WEBVTT - Bloomberg Wall Street Week - April 12th, 2024 0:00:00.240 --> 0:00:02.440 This is Bloomberg Wall Street Week. 0:00:02.560 --> 0:00:04.480 We may not have an overall recession, We're having a 0:00:04.559 --> 0:00:06.840 rolling recession. To Cone, roll looks pretty strongly. It is 0:00:06.840 --> 0:00:07.680 when it comes to jobs. 0:00:07.720 --> 0:00:09.880 The financial stories that shape our world. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.480 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:17.000 generative AI. 0:00:16.920 --> 0:00:19.320 Through the eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 0:00:22.560 --> 0:00:25.279 deebro Lair of the Paulson Institute, well then Hubbard of 0:00:25.280 --> 0:00:26.280 the Columbia Business School. 0:00:26.280 --> 0:00:30.120 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.240 --> 0:00:33.920 A total eclipse of the sun, Connecticut repeats his men's 0:00:33.920 --> 0:00:38.319 basketball champion, and inflation pushes back. This is Bloomberg Wall 0:00:38.320 --> 0:00:42.400 Street Week. I'm David Weston. This week, Former Trade Representative 0:00:42.400 --> 0:00:45.479 and World Bank President Bob Zellick on what both parties 0:00:45.520 --> 0:00:47.839 are getting wrong on US trade policy. 0:00:48.520 --> 0:00:51.760 If you add barriers to one type of product or another, 0:00:52.040 --> 0:00:52.840 people will move. 0:00:53.680 --> 0:00:57.680 And Finucan of Rubicon Capital on whatever happened to ESG. 0:00:58.680 --> 0:01:02.080 I don't think there's an argument about the science. I 0:01:02.120 --> 0:01:05.679 think most companies are committed, but some of the tools 0:01:05.680 --> 0:01:06.840 they thought they were going. 0:01:06.680 --> 0:01:09.560 To have have been held back a little bit. 0:01:10.200 --> 0:01:13.680 And former IBM had Sam Palmesano on the right way 0:01:13.840 --> 0:01:15.440 to regulate generative AI. 0:01:16.280 --> 0:01:18.600 Well, we want the government to is regulate the users 0:01:18.600 --> 0:01:22.679 of the technology. 0:01:24.880 --> 0:01:27.200 Well, we start with those US inflation numbers coming in 0:01:27.280 --> 0:01:31.120 higher than expected, something that caught many market participants by surprise, 0:01:31.240 --> 0:01:34.400 but that did not surprise our special contributor Larry Summers 0:01:34.400 --> 0:01:34.920 of Harvard. 0:01:36.080 --> 0:01:40.440 I was not hugely surprised by the numbers. In an 0:01:40.480 --> 0:01:44.880 economy that's growing faster than potential, with an unemployment rate 0:01:45.080 --> 0:01:50.240 that has a three handle, in the presence of massive 0:01:50.520 --> 0:01:56.960 and growing budget deficits and epically easy financial conditions, the 0:01:57.040 --> 0:02:02.320 idea that inflation would remain robust or even accelerate should 0:02:02.360 --> 0:02:05.920 not be a surprise to anyone, and that's what this 0:02:06.080 --> 0:02:10.880 data suggests. It was not me or some outside observer 0:02:11.400 --> 0:02:16.880 who emphasized the concept of supercore inflation, that is, taking 0:02:16.919 --> 0:02:20.880 out the transitory stuff and also. 0:02:20.720 --> 0:02:22.359 Taking out housing. 0:02:22.840 --> 0:02:27.840 This confirms the idea that the neutral rate is way 0:02:28.200 --> 0:02:31.920 above the two point six percent level that the FED 0:02:32.080 --> 0:02:36.120 has been using as a north star. In my view, 0:02:36.280 --> 0:02:38.799 puts back on the table. It is still not what 0:02:38.880 --> 0:02:42.520 I would expect, but you have to take seriously the 0:02:42.600 --> 0:02:46.920 possibility that the next rate move will be upwards rather 0:02:47.040 --> 0:02:48.760 than downwards. 