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- [00:01]
PJUM Announcer
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- [00:36]
Rob Armstrong
Pushkin.
- [00:39]
Katie Martin
People of the Internet, listen up because Donald Trump might have had a good idea. The other day, pretty much out of nowhere, the President declared that he wanted to see an end to what we call quarterly reporting requirements. Right now, listed companies in the US Release their earnings and talk about how their business is doing every quarter. So four times a year, if they did that, say, just twice a year, maybe they'd have more time to concentrate on their business and spend less time pulling together boring reports. Maybe investors would think more long term. Now, this idea has been kicking around for years, honestly, and nothing has ever really happened with it. So today on the show, we're asking, is Trump actually onto something here? This is Unhedged, your friendly markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the FT in London, England, which is playing host to Mr. Donald J. Trump. With all the pomp and ceremony we do so well. Say what you like, but we are good at this. And I'm joined down the line from New York City by another large American first Sea Lord of the Unhedged newsletter, Rob Armstrong. Rob, do you regret that we did not lay out the red carpet for you when you came to London the other week?
- [02:01]
Rob Armstrong
It stung a little bit that there was no state dinner. I did not meet a single member of the royal family, even like a minor royal.
- [02:09]
Katie Martin
No.
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Rob Armstrong
It's like I'm, you know, just a trivial person in the eyes of your country. It's very.
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Katie Martin
There were no, like, trumpets or scarlet jackets or. No, none of that.
- [02:20]
Rob Armstrong
No.
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Katie Martin
It's an absolute outrage. Let's start at the beginning, shall we? A very good place to start. Like, why did Trump say this? This feels a little bit random. What's going on?
- [02:32]
Rob Armstrong
Well, a lot of random things come out of the President's mouth and I don't know how this got to the top of his brain space such that he blurted it out. And Trump, as you know, does say a lot of stuff he doesn't follow up on. So it may, none of this may amount to anything. It'll be a wrangle to make this change because we've been a quarterly reporting market in the United States for decades. Now, but all of that aside, I think this is a fascinating topic that kind of gets to the heart of how the stock market works in a funny way. And so a lot of issues like long termism versus short termism, you know, how much information do investors need to make good decisions, how timely should that information be, et cetera, it brings up this kind of rich set of questions about what we're all doing here in the first place.
- [03:30]
Katie Martin
Yeah, something that sounds quite simple, actually is quite potentially profound. So as you say, look, the. The President says a lot of things. He posts a lot of things on social media. He doesn't always do all of the things. Is this a thing that he can actually do, do?
- [03:46]
Rob Armstrong
Katie, you've put me in the position of uttering the sentence that makes my tongue burn every time I say it. And that sentence is, I don't know. So. Quarterly reporting in its current form came mostly from the big financial regulation law of the United States, the post crash securities and Exchange act of 1934 that both established R SEC, the securities and Exchange Commission, which is our main financial regulator. That act says the law gives the SEC the authority to require quarterly reports of companies. I don't know if that means the law has to be changed or if he can just. Trump can just tell the sec, tell the companies to do it twice a year now. So maybe we'll get a lawyer on the show who will parse that out for us.
- [04:43]
Katie Martin
That's got a securities regulation lawyer pointy hat on the show. It'll be very interesting.
- [04:52]
Rob Armstrong
Yeah, that's the limits of my knowledge, I'm afraid.
- [04:55]
Katie Martin
Let me ask you something, though. So if the point that Trump is making here is that pulling together these quarterly reports is a giant pain in the ass, which I can imagine it probably is, a giant pain in the ass, why not get AI to do it? Why do you have to get rid of it? Can't you just make a clever computer do it? Just like read your accounts and then spit out a report automatically? There's a clever idea.
- [05:20]
Rob Armstrong
Yeah. And to a certain extent, some version of that is already happening. Those of us who endure the torture of constantly reading 10Qs and 10Ks or our quarterly and annual reports, which both you and I have spent a miserable amount of time doing, we know that there is not all that much changed content between your standard Q and the queue that came the quarter before. So you have, you have different financial statements, income statement, balance sheet, cash flows at the front, and you have maybe some tweaked language, you know, but you know, you can kind of search for what's different from last time. And in many cases it's not very different. And so in those cases, probably it's not that much work putting the thing together. But I guess those aren't the cases we're worried about. Right. What we're worried about is the cases where something really has changed. And the case you'd make is investors deserve some detailed reporting quickly when a big thing changes and waiting more than three months is a mistake. That would be the kind of core case. Right.
