WEBVTT - Bloomberg Wall Street Week: Malik, Ailman, Browning 0:00:00.560 --> 0:00:03.800 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.880 --> 0:00:07.160 to the markets this week. U S CPI nevers reinforcing 0:00:07.200 --> 0:00:10.680 concerns about inflation. The financial stories that cheap are worth 0:00:10.760 --> 0:00:13.520 a really different reaction to mark. It's more indications of 0:00:13.680 --> 0:00:16.279 just how hot the U. S. Economy really is. Through 0:00:16.280 --> 0:00:19.560 the eyes of the most influential voices. Larry Summers, the 0:00:19.600 --> 0:00:22.520 former Rikor Secretary, Katherine Keating, CEO of the n Y 0:00:22.600 --> 0:00:26.200 Mallam Sam's l Sharmon and founder of Equatic Group Investment. 0:00:26.239 --> 0:00:29.960 In Bloomberg wool Street Week with David Weston from Bloomberg 0:00:30.000 --> 0:00:33.080 Radio One for the history books, the markets get the 0:00:33.120 --> 0:00:37.479 message about tightening. Finally, Ukraine stalls the mighty Russian military, 0:00:37.720 --> 0:00:40.000 and a black woman takes a big step for the 0:00:40.080 --> 0:00:42.760 seat on the bench of the highest court in the land. 0:00:43.440 --> 0:00:47.279 This is Bloomberg Wall Street Week. I'm David Weston, this 0:00:47.320 --> 0:00:50.159 week's special contributor Larry Summers on being caught between the 0:00:50.280 --> 0:00:54.000 rock of inflation and the hard place of recession. And 0:00:54.040 --> 0:00:57.000 I share very much the Chairman's hope that a soft 0:00:57.080 --> 0:00:59.800 landing is possible, but I don't think it's something we 0:01:00.160 --> 0:01:03.560 count on. And Candice Browning of Bank of America on 0:01:03.640 --> 0:01:07.240 Corporate America coming to terms was zero emissions even in 0:01:07.319 --> 0:01:10.800 a time of war. This really is a movement. I mean, 0:01:10.880 --> 0:01:26.720 I was surprised. We saw a history being made this 0:01:26.760 --> 0:01:30.199 week when Judge Katangi brown Jackson took a giant step 0:01:30.240 --> 0:01:34.280 towards the Supreme Court. US Supreme Court nomine Quatangi brown 0:01:34.400 --> 0:01:37.280 Jackson is set for questioning by a Senate committee. She's 0:01:37.280 --> 0:01:40.160 told the panel she's an independent thinker who decides cases 0:01:40.319 --> 0:01:43.920 from a neutral posture. Now there may be some who claim, 0:01:43.920 --> 0:01:46.560 without a shred of evidence, that you will be a 0:01:46.640 --> 0:01:49.880 rubber stand for this President. I have four words. Look 0:01:50.120 --> 0:01:53.560 at the record. I interpret and apply the law to 0:01:53.880 --> 0:01:57.920 the facts of the case before me, without fear or favor, 0:01:58.680 --> 0:02:03.800 consistent with my judicial oaks. President Biden traveled to Europe 0:02:03.800 --> 0:02:07.160 and support of the Coalition or raid against Russia. President 0:02:07.200 --> 0:02:11.040 Biden fielding questions from the media. They're talking about saying 0:02:11.120 --> 0:02:14.320 united with Western leaders. Do you think that Russia needs 0:02:14.320 --> 0:02:17.360 to be removed from the G twenty On a latter point, 0:02:17.480 --> 0:02:20.200 my answer is yes. If that can't be done, then 0:02:20.240 --> 0:02:25.280 we should ask to have both Ukraine be able to 0:02:25.320 --> 0:02:30.760 attend the meetings as Russian forces stalled in Ukraine. Ukrainian 0:02:30.760 --> 0:02:34.640 forces have essentially stole the Russian advance at Moscow's awards 0:02:34.639 --> 0:02:37.760 on diplomacy are not really being matched by actions on 0:02:37.800 --> 0:02:41.040 the grounds. Ceasefire is not to way out as a 0:02:41.080 --> 0:02:45.680 way out is immediate withdrawal of those of Russian troops 0:02:45.680 --> 0:02:48.359 from Ukrainian territory, so it's not as a way out. 0:02:48.840 --> 0:02:52.320 Fetcher J. Pow finally got his message through to the markets. 