Bloomberg Businessweek Weekend - November 12th, 2021

fear in the markets. Disney slumped after earning showed streaming subscriptions cooling off despite a warning by the CEO back in September. And then you had Elon Musk unloading five billion dollars in stock after taking a Twitter poll. Yeah, five billion. That whole thing. Well, we should note that Musk made that move to help satisfy tax withholding obligations

related to the exercising of stock options. Incidentally, he did it against the backdrop of Amazon backed Rive in making its public trading debut and becoming the largest I p O of the year. Amazing week. Yes, a new entrant into the electric vehicle market. On the other hand, one of the most iconic names in the history of American industry, charting a new path forward. General Electric set to break up into three separate companies. The conglomerate seems to be

dead at this point. Yeah, Well, of industry icons and e vs, We're going to catch up with the president and CEO of Mercedes Benz USA. We're also going to get an up close look at the US housing market. We're going to do that with the CEO of Invitation Homes. Will also take you inside Zillo's half billion dollar home flipping flop and legendary venture campist John Dore, stopping by unveiling his action plan for solving a climate crisis. Well, all of that to come. We begin though, by welcoming

the editor of Bloomberg Business Week magazine, Joel Weber. Joel, it's good to see you this week. It's the Bloomberg New Economy Issue ahead of next week's Bloomberg New Economy Forum. It's happening in Singapore. So what do we need to know? I'm not going. I wish I were. Uh, Singapore is open for business and I think everyone there's is really

excited for the for the conference. Um, the issue, I think we've always thought about it through this problems and solution lens and there's the developing world and developed world, and there's really been a lack of dialogue almost between the two. And I think the New Economy Form is really meant to be a place where we learned from each other, right and boy, there's like kind of a lot of problems in the world right now, So what

can we learn? And that's sort of how we approached all those stories in the issues, like big problems, what are some big solutions that that business can help provide? And we're gonna talk to Christina Lynblad a little bit more about it, who oversaw um that section of the magazine, so we'll get to her a little bit later. On reminder, you can tune into the live stream of Bloomberg New Economy Form from Singapore November seventeenth through nineteenth. That's at

Bloomberg dot com slash Live slash Stream. Joel We touched on it at the top General Electric breaking into three separate entities, Richard Cloth and Ryan Bean writing about it in the Business section this week, CEO Larry colep bringing an end of the company as we've known it for decades. Um,

what are some implications of this? Well, first of all, I just think of g E is sort of the quintessential American company, right, and a hundred and thirty plus years of innovation, and then you know, it all kind

of started to unravel in the last twenty years. And of course Larry Colp, who we've written about before in the magazine, steps in first only outsider CEO to take over over the company, right, and he inherits this baggage that has been left with him and the legacy of Jack Welsh of course, and you know big conglomerate that

that business model is no longer in vogue. And Larry Colp is a very strategic business thinker, came from Dana Herb maybe the only other conglomerate style company really in America at scale like that, and what he decided to do, break it into pieces and potentially, you know, hope to

unlock some more value for investors. What's wild about this is I think about the trajectory and it's not been such a long time, Like just a few years ago, right, we were still looking at g IS like the company that you wanted to know what they were doing because they had such a great out you know, global outlook on so many different in touch, so many different industries and Ultimately, what he did was to sell some things off and then boil things down right. And when you

really distilled it, there were three businesses. There's aviation, healthcare, and energy. He's going to remain at the aviation side, which probably has the best outlook. Both the energy and the healthcare have a little bit more of a challenged forecast um, but you know, doesn't mean that somebody can't

turn this around. One of the things that Jim Ellis and I were talking about what we worked on this story, was like everyone thought HP was going to have this great enterprise business and you know, this printer home printer business wasn't going to be such a great one, and it turned out to be the exact opposite. There was a ton of money in a subscription base model at a moment time that everybody started to work from home.

So you know, I can't pre judge this one, but Larry Colp proved to be the person who was willing to do something that no one else was willing to do. YEA certainly the end of an era and a lot of symbolism there as well with what's happening right now Joel. In the text section our Patrick Clark takes us inside Zilla's home, flipping to Boggle. He's going to join us a bit later on. We just want to know, though, Um, how did this go so wrong so quickly? Wasn't it

a cover story just a few years ago? What we it was not a cover story that we we talked about it in the terms of this is a big, big, big, big experiment, and you know, there's a lot of interest in like what Zilo was attempting to do. I mean, this is a company that really means real estate. If you you know, thats the z estimate you pull it up on your phone to be like how much is my house actually worth? And here they were going into

areas like Phoenix and buying a lot of homes. One of the things that Pat sort of I think gets too in this story is that they, you know, this outgo idea, this I buying idea, really untested, what could go wrong? And it was almost like they turned up the volume to do things that were maybe a little bit beyond their skis, and that seems to have really backfired. Um. The bigger implications here for the housing market becomes, Okay, we have a lot of these homes that Zilo has bought,

they're going to offload them. We've already seen institutional investors step into single family homes in a big way. That used to go to aspiring homeowners and and now we're looking at like you living in rentals for forever, and that has big economic implications for for the ability to grow wealth, and you know, turns institutional investors into landlords

even more. You do wonder too, how much the current environment or the pandemic environment, all of a sudden, like home appreciations were off the chart, how much that just kind of messed up the algorithms a little bit. And you know, and and it's a it's a big test for Zillo is not the only person doing this, and it means that there will continue to be you know,

improvements and algorithms. But that also is the big risk as more and more of our life gets basically overrun by algorithms and our big thank YouTube Business Week editor Joel Webber joining us with a look at this week's New Economy issue. More from the magazine in just a little bit. Coming up, With the global auto market filling the strain of supply chain bottlenecks, we're going to check in with the CEO of Mercedes Ben's USA talking to

us about this work around. Demitrius Delaco's talks pricing power and the company's electric future. You're listening to Bloomberg Business Week. This is Bloomberg. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick takes Tim Stinovik from Bloomberg Radio. He has a global perspective on the auto industry. Tim. He has worked for Mercedes Bens for nearly three decades.

