Beyond Green Washing, Now There's Diversity Washing

on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or stream us live on YouTube and Bloomberg dot com. Diversity washing It's apparently a thing. It has to do with CEOs talking up diversity and how they benefit ultimately the most. And this story is in the upcoming new issue of Bloomberg Business Week. It's out on newstands today, It's online at Bloomberg dot com slash

business Week. It's also on the Bloomberg terminal. Let's get to it with Bloomberg News Managing Diversity reporter Jeff Green, who joins us on the phone from Michigan. I gotta tell you, Jeff, I I've heard of greenwashing, but I had not heard of diversity washing until reading your story today, So so breakdown what it is and how it's defined. Yeah, it's so pretty cool. Ever, work by John Larker at i mean, David Larker at Stanford and some other folks.

They took what people have been saying in regulatory filings about their diversity efforts and they put that together with what they're actually doing in terms of the diversity of their company. Or they're like, are they getting a lot of fines from the e E O C for doing bad stuff? And they kind of picked out the people who had the biggest disconnect between what they were bragging about and what they were actually doing, and they called that diversity watching. And it turns out it works. In

other words, what does that mean? It works well? The people who talked it up a lot, even if they weren't doing much, tended to be get higher E s G scores than the people who were kind of speaking in line with what they're really doing. And then those E s G scores allowed the same companies to then get picked more often than the others to be in socially responsible investment funds. So you know, at this point, until somebody can actually see what you're saying more clearly,

it's it's a pretty good tactic. Well so okay, so maybe attracting and investors, but it also helps boost their compensation as well. Right, you guys know this as well. Yeah, there's a separate study from Harvard where yeah, by adding in compensation to the CEO pay you um as a factor, they get a bonus. But you can't as an investor really tell what that means. For the same reasons, they can get people who invest in them even if they're

not really doing much in terms of diversity. So this is stuff that you track, uh, in your in your role, Jeff, and you know, you guys have done some great work in terms of tracking numbers when it comes to diversity. When it comes to what companies are actually doing, what do companies talk about when they say they're doing this stuff versus what they're actually doing? Like, you know, the proof is obviously in the data and it's in the numbers,

But what are companies saying versus what they're doing? Well, they is use a lot of the of the fancy words that everyone wants to hear about. You know, we're going to do more to make our leadership more diverse. We're gonna try to retain and hire more diverse workforce. Is it always about what we're going to try to do? Like, what we're trying to do is what we're doing, if you know? I mean it's the problem is there's no

way to know for sure. I mean, there is no universal requirement that companies publicly report what they're doing in diversity, so they can pick whatever they want, in whatever format they want, in any way they want. And that is the problem. You know, this is I do feel like,

can we say it a lot, Jeff is? It does feel like E s G is going through a reckoning um And you know, Tim and I talked about it's not going to matter until you really have metrics that you can apply to company to company to company, and then when a company reports their quarterly that's part of the assessment and they get rewarded or penalized, you know, if they don't meet those E s G metrics. But I feel like we have a ways to go. Where

are where are regulators on this? How How does the SEC if that's the body that should be in control of it, how are they moving forward to figure it out? There really hasn't been a like a concerted effort to get at this. I mean, to be honest, we could fix this tomorrow. Every company puts out of what they call an EO one form every year shows the gender and rache you breakdown of their entire company around like uh nine or ten classes of workers. They have to

do it every year. They do it, but it's private and they don't have to release it. And maybe a couple of hundred companies are, but not you know, tens of thousands. So if everyone just said, here's our EO one, we could really start to see company to company what's going on. But companies are uncomfortable with it because well, they say that they're outdated and they don't capture things correctly, but also they tend to make them look bad. Jeff. For someone who does this day in and day out

and knows the research, knows what's going on. I mean, how difficult though, is it in terms of reporting and to kind of call a company out. Yeah, I mean you gotta kind of you gotta basically they gotta call themselves out. To be honest, it's it's really difficult unless you got a whistleblower to know for sure what's going on and occasionally. You know, ironically, the companies that are

most open are the ones we can call out. So the companies that are actually trying to play by the rules are the ones most likely to get burned by this. And that's kind of I guess the price they pay because they say, well, we're trying to set the set the tone, you know, to get other companies to follow. But most of the time, what it means is they're going to be the ones out front getting there. You know, the whack of mole is going to get them first.

