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 utter reserve have its own digital currency? The
Speaker 1: financial stories that cheap hard work. Many people think the
Speaker 1: yields 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 mind 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 CEO of
Speaker 1: Charlie Sharp. Bloomberg wool Street Week with David Weston from
Speaker 1: Bloomberg Radio. Cross currents in the economic data, in the virus,
Speaker 1: and in the markets as we look for direction. This
Speaker 1: is Bloomberg Wall Street Week. I'm David Weston. All in all,
Speaker 1: the markets didn't much like all those cross currents that
Speaker 1: they saw this week, with the SMP five having another
Speaker 1: down week and flirting with its fifty day moving average,
Speaker 1: while the yield on the ten year Treasury moved up
Speaker 1: above one point three five. All in all, sort of
Speaker 1: a risk off sort of week. To take us through
Speaker 1: what she's seeing in the markets. These days Welcome act Now.
Speaker 1: Sarah Kettter, CEO of Causeway Capital, is named the Waringstar
Speaker 1: International Manager of the Year for two thousand seventeen. Sarah,
Speaker 1: thank you so much for being back with us. So
Speaker 1: give us your sense of these markets. What are they
Speaker 1: telling us? Markets are driven by liquidity, They always have
Speaker 1: been and they always will be. Liquidity is incredibly important
Speaker 1: for asset prices and we've had so much of it.
Speaker 1: We've had an extraordinary amount of quantitative ease and globally
Speaker 1: and out of necessity due to the pandemic. But tapering
Speaker 1: is now in sight. We don't know precisely when, and
Speaker 1: we know it's coming, and the FED will engage in tapering,
Speaker 1: buying less bonds, and so likely will the European Central Bank.
Speaker 1: That's less money created, that's less rocket fuel for equities.
Speaker 1: And my I think the Causeway team we recognize that
Speaker 1: we've been through a very bulliant period and investor has
Speaker 1: been willing to pay almost anything to get growth. But
Speaker 1: now sobriety is setting in and that's some of what
Speaker 1: we think is happening in markets, and we've seen this week.
Speaker 1: So does that mean Sarah, that a lot of equity
Speaker 1: is are overpriced in your judgment, given all that liquidity
Speaker 1: at equities are all, it's just a question where the
Speaker 1: alternative is. And with bond yields it at intestinally low
Speaker 1: levels that makes equities very attractive. But as yields rise,
Speaker 1: and they likely will, we don't know about how much,
Speaker 1: but if any of the inflation signals we have become
Speaker 1: more persistent and or as the money supplies reined in,
Speaker 1: that's likely to put some upward pressure on bond yields,
Speaker 1: and that in turn makes the discount rate on stocks,
Speaker 1: which are just the present value of all the cash
Speaker 1: they can generate into perpetuity. It makes that that just
Speaker 1: got rate higher, and as a result, valuations tend to
Speaker 1: come down. Stocks tend to d rate, and the more
Speaker 1: long duration the stock, the more of the cash flows
Speaker 1: that are promised far under the future, those stocks will
Speaker 1: d rate more. Just the absolute opposite of what we've
Speaker 1: seen in a tremendously exciting bull market. So sir, there's
Speaker 1: a lot of talk about tapering, so called tapering, both
Speaker 1: in the United States with the FED, but also over
Speaker 1: in Europe as well. Sooner or later they're going to
Speaker 1: have to take some of those to quit of the market.
Speaker 1: I'm assuming right, trees don't go to the sky. Doesn't
Speaker 1: matter to investor when they do that, or is the
Speaker 1: more important thing that they will have to do it well.
Speaker 1: If we know precisely when, we could be market timers
Speaker 1: and get all kinds of accolades. But we don't know,
Speaker 1: and nobody knows. And for that reason, it's very important
Speaker 1: to be very diversified. We a causeway in our fundamental
Speaker 1: portfolios in international and global equity. We've taken risk off
Speaker 1: this year. We've seen a huge rally in cyclicals. In fact,
Speaker 1: equity markets just about everywhere have been led by cyclical
Speaker 1: stocks financials, materials, industrials with just a few exceptions, and
Speaker 1: those stocks have done really well in anticipation of economic recovery.
Speaker 1: So it's it's time to bank some of that and
Speaker 1: and go to more defensive areas. So so, one of
Speaker 1: the things I find fascinating is your idea that you
Speaker 1: want to invest in the least popular segments of equity
Speaker 1: and one of them, for example, let's pick on Chinese equities.
