Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: We may not have an overall recession, We're having a
Speaker 2: rolling recession. To Cone, roll looks pretty strongly. It is
Speaker 2: when it comes to jobs.
Speaker 1: The financial stories that shape our world.
Speaker 2: Three major regional bank failures send shockwaves through the banking system.
Speaker 2: We're all trying to figure out what to make of
Speaker 2: generative AI.
Speaker 1: Through the eyes of the most influential voices.
Speaker 2: Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America,
Speaker 2: deebro Lair of the Paulson Institute, well then Hubbard of
Speaker 2: the Columbia Business School.
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: A total eclipse of the sun, Connecticut repeats his men's
Speaker 2: basketball champion, and inflation pushes back. This is Bloomberg Wall
Speaker 2: Street Week. I'm David Weston. This week, Former Trade Representative
Speaker 2: and World Bank President Bob Zellick on what both parties
Speaker 2: are getting wrong on US trade policy.
Speaker 3: If you add barriers to one type of product or another,
Speaker 3: people will move.
Speaker 2: And Finucan of Rubicon Capital on whatever happened to ESG.
Speaker 4: I don't think there's an argument about the science. I
Speaker 4: think most companies are committed, but some of the tools
Speaker 4: they thought they were going.
Speaker 5: To have have been held back a little bit.
Speaker 2: And former IBM had Sam Palmesano on the right way
Speaker 2: to regulate generative AI.
Speaker 6: Well, we want the government to is regulate the users
Speaker 6: of the technology.
Speaker 2: Well, we start with those US inflation numbers coming in
Speaker 2: higher than expected, something that caught many market participants by surprise,
Speaker 2: but that did not surprise our special contributor Larry Summers
Speaker 2: of Harvard.
Speaker 7: I was not hugely surprised by the numbers. In an
Speaker 7: economy that's growing faster than potential, with an unemployment rate
Speaker 7: that has a three handle, in the presence of massive
Speaker 7: and growing budget deficits and epically easy financial conditions, the
Speaker 7: idea that inflation would remain robust or even accelerate should
Speaker 7: not be a surprise to anyone, and that's what this
Speaker 7: data suggests. It was not me or some outside observer
Speaker 7: who emphasized the concept of supercore inflation, that is, taking
Speaker 7: out the transitory stuff and also.
Speaker 8: Taking out housing.
Speaker 7: This confirms the idea that the neutral rate is way
Speaker 7: above the two point six percent level that the FED
Speaker 7: has been using as a north star. In my view,
Speaker 7: puts back on the table. It is still not what
Speaker 7: I would expect, but you have to take seriously the
Speaker 7: possibility that the next rate move will be upwards rather
Speaker 7: than downwards.
Speaker 2: As much as Larry Summers may have been warning about
Speaker 2: inflation staying higher than we'd like, the reaction to the
Speaker 2: markets did not look like they've been fully prepared. The
Speaker 2: S and P five hundred was off one point six
Speaker 2: percent for the way, wending at fifty one to twenty three,
Speaker 2: much closer to that year end median number of fifty
Speaker 2: one hundred set by our Bloomberg Elves. The NANZDAC gave
Speaker 2: up just under half a percent of the week, while
Speaker 2: the yield of the ten year was up eleven basis
Speaker 2: points to end at four point five percent. To explain
Speaker 2: all this to us, we welcome back now Kristin Bitterly.
Speaker 2: She's head of Investment Solutions for Citigroup Global Markets. Always
Speaker 2: great to have you, Kristens. It's all about inflation.
Speaker 9: It looks like it is all about inflation, and I
Speaker 9: would also say earnings. So let's just look at the
Speaker 9: price action that we've seen to start the second quarter.
Speaker 9: You have geopolitics, you also have earning season kicking off.
Speaker 9: You have also some seasonal elements to what we see
Speaker 9: in April. This week, you tend to see a lot
Speaker 9: of tax payment selling, both within the bond market, in
Speaker 9: the municipal bond market, as well as within the equity market.
Speaker 9: So when you combine all of this and put into
Speaker 9: perspective that just yesterday we were at all time highs
Speaker 9: in the Nasdaq and we're coming off two quarters of
Speaker 9: double digit gains, I think we may be putting too
Speaker 9: much weight on some of the volatility that we're seeing
Speaker 9: that are pretty garden variety pullbacks within the market.
Speaker 2: We spend a lot of time we'ring with the labor market,
Speaker 2: So folcus say, on those jobs numbers are goading over
Speaker 2: a month, are they really a factor at this point?
Speaker 9: So I think if you're going to say what matters more,
Speaker 9: is it the labor market or is inflation? In terms
Speaker 9: of the Fed's dual mandate and what they're going to
Speaker 9: pay attention to, the data that we have out of
Speaker 9: the labor market is very robust. The job creation that
Speaker 9: we've seen, if we look at it year over year,
Speaker 9: you could start to see some cracks in that. So,
Speaker 9: for example, you can look at jolts, and you can
Speaker 9: see the millions of jobs that we've actually come down
Speaker 9: in terms of openings. You can also look at the
Speaker 9: quicks rate that's stabilized a bit, so we've seen some softening,
Speaker 9: but I think the large picture a pretty robust labor market.
