1 00:00:00,240 --> 00:00:04,160 Speaker 1: This is Bloomberg Wall Street Week. Market shrug off higher 2 00:00:04,160 --> 00:00:07,080 Speaker 1: consumer prizes. The economy is in the process of rebounding. 3 00:00:07,120 --> 00:00:09,440 Speaker 1: Will the flutter reserve of its own digital currency? The 4 00:00:09,440 --> 00:00:12,440 Speaker 1: financial stories that cheap our work. Many people think the 5 00:00:12,480 --> 00:00:14,320 Speaker 1: eels are just going to keep marching up. We have 6 00:00:14,440 --> 00:00:16,640 Speaker 1: more spending coming out of Congress. One of the big 7 00:00:16,760 --> 00:00:19,600 Speaker 1: questions I think on investor's minds inflations through the eyes 8 00:00:19,640 --> 00:00:22,720 Speaker 1: of the most influential voices. Larry Summer is the former 9 00:00:22,760 --> 00:00:26,160 Speaker 1: Treasury Secretary Bryan Wynahan back of America, Will Smart CEO 10 00:00:26,360 --> 00:00:30,479 Speaker 1: Charlie Sharp Bloomberg Wall Street Week with David Weston from 11 00:00:30,600 --> 00:00:35,440 Speaker 1: Bloomberg Radio. The administration keeps its economic agenda alive, the 12 00:00:35,479 --> 00:00:39,640 Speaker 1: inflation debate continues, and earnings Will they just keep shugging along? 13 00:00:40,200 --> 00:00:56,600 Speaker 1: This is Bloomberg Wall Street Week. I'm David Weston. We 14 00:00:56,760 --> 00:01:00,800 Speaker 1: had another week consumed negotiations back and four over President 15 00:01:00,800 --> 00:01:05,040 Speaker 1: Biden's economic agenda, all within the Democratic Party, with President 16 00:01:05,080 --> 00:01:07,920 Speaker 1: Biden announcing a framework just as he got out of 17 00:01:07,959 --> 00:01:10,520 Speaker 1: town for his trip to Europe for the G twenty 18 00:01:10,720 --> 00:01:16,200 Speaker 1: and the copy summits. These plans are fiscally responsible, They're 19 00:01:16,200 --> 00:01:20,200 Speaker 1: fully paid for, they don't add a single penny to 20 00:01:20,240 --> 00:01:24,480 Speaker 1: the deficit, and whatever ultimately gets passed into law for 21 00:01:24,600 --> 00:01:28,360 Speaker 1: infrastructure and build back better. This week continued the debate 22 00:01:28,440 --> 00:01:32,279 Speaker 1: over inflation, with two of those who should know best 23 00:01:32,560 --> 00:01:36,759 Speaker 1: directly taking one another on when Treasury Secretary Janet yell 24 00:01:36,840 --> 00:01:39,840 Speaker 1: And disagreed on CNN with what Larry Summers had said 25 00:01:39,959 --> 00:01:43,440 Speaker 1: right here on Wall Street week about the problem of inflation. 26 00:01:44,040 --> 00:01:48,280 Speaker 1: We are going through a period of inflation that's higher 27 00:01:48,320 --> 00:01:52,920 Speaker 1: than Americans have seen in a long time, and it's 28 00:01:52,960 --> 00:01:57,360 Speaker 1: something that's obviously a concern and worrying them. But we 29 00:01:57,400 --> 00:02:01,600 Speaker 1: haven't lost control. And Larry came right back at Janet 30 00:02:01,640 --> 00:02:05,200 Speaker 1: yelling on Twitter, saying until the Fed and Treasury fully 31 00:02:05,240 --> 00:02:09,200 Speaker 1: recognize the inflation reality, they are unlikely to deal with 32 00:02:09,240 --> 00:02:12,720 Speaker 1: it successfully. But for all the talk of more fiscal 33 00:02:12,760 --> 00:02:15,520 Speaker 1: stimulus and inflation, the week on global All Street was 34 00:02:15,639 --> 00:02:19,040 Speaker 1: really given over to earnings, particularly those from big tech. 35 00:02:19,120 --> 00:02:23,520 Speaker 1: Here's Apple's Tim Cook. We are optimistic about the future, 36 00:02:23,919 --> 00:02:27,440 Speaker 1: especially as we see strong demand for our new products, 37 00:02:28,120 --> 00:02:31,600 Speaker 1: and also from the auto companies. Here's GM's Mary Bara. 38 00:02:32,720 --> 00:02:34,959 Speaker 1: We're selling every vehicle we can make, and I think 39 00:02:35,000 --> 00:02:38,640 Speaker 1: that along with UH, you know the overall environment is 40 00:02:38,760 --> 00:02:41,040 Speaker 1: what allowed us to have a beat for the quarter, 41 00:02:41,480 --> 00:02:43,600 Speaker 1: and when it came to Equiti as those earnings were 42 00:02:43,720 --> 00:02:46,160 Speaker 1: enough to pull out a win, with the SMP five 43 00:02:46,680 --> 00:02:49,600 Speaker 1: up six point nine from the month, making this October 44 00:02:49,840 --> 00:02:52,560 Speaker 1: the best for the index in six years, while the 45 00:02:52,639 --> 00:02:55,120 Speaker 1: Nasdaq was up two point four for the week and 46 00:02:55,160 --> 00:02:58,000 Speaker 1: the bond yield curve flattened somewhat with the short end 47 00:02:58,040 --> 00:03:00,880 Speaker 1: moving up and the ten year yield come down under 48 00:03:00,880 --> 00:03:03,280 Speaker 1: one point six this week. To take us through what 49 00:03:03,320 --> 00:03:05,680 Speaker 1: the markets had to teach us this week, welcome now 50 00:03:05,760 --> 00:03:09,560 Speaker 1: Katie Cotch Goldman Sex Co had of Fundamental Equity Funds 51 00:03:09,760 --> 00:03:13,680 Speaker 1: and Kate L. Hillo. She's Russell Investments Chief investment Officer. Kate, 52 00:03:13,840 --> 00:03:16,440 Speaker 1: welcome to wall Stree Week. Congratulations on your promotion. By 53 00:03:16,480 --> 00:03:18,119 Speaker 1: the way, give us a sense of what you saw 54 00:03:18,120 --> 00:03:19,960 Speaker 1: on the market this week. As I say, the equities 55 00:03:20,000 --> 00:03:21,639 Speaker 1: did really, really well despite the fact they had a 56 00:03:21,639 --> 00:03:24,320 Speaker 1: little headwind from a couple of big tech companies. Yeah, David, 57 00:03:24,320 --> 00:03:27,120 Speaker 1: thanks so much for having me and you. Earning season 58 00:03:27,200 --> 00:03:30,160 Speaker 1: about fifty percent of the way through and it has 59 00:03:30,200 --> 00:03:32,400 Speaker 1: been it's been good, I mean not great like we 60 00:03:32,440 --> 00:03:37,200 Speaker 1: saw in Q one. And Q two but of the 61 00:03:37,200 --> 00:03:40,080 Speaker 1: company's beating so it's still above you know, kind of 62 00:03:40,080 --> 00:03:43,160 Speaker 1: the average. But I'd say the one big cave yet 63 00:03:43,440 --> 00:03:47,640 Speaker 1: we would flag is around your company guidance and you know, 64 00:03:47,680 --> 00:03:49,480 Speaker 1: a lot of that has been focused around a lot 65 00:03:49,480 --> 00:03:54,120 Speaker 1: of supply team issues and other impacts that pricing power. 