0:02

This is Bloomberg Business Week from

0:04

Bloomberg Radio. Hi, I'm Jason Kelly

0:06

and I'm Carol Master. Welcome to the Bloomberg Business

0:09

Week Weekend podcast. In this episode,

0:11

we'll bring you news of the week, We've got insights from

0:13

the magazine and a lot more. And Carol, in

0:15

this week's broadcast, Wall Street masking

0:17

the cost of climate change for coastal

0:20

real estate. You're gonna want to listen to this one for

0:22

sure, Yes, indeed. And then Sony and Nintendo

0:24

really have to worry about. Microsoft

0:27

will check into that one as well. And banks pumping

0:29

billions of dollars into ets with

0:31

something called Heartbeat trades. I didn't

0:33

know about this, but I have to say. You just look at the

0:35

chart and you go, oh wait. Plus the world's cheapest

0:38

hospital chain, Well it needs to cut costs

0:40

even more. But first, Carol A O C.

0:43

She's continuing to shake things up down in d

0:45

C. Alexandria Kasio Cortes continues

0:47

to garner attention for many reasons, and that includes

0:50

an app that helped boost her grassroots

0:52

campaign. The story it's in the politics

0:54

section of Business Week magazine, which you can

0:56

find online. Josh Green National

0:58

correspondent for the magazine and

1:01

he joins us up from d C. So

1:03

what is Reach. Well,

1:06

Reach is a political

1:09

new piece of political tech at organizing

1:11

app that evolved organically

1:13

from Alexander Acacio Cortes's campaign.

1:16

Now, in the political world, the most interesting

1:19

thing about AOC, as she's

1:21

known was that her campaign was really

1:23

a marvel of grassroots organizing. Nobody had

1:25

ever heard of her. Nobody imagined that a

1:27

socialist could knock off the long time and

1:29

come in democrat who was probably

1:32

going to be the next Speaker of the House, and here out of

1:34

nowhere, uh, you know, she organized

1:36

New York's fourth district in Queens and

1:38

bronx uh and and

1:40

you know, essentially took that seat away from Joe

1:43

Crowley, the incumbent. Well. One of the ways

1:45

she did that was a couple of volunteers on her campaign

1:48

built a mobile organizing

1:50

app to go out and get registered.

1:53

You know, young socialists, working

1:55

class minorities, who

1:57

who who are so plentiful in her district

1:59

and we're really the key to her victory. Now

2:02

they're taking that tech and they've started

2:04

a company called Reach that is going to make

2:06

this available more broadly to democratic

2:09

campaigns. We'll take a step back, though, Josh, because

2:11

I'm just curious, like what these guys were thinking.

2:13

What was it that wasn't working about grassroots

2:16

campaigning today that they knew they

2:18

needed something different to make it more effective,

2:20

more productive? Right, What's what's so interesting

2:23

about political tech? Uh? Anybody

2:25

who comes from the tech world into the policy

2:27

world of politics, the first thing they think is, wow,

2:29

this is completely antiquated. This makes

2:31

no sense. And so the way

2:34

political canvassing searching for supporters

2:36

traditionally works is you get

2:38

a list on paper of registered

2:40

voters and their addresses, and you go

2:43

and you try and knock on their doors and have

2:46

um, frankly awkward conversations

2:48

between two strangers in a doorway about

2:50

politics. I've gone out with canvassers. This

2:52

is just the way that politics has been conducted

2:55

back since the Tammany Hall days. Right. And

2:57

if and if you can get the door open right to begin

2:59

with, right, I mean know who's whose home? Who answers

3:01

their door anymore? Nobody? Right? So, so so

3:03

it's a problem. And so the

3:05

two people that started the company, Jake

3:08

de Groot and Leo Susan, realized

3:11

that this isn't a very smart way

3:13

of doing things, especially not is

3:15

a way of reaching the kind of people that AOC

3:18

wanted to reach, people who are outside

3:20

the political system, who may not have voted

3:22

in the last election but could be turned onto

3:24

this exciting, charismatic new candidate. So

3:26

what they did is they took the voter list and they uploaded

3:29

into an app that was searchable, and

3:31

that allowed them to go to

3:33

the places where her voters or her potential

3:36

voters actually congregated places

3:38

like bars and coffee shops and

3:40

farmers markets and subway

3:42

platforms, and lo and behold,

3:45

when primary day came around, she

3:47

had the votes to knock off the incumbent and what

3:49

was undoubtedly the biggest upset of the cycle.

3:52

So it was it just a case Josh of just

3:55

finding more people, loading up more

3:57

people into the voter base. I

3:59

mean, what is it that really made the difference?

4:02

I think what made the difference is the mobility

4:05

that essentially politics

4:07

as it was being conducted up until twenty

4:09

eighteen was was

4:11

was based on a lifestyle that people

4:14

don't live anymore. Knocking on your

4:16

door and trying to catch you at home and

4:18

calling you on your landline, phone

4:20

and hoping that you'll talk to a stranger who

4:22

picks up their phone anymore. You know, a lot of people don't

4:24

even have a landline anymore. So what this

4:26

did essentially was take the process of canvassing

4:29

and modernize it for our new era, especially

4:33

um to match the lifestyles

4:35

of the people in that district. Democrats

4:38

traditionally rely on young

4:40

people in minorities, is two very

4:43

important components of

4:45

their electorate. Barack Obama was able to mobilize

4:47

these people, but Hillary Clinton by

4:49

and large wasn't because these two groups

4:52

in particular are difficult to reach. One

4:55

of the things that has Democrats

4:57

generally, not just Democratic socialists,

4:59

but industream democrats excited and

5:01

interested in this technology is

5:03

that AOC's campaign managed to reach

5:06

and activate these voters. And these are

5:08

voters that every Democratic candidate

5:10

up and down the ticket would like to be able to

5:12

reach and to win over. And it wasn't just a case

5:14

case of reaching them. Those that were reached, they

5:16

were more likely to go out and vote for her right. That

5:19

was yeah, reach reach kept some data analytics.

5:21

They they invented this app on the fly,

5:24

really only in the latter stages of the campaigns.

5:26

It wasn't around for that long, but what they found

5:28

was that it was just a more efficient way

5:30

of canvassing supporters, and the people

5:32

who were contacted through

5:35

Reach were more likely to turn up

5:37

and vote on election day than those

5:39

that weren't. That's another positive sign about the

5:41

technology. So you talked to these two individuals and

5:43

I understand that they actually came up with the app,

5:45

or one of them did. They pulled it all nighter and kind

5:47

of came up with it and put it out to work. So what

5:49

happened after folks started seeing

5:51

them use it? Did? I think you're right

5:53

that it kind of got passed around two

5:56

different campaigns? Yeah, it did. I mean the

5:59

moment to see one her campaign was

6:01

it was essentially a political earthquake. Everyone

6:03

said, oh my gosh, like, who is this woman?

6:06

Was her campaign? How did she do it? And

6:08

then the next thought you have if you're a Democratic candidate

6:10

is how can I do the same thing? And you

6:12

know, word got around in in socialist

6:15

and left wing campaigns, and one of the things that

6:17

had helped her was Reached, this organizing app

6:20

and AOC I think, to her credit, encouraged

6:22

her campaign to share the app

6:24

with other like minded campaigns. That's

6:27

Josh Green and Jason of course he's a go to guy

6:29

when anything is going on with elections

6:31

and again constantly is tapping into

6:33

campaigns and how they are doing things differently.

6:36

We saw that with AOC well, and it goes

6:38

back to all the great work he did with

6:41

The Devil's Bargain and Steve Bannon

6:43

and the effect that Bannon

6:45

and his crew had on the right

6:48

now helping us understand what's going on

6:50

on the left. So across China, millions

6:52

of people are ordering in several meals a

6:54

day, Jason. They're also they can order

6:57

in groceries, haircuts, whatever else they

6:59

need thanks to the country is huge delivery market

7:01

and it doesn't cost a lot of money,

7:04

very different from here. Not only does it not cussle

7:06

it, it costs less in many cases

7:08

than going outside your house. This is a fascinating

7:11

story. Jeff Muscus he edited the section

7:14

as he always does in Technology this

7:16

week he joins us in New York May

7:18

twine it's a juggernaut. Absolutely

7:21

yeah. It controls almost

7:24

two thirds of China's

7:26

thirty five billion dollar market. First to say, all

7:28

these kinds of delivery services UH.