We're talking about Demitriz de Lachez. He served the company in his native Greece and Korea, in Canada and earlier this year he was named president in CEO of Mercedes Benz USA. He's right now leading it toward what he calls an electric vehicle future. I feel like the whole week was about e VS in a big way. Well, despite supply chain challenges and a tight labor environment, Zelaca says, the luxury auto market in North America it's growing. What

helps a lot in accommodating demand is the flexibility. We have enough factories in in accommodating let's say the shortages in the best way, so I would say it has been challenging but we did the best you could do out of it to supply vehicle store customers. So does it sound like Tom When we get into twenty two, we still might have some supply chain constraints, but as you said, stabilizing, so not getting necessarily any worse. This

is the kind of situation. Yes, Q four is developing better than you three, and we see a certain light out of the channel. Nevertheless, two, we continue posing challenges for all of us in the auto industry. What about for workers? And you know that's the other kind of flip side of this is that UM companies are competing for workers having to pay up. How are you guys on the labor front? Certainly for the markets that you ever see, I would say we were, well, we have

a good situation, a stable situation. There were man not that flexibly with with our workforce. I'll did. It's also on west sides m accommodating the demands also through the COVID phase. Who could keep our businesses up and running? So all in all, I would say, it's it's manageable.

It's tough, but it's manageable. We've heard a lot from executives around the country who've had to raise prices as really as a result to attract and retain talent, or to attract and retain talent, how have you had to do that? I would say this is this is twofold on one on one one hand is adapting to the current situation condition. So as you know, have also a hybrid working model in the company, and probably in one or the other situation, we had yes to to pay

what the markets is asking. But all in all is falling, trends is adjusting, and it's manageable with within our budgets. To me, just how are any of this impacting the rollout of you guys? You are moving grossly into EVS. You've launched your e q S brand already in Europe. It's coming from what I understand early two in the United States. How does that rollout look? All in all, I think we're moving faster into an electric vehicle future and muspense is part of this game. You said, quite right.

So we'll have just long the our first elected vehicle in the in the U S, which is the equ S. The let's say that the media exports on this product. The dealer comments after testing the products are extremely positive. So We're looking to a very um positive future for for all the vehicles of considered bands. Do you feel like you'll be able to meet the demand of the new Equs brand of people who want them, who place

orders here in North America? You'll be able to meet that demand in two we have quite a good volume. But the issue here is not if we can meet the demand. I think the demand is higher than what we can all in all produce and deliver. You know, Equs is not the product only for the US market. It's a product for for for many markets around the world. The demand is hide an extraordinary good product. Will happy for that, and unfortunately it's going to be some waiting

line for for this product. So we just tell us a bit more about the vision of Mercedes Bands and they thoughts about electric vehicles and where it's all going. Our vision is very clear. We want to become the most desirable electric luxury brands um and this we start our error by introducing the q S, an amazing vehicle with top technologies, innovations and splendid design. And there is

much more to come. So we're accelerating our our product range towards a carbon neutral let's say a mobility and this is by introducing within next year everything. The next year the EQUB which is going to be our entry suv models, but we continue with the equ Sedan, the eq S suv and the equ Suv, which are two products which by the way, will be produced in our factory in in Alabama. So in the next basically twelve to fifteen months, who plan to have a full range

of five full electric vehicles in the US market? What is the price range on these? Because if somebody is in the market for an electric vehicle, they're going to consider from other companies, and you know, Tesla regardless of where it ends up right, UM advertises cars in the

thirty thousands. I would say at the moment of range, what we call the the electric Mercedes, the S class of electric which is the EQUS starts at one hundred and three thousand dollars, and obviously would the EQUB, which is an equivalent to today g LB, will be in a much lower range, probably around the sixty thousand dollars. So it's it's a lot to come to anticipate a time demetrius when we get to a point in the United States where the charging network is as ubiquitous, a

gas station available in every corner. I would not give a date for that, but I would say the speed of adoption of a mobility is quite impressive in the US. That coupled with the let's say the infrastructure subsidies, the infrasection subsidies, which are plants, we believe will accelerate the

rhythm of of of development of charging stations. Don't forget also technology helps in this direction since you can basically on on on the screen of your vehicle identify h which is the closest charging station or plan let's say, your your driving route according to two available charging stations. So a combination of charging stations and small technology would support our customers overcoming the hesitation of the same buying or driving an electric vehicle for for for long distances.

That was Demitrius the laque Sees, the president and CEO of Mercedes Bend's USA. I can't wait to get kind of into an e Vy. Have you not been in one? Oh? I have been in one, but I really haven't driven one. And are are you ready for your next card to be any? Yes? Okay, all in there you go, And I feel like there's more choices. How yeah, well no, no, no, because where we park our car, there's no outlet, and you know that is the It's gonna be difficult in

urban environments. I do think about that. I got a lot of flak for saying this a few weeks ago because people were saying, everybody has garages and they can charge in their garages, and I'm saying everybody does not have garage exactly. The millions of people like me who live in the United States live in apartments and don't parking garages. We park on the street and parking lots. We don't have access to charging yet, hence the needed

infrastructure investments to get us up to speed on that. Well, it still ahead. On Bloomberg Business Week, we go from autos to airplanes and the easing of pandemic travel restrictions. It's not the only reason you're seeing more planes in the sky. No, that's for sure. Why supply chain chaos is fueling demand for freighter aircraft and what the world's

top two planemakers are doing to meet it. This is Bloomberg broadcasting from the financial capital of the world, Bloomberg Eleve in Frio in New York to Washington, d C. Bloomberg to Boston, Bloomberg one oh six one to San Francisco, Bloomberg nine sixty to the Country Sirius XM Jeddo one nineteen and around the globe the Bloomberg Business app and Bloomberg Radio dot com. This is Bloomberg Business Week. In the business section of the magazine. This week, there's a

story that homes in on big cargo planes. We're talking massive planes more in demand than ever because many of the goods that used to come to us by sea are now being shuttled through the air. These behemoths of the sky can quickly transport large amounts of freight while bypassing port tie up shortages of ocean containers or rail cars and the current shortage of long haul truck drivers. This is a story that you and I both learned

so much. Boeing and Airbus, we know are both developing new air freighters that will end up competing for business with converted passenger jets. To help explain what that means for the world's two dominant planemakers, we turned to Bloomberg Business Week editor Joe Weber and Bloomberg News Era Space

reporter Julie Johnson pre pandemic um more and more. You know, uh palettes were being shipped in the bellies of passenger aircraft and um so when all those you know, those big planes were parked last year, it just created an instant shortage right at the point where everybody was, you know, heading online to shop and and we were starting to see, you know, logistics start to tighten and and you know, the situation is just sort of um um snowballed from there.

