WEBVTT - Bloomberg Wall Street Week: Ketterer, Grantham, Peters 0:00:00.240 --> 0:00:05.000 This is Bloomberg Wall Street Week. Market shruggle, higher consumer prizes. 0:00:05.040 --> 0:00:07.400 The economy is in the process of rebounding. Will the 0:00:07.480 --> 0:00:10.479 utter reserve have its own digital currency? The financial stories 0:00:10.520 --> 0:00:12.879 that cheap hard work. Many people think the eels are 0:00:12.880 --> 0:00:15.080 just going to keep marching up. We have more spending 0:00:15.120 --> 0:00:17.200 coming out of Congress. One of the big questions I 0:00:17.200 --> 0:00:19.880 think on investor's minds inflation through the eyes of the 0:00:19.920 --> 0:00:23.880 most influential voices, Larry Summers, the former Treasury Secretary, Bryan 0:00:23.920 --> 0:00:27.240 wynhand back of America, Will Smart, CEO of Charlie Sharp. 0:00:27.360 --> 0:00:31.560 Bloomberg wool Street Week with David Weston from Bloomberg Radio. 0:00:31.920 --> 0:00:34.839 In a battle between a hot new electric vehicle company 0:00:34.960 --> 0:00:39.000 and hot new inflation numbers. I'm afraid inflation numbers win. 0:00:39.920 --> 0:00:43.400 This is Bloomberg Wall Street Week. I'm David Weston. We 0:00:43.440 --> 0:00:45.800 started the week pretty sure of where we were going. 0:00:45.880 --> 0:00:49.479 Earnings were up at least basically, equities were reaching up 0:00:49.479 --> 0:00:52.479 to new highs, bonds were tamed, and we had a 0:00:52.520 --> 0:00:56.040 new infrastructure package. All was right with the world. But 0:00:56.120 --> 0:01:00.000 then Wednesday hit and consumer inflation numbers came in high 0:01:00.000 --> 0:01:03.760 oiger than anyone really expected. An annualized increase of six 0:01:03.840 --> 0:01:08.160 point two that's the highest in nearly thirty years. Austin 0:01:08.160 --> 0:01:10.880 Gouldsby of the Chicago Boost School said it's not going 0:01:10.920 --> 0:01:15.720 away anytime soon. Look, it's a big number. And whether 0:01:15.800 --> 0:01:20.360 you're team permanent or team temporary, everybody agrees it's it's 0:01:20.360 --> 0:01:24.360 gonna be months of this before you see any relief. 0:01:25.120 --> 0:01:28.200 And San Francico Fed president Mary Daily, while saying it 0:01:28.240 --> 0:01:31.080 was too soon to change course, admitted that the inflation 0:01:31.160 --> 0:01:35.039 numbers really did get her attention. Inflation is high, higher, 0:01:35.080 --> 0:01:38.520 it's eye popping. This is a transitory period. That's what 0:01:38.560 --> 0:01:40.640 we believe. That's what I think when I look out 0:01:40.640 --> 0:01:43.480 at the data. But it's directly related to COVID, and 0:01:43.520 --> 0:01:45.880 a's quicker we get through COVID, the better off we're 0:01:45.880 --> 0:01:48.520 going to be as an economy. But the week wasn't 0:01:48.520 --> 0:01:51.720 over yet, as electric vehicle maker Ryvian went to market 0:01:51.920 --> 0:01:54.280 and blew past the price set for the I p O. 0:01:54.640 --> 0:01:57.000 The results of what the Rivian CEO said was a 0:01:57.040 --> 0:02:00.880 true team effort. She spent years is putting this together, 0:02:00.920 --> 0:02:03.880 and really what's so exciting is seeing such a diverse 0:02:03.920 --> 0:02:07.760 group of people with diverse backgrounds and interest really coming 0:02:07.800 --> 0:02:10.840 together to create these products. And and you know, standing 0:02:10.880 --> 0:02:12.919 there looking out at the teams as we're hang the bell, 0:02:13.639 --> 0:02:15.880 it was quite emotional, you know, seeing seeing so many 0:02:15.880 --> 0:02:18.919 passionate faces. It was it was really powerful. And three 0:02:18.960 --> 0:02:23.240 corporate giants GE Johnson and Johnson Antoshiba all decided to 0:02:23.240 --> 0:02:26.360 break themselves up, with g E CEO Larry Colpe saying 0:02:26.360 --> 0:02:30.920 it was all about focus. These businesses will be more focused, 0:02:31.200 --> 0:02:34.680 There'll be a higher, greater level of accountability, we should 0:02:34.680 --> 0:02:38.440 have sharper capital allocation, more strategic flexibility, and frankly, I 0:02:38.440 --> 0:02:39.919 think it's gonna be good for