WEBVTT - Bloomberg Wall Street Week: Pagliuca, Gelpern, Summers 0:00:00.240 --> 0:00:05.000 This is Bloomberg Wall Street Week. Market shruggle, higher consumer prices, 0:00:05.040 --> 0:00:07.400 The economy is in the process of rebounding. Will the 0:00:07.400 --> 0:00:10.479 futteral 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 investors minds inflation through the eyes of the 0:00:19.880 --> 0:00:23.560 most influential voices. Larry Summer is the former Treasury Secretary 0:00:23.640 --> 0:00:27.240 Bryan Wynhan a backup 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. 0:00:31.840 --> 0:00:36.560 Global investors search for direction with global economic recovery uneven, 0:00:36.920 --> 0:00:41.400 pandemic risk not going away, and geopolitical risk on the rise. 0:00:42.040 --> 0:00:45.239 This is Bloomberg Wall Street Week. I'm David Weston. A 0:00:45.320 --> 0:00:48.680 lot of ups and downs this week, but no clear direction, 0:00:49.000 --> 0:00:53.000 with concerns over the pandemic shifting overseas to places like India. 0:00:53.360 --> 0:00:56.600 As the United States makes progress on vaccinations, with much 0:00:56.600 --> 0:01:00.520 more yet to do, we let up now and stop 0:01:00.560 --> 0:01:04.920 being vigilant. This virus will erase the progress we've already achieved, 0:01:05.800 --> 0:01:08.680 the sacrifices we've made, the lives that have been put 0:01:08.720 --> 0:01:11.600 on hold, the loved ones who've been taken from us, 0:01:12.720 --> 0:01:15.280 the time we're never going to get back. There was 0:01:15.319 --> 0:01:19.200 a lot of talk about infrastructure, including what it means, 0:01:19.280 --> 0:01:24.160 and some groping toward a compromise, but prospects remained very unclear. 0:01:24.560 --> 0:01:27.440 And US corporate earnings have come in strong so far, 0:01:27.840 --> 0:01:30.600 but let's be honest, that was more or less expected, 0:01:30.720 --> 0:01:33.760 wasn't it. And the markets by and large reflected the 0:01:33.800 --> 0:01:37.479 gifts and the takes, with equities hesitating in their reflation 0:01:37.560 --> 0:01:40.880 march upward and the tenuere yields staying just about one 0:01:40.920 --> 0:01:44.959 point five, neither surging toward two nor falling back down. 0:01:45.520 --> 0:01:48.880 Bloomberg broke the news that President Biden maybe getting ready 0:01:48.920 --> 0:01:52.720 to follow through un Candidate Biden's commitment to eliminate preferential 0:01:52.760 --> 0:01:55.560 tax treatment for capital gains at least for those making 0:01:55.600 --> 0:01:58.080 over one million dollars a year, as part of an 0:01:58.120 --> 0:02:00.360 effort to pay for some of the other Grahams that 0:02:00.400 --> 0:02:03.720 the administration wants to take us through. What this could mean. 0:02:03.920 --> 0:02:07.400 We welcome now David Herzig. He is tax principal in 0:02:07.440 --> 0:02:10.520 the e y private client services tax practice. So, David, 0:02:10.520 --> 0:02:12.560 thank you so much for being with us. As I say, 0:02:12.600 --> 0:02:15.600 this doesn't come as unnecessary shocked anybody because the President 0:02:15.639 --> 0:02:18.720 had it in his campaign website as a practical matter, 0:02:18.960 --> 0:02:21.520 But what would this mean for the taxpayer and that 0:02:21.680 --> 0:02:25.320 for that matter, for capital formation generally in the country, 0:02:25.960 --> 0:02:28.880 Because David, thanks for having me. Um. I mean, I 0:02:29.360 --> 0:02:30.600 think you hit the nail on the head with the 0:02:30.639 --> 0:02:33.120 first thing, right. This isn't a surprise that you know 0:02:33.240 --> 0:02:36.839 present Finden proposes during the campaign. Um, we haven't seen 0:02:36.880 --> 0:02:40.119 the actual proposal, the American Family Plan yet, which which 0:02:40.160 --> 0:02:42.440 will kind of give us some more guidance. But it 0:02:42.520 --> 0:02:45.520 is really interesting to see what might happen with these 0:02:45.560 --> 0:02:48.680 tax rates increasing, because you know, if you're in New 0:02:48.760 --> 0:02:51.480 York or California, even the marginal rate might even be 0:02:51.560 --> 0:02:54.239 higher than