66 00:03:54,160 --> 00:03:57,040 Speaker 1: Initially for the companies that can do it, should be 67 00:03:57,080 --> 00:04:00,240 Speaker 1: able to work through um. But that is something to 68 00:04:00,360 --> 00:04:03,760 Speaker 1: continue to look out for as we go into queue four. Uh. 69 00:04:04,000 --> 00:04:07,880 Speaker 1: I think for companies that did miss, they have gotten 70 00:04:07,960 --> 00:04:11,000 Speaker 1: hit reasonably hard. And so what we've seen the market 71 00:04:11,000 --> 00:04:15,120 Speaker 1: react overall well to earnings on average four percent down 72 00:04:15,840 --> 00:04:19,719 Speaker 1: for companies that you aren't meeting expectations, and so from 73 00:04:19,720 --> 00:04:22,560 Speaker 1: our point of view, you have healthy spread between winners 74 00:04:22,560 --> 00:04:26,640 Speaker 1: and losers. Is a really good opportunity for active management 75 00:04:27,000 --> 00:04:29,760 Speaker 1: and really started to dig into some of the differentiation 76 00:04:29,800 --> 00:04:33,279 Speaker 1: that we expect to see going forward. Is Okay, let's 77 00:04:33,279 --> 00:04:35,120 Speaker 1: talk about a tech for a second, because we had 78 00:04:35,160 --> 00:04:37,200 Speaker 1: so many big tech earnings out this week, a lot 79 00:04:37,240 --> 00:04:39,520 Speaker 1: of them positive, but then we had the Amazon and Apple, 80 00:04:39,560 --> 00:04:41,680 Speaker 1: which really a hiccup, one of which was really supply 81 00:04:41,760 --> 00:04:43,599 Speaker 1: chain in the case of Apple. The other was really 82 00:04:43,640 --> 00:04:46,120 Speaker 1: more labor In the case of Amazon, did it tell 83 00:04:46,200 --> 00:04:49,360 Speaker 1: us anything in the longer term big tech driving this market, 84 00:04:49,360 --> 00:04:51,880 Speaker 1: which is done for so long. You know, they did 85 00:04:51,920 --> 00:04:54,760 Speaker 1: disappoint but I just put take Apple for a second. 86 00:04:54,839 --> 00:04:57,920 Speaker 1: People are disappointed, but they should remember iPhone stales were 87 00:04:57,920 --> 00:05:00,320 Speaker 1: still up forty six percent year over year, so there's 88 00:05:00,320 --> 00:05:02,800 Speaker 1: still is good growth there. But expectations, of course, we're 89 00:05:02,839 --> 00:05:05,920 Speaker 1: for fifty. I think what you've seen there is very 90 00:05:05,960 --> 00:05:07,600 Speaker 1: specific to what you just said, and maybe we can 91 00:05:07,680 --> 00:05:10,200 Speaker 1: unpack it later, which is supply chain issues and also 92 00:05:10,279 --> 00:05:12,760 Speaker 1: labor UM and we don't think that that's going to 93 00:05:12,839 --> 00:05:14,599 Speaker 1: that We think that's an issue that they can actually 94 00:05:14,600 --> 00:05:17,640 Speaker 1: get over. UM. Other interesting trends that were focused on 95 00:05:17,720 --> 00:05:20,640 Speaker 1: in tech earnings generally would be UM. I could maybe 96 00:05:20,880 --> 00:05:23,640 Speaker 1: touch on payments as an example, and what's happening in 97 00:05:23,640 --> 00:05:26,279 Speaker 1: the finance space. I'm really interested in the third quarter 98 00:05:26,800 --> 00:05:28,640 Speaker 1: UM of this year as being kind of the first 99 00:05:28,680 --> 00:05:31,840 Speaker 1: quarter that we've seen the potential for how much disruption 100 00:05:32,120 --> 00:05:35,120 Speaker 1: we think is coming at the financial sector. Just for context, 101 00:05:35,440 --> 00:05:39,360 Speaker 1: UM there's sixteen trillion dollars of market capitalization and financials 102 00:05:39,800 --> 00:05:42,719 Speaker 1: UH compared to for example, fourteen trillion dollars of market 103 00:05:42,720 --> 00:05:45,560 Speaker 1: capitalization and the Internet, and we are on the precipice 104 00:05:45,600 --> 00:05:48,640 Speaker 1: of seeing major disruption across that whole sector. We saw 105 00:05:48,680 --> 00:05:52,360 Speaker 1: some big losers get printed in the third quarter. So, UM, 106 00:05:52,400 --> 00:05:54,640 Speaker 1: the merchant acquire sector, if you look at the earnings 107 00:05:54,640 --> 00:05:57,159 Speaker 1: of those companies, they disappointed a lot because they're getting 108 00:05:57,440 --> 00:06:02,320 Speaker 1: disintermediated by companies like Shopify or Toast for example, that 109 00:06:02,320 --> 00:06:06,280 Speaker 1: are offering those services better product, better pricing. And then 110 00:06:06,279 --> 00:06:08,400 Speaker 1: on the winning side and all and my comments there, 111 00:06:08,440 --> 00:06:11,279 Speaker 1: but in terms of winners in this space, UM, you 112 00:06:11,279 --> 00:06:14,600 Speaker 1: would look at buy now pay leader UM, which, as 113 00:06:14,640 --> 00:06:16,520 Speaker 1: my husband says to me, isn't that just the same 114 00:06:16,560 --> 00:06:18,960 Speaker 1: thing as a credit card? What's what's buy now p later? 115 00:06:19,240 --> 00:06:21,919 Speaker 1: But effectively what it's great product for the millennial and 116 00:06:21,960 --> 00:06:25,760 Speaker 1: Gen Z consumer. You basically pay on deferred payments. Um. 117 00:06:25,839 --> 00:06:29,360 Speaker 1: There's no late fee and there's actually no interest charged either. 118 00:06:29,480 --> 00:06:32,000 Speaker 1: And the reason it works is because they charge the 119 00:06:32,040 --> 00:06:36,560 Speaker 1: merchants higher fee and those merchants tolerate that higher fee 120 00:06:36,560 --> 00:06:39,840 Speaker 1: because they're getting a bigger addressable market and higher volume. Now, 121 00:06:39,880 --> 00:06:41,799 Speaker 1: of course we need to go through a credit cycle 122 00:06:42,279 --> 00:06:44,160 Speaker 1: to see if this is a durable business model, But 123 00:06:44,200 --> 00:06:47,800 Speaker 1: they're taking tremendous market share from traditional banks. Okay, thank 124 00:06:47,839 --> 00:06:50,200 Speaker 1: you so much for being with us. As Kate L. Hillo, 125 00:06:50,360 --> 00:06:53,720 Speaker 1: she is Russell Investments ce io Katie Catchy Goldman. Sacks 126 00:06:53,720 --> 00:06:56,120 Speaker 1: will be staying with us as we focus specifically on 127 00:06:56,200 --> 00:06:59,040 Speaker 1: supply chains and how prominently they have figured this week 128 00:06:59,080 --> 00:07:01,520 Speaker 1: and those earnings were born. This is Wall Street Week 129 00:07:01,720 --> 00:07:08,880 Speaker 1: on Bloomberg. This is Bloomberg Wall Street Week with David 130 00:07:08,920 --> 00:07:12,880 Speaker 1: Weston from Bloomberg Radio. If earnings were the big story 131 00:07:12,920 --> 00:07:16,640 Speaker 1: this week, supply chain difficulties were the constant narrative through 132 00:07:16,720 --> 00:07:19,360 Speaker 1: all of those reports. As we heard from the CEOs 133 00:07:19,400 --> 00:07:24,400 Speaker 1: of Raytheon, GM and Carrier. We're not immune from the 134 00:07:24,480 --> 00:07:27,120 Speaker 1: challenges of supply chain. In fact, we talked about this 135 00:07:27,200 --> 00:07:29,960 Speaker 1: morning on our earnings called the fact is we'll probably 136 00:07:30,000 --> 00:07:33,320 Speaker 1: see almost three hundred million dollars of lower revenues this 137 00:07:33,400 --> 00:07:37,000 Speaker 1: year because we can't get material into our shops and 138 00:07:37,040 --> 00:07:39,160 Speaker 1: we can't get the labor that we need. It will 139 00:07:39,240 --> 00:07:41,800 Speaker 1: linger into next year and we're right now are our 140 00:07:41,840 --> 00:07:44,320 Speaker 1: feeling is will be in a much better shape in 141 00:07:44,400 --> 00:07:48,440 Speaker 1: the second half of two and we're also taking steps 142 00:07:48,840 --> 00:07:51,120 Speaker 1: over the medium term to make sure We're never seeing 143 00:07:51,120 --> 00:07:53,360 Speaker 1: this kind of constraint, not only with chips, but with 144 00:07:53,400 --> 00:07:56,160 Speaker 1: other you know, whether it's critical materials or just the 145 00:07:56,280 --> 00:07:59,600 Speaker 1: overall supply chain, because we have an aggressive growth strategy 146 00:07:59,640 --> 00:08:01,240 Speaker 1: in front of us and we're going to make sure 147 00:08:01,280 --> 00:08:03,640 Speaker 1: that we can execute it. So it's a very it's 148 00:08:03,640 --> 00:08:06,360 Speaker 1: a near term problem that will work through. The supply 149 00:08:06,440 --> 00:08:08,720 Speaker 1: demand is really out of whack. You see it in chips. 