Speaker 9: That being said, when you look at inflation, that's where
Speaker 9: the Fed's attention is. And I think what we're seeing
Speaker 9: right now, and what Larry Summers just mentioned is the
Speaker 9: fact that the FED needs to see a trajectory of disinflation,
Speaker 9: and so what we have for this first quarter we
Speaker 9: don't have that data. We have more of a stalling
Speaker 9: and a pause. And so to credibly be able to
Speaker 9: cut and know that inflation is on a path to
Speaker 9: actually what we believe is going to be two and
Speaker 9: a half percent by this year's end, you need to
Speaker 9: see some of those trends actually take place.
Speaker 2: So christ you said, it's not just the infliction data,
Speaker 2: it's also earnings. What are we looking for earnings?
Speaker 9: It is so within earnings, I think it is something
Speaker 9: about actually beating and then raising guidance and expectations, because
Speaker 9: the expectations right now I think are relatively reasonable. I
Speaker 9: think what are we going to see we raise our
Speaker 9: expectations for the full year. So we came into this
Speaker 9: year relatively conservative, thinking that we would see slower growth data.
Speaker 9: I think that when you look across the US equity market,
Speaker 9: it's been really resilient. So you have about five sectors
Speaker 9: out of the eleven that are anticipated to deliver earnings growth.
Speaker 9: You also have some sectors that have been surprised. So
Speaker 9: when we look at the price of oil and what
Speaker 9: that is going to do for energy, even if we
Speaker 9: look at utilities, the anticipated earnings growth is in the twenties,
Speaker 9: so from a percentage standpoint, which is oddly actually beneficiary
Speaker 9: of AI. So expect more AI language, but in sectors
Speaker 9: that you wouldn't expect.
Speaker 2: What about mainstream versus Wall Street? Because Russell two thousand
Speaker 2: is not had an easy time of it. It is not.
Speaker 9: And if you look at like small business confidence measures,
Speaker 9: they're also not where they where we would want them
Speaker 9: to be. So I think this is another thing when
Speaker 9: people are talking about whether or not the Fed's going
Speaker 9: to cut and some of the measures that we're looking at,
Speaker 9: I think you have to say, why do we see
Speaker 9: such strong consumer spending? Why do we see the resiliency,
Speaker 9: and really it is a delineation between if you're looking
Speaker 9: within the market, the corporations that have their balance sheets
Speaker 9: in order that took advantage of historically low interest rates.
Speaker 9: Even at the beginning of this year, we saw a
Speaker 9: huge amount of investment grade issuance come to market. It's
Speaker 9: actually the highest quarter since what we saw back in
Speaker 9: twenty twenty. So there are a lot of companies that
Speaker 9: have their balance sheet in order. That's very different than
Speaker 9: the Russell two thousand.
Speaker 2: The very end here any investment advice, how do you
Speaker 2: invest in this in climate?
Speaker 9: So a couple of things. I would say, stay diversified.
Speaker 9: So when you look at the price action today, there
Speaker 9: is value to having both fixed income within your portfolio
Speaker 9: as well as equities. The broadening out to make sure
Speaker 9: that again you're not going to unprofitable parts of the
Speaker 9: market are highly levered, but you're finding opportunities to take
Speaker 9: advantage of some of these themes, but at a reasonable valuation.
Speaker 9: The other thing that I will say is if you're
Speaker 9: worried about geopolitics, there are hedging opportunities that exist, So
Speaker 9: don't trade your portfolio based on geopolitics or elections, but
Speaker 9: take advantage of some of those hedges to stay invested in.
Speaker 2: Unfortunately, we need some of those hedges on geopolitics, I'm
Speaker 2: afraid many thanks to Kristin Bitterley of City Group Global Markets.
Speaker 2: Artificial intelligence is on the march. Jamie diamond says it
Speaker 2: may be as powerful as the invention of the steam
Speaker 2: engine or the discovery of electricity. And the government has
Speaker 2: given AI chipmaker TSMC eleven point six billion dollars to
Speaker 2: build a plan in the United States, but some say
Speaker 2: that the government is behind I'm figuring out a safe
Speaker 2: regulatory framework for this rapidly developing technology. To give us
Speaker 2: his perspective on regulation in the tech industry, we welcome
Speaker 2: back now. Sampalm is on. He's former head of IBM
Speaker 2: and now chairman of the Center for Global Entervise. Sam
Speaker 2: great to have you back on Wall Street week. As
Speaker 2: I say, you have a perspective historical perspective here. This
Speaker 2: is not the first time we've had major tech innovation.
Speaker 2: If you go back to Windows and you look at
Speaker 2: the smartphone, you look at social media. Put this in perspective.
Speaker 2: What has the government done in the past, and what
Speaker 2: has it done well and maybe not so well?
Speaker 6: Oh yah, David, thank you. It's great to be back
Speaker 6: on the program, and it's always going to be with you.
Speaker 8: Good evening to everyone you know.
Speaker 6: As a friend of mine, put this, we always dress
Speaker 6: for yesterday's weather. Especially true when it comes to regulation right.
