0:02

Welcome to the Bloomberg Penl Podcast. I'm

0:04

Paul swing you, along with my co host Lisa Brahma

0:06

wits. Each day we bring you the most noteworthy

0:09

and useful interviews for you and your money, whether

0:11

at the grocery store or the trading floor. Find

0:13

a Bloomberg Penl podcast on Apple podcast

0:16

or wherever you listen to podcasts, as well as that Bloomberg

0:18

dot Com. Time for

0:20

Bloomberg Opinion. You're joined by Bloomberg

0:23

Opinion columnist Joe and the Sarah. Joe,

0:25

thanks so much for joining us. You got a fascinating column

0:27

a couple of days ago talking about you

0:29

know, this whole concept of a lockdown

0:31

and quarantine. This is something that we haven't

0:34

necessarily done in some past

0:36

epidemics in this country. And I

0:38

guess as people think about opening up

0:40

the economy, now there's really two camps

0:43

out there. Those that are probably a little bit more aggressive

0:45

about opening up the economy and those that are

0:47

a little bit more conservative. Talk

0:49

to us a little bit about kind of lockdowns

0:52

and how effective they've proven to be in

0:55

the past. Well, they've

0:57

never been used in the past. This is

0:59

the first time they never became uh,

1:02

sort of uh policy, pandemic

1:04

policy until two thousand six

1:07

when George bush Um

1:09

asked the government to come up with a pandemic plan,

1:11

and the and the scientists who came up

1:13

with the lockdown idea, Um,

1:15

they were not infectious disease scientists.

1:17

Um. Uh. And there was a lot of controversy

1:20

about it at the time. Uh.

1:22

There've been pandemics in nineteen fifty seven,

1:24

there was one in nineteen sixty eight, of course the famous

1:26

one in eighteen. Absolutely

1:29

a lot of people stayed inside because they were terrified,

1:32

but there was never an official

1:35

and official lockdown. So so the answer is,

1:37

um, there's no there's no previous

1:40

science to know what

1:42

good the lockdown does. And although it makes

1:45

a lot of intuitive sense that you would

1:47

stay inside and therefore avoid the virus, there's

1:49

a lot of downsides, as we're about

1:51

to find out when the economy starts to open. Yeah,

1:54

this is what people are saying that basically, we don't

1:56

know how effective it is to limit the

1:58

spread, and we know that it creates it's a lot of problems

2:01

when it comes to when

2:03

it when it comes to the economy. That said,

2:06

we are seeing a pretty strong

2:08

correlation and I know, correlation

2:10

is not causation, but it is becoming

2:12

scientifically accepted that

2:15

the economy is that shut down more aggressively

2:17

and more quickly were those that managed

2:20

to stave off some of the worst

2:22

effects of this virus

2:24

that we've seen in places like New York and Milan.

2:27

So from that perspective, how can

2:29

you dismiss that as showing the efficacy

2:32

of this type of of shutdown.

2:35

Well, I don't. I don't dismiss it. But you

2:37

know, there's also this mass the

2:39

social distancing. There's the fact that literally

2:43

of the people who have died in this pandemic have

2:45

been the elderly, you know, whether you're inside

2:47

or outside um. And then you have states like

2:49

Texas and Florida which have been very lax

2:52

on lockdowns and and their

2:54

numbers of death are extremely

2:56

low. So I mean, I would argue

2:59

that, you know, it's

3:01

really unclear as

3:04

to whether the lockdown is saving a lot

3:06

of lives or not. All right, right

3:08

there, where are you? Where where are you staying

3:11

right now? I'm

3:13

in Southampton, Okay, So you're not in the

3:15

city, right correct?

