Speaker 1: This is Bloomberg Wall Street Week. Market shruggle, higher consumer prizes.
Speaker 1: The economy is in the process of rebounding. Will the
Speaker 1: Federal Reserve have its own digital currency? The financial stories
Speaker 1: that chief hard work. Many people think the eels are
Speaker 1: just going to keep marching up. We have more spending
Speaker 1: coming out of Congress. One of the big questions I
Speaker 1: think on investor's mind inflations through the eyes of the
Speaker 1: most influential voices. Larry Summer is the former Treasury Secretary,
Speaker 1: Bryan Wynahan back of America, Will sar Ceo, Charlie Sharp,
Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Radio.
Speaker 1: The dawn days of Summer meet, a busy newsweek and
Speaker 1: the markets take it all in stride. This is Bloomberg
Speaker 1: Wall Street Week. I'm David Weston, take us through the
Speaker 1: week in the markets. Welcome down, Nancy Davis. She's chief
Speaker 1: investment officer and managing partner at Quadratic Capital Management. And
Speaker 1: Sarah Mallick, chief investment officer for equities at Nouvene. So, Sara,
Speaker 1: let me start with you on the equity side. Despite
Speaker 1: all the news that came out and there was some
Speaker 1: up and down. The equity market just kept going up,
Speaker 1: although not quite as fast as it had. Equity markets
Speaker 1: and bond markets definitely became disconnected this week. This is
Speaker 1: around the great debate around economic data and also inflation.
Speaker 1: We saw a cooler CPI data, hotter PPI data. Our
Speaker 1: view is that the cooler CPI data wins out because
Speaker 1: the factors driving that down are more permanent. Well, the
Speaker 1: PPI data is hotter, but that's around the one time
Speaker 1: reopening other data points we watched this week for the
Speaker 1: infrastructure package billion in new spending that's good for industrials.
Speaker 1: And then of course consumer sentiment coming in at the
Speaker 1: lowest level in a decade. If you look at consumer sentiment,
Speaker 1: it's not always tied to consumer spending. We saw low
Speaker 1: numbers in the fourth quarter of while equity markets still
Speaker 1: produce positive returns, we're watching economic data like the Conference
Speaker 1: Board data, which remains over one standard deviation above its mean. Nancy,
Speaker 1: let's turn to you, because you've made something of a
Speaker 1: name for yourself in investing in and around inflation, really
Speaker 1: knowing how to take this into account as an investor,
Speaker 1: What do you make of those CPI and PPI numbers
Speaker 1: which seem to go a bit in different directions this week. Well,
Speaker 1: I think if you look at the long term trend,
Speaker 1: if we start at say the first quarter of UE,
Speaker 1: you know, the ten year yield was one seventy five,
Speaker 1: and then we've had four CPI prints well above the
Speaker 1: two percent target from the Fed. We had four point
Speaker 1: to first, then five, then to five point four prints,
Speaker 1: and you would kind of scratch your head. And if
Speaker 1: you had a crystal ball at the start of Q
Speaker 1: two and you knew the CPI prints were going to
Speaker 1: come in that much higher than two percent, what would
Speaker 1: most rational people do. You would sell bonds because you
Speaker 1: would think yields would be going higher. But it's opposite
Speaker 1: day in the markets, and yields have done nothing but
Speaker 1: go lower um with all these higher CPI prints. So
Speaker 1: I think there's definitely something screwy going on in the
Speaker 1: markets where nobody believes inflation is actually going to be here,
Speaker 1: because why would you be walking up your capital To
Speaker 1: your point, David, that the ten years under one point
Speaker 1: three percent right now, that doesn't make any sense if
Speaker 1: you actually believe that inflation is coming. But Sarah, you're
Speaker 1: an equities person, not a bond person. But how much
Speaker 1: of the support of the equities markets that we're seeing
Speaker 1: is exactly because what Nancy was talking about, because yields
Speaker 1: actually have been very tame. People were talking about to
Speaker 1: two point oh I'm talking about on the tenure. That's
Speaker 1: definitely very makes equities look more attractive from an equity
Speaker 1: portfolio point of view. We're definitely saying you need to
Speaker 1: become more selective here. First of all, you need to
Speaker 1: look for those companies that have the pricing power to
Speaker 1: overcome these inflationary costs. We're also seeing profit margins at
Speaker 1: about decade highs for companies, so these companies also need
Speaker 1: to be able to raise prices in order to drive
Speaker 1: their margins higher. Areas that we think are attractive are