- [06:32]
Katie Martin
The other thing here is it's not just about compiling very boring reports, whether you use AI to do some of that or not. It's that when companies release their quarterly earnings reports, what they also do is put their chief executive or their chief financial officer or someone else extremely senior in the company. Company on a call with analysts. And that's a really useful way. You know, there are kind of machines that read every tiny little like facial tick if it's videoed or every little kind of. And ah, when they're speaking, that might lead you to a conclusion that maybe they're not quite telling the truth about this or that. If you lose that interaction, you do lose actually quite a rich chunk of information.
- [07:16]
Rob Armstrong
Okay, now I think we're getting to the heart of the, of the matter here, Katie, because a wide response to what Trump said this week has been just to say, so you're saying you're gonna give less information to investors. That must be bad. But I'm not sure it's actually that simple. Like, of course, whatever information a company provides to the world, that is going to be gone over with a fine tooth comb by investors. However, if there was a little bit less of that and it was a little bit less for everybody, would the market be worse off if we had two of those conversations a year rather than four? That's not absolutely clear to me. And in fact, I can kind of see the argument that says we're all wasting a lot of time and maybe even confusing ourselves with the high frequency of information where we might focus on the stuff that really mattered if we, if the frequency of these informational releases was a little lower. In other words, more information doesn't always mean more knowledge.
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Katie Martin
We should do fewer of these podcasts and they'd be much more interesting and good.
- [08:31]
Rob Armstrong
Well, we do keep it short, you know what I mean?
- [08:34]
Katie Martin
Put that in its favor.
- [08:35]
Rob Armstrong
So it's like the food is disgusting, but at least the portions are small.
- [08:40]
Katie Martin
But like you remember in the very last podcast we were talking to Antoine Gara from the ft. He's our private equity man, and we were talking about why companies don't go public. And one of the reasons that they give for not going public is we cannot be asked with the burden of putting out quarterly public reports. So I can kind of see that. I can see that it's a pain. I can see that it sucks energy out of senior executives that they could perhaps better be deploying elsewhere. My problem with this proposal from Trump is the following. It's that the context really matters. So at the same time as he's saying, you know, maybe companies shouldn't put out such frequent reports, you know, if, if I was someone who'd instituted a set of quite aggressive trade tariffs, and I didn't want companies to tell the world how painful that was on a regular basis, this is a thing that I would probably consider doing.
- [09:41]
Rob Armstrong
He's also just sacked the head of the Bureau of Labor Statistics. So there is a kind of anti. Information.
- [09:48]
Katie Martin
Yeah.
- [09:49]
Rob Armstrong
Vibe going through the Trump administration and its pronouncements, which you don't love.
- [09:56]
Katie Martin
You've got, and we've talked about this a lot on this show. You've got his efforts, which appear to be failing to execute a, a hostile takeover of the Federal Reserve, the central bank, as you say. He's fired the head of the, the woman who was in charge of releasing jobs data because he didn't like the jobs data. He's broadly speaking, instituting policies that are quite anti science, anti research, anti universities. This isn't. So it's very hard, I think, for people to make the case that. No, no, we, we're still absolutely in favor of transparency and, and of rigor, but there's just some good reason why we don't want companies to be speaking every. Every three months. It kind of doesn't smell right to me.
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Rob Armstrong
I agree with you. But on the other hand, one of Trump's superpowers, his first superpower, is making certain people agree with whatever he says. His equally powerful and important second superpower is making other people disagree automatically with everything he says, which is almost as politically useful to him as the first superpower. So I would say it's good to be careful that, you know, even if you're philosophically not aligned with the president, when he says something that is, broadly speaking, a sensible idea, it's best just to say, well, that's a sensible idea.
- [11:20]
Katie Martin
Yep.
- [11:20]
Rob Armstrong
And I would say, for the reasons that you just enumerated that from the point of view of work and informational noise and focusing on what's important on the investor side. This idea makes sense. Acknowledging the points you made, that the context is unsettling.
- [11:41]
Katie Martin
The context matters.
- [11:41]
Rob Armstrong
I mean, let me, let me, let me. The context 100% matters. But let me ask you this question, Katie. And this retraces a slightly to an earlier part of our conversation, but I think it's worth saying there's plenty of European companies that report twice a year.