than the proposed rate because you have the 0:02:54.280 --> 0:02:57.360 state level tax too, So you're seeing tax salvation putting 0:02:57.360 --> 0:03:00.440 out that New York might have a mark general rate 0:03:00.440 --> 0:03:03.040 of fifty eight point two percent, California might have a 0:03:03.080 --> 0:03:06.760 marginal rate of fifty six point seven. So these rates 0:03:06.760 --> 0:03:09.120 will really I think impact, you know, the way people 0:03:09.160 --> 0:03:12.680 look at us, a capital formation how they balance their 0:03:12.720 --> 0:03:15.200 portfoldio on what kind of goes on in kind of 0:03:15.240 --> 0:03:19.919 their overall tax plan. Yeah, so so, Um, the real 0:03:20.000 --> 0:03:22.600 question is for the people who are making more than 0:03:22.639 --> 0:03:25.079 a dog a year, they they can afford some really 0:03:25.160 --> 0:03:27.760 frust rate tax advice, the kind that you give them. Actually, 0:03:28.200 --> 0:03:30.400 So if people come to you and say, what do 0:03:30.440 --> 0:03:32.920 I do in response to this? How do you change 0:03:32.919 --> 0:03:36.480 your investment behavior in response to something like eliminating the 0:03:36.520 --> 0:03:40.280 preferential treatment for capital tax game for capital gains? Well, 0:03:40.320 --> 0:03:41.600 I mean, I think that's all. I mean, it's a 0:03:41.600 --> 0:03:43.640 hard question, right because we don't I guess there's an 0:03:43.640 --> 0:03:45.880 initial matter. You don't know if really that will get 0:03:45.920 --> 0:03:49.720 to the thirty nine point six percent that President bidence proposing. Right, 0:03:49.840 --> 0:03:52.520 There's there's questions of how this might work through the 0:03:52.520 --> 0:03:56.760 actual budget process. But let's assume for your argument, right, 0:03:56.800 --> 0:03:58.960 that will use the thirty nine points. That's that that's 0:03:59.000 --> 0:04:01.920 actually what gets past the Congress. The question is what 0:04:01.960 --> 0:04:03.680 do you do about that? And I think that's a 0:04:03.760 --> 0:04:07.280 challenging question for most taxpayers. Right when we talk to 0:04:08.240 --> 0:04:12.000 taxpayers about this, you know, the questions become, you know, 0:04:12.680 --> 0:04:15.040 is this going to be retroactive? Should I sell now 0:04:15.400 --> 0:04:18.200 and then think about buying later and capturing the lower 0:04:18.360 --> 0:04:21.400 tax right now, should we wait and see kind of 0:04:21.400 --> 0:04:23.479 what happens and see if the rate actually goes not 0:04:24.680 --> 0:04:29.479 but maybe a thirty percent ort and kind of see 0:04:29.520 --> 0:04:32.960 what happens. There's a lot of questions and moving parts 0:04:33.000 --> 0:04:35.320 about what you might want to do depending on where 0:04:35.320 --> 0:04:37.040 the rate lands. I mean, there's just a lot of 0:04:37.120 --> 0:04:39.839 uncertainty right now. I got a glimpse of one report 0:04:39.920 --> 0:04:42.440 that came out on what's happened in the past that 0:04:42.560 --> 0:04:46.400 suggested that if you do increase taxes on capital gains, 0:04:47.160 --> 0:04:50.960 that you may move more business into pass throughs and 0:04:51.000 --> 0:04:54.919 away from separate entities. Does that make sense? Well, I 0:04:54.920 --> 0:04:56.560 mean I think generally, like what the way you have 0:04:56.600 --> 0:04:59.360 to look at this is there's this kind of the 0:04:59.600 --> 0:05:02.159 big elephant in the room that no one's really discussing analysis, 0:05:02.240 --> 0:05:04.680 this thing called the locked in effect, right, and so 0:05:04.760 --> 0:05:08.039 the locked in effect is basically this economic theory that 0:05:08.160 --> 0:05:12.040 says you you won't sell if the tax rates get 0:05:12.040 --> 0:05:14.360 too high. Right, So if if tax rates get too high, 0:05:14.400 --> 0:05:16.240 I'm just going to hold onto my stock and wait. 0:05:16.480 --> 0:05:18.280 And so one of the things that Democrats are kind 0:05:18.279 --> 0:05:20.600 of proposing is saying one of the key drivers of 0:05:20.640 --> 0:05:23.560 the locked in effect is step up a basis at death. 