The Pandemic Could End Shareholder Supremacy For Good: Joe Nocera

A lot of people have been trying to understand how the world as we know it will change. Joe No Sarah, longtime columnists at The New York Times, a columnist now for Bloomberg Opinion who I deeply respect and always appreciate, wrote a fantastic column a highly recommended pandemic could end shareholders supremacy for good, talking about how a shift in the priorities of executives could change the way companies are

viewed in the world to come. Jonah Sarah joins us. Now, Joe, can you talk a little bit about what the main idea here is behind your column? Yeah? I UM, My basic view is that just as we people in isolation or wherever have become nicer to each other, more generous to each other. Much the same thing is happening in corporate America UM, where executives and top executives are caring a lot more for their employees than they have in

the past. UM. You know, furloughs instead of layoffs, where people get to keep healthcare UH, really trying to keep people on the payroll even though they don't have that much work to do the you know, free coronavirus testing UM, and and on and on and on and and you see this over and over and over. You you see

it in in the quarterly conference calls. Now you see it in so many companies trying to do something to h to stem this virus, even if even if their business has nothing to do with medicine or health care UM. And it just made me think, boy, you know, this could signal a shift that would be good for the country and good for employees and and and you know,

maybe even good for the stock ultimately. It's interesting, Joe, I guess one of the key questions is can this blast or is this just simply a function of the time we're in Well, that's what we don't know. And I certainly didn't um uh suggest that this is automatically going to happen, or this was a guarantee. It's obviously not a guarantee. UM, it's it's a little wishful thinking on my part. I'm hopeful that this could happen. You know.

One of the things you've seen in America over time is that you have seen these shifts in corporate values over time. And the column that I wrote, I talked a lot about, um, the post World War two era where companies consciously hired more workers than they needed, knowing that that was important to prevent a new depression. Uh, and also to create kind of a virtuous cycle where you know, workers made products, other workers bought them, you know,

and you expanded the economy. Then you got into the era of shareholder value, which really started with the bullmarket of the nineteen eighties, and you had a very different UM. You had people like Chainsaw Al Dunlap bragged about all the people he fired, you know, and UM, we are ready. I think we're as a culture. I think we're ready for something different. People are tired of the shareholder value stuff and and the damage it does to employees and

consumers and and and in the country at large. Yeah, Joe, that sounds wonderful. And uh, and I would I would think that probably people would feel very happy if that were the case. I'm looking right now Bank of America's shares,

they've gotten killed. And Bank of America is come one company you highlighted as is trying to do the right thing and promising no layoffs and and doing a host of other issues to try to forestall some of the uh, some of the pain throughout corporate and main street America. Do you think that shareholders are going to get on board here and basically end up sort of rewarding companies that do take the angle that you're looking at, or are they going to just say, look at the bottom line,

you're not gonna make as much money for me. Well, there's going to be a giant reset in the market. I mean, there's gonna be an enormous reset. And and and yeah, Bank of America shares it down in part

because its revenues were down. Like, um, you know, I think that I basically think that we could get to a point where companies basically say, you know, dear Wall Street, we're doing our best, but we've got a lot other things to worry about, and we want you to have a seat at the table, but you're not the only seat, and Wall Street is going to have to If enough companies say that, Wall Street will have to accept it. If they don't, you know, then then we're back to

where we were. Yeah, So it's interesting there. As you well know, there's a movement within particularly institutional investing e s G. Environmental sustainability and governance. So even institutional shareholders are you know, have been paying more and more attention to things other than the bottom line. So perhaps this just could be, you know, a further catalyst towards that,

and maybe you make e s G perhaps even more vibrant. Right, and then you have the whole thing with the Business round Table last year, UM, you know, changing its uh motto or or creed or where you want to call it UM to be more employer and consumer friendly and not as as focused on shareholders. UM. You know a lot of people thought that was this PR and exercise and PR. But if you have some movement and then all of a sudden you have this coronavirus that really

changes the way people think. Maybe it can last. I'm not saying it will. I'm saying I hope it does at least, and I join you in that hope, Joe. We'll see. But I agree it seems like something profound uh is happening around the world as it relates to a coronavirus and will be lots of implications longer term, and we'll see if that applies to Corporate America's Jonas Sarah Calmness for Bloomberg Opinion, joining us on the phone

from Los Angeles. Joe, thanks so much for joining so you can read all of Joe's excellent opinion pieces as well as all of the other work from Bloomberg Opinion at Bloomberg dot com, slash Opinion or O P I n Go on the terminal. They do excellent work. So there's a conundrume right now, Paul, and I keep using that word because it's very hard to understand the market right now. It's hard to understand the rally that's recouped