7:30

And the other third word, so is

7:32

controlled by China's most valuable company,

7:35

Ali Baba, and so that that's set up a

7:37

sort of titanic once in a generation

7:40

brawl here. I mean, I dare say that

7:42

Carol and I both reading this had

7:45

a number of wait what moments.

7:47

I mean, just this size and scope the

7:50

history of this take us back to

7:52

how this company started and this entrepreneur

7:55

who had some fits and

7:57

starts, to say the least, getting into this business.

7:59

Absolutely. Yeah. Wong Sing, the

8:02

forty year old founder of may Tuan

8:05

Uh, you know, first started trying

8:07

to build social networks in China.

8:09

First you know, a sort of Friends to

8:12

Facebook lookalike, and then something

8:14

that looked an awful lot like Twitter. UM

8:16

with a handful of co founders, and after

8:20

first blowing through the you know, early steaks

8:23

from friends and family and then suffering

8:25

crackdowns from the Chinese government, decided

8:27

to try to do something a little

8:29

less potentially controversial. UM

8:32

so spent heavily,

8:34

thanks to the early investment

8:36

actually by Ali Baba's founder

8:39

Jack ma Um to sort

8:42

of take the lead in what was

8:44

known for some time as the hundred

8:46

group on war in China. Well, and what's interesting

8:48

though, is he so he starts this company, he

8:51

gets the investment from Jack Ma of Ali Baba,

8:53

right, but he also starts kind of spreading out some of his businesses

8:56

or where he wants to kind of do business

8:58

extensions, right, and that costs

9:00

more money, and that's when Ali Baba says, we're

9:03

not so interested in doing another round, right. Yeah.

9:05

The the terms

9:07

that Ali Baba said at a certain point where

9:10

mach One was, you know, the

9:13

biggest ish player in the field along

9:15

with ten Cent back to Young Ping, was

9:18

you know, look, well we'll give you more money to

9:21

stretch out for around, but

9:23

you have to agree to basically

9:25

merge the app with Ali Boba, including a lot

9:27

of the customer data and all that good stuff. Because

9:30

this was coming at a point where the

9:33

group on model just wasn't going to

9:35

be sustainable. They were essentially going to run into the

9:37

same thing they had run in in their previous

9:40

startups, which was like it's just

9:42

not going to grow. And they really got into

9:44

this delivery business and that's when it really

9:46

accelerates. Right. Yeah. Match one alone

9:49

now delivers us some uh,

9:52

you know, twenty million or so delivery

9:55

orders a day through about six

9:57

hundred thousand delivery

10:00

agents across about three

10:02

thousand cities and shine twenty million.

10:04

And put that into context for US versus

10:07

like a grub Hub or something like that. Grubbub,

10:09

which is the biggest player in a comparable

10:12

market in the US, really is

10:14

delivering about five hundred thousand orders, five

10:16

thousand versus twenty million. Yeah, it's amazing.

10:19

And make Juan's customer base is close to four million

10:21

people in a given year. That's just staggering, all right. So

10:24

all right, so they decided not to kind

10:26

of roll their business into Ali Baba, right

10:28

and then so Ali Baba goes one way and Mawan

10:31

goes their own way, right all right, in fact

10:33

absorbing it's it's then rival

10:36

gen paying with help and funding

10:38

from ten cents. So after

10:41

that, Ali Baba said, basically,

10:43

we'll try to spend you into oblivion

10:45

and buy the market for ourselves. Well, and that's what's important

10:48

right now. These two are head to head in competition,

10:50

right, and so there's a price for going on which is wonderful

10:52

for consumers, which goes back to what you said at

10:54

the beginning, Jason, that it's cheaper to get

10:57

something delivered than actually go to

10:59

the checkout under and paid for it. Absolutely

11:01

often on the order of cheaper

11:04

depending on what you want for dinner. And

11:06

so is that sustainable? Are these

11:08

guys going to essentially drive

11:10

themselves into oblivion by this

11:12

price war? It's so it's a real gamble.

11:15

I mean, you know, Ali Baba has plenty of

11:17

cash to burn, um, but

11:19

you know it's also a company entering it's it's

11:21

third decade with public market

11:24

investors to appease, and so that's sort of

11:27

sing launching gamble here

11:29

that uh, he's betting

11:31

that Ali Baba has about another year or so

11:33

it can do this and they have the money to

11:35

keep going for several years. Tell us about this guy,

11:37

because I just find anybody's going up against Ali

11:39

Baba man has got to have a

11:41

lot of nerve. So tell us a little

11:43

bit about this character because I think, um,

11:46

he's got a role model that that's written

11:48

about this story, and it's Jeff Bezos. That's right.

11:51

Yeah, as you guys kind of a looted He's

11:53

he's really doubled down on

11:55

the bezis reinvestment model, this idea

11:58

that uh, you know, succeeding some

12:00

degree in a particular business means you have

12:03

money to play with to try and expand

12:05

into an adjacent business. And so, you know,

12:07

as they've gotten better at food

12:09

delivery took over China's movie

12:11

ticket online marketing, basically

12:13

created the market for movie tickets online. That that sort

12:15

of thing one thing that I want to make sure people

12:18

understand because I didn't fully

12:20

comprehend it. I'm sure you did already, Carroll.

12:22

Is the market opportunity here

12:25

because of Chinese population.

12:28

The US has tensities with a million or more people,

12:31

China has a hundred and fifty six.

12:34

I stopped cold while I

12:36

was reading that. Can they get to

12:38

a sizeable chunk of this

12:40

market? It seems reasonable to

12:43

to leave. Yeah, I mean, that's

12:45

the other real, real reason that Ali Baba has

12:47

to try and spend them into the ground here. I mean,

12:50

depending on who you ask it, say, a

12:52

relatively conservative estimate is that this thirty

12:54

five billion dollar market for delivery services

12:56

of all kinds will basically be about

12:58

eight hundred billion dollars a year, and

13:03

a lot of that growth is going to come at the expensive,

13:05

old line conventional e commerce businesses like

13:07

Ali Baba, especially like Aliba, the law of large

13:09

numbers. But you know, it's interesting this company is improfitable,

13:11

which isn't surprising if they're having these pricing wars

13:13

right now, right true. I mean the part

13:16

of the problem is is you know that they're in this billions

13:19

of dollars a year war of subsidies, and part

13:21

of it is, as you say, this, this Bezos model of

13:23

um you know, trying to jump into new

13:26

a very expensive businesses whenever they see an

13:28

opening. I feel like, whenever I read a story about this,

13:30

I just think about what's going on in China and how

13:32

much is being done on your phone right ahead

13:35

of We do a lot of delivering, but only

13:37

if you're our delivery, only when you're in kind of large

13:39

cities, right. I thought maybe you were talking about that.

13:41

I thought so that I didn't know about that food.

13:44

No, I'm not doing that. But it's just fascinating

13:46

how much far ahead are further ahead that they

13:48

are then like the United States? Right,

13:50

Yeah, this this has been a huge, i mean leap frog

13:52

moment certainly for people in the cities there.

13:55

And you know, as you might imagine, it's it's because

13:58

of some relatively advantages

14:00

of the China has but also some disadvantages, like

14:03

it's more appealing to uh

14:05

to order in all the time when you know the

14:07

traffic is horrible right outside your door.

14:09

That's editor Jeff Muscus and care. What I

14:12

love about that story is it's sort of takes

14:14

some twist and turns. You know about Ali

14:16

Baba, you know about ten Cent obviously,

14:19

and here comes this company

14:22

that both represents something from

14:24

a commercial and from a corporate perspective,

14:26

but also from a consumer perspective as well.

14:28

Right, and I just love the relationship between Matoin

14:30

and Ali Baba. Right. Ali Baba basically

14:33

you know, helped get that company started and other

14:35

enemies. It feels like, well, everybody

14:37

wants a piece of the video game

14:40

business. That seems these days, Google

14:42

the Latest and maybe Apple even later than

14:45

that, aiming to be the Netflix of

14:47

this sector. Garrett Devink joins us with the

14:49

Latest. Everybody loves video games. Who's

14:52

gonna win? That's a

14:54

great question. And you know, it's interesting because video

14:56

games obviously has been something that the tech

14:59

giants have been into before. Obviously

15:01

Google has the huge Android

15:03

app store. Mobile gaming is a huge part of the

15:05

industry. But we're talking right now about

15:07

sort of that hardcore console gaming industry.

