CPI, Auto Prices, Crypto, and ESG (Podcast)

when he's not thinking about soccer. Uh. That's because he's a US interest rate strategist for Bloomberg Intelligence, so we pay him to think about this stuff. So, Ira, you looked at the data this morning, and I'm gonna ask you to put your little FED chairman hat on. What are you taken away from today's data? Uh? Really not very much. I mean I think this is more or less what the Fed was thinking. Um. You know, Matt just mentioned a second ago that you know, inflation is

not coming down very quickly. That's you know, very true. And I think that that's always been the risk and the danger is that, um, you know, the market was pricing for inflation to come down much faster than it was ever likely to come down, and that's one of the reasons why what you're seeing today and and the reason why two year yields are are off so much, is that we're now pricing out some potential cuts later in the year. And I think that that's probably the

right move. I do think that the FED is going to do what it says and hike two or three more times at twenty five basis points each then basically do nothing for the better part of the year. And and the market is starting to come around to that way of thinking, which you know, Paul, I've told the stock market due the last six weeks, not the stock market. I mean, we rallied yesterday into this inflation print. Today we got it and it was at expectations are higher

than expected, and were continue to see prices rise. I just can't work it out. What what's the disconnect between stocks and bonds? Uh, well, I can't. I can't really speak about equity valuations, but I think maybe, um, you know, maybe part of it is the idea that there still is some some pricing power for certainly for some goods

and services, um you know. But I can tell you that that from the rates perspective, you know, the reason why you're seeing this deeper inversion of the yield curve where now the deepest inverted that we've been in decades UM, and we're at the and and we're likely to see more um. You know, we have fair value on the two year yield assuming that the Fed does what we think it will do at around four so we still have another five basis points to go here in in

the two year yield. And you know, we're looking for ten year yield maybe to get up towards three ninety, but not break four percent. So that's an interesting you know, I think a really interesting dynamic where you can see

very inverted yield curves. You wind up with in an environment where um, where that that probably persists for most of the year UM and people are gonna be saying like, hey, that that's a signal that we're going to be in a recession blah blah blah, and and you know, maybe so, but it's going to take a long time for that to filter through to the to the rest of the market.

And maybe that's what the equity markets uh really thinking here, is that we're not going to be in a recession, that there's not going to be a very hard landing. I mean, if you look at the ursion, it's crazy that this is the most inversion we've been as far as I can see since what the seventies, because you had so the early eighties, which means that you know, the bursting of the Internet bubble was nothing on this.

You know, nationwide housing bust, well, global housing bust uh in the two thou eight global financial crisis didn't hold a candle to this, right, It's it's only this recession that gets us back to like the blow up of

Breton Woods. Well, I think though, Matt, you know, what we have to appreciate is that this is also the first time since the early eighties that we've had inflation like this, right, and and it's coming down so uh so slowly that the market is trying to adjust to what is the near term outlook for both inflation and you know, policy rates, which is that they're going to it's going to remain a little bit higher for longer than the market was initially thinking versus where are we

going to be in four years? Um So, in four years we might be in a deflationary environment and you know, we're not there yet, and hopefully we won't get there, but but you can you can see an environment where we go back more to like es level of interest rates and of of an economy where you know, a five or six percent mortgage is just normal. Look, I keep on bringing this up. My first mortgage that I got in the late nineties was seven and I thought

that was a decent rate. You know, so so, but but what we've gotten accustomed to very low interest rates, right, so we have to get readjusted to a higher interest rate environment, which especially considering the prices paid. You know, uh, who was it iceman Um from the Big Short Steve