0:05:24.160 --> 0:05:26.160 So what happens then is that when I die, I 0:05:26.240 --> 0:05:29.000 get an increased basis in my stock or whatever it is, 0:05:29.120 --> 0:05:31.719 and that kind of helps eliminate or mitigate against this 0:05:31.800 --> 0:05:35.400 capital gains rate increase. So when you look at this, 0:05:35.560 --> 0:05:37.720 you say to your point about like should we move 0:05:37.760 --> 0:05:40.800 from corporate to partnerships, or or how should I think 0:05:40.800 --> 0:05:45.600 about my investment strategy. If you eliminate capital gains preferences 0:05:45.640 --> 0:05:48.240 at death, you're going to see some different kinds of 0:05:48.320 --> 0:05:50.680 drivers for taxpayers trying to figure out which is the 0:05:50.720 --> 0:05:54.680 most efficient kind of capital structure and and it you know, 0:05:54.720 --> 0:05:58.920 generally partnerships have lower overall rates than corporate structures, so 0:05:58.960 --> 0:06:00.839 you could definitely see a shift to kind of the 0:06:00.920 --> 0:06:04.080 move to more partnership type structure. Yeah, but it's very interesting. 0:06:04.120 --> 0:06:05.960 I had not made the connection. I'm not a tax 0:06:06.080 --> 0:06:08.440 lawyer like you, but I had made the connection actually 0:06:08.600 --> 0:06:11.920 with the stepped up basis uh in inheritance. That's that's 0:06:12.040 --> 0:06:15.280 very interesting. Let me turn to a different subject, which 0:06:15.400 --> 0:06:18.960 is proposals to increase the funding for auditing by the 0:06:19.040 --> 0:06:21.400 I r S. You've seen that now to paper various things, 0:06:21.440 --> 0:06:24.680 maybe elimiting the salt limitation, but for whatever purpose, is 0:06:24.720 --> 0:06:27.000 it pretty clear that if we ramped up the spending 0:06:27.080 --> 0:06:29.520 on I R S assets, we would ramp up the 0:06:29.600 --> 0:06:32.320 revenue we get. Yeah, I mean, I think what you see, 0:06:32.440 --> 0:06:34.800 like all the all the kind of studies that have 0:06:34.839 --> 0:06:37.479 been done and all the the research that's been done 0:06:37.480 --> 0:06:40.920 on the matter, is if you increase spending on audits, 0:06:40.960 --> 0:06:45.400 you increase tax revenues. David, thanks, that's David Herzig tax 0:06:45.440 --> 0:06:49.560 principle with Ian Wise Private client services tax practice coming up. 0:06:49.680 --> 0:06:52.320 It's bad enough to speculate on doge coin or non 0:06:52.440 --> 0:06:56.719 fungible tokens, but European football. We talked with Steve Pluka 0:06:56.839 --> 0:07:00.000 of Bain Capital about what was behind that attempted cop 0:07:00.000 --> 0:07:02.800 who that was the Super Soccer league. That's next on 0:07:02.839 --> 0:07:11.520 Wall Street Week on Bloomberg. This is Bloomberg Wall Street 0:07:11.560 --> 0:07:15.720 Week with David Weston from Bloomberg Radio. Investors are getting 0:07:15.760 --> 0:07:19.600 creative in a low rate, low return world. Spacks, for instance, 0:07:19.760 --> 0:07:22.600 used to be a last resort for companies struggling to 0:07:22.600 --> 0:07:25.640 go public, but they've become all the rage, at least 0:07:25.720 --> 0:07:29.000 until the SEC warned this month about accounting errors. They 0:07:29.080 --> 0:07:31.880 raised nearly twenty six billion dollars of share sales in 0:07:32.000 --> 0:07:35.640 January alone, compared with less than fourteen billion dollars in 0:07:35.720 --> 0:07:39.680 all of two nineteen. Here's Scott Minored of Googgenheim. The 0:07:39.760 --> 0:07:44.360 upside is if the sponsor finds are really good in Loveland, uh, 0:07:44.440 --> 0:07:47.040 you know, you could still double or triple your money. 