3:18

Okay? And my question is, let's say there

3:20

were no state mandated locktowns

3:22

of any sort. Would you feel comfortable

3:25

going about your business the way that you had in the

3:27

past and going on the subway? Um,

3:31

I don't know. That's a good question. I

3:33

think that I if I think if I had

3:35

a mask and gloved, I would, And I also think

3:38

that I would probably have to. I'm also sixty eight years

3:40

old, so I'm in the high risk group. Um,

3:43

there's a lot of Look. Look, you

3:45

know, in March, there's no question

3:47

I came out to the Hamptons because I was scared. But

3:50

you know, you watch, you watch data, you watch

3:52

things happening, you watch what's going to happen to the

3:54

economy, and you think to yourself, you

3:56

know, is this really the

3:59

right way to continue to proceed.

4:02

And one distinction that I've been making is

4:05

between the hotspot states

4:07

and cities like Detroit, UH

4:10

and New York and New Orleans and

4:12

places like Houston and Miami

4:14

and San Diego which have very

4:17

very very few Um.

4:19

Death Yeah, well, look, Joe, he raised a

4:21

really good point, and Paul, this I think is a really important

4:23

thing. And I think that Joe, I feel

4:25

like you want to chop my head off, you

4:28

know. I I honestly, I've I'm

4:31

totally jealous that you're in the Hampton's. I also

4:33

think this is such a politically fraught issue, and

4:35

the question is if they okay,

4:38

I want to talk about that. That is so right,

4:40

This is the big problem here, here's the big problem.

4:43

It has become a political

4:45

issue. And it's and and and It's like if

4:47

my political party believes in lockdowns,

4:50

and I believe in lockdowns, if my political party

4:52

says lockdowns and BS, then I say

4:54

that's BS. Nobody on

4:56

either side is willing to just sit down

4:58

and say, let's look at this

5:00

with fresh eyes, let's think about

5:03

this from a from a point of view

5:05

of neutrality and science. It's not

5:07

happening. Everybody on both sides

5:09

says, you know, I'm following the science. I'm

5:11

following the science. Well, what does that even mean with

5:14

a lockdown? Where where? Where? There is where?

5:16

The science is unclear? It's

5:19

no. I think the issue here

5:22

right now, you know, the conversation Joe is just, you

5:24

know, the cost of the economic cost of lockdown

5:26

versus the cost in lives. And that's

5:28

kind of what the reopening debate seems to be

5:31

evolving to. I

5:33

think that's absolutely true. And um,

5:35

let me let me let me ask you this. This

5:38

is kind of how I ended my column yesterday.

5:40

You know, it's quite likely

5:42

that the virus will will fade

5:45

in the summertime, because that's

5:47

often what happens, and then it will probably

5:50

come back with a vengeance in October. And

5:52

if that happens and we're reopening the economy,

5:55

are you gonna say, well, let's shut everything down

5:57

again for three months, because

6:00

back, I don't know that's gonna be really

6:02

tough. I don't think. I don't think anybody's

6:04

going to agree to that. I just don't think the society is

6:06

gonna agree to that. And I think we're gonna have to learn to live

6:08

with this thing with with measures

6:11

like masks and social distancing that

6:14

are less severe than a lockdown, we

6:16

could wind up in a depression. Thanks so much

6:18

for us. We gotta run, Joe, Joe No. Sarah

6:20

Colums for Bloomberg Opinion. It's an awesome column.

6:22

Check it out on Bloomberg dot Com, slash

6:24

Opinion. All his great work. This

6:29

is Bloomberg Markets with Lisa Abramowitz

6:31

and Paul Sweeney on Bloomberg Radio.

6:35

What I mean listening to healthcare officials,

6:37

the big, big thing right now is to continue

6:39

to test for the virus and

6:41

then contact trace to see

6:44

to kind of contain, uh, this spread

6:46

of the virus. That's certainly important now and will be

6:48

even more important. Ty Center is a second wave.

6:50

And when you talk about the contact tracing, there's

6:52

been a lot of apps that people have been talking

6:54

about, mostly the Apple and Google

6:57

approach, kind of a joint venture there, which is

6:59

really in and of itself, has been getting most

7:01

of the press, but a startup out there has

7:03

also been they think they might have a better

7:06

mouse trap, and that is a Jared all

7:08

Good, co founder and chief strategy officer

7:10

for the firm twenty. They're based in San Francisco.

