WEBVTT - Bloomberg Wall Street Week: Booth, Effron, Summers 0:00:00.240 --> 0:00:05.000 This is Bloomberg Wall Street Week. Market shruggle, higher consumer prizes. 0:00:05.040 --> 0:00:07.400 The economy is in the process of rebounding. Will the 0:00:07.400 --> 0:00:10.479 Federal Reserve have its own digital currency? The financial stories 0:00:10.520 --> 0:00:12.879 that cheap hard work. Many people think the yields are 0:00:12.880 --> 0:00:15.080 just going to keep marching up. We have more spending 0:00:15.120 --> 0:00:17.200 coming out of Congress. One of the big questions I 0:00:17.200 --> 0:00:19.880 think on investors minds inflation through the eyes of the 0:00:19.920 --> 0:00:23.560 most influential voices. Larry Summer is the former Treasury Secretary 0:00:23.640 --> 0:00:27.240 Bryan Wynahan, a backup America Will Smart CEO Charlie Sharp. 0:00:27.360 --> 0:00:31.560 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:31.960 --> 0:00:36.280 Caught in the middle, bank CEOs between Democrats and Republicans, 0:00:36.560 --> 0:00:41.520 Exxon management, between new activism and old finances, and investors 0:00:41.680 --> 0:00:44.919 between inflation and a Fed that will have none of it. 0:00:45.520 --> 0:00:50.240 This is Bloomberg Wall Street Week. I'm David Weston. Each 0:00:50.280 --> 0:00:52.559 week on this program we take a look at the 0:00:52.560 --> 0:00:55.200 big events of the week that the smart investor wants 0:00:55.240 --> 0:00:58.040 to be paying attention to. But let's be honest, sometimes 0:00:58.080 --> 0:01:00.560 it is hard to separate at the signal from the noise. 0:01:00.920 --> 0:01:03.200 We are fortunate to have with us today a really 0:01:03.240 --> 0:01:06.160 smart investor. He is Mr David Booth. He is the 0:01:06.319 --> 0:01:09.560 chairman and co founder of Demential Fund Advisors. They have 0:01:09.640 --> 0:01:12.360 been in business for forty years with an extraordinary track 0:01:12.400 --> 0:01:14.800 record over that period of time. Welcome to Wall Street. 0:01:14.800 --> 0:01:16.600 We're good to have you, David. Let's go without that 0:01:16.640 --> 0:01:19.479 forty year history. I mean, I'm not sure that every 0:01:19.560 --> 0:01:21.960 month or every quarter, maybe even ever year you were up, 0:01:22.000 --> 0:01:24.520 but over the long term you did very very well. 0:01:24.600 --> 0:01:28.040 Give us some advice in that forty years, What did 0:01:28.120 --> 0:01:30.399 you pay attention to? What did you leave behind and 0:01:30.480 --> 0:01:34.120 not get distracted by? If you look at over the 0:01:34.200 --> 0:01:37.080 last forty years, what we've learned, I think kind of 0:01:37.120 --> 0:01:39.360 ties in with your first comment trying to separate the 0:01:39.680 --> 0:01:42.920 signal from the noise. You know what, I think good 0:01:43.520 --> 0:01:46.640 The set of ideas around which we've built the firm 0:01:47.280 --> 0:01:50.440 have shown that you can have a successful investment experience 0:01:50.520 --> 0:01:54.520 without having to forecast the market turns, without trying to 0:01:54.520 --> 0:01:57.760 outguess the market. So a lot of that is tuning 0:01:57.760 --> 0:02:02.400 out the noise, focusing on on what really matters. You know, 0:02:02.840 --> 0:02:05.600 you can't control markets, but you can't control the amount 0:02:05.640 --> 0:02:08.760 of risk you take, for example, so that's largely what 0:02:08.800 --> 0:02:12.240 it's about is coming up a sensible long term strategy 0:02:12.800 --> 0:02:15.360 and emphasizing long term, because if you're going to invest 0:02:15.360 --> 0:02:18.359 in risky assets, you need to have a long term 0:02:18.400 --> 0:02:22.000 investment strategy. It's a strategy that that that you believe 0:02:22.040 --> 0:02:24.000 in enough that you can stick with it through the 0:02:24.080 --> 0:02:27.160 ups and downs of markets. Markets are going to go 0:02:27.240 --> 0:02:31.080 up and down, that's what they do, and and so 0:02:31.120 --> 0:02:33.600 what investors need to do is figure out how to 0:02:33.600 --> 0:02:35.880 deal with that uncertainty and come up with a sensible 0:02:35.880 --> 0:02:39.239 solution for