Eisman was. I keep bringing this up, but on the Odd Lots podcast he said, I do the back of the napkin math from three percent rates to the seven percent rate mortgage that we're looking at now, housing prices have to drop thirty in order to make up for that. People don't maybe realize what a big jump that is. Well, but in fairness too, you have to also look the income side of the equation, right, because if you look

at something like housing affordability. And Erica Heidelberg, who's our mortgage strategist, who reports to me she's been doing some great work on this. Um. You have to appreciate that affordability is certainly lower because of the higher interest rates, but you also have have wages that are growing at six percent a year, right, So if you think about it from an affordability perspective, it doesn't necessarily have to drop. Does it have to drop you know, some level you know,

five and fiftent? Yeah? Maybe, but we also rallied yea, you know, but but houseprace has also went up massively over the last couple of years as well, so you would expect potentially some type of adjustment. And quite frankly, that's what the FET is trying to engineer right there, trying to get some of the froth out of the

real economy. Um. That hasn't necessarily translated as directly to the financial economy, right, That's one reason why the equity market is maybe where it is at the moment um. But the but but we're still much lower, right, We're still very far off the highs, and in terms of of equity markets, we haven't we're not making new highs yet and um, and an environment where we're not going to fall into recession, than then try waters probably not

can't be completely unexpected. All right, so, Ira, super bowls over pitchers and catchers not yet, so I can actually focus a little bit in European soccer or any soccer. What am I? What am I watching this coming weekend? Um?

You know I haven't looked at the fixtures for this weekend, but I know after this past weekend that the battle at the top of the Premier League is heating up where you don't have Manchester City up there at the moment, you have Arsenal and Manchester United currently one and two in the in the table. So he's gotta keep mean. John Farrow is pretty happy, I think an Arsenal guy.

He's a Chelsea guy, but um Arsenal because Manchester UH United about to be bought by Dubai, right, and don't know, the little Easterner has already owned Manchester City a lot. So all right, Ira, thanks so much for joining us, our Jersey chief US interest rate strategist for Bloomberg Intelligence, uh breaking down some of the inflation data and what how the FED might interpret that data going forward and next upcoming meetings, well more coming up. This is Bloomber.

I am in a bit of a tough spot, right, now I'm looking for a couple of cars that you have a couple of cars I have to have. Well, there's there's certain first, especially the Dodge Challenger. I have to get um not really uh before they are done making them. So this is the last year for the six point four Leader hemmy, and I must have that's what I hear. A Challenger scat pack wide body. Tough to find allocations for that, and the prices are off

the charts. I also want a Bronco, but I was at the Ford dealership the other day and they said, look forwards, putting a stop to the good combinations with the big sasquatchas package you know. Um, they're just giving out the little ones right now. So that's that's hard. And that's not even getting into electric car territory. Because if I wanted a Lightning right now, or if I wanted to order a Silver to e V, I mean, I would be paying probably a hundred grand. It's crazy.

Prices are off the charts right now. I want to bring in David Welch, who wrote our Big Take story today about this pricing situation. Car prices hit record highs as automaker's limit output UM and we're seeing it really across the industry. But evs play a big, big piece into this right now. David joined us out of Detroit, the motor city obviously, So David, what are you finding Because we've been in this situation for a couple of years now, our prices are just ramping up and it

doesn't seem like there's any end in sight. Yeah, they've

they've been going nuts since really the pandemic started. A lot of it is production related, but going forward and even to a circumstance right now, car companies want to keep productions somewhat constrained because they've learned that making fewer vehicles and selling them a big prices is just a way better business than atting deal or loss with a bunch of production and hoping it will sell and when it doesn't, inevitably putting four or five dollars in rebates

out there to make it move. Um, But that's how they've always done it. There's no way they're going to maintain this discipline, are they. Well, we'll see, but let's

look at a few numbers first. So Too and General Motors say that the industry probably has enough semi conductor chips this year in the US, let's start with to make fifteen million vehicles, which is two to two and a half million fewer than they usually make, you know, years with pretty strong economies and low unemployment like this one, Um, And that's been the case for the past couple of years. In fact, they only sold about thirteen million last year.

