1 00:00:01,800 --> 00:00:04,440 Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm 2 00:00:04,440 --> 00:00:07,280 Speaker 1: Bloomberg Quick Takes Tim Stanovk. We're here every day bringing 3 00:00:07,280 --> 00:00:09,840 Speaker 1: you the latest news from the world of business and finance, 4 00:00:09,840 --> 00:00:13,640 Speaker 1: clus technology, politics, economics, all purtnising the power of Business 5 00:00:13,640 --> 00:00:17,119 Speaker 1: Week reporters and editors, not to mention our journalists and 6 00:00:17,160 --> 00:00:19,599 Speaker 1: analyst in more than one and twenty countries. You can 7 00:00:19,640 --> 00:00:23,239 Speaker 1: download Bloomberg Business Week at iTunes, SoundCloud, or Bloomberg dot Com. 8 00:00:23,400 --> 00:00:25,160 Speaker 1: You can also listen to our radio show at two 9 00:00:25,160 --> 00:00:27,840 Speaker 1: pm Eastern Time on Bloomberg Radio, or watch us on 10 00:00:27,880 --> 00:00:32,840 Speaker 1: YouTube search Bloomberg Global News. Okay, that's it. With Bank 11 00:00:32,840 --> 00:00:35,680 Speaker 1: of America reporting this morning big bank earnings. They are 12 00:00:35,760 --> 00:00:38,640 Speaker 1: done for the quarter. Shares hire by about three point 13 00:00:38,720 --> 00:00:41,600 Speaker 1: nine percent in the wake of that report. The company, 14 00:00:41,680 --> 00:00:44,760 Speaker 1: joining its Wall Street rivals and capitalizing on market volatility, 15 00:00:44,840 --> 00:00:49,279 Speaker 1: will also benefiting from an increase in lending. Joining us 16 00:00:49,320 --> 00:00:52,519 Speaker 1: now is Sally Bakewell, finance team leader at Bloomberg New 17 00:00:52,600 --> 00:00:55,600 Speaker 1: She's with us in the Bloomberg Interactive Broker Studio. Sally, 18 00:00:55,640 --> 00:00:57,800 Speaker 1: great to have you with us. Uh here we are. 19 00:00:58,000 --> 00:01:00,440 Speaker 1: Your sort of busy season for the quarter is just 20 00:01:00,640 --> 00:01:03,639 Speaker 1: wrapping up here, Uh, give us the highlights from Bank 21 00:01:03,680 --> 00:01:05,880 Speaker 1: of America, and then we pulled back and talk about 22 00:01:06,160 --> 00:01:09,640 Speaker 1: the quarter for big banks in justin MANA. Yeah, I 23 00:01:09,680 --> 00:01:12,280 Speaker 1: think Bank of America was very much in line with 24 00:01:12,319 --> 00:01:15,720 Speaker 1: what we saw from most of the bank's last last week. UM. 25 00:01:16,120 --> 00:01:19,760 Speaker 1: We saw that it capitalized on the volatility or the 26 00:01:19,840 --> 00:01:24,200 Speaker 1: volatility that's been exacerbated by the situation in Ukraine. And 27 00:01:24,240 --> 00:01:26,200 Speaker 1: we saw that investment banking took a bit of a 28 00:01:26,280 --> 00:01:29,399 Speaker 1: hit UM because we have this sort of spack regulation 29 00:01:29,480 --> 00:01:31,959 Speaker 1: that has chilled a lot of the deals. UM. And 30 00:01:32,000 --> 00:01:35,080 Speaker 1: then we also saw some glimpses of how the consumer 31 00:01:35,200 --> 00:01:38,560 Speaker 1: is doing UM. And much like some of the other banks, 32 00:01:38,600 --> 00:01:42,360 Speaker 1: we're seeing these trends where consumers are continuing or amping 33 00:01:42,440 --> 00:01:44,800 Speaker 1: up a little bit. They're spending UM, and Bank of 34 00:01:44,800 --> 00:01:48,600 Speaker 1: America gave us a pretty good picture here. UM. We 35 00:01:48,680 --> 00:01:52,120 Speaker 1: know that consumers, for example, they opened one million credit 36 00:01:52,120 --> 00:01:55,480 Speaker 1: cards in the first quarter. UM is spending increase. The 37 00:01:55,520 --> 00:01:58,560 Speaker 1: bank is expecting that its net interest income, which is 38 00:01:58,600 --> 00:02:01,640 Speaker 1: that key metric for banks, is going to grow by 39 00:02:01,720 --> 00:02:04,920 Speaker 1: to sifty million in the second quarter. And that's on 40 00:02:05,120 --> 00:02:09,119 Speaker 1: strong loan and strong deposit growth. So the words from 41 00:02:09,120 --> 00:02:11,480 Speaker 1: the conference calls and the analysts and the media calls 42 00:02:11,480 --> 00:02:15,320 Speaker 1: were very much about the consumers being in robust health. Um, 43 00:02:15,360 --> 00:02:18,600 Speaker 1: they're sitting on a lot of liquidity UM. Delinquencies and 44 00:02:18,680 --> 00:02:22,200 Speaker 1: charge offs are all low. So the picture is pretty strong. 45 00:02:22,240 --> 00:02:24,040 Speaker 1: But I'm sure one of you is going to ask 46 00:02:24,200 --> 00:02:26,400 Speaker 1: ask me now about what the actual you know, what 47 00:02:26,440 --> 00:02:28,400 Speaker 1: the risks are and what the outlook might be. So 48 00:02:28,440 --> 00:02:31,160 Speaker 1: I'll let you do that. Well, go ahead and answer. 49 00:02:33,760 --> 00:02:35,360 Speaker 1: That was probably a better question than I was gonna 50 00:02:35,360 --> 00:02:37,639 Speaker 1: actually have for you anyway, Sally. So, yeah, what did 51 00:02:37,639 --> 00:02:39,720 Speaker 1: we learn about how things look? Well? I think so 52 00:02:40,080 --> 00:02:43,120 Speaker 1: MONI hand today this the Bank of America chief executive officer. 53 00:02:43,200 --> 00:02:46,040 Speaker 1: He did say that consumers are sitting on They're still 54 00:02:46,120 --> 00:02:48,120 Speaker 1: sitting on a lot of the stimulus that they got, 55 00:02:48,200 --> 00:02:52,600 Speaker 1: and that's kind of helping them, um keep current on 56 00:02:52,639 --> 00:02:55,200 Speaker 1: their debt and enabling them to spend a little bit more. 57 00:02:55,280 --> 00:02:58,799 Speaker 1: But I guess the questions remain about what happens when 58 00:02:58,840 --> 00:03:02,400 Speaker 1: that stimulus, that liquidity they do have, starts to drain 59 00:03:02,919 --> 00:03:06,280 Speaker 1: um and they are left just with high inflation UM 60 00:03:06,480 --> 00:03:09,080 Speaker 1: gas prices being higher, and then we have, you know, 61 00:03:09,120 --> 00:03:14,680 Speaker 1: the overall political uncertainty um interest rate hikes. So while 62 00:03:14,800 --> 00:03:18,520 Speaker 1: the snapshot today looks pretty good, UM, it is not 63 00:03:18,600 --> 00:03:21,760 Speaker 1: without some clouds on the horizon. Tell us a little 64 00:03:21,760 --> 00:03:24,360 Speaker 1: bit about loan growth, because I think when the average 65 00:03:24,560 --> 00:03:28,200 Speaker 1: perhaps listener, here's the word debt in a non financial 66 00:03:28,240 --> 00:03:30,640 Speaker 1: market context, it's like that's a bad word, right, But 67 00:03:30,680 --> 00:03:34,160 Speaker 1: if you hear loans or debt in a Bank of 68 00:03:34,160 --> 00:03:36,800 Speaker 1: America has long growth, that's actually a really good sign 69 00:03:36,840 --> 00:03:39,520 Speaker 1: Talk to us a little bit about what that signals. Yeah, 70 00:03:39,560 --> 00:03:43,240 Speaker 1: and that's exactly the right perspective I think on it. Um, 71 00:03:43,360 --> 00:03:45,800 Speaker 1: we we see the banks have said for a long 72 00:03:45,840 --> 00:03:48,360 Speaker 1: time that they're waiting for loan growth to return. And 73 00:03:48,360 --> 00:03:51,280 Speaker 1: again it's been stimulus has been cited as the reason 74 00:03:51,320 --> 