Speaker 1: This is Bloomberg Wall Street Week. Market shrug off higher
Speaker 1: consumer prizes. The economy is in the process of rebounding.
Speaker 1: Will the flutter reserve of its own digital currency? The
Speaker 1: financial stories that cheap our work. Many people think the
Speaker 1: eels are just going to keep marching up. We have
Speaker 1: more spending coming out of Congress. One of the big
Speaker 1: questions I think on investor's minds inflations through the eyes
Speaker 1: of the most influential voices. Larry Summer is the former
Speaker 1: Treasury Secretary Bryan Wynahan back of America, Will Smart CEO
Speaker 1: Charlie Sharp Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. The administration keeps its economic agenda alive, the
Speaker 1: inflation debate continues, and earnings Will they just keep shugging along?
Speaker 1: This is Bloomberg Wall Street Week. I'm David Weston. We
Speaker 1: had another week consumed negotiations back and four over President
Speaker 1: Biden's economic agenda, all within the Democratic Party, with President
Speaker 1: Biden announcing a framework just as he got out of
Speaker 1: town for his trip to Europe for the G twenty
Speaker 1: and the copy summits. These plans are fiscally responsible, They're
Speaker 1: fully paid for, they don't add a single penny to
Speaker 1: the deficit, and whatever ultimately gets passed into law for
Speaker 1: infrastructure and build back better. This week continued the debate
Speaker 1: over inflation, with two of those who should know best
Speaker 1: directly taking one another on when Treasury Secretary Janet yell
Speaker 1: And disagreed on CNN with what Larry Summers had said
Speaker 1: right here on Wall Street week about the problem of inflation.
Speaker 1: We are going through a period of inflation that's higher
Speaker 1: than Americans have seen in a long time, and it's
Speaker 1: something that's obviously a concern and worrying them. But we
Speaker 1: haven't lost control. And Larry came right back at Janet
Speaker 1: yelling on Twitter, saying until the Fed and Treasury fully
Speaker 1: recognize the inflation reality, they are unlikely to deal with
Speaker 1: it successfully. But for all the talk of more fiscal
Speaker 1: stimulus and inflation, the week on global All Street was
Speaker 1: really given over to earnings, particularly those from big tech.
Speaker 1: Here's Apple's Tim Cook. We are optimistic about the future,
Speaker 1: especially as we see strong demand for our new products,
Speaker 1: and also from the auto companies. Here's GM's Mary Bara.
Speaker 1: We're selling every vehicle we can make, and I think
Speaker 1: that along with UH, you know the overall environment is
Speaker 1: what allowed us to have a beat for the quarter,
Speaker 1: and when it came to Equiti as those earnings were
Speaker 1: enough to pull out a win, with the SMP five
Speaker 1: up six point nine from the month, making this October
Speaker 1: the best for the index in six years, while the
Speaker 1: Nasdaq was up two point four for the week and
Speaker 1: the bond yield curve flattened somewhat with the short end
Speaker 1: moving up and the ten year yield come down under
Speaker 1: one point six this week. To take us through what
Speaker 1: the markets had to teach us this week, welcome now
Speaker 1: Katie Cotch Goldman Sex Co had of Fundamental Equity Funds
Speaker 1: and Kate L. Hillo. She's Russell Investments Chief investment Officer. Kate,
Speaker 1: welcome to wall Stree Week. Congratulations on your promotion. By
Speaker 1: the way, give us a sense of what you saw
Speaker 1: on the market this week. As I say, the equities
Speaker 1: did really, really well despite the fact they had a
Speaker 1: little headwind from a couple of big tech companies. Yeah, David,
Speaker 1: thanks so much for having me and you. Earning season
Speaker 1: about fifty percent of the way through and it has
Speaker 1: been it's been good, I mean not great like we
Speaker 1: saw in Q one. And Q two but of the
Speaker 1: company's beating so it's still above you know, kind of
Speaker 1: the average. But I'd say the one big cave yet
Speaker 1: we would flag is around your company guidance and you know,
Speaker 1: a lot of that has been focused around a lot
Speaker 1: of supply team issues and other impacts that pricing power.
Speaker 1: Initially for the companies that can do it, should be
Speaker 1: able to work through um. But that is something to
Speaker 1: continue to look out for as we go into queue four. Uh.
