Speaker 1: This is Bloomberg Business Week. I'm Karl Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanovk. We're here every day bringing
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Speaker 1: You can also listen to our radio show at two
Speaker 1: pm Eastern Time on Bloomberg Radio or watches on YouTube
Speaker 1: search Bloomberg Global News. We're watching the energy markets once again,
Speaker 1: Open Plus agreeing to increase the size of its oil
Speaker 1: supply hikes by about fifty in a deal that kept
Speaker 1: Rush at the heart of the cartel while also heating
Speaker 1: pressure from major consumers, including the YES and the United States.
Speaker 1: Excuse me meantime, we've got the EU approving a six
Speaker 1: packet of sanctions, including a partial ban on Russian oil imports,
Speaker 1: after further objections from Hungry held up in agreement. Great
Speaker 1: to have with us right now. Dr ellen Wald, President
Speaker 1: of Transversal Consulting, also senior fellow at the Atlantic Council,
Speaker 1: Andy Bloomberg opinion contributor. Ellen's joining us on the phone
Speaker 1: from Jacksonville, Florida. Dr Wald, good to have you with us.
Speaker 1: Can you explain to me why, given the news that
Speaker 1: that we got from about OPEC increasing the size of
Speaker 1: its oil supply, uh, why we're not seeing oil prices
Speaker 1: pulled back at all? Exactly. Well, the part of the
Speaker 1: reason is because we're unlikely to see the amount of
Speaker 1: oil that actually actually get on the market that OPEC
Speaker 1: is talking about increasing their quotas by so um. You know,
Speaker 1: we're we're talking about an increase of about six hundred
Speaker 1: and fifty barrels a day for the group's quotas. But
Speaker 1: at this point really only Saudi Arabia and the UAE
Speaker 1: can increase production, and to the maximum amount of production
Speaker 1: we can see it increase out of Saudi Arabia that
Speaker 1: we would expect to see would be about a hundred
Speaker 1: and seventy thousand barrels per day, which is really not
Speaker 1: that much when you consider the size of the global
Speaker 1: oil markets. So um. While a lot you know, pay
Speaker 1: members are free to increase if they can, we're talking
Speaker 1: about a group where a lot of them are just
Speaker 1: tapped out. So Ellen I earlier talked to the CFO
Speaker 1: of Chevron for an upcoming Bloomberg event, and you know,
Speaker 1: we were reminded that there are energy booms and energy busts,
Speaker 1: and he says, this is cyclical and it will settle
Speaker 1: down again. And so, you know, do producers think about that,
Speaker 1: Especially when you think about the major integrated global oil companies,
Speaker 1: you know that in terms of kind of investments to
Speaker 1: really ramp up supply, they're going to be hesitant because
Speaker 1: they know it's cyclical and there's also a world that
Speaker 1: we're supposed to be increasingly moving towards alternative energy. Well,
Speaker 1: I think that they are definitely aware of the cyclical
Speaker 1: nature of the oil market, and oil companies are used
Speaker 1: to this kind of boom and bust. In fact, you know,
Speaker 1: if you look at hiring when it comes to oil companies,
Speaker 1: you know they'll hire a lot of people when things
Speaker 1: are good, and then when prices collapse, a lot of
Speaker 1: them end up getting laid off and and that's kind
Speaker 1: of the nature of of the business. It's interesting because
Speaker 1: you know, high oil prices do tend to spur investment
Speaker 1: and development of new resources, but that takes time. It's
Speaker 1: not something that happens overnight. And UM, I think it's
Speaker 1: it's taking a bit more time in this cycle because
Speaker 1: there's so much external pressure on oil companies not to
Speaker 1: invest in new resources. Be that from UM shareholders who
Speaker 1: are really just looking to see oil companies putting uh,
Speaker 1: you know, putting their profits back into uh dividends and
Speaker 1: and other things to return uh money to shareholders or UM.
Speaker 1: We're also seeing pressure from governments. They are making it
Speaker 1: very difficult for companies to uh, you know, to develop
Speaker 1: new resources. The US, for example, has there's been a
Speaker 1: lot of regulatory uncertain t with a buid administration, and
Speaker 1: that makes companies very hesitant to expand we're just now
Speaker 1: starting to see companies in Europe expanding in you know,
Speaker 1: new gas fields, for example. But those kinds of fields
Speaker 1: are not going to come on into production for some time.
Speaker 1: So we may be into a period of uh it
Speaker 1: may be a bit of an extended period of high prices,
Speaker 1: just like we saw an extended period of low prices
Speaker 1: preceding it. What does an extended period of high prices mean?