Speaker 6: Governments tend to apply existing laws and frameworks to new phenomenon,
Speaker 6: which is a challenge. I'll use two example, do any
Speaker 6: trust and then subsidies are tariffs and going back to
Speaker 6: the eighties here, But funny how history repeats itself. To
Speaker 6: take the first suit, which is IBM, mostly by the
Speaker 6: Maintrain dominance. It lasted from the last day the Johnson
Speaker 6: administration to the start of the Reagan administration. We dismissed
Speaker 6: Microsoft mostly about bundling windows and browsers. To think about
Speaker 6: how relevant that would be today in today's world. So
Speaker 6: the results is that over time these suits kind of
Speaker 6: it lasts so long that the technology's.
Speaker 8: Advanced and they become used. I'll give you another.
Speaker 6: Example, pairs and subsidies. Since you brought up a chips tack,
Speaker 6: it might be relevant here as well. In the eighties
Speaker 6: the issue was Japan. It wasn't necessarily what's happening from
Speaker 6: their concerns with China and their supply chains, but it
Speaker 6: was in semiconductors and mostly memory. Reagan slapped one hundred
Speaker 6: percent tariffs on chips from Japan on a year later Congress,
Speaker 6: plus five hundred million to subsidized American chip companies those days.
Speaker 5: That was a lot of money.
Speaker 6: I need was to say, both both efforts fell flat.
Speaker 6: So why Well, one thing that all the incentives around
Speaker 6: memory chips and the industry had moved. The microprocess are
Speaker 6: now called logic, and so we missed it again. And
Speaker 6: so my point is it's really really hard in tech
Speaker 6: to pick winners and losers because the space just moves
Speaker 6: so fast. And that's what we're seeing again today.
Speaker 2: If you were to advise the government, as you do
Speaker 2: regularly on these issues, what's the right balance between on
Speaker 2: the one hand, running a risk of it getting out
Speaker 2: of control, going off on its own. Some people would
Speaker 2: say that happened with social media actually at this point,
Speaker 2: that we let it go too far too fast as
Speaker 2: a post on the other hand, regulating and actually suppressing
Speaker 2: some of the innovation that we need.
Speaker 6: Well, actually, you make a great point, and the analogy
Speaker 6: of the Internet and social media is absolutely true. The
Speaker 6: first thing, a first comment I would make, it's not
Speaker 6: just a bide administration executive order, it's also what the
Speaker 6: EU is doing the eu AI. I think that's really
Speaker 6: really important because you need to have coordination on a
Speaker 6: global basis because all these companies and all these systems
Speaker 6: are going to operate on global scale.
Speaker 8: So that's a positive thing.
Speaker 6: But from a company's perspective, you need to understand because
Speaker 6: you got to play offense and defense. So in playing offense,
Speaker 6: you need to understand where you can apply the technology,
Speaker 6: how you can make good use of the technology, what
Speaker 6: you really want and if you're a CEO running these companies,
Speaker 6: you actually want basically guardrail. You want, you want rules
Speaker 6: to be established, you want regulation. Now, Kencheneal and I
Speaker 6: created this thing called the Data Trust Alliance to look
Speaker 6: at transparency and and integrity of the data and in
Speaker 6: the operations or in the uses of the data. And
Speaker 6: it's a couple of dozen companies and the CEOs are involved.
Speaker 6: But where they're coming from, which is different from the
Speaker 6: technology leaders.
Speaker 8: They're coming from the.
Speaker 6: Perspective is that you don't really you don't want you
Speaker 6: to regulate the technology because that will limit innovation. What
Speaker 6: we want the government to is regulate the uses of
Speaker 6: the technology. What are those use cases and let's look
Speaker 6: at those use cases and I'll call it a continuum
Speaker 6: of risk. So if it's national security high risk, if
Speaker 6: it's call centers and those sorts of things low risk,
Speaker 6: it's almost as I take it back to the cyber
Speaker 6: days of Tom Donald and I were running the Obama
Speaker 6: Commission for Cyber We had a continuum of risk. One
Speaker 6: was no one dies and the other one photo sharing.
Speaker 1: Though.
Speaker 6: This is how I think if I was the government,
Speaker 6: I would suggest to the government they think about the
Speaker 6: use cases and how the technology is being applied, not
Speaker 6: just the technology itself. Because if you influence the usage
Speaker 6: and you have guard rails established, that you get to
Speaker 6: the standards. So it's going to be hard to have
Speaker 6: standards they want.
Speaker 2: Sam, it's always such a Treatamyan walshrobg thank you so much.
Speaker 2: That's Sam Palmersano of the Center for Global Enterprise. Coming up,
Speaker 2: India heads into forty four days of national elections. We
Speaker 2: talked with Rashir Sharma of Rockefeller International about the boost
Speaker 2: Prime Minister Modi is likely to get from the Indian economy.
Speaker 10: The fact that inflation has been relatively under control. Is
Speaker 10: I think one of those underappreciated factors.
Speaker 2: That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Well Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is Wall STREETWEK I'm David Western. India's economic growth
Speaker 2: will play a large role in the national election starting
Speaker 2: later this month. Growth that has been the goal since
Speaker 2: Prime Minister Indira Gandhi visited President Reagan back in nineteen
Speaker 2: eighty two.
Speaker 11: In India, our preoccupation is with building and development. Our
Speaker 11: problem is not to influence others, but to consolidate our
Speaker 11: political and economic independence. We believe in freedom with a
Speaker 11: passion that only those who have been denied it can understand.
Speaker 11: We believe in equality because many in our country were
Speaker 11: so long deprived of it. We believe in the worth
Speaker 11: of the human being, for that is the foundation of
Speaker 11: our democracy and our work for development.
