Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
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Speaker 1: Bloomberg dot com. Diversity washing It's apparently a thing. It
Speaker 1: has to do with CEOs talking up diversity and how
Speaker 1: they benefit ultimately the most. And this story is in
Speaker 1: the upcoming new issue of Bloomberg Business Week. It's out
Speaker 1: on newstands today, It's online at Bloomberg dot com slash
Speaker 1: business Week. It's also on the Bloomberg terminal. Let's get
Speaker 1: to it with Bloomberg News Managing Diversity reporter Jeff Green,
Speaker 1: who joins us on the phone from Michigan. I gotta
Speaker 1: tell you, Jeff, I I've heard of greenwashing, but I
Speaker 1: had not heard of diversity washing until reading your story today,
Speaker 1: So so breakdown what it is and how it's defined. Yeah,
Speaker 1: it's so pretty cool. Ever, work by John Larker at
Speaker 1: i mean, David Larker at Stanford and some other folks.
Speaker 1: They took what people have been saying in regulatory filings
Speaker 1: about their diversity efforts and they put that together with
Speaker 1: what they're actually doing in terms of the diversity of
Speaker 1: their company. Or they're like, are they getting a lot
Speaker 1: of fines from the e E O C for doing
Speaker 1: bad stuff? And they kind of picked out the people
Speaker 1: who had the biggest disconnect between what they were bragging
Speaker 1: about and what they were actually doing, and they called
Speaker 1: that diversity watching. And it turns out it works. In
Speaker 1: other words, what does that mean? It works well? The
Speaker 1: people who talked it up a lot, even if they
Speaker 1: weren't doing much, tended to be get higher E s
Speaker 1: G scores than the people who were kind of speaking
Speaker 1: in line with what they're really doing. And then those
Speaker 1: E s G scores allowed the same companies to then
Speaker 1: get picked more often than the others to be in
Speaker 1: socially responsible investment funds. So you know, at this point,
Speaker 1: until somebody can actually see what you're saying more clearly,
Speaker 1: it's it's a pretty good tactic. Well so okay, so
Speaker 1: maybe attracting and investors, but it also helps boost their
Speaker 1: compensation as well. Right, you guys know this as well. Yeah,
Speaker 1: there's a separate study from Harvard where yeah, by adding
Speaker 1: in compensation to the CEO pay you um as a factor,
Speaker 1: they get a bonus. But you can't as an investor
Speaker 1: really tell what that means. For the same reasons, they
Speaker 1: can get people who invest in them even if they're
Speaker 1: not really doing much in terms of diversity. So this
Speaker 1: is stuff that you track, uh, in your in your role, Jeff,
Speaker 1: and you know, you guys have done some great work
Speaker 1: in terms of tracking numbers when it comes to diversity.
Speaker 1: When it comes to what companies are actually doing, what
Speaker 1: do companies talk about when they say they're doing this
Speaker 1: stuff versus what they're actually doing? Like, you know, the
Speaker 1: proof is obviously in the data and it's in the numbers,
Speaker 1: But what are companies saying versus what they're doing? Well,
Speaker 1: they is use a lot of the of the fancy
Speaker 1: words that everyone wants to hear about. You know, we're
Speaker 1: going to do more to make our leadership more diverse.
Speaker 1: We're gonna try to retain and hire more diverse workforce.
Speaker 1: Is it always about what we're going to try to do? Like,
Speaker 1: what we're trying to do is what we're doing, if
Speaker 1: you know? I mean it's the problem is there's no
Speaker 1: way to know for sure. I mean, there is no
Speaker 1: universal requirement that companies publicly report what they're doing in diversity,
Speaker 1: so they can pick whatever they want, in whatever format
Speaker 1: they want, in any way they want. And that is
Speaker 1: the problem. You know, this is I do feel like,
Speaker 1: can we say it a lot, Jeff is? It does
Speaker 1: feel like E s G is going through a reckoning
Speaker 1: um And you know, Tim and I talked about it's
Speaker 1: not going to matter until you really have metrics that
Speaker 1: you can apply to company to company to company, and
Speaker 1: then when a company reports their quarterly that's part of
Speaker 1: the assessment and they get rewarded or penalized, you know,
Speaker 1: if they don't meet those E s G metrics. But
Speaker 1: I feel like we have a ways to go. Where
Speaker 1: are where are regulators on this? How How does the
Speaker 1: SEC if that's the body that should be in control
Speaker 1: of it, how are they moving forward to figure it out?
Speaker 1: There really hasn't been a like a concerted effort to
Speaker 1: get at this. I mean, to be honest, we could
Speaker 1: fix this tomorrow. Every company puts out of what they
Speaker 1: call an EO one form every year shows the gender
Speaker 1: and rache you breakdown of their entire company around like
Speaker 1: uh nine or ten classes of workers. They have to
Speaker 1: do it every year. They do it, but it's private
Speaker 1: and they don't have to release it. And maybe a
Speaker 1: couple of hundred companies are, but not you know, tens
Speaker 1: of thousands. So if everyone just said, here's our EO one,
Speaker 1: we could really start to see company to company what's
Speaker 1: going on. But companies are uncomfortable with it because well,
Speaker 1: they say that they're outdated and they don't capture things correctly,
Speaker 1: but also they tend to make them look bad. Jeff.