the team as well. 0:02:39.960 --> 0:02:44.080 I think we'll end up with investor basis focused on 0:02:44.120 --> 0:02:46.840 these pure plays, investors that are probably under invested in 0:02:46.840 --> 0:02:49.600 g E today. You put all that together, it's clear 0:02:49.680 --> 0:02:52.840 this is the best path for us to unlock and 0:02:52.919 --> 0:02:56.639 create value going forward. And when the dust settled from 0:02:56.760 --> 0:02:59.799 what is fairly called a wild week, it left equities 0:02:59.800 --> 0:03:02.000 down for the first time since early October, though not 0:03:02.160 --> 0:03:04.920 as much because of a Friday rally, with the SPI 0:03:05.360 --> 0:03:07.360 off about three tents of a percent in the NASAC 0:03:07.440 --> 0:03:10.000 down seven tenths, but really much of the action was 0:03:10.040 --> 0:03:12.320 over the bond side, with the ten year yield up 0:03:12.320 --> 0:03:15.840 to well over one and inflation concerns driving the ten 0:03:15.919 --> 0:03:18.600 year tips up to over two point seven percent. To 0:03:18.639 --> 0:03:20.760 take us through the week and what it taught us, 0:03:20.800 --> 0:03:22.840 we welcome now Greg Peters co c I O of 0:03:22.880 --> 0:03:27.600 PJAM Fixed Income and Sarah Kett CEO of Causeway Capital Management. 0:03:27.600 --> 0:03:30.600 So let's start on the equity side. Welcome Sarah. Give 0:03:30.639 --> 0:03:32.400 us a sense of the equities, because we started the 0:03:33.200 --> 0:03:36.360 week really at record levels and then the inflation overs hit, 0:03:36.560 --> 0:03:37.760 but then they came back up at the end of 0:03:37.800 --> 0:03:42.880 the week, Yes they did. The inflation genie seems to 0:03:42.920 --> 0:03:46.040 be out of the bottle and markets have to digest that. 0:03:46.920 --> 0:03:49.839 The technology stocks, many of them, seemed to have such 0:03:49.960 --> 0:03:53.720 significant market shares or competitive positioning, the market is giving 0:03:53.760 --> 0:03:57.840 them credit for being able to price this inflation pass 0:03:57.880 --> 0:04:02.280 it on to consumers. But there are many in both 0:04:02.320 --> 0:04:06.040 industries and sectors according to our team, where that won't 0:04:06.040 --> 0:04:08.840 necessarily be the case. And that's really the job of 0:04:08.960 --> 0:04:12.240 the fundamental research analysts is to determine whether or not 0:04:12.280 --> 0:04:16.760 a business, say it's consumer staples and food beverage, can 0:04:16.839 --> 0:04:21.200 they pass on their increased costs of raw materials into 0:04:21.240 --> 0:04:25.000 their final product, because if they can't, that means margin squeeze, 0:04:25.040 --> 0:04:28.480 and that means earnings will all other things being equal, 0:04:28.520 --> 0:04:31.320 will decline, which is not good for markets so quick 0:04:31.360 --> 0:04:34.440 when we see inflation numbers like this, we automatically think 0:04:34.480 --> 0:04:36.640 about what it does it bonds and perhaps most important, 0:04:36.680 --> 0:04:38.760 what it says to the FED and how they might react. 0:04:39.000 --> 0:04:40.840 What did you make of this week? I think that's 0:04:40.839 --> 0:04:43.839 the story, what it makes, what it tells you about 0:04:43.839 --> 0:04:46.880 the Fed and central bank action ultimately, And so there's 0:04:46.920 --> 0:04:51.480 been this this response in the bond market really before 0:04:51.520 --> 0:04:56.440 the CPI print that inflation is picking up, and more importantly, 0:04:56.760 --> 0:04:59.400 that the FED is going to be much more aggressive 0:04:59.440 --> 0:05:04.560 and central as globally much more aggressive than initially anticipated. 0:05:04.640 --> 0:05:07.200 So I think that is the story in the marketplace, 0:05:07.320 --> 0:05:11.599 the two year yield UH and then equally, I mean 0:05:11.920 --> 0:05:14.960 this is a volatile market in fixed income that has 0:05:15.000 --> 0:05:18.719 been largely isolated in fixed income. So what you're seeing 0:05:18.839 --> 0:05:23.920 is this disconnect and volatility in fixed income and equities. 