Speaker 1: I think for companies that did miss, they have gotten
Speaker 1: hit reasonably hard. And so what we've seen the market
Speaker 1: react overall well to earnings on average four percent down
Speaker 1: for companies that you aren't meeting expectations, and so from
Speaker 1: our point of view, you have healthy spread between winners
Speaker 1: and losers. Is a really good opportunity for active management
Speaker 1: and really started to dig into some of the differentiation
Speaker 1: that we expect to see going forward. Is Okay, let's
Speaker 1: talk about a tech for a second, because we had
Speaker 1: so many big tech earnings out this week, a lot
Speaker 1: of them positive, but then we had the Amazon and Apple,
Speaker 1: which really a hiccup, one of which was really supply
Speaker 1: chain in the case of Apple. The other was really
Speaker 1: more labor In the case of Amazon, did it tell
Speaker 1: us anything in the longer term big tech driving this market,
Speaker 1: which is done for so long. You know, they did
Speaker 1: disappoint but I just put take Apple for a second.
Speaker 1: People are disappointed, but they should remember iPhone stales were
Speaker 1: still up forty six percent year over year, so there's
Speaker 1: still is good growth there. But expectations, of course, we're
Speaker 1: for fifty. I think what you've seen there is very
Speaker 1: specific to what you just said, and maybe we can
Speaker 1: unpack it later, which is supply chain issues and also
Speaker 1: labor UM and we don't think that that's going to
Speaker 1: that We think that's an issue that they can actually
Speaker 1: get over. UM. Other interesting trends that were focused on
Speaker 1: in tech earnings generally would be UM. I could maybe
Speaker 1: touch on payments as an example, and what's happening in
Speaker 1: the finance space. I'm really interested in the third quarter
Speaker 1: UM of this year as being kind of the first
Speaker 1: quarter that we've seen the potential for how much disruption
Speaker 1: we think is coming at the financial sector. Just for context,
Speaker 1: UM there's sixteen trillion dollars of market capitalization and financials
Speaker 1: UH compared to for example, fourteen trillion dollars of market
Speaker 1: capitalization and the Internet, and we are on the precipice
Speaker 1: of seeing major disruption across that whole sector. We saw
Speaker 1: some big losers get printed in the third quarter. So, UM,
Speaker 1: the merchant acquire sector, if you look at the earnings
Speaker 1: of those companies, they disappointed a lot because they're getting
Speaker 1: disintermediated by companies like Shopify or Toast for example, that
Speaker 1: are offering those services better product, better pricing. And then
Speaker 1: on the winning side and all and my comments there,
Speaker 1: but in terms of winners in this space, UM, you
Speaker 1: would look at buy now pay leader UM, which, as
Speaker 1: my husband says to me, isn't that just the same
Speaker 1: thing as a credit card? What's what's buy now p later?
Speaker 1: But effectively what it's great product for the millennial and
Speaker 1: Gen Z consumer. You basically pay on deferred payments. Um.
Speaker 1: There's no late fee and there's actually no interest charged either.
Speaker 1: And the reason it works is because they charge the
Speaker 1: merchants higher fee and those merchants tolerate that higher fee
Speaker 1: because they're getting a bigger addressable market and higher volume. Now,
Speaker 1: of course we need to go through a credit cycle
Speaker 1: to see if this is a durable business model, But
Speaker 1: they're taking tremendous market share from traditional banks. Okay, thank
Speaker 1: you so much for being with us. As Kate L. Hillo,
Speaker 1: she is Russell Investments ce io Katie Catchy Goldman. Sacks
Speaker 1: will be staying with us as we focus specifically on
Speaker 1: supply chains and how prominently they have figured this week
Speaker 1: and those earnings were born. This is Wall Street Week
Speaker 1: on Bloomberg. This is Bloomberg Wall Street Week with David
Speaker 1: Weston from Bloomberg Radio. If earnings were the big story
Speaker 1: this week, supply chain difficulties were the constant narrative through
Speaker 1: all of those reports. As we heard from the CEOs
Speaker 1: of Raytheon, GM and Carrier. We're not immune from the
Speaker 1: challenges of supply chain. In fact, we talked about this
Speaker 1: morning on our earnings called the fact is we'll probably
Speaker 1: see almost three hundred million dollars of lower revenues this
Speaker 1: year because we can't get material into our shops and
Speaker 1: we can't get the labor that we need. It will
Speaker 1: linger into next year and we're right now are our
Speaker 1: feeling is will be in a much better shape in
Speaker 1: the second half of two and we're also taking steps
Speaker 1: over the medium term to make sure We're never seeing
Speaker 1: this kind of constraint, not only with chips, but with
Speaker 1: other you know, whether it's critical materials or just the
Speaker 1: overall supply chain, because we have an aggressive growth strategy
Speaker 1: in front of us and we're going to make sure
Speaker 1: that we can execute it. So it's a very it's
Speaker 1: a near term problem that will work through. The supply
Speaker 1: demand is really out of whack. You see it in chips.
