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Bloomberg Audio Studios, Podcasts, radio news.

This is Bloomberg business Week inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.

This is Bloomberg business Week inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.

We know this is a market environment that moves from economic data point to economic data point, and we also know that not all economic data point or data is treated equally by investors, nor economists, nor the Fed for that matter.

We know this is a market environment that moves from economic data point to economic data point, and we also know that not all economic data point or data is treated equally by investors, nor economists, nor the Fed for that matter.

Tim Well, this week though we do have a few that are watched by all, as we get two reads on inflation just over the next two days. Also a read on retail sales on Friday, throwing some jobless claims, Carol, the Fed is watching the US labor market closely. All this could make for an interesting week. And then Michael McKee next week goes off to Jackson Hole. Right, so hear from VET chair J.

Tim Well, this week though we do have a few that are watched by all, as we get two reads on inflation just over the next two days. Also a read on retail sales on Friday, throwing some jobless claims, Carol, the Fed is watching the US labor market closely. All this could make for an interesting week. And then Michael McKee next week goes off to Jackson Hole. Right, so hear from VET chair J.

Powell.

Powell.

We'll see what he has to say. How that shapes the narrative? All right, So let's get to it with us our round table Bloomberg News Economics editor of Molly Smith, along with Bloomberg economics US economist Stuart Paul Stewart here in studio Molly on Zoom here in New York City, and so let's get to it. So we do, first of all, Molly lay it out for us and what matters, and it's actually forgive me, I think there's three inflation reports, although I'm not quite sure the New York Fed one year inflation expectations it already came out. There's two more that come in aware over the next couple of days. What matters, Yeah, I.

We'll see what he has to say. How that shapes the narrative? All right, So let's get to it with us our round table Bloomberg News Economics editor of Molly Smith, along with Bloomberg economics US economist Stuart Paul Stewart here in studio Molly on Zoom here in New York City, and so let's get to it. So we do, first of all, Molly lay it out for us and what matters, and it's actually forgive me, I think there's three inflation reports, although I'm not quite sure the New York Fed one year inflation expectations it already came out. There's two more that come in aware over the next couple of days. What matters, Yeah, I.

Mean, it's really just going to be CPI, the Consumer Price Index and full focus that comes out on Wednesday this week, and we also get a look at producer prices, so this is a level of wholesale inflation that comes out on Tuesday. Obviously, the CPI is one of, if not the biggest margaret moving events in any given month, and I don't think that this will necessarily be too much different from that. But hopefully we won't see nearly the same reaction that we did to the jobs report that you guys mentioned just two weeks ago, pretty fast and furious moves and stocks and treasuries on that front. And I think this one is I think people are maybe just looking for Okay, let's just get through this. Hopefully it's a fairly as expected reading. Maybe inflation is going to pick up a little bit relative to June, but the broader trend of disinflation is still going to be intact. And I think something like that will just bring hopefully a reassuring colm to the market. But that said, it doesn't take that much to tip the scales these days, Like everybody is just very jittery about the data right now.

Mean, it's really just going to be CPI, the Consumer Price Index and full focus that comes out on Wednesday this week, and we also get a look at producer prices, so this is a level of wholesale inflation that comes out on Tuesday. Obviously, the CPI is one of, if not the biggest margaret moving events in any given month, and I don't think that this will necessarily be too much different from that. But hopefully we won't see nearly the same reaction that we did to the jobs report that you guys mentioned just two weeks ago, pretty fast and furious moves and stocks and treasuries on that front. And I think this one is I think people are maybe just looking for Okay, let's just get through this. Hopefully it's a fairly as expected reading. Maybe inflation is going to pick up a little bit relative to June, but the broader trend of disinflation is still going to be intact. And I think something like that will just bring hopefully a reassuring colm to the market. But that said, it doesn't take that much to tip the scales these days, Like everybody is just very jittery about the data right now.

Well, Stuart, come on in here. Let's talk CPI before we talk PPI here, because you and the team over at Bloomberg Economics argue that July CPI will likely be soft, with the year over year changing core CPI edging further down, take us into your thinking and what you're modeling.

Well, Stuart, come on in here. Let's talk CPI before we talk PPI here, because you and the team over at Bloomberg Economics argue that July CPI will likely be soft, with the year over year changing core CPI edging further down, take us into your thinking and what you're modeling.

So we have a few factors that are going on. First, is that the most inter sensitive categories, things like used autos, are exerting meaningful drag on both core and headline inflation. We have some pretty came numbers for gasoline, so it's not really boosting the headline all that much. And then if we look at some of the more discretionary services categories, things like airfares, things like hotels. We're expecting to see some pretty meaningful drag on the core.

So we have a few factors that are going on. First, is that the most inter sensitive categories, things like used autos, are exerting meaningful drag on both core and headline inflation. We have some pretty came numbers for gasoline, so it's not really boosting the headline all that much. And then if we look at some of the more discretionary services categories, things like airfares, things like hotels. We're expecting to see some pretty meaningful drag on the core.

The thing that's going to come that from the earnings front, the earnings picture where there was airlines, where it was airbnbat mean Expedia. Nonetheless, there's stock rally because there was a beat. But there everybody's talking about softness in the travel sector.

The thing that's going to come that from the earnings front, the earnings picture where there was airlines, where it was airbnbat mean Expedia. Nonetheless, there's stock rally because there was a beat. But there everybody's talking about softness in the travel sector.

That's right, it's really some of those more discretionary services categories where consumers are tightening their belt. We expect to see the same thing in the retail sales number this week. We expect to see folks really looking for discounts and doing some online bargain hunting as opposed to splurging on food services and some more of the intro sensitive items like appliances and autos, even though we will get some auto spending after last months the June cyber attack on auto dealers. But on the inflation front, it's interesting this is one of those peculiar months where we get PPI ahead of CPI and we're expecting see more softness in the headline PPI number than in CPI. So to Mally's points about folks wanting to take a deep breath, it's possible that when they see the monthly pace of producer prices ticking down. So when we see producer price inflation which is zero point two percent on the month instead of zero point four as they saw last month, folks might breathe that sigh of relief. It might be a little bit too early when they then see the headline pace of CPI increase on the month. So this is one of those peculiar months where the timing of the data has the opportunity to both lull people into a sense of complacency and then give a little bit of a whipsaw just the next day.

That's right, it's really some of those more discretionary services categories where consumers are tightening their belt. We expect to see the same thing in the retail sales number this week. We expect to see folks really looking for discounts and doing some online bargain hunting as opposed to splurging on food services and some more of the intro sensitive items like appliances and autos, even though we will get some auto spending after last months the June cyber attack on auto dealers. But on the inflation front, it's interesting this is one of those peculiar months where we get PPI ahead of CPI and we're expecting see more softness in the headline PPI number than in CPI. So to Mally's points about folks wanting to take a deep breath, it's possible that when they see the monthly pace of producer prices ticking down. So when we see producer price inflation which is zero point two percent on the month instead of zero point four as they saw last month, folks might breathe that sigh of relief. It might be a little bit too early when they then see the headline pace of CPI increase on the month. So this is one of those peculiar months where the timing of the data has the opportunity to both lull people into a sense of complacency and then give a little bit of a whipsaw just the next day.