7:12

They've got their own app, Healthy Together, and

7:14

in fact, the state of Utah is actually

7:16

adopting it. Jared, thanks so much

7:18

for joining us here. Tell us about

7:21

your app and why say

7:24

a state like Utah would select your

7:26

app versus at Apple Google,

7:28

which would seem to be the easy

7:30

choice. Yeah,

7:32

good, good morning, Paul and Liza, thanks for having me on

7:35

um. Yeah. So, Healthy

7:37

Together was developed to work

7:40

in partnership and in conjunction with the

7:42

public Health Department of the State of Utah

7:44

UM. So they approached us several weeks

7:46

ago UM and saw that we had

7:48

some technology that was unique for

7:50

helping to augment and automate

7:53

certain parts of the manual contact tracing

7:55

process. So we partner with them to develop

7:57

the Healthy Together application both

7:59

as a friend end application and also has

8:02

back in services and tools that we

8:04

deploy back into the Department of Health

8:06

UM. So really, what we've built as a way for residents

8:10

to UH to help the manual

8:12

public health contact tracing effort by

8:15

using an app on their phone that helps

8:18

us UH and them identify

8:20

where they've been and who they've been in contact

8:22

with should they

8:24

come out positive with COVID nineteen, so

8:27

that manual contact go ahead. No.

8:30

I find this so fascinating, this idea

8:32

that people are are going to help

8:34

the effort by volunteering to be tracked

8:37

on their phones. It strikes me that the

8:39

scope of data is important for this to

8:41

be effective, that the greatest number

8:43

of people need to be registered and tracked

8:45

for this to actually prevent the virus

8:47

from spreading. What's your advantage

8:50

over say Google and Apple who also

8:52

have an app and also have the host of data

8:55

in the footprint. Yeah.

8:57

So something that I would say to that is, first

9:00

of all, Healthy Together is more than just a

9:02

contact tracing application. UM.

9:04

The State of Utah's strategy is to

9:06

do assessing, testing and tracing.

9:09

So the Healthy Together platform allows residents

9:11

to assess themselves to find out if they should

9:14

get tested for COVID nineteen uh and

9:16

then if they should and we can refer them to,

9:18

you know, the nearest testing resource through

9:20

the application. And so just shortening

9:22

the time from somebody becoming symptomatic

9:24

to getting them into the testing process

9:26

and then finding out if they're positive and then quarantining

9:29

themselves is a huge part of the value proposition

9:31

that we've delivered with the State of Utah.

9:34

Now, as it pertains to contact tracing UM,

9:36

our approach is actually not an opposition

9:39

with the Google and Apple approach. UM. Google

9:41

and Apple are, at least as we understand

9:43

or not, coming out with applications. What

9:46

they have built up as a set of APIs the application

9:48

developers like us can integrate with

9:51

to to tap into a broader network

9:53

of contact tracing. And that's something

9:55

that we see as a as a huge value add uh.

9:58

We hope to to find a way to work

10:00

and partner with Apple and Google to use those API

10:02

s UM so that we can augment our

10:04

current process. So you're

10:07

in the state of Utah. Are there other

10:09

states you're in discussions with? Yeah,

10:12

of course. Look since UM, since we released

10:14

just a few weeks ago in the state of Utah, UM, we've

10:16

had a tremendous amount of inbound from

10:18

other states who are interested, who

10:21

are doing similar strategies in terms of standing

10:23

up more manual contact tracing

10:25

and then looking for tools and technology to

10:28

augment and expedite that process. UM.

10:30

So we had several conversations with other states.