Isn't it a little concerning that this is the results that we see from the study, and now it sort of gives companies an idea. Okay, wait a second, if I just keep doing this but not actually making any change, then it will continue to benefit me. Yeah, I think they've already been doing it. I don't think. But really, I don't think anyone cannot talk about this on their calls. So it's it's always going to be a question of are they actually doing anything? And we are kind of

in a time when employees will notice. So you can look around, you can look around your workspace and see whether it's working or not. So This isn't something that's impossible for people to know. It's just as the pressure grows for companies to disclose, there's more information available. It's just not apples to apples, So you really can't compare across the industry, Like is this good or is this bad? I have no idea. Where is the ethics though? And

all of this? Like I've been thinking about if I'm heading a company and I'm saying I'm doing X, Y Z, and then I kind of know it's just a lot of fluff and talk. Um. I feel like coming off the pandemic, I feel like coming off of the murder of George Floyd, like we were having some fairly honest conversations with leaders and maybe they felt like they were more comfortable to do so, but about diversity and some really important issues. Um, and I really felt like that

there was a ce change. Uh. Now I'm not so sure. So where's the you know, the consciousness of wait a minute, if I say I'm doing it, I need to be doing it. Well. I mean, I think the sort of the issue here is this is marketing. I mean we've actually done stories where we looked at it and the very first sort of area where you see this come in is people with a marketing background, not people with the science background. We wrote some stories about this botus.

It may be shifting, but by and large, this is marketing and it's just like any you know, how many commercials do you watch and go, oh, that was very honest. You know, buy our beer. It tastes bad. But you know, I've been called naive before. Jeff, I get where you're going. Hey, Jeff, what does this say about s G? Because that's that's a big part of the conversation that we've been having

in recent months. And I think it's come to the four because really, you know, in a down market you start to see kind of a lot of different and hard truths. Um, what does this say about E s G and the relationship that E s G has with what what companies say about D E I. I mean, it's well past time that people start to have some real conversations about this. We're asking people to change like the entire economy of the world based on some assumptions and asking them to do a whole lot of stuff.

And up until a few years ago, it was just puppies and rainbows, I mean, which is yeah, we want to save the planet, will do whatever it takes. And now we're starting to actually decide we need we're doing those things, we're setting goals, and I think it's it's a good time to have people say, ay, are what are you actually doing? And be is that really going to result in what you say it's going to result in? And and what is the trade off? And having like

real conversations. This is you know, like I said, it's marketing, but it needs to be science. So and we're not there yet. We're not even close to that yet. Hey, definitely thing I do wonder And this is another thing to me I talk about. You know, when the market's doing really well, it's easy for people to be gung ho about E S G initiatives. Are you know, companies coming out and saying we're going to do these diversity

initiatives and so on and so forth. But I feel like when recessions come or economic slowdown, everybody pulls back. Are we seeing that kind of um momentum happen again? Are people are understanding wait a minute, we gotta say we're going to do better and actually do better well until that employment unemployment rate gets higher. I think it's

difficult for companies to make those kind of decisions. And also, I mean it's it's the kind of thing where you you know, again you need to hire people and people are that it's really hard to kind of stop at that level of like the only risk I would say the biggest risk is the first in, first out. Companies tend to be hiring more diverse now than they used

to be. So in theory, if you're if those ten thousand people leaving, you know what Microsoft are from the first you know, the group that's most recently in, then yeah, you're gonna see a dent. And a lot of stuff would happened at Twitter. You know, we wrote that like we think that could see a dent. So it's a kind of question of you know, who are you cutting loose into recession? And does this worker shortage actually go away?