Speaker 1: For someone who does this day in and day out
Speaker 1: and knows the research, knows what's going on. I mean,
Speaker 1: how difficult though, is it in terms of reporting and
Speaker 1: to kind of call a company out. Yeah, I mean
Speaker 1: you gotta kind of you gotta basically they gotta call
Speaker 1: themselves out. To be honest, it's it's really difficult unless
Speaker 1: you got a whistleblower to know for sure what's going
Speaker 1: on and occasionally. You know, ironically, the companies that are
Speaker 1: most open are the ones we can call out. So
Speaker 1: the companies that are actually trying to play by the
Speaker 1: rules are the ones most likely to get burned by this.
Speaker 1: And that's kind of I guess the price they pay
Speaker 1: because they say, well, we're trying to set the set
Speaker 1: the tone, you know, to get other companies to follow.
Speaker 1: But most of the time, what it means is they're
Speaker 1: going to be the ones out front getting there. You know,
Speaker 1: the whack of mole is going to get them first.
Speaker 1: Isn't it a little concerning that this is the results
Speaker 1: that we see from the study, and now it sort
Speaker 1: of gives companies an idea. Okay, wait a second, if
Speaker 1: I just keep doing this but not actually making any change,
Speaker 1: then it will continue to benefit me. Yeah, I think
Speaker 1: they've already been doing it. I don't think. But really,
Speaker 1: I don't think anyone cannot talk about this on their calls.
Speaker 1: So it's it's always going to be a question of
Speaker 1: are they actually doing anything? And we are kind of
Speaker 1: in a time when employees will notice. So you can
Speaker 1: look around, you can look around your workspace and see
Speaker 1: whether it's working or not. So This isn't something that's
Speaker 1: impossible for people to know. It's just as the pressure
Speaker 1: grows for companies to disclose, there's more information available. It's
Speaker 1: just not apples to apples, So you really can't compare
Speaker 1: across the industry, Like is this good or is this bad?
Speaker 1: I have no idea. Where is the ethics though? And
Speaker 1: all of this? Like I've been thinking about if I'm
Speaker 1: heading a company and I'm saying I'm doing X, Y Z,
Speaker 1: and then I kind of know it's just a lot
Speaker 1: of fluff and talk. Um. I feel like coming off
Speaker 1: the pandemic, I feel like coming off of the murder
Speaker 1: of George Floyd, like we were having some fairly honest
Speaker 1: conversations with leaders and maybe they felt like they were
Speaker 1: more comfortable to do so, but about diversity and some
Speaker 1: really important issues. Um, and I really felt like that
Speaker 1: there was a ce change. Uh. Now I'm not so sure.
Speaker 1: So where's the you know, the consciousness of wait a minute,
Speaker 1: if I say I'm doing it, I need to be
Speaker 1: doing it. Well. I mean, I think the sort of
Speaker 1: the issue here is this is marketing. I mean we've
Speaker 1: actually done stories where we looked at it and the
Speaker 1: very first sort of area where you see this come
Speaker 1: in is people with a marketing background, not people with
Speaker 1: the science background. We wrote some stories about this botus.
Speaker 1: It may be shifting, but by and large, this is
Speaker 1: marketing and it's just like any you know, how many
Speaker 1: commercials do you watch and go, oh, that was very honest.
Speaker 1: You know, buy our beer. It tastes bad. But you know,
Speaker 1: I've been called naive before. Jeff, I get where you're going. Hey, Jeff,
Speaker 1: what does this say about s G? Because that's that's
Speaker 1: a big part of the conversation that we've been having
Speaker 1: in recent months. And I think it's come to the
Speaker 1: four because really, you know, in a down market you
Speaker 1: start to see kind of a lot of different and
Speaker 1: hard truths. Um, what does this say about E s
Speaker 1: G and the relationship that E s G has with
Speaker 1: what what companies say about D E I. I mean,
Speaker 1: it's well past time that people start to have some
Speaker 1: real conversations about this. We're asking people to change like
Speaker 1: the entire economy of the world based on some assumptions
Speaker 1: and asking them to do a whole lot of stuff.
Speaker 1: And up until a few years ago, it was just
Speaker 1: puppies and rainbows, I mean, which is yeah, we want
Speaker 1: to save the planet, will do whatever it takes. And
Speaker 1: now we're starting to actually decide we need we're doing
Speaker 1: those things, we're setting goals, and I think it's it's
Speaker 1: a good time to have people say, ay, are what
Speaker 1: are you actually doing? And be is that really going
Speaker 1: to result in what you say it's going to result in?
Speaker 1: And and what is the trade off? And having like
Speaker 1: real conversations. This is you know, like I said, it's marketing,
Speaker 1: but it needs to be science. So and we're not
Speaker 1: there yet. We're not even close to that yet. Hey,
Speaker 1: definitely thing I do wonder And this is another thing
Speaker 1: to me I talk about. You know, when the market's
Speaker 1: doing really well, it's easy for people to be gung
Speaker 1: ho about E S G initiatives. Are you know, companies
Speaker 1: coming out and saying we're going to do these diversity
Speaker 1: initiatives and so on and so forth. But I feel
Speaker 1: like when recessions come or economic slowdown, everybody pulls back.
