Transcripts For BLOOMBERG Bloomberg BusinessWeek 20170903 :

Are looking at Hurricane Harvey. How as a weekly did we plan for this coverage . We were going to wait to see what the storm was like because when we were planning over the weekend, the storm had not hit. By sunday it was clear that it was a huge disaster. Peter was back from vacation, he is an economist and he can take almost any story and look at the economic angle but also a human angle. He was perfect for this. There is another story. Chris has been doing work with fema and reporting on National Building codes and how a place like houston and texas in general are allergic to building codes. The combination of those two, the economy in houston and how things are put together, the cando attitude, but, lets do anything we want to do, and how this patchwork of Flood Control came together, and then there is this attitude about building codes. We dont like building codes. Carol ive got a lot of family in texas and i love them dearly, but they do things their own way. [laughter] oliver i wonder, when we tried to strike the tone for Something Like this, bloomberg is through the lens of Financial Markets and how it affects the economy. This is one of these events that has a great human toll as well. When you talk about it, we want to make sure that we say, here is the thing that is most important. How you find that tone in the magazine . In the magazine, we have to always point out that there is huge human suffering. We point out that the Energy Markets have been affected, but we point out that there is a huge cost to the way people will actually go home and live in homes that are wrecked by the flood. They go back and not only are most homes not insured but people will go back to homes over the next few weeks and months that have them develop Health Problems from mold. There are sorts of human details but peter paes attention to. Carol i wonder and maybe more details will come out in the aftermath of the storm it seems that more people with people on the lower economic and of the scale, they cannot afford to go anywhere. It will be interesting to see if there are people that really needed assistance. Exactly, exactly. The lesson from the previous hurricane was that evacuation does not really work because people died in the last evacuation. They learned that evacuation does not work, but now people are trapped and there is so much water. Oliver peter wrote the story examining the effect on the economy. Peter houston has been wet since it was born. For reasons, including that it had a navigable channel, it grew and grew and is now the fourth biggest city in the country. A Major Medical center, refineries. It is a happening place and a strong city. But it is built on a swamp. That never changed. If you are going to be built on a swamp, then you need to take some pretty extreme methods of drainage. So the approach houston has tried to take all these years is natural drainage and adding to it multiple channels, concrete sluices and so on to get the water out after it rains. And that has proven inadequate. Carol is it just a case, though, as we talk about the storm of the century, how can we plan for more than 50 inches of rain . Or is it something more significant that even a few inches can be problematic . Peter they have regular flooding and it is a problem in houston. Yes, harvey would have devastated any city, no matter how sound planning was. But it just made it worse than it would have been. So what people are saying is that in addition to trying to get water off the land and down to the gulf as quickly as possible, you have to understand that you absorb some of it in place. So it gets soaked into the ground and ponds and such. Then, gradually discharged over days or weeks. That is what they have not done enough of. Carol powerful and disturbing images from the gulf coast all week. Oliver we talked to creative director rob vargas about the challenge. I imagine the challenge is the best way to convey such a large and project incident as houston. Rob we have seen a lot of incredible pictures of the flooding. We, along with many people, had a photographer out there shooting. We wanted to picture it in a more contemplative way. A lot of people being rescued and newsy images but we wanted something more like frozen in time. It is a look ahead at a look at what could be done differently. And so we found this image of this one man who is struggling, kind of wading through the water. Carol very dark. The actual image itself. You could have lightened it up but you left it. Rob montgomery has that style. Oliver up next, bestselling electric cars losing ground to tesla. Carol activist investors are not known for patients. A Surprising New tone. Oliver this is Bloomberg Businessweek. Carol welcome back to Bloomberg Businessweek. Oliver you can also catch us online on businessweek. Com. Carol in the business section, since its introduction in 2010, the nissan has been the bestselling electric car. Oliver now, a makeover. Jim ellis explains. Jim the plan is to come up with something that, it will not be a tesla killer, it can go oneonone against the new, lowpriced tesla and the chevrolet volt. That is going to be tough for a couple of reasons. The first is that the leaf does not have the range. The old leaf tops out at 107 mile range. The regular one only has 80. That is against 220 four the tesla model three and almost 240 for the chevy volt. That means a lot, if you can even double miles. Oliver the price difference is now not that big. Jim only 5,000. What is going to happen is that the leaf is going to have to come up with a car that has much better range, probably double what it has right now, and a lot of snazzy features that people expect. Carol to be fair, that price differential is for the barebones model. Jim that is true. Carol business week did a story that it becomes