00:03:53,280 Speaker 1: that people aren't boring. Again, they've got enough cash in 75 00:03:53,320 --> 00:03:56,200 Speaker 1: their pockets they don't need to. But loan growth is 76 00:03:56,200 --> 00:03:58,400 Speaker 1: really important for the banks because that feeds into this 77 00:03:58,560 --> 00:04:01,400 Speaker 1: net interest income met trick um that is their main 78 00:04:01,520 --> 00:04:05,280 Speaker 1: source of revenue. So it really matters, UM, and if 79 00:04:05,520 --> 00:04:07,360 Speaker 1: they aren't seeing that, they have to look for other 80 00:04:07,400 --> 00:04:10,280 Speaker 1: places where they can get revenue, and it just complicates 81 00:04:10,320 --> 00:04:13,120 Speaker 1: everything for banks. So we have started to see it 82 00:04:13,200 --> 00:04:16,840 Speaker 1: come back. UM. In the first quarter is not completely 83 00:04:17,480 --> 00:04:21,440 Speaker 1: clear easy picture m JP and and consumer loan growth 84 00:04:21,520 --> 00:04:25,440 Speaker 1: is key UM of For example, last week we had 85 00:04:25,520 --> 00:04:30,400 Speaker 1: JP Morgan reporting UM and while they had commercial and 86 00:04:30,440 --> 00:04:33,800 Speaker 1: I think consumer loans up, I think consumer loans without 87 00:04:33,839 --> 00:04:38,160 Speaker 1: credit cards were actually down. So it's not completely clear 88 00:04:38,240 --> 00:04:42,240 Speaker 1: and positive picture. But banks are now finally after sort 89 00:04:42,279 --> 00:04:45,840 Speaker 1: of two years, starting to see loan growth picking up again. UM. 90 00:04:45,839 --> 00:04:47,960 Speaker 1: And that's also really important for them given that we're 91 00:04:47,960 --> 00:04:50,600 Speaker 1: in a rising rate environment, because they'll obviously benefit from that. 92 00:04:51,040 --> 00:04:52,400 Speaker 1: So if we take a step back and we think 93 00:04:52,440 --> 00:04:54,520 Speaker 1: about what you and your team did last week when 94 00:04:54,520 --> 00:04:56,960 Speaker 1: it comes to covering all the other companies that reported 95 00:04:57,040 --> 00:05:02,080 Speaker 1: JP Morgan, Morgan Stanley and well far Agoing more, Uh, 96 00:05:02,120 --> 00:05:04,480 Speaker 1: what's the takeaway for not just the most recent quarter, 97 00:05:04,600 --> 00:05:06,600 Speaker 1: but but how the year looks even beyond looking at 98 00:05:06,600 --> 00:05:10,960 Speaker 1: the consumer what about these companies businesses? UM, I think 99 00:05:11,600 --> 00:05:17,279 Speaker 1: takeaways are pretty there was a pretty solid picture. I 100 00:05:17,320 --> 00:05:21,880 Speaker 1: think there are some nuances to JP Morgan's earnings. UM 101 00:05:21,920 --> 00:05:25,760 Speaker 1: In particular, UM, we saw that JP Morgan, for example, 102 00:05:25,800 --> 00:05:28,760 Speaker 1: it's set aside one point nine billion and it's as 103 00:05:28,760 --> 00:05:31,839 Speaker 1: a kind of reserve PRISIP provision for the bank to 104 00:05:31,880 --> 00:05:35,479 Speaker 1: cover bad debt, and it's cited both the war in 105 00:05:35,640 --> 00:05:41,240 Speaker 1: Ukraine and it also cited kind of recessionary headwinds. Now 106 00:05:41,279 --> 00:05:43,440 Speaker 1: it played that down a lot and said that they 107 00:05:43,480 --> 00:05:47,080 Speaker 1: have to do this under a particular accounting standard. But 108 00:05:47,200 --> 00:05:51,560 Speaker 1: nonetheless it they they it indicates that they see the 109 00:05:51,600 --> 00:05:55,000 Speaker 1: probability of a recession going from sort of very low 110 00:05:55,120 --> 00:05:59,200 Speaker 1: to just low. So UM. I think perhaps one of 111 00:05:59,240 --> 00:06:03,040 Speaker 1: the takeaways from all of the earnings is that there 112 00:06:03,040 --> 00:06:08,960 Speaker 1: are concerns about future growth. Concerns about future growth go ahead, creaty. 113 00:06:09,440 --> 00:06:11,640 Speaker 1: I was going to ask about the training revenue because 114 00:06:11,640 --> 00:06:13,719 Speaker 1: I know you started off talking about volatility and how 115 00:06:13,760 --> 00:06:15,960 Speaker 1: a lot of these companies are really taking advantage of it. 116 00:06:16,000 --> 00:06:19,479 Speaker 1: But what happens when the volatility goes away? Ultimately the 117 00:06:19,480 --> 00:06:21,839 Speaker 1: selling has to stop, right and we only have about 118 00:06:21,839 --> 00:06:23,920 Speaker 1: forty got I mean, that's a great question. And we 119 00:06:24,240 --> 00:06:27,240 Speaker 1: kept thinking that the volatility to volatility would end. UM. 120 00:06:27,279 --> 00:06:30,279 Speaker 1: We had COVID and then as that receded, we thought 121 00:06:30,279 --> 00:06:33,279 Speaker 1: it would end. We then had inflation. UM. We now 122 00:06:33,320 --> 00:06:39,839 Speaker 1: have the Ukraine situation so that it can't be completely sustainable. UM. 123 00:06:39,920 --> 00:06:44,720 Speaker 1: But we haven't had the absolute quiet calm period yet 124 00:06:44,760 --> 00:06:47,760 Speaker 1: where we see them normalize. So you know, big questions 125 00:06:47,760 --> 00:06:52,080 Speaker 1: remain about what actually normalizing means for these banks um 126 00:06:52,560 --> 00:06:55,320 Speaker 1: and trading and their trading businesses which just had a 127 00:06:55,360 --> 00:06:58,000 Speaker 1: bonanza of the quarter. This is why we love having 128 00:06:58,000 --> 00:07:01,120 Speaker 1: you join us. Sally Bigwhell financed Team Lee for Bloomberg 129 00:07:01,200 --> 00:07:03,080 Speaker 1: new Shares a Bank America by the way, now higher 130 00:07:03,120 --> 00:07:05,800 Speaker 1: by four point two percent. Sally's with us in the 131 00:07:05,880 --> 00:07:10,840 Speaker 1: Bloomberg Interactive Brooker Studio in New York. This is Bloomberg 132 00:07:10,840 --> 00:07:14,520 Speaker 1: Business Week with Carol Messer and Bloomberg Quick Takes Tim 133 00:07:14,560 --> 00:07:18,640 Speaker 1: Stenovic on Bloomberg Radio. Well, you all might remember last 134 00:07:18,720 --> 00:07:21,760 Speaker 1: week somebody by the name of Elon Musk, the wealthiest 135 00:07:21,800 --> 00:07:24,200 Speaker 1: person in the world according to the Bloomberg Billionaires Index, 136 00:07:24,240 --> 00:07:26,960 Speaker 1: set down for an extended interview with Chris Anderson of 137 00:07:27,160 --> 00:07:30,880 Speaker 1: TED in Vancouver, and there he talked about a quote 138 00:07:30,920 --> 00:07:35,160 Speaker 1: unquote plan B if his Plan A for taking Tesla 139 00:07:35,200 --> 00:07:38,160 Speaker 1: private doesn't work out. This is something that Max Chafkin, 140 00:07:38,440 --> 00:07:41,520 Speaker 1: features editor at Bloomberg Business Week, writes about. You can 141 00:07:41,560 --> 00:07:44,080 Speaker 1: read Max's story now on the Bloomberg Terminal. Also at 142 00:07:44,080 --> 00:07:46,840 Speaker 1: Bloomberg dot com. Slash A Business Week joining us now 143 00:07:46,960 --> 00:07:50,280 Speaker 1: is editor Joel Webber as well. He is the editor 144 00:07:50,320 --> 00:07:52,080 Speaker 1: of Bloomberg business Week, and he joins us on the 145 00:07:52,120 --> 00:07:56,960 Speaker 1: access line from Brooklyn along with Max. Joel, Uh, before 146 00:07:56,960 --> 00:07:59,800 