So yeah, so it's crazy. So we're um, just about every aging freighter that's air worthy I've heard is back in the air right now. Um, like some some museum pieces have been brought out of the desert and put back um. And and there's also just a flood of money coming in to convert um older path cinder jets

into freighters. And these are going to start to come online mid decade, right around the point that the passenger jets will be flying again, and Airbus first, and then we think a couple of years later Boeing will have their new jets out and then we'll have a glut right so suppled de mand there it is at work alright, better a better start adding windows to the cargo planes and getting the passengers seats back in there exactly right. I mean, is this just a temporary problem because of

the supply chain loose or what. No, they think this is a fundamental shift that the market, the market, you know, shipping is always going to be there and it's always going to dominate. But with e commerce, UM, you're seeing you know what used to this this whole what was

described to me as fragmentation. So instead of the ships coming in these steady waves that you could you know, set your watch by from from China so that the goods would be on the shelves for Halloween and Christmas, UM, we're seeing more and more of that move to palletts UM in cargo ships and then also into packages um that also traveled by air and maybe in smaller airplanes, you know, for Amazon and its counterparts. So I I

you know, post COVID, I don't think that trend is reversing. UM. So there is going to be demand, but there's just a crazy amount of of supply being created to meet that demand. Okay, there's supply, there's man and then there's just good old fashioned rivalries and like Boeing air Bus that is like one of the one of the best ones, who's got the upper hand in the in the revelry, at least in this chapter of it. Boeing. This this

is Boeing's world. I mean, um, so about of the world's air cargo right now travels on Boeing or McDonald Douglas, which Boeing bo jets and um and I think Airbus has woken up to the fact that Boeing this year has been selling a lot of freighters. Airbus really doesn't have anything in the market, and so they're going to try and crack you know, yet another part of the market the Boeing is dominated. Well, I do wonder what

the play is Julie. Here is it? You know, the planes from Airbus and Boeing, the brand new ones or I love this line your story. Um uh that talks about I guess a big jet a seven seven seven, a triple seven three er could cost upwards of a hundred fifty million dollars. Knew a decade ago. Now you can pick it up for a mere twenty million dollars. Sounds like a bargain and then you retrofit it. So is it those who are leasing old planes that are

kind of the investment play here potentially. Yeah, well this is we could go on and on, but part of the issue is that Boeing and Airbus UM kind of got greedy a decade ago and and pushed pumped an enormous number of these huge wide bodies out into the market and UM, so that market is glutted, prices have collapsed and really new you know, in airplane terms, jets are being sidelined and either scrapped or um. You know, another way to get money out of that airframe is

to turn it into a freighter. That's Bloomberg News aerospace reporter Julie Johnson along with the editor of Business Week magazine, Joe Webber. You're listening to Bloomberg business Week up next. He backed Jeff Bezos, says he was creating Amazon and Larry Page, Sir Gay Brand and Eric Schmidt as they were building Google. Now he's setting his sights even higher.

I couldn't wait to talk to this guy. Legendary venture capitalist John dor laying out an action plan to solve what maybe the biggest crisis of our lifetime that's coming up. This is Bloomberg. Your listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovich from Bloomberg Radio.

So when you think about the venture capital world and those that supported the entrepreneurs that helped build today's high tech society and really the world's most influential tech companies, then you've got to think of our next guest. John Dora went to work for Kleiner Perkins all the way back in It's a company where he now serves as chairman. He was an original investor in board member at a

small company called Amazon, another small company called Google. It back in the likes of Larry Page, Serge Bryn, Jeff Bezos, and many more. He really had a front seat to so much that is so substantial in our world today. He has seen innovation and disruption up close and personal. Now he hopes that same mentality can help us address and fix the climate crisis. Door leays it all out in his new book, Speed and Scale, An Action Plan

for Solving Our Climate Crisis Now. He told Carol and Bloomberg News cross Asset reporter Katie Greifeld that he set out to create this framework way back in two thousand six after seeing the documentary An Inconvenient Truth with his then teenage daughter Mary. I had gone with some friends in her to see Al Gore's epic movie. But that put really the climate crisis. I think in the global conversation.

Eight million people saw that movie. But at at dinner, we went around the table and I had a number of my Republicans friends there and we talked about, well, is is the world getting warmer? Yes? Is it man made or not? There we had some disagreement over that at the time, uh, but then we asked people what they thought, and when it came to Mary, she turned to me and she said, Dad, your generation created this problem. You better fix it. And I had no idea what

to say or what to do. I was I was speechless. She said, I'm scared and I'm angry. And so I set out with my partners to understand climate technologies, the markets, the innovation, the forces at work. And over time we devoted over three of our venture funds a billion dollars to about seventy climate tech startups. And it was hard.

It looked for a while like the portfolio would fail, but we stood by these entrepreneurs and today that that billion dollars is worth three billion dollars and companies like Beyond Meat and Bays and and other investments. So what I learned from that is it takes guts and courage and staying power and it's hard. But that was then and this is now. And you know, Testless what the seventh most valuable company in the world, and innovations and clean the transition to a clean energy economy. This is

the biggest opportunity of our lives. I'm convinced. And John, I want to hear more about the action plan that you lay out in the book. I mean, what steps do you view are needed to take now to address this climate crisis. Well, uh, one thing your listeners can do is they can go to speed and Scale dot com and get the plan for free. So it it's ten great big objectives. The first six of those are solutions. In the latter four speed ups. I'll just go through

the solutions issue with you. If we electrify transportation, which means stop using gasoline and diesel for our vehicles, then number two, de carbonize the grid by shifting to wind and solar and safe nuclear. And then number three fix our food systems, which means eating less meat and dairy, not stopping, but less while improving how we grow our

crops and reducing food waste. And if we do that, while number four we protect nature which is to stop deforestation, protect our oceans, and five clean up industry, especially the making of steel and cement is a very dirty carbon generating process. We can innovate around that. And then finally, as hard as we work at this, we're never going

to eliminate all carbon emissions. So the I p c C, the U N. Scientific body says, we've got to find ways to remove carbon that's being admitted on an ongoing basis, are already in the air. That's the sixth big goal. Now we don't just have to do these six things and do them all at once. It's going to be a tall, tall order. We got to do them fast. So the big objective, the big objective is to get