0:05:23.960 --> 0:05:26.360 And yes, it does make some sense for sure as 0:05:26.440 --> 0:05:29.800 the as the earnings coming out are quite strong, margins 0:05:29.800 --> 0:05:34.200 all time high, the micro story is quite supportive, but 0:05:35.240 --> 0:05:38.680 at some point the volatility that we're seeing in fixed 0:05:38.720 --> 0:05:42.400 income markets have to start to infiltrate other markets and 0:05:42.520 --> 0:05:45.720 risk markets. Um, if it doesn't settle down. Look at 0:05:45.720 --> 0:05:47.200 the same time, how much is the FED sort of 0:05:47.200 --> 0:05:49.520 putting a blanket on that volatil you even given what 0:05:49.560 --> 0:05:52.280 we've seen, Because certainly they've made it pretty clear they're 0:05:52.320 --> 0:05:54.200 not in a rush to change course. You just heard 0:05:54.279 --> 0:05:55.880 very daily say well, we're not going to change course 0:05:55.960 --> 0:06:00.800 right away. Yeah, but they've changed their rhetoric quite substantially 0:06:00.880 --> 0:06:03.600 since the summer. And if you look at the bond market, 0:06:03.680 --> 0:06:08.160 yield into two year and even inflation, uh, it's been 0:06:08.200 --> 0:06:12.000 commensurate with the change in FED tone. So I don't know. 0:06:12.600 --> 0:06:16.640 I I'm really worrying about the FED here moving too 0:06:16.680 --> 0:06:20.000 fast too soon, particularly when you think about the construct 0:06:20.040 --> 0:06:23.560 of inflation that it's largely outside of the FED control. 0:06:23.760 --> 0:06:28.320 So the Fed raising rates isn't going to help offset 0:06:28.360 --> 0:06:32.039 the supply chain issues. It's not going to have those 0:06:32.160 --> 0:06:34.680 kind of facts like it normally does. Okay, thank you 0:06:34.720 --> 0:06:36.560 so very much for being with us. That's Greg Peters. 0:06:36.800 --> 0:06:39.719 He is close c IO of PIGAM. Sarah Cader Causeway 0:06:39.720 --> 0:06:41.520 Capital is gonna be sticking with us as we turn 0:06:41.560 --> 0:06:44.440 our attention to all those big corporate breakups this week. 0:06:44.800 --> 0:06:54.680 That's next on Wall Street Week on Bloomberg. This is 0:06:54.720 --> 0:06:59.080 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:06:59.360 --> 0:07:01.520 It was a week of breaking up, at least when 0:07:01.520 --> 0:07:04.160 it came to some very big corporations like Toshiba and 0:07:04.240 --> 0:07:06.800 Johnson and Johnson and General Electric and Gene Chairman and 0:07:06.880 --> 0:07:09.400 CEO Larry Kulp said in the end, it was a 0:07:09.440 --> 0:07:13.560 clear choice of focus over synergy. The GE team has 0:07:13.560 --> 0:07:15.840 heard from me for the last three years that I 0:07:15.880 --> 0:07:20.480 will bet on the benefits of focus every day, far 0:07:20.560 --> 0:07:24.240 more than the often illusory benefits that come from synergies. Now, 0:07:24.280 --> 0:07:27.360 we certainly enjoy those synergies today in certain places, but 0:07:27.480 --> 0:07:29.680 more and more we've been running the company on a 0:07:29.760 --> 0:07:33.000 decentralized basis, not as one GE, not as even the 0:07:33.000 --> 0:07:35.760 four reporting segments, but the thirty p m l's that 0:07:35.840 --> 0:07:39.840 deal with customers that compete in the markets every single day. 0:07:39.880 --> 0:07:42.480 So if there are synergies that we enjoy today, will 0:07:42.520 --> 0:07:46.040 work to continue those, of course, but the vast majority 0:07:46.040 --> 0:07:49.560 of the benefits here will come from focus. Sarah Keeder 0:07:49.680 --> 0:07:52.600 Causeway Capital Management is still with Sarah. I want to 0:07:52.600 --> 0:07:54.760 talk to you as an investor because you own g E. 0:07:55.120 --> 0:07:56.600 We talked to Larry Colp and he said, part of 0:07:56.640 --> 0:07:59.040 the benefits for investors so they can focus as well 0:07:59.240 --> 0:08:01.520 on which line today to be invested. As you look 0:08:01.560 --> 0:08:04.400 at this breaking up of g how do you analyze it? Well, 0:08:04.440 --> 0:08:06.440 I just want to set the stage that we may 0:08:06.440 --> 0:08:08.680 be one of the few who are analyzing it. He's 0:08:08.720 --> 0:08:13.160 absolutely hated by investors because of the damage they've done. 0:08:13.320 --> 0:08:16.760 If you think