10:32

UM. We will be announcing some partnerships

10:34

with other states coming soon. UM. And

10:36

something that's been interesting to us that you know, we we

10:39

we learned as we got into this UM

10:41

is that businesses are also participating

10:43

in contact tracing UM. Companies

10:45

now have UH. You know, they're feeling

10:47

the pressure to bring their employees back to work

10:50

UM, and they need to do it in a safe way, and they

10:52

need to communicate to their team members UM

10:54

that they have a plan and a strategy for dealing

10:56

with the occasion UM that somebody in their

10:59

workforce turns out to be positive

11:01

for COVID nineteen. And so we're seeing,

11:03

um, you know, lots of interest from companies

11:05

as well who want to implement tools

11:07

and and just figure out the way to respond to this effort

11:10

using manual and technological contact

11:12

tracing as well. There's a tension for

11:14

anyone who's creating a business in order to

11:16

help facilitate the social distancing

11:19

and prevention at this proNT of the pandemic. How

11:21

you make money at a time when you're providing

11:23

a service for the social good. How

11:25

does that tension get resolved with you? Hi,

11:29

Yeah, that's a great question. Look, UM, you

11:31

know, as uh, you know, as you know, this

11:33

was not our business. UM. You know, coming into

11:35

this UM and we did not raise

11:38

our hand and say, you know, we want to build contact

11:40

tracing and sell it to the world. UM. The

11:42

state of Utah, the Governor's office, reached out

11:44

to us and identified us as a solution.

11:47

UM, and you know, to be able to pivot

11:49

our business and dedicate the number

11:52

of resources engineers, designers,

11:54

product managers UM to really build a

11:56

high quality product both in the mobile application

11:59

and also in these back end systems, and

12:01

those things just cause resources to be able to

12:03

do it um and so our goal is to serve

12:05

as many you know, states and enterprises

12:08

as we possibly can um and to do

12:10

that and to scale up, it's just going to take

12:12

money for us to be able to do it. Twenty

12:14

co founder Jared all Good, thank you so much

12:16

for being with us, talking about his Healthy

12:19

Together contact tracing app,

12:21

which has been deployed by the

12:23

State of Utah.

12:26

This is Bloomberg Markets with Lisa

12:29

Ramowitz and Paul Sweeney on Bloomberg

12:32

Radio. Certainly a lot

12:34

of news coming out of China and Hong

12:36

Kong in the last twenty four hours. We've

12:38

seen some news here that it's uh, you

12:41

know, really trying to really trying to reassert

12:43

some or reassert more power

12:46

and control over Hong Kong. To get a sense of

12:48

what's really going on, what it means for Hong Kong,

12:50

and it's economy and it's people. We welcome

12:52

Yvonne Man. She's the anchor for Daybreak

12:55

Asia and Bloomberg Markets China

12:57

Open. She's in Hong Kong, and Tom or

12:59

like chief economist for Bloombrick Economics, on the phone

13:01

from Washington, d C. Tom spent a lot of time living

13:04

in Beijing as well. So, Yvon,

13:06

thanks so much for joining us. I want to start with you

13:08

just give our listeners a sense of what actually

13:11

happened between China and Hong

13:14

Kong over the last twenty four hours. Well,

13:16

it certainly has been quite an

13:18

interesting twenty four hours fall And

13:20

basically what has happened is that the

13:23

NPC, the National People's Congress in Beijing,

13:25

decided to enact this National Security

13:27

Law which basically curbs DIO

13:29

sessions addition for interference

13:32

and terrorism in Hong Kong. It's

13:34

also known as Article twenty three here

13:36

in the city, and which was

13:39

legislation that has basically

13:41

been installed in the Legislative

13:43

Council for for many years now,

13:45

since two thousand and three. Back then when it was

13:47

introduced, is fueled some widespread

13:49

demonstrations. The government was then forced

13:51

to scrap it. So we now see

13:53

a very stronger and much more

13:56

bold in Beijing than seventeen

13:58

years ago. So they're taking matters into our own

14:00

hands. They're frustrated by the months of

14:02

unrest that it's hearth the economy. They're frustrated

14:04

by lawmakers who have failed to get

14:06

through this legislation. So the new strategy

14:09

now from Beijing is to basically

14:11

by pass Legislative Council here, skip

14:14

the whole legislative process and

14:16

do this. And they're from the

14:18

MPC, so that's why this jokes

14:20

so much outrage from those in the pro democracy

14:23

side. Yvonne, you've done a great job

14:25

of outlining this, and we thank you so much for staying

14:28

so late to speak with us and lay it

14:30

out for us here. Tom, I'd love your

14:32

perspective from an economic viewpoint.