Speaker 2: And Prime Minister Moting emphasized that same economic growth when
Speaker 2: he visited President by forty one years later.
Speaker 12: When I first visited the US at a primeister, India
Speaker 12: but the tenth largest economy.
Speaker 13: In the world. Today, India is the fifth.
Speaker 12: Largest economic India will be the far largest economy soon.
Speaker 12: We are not only growing bigger, but we are also
Speaker 12: growing faster.
Speaker 2: To explain how much economic progress India has made and
Speaker 2: what it could mean for the upcoming elections, we welcome
Speaker 2: back now. We're Shir Sharma, Chairman of Rockefeller International and
Speaker 2: founder and CIO of Breakout Capital. We're sure great to
Speaker 2: have you back with us. We have elections coming up
Speaker 2: and the economy I think is according to your column,
Speaker 2: action the ft will play a large role in this.
Speaker 2: Give us your perspective on just how far India has
Speaker 2: come economically.
Speaker 10: Right up until the nineteen eighties, India was a big
Speaker 10: laggard economy that its rankings in both per capita income
Speaker 10: terms in both its in terms of his GDP size
Speaker 10: kept on falling for the entire period. The turning point
Speaker 10: as far as India's economic progress was concerned, I think
Speaker 10: was really the nineteen nineties when you had the major
Speaker 10: burst of economic reforms that took place. When the Indian
Speaker 10: economy nearly went bankrupt, it had to go to the
Speaker 10: IMF again and get a big rescue program. That's really
Speaker 10: what began India's economic turnaround, and that's what led to
Speaker 10: India's rise, and what we've seen over the past few
Speaker 10: years is a continuing momentum of that rise, which began
Speaker 10: in the early nineteen nineties, so that.
Speaker 2: Began before Prime Minister Moti It came to office. At
Speaker 2: the same time it has continued. How much is he
Speaker 2: getting credited day in India for that as he looks
Speaker 2: towards these elections.
Speaker 13: Which is getting lots of credit for that? And I
Speaker 13: think there are two or three reasons for it.
Speaker 10: One is the fact that it's reached a sort of
Speaker 10: critical mass, which is that when India was rising in
Speaker 10: the nineteen nineties or in the.
Speaker 13: Two thousands, the base was much smaller.
Speaker 10: It's still in per capita income terms of relatively small base,
Speaker 10: but now that India has become the world's fifth largest economy,
Speaker 10: that just tends to have a much greater effect.
Speaker 13: But in terms of his direct.
Speaker 10: Credit, I think that the one thing which is possibly
Speaker 10: underestimated is that how non inflationary this growth has been
Speaker 10: over the last few years. That if you look at
Speaker 10: the previous growth spurts that India had, particularly in the
Speaker 10: preceding Congress government, one of the big problems was that
Speaker 10: it also led to a big surgeon inflation. This time,
Speaker 10: inflation has been relatively low, and that is a big
Speaker 10: plus because in politics around the world, economic growth mayo.
Speaker 13: May not matter, but matters.
Speaker 10: Nothing kills the prospects of incumbents as much as rising prices,
Speaker 10: and the fact that inflation has been relatively under control
Speaker 10: is I think one of those underappreciated factors because we
Speaker 10: as economic commentators or even political commentators, focus so much
Speaker 10: on just the headline GDP growth numbers. So the fact
Speaker 10: that you have very low inflation or relatively low inflation,
Speaker 10: I think.
Speaker 13: Has been a big positive.
Speaker 10: The other couple of things which are working in his
Speaker 10: favor is that this growth spurt has happened at a
Speaker 10: time when so many other emerging markets, including China, have
Speaker 10: been sputtering.
Speaker 2: You point out in your Financial Times Calm. He also
Speaker 2: has managed his own press quite effectively. I mean, you
Speaker 2: have a quote in there that there's freedom of speech,
Speaker 2: not a freedom from speech. The consequence of that speech
Speaker 2: after speech, there's not so much freedom. So how does
Speaker 2: he managed that and is there a trade off there
Speaker 2: where they actually are giving up some of their civil
Speaker 2: rights in the interests of growth, which we've seen other
Speaker 2: places over time.
Speaker 13: Now, there's no question about that.
Speaker 10: If you look at the Indian media, there's a lot
Speaker 10: of self censorship which goes on a lot of news
Speaker 10: organizations that have spoken out against Modi or the DJP,
Speaker 10: they have been under investigation. The pattern is quite clear,
Speaker 10: which is that if you have been speaking out against Modi,
Speaker 10: you better watch out. I think that's been the clear
Speaker 10: message that has been sent out. The state machinery has
Speaker 10: been used quite extensively to silence critics and to silence
Speaker 10: the media.
Speaker 2: One of the things you draw an analogy to is
Speaker 2: after World War Two, Taiwan and also South Korea particularly
Speaker 2: have had amazing growth with more authoritarian regimes, more than
Speaker 2: I think we'd say premister Modi has, but that that
Speaker 2: went away as they really moved into the middle income levels.
Speaker 2: So that is the question. At some point is that
Speaker 2: deal get changed? If that is the deal premister Motori
Speaker 2: has with the people of India, does that get changed
Speaker 2: to some point as it approaches middle income status? No.