Speaker 1: Because everything that you just said, Dr Wald makes me
Speaker 1: think that there's no end in sight to five six
Speaker 1: dollar downs of gas at the pump and high energy
Speaker 1: bills in summer and winter. And I'm curious what extended
Speaker 1: means and what how high it might go in that extension. Well,
Speaker 1: how high it goes depends on It depends on a
Speaker 1: lot of things. And also we are seeing. Part of
Speaker 1: what we're seeing in the market is also there's there's
Speaker 1: a premium and prices, both electricity prices and gasoline prices
Speaker 1: up from the geopolitical events in Europe without a out. So,
Speaker 1: you know, if that were to say, be resolved in
Speaker 1: the next couple of months, I think we would definitely
Speaker 1: see prices pulled back, although I really don't know if
Speaker 1: barring you know, if if we're still at the same
Speaker 1: levels of demand, I'm not sure that we would see
Speaker 1: a return to say, like you know, forty or fifty
Speaker 1: or even sixty dollar oil. We'd probably be more firmly
Speaker 1: in the seventy eighty maybe ninety dollar area. Now that
Speaker 1: of course sounds great when you're talking about prices are
Speaker 1: like a hundred and eleven today, so you know, so
Speaker 1: so it is all all kind of relative um and
Speaker 1: the oil market is very volatile right now, and it
Speaker 1: does depend if we enter a period of economic recession
Speaker 1: and potentially contraction, we could also see demand drop and
Speaker 1: that could help cause oil prices to pull back some.
Speaker 1: Though I still don't don't see us getting back to
Speaker 1: those low numbers that we had, you know, in twenty nineteen.
Speaker 1: Ellen just quickly just got about here, will though today's
Speaker 1: current situation geopolitical crisis lead the world to think about
Speaker 1: Venezuela more aggressively despite problems obviously with that political environment
Speaker 1: or present Biden meeting with MBS in Saudi Arabia. I mean,
Speaker 1: do we need to think that these alliances are going
Speaker 1: to have to change? Sorry, just got about seconds. Yeah,
Speaker 1: I think it's difficult to say that because Venezuela has
Speaker 1: such issues with its oil industry anyway, that we can't
Speaker 1: expect a lot of oil to come on the market
Speaker 1: from from them anyway, regardless. Alright, situation, Ellen, Always nice
Speaker 1: to get time with you, Dr Ellen Wall. She is
Speaker 1: President of Transversal Consulting, Senior Fellow a the Atlantic Council,
Speaker 1: Bloomberg Opinion contributor, and she also wrote the book Saudi Inc.
Speaker 1: On the history of Aramka Ramka excuse me in Saudi Arabia.
Speaker 1: You're listening to Bloomberg. This is Bloomberg Business Week with
Speaker 1: Carol Masser and Bloomberg Quick Takes Tim Stenovic on Bloomberg Radio. Well,
Speaker 1: it is a thirty billion dollar market cap company customers
Speaker 1: around the globe, more than two thousand locations around the world,
Speaker 1: helping to create so called intelligent buildings to help address
Speaker 1: our worsening climate crisis. We're talking about Johnson Controls International,
Speaker 1: which is also a company's got a great vantage point
Speaker 1: when it comes to the global economy and corporate expenditures. Well,
Speaker 1: that's exactly where I want to start with George Oliver,
Speaker 1: Chairman and chief executive officer of Johnson Controls. George joining
Speaker 1: us via zoom from Milwaukee. George, how are you. I'm
Speaker 1: doing very well. Great to be with you today. Well,
Speaker 1: as Carroll mentioned, you do have such a great view
Speaker 1: on what's going on here in the United States and
Speaker 1: around the world. What is your view of the economy
Speaker 1: here in the US. Yeah, when we look at what's
Speaker 1: happening within our business, um, you know, we see unprecedented
Speaker 1: demand for what we do within buildings. You know. Let
Speaker 1: me start by talking about what we do were smart
Speaker 1: solutions provider for buildings and infrastructure, and uh, you know,
Speaker 1: we did a merger five years ago which put together
Speaker 1: to leadership companies in the space Tycho and John's Controls,
Speaker 1: and what our strategy of of taking the multiple you know,
Speaker 1: building systems and then being able to deploy technology with
Speaker 1: a data platform that enables us to be able to
Speaker 1: significantly change the outcome of buildings. And those outcomes are
Speaker 1: reducing energy demand, improving the indoor indoor air quality, and
Speaker 1: ultimately you know, making autonomous buildings. And so for us,
Speaker 1: given the the the environment that we're in, we're seeing
Speaker 1: very strong demand. We've got backlogs that are that are
Speaker 1: reckon high backlogs. Our challenges have been shorter term is
Speaker 1: ultimately converting with the supply chain challenges on that demand.