them that they can stick with. So isn't 0:02:39.280 --> 0:02:41.799 that one of the real challenges for an investor, David, 0:02:42.600 --> 0:02:44.960 Because if you didn't have uncertainty, if you didn't have risk, 0:02:45.000 --> 0:02:47.079 you wouldn't have gained. As a practical matter, the one 0:02:47.160 --> 0:02:50.400 comes with the other. The question is how much risk? 0:02:50.480 --> 0:02:52.560 How much uncertainty? I mean, when does it leave off 0:02:52.639 --> 0:02:54.679 being an investment and turn into a gamble. Because let's 0:02:54.680 --> 0:02:56.680 be honest, some of what's going on the market sometimes 0:02:56.720 --> 0:02:59.520 looks to me an awful light like gambling. Well totally, 0:02:59.560 --> 0:03:02.120 I mean exily. Trying to time short term movements in 0:03:02.160 --> 0:03:06.200 the market is more akin to gambling than investing, and 0:03:06.600 --> 0:03:09.280 you know, we think, uh, if you're going to invest 0:03:09.320 --> 0:03:11.240 in the market, you have to have a long term focus. 0:03:11.560 --> 0:03:17.160 This last year, for example, it's been a your It 0:03:17.200 --> 0:03:23.160 was a great example. Uh. Markets down first few months 0:03:23.200 --> 0:03:26.519 of the year, and a lot of people bailed out, 0:03:27.000 --> 0:03:29.880 but the market ended up for the year. So if 0:03:29.919 --> 0:03:33.040 you didn't stay invested, if you tried to time that 0:03:33.120 --> 0:03:36.040 market got out, you know, you you missed out on 0:03:36.040 --> 0:03:38.640 a big return. And missing out on those big up 0:03:38.680 --> 0:03:43.320 markets is frequently as costly as being invested and and 0:03:43.400 --> 0:03:46.240 losing money in the down market. So those, uh, those 0:03:46.280 --> 0:03:49.520 are the those are the ideas that are tough for 0:03:49.520 --> 0:03:52.280 people to grasp that you can have a good experience 0:03:52.280 --> 0:03:55.920 without shifting things around all the time. David, you are, 0:03:55.960 --> 0:03:59.040 by all accounts a patient investor. Are the people who 0:03:59.040 --> 0:04:00.560 put their money with your pay and as well? I 0:04:00.600 --> 0:04:03.280 mean you manage over six billion dollars right now? Are 0:04:03.320 --> 0:04:05.760 they willing to stay with you through those downturns? What's 0:04:05.760 --> 0:04:10.520 your experience? Well, it's you know, throw any downturn, you're 0:04:10.520 --> 0:04:14.040 going to have people who get discouraged and lose confidence 0:04:14.040 --> 0:04:17.200 in what you're doing and bail out. That's the business 0:04:17.200 --> 0:04:20.760 we've chosen to be in you know. I but our 0:04:20.839 --> 0:04:23.400 view is if you educate people well and I have 0:04:23.520 --> 0:04:26.880 them and they're transparent, can help them think through, uh, 0:04:27.279 --> 0:04:30.960 how to go about doing creating an investment portfolio that's 0:04:31.440 --> 0:04:34.000 uh gives them the best chance of winning. If you 0:04:34.080 --> 0:04:37.599 focus on those things, then uh, you know you can 0:04:38.120 --> 0:04:41.000 over the long haul do really quite well. So David, 0:04:41.040 --> 0:04:43.599 give us a little insight into your day. You're working 0:04:43.720 --> 0:04:45.680 day when you come into the office. What do you 0:04:45.720 --> 0:04:47.799 look at? I mean I like to have a dashboard 0:04:47.800 --> 0:04:49.960 where I look at certain things indicators. I'll give you 0:04:50.000 --> 0:04:53.120 one specific example, the tenure yield. I heard Warren Buffett 0:04:53.160 --> 0:04:54.840 once say, if there's one thing you'd like to know 0:04:55.480 --> 0:04:57.560 five years out is what the yield on the ten 0:04:57.640 --> 0:04:59.200 year is going to be. Do you pay much attention 0:04:59.240 --> 0:05:00.919 to that? Because this week actually there's been a lot 0:05:01.000 --> 0:05:02.840 of talk about Yale. People thought it was gonna go 0:05:02.880 --> 0:05:04.760 up to two point Oh it's now in the one 0:05:04.800 --> 0:05:08.279 point six range. Do you pay attention to that? Uh? 0:05:08.440 --> 0:05:10.880 We don't pay attention to the short term movements. I 0:05:10.880 --> 0:05:13.359 mean what you