg Radio.
Speaker 2: Ned Lamont, David Gurra knows a lot about moving to
Speaker 2: the center.
Speaker 4: Govern Lamont, great to have you with us, and let
Speaker 4: me start here just by asking you about the speech
Speaker 4: that we're going to hear today from the Vice President
Speaker 4: in Pittsburgh, a major economic address. I was reading extracurricular
Speaker 4: this morning, looked at The Times and Jim tankersly talked
Speaker 4: about how outside groups are agitating for her to take
Speaker 4: a more populist position on the economy, Tom mentioning this
Speaker 4: movement to the center. Are you going to hear from
Speaker 4: the Vice president today? What do we need to hear
Speaker 4: from the vice president? What do you want to hear
Speaker 4: from the Vice president?
Speaker 6: Well, good boy, David and Tom.
Speaker 7: Tom, maybe i'll see you up at the Grunwich Economic
Speaker 7: Forum next month.
Speaker 6: What I want to hear.
Speaker 7: Is flesh out continuing the opportunity economy that she alluded
Speaker 7: to during the convention and going forward, that's a big
Speaker 7: focus on new business startups, the innovation economy that here
Speaker 7: in Connecticut we've started more new businesses in the last
Speaker 7: few years than ever before, and frankly a lot of.
Speaker 6: Them are women and minority owned businesses. You know, deal
Speaker 6: with also.
Speaker 7: AI and advanced manufacturing and all the other places. It's
Speaker 7: a great time to be in the startup economy. I
Speaker 7: think that'll be a focus.
Speaker 4: I hear the former president talking an awful lot about tariffs.
Speaker 4: He was in Savannah yesterday, talked about tariff's being a
Speaker 4: beautiful word. As he put it, there's a simplicity to
Speaker 4: him saying it over and over again. People might misapprehend
Speaker 4: what it means or what the consequences might be. Our
Speaker 4: understanding is the Vice President's going to talk about targeted
Speaker 4: tax incentives today, a difficult term I think to sell
Speaker 4: to the American public.
Speaker 5: How does she do it?
Speaker 4: How does she convince Americans that this kind of industrial
Speaker 4: policy is going to be a benefit to them.
Speaker 6: Look, I think terroriff is another word for tax.
Speaker 7: It's a middle class consumer tax, and you're going to
Speaker 7: be paying that in terms of higher inflation and higher costs.
Speaker 7: I think Vice President Harris has a different strategy obviously,
Speaker 7: with incentives.
Speaker 6: She wants to help those small companies.
Speaker 7: Grow and expand more of an ownership of company, opportunity
Speaker 7: to own your own company, and also, as you know
Speaker 7: in housing, own your own home as well.
Speaker 6: It's good to have a stake in your community.
Speaker 4: I want to ask you about how much time there
Speaker 4: is between now and the election. You're acutely aware of it,
Speaker 4: and there's a school of thought that it's too late
Speaker 4: in the game to change minds, that voters have made
Speaker 4: up their minds. Yes, we talk about these undecided voters
Speaker 4: a few as they are in these handful of states
Speaker 4: and districts. Are you one who believes that at this point,
Speaker 4: giving a speech like that is unveiling a plan that
Speaker 4: I gather is going to be about eighty pages long,
Speaker 4: is gonna is going to do work to do that
Speaker 4: people can still be convinced here forty plus days till
Speaker 4: the election.
Speaker 6: I get the idea that I have a three hundred
Speaker 6: million people.
Speaker 7: Maybe there's a million that are still persuadable in five
Speaker 7: or six states.
Speaker 6: But I think Kamala Harris, you're going to see what
Speaker 6: she has.
Speaker 7: In mind when it comes to manufacturing and jobs and opportunity.
Speaker 6: I think she's very entrepreneurial in that sense.
Speaker 2: With us now, the governor of Connecticut, Ned Lamont, we
Speaker 2: welcome all of you nationwide Bloomberg Surveillance.
Speaker 5: David, I've got to ask you.
Speaker 4: You mentioned taxes just a moment ago in the context
Speaker 4: of Tariff's being like them in your estimation, taxation front
Speaker 4: and center in your backyard, as we had the former
Speaker 4: president traveling to Connecticut to talk about the reversal of
Speaker 4: something that he did.
Speaker 2: We got to do, we gotta governor, we gotta make
Speaker 2: this granular. Okay, we got to get granular. There's a
Speaker 2: houth on North Street in Greenwich, Connecticut that a Spielberg
Speaker 2: parachuteed in. He'd say, we we can use this. Built
Speaker 2: in seventeen ninety six, actually pretty reasonable by Connecticut standards,
Speaker 2: under three million dollars, David, the property tax was rounded
Speaker 2: out to twenty five thousand, two hundred and seven dollars.
Speaker 4: Continue, the former president talks about restoring the salt deduction,
Speaker 4: which was capped when he was the president and his
Speaker 4: tax bill was pushed through. Help our listeners on Global
Speaker 4: Wall Street understand the significance of that decision that he
Speaker 4: and other Republicans made back then and the import of
Speaker 4: doing away with that cap.
Speaker 7: A first book on that house you referred to a
Speaker 7: Grutwich is probably two million dollars five years ago.
Speaker 6: With his three million dollars a day, A lot of
Speaker 6: people moving into this state.
