Speaker 1: This is Bloomberg Wall Street Week. What's the state of
Speaker 1: corporate governance? The deficit is a real issue. The US
Speaker 1: economy continues to send mixed signals to the financial stories
Speaker 1: that cheap our world fed action to con concerns over
Speaker 1: dollar liquidity and encouraging China data. The five hundred wealthiest
Speaker 1: people in the world. Through the eyes of the most
Speaker 1: influential voices Larry Summers, the former Treasury Secretary, star Ward CEO,
Speaker 1: Kevin Johnson sec Chairman j Clayton. Bloomberg wool Street Week
Speaker 1: with David Weston from Bloomberg Radio, Up, Up, and away.
Speaker 1: As the economy starts to come back, bringing jobs with it,
Speaker 1: and the U s it's new records in COVID vaccines.
Speaker 1: What's not to like? This is Bloomberg Wall Street Week.
Speaker 1: I'm David Weston. So an investment world where so much
Speaker 1: seems to be going so right. What do you do
Speaker 1: if you're looking for some distress, some distress somewhere. That's
Speaker 1: the question we put to a claim distress investor and author,
Speaker 1: Howard Marks of oak Tree Capital Management. Well, that's a
Speaker 1: great question, uh begs an easy answer. Uh. One answer
Speaker 1: is that we're active providing solutions to companies that want
Speaker 1: to recapitalize their balance sheet, change their debt structure in
Speaker 1: some way, or just add additional liquidity. Not distress situations,
Speaker 1: but UH, there are cases where there's an appetite for
Speaker 1: credit and uh and the market doesn't make it available. Uh.
Speaker 1: We are active around the globe, and there is more
Speaker 1: to do in Asia and in Europe than there is
Speaker 1: in the United States. UM, and UH you know there.
Speaker 1: I think we distinguish ourselves as investors UH by what
Speaker 1: we do when our strategy is not in great favor.
Speaker 1: Every strategy goes in and out of favor, and this
Speaker 1: is the time to uh try to be resourceful and
Speaker 1: yet maintain our standards. It's very challenging, no, no doubt
Speaker 1: about Howard. Look back for a moment you had your
Speaker 1: year end. No, that sort of went through it and
Speaker 1: as I say, it was a remarkable downturn and then
Speaker 1: snap back up right away to make money. You had
Speaker 1: to move really fast. About a year ago, right now,
Speaker 1: I know that you had raised I think a record
Speaker 1: amount of capital Ktree Capital Management at the time. Could
Speaker 1: you get the money out the door put it to
Speaker 1: work fast enough? The fund we raised was actually raised
Speaker 1: on July one, so the greatest opportunities were passed. We
Speaker 1: used the opportunities that arose in UH, primarily in March,
Speaker 1: somewhat carried over into April and May. We used to
Speaker 1: complete the investment of our prior fund. So we had
Speaker 1: a fund that was about invested UH at the beginning
Speaker 1: of and we got it fully invested. UH. That was
Speaker 1: that was the best of the buying. The market has rebounded,
Speaker 1: The economy is in the process I think of rebounding
Speaker 1: with the markable speed. At the same time, it's not
Speaker 1: even it's uneven. So let's talk about some of those disparities,
Speaker 1: particularly things like travel and leisure. Are there still some
Speaker 1: opportunities there APPS, because that seems to be lagging behind
Speaker 1: a lot of the rest of the economy. Yes. Well,
Speaker 1: you know the easy calls, the things that are obviously
Speaker 1: going to rebound. UH. They're not fully back to where
Speaker 1: they were in times of prosperity in terms of their UH,
Speaker 1: in terms of the investment opportunities subsiding, but they are
Speaker 1: if it's clear they're coming back, they're treated as certainly
Speaker 1: coming back. UH. And to to get to higher returns
Speaker 1: these days, you have to be willing to extend credit
Speaker 1: to somebody who's not clearly coming back. Are there any
Speaker 1: sectors you're still avoiding at this point? No, we are
Speaker 1: open to anything. I mean, our our our style usually
Speaker 1: constrains us, for example, to not do technology. Uh, But
Speaker 1: other than that, we're wide open. Howard, it strikes me
Speaker 1: that one of the things that's different from anything I
Speaker 1: think I've ever seen, maybe any of us ever seen,
Speaker 1: is the degree to which the government, both on fiscal
Speaker 1: and monetary policy, is intervening in the marketplace. Is that
Speaker 1: sort of a dampener on your business in the sense that,
Speaker 1: for example, when it comes to distress debt, you've got
Speaker 1: a lot of zombie companies I read. I think it's
Speaker 1: like the public and traded companies in the United States
Speaker 1: right now. Our zombie companies do not generate enough cash
Speaker 1: to pay off their dad. Does that really make it
Speaker 1: more difficult for some of like oak Tree? No? That well,
Speaker 1: that's no, that's the that's ensured. That's the kind of
Speaker 1: situation that prevents opportunities to us. Uh. If companies have
Speaker 1: no problems, no exigencies, Uh, then then the distress investor
Speaker 1: doesn't have any problems and any act anything to do.