0:02:53.040 --> 0:02:56.799 What would prevent you from doing a fifty basis point move? 0:02:57.080 --> 0:03:04.080 In my what would prevent us nothing? The story has 0:03:04.160 --> 0:03:05.919 changed in a big way in the first quarter a 0:03:06.000 --> 0:03:08.200 t This is not the year people were looking for 0:03:08.360 --> 0:03:10.680 just three months ago. If someone had told all of us, 0:03:10.720 --> 0:03:13.400 everyone that watches the market that the Fed would be 0:03:13.440 --> 0:03:17.680 aggressively hawkish, I think we'd all be surprised. And if 0:03:17.720 --> 0:03:19.720 you had any doubt at all that the bond markets 0:03:19.760 --> 0:03:21.560 got that message, just take a look at the ten 0:03:21.639 --> 0:03:24.440 year this week, having its worst week since two sixteen, 0:03:24.440 --> 0:03:27.119 winding up on Friday just at TAD under two point 0:03:27.200 --> 0:03:29.760 five pc. Not to be outdone, the two year was 0:03:29.800 --> 0:03:31.640 down more in a week than it had been since 0:03:31.680 --> 0:03:34.080 two thousand and eight. And adding to the risk on 0:03:34.160 --> 0:03:37.160 sentiment where the equities markets where the SMP five hundred 0:03:37.200 --> 0:03:40.160 in NASDAC were both up just under two percent, while 0:03:40.240 --> 0:03:43.360 that faithful safe haven currency in the Japanese yen, had 0:03:43.360 --> 0:03:47.240 its worst week and over two years. Welcome now our experts, 0:03:47.320 --> 0:03:50.040 Chris Alman, c i O of the California State Teachers 0:03:50.080 --> 0:03:53.600 Retirement System and the c i O of Nowvine, Sarah Malic. So, Sarah, 0:03:53.760 --> 0:03:56.400 first of all, congratulations, I've becoming c i O. I 0:03:56.400 --> 0:03:58.080 think it's the first time since you've been back on 0:03:58.320 --> 0:04:00.880 Wall Street. That's great to see. Let's talk about this 0:04:01.160 --> 0:04:05.320 relatively risk on week we saw this week. Uh, what 0:04:05.360 --> 0:04:07.080 do you make of it? Given the fact that we 0:04:07.120 --> 0:04:10.400 are at war, well the fence trying to create a 0:04:10.440 --> 0:04:14.600 Goldilock scenario by engineering a soft landing, The equity markets 0:04:14.600 --> 0:04:17.080 are buying in and the bond markets aren't. We're watching 0:04:17.160 --> 0:04:19.720 three key things to monitor whether we're going to get 0:04:19.760 --> 0:04:22.599 to that, and that is the FED movements, inflation, and 0:04:22.640 --> 0:04:26.000 geopolitical issues. Uh. The equity markets like what the Feds 0:04:26.040 --> 0:04:29.040 said in terms of becoming more hawkish because they're catching 0:04:29.160 --> 0:04:32.240 up to what's going on with inflation, getting more credibility 0:04:32.240 --> 0:04:34.960 around that battle. The equity markets like it because it 0:04:35.000 --> 0:04:37.719 means we won't have runaway inflation. Now, when it comes 0:04:37.760 --> 0:04:41.200 to inflation, the key question is can economic growth be 0:04:41.240 --> 0:04:45.600 strong enough to overcome inflation. We think it can. Geopolitical 0:04:45.680 --> 0:04:48.560 risks are here to stay with Russia, though we see 0:04:48.560 --> 0:04:51.800 overall impact on global growth as moderate, but areas that 0:04:51.800 --> 0:04:55.240 we're monitoring, our financial channels, commodities, and the impact on 0:04:55.320 --> 0:04:58.440 the European Union. All of that together still leaves us 0:04:58.480 --> 0:05:02.120 moderately bullish for the year. So Chris Sarah says the 0:05:02.240 --> 0:05:05.640 effect on the markets will be relatively moderate from the war. 0:05:05.800 --> 0:05:07.760 The war is not going the way we thought it would. 0:05:07.800 --> 0:05:09.599 We thought it would over quickly one way or the other. 0:05:09.680 --> 0:05:13.880 It isn't. Are you more concerned about long term consequences exactly, 0:05:13.960 --> 0:05:16.279 David Sarah, I would have to say, I think the 0:05:16.320 --> 0:05:18.839 markets actually have their heads stuck in the sand. The 0:05:18.880 --> 0:05:22.240 bond market, they're awake and they're paying attention. I mean, 0:05:22.279 --> 0:05:26.640 if David, as you said, two's are back to eight, Uh, 0:05:26.800 --> 0:05:30.200 there's a thirty basis point spread between two's and thirties. 