Speaker 1: Are we seeing that kind of um momentum happen again?
Speaker 1: Are people are understanding wait a minute, we gotta say
Speaker 1: we're going to do better and actually do better well
Speaker 1: until that employment unemployment rate gets higher. I think it's
Speaker 1: difficult for companies to make those kind of decisions. And also,
Speaker 1: I mean it's it's the kind of thing where you
Speaker 1: you know, again you need to hire people and people
Speaker 1: are that it's really hard to kind of stop at
Speaker 1: that level of like the only risk I would say
Speaker 1: the biggest risk is the first in, first out. Companies
Speaker 1: tend to be hiring more diverse now than they used
Speaker 1: to be. So in theory, if you're if those ten
Speaker 1: thousand people leaving, you know what Microsoft are from the
Speaker 1: first you know, the group that's most recently in, then yeah,
Speaker 1: you're gonna see a dent. And a lot of stuff
Speaker 1: would happened at Twitter. You know, we wrote that like
Speaker 1: we think that could see a dent. So it's a
Speaker 1: kind of question of you know, who are you cutting
Speaker 1: loose into recession? And does this worker shortage actually go away?
Speaker 1: It seems like we're still missing a couple of million
Speaker 1: workers that we need to make this um you know,
Speaker 1: put the power back in the hands of employers thirty seconds, Jeff,
Speaker 1: what needs to happen in order for permanent change to
Speaker 1: to actually take place at these companies? Show us the numbers,
Speaker 1: I mean, just show me real numbers that I can
Speaker 1: compare across the industry, across the country, across everything else,
Speaker 1: and then we'll know it's there. You have it, you
Speaker 1: already collected, Just show it right, transparency right. It would
Speaker 1: change things dramatically. Also would be great for Jeff's job.
Speaker 1: Get those get those numbers, just like please please, need
Speaker 1: little selfish, but it's still what we want to see it.
Speaker 1: We all want to see it to Jeff selfish for
Speaker 1: a good mission. Jeff Green, Thank you, Bloomberg News Managing
Speaker 1: Diversity reporter Jeff Green. Joining us via zoom from Michigan.
Speaker 1: These sees Bloomberg Business Week with Carol Messer and Tim
Speaker 1: Stentovic on Bloomberg Radio. We do want to get to
Speaker 1: another story that's in the new issue of Bloomberg business Week.
Speaker 1: It's also the Bloomberg Big Take. It's about the Foe
Speaker 1: meet Frenzy that's feeling more like a fad rather than
Speaker 1: a food fix. With her cover story, we've got Bloomberg
Speaker 1: News Consumer reporter Dina Shanker, along with the Bloomberg Business
Speaker 1: Week editor Joel Webber, both right here in our Bloomberg
Speaker 1: Interactive Broker's studio. Joel, where's the beef. Well, the beef
Speaker 1: has always been there. The what hasn't been around forever
Speaker 1: has been the fake meat. And about a decade ago,
Speaker 1: you know, impossible burgers started to make some noise and
Speaker 1: then along came Beyond Meat. And when Beyond Meat went
Speaker 1: public that I p O was the biggest I p
Speaker 1: O since the financial crisis was wild to sue to
Speaker 1: read that I no idea And so that was all
Speaker 1: really interesting, and I think um consumers were beginning to
Speaker 1: think like, hey, this is the future of what meat
Speaker 1: is gonna look like. And then fast and I think,
Speaker 1: you know, the pandemic, more people tried this stuff, and
Speaker 1: then you throw in a little inflation and grocery bills
Speaker 1: going up, and then oh, by the way, what's this
Speaker 1: fake meat stuff made out of? And the company's uh,
Speaker 1: have hit some headwinds. And what really caught my attention
Speaker 1: and our attention to the magazine was Dina's all star
Speaker 1: reporting throughout this and the headlines that we're starting to
Speaker 1: resonate with me were about the fast food stuff because
Speaker 1: all these fast food companies were suddenly was like, wait, wait,
Speaker 1: why isn't McDonald's doing this, you know, and where why
Speaker 1: isn't anything permanent on the menus, And so we started
Speaker 1: talking to Dina about, you know, what's going on with
Speaker 1: fake meat, and it turns out that, you know, there
Speaker 1: was a moment where fake meat was in a hyper
Speaker 1: growth mode and it's beginning to look more like that
Speaker 1: fat right, Dina, take us inside your reporting. What'd you learn?
Speaker 1: Thanks so much. Yeah, it was It's been years in
Speaker 1: the making because, as you said that I p O
Speaker 1: was huge and everyone was excited about it. I mean
Speaker 1: the entire industry. Suddenly you had like the small new
Speaker 1: startups that were coming up that we're getting tons of
Speaker 1: funding because everyone's an opportunity here. You had the big
Speaker 1: food companies coming out with new products or reinventing old ones.
Speaker 1: Everyone wanted a piece of this because every one thought, yeah,
Speaker 1: we can convince meat eaters to sub something else in.
