Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg P M L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Are
Speaker 1: we seeing the beginnings of perhaps a dollar rebound? Here?
Speaker 1: To talk about? That is Mark Chandler, Global head of
Speaker 1: Currency Strategy at Brown Brothers Harriman. And Mark, you join
Speaker 1: us on a great day because we're finally getting a
Speaker 1: breather from the great weakening of the green back. We're
Speaker 1: seeing a little bit of a rebound against comparable currencies.
Speaker 1: Do you think this signals the beginning of a larger turnaround?
Speaker 1: At least I wish it did, but I'm afraid it
Speaker 1: probably doesn't. So far are the dollars bounce here has
Speaker 1: been fairly shallow, and it comes after it, like you say,
Speaker 1: after several days that little hammering, you know, the dollars
Speaker 1: and falling quite sharply, Uh, not quite, but almost uninterrupted
Speaker 1: since the middle of December. And so I think today
Speaker 1: we're seeing just you know, we had followed through dollars
Speaker 1: selling yesterday when the US markets are closed, if done incentrating,
Speaker 1: and I think that this is just sort of what
Speaker 1: I call it, maybe even a dead cat bound. So Mark,
Speaker 1: can you just give us a sense of what's driven
Speaker 1: in the dollar, what's driving the dollar weakness? I mean
Speaker 1: that you have certainly the euro strength, you have global growth,
Speaker 1: it's accelerated in other regions more than in the US.
Speaker 1: But what's the main factor of people should be looking at. Yeah,
Speaker 1: Lucy asked me the two million dollar question, because Frank
Speaker 1: I was in the camp that thought that wider interest
Speaker 1: rate differentials with the FED tightening, the tax cuts in
Speaker 1: the US, UH, the attractiveness that through the de regulation,
Speaker 1: attractiveness of the US as a point for investment. We've
Speaker 1: got inflation expectations driving all these things that I think
Speaker 1: should be good for the dollar. And if not. And
Speaker 1: so when I talk of people and trying to listen
Speaker 1: to why they are saying that they think the euro
Speaker 1: is going up, primarily is it more the Euro going
Speaker 1: up than perhaps other currencies going up? And they say
Speaker 1: that many people think that the ECB is close to
Speaker 1: exiting its monetary policy, and as you know, the ECB's
Speaker 1: papering this year, it went down from sixty billion a
Speaker 1: month asset purchases in the last nine months of last year,
Speaker 1: claim them a half to thirty billion months this year.
Speaker 1: And some other officials talking over the weekends sound kind
Speaker 1: of hawkish, talking about the sequence of events and maybe
Speaker 1: raising interest rates before the market previously anticipated. Mark Chandler,
Speaker 1: is a lower value US dollar better for US equities.
Speaker 1: I hear what you're saying to him. I know a
Speaker 1: lot of people think so because they think that the
Speaker 1: logical on something like this, Uh, the weaker dollar means
Speaker 1: that US can export more, and when the US exports more,
Speaker 1: those foreign currency it gets can then be translated into
Speaker 1: greater dollars boost earn And it sounds all reasonable and everything.
Speaker 1: But I think they'll find plenty of time when the
Speaker 1: US dollar was strong and corporate America was still reporting
Speaker 1: record profits. You know, the corporate earning seasons kicking off
Speaker 1: formerly this week, and people are expecting strong earnings. Last year,
Speaker 1: the dollar fell and corporate earnings look to be up,
Speaker 1: say something like twelve year over year. When the bigger picture,
Speaker 1: I think that for me, the reason I'm not fully
Speaker 1: aboard that kind of view. Is that the US is
Speaker 1: not service foreign markets primarily by exportings. Building locally, selling
Speaker 1: locally is really the key, and so a lot of
Speaker 1: US businesses are the export and build locally. They also
Speaker 1: when they build locally, incur local costs, so they'll have
Speaker 1: to pay those German workers higher wages or those check
Speaker 1: workers higher wages, and so that offset some of the
Speaker 1: beneficial impact I think. But in general, I think the
Speaker 1: best level for the dollar actually attend. It turns out
Speaker 1: that a strong dollar that is backed by a strong
Speaker 1: economy is actually good for corporate America. It so, having
Speaker 1: said that, should we look for higher prices for energy
Speaker 1: and commodities such as gold. Yeah, I hear what you're
Speaker 1: saying there, and I do think that because a lot
Speaker 1: of these commands are price in dollars, like gold or oil.