0:05:30.520 --> 0:05:32.560 That tells me the thirty year bond knows it's going 0:05:32.600 --> 0:05:34.840 to be a flight to quality because it's a safe 0:05:34.880 --> 0:05:37.640 haven in a war, which is the word you started 0:05:37.640 --> 0:05:42.240 with this equity markets shouldn't be rising. They go up 0:05:42.279 --> 0:05:44.720 at the beginning of inflation, and Sarah, I give you that, 0:05:44.760 --> 0:05:46.720 but I think long term, the bond markets got this 0:05:46.839 --> 0:05:49.640 right and the stock markets got this wrong. It should 0:05:49.640 --> 0:05:52.039 be more cautionary and it should be more worried about 0:05:52.080 --> 0:05:55.719 inflation long term. So Chris, as you imagine and manage 0:05:55.760 --> 0:05:58.520 that really substantial portfolio there at cal Stars, what do 0:05:58.560 --> 0:06:00.520 you look at in the yield curve? Anthing at all. 0:06:00.560 --> 0:06:02.600 We heard from j Powe this week and he said, look, 0:06:02.839 --> 0:06:04.599 oh sure, we pay attention to everything, which is really 0:06:04.640 --> 0:06:07.080 the very very early part of the curve which we 0:06:07.279 --> 0:06:11.560 focus on, not, for example, the two's tens. J can't 0:06:11.560 --> 0:06:13.920 control the twos tends. He can talk it up and 0:06:13.960 --> 0:06:16.560 he can job on it. You guys have a wonderful 0:06:16.600 --> 0:06:19.600 montage of a whole bunch of Fed governors who all 0:06:19.600 --> 0:06:22.320 talk about the next meeting that not only is fifty 0:06:22.360 --> 0:06:24.279 basis points not off the table. I think one of 0:06:24.279 --> 0:06:26.880 them at the end says, could be zero, it could 0:06:26.880 --> 0:06:29.880 be could be fifty, could be a point. I just 0:06:29.920 --> 0:06:32.839 think we have to recognize for an a rising rate environment. 0:06:33.440 --> 0:06:36.440 Sarah's right, it's the beginning. Bond stocks do quite well 0:06:36.440 --> 0:06:39.080 at the beginning of inflation period. But this is not 0:06:39.200 --> 0:06:42.960 going to go away. This isn't remember transitory, it's not transitory. 0:06:43.000 --> 0:06:46.240 Inflation is going to be around, and this war impact 0:06:46.440 --> 0:06:49.400 is going to be felt. Sarah Malic a movie and 0:06:49.480 --> 0:06:51.600 Chris element of Colchus will be staying with us as 0:06:51.600 --> 0:06:53.479 we turned from the economy and the Fed to what 0:06:53.520 --> 0:06:56.400 a portfolio manager is to do about them. That's gonna 0:06:56.440 --> 0:06:59.440 have next on Wall Street Week on Bloomberg. Still with 0:06:59.520 --> 0:07:02.560 us a Chris Ailment of Counselors and Sara Malic of Nowvines. 0:07:02.560 --> 0:07:04.320 So we've talked about the economy, We've talked about the FED, 0:07:04.360 --> 0:07:06.240 We've talked about inflation. Let's talk about what that means 0:07:06.240 --> 0:07:08.960 for a portfolio manager. Chris. Let's start with you, because 0:07:09.000 --> 0:07:11.360 I think of you particularly when we talk about inflation, 0:07:11.400 --> 0:07:13.520 because you've had a lot of pensions. Are you making 0:07:13.600 --> 0:07:16.080 enough money right now? Stocks are down this year, bonds 0:07:16.120 --> 0:07:17.760 are down this year. Are you making enough money to 0:07:17.800 --> 0:07:21.120 pay those pensions well? When you're looking at it on 0:07:21.120 --> 0:07:23.600 an average, not on a one year period, David, No, 0:07:23.800 --> 0:07:26.160 and markets behind us. So we're having a tough time, 0:07:26.560 --> 0:07:29.480 but we do invest in longer term assets. Real estate 0:07:29.520 --> 0:07:33.040 has held its value. Private equity has done really well, 0:07:33.200 --> 0:07:35.840 mostly because of the technology and the medical booms that 0:07:35.880 --> 0:07:38.640 we've seen this year. But then we also invest in 0:07:38.640 --> 0:07:43.160 inflation sensitive assets. We've got uh Timberland, we've had agriculture, 0:07:43.200 --> 0:07:45.880 we've got commodities which have been up over twenty nine 0:07:46.400 --> 0:07:50.760 so far this year. So the key is diversification. We 0:07:50.800 --> 0:07:52.800 don't put all our money in one basket. We don't 0:07:52.840 --> 0:07:55.720 put it all in domestic stocks. We spread it across 0:07:55.760 --> 0:07:58.360 in a number of different asset classes. That way that 0:07:58.480 --> 0:08:01.200 we can weather years like this and then also make 0:08:01.240 --> 0:08:04.640 money in the positive years. So, Sarah, how do you 0:08:04.680 --> 0:08:07.160 manage in this environment? Certain there's a lot of volatility 0:08:07.160 --> 0:08:09.200 out there, a lot of uncertainty. I've read a number 0:08:09.200 --> 0:08:10.560 of analysts who say, you know, you've got to get 0:08:10.560 --> 0:08:12.760 conservative right now. You know, a large cap you want 0:08:12.760 --> 0:08:14.560 to start wars and start small cap. You want to 0:08:14.560 --> 0:08:18.680 go value rather than growth. Now we also go public 0:08:18.720 --> 0:08:21.960 surprivates at New venes. So in an inflationary environment, we 0:08:22.040 --> 0:08:25.280 like equities, we like commodities and also real assets and 0:08:25.320 --> 0:08:28.520 within equities, and we're being selective, but you know, companies 0:08:28.520 --> 0:08:30.960 with pricing power. We are seeing that from energy, which 0:08:30.960 --> 0:08:34.160 has a very tight cycle and producer discipline, which is 0:08:34.240 --> 0:08:37.120 very important that the producers are not just pulling just 0:08:37.160 --> 0:08:40.000 focusing on volume growth, they're returning cash to shareholders. And 0:08:40.000 --> 0:08:42.320 then we like large caps largely have growth stocks really 0:08:42.360 --> 0:08:45.800 beaten down this year. Economically resilient. These are companies like 0:08:45.960 --> 0:08:48.160 you know, a bell Weather sooft like Microsoft, which has 0:08:48.480 --> 0:08:52.120 such strong growth characteristics going forward, exposure to we view 0:08:52.120 --> 0:08:55.080 as the next digital revolution, which is the metaverse um. 0:08:55.120 --> 0:08:57.360 And then also within fixed income, it is challenging that 0:08:57.400 --> 0:08:59.440 there's areas that you can look at where you can 0:08:59.480 --> 0:09:03.439 find quality or also higher yields like emerging market debt, 0:09:03.720 --> 0:09:06.920 floating rate loans, and we're definitely airring on the shorter 0:09:07.000 --> 0:09:09.160 duration side with fixed income given what's going on with 0:09:09.240 --> 0:09:12.960 infest rates. Sarah with a big grosstalk like Microsoft, are 0:09:12.960 --> 0:09:16.360 you not worried about it's fully valued? You know, the 0:09:16.400 --> 0:09:19.040 growth stocks are actually pretty beaten down this year. Considering 0:09:19.040 --> 0:09:22.000 their structural growth ways, we found them to be quite interesting. 0:09:22.040 --> 0:09:25.080 Another name that we like in technology is applied materials, 0:09:25.080 --> 0:09:28.040 where fans of the semi conductor cycle semis are getting 0:09:28.200 --> 0:09:32.440 larger and more complex, they require more equipment. Applied Materials 0:09:32.480 --> 0:09:34.960 is in the sweet spot of t SMC and Intel, 0:09:35.040 --> 0:09:37.199 two of the biggest foundries, a lot of demand for 0:09:37.240 --> 0:09:39.520 their products, and we think that's so very well position 0:09:39.600 --> 0:09:43.520 company going forward. Chris tell us about bonds in this 0:09:43.640 --> 0:09:45.880 environment with rates going up, why does it make sense 0:09:45.880 --> 0:09:49.600 to be in bonds at all? Good challenge, But I think, 0:09:49.679 --> 0:09:51.560 just like Sarah said, we're looking at the short end. 0:09:51.880 --> 0:09:54.840 We're looking at private credit, which is variable rates, so 0:09:54.880 --> 0:09:57.720 we have opportunities to invest there. There's still a few 0:09:57.760 --> 0:10:01.280 credit opportunities, but it's a challenge. We have the lowest 0:10:01.360 --> 0:10:04.560 waiting in fixed income that we've had in the history 0:10:04.559 --> 0:10:07.520 of cal Star's uh So it's a challenging environment. And 0:10:07.559 --> 0:10:09.800 if you're in a four oh win K investor, it's 0:10:09.800 --> 0:10:12.280 really hard because all you really have is stocks and bonds. 0:10:12.320 --> 0:10:14.680 You don't have a lot of chances. Maybe if you 0:10:14.760 --> 0:10:17.920 have a real asset option in your four oh one K, 0:10:18.160 --> 0:10:20.760 take advantage of that, but you've got to open your account, 0:10:20.880 --> 0:10:24.480 take a look at it and diversify across. As I 0:10:24.520 --> 0:10:27.240 said at the at the earlier segment, David, I think 0:10:27.320 --> 0:10:30.440 that you know, the Feds making it clear they're raising rates. 