WEBVTT - Bloomberg Wall Street Week: Marks, Beschloss, Chavez 0:00:00.160 --> 0:00:03.360 This is Bloomberg Wall Street Week. What's the state of 0:00:03.400 --> 0:00:06.360 corporate governance? The deficit is a real issue. The US 0:00:06.400 --> 0:00:09.800 economy continues to send mixed signals to the financial stories 0:00:09.800 --> 0:00:12.680 that cheap our world fed action to con concerns over 0:00:12.760 --> 0:00:16.240 dollar liquidity and encouraging China data. The five hundred wealthiest 0:00:16.239 --> 0:00:18.360 people in the world. Through the eyes of the most 0:00:18.480 --> 0:00:22.520 influential voices Larry Summers, the former Treasury Secretary, star Ward CEO, 0:00:22.640 --> 0:00:26.360 Kevin Johnson sec Chairman j Clayton. Bloomberg wool Street Week 0:00:26.480 --> 0:00:30.480 with David Weston from Bloomberg Radio, Up, Up, and away. 0:00:30.760 --> 0:00:33.680 As the economy starts to come back, bringing jobs with it, 0:00:33.920 --> 0:00:36.560 and the U s it's new records in COVID vaccines. 0:00:36.920 --> 0:00:40.360 What's not to like? This is Bloomberg Wall Street Week. 0:00:40.440 --> 0:00:44.160 I'm David Weston. So an investment world where so much 0:00:44.240 --> 0:00:46.479 seems to be going so right. What do you do 0:00:46.520 --> 0:00:50.240 if you're looking for some distress, some distress somewhere. That's 0:00:50.240 --> 0:00:53.640 the question we put to a claim distress investor and author, 0:00:53.800 --> 0:00:56.920 Howard Marks of oak Tree Capital Management. Well, that's a 0:00:56.960 --> 0:01:01.760 great question, uh begs an easy answer. Uh. One answer 0:01:01.840 --> 0:01:06.000 is that we're active providing solutions to companies that want 0:01:06.040 --> 0:01:10.280 to recapitalize their balance sheet, change their debt structure in 0:01:10.319 --> 0:01:15.240 some way, or just add additional liquidity. Not distress situations, 0:01:15.280 --> 0:01:19.399 but UH, there are cases where there's an appetite for 0:01:19.680 --> 0:01:24.440 credit and uh and the market doesn't make it available. Uh. 0:01:24.480 --> 0:01:29.120 We are active around the globe, and there is more 0:01:29.200 --> 0:01:32.280 to do in Asia and in Europe than there is 0:01:32.319 --> 0:01:36.400 in the United States. UM, and UH you know there. 0:01:36.440 --> 0:01:41.280 I think we distinguish ourselves as investors UH by what 0:01:41.360 --> 0:01:45.119 we do when our strategy is not in great favor. 0:01:45.840 --> 0:01:48.320 Every strategy goes in and out of favor, and this 0:01:48.400 --> 0:01:52.240 is the time to uh try to be resourceful and 0:01:52.320 --> 0:01:56.040 yet maintain our standards. It's very challenging, no, no doubt 0:01:56.080 --> 0:01:59.240 about Howard. Look back for a moment you had your 0:01:59.320 --> 0:02:01.000 year end. No, that sort of went through it and 0:02:01.000 --> 0:02:03.040 as I say, it was a remarkable downturn and then 0:02:03.080 --> 0:02:05.840 snap back up right away to make money. You had 0:02:05.880 --> 0:02:08.600 to move really fast. About a year ago, right now, 0:02:08.639 --> 0:02:10.520 I know that you had raised I think a record 0:02:10.520 --> 0:02:13.359 amount of capital Ktree Capital Management at the time. Could 0:02:13.400 --> 0:02:14.720 you get the money out the door put it to 0:02:14.720 --> 0:02:18.800 work fast enough? The fund we raised was actually raised 0:02:18.880 --> 0:02:24.120 on July one, so the greatest opportunities were passed. We 0:02:24.240 --> 0:02:28.760 used the opportunities that arose in UH, primarily in March, 0:02:28.840 --> 0:02:31.520 somewhat carried over into April and May. We used to 0:02:31.600 --> 0:02:35.520 complete the investment of our prior fund. So we had 0:02:35.560 --> 0:02:39.880 a fund that was about invested UH at the beginning 0:02:39.919 --> 0:02:44.320 of and we got it fully invested. UH. That was 0:02:44.560 --> 0:02:48.639 that was the best of the buying. The market has rebounded, 0:02:48.680 --> 0:02:51.000 The economy is in the process I think of rebounding 0:02:51.040 --> 0:02:52.720 with the markable speed. At the same time, it's not 0:02:52.800 --> 0:02:56.280 even it's uneven. So let's talk about some