Corporate Boards Meeting Challenges In New World

some extraordinarily so. And that's true for corporate corporations as well. And it's been fascinating to to kind of observe how different companies UH manage their way through the pandemic, how different boards of directors help their management teams navigate through these times. So it's a great time to speak for our next guest, Denbisa Moyo. She is a global economist economist.

She currently serves on the boards of Chevron and three M and she has a new book out entitled How Boards Work and How They Can Work Better in a Chaotic World. Then, be said, thanks so much for joining us here. You know, we don't have much hindsight here because we're just at the very early stages of coming out on the other side of this pandemic. But in general, how do you think certain boards I guess reacted to and then maybe plan for strategically how to you know,

evolve in this crazy world right now. Yeah. So the truth is a number of companies found themselves in a pretty stable and solid position, um, you know, to the extent that from the financial perspective of their balance sheet, from the operational perspective in terms of safety and just keeping the proverbial lights on, and then of course from the strategic aspect, so making sure that the business can survive through challenging times. There are a number of companies

that actually did perfectly fine. Um. The bigger issue is, of course, there are a number of companies in the US about fourteen to fifteen percent of American corporations UM, that are incredibly vulnerable. They're known as zombie companies. By that, I mean that they don't have enough even interest sorry cats to cover the interest payment on their debt. And

they were of course vulnerable from a balanchie perspective. Many companies struggled in terms of that switch from um sort of bricks and motor operations into being deployed UH is from the remotely UM, and of course the strategic questions remain. I'm wa seeing a lot of consolidation in the markets right now, but I do think that this this experience will separate the sort of what we used to say back in the day, demand from the boys. UM. So I think it has been quite a jarring experience of

many companies. I guess E s G is, do we consider it the most important issue going forward for boards? Well, listen, it's become an existential crisis. M E. S G is part and parcel of how companies are thinking about themselves longer term, and obviously we're talking about environmental, social and governance issues. UM. You know, I think that the broader environment remains quite challenged in terms of economic growth beyond

this year's rebound. How we thinking about technology, demographic ships, income, inequality, climate change, All these aspects are very much front and center of the minds of board members but also CEOs and and business leaders as they think about how to navigate not just the post COVID environment in the short term, but longer term, how it is we're going to run these businesses UM in the longer term and in a very challenged world. With China rising deglobalization, digitization, et cetera.

I'm curious how a board, how a company like Chevron approaches that, because clearly Chevron's businesses fossil fuels. On the other hand, it's not like it would be it would be bad if they just everyone stopped making oil right all of a sudden. Their needs we need these products. So how does a company like Chevron approach E s G. Well,

I think it's important to put this in context. Um, you know, they're on the one hand, there are people who are pushing very aggressively for defunding UH energy companies, and I think that there's a missed opportunity here because they tend to over overshadow, overlook the point that there are one point five billion people around the world who've got no access to energy in a cost effective and sustainable way, and it's just not reasonable for society to

leave those people in energy poverty, given the broader macroeconomic risks. But just in terms of how the best companies and corporations are viewing the E s G agenda, it's not just about risk mitigation and thinking about greenhouse gas intensity and thinking about carbon intensity. All those things are critically important, but we also have to think about investing and looking at ways to continue to grow these businesses but also to grow the global economy and make sure that we

continue to progress and in terms of human progress more generally. So, I think that whatever the issue is in terms of e s g. Not just climate change, but issues of worker advocacy, racial diversity of course, gender diversity as well. UM, couldn't turns around China's rise. Uh, you know, areas of obesity, voter rights, all of these things have to be looked at in a in a more sort of thoughtful and constructive and pragmatic way. And that's that's what I think

the best corporations are doing. Basic based upon your experience, UM, what are your views of globalization? There was arguably since the end of World War to the world has become smaller, it's become a much more global market um over the last fifty years. But then under the prior administration, there was a move back to make America first on shoring some businesses. Um, how do you view as you sit on those boards of two global companies, how do you

think about globalization? How does corporate America think about globalization? Well? Look that the textbooks are very clear theoretically globalization and by that I mean the movements of trade and in trade of goods of services UM. Capital flows, moving capital in what we traditionally call the carry trade, borrowing in places like London in New York at low interest rates, investing in high risk adjusted high return places like Brazil

or South Africa. UM. You know, looking at the immigration, movement of people across borders, global standards, global cooperation, all these five elements of globalization. There is absolutely no doubt about it from historical evidence UM that these aspects, when they are at full function UM do contribute to broadening economic growth, the sort of expansion of the g d