0:10:30.480 --> 0:10:33.600 Sarah said it herself seven more times already this year, 0:10:33.920 --> 0:10:39.080 and maybe more so that that to thirty uh two 0:10:39.160 --> 0:10:42.400 year is gonna go higher, and that's gonna work against you. 0:10:42.440 --> 0:10:44.520 I mean, so far you have a negative eleven percent 0:10:44.559 --> 0:10:47.720 return in bonds this year. That's a tough way to go. 0:10:47.920 --> 0:10:50.679 So you've got a diverse fy away into other types 0:10:50.720 --> 0:10:53.920 of assets, Sarah, as you manage your portfolio. We just 0:10:53.960 --> 0:10:56.520 heard from of course and seven times. Actually a city 0:10:56.600 --> 0:10:58.880 came out on Friday of this week and said eight times, 0:10:59.440 --> 0:11:01.520 can don't even stand that. I guess the reason I 0:11:01.559 --> 0:11:03.360 asked that as a portfolio manager, do you have to 0:11:03.360 --> 0:11:06.760 be hedging against the possibility recession? Actually, well, if you 0:11:06.760 --> 0:11:09.040 look at the last couple of cycles, the Fed, the 0:11:09.240 --> 0:11:12.280 equity markets peaked in around nine to fourteen rate hikes, 0:11:12.320 --> 0:11:15.120 So I think you know, we can handle multiple rate hikes. 0:11:15.559 --> 0:11:17.280 One question for us, as though, it has to make 0:11:17.280 --> 0:11:20.200 a dent in inflation or we're going to have other problems. 0:11:20.480 --> 0:11:22.320 You know, we have to watch the hard economic data. 0:11:22.320 --> 0:11:23.960 I think the FED is doing the same thing. They've 0:11:24.000 --> 0:11:27.520 said their data dependent. Can the economic data hold up 0:11:27.640 --> 0:11:29.760 during all of these rate hikes. I think initially we're 0:11:29.760 --> 0:11:32.920 seeing signs that it can, because sag inflation is a 0:11:32.920 --> 0:11:36.600 period where we have low employment and lower economic growth, 0:11:36.640 --> 0:11:38.480 and we're just not really seeing that yet. We still 0:11:38.520 --> 0:11:40.960 have a very strong economy here, and so you know, 0:11:41.040 --> 0:11:43.120 we are not initially worried about these rate hikes. As 0:11:43.120 --> 0:11:45.280 I said earlier, we want to be careful about leaving 0:11:45.280 --> 0:11:47.760 to money on the table in the early cycles of 0:11:47.840 --> 0:11:50.480 rate hikes, and just because the yield curve is inverting 0:11:50.640 --> 0:11:54.080 in certain places, Sarah, you said, the word that keeps 0:11:54.080 --> 0:11:56.800 saying up at night stag inflation, because I worry about 0:11:57.360 --> 0:12:01.319 is that if if the inflation is coming from external 0:12:01.360 --> 0:12:05.800 sources like the war in Ukraine and the lack of fertilizer, 0:12:05.920 --> 0:12:09.800 the lack of we hire prices two wages because people 0:12:09.800 --> 0:12:12.360 are demanding it before they go back to work, that 0:12:12.480 --> 0:12:14.559 makes me worry that that economic growth is going to 0:12:14.640 --> 0:12:17.920 get squashed in this summer. The FED can't fight that 0:12:18.040 --> 0:12:21.080 kind of inflation with just higher rates, and we end up, 0:12:21.120 --> 0:12:24.439 as you said, in stag inflation. I know for my portfolio, 0:12:24.600 --> 0:12:27.640 that's the worst situation of all there. There's almost nothing 0:12:27.720 --> 0:12:30.360 we can find to invest in to make us money 0:12:30.520 --> 0:12:33.920 in a stagflation environment. If you actually look at the 0:12:33.960 --> 0:12:37.839 seventies during the period of stagflation, during the early period, 0:12:37.840 --> 0:12:40.160 it was a very challenging period invest but later on 0:12:40.200 --> 0:12:43.680 actually that was when equities and real assets actually performed 0:12:43.679 --> 0:12:46.680 pretty well. So you can't find period during that cycle. 