Speaker 1: So we we we take companies which are in extremists,
Speaker 1: are producing bad news where the future doesn't look so great.
Speaker 1: And if we can buy those securities at the right
Speaker 1: price uh, which means a price that overestimates the problems.
Speaker 1: That's how you make money as an investor. So we
Speaker 1: don't shy away from difficulties. But isn't there a price
Speaker 1: support under those companies if I can put it that way,
Speaker 1: Because essentially money is free, they can borrow more money
Speaker 1: even though they're losing money. They're not generally enough cash
Speaker 1: again to pay service their debt. Doesn't that actually make
Speaker 1: it more difficult to get the right price for you?
Speaker 1: Yes it does, Yes it does. Uh. I mean the
Speaker 1: right price for us is to be able to buy
Speaker 1: things for less than their worth. That's our goal. We
Speaker 1: need the cooperation from somebody who's willing to sell things
Speaker 1: for less than their worth. Uh. And usually you get
Speaker 1: that when when the asset holders feel urgency to sell.
Speaker 1: What about currency? Where are you on the US dollar?
Speaker 1: How much is that factor into your decisions? Because there
Speaker 1: are a lot of taking We don't take an opinion
Speaker 1: on currency. One of the six tenants of Oak Tree's
Speaker 1: investment philosophy is that our decisions are not guided by
Speaker 1: macro forecasts. So you don't worry about long term weakness
Speaker 1: of the dollar. Well, I worry about it, uh for
Speaker 1: other reasons, not in saying, well will I invest in
Speaker 1: this thing which is in pounds or rupees or a
Speaker 1: minby or patios or something like that, and not tactically
Speaker 1: like that. But you know, I mean it's a concern.
Speaker 1: Uh what what the you the way the US is
Speaker 1: behaving the visa be the dollar. Uh, but on the
Speaker 1: other hand, not clear what one does about it. That
Speaker 1: was Howard Marks, co founder and co chairman of oak
Speaker 1: Tree Capital Management. Coming up, we can beat our Wall
Speaker 1: Street Week round table of a Sani Bechelists from Rock
Speaker 1: Creek and Mona Mahajan of Alliance to find out where
Speaker 1: the investment opportunities are in this land of plenty. That's
Speaker 1: next down Wall Street Week on Bloomberg. This is Bloomberg
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. Everything
Speaker 1: is coming up roses for investors, it appears, at least
Speaker 1: this week. The question is where are the opportunities and
Speaker 1: for that matter, where are the threats? In all of
Speaker 1: this and to answer that question, we're conveting our very
Speaker 1: special Wall Street Week round table right now of Asani
Speaker 1: USh Lost. She is the founder and CEO of Rock
Speaker 1: Creek and Mona Mahudgen. She is the U S investment
Speaker 1: strategist for Alliance. Thank you both for being here, Welcome back.
Speaker 1: Gonna let me start with you. I talk about opportunity
Speaker 1: and threats. I used to do a swat analysis, you know, strengths, weaknesses, opportunities,
Speaker 1: threats and business plans. Take the opportunity and threats for
Speaker 1: a U S investor right now in this market, given
Speaker 1: the fact that everything looks pretty good. Yeah, absolutely, Look,
Speaker 1: it's been a phenomenal market really in many ways across
Speaker 1: asset classes. In our view, that's been driven by two
Speaker 1: key themes this year. The first theme is clearly this
Speaker 1: rotation we're seeing, at least in the equity space um
Speaker 1: from growth into the more value oriented sectors at least
Speaker 1: on a year to date basis, and really since November
Speaker 1: of last year. You know, keep in mind, last November
Speaker 1: we saw presidential elections, we saw the approval of our
Speaker 1: first vaccines, and when you look at sectors like energy, financials,
Speaker 1: industrials up nearly set plus since that time. The second theme,
Speaker 1: of course, is this rise in rates. The ten has
Speaker 1: gone from point nine one now also supportive of some
Speaker 1: of those value sectors and putting a little bit pressure
Speaker 1: on the growth sectors. UM. For us, the opportunity really
Speaker 1: is we do see a continuation of the reopening trade.