about it, David to today to go 0:08:16.800 --> 0:08:19.840 back and so the last five years, the annualized performance 0:08:19.840 --> 0:08:24.760 of the SMPI has been twenty percent per annum on average, 0:08:25.080 --> 0:08:30.800 the comparable number for Geez Mayet a disaster. So Larry 0:08:30.840 --> 0:08:34.160 Colp's arrival in October of eighteen, he had his work 0:08:34.200 --> 0:08:36.720 cut out for him, and he's very incentivized financially to 0:08:36.760 --> 0:08:40.880 get it done. But they're there're two great businesses. There 0:08:40.880 --> 0:08:43.880 were aviation and healthcare, and then power renewables and digital 0:08:43.880 --> 0:08:47.439 weren't quite as good, and the key was to set 0:08:47.440 --> 0:08:50.640 them free. There were some codependency because not only did 0:08:50.679 --> 0:08:53.880 power and renewables have some serious problems but then we 0:08:53.920 --> 0:08:58.240 had COVID. So then what happens to the aviation business. 0:08:58.280 --> 0:09:02.720 You know, this is aircraft engines, avionics systems. It give 0:09:02.800 --> 0:09:06.679 grinds to a halt, so free cash flow collapses and 0:09:06.760 --> 0:09:10.240 therefore the health care business had to support the other two. 0:09:10.600 --> 0:09:14.320 So what makes this announcement so interesting is that it 0:09:14.400 --> 0:09:17.520 may be signaling that is getting beyond its problems. It 0:09:17.559 --> 0:09:22.360 will actually coming back into blue skies where the long 0:09:22.480 --> 0:09:26.440 term care business that the company has that is supposed 0:09:26.480 --> 0:09:31.000 to pay people for nursing care and end of life assistance, 0:09:31.520 --> 0:09:35.280 that was it h G stopped writing those policies in 0:09:35.320 --> 0:09:37.200 two thousand and six, but it's been a huge financial 0:09:37.200 --> 0:09:40.199 burden for the company. Under reserving has been a chronic problem. 0:09:40.760 --> 0:09:44.000 So this breakup, as it may, as Larry Coulton noted, 0:09:44.040 --> 0:09:47.600 allow these three areas to shine on their own. It 0:09:47.640 --> 0:09:51.280 may be signaling, according to our industrial analysts, that g 0:09:51.480 --> 0:09:53.920 E is not worried any longer about long term care 0:09:54.200 --> 0:09:56.520 because and that means we shouldn't. Does investors be worried? 0:09:56.559 --> 0:09:58.800 And that is a very good thing. Yeah, it's given 0:09:58.800 --> 0:10:01.120 the history there. But let's take those three lines of 0:10:01.120 --> 0:10:02.880 business because they're not bringing it all up at once. 0:10:02.920 --> 0:10:04.839 I thought that that was important. I mean, the first 0:10:04.840 --> 0:10:07.000 they spin off healthcare, what you said, that's the strongest 0:10:07.000 --> 0:10:09.040 one anyway, that's ready to go on its own. They're 0:10:09.040 --> 0:10:11.280 going to take another year on power to sort of 0:10:11.280 --> 0:10:12.840 get that up and running. It may need a little 0:10:12.840 --> 0:10:14.720 more help. And then you have aviation at the end. 0:10:14.960 --> 0:10:18.280 Talk about those three lines of business in their futures. Well, 0:10:18.440 --> 0:10:21.200 the healthcare business is in very good shape and it 0:10:21.240 --> 0:10:24.880 intends to retain nineteen point nine percent of that business. 0:10:25.400 --> 0:10:28.079 Ultimately that may be sold, that will end up if 0:10:28.920 --> 0:10:32.319 if this process continues to its fruition in the aviation 0:10:32.360 --> 0:10:37.120 business at stake. But the that that's so here we 0:10:37.160 --> 0:10:40.960 are this is a bit of a waiting time and 0:10:41.000 --> 0:10:44.360 that means the stock may be volatile or it could 0:10:44.400 --> 0:10:48.800 be down. Who knows. Investors hate waiting, but it takes 0:10:48.960 --> 0:10:52.040 some time to do these tax free spinoffs. And also 0:10:52.160 --> 0:10:54.840 g is determined and this was part of the announcement 0:10:55.280 --> 0:10:59.440 to set these three areas off on their own at 0:11:00.400 --> 0:11:03.559 much lower levels of financial leverage. And that's really where 0:11:03.640 --> 0:11:06.080 the cash flow is so important. How much can the 0:11:06.120 --> 0:11:09.520 company generate to be to get invest great credit ratings 0:11:09.520 --> 0:11:11.640 for all three is going to be a real that's 0:11:11.679 --> 0:11:14.600 the serious effort ahead. So that's why they need time. 0:11:14.800 --> 0:11:20.520 There's three and then for power and renewables, so we 0:11:20.559 --> 0:11:23.880 are we await all that information. But but there's really 0:11:24.000 --> 0:11:27.800 positive signaling happening here. Otherwise, why would announce Why would 0:11:27.800 --> 0:11:30.000 they announce it now? They would just continue to work 0:11:30.040 --> 0:11:32.439 on it and not let us know. Larry kept emphasizing 0:11:32.640 --> 0:11:36.080 three publican trade investment grade companies. He's very proud of 0:11:36.080 --> 0:11:38.040 that that they will be all the investment grade from 0:11:38.080 --> 0:11:40.040 his point of view. At least talk about power, which 0:11:40.080 --> 0:11:42.400 has also struggled, had a lot of problems, some residual 0:11:42.440 --> 0:11:46.160 problems with some maintenance contracts and things. What about keeping 0:11:46.240 --> 0:11:49.280 traditional power together with renewables evens in a different way 0:11:49.559 --> 0:11:51.439 they let renewables go off on its own, maybe a 0:11:51.480 --> 0:11:53.320 bigger growth thing. Do you think that makes sense as 0:11:53.360 --> 0:11:55.160 an investor? Do you look at that and say, yeah, 0:11:55.200 --> 0:11:58.120 that's sensible. It is given the mix that g has. 0:11:59.160 --> 0:12:02.080 Renewables ault only, as we all assume, will be the 0:12:02.120 --> 0:12:05.200 business that sustains in the future, But it was never 0:12:05.240 --> 0:12:08.280 really are preferred of their businesses, and we're glad to 0:12:08.320 --> 0:12:13.400 see it set aside and spun off again. The aviation 0:12:13.440 --> 0:12:16.440 and the healthcare business of far superior to free cash 0:12:16.480 --> 0:12:22.240 flow generation. Aviation almost and generate almost none in the downturn, 0:12:22.320 --> 0:12:25.040 and now is coming back. We think there's a normalized 0:12:26.120 --> 0:12:29.200 four billion dollars of free cash just that business. And 0:12:29.240 --> 0:12:32.120 if you wrap the whole all of it up together 0:12:32.160 --> 0:12:35.319 and you think about it today, there might be normalized 0:12:35.320 --> 0:12:37.800 seven to eight billion dollars of free cash flow coming 0:12:37.840 --> 0:12:42.640 from the sum of the three parts. That's something that no, 0:12:42.800 --> 0:12:46.280 I don't think he's delivered for a very very long time. 0:12:46.760 --> 0:12:48.600 And so I come back to you as an investor 0:12:48.640 --> 0:12:51.120 because I say, Larry kept emphasizing that allows an investor 0:12:51.160 --> 0:12:53.520 to side which, if any of these lines they want 0:12:53.520 --> 0:12:55.360 to play in. Is it more valuable to be able 0:12:55.400 --> 0:12:59.240 to pick and choose among health and power and aviation 0:12:59.360 --> 0:13:01.040 than to have all umping together have to buy the 0:13:01.040 --> 0:13:05.960 whole package. Very definitely, We as investors prefer that, And 0:13:06.000 --> 0:13:09.480 then we think about them. You want the senior managements 0:13:09.480 --> 0:13:13.000 of each, and they're not. Larry's, according to our industrial allowance, 0:13:13.080 --> 0:13:16.120 is the best industrial CEO in the country. So there's 0:13:16.120 --> 0:13:19.600 a lot right there. Him running aviation without a distraction 0:13:19.640 --> 0:13:22.160 is fantastic. And then there are two very skilled individuals 0:13:22.200 --> 0:13:25.400 will be the CEOs of the power and of healthcare business. 0:13:25.640 --> 0:13:28.280 But think about it, they and there and their team 0:13:28.320 --> 0:13:32.679 can be compensated on their own efforts without the distractions 0:13:33.040 --> 0:13:35.160 and or delution of any other parts of the business. 0:13:35.160 --> 0:13:37.760 They can really focus. They'll have each have their own 0:13:37.800 --> 0:13:41.840 individual boards of directors who can focus on that business. So, yes, 0:13:41.960 --> 0:13:46.160 this is given. There weren't synergies. This makes perfect sense 0:13:46.720 --> 0:13:51.360 and we expect the stock price to ultimately reflect this 0:13:51.640 --> 0:13:55.760 and be a very significant return for our clients very quickly. 