Speaker 10: I think that in India's case, it's a bit different
Speaker 10: because India is going the other way. That India gave
Speaker 10: its people political freedom first and did not give its
Speaker 10: people economic freedom, and so you didn't have much economic
Speaker 10: progress for the first forty audios of the new India
Speaker 10: which emerged after British rule. So now it seems to
Speaker 10: be reversing the order a bit so more than per
Speaker 10: capitain income levels. I think that there are two things.
Speaker 10: One that Modi has to keep delivering on the economic
Speaker 10: front for this deal to work. And the second thing
Speaker 10: I'll say is this that having covered Indian elections for
Speaker 10: the last thirty odd years, that Indians do believe a
Speaker 10: lot more in democracy.
Speaker 13: It runs in the fiber of that country.
Speaker 10: They seem to or at least a swing voter seems
Speaker 10: to have suspended that for now in return for what
Speaker 10: they perceive as economic progress. But it really seems to
Speaker 10: be because of Modi that he has got such personal
Speaker 10: appeal that he's been able to strike such a bargain
Speaker 10: with the swing voter. In the post Moodie world, I'm
Speaker 10: not sure that this works anymore because India is a
Speaker 10: very federal country. Even today, nearly half of the states
Speaker 10: in India, the twenty eight odd states in India, those
Speaker 10: are run by opposition parties, so that's quite a high number.
Speaker 2: We're sure it's always such a treat to have you
Speaker 2: with us. Thank you so much. That's for shir Sharma,
Speaker 2: whose new book What Went Wrong with Capitalism is out
Speaker 2: this coming June. Japanese Prime Minister Kishita visited Washington this
Speaker 2: week in the midst of a difficult dispute over whether
Speaker 2: Nippon Steel could buy US steel, focusing American voters once
Speaker 2: again on the role of manufacturing jobs in the US economy.
Speaker 2: Bloomberg International Economics and Policy correspondent Michael McKee is here
Speaker 2: to lay out the issues.
Speaker 14: The US came out of World War Two as the
Speaker 14: global manufacturing powerhouse. Factory jobs became a ticket to the
Speaker 14: middle class.
Speaker 13: That's changed.
Speaker 14: Factories and the jobs that were done there have disappeared
Speaker 14: all over America. Blame China, Blame globalization. The presidential candidates do,
Speaker 14: and they're doing a lot of talking about changing things back.
Speaker 14: The number of factory jobs has been falling for almost
Speaker 14: fifty years, and for a lot of people, the middle
Speaker 14: class paycheck has disappeared. Simply slapping tariffs on important factory
Speaker 14: goods or subsidizing the construction of new plants in the
Speaker 14: US might work in some isolated cases, but.
Speaker 13: They can't bring back the past.
Speaker 14: Manufacturing itself has changed, and it's not going to change back.
Speaker 14: As a share of GDP, it peaked in nineteen fifty
Speaker 14: three and has been falling ever since. In terms of output, though,
Speaker 14: industrial production is higher than ever. We're making more stuff,
Speaker 14: but we're doing it with far fewer workers and much
Speaker 14: more productive equipment. What we make has also changed, less steel,
Speaker 14: more semiconductors.
Speaker 8: George W.
Speaker 14: Bush, Donald Trump, and Joe Biden put or kept tariffs
Speaker 14: on important steel. The idea was to make important steel
Speaker 14: feel more expensive than domestically produced. What happened, American steel
Speaker 14: mills just raised their prices. Imports of steel dipped, but
Speaker 14: are now higher than ever. Wages for technology workers are
Speaker 14: higher than for those in old line manufacturing, but the
Speaker 14: rising even on the assembly line. As what we make
Speaker 14: in America now becomes even more advanced. That's creating a
Speaker 14: shortage of the skilled workers needed in this new manufacturing world,
Speaker 14: suggesting perhaps policies based on education for the future will
Speaker 14: do more than nostalgia for the past.
Speaker 2: David to explain how US trade policy affects the labor market,
Speaker 2: we welcome now Bob Zelik, He's senior advisor to the
Speaker 2: Brunswick Group. Ambassador of Zelk served as President of the
Speaker 2: World Bank and is the United States Trade Representative under
Speaker 2: President George W. Bush. So, Ambassador, thanks so much for
Speaker 2: being Becka has appreciated. We just have had the visit
Speaker 2: from Prime Minister Kishita of Japan to Washington overhanging that
Speaker 2: was this dispute or possible dispute about the Nippon Steel
Speaker 2: acquisition of US steel. Give us your views about that
Speaker 2: issue and how much of that is really legitimate policy
Speaker 2: as opposed to and I don't say it's illegitimate questions
Speaker 2: about politics in Pennsylvania.
Speaker 5: Well, clearly the politics are dominant, David.
Speaker 3: And you know, this is really an example of first
Speaker 3: time we've had two presidents that are economically isolationist in
Speaker 3: their policies back to back, and they're sort of competing
Speaker 3: to try to figure out how we can add protections.
Speaker 13: Now, in the case of.
Speaker 3: The steel industry, Trump put on a twenty five percent
Speaker 3: tariff that Biden kept in place, and so you're already
Speaker 3: well if people ask about inflation, well, you know, that
Speaker 3: gives you a pretty good example of why steel prices
Speaker 3: were going to go up.
Speaker 8: But this case is a little different.