Speaker 1: We think there's at least one last leg to go
Speaker 1: um and that really you know, the highest conviction areas
Speaker 1: that we like there do include those that are leveraged
Speaker 1: to higher rates. We think, you know, yields could continue
Speaker 1: to grind higher and maybe a little bit choppy now,
Speaker 1: but we see a two handle on the tenure at
Speaker 1: some point. Uh. In that environment, we think financials continue
Speaker 1: to do well. Certainly yield curve plays continue to do well,
Speaker 1: such as steepeners um the reopening, the true reopening of
Speaker 1: the US economy. We think those the areas that do
Speaker 1: well in that environment are those that are levered to
Speaker 1: better earnings growth like leisure travel, you know, think your
Speaker 1: true reopening sectors and the final bucket we put in
Speaker 1: that the opportunities is really those that are levered to
Speaker 1: the new policy agenda. We're seeing so parts of the
Speaker 1: infrastructure market parts of five G and cybersecurity that are
Speaker 1: being lumped into infrastructure now. Now just quickly on the threats. UM,
Speaker 1: As we are heading to the second half of this year,
Speaker 1: we certainly are seeing some headwinds emerge. First and foremost,
Speaker 1: we will at some point hit peak reopening growth here
Speaker 1: in the US, probably in two Q or three Q
Speaker 1: of this year. UM, we will have you know that
Speaker 1: the highest growth rates we've seen probably in over a decade. UM. Secondly,
Speaker 1: we are seeing, as we noted earlier, yields continue to
Speaker 1: grind higher, driven by of course reopening, but also potentially inflation.
Speaker 1: And you know, thirdly, I think we are looking at
Speaker 1: a fed that at some point David will have to
Speaker 1: come off of this crisis level accommodation. You know, they
Speaker 1: said in the last press conference it's when they see
Speaker 1: it in the data, not in the forecast. Well, that
Speaker 1: data is certainly going to come to fruition in the
Speaker 1: next couple of quarters. So keep in mind we've we've
Speaker 1: had a great first half thus far. We might see
Speaker 1: another leg higher in this value rotation, but at some
Speaker 1: point we will consolidate those games. UM. Maybe it's seasonal,
Speaker 1: maybe it's selling May and go away. Maybe not May
Speaker 1: this year, but a little bit further out. But just
Speaker 1: keep in mind those the tail headwinds in the second
Speaker 1: half of this year may start to emerge. Sorry, Mona
Speaker 1: really focused right into your backyard, at least part of
Speaker 1: your backyard when she talked about investments leverage to policy
Speaker 1: because you for a long time I talked about climate
Speaker 1: and green investing asana. You've been a champion of that.
Speaker 1: We certainly heard about the infrastructure plan two point two
Speaker 1: five trillion, a lot of it directed towards climate issues.
Speaker 1: That's an opportunity. At the same time, you need to
Speaker 1: be a bit of a stock picker if you can
Speaker 1: say that within that realm, not all climate projects are
Speaker 1: created equally. Assume you're absolutely right, Davy, then I very
Speaker 1: much agree with everything Mona said. I think added to
Speaker 1: what she said on the infrastructure side that you just mentioned.