this done to net zero by you mentioned Tesla. You know what are the companies who are the innovators that you really are falling there saying they're making a difference. These are the companies that are going to be around for the long term because they get it when it comes to climate change. There's so many companies test for sure is one. The transportation sector is a huge area

for innovation, so companies that are making better batteries. For example, it's estimated that the market to electrify all transportation is four hundred billion dollars of batteries per year. That's five times bigger than the US online advertising market that my friends at at Google and Facebook are fighting over. So nd phase energy, quantum escape uh Larry Fink has said he thinks there will be a thousand unicorns. That's a thousand companies worth a billion dollars or more in this

climate tech sector. The E s G money, does it make sense because there's a lot of people are saying, you know, at E s G Money, there's not really great metrics for measuring. Do you think it's being as productive as it could be? When it comes to climate change initiatives, the data shows that investments and sustainability outperform those that don't. So my answer is yes, do we have until to get a lot of this done? This

is the decisive decade You're on an important point. We have to cut emissions in half by the end of this decade to have a reasonable chance of having a habitable planet in so, no, we have to reduce emissions. That's eight percent next year and eight percent the year after that and after that. We have not reduced emissions in the history of civilization except briefly during the pandemic. We've got work to do well when it comes to, you know, cutting emissions, doing this work, turning this into

code read actions. I mean, who is at the forefront here, who's responsible for that? Does that fall more on corporations or governments to really take a leadership role there. We need corporations, we need governments, we need leaders, we need uh, nonprofits, we need entrepreneurs. Of all these parties, the one that are lagging in my estimation are the governments of the world. They're responsive to their political forces, and we have not made climate a top two voting issue in the twenty

largest emitters. It is in Europe now, it's not in the US, it's not in China, it's not in India. We have work to do to win the politics and the policy to elect government officials who make this a

top priority. Hey, John, one thing I wonder about, and you're someone who understands capital flows and going into innovation, right, what I wonder is, as we track the k Katie and I tracked the public markets and everybody here at Bloomberg day in and day out, how is it that companies will move aggressively enough unless there are some kind of measurements or metrics or penalties. So when they report earnings, for instance, shouldn't there be a climate metric that you

get penalized on if you're not being aggressive enough? Like, how do we need something like that in order to really make certainly the corporate sector move fast enough. We do, and it's happening. There's the Net Zero Investor Alliance, which has a hundred and fifty trillion dollars of investor capital committed to UH invest in companies that have made and declared and report on pledges to achieve net zero. I'm really pleased by the movement underway in the investment community.

I'm really pleased. Are our goal is to have a hundred percent of Fortune Global five hundred companies commit to net zero by Walmart has committed they're going to do that. Amazon's leading a coalition of companies that are doing the same things. So UH investors demanded employees insist on it. It's the right thing to do. And I mean you definitely have seen that demand if you look at the flows into some of these e s G funds and

e s G investments. But I mean, in the past year, I've really seen a lot of concerns about greenwashing come to the forefront. I mean, I'm curious your thoughts on that. How much of an issue you think it is? And I mean, how can investors discern that they're actually putting their money behind sustainable causes? Well, we need audits, we need reporting, we need standards for higher quality what are

called offsets. But more than anything else, we need to cut the fifty nine giga tons of emissions we have every year to net zero. We've got to reduce emissions, then conserve energy and at the same time remove some of the stubborn carbon that's that's still out there. What is it that worries you so much when you hear statistics about the climate change or about climate change? Is a deforestation or what deforestation stopping it? Which is one of the outcomes of the of the cop process is

uh is an encourage pledge. There was a pledge to reduce methane emissions by that's a fast acting improvement, but the pledges are one thing. It's the action that follows that we need to track. That's John dor chairman of Kleiner Perkins, with me and Katie Greifeld. Just new book by the way out this week. It's called Speed and Scale, An Action Plan for Solving Our Climate Crisis. Now a very timely conversation considering CUP twenty six Sumit just finishing

up in Glasgow on Friday. That wraps up the first hour of the weekend edition of Bloomberg Business Week from Bloomberg Radio. I'm Tim Stanovic and I'm Carol mass Or. Head in our next hour a deeper dive into this week's special New Economy issue. We're talking about the struggles facing a key demographic in the global labor force. Also Google satellite Imagery, Treasure Trove, and yes, Tim, we're talking about colonizing Mores. We're going there, and we're going there.

We well, we might not have a choice if the housing market keeps going like it is. Now. We're going to talk to the CEO of Invitation Homes Dallas Tanner. Will also get a closer look at Zillo, the real estate platform hit hard after its home valuation algorithm leads to a loss of more than five million dollars to Storty, Amazing and coming up next every chorus, Mark Mahaney reveals his ten proven rules for succeeding as a long term tech stock investor. They're all in his new book, Nothing

But Net. This is Bloomberg. This is Bloomberg Business Week Inside from the reporters and editors who bring you America's most trusted business magazine, plus global business finance and tech news As it happened, Sloomberg Business Week with Carol Messer

and Bloomberg Quick Takes Tim Stinevik on Bloomberg Radio. Hi Am Carol Masser and Tim Stanobek Plinny ahead in our second hour of the weekend edition of Bloomberg Business Week, including Zillo's home flipping Flop how a home valuation algorithm turned America's best known real estate company on it's ear. We'll also here from the CEO of Invitation Homes. It's the largest owner of single family rental homes in the US.

They've got eighty thousand and counting. Talking a lot about housing this week, plus our cover story, It's a special New Economy takeover ahead of the upcoming Bloomberg New Economy Forum in Singapore. We've got some important stories from our Business Week team about the challenges facing us here on Earth and uh yeah beyond. Yeah, we're seriously talking about colonizing Mars. You're gonna want to stick around for that one, because there are some serious challenges when it comes to

colonizing Mars. Well, first up this hour, the Right Way to invest in tech companies. Mark Mahaney is the Managing director, head of Internet Research at Evercore I s I. He's got a new book out this week. It's called Nothing But net ten Timeless stock picking lessons from one of Wall Street's top tech analysts. Mark joined us to break down the keys to building a solid tech portfolio for the long run. Well, I'm going to start off with one one warning and then one good piece of news.