15:10

So people who use xboxes, PlayStations

15:12

and really expensive PCs to play these

15:14

sort of large, very expensive

15:16

games that take years and sometimes hundreds

15:18

of millions of dollars to make. And so the technological

15:21

change we're going through right now allows

15:24

those expensive games to be streamed through

15:26

the internet, just like shows and TV

15:28

on Netflix. Even though you're playing

15:30

a game you don't need, you won't need to have a console

15:32

or a PC. And so that allows the tech

15:34

giants Apple, Google, Microsoft,

15:37

maybe even Amazon to jump into this industry

15:39

and really disrupt it. Well and gear. Before we get

15:41

too far away from that, I want to go back because

15:43

I think when people think about video games, they think

15:45

about exactly what you're talking about. You

15:47

know, you got about the latest console, and

15:49

what are you playing on and when's the

15:52

next big game coming out to like movie releases.

15:54

To some extent, some of that may not

15:56

change, but like you say, this whole

15:59

notion of that hardware piece,

16:01

that's radical, right, Yeah.

16:04

I mean we've had hardware consoles for decades

16:06

and they really became popular, especially in North America

16:09

in the eighties with Nintendo coming out

16:11

and then Sony quickly following with their

16:13

PlayStation, and in the early two thousand's

16:16

Microsoft sort of fought their way into the market with

16:18

the Xbox. But for that whole thirty year

16:20

period, you've essentially had a new console

16:22

come out every four to five, six seven

16:24

years and it costing you, you know, between

16:27

four and five dollars, and most people upgrade

16:29

and some people love Xbox, some people love PlayStation.

16:32

And the way that that industry has worked as those companies

16:34

have then gone and gotten exclusive deals

16:36

with games makers to sort of bring

16:38

you to their console because you want to play Halo

16:41

or you want to play you know, Red Dead Redemption

16:43

too. And at this point, if we're going to

16:45

be streaming games and through a subscription

16:47

service, that really shakes it all out. And

16:49

so how does it shake up the video

16:52

game makers? Because those are stocks

16:54

We talk about them just about every day. I feel

16:56

like, whether it's Activision, Blizzard, or e

16:59

A Whoe or Take

17:01

two for that matter, how

17:03

does it change the equation for them?

17:05

So those companies, I mean, like you said, almost

17:07

like movie releases, in some cases bigger than movie

17:09

releases, right, So Red Dead Redemption

17:11

two when that came out last year, I

17:14

believe it made seven million

17:16

dollars in its opening weekends, So that's more

17:18

than the latest Avengers movie made and it's opening

17:21

weekends. So this is a big money

17:23

production. It takes years to make hundreds

17:25

of millions dollars to put together hundreds of workers

17:28

working on those games. And so the

17:30

way that those that the economics

17:32

of that industry has worked is hoping that people

17:35

you know, shall out seven or eighty dollars when

17:37

the game actually comes forward. And so

17:40

at this point, those games makers, the ones

17:42

you mentioned, you be, Soft Electronic Arts Take

17:44

two, they still have a lot of power because they

17:46

have the content and just like HBO

17:49

hasn't sort of gone away in the Netflix world,

17:51

in fact, maybe they've gotten stronger. If

17:54

they have that premium content that everyone really

17:56

wants, they hold a lot of power. So when

17:58

these streaming services were announced, you know,

18:00

they were announced without any deals

18:03

with those major gamemakers, so there's

18:05

no sense of whether or not those games will

18:07

actually be available, and if those

18:09

big tech giants want them to be available, they're

18:11

really going to have to pay up to get them. Well,

18:13

and it's so interesting you bring that to the

18:15

four because with the Apple event,

18:18

you know, one of the things that people were so

18:20

taken with is the fact you have Oprah and Jen

18:22

Aniston and Big Bird on the stage. Obviously

18:25

they've got the content side of the Apple

18:27

TV plus worked out.

18:29

So who's got the edge, Apple, Google,

18:32

Microsoft, none of the above. I

18:35

think Microsoft is probably the one that you

18:37

want to look at, is probably the most interesting at this

18:39

point because they've been in in gaming

18:41

four years right with the Xbox business.

18:44

That's a business that they want to make sure doesn't

18:46

get you know, destroyed by this

18:48

cloud gaming, So they want to be right at the center of it.

18:50

They already own um some serious

18:53

development studios. They of course

18:56

bought Minecraft several years ago. That was

18:58

a two point five billion dollar quisition

19:00

for one of the most popular games out

19:02

there. And so they have the expertise, they

19:04

have the industry knowledge, and they already have some

19:06

of the games to really make a splash.

19:09

But we don't know exactly what their service is going to be.

19:11

Like. There was a memo that was

19:13

leaked from Microsoft's head of gaming

19:15

that said we're gonna go big at

19:18

the next Big E three conference in June.

19:20

So that's sort of the video game industry's

19:22

annual big conference, and so we'll see

19:24

what they have up their sleeves. So much of it

19:27

is mobile and that clearly seems to

19:29

be a big piece of this, especially

19:31

for Apple and Google. Right, yeah, and and and

19:33

that's something that these companies are

19:35

they have the capability of doing right. And when you looked

19:37

at Google's presentation, it was all about,

19:40

you know, being able to play a game on your computer

19:42

at home and then sort of gotta

19:44

run, gotta gotta get on my commute, you know, transferring

19:47

that game to your mobile phone in a sort

19:49

of a seamless experience. You don't need to save and log

19:52

out, log back in. And that's something that

19:54

requires a lot of Internet infrastructure. That's

19:56

Garrett divinc and care. What's so interesting here?

19:59

Is we a lot about the video

20:01

game makers on our daily Bloomberg

20:03

Business Week show Matthew Kenterman one of our favorites

20:06

who really takes us inside and helps us

20:08

understand those hit machines. When you think about Activision,

20:10

Blizzard, you think about Take too interactive, and

20:13

yet Microsoft still looming

20:15

large as we begin to well

20:17

not you and me, but as folks

20:20

out there, as the kids today continue

20:22

to figure out new and different ways to play video

20:24

games, and they're fickle, and I feel like Microsoft

20:26

in the last few years, between cloud and between

20:28

video games, man, they are just kind of really

20:31

taking over a lot of markets. So this story

20:33

in the finance section is about what some say is the

20:35

dirty little secret of ETFs. Here to fill in

20:37

the blanks reporter Zach Mider and Rachel Evans.

20:40

So, guys, take me back, because you start

20:42

the story this way to September

20:44

and what happened September.

20:47

We saw this enormous kind of like inflow

20:49

of cash into a technology fund, followed

20:52

a day later by an outflow of cash. Now, this is something

20:54

that we've been watching for on the E t F team

20:56

for a while. We'd heard about this big

20:59

index rebalancing. It was going to take place in September

21:01

as the gigs that they're the classification

21:03

system for the SMP five got rejected,

21:06

so we were kind of like waiting for this. But when we saw

21:08

the inflow, it was a really really large one

21:10

more than three billion, kind of coming in on one day and going

21:12

out the next day, and it kind of like got us

21:15

thinking, certainly about kind of like what these

21:17

kind of trades are all about. We've seen kind

21:19

of these trades in the past. It typically happened

21:21

when you do see an index rebalancing, you see

21:23

kind of the e C flight, sort of like getting rid

21:25

of the stock that it no long longer needs and trying

21:27

to get in the stock that it does now want to own.

21:30

A normal part of market actually very much

21:34

but a very very large trade. And this was

21:36

something that I think that kind of picked up on. So tell tell

21:38

me what you picked out that well,

21:40

So the it looks there's

21:43

like kind of a totally innocent explanation for it,

21:46

which is just this is how this

21:48

fun needs to get rid of a few stocks

21:50

and get some other new stocks, and this is how it's

21:52

doing it. But that's actually not what's really

21:55

going on, um Because

21:58

if they wanted to do that, then they could just weight until

22:01

market closed on the day that the index

22:03

change took place, and they

22:05

could sell the stocks that need to

22:07

leaven by the nu ones, or they could swap

22:09

with an investment bank or something. But instead,

22:12

two days ahead of time, they're having a

22:14

bank put new stock into

22:17

the fund, become a big investor in the fund, of

22:21

the fund increases in size, and

22:24

the stock that the bank is putting in includes

22:26

the stock they need to get rid of two days later,

22:28

So why would they be doing that. It just seems

22:31

kind of illogical on its face. So

22:34

why would they be doing that because

22:37

if they sell the stock or swap

22:39

it with an investment bank, this is like Facebook

22:41

stock, they need to get rid of. It's appreciated in value,

22:44

it's got a big built in gain.