So there's a lot of pent up demand out there, people looking for cars, people like you, who either couldn't find what they wanted because it didn't exist, or they didn't find what they wanted but a dealer was charging two thousands over stick er and they walked, and for that they just keep driving their card wait until prices came back. What I would give two that would be a dream come true. I'm hearing, David, I'm hearing on the Challenger, Um, I'm hearing the best deal I've heard

so far as five thousand over sticker. And good friends of mine whom I've grown up with since elementary school are saying ten to twenty k over. I mean, look, there's there are some crazy galaging. Those are the exceptions. And I was searching for a key for my daughter, helping her find a car, and you know, she ended up having to buy some stupid thing where you basically scotch guard the seats for four d over sticker and that was it. And you know some are one or

two thousand over sticker. A lot of that has actually gone away. So prisons are sockening up a little. But there's just there's not enough production out there and still enough pent up demand where these high prices are probably gonna last this year and maybe into and that's when we'll kind of figure out do they really have disciplined Yeah, that's kind of production. I mean, I'm just looking at you know, you have the Big Take story today out

on this topic. So you can find that at bloomber dot com, Slash Big Take or ni space Big Take go on the Bloomberg terminal, and it is a deeply reported story here. But it just comes down to, I think back to the Henry Ford. I mean, that's the business model. Crank out, seventeen millions are and you move them. But I mean I understand that this is a better

economic model. David. I will tell you that Paul has been pushing for automakers to get back to peak start for a couple of years now, so it's one of this is along with working from home. This is one of his pet peeves. And and there's no shortages of chips and stuff, right, I mean so there still are, right David, there's still Yeah, there's still It's like the chip shortage. It is not binary. We don't go from having nuns having as many as you possibly wanted things

all over by the roadside like that. We we're like I said, we're going to go from having a dearth of chips to being able to make about fifteen million US this year. That's not near peak ins fact, that's twelve fifty percent Bulle peak. So if you have if you're still twelve to fifty Bullie peak in terms of what you canm produce this year, and there's still a lot of consumers out there, like you guys who want a car, then it's still a sellers market. And I'll

throw one more thing at you. This year and next we're gonna have about five or six hundred thousand fewer vehicles coming off lease because automakers and fevers were not leasing as much. So people can the cars they purchased, they can hold longer than at least least you gotta you gotta buy the car, get something new. It's just what's the contract siss. So the used market, even though that has been softening up a bit, is still not going to come roaring back as a source for cars

because you don't have as many coming off least. I'm not saying prices won't weaken this year for new and used cars. I think they will. But in order for to get really affordable, which is the whole point of the big take, for middle class buyers to be able to afford this and get a payment from the current rate of seven seventy bucks a month down to more affordable four month, prices will need to soften the world this year. They need to collapse. They're not, they're not,

but we do see some softening. You put up point out in the story, and I remember, um, Paul and I spoke with Keith Notton when he when he when he had talked just talked to Ford about cutting prices on the Mockee that and they told him in response this question, why, um, well, we got to do it

because Tesla just cut prices. So you're starting to see little cracks, right, And the question is can uh you know, if if Jim Farley and Elon Musk are already um you know, are already falling falling out of rank um can Mary Barra and Mark Royce and the rest of the industry. You know, hold hold hold the line for the moment. I think the EV market and the internal combustion vehicle market are kind of two different markets. Uh. And also after after Chess of cut prices, they went

back and it's not increase um. There are some other dynamics going on there. Some of the price decreases we saw from Forward and Tessa were so they can get their sticker prices under the thresholds where their customers can get federal tax credits. So you drop your the price of your car by three thousand, you get under a certain threshold, and the government gives that from swing under seventy bucks or bucks whatever, you know, whatever it comes out to for that vehicle, and it's an even bigger

bonus and they'll sell more thanks to Uncle Sam. So there was some of that going on, and I do think Look, Test was in a funky position right now. They have a ton of production capacity coming online that's pretty new, and and the plant now some types hasn't even really begun to get close to full production. So Ellen saw his sales goals being missed. He wanted to grow sales. He only grew up by forty still great by anyone else's standards, but that was it um and

he didn't like that. He has a ton of production coming online. All of his vehicles, particularly the models and the modeloques haven't been redesigned in almost a decade. The model as almost told enough to shave. So he's got and look at his cars. People love them. They're good products, but they all go like so the like tests with vehicles are different sizes and shapes of the same sauceage. So you know, I think he's got three things going on.