Speaker 1: But it turns out that that's a really hard sell
Speaker 1: and it's gonna get even harder if the food doesn't
Speaker 1: taste quite as good, and it doesn't according to most
Speaker 1: people that you will ask about it. It's also more expensive.
Speaker 1: And then yes, environmentally these things are so much better
Speaker 1: for the planet, but most people aren't buying for the planet,
Speaker 1: they do care about their health, but then turns out
Speaker 1: these products are not healthy. Now, some people might say
Speaker 1: they're marginally healthier, but even that is not settled. So
Speaker 1: consumers just really started backing away, and we saw sales
Speaker 1: plummet at the supermarket, restaurants just everywhere basically. Well, and
Speaker 1: this is something we've been talking about it before we
Speaker 1: got going. Is for me, like, if it was healthy,
Speaker 1: I'd be a buy in. I mean, what exactly is
Speaker 1: in it? I mean, I know there's a lot of sodium, right,
Speaker 1: not good? What else? So these are ultra processed foods,
Speaker 1: which means that the ingredients themselves are processed or their
Speaker 1: extracts of other foods. So, uh, that means the ingredients list,
Speaker 1: are they so crazy compared to other things in the supermarket.
Speaker 1: They're not. There's a ton of processed food out there,
Speaker 1: but which I also don't exactly that and that's exactly right.
Speaker 1: And so if you're trying to appeal to health conscious consumers,
Speaker 1: those are exactly the consumers who know to uh, flip
Speaker 1: the package and look at the ingredients and look at
Speaker 1: the nutrition facts. Okay, So that actually speaks to an
Speaker 1: interesting thing here because the audience for this has you know,
Speaker 1: when you look at it, it's like, okay, well, if
Speaker 1: it's fake meat, that means vegetarians would want this, right,
Speaker 1: But how's it gone over with meat eaters versus vegetarians
Speaker 1: since those were the two categories of people that they're
Speaker 1: trying to get here, Right, So, vegetarians and vegans by
Speaker 1: the most of this stuff per capita um. But at
Speaker 1: the same time, some of them are not really so
Speaker 1: into it either because they're not really looking for something
Speaker 1: that is that close to something meaty. Vegetarian, I don't
Speaker 1: want to see the food bleeding. There are plenty of
Speaker 1: vegetarians that like meat, but they have other reasons for
Speaker 1: animal welfare reason, environmental reasons, and these are appealing to them,
Speaker 1: and they're probably the best customers. They're buying the most
Speaker 1: of it um. But then you also have the meat eaters,
Speaker 1: and meat eaters just don't buy with regular frequency. They
Speaker 1: kind of dip int about um. A lot of people,
Speaker 1: you know, thought I'd like to cut down my meat
Speaker 1: intake and tried these. Some of them said okay, well
Speaker 1: that was that was okay, And and then they've got
Speaker 1: comfortable with the idea of something like lentils or beans um,
Speaker 1: which is also a lot healthier and cheaper. Um. Other
Speaker 1: people were like, well, yeah, I'll go back. I'll have
Speaker 1: some chicken because chickens. I know, chicken is healthy, and
Speaker 1: it's still a lot less expensive than beef and less
Speaker 1: expensive than this stuff. So the consumer base is just
Speaker 1: really very narrow. What is it about food fads that
Speaker 1: gets people so excited? And I'm old enough to remember
Speaker 1: like the snack Wells fat free food craze which you mentioned,
Speaker 1: the Olean slash Olestra stuff and potato chips, which I
Speaker 1: remember my dad explaining to me what that was. I mean,
Speaker 1: that was supposed to be really exciting, and then after
Speaker 1: a few months or a few years, people start to realize,
Speaker 1: wait a second, this isn't good for us. It's like
Speaker 1: we haven't even learned this. We're all just really obsessed
Speaker 1: with the idea of looking good and also want to
Speaker 1: eat all the time. And so anytime somebody can offer
Speaker 1: a solution that sounds like it will let us be
Speaker 1: both of those things, we all jump on it. Are
Speaker 1: you looking at me? King? Okay? One thing I do
Speaker 1: want to ask more about. The article is ultimately about
Speaker 1: two different companies right Beyond and Impossible and beyond the
Speaker 1: publicly traded one, and we talked a little bit about
Speaker 1: that I p O before UM, which you know, just
Speaker 1: to rewind the clock a little bit and like think
Speaker 1: about how how rosy of a picture it was in
Speaker 1: twenty nineteen in July, UH stock hitting out all time
Speaker 1: high children four dollars a share. UH right now is
Speaker 1: trading at fourteen. So gives you a sense of how
Speaker 1: much enthusiasm has come out of this space. But so
Speaker 1: what what what do the prospects look like for Beyond?
