1 00:00:00,160 --> 00:00:03,360 Speaker 1: This is Bloomberg Wall Street Week. What's the state of 2 00:00:03,400 --> 00:00:06,360 Speaker 1: corporate governance? The deficit is a real issue. The US 3 00:00:06,400 --> 00:00:09,760 Speaker 1: economy continues to send mixed signals to the financial stories 4 00:00:09,800 --> 00:00:12,680 Speaker 1: that keep our world fed, action to con concerns over 5 00:00:12,760 --> 00:00:16,240 Speaker 1: dollar liquidity, and encouraging China data the five hundred wealthiest 6 00:00:16,239 --> 00:00:18,360 Speaker 1: people in the world. Through the eyes of the most 7 00:00:18,480 --> 00:00:22,520 Speaker 1: influential voices, Larry Summers, the former Treasury Secretary, star Ward, CEO, 8 00:00:22,640 --> 00:00:26,360 Speaker 1: Kevin Johnson sec Chairman J Clayton, Bloomberg Wall Street Week 9 00:00:26,480 --> 00:00:30,400 Speaker 1: with David Weston from Bloomberg Radio. Coming to terms with 10 00:00:30,560 --> 00:00:34,479 Speaker 1: no stimulus anytime soon, with the possible all blue government, 11 00:00:34,720 --> 00:00:37,640 Speaker 1: and with the virus that just won't go away. Welcome 12 00:00:37,680 --> 00:00:41,120 Speaker 1: to Bloomberg Wall Street Week. I'm David Weston. Last week 13 00:00:41,200 --> 00:00:44,720 Speaker 1: it was FED chair J Powell and ECB President Madame Legarde. 14 00:00:45,159 --> 00:00:47,960 Speaker 1: This week it was I am F Managing Director Chrystalina 15 00:00:48,040 --> 00:00:51,199 Speaker 1: Georgieva at her annual meeting, who laid out in no 16 00:00:51,320 --> 00:00:54,760 Speaker 1: uncertain terms that the global economy needs help, and that 17 00:00:54,760 --> 00:00:57,800 Speaker 1: that help needs to come from the fiscal side. Wall 18 00:00:57,840 --> 00:01:01,200 Speaker 1: Street Week contributor and Senior executive editor Lanborg Economics Stephanie 19 00:01:01,200 --> 00:01:04,200 Speaker 1: Flanders gives us the over and under and getting this 20 00:01:04,280 --> 00:01:07,640 Speaker 1: fiscal help we need on both sides of the Atlantic. Well, 21 00:01:07,680 --> 00:01:09,640 Speaker 1: I guess we should. We should ports to reflect on 22 00:01:09,680 --> 00:01:13,039 Speaker 1: the fact that the international monetary founders not historically been 23 00:01:13,440 --> 00:01:17,440 Speaker 1: a great source of fiscal stimulus and the booster for 24 00:01:17,520 --> 00:01:21,400 Speaker 1: fiscal stimulus. You remember even this in the last global 25 00:01:21,440 --> 00:01:26,039 Speaker 1: financial crisis. After supporting fiscal action to help economies for 26 00:01:26,080 --> 00:01:29,520 Speaker 1: the first year or two, they were among those who 27 00:01:29,560 --> 00:01:32,720 Speaker 1: said we should know was in favor of austerity in 28 00:01:32,760 --> 00:01:35,399 Speaker 1: the Eurozone and elsewhere. So to have the head of 29 00:01:35,400 --> 00:01:38,520 Speaker 1: the iron there saying, if anything, the danger is too 30 00:01:38,560 --> 00:01:42,040 Speaker 1: little rather than too much, even as she unveiled on 31 00:01:42,040 --> 00:01:47,240 Speaker 1: a significant rise in debt, stocks and borrowing across the 32 00:01:47,280 --> 00:01:50,560 Speaker 1: world was quite was quite a thing to behold. But 33 00:01:50,640 --> 00:01:54,000 Speaker 1: of course it's it's facing. She's reflecting the reality, which 34 00:01:54,040 --> 00:01:57,040 Speaker 1: is that economies are not out on the danger zone. 35 00:01:57,080 --> 00:01:59,320 Speaker 1: And in fact, if you're certainly if you're sitting in Europe, 36 00:01:59,320 --> 00:02:02,360 Speaker 1: you feel like you're going back into a very risky 37 00:02:02,440 --> 00:02:07,000 Speaker 1: period with you know, curfewsed being introduced across France, new 38 00:02:07,080 --> 00:02:10,720 Speaker 1: tighter restrictions across large parts of the UK, the impact 39 00:02:10,800 --> 00:02:13,600 Speaker 1: on the economy could be quite profound, so you can't 40 00:02:13,639 --> 00:02:16,519 Speaker 1: turn off the support yet. So we all are very 41 00:02:16,560 --> 00:02:19,880 Speaker 1: concerned about the uptick, the surge, if I can put 42 00:02:19,880 --> 00:02:22,079 Speaker 1: it that way, in the number of cases of COVID nineteen, 43 00:02:22,160 --> 00:02:23,960 Speaker 1: certainly in Europe and here in the United States, much 44 00:02:24,040 --> 00:02:27,360 Speaker 1: United Stage as well. At the same time, the lethality 45 00:02:27,480 --> 00:02:29,239 Speaker 1: of it seems to have gone down now as many 46 00:02:29,240 --> 00:02:32,040 Speaker 1: people are hospitalized or dying, are they well. It's interesting 47 00:02:32,080 --> 00:02:34,160 Speaker 1: because that was what was happening in the summer, and 48 00:02:34,200 --> 00:02:37,920 Speaker 1: I think there was a certain amount of um complacency 49 00:02:37,960 --> 00:02:40,480 Speaker 1: even about the rising rates towards the end of the 50 00:02:40,520 --> 00:02:44,600 Speaker 1: summer because they didn't seem to be accompanied by hospitalization rates. 51 00:02:44,800 --> 00:02:47,680 Speaker 1: And it's certainly true that in the U s particularly, 52 00:02:47,720 --> 00:02:49,600 Speaker 1: we've got much better at treating We've seen a very 53 00:02:49,680 --> 00:02:52,280 Speaker 1: high profile case recently, but we've got much better at 54 00:02:52,320 --> 00:02:56,400 Speaker 1: treating coronavirus. Actually, across Europe you are starting to see 55 00:02:56,480 --> 00:02:59,200 Speaker 1: older people start to get in the pop get COVID again, 56 00:02:59,560 --> 00:03:02,280 Speaker 1: and that starting to fill up hospitals again. So I 57 00:03:02,320 --> 00:03:04,120 Speaker 1: don't have the idea that this is going to be 58 00:03:04,280 --> 00:03:07,200 Speaker 1: really a much easier thing the second time around. Is 59 00:03:07,280 --> 00:03:10,400 Speaker 1: I think wishful thinking, although we certainly have a better 60 00:03:10,440 --> 00:03:13,080 Speaker 1: handle on how to treat it. We certainly seem to 61 00:03:13,080 --> 00:03:15,320 Speaker 1: be hearing, as you say, ironically, perhaps from the I 62 00:03:15,440 --> 00:03:17,280 Speaker 1: M F, but also from the fellow Reserve, from J. 63 00:03:17,400 --> 00:03:20,560 Speaker 1: Powe also, Madam Reguard, President of UCB, that this is 64 00:03:20,600 --> 00:03:22,840 Speaker 1: not the time to worry about the debt or deficit. 65 00:03:22,919 --> 00:03:25,800 Speaker 1: When will be the time when we know that we 66 00:03:25,880 --> 00:03:29,280 Speaker 1: are we have reached the end of the recession and 67 00:03:29,400 --> 00:03:31,480 Speaker 1: we can see the light in terms of a post 68 00:03:31,520 --> 00:03:35,960 Speaker 1: COVID world. I think the challenge, and particularly in the US, 69 00:03:36,040 --> 00:03:40,320 Speaker 1: where you are having real difficulty in getting getting further 70 00:03:40,400 --> 00:03:43,960 Speaker 1: stimulus past, is you don't want to have a policy 71 00:03:44,000 --> 00:03:47,560 Speaker 1: induced doubled it in the economy even as you're still 72 00:03:47,600 --> 00:03:51,040 Speaker 1: fighting the pandemic. And I think that the fiscal the 73 00:03:51,080 --> 00:03:54,160 Speaker 1: first round of fiscal stimulus all over the world and 74 00:03:54,240 --> 00:03:57,680 Speaker 1: certainly in the US, was remarkably efficient at filling that 75 00:03:57,760 --> 00:04:01,160 Speaker 1: hole that was being blown in the economy by COVID. 