Speaker 1: And when you look at what we do within buildings,
Speaker 1: you know, when you look at the global carbon footprint,
Speaker 1: it represents about the of the overall global covernment footprint
Speaker 1: buildings do. And then the opportunity that we have now
Speaker 1: as a smart building solutions provider to significantly reduce the
Speaker 1: energy that's consumed in the building at the same time
Speaker 1: that we're upgrading the indoor air quality and ultimately creating
Speaker 1: an autonomous, autonomous build So for us, we're watching the
Speaker 1: economy closely. But given what we see now going forward,
Speaker 1: where now buildings have become much more strategic um. I
Speaker 1: think in the past they buildings were built with multiple
Speaker 1: systems separating apart, and now with the opportunity to bring
Speaker 1: that all together into one solution set, we're seeing very
Speaker 1: strong demand. So when we look at the market that
Speaker 1: ultimately is being created with these new problems that our
Speaker 1: customers are are trying to solve, we see roughly accumulative
Speaker 1: about billion dollars of additional market over the next decade.
Speaker 1: So we're watching it closely, but right now we're really
Speaker 1: focused on being able to execute on the backlock to
Speaker 1: support our customers. It's interesting when you talk about unprecedented demand,
Speaker 1: strong demand, UM George. How much of it is because
Speaker 1: of companies looking to cut costs and be more efficient.
Speaker 1: How much of is it because of regulatory changes or
Speaker 1: the push towards you know, concerns about climate change and
Speaker 1: being much more sustainable. How much of the demand is
Speaker 1: new build Well, when you look at let me start
Speaker 1: with the commitments have been made on climate change or
Speaker 1: or decarbonization that have been made broadly across businesses as
Speaker 1: well as with governments, and I think coming back from
Speaker 1: Davos from last week, it's how do we take all
Speaker 1: of the commitments that have been made and ultimately how
Speaker 1: do we now you know, bring that together with a
Speaker 1: combination that's shared between business and government and ultimately now
Speaker 1: capitalize on what we see the opportunity to be. So
Speaker 1: for us with those commitments and recognizing now to get
Speaker 1: to net zero, buildings are going to be an important
Speaker 1: part that have to be addressed to get to the
Speaker 1: commitments that have been made. So we're seeing that for instance,
Speaker 1: in our in our sustainable sustainable solutions business, we we
Speaker 1: see a pipeline now or of let's say about seven
Speaker 1: billion dollars and will convert roughly a billion of that
Speaker 1: during during the course of the year. So we are
Speaker 1: seeing a significant demand for the type of solutions that
Speaker 1: we can now provide. And where you are uniquely positioned
Speaker 1: as Johnson Controls that not only do we have the
Speaker 1: billing systems, but now with our open Blue platform, which
Speaker 1: is a platform that allows us to be able to
Speaker 1: bridge all of the building systems together and then ultimately
Speaker 1: create outputs that historically haven't been delivered. All right, So
Speaker 1: help me out here. So how much though is you know,
Speaker 1: in terms of that demand, if you had to put
Speaker 1: it into cuts of a pie or percentage wise, how
Speaker 1: much of that demand is new build how much of
Speaker 1: is it cause of regulatory change? You know? How can
Speaker 1: you break it down a little bit? I'm curious about
Speaker 1: what's the psyche of people who are who are doing
Speaker 1: the spend. So Carola, what I would say, it's both
Speaker 1: with the pandemic. When the pandemic hit, we immediately saw
Speaker 1: our demand to be able to upgrade the indoor air quality,
Speaker 1: which requires upgrading systems and deploying digital to be able
Speaker 1: to then optimize how you deliver a clean air delivery
Speaker 1: rate within buildings. So we saw that which is really
Speaker 1: taken the built environment and being able to elevate that
Speaker 1: built environment to solve for today's problem. So lot of retrofit,
Speaker 1: a lot of upgrade, a lot of repair, leveraging our
Speaker 1: our technologies. Now at the same time you've seen the
Speaker 1: new construction come back. You know, when you look at
Speaker 1: Architectural Building Buildings Index and a lot of the other
Speaker 1: metrics you've see whether there has been an expansion and
Speaker 1: a lot of that growth is coming back. So for us,
Speaker 1: it's been both and it's not only a significant demand
Speaker 1: for upgrading the existing built environment, but at the same
Speaker 1: time fundamentally changing how buildings are built that ultimately going
Speaker 1: to be able to deliver a significant different outcome as
Speaker 1: it relates to energy consumed as well as the environment
Speaker 1: that's created. One thing I want to know, George Um,
Speaker 1: you know it's interesting are David Weston catching up with
Speaker 1: Larry Think over a black rock and talking about we're
Speaker 1: gonna be living with more uncertainty, saying the inflation problem
Speaker 1: isn't you know, it's policy related, but that the fet
Speaker 1: isn't someone who can fix some of these issues. Specifically
Speaker 1: talked about the supply chain, UH and the supply chain problems.