Well, molly, what matters in terms of like help me through the supply chain right PPI or the endpoint input prices?

Well, molly, what matters in terms of like help me through the supply chain right PPI or the endpoint input prices?

Right?

Right?

So is that something then will show up in next month CPI report? Like how do you kind of distinguish those two pieces of data?

So is that something then will show up in next month CPI report? Like how do you kind of distinguish those two pieces of data?

So generally, when the reason why you would, as a typical person care about the PPI is because what's happening at the doucer price level tends to filter through to consumers over time. Overtime doesn't necessarily mean one month, though, these are trends that can take more than that to more time than that to develop, and of course movements through the supply chain are not always that quick. But it's of course, like really important to look at for the overall inflation trend, especially you know, when you're looking at what's happening with commodity prices, and so many of those have been really wild over the summer. With looking at what prices are for coffee and chocolate and other kinds of metals and like things like that that just you know, maybe you as a consumer aren't purchasing that as a raw good, but when you purchase it as a final product, then you start to notice how inspects how expensive those goods can be.

So generally, when the reason why you would, as a typical person care about the PPI is because what's happening at the doucer price level tends to filter through to consumers over time. Overtime doesn't necessarily mean one month, though, these are trends that can take more than that to more time than that to develop, and of course movements through the supply chain are not always that quick. But it's of course, like really important to look at for the overall inflation trend, especially you know, when you're looking at what's happening with commodity prices, and so many of those have been really wild over the summer. With looking at what prices are for coffee and chocolate and other kinds of metals and like things like that that just you know, maybe you as a consumer aren't purchasing that as a raw good, but when you purchase it as a final product, then you start to notice how inspects how expensive those goods can be.

Stuart, come on in, because I don't know about you guys, but I was gone last week, and I even though I wasn't you know, glued to.

Stuart, come on in, because I don't know about you guys, but I was gone last week, and I even though I wasn't you know, glued to.

My phone, we weren't here.

My phone, we weren't here.

I could still hear people screaming about a fifty basis point rate cut.

I could still hear people screaming about a fifty basis point rate cut.

Oh wait, no, you mean the emergency rate. The emergency is seventy five basis points. I forget who was it that Jeremy Siegel was calling for us?

Oh wait, no, you mean the emergency rate. The emergency is seventy five basis points. I forget who was it that Jeremy Siegel was calling for us?

So a lot has changed in just a few days. I don't hear those echoes right now pretty quickly. Actually, we didn't see one of those emergency rate cuts come from the FED, but could we get a not necessarily a reaction, but could we get calls for some sort of movement from the Fed based on the data moving one way or the other this week's store.

So a lot has changed in just a few days. I don't hear those echoes right now pretty quickly. Actually, we didn't see one of those emergency rate cuts come from the FED, but could we get a not necessarily a reaction, but could we get calls for some sort of movement from the Fed based on the data moving one way or the other this week's store.

I think that this week is going to be one of those odd weeks where you feel a little bit more stagflation risk as opposed to just outright recession risk. So and I think that because equity markets ever covered, because the feed through into credit mark into credit markets, you know, when it comes to interest rate spreads, when it comes to default risk, we haven't seen any sort of material move there. So I think that when it comes to what we're going to see this week and how it shapes the narrative, it's going to be more so around the idea of stagflation. We're going to see in that isn't as inflation data that aren't as good as they've been in the last three months. We're going to see retail sales data that when you look deeper in the core, it's going to be pretty dismal. I think that looking at the control group for retail sales it's going to be pretty rough, and we're going to see zero point two percent decline in the month and manufacturing data to round out the week. I also expect that we're going to see a decline about zero point three percent month on month decline in manufacturing output. So we're not going to have as good inflation data, and some of the other fundamental concepts are going to show some weakness, and that could be enough to just keep folks on edge having this fifty basis point twenty five bases point debate for another month.

I think that this week is going to be one of those odd weeks where you feel a little bit more stagflation risk as opposed to just outright recession risk. So and I think that because equity markets ever covered, because the feed through into credit mark into credit markets, you know, when it comes to interest rate spreads, when it comes to default risk, we haven't seen any sort of material move there. So I think that when it comes to what we're going to see this week and how it shapes the narrative, it's going to be more so around the idea of stagflation. We're going to see in that isn't as inflation data that aren't as good as they've been in the last three months. We're going to see retail sales data that when you look deeper in the core, it's going to be pretty dismal. I think that looking at the control group for retail sales it's going to be pretty rough, and we're going to see zero point two percent decline in the month and manufacturing data to round out the week. I also expect that we're going to see a decline about zero point three percent month on month decline in manufacturing output. So we're not going to have as good inflation data, and some of the other fundamental concepts are going to show some weakness, and that could be enough to just keep folks on edge having this fifty basis point twenty five bases point debate for another month.

Which makes me want to jump to it. And I want to ask both of you, and let me Molly, let me start with you. So are more people starting to talk about a recession and that if we get a recession, that you know, if the FED possibly is behind the curve in terms of maybe sparking some growth or catching that we're slowing down maybe faster than we anticipated, could it be a deeper recession.

Which makes me want to jump to it. And I want to ask both of you, and let me Molly, let me start with you. So are more people starting to talk about a recession and that if we get a recession, that you know, if the FED possibly is behind the curve in terms of maybe sparking some growth or catching that we're slowing down maybe faster than we anticipated, could it be a deeper recession.

More people definitely are talking about recession. And since that Job's report came out two weeks ago, we've seen JP Morgan and Golden Economists both boost their likelihood of a recession in the next twelve months. So I'm pretty sure both of them are still below fifty percent, so still fairly low odds. And I think those are the only two that I'm really aware of who have come out and boosted those odds in recent weeks. But I'm not really hearing that it would be that would make a recession any deeper. I think it's just now looking at is the FED behind the curve? Like you said that people are wondering that, And of course if you get more inflation data that comes in softer than expected, that's only just going to add fuel to that argument.

More people definitely are talking about recession. And since that Job's report came out two weeks ago, we've seen JP Morgan and Golden Economists both boost their likelihood of a recession in the next twelve months. So I'm pretty sure both of them are still below fifty percent, so still fairly low odds. And I think those are the only two that I'm really aware of who have come out and boosted those odds in recent weeks. But I'm not really hearing that it would be that would make a recession any deeper. I think it's just now looking at is the FED behind the curve? Like you said that people are wondering that, And of course if you get more inflation data that comes in softer than expected, that's only just going to add fuel to that argument.

Stuart remind us where you guys are the team on when it comes to recession.

Stuart remind us where you guys are the team on when it comes to recession.

So we've been noting that there's been a material slow down in some of the underlying factors driving growth for a long time. We've also been noting that again, even if you just look at the Q two GDP data, about a quarter of the growth that we saw was from inventory accumulation. That folks and firms aren't trying to accumulate inventories, it's just that they're accidentally producing more on the expectation of zealing consumer demand that just isn't there. And so we think that the FED is behind the curve, and we do think that some of the recession, some of the recession probabilities that have been assigned are probably a smidge too low, but we've always been a little bit more bearish expected and a half percent unemployment rate by year end, and if we continue along this trajectory that we saw in the last month, we'll hit it or exceed it.

