Transcripts For BLOOMBERG Bloomberg BusinessWeek 20240713 :

Carol plus, we have more from the bloomberg 50. Our exclusive interview with beyond meat founder, ethan brown. Jason first up, the top political story, impeachment. Carol congress will ring in the new year with partisanship and bitter division. Sounds familiar. This time, it is in the form of the Senate Impeachment trial of President Trump. Lets get to a reporter josh green with more on that. The impeachment trial a big story this week. You have a fascinating story that talks about how, with everything going on in terms of impeachment, this could benefit joe biden. Josh yeah, it does. As we look ahead to january and the beginning of the 2020 election voting, one of the Big Questions everybody in washington has is what affect is impeachment going to have on the democratic field . The peace i write in businessweek this week takes a look at joe biden and his situation. One of the ironies of the impeachment trial is that it came about because President Trump thought that joe biden looked like he was going to be a serious rival and embarked on this dirt digging mission with ukraine to turn up negative information on biden. The irony is it led to trumps impeachment, but it hasnt hurt his approval rating. At least not democrats, so biden is leading the field heading into iowa. However, because there is going to be an impeachment trial, he impeachment trial for weeks, that is going to sideline five of bidens contenders, all senators, who are going to have to spend their time on capitol hill while joe biden can be in iowa trying to close the deal with iowa voters. Carol what about the other nonsenators. Pete buttigieg. Does he benefit from this . Josh i think he probably does. In iowa, and that is what really matters, in iowa, the caucus is on february 3. There are four front runners, buttigieg, warren, and bernie sanders. We know that the two liberals are stuck in an impeachment trial on capitol hill. That leaves iowa wideopen for joe biden and pete buttigieg. So certainly buttigieg would rather be a nonsenator than a senator. He is going to free run of iowa, along with a handful of candidates to try to close this deal in the weeks leading up to caucuses. Jason i want to take you back to what you said at the top, this notion that this thing has not stuck to joe biden in any meaningful way. At least as far as we can tell. Does that surprise you . Josh it does a bit. When i say it has not stuck to him, i mean among democratic voters. He has been popular throughout and with key demographic groups in the electorate, and while trump and conservatives and conservative media have hammered him over ukraine, thats almost made democrats defensive about not falling for that spin, not listening to those attacks. He has led throughout. Buttigieg has been leading in iowa but overall, joe biden hasnt paid a price in the democratic electorate for these ukraine attacks. Jason josh green in washington, thank you so much. Carol while Washington News was watching many things, for more on the issue, lets bring in joel weber with this cover story. Happy holidays, a lot going on. Joel absolutely. We put together a holiday cover. Jason quite a cover, talking about softbank. What a year. Joel this is one of the biggest stories of the year and it started with wework and it evenovered early on, preipo chatter when there was going to be an ipo. As the coverage developed and went on, there was another story we started to think about, which was softbank. One of the biggest investors and wework. Carol i do love the cover, seasons greeting from softbank. We did talk about it so much. What i love about the story, you guys go into the layers of softbank division fund. Obviously, the leader of at all. Obviously, the leader of it all. But there are other players. Joel massa the guy who is the visionary at softbank, especially at division fund, this outside force now in silicon valley, this 100 billion vc fund that can do a lot of things because it had so much money. One of the ways you can do that is going into Something Like w ework and bankroll wework, a business not ready for the long haul. Carol funny you talk about the business model. They were very aggressive. Joel they were like, lets flood the zone with money. Go big or go home. That is the strategy behind softbank. Sometimes that works. To be fair. They have had some wins. Other times it doesnt. The other thing this story reveals is the culture within softbank, and specifically, division fund, where theres a lot of tension. Not always great decisions. Carol it is a big story. Another big story, businessweek turns 90. Joel its great. We are old. We are really old. Jason you look great for 90. Joel i know, right . The magazine has been around for 90 years. We honor that with an essay on how businessweek has covered business through the decade. Sometimes we mark moments that history hasnt looked back on so kindly. For instance, there is a 1979 cover about the death of equities that for a couple of years after, in the good and then in hindsight, it doesnt look so good now. Its an amazing accomplishment this magazine has been around this long. Always being the authoritative voice on business. Jason it was so interesting talking to the people who put together that essay. Their combined tenure is almost 90 years at the magazine, in effect. Joel we dont go all the way back to 1929, when we first started right before the crash, but collectively, the people who worked on this essay can trace their lineage back to people they worked with who did work back then. Jason thank you. Carol for more on businessweeks 90th and its launch in 1929 jason someone who has spent three decades contributing to the magazine. That economics editor, peter coy. Peter i was with the magazine life,ne third of its so pretty impressive. But i was not around in 1929. The fascinating thing is the magazines launch in september of 1929, which history buffs will recall was seven weeks before the terrible stock market crash, which helped usher in the great depression. So, not an auspicious time to be launching a magazine. But we survived those tough times and ended up thriving, eventually, huge success. And at one point, had more advertising pages than any other magazine in the country. And more circulation than any other business magazine in the world. Jason what was the idea from the beginning . Peter mcgrawhill was the publisher. They bought a Company Called aw shaw, which had a magazine called system, a magazine of business. And that was a monthly. They spent about a year tinkering with it and relaunched it as a weekly, which was originally called v businessweek. It was intended to be, in a way, very much like what we intend to do today, which was to be a quick read for people who care about business, whether youre a business person yourself or not. But youre interested. As opposed to some of the trade magazines, which were very niche, vertical, it was intended to be for everyone. Carol thats what i think is great. For most