1 00:00:00,400 --> 00:00:04,080 Speaker 1: Strap on your parachute. Is time for What Goes Up 2 00:00:04,120 --> 00:00:14,200 Speaker 1: with Sarah Ponzick and Mike Reagan. Hello, and welcome to 3 00:00:14,280 --> 00:00:18,480 Speaker 1: What goes Up, a Bloomberg Weekly Markets podcast. I'm Sarah Ponzek, 4 00:00:18,640 --> 00:00:21,800 Speaker 1: a reporter on the Cross Asset team, and I'm Mike Reagan, 5 00:00:21,960 --> 00:00:24,800 Speaker 1: a senior editor at Bloomberg. And you can think of 6 00:00:24,800 --> 00:00:27,800 Speaker 1: me as the captain to Sarah's toneel. You might have 7 00:00:27,840 --> 00:00:29,840 Speaker 1: to google that one, Sarah, I absolutely will have to 8 00:00:29,840 --> 00:00:32,960 Speaker 1: google that before your time. But this week on the show, 9 00:00:33,360 --> 00:00:37,080 Speaker 1: eight months into I can't believe it, Mike, but it's 10 00:00:37,120 --> 00:00:40,600 Speaker 1: time to debrief. To do that, we're joined by Goldman Sachs, 11 00:00:40,680 --> 00:00:44,760 Speaker 1: Asset Management's co head of Fundamental Equity, to discuss how 12 00:00:44,800 --> 00:00:47,320 Speaker 1: the firm has approached the year and also how it's 13 00:00:47,360 --> 00:00:50,440 Speaker 1: positions for the future, And of course we will close 14 00:00:50,479 --> 00:00:53,800 Speaker 1: out the episode with our tradition the Craziest Thing I 15 00:00:53,840 --> 00:00:58,040 Speaker 1: saw in markets and Sarah, as you said, great guests 16 00:00:58,120 --> 00:01:00,800 Speaker 1: this week to talk about the equity markets, because I 17 00:01:00,840 --> 00:01:03,880 Speaker 1: think the big question on a lot of people's minds 18 00:01:03,920 --> 00:01:07,679 Speaker 1: this year is has this market gotten sort of detached 19 00:01:07,720 --> 00:01:10,120 Speaker 1: from the fundamentals. So we have a very much a 20 00:01:10,160 --> 00:01:13,120 Speaker 1: fundamentals expert this week. She, as you said, as the 21 00:01:13,160 --> 00:01:16,479 Speaker 1: co head of fundamental equities at Goldman Sachs Asset Management. 22 00:01:16,720 --> 00:01:19,160 Speaker 1: Her name is Katie Coch. Katie, welcome to the show. 23 00:01:19,319 --> 00:01:21,399 Speaker 1: Thank you so much for having me. I'm excited to 24 00:01:21,400 --> 00:01:24,080 Speaker 1: be here. So Katy, let's get right into it. You know, 25 00:01:24,400 --> 00:01:27,840 Speaker 1: as we've all noticed, the valuation expansion in the market 26 00:01:28,280 --> 00:01:34,080 Speaker 1: this year has been astounding, given the economic uncertainty and 27 00:01:34,120 --> 00:01:36,640 Speaker 1: the sort of nasty recession that we've already seen, and 28 00:01:36,880 --> 00:01:39,800 Speaker 1: who knows how long that's gonna last. Of course, at 29 00:01:39,800 --> 00:01:42,400 Speaker 1: the same time, you have real interest rates are negative. 30 00:01:42,880 --> 00:01:46,120 Speaker 1: It looks like interest rates will stay low, possibly negative 31 00:01:46,160 --> 00:01:48,559 Speaker 1: on a real basis after inflation for a long time. 32 00:01:49,520 --> 00:01:52,040 Speaker 1: I'll phrase it as simply as possible. Does the market 33 00:01:52,160 --> 00:01:55,040 Speaker 1: make sense to you based on the fundamentals were um 34 00:01:55,240 --> 00:01:58,280 Speaker 1: have what we've seen this year? Does it trouble you 35 00:01:58,320 --> 00:02:01,160 Speaker 1: how how aggressive the valuation to spenching has gotten. The 36 00:02:01,160 --> 00:02:02,920 Speaker 1: way that I would look at it is when you 37 00:02:02,960 --> 00:02:06,960 Speaker 1: think about the markets overall, they're effectively flat on the year, 38 00:02:07,320 --> 00:02:08,760 Speaker 1: and so a lot of people will look at that 39 00:02:08,840 --> 00:02:11,400 Speaker 1: and say, how is that possible given all of the 40 00:02:11,600 --> 00:02:14,160 Speaker 1: you know, challenging news that's out there that you alluded to, 41 00:02:14,840 --> 00:02:16,760 Speaker 1: and I want I want to make three points on 42 00:02:16,800 --> 00:02:21,000 Speaker 1: this connected to the headline that we can get behind UM, 43 00:02:21,040 --> 00:02:25,440 Speaker 1: the sensibility of markets if we're selective about opportunities UM. 44 00:02:25,560 --> 00:02:27,720 Speaker 1: And so you know, three things to observe is that 45 00:02:27,760 --> 00:02:29,799 Speaker 1: while the markets flat on the year, there's a lot 46 00:02:30,000 --> 00:02:34,119 Speaker 1: kind of happening underneath that really an exciting return UM. 47 00:02:34,240 --> 00:02:36,680 Speaker 1: So we've had a huge draw down and and a 48 00:02:36,680 --> 00:02:39,480 Speaker 1: tremendous recovery as you know that are involved in getting 49 00:02:39,600 --> 00:02:42,760 Speaker 1: us flat. The media and SMP five hundred stock is 50 00:02:42,800 --> 00:02:46,400 Speaker 1: still you know, somewhere around twenty off. It's high, and 51 00:02:46,440 --> 00:02:49,080 Speaker 1: there's a little group of companies we all know called 52 00:02:49,120 --> 00:02:52,440 Speaker 1: the Fangs, which are up over thirty on the year, 53 00:02:52,520 --> 00:02:55,000 Speaker 1: while actually the rest of the SMP five hundred is 54 00:02:55,040 --> 00:02:58,560 Speaker 1: still down about five. And then of course we also 55 00:02:58,600 --> 00:03:02,120 Speaker 1: have this wide gap between growth and value UM, although 56 00:03:02,160 --> 00:03:04,399 Speaker 1: that's narrowed a little bit in the last couple of weeks, 57 00:03:04,440 --> 00:03:07,160 Speaker 1: which hopefully we'll talk about. So, yeah, the market's flat 58 00:03:07,200 --> 00:03:09,040 Speaker 1: on the year, but then under that lots of different 59 00:03:09,080 --> 00:03:12,160 Speaker 1: stuff happening, and so we can find great value, but 60 00:03:12,440 --> 00:03:15,239 Speaker 1: you have to really hunt for it. The second comment 61 00:03:15,240 --> 00:03:18,880 Speaker 1: I would make quickly would be around valuations. You alluded 62 00:03:18,919 --> 00:03:22,440 Speaker 1: to the fact that valuations are demanding UM and in fact, 63 00:03:22,480 --> 00:03:24,760 Speaker 1: the US market is trading right now on a twenty 64 00:03:24,800 --> 00:03:27,920 Speaker 1: two times twelve month forward multiple, which puts it in 65 00:03:27,960 --> 00:03:32,400 Speaker 1: about the ninety percentile of its its most expensive I 66 00:03:32,440 --> 00:03:35,040 Speaker 1: want to make two balancing comments to that, just to 67 00:03:35,080 --> 00:03:39,040 Speaker 1: put people's fears at ease about how expensive the market is. 68 00:03:39,480 --> 00:03:41,680 Speaker 1: The first is, we really need to look at those 69 00:03:41,760 --> 00:03:47,080 Speaker 1: valuations in other low inflation periods UM and so actually, 70 00:03:47,080 --> 00:03:50,480 Speaker 1: if we look at low inflation regimes, today's valuations are 71 00:03:50,520 --> 00:03:53,680 Speaker 1: really just above median levels UM. And then in addition, 72 00:03:53,720 --> 00:03:56,360 Speaker 1: of course, we we do have depressed earnings because we're 73 00:03:56,360 --> 00:03:59,400 Speaker 1: in a recession, as you mentioned, and so that's elevating 74 00:03:59,480 --> 00:04:02,520 Speaker 1: PE level those two. And then the second point I 75 00:04:02,560 --> 00:04:06,320 Speaker 1: want to make is equities relative to other asset classes. 