Speaker 1: When the dollar was falling out of bed over the
Speaker 1: last several weeks, we did see upward pressure on commodities,
Speaker 1: and today, of course it's the opposite. Softer dollar, softer gold,
Speaker 1: softer iron ore, softer base metals, softer oil. I'm just
Speaker 1: not sure that that is some of the hanguans hat
Speaker 1: On I think if you think the dollar is going
Speaker 1: to fall, should be short to dollar in various times
Speaker 1: a way long point equities, for example, are long foreign bonds.
Speaker 1: But if you think that, if you if you have
Speaker 1: a view on commodities, I would trade that. I think
Speaker 1: it were best served by training as close to our
Speaker 1: views as possible. Mark. You know, it seems increasingly like
Speaker 1: the consensus trade the dollar will weaken more, and I'm wondering,
Speaker 1: what's the risk scenario that upends that. Yeah, well, the
Speaker 1: risk scenario is really what I've been still counting on,
Speaker 1: and that that is that continued to interest rate increases
Speaker 1: by the Stuttlers. And by that I mean it's it's
Speaker 1: kind of interesting what happens. So if you are a
Speaker 1: that that interest rate differential, I think is the incentive
Speaker 1: structure that investors monitor closely, and with the incentive structure
Speaker 1: telling you is that you're paid to be long U
Speaker 1: S dollars by an increasing amount. And I don't think
Speaker 1: that the ECB raises interest rates this year. I don't
Speaker 1: think the b o J raises interest rates this year.
Speaker 1: I think they were still at least a year, perhaps
Speaker 1: maybe a year and a half to two years away
Speaker 1: from this divergence peaking, and so I would still say
Speaker 1: the federal reserves, like the raised interest rates, it's going
Speaker 1: to cost people an increasing amount to be short of
Speaker 1: the US dollar mark. Chandler, can you give us your
Speaker 1: thoughts on the value of the Chinese you want to
Speaker 1: remember and what the Chinese government's long term plan is
Speaker 1: for the currency. Well, I don't know if I can
Speaker 1: tell you what the government's long term planet. I know
Speaker 1: they want to be more international, but I think that
Speaker 1: they have a lot of stumbling blocks. So the big
Speaker 1: news over the weekend realier yesterday was when the Bundesbank
Speaker 1: official indicated that the them in Central Bank had put
Speaker 1: R and B in reserves, and the shortly thereafter the
Speaker 1: French announces that they had already done the same thing.
Speaker 1: It's not so surprising. About about six months ago or so,
Speaker 1: June of last year, the ECB itself announced that they
Speaker 1: had bought about five million euros worth of Chinese R
Speaker 1: and B to put in reserves, and interestingly interestingly they
Speaker 1: said that they reduced their dollar holdings to buy China.
Speaker 1: But we gotta keep this in perspective. There are something
Speaker 1: on the magnitude of eleven point four tillion dollars of reserves,
Speaker 1: the Chinese juan makes up about about a hundred and
Speaker 1: seven million dollars excuse me, a hundred and seven billion
Speaker 1: dollars very small, it's it's about one percent of global reserves.
Speaker 1: This is not the beginning of the Chinese want replacing
Speaker 1: the dollar. Chinese officials themselves recognize that, and they seem
Speaker 1: to be more circumspect about the role of China, and
Speaker 1: they have really more strategic view. While I hear a
Speaker 1: lot of people talking about about China and the end
Speaker 1: of the petro dollar at the beginning of a petro
Speaker 1: R and B the launching, eventually they stay of a
Speaker 1: of an R and B denominated oil contract. People are
Speaker 1: people in the private sector in the market. I talked
Speaker 1: about the dollar is gonna be replaced, but I find
Speaker 1: that sometimes a price action influenced the news, and sometimes
Speaker 1: the news impacts the price action. This is one of
Speaker 1: the times I think a following dollar is getting all
Speaker 1: these kind of like conspiracy series and how the dollar
Speaker 1: is going to be dethroned out of the woodwork these ideas,
Speaker 1: and I think that the R and B is nowhere close.