individuals, they have a core thing they are interested in, but they are interested in the world at large. As we have learned over the decades increasingly, it is all interconnected. Peter it is. If you are working for a tech company, youll be interested in the tech coverage. But you might be more interested in the coverage of adjacent areas because youre not following that on a daytoday basis, yet it will impinge on your life. Carol i think what is also interesting, and you guys go into it in terms of early history on how this magazine, whether through economists featured or some of the stories, could really put pressure on the government in terms of policy. It became a must read. Peter i think youre referring to our early coverage. Callyou call or what they keynesian economics. Economist was not well known in the United States. Businessweek was the first and most important publication that sort of championed some of his ideas. Remember, when the depression hit, people had no idea what to do about it. The economy took a deep dive. There were a lot of people saying ok, lets get rid of the rot. If we can liquidate the people who took on foolish loans, that will clean the system. What came and businessweek said, no, that is the wrong solution. That will spiral downward. The government needs to support the economy with tax cuts and spending until it can get back on its feet. You dont put someone whos been in a car accident through vigorous physical exercise. You have to help them recover, give them iv fluids. That was the message. Carol coming up, peter will be back to talk about levels in this weeks remarks. Jason boeing halting 737 max production. Well look at what went wrong. This is Bloomberg Businessweek. Carol welcome back to Bloomberg Businessweek. Im carol massar. Jason im jason kelly. Join us for Bloomberg Businessweek every day on the radio starting at 2 00 p. M. Wall street time and catch up on our daily show. Listen and subscribe to our podcast. You can get that at apple, soundcloud or bloomberg. Com. Carol you can find us online and on our mobile app. Our top story this week, no doubt, it was boeing. Jason the company halting production of its grounded 737 max in january, a move that could deepen the crisis, engulfing the plane maker and ripple through their u. S. Economy. Carol which is why it is such a big story. Peter robison has been following boeing for years. He explains from seattle. Peter people focus on the pressure boeing put on its design team to finish the plane and the way the faa was blind to the change because it delegated most of the change to boeing. What we looked at was specifically was within the group of boeing pilots. Its a group of people who test the planes and write the manuals and train customers. What we found was during that period when the max was developed, the group was in disarray. Many of them werent speaking to each other because there were disputes over plans to make more money from training customers. Training had been a service boeing provided, but boeing felt it needed to turn it into a revenue generator. There were disagreements over that. At the time the Max Development thepeaking, boeing moved simulators where they train customers from Train Developers from seattle to miami. It put distance between design teams that were located pretty close together, especially given the difficulty crews had flying the plane. We felt that looking at training was important. Carol this is a big story. Jasons dad was an engineer, my dads was an engineer, but this concept of separating pilots from the engineers, where it used to be, i mean, boeing wrote the book on checklists and quality training and doing everything right. But part of it was all the involved and important parties were physically near each other and constantly talking to each other. Peter exactly. Theres a note of frustration i hear from people talking about this because they feel it didnt used to be this way. On planes like the triple seven, you had a lot of crosstalk and collaboration, but at the time the max was developed, these groups were in different divisions. They had different managers, different motivations. Carol the other thing is boeing as a company, customer training used to be a service. It was a cost to boeing. Free to its customers. They wanted to make that into another revenue line, a revenue source. That was at play, as well. Peter right, this goes back 20 years. There was a point in 1997 when boeing formed a joint venture with a Company Owned by warren buffett. Thats when it got the Training Facilities in miami. By all accounts, that didnt work well. Boeing continued this effort to make money from training. Its focus, as all the new pilots were coming into the industry, was we need to cut costs. The manager of the units said our marching orders are here, given whats coming, we need to make training less expensive. Boeing introduced a point system where some of the instructors felt they created incentives for airlines not to train pilots. They felt pilots would use these points on training flight attendants or maintenance technicians. Carol there has been so much time trying to figure out what happened to these planes. Theres been a lot of reporting, commissions looking into it, regulators looking into it. Are we closer to finding out what went wrong here . Peter what is frustrating is there has not been a public chronology of who did what when that makes it comprehensible to everyone after the challenger explosion. The report by International Aviation authorities, led by the former ntsb chairman, came the closest. The report concluded that boeing simply didnt test the specific malfunction that brought down these planes. It was a malfunction of a vein that set off the software the pilots hadnt been told about. Ultimately, that comes down to not having sat down at the simulator, talked about it, worked through potential failure scenarios. Carol from boeing to the bull market. As we head into the new year and decade, the 2010s were really good for stocks, perhaps better than they seem. Jason that bull keeps running. Here is this weeks businessweek explainer on the longest bull market in history. Eisenhower was in the white house. T. V. Was mostly black and white. And the baby boom was at its peak. That was the 1950s. The last time the stocks had a decade like the one they are wrapping up now. Stocks in the s p 500 have returned 249 in the last 10 years, about 1. 2 times the historical average. Not only that, the 2010s were the first decade without able a bear market, a 27 drop from the peak. There were plenty of moments to make investors queasy. Six 10 corrections. Crisis inereign debt 2011 and 2012, and now a global trade war. But none of those killed the bull. That may be because while perceptions of risk were high, fundamentals were stable. Extended from 1. 6 to 2. 