of those disparities, 0:02:56.320 --> 0:02:58.960 particularly things like travel and leisure. Are there still some 0:02:59.000 --> 0:03:01.959 opportunities there APPS, because that seems to be lagging behind 0:03:02.000 --> 0:03:04.400 a lot of the rest of the economy. Yes. Well, 0:03:04.440 --> 0:03:07.359 you know the easy calls, the things that are obviously 0:03:07.400 --> 0:03:12.399 going to rebound. UH. They're not fully back to where 0:03:12.440 --> 0:03:15.480 they were in times of prosperity in terms of their UH, 0:03:15.639 --> 0:03:20.040 in terms of the investment opportunities subsiding, but they are 0:03:20.600 --> 0:03:24.200 if it's clear they're coming back, they're treated as certainly 0:03:24.280 --> 0:03:28.400 coming back. UH. And to to get to higher returns 0:03:28.440 --> 0:03:31.280 these days, you have to be willing to extend credit 0:03:31.320 --> 0:03:33.919 to somebody who's not clearly coming back. Are there any 0:03:33.919 --> 0:03:37.400 sectors you're still avoiding at this point? No, we are 0:03:37.480 --> 0:03:41.280 open to anything. I mean, our our our style usually 0:03:41.360 --> 0:03:45.800 constrains us, for example, to not do technology. Uh, But 0:03:45.960 --> 0:03:49.200 other than that, we're wide open. Howard, it strikes me 0:03:49.240 --> 0:03:51.280 that one of the things that's different from anything I 0:03:51.320 --> 0:03:53.000 think I've ever seen, maybe any of us ever seen, 0:03:53.040 --> 0:03:55.840 is the degree to which the government, both on fiscal 0:03:55.920 --> 0:03:59.800 and monetary policy, is intervening in the marketplace. Is that 0:04:00.080 --> 0:04:02.640 sort of a dampener on your business in the sense that, 0:04:02.840 --> 0:04:05.040 for example, when it comes to distress debt, you've got 0:04:05.080 --> 0:04:06.960 a lot of zombie companies I read. I think it's 0:04:06.960 --> 0:04:09.520 like the public and traded companies in the United States 0:04:09.560 --> 0:04:12.200 right now. Our zombie companies do not generate enough cash 0:04:12.520 --> 0:04:15.320 to pay off their dad. Does that really make it 0:04:15.360 --> 0:04:18.200 more difficult for some of like oak Tree? No? That well, 0:04:18.240 --> 0:04:21.479 that's no, that's the that's ensured. That's the kind of 0:04:21.680 --> 0:04:26.120 situation that prevents opportunities to us. Uh. If companies have 0:04:26.200 --> 0:04:30.680 no problems, no exigencies, Uh, then then the distress investor 0:04:30.720 --> 0:04:33.200 doesn't have any problems and any act anything to do. 0:04:33.839 --> 0:04:40.560 So we we we take companies which are in extremists, 0:04:40.560 --> 0:04:44.440 are producing bad news where the future doesn't look so great. 0:04:44.720 --> 0:04:47.160 And if we can buy those securities at the right 0:04:47.240 --> 0:04:53.600 price uh, which means a price that overestimates the problems. 0:04:53.680 --> 0:04:57.599 That's how you make money as an investor. So we 0:04:57.640 --> 0:04:59.960 don't shy away from difficulties. But isn't there a price 0:05:00.080 --> 0:05:02.839 support under those companies if I can put it that way, 0:05:02.880 --> 0:05:06.680 Because essentially money is free, they can borrow more money 0:05:06.720 --> 0:05:09.239 even though they're losing money. They're not generally enough cash 0:05:09.279 --> 0:05:12.040 again to pay service their debt. Doesn't that actually make 0:05:12.040 --> 0:05:14.000 it more difficult to get the right price for you? 0:05:14.680 --> 0:05:17.400 Yes it does, Yes it does. Uh. I mean the 0:05:17.480 --> 0:05:20.400 right price for us is to be able to buy 0:05:20.400 --> 0:05:23.000 things for less than their worth. That's our goal. We 0:05:23.120 --> 0:05:25.960 need the cooperation from somebody who's willing to sell things 0:05:26.000 --> 0:05:29.200 for less than their worth. Uh. And usually you get 0:05:29.240 --> 0:05:32.800 that when when the asset holders feel urgency to sell. 0:05:33.279 --> 0:05:35.880 What about currency? Where are you on the US dollar? 