76 00:04:01,840 --> 00:04:05,000 Speaker 1: We reckon that more than a hundred percent of the damage, 77 00:04:05,520 --> 00:04:08,200 Speaker 1: just the sheer income damage from COVID in the first 78 00:04:08,240 --> 00:04:12,480 Speaker 1: wave was addressed by that massive fiscal stimulus package. But 79 00:04:12,560 --> 00:04:15,560 Speaker 1: if you have nothing for this second wave, which seems 80 00:04:15,560 --> 00:04:17,960 Speaker 1: now to be a risk. You can see why J 81 00:04:18,160 --> 00:04:20,920 Speaker 1: Pow and others would be very concerned in the US 82 00:04:21,000 --> 00:04:24,960 Speaker 1: and why European governments would not want to turn reversed course. 83 00:04:25,040 --> 00:04:28,760 Speaker 1: Yet all the economy seemed to agree we need to continue, 84 00:04:28,839 --> 00:04:31,480 Speaker 1: even increase the fiscal simulus. At the same time, are 85 00:04:31,480 --> 00:04:33,000 Speaker 1: were putting off the time when there have to be 86 00:04:33,040 --> 00:04:35,320 Speaker 1: other readjustments made in the economy for the long term 87 00:04:35,320 --> 00:04:37,080 Speaker 1: health of the economy. I'm not talking about cutting BA 88 00:04:37,080 --> 00:04:40,720 Speaker 1: against fiscal students. I'm talking about repurposing people and industries. 89 00:04:40,760 --> 00:04:43,120 Speaker 1: I mean, you have a wonderful podcast called Stephanomicks and 90 00:04:43,160 --> 00:04:46,159 Speaker 1: which you talk about the jobs. Are we supporting jobs 91 00:04:46,160 --> 00:04:48,400 Speaker 1: that maybe will go away? Yeah, if I'm allowed to 92 00:04:48,440 --> 00:04:51,200 Speaker 1: boost for a moment on the Steponomics podcast. Actually this 93 00:04:51,240 --> 00:04:54,000 Speaker 1: week we had a wonderful piece from Spain from Caddies, 94 00:04:54,120 --> 00:04:58,040 Speaker 1: the southwest of Spain, making addressing exactly that point which 95 00:04:58,120 --> 00:05:01,760 Speaker 1: jobs are gone forever and which actually could come back. 96 00:05:01,839 --> 00:05:04,200 Speaker 1: And there's a ship building industry there that clearly has 97 00:05:04,240 --> 00:05:07,920 Speaker 1: not come back, and is workers from there have then 98 00:05:07,960 --> 00:05:12,720 Speaker 1: gone onto for example, working in airline engineering. Now they're 99 00:05:12,760 --> 00:05:16,640 Speaker 1: engineering for aircraft for air of bus. Now they're facing 100 00:05:16,680 --> 00:05:20,320 Speaker 1: the possibility of long term redundancy and asking themselves is 101 00:05:20,360 --> 00:05:22,799 Speaker 1: the airline business going to go the way of ship building? 102 00:05:23,040 --> 00:05:24,880 Speaker 1: And the honest answer is, for a lot of the economy, 103 00:05:24,960 --> 00:05:27,880 Speaker 1: we don't know even even the changes that we think 104 00:05:27,880 --> 00:05:29,960 Speaker 1: are going to be permanent, you know, people wanting to 105 00:05:30,000 --> 00:05:33,800 Speaker 1: work from home or people traveling for work less. In 106 00:05:33,839 --> 00:05:36,120 Speaker 1: a few years time, will we will We'll be will 107 00:05:36,120 --> 00:05:38,520 Speaker 1: we'd be laughing at those predictions that the world was 108 00:05:38,520 --> 00:05:41,280 Speaker 1: going to change. Well, that's an interesting Stephanie, because that reads, 109 00:05:41,320 --> 00:05:43,479 Speaker 1: i think, in part against some of the debate in 110 00:05:43,480 --> 00:05:45,320 Speaker 1: the United States about the STIMUS. But whether it should 111 00:05:45,320 --> 00:05:48,120 Speaker 1: be targeted or broad based. We hear certainly from the 112 00:05:48,120 --> 00:05:50,320 Speaker 1: Trump administration it should be targeted. We should pick the 113 00:05:50,320 --> 00:05:53,120 Speaker 1: industries we need to support. What you're suggesting is maybe 114 00:05:53,160 --> 00:05:55,039 Speaker 1: that might be a mistake. I mean, it lapses into 115 00:05:55,120 --> 00:05:58,000 Speaker 1: a form of industrial policy at some point. It's so difficult, 116 00:05:58,040 --> 00:06:00,920 Speaker 1: and I sympathize with all of the anouced binisters around 117 00:06:00,920 --> 00:06:03,400 Speaker 1: the world who are trying to to decide how to 118 00:06:03,480 --> 00:06:06,039 Speaker 1: do this because that you know, and we've seen in 119 00:06:06,040 --> 00:06:10,080 Speaker 1: the US actually that the very broad programs have had 120 00:06:10,160 --> 00:06:14,479 Speaker 1: a lot of issues of of misuse of funds and 121 00:06:14,600 --> 00:06:18,760 Speaker 1: not going necessarily to quote unquote deserving parts of the economy. 122 00:06:18,960 --> 00:06:20,880 Speaker 1: But the more you try and target, the more you 123 00:06:20,920 --> 00:06:24,200 Speaker 1: are making those difficult decisions and maybe pre judging what 124 00:06:24,279 --> 00:06:26,320 Speaker 1: the structure of the future economy is going to be. 125 00:06:26,760 --> 00:06:29,320 Speaker 1: If you have a decent social safety net to begin 126 00:06:29,440 --> 00:06:34,040 Speaker 1: with and a good level of trust between government and citizens, 127 00:06:34,279 --> 00:06:36,479 Speaker 1: I think it's easier to make these choices. And that's 128 00:06:36,480 --> 00:06:39,440 Speaker 1: what we're seeing in some countries in Europe of finding 129 00:06:39,480 --> 00:06:42,320 Speaker 1: it easier than others, in part because they have pre 130 00:06:42,400 --> 00:06:45,560 Speaker 1: existing ways of dealing with these very difficult challenges. That 131 00:06:45,680 --> 00:06:50,120 Speaker 1: was Bloomberg's Senior Executive editor for Economics, Stephanie Flanders. Coming up, 132 00:06:50,360 --> 00:06:55,760 Speaker 1: Internet companies, cryptocurrencies, pot stocks, are spects the latest financial fair. 133 00:06:56,240 --> 00:06:58,719 Speaker 1: We talked the ins and out of specs with former 134 00:06:58,800 --> 00:07:03,000 Speaker 1: SEC Commissioner Joe Grunfest of Stanford. That's next on Wall 135 00:07:03,000 --> 00:07:11,560 Speaker 1: Street Week on Bloomberg. This is Bloomberg Wall Street Week 136 00:07:11,760 --> 00:07:15,800 Speaker 1: with David Weston from Bloomberg Radio. Spacks may sound too 137 00:07:15,840 --> 00:07:18,720 Speaker 1: good to be true, all the money and none of 138 00:07:18,760 --> 00:07:23,000 Speaker 1: the regulatory oversight, So we asked former SEC Commissioner Joe 139 00:07:23,000 --> 00:07:26,600 Speaker 1: Grunfest of Stanford what the tradeoffs really are. Well. I 140 00:07:26,600 --> 00:07:29,920 Speaker 1: think there's several factors that are simultaneously coming together in 141 00:07:29,920 --> 00:07:32,720 Speaker 1: the market. First, there's an appetite for risk. I don't 142 00:07:32,720 --> 00:07:34,840 Speaker 1: think there's any doubt about it. When interest rates in 143 00:07:34,880 --> 00:07:37,760 Speaker 1: the United States are close to zero, and when the 144 00:07:37,800 --> 00:07:40,000 Speaker 1: Fed has signaled that they're likely to remain close to 145 00:07:40,080 --> 00:07:42,760 Speaker 1: zero for a long period of time, and you've got 146 00:07:42,840 --> 00:07:47,760 Speaker 1: very significant amounts of bonds training at negative interest rates. Internationally, 147 00:07:48,560 --> 00:07:51,200 Speaker 1: people in many ways are reaching for yield and looking 148 00:07:51,240 --> 00:07:54,280 Speaker 1: for opportunities. They're looking for more attractive ways to to 149 00:07:54,640 --> 00:07:58,840 Speaker 1: put their money work, and spacks are a very interesting opportunity. 