0:12:46.760 --> 0:12:49.400 You can't actually have times where you can make good 0:12:49.400 --> 0:12:51.959 returns on your investments. Um. So, I mean, I agree 0:12:51.960 --> 0:12:54.160 it's a concern out there, but it's not something that 0:12:54.679 --> 0:12:57.320 we're worried about right now. Also, within inflation, I think 0:12:57.320 --> 0:12:59.599 the FED seeing the same thing where there's noise in 0:12:59.640 --> 0:13:02.840 those umbers from tier supply chains to the war that 0:13:02.880 --> 0:13:05.320 we're seeing these things that are not necessary, things that 0:13:05.320 --> 0:13:07.319 are going to remain permanently. So what is that true 0:13:07.320 --> 0:13:09.920 baseline inflation number one? We're through this, That's what you 0:13:09.960 --> 0:13:11.600 know we're not clear on. I don't think the fet 0:13:11.679 --> 0:13:14.160 is yet and they have the ability to pull back 0:13:14.200 --> 0:13:16.600 on rate increases. Um. Once we start to see what 0:13:16.640 --> 0:13:20.120 inflation really looks like, we're passing of these unusual currencies 0:13:20.160 --> 0:13:23.520 that are happening. True, Christal, wrap up this investment cycle. 0:13:23.559 --> 0:13:25.640 Let's talk about that you referred to earlier, and that 0:13:25.800 --> 0:13:29.960 is the energy transition. What effect, if any, will the 0:13:30.000 --> 0:13:32.320 war Ukraine have on that? Because we saw just this week, 0:13:32.520 --> 0:13:34.480 for example, the United States now commit to a huge 0:13:34.600 --> 0:13:37.400 new supply of l n G. Look with natural gas 0:13:37.600 --> 0:13:40.400 to Europe. What's going to happen in the energy transition 0:13:40.440 --> 0:13:44.480 in this world? David, it's fronduct to light that it's 0:13:44.520 --> 0:13:46.840 not going to be smooth, that it is going to 0:13:46.920 --> 0:13:49.840 be a difficult transition. I get a ton of pressure 0:13:49.880 --> 0:13:53.160 from teachers that want us to dump US oil companies, 0:13:53.520 --> 0:13:56.000 and now maybe they realize that, well, we don't want 0:13:56.000 --> 0:13:59.319 to be dependent on Russia and Saudi Arabia and Venezuela. 0:13:59.679 --> 0:14:04.720 It needs to be a transition where consumers change, utilities changed. 0:14:04.760 --> 0:14:06.400 You know, the number one thing is how we generate 0:14:06.440 --> 0:14:10.160 electricity first and foremost. So we've got to find ways 0:14:10.200 --> 0:14:13.400 to have a thoughtful transition. And we don't want to 0:14:13.400 --> 0:14:17.400 be geopolitically linked to one economy or one type of fuel. 0:14:17.400 --> 0:14:20.600 We want to be diversified. And so you know, we've 0:14:20.800 --> 0:14:23.520 we've got time of twenty years, but it has to 0:14:23.600 --> 0:14:26.760 start now and it has to be meaningful. Thank you 0:14:26.880 --> 0:14:28.840 so very much for both of you. That's Sarah Malic 0:14:28.960 --> 0:14:31.560 of Nouvena and Chris Ellman of Calster. Is great to 0:14:31.600 --> 0:14:36.080 have you both with us coming up. The SEC wants 0:14:36.080 --> 0:14:39.880 companies to disclose their greenhouse gas emissions, but what are 0:14:39.920 --> 0:14:43.320 they already doing to get to net zero? Bank of 0:14:43.360 --> 0:14:45.720 America has done the survey, and its head of research, 0:14:45.840 --> 0:14:48.840 Candice Browning, is here with the report. That's next on 0:14:48.880 --> 0:14:54.280 Wall Street Week on Bloomberg. This is Bloomberg Wall Street 0:14:54.320 --> 0:15:01.320 Week with David Weston from Bloomberg Radio. Getting to zero, 0:15:01.760 --> 0:15:06.120 that's the goal that countries representing of greenhouse emissions and 0:15:07.240 --> 0:15:10.600 g d P have set for themselves. Making progress all 0:15:10.640 --> 0:15:15.600 but inevitable. That's according to President Biden's Climate Envoy, John Kerry. 0:15:15.760 --> 0:15:19.080 No president in the future would walk into the White 0:15:19.080 --> 0:15:22.600 House and undo what is going on around the world. 0:15:24.080 --> 0:15:27.080 This is bigger than the United States. What is this response? 