- [11:53]
Katie Martin
Rob Armstrong, I have in front of me a piece of paper.
- [11:56]
Rob Armstrong
Yes, come on.
- [11:58]
Katie Martin
Yes, bruv. I got a chunk here from some research that came out this morning from Sharon Bell at Goldman Sachs who is a European stocks analyst and she points out the same thing that you do, which is that about 50%. So about half of companies in the stock 600 index report quarterly and about half report semi annually. So we, we already do this over here. Apparently it's quite interesting. So it sort of depends where you are and what sort of company you are. So almost all Companies in the FTSE 350 in the UK report semi annually, whereas almost all stocks in the DAX in Germany report quarterly. So it's all a bit of a kind of mishmash. But as she says, as Sharon Bell says, one argument in favor of less frequent reporting requirements is to enable management to focus on longer term investment and growth. No argument from me there. She then says it seems somewhat ironic therefore that US stocks have outshone European and UK companies in terms of most longer term metrics, despite the requirement that they report quarterly. So she makes a good point here. Right. This doesn't appear to be hurting, so why change it?
- [13:11]
Rob Armstrong
Yeah, other people have made this point. We had a quote in the FT news story from a professor at Columbia Law School saying the US has a lower cost of capital.
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Katie Martin
Yeah.
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Rob Armstrong
And that's the same as saying our stocks are more expensive. The point that you just made, than European stocks. But maybe the relevant difference is not the reporting. Right. And we've talked about this at great length in this show. The difference between, the difference between European performance and US performance. But I just would like to hear, I've never heard anyone say of big European company X. Gosh, the big problem here is that we only get two reports a year. And look, most companies that report semi annually, they'll give an update at the quarterly point and they'll say sales are up X, we expect earnings to be up or down by Y. And so they give information out. So just to sum up argument number one is it's a pain in the ass for companies I'm somewhat convinced by that argument. Number two is about whether it helps the companies themselves think longer term. I'm not sure I'm convinced by that either. Right. I mean, six months ain't that long, right? You know what I mean? So it's not like, oh, I don't have to report for three months. I guess I'll start thinking about, like five years from now and what's best rather than just trying to have good numbers at the end of the year. I'm just not. I'm not sure the link between frequency of reporting to length of vision into the future. I'm not sure I'm convinced by that.
- [14:55]
Katie Martin
Let me tell you another little wrinkle here. I was talking to a fund manager the other day who was saying, you know how we've talked on this show before about how the entire global financial system is a huge machine for funneling money into US Stocks, Right. You know, when, when investors are feeling nervous about the state of the world, they're much more likely to put money to work in the US than they are elsewhere because the US is supposed to be the least risky bet, whereas the rest of the world, ooh, there'd be dragons. You never know what might happen out in the rest of the world.
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Rob Armstrong
And America's the most liquid. It's the easiest to get the money in, it's easiest to get the money out. It's the biggest market.
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Katie Martin
Well, one of the reasons why it's a bigger market that's considered more reliable, in the words of this person I was speaking to yesterday, was precisely because even when the brown stuff hits the fan, everything is terrible. You're in the middle of a crisis, everything is awful. The US will still report every damn quarter. Even if some of those quarters, they're saying, yeah, there's a crisis going on, everything's terrible. That regularity is actually quite reassuring to a lot of investors and on the margins, it's one of the reasons why the US is considered home for global money. And that I thought was an interesting observation. So I just wonder whether if, you know, for all we know, the system that Trump might have in mind here is that companies report just once a year, right? And that would be like a huge shift that would be a massive, you know, sucking sound of information out of, out of public markets, which I again, given the context, don't feel super comfortable with.
- [16:30]
Rob Armstrong
I think that's actually a separate argument that we haven't considered yet. That's actually really good that in those very uncommon periods that don't even happen once a year. Happen once every 10 years. Quarterly reporting, which is usually useless and annoying and just adds to the noise and is a pain in the butt, suddenly matters a lot. Right. And you want it there then?
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Katie Martin
Yep.
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Rob Armstrong
Right. You know what I mean? I guess the counter argument would be when the brown stuff hits the fan companies will be out there talking about what's going on all the time. But I don't know that I'd be convinced by that. Like, will they be releasing cash flow statements voluntarily? I don't think so. So this is actually a really good argument. Something strange has happened. I've just learned something, Katie, that really, from me at my age, think how. Think how infrequently this happens, Katie.