Speaker 1: Whenever you have to buy chips from on the brokerage market,
Speaker 1: it's always going to be painful and expensive. We see
Speaker 1: it on raw materials copper price, steel, aluminum. So we're
Speaker 1: seeing a lot of pressures on raw materials and tier one,
Speaker 1: tier two pricing, but we're managing it through price increases
Speaker 1: and we're having to be very aggressive on things like
Speaker 1: g and A, having to be very creative on how
Speaker 1: we manage logistics. Katie catch A Golden Sacks has remained
Speaker 1: with us so we can talk about supply chains. So
Speaker 1: I heard about it all week long from see you
Speaker 1: have to CEO tell us about supply chains. Where are we?
Speaker 1: So two main takeaways I think from this earning season.
Speaker 1: I've also been speaking to a lot of CEOs and
Speaker 1: the first is that it is very clear that unit
Speaker 1: growth has been constrained by supply chain issues. So we'll
Speaker 1: talk a lot about tech, but let me talk about
Speaker 1: something very different from tech. Let's talk about pools. We
Speaker 1: love pools, we've liked them for a while. They've been
Speaker 1: big pandemic beneficiaries. Are pool CEOs, the ones building the pools,
Speaker 1: and the supply that's the one supplying the pools. Believe
Speaker 1: that unit growth could have been fifty percent higher without
Speaker 1: the supply chain issues they're they're facing, UM, the supply
Speaker 1: itself and of materials, and also the labor because we're
Speaker 1: facing a great resignation in this country and we're currently
Speaker 1: have the lowest labor force participation rate since World War Two,
Speaker 1: so that's a big problem. So that all goes under
Speaker 1: unit growth is constrained UM. And then the second issue
Speaker 1: that the second thing that I would highlight UM is
Speaker 1: something that Mary said I think is really really important.
Speaker 1: What she said is that what I heard her say
Speaker 1: is that over the longer term, they're going to address
Speaker 1: this issue because they need to be positioned for growth.
Speaker 1: And I think what she means by that is that
Speaker 1: they're going to have to reshure some of this capacity
Speaker 1: and focus on supply chain resilience, and it is it
Speaker 1: is my view that actually Wall Street has probably put
Speaker 1: too much pressure on companies to optimize their supply chain,
Speaker 1: and we're going to get a very much better balance
Speaker 1: going forward between that supply chain optimization and the resilience
Speaker 1: that become very obvious that we need. So there are
Speaker 1: a couple of issues there. I think, what is where
Speaker 1: do you get the materials from? We relied upon some countries,
Speaker 1: perhaps too much. We have to diversify in that. The
Speaker 1: other is how much inventory we maintain just in time
Speaker 1: was very popular for a long time, very efficient for
Speaker 1: a lot of companies. Is this going to affect margins
Speaker 1: going forward? If we make those adjustments to supply chains,
Speaker 1: it may cost more money, it will, and it will
Speaker 1: impact margins most likely, and we're going to have to
Speaker 1: kind of get used to that um But of course
Speaker 1: we need the top line to come through too, and
Speaker 1: if people want to sell product, they need to have inventory.
Speaker 1: So again it's going to come back to the balance
Speaker 1: of these two things. I do think there's an incredible
Speaker 1: investment opportunity. In our team beliefs there's an incredible investment
Speaker 1: opportunity in investing in the companies that are going to
Speaker 1: help reshure um some of the manufacturing capacity of the
Speaker 1: United States of America. And so there I would point
Speaker 1: to you, Hurt, all those people are dependent on chips.
Speaker 1: Chips fuel the world. They're fueling the technological advancement that
Speaker 1: we're seeing across all sectors, and so we can't be
Speaker 1: dependent on that just from another corner of the world
Speaker 1: where and have to take some of that manufacturing capacity here.
Speaker 1: So we love chip manufacturing equipment. So back when I
Speaker 1: was running a budget cap cities in a Disney, one
Speaker 1: of the questions I ask every quarter if we were down,
Speaker 1: is this a timing issue or we permanently lost this revenue?
Speaker 1: For someone? Let me ask you that question about supply
Speaker 1: chains when you see it down, because the units, as
Speaker 1: you described, is that demand waiting for when the supply
Speaker 1: is there? Or could we lose some of the demand. Yeah,
Speaker 1: So in other words, are people still going to buy
Speaker 1: pools and iPhones exactly? And I believe they will um
Speaker 1: and they're just gonna have to wait a little bit longer. Now.