So we've been noting that there's been a material slow down in some of the underlying factors driving growth for a long time. We've also been noting that again, even if you just look at the Q two GDP data, about a quarter of the growth that we saw was from inventory accumulation. That folks and firms aren't trying to accumulate inventories, it's just that they're accidentally producing more on the expectation of zealing consumer demand that just isn't there. And so we think that the FED is behind the curve, and we do think that some of the recession, some of the recession probabilities that have been assigned are probably a smidge too low, but we've always been a little bit more bearish expected and a half percent unemployment rate by year end, and if we continue along this trajectory that we saw in the last month, we'll hit it or exceed it.

It's interesting because you guys have been for a long time and at a time when it almost felt like, really, can you still be calling this? And now it starts to feel like things are falling into place. Guys, perfect setup for us. On this Monday, Bloomberg News Economics Center Molly Smith along with Bloomberg Economics US economist right here in studio.

It's interesting because you guys have been for a long time and at a time when it almost felt like, really, can you still be calling this? And now it starts to feel like things are falling into place. Guys, perfect setup for us. On this Monday, Bloomberg News Economics Center Molly Smith along with Bloomberg Economics US economist right here in studio.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple car Play and then Brout Auto with a Bloomberg Business app, or watch us live on YouTube.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple car Play and then Brout Auto with a Bloomberg Business app, or watch us live on YouTube.

Now we got to talk take all of this together, Tim and talk about the treasury and rates market trades.

Now we got to talk take all of this together, Tim and talk about the treasury and rates market trades.

Yeah.

Yeah.

Among our most read stories on the Bloomberg on this Monday in August, how bonds are back as a hedge after failing investors for years, finally contribute to the story. Bloomberg News rates reporter Michael McKenzie. He ended last week with us and now he kicks off Carol the week for.

Among our most read stories on the Bloomberg on this Monday in August, how bonds are back as a hedge after failing investors for years, finally contribute to the story. Bloomberg News rates reporter Michael McKenzie. He ended last week with us and now he kicks off Carol the week for.

Us, welcome back. You can't get away from us.

Us, welcome back. You can't get away from us.

He tries, he works from home to try to get away from us, and we still make him turn on the camera and come hang out with us.

He tries, he works from home to try to get away from us, and we still make him turn on the camera and come hang out with us.

So Tim was away and he did read it.

So Tim was away and he did read it.

Oh yeah, but so well up, he missed nothing right.

Oh yeah, but so well up, he missed nothing right.

Yeah, we're violently unchanged.

Yeah, we're violently unchanged.

Violently unchanged. That's a good way to describe.

Violently unchanged. That's a good way to describe.

How are you thinking about things on this Monday here?

How are you thinking about things on this Monday here?

Well, pretty much.

Well, pretty much.

It's interesting too. So we've got a two year yeeld right there on four percent, ten years at what three ninety. So if you think last week we got as low, we got below three eighty on tens, and we bounced back to four to just shire four percent on Thursday after that very week tenure auction. So we're back in the middle of the range, and I think market's just parked here waiting for what will be I think the most important week for data until we get the payrolls report. First week of September, we've got PPI, tomorrow's CPI and then retail sales and jobbers claims. So we're going to see whether or not inflation is trending down or whether it's actually going to be proved to be sticky than people are expecting the bob market. That will put pressure on that front end. You should see high yields if inflation is stickier when people anticipate that said, if inflation comes in online bang in line with expectations, then I think that the focus will turn to Okay, how is the consumer looking for retail sales and are we seeing any signs of weakness in those initial weekly choppers claims on Thursday.

It's interesting too. So we've got a two year yeeld right there on four percent, ten years at what three ninety. So if you think last week we got as low, we got below three eighty on tens, and we bounced back to four to just shire four percent on Thursday after that very week tenure auction. So we're back in the middle of the range, and I think market's just parked here waiting for what will be I think the most important week for data until we get the payrolls report. First week of September, we've got PPI, tomorrow's CPI and then retail sales and jobbers claims. So we're going to see whether or not inflation is trending down or whether it's actually going to be proved to be sticky than people are expecting the bob market. That will put pressure on that front end. You should see high yields if inflation is stickier when people anticipate that said, if inflation comes in online bang in line with expectations, then I think that the focus will turn to Okay, how is the consumer looking for retail sales and are we seeing any signs of weakness in those initial weekly choppers claims on Thursday.

Of the data points that you just mentioned, of all the economic data that we're getting this week, Michael, which one do you think has the biggest implications for the rates curve?

Of the data points that you just mentioned, of all the economic data that we're getting this week, Michael, which one do you think has the biggest implications for the rates curve?

I'd say CPI. If CPI is trending in the right direction, that means the bomb market and go right, this is yesterday's story and let's just focus on the consumer and the labor market. You get that all clear on CPI this month. I actually loved the last month and it's coming out this month. That means to focus on the Fed's dual mandate. The labor side of things becomes really really important now for the bomb market, and they will continue then to really watch carefully for any scigns of sort of labor deterioration.

I'd say CPI. If CPI is trending in the right direction, that means the bomb market and go right, this is yesterday's story and let's just focus on the consumer and the labor market. You get that all clear on CPI this month. I actually loved the last month and it's coming out this month. That means to focus on the Fed's dual mandate. The labor side of things becomes really really important now for the bomb market, and they will continue then to really watch carefully for any scigns of sort of labor deterioration.

You know, we mentioned in the Leader and to you, Michael, about this story that's among the most read on the Bloomberg about bonds or back as a hedge after failing investors for years. We mentioned on Friday in our conversation with you how you had caught up with Dan iverson the world's biggest active bond fund manager, who says he's just about ready to start adding to his treasury positions. Again. You talk to a lot of investors, big bond investors, are you increasingly seeing that among them that they're getting ready to buy or are already buying.

You know, we mentioned in the Leader and to you, Michael, about this story that's among the most read on the Bloomberg about bonds or back as a hedge after failing investors for years. We mentioned on Friday in our conversation with you how you had caught up with Dan iverson the world's biggest active bond fund manager, who says he's just about ready to start adding to his treasury positions. Again. You talk to a lot of investors, big bond investors, are you increasingly seeing that among them that they're getting ready to buy or are already buying.

They're already long. I mean, if you look at all the positioning surveys, and in Himko's defense, when two year was back above five percent briefly late April, they were buying. So they all they've done is they've moderate their duration, They've pulled it back a bit. They're waiting for a backup. So if you get sticky inflation, I think they're going to people come in and I'll cap the rise and yields, but longer term, I mean himko take tend to take a three to five year viewpoint of things. So Dan Iverson's point to me was, if you're a long term investor, you step back, four percent on a ten year is very attractive. You know, you've got to go back to the middle of the first decade of this century when you had a consistent ten year around that four percent level. So these are attractive yields for longer term investors. And it means when you do get a wobble in the equity market, we do get something happening in credit, then that the trophy market, you know, reclaims its status as being the defensive asset to hold, and it will rally. And I think one of the problems the market's got at the moment is that we had a very extensive have and rally last a week ago Monday, when the carry trade was being carried out to some extent, and that's why yields fell so quickly and so sharply, and you're now having to come back and sort of fired an equilibrium. And it seems to me four percent on twos and three nineties, maybe four percent on ten seemed to be the right levels here.