Speaker 1: Whether it ends up being two point to five or
Speaker 1: one point nine or one point six or you know,
Speaker 1: somewhere in between, those numbers are quite huge, and even
Speaker 1: if they get spent some of them more quickly, some
Speaker 1: of them over time, they're going to have a more
Speaker 1: growth oriented kind of impact on the overall, Econo ME
Speaker 1: and what we're seeing as we are sitting here is
Speaker 1: unbelievable amount of investments that are going into that intersection
Speaker 1: of innovation, with e V innovation, with take with medicine innovation,
Speaker 1: with some of the other trends that we've talked about,
Speaker 1: but in particular climate related investments. So I think all
Speaker 1: of them will be also impacting markets in a very
Speaker 1: positive way. Sort of looking longer term, I agree with
Speaker 1: Mono Tho that we will have some short term corrections
Speaker 1: because you know, interest rates are historically low, even if
Speaker 1: we had the kind of bond markets particether the long
Speaker 1: end that we've had this year, we have been historically
Speaker 1: at a very very low level of interest rates, and
Speaker 1: people have got very used to that. Those of us
Speaker 1: who've been around a few cycles know that it will
Speaker 1: not last like this, and there will be some sort
Speaker 1: of impact as inflation picks up even for a short
Speaker 1: time UH and goes back to UM to lower levels
Speaker 1: over longer term. On the interesstrar to the only last
Speaker 1: point I want to make is that UM the need
Speaker 1: for it is in the US, but also the need
Speaker 1: for it is global. There is huge need if we're
Speaker 1: going to meet our climate goals to make sure that
Speaker 1: this infrastructure investments that we're talking about the US are
Speaker 1: also carried through globly. Mono. One of the things that
Speaker 1: we're reading about now is perhaps some risk coming from
Speaker 1: the divergence we're seeing. Uh, the United States is really
Speaker 1: going ahead full steam with vaccinations. China, if if anything,
Speaker 1: doing better than we are on the only with the
Speaker 1: with the COVID nigeene. Europe not so much, and goodness knows,
Speaker 1: parts of the lower and middle income countries are lagging
Speaker 1: behind MONA. Is that simply opportunity for US investors or
Speaker 1: is there also some risk if the U s GE's
Speaker 1: too far ahead of the rest of the world. Yeah. Absolutely.
Speaker 1: You know, one of the themes that we're we're seeing
Speaker 1: emerge again this year is this return to US what
Speaker 1: we're calling exceptionalism. Uh. Certainly we have been ahead of Europe,
Speaker 1: as you noted, in terms of the vaccine rollout and
Speaker 1: really setting up nicely for a strong set of summer
Speaker 1: months ahead of US. UM we're seeing this play out
Speaker 1: in the markets as well. The US dollar many expected
Speaker 1: to come into the year continuing to be weak. In fact,
Speaker 1: we've seen stabilization and even an upward trend. The dollar
Speaker 1: index is now up about three percent year to date. UM. Similarly,
Speaker 1: in equity industries, you know, the SMP is now back
Speaker 1: at the top of the pack. UM. Clearly there could
Speaker 1: be a catch up trade, and it's one thing we're
Speaker 1: thinking about now, especially as the US markets have run.
Speaker 1: There could be a catch up trade from Europe to
Speaker 1: be to be had here. You know, if they are
Speaker 1: lagging just a few months behind us in this vaccine rollout, um,
Speaker 1: we could see a real reopening of their economies and
Speaker 1: maybe another quarter or two. Keep in mind, the European
Speaker 1: industries are more levered to these value cyclical parts of
Speaker 1: the market. Uh, they have a lot of bank exposure,
Speaker 1: energy exposure, etcetera, industrials exposure, and so it is something
Speaker 1: we're cognizant of and really thinking about. You know, China
Speaker 1: and North Asia, as you noted, or ahead of us.
Speaker 1: So perhaps their peak growth has already happened in the
Speaker 1: last couple of quarters, and we're certainly seeing that reflected
Speaker 1: in the marketplace as well as their industries have started
Speaker 1: to roll over. So you know, over the next quarter
Speaker 1: or two we are certainly seeing this this flight to
Speaker 1: US assets both in the equity and bond market UM,
Speaker 1: and that really has, uh, you know, been driven by
Speaker 1: the fundamental story behind how the US is outperformed UM
Speaker 1: from a vaccine and COVID perspective, but just being being
Speaker 1: mindful that Europe could play catch up in the months ahead. Okay,
Speaker 1: thank you so very much for our special Wall Street
Speaker 1: Week round table of Sania Bachelists of Rock Creek, and
Speaker 1: Monamahydgen of Alliance. Coming up. You may think you know
Speaker 1: what cryptocurrency is all about, but Marty chap Is, a
Speaker 1: Six Street Partners says it's not necessarily what you think
Speaker 1: it is. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. Wall Street. Central banks and retail investors have
Speaker 1: one thing in common. They're growing interest in cryptocurrencies. According
Speaker 1: to Coin Shares, inflows into crypto funds and products hit
Speaker 1: a record four point five billion dollars in the first
Speaker 1: quarter of this year. Here's Mike Novograts of Galaxy Investment Partners.