22:46

If they sell it, they have to

22:49

report that gain to the I R S and and

22:51

their investors have to pay tax on

22:53

it. But if an investor in

22:55

the fund wants to withdraw

22:57

from the fund and they of

23:00

that stuck away to the investor, you

23:02

know, is compensation for them leaving. There's

23:05

no tax too. And so they

23:08

have a bank come in and be an investor

23:11

for forty eight hours and that's enough

23:13

to make the tax bill just disappear. And

23:15

it's legal. Yeah, I mean, it's kind of

23:17

a quirk of kind of like the ETS structure,

23:20

and that they have the what we call in kind

23:23

creations and redemption. So that means that the

23:25

way they work when the fund expands in size

23:27

is that someone delivers over a portfolio of stocks

23:30

into the fund. They get shares back in return. And

23:32

that money kind of like swells the fund in assets.

23:34

If they want to take their money out of the fund, they

23:37

again go to the the t F, give the

23:39

over their E t F shares and get a bunch of stocks

23:41

back from them. So what I thought was really interesting

23:43

and that is that kind of like sort of joined the dots

23:45

on was kind of like, what this means from a tax perspective.

23:48

Yes, it is very much a kind of de facto way

23:50

and the funds work, but the tax side was really really

23:52

interesting. Let's go back to the tax side because it actually

23:54

goes back to a tax law, right

23:57

or change in nine. Take

23:59

us back there and what happened world

24:03

of ets? Right, Yes, twenty four

24:05

years before the first U S E. T F

24:07

even existed. Back then, the

24:10

only thing Congress was thinking about was mutual

24:12

funds because they were the only kinds of funds

24:15

that were regulated by this part of the tax

24:17

law. Congress was cracking

24:19

down on tax dodging among insurance

24:22

companies, and in order to do

24:24

that, they said insurance companies basically in

24:26

the sixties big bull market, they

24:28

had all these investments that had gone

24:31

way up, and so they said, rather than um

24:34

pay tax on those stocks to sell

24:36

them. We'll just do share buybacks and

24:38

instead of cash, we'll give you these

24:40

appreciated stocks. You don't have to pay

24:42

the tax on them, and neither do we. And

24:45

so Congress got winto that and said no

24:47

more, that's illegal now. But

24:50

we're going to exempt mutual fund companies

24:52

for reasons they never really explained. But

24:54

that didn't matter much because mutual fund companies.

24:57

Mutual fund companies don't really do that. They never

24:59

have. They they did, hadn't before, and

25:01

they haven't since. Right. We don't. Phone companies are different

25:03

from a t S right in terms

25:06

of how they were, and which is why they wouldn't take advantage

25:08

of this. They trade generally directly

25:10

with retail investors.

25:13

An investor opens an account, when they withdraw,

25:16

when they close that account, they want cash. They

25:18

don't want a basket of five stocks

25:21

to try to go sell. They want cash. And so

25:23

mutual funds don't really use this

25:25

loophole of very often of giving

25:28

withdrawing investors this pile of

25:30

securities rather than cash. I have to say,

25:32

when I read this, I was just thinking about the coordination

25:35

that had that's necessary right to get the

25:38

bank that buys

25:40

into the fund right a few days

25:42

ahead of when the selling is planned.

25:44

So tell me about that coordination and

25:46

how that came to be. So I the understanding

25:49

that we have kind of how these trades work is that

25:51

basically a few days before the the index is due

25:53

to rebalanced, before you know, stocks have to

25:55

kind of like leave the fund that the ETF

25:57

manager or their trading desk will pick up the phone

25:59

and cool around a few different banks. Who do they?

26:02

So they might be Goldman Sacks for example, Bank

26:04

of America, Merrill Lynch, Credit Swiss.

26:07

So these banks are all what we call authorized

26:09

participants. Now, this gives them a special privileged

26:12

role within the e t F ecosystem. That basically

26:14

means that they are the only people that can create and redeem

26:17

e t F shares. So given that the

26:19

e t F manager needs to have this big creation

26:21

coming in so they can have a big creation going out

26:23

and wash out all of that taxes, they

26:26

call up these authorized participants, these banks

26:28

and say, hey, we've got this big index rebow

26:30

coming up. Would you guys mind doing

26:33

us a favor? The bank will, I'm

26:35

and are about it? Look at the kind of economics for

26:37

them and ultimately they will make a decision based

26:39

kind of on the relationship that they have with that because

26:41

they don't get a lot of fees in doing this, right, it's really about

26:43

the relationship that they're banking fees

26:46

that by law they can't get paid

26:48

a commission or a fee by the e t F

26:50

manager for this service they're providing,

26:53

which costs them a the cost

26:55

of their capital to be tied up three billion dollars

26:57

for two days, the cost

27:00

that it takes to hedge because obviously the bank is not

27:02

going to take any risk. They don't want to be

27:04

exposed to the market, so they're going to hedge their

27:07

exposure. So

27:10

they're incurring these small

27:12

but uh non trius,

27:14

small but non zero costs of

27:17

doing these transactions because

27:20

it's all relationship exactly. The

27:22

future business right and other in other walks

27:24

of the financial decide. If you if you are a bank

27:27

and you are doing business with black Rock or Van

27:29

God, you definitely want to be continuing to do

27:31

business with black Rock ll Van God, and you don't want them necessarily

27:34

going to another kind of bank. But

27:36

it's it's important to point out here

27:38

that some of the market participants

27:41

we talked to dozens of market participants for

27:43

this story. They all virtually all give

27:45

that account. But when we spoke

27:48

to the banks UH spokespeople

27:50

and the mutual and the fund

27:52

managers spokespeople, they give us a very

27:54

different account. What do they say, Well, it's

27:57

important to note that from the I R S

27:59

S perspective, the I R S make

28:01

care very deeply whether the banks

28:03

have some independent economic reason

28:05

to enter into these transactions or

28:07

whether it's just a favor to help someone

28:09

else avoid taxes. That might be a

28:11

key thing for the I R S. So the banks

28:14

and the banks and the fund managers

28:17

basically got legal opinions that

28:19

said, as long as the

28:22

bank has some economic reason to do it,

28:24

it's okay. And so what they've

28:26

told us on the record is that they

28:28

believe that the banks have some kind of economic

28:31

incentive to do this that's independent

28:34

of them asking them and calling in a favor.

28:36

Well, it's interesting you brought up to the I R S because I did

28:39

wonder about, you know, oversight, is this becomes

28:41

more well known, you know, what might

28:43

regulators do? Will they be looking to

28:46

kind of close this loophole? I don't know, what do

28:48

you call it Is it a loophole? Is it a so

28:51

the that we call them sometimes

28:53

heartbeats, these large transactions that happen,

28:56

and that is something that you could

28:58

imagine the tax authorities

29:01

they say they know about them, so we don't know if

29:04

they're considering doing something or whether

29:06

they've already kind of privately blessed these

29:08

transactions. But you could imagine

29:11

the I R S saying, uh, this is

29:13

a charade. What you're really

29:15

doing is selling appreciated stocks

29:17

to the bank and not paying taxes on it. So

29:20

we're going to call this an abuse of transaction

29:22

and and and send you a tax bill because

29:25

you haven't seen that happen yet. And it may be

29:27

that the I R S has decided not to. We don't know.

29:29

They won't tell us because Zach Rachel, I mean, I'm

29:31

thinking, what we're talking billions of dollars

29:33

essentially potentially in tax

29:36

revenue, right, yeah, I mean there were some

29:38

calculations that Zach and a callie

29:40

Carolina works on, and I think, how how much do you work

29:42

out to be in the end? So, uh,

29:46

the big benefit here is not really

29:48

avoidance, but deferral et

29:51

F investors rather than having

29:53

to pay tax every year when

29:55

the fund realizes

29:57

gains, they get to sort of save up

29:59

all those tax bills till the end. Whenever

30:02

they sell their etre sell the e t

30:04

F, most but not all, of those tax

30:06

bills will have to be paid. So this is

30:08

mostly a deferral benefit. And by

30:10

our math, something like two

30:13

d and twelve billion dollars

30:15

of capital gains were essentially

30:17

avoided by e t F s last year.

30:20

So that's sort of as if there was like

30:22

maybe two dollars

30:25

billion dollars or so of taxes

30:28

that would have been due by the e t

30:30

F investors that they get to essentially

30:32

differ indefinitely until

30:34

whenever they sell the fund, be it next

30:36

year or a decade from now. That Zach

30:39

Madern, Rachel Evans, it's a great story. They

30:41

talk about heartbeat. It all has to do with the huge

30:43

E t F market, a five trillion dollar market.