It seems like we're still missing a couple of million workers that we need to make this um you know, put the power back in the hands of employers thirty seconds, Jeff, what needs to happen in order for permanent change to to actually take place at these companies? Show us the numbers, I mean, just show me real numbers that I can compare across the industry, across the country, across everything else, and then we'll know it's there. You have it, you

already collected, Just show it right, transparency right. It would change things dramatically. Also would be great for Jeff's job. Get those get those numbers, just like please please, need little selfish, but it's still what we want to see it. We all want to see it to Jeff selfish for a good mission. Jeff Green, Thank you, Bloomberg News Managing Diversity reporter Jeff Green. Joining us via zoom from Michigan. These sees Bloomberg Business Week with Carol Messer and Tim

Stentovic on Bloomberg Radio. We do want to get to another story that's in the new issue of Bloomberg business Week. It's also the Bloomberg Big Take. It's about the Foe meet Frenzy that's feeling more like a fad rather than a food fix. With her cover story, we've got Bloomberg News Consumer reporter Dina Shanker, along with the Bloomberg Business Week editor Joel Webber, both right here in our Bloomberg Interactive Broker's studio. Joel, where's the beef. Well, the beef

has always been there. The what hasn't been around forever has been the fake meat. And about a decade ago, you know, impossible burgers started to make some noise and then along came Beyond Meat. And when Beyond Meat went public that I p O was the biggest I p O since the financial crisis was wild to sue to read that I no idea And so that was all really interesting, and I think um consumers were beginning to think like, hey, this is the future of what meat

is gonna look like. And then fast and I think, you know, the pandemic, more people tried this stuff, and then you throw in a little inflation and grocery bills going up, and then oh, by the way, what's this fake meat stuff made out of? And the company's uh,

have hit some headwinds. And what really caught my attention and our attention to the magazine was Dina's all star reporting throughout this and the headlines that we're starting to resonate with me were about the fast food stuff because all these fast food companies were suddenly was like, wait, wait, why isn't McDonald's doing this, you know, and where why isn't anything permanent on the menus, And so we started talking to Dina about, you know, what's going on with

fake meat, and it turns out that, you know, there was a moment where fake meat was in a hyper growth mode and it's beginning to look more like that fat right, Dina, take us inside your reporting. What'd you learn? Thanks so much. Yeah, it was It's been years in the making because, as you said that I p O was huge and everyone was excited about it. I mean the entire industry. Suddenly you had like the small new startups that were coming up that we're getting tons of

funding because everyone's an opportunity here. You had the big food companies coming out with new products or reinventing old ones. Everyone wanted a piece of this because every one thought, yeah, we can convince meat eaters to sub something else in. But it turns out that that's a really hard sell and it's gonna get even harder if the food doesn't taste quite as good, and it doesn't according to most people that you will ask about it. It's also more expensive.

And then yes, environmentally these things are so much better for the planet, but most people aren't buying for the planet, they do care about their health, but then turns out these products are not healthy. Now, some people might say they're marginally healthier, but even that is not settled. So consumers just really started backing away, and we saw sales plummet at the supermarket, restaurants just everywhere basically. Well, and this is something we've been talking about it before we

got going. Is for me, like, if it was healthy, I'd be a buy in. I mean, what exactly is in it? I mean, I know there's a lot of sodium, right, not good? What else? So these are ultra processed foods, which means that the ingredients themselves are processed or their extracts of other foods. So, uh, that means the ingredients list, are they so crazy compared to other things in the supermarket.

They're not. There's a ton of processed food out there, but which I also don't exactly that and that's exactly right. And so if you're trying to appeal to health conscious consumers, those are exactly the consumers who know to uh, flip the package and look at the ingredients and look at

the nutrition facts. Okay, So that actually speaks to an interesting thing here because the audience for this has you know, when you look at it, it's like, okay, well, if it's fake meat, that means vegetarians would want this, right, But how's it gone over with meat eaters versus vegetarians since those were the two categories of people that they're trying to get here, Right, So, vegetarians and vegans by

the most of this stuff per capita um. But at the same time, some of them are not really so into it either because they're not really looking for something that is that close to something meaty. Vegetarian, I don't want to see the food bleeding. There are plenty of vegetarians that like meat, but they have other reasons for animal welfare reason, environmental reasons, and these are appealing to them, and they're probably the best customers. They're buying the most