want to look at are all kinds 0:05:13.360 --> 0:05:16.440 of investment scenarios. You know, currently people are asking what 0:05:16.480 --> 0:05:19.320 about inflation that's a big topic to or where's the 0:05:19.320 --> 0:05:22.480 ten year going all those things are you obviously would 0:05:22.480 --> 0:05:25.640 be very interesting to know where things are gonna be 0:05:25.680 --> 0:05:29.400 five years from now, but we don't know. And it 0:05:29.480 --> 0:05:31.479 gets back to trying to tune out the noise. You 0:05:31.560 --> 0:05:35.479 have to prepare yourself for whatever happens. Uh, you know, 0:05:36.279 --> 0:05:38.400 you know, plan for the worst and hope for the best. 0:05:38.480 --> 0:05:40.680 You know, that's that's as true and investing as it 0:05:40.760 --> 0:05:45.120 is in other parts of life. You know. So um, 0:05:45.200 --> 0:05:47.719 we we don't know exactly when the markets we're going 0:05:47.800 --> 0:05:49.320 to go up and down. We just know they're going 0:05:49.360 --> 0:05:52.440 to go up and down. And to your point earlier, 0:05:52.839 --> 0:05:56.680 it's that that uncertainty that creates the opportunity. You know, 0:05:56.720 --> 0:05:59.440 people want to shrink away from uncertainty. But if there 0:05:59.440 --> 0:06:01.839 are no one, sir, then your your your your return 0:06:01.880 --> 0:06:03.919 would be something like a money market fund on the 0:06:03.920 --> 0:06:07.120 return on the money market fund. So it's it's balancing 0:06:07.160 --> 0:06:09.839 all of that, you know, dealing with the uncertainty in 0:06:09.839 --> 0:06:14.520 a way that doesn't you can provoke a lot of anxiety. 0:06:14.800 --> 0:06:17.680 In the meantime, some powerful advice from as I say, 0:06:17.680 --> 0:06:21.280 a very smart investor, David Booth of Dimensional Fund Advisors. 0:06:21.279 --> 0:06:24.120 Thank you so much for being with us. Coming up, 0:06:24.200 --> 0:06:28.039 Big Tech, Big Media, and now a marriage of the two. 0:06:28.480 --> 0:06:31.360 We talk about what the dramatic increase in concentration in 0:06:31.400 --> 0:06:35.120 American business means for the economy with our contributors Stephanie 0:06:35.160 --> 0:06:39.120 Flanders of Bloomberg. That's next on Wall Street Week on Bloomberg. 0:06:45.000 --> 0:06:48.960 This is Bloomberg Wall Street Week with David Weston from 0:06:49.080 --> 0:06:53.599 Bloomberg Radio. Big media is getting only bigger, with Discovery 0:06:53.640 --> 0:06:56.160 and A. T and T. S Warner coming together last 0:06:56.160 --> 0:06:59.479 week in an unlikely combination of cooking shows and award 0:06:59.480 --> 0:07:02.320 winning draw Mammas. We're not just better together, but that 0:07:02.880 --> 0:07:05.760 that we're probably the best media company in the world. 0:07:05.920 --> 0:07:09.120 I can't and good conscience not allow these assets to 0:07:09.400 --> 0:07:13.200 develop their full potential. That's Discovery CEO David Zaslow and 0:07:13.320 --> 0:07:16.520 A T and T CEO John Stanky. This week, it 0:07:16.640 --> 0:07:20.640 was Amazon's turn. The tech giant is buying Hollywood's iconic 0:07:20.840 --> 0:07:24.320 MGM for eight point four or five billion dollars, bringing 0:07:24.440 --> 0:07:28.119 James Bond and Rocky to the Everything Store, adding even 0:07:28.200 --> 0:07:30.679 more heat to the race to a mass and stream 0:07:30.840 --> 0:07:35.200 entertainment content triggered first by Netflix and then Disney. Here's 0:07:35.240 --> 0:07:38.000 the Zone chairman, Kevin Mayer. I think there's only a 0:07:38.040 --> 0:07:41.200 handful of truly global, you know, greater than a hundred 0:07:41.200 --> 0:07:44.920 million subscriber based type of services that can that can exist. 0:07:45.120 --> 0:07:48.200 Amazon's latest expansion in media comes after it's moved into 0:07:48.280 --> 0:07:51.239 groceries and bricks and mortar with its thirteen point seven 0:07:51.240 --> 0:07:54.840 billion dollar acquisition of Whole Foods back in two thousand seventeen. 