0:13:55.760 --> 0:13:58.480 With you and Sarah's this the end of conglomerates, You know, 0:13:58.559 --> 0:14:02.520 I hard to say that. I think they will continue. 0:14:02.520 --> 0:14:05.439 There are plenty of them in Japan, for example, and 0:14:06.040 --> 0:14:09.079 unless they're desperate like Toshiba, they don't. They don't break up. 0:14:09.720 --> 0:14:14.080 But but we're not patient as investors, and this is 0:14:14.080 --> 0:14:18.040 true globally, and when we see a company who's who, 0:14:18.160 --> 0:14:21.080 for example, if it's multiple being suppressed, we want them 0:14:21.080 --> 0:14:22.680 to fix it. Yeah. And by the way, so she 0:14:22.840 --> 0:14:25.080 was a little nudge, as I recall from some activists. 0:14:26.200 --> 0:14:28.120 Thank you so much there. It's always great having you 0:14:28.160 --> 0:14:31.800 with us. That's Sarah Header, she's CEO of Causeway Capital 0:14:31.920 --> 0:14:36.400 Management coming up. It was nice while a lasted, but 0:14:36.480 --> 0:14:39.000 it is the longest bull market in history about to 0:14:39.000 --> 0:14:42.000 come to an ugly end. We talked with famed investor 0:14:42.080 --> 0:14:46.080 Jeremy Grantham of g m O. When the decline comes, 0:14:46.680 --> 0:14:51.640 it will be yeah, perhaps bigger invested than anything previously 0:14:51.800 --> 0:14:56.560 in US history. This is Wall Street Week on Bloomberg. 0:14:58.480 --> 0:15:02.440 This is Bloomberg All Street Week with David Weston from 0:15:02.560 --> 0:15:08.720 Bloomberg Radio. Asset bubbles they're the one thing every investor 0:15:08.840 --> 0:15:12.400 wants to avoid, from the tulip frenzy of seventeenth century 0:15:12.440 --> 0:15:16.720 Netherlands to Wall Street in to the tech bubble of 0:15:16.760 --> 0:15:19.760 two thousand. The problem is knowing when you're in a 0:15:19.840 --> 0:15:23.040 bubble and when it will end. FED Chair J. Pale 0:15:23.160 --> 0:15:26.800 has recognized since last spring that asset values are stretched. 0:15:27.040 --> 0:15:30.520 You look at asset valuations, um you can say that 0:15:31.080 --> 0:15:34.880 by some measures, some asset valuations are elevated compared to history. 0:15:35.120 --> 0:15:38.040 I think that's clear, while others like Cathy would of 0:15:38.240 --> 0:15:41.400 ARC say we're just getting started that. In fact, the 0:15:41.440 --> 0:15:44.440 market has been broadening and getting healthier. There has been 0:15:44.440 --> 0:15:48.760 a rotation into value as a style as fears of 0:15:48.800 --> 0:15:53.640 inflation and interest rates increasing picked up, and therefore there's 0:15:53.680 --> 0:15:57.120 been a broadening out of this bull market. All right, 0:15:57.240 --> 0:15:59.960 we are in a very strong bull market. And then 0:16:00.080 --> 0:16:02.280 of Tesla, which some people say is a bubble in 0:16:02.440 --> 0:16:05.480 and of itself, skyrocketing to a market cap of over 0:16:05.560 --> 0:16:08.560 a trillion dollars or roughly twenty times what it was 0:16:08.720 --> 0:16:11.720 just four years ago. Well, others see Tesla and not 0:16:11.800 --> 0:16:14.520 as a bubble, but as the exception that proves the rule, 0:16:14.960 --> 0:16:18.200 changing the entire face of the automobile industry. That's the 0:16:18.280 --> 0:16:21.280 view of Star quarterback Tom Brady as he talked about 0:16:21.320 --> 0:16:24.280 Hurt's decision to include Tesla's in its fleet. Had a 0:16:24.320 --> 0:16:28.520 Tesla for about four years, and again, I think it's uh, 0:16:29.280 --> 0:16:31.160 it's kind of the direction that the world is heading. 0:16:31.160 --> 0:16:33.040 And I think for me, it was about being really 0:16:33.040 --> 0:16:36.160 conscious about the impact that we all have on on 0:16:36.200 --> 0:16:42.520 our planet, whether it is Tesla or tech or markets overall. 