Speaker 1: actually small caps. They're now training at the largest discount
Speaker 1: to large caps that we've seen since September. They're back
Speaker 1: at valuation levels of January. They tend to do well
Speaker 1: in periods of rising inflation and interest rates, and like
Speaker 1: industrials because as that infrastructure package kicks in, industrials will
Speaker 1: have that cyclical tail when behind them to help them
Speaker 1: grow their businesses and increase their profit margins well and
Speaker 1: it's not just the infrastructure package. We now have the
Speaker 1: Democrats in the senat at least saying we want it
Speaker 1: would like another three point five percent incremental spending in
Speaker 1: that sort of second wave, the build back Better plan,
Speaker 1: as President Biden calls it. So So, Sarah, if in
Speaker 1: fact that comes to pass, and forget the three point five,
Speaker 1: so it's just two or two point five, What does
Speaker 1: that mean potentially for investors? I mean for investors, I
Speaker 1: think it means we have more confidence in economic growth
Speaker 1: going forward. If you look at third year past, the
Speaker 1: recession market turns actually tend to be pretty strong. We
Speaker 1: see high single digit earnings growth next year. That's not
Speaker 1: recessionary levels. It's not where you would be for a
Speaker 1: bear market. We think that drives markets higher rather than evaluations,
Speaker 1: and that's supported by economic growth. Now, we do have
Speaker 1: two headwinds next year. One is how are we going
Speaker 1: to pay for that infrastructure and all that spending. Probably
Speaker 1: higher taxes that's going to negatively impact that earnings growth
Speaker 1: none or And also we need to worry about taper timing.
Speaker 1: The FED has been taking baby steps the words taper timing.
Speaker 1: We think they're watching August payroll data. If that looks
Speaker 1: as high as July data, Um, we think the FED
Speaker 1: could announce tapering in September and start tapering in early two.
Speaker 1: But as long as the yield curve doesn't flatten, we
Speaker 1: think that markets can remain with positive returns even through
Speaker 1: tapering and higher interest rates. So, Nancy, I don't want
Speaker 1: to misquote you, but I think you said the market
Speaker 1: a little bit screwy, I think was the word you
Speaker 1: given what the CPI numbers have been being and what
Speaker 1: the year over year inflation is despite the fact people
Speaker 1: don't think it's gonna come. How much of that do
Speaker 1: you think, maybe because of the delta variant, that people
Speaker 1: are really subdued, And we had really stunning numbers at
Speaker 1: the end of the week on the consumer confidence out
Speaker 1: of the University of Michigan and lowest I think in
Speaker 1: eleven years. How much of that is really constraining? So
Speaker 1: what we otherwise might have with consumer spending, well, I
Speaker 1: think to Sarah's point, um, the yield curve is the
Speaker 1: most important measure to be watching. It's very forward looking,
Speaker 1: and since the feds June FM Cement meeting, we've had
Speaker 1: the largest flattening in the forward yield curve since a
Speaker 1: financial crisis, and that should be ringing, you know, ringing
Speaker 1: the alert for equity and credit investors because corporates are
Speaker 1: priced to perfection. Right, everybody is expecting growth, everybody is
Speaker 1: expecting earnings per share. But what if we actually have
Speaker 1: higher labor costs or shortages of goods and services, or
Speaker 1: shipping delays, all those things. Um, the guild curve is expecting.
Speaker 1: UH has had a massive flattening. And um, that's also
Speaker 1: because the market has priced in the FED hiking rates. Okay,
Speaker 1: thank you so much to both of you that Sara
Speaker 1: Manic of New Vine and Nancy Davis of Quodai Capital Management.
Speaker 1: Great to have you with us on Wall Street Week.
Speaker 1: Coming up, the enigma that is the labor market. Is
Speaker 1: it possible that we are seeing a shift in power
Speaker 1: back towards the labor side of the ledger? We ask
Speaker 1: Steve Rattner of will It Advisors. That's next on Wall
Speaker 1: Street Week on Bloomberg. This is Bloomberg Wall Street Week
Speaker 1: with David Weston from Bloomberg Radio. The pandemic disrupted employment
Speaker 1: around the world, and as the economy recovers, we can't
Speaker 1: assume that we'll go back to working the way we
Speaker 1: did before. We've added millions of jobs since the low point,
Speaker 1: but the unemployment rate in the US is still above
Speaker 1: five and taken as a proportion of the population, employment
Speaker 1: is actually close to a four decade low. Here's Bloomberg
Speaker 1: Opinion columnist Bill Dudley. One hand, the labor supply seems tight.