They're already long. I mean, if you look at all the positioning surveys, and in Himko's defense, when two year was back above five percent briefly late April, they were buying. So they all they've done is they've moderate their duration, They've pulled it back a bit. They're waiting for a backup. So if you get sticky inflation, I think they're going to people come in and I'll cap the rise and yields, but longer term, I mean himko take tend to take a three to five year viewpoint of things. So Dan Iverson's point to me was, if you're a long term investor, you step back, four percent on a ten year is very attractive. You know, you've got to go back to the middle of the first decade of this century when you had a consistent ten year around that four percent level. So these are attractive yields for longer term investors. And it means when you do get a wobble in the equity market, we do get something happening in credit, then that the trophy market, you know, reclaims its status as being the defensive asset to hold, and it will rally. And I think one of the problems the market's got at the moment is that we had a very extensive have and rally last a week ago Monday, when the carry trade was being carried out to some extent, and that's why yields fell so quickly and so sharply, and you're now having to come back and sort of fired an equilibrium. And it seems to me four percent on twos and three nineties, maybe four percent on ten seemed to be the right levels here.

Hey Michael, before we let you go, as we mentioned at the top, you contributed to a story that is among the most read on the Bloomberg terminal about how bonds are back and increasingly money managers are hearing from clients about investing in bonds. You talked to professional bond investors each and every day, but talk a little bit about how that's sort of going back to the everyday investor who has their money managed by professionals.

Hey Michael, before we let you go, as we mentioned at the top, you contributed to a story that is among the most read on the Bloomberg terminal about how bonds are back and increasingly money managers are hearing from clients about investing in bonds. You talked to professional bond investors each and every day, but talk a little bit about how that's sort of going back to the everyday investor who has their money managed by professionals.

Well, I mean the important thing form invest I think a lot of people have liked the idea of putting their money in tea bills.

Well, I mean the important thing form invest I think a lot of people have liked the idea of putting their money in tea bills.

You know what was it?

You know what was it?

We had t bill and chill. That was the Jeff Gunlack expression last year. But a lot of big bond investors were telling me back in November December, Look, you've got to take advantage of these treasure yields at five percent because it won't cash rates won't stay at five percent once the fair starts to cut again. And I think they've been born out here, that thesis has been validated. It's taken longer than people thought it would. Don't forget everyone at the beginning of the year thought the SAT would be cutting in March, and to a certain extent, Chairpale did kind of hint that was coming. But that said, you've now got treasure yields with four you know, four percent, two s and below four percent and tens and fives. So if you're still stuck in cash you're now sitting on you know, you've got an opportunity loss here because you could have rolled into a five percent two year back in April, right, three four seventy five on tens back in April. Okay, and again these bond managers saying, you've got to start thinking about moving out. So I think it now is time. So we had a record high.

We had t bill and chill. That was the Jeff Gunlack expression last year. But a lot of big bond investors were telling me back in November December, Look, you've got to take advantage of these treasure yields at five percent because it won't cash rates won't stay at five percent once the fair starts to cut again. And I think they've been born out here, that thesis has been validated. It's taken longer than people thought it would. Don't forget everyone at the beginning of the year thought the SAT would be cutting in March, and to a certain extent, Chairpale did kind of hint that was coming. But that said, you've now got treasure yields with four you know, four percent, two s and below four percent and tens and fives. So if you're still stuck in cash you're now sitting on you know, you've got an opportunity loss here because you could have rolled into a five percent two year back in April, right, three four seventy five on tens back in April. Okay, and again these bond managers saying, you've got to start thinking about moving out. So I think it now is time. So we had a record high.

And Michael, we got to run. Michael McKenzie, forgive me.

And Michael, we got to run. Michael McKenzie, forgive me.

This is.

This is.

You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.

You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.

Check your calendars. It was one week ago that we had the market sell off, But it was also one week ago that US District Court Judge am At Meta ruled that Google had illegally monopolized the online search market. The decision has serious ramifications for Alphabet's flagship business and tremendous connotations for Apple as well. It's something we've been talking about tim over the past week or so.

Check your calendars. It was one week ago that we had the market sell off, But it was also one week ago that US District Court Judge am At Meta ruled that Google had illegally monopolized the online search market. The decision has serious ramifications for Alphabet's flagship business and tremendous connotations for Apple as well. It's something we've been talking about tim over the past week or so.

Yeah, much of the focus has been on what this outcome means for Google's multi billion dollar payments to Apple that ensure Google is the default search engine across iPhones and iPads. But more pressing question may be what the case itself signals for the US Department of Justices separate anti trust lawsuit against Apple.

Yeah, much of the focus has been on what this outcome means for Google's multi billion dollar payments to Apple that ensure Google is the default search engine across iPhones and iPads. But more pressing question may be what the case itself signals for the US Department of Justices separate anti trust lawsuit against Apple.

Bottom line, there's always a lot going on when it comes to Apple and writing about Apple and it's cash prospects. A new research that is out by him is Bloomberg Intelligence Senior technology analyst to Ana Agrana. He joins us from Chicago. Happy Monday, an A, rag you were busy got some research out over the weekend. Help us make some sense. First of all, in terms of if Alphabet isn't making these payments to Apple, what does it mean in terms of their cash flow and their cash because you guys seem or you seem pretty upbeat about it or at least their prospects.

Bottom line, there's always a lot going on when it comes to Apple and writing about Apple and it's cash prospects. A new research that is out by him is Bloomberg Intelligence Senior technology analyst to Ana Agrana. He joins us from Chicago. Happy Monday, an A, rag you were busy got some research out over the weekend. Help us make some sense. First of all, in terms of if Alphabet isn't making these payments to Apple, what does it mean in terms of their cash flow and their cash because you guys seem or you seem pretty upbeat about it or at least their prospects.

Yeah, so if you were to, you know, wait and see what happens with this particular case. When you look at Apple's score business, it's doing very well, even though the top line is not growing in double digits like it's used to a few years ago. But even with five to seven percent growth type cost control, you know, this company is generating enough free cash. I think the biggest thing what we are trying to point out is when you look at the other large tech companies. You know, somebody like a Microsoft or an AWS, they are going to spend billions of dollars over the next few week years in order to expand their cloud data centers, invest in AI. But in the case of Apple, I think they're the ones they're going to stand out over the next twelve to twenty four months because they are not doing that same level of spending because they.

Yeah, so if you were to, you know, wait and see what happens with this particular case. When you look at Apple's score business, it's doing very well, even though the top line is not growing in double digits like it's used to a few years ago. But even with five to seven percent growth type cost control, you know, this company is generating enough free cash. I think the biggest thing what we are trying to point out is when you look at the other large tech companies. You know, somebody like a Microsoft or an AWS, they are going to spend billions of dollars over the next few week years in order to expand their cloud data centers, invest in AI. But in the case of Apple, I think they're the ones they're going to stand out over the next twelve to twenty four months because they are not doing that same level of spending because they.

