Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: The global push into infrastructure, breaking the IPO logjam in text.
Speaker 3: The financial stories that shape.
Speaker 2: Our work, cutting inflation without losing jobs. Do we need
Speaker 2: rate cuts? And if so? How many? Investing in the
Speaker 2: time of geopolitical turmoil.
Speaker 1: Through the eyes of the most influential voices.
Speaker 2: Ten Rogoff Economists of Harvard, former fdicehead Shila bet Ge CEO,
Speaker 2: Larry Coulp, San Francisco Fed President Mary Daily, Bloomberg Wall Street.
Speaker 1: Week with David Weston from Bloomberg Radio.
Speaker 2: Democrats nominate their candidate for president. Ford abandons it's all
Speaker 2: electric SUV and the Fed moves closer to a September
Speaker 2: rate cut.
Speaker 3: This is Bloomberg Wall Street Week. I'm David Weston.
Speaker 2: This week Scott Bessen's of Key Square Capital on a
Speaker 2: precarious equilibrium for investors and the economic choice looming in November.
Speaker 4: The US economy, in my mind, is starting to look
Speaker 4: like an emerging market economy.
Speaker 2: And Jennifer Huddleson of the Cato Institute on the path
Speaker 2: forward for Google.
Speaker 5: Is not just what it means for Google, but what
Speaker 5: it means for consumers.
Speaker 2: We start with Chairman Powell's remarks in Jackson Hole and
Speaker 2: welcome back our very special contributor Larry Summers of Harvard. So, Larry,
Speaker 2: we heard this week from share Powell. What did you
Speaker 2: make of what he had to say?
Speaker 6: Look, I think he's in the right broad place.
Speaker 7: Inflation is coming down, the economy is slowing on current facts. Absolutely,
Speaker 7: the next move should be towards monetary policy easing. And
Speaker 7: that's what he said, and I'm glad he said that.
Speaker 7: I think there were a number of really important issues
Speaker 7: that are likely to be shaping of the policies for
Speaker 7: the FED and for the economy more broadly that he
Speaker 7: didn't address. He didn't say anything about epic budget deficit
Speaker 7: challenges in the years ahead. At the same time, we've
Speaker 7: got a huge investment demand for the green economy and
Speaker 7: a huge investment demand for data centers and the like.
Speaker 7: And so the question of what the neutral interest rate
Speaker 7: is was one he talked Pat He didn't really engage
Speaker 7: with the FED is saying that the neutral interest rate
Speaker 7: is somewhere in the twos. I think that's extremely unlikely.
Speaker 7: And if you don't have the right north star, you
Speaker 7: don't navigate very accurately. And so I think the FEDS
Speaker 7: making a serious mistake by believing that the neutral interest
Speaker 7: rate is so low, and therefore is misjudging how restrictive
Speaker 7: any given level of policy is. So I'd be surprised,
Speaker 7: quite surprised if it actually proves possible with sustainability to
Speaker 7: bring inflation down by nearly as much as the market
Speaker 7: is expecting, or bring interest rates down by nearly as
Speaker 7: much as the market is expecting over the next two years.
Speaker 7: The other thing that the FED must be aware of,
Speaker 7: and I understand why the chair didn't address it, but
Speaker 7: it seems to me it's something they have to be
Speaker 7: keeping in mind. Is we've got what people regard as
Speaker 7: a fifty to fifty presidential election coming, and one of
Speaker 7: the candidates says that the FED shouldn't be independent anymore.
Speaker 7: That same candidate, Donald Trump, says that we need a
Speaker 7: much weaker dollar. That same candidate says we need to
Speaker 7: push tariffs way up, meaning higher prices of consumer goods
Speaker 7: and more of an inflation threat. That same candidate talks
Speaker 7: about sending millions of workers home, which would create epically
Speaker 7: tight labor markets in our country and would surely go
Speaker 7: back to labor shortages and wage inflation.
Speaker 2: Larry turning back for a minute to Jay Powell's remarks
Speaker 2: this week, he had sort of an initial explanation of
Speaker 2: what happened with inflation, where it came from what the
Speaker 2: FED did in response, and at least my take on
Speaker 2: it was we had really supply shocks that were really unprecedented.
Speaker 2: It took a longer sort of out, and we had
Speaker 2: this big demand push, particularly in goods, that spilled over
Speaker 2: into services. So it was sort of understandable why we
Speaker 2: sort of made a mistake on team trans what's your reaction.