0:05:35.960 --> 0:05:38.440 How much is that factor into your decisions? Because there 0:05:38.440 --> 0:05:40.720 are a lot of taking We don't take an opinion 0:05:40.720 --> 0:05:43.440 on currency. One of the six tenants of Oak Tree's 0:05:43.440 --> 0:05:46.440 investment philosophy is that our decisions are not guided by 0:05:46.600 --> 0:05:50.200 macro forecasts. So you don't worry about long term weakness 0:05:50.200 --> 0:05:54.520 of the dollar. Well, I worry about it, uh for 0:05:54.560 --> 0:05:57.359 other reasons, not in saying, well will I invest in 0:05:57.400 --> 0:06:00.960 this thing which is in pounds or rupees or a 0:06:01.040 --> 0:06:04.320 minby or patios or something like that, and not tactically 0:06:04.360 --> 0:06:06.960 like that. But you know, I mean it's a concern. 0:06:07.760 --> 0:06:10.880 Uh what what the you the way the US is 0:06:10.920 --> 0:06:15.200 behaving the visa be the dollar. Uh, but on the 0:06:15.240 --> 0:06:17.680 other hand, not clear what one does about it. That 0:06:17.800 --> 0:06:20.520 was Howard Marks, co founder and co chairman of oak 0:06:20.600 --> 0:06:23.919 Tree Capital Management. Coming up, we can beat our Wall 0:06:23.960 --> 0:06:27.080 Street Week round table of a Sani Bechelists from Rock 0:06:27.120 --> 0:06:31.000 Creek and Mona Mahajan of Alliance to find out where 0:06:31.040 --> 0:06:35.080 the investment opportunities are in this land of plenty. That's 0:06:35.120 --> 0:06:43.360 next down Wall Street Week on Bloomberg. This is Bloomberg 0:06:43.400 --> 0:06:47.840 Wall Street Week with David Weston from Bloomberg Radio. Everything 0:06:47.920 --> 0:06:50.440 is coming up roses for investors, it appears, at least 0:06:50.440 --> 0:06:52.839 this week. The question is where are the opportunities and 0:06:52.839 --> 0:06:54.560 for that matter, where are the threats? In all of 0:06:54.560 --> 0:06:56.880 this and to answer that question, we're conveting our very 0:06:56.880 --> 0:06:59.880 special Wall Street Week round table right now of Asani 0:07:00.040 --> 0:07:02.159 USh Lost. She is the founder and CEO of Rock 0:07:02.160 --> 0:07:05.000 Creek and Mona Mahudgen. She is the U S investment 0:07:05.000 --> 0:07:08.839 strategist for Alliance. Thank you both for being here, Welcome back. 0:07:09.160 --> 0:07:11.480 Gonna let me start with you. I talk about opportunity 0:07:11.480 --> 0:07:16.120 and threats. I used to do a swat analysis, you know, strengths, weaknesses, opportunities, 0:07:16.160 --> 0:07:19.080 threats and business plans. Take the opportunity and threats for 0:07:19.200 --> 0:07:21.600 a U S investor right now in this market, given 0:07:21.600 --> 0:07:24.840 the fact that everything looks pretty good. Yeah, absolutely, Look, 0:07:24.880 --> 0:07:27.560 it's been a phenomenal market really in many ways across 0:07:27.600 --> 0:07:30.360 asset classes. In our view, that's been driven by two 0:07:30.400 --> 0:07:32.960 key themes this year. The first theme is clearly this 0:07:33.120 --> 0:07:35.880 rotation we're seeing, at least in the equity space um 0:07:35.880 --> 0:07:38.560 from growth into the more value oriented sectors at least 0:07:38.560 --> 0:07:41.400 on a year to date basis, and really since November 0:07:41.440 --> 0:07:43.480 of last year. You know, keep in mind, last November 0:07:43.560 --> 0:07:46.320 we saw presidential elections, we saw the approval of our 0:07:46.360 --> 0:07:50.840 first vaccines, and when you look at sectors like energy, financials, 0:07:50.880 --> 0:07:57.720 industrials up nearly set plus since that time. The second theme, 0:07:57.760 --> 0:08:00.160 of course, is this rise in rates. The ten has 0:08:00.200 --> 0:08:04.680 gone from point nine one now also supportive of some 0:08:04.720 --> 0:08:06.800 of those value sectors and putting a little bit pressure 0:08:06.840 --> 0:08:10.480 on the growth sectors. UM. For us, the opportunity really 0:08:10.560 --> 0:08:14.040 is we do see a continuation of the reopening trade. 