Rates, ESG, Europe, And CVS (Podcast)

gas I can get to a hundred dollars? You know when I get to two eight, three slows down and I'm not done filling it up. No, of course not. You've got a shot of that idea. That's horrible. People were, Yeah, well it's horrible. Yes, So you're a big good truck guy, all right, pre a misrab. I'm not sure if she dressed pick up trucks, but she does cover the interest rate world for US managing director and global head of rate Strategy for TV Securities. Pretty I'm looking at the

bond market. Boy, that ten year treasuries off one and three thirty seconds, pushing that yield up to three point three two percent? Is this still kind of fallout from Jackson Home? What's going on. I think there's a couple of things going on. I mean, they were just back after the long weekend. I don't think liquidity is the best um. I mean, I think it should get better. We're in September. But I think there's some component of

we're getting exaggerated price moves. There is a lot of corporate supply today and I think that's adding to duration pressure. And then as as you said, there's the you know, fallout from Jackson Hole, the fact that we have a FED meeting in two weeks. The jobs report was strong, and we had I M Services which is also strong, So the U s economy seems to be holding in there.

We think the pressure on the FED is still there to keep moving those rates higher, and I think all of that is a perfect storm to make rates go up. QUT is also continuing. I do think it's a little overdone. I think we're very well priced now for the FED taking rates up to four percent, keeping it there for a while, and then if you do start to see

slowing and growth, we think the FED does act. So I think the market may become a little too optimistic in terms of the ability of the economy to take these rate hikes, which I think will have an impact on road just with the lag. We're not seeing that in the data just yet. What happens historically? What happens historically when you go to UM you know a certain level on the FED funds rate. I don't care what it is, but let's take four percent or five percent

or six percent. What happens to ten years. Do they eventually catch up UM treasury yields or do they always hold below the Fed fund rate? They tend to hold below because typically, you know, the FED is not able to get this soft landing or be able to to keep rates at that level. So the two year or the very front end can get up to that terminal rate, but then the long end tends to lag because within a year or two of the FED reaching that terminal rate, they tend to have to start to cut rates. So

that's why the long end doesn't catch up. Now, the one big difference this time is QUT. The FED is also letting the balance sheet run off, and that's resulting in more durations apply to the market. I think that this time around is putting a little more pressure in the long end. But I think if the FED starts to cut rates, they're also going to stop QUT. So you know, right now it seems to be that your

call for next year. Do you think we go into a recession that's too deep, unemployment rises too high, American families have trouble um keeping jobs, putting food on the table. On the FED has to cut rates and stop QUT pretty much. Yes, you said it well, I mean we are looking, unfortunately for the economy to slow down, and it's hard for me to justify the FEDS four point one on the unemployment rate. I mean, if it starts to rise. Typically the the unemployment rate doesn't rise that gradually.

It tends to rise, it tends to accelerate once it rises. So yeah, we're thinking closer to five in the second half of next day on the unemployment rate, forcing the fight to start to cut rates when I think they'll they'll be late in starting to cut ride because they're fighting the inflation problem. But once they start, I do think they're at least getting to neutral and they'd have

to stop QT at that point as well. It's hard for them to justify cutting rates and still undertaking QT, but I think that's not something they're going to admit to right now, They're going to let the data determine it. Right now. It's inflation is public enemy number one, and that's why I think the focus is whether they go seventy five or fifty at the September meeting. So the TV Securities, do you guys have an official recession call

or do you think this FED can soft landed? So we have a slowdown in growth called you know, you're zero percent growth. When you're growing at zero doesn't take a lot to slip into recession. So it's a shallow slow down in growth that we do pencil in, and that's why we've penciled in rate cuts in the end of QT next year. All right, I'm gonna talk corporate real estate. So TV Security, you guys are one Vanderbilt, Is that right? It is? Yes, it's a new building

right next to Grand Central exactly. That's awesome. I mean, I mean, I'm not sure you even go there if you work from home, but it looked when they're putting it up, I was like, holy cow, this is gonna be awesome. Now it's a great building. I've been in the office since, you know, for over a year, and it's filling up now. That. I think we're we have a few few flaws, and there's the summit. If you