Speaker 1: And what about Impossible, which is still privately held. So
Speaker 1: to strategic differences, I think here, yeah, to UH companies
Speaker 1: obviously with a lot in common, but also that operate
Speaker 1: very differently. Beyond has a lot of issues that I
Speaker 1: wouldn't attribute to the category or to consumers. They have
Speaker 1: a really hard time executing and we've covered that for
Speaker 1: a while. UM, they've had a really hard time bringing
Speaker 1: costs down because of that. UM, their leadership is constantly changing,
Speaker 1: so they have their own problems. Impossible is private, so
Speaker 1: of course we don't know the same with the same
Speaker 1: level of detail about their sales. We do know their
Speaker 1: supermarket sales are way up. For twenty two, they went
Speaker 1: up by more than fifty according to the company. The
Speaker 1: way they did that was largely by just adding more
Speaker 1: and more products, which is a tried and true food
Speaker 1: UM strategy to get people to buy more things. You know,
Speaker 1: you just in two ways. One is that the more
Speaker 1: products you can put on a shelf, the more likely
Speaker 1: a consumer is going to notice them. You know, when
Speaker 1: a yogurt company has like fifteen flavors, it's not because
Speaker 1: they think every one of those fifteen flavors is going
Speaker 1: to sell well. If they want that space and um,
Speaker 1: then whichever one of those products do sell well, they'll
Speaker 1: hold on too, and they'll keep cycling in and out
Speaker 1: of innovation. So that's the that's what Impossible is doing
Speaker 1: now in supermarkets, and it makes total sense because their
Speaker 1: CEO comes from Chobani and has all of that experience.
Speaker 1: You know, the thing about feeding the world and that
Speaker 1: the you know, meat, what it does to the environment,
Speaker 1: to our earth, and especially as the population continues to grow,
Speaker 1: there is something to say that we've got to figure
Speaker 1: out some agricultural innovation, right and food at innovation is
Speaker 1: it just a case that they need more time. Am
Speaker 1: I missing something? What do what do folks saying? We
Speaker 1: just have about thirty seconds? I think if it were me,
Speaker 1: I would never depend on sumer behavior for big changes
Speaker 1: because this country has three million consumers in it and
Speaker 1: that's a lot of that's a lot of people to
Speaker 1: expect to change their behavior. I'd go, I try to
Speaker 1: get corporate behavior to change, because there's many fewer corporations
Speaker 1: lave grown meat likelihood to happen. I'd say, really breaking
Speaker 1: about it more, you know, like there's more, there's more
Speaker 1: to you know, put on a peat tradition study that
Speaker 1: sounds like sounds like cover story. There's something about dipping
Speaker 1: dots to in the story. We didn't get into connection
Speaker 1: beyond me. You've got to read it because it's, oh
Speaker 1: my god, I'm terrified. Dina Shankar a killer story consumer
Speaker 1: reporter at Bloomberg News. It's the cover of the new
Speaker 1: issue of Bloomberg Business We check it out, Jill Weber
Speaker 1: are thanks to you, Editor, Bloomberg Business Week, the new
Speaker 1: issue on newsstands on the Bloomberg Online. This is Bloomberg.
Speaker 1: You're listening to Bloomberg Business Week with Carol man us
Speaker 1: Here and Tim Stanovic on Bloomberg Radio. I feel like
Speaker 1: a day doesn't go by that we don't talk about Tessa.
Speaker 1: I mean makes me ask howcom Tesla gets all the love,
Speaker 1: especially when it comes to stocks collapsing in the e
Speaker 1: V space, because uh, it does seem like that's the
Speaker 1: only one we often talk about it does. I mean,
Speaker 1: let's just say, Elon Musk does garner a lot of attention.
Speaker 1: But you know, one of our colleagues here a Bloomberg
Speaker 1: News wrote all about that, writing about just that in
Speaker 1: more is Bloomberg News Equity Markets rewarder Ashton Day. She
Speaker 1: notes that well, Tesla's epic stock price collapse has dominated
Speaker 1: headlines over the past year. For some of the smaller
Speaker 1: electric vehicle companies, the route has been even worse. It's
Speaker 1: a sign that investors see few attractive alternatives in the sector.
Speaker 1: She's right now in our Bloomberg Interactive broker's studio. So
Speaker 1: a couple of companies that you talk about, Uh, Lucid
Speaker 1: is in there, and Rivian is in there as well.
Speaker 1: Before we talk about the differences, let's just talk about
Speaker 1: the damage, because it was actually worse here for those
Speaker 1: companies than for Tesla. Yes, and thanks for having me. Um. Yeah,
Speaker 1: it was quite a terrible here for Rivian and Lucid
Speaker 1: as well. And you know, we can we can discuss
Speaker 1: a lot of reasons why that happened, right, Like we
Speaker 1: saw growth stocks across the stock market kind of getting deestimated,
Speaker 1: But that does not really explain all of it. Um,
Speaker 1: you can we ask how bad they did? Oh, of course,
Speaker 1: So if we if we go back from from the
Speaker 1: peak Tesla so far at the bottom of it, which
Speaker 1: was like earlier this year fell around, Rivian and Lucid
Speaker 1: lost almost so that's yes, decimated the word right, that's
Speaker 1: that's a lot. So go back to what you were
Speaker 1: saying that in terms of the reasoning. I mean, how
Speaker 1: much I think when we think about it's so easy
Speaker 1: for a big player like Tessa to come out right
Speaker 1: and then it just drags down the whole sector. But
Speaker 1: I also do wonder if this is where we need
Speaker 1: to be smart, and I feel like we often are
Speaker 1: at Bloomberg is kind of looking at each company individually.
Speaker 1: I mean, can we lump them all in one part?