of it um. But then you also have the meat eaters, and meat eaters just don't buy with regular frequency. They kind of dip int about um. A lot of people, you know, thought I'd like to cut down my meat intake and tried these. Some of them said okay, well that was that was okay, And and then they've got comfortable with the idea of something like lentils or beans um, which is also a lot healthier and cheaper. Um. Other people were like, well, yeah, I'll go back. I'll have

some chicken because chickens. I know, chicken is healthy, and it's still a lot less expensive than beef and less expensive than this stuff. So the consumer base is just really very narrow. What is it about food fads that gets people so excited? And I'm old enough to remember like the snack Wells fat free food craze which you mentioned, the Olean slash Olestra stuff and potato chips, which I

remember my dad explaining to me what that was. I mean, that was supposed to be really exciting, and then after a few months or a few years, people start to realize, wait a second, this isn't good for us. It's like we haven't even learned this. We're all just really obsessed with the idea of looking good and also want to eat all the time. And so anytime somebody can offer a solution that sounds like it will let us be both of those things, we all jump on it. Are

you looking at me? King? Okay? One thing I do want to ask more about. The article is ultimately about two different companies right Beyond and Impossible and beyond the publicly traded one, and we talked a little bit about that I p O before UM, which you know, just to rewind the clock a little bit and like think about how how rosy of a picture it was in twenty nineteen in July, UH stock hitting out all time high children four dollars a share. UH right now is

trading at fourteen. So gives you a sense of how much enthusiasm has come out of this space. But so what what what do the prospects look like for Beyond? And what about Impossible, which is still privately held. So to strategic differences, I think here, yeah, to UH companies obviously with a lot in common, but also that operate very differently. Beyond has a lot of issues that I wouldn't attribute to the category or to consumers. They have a really hard time executing and we've covered that for

a while. UM, they've had a really hard time bringing costs down because of that. UM, their leadership is constantly changing, so they have their own problems. Impossible is private, so of course we don't know the same with the same level of detail about their sales. We do know their supermarket sales are way up. For twenty two, they went up by more than fifty according to the company. The way they did that was largely by just adding more and more products, which is a tried and true food

UM strategy to get people to buy more things. You know, you just in two ways. One is that the more products you can put on a shelf, the more likely a consumer is going to notice them. You know, when a yogurt company has like fifteen flavors, it's not because they think every one of those fifteen flavors is going to sell well. If they want that space and um, then whichever one of those products do sell well, they'll hold on too, and they'll keep cycling in and out

of innovation. So that's the that's what Impossible is doing now in supermarkets, and it makes total sense because their CEO comes from Chobani and has all of that experience. You know, the thing about feeding the world and that the you know, meat, what it does to the environment, to our earth, and especially as the population continues to grow, there is something to say that we've got to figure out some agricultural innovation, right and food at innovation is

it just a case that they need more time. Am I missing something? What do what do folks saying? We just have about thirty seconds? I think if it were me, I would never depend on sumer behavior for big changes because this country has three million consumers in it and that's a lot of that's a lot of people to expect to change their behavior. I'd go, I try to get corporate behavior to change, because there's many fewer corporations

lave grown meat likelihood to happen. I'd say, really breaking about it more, you know, like there's more, there's more to you know, put on a peat tradition study that sounds like sounds like cover story. There's something about dipping dots to in the story. We didn't get into connection beyond me. You've got to read it because it's, oh my god, I'm terrified. Dina Shankar a killer story consumer

reporter at Bloomberg News. It's the cover of the new issue of Bloomberg Business We check it out, Jill Weber are thanks to you, Editor, Bloomberg Business Week, the new issue on newsstands on the Bloomberg Online. This is Bloomberg. You're listening to Bloomberg Business Week with Carol man us Here and Tim Stanovic on Bloomberg Radio. I feel like a day doesn't go by that we don't talk about Tessa.