Speaker 1: we talk about Plan B, we really need to understand 147 00:08:00,000 --> 00:08:03,960 Speaker 1: what's plan as. Yeah, that's a great question. So I 148 00:08:04,240 --> 00:08:07,680 Speaker 1: think we're all still trying to figure that out. But um, 149 00:08:07,720 --> 00:08:11,440 Speaker 1: you know, Ellen obviously has made uh this offer. Uh, 150 00:08:11,560 --> 00:08:14,200 Speaker 1: we'll see if it actually comes to the deal actually 151 00:08:14,200 --> 00:08:16,360 Speaker 1: comes to fruition. In the meantime, you know, the Twitter 152 00:08:16,600 --> 00:08:19,120 Speaker 1: board is opted for a poison pill. So all of 153 00:08:19,120 --> 00:08:23,120 Speaker 1: this very dramatic has played out online, uh since since 154 00:08:23,160 --> 00:08:26,800 Speaker 1: the news broke on on Thursday morning. Um, and you know, 155 00:08:26,840 --> 00:08:28,520 Speaker 1: Max in the middle of it, I'm sort of like, Max, 156 00:08:28,520 --> 00:08:31,360 Speaker 1: what's your taking all of this? And he raises a 157 00:08:31,400 --> 00:08:34,000 Speaker 1: good point, which is, you know, this guy's CEO of 158 00:08:34,040 --> 00:08:37,440 Speaker 1: two publicly traded companies, and you know, like what would 159 00:08:37,480 --> 00:08:41,240 Speaker 1: it be like to have him on a third company? 160 00:08:41,360 --> 00:08:43,240 Speaker 1: You know, like we you know, we don't really know, 161 00:08:43,320 --> 00:08:47,760 Speaker 1: and that that plan A what's it looked like? Max? Yeah, Well, 162 00:08:47,920 --> 00:08:50,920 Speaker 1: as you say, Joel, I mean the previous uh chief 163 00:08:50,920 --> 00:08:54,680 Speaker 1: executive of Twitter was constantly getting hammered by investors for 164 00:08:54,720 --> 00:08:58,040 Speaker 1: having two jobs. Remember Jack Dorsey was the founder of 165 00:08:58,160 --> 00:09:01,880 Speaker 1: co founder of Twitter. Also was uh CEO of Square 166 00:09:01,960 --> 00:09:04,320 Speaker 1: which is now called Block and and and there was 167 00:09:04,360 --> 00:09:06,400 Speaker 1: this whole drama with it with a bunch of activist 168 00:09:06,400 --> 00:09:08,160 Speaker 1: investors over the fact that the two jobs that was 169 00:09:08,280 --> 00:09:11,720 Speaker 1: too many as far as twitters investors are concerned. Elon Musk, 170 00:09:11,880 --> 00:09:13,760 Speaker 1: you know, has something like, you know so many I've 171 00:09:13,840 --> 00:09:15,760 Speaker 1: kind of lost count. Right, you have the two the 172 00:09:15,800 --> 00:09:18,200 Speaker 1: two big ones, plus you have the tunnel thing, you 173 00:09:18,280 --> 00:09:20,360 Speaker 1: have the you know, you have the AI thinks you 174 00:09:20,400 --> 00:09:23,640 Speaker 1: have brain implants. And now he started proposing um to 175 00:09:23,720 --> 00:09:26,280 Speaker 1: take on another job. And I think anyone who who 176 00:09:26,280 --> 00:09:29,160 Speaker 1: watched Um that Ted interview that you that you bring 177 00:09:29,280 --> 00:09:33,120 Speaker 1: up saw, you know, somebody who is very good at, 178 00:09:33,320 --> 00:09:35,960 Speaker 1: you know, generating media attention and getting people to talk 179 00:09:36,000 --> 00:09:38,520 Speaker 1: about him. But but there wasn't really there isn't as 180 00:09:38,559 --> 00:09:41,040 Speaker 1: far as I can tell, any kind of plan um 181 00:09:41,120 --> 00:09:44,319 Speaker 1: either for how Elon Musk will kind of go through 182 00:09:44,400 --> 00:09:47,040 Speaker 1: with this proposed acquisition or what he would do with 183 00:09:47,080 --> 00:09:52,520 Speaker 1: it once he acquires it. Maxie want us through. And 184 00:09:52,600 --> 00:09:54,320 Speaker 1: this is just for the benefit of our listeners what 185 00:09:54,400 --> 00:09:57,320 Speaker 1: a poison pill actually is, because this was referenced multiple 186 00:09:57,320 --> 00:10:00,840 Speaker 1: time in your story. Uh so, yeah, have poison pill 187 00:10:00,960 --> 00:10:05,280 Speaker 1: is basically a way for the Border directors to allow 188 00:10:05,320 --> 00:10:10,440 Speaker 1: other shareholders to acquire shares and essentially dilute, uh, you know, 189 00:10:10,840 --> 00:10:14,720 Speaker 1: dilute the stake of of whoever the attacker is in 190 00:10:14,720 --> 00:10:17,000 Speaker 1: this case, be Elon Musk. And it's it's a way 191 00:10:17,080 --> 00:10:20,640 Speaker 1: to to basically allow the board to keep control of 192 00:10:20,640 --> 00:10:23,280 Speaker 1: the situation and and hopefully as far as they're sort 193 00:10:23,280 --> 00:10:25,200 Speaker 1: of you don't negotiate with Musk and you know, or 194 00:10:25,200 --> 00:10:27,960 Speaker 1: whoever get them to a higher price. UM. This is 195 00:10:27,960 --> 00:10:31,640 Speaker 1: something that's commonly used in UM in these kind of situations. 196 00:10:31,840 --> 00:10:34,160 Speaker 1: And it's also part of what's driving this is because 197 00:10:34,280 --> 00:10:37,400 Speaker 1: Musk's offer, while while it's higher than it will than 198 00:10:37,440 --> 00:10:40,199 Speaker 1: the stock price was when he first you know, started 199 00:10:40,240 --> 00:10:42,920 Speaker 1: investing in Twitter back in March, it's actually quite a 200 00:10:42,920 --> 00:10:45,360 Speaker 1: bit lower than than where the stock was, you know, 201 00:10:45,440 --> 00:10:48,280 Speaker 1: even you know, as as as really as like last fall. 202 00:10:48,640 --> 00:10:50,960 Speaker 1: So so from the Border director's point of view, Elon 203 00:10:51,040 --> 00:10:53,360 Speaker 1: Musk has kind of made a low ball offer, UM, 204 00:10:53,480 --> 00:10:56,600 Speaker 1: and and they want to negotiate, and Musk um it seems, 205 00:10:56,640 --> 00:10:59,040 Speaker 1: you know, rather than trying to negotiate is you know, 206 00:10:59,400 --> 00:11:02,319 Speaker 1: as he does taking this to Twitter and and and um, 207 00:11:02,400 --> 00:11:04,760 Speaker 1: you know, tweeting about the possibility of a tender offer. 208 00:11:04,760 --> 00:11:08,000 Speaker 1: All they didn't seem done anything. Um and and you know, 209 00:11:08,080 --> 00:11:10,360 Speaker 1: suggesting or kind of implying that there might be other 210 00:11:10,360 --> 00:11:13,520 Speaker 1: investors who might join him. But it's all extremely sort 211 00:11:13,520 --> 00:11:16,280 Speaker 1: of theoretical, and it you know, makes for great content, 212 00:11:16,360 --> 00:11:19,160 Speaker 1: but but it's not clear that any of this goes anywhere. Hey, Max, 213 00:11:19,240 --> 00:11:21,400 Speaker 1: I know you did a lot of reporting about Elon 214 00:11:21,480 --> 00:11:23,720 Speaker 1: Musk's early years for your book The con Trary and 215 00:11:23,720 --> 00:11:26,960 Speaker 1: Peter Teal and Silicon Valleys Pursuit of Power. What do 216 00:11:27,040 --> 00:11:29,640 Speaker 1: we know about the way that Elon Musk thinks about 217 00:11:29,720 --> 00:11:32,440 Speaker 1: quote unquote free speech, the way that he perhaps would 218 00:11:32,440 --> 00:11:35,080 Speaker 1: think about rules and regulations when it comes to Twitter 219 00:11:35,160 --> 00:11:38,560 Speaker 1: if he were the person to actually take it over. 220 00:11:39,880 --> 