150 00:07:58,960 --> 00:08:02,240 Speaker 1: At one level, they are arbitrage opportunity for people trying 151 00:08:02,280 --> 00:08:03,960 Speaker 1: to make a little bit of money on the side. 152 00:08:04,640 --> 00:08:07,480 Speaker 1: If you can pick up one to three percent, relatively 153 00:08:07,600 --> 00:08:10,760 Speaker 1: risk free in today's environment, that's a very nice trade 154 00:08:10,840 --> 00:08:13,440 Speaker 1: for some people that playing in this back market. And 155 00:08:13,440 --> 00:08:16,640 Speaker 1: then it's another way to get exposure to some early 156 00:08:16,760 --> 00:08:20,920 Speaker 1: stage I p O style returns with a much more 157 00:08:20,920 --> 00:08:24,120 Speaker 1: significant degree of risk for other investors at a different 158 00:08:24,160 --> 00:08:27,560 Speaker 1: stage in the SPAC life cycle. You mentioned arbitrage. I 159 00:08:27,600 --> 00:08:30,080 Speaker 1: wonder if there's a regulatory arbitrage go out as well, 160 00:08:30,120 --> 00:08:32,720 Speaker 1: because essentially you can have a private company a unicorn. 161 00:08:32,760 --> 00:08:35,280 Speaker 1: So so it's big who can go public without doing 162 00:08:35,280 --> 00:08:36,960 Speaker 1: an I p O. You can avoid all that pesky 163 00:08:37,080 --> 00:08:40,000 Speaker 1: regulation and all those lawyers and underwriters and things. Well, 164 00:08:40,040 --> 00:08:43,319 Speaker 1: you know, it's you don't actually avoid all the pesky regulation. 165 00:08:43,440 --> 00:08:46,560 Speaker 1: You don't avoid the disclosure you get. You generally get 166 00:08:46,600 --> 00:08:49,559 Speaker 1: the same information out there, and in some ways even 167 00:08:49,640 --> 00:08:52,840 Speaker 1: more information, but it comes to the market on a 168 00:08:52,920 --> 00:08:56,080 Speaker 1: different form. So instead of you know, technically being filed 169 00:08:56,080 --> 00:08:58,200 Speaker 1: on something called an S one and doing an I 170 00:08:58,320 --> 00:09:01,600 Speaker 1: p O, what you have is merger between the publicly 171 00:09:01,600 --> 00:09:06,440 Speaker 1: traded SPACK and the privately held operating company, and disclosures 172 00:09:06,440 --> 00:09:09,199 Speaker 1: about the operating company are made as part of that 173 00:09:09,480 --> 00:09:15,360 Speaker 1: merger process. So investors in the marketplace basically get essentially 174 00:09:15,400 --> 00:09:19,920 Speaker 1: identical information and aspect transaction as they do in a 175 00:09:20,080 --> 00:09:24,400 Speaker 1: traditional I PO, although the mechanisms are quite different. Well, 176 00:09:24,520 --> 00:09:28,440 Speaker 1: investors after the merger in the publicly traded company, but 177 00:09:28,480 --> 00:09:30,960 Speaker 1: investors in the SPAC originally they don't know what they're buying. 178 00:09:30,960 --> 00:09:32,800 Speaker 1: They don't even know what the company is much low 179 00:09:32,960 --> 00:09:36,160 Speaker 1: less have any disclosure about the financials. Yes, sir, it's 180 00:09:36,200 --> 00:09:38,120 Speaker 1: you know, I'm waiting for for a SPAC to come 181 00:09:38,160 --> 00:09:40,079 Speaker 1: out there being named pig in a poke. I think 182 00:09:40,080 --> 00:09:42,920 Speaker 1: there's so many, there's so many out there, they're running 183 00:09:42,920 --> 00:09:46,760 Speaker 1: out of names. There are an awful lot. But but 184 00:09:46,840 --> 00:09:49,280 Speaker 1: do we lose something in the regulatory oversight or do 185 00:09:49,280 --> 00:09:51,400 Speaker 1: you think it's just as good as an I p 186 00:09:51,520 --> 00:09:53,600 Speaker 1: O or a direct listing, which are also getting quite 187 00:09:53,600 --> 00:09:55,439 Speaker 1: popular right now. I don't know that I used the 188 00:09:55,480 --> 00:09:58,800 Speaker 1: phrase just as good. Instead, what I'd say there are 189 00:09:58,920 --> 00:10:03,160 Speaker 1: multiple differing created ways of companies coming to the market. Now, 190 00:10:03,640 --> 00:10:06,440 Speaker 1: as you properly pointed out, we've got the traditional firm 191 00:10:06,480 --> 00:10:10,959 Speaker 1: commitment underwriting. We now have direct offerings. Those are, however, 192 00:10:11,040 --> 00:10:14,600 Speaker 1: primarily done as secondaries. We don't yet have situations where 193 00:10:14,640 --> 00:10:19,439 Speaker 1: companies themselves are doing direct offerings and coming to the market. Uh. 194 00:10:19,480 --> 00:10:22,480 Speaker 1: And then we have these spack transactions where again you're 195 00:10:22,480 --> 00:10:25,360 Speaker 1: absolutely right, when you initially buy into the spack you 196 00:10:25,440 --> 00:10:27,800 Speaker 1: have no idea who the merger partner is going to be. 197 00:10:28,400 --> 00:10:31,880 Speaker 1: You're instead bidding on the founders of the spack and 198 00:10:31,960 --> 00:10:35,439 Speaker 1: their ability to find a good merger partner. And more importantly, 199 00:10:35,679 --> 00:10:39,160 Speaker 1: or just as importantly negotiate a price that will be 200 00:10:39,200 --> 00:10:42,160 Speaker 1: appealing to the investors. Well, that's what I was wondering 201 00:10:42,160 --> 00:10:44,880 Speaker 1: about the price discovery mechanism. It's quite different. On the 202 00:10:44,880 --> 00:10:46,280 Speaker 1: one hand, if you do an I p O, you 203 00:10:46,400 --> 00:10:48,319 Speaker 1: go to underwriters, they tell you they go out and 204 00:10:48,640 --> 00:10:51,040 Speaker 1: sample around the country see what investors are likely to 205 00:10:51,080 --> 00:10:53,080 Speaker 1: pay for the stock. But it's like they come back 206 00:10:53,120 --> 00:10:55,480 Speaker 1: and put a price on it. This is basically just 207 00:10:55,640 --> 00:10:57,719 Speaker 1: two parties as I understand it, the head of the 208 00:10:57,760 --> 00:10:59,640 Speaker 1: spack and the head of the private company. They just 209 00:10:59,679 --> 00:11:02,559 Speaker 1: set up price. A little more complicated in that, you're 210 00:11:02,559 --> 00:11:04,920 Speaker 1: absolutely right. What you're doing is you're getting a merger, 211 00:11:04,920 --> 00:11:08,320 Speaker 1: and in many situations, the operating company that merges into 212 00:11:08,360 --> 00:11:12,319 Speaker 1: the spack and what's called the despect transaction um, winds 213 00:11:12,400 --> 00:11:14,079 Speaker 1: up getting a lot more money than you would in 214 00:11:14,160 --> 00:11:17,680 Speaker 1: a typical I p O. The investors in the spack 215 00:11:17,920 --> 00:11:21,160 Speaker 1: have to approve the merger, so in effect, what you've 216 00:11:21,200 --> 00:11:23,679 Speaker 1: got is a little bit of a safety valve. So 217 00:11:23,840 --> 00:11:26,720 Speaker 1: if the investors don't think that the merger is at 218 00:11:26,760 --> 00:11:29,360 Speaker 1: a good price, they will vote it down. And in 219 00:11:29,400 --> 00:11:33,640 Speaker 1: some situations you've had to negotiate the merger several times 220 00:11:33,960 --> 00:11:36,480 Speaker 1: in order to get approval of the public spack holders. 