Speaker 1: That's a great question. Um, can we lump all ev
Speaker 1: names together death literally not Riview and Lucid with Tesla. Right,
Speaker 1: like Tesla, we cannot deny the fact that it's still
Speaker 1: definitely the biggest EV maker out there. It's it's proven
Speaker 1: the fact that evs are viable. People want evis. It
Speaker 1: has also proven that it can produce evis profitably. Rivieans
Speaker 1: and Lucids of the world and many other startups that
Speaker 1: are out there EV names, they haven't really been able
Speaker 1: to do that yet, so they are a group on
Speaker 1: their own, the ev pure play EV startups and and
Speaker 1: some of the decimations, as I said, like some of
Speaker 1: the decimations we saw in their share price was due
Speaker 1: to the fact that growth stocks, especially unprofitable, super risky
Speaker 1: growth stocks, really saw the value kind of getting taken
Speaker 1: away as investors are looking for more safer investments. But
Speaker 1: these companies have troubles of their own, and those troubles
Speaker 1: are getting magnified. When we are seeing a company even
Speaker 1: like Tesla, really struggling with the demand. If Tesla is
Speaker 1: having to cut prices by twenty person, what does it
Speaker 1: mean for these companies that barely have any of their
Speaker 1: like any kind of scaling our production. How do they
Speaker 1: manage their margins? You know, I'm looking up, I'm curious
Speaker 1: about you know, companies like Ford and GM, companies that
Speaker 1: are established automakers who've seen different economic cycles, been around
Speaker 1: in some cases for more than a century, and they've
Speaker 1: weathered previous storms. And I'm wondering if you know, it
Speaker 1: says something about the EV industry, if it says something
Speaker 1: about the auto industry, or if this is simply just
Speaker 1: a growth stock slash, you know, tech stock story. Is
Speaker 1: it about UM investors not necessarily see an opportunity when
Speaker 1: it comes to these upstart automakers and thinking, okay, Ford
Speaker 1: and GM and Volkswagen, that's where we're going to see
Speaker 1: the big numbers UM. So I think the heart of
Speaker 1: the storylines and the fact that these companies are having
Speaker 1: a really bad luck macro wise at a time when
Speaker 1: they're really not established at all. They maybe at their
Speaker 1: start ups right exactly. So you know, for Ford and GMS,
Speaker 1: they have they weathered really bad sessions, but they were
Speaker 1: already established companies. They had the economies of scale, they
Speaker 1: had profit on their balance sheet maybe and not at
Speaker 1: that point, but they did. Uh, these companies have nothing.
Speaker 1: They were like these giant companies at one point was
Speaker 1: bigger than GM invaluation but that does not mean that
Speaker 1: they had established machinery often established company behind them. And
Speaker 1: be fair, both Ford and GM did finish down last
Speaker 1: year by so it's not like, you know, they were
Speaker 1: seeing an upswing while these other companies weren't. No, it's
Speaker 1: a really good point, right the whole sector in terms
Speaker 1: of right that we saw pressure. You know, I'm looking
Speaker 1: at some of these numbers. Lucien began Lucid excuse me,
Speaker 1: began trading in July one. Equity value tapped out at
Speaker 1: nine billion in November that year. Van shares peaked just
Speaker 1: days before or just days after. It's November I p O,
Speaker 1: valuing the company in a hundred and fifty three billion
Speaker 1: more than Volkswagen, despite Rivan having zero revenue at the time. Like,
Speaker 1: I know, it sounds like what but we understand this,
Speaker 1: Like there was a point where Tesla wasn't making learnings
Speaker 1: and you know, and then it and then it did.
Speaker 1: Um what I do wonder about the viability though, of
Speaker 1: maybe all of them, Maybe it's just Rivian and you know,
Speaker 1: um Lucy that we need to think about because the
Speaker 1: cost of capital has gotten more expensive and so if
Speaker 1: they have to tap the market, either the private market
Speaker 1: to the public markets. It's more expensive, absolutely, and that
Speaker 1: kind of again like that is the main risk for
Speaker 1: these companies. For a Tesla, despite the six rob that
Speaker 1: we just talked about, it's still a three billion dollar company.
Speaker 1: It still has that access, that cheap access to capital
Speaker 1: markets and cheap access to capital that it can tap
Speaker 1: at any point. These companies barely do. I mean, Rivian
Speaker 1: has about thirteen billion of cash on their balance sheet
Speaker 1: as of the end of September the end of September
Speaker 1: um and it's valuation hours around fifteen billion dollars. So
Speaker 1: it's basically trading slightly above the cash that has on hand,
Speaker 1: and that kind of tells us how how risky the
Speaker 1: market things these companies are. Cars at the end of
Speaker 1: the day, are consumer discretion in their discretion it purchases.
Speaker 1: Evis are way more expensive, especially a car like Ribbean.
Speaker 1: Ribban's cars are way more expensive than gas riven cars. Um.
Speaker 1: So in times are tight, those are the purchases that
Speaker 1: are going to be you know, taken down first by consumers. Yeah,
Speaker 1: but you know, I guess the big picture here is
Speaker 1: that electric is the future, internal combustion engine isn't. And
Speaker 1: the question is who are the companies that are gonna
Speaker 1: be leading this. And I think there's another question too
Speaker 1: about how investors value these companies. Are they actually valued
Speaker 1: as traditional automakers or now they're realizing they should be
Speaker 1: valued as traditional automakers, or are they valued as tech companies? Right?