He does have new competition coming in from Foard, GM, Volkswagen out uh BMW Mercendies had vehicles out the Koreans Hunt i KA have some very good products out there, so that he has competition, He has a ton of compassion becoming online, and he has I'm fresh in any of his vehicles. All of that, all of that is any other vehicle market, any of the vehicles segment says you gotta cut prices, and I think that David Real Real quickly thirty seconds. What are consumers doing today? Are they?

Are they paying a hundred thousand dollars for a pickup trend? Some of them are. Yeah, So like there are a variety of things going on. People are buying expensive vehicles, but that's your wealthy or more fooling consumers. A lot of your middle class consumers are either writing or vehicle for another year or two and just putting money into repairs, or they're buying like eight nine year old vehicles in the youth markets because that's where you can really get affordably.

Right now, all right, amazing stuff. I mean, I'll be it's fascinating to see if this industry can maintain its discipline. Uh, but we'll see. David Watch, Detroit Bureau Chief or Bloomberg News. All right, let's talk crypto and there's a million ways we can go here, but I want to go crypto regulation. I mean, is this a space that's going to be regulated? Needs to be regulated? For all that stuff? We turn to Nathan Dean, He's a senior policy analysts for Bloomberg Intelligence. Nathan,

you're the smart guy in the room. BS and management from Purdue Heckla Hoops team. This year. Where did that come from? And then an NBA from Chicago, So you are over educated to that to the max. What do you make of all this crypto space in terms of regulation? You know, it sounds like there's a massive crackdown coming. And I mean just putting it in Purdue terms, it's like if produced you know, playing the uh you know,

one of the smallest teams out there. It's just one of those things where you know, we've seen over the past year the SEC c come in and register, come and talk to us. In the industry largely has not, and just within the last few months we've started to see the SEC start to crack the whip. One of the things that they've done is they've sent out what are known as wells notices out to many different crypto players.

In fact, packs so's announced that they had received one. Essentially, what this is is the SEC has decided we're going to take an enforcement action against you, but we're just giving you a heads up so that you can give us a written response of why we shouldn't do this. It's not going to stop the SEC, but we are going to see a lot more enforcement actions between now and the next few months. And that's really going to

issue a further chill to the industry. I get how staking could be considered a security, certainly staking as a service, um in the cracking case. It's harder for me to grasp how stable coin is a security because you're not

expecting any return from a stable coin. No. So, actually, sec each chairman Gary Ginsler gave a speech last year where you essentially insinuated a stable coins of money mark good funds and money market funds has its own, you know, regulatory regime, and in the sec S eyes, you know potentially they should be following that money market reform. Now, if you assume that they're not a security, well then

they could be considered a deposit. And if they are a deposit, then there are other types of banking regulations that need to apply here. And so I think when you move forward with stable coins, the idea here is is that there's got to be some type of regulation. You can't have nothing. But the question is what does it look like now. I still believe that Congress will eventually move forward on a stable coin regulation. In fact, as we speak right now, the Senate Banking Committee is

talking about this. But you know, outside of stable coins. For the rest of the crypto industry, it's really not looking good right now in terms of new regulations. Is this to what extent? Is this maybe increased regulatory attention a function of FTX going bust and Sam Bankman freedom all that mess. Oh? Absolutely, I mean this gave it was like given the politicians a piece of andy and making them all excited because it gave them a talking point.

You know, they can understand the failure of a company. They understand that there are over nine million creditors out there who potentially may not get their funds back. And this is essentially giving politicians the ability to say, we need new regulation, we need customer protections, we need anti money launching. The problem is that there are multiple different ideas out there right now. Senator Brown is talking about

doing this. Senator Tim Scott, the ranking member for the Senate Banking Committee, was talking about putting in new customer protections. Senator Elizabeth Warren is actually building a coalition including some conservative Republicans, to come up with her own crypto bill, and this is where it's going to play out over the next six months. The problem for the crypto industry, though,