haven't been to the summit, it's great. Glass Bottom. I'm not a huge fan of heights, but it's very impressive when you look down on the glass bottom floor and see all of New York. So that's a good building. I want to do that. Let's do that. Yeah, down, we need the invite though, yes, we need the any day, all right, pretty so, just real, real quickly here coming up in a couple of weeks from this photo reserve. What would be a mistake where everybody goes, oh boy,

here we go. You know, you can think of two sided mistakes. I think one mistake would be if they suggest that they might be getting close to being done because just because oil prices are lower and inflation seems to have beat That would be one mistake. The other mistake would be to say, oh, no, we're going until

two on your over your inflation. I think that's a mistake I'm really nervous about because it just inflation is a very lagging indicator, and if they ignore growth, they're absolutely going to overdo it because inflation is going to take a while to come down to respond to slowing growth. So there are two sided risks. After jacksonal I'm more concerned about the overdoing because we need to really win that inflation battle, even if it means a slowing growth. Alright,

this fat man. If they waited too long to raise rates and now they're going to raise rates too late and too long, and then maybe they'll even cut them too soon. We have to see Premisser. She'll have insight for us along the way. As always. Managing director and global head of Rate Strategy for TV Security is also an ambassador for one Vanderbilt Avenue. Got to check that building up. Alright. One of the fastest growing areas in

investing is E s G environmental social governance. Sure enough, the largest exchange traded fund investing in s G, that would be the I Shares E s G, AWARE M, S C, I U S A E t F. Yep, that's what I got it all in there increases assets by forty seven hundred times to four billion dollars since its inception in twenty thousand and sixteen. But Mr Rhonda Santas the Governor of the Great State of Florida, I don't think he's really buying into it. Let's get into

this story. Matt winklerd, Editor in chief emeritus and founder of Bloomberg News joins us here in a Bloomberg Interactive Broker Studio. Matt, thanks so much for joining us. You've got a column out today looking at Florida, looking at the governor Rhonda Santis and his views on E s G investing. What did you find so, Paul and Matt,

great to be with you. Rhonda Santis, governor of Florida, first term governor of Florida, highly educated, went to Yale and Harvard Law School, has an initiative that prohibits the state of Florida, which is the third largest state and which has about two hundred and ten billion of assets under management, from considering what you just mentioned as E

s G criteria for investing. The trouble is with that initiative, it goes against Florida's own very own dictum that says, we must consider performance total return as the yard stick, if you like, for measuring our returns. And if you do that, E s G absolutely crushes every other benchmark over any time period during the past decades. So his own initiative is it odds with the essential requirement for the Florida Retirement System to manage on the basis of performance.

But it's possible he's not as concerned about performance financial performance as he is about politics, right, because he's made a number of really provocative moves already that draw him into the national spotlight and set him up for a presidential run. Yeah. I mean it is seemingly a very political ploy on his part because he is educated enough to know that every fiduciary has an obligation to earn the highest return at the lowest volatility for shareholders and

bondholders alike. And if that is your focus, then you have to consider E s G in your investing. And if you don't, your shareholders, your bondholders, your pensioners were all suffer. Does the data support that? Matt? What do you What did you see? I know you and shouldn't pay your colleague always dive into the data for your arguments. What's the data? So it's it's very conclusive. We have

a decade's worth of data on the Bloomberg. We look at every if you like, exchange traded fund that invests everywhere and those that invest in what we call e s G um are over five years, over ten years, over two years, outperforming by orders of magnitude the benchmarks, the traditional benchmarks of investing, whether it's the SMP five hundred, whether it's the Russell three thousand, whether it's any fossil fuel UH index that lately has been a star because

of the war in Ukraine and the rise in in oil, in energy, traditional energy, E s G has done better than anything else. And that's not a secret actually or surprising, right. I mean people, look, people started ten years ago buying electric cars on the consumer level because they want to guard against climate change or push back against climate change. And obviously mom and pop investors are going to be doing that. If they feel that way, they're gonna invest