Speaker 1: The dollar makes up about sixty three percent of the
Speaker 1: world reserves, the R and B a little bit more
Speaker 1: than one percent. All right, thanks for putting it into
Speaker 1: perspective for us. Mark Chandler is the global head of
Speaker 1: Currency Strategy at Brown Brothers Harriman. The question of need,
Speaker 1: does anyone really need an suv that goes from zero
Speaker 1: to sixty and three point six seconds or can do
Speaker 1: a hundred and ninety miles per hour? Does anyone need
Speaker 1: six hundred and forty one horses streaming behind them? It
Speaker 1: is in yellow or and can be in yellow, and
Speaker 1: it is the new Lamborghini suv. It is called the
Speaker 1: Rusts and it joined now by the global Chief Executive
Speaker 1: of Automobile Lamborghini is Stefano Domenicali. Thank you for being
Speaker 1: here in our studio as much appreciated. What was the
Speaker 1: thinking behind the creation of the auras, Because there are
Speaker 1: already a variety of high luxury SUVs, even from the
Speaker 1: likes of Bentley and the likes of Audi and so on,
Speaker 1: that you could call luxury. What inspired the Lamborghini brand
Speaker 1: to want to make their mark in this market? Well,
Speaker 1: I would say that the inspiration came from the knowledge
Speaker 1: of the market. We as Lamborghini had a superspore brand
Speaker 1: and that's pretty clear and that will be always in
Speaker 1: the future. But we reckoned that the market in the
Speaker 1: suv segment is rowing all around the world and there
Speaker 1: was a perfect occasion to enlarge the portfolio offer to
Speaker 1: the customer because the end of the day, we were
Speaker 1: talking about product or cars or looks really good at
Speaker 1: are not necessary to have. It's a status. It's something
Speaker 1: that you want to have because you want position yourself
Speaker 1: in a certain way. So we saw the potential will
Speaker 1: be different also in this segment. That's the reason why
Speaker 1: we start this kind of a new project. Okay, so
Speaker 1: when we talk about necessity, how much as cost in
Speaker 1: in in hearing other states will be around two hundred
Speaker 1: dollars and and then of course the least price is
Speaker 1: a discussion because I know the market of the United
Speaker 1: States is mainly working on that, and I think we're
Speaker 1: gonna have a great offer. I get it to portune
Speaker 1: to give to our customer. Here, which country or where
Speaker 1: where do you think that most of the customers for
Speaker 1: this particular vehicle will come from? We say they the
Speaker 1: success of this after the first couple of weeks, when
Speaker 1: we launch, the car is normals all around the world.
Speaker 1: What is incredible is to see that the real question
Speaker 1: that we need to answer is how many non Lamborghinea
Speaker 1: customs we're gonna buy the new U s V Because,
Speaker 1: of course, as you know today, the our normal customer,
Speaker 1: if I may say normal, don't use that car every day.
Speaker 1: But with the new supers, they're going to use that
Speaker 1: Carla therefore is not only having the add that the
Speaker 1: one by one customer that are already in the Lamborghini family,
Speaker 1: but that the interesting thing will be to see how
Speaker 1: many potential customers will come from other branch because it
Speaker 1: would be may be interested to see our car. They
Speaker 1: love our design, they love our performance, they love to
Speaker 1: be connected with the Lamborghinia families. So the real question
Speaker 1: would be how many process we're gonna be able to
Speaker 1: catch in the future. And this is something that at
Speaker 1: least for after the first couple of weeks of the
Speaker 1: first launch around the world, we see there is a
Speaker 1: lot of attention. I note that you can customize this
Speaker 1: almost every way you can imagine, right, fourteen exterior colors
Speaker 1: to choose from, fifteen interior leather options, head rest you
Speaker 1: can get them embossed with the raging bull logo. I mean,
Speaker 1: just customization seems to be the real The real deal
Speaker 1: here is um UH is the factory that is building
Speaker 1: these in san Agata. Is that fact You're going to
Speaker 1: do all the customization or does that get farmed out?
Speaker 1: It will be done all in Santega the Bolognese in Italy.