Don't have that kind of business.

Don't have that kind of business.

Now.

Now.

The Google case you brought up is an important point, and that's a big risk for Apple, But we're still far away to figure out what the remedies are going to be as long as there is no binding. If Google and Apple can renegotiate and figure out if people get choices, I think there is chances that they can salvage some of that particular twenty billion dollar revenue that comes in now if they are able to. If the judge comes out and say, well, you cannot pay them anything, then that's a problem. But even in that case, I think it will be a few years before Apple can make up for that revenue loss.

The Google case you brought up is an important point, and that's a big risk for Apple, But we're still far away to figure out what the remedies are going to be as long as there is no binding. If Google and Apple can renegotiate and figure out if people get choices, I think there is chances that they can salvage some of that particular twenty billion dollar revenue that comes in now if they are able to. If the judge comes out and say, well, you cannot pay them anything, then that's a problem. But even in that case, I think it will be a few years before Apple can make up for that revenue loss.

I want to go back to this idea of Apple not having to make those huge CAPEX investments in AI like Microsoft and Amazon have to do when it comes to infrastructure and actually building out these facilities on a rock. Is it a risk for Apple that they're partnering instead with other companies that are making these investments and not doing them themselves. Is there a chance that they could run into an issue with a platform taking off that's not their own platform.

I want to go back to this idea of Apple not having to make those huge CAPEX investments in AI like Microsoft and Amazon have to do when it comes to infrastructure and actually building out these facilities on a rock. Is it a risk for Apple that they're partnering instead with other companies that are making these investments and not doing them themselves. Is there a chance that they could run into an issue with a platform taking off that's not their own platform.

Yeah. See, they're on the device business in all honesty. When you look at the iPhone, they're really not into cloud computing or giving people infrastructure to build their application. So that's a completely different equation in my view. It's like you know, getting electricity you really don't need to own your own generators in order to get electricity. So when you look at Apple, they're basically saying in the same case what they have with Google, they don't want to be in that search business.

Yeah. See, they're on the device business in all honesty. When you look at the iPhone, they're really not into cloud computing or giving people infrastructure to build their application. So that's a completely different equation in my view. It's like you know, getting electricity you really don't need to own your own generators in order to get electricity. So when you look at Apple, they're basically saying in the same case what they have with Google, they don't want to be in that search business.

They're going to go.

They're going to go.

Try to get a partnership with anybody who has the best search business right now, and they will put that on their phones.

Try to get a partnership with anybody who has the best search business right now, and they will put that on their phones.

That would open Ai.

That would open Ai.

They went out and talked to a bunch of people and says, who has the best large language model that would work well on their iPhone and they chose up to, you know, open Ai to be one of their partners. So that's part of their business model, and that's part the reasons why they don't need to spend that much in Capex.

They went out and talked to a bunch of people and says, who has the best large language model that would work well on their iPhone and they chose up to, you know, open Ai to be one of their partners. So that's part of their business model, and that's part the reasons why they don't need to spend that much in Capex.

You know, it's interesting. We talked with David Weston, who is a lawyer and spent a lot of time doing anti trust work specifically, and I do wonder about some of these big technology companies ana rog that they are successful at what they do and is that a crime that just because you're good at what you do. And I was actually having a conversation with one of my sisters this week and we were talking about Google, and I'm like, but do you use you know, do you try any other kind of search engines? Like Nope, because Google like just works so well. So like when is it a crime that you are really good at what you do and you just become big because of that? Like how do we figure out, you know, when it is an anti trust issue and when it's not.

You know, it's interesting. We talked with David Weston, who is a lawyer and spent a lot of time doing anti trust work specifically, and I do wonder about some of these big technology companies ana rog that they are successful at what they do and is that a crime that just because you're good at what you do. And I was actually having a conversation with one of my sisters this week and we were talking about Google, and I'm like, but do you use you know, do you try any other kind of search engines? Like Nope, because Google like just works so well. So like when is it a crime that you are really good at what you do and you just become big because of that? Like how do we figure out, you know, when it is an anti trust issue and when it's not.

Yeah, I think see, all these companies are generating billions and billions and dollars of free cash flow, which really will attract a lot of lawyers. As you can imagine. Now, let's say the case of iPhone. If tomorrow when I turn on my iOS or I install a brand new system, it'll ask me which search indind do you want to use. It's going to give me six choices more like most likely or not. I'm going to pick Google, and that is going to help Google. I think the bigger question in this all equation is you know what happens to that payment that's happening.

Yeah, I think see, all these companies are generating billions and billions and dollars of free cash flow, which really will attract a lot of lawyers. As you can imagine. Now, let's say the case of iPhone. If tomorrow when I turn on my iOS or I install a brand new system, it'll ask me which search indind do you want to use. It's going to give me six choices more like most likely or not. I'm going to pick Google, and that is going to help Google. I think the bigger question in this all equation is you know what happens to that payment that's happening.

Well, that's why you know, I think sort of counterintuitively, couldn't this actually be a great thing for Google if people end up using Google and choosing Google because they're not choosing a competitor. But then Google doesn't have to make these payments to Apple that's just like icing on the cake. Is this could be a big win for alphabet right, yeah, yeah, exactly.

Well, that's why you know, I think sort of counterintuitively, couldn't this actually be a great thing for Google if people end up using Google and choosing Google because they're not choosing a competitor. But then Google doesn't have to make these payments to Apple that's just like icing on the cake. Is this could be a big win for alphabet right, yeah, yeah, exactly.

I mean that's what I'm saying that in this entire case, it's Apple who's going to lose. But here's my counter argument. Is my counter argument to that, Apple is a company with, as I said, over one hundred billion in free calf flow. If they really wanted to fight Google and Search, they can do it. They can go and acquire a small vendor and use that in their pipeline. Remember, they ConTroll distribution of two point two billion devices. Google's going to lose a lot of market share if it doesn't play nice with Apple, and so, you know, I get it that in the short term they will be you could say, benefit from it, But I don't think they would want to pick a fight with Apple on this one.

I mean that's what I'm saying that in this entire case, it's Apple who's going to lose. But here's my counter argument. Is my counter argument to that, Apple is a company with, as I said, over one hundred billion in free calf flow. If they really wanted to fight Google and Search, they can do it. They can go and acquire a small vendor and use that in their pipeline. Remember, they ConTroll distribution of two point two billion devices. Google's going to lose a lot of market share if it doesn't play nice with Apple, and so, you know, I get it that in the short term they will be you could say, benefit from it, But I don't think they would want to pick a fight with Apple on this one.

Interesting the anti trust case case though against Apple by the Department of Justice, they say to classify Apple as a monopolis. The government attorney's carved out its relevant product market is only including premium smartphones, a segment apparently distinc from entry level and less expensive gadgets. I mean, it's kind of like you're dicing and slicing the market here.

Interesting the anti trust case case though against Apple by the Department of Justice, they say to classify Apple as a monopolis. The government attorney's carved out its relevant product market is only including premium smartphones, a segment apparently distinc from entry level and less expensive gadgets. I mean, it's kind of like you're dicing and slicing the market here.