0:07:55.360 --> 0:07:57.560 And Amazon the mergers working on great for us. We're 0:07:57.680 --> 0:08:01.239 much better company today than we were Amazon. That's Whole 0:08:01.240 --> 0:08:06.040 Food CEO John Mackie. By expanding its entertainment and retail offerings, 0:08:06.080 --> 0:08:08.600 Amazon is adding more bang for the buck to its 0:08:08.640 --> 0:08:13.200 one nine dollar a year Prime membership. Not to be outdone, 0:08:13.200 --> 0:08:17.040 Walmart launched a competing subscription service called Walmart Plus for 0:08:17.200 --> 0:08:20.520 ninety eight dollars a year, offering free shipping and delivery, 0:08:20.880 --> 0:08:25.080 but Walmart still trails Amazon's dominance in e commerce. Here's 0:08:25.160 --> 0:08:28.400 Alan Patrick off of Greycroft. You know, it's something I 0:08:28.440 --> 0:08:32.920 think we're all enjoying, you know, overnight deliveries at low prices. 0:08:32.960 --> 0:08:35.240 But how long can that keep going on? To the 0:08:35.240 --> 0:08:38.480 two hundred million Prime members around the world, Amazon is 0:08:38.480 --> 0:08:41.880 a one stop shop, but regulators aren't convinced it's in 0:08:41.920 --> 0:08:45.080 the public interest. This week, the Washington d c. Attorney 0:08:45.120 --> 0:08:48.440 General brought in and a trust case against Amazon, alleging 0:08:48.480 --> 0:08:51.440 it is engaging in anti competitive practices that have raised 0:08:51.480 --> 0:08:54.720 prices for consumers. While Amazon claims that it does what 0:08:54.920 --> 0:09:00.520 every retailer does to stay competitive. The monopoly power Amazon 0:09:00.880 --> 0:09:04.760 tells you what to set the price at and punishes 0:09:04.840 --> 0:09:09.680 you if you do not adhere to those rules. That is, 0:09:09.800 --> 0:09:14.880 an our view, an abuse of marketing power. That's Washington 0:09:14.960 --> 0:09:19.280 D C. Attorney General Carl Racine. The consolidation of corporate 0:09:19.280 --> 0:09:24.079 power has reached an almost unimaginable scale since the profits 0:09:24.120 --> 0:09:27.120 of the world's fifty largest companies has gone from sixty 0:09:27.120 --> 0:09:31.040 eight billion dollars to seven eight eight billion dollars, now 0:09:31.120 --> 0:09:34.080 accounting for more than one percent of total global GDP. 0:09:34.840 --> 0:09:39.120 And at this point just four companies, Amazon, Facebook, Microsoft 0:09:39.160 --> 0:09:42.280 and Google together make as much money in one week 0:09:42.679 --> 0:09:46.240 as the entire country of Zimbabwe does in an entire year. 0:09:46.559 --> 0:09:51.880 Here's Rhode Island Congressman David Cicillini. These platforms have enormous 0:09:52.120 --> 0:09:56.320 market dominance, they are have really monopoly power. They really 0:09:56.360 --> 0:09:59.439 don't have competitors in a serious way. And what that 0:09:59.520 --> 0:10:04.320 produced is is behaviors that monopolis engage in, you know, 0:10:04.400 --> 0:10:07.719 favoring their own products and services. Stephanie Flanders is a 0:10:07.840 --> 0:10:10.400 senior executive editor for Economics at Bloomberg, and on a 0:10:10.480 --> 0:10:14.360 recent episode of her very important podcast called Stephanomics, she 0:10:14.440 --> 0:10:18.400 addressed the question of increased concentration in industries around the world. 0:10:18.400 --> 0:10:21.000 Welcoming now back to Wall Street Week. Thank you for 0:10:21.080 --> 0:10:23.240 being with a Stephanie. So I listened to this podcast, 0:10:23.240 --> 0:10:25.160 it was fascinating. First of all, you and your team 0:10:25.200 --> 0:10:28.560 economics team of Bloomberg actually took a look and has 0:10:28.600 --> 0:10:32.640 it become more concentrated globally are our industries? And you 0:10:32.720 --> 0:10:35.520 had some pretty remarkable conclusions. Yeah, we were actually just 0:10:35.600 --> 0:10:38.840 taking stock of the biggest fifty companies in the world. 0:10:39.040 --> 0:10:41.920 Who are the biggest fifty companies now? And how does 0:10:41.960 --> 0:10:44.440 that compare in terms of the sectors there in the 0:10:44.520 --> 0:10:49.199 sheer size of them to And it was it was 0:10:49.320 --> 0:10:52.439 very striking just on the numbers that how much bigger 0:10:52.480 --> 0:10:55.079 they are as a share of GDP. Certainly their market 0:10:55.120 --> 0:10:59.360 cap is worth nearly a third of global GDP or 0:10:59.360 --> 0:11:03.240 the equivalent of which is up from five percent in 0:11:04.520 --> 0:11:07.920 and their profits are also about three times higher relative 0:11:08.000 --> 0:11:10.800 to the global economy, so we could see there's to scale. 