Speaker 1: We were close to Bologna. There was a big challenge
Speaker 1: because in one year, just one year, we built a
Speaker 1: completely new line of assembly. We double the dimension of
Speaker 1: a factor. We hired more of a hundred people to
Speaker 1: make sure that this was possible to do it. That
Speaker 1: that is why we we use the claim since we
Speaker 1: made it possible for the launch of this vehicle. Because
Speaker 1: you know, if you think what was Lamborghini just a
Speaker 1: couple of years ago, No, when I would have thought
Speaker 1: it was possible. Therefore, the personalization is a very important
Speaker 1: item for our custom and that will be done by us.
Speaker 1: So I'm seeing a headline crossing the Bloomberg today that Ferrari,
Speaker 1: a competitor of yours, is planning to make an electric supercar.
Speaker 1: Um I'm wondering is that in your future? Well, in Uh,
Speaker 1: I would say September, we launched the third Millennium Project.
Speaker 1: It was a car that we presented together with the
Speaker 1: m I T in Boston. Because we have our research
Speaker 1: that is making sure that we are also ahead in
Speaker 1: that respect. So we have already launched that idea on
Speaker 1: our side, and I think that is natural, that is
Speaker 1: logical to also to be a trend setter in the
Speaker 1: in this in this new dimension. But when could that
Speaker 1: car actually be marketed, I would say, realistically speaking after
Speaker 1: in the second part of the two in that range
Speaker 1: will be ready, I think, because we need to be
Speaker 1: current with a couple of elements in that respect. First
Speaker 1: of all, the performance of a supersport car has to
Speaker 1: be there. We need to consider the usual our car
Speaker 1: cost of it. Of course, the affordability of this technology
Speaker 1: is another element that is very important, and we're gonna
Speaker 1: be there as a second step. We don't have to
Speaker 1: forget today we are, let's say, using the normal combustion engine.
Speaker 1: We're gonna be using the abrilization as a second step
Speaker 1: before arriving through dilectrification. So there is still a lot
Speaker 1: of rooms to do, a lot of work to be done,
Speaker 1: but for sure the trend is there. And we're gonna
Speaker 1: be there for the future superspokeer models with the aabrilization model.
Speaker 1: What's the trend for Lamborghini any chance of spinning it
Speaker 1: off from VW But currently you have you have a cousin, right,
Speaker 1: I mean, how do you could call like a cousin
Speaker 1: using their V eight in this new uh in this
Speaker 1: new SUV spin off in the works. Maybe something that
Speaker 1: I cannot answer to be honest, because it's not me.
Speaker 1: That's I'm I need to report to our shareholders, my
Speaker 1: duty or our uses will make sure that we are
Speaker 1: bringing up the brand in the right way that we can.
Speaker 1: We are growing, we need to make sure that we
Speaker 1: are we are profitable enough. We need to make sure
Speaker 1: that we have we are strong enough with good product
Speaker 1: portfolio in the future, and then the show will make
Speaker 1: their decision. I'm pretty sure that they are proud of
Speaker 1: having us in their in their portfolio together. But this
Speaker 1: is you know, what we have to do, make sure
Speaker 1: that we are doing a good job. Stefano Domenicali thank
Speaker 1: you so much for joining us, his global chief executive
Speaker 1: officer of automobile Lamborghini based in Bologna, Italy. Thank you
Speaker 1: so much. For being with us and uh we look
Speaker 1: forward to uh each getting our own personal suv Lamborghini
Speaker 1: in the Maile. Now kidding right now, it seems like
Speaker 1: kind of a tenuous time in US government pond markets.
Speaker 1: You have a government deficit in the United States is
Speaker 1: expected to blossom over the next few years. You have
Speaker 1: a potential government shutdown, and yet yields are actually dipping lower.