30:45

It's a tax dodge. It's totally legal,

30:48

but it's certainly going to have some of us scratching our heads.

30:50

All right, So, amid a lot of flooding in the

30:52

Midwest, a lot of concerns about climate

30:54

change, it ultimately is

30:56

going to affect real estate maybe it already

30:59

is. James Tarmi with a great

31:01

story in the magazine about the

31:04

coast insurance and

31:06

ultimately home prices. What's happening,

31:08

Well, there's not much happening, and this is confusing

31:11

and concerning a lot of people. The issue

31:13

is that extreme climate events are increasing

31:16

in their frequency and severity across

31:19

the United States and across the world. And

31:21

the issue is that in the United States at least,

31:23

insurance premiums are staying completely stable,

31:26

which doesn't seem correlated to the

31:29

increased level of risk. And so

31:31

and as you say, this is happening all over the place. So let's

31:34

start close to home, just out on Fire

31:36

Island, you know, almost to the

31:38

Hampton's. This is coming to the fore right

31:40

now. If you walk along the beach, you can

31:42

see every spring that half

31:45

the houses have their decks wiped away. And yet

31:47

people can still build there. And moreover,

31:50

people are still getting insurance policies

31:52

to build there. And that's what's so confusing.

31:54

People have funding from

31:57

the federal government and they also have private

31:59

insurance, and that funding has

32:02

not gone up in cost, even

32:04

as the actual cost of that

32:06

funding has risen dramatically. And so why

32:09

what what accounts for this? Well, there are a couple of reasons.

32:11

On a federal level, it's really about

32:13

politics, and no one wants to be the person who says

32:15

we're raising premiums along both

32:18

coasts, right, there's zero

32:20

political will. And as a consequence, you

32:22

have farmers in Nebraska subsidizing

32:26

people with beach houses in New Jersey.

32:28

Well, and it's interesting when you frame it like that

32:30

too, and everything we think about,

32:33

I feel like sometimes goes through the lens of politics.

32:35

And you think about all those fundraisers that are going to

32:37

happen in the Hampton's probably starting this summer

32:40

leading into the election,

32:42

and you wonder whether a homeowner

32:45

there is going to be as enthusiastic

32:47

about having a candidates like, oh, and by the way, you're

32:49

going to pay a lot more to have this beautiful house.

32:51

Exactly, absolutely no one wants to do it, particularly

32:54

because more and more people are moving

32:56

to the coasts every year, more people move to

32:58

cities that are along east coast and along

33:01

the West coast. And then you also have private

33:03

insurance, and that's something very

33:05

different. But it's equally flat.

33:08

And the reason why it's equally flat is that there's a

33:10

ton of money coming

33:12

into the insurance market, and

33:14

there's also very little

33:16

will um from state regulators

33:19

to allow insurance companies to raise premiums

33:21

to levels that they think might be accurate. Well, let's

33:23

talk about more about that first point,

33:26

because that's another sort of Wall Street

33:28

twist here, is this is a really appealing

33:30

investment the insurance side of this, right

33:33

exactly. So, there is very

33:35

little correlation between financial

33:38

markets and extreme weather events,

33:40

and so very large funds,

33:42

hedge funds, sovereign wealth funds, and others have

33:45

basically used the reinsurance industry

33:48

for disaster risk as a hedge against

33:50

financial markets globally um and

33:53

that has just resulted in pardon

33:55

the pun, a flood of capital um entering

33:57

into the reinsurance market, which has made cap extremely

34:00

cheap and also has disincentivized

34:03

a lot of UH providers

34:06

from accurately pricing risk because it's not their

34:09

money. And meanwhile, as you say, people

34:11

continue to flock to the coast, You've got some

34:13

great stats in here. Real estate in Miami

34:15

Beach up sixty percent year

34:18

over year during the most recent fourth

34:20

quarter, UH

34:23

twenty four point eight percent up in Newport.

34:26

I mean it's happening everywhere, especially in the

34:28

more tony towns, right, exactly right.

34:30

Even as the carrying cost

34:33

of home ownership along the coast is going up, that's

34:35

not reflected in the prices, which in theory

34:38

would be going down as a result as of

34:40

these kind of theoretical higher carring costs, and that's

34:42

not happening. We're seeing prices increasingly

34:45

take upwards, even in a relatively

34:47

weak real estate market, especially at the high

34:49

end. We're seeing prices take up wards along

34:51

the coast real estate because let's not forget

34:54

a lot of these places are for high net worth individuals

34:56

who are buying houses that are vacation

34:58

homes. Right And and you point out in your

35:00

story very rightly that people don't

35:02

necessarily think about these as investments. Necessarily.

35:05

They almost think about them as a piece of jewelry

35:07

or something. You know, it's a it's a luxury

35:10

item at the highest level, absolutely

35:12

right. That said, I don't think anyone buys

35:14

any luxury item except for maybe a new

35:17

car that they're driving off the lot, thinking that it's

35:19

going to depreciate value by thirty

35:21

or forty And I think

35:24

that the much larger

35:26

umbrella implications of this entire

35:29

issue is that, um, it

35:31

could have a tremendous impact

35:33

on home ownership and

35:37

home values. If insurance

35:39

companies are gradually raising the price of

35:41

their premiums to accurately reflect that risk, then

35:43

all of a sudden, there will be a ceiling

35:46

where the cost of home ownership along the coast will

35:48

become prohibitive. And when it becomes prohibitive,

35:50

that will really ding and then oftentimes

35:54

we've seen, in smaller instances, cause

35:56

real estate markets to even collapse as a result.

35:59

We're spending a lot of time you and I talking about

36:01

the places closer to home for us

36:03

here in New York and and maybe on the

36:05

West Coast as well, but it's a different story

36:08

when you think about places like Louisiana

36:10

and other less affluent places in general.

36:12

This is really where it becomes

36:15

a federal issue. Right If an investment

36:17

banker loses his speech house, that's

36:19

not good for anyone, but that's

36:21

not devastating for him. If someone who's

36:23

in a lower income household loses their

36:26

place of residents, um, they can't

36:29

go somewhere else. They don't have the money to go somewhere

36:31

else, and oftentimes they don't even have job prospects

36:34

to go somewhere else, and so you're really

36:36

looking at the potential for federally

36:38

funded and as migration really where um,

36:41

you know, someone has to pick up the pieces, and it's

36:44

not going to be the private sector. That's James Tarmi

36:46

Caroll one of our favorites for sure. Oftentimes

36:49

he's talking about, you know, the latest trends

36:51

and dance in theater and books.

36:54

He always sets the scene every season for us.

36:56

But this is something in some ways

36:58

even nearer to people his hearts. Especially

37:01

when you think about the Hampton's. You think about all the coastal

37:03

real estate on the East

37:05

Coast, the West coast, and those homes are becoming much

37:08

more vulnerable because of climate change.

37:10

And what's interesting is James looks at the insurance

37:12

side of it, the cost of those flood policies

37:14

not necessarily keeping up with the potential damage

37:17

cost. Yeah, I have to say that story did not go where

37:19

I thought it was gonna go. In many ways, it's a great

37:21

piece. So not often do we read a story where

37:23

someone talks about Mother Teresa not being

37:25

scalable. But once you hear about Dr Devi

37:28

Shetty and his hospital. You'll perhaps

37:30

understand the reference. Ari Alstatta wrote

37:32

a fascinating feature story this week for the magazine

37:35

that takes us to a hospital in Bangalore.