is that they've always said they want clarity. The problem is is that the clarity is coming, or it could be coming, and it may not be exactly what they want. It may be very very onerous, very restrictive, and it's gonna cost a lot of money to comply with it. All right, let's get onto it. Well. First of all, let me plug my show, uh Bloomberg Bloomberg Crypto one pm this afternoon. We are focused on this issue for a full thirty minutes. Nice, which is I guarantee the

most you want to hear about it? Okay, is the upper limit? You don't want to hear anymore about token? Yeah, no, it's doing great. Um. I want to talk though, while we have you, Nathan, about some of the other things. First of all, whatever happened to this guy is falling dead ceiling? People? Are they still like warning about how horrible this is and what a problem we face. Yeah, but now that the State of the Union is over, you know, the Congress is actually turning back to other topics.

I mean the dead ceiling. The problem with the dead ceiling. It was a good thing that the politicians began to look at it on an earlier earlier in the year. I honestly didn't think they were going to do that. Um, you know, but they've gotten their initial talking points through out there in the public, and now they've turned to

other issues. The problem with it is is that with Treasury setting this June fifth date, in our own rate strategist Irish Jersey saying, potentially even September October is the X date, Congress has a lot of time to sit around and do nothing, and so it's more likely going to be one of those situations where they'll start talking about it again. But until the market and until New York comes down and says, folks, you need to start

looking at this. We're getting worried, that's when they'll actually start negotiating. So I think you'll see some more negotiations, probably in April or May uh, and then certainly more information if that June d gets pushed back out to September October. All right, then the two things that I always need to keep abreast of, okay, uh, safe banking so that weed companies can can expand and grow, and

then um, the salt tax deduction. What do we know, Nathan, You know I'm not giving you good hopes on either of them. I mean when it comes to safe banking. Uh, you know, there was a real opportunity to get it done last year in the lame duck. Uh. You know, we're gonna see a catalyst around April twenty if that's when the Senate Democrats especially like to yeah exactly that you'll see a lot of catalysts and a lot of

movement around April twenty. But we just don't it. I mean, the one thing for the marijuana industry going right now is that President Biden has directed his agencies to look at reschedulizing, uh every declassifying marijuana. But that's a multi Schedule one drug? Is it still a Schedule one drug? Still a Schedule one drug? And yeah, and you know it does give the industry hope that a change is coming, but it's a multi year process, and you know, regulations

never moved fast. And then on the salt deduction, you know, we saw the Salt Coalition, the lawmakers from New York and New Jersey give a speech last week outside the Capitol Hill and I'm just sorry again for the folks in New York and New Jersey. It's just not something that I think is gonna happen anytime soon, alright, as long as they don't extend it past Oh that's when a sunset, that's when the Trump uh tax thing wears off. Yeah, thirty seconds. Think what will they get done in the

next couple of years? So, you know, I think you're gonna have to see anti China. You know, anti being anti China is really popular big tech. You know, there's a lot of ideas floating around there in terms of technology right now. That's gonna take some time. But you've got to look at these months past pieces of legislation, so like the dead stealing the government funding bills and

so forth. That's when the lobbyists are going to try and attach things like the salt deduction uh and potentially try and you know, get government to pass it that way. So I'm not saying things can't get done. It's just it's not gonna be these gradioseconomic stimulus bills. All right. That's called gridlock, I think is kind of what we Yeah, that's why we give him thirty seconds to tell us what Congress is gonna get done exactly, all right, Nathan,

good stuff. If they if they do get anything done, give us a ring, and we'll certainly chat about it. Nathan Dean, senior policy annals for US and Latin America for Bloomberg Intelligence. That's right. I mean, I'll tell you almost nobody on Wall Street has policy annals like we do, covered all different parts of the government and where policy can impact industries and companies. So nobody knows it like our Nathans. Nobody knows that like our Nathan's. We're gonna

more coming up. This is Bloomberg. All right. Let's talk about a big, big picture topic here. We're talking E s G. We're talking diversity um maybe in the technology space, because there's been some some news coming out of Silicon Valley on that front. And there was a recent op ed in Newsweek entitled why Elon Musk and Peter Thiel are wrong on E S G Investing? And the person who wrote that op ed piece isn't Bloomberg in her