0:07:47.120 --> 0:07:50.680 It's a similar story with cryptocurrencies. Bitcoin broke out in 0:07:50.720 --> 0:07:54.400 two seventeen before plunging, and shot up to nearly sixty 0:07:54.400 --> 0:07:58.240 five thousand dollars last week before tumbling once again. In 0:07:58.280 --> 0:08:01.840 addition to institutional interests, the Nasdaq listing of coin based 0:08:01.880 --> 0:08:06.120 last week lifted crypto's profile in mainstream markets. It's obvious 0:08:06.360 --> 0:08:09.360 is an asset people are investing in. Our clients are 0:08:09.400 --> 0:08:13.040 asking ascamely invest in assasset, and you put it on 0:08:13.040 --> 0:08:15.440 our accounts and look at it. That's Back of America 0:08:15.520 --> 0:08:20.240 chairman Brian moynihan. Smaller coins like doge Coin, which was 0:08:20.280 --> 0:08:23.680 created as a joke, soared along with Bitcoin and has 0:08:23.760 --> 0:08:28.760 Elon Musk's backing. Here's Galaxy Digital's Mike Novograts. You know 0:08:28.840 --> 0:08:32.160 does was a main coin it doesn't really have a purpose. 0:08:32.240 --> 0:08:35.480 Let's put people in the safest, best stuff. Uh not, 0:08:36.200 --> 0:08:39.080 you know these joke coins. The crypto cras also fueled 0:08:39.120 --> 0:08:42.240 the rise of n f t s non fungible tokens 0:08:42.440 --> 0:08:46.760 unique irreplaceable identifiers created by algorithms, which gives value to 0:08:46.840 --> 0:08:50.240 digital art and other assets. There's money to be made 0:08:50.320 --> 0:08:53.480 with n f t s. In February, and animated image 0:08:53.480 --> 0:08:56.640 of a flying cat leaving a rainbow trail went for 0:08:56.760 --> 0:09:01.360 almost six hundred thousand dollars realities. A collectibles market is 0:09:01.640 --> 0:09:06.680 somewhere between three or five hundred billion dollars US per total, 0:09:06.760 --> 0:09:08.640 and I think that the reality is this market could 0:09:08.640 --> 0:09:12.640 get just as large. That's Jonathan Bixby from n FT Investments. 0:09:12.920 --> 0:09:15.400 There was a time when the ultra wealthy might buy 0:09:15.400 --> 0:09:17.800 a sports team as a way to diversify their portfolio. 0:09:18.240 --> 0:09:21.079 But this week a group of elite European football clubs 0:09:21.120 --> 0:09:23.480 decided to go further and create a whole new league, 0:09:23.640 --> 0:09:26.400 a super soccer league that would turn the richest and 0:09:26.480 --> 0:09:29.880 most popular sport in the world on its head. Twelve 0:09:29.920 --> 0:09:33.600 clubs from England, Spain and Italy signed on, backed by 0:09:33.720 --> 0:09:37.560 four point eight billion dollars in debt financing from JP Morgan, 0:09:38.120 --> 0:09:41.360 but it created a storm of protests from fans and 0:09:41.440 --> 0:09:44.480 from UK Prime Minister Boris Johnson. By the end of 0:09:44.480 --> 0:09:48.080 the week, several teams were backing out. Here's European Commission 0:09:48.120 --> 0:09:52.040 Executive Vice President Margaret Vestaire. I myself just you know, 0:09:52.200 --> 0:09:54.600 kind of relief that now some of the clubs are 0:09:54.679 --> 0:09:58.119 dropping at as you have heard my colleague Marguerite Taskinas 0:09:58.679 --> 0:10:01.000 very very strong that this is not in the European 0:10:01.000 --> 0:10:03.439 way when it comes to football. Turns out the Super 0:10:03.440 --> 0:10:05.880 Soccer League may not make it, but you have to 0:10:05.920 --> 0:10:08.720 wonder whether it made sound business sense or was just 0:10:08.800 --> 0:10:12.520 another example of too much money searching for too few opportunities. 0:10:12.760 --> 0:10:15.400 Before the league collapsed, we heard from someone who resides 0:10:15.440 --> 0:10:18.920 at the crossroads of high finance and sports ownership. Steve 0:10:18.920 --> 0:10:22.600 Paluka is co chairman of private equity giant Bayne Capital 0:10:22.760 --> 0:10:25.720 and co owner of the Boston Celtics. So we spoke 0:10:25.760 --> 0:10:28.559 with him before the league collapse about what was up 0:10:28.679 --> 0:10:33.080 with the Super Soccer League. On paper, conceptually, moving to 0:10:33.440 --> 0:10:37.160 a more American style sports ownership situation will be great 0:10:37.160 --> 0:10:40.280 for those big clubs because right now in europe UM, 0:10:41.040 --> 0:10:43.040 there is no there are no cost controls, virtually no 0:10:43.080 --> 0:10:46.520 cost controls. You can own a major franchise and be 0:10:47.120 --> 0:10:50.280 relegated UM. So that is a lot of uncertainty from 0:10:50.280 --> 0:10:53.800 a business standpoint, and uh, and so on paper, they've 0:10:53.800 --> 0:10:56.319 been talking about this, I think for close to twenty 0:10:56.400 --> 