Speaker 1: On the other hand, when you chip judged by the
Speaker 1: number of jobs were short from where we were in February,
Speaker 1: the rate still seems like a bit of slack in
Speaker 1: US labor marketing. It's a trend that's affecting companies from
Speaker 1: services to Wall Street. A range of firms are raising
Speaker 1: salaries and paying bonuses, while others are offering perks like
Speaker 1: a free Peloton bike or an all expenses paid vacation.
Speaker 1: We're definitely trying to do the bad job to attract
Speaker 1: the widest array of talent possible. Competition is important, and
Speaker 1: we've always, i think, been a leader in that area.
Speaker 1: That's Blackstones John Gray. Inflation and the labor market go
Speaker 1: hand in hand. Higher prices lead workers to ask for raises,
Speaker 1: and as we get back toward full employment, employers may
Speaker 1: have no choice but to pay them here's Larry Summers.
Speaker 1: I think we're not far from full employment. We're within
Speaker 1: nine months or a year, certainly maybe less than that
Speaker 1: of getting uh to full employment. And now the pandemic
Speaker 1: has added a new dimension to the traditional back and
Speaker 1: forth over pay and hours. Now there's the option of
Speaker 1: working from home as well. Bloomberg's John author says it
Speaker 1: wouldn't be the first time that a pandemic strengthened the
Speaker 1: hand of labor at the expense of capital. One of
Speaker 1: the reasonable lessons from history about pandemics, not that we've
Speaker 1: had too many pandemics that exactly like this one, was
Speaker 1: that it does tends to strengthen the hands of labor
Speaker 1: compared to capital. That's Bloomberg's John authors. A University of
Speaker 1: Chicago study suggests that if employers try to make employees
Speaker 1: work from home five days a week, more than a
Speaker 1: third of their workforce may just quit. Here's Barkley's Just Staley.
Speaker 1: You know that physical presence I think is important for people,
Speaker 1: but also the pandemic has taught us that we can
Speaker 1: be quite flexible. Steve Brodner has spent his professional career
Speaker 1: looking at the balance between labor and capital. First as
Speaker 1: a successful banker on Wall Street, then as leading the
Speaker 1: efforts to renegotiate and restructure the auto industry under President Obama,
Speaker 1: and now as chairman and CEO of Will and Advisors,
Speaker 1: which invests the personal and philanthropic assets of Michael Bloomberg,
Speaker 1: the founder and principal shareholder of our parent company. Steve,
Speaker 1: thank you so much for being back on Wall Street week.
Speaker 1: So let me ask you how we can have what
Speaker 1: we have right now in the labor industry. We have
Speaker 1: more than four million new jobs we've created the last
Speaker 1: six months. We have at the same time a record
Speaker 1: were job openings, and yet we have the lowest percentage
Speaker 1: of people actually employed in the of the old war
Speaker 1: population in something like forty years. David, As you said,
Speaker 1: I have been watching this for forty years actually as
Speaker 1: it happens myself, and we've never seen I've never seen
Speaker 1: anything quite like it. I think this will be an
Speaker 1: enormous amount of grisp for the mill of economists to
Speaker 1: study in the years going forward. But essentially, yes, there's
Speaker 1: strong demand for labor. The country at least so far
Speaker 1: has been reopening, in large part thanks to the federal
Speaker 1: government and all the stimulus and yet a large number
Speaker 1: of Americans are reluctant to go back to work for
Speaker 1: a variety of reasons. There's a lot of polling down
Speaker 1: on this. Some of it is our health concerns. Some
Speaker 1: of it is the fact that they've decided simply to
Speaker 1: leave the labor force and retire. Some of it has
Speaker 1: expanded unemployment benefits that actually pay some people more for
Speaker 1: not working than they were getting working. And a lot
Speaker 1: of it, though, is the fact that people's balance sheets,
Speaker 1: the household balance sheets, are in extraordinarily good shape. You
Speaker 1: had an enormous amount of financial support from the federal
Speaker 1: government last year. Total income earned by Americans, including federal
Speaker 1: transfer payments, was actually a trillion dollars above what would
Speaker 1: normally have occurred last year, and households spent about a
Speaker 1: trillion dollars less than they would normally spend last year.