pricier. So lets talk about because nissan is going to unveil a new leaf september fifth. How much do we know . Jim it will have new styling. Right now it is quirky and does not work for most people. The first major redo in seven years. It will look more like todays car. They have been doing sort of spy shots but have been so far very quiet about what kind of range it will have. Carol that is what we care about . Jim that is what you care about. A lot of analysts say that it will have an optional engine battery that will take it up to the range of a beginning model three, a beginning tesla model three, or a volt. That will break the 200mile barrier which seems to be where you need to be these days. Oliver it seems that they need to engender some excitement around the brand. Part of it might be branding as well. Carol are you saying that the nissan leaf has cache . [laughter] jim that is going to be difficult to do for a Japanese Company. That is not how they are. They do it by adding technology to the car. This is the first car they are going to have sold over here that is going to be able to park itself. It is going to have some Driverless Technology added to it. It is going to have something that is unusual, a new feature that is going to allow acceleration and braking on a single pedal. Carol huh. That was popular on another nissan car in japan, the note. But a lot of things that work in japan with auto consumers sometimes do not connect in the u. S. Oliver continuing in the business section, activist investors are supposed to be shortterm raiders. Carol legendary investor nelson is taking a soft approach. About a month or so, when the Procter Gamble proxy fight was taking off, nelsons fund started to put up a section on its website were declared that it had a special interest in esg issues. Environmental, social, government. Oliver they are angling to get nelson on the board. That is the proxy fight. Why do they think this is going to help . Or do they . Is that a part of the effort . The timing is a little too coincidental to say it is not a part of the effort. At the same time, if you ask them, they will say it has been a longterm issue them something they look at when they are choosing a target because these are risks that they need to manage when they go into an investment. Triad is a little different than the average activist fund. They do not like to consider themselves activists, they consider themselves highly engaged. Instead of a fighter. Carol who is nelson peltz playing to in this show of corporate stewardship . Investors are very interested but at the same time he has to win somebody over to win a proxy fight. There are firms like blackrock, state street, and the like invested in this company who like the esg issue themselves. Carol they are the major investors in this company, more than nelson peltz even. You have to listen to what they are interested in. You do not win a proxy fight with 1 or whatever of the company. Youre not going to be able to get your seat on the board unless you win people over. Every little bit helps. Obviously this is a little bit but it helps. Oliver maybe this is editorializing, but give me the feedback, i think there is a lot of focus on activist investors throughout this bull market, a lot of hubbub around these guys and investors as sort of icons and very much artistic in some sense. There is a lot of excitement behind their investments, everybody follows it and a lot of times the Investment Community thinks they are being very hawkish. Nurses Cultural Movement behind activist investors. It will towards saying we are going to be better stewards, to borrow carols words. We want to make sure we can make money on the longterm. Is it an image thing . Scott partly. But in particular, the funds we cite in the article, they are different than the carl icahns of the world. They are not afraid to go to a proxy fight but at the same time blue harbor does not do proxy fights, they never go in that direction, and trian is trying to position itself as not an activist fund. They are saying, look, we are not in this for the shortfall, we are in this to fix the company and maybe sell later on. Carol up next, a hefty chunk of yales investment is tied up in timber. All is not good in ward. Oliver the federal Investment Program was in trouble before harvey and now it deepens. Carol this is Bloomberg Businessweek. Oliver welcome back to Bloomberg Businessweek. Im oliver rennick. Carol and im carol massar. You can catch us on radio on sirius fm 119 and am 1130 in new york, am 1330 in boston, 9011 in washington, and in the bay area. Oliver in asia on the Bloomberg Radio plus app. Carol Many Companies have added timber to the endowment portfolio. Oliver you has discovered that it is cutting down on prices. Yale has led the way. It is a hedge against volatility. You own this other asset. As yale went, a lot of other endowments wanted to follow that. Oliver it seems to be something that happens in markets, where there is not only the search for yields, you have to hedge it, you think about a big Endowment Fund like yale to lead the way and everybody gets on board. Do we have anything about how many investment pieces there are across investors . It is the big ones like harvard and yale that have a lot of assets in endowments because they have a long time horizon. Oliver centuries. Centuries. Where you see an issue is the small endowments, they follow. They may not have the expertise to really stay in it for the long term, the long game. Carol you said hell lead the way but there had to be returns. Tell us about the returns. It was going up for a long while. Doubledigit returns. And now you see that the returns just have not been there. And a lot of players got into the game. Some of them, you know, the endowments now are saying that they are pulling back because they are just not seeing be returns. And