So the one warning is again, these markets a hories falto and even the best stocks, even the best franchises, can underperform for periods of time. They will get dislocated. You know, I think about these wonderful full names that combined for this acronym called fang, Facebook, games on Netflix,

and Google. You look at those stocks, they've each had twenty to thirty, even as much as forty corrections over the last two, five and ten years despite being dramatic market performers, so kind of lessen number one warning to us all. You know, we've had a pretty robust equity market for the last decade or so, so I just want to make sure we highlight the risks. But now

let me highlight the reward. If there's one acronym, if there's one thing I want people to get from the book, it's the acronym d h Q. Now not dairy queen d Q, but d h Q, which stands for dislocated high quality companies. If you're investing in the market, you want to do two things. You want to mitigate valuation

with risk and you want to mitigate fundamentals risk. Valuation risk is, you know, buying a stock news multiple is too high, and fundamentals risk is buying a company and then watching it blow up a revenue growth sharply to accelerate margins, collapse, etcetera. The way to hedge that second risk, that fundamental's risk, is to focus on high quality names.

So I spent a fair amount of time looking at things like Total adjustable markets Management SKILLE especially products, successful product innovation, and really strong customer value props or propositions. You put that package together those four things that will create a high quality company in which you want to

do and imedging both of those risks. Identify the high quality companies and then wait for that dislocation, wait for them to trade out twenty and then buy or add the positions being a question for you, Yeah, Mark, you start out your book by writing that you're the oldest and longest lasting Internet analyst on Wall Street. What has kept you in the job for this amount of time because you've certainly could have gone and worked a lot

of places. Well, I I enjoy the work and uh and I'm lucky to be covering a sector that's extremely dynamic. If you're going to spend the last twenty five years working on Wall Street, you know you would want to to have either covered Internet stocks, invested in Internet stocks, maybe software. Those are the kind of the two areas that have been the most knownst dynamic in terms of

also new companies coming in. I mean, the Internet created three of the largest world you know cap companies in the world, Amazon, Facebook and Google and by the way, Microsoft and Apple. The reason that they are where they are is because they've created wonderful services, product devices for accessing and utilizing the Internet. So it's really been I've been lucky to kind of stumble. It was a timing thing. I got lucky and stumbled into the Internet. Not at

the very beginning. I wasn't as smart as out gore, but I got in there a really kind of it near the beginning of the commercial Internet, and it's been just phenomenal and fascinating to watch these companies grow. Is the metaverse the next step of the Internet in some way? I don't know, but I absolutely think that, Uh, you want to be long and name like Facebook because of its core business, but because it's also building what's likely option value. No, it is option value in terms of

its investment in the metaverse. Uh you know, Like I like to see large platforms have these kind of long term bets, like Google with autonomous vehicles and weymo. This is Facebook's long term bet. Given the amount of money that they're putting into it and the resources. My guess is that there's a there there and investors are going to appreciate it five years down the road. So mark one thing I wanted to ask you. Um, in your book, you talk about importance of management, You talk about you know,

having a product, You talk about revenues over earnings. Like, how do we need to think about some of these companies that are starting out? We look at Rivan that I p o UM is it a car company? Is it a tech company? It's not expected to be profitable for some time or really ampa production for some time. UM, how do we need to look at these How do you look at companies like that? I know it's not an internet company, but that's right. So I what I tried to do, Carol, is I really try to focus

on this framework. You know, there's three or four five things I'm really looking for in the company. You now, there can be plenty of trading opportunities, but to really be kind of a good low core long term investment

that takes something else. And you know, by the way, even these great assets like Amazon today, I don't think that was a good core long term investments until something like two thousand and six, two thousand and seven, when they they could innovate in multiple areas, go from being an online book retailer to generating or building or really almost inventing could the commercial cloud industry and then rolling out these kindle products. You look for those kind of

proof points. But you know, if I if I check off the list, it's one look for companies that are facing large TAM's total addressable markets. Uh. Secondly, you look for companies with just great management teams. I know that's a easy statement to say, so what does it really mean.

You're looking for companies with great vision like read Hastings into launching this company called Netflix, which kind of conjures up streaming over the Internet, except you couldn't have streamed anything over the internet at least it would have taken you hours to download the first five minutes of Terminator back then. But he had the vision to know that ten years from then, you know, the business would go streaming. People would stream video over the Internet. So you look

for that kind of industry of that vision. That's Marc Mhaney, Senior Managing Director, head of Internet Research over at Evercore. I s I check out his book Nothing but Net Tend to unless stockpicking lessons from one of Wall Street's top tech Alice. It's out this week, still ahead. What in the world is going on over at Zello how an algorithm costs the company hundreds of millions of dollars. I may have said, maybe should just have stuck to

these estimate. Maybe this estimate is the issue. Maybe this estimate. You're right, nicely done. You're listening to Bloomberg Business Week. This is Bloomberg. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stenovik from Bloomberg Radio. Alright, everybody first came this estimate. We're all obsessed with it, right, you know, you've gone down a rabbit hole just checking out the values of homes in your neighborhood and beyond.

Then there were z prices, then the eye buying, then the damage and fallout from an algorithm that led Zillo down a dangerous path. The subject of a story in this week's Technology section from Bloomberg News real estate reporter Patrick Clark, it's all about the company's algo fueled buying spree ended up seeking its home flipping experiment. Patrick joined Carroll and Bloomberg News cross asset reporter Katie Greifeld and Business Week editor Joel Webber this past week to explain

why the real estate platform's plan went south. They did it poorly. They said, it's you're exactly right. We we did a long Business Week story on Zillo, which is, uh, you know, best known for one publishing homeless ins what you can then go in Browns and too publishing what they called estimates, which is a you know, an attempt to approximate the value of just about every home or I don't know, I think it's more than a hundred

million homes in America for first sport. Basically, at some point, I guess in two thousand eighteen, they decided to take all the people and technology that they used for those first two things and apply them to flipping houses, which is a you know, I would say, a notoriously sort of risky business. It's it's it's it's not the first time that a company or you know, offen an individual has gotten the business of buying and selling and had home prices move on them in the interim period and

gotten burned and so pout. You write that this is a five hundred sixty million dollar cautionary tail. I'm curious what are the takeaways that Zillo is going to take from this. I mean, obviously they've paused the home flipping experiment. Do you expect this to bleed into some of the other ways that they operate. I think that their old