P PIE and human progress. That being said, we have to be aware and since this is the fact that there have been pockets of the population around the world UM that have been left behind UM. And that's where the schism and the challenges emerge for globalization. As we have seen, it's led to Brexit, it's led to the

American America first type of policies. And my view is that from again to a very pragmatic since UM globalization should be pursued, but understanding that we need to make sure that everyone participating in this expansion, and that requires a little bit more temerity, but also thoughtfulness with respect to how we approach a globalization. It can't be full hog as we know it's in the textbook. But at the same time, I think we should not be pursuing

a very aggressive progressive era. All right, Don Visa, thanks very much for joining us, Don Visa. That Moyo there. She is global economists currently serving on the boards of Chevron and three am great to get her views on these issues. Also, she's one of Time magazines one hundred most influential people in the world. This is Bloomberg. You

got some economic data out today. US housing starts They felt by more than forecast in April, suggesting that supply chain constraints and rising material costs continue to hold builders back. Let's get some more color on the housing business and the construction business. We do that with Dr Jack Tchung ce Oh of James Hardy Industries. That is a publicly traded company. Uh. Dr Tron, thanks so much for joining us here. We've been hearing about supply chain shortages across

a number of industries here. As the world's economies begin to ramp up talk to us about those supply chain challenges in the housing market. Good more and Paul, thank you for having me. UM. Yes, you certainly within the housing industry relative to new construction, is that we have experienced a really the shortage of lumber UM as well as the escalating prices in lumber UM. And then compounding the issue too is that there is anso a lack of labor skill, labor that that that really allowed the

builders to to complete those new housing starts. UM. So that's really been an issue that as an industry, particularly a new construction UM that that have been played with during the past six months. So it's not about I mean, you want to build as much as as possible. UM. You want to get out there, get the land, you'll build on spec all no problem, right, because the demand is there. It's just that you don't have the stuff or the people that you need. UM. That's correct, Paul.

I mean the the demand has been very strong UM. And you know, just just to give you a little perspective, I mean, UM, there is during the past decade, if if you look at the total new single family constructions UM in the in the US during the past decade, there is only about seven mill millions homes, the single family homes that were built. And and this was really compared to eleven million homes that would build every decade

in the previous five decades UM. So certainly you know there is a there's a shortage of new single family homes in the US UM and what the what the trend that we see right now is really just, uh, the market is catching up the the demand is really strong, and then supply is really trying to catch up. You know. The one thing we've been hearing a lot about but I didn't think about it for the construction business is

labor shortages. So talk to us about that. I mean, it's one thing for McDonald's or to be raising its minimum wage or Amazon to be raising its minimum wage to attract workers. But I always thought, you know, housing construction jobs were pretty good paying jobs. Talk to us about the labor aspect. Yeah, you know, it's a it

is a is a good paying jobs. But you know, within construction because of all all the different type of uh um job that's going on, and you need someone to who have to feel the concrete, to phone the foundation, you need a skill that really do the roof, and the skills person that uh that really put the siding on, the skill person to put on the interior home, the electrician and so on. So so it's really you need to have different type of skill labor to recomplete the home. UM.

So it's UM. You know, with the since the last bubble in UM in the housing crisis a decade ago, UM, the industry has lost a few of those labor. And then certainly during the past few years with the restriction on the immigration UM coming from from south of the country, we certainly saw a lack of that labor as well. So it's really a confluence of two factors that really affect the the new home construction in the US today, the lack of lumber and then also the lack of

skill labor. But if you're able to get more for homes, I guess you're able to then offer more pay And would that help you attract more labor or is it are they just simply not there? UM? It's it certainly helps, but it's not gonna be able to attract enough labor to UM to complete homes. And it's certainly, like I mentioned before, with the lack of lumber it's also slowly

down as well. But you know, how how we think about James Hardy is that you know a third of our business is really exposed to new construction, but the other two thirds really exposed to UH the renovation and UH and then UM market and and for that market

is quite strong. UM. It is you know, with the COVID condition that's happening right now, you see a lot more UM folks that stay at home and walk from home and so the really UM having a beauty, beautiful home and then extension of the home will be a key part of of of the growth in that sector. UM. And also with that sector as you renovate your home, the need for lumbers not as critical as it is in new obstruction. Alright, really interesting insight and it was