221 00:11:37,920 --> 00:11:41,120 Speaker 1: For the reasons you describe, this is a very popular 222 00:11:41,240 --> 00:11:43,480 Speaker 1: right now. A lot of people are doing it's almost 223 00:11:43,480 --> 00:11:46,760 Speaker 1: an unlimited respect. At the same time, the track record 224 00:11:46,840 --> 00:11:49,080 Speaker 1: thus far, at least, is not all that strong. I mean, 225 00:11:49,080 --> 00:11:51,680 Speaker 1: if this were really truly a better mouse trap in 226 00:11:51,720 --> 00:11:53,960 Speaker 1: the longer term, then you think the value of these 227 00:11:54,000 --> 00:11:56,600 Speaker 1: things be going up. It's not consistently going up as 228 00:11:56,640 --> 00:12:00,440 Speaker 1: they go public. That's a hard measure, right because there's 229 00:12:00,440 --> 00:12:02,679 Speaker 1: a lot of risk in many of these spacts. And 230 00:12:02,679 --> 00:12:04,640 Speaker 1: in situations where there's a lot of risk, what you 231 00:12:04,679 --> 00:12:06,840 Speaker 1: expect to see is a lot of volatility. That's the 232 00:12:06,880 --> 00:12:10,199 Speaker 1: definition of risk. And there's precisely what we're seeing. We're 233 00:12:10,240 --> 00:12:12,960 Speaker 1: seeing some SPACs run up. We're seeing some SPACs not 234 00:12:13,120 --> 00:12:16,560 Speaker 1: do as well. Uh, we're seeing situations where SPACs go 235 00:12:16,720 --> 00:12:19,960 Speaker 1: public and their questions about the integrity of the SPAC 236 00:12:20,000 --> 00:12:22,920 Speaker 1: and the due diligence process that led to the transaction. 237 00:12:23,360 --> 00:12:25,320 Speaker 1: But by the same token, you know, you've got the 238 00:12:25,360 --> 00:12:27,760 Speaker 1: same kind of issues in many traditional I p o 239 00:12:27,800 --> 00:12:30,880 Speaker 1: s as well. Who's making most money off of these 240 00:12:30,880 --> 00:12:33,199 Speaker 1: are the people who put together the SPACs. How do 241 00:12:33,280 --> 00:12:36,240 Speaker 1: they get paid compensated. Again, it's all over the map. 242 00:12:36,679 --> 00:12:40,560 Speaker 1: There have been a number of situations where some early 243 00:12:40,679 --> 00:12:44,160 Speaker 1: funders of SPACs, where the promoters of SPACs have made 244 00:12:44,320 --> 00:12:47,600 Speaker 1: a large amount of money by putting up a relatively 245 00:12:47,720 --> 00:12:51,760 Speaker 1: small amount of money. Uh. And here in Silicon Valley 246 00:12:51,840 --> 00:12:54,640 Speaker 1: that's been pretty remarkable because if you stop and if 247 00:12:54,640 --> 00:12:57,079 Speaker 1: you think about Silicon Valley, you know, if you fund 248 00:12:57,080 --> 00:13:00,280 Speaker 1: a company in Series A and if the plan is 249 00:13:00,320 --> 00:13:03,560 Speaker 1: to take it public, you're typically in today's world talking 250 00:13:03,559 --> 00:13:07,320 Speaker 1: about tend to twelve year life cycle. So you have 251 00:13:07,400 --> 00:13:10,800 Speaker 1: to be a patient investor. Um, it's not quick money 252 00:13:10,920 --> 00:13:14,360 Speaker 1: out here in Silicon Valley. It's patient money. It's hard work. 253 00:13:14,480 --> 00:13:17,520 Speaker 1: It's a lot of risks. Now, if you sponsor a 254 00:13:17,640 --> 00:13:20,360 Speaker 1: SPAC and if you wind up doing a good deal, 255 00:13:21,000 --> 00:13:24,360 Speaker 1: you can make you a hundred x on the amount 256 00:13:24,360 --> 00:13:27,560 Speaker 1: of money that you put in and you walk away 257 00:13:27,600 --> 00:13:31,320 Speaker 1: with it in less than two years. So and that, 258 00:13:31,480 --> 00:13:33,280 Speaker 1: by the way, is one of the reasons why we 259 00:13:33,320 --> 00:13:36,400 Speaker 1: see so many SPACs coming to market. There's an option 260 00:13:36,480 --> 00:13:39,840 Speaker 1: like structure here. And what you've got is a lot 261 00:13:39,880 --> 00:13:44,640 Speaker 1: of you know, well capitalized, high net worth individuals who say, look, 262 00:13:45,160 --> 00:13:47,160 Speaker 1: I'm going to buy the equivalent of a call option. 263 00:13:47,200 --> 00:13:49,760 Speaker 1: If it works, great, If it doesn't work, all right, 264 00:13:49,840 --> 00:13:52,280 Speaker 1: what have I lost a few million bucks? You mentioned 265 00:13:52,320 --> 00:13:55,319 Speaker 1: Silicon Valley. How directly tied is the SPAC phenomenon to 266 00:13:55,679 --> 00:13:58,800 Speaker 1: Silicon Valley and particularly tech startups? Those tend to be 267 00:13:58,880 --> 00:14:02,520 Speaker 1: the unicorns we see. Well, you know, the situation is, 268 00:14:02,559 --> 00:14:06,160 Speaker 1: you've got SPACs that arguably specialized for signal. They're going 269 00:14:06,200 --> 00:14:09,240 Speaker 1: to specialize in different sectors. So you've got some SPACs 270 00:14:09,280 --> 00:14:11,320 Speaker 1: that are looking at the energy sector, You've got some 271 00:14:11,400 --> 00:14:14,720 Speaker 1: spacts that are looking specifically at tech. You've got the 272 00:14:14,760 --> 00:14:17,720 Speaker 1: SPACs with different themes that come to market. But your 273 00:14:17,720 --> 00:14:21,040 Speaker 1: your intuition is right. Um, a lot of the spects 274 00:14:21,280 --> 00:14:25,080 Speaker 1: that are out there now want to take Unicorn's public 275 00:14:25,560 --> 00:14:29,160 Speaker 1: that's their plan. If you were back as a commissioner 276 00:14:29,160 --> 00:14:32,080 Speaker 1: of the SEC, what would make you nervous about spects? 277 00:14:32,240 --> 00:14:36,200 Speaker 1: If anything? Um, you know, I think the current commission 278 00:14:36,200 --> 00:14:38,920 Speaker 1: has basically said there's a lot of complexity over here, 279 00:14:38,920 --> 00:14:40,880 Speaker 1: and we just want to make sure that investors in 280 00:14:40,920 --> 00:14:44,000 Speaker 1: the market understand the complexity. And the signal from the 281 00:14:44,040 --> 00:14:48,120 Speaker 1: agency is that you want to look at the economics 282 00:14:48,160 --> 00:14:51,480 Speaker 1: of the promote How much money are the founders this 283 00:14:51,520 --> 00:14:53,720 Speaker 1: SPAC making. How much are they likely to make in 284 00:14:53,760 --> 00:14:56,800 Speaker 1: the deal, And it's important to recognize that those economics 285 00:14:56,800 --> 00:15:00,920 Speaker 1: are evolving. That was Joe Grunfest of Stanford coming up. 286 00:15:01,120 --> 00:15:04,360 Speaker 1: Whatever happened to that stimulus we were promised? And will 287 00:15:04,400 --> 00:15:07,760 Speaker 1: we miss it? Senator Ben Cardon of Maryland says, we do, 288 00:15:08,240 --> 00:15:12,200 Speaker 1: and we will. That's next on Wall Street Week on Bloomberg. 289 00:15:17,120 --> 00:15:21,080 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 290 00:15:21,240 --> 00:15:24,760 Speaker 1: Bloomberg Radio. The stimulus package that the Congress was considering 291 00:15:24,800 --> 00:15:27,040 Speaker 1: at the end of the year, um, we thought was 292 00:15:27,080 --> 00:15:30,280 Speaker 1: not structured particularly well. The people who are hurting in 293 00:15:30,320 --> 00:15:33,840 Speaker 1: this economy, our middle income and lower income people. This 294 00:15:33,920 --> 00:15:37,160 Speaker 1: is where the unemployment has been concentrated. And we think 295 00:15:37,200 --> 00:15:40,000 Speaker 1: that a stimulus package to be effective on the fiscal 296 00:15:40,040 --> 00:15:44,240 Speaker 1: policy side, really has to target those individuals in those households. 297 00:15:44,360 --> 00:15:47,000 Speaker 1: That was Abby Joseph Cohen of Goldman Sacks on Wall 298 00:15:47,040 --> 00:15:50,000 Speaker 1: Street Week way back in two thousand two. But the 299 00:15:50,080 --> 00:15:53,840 Speaker 1: story really isn't all that different today. People are hurting 300 00:15:53,840 --> 00:15:56,640 Speaker 1: once again, and once again the biggest hurt is in 301 00:15:56,640 --> 00:16:00,240 Speaker 1: the middle and lower income groups. We asked Democratics editor 302 00:16:00,280 --> 00:16:03,520 Speaker 1: from Maryland Ben Carden, whether we truly need more fiscal 303 00:16:03,520 --> 00:16:07,000 Speaker 1: stimulus this time, we desperately need it. There's no question 304 00:16:07,040 --> 00:16:09,920 Speaker 1: we need We've needed it for months. When we passed 305 00:16:09,920 --> 00:16:13,520 Speaker 1: Sneak Cares Act in March, we anticipated that COVID nineteen 306 00:16:13,840 --> 00:16:16,840 Speaker 1: would be over by now and our economy would be 307 00:16:16,880 --> 00:16:19,640 Speaker 1: back on track. But that's certainly not the case. We 308 00:16:19,720 --> 00:16:22,000 Speaker 1: needed a bill pay us. The House did their work 309 00:16:22,120 --> 00:16:25,160 Speaker 1: in mid May. Uh they have repeated that action more 310 00:16:25,200 --> 00:16:29,200 Speaker 1: recently with a version that's closer to what the numbers 311 00:16:29,240 --> 00:16:32,400 Speaker 1: that the President wanted. We should have had a second 312 00:16:32,480 --> 00:16:35,440 Speaker 1: round of COVID relief well before now. It's desperately needed 313 00:16:35,480 --> 00:16:38,120 Speaker 1: for small businesses. It's needed for state and local government. 314 00:16:38,200 --> 00:16:41,240 Speaker 1: It's needed for our schools. It's needed for homeowners and runters. 315 00:16:41,520 --> 00:16:43,400 Speaker 1: We've got to get it done. It should have been 316 00:16:43,440 --> 00:16:46,560 Speaker 1: done long before now. And it's clear to me that 317 00:16:46,640 --> 00:16:49,400 Speaker 1: the President is not interested in this other than the 318 00:16:49,400 --> 00:16:52,560 Speaker 1: politics and his election, and the Republicans in the Senate, 319 00:16:52,600 --> 00:16:56,040 Speaker 1: Mitch McConnell, won't bring up a bill that would do 320 00:16:56,120 --> 00:16:58,000 Speaker 1: the work. Well, let me ask you that question, because 321 00:16:58,000 --> 00:17:00,480 Speaker 1: the President yesterday tweeted that, in fact, we should go 322 00:17:00,520 --> 00:17:02,360 Speaker 1: big or go home. When it comes to stimulus, he's 323 00:17:02,360 --> 00:17:05,160 Speaker 1: sent some messages, conflicting messages to be sent, some messages. 324 00:17:05,240 --> 00:17:07,199 Speaker 1: He wants to have a big stimulus bill if the 325 00:17:07,200 --> 00:17:10,800 Speaker 1: President were to go forward and sectarymmnution works something out 326 00:17:11,080 --> 00:17:13,159 Speaker 1: with Speak of the House Pelosi. Do you believe it 327 00:17:13,200 --> 00:17:15,320 Speaker 1: could be gotten through the Senate with some of the 328 00:17:15,359 --> 00:17:19,720 Speaker 1: Republican senators and the Democratic senators joining some of the Republicans. Yes, 329 00:17:19,800 --> 00:17:22,200 Speaker 1: I think it could, but Mitch McConnell won't let that happen. 330 00:17:22,680 --> 00:17:24,520 Speaker 1: Let's be clear, and Mitch McConnell is not going to 331 00:17:24,600 --> 00:17:27,000 Speaker 1: bring a bill to the floor of the Senate that 332 00:17:27,000 --> 00:17:30,159 Speaker 1: would pay us by Democratic votes without the majority of 333 00:17:30,160 --> 00:17:33,760 Speaker 1: Republicans voting for it, and he doesn't have the majority 334 00:17:33,760 --> 00:17:36,160 Speaker 1: of his caucus in regards to what the President is saying. 335 00:17:36,600 --> 00:17:39,000 Speaker 1: So yes, I think the votes are there, But look 336 00:17:39,040 --> 00:17:41,320 Speaker 1: at hundreds of bills that could have been enacted by 337 00:17:41,359 --> 00:17:43,280 Speaker 1: now that Mitch McConnell is not brought to the floor 338 00:17:43,320 --> 00:17:45,600 Speaker 1: of the United States Senate. So I think it's highly 339 00:17:45,680 --> 00:17:48,719 Speaker 1: unlikely that that scenario will take place. One of the things, 340 00:17:48,760 --> 00:17:51,000 Speaker 1: Senator Cardon, you know, well that Speak of the House 341 00:17:51,040 --> 00:17:53,080 Speaker 1: Pelosi has been saying we need this bill in part 342 00:17:53,160 --> 00:17:56,680 Speaker 1: to fight the COVID virus itself. You have an interesting 343 00:17:56,720 --> 00:17:59,200 Speaker 1: position that you've taken his understand with your colleague Marco 344 00:17:59,320 --> 00:18:01,720 Speaker 1: Rubio saying, you know, it's not just us we should 345 00:18:01,760 --> 00:18:03,760 Speaker 1: be worried about. We should also be worried about fighting 346 00:18:03,760 --> 00:18:05,679 Speaker 1: this virus around the world. Because it is global. We 347 00:18:05,720 --> 00:18:10,439 Speaker 1: can't stop it at our borders. Exactly. The COVID relief 348 00:18:10,480 --> 00:18:14,320 Speaker 1: package needs to deal with the international aspects as well 349 00:18:14,359 --> 00:18:17,760 Speaker 1: as domestic aspects. We still have not done our work 350 00:18:17,800 --> 00:18:19,320 Speaker 1: at home, and we've got to take care of our 351 00:18:19,359 --> 00:18:22,560 Speaker 1: needs here in America, and we need to lead by example, 352 00:18:22,760 --> 00:18:25,280 Speaker 1: and our example is not one in which the world 353 00:18:25,359 --> 00:18:27,960 Speaker 1: is saying we want to follow. But then we also 354 00:18:28,000 --> 00:18:31,199 Speaker 1: have to recognize that this is a global pandemic and 355 00:18:31,280 --> 00:18:34,920 Speaker 1: until it's controlled globally, we're still at risk here in America. 356 00:18:35,040 --> 00:18:38,080 Speaker 1: So yes, we have made it clear that we need 357 00:18:38,119 --> 00:18:42,600 Speaker 1: to include uh international aspects to our response to this pandemic. 358 00:18:42,720 --> 00:18:45,320 Speaker 1: Senator Cardon, if it's not to be done this fiscal 359 00:18:45,359 --> 00:18:48,520 Speaker 1: stimulus before the election, let's talk about after the election. 360 00:18:49,160 --> 00:18:52,040 Speaker 1: Do you anticipate perhaps there would be a significant stubulists bill, 361 00:18:52,480 --> 00:18:55,960 Speaker 1: whether it's a President Biden or President Trump coming in 362 00:18:55,960 --> 00:19:00,879 Speaker 1: in the lame duck session. You know, it's difficult to 363 00:19:00,880 --> 00:19:02,880 Speaker 1: make a prediction. I would have thought that by now 364 00:19:02,960 --> 00:19:06,159 Speaker 1: we would have passed the new the next round of 365 00:19:06,200 --> 00:19:10,160 Speaker 1: COVID relief. It's desperately needed, so yes, after the elections. 366 00:19:10,240 --> 00:19:13,160 Speaker 1: I am optimistic if we don't get it done before 367 00:19:13,200 --> 00:19:16,440 Speaker 1: the elections, that we would recognize that relief is needed. 