I mean makes me ask howcom Tesla gets all the love, especially when it comes to stocks collapsing in the e V space, because uh, it does seem like that's the only one we often talk about it does. I mean, let's just say, Elon Musk does garner a lot of attention. But you know, one of our colleagues here a Bloomberg News wrote all about that, writing about just that in more is Bloomberg News Equity Markets rewarder Ashton Day. She notes that well, Tesla's epic stock price collapse has dominated

headlines over the past year. For some of the smaller electric vehicle companies, the route has been even worse. It's a sign that investors see few attractive alternatives in the sector. She's right now in our Bloomberg Interactive broker's studio. So a couple of companies that you talk about, Uh, Lucid is in there, and Rivian is in there as well. Before we talk about the differences, let's just talk about the damage, because it was actually worse here for those

companies than for Tesla. Yes, and thanks for having me. Um. Yeah, it was quite a terrible here for Rivian and Lucid as well. And you know, we can we can discuss a lot of reasons why that happened, right, Like we saw growth stocks across the stock market kind of getting deestimated, But that does not really explain all of it. Um,

you can we ask how bad they did? Oh, of course, So if we if we go back from from the peak Tesla so far at the bottom of it, which was like earlier this year fell around, Rivian and Lucid lost almost so that's yes, decimated the word right, that's that's a lot. So go back to what you were saying that in terms of the reasoning. I mean, how much I think when we think about it's so easy for a big player like Tessa to come out right

and then it just drags down the whole sector. But I also do wonder if this is where we need to be smart, and I feel like we often are at Bloomberg is kind of looking at each company individually. I mean, can we lump them all in one part? That's a great question. Um, can we lump all ev names together death literally not Riview and Lucid with Tesla. Right, like Tesla, we cannot deny the fact that it's still definitely the biggest EV maker out there. It's it's proven

the fact that evs are viable. People want evis. It

has also proven that it can produce evis profitably. Rivieans and Lucids of the world and many other startups that are out there EV names, they haven't really been able to do that yet, so they are a group on their own, the ev pure play EV startups and and some of the decimations, as I said, like some of the decimations we saw in their share price was due to the fact that growth stocks, especially unprofitable, super risky growth stocks, really saw the value kind of getting taken

away as investors are looking for more safer investments. But these companies have troubles of their own, and those troubles are getting magnified. When we are seeing a company even like Tesla, really struggling with the demand. If Tesla is having to cut prices by twenty person, what does it mean for these companies that barely have any of their like any kind of scaling our production. How do they

manage their margins? You know, I'm looking up, I'm curious about you know, companies like Ford and GM, companies that are established automakers who've seen different economic cycles, been around in some cases for more than a century, and they've weathered previous storms. And I'm wondering if you know, it says something about the EV industry, if it says something about the auto industry, or if this is simply just

a growth stock slash, you know, tech stock story. Is it about UM investors not necessarily see an opportunity when it comes to these upstart automakers and thinking, okay, Ford and GM and Volkswagen, that's where we're going to see the big numbers UM. So I think the heart of the storylines and the fact that these companies are having a really bad luck macro wise at a time when they're really not established at all. They maybe at their

start ups right exactly. So you know, for Ford and GMS, they have they weathered really bad sessions, but they were already established companies. They had the economies of scale, they had profit on their balance sheet maybe and not at that point, but they did. Uh, these companies have nothing. They were like these giant companies at one point was bigger than GM invaluation but that does not mean that

they had established machinery often established company behind them. And be fair, both Ford and GM did finish down last year by so it's not like, you know, they were seeing an upswing while these other companies weren't. No, it's a really good point, right the whole sector in terms of right that we saw pressure. You know, I'm looking at some of these numbers. Lucien began Lucid excuse me, began trading in July one. Equity value tapped out at

nine billion in November that year. Van shares peaked just days before or just days after. It's November I p O, valuing the company in a hundred and fifty three billion more than Volkswagen, despite Rivan having zero revenue at the time. Like, I know, it sounds like what but we understand this, Like there was a point where Tesla wasn't making learnings and you know, and then it and then it did.