0:02:49.560 --> 0:02:51.799 As much as Larry Summers may have been warning about 0:02:51.840 --> 0:02:54.520 inflation staying higher than we'd like, the reaction to the 0:02:54.560 --> 0:02:57.400 markets did not look like they've been fully prepared. The 0:02:57.480 --> 0:02:59.359 S and P five hundred was off one point six 0:02:59.360 --> 0:03:01.720 percent for the way, wending at fifty one to twenty three, 0:03:01.919 --> 0:03:04.440 much closer to that year end median number of fifty 0:03:04.440 --> 0:03:07.520 one hundred set by our Bloomberg Elves. The NANZDAC gave 0:03:07.600 --> 0:03:09.760 up just under half a percent of the week, while 0:03:09.760 --> 0:03:12.320 the yield of the ten year was up eleven basis 0:03:12.320 --> 0:03:15.200 points to end at four point five percent. To explain 0:03:15.240 --> 0:03:17.320 all this to us, we welcome back now Kristin Bitterly. 0:03:17.480 --> 0:03:20.799 She's head of Investment Solutions for Citigroup Global Markets. Always 0:03:20.800 --> 0:03:23.640 great to have you, Kristens. It's all about inflation. 0:03:23.680 --> 0:03:25.760 It looks like it is all about inflation, and I 0:03:25.760 --> 0:03:28.600 would also say earnings. So let's just look at the 0:03:28.600 --> 0:03:30.959 price action that we've seen to start the second quarter. 0:03:31.360 --> 0:03:34.920 You have geopolitics, you also have earning season kicking off. 0:03:35.440 --> 0:03:38.400 You have also some seasonal elements to what we see 0:03:38.440 --> 0:03:41.119 in April. This week, you tend to see a lot 0:03:41.120 --> 0:03:44.040 of tax payment selling, both within the bond market, in 0:03:44.080 --> 0:03:47.040 the municipal bond market, as well as within the equity market. 0:03:47.120 --> 0:03:49.240 So when you combine all of this and put into 0:03:49.360 --> 0:03:51.880 perspective that just yesterday we were at all time highs 0:03:51.880 --> 0:03:54.880 in the Nasdaq and we're coming off two quarters of 0:03:54.920 --> 0:03:58.160 double digit gains, I think we may be putting too 0:03:58.240 --> 0:04:00.760 much weight on some of the volatility that we're seeing 0:04:01.000 --> 0:04:03.600 that are pretty garden variety pullbacks within the market. 0:04:03.720 --> 0:04:05.400 We spend a lot of time we'ring with the labor market, 0:04:05.600 --> 0:04:07.560 So folcus say, on those jobs numbers are goading over 0:04:07.560 --> 0:04:09.760 a month, are they really a factor at this point? 0:04:10.040 --> 0:04:12.200 So I think if you're going to say what matters more, 0:04:12.280 --> 0:04:14.440 is it the labor market or is inflation? In terms 0:04:14.440 --> 0:04:16.839 of the Fed's dual mandate and what they're going to 0:04:16.839 --> 0:04:19.320 pay attention to, the data that we have out of 0:04:19.360 --> 0:04:22.719 the labor market is very robust. The job creation that 0:04:22.760 --> 0:04:25.080 we've seen, if we look at it year over year, 0:04:25.200 --> 0:04:27.200 you could start to see some cracks in that. So, 0:04:27.520 --> 0:04:29.720 for example, you can look at jolts, and you can 0:04:29.760 --> 0:04:32.200 see the millions of jobs that we've actually come down 0:04:32.240 --> 0:04:34.440 in terms of openings. You can also look at the 0:04:34.480 --> 0:04:38.320 quicks rate that's stabilized a bit, so we've seen some softening, 0:04:38.440 --> 0:04:41.880 but I think the large picture a pretty robust labor market. 0:04:42.240 --> 0:04:45.560 That being said, when you look at inflation, that's where 0:04:45.600 --> 0:04:47.760 the Fed's attention is. And I think what we're seeing 0:04:47.839 --> 0:04:51.560 right now, and what Larry Summers just mentioned is the 0:04:51.600 --> 0:04:54.760 fact that the FED needs to see a trajectory of disinflation, 0:04:55.279 --> 0:04:57.640 and so what we have for this first quarter we 0:04:57.680 --> 0:05:00.159 don't have that data. We have more of a stalling 0:05:00.240 --> 0:05:02.920 and a pause. And so to credibly be able to 0:05:03.000 --> 0:05:05.200 cut and know that inflation is on a path to 0:05:05.400 --> 0:05:06.840 actually what we believe is going to be two and 0:05:06.880 --> 0:05:09.360 a half percent by this year's end, you need to 0:05:09.400 --> 0:05:11.200 see some of those trends actually take place. 