This is Bloomberg Business Week. I'm Carol Masser and I'm Bloomberg Quick Takes Tim Stanovik. We're here every day bringing you the latest news from the world to business and finance, clus technology, politics, economics, all parnessing the power of Business Week reporters and editors, not to mention our journalists and analysts in more than one and twenty countries. You can download Bloomberg Business Week on iTunes, SoundCloud, or Bloomberg dot Com.
You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News. Well. It's one of the most read stories on the Bloomberg terminal today, and it's also the cover of the new issue of Bloomberg Business Week magazine. It's available in newsstands and at Bloomberg dot com slash business Week. It's all about Kathy Wood, who has become a star both in and outside of the world of ets. They call her Money Tree in South
Korea and the Godmother in Hong Kong. Joining us now is Joel Webber, editor at Bloomberg Business Week, and Ben Steve Berman, personal Finance editor at Bloomberg News Joel Uh. People may know about Kathy Would over the last year because she has become this celebrity inside and outside of finance, but she got started at arc relatively late in her career and she's been at this for years. Yeah, And
what we really tried to do. I think we talked about Kathy Would almost every day in general at Bloomberg News because it's become just one of the most remarkable stories of the past year. UM. But we what we tried to do and what Ben in Um, Claire Valentine and any Massa did with this cover story was really tried to tell a bigger story about who Kathy Wood is, where she came came from, how she's up ended investing and and maybe pull you know, pull some things that
out that nobody had ever really known about her. And they did that, and you know, it's really rooted in her I think having a really deep understanding of the financial industry. UM. Before she started arc Um, she she had an active the idea of doing an actively managed g E T F at um Alliance Bernstein, which basically said, we don't want you to do that, and she went
out and did it anyway. And that's made her basically one of the biggest names in in finance at the moment um And and Ben, as you just started to you know, working on this story, what what stuck out
to you? What makes Cathy different and special? So I think that you know, in the last year, the pandemic has created UM a lot of frenzies, Like we've seen a lot of frenzies in the stock market, and we've seen a lot of people promoting themselves and promoting their SPACs, and we've seen a lot of that phenomenon of almost celebrity culture coming into finance and investing. And so I
approached Cathy would as maybe part of that. But now, you know, the more I looked at her, the more I realized that she's actually been this same person for for for decades, Like she is obsessed with innovation and the future, and and what she was saying, you know, five years before the pandemic is the same thing she saying now more or less. Maybe the timeline has accelerated a bit in terms of the the changes she sees
in the economy and the stock market. But um, I really think that UM investing in these these future technologies is more is almost more about her her like philosophy of life than it is about making money. I mean, of course she's in to make money, but I think she has broader goals in mind. Well then to that point, and among the many many new things that I learned about Cathy would in this cover story about you and Claire and Annie has has been that she talked about.
She had this rarely prescient comment back in February of twenty nineteen when she told a podcast it's the best thing that can happen for us. And this is going to sound odd, is a crisis. It's usually when innovation takes root and gains traction. So so how did that play out during the pandemic? How did this five year time arise and that she talks about so much, trunk had accelerate. Yeah, I mean she it's incredible if you look at the numbers on her fag ship et F.
I mean we're talking about a hundred fifty return. She was right on. She she she she captured the mood of the market in that moment, and then it continued
to go up all the way into February. Now since then, um, she's lost about a third of the value in in her fund because you know, as the economy has reopened, the market has been shifting towards a little bit more boring stocks of the broader the rally is broadened out, and she says that's actually good for her because it means that means that this is actually a sustainable bull market.
And she's keeps telling her investors, who's mostly stuck with there that, um, that she has a five year time horizon and she still expects her portfolio to triple over those five years. Honey, of people don't believe that. I gotta say um. And so we try to reflect a debate in the story about you know, is she right, is she wrong? Um? You know, is this a real grounded opinion or or she just really hoping against hope? But um, but she's she seems pretty unruffled by what's
happened recently. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well, just a few months ago that we learned about the market rattling meltdown of Bill Wong's Archigo's Capital Management. It was a debaccle that left big banks in Europe Asia and the US nursing more than ten billion dollars in losses. Now our own street Are not Orajan reports the Justice Department is said to open a probe into the blow up.