0:08:14.080 --> 0:08:16.320 We think there's at least one last leg to go 0:08:16.920 --> 0:08:19.200 um and that really you know, the highest conviction areas 0:08:19.200 --> 0:08:22.280 that we like there do include those that are leveraged 0:08:22.320 --> 0:08:24.840 to higher rates. We think, you know, yields could continue 0:08:24.840 --> 0:08:27.080 to grind higher and maybe a little bit choppy now, 0:08:27.120 --> 0:08:29.200 but we see a two handle on the tenure at 0:08:29.240 --> 0:08:32.880 some point. Uh. In that environment, we think financials continue 0:08:32.920 --> 0:08:36.440 to do well. Certainly yield curve plays continue to do well, 0:08:36.480 --> 0:08:39.959 such as steepeners um the reopening, the true reopening of 0:08:40.000 --> 0:08:42.880 the US economy. We think those the areas that do 0:08:42.960 --> 0:08:45.360 well in that environment are those that are levered to 0:08:45.400 --> 0:08:48.640 better earnings growth like leisure travel, you know, think your 0:08:48.679 --> 0:08:51.480 true reopening sectors and the final bucket we put in 0:08:51.520 --> 0:08:54.880 that the opportunities is really those that are levered to 0:08:54.920 --> 0:08:57.880 the new policy agenda. We're seeing so parts of the 0:08:57.920 --> 0:09:01.120 infrastructure market parts of five G and cybersecurity that are 0:09:01.160 --> 0:09:05.199 being lumped into infrastructure now. Now just quickly on the threats. UM, 0:09:05.240 --> 0:09:07.560 As we are heading to the second half of this year, 0:09:07.920 --> 0:09:11.600 we certainly are seeing some headwinds emerge. First and foremost, 0:09:11.800 --> 0:09:14.720 we will at some point hit peak reopening growth here 0:09:14.720 --> 0:09:16.760 in the US, probably in two Q or three Q 0:09:16.960 --> 0:09:19.640 of this year. UM, we will have you know that 0:09:19.760 --> 0:09:24.240 the highest growth rates we've seen probably in over a decade. UM. Secondly, 0:09:24.320 --> 0:09:27.200 we are seeing, as we noted earlier, yields continue to 0:09:27.240 --> 0:09:30.960 grind higher, driven by of course reopening, but also potentially inflation. 0:09:31.600 --> 0:09:33.560 And you know, thirdly, I think we are looking at 0:09:33.600 --> 0:09:36.199 a fed that at some point David will have to 0:09:36.280 --> 0:09:39.000 come off of this crisis level accommodation. You know, they 0:09:39.000 --> 0:09:41.600 said in the last press conference it's when they see 0:09:41.600 --> 0:09:43.920 it in the data, not in the forecast. Well, that 0:09:44.000 --> 0:09:46.000 data is certainly going to come to fruition in the 0:09:46.000 --> 0:09:48.520 next couple of quarters. So keep in mind we've we've 0:09:48.520 --> 0:09:51.000 had a great first half thus far. We might see 0:09:51.000 --> 0:09:53.560 another leg higher in this value rotation, but at some 0:09:53.600 --> 0:09:56.640 point we will consolidate those games. UM. Maybe it's seasonal, 0:09:56.679 --> 0:09:58.679 maybe it's selling May and go away. Maybe not May 0:09:58.760 --> 0:10:00.760 this year, but a little bit further out. But just 0:10:00.920 --> 0:10:03.199 keep in mind those the tail headwinds in the second 0:10:03.200 --> 0:10:06.720 half of this year may start to emerge. Sorry, Mona 0:10:06.800 --> 0:10:08.760 really focused right into your backyard, at least part of 0:10:08.760 --> 0:10:12.000 your backyard when she talked about investments leverage to policy 0:10:12.200 --> 0:10:14.960 because you for a long time I talked about climate 0:10:15.000 --> 0:10:18.160 and green investing asana. You've been a champion of that. 0:10:18.720 --> 0:10:21.120 We certainly heard about the infrastructure plan two point two 0:10:21.120 --> 0:10:23.640 five trillion, a lot of it directed towards climate issues. 0:10:23.920 --> 0:10:26.120 That's an opportunity. At the same time, you need to 0:10:26.160 --> 0:10:27.679 be a bit of a stock picker if you can 0:10:27.720 --> 0:10:30.720 say that within that realm, not all climate projects are 0:10:30.720 --> 0:10:34.400 created equally. Assume you're absolutely right, Davy, then I very 0:10:34.480 --> 0:10:37.640 much agree with everything Mona said. I think added to 0:10:37.800 --> 0:10:41.480 what she said on the infrastructure side that you just mentioned. 