9 each of the last nine years. Is expected to be in the same range in 2019. Thats the smallest flocculation fluctuation in any 10 year stretch and data going back to 1930s. It led to a record stretch of wins for the market, like a kids sports league, almost every investor took home a trophy. Carol it is safe to say that we cant talk about the bull market without talking about bubbles. Bubbles, housing bubbles, asset bubbles, we have seen a few. Jason and some who have seen a few himself, peter coy is back with this weeks remarks. He talks about why the risky pursuits of returns amid negative rates are no laughing matter. Peter the economys recovering from the worst financial crisis since the great depression. We had a long run of growth. But what . They were heading into another bubble, as evidenced by the lowest Interest Rates in the history of the world. We are in negative territory in europe and japan. As far as i can tell, and somebody can disprove me, this has never happened before. So what happens when rates go so low . Investors are desperate for yield. So they look for it wherever they can get it, which means they take on more risk. That the definition of a bubble, when you ignore risks and you just make a bet that this asset price is going to go up and up and up. Carol as you remind us, investors get stressed out when prices are down in terms of assets, yet thats the point when there is usually opportunity, versus when youve got valuations at a higher level. Peter right now, its a holiday season. Carol there you go. Peter im not going to sing, but attitudes are good. The stock market is hitting new highs, there is just a lot of jubilation in the air. Well, thats when you should be worrying because thats when bad loans get made in good times. The american economist said instability reads instability. That is exactly when we overreach. Down coming up, we break an overlooked but vital corner of the financial system. The repo market. Jason this is Bloomberg Businessweek. Jason welcome back to Bloomberg Businessweek. Im jason kelly. Carol im carol massar. You can also listen to us on the 119, on sirius xm channel am 11 30 in new york 106. 1 in , boston. Jason a. M. 960 in the bay area. And the Bloomberg Business app. Carol the repo market makes eyes glaze over, others turn away at a cocktail party, but it is an important one. Jason it is a really important we needed to make sense out of one. It. We called on joe weisenthal, marcus editor and markets guru. We have him on our show every day. He gave us a metaphor you are going to remember. Check it out. Joe the repo market is essentially how various entities, whether its a bank, whether its a hedge fund, money market fund, how they finance themselves on an overnight basis. Nobody wants to hold cash because cash doesnt really earn anything and people want to be maximizing their profits. So what they do when they need liquidity is they borrow it overnight, and they might pay collateral like mortgage bonds, or Something Like that, to make the cash bills that they need to pay so they can make the bills they need to pay. Jason it feels like one of those things that nobody cares about until it stops working, which is what happened in september. Joe exactly. In september, we saw the rates on overnight repo borrowing absolutely sore. Its important to recognize that prior to that, for most of the time, it moves in line with where the fed sets the rate. Its one mechanism in which the fed gets shortterm Interest Rates and you expect the market to behave. The issue is the cash that banks have is really reserves held at their want part of to take tightening, is trying to normalize its operations post crisis that has been reducing cash at the fed. At the same time, you have regulators telling banks, you need to hold a certain amount of cash to ensure you have adequate liquidity. What we saw in september was a confluence of multiple things. There is the fed tightening. Reducing the amount of reserves available. Theres the regulatory restraints, saying you need to hold these reserves even though the fed is eliminating their existence. And then you have the timing issue, where due to tax payments, treasury auctions, and things like that, suddenly, that created a lot of demand. Carol it was the end of the quarter. Right . Joe thats exactly right. So this end of quarter payments, things like that. Theres another issue, where the quarter end and year end is when regulators come and take a look. That analogy i like to use is you might have a messy bedroom, but if you know five or 10 mins minutes before your dad is home, you clean up. Occasionally, the regulators come peeking in and they want to see how liquid is your Senate Impeachment<\/a> trial of President Trump<\/a>. Lets get to a reporter josh green with more on that. The impeachment trial a big story this week. You have a fascinating story that talks about how, with everything going on in terms of impeachment, this could benefit joe biden. Josh yeah, it does. As we look ahead to january and the beginning of the 2020 election voting, one of the Big Questions<\/a> everybody in washington has is what affect is impeachment going to have on the democratic field . The peace i write in businessweek this week takes a look at joe biden and his situation. One of the ironies of the impeachment trial is that it came about because President Trump<\/a> thought that joe biden looked like he was going to be a serious rival and embarked on this dirt digging mission with ukraine to turn up negative information on biden. The irony is it led to trumps impeachment, but it hasnt hurt his approval rating. At least not democrats, so biden is leading the field heading into iowa. However, because there is going to be an impeachment trial, he impeachment trial for weeks, that is going to sideline five of bidens contenders, all senators, who are going to have to spend their time on capitol hill while joe biden can be in iowa trying to close the deal with iowa voters. Carol what about the other nonsenators. Pete buttigieg. Does he benefit from this . Josh i think he probably does. In iowa, and that is what really matters, in iowa, the caucus is on february 3. There are four front runners, buttigieg, warren, and bernie sanders. We know that the two liberals are stuck in an impeachment trial on capitol hill. That leaves iowa wideopen for joe biden and pete buttigieg. So certainly buttigieg would rather be a nonsenator than a senator. He is going to free run of iowa, along with a handful of candidates to try to close this deal in the weeks leading up to caucuses. Jason i want to take you back to what you said at the top, this notion that this thing has not stuck to joe biden in any meaningful way. At least as far as we can tell. Does that surprise you . Josh it does a bit. When i say it has not stuck to him, i mean among democratic voters. He has been popular throughout and with key demographic groups in the electorate, and while trump and conservatives and conservative media have hammered him over ukraine, thats almost made democrats defensive about not falling for that spin, not listening to those attacks. He has led throughout. Buttigieg has been leading in iowa but overall, joe biden hasnt paid a price in the