Speaker 1: How is your supply chain? Are you seeing any kind
Speaker 1: of loosening in some of the snarls that have been
Speaker 1: out there if you look at what's happened over the
Speaker 1: last couple of years with the pandemic and then the
Speaker 1: multiple shutdowns that have occurred to contain the virus, and
Speaker 1: now some of what we're experiencing in China with the
Speaker 1: shutdowns there, I mean, then at the same time with
Speaker 1: the Ukraine crisis and and then with in our space
Speaker 1: the unprecedented demands. So when you put all of that together,
Speaker 1: we've we've had our own challenges and we've it's really
Speaker 1: about resiliency, and so not only with what we do
Speaker 1: to help our customers with their buildings and infrastructure and
Speaker 1: creating resilient, much more resilient buildings and communities, but also
Speaker 1: making sure that we're working with our suppliers to create
Speaker 1: a much more resilient supply chain globally. And that's what
Speaker 1: that's what we've been doing the last two years, and
Speaker 1: we've made a tremendous amount of progress. Now what we're
Speaker 1: seeing is with that strategy, we are seeing improvement um
Speaker 1: and and it's across all of our commodities, whether it
Speaker 1: be microchips and semiconductors or other other materials, and so
Speaker 1: we've been working through it um. But resiliency in in
Speaker 1: in supply chains and mean, George, what does that mean?
Speaker 1: Does it mean you're shifting where you're doing it or
Speaker 1: what does that mean. We've always had a strategy in
Speaker 1: our supply chain to be local for local and so
Speaker 1: when you are manufacturing footprint. We have manufacturing footprint and
Speaker 1: all of the key markets we support, and then we
Speaker 1: build local supply chains to support those manufacturing plants with
Speaker 1: local supply and so there are when you're building a
Speaker 1: global supply chain, there are some products that are used
Speaker 1: across multiple markets and so you can't predict you know,
Speaker 1: whether it be the environment and natural disasters or pandemics
Speaker 1: or you know, these some of the geopolitical challenges that
Speaker 1: that might exist. And so our strategy has been to
Speaker 1: be local for local and we've been developing not only
Speaker 1: the right product but also having the local supply chain
Speaker 1: that creates resiliency and how are how we're able to
Speaker 1: then you know, be able to support our customers and
Speaker 1: deliver for our customers. So that with the idea that
Speaker 1: you have multiple sources globally, so as you're going through
Speaker 1: some of this disruption, you've got a supply chain that
Speaker 1: has multiple sources, so you can source from multiple multiple locations. Um,
Speaker 1: all of that comes together into having a supply chain
Speaker 1: that's much more resilient. George, I'm really intrigued when you
Speaker 1: said you're seeing improvement in the supply chain where specifically
Speaker 1: are you seeing that and you're seeing improvement when it
Speaker 1: comes to commodities as well as it chips? Is it like?
Speaker 1: What is it? It's been When we look at the
Speaker 1: work that we've done to strategize our semiconductors and chips
Speaker 1: were making good progress there across the globe. UM. A
Speaker 1: lot of our supply chain challenge was in North America.
Speaker 1: When we look at our supply chain, we have multi
Speaker 1: tiered suppliers and a lot of the challenges that we
Speaker 1: had with the disruptions from from COVID shutdowns and then
Speaker 1: some of the labor challenges UM not necessarily within our facilities,
Speaker 1: but within our suppliers that UM and so we've worked
Speaker 1: very closely with them and being able to address their
Speaker 1: their labor challenges ultimately getting the supply chain back operating.
Speaker 1: So it's really looking at all levels of the supply
Speaker 1: chain UM as well as all when you look at
Speaker 1: the global footprint, all regions, and we've been making part
Speaker 1: pretty much across the board. Georgia, are you expecting a
Speaker 1: recession movie later this year or maybe next year? Are you?
Speaker 1: Are you when you gather your management team, do you say, guys,
Speaker 1: this is what you know? We need to have the
Speaker 1: playbook ready for well, you can go back with the pandemic,
Speaker 1: and I think we we we demonstrated this very well.
Speaker 1: We've been creating a lot of agility with how we
Speaker 1: operate as a company, and we've had an incredible opportunity
Speaker 1: with the work that we do within buildings and infrastructure
Speaker 1: to respond to these crisis like for instance, a good
Speaker 1: example is in the early days of the pandemic, we
Speaker 1: support critical infrastructure, which is healthcare, and we were on
Speaker 1: the front lines building hospitals in a matter of days
Speaker 1: that had the highest air quality and ultimately the resource
Speaker 1: that they needed to be able to attend to those infected.