great to get your take on what's going on the industry. Jack, thanks so much for joining us. Dr Jack Drawing, the CEO of James Hardy Industries, get overnight A David Deeds. He's the managing principal and senior portfolio strategist at pe Pack Private Wealth Management. They got about ten billion dollars

and assets under management. David, I guess the key question, UH, from thirty five thousand feet is do you see rapid growth um in the reopening and is that accompanied by you know, real temporary, real permanent inflation or is it more of a transient inflation issue. Well, Matt, you put your finger on the sixty dollar question. You know, at

this point no one really knows. I think we are seeing rapid growth, notwithstanding the housing start report today with its economy opening up, opening up as the pandemic wanes. We've got huge fiscal stimulus from UH various packages, and there could be a an infrastructure bill on the way, and of course we have record low interest rates. All of that is a real tail wind behind the economy. Now, last week we had two reports consumer prices producer prices,

which suggested much faster than expect inflation. But when you do the deep dive, Matt, you see that those alone don't answer your question because of what was driving the increase. It was prices on used cars. It was prices on car rentals and prices on hotel stays. You know, a year ago those industries were left for dead under the lockdown.

Of course, now, for example, the use cars were up ten percent, biggest since nineteen fifty three, But something tells us that a year from now we're not going to see another ten percent uh hike in used car prices. We think it's a temporary thing. So who knows? You know this is this is the question. You can't rule

either scenario completely out, Matt David. We're just finishing up what has been a very strong earnings reporting season, and a lot of folks are saying, boy, we certainly needed that, we need more of it because this is an expensive market. This is a market that maybe these needs to grow

into its multiple. How do you think about valuation here, Well, evaluations are at the upper bounds of what we've historically seen, close to twenty two times forward earnings UM, and when you look at other metrics like price to sales, like the value of the entire stock market relatives to the GDP, we're off the charts. On the other hand, it's all

justifiable because of these low interest rates. But we also have UM, as you pointed out, great corporate earnings growth, and I think we're gonna see Q two going to again have great earnings growth because of course, the comparisons are gonna be versus the second quarter last year when

we're virtually on lockdown. But then you're gonna see still positive but slowing earnings growth in the second half of this year, and positive but again slower growth next year in two thousand twenty two, And that's where the rubber is going to hit the road. Will that earnings growth continue to be sufficient to withstand these higher multiples? I think of interest rates continued low? Yes, If not, it's going to be a stock biggers market. That's the point.

I mean, this market is priced for a um, no more lockdowns, right, a total and complete reopening and be um no interest rate increases from the FED or really even uh tapering until what the end of two Yeah, you know, I think that's right, and so the way we've been, you know the but the problem is, of course, Matt is if not stocks, then what cryptospacs, money markets?

You know, there's no easy choices here. So I think we're continuing to stay stay say, stay the course, but perhaps to your PORTFOLI to those areas of the market which have not done so well for the last ten years, but with a rapidly expanding economy, with interest rates starting to move up with a whiff of inflation, could do better. Those are your cyclical names, your value names. Those may be the best bets going forward. All right, Dan, I

know you're not not afraid to talk names here. Given a backdrop that you see out there in terms of inflation, in terms of rates. What are some of the names you guys are doing some work on these days. Yeah. Absolutely, So we like a name like all State. I mean, you know, here's a company that about ten times s eartings with a yield about two and a half percent, so you're getting a full one percent more than that ten year treasury. Uh. They've had better than expected claims

experience because of course no one was driving. But there's no reason why that company can't continue to grow with a prosperous economy. And of course they're only paying out about twenty of their profits in the fourth dividends. That they can crank that dividend up. It seems if someone said, well, five years from now, you're gonna be better off of the ten year treasure, you're gonna be better all in

a company like all State, All State looks good. Um. Uh. You know, we also like a company like General Motors because of course, you know, uh, to the extent that the semiconductor, uh supply permits. They're just selling cars as fast as they can make them. GM very low valuation. They too, like Tesla of course moving to the e V space, but they're not prices though. They're gonna be a big TV player, but of course they will be ultimately. So we think GM makes a lot of sense here.