0:10:58.679 years now. But on paper it makes a lot of 0:10:58.720 --> 0:11:00.439 sense for those large clubs and as gonna cause a 0:11:00.480 --> 0:11:03.320 lot of disruption and and football is a way of 0:11:03.360 --> 0:11:06.960 life in England and countries of Europe, so I think 0:11:06.960 --> 0:11:10.080 you'll see a battle of go on. But ultimately, uh, 0:11:10.480 --> 0:11:12.880 the large city owners that are supplying a lot of 0:11:12.880 --> 0:11:15.199 those revenues, I think want to capitalize on that and 0:11:15.240 --> 0:11:17.280 want a more stable structure. I think I may have 0:11:17.320 --> 0:11:19.840 a rough, very rough understanding of why they also rans 0:11:19.840 --> 0:11:21.640 if I can call them, that want to participate in this, 0:11:21.679 --> 0:11:23.439 because they'll get a bigger piece of the pies. I 0:11:23.480 --> 0:11:25.920 understand there'll be some caps on how much people can spend. 0:11:26.040 --> 0:11:28.120 Why do the rich clubs want this? Because don't they 0:11:28.200 --> 0:11:31.320 rich get richer when it comes to European football? Well, 0:11:31.360 --> 0:11:33.280 I think part of the proposal is is to have 0:11:33.480 --> 0:11:37.760 a more partnership with players where there's A. I think 0:11:37.800 --> 0:11:42.840 they're talking about of the take goes goes to the players, 0:11:43.120 --> 0:11:44.679 and right now I think the players are taking eight 0:11:44.800 --> 0:11:48.120 percent of the take, and therefore even these big clubs 0:11:48.480 --> 0:11:50.640 are losing money, you know, given the transfer costs and 0:11:50.679 --> 0:11:52.839 given the cost of players. So I think part and 0:11:52.880 --> 0:11:55.800 parcel with it is is a you can't be relegated, 0:11:56.240 --> 0:11:59.520 and then having some cost controls in to ensure and 0:11:59.559 --> 0:12:02.040 you can make modicum of profitability. This is a different 0:12:02.080 --> 0:12:03.880 world from what I think a lot of people have seen. 0:12:03.920 --> 0:12:06.840 With so much monetary and fiscal stimulus in the United 0:12:06.840 --> 0:12:09.920 States but also in Europe and Japan. How does that 0:12:09.960 --> 0:12:14.160 affect the investment decision? How do you avoid overpriced assets? 0:12:14.200 --> 0:12:16.800 How do you find bargains in that world? Well, there's 0:12:16.880 --> 0:12:20.200 very few bargains in that world. Uh, we're kind of 0:12:20.240 --> 0:12:23.040 all time high multiples. As you know, the money supply 0:12:23.080 --> 0:12:28.200 increased over which one leads to inflation and uh and 0:12:28.200 --> 0:12:30.200 and the devastit is an all time might as well. 0:12:30.320 --> 0:12:34.400 So so that's the that's the the situation that there's 0:12:34.440 --> 0:12:36.880 a lot of money chasing a few deals, and that's 0:12:36.920 --> 0:12:40.319 been great for private equity because what you have to 0:12:40.360 --> 0:12:43.040 do in private equity is a be patient b You 0:12:43.080 --> 0:12:45.439 have to have a thesis when you buy a company 0:12:45.640 --> 0:12:48.439 on how you're going to improve it, make it larger, 0:12:48.559 --> 0:12:51.320 make it global, have new products, because at the end 0:12:51.320 --> 0:12:54.560 of the day, fundamentally people will pay for burrowing companies. 0:12:54.960 --> 0:12:56.719 So if you're gonna pay those high multiples, you have 0:12:56.760 --> 0:13:00.000 to have a plan that's going to justify that UM 0:13:00.080 --> 0:13:02.280 and UH and that's what we do at Bank Account 0:13:02.320 --> 0:13:04.199 But were formed, as you know, from a consulting firm, 0:13:04.240 --> 0:13:07.520 Well Banting and Company. And from day one we've been 0:13:07.920 --> 0:13:11.199 helping companies grow and and UH and prosper and as 0:13:11.240 --> 0:13:12.920 we have to keep doing. And we got perceived with 0:13:12.960 --> 0:13:16.240 caution not get carried away to pay be the last 0:13:16.240 --> 0:13:19.120 one to pay the hyble before the crash, but pay. 0:13:19.559 --> 0:13:21.319 You have to pay a fair multiple and then make 0:13:21.360 --> 0:13:24.200 those companies grow. You mentioned the money supply and inflation. 