14:34

Why Beijing is doing this now

14:37

against a backdrop of a pandemic and

14:39

a huge hit to its economic growth.

14:41

Why is it not more concerned about

14:44

the loss of Hong Kong as an international

14:46

center and hub for finance and beyond

14:50

UM So, I think what's what's really

14:52

clear, Lisa, is that the politics

14:54

is trumping the is trumping

14:56

the economics UM and

14:58

the national curiocy considerations

15:01

the Beijing are more important

15:04

than any risk to Hong kong

15:06

status as a as a financial hub

15:08

and a pathway for capital

15:10

and expertise in trade between

15:13

the mainland and the rest of the world. I

15:15

think the other point to keep in mind about that

15:18

the timing of this is, I mean,

15:20

this is a move um, which

15:22

in normal times would be expected

15:25

to be controversial internationally.

15:28

Right, a move which would be controversially

15:31

in the United States, with the United

15:33

Kingdom with its historic relationship with

15:35

Hong Kong, Um with potentially

15:37

some European countries as well. But

15:40

at this particular moment in time,

15:43

the world is in crisis, Um.

15:45

Domestic leaders President

15:47

Trump, Boris Johnson, Angelo

15:50

Merkel, Um, they have other things on

15:52

their mind. Right, They're dealing with

15:55

a pandemic. They're dealing with economies

15:57

in deep, in deep crisis.

16:00

Um. So I don't have a crystal

16:02

ball into the thinking of China's leadership,

16:05

But potentially this is also a moment

16:07

where they can make this controversial, mute move

16:10

with perhaps less global

16:12

repercussions than they would see in normal times.

16:15

Yvonne, what is the expected response

16:18

from those in China? Prior in Hong

16:20

Kong, prior to the pandemic, the

16:22

protesters were consistent week

16:25

after week after week in their protests.