Speaker 1: I mean that is sort of the main debate that
Speaker 1: we have always had and still have on Tesla and
Speaker 1: its valuation. Is Tesla a tech company? Is Tesla car company?
Speaker 1: Or is it like some sort of an amalgamation of
Speaker 1: of the two? Right? For Tesla, again, it still does
Speaker 1: not tread like a car company. It's it's valuation is
Speaker 1: still bigger than the combined valuation of GM Ford, still
Speaker 1: Antis and if into Yota, it's incredible even with the decline, right,
Speaker 1: But Tesla has a lot of benefit behind it because
Speaker 1: of that significant market cap, also because it had the
Speaker 1: beginner's advantage, right, like it had like ten fifteen years
Speaker 1: of like a strong run, and it has a massed
Speaker 1: this massive, you know, market value, which also is like
Speaker 1: a fundamental benefit of the company. The Ribvians and Lucids
Speaker 1: don't have that. It's could it could just end up
Speaker 1: being a timing issue for them. Um, it's honorable market.
Speaker 1: We're heading into recession. Um. Evies are the future, yes,
Speaker 1: but the going will be tough for the next couple
Speaker 1: of years for the sector. Who can really go get
Speaker 1: through that? That that that that's the main question that
Speaker 1: investors have, and that's the that's the questions, a lot
Speaker 1: of questions with them beating down so much, to do
Speaker 1: they become potentially a buyout target with somebody who just
Speaker 1: wants to kind especially when you have such a cash
Speaker 1: position for some of them and the balance right, it
Speaker 1: just you're buying the market cabinet and the cash balance,
Speaker 1: which lating now I know we are. We're totally um
Speaker 1: a should day. Thank you so much, really appreciate it.
Speaker 1: She's Bloomberg News Equity markets reporter. You can check out
Speaker 1: more of her story on the terminal. I'm broc journal. Yeah,
Speaker 1: but you let me drive? No, no, no, who's going home?
Speaker 1: All right? Please? I'll do gravels. I want to drive.
Speaker 1: It's good question. Drive. This is the Drive to the
Speaker 1: Clothes on Bloomberg Radio. What's just about seventeen and a
Speaker 1: half minutes left today's trading session. We've been bouncing around,
Speaker 1: certainly on the equity side of things. We are off
Speaker 1: our highs and lows of the session, Charlie Cross breaking
Speaker 1: it down, and then of course we get Netflix earnings
Speaker 1: after the closing bell. That's gonna be a big focal point,
Speaker 1: certainly for our coverage here at Bloomberg, and we're gonna
Speaker 1: do a deep dive into those results before it there, though,
Speaker 1: let's do a deep dive into today's trade and has
Speaker 1: in store if anyone can tell us, perhaps it Tanks Smith,
Speaker 1: chief investment officer at Have It for Trust, based in Radnor, Pennsylvania,
Speaker 1: joining us on the phone from there this afternoon. Hank,
Speaker 1: how are you good? Afternoon, Tim? I'm doing great man.
Speaker 1: Happy New Year. Happy New Year to you as well.
Speaker 1: It's good to have you with us. So we just
Speaker 1: talked to Steve Matthews on our Bloomber Economics team, and
Speaker 1: I was not wrong. It does sound like the Fed
Speaker 1: officials are saying the same exact thing over and over again.
Speaker 1: But they're doing it for good reason, certainly because they,
Speaker 1: you know, they want to make sure that their messages
Speaker 1: is getting across. Um. What's the message that that you're hearing, Hank,
Speaker 1: And what's it telling you about what equities are going
Speaker 1: to do this year. Well, look, I'm very encouraged by
Speaker 1: said policy because they are taking their inflation mandates seriously.