368 00:19:16,760 --> 00:19:21,919 Speaker 1: State local governments desperately need help. Our school systems desperately 369 00:19:21,920 --> 00:19:26,240 Speaker 1: need help, small businesses desperately need help, the airline industry 370 00:19:26,280 --> 00:19:28,280 Speaker 1: needs help. And unless goes on and on and on, 371 00:19:28,680 --> 00:19:30,880 Speaker 1: the sooner we get it done, the better. If it's 372 00:19:30,880 --> 00:19:33,159 Speaker 1: not before the elections, I would hope, regardless of the 373 00:19:33,200 --> 00:19:35,560 Speaker 1: outcome in the election, we would get it done in 374 00:19:35,560 --> 00:19:37,800 Speaker 1: the lane duck session. Do you anticipate that this will 375 00:19:37,800 --> 00:19:39,960 Speaker 1: be a significant issue as voters go to the pole 376 00:19:40,000 --> 00:19:44,320 Speaker 1: November three? I think the COVID the situation is first 377 00:19:44,359 --> 00:19:47,000 Speaker 1: in their minds, so yes. I think the failure of 378 00:19:47,000 --> 00:19:49,760 Speaker 1: the Trump administration to keep them safe, the failure of 379 00:19:49,760 --> 00:19:53,119 Speaker 1: the Trump administration to get this pandemic under control, and 380 00:19:53,160 --> 00:19:56,040 Speaker 1: the failure of the Trump administration to deal with the 381 00:19:56,080 --> 00:20:00,159 Speaker 1: consequences of COVID nineteen through additional relief bills will be 382 00:20:00,240 --> 00:20:02,439 Speaker 1: on the minds of our voters. That was Ben Cardon, 383 00:20:02,680 --> 00:20:07,000 Speaker 1: Senator from Maryland, coming up. The usually irresistible force of 384 00:20:07,119 --> 00:20:11,040 Speaker 1: central bankers comes up against the immovable object of fiscal authority. 385 00:20:11,520 --> 00:20:19,600 Speaker 1: That's next on Wall Street Week on Bloomberg. This is 386 00:20:19,640 --> 00:20:24,000 Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 387 00:20:24,200 --> 00:20:26,800 Speaker 1: This week, we may have finally put to rest the 388 00:20:26,880 --> 00:20:29,920 Speaker 1: idea of getting more fiscal stimulus. Before the election, as 389 00:20:30,000 --> 00:20:33,800 Speaker 1: Majority Leader McConnell said he wanted to go small, President 390 00:20:33,800 --> 00:20:37,000 Speaker 1: Trump said he wanted to go big. We are trying 391 00:20:37,040 --> 00:20:39,919 Speaker 1: to help and we're trying to get some stimulus money, 392 00:20:39,960 --> 00:20:42,840 Speaker 1: which I think is very important for certain industries, certainly 393 00:20:42,880 --> 00:20:46,080 Speaker 1: the airline business. You know, people aren't exactly hopping into 394 00:20:46,119 --> 00:20:49,280 Speaker 1: airplanes to travel. And speak of the House, Pelosi said 395 00:20:49,320 --> 00:20:53,359 Speaker 1: that even the president's big wasn't big enough. The major 396 00:20:53,480 --> 00:20:56,080 Speaker 1: US banks waded into the middle of the confusion with 397 00:20:56,200 --> 00:20:59,520 Speaker 1: third quarter earnings that generally were a pleasant surprise because 398 00:20:59,520 --> 00:21:02,679 Speaker 1: of trade and lending that was a bit better simply 399 00:21:02,720 --> 00:21:05,080 Speaker 1: because the banks didn't have to reserve as much for 400 00:21:05,080 --> 00:21:08,280 Speaker 1: people who couldn't pay what they owed. You were also 401 00:21:08,400 --> 00:21:15,040 Speaker 1: seeing a disconnect between large corporations and small businesses and 402 00:21:15,280 --> 00:21:19,520 Speaker 1: consumers which are struggling. But the prospects going forward were 403 00:21:19,560 --> 00:21:23,320 Speaker 1: clouded by you guessed it, the uncertain pace of recovery 404 00:21:23,400 --> 00:21:26,760 Speaker 1: because of the lack of simulus. The market struggled to 405 00:21:26,800 --> 00:21:29,520 Speaker 1: figure it all out on top of an election just 406 00:21:29,640 --> 00:21:32,200 Speaker 1: over two weeks away that looks like it might go blue, 407 00:21:32,800 --> 00:21:37,000 Speaker 1: and maybe first and foremost, a coronavirus coming back strong 408 00:21:37,119 --> 00:21:41,760 Speaker 1: on both sides of the Atlantic. But fortunately we have 409 00:21:41,960 --> 00:21:44,639 Speaker 1: just the right people here to help the markets understand 410 00:21:44,680 --> 00:21:47,760 Speaker 1: this difficult week. Bob Diamond is CEO and founding partner 411 00:21:47,800 --> 00:21:50,600 Speaker 1: of Atlas Merchant Capital and Wall Street. We contributed off 412 00:21:50,640 --> 00:21:53,480 Speaker 1: Sonny Bechelist is CEO and founder of the Rock Creek Group. 413 00:21:53,560 --> 00:21:56,160 Speaker 1: So Sonny, let me start with you, as as I said, 414 00:21:56,200 --> 00:21:58,040 Speaker 1: really we had a lot of uncertainy this week about 415 00:21:58,040 --> 00:22:00,520 Speaker 1: the stimulus, about the COVID coming back up both sides 416 00:22:00,520 --> 00:22:04,520 Speaker 1: of the Atlantic, about the economy overall. Why does the market, 417 00:22:04,520 --> 00:22:06,879 Speaker 1: the equity market keep going up. There's three weeks on 418 00:22:06,880 --> 00:22:11,560 Speaker 1: a row, now, you know, David, is interesting because just 419 00:22:11,920 --> 00:22:14,800 Speaker 1: in the last few days, the equity market rate of 420 00:22:14,840 --> 00:22:17,280 Speaker 1: growth has kind of slowed down. I think the markets 421 00:22:17,280 --> 00:22:21,280 Speaker 1: are watching the stimulus plan. As you said, the uncertainties 422 00:22:21,320 --> 00:22:24,280 Speaker 1: that have increased. The Other side of it, though, is 423 00:22:24,359 --> 00:22:28,159 Speaker 1: I think there is more and more agreement in the 424 00:22:28,200 --> 00:22:31,760 Speaker 1: market that it is possible that Vice President Biden may 425 00:22:31,880 --> 00:22:35,399 Speaker 1: be getting elected and people are starting to digest the 426 00:22:35,440 --> 00:22:38,639 Speaker 1: fact that taxes may come later, but fiscal policy could 427 00:22:38,640 --> 00:22:42,760 Speaker 1: come earlier and that could result in serious growth. And 428 00:22:42,920 --> 00:22:47,320 Speaker 1: if there is also more equitable kinds of packages that 429 00:22:47,400 --> 00:22:51,400 Speaker 1: the government does put out compared to right now when 430 00:22:51,560 --> 00:22:54,639 Speaker 1: we have no agreement on a stimulus plan, that could 431 00:22:54,720 --> 00:22:58,000 Speaker 1: also be very helpful for growth. So markets are starting 432 00:22:58,080 --> 00:23:01,479 Speaker 1: to take some of those theory into consideration as they 433 00:23:01,480 --> 00:23:04,200 Speaker 1: have gone up a little bit this week and last week. So, Bob, 434 00:23:04,200 --> 00:23:05,960 Speaker 1: what do you think about it? I mean, is it 435 00:23:06,040 --> 00:23:07,879 Speaker 1: sort of a hope that there's an all blue that 436 00:23:08,040 --> 00:23:09,800 Speaker 1: can call it that government? Or what are the govern 437 00:23:09,840 --> 00:23:13,160 Speaker 1: markets paying attention to? What should they be paying attention to. Well, 438 00:23:13,160 --> 00:23:15,480 Speaker 1: one of the things we see in the equity markets is, 439 00:23:15,600 --> 00:23:18,560 Speaker 1: you know, they call it um the Dow because it's 440 00:23:18,640 --> 00:23:21,600 Speaker 1: a certain number of companies that they're following, and the 441 00:23:21,760 --> 00:23:25,840 Speaker 1: SNP five and a lot of the small businesses. I mean, David, 442 00:23:25,880 --> 00:23:29,480 Speaker 1: the truth is that four hundred thousands small businesses have 443 00:23:29,640 --> 00:23:33,119 Speaker 1: closed since the pandemic. I don't think any of them 444 00:23:33,160 --> 00:23:36,560 Speaker 1: would be publicly listed or or in any of those indices. 