76 00:04:06,680 --> 00:04:10,320 Speaker 1: So we look at something called the implied equity risk premium, 77 00:04:10,360 --> 00:04:13,440 Speaker 1: which is just a fancy way of talking about how 78 00:04:13,440 --> 00:04:17,400 Speaker 1: expensive equities are to other stuff like bonds, and it's 79 00:04:17,560 --> 00:04:20,760 Speaker 1: at a very attractive three point eight percent premium, and 80 00:04:20,839 --> 00:04:23,320 Speaker 1: that's only been higher about a third of the time 81 00:04:23,440 --> 00:04:26,760 Speaker 1: over history UM and it certainly stands, for example, in 82 00:04:26,800 --> 00:04:29,920 Speaker 1: sharp contrast to the negative equity risk premium we saw 83 00:04:30,040 --> 00:04:33,719 Speaker 1: during the tech bubble. So yes, you know valuations are demanding, 84 00:04:33,800 --> 00:04:36,040 Speaker 1: but it's a little bit more of a nuanced story 85 00:04:36,080 --> 00:04:38,120 Speaker 1: than that. And again, if you are selective, you can 86 00:04:38,160 --> 00:04:41,560 Speaker 1: find opportunity. And then the final comment I want to 87 00:04:41,560 --> 00:04:44,400 Speaker 1: make is that I do believe, and we do believe 88 00:04:44,760 --> 00:04:48,039 Speaker 1: at Coleman's successet Management and on our equity team that 89 00:04:48,120 --> 00:04:51,280 Speaker 1: regardless um of any of the stuff we just talked about, 90 00:04:51,320 --> 00:04:55,599 Speaker 1: equity markets really do need continued monetary support and fiscal 91 00:04:55,640 --> 00:04:58,560 Speaker 1: support um to to be able to hold in at 92 00:04:58,600 --> 00:05:01,600 Speaker 1: these levels. And they also need earnings to come through, 93 00:05:01,839 --> 00:05:05,120 Speaker 1: at least to meet the low expectations out there for earnings. 94 00:05:05,120 --> 00:05:07,200 Speaker 1: And of course we're in the middle of earning season now, 95 00:05:07,240 --> 00:05:09,960 Speaker 1: so we should get a lot of interesting data on 96 00:05:10,000 --> 00:05:13,080 Speaker 1: that front. So let's get back to that dispersion idea 97 00:05:13,120 --> 00:05:14,560 Speaker 1: that you said. You look onto the surface of the 98 00:05:14,600 --> 00:05:17,000 Speaker 1: stock market and clearly not every stock is the same, 99 00:05:17,400 --> 00:05:20,760 Speaker 1: not every stock is a thing stock. So over the 100 00:05:20,800 --> 00:05:24,200 Speaker 1: last eight months, throughout the coronavirus era that we've been 101 00:05:24,200 --> 00:05:26,880 Speaker 1: living in, how have you guys been trying to find 102 00:05:26,960 --> 00:05:30,080 Speaker 1: value within the market. This is a great question. And 103 00:05:30,160 --> 00:05:34,360 Speaker 1: one of the things with the coronavirus environment has done 104 00:05:34,839 --> 00:05:39,560 Speaker 1: UM is created a lot of differentiation between business models, 105 00:05:39,920 --> 00:05:43,240 Speaker 1: and so there really has never been a more important 106 00:05:43,279 --> 00:05:47,240 Speaker 1: time to embrace active management and navigate which of those 107 00:05:47,279 --> 00:05:50,600 Speaker 1: business models are going to win and which ones are 108 00:05:50,640 --> 00:05:53,799 Speaker 1: are going to lose. And so I think that stock 109 00:05:53,880 --> 00:05:58,039 Speaker 1: specific dynamics really matter now more than ever, and we're 110 00:05:58,040 --> 00:06:01,640 Speaker 1: seeing huge differentiation within narrow parts the market, and this 111 00:06:01,720 --> 00:06:06,080 Speaker 1: really creates tremendous opportunities for for active managers. So I 112 00:06:06,120 --> 00:06:08,360 Speaker 1: want to give you a couple of examples to help 113 00:06:08,440 --> 00:06:13,040 Speaker 1: us understand that. So let's take restaurants, relatively narrow category. UM. 114 00:06:13,080 --> 00:06:16,679 Speaker 1: We've been focused on the millennial preference for value, digital 115 00:06:16,720 --> 00:06:20,680 Speaker 1: and delivery for a really long time, and COVID, of course, 116 00:06:20,800 --> 00:06:23,880 Speaker 1: is accelerating a lot of these trends and drawing in 117 00:06:23,960 --> 00:06:27,520 Speaker 1: more demographics beyond the millennial consumer as we have to 118 00:06:27,560 --> 00:06:31,320 Speaker 1: consume more things online now. In restaurants, on the one hand, 119 00:06:31,360 --> 00:06:33,760 Speaker 1: you have a company like Dominoes, and we think of 120 00:06:33,800 --> 00:06:37,159 Speaker 1: Dominoes as a technology company that happens to deliver pizza. 121 00:06:37,680 --> 00:06:42,640 Speaker 1: Seventy of their sales are digital UM. They reported earnings recently, 122 00:06:42,760 --> 00:06:46,839 Speaker 1: same store sales up sixteen percent year over year UM 123 00:06:46,920 --> 00:06:50,520 Speaker 1: and the share price reacting very positively on the year. 124 00:06:51,240 --> 00:06:54,240 Speaker 1: On the other hand, in the same category, you have 125 00:06:54,360 --> 00:06:57,480 Speaker 1: a franchise like Darden Restaurants. They own a bunch of brands, 126 00:06:57,520 --> 00:07:01,359 Speaker 1: including Olive Garden, which probably most people have heard of. UM. 127 00:07:01,400 --> 00:07:04,799 Speaker 1: They are a dine in establishment. The delivery and digital 128 00:07:04,839 --> 00:07:10,520 Speaker 1: sales is very limited. They're reporting same store sales down 129 00:07:11,040 --> 00:07:14,040 Speaker 1: and of course the stocks reacting quite negatively on the year. 130 00:07:14,200 --> 00:07:16,120 Speaker 1: So that gives you a sense of how important in 131 00:07:16,120 --> 00:07:20,840 Speaker 1: this environment it is to distinguish between business models. Another 132 00:07:20,880 --> 00:07:24,120 Speaker 1: example would be big box retailers, and many of them 133 00:07:24,600 --> 00:07:29,040 Speaker 1: were really struggling before COVID because of amazon ification of 134 00:07:29,080 --> 00:07:33,480 Speaker 1: the retail market that's taken place over the last decade. However, 135 00:07:33,720 --> 00:07:35,960 Speaker 1: there are a couple of big box retailers that are 136 00:07:36,120 --> 00:07:40,240 Speaker 1: succeeding despite Amazon and UH, and despite the recession that 137 00:07:40,280 --> 00:07:43,880 Speaker 1: we're in. The markers of those winning companies are are 138 00:07:43,920 --> 00:07:46,880 Speaker 1: really two things. They usually have products that are in 139 00:07:46,960 --> 00:07:50,920 Speaker 1: demand during quarantine UH and second, they have tremendous e 140 00:07:51,040 --> 00:07:55,880 Speaker 1: commerce strategies. The pandemic is accelerating e commerce trends that 141 00:07:55,920 --> 00:07:59,160 Speaker 1: were already in place, and as Toby um Luca, who's 142 00:07:59,160 --> 00:08:02,440 Speaker 1: the c E Shopify, has said, e commerce has made 143 00:08:02,520 --> 00:08:06,280 Speaker 1: a ten year jump in a matter of months. And so, 144 00:08:06,400 --> 00:08:09,120 Speaker 1: on the one hand, you have a company like best Buy, 145 00:08:09,160 --> 00:08:12,840 Speaker 1: which is an electronics retailer. They have sales that are 146 00:08:13,000 --> 00:08:17,520 Speaker 1: up year over year both domestically and internationally. Now why, 147 00:08:17,680 --> 00:08:20,760 Speaker 1: First they have that