Speaker 1: I think about there's a hundred hundred forty trillion dollars
Speaker 1: of US wealth UM four hundred trillion dollars in global wells.
Speaker 1: So we're now up to a one a half half
Speaker 1: a percent of global wealth is in crypto, and that's growing.
Speaker 1: I think it'll be a percent by the end of
Speaker 1: the year. Bitcoin gets the most attention among its crypto peers,
Speaker 1: but critics of digital currencies raise concerns about their structure
Speaker 1: and their volatility. I don't completely buy the whole thing.
Speaker 1: You're essentially saying that we're going to create a store
Speaker 1: of value and a medium of exchange around something that
Speaker 1: only exists inside of a computer somewhere. It's not a
Speaker 1: physical asset that Steve Ratner of will It Advisors, and
Speaker 1: here's n y U Stern School professor Neuriel Rubini Beatson
Speaker 1: is not having any income, doesn't even use that, doesn't
Speaker 1: have any quick the serdervice doesn't have a what's the
Speaker 1: value is just the sellfulfilling bubble. Beyond bitcoin, it's the
Speaker 1: underlying technology of blockchain that is attracting investor interest. According
Speaker 1: to CB Insights, startups focusing on blockchain raised about two
Speaker 1: point five billion dollars in just the first quarter of
Speaker 1: this year, outpacing the amount raised in all of What
Speaker 1: it's really doing is it's building an infrastructure to actually
Speaker 1: transact on. That's Peter Krauss of Aperture Investors. Central banks
Speaker 1: are also feeling the pressure to create their own central
Speaker 1: bank digital currencies. A recent survey by the Bank for
Speaker 1: International Settlements found that eighty six percent of central banks
Speaker 1: are currently engaged, up from six in two thousand seventeen.
Speaker 1: The motivation for central banks has been partly to guard
Speaker 1: against the risk of financial exclusion or digital dollarization if
Speaker 1: payments shift to privately controlled alternatives. Here's Financial Times editorial
Speaker 1: board chair Jillian Tet what the Central Bank is essentially
Speaker 1: want to do right now is a version of very well,
Speaker 1: version of if you can't beat him, join them. Um.
Speaker 1: They're almost trying to just intermediate the disintermediators. Marty Chavez
Speaker 1: is someone who really knows his way around blockchain and
Speaker 1: distributed ledgers. He's been part of Silicon Valley startups, He's
Speaker 1: taught the course at Stanford, He's been the c i
Speaker 1: O and then the chief financial officer of Goldman Sachs,
Speaker 1: and now he's a senior advisor at six Street Partners.
Speaker 1: And he says that digital currencies may ultimately hold the
Speaker 1: key to global reserve currency dominance the way I would
Speaker 1: look at it, and actually the whole class at at
Speaker 1: Stanford GSB on exactly this topic how software eight finance
Speaker 1: last spring and the courses one thesis which is that
Speaker 1: the way finance is playing out, it's actually arrived. There
Speaker 1: are all these old dichotomies. You're on the bi side
Speaker 1: of you're on the cell side, your trader or salesperson
Speaker 1: are you? And I t right, those categor stories are
Speaker 1: all disappearing fast, and it's all becoming. You are a
Speaker 1: producer of some banking and financial services and you've wrapped
Speaker 1: them in a computer interface so called API, and then
Speaker 1: you're consuming a p I s from lots of other people.
Speaker 1: And if you're not a world class producer of these
Speaker 1: a p I s around your products and services, you're
Speaker 1: dead and you might just not know it yet. So
Speaker 1: in that sense, I would I would say what Jamie
Speaker 1: is saying, I agree with them, um, But it means
Speaker 1: that banks have to get really great at digitizing and technology.