0:13:24.200 --> 0:13:26.559 There's something a debate going on between. On the one hand, 0:13:26.600 --> 0:13:28.280 I put might put j Pal on one side saying, 0:13:28.280 --> 0:13:30.679 don't really worry about inflation that much, given for a 0:13:30.679 --> 0:13:34.240 long time it's been deflationary disinflationary rather inflationary, and Larry 0:13:34.280 --> 0:13:36.560 Summers perhaps on the other side saying, wait a second, 0:13:36.559 --> 0:13:39.320 pumping this much money need economy, you're going to get 0:13:39.360 --> 0:13:41.520 more inflation than you think. Where do you come out 0:13:41.520 --> 0:13:43.240 on that, and how do you take that into account? 0:13:43.280 --> 0:13:45.520 If you do when you're looking at investments, Well, I'm 0:13:45.520 --> 0:13:48.440 with Larry Summers on that if you look at at 0:13:48.440 --> 0:13:50.480 all the data points in any country in the last 0:13:50.559 --> 0:13:53.560 hundred years, when the money supplies increased that level, you 0:13:53.600 --> 0:13:58.040 have gotten inflation percent at the time. Within a year 0:13:58.120 --> 0:14:00.920 or two after those kinds of massive and resist So 0:14:01.000 --> 0:14:02.840 I think there will be inflation. And so what you 0:14:02.840 --> 0:14:05.679 have to do is factor that into your investment decisions 0:14:05.880 --> 0:14:08.920 and uh and and figure out what companies will will 0:14:09.160 --> 0:14:11.760 will be able to get through an inflationary period. So 0:14:11.840 --> 0:14:16.120 companies that companies that can withstand that kind of inflation, 0:14:16.160 --> 0:14:17.600 you have to factor that in your models. In fact 0:14:17.640 --> 0:14:19.680 of that impression back, do you take into account the 0:14:20.120 --> 0:14:23.160 future strength or weakness of the dollar, because typically when 0:14:23.160 --> 0:14:26.440 you run record deficits trade deficit as well as budget deficity, 0:14:26.560 --> 0:14:29.320 you're gonna have a weaker currency. Do you anticipate that possibility? 0:14:29.400 --> 0:14:31.560 Do you take that into account in investing? I think 0:14:31.560 --> 0:14:33.640 you have to take that into account as well, especially 0:14:33.720 --> 0:14:36.720 if you're if you're on both sides of it. If 0:14:36.760 --> 0:14:39.120 you're if the dollar appreciates and you're in a highly 0:14:39.200 --> 0:14:43.040 export driven business USA business and exports all over the world, 0:14:43.320 --> 0:14:45.840 that's gonna be beneficial with you. UM. If you have 0:14:46.000 --> 0:14:50.080 raw materials and you have things that you're important to manufacture, UM, 0:14:50.200 --> 0:14:52.720 that's going to be not the infestially used. So I 0:14:52.720 --> 0:14:54.720 would suspect we're gonna have an inflationary environment of those 0:14:54.760 --> 0:14:56.480 things will have to be factored in all all of 0:14:56.480 --> 0:14:59.920 our investment decisions. Thanks to Steve Alucca of Bain Cap 0:15:00.560 --> 0:15:03.920 coming up investing in our Future. What would putting two 0:15:04.000 --> 0:15:06.800 point to five trillion dollars to work on infrastructure do 0:15:06.960 --> 0:15:10.840 for our economy and for US business? From Ralph Schlastein 0:15:11.080 --> 0:15:14.600 of Evercore. That's next on Wall Street Week on Bloomberg. 0:15:17.200 --> 0:15:21.160 This is Bloomberg Wall Street Week with David Weston from 0:15:21.280 --> 0:15:24.960 Bloomberg Radio. There was a lot more talking about infrastructure 0:15:25.000 --> 0:15:28.239 this week, including talk between the President and a bipartisan 0:15:28.240 --> 0:15:31.080 group of lawmakers about what's needed and about how to 0:15:31.120 --> 0:15:34.040 pay for it. Everyone seems to agree something needs to 0:15:34.080 --> 0:15:37.280 be done, but we don't always hear exactly what it 0:15:37.320 --> 0:15:40.840 would accomplish. So we asked someone who spent his career 0:15:40.880 --> 0:15:44.200 walking the halls of power in Washington, and then those 0:15:44.240 --> 0:15:48.560 of Wall Street Avercorp. Co Chairman and co CEO, Ralph Schlastein. 