I just got about thirty seconds. Still like Viacom CBS. It's hot day for them today. Um, but you know this is one this is one of the socks that Bill Wang got burned on. Well yeah he did. I mean the stock got up too close to a hundred. Viacom quite astutely sold stock to institutional investors at eight five. What were they thinking, Well, guess what is it better

buy now when it's in the low forties. And I think the um appeal of the entertainment and media and content stocks was underscored first of course with the Warner Media and Discovery combination. And of course today we just learned that Amazon is looking at the MGM studios for their content and so forth. So it makes a lot of sense. All right, David, thank you so much for joining us. As always, we appreciate you, appreciate your thoughts

on the market and the names you're looking at. David Deet's managing principle and senior portfolio strategists at Pepeck Private Wealth Management, located in beautiful Bucolic Summit, New Jersey. This is Bloomberg, all right. The news of the day, I think is, you know, as it relates to Global Wall Street, is what's going on at JP Morgan and putting two of the contenders vying to succeed chief executive Jamie Diamond in charge of its sprawling consumer banking operation. Let's get

some color on thatw We bring in Allison Williams. She's a senior banks analyst for Bloomberg Intelligence. She's been following this industry for decades, both on the by side in the South side. She knows all the players here. So Alison, thanks so much for joining us here. Um, Jamie Dimon is not going anywhere soon, is he? But I guess they're still trying to think about some succession plans. Is

that's what's going on here? Sure? So you know Jamie Diamond's infamous line is every time someone asked him how long he's going to stay on, he always says five more years. And he says that every year. UM. So uh, they'll be conferences in the coming weeks and we'll see if he continues to say that. So the big news really is, um, you know, obviously the promotion of the two former CFOs to head the Consumer Bank. UM. You know, I think because people have been watching, especially Marianne Um

Lake who was a longtime CFO. She was replaced by jen Keepsack um more recently. UM, And so I think you know, all eyes are on these two women to see if one of them will become the contender. UM. However, for the moment, Um Pinto is really the Soul six user. So UM, just just to hopefully I'm being clear that UM, Pinto and Smith were basically the co leaders of the bank. Smith is retiring, which puts Pinto in the air apparent position.

But I think all eyes are on, um, the two former CFOs who were promoted to have the Consumer Bank, to see if one of those women will rise to be the new CEO. So, just to recap, then we're saying Pinto is the successor is the air apparent right now? But we're watching Marianne Lake and Jennifer peep Sack in case they want not Pinto office pedestal. Well, it depends, right, So like, let's say that Diamonds stepped down tomorrow, Pinto

is obviously the air apparents. Um. You know, if you went back a few years ago, UM, it would have been Pinto or Smith. I think that, um, you know, putting Marianne Late and Jen Peepsack in charge of the Consumer Bank sort of puts them into a runoff, right. So, UM, let's say, jaman so Jamie Diamond steps down tomorrow, Pinto's in charge. We wait five more years, as Jamie always does. Over the next couple of years, we would expect, um that either Lake or peep Sack rises to be the

um leader of the Consumer Bank. Um, and then there's sort of a runoff between that leader and Pinto Alison. What does the market think about the tenure or the or the I guess the future with Jamie Diamond. I mean, obviously Jamie Diamond is is you know rock Star CEO has delivered for shareholders? Um. I presume shareholders are extraordinarily

supportive of him. In theory, do they want him to stay as long as he wants to and as long as he continues to perform they do, UM, but I think they also do recognize UM that there is a very strong bench. I would say that, you know, all three of the people that UM we discussed are very well respected UM on Wall Street, UM, Pinto and Lake perhaps a little bit better known because of UM they're more forward facing walls over a longer period of time.

Is he the most beloved major Wall Street CEO? I mean, the most revered. I don't know what what word to use, but he's basically the man to watch on Wall Street? Right? Well, yeah, he's the He's the only CEO commandaged through both of the recent crisis, right, So, UM he managed to the

prior crisis. UM. You know, Lloyd Blankfine had had stucked down and paved the way for Solomon, which was actually a good transition period, right because when Solomon was in place, and I think that's that's sort of what they wanted, is to have the new Seaton in place when the next crisis happened. So, and I would remind you that actually in the beginning of this crisis, about a year ago, Jamie Diamond was in the hospital at all and Pinto and Smith we're actually running the bank as co CEOs

for a period of time. So um, you know now, uh, Pinjo will be the one that has that experience going forward. All right, Alice, thanks so much for joining us. Really appreciated that you must be very busy today considering everything that that we're up against. Alison Williams, Senior analyst for Bloomberg Intelligence. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm

on Twitter at Matt Miller three. Put on full Sweeney I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio.