July 31, 2021 • 27 mins
This week, NYU Stern School of Business finance professor Aswath Damodaran, joined to talk about why corporate earnings reports and regulatory filings keep getting longer, and why it's not necessarily a good thing for investors. Professor Damodaran explained why he thinks we are having a "disclosure dilemma" with all of this additional corporate data leading to even less information. Christie's CEO Guillaume Cerutti went through the global art market boom in everything from NFTs to jewelry and explained what's driving consumers back in record numbers. Then Steve Cadigan, who formerly served as the vice president of people at LinkedIn, joined to talk about his new book, "Workquake: Embracing the Aftershocks of COVID-19 to Create a Better Model of Working," and what's behind that massive churn in the labor market driving high levels of job openings and resignations.
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Episode Transcript
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Speaker 1 (00:08):
To watch Miss this week. I'm Caroline Hyde. This podcast
has some of our favorite interviews from the Daily Show
After the Market Clothes that I co anchor along with
Joe Wisenthal and remained bostick OR'd your miss on Bloomberg TV.
It's a perfect way to kick off your weekend. We're
in the middle of earning season, where investors spend well
an awful lot of their time pouring over corporate results.
(00:30):
Us Murderin. He's the Kirchener Family Chair and Finance Education
and a finance professor at the n y U Stern
School of Business, and he's been writing a blog post
about how these corporate reports and regulatory filings have gotten
longer and longer and longer over the past few decades.
He says it's well not necessarily a good thing for investors.
Professor Murderin joined us to talk about his findings and
(00:53):
explain why he thinks we're having a disclosure dilemma with
all of this additional corporate data leading to even less information.
I think we've lost the distinction between data and information.
I mean annual report stand case filings of all the
come data dumps, and in a sense it's deliberate. I mean,
I think of how companies approach disclosure the way a
(01:15):
wayward Catholic approaches confession, which is, uh, I'm gonna send
all week, then I'm going to confess at the end
of the week, and because I've confessed, it's all off
the table. So in a strange way, the fact that
companies are allowed to disclose so much seems to have
given the license to behave really badly. How much of this,
as well, is the company is just basically complying with
(01:35):
the rules, and how much of this is maybe just
the d I guess, just trying to cover their basis
for lack of a better word. I think it's a
mix of the two. I think that the accounting rule
rights need to stop being so helpful. I mean, I
know it's in their intentions are good, but they're in
the process of trying to help us. They're kind of
essentially contributing to this phenomenon. But I think it's also
(01:57):
in the hands of the company. And I'll give you
a very simple contrast. Why does it take Coca Cola
two fifty pages and it's t k whereas it takes
Apple less than eighty pages to do a ten K
for the same year. I mean, clearly they're covered by
the same rules. So what is it that Coca Cola
is disclosing? That's that's taking the extra one seventy pages.
(02:19):
You sort of previously mentioned that you think it allows
them to do worse and worse you someone insinuating that
the shorter the ten K, the less they're trying to
hide in some way. What is it? Absolutely, I'm not
even insinuating. I'm stating it directly. I don't you know
it's it's and cococoata or isn't it when I pick
up a prospect is that's four hundred pages? My first reactions,
(02:41):
What are you trying to hide from me? I mean,
it should not take any company four hundred pages to
describe a business model, put out their financials, and tell
me what they're going to do with the IPO proceeds.
So I I, you know, I know it sounds strange,
but the longer disclosure is the more likely it is
that it's going to contain stuff that you don't want
(03:02):
to find out about a company, and they're hoping that
you never read it. So it's interesting that that we
talked about pouring over disclosures. What happens when investors are
faced with these data dump fo hundred pages is they
actually stopped reading and they go back to what I
call mental shortcuts, which is basically the makeup stuff, like,
you know, let's look at adjusted ebbit down multiples and
(03:23):
let's not even read the rest of the analysis. Maybe
Coke buried the secret recipe in there and no one
has ever noticed because of all those words. But in
all seriousness, sort of like, can you build an investment
portfolio on some of these ideas? Like could you build
a quant screen where you look for clarity and brevity
and uh in in a in a n SEC filings
(03:46):
and build find uh sort of like outperforming a factor.
It might not be a bad idea. In addition to
screening for growth and risk in cash flows, maybe you
should screen for a number of pages in the ten case.
Sounds facetious, but actually I did and meant about fifteen
years ago, I did a study that showed that every
hundred additional pages in your ten K reduces your price
(04:08):
to book creation by point three every hundred. So basically
what's happening is is you, as you start adding more
and more stuff to your ten k. You're telling me
that your company is more and more complex, and complex
companies is just much more difficult to value and invest in.
So it might not be a bad idea. You know,
there's let's partner on this. I think we can. We can,
(04:29):
like let's Parker on it in license. Sorry, there's this
also this idea here of I guess kind of the
feedback loop to in terms of the type of details
being disclosed, and I guess the relationship I guess that
the street has with some of these companies. Kind of
explain that a little bit more here and why you
think that should be that might be a concern. I'll
use one area where disclosure has has increased massively over
(04:51):
the last one years, corporate governance. Right Sarbe and Oxley
created a whole host of corporate governance disclosures. This was
an early two thousand's ask your question, do you, as
a shareholder feel more powerful at companies now than you
did twenty years ago? I don't, because here's what happened
after that disclosure requirement came in. Companies started multiple class
(05:12):
of shares, restricted stock, and it's I mean, in fact,
companies I think are worse at corporate governance now, but
they disclose all of it, hoping that nobody reads it.
Does this moment in the market remind you of any
time you know, there's a lot of inflation talk or
rates are very low, a lot of excitement still about growth.
You're an encyclopedia of the market, and I'm curious, when
(05:32):
you look overall at at investing these days, does anything
called land or is this truly uncharted territory. I think
it's unusual simply because we've never had an experiment like
the one we had last year. Experiment we didn't want
to run up, shutting the global economy down. I don't
think anybody quite knows how we come back. And I
think Alio, we've seen this tension play out, the tension
(05:54):
between the expectation that the economy was going to come
back strongly and the worry that inflation would come back
with that. I think what's changed in the last few
weeks is that people are starting to worry about is
growth coming to come back the way it is, partly
because of the delta variant and partly because some other
numbers are not coming in as expected, and worries about
inflation continued to be out there. So I think this
(06:16):
duel between real growth and inflation is going to continue
through the rest of the year. And you know, I
am old enough to remember the early eighties when we
actually had to fight inflation and how much pain that created,
and I just hope that we don't take inflation too lightly.
Of course, you're known at n y U and outside
is the dean of valuation. And so therefore, when you're
(06:37):
looking at valuations at these levels, when we are still
basically really near record highs, do you feel that the
only way is down? When you're looking at this sort
of inflationary pressure, I think inflation can never be good
for stocks. I'd be quite honest. I've never seen up
high inflation scenario workout well for stocks. I know people
can paint these examples of how companies can do well
(06:59):
with inflation, but I look at history, and I look
at whenever unexpected inflation, as Rhodin's head, stocks have been
heard every single time. So I can't think of a
scenario where inflation comes back and stocks continue to go up.
So I think for for stocks to stay or rise,
inflation fears have to go away, and I can't see
(07:21):
that happening near term, So I worry about that. To me,
that is the biggest worried and that would concern me
with these markets. I wonder about the disconnect right now
as well between kind of what we're here from UH
big investors, the market participants, if you will, and people
on the ground. We saw this sort of play out
at the j Pal hearing this week, where a lot
of members of Congress talked about the anecdotal stories they
(07:44):
were getting from constituents about having trouble paying for their
grocery bill or going to restaurants, are doing just normal
things here, and we talk about inflation being less a
number and more feeling more issue of sentiment. Here, is
there a way where I guess these two worlds can
coexist where maybe people on the lower end of the
(08:05):
income scale are feeling this pain, but the people on
the higher end can maybe work through it, dismiss it
and still I guess profit for lack of I think
rather than lower an upper end, I think it really
depends on your faith in the FED. I I have
have enough for the last twilve years. I argued that
we've put this this I think unnatural or unreal belief
(08:26):
that the FAT can do whatever it wants, that the
FED can come in and keep inflation at two percent
of it once. So I don't share that feeling. In fact,
I've called the FED the FED Chair, the Wizard of
Oz basically that they have no powers, but their power
comes from the perception that they have power. I think
central banks play a very dangerous game, and they act
like they can keep inflation under control. And right now,
(08:49):
that's why I think you see such a big divided markets.
There are people out there, especially younger people who seem
to be and for me, younger is is you know,
fifty years old, you're still younger than me who never
been through an inflationary episode, who think that the FET
can keep inflation low if it desires to keep it low.
And I don't think the FET has the power to
do that. So to me, that's the biggest divide. Do
(09:12):
you really believe that the FET can keep inflation low?
And I don't think it can. So we need to
be careful. Obviously, you know, there have been many scares.
There was a you know, there was the whole period
post Grade financial crisis when we went through this as
transitory turned out to be transitory, there are cost of
being wrong. There cost historically to being out of the market,
which tends to rally throughout almost any macro environment and
(09:35):
bounce back quick. How do you think about Okay, yes,
there is a risk that inflation picks up, there are
belief that the FED can control it, maybe uh, unwarranted
so to speak. But how do you think about the
overall risk of saying, like missing out on what historically
has been a market that mostly just goes up. There's
a reason I'm not in the bubblo camp, which you
(09:57):
know they're They've been very active for the law US decade,
which is every time you've got the market hit a high,
it's the bubble. You know. I believe that markets are
a priced really richly. I think that dangerously high given inflation.
But at the same time, I agree with you staying
out of markets is not an option. So I think
(10:18):
we need to find a way in which we can
stay in markets and get some protection in case inflation
comes back. And that's the position I put myself in
as an investor and worded about inflation. But I'm not
going to freak out sell everything and buy gold a bitcoin.
It definitely is not going to bail me out. What
is then, if what we used to think of as
an inflation head hedges gold and what digital gold has
(10:40):
been talked top us being isn't the right hedge. I
think that that part of part of the part of
what you need to do is what you talked about,
which is look for companies that have that are less
exposed inflation than others. Every company is exposed, but some
there's a reason I think tech has made a comeback
in the last few weeks. I mean started the year
doing badly, but it's made a comeback because, let's face it,
(11:02):
the big tech companies have far more pricing power than
most of the manufacturing companies or consumer product companies we
have around us. So in you know, if there's the
old adage that the strong getting stronger, those fangam stocks
looking awfully good to me right now. I mean, if
I had to pick stocks, I'd go back to those stalks,
you know, and and hold onto them simply because they
(11:25):
have the power to pass on pricing pricing increases through
their customers, and that might be what separates the winners
from the losers in this game. Do you worry about
any of the changes or the push I should say
amongst people in Congress, people in Washington, uh, for greater
regulation of some of these companies, not just in terms
(11:46):
of their size, but also really in terms of the
reach and a reach that to a certain extent has
provided some benefits when it comes to deflation. I think
that that risk is clearly there. I mean, I think
the regulatory risk, and it varies across the company. Is
A worry less about it with Microsoft than I do
with Amazon. The reality is that Amazon is so fured
(12:07):
by so many people now that there's a vested interest
at least and even among the part of business is
to find a way to bring it down. So the Amazon,
I think it's a real and present danger. You've got
to worry about the regulatory risk. Whether Microsoft or Netflix,
I'm less concerned. So I think it isn't It is
a risk, but it varies widely even among the big
tech companies. Yeah, I'm just gonna ask you further about that.
(12:28):
I mean, we're just talking about Okay, the SMP it's
only down one point six percent from its all time high.
Is hardly anything. A huge aspect has been this rotation
or the durability of big tech, and you mentioned some
of the risks that you see there, but by and large,
I mean, like this text story is incredible, it's been
people have counted it out so many times. By and large,
(12:49):
is there anything that's changed that would make you think
overall that that area won't continue to show leadership now
to think so, I mean, I think that that in
many ways what we're seeing is as shifting in the
economy towards I mean I tell people look at now,
think about how much time each day you spend the
(13:11):
ecosystems of different companies, and you're going to see the
market gaps of these companies reflect where we spend our time,
where we spend our money, and I think it reflects
the reality that lives revolve around these tech companies very quickly.
As well. You just said don't use gold or bitcoin
as you know, yourn inflation hedge. How wired are you
(13:31):
when you go from a corporation level to look at
crypto and a balance sheet. I think it's insane. I
think it's absolutely insane. I mean, I think even if
you think bitcoin is the place to be, you have
no business as a company putting your cash balance in bitcoin.
I mean that I mean, I can't believe a board
of directors can be allowed to get away with that
(13:51):
and say that's how that we're doing our fiducial responsibility.
I think it's insane. I just don't understand it. The
global art market is booming, demand for everything from those
so called n f t s non frontable tokens all
the way through to jewelry, and it's fueling record sales.
Christie's recently released a key performance takeaway from the first
(14:13):
half of the year, and it was strong. The auction
house had sold three and a half billion dollars worth
of art so far this year, with total sales aut
pacing pre pandemic levels. Christie's CEO Karuti joined us to
talk through the results and tell us well why he
thinks art customers are coming back in their rooms exactly.
(14:34):
Very strong rebound on the art market global last year,
very strong demand, but the supply was more challenging this year.
In the first have strong demand, very resilient from everywhere,
especially Asia, and also a strong supply, and the two
together we came to this recalled H one for Christie's
and and we are back at higher level than pre pandemic.
(14:57):
So it's it's it's a complete turnaround. You talk about
that supply, what is in demand right now, Well, the
demand is is really global and uniform across categories. That's
what we have seen in the first half. But it's
true that everything that relates to twenty and twenty first
century modern art, contemporary art design, n f t s, jewels,
(15:18):
luxury is very much in demand. That's what we have seen.
But well, listen, two weeks ago we we saw in
London drawing by Da Vinci for a very strong price.
So it's it's also for more classical categories that we
have seen a very very resident market kind of about
coming in with a stellar price tag. Talk to me
about London, because many were handwringing Brexit going to be
(15:40):
an issue in terms of the art market hasn't been. Well,
it's not an issue, but it's a real challenge for
us because Brexit means more complexity when you export from
the U to sell in London. It's much more complicated
for our clients. But we really reacted in the best way.
We made the life of our clients easier. We play
(16:00):
also on the fact that we we have auction rooms
not only in London, but also in Paris, Amsterdam, Milan
and altogether the performance for Europe has been very strong
and positive. In the first half, you say thirty percent
of buyers are new. Thirty one percent of these new
buyers are millennials. What are the new young crowd? What
are they telling you? Well, there, they are telling us
(16:22):
many things. First, they are interested by of course the
you know, the cutting edge art, you know, contemporary art,
and and they they drove us to change the profiler
profile of ourselves. For instance, this year we've invented a
new way of segmenting ourselves, creating a new category twenty one,
you know, to address really this new demand. They are
(16:43):
telling us also that they want to see a more
diverse art market with new artists, with female artists, with
female auctioneers. And in this first half we have more
female auctioneers than men auctioneers, which is, you know, good news.
Also in in a in a tradition very inward looking
and and conservative category or industry. So that's that's what
(17:06):
these new clients are telling us. When you've been formed
in the seventeen hundreds and now you're having predominantly female auctioneers,
that's really something to stand for I'm interested in. I mean,
we talked a lot about say the people and FT
auction that was such a landmark sale and brought everyone's
attention to what this so called n f T R
n f T is the digital art. Now the people
(17:28):
who are buying there were I think some of the
statistics are amazing from this particular auction you saw. Was
of those bidding were new to you as clients. Absolutely
are they staying with you? Are they continuing to buy?
And what are they continuing? Well that that's what we want,
and that's what happens. For instance, one of the direct
and the biters for the people n f T you
(17:49):
are talking about two weeks later he was active in
one of our classic sale and about a major work
by Picasso. So we are trying really to also, you know,
extend what they do. And we also want to convince
people who are traditional collectors buying fungible art that n
(18:10):
f T s are interesting because it's a real, uh
you know category that pre existed through the people's sell
with great artists. And what we've done at christis is
connecting these two words, you know, and that that's what
we want to do with these clients. You had a
great statistic about female auctioneers, and you, of course have
a goal of more gender balance. Just six years ago
(18:30):
is incredible. It's just sixty six thirty four and now,
of course highlighting more towards that goal off. How do
you maintain that, As we've talked on this program, we're
trying to turn a moment into more of a movement.
How does it look like to you in the future. Well,
I think you know, we have no choice, but we
(18:50):
are not forced to do that. We are doing this
because it's right. One more time. It's what we need
to do. That's what the market is is really wanting,
and and what we've done over the last month is
just we have accelerated and we have great female auctioneers.
We put them on the restroom and tell them that's
your moment, and they were fantastic. You know. The one
(19:11):
of the most important moment of these six months, we
sold a major work but by Baskia in our SuDS
in New York auctioneer, by our auctioneer Gema. She was
amazing on the rossroom and I'm sure at tailor that
night made a difference. What about the management as well
of course imagining that's the same thing we are, you know,
at the executive level, more and more women. Our president
(19:34):
for America at Christie's is a woman, Bonnie Brennan, you know,
recently appointed. So it's it's something we are, of course,
you know, seeing as a major objective, but it's always
thanks to their merits. Tell me you started a conversation
by saying, previously it was held back by supply. Now
supplies come back on why are people willing to sell
(19:57):
it as confidence? What was lacking last year? Or is
that you know, people were lived waiting and just wanted
to see what was happening in the economy, you know,
in general and especially in the old market because it
was a difficult moment, you know, we discontinued ourselves. We
we had to restructure, we have to change our business model,
going more towards online sales, and and the clients on
(20:19):
the setting side, I think, and it's normal they wanted
to see what what what was happening. What we proved
last year, We proved that the demand was very strong
and that the way we adapted to the new era,
the COVID and the post COVID were right. And now
people are more confident they are coming back, and that's
why we have this result, this this uh these six months,
(20:42):
job openings are a record high right now. There are
very theories to explain the phenomenon, and it's become one
of the biggest economic stories of the moment. There's a
lot of anecdotal discussion about burnout, about people wanting a
new lifestyle after the pandemic, using this moment to quit
the jobs by something new. To get some perspective on
this labor market churn and whether it's a real fundamental
(21:05):
shift and if it's really going to stay. We spoke
with Steve Cadogan, who is former vice president of people
at LinkedIn and has a new book out exploring the subject.
It's called work Quake, Embracing the aftershops of COVID nineteen
to create a better model of working. Steve, who spent
decades hiring in Silicon Valley, not just that well the
tech sector. It's understood this reality for years. Companies need
(21:28):
to actively battle for talent by creating a culture that
is desirable for employees. Now Steve is saying the service
industries they're being forced to do the same. I absolutely
think it will, but the reels. That pointness in motion
started well before the pandemic, where we saw over the
course of last seven years, according to Bureau Labor Statistics,
(21:50):
the length of time people were staying in jobs that
had moved from five to four years into the demographic
thirty five year olds come down to two point years.
So we've already been seeing this over the course of
the last seven to ten years, that people are staying
in jobs less than ever before. So I'm not surprised
to see this, but I do think and as you mentioned,
(22:13):
the fact is we've had a year and a half
to look at our life differently, and in a world
where you have more choice and where you see the
world differently, I think many of us are going to
make different decisions. And that's what we're starting to see
play out right now with increasing resignations. What was the
April number is the largest number of resignations in the
United States since they've been tracking it for the last
(22:33):
forty years. Yeah, and I'm glad to bring that up
because a lot of for a lot of years we're here,
we've been talking about sort of stagnant wage growth, and
a lot of people sort of throughout these statistics from
decades past, and they say, one of the reasons why
you had better wage wage growth in previous generations was
primarily because of the mobility of workers was just a
lot more efficient than what it is today. Do you
(22:53):
think that the companies themselves are going to respond in
a way to this mobility that will actually lead to
more sustainable wage growth. I think it's gonna take some time, honestly,
because I mean, listen, this pandemic kind of came out
of nowhere. We were all forced to learn how to
lead people remotely. That's not a major in any business
school that I know of, like how to how to
(23:14):
lead people remotely at scale? And we're learning as we
go here, and so I think we're going to learn
over time. But listen, I've been recruiting in Silicon Valley
for the last thirty years and it has been an
absolute battle for talent. We've been trying to find software
engineers like crazy, and that battle has now moved into
industries and verticals, hospitality, retail restaurants that have never faced
(23:37):
this before. And I think their first knee jerk is
gonna be, oh, we need to do assigning bonus or
we need to do some kind of perk, and I
think they're gonna soon realize that the long term victory
here is about creating a culture and creating an environment
where people can do their best work. But we're still
going through I think sort of a bit of a
churn now where we're not sure what's gonna happen, but
people are making different decisions around where they want to be.
(24:00):
I was just in Hawaii last week. Every restaurant worker
I met was new and and a lot of the
management staff said the people that were there are not
coming back, so they're having to train new people find
new ways of recruiting. I think long term that's going
to benefit them. But we've faced this thing in Silicon
Valley for a long time, and it forces you to
have to be smarter and have to be more innovative
(24:23):
around just wages. There's many other things that drive people
who want to work for you, And I think right
now what we've learned the pandemic is people really value
freedom and independence. I want to be able to go
shopping for groceries on Tuesday morning instead of waiting Sunday
afternoon in the long lines of the grocery store. People
are not wanting to give that up, and they've had
a taste of what that's like right now. So I
(24:44):
think it's going to sustain some change over time, but
I don't think we're gonna see anything immediate in terms
of new companies and new approaches until they learn an
experiment and try to find new ways of doing it.
I like that you went from because it feels that
sometimes this whole yolo effect is kind of an inequality
discussion as well, because Yeah, if you're in silicon value
(25:04):
of being paid the big box, you probably are allowed
and you're in demand, you're able to have the sort
of flexibility. But if you're more in a lower income job,
you have less of that freedom to negotiate. But are
you starting to see that you say restaurant workers are
all new. There's this theory that people aren't going back
to work until perhaps some of the government protections and
payments that you've been getting the benefits run out. Will
(25:28):
the labor for still have that strength, that empowerment when
this support runs out? I think? Do I think unemployment
insurance contributes to some people delaying their reentry. I do,
in part, but I don't think that's the bigger picture.
I think the bigger picture is people have had time
to sit at home. Many of those industries that you
(25:50):
you just mentioned, those people were laid up and they're
thinking that's a vulnerable sector for me to continue my career.
Maybe I should take advantage of a lot of this
free education, a lot of the new online education opportunities
that are being offered um around the world and up
skill myself, better myself. That's why you see organizations you
mentioned it right at the start here Chipotle. Chipotle is
(26:11):
fascinating because they're in a highly competitive marketplace for talent.
They're not a career destination. There are a career transition point.
They know people that are gonna work in their industry
are not coming to there to work forever, but to
work there while they find a job as an actor,
or while they finish their degree to go do something different.
So what Chipotle said is, we know this isn't your
desired destination. We're gonna double down on you. We're gonna
(26:34):
give you free education, three degrees, no student loan, and
you don't even have to stay here, and if you leave,
you don't have to pay it back. We know this
isn't your dream job, but we're okay with that. We
want the best of the bets that we can access,
and so I think that kind of creativity is going
to serve organizations well and we will see I think,
more choice at least for the next year while we
(26:54):
go through this transition period. That's it wadums this week.
If you like the show, make sure to subscribe and
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our show every week from four thirty to five pm
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a great weekend.
To watch Miss this week. I'm Caroline Hyde. This podcast
has some of our favorite interviews from the Daily Show
After the Market Clothes that I co anchor along with
Joe Wisenthal and remained bostick OR'd your miss on Bloomberg TV.
It's a perfect way to kick off your weekend. We're
in the middle of earning season, where investors spend well
an awful lot of their time pouring over corporate results.
(00:30):
Us Murderin. He's the Kirchener Family Chair and Finance Education
and a finance professor at the n y U Stern
School of Business, and he's been writing a blog post
about how these corporate reports and regulatory filings have gotten
longer and longer and longer over the past few decades.
He says it's well not necessarily a good thing for investors.
Professor Murderin joined us to talk about his findings and
(00:53):
explain why he thinks we're having a disclosure dilemma with
all of this additional corporate data leading to even less information.
I think we've lost the distinction between data and information.
I mean annual report stand case filings of all the
come data dumps, and in a sense it's deliberate. I mean,
I think of how companies approach disclosure the way a
(01:15):
wayward Catholic approaches confession, which is, uh, I'm gonna send
all week, then I'm going to confess at the end
of the week, and because I've confessed, it's all off
the table. So in a strange way, the fact that
companies are allowed to disclose so much seems to have
given the license to behave really badly. How much of this,
as well, is the company is just basically complying with
(01:35):
the rules, and how much of this is maybe just
the d I guess, just trying to cover their basis
for lack of a better word. I think it's a
mix of the two. I think that the accounting rule
rights need to stop being so helpful. I mean, I
know it's in their intentions are good, but they're in
the process of trying to help us. They're kind of
essentially contributing to this phenomenon. But I think it's also
(01:57):
in the hands of the company. And I'll give you
a very simple contrast. Why does it take Coca Cola
two fifty pages and it's t k whereas it takes
Apple less than eighty pages to do a ten K
for the same year. I mean, clearly they're covered by
the same rules. So what is it that Coca Cola
is disclosing? That's that's taking the extra one seventy pages.
(02:19):
You sort of previously mentioned that you think it allows
them to do worse and worse you someone insinuating that
the shorter the ten K, the less they're trying to
hide in some way. What is it? Absolutely, I'm not
even insinuating. I'm stating it directly. I don't you know
it's it's and cococoata or isn't it when I pick
up a prospect is that's four hundred pages? My first reactions,
(02:41):
What are you trying to hide from me? I mean,
it should not take any company four hundred pages to
describe a business model, put out their financials, and tell
me what they're going to do with the IPO proceeds.
So I I, you know, I know it sounds strange,
but the longer disclosure is the more likely it is
that it's going to contain stuff that you don't want
(03:02):
to find out about a company, and they're hoping that
you never read it. So it's interesting that that we
talked about pouring over disclosures. What happens when investors are
faced with these data dump fo hundred pages is they
actually stopped reading and they go back to what I
call mental shortcuts, which is basically the makeup stuff, like,
you know, let's look at adjusted ebbit down multiples and
(03:23):
let's not even read the rest of the analysis. Maybe
Coke buried the secret recipe in there and no one
has ever noticed because of all those words. But in
all seriousness, sort of like, can you build an investment
portfolio on some of these ideas? Like could you build
a quant screen where you look for clarity and brevity
and uh in in a in a n SEC filings
(03:46):
and build find uh sort of like outperforming a factor.
It might not be a bad idea. In addition to
screening for growth and risk in cash flows, maybe you
should screen for a number of pages in the ten case.
Sounds facetious, but actually I did and meant about fifteen
years ago, I did a study that showed that every
hundred additional pages in your ten K reduces your price
(04:08):
to book creation by point three every hundred. So basically
what's happening is is you, as you start adding more
and more stuff to your ten k. You're telling me
that your company is more and more complex, and complex
companies is just much more difficult to value and invest in.
So it might not be a bad idea. You know,
there's let's partner on this. I think we can. We can,
(04:29):
like let's Parker on it in license. Sorry, there's this
also this idea here of I guess kind of the
feedback loop to in terms of the type of details
being disclosed, and I guess the relationship I guess that
the street has with some of these companies. Kind of
explain that a little bit more here and why you
think that should be that might be a concern. I'll
use one area where disclosure has has increased massively over
(04:51):
the last one years, corporate governance. Right Sarbe and Oxley
created a whole host of corporate governance disclosures. This was
an early two thousand's ask your question, do you, as
a shareholder feel more powerful at companies now than you
did twenty years ago? I don't, because here's what happened
after that disclosure requirement came in. Companies started multiple class
(05:12):
of shares, restricted stock, and it's I mean, in fact,
companies I think are worse at corporate governance now, but
they disclose all of it, hoping that nobody reads it.
Does this moment in the market remind you of any
time you know, there's a lot of inflation talk or
rates are very low, a lot of excitement still about growth.
You're an encyclopedia of the market, and I'm curious, when
(05:32):
you look overall at at investing these days, does anything
called land or is this truly uncharted territory. I think
it's unusual simply because we've never had an experiment like
the one we had last year. Experiment we didn't want
to run up, shutting the global economy down. I don't
think anybody quite knows how we come back. And I
think Alio, we've seen this tension play out, the tension
(05:54):
between the expectation that the economy was going to come
back strongly and the worry that inflation would come back
with that. I think what's changed in the last few
weeks is that people are starting to worry about is
growth coming to come back the way it is, partly
because of the delta variant and partly because some other
numbers are not coming in as expected, and worries about
inflation continued to be out there. So I think this
(06:16):
duel between real growth and inflation is going to continue
through the rest of the year. And you know, I
am old enough to remember the early eighties when we
actually had to fight inflation and how much pain that created,
and I just hope that we don't take inflation too lightly.
Of course, you're known at n y U and outside
is the dean of valuation. And so therefore, when you're
(06:37):
looking at valuations at these levels, when we are still
basically really near record highs, do you feel that the
only way is down? When you're looking at this sort
of inflationary pressure, I think inflation can never be good
for stocks. I'd be quite honest. I've never seen up
high inflation scenario workout well for stocks. I know people
can paint these examples of how companies can do well
(06:59):
with inflation, but I look at history, and I look
at whenever unexpected inflation, as Rhodin's head, stocks have been
heard every single time. So I can't think of a
scenario where inflation comes back and stocks continue to go up.
So I think for for stocks to stay or rise,
inflation fears have to go away, and I can't see
(07:21):
that happening near term, So I worry about that. To me,
that is the biggest worried and that would concern me
with these markets. I wonder about the disconnect right now
as well between kind of what we're here from UH
big investors, the market participants, if you will, and people
on the ground. We saw this sort of play out
at the j Pal hearing this week, where a lot
of members of Congress talked about the anecdotal stories they
(07:44):
were getting from constituents about having trouble paying for their
grocery bill or going to restaurants, are doing just normal
things here, and we talk about inflation being less a
number and more feeling more issue of sentiment. Here, is
there a way where I guess these two worlds can
coexist where maybe people on the lower end of the
(08:05):
income scale are feeling this pain, but the people on
the higher end can maybe work through it, dismiss it
and still I guess profit for lack of I think
rather than lower an upper end, I think it really
depends on your faith in the FED. I I have
have enough for the last twilve years. I argued that
we've put this this I think unnatural or unreal belief
(08:26):
that the FAT can do whatever it wants, that the
FED can come in and keep inflation at two percent
of it once. So I don't share that feeling. In fact,
I've called the FED the FED Chair, the Wizard of
Oz basically that they have no powers, but their power
comes from the perception that they have power. I think
central banks play a very dangerous game, and they act
like they can keep inflation under control. And right now,
(08:49):
that's why I think you see such a big divided markets.
There are people out there, especially younger people who seem
to be and for me, younger is is you know,
fifty years old, you're still younger than me who never
been through an inflationary episode, who think that the FET
can keep inflation low if it desires to keep it low.
And I don't think the FET has the power to
do that. So to me, that's the biggest divide. Do
(09:12):
you really believe that the FET can keep inflation low?
And I don't think it can. So we need to
be careful. Obviously, you know, there have been many scares.
There was a you know, there was the whole period
post Grade financial crisis when we went through this as
transitory turned out to be transitory, there are cost of
being wrong. There cost historically to being out of the market,
which tends to rally throughout almost any macro environment and
(09:35):
bounce back quick. How do you think about Okay, yes,
there is a risk that inflation picks up, there are
belief that the FED can control it, maybe uh, unwarranted
so to speak. But how do you think about the
overall risk of saying, like missing out on what historically
has been a market that mostly just goes up. There's
a reason I'm not in the bubblo camp, which you
(09:57):
know they're They've been very active for the law US decade,
which is every time you've got the market hit a high,
it's the bubble. You know. I believe that markets are
a priced really richly. I think that dangerously high given inflation.
But at the same time, I agree with you staying
out of markets is not an option. So I think
(10:18):
we need to find a way in which we can
stay in markets and get some protection in case inflation
comes back. And that's the position I put myself in
as an investor and worded about inflation. But I'm not
going to freak out sell everything and buy gold a bitcoin.
It definitely is not going to bail me out. What
is then, if what we used to think of as
an inflation head hedges gold and what digital gold has
(10:40):
been talked top us being isn't the right hedge. I
think that that part of part of the part of
what you need to do is what you talked about,
which is look for companies that have that are less
exposed inflation than others. Every company is exposed, but some
there's a reason I think tech has made a comeback
in the last few weeks. I mean started the year
doing badly, but it's made a comeback because, let's face it,
(11:02):
the big tech companies have far more pricing power than
most of the manufacturing companies or consumer product companies we
have around us. So in you know, if there's the
old adage that the strong getting stronger, those fangam stocks
looking awfully good to me right now. I mean, if
I had to pick stocks, I'd go back to those stalks,
you know, and and hold onto them simply because they
(11:25):
have the power to pass on pricing pricing increases through
their customers, and that might be what separates the winners
from the losers in this game. Do you worry about
any of the changes or the push I should say
amongst people in Congress, people in Washington, uh, for greater
regulation of some of these companies, not just in terms
(11:46):
of their size, but also really in terms of the
reach and a reach that to a certain extent has
provided some benefits when it comes to deflation. I think
that that risk is clearly there. I mean, I think
the regulatory risk, and it varies across the company. Is
A worry less about it with Microsoft than I do
with Amazon. The reality is that Amazon is so fured
(12:07):
by so many people now that there's a vested interest
at least and even among the part of business is
to find a way to bring it down. So the Amazon,
I think it's a real and present danger. You've got
to worry about the regulatory risk. Whether Microsoft or Netflix,
I'm less concerned. So I think it isn't It is
a risk, but it varies widely even among the big
tech companies. Yeah, I'm just gonna ask you further about that.
(12:28):
I mean, we're just talking about Okay, the SMP it's
only down one point six percent from its all time high.
Is hardly anything. A huge aspect has been this rotation
or the durability of big tech, and you mentioned some
of the risks that you see there, but by and large,
I mean, like this text story is incredible, it's been
people have counted it out so many times. By and large,
(12:49):
is there anything that's changed that would make you think
overall that that area won't continue to show leadership now
to think so, I mean, I think that that in
many ways what we're seeing is as shifting in the
economy towards I mean I tell people look at now,
think about how much time each day you spend the
(13:11):
ecosystems of different companies, and you're going to see the
market gaps of these companies reflect where we spend our time,
where we spend our money, and I think it reflects
the reality that lives revolve around these tech companies very quickly.
As well. You just said don't use gold or bitcoin
as you know, yourn inflation hedge. How wired are you
(13:31):
when you go from a corporation level to look at
crypto and a balance sheet. I think it's insane. I
think it's absolutely insane. I mean, I think even if
you think bitcoin is the place to be, you have
no business as a company putting your cash balance in bitcoin.
I mean that I mean, I can't believe a board
of directors can be allowed to get away with that
(13:51):
and say that's how that we're doing our fiducial responsibility.
I think it's insane. I just don't understand it. The
global art market is booming, demand for everything from those
so called n f t s non frontable tokens all
the way through to jewelry, and it's fueling record sales.
Christie's recently released a key performance takeaway from the first
(14:13):
half of the year, and it was strong. The auction
house had sold three and a half billion dollars worth
of art so far this year, with total sales aut
pacing pre pandemic levels. Christie's CEO Karuti joined us to
talk through the results and tell us well why he
thinks art customers are coming back in their rooms exactly.
(14:34):
Very strong rebound on the art market global last year,
very strong demand, but the supply was more challenging this year.
In the first have strong demand, very resilient from everywhere,
especially Asia, and also a strong supply, and the two
together we came to this recalled H one for Christie's
and and we are back at higher level than pre pandemic.
(14:57):
So it's it's it's a complete turnaround. You talk about
that supply, what is in demand right now, Well, the
demand is is really global and uniform across categories. That's
what we have seen in the first half. But it's
true that everything that relates to twenty and twenty first
century modern art, contemporary art design, n f t s, jewels,
(15:18):
luxury is very much in demand. That's what we have seen.
But well, listen, two weeks ago we we saw in
London drawing by Da Vinci for a very strong price.
So it's it's also for more classical categories that we
have seen a very very resident market kind of about
coming in with a stellar price tag. Talk to me
about London, because many were handwringing Brexit going to be
(15:40):
an issue in terms of the art market hasn't been. Well,
it's not an issue, but it's a real challenge for
us because Brexit means more complexity when you export from
the U to sell in London. It's much more complicated
for our clients. But we really reacted in the best way.
We made the life of our clients easier. We play
(16:00):
also on the fact that we we have auction rooms
not only in London, but also in Paris, Amsterdam, Milan
and altogether the performance for Europe has been very strong
and positive. In the first half, you say thirty percent
of buyers are new. Thirty one percent of these new
buyers are millennials. What are the new young crowd? What
are they telling you? Well, there, they are telling us
(16:22):
many things. First, they are interested by of course the
you know, the cutting edge art, you know, contemporary art,
and and they they drove us to change the profiler
profile of ourselves. For instance, this year we've invented a
new way of segmenting ourselves, creating a new category twenty one,
you know, to address really this new demand. They are
(16:43):
telling us also that they want to see a more
diverse art market with new artists, with female artists, with
female auctioneers. And in this first half we have more
female auctioneers than men auctioneers, which is, you know, good news.
Also in in a in a tradition very inward looking
and and conservative category or industry. So that's that's what
(17:06):
these new clients are telling us. When you've been formed
in the seventeen hundreds and now you're having predominantly female auctioneers,
that's really something to stand for I'm interested in. I mean,
we talked a lot about say the people and FT
auction that was such a landmark sale and brought everyone's
attention to what this so called n f T R
n f T is the digital art. Now the people
(17:28):
who are buying there were I think some of the
statistics are amazing from this particular auction you saw. Was
of those bidding were new to you as clients. Absolutely
are they staying with you? Are they continuing to buy?
And what are they continuing? Well that that's what we want,
and that's what happens. For instance, one of the direct
and the biters for the people n f T you
(17:49):
are talking about two weeks later he was active in
one of our classic sale and about a major work
by Picasso. So we are trying really to also, you know,
extend what they do. And we also want to convince
people who are traditional collectors buying fungible art that n
(18:10):
f T s are interesting because it's a real, uh
you know category that pre existed through the people's sell
with great artists. And what we've done at christis is
connecting these two words, you know, and that that's what
we want to do with these clients. You had a
great statistic about female auctioneers, and you, of course have
a goal of more gender balance. Just six years ago
(18:30):
is incredible. It's just sixty six thirty four and now,
of course highlighting more towards that goal off. How do
you maintain that, As we've talked on this program, we're
trying to turn a moment into more of a movement.
How does it look like to you in the future. Well,
I think you know, we have no choice, but we
(18:50):
are not forced to do that. We are doing this
because it's right. One more time. It's what we need
to do. That's what the market is is really wanting,
and and what we've done over the last month is
just we have accelerated and we have great female auctioneers.
We put them on the restroom and tell them that's
your moment, and they were fantastic. You know. The one
(19:11):
of the most important moment of these six months, we
sold a major work but by Baskia in our SuDS
in New York auctioneer, by our auctioneer Gema. She was
amazing on the rossroom and I'm sure at tailor that
night made a difference. What about the management as well
of course imagining that's the same thing we are, you know,
at the executive level, more and more women. Our president
(19:34):
for America at Christie's is a woman, Bonnie Brennan, you know,
recently appointed. So it's it's something we are, of course,
you know, seeing as a major objective, but it's always
thanks to their merits. Tell me you started a conversation
by saying, previously it was held back by supply. Now
supplies come back on why are people willing to sell
(19:57):
it as confidence? What was lacking last year? Or is
that you know, people were lived waiting and just wanted
to see what was happening in the economy, you know,
in general and especially in the old market because it
was a difficult moment, you know, we discontinued ourselves. We
we had to restructure, we have to change our business model,
going more towards online sales, and and the clients on
(20:19):
the setting side, I think, and it's normal they wanted
to see what what what was happening. What we proved
last year, We proved that the demand was very strong
and that the way we adapted to the new era,
the COVID and the post COVID were right. And now
people are more confident they are coming back, and that's
why we have this result, this this uh these six months,
(20:42):
job openings are a record high right now. There are
very theories to explain the phenomenon, and it's become one
of the biggest economic stories of the moment. There's a
lot of anecdotal discussion about burnout, about people wanting a
new lifestyle after the pandemic, using this moment to quit
the jobs by something new. To get some perspective on
this labor market churn and whether it's a real fundamental
(21:05):
shift and if it's really going to stay. We spoke
with Steve Cadogan, who is former vice president of people
at LinkedIn and has a new book out exploring the subject.
It's called work Quake, Embracing the aftershops of COVID nineteen
to create a better model of working. Steve, who spent
decades hiring in Silicon Valley, not just that well the
tech sector. It's understood this reality for years. Companies need
(21:28):
to actively battle for talent by creating a culture that
is desirable for employees. Now Steve is saying the service
industries they're being forced to do the same. I absolutely
think it will, but the reels. That pointness in motion
started well before the pandemic, where we saw over the
course of last seven years, according to Bureau Labor Statistics,
(21:50):
the length of time people were staying in jobs that
had moved from five to four years into the demographic
thirty five year olds come down to two point years.
So we've already been seeing this over the course of
the last seven to ten years, that people are staying
in jobs less than ever before. So I'm not surprised
to see this, but I do think and as you mentioned,
(22:13):
the fact is we've had a year and a half
to look at our life differently, and in a world
where you have more choice and where you see the
world differently, I think many of us are going to
make different decisions. And that's what we're starting to see
play out right now with increasing resignations. What was the
April number is the largest number of resignations in the
United States since they've been tracking it for the last
(22:33):
forty years. Yeah, and I'm glad to bring that up
because a lot of for a lot of years we're here,
we've been talking about sort of stagnant wage growth, and
a lot of people sort of throughout these statistics from
decades past, and they say, one of the reasons why
you had better wage wage growth in previous generations was
primarily because of the mobility of workers was just a
lot more efficient than what it is today. Do you
(22:53):
think that the companies themselves are going to respond in
a way to this mobility that will actually lead to
more sustainable wage growth. I think it's gonna take some time, honestly,
because I mean, listen, this pandemic kind of came out
of nowhere. We were all forced to learn how to
lead people remotely. That's not a major in any business
school that I know of, like how to how to
(23:14):
lead people remotely at scale? And we're learning as we
go here, and so I think we're going to learn
over time. But listen, I've been recruiting in Silicon Valley
for the last thirty years and it has been an
absolute battle for talent. We've been trying to find software
engineers like crazy, and that battle has now moved into
industries and verticals, hospitality, retail restaurants that have never faced
(23:37):
this before. And I think their first knee jerk is
gonna be, oh, we need to do assigning bonus or
we need to do some kind of perk, and I
think they're gonna soon realize that the long term victory
here is about creating a culture and creating an environment
where people can do their best work. But we're still
going through I think sort of a bit of a
churn now where we're not sure what's gonna happen, but
people are making different decisions around where they want to be.
(24:00):
I was just in Hawaii last week. Every restaurant worker
I met was new and and a lot of the
management staff said the people that were there are not
coming back, so they're having to train new people find
new ways of recruiting. I think long term that's going
to benefit them. But we've faced this thing in Silicon
Valley for a long time, and it forces you to
have to be smarter and have to be more innovative
(24:23):
around just wages. There's many other things that drive people
who want to work for you, And I think right
now what we've learned the pandemic is people really value
freedom and independence. I want to be able to go
shopping for groceries on Tuesday morning instead of waiting Sunday
afternoon in the long lines of the grocery store. People
are not wanting to give that up, and they've had
a taste of what that's like right now. So I
(24:44):
think it's going to sustain some change over time, but
I don't think we're gonna see anything immediate in terms
of new companies and new approaches until they learn an
experiment and try to find new ways of doing it.
I like that you went from because it feels that
sometimes this whole yolo effect is kind of an inequality
discussion as well, because Yeah, if you're in silicon value
(25:04):
of being paid the big box, you probably are allowed
and you're in demand, you're able to have the sort
of flexibility. But if you're more in a lower income job,
you have less of that freedom to negotiate. But are
you starting to see that you say restaurant workers are
all new. There's this theory that people aren't going back
to work until perhaps some of the government protections and
payments that you've been getting the benefits run out. Will
(25:28):
the labor for still have that strength, that empowerment when
this support runs out? I think? Do I think unemployment
insurance contributes to some people delaying their reentry. I do,
in part, but I don't think that's the bigger picture.
I think the bigger picture is people have had time
to sit at home. Many of those industries that you
(25:50):
you just mentioned, those people were laid up and they're
thinking that's a vulnerable sector for me to continue my career.
Maybe I should take advantage of a lot of this
free education, a lot of the new online education opportunities
that are being offered um around the world and up
skill myself, better myself. That's why you see organizations you
mentioned it right at the start here Chipotle. Chipotle is
(26:11):
fascinating because they're in a highly competitive marketplace for talent.
They're not a career destination. There are a career transition point.
They know people that are gonna work in their industry
are not coming to there to work forever, but to
work there while they find a job as an actor,
or while they finish their degree to go do something different.
So what Chipotle said is, we know this isn't your
desired destination. We're gonna double down on you. We're gonna
(26:34):
give you free education, three degrees, no student loan, and
you don't even have to stay here, and if you leave,
you don't have to pay it back. We know this
isn't your dream job, but we're okay with that. We
want the best of the bets that we can access,
and so I think that kind of creativity is going
to serve organizations well and we will see I think,
more choice at least for the next year while we
(26:54):
go through this transition period. That's it wadums this week.
If you like the show, make sure to subscribe and
rate us wherever you listen to podcasts. We can catch
our show every week from four thirty to five pm
on Blueberg TV and Twitter. Thanks for listening and have
a great weekend.
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