business should be fine. Um, people are still going to go to Zillow's websites and apps and look at houses, and that's still going to be a great place for a real estate agent to get in front of, you know, house enters. Basically, they shouldn't have trouble making money that way. The question is, you know, number one, how are they going to build the sort of hole in their strategic

purpose that that ending this Dellow offers program created? And then too, you know, I mean, I think there is a big push just Dillow wasn't just blow doing this. There there are other companies in the same I buying sort of tech power flipping business as they are. And then there are other companies that are are biding off

different pieces of the housing transaction. Uh it seems fairly likely to me that some of them will succeed in some form, and we won't, you know, we're not tied to this sort of hundred year old method of buying or sell in house. So not only did Zilo you know, sort of flush the money down the drain. But they also they also wasted time that they could have been using to, you know, figure out what the big opportunity

is well. And I feel like until weeber come on in of course, the editor Bloomberg Business Week, I felt like, algorithms, can't we trust them? Like, don't they know? All right? Yeah? Totally? Um, And now that that was sort of I think, Um, you know what what sort of inticated Pat wanting I wanted to write this story for the for the magazine was like, look, as a society, like we've come to put a lot of faith in algorithms, and entire business

models will rest on it. And in this case, the sort of a few or of Zello is sort of intrinsically tied to this algo and Pat, you know, just curious, like, what do we know changed? Did they? Did they juice it? Did they did they try and get more than than might have they might have wanted? In hindsight, my best understanding is, uh, this was more human failure that a technology failure. I mean they you know, on the individual um, on the level of an individual home. Uh, it's you know,

it's a computer program telling Zello. Here's how much we think it's worth. But number one, when they first started doing this, they had human eyeballs on every offer and multiple touchpoints where a person was saying that this makes sense. And you know, as they did it more, they got more confident in their ability to get pricing right. And uh so that's that's number one. Um, if they sort of took away all of the the human touch ones. But the other thing is they were sort of lagging

their competition. And you know, there there's open door technologies, which is the biggest of these eyebuyers were buying way more homes than pillows and very ambitious plans to catch up.

And uh, you know, they they was very clear to them that if they made more aggressive offers, they would be able to buy more homes and and and they believed they had to buy an awful lot of homes, you know, in order to make the business work, and and and so they basically just started beating, uh, you know, to the best of my knowledge, started just feeding the

algorithms more aggressive assumptions of home price appreciation. You know, so if if if, for instance, like they had been assuming that home prices were going to grow twelve per said year over year, you know, they said, well, let's let's let's see what happens to fortune percent. And I'm sure enough they bought a lot of homes. Um, you know, the home prices appreciation, it's home home prices are still growing, but at a slightly slower pace than they were earlier

in the year. And Zillow executives have said, is the the sort of slowdown was outside the sort of range of outcomes they thought more likely. But you know that's why when people when they got into this business, people said, well, you're exposing yourself to a lot of market risks. So you've got a lot of houses that are suddenly on the market, Um, that that Zelo would bought. Do we have any since yet, who's going to buy these? Um? Yeah,

we'll see. I mean they've they've sent you know, information on you know, something like seven thousand homes the large single family landlords. Um. And that's right. I mean, there's so much money that has gone into this from an institutional standpoint, right, there's been an enormous amount of money that's come into that business. Um during the pandemic in particular, very appealing way to invest behind like millennial household formation,

you know, migration to the south and southwest. And also just like you gotta put you know, if you're if you're at pension, but you gotta put your money somewhere in rental houses. Uh is a hot idea right now. I think that you know, there's so much demand and if it's not clear yet, you know, agree to which Zillo launts to transact you know, at a at a

bulk scale. But you know, people have been telling me that if if you could buy um, if you could buy two thousand homes, and you know, it's a snap of the fingers, and it's not a snap of the fingers, right, It's a lot of due diligence in time. But you would you might not have to pay, you might not get a discount. Right there's like a there's a premium you get for being able to deliver bulk to an investor. Right now, you will will be able to tap into that.

That's Bloomberg News real estate reporter Patrick Clark, along with Business Week editor Joe Webber at Bloomberg News cross as At reporter Katie gray Felt and the day after Patrick's story hit, the terminal, Zilla reached an agreement to sell about two thousand properties to New York based investment firm Pretty and Partners. That's America's second largest single family landlord, with more than seventy thousand rental houses in its portfolio.

All right, so they're the second largest. Who's the largest, you might ask, Well, that would be publicly traded Invitation Homes. Coming up next, we'll talk with the company's president and CEO. Dallas Tanner stops by to talk earnings, expansion and why the Zillo fiasco is no reason to doubt the strength

of America's housing market. This is Bloomberg broadcasting from the financial capital of the world Bloomberg eleven Frio in New York to Washington, d C. Bloomberg to Boston, Bloomberg one oh six one, to San Francisco, Bloomberg nine sixty to the country Sirius XM Chado one nine team, and around the globe the Bloomberg Business app and Bloomberg Radio dot Com. This is Bloomberg Business Week. Invitation Homes is the largest

owner of single family rental homes in America. It offers a variety of services for the more than eighty thousand properties in its portfolio, and the company isn't seeing any let up in demand or in its ability to increase rents. It recently announced its plan to boost rates by an average of eleven percent on the heels of a third quarter revenue. Be Invitation Homes president and CEO Dallas Tanner joined me and Bloomberg News cross asset reporter Katie Greifeld.

We talked earning supply chains, also his reaction to Zillow's abrupt exit from the home flipping business. You know, candidly, I was surprised, um given the fact that the I buyer space has continued to get more and more robust over time. Uh, you know, some other competitors I think have done a really nice job managing inventory and the like. Now,

with that being said, I couldn't tell you. We don't know all the details as to what happened, And Zello has a pretty diverse business right in terms of some of the other services that they offer. So my guess is strategically internally, they're probably looking at, you know, where their strengths and weaknesses were and ultimately made the call

that they did. But with that being said, the housing market, it's fundamentals, uh, you know, the supply chain right now that the imbalance of supply that we have quite frankly relative to demand, are all lending itself to you know, a market that feels really strong, and I think they said as much even in their in theirs called So you didn't see the Zillo news and you're, according to your own metrics and internal metrics that you see as any sort of canary in the coal mined about the

housing market in the US. No, not for US. I mean you got to think about the volume. I I don't know their exact numbers in terms of how many of the homes they had on balance sheet. I'm sure somewhere between ten and twelve thousand or something like that. But that's such a small percentage of the six and a half million resales that we see every year, uh in US single families. So no, I wouldn't look at it as a barometer of something that's going on in the

the marketplace. In fact, I kind of think the opposite.