relevant products set for quarantine. They 148 00:08:20,760 --> 00:08:24,640 Speaker 1: have the largest product category of sales for computing, working 149 00:08:24,680 --> 00:08:28,280 Speaker 1: from home appliances because we're eating more at home, and 150 00:08:28,360 --> 00:08:31,680 Speaker 1: tablets because we're learning from home, so great products set 151 00:08:31,720 --> 00:08:34,719 Speaker 1: for the environment. And second, they have a tremendous e 152 00:08:34,840 --> 00:08:38,640 Speaker 1: commerce footprint. Their online sales have grown two hundred and 153 00:08:38,679 --> 00:08:43,040 Speaker 1: fifty five percent versus last year UM and they've even 154 00:08:43,120 --> 00:08:46,720 Speaker 1: sustained that at close to a hundred and nine since 155 00:08:46,760 --> 00:08:50,840 Speaker 1: stores have reopened, and the stocks obviously reacting positively on that. 156 00:08:50,960 --> 00:08:53,360 Speaker 1: So that's a winner. And then on the other hand, 157 00:08:53,520 --> 00:08:58,800 Speaker 1: we have a plethora of undifferentiated mall based retailers. Sales 158 00:08:58,840 --> 00:09:02,319 Speaker 1: are down more than dee percent. In most cases, they're 159 00:09:02,320 --> 00:09:06,800 Speaker 1: facing many of them are facing bankruptcys. On the product side, 160 00:09:06,880 --> 00:09:10,320 Speaker 1: they're not selling particularly differentiated products or products that are 161 00:09:10,360 --> 00:09:13,240 Speaker 1: in demand during quarantine, A lot of clothing and as 162 00:09:13,280 --> 00:09:15,640 Speaker 1: as you probably would recognize, we're not all going out 163 00:09:15,679 --> 00:09:19,520 Speaker 1: and buying new clothing unless it's sweatpants. Um. And then 164 00:09:19,559 --> 00:09:22,920 Speaker 1: on the the the e commerce footprints side, really they've 165 00:09:22,960 --> 00:09:25,560 Speaker 1: they've done too little, too late. So those give you 166 00:09:25,640 --> 00:09:28,680 Speaker 1: some examples of how UM, there is a lot of 167 00:09:28,720 --> 00:09:33,480 Speaker 1: bifurcation in the market between winning and boot losing business models. Um, 168 00:09:33,480 --> 00:09:36,600 Speaker 1: this recession is really different from any other recession we've seen. 169 00:09:37,120 --> 00:09:40,040 Speaker 1: But if you're selective and you can get on get 170 00:09:40,120 --> 00:09:42,880 Speaker 1: behind the right business models at the right valuations, there 171 00:09:42,880 --> 00:10:01,920 Speaker 1: really should be tremendous opportunities here for active managers. So, Sarah, 172 00:10:02,040 --> 00:10:03,960 Speaker 1: a lot of great points in there, you know, I 173 00:10:04,160 --> 00:10:06,240 Speaker 1: Katie especially like the point about best Buy. I know 174 00:10:06,360 --> 00:10:09,640 Speaker 1: personally I've been looking to upgrade my TV during the pandemic. 175 00:10:11,160 --> 00:10:14,400 Speaker 1: But so Katie, talk us through then, how your team 176 00:10:14,480 --> 00:10:18,640 Speaker 1: looks at those giant gorillas in the room, the top 177 00:10:18,720 --> 00:10:25,520 Speaker 1: five stocks in the SMP. You know, your Apple, Amazon, Alphabet, Microsoft, 178 00:10:26,160 --> 00:10:29,920 Speaker 1: you know, taking up a record weight in in indexes 179 00:10:29,960 --> 00:10:33,000 Speaker 1: like the SMP. I think less. I checked something between 180 00:10:33,040 --> 00:10:35,440 Speaker 1: a quarter and a fifth of the SMP was just 181 00:10:35,559 --> 00:10:39,000 Speaker 1: those five stocks. I mean, does it lead you to 182 00:10:39,040 --> 00:10:44,760 Speaker 1: want to underweight those super richly valued heavyweight stocks, uh, 183 00:10:44,800 --> 00:10:46,760 Speaker 1: and look for those value stocks like the ones you 184 00:10:46,800 --> 00:10:49,960 Speaker 1: mentioned in retail and restaurants or is it the type 185 00:10:50,000 --> 00:10:53,960 Speaker 1: of environment where you really can't afford to underweight these 186 00:10:54,000 --> 00:10:57,680 Speaker 1: big names. We think the things are are great franchises, 187 00:10:57,760 --> 00:10:59,840 Speaker 1: We own some of them, but we do believe that 188 00:11:00,080 --> 00:11:04,120 Speaker 1: investors would be well served to diversify beyond them in 189 00:11:04,200 --> 00:11:07,520 Speaker 1: the hunt for future tech leaders. UM. So, a couple 190 00:11:07,559 --> 00:11:10,760 Speaker 1: of points to make here. Um. As you know, many 191 00:11:10,920 --> 00:11:13,120 Speaker 1: US investors and a lot of people listening to your 192 00:11:13,160 --> 00:11:17,720 Speaker 1: program have embraced passive investing. And what I would observe 193 00:11:17,760 --> 00:11:19,800 Speaker 1: at the outset here is that we need to consider 194 00:11:19,840 --> 00:11:23,119 Speaker 1: whether a passive investing has in fact become too aggressive 195 00:11:23,840 --> 00:11:26,760 Speaker 1: Because to your point, there's lots of concentration in a 196 00:11:26,800 --> 00:11:29,680 Speaker 1: little number of companies. So it's about twenty two of 197 00:11:29,720 --> 00:11:32,440 Speaker 1: the market cap in the top one percent of the 198 00:11:32,559 --> 00:11:35,880 Speaker 1: names that exceeds the eighteen percent we reached in in 199 00:11:35,960 --> 00:11:39,200 Speaker 1: two thousand. Um. There's lots of of of different you know, 200 00:11:39,240 --> 00:11:41,360 Speaker 1: ways of looking at this. But another way to put 201 00:11:41,400 --> 00:11:46,079 Speaker 1: it into context for people is that the four largest Amazon, Apple, Microsoft, 202 00:11:46,120 --> 00:11:50,040 Speaker 1: Google currently have a market capitalization that's bigger than the 203 00:11:50,200 --> 00:11:53,760 Speaker 1: entire country of Japan. Uh, they're worth just shy of 204 00:11:53,880 --> 00:11:57,040 Speaker 1: six trillion. Well, Japan's equity markets worth five point eight 205 00:11:57,080 --> 00:12:00,880 Speaker 1: four trillion. You know, despite the sharpest session on record, 206 00:12:01,000 --> 00:12:03,199 Speaker 1: these companies have added more than a third to their 207 00:12:03,200 --> 00:12:06,000 Speaker 1: market values in and I think we really do need 208 00:12:06,080 --> 00:12:08,240 Speaker 1: to pause and ask ourselves this question, you know, is 209 00:12:08,280 --> 00:12:12,760 Speaker 1: it justified and will it persist? So let's break it 210 00:12:12,800 --> 00:12:15,640 Speaker 1: down this way. There are some real positives for these companies. 