Speaker 1: And also many banks, not all, have been great, and
Speaker 1: they have been doing this for a long time. How
Speaker 1: can the banks compete with some of these new startups
Speaker 1: who can take a lot more risk and be a
Speaker 1: lot more innovative a lot faster. Well, many banks have
Speaker 1: been working on this for a long time. So for instance,
Speaker 1: one of the one of the things that we worked
Speaker 1: on very effectively at Goldman Sachs for years UM is
Speaker 1: a group we call the Principal Strategic Investments. It was
Speaker 1: in the trading division, and the ideas go out and
Speaker 1: find these startups and sometimes collaborate with clients and and
Speaker 1: also with competitors to create some of these startups and
Speaker 1: participate early on in the cycle of innovation and become
Speaker 1: an investor and the customer of the startups and learned
Speaker 1: from them. That's been an incredibly successful journey for Goldman,
Speaker 1: and other banks have done variants of it as well.
Speaker 1: How do you address the builder by question and bye bye,
Speaker 1: I guess I include aquahiers where you may be buying
Speaker 1: a small company in part because the talent that you're
Speaker 1: getting with it, but a lot of the software that
Speaker 1: was needed simply didn't exist in the early nineties, and
Speaker 1: so it was absolutely the right strategy then. But as
Speaker 1: time passed, we we changed that strategy and realized that
Speaker 1: was no longer working. UM, that the world had transformed.
Speaker 1: That were cloud services, a p I s amazing new tools,
Speaker 1: and the idea of building it all your own didn't
Speaker 1: make any sense. And so the new the new waterfall
Speaker 1: is first order business. We would like we would like
Speaker 1: it to be an open source. We would like to
Speaker 1: use software that's out there um freely available, and participate
Speaker 1: in the creation of that open source. If that's not
Speaker 1: gonna work, then the next position is, let's let's look
Speaker 1: for some vendors and we want them to operate according
Speaker 1: to universal standards. And so we can hold the vendors
Speaker 1: to account on their reliability and cost and other things.
Speaker 1: But if it doesn't work, we can switch to another provider,
Speaker 1: same a p I. And then the last resort is
Speaker 1: we would go build it ourselves. That was Martin Chavez
Speaker 1: of Six Street Partners. Coming up, we wrap up the
Speaker 1: week with our special contributor Larry Summers of Harvard. That's
Speaker 1: next on Wall Street Week on Bloomberg. This is Bloomberg
Speaker 1: Wall Street Week with David Weston from bloom Bird Radio.
Speaker 1: We're going to complete the week, as we do every week,
Speaker 1: with our special coternity Larry Summers of Harvard. Larry, Welcome, back.
Speaker 1: Great to have you with us. I think a lot
Speaker 1: of the week was given over to infrastructure, whatever that means.
Speaker 1: President Biden has his two point two five trillion dollar plan,
Speaker 1: a lot of semantics about what was included, what's not included,
Speaker 1: And I want to you to address that as an economist,
Speaker 1: how important is it to get clear but what infrastructure is?
Speaker 1: Because President Biden said it's bridges and tunnel. Sure, it's
Speaker 1: also broadband in it, but then he said it's anything
Speaker 1: that enhances the life of the middle class. That seemed
Speaker 1: a little broad. Look, what's most important is that we
Speaker 1: make the investments as a country that we need to,
Speaker 1: not what we call them. We need better bridges, we
Speaker 1: need to expand broadband, we need to build more schools,
Speaker 1: We need to make sure there's adequate housing for UH
Speaker 1: low income families. The semantics really aren't so important. Frankly,
Speaker 1: I'd have liked to see more traditional infrastructure in this package,
Speaker 1: because I think we're decades behind, and I'm not sure
Speaker 1: this is big enough to bring us to the forefront,
Speaker 1: and I'm not sure there's enough really major, large scale
Speaker 1: UH projects. He has eighty billion dollars to help amtracks
Speaker 1: operating UH budget, but there are no major new UH systems,
Speaker 1: so I'd have liked to see a bolder, bigger vision
Speaker 1: on infrastructure. And the other thing I'd have liked to
Speaker 1: see David is more discipline. Discipline to make sure we
Speaker 1: procure in a cost effective way. God knows, the First
Speaker 1: Avenue subway in New York costs seven times as much
Speaker 1: per mile as the subway in Paris, and they're not
Speaker 1: especially efficient UH in Paris. I'd have liked to see
Speaker 1: more speed in implementation. I've talked many times at about
Speaker 1: a bridge near my office at Harvard, three D foot
Speaker 1: bridge that took them five and a half years to repair,
Speaker 1: when you know Julius Caesar built much longer bridges in
Speaker 1: UH nine days. And I'd have liked to see rigorous analysis,
Speaker 1: and we may get that analysis that this spending is
Speaker 1: going to be incremental. For example, there's no question we
Speaker 1: should have electric charging stations across America and electric cars,
Speaker 1: but we built gas stations without the government ever paying.