Speaker 1: Today here to talk about what's going on and how
Speaker 1: investorship position is. Ira Jersey, chief US interest rate strategist
Speaker 1: for Bloomberg Intelligence. I want to just start with a
Speaker 1: question about the government shutdown. Why our markets completely ignoring
Speaker 1: this even as the rhetoric gets amped up yet again
Speaker 1: that Congress will not come to a deal. Well, I
Speaker 1: think there's a few things about government shutdowns that kind
Speaker 1: of get misconstrued by the general public. I mean, the
Speaker 1: first is that a short term government shutdown, someone that
Speaker 1: lasts just a couple of days or even a week
Speaker 1: um really does not have any significant economic implications. And
Speaker 1: there are a lot of portions of the government that's
Speaker 1: still stay open. So for example, the bondmark, it's not
Speaker 1: going to care about it because UM government securities are
Speaker 1: still going to get paid. Coupon payments are still going
Speaker 1: to be made. Things like that, the I R. S
Speaker 1: stays open, so income still comes in the Federal Reserve,
Speaker 1: and the Treasury Department or portions of the Treasury Department
Speaker 1: remain open, so coupons get paid. So this isn't a
Speaker 1: kind of debt Eventum, a very long term government shutdowns,
Speaker 1: so one that lasts several weeks or a month that
Speaker 1: could have some economic implications because of the lack of
Speaker 1: government spending and the like, um, that that could occur.
Speaker 1: So you do see that when when in a few
Speaker 1: periods that you've had long term government shutdowns, you have
Speaker 1: seen little blips that that affect the um, that affect
Speaker 1: the growth. But um, you know, we're not expecting necessarily
Speaker 1: a long one now, So I think that um, any
Speaker 1: government shutdown in this case is just going to be
Speaker 1: completely ignored by most markets. All right, right, can you
Speaker 1: speak about treasury inflation protected securities and their use in
Speaker 1: people's portfolios. Yeah. I think for for a lot of investors,
Speaker 1: the ideas is that okay, inflation might be higher than
Speaker 1: UM in the in the future, and because of that,
Speaker 1: I'd like to get some some hedges and protections for that,
Speaker 1: so they buy treasury inflation protected securities. The problem with
Speaker 1: just going out and buying UM tips, whether it's a
Speaker 1: thousand dollars or a couple of ten thousand dollars, doesn't matter. M.
Speaker 1: The problem is is that you're you're still have a
Speaker 1: lot of interest rate risk that are embedded in these instruments.
Speaker 1: So when you buy a tip security, you're receiving what's
Speaker 1: called the real yield, so the yield on the tip
Speaker 1: plus inflation. Now, the problem is is that when inflation
Speaker 1: goes up, then yields usually go up much faster than
Speaker 1: um UH than inflation. So let's imagine a situation where
Speaker 1: suddenly we think inflation next year is going to be
Speaker 1: five percent from say two percent today. UM you say, okay,
Speaker 1: well let me buy tips because I'm going to get
Speaker 1: three percent. The problem is is that an environment like that,
Speaker 1: yields might sell off a hundred basis points and then
Speaker 1: there's UH interest rate risk embedded in these securities, and
Speaker 1: that's what we call duration. So that's the effect on
Speaker 1: price by changes and yield. So a hundred basis point
Speaker 1: increase in UH in yields on a ten year tip,
Speaker 1: you wind up losing eight percent of your of your
Speaker 1: dollar value of that of that tip. So if you
Speaker 1: just do that math, eight percent minus three percent means
Speaker 1: you lose five percent, even with inflation increasing quite a lot.
Speaker 1: So so there's a lot of interest rate risk embedded
Speaker 1: in this. So the way that you really hedge inflation
Speaker 1: is by buying a tip and then hedging out your
Speaker 1: interest rate risk. So I'm looking right now at the
Speaker 1: I shares Tips E t F and I'm just looking
Speaker 1: at the total assets it has increased since the end
Speaker 1: of about I don't know, three million dollars or so
Speaker 1: with respect to assets under management. So a lot of
Speaker 1: people have been going into tips as a proxy for
Speaker 1: hedging against inflation. And I'm just wondering, do you think
Speaker 1: that all the people buying these securities understand the rate
Speaker 1: risk that they're assuming. Well, I'm not convinced that all
Speaker 1: of them do. And that's one of the reasons why
Speaker 1: I think it's important to understand the interest rate risk
Speaker 1: that you're taking by buying tips. Um. Now that being said,
Speaker 1: if you if you're buying tips because you think yields
Speaker 1: are too high and yields might go down, but you're
Speaker 1: you know, but you think that there might be a
Speaker 1: little bit of of inflation along the way than than
Speaker 1: maybe there's a place in your portfolio for that. But um.