Speaker 1: And so people don't have to go back to work
Speaker 1: because in many case, and I obviously I'm giving you
Speaker 1: broad generalizations. There are plenty of exceptions in both directions,
Speaker 1: but on an aggregate basis, households are in extraordinarily good shape,
Speaker 1: and many people don't have to go back to work,
Speaker 1: and they're choosing not to before this pandemic. I think
Speaker 1: some people might have said, it's sort of a buyer's market.
Speaker 1: If we make the employer the buyer, that basically they
Speaker 1: can largely dictate the term. The bargaining position was really
Speaker 1: stronger for the employer. Is it possible that's shifted because
Speaker 1: the pandemic, Well, as I think it's shifted for the moment,
Speaker 1: I'm not sure it's shifted forever. It shifted for the
Speaker 1: moment for the reasons that I just described that people.
Speaker 1: I think in general, again broad generalizations, people have the
Speaker 1: wherewithal to not go back to work, and so they
Speaker 1: are able, to a greater degree than they have in
Speaker 1: the past, as you suggest, dictate the terms under which
Speaker 1: they're going to go back to work. That should be
Speaker 1: a somewhat transitory effect. People can't can't spend their savings forever.
Speaker 1: At some point, most Americans need to go back to work,
Speaker 1: and they will have to go back to work. But
Speaker 1: in the short run, what's going on, as you well
Speaker 1: know and everybody knows, is that employers are raising pay,
Speaker 1: especially for people at the bottom, which is in many
Speaker 1: ways welcome news to try to get them to come
Speaker 1: back to work, And as you also said, we have
Speaker 1: created a lot of your jobs so slowly but surely
Speaker 1: they are coming back, and I would expect that trend
Speaker 1: to continue over time. It's early going, and you know,
Speaker 1: the danger is better than I have trying to make
Speaker 1: long term projections off of single data points. At the
Speaker 1: same time, what do you think about the work from
Speaker 1: home phenomenon? Has it injected into the negotiation between labor
Speaker 1: and management a new element Where it used to be
Speaker 1: mainly about pay and hours, now we have where we're
Speaker 1: gonna be working from We see a lot of people saying,
Speaker 1: you know what, I'm going to go back, but only
Speaker 1: if I can work from home. There's no question. Again,
Speaker 1: the polling data brings a lot of this out. There's
Speaker 1: no question that the work from home and just a
Speaker 1: lot of things that relate to the pandemic, this extraordinary,
Speaker 1: once in a century event have changed the way people
Speaker 1: think about many of these things. And yes, there's no
Speaker 1: question from the data that people are putting a greater
Speaker 1: value on the ability to work from home. And if
Speaker 1: they're for many of them, if they're choosing between two jobs,
Speaker 1: one of which they're allowed to work from home, one
Speaker 1: of which they're not. They're more likely to choose the
Speaker 1: one in which they can work from home. But that's
Speaker 1: okay for employers too. For many of these people, you
Speaker 1: can work from home. But as I said, I do
Speaker 1: think in the fullness of time, the luxury that people
Speaker 1: have today, which I'm fine with and thrilled by being
Speaker 1: able to make these kinds of choices, will diminish, and
Speaker 1: people are going to be in a position where they're
Speaker 1: going to need to work, and the jobs will be
Speaker 1: what the jobs are. Some of them can be done remotely,
Speaker 1: but many of them can. Steve, let's inject one other
Speaker 1: element into this that you know well, and that's organized labor.
Speaker 1: Certainly you dealt with that when you restructure the auto industry.
Speaker 1: President Biden and his administration have made a priority of
Speaker 1: really advancing the cause for organized labor, which had happened
Speaker 1: would reverse something that's been going on for some time.
Speaker 1: We're done to just over ten I think of the
Speaker 1: private workforce that's organized right now under a union. Is
Speaker 1: it possible for the by administration to turn that around?
Speaker 1: I think they can make some difference. There's no question
Speaker 1: that the balance of power has had shifted over the
Speaker 1: last forty years away from organized labor and two employers,
Speaker 1: labor share of of of profits and the economy had
Speaker 1: dropped to a relatively low level. Corporate profits have been
Speaker 1: incredibly strong a real way just had not done particularly well.