Speaker 3: This case is Nippon Steel, a Japanese company wanting to
Speaker 3: come in and buy US steel. Frankly, invest more capital,
Speaker 3: keep the jobs, add technology, add the competition, but the
Speaker 3: steel workers super President Biden wants to court, have resisted,
Speaker 3: along with one other US company that wanted to pay
Speaker 3: about half as much for US steel and have a
Speaker 3: monopoly position. So it gives you an example of the
Speaker 3: politics now that is sort of running the economic and
Speaker 3: great palls.
Speaker 2: Bubb Block put one more complicate ef factor on that
Speaker 2: is national security. I mean, there was a time, as
Speaker 2: I understand, where the seal industry was critical to the
Speaker 2: US national security and we were very protective of that.
Speaker 2: I think that time has largely gone by as we've moved,
Speaker 2: frankly into semiconductors, which are so much more important to defense.
Speaker 2: How do you overlay national security concerns to maybe come
Speaker 2: out in a different place when it comes to trade
Speaker 2: policy than you otherwise would.
Speaker 3: Well, the case that you started with is an excellent example.
Speaker 3: So we've just had the Japanese Prime minister come to town.
Speaker 3: He's a close ally. They're increasing their defense expenditures. We're
Speaker 3: trying to deepen the security relationship with Japan to deal
Speaker 3: with the dangers of China. Then we say that the
Speaker 3: Japanese can't produce steel in the United States. Remember this
Speaker 3: is steel produced in America.
Speaker 5: They're not going to move the plants.
Speaker 3: When if you're trying to think about security, you want
Speaker 3: to have a variety of sources, but certainly you want
Speaker 3: to work with your allied partners and countries. You don't
Speaker 3: want to tell the Japanese, oh, yeah, you're our security
Speaker 3: partner in military things, but we can't have you invest
Speaker 3: in America.
Speaker 2: Well, thank you so very much for being a wilsary.
Speaker 2: We really appreciate that. Is investor Bob Zelich of the
Speaker 2: Brunswick Group coming up. ESG has gone from all the
Speaker 2: rage to hardly mentioned in some quarters. We go through
Speaker 2: what happened and why with Anthon Ucan, chair of Rubicon Capital.
Speaker 5: The top companies are there.
Speaker 2: That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is Wall Street Week. I'm David Weston. ESG. After
Speaker 2: becoming all the rage, the very term has suffered something
Speaker 2: of a decline as it became a political rallying cry.
Speaker 2: For some to bring us up to date on worthings
Speaker 2: san today. Welcome back now, Anne Fanuca. She's chair of
Speaker 2: Rubicon and Capital and former vice chair of Bank of
Speaker 2: America and always great to have you on. If you
Speaker 2: just read the front pages of the newspaper, you think
Speaker 2: ESG is almost dead because some people sort of running
Speaker 2: away from it. Where are we right now? Is there
Speaker 2: a reduction enthusiasm or commitment.
Speaker 4: I think there's some confusion around it. Let's just sort
Speaker 4: of go back here for a minute.
Speaker 5: The real genesis of DSG was post.
Speaker 4: Financial crisis and the Great Recession, when there was certainly
Speaker 4: ample reason for the world to wish that corporations were
Speaker 4: a little clear on their value proposition to their shareholders,
Speaker 4: to their communities, to their employees, to their customers, etc.
Speaker 4: So ESG is kind of a sort of next generation
Speaker 4: of corporate responsibility, and everybody had some version of corporate
Speaker 4: responsibility in their frameworks. So what we're really talking about
Speaker 4: that changed is the E, and the E is largely
Speaker 4: a part of I think a pretty universal acceptance that
Speaker 4: climate change is real. The scientific community has been very
Speaker 4: compelling Most of global corporations, local corporations, and most governments
Speaker 4: in the world agree we need to address climate change. Now,
Speaker 4: how we do it, the pace we do it at
Speaker 4: that's become somewhat politicized. And then the other thing is is,
Speaker 4: so there's the ESG how you behave and then there
Speaker 4: is the ESG funds. Well, the ESG funds are a
Speaker 4: whole other things. ESG funds mean a fund and how
Speaker 4: it performs, and it's like any other fund.
Speaker 2: That distinction and Finucan makes between ESG tied to how
Speaker 2: a particular company behaves and ESG simply reflecting how a
Speaker 2: company is affected by climate change regardless of what it does,
Speaker 2: is an important one that is often confused. According to
Speaker 2: professor Andy King of Boston University.
Speaker 15: Most ESG funds are what I call light green funds,
Speaker 15: which they're using ESG scores to pick stocks and put
Speaker 15: them in their portfolio, and most of them are not
Speaker 15: very different from other comparable types of funds. If I
Speaker 15: think about what a manager might do with ESG funds.
Speaker 8: That I think is very valuable.
Speaker 15: And you can be looking at what you're doing in
Speaker 15: terms of the risks that you face, and you could
Speaker 15: be making good investments.
Speaker 8: On how to change your firm.
Speaker 15: At the public assets level, I think the effect is
Speaker 15: much more minor, and it's very difficult to have a
Speaker 15: higher return, and as we said, it's very difficult to
Speaker 15: have in any impact.
Speaker 13: With that.
Speaker 2: Point, the problem is not a lack of voluntary commitments
Speaker 2: on the part of companies trying to address climate change.