Speaker 1: But I think in general people think, oh, Treasury inflation
Speaker 1: protected securities, inflation goes up there for you know, I'll
Speaker 1: make money in this. That's not necessarily the case in
Speaker 1: the in the short term. If you buy a tip
Speaker 1: today and you hold it to maturity, you'll make fifty
Speaker 1: basis points like a ten on a ten year tip
Speaker 1: fifty basis points plus inflation um. But if you don't
Speaker 1: hold it to maturity, or you hold a constant maturity
Speaker 1: instrument like an et F for like a mutual fund
Speaker 1: that that tracks tips um, you do take a lot
Speaker 1: of interest rate exposure and risk, and I think that
Speaker 1: that's something that you might see unwind if you do
Speaker 1: get a very big sell off in in rates. We're
Speaker 1: not expecting that, but at the same time, that's a
Speaker 1: that's definitely a risk that you're taking. Are maybe talk
Speaker 1: about risk, but have it related to perhaps hedges on
Speaker 1: Fannie May and the Freddie mac paper. Yeah. So one
Speaker 1: of the things that that we've noted in the rates
Speaker 1: market over the last over the last couple of months
Speaker 1: is just like the VIX being at at multi year lows.
Speaker 1: So is interest rate volatility. Applied volatility on options on
Speaker 1: different interest rate products is exceptionally low, and I think
Speaker 1: a part of that, at least uh UM. A portion
Speaker 1: of the reason for that is that Fannie Mae and
Speaker 1: Freddie Max's portfolios, which used to be one point for
Speaker 1: trillion dollars are are about a third of that today,
Speaker 1: And because they're UM because they are no longer hedging
Speaker 1: things like prepayment risks of people repaying their mortgages early
Speaker 1: and things like that. They used to do that with
Speaker 1: options on interest rate products and they no longer have
Speaker 1: to do that in the same size that they did UM.
Speaker 1: So because of that, I think interest rate UM volatility
Speaker 1: is much lower than it would be normally UM. And
Speaker 1: also that the FED now has picked up a lot
Speaker 1: of that ownership and the FED doesn't hedge at all.
Speaker 1: But as the FED unwinds their portfolio, it's very likely
Speaker 1: that banks and other other buyers of mortgages might actually
Speaker 1: start to buy volatility a little bit more. Thank you
Speaker 1: very much. I read Jersey very interesting interest rate strategist
Speaker 1: for Bloomberg Intelligence, giving us some details about treasury inflation
Speaker 1: protected securities and the lack of hedging that seems to
Speaker 1: be going on at least when it comes to Fannie
Speaker 1: Mae and Freddie mac that's agency back paper right now.
Speaker 1: I want to turn our attention to a letter that
Speaker 1: black Rock sent to a number of corporate executives today.
Speaker 1: This according to the New York Times Deal Book uh section.
Speaker 1: It's sort of interesting and highlights how black Rock is
Speaker 1: increasingly aware of the actions of corporations that they invest
Speaker 1: in and whether they are good for society or not.
Speaker 1: Here to talk about this fuzzy designation. What does it
Speaker 1: mean to be responsible? Is Greg Elders, who senior Environmental,
Speaker 1: social and governance analyst for Bloomberg News. Greg I thought
Speaker 1: this was really interesting because this comes on the heels
Speaker 1: of Calisters and Janna Partners going after Apple for the
Speaker 1: use of iPhones by kids and requesting that they study
Speaker 1: the effects on children of long term use of smartphones.
Speaker 1: What does it mean for black Rock to get more
Speaker 1: aggressive with making sure companies act responsibly? Yeah, I mean
Speaker 1: this is something that I mean to that end. There's
Speaker 1: growth in this space, so Jenna, they launched their Impact
Speaker 1: Investing Fund black Rock. So Larry Think two years ago
Speaker 1: in his letter mentioned that company's CEO should focus on environmental, social,
Speaker 1: and corporate governance issues. Last year it voted against management
Speaker 1: at Exxonmobile and Occidental Petroleum, and also Vanguard similarly voted
Speaker 1: against them. Um, so you know it's coming around in
Speaker 1: terms of investors no longer just being passive but actually
Speaker 1: having an active stance at the end of the day,
Speaker 1: it's because investors are demanding that their clients, both institutional
Speaker 1: and retail, want to see more active social engagement. Now,
Speaker 1: is there a way in which investors will be uh,
Speaker 1: sort of not necessarily happy about this if the market
Speaker 1: turns south for them? I mean, it's great when stock
Speaker 1: prices are rising, and black Rock, of course a big
Speaker 1: E T F provider. It's wonderful when you're making money.