Um what I do wonder about the viability though, of maybe all of them, Maybe it's just Rivian and you know, um Lucy that we need to think about because the cost of capital has gotten more expensive and so if they have to tap the market, either the private market to the public markets. It's more expensive, absolutely, and that kind of again like that is the main risk for these companies. For a Tesla, despite the six rob that we just talked about, it's still a three billion dollar company.

It still has that access, that cheap access to capital markets and cheap access to capital that it can tap at any point. These companies barely do. I mean, Rivian has about thirteen billion of cash on their balance sheet as of the end of September the end of September um and it's valuation hours around fifteen billion dollars. So it's basically trading slightly above the cash that has on hand, and that kind of tells us how how risky the

market things these companies are. Cars at the end of the day, are consumer discretion in their discretion it purchases. Evis are way more expensive, especially a car like Ribbean. Ribban's cars are way more expensive than gas riven cars. Um. So in times are tight, those are the purchases that are going to be you know, taken down first by consumers. Yeah, but you know, I guess the big picture here is

that electric is the future, internal combustion engine isn't. And the question is who are the companies that are gonna be leading this. And I think there's another question too about how investors value these companies. Are they actually valued as traditional automakers or now they're realizing they should be valued as traditional automakers, or are they valued as tech companies? Right? I mean that is sort of the main debate that we have always had and still have on Tesla and

its valuation. Is Tesla a tech company? Is Tesla car company? Or is it like some sort of an amalgamation of of the two? Right? For Tesla, again, it still does

not tread like a car company. It's it's valuation is still bigger than the combined valuation of GM Ford, still Antis and if into Yota, it's incredible even with the decline, right, But Tesla has a lot of benefit behind it because of that significant market cap, also because it had the beginner's advantage, right, like it had like ten fifteen years of like a strong run, and it has a massed this massive, you know, market value, which also is like

a fundamental benefit of the company. The Ribvians and Lucids don't have that. It's could it could just end up being a timing issue for them. Um, it's honorable market. We're heading into recession. Um. Evies are the future, yes, but the going will be tough for the next couple of years for the sector. Who can really go get

through that? That that that that's the main question that investors have, and that's the that's the questions, a lot of questions with them beating down so much, to do they become potentially a buyout target with somebody who just wants to kind especially when you have such a cash position for some of them and the balance right, it just you're buying the market cabinet and the cash balance, which lating now I know we are. We're totally um a should day. Thank you so much, really appreciate it.

She's Bloomberg News Equity markets reporter. You can check out more of her story on the terminal. I'm broc journal. Yeah, but you let me drive? No, no, no, who's going home? All right? Please? I'll do gravels. I want to drive. It's good question. Drive. This is the Drive to the Clothes on Bloomberg Radio. What's just about seventeen and a half minutes left today's trading session. We've been bouncing around,

certainly on the equity side of things. We are off our highs and lows of the session, Charlie Cross breaking it down, and then of course we get Netflix earnings

after the closing bell. That's gonna be a big focal point, certainly for our coverage here at Bloomberg, and we're gonna do a deep dive into those results before it there, though, let's do a deep dive into today's trade and has in store if anyone can tell us, perhaps it Tanks Smith, chief investment officer at Have It for Trust, based in Radnor, Pennsylvania, joining us on the phone from there this afternoon. Hank, how are you good? Afternoon, Tim? I'm doing great man.

Happy New Year. Happy New Year to you as well. It's good to have you with us. So we just talked to Steve Matthews on our Bloomber Economics team, and I was not wrong. It does sound like the Fed officials are saying the same exact thing over and over again. But they're doing it for good reason, certainly because they, you know, they want to make sure that their messages

is getting across. Um. What's the message that that you're hearing, Hank, And what's it telling you about what equities are going to do this year. Well, look, I'm very encouraged by said policy because they are taking their inflation mandates seriously. Forget about the past mistakes, let's look forward. They do not want to repeat the mistakes of the seventies that stop go, stop, go, stop go, that allowed inflationary expectations