Speaker 1: Of course, that requires us to have a reasonable economic backdrop.
Speaker 1: So that with that caveat, but they will. And in
Speaker 1: the iPhone space, if you had to wait longer, you're
Speaker 1: not going to switch to another provider. You will go
Speaker 1: out and buy that iPhone. So in some ways we
Speaker 1: know that that demand has been kicked into next year.
Speaker 1: But again, these companies still have to position themselves for
Speaker 1: the long term runway of growth and they will invest
Speaker 1: in the restoring of their supply chains. Katie. With just
Speaker 1: about every CEO I talked to, the supply chain discussion
Speaker 1: came right up with cost increases YEA and inflation. It
Speaker 1: raises the question is this lasts well into two which
Speaker 1: seems clearly will some people say even to the late
Speaker 1: what possible effect might that have on inflation because a
Speaker 1: lot of the ceo as we've talked to you said
Speaker 1: we raised prices. Yeah, absolutely, and so of course you
Speaker 1: want to be with the companies that have the pricing
Speaker 1: power to pass that through. UM. I'd say three quick things.
Speaker 1: I am we are in the camp that these supply
Speaker 1: chain issues last throughout. There's not there's not an easy
Speaker 1: fix for them UM. And there's an investment opportunity on
Speaker 1: the back of that, which we which we talked about. UM.
Speaker 1: The second thing I would say is that the inflation
Speaker 1: in the labor space is real. Um, we've talked you
Speaker 1: and I've talked a little bit about this before, but
Speaker 1: we have failed to pass minimum wage in this country
Speaker 1: for many decades. We've now actually jumped over minimum wage
Speaker 1: because we've had to bid people back into the labor market. Now,
Speaker 1: the question that we have to really think about is
Speaker 1: has that been a one time reset in wages? Are
Speaker 1: we going to get upward continued upward pressure? And time
Speaker 1: will Time will tell on that. But both of those
Speaker 1: suggest a higher cost structure. And I wonder whether our
Speaker 1: wage increases actually allow pagging because if you look at
Speaker 1: the consumer price index, it is going up faster than
Speaker 1: the wages are. Wages are going up but not as fast.
Speaker 1: Does that mean we're gonna have to catch up at
Speaker 1: some point we're gonna have even more wage increases. Well,
Speaker 1: that's how you get inflation, right, But it's very it's
Speaker 1: very determinant on on get that sticky upward pressure of
Speaker 1: wages going up, which we'll put you know how that
Speaker 1: cycle works going forward. But does that affect which companies
Speaker 1: you want to invest in the sense that some are
Speaker 1: more sensitive to that that wage inflation than others are. Yeah,
Speaker 1: so I would say right now we see a very
Speaker 1: healthy consumer UM. They're benefiting from higher wages UM, and
Speaker 1: we're seeing that come out in the data. If you
Speaker 1: look at credit card data. Just to to show you
Speaker 1: the health of the consumer and why we like the
Speaker 1: consumer UM we have, American Express publishes spending trends. Spending
Speaker 1: is up thirty six percent versus two nineteen, so we've
Speaker 1: had a big big jump in spending UM. The other
Speaker 1: thing I just want to say about consumer in terms
Speaker 1: of where we're focused, it's the millennial and Gen Z
Speaker 1: consumer that are driving a lot of that increase because
Speaker 1: they like experiences over things, and it's safe now to
Speaker 1: go out and have experiences, and they also have a
Speaker 1: higher risk tolerance around experiences than baby boomers. Baby boomers
Speaker 1: spending according to American Express date is actually down six
Speaker 1: percent relative to two thousand nineteen. So we see health
Speaker 1: in the consumer that's repaired, their balance sheet has firepower,
Speaker 1: and we're very much leaning into those consumer companies that
Speaker 1: have pricing power and can benefit from a healthier consumer. Okay,
Speaker 1: thank you so much, Katie's always great to have you
Speaker 1: portunity in the studio. Now, that is Katie Coach in
Speaker 1: real life, in real life exactly, we're not in the
Speaker 1: metaverse right words, we're here together. That's Katie kaj from
Speaker 1: Golden Sachs coming up the inflation head. You may not
Speaker 1: have thought much about the beauty of owning land, especially
Speaker 1: when it's farmland. With New Vine's CEO Jose Mania. That's
Speaker 1: next on Wall Street Week on Bloomberg. This is Bloomberg
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. Inflation
Speaker 1: it's all the talk these days among investor because of
Speaker 1: what it could do to your portfolio. As Nancy Davis
Speaker 1: of Quadratic Capital explains, inflation is a risk to every
Speaker 1: investor portfolio because it reduces purchasing power and Treasure Secretary
Speaker 1: Janet Yellen took the airways on CNN to disagree with
Speaker 1: our own Larry Summers about how long it will last.