0:11:11.200 --> 0:11:13.880 But clearly we've also seen a big change in the 0:11:13.920 --> 0:11:17.000 in the makeup of who are those of those big companies, 0:11:17.200 --> 0:11:21.160 And it is no surprise it's tech firms much more 0:11:21.200 --> 0:11:23.920 evident than they were before twenty one of the top fifties. 0:11:23.920 --> 0:11:25.920 So this is you know, there's there's lots of things 0:11:25.920 --> 0:11:28.559 to say about that research by the chief economist Tom 0:11:28.559 --> 0:11:33.000 Alick and his colleague Justin n Jimenizum, but that was 0:11:33.559 --> 0:11:36.360 the sheers scale of these companies and their dominance in 0:11:36.400 --> 0:11:39.680 their industries echoes what we've seen in studies of the US, 0:11:39.760 --> 0:11:42.640 for example, have found three quarters of US industries had 0:11:42.679 --> 0:11:46.560 seen an increasing concentration in the past twenty years. And 0:11:46.600 --> 0:11:48.920 the role of tech that you refer to I find 0:11:49.080 --> 0:11:52.040 quite fascinating because it does raise questions about the consequences 0:11:52.040 --> 0:11:54.959 of the concentration. I mean, in industrial society, it was 0:11:54.960 --> 0:11:58.200 almost inevitable that prices would go up, in quality would 0:11:58.240 --> 0:12:00.960 go down, and you became monopolis. It's not clear that's 0:12:01.000 --> 0:12:03.360 happening with tech. In fact, if anything, that the prices 0:12:03.400 --> 0:12:05.880 may go down as you get bigger and bigger. Yeah, 0:12:05.920 --> 0:12:07.920 and of course we're seeing in the numbers we're looking 0:12:07.920 --> 0:12:09.800 at that we've got to sort of dual effect of 0:12:09.840 --> 0:12:12.840 the rise of the tech giants, but also just globalization 0:12:12.920 --> 0:12:15.599 allowing companies. If you're very successful now, you get to 0:12:15.640 --> 0:12:17.800 be successful on a global scale in the way that 0:12:17.840 --> 0:12:21.319 you weren't able to twenty or thirty years ago. But 0:12:21.360 --> 0:12:24.199 you're right that there are structural features of these companies. 0:12:24.640 --> 0:12:28.760 We have this perception that they invest less and certainly 0:12:28.880 --> 0:12:33.240 higher a fewer workers per per sort of billion of 0:12:33.440 --> 0:12:36.160 market cap than the big companies of previous series. And 0:12:36.200 --> 0:12:39.319 that's borne out by this. If you just take IBM 0:12:40.320 --> 0:12:43.600 was the world's largest company. It devoted at that point 0:12:43.920 --> 0:12:47.520 nine percent of its revenue to capex to investment spending 0:12:47.559 --> 0:12:50.280 every year. Have you take that. If you've come forward 0:12:50.320 --> 0:12:53.480 to today, Apple has that crown. Now it's the biggest 0:12:53.480 --> 0:12:58.120 company of the world and it's investing in in capex 0:12:58.320 --> 0:13:01.640 a third of that amount three So you can see 0:13:01.679 --> 0:13:05.400 they're investing less and they certainly have a fewer workers 0:13:05.840 --> 0:13:08.719 um for the for their scale than the companies in 0:13:08.760 --> 0:13:12.920 the past, which affects their contribution to society. I also wonder, stephanitely, 0:13:12.960 --> 0:13:15.640 if it affects our ability. Who actually regulate our kind 0:13:15.679 --> 0:13:17.839 of There was a time gone by that we thought, 0:13:17.840 --> 0:13:19.520 if we regulate the interest rates, we have the fair 0:13:19.600 --> 0:13:22.720 regular interests, it's really gonna affect how much how fast 0:13:22.960 --> 0:13:25.439 the economy is moving. If these companies don't need to borrow, 0:13:25.480 --> 0:13:27.800 they don't need to really care about what they're paying 0:13:27.800 --> 0:13:29.439 in interest, right, Yeah, I mean that was one of 0:13:29.480 --> 0:13:31.280 the fascinating things that came out of this. Right, So 0:13:31.360 --> 0:13:33.720 we we could also see in these numbers