Right, yeah, yeah, yeah, So when you look at Apple's entire so there are roughly about five plus billion smartphones in the world, and Apple's market chair is roughly about twenty percent or one billion. But yeah, you could make the argument if if it was only the expensive category. You know, they have over fifty percent of the market share. But there are only two players out there. Either it's Samsung or it's Apple. There you know, there isn't really a big third player in the premium market that anybody wants to deal with. But you know, we think twenty percent of the market share in the global smartphone market. That really is the big case for Apple, which is as people become more affluent, they will go out and get Apple Basicus. It's an aspirational brand for people in emerging markets. It's really the place you want to be. But in most cases you don't even qualify to buy that product because it's so expensive.

Right, yeah, yeah, yeah, So when you look at Apple's entire so there are roughly about five plus billion smartphones in the world, and Apple's market chair is roughly about twenty percent or one billion. But yeah, you could make the argument if if it was only the expensive category. You know, they have over fifty percent of the market share. But there are only two players out there. Either it's Samsung or it's Apple. There you know, there isn't really a big third player in the premium market that anybody wants to deal with. But you know, we think twenty percent of the market share in the global smartphone market. That really is the big case for Apple, which is as people become more affluent, they will go out and get Apple Basicus. It's an aspirational brand for people in emerging markets. It's really the place you want to be. But in most cases you don't even qualify to buy that product because it's so expensive.

Well, and the thing about you know, Apple, with these large language models and all of the AI that's being done, I guess do they not care? Go ahead and everybody else, you spend money, you develop it, and then we'll give you the device that people can play with it on. Is that what it's all about.

Well, and the thing about you know, Apple, with these large language models and all of the AI that's being done, I guess do they not care? Go ahead and everybody else, you spend money, you develop it, and then we'll give you the device that people can play with it on. Is that what it's all about.

Yeah, But in the you know, if I was to take the other argument of it is, if they started doing everything else, then people will say, well, they're using their distribution to unfairly you know, push their own product. Right. They're basically saying, if you build the best product out there, we will use it, and we will use it on the merit of the product. In this particular case, they didn't go out and picked you know, Google's Gemini on round one. I think it's there's down the road. I think it may happen. But they chose open Ai because they have at this point the best large language model out there.

Yeah, But in the you know, if I was to take the other argument of it is, if they started doing everything else, then people will say, well, they're using their distribution to unfairly you know, push their own product. Right. They're basically saying, if you build the best product out there, we will use it, and we will use it on the merit of the product. In this particular case, they didn't go out and picked you know, Google's Gemini on round one. I think it's there's down the road. I think it may happen. But they chose open Ai because they have at this point the best large language model out there.

Okay, speaking of the Apple being a device company, it's the iPhone company. No question, the iPhone sixteen likely will see it unveiled in just a few weeks.

Okay, speaking of the Apple being a device company, it's the iPhone company. No question, the iPhone sixteen likely will see it unveiled in just a few weeks.

I was getting ready and thinking really hard, so was Paul Sweeney, like replacing my phone come later this year, And now I'm thinking maybe I shouldn't.

I was getting ready and thinking really hard, so was Paul Sweeney, like replacing my phone come later this year, And now I'm thinking maybe I shouldn't.

Well, that's the big question. Because Mark German out with his Power on newsletter over the weekend on it rog talking about how this is perhaps one of those stopgap models that gives people a bridge. The next one perhaps doesn't get people to do an upgrade super cycle. How are you thinking about it at Bloomberg Intelligence, Yeah.

Well, that's the big question. Because Mark German out with his Power on newsletter over the weekend on it rog talking about how this is perhaps one of those stopgap models that gives people a bridge. The next one perhaps doesn't get people to do an upgrade super cycle. How are you thinking about it at Bloomberg Intelligence, Yeah.

In a similar way. We don't think it's going to have a massive layout in year one. Over a three year period, I think it's going to help, but at this point we don't have We are looking at maybe a five percent bump in total unit ship and sold next to the at FI twenty five over Fi twenty four, and that's because the last two has been kind of weak. The Apple's installed by Base moves at a setic certain rate, and you refresh your phone when to be honest, when the battery runs out. That number you to be three point six years for a few years, but it's been extended closer to four years at this point. So at an average globally out of that one billion phones I talked about, people refresh at every four year. So I think that is what we're going to see. We're not going to see a massive bump because of AI.

In a similar way. We don't think it's going to have a massive layout in year one. Over a three year period, I think it's going to help, but at this point we don't have We are looking at maybe a five percent bump in total unit ship and sold next to the at FI twenty five over Fi twenty four, and that's because the last two has been kind of weak. The Apple's installed by Base moves at a setic certain rate, and you refresh your phone when to be honest, when the battery runs out. That number you to be three point six years for a few years, but it's been extended closer to four years at this point. So at an average globally out of that one billion phones I talked about, people refresh at every four year. So I think that is what we're going to see. We're not going to see a massive bump because of AI.

All right, just to wrap up here, as you know, we're over the hump, if you will, in terms of half of twenty twenty four already over. How are you thinking about the rest of the year when it comes to technology in terms of some of the big major themes, whether it's AI, CAPEX expending. Are we going to see more kind of worrisome notes or worrisome updates or do you feel pretty confident about the rest of the year.

All right, just to wrap up here, as you know, we're over the hump, if you will, in terms of half of twenty twenty four already over. How are you thinking about the rest of the year when it comes to technology in terms of some of the big major themes, whether it's AI, CAPEX expending. Are we going to see more kind of worrisome notes or worrisome updates or do you feel pretty confident about the rest of the year.

See, I think from a fundamental point of view, this is going to be fine. I mean, I don't see any reason why the big tech companies, whether it's Microsoft or whether it's you know, Amazon Web Services, their core business is strong and NOO will remain. The stock reaction is a very different game because that depends on interest rates and so many other factors, and that's really you know, we'll see what happens with that. But at the same time, they will spend that a lot of money in order to beef up their capacity so that they can grow over the next three to five years. I think that is really, in our view, a good long term play, but in the short term it may have its ups and downs.

See, I think from a fundamental point of view, this is going to be fine. I mean, I don't see any reason why the big tech companies, whether it's Microsoft or whether it's you know, Amazon Web Services, their core business is strong and NOO will remain. The stock reaction is a very different game because that depends on interest rates and so many other factors, and that's really you know, we'll see what happens with that. But at the same time, they will spend that a lot of money in order to beef up their capacity so that they can grow over the next three to five years. I think that is really, in our view, a good long term play, but in the short term it may have its ups and downs.

All right, got it? Listen Anerrog, thank you so much, really appreciate it. Ana ro Grana, he's our Bloomberg Intelligence senior technology analyst joining us from Chicago.

All right, got it? Listen Anerrog, thank you so much, really appreciate it. Ana ro Grana, he's our Bloomberg Intelligence senior technology analyst joining us from Chicago.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple car Play and then Brout Auto with a Bloomberg Business app or watch us live on YouTube.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple car Play and then Brout Auto with a Bloomberg Business app or watch us live on YouTube.