Speaker 7: But you're absolutely right, David, that salt reducing the deduction
Speaker 7: on that was very costly to states where we invest
Speaker 7: a lot in K through twelve education that's reflected.
Speaker 6: In property taxes.
Speaker 7: So raising that deduction level, which I think is something
Speaker 7: both Kamala Harris and for President Trump have talked about,
Speaker 7: would be very.
Speaker 6: Meaningful up here.
Speaker 4: Governor Tom often talks to me about the importance of
Speaker 4: knowing history, thinking about history. As Donald Trump makes his
Speaker 4: way through Long Island into your neck of the woods,
Speaker 4: do people remember who's responsible for putting that cap in place?
Speaker 6: I think we'll be reminded them.
Speaker 4: As we migrate back to the speech that we're going
Speaker 4: to get today. Focusing again on this industrial policy, I
Speaker 4: wonder what the endgame is here for both of these candidates.
Speaker 4: I think there is a desire to bring more manufacturing
Speaker 4: to the United States from overseas. We remember, thinking again
Speaker 4: about history about how much was made in this country before.
Speaker 4: We're not going to get back to that, are we.
Speaker 4: I mean, what's the dream, what's the vision that your
Speaker 4: candidate has that politicians have for a sort of renaissance
Speaker 4: or resurgence of manufacturing in the United States.
Speaker 5: What does it look like.
Speaker 7: I can tell you in the last six years, we've
Speaker 7: brought more manufacturing back to the state of Connecticut. We
Speaker 7: have a lower unemployment rate than the national average. That
Speaker 7: was not true for much generation. I think some of
Speaker 7: that is related to the fact that advanced manufacturing, it's
Speaker 7: very calful, intensive, requires high level computer skills. If you
Speaker 7: go to some of these sublaces where making jet engine
Speaker 7: and submarines, and I think that old plays or.
Speaker 2: Strengths Nedlamont tell me about the fancy people, and you've
Speaker 2: had the class to stay in Connecticut. Frankly, you could
Speaker 2: do whatever you want. You've done the political game, which
Speaker 2: is fine. Those fancy people moving to Florida, what's the
Speaker 2: mistake they're making. I mean, there's an exodus from Connecticut,
Speaker 2: a fancy people to Florida. Discuss that impact.
Speaker 7: The good news, Tom is we have more young people
Speaker 7: moving into the state of Connecticut. Never before more young
Speaker 7: people staying in the state of Connecticut.
Speaker 6: But you're absolutely right.
Speaker 7: You know, going back, even before we had an income tax,
Speaker 7: a lot of older folks and wealthy folks did go
Speaker 7: down to Florida. Hope Sound was traded back in the
Speaker 7: fifties by that crowd. Look, I think far is a
Speaker 7: great place. The visitor wouldn't want to live there.
Speaker 2: I want to talk to you about a tough topic.
Speaker 2: We talked to an elite audience here a Bloomberg, But
Speaker 2: Governor Lamont, it's just simple people in the you know,
Speaker 2: you look at a more challenging part of Connecticut, like Bridgeport.
Speaker 2: They're not worried about Jupiter Island or Hope Sound. They're
Speaker 2: worried about drugs right now. What do you need from
Speaker 2: Washington to help this nation with our drug crisis? A fentanyl?
Speaker 7: The good news is the venyl crisis has received a
Speaker 7: little bit using some federal resources, a lot by the
Speaker 7: state doing a lot more in terms of the intervention
Speaker 7: early on, taking care of narcon in the schools, doing
Speaker 7: everything we can there. But I'm a big believer in opportunity.
Speaker 7: When young people see there's opportunity there, they have a
Speaker 7: better alternative. That's why free workforce training, we guarantee you
Speaker 7: a job if you pass with those skills.
Speaker 6: I think that's a big part of the answer too,
Speaker 6: Tom Govinor.
Speaker 4: We've been talking an awful lot about polls these last
Speaker 4: few days, and there have been plenty of them. You've
Speaker 4: seen them, I'm sure, And what seems to be bubbling
Speaker 4: up to the top is this interest in passion for
Speaker 4: getting the economy to be in better shape. That's what
Speaker 4: voters care about. As you make your rounds through Connecticut,
Speaker 4: what are voters telling you the problems are when it
Speaker 4: comes to the economy and what needs to change. How
Speaker 4: much are they looking to Washington to affect that change?
Speaker 7: As I go around the state of Connecticut, I think
Speaker 7: people feel like we're in a pretty good place from
Speaker 7: an economic point of view, but affordability is an enormous issue.
Speaker 7: Everything from growthry and right now electric rates going up.
Speaker 7: You know, electric is a big deal for us because
Speaker 7: demand is going up through the roof, look at data centers,
Speaker 7: and yet supply is still tough for at the end
Speaker 7: of the supply chain here.
Speaker 6: So that's what I hear afordability.
Speaker 2: Governor, I got time for one more question. It's the
Speaker 2: only one that matters. What can the governor of Connecticut
Speaker 2: do about Amtrak and the wires in the heat of
Speaker 2: August popping up from New York to Boston, Boston, New York.
Speaker 2: I mean, I mean, we're not going to blame this
Speaker 2: on the state of Connecticut. Ned Lamont, what are they
Speaker 2: They're they're doing better after the tunnels in New York,
Speaker 2: they're doing better to Washington. What can we do about
Speaker 2: Amtrak and Connecticut?