0:15:49.000 --> 0:15:53.560 I think the economy is in very very uh good 0:15:53.600 --> 0:15:58.320 shape poise to make a quite rapid recovery. And I believe, 0:15:58.880 --> 0:16:02.280 if anything, the ECONO to me is going to surprise 0:16:02.400 --> 0:16:07.080 on the upside because there's so much uh pent up 0:16:08.040 --> 0:16:13.960 demand to consume, so much uh build up of net 0:16:14.000 --> 0:16:19.120 worth uh and savings on personal balance sheets UH that 0:16:19.160 --> 0:16:21.320 if we're gonna if we're going to get a surprise, 0:16:21.520 --> 0:16:23.560 I believe it's on the upside. And I think if 0:16:23.560 --> 0:16:25.880 we're going to get a surprise and unemployment, I think 0:16:25.920 --> 0:16:29.280 it will be and how rapidly it declines. And I 0:16:29.320 --> 0:16:31.280 think if we get a surprise and earnings, it will 0:16:31.320 --> 0:16:33.360 also be on the upside. So I think one of 0:16:33.360 --> 0:16:36.400 the questions people have is people expect that sort of upswing. 0:16:36.440 --> 0:16:38.440 No question, is it going to be a sugar rish 0:16:38.840 --> 0:16:40.840 sugar high that we come down off of quickly? Or 0:16:40.880 --> 0:16:42.880 what do you think about the longer term prospects, not 0:16:42.960 --> 0:16:47.200 just for going into and beyond the challenge here is 0:16:47.360 --> 0:16:53.880 to get back to potential uh as rapidly as possible, 0:16:53.960 --> 0:16:57.440 but not on a path that causes you to overshoot 0:16:57.480 --> 0:17:03.280 and cause uh, you know, longer term and more sustained inflation. 0:17:03.760 --> 0:17:07.080 As you said in your opening remarks, Uh, the amount 0:17:07.200 --> 0:17:12.760 of fiscal and monetary stimulus that has been applied is 0:17:13.080 --> 0:17:17.360 absolutely unprecedented, and the rapidity with which it's been applied 0:17:17.600 --> 0:17:21.280 is also unprecedented. So we're a little bit in uncharted 0:17:21.320 --> 0:17:27.320 waders as to uh what happens after we get closer 0:17:28.040 --> 0:17:34.280 uh to uh, you know, potential growth. I will say 0:17:35.240 --> 0:17:39.480 that over the long term, we have to get more 0:17:39.560 --> 0:17:45.919 balance between revenues and expenditures in the government. Uh. You know. 0:17:46.000 --> 0:17:50.600 The pace at which debt is expanding is tolerable in 0:17:50.680 --> 0:17:54.720 a period of economic decline like we're like we've been 0:17:54.760 --> 0:17:57.240 in for the last year or so, but it's not 0:17:57.400 --> 0:18:01.600 sustainable over the longer term. One of the advantages I 0:18:01.680 --> 0:18:03.760 think of your job is you get to talk to 0:18:03.800 --> 0:18:06.200 c e O s all the time. Are they concerned 0:18:06.200 --> 0:18:08.320 about overshooting I think was the term you used. Are 0:18:08.320 --> 0:18:11.560 they are worried about running economy too hot? At this point, 0:18:11.600 --> 0:18:17.439 I'd say there's very little concern about that. Uh, CEOs 0:18:17.480 --> 0:18:23.320 are concerned about making sure they have uh sufficient uh 0:18:23.359 --> 0:18:28.040 trained and qualified workers. UH. They're concerned about their uh 0:18:28.160 --> 0:18:32.760 supply chains due to the rapidity of the recovery. But 0:18:32.840 --> 0:18:35.440 at this point, uh, you know, we're still so far 0:18:35.480 --> 0:18:42.320 away from uh you know capacity uh that that concern 0:18:42.560 --> 0:18:47.119 really doesn't exist today. And I will say also that 0:18:47.280 --> 0:18:53.200 the the logical concerned that one might have is that 0:18:54.080 --> 0:19:00.359 inflation UH is that's is sustained at a much higher 0:19:00.440 --> 0:19:03.480 level than we would like. And I do believe that 0:19:03.960 --> 0:19:08.120 uh you know, technology, including some of the advances that 0:19:08.160 --> 0:19:12.439 we've made uh as a result of COVID, does serve 0:19:12.480 --> 0:19:18.040 as a longer term depressant on inflation. So one of 0:19:18.080 --> 0:19:21.280 the things we're seeing proposed now by President Biden is 0:19:21.359 --> 0:19:24.240 a massive I think that's not an overstatement of proposal 0:19:24.280 --> 0:19:26.919 for what he calls infrastructure two point two five trillion dollars. 