Speaker 1: I mean, but that's the whole point. So it's letter
Speaker 1: two years ago. I mean, he said to have long
Speaker 1: term value creation and again in this letter, according to
Speaker 1: the New York Times, So this is absolutely about growth
Speaker 1: and profitability. It's not about the social environmental side, except
Speaker 1: that it actually goes towards that whole financial performance area. Okay,
Speaker 1: so how do we parse this out. I mean, this
Speaker 1: is this is a thing that really makes me scratch
Speaker 1: my head. You know, on one hand, if you say
Speaker 1: to Apple, okay, study the effects of iPhones on children,
Speaker 1: I understand the purpose of that. From sort of a
Speaker 1: social responsive ability standpoint. From a profitability standpoint not so much.
Speaker 1: So how do you parse out the difference here? It
Speaker 1: seems like a pretty uh, pretty fuzzy line. It can
Speaker 1: be a fuzzy line. I mean, going back to the
Speaker 1: Exxon and Occidental examples, so the shareholder resolutions that black
Speaker 1: Rock backed there were specifically around the two oil companies
Speaker 1: thinking about what's going to happen in a low carbon world.
Speaker 1: So if we shift away from fossil fuels, right, if
Speaker 1: you have more electric cars, what does that mean for
Speaker 1: their business and how do they position themselves? So very
Speaker 1: much a fundamental business issue. Now with the example of
Speaker 1: of Apple, I mean I agree that that varies a
Speaker 1: bit more. And the question is, you know, maybe regulators
Speaker 1: come along, and obviously the text space has been very
Speaker 1: much in the focus of regulators around Facebook, um, Twitter,
Speaker 1: that kind of thing. So yeah, I mean, it's fundamentally
Speaker 1: what is their long term business? Well, and then there's
Speaker 1: another question of equality or diversity or some of these
Speaker 1: other values that a lot of corporate rations espoused that
Speaker 1: might not be held by all of the investors in
Speaker 1: their base. I mean, in other words, how vocal do
Speaker 1: they get on issues that are increasingly viewed as political.
Speaker 1: I mean, I think very clearly that Larry Fink black
Speaker 1: Rock says that they have to because again it's going
Speaker 1: towards financial performance. Today's City Group released data on their
Speaker 1: pay gap between women and men. After shareholder resolution shareholder
Speaker 1: pressure in the UK, companies are gonna be required to
Speaker 1: do this by the end of this quarter. So now,
Speaker 1: again this is very much an issue about driving performance.
Speaker 1: So it all comes back to that, and I think no,
Speaker 1: gender issues social issues are very much about that as well.
Speaker 1: But this is not Just to be clear, this is
Speaker 1: not black Rock's money. This is the money that they
Speaker 1: manage on behalf of investors, correct, but they want to
Speaker 1: maximize return. No, completely understand, But just to be clear,
Speaker 1: this is not black Rock money. This is they're saying
Speaker 1: this on behalf of their investors, saying that this is
Speaker 1: what investors would like to see happen. Well, it's what
Speaker 1: they think needs to happen, so they can have the
Speaker 1: best returns for their clients. Got it all right, well done,
Speaker 1: Thank you very much. Gregory Elders is our senior Environmental,
Speaker 1: Social and Governance analyst for Bloomberg News, and of course
Speaker 1: this is a topic will be following for quite a while.
Speaker 1: Larry Fink, head of Black Rock, writing a letter making
Speaker 1: that clear to all investors. Thanks for listening to the
Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform
Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox.
Speaker 1: I'm on Twitter at Lisa Abramo. It's one before the podcast.
Speaker 1: You can always catch us worldwide on Bloomberg Radio.