0:05:11.279 --> 0:05:13.520 So christ you said, it's not just the infliction data, 0:05:13.520 --> 0:05:15.640 it's also earnings. What are we looking for earnings? 0:05:15.680 --> 0:05:18.880 It is so within earnings, I think it is something 0:05:18.880 --> 0:05:23.640 about actually beating and then raising guidance and expectations, because 0:05:23.800 --> 0:05:27.039 the expectations right now I think are relatively reasonable. I 0:05:27.080 --> 0:05:29.640 think what are we going to see we raise our 0:05:29.720 --> 0:05:31.919 expectations for the full year. So we came into this 0:05:32.000 --> 0:05:35.440 year relatively conservative, thinking that we would see slower growth data. 0:05:35.920 --> 0:05:38.320 I think that when you look across the US equity market, 0:05:38.360 --> 0:05:41.359 it's been really resilient. So you have about five sectors 0:05:41.400 --> 0:05:44.320 out of the eleven that are anticipated to deliver earnings growth. 0:05:44.560 --> 0:05:47.320 You also have some sectors that have been surprised. So 0:05:47.360 --> 0:05:48.880 when we look at the price of oil and what 0:05:49.600 --> 0:05:51.960 that is going to do for energy, even if we 0:05:52.000 --> 0:05:56.719 look at utilities, the anticipated earnings growth is in the twenties, 0:05:57.000 --> 0:06:00.719 so from a percentage standpoint, which is oddly actually beneficiary 0:06:00.839 --> 0:06:04.120 of AI. So expect more AI language, but in sectors 0:06:04.120 --> 0:06:05.120 that you wouldn't expect. 0:06:05.200 --> 0:06:07.919 What about mainstream versus Wall Street? Because Russell two thousand 0:06:08.000 --> 0:06:09.919 is not had an easy time of it. It is not. 0:06:10.080 --> 0:06:13.000 And if you look at like small business confidence measures, 0:06:13.279 --> 0:06:15.600 they're also not where they where we would want them 0:06:15.600 --> 0:06:17.440 to be. So I think this is another thing when 0:06:17.680 --> 0:06:19.360 people are talking about whether or not the Fed's going 0:06:19.400 --> 0:06:22.000 to cut and some of the measures that we're looking at, 0:06:22.240 --> 0:06:24.159 I think you have to say, why do we see 0:06:24.200 --> 0:06:26.880 such strong consumer spending? Why do we see the resiliency, 0:06:27.440 --> 0:06:30.560 and really it is a delineation between if you're looking 0:06:30.560 --> 0:06:33.680 within the market, the corporations that have their balance sheets 0:06:33.680 --> 0:06:36.480 in order that took advantage of historically low interest rates. 0:06:36.600 --> 0:06:38.440 Even at the beginning of this year, we saw a 0:06:38.600 --> 0:06:41.960 huge amount of investment grade issuance come to market. It's 0:06:42.000 --> 0:06:44.560 actually the highest quarter since what we saw back in 0:06:44.600 --> 0:06:47.400 twenty twenty. So there are a lot of companies that 0:06:47.480 --> 0:06:50.560 have their balance sheet in order. That's very different than 0:06:50.560 --> 0:06:51.560 the Russell two thousand. 0:06:51.839 --> 0:06:53.960 The very end here any investment advice, how do you 0:06:53.960 --> 0:06:55.040 invest in this in climate? 0:06:55.160 --> 0:06:57.800 So a couple of things. I would say, stay diversified. 0:06:58.040 --> 0:07:00.240 So when you look at the price action today, there 0:07:00.279 --> 0:07:03.000 is value to having both fixed income within your portfolio 0:07:03.279 --> 0:07:06.599 as well as equities. The broadening out to make sure 0:07:06.960 --> 0:07:09.159 that again you're not going to unprofitable parts of the 0:07:09.200 --> 0:07:12.280 market are highly levered, but you're finding opportunities to take 0:07:12.320 --> 0:07:15.080 advantage of some of these themes, but at a reasonable valuation. 0:07:15.480 --> 0:07:16.960 The other thing that I will say is if you're 0:07:16.960 --> 0:07:21.680 worried about geopolitics, there are hedging opportunities that exist, So 0:07:21.960 --> 0:07:25.360 don't trade your portfolio based on geopolitics or elections, but 0:07:25.440 --> 0:07:27.520 take advantage of some of those hedges to stay invested in. 0:07:27.680 --> 0:07:30.080 Unfortunately, we need some of those hedges on geopolitics, I'm 0:07:30.120 --> 0:07:33.720 afraid many thanks to Kristin Bitterley of City Group Global Markets. 