Carol, I don't know if you caught this article from Sagel Kashan a few weeks ago. It was about the changing view of ESG. We've talked about this a lot over the last eighteen minds two years or so, he wrote that quote. The red carpet is being formally rolled up for the three letters ESG, at least over at II. The fifty seven year old organization has dropped the label short for Environmental, Social and Governance from its annual analyst rankings.

Carol, I don't know if you caught this article from Sagel Kashan a few weeks ago. It was about the changing view of ESG. We've talked about this a lot over the last eighteen minds two years or so, he wrote that quote. The red carpet is being formally rolled up for the three letters ESG, at least over at II. The fifty seven year old organization has dropped the label short for Environmental, Social and Governance from its annual analyst rankings.

Yeah, there's been such pushback against the kind of labeling. In its place, it's sustainability, a cineym many banks and money managers are using instead, amid the increasingly politicized debate over climate change and corporate diversity in the United States. What a change if you go back, I feel like ten fifteen years where there's been so much emphasis and a movement towards this ESG labeling.

Yeah, there's been such pushback against the kind of labeling. In its place, it's sustainability, a cineym many banks and money managers are using instead, amid the increasingly politicized debate over climate change and corporate diversity in the United States. What a change if you go back, I feel like ten fifteen years where there's been so much emphasis and a movement towards this ESG labeling.

Yeah. Curious what Bud Sturmac has to say about all this. He's partner and head of Impact Investing over at Paragon Wealth Management. He joins us here in the Bloomberg Interactive Brokers studio. Paragon has about eight billion dollars in assets under management. Bud, how are you?

Yeah. Curious what Bud Sturmac has to say about all this. He's partner and head of Impact Investing over at Paragon Wealth Management. He joins us here in the Bloomberg Interactive Brokers studio. Paragon has about eight billion dollars in assets under management. Bud, how are you?

I'm good? Thanks so much for having me.

I'm good? Thanks so much for having me.

So you guys are kind of leaning into ESG when others are pulling back a little bit. Talk a little bit about why that is.

So you guys are kind of leaning into ESG when others are pulling back a little bit. Talk a little bit about why that is.

Yeah, I think we're in an era of personalization and whether it's how we consume television or music, or where we buy groceries or what kind of car we drive. I think you're seeing that at start to evolve investing. And so what Paragon stands for is empowering our clients with choice. And we think it's important to include in our client onboarding process questions about understanding what values our clients bring to the table.

Yeah, I think we're in an era of personalization and whether it's how we consume television or music, or where we buy groceries or what kind of car we drive. I think you're seeing that at start to evolve investing. And so what Paragon stands for is empowering our clients with choice. And we think it's important to include in our client onboarding process questions about understanding what values our clients bring to the table.

These are values that clients bring to the table. Yes, what do you mean by that?

These are values that clients bring to the table. Yes, what do you mean by that?

So you know, as well as understanding client goals, financial planning, and understanding their investments, what do they care about most? Is it climate change? Is it gender equality? Is it racial equality?

So you know, as well as understanding client goals, financial planning, and understanding their investments, what do they care about most? Is it climate change? Is it gender equality? Is it racial equality?

If those things are what if they only care about returns, that's fine, Yeah, they don't care about any of the other stuff.

If those things are what if they only care about returns, that's fine, Yeah, they don't care about any of the other stuff.

That's totally okay, But we think it's important in this day and age that we ask the question because it brings a whole other layer of the ability for clients to connect with their portfolio if that's something that they believe passionately about.

That's totally okay, But we think it's important in this day and age that we ask the question because it brings a whole other layer of the ability for clients to connect with their portfolio if that's something that they believe passionately about.

But you know, if you build it, they will come that kind of thinking. So I guess my question is, are your clients still saying, Hey, we like this SG thing, we get it, we understand, we want to commit money to it.

But you know, if you build it, they will come that kind of thinking. So I guess my question is, are your clients still saying, Hey, we like this SG thing, we get it, we understand, we want to commit money to it.

The answer is yes. But I also think that you hit on something before, which is people are moving away from the term ESG, so sustainable investing values based investing. We're not like regularly using the term ESG. Again, I think it comes back to client values. What do they care about most?

The answer is yes. But I also think that you hit on something before, which is people are moving away from the term ESG, so sustainable investing values based investing. We're not like regularly using the term ESG. Again, I think it comes back to client values. What do they care about most?

What?

What?

So where did ESG get it wrong? Like? What is it that? It's just kind of mind blowing how much time and energy and money we spent talking about it and then now it's kind of getting Although things evolve and sometimes things come out better on the other side, But so what happened?

So where did ESG get it wrong? Like? What is it that? It's just kind of mind blowing how much time and energy and money we spent talking about it and then now it's kind of getting Although things evolve and sometimes things come out better on the other side, But so what happened?

It's funny because ESG really is research, it's data. Yeah, and the term sort of got turned into investing which it's really not. It's a tool, right, So I think.

It's funny because ESG really is research, it's data. Yeah, and the term sort of got turned into investing which it's really not. It's a tool, right, So I think.

It's vulnerabilities, isn't it, like, yeah, climate exposure? Right exactly.

It's vulnerabilities, isn't it, like, yeah, climate exposure? Right exactly.

Yeah. I think where it sort of went awry is maybe two things on the investing Within the investing landscape, you have mutual funds and ETFs that label themselves ESG or sustainable, and when a client is buying into that fund, they're sort of having to adopt whatever the fund manager's view on sustainability is. The client may agree with that view, it may not. And so then you have the ESG data companies, Right, they're taking very complex E S and G data and they're trying to wrap that up into a nice score that everybody can say, oh, this is a very sustainable company. This is not the problem with that is is that the es and the G data, those data points might actually be very accurate and succinct, but wrapping them into a nice need score invites subjectivity and so well.

Yeah. I think where it sort of went awry is maybe two things on the investing Within the investing landscape, you have mutual funds and ETFs that label themselves ESG or sustainable, and when a client is buying into that fund, they're sort of having to adopt whatever the fund manager's view on sustainability is. The client may agree with that view, it may not. And so then you have the ESG data companies, Right, they're taking very complex E S and G data and they're trying to wrap that up into a nice score that everybody can say, oh, this is a very sustainable company. This is not the problem with that is is that the es and the G data, those data points might actually be very accurate and succinct, but wrapping them into a nice need score invites subjectivity and so well.

Governance might be easier than environment, like some of it might be easier to measure than others.

Governance might be easier than environment, like some of it might be easier to measure than others.

Right, Also, I think that's true, but trying to wrap it up into a nice need score what you're and the criticism that was invited from that was that, oh, this ESG data company rates Tesla very high, while this ESG data company rates it low, and that you know this, and it basically brought in criticism of ESG in general.

Right, Also, I think that's true, but trying to wrap it up into a nice need score what you're and the criticism that was invited from that was that, oh, this ESG data company rates Tesla very high, while this ESG data company rates it low, and that you know this, and it basically brought in criticism of ESG in general.

Well, maybe the E is a positive for some for some of these and when it comes to data, but the G when it comes to governance and who's on Tesla's board, for example, doesn't necessarily pass muster for this other organization, just for example. I mean, the ES and G are three completely different things.

Well, maybe the E is a positive for some for some of these and when it comes to data, but the G when it comes to governance and who's on Tesla's board, for example, doesn't necessarily pass muster for this other organization, just for example. I mean, the ES and G are three completely different things.