211 00:12:15,640 --> 00:12:17,960 Speaker 1: So on the one hand, they've got the cleanest balance 212 00:12:18,000 --> 00:12:21,400 Speaker 1: sheets within the market. That's the first point I would make, 213 00:12:21,760 --> 00:12:25,360 Speaker 1: more than two and sixty billion dollars of net cash um, 214 00:12:25,520 --> 00:12:28,520 Speaker 1: lower leverage than the rest of the market, better liquidity 215 00:12:28,520 --> 00:12:31,280 Speaker 1: and visibility. Uh. The second point I would make is 216 00:12:31,320 --> 00:12:34,160 Speaker 1: that they do have strong growth prospects. Their near term 217 00:12:34,200 --> 00:12:38,080 Speaker 1: growth expectations are about fifteen percent versus eight percent for 218 00:12:38,120 --> 00:12:42,080 Speaker 1: the media and SMP five company, and their catering towards 219 00:12:42,120 --> 00:12:45,480 Speaker 1: trends with both secular and cyclical tailwinds like cloud, e 220 00:12:45,640 --> 00:12:49,320 Speaker 1: commerce and digital payments. So those are all, you know, 221 00:12:49,520 --> 00:12:53,120 Speaker 1: very positive. And I'd also just mentioned From a valuation perspective, 222 00:12:53,559 --> 00:12:56,400 Speaker 1: you know, these are valuations are just not as demanding 223 00:12:56,440 --> 00:13:00,280 Speaker 1: as they were at the peak of the tech bub bole. 224 00:13:00,679 --> 00:13:03,360 Speaker 1: And these stocks are driven not just by long term 225 00:13:03,400 --> 00:13:06,160 Speaker 1: growth expectations, which we saw a lot more of in 226 00:13:06,160 --> 00:13:10,120 Speaker 1: in two thousand, but actually by strong realized profitability again, 227 00:13:10,160 --> 00:13:13,559 Speaker 1: lower leverage, and all these other markers of quality. UM. 228 00:13:13,600 --> 00:13:16,160 Speaker 1: I'd also say, you know, something we should give them 229 00:13:16,200 --> 00:13:19,000 Speaker 1: credit for is that they've shown offensive as well as 230 00:13:19,040 --> 00:13:22,280 Speaker 1: defensive characteristics. They were leaders in the market correction and 231 00:13:22,320 --> 00:13:26,559 Speaker 1: also the rebound, which you know generally warrant's higher evaluations. 232 00:13:26,559 --> 00:13:29,720 Speaker 1: So those are all some reasons to feel good about 233 00:13:29,760 --> 00:13:32,720 Speaker 1: the Fangs. However, as I stated at the outset, I 234 00:13:32,760 --> 00:13:35,440 Speaker 1: do think we need to consider the possibility of UM 235 00:13:35,600 --> 00:13:38,080 Speaker 1: that we need to diversify beyond them, and that passive 236 00:13:38,120 --> 00:13:41,480 Speaker 1: has become too aggressive. So on the other hand, I 237 00:13:41,480 --> 00:13:44,160 Speaker 1: want to point out some some balancing comments to that. 238 00:13:44,240 --> 00:13:46,800 Speaker 1: I do think there could be some clouds forming on 239 00:13:46,840 --> 00:13:50,640 Speaker 1: the horizon which could threaten their dominance going forward, and 240 00:13:50,679 --> 00:13:54,840 Speaker 1: this should motivate investors to to diversify beyond the Fangs. 241 00:13:55,400 --> 00:14:00,199 Speaker 1: There's tremendous turnover historically in the tech ecosystem. Over the 242 00:14:00,320 --> 00:14:03,040 Speaker 1: last twenty three years, the largest tech company by market 243 00:14:03,040 --> 00:14:07,160 Speaker 1: cap has changed eight different times. UM market leaders have 244 00:14:07,360 --> 00:14:10,559 Speaker 1: historically not really been able to maintain their leadership positions 245 00:14:10,600 --> 00:14:12,760 Speaker 1: for more than five or six years. So a decade 246 00:14:12,800 --> 00:14:17,800 Speaker 1: ago with Cisco, Intel, IBM, Oracle, et cetera. Mark Zuckerberg 247 00:14:17,880 --> 00:14:21,840 Speaker 1: himself alluded in his his congressional testimony that after ten 248 00:14:21,920 --> 00:14:24,680 Speaker 1: years of fang dominance, you know the next ten years 249 00:14:24,720 --> 00:14:27,800 Speaker 1: and big companies in the next ten years could look different. 250 00:14:27,840 --> 00:14:31,280 Speaker 1: So ecosystem turnover historically has been high. We expect that 251 00:14:31,320 --> 00:14:34,120 Speaker 1: to persist. The second point I'd make is, you know 252 00:14:34,240 --> 00:14:36,520 Speaker 1: these companies, and this doesn't get talked about a lot, 253 00:14:36,560 --> 00:14:39,840 Speaker 1: but they are catering to somewhat saturated markets. So if 254 00:14:39,880 --> 00:14:43,360 Speaker 1: you take Apple, it's fully penetrated market for high end 255 00:14:43,440 --> 00:14:48,040 Speaker 1: smartphones UM, leaving growth more dependent on replacements and services 256 00:14:48,120 --> 00:14:51,000 Speaker 1: that are attached to to the phones. But it's hard 257 00:14:51,000 --> 00:14:52,880 Speaker 1: to move the multiple on that. In the case of 258 00:14:52,920 --> 00:14:56,400 Speaker 1: Amazon Aws, which is a real driver for that business, 259 00:14:56,400 --> 00:15:00,240 Speaker 1: their cloud business obviously has real competition from Microsoft often 260 00:15:00,320 --> 00:15:03,120 Speaker 1: and Google, so growth is going to naturally be slower. 261 00:15:03,640 --> 00:15:07,479 Speaker 1: And then the company is involved with online advertising. UM 262 00:15:07,520 --> 00:15:10,320 Speaker 1: you know, that's now fifty percent of global advertising, so 263 00:15:10,600 --> 00:15:14,880 Speaker 1: one would expect growth to decelerate over time. So the 264 00:15:14,960 --> 00:15:18,200 Speaker 1: third comment would be that there is potential for increased 265 00:15:18,200 --> 00:15:21,200 Speaker 1: regulation and we're obviously seeing that play out right now. 266 00:15:22,080 --> 00:15:26,000 Speaker 1: Uncertainty over government regulatory actions is generally not good for 267 00:15:26,120 --> 00:15:29,520 Speaker 1: corporate decision making, and we saw that with Microsoft in 268 00:15:29,520 --> 00:15:33,520 Speaker 1: the two thousands when it faced various antitrust investigations UM, 269 00:15:33,600 --> 00:15:36,320 Speaker 1: and it makes doing M and A, which has historically 270 00:15:36,320 --> 00:15:39,040 Speaker 1: been a driver of growth for these companies, more difficult. 271 00:15:39,120 --> 00:15:41,800 Speaker 1: So that regulatory overhang, you know, we we do think 272 00:15:42,520 --> 00:15:46,160 Speaker 1: UM could persist. UM. So taking all those comments together, 273 00:15:46,280 --> 00:15:49,160 Speaker 1: some reasons to feel positive about the things, some balancing 274 00:15:49,240 --> 00:15:52,360 Speaker 1: comments that, you know, give us pause. I think that 275 00:15:52,520 --> 00:15:55,480 Speaker 1: the headline is that passive has become too aggressive and 276 00:15:55,560 --> 00:15:58,640 Speaker 1: we really need to invest and look for opportunities in 277 00:15:58,720 --> 00:16:01,600 Speaker 1: tech beyond the things. And I'll highlight two areas that 278 00:16:01,600 --> 00:16:04,240 Speaker 1: that we're looking at UM. The first would be in 279 00:16:04,320 --> 00:16:08,040 Speaker 1: companies outside the US. We particularly like local tech leaders 280 00:16:08,040 --> 00:16:11,320 Speaker 1: and emerging markets. So e M consumers are getting access 281 00:16:11,360 --> 00:16:15,440 Speaker 1: to fast, ubiquitous internet for the first time in history. UM. 282 00:16:15,520 --> 00:16:18,440 Speaker 1: They're also now able to access the internet via their 283 00:16:18,480 --> 00:16:20,800 Speaker 1: mobile phones, and this is giving rise to something we 284 00:16:20,880 --> 00:16:23,680 Speaker 1: call the splinter neet effects. So this is local companies 285 00:16:23,680 --> 00:16:27,240 Speaker 1: applying proven business models from the US in new, high 286 00:16:27,280 --> 00:16:30,600 Speaker 1: growth markets um SO. Examples of these local tech titans 287 00:16:30,600 --> 00:16:33,880 Speaker 1: would be Mercado Libre Um which is the Amazon of 288 00:16:33,960 --> 00:16:38,840 Speaker 1: Latin America where online penetration is only five percent versus 289 00:16:38,880 --> 00:16:41,840 Speaker 1: fifteen to twenty and most developed markets, or see which 290 00:16:41,880 --> 00:16:45,200 Speaker 1: is the Amazon of Southeast Asia. Um and these companies, 291 00:16:45,240 --> 00:16:47,440 Speaker 1: I would note, are also trying to become leaders in 292 00:16:47,520 --> 00:16:51,200 Speaker 1: other fields beyond e commerce. So Mercado Libre is getting 293 00:16:51,200 --> 00:16:55,520 Speaker 1: into payments and see um is getting into online gaming. 