0:07:34.640 --> 0:07:38.160 Artificial intelligence is on the march. Jamie diamond says it 0:07:38.160 --> 0:07:40.200 may be as powerful as the invention of the steam 0:07:40.200 --> 0:07:43.240 engine or the discovery of electricity. And the government has 0:07:43.240 --> 0:07:47.440 given AI chipmaker TSMC eleven point six billion dollars to 0:07:47.440 --> 0:07:49.600 build a plan in the United States, but some say 0:07:49.640 --> 0:07:52.040 that the government is behind I'm figuring out a safe 0:07:52.200 --> 0:07:56.200 regulatory framework for this rapidly developing technology. To give us 0:07:56.200 --> 0:07:59.080 his perspective on regulation in the tech industry, we welcome 0:07:59.120 --> 0:08:01.640 back now. Sampalm is on. He's former head of IBM 0:08:01.720 --> 0:08:04.720 and now chairman of the Center for Global Entervise. Sam 0:08:04.760 --> 0:08:06.800 great to have you back on Wall Street week. As 0:08:06.840 --> 0:08:08.920 I say, you have a perspective historical perspective here. This 0:08:08.960 --> 0:08:10.840 is not the first time we've had major tech innovation. 0:08:10.960 --> 0:08:13.360 If you go back to Windows and you look at 0:08:13.520 --> 0:08:17.080 the smartphone, you look at social media. Put this in perspective. 0:08:17.160 --> 0:08:18.560 What has the government done in the past, and what 0:08:18.680 --> 0:08:20.400 has it done well and maybe not so well? 0:08:21.000 --> 0:08:22.800 Oh yah, David, thank you. It's great to be back 0:08:22.840 --> 0:08:25.240 on the program, and it's always going to be with you. 0:08:25.440 --> 0:08:27.560 Good evening to everyone you know. 0:08:27.640 --> 0:08:30.040 As a friend of mine, put this, we always dress 0:08:30.080 --> 0:08:33.880 for yesterday's weather. Especially true when it comes to regulation right. 0:08:34.480 --> 0:08:38.840 Governments tend to apply existing laws and frameworks to new phenomenon, 0:08:38.960 --> 0:08:42.839 which is a challenge. I'll use two example, do any 0:08:42.880 --> 0:08:47.160 trust and then subsidies are tariffs and going back to 0:08:47.200 --> 0:08:50.840 the eighties here, But funny how history repeats itself. To 0:08:50.920 --> 0:08:54.520 take the first suit, which is IBM, mostly by the 0:08:54.559 --> 0:08:57.320 Maintrain dominance. It lasted from the last day the Johnson 0:08:57.320 --> 0:09:00.840 administration to the start of the Reagan administration. We dismissed 0:09:01.400 --> 0:09:05.840 Microsoft mostly about bundling windows and browsers. To think about 0:09:05.880 --> 0:09:09.520 how relevant that would be today in today's world. So 0:09:09.559 --> 0:09:12.360 the results is that over time these suits kind of 0:09:13.600 --> 0:09:16.160 it lasts so long that the technology's. 0:09:15.520 --> 0:09:18.280 Advanced and they become used. I'll give you another. 0:09:18.000 --> 0:09:20.720 Example, pairs and subsidies. Since you brought up a chips tack, 0:09:20.760 --> 0:09:23.559 it might be relevant here as well. In the eighties 0:09:23.600 --> 0:09:27.320 the issue was Japan. It wasn't necessarily what's happening from 0:09:27.360 --> 0:09:30.080 their concerns with China and their supply chains, but it 0:09:30.120 --> 0:09:33.880 was in semiconductors and mostly memory. Reagan slapped one hundred 0:09:33.880 --> 0:09:37.440 percent tariffs on chips from Japan on a year later Congress, 0:09:37.600 --> 0:09:41.439 plus five hundred million to subsidized American chip companies those days. 0:09:41.440 --> 0:09:42.360 That was a lot of money. 