they're paying 0:13:33.760 --> 0:13:36.800 less tax. They're paying about They were probably paying about 0:13:36.800 --> 0:13:40.319 thirty five percent of their profits in tax on the 0:13:40.440 --> 0:13:45.040 kind of average scale globally UM. Now that numbers more 0:13:45.040 --> 0:13:48.000 like seventeen, so it's sort of around half. But their 0:13:48.040 --> 0:13:51.240 profit margin has more or less traveled from about seven 0:13:51.280 --> 0:13:54.200 percent to twent And the result of that is they 0:13:54.200 --> 0:13:57.079 have loads of money. They have nearly two trillion dollars 0:13:57.400 --> 0:14:00.680 cash pier. We often talk about Apple's cash pier, but uh, 0:14:00.760 --> 0:14:03.400 this is true of many other companies now. And if 0:14:03.440 --> 0:14:06.240 you have that kind of money, you cann't finance anything 0:14:06.280 --> 0:14:08.679 you want without paying any attention to what the Federal 0:14:08.760 --> 0:14:12.560 Reserve or any other central bank is is charging for 0:14:12.600 --> 0:14:15.080 full liquidity. So yeah, there is a sort of question 0:14:15.120 --> 0:14:18.280 mark about that. The transmission mechanisms that we've got used 0:14:18.280 --> 0:14:22.440 to thinking about um for certainly for monetary policy maybe 0:14:22.440 --> 0:14:24.560 not working in the way we'd like with these kind 0:14:24.560 --> 0:14:27.480 of companies fasting, I do recommend the Stephans podcast use 0:14:27.520 --> 0:14:30.240 you're all go listen to it. Many thanks to Stephanie Flanders. 0:14:30.440 --> 0:14:34.080 She is the senior executive editor for Economics at Bloomberg. 0:14:34.720 --> 0:14:38.560 Coming up, speaking of concentration, what did the Biden administration 0:14:38.640 --> 0:14:41.080 mean for the mergen and acquisition business. We're gonna talk 0:14:41.120 --> 0:14:44.160 with Blair Afron, co founder of center View Partners. That's 0:14:44.200 --> 0:14:47.680 coming up next. This is Wall Street Week on Bloomberg. 0:14:52.600 --> 0:14:56.520 This is Bloomberg Wall Street Week with David Western from 0:14:56.680 --> 0:14:59.600 Bloomberg Radio. As we've seen the last two weeks in 0:14:59.640 --> 0:15:04.040 the to A world, mergers and acquisitions continue apace, despite 0:15:04.120 --> 0:15:07.840 what famed investor Carl Icon thinks about some of the prices. 0:15:08.280 --> 0:15:11.040 Blair Afron, co founder of Centerview Partners, is in the 0:15:11.200 --> 0:15:14.160 middle of many of the most important deals getting done, 0:15:14.680 --> 0:15:17.320 and he does admit that there are concerns out there 0:15:17.400 --> 0:15:20.680 about the market getting overheated, but he also has his 0:15:20.800 --> 0:15:23.600 eye on the yet to be determined by the administration 0:15:23.640 --> 0:15:28.080 approach to merger review. Obviously a lot of tell into 0:15:28.080 --> 0:15:32.120 the economy. Uh, it's easy to imagine that this goes 0:15:32.360 --> 0:15:37.280 well into twenty two and beyond. But someone like me, UH, frankly, 0:15:37.440 --> 0:15:39.840 you were always trying to figure out the ground corners 0:15:39.840 --> 0:15:43.520 and say, what are some of the clouds in the horizon. 0:15:43.840 --> 0:15:48.200 You just talked about inflation. We only have really a 0:15:48.280 --> 0:15:51.520 month where the data uh, the economy, the world's opening up. 0:15:51.680 --> 0:15:56.600 You should assume it's obviously mismatched in terms of materials allocation, 0:15:56.680 --> 0:16:00.160 in terms of jobs, but that's a data point. Um. 0:16:00.960 --> 0:16:04.680 The markets generally, we obviously are being priced at a 0:16:04.720 --> 0:16:08.880 premium uh pe multiples on next twelve months earnings three 0:16:09.000 --> 0:16:12.560 points above the five year average. UH. You have pockets 0:16:12.600 --> 0:16:16.960 of the market where the particularly uh petty, whether it's crypto, 0:16:17.480 --> 0:16:20.480 whether it's facts, whether it's just retail investment volumes. So 0:16:20.640 --> 0:16:26.520 you ask yourself what were the antecedents back in Obviously 0:16:26.720 --> 0:16:29.640 the are balance sheets UH is on people's minds, and 0:16:30.200 --> 0:16:33.080 then just the geo political situations. So I say that 0:16:34.080 --> 0:16:38.920 a ton of tail winds, but clearly a watch out 0:16:39.720 --> 0:16:43.600 for what might seep into the markets that we're not 0:16:43.680 --> 0:16:46.760 planning one today. So when you talk about possible clouds 0:16:46.760 --> 0:16:48.320 in their eyes and we're not looking for the half 0:16:48.400 --> 0:16:50.080 enter product glass, but we should be prepared for it 0:16:50.080 --> 0:16:52.440 at least. We do want to talk about the supply 0:16:52.560 --> 0:16:55.000 demand in balance, and you see it in various places. 