with their hearts as well as their pocketbooks. And now we have huge institutions coming in and doing it as well. In Blackrock has ten trillion dollars in assets under managed, and they are watching this. Yeah. I think that's a great point. Uh. If you look at black Rock, people may have forgotten that black Rock really saved the US from the worst of the financial crisis. Black Rock was the one institution that came in and helped the US government, UH, sort out of what was a disaster the likes of

which we hadn't seen in a couple of generations. You have to go back to the depression. So put it on fast forward. A company called Tesla UH making zero mission vehicles in starting in say two thousand ten, and when it went public and then two thousand twelve it introduces the models. And Tesla today as a car, as a car company, has the highest market valuation in the world among automakers. It's more than three times uh the value of Toyota, which sells more vehicles than anyone, but

I am by a wide margin. I mean, Tesla sells what half a million vehicles a year in Toyota must twelve. And so what does that tell you The market, if you like, which is not ideological, which is not political, the market, which is just about what's cheap and what's expensive and relative value says Tesla is by far the most valuable company. And that's because there is a convergence of policy and people's preferences, and Tesla is an example

of that. And uh, it's an example of what's happening to investing worldwide, which is why uh, you know, the total amount of money committed to E s G is something like thirty five trillion dollars, which is obviously bigger than the US economy. Wow. So I mean if I'm

you know, twice twice the size about right? I mean, if if I'm a teacher in Florida, any pension holder, I gotta say, Okay, so you're telling me my returns are going to be lower because you have this perhaps politically driven ideology as relates to E s G. Is there any push from within the state or Well, what I would like to see is exactly. I mean, It's one thing for the governor of Florida to say this is what we're doing. It's quite another thing to see

what Florida does. If Florida adheres to its mandate, which is get the best or the highest total return with the least volatility, it will have to consider E s G investing. Whatever the initiative says, what do you what do you think about Engine number one or ARC? I mean, where do you think the most exciting M E s G investments are coming from? Well? You know, look, I've been as you well know many times with the two

of you. Said that to me, Tesla is one of the most exciting events, um because as a disruption, it has changed really the face of the automobile industry I think forever, and that we are inexorably going to electric vehicles. So that that is my my choice if you like, not just cars. I just saw some ads for electric boats, I mean anything that has we just we just had one come out. It has a fifty nautical mile range. It has a cruising speed of twenty knots and a

top speed of thirty knots. And that's pretty incredible for a dollar boat that can hold your whole family. I'm excited about this product. All right, Matt Winkler, thank you so much for joining us as always, Matt Winkler, editor in Chief emeritus UH and the founder of Bloomberg News so many years ago, joining us here in a Bloomberg Interactive broker studio. He's got a column out here looking at E. S G Investing, looking at it in the lens of Florida, and the governor there ron to Santa Syn.

You can type that. You can type n I Winkler on the Bloomberg can you he's gutting? Of course he has. But you can also type that p I N code okay, and they can get Bloomberg dot com slash h O P I N Bloomberg opinion right now for those people that use that intra web thing. Well, there's a lot going on in the UK, potential session, surging inflation and energy crisis and now a change in the Prime minister. How our markets reacting to that? Well, of course we

need a voice on the UK. We go to somebody who was born and raised outside of Rowan Oak, Virginia and literally the middle of nowhere, but he's now in London, Tim Craighead, Director of Research, senior European strategist for Blueberg Intelligence. He's been in London. We had him in Hong Kong running our business there for years. New York. The guy has been everywhere. Uh, Tim, a lot going on. You're on holiday because I follow you on social media and

you're biking all over the island of England. But you were trained Goldman Sacks. That means you're on call seven. So we need a voice on the European markets. We go to Tim Craig Head. Tim, what's going on in the investing markets. There's a lot across currents there are and thanks for having me on from the sunny coast of South Devon. But you know, the the cross currents are crazy looking at things this afternoon. You've got oil down three dollars a barrel if you live at Brient Crude. Um,

You've got interest rates that continue to trade up. Um, You've got economic stats that are waning new lockdowns across China with a tumbling currency there. And on the currency front, every every currency, it seems under the shining sun is weak against the dollar. So you know, bring all that to bear in in the UK here we announced and the the probably minister and Liz Trust comes into comes in the office post her her meeting with the Queen today

and you know she faces a storm. Um. Interesting with all of that in context, the UK market essentially flat. So yeah, the kind of tells you something right there from the standpoint of what's discounted in the market at this point. Well, and right now I see a pound trading for a dollar fifteen. Um. I'm not sure that has as much to doo with Liz Trust as it has to do with um, you know, everything else that's

going on there from you know, inflation. I think Goldman Sachs put out a report saying it could go to two concerns about an I m F bailout. Tell us about that. Yeah, so you know, I am F bailout.