Speaker 1: But while people are debating the size of the problem,
Speaker 1: investors are left to make sure they're protected against the downside,
Speaker 1: looking for what Bob Prince calls inflation hedge assets. You
Speaker 1: want inflation hedge assets because it's very likely that the
Speaker 1: that the rise of interest rates will lag inflation and
Speaker 1: lag the economy. The FED doesn't really want to get
Speaker 1: ahead of it, ranging from things like gold to things
Speaker 1: like cryptocurrency. According to Larry Summers, bigcoin has had some
Speaker 1: emergence as digital gold. The thing you want to hold
Speaker 1: if you're worried about inflation. One asset that might get
Speaker 1: overlooked his farmland. Historically, farmland returns have outpaced inflation in
Speaker 1: a variety of market environments, providing returns more than double
Speaker 1: the inflation rate for decades. And right now the farming
Speaker 1: sector is booming. Is a really robust story. Right net
Speaker 1: farm income is projected by the Department of Agriculture to
Speaker 1: be up to a level of a D thirteen million dollars,
Speaker 1: which is a level we haven't seen since so in
Speaker 1: aggregate on average across the country, that's a really good story.
Speaker 1: We're welcome now to Wall Street Week. One of those
Speaker 1: who is focused on farm land investing is a sensible
Speaker 1: hedge against inflation. Jose and I is the CEO of Leuvene,
Speaker 1: which manages over one trillion dollars in assets. Welcome, Jose.
Speaker 1: It's great to have you here. Thank you for having me.
Speaker 1: David So so you really are introducing me to this
Speaker 1: whole idea about farm land is a hedge against inflation.
Speaker 1: Tell me how you came to it and how you
Speaker 1: think of it today. Yeah, we came through it through
Speaker 1: our traditional portfolio construction process. Right, we were looking for
Speaker 1: assets brought attractive correlation benefits to our portfolio. We're looking
Speaker 1: to smooth out volatility. We're looking to kind of find
Speaker 1: a good hedge against inflation and also looking at total
Speaker 1: returns and more were more skewed towards income income returns,
Speaker 1: and we found that in farmland. But what made farmland
Speaker 1: really attracted to us. I always say is one of
Speaker 1: the best investment thesis I've come across because it's as
Speaker 1: simple as people need to eat. Yet what we found
Speaker 1: was you have a any elastic demand supply it right,
Speaker 1: it's one that the populations are growing, middle classes, the
Speaker 1: middle classes growing. It takes ten pounds of grain to
Speaker 1: make one pound of protein, so as they're consuming more protein,
Speaker 1: that demand is continues to be pushed and it accelerates.
Speaker 1: You look at the supply side, it's also any elastic
Speaker 1: because they're not making any more land. If anything, production
Speaker 1: is being trained by environmental factors. So when you combine
Speaker 1: that it made for a perfect place where we can
Speaker 1: fit in our portfolio construction. So give us a sense
Speaker 1: of the return from the sort of investment over the
Speaker 1: longer term, because I've seen some pretty staggering numbers. And
Speaker 1: you know, obviously, like many, like many different investments, there
Speaker 1: are different risk return profiles. But for us, typically we're
Speaker 1: seeking called admit to high single digit returns. If it's
Speaker 1: say eight to ten eight to ten percent returns, half
Speaker 1: of that is coming from income, the other half is
Speaker 1: coming from from capital appreciation, and the lower return is
Speaker 1: because there's different risk profiles. Right, we we go to
Speaker 1: the areas that we're more protected against natural disaster issues
Speaker 1: or climate change. Water is a key factor in this
Speaker 1: asset class, and you can you can mitigate mitigate that
Speaker 1: risk by go to areas that have more a better
Speaker 1: source of water. They're going to be more expensive, your
Speaker 1: cap rates or returns are going to be lower. But again,
Speaker 1: we're not investing in farmland or really alternatives in general
Speaker 1: for an outsized return. We're really looking for where can
Speaker 1: we find some of that stable, stable income with with
Speaker 1: good protection of our principle. Right when I think about farmland,
Speaker 1: we're buying land that is producing an essential need for
Speaker 1: society into perpetuity um, so that gives me really strong
Speaker 1: intrinsic value. So it's almost like owning a triple A bond,
Speaker 1: yet I'm getting a four plus or so percent coupon
Speaker 1: on that particular asset that has really been stable through
Speaker 1: the years. From volatility perspective, was a compare and contrast
Speaker 1: a little bit this asset class from other alternatives on
Speaker 1: two different matrices. One of them is stability. You just
Speaker 1: said volatility, How is it compared in terms of volatility?