00:11:44,679 Speaker 1: Musk is um has some libertarian tendencies and um, and 221 00:11:44,720 --> 00:11:47,360 Speaker 1: he's he's talked, he talked about them at times. You know. 222 00:11:47,400 --> 00:11:50,520 Speaker 1: On the other hand, Um, he's also somebody who um, 223 00:11:50,600 --> 00:11:53,200 Speaker 1: you know who his sort of main political belief in 224 00:11:53,240 --> 00:11:55,840 Speaker 1: so Fur, you know, has has expressed political beliefs has 225 00:11:55,840 --> 00:11:59,320 Speaker 1: been around climate change, and in particular, you know, government 226 00:11:59,400 --> 00:12:02,800 Speaker 1: support for companies like Tesla that are you know, interested 227 00:12:02,800 --> 00:12:04,720 Speaker 1: in doing something about that, so which is which is 228 00:12:04,720 --> 00:12:07,000 Speaker 1: not very libertarian. I think it's fair to say his 229 00:12:07,480 --> 00:12:10,720 Speaker 1: um political beliefs are are are pretty fuzzy or or 230 00:12:10,800 --> 00:12:13,199 Speaker 1: or you know, this is maybe just not articulated in 231 00:12:13,200 --> 00:12:15,840 Speaker 1: in any kind of like clear way. He's been somebody 232 00:12:15,840 --> 00:12:18,640 Speaker 1: who's been sort of very in favor of helping himself 233 00:12:18,679 --> 00:12:21,960 Speaker 1: and helping his companies and and and starting innovative businesses. 234 00:12:22,000 --> 00:12:25,160 Speaker 1: But but hasn't you know, expressed you know, huge you 235 00:12:25,200 --> 00:12:28,079 Speaker 1: know things on political issues, you know, on free speech. 236 00:12:28,120 --> 00:12:30,280 Speaker 1: I think some of what's going on here with Musk, 237 00:12:30,520 --> 00:12:33,080 Speaker 1: you know, I I think he probably agrees with that 238 00:12:33,200 --> 00:12:36,199 Speaker 1: that general idea. I think he also realizes that there 239 00:12:36,320 --> 00:12:39,680 Speaker 1: is a huge constituency of people out there for this message. 240 00:12:39,720 --> 00:12:41,880 Speaker 1: You know, we're seeing especially on you know, sort of 241 00:12:41,880 --> 00:12:44,800 Speaker 1: like right wing media, right wing talk radio itself and 242 00:12:44,840 --> 00:12:47,600 Speaker 1: so on. There. You know, they're getting very very excited 243 00:12:47,640 --> 00:12:51,040 Speaker 1: about the idea of Elon Musk coming and taking over 244 00:12:51,080 --> 00:12:53,280 Speaker 1: Twitter and making it a free speech social network because 245 00:12:53,280 --> 00:12:55,880 Speaker 1: of course, you know, the subtext is they would allow 246 00:12:55,920 --> 00:12:57,840 Speaker 1: you know, Donald Trump back on the platform, and it 247 00:12:57,880 --> 00:12:59,880 Speaker 1: becomes this kind of um, you know, almost like a 248 00:13:00,040 --> 00:13:04,239 Speaker 1: dog whistle to to get um, you know, get enthusiasm 249 00:13:04,360 --> 00:13:06,560 Speaker 1: from from conservatives. So I think some of that is 250 00:13:06,760 --> 00:13:08,560 Speaker 1: Musk is sort of doing some of that, responding to 251 00:13:08,600 --> 00:13:11,680 Speaker 1: some of that. Remember, he is, you know, an amazing marketer. 252 00:13:11,800 --> 00:13:14,800 Speaker 1: He's somebody who did the impossible with Tesla, where where 253 00:13:14,840 --> 00:13:16,720 Speaker 1: you know, when he started the when he got involved 254 00:13:16,760 --> 00:13:19,000 Speaker 1: in the company, you know, electric cars were seen as 255 00:13:19,000 --> 00:13:21,440 Speaker 1: this kind of wimpy thing that they were not capable, 256 00:13:21,720 --> 00:13:25,520 Speaker 1: and he's you know, created this enormous automaker, you know, 257 00:13:25,559 --> 00:13:28,400 Speaker 1: one of the best selling um cars in the world 258 00:13:28,440 --> 00:13:31,560 Speaker 1: at this point and um, and he's done that by 259 00:13:31,760 --> 00:13:34,080 Speaker 1: by with his amazing marketing. And I think we're seeing 260 00:13:34,320 --> 00:13:36,240 Speaker 1: some of that playing out in real time where where 261 00:13:36,240 --> 00:13:38,839 Speaker 1: Elon must have kind of found a new way to 262 00:13:38,840 --> 00:13:41,560 Speaker 1: to to generate attention and you know, maybe it ends 263 00:13:41,559 --> 00:13:44,240 Speaker 1: with him, um, you know, taking over Twitter or something, 264 00:13:44,440 --> 00:13:46,800 Speaker 1: but it may also just end as another one of 265 00:13:46,840 --> 00:13:50,800 Speaker 1: these you know, crazy uh episodes in the Elon reality show, 266 00:13:51,840 --> 00:13:54,320 Speaker 1: which I guess Max, you know it raises I mean, 267 00:13:54,320 --> 00:13:56,960 Speaker 1: you've you've so elegantly explained sort of master plan and 268 00:13:57,000 --> 00:14:02,720 Speaker 1: there has always been this master plan, right like electrified vehicles, ads, 269 00:14:02,800 --> 00:14:06,720 Speaker 1: solar like it all kind of made sense. How does 270 00:14:06,760 --> 00:14:09,800 Speaker 1: Twitter fit into that? If at all, it doesn't fit 271 00:14:09,800 --> 00:14:12,200 Speaker 1: into it. That's what's so strange about this. I mean, 272 00:14:12,320 --> 00:14:15,760 Speaker 1: Musk has, as you say, Joel, you know, been super 273 00:14:15,880 --> 00:14:19,080 Speaker 1: articulate on the on sort of the subject of of 274 00:14:19,080 --> 00:14:23,080 Speaker 1: of SpaceX and Tesla, and he's he's he's he's been 275 00:14:23,200 --> 00:14:25,560 Speaker 1: he's been very clear that what he's trying to do is, 276 00:14:25,840 --> 00:14:29,720 Speaker 1: you know, accelerate the development of green technologies. That's with 277 00:14:29,760 --> 00:14:32,960 Speaker 1: with Tesla, with SpaceX is rock company. It's um, create 278 00:14:33,040 --> 00:14:36,920 Speaker 1: these capabilities that will help you know, our our civilization, uh, 279 00:14:37,000 --> 00:14:40,000 Speaker 1: survive in the event of something something terrible happening. And 280 00:14:40,000 --> 00:14:43,080 Speaker 1: and those goals you know, are are very lofty and 281 00:14:43,080 --> 00:14:47,120 Speaker 1: and they've gotten you know, his fans very excited with Twitter. 282 00:14:48,280 --> 00:14:50,640 Speaker 1: If you're paying attention to that interview at Ted, you know, 283 00:14:50,720 --> 00:14:54,520 Speaker 1: he tried. He he said that you know, Twitter, if it, 284 00:14:54,640 --> 00:14:56,240 Speaker 1: if it has free speech, it will be able to 285 00:14:56,280 --> 00:14:59,520 Speaker 1: preserve global freedom or something like that. Um And so 286 00:15:00,240 --> 00:15:02,400 Speaker 1: maybe he'll be able to kind of stitch it all together. 287 00:15:02,720 --> 00:15:06,320 Speaker 1: But I think the main reason to be skeptical of Musks, 288 00:15:06,400 --> 00:15:09,720 Speaker 1: ever bail, is that they don't really fit into this 289 00:15:09,880 --> 00:15:12,240 Speaker 1: mass plan. Oh it is a great read, and check 290 00:15:12,240 --> 00:15:14,840 Speaker 1: it out. It's online, It's on the Bloomberg terminal. Max Chafkin, 291 00:15:14,880 --> 00:15:18,040 Speaker 1: Features editor for Bloomberg business Week. He's also the author 292 00:15:18,040 --> 00:15:20,680 Speaker 1: of The Contrarian Peter Teel and Silicon Valley's Pursuit of Power. 