He joins us now from the Bloomberg Interactive Broker studio. Street Are is a finance reporter right here at Bloomberg News. Congratulations on the scoop. Street Are take us through what
exactly the Justice Department is looking for. It's really preliminary at this stage them, but we understand that federal prosecutors in Manhattan have cent requests for information to at least some of the banks that dealt with the firm Archegos Capital Management that was Bill Hong's family office, and we believe they're trying to better piece together what really happened, because at the end of the day, you had a situation that left global banks with more than ten billion
dollars in losses. Banks across Europe, Asia and the US suffered losses that, you know, the kind of losses we generally don't see, especially tied to one client. And on top of that, one man alone loss nearly twenty billion dollars and wells, So, like you said, it certainly was a market rattling event, and now it looks like the DJ is certainly sniffing around to see if there was
something more malicious. Shoot, are you do point out in your piece that r K Ghost has not been accused by authorities or its banks of breaking any laws in their dealings. It has still drawn public criticism from regulators. What is it specifically that the regulators are concerned about? Is it? Is it the fact that they were able to build these positions and companies without being transparent about it in ways that public companies we usually know who
the owners are anytimes. Anytime, important institutions like these large global banks can feel so completely blindsided. That is a matter of concern for regulators. You have a situation here where, really in two parts, you have this firm that from nowhere amassed so much wealth so quickly, which is an incredible story in itself, from next to obscurity to have more than twenty billion dollars in net assets, where a
hundred billion dollar exposure in markets. That's an incredibly faster rise in less than seven years that this family office was around. That is the first most incredible thing here. But then what happened right after that, in a matter of days, that entire wealth vanished. Banks had to move to liquidate the position because some of his most concentrated bets, Bill Hong's bets moved against him, and banks are trying to save their skin. Some of them managed to do
just fine and escape the burning building. Others did not, and that's why you had such big losses, and regulators are really trying to figure out a how could this possibly happen? B We we do know that part of the problem here was he had built concentrated positions across a number of stocks without all his prime brokers really
having good visibility into it. And that kind of made sense because if you have a relationship with Goldman Sachs and Morgan Stanley, Goldman Sachs knows what it is holding for its client. It really cannot call up Morgan Stanley and say, hey, can you also tell us every single position that he has, So the concentration was certainly a surprise. There was the use of swaps and derivatives here, which
kept him anonymous. So it was a whale just under the surface and really came to light when everything blew up. So let's say there are no regulatory changes, nothing happens in the Justice Department opens a probe and and potentially nothing comes a bit. How do the banks change the way that they deal with risk as a result of this, We actually have already seen some elements of change across banks. We don't know how long that behavioral change will lost.
Is it because this is so close to the event that everyone's saying, we need to have heightened levels of awareness, We need to demand more margin, we need to demand more collateral. We just need to be more cautious than we have been. The problem with all these things, and if you look at the root cause of the problem here,
leverage or borrowed money. That has been the same case in any crisis you go back to whether it was the implosion of LTCM now going over twenty years ago, even during the Global Financial Crisis in two thousand eight, leverage really was the root cause out there as well. All these banks might want to act and behave like they've learned their lessons, but without any real regulatory change, they may all slip into bad behavior because everyone's out
there trying to make a little more money. Street are not a in finance report at Bloomberg News, joining from the interactive broke your studios, Thank you so much. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well, yesterday it was all about Amazon paying eight point four or five billion dollars to buy MGM Studios, the studio behind Bond and other franchises. Today it's about anti trust Amazon, anti trust
risk deepening is more states AG's way action. Join is now is Spencer Soaper, technology and e commerce reporter for Bloomberg News. He joins us on the phone from Seattle. Spencer take us through what the attorneys general are getting at when it comes to anti trust with with Amazon.
Because anti trust and Amazon, it doesn't necessarily go with the traditional definition of consumer harm right, Well, it can, and that's where UM, we're just seeing more attorneys generals getting involved and poking its potentially working collaboratively to learn more about it. Um. And in terms of consumer harm we had um the Washington d c. Attorney General actually fall the lawsuit is making the allegation that it is Amazon's practices are driving prices up for consumers. And that's
a very traditional anti trust argument. So Um, and you're correct. There's been a lot of debate about how to go after Amazon on anti trust grounds and just this notion of like do the do any trust laws need to be updated for the digital age and these various platforms like Google and Facebook and Amazon. But some of these complaints are pretty traditional any trust complaints about consumer harm and higher prices. So with these attorneys general, I mean,
are they looking at specific elements of Amazon's business? Do we know what parts of Amazon's business they're looking at? Is there part of Amazon business, Amazon's business that would fit that traditional definition of antitrust more than other parts? I mean, the company has its hands in so much yes, so uh. A lot of it is pointed at the marketplace, Amazon's marketplace, and this is where amaz On basically plays a digital matchmaker between you know, shoppers around the world
and merchants around the world. They have millions of merchants on their platform. Um, and so what the problems there is Amazon can it doesn't explicitly tell merchants what to do, but it can entice them to do certain things in exchange for greater visibility on the website. Because if you're invisible on Amazon, you're not going to get the sale. You have to be prominent in search results on the site.