active broker studio. Help me out with the pronunciation here, Anniellason. She's a founder of Edge and Power. She's based in Zurich, but she's here in our Bloomberg in actor broker studio today. How good is that? Aniella? Thanks so much for joining us. Here talk to us about why you wrote this OpEd and what are some of the key takeaways from your operator as you think about diversity inequality. Thank you for

having me so. One of the main reasons why we wrote that opened is that, of course, with all the layoffs that are going on in the tech sector right now, the big question is why should companies continue their investments in diversity equita susan. Are these investments only making sense when things are going well and times are good, and

it is this disposable investment in that times. And there are three reasons why we believe that companies should continue their dn I investments also in tougher times, in times of dayoffs. First and foremost, it's because study after study

shows positive correlation between profitability and diversity. The most recent one published in January by the World Economic Forum shows that ethnically diverse and gender diverse companies outperformed their industry peers in terms of profitability by thirty six percent and twenty five per cent. That is fascinating because I would

expect and our performance in terms of revenue growth. Right if you want to sell more stuff to more people, you need to get more people to sell that stuff right um in a sense, But profitability is an even more interesting metric. Why why do you think that is? I think that profitability is also related to the capacity of the organization to show agility, to adapt to changing market conditions, to show resilience, and to show an increased

capacity to innovate. And all these are positively correlated with a more diverse workforce. So just looking at your that was only one three oh three, gore you just jump

in all the time. What's reason number two? Why we should care about reason number two is that we should really care about people who stay in the workforce, So we should really give them some good news and positive vibes and showing them that we need them to stay engaged as opposed to quiet equitters, as opposed to quiet quitters.

And very interestingly, a Gallop study show that in the US right now, the number one reason for diverse talent, women and other historically underrepresented groups to join or to stay a company is how well they feel respected, what is their work life balance, and what is their personal well being taken care of in the workplace. So these are key ingredients for engagement. Alongside it's a good motivator

is basically what you're saying exactly. What's number three. Number three is that, of course we need to take a long term view of diversity, equity and inclusion. We cannot continue considering it as a layer on top of an organizational core purpose. It's fundamental to it because it's investment in people. So there has been. Number three is a little softer than I think. Number three is a little bit wishier, washier than number I mean, number one. I

get it, you're driving the bottom line. Number two, okay, you're motivating your soldiers. Number three, we should because we should, well not exactly. In the last three months, one in four American employees where truth it whether they were looking actively for an opportunity or not, and thirty nine percent of those decline a job offer because the company could

not demonstrate their commitments to diversity, equity inclusion. Now, in a market where there is a lot of competing demand for talent, being able to demonstrate long term commitment to that gives you an edge in terms of attracting, retaining, and motivating the best talent. Okay, sorry, now go ahead, Sorry, I just wanted to get through those I know. Let me take the other side. Of the coins. Some influential folks out there, Elon Musk, the pushing back on this stuff.

Elon Musk recently called E s G the devil. Peter Teel's out there and some others, Bill Actman and so on and so forth. What is there? And we've had effect Ramaswani come in here and say he's telling companies just focused on profits, don't worry about social stuff. He would like reason number one, He might even like reason number two. He might. Yeah, So what's the pushback that that you in the s G community are seeing from some of these folks. Yes, So I think that that

the main pushback is related exactly to what you said. E. S G is perceived as wishy washy. And why is E s G perceived as wishy washy Because we do not feel that we can measure some of the aspects behind the s G, especially behind the S and behind

the G taxonomy just isn't there in objective ways. We cannot agree how material some of those topics are, and we cannot agree to some standards of excellence when it comes to the s G. So because we cannot make that link, which is undoubtedly there, we tend to think that E s G it is an afterthought and it's destroying shareholder value, while e s G is about creating

sustainable shareholder value and keeping the company competitive long term. Well, see the argument the background a Swami would make if you were here. Actually I can't speak for him, no, but I would guess he would say, Look, my number one motivation is profit, and if I need to put uh some environmental or social concerns aside for that, I'm going to do it. Yes, I think that you will