294 00:16:55,640 --> 00:16:57,960 Speaker 1: And one might argue this would be like investing in 295 00:16:58,000 --> 00:17:01,360 Speaker 1: Amazon five to ten years ago with big addressable markets. 296 00:17:01,960 --> 00:17:04,600 Speaker 1: And then the second place would be going further down 297 00:17:04,720 --> 00:17:07,920 Speaker 1: the market cap spectrum UM looking at small and mid 298 00:17:07,960 --> 00:17:11,440 Speaker 1: cap companies versus the mega cap So we like innovative 299 00:17:11,480 --> 00:17:15,040 Speaker 1: and differentiated, pure play small cap companies that are developing 300 00:17:15,280 --> 00:17:20,040 Speaker 1: highly differentiated and superior technology to service new markets. Um SO. 301 00:17:20,080 --> 00:17:23,320 Speaker 1: An example here would be Ping Identity, which is a 302 00:17:23,359 --> 00:17:27,840 Speaker 1: provider of intelligent identity solutions and is disrupting identity and 303 00:17:28,320 --> 00:17:31,080 Speaker 1: access management market, which is you know, identity being a 304 00:17:31,920 --> 00:17:34,560 Speaker 1: very big focus now and this is a very specific 305 00:17:34,640 --> 00:17:37,600 Speaker 1: provider with a high growth rate and obviously not something 306 00:17:37,640 --> 00:17:41,439 Speaker 1: captured when investing UM in the fangs UM and so 307 00:17:41,480 --> 00:17:43,360 Speaker 1: in some way, well, I think the Fangs are are 308 00:17:43,359 --> 00:17:46,520 Speaker 1: fine franchises to own. Again, some reasons to be positive, 309 00:17:46,560 --> 00:17:49,400 Speaker 1: but certainly some reasons to be concerned. What investors need 310 00:17:49,440 --> 00:17:52,879 Speaker 1: to do, UM is think about allocating some capital away 311 00:17:52,920 --> 00:17:56,440 Speaker 1: from those dominant franchises in search of you know, new 312 00:17:56,480 --> 00:17:59,240 Speaker 1: emerging tech leaders which we can find both outside the 313 00:17:59,320 --> 00:18:02,399 Speaker 1: US and with in the US down the market cap, Katie, 314 00:18:02,440 --> 00:18:04,760 Speaker 1: I find it really interesting that of the industries that 315 00:18:04,760 --> 00:18:08,400 Speaker 1: you've high lighted so far, so that being restaurants, retail, 316 00:18:08,480 --> 00:18:11,919 Speaker 1: and tech, I mean two of them are presumably completely 317 00:18:12,119 --> 00:18:15,720 Speaker 1: coronavirus losers, except where you highlighted you can find winners. 318 00:18:16,160 --> 00:18:22,040 Speaker 1: And tech has just developed into the star of once again, 319 00:18:22,200 --> 00:18:25,840 Speaker 1: two ends of the spectrum. I mean between those two spectrums, 320 00:18:25,880 --> 00:18:29,000 Speaker 1: are there any areas that you would just absolutely stay 321 00:18:29,000 --> 00:18:31,399 Speaker 1: away from you think it's too difficult right now to 322 00:18:31,480 --> 00:18:33,920 Speaker 1: really find something that's worth it to throw capital at. 323 00:18:34,359 --> 00:18:36,840 Speaker 1: I think it's really important that in this environment, and 324 00:18:36,880 --> 00:18:40,879 Speaker 1: really any environment, that investors run balanced portfolios and that 325 00:18:40,960 --> 00:18:44,720 Speaker 1: they capture both growth and value ideas. And I guess 326 00:18:44,760 --> 00:18:47,560 Speaker 1: my my overarching point here would be that I think 327 00:18:47,560 --> 00:18:51,320 Speaker 1: it's possible to find winners in every sector, but you 328 00:18:51,400 --> 00:18:54,400 Speaker 1: really have to get behind the right business models. Um, 329 00:18:54,560 --> 00:18:57,840 Speaker 1: and that difference between winners and losers is going to 330 00:18:57,920 --> 00:19:01,240 Speaker 1: express itself in every single sector. If take energy, for example, 331 00:19:01,280 --> 00:19:04,080 Speaker 1: there's a lot of reasons that everyone listening to this 332 00:19:04,200 --> 00:19:07,000 Speaker 1: knows that we shouldn't be super excited about the future 333 00:19:07,000 --> 00:19:09,960 Speaker 1: of energy, and that's reflected in share prices. But what 334 00:19:10,040 --> 00:19:13,280 Speaker 1: about renewable companies within the energy space. Some of those 335 00:19:13,320 --> 00:19:17,640 Speaker 1: companies are up thirty to renewable fuel companies for example, 336 00:19:17,960 --> 00:19:20,200 Speaker 1: which we think is the future of the energy market. 337 00:19:20,520 --> 00:19:22,840 Speaker 1: So even in the sectors that are at least loved 338 00:19:22,960 --> 00:19:26,520 Speaker 1: within the market, you can actually find winning franchises if 339 00:19:26,560 --> 00:19:29,280 Speaker 1: you hunt, and again, you know, you get behind the 340 00:19:29,359 --> 00:19:32,240 Speaker 1: right business models. I think that's always been important in investing, 341 00:19:32,320 --> 00:19:35,720 Speaker 1: but this crisis has made that more important than ever. Yeah, Katie, 342 00:19:35,760 --> 00:19:38,520 Speaker 1: that mention of renewable energy is uh, it's a good 343 00:19:38,520 --> 00:19:41,720 Speaker 1: segue to the topic of E S g uh And 344 00:19:42,040 --> 00:19:44,560 Speaker 1: for anyone listening, who's I don't know, been asleep for 345 00:19:44,560 --> 00:19:46,199 Speaker 1: the last five years and doesn't know what that is. 346 00:19:46,800 --> 00:19:54,200 Speaker 1: It's basically investing with the idea of the environment, social issues, 347 00:19:54,320 --> 00:19:58,119 Speaker 1: and government governance issues in mind when you're picking out companies. 348 00:19:58,720 --> 00:20:01,600 Speaker 1: And I'm kind of fast needed at how you look 349 00:20:01,640 --> 00:20:06,000 Speaker 1: at that at the E s G world through the 350 00:20:06,040 --> 00:20:09,399 Speaker 1: sort of the goggles of a fundamental investor, because I 351 00:20:09,440 --> 00:20:11,439 Speaker 1: do think there's a case to be made that, Hey, 352 00:20:11,480 --> 00:20:14,679 Speaker 1: if your company is less likely to get say a 353 00:20:14,720 --> 00:20:18,000 Speaker 1: big fine for an environmental issue, or uh, you know, 354 00:20:18,119 --> 00:20:21,720 Speaker 1: less likely to be boycotted over a social issue, or 355 00:20:21,840 --> 00:20:25,400 Speaker 1: less likely to you know, have the CEO forced out 356 00:20:25,400 --> 00:20:27,800 Speaker 1: in a governance issue, that type of thing, that there 357 00:20:27,880 --> 00:20:31,720 Speaker 1: is very much a fundamental case to be made for 358 00:20:31,920 --> 00:20:36,119 Speaker 1: incorporating E s G factors in your research. Is that 359 00:20:36,200 --> 00:20:39,320 Speaker 1: a big part of the reason why E s G 360 00:20:39,480 --> 00:20:42,359 Speaker 1: is so hot? Is it not just sort of a 361 00:20:42,440 --> 00:20:45,200 Speaker 1: clear investing with a clearer conscience, And not to say 362 00:20:45,240 --> 00:20:46,840 Speaker 1: there's anything wrong with that, I'm all for that, but 363 00:20:46,960 --> 00:20:49,680 Speaker 1: is there also, you know, from the work you've done, 364 00:20:49,800 --> 00:20:53,040 Speaker 1: is there a fundamental case to be made for why 365 00:20:53,080 --> 00:20:57,040 Speaker 1: this stuff is important? Absolutely at Goldman Success that management 366 00:20:57,080 --> 00:21:00,680 Speaker 1: and in particular within our our fundamental equity team, we 367 00:21:00,800 --> 00:21:04,200 Speaker 1: think that consideration of E s G issues is often 368 00:21:04,280 --> 00:21:08,959 Speaker 1: just correlates to quality UM, and we have a strong belief. 