Speaker 1: And so yes, it is it is both necessary and
Speaker 1: possible to begin to shift that around that. Steve Rutner
Speaker 1: from will It Advisers. Coming up, Disney comes roaring back
Speaker 1: from COVID. But was it old fashioned theme parks or
Speaker 1: was it the high tech streaming? We talked with media
Speaker 1: executive and entrepreneur Michael Wolfe of Activating That's coming up
Speaker 1: next on Wall Street Week on Bloomberg. This is Bloomberg
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. Streaming
Speaker 1: giants like Netflix and Disney were among the few winners
Speaker 1: during the pandemic as lockdowns forced people to stay home.
Speaker 1: But Netflix earnings last month raised some questions, some initial
Speaker 1: questions at least about whether it was just a blip
Speaker 1: or a long term trend. This week, Disney show that
Speaker 1: it could keep the momentum going with better than expected
Speaker 1: subscriber growth for its Disney Plus streaming service. Michael Wolfe
Speaker 1: has served as president of and CEO of MTV, on
Speaker 1: the board of Yahoo, and is the co founder and
Speaker 1: CEO of Activate, which advises tech and media companies. Michael,
Speaker 1: great to have you, the guru of media and tech.
Speaker 1: So first of all, it's start with Disney and a
Speaker 1: basic question at this point as an investor, do you
Speaker 1: invest in Disney as a tech sack or a media
Speaker 1: sack because, as you and I both know, the multiples
Speaker 1: quite different. Yeah. I mean when when you think about
Speaker 1: when investors are cited about they're starting to look at, yes,
Speaker 1: the hundred and sixteen million in total subscribers globally, which
Speaker 1: compares to Netflix at two millions, So they're getting they're
Speaker 1: getting up there. If you look historically Disney with trading
Speaker 1: in the same neighborhood as Netflix and and Amazon really
Speaker 1: in the fifties. Um. Going forward, Um, it looks like
Speaker 1: they're trading and around thirty seven if UM, and and
Speaker 1: someone that just has questions about their ability to execute
Speaker 1: with Bob jay Pick in place, who Bob is incredibly
Speaker 1: exquisited execution. Um, there's a lot of upside in the
Speaker 1: stock if they were to hit the same kind of
Speaker 1: multiples as Netflix and Amazon. You're talking between thirty the
Speaker 1: fifty pers and increase in shareholder value for this company.
Speaker 1: But Michael reason my question mind the question of there's
Speaker 1: a lot to the Disney beyond streaming. They have the
Speaker 1: theme parks, they have the cruise ships, they have a
Speaker 1: television network. After all, they said that is that ballast
Speaker 1: at the sort of rights the ship if it might
Speaker 1: go off, or does it limit their upside because when
Speaker 1: you talk about Netflix, for example, they have pretty much
Speaker 1: all their eggs in one basket, which is the tech basket. Right,
Speaker 1: Disney has a great deal more to play with and
Speaker 1: and and a great deal more to underwrite their risk
Speaker 1: from streaming. The fact is that the parks are back delta,
Speaker 1: no doubt delta. We should see a stunning recovery from
Speaker 1: in the parks, a lot of other places, and their
Speaker 1: business are doing well. But let's remember, compared to Netflix,
Speaker 1: they have licensing and merchandizing this, they have the theme parks,
Speaker 1: they can create other shows, they can create other networks,
Speaker 1: so they're fundamentally in a better position than Netflix in
Speaker 1: a lot of ways. You're similar to Amazon, which is
Speaker 1: streaming is the only part of the picture, and and
Speaker 1: the revenue mix. So we've been talking about Netflix and
Speaker 1: Amazon and Disney. There so other players out there, right,
Speaker 1: We have people like a Comcast for example, we have
Speaker 1: BA CBS. We had other players discovering Goodness Notes, which
Speaker 1: is going through a big transaction. So what is the
Speaker 1: future of the business overall? What sort of consolidation wanted
Speaker 1: me to see? After all, I think Disney got there
Speaker 1: in park Is Baby really bellied up to the bar
Speaker 1: and bought all those assets from Fox. Well, he bought
Speaker 1: the assets from Fox, but he also barred Lucasfilm with
Speaker 1: Star Wars. He bought Marvel with um the entire Marvel
Speaker 1: cinematic universe. And so you see what we're gonna see
Speaker 1: as it continued in consolidation frenzy among the major media companies.