And that's where if if Amazon discovers that you have a lower price on another site like Walmart or something, they can bury you in search results on Amazon. And and that's where Amazon is so powerful. Some merchants will simply go back to Walmart and raise the price, uh, you know, rather than lower it on Amazon to save those Amazon sales. And that would be an example of consumer harm where Amazon's weight in online shopping is actually
forcing prices up on other sites. So shares, as you point out in your piece, felt nine tents of one percent of premer trading. They were little change. Just as of this morning, shares down now by just about eight tenths of one percent. I'm wondering. I'm wondering about the regulatory risk that Amazon faces when it comes to shareholders and what could be the ultimate outcome of something like this, because yes, you know, investors certainly sending us talk lower
today but not but not significantly. Yeah, the investors have pretty much written off the antitrust risk for Amazon um and and I don't know if that's going to heat up or not with the new administration and new people being appointed to the FTC. But Amazon has really been able to kind of snow cloud through most regulatory challenges and kind of adapt and evolved. If we think way back when you know, they used to uh not collect sales tax on transactions and that was a big deal.
They were able to successfully navigate that and mature their business around collecting sales tax without a huge blow to its momentum. So I think investors just we figure that Amazon will find a way around this. There are some extreme calls, like Senator Liza that Warren has called for, like breaking it up. You can't only a marketplace and
simultaneously sell your own products. Those would be the more extreme solutions that have been called for out there, But I guess investors just see those as as long shots and it's more likely going to be you know, maybe paying some fines or finessing some of its some of its business practices would be the ultimate solution that they
could that they could weather. So so we're not to the point where observers, analysts, investors are are thinking about the potential breaking up of Amazon, of the Amazon potentially divesting from Amazon Web Services or spinning it out yeah. I mean that's always a question. That's always been a question of you know, whether they've spent off a WS Amazon Web Services. Um, there's any trust concerns around that
part of the business as well. And and like you say, it's like you look at Amazon, this would be the non traditional way, any trust way of looking at Amazon, where it's just rolling in so many different directions, you know, could does it have to be reined in some other way? These I'm just looking at consumer harm but the AWS thing,
investors have just been wondering about that as well. And as long as the other parts of Amazon's businesses are growing quickly and are profitable UM and a WS is and bankrolling some languishing part of the business, the at least the investor side, the pressure isn't there to spend it off. So I opened our conversation Spencer by referring to the news yesterday that the company was going official with buying MGM Studios for eight point four or five
billion dollars. Do do antitrust concerns? And look at this was the second biggest acquisition that Amazon has ever made, after Whole Foods. But very briefly, does it does this type of scrutiny change the way that Amazon thinks about potential further acquisitions. We have about twenty seconds. Well, we have heard that the anti trust concerns have made Amazon wary about acquisitions, but this is one where that market
is so fragmented and there's so much competition. I don't see that being a being a big deal or adding adding to any concerns because it is in this kind of distinct business line. Spencer Soper, technology and e commerce reporter at Bloomberg News joining us on the phone from Seattle. Spencer, thank you so much for taking the time. Spencer story can be found on the Bloomberg terminal. It's called Amazon Anti Trust risk deepens as more state ages way action.
Attorney's general from Massachusetts and Pennsylvania have joined a list of officials looking at Amazon for potential anti trust violations, which include California, New York, Washington State, and the ftcat That's according to people familiar with the matter. Rock Journal. Yeah but you let me drive. Oh no, no, no no, no, honey, please, I'll do the riding revels. I want to try it. Just drive, baby, good questions trying. This is the drive
to the globe thanks. We'll try us down on Bloomberg Radio. It certainly is. We are just under just a little over ten minutes from the close of trading on this second to last trading day of the month. Joanna Barton is co director of Growth Equities at Eton Vance and joins us now on the phone from Boston. Janna, it's great to have you back on the show. How you doing. I'm doing great. Thank you for having me back. Well, we're glad to have you. How do you describe where
we are in today's market? For because by so many different measures, stocks are expensive. I would agree with that. I would also say that for investors there are multiple waste to when, particularly if one is focused on long term opportunities. UM. You've talked about a couple of themes reopening trade beneficiaries. I think that continues to be a
place that we find, UM intriguing. Obviously, I don't have to give you the statistics, but in the US, nearly fifty of our own population has gotten at least one shots. So the global economic recovery is in school swing. UM. And while the cyclical areas of the market have benefited, I think one area of the market that has been less be dead is the consumer Again, particularly in the U S where a majority of our economic activity is
consumption driven. We've got something like over two trillion of excess savings that consumers are spending on UM, and let me tell you, they're ready to spend. So that's why we like specialty retail. We like UM some areas within the food distributors UM area of the market against beneficiaries