I think it's a bit on the extreme side. UM. One thing that was key today with Trust coming into into offices, there's been a a void from the standpoint of what government policy would be given the energy crisis here in the UK and more broadly across Europe and UM an ongoing growing list of big economies big government. UM has been announcing policies to help get businesses and

consumers through the winter. And indeed, UM there was fear in the UK that Liz Trust would come in with an ultra right wing conservative of approach of cutting taxes and not offering handouts as she likes to call them.

But you know, before she's even in the office, UM, you know, Bloomberg News actually found today UM the draft of a proposal to offer upwards of forty billion in support to business and a hundred and thirty billion and potential support for consumers to get through energy crisis by essentially capping energy prices now so that inflation rate would have would have essentially been driven in large part by huge escalations and energy prices. By the way, I love

when politicians do. I love when politicians do massive u turns on campaign promises the day they come into office. You know, there you go, remember read my lips, no new taxes. Sure, yeah, that at least that took him like a year or two. That cost him the reelection. So Tim, go ahead, go ahead, Tim. Now, I was gonna say part of that, part of that pound weakness was a lot of the concern that you'd have all sorts of havoc with a you know, lower tax rates in the middle of of of a crazy period in

the economy. And in fact, the first thing we're seeing some support is for the domestic economy. For Footsie doesn't really matter because as we've talked before, it's a mostly globally oriented, a big international brand, franchises and consumer and healthcare, et cetera. The week pounds actually a boon to those guys. So Tim, uh Matt and I were discussing, it's been a few years since we've been in the UK. Find what's what's your favorite point cost you a devon today?

That's a critical question on holiday. Um, you notice I say holiday in a vacation and I noticed two weeks in a row. By the way, See, he's definitely getting used as a European thing there. You go so somewhere around uh seven or eight pounds that you could find them at London, you know North at ten right now if you go to the wrong pub. Really that's inflation, dude. Yeah, I have a list, by the way, if you ever are down in Chelsea or or Fulham. I like the Hollywood arms a lot. I'm a big fan of the

builder's arms. I like the Duke of Clarence. I like the Duke on the Green Um and I love the Anglesey arms if you really want to hang with kind of the eurotrash there. But there's so many. Yeah, the right places the Washington in Delphize Park and that's named after George by the way, exactly all right, Tim, enjoy the holiday biking around um southern England. Uh. He's into this biking thing in the whole family. It's kind of yeah.

My dad's into it too. He's very philoton guy, so you're also about He also like rock climbs too, so I mean, I don't know what's going on. Tim Craigead, he's a Director Research, senior European strategist for Bloomberg Intelligence. He's based in London. What we said that in the next life, I want to come back as a healthcare m and a banker. Every week it seems like there's a big, blockbuster healthcare deal and banks are getting paid left and right. Today, CBS to buy Signify Health in

an eight billion dollar deal. CBS, you know, big pharmacy company, Healthcare Services Company, a hundred thirty billion dollar market gap. It's a big company. Stocks down about four percent year today, kind of flat today. Let's dive into this deal. Jonathan Palmer, senior equity research analyst, a team leader for Bloomberg Intelligence, also a proud graduate of the Penn State University, which had a good road win this weekend to start the year.

All right, Johnathan, CBS Signify Health, tell us what's going on here? Well, Paul, you you hit the nail right in the head when you mentioned services company. And CVS

has kind of three legs to this tool. They have their retail stores, they have what they call their PBM or pharmacy Benefit manager, which which manages drug benefits, and then they have their insurer Etna, and really all these companies in the healthcare services universe want to expand their service offering, and Signify does that in a meaningful way for CVS because Signify is in the home and they have assets where they send people out to people's house

to do evaluations and managed care. And so the next step after you know, we've had the pandemic here from the virtual cares home care. Yeah. I mean, if if I'm right looking at the medical industry, everything's going towards telemedicine, UM home care or a CVS, right because there's no reason anymore to go to the medical um offices compound or to your local g p UM. You can do it all by phone, by phone or by zoom and um.