0:16:42.680 --> 0:16:45.120 No one has been more outspoken about the possibility of 0:16:45.120 --> 0:16:47.920 bubbles than Jeremy Grantham. He is co founder of GMO 0:16:48.280 --> 0:16:51.160 and really a student through the history of markets that 0:16:51.160 --> 0:16:53.520 are overheated, and we welcome him now to Wall Street Week. 0:16:53.600 --> 0:16:55.360 Mr Grantham, thank you so much for being with us. 0:16:55.880 --> 0:16:57.960 Let's talk about bubbles. But let's come in if we 0:16:58.000 --> 0:17:01.040 can through Tesla, because you've talked self Tesla in the past. 0:17:01.320 --> 0:17:02.640 I mean the last time I checked, I think the 0:17:02.680 --> 0:17:05.760 market cap is something like forty times what it was 0:17:05.840 --> 0:17:10.080 four years ago. Is Tesla bubble? Yes, that's pretty easy. 0:17:10.680 --> 0:17:13.760 And having said that, I'm the proud owner of a 0:17:13.800 --> 0:17:18.560 Model three and I do think they're magnificent vehicles, and 0:17:18.640 --> 0:17:21.919 I think Tesla has done extraordinarily well. But if you 0:17:21.960 --> 0:17:25.800 go back into the life cycle of the Fangs, Tesla 0:17:26.240 --> 0:17:30.240 is many multiples of the price to sales ratio that 0:17:30.400 --> 0:17:33.200 they were at this stage in their lives, and they 0:17:33.240 --> 0:17:39.080 have been brilliantly successful. So Tesla is a assuming it 0:17:39.119 --> 0:17:42.719 will be brilliantly successful, and be assuming it will be, 0:17:42.840 --> 0:17:48.760 in addition to that, multiples as successful as the other Fangs, 0:17:49.240 --> 0:17:51.399 and they are some of the great companies in the 0:17:51.480 --> 0:17:54.159 history of capitalism. Yeah, I'm always reluctant to say it 0:17:54.200 --> 0:17:56.360 might be different this time, but let me ask that question, 0:17:56.600 --> 0:17:58.080 could it be different this time when it comes to 0:17:58.119 --> 0:18:00.879 Tesla because it is at their us here's of a 0:18:00.880 --> 0:18:05.080 fundable technological transformation to electric vehicles and a real fight 0:18:05.160 --> 0:18:08.560 for the climate globally an important part of that. So 0:18:08.720 --> 0:18:11.359 is it possible that is different. There's a major transformation 0:18:11.400 --> 0:18:13.399 going on here that's bigger than what we've seen before. 0:18:14.040 --> 0:18:17.080 I think if you were defending the fangs, you would 0:18:17.119 --> 0:18:20.520 say in each case that they represented, like Amazon, a 0:18:21.240 --> 0:18:25.479 crucial fork in the road on retailing, if you were 0:18:25.480 --> 0:18:30.720 looking at Facebook and Netflix, all all of them represent 0:18:30.840 --> 0:18:37.800 these breakout, major changes, disruptive changes. And I'm very grateful 0:18:37.920 --> 0:18:42.320 for Tesla as a dedicated green that they have pioneered 0:18:43.160 --> 0:18:47.879 e vs. But now in phase two, every every great 0:18:48.080 --> 0:18:52.600 automobile company, all the Mercedes and and the BMW's and 0:18:52.640 --> 0:18:55.720 so on, and and the v ws are all gearing 0:18:55.840 --> 0:18:59.239 up to go electric. And we that that owes a 0:18:59.240 --> 0:19:02.560 lot to Tesla, But now in phase two they're going 0:19:02.600 --> 0:19:05.960 to have to have some serious competition and and to 0:19:06.240 --> 0:19:12.080 live up to the expectations of the price will be impossible. So, 0:19:12.119 --> 0:19:14.680 speaking more broadly, you've said that we're in something. I 0:19:14.720 --> 0:19:17.359 think you're called it an epic bubble. Right now, I 0:19:17.359 --> 0:19:19.320 think you've been very carefusy. I'm not going to predict 0:19:19.480 --> 0:19:22.040 when it ends. I'm just gonna say that it does end. 0:19:22.080 --> 0:19:23.879 What's going to bring it to an end. The thing 0:19:23.920 --> 0:19:28.080 about the Great Bubble Japan, no, no one knows after 0:19:28.160 --> 0:19:33.480 all these years, exactly why the bubble peaked. You can 0:19:33.520 --> 0:19:36.439 say with hindsight it peaked at the point, of course 0:19:36.600 --> 0:19:42.240 of maximum euphoria, so there was no hint of darkness 0:19:42.320 --> 0:19:46.879 at the end of the tunnel. Everything looked absolutely splendid 0:19:47.000 --> 0:19:49.879 as the market peaked, and of course, as long as 0:19:49.880 --> 0:19:54.600 it looks absolutely splendid, everybody is happy. The thing about 0:19:54.680 --> 0:20:00.159 the great bubbles is how intensely to people buying to 0:20:00.240 --> 0:20:03.880 the idea that it can never break, that prices will 0:20:03.920 --> 0:20:07.960 never decline. The housing bubble of two thousand and five 0:20:08.119 --> 0:20:11.439 two thousand and six in America was a brilliant bubble. 