Speaker 4: The top ten companies in the US, whether you're looking
Speaker 4: at revenue, market cap, net income, however you want to
Speaker 4: divine it, most of those companies have made commitments to
Speaker 4: decarbonizing their companies demonstrating the decarbonization. Most are committed to
Speaker 4: net zero. Their sort of end dates may be a
Speaker 4: little different, and their descriptions may be a little different.
Speaker 5: But the top companies are there.
Speaker 4: Even the fossil fuel companies, which I know is more controversial,
Speaker 4: are making commitments now. Their focus is more on carbon
Speaker 4: capture and sequestration storage and less about new forms of
Speaker 4: clean energy. But you know, I defy you to mention
Speaker 4: a company that hasn't put something forward in this effort.
Speaker 5: And you know, twenty twenty three was the hottest year
Speaker 5: in history of recorded history.
Speaker 4: I don't think there's much argument that we're looking at
Speaker 4: extreme weather, water shortages, food shortages arise in sort of
Speaker 4: climate related diseases like asthma. So I don't think there's
Speaker 4: an argument about the science. I think most companies are committed.
Speaker 5: But some of the tools they thought they were going
Speaker 5: to have have been held back a little bit.
Speaker 4: And what I mean by that is everyone talked about
Speaker 4: blended finance, so that meant that companies and governments and
Speaker 4: multilateral development banks would work together. So that would mean
Speaker 4: multilateral development banks would actually have to change considerably.
Speaker 5: Those changes are slow coming.
Speaker 4: Companies thought that they would have carbon credits or carbon offsets,
Speaker 4: and you know, I'm focused.
Speaker 5: On that in my own work.
Speaker 4: Well, those have been slow to come because the NGO
Speaker 4: community has really resisted them, and really is sort of
Speaker 4: problematic because there's plenty of proof that it's those companies
Speaker 4: that are doing the most and just using carbon credits
Speaker 4: as a delta to close the gap that are that
Speaker 4: are making the most progress. So some of the tools
Speaker 4: companies thought they would have are no longer either not
Speaker 4: there or they're slow coming.
Speaker 2: One of the tools Professor King says could help companies
Speaker 2: meet their climate commitments would be something adopted by the
Speaker 2: European Union two years ago.
Speaker 15: A carbon tax would help the great thing about things
Speaker 15: like that is that then the information is carried in
Speaker 15: the price and so people able to make much better decisions.
Speaker 8: Or carbon tradable permits or something like that would be
Speaker 8: wonderful as.
Speaker 2: Well, absent governmental actions such as a carbon tax. He
Speaker 2: worries that unstructured and unregulated voluntary commitments to limit emissions
Speaker 2: may mask the need for more fundamental change.
Speaker 15: That is a big fear of mine, and we've seen
Speaker 15: that before in other areas. After the famous Bopaul accident
Speaker 15: which killed so many people in India, the chemical industry
Speaker 15: tried to self regulate and it didn't really work. I
Speaker 15: have to say, as an academic, the research suggesting that
Speaker 15: the ESG is substituting for political activity is not very strong.
Speaker 8: But it is my experience that says I think that
Speaker 8: could be happening.
Speaker 15: I'm looking out the window at the Charles River and
Speaker 15: it is clean because of the Clean Water Act that
Speaker 15: was passed in the seventies, actually under a Republican president,
Speaker 15: and it's a marvelous thing. I'm breathing better air because
Speaker 15: we had a tradeable permit system for a sulfur from
Speaker 15: coal burning, and that's a marvelous thing. And if we
Speaker 15: had a carbon tax, people would be moving away from
Speaker 15: a carbon intensive kind of fuels and things that they're doing.
Speaker 8: So all three work. Well, you've got to do one.
Speaker 2: So have we made progress? Let's take the e in
Speaker 2: the environment. Have we seen extra results in terms of
Speaker 2: carbon emissions coming, because I've seen conflicting reports about that
Speaker 2: exactly how it's worked thus far. It's been mainly voluntary,
Speaker 2: if I'm not mistaken. Have we made progress in the
Speaker 2: real world?
Speaker 5: Yeah, we have made progress.
Speaker 4: Well, it's voluntary in the US, it's not voluntary in Europe,
Speaker 4: and it is sort of double sided in China. So
Speaker 4: let's just go out to end farthest out. China is
Speaker 4: making enormous progress in green technologies, batteries, rare minerals, winds, solar,
Speaker 4: et cetera. I mean, they own the market in terms
Speaker 4: of solar paneling, but they also erect co plants at
Speaker 4: a pace that is just remarkable as well. So they
Speaker 4: are a tale of two cities, and their commitment is
Speaker 4: that they will start to reduce their carbon footprint after
Speaker 4: twenty thirty, whereas the rest.
Speaker 5: Of the world is really making real progress. The United
Speaker 5: States has made real progress since.
Speaker 4: Two thousand and five, two thousand and seven, and by
Speaker 4: twenty and thirty they hoped to be about half of
Speaker 4: what they were in their early two thousands, and we
Speaker 4: seem to be on pace for that.
Speaker 5: This is a journey.
Speaker 4: We're talking about the end of this century. We're talking
Speaker 4: about net zero by twenty fifty.
Speaker 5: Could we miss that?