Speaker 1: If you look over time, what what's happened is every
Speaker 1: new wave of technology has driven um changes in the
Speaker 1: composition of this industry, but it's actually increased revenue in
Speaker 1: the industry. So, um, you some of the things that
Speaker 1: are driving it is the growth of streaming, but it's
Speaker 1: also some others. One is the decline in in cable,
Speaker 1: and cable has been the driver of revenue growth and profitability,
Speaker 1: and all these companies, increased rise of connected TV. Within
Speaker 1: a couple of years, practically every American home will have
Speaker 1: a connected TV, whether it's a Roku or it's a
Speaker 1: video and UM. But also it's this need to compete
Speaker 1: against Amazon and Google and Facebook and Apple, and so
Speaker 1: we're gonna see a lot more consolidation. Each of these
Speaker 1: companies one way the other is going to have their
Speaker 1: own streaming services. I'm very upbeat about what does Warner
Speaker 1: Discovery will be able to do. I believe that between
Speaker 1: Discovery Plus and HBO Max they will also get to
Speaker 1: two million UM subscribers will worldwide. So so, Michael, much
Speaker 1: are all the consolidation thus far, I would say is
Speaker 1: within sort of the media space. What about even outside
Speaker 1: of that space? People say maybe Apple should buy CBS
Speaker 1: or by Comcast or something. Do you expect it to
Speaker 1: go beyond just the four corners of the media world
Speaker 1: as they consolidate in the streaming world? Um. Yes, the
Speaker 1: first of all week the Amazon's eight billion dollar acquisition
Speaker 1: of MGM, and once approved, it is Apple practice to
Speaker 1: a massive library historically of shows and also the ability
Speaker 1: to produce going forward. But I expect that every one
Speaker 1: of the technology companies will one way or the other
Speaker 1: find themselves into production, either television or films. And the
Speaker 1: results of that is they're not going to be able
Speaker 1: to build these services just on a new production. They're
Speaker 1: going to build a lot of it on on libraries. Uh.
Speaker 1: And if you also look at the amount of money
Speaker 1: that each of these companies are spending, Apple TV Plus
Speaker 1: is costing billions of dollars a year um. It isn't
Speaker 1: It is really a part of the entire Apple ecosystem
Speaker 1: and support so many of the things. So we will
Speaker 1: see mergers between these companies. Thank you so much. It's
Speaker 1: great to have you with us. As Michael Well of Activist.
Speaker 1: Coming up, we wrap up the week with our special
Speaker 1: contributor Larry Summers of Harvard. That's next on Wall Street
Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio. As we come to the
Speaker 1: end of the week, we've turned to our special contributor,
Speaker 1: to Larry Summers, to really bring out some of the
Speaker 1: most important things of the week. Larry, Welcome, it's great
Speaker 1: to have you back. I'm gonna actually start with last
Speaker 1: week if I may, because when you are on Wall
Speaker 1: Street Week you said something of the FED that a
Speaker 1: lot of people reacted to. They ask questions why that is?
Speaker 1: You said, in their bond buying program, there are, perversely,
Speaker 1: i think was the word you use, actually shifting us
Speaker 1: towards shorter term funding structure when we should be going
Speaker 1: to longer term funding structure. Could you connect those two
Speaker 1: things up for us? First idea, the FED is a
Speaker 1: creature of the Treasury. The Treasury owns UH. The FED
Speaker 1: like the subsidiary of a company in a financial sense.
Speaker 1: What does the FED do? And it does quantitative easy.
Speaker 1: It puts out money which carries a short term floating
Speaker 1: interest rate as bank reserves, and it buys up long
Speaker 1: term bonds and so in effect, the government now has
Speaker 1: a floating rate short term liability outstanding rather than a
Speaker 1: long term UH fixed interest rate UH liability. Since the
Speaker 1: FED is owned by the Treasury, at a moment of
Speaker 1: super uncertainty, at a moment when many people think rates
Speaker 1: are remarkably low, a decision to fund more short seems
Speaker 1: UH bizarre. And that's just one of the reasons why
Speaker 1: I think as as quickly as we prudinently can without
Speaker 1: destabilizing things, we should be bringing HUE to an end.