Speaker 7: Look, I guess it's under I guess it's understandable. I
Speaker 7: think I was reasonably clear in the spring of twenty
Speaker 7: and twenty one that it seemed to me that there
Speaker 7: were enormous inflation risks. I think looking back, it's kind
Speaker 7: of incredible that the Fed could have said in May
Speaker 7: of twenty twenty one that it expected to hold interest
Speaker 7: rates at zero until the summer of twenty twenty four,
Speaker 7: and so the misjudgment was a pretty egregious one. They're
Speaker 7: trying to leave the impression that it was all surprising
Speaker 7: supply shocks, and I think there are two problems with
Speaker 7: that view. One is there shouldn't have been anything very
Speaker 7: surprising about it. It's not like everybody didn't know that
Speaker 7: cod was affecting the supply capacity of the economy. So
Speaker 7: when the supply capacity is down, that means you have
Speaker 7: to adjust the demand. And the other is that if
Speaker 7: you look at nominal GDP growth, so that's dollar GDP,
Speaker 7: it's the money stock adjusted for the velocity, it averaged
Speaker 7: ten percent in twenty twenty one, in twenty twenty two,
Speaker 7: and above eight percent for the three years twenty twenty
Speaker 7: one to twenty twenty three. So how can you think
Speaker 7: with eight to ten percent nominal GDP growth that you're
Speaker 7: going to have anything like target inflation? And that nominal
Speaker 7: GDP is just a measure of demand, which is what
Speaker 7: monetary policy is supposed to.
Speaker 8: Be all about.
Speaker 7: So I think the FED got it wrong, and in
Speaker 7: all honesty, I don't think it was a low point
Speaker 7: in terms of monetary policy judgment. But you know, we
Speaker 7: all make lots of mistakes, and the important thing is
Speaker 7: when you make a mistake, to recognize it and fix it.
Speaker 7: And I've got to give the FED credit for the
Speaker 7: fact that while it wasn't always obvious that this would
Speaker 7: be the case. They moved strongly enough and vigorously enough
Speaker 7: to keep expectations anchored. And that's why it now looks
Speaker 7: more frankly than I would have expected, like we're going
Speaker 7: to get out of this very costly inflation episode without
Speaker 7: a major recession.
Speaker 3: Larry, thank you so much. It's always a treat to
Speaker 3: have you with us.
Speaker 2: That is our special contributor here on Wall Street Week.
Speaker 2: He's Larry Summers of Harvard. The stock market continued its
Speaker 2: upward climb this week, with one short detour on Thursday,
Speaker 2: as the S and P five hundred added another one
Speaker 2: point four five percent to end the week at fifty
Speaker 2: six thirty five. That's nicely above the median number per
Speaker 2: year end set by our Bloomberg Als at fifty six hundred.
Speaker 2: The Nasdaq was just behind the S and P up
Speaker 2: one point four percent for the week, while the yield
Speaker 2: in the tenure was down almost nine basis points and
Speaker 2: even week at three point eight percent. To take us
Speaker 2: through the markets, we welcome back now, Scott Croner City.
Speaker 3: Scott. Great to have you back with us.
Speaker 2: We think of you as our equity expert here. So
Speaker 2: tell me what's going on with these markets, they just
Speaker 2: seem to go one direction pretty much, and that's up.
Speaker 3: Should we be getting.
Speaker 6: Worked well, David, great to be here.
Speaker 9: I'd say the risk reward from our perspective has gotten
Speaker 9: more balanced with this rally we've had. Essentially, we went
Speaker 9: into Q three with the view that S and P
Speaker 9: five hundred at fifty six hundred per year end made
Speaker 9: some sense. We argue that valuations around twenty two times
Speaker 9: we're sustainable. We're now at twenty three times. We've argued
Speaker 9: that earnings growth under the surface for the S and
Speaker 9: P five hundred is in good shape. That came through
Speaker 9: with Q two reporting bigger picture, you've got three forces
Speaker 9: at work in equities right now. One is the AI
Speaker 9: tailwind that's been supporting the megacap.
Speaker 6: Growth part of the market.
Speaker 9: The other is soft landing conviction yes or no, and
Speaker 9: it's been more yes of late, aided by Chairman Polace
Speaker 9: commentary at Jackson Hole today. And then the third element
Speaker 9: is the election impact, and that's I'm going to say
Speaker 9: a little bit more of a tail risk that's been
Speaker 9: pushed to side for now as we continue to kind
Speaker 9: of work our way through the aftermath of the dmc SO.
Speaker 2: Let's go to the first one there, the AI momentum.
Speaker 2: If I can put it that way, We've got Nvidia.
Speaker 3: Earnings coming up next week.
Speaker 2: How important does that make something like in Vidia's earnings
Speaker 2: indicating whether we're keeping the momentum or losing some of it.
Speaker 9: Well, the starting point is you look at where we
Speaker 9: ended the first half. The S and P was up
Speaker 9: about fifteen percent, and we'd attribute about five percentage points
Speaker 9: of that move to each of Nvidia, the rest of
Speaker 9: the MAG seven and the other four ninety three within
Speaker 9: the S and P. So Nvidia has been an important
Speaker 9: contributor to the S and P five hundred move. Obviously,
Speaker 9: it pulled back from mid July into early August and
Speaker 9: now has recovered. So I'd say absolutely yes. The way
Speaker 9: they report, the way they position themselves in terms of
Speaker 9: future growth expectations is going to have an important influence
Speaker 9: on its stock but also on the balance of the
Speaker 9: MAG seven and this AI play.