You know, the only time I need to interact with somebody is when I get my booster shot, and I'll do that down the street. Yeah, the market is definitely moving in that direction, and really the pandemic was a catalyst for it. And you know, we've seen a lot of care move out of traditional setting is into the home in the in the virtual spaces, and we've seen Amazon move, you know, with one medical to to kind of follow a suit here. So is this tell us

about signify what is what's special about these guys? Why is it worth eight billion? Well, they operate in a niche and I don't want to bore you with the details of what they actually do on a day to day basis, but really they help manage Medicaid and managed care, manage managed care, Medicaid and Medicare advantage participants. Every year, these people need to see a doctor. Um if the plan doesn't have them come into the office, they send somebody out to see them doing evaluation. It's part of

the business model and it really fills a niche. And so what CBS is hoping to do is is uh expand that niche. There's about eighty five million people in those those two buckets and signifies only seeing about two million of those a year and build more services around that. That home platform. You know, you mentioned CBS had acquired and I've forgotten all about that deal. And when that deal was announced, I had no idea what's CBS was doing. How is up and it's a big insurance company. What's

a drug store company doing buying an insurance company? How is that played out over the last a couple of years. Well, they've finally gotten to a point where the debt level from from the deals down and it's finally kind of realizing the vision that they foresaw where they have this explaned, expanded platform where they offer a little bit of everything. You know, CVS probably doesn't really want to be in

the retail drug store business anymore. There's Amazons and but they want to turn those locations into service centers and they have things like health hubs that they're offering where instead of going to your you know, your local GP, you'll just pop into your CBS, get your blood pressure chair, to get your meds, do an evaluation. So the evolution of healthcare is expanding in where we see more of the traditional players kind of spreading their tentacles out, you know,

whether it's Walgreens, whether it's Amazon, whether it's Walmart. Everybody wants to be in the healthcare game. I can't believe they want to get out of the drug store business. I mean, that's where it's like a one stop shop for every Yeah, well except for cigarettes, right, I can't buy cigarettes of CBS, right, No, not for a while, but well I remember when that came across, and obviously it makes perfect sense, but I wonder if they're going to ever start selling weed, you know, because they do

CBD already. Right, that's a good question. I don't know that fits in the mantra of CVS health, but well, we'll see mental health. So talk to us about just your space general thirty seconds, Jonathan, what's the hot area that that you're covering right now? What if your investor clients want to talk about the most Yeah, well, I think that one of the key areas is actually this this space that we're talking about right now, which is

technology enabled assets. And so we've seen a big retreat invaluations from the peak of the pandemic last year where everybody was really boiled up on virtual care, and now we're starting to see now that these stock prices have come back. You know, one Medical getting picked up by Amazon, we see Signify getting picked up by CBS. We think there's more to come. What is Amazon going to do in healthcare? That sounds like a monster vertical they could do. Well.

I think that's the that's the plan, although they haven't executed so far. I mean, their pharmacy is really nowhere right now. They had a business for employers called Amazon Care, which they just announced that they're gonna fold which they're now going to use one medical probably to be the beach head there. So healthcare is hard. Yeah, it's hard to have and I don't understand it at all. That's why we have smart people like Jonathan Palmer to kind

of walk us through some of the stuff. All right. Jonathan Palmer, senior equity research analysts and team leader. He covers it, does all the healthcare stuff here, manages the team of analysts we have here, a Bloomberg intelligence. All right, let's talk cybersecurity. I kind of been telling my kids have been entering the workforce over the last several years. It's not plastics is the future. It's cyber security. I think that's going to be a long term growth story.