Speaker 1: At the same time, this week we found out that
Speaker 1: the government, at least part of the government, would like
Speaker 1: to borrow more money as we had that three point
Speaker 1: five trillion dollar budget resolution passed the Senate now headed
Speaker 1: over to the House. As Congress looks at this, because
Speaker 1: it's there's a lot of steps to take before it
Speaker 1: actually gets made into law, what should they be thinking about?
Speaker 1: What's your Congress we concerned about? In terms of macroeconomic policy. Look,
Speaker 1: the broad message of bionomics of build back better, that
Speaker 1: investment deficits are just as serious or more serious than
Speaker 1: financial deficits and we have to address them, is right.
Speaker 1: But as we do it, we need to one pay
Speaker 1: for all the investments that we make with genuine revenue increases,
Speaker 1: to be very careful about locking in future liabilities that
Speaker 1: we don't pay for by, for example, funding very popular
Speaker 1: tax credits for just a few years, And three making
Speaker 1: sure that what we call investments really are investments that
Speaker 1: augment the supply capacity of the economy. If we do
Speaker 1: those three things, this can be a contributor to non
Speaker 1: inflationary growth and rising standards of living for years to come.
Speaker 1: But if we don't. There's a real risk that it's
Speaker 1: going to fuel and inflationary psychology and actually bring forward
Speaker 1: UH the date of the next bout of financial instability
Speaker 1: or recession. So you have talked to me about inflation
Speaker 1: of fair amount. The Bidom instation reportedly took some steps
Speaker 1: maybe to keep down at least the price of gas
Speaker 1: at the pump this week. Ironically, when they're trying to
Speaker 1: cut back in the greenhouse gas emissions, they ask OPEC
Speaker 1: plus to increase to increase its production. What did you
Speaker 1: make of that as a matter of policy. Look, I
Speaker 1: don't really hear the malady quite right on some of this,
Speaker 1: with buy American, with raising UH tariffs, with various regulatory policies,
Speaker 1: the with so called worker based trade policies. The goal
Speaker 1: of the Biden administration sometimes seems like it's to aise
Speaker 1: the price to consumers of most things, to help workers
Speaker 1: and to help businesses, and then to reduce the price
Speaker 1: of gasoline. Since we've seen this week that energy consumption
Speaker 1: is the most toxic form of consumption that households engage in,
Speaker 1: I think it's highly problematic to be trying to bring
Speaker 1: its price down while trying to bring every other price up.
Speaker 1: I think there's no more important price to increase in
Speaker 1: the American economy than the price of carbon based UH fuels,
Speaker 1: and so this is a perverse UH kind of UH
Speaker 1: step of from my point of view, I'd much rather
Speaker 1: see us do it in other ways than by helping
Speaker 1: uh OPEQ. But in general, the right direction for guest
Speaker 1: prices is up, and the right direction for most other
Speaker 1: prices is down. At a time of inflation, and policy
Speaker 1: seems to me in important respects to be pushing in
Speaker 1: the opposite direction. You mentioned vaccines. Let's go there. Because
Speaker 1: you're part of a very important group, the Aspen Economic
Speaker 1: Strategy Group. They came up with a statement this week
Speaker 1: really calling on the US to take a leadership position
Speaker 1: on vaccination. Tell us about that, David. We're spending or
Speaker 1: proposing to spend three and a half trillion dollars on
Speaker 1: investing in the country's future. I cannot understand why we
Speaker 1: would not spend one percent of that at least on
Speaker 1: protecting the country's future with a forward defense investment in
Speaker 1: vaccinating the world. It protects against evolution that could be
Speaker 1: very damaging to US as we get variants beyond the
Speaker 1: delta virus. It would be a huge source of American
Speaker 1: prestige and influence. Let's face at, our vaccines work much
Speaker 1: better than the Chinese vaccines. We're constantly talking about shoring
Speaker 1: up our alliances and concrete ways. There's no way more
Speaker 1: concrete for more countries UH than this, And it showcases
Speaker 1: what has been a huge success of American private sector
Speaker 1: public sector UH collaboration. So on the model of when
Speaker 1: we sent a man to the Moon, on the model
Speaker 1: of the Marshal Plan, on the model of and I
Speaker 1: wasn't usually a supporter of his the Bush Administration's UH
Speaker 1: pepfar initiative that people in Africa are still so grateful
Speaker 1: for fifteen years later because of what it meant for
Speaker 1: the worldwide fight against AIDS. This is an area where
Speaker 1: we need to be leading from the front. So Larry,
Speaker 1: I'm really curious because you've really led at very high
Speaker 1: levels in the US government, including his Treasury secretary. You
Speaker 1: have seen the intersection in politics on the inside and
Speaker 1: policy on there, and there's a themes from what you
Speaker 1: said today. I think, for example, in the pressure for
Speaker 1: lower gasoline prices at the pump, that's a political matter.