If you look at, you know, some of their competitors, If you look at our business, you could look at anyone really in single family if you're a homebuilder or a SFR operator like we are, or we're having record occupancy percent occupancy record revenue growth because rents are so um in demand right now in terms of having that flexibility of lease, and so we're actually seeing the opposite in our business and Dallas the company said that back in februe Worry that it planned to spend at least

one billion dollars buying properties this year. And you, I mean you touched on it that just if you look at the housing market, uh, the supply of homes, Uh, it's it feels like it's really dwindled. And the housing market has just been on fire. So in terms of spending that one billion dollars, has that been difficult to even find houses to buy? In terms for our business invitation homes, you know, it's been interesting. We actually updated

guidance this last quarter. We're gonna be somewhere between a billion seven and a billion eight this year in terms of new acquisitions, So we've actually outperformed what was our initial you know, kind of targets. Now, with that being said, yes, the market has some supply challenges, there's no doubt about it. Although we are seeing supply creep back into the resale market um at a little bit better clip than we've seen historically With that being said, it's still at an

all time low. You have interest rates that are still I think I saw the day of the thirty year is that just north of three percent. That's still really cheap money, cheap availability of finance for those that can qualified for mortgage. So it's actually I think keeping the supply pretty tight because homebuyers, again, those six and a half million resales we talked about, those are still going. Those two end users would be my guests at the

end of the day. So we pick our spots. Were very deliberate about where we invest capital and why we have partners with a number of different homebuilders we're helping bring new supply to the marketplace. So we've we've definitely kind of had to you know, be deliberate and really anchoring on our different channels for acquiring product. But we've been able to do it, albeit it is a tough environment and we have to be you know, consistent in

terms of our approach. Dallas, is there a time or a price where you see homes in the United States on a whole becoming so expensive that you're no longer in an acquiring mode. Well, there's always cycles, right, so you could certainly. See. Uh, you know, at some point there could be a cycle where homes get to price based on your investment criteria of where you want to invest capital, And why doesn't feel like that? Right now?

We can still buy homes at a really attractive you know, what we do as our own cost the capital relative to the types of yields and things that we can find in the marketplace. Now will that last forever? Time

will tell. Trees don't typically grow to the sky. But I think the difference in our business it's very different from an eye buyer from somebody else, is that you know, our customer staves us for three plus years right now, they renew two or three times there at least with our with our business, and they actually love the service.

They want to renew because they like the flexibility of a least totally different than a home flipper or somebody that's just in and out of a marketplace really quickly. That's not our model. We're long term investors. We're making decisions for five to fifteen year horizons, and we want to make sure that we're offering a product that's sustainable. So the approach of the different business models are very different.

That's Dallas tan Or, the president and CEO of Invitation Homes, talking with Katie Greifeld and me following the company's third quarter earnings release. We get his thoughts on Zillo as well. You're listening to Bloomberg Business Week. Coming up, we'll wrap up our broadcast with a deep dive into the New

Economy magazine takeover. We're gonna share some stories at spotlight the most pressing issues facing human kind ahead of the Bloomberg New Economy Form from Singapore, What world leaders have on their agenda at a moment of unprecedented crisis, and how you can get involved. This is Bloomberg. You're listening to Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovich from Bloomberg Radio. The Bloomberg New Economy Form.

It's back in full force here in one that after going fully virtual last year during the height of the COVID nineteen pandemic, leaders from across the globe will be in person at this year's installment of the Global Town Hall, discussing the most pressing issues facing modern economies and societies and so the cover of this week's issue of Bloomberg Business Week. It's dedicated to these issues, as is an entire section of the magazine. It's at any f takeover

and help us break it down. We turned to Bloomberg Business Week Economics editor Christina Lindblatt. Christine, I love New Economy Forum. I love the topics they cover. I love that you guys are devoting a section of the magazine to it. So let's start with one of the stories and the current and company providing some startling numbers from the youngest members of the global workforce. We're talking about

youth unemployment. Employment for young people, and we're talking people fifteen to twenty four, which is the i LO definition, UM dropped by almost nine percent, and adults it was less than four And you know another we've seen another recessions in developed countries. You know, kids go back to school, going training. You know, they're sort of you know, skilling up during that time. But that's not happening in developing countries. There's another measure called NEAT, which is like, I didn't

know that. I know, it's actually I didn't know about it either, and it's one of the un development goals actually is to reduce NEAT which is sort of not unemployment, education or training. So the neat rates also popped up and they haven't really been coming down fast enough compared

to what you're seeing for other age cohorts. Do you profile a handful of young people from around the world, including countries like the Philippines, Ghana, India, China, South Africa, and the story spans the globe, involves trips to different countries and trips to the United States and Georgia, for example. What is the common thread that ties these stories together. I think the worry is that, you know, when you get knocked off your path that early on, how are

you going to make up that time? And it was kind of heartbreaking. We talked to some young people who had really sort of carefully started laying like the stones. Right. There was the woman in the Philippines who had graduated from a culinary program and had found a job in the in the US kitchen and she was forced to go back with the lockdowns and now it's really sort

of talking about how she feels depressed. Right. Um. And in India, this kid who who was wanted to become a a UM, you know, a trainer, UM, a coach in basketball and now he too seems you know, it's it looks like it might be hard for him to sort of, you know, get back on that path um. And I think this is a problem well that existed before COVID and that governments really need to get a

handle on. And it might in some countries involved having job creation programs that are just targeted at young people, and China has been making some moves in that direction, saying that you know, they want to have like more venture capital for startups funded by young people, maybe get like help them get more interested in manufacturing jobs in certain parts of the country, and I think also trying to kind of, you know, where there are places where

there may be labor shortages, try to get young people into those parts of the country. One of the things that's interesting, Christine, I thought about this when I was reading it and going back to the developed world even and then the financial crisis, that there were a whole young population that kind of got put aside either they were graduating and graduating into an environment where there were no jobs for them. And this really gets into for

the developing world. I feel like it's even harsher right because these individuals are losing out and and it's going to impact their trajectory for years to come potentially. And there's demographic factors in some of these countries that we don't face in the US. You know, in India, one million people enter the workforce each month. That's a mind boggling number. It is. In China, there's something like eleven million jobs need to be created each year to accommodate

just um college grads. So, I mean, actually there was the woman that we interviewed in China said something that I remember we talked about in the US after financial crisis, which is I'm having to compete for work with new graduates from the most recent you know year where I graduate two years ago. You know, that was so that was a problem here to her story. I thought that was interesting too, because she graduated from a really prestigious university.