always have investors. You might think that's short sided. Well, I think that that's his opinion and he's entitled to have it. I think that the beauty of guessing that's his opinion. I can't. We haven't have both of you on together. That would be a very good conversation. I think that the idea of it is to go beyond this very polarized view. I think that there will always

be companies and investors that will take that view. Our focus is profit, profit only short term, and there will be companies who will take a longer term view of how they create value for their stakeholders, and the two can coexist. We just have to make sure that we there are very clear signs because they will always be people who want to work for one company or to the or or the other, or who would want to

invest in one rather than the other. Well, in this E s G also seems to me in a sense like um the crypto industry, in that it's nascent, right, it's still growing up and getting into its adolescence. We just started talking about this really a decade ago, and we haven't developed the classifications, we haven't developed the metrics, standard metrics that we all agree on yet, but we're doing that. For example, you help Bloomberg work on the

gender Equality Index, don't you so? And as we get more metrics like that, and you can show investors, hey, look this chart goes up and to the right, then they're gonna get on board. Yes, And I think that, you know, coming from Europe, I think that Europe is a little bit further ahead when it comes to creating

that taxonomy and creating that clarity around the debate. Because one of the things that I still believe needs to be clarified is that E s G and E s G investments do not necessarily imply a focus on having a positive E s G related impact E s G investment can be simply considering the E s G related risks as part of a certain number of risks in evaluating the risk of the portfolio. Or it can be considering E s G risks as being the main risks.

Or it can be impact investment, which is making investments with the intent to have a positive E s G impact. It's a big broad bucket, it is, and I think that there is confusion between the outcome and the process

in some of these conversations, right yea. Or just just to let you know how seriously Bloomberg the terminal takes E s G. If you go to one of the most widely used functions for financial analysis on the Bloomber terminal, f A, go for any ticker right up there with the income statement, the balance sheet, the cash low statement, there's a tab for E s G M the clip on that tab you'll see all the E s G metrics on a historical basis that Bloomberg captures for these companies.

So uh, it's you know, just from the Bloomberg perspective. In terms of the efficacy of the data, we value it as we would income statement data, balance sheet data. Think things like we're trying to build that function exactly right, and I would imagine we're working with people I cannela

to do it. Yeah. So, and I think that you know, another way to look at the s G E s G is being good ancestors, right, it's behaving respectfully knowing that we live in a world with limited resources and thinking what kind of a planet, what kind of economy, what kind of the social fabric we leave to the seventh generation down the line? Ye great stuff, An Godson, founder of Edge Empower based in Geneva. I believe right,

zurch Geneva, zur Okay, good stuff. Join the University of Geneva, NBA from university and even why didn't I think of that Duke was fun, but Geneva would have been maybe a little bit better. Joining us here in a blubern Actor broker studio. We're breaking down talking all the E. S G stuff. It continues to be get big issue for investors. Market sharply lower here this morning. I got that print of inflation um kind of suggesting maybe some folks are saying, maybe this friend is gonna stay a

little bit higher for longer. Uh, let's check in with two Sharma founder and investment manager of Alpha Structure l l C. Two. We had that big inflation print this morning. What do you've had, you know, a few hours here to die digested? What do you make of it? Hi, thank you for having me. Uh. Clearly we're seeing, um, some metrics of inflation come down, but we're seeing others increase. Overall,

the inflation dynamics remains uh, unprereddictable. I think it's hard to say, um, how the numbers are going to pan out over the next few months, but I think we can clearly say that inflation is not coming down at the rate that Fred would like to see. Um, we are. It's possible last year we've seen goods inflation come down, but services remain higher. And it's possible that some of that consumer spending last year, which was more driven by travel and leisures, some of may come back to goods

again this year. So I think um, UM, I think the Fed is um. It's I think the Freed is likely to say, uh in that inflation control mode and they want to keep the interest rates higher for longer. So I mean we rallied into this number yesterday. Um. You know, equities really have been on a tear since the October lows. We're trading at four thousand, one hundred basically, which is in line with strategists expectations for the year end. So in that case, I mean, aren't we too highly