Speaker 1: I suspect fundamentally at the same time leading around the
Speaker 1: world on vaccines that doesn't rest necessarily so well at home.
Speaker 1: How do you try to broker that deal between politics
Speaker 1: on one hand, you can't ignore in Washington and good policy. Look,
Speaker 1: I think there's no one, with all his years as
Speaker 1: chairman of the Senate Foreign Relations Committee as Vice President
Speaker 1: who's got more experience in striking those balances UH than
Speaker 1: H Joe Biden. And I was always mindful when I
Speaker 1: served in UH government and if I was anything, and
Speaker 1: I was, I perhaps had some expertise. I certainly wasn't
Speaker 1: a politician or someone who anyone had ever elected to office.
Speaker 1: So I think one needs to respect the fact that
Speaker 1: in a democrat see, policies should UH follow the will
Speaker 1: of the people. And so I think it's right that
Speaker 1: these decisions are made UH politically. And I'm always offended
Speaker 1: when people somehow suggests that authoritarian governments will do it
Speaker 1: better because they can follow the advice of technocrats. But
Speaker 1: I think sometimes and this is something that constitution very
Speaker 1: much UH recognized, you need to lead UH the people
Speaker 1: rather than UH follow the people. And that's what we
Speaker 1: did with UH the Martial Plan. And we're gonna need
Speaker 1: uh some of that. I believe with respect to what
Speaker 1: I think are the most important global security challenges, climate
Speaker 1: change and uh pandemic uh disease. And my reading of
Speaker 1: American history is that the American people respond to leadership
Speaker 1: when it comes. It's so terribly helpful. Thank you. Larry
Speaker 1: Summer is our special contributor here at Wall Street weeken
Speaker 1: of course of Harvard University. Thank you. Finally, one more thought, cryptocurrency,
Speaker 1: meet Hay Street. The Gospel of Matthew warns that there's
Speaker 1: risk when you try to pour new wine into old bottles,
Speaker 1: and this week in Washington, we saw once again why
Speaker 1: the new wine, this time came in the form of cryptocurrency,
Speaker 1: that new fangled thing. We aren't quite sure what it is.
Speaker 1: Is it a form of money, Is that a commodity?
Speaker 1: Is an investment or is it just a way to speculate? Well,
Speaker 1: whatever it is, a lot of people. Are you gonna
Speaker 1: get it and trade it? And yes, you better believe
Speaker 1: make money off of it. And if you make money,
Speaker 1: you have to pay taxes, right, And that's where the
Speaker 1: old part comes in. When the Senate needed to find
Speaker 1: a way to pay for some of that Infrastructure Bill.
Speaker 1: It sees on requiring brokers to report transactions and cryptocurrencies
Speaker 1: so the I r S can make sure people pay
Speaker 1: the taxes that they owe. But the cryptocurrency industry said
Speaker 1: they were going way too far, and so they did
Speaker 1: what industries have done since the middle of the nineteenth century.
Speaker 1: They allobbied that time arnored tradition named for the lobby
Speaker 1: of the Willard Hotel on Pennsylvania Avenue, where all the
Speaker 1: real work got done way back in the Grant administration,
Speaker 1: and through their efforts, they got a bipartisan group of
Speaker 1: senators to come up with new language that the buying
Speaker 1: administration could support. Problem solved right, Well, not so fast.
Speaker 1: It turns out that they are cane. Rules of the
Speaker 1: Senate give any single senator the right to stop the
Speaker 1: proposed changes, and Republican Senator Richard Shelby did just that,
Speaker 1: and he did it repeatedly, leaving the tougher language in
Speaker 1: the bill that actually passed. But don't just spare these
Speaker 1: blockchain upstar It's are a pretty resourceful bunch, and maybe
Speaker 1: you can teach new dogs old tricks. Heck, maybe all
Speaker 1: it takes is for them to figure out how to
Speaker 1: get all those political packs to take bitcoin. That does it.
Speaker 1: For this episode of Wall Street Week. I'm David Weston.
Speaker 1: This is Bloomberg. See you next week.