0:19:27.040 --> 0:19:29.879 We also now have Republican senators coming back and saying, well, 0:19:29.880 --> 0:19:33.680 we believe in infrastructure, but maybe institute of rather than 0:19:34.320 --> 0:19:37.840 two trillion. But whatever the number is, what is that 0:19:38.000 --> 0:19:42.000 likely to do the economy? It's going to provide uh 0:19:42.320 --> 0:19:47.199 longer term uh, not immediate uh stimulus, because as we 0:19:47.280 --> 0:19:51.560 all know. UH. The idea of quote unquote shovel ready 0:19:51.720 --> 0:19:56.840 projects for economic stimulus has been tried UH in many 0:19:56.920 --> 0:20:01.080 past recessions, UH and doesn't really work. Shove already never 0:20:01.119 --> 0:20:05.600 seems to be shove already. I think the proposition that 0:20:05.680 --> 0:20:11.120 we need to make uh multi hundred billion, perhaps trillion 0:20:11.480 --> 0:20:19.200 ish dollar investments in UH roads, bridges, broadband, all things 0:20:19.240 --> 0:20:24.720 that enhance productivity over the intermediates a longer term, I 0:20:24.760 --> 0:20:30.040 think there's broad based agreement on that UH, and I 0:20:30.080 --> 0:20:36.080 think there is still compromise or disagreement on the amount. UH. 0:20:36.080 --> 0:20:42.200 There's a there's certainly disagreement on what constitutes infrastructure, and 0:20:42.240 --> 0:20:48.440 there are certainly things in President Biden's proposal that uh, 0:20:48.480 --> 0:20:53.520 you know, expand the historical definition of infrastructure. And then 0:20:53.560 --> 0:20:57.560 of course there's the big question about how does this 0:20:57.640 --> 0:21:01.600 get financed? Thanks to Ralph last line ever Corps coming up. 0:21:01.680 --> 0:21:04.280 It's the second largest economy in the world, and if 0:21:04.320 --> 0:21:07.280 we thought China might be throwing its economic weight around, 0:21:07.600 --> 0:21:10.960 now we have the evidence from special contributor Larry Summers 0:21:11.000 --> 0:21:14.920 of Harvard and Anna Gaelpern of Georgetown University. That's next 0:21:15.000 --> 0:21:23.639 on Wall Street Week on Bloomberg. This is Bloomberg Wall 0:21:23.720 --> 0:21:27.840 Street Week with David Weston from Bloomberg Radio. China the 0:21:27.920 --> 0:21:31.320 number two economy in the world, gaining on the United States, 0:21:31.359 --> 0:21:34.440 and it is coming to exercise its economic power around 0:21:34.440 --> 0:21:37.040 the world, including through that One Belt one Road. Were's 0:21:37.040 --> 0:21:39.800 making a lot of sovereign loans all around the world. 0:21:39.840 --> 0:21:41.760 We don't know very much about them, but we now 0:21:41.800 --> 0:21:44.560 have a new insight into them, and that is because 0:21:44.600 --> 0:21:48.320 of professor Anna Gelpert. She is from Georgetown University and 0:21:48.359 --> 0:21:50.119 we welcome her now she's done a study and we're 0:21:50.200 --> 0:21:53.720 joined our special contributor Larry Summers, who really pointed out 0:21:53.760 --> 0:21:56.680 and to be so and it's a fascinating thing you did. 0:21:56.960 --> 0:21:59.280 You actually got your hands on some of these contracts 0:21:59.320 --> 0:22:01.240 because most of us never see what they are, the 0:22:01.400 --> 0:22:04.200 terms on which China is lending to some sovereigns around 0:22:04.240 --> 0:22:08.080 the world. What did you learn? The project is very 0:22:08.160 --> 0:22:11.879 much a collaboration. There are folks from AID Data William 0:22:11.920 --> 0:22:18.919 and Mary specialized in finding UM project documents about various 0:22:19.000 --> 0:22:26.480 bilateral deals with China and otherwise and UM they found 0:22:27.080 --> 0:22:30.320 a hundred pure accident, by the way, a hundred nice 0:22:30.400 --> 0:22:35.680 round number contracts between Chinese lenders primarily China x and 0:22:35.720 --> 0:22:40.360 Bank and China Development Bank and governments in developing countries, 0:22:40.560 --> 0:22:43.840 and it's both one belt, one road and you know 0:22:43.960 --> 0:22:48.160 large emerging markets in Latin America, Argentina, Ecuador among them. 0:22:48.280 --> 0:22:53.120 UM And the question was so UM Brad Parks at 0:22:53.119 --> 0:22:56.600