democratic electorate for these ukraine attacks. Jason josh green in washington, thank you so much. Carol while Washington News<\/a> was watching many things, for more on the issue, lets bring in joel weber with this cover story. Happy holidays, a lot going on. Joel absolutely. We put together a holiday cover. Jason quite a cover, talking about softbank. What a year. Joel this is one of the biggest stories of the year and it started with wework and it evenovered early on, preipo chatter when there was going to be an ipo. As the coverage developed and went on, there was another story we started to think about, which was softbank. One of the biggest investors and wework. Carol i do love the cover, seasons greeting from softbank. We did talk about it so much. What i love about the story, you guys go into the layers of softbank division fund. Obviously, the leader of at all. Obviously, the leader of it all. But there are other players. Joel massa the guy who is the visionary at softbank, especially at division fund, this outside force now in silicon valley, this 100 billion vc fund that can do a lot of things because it had so much money. One of the ways you can do that is going into Something Like<\/a> w ework and bankroll wework, a business not ready for the long haul. Carol funny you talk about the business model. They were very aggressive. Joel they were like, lets flood the zone with money. Go big or go home. That is the strategy behind softbank. Sometimes that works. To be fair. They have had some wins. Other times it doesnt. The other thing this story reveals is the culture within softbank, and specifically, division fund, where theres a lot of tension. Not always great decisions. Carol it is a big story. Another big story, businessweek turns 90. Joel its great. We are old. We are really old. Jason you look great for 90. Joel i know, right . The magazine has been around for 90 years. We honor that with an essay on how businessweek has covered business through the decade. Sometimes we mark moments that history hasnt looked back on so kindly. For instance, there is a 1979 cover about the death of equities that for a couple of years after, in the good and then in hindsight, it doesnt look so good now. Its an amazing accomplishment this magazine has been around this long. Always being the authoritative voice on business. Jason it was so interesting talking to the people who put together that essay. Their combined tenure is almost 90 years at the magazine, in effect. Joel we dont go all the way back to 1929, when we first started right before the crash, but collectively, the people who worked on this essay can trace their lineage back to people they worked with who did work back then. Jason thank you. Carol for more on businessweeks 90th and its launch in 1929 jason someone who has spent three decades contributing to the magazine. That economics editor, peter coy. Peter i was with the magazine life,ne third of its so pretty impressive. But i was not around in 1929. The fascinating thing is the magazines launch in september of 1929, which history buffs will recall was seven weeks before the terrible stock market crash, which helped usher in the great depression. So, not an auspicious time to be launching a magazine. But we survived those tough times and ended up thriving, eventually, huge success. And at one point, had more advertising pages than any other magazine in the country. And more circulation than any other business magazine in the world. Jason what was the idea from the beginning . Peter mcgrawhill was the publisher. They bought a Company Called<\/a> aw shaw, which had a magazine called system, a magazine of business. And that was a monthly. They spent about a year tinkering with it and relaunched it as a weekly, which was originally called v businessweek. It was intended to be, in a way, very much like what we intend to do today, which was to be a quick read for people who care about business, whether youre a business person yourself or not. But youre interested. As opposed to some of the trade magazines, which were very niche, vertical, it was intended to be for everyone. Carol thats what i think is great. For most individuals, they have a core thing they are interested in, but they are interested in the world at large. As we have learned over the decades increasingly, it is all interconnected. Peter it is. If you are working for a tech company, youll be interested in the tech coverage. But you might be more interested in the coverage of adjacent areas because youre not following that on a daytoday basis, yet it will impinge on your life. Carol i think what is also interesting, and you guys go into it in terms of early history on how this magazine, whether through economists featured or some of the stories, could really put pressure on the government in terms of policy. It became a must read. Peter i think youre referring to our early coverage. Callyou call or what they keynesian economics. Economist was not well known in the United States<\/a>. Businessweek was the first and most important publication that sort of championed some of his ideas. Remember, when the depression hit, people had no idea what to do about it. The economy took a deep dive. There were a lot of people saying ok, lets get rid of the rot. If we can liquidate the people who took on foolish loans, that will clean the system. What came and businessweek said, no, that is the wrong solution. That will spiral downward. The government needs to support the economy with tax cuts and spending until it can get back on its feet. You dont put someone whos been in a car accident through vigorous physical exercise. You have to help them recover, give them iv fluids. That was the message. Carol coming up, peter will be back to talk about levels in this weeks remarks. Jason boeing halting 737 max production. Well look at what went wrong. This is Bloomberg Businessweek<\/a>. Carol welcome back to Bloomberg Businessweek<\/a>. Im carol massar. Jason im jason kelly. Join us for Bloomberg Businessweek<\/a> every day on the radio starting at 2 00 p. M. Wall street time and catch up on our daily show. Listen and subscribe to our podcast. You can get that at apple, soundcloud or bloomberg. Com. Carol you can find us online and on our mobile app. Our top story this week, no doubt, it was boeing. Jason the company halting production of its grounded 737 max in january, a move that could deepen the crisis, engulfing the plane maker and ripple through their u. S. Economy. Carol which is why it is such a big story. Peter robison has been following boeing for years. He explains from seattle. Peter people focus on the pressure boeing put on its design team to finish the plane and the way the faa was blind to the change because it delegated most of the change to boeing. What we looked at was specifically was within the group of boeing pilots. Its a group of people who test the planes and write the manuals and train customers. What we found was during that period when the max was developed, the group was in disarray. Many of