Speaker 1: And so we've we've built you know, we've been very
Speaker 1: agile with what we do, not only responding to the
Speaker 1: new demands and the crisis, but also agility relative to
Speaker 1: understanding a little bit of what's gonna potentially happening and
Speaker 1: make sure that we're always positioned to be able to
Speaker 1: deliver for our customers, be able to solve their biggest problems,
Speaker 1: and then ultimately make sure that we're taken into account
Speaker 1: what we see happening on the horizon. So being agile
Speaker 1: in case of whatever comes your way, So could be
Speaker 1: a recession could not? Is that Is that fair to say? Yeah?
Speaker 1: Like I said, right, our focus right now is delivering
Speaker 1: on the backlog and delivering for our customers given what
Speaker 1: we've seen here over the last about eighteen twenty four months. Obviously,
Speaker 1: I think the demand that we see now solving the
Speaker 1: biggest problems within buildings, which is indoor ere quality, making
Speaker 1: making them much healthier and safer, and then also being
Speaker 1: able to address the global carbon footprint that domain is
Speaker 1: going to continue because the commitments have been made and
Speaker 1: I'll really our customers have to deliver on those commitments.
Speaker 1: So we're working closely to make sure we understand how
Speaker 1: that plays out and how we're positioned to support our customers.
Speaker 1: At the same time that we're taking into account making
Speaker 1: sure that we're we're gonna be agile with any downturn
Speaker 1: that might might occur in some of the key markets
Speaker 1: that we operated. But you know what I would, it's
Speaker 1: really all about making sure that we're not only supporting
Speaker 1: the customer with the demand that we have today in
Speaker 1: the backlog, but at the same time taken into account
Speaker 1: the factors that we see that potentially could impact US
Speaker 1: longer term. George, thank you so much for your time today.
Speaker 1: I really appreciate it. George Oliver. He is chairman and
Speaker 1: chief executive officer Johnson Controls. Joining us via zoom from Milwaukee.
Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio. We did hear
Speaker 1: David West and talk about this in his conversation with
Speaker 1: Black Rocks Larry Fink about Getcha Banks and battle d
Speaker 1: the US group, the CEO resigning hours after police raid
Speaker 1: at the asset manager, the culmination of months of controversy
Speaker 1: surrounding the executive. But it really Lee was about allegations
Speaker 1: um by the company's former chief sustainable ability officer at
Speaker 1: the company inflated its E s G credentials. You and
Speaker 1: I talk a lot coming off of milk in so
Speaker 1: much E s G conversation that it does feel like
Speaker 1: that space is going through a reckoning. Yeah, and interestingly enough,
Speaker 1: Larry Fink said that Black Rock doesn't want to be
Speaker 1: the quote environmental police. We've got a great voice on this.
Speaker 1: Garvin J. Bush is the co founder and chief investment
Speaker 1: officer at Green Alpha Advisors. It's based in Boulder, Colorado.
Speaker 1: But we got j with us right now. Uh excuse me, Garvin,
Speaker 1: We've got you with with us right now. How are you.
Speaker 1: It's good to day. That would be actually kind of cool.
Speaker 1: I was looking at Ja, I was looking right up
Speaker 1: at the J Bush. It's good to help you with us,
Speaker 1: and it's good to have you with us in the
Speaker 1: Bloomberg Interactive Broker studios. It's been it's been years since
Speaker 1: you've been back in the studios, three years. Carol just
Speaker 1: looked it up and it's great to be back. Thanks
Speaker 1: for having me and you guys. Well, how is the
Speaker 1: conversation around E s G shifted? Because I think Carol
Speaker 1: makes a really good point. There's we're sort of seeing
Speaker 1: this backlash right now. It's interesting. I think if cynically,
Speaker 1: I might say, it's interesting to me that E s
Speaker 1: G has finally achieved enough success that it's getting pushed
Speaker 1: back from the more incumbent part of the industry. A
Speaker 1: little less cynically, I might say that while of course
Speaker 1: everyone has their first memory to criticize whatever they want,
Speaker 1: equally we all can invest by whatever criteria we want, right.
Speaker 1: That's how markets are. That's how they work. So that
Speaker 1: could be I don't know, value or growth or momentum,
Speaker 1: or it could be thematic right, including E s G.
Speaker 1: And over time the markets reward the best ideas and
Speaker 1: the things that grow the most and compound the most
Speaker 1: and have the most intrinsic value. So this isn't going
Speaker 1: to be one or lost by rhetoric. But in the
Speaker 1: end the markets will will bear. WHOA wait a minute.
Speaker 1: So I'm just thinking if I'm going to commit money
Speaker 1: to E s G like I expect it to, like
Speaker 1: you guys are all about companies whose products and services
Speaker 1: address the global economy's greatest system level risks. You know,
Speaker 1: I want my money potentially in an area that is
Speaker 1: not going to impact negatively the environment or something, you know.