valued here at you know, eighteen times earnings? I think I actually agree with you. I think equity valuations are are very high, and it is It's a bit of a surprise to me also given the disconnect between the bond market and the equity markets, because we've seen yields rise across the short end and the long end in light of some of this recent data, we've seen the economic data being very strong and the risk of a

recession getting uh pushed back. UM. The labor market is remains very strong, so there is no reason for the Fed to come around and cut right right now. They can focus on this inflation dynamic because the unemployment data

remains UH very strong. And so to see the equity markets rally like they have given all this uh, you know, the the underlying interest rate environment remaining UM in a tightening space is surprising and and I think partly it is driven by the fact that, yes, we have seen the econ me stronger the corporate turnings for not as weak as sphere, So there's some positive around that. But partly I think it has a lot of It has been a lot of positioning. The biggest positioning that we

had in the last year. Uh, that's playing right now. Now let's put this in. Let's put this key too into perspective. So listeners understand, before you founded Alpha's future, um, and after you graduated long in business school, you went on to really have a broad career. You worked at an insurance company, you were a credit ratings analyst, you were in equities at Credit Suite, and then picked Ted asset Management. So you've you've been across as sets and

in regions around the world. What what are we heading for right now? What does it look like to you? This you know, recession that's so widely forecast globally. Thank you for the uh you know, sharing my background. Uh yeah, it has been UM. I mean, I think the the diversity of perspective I have really helped me look at markets from different angles. And uh, what we're seeing right now is that your base rates based interest rates, the

risk free rates are going up. The real rates are high, but the equity the premium, which is the excess reward you you want for taking equity equity risk that is coming down and UM and that is a disconnect given that, uh, you know, ultimately we've we've seen peak economy and UM an inflation outlook is still very high. So UM, I think from our valuation standpoint, we really have to be careful about what we buy right now. We don't want

to indiscriminately change this market rally. We should at least from our perspective, what we're recommending to our investors is to focus on companies that have quality, that can that have frightened power, that have valuation support uh, rather than those which are interest rate sensitive and therefore uh you know, may suffer from just reduction and valuation multiples. So what are some of the examples that fit into the bucket that you feel like are higher quality, perhaps a little

bit bit safer in this uncertain time. So we are looking at value opportunities and industrials, healthcare, also technology. UH. The companies that have uh you know, have some structural mega trends and can grow with the with the economy. Also, you know, at a global level, companies that can grow with the China reopening story and Europe recovering from last year's kind of energy crisis. Um. And also quality defenses that can that have pur chasing power and can you

know pass on cost inflation that have pricing powers. Um. Yeah, it's more it's less about selecting sectors, but more about looking at companies within sectors that can sustain um, the growth environment and the inflation environment and higher interest rates from evaluation standpoint, versus those that might be at risk. Thank you too. I'm not sure how much you guys traffic in the energy space, but the energy stocks are just such a great year last year, and I'm looking

at bring fruit it barrel. Did I miss that trade or do you think they're still room to go in energy? Um? See? Energy, I think is a hard one to forecast. We don't do We don't do commodity forecasting, so uh, and we don't play in the energy space because we have a focus on sustainability. UM. But I think UM, I mean clearly, if if we do see commodity prices go up, both energy and other commodities, uh, I mean one, it would be a sign of global economies doing well. Um. But

at the same time, I think more widely. It can have a negative impact on global equities from my inflation standpoint. Alright, great stuff. I really appreciate getting a few minutes of your time. That is to Sharma Founder, an investment manager for Alpha's Futures ll C. A little bit of an e s G bed there, Matt kind of sustainability, another investor incorporating that into their investment framework. We're hearing more and more of that. Yeah, yeah, we are. I mean,

it's an interesting debate that's that's going on. But it looks like, um, you can see where the road is going at this point. It doesn't look like we're gonna turn back, so it makes a lot of sense. All right, good, So I forgot more coming up. We've got the equity market selling off today. We'll break it down for you going forward. This is Bloomberg. Good morning. 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. P On fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg radio