them werent speaking to each other because there were disputes over plans to make more money from training customers. Training had been a service boeing provided, but boeing felt it needed to turn it into a revenue generator. There were disagreements over that. At the time the Max Development<\/a> thepeaking, boeing moved simulators where they train customers from Train Developers<\/a> from seattle to miami. It put distance between design teams that were located pretty close together, especially given the difficulty crews had flying the plane. We felt that looking at training was important. Carol this is a big story. Jasons dad was an engineer, my dads was an engineer, but this concept of separating pilots from the engineers, where it used to be, i mean, boeing wrote the book on checklists and quality training and doing everything right. But part of it was all the involved and important parties were physically near each other and constantly talking to each other. Peter exactly. Theres a note of frustration i hear from people talking about this because they feel it didnt used to be this way. On planes like the triple seven, you had a lot of crosstalk and collaboration, but at the time the max was developed, these groups were in different divisions. They had different managers, different motivations. Carol the other thing is boeing as a company, customer training used to be a service. It was a cost to boeing. Free to its customers. They wanted to make that into another revenue line, a revenue source. That was at play, as well. Peter right, this goes back 20 years. There was a point in 1997 when boeing formed a joint venture with a Company Owned<\/a> by warren buffett. Thats when it got the Training Facilities<\/a> in miami. By all accounts, that didnt work well. Boeing continued this effort to make money from training. Its focus, as all the new pilots were coming into the industry, was we need to cut costs. The manager of the units said our marching orders are here, given whats coming, we need to make training less expensive. Boeing introduced a point system where some of the instructors felt they created incentives for airlines not to train pilots. They felt pilots would use these points on training flight attendants or maintenance technicians. Carol there has been so much time trying to figure out what happened to these planes. Theres been a lot of reporting, commissions looking into it, regulators looking into it. Are we closer to finding out what went wrong here . Peter what is frustrating is there has not been a public chronology of who did what when that makes it comprehensible to everyone after the challenger explosion. The report by International Aviation<\/a> authorities, led by the former ntsb chairman, came the closest. The report concluded that boeing simply didnt test the specific malfunction that brought down these planes. It was a malfunction of a vein that set off the software the pilots hadnt been told about. Ultimately, that comes down to not having sat down at the simulator, talked about it, worked through potential failure scenarios. Carol from boeing to the bull market. As we head into the new year and decade, the 2010s were really good for stocks, perhaps better than they seem. Jason that bull keeps running. Here is this weeks businessweek explainer on the longest bull market in history. Eisenhower was in the white house. T. V. Was mostly black and white. And the baby boom was at its peak. That was the 1950s. The last time the stocks had a decade like the one they are wrapping up now. Stocks in the s p 500 have returned 249 in the last 10 years, about 1. 2 times the historical average. Not only that, the 2010s were the first decade without able a bear market, a 27 drop from the peak. There were plenty of moments to make investors queasy. Six 10 corrections. Crisis inereign debt 2011 and 2012, and now a global trade war. But none of those killed the bull. That may be because while perceptions of risk were high, fundamentals were stable. Extended from 1. 6 to 2. 9 each of the last nine years. Is expected to be in the same range in 2019. Thats the smallest flocculation fluctuation in any 10 year stretch and data going back to 1930s. It led to a record stretch of wins for the market, like a kids sports league, almost every investor took home a trophy. Carol it is safe to say that we cant talk about the bull market without talking about bubbles. Bubbles, housing bubbles, asset bubbles, we have seen a few. Jason and some who have seen a few himself, peter coy is back with this weeks remarks. He talks about why the risky pursuits of returns amid negative rates are no laughing matter. Peter the economys recovering from the worst financial crisis since the great depression. We had a long run of growth. But what . They were heading into another bubble, as evidenced by the lowest Interest Rates<\/a> in the history of the world. We are in negative territory in europe and japan. As far as i can tell, and somebody can disprove me, this has never happened before. So what happens when rates go so low . Investors are desperate for yield. So they look for it wherever they can get it, which means they take on more risk. That the definition of a bubble, when you ignore risks and you just make a bet that this asset price is going to go up and up and up. Carol as you remind us, investors get stressed out when prices are down in terms of assets, yet thats the point when there is usually opportunity, versus when youve got valuations at a higher level. Peter right now, its a holiday season. Carol there you go. Peter im not going to sing, but attitudes are good. The stock market is hitting new highs, there is just a lot of jubilation in the air. Well, thats when you should be worrying because thats when bad loans get made in good times. The american economist said instability reads instability. That is exactly when we overreach. Down coming up, we break an overlooked but vital corner of the financial system. The repo market. Jason this is Bloomberg Businessweek<\/a>. Jason welcome back to Bloomberg Businessweek<\/a>. Im jason kelly. Carol im carol massar. You can also listen to us on the 119, on sirius xm channel am 11 30 in new york 106. 