Speaker 1: Forget about the past mistakes, let's look forward. They do
Speaker 1: not want to repeat the mistakes of the seventies that
Speaker 1: stop go, stop, go, stop go, that allowed inflationary expectations
Speaker 1: to continue to build for eight years. So yes, I
Speaker 1: think there might be a little bit more pain UH
Speaker 1: in the near term, but I think we should have
Speaker 1: confidence that they're doing the right thing and it will
Speaker 1: be good for long term investors to get inflation down. Also,
Speaker 1: any time you go into a bear market, as we
Speaker 1: did in two thousand and twenty two, UH, your return
Speaker 1: expectations have to rise. In fact, percent of the time
Speaker 1: markets fall into bear market territory returns or positives a
Speaker 1: year later. Add to that, we just had mid term
Speaker 1: elections and since nineteen forty two markets have had positive
Speaker 1: returns in the twelve months following mid term elections. Had
Speaker 1: is a lot of data points to hang your hat on. Finally,
Speaker 1: UM two more, um uh two more. Items. UH evaluations
Speaker 1: are reasonable. UH. Small caps and mid cap stocks are
Speaker 1: selling around thirteen fourteen times earnings UH. The equal way
Speaker 1: at SMP selling a thirteen time learning, so we don't
Speaker 1: think evaluations are headwind. And then finally, investment sentiment UH
Speaker 1: is really hasn't been this bad in decades. That's hard
Speaker 1: to believe that it's it's even lower. In other words,
Speaker 1: the bearishness level is greater, the bullishness level is lower
Speaker 1: than it was in oh eight oh nine. I still
Speaker 1: have bruises and scars from that period. Than let me
Speaker 1: jump in for a second, not to be Debbie down here,
Speaker 1: but our Tatiana Dari Dary great column on the Bloomberg
Speaker 1: I think it's part of our day break coverage early
Speaker 1: this morning, and she noted only a mild earnings recession
Speaker 1: is priced into stocks. The good news is that the
Speaker 1: profit downturn hitting America may already be priced in thanks
Speaker 1: to how much analye have dialed back profit forecasts. The
Speaker 1: bad news is there's a major caveat. If the economy
Speaker 1: left is into recession in the second half, stocks probably
Speaker 1: have further to fall. The point is, you know analysts
Speaker 1: um have not necessarily maybe priced that in, that the
Speaker 1: earnings estimates, the current estimates are probably lead too optimistic,
Speaker 1: and that that leaves open a door for the SMP
Speaker 1: five hundred to drop even further than we're planning for now,
Speaker 1: how do you factor that in or do you disregard that? Well?
Speaker 1: I think there is a chance that the SMP five
Speaker 1: gets a lower low than the October twenty two low um.
Speaker 1: But again, our our view is it's likely that we're
Speaker 1: going to have a recession, but equally as likely that
Speaker 1: it's going to be mild and brief. And look, the market,
Speaker 1: the stock market is a forward anticipatory of vehicle and
Speaker 1: UH consistently bottoms ahead of when a recession ends. But
Speaker 1: if we do have a recession, is likely that stocks
Speaker 1: go of a little bit lower of from from these levels.
Speaker 1: But there's a chance that this recession is going to
Speaker 1: be so mild that they'll call the soft ending. But
Speaker 1: would you can see though that if indeed we're not
Speaker 1: earnings estimates haven't come down enough and that things are
Speaker 1: worse than everybody's talking about. This is this is why
Speaker 1: you see kind of the trade that we're seeing over
Speaker 1: the last couple of days. People just don't quite know
Speaker 1: what kind of a downturn and how long it impacts earnings.
Speaker 1: If it goes on for longer than that than what's
Speaker 1: being already priced in that's more problematic for stocks. Correct. Well,
Speaker 1: that's yeah, you said it correctly that the volatility we've
Speaker 1: seen uh this week, UH is really a reflection of
Speaker 1: that battle between um, do we get to go under
Speaker 1: recession do we not? And how badly our corporate profits
Speaker 1: are going to come down? But I mean there are
Speaker 1: some talents the corporate profits. One, the dollar is well
Speaker 1: off its peak. That should be good for for multinational earnings. UH.
Speaker 1: Corporations continue to do major cost cutting, inventories are lean UH,
Speaker 1: and China re opening is going to be a positive
Speaker 1: as well. So UM, you know maybe even in a
Speaker 1: in a no growth or slight recession, UH, profits will
Speaker 1: hold up better than one would think in that type
Speaker 1: of environment. So okay, So if this is what what
Speaker 1: we end up with, if this is what we indeed
Speaker 1: see happening, Hank, then give us give us the sort
Speaker 1: of outlook of allocations and what we should think about
Speaker 1: in terms of equities and fixed income. Carol said it
Speaker 1: earlier today, Um, you know, thinking differently maybe about portfolio
Speaker 1: this year. Well, yeah, the you know, the idea that
Speaker 1: the sixty forty portfolio is dead is very near term
Speaker 1: near term thinking. Um, and I think there's a very
Speaker 1: good chance we've already seen the peak in interest rates,
Speaker 1: you know, with a tenure treasury at four point five
Speaker 1: least fall we might not get back to that level.
Speaker 1: But I think in terms of allocation, uh, and this
Speaker 1: really kind of timeless recommendations that one should always have
Speaker 1: the maximum exposure to equities that allows them to sleep
Speaker 1: at night, and that varies from person to person. And
Speaker 1: also in this environment, we still favor dividend paying companies
Speaker 1: and companies that have a record of increasing dividends on
Speaker 1: a regular basis. That's how you stay ahead of inflation. Um.
Speaker 1: And I think there's going to be continued emphasis on
Speaker 1: quality through two thousand and twenty three as there was
Speaker 1: in two thousand and two. Uh. And there's going to
Speaker 1: be volatility, there's no question about that. Yeah, that's for sure.
Speaker 1: Um And Uh there's some great coverage to about you know,
Speaker 1: this low VIX that we've seen for this protracted period
Speaker 1: of time, what that potentially uh indicates about more volatility
Speaker 1: or maybe some downside when it comes to equities. Hank Smith,
Speaker 1: thank you so much, Chief Investment Officer. To have it
Speaker 1: for trust based in Radar Pennsylvania joining us on the
Speaker 1: phone from their folks. Thanks for listening to Bloomberg Business Week.
Speaker 1: Download the podcast on iTunes, SoundCloud, or Bloomberg dot com.
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