16:28

Um, what is the expectation here

16:30

for this move. Well,

16:32

there's already some calls for people to

16:35

hit the streets this weekend and the following

16:37

uh A week after as well,

16:39

and we've seen the activists

16:41

already hitting the streets tonight handing out

16:44

leaflets to the people in the streets educating

16:46

about them about this national security

16:49

law. So we have seen

16:51

the anger resurface thing again

16:53

and potentially we are could be saying the stage

16:55

for a repeat of what we saw late

16:58

last year. So the prospects

17:00

aren't good at this moment. And it

17:02

just seems like at this point from

17:05

from the opposition side, they believe that

17:07

by bypassing legislative process,

17:10

that this is the end of one

17:13

country, two systems, this is the end of

17:15

Hong Kong's autonomy. So it's

17:17

hard to see that this national security law

17:20

could actually end the

17:22

the unrest out there, even carry a LANDA chief

17:24

executive herself said tonight that

17:26

she doesn't expect protests to end amid

17:29

this security law, and if anything,

17:31

it's it's only feels more anger on the streets,

17:33

especially now that this this outbreak

17:36

and the coronavirus has eased

17:38

a bit here in the city. It's it's calm down

17:40

in terms of the numbers of local infections has

17:43

been down for the last couple of weeks. Now that's

17:45

given a little more comfortable people to come out

17:47

again to you thought. I'm just wondering

17:49

from your perspective, I saw that real estate stocks

17:51

got hit the hardest in Hong Kong. I'm wondering

17:54

how much you're seeing anecdotally

17:56

or from data perspectives foreign

17:59

money and will the money going out

18:01

of the property sector in Hong Kong. Yeah,

18:05

certainly was a concern late last

18:07

year when when you were hearing people saying that

18:09

they were pulling money out of Hong Kong and moving

18:11

it to Singapore, for example. There's

18:13

a lot of questions of whether Hong Kong status

18:16

as an international finance hub

18:18

is now under a question. Uh, and

18:20

so markets really took this by surprise,

18:22

the fact that the MPC we heard this

18:25

type of legislation. Um,

18:27

you know, at this point, we haven't seen

18:29

a whole lot of those concerns or at least

18:31

that type of movement just yet. But what's

18:33

different now versus say, back

18:36

in two thousand and eight, and what

18:38

led to Hong Kong I should say

18:40

stars not two thousand and eight, was that what led

18:42

to a revival in the economy

18:45

was the fact that they opened up the borders from

18:47

mainland tourists to come that essentially

18:50

gave it a v shaped recovery here in Hong Kong.

18:52

Now that we're in a recession, a lot of economists

18:54

say it's unlikely we're going to see that

18:57

quick of a bounce back in the economy

18:59

because we have been the mainline

19:01

tours arrivals dwindle. In

19:03

fact, I think they're they're in a single digit

19:05

at most, so and given

19:08

the anti China sentiment

19:10

there is in the streets there, you can't exactly rely

19:13

on Chinese tourists to revive the economy

19:15

anymore. And they were key buyers

19:17

in the property market as well, so potentially

19:20

we could see thumb rupture there

19:22

in in the property market. We

19:24

haven't seen a whole lot of it just yet. It's actually

19:26

been still quite table at this point. But

19:29

you know, Tim will tell Tom just

19:31

real quick here thirty seconds before we let you

19:33

go, what are you looking for over the weekend? As

19:35

Beijing has its annual power So

19:39

we've already seen China step back from

19:41

its growth target, that GDP target,

19:44

which set the tone set expectations

19:46

for the year UM. They've significantly

19:49

ramps up fiscal stimulus, so that

19:51

will provide some support to

19:53

sentiment and demand UM in

19:56

terms of Hong Kong is As Von

19:58

said, I think the key thing to look

20:00

for now is what's the reaction

20:02

on the Hong Kong Street. Does this bring

20:05

a very large number of people back

20:07

out to protest? And if that happens,

20:10

what then are the consequences for Hong Kong

20:12

markets, real estate and the

20:14

economy going forwards. Tom

20:16

or Like chief economist for Bloomberg Economics, and Von

20:19

Man, anchor of Daybreak Asia and Bloomberg

20:21

Markets, which had to open for Bloomberg

20:24

joining us, staying late to give us

20:26

that report from Hong Kong. Definitely

20:29

a historic seizure rupture

20:32

here between Hong Kong and Beijing. Long

20:34

time in the works, yet really raising

20:36

questions about why now amid a backdrop

20:39

of rising see no US tension.