0:10:41.480 --> 0:10:43.679 Whether it ends up being two point to five or 0:10:43.760 --> 0:10:45.840 one point nine or one point six or you know, 0:10:45.880 --> 0:10:50.160 somewhere in between, those numbers are quite huge, and even 0:10:50.160 --> 0:10:52.920 if they get spent some of them more quickly, some 0:10:53.000 --> 0:10:55.520 of them over time, they're going to have a more 0:10:55.840 --> 0:11:00.160 growth oriented kind of impact on the overall, Econo ME 0:11:00.679 --> 0:11:03.600 and what we're seeing as we are sitting here is 0:11:03.760 --> 0:11:08.880 unbelievable amount of investments that are going into that intersection 0:11:09.040 --> 0:11:15.079 of innovation, with e V innovation, with take with medicine innovation, 0:11:15.280 --> 0:11:18.080 with some of the other trends that we've talked about, 0:11:18.160 --> 0:11:22.160 but in particular climate related investments. So I think all 0:11:22.160 --> 0:11:25.440 of them will be also impacting markets in a very 0:11:25.520 --> 0:11:29.200 positive way. Sort of looking longer term, I agree with 0:11:29.280 --> 0:11:32.160 Mono Tho that we will have some short term corrections 0:11:32.400 --> 0:11:35.760 because you know, interest rates are historically low, even if 0:11:35.760 --> 0:11:38.560 we had the kind of bond markets particether the long 0:11:38.679 --> 0:11:41.840 end that we've had this year, we have been historically 0:11:41.880 --> 0:11:44.040 at a very very low level of interest rates, and 0:11:44.080 --> 0:11:46.160 people have got very used to that. Those of us 0:11:46.160 --> 0:11:48.480 who've been around a few cycles know that it will 0:11:48.520 --> 0:11:51.240 not last like this, and there will be some sort 0:11:51.240 --> 0:11:54.199 of impact as inflation picks up even for a short 0:11:54.240 --> 0:11:57.680 time UH and goes back to UM to lower levels 0:11:57.720 --> 0:12:00.760 over longer term. On the interesstrar to the only last 0:12:00.760 --> 0:12:04.560 point I want to make is that UM the need 0:12:04.640 --> 0:12:07.320 for it is in the US, but also the need 0:12:07.360 --> 0:12:10.640 for it is global. There is huge need if we're 0:12:10.640 --> 0:12:14.400 going to meet our climate goals to make sure that 0:12:14.520 --> 0:12:18.040 this infrastructure investments that we're talking about the US are 0:12:18.120 --> 0:12:22.679 also carried through globly. Mono. One of the things that 0:12:22.720 --> 0:12:25.199 we're reading about now is perhaps some risk coming from 0:12:25.200 --> 0:12:28.080 the divergence we're seeing. Uh, the United States is really 0:12:28.120 --> 0:12:31.840 going ahead full steam with vaccinations. China, if if anything, 0:12:32.080 --> 0:12:33.679 doing better than we are on the only with the 0:12:33.800 --> 0:12:36.679 with the COVID nigeene. Europe not so much, and goodness knows, 0:12:36.800 --> 0:12:39.400 parts of the lower and middle income countries are lagging 0:12:39.400 --> 0:12:43.640 behind MONA. Is that simply opportunity for US investors or 0:12:43.679 --> 0:12:45.640 is there also some risk if the U s GE's 0:12:45.679 --> 0:12:48.240 too far ahead of the rest of the world. Yeah. Absolutely. 0:12:48.280 --> 0:12:50.199 You know, one of the themes that we're we're seeing 0:12:50.200 --> 0:12:52.760 emerge again this year is this return to US what 0:12:52.840 --> 0:12:56.760 we're calling exceptionalism. Uh. Certainly we have been ahead of Europe, 0:12:56.760 --> 0:12:59.640 as you noted, in terms of the vaccine rollout and 0:12:59.679 --> 0:13:02.320 really setting up nicely for a strong set of summer 0:13:02.360 --> 0:13:04.839 months ahead of US. UM we're seeing this play out 0:13:04.840 --> 0:13:07.360 in the markets as well. The US dollar many expected 0:13:07.440 --> 0:13:10.120 to come into the year continuing to be weak. In fact, 0:13:10.200 --> 0:13:12.960 we've seen stabilization and even an upward trend. The dollar 0:13:13.040 --> 0:13:16.600 index is now up about three percent year to date. UM. Similarly, 0:13:16.800 --> 0:13:19.360 in equity industries, you know, the SMP is now back 0:13:19.440 --> 0:13:22.319 at the top of the pack. UM. Clearly there could 0:13:22.400 --> 0:13:24.520 be a catch up trade, and it's one thing we're 0:13:24.559 --> 0:13:27.960 thinking about now, especially as the US markets have run. 0:13:28.160 --> 0:13:29.880 There could be a catch up trade from Europe to 0:13:29.920 --> 0:13:31.719 be to be had here. You know, if they are 0:13:31.800 --> 