293 00:15:20,960 --> 00:15:24,080 Speaker 1: Also Joe Webber, editor at Bloomberg Business Week. You're listening 294 00:15:24,080 --> 00:15:29,160 Speaker 1: to Bloomberg Radio. You're listening to Bloomberg Business Week with 295 00:15:29,240 --> 00:15:34,520 Speaker 1: Carol Messer and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. Well, 296 00:15:34,520 --> 00:15:37,120 Speaker 1: it's not just tax Day, but it's also Earth Month 297 00:15:37,160 --> 00:15:40,320 Speaker 1: because Earth Day is coming up, and we think a 298 00:15:40,320 --> 00:15:42,600 Speaker 1: lot about I think the products that we use, and 299 00:15:42,640 --> 00:15:45,680 Speaker 1: increasingly consumers are thinking about the products that they use 300 00:15:45,920 --> 00:15:48,120 Speaker 1: when it comes to their impact on the environment. And 301 00:15:48,280 --> 00:15:51,200 Speaker 1: one company that was relatively early to the way the 302 00:15:51,280 --> 00:15:55,000 Speaker 1: consumers think is Seventh Generation. They make household and personal 303 00:15:55,040 --> 00:15:58,000 Speaker 1: care products companies. It was it was acquired by Uni 304 00:15:58,040 --> 00:16:00,640 Speaker 1: Lever back in and we're pleased to have back with us. 305 00:16:00,840 --> 00:16:04,200 Speaker 1: Allison Wrightner, she's CEO of Seventh Generation. She joins us 306 00:16:04,280 --> 00:16:08,040 Speaker 1: via zoom from Burlington, Vermont. Alison, how are you hi? 307 00:16:08,080 --> 00:16:10,760 Speaker 1: How are you. Thank you so much for having me back. Hey, 308 00:16:10,760 --> 00:16:12,400 Speaker 1: it's good. Good to have you with us. I do 309 00:16:12,480 --> 00:16:14,120 Speaker 1: want to just quickly say we did try to have 310 00:16:14,160 --> 00:16:16,680 Speaker 1: you last week. There were some problems with the telephone. 311 00:16:17,080 --> 00:16:19,840 Speaker 1: Maybe the cell service in Burlington wasn't so fantastic. So 312 00:16:19,840 --> 00:16:22,440 Speaker 1: we apologize to our viewers and our listeners, and we 313 00:16:22,480 --> 00:16:24,720 Speaker 1: are really glad to have you back with us. Um, 314 00:16:24,720 --> 00:16:26,200 Speaker 1: give us an update on how things are going at 315 00:16:26,200 --> 00:16:28,600 Speaker 1: seventh generation and what you're seeing, because we talk a 316 00:16:28,640 --> 00:16:31,280 Speaker 1: lot about inflation. This is the probably the word that 317 00:16:31,280 --> 00:16:33,680 Speaker 1: I say the most apart from Bloomberg, every single day. 318 00:16:34,080 --> 00:16:35,720 Speaker 1: And I got to ask you, You've been at seventh 319 00:16:35,720 --> 00:16:39,000 Speaker 1: generation for years now, more than a decade, and I'm 320 00:16:39,000 --> 00:16:43,160 Speaker 1: wondering if you've ever seen the raw materials costs that 321 00:16:43,200 --> 00:16:47,520 Speaker 1: go into seventh generation products rise like they are right now. Yeah, 322 00:16:47,640 --> 00:16:50,120 Speaker 1: So if I could have a penny like you for 323 00:16:50,200 --> 00:16:52,920 Speaker 1: every time I've said inflation over the course of the 324 00:16:53,040 --> 00:16:56,600 Speaker 1: last year. It's a kind of a running joke these days. 325 00:16:56,600 --> 00:16:58,800 Speaker 1: But what I will tell you is that we are 326 00:16:58,880 --> 00:17:01,480 Speaker 1: not a mute I think like many companies right now, 327 00:17:01,600 --> 00:17:04,920 Speaker 1: especially in the categories that we operate in, we are 328 00:17:04,960 --> 00:17:08,760 Speaker 1: seeing a true on cost of materials and commodities that 329 00:17:08,800 --> 00:17:11,920 Speaker 1: we've never seen before. UM. But I think for our 330 00:17:11,960 --> 00:17:15,840 Speaker 1: business specifically, UM, we're moving along the same lines as 331 00:17:15,840 --> 00:17:18,520 Speaker 1: our category and our counterparts. So I think we're all 332 00:17:18,520 --> 00:17:22,000 Speaker 1: in this together and for seven times specifically, I think 333 00:17:22,080 --> 00:17:25,119 Speaker 1: what this conversation around how we show up in market 334 00:17:25,200 --> 00:17:28,440 Speaker 1: and the cost of doing business these days has really 335 00:17:28,440 --> 00:17:31,440 Speaker 1: brought to the table an important question around what choices 336 00:17:31,560 --> 00:17:33,879 Speaker 1: do we need to make in order to protect what 337 00:17:33,960 --> 00:17:38,000 Speaker 1: we stand for. We invest significantly in materials like plant 338 00:17:38,040 --> 00:17:42,200 Speaker 1: based ingredients and post consumer recycled materials, all of which 339 00:17:42,240 --> 00:17:45,120 Speaker 1: is an on cost for us, especially in today's environment. 340 00:17:45,240 --> 00:17:47,560 Speaker 1: So we're doing everything we can to make sure that 341 00:17:47,600 --> 00:17:50,760 Speaker 1: our point of difference remains strong and true during these 342 00:17:50,760 --> 00:17:54,240 Speaker 1: really volatile times. Talk to us a little bit about 343 00:17:54,359 --> 00:17:56,520 Speaker 1: the costs of it, because I think when people think 344 00:17:56,560 --> 00:18:00,800 Speaker 1: about green products or organic products, or just products that 345 00:18:00,800 --> 00:18:03,000 Speaker 1: are prepaps mainly the United States and help the environment, 346 00:18:03,520 --> 00:18:05,840 Speaker 1: a lot of people kind of associate that with Okay, 347 00:18:05,840 --> 00:18:08,320 Speaker 1: well that's going to cost more. Talk to us about that. 348 00:18:08,560 --> 00:18:11,880 Speaker 1: Are they wrong to think that? Sure? So I will 349 00:18:11,960 --> 00:18:14,600 Speaker 1: say the strategy of our company is to make sure 350 00:18:14,720 --> 00:18:18,600 Speaker 1: that everyday household materials made with better for you ingredients 351 00:18:18,640 --> 00:18:22,400 Speaker 1: like plant based ingredients are at an accessible price. So 352 00:18:22,560 --> 00:18:25,399 Speaker 1: it's our hope to dispel that myth that you know, 353 00:18:25,480 --> 00:18:28,080 Speaker 1: to buy a natural product means you need to pay more. 354 00:18:28,560 --> 00:18:30,840 Speaker 1: But well, what I will say is that the ingredients 355 00:18:30,880 --> 00:18:34,119 Speaker 1: that we put into our products do cost more than 356 00:18:34,160 --> 00:18:36,919 Speaker 1: the average materials, and the reason why is that they 357 00:18:36,920 --> 00:18:39,919 Speaker 1: haven't scaled yet. Right, So, I think there's more virgin 358 00:18:39,960 --> 00:18:44,160 Speaker 1: plastic available today than post consumer recycled plastic, and so 359 00:18:44,200 --> 00:18:46,920 Speaker 1: our hope is that as these ingredients scale and more 360 00:18:46,960 --> 00:18:49,880 Speaker 1: and more companies are using them, actually the cost would 361 00:18:49,920 --> 00:18:54,280 Speaker 1: go down. Alison, I'm wondering about the equation that you 362 00:18:54,359 --> 00:18:57,359 Speaker 1: and your team do when it comes to rising costs 363 00:18:57,600 --> 00:19:01,040 Speaker 1: and consumer appetite for those rising costs. We talk about 364 00:19:01,040 --> 00:19:04,800 Speaker 1: inflation hating consumers at the gas pump, at the