That's exactly right. And I think that.

That's exactly right. And I think that.

Maybe some people would have problem with the social part of it.

Maybe some people would have problem with the social part of it.

Yes, And so when we're talking about bringing it back to what the client cares about, then you have an opportunity to say, Okay, this client cares about the environment, so maybe Tesla would be in the in the portfolio, or this client cares mostly about gender equality. So you know, you're applying a different lens. It's what the client cares about, and it's building the portfolio stock by stock around exactly that client.

Yes, And so when we're talking about bringing it back to what the client cares about, then you have an opportunity to say, Okay, this client cares about the environment, so maybe Tesla would be in the in the portfolio, or this client cares mostly about gender equality. So you know, you're applying a different lens. It's what the client cares about, and it's building the portfolio stock by stock around exactly that client.

So it's a true customization.

So it's a true customization.

Yes, so here's what you like.

Yes, so here's what you like.

I'm going to go find companies that meet those metrics. If those companies don't perform, don't put them in my portfolio. Is it as simple as that, Well, it's really like what's the balance, and it's.

I'm going to go find companies that meet those metrics. If those companies don't perform, don't put them in my portfolio. Is it as simple as that, Well, it's really like what's the balance, and it's.

Trying to It is trying to mirror the index performance. So, whether you're talking about an S and P five hundred or a Russell one thousand or whatever your underlying index is, you're still mostly owning the industries and the industry waitings, but you're tilting away from the worst companies that the client would disagree with. Yeah, and you're recreating the index, so it does. Yes, you're inviting tracking error. If a client really is like Adamant, I don't want several different industries or exposures to you could increase the tracking air a little bit, but most of what we've seen has been that the underlying portfolios do closely track the performance of the index.

Trying to It is trying to mirror the index performance. So, whether you're talking about an S and P five hundred or a Russell one thousand or whatever your underlying index is, you're still mostly owning the industries and the industry waitings, but you're tilting away from the worst companies that the client would disagree with. Yeah, and you're recreating the index, so it does. Yes, you're inviting tracking error. If a client really is like Adamant, I don't want several different industries or exposures to you could increase the tracking air a little bit, but most of what we've seen has been that the underlying portfolios do closely track the performance of the index.

Does it make it so oil companies are just not in there because they don't have the E part of ESG.

Does it make it so oil companies are just not in there because they don't have the E part of ESG.

If it was a climate change focus for a client, or the E was the most important factor, then most likely those would not be included in the portfolio.

If it was a climate change focus for a client, or the E was the most important factor, then most likely those would not be included in the portfolio.

But an automaker, that's still it's a lot of you know, traditional still gas burning cars, but they're increasingly moving into ev like do you have a conversation with an investor or yeah? Like how does something like that?

But an automaker, that's still it's a lot of you know, traditional still gas burning cars, but they're increasingly moving into ev like do you have a conversation with an investor or yeah? Like how does something like that?

Yeah, so we're not making the investment decisions necessarily. We're hiring outside managers to do that, and they have very finite data that can bring more to light in that conversation, and we can have that conversation with a client. But the data really is quite good, and we can show clients, you know, here's the companies that would fall into the portfolio, and here's what would be cut out. How do you feel about that?

Yeah, so we're not making the investment decisions necessarily. We're hiring outside managers to do that, and they have very finite data that can bring more to light in that conversation, and we can have that conversation with a client. But the data really is quite good, and we can show clients, you know, here's the companies that would fall into the portfolio, and here's what would be cut out. How do you feel about that?

So it's that specific and you can kind of pick and choose.

So it's that specific and you can kind of pick and choose.

Yes, is the the objective you said is to match the major indices rather than beat them.

Yes, is the the objective you said is to match the major indices rather than beat them.

Yeah, it's really the track this is, this is it's really a passive approach.

Yeah, it's really the track this is, this is it's really a passive approach.

There are neta fees.

There are neta fees.

Uh so that's gross. Okay, yeah, the underlying indexes. I'm sorry, i just lost my train of thought.

Uh so that's gross. Okay, yeah, the underlying indexes. I'm sorry, i just lost my train of thought.

No, that's okay.

No, that's okay.

I'm just wondering about the sales pitch when you're making it to clients. So it's like, okay, we're gonna in your portfolio, We're going to have your your portfolio is going to match the index. But it's going to not include the companies that don't necessarily align with your.

I'm just wondering about the sales pitch when you're making it to clients. So it's like, okay, we're gonna in your portfolio, We're going to have your your portfolio is going to match the index. But it's going to not include the companies that don't necessarily align with your.

Own value, right, I was gonna I was gonna mention that.

Own value, right, I was gonna I was gonna mention that.

Yeah, it's a Monday in August, you are giving you should have stated us earlier.

Yeah, it's a Monday in August, you are giving you should have stated us earlier.

Is absolutely correct.

Is absolutely correct.

I was just gonna mention that in some cases, like in that direct indexing portfolio, you can tilt towards companies that maybe are the leaders on various ESG factors. Again, that would be specific to that client, but you maybe your portfolio'll be more tilted towards clean energy or different things like that.

I was just gonna mention that in some cases, like in that direct indexing portfolio, you can tilt towards companies that maybe are the leaders on various ESG factors. Again, that would be specific to that client, but you maybe your portfolio'll be more tilted towards clean energy or different things like that.

So basically an evolution of ESG.

So basically an evolution of ESG.

Yeah, I think it's this. This has been a huge evolution in the field in the last like ten or fifteen years, especially the last five. Right, Yeah, and a pushback.

Yeah, I think it's this. This has been a huge evolution in the field in the last like ten or fifteen years, especially the last five. Right, Yeah, and a pushback.

It's kind of fascinating to see. But thank you so much, really appreciate it. Budster Macky is partner and head of Impact Investing at Paragone Wealth and Management. Joining us right here in our interactive broker studio.

It's kind of fascinating to see. But thank you so much, really appreciate it. Budster Macky is partner and head of Impact Investing at Paragone Wealth and Management. Joining us right here in our interactive broker studio.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple car Play, and then brout Auto with a Bloomberg Business app or watch us live on YouTube.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple car Play, and then brout Auto with a Bloomberg Business app or watch us live on YouTube.

You and I've been doing this together for quite a while. We have, including Wow four years.

You and I've been doing this together for quite a while. We have, including Wow four years.

Yeah, if you think about it, it was the depth or I mean of the pandemic.

Yeah, if you think about it, it was the depth or I mean of the pandemic.

Yeah, it was. Yeah, it really was. Think about back to that environment, if you will, and the pandemic was raging. Tensions in cities were high. People took to the streets to protest the murder of George Floyd around that time. We wrote a lot about this at Bloomberg News and at Bloomberg BusinessWeek. A lot of companies and stories about companies big and small joining the conversation making commitments of different types. Wells Fargo one of those companies. Four years ago, it committed more than four hundred million dollars to nonprofits. The idea was to help local businesses that were hit by the pandemic, so the nonprofits would deploy the cash to local businesses, and according to the Bank, the vast majority of those businesses they identified as racially and ethnically diverse.