37:37

Are joining us right now from Mumbai. So

37:39

great to have you here with us. It's one of my favorite

37:42

stories. Tell us about Dr Shetty,

37:44

Well, Dr Devi Shetty is a pretty remarkable

37:47

individual. It is, of course, born in India

37:51

and trained as a cardiac

37:54

surgeon in London, where he

37:56

noticed that they could do a lot more heart

37:58

surgeries in a day guy's

38:00

hospital in London than anyone could do anywhere

38:02

in India. So he decided, well, I'll go back

38:04

to India and see if I can at

38:07

least replicate that. Once he did

38:09

that at a hospital in Clokatta, he started

38:11

pushing himself a little more at various um

38:13

cardiac departments he was hired at all around

38:16

India, until eventually he came

38:18

up with this idea of what if we treat

38:21

cardiac surgery like an assembly

38:23

line, try to break it down into constituent

38:26

tasks, and then have only

38:28

the most complicated tasks

38:31

done by the most experienced and

38:33

highly paid surgeon. Everyone

38:36

else from junior surgeons to

38:38

highly trained nurses can handle all

38:40

the less complicated tasks. He found

38:42

that once he did this, the cost of surgery

38:45

went down a lot. So he founded his own hospital

38:47

in Bangalore and has been replicating

38:50

that model across all these different specialties

38:52

ever since to produce what we

38:54

call him the story, the cheapest hospital

38:56

in the world, and he makes a profit. So

38:58

again he the way he does this. And you talk

39:00

about de skilling, upskilling

39:03

or task shifting, um, talk to us a

39:05

little bit more about how this process works. Give us

39:07

an example. I'm assuming you went to some of the

39:09

hospitals right well, I mean I actually

39:11

got to watch a few surgeries

39:13

done in Oriana Hospital, and basically

39:16

what they do is they break up

39:18

the tasks into more and less complex

39:21

and ensure that the most complex task

39:23

um. You know, for instance, in a heart

39:26

transplant, that might be moving the patient's

39:28

heart out and taking putting

39:30

the new one in. That's only done

39:32

by the person who can only do that,

39:35

So that's the most experienced senior surgeon.

39:38

Now, so the experienced senior surgeon comes

39:40

in solely for that part of the operation,

39:43

but every other part of the operation

39:45

is done by other less

39:48

skilled, less expensive people,

39:50

whether that be a junior surgeon and one

39:52

of the surgeries I want to see it was actually

39:54

Dr Devi Shetty's son who was the junior

39:57

surgeon. But it could also be just highly trained

39:59

nurses who who have a lot more

40:01

training, a lot more experience than a usual nurse

40:03

and so they can handle more

40:06

complex tasks, but it's still cost

40:08

less than a surgeon. And I mentioned

40:10

in the introduction mother Teresa, and

40:13

she once, I guess, for a while, would

40:15

go with him on some of his rounds. She

40:18

inspired him, you right, but he realized

40:20

that Mother Teresa wasn't scalable.

40:23

Explained that right. Well, when when

40:25

Dr Chetty went back to

40:27

India from his training

40:30

in London, his first job was running

40:32

a cardiac hospital in Kolkatta, where

40:34

of course that's where Mother Teresa was

40:36

working. Um and Mother Teresa developed

40:38

a hard condition. So Dr Chetti ended

40:41

up treating Mother Teresa and they

40:43

developed quite a bond. Um. He

40:46

told me that that when she was in the

40:48

hospital, as soon as she was well enough, she

40:50

would just you know, a veronaccord,

40:52

just start following him around on his

40:55

on his rounds. And a lot of the a

40:57

lot of the patients he was serving

41:00

at that hospital, we're actually children with

41:02

heart conditions, um and and

41:05

the favor was returned. You know, Dr Chetty

41:07

on his days off he would go visit Mother Dresa

41:10

at her mission uh in Clocatta.

41:12

And so he was very inspired, he

41:14

said to me, by her sense of purpose. But

41:17

he thought, you know, there's so much need

41:20

in India, so many people need heart surgery

41:22

and whatever other kind of surgery that can't

41:24

afford it. And even though Dr Shetty himself,

41:26

would you know in Calcutta do free surgery

41:29

for very poor people, he thought, well, I can't

41:31

serve all the people who

41:34

need these surgeries just by doing it for free.

41:36

It's not you can't

41:39

scale it as as the venture capitalists

41:41

might say. So he decided,

41:43

well, I need to find a way to make this a business.

41:45

I need to find a way to make this a profitable enterprise

41:48

to be replicated at scale,

41:51

not just in Clocatta, not just in one hospital,

41:53

but all around India. All right. So he did

41:55

that. He has dramatically reduced

41:57

costs kind of through his assembly line surgery.

42:00

He makes a profit. Thrift is

42:02

everywhere, um is it's

42:04

safe? What what what has been

42:07

his mortality rates for

42:09

his surgeries. I'm just curious if they're safer or

42:11

less safe. The numbers

42:13

that have been released and have been looked at by the various

42:17

UM academics that have come

42:19

over in India to do case studies in Arianna

42:22

actually showed that his mortality

42:25

rates are at least the

42:27

same, if not better for select

42:29

surgeries then US

42:32

counterparts or international benchmarks.

42:34

UM. You know, particularly for heart

42:36

surgeries, which is sort of you

42:39

know, it's the it's the it's

42:41

his Dr Chetti's specialty. It's

42:43

it's the specialty that the chain was sort

42:45

of built on. UM. You know, for

42:47

cardiac bypass graphs, his

42:51

survival rates are better than US hospitals.

42:54

UM. So particularly in these, in these

42:56

surgeries that Mariana

42:59

Health has developed a lot of proficiency, and

43:01

the ones where the assembly

43:03

line model has been perfected as

43:06

much as it can be, and and where

43:08

surgeons from Dr Shetty himself to his

43:10

various other employees had developed

43:13

high levels of proficiency by doing literally

43:15

hundreds of surgeries UH in

43:18

the course of just a year. UM,

43:20

the survival rates can actually be better. He's

43:23

now under pressure to even reduce his

43:25

cost even more. This has to do with Mouldicare

43:28

the people's health plan in India that

43:30

is being put in place. Can he do it

43:33

well? Dr Shetty thinks he can.

43:36

He he you know, is trying

43:38

his best to apply the same principles

43:40

that got his costs this far. Ones

43:43

of scale, ones of increasing

43:46

UH surgeons proficiency,

43:48

one of breaking down tasks in

43:50

order to lower the labor

43:52

costs and increase utilization rates. UM.

43:55

He's trying to push that to its limit. But

43:57

at the same time he's also looking

44:00

UH at more high tech solutions,

44:02

namely data. The people

44:05

in Ariana they've actually started

44:07

sort of an in house tech startup UM

44:09

and what they're trying to do is build a back

44:12

end hospital system, hospital

44:14

administration system that's going to run throughout the

44:16

hospital and record every

44:18

bit of data from prescriptions

44:21

to admissions, two bills

44:24

too, complications to use

44:26

of pacemakers or use of a syringe,

44:28

even an MRI machine and get

44:30

all that data and then analyze

44:33

it. So that's of course our reporter ari alsted

44:35

Are we talked with him from Mumbai, Jason, but

44:37

I love he talked about Dr Devi Shetty

44:39

and his hospital and Dr Shetty's

44:42

goal is really to create a model for healthcare that's

44:44

disassociated from affluence. That's

44:46

his mission. It will be interesting to see

44:48

how much this is picked up around the world. You

44:50

think about the cost of healthcare here

44:53

versus there in the Western World versus some

44:55

of these emerging markets, and it is staggering.