150 00:08:09,160 --> 00:08:11,760 Speaker 1: Whenever you have to buy chips from on the brokerage market, 151 00:08:11,800 --> 00:08:14,440 Speaker 1: it's always going to be painful and expensive. We see 152 00:08:14,440 --> 00:08:17,920 Speaker 1: it on raw materials copper price, steel, aluminum. So we're 153 00:08:17,920 --> 00:08:21,400 Speaker 1: seeing a lot of pressures on raw materials and tier one, 154 00:08:21,400 --> 00:08:24,680 Speaker 1: tier two pricing, but we're managing it through price increases 155 00:08:24,720 --> 00:08:26,760 Speaker 1: and we're having to be very aggressive on things like 156 00:08:26,840 --> 00:08:29,400 Speaker 1: g and A, having to be very creative on how 157 00:08:29,400 --> 00:08:33,120 Speaker 1: we manage logistics. Katie catch A Golden Sacks has remained 158 00:08:33,120 --> 00:08:35,120 Speaker 1: with us so we can talk about supply chains. So 159 00:08:35,240 --> 00:08:37,120 Speaker 1: I heard about it all week long from see you 160 00:08:37,160 --> 00:08:39,920 Speaker 1: have to CEO tell us about supply chains. Where are we? 161 00:08:40,320 --> 00:08:43,160 Speaker 1: So two main takeaways I think from this earning season. 162 00:08:43,360 --> 00:08:45,680 Speaker 1: I've also been speaking to a lot of CEOs and 163 00:08:45,800 --> 00:08:48,480 Speaker 1: the first is that it is very clear that unit 164 00:08:48,520 --> 00:08:51,280 Speaker 1: growth has been constrained by supply chain issues. So we'll 165 00:08:51,280 --> 00:08:53,240 Speaker 1: talk a lot about tech, but let me talk about 166 00:08:53,280 --> 00:08:55,640 Speaker 1: something very different from tech. Let's talk about pools. We 167 00:08:55,720 --> 00:08:57,800 Speaker 1: love pools, we've liked them for a while. They've been 168 00:08:57,840 --> 00:09:02,079 Speaker 1: big pandemic beneficiaries. Are pool CEOs, the ones building the pools, 169 00:09:02,120 --> 00:09:04,880 Speaker 1: and the supply that's the one supplying the pools. Believe 170 00:09:04,920 --> 00:09:07,480 Speaker 1: that unit growth could have been fifty percent higher without 171 00:09:07,480 --> 00:09:10,920 Speaker 1: the supply chain issues they're they're facing, UM, the supply 172 00:09:10,960 --> 00:09:14,680 Speaker 1: itself and of materials, and also the labor because we're 173 00:09:14,720 --> 00:09:17,959 Speaker 1: facing a great resignation in this country and we're currently 174 00:09:18,000 --> 00:09:21,559 Speaker 1: have the lowest labor force participation rate since World War Two, 175 00:09:21,640 --> 00:09:23,800 Speaker 1: so that's a big problem. So that all goes under 176 00:09:23,920 --> 00:09:27,240 Speaker 1: unit growth is constrained UM. And then the second issue 177 00:09:27,280 --> 00:09:29,800 Speaker 1: that the second thing that I would highlight UM is 178 00:09:29,840 --> 00:09:32,280 Speaker 1: something that Mary said I think is really really important. 179 00:09:32,520 --> 00:09:35,200 Speaker 1: What she said is that what I heard her say 180 00:09:35,240 --> 00:09:37,079 Speaker 1: is that over the longer term, they're going to address 181 00:09:37,080 --> 00:09:39,319 Speaker 1: this issue because they need to be positioned for growth. 182 00:09:39,559 --> 00:09:41,079 Speaker 1: And I think what she means by that is that 183 00:09:41,120 --> 00:09:43,840 Speaker 1: they're going to have to reshure some of this capacity 184 00:09:43,920 --> 00:09:46,840 Speaker 1: and focus on supply chain resilience, and it is it 185 00:09:46,920 --> 00:09:49,480 Speaker 1: is my view that actually Wall Street has probably put 186 00:09:49,520 --> 00:09:52,680 Speaker 1: too much pressure on companies to optimize their supply chain, 187 00:09:53,040 --> 00:09:55,280 Speaker 1: and we're going to get a very much better balance 188 00:09:55,360 --> 00:09:59,800 Speaker 1: going forward between that supply chain optimization and the resilience 189 00:09:59,800 --> 00:10:02,080 Speaker 1: that become very obvious that we need. So there are 190 00:10:02,080 --> 00:10:04,320 Speaker 1: a couple of issues there. I think, what is where 191 00:10:04,320 --> 00:10:07,440 Speaker 1: do you get the materials from? We relied upon some countries, 192 00:10:07,480 --> 00:10:09,600 Speaker 1: perhaps too much. We have to diversify in that. The 193 00:10:09,679 --> 00:10:12,160 Speaker 1: other is how much inventory we maintain just in time 194 00:10:12,280 --> 00:10:14,679 Speaker 1: was very popular for a long time, very efficient for 195 00:10:14,720 --> 00:10:17,440 Speaker 1: a lot of companies. Is this going to affect margins 196 00:10:17,440 --> 00:10:19,800 Speaker 1: going forward? If we make those adjustments to supply chains, 197 00:10:19,960 --> 00:10:23,120 Speaker 1: it may cost more money, it will, and it will 198 00:10:23,280 --> 00:10:25,720 Speaker 1: impact margins most likely, and we're going to have to 199 00:10:25,800 --> 00:10:28,000 Speaker 1: kind of get used to that um But of course 200 00:10:28,080 --> 00:10:29,960 Speaker 1: we need the top line to come through too, and 201 00:10:29,960 --> 00:10:32,479 Speaker 1: if people want to sell product, they need to have inventory. 202 00:10:32,640 --> 00:10:34,559 Speaker 1: So again it's going to come back to the balance 203 00:10:34,559 --> 00:10:37,320 Speaker 1: of these two things. I do think there's an incredible 204 00:10:37,520 --> 00:10:40,640 Speaker 1: investment opportunity. In our team beliefs there's an incredible investment 205 00:10:40,640 --> 00:10:43,160 Speaker 1: opportunity in investing in the companies that are going to 206 00:10:43,240 --> 00:10:46,880 Speaker 1: help reshure um some of the manufacturing capacity of the 207 00:10:46,920 --> 00:10:49,200 Speaker 1: United States of America. And so there I would point 208 00:10:49,240 --> 00:10:51,400 Speaker 1: to you, Hurt, all those people are dependent on chips. 209 00:10:51,679 --> 00:10:55,120 Speaker 1: Chips fuel the world. They're fueling the technological advancement that 210 00:10:55,120 --> 00:10:57,520 Speaker 1: we're seeing across all sectors, and so we can't be 211 00:10:57,600 --> 00:10:59,719 Speaker 1: dependent on that just from another corner of the world 212 00:10:59,800 --> 00:11:02,440 Speaker 1: where and have to take some of that manufacturing capacity here. 213 00:11:02,480 --> 00:11:06,160 Speaker 1: So we love chip manufacturing equipment. So back when I 214 00:11:06,200 --> 00:11:08,720 Speaker 1: was running a budget cap cities in a Disney, one 215 00:11:08,720 --> 00:11:10,680 Speaker 1: of the questions I ask every quarter if we were down, 216 00:11:10,840 --> 00:11:14,280 Speaker 1: is this a timing issue or we permanently lost this revenue? 217 00:11:14,320 --> 00:11:16,040 Speaker 1: For someone? Let me ask you that question about supply 218 00:11:16,160 --> 00:11:18,120 Speaker 1: chains when you see it down, because the units, as 219 00:11:18,160 --> 00:11:21,319 Speaker 1: you described, is that demand waiting for when the supply 220 00:11:21,440 --> 00:11:23,840 Speaker 1: is there? Or could we lose some of the demand. Yeah, 221 00:11:23,880 --> 00:11:25,480 Speaker 1: So in other words, are people still going to buy 222 00:11:25,480 --> 00:11:28,560 Speaker 1: pools and iPhones exactly? And I believe they will um 223 00:11:28,880 --> 00:11:30,880 Speaker 1: and they're just gonna have to wait a little bit longer. Now. 224 00:11:30,920 --> 00:11:34,000 Speaker 1: Of course, that requires us to have a reasonable economic backdrop. 