0:09:42.559 --> 0:09:46.120 I need was to say, both both efforts fell flat. 0:09:46.840 --> 0:09:49.720 So why Well, one thing that all the incentives around 0:09:49.720 --> 0:09:52.520 memory chips and the industry had moved. The microprocess are 0:09:52.559 --> 0:09:56.360 now called logic, and so we missed it again. And 0:09:56.440 --> 0:09:59.160 so my point is it's really really hard in tech 0:09:59.600 --> 0:10:02.079 to pick winners and losers because the space just moves 0:10:02.080 --> 0:10:04.800 so fast. And that's what we're seeing again today. 0:10:05.000 --> 0:10:06.839 If you were to advise the government, as you do 0:10:06.960 --> 0:10:10.319 regularly on these issues, what's the right balance between on 0:10:10.360 --> 0:10:12.679 the one hand, running a risk of it getting out 0:10:12.679 --> 0:10:14.800 of control, going off on its own. Some people would 0:10:14.800 --> 0:10:17.200 say that happened with social media actually at this point, 0:10:17.360 --> 0:10:19.320 that we let it go too far too fast as 0:10:19.320 --> 0:10:22.439 a post on the other hand, regulating and actually suppressing 0:10:22.480 --> 0:10:23.800 some of the innovation that we need. 0:10:24.080 --> 0:10:26.280 Well, actually, you make a great point, and the analogy 0:10:26.440 --> 0:10:29.240 of the Internet and social media is absolutely true. The 0:10:29.280 --> 0:10:32.160 first thing, a first comment I would make, it's not 0:10:32.320 --> 0:10:34.960 just a bide administration executive order, it's also what the 0:10:35.000 --> 0:10:37.760 EU is doing the eu AI. I think that's really 0:10:37.800 --> 0:10:41.000 really important because you need to have coordination on a 0:10:41.040 --> 0:10:43.680 global basis because all these companies and all these systems 0:10:43.720 --> 0:10:45.400 are going to operate on global scale. 0:10:45.480 --> 0:10:46.840 So that's a positive thing. 0:10:47.520 --> 0:10:51.680 But from a company's perspective, you need to understand because 0:10:51.679 --> 0:10:55.120 you got to play offense and defense. So in playing offense, 0:10:55.240 --> 0:10:57.880 you need to understand where you can apply the technology, 0:10:57.920 --> 0:11:00.160 how you can make good use of the technology, what 0:11:00.280 --> 0:11:03.400 you really want and if you're a CEO running these companies, 0:11:03.840 --> 0:11:08.319 you actually want basically guardrail. You want, you want rules 0:11:08.360 --> 0:11:12.200 to be established, you want regulation. Now, Kencheneal and I 0:11:12.240 --> 0:11:14.600 created this thing called the Data Trust Alliance to look 0:11:14.640 --> 0:11:18.719 at transparency and and integrity of the data and in 0:11:18.840 --> 0:11:21.320 the operations or in the uses of the data. And 0:11:21.360 --> 0:11:24.200 it's a couple of dozen companies and the CEOs are involved. 0:11:24.559 --> 0:11:26.720 But where they're coming from, which is different from the 0:11:26.760 --> 0:11:27.840 technology leaders. 0:11:28.200 --> 0:11:29.079 They're coming from the. 0:11:29.080 --> 0:11:31.440 Perspective is that you don't really you don't want you 0:11:31.480 --> 0:11:35.960 to regulate the technology because that will limit innovation. What 0:11:36.080 --> 0:11:38.280 we want the government to is regulate the uses of 0:11:38.320 --> 0:11:41.600 the technology. What are those use cases and let's look 0:11:41.600 --> 0:11:44.479 at those use cases and I'll call it a continuum 0:11:44.480 --> 0:11:48.439 of risk. So if it's national security high risk, if 0:11:48.440 --> 0:11:51.800 it's call centers and those sorts of things low risk, 0:11:51.920 --> 0:11:54.000 it's almost as I take it back to the cyber 0:11:54.120 --> 0:11:56.080 days of Tom Donald and I were running the Obama 0:11:56.120 --> 0:11:59.920 Commission for Cyber We had a continuum of risk. One 0:12:00.200 --> 0:12:03.560 was no one dies and the other one photo sharing. 0:12:04.000 --> 0:12:04.280 Though. 