Speaker 2: Well, it's interesting, as you said, sort of a third
Speaker 2: to third to third, but the third third was actually
Speaker 2: the rest of the pack. Are we starting to see
Speaker 2: some broadening out now? Because for a long time we
Speaker 2: were worried there was such a narrow driving of the SMP.
Speaker 9: Well, it's fascinating when you look at the way Q
Speaker 9: two results have finished. Okay, and we're pretty close. We
Speaker 9: still have to get Nvidia and a few others to report.
Speaker 9: You actually had that meg seven component growing earnings in
Speaker 9: Q two by roughly thirty eight percent, which is pretty astonishing.
Speaker 6: Okay.
Speaker 9: We think there's some persistence of that in the second half. Interestingly,
Speaker 9: the other four ninety three grew earnings in aggregate five percent.
Speaker 9: Doesn't sound like much, but that's the first quarter of
Speaker 9: the last six where we've actually gotten a positive earnings
Speaker 9: growth dynamic out of the rest of the four ninety three.
Speaker 2: How are we positioned going into the second half of
Speaker 2: the year. We're now starting the second half of the year.
Speaker 2: Go ahead, get that piece back in there. You've got it, okay, Scott.
Speaker 2: What I was asking was how are we position going
Speaker 2: in the second.
Speaker 3: Half of the year.
Speaker 9: So we think we're pretty well positioned. From the following
Speaker 9: perspective on the pullback, we were very comfortable re engaging
Speaker 9: in that megacap growth cohort on this mantra that growth
Speaker 9: is defensive as we navigate signs of economic weakness, which
Speaker 9: is ongoing, but more directly, we put our major sector
Speaker 9: focus on those areas most likely to benefit from the
Speaker 9: FED pivot, which apparently is getting closer and closer. Obviously
Speaker 9: September coming up. So we've been quite constructive on areas
Speaker 9: such as consumer discretionary financials via the banks and then
Speaker 9: interestingly also through the real estate part of the SMP.
Speaker 2: Scott, that's why you're our equities expert. Always, thank you
Speaker 2: so much, as Scott Kroner of City. Coming up, Michael
Speaker 2: Milkine has said the drive to LBOs was made possible
Speaker 2: by VISITALC. What changes could be driven by the current
Speaker 2: crop of tech innovations. We've talked with William Deringer of MIT.
Speaker 2: That's coming up next on Wall Street Weeek on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is Wall Street Week. I'm David Weston, Junk Bond King.
Speaker 2: Michael Milkine once said that it was the earlier spreadsheet
Speaker 2: program VISITALC that made pop sold the LBOs and takeovers
Speaker 2: of the nineteen eighties.
Speaker 3: Technology has come a long way from then.
Speaker 2: Professor William Deringer of MIT has studied what effects this
Speaker 2: ever increasing computing bar is having on which deals get
Speaker 2: done and how we asked him what led to his research.
Speaker 8: So this sort of an interesting story.
Speaker 10: I was actually at an event at MIT and I
Speaker 10: was speaking with someone who was one of the board
Speaker 10: members at MIT, and he mentioned, you know, I used
Speaker 10: to know some of the people who were involved with
Speaker 10: VisiCalc early on, and a series of conversations led me
Speaker 10: to this kind of interesting anecdote that apparently Michael Milcott
Speaker 10: at one point had said that if you really want
Speaker 10: to understand what happened in the eighties and the kind of.
Speaker 8: The rise of.
Speaker 10: Buyouts and the sort of Maggie deals of that period,
Speaker 10: the real key is visital So it was spreadsheet software.
Speaker 10: And so I spent some time trying.
Speaker 8: To kind of track down this anect.
Speaker 10: I found it mentioned a couple of a couple of
Speaker 10: other places, and it took me on this sort of
Speaker 10: interesting journey of trying to figure out, well, what what
Speaker 10: would that I have actually looked like? What so, how
Speaker 10: would spreadsheets software actually have changed things?
Speaker 8: And what I found was that it's sort of more
Speaker 8: than just.
Speaker 10: A matter of kind of making calculations easier, but that
Speaker 10: it really seemed to change the kind of limits of
Speaker 10: financial thinking and imagination, so things that were pretty hard
Speaker 10: to do. So modeling and modeling an LBO by hand
Speaker 10: kind of you know, on paper, was very arduous, very
Speaker 10: time consuming, and importantly it was not sort of dynamic.
Speaker 10: You couldn't kind of tweak one parameter, you know, tweak
Speaker 10: an interest rate, tweak a projection for revenue growth or
Speaker 10: something and then kind of get a new answer.
Speaker 8: Uh. And so what seems to have been very quickly.
Speaker 10: And there are you know, interesting quotations about this from
Speaker 10: people at the time, was deal makers realized that you
Speaker 10: could use spreadsheet software to not only kind of model
Speaker 10: potential deals, but also to sort of scan the realm
Speaker 10: of possible deals. So instead of having to just look
Speaker 10: at one possible deal, you could run similar sorts of
Speaker 10: scenarios across the kind of wide range of different potential
Speaker 10: target companies.
Speaker 8: And I think that in some ways, really we could
Speaker 8: even say it sort of changed the way in which business.