0:16:55.160 --> 0:16:57.080 You said, we just may be seeing it right now 0:16:57.160 --> 0:16:59.840 in housing where the prices of new houses really skyrocketing, 0:17:00.080 --> 0:17:02.080 but the purchases are going down, and that may be 0:17:02.360 --> 0:17:05.520 really a shortage of supply of lumber, of various inputs. 0:17:05.600 --> 0:17:07.920 We also see it perhaps in the labor market, where 0:17:07.960 --> 0:17:10.119 it looks like the demand right now for employees is 0:17:10.160 --> 0:17:13.359 outstripping the supply. The question, of course, is is it 0:17:13.560 --> 0:17:16.040 to use the T word transitory. That's what we're all 0:17:16.040 --> 0:17:18.720 trying to figure out. Again, it's one month worth of data. 0:17:19.000 --> 0:17:24.640 The economy UH, and openings have been incredibly UH robust, 0:17:24.920 --> 0:17:27.680 rapid and broad, just like New York City in terms 0:17:27.720 --> 0:17:30.240 of restaurants opening, in terms of jobs going back, in 0:17:30.400 --> 0:17:35.280 terms of events, UH, massive squir Garden basketball game, teen 0:17:35.320 --> 0:17:38.800 thousand people. All of this has gotten a certain economy 0:17:38.880 --> 0:17:44.359 it's it's natural to expect that UH, jobs and people 0:17:44.440 --> 0:17:49.120 looking for jobs, UM will have a modest lag. Remember, 0:17:49.320 --> 0:17:51.560 only a month ago we had less than a third 0:17:51.640 --> 0:17:56.720 of the country UH vaccinated. So I think that it's 0:17:56.920 --> 0:18:02.479 it's there. We see the surge, but I'm a believer that, uh, 0:18:03.320 --> 0:18:06.280 it is more transitory than not. We had a record 0:18:06.600 --> 0:18:09.320 downturn because we shut down the economy effectively as we 0:18:09.400 --> 0:18:11.480 needed to because of the pandemic. And now it seems 0:18:11.520 --> 0:18:14.119 like we're having a record rebound. But we gave it 0:18:14.200 --> 0:18:17.159 a lot of push on both monetary and fiscal policy. 0:18:17.160 --> 0:18:18.800 We pumped a lot of money in the economy and 0:18:18.880 --> 0:18:21.040 we're not done yet. Not all of the money from 0:18:21.040 --> 0:18:23.480 the American Rescue Plan has yet been expressed in the economy. 0:18:23.840 --> 0:18:26.720 And as you refer to, we're having twenty billion dollars 0:18:26.720 --> 0:18:30.080 a month pumped in from the Fed. Do we need 0:18:30.200 --> 0:18:33.960 that monetary stimulus right now? Okay, So I think David, 0:18:34.000 --> 0:18:36.640 the word should be lesson focus on the word stimulus 0:18:36.720 --> 0:18:39.160 and more on the word investment. Right now, there's three 0:18:39.160 --> 0:18:41.240 and a half billion in two bills, as you know 0:18:41.359 --> 0:18:46.159 in Congress, UH, Human infrastructure and physical infrastructure. UH. And 0:18:46.280 --> 0:18:49.080 that's over ten years. Okay, I think the extent we 0:18:49.240 --> 0:18:53.440 can invest back on a methodical basis, on a long 0:18:53.560 --> 0:18:56.440 term basis, and done so where you getting quote return 0:18:56.480 --> 0:18:59.920 on investment, I think it actually becomes a good tail. 0:19:00.000 --> 0:19:02.520 And just to put a perspective, every one point of 0:19:02.640 --> 0:19:05.560 growth on GDP, you do that for ten years, that's 0:19:05.600 --> 0:19:09.280 three killion dollars more UH in the economy. So it's 0:19:09.400 --> 0:19:12.040 it's less about steamless that thinking more about using the 0:19:12.119 --> 0:19:16.040 moment two um do what this country needs to do. 0:19:16.320 --> 0:19:18.119 And you have that FED balance sheet. I mean one 0:19:18.160 --> 0:19:21.159 of the issues here also is that let's call it 0:19:21.280 --> 0:19:23.639 monetary support if you would right now coming out of 0:19:23.640 --> 0:19:26.560 the FED and for example, talk about the mortgage backed securities. 