Speaker 1: And the other is we're all talking about inflation right
Speaker 1: now and how we're gonna protect against inflation. How does farmland?
Speaker 1: Do you know? Well? Farmland again, how it compares to
Speaker 1: other asset classes today is that it's it's not as
Speaker 1: further along in terms of its access to capital markets.
Speaker 1: Right when you look at sharp ratios, for example, farmland
Speaker 1: really pops relative to another real asset like real estate.
Speaker 1: That a lot of that has to do with liquidity
Speaker 1: and access to capital. If you look at farm have
Speaker 1: you looked at real estate fifties sixty plus years ago?
Speaker 1: It had around a similar profile in terms of who
Speaker 1: are the owners of those assets. Today you and I
Speaker 1: can go to talk to our an advice or broken
Speaker 1: and get exposure to real estate. You can't do that
Speaker 1: in farmland as much. So that again, that inefficiency kind
Speaker 1: of adds to the alpha in the excess returns that
Speaker 1: we can derive from from from that asset. And then
Speaker 1: ultimately it's a commodity. So from an inflation perspective, that
Speaker 1: dynamic of any elastic demand, any elastic supply, right as
Speaker 1: that as that stretches and commodity prices typically go up
Speaker 1: and follow inflation, it's proved to be a very very strong,
Speaker 1: uh you know, hedge against inflation. Rosimania, thank you so
Speaker 1: very much. She's new being CEO here on Wall Street Week.
Speaker 1: Coming up, we wrap up the week once again with
Speaker 1: our special contributor Larry Summers of Harvard. That's next on
Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street
Speaker 1: Week with David Weston from Bloomberg Radio. We're delighted to
Speaker 1: welcome once again our special contribute to Wall Street Week.
Speaker 1: He is Larry Summers of Harvard. Larry, thanks for being
Speaker 1: back with us. Let's start with what happened actually on Thursday,
Speaker 1: just as the President was leaving to go over to Europe,
Speaker 1: he announced what he called a framework for something on
Speaker 1: his Buillback Better Plan. Not clear how that's going to develop,
Speaker 1: what's going to turn into law, but let's assume it
Speaker 1: was enacted just as it's proposed described by the White House.
Speaker 1: What would it do in macroeconomic terms? What would it
Speaker 1: do to growth? What would it do to inflation? I
Speaker 1: don't think the effects are likely to be large in
Speaker 1: the very short run, but I think over the medium
Speaker 1: term it will be a positive for growth because it
Speaker 1: will expand the capacity of the economy, and I think
Speaker 1: there might be some benefit in terms of inflation. I
Speaker 1: don't think it's likely to be large. I think there
Speaker 1: are a number of important investments there, including in the
Speaker 1: bipartisan Infrastructure Bill, which will come along with it. I
Speaker 1: think there are some UH movements to promote clean energy,
Speaker 1: which ultimately I think can help UH our economy. I
Speaker 1: think it's a very positive thing that it's there's a
Speaker 1: significant increase in revenue that matches the increases in expenditure.
Speaker 1: So I certainly hope that this bill UH will pass.
Speaker 1: It's UH far from perfect, but I think it's a
Speaker 1: real achievement and is in many ways one of the
Speaker 1: most significant pieces of economic legislation we've had. It might
Speaker 1: be the most significant between the two bills piece of
Speaker 1: economic legislation we've had in the twenty one century so far. So, Larry,
Speaker 1: you mentioned how it's going to get paid for the proposals,
Speaker 1: at least on taxes, and you saw at the very
Speaker 1: end they backed off of the so called billionaires tax,
Speaker 1: which is actually a proposed tax on the on the
Speaker 1: appreciation of assets held by people rather than income. They
Speaker 1: now have service surcharge on multimillionaires as they call them,
Speaker 1: as well as a minimum corporate tax. Is that, as
Speaker 1: a matter of tax policy, a more sensible way to go.