0:12:04.840 --> 0:12:07.400 This is how I think if I was the government, 0:12:07.679 --> 0:12:09.960 I would suggest to the government they think about the 0:12:10.160 --> 0:12:13.240 use cases and how the technology is being applied, not 0:12:13.360 --> 0:12:18.600 just the technology itself. Because if you influence the usage 0:12:18.720 --> 0:12:20.800 and you have guard rails established, that you get to 0:12:20.840 --> 0:12:22.280 the standards. So it's going to be hard to have 0:12:22.320 --> 0:12:23.200 standards they want. 0:12:23.400 --> 0:12:26.160 Sam, it's always such a Treatamyan walshrobg thank you so much. 0:12:26.360 --> 0:12:32.240 That's Sam Palmersano of the Center for Global Enterprise. Coming up, 0:12:32.280 --> 0:12:36.000 India heads into forty four days of national elections. We 0:12:36.040 --> 0:12:39.120 talked with Rashir Sharma of Rockefeller International about the boost 0:12:39.160 --> 0:12:42.839 Prime Minister Modi is likely to get from the Indian economy. 0:12:43.559 --> 0:12:47.040 The fact that inflation has been relatively under control. Is 0:12:47.080 --> 0:12:49.840 I think one of those underappreciated factors. 0:12:50.320 --> 0:12:52.600 That's next on Wall Street Week on Bloomberg. 0:12:54.280 --> 0:12:58.440 This is Bloomberg Well Street Week with David Weston from 0:12:58.600 --> 0:12:59.520 Bloomberg Radio. 0:13:05.880 --> 0:13:09.160 This is Wall STREETWEK I'm David Western. India's economic growth 0:13:09.200 --> 0:13:12.079 will play a large role in the national election starting 0:13:12.240 --> 0:13:15.320 later this month. Growth that has been the goal since 0:13:15.360 --> 0:13:19.199 Prime Minister Indira Gandhi visited President Reagan back in nineteen 0:13:19.280 --> 0:13:19.840 eighty two. 0:13:20.760 --> 0:13:25.480 In India, our preoccupation is with building and development. Our 0:13:25.559 --> 0:13:29.800 problem is not to influence others, but to consolidate our 0:13:29.880 --> 0:13:35.120 political and economic independence. We believe in freedom with a 0:13:35.200 --> 0:13:39.719 passion that only those who have been denied it can understand. 0:13:40.880 --> 0:13:44.800 We believe in equality because many in our country were 0:13:44.880 --> 0:13:48.720 so long deprived of it. We believe in the worth 0:13:48.760 --> 0:13:51.760 of the human being, for that is the foundation of 0:13:51.800 --> 0:13:54.839 our democracy and our work for development. 0:13:55.520 --> 0:13:58.880 And Prime Minister Moting emphasized that same economic growth when 0:13:58.880 --> 0:14:02.120 he visited President by forty one years later. 0:14:02.760 --> 0:14:07.320 When I first visited the US at a primeister, India 0:14:08.200 --> 0:14:11.400 but the tenth largest economy. 0:14:10.800 --> 0:14:15.600 In the world. Today, India is the fifth. 0:14:16.040 --> 0:14:24.880 Largest economic India will be the far largest economy soon. 0:14:27.520 --> 0:14:32.400 We are not only growing bigger, but we are also 0:14:32.520 --> 0:14:33.400 growing faster. 0:14:35.800 --> 0:14:38.840 To explain how much economic progress India has made and 0:14:38.920 --> 0:14:41.560 what it could mean for the upcoming elections, we welcome 0:14:41.560 --> 0:14:44.680 back now. We're Shir Sharma, Chairman of Rockefeller International and 0:14:44.840 --> 0:14:47.560 founder and CIO of Breakout Capital. We're sure great to 0:14:47.560 --> 0:14:49.840 have you back with us. We have elections coming up 0:14:50.080 --> 0:14:52.680 and the economy I think is according to your column, 0:14:52.720 --> 0:14:54.640 action the ft will play a large role in this. 0:14:54.960 --> 0:14:57.960 Give us your perspective on just how far India has 0:14:57.960 --> 0:14:58.880 come economically. 