20:43

You're listening to Bloomberg Markets with

20:45

Lisa Abrama Ed's and Paul Sweeney on

20:47

Bloomberg Radio. We've talked

20:49

a lot about how passive investing

20:52

is all the rage and everyone wants to go into an

20:54

index fund, and yet we often failed

20:56

to discuss the very active process

20:59

of composed using the underlying index,

21:01

and that's very much in the forefront of people's

21:04

minds right now. Is the SMP, which

21:06

is the most tracked index bypassive

21:09

funds, goes under potentially

21:11

a pretty big overhaul. Joining us now to discuss

21:13

this is Nick KOLs, co founder of Data Trek

21:16

Research. Always great to get your

21:18

thoughts, Nick, I want to start with why

21:20

the SMP may have to rejigger

21:22

which companies includes. Yes,

21:26

the biggest reason, and you know

21:28

we see this day to day, is that there

21:31

are a lot of companies at the bottom

21:33

end of this index in terms of market

21:35

cap, that have fallen away below the

21:37

typical levels where the SMP committee

21:40

begins to think about replacing

21:42

them. So, for example, Harley Davidson

21:44

three billion dollar market cap, GAP

21:47

stores at three point five billion

21:49

dollar market cap, that's well below these

21:51

five to eight billion dollars the committee

21:53

tends to think about in terms of taking companies

21:55

out of the index and replacing them with

21:57

new ones. And it's a function of all

22:00

the issues of the COVID crisis

22:02

that we've seen in terms of how different companies

22:04

are doing versus others. So,

22:07

Nick, is the SMP that the committee

22:09

there that looks at some of these companies. Are they trying

22:11

to give some of these companies the benefit of the doubt

22:13

and turn in a sense that hey, this is really

22:16

related to this pandemic, and the pandemic

22:19

is we think it will be a relatively

22:22

short lived issue. And then once we

22:24

get to the other side of this, these

22:26

stocks were rebound. You

22:28

know that that has to be part of their calculus,

22:30

because one virtue of the five

22:32

hundred is that it is pretty sticky.

22:34

You only see twenty to thirty changes

22:37

in the index a year, and they try

22:39

to maintain a very low portfolio turnover

22:41

because that's one of the advantages of index investing,

22:44

is not having a lot of churned and transaction costs

22:46

in the portfolio. But as we go through

22:48

the balance of the year, some of this doesn't have their

22:51

force their hand. How much longer

22:53

do you want to wait before some of these companies

22:55

that were already in structural decline, like anybody

22:58

that sells stuge department stores, Gaps stores,

23:00

or Harley Davidson. How long do you want to give

23:02

them before you realize, Okay, they're not going to come back

23:05

in any really serious form and we've got to move along.

23:07

What's the reputational pressure for them?

23:11

For the S ANDP Committee, the

23:14

reputational issue is as you said at the top, this

23:16

is the most widely followed, widely indexed

23:20

measure of U S stocks anywhere

23:22

in the world. It is the most popular, not just

23:24

here in the US, but everywhere, largely

23:27

because it's done so well relative

23:29

to any of the same For example, M

23:31

s C I EFA M S C I E M.

23:34

You know, the ST five hundred has been an absolute

23:36

horse of an investment over the last ten years,

23:38

compounding at thirteen percent annually until

23:41

the fall off the beginning of two thousand and twenty.

23:44

Done far better than everything else. So it's

23:46

really important from an indexing

23:48

perspective, from a business perspective, that this

23:50

index continue to hold that structural advantage

23:53

over every other measure of global stocks. So,

23:55

Nick, I know there are traders out there that like to

23:58

kind of, you know, speculate on aims

24:00

that are going to come into the SMP. Conversely,

24:03

also and also names that that will come out of

24:05

the index. Are we seeing some higher

24:07

volatility around some of those

24:09

names? You know, it has

24:11

been hard to measure. We did look at that for

24:14

our client. Note it was very hard

24:16

to pick out what the volatility from

24:18

the macro environment has been versus

24:20

what you really point out is a very common kind

24:22

of index ad index um

24:25

delete kind of mentality. So hard

24:27

to tell right now, but if you look at I'm

24:30

looking at the bottom ten names in the SMP

24:32

right now, Haynes Brands, Harley Davidson,

24:34

Norwegian Crews, L Brands, PVH

24:37

Clow, Serve, H and R, Block, Discovery, and Xerox.

24:40

Those are at the very bottom

24:42

of the list, all brand names, all

24:44

things we know, some of them. I

24:46

would assume we're going to leave the index in the next

24:48

year, just because there's gonna be new names

24:50

that the committee wants to add. I'm

24:53

struck, Nick by a point that you made in

24:55

your recent research, which I thought was really fantastic,

24:58

which is this concept that yes,

25:00

people want to invest passively in

25:02

broad markets, and yet the decision and

25:04

how to how to count

25:07

that market is very subjective, the

25:09

sort of active quality of index

25:11

composition. What types of

25:13

subjective measures does the SMP

25:16

committee have to consider were deciding on

25:18

some of these issues. Yeah,

25:21

it's it is to me the most fascinating points

25:23

in all this because it is ultimately a choice.