1 in , boston. Jason a. M. 960 in the bay area. And the Bloomberg Business<\/a> app. Carol the repo market makes eyes glaze over, others turn away at a cocktail party, but it is an important one. Jason it is a really important we needed to make sense out of one. It. We called on joe weisenthal, marcus editor and markets guru. We have him on our show every day. He gave us a metaphor you are going to remember. Check it out. Joe the repo market is essentially how various entities, whether its a bank, whether its a hedge fund, money market fund, how they finance themselves on an overnight basis. Nobody wants to hold cash because cash doesnt really earn anything and people want to be maximizing their profits. So what they do when they need liquidity is they borrow it overnight, and they might pay collateral like mortgage bonds, or Something Like<\/a> that, to make the cash bills that they need to pay so they can make the bills they need to pay. Jason it feels like one of those things that nobody cares about until it stops working, which is what happened in september. Joe exactly. In september, we saw the rates on overnight repo borrowing absolutely sore. Its important to recognize that prior to that, for most of the time, it moves in line with where the fed sets the rate. Its one mechanism in which the fed gets shortterm Interest Rates<\/a> and you expect the market to behave. The issue is the cash that banks have is really reserves held at their want part of to take tightening, is trying to normalize its operations post crisis that has been reducing cash at the fed. At the same time, you have regulators telling banks, you need to hold a certain amount of cash to ensure you have adequate liquidity. What we saw in september was a confluence of multiple things. There is the fed tightening. Reducing the amount of reserves available. Theres the regulatory restraints, saying you need to hold these reserves even though the fed is eliminating their existence. And then you have the timing issue, where due to tax payments, treasury auctions, and things like that, suddenly, that created a lot of demand. Carol it was the end of the quarter. Right . Joe thats exactly right. So this end of quarter payments, things like that. Theres another issue, where the quarter end and year end is when regulators come and take a look. That analogy i like to use is you might have a messy bedroom, but if you know five or 10 mins minutes before your dad is home, you clean up. Occasionally, the regulators come peeking in and they want to see how liquid is your Balance Sheet<\/a> . What assets do you hold . Everybody scrambles to hold their most liquid assets at the same time. The problem is if theres a finite amount of them, you have to pay up. Carol should we expect another squeeze in december . We are wrapping up not only a quarter but a year. Joe this is a big question. That everybody listens to on repo is a strategist at Credit Suisse<\/a> whenever he puts out a note, everybody wants to get it. He is concerned about this, that there is going to be this major liquidity squeeze, various entities demand this liquidity ahead of regulators checking in. The flipside is the fed seems to be more cognizant of the risks. Theyve certainly stopped shrinking their supply of reserve balances. That eases some of the strain. They have also engaged in some operations, where people can borrow essentially liquidity at the fed. So it is kind of unclear right now, but perhaps what we saw in september and warnings may have been what have kicked regulators into gear to present a blow. But we dont know for sure. Jason coming up, we catch up with an honoree on this years bloombergs carol going above 50. And beyond, our exclusive conversation with the beyond meat founder on the companys banner year and what is to come in 2020. Jason this is Bloomberg Businessweek<\/a>. Jason welcome back. Im jason kelly. Carol im carol massar. Still ahead, vanillanomics. Jason im glad you said that, not me. Youve probably seen the ads, heard about the mission we hear from bombas, on growing the company. Carol love that story. First, beyond meet. Meat alternatives will be a market. A 140 billion market. This might explain when they debuted back in may, shares soared, making the best ipo since the financial crisis. Jason its also by the company and the ceo made the bloomberg 50 list. Heres our chat with ethan brown. He joins us from los angeles, tells us what surprised him in 2019. It is around, continue to educate the media just how healthy and how much ever company is driven by the human health imperative. If you look at the products were creating, take the duncan sausage. It has 50 less fat, 37 less sodium. When youre beginning with a blank canvas, you can leave out the things you wouldnt want to be consuming, such as cholesterol. You can lower things like saturated fat. We provide a consumer with a healthy product they get to enjoy, yet continue to move the ball forward and make the products healthier. As we get into 2020, we drive toward goals that will enable the consumer to do what they love. And do it in a way that is healthier for them. Carol do you think about doing reformulating to lower calories or lower sodium . Is that in the future . If you look at the dna, we are an innovation driven company. We produce all our products in the u. S. And have our Innovation Center<\/a> in los angeles. We call that the Manhattan Beach<\/a> project. More importantly, we want to invoke the sense of urgency and scale that occurred in the Second World War<\/a> with the manhattan project. We brought together the best scientists and engineers and have a clear goal. That is to build meat, directly from plants. When youre doing that, youre always improving. We have flavor, aroma, flavor, and texture. Its also about market and helping understand the products. When you look at the beyond burger, that has 16 the daily value of sodium. Not 60, 16 . Thats reasonable, such as two flour tortillas or half a cup of formulas that people will consume, such as two flour tortillas or half a cup of marinara sauce. A lot of it is separating the misinformation and reality. This is one i consume almost daily, something i feel good about giving my own children. Lets educate consumers about the health of our products and the process. Were proud of our process. If you look at how we produce meat from plants, instead of running plant material through animals and the antibiotics and the hormones, depending on the species, what we are doing is taking the protein from the plant, running it through heating, cooling, and pressure, and that resets the bond. Thats it. Thats a much better process. We offer complete transparency. You can be welcome at our facilities. People should see where their food is made. We believe strongly in that principle. Jason walk us through assessing these partnerships. Youve got some partnerships in casual dining. How does that work . It feels like everybody wants a piece of this market right now. You always want to align yourself with marquee players. When we decided to go into retail in 2009, the First Company<\/a> recalled was whole called was whole foods. You look at our venture history, the First Venture<\/a> firm was kleiner perkins. We have a great list now. But if youre now looking at the fast food space, quick serve restaurants, you want to adopt the same philosophy. Who are the marquee players . How do you become of service to them. Whether it is mcdonalds, subway, we are looking at carls jr. , we are looking to serve the very best partners in the space. Carol what is the focus . Retail or foodservice . A 50 50 split . Its a relationship with the consumer that to make the business special. We listen to what they say. They say to keep everything natural. Thats what we do. That makes it harder. It would be easier for animal protein. We wont do that. Were focused on what the consumer