restaurants 365 00:19:04,800 --> 00:19:06,760 Speaker 1: they go to, at the grocery store, and certainly on 366 00:19:06,800 --> 00:19:09,840 Speaker 1: the aisles when they're buying cleaning products. At what point 367 00:19:10,080 --> 00:19:12,439 Speaker 1: do the does the premium that's put on a product 368 00:19:12,440 --> 00:19:15,879 Speaker 1: like seventh generation cause a consumer to think twice and 369 00:19:16,240 --> 00:19:19,040 Speaker 1: go to that one that's not necessarily made with plant 370 00:19:19,040 --> 00:19:23,360 Speaker 1: based ingredients. What's the calculation there. Yeah, so it's it's 371 00:19:23,400 --> 00:19:25,560 Speaker 1: a great question and one that we've spent again a 372 00:19:25,600 --> 00:19:28,560 Speaker 1: lot of time really wrestling with here at seventh Generation 373 00:19:28,640 --> 00:19:30,720 Speaker 1: over the year. And what I will say is our 374 00:19:30,880 --> 00:19:35,600 Speaker 1: number one priority today is the quality of the product itself. Um. 375 00:19:35,680 --> 00:19:38,680 Speaker 1: So when we look at the value equation about our investments, 376 00:19:38,960 --> 00:19:41,000 Speaker 1: I think we look at the full funnel. And so 377 00:19:41,119 --> 00:19:43,440 Speaker 1: for us to make sure that we are keeping our 378 00:19:43,480 --> 00:19:47,359 Speaker 1: products at an approachable price point without sacrificing ingredients, it 379 00:19:47,400 --> 00:19:50,080 Speaker 1: means we might spend a little less on marketing or 380 00:19:50,080 --> 00:19:52,520 Speaker 1: advertising throughout the course of the year, but we know 381 00:19:52,720 --> 00:19:56,320 Speaker 1: our product really stands um and works the way consumers 382 00:19:56,359 --> 00:20:01,480 Speaker 1: expected to. There we go sorry about that else and 383 00:20:01,520 --> 00:20:04,000 Speaker 1: talk to us a little bit about not just your business, 384 00:20:04,000 --> 00:20:07,480 Speaker 1: but businesses broadly. How can they fight against climate change? 385 00:20:07,480 --> 00:20:10,160 Speaker 1: Is there's something that kind of applies or rule thumb 386 00:20:10,160 --> 00:20:13,720 Speaker 1: that applies to business broadly? How, yes, I mean, business 387 00:20:13,800 --> 00:20:16,320 Speaker 1: is going to be what changes our future. I deeply 388 00:20:16,359 --> 00:20:18,480 Speaker 1: believe in that. It's one of the key reasons that 389 00:20:18,680 --> 00:20:21,120 Speaker 1: I came to seven Gen a decade ago is that 390 00:20:21,359 --> 00:20:24,000 Speaker 1: I believe business is the force of good and really 391 00:20:24,000 --> 00:20:26,800 Speaker 1: can drive that change. You know, I think two key 392 00:20:26,840 --> 00:20:29,920 Speaker 1: things that I would that we are looking at right now. One, 393 00:20:30,119 --> 00:20:32,880 Speaker 1: I think um really the call to action in our 394 00:20:33,000 --> 00:20:36,520 Speaker 1: industry to drive concentrated products. And so what I mean 395 00:20:36,560 --> 00:20:39,360 Speaker 1: by that is at home care specifically, there's a ton 396 00:20:39,359 --> 00:20:41,919 Speaker 1: of waste. When you walk down the logic detergent aisle, 397 00:20:42,000 --> 00:20:44,679 Speaker 1: I think you see these big plastic jugs filled with 398 00:20:44,720 --> 00:20:47,960 Speaker 1: water and ingredients, and so we have a huge opportunity 399 00:20:48,000 --> 00:20:51,880 Speaker 1: to really change how consumers behave and buy, and collectively, 400 00:20:52,000 --> 00:20:55,200 Speaker 1: both myself and my competitors make sure that we're driving 401 00:20:55,200 --> 00:20:59,400 Speaker 1: consumers towards much smaller, yet still performing products. And so 402 00:20:59,440 --> 00:21:02,520 Speaker 1: that's really what we're focused on from an industry perspective. 403 00:21:03,000 --> 00:21:05,240 Speaker 1: The other call to action right now is making sure 404 00:21:05,280 --> 00:21:08,200 Speaker 1: that we are all doing our part to educate consumers. 405 00:21:08,240 --> 00:21:11,120 Speaker 1: I think none of this is possible unless consumers are 406 00:21:11,160 --> 00:21:15,000 Speaker 1: really making different choices at home. And also you think 407 00:21:15,040 --> 00:21:17,800 Speaker 1: their voice and their vote to make sure that we 408 00:21:17,840 --> 00:21:21,960 Speaker 1: are making a just transition to clean energy. We we 409 00:21:22,119 --> 00:21:24,159 Speaker 1: only have like ten seconds for this last question, But 410 00:21:24,160 --> 00:21:26,760 Speaker 1: how do you start shopping marketing team lead and become 411 00:21:26,840 --> 00:21:31,360 Speaker 1: CEO in ten years ten seconds? You believe in what 412 00:21:31,440 --> 00:21:34,080 Speaker 1: you stand for. I think what brought me here ten 413 00:21:34,160 --> 00:21:37,680 Speaker 1: years ago with belief that business could be done differently 414 00:21:37,680 --> 00:21:40,679 Speaker 1: in passion for this space, and that's given me tons 415 00:21:40,680 --> 00:21:43,800 Speaker 1: of different experiences here over the last ten years. And 416 00:21:43,840 --> 00:21:47,000 Speaker 1: so just keep believing in what you're doing, um and 417 00:21:47,040 --> 00:21:49,240 Speaker 1: make sure you're learning along the way. Allison right in, 418 00:21:49,240 --> 00:21:52,360 Speaker 1: their chief executive officer at Seventh Generation, joining us via 419 00:21:52,400 --> 00:21:55,119 Speaker 1: zoom from Burlington, Vermont. Really great to have you on 420 00:21:55,160 --> 00:21:58,199 Speaker 1: the program. Allison. You're listening to Bloomberg Business Week. This 421 00:21:58,440 --> 00:22:04,000 Speaker 1: is Bloomberg Radio. Yeah, I'll bet you let me drive. 422 00:22:04,240 --> 00:22:12,840 Speaker 1: Oh no, no, no no, no, honey, please, I want to drive. 423 00:22:11,560 --> 00:22:19,919 Speaker 1: It's a good question. This is good Drive to the 424 00:22:20,000 --> 00:22:26,479 Speaker 1: Clothes music on Bluebird Radio. Well, we've already made it 425 00:22:26,600 --> 00:22:28,880 Speaker 1: to the Drive to the close just about ten minutes ago. 426 00:22:29,200 --> 00:22:31,720 Speaker 1: In today's trade volume is still light. We are seeing 427 00:22:31,760 --> 00:22:35,040 Speaker 1: some selling into the clothes on this April eighteenth. Let's 428 00:22:35,040 --> 00:22:38,120 Speaker 1: get into it with Leo Kelly, founder and CEO at 429 00:22:38,280 --> 00:22:41,240 Speaker 1: Verden's Capital Advisors. Leo joins us once again on the 430 00:22:41,240 --> 00:22:43,800 Speaker 1: phone from Hunt Valley, Maryland. Leo, we haven't spoken since 431 00:22:43,840 --> 00:22:47,200 Speaker 1: the end of last year. How are you all right? Well? Thanks, 432 00:22:47,280 --> 00:22:48,960 Speaker 1: good to be on the show. Guys, it's good to 433 00:22:48,960 --> 00:22:51,360 Speaker 1: have you back with us. Uh. The first quarter, as 434 00:22:51,359 --> 00:22:54,280 Speaker 1: you write, thanks to our notes from our producer Paul Brennan, Well, 435 00:22:54,400 --> 00:22:56,639 Speaker 1: it was miserable, but you say it shouldn't have been 436 00:22:56,640 --> 00:22:58,680 Speaker 1: a surprise. You kind of called it to us back 437 00:22:58,680 --> 00:23:01,920 Speaker 1: in December. Um, what about the second quarter. We're starting 438 00:23:01,960 --> 00:23:04,199 Speaker 1: to hear from companies right now how they did in 439 00:23:04,200 --> 00:23:06,399 Speaker 1: the first quarter, their outlook for the year, for the 440 00:23:06,400 --> 00:23:10,080 Speaker 1: remainder of the quarter. How should investors be thinking, Well, 441 00:23:10,119 --> 00:23:13,080 Speaker 1: I think investors need to start to come to grips 442 00:23:13,119 --> 00:23:16,320 Speaker 1: with the fact that volatility is going to be back, 443 00:23:16,400 --> 00:23:19,680 Speaker 1: and not the kind of volatility you see once every 444 00:23:19,720 --> 00:23:22,199 Speaker 1: couple of years when we have a bear market, but 445 00:23:23,040 --> 00:23:27,200 Speaker 1: sustain volatility, and that we are going to have a 446 00:23:27,280 --> 00:23:30,840 Speaker 1: secular change in interest rates in front of us, and 447 00:23:30,920 --> 00:23:33,800 Speaker 1: that's going to create a more violatle market environment. So 448 00:23:33,920 --> 00:23:38,960 Speaker 1: it's gonna be this tug and pull between earnings UM 449 00:23:39,040 --> 00:23:42,200 Speaker 1: and the strength of the consumer versus inflation and higher 450 00:23:42,240 --> 00:23:46,120 Speaker 1: interest rates and higher energy prices. So I would say 451 00:23:46,280 --> 00:23:49,120 Speaker 1: get ready for a voltal year. I feel like it's 452 00:23:49,160 --> 00:23:52,520 Speaker 1: pretty consensus to say that inflation is going to stick around. 453 00:23:52,520 --> 00:23:55,600 Speaker 1: It's going to be persistent, um at least uh. Even 454 00:23:55,640 --> 00:23:58,680 Speaker 1: after peaks, it will remain quite elevated for years and years. 455 00:23:58,840 --> 00:24:02,680 Speaker 1: I'm curious though, what happens afterwards. Are we looking at 456 00:24:03,240 --> 00:24:07,159 Speaker 1: a steve drop in consumer prices? Are we looking at deflation? 457 00:24:07,880 --> 00:24:12,800 Speaker 1: What do you see past the current status quo? Well, yeah, 458 00:24:12,880 --> 00:24:15,760 Speaker 1: it's it's consensus now. I mean we we've been kind, 459 00:24:16,560 --> 00:24:18,879 Speaker 1: we've been growing for about a couple of years. That 460 00:24:18,920 --> 00:24:22,560 Speaker 1: inflation is here and it's not transitory. And I would 461 00:24:22,680 --> 00:24:28,200 Speaker 1: say that that everyone's jumping on the bandwagon today. That said, again, 462 00:24:28,280 --> 00:24:30,920 Speaker 1: we think this is more of a secular change. There 463 00:24:31,040 --> 00:24:35,040 Speaker 1: is so much capital flooding the system that I think 464 00:24:35,080 --> 00:24:37,360 Speaker 1: folks got lulled to sleep with this one to two 465 00:24:37,400 --> 00:24:41,760 Speaker 1: percent inflation that went on for decades, and so with 466 00:24:41,760 --> 00:24:45,000 Speaker 1: with the low supply and the high demand and the 467 00:24:45,040 --> 00:24:48,960 Speaker 1: massive capital inflow, I think we could see inflation at 468 00:24:49,080 --> 00:24:54,080 Speaker 1: higher elevated levels for a for the foreseeable future. Now 469 00:24:54,119 --> 00:24:57,280 Speaker 1: that doesn't mean eight percent inflation. That may mean three 470 00:24:57,320 --> 00:24:59,600 Speaker 1: to four when we're used to one to two, but 471 00:24:59,760 --> 00:25:04,040 Speaker 1: that it is an insidious tax on the consumer, and 472 00:25:04,080 --> 00:25:06,399 Speaker 1: that can have an impact over the long over the 473 00:25:06,400 --> 00:25:09,560 Speaker 1: long haul. Now, all that said, that's not necessarily good 474 00:25:09,680 --> 00:25:14,200 Speaker 1: or bad inflation if you can, if it's meeting expectations, 475 00:25:14,240 --> 00:25:17,240 Speaker 1: you can invest in front of inflation and you can 476 00:25:17,240 --> 00:25:20,760 Speaker 1: still make money. It's just when inflation surprises you, like 477 00:25:20,840 --> 00:25:23,040 Speaker 1: it has in the last year with the level that 478 00:25:23,119 --> 00:25:25,240 Speaker 1: it's reached, that becomes a problem. So what would you 479 00:25:25,240 --> 00:25:27,280 Speaker 1: say to our audience right now, who is of course 480 00:25:27,359 --> 00:25:29,879 Speaker 1: looking to make money. What's the recommendation that you have 481 00:25:29,960 --> 00:25:33,160 Speaker 1: in this inflationary environment? How should they trade it? Well, 482 00:25:33,160 --> 00:25:34,600 Speaker 1: I think the first thing you have to do if 483 00:25:34,640 --> 00:25:37,760 Speaker 1: you're an investor today is you have to realize is 484 00:25:37,840 --> 00:25:40,520 Speaker 1: that which has worked in the past doesn't necessarily work 485 00:25:40,560 --> 00:25:44,080 Speaker 1: in the future. And if we're going to enter into 486 00:25:44,119 --> 00:25:47,399 Speaker 1: a secular change in the market. Remember we've been in 487 00:25:47,440 --> 00:25:53,639 Speaker 1: a bond bull market since forty year bull market, and 488 00:25:53,680 --> 00:25:56,959 Speaker 1: so if interest rates start to climb and inflation remains persistent, 489 00:25:57,640 --> 00:26:00,920 Speaker 1: then things are going to change dramatically over the next 490 00:26:01,119 --> 00:26:04,919 Speaker 1: period and the next secular cycle. And that means just 491 00:26:05,480 --> 00:26:08,800 Speaker 1: putting money blindly into growth stocks and they magically go up. 492 00:26:09,240 --> 00:26:12,360 Speaker 1: Passive investing. Those are things that have worked. Well. We're 493 00:26:12,400 --> 00:26:15,919 Speaker 1: going into a different time period. We're gonna need active investing. 494 00:26:16,359 --> 00:26:20,560 Speaker 1: We're going to have to look for inflation sensitive investments 495 00:26:20,680 --> 00:26:25,879 Speaker 1: like financials and commodities and energy and industrials, but also 496 00:26:26,400 --> 00:26:30,679 Speaker 1: small verses, large and international. Over the US um you're 497 00:26:30,720 --> 00:26:33,440 Speaker 1: gonna have to be very careful with your fixed income portfolios. 498 00:26:33,480 --> 00:26:35,679 Speaker 1: You can't just you can't just go buy the highest 499 00:26:35,640 --> 00:26:38,240 Speaker 1: shield anymore. You have to be aware of duration risk. 500 00:26:38,560 --> 00:26:41,360 Speaker 1: There's a lot happening here as a result of this change, 501 00:26:41,960 --> 00:26:46,720 Speaker 1: and given the current policy environment and temperature, I don't 502 00:26:46,720 --> 00:26:50,800 Speaker 1: think that's going to change anytime soon. One of the 503 00:26:50,880 --> 00:26:53,160 Speaker 1: pieces of commentary we got this morning was from Jon 504 00:26:53,240 --> 00:26:57,000 Speaker 1: hat C. S Overck Coleman Sacks. He predicted odds of 505 00:26:57,000 --> 00:27:00,040 Speaker 1: a recession in the next two years, and in the 506 00:27:00,080 --> 00:27:02,840 Speaker 1: reasoning for his argument was that or one of the 507 00:27:02,880 --> 00:27:05,640 Speaker 1: reasoning for his argument was and the last fourteen tightening 508 00:27:05,640 --> 00:27:08,200 Speaker 1: cycles we've seen since the end of World War two, 509 00:27:08,560 --> 00:27:11,919 Speaker 1: eleven have seen a recession in the last two years. 