Speaker 7: I think thanks to the Infrastructure Bill, Tom, you're going
Speaker 7: to see a big difference there.
Speaker 6: Amtrak.
Speaker 7: Joe kind of cared a lot about Amtrak, and that
Speaker 7: means everything can straighten me out. Be a rail where
Speaker 7: we can so you can get higher speed. You know,
Speaker 7: one of these hundred year old bridges, Tom costs us
Speaker 7: about two minutes because you've got to slow down and
Speaker 7: then speed up on the backside of it. So I
Speaker 7: think you'll see some real progress there, but it's probably
Speaker 7: going to take a decade.
Speaker 2: I got I got a time, like a minute here.
Speaker 2: This is really important, Edlamont. President Biden speaking to the
Speaker 2: UN yesterday. We were thrilled he stopped by Bloomberg philanthropies
Speaker 2: as well. What will be the Joe Biden legacy? You
Speaker 2: talk about Amtrak? Joe, I think he's comfortable that, but
Speaker 2: after the Halay, just six months as president has had
Speaker 2: what will be his Democratic Party legacy builder.
Speaker 7: I think everybody since I've been around, I've been around
Speaker 7: for a while says we're going to.
Speaker 6: Start rebuilding America. I think he did that.
Speaker 7: Look where we were four years ago with sage Brush
Speaker 7: blowing down empty streets, and now what you're going to
Speaker 7: see in terms of roads and bridges and good paying
Speaker 7: jobs and speeding up Amtrak for you.
Speaker 6: I think that'll be a big piece of his legacy.
Speaker 2: Nettla Mount, thank you so much. The governor of Connecticut
Speaker 2: with us this morning, David Boro, thank you so much
Speaker 2: for that conversation, just really outstanding. Upon joining us. Now
Speaker 2: for Global Wall Street, we welcome all of you around
Speaker 2: the world, across the nation. Here Michael Mobison. I'm going
Speaker 2: to frame this out, David. He's got a very important
Speaker 2: Morgan Stanley piece out for Counterpoint Global Insights on stock
Speaker 2: market concentration. But I think we need to know how
Speaker 2: we got here. David Gera with Michael Mobison. Somewhere in
Speaker 2: the late nineties a credit sueee. They put out this
Speaker 2: literature that was seven eight nine pages and you'd swear
Speaker 2: because you had to read every word, and you go,
Speaker 2: who is this mobile I can't even pronounce his name.
Speaker 2: Who is this Mobison guy? And what began really culminating
Speaker 2: in the Internet boom, the first boom of two thousand
Speaker 2: and one two was the required theoretical read on Wall Street.
Speaker 2: He extended this from Credit Squeeze to like Mason now
Speaker 2: At and Morgan Stanley. We're thrilled that Michael Mobison could
Speaker 2: join us for extended conversation today. Do your old essays
Speaker 2: still hold true today? Those seminal capital allocation essays that
Speaker 2: you wrote, I'm going to say this twenty five years ago.
Speaker 2: The math is still the same, right.
Speaker 5: I think the math is the same. And well, I
Speaker 5: guess I'll lead it.
Speaker 8: Leave it to the readers to actually judge ultimately whether
Speaker 8: that's the case. But I'll say, Tom, just backing up
Speaker 8: a little bit. You know, I was very fortunate to
Speaker 8: be able to with the folks in the Santa Fean
Speaker 8: institude learning about a lot of these concepts like power
Speaker 8: laws and increasing returns. Now those things are you network effects?
Speaker 8: These are all it's kind of common language today.
Speaker 2: Right.
Speaker 8: That was very novel roughly thirty years ago, So I
Speaker 8: was able to be maybe a slightly bit ahead of
Speaker 8: trying to implement those.
Speaker 5: Ideas and think about it.
Speaker 8: And by the way, the Internet boom was just like
Speaker 8: the classic It was a canonical boom and bust, right,
Speaker 8: and you can see it unfold before your eyes, so
Speaker 8: you could actually write about it and say, like, we
Speaker 8: know that ninety percent of these companies are going to
Speaker 8: go away, but we're experimenting, right.
Speaker 2: You nailed eight nine ten essays in I can't remember.
Speaker 2: And this is some electrical engineering folks. You don't go
Speaker 2: semi log, you go loglog and you end up with
Speaker 2: a hyperbole. Which is that curvey thing you just studied
Speaker 2: in David at school. You nailed the few would win
Speaker 2: I believe Amazon was your model there, but on a
Speaker 2: loglog chart, a few winners would be there. You absolutely
Speaker 2: nailed that. Is that our future?
Speaker 8: Well, I mean, the thing is the distribution of company
Speaker 8: sizes is a power follows a power law and I
Speaker 8: don't I don't know that we know exactly why that's
Speaker 8: the case.
Speaker 5: So it was.
Speaker 8: True then, it was true back in the nineteen fifties,
Speaker 8: and I suspect there's no reason to believe it's not
Speaker 8: going to be true going forward.
Speaker 5: So the answer is yes. The challenge is.