from that restaurant parks and entertainment recovery. So I wonder though the you know you you you said you don't have to tell me when you when you rattled off the statistics about vaccines, and it leads me to to ask, to what extent are these trades already priced into the market right now? If people are betting on that reopening, where are you finding the value? In other words, that's
a fair question. I think you're absolutely right where you know. Listen, we're spitting here with nearly twelve percent we turn on the STP FIP under average stock is actually up even more so, and the market as a whole, to your point, is trading in excessive twenty times and next year's earnings. That being said, the consumer side of the equation again I mentioned to you the consumer stables has been the second worst area of the market and underperformed the market,
and consumer discretionary is not that far behind. So I guess the point is one has to look on an industry in stock specific basis in those laggards, UM and UM. Fortunately for investors that plenty of names that haven't yet benefited from this one of the themes, which is reopening trade. Another theme, as you know, is higher inflation that we shall see if it's transitory or not. In the last theme is just being garky. That's that's the question, transitory
or not. Well, let's start with the reopening trade. Among the top holdings in in your fund include Amazon, Microsoft, Visa, United United Health Group, Alphabet, PayPal, among others. UM. How do you see this playing out in terms of the reopening UM? Again, I think there are multiple waste to kind of think through the reopening. I think I would again UM ask investors to go into areas in the
market they wouldn't necessarily go to. So industrial there's one area of the market that would continue to be intrigued by and actually within commercial services and waste area if reopening has taken place. There's more trash and there's more waste. And guess what, those companies have a really neat business model where there is a constant inflationary reset that their
contracts are map too. So it's a double when Um, you know, you've got obviously in the macroeconomic recovery with a nice inflationary hedge, and it's a consolidating industry with m and a momentum behind it. So that's one area that one might not find its sexy as the other ones that we've talked about in other areas within healthcare, UM, I know I've talked about this area of the market, but I really think it's one of those hybrids. Right. Um,
it is still inexpensive. We talked about high valuations health carerustrating something like discount when you look at next twelve months earnings with double digit earnings growth expectations for in the next twelve months. When you look one step deeper, which is within the biotech and the farmer side of the equation, those um, those companies are trading at twelve to fourteen times and they both of those areas have been laggards. And again, if you think about just the
thing that we just went through. I think those companies are going to continue to benefit from CAPEX and procedure recovery as well as just genomic sequencing, how we go about therapy UM and finding drugs and drug discovery as a whole. So we're really excited about those two areas of the market. I'm here you mentioned inflation, so I gotta ask about inflation, um yelling Uh. Jenny Yellen was Treasury Secretary testifying earlier today, and she did mention inflation,
but but said it would be transitory. And and I'm wondering how you would define transitory and what signs would point you to saying, wait a second, this is not temporary, This is not transitory. The unfortunate answer to the question is we won't know until we know until it's too late. Perhaps, But I think investors could be doing all the things that I'm talking about, which is being balanced in their allocation decisions to ensure that they're protected. Should this be
more than just the transitory pool on the veralu asseid prices? Right? And I do want to I do want to jump in, and just just because I have some some remarks from yelling here, inflation seen recently is temporary, not endemic. Expect to see higher inflation lasting a few more months, and yelling sees high rates of inflation through the end of the year. So not exactly saying the word transitory, but
saying a few more months, yes, UM. And to your point about what are the staff that we're looking at. Obviously we're looking at five year and ten year break even inflationary UM levels that are significantly above the ten
year rates. We're looking and listening to what the companies are telling us, and the companies are telling us that input costs of rising UM and they continue to rise because of all the logistical issues and because of all these perhaps transitory things that we're living through right where the demand has been and continues to be so hot, there's just not enough supply or their shortages in certain areas of the market. So I think you will you know,
we shall see. But in the meantime, I think you want to be focused on companies that have pricing power or at least business models that can be agile and flexible UM as their input costs continue to be elevated. Just in the last minute that we we have with you, how would you describe the state of the economy. We did get some solid economic data this morning, with weekly travel claims fall into a fresh pandemic low at four hundred and six thousand. How would you describe the economy.
The economy is very strong. I mean all the macro and microeconomic data continues to be just astounding. I mean we look at fundamentals, right, I mean, earnings are the best leading indicative to the economic progress. We always talk about that, and we just went through a Q one earning season. I know we're just a couple of percentage points away that has set all records. Not only that, Tim, I look at Q two and there's an acceleration of growth rate both on earnings and revenue line. So the
profits are off the charts. And by the way, companies spies are sitting on something like two twillion dollars of caps, so it it's mind boggling. I mean, these are incredible numbers. It is a lot of money that's out there. Joanna Barton, it is always great when you join us. Thank you so much for taking the time. Janna is co director of Growth Equities at Eaton Vance. Joins us on the phone from Boston. Thanks for listening to Bloomberg Business Week.
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