Speaker 10: Was understood from the sort of perspective of Wallstreet.
Speaker 3: From your work.
Speaker 2: Could Mike Milkine have done what he did without spreadsheets?
Speaker 10: I don't think so. I mean I think that a lot.
Speaker 10: I think there would have been significant limitations. I mean,
Speaker 10: a one of the things that's interesting about the Milkan story,
Speaker 10: and this was actually a lot of what my research
Speaker 10: was interested in, was he was sort of simultaneously his
Speaker 10: work was simultaneously very technologically innovative and at the same
Speaker 10: time sort of.
Speaker 8: Very personality drivet.
Speaker 10: But there were certain aspects of the kind of milk
Speaker 10: and machine that was built built that was highly technical.
Speaker 10: I mean, much of it was even down to things
Speaker 10: like being able to track and sort of catalog the
Speaker 10: existence sort of where the market was in high yield bonds,
Speaker 10: who owned things, who were you know, who were potential buyers?
Speaker 8: Uh.
Speaker 10: But then also kind of valuation techniques. There were sort
Speaker 10: of long standing methods of course for valuing bonds, but
Speaker 10: with new sort of handheld calculators and the spreadsheets those
Speaker 10: the ability to kind of analyze and value fixed income
Speaker 10: instruments became kind of radically easier.
Speaker 2: Where are we now, How is the current technology changing
Speaker 2: the nature of deal making and private aquay? And let
Speaker 2: me ask you a very specific question, do we just
Speaker 2: need as many private bankers anymore?
Speaker 8: Yeah?
Speaker 10: So, I mean, as as someone who spend most of
Speaker 10: my time in the in the past. I I know
Speaker 10: sort of about as much about the kind of really
Speaker 10: cutting edge stuff as certainly you know many of your
Speaker 10: of your viewers.
Speaker 8: But from what I understand, you.
Speaker 10: Know, one of the areas of development, as for example,
Speaker 10: trying to find sort of use the classy of AI
Speaker 10: to sort of simplify and automate things.
Speaker 8: Like modeling LBOs.
Speaker 10: Right, So, you know, when I was at DID training,
Speaker 10: you know, my first day as an investment banker. You
Speaker 10: not the first day, but maybe you know, week two
Speaker 10: or something, you learned how to kind of build LBO.
Speaker 8: Models on spreadsheets.
Speaker 10: And that's the sort of thing that required quite a
Speaker 10: lot of training, required a certain kind of technical artifice
Speaker 10: and expertise, And that's the sort of thing that may
Speaker 10: go towards that that may require less sort of direct
Speaker 10: kind of time and training. But one thing I think,
Speaker 10: you know, we know from the history of technology and
Speaker 10: certainly the history of the kind of calculation tools that
Speaker 10: I like to study, is that the kind of automation
Speaker 10: of some of those calculations and the automation of kind
Speaker 10: of lots of different things and the world don't necessarily
Speaker 10: lead to less work.
Speaker 8: So if I had to guess.
Speaker 10: And I mean, as a historian, we're always sort of
Speaker 10: cautious about making prognostications. I would not think that new
Speaker 10: tools would sort of lead to the need for fewer people,
Speaker 10: but rather, what I would expect to happen.
Speaker 8: Was that they would kind of change the nature of
Speaker 8: the work.
Speaker 2: That was Professor William Derringer of MIT at the end
Speaker 2: of a week focused on Kamala Harris's plans for the
Speaker 2: economy and how they differ from Donald Trump's. Welcome back now,
Speaker 2: macro investor Scott Besson, founder and CEO of Key Square Capital. So, Scott,
Speaker 2: welcome back. Good to have you here, David, always nice
Speaker 2: to be with you. Before we get to the rival
Speaker 2: economic theories here, let's talk about where we are in
Speaker 2: the economy.
Speaker 3: Generally.
Speaker 2: You have a note out right now talking about a
Speaker 2: precarious equilibrium in the economy. What makes that precarious?
Speaker 4: Well, now, I've been doing this thirty thirty five years now,
Speaker 4: and the US economy, in my mind, is starting to
Speaker 4: look like an emerging market economy. That or every kind
Speaker 4: of emerging market below up that I've seen in my career,
Speaker 4: and that is you have rise in asset prices. So
Speaker 4: in the US stocks and housing that is fueling consumption
Speaker 4: by the top ten or twenty percent of households, top
Speaker 4: ten or twenty percent of households or count for more
Speaker 4: than fifty percent of US consumption. Then the below that
Speaker 4: the rise in asset price is being fueled by a
Speaker 4: seven percent to GDP budget deficit, the biggest we've ever
Speaker 4: had when it's not a war, not a reception. Then
Speaker 4: the third leg of that is jenet y and has
Speaker 4: moved the quarterly refunding to what shorter term debt, which
Speaker 4: has had the effect of suppressing interest rates. So you
Speaker 4: know you've got I call it the three body problem
Speaker 4: after the Chinese science fiction book and the famous math problem.