Speaker 8: Figuring out precisely what you said, Tom, which is which
Speaker 8: companies canna lie where on that power law distribution right,
Speaker 8: and power law. By the way, power law is it's
Speaker 8: like it is, it ends up being a straight line
Speaker 8: when you do it on a log lag. But it's
Speaker 8: not intuitive when you when you actually run through the numbers,
Speaker 8: because obviously every log is you're doubling, where you're increasing
Speaker 8: the same percentage for each tick mark.
Speaker 2: What Momison is saying is not intuitive is I got
Speaker 2: to see today. That's what that means. I got to
Speaker 2: get One more question is because girls worried about the present.
Speaker 2: If that's the case, and if I go to Krugman,
Speaker 2: who's been very good about monopsimistic tendencies, is there an
Speaker 2: American capitalistic tendency where the few just get bigger and
Speaker 2: bigger the exploitation theory.
Speaker 5: Yeah, I don't.
Speaker 8: This is this is another really fascinating thing. If you
Speaker 8: look at the last twenty years in particular, what our
Speaker 8: number show, and we do a lot of work on
Speaker 8: returns on to vesa capal for businesses, what our number
Speaker 8: show is that the larger companies have distanced themselves.
Speaker 5: From the smaller companies.
Speaker 8: So people talk a lot about large cap versus small cap,
Speaker 8: but the underlying economics for these big guys is actually
Speaker 8: quite good. And you know this can well, I'm sure
Speaker 8: we'll talk about stock market concentration, but this ties into
Speaker 8: that argument, which is the fundamentals seem to be the case.
Speaker 5: So how does that go on forever? I have no idea.
Speaker 8: I'm more observing than i'm predicting, but the last twenty
Speaker 8: years have been quite unusual in that and that specific context.
Speaker 4: Well, let's go to the present tense, but I'll stick
Speaker 4: with with with learning from history as well. And I wonder,
Speaker 4: as we talk about you're writing on the internet in
Speaker 4: the past, how much that is an analog to what
Speaker 4: we're seeing today. How much are you thinking about what
Speaker 4: happened then as you look at what's happening now with
Speaker 4: kind of the exuber instant excitement about right, artificial intelligence?
Speaker 8: Right, I look, I think that there's a model, and
Speaker 8: you go back to the railroads and canals, I mean
Speaker 8: everyone radio, We see the same pattern every single time.
Speaker 8: By the way, this is well documented by an econress
Speaker 8: named Stephen Klepper, formerly a Carnegie Mellon University And basically
Speaker 8: the patterns is this, you have a huge number of companies.
Speaker 5: Trying out a lot of stuff.
Speaker 8: Most of those companies are gonna fail, but you can
Speaker 8: think about each of them's options. Eventually, the market in
Speaker 8: quotation marks selects the technology that's going to win and
Speaker 8: then everything else they consolidate or go out of business,
Speaker 8: whatever it is.
Speaker 2: So you have this.
Speaker 8: Experimentation phase and then you figure it out, and then
Speaker 8: you have this sort of waning of all the all
Speaker 8: the losers. Yeah, we go through every time you see
Speaker 8: a new technology come along. And by the ways, funny
Speaker 8: I was I was with a client this is like
Speaker 8: two thousand and one, and the guy.
Speaker 5: Says, oh, he just lived through the dot com boom
Speaker 5: and bust. You know, do you think we've wisened up
Speaker 5: and that will never do this again? I was like, zero.
Speaker 8: Probability of that. No, not maybe not zero, but basically
Speaker 8: close to zero. I mean, this is how it works.
Speaker 8: And so and by the way, as a fascinating side note,
Speaker 8: scientists said, this is how our brains actually, how we
Speaker 8: develop our brains, naptic connections in our brain to do
Speaker 8: the same thing from the time you're born. In timey three,
Speaker 8: you have the explosion of some naptic connections. Try and also,
Speaker 8: if you've ever been around a three year old, we
Speaker 8: all have been. They're very inefficient little things, but they
Speaker 8: take in everything right, but then you prune away the
Speaker 8: stuff that doesn't matter.
Speaker 5: And you keep the stuff that's good, and you go.
Speaker 2: From David get stuck market concentration.
Speaker 4: I remember talking with Michael Hartnett of Bank of America
Speaker 4: a few years back, he who coined the term Magnificent seven,
Speaker 4: and we talked an awful lot about the need for
Speaker 4: the market to broaden out the concerns that we've heard
Speaker 4: about concentration. We can stay in the present tense, but
Speaker 4: pull back as much as you'd like here, how much
Speaker 4: have we've seen that happen? How vital is it that
Speaker 4: we have that kind of moving back from just a
Speaker 4: handful of names.
Speaker 5: I just don't know how to answer this question.
Speaker 8: I was like, so I was really reticent to waiting
Speaker 8: to this topic at all, But I was like, there
Speaker 8: are a couple of things that seemed.
Speaker 5: To be missing here.
Speaker 8: Number one is just going back further in history, right,
Speaker 8: So we went back to nineteen fifty The concentration we
Speaker 8: see today is clearly precedent. It was the nineteen sixties,
Speaker 8: and why we go back nineteen thirties? That was the basically,
Speaker 8: that was the standard. But number two is he asked
Speaker 8: the basic question, if you had a clean sheet of
Speaker 8: paper and you knew nothing about this, how would you
Speaker 8: figure out what concentration should be. The reason it's so
Speaker 8: disconcerned is because we've gone up a lot in the
Speaker 8: last decade, But what should it be? And so we said, oh,
Speaker 8: one way to think about that's the underlying economic profits. Right,
Speaker 8: economic profits or return on capital times the amount of
Speaker 8: capital you have. And it turns out, for example, the
Speaker 8: year end of twenty twenty three, top ten companies were
Speaker 8: twenty seven percent of the market cap in the United States,
Speaker 8: and they were sixty nine percent of the economic profit.