225 00:11:34,120 --> 00:11:36,200 Speaker 1: So that with that caveat, but they will. And in 226 00:11:36,240 --> 00:11:38,800 Speaker 1: the iPhone space, if you had to wait longer, you're 227 00:11:38,840 --> 00:11:40,760 Speaker 1: not going to switch to another provider. You will go 228 00:11:40,800 --> 00:11:43,160 Speaker 1: out and buy that iPhone. So in some ways we 229 00:11:43,320 --> 00:11:45,920 Speaker 1: know that that demand has been kicked into next year. 230 00:11:46,160 --> 00:11:48,600 Speaker 1: But again, these companies still have to position themselves for 231 00:11:48,640 --> 00:11:51,320 Speaker 1: the long term runway of growth and they will invest 232 00:11:51,400 --> 00:11:53,559 Speaker 1: in the restoring of their supply chains. Katie. With just 233 00:11:53,600 --> 00:11:56,120 Speaker 1: about every CEO I talked to, the supply chain discussion 234 00:11:56,160 --> 00:11:59,040 Speaker 1: came right up with cost increases YEA and inflation. It 235 00:11:59,120 --> 00:12:02,280 Speaker 1: raises the question is this lasts well into two which 236 00:12:02,400 --> 00:12:04,439 Speaker 1: seems clearly will some people say even to the late 237 00:12:05,600 --> 00:12:08,800 Speaker 1: what possible effect might that have on inflation because a 238 00:12:08,800 --> 00:12:10,040 Speaker 1: lot of the ceo as we've talked to you said 239 00:12:10,200 --> 00:12:12,920 Speaker 1: we raised prices. Yeah, absolutely, and so of course you 240 00:12:12,960 --> 00:12:14,680 Speaker 1: want to be with the companies that have the pricing 241 00:12:14,720 --> 00:12:17,880 Speaker 1: power to pass that through. UM. I'd say three quick things. 242 00:12:18,000 --> 00:12:20,160 Speaker 1: I am we are in the camp that these supply 243 00:12:20,240 --> 00:12:23,720 Speaker 1: chain issues last throughout. There's not there's not an easy 244 00:12:23,920 --> 00:12:26,920 Speaker 1: fix for them UM. And there's an investment opportunity on 245 00:12:26,920 --> 00:12:29,120 Speaker 1: the back of that, which we which we talked about. UM. 246 00:12:29,160 --> 00:12:31,319 Speaker 1: The second thing I would say is that the inflation 247 00:12:31,559 --> 00:12:34,839 Speaker 1: in the labor space is real. Um, we've talked you 248 00:12:34,880 --> 00:12:36,760 Speaker 1: and I've talked a little bit about this before, but 249 00:12:37,280 --> 00:12:39,679 Speaker 1: we have failed to pass minimum wage in this country 250 00:12:39,679 --> 00:12:43,360 Speaker 1: for many decades. We've now actually jumped over minimum wage 251 00:12:43,400 --> 00:12:46,520 Speaker 1: because we've had to bid people back into the labor market. Now, 252 00:12:46,600 --> 00:12:48,480 Speaker 1: the question that we have to really think about is 253 00:12:48,520 --> 00:12:51,000 Speaker 1: has that been a one time reset in wages? Are 254 00:12:51,000 --> 00:12:53,880 Speaker 1: we going to get upward continued upward pressure? And time 255 00:12:53,920 --> 00:12:55,960 Speaker 1: will Time will tell on that. But both of those 256 00:12:55,960 --> 00:12:58,640 Speaker 1: suggest a higher cost structure. And I wonder whether our 257 00:12:58,720 --> 00:13:01,360 Speaker 1: wage increases actually allow pagging because if you look at 258 00:13:01,360 --> 00:13:04,920 Speaker 1: the consumer price index, it is going up faster than 259 00:13:04,960 --> 00:13:06,920 Speaker 1: the wages are. Wages are going up but not as fast. 260 00:13:07,040 --> 00:13:08,360 Speaker 1: Does that mean we're gonna have to catch up at 261 00:13:08,360 --> 00:13:10,920 Speaker 1: some point we're gonna have even more wage increases. Well, 262 00:13:10,960 --> 00:13:13,480 Speaker 1: that's how you get inflation, right, But it's very it's 263 00:13:13,600 --> 00:13:17,160 Speaker 1: very determinant on on get that sticky upward pressure of 264 00:13:17,280 --> 00:13:19,559 Speaker 1: wages going up, which we'll put you know how that 265 00:13:20,000 --> 00:13:22,600 Speaker 1: cycle works going forward. But does that affect which companies 266 00:13:22,640 --> 00:13:24,040 Speaker 1: you want to invest in the sense that some are 267 00:13:24,080 --> 00:13:27,480 Speaker 1: more sensitive to that that wage inflation than others are. Yeah, 268 00:13:27,520 --> 00:13:29,559 Speaker 1: so I would say right now we see a very 269 00:13:29,600 --> 00:13:34,040 Speaker 1: healthy consumer UM. They're benefiting from higher wages UM, and 270 00:13:34,080 --> 00:13:35,640 Speaker 1: we're seeing that come out in the data. If you 271 00:13:35,679 --> 00:13:37,520 Speaker 1: look at credit card data. Just to to show you 272 00:13:37,559 --> 00:13:39,120 Speaker 1: the health of the consumer and why we like the 273 00:13:39,160 --> 00:13:43,600 Speaker 1: consumer UM we have, American Express publishes spending trends. Spending 274 00:13:43,720 --> 00:13:47,560 Speaker 1: is up thirty six percent versus two nineteen, so we've 275 00:13:47,559 --> 00:13:50,199 Speaker 1: had a big big jump in spending UM. The other 276 00:13:50,240 --> 00:13:51,880 Speaker 1: thing I just want to say about consumer in terms 277 00:13:51,920 --> 00:13:54,360 Speaker 1: of where we're focused, it's the millennial and Gen Z 278 00:13:54,480 --> 00:13:56,680 Speaker 1: consumer that are driving a lot of that increase because 279 00:13:56,679 --> 00:13:59,640 Speaker 1: they like experiences over things, and it's safe now to 280 00:13:59,679 --> 00:14:02,240 Speaker 1: go out and have experiences, and they also have a 281 00:14:02,320 --> 00:14:05,760 Speaker 1: higher risk tolerance around experiences than baby boomers. Baby boomers 282 00:14:05,760 --> 00:14:08,640 Speaker 1: spending according to American Express date is actually down six 283 00:14:08,679 --> 00:14:11,680 Speaker 1: percent relative to two thousand nineteen. So we see health 284 00:14:11,679 --> 00:14:14,480 Speaker 1: in the consumer that's repaired, their balance sheet has firepower, 285 00:14:14,760 --> 00:14:18,040 Speaker 1: and we're very much leaning into those consumer companies that 286 00:14:18,080 --> 00:14:20,800 Speaker 1: have pricing power and can benefit from a healthier consumer. Okay, 287 00:14:20,800 --> 00:14:22,600 Speaker 1: thank you so much, Katie's always great to have you 288 00:14:22,640 --> 00:14:25,320 Speaker 1: portunity in the studio. Now, that is Katie Coach in 289 00:14:25,320 --> 00:14:27,440 Speaker 1: real life, in real life exactly, we're not in the 290 00:14:27,440 --> 00:14:30,640 Speaker 1: metaverse right words, we're here together. That's Katie kaj from 291 00:14:30,680 --> 00:14:36,040 Speaker 1: Golden Sachs coming up the inflation head. You may not 292 00:14:36,240 --> 00:14:40,040 Speaker 1: have thought much about the beauty of owning land, especially 293 00:14:40,200 --> 00:14:44,040 Speaker 1: when it's farmland. With New Vine's CEO Jose Mania. That's 294 00:14:44,080 --> 00:14:50,520 Speaker 1: next on Wall Street Week on Bloomberg. This is Bloomberg 295 00:14:50,560 --> 00:14:57,520 Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. Inflation 296 00:14:57,840 --> 00:15:00,680 Speaker 1: it's all the talk these days among investor because of 297 00:15:00,760 --> 00:15:03,920 Speaker 1: what it could do to your portfolio. As Nancy Davis 298 00:15:03,920 --> 00:15:08,200 Speaker 1: of Quadratic Capital explains, inflation is a risk to every 299 00:15:08,200 --> 00:15:12,760 Speaker 1: investor portfolio because it reduces purchasing power and Treasure Secretary 300 00:15:12,840 --> 00:15:15,640 Speaker 1: Janet Yellen took the airways on CNN to disagree with 301 00:15:15,680 --> 00:15:18,720 Speaker 1: our own Larry Summers about how long it will last. 302 00:15:19,160 --> 00:15:21,880 Speaker 1: But while people are debating the size of the problem, 303 00:15:22,120 --> 00:15:25,400 Speaker 1: investors are left to make sure they're protected against the downside, 304 00:15:25,840 --> 00:15:30,120 Speaker 1: looking for what Bob Prince calls inflation hedge assets. You 305 00:15:30,160 --> 00:15:34,520 Speaker 1: want inflation hedge assets because it's very likely that the 306 00:15:34,720 --> 00:15:38,040 Speaker 1: that the rise of interest rates will lag inflation and 307 00:15:38,120 --> 00:15:41,360 Speaker 1: lag the economy. The FED doesn't really want to get 308 00:15:41,400 --> 00:15:44,440 Speaker 1: ahead of it, ranging from things like gold to things 309 00:15:44,520 --> 00:15:49,840 Speaker 1: like cryptocurrency. According to Larry Summers, bigcoin has had some 310 00:15:49,920 --> 00:15:54,280 Speaker 1: emergence as digital gold. The thing you want to hold 311 00:15:54,400 --> 00:15:58,600 Speaker 1: if you're worried about inflation. One asset that might get 312 00:15:58,600 --> 00:16:03,080 Speaker 1: overlooked his farmland. Historically, farmland returns have outpaced inflation in 313 00:16:03,080 --> 00:16:06,920 Speaker 1: a variety of market environments, providing returns more than double 314 00:16:07,080 --> 00:16:10,680 Speaker 1: the inflation rate for decades. And right now the farming 315 00:16:10,720 --> 00:16:14,920 Speaker 1: sector is booming. Is a really robust story. Right net 316 00:16:14,920 --> 00:16:17,600 Speaker 1: farm income is projected by the Department of Agriculture to 317 00:16:17,640 --> 00:16:21,600 Speaker 1: be up to a level of a D thirteen million dollars, 318 00:16:21,600 --> 00:16:25,280 Speaker 1: which is a level we haven't seen since so in 319 00:16:25,400 --> 00:16:28,800 Speaker 1: aggregate on average across the country, that's a really good story. 320 00:16:32,520 --> 00:16:35,080 Speaker 1: We're welcome now to Wall Street Week. One of those 321 00:16:35,120 --> 00:16:38,000 Speaker 1: who is focused on farm land investing is a sensible 322 00:16:38,040 --> 00:16:41,160 Speaker 1: hedge against inflation. Jose and I is the CEO of Leuvene, 323 00:16:41,280 --> 00:16:44,800 Speaker 1: which manages over one trillion dollars in assets. Welcome, Jose. 324 00:16:44,880 --> 00:16:46,520 Speaker 1: It's great to have you here. Thank you for having me. 325 00:16:46,600 --> 00:16:48,800 Speaker 1: David So so you really are introducing me to this 326 00:16:48,840 --> 00:16:51,720 Speaker 1: whole idea about farm land is a hedge against inflation. 327 00:16:51,800 --> 00:16:53,520 Speaker 1: Tell me how you came to it and how you 328 00:16:53,560 --> 00:16:55,640 Speaker 1: think of it today. Yeah, we came through it through 329 00:16:55,640 --> 00:16:59,480 Speaker 1: our traditional portfolio construction process. Right, we were looking for 330 00:16:59,520 --> 00:17:04,159 Speaker 1: assets brought attractive correlation benefits to our portfolio. We're looking 331 00:17:04,160 --> 00:17:07,240 Speaker 1: to smooth out volatility. We're looking to kind of find 332 00:17:07,240 --> 00:17:10,560 Speaker 1: a good hedge against inflation and also looking at total 333 00:17:10,600 --> 00:17:14,800 Speaker 1: returns and more were more skewed towards income income returns, 334 00:17:14,600 --> 00:17:17,280 Speaker 1: and we found that in farmland. But what made farmland 335 00:17:17,320 --> 00:17:19,240 Speaker 1: really attracted to us. I always say is one of 336 00:17:19,280 --> 00:17:22,199 Speaker 1: the best investment thesis I've come across because it's as 337 00:17:22,240 --> 00:17:24,760 Speaker 1: simple as people need to eat. Yet what we found 338 00:17:24,840 --> 00:17:27,160 Speaker 1: was you have a any elastic demand supply it right, 339 00:17:27,240 --> 00:17:31,199 Speaker 1: it's one that the populations are growing, middle classes, the 340 00:17:31,240 --> 00:17:33,639 Speaker 1: middle classes growing. It takes ten pounds of grain to 341 00:17:33,680 --> 00:17:37,360 Speaker 1: make one pound of protein, so as they're consuming more protein, 342 00:17:37,720 --> 00:17:41,160 Speaker 1: that demand is continues to be pushed and it accelerates. 343 00:17:41,320 --> 00:17:43,720 Speaker 1: You look at the supply side, it's also any elastic 344 00:17:43,760 --> 00:17:46,720 Speaker 1: because they're not making any more land. If anything, production 345 00:17:46,840 --> 00:17:49,960 Speaker 1: is being trained by environmental factors. So when you combine 346 00:17:50,000 --> 00:17:51,919 Speaker 1: that it made for a perfect place where we can 347 00:17:51,960 --> 00:17:54,080 Speaker 1: fit in our portfolio construction. So give us a sense 348 00:17:54,119 --> 00:17:56,280 Speaker 1: of the return from the sort of investment over the 349 00:17:56,320 --> 00:17:59,520 Speaker 1: longer term, because I've seen some pretty staggering numbers. And 350 00:17:59,680 --> 00:18:02,199 Speaker 1: you know, obviously, like many, like many different investments, there 351 00:18:02,200 --> 00:18:05,240 Speaker 1: are different risk return profiles. But for us, typically we're 352 00:18:05,480 --> 00:18:09,360 Speaker 1: seeking called admit to high single digit returns. If it's 353 00:18:09,359 --> 00:18:11,680 Speaker 1: say eight to ten eight to ten percent returns, half 354 00:18:11,720 --> 00:18:14,600 Speaker 1: of that is coming from income, the other half is 355 00:18:14,640 --> 00:18:17,840 Speaker 1: coming from from capital appreciation, and the lower return is 356 00:18:17,880 --> 00:18:20,600 Speaker 1: because there's different risk profiles. Right, we we go to 357 00:18:20,640 --> 00:18:23,760 Speaker 1: the areas that we're more protected against natural disaster issues 358 00:18:23,880 --> 00:18:27,280 Speaker 1: or climate change. Water is a key factor in this 359 00:18:27,440 --> 00:18:30,399 Speaker 1: asset class, and you can you can mitigate mitigate that 360 00:18:30,480 --> 00:18:32,440 Speaker 1: risk by go to areas that have more a better 361 00:18:32,520 --> 00:18:34,919 Speaker 1: source of water. They're going to be more expensive, your 362 00:18:34,960 --> 00:18:37,399 Speaker 1: cap rates or returns are going to be lower. But again, 363 00:18:37,840 --> 00:18:41,040 Speaker 1: we're not investing in farmland or really alternatives in general 364 00:18:41,160 --> 00:18:44,400 Speaker 1: for an outsized return. We're really looking for where can 365 00:18:44,440 --> 00:18:47,959 Speaker 1: we find some of that stable, stable income with with 366 00:18:48,040 --> 00:18:51,280 Speaker 1: good protection of our principle. Right when I think about farmland, 367 00:18:51,960 --> 00:18:54,919 Speaker 1: we're buying land that is producing an essential need for 368 00:18:55,000 --> 00:18:59,040 Speaker 1: society into perpetuity um, so that gives me really strong 369 00:18:59,080 --> 00:19:01,800 Speaker 1: intrinsic value. So it's almost like owning a triple A bond, 370 00:19:02,320 --> 00:19:04,880 Speaker 1: yet I'm getting a four plus or so percent coupon 371 00:19:05,359 --> 00:19:08,680 Speaker 1: on that particular asset that has really been stable through 372 00:19:08,720 --> 00:19:11,520 Speaker 1: the years. From volatility perspective, was a compare and contrast 373 00:19:11,560 --> 00:19:14,480 Speaker 1: a little bit this asset class from other alternatives on 374 00:19:14,600 --> 00:19:17,639 Speaker 1: two different matrices. One of them is stability. You just 375 00:19:17,680 --> 00:19:20,880 Speaker 1: said volatility, How is it compared in terms of volatility? 