445 00:23:36,640 --> 00:23:40,200 Speaker 1: So in the economy, what we're saying is we're clearly 446 00:23:40,200 --> 00:23:43,000 Speaker 1: in the third stage. I mean, the first stage was 447 00:23:43,080 --> 00:23:45,600 Speaker 1: closing the economy, and it was kind of the left 448 00:23:45,640 --> 00:23:48,159 Speaker 1: side of the V. Now the right side of the 449 00:23:48,240 --> 00:23:51,840 Speaker 1: V is is it was equally sharp coming back up. 450 00:23:51,880 --> 00:23:55,439 Speaker 1: But it started it stopped well below the level at 451 00:23:55,480 --> 00:23:58,120 Speaker 1: which the economy had been, and it's really a question 452 00:23:58,160 --> 00:24:00,920 Speaker 1: now is it gonna is it gonna to be even there, 453 00:24:01,119 --> 00:24:02,800 Speaker 1: is it going to continue to go up, or is 454 00:24:02,840 --> 00:24:04,920 Speaker 1: it going to potentially go down? And that's why there's 455 00:24:04,920 --> 00:24:09,040 Speaker 1: so much focus right now on the need for more stimulus. Well, 456 00:24:09,080 --> 00:24:10,720 Speaker 1: at the same time, Bob, what do you make of 457 00:24:10,720 --> 00:24:12,480 Speaker 1: things like the retail sales numbers came in at the 458 00:24:12,560 --> 00:24:15,000 Speaker 1: end of the week and they were actually surprisingly strong, 459 00:24:15,119 --> 00:24:17,000 Speaker 1: And also housing seems to be doing well. There are 460 00:24:17,040 --> 00:24:20,560 Speaker 1: some indications, aren't that the economy actually is doing pretty well? Yeah, 461 00:24:20,600 --> 00:24:23,560 Speaker 1: you know, consumer spending is really really strong, and so 462 00:24:23,680 --> 00:24:28,080 Speaker 1: people look at that, but if you tear that apart um, 463 00:24:28,320 --> 00:24:32,600 Speaker 1: spending on goods is up strongly since February, since before 464 00:24:32,640 --> 00:24:37,320 Speaker 1: the pandemic. Um consumers spending on goods, it's up actually 465 00:24:37,359 --> 00:24:40,440 Speaker 1: five percent, it's higher than it was in February, where 466 00:24:40,760 --> 00:24:43,920 Speaker 1: services are about six of the level that they were 467 00:24:44,280 --> 00:24:48,879 Speaker 1: pre pandemic. Now here's the rub um. Two thirds of 468 00:24:48,920 --> 00:24:53,560 Speaker 1: the economy is in services. Of the employment in our 469 00:24:53,600 --> 00:24:56,440 Speaker 1: economy is and services. So when we look at those 470 00:24:56,440 --> 00:24:59,359 Speaker 1: consumer spending numbers, we have to separate what's on goods 471 00:24:59,480 --> 00:25:02,919 Speaker 1: versus what's on services and the real impact on small 472 00:25:02,960 --> 00:25:06,240 Speaker 1: businesses and employment in the services sector. I mean, we 473 00:25:06,320 --> 00:25:08,840 Speaker 1: kind of all know it, but the numbers are are 474 00:25:08,960 --> 00:25:12,120 Speaker 1: very stark. So say Bob, it makes a very good 475 00:25:12,160 --> 00:25:14,639 Speaker 1: point about this divergence between services and goods, which I 476 00:25:14,680 --> 00:25:16,600 Speaker 1: think it's different from what we've seen before, isn't it. 477 00:25:17,760 --> 00:25:21,760 Speaker 1: Absolutely I think Bobby is absolutely right, and this is 478 00:25:21,800 --> 00:25:24,560 Speaker 1: something which is a global phenomena. By the way, obviously 479 00:25:24,600 --> 00:25:28,560 Speaker 1: services sector in this country has increased this share hugely, 480 00:25:28,880 --> 00:25:31,280 Speaker 1: but even if you look at parts of Europe and 481 00:25:31,320 --> 00:25:34,280 Speaker 1: in particular in Asia, the share of services have also 482 00:25:34,520 --> 00:25:38,119 Speaker 1: increased on a relative basis, but that certainly is a 483 00:25:38,160 --> 00:25:40,560 Speaker 1: really important factor. I would say, also, when we look 484 00:25:40,600 --> 00:25:44,280 Speaker 1: at these numbers, they hide so much. As Bob said 485 00:25:44,280 --> 00:25:47,600 Speaker 1: about retail. We look at the unemployment numbers, they're hiding 486 00:25:47,640 --> 00:25:50,600 Speaker 1: the fact that the total number of people who actually 487 00:25:50,600 --> 00:25:54,480 Speaker 1: are staying unemployed is getting larger and larger. The number 488 00:25:54,480 --> 00:25:57,880 Speaker 1: of people who are unemployed in the lower income practice 489 00:25:58,200 --> 00:26:01,920 Speaker 1: is going up, while in the higher practice it's not 490 00:26:02,000 --> 00:26:05,600 Speaker 1: going up as much. So that disparity that we're seeing 491 00:26:05,680 --> 00:26:10,600 Speaker 1: overalling the economy is happening also inside those employment numbers. 492 00:26:10,920 --> 00:26:12,240 Speaker 1: I'm sorry. One of the things that struck me this 493 00:26:12,280 --> 00:26:14,399 Speaker 1: week because we had the I m F meetings and 494 00:26:14,480 --> 00:26:17,560 Speaker 1: we heard earlier from both Federal Reserve Governor j Pale 495 00:26:17,680 --> 00:26:20,720 Speaker 1: and also Madame Legarde from the European Central Bank that 496 00:26:20,800 --> 00:26:22,600 Speaker 1: we need more physical service. But we actually heard from 497 00:26:22,600 --> 00:26:25,760 Speaker 1: the I m F. We heard Crystalina Georgia evitates, don't 498 00:26:25,800 --> 00:26:27,840 Speaker 1: worry about the deficit. I don't remember the last time 499 00:26:27,880 --> 00:26:29,360 Speaker 1: I heard the I m F say don't worry about 500 00:26:29,359 --> 00:26:31,960 Speaker 1: a fiscal deficit. I was going to say, Bob Diamond 501 00:26:31,960 --> 00:26:34,000 Speaker 1: and I have gone to many World Bank meetings, and 502 00:26:34,119 --> 00:26:36,159 Speaker 1: I worked at the World Bank, so I ran a 503 00:26:36,160 --> 00:26:39,000 Speaker 1: lot of those meetings and it was really interesting because 504 00:26:39,040 --> 00:26:43,320 Speaker 1: it's always been about physcal austerity, right, and this is 505 00:26:43,359 --> 00:26:49,000 Speaker 1: a huge, huge change in direction. Um that that the 506 00:26:49,000 --> 00:26:51,639 Speaker 1: head of the i m F has declared, and also, 507 00:26:51,680 --> 00:26:54,040 Speaker 1: by the way, a lot of economists are talking about. 508 00:26:54,440 --> 00:26:57,120 Speaker 1: But what I would like to also highlight is that 509 00:26:57,280 --> 00:27:00,000 Speaker 1: who who can borrow? Actually she has said we should 510 00:27:00,440 --> 00:27:03,000 Speaker 1: uh those who can borrow, should borrow and and get 511 00:27:03,040 --> 00:27:05,919 Speaker 1: their economies to be on a different growth path. And 512 00:27:05,960 --> 00:27:09,200 Speaker 1: I actually quite agree with that. The problem is those 513 00:27:09,200 --> 00:27:12,879 Speaker 1: countries that cannot borrow. Obviously that I am some money 514 00:27:12,920 --> 00:27:15,320 Speaker 1: to give up to those, but if you think about 515 00:27:15,400 --> 00:27:20,000 Speaker 1: the scale of the countries that are neat and cannot borrow, 516 00:27:20,160 --> 00:27:23,399 Speaker 1: that is huge. But what about that? What about the 517 00:27:23,600 --> 00:27:25,359 Speaker 1: companies that can't borrow? Because one of the things that 518 00:27:25,359 --> 00:27:28,879 Speaker 1: crystalinagor you ever talked about was to debt relief. Yes, 519 00:27:29,680 --> 00:27:33,600 Speaker 1: and I mean for Bob No, I mean, I mean 520 00:27:33,640 --> 00:27:36,920 Speaker 1: there's no question. I think I saw an interview with 521 00:27:37,000 --> 00:27:40,080 Speaker 1: Larry Fink who talked about being barished on the emerging 522 00:27:40,119 --> 00:27:43,000 Speaker 1: economies today. I think when you look at the reaction 523 00:27:43,080 --> 00:27:47,080 Speaker 1: of the currencies and the unemployment levels, it's it's uh, 524 00:27:47,240 --> 00:27:50,120 Speaker 1: it's a function of how difficult it is for them 525 00:27:50,240 --> 00:27:53,560 Speaker 1: to get the fiscal stimulus. At the same time, I'm saying, 526 00:27:53,640 --> 00:27:55,240 