369 00:21:09,240 --> 00:21:11,760 Speaker 1: We're long term investors and have a very strong belief 370 00:21:11,840 --> 00:21:16,320 Speaker 1: that quality will outperform over time, and so we consider 371 00:21:16,600 --> 00:21:20,760 Speaker 1: E s G across the entire sixty billion dollars of 372 00:21:20,520 --> 00:21:23,719 Speaker 1: of of assets that we manage UM, in addition to 373 00:21:23,800 --> 00:21:26,879 Speaker 1: our our dedicated E s G portfolios, because focus on 374 00:21:26,920 --> 00:21:31,080 Speaker 1: these issues should be a way to UH avoid risks 375 00:21:31,119 --> 00:21:35,560 Speaker 1: but also to generate alpha for all investors, regardless of 376 00:21:35,680 --> 00:21:38,639 Speaker 1: how focused the organization or the individual might be on 377 00:21:38,840 --> 00:21:41,560 Speaker 1: on E s G UM. I'll take a step back 378 00:21:41,560 --> 00:21:44,560 Speaker 1: and maybe make a couple of quick points about the 379 00:21:44,600 --> 00:21:48,320 Speaker 1: space UM. The first would be that we believe very 380 00:21:48,359 --> 00:21:51,159 Speaker 1: deeply that the world is on the cusp of a 381 00:21:51,240 --> 00:21:55,800 Speaker 1: sustainable investing revolution and UM we think it could be 382 00:21:55,880 --> 00:22:00,159 Speaker 1: one of the biggest investment opportunities ever. It had the 383 00:22:00,200 --> 00:22:04,119 Speaker 1: magnitude of the industrial revolution coupled with the speed of 384 00:22:04,119 --> 00:22:08,520 Speaker 1: the digital revolution and a tale from from COVID. You know, 385 00:22:08,640 --> 00:22:11,600 Speaker 1: how do we account for that? As I mentioned earlier, 386 00:22:11,680 --> 00:22:14,880 Speaker 1: we we integrate consideration of E s G issues into 387 00:22:14,880 --> 00:22:17,600 Speaker 1: all the assets we manage. We also have a lot 388 00:22:17,640 --> 00:22:20,960 Speaker 1: of idea generation on the back of this UH emphasis 389 00:22:21,040 --> 00:22:22,800 Speaker 1: on e s G. So, in other words, we invest 390 00:22:22,880 --> 00:22:26,120 Speaker 1: in solutions providers to E s G issues. And then 391 00:22:26,160 --> 00:22:28,280 Speaker 1: of course we think about this a lot when we're 392 00:22:28,400 --> 00:22:33,439 Speaker 1: engaging companies. So just from an environmental perspective, UM, we 393 00:22:33,520 --> 00:22:37,119 Speaker 1: think that's going to continue to grow in an importance 394 00:22:37,160 --> 00:22:40,120 Speaker 1: and an emphasis. A winner on this front, by the way, 395 00:22:40,200 --> 00:22:42,920 Speaker 1: is Europe. So you know, there's a lot of bad 396 00:22:42,960 --> 00:22:46,320 Speaker 1: news over time around Europe UM, but this is actually 397 00:22:46,480 --> 00:22:49,280 Speaker 1: a place where Europe can really excel and own and 398 00:22:49,280 --> 00:22:53,040 Speaker 1: and and succeed UM. The EU estimates the additional yearly 399 00:22:53,080 --> 00:22:57,320 Speaker 1: investment required to achieve the EU Green Deal targets UM, 400 00:22:57,359 --> 00:23:00,560 Speaker 1: which are are mostly environmental focus, is more between a 401 00:23:00,640 --> 00:23:04,639 Speaker 1: hundred and seventy five and three hundred billion euros for 402 00:23:04,680 --> 00:23:06,880 Speaker 1: the next couple of decades. And this will be met 403 00:23:06,920 --> 00:23:10,320 Speaker 1: with the mix of both public and private capital UM 404 00:23:10,359 --> 00:23:13,800 Speaker 1: so giving rise to a lot of interesting opportunities at 405 00:23:13,800 --> 00:23:18,320 Speaker 1: the company level. And again Europe, with its combination of 406 00:23:18,560 --> 00:23:24,320 Speaker 1: UM you know, taxes, UH incentives, government and academic partnership, 407 00:23:24,440 --> 00:23:26,399 Speaker 1: is going to give ride continue to give rise to 408 00:23:26,560 --> 00:23:28,920 Speaker 1: a lot of companies that will win in this space 409 00:23:29,400 --> 00:23:32,600 Speaker 1: in the US. I would also just just mention um 410 00:23:32,640 --> 00:23:35,800 Speaker 1: we talked about the dominance of the fangs companies. One 411 00:23:35,840 --> 00:23:38,480 Speaker 1: of them knock on impacts of that from an E 412 00:23:38,680 --> 00:23:42,639 Speaker 1: s G perspective is that when these sizeable companies choose 413 00:23:42,680 --> 00:23:47,119 Speaker 1: to do something about their environmental responsibility, it has unbelievable 414 00:23:47,160 --> 00:23:50,600 Speaker 1: impacts on the market. UM. So Amazon recently announced that 415 00:23:50,600 --> 00:23:53,040 Speaker 1: they're going to target a hundred percent renewable power for 416 00:23:53,040 --> 00:23:57,760 Speaker 1: their operations. By they've actually moved that goal forward, they're 417 00:23:57,800 --> 00:24:00,600 Speaker 1: currently at forty two percent. They've leaeve that they'll be 418 00:24:00,640 --> 00:24:05,720 Speaker 1: carbon neutral by including using for transportation a lot of 419 00:24:05,760 --> 00:24:08,840 Speaker 1: electric vehicles. They've already ordered a hundred thousand units of 420 00:24:08,840 --> 00:24:12,200 Speaker 1: electric vehicles UM. And so you know, these these types 421 00:24:12,240 --> 00:24:15,160 Speaker 1: of announcements can have given the scale of these companies, 422 00:24:15,200 --> 00:24:17,880 Speaker 1: will have an incredible impact UM. And so that gives 423 00:24:18,000 --> 00:24:20,239 Speaker 1: all together gives you some sense of just that the 424 00:24:20,280 --> 00:24:24,280 Speaker 1: scale of the opportunity and the environmental part. Successful companies 425 00:24:24,320 --> 00:24:28,800 Speaker 1: will UM integrate the way that they think about environmental sustainability. 426 00:24:28,880 --> 00:24:31,640 Speaker 1: And then there's also this investment opportunity for US to 427 00:24:31,640 --> 00:24:33,680 Speaker 1: to invest in companies that are going to be the 428 00:24:33,720 --> 00:24:37,160 Speaker 1: solutions providers in this space. UM. I will actually give 429 00:24:37,160 --> 00:24:41,800 Speaker 1: a quick example here on a sustainable environmental company called 430 00:24:41,840 --> 00:24:46,080 Speaker 1: Ball Corp, which you know may not be known by everybody. 431 00:24:46,119 --> 00:24:50,280 Speaker 1: It is an aluminum can manufacturer UM relegated to to 432 00:24:50,359 --> 00:24:53,720 Speaker 1: the boring value bucket. For for most of the last 433 00:24:53,760 --> 00:24:56,639 Speaker 1: ten years, UM it was it was x growth because 434 00:24:57,240 --> 00:25:00,719 Speaker 1: most products UM were that they made were soft drinks 435 00:25:00,760 --> 00:25:05,240 Speaker 1: and then domestic beers, which we're both effectively rejected by millennials. 