376 00:19:20,920 --> 00:19:23,000 Speaker 1: And the other is we're all talking about inflation right 377 00:19:23,000 --> 00:19:25,600 Speaker 1: now and how we're gonna protect against inflation. How does farmland? 378 00:19:25,640 --> 00:19:28,280 Speaker 1: Do you know? Well? Farmland again, how it compares to 379 00:19:28,320 --> 00:19:31,080 Speaker 1: other asset classes today is that it's it's not as 380 00:19:31,280 --> 00:19:34,399 Speaker 1: further along in terms of its access to capital markets. 381 00:19:34,480 --> 00:19:37,400 Speaker 1: Right when you look at sharp ratios, for example, farmland 382 00:19:37,440 --> 00:19:40,840 Speaker 1: really pops relative to another real asset like real estate. 383 00:19:41,200 --> 00:19:43,199 Speaker 1: That a lot of that has to do with liquidity 384 00:19:43,320 --> 00:19:45,680 Speaker 1: and access to capital. If you look at farm have 385 00:19:45,800 --> 00:19:48,440 Speaker 1: you looked at real estate fifties sixty plus years ago? 386 00:19:48,760 --> 00:19:51,040 Speaker 1: It had around a similar profile in terms of who 387 00:19:51,080 --> 00:19:53,440 Speaker 1: are the owners of those assets. Today you and I 388 00:19:53,480 --> 00:19:55,560 Speaker 1: can go to talk to our an advice or broken 389 00:19:55,600 --> 00:19:57,879 Speaker 1: and get exposure to real estate. You can't do that 390 00:19:57,960 --> 00:20:01,760 Speaker 1: in farmland as much. So that again, that inefficiency kind 391 00:20:01,760 --> 00:20:04,679 Speaker 1: of adds to the alpha in the excess returns that 392 00:20:04,720 --> 00:20:07,280 Speaker 1: we can derive from from from that asset. And then 393 00:20:07,359 --> 00:20:10,760 Speaker 1: ultimately it's a commodity. So from an inflation perspective, that 394 00:20:10,920 --> 00:20:15,480 Speaker 1: dynamic of any elastic demand, any elastic supply, right as 395 00:20:15,520 --> 00:20:18,119 Speaker 1: that as that stretches and commodity prices typically go up 396 00:20:18,119 --> 00:20:21,320 Speaker 1: and follow inflation, it's proved to be a very very strong, 397 00:20:21,840 --> 00:20:24,520 Speaker 1: uh you know, hedge against inflation. Rosimania, thank you so 398 00:20:24,640 --> 00:20:27,600 Speaker 1: very much. She's new being CEO here on Wall Street Week. 399 00:20:29,920 --> 00:20:32,119 Speaker 1: Coming up, we wrap up the week once again with 400 00:20:32,200 --> 00:20:35,600 Speaker 1: our special contributor Larry Summers of Harvard. That's next on 401 00:20:35,640 --> 00:20:41,439 Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street 402 00:20:41,480 --> 00:20:45,440 Speaker 1: Week with David Weston from Bloomberg Radio. We're delighted to 403 00:20:45,480 --> 00:20:47,800 Speaker 1: welcome once again our special contribute to Wall Street Week. 404 00:20:47,840 --> 00:20:50,600 Speaker 1: He is Larry Summers of Harvard. Larry, thanks for being 405 00:20:50,600 --> 00:20:53,240 Speaker 1: back with us. Let's start with what happened actually on Thursday, 406 00:20:53,320 --> 00:20:55,520 Speaker 1: just as the President was leaving to go over to Europe, 407 00:20:55,600 --> 00:20:58,919 Speaker 1: he announced what he called a framework for something on 408 00:20:59,040 --> 00:21:02,040 Speaker 1: his Buillback Better Plan. Not clear how that's going to develop, 409 00:21:02,080 --> 00:21:03,800 Speaker 1: what's going to turn into law, but let's assume it 410 00:21:03,880 --> 00:21:06,840 Speaker 1: was enacted just as it's proposed described by the White House. 411 00:21:07,119 --> 00:21:09,359 Speaker 1: What would it do in macroeconomic terms? What would it 412 00:21:09,400 --> 00:21:12,040 Speaker 1: do to growth? What would it do to inflation? I 413 00:21:12,040 --> 00:21:14,679 Speaker 1: don't think the effects are likely to be large in 414 00:21:14,760 --> 00:21:18,360 Speaker 1: the very short run, but I think over the medium 415 00:21:18,480 --> 00:21:21,200 Speaker 1: term it will be a positive for growth because it 416 00:21:21,240 --> 00:21:24,880 Speaker 1: will expand the capacity of the economy, and I think 417 00:21:24,920 --> 00:21:28,320 Speaker 1: there might be some benefit in terms of inflation. I 418 00:21:28,320 --> 00:21:31,440 Speaker 1: don't think it's likely to be large. I think there 419 00:21:31,440 --> 00:21:34,760 Speaker 1: are a number of important investments there, including in the 420 00:21:34,800 --> 00:21:40,399 Speaker 1: bipartisan Infrastructure Bill, which will come along with it. I 421 00:21:40,440 --> 00:21:45,679 Speaker 1: think there are some UH movements to promote clean energy, 422 00:21:45,800 --> 00:21:51,080 Speaker 1: which ultimately I think can help UH our economy. I 423 00:21:51,119 --> 00:21:54,679 Speaker 1: think it's a very positive thing that it's there's a 424 00:21:54,720 --> 00:22:01,160 Speaker 1: significant increase in revenue that matches the increases in expenditure. 425 00:22:01,640 --> 00:22:06,639 Speaker 1: So I certainly hope that this bill UH will pass. 426 00:22:06,880 --> 00:22:10,560 Speaker 1: It's UH far from perfect, but I think it's a 427 00:22:10,640 --> 00:22:13,720 Speaker 1: real achievement and is in many ways one of the 428 00:22:13,760 --> 00:22:17,760 Speaker 1: most significant pieces of economic legislation we've had. It might 429 00:22:17,800 --> 00:22:21,600 Speaker 1: be the most significant between the two bills piece of 430 00:22:21,640 --> 00:22:26,880 Speaker 1: economic legislation we've had in the twenty one century so far. So, Larry, 431 00:22:26,960 --> 00:22:29,520 Speaker 1: you mentioned how it's going to get paid for the proposals, 432 00:22:29,520 --> 00:22:31,560 Speaker 1: at least on taxes, and you saw at the very 433 00:22:31,640 --> 00:22:34,040 Speaker 1: end they backed off of the so called billionaires tax, 434 00:22:34,280 --> 00:22:37,280 Speaker 1: which is actually a proposed tax on the on the 435 00:22:37,320 --> 00:22:40,480 Speaker 1: appreciation of assets held by people rather than income. They 436 00:22:40,520 --> 00:22:44,160 Speaker 1: now have service surcharge on multimillionaires as they call them, 437 00:22:44,200 --> 00:22:47,679 Speaker 1: as well as a minimum corporate tax. Is that, as 438 00:22:47,720 --> 00:22:50,199 Speaker 1: a matter of tax policy, a more sensible way to go. 439 00:22:50,520 --> 00:22:52,880 Speaker 1: I thought the billionaire's tax was not the right thing 440 00:22:53,480 --> 00:22:56,720 Speaker 1: to do. I thought the mark to market capital gains 441 00:22:56,800 --> 00:23:01,080 Speaker 1: aspect was