Speaker 1: Right now, there's a whole lot of reasons not to
Speaker 1: invest in Chinese equities. What makes you and tweagued at
Speaker 1: least have not attracted to Chinese equities. Now that's why
Speaker 1: we're read I am, I think it might help like
Speaker 1: Chinese equities are. China has been under so much regulatory
Speaker 1: pressure Chinese companies in the private sector that they hadn't
Speaker 1: seen here before, and it's been happening all of it
Speaker 1: seems that one announcement follows another, and this has been
Speaker 1: very difficult for companies that had been lightly regulated. Some
Speaker 1: of this regulation, as we wrote to our clients and
Speaker 1: put on our website, is very appropriate. We think it's
Speaker 1: more consistent to have have safeguards for consumers and for
Speaker 1: workers and so on in industries than what China had
Speaker 1: here before. It's just the capricious side and the unexpected
Speaker 1: that unnerves investors. So assuming that China doesn't make the
Speaker 1: Chinese government doesn't make miscalculations have become inconsistent and how
Speaker 1: they levy regulation and they make it very transparent, this
Speaker 1: could I know this sounds a little bit controversial, but
Speaker 1: we think it could end up being quite good for
Speaker 1: the market because it lowers the risk, increases transparency, and
Speaker 1: you can see understand and then invest around what the
Speaker 1: what the constraints are for a business once the regulation
Speaker 1: is very clear, But what about that capriciousness, because I
Speaker 1: mean you don't know, I mean I I don't know
Speaker 1: at least where they might wake up them tomorrow morning
Speaker 1: and decide where we want to go after that industry. Yes,
Speaker 1: and then, and that's quite unnerving. The one that makes
Speaker 1: us most concerned with what happened in education, in the
Speaker 1: for profit education sector. The government after many announcements, there
Speaker 1: was plenty of harbingers that indicated the government wasn't satisfied
Speaker 1: with it, but they made them non for profit. That
Speaker 1: is that is severe and jarring, and we understand the
Speaker 1: investor response. But there are some great companies in China
Speaker 1: that have such extraordinary balance sheets that they can pay
Speaker 1: fines in the regulator, they can make acquisitions, they can
Speaker 1: ultimately return a lot of capital to shareholders. Companies like
Speaker 1: gd dot Com or buy Do in search as well
Speaker 1: as in AI and cloud that that you can just
Speaker 1: get through this period for investors, just don't don't look.
Speaker 1: Just own these companies because they will be great in
Speaker 1: the future. It's just very hard when there's so much negativity,
Speaker 1: especially in the press, and that's part of what we do.
Speaker 1: We take a much longer time frame and how we invest.
Speaker 1: But that is one area of China. And another area
Speaker 1: that's really interesting you didn't ask me about was was
Speaker 1: what in the cyclicals hasn't hasn't rallied, and that is
Speaker 1: memory semiconductors. Those stocks have been a real drag for
Speaker 1: our clients here today and yet they're phenomenal consolidate industry,
Speaker 1: high barriers entry. It's incredibly capital intensive industry and the
Speaker 1: amount of memory chips that are used in our very
Speaker 1: data intensive economy is skyrocketing. The demand is going to
Speaker 1: be higher than we've ever seen it. That's Sarah Headerer,
Speaker 1: CEO of Causeway Capital. Coming up, we hear from the
Speaker 1: DNA the Tuch School of Business, the number two b
Speaker 1: school in the nation according to Bloomberg Business Week. That's
Speaker 1: next on Wall Street Week on bloomber This is Bloomberg
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. Bloomberg
Speaker 1: Business Week released its annual ranking of the nation's business
Speaker 1: schools this week and number one once again with Stanford,
Speaker 1: followed closely by dartmous Tuck School of Business. Welcome Now,
Speaker 1: it's Dean Matthew slaughter. So Dean, thank you for coming in. Congratulations,
Speaker 1: that's a pretty pretty good performance. There give us a
Speaker 1: sense of where the business schools in America are today
Speaker 1: and how have they changed over the last ten years.
Speaker 1: Thanks David. No. Total team effort for TUCK is always
Speaker 1: look the demand when we see talk the interest in
Speaker 1: business education remains quite high. You know. This past cycle
Speaker 1: or applications through up eleven percent. Last school year they
Speaker 1: were up almost ten percent, even amidst the tumin of
Speaker 1: the pandemic. And I think what we hear from business
Speaker 1: organizations is they are seeking, as they have for quite
Speaker 1: some time, individuals who can harness information um to articulate
Speaker 1: and defend points of view and environments of disruptive ambiguity,
Speaker 1: and really motivate high performing teams to bring those visions
Speaker 1: to life. What's changed, I think, uh is actually I
Speaker 1: think both the organizations that hire students and the students themselves,
Speaker 1: they recognize the complexity of our world in the twenty
Speaker 1: one century. Yes, you need analytical skills and functional expertise
Speaker 1: in finance and accountancy, and yet that probably was never sufficient,
Speaker 1: but it's definitely not sufficient in our complex world of
Speaker 1: the twenty one century. I think the interconnected issues around
Speaker 1: wealth and health and sustainability. Organizations and students alike are
Speaker 1: seeking developing those integrated skills that are going to allow
Speaker 1: them to navigate through what I think greatly is including
Speaker 1: called uch not to sharehold of his stakeholder capitalism. So
Speaker 1: do so, I want to unpack a little bit what
Speaker 1: you do while they were in business school and then
Speaker 1: where they go afterwards. But before you get do that,
Speaker 1: just give me a little bit of the numbers where
Speaker 1: applications from business schools, and particularly for for the Touch
Speaker 1: School of Business. Where are you are they up? You're down?