Speaker 1: I thought the billionaire's tax was not the right thing
Speaker 1: to do. I thought the mark to market capital gains
Speaker 1: aspect was impracticable, and I thought the general idea of
Speaker 1: targeting a few hundred people for a special tax was
Speaker 1: something that didn't fit with my sense of the right
Speaker 1: uh values much better to have a broader base tax. Frankly, David,
Speaker 1: what I think is disturbing is that in the way
Speaker 1: this bill is likely to pass, it's not completely clear yet,
Speaker 1: depending on what happens to state and local taxation, there
Speaker 1: will be a large number of people with incomes of
Speaker 1: say eight or nine million dollars who are going to
Speaker 1: see their taxes UH go down. And I'm not sure
Speaker 1: that this was a time when people in the top
Speaker 1: tenth of a percent of the income distribution, top hundredth
Speaker 1: of a percent of the income distribution should be getting
Speaker 1: UH tax cuts. And so I'm disappointed that in a
Speaker 1: build is passing only with democratic support. So let let's
Speaker 1: talk about the overall economy here. We got numbers out
Speaker 1: this week showing that growth was slowing as people expected,
Speaker 1: but it's a little bit more than we thought in
Speaker 1: the third quarter in terms of GDP. At the same time,
Speaker 1: corepis and continues to move up. And we've talked about
Speaker 1: inflation paramount. You were certainly in the news this week
Speaker 1: because actually on Sunday, CNN played for Janet Yellen's Treasury secretary.
Speaker 1: One of the things you said on Wall Street we've
Speaker 1: right here. She disagreed with it, and then you disagreed
Speaker 1: with her on Twitter. Take us into that debate that
Speaker 1: you're having right now with the Treasury secretary. Look, I
Speaker 1: have enormous respect for Secretary Yellen, and I hope her
Speaker 1: judgments about inflation prove to be correct. Um. I have
Speaker 1: the view that we've got substantial risks right now. It
Speaker 1: seems to me that almost everyone is experiencing a shortage
Speaker 1: of something, almost every employer is having trouble finding work
Speaker 1: or those seem to me to be uh, the conditions
Speaker 1: for inflation to take a rashet up from the two
Speaker 1: level we've been used to. And I think that's gonna happen,
Speaker 1: and it's gonna happen with an indefinite horizon unless somebody
Speaker 1: does something pretty strong to stop it, or unless we
Speaker 1: have some kind of financial accident. That's the position, uh
Speaker 1: that I've been trying to make. I was glad to
Speaker 1: see uh, Secretary Yell and recognize that uh, certainly out
Speaker 1: to the second half of next year. UM, so that's
Speaker 1: almost a year from now, nine months, Uh, we're we're
Speaker 1: in agreement and expecting inflation uh well above two percent.
Speaker 1: I was very glad to see that. We'll see what
Speaker 1: happens after that. Certainly a lot can happen, both in
Speaker 1: terms of policy and in terms of the economy until then.
Speaker 1: But right now I see a variety of things suggesting
Speaker 1: that inflation may accelerate starting from uh, the tremendous shortage
Speaker 1: of labor that we're dealing with, which is I think
Speaker 1: what held the economy back in terms of the GDP
Speaker 1: growth figures. So let's talk about those two things, both
Speaker 1: how long it's gonna last into and the shortage of labor.
Speaker 1: Because we've had a lot of earnings out this week,
Speaker 1: and we hear from CEU after CEO about problems with
Speaker 1: supply chain in particularly on labor. In fact, we saw
Speaker 1: Amazon actually disappoint the markets because they say they're gonna
Speaker 1: have to spend a lot of money to get the
Speaker 1: people they need to deliver things in Christmas. What is
Speaker 1: the importance of going into into the middle of twenty two,
Speaker 1: maybe even after that. How long does that affect the economy?
Speaker 1: You know, we'll have to say, we'll have to see
Speaker 1: at what rate um labor supply comes back, and if
Speaker 1: labor supply comes back, when it comes back, if it does,
Speaker 1: we'll have to see how much that adds suspending power.
Speaker 1: You know, if more people start working, then more people
Speaker 1: are gonna be earning and more people are going to
Speaker 1: be spending. And so in terms of the supply demand balance,
Speaker 1: it may not get us ahead um by that large
Speaker 1: a margin. So my own view is to be quite
Speaker 1: concerned that we're ratcheting up to a new kind of
Speaker 1: level of wage expectations. Larry. Finally, as you know, we've
Speaker 1: got a G twenty summit go ahead in Rome this
Speaker 1: weekend and then followed by the top in Glasgow. What
Speaker 1: do you hope what do you expect might come out
Speaker 1: of that? In concrete terms on two fronts. One is
Speaker 1: the climate, but the other one of the things they
Speaker 1: have to address is really vaccination and getting our arms
Speaker 1: on the pandemic globally. I hope we're going to see
Speaker 1: commitments on funding for vaccines, commitments on some kind of
Speaker 1: governance structure so that it's better managed the next time,
Speaker 1: and so we're focused on preventing the next global pandemic,
Speaker 1: and I hope we're gonna see substantial commitments where there's
Speaker 1: a meaningful prospect of enforcement on the climate front. I'm
Speaker 1: not optimistic right now that we're gonna see as much
Speaker 1: progress as I think future historians will think we needed
Speaker 1: on either global health or vaccines, But let's see what happens.