impracticable, and I thought the general idea of 442 00:23:01,240 --> 00:23:05,159 Speaker 1: targeting a few hundred people for a special tax was 443 00:23:05,240 --> 00:23:08,800 Speaker 1: something that didn't fit with my sense of the right 444 00:23:09,240 --> 00:23:15,520 Speaker 1: uh values much better to have a broader base tax. Frankly, David, 445 00:23:15,640 --> 00:23:20,119 Speaker 1: what I think is disturbing is that in the way 446 00:23:20,160 --> 00:23:23,480 Speaker 1: this bill is likely to pass, it's not completely clear yet, 447 00:23:23,960 --> 00:23:28,960 Speaker 1: depending on what happens to state and local taxation, there 448 00:23:28,960 --> 00:23:32,119 Speaker 1: will be a large number of people with incomes of 449 00:23:32,240 --> 00:23:35,480 Speaker 1: say eight or nine million dollars who are going to 450 00:23:35,560 --> 00:23:40,440 Speaker 1: see their taxes UH go down. And I'm not sure 451 00:23:40,560 --> 00:23:43,920 Speaker 1: that this was a time when people in the top 452 00:23:44,000 --> 00:23:47,560 Speaker 1: tenth of a percent of the income distribution, top hundredth 453 00:23:47,640 --> 00:23:51,200 Speaker 1: of a percent of the income distribution should be getting 454 00:23:51,520 --> 00:23:56,240 Speaker 1: UH tax cuts. And so I'm disappointed that in a 455 00:23:56,400 --> 00:24:00,880 Speaker 1: build is passing only with democratic support. So let let's 456 00:24:00,880 --> 00:24:03,120 Speaker 1: talk about the overall economy here. We got numbers out 457 00:24:03,119 --> 00:24:05,879 Speaker 1: this week showing that growth was slowing as people expected, 458 00:24:05,880 --> 00:24:07,760 Speaker 1: but it's a little bit more than we thought in 459 00:24:07,800 --> 00:24:09,920 Speaker 1: the third quarter in terms of GDP. At the same time, 460 00:24:10,080 --> 00:24:13,440 Speaker 1: corepis and continues to move up. And we've talked about 461 00:24:13,480 --> 00:24:16,160 Speaker 1: inflation paramount. You were certainly in the news this week 462 00:24:16,200 --> 00:24:21,040 Speaker 1: because actually on Sunday, CNN played for Janet Yellen's Treasury secretary. 463 00:24:21,119 --> 00:24:22,760 Speaker 1: One of the things you said on Wall Street we've 464 00:24:22,840 --> 00:24:25,160 Speaker 1: right here. She disagreed with it, and then you disagreed 465 00:24:25,240 --> 00:24:27,439 Speaker 1: with her on Twitter. Take us into that debate that 466 00:24:27,480 --> 00:24:31,440 Speaker 1: you're having right now with the Treasury secretary. Look, I 467 00:24:32,119 --> 00:24:37,080 Speaker 1: have enormous respect for Secretary Yellen, and I hope her 468 00:24:37,200 --> 00:24:45,119 Speaker 1: judgments about inflation prove to be correct. Um. I have 469 00:24:45,359 --> 00:24:49,560 Speaker 1: the view that we've got substantial risks right now. It 470 00:24:49,600 --> 00:24:53,919 Speaker 1: seems to me that almost everyone is experiencing a shortage 471 00:24:53,960 --> 00:24:59,760 Speaker 1: of something, almost every employer is having trouble finding work 472 00:24:59,840 --> 00:25:04,000 Speaker 1: or those seem to me to be uh, the conditions 473 00:25:04,200 --> 00:25:08,960 Speaker 1: for inflation to take a rashet up from the two 474 00:25:09,040 --> 00:25:12,800 Speaker 1: level we've been used to. And I think that's gonna happen, 475 00:25:12,880 --> 00:25:17,240 Speaker 1: and it's gonna happen with an indefinite horizon unless somebody 476 00:25:17,280 --> 00:25:20,800 Speaker 1: does something pretty strong to stop it, or unless we 477 00:25:20,960 --> 00:25:25,680 Speaker 1: have some kind of financial accident. That's the position, uh 478 00:25:25,960 --> 00:25:30,040 Speaker 1: that I've been trying to make. I was glad to 479 00:25:30,160 --> 00:25:36,720 Speaker 1: see uh, Secretary Yell and recognize that uh, certainly out 480 00:25:36,880 --> 00:25:41,000 Speaker 1: to the second half of next year. UM, so that's 481 00:25:41,040 --> 00:25:45,320 Speaker 1: almost a year from now, nine months, Uh, we're we're 482 00:25:45,320 --> 00:25:51,080 Speaker 1: in agreement and expecting inflation uh well above two percent. 483 00:25:51,280 --> 00:25:53,159 Speaker 1: I was very glad to see that. We'll see what 484 00:25:53,240 --> 00:25:57,959 Speaker 1: happens after that. Certainly a lot can happen, both in 485 00:25:58,040 --> 00:26:01,560 Speaker 1: terms of policy and in terms of the economy until then. 486 00:26:02,240 --> 00:26:08,520 Speaker 1: But right now I see a variety of things suggesting 487 00:26:08,600 --> 00:26:13,760 Speaker 1: that inflation may accelerate starting from uh, the tremendous shortage 488 00:26:13,800 --> 00:26:16,600 Speaker 1: of labor that we're dealing with, which is I think 489 00:26:16,640 --> 00:26:20,200 Speaker 1: what held the economy back in terms of the GDP 490 00:26:20,359 --> 00:26:24,240 Speaker 1: growth figures. So let's talk about those two things, both 491 00:26:24,280 --> 00:26:27,800 Speaker 1: how long it's gonna last into and the shortage of labor. 492 00:26:27,840 --> 00:26:30,280 Speaker 1: Because we've had a lot of earnings out this week, 493 00:26:30,600 --> 00:26:33,240 Speaker 1: and we hear from CEU after CEO about problems with 494 00:26:33,280 --> 00:26:36,160 Speaker 1: supply chain in particularly on labor. In fact, we saw 495 00:26:36,200 --> 00:26:39,160 Speaker 1: Amazon actually disappoint the markets because they say they're gonna 496 00:26:39,160 --> 00:26:40,800 Speaker 1: have to spend a lot of money to get the 497 00:26:40,800 --> 00:26:43,480 Speaker 1: people they need to deliver things in Christmas. What is 498 00:26:43,520 --> 00:26:47,680 Speaker 1: the importance of going into into the middle of twenty two, 499 00:26:47,720 --> 00:26:50,760 Speaker 1: maybe even after that. How long does that affect the economy? 500 00:26:51,080 --> 00:26:52,880 Speaker 1: You know, we'll have to say, we'll have to see 501 00:26:52,880 --> 00:26:57,920 Speaker 1: at what rate um labor supply comes back, and if 502 00:26:58,040 --> 00:27:01,280 Speaker 1: labor supply comes back, when it comes back, if it does, 503 00:27:01,840 --> 00:27:05,639 Speaker 1: we'll have to see how much that adds suspending power. 504 00:27:06,040 --> 00:27:09,600 Speaker 1: You know, if more people start working, then more people 505 00:27:09,640 --> 00:27:11,800 Speaker 1: are gonna be earning and more people are going to 506 00:27:11,880 --> 00:27:16,000 Speaker 1: be spending. And so in terms of the supply demand balance, 507 00:27:16,119 --> 00:27:20,200 Speaker 1: it may not get us ahead um by that large 508 00:27:21,040 --> 00:27:26,200 Speaker 1: a margin. So my own view is to be quite 509 00:27:26,280 --> 00:27:31,679 Speaker 1: concerned that we're ratcheting up to a new kind of 510 00:27:31,760 --> 00:27:35,480 Speaker 1: level of wage expectations. Larry. Finally, as you know, we've 511 00:27:35,480 --> 00:27:37,600 Speaker 1: got a G twenty summit go ahead in Rome this 512 00:27:37,680 --> 00:27:41,120 Speaker 1: weekend and then followed by the top in Glasgow. What 513 00:27:41,160 --> 00:27:43,960 Speaker 1: do you hope what do you expect might come out 514 00:27:43,960 --> 00:27:46,199 Speaker 1: of that? In concrete terms on two fronts. One is 515 00:27:46,200 --> 00:27:47,919 Speaker 1: the climate, but the other one of the things they 516 00:27:47,920 --> 00:27:50,440 Speaker 1: have to address is really vaccination and getting our arms 517 00:27:50,440 --> 00:27:53,600 Speaker 1: on the pandemic globally. I hope we're going to see 518 00:27:53,600 --> 00:27:58,000 Speaker 1: commitments on funding for vaccines, commitments on some kind of 519 00:27:58,040 --> 00:28:02,200 Speaker 1: governance structure so that it's better managed the next time, 520 00:28:02,280 --> 00:28:06,160 Speaker 1: and so we're focused on preventing the next global pandemic, 521 00:28:06,720 --> 00:28:11,280 Speaker 1: and I hope we're gonna see substantial commitments where there's 522 00:28:11,320 --> 00:28:18,399 Speaker 1: a meaningful prospect of enforcement on the climate front. I'm 523 00:28:18,520 --> 00:28:22,800 Speaker 1: not optimistic right now that we're gonna see as much 524 00:28:22,880 --> 00:28:26,840 Speaker 1: progress as I think future historians will think we needed 525 00:28:27,400 --> 00:28:32,160 Speaker 1: on either global health or vaccines, But let's see what happens. 