all the gains all the losses. Rather, at least when you look at the top one hundred nasdacs shares, is it time to get in and are we pricing in now? The other side of this pandemic and the related recession or people getting ahead of themselves and only there's no one better to talk to than Chris Heisi, chief investment officer for Maryland Make of America Private Bank, as he talks with clients all day long about where what they're feeling,

and there are allocations. Chris come on in and when we take a look at the rally that we've seen over the past few weeks, are people viewing this as a dead cat bouncer? Are they viewing this as the true signs of of sort of a shift in mood

at least on the part of equity buyers. Yeah. I think the quick answer to that is when you're seeing volatility declined by fifty from the record levels of eight plus that we saw, which was indicating at least for equities a five to six percent swing daily back you know, during the the throes of March, now get into the mid thirties, which is indicating, you know, below a two daily swing. What that does is for the long term UH investor, it provides comfort that, um, forget the fact

that whether or not you're gonna retest loads. It just provides comfort that there is a little bit more a surety that we're going to get to the other side. Like in March, people didn't think we were going to get to the other side at all. So now you've got a little bit of comfort level on the long term investor, but the short term investor, and you guys have all seen this, Uh, the positioning in the marketplace

is still very very barished. And and if you're if you're someone who thinks about quarter to quarter, whether you're a hedge fund or an institutional investor, what what they're still very nervous about is this proverbial quote unquote need to test the lows. And and that's a statement that most people use because that's what's happened in history. But quite frankly, this episode, this three pronged crisis, health, financial, and economic that we're still going through is unlike anything

in history. The speed of the decline is being matched by what we call the speed of the exhale rebound. So, Chris, is this just a rebound within a longer bear market or do you think that once we do get to the other side of this, And quite frankly, I'm not sure. I don't have great confidence that it's going to be you know, shorter. It just feels all the information I hear from the officials is that it could be longer

than people think. But do you think once we do get to the other side, that this is a market that can still work higher. Yes, yes, there's a there's a few reasons for that. In the short term, it was about liquidity. We we got through that. Now now we call the second phase the buffer or the bridge, and that is that is where the physical stimulus is simply designed to to UM stop the ABYSS or at least cover the ABYSS that we're all going through in

the second quarter and potentially part of the third. So UM investors are looking at the other side is a lot longer than the ABYSS. So that was stage one, and then stage three, which is next year, is a true economic recovery. And then stage four or phase four would be at the end of where you have a pent up demand cycle. Now it's hard to see that now, but when you look at income data in terms of the number of claims, what these programs are designed to

do is still that unemployment claim gap. So even though you're you're likely to see unemployment go way up. I mean, that's pretty obvious people are getting that extra payment, so when you come out on the other side, consumer spending could actually go back to where it was, even though

consumers will still be tentative. Chris, when we look at what has led some of the rebound recently, it's really been big tech, and I've been really struck by the NASDAC outperformance, with the top one hundred names out performing the Dow the most in decades. I'm trying to understand whether big tech will continue to be the leadership going forward, or whether perhaps people have hidden out too much in these sort of the havens of this cycle, and these

are expected to underperform in the near term. Great point, Lisa, and I think the knee jerk reaction on a lot of part of the analysts the analyst community is going to be Hey, some of these companies are getting to multiples that are simply too high. What many analysts are not factoring in on a forward twelve, even thirty six month basis is many of these companies are now being being um their value creators, their growth creators, and actually

they happen to dominate the index. So if you get passive investment flows coming back in, they filter down into these names. They also happened to be the names that are breaking through the COVID nineteen pressure, and they also happened to be the names that are creating the greatest free cash flow with yields where they're at in fixed income land, free cash flow yield is extremely attractive and

equity land. So it's kind of a three pronged benefit for these companies, which is why we fully expect many of them, particularly in tech and healthcare, UH, should go to two multiples that they haven't experience in quite a long period of time. Okay, christ, so we've got some stability back in the marketplace. Is there enough stability in the marketplace to even think about emerging markets an area

that's just been really, really crushed unfortunately. Now, we just downgraded emerging markets on that little bit of a bounce that we had a couple of weeks ago, the downgrade to underweight from neutral UH and then took those proceeds and moved into US large caps. And the whole reason was is because of the extreme dollar liabilities, and until the dollar goes through a very significant week cycle, those

dollar liabilities, unfortunately can pressure emerging markets. At the same time, that many of them have less than than high quality health care systems. So if you put that out there, the risk reward is still to the is still on a relative basis, UH much less than than the developed markets UM and specifically the US. Is there any asset