Speaker 1: A lot can always happen in the course of these meetings.
Speaker 1: It will we be very concrete for a moment when
Speaker 1: we talk about trying to keep it down to one
Speaker 1: point five degrees centigrade. Do they need to come out
Speaker 1: of copy with specific commitments about a limiting the use
Speaker 1: of coal at some date in the future, It would
Speaker 1: certainly be very helpful. Or they need to come out
Speaker 1: with some set of commitments on what they're gonna get
Speaker 1: done in terms of being able to take carbon out
Speaker 1: of the atmosphere. We are currently on a credible trajectory
Speaker 1: to anything like one point five. I think it would
Speaker 1: be a minor miracle if coming out of cop we
Speaker 1: were committed to such a trajectory and the sand is
Speaker 1: running through the hourglass. Okay, we'll have to watch that.
Speaker 1: Thank you so much to Larry. It's always great to
Speaker 1: have you with us, as Larry Summers of Harvard our
Speaker 1: very special contributor here on Wall Street Week. Finally, one
Speaker 1: more thought. A trillion dollars just ain't what it used
Speaker 1: to be. The Late Center from Illinois, Everett Dirkson famously
Speaker 1: said a billion here, a billion. They're pretty sure you're
Speaker 1: talking about real money. Well, at least some people remember
Speaker 1: that he said it, and there's no real record that
Speaker 1: he did say that. But this week we were talking
Speaker 1: about a thousand times that billion as Democrats struggled to
Speaker 1: get their spending package down under two trillion dollars. You
Speaker 1: hear these numbers, three point five trillion, one point seven
Speaker 1: five trillion, we pay for it all. It doesn't in
Speaker 1: eased to deficit one single cent. So let's get to work.
Speaker 1: And the key Senator Joe Manchin pointed out that all
Speaker 1: of World War Two and the Marshall Plan cost the
Speaker 1: United States only about four point seven trillion dollars in
Speaker 1: current dollars, and we've already blown way past that in
Speaker 1: the last year and a half before adding another one
Speaker 1: point five We saved the world in World War Two,
Speaker 1: we rebuilt your on today's dollars at four point seven,
Speaker 1: we've already spent five point four and we're about ready
Speaker 1: to spend a heck of a lot more. But it
Speaker 1: wasn't just the government this week who was talking about
Speaker 1: trillions of dollars. Tesla blew past the trillion dollar market
Speaker 1: cap number, making Elon Musk a quarter trillionaire. It wasn't
Speaker 1: just a te word that connected Tesla with Congress this
Speaker 1: week when lawmakers want looking for some way to pay
Speaker 1: for some of those new programs they want to adopt,
Speaker 1: they quickly focused on the very wealthy people. Yes, you
Speaker 1: guess it, just like Elon Musk. At first, they came
Speaker 1: up with something called the billionaires Tax, which actually is
Speaker 1: not a tax on income at all, but a tax
Speaker 1: the increased value of assets held by billionaires. That is
Speaker 1: something that made Republicans like Mitch McConnell apoplectic over the
Speaker 1: unfairness of it. All our Democratic colleagues and President Biden
Speaker 1: or behind closed doors dreaming up creative new ways to
Speaker 1: grab literally historic amount of the American people's money. But
Speaker 1: then again, Democrats like Shared Brown of Ohio said it
Speaker 1: would only be fair. We've seen an executive compensation explode upward,
Speaker 1: We've seen profits go up, wages have been flat. In
Speaker 1: Congress has rarely been on the side of workers. This Congress,
Speaker 1: in these two bills, were clearly on the side of
Speaker 1: workers into fixing that. Democrats may have backed off of
Speaker 1: that so called billionaires tax, but they replaced it with
Speaker 1: a multimillionaires surtax, because in the end, then that's goot
Speaker 1: shall get but you may have to give some of
Speaker 1: it back. That does it. For this episode of Wall
Speaker 1: Street Week, I'm David Weston, This is Loomberg. See you
Speaker 1: next week.