Speaker 8: If you go back even a decade, they're typically in
Speaker 8: the high teens in terms of percentage, but they're in
Speaker 8: the mid forties in terms of economic profit. So not
Speaker 8: to say that anything is in quotes justified or not justified.
Speaker 8: So widening out the market, you say, like you'd have to,
Speaker 8: there should be an economic justification for it, not just
Speaker 8: this is how it used to be. You should go
Speaker 8: back to being what it used to be.
Speaker 2: So I'm going to read this verbatim. I put it
Speaker 2: on Twitter. This is Harvey D. Shapiro in Barons with
Speaker 2: research from Arizona States. Henrik, that's some blinder. Just eight
Speaker 2: six stocks accounted for half of the total stock market
Speaker 2: wealth creation. Over ninety years, less than half of the
Speaker 2: stocks in the universe generated any returns. Only forty two
Speaker 2: percent earn more than risk free treasuries. Less than four
Speaker 2: percent of thousands and thousands of stacks in this universe
Speaker 2: accounted virtually all of market gains. Harvey Shapiro, tour de
Speaker 2: Force and Barons and the guy to talk to about
Speaker 2: it Michael Mobison with us right now modern portfolio theory
Speaker 2: and Peter Lynch called it diversification? Is it our evil?
Speaker 8: I mean, it's this is the most challenging thing when
Speaker 8: you think about acting active management because let's say, so,
Speaker 8: just just to play back that you said, it's a
Speaker 8: handful of companies that generate most of the shoold of
Speaker 8: wealth over long periods of time. Let's say you're a
Speaker 8: portfolio manager and you're smart enough to have identified one
Speaker 8: of these and put in your portfolio. Let's say you
Speaker 8: bought Apple fifteen years ago.
Speaker 5: Awesome. What happens is it becomes so big in your.
Speaker 8: Poor folio that you blow through all of your diversification requirements.
Speaker 2: Will danofsving this fidelity?
Speaker 5: Will Dan, I mean to anybody that's big like that.
Speaker 8: So so it's a funny thing that on the one hand,
Speaker 8: you see the numbers and you know that, and on
Speaker 8: the other hand it's very difficult to actually take advantage
Speaker 8: of it. And by the way, for your own personal account,
Speaker 8: people can do this, right, even Berkshire Hathaway. I know
Speaker 8: they sold back their apple steak, but a couple of
Speaker 8: quarters ago it was fifty percent of their public equity portfolio.
Speaker 8: You can't run a fund with fifty percent in the
Speaker 8: largest company in the world, mostly liquid company in the
Speaker 8: world right on a viable business basis. So it's a
Speaker 8: very interesting contrast. But the point being, the fundamental point
Speaker 8: is this skewness. And by the way, it's not just
Speaker 8: the United States.
Speaker 5: You go around the.
Speaker 8: World, Best and Bunder around the world Best Best and
Speaker 8: Bunden did a world in developed and developing markets.
Speaker 5: Best and Bunder did his work with some colleagues around
Speaker 5: the world. Same as xact pattern. And by the way,
Speaker 5: we don't know exactly again why.
Speaker 8: This pattern exists, but that's units shows up that extreme
Speaker 8: skewness shows up over time everywhere.
Speaker 4: I'm curious just about the role of active management today
Speaker 4: in light of what you're saying. So for the novice
Speaker 4: or the naive. Why is it still appealing today and
Speaker 4: to whom is it an attractive option?
Speaker 2: Right?
Speaker 8: Well, first of all, I mean active management is never
Speaker 8: going to go away, and nor can it go away
Speaker 8: because it does two things that are vital and by
Speaker 8: the way, these are very important positive externalities.
Speaker 4: For the world.
Speaker 8: Number one is liquidity. People forget about liquidity. It rears
Speaker 8: its head when we don't want to see it. And
Speaker 8: then second ist price discovery. So someone's got to make
Speaker 8: the trains run on time and deliver the mail, making
Speaker 8: price efficient. So indexers are free riders. Jack Bogel, by
Speaker 8: the way, God bless him, would completely agree with this.
Speaker 8: They are all just free riders. And not everybody can
Speaker 8: be a free writer obviously in some sort of a system.
Speaker 5: That's number one.
Speaker 8: Now number two, just David, to your point why this
Speaker 8: has been so difficult is the average mutual fund manager
Speaker 8: who competes with the S and P five hundred as
Speaker 8: his or her benchmark, has an average size of their
Speaker 8: portfolio is smaller.
Speaker 5: Than the market cap of the S and P five hundred. Right.
Speaker 8: Here's the logic is when large caps rip, which is
Speaker 8: what's happened last day? Seen it active gets really struggles, right,
Speaker 8: because you're just not exposed now when, by contrast, when
Speaker 8: small cap does well relative to large cap, active does
Speaker 8: really well.