0:13:35.120 lagging just a few months behind us in this vaccine rollout, um, 0:13:35.160 --> 0:13:37.720 we could see a real reopening of their economies and 0:13:37.760 --> 0:13:40.480 maybe another quarter or two. Keep in mind, the European 0:13:40.480 --> 0:13:44.720 industries are more levered to these value cyclical parts of 0:13:44.760 --> 0:13:47.160 the market. Uh, they have a lot of bank exposure, 0:13:47.240 --> 0:13:51.200 energy exposure, etcetera, industrials exposure, and so it is something 0:13:51.200 --> 0:13:54.120 we're cognizant of and really thinking about. You know, China 0:13:54.160 --> 0:13:56.760 and North Asia, as you noted, or ahead of us. 0:13:56.880 --> 0:13:59.880 So perhaps their peak growth has already happened in the 0:14:00.040 --> 0:14:02.640 last couple of quarters, and we're certainly seeing that reflected 0:14:02.640 --> 0:14:05.400 in the marketplace as well as their industries have started 0:14:05.440 --> 0:14:07.800 to roll over. So you know, over the next quarter 0:14:07.880 --> 0:14:10.000 or two we are certainly seeing this this flight to 0:14:10.120 --> 0:14:13.199 US assets both in the equity and bond market UM, 0:14:13.200 --> 0:14:16.000 and that really has, uh, you know, been driven by 0:14:16.040 --> 0:14:19.520 the fundamental story behind how the US is outperformed UM 0:14:19.520 --> 0:14:23.040 from a vaccine and COVID perspective, but just being being 0:14:23.080 --> 0:14:26.120 mindful that Europe could play catch up in the months ahead. Okay, 0:14:26.120 --> 0:14:28.080 thank you so very much for our special Wall Street 0:14:28.080 --> 0:14:31.280 Week round table of Sania Bachelists of Rock Creek, and 0:14:31.520 --> 0:14:35.600 Monamahydgen of Alliance. Coming up. You may think you know 0:14:35.680 --> 0:14:38.640 what cryptocurrency is all about, but Marty chap Is, a 0:14:38.720 --> 0:14:41.960 Six Street Partners says it's not necessarily what you think 0:14:42.000 --> 0:14:44.960 it is. That's next on Wall Street Week on Bloomberg. 0:14:50.160 --> 0:14:54.120 This is Bloomberg Wall Street Week with David Weston from 0:14:54.240 --> 0:14:58.440 Bloomberg Radio. Wall Street. Central banks and retail investors have 0:14:58.680 --> 0:15:03.360 one thing in common. They're growing interest in cryptocurrencies. According 0:15:03.400 --> 0:15:06.840 to Coin Shares, inflows into crypto funds and products hit 0:15:06.880 --> 0:15:09.720 a record four point five billion dollars in the first 0:15:09.800 --> 0:15:14.320 quarter of this year. Here's Mike Novograts of Galaxy Investment Partners. 0:15:14.480 --> 0:15:17.480 I think about there's a hundred hundred forty trillion dollars 0:15:17.520 --> 0:15:21.480 of US wealth UM four hundred trillion dollars in global wells. 0:15:21.480 --> 0:15:23.160 So we're now up to a one a half half 0:15:23.160 --> 0:15:26.000 a percent of global wealth is in crypto, and that's growing. 0:15:26.040 --> 0:15:27.960 I think it'll be a percent by the end of 0:15:27.960 --> 0:15:31.680 the year. Bitcoin gets the most attention among its crypto peers, 0:15:31.960 --> 0:15:35.240 but critics of digital currencies raise concerns about their structure 0:15:35.520 --> 0:15:38.400 and their volatility. I don't completely buy the whole thing. 0:15:38.840 --> 0:15:41.400 You're essentially saying that we're going to create a store 0:15:41.400 --> 0:15:45.080 of value and a medium of exchange around something that 0:15:45.120 --> 0:15:48.120 only exists inside of a computer somewhere. It's not a 0:15:48.120 --> 0:15:52.000 physical asset that Steve Ratner of will It Advisors, and 0:15:52.080 --> 0:15:55.880 here's n y U Stern School professor Neuriel Rubini Beatson 0:15:56.160 --> 0:15:58.960 is not having any income, doesn't even use that, doesn't 0:15:58.960 --> 0:16:01.720 have any quick the serdervice doesn't have a what's the 0:16:02.360 --> 0:16:06.120 value is just the sellfulfilling bubble. Beyond bitcoin, it's the 0:16:06.200 --> 0:16:10.640 underlying technology of blockchain that is attracting investor interest. According 0:16:10.680 --> 0:16:14.600 to CB Insights, startups focusing on blockchain raised about two 0:16:14.600 --> 0:16:17.280 point five billion dollars