510 00:27:12,119 --> 00:27:14,960 Speaker 1: What it doesn't take into account is the tightening cycle 511 00:27:15,000 --> 00:27:18,600 Speaker 1: we saw post financial crisis and oh eight uh, and 512 00:27:18,640 --> 00:27:21,240 Speaker 1: a lot of that takes into account. Quie talked to 513 00:27:21,320 --> 00:27:24,320 Speaker 1: us a little bit about the precedent or we should 514 00:27:24,320 --> 00:27:27,280 Speaker 1: follow when it comes to predicting what this next tightening 515 00:27:27,280 --> 00:27:30,240 Speaker 1: cycle is going to look like in terms of risk assets, 516 00:27:30,400 --> 00:27:35,199 Speaker 1: do we follow the nineteen model where stocks rallied or 517 00:27:35,240 --> 00:27:38,280 Speaker 1: do we follow the historical trend, which is um a 518 00:27:38,359 --> 00:27:40,920 Speaker 1: recession in the next two years, and of course markets 519 00:27:41,200 --> 00:27:44,119 Speaker 1: pricing then in well, I think you hit it on 520 00:27:44,160 --> 00:27:45,520 Speaker 1: the head. I don't. I don't think you can look 521 00:27:45,520 --> 00:27:47,400 Speaker 1: at this in a vacuum and say, if the FED 522 00:27:47,600 --> 00:27:50,000 Speaker 1: is tightening, then we're going into recession. You have to 523 00:27:50,040 --> 00:27:53,359 Speaker 1: put it up against several other factors. At the end 524 00:27:53,359 --> 00:27:56,960 Speaker 1: of the day, when the cost of capital exceeds the 525 00:27:57,040 --> 00:28:00,720 Speaker 1: return on investment capital, you're gonna head into over session. 526 00:28:01,440 --> 00:28:05,119 Speaker 1: And so when we look at cost of capital inputs today, 527 00:28:05,600 --> 00:28:08,920 Speaker 1: interest rates are climbing quickly, I don't think. I don't 528 00:28:08,960 --> 00:28:11,919 Speaker 1: think we fully appreciate we just went from the tenure 529 00:28:12,000 --> 00:28:15,080 Speaker 1: at point five to almost three percent here in a 530 00:28:15,119 --> 00:28:18,719 Speaker 1: reasonably short period of time. The FED is behind the curve, 531 00:28:19,320 --> 00:28:22,120 Speaker 1: so they have to catch up to what is very 532 00:28:22,240 --> 00:28:26,439 Speaker 1: quickly getting out of their hand inflation, and add to 533 00:28:26,520 --> 00:28:32,240 Speaker 1: that high energy prices, higher interest rates, higher wage inflation. 534 00:28:32,400 --> 00:28:34,560 Speaker 1: It's all in front of us. So I don't think 535 00:28:34,560 --> 00:28:37,040 Speaker 1: it's just the one input of the FED. I think 536 00:28:37,119 --> 00:28:40,880 Speaker 1: it's the FED catching up to a lot of other inputs. Now, again, 537 00:28:40,960 --> 00:28:44,640 Speaker 1: you have to offset this against trillions of dollars of 538 00:28:44,680 --> 00:28:47,560 Speaker 1: capital which was poured into the system, and it is 539 00:28:47,600 --> 00:28:51,000 Speaker 1: in the consumers hands. The consumer's net worth is higher 540 00:28:51,040 --> 00:28:53,840 Speaker 1: because their four wing k's are higher and their houses 541 00:28:53,880 --> 00:28:57,360 Speaker 1: are worth more. So you have some positive news. We 542 00:28:57,440 --> 00:29:00,200 Speaker 1: have to rebuild inventories, I should say, for so we 543 00:29:00,200 --> 00:29:01,720 Speaker 1: have to catch up to demand. Right first, we have 544 00:29:01,760 --> 00:29:03,320 Speaker 1: to get to a point where you're not waiting nine 545 00:29:03,360 --> 00:29:06,280 Speaker 1: months for a washing machine or a bicycle. Once we 546 00:29:06,360 --> 00:29:09,720 Speaker 1: hit there, then we have to rebuild inventories. So there's 547 00:29:09,760 --> 00:29:15,560 Speaker 1: a demand strength and that wave is crashing against inflation 548 00:29:15,800 --> 00:29:19,240 Speaker 1: and higher input costs. That's why we think there's volatility. 549 00:29:19,320 --> 00:29:21,880 Speaker 1: And yes, that's why I think there's a legitimate chance 550 00:29:21,880 --> 00:29:24,360 Speaker 1: of a recession. I kind of agree with that time frame. 551 00:29:24,680 --> 00:29:28,120 Speaker 1: I don't. We're not calling for that, but it's something 552 00:29:28,160 --> 00:29:31,480 Speaker 1: that we're looking at. So you just mentioned record liquidity, 553 00:29:31,720 --> 00:29:35,680 Speaker 1: record stimulus pumped into American consumers, pumped into the market. 554 00:29:35,760 --> 00:29:40,520 Speaker 1: Doesn't that arm the consumer with the ability to weather 555 00:29:40,800 --> 00:29:45,120 Speaker 1: this inflation? Well, sure arms the arms the consumer, but 556 00:29:45,160 --> 00:29:49,640 Speaker 1: they're also going into um a market with significantly higher 557 00:29:49,680 --> 00:29:53,160 Speaker 1: prices and higher input costs. So you're exactly correct. That 558 00:29:53,320 --> 00:29:56,520 Speaker 1: is the tug on one side, and and and the 559 00:29:56,560 --> 00:29:59,680 Speaker 1: push on the other is that the consumer has capital. 560 00:29:59,720 --> 00:30:03,000 Speaker 1: Now we are seeing consumer credit card debt rise. The 561 00:30:03,040 --> 00:30:05,640 Speaker 1: consumer savings rate went from its peak in the twenties 562 00:30:05,720 --> 00:30:08,120 Speaker 1: store and COVID down to about six which is normal, 563 00:30:08,200 --> 00:30:12,120 Speaker 1: and it is falling. So the consumer is spending that money. 564 00:30:12,360 --> 00:30:16,920 Speaker 1: And again we can't keep just keep pouring demand. If 565 00:30:16,960 --> 00:30:19,920 Speaker 1: you think about it logically, we have a problem where 566 00:30:19,920 --> 00:30:23,200 Speaker 1: we have too much money and too much demand chasing 567 00:30:23,240 --> 00:30:25,240 Speaker 1: too few good slash too much supply because of the 568 00:30:25,280 --> 00:30:30,120 Speaker 1: supply chain disruption and input costs. So so far the 569 00:30:30,160 --> 00:30:34,280 Speaker 1: current policy, both fiscal and monetary, is to increase demand. 570 00:30:34,880 --> 00:30:37,560 Speaker 1: You have too much demand and the current policies to 571 00:30:37,600 --> 00:30:40,200 Speaker 1: increase demand. So we have to get that under control 572 00:30:40,880 --> 00:30:44,320 Speaker 1: and we have to get our our supply, our supply 573 00:30:44,440 --> 00:30:47,400 Speaker 1: demand current back into balance. Leo Kelly always great to 574 00:30:47,440 --> 00:30:49,120 Speaker 1: chat with you. Thank you so much for joining us 575 00:30:49,120 --> 00:30:51,360 Speaker 1: on Bloomberg Business Week and our countdown to the close. 576 00:30:51,640 --> 00:30:55,600 Speaker 1: Leo Kelly's founder and CEO Adverdence Capital Advisors. He joins 577 00:30:55,680 --> 00:30:59,840 Speaker 1: us on the Access line from Hunt Valley, Maryland. Thanks 578 00:30:59,840 --> 00:31:03,719 Speaker 1: for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, 579 00:31:03,840 --> 00:31:06,000 Speaker 1: or Bloomberg dot com, and you can also listen to 580 00:31:06,000 --> 00:31:08,560 Speaker 1: our radio show at two pm Eastern on Bloomberg Radio 581 00:31:08,720 --> 00:31:11,480 Speaker 1: or watch us on YouTube. Search to Bloomberg Global News