Speaker 5: So that would be another thing to bear in mind.
Speaker 8: If you say, well, I think this this contry, you
Speaker 8: think it's going to go away, and the small caps
Speaker 8: a gonna do better, We're gonna get more balanced, balanced market.
Speaker 8: That's actually very good as good a backdrop as conceivable
Speaker 8: for active management, and we have all the data in
Speaker 8: the report to sort of back up that assertion.
Speaker 2: Michael Molson Private equity, I just I look at the
Speaker 2: the new credit and equity, the ill liquidity there, the lockups.
Speaker 2: It's like VC reducts once over. How's this How's this
Speaker 2: tragedy gonna end?
Speaker 8: I like that in the in the questions, But no,
Speaker 8: I don't know.
Speaker 5: I mean I think that.
Speaker 8: You know, we wrote a huge piece called Public to
Speaker 8: Private Equity States a long term look. We looked at
Speaker 8: it took a fifty year look at public equities. You know,
Speaker 8: obviously the story there there are fewer public companies around.
Speaker 5: They're all on average larger.
Speaker 8: So why are there you know, why do we have
Speaker 8: sixty percent of the companies We did to nineteen ninety
Speaker 8: six entry question. We looked through the rise of private
Speaker 8: equity and then the rise of venture capital and how
Speaker 8: this happened. Now, look, I think that we were we
Speaker 8: just came through a period of very low interest rates.
Speaker 8: And if you're running money and you have liabilities to satisfy,
Speaker 8: you needed to go out on the risk spectrum. And
Speaker 8: venture does it through speculative companies or young companies, buyouts
Speaker 8: to do it through leverage. We've come through that phase
Speaker 8: and that's done right. So that's an interesting thing, is
Speaker 8: like what do you need to do to satisfy your liabilities?
Speaker 8: And then all these things the problems As you know,
Speaker 8: anytime assets flowed with a certain asset class, it always
Speaker 8: becomes more challenging to deliver access returns, and so we
Speaker 8: follow the flows to some degree. Now, look, clearly in venture,
Speaker 8: clearly in buyouts, there are niches, there are spots, there
Speaker 8: are people that will navigate effectively. So just as I
Speaker 8: don't want to say the whole thing is challenging, but
Speaker 8: by the same time, and it's a.
Speaker 5: Story that people now understand.
Speaker 4: Thomas done such a wonderful job of framing who you
Speaker 4: are and what you've done and I'd love to ask
Speaker 4: you what animates you or gets you thinking about one
Speaker 4: issue or another. In particular, how do you approach your research?
Speaker 4: Is what provides the flash of inspiration.
Speaker 8: David builds on my wealth of ignorance. So basically, there's
Speaker 8: a puzzle out there, there's something I'm curious about I
Speaker 8: don't understand. And even things like active to pass that
Speaker 8: we talk to republic to private or stock market contraction.
Speaker 8: These are things I'm like, I don't really want to
Speaker 8: get involved with them because I know they're big, big
Speaker 8: hunt territory, they're fraud territory. But by the same token,
Speaker 8: I'm like, I'm not sure people are getting down to
Speaker 8: the first principles of the basics of all these.
Speaker 5: Kinds of things.
Speaker 8: So I think that's usually what I've done, And then
Speaker 8: I think a lot about the investment process.
Speaker 2: Right.
Speaker 5: I teach at Columbia Business School, teach do you get along.
Speaker 2: With Abbie Joseph Cohen? And when she says she's dark
Speaker 2: in the door?
Speaker 6: Is it?
Speaker 2: You know?
Speaker 7: Yeah?
Speaker 5: I mean she's great. I mean she's great.
Speaker 8: We actually have a podcast up there and we had
Speaker 8: Abby on there and she was great, and so right,
Speaker 8: she's she's fa so like it does a whole it's a.
Speaker 5: Whole different level. But but the point is that investment.
Speaker 8: So if you say, like from from the beginning of
Speaker 8: identifying attractive investment opportunities to building portfolios are the process,
Speaker 8: every part of that piece to mean is fascinating.
Speaker 2: In Mike, here's the heart. We're gonna have to cut
Speaker 2: this off, fret you. So Michael Bar's did anymore Tiger's coverage?
Speaker 2: Michael Mobis said, I have to oblige. I'm gonna give
Speaker 2: you a nightmare. Okay, I don't care how smart you are,
Speaker 2: how smart I am. Trust me, folks, there's all sorts
Speaker 2: of company names you can whisper in my ear over
Speaker 2: money lost. How do you avoid an Intel? Right?
Speaker 8: Well, I think it's this is really hard and intel
Speaker 8: is you know, this is a case study the framework,
Speaker 8: and we're talking about how do you think about competitivevantage
Speaker 8: and businesses. The framework is typically is if a company
Speaker 8: is making a lot of money doing something, it's very.
Speaker 5: Difficult for them to do us.
Speaker 8: It's Clay Christensen one on what Klay Christiansen wan on
Speaker 8: one disruptive innovation work.
Speaker 5: And so that's the thing.