Speaker 4: So we don't know which one of those could go first,
Speaker 4: but it's one of these that if the stock market
Speaker 4: were to go down, then it could create a gap
Speaker 4: in consumer spending.
Speaker 2: So that does sound pretty perilous for investors. And given
Speaker 2: the fact we don't know which one will break, although
Speaker 2: you think one of them is likely to break at
Speaker 2: some point, what does investor do? How do they position
Speaker 2: themselves for something breaking?
Speaker 4: Well, I think investors should be ready for more volatility,
Speaker 4: which I also talked about in the note you know,
Speaker 4: I think gold's very interesting here. It's at an all
Speaker 4: time high, I think as we're speaking today, and you know,
Speaker 4: I think just in general, everyone should do a gut
Speaker 4: check make sure they're not too far out on the
Speaker 4: risk curve, because you know, it's been a pretty good run.
Speaker 2: So let's turn to the question of rival economic plans
Speaker 2: from Donald Trump, somebody whom you know have known for
Speaker 2: a lot of years and talked to you from time
Speaker 2: to time, and then Kamala Harris, someone new out of
Speaker 2: the scene at least with inspector economic plans. How does
Speaker 2: investor really really address those two alternatives? How do you
Speaker 2: macro investor on these tools? Start with Kamala Harris.
Speaker 4: Well, look, I think it's two competing visions. You know,
Speaker 4: Michael Boskin had a very good editorial in the Wall
Speaker 4: Street Journal yesterday and he said, you know, we're not
Speaker 4: getting a lot of meat out of Kamala Harris's programs yet,
Speaker 4: but we can go back and look, and there are
Speaker 4: three different sources there. What is she say in the
Speaker 4: twenty twenty campaign? What did Harris Biden do? And then
Speaker 4: what is she said so far so in the twenty
Speaker 4: twenty campaign, which you know, she's running from you know,
Speaker 4: single pair healthcare, you know, lots of restrictions, the big, big,
Speaker 4: big spending stopping fracking, which.
Speaker 2: She has backed off of. She said she's thinking better now.
Speaker 4: Well, you know, I always think with a politician, it's
Speaker 4: where's your heart and where's your head? And I think
Speaker 4: in her heart she still believes that. You know, with
Speaker 4: Joe Biden, he campaigned to Scranton Joe and then broke
Speaker 4: hard left, and you know, we ended up with a
Speaker 4: great inflation.
Speaker 8: I think she is hard left. She's trying to.
Speaker 4: Maybe constructive ambiguity, and you know, I think maybe that's
Speaker 4: why CNN in the Washington Post came out and chastise her.
Speaker 4: Chastised her over the policy she talked about in Raleigh
Speaker 4: on Friday, because she's supposed to keep the mask on
Speaker 4: the past November fifth.
Speaker 2: However we read it. What about things like housing? She's
Speaker 2: trying to address that we do have a housing problem
Speaker 2: in this country. I think you'd agree we do not
Speaker 2: have enough housing. We're not building enough housing. She has
Speaker 2: a plan at least to try to stimulate that.
Speaker 4: Well, there was no plan to say how she's going
Speaker 4: to stimulate it. What she's going to stimulate is buying.
Speaker 4: We don't need more house buyers, we need more houses,
Speaker 4: and there was nothing for how that's going to happen.
Speaker 2: If don't the markets react to then say, if they're
Speaker 2: going to be house more house buyers, we better start
Speaker 2: building some houses.
Speaker 4: No, it just means prices are going to go up,
Speaker 4: costs are going to go up. You know, why don't
Speaker 4: you know there's no solution to the root calls? Why
Speaker 4: don't we have more more housing now? Is that you
Speaker 4: know Blue City, the zoning problems. Is it that we
Speaker 4: need some kind of nationalized regulatory you know, in terms
Speaker 4: of building codes. Is there an affordability problem? Because you know,
Speaker 4: I will tell you that a lot of the policies
Speaker 4: from Harris Biden over the past three and a half
Speaker 4: years have added to the cost of housing.
Speaker 2: So let's turn to the other side of the aisle.
Speaker 2: If you could to Donald Trump something you know a
Speaker 2: fair amount about a lot of criticism that his economic
Speaker 2: plans would actually be inflationary, particularly on the tariffs and
Speaker 2: curtailing employment from and curtailing immigration. What do you respond, Well, first,
Speaker 2: let's talk about contailing immigration. So for the first time
Speaker 2: in my career, first time in my career, the left
Speaker 2: is actually admitting that immigration suppresses wages. For thirty five
Speaker 2: years we heard immigration does not suppress wages. Now it
Speaker 2: seems like the only supply side solution that Harris Biden
Speaker 2: had in the past three and a half years is
Speaker 2: more low end workers. But it did keep inflation down
Speaker 2: below where it otherwise would have been.
Speaker 4: Do you agree well in the Harris Biden world, sure,
Speaker 4: because they also constricted heavy regulation and they kept people
Speaker 4: out of the workplace, And then I actually don't think
Speaker 4: that they have a problem with low end workers doing better.