Speaker 1: is this an alarm bell for us that the I 527 00:27:55,400 --> 00:27:57,560 Speaker 1: m F itself is asking for more and I thing 528 00:27:57,600 --> 00:28:01,280 Speaker 1: that suggests something about the global economy that's not very strong. Well, 529 00:28:01,359 --> 00:28:03,480 Speaker 1: I think the I m F has realized that having 530 00:28:03,520 --> 00:28:07,040 Speaker 1: these very very strict austerity programs when countries were down 531 00:28:07,680 --> 00:28:10,320 Speaker 1: actually be more damaged. So they have learned a lesson, 532 00:28:10,359 --> 00:28:13,040 Speaker 1: which is a good thing. I think. The question is 533 00:28:13,080 --> 00:28:15,600 Speaker 1: that if you borrow, eventually you have to pay back. 534 00:28:15,760 --> 00:28:18,320 Speaker 1: And these countries, if they borrow in U. S dollars 535 00:28:18,400 --> 00:28:21,119 Speaker 1: and their own currencies depreciate relative to the U. S dollars, 536 00:28:21,119 --> 00:28:24,560 Speaker 1: will have to even pay you know, larger amounts, and 537 00:28:24,640 --> 00:28:28,119 Speaker 1: so they are going to be in more trouble down 538 00:28:28,160 --> 00:28:31,320 Speaker 1: the line unless they get on a growth pack that 539 00:28:31,400 --> 00:28:33,480 Speaker 1: gets them out, which is sort of the way the 540 00:28:33,520 --> 00:28:35,880 Speaker 1: I m F is talking right down. The chief economies 541 00:28:35,920 --> 00:28:37,640 Speaker 1: of the I AM it is also talking that way. 542 00:28:37,840 --> 00:28:39,760 Speaker 1: But just to pull us altogethers go back to our 543 00:28:39,760 --> 00:28:42,840 Speaker 1: signs original point. Should we be encouraged by the fact 544 00:28:42,840 --> 00:28:44,960 Speaker 1: that it may well be not certain maybe that we 545 00:28:45,000 --> 00:28:47,200 Speaker 1: get a present, but maybe even a democratic center, and 546 00:28:47,240 --> 00:28:49,240 Speaker 1: they certainly will borrow and they will spend a lot 547 00:28:49,240 --> 00:28:52,400 Speaker 1: of money. I think business is a lot more comfortable 548 00:28:52,440 --> 00:28:55,920 Speaker 1: with the prospect of a Biden presidency. Now. You know 549 00:28:56,040 --> 00:28:58,680 Speaker 1: it will be an increase in corporate taxes he said that, 550 00:28:58,760 --> 00:29:03,960 Speaker 1: But remember corporate tax is one from thirty and Vice 551 00:29:03,960 --> 00:29:08,160 Speaker 1: President Biden is talking about there'll clearly be an increase 552 00:29:08,280 --> 00:29:12,600 Speaker 1: in um uh capital gains tax. But on the other hand, 553 00:29:13,320 --> 00:29:16,800 Speaker 1: um we can expect more stimulus um in a Biden 554 00:29:16,800 --> 00:29:20,440 Speaker 1: administration than than I think we would otherwise. And I'm 555 00:29:20,480 --> 00:29:22,840 Speaker 1: going to tell you I think trade relations around the 556 00:29:22,840 --> 00:29:26,040 Speaker 1: world which have been truculent to steal a phrase from 557 00:29:26,040 --> 00:29:28,880 Speaker 1: another one of your guests today, Larry Summers, and I 558 00:29:28,920 --> 00:29:31,280 Speaker 1: think that will change. And I think the prospects for 559 00:29:31,440 --> 00:29:35,200 Speaker 1: a boost to the economy with better relations and better trade, 560 00:29:35,480 --> 00:29:38,640 Speaker 1: there's some positives here. The big US banks reported their 561 00:29:38,760 --> 00:29:41,200 Speaker 1: third quarter results this week, and it was something of 562 00:29:41,240 --> 00:29:44,320 Speaker 1: a mixed picture. Trading was way up, at least for 563 00:29:44,320 --> 00:29:47,320 Speaker 1: the most part, and that interesting come was down. As 564 00:29:47,320 --> 00:29:49,800 Speaker 1: we're provisions for the loan losses to take us through 565 00:29:49,840 --> 00:29:51,920 Speaker 1: what we learned about the banks. Bob Diamond of Atlas 566 00:29:51,920 --> 00:29:54,160 Speaker 1: Merchant Capital still with US. Bob of course served as 567 00:29:54,200 --> 00:29:56,520 Speaker 1: CEO of Berkeley. So, Bob, what did you make of 568 00:29:56,560 --> 00:29:59,440 Speaker 1: this picture of the banks? Well, it was a better 569 00:29:59,520 --> 00:30:01,600 Speaker 1: third core of than second quarter and the second quarter 570 00:30:01,760 --> 00:30:04,840 Speaker 1: David is is you and I both know net income 571 00:30:04,920 --> 00:30:08,240 Speaker 1: for the banking industry is down about sevent year on 572 00:30:08,440 --> 00:30:12,320 Speaker 1: year um. But I think the message here was we 573 00:30:12,360 --> 00:30:18,240 Speaker 1: saw really uh clarity to the difference between the more 574 00:30:18,320 --> 00:30:22,160 Speaker 1: you're in commercial banking and taking deposits and making loans, 575 00:30:22,760 --> 00:30:24,880 Speaker 1: and the more you had a more balanced business and 576 00:30:24,920 --> 00:30:28,560 Speaker 1: asset management and wealth management and particularly in the trading 577 00:30:28,560 --> 00:30:31,840 Speaker 1: businesses the Goldman Sacts and the Morgan Stanley probably the 578 00:30:31,880 --> 00:30:35,800 Speaker 1: extreme example, the better the results. So what do you 579 00:30:35,840 --> 00:30:37,760 Speaker 1: do if you're a Bank of America, because they tend 580 00:30:37,760 --> 00:30:40,520 Speaker 1: to be more in the traditional commercial banking sector. Do 581 00:30:40,560 --> 00:30:42,440 Speaker 1: you try to make it up on volume and cut costs? 582 00:30:42,480 --> 00:30:46,719 Speaker 1: What's the strategy? Well, they certainly have a good sales 583 00:30:46,720 --> 00:30:49,560 Speaker 1: and trading area in you know, as a result of 584 00:30:49,600 --> 00:30:52,640 Speaker 1: the Bank of America acquisition during the financial crisis, So 585 00:30:52,960 --> 00:30:55,280 Speaker 1: it's probably a question of balance. Is that they're so 586 00:30:55,320 --> 00:30:57,920 Speaker 1: big and so large in commercial banking that are probably 587 00:30:57,920 --> 00:31:01,760 Speaker 1: overshadowed that uh bit um, you know. I think the 588 00:31:01,880 --> 00:31:05,240 Speaker 1: challenge for the commercial banks is just what we're talking 589 00:31:05,240 --> 00:31:09,160 Speaker 1: about earlier. Four hundred thousand small businesses have already closed 590 00:31:09,160 --> 00:31:12,640 Speaker 1: this year. The services sector, which is eighty five percent 591 00:31:12,640 --> 00:31:15,760 Speaker 1: of the employment in our economy, is really really suffering 592 00:31:15,840 --> 00:31:20,719 Speaker 1: right now. So are the lone loss reserves, which are 593 00:31:20,760 --> 00:31:24,200 Speaker 1: up significantly. And for the four biggest banks, lone loss 594 00:31:24,280 --> 00:31:28,080 Speaker 1: provisions are about double um in the in the first half, 595 00:31:28,360 --> 00:31:30,760 Speaker 1: and the question is are they enough and are they adequate? 596 00:31:31,240 --> 00:31:33,760 Speaker 1: I would suggest that the risks are on the downside. 597 00:31:33,760 --> 00:31:37,040 Speaker 1: There many thanks now to Bob Diamond of Alice Murchard CAPA. 598 00:31:37,120 --> 00:31:39,600 Speaker 1: Always great to have him here on any subject. That's 599 00:31:39,720 --> 00:31:41,960 Speaker 1: particularly when it comes to banking, which he knows so 600 00:31:42,120 --> 00:31:45,000 Speaker 1: terribly well. That's it for this edition of Wall Street League. 601 00:31:45,120 --> 00:31:48,800 Speaker 1: I'm David Westing. See you next week. This is bloomber