526 00:28:32,320 --> 00:28:34,800 Speaker 1: A lot can always happen in the course of these meetings. 527 00:28:34,920 --> 00:28:37,280 Speaker 1: It will we be very concrete for a moment when 528 00:28:37,280 --> 00:28:38,800 Speaker 1: we talk about trying to keep it down to one 529 00:28:38,800 --> 00:28:41,640 Speaker 1: point five degrees centigrade. Do they need to come out 530 00:28:41,640 --> 00:28:45,760 Speaker 1: of copy with specific commitments about a limiting the use 531 00:28:45,800 --> 00:28:48,400 Speaker 1: of coal at some date in the future, It would 532 00:28:48,400 --> 00:28:51,480 Speaker 1: certainly be very helpful. Or they need to come out 533 00:28:51,560 --> 00:28:54,800 Speaker 1: with some set of commitments on what they're gonna get 534 00:28:54,800 --> 00:28:57,760 Speaker 1: done in terms of being able to take carbon out 535 00:28:57,840 --> 00:29:02,480 Speaker 1: of the atmosphere. We are currently on a credible trajectory 536 00:29:02,560 --> 00:29:05,960 Speaker 1: to anything like one point five. I think it would 537 00:29:05,960 --> 00:29:09,960 Speaker 1: be a minor miracle if coming out of cop we 538 00:29:09,960 --> 00:29:13,840 Speaker 1: were committed to such a trajectory and the sand is 539 00:29:13,920 --> 00:29:17,120 Speaker 1: running through the hourglass. Okay, we'll have to watch that. 540 00:29:17,200 --> 00:29:19,360 Speaker 1: Thank you so much to Larry. It's always great to 541 00:29:19,400 --> 00:29:21,320 Speaker 1: have you with us, as Larry Summers of Harvard our 542 00:29:21,400 --> 00:29:24,880 Speaker 1: very special contributor here on Wall Street Week. Finally, one 543 00:29:24,920 --> 00:29:27,920 Speaker 1: more thought. A trillion dollars just ain't what it used 544 00:29:27,920 --> 00:29:31,520 Speaker 1: to be. The Late Center from Illinois, Everett Dirkson famously 545 00:29:31,600 --> 00:29:34,600 Speaker 1: said a billion here, a billion. They're pretty sure you're 546 00:29:34,600 --> 00:29:37,760 Speaker 1: talking about real money. Well, at least some people remember 547 00:29:37,760 --> 00:29:39,960 Speaker 1: that he said it, and there's no real record that 548 00:29:40,040 --> 00:29:43,160 Speaker 1: he did say that. But this week we were talking 549 00:29:43,200 --> 00:29:47,160 Speaker 1: about a thousand times that billion as Democrats struggled to 550 00:29:47,240 --> 00:29:50,840 Speaker 1: get their spending package down under two trillion dollars. You 551 00:29:50,880 --> 00:29:54,520 Speaker 1: hear these numbers, three point five trillion, one point seven 552 00:29:54,560 --> 00:29:59,760 Speaker 1: five trillion, we pay for it all. It doesn't in 553 00:30:00,000 --> 00:30:04,680 Speaker 1: eased to deficit one single cent. So let's get to work. 554 00:30:05,240 --> 00:30:08,400 Speaker 1: And the key Senator Joe Manchin pointed out that all 555 00:30:08,480 --> 00:30:11,160 Speaker 1: of World War Two and the Marshall Plan cost the 556 00:30:11,240 --> 00:30:14,200 Speaker 1: United States only about four point seven trillion dollars in 557 00:30:14,320 --> 00:30:17,880 Speaker 1: current dollars, and we've already blown way past that in 558 00:30:17,920 --> 00:30:20,600 Speaker 1: the last year and a half before adding another one 559 00:30:20,640 --> 00:30:23,360 Speaker 1: point five We saved the world in World War Two, 560 00:30:23,560 --> 00:30:26,440 Speaker 1: we rebuilt your on today's dollars at four point seven, 561 00:30:26,480 --> 00:30:29,120 Speaker 1: we've already spent five point four and we're about ready 562 00:30:29,160 --> 00:30:30,760 Speaker 1: to spend a heck of a lot more. But it 563 00:30:30,840 --> 00:30:32,840 Speaker 1: wasn't just the government this week who was talking about 564 00:30:32,920 --> 00:30:36,960 Speaker 1: trillions of dollars. Tesla blew past the trillion dollar market 565 00:30:37,040 --> 00:30:41,240 Speaker 1: cap number, making Elon Musk a quarter trillionaire. It wasn't 566 00:30:41,280 --> 00:30:44,560 Speaker 1: just a te word that connected Tesla with Congress this 567 00:30:44,600 --> 00:30:47,680 Speaker 1: week when lawmakers want looking for some way to pay 568 00:30:47,720 --> 00:30:49,600 Speaker 1: for some of those new programs they want to adopt, 569 00:30:49,720 --> 00:30:52,160 Speaker 1: they quickly focused on the very wealthy people. Yes, you 570 00:30:52,200 --> 00:30:55,040 Speaker 1: guess it, just like Elon Musk. At first, they came 571 00:30:55,120 --> 00:30:57,560 Speaker 1: up with something called the billionaires Tax, which actually is 572 00:30:57,600 --> 00:30:59,840 Speaker 1: not a tax on income at all, but a tax 573 00:31:00,120 --> 00:31:03,440 Speaker 1: the increased value of assets held by billionaires. That is 574 00:31:03,480 --> 00:31:07,240 Speaker 1: something that made Republicans like Mitch McConnell apoplectic over the 575 00:31:07,280 --> 00:31:10,680 Speaker 1: unfairness of it. All our Democratic colleagues and President Biden 576 00:31:11,040 --> 00:31:14,680 Speaker 1: or behind closed doors dreaming up creative new ways to 577 00:31:14,760 --> 00:31:20,480 Speaker 1: grab literally historic amount of the American people's money. But 578 00:31:20,520 --> 00:31:23,520 Speaker 1: then again, Democrats like Shared Brown of Ohio said it 579 00:31:23,560 --> 00:31:27,680 Speaker 1: would only be fair. We've seen an executive compensation explode upward, 580 00:31:27,680 --> 00:31:30,680 Speaker 1: We've seen profits go up, wages have been flat. In 581 00:31:30,760 --> 00:31:33,880 Speaker 1: Congress has rarely been on the side of workers. This Congress, 582 00:31:34,080 --> 00:31:36,280 Speaker 1: in these two bills, were clearly on the side of 583 00:31:36,320 --> 00:31:39,959 Speaker 1: workers into fixing that. Democrats may have backed off of 584 00:31:39,960 --> 00:31:42,680 Speaker 1: that so called billionaires tax, but they replaced it with 585 00:31:42,800 --> 00:31:47,600 Speaker 1: a multimillionaires surtax, because in the end, then that's goot 586 00:31:47,680 --> 00:31:50,600 Speaker 1: shall get but you may have to give some of 587 00:31:50,640 --> 00:31:53,280 Speaker 1: it back. That does it. For this episode of Wall 588 00:31:53,280 --> 00:31:56,480 Speaker 1: Street Week, I'm David Weston, This is Loomberg. See you 589 00:31:56,520 --> 00:31:58,600 Speaker 1: next week.