436 00:25:05,800 --> 00:25:09,560 Speaker 1: But they've seized on consumer discussed with the plastic UM 437 00:25:09,640 --> 00:25:13,160 Speaker 1: in in landfills and oceans, and they've been lobbying more 438 00:25:13,240 --> 00:25:16,159 Speaker 1: companies to to make what we call the the can 439 00:25:16,359 --> 00:25:19,919 Speaker 1: king again. UM. Now, virgin aluminum is actually quite expensive 440 00:25:19,960 --> 00:25:22,760 Speaker 1: to make, but aluminium can be recycled forever with no 441 00:25:22,880 --> 00:25:26,200 Speaker 1: loss of properties, and it's pretty cheap to recycle. So 442 00:25:26,240 --> 00:25:29,359 Speaker 1: there's a sixty five percent recycling rate of aluminium in 443 00:25:29,400 --> 00:25:32,119 Speaker 1: the US. We actually recycle a hundred thousand cans a 444 00:25:32,200 --> 00:25:36,440 Speaker 1: minute UM and it's actually even higher in other countries. UM. 445 00:25:36,480 --> 00:25:41,440 Speaker 1: It has a lower energy consumption UM when recycling aluminum 446 00:25:41,640 --> 00:25:45,640 Speaker 1: versus making new aluminum UM. And and just for comparison purposes, 447 00:25:45,640 --> 00:25:48,240 Speaker 1: the recycling rate of plastic is in the low single 448 00:25:48,320 --> 00:25:51,879 Speaker 1: digit and now because of people's focus on moving away 449 00:25:51,920 --> 00:25:55,040 Speaker 1: from plastic, which is less sustainable, to aluminium, which is 450 00:25:55,080 --> 00:25:59,560 Speaker 1: more sustainable, volumes are now growing again at five UM 451 00:25:59,640 --> 00:26:03,119 Speaker 1: per year and um. As a result, the share price 452 00:26:03,200 --> 00:26:07,439 Speaker 1: has has really moved upwards, uh quite aggressively. And so 453 00:26:07,520 --> 00:26:10,960 Speaker 1: that's an example of a solutions provider to this environmental issue. 454 00:26:20,280 --> 00:26:22,439 Speaker 1: Great points all around, Katie. You know, yeah, you hear 455 00:26:22,480 --> 00:26:24,560 Speaker 1: a lot about that culture at Costco and I think 456 00:26:24,640 --> 00:26:27,320 Speaker 1: you know, people that work there really treated as a career, 457 00:26:27,480 --> 00:26:30,040 Speaker 1: not sort of a a mick job that you hop 458 00:26:30,119 --> 00:26:33,399 Speaker 1: from uh and and have a lot of turnover. Um, 459 00:26:33,440 --> 00:26:36,480 Speaker 1: so uh, kudos to them. You did miss a big 460 00:26:36,520 --> 00:26:38,520 Speaker 1: catalyst for them, Katie. I'll tell you what it is. 461 00:26:39,320 --> 00:26:42,320 Speaker 1: Their roads history chickens are incredible. Have you had have 462 00:26:42,400 --> 00:26:44,320 Speaker 1: you guys had one of their roots history chickens. They're 463 00:26:44,359 --> 00:26:47,119 Speaker 1: delicious root history chicken. But I have been known to 464 00:26:47,400 --> 00:26:51,080 Speaker 1: sample all those those free samples. Next time we go, 465 00:26:51,200 --> 00:26:53,960 Speaker 1: I I will. My husband's actually the the CFO and 466 00:26:54,000 --> 00:26:56,000 Speaker 1: our family he tracks are spending and I do know 467 00:26:56,040 --> 00:26:59,159 Speaker 1: that we're spending uh much more now on Costco than 468 00:26:59,240 --> 00:27:01,800 Speaker 1: than we used to um and that will have to 469 00:27:01,840 --> 00:27:05,000 Speaker 1: add the rotisserie chickens to the shopping list. Samples are 470 00:27:05,000 --> 00:27:06,840 Speaker 1: the best part of Costco, but I would imagine that 471 00:27:06,840 --> 00:27:09,400 Speaker 1: that's had to be up pulled back in these days. Yeah, 472 00:27:09,440 --> 00:27:11,560 Speaker 1: I'm gonna start bringing a disguise so I can hit 473 00:27:11,560 --> 00:27:15,199 Speaker 1: the samples twice. They won't realize it. Alright, Sorry, you 474 00:27:15,200 --> 00:27:17,600 Speaker 1: know what time it is. I think I do stand 475 00:27:17,640 --> 00:27:22,440 Speaker 1: clear of the craziest things we saw in markets this week. Alright, 476 00:27:22,480 --> 00:27:26,120 Speaker 1: So mind dates back to our conversation that we were 477 00:27:26,119 --> 00:27:28,880 Speaker 1: having about the Fank stocks and really just mega caps 478 00:27:28,920 --> 00:27:32,119 Speaker 1: in general. So the statistic is a little bit dated, 479 00:27:32,160 --> 00:27:34,560 Speaker 1: but it's as of late July. So I'll give you this, 480 00:27:34,600 --> 00:27:37,680 Speaker 1: and I just find it pretty mind boggling. This comes 481 00:27:37,720 --> 00:27:41,200 Speaker 1: from Michael O'Rourke over at Jones Trading, and he pointed 482 00:27:41,240 --> 00:27:44,919 Speaker 1: out that so far this year, on sixty two and 483 00:27:44,960 --> 00:27:48,479 Speaker 1: a half percent of trading days, the Nasdaq one hundred 484 00:27:48,480 --> 00:27:52,200 Speaker 1: has actually closed in positive territory and that is a 485 00:27:52,240 --> 00:27:56,919 Speaker 1: record for any year in the last thirty four years. 486 00:27:57,000 --> 00:28:00,200 Speaker 1: And I think it's just pretty crazy to think at 487 00:28:00,240 --> 00:28:03,200 Speaker 1: in the year of we're dealing with the coronavirus. We're 488 00:28:03,240 --> 00:28:06,119 Speaker 1: dealing with such deep recession at the same time, then 489 00:28:06,160 --> 00:28:09,400 Speaker 1: as E one hundred has had its largest share of 490 00:28:09,440 --> 00:28:13,800 Speaker 1: positive trading days ever at least uptil this point. I 491 00:28:13,800 --> 00:28:16,399 Speaker 1: got ahead at you, Sarah, that one's pretty good, Katie, 492 00:28:16,760 --> 00:28:18,920 Speaker 1: can you top that one? That's a pretty good. Crazy thing, though, 493 00:28:19,119 --> 00:28:21,840 Speaker 1: I would say one of the craziest things that we're 494 00:28:21,880 --> 00:28:25,600 Speaker 1: seeing in this market is just really a typical behavior 495 00:28:25,720 --> 00:28:28,440 Speaker 1: for a recession, and so I would I would call 496 00:28:28,480 --> 00:28:32,280 Speaker 1: out here, for example, home builders. During a typical economic downturn, 497 00:28:32,359 --> 00:28:38,560 Speaker 1: people hold off surprisingly from buying homes and home builders suffer. UM. However, 498 00:28:38,600 --> 00:28:41,480 Speaker 1: the home builders have been doing really well, growing profits 499 00:28:41,560 --> 00:28:45,080 Speaker 1: and stocks have have been rewarded. And why because in 500 00:28:45,120 --> 00:28:49,040 Speaker 1: the COVID specific recession we've got record low mortgage rates 501 00:28:49,080 --> 00:28:52,760 Speaker 1: and also mass exoduses from cities, so mortgage applications at 502 00:28:53,680 --> 00:28:57,640 Speaker 1: and the median listing price of homes up up seven UM. 503 00:28:57,680 --> 00:29:01,760 Speaker 1: And then of course there's also some UM associated companies 504 00:29:01,760 --> 00:29:04,400 Speaker 1: that are are benefiting as we spend more time in 505 00:29:04,400 --> 00:29:07,479 Speaker 1: our existing homes and buy new homes like UM, like 506 00:29:07,520 --> 00:29:12,000 Speaker 1: Sherwin Williams, for example, who of course sells paints they're 507 00:29:12,040 --> 00:29:16,360 Speaker 1: showing pain sales up in the second quarter as more 508 00:29:16,440 --> 00:29:19,120 Speaker 1: people again focused on decorating the homes that they're they're 509 00:29:19,120 --> 00:29:22,440 Speaker 1: spending more time in UM, which also supports the fact 510 00:29:22,560 --> 00:29:26,800 Speaker 1: that UM in this quarantine, watching paint dry has actually 511 00:29:26,840 --> 00:29:34,040 Speaker 1: become an exciting exercise. I mean, we have to get creative, right, Yeah, 512 00:29:34,360 --> 00:29:38,720 Speaker 1: that's pretty good. The housing data lately has been pretty 513 00:29:38,760 --> 00:29:40,640 Speaker 1: amazing to watch. I think it's caught a lot of 514 00:29:40,640 --> 00:29:45,040 Speaker 1: people off guard as well. It is remarkable. Yeah, well, Katie, 515 00:29:45,040 --> 00:29:46,840 Speaker 1: I hope my wife doesn't listen to this and get 516 00:29:46,880 --> 00:29:50,840 Speaker 1: ideas about us repainting the house. I cannot stand painting. 