0:15:27.760 --> 0:15:30.800 People all around the world are retooling, and corporations are 0:15:30.880 --> 0:15:34.120 quickly signing up to do their part. Like VP CEO 0:15:34.240 --> 0:15:37.880 Bernard Looney, we will reinvest two pounds more than that 0:15:37.960 --> 0:15:41.000 actually for every pound that we make, and the majority 0:15:41.040 --> 0:15:43.760 of that investment, the vast majority of it will go 0:15:43.800 --> 0:15:47.440 into helping Britain transition to a zero future. This week, 0:15:47.560 --> 0:15:51.480 the SEC gave corporations a nudge, proposing new requirements the 0:15:51.520 --> 0:15:55.920 public and traded companies disclose their greenhouse gas emissions. So 0:15:55.960 --> 0:16:03.360 now it appears there's no turning back. Before we go 0:16:03.440 --> 0:16:05.880 forward into a zero emissions world, we have to know 0:16:05.920 --> 0:16:08.480 where we are right now, and particularly where companies are 0:16:08.600 --> 0:16:12.000 and really being committed to zero emissions. To find that out, 0:16:12.000 --> 0:16:13.800 Bank of America has done a compremis of survey of 0:16:13.880 --> 0:16:16.400 thirty four hundred different companies around the world, and here 0:16:16.520 --> 0:16:19.440 tell us about what she found out. Were welcome Candice Browning. 0:16:19.560 --> 0:16:22.480 She is head of Global Research for Bank of America. 0:16:22.560 --> 0:16:24.840 So Candice, thanks so much for being here. What did 0:16:24.880 --> 0:16:28.040 you learn from your survey? Oh, David, we learned so 0:16:28.080 --> 0:16:30.400 many things. I mean, the first thing we learned is 0:16:30.440 --> 0:16:33.400 that this really is a movement. I mean I was surprised, 0:16:33.440 --> 0:16:38.560 you know, and nineteen about sixteen percent of the world's GDP, 0:16:38.880 --> 0:16:41.720 you know, by country had committed to some sort of 0:16:41.800 --> 0:16:46.120 net zero plan, and today, just three years later, that 0:16:46.200 --> 0:16:49.720 number is nine. And you know, this whole thing was 0:16:49.760 --> 0:16:53.960 really led initially by policymakers, right. But now, what's happened 0:16:54.080 --> 0:16:57.080 is all these other groups have jumped in, whether it's 0:16:57.160 --> 0:17:02.760 active as shareholders, or whether it's consumers who want to buy, 0:17:02.960 --> 0:17:05.679 you know, goods that they think are not don't have 0:17:05.760 --> 0:17:09.560 a huge carbon footprint. Um, so it's all it's in 0:17:09.680 --> 0:17:13.240 its shareholders. They've all jumped in, and everybody wants to 0:17:13.280 --> 0:17:15.879 get on this wagon. So the first big takeaway was 0:17:15.920 --> 0:17:18.080 that you know, it's it's a movement and it's going 0:17:18.160 --> 0:17:22.280 to happen. And I think actually that the events between 0:17:22.359 --> 0:17:25.920 Russia and Ukraine are actually going to further accelerate this 0:17:26.080 --> 0:17:30.200 because Europe you know, has to get off its dependency 0:17:30.280 --> 0:17:33.000 on hydro carbons. How difficult it's going to be. Because 0:17:33.040 --> 0:17:35.040 one of the things I really focused on in reading 0:17:35.040 --> 0:17:39.200 your survey was there are three different categories here of emissions, 0:17:39.240 --> 0:17:41.639 and one of them is your own companies. Another is 0:17:41.640 --> 0:17:44.200 that people supply you. But then there's a third category 0:17:44.240 --> 0:17:47.359 that actually dwarfs the other two. Yeah, Basically, the first 0:17:47.400 --> 0:17:49.480 one is what you use to make your goods and 0:17:49.960 --> 0:17:52.560 services and products, and then the second one is the 0:17:53.240 --> 0:17:56.639 purchased energy, you know, the electricity that you buy. And 0:17:56.680 --> 0:18:00.359 then the third one is the really difficult one to 0:18:00.359 --> 0:18:03.600 to measure, and that is really the carbon footprint of 0:18:03.760 --> 0:18:07.399 all of your suppliers. And it's estimated that that third 0:18:07.520 --> 0:18:10.840 level David is three times as big as level one 0:18:10.960 --> 0:18:13.680 and level two. In doing your survey, did you get 0:18:13.680 --> 0:18:16.440 a sense of timeline for these corporations? If they're committed 0:18:16.520 --> 0:18:18.480 to NED zero, how long is it going to take? 0:18:19.040 --> 0:18:21.320 So what we found is that of the thirty four 0:18:21.440 --> 0:18:25.720 hundred companies that eleven percent of them globally said they're 0:18:25.720 --> 0:18:29.800 going to get there by that's