that you just would not own right now? Well, I think on the real estate side, it's it's very difficult to to suggest that UM coming out to the other side that things will be normal and and we're not significantly bearish on real estate commercial real estate in general, but it's on the watch list, and it's on the

watch list for obvious reasons. What does corporate life look like UM for the foreseeable future even when we get to the other side and we have this this phrase we call the new frontier, and the new frontier UH is simply taking behaviors that we're all learning right now while we're we are during the shutdown. What type of behaviors that we're exhibiting now stands the test of time

and continues even if there's vaccines. And that hits at the heart of what real estate may be pressured by, which is telecommunity, more telecommunity, less need for office space than before E everything E learning, E education, virtualization, digitalization, things like that, um, you know, and less urbanization quite frankly, so those are all things we're going through right now. Hey, Chris, thanks so much for joining us. We appreciate your commentary

as always. Chris Hazy, chief investment officer for Meryl and Bank of America Private Bank. One of the most fascinating aspects to consider about this coronavirus is how it's going to impact consumers longer term. Will consumer trends be changing materially. To get some thoughts on that, we're really fortunate to welcome Mark Douglas. He's the chief executive officer of marketing firm Steelhouse based in Los Angeles. Mark, thanks much for

joining us. Again, it just seems like everybody's lives has been turned upside down with quarantining, and you just can't do any of the things that you used to do back pre crisis. What what have you observed about consumer behavior over the last you know, call it four weeks, Yes, um, good morning, So things have actually changed quite a bit. There's kind of what we think of as a consumer journey that's going on, and the wayward thing that is

my company Stillhouse. We're collecting data on about a billion dollars a week in consumer spending. So the first week is what you would expect. Everyone stocked up and so you know, groceries, UM, all those kinds of things really skyrocketed. Probably the most interesting thing is UM about fourteen percent more consumers two hundred and two percent more UM alcohol and wine the first week, So it kind of shows

you how people are coping exactly at exactly. But the second week, UM, what sort of happened is everyone UM fitness grew by a dent week over weeks, so you know, almost tripling a money spent on fitness equipment, UM, fitness

at home, UM, those kind of trends. UM. The other thing that started to happen in the second week is that other UM kind of what you would think of, like business service people started building out their home offices those kinds of things by the third in the fourth week, what has happened is there's kind of a new consumer to develop, what we're calling calling this COVID super consumer, and they are buying anything on sale furniture, UM, luxury

goods UM just just like UM home. They're buying fishing equipment, golf clubs, just anything that's on sale, and and you know, so this body of consumers that feel very secure financially apparently are are like shopping like we've never seen before. We kind of stay now like every day is Black Friday for the consumers that can afford it. Wow, I

didn't expect that. Um. So is there any sense, Tim, I mean, Mark, as you look forward here, um that you think some of these behavior changes might be more permanent? I'm thinking restaurants, Will people go out to restaurants as much as they used to? And I'm sure the cruise industry is trying to figure out will people ever come back on our cruise ships? And will people get into airplanes again? Is there any thought on that? Um? Yeah?

Bit So, We've worked with a lot of travel industry customers and that all of them, literally one hundred percent, are now spending zero dollars on marketing at least um the ones we work with, and we work with a bunch of big ones, but we're also in conversations with them, and they are very eager to store marketing again as we start to come out that as crisis. So I think the avel industry is going to be pretty aggressive and trying to get those early consumers to start um

traveling again. I think restaurants and this is a bit more of my personal opinion, not so much based on the data. Um, there was a trend at least in l A and New York to the concept of those kitchens where restaurants don't have a storefront anymore. And um, and there's a startup founded by the founder of Bouber who's got one of leading those kitchen companies. I think that is I'm betting, actually talking to someone yesterday, that that is going to take off. And restaurants are a

lot of restaurants gonna become at home only, delivery only. Yeah. Yeah, I think people are getting you know, maybe getting good you know. The result of this may be getting more comfortable you know, ordering uh, from getting it delivered. How about retailers, I mean that's another industry that had been challenged going into the crisis. We know that stores have

been closing and more and more shoppings going online. And I guess it seems reasonable to assume that that trend towards a line shopping will just accelerate, I guess to the benefit of Jeff Bezos. Yeah. Absolutely, the and and we're seeing in our data. So you know, the first week, you know, you had all of these categories that decline, and we're seeing that the FLNE lesson each week. So so consumers who who are in good shape financially UM are buying in the retailers are you know, they're just

shifting their their their focus there. We have one customer that has nine hundred stores, none of them are open, and they are now spending pretty aggressively UM towards e commerce results UM e commerce sALS and getting good results from that. I think consumers UM are there Probably one category that suffered the most is apparel, basically clothing. I mean there's not much no one's really going out, there's