Speaker 1: So I do wonder to some ex and if you're
Speaker 1: selling something that it's going to do something, doesn't it
Speaker 1: have to do that? I would argue very much that
Speaker 1: it does. And in fact, that Green Alpha we don't
Speaker 1: brand as e SCH for that reason. It's jone. I
Speaker 1: was going through your website. My god, I don't see
Speaker 1: that anywhere. Yeah, thanks for noticing that. Yeah, yeah, no,
Speaker 1: we we want to go right after the actual solutions
Speaker 1: to our to our most key system level risks that
Speaker 1: actually have the ability and our threatening to undermine the
Speaker 1: global economy and therefore undermine our our the reason we
Speaker 1: invest right growth of assets. So what are the biggest
Speaker 1: risks scarving? So we define those as the climate crisis,
Speaker 1: resource recradition, farmland, top soil, water, those kind of things.
Speaker 1: Human disease burden. Uh, that could be pandemics, cancers, diabetes,
Speaker 1: what have you. So anything that that that lowers the
Speaker 1: overall total risk of the global economy is something we're
Speaker 1: interested in. If you're raising the risk to us, all
Speaker 1: we're gonna pass. It's not quite s G. But is
Speaker 1: the alpha there? And has the alpha been there? Because
Speaker 1: look at what we're seeing with markets this year, best
Speaker 1: performer in the energy, best performer in the SP five
Speaker 1: hundred energy. If you're not invested in energy right now,
Speaker 1: you're feeling a lot of pain. Yeah, and how about
Speaker 1: defense also doing quite well? Right? Well? So that is
Speaker 1: that is a good point. And I can point to
Speaker 1: the mutual fund that I manage any xt X not
Speaker 1: to plug it, but uh, since it's about nine and
Speaker 1: a half years old, it's got a comfortable four dred
Speaker 1: something annual average basis point lead over sp X. That said,
Speaker 1: it's much more volatile than sp X. Right, It's it's
Speaker 1: up more on bull markets, it's down a little bit
Speaker 1: more in bear markets. Overall, that's pretty handy track record
Speaker 1: about performance, and yet it's uncorrelated. So our thesis overall
Speaker 1: says that volatility and structural risk are not the same thing,
Speaker 1: and we'd much rather invest to mitigate structural risk than
Speaker 1: short term volatility. So we think of ourselves as a
Speaker 1: long term strategy, like for us, five years of short term.
Speaker 1: So when you drilled down a little bit, because I'm
Speaker 1: always interested in the in the specific companies and kind
Speaker 1: of ideas that you're thinking about, So tell us where
Speaker 1: you go, right, So, mitigating those system level risks we discussed,
Speaker 1: I guess I'll just start with health human disease burden.
Speaker 1: We really love like no Go because I was a maderna.
Speaker 1: What a father? Yeah, yeah, we do have maderna. We've
Speaker 1: had it since before the pandemic. We caught it very early,
Speaker 1: which was nice for you know, but it was because
Speaker 1: thesis it was what owns a bunch of I p
Speaker 1: around something that is transformative, step change, way of doing things.
Speaker 1: So not a big farmer that's going to tweak small
Speaker 1: molecules a little bit. But what's cracking you know, evolution
Speaker 1: the messenger to RNA messenger RNA before anyone knew what
Speaker 1: m RNA was. Yeah, So bion tech and and Maderna
Speaker 1: both on that basis were in our strategies. But then
Speaker 1: elsewhere things that are doing things that are addressing cancer
Speaker 1: in a way that could be a one and done treatment.
Speaker 1: So christper therapeutics, editas medicine, ARCHI tourists, Bean therapeutics, the
Speaker 1: guys that own the real I P around how do
Speaker 1: use gene editing to just fix human disease? So what
Speaker 1: do you think of someone like and we just got
Speaker 1: about forty seconds a Kathy would who does think in
Speaker 1: a different way. And I feel like she's become a target.
Speaker 1: I know, I I've talked to her a lot. We've
Speaker 1: talked to her a lot. I mean in terms of
Speaker 1: her think, it doesn't sound like it's that dissimilar to
Speaker 1: some extent, And just got about sure kathy strategies and ours.
Speaker 1: You know, I've co presented on a panel with her
Speaker 1: once or twice. We've compared notes a little bit. I
Speaker 1: wouldn't say, I know her. Um, we're similar in that
Speaker 1: we both value innovation. We both very much value important
Speaker 1: intellectual property estates. Where we differ is arc and I
Speaker 1: hope I'm not out of term, but it seems to
Speaker 1: value innovation for its own sake. Green Alpha values innovation
Speaker 1: in the service of solving a system level risk. So
Speaker 1: there's a key difference as well. Really fascinating. Uh, now
Speaker 1: that we've reconnected, come back soon so we can continue
Speaker 1: this conversation, all right for well. Garvin J. Bush, she's
Speaker 1: co founder chief investment officer at Green Alpha Advisers, based
Speaker 1: in Boulder, made his way to New York City on
Speaker 1: this Thursday. This is bloom Park a journal. Yeah, but
Speaker 1: you let me drive? Oh no, no, no, no no, all right, please,
Speaker 1: I want to drive. It's good question. Drive. This is
Speaker 1: the drive to the clothes on Bloomberg Radio. You are
Speaker 1: listening to Bloomberg Business Week Karl Masser along with Tim's Stanovic.