0:20:11.480 --> 0:20:14.359 In that description, you had people going out and buying 0:20:14.440 --> 0:20:18.320 a second house to rent because house prices never decline. Indeed, 0:20:18.440 --> 0:20:21.680 Ben Banankee said, US house prices have never declined. Of course, 0:20:21.760 --> 0:20:24.399 then they promptly did. But that is power for the course, 0:20:24.840 --> 0:20:28.280 for the Federal Reserve. Thank you so much. As Jeremy Grantham, 0:20:28.280 --> 0:20:33.119 he is co founder of GMO. Coming up, we wrap 0:20:33.160 --> 0:20:36.040 up the week as always with our special contributor Larry 0:20:36.119 --> 0:20:41.040 Summers of Harvard. This is Wall Street Week on Bloomberg. 0:20:42.480 --> 0:20:46.440 This is Bloomberg Wall Street Week with David Weston from 0:20:46.560 --> 0:20:49.439 Bloomberg Radio. This is Wall Street Week. I'm David Weston 0:20:49.440 --> 0:20:51.440 and we're joined once again by our very special contributor 0:20:51.520 --> 0:20:54.480 Larry Summers of Harvard. So, Larry, you had quite a week, 0:20:54.520 --> 0:20:56.159 if I can put it that way, because you've been 0:20:56.160 --> 0:20:59.440 warning on this program and otherwise again and again week 0:20:59.480 --> 0:21:01.600 after week of on inflation, and boy, this week we 0:21:01.720 --> 0:21:05.000 got at six point two on the headline number on CPI. 0:21:05.080 --> 0:21:07.440 Shocking and awful lot of people. I guess I start 0:21:07.480 --> 0:21:09.359 out with why did you get it right? And so 0:21:09.400 --> 0:21:11.960 many economists, including the Federal Reserve and for that man 0:21:12.040 --> 0:21:14.439 of the White House, why did they get it wrong? David? 0:21:14.520 --> 0:21:17.760 You know I did. It seemed to me apply a 0:21:17.800 --> 0:21:22.560 fairly basic economic model to the magnitude of the demand stimulus, 0:21:22.600 --> 0:21:25.879 and it seemed to me had predicted that we get 0:21:26.440 --> 0:21:31.040 certainly a significant rise in inflation. And then there were 0:21:31.040 --> 0:21:34.360 some other things that came along on the supply side 0:21:34.800 --> 0:21:38.640 that I didn't foresee, that others didn't foresee that made 0:21:38.640 --> 0:21:43.400 it even worse. Uh than I had expected. I think 0:21:43.400 --> 0:21:47.760 there are a couple of lessons from this episode. One 0:21:47.920 --> 0:21:52.919 is that it's always important to avoid excessive certainty. The 0:21:53.040 --> 0:21:56.639 policymakers and economics who go work go wrong the most 0:21:57.160 --> 0:22:01.440 are the ones who are most confident of a single model. 0:22:02.160 --> 0:22:04.800 You've always got to recognize that there are a wide 0:22:04.920 --> 0:22:08.280 range of possibilities. You know, on your show, I always 0:22:08.400 --> 0:22:12.000 said that I thought this was the risk and the 0:22:12.040 --> 0:22:14.320 most likely thing, but there was a one in three 0:22:14.440 --> 0:22:19.240 chance that this would all work out terrifically and that 0:22:19.359 --> 0:22:25.240 I'd be entirely wrong. I think more recognition of all 0:22:25.320 --> 0:22:29.560 the range of possibilities is a good discipline for policy makers. 0:22:30.160 --> 0:22:34.000 I also think and and economists. I also think that 0:22:34.240 --> 0:22:38.200 we have a problem, and it's a pretty broad problem 0:22:38.359 --> 0:22:43.679 with what I call motivated belief. People really wanted to 0:22:43.800 --> 0:22:50.960 engage for all sorts of reasons humanitarian, uh political, related 0:22:51.040 --> 0:22:54.880 to momentum at the beginning of an administration in a 0:22:55.000 --> 0:22:59.840 very very large stimulus program, and so they convinced them 0:23:00.040 --> 0:23:06.720 else that it wouldn't be inflationary because they really wanted 0:23:06.720 --> 0:23:11.720