Speaker 1: Does the government really need to pay as much as
Speaker 1: is contained in this bill to get electric charging stations
Speaker 1: across the country. So I think Democrats are completely right
Speaker 1: on the need for much more resources. But I think
Speaker 1: some Republicans have a point when they emphasize efficiency, when
Speaker 1: they emphasize alacrity, and when they emphasize UH discipline in
Speaker 1: UH setting the functions. But this is hugely important for
Speaker 1: our economy. This is certainly worth UH in many of
Speaker 1: the areas substantially more government borrowing. So it's hugely important
Speaker 1: to get the money to do the investment, but it's
Speaker 1: almost as important to make sure that it gets done
Speaker 1: right or as close to right as possible. You've worked
Speaker 1: at the top levels of government. Do we need to
Speaker 1: rethink the way our government really administers itself in this sense?
Speaker 1: When was the last time the US government spent two
Speaker 1: point two five trillion dollars and did it the right way?
Speaker 1: Can we have a rigorous system for return on investment,
Speaker 1: which is what you do in a corporation, to say, okay,
Speaker 1: well invest this money, but this is what we expect back.
Speaker 1: I think we're gonna I think we need UH more
Speaker 1: of that. Look, corporations don't have to negotiate their investment
Speaker 1: plans with something that is analogous to UH the Congress UH.
Speaker 1: Corporations don't have the complexity and the breadth of the program.
Speaker 1: And by the way, David is you know, anyone who
Speaker 1: studied the history, for example, of corporate high t systems
Speaker 1: will know that there were a lot of white elephants
Speaker 1: built hundreds of billions of dollars poured into UH nothingness.
Speaker 1: So I think it's a mistake to venerate everything UH
Speaker 1: the private sector touches. But yes, this should be a
Speaker 1: huge UH priority in the design of UH all of this.
Speaker 1: But of course more extensive review can be the enemy
Speaker 1: of UH more alacrity, but more more, more speed. But
Speaker 1: I think we with the right kind of administration UH
Speaker 1: can do much better. Taking take an area like high
Speaker 1: transmission IGH density power lines, the issue there is not
Speaker 1: lack of money, it's lack of regulatory approval. And we
Speaker 1: got to figure out how to get the states cooperating
Speaker 1: so each state doesn't hold up all the other states
Speaker 1: UH in UH that area. I'd like to see President
Speaker 1: Biden talking more about the importance of doing it well
Speaker 1: and acknowledging more UH some of UH the past failures.
Speaker 1: On the other hand, I think there are some who
Speaker 1: sees on the semantic issues, who sees on some of
Speaker 1: the things UH that weren't great, who give the Pentagon
Speaker 1: a complete pass on every failed weapons system. But if
Speaker 1: some mass transit system in an urban area UH doesn't
Speaker 1: work exactly right on schedule or overruns its cost, go
Speaker 1: into a state of hysteria. And that's wrong. And so
Speaker 1: I'd say to my friends in the Republicans side, let's
Speaker 1: have some symmetry and what you're prepared to do with
Speaker 1: respect to military procurement and what you're insisting on in
Speaker 1: these areas. Larry another big story this week where the
Speaker 1: i m F meetings, the Spring meetings of the i
Speaker 1: m F, and it really underscores something we're watching, which
Speaker 1: is increasing divergence around the world, both in terms of
Speaker 1: the vaccination programs as well as in the economic growth.
Speaker 1: We see it even between the United States and Europe
Speaker 1: at this point, but then when you go to the
Speaker 1: low and middle income countries, it is quite stark, both
Speaker 1: on the vaccination rate and also the economy. What Cannon
Speaker 1: should be done with this is something you've been talking
Speaker 1: about for well over a year now. Look what we
Speaker 1: understand better today than we did six months ago is
Speaker 1: that this is going to be heavily about the ways
Speaker 1: in which the virus does does or does not evolve.
Speaker 1: If it stops evolving, we're gonna get this problem completely
Speaker 1: under control. If it keeps evolving, it's going to become
Speaker 1: an endemic problem. And evolution happens in proportion to how
Speaker 1: much the virus is all over the world, And that
Speaker 1: means uncontrolled COVID anywhere is a big threat to people everywhere.