Speaker 1: It's almost time for the banana break, isn't it. Yeah,
Speaker 1: we do a little banana break. It's just after eleven.
Speaker 1: Get a little hungry right here for three hours? Yeah,
Speaker 1: I get some food. I got a little grumbles in
Speaker 1: my tummy. Meantime on Wall Street. As Doug mentioned, we've
Speaker 1: got a rally underway, bouncing off those loads of the day.
Speaker 1: Quite a swing. I was just looking at the one
Speaker 1: hundred up two and a half percent, it's high down
Speaker 1: eight tens of a percent, it's low. So what a
Speaker 1: three and a half or three point three percent swing
Speaker 1: from high to low? Yeah, that's quite the swing. Let's
Speaker 1: hear from Liz Young, the head of investment strategy. It's
Speaker 1: so far. Liz joining us this afternoon on the phone
Speaker 1: from New York City. Liz, how are you? I am good.
Speaker 1: I'm delighted to be here, especially on a rally day.
Speaker 1: You can sam bana a day. Every day has been
Speaker 1: in a day. We're delighted to have you back with us, Liz.
Speaker 1: I mean, how how should investors look at this rally
Speaker 1: that we're seeing because it does snap a two day
Speaker 1: It would have been a three day losing streak if
Speaker 1: lows would have held for the day. Um, did we
Speaker 1: hit the bottom last week? Oh? Tim, Tim, Tim, come on,
Speaker 1: go ahead, like Tim, Tim? Tim insert grown here? Hey.
Speaker 1: People want to know if that was the bottom? I know,
Speaker 1: and I hate to let them down. I'm not going
Speaker 1: to try to call it. I don't think anybody should. Frankly,
Speaker 1: I don't think it's a useful thing to try to
Speaker 1: figure out, especially because even though at some point in
Speaker 1: the future we will look back and find a day
Speaker 1: where we say, oh, that was the low right, that's
Speaker 1: where we hit that low point, this entire process right
Speaker 1: now is a is a bottoming range, right, and I
Speaker 1: think that we're going to be in it for a
Speaker 1: little while still. So the original question was how should
Speaker 1: we look at this rally. I don't think that we
Speaker 1: can declare premature victory. We don't have really any new information. Now.
Speaker 1: What I will say is after going through a really
Speaker 1: tumultuous April and then going through May, where at one
Speaker 1: point we had swung twelve full percentage points, you know,
Speaker 1: from bottom point to top point. I mean, that is
Speaker 1: a huge swing in one month's time. But if you
Speaker 1: would have fallen asleep April thirt and woken up May
Speaker 1: thirty one, it says if nothing happened at all. So
Speaker 1: I think investors are a little bit battered right now,
Speaker 1: and a lot of the whip lash that has occurred
Speaker 1: in the market could still keep occurring. Through the first
Speaker 1: part of June, maybe even all of June, until we
Speaker 1: have a little bit more information from the FED and
Speaker 1: we get through at least another hike. I actually think
Speaker 1: we need to get through two more hikes before we
Speaker 1: start to be able to look into the future and say, Okay,
Speaker 1: I feel like I know more about where things are going. Yeah,
Speaker 1: I do feel like we're gonna have to let the
Speaker 1: FED do its thing for a little bit and then
Speaker 1: settle and see how it plays out. Right, because as
Speaker 1: FED interest rate hikes, you know, we talked about with
Speaker 1: our Michael McKee, who follows the FED and the international economy,
Speaker 1: and said, you know, FED moved moves, you know, impact
Speaker 1: things like auto sales and home sales. They're most sensitive,
Speaker 1: and we saw that already play out. We've seen obviously
Speaker 1: some weakness in both of those sector, but the rest
Speaker 1: of it's going to take some time. Having said that,
Speaker 1: Larry Fink of Blackrock on with our David Weston just
Speaker 1: about an hour or so ago, saying that the FED
Speaker 1: doesn't have the tools to fix the supply problems or
Speaker 1: fix the COVID lockdowns, and that's what creates the inflationary pressure.