not much reason by appower. But we even seeing UM an increase in the apparel category in the fourth week since that we we consider the crisis started March. Their team the day after the NBA stops to travel from Europe. And so you know, we're at the end of the fourth week right now we're seeing even apparel has picked up UM and and clothing things that are a little harder to buy online, but consumers are still starting to

get active in that category. Interesting very interesting. I'd be interesting to see Mark, how this plays out longer term. We'll have you back to kind of as we get through this pandemic, to kind of see how the consumer is reacting. Uh, and uh, you know, we'll get some

more details, Mark Douglas, CEO of Steelhouse. It's a media consulting firm and spending a lot of time with consumer products companies and consumer facing companies getting a sense of, h, you know, how the consumer is changing, and clearly consumer behavior is changing dramatically. Uh during this lockdown. The question is how permanent will it be? Looking at the markets right here, just get you a quick data check, we still have green on the screen, still holding on to

those gains although they are giving there. We are off the highs in the markets. Looking at the SMP right here, up thirty eight points thirty seven on the SMP that dows up it's called even three fifty points. That puts it at twenty three thousand, eight eighty right there on the Dow. And then n AS DAK up thirty nine points eight seventy one on the Dow. Oil still negative, still under twenty dollars a barrel. Just incredible supply demand

dynamics are pushing oil to just tremendous lows. We'll bring it all more coming up. This is Bloomberg. Joe my seco covers all things municipal bonds for Bloomberg News. Joins us job. I'm so glad you hear because I saw an interesting article on the Bloomberg about mass transit. I don't know, but I'm sure I'm like most people here in the metro area. I haven't been on in New Jersey transit train in a month. I haven't been on a subway in a month. That's got to be a big,

big revenue issue for some of these issuers. Talk to us about what's going on in mass transit and musical bond market. Mr Slaney, nice to speak to you again. Well, as you point out, with the lockdown, when they're shutdowns and so many of the large cities across the US, and the ridership has evaporated, So you know, it depends you know which city you're looking at, but you could see ridership off fifty six because uh, so many people

are just not using any more. Schools are shushed, a lot of businesses are closed, or as you and I are doing, people working from home. Um, so it's that has a real impact on the fair box. Now most places don't make uh, you know, their entire amount they need from the fair box because it's you know, always in mass transit there's so much dead time. Um. But

that's having a real impact. And certainly we've heard from Pat Foy on several occasions, you know, head of the mt A in New York here and uh he's made his uh you know, dissatisfaction or um, you know, a feeling of of of lacking money in the federal government several occasions. Yeah, so Joel, you know one of the you think about transportation. Initially we thought about the airlines. Of course they're got getting crushed. They're getting some significant

aid from the government. But you know, the airlines before the crisis, we had a great run here, a great decade of profitability and cash flow. But most mass transit systems kind of went into this crisis already under pressure. Well you know, of course, they they were actually some of them were losing ridership. And one of the reasons was alternative methods of going in, meaning you know, people were biking in and sometimes people were taking uber and

lifted and even working from home. So I remember, Wow, we talked about this last summer. Moodies came out with a little port on this very subject about how there were a lot of different, uh you know, alternatives that were eating into mass transits ridership, and of course this you know is you know, chips us over the edge here. It's interesting thinking about this, the shutdown and work at home.

I mean that I'm thinking about the states as well. Um, California saw in the story on them on the Bloomberg California faces a budget shortfall that could top thirty five billion dollars. How are the you know, what's the feeling in miss A bond Land about how some of these states and local municipalities deal with this crisis. Well, you know, there's always a little bit of the weight and see attitude. You don't want to, you know, hit the panic button immediately.

Plus the federal government is throwing a lot of money at the situation between um, you know, the the money that Congress put a side at two point two trillion relief package that's going to help out, and then you have the federal reserve with I have the billion dollars ball apparently being just the first, uh, the first step of that sort of rescue package. But yeah, they you know, you've you've shut down. Um, I guess of the economy, they say, And for some states that's going to have

a much bigger impact than others. Uh so yeah, it's people are sort of they're shocked, but they're not surprised. Wow. Interesting not to see the federal government come to the rescue. And there's a lot of states that are hit worse than others, I think in some of the bigger states like New York, like California. John Meis, thanks so much for joining us on this Friday. Stay safe working from home, and we will chat with you soon. John mysec Easyness Baban,

editor for Bloomberg Briefs. Thanks for listening to the Bloomberg pl podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. M Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa abram Woyit's I'm on Twitter at Lisa abram woits one before the podcast. You can always catch us worldwide. I'm Bloomberg Radio