0:19:26.600 --> 0:19:29.159 I mean, given where mortgage rates are right now and 0:19:29.240 --> 0:19:31.159 given the housing market, do we need the FED to 0:19:31.240 --> 0:19:34.800 be supporting that. I think the FED has proven itself 0:19:34.920 --> 0:19:38.360 to be nimble in the past. Let's go back to December. 0:19:40.000 --> 0:19:43.359 The FED at that point saw a economy that they 0:19:43.400 --> 0:19:46.040 assumed was rising. A signal of free rate cuts would 0:19:46.040 --> 0:19:49.680 happen next all months would happened. The economy didn't rise, 0:19:49.880 --> 0:19:53.399 started flatten out a reverse course UH. And in fact, 0:19:53.760 --> 0:19:56.920 over the next year, UH cut rates. I think what 0:19:57.040 --> 0:20:01.440 you're getting is a said that will be vigilant to 0:20:01.800 --> 0:20:04.919 facts on the ground. Bell Brainer just this morning, UH 0:20:05.119 --> 0:20:08.880 mentioned that, and I think the FED is also recognizing 0:20:08.920 --> 0:20:13.240 that the recovery in many ways is still prevent um. 0:20:13.640 --> 0:20:18.000 COVID obviously great progress in the US, not necessarily in 0:20:18.160 --> 0:20:21.560 certain pockets outside the US. And in jobs. You have 0:20:21.680 --> 0:20:25.119 eight million people still out of work who were working 0:20:25.200 --> 0:20:29.680 for FORK. So there's a Uh, it's a complicated time 0:20:29.800 --> 0:20:32.080 that I believe that that will be nimble enough to 0:20:32.320 --> 0:20:34.200 figure out that the hast to tap on the brakes. 0:20:34.320 --> 0:20:36.960 We're not static comes in. That was Blair Afron, co 0:20:37.119 --> 0:20:40.879 founder of Center View Partners. Coming up, we wrap up 0:20:40.920 --> 0:20:43.960 the week with our special contributor Larry Summers of Harvard. 0:20:44.840 --> 0:20:53.040 That's next on Wall Street Week on Bloomberg. This is 0:20:53.119 --> 0:20:57.440 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:20:58.200 --> 0:20:59.959 Wrap up the week, as we always do with our 0:21:00.119 --> 0:21:03.320 special contributor Larry Summers of Harvard. Let's start with the 0:21:03.400 --> 0:21:06.200 big event on Friday, which was the president's announcement of 0:21:06.359 --> 0:21:09.880 his budget six trillion dollars one point three trillion dollars 0:21:09.920 --> 0:21:12.159 in deficits in each of the next ten years, it 0:21:12.240 --> 0:21:15.400 looks like, what's your reaction to that budget? Look, he's 0:21:15.400 --> 0:21:19.040 going to keep our country together by building back better. 0:21:19.720 --> 0:21:23.800 He's gonna fix a whole set of lagging public investments 0:21:24.440 --> 0:21:28.240 in everything from making the airport's work so it doesn't 0:21:28.320 --> 0:21:31.000 take half again as long to fly from Boston to 0:21:31.080 --> 0:21:34.200 Washington as it used to, to making the I r 0:21:34.359 --> 0:21:38.320 S be able to collect taxes, to having modern investments 0:21:38.359 --> 0:21:42.560 in science and technology. That's all right, and that's crucial. 0:21:43.040 --> 0:21:46.040 So is doing much more for children. So he's doing 0:21:46.200 --> 0:21:49.640 much more for people who have been left behind. I'm 0:21:49.680 --> 0:21:53.440 all with that, and I think it's hugely important. But 0:21:54.040 --> 0:21:57.320 just because you care doesn't mean you don't also have 0:21:57.520 --> 0:22:00.320 to count. And I think we are as a country 0:22:00.760 --> 0:22:02.800 going to have to look at the total amount of 0:22:02.920 --> 0:22:06.080 spending we're calling forward and the total amount of taxing 0:22:06.520 --> 0:22:10.359 we're calling forward. And I am worried in both the 0:22:10.520 --> 0:22:15.159 short and the medium term about overheating. It might be 0:22:15.520 --> 0:22:18.640 that the forces of what I used to call secular 0:22:18.720 --> 0:22:22.440 stagnation basically people not wanting to spend, are gonna be 0:22:22.600 --> 0:22:27.520