Speaker 4: So if low end wages go up, and you know,
Speaker 4: as you said, you know tariff's terriffs for a one
Speaker 4: time price adjustment, it's not inflationary. You don't set off
Speaker 4: an inflationary spiral. It's what in the UK they call
Speaker 4: it an administrative adjustment.
Speaker 3: Provided you don't keep escalating them.
Speaker 4: Providing you don't keep escalating them.
Speaker 2: Scott, it's always a treat to have you with us.
Speaker 2: Thank you so much, the Scott Bessant of Key Square Capital.
Speaker 2: Coming up, Google has been judged a monopolist. What comes
Speaker 2: next for a leading hyperscaler, We ask Jennifer Huddleson of
Speaker 2: the Cato Institute.
Speaker 5: I think there's always a question when it comes to
Speaker 5: tech companies of what would a breakup actually mean and
Speaker 5: what would that look like.
Speaker 3: That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Walls Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 3: This is Wall Street Week. I'm David Weston.
Speaker 2: A federal district court has ruled that Google is a
Speaker 2: monopolist when it the search and this fall will decide
Speaker 2: what to do about it. To explain what's at stake
Speaker 2: and what to look for next. Welcome back now, Jennifer Huddleson,
Speaker 2: Cato Institute's Senior Fellow and Technology Policy. Great to have
Speaker 2: you back, Jennifer. So let's start with what the court decided.
Speaker 2: It's a very long decision, but having looked through it,
Speaker 2: there's a lot of talk about the Biden administration really trying.
Speaker 3: To create new and trust law.
Speaker 2: Is this new law or established law being applied to Google?
Speaker 6: It's a bit complicated.
Speaker 5: So what we saw in this particular case was that
Speaker 5: the court ruled that Google had violated parts of the
Speaker 5: Sherman Act in two key regards.
Speaker 6: When it comes to the exclusive distribution.
Speaker 5: Requirement agreements that it had, as well as to a
Speaker 5: very specific type of search advertising.
Speaker 6: We saw Judge Meta in.
Speaker 5: This case apply the Microsoft case to this. Although there's
Speaker 5: a lot of questions around some of the decisions that
Speaker 5: were made, some of what the court decided to reject
Speaker 5: in terms of potential competitors, whether or not that the
Speaker 5: market that consumers actually experience, some of the conversation around
Speaker 5: what some of these alternative products look like, whether or
Speaker 5: not they're actually equal products or inferior products.
Speaker 6: So while we didn't.
Speaker 5: Necessarily see new law or a change from the consumer
Speaker 5: welfare standard, we did see some questions about perhaps how
Speaker 5: some of those standards were being applot.
Speaker 2: What does this mean for Google? I mean, one thing,
Speaker 2: it means they've already said they're going to appeal, and
Speaker 2: we know from the Microsoft case that you'd referred to
Speaker 2: that took a good long time, several years going up
Speaker 2: and down and finally settling. But what does it mean
Speaker 2: for Google in the long run? Do you think it'll.
Speaker 5: Certainly be interesting to see And I think the question
Speaker 5: is not just what it means for Google, but what
Speaker 5: it means for consumers and what it means for other
Speaker 5: businesses when it comes to businesses dealing with one another
Speaker 5: in businesses creating certain types of agreements. While this case
Speaker 5: specifically deals with some of Google's distribution agreements, it's likely
Speaker 5: to have some broader impact as well. It'll be interesting
Speaker 5: to see what the rim these phase actually looks like
Speaker 5: if and when we get to that point. As you mentioned,
Speaker 5: the case is like it's going to be appealed, and
Speaker 5: it's likely to take several more months, if not years,
Speaker 5: to come to a final decision.
Speaker 2: We have that remedy sphase coming up in the fall now,
Speaker 2: and one of the things that Bloomberg's report is the
Speaker 2: Justice Parment is at least considering the possibility of asking
Speaker 2: to have Google broken up.
Speaker 3: Is that likely?
Speaker 5: I think there's always a question when it comes to
Speaker 5: tech companies of what would a breakup actually mean and
Speaker 5: what would that look like, and is that something that's
Speaker 5: even truly possible. In many cases, oftentimes consumers like the
Speaker 5: fact that their products are able to be integrated with
Speaker 5: one another. That's one of the things that consumers are
Speaker 5: looking for. We often see actually requests for more interoperability.
Speaker 6: Not less.
Speaker 2: Let's talk specifically about it. If they don't break up Google.
Speaker 2: What the possible behavioral remedies could be seeing you mentioned
Speaker 2: the restrictive agreements that at least the judge final restrictive
Speaker 2: with respect to Google paying Apple and others to have
Speaker 2: their search engine embedded as the default.
Speaker 3: Is there any pro.
Speaker 2: Competitive justification for doing that? Wasn't that something that was
Speaker 2: pretty nakedly a way of really deterring other competitors.
Speaker 5: We've seen default agreements reached in multiple cases, and the
Speaker 5: judge did continue to uphold trinco and say there is
Speaker 5: no duty to deal. So it is important to recognize
Speaker 5: that there is a possibility to see these agreements continue
Speaker 5: in some way. The question is was Google acting as
Speaker 5: a monopolist and abusing its ability.