Speaker 8: Just to be very mindful of and you know, I
Speaker 8: don't think I don't know if it's an apocryphal, but
Speaker 8: apparently Apple Can went to Intel early on say that
Speaker 8: we've got this thing in the worst call this new phone,
Speaker 8: like we'd love you to got to build the chips,
Speaker 8: and they're like, yeah, I don't know. Like that market
Speaker 8: doesn't seem that big, doesn't sem that profitable. And by
Speaker 8: the way, this X eighty six thing is killing it
Speaker 8: for us, right, so you get stuff like that that
Speaker 8: comes along. And by the way, Andy Grove was obviously
Speaker 8: a huge Christiansen fan and actually pivoted the company based
Speaker 8: on Christiansen's work, So that would probably be the thing
Speaker 8: to say is and is to take a look and
Speaker 8: be careful about that.
Speaker 2: I gotta be thirty seconds. The new Intelligent Investor is
Speaker 2: coming out. I've promised myself I'll read it like I
Speaker 2: read it, you know, when I could shave. I mean,
Speaker 2: what's the wisdom from Ben Graham and the crew from
Speaker 2: years ago that's still true today?
Speaker 8: Gosh, and by the way, Jason's wives and such kpe
Speaker 8: kill hands such a great guy to do that.
Speaker 5: A few things.
Speaker 8: I think that the two ideas I think most important
Speaker 8: from Ben Graham. By the way, Ben Graham understood behavioral
Speaker 8: finance before all this stuff was written down in a
Speaker 8: formal fashion. Number one is the mister market metaphor, which
Speaker 8: is this idea that we should always understand that markets
Speaker 8: go from overheated to under enthusiastic, and so there's and
Speaker 8: it's often fair, but you know, you get these extremes
Speaker 8: and that basic framework I think is really powerful. And
Speaker 8: the one tom is margin of safety, right, which is
Speaker 8: if you're long something, always buy something with a lot
Speaker 8: of accommodation for you to be wrong or for things
Speaker 8: to bring in away that are not optimal, but margin
Speaker 8: of safety. Those two fundamental ideas I think will always
Speaker 8: be around as long as we're doing this.
Speaker 2: Micha mobis in consilient research. Morgan Stanley, thank you so much,
Speaker 2: your dad. To look at the front pages of Lisa
Speaker 2: Matteo or Lisa what do you.
Speaker 1: Have, I'm gonna get you fired up because we're talking
Speaker 1: about work from home. That's right, Okay, So you remember Amazon, right,
Speaker 1: they have the new RTO policy kicks it in January,
Speaker 1: five days a week. They want their workers to come back.
Speaker 1: But it just so happens that they ended this popular
Speaker 1: benefit for the remote work people. Amazon gave them the
Speaker 1: option to work for up to four weeks fully remote
Speaker 1: from any location in the country. They were hired, Yes,
Speaker 1: they were hired, kidding. So a lot of people took
Speaker 1: advantage because during the holidays they did this because they
Speaker 1: were able to stay with family still work from home.
Speaker 1: But now Amazon is saying immediately it is done. We're
Speaker 1: not having that either.
Speaker 2: You live this, yeah, well, life, what do you think.
Speaker 4: I mean, your return to office six days a week.
Speaker 4: We see you here hunting these halls. You know, in
Speaker 4: my past job, I was working remote a lot, and
Speaker 4: there were certainly upsides to doing that, and I was
Speaker 4: able to travel a little bit. I think radio listeners
Speaker 4: can be a little bit unaware about where you are
Speaker 4: that you're able to do so much now, But I do,
Speaker 4: I did miss and do enjoy being around folks like Utah,
Speaker 4: and I think that that is.
Speaker 5: A little sacround. It's just too tear to his eye.
Speaker 4: Oh god, my work here is done too early for titos.
Speaker 5: Right continues, Okay, the cyber truck.
Speaker 1: Right, everybody wanted one hundred thousand dollars truck.
Speaker 2: Saw Tucker's the other while I saw Tucker. Tucker dropped
Speaker 2: the dry clean up at Milton's on Madison Avenue. There's
Speaker 2: Tucker's kept the harm Oh we kept the kids have
Speaker 2: the hummer.
Speaker 1: Okay, oh my gosh. Well, you know what it looks like, right,
Speaker 1: it looks like this futuristic stainless steel. But the problem
Speaker 1: with the Wall Street Journal says is the owners are
Speaker 1: complaining because they can't figure out how to clean it.
Speaker 4: When I saw they're not they're not painted right, there's
Speaker 4: no the one.
Speaker 2: I saw looked filthy full disclosure. Go.
Speaker 1: Yeah, so there is all these online forms are going crazy.
Speaker 1: One guy is that he spent like five hundred dollars
Speaker 1: on cleaning products. They're using all these different things. Tesla
Speaker 1: does say the right way to do it is he
Speaker 1: used like a soft sponge, but they don't actually recommend
Speaker 1: that you take it to a car wash. So that's
Speaker 1: the problem that these people are having. They say, don't
Speaker 1: wash it in direct sunlight, like there's all these restrictions
Speaker 1: about how you keep it clean. So now they're saying, hey,
Speaker 1: I invested all this money in this truck, and I
Speaker 1: kind invests more money to keep it clean.
Speaker 2: Dumb questions now so popular they can't make them fast enough.
Speaker 4: Well, I don't know if that's true, but they're very
Speaker 4: eye catching, even though I hate them.
Speaker 5: They hate them.
Speaker 4: I hate the way they look. But you can't help
Speaker 4: but look. And I think that's part of the thing
Speaker 4: with it.