You would have thought maybe she was in a better position, but she wasn't. She was trying to In Brazil, we're hearing some of the same stori as people who are highly qualified who can't find work there. Well, let's shift gears and talk about the technology of the new economy. Leslie Coffin has a piece on a little known arm of Google that's working closely with environmental advocates around the

world to tackle issues. Those issues range from finding water for cattle herds in Africa to planting trees to help cool off Los Angeles. Google Earth they're taking over this is and this is this is called Earth Engine. So what do we need to know about it? It's a really cool arm actually, um. So basically what they did is they took all this satellite imagery that mostly belongs to US and European agencies, um, and they put it on the cloud. That was the first step, because this

was sitting on magnetic tape in vaults right. And then and then the very important thing is that they created the tools to sort of wrangle the data, right because you know that takes really skilled data like I mean skilled people and data science. And so what they've been doing is basically pro bono work working with NGOs and some government agencies and you know and environmental groups, you know, to give them the tools to do monitoring. Most a

lot of it is monitoring. So you know what, Well, for example, they have this tool called open et that allows you to visualize transporation of water from fields and

so water management. You know, people who are in water management and farmers are saying this is really useful because you know, I can measure how much water is going into my field, but I may be over watering and I won't know that until I see the rate of transporation because it means that if I'm overwatering, and you know, they have this u I and you can see it because it like lights up in different colors right fields, depending on the rate of transporation, and that will sort

of tell you it's like maybe I'm overwatering this, you know. And it's important for for municipalities and governments um to be able to also you know, monitor this because yeah, it's part of being able to manage water rights well.

And what's interesting too is they've been, as you said, working with NGOs UM, but they're also now thinking, okay, that's a lot of data, a lot of useful data, and now they're trying to figure out how to commercialize it right, right, And there's lots of companies that have their own pledges and goals that they're trying to meet in this space, right So, you know, a lever, for example, wants to monitor deforestation in palm oil. You know, because

that is something that often goes hand in hand. What's interesting, too, is this story is about what Google is doing, but I also felt like it was as much about the individual running it. And that's Rebecca Moore, who is an activist at heart, and it kind of makes my heart warm to think that she's kind of overseeing this use

of data potentially. Yeah, she's pretty inspiring. She's somebody who came to this field out of a personal interest, trying to fight a project near her home in California, which is a local utility was going to clear cut this land, and she used another tool that used satellite imagery to show them that they were going to be impacting you know, um,

this water, this wetlands. Um. And so when Google bought this company, a smaller company, that company said you have to bring her on because when she worked with our program, she sent us so many, like, you know, good ideas about how to improve it. So she's an engineer herself. So um, yeah, it's it's really interesting. Can we go to Mars? Now? Yeah, let's go from Earth to Mars. We do know that our greatest innovators see possibilities that well,

I think a lot of us cannot. Sarah Holder wrights that some serious thinkers are now looking into how we might one day colonize Mars. Some serious serious challenges though. I mean, it takes six months to get there, you need fuel to get back. Hello that radiation and only thirty eight percent of gravity force. Um, you know that'll be easier to lift stuff. But you know, I noticed.

It's funny because Sarah and I sort of came at this from different ends, because I just skips thinking, oh, there's so much interest in Mars, you know, like it was because of the you know, three countries you know, sent probes at last year, I mean this year some of it, and and and I thought like and then I had seen all these renderings, and I thought, you know, there's kind of a pr thing almost going on. It's a science thing one on one hand, but it's also like,

you know, how does the money float something? It's also putting images and starting to construct stories about what life would be like in this place helps that effort to right um. And so you know there's some like a lot of design work that's been going in, you know. And then when I saw Bark at Ingles, you know, who's a Stark attect. I'm sure he hates being called that. Um was it was part of one of these demonstration projects with three D printing for like a Mars you know.

Habita I thought, wow, this is like, this is a time to do it well. And I think some of it it's interesting because you know some of the struggles that are here on Earth right now, whether it's building cross you know, growing crops in certain areas that maybe aren't going to be so hospitable to it. I do feel like that there's things being worked on for Mars

that we could use on Earth. And I think the community of people working on this are that they want to emphasize that if they don't, you know, they don't want to be seen as like, oh, we're just going to bail on Earth because we've destroyed it. Um that whatever we're learning about how we might live on Mars could definitely have applications on planet ready ready to go to Mars. No. I mean there was some kind of scary parts about this, like oh do we imprison people

on Mars? That was one of the questions that was raised. I'm like, oh, we'll send them back to Earth, right. Christina Limb bled, thank you, so much. We really appreciate a Bloomberg Business Week Economics editor Christina Limblad with a look at the New Economy issue of the magazine. Also a reminder that you can tune into the live stream of Bloomberg New Economy Forum from Singapore. It's November seventeen through the nineteen. We're bringing together world leaders at a

moment of unprecedented crisis. It's going to help us define the challenges that face the global economy and help draft solutions together. Watch it at Bloomberg dot com Live slash stream. And that wraps up the weekend edition of Bloomberg Business Week from Bloomberg Radio. Thanks so much for joining us. I'm Carol Mass and I'm Tim Stanovk. Be sure to tune into Bloomberg Business Week Radio. It's Monday through Friday. It starts at two pm Wall Street Time on Bloomberg Radio.

You can also watch our daily broadcast. It's on YouTube. Just search Bloomberg Global News. Also check out our Bloomberg Business Week podcast. You can find it at Bloomberg dot com, Apple, or wherever you get your podcasts. Bloomberg Business Week It's available on newsstands now at bloomberg dot com, business Week dot com, and on the Bloomberg terminal. You can also see me on Bloomberg Quickdake. It's available at bloomberg dot com, slash qt, and streaming platforms like Roku, Apple TV, Samsung

TV and more. Have a great weekend. Let's go to Mars. This is Bloomberg.