wants. If its quick serve restaurants, well be there for them. If it is retail, we will be there for them. Right now its 5050. Carol it could change going forward. Jason when you think about the test lets talk about mcdonalds. What have you learned so far . Obviously, thats from a volume perspective, but also a brand perspective, something everyone has been looking at closely. What have you taken away from that test . I had the great privilege of being in the ontario area, and i drove out to mcdonalds. I went to three Different Stores<\/a> and had the burger at each location. And they were identical and delicious. It was a fantastic experience for me, and one that was very satisfying. It was a goal i had for a long time to be of service to mcdonalds. Its going very well. I think you heard the ceo of mcdonalds canada say that. We cannot comment further than what they said publicly but we are enthusiastic. Carol does it expand into the United States<\/a> . Thats up to them. What you want is a great test and i think we have every sign thats the case. Carol china accounts for 27 percent of meat volume. They already eat Plant Protein<\/a> and they look at meat as a status symbol there. Whats your approach . What are your expectations for china . We are aggressive in each market we occupy, whether he United States<\/a>, mcdonalds, kfc, etc. Youll see us move with speed and exploit the first mover advantage we have in terms of building the brand closely associated with the plant meat movement. I cant expose anything in particular, but we are excited about that market and very active in our plans. Jason lets talk about chicken if we can. Big chicken fans. Carol im kind of hungry, im just going to tell you. Jason the kfc test, as it were, down in atlanta, was where it was. It went gangbusters. How soon can you get into that market in a meaningful way . Youll see exciting things from us in the poultry space in 2020. I cant name partners or developers, but we look at three core platforms. Beef, pork, and poultry. You can see consumers pulling off beef and pork. Youre also starting to see pressure on the poultry industry. Weve done a lot of work there. Youll see the fruits of that in 2020. Jason i do wonder what youve learned along this interesting year as the ceo and leader of the company that is about a lifestyle and who we are. To get up every day and go into an office and work on issues that are important, not only personally but to the world, is a privilege. We were recognized by the markets for what were doing. We dont believe that this is a shortlived trend. This is something that has long legs to it. If you think about what were doing, we are not suggesting people dont eat meat. That would be a big mistake. I love Fried Chicken<\/a> and burgers. The idea behind the company is to provide a better form of meat, to provide meat that provides the experience we love but in ways thats healthier for the bodies and earth. If you look at what the mobile phone did, nobody had to denigrate the landline. We dont think we have to denigrate animal protein. We just have to provide the consumer with a new and better choice and let them make the decision. If were successful, more and more will sign on. Jason coming up, the economics of vanilla. Carol dubai and saudi arabia. Only a two hour flight, but one of the most profitable for the Largest International<\/a> airlines. Jason this is Bloomberg Businessweek<\/a>. Jason welcome back. Im jason kelly. Carol im carol massar. Join Bloomberg Businessweek<\/a> every day on the radio. You can catch up on every daily show by listening to our podcast. Jason and of course, you can find us online at businessweek. Com and our mobile app. You pointed this out. This is the type of peace piece businessweek does well. It takes something many of us take for granted, in this case something in all of our kitchens, were talking about vanilla. It goes deep and it explains the wild market economics. Carol it required a well trip to get this done. Heres the adventure in madagascar. This is a regional market, a place where vanilla enters the international marketplace. And its really remote, really hard to get to. Its basically a hut, a wooden hut in a really small village in northeastern madagascar. And just to give you an idea of how tough it is to get there, the flight, you take a small plane to a small airport in the northeast. Then you have to drive over really bad roads to get to this market area. When we did that, our driver couldnt go any further because the road was swallowed by a river. We had to wade across the river and walk for a couple hours beyond that to reach this little hut in a village where dozens of farmers would bring their annual harvest of vanilla. Thats where it would be bartered over by International Flavor<\/a> companies and exporters, and then go out into the wider world. Carol is a great line where you talk about where you went, this great observation lab. It exposes the genius and insanity of globalized commerce. Thats what you saw at work. Yes. Its almost hard to imagine what happened in the vanilla trade, for example, how the crop is paid for. Its all cash. Its a cash economy. The buyers have to get cash along the same route we took. The biggest denomination bill in madagascar is worth about five dollars and these buyers are buying tons of vanilla beans. These vanilla beans can cost as much as 600 per kilo. They need lots of cash. They bring bales and bales of cash to these markets on the back of motorcycles, and just being carried. That is one example of kind of the strange market that vanilla is, because of its isolation in madagascar, and also because of price swings. Jason i have to say, reading this story, between the two of us, this notion of how is this Market Limited<\/a> to this one really obscure place . This is not one of those things you read about, where only people who are billionaires can get this. This is something we both have in our homes. How has this been so limited to this one geography . It comes from an orchid. It grows from the flower of an orchid. Its native to mexico. But many years ago, it was transferred to africa and it was found that it grew very well in madagascar. Vanilla is not one of those products that can be grown like soybeans. An easily managed commodity. It is a stubborn crop. It likes to grow among other plants and its incredibly labor intensive. So every step of the growing and cultivation process is done by hand, even the pollination of flowers is done by hand. So, it basically comes down to one of the main reasons madagascar dominates the trade so much, labor cost. The minimum wage is about . 