0:15:00.080 --> 0:15:03.760 Right up until the nineteen eighties, India was a big 0:15:03.880 --> 0:15:08.520 laggard economy that its rankings in both per capita income 0:15:08.640 --> 0:15:11.960 terms in both its in terms of his GDP size 0:15:12.360 --> 0:15:17.000 kept on falling for the entire period. The turning point 0:15:17.600 --> 0:15:21.320 as far as India's economic progress was concerned, I think 0:15:21.480 --> 0:15:25.160 was really the nineteen nineties when you had the major 0:15:25.200 --> 0:15:29.320 burst of economic reforms that took place. When the Indian 0:15:29.360 --> 0:15:33.720 economy nearly went bankrupt, it had to go to the 0:15:33.760 --> 0:15:37.320 IMF again and get a big rescue program. That's really 0:15:37.360 --> 0:15:42.960 what began India's economic turnaround, and that's what led to 0:15:43.120 --> 0:15:46.120 India's rise, and what we've seen over the past few 0:15:46.200 --> 0:15:50.360 years is a continuing momentum of that rise, which began 0:15:50.800 --> 0:15:52.840 in the early nineteen nineties, so that. 0:15:52.880 --> 0:15:56.440 Began before Prime Minister Moti It came to office. At 0:15:56.440 --> 0:15:59.120 the same time it has continued. How much is he 0:15:59.160 --> 0:16:01.720 getting credited day in India for that as he looks 0:16:01.760 --> 0:16:03.160 towards these elections. 0:16:02.760 --> 0:16:04.680 Which is getting lots of credit for that? And I 0:16:04.680 --> 0:16:06.200 think there are two or three reasons for it. 0:16:06.720 --> 0:16:09.640 One is the fact that it's reached a sort of 0:16:09.640 --> 0:16:12.720 critical mass, which is that when India was rising in 0:16:12.760 --> 0:16:13.960 the nineteen nineties or in the. 0:16:13.960 --> 0:16:16.960 Two thousands, the base was much smaller. 0:16:17.000 --> 0:16:20.000 It's still in per capita income terms of relatively small base, 0:16:20.400 --> 0:16:23.640 but now that India has become the world's fifth largest economy, 0:16:24.040 --> 0:16:27.360 that just tends to have a much greater effect. 0:16:28.400 --> 0:16:30.800 But in terms of his direct. 0:16:30.480 --> 0:16:32.720 Credit, I think that the one thing which is possibly 0:16:32.800 --> 0:16:37.400 underestimated is that how non inflationary this growth has been 0:16:37.840 --> 0:16:39.840 over the last few years. That if you look at 0:16:39.840 --> 0:16:43.000 the previous growth spurts that India had, particularly in the 0:16:43.000 --> 0:16:46.960 preceding Congress government, one of the big problems was that 0:16:47.000 --> 0:16:50.160 it also led to a big surgeon inflation. This time, 0:16:50.240 --> 0:16:53.840 inflation has been relatively low, and that is a big 0:16:53.880 --> 0:16:58.240 plus because in politics around the world, economic growth mayo. 0:16:58.120 --> 0:17:00.800 May not matter, but matters. 0:17:01.120 --> 0:17:04.960 Nothing kills the prospects of incumbents as much as rising prices, 0:17:05.400 --> 0:17:08.639 and the fact that inflation has been relatively under control 0:17:09.000 --> 0:17:11.919 is I think one of those underappreciated factors because we 0:17:11.960 --> 0:17:15.880 as economic commentators or even political commentators, focus so much 0:17:15.880 --> 0:17:18.439 on just the headline GDP growth numbers. So the fact 0:17:18.440 --> 0:17:22.840 that you have very low inflation or relatively low inflation, 0:17:23.400 --> 0:17:23.920 I think. 0:17:23.720 --> 0:17:24.840 Has been a big positive. 0:17:24.880 --> 0:17:27.119 The other couple of things which are working in his 0:17:27.200 --> 0:17:31.040 favor is that this growth spurt has happened at a 0:17:31.119 --> 0:17:34.720 time when so many other emerging markets, including China, have 0:17:34.880 --> 0:17:35.600 been sputtering. 0:17:36.160 --> 0:17:38.320 You point out in your Financial Times Calm. He also 0:17:38.320 --> 0:17:40.879 has managed his own press quite effectively. I mean, you 0:17:40.880 --> 0:17:43.040 have a quote in there that there's freedom of speech, 0:17:43.400 --> 0:17:46.359 not a freedom from speech. The consequence of that speech 0:17:46.480 --> 0:17:49.359 after speech, there's not so much freedom. So how does 0:17:49.400 --> 0:17:52.000 he managed that and is there a trade off there 0:17:52.080 --> 0:17:54.160 where they actually are giving up some of their civil 0:17:54.240 --> 0:17:56.400 rights in the interests of growth, which we've seen other 0:17:56.400 --> 0:17:57.320 places over time. 0:17:58.320 --> 0:17:59.879 Now, there's no question