Speaker 1: So how do you think about that, and then ultimately,
Speaker 1: as the FETE is raising rates, impact that will have
Speaker 1: on asset values, particularly the equity trade. Yeah, well, first
Speaker 1: of all, I love David Weston, so I love that
Speaker 1: we just got to all do. It's a little bit
Speaker 1: of a fan club over here. Is so great, very
Speaker 1: smart and thoughtful in his questioning. Look, the comments are
Speaker 1: correct that the FED can't fix the supply problem, and
Speaker 1: the comments are also correct, however, that they can affect demand.
Speaker 1: And inflation is a two pronged beast. So the more
Speaker 1: demand there is, and if we have a constraints supply,
Speaker 1: that's what causes inflation. A very simple definition of inflation
Speaker 1: is more money chasing fewer goods. So we're correct that
Speaker 1: they cannot fix the fewer goods problem, but they can
Speaker 1: fix them more money problem, right, and we have officially
Speaker 1: started quantitative tightening. Rate hikes do affect autos, they do
Speaker 1: affect the housing market, but that's on purpose. And if
Speaker 1: you think about what's been driving inflation, used cars and
Speaker 1: trucks were a huge driver of inflation for a long time,
Speaker 1: and we want to see that rollover. The housing market
Speaker 1: is a little bit more difficult to measure in our
Speaker 1: traditional inflation indicators. But we have started to see some
Speaker 1: softness in the housing market too, and I think that
Speaker 1: also needed to happen. That's something that is pinching consumers.
Speaker 1: And think there's been a huge growth obviously in mortgages
Speaker 1: and then home prices have hit just astronomical highs, So
Speaker 1: we did need to see or at least start to
Speaker 1: see a rollover in those particular spots. I think the
Speaker 1: Fed stays on this half though, for a while, because
Speaker 1: they don't have any reason to stop yet. They obviously
Speaker 1: are not going to be awarded by equity returns being negative.
Speaker 1: They if that was going to happen, they would have
Speaker 1: already done it right. So they've still got a tremendously
Speaker 1: tight labor market and that's probably going to take a
Speaker 1: while still to crack. They still have an economy that,
Speaker 1: as far as anybody can tell on things like p
Speaker 1: m I and manufacturing activity, retail sales is still pretty strong,
Speaker 1: and a consumer that's still spending. So there needs to
Speaker 1: be more cracks in the pavement. I think they will come,
Speaker 1: but there need to be more before the said relax.
Speaker 1: You know, it's funny that you see pm I because
Speaker 1: I was just looking at our markets live blog and
Speaker 1: it says none of historical conditions are meant for stocks
Speaker 1: to bottom, and I do wonder. And they talked about specifically,
Speaker 1: um about the I S M P m I markets
Speaker 1: bottoming about two months before the I S i'm pm
Speaker 1: I manufacturing index stop falling. This is something that we've
Speaker 1: seen historically, and saying the average pm I reading at
Speaker 1: the stock bottom is forty eight compared with fifty six,
Speaker 1: which is what we see today. You know, I love
Speaker 1: the research you sent over. You look at a lot
Speaker 1: of different metrics. What's the metric on your radar to
Speaker 1: really understand maybe when we have reached bottom? Yeah, So
Speaker 1: I actually I tried to take a little more positive
Speaker 1: spin on it. Instead of saying, let's call the bottom.
Speaker 1: I took an aspect of when can I feel more
Speaker 1: confident in one of these rallies. We keep talking about
Speaker 1: bear market rallies, right, and we've really only had three
Speaker 1: periods this year where we've had a rally that's lasted
Speaker 1: longer than three consecutive days, which is pretty sad. This
Speaker 1: is a tough start to the year. But when can
Speaker 1: we start to feel more confident? It's things like the
Speaker 1: market broadening out, so market breadth and the way that
Speaker 1: you can measure that. There's a number of different ways
Speaker 1: you can measure that, but the ones that I looked
Speaker 1: at were things like how are the different industries performing
Speaker 1: in those rallies. So of the first couple rallies that
Speaker 1: we had, EXAC did the best, the SMP market cap
Speaker 1: weighted index did the best, and the equal weighted index
Speaker 1: didn't do quite as well. In this last one, all
Speaker 1: three of those industries did exactly the same, which tell
Speaker 1: me that there are other sectors besides tech that are
Speaker 1: starting to show strength or catch a bid however you
Speaker 1: want to say it. And there are smaller stocks that
Speaker 1: are catching a bid, and that's definitely a good thing
Speaker 1: to see. Well, that's good to know, and we talk
Speaker 1: a lot about that small cap space in particular. Hey, Liz,
Speaker 1: always fun, always thoughtful, and informative. Liz Young, head of
Speaker 1: investment strategy at SOFI Technologies, on the phone from New
Speaker 1: York City, a member of the David Weston fan Club.
Speaker 1: I'm just going to say, along with the rest of us,