18 an hour. So, in talking with people who work for vanilla companies, they talk about trying to grow, start plantations in other tropical areas like places like indonesia, countries in africa that have started to develop a vanilla industry. But they say that works well when vanilla prices are at highs. But whenever the prices tank, it becomes financially unstable to invest in those kinds of operations. Jason for a long trip in search of vanilla, to a much shorter pedestrian trip that has helped build emirates into the worlds Largest International<\/a> airline. Carol one of the most profitable routes and how the airline got there. Heres the editor of the business section, jim ellis. Emirates, which a lot of people thought wont make it simply because its got this hub in the middle of the desert, theyve become the Largest International<\/a> airline. They become a long hub. It makes a lot of sense because of the placement of the gulf region. Traffic from asia, australia could connect from north america and it becomes a mega hub. People think of it as the airline for long haul travel. Whats interesting is it turns out one of their most profitable routes is a short, two hour flight from dubai to riyadh, the capital of saudi arabia. It applies to truisms about business the saudis dont like, from saudi arabia and a lot of people that work in saudi arabia dont want to live in saudi arabia, particularly all the time. Theres no alcohol. Theres a lot of restrictions on women. Its the exact opposite of dubai, the freewheeling fun spot of the middle east. A lot of people have moved to there. As dubais growth has slowed, more have to look for work elsewhere. A lot of them go to saudi arabia because the government has a lot of projects that need outside consultants and expertise. Saudi arabia is responsible for half of the consulting revenue in the middle east. Jason that is amazing. It is a small country, even though its a rich country, and it needs a lot of things, energy education, diversification away from the energy economy. They bring in a lot of people for that. A Cottage Industry<\/a> has broken out for people who live in dubai on the weekends and work in saudi arabia during the week. Jason coming up, many have heard of it. A stock brand with a mission, helping those in need. Carol we sat down with the founder. This is Bloomberg Businessweek<\/a>. Carol welcome back. Im carol massar. Jason im jason kelly. You can also listen to us on the radio. Sirius xm, channel 119. 106. 1 in boston. Carol am 960 in the bay area. In london on dab Digital Radio<\/a> and the Bloomberg Business<\/a> radio app. Jason the company bombas started in 2013 as a way to help the homeless. For every pair of socks they sell, they donate a pair to those in need. Carol and theyve done it at a profit, and with impressive growth. We caught up with Founder David<\/a> heath. David we were always focused on positive roi, in terms of customer acquisition. One of the things that separates us from our peers is in total to date, weve only raised 4 million in capital, while a lot of our peers have raised 150 million. You peek behind the curtain, none of them are generating any money because they are basing this ratio. We went back to fundamentals. Chasing this ratio. We went back to fundamentals. Consumer businesses have been around 100 years now. The way consumer businesses work, you buy a product for y, sell it for x, and by the company for margin. Why does consumer have to be different . Weve been profitable every single year, weve been in business except for year two. Carol what is your growth rate . 100 year over year. Some years close to 200 . Carol and youre at 100 million, 200 million or so . David just about. Jason talk to us about the customer. I am a customer. Its interesting because ive both bought socks, and theyve been giveaways. Its a great gift. Who is the typical customer, if you could generalize . David there is not really just one. Weve been super surprised about we have broad demographics. Thats to the point, socks are an item every Single Person<\/a> wears, whether youre two years old or 92 years old, youre probably wearing socks at some point in your year, even if you live in warm weather climate. And i think the idea we produced something that stands out in the marketplace, super comfortable, comfort is not unique to millennials or boomers. Everyone wants to feel comfort. Weve got just as many customers 2535 that we do that are 6575 and older. Same thing with demographics. 25 of our customers are under 150,000 a year. We see it as an affordable luxury. One of the benchmarks we used was starbucks. We took a commodity product, improved upon it, provided a good Customer Experience<\/a> and great brand, and you can see how a customer who spent 20 a year on socks would spend 60 a year on socks. The 40 delta is not the difference between them paying their mortgage or not. You cant do that with a car. Its an affordable luxury. Because our product stands so much in the marketplace, it attracts a large group of customers. Carol i also think people are thinking about, let me do something. Ill pay up for quality. Something that will last. Thats also giving back and doing good, maybe not impacting the environment as much. Were slowly seeing that happen in retail. We see the waste in the retail industry, people starting to filter through. Youre saying that play out. David totally. Were living in a social media age, where information is king. No longer can you hide bad Company Values<\/a> behind a closed door. Whether its glassdoor with employees, social media where customers expressed a good experience or bad experience, the benchmark and the standards by which you have to live are so high. But its great because it makes everybody responsible. The lens and the voices moved. Voice has moved. The power shifted back to the consumer. It used to be, there was a delay and you can cover it up for a while. This day and age . Information is flowing rampantly. You cant hide behind these things. You look at these companies, wework, or even away, you cant prop up a company on bad actions. It will eventually suss out. You have to play by the rules. Jason Bloomberg Businessweek<\/a> is available on newsstands now. Carol and also online and our mobile app. Alright, what is your mustread . Jason one of the shorter stories. Its a story about emirates. I love that airline. Its a story that tells the story of this route, but also the economics. Carol my must read was about vanilla, going to madagascar. The trip alone was difficult. He got into how does vanilla get to stores here into our pantries . It is a complicated story. It tells the story of global trade. Jason not such a rare element. Wow, what a market. Carol check out our podcast on apple podcasts, soundcloud, wherever you get your podcast. Jason this week, the ceo of beyond meet. More Bloomberg Television<\/a> starts now. Hank i see this climate risk as the single biggest and most certain and formidable risk that mankind faces. David had you had an interest in business . Hank the easiest place to get into was Harvard Business<\/a> school. David lehman was on the verge of going bankrupt, but was there anything you could have gone differently in respect to lehman . Hank i tell you, i dont think there was. Will you fix your tie please . David people would not recognize me if my tie was fixed, but ok. Leave it this way . 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