44:58

And his mortality rates for some of the surgery much

45:00

better than even some of the developed markets like the United

45:02

States. For a long time, it was the pipeline company that

45:04

no one had really heard of until it wasn't

45:07

enter the Dakota Access Pipeline and its

45:09

owner, Energy Transfer in

45:11

the future section more on this company thanks

45:13

to reporter Devin Leonard. So tell us about

45:16

this company, because you're right, this isn't the one I feel like we

45:18

talked about on a regular basis. No,

45:20

that's the thing. This is a story all about Kelsey

45:23

Warren. He's a CEO and chairman

45:26

of Energy Transfer, and basically

45:29

energy Transfer sort of part of this whole sort of corporate

45:31

empire. You had a pipeline empire, and

45:34

there was there is Energy trans for partners. There's Transfer

45:36

Equity, a subsidiary

45:39

called Sonocco, and they they combined a

45:41

bunch of stuff. Now they're just energy transfer as

45:44

of October. But basically, you know a lot of

45:46

generically named companies. You

45:48

know, people pipelines. People don't underground

45:51

what's in them. Maybe sometimes it's crude oil. Sometimes

45:54

that nobody necessarily, right Carol

45:57

Wha, Yes, because you can make

46:00

a lot of money. It's a cash cob business. And basically

46:02

he became, you know, one of the world's

46:04

richest men, you know, you know, at the height

46:07

of you know, the I

46:09

guess the sort of oil boom you know, two or

46:11

three years ago. Who's worth more than seven billion

46:13

dollars. We built a lot of pipelines, right, yeah, yeah,

46:15

yeah. Um. The thing is just that a

46:18

lot of the business was in Texas, you know, you

46:20

know, Oklahoma, places like that, where people

46:22

you know, pipelines, the web business. Hey, come on,

46:25

it's part of our you know, we get it, right, Yeah, it's

46:27

yeah, you know, that's our industry. It's part

46:29

of our you know, local fabric and everything. But

46:32

then as the shale revolution

46:34

took off and you know, they're finding you know, you

46:37

know, gas and oil and places like Pennsylvania,

46:39

Ohio and also in north North Dakota,

46:42

he started building up there, which of course is you know,

46:45

you know, it makes sense. There's not enough pipelines

46:47

there. It's a ton of oil. They gotta get it out of there, right,

46:49

But Northeasterners are cranky or

46:53

pushed back. I guess you could say he ran into some pretty

46:55

cranky people in North Dakota too,

46:57

and all of a sudden, energy transfers business

46:59

wasn't someone. It's funny where well what happened, because you actually

47:01

start your piece. I think he was testifying,

47:03

right, and what was going on. Well,

47:06

the sholds, the shareholders shareholders

47:08

lawsuit and basically they were saying that the shareholders

47:11

were saying they were cut out of a deal. Energy

47:13

Transfer issued sort of shares privately

47:16

to a bunch war and and a much insiders,

47:18

and they got sort of guarantees that you know,

47:21

that their distributions we protected, whereas the

47:23

raap gard shareholders didn't. But but in the

47:25

midst of that, Warren's

47:27

talk talks about all his projects, and that's why I wrote

47:29

about them. But talking about how hey, you know, you

47:31

know, we're our pipelines are game changers.

47:34

Nobody's built more of them in the US than than

47:36

we have, and you know, and and

47:38

and just you know, ragging about all this stuff. You

47:40

know, you know, you know, it's kind of fun. But then you know,

47:42

you know, at the same time, he's sort of conceding that well,

47:45

you know, the code access I got a

47:47

little bit of fame, and you know almost almost like

47:50

you know, kind of kind of cringing over that. He's an

47:52

interesting Why are you writing about this guy

47:55

now in this company now? Well,

47:58

because one of war arguments

48:00

has been that we're doing

48:03

nothing wrong. Our problems

48:05

are being caused by environmentalists who basically

48:07

just don't like us because they want to keep oil and gas

48:09

in the ground, you know, you know,

48:12

for climate change reasons. But um, but

48:15

and you know, you know, and and they're just making

48:18

up all the stuff about the spreading you know, misinformation

48:20

about this and he literally Energy

48:23

Transferred fought the federal racketeering

48:25

suit in late two thousand and seventeen,

48:28

you know, against Green Piece and a bunch of environmentalists,

48:30

you know, saying just that The problem though,

48:33

is is that as they're moving into all these

48:35

other states, the people who are

48:37

pushing back aren't environmentalists there,

48:40

you know, they're landowners, homeowners, right,

48:42

Well, yeah, and yeah, and then you know, you

48:45

know, environmental officials in states like

48:47

like Ohio, which is which you know was

48:50

controlled by Republicans, and in Pennsylvania,

48:53

where they've been very supportive you

48:55

know, you know, the whole shale boom and the Marcels

48:57

you know, shale fields and all that stuff, and

49:00

as you say, homeowners. And

49:02

also you know right now there's you know, they're facing

49:04

you know, multiple criminal investigations, so

49:06

you know, you know from Republican

49:09

you know, d as in some counties outside

49:12

of Philadelphia. So I mean

49:14

to say, this is all you know, you know,

49:16

this is all being cooked up by you know, by but

49:19

by a bunch of greenies. That's just not true. But

49:21

it's kind of fascinating a snapshot into

49:24

this kind of individual company. Where do we stand though

49:26

with with the shareholder

49:28

suit and the

49:31

energy transfer you know one the shareholder

49:33

suit and you know, you know, basically Judge

49:35

refused to you know, to overturn the

49:37

private share issue. There's been a couple

49:40

of projects that they that you know,

49:42

you know, that were they under fire on. The code

49:44

access is one. The Rover pipeline in

49:46

um, excuse me, the Midwest was

49:48

another Mariner East is you

49:51

know, it's the one in in in Pennsylvania

49:53

that that's sort of husually controversial. But Dapple

49:56

Dacode Access has come online, rovers

49:59

come online too. They're they're

50:01

they're they're still having problems in Pennsylvania and they're

50:03

facing multiple criminal investigations.

50:06

So yeah, I mean, he wishes

50:08

that they were kind of more unknown. Well

50:10

the interesting he's well,

50:13

here's really where we are now. Where we are now

50:15

is that you know? Uh. In February,

50:19

Warren finally said, hey, we made some mistakes, did

50:21

yeah, and a conference call. So so I mean, maybe

50:26

maybe that's the beginning of something because because I think a lot

50:28

of people people would say, you know, smart

50:30

guy, really great deal maker, but too

50:32

aggressive and and and and

50:35

and that's gotten the company into trouble. So that's

50:37

Devin Leonard, our reporter. And it was interesting.

50:39

This is a pipeline company, not one

50:41

that we talked about everyday, energy transfer,

50:44

nor it's CEO, but it is certainly

50:46

front and center now and he is front and center right

50:48

now. Absolutely, And you think about

50:51

the twists and turns of the energy market,

50:53

and people have come to the four faded

50:56

away. It's a boom and bus business but

50:58

certainly much more in this these days. So

51:01

more pressure than ever on CEOs thanks to social

51:03

media, activist investors and the world simply

51:05

moving faster. So the strategy

51:08

section this week taps into what's necessary

51:10

to be a leader today. Dimitri Hassanidis

51:13

is editor of the section. So smart

51:15

to take a dive into this because I do feel

51:17

like CEOs have more pressure on

51:19

them than ever. They've really got to hit the ground running. Yeah,

51:21

think about it. Shareholders right are acting

51:24

out lots of activists in prestors. You

51:26

know, companies are complicated

51:28

and complex these days. They're different.

51:31

Running them is different. How you hire people, how you

51:33

groom people. They have a very short

51:35

sort of timeline to prove themselves. Uh.

51:38

Social media does put pressure. All kinds

51:40

of media attention puts pressure. So um,

51:43

and then how we consume technology, Like think

51:45

about the tools that people use today and can

51:48

make your life more efficient, but they can also like make

51:50

your life kind of crazy. Right, So we decided

51:53

that we were getting you know, from time

51:55

to time we look at some of this stuff and we're taking

51:58

a deeper dive into it on occasion now and is

52:00

this week in this section, and trying to offer people

52:02

really meaningful you know, advice

52:05

and information about how to go forward

52:07

in their leadership roles, whether you're a CEO,

52:09

C suite you know, senior level manager.

52:12

That that that's what we're trying to do a toolbook.

52:14

Now it's great. Well, I thought there was a fascinating stat

52:17

um that was in there. More than CEOs

52:19

who left their positions last year more

52:23

than in ten and to

52:25

shy the highest annual CEO departures, which

52:27

was back during the financial crisis exactly. Ye

52:29

wow, it's a big number. So there's a lot

52:32

of rotation, there's a lot of that door. That

52:34

door is revolving. And that's

52:37

the story that we have in this section that really

52:39

looks at you have a very short

52:41

time line to prove yourself. What do

52:43

you do? How do you go in there? Established

52:46

some priorities, decide what your

52:48

mode of communication is going to be with everybody, be

52:51

open, you know, manage expectations

52:53

so that people understand my goals are these

52:56

for the next six months, attached a timeline to it.

52:58

Shareholders really at the idea

53:00

of three months increments right given

53:03

quarters and all. So you know, that's

53:05

one piece of advice commitment don't

53:07

overcommit, I mean, be realistic.

53:09

Be aspirational certainly, but be very

53:12

realistic because the pressure is

53:14

on and you really have so many different populations

53:16

of people looking to you to prove

53:18

yourself. Um And, and it shouldn't

53:21

be solely focused on just what the shareholders are

53:23

demanding. You've got a whole company of people. You're leading

53:25

people at all level, so you've got to try to look at

53:27

everybody. So that was one story that felt

53:30

like this was the right moment, given that statistic

53:32

and given what we see right every day, the news,

53:34

the people under you know, under the spotlight, the CEOs

53:36

in and out quickly. Um I love the first line.

53:38

There's another story, um and this one talks

53:41

about somewhere between lunatic

53:43

risk taking and paralyzing risk aversion

53:46

exists a sweet spot of prudent risk

53:48

taking risk. You know,

53:50

so people think the thing with risk

53:53

is if you're too much of a risk

53:55

taker, but in fact risk aversion

53:57

can be a problem as well. Um I

54:00

think we headlined it, you know, don't play it too

54:02

safe because what you need

54:04

today again in this world, this

54:07

complicated world of leading a company, is

54:09

the ability to really balance things

54:11

and measure like how much you've got to push the

54:13

envelope and how much you've got to pull back a little

54:15

bit, and so many things factor into

54:18

that. Your personality, which of course

54:20

CEOs tend to have personality types

54:22

where they are very certain of themselves

54:24

and they're very sure, but not across the board

54:27

is everybody quite that assertive. So

54:29

how do you both assert yourself in the

54:31

risk that you're going to take but also measure it in

54:33

a way that you're going to really be balanced.