about that. 0:18:00.040 --> 0:18:03.280 If you look at the Indian media, there's a lot 0:18:03.320 --> 0:18:06.760 of self censorship which goes on a lot of news 0:18:06.840 --> 0:18:11.440 organizations that have spoken out against Modi or the DJP, 0:18:12.119 --> 0:18:15.960 they have been under investigation. The pattern is quite clear, 0:18:16.080 --> 0:18:19.320 which is that if you have been speaking out against Modi, 0:18:19.600 --> 0:18:21.760 you better watch out. I think that's been the clear 0:18:21.840 --> 0:18:24.840 message that has been sent out. The state machinery has 0:18:24.880 --> 0:18:30.400 been used quite extensively to silence critics and to silence 0:18:30.440 --> 0:18:30.879 the media. 0:18:31.040 --> 0:18:33.280 One of the things you draw an analogy to is 0:18:33.320 --> 0:18:36.200 after World War Two, Taiwan and also South Korea particularly 0:18:36.359 --> 0:18:40.840 have had amazing growth with more authoritarian regimes, more than 0:18:40.840 --> 0:18:43.919 I think we'd say premister Modi has, but that that 0:18:43.960 --> 0:18:47.000 went away as they really moved into the middle income levels. 0:18:47.280 --> 0:18:49.040 So that is the question. At some point is that 0:18:49.080 --> 0:18:51.960 deal get changed? If that is the deal premister Motori 0:18:52.080 --> 0:18:54.359 has with the people of India, does that get changed 0:18:54.400 --> 0:18:57.320 to some point as it approaches middle income status? No. 0:18:57.440 --> 0:19:00.800 I think that in India's case, it's a bit different 0:19:00.840 --> 0:19:03.080 because India is going the other way. That India gave 0:19:03.119 --> 0:19:06.639 its people political freedom first and did not give its 0:19:06.640 --> 0:19:10.280 people economic freedom, and so you didn't have much economic 0:19:10.320 --> 0:19:16.800 progress for the first forty audios of the new India 0:19:17.000 --> 0:19:21.399 which emerged after British rule. So now it seems to 0:19:21.400 --> 0:19:23.720 be reversing the order a bit so more than per 0:19:23.720 --> 0:19:26.240 capitain income levels. I think that there are two things. 0:19:26.280 --> 0:19:30.480 One that Modi has to keep delivering on the economic 0:19:30.560 --> 0:19:33.160 front for this deal to work. And the second thing 0:19:33.200 --> 0:19:36.320 I'll say is this that having covered Indian elections for 0:19:36.359 --> 0:19:40.000 the last thirty odd years, that Indians do believe a 0:19:40.040 --> 0:19:41.800 lot more in democracy. 0:19:41.880 --> 0:19:43.840 It runs in the fiber of that country. 0:19:44.200 --> 0:19:46.840 They seem to or at least a swing voter seems 0:19:46.840 --> 0:19:49.560 to have suspended that for now in return for what 0:19:49.600 --> 0:19:52.879 they perceive as economic progress. But it really seems to 0:19:52.920 --> 0:19:55.640 be because of Modi that he has got such personal 0:19:55.680 --> 0:19:59.440 appeal that he's been able to strike such a bargain 0:20:00.080 --> 0:20:03.400 with the swing voter. In the post Moodie world, I'm 0:20:03.400 --> 0:20:06.240 not sure that this works anymore because India is a 0:20:06.280 --> 0:20:10.880 very federal country. Even today, nearly half of the states 0:20:10.920 --> 0:20:13.880 in India, the twenty eight odd states in India, those 0:20:13.920 --> 0:20:17.720 are run by opposition parties, so that's quite a high number. 0:20:18.040 --> 0:20:19.600 We're sure it's always such a treat to have you 0:20:19.640 --> 0:20:21.719 with us. Thank you so much. That's for shir Sharma, 0:20:21.760 --> 0:20:24.880 whose new book What Went Wrong with Capitalism is out 0:20:25.040 --> 0:20:29.520 this coming June. Japanese Prime Minister Kishita visited Washington this 0:20:29.600 --> 0:20:31.920 week in the midst of a difficult dispute over whether 0:20:32.040 --> 0:20:35.720 Nippon Steel could buy US steel, focusing American voters once 0:20:35.760 --> 0:20:38.880 again on the role of manufacturing jobs in the US economy. 0:20:39.119 --> 0:20:43.240