in just the first quarter of 0:16:17.320 --> 0:16:21.720 this year, outpacing the amount raised in all of What 0:16:21.800 --> 0:16:25.520 it's really doing is it's building an infrastructure to actually 0:16:25.600 --> 0:16:30.520 transact on. That's Peter Krauss of Aperture Investors. Central banks 0:16:30.520 --> 0:16:33.440 are also feeling the pressure to create their own central 0:16:33.480 --> 0:16:36.960 bank digital currencies. A recent survey by the Bank for 0:16:37.000 --> 0:16:40.440 International Settlements found that eighty six percent of central banks 0:16:40.440 --> 0:16:44.680 are currently engaged, up from six in two thousand seventeen. 0:16:44.880 --> 0:16:47.360 The motivation for central banks has been partly to guard 0:16:47.360 --> 0:16:51.480 against the risk of financial exclusion or digital dollarization if 0:16:51.520 --> 0:16:56.280 payments shift to privately controlled alternatives. Here's Financial Times editorial 0:16:56.280 --> 0:16:59.840 board chair Jillian Tet what the Central Bank is essentially 0:17:00.000 --> 0:17:03.160 want to do right now is a version of very well, 0:17:03.360 --> 0:17:06.520 version of if you can't beat him, join them. Um. 0:17:06.520 --> 0:17:10.840 They're almost trying to just intermediate the disintermediators. Marty Chavez 0:17:10.920 --> 0:17:13.840 is someone who really knows his way around blockchain and 0:17:13.880 --> 0:17:17.680 distributed ledgers. He's been part of Silicon Valley startups, He's 0:17:17.720 --> 0:17:20.399 taught the course at Stanford, He's been the c i 0:17:20.560 --> 0:17:23.560 O and then the chief financial officer of Goldman Sachs, 0:17:23.600 --> 0:17:26.520 and now he's a senior advisor at six Street Partners. 0:17:26.800 --> 0:17:29.639 And he says that digital currencies may ultimately hold the 0:17:29.720 --> 0:17:34.240 key to global reserve currency dominance the way I would 0:17:34.240 --> 0:17:37.680 look at it, and actually the whole class at at 0:17:37.680 --> 0:17:41.600 Stanford GSB on exactly this topic how software eight finance 0:17:42.200 --> 0:17:46.520 last spring and the courses one thesis which is that 0:17:46.920 --> 0:17:51.000 the way finance is playing out, it's actually arrived. There 0:17:51.000 --> 0:17:54.200 are all these old dichotomies. You're on the bi side 0:17:54.240 --> 0:17:57.000 of you're on the cell side, your trader or salesperson 0:17:57.320 --> 0:18:00.520 are you? And I t right, those categor stories are 0:18:00.560 --> 0:18:05.120 all disappearing fast, and it's all becoming. You are a 0:18:05.119 --> 0:18:09.280 producer of some banking and financial services and you've wrapped 0:18:09.359 --> 0:18:13.840 them in a computer interface so called API, and then 0:18:13.880 --> 0:18:16.520 you're consuming a p I s from lots of other people. 0:18:17.040 --> 0:18:20.120 And if you're not a world class producer of these 0:18:20.160 --> 0:18:23.200 a p I s around your products and services, you're 0:18:23.280 --> 0:18:26.080 dead and you might just not know it yet. So 0:18:26.119 --> 0:18:28.840 in that sense, I would I would say what Jamie 0:18:28.920 --> 0:18:32.440 is saying, I agree with them, um, But it means 0:18:32.480 --> 0:18:37.640 that banks have to get really great at digitizing and technology. 0:18:38.000 --> 0:18:41.240 And also many banks, not all, have been great, and 0:18:41.280 --> 0:18:43.000 they have been doing this for a long time. How 0:18:43.040 --> 0:18:45.520 can the banks compete with some of these new startups 0:18:45.600 --> 0:18:47.199 who can take a lot more risk and be a 0:18:47.200 --> 0:18:50.399 lot more innovative a lot faster. Well, many banks have 0:18:50.440 --> 0:18:53.560 been working on this for a long time. So for instance, 0:18:53.600 --> 0:18:55.679 one of the one of the things that we worked 0:18:55.680 --> 0:18:59.600 on very effectively at Goldman Sachs for years UM is 0:18:59.640 --> 0:19:03.080 a group we call the Principal Strategic Investments. It was 0:19:03.200 --> 0:19:07.160 in the trading division, and the ideas go out and 0:19:07.200 --> 0:19:12.560 find these startups and sometimes collaborate with clients and and 0:19:12.680 --> 0:19:16.359 also