Speaker 1: And and this is a critical point that I've been
Speaker 1: working on. We're gonna have one of these things every
Speaker 1: decade or so. We're gonna have a threat like this
Speaker 1: every decade or so, and we need an infrastructure to
Speaker 1: make sure that we're constantly watching and ready to stop
Speaker 1: it at its source. At the beginning, Okay, let's wrap
Speaker 1: this up with a lightning quick ground of summer says.
Speaker 1: Start off with the central bank Digital currencies much the
Speaker 1: vogue right now. We've learned that most central banks are
Speaker 1: working at digital currency. Five years from now, well, the
Speaker 1: Federal Reserve have its own digital currency. I doubt it
Speaker 1: will have a bunch of stuff with digital accounts, but
Speaker 1: no real digital currency. We also heard this week from
Speaker 1: Secretary Yell and Secretary Treasury yelling about coordinate with O E.
Speaker 1: C D on a corporate minimum tax internationally. Is that
Speaker 1: going to happen within the next year, bravo, And it's
Speaker 1: gonna be as or more important than the next the
Speaker 1: next trade agreement we reach with some other UH country.
Speaker 1: This is the international integration issue of this moment. For
Speaker 1: some of us living in New York, we got hit
Speaker 1: with a big new tax. If you made a lot
Speaker 1: of money in New York, you're gonna pay a lot
Speaker 1: more taxes here. There's a lot of concerned about that,
Speaker 1: individual stories about people moving away. But in the larger sense,
Speaker 1: do you think this might affect the economy of New
Speaker 1: York State? You deserve to pay more taxes. It should happen,
Speaker 1: but New York City, New York City and New York
Speaker 1: State can't do it alone without substantial consequences in this environment,
Speaker 1: and I am very fearful that, particularly without federal deductibility,
Speaker 1: this is going to do a lot of damage to
Speaker 1: New York's tax base and settle off a downward spiral.
Speaker 1: And finally, larry the big story from last week with Archias,
Speaker 1: the sort of implosion of Archias. Should we expect within
Speaker 1: the near future more regulation of family offices? I wouldn't
Speaker 1: be surprised, but even more. I'd expect more more regulation
Speaker 1: of prime broker lending to UH family offices. Uh. This
Speaker 1: didn't but could have set off a really negative cascade
Speaker 1: of forced selling and then forced liquidations on the LTCM model.
Speaker 1: That didn't happen, but it could have, and we've got
Speaker 1: to revisit those issues. Okay, many many thanks to our
Speaker 1: special contribute here at Walls Sting week. He is Larry
Speaker 1: Summers of Harvard. Finally, one more thought, getting more bees
Speaker 1: with honey than with vinegar, especially if they're rich bees.
Speaker 1: This week saw a lot of talk about taxing the
Speaker 1: rich the United States, whether they're companies or they are people.
Speaker 1: New York State is doing more than just talking about it.
Speaker 1: After Governor Cuomo last year pleaded with the rich to
Speaker 1: stay in New York. This week, the New York Governor
Speaker 1: agreed to a budget slapping big new taxes on those
Speaker 1: making over a million dollars, taxes that could raise the
Speaker 1: marginal rate for the richest New Yorkers up over fifty two.
Speaker 1: Only time is going to tell whether the state's ninety
Speaker 1: billionaires or thirty millionaires vote with their feet because of
Speaker 1: all these new taxes. But we are already seeing what
Speaker 1: using a bit of honey instead may mean as the
Speaker 1: Chinese government plans new tax bricks on the wealthy in
Speaker 1: Hong Kong, seeking to make up for all those violent
Speaker 1: demonstrations in the political crackdown, with the result that investment
Speaker 1: managers have set up more than a hundred new companies
Speaker 1: in recent months, and banks like Goldman Sachs, City Group,
Speaker 1: Bank of America, and Morgan Stanley are ramping up their
Speaker 1: staffing over there. None of which is to say that
Speaker 1: those of us who have benefited from the boom markets
Speaker 1: shouldn't pay our fair share, much less that we want
Speaker 1: to trade off civil liberties for tax breaks. But we
Speaker 1: do have to hope that the people making decisions keep
Speaker 1: in mind that pesky law of unintended consequences. 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.