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Katie Martin
It's one of your moments of lucidity. So given that you're thinking about this as we go along, what's your conclusion, good or bad?
- [17:37]
Rob Armstrong
It's funny because I have written in the distant past about how we why we should go to semiannual reporting and it would be better, but for two reasons. I'm leaning a bit the other way now. The first reason, which I think is crucial, is the context. Right now is the wrong context. And by the way, Brooke Masters, our colleague here in New York, wrote a very good column on this that FT readers should look at. And the second reason is the one, a new reason for me, the one you just gave me, is that once every couple of years, quarterly reporting is going to really matter. And it's worth it in those times to have that protection in place. What do you think?
- [18:21]
Katie Martin
Again, I hate to say this, but I do agree with you. I think that the timing sort of sucks. The context is bad. I don't like the vibes around this. I don't think this is the right time to be having this conversation. I haven't really heard people particularly noisily asking for this recently. So it just feels like something that someone has mentioned to the President pretty much in passing, and then all of a sudden, by fiat, it becomes like a reality. I think it might happen anyway. There's a lot of stupid stuff going on at the moment that happens, even though boring people like me and you sit on the sidelines saying this is really stupid. So I don't doubt that it might well happen. But I do not see this as a force for good in the world. Listeners. Do you agree? Do you disagree? Unhedgedt.com let us know. We will be back in just one second. With long short.
- [19:27]
PJUM Announcer
Bonds are back and so is all the Credit. PGym Fixed Income's monthly podcast series. From the latest trends to long term perspectives, you'll get timely fixed income insights from leading economists, research analysts and investment professionals. Whether you're new to bonds or a seasoned investor, tune in to all the credit wherever you get your podcasts. This podcast is intended solely for professional investor use. Past performance is not a guarantee of future results.
- [19:57]
Katie Martin
Okey doke. It's time for Long Short. That part of the show where we go long a thing we love or short a thing we hate.
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Rob Armstrong
Rob, what you saying I'm short smart glasses?
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Katie Martin
Katie oh, I limit short smart glasses.
- [20:11]
Rob Armstrong
Yeah. There's an article about Meta's latest venture into this area in the FT today. And look, every prediction I've ever made about technology has been wrong to this point. So listeners beware. But I just feel the direction we're going, even as we use more technology and more AI, is that we want to contain it and have it in parts of our life where we can kind of put it away and then use it when we need it. And that's the future. The idea we're just gonna walk around in life having text messages beamed into our eyes. Sounds like a horror movie, not a product launch to me.
- [20:52]
Katie Martin
Also, I don't particularly want men to be, like, wearing these glasses, looking at my daughter finding out by blinking their eyes or whatever where she lives and what her name is and what her Instagram profile is. I, you know, I just feel like a lot of this stuff is put together by people who don't think about the impact on women. Anyway, don't get me started on this. I also am short those stupid glasses. I tell you what I'm long of.
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Rob Armstrong
And again, yes, let's have a nice, cheerful, long Katie.
- [21:24]
Katie Martin
Again. This relates to my daughter. She has gone to uni, and while obviously I'm sad to see her leave, let me tell you something. My house is so clean. It's so clean. It's like, oh, I have discovered the culprit. Yes. And now I can say to my son, right, your sister has gone now, so if there's mess in the kitchen, there's mess in the bathroom, I know that it was you. You have to tidy up after yourself. Game changer. Armstrong.
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Rob Armstrong
Katie. My house. Oh, I have two teenagers and a dog, and my house always looks like three baboons have just had a food fight.
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Katie Martin
Yes. And do they blame it on the dog? Because.
- [22:11]
Rob Armstrong
Like, and you have this dream that when you grow up, you'll have a nice orderly house. Not if you have kids. Listeners. No, it's worth it though we can all agree it's worth it we can.
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Katie Martin
Agree it's worth it. But when this happy day arrives for you, Rob, let me tell you, you will not believe the difference. It's a biggie. So listeners, we will be back in your ears on Tuesday. Between now and then, tidy up the kitchen after yourself. Thank you very much. Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our Executive producer is Jacob Goldstein. Topher ForHees is the FT's acting co head of Audio. Special thanks to Laura Clarke, Alistair Mackey, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30 day free trial is available to everyone else. Just go to ft.com unhedgedoffer I'm Katie Martin. Thanks for listening. Sam.