Speaker 4: By both temperatures this one point five degrees cap I
Speaker 4: think so.
Speaker 5: Could we be post twenty fifty? Maybe?
Speaker 3: Okay?
Speaker 2: And it's a real treat to have you back with this,
Speaker 2: Thank you so very much. That's an nukin of rubicon capital.
Speaker 2: I think the printing press, the steam engine, electricity, computing,
Speaker 2: and the Internet. That's what JP Morgan's Jamie Diamond compared
Speaker 2: artificial intelligence to in his shareholder letter this week, and
Speaker 2: our own Wall Street Week contributor Larry Summers has gone
Speaker 2: even farther.
Speaker 7: This could be the most important general purpose technology since
Speaker 7: the wheel or fire.
Speaker 2: There's no question but that the AI transformation is big
Speaker 2: and getting bigger and doing it fast. As computing power
Speaker 2: increases geometrically and machines take over some of the thinking
Speaker 2: for us humans. It's going to be widely available to
Speaker 2: hundreds of millions of people. In fact, we're starting to
Speaker 2: wonder whether a good number of us may be out
Speaker 2: of our jobs altogether.
Speaker 5: Where's this going to have its immediate impact.
Speaker 3: It's going to be in the knowledge economy.
Speaker 2: We've seen versions of this before, as automation over the years,
Speaker 2: as eliminated entire categories of jobs.
Speaker 16: We had four hundred and fifty thousand telephone operators in
Speaker 16: this country in the nineteen fifties. You tell me the
Speaker 16: last time you're talking to a telephone operator. We had
Speaker 16: close to two million people. I assume most of them
Speaker 16: women classified as typists. That's not even a job category
Speaker 16: anymore in the BLS.
Speaker 2: I saw it in my law firm back in the
Speaker 2: late nineteen seventies. When I went to work as a
Speaker 2: summer associate at Wilmer, Cutler and Pickering in the summer
Speaker 2: of nineteen seventy six, I was introduced to the wonders
Speaker 2: of the Steno pool. The firm kept a teuen of
Speaker 2: typists and yes, as I recall, they were all women
Speaker 2: on duty twenty four hours a day, seven days a week.
Speaker 2: That meant we lawyers could call in and dictate memoranda
Speaker 2: and draft brief sat any time of day or night
Speaker 2: to have them magically appear on our desks before we
Speaker 2: got in the next morning. And then the word processor
Speaker 2: came along a few years later, and the steno pool
Speaker 2: simply disappeared. Now, after the pandemic taught us all how
Speaker 2: to zoom all the time, the office building that used
Speaker 2: to hold the steno pool may be disappearing as well,
Speaker 2: as employers struggle to get their employees back into the
Speaker 2: office even for part.
Speaker 13: Of the week.
Speaker 2: We do believe in flexibility. We want people to be
Speaker 2: able to mix their lives and that work properly. Steve
Speaker 2: Cohen has said that the four day work week, whether
Speaker 2: from home or from the office, may be next up.
Speaker 2: But then again, don't be too sure that this will
Speaker 2: mean less work for us. Those word processors that eliminated
Speaker 2: our stenopool didn't cut back on the amount of work
Speaker 2: we lawyers did one bit. To the contrary. It made
Speaker 2: it possible to do more drafts of those memos, with
Speaker 2: more revisions showing up instantaneously, and instead of dialing into
Speaker 2: a pool of typhus, we did our own typing on
Speaker 2: computers on our desks and in our homes. In our
Speaker 2: lapse on the road, and don't even get me started
Speaker 2: on smartphones delivering NonStop emails that people expect us to
Speaker 2: respond to around the clock, all of which puts that
Speaker 2: stenopool to shame. But even as technology feels like it
Speaker 2: lets many of us work harder, word comes out of
Speaker 2: Germany that there may be relief in sight. No, not
Speaker 2: for us, but for the machines that were supposed to
Speaker 2: make our lives easier. It seems that Germany has a
Speaker 2: hard and fast rule against stores being open on Sundays,
Speaker 2: dating back seventeen hundred years when Roman emperor Constantine the
Speaker 2: Great first became a Christian and decided everyone should observe
Speaker 2: that day of rest God took after creating the world
Speaker 2: that's according to Genesis. Until now, that's meant that you
Speaker 2: can't go out and buy pretty much anything and on
Speaker 2: Sunday in Germany. But four years ago, regional supermarket chain
Speaker 2: Tegut thought it had a way around that band. It
Speaker 2: opened some small, fully automated convenience stores staffed by robots.
Speaker 2: The German union representing service workers took one look at
Speaker 2: it and cried foul. It took Tega to court and
Speaker 2: won in the highest court of the state of Hesse.
Speaker 2: So much for shopping in Hesse on Sundays. But then again,
Speaker 2: maybe the Service Union was getting at something more than
Speaker 2: giving robots their day of rest. Now that it's won
Speaker 2: the day off for the next generation of workers, can
Speaker 2: getting them into the union to agitate for other benefits
Speaker 2: be far behind? To paraphrase Karl Marx, Robots of the
Speaker 2: World unite. Mur there's a new trick for a robot
Speaker 2: respron I'm gonna miss the good old days. That does
Speaker 2: it for this episode of Wall Street Week, I'm David Weston.
Speaker 2: This is Bloomberg. See you next week.