Speaker 6: To get these agreements? And this really is.
Speaker 5: Also going to come down to that question of are
Speaker 5: the alternative search engines inferior products?
Speaker 6: If there's no price that Apple would pay to set
Speaker 6: being as its.
Speaker 5: Default, is it fair to say that they can't have
Speaker 5: Google as their default?
Speaker 6: What does that mean for consumers?
Speaker 5: Are we expecting consumers to get the inferior product when
Speaker 5: what companies are trying to do is provide their consumers,
Speaker 5: whether it's a smartphone company, or a web browser.
Speaker 6: Product that they actually want.
Speaker 5: When we look to Europe where they change the way
Speaker 5: that defaults could be done, and when you get a
Speaker 5: new phone out of the box or go to a
Speaker 5: new web browser, there's not necessarily a default search engine.
Speaker 5: We see that consumers overwhelmingly still cuse Google because it's
Speaker 5: the search engine that they want right now, and it's
Speaker 5: the search engine that is bringing them the kind of
Speaker 5: results they expect.
Speaker 2: Let me play devil's advocate here actually in reading this decision,
Speaker 2: because I hear what you're saying, and there are findings
Speaker 2: that if hact, Google is just a better search engine.
Speaker 2: But if that's true, why were they paying all that money?
Speaker 2: I mean, Google's a pretty smart company. They're not going
Speaker 2: to pay billions of dollars for nothing. And if they
Speaker 2: really are just a better search engine, they didn't have
Speaker 2: to pay any money. They would have been the default
Speaker 2: by default.
Speaker 5: There continues to be a wide array of business dece
Speaker 5: engines that go into these kind of complicated agreements. What
Speaker 5: we really need to be looking at is is this
Speaker 5: a case where we see consumers being harmed? Is this
Speaker 5: a case where we see a company abusing its monopolist behavior?
Speaker 6: And then we.
Speaker 5: Should really focus on the fact that just because a
Speaker 5: company is large does it and just because a company
Speaker 5: is successful doesn't mean that it can't engage in standard
Speaker 5: business practices that we would allow other companies to do
Speaker 5: as well.
Speaker 2: This Google case was brought under President Biden and his administration.
Speaker 3: By the Justice Department.
Speaker 2: We do have an election coming up, you may have
Speaker 2: noticed in November, and we may have we will have
Speaker 2: a different president. It will either be Kamala Harris on
Speaker 2: the one hand, or will we hit Donald Trump. At
Speaker 2: this point, do we have any sense what competition policy
Speaker 2: might look like under either of their regimes.
Speaker 5: When we look at the previous Trump administration, they were
Speaker 5: highly critical of several.
Speaker 6: Of America's leading tech companies.
Speaker 5: In fact, many of the anti trust cases started during
Speaker 5: the Trump administration, or the investigations at least started during
Speaker 5: the Trump administration. Similarly, we've seen the Buiyen administration continue
Speaker 5: to be critical of big companies in general and really
Speaker 5: try and push this more European.
Speaker 6: Style anti trust approach.
Speaker 5: So I think, regardless of who wins in November, we're
Speaker 5: likely to see continued scrutiny of large companies, and the
Speaker 5: question should be is that good for consumers and is
Speaker 5: that good for innovation?
Speaker 2: On the question of how much of consumer pays because
Speaker 2: there are problems with network effects and things. Is there
Speaker 2: an issue that we're not getting to see other competitors
Speaker 2: They just never make it into the game at all.
Speaker 2: That's one of the claims I believe that was made
Speaker 2: in the Google case that people just couldn't get into it.
Speaker 2: There may be a better, more innovative search product out there,
Speaker 2: we just never.
Speaker 3: Get to see it.
Speaker 5: One of the things that we often see in technology sector,
Speaker 5: particularly when we're talking about these kind of antitrust cases,
Speaker 5: are questions of market definition. In the Google case, the
Speaker 5: judge very much locked into this kind of general search
Speaker 5: in gen definition, things that allowed you to search and
Speaker 5: then go off site was what he really wanted to
Speaker 5: limit it to, to limit the number of competitors. But
Speaker 5: if we look at trends, particularly amongst younger users Gen
Speaker 5: Z and Gen Alpha that's starting to access the Internet,
Speaker 5: they're really looking at video forward. Often they're going to TikTok,
Speaker 5: or they're going to Google's YouTube to do their searches,
Speaker 5: or they're doing much more specialized searches where they're not
Speaker 5: necessarily using those general search engines. That's something that's kind
Speaker 5: of changed with all users, and the judge in this
Speaker 5: case kind of pushed that aside to really only focus
Speaker 5: on general search engines. He said that couldn't be considered
Speaker 5: competition because you couldn't go off site. But the question
Speaker 5: is is that really the consumer experience?
Speaker 6: And this is also where AI comes up.