25:26

You know, the committee has a very well,

25:28

you know historically, you

25:30

know, very precise

25:33

measure of what they want to add. There's profitability

25:35

requirements as market cap requirements.

25:38

I would kind of take the conversation a little bit different direction,

25:40

and just everybody considered the fact

25:42

that Tesla is not in the SP five hundreds,

25:45

but Hard Davidson is um

25:47

which to me is a central irony, and the issue

25:49

is one issue, It is profitability. Tesla

25:52

has not yet had a sequence of

25:54

four quarters with a strunk together a profitable

25:56

four quarter trailing. They could have done

25:58

it this quarter, they miss by about a hundred and twenty

26:01

four million dollars, and so as a result,

26:03

they're not going to be an index for a while. Now, that's

26:05

a hundred and fifty billion dollar plus market

26:08

cap company that could have been added

26:10

when it was ten or twelve or even fifty

26:12

billion dollars and added a hundred billion dollars

26:14

of values the index, and yet because of that

26:16

profitability measure, they're not, And

26:18

given what's going on in the world, they're not gonna be there for

26:20

a while. So does that kind of suggest

26:23

Nick that the SMP needs to rethink some of

26:25

this as you think about some of the technologies out

26:27

there, you know, like a Tesla,

26:30

like some other tech companies that are just huge,

26:32

and they're focusing more on market

26:34

share gains than profitability,

26:37

and the market seems to be okay with that and rewarding

26:39

that. So should not the name like

26:41

Tesla be in there? It

26:43

absolutely should be, But I understand

26:46

the committee's tension because for every test that there's

26:48

an uber or lift or if you had added

26:50

those, you know it would not have had the same

26:53

results. You've got to take good with the bad in

26:55

the end. You know, the SMP Committee may one

26:57

day decide, okay, let's add

26:59

an ear G overlay to some of our decision

27:02

making. And if a company is clearly relevant

27:04

from saying E standpoint, then it should

27:07

have some weight against the lack of profitability.

27:09

But the committee is not there yet. And these are

27:11

things that take a long time to develop, but I think

27:13

they're going to have to get there just real

27:15

quick. Nick, I wonder how much the reconsideration

27:18

here of the SMP Committee comes in the heels of

27:20

NAZDAC success. Is that

27:22

part of it? You

27:24

know, that is definitely a part of it. And I would also

27:26

say, look at, for example, what the Hong

27:28

Kong the Hang Sang is thinking

27:30

about in terms of adding some Chinese

27:32

companies purely based on whether

27:35

or not they have enough stock listed in Hong Kong.

27:37

Hang Sang is a big property and bank

27:40

index, and that's not really where the world

27:42

is going. So I think every index provider

27:44

and every exchange is thinking about how

27:47

do we pull things into something that we can index

27:49

because the world has not so passive and it's

27:51

become a much more important conversation. And

27:54

Nick, thanks so much for joining us. We appreciate you taking

27:56

some time here before the three day weekend, Nicholas

27:59

kofe under Data Trek Research giving

28:01

us some always some interesting food

28:04

for thought, Lisa, and that is, you know, kind of

28:06

looking at that SMP five hundred, the components

28:08

of the SMP five hundred, and Nick brought

28:10

up a great point that Harley Davidson, with a

28:12

five billion dollar market cap is in there, but uh

28:14

Tesla is not. Yeah, but how do you

28:16

even determine who the winners and the losers

28:18

are going to be in this environment when you've got no

28:20

forward guidance, you have such an uncertain

28:23

backdrop. It becomes a very difficult

28:25

decision to make for the longer term.

28:27

Yeah, it really does. And I think as Nick

28:29

was suggesting the SMP Committee favors

28:32

some stability and stability and profitability,

28:34

so but interesting to see how that plays out. For

28:36

Lisa Bramo it's on Paul Sweeney that

28:38

does it for Bloomberg markets for this week

28:40

and during the weekend. This is Bloomberg.

28:45

Thanks for listening to the Bloomberg P and L podcast.

28:47

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28:54

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28:57

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