just eight years away. 0:18:29.840 --> 0:18:36.280 That number quadruples by the time of the company said 0:18:36.400 --> 0:18:38.880 that they would be there. And there are also some 0:18:39.040 --> 0:18:43.680 real differences by region. So if you look at Europe, 0:18:43.760 --> 0:18:47.800 for example, they're twenty percent of companies say they're going 0:18:47.840 --> 0:18:50.680 to get there by twenty thirty, so they're far ahead 0:18:50.760 --> 0:18:54.040 of the rest of the world. In China, fully a 0:18:54.160 --> 0:18:57.959 third of companies don't even have a timeline, So there 0:18:57.960 --> 0:19:01.880 are big differences by region. We'll talk about that geographic dispersion. 0:19:01.960 --> 0:19:04.240 I can call it that. You talked about Europe, you 0:19:04.359 --> 0:19:06.879 talked about China. Where's the United States? You know, the 0:19:06.920 --> 0:19:10.480 United States is just solidly right um right in the 0:19:10.520 --> 0:19:13.439 middle there. I think it's about I can't remember the 0:19:13.480 --> 0:19:17.119 exact number for but we're solidly in the middle and 0:19:17.200 --> 0:19:22.359 we've been accelerating our timeline. Okay, we have Wall Street. 0:19:22.359 --> 0:19:25.280 We appeal to investors, try to inform them what's this 0:19:25.359 --> 0:19:27.879 gonna cost, what's this gonna do to revenue on the 0:19:27.880 --> 0:19:29.520 top line on the one hand, what's also going to 0:19:29.600 --> 0:19:33.000 do to the cost line. So what we found is 0:19:33.040 --> 0:19:40.040 that in general, companies analysts expected that revenues would decline 0:19:40.080 --> 0:19:45.280 about five Now that averaged from zero percent to as 0:19:45.320 --> 0:19:50.680 much as fourteen percent um depending on the sector. For example, 0:19:50.800 --> 0:19:53.159 energy companies you would imagine would have one of the 0:19:53.160 --> 0:19:57.480 biggest hits. So we think that there'll be a revenue hit. Interestingly, 0:19:57.560 --> 0:19:59.800 we also think that there's going to be a real 0:20:00.080 --> 0:20:05.000 pick up in research costs, So about one point two 0:20:05.040 --> 0:20:08.120 trillion of R and D will be spent we think 0:20:08.160 --> 0:20:12.480 over the next five years, and capital expenditures we think 0:20:12.520 --> 0:20:15.280 will be about two point four trillion over the next 0:20:15.359 --> 0:20:18.679 five years. So put it together, you've got lower revenues, 0:20:18.800 --> 0:20:21.639 you've got higher costs. It means that you're going to 0:20:21.720 --> 0:20:24.400 have a hit to operating profits, which we think will 0:20:24.440 --> 0:20:28.600 be down about five on average. So that sounds like 0:20:28.640 --> 0:20:31.680 a pretty grim picture, and you know, in the short 0:20:31.800 --> 0:20:34.800 term there definitely will be pain, but there are going 0:20:34.840 --> 0:20:37.000 to be companies that are going to be beneficiaries of 0:20:37.040 --> 0:20:39.840 this as well. Well. It's a fascinating study, is I say. 0:20:39.880 --> 0:20:41.480 I learned a lot from and I really thank you 0:20:41.520 --> 0:20:43.520 for sharing it with us here on Wall Street Week 0:20:43.560 --> 0:20:46.800 as Kenneth Browning, she's head of Global research for Bank 0:20:46.840 --> 0:20:51.080 of America. Coming up, we wrap up the week with 0:20:51.119 --> 0:20:54.840 special contributor Larry Summers of Harvard. This is Wall Street 0:20:54.880 --> 0:21:01.159 Week on Bloomberg. This is Bloomberg Wall Street Week with 0:21:01.320 --> 0:21:05.000 David Weston from Bloomberg Radio, and welcome back now our 0:21:05.119 --> 0:21:08.240 special contributor here at Walster Equal Larry Summers. And Larry, 0:21:08.359 --> 0:21:10.199 you were at least perhaps a little bit in the 0:21:10.200 --> 0:21:12.920 news this week for one specific reason. We heard from 0:21:12.920 --> 0:21:16.360 FED chair J Powell at the NAB meetings down in Washington, 0:21:16.680 --> 0:21:18.719 and he went out of his way to sort of 0:21:19.240 --> 0:21:22.720 correct the record on exactly how aggressive the FRED will be. 0:21:22.800 --> 0:21:24.760 Some people have said he was responding to some of 0:21:24.800 --> 0:21:27.480