Speaker 2: What do they do to other cars when they bump
Speaker 2: in the night.
Speaker 5: They're huge? I mean, these things look huge.
Speaker 4: They don't even dent, like, yeah, it's stainless steel. Well
Speaker 4: it's not stainless, evidently, but it's steep.
Speaker 2: It's not stainless. Okay.
Speaker 4: I heard someone who's using like baby wipes or alcoholic clean.
Speaker 5: It, yes, or windows wind ducks. Yes.
Speaker 1: Next, Okay, all right, we're gonna get you a two
Speaker 1: for one. Okay, two for We'll start with the White Sox.
Speaker 2: Okay.
Speaker 1: You know their record, right, They're on this trajectory downward,
Speaker 1: not doing so well. So there was a whole breakdown
Speaker 1: as to why this is happening. So the plan is
Speaker 1: that they were gonna tank, suffer some short term pain,
Speaker 1: but then kind of rebuilt, kind of like the Cubs did,
Speaker 1: kind of like the Houston Astros did. But it just
Speaker 1: didn't work out.
Speaker 5: The reason the Wall Street Order book it down.
Speaker 1: They said the reason this is happening is because eight
Speaker 1: years ago, yeh, then General man Rickon, vice president Kenny Williams.
Speaker 1: They started this rebuilding project right with the players. But
Speaker 1: they're saying the rebuilding didn't work because those players didn't
Speaker 1: amount to a championship team. They said, the problem is
Speaker 1: in the executive level. They said that when they added
Speaker 1: their legend Tony Laruss and his manager, they didn't ask
Speaker 1: the others for it, and they just kind of brought
Speaker 1: him in so they didn't have a say. So they're
Speaker 1: saying that is kind of the reason it's that executive.
Speaker 2: She auditioning for the fan. There go right thirty seven one,
Speaker 2: Michael Kay listening.
Speaker 4: Tell what do you do if your record is thirty
Speaker 4: seven and one?
Speaker 2: How do you rebuild it? The way you rebuild is
Speaker 2: a four or five year Mister Rubinstein's getting the back
Speaker 2: end of this at the Baltimore Orioles. It's four or
Speaker 2: five six years. I don't understand the pixie dust, but
Speaker 2: it's four or five six years, and then it's supposed
Speaker 2: to click in. Some of that's happening right now with
Speaker 2: the Detroit Tigers, you know, and I should point out
Speaker 2: the Tigers end the season against the Chicago White Sox,
Speaker 2: and so that's actually really germane to their future. But
Speaker 2: you know, we'll see.
Speaker 1: Okay, I got to talk the Dreaded Red Sox.
Speaker 2: Meana Chimes just emailed in and said, Lisa, you've.
Speaker 1: Killed that, thank you, the Dreaded Red Sox. That'shere we're going.
Speaker 1: They are reportedly retiring the blue alternate jerseys.
Speaker 2: Thank god, you didn't like them.
Speaker 4: Do you like the yellow jersey?
Speaker 1: But they're keeping the yellow report okay, yes, okay, so
Speaker 1: it's the City Connect jerseys. Yes, so they're keeping the yellow,
Speaker 1: but they're going to get rid of the blue, put
Speaker 1: a new one in. They don't know what the new
Speaker 1: one's going to be. So you're going to have the
Speaker 1: regular Home Whites, alternate Home Reds, Road Grays, yellow jerseys,
Speaker 1: and then the new City Connect jerseys as a fifth option.
Speaker 2: Okay, no names of the back, thank you. Okay, and
Speaker 2: just the whole jersey thing, what do you think? Yeah?
Speaker 4: I know you see it in the NBA as well.
Speaker 2: Man. I love the Padres have the military jersey because
Speaker 2: San Diego it's with the Navy there. It's just so
Speaker 2: incredibly important. But you know, it's sort of like in
Speaker 2: you know Pharaoh taught me in the English Premier League.
Speaker 2: It's there's some real fails. There's some down in flames.
Speaker 2: Are you doing? Are you done with baseball? You got one,
Speaker 2: but we're done with baseball.
Speaker 1: For all you soda drinkers out there, I'm not sure
Speaker 1: if you've tried to do someone, But Coca Cola is
Speaker 1: ditching the spiced flavor. I hate to break the news
Speaker 1: to you, but they're ditching it. It wasn't even on
Speaker 1: the market on story, so it's gone. I guess it
Speaker 1: wasn't working out too well. But Coca Cola did say
Speaker 1: they have a new one on the horizon. They won't
Speaker 1: say what it is, but they did have the Oreo flavor.
Speaker 1: Oreo Flavor not too long ago.
Speaker 2: Into your house.
Speaker 5: I do not know.
Speaker 4: They were giving them away for free at the Barkley
Speaker 4: Center when you got off the subway, and how was.
Speaker 2: Yeah, I should point out, and you know, mister Bloomberg
Speaker 2: is the driver of the truck here. Then he reiterated
Speaker 2: yesterday at the Earth Shot Awards, what sugared beverages are
Speaker 2: doing it to diabetes worldwide? Exactly in moderation, I think
Speaker 2: is where we would stand, Lisa Mateo, thank you for that.
Speaker 2: This is a Bloomberg Surveillance podcast, bringing you the best
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