517 00:29:50,960 --> 00:29:54,080 Speaker 1: I as you said, your your husband's the CFO. I'm 518 00:29:54,080 --> 00:29:57,160 Speaker 1: the official house painter of our house. My wife's actually 519 00:29:57,160 --> 00:30:00,840 Speaker 1: our our CFO, and I'm the official house paint and 520 00:30:00,880 --> 00:30:04,160 Speaker 1: the I T guy. I gotta fix all the kids. Uh, computers, 521 00:30:04,240 --> 00:30:09,800 Speaker 1: they sort, they do. It's it's usually you know, if 522 00:30:10,000 --> 00:30:12,280 Speaker 1: if you restarted and it doesn't fix it, then I'm 523 00:30:12,280 --> 00:30:14,040 Speaker 1: out of ideas. So I don't know but that you'd 524 00:30:14,120 --> 00:30:17,000 Speaker 1: be abased how many times that fixes it? All? Right? 525 00:30:17,040 --> 00:30:20,200 Speaker 1: You guys, You guys came pretty pretty well this this 526 00:30:20,760 --> 00:30:22,600 Speaker 1: week with the crazy things. I'll give you mine. Sorry, 527 00:30:22,600 --> 00:30:25,400 Speaker 1: mine's a few weeks old, I confess, but I can't 528 00:30:25,400 --> 00:30:28,960 Speaker 1: believe it hasn't come up in the Crazy Things uh 529 00:30:29,040 --> 00:30:32,400 Speaker 1: episode yet or Crazy Things segment whatever. We call our gimmick. 530 00:30:33,000 --> 00:30:35,360 Speaker 1: And it's a story from the Financial Times a few 531 00:30:35,360 --> 00:30:40,560 Speaker 1: weeks ago about what they called mafia bonds and as 532 00:30:40,600 --> 00:30:43,920 Speaker 1: their leader of their story says, international investors bought bonds 533 00:30:44,000 --> 00:30:47,680 Speaker 1: backed by the crime proceeds of a Italy's most powerful 534 00:30:47,720 --> 00:30:51,920 Speaker 1: mafia according to financial and legal documents. So basically the 535 00:30:52,040 --> 00:30:54,920 Speaker 1: mafia and Italy had set up a bunch of sort 536 00:30:54,920 --> 00:30:58,760 Speaker 1: of fake front companies and then issued bonds not on 537 00:30:58,800 --> 00:31:02,800 Speaker 1: the not on public markets, but in private markets um 538 00:31:03,000 --> 00:31:07,680 Speaker 1: basically backed by these fake front companies. So that sort 539 00:31:07,720 --> 00:31:11,760 Speaker 1: of one billion euros worth of these bonds. Amazing story 540 00:31:11,760 --> 00:31:13,760 Speaker 1: from the FT. I will say they left out. There's 541 00:31:14,000 --> 00:31:17,360 Speaker 1: one big important thing they left out. They didn't say 542 00:31:17,400 --> 00:31:20,800 Speaker 1: what the yield was. If I'm gonna buy some mafia bonds, 543 00:31:20,840 --> 00:31:23,960 Speaker 1: I want to I want a nice yield, I want 544 00:31:23,960 --> 00:31:26,640 Speaker 1: a nice spread. They did say that investors in the 545 00:31:26,680 --> 00:31:30,400 Speaker 1: bonds included pension funds, hedge funds, and family offices quote, 546 00:31:30,400 --> 00:31:33,280 Speaker 1: all looking for exotic ways of earning high returns at 547 00:31:33,280 --> 00:31:35,960 Speaker 1: a time of record low interest rates. So that is 548 00:31:36,000 --> 00:31:39,400 Speaker 1: certainly one exotic way. I don't know, Katie, if I 549 00:31:39,400 --> 00:31:41,640 Speaker 1: don't know how mafia bonds fair in the in the 550 00:31:41,640 --> 00:31:43,560 Speaker 1: E S G. I imagine that wouldn't fit your E 551 00:31:43,640 --> 00:31:45,560 Speaker 1: S G bill, right, I don't think it fit the 552 00:31:45,560 --> 00:31:48,080 Speaker 1: E s G bill. And if people are looking for 553 00:31:48,400 --> 00:31:51,200 Speaker 1: better returns, I would encourage them to first look at 554 00:31:51,240 --> 00:31:54,080 Speaker 1: equity markets. We we've got a lot of returns and 555 00:31:54,640 --> 00:31:58,720 Speaker 1: on offer from some very responsible companies, and some of 556 00:31:58,720 --> 00:32:02,280 Speaker 1: them trading at attractive euasians. That's right, it's all. It's 557 00:32:02,280 --> 00:32:04,960 Speaker 1: all about risk adjusted returns. Your risk with these bonds 558 00:32:05,040 --> 00:32:08,520 Speaker 1: is quite unique. I think. Yeah, from now on, when 559 00:32:08,640 --> 00:32:11,120 Speaker 1: people say or talk about the Tina trade and say 560 00:32:11,160 --> 00:32:13,760 Speaker 1: there is no alternative because interest rates are so low, 561 00:32:14,120 --> 00:32:16,000 Speaker 1: Mike's going to go ahead and just point them to 562 00:32:16,040 --> 00:32:20,320 Speaker 1: mafia bonds I have in New Jersey here, so you 563 00:32:20,360 --> 00:32:24,280 Speaker 1: know there might be a different class investors interested in 564 00:32:24,280 --> 00:32:27,720 Speaker 1: news than Okay, a couple of weeks old, but that 565 00:32:27,760 --> 00:32:30,440 Speaker 1: one was worth it. I had Listerine perpetual bonds the 566 00:32:30,440 --> 00:32:36,400 Speaker 1: other week. Mafia bonds beat that, all right? Well, I 567 00:32:36,440 --> 00:32:40,600 Speaker 1: think we all came prepared this week housing Mafia bonds 568 00:32:40,720 --> 00:32:43,840 Speaker 1: and then also just the Nasdaq continues to make its 569 00:32:43,880 --> 00:32:46,000 Speaker 1: way onto the list. So with that said, Katie Cox, 570 00:32:46,080 --> 00:32:47,960 Speaker 1: thank you so much for coming on the show this week. 571 00:32:48,560 --> 00:32:50,480 Speaker 1: It was really fun. Thanks so much to both of 572 00:32:50,480 --> 00:33:01,520 Speaker 1: you for having me What Goes Up. We'll be back 573 00:33:01,640 --> 00:33:04,440 Speaker 1: next week. Until then, you can find us on the 574 00:33:04,440 --> 00:33:08,800 Speaker 1: Bloomberg Terminal, website and app, or wherever you get your podcasts. 575 00:33:09,200 --> 00:33:11,000 Speaker 1: We love it if you took the time to rate 576 00:33:11,040 --> 00:33:14,040 Speaker 1: interview the show on Apple Podcasts, so more listeners can 577 00:33:14,080 --> 00:33:16,720 Speaker 1: find us, and you can find us on Twitter, follow 578 00:33:16,760 --> 00:33:20,560 Speaker 1: me at at Sara Pantzeck, Mike is at Reaganonymous, and 579 00:33:20,680 --> 00:33:24,960 Speaker 1: you can also follow Bloomberg Podcasts at Podcasts. Also thank 580 00:33:25,000 --> 00:33:27,480 Speaker 1: you to Charlie Pellett of Bloomberg Radio and the voice 581 00:33:27,480 --> 00:33:30,400 Speaker 1: of the New York City Subway System. What Goes Up 582 00:33:30,480 --> 00:33:33,800 Speaker 1: is produced by Jordan Gospore. The head of Bloomberg Podcast 583 00:33:33,920 --> 00:33:37,040 Speaker 1: is Francesca Levi. Thanks for listening, See you next time.