for the foreseeable future. Carol it is causing some investors such as yale to do other things with their land. Talk about that relationship. It is not just about harvesting timber. They own the land outright and then they have farms, managers. They can harvest it or some of it could be just for investment return. But someone like harvard, for instance, they had romanian forests, or they recently sold in uruguay eucalyptus plantation. They were being harvested for the timber. And it was not as lucrative and they decided to make the sale. There are a lot of those Different Things they can do. Carol we talk about yale because there was something controversial but came up about the power play that is happening. Yales manager has entered into negotiation for a power line through quebec coming through 23 miles through New Hampshire that would supply power for new england. And it is controversial because, yale activists say that they are not harvesting in the right way, they are not being responsible. Locals are saying it is not necessary. It wont create jobs. Again, the yale manager is not being responsible in the way that they are clearcutting. There are canadian tribes in canada that are saying it is going to desecrate tribal lands. And environmentalists say it is going to impact on the moose and caribou and salmon. Carol they are making a lot money from it from leasing it to the power plants. Yes. And allowing the access, yes, yale will make money from this. Carol storms like Hurricane Harvey do not come along every day. Many coastal communities cope with flooding every year. Oliver they turn to the National Flood Insurance Program for help. Unfortunately, it is in trouble. It writes policies for homes that are in flood prone areas. It has been around since the 60s. It is a way to incentivize the private market to write policies they would not otherwise that it has lowered the cost of building and staying in homes in places where it is becoming clear that we should might not be there. In the 50 years that the program has been in place, Coastal Development has exploded and so have flooded claims. The u. S. Government basically backstops and pays out the majority of residential flooded claims in the united states. It is currently 25 billion in debt and needs to be reauthorized by september. Harvey is a big spotlight on it. Oliver a publicly funded program that put the responsibility on private insurers to handle this. Where did the debt buildup from . What is not making sense . To many storms, too many houses they have to pay out for . Over the past few years it has gotten worse. Some years, the claims are far less than what your revenue is. So youre ok. This program borrows from treasury. Over the past decade or so it has gotten strained and is in debt to the tune of tens of billions of dollars, four years now. Carol borrowing from treasury. That is right. It is forcing this debate in light of harvey. You have to think about the vested interests. Carol i want to get to the political side of it. You have homeowners that want to build at the cheapest cost possible and also, to be honest, do not mind rebuilding again and again especially if it is subsidized by the insurance industry. We have a very interesting situation back in 2012 when sandy hit where Congress Found the political will to overhaul it. This Rare Alliance between Tea Party Republicans who looked at it and said, why are we spending this money, and your climate activists who are saying, from a climate standpoint we should not be here. They overhaul this program and the result was the average homeowner policy for Flood Insurance went through the roof, from hundreds of dollars to tens of thousands of dollars. That lasted two years. Congress rolled up back in 2014 because the opposition to it was too great. Have a month to reauthorize it. It does not seem likely that they will tackle the fundamental questions that are plaguing this problem. Shortterm reauthorization. We have this brief moment in time where we overhauled this thing but it gives you a sense of the business interests in play. Carol up next, an italian city is the scene of a political battle. Oliver profit and purpose mix. Carol this is Bloomberg Businessweek. Oliver welcome back to Bloomberg Businessweek. Im oliver rennick. Carol and im carol massar. This week, can you trust medical journals . Controversy over a new publishing model. Oliver and delta gives its pilots a chance to vault into the captains seat. All of that ahead, right here on Bloomberg Businessweek. Oliver we are back with Bloomberg Businessweek Deputy Editor to talk about more stories from this magazine this week. A great story on unilever that i want to start with because it is such a household name. Everybody has products. But they are making a big effort that may be in a way that is visible to them. Since paul has been the ceo, he has approached it as a do good company. Carol it sounds so grand. It makes a lot of money because there is a holder generation of consumers, not onlyu in impoverished countries where he is trying to present unilever as a proponent of hygiene in vietnam and other places, it also people in other places will so they want to buy things from a company that does well and does good. Carol it is brilliant, right . Like, he wants to go for people that can be made into customers for many years. Exactly, they will keep them in business for a while. That is what they think. Carol there is another feature that takes a look at medical journals in the digital age. The controversy. That is fascinating because most of the peerreviewed articles that we put our trust in, the pharmaceuticals depend on, are very expensive. People have to pay huge subscriptions to get them and read them. There is this new genre called open access that is exemplified, that basically allows people who have written stories, written studies to pay th