with competitors to create some of these startups and 0:19:16.440 --> 0:19:20.160 participate early on in the cycle of innovation and become 0:19:20.200 --> 0:19:23.560 an investor and the customer of the startups and learned 0:19:23.560 --> 0:19:26.840 from them. That's been an incredibly successful journey for Goldman, 0:19:26.920 --> 0:19:29.040 and other banks have done variants of it as well. 0:19:29.160 --> 0:19:31.880 How do you address the builder by question and bye bye, 0:19:31.920 --> 0:19:34.560 I guess I include aquahiers where you may be buying 0:19:34.560 --> 0:19:36.800 a small company in part because the talent that you're 0:19:36.800 --> 0:19:38.720 getting with it, but a lot of the software that 0:19:38.800 --> 0:19:42.280 was needed simply didn't exist in the early nineties, and 0:19:42.359 --> 0:19:45.479 so it was absolutely the right strategy then. But as 0:19:45.560 --> 0:19:49.320 time passed, we we changed that strategy and realized that 0:19:49.440 --> 0:19:52.679 was no longer working. UM, that the world had transformed. 0:19:52.720 --> 0:19:56.440 That were cloud services, a p I s amazing new tools, 0:19:56.480 --> 0:19:58.720 and the idea of building it all your own didn't 0:19:58.720 --> 0:20:01.840 make any sense. And so the new the new waterfall 0:20:02.000 --> 0:20:05.320 is first order business. We would like we would like 0:20:05.400 --> 0:20:08.320 it to be an open source. We would like to 0:20:08.400 --> 0:20:13.240 use software that's out there um freely available, and participate 0:20:13.280 --> 0:20:15.959 in the creation of that open source. If that's not 0:20:16.000 --> 0:20:20.800 gonna work, then the next position is, let's let's look 0:20:20.840 --> 0:20:24.399 for some vendors and we want them to operate according 0:20:24.520 --> 0:20:28.320 to universal standards. And so we can hold the vendors 0:20:28.359 --> 0:20:32.200 to account on their reliability and cost and other things. 0:20:32.480 --> 0:20:35.040 But if it doesn't work, we can switch to another provider, 0:20:35.240 --> 0:20:38.879 same a p I. And then the last resort is 0:20:39.640 --> 0:20:42.160 we would go build it ourselves. That was Martin Chavez 0:20:42.240 --> 0:20:44.960 of Six Street Partners. Coming up, we wrap up the 0:20:45.040 --> 0:20:48.480 week with our special contributor Larry Summers of Harvard. That's 0:20:48.520 --> 0:20:56.880 next on Wall Street Week on Bloomberg. This is Bloomberg 0:20:56.920 --> 0:21:00.600 Wall Street Week with David Weston from bloom Bird Radio. 0:21:00.840 --> 0:21:02.920 We're going to complete the week, as we do every week, 0:21:02.920 --> 0:21:06.200 with our special coternity Larry Summers of Harvard. Larry, Welcome, back. 0:21:06.240 --> 0:21:07.920 Great to have you with us. I think a lot 0:21:07.960 --> 0:21:10.879 of the week was given over to infrastructure, whatever that means. 0:21:10.960 --> 0:21:13.920 President Biden has his two point two five trillion dollar plan, 0:21:14.320 --> 0:21:17.359 a lot of semantics about what was included, what's not included, 0:21:17.560 --> 0:21:19.920 And I want to you to address that as an economist, 0:21:19.920 --> 0:21:23.159 how important is it to get clear but what infrastructure is? 0:21:23.160 --> 0:21:25.800 Because President Biden said it's bridges and tunnel. Sure, it's 0:21:25.800 --> 0:21:27.960 also broadband in it, but then he said it's anything 0:21:28.040 --> 0:21:30.240 that enhances the life of the middle class. That seemed 0:21:30.240 --> 0:21:33.119 a little broad. Look, what's most important is that we 0:21:33.200 --> 0:21:35.960 make the investments as a country that we need to, 0:21:36.640 --> 0:21:40.240 not what we call them. We need better bridges, we 0:21:40.280 --> 0:21:44.760 need to expand broadband, we need to build more schools, 0:21:45.280 --> 0:21:49.120 We need to make sure there's adequate housing for UH 0:21:49.400 --> 0:21:55.360 low income families. The semantics really aren't so important. Frankly, 0:21:55.400 --> 0:21:59.919 I'd have liked to see more traditional infrastructure in this package, 0:22:00.400 --> 0:22:04.080 because I think we're decades behind, and I'm not sure 0:22:04.160 --> 0:22:07.280