Speaker 5: Is AI going to be so revolutionary that this completely
Speaker 5: changes the way that we view what it means to
Speaker 5: conduct search? Is this is looking at a general search
Speaker 5: engine in a few years going to be the same
Speaker 5: as talking about video rental stores as streaming is coming about.
Speaker 2: Jennifer is always great to have you on these anastrust questions.
Speaker 3: Thank you so much.
Speaker 2: That's Jennifer Huddleson of the Cato Institute. Rule number one,
Speaker 2: never lose money, Rule number two. Never forget rule number one,
Speaker 2: so says Warren buff Unfortunately, too many of us appear
Speaker 2: to forget both of Buffett's rules too often.
Speaker 3: Just this week, Ford lost.
Speaker 2: One point nine billion dollars on its all electric three
Speaker 2: row SUV when it concluded there wasn't enough consumer interest
Speaker 2: to make it work.
Speaker 11: I talked to Ford CEO Jim Farley, and he said
Speaker 11: the new mantra is that any new electric vehicle must
Speaker 11: be profitable within its first year on the market. If
Speaker 11: they can't do.
Speaker 3: That, it won't be approved.
Speaker 11: That's why they canceled this electric three row SUV.
Speaker 2: Others are losing money for less auspicious reasons. Former Representative
Speaker 2: George Santos lost three hundred and seventy four thousand dollars
Speaker 2: this week when he agreed to pay restitution after pleading
Speaker 2: guilty to charges of wirefraud and identity theft.
Speaker 3: And if that weren't enough, he'll.
Speaker 2: Likely have to do some jail time as well.
Speaker 3: It's turned me now that hile out ambission to Cobnie judgment.
Speaker 11: We need to make decisions that were another day and
Speaker 11: guilty beating guilty a I never imagine.
Speaker 7: I hate, but it is a necessary one because it
Speaker 7: is the right thing to do.
Speaker 2: Carl Icon is losing two million dollars in fines he
Speaker 2: owes to the SEC for not disclosing enough about margin loans,
Speaker 2: But all that's a drop in the bucket of the
Speaker 2: nineteen billion dollars in net worth he's lost in the
Speaker 2: last fifteen months.
Speaker 12: Both Icon and IEP have agreed to pay one point
Speaker 12: five million and five hundred thousand dollars in civil penalties
Speaker 12: to settle these charges without admitting or denying the findings.
Speaker 12: Very interestingly, these go through December of twenty eighteen to
Speaker 12: the present, and this was fifty one to eighty two
Speaker 12: percent of IEP's outstanding securities as collateral pledged to secure
Speaker 12: margin loans worth billions.
Speaker 2: Many US find ways to lose money that don't involve
Speaker 2: getting crosswise of the law. Buying lottery tickets, for example,
Speaker 2: state lotteries took in over one hundred billion dollars last year,
Speaker 2: which is good for the States, but not necessarily for
Speaker 2: those buying the tickets. Over a third of that money
Speaker 2: staid with the States, which means the rest of US
Speaker 2: lost about thirty seven billion dollars on the deal. Betting
Speaker 2: on sporting events has yet to catch up with the
Speaker 2: state lotteries, but it's moving up fast, with the American
Speaker 2: Gaming Association saying about thirty seven billion dollars was wagered
Speaker 2: in the first quarter of this year alone, with over
Speaker 2: three billion of that going to those taking the bets
Speaker 2: for the leagues.
Speaker 13: This is a revenue stream at a key time for
Speaker 13: them because we're seeing that media rights there's a lot
Speaker 13: of tunnel, a lot of disruption, especially at the team level.
Speaker 13: So I think bringing in the gambling money to supplement
Speaker 13: that has been something that they've really leaned on recently.
Speaker 2: Sports has given us another way to separate us from
Speaker 2: our money. It's the purchase of name, image, and likeness
Speaker 2: of our favorite college football star. And as if betting
Speaker 2: on sports weren't enough, the football program at Oklahoma State
Speaker 2: University has found a way to make it easier for
Speaker 2: us to spend our money on those nils. They now
Speaker 2: put QR codes on their players' helmets, so you can
Speaker 2: use your smartphone when you're watching on TV and purchase
Speaker 2: the NIL for your favorite player without having to go
Speaker 2: find it. Of course, it's not only about losing money.
Speaker 2: There's always the enjoyment you get from just being in
Speaker 2: the game, even if most of the money ends up
Speaker 2: going to the house. I'm no gambler, but I did
Speaker 2: have one great evening in Las Vegas when I spent
Speaker 2: a couple of hours at the craps table and actually
Speaker 2: ended up a little bit ahead of the game. But
Speaker 2: then again, I had the smartest, funniest and best tutor there, ever,
Speaker 2: was Nora Ephron, who taught me how to calculate the
Speaker 2: odds of the dice coming up on any particular number,
Speaker 2: and then how to use the odds to place my
Speaker 2: pass versus don't pass, and come versus don't come bets,
Speaker 2: which actually worked at.
Speaker 3: Least when she was with me.
Speaker 2: That does it for this episode of Wall Street Week,
Speaker 2: I'm David Weston.
Speaker 3: This is Bloomberg. See you next week.