to continue to build for eight years. So yes, I think there might be a little bit more pain UH in the near term, but I think we should have confidence that they're doing the right thing and it will be good for long term investors to get inflation down. Also, any time you go into a bear market, as we did in two thousand and twenty two, UH, your return expectations have to rise. In fact, percent of the time markets fall into bear market territory returns or positives a

year later. Add to that, we just had mid term elections and since nineteen forty two markets have had positive returns in the twelve months following mid term elections. Had is a lot of data points to hang your hat on. Finally, UM two more, um uh two more. Items. UH evaluations are reasonable. UH. Small caps and mid cap stocks are selling around thirteen fourteen times earnings UH. The equal way at SMP selling a thirteen time learning, so we don't

think evaluations are headwind. And then finally, investment sentiment UH is really hasn't been this bad in decades. That's hard to believe that it's it's even lower. In other words, the bearishness level is greater, the bullishness level is lower than it was in oh eight oh nine. I still

have bruises and scars from that period. Than let me jump in for a second, not to be Debbie down here, but our Tatiana Dari Dary great column on the Bloomberg I think it's part of our day break coverage early this morning, and she noted only a mild earnings recession is priced into stocks. The good news is that the profit downturn hitting America may already be priced in thanks to how much analye have dialed back profit forecasts. The

bad news is there's a major caveat. If the economy left is into recession in the second half, stocks probably have further to fall. The point is, you know analysts um have not necessarily maybe priced that in, that the earnings estimates, the current estimates are probably lead too optimistic, and that that leaves open a door for the SMP five hundred to drop even further than we're planning for now, how do you factor that in or do you disregard that? Well?

I think there is a chance that the SMP five gets a lower low than the October twenty two low um. But again, our our view is it's likely that we're going to have a recession, but equally as likely that it's going to be mild and brief. And look, the market, the stock market is a forward anticipatory of vehicle and UH consistently bottoms ahead of when a recession ends. But if we do have a recession, is likely that stocks go of a little bit lower of from from these levels.

But there's a chance that this recession is going to be so mild that they'll call the soft ending. But would you can see though that if indeed we're not earnings estimates haven't come down enough and that things are worse than everybody's talking about. This is this is why you see kind of the trade that we're seeing over the last couple of days. People just don't quite know what kind of a downturn and how long it impacts earnings. If it goes on for longer than that than what's

being already priced in that's more problematic for stocks. Correct. Well, that's yeah, you said it correctly that the volatility we've seen uh this week, UH is really a reflection of that battle between um, do we get to go under recession do we not? And how badly our corporate profits are going to come down? But I mean there are some talents the corporate profits. One, the dollar is well

off its peak. That should be good for for multinational earnings. UH. Corporations continue to do major cost cutting, inventories are lean UH, and China re opening is going to be a positive as well. So UM, you know maybe even in a in a no growth or slight recession, UH, profits will hold up better than one would think in that type

of environment. So okay, So if this is what what we end up with, if this is what we indeed see happening, Hank, then give us give us the sort of outlook of allocations and what we should think about in terms of equities and fixed income. Carol said it earlier today, Um, you know, thinking differently maybe about portfolio this year. Well, yeah, the you know, the idea that the sixty forty portfolio is dead is very near term

near term thinking. Um, and I think there's a very good chance we've already seen the peak in interest rates, you know, with a tenure treasury at four point five least fall we might not get back to that level. But I think in terms of allocation, uh, and this really kind of timeless recommendations that one should always have the maximum exposure to equities that allows them to sleep

at night, and that varies from person to person. And also in this environment, we still favor dividend paying companies and companies that have a record of increasing dividends on a regular basis. That's how you stay ahead of inflation. Um. And I think there's going to be continued emphasis on quality through two thousand and twenty three as there was in two thousand and two. Uh. And there's going to be volatility, there's no question about that. Yeah, that's for sure.

Um And Uh there's some great coverage to about you know, this low VIX that we've seen for this protracted period of time, what that potentially uh indicates about more volatility or maybe some downside when it comes to equities. Hank Smith, thank you so much, Chief Investment Officer. To have it for trust based in Radar Pennsylvania joining us on the phone from their folks. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com.

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