Shawn Joyce, Global Cybersecurity and Privacy leader at p w S c sean give us a sense of I don't know the the C suite folks you talked to, the board members you talked to do you think they're putting cybersecurity risk? They're giving it an enough attention. So I think it's a great question, and I think that it is coming to the forefront of the board of agenda and there probably isn't the boardroom that I go into

where they're not talking about a digital transformation. And I would argue that within that digital transformation technology is that central nervous system for many companies in confirming that the data is secure and protected is really and can be brand defining, you know. And I would just add, you know, the boardroom became very concerned during the Russian Ukrainian conflict or war, and you know, what should we do? Do

we have any business there operations? And I would just say that is the first time that we're really seen cyber as a risk come to the forefront from from this perspective. First, it's over cyber cyber warfare are in between Ukraine and Russia. We're seeing seven Wiper viruses that have been deployed, We're seeing infrastructure being targeted, satellites being targeted,

and obviously an ongoing informational war. The second thing is we're actually seeing crowd sourcing in civilian groups acting on behalf of nation states. So not only are you seeing it coming to the forefront on the board agenda, but this threat is becoming more complex and I think a lot of companies struggle to really handle this risk effectively. Does a major company automatically outsource this or do they

does anybody try and take it on themselves. I think you'll see some of the more mature companies, especially when you're talking financial services, defense contractors, a lot of them take it on themselves because it's critical to what they do each and every day and part of their brand. And I would add to tech companies too. I think there are other sectors and companies that should outsource different

aspects of this cyber risk. Right, we're talking about cyber risk, and really if it's not the main part of what they do as a business, I would say I would outsource that to someone who has that expertise. By the way, do you have any headline numbers? I mean, we always talk about how many hundreds of billions of dollars are stolen in crypto every year, but it seems to me, um,

you know, much more damage can be done. Um, when you're talking about huge financial entities like the big Wall Street banks or you know a Walmart or um, you know, signa healthcare how much damage is done in dollar terms via cyber crime every year? I would say easily tens of billions of dollars being done by you know, cyber criminals in Nation States each every year. And that's not just you know, through cyber crime and fraud and account takeover is it's all through also through the theft of

intellectual property from companies. Just recently, we saw a breach or a ransomware event of the US company and they lost a hundred million dollars just in operations and the inability to actually produce their products. So this definitely is

having a critical effect on business operations. And I think, you know, unlike what you probably talked about on your show when you talk about credit risk and market risk, fiber risk is newer, and I think a lot of people because of the educational gap and not being digital natives. As I said, it's a challenge to really deal with this risk versus some of the other traditional risk that you know, you and I have heard of historically that

many people are familiar with. Sean, your deputy director of the FBI, I'd love to get your perspective on, you know, kind of how pair do you think the US government is and all of the interests aligned with the government is for cybersecurity, because it just seems like the risk whether it's coming from you know, Nation States or others

are just almost impossible. Is that a Pentagon issue or does that fall under Does the FBI have its own division there, does the you know, um, the White House have its own cybersecurity people or or do you have one branch that overlooks it for everybody? So currently in the administration, so to answer your question directly, there is not one agency that handles everything. Uh. And I believe there should be an approach and a whole of government

approach for those agencies to come together. However, I think this administration has done some great steps forward, you know with the establishment you know, SISSA as you know, just pushed through in legislation the National Cyber Incident Reporting Act. Right, we're seeing them do things like Shields Up, which is really companies coming together and how do they help protect each other? Um. Sister has also established the Joint Cyber

Defense Collaborative. Right. When you look at the FBI, they have really pushed on their public private partnerships how they're actually helping companies defend along with the n s A. So it is really a collection of agencies, um. And like you're saying, though, I think that needs to be revisited and look at how can the government approach this from more of the next century approach versus maybe historically, how they how they've done that. The bureau, specifically the FBI,

they have a cyber division. They have over a thousand people that are working this each and every day throughout the country and overseas. So they're coordinating with many different agencies and that, as you know, is one of their highest priorities of what they do each and every day. All Right, Sean, thank you so much for joining us. Really appreciate that. Shawn Joyce, Global Cybersecurity and Privacy Leader

for PW. You see again, it was a debut director at the FBI, so he kind of gets it from um the you know, the private company side as well as the governmental side. 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, pt on Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.