54:36

It's a it's a tricky line, right, So,

54:39

and we also we do tend to think,

54:41

well, they're CEOs, they're gonna do what they're gonna

54:43

do. Not necessarily the case. I admire

54:45

it, but it's not always a good thing, right

54:48

exactly. So that was a really fun one. That

54:50

was because there's a lot of research, not

54:52

surprisingly from many different sort

54:55

of realms, uh, in science

54:57

and in health looking at that, and our and our

54:59

writer on Um really dug deep into

55:01

the various studies to say, you know,

55:03

some I think to put together a very interesting

55:06

and useful look at basically how

55:08

to be a better risk taker. Well, and just a

55:10

couple of highlights I'm not going to give it all away, but anger

55:12

makes men not women were willing to gamble,

55:14

discussed increases risk aversion,

55:17

especially in women. Yeah, isn't that interesting?

55:19

Yes? Yeah, kind of. Uh. I mean,

55:22

I don't know if that's necessarily

55:24

so surprising, but you see it like that

55:26

and you're presented with it, you think, ha ha um.

55:29

So people will find some other interesting tidbits

55:31

in there. I think about again the fact

55:34

that the emotional factor at risk

55:36

especially is especially interesting. And you

55:39

have something to say about narcissism. Narcissism,

55:42

you know, you think it's a bad thing, but having a little

55:44

bit of leaders have a little bit of it,

55:46

I mean, and you know, there's a one researcher who

55:48

says, look, we've all got a degree of narcissism, right,

55:50

Otherwise we none of us would get up and get out of bed

55:52

in the morning. But you have to

55:55

have you know, there's a dose of it

55:57

that's just that much more for the people in these positions,

55:59

and it is it is essential. It

56:01

doesn't necessarily mean it's going to lead them to the right

56:03

decisions. So you've a lot of this is actually

56:06

tips about how to how to identify the

56:08

kind of personality and the emotions that you're

56:10

going through, how to tap into that and then

56:12

how to redirect that in a way that's going to enable

56:15

you to make the decision. You can understand your own

56:17

emotional bias, right, exactly exactly.

56:19

So also it says beware of decision fatigue.

56:21

And speaking of fatigue, what about

56:24

screen fatigue? So much screen

56:26

fatigue? Right, don't we all have it? I mean

56:28

some days I really want to throw the phone out the window

56:30

and never have to look at it again. Between

56:32

computer screens, are mobile phones, everything.

56:35

So there is an expert at Georgetown

56:38

University, cal Newport. He's written some books about

56:40

some of these issues, and our writer talked to

56:42

him and we have our six you

56:45

know, actionable items that you can take

56:47

UM, really really reasonable and practical

56:50

about how to manage that, how to work

56:52

in breaks, how to identify essential

56:54

versus non essential time on the screens,

56:57

um, how to really minimize how much

56:59

time in the day. For example, you know how many emails

57:01

do we get each day? The average numbers and the story it's

57:04

an insane number. You have to be able

57:06

to just give it a scan, pick out the essential

57:08

stuff and put the other stuff aside,

57:10

and say this is I have ten minutes to answer

57:13

these five essential emails, right, So it's

57:15

it's along those lines, and it's crucial because

57:17

you need to free up that space in the brain

57:20

to be a little more creative or

57:22

to just sort of step back and be a little bit more open

57:24

so that when people are coming at you with other kinds of

57:27

problems or complex issues, you do

57:29

have the brain space to really process it

57:31

all, and you know, and and

57:33

just more appropriately, more adequately,

57:36

more certainly kind of take the action. So you're gonna

57:38

want to give it away. But they also talk about getting crafty, so

57:40

like do something else with your hands and then

57:42

you can stop being at a computer or your phone

57:45

exactly. Um, there's also okay,

57:47

so he's got advice. There's also a

57:49

bunch of books that you guys talk about leadership books.

57:51

So maybe get ready to make some room on your shelves

57:54

for holding round, holding round

57:56

of leadership books. I mean, look, there's no shortage

57:58

of them, mentore. Right, we tried to make a selection

58:01

because they're landing on our desks every day

58:03

everywhere, and we thought, what are these

58:05

books saying? And there are a lot of them right now that talk

58:07

about like throw out all the rules. There

58:09

are no rules you make where we are, and

58:12

we stopped and we thought, geez, that really

58:14

the wisest advice. So we decided, let's take a look

58:16

at these four What are they saying about the

58:18

rules that they think we can scrap, What are they offering

58:20

in place of those rules, and what does

58:23

that really do to help somebody. There was one

58:25

that was really funny to talk about leadership, and it says,

58:27

go ahead and play favorites. And you know it

58:29

did your open door policy? Yeah exactly,

58:31

I mean be accessible, but open door

58:33

policy can be problematic. You have to

58:36

be there all the time. And again, it

58:38

levels, it raises an expectation that you might

58:40

not be able to meet. Um. But yeah, play

58:42

favorites because that's about reward, right.

58:45

That's like, you have high performers, let

58:47

them know they're high performers, reinforce

58:49

that and ensure that that continues, and that sends

58:51

a message to other people as well. That's right.

58:53

Not everybody is the same. Not everybody gets an

58:55

award at the end of the race. No, no, no, no,

58:58

no. We met in a world that makes us all

59:00

feel like we all should be getting awards. Like you woke

59:02

up, Hey, you get an awards. But

59:05

no, that's not one last book. Because

59:07

we recently did the equality issue for

59:10

the magazine. And this is Joanne Littman. She is someone

59:12

who really gets workplace gender issues.

59:14

She's got a new book. That's what she said, what

59:17

men need to know and women need to tell them

59:19

about working together exactly. So this

59:21

is her paperback version just came out. She made some

59:23

changes because this book came out just as Me Too

59:26

was really taking off. And then over the course

59:28

of the next year, you know, we really came

59:30

to learn a lot more. But Joanna is talking a lot

59:32

about uh, you know, I think to me, the

59:35

takeaway from this is really communication that

59:37

people need to be open and not afraid

59:40

to actually frankly, if you, as

59:42

a woman are seeing something or confronted

59:44

with an uncomfortable situation, you have to try

59:46

to say something about it. And the man really

59:48

needs to listen. But a man needs to be more open

59:51

as well. And um, and this idea

59:53

that like, I don't know what to do, tell me what is the right

59:55

behavior at this exactly? I mean, because you know a

59:57

lot of men and I will say, are throwing their hands

59:59

up in saying either I don't know what to do or I'm

1:00:01

so scared I think I'm going to do nothing.

1:00:04

That's not really a way to approach it. So,

1:00:07

UM, we talked to Joe Anne and we

1:00:09

hope people will go and seek out the book and think about

1:00:11

what she has to say. She's been you know, she's a

1:00:14

former editor in chief of USA Today and UM

1:00:16

Creative Officer Chief Creative Officer Gannette

1:00:19

and UM, she knows a lot about these dynamics.

1:00:21

I think she's had to deal with them very much in her own career,

1:00:24

has seen the cycles as seeing what's happened the

1:00:26

evolutionary lack thereof. But we couldn't ignore those

1:00:28

kinds of things in today's working world, and especially

1:00:30

for leaders like you know, you need to keep those

1:00:32

issues top put top of mind as well and put

1:00:34

my phone down. Yeah, I love that exactly. That's

1:00:36

Demetri Hessandi is our editor of our

1:00:39

Strategy section, and she really

1:00:41

makes the point that there's more pressure than ever on CEO

1:00:43

is from day one on the

1:00:45

job, and so these are a bunch of tools that might

1:00:47

help them figure out how to do it more quickly.

1:00:50

I'm a sucker for these types of stories to sort

1:00:52

of the list of what you should be reading, the distillations

1:00:54

of it, and Demetro always tells it so well. And

1:00:56

that wraps up Bloomberg Business Week's weekend podcast.

1:00:58

Thanks for joining us, mjc Coe and I'm Carol Masser.

1:01:01

Be sure to tune into Bloomberg Business Week Radio

1:01:03

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1:01:16

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