Speaker 1: Where are you're compared to history? Yeah, so compared to history.
Speaker 1: You know, a lot of business goes. There's always some cyclicality,
Speaker 1: so applications are slightly countercyclical with the strength of the
Speaker 1: labor market. Economists mayill say that because the opportunity costs
Speaker 1: varying through time of leading the labor market to earn
Speaker 1: a degree of any kind. Um, many schools go back
Speaker 1: and for years saw it drop and demand. Actually that
Speaker 1: came a lot from international students that had a lot
Speaker 1: to do with rising supply side competition and the rest
Speaker 1: of the world is good business schools come online more
Speaker 1: and the rest of the world. But we had talked
Speaker 1: in the past two years, they've seen strong growth and applications.
Speaker 1: They were up again over eleven percent this past cycle
Speaker 1: ten almost ten percent the previous cycle. Part of what
Speaker 1: we're also seeing as an increased breadth and interest. I
Speaker 1: think if you go back to an earlier period, the
Speaker 1: NBA degree was thought to be sort of a finishing
Speaker 1: degree for people who had already been in certain firms
Speaker 1: or certain occupations and capital markets and then consulting um.
Speaker 1: But we see an increased breadth in recent years among
Speaker 1: the perspective applicants for what they were doing in their
Speaker 1: post college years before thinking about an m b A.
Speaker 1: So the class of our first year class and talk
Speaker 1: now is a little und three hundred students two d
Speaker 1: nine students. They came from two hundred and twenty seven
Speaker 1: distinct employers, and what they were doing before coming here
Speaker 1: to the touch cool. So I think the recognition of
Speaker 1: the enduring value of an m b A, the communication skills,
Speaker 1: the analytical thinking, the self awareness that are the heart
Speaker 1: of management leadership in our world today. I think the
Speaker 1: breadth of interest that we see continues to grow. So
Speaker 1: so I have reception which is not based on fact,
Speaker 1: just an impression now that that business schools changed over time,
Speaker 1: that I used to think the graduates, the best graduates
Speaker 1: went to mackenzy sort of consulting firm, or to a
Speaker 1: Goldman Sachs on Wall Street. Then that evolved towards silicon
Speaker 1: value value a bit more on the tech side. Has
Speaker 1: the pandemic change things at all? Because, for example, I've
Speaker 1: talked to Albert Bowler, who's the CEO of Fightser. He said, boy,
Speaker 1: they just have so many people now wanting to go
Speaker 1: into into Fightser. Yeah. So I think this one thing
Speaker 1: that's terrific is the strength of demand for a graduates
Speaker 1: across a lot of industries. It is still the case
Speaker 1: if I look at the recent years at talk, we've
Speaker 1: had very strong labor market performance for our graduates in
Speaker 1: terms of compensation and other measures. Um consulting and finance
Speaker 1: are still very strong industries. So go you know, recent years,
Speaker 1: I'd say about our graduates, their first step back into
Speaker 1: the labor market is consulting. As you said, the Mackenzie's,
Speaker 1: the bands, the BCGS, the E wise, a lot of
Speaker 1: great firms about going to capital markets. I think investment
Speaker 1: banking is still a foundational next step for a lot
Speaker 1: of people. Technology relative to ten twenty years ago has
Speaker 1: surged in terms of their demand for NBA graduates as well.
Speaker 1: That's about tuck as well. I think the other trend
Speaker 1: that we see is whatever that first step is back
Speaker 1: into the labor market for a students post graduation, I
Speaker 1: think they are even more likely a few years beyond
Speaker 1: to think about a transition into some particular industry vertical
Speaker 1: that might be clean tech, that might be in health tech,
Speaker 1: or to take a step into entrepreneurship. So many of
Speaker 1: our tuck A lums are very successful entrepreneurs. Some do
Speaker 1: that at first step right beyond graduation, but many, like
Speaker 1: Sarah Kenner's with You Before Sarah is a great member
Speaker 1: of the Touch Class of eight seven. We have entrepreneurs
Speaker 1: who step into that new role of founding or joining
Speaker 1: some new business venture after they've done something in a
Speaker 1: post situation. One of the things that we've covered af
Speaker 1: a lot here at Bloomberg is some of the pressures
Speaker 1: being put on some of the younger bankers on Wall Street,
Speaker 1: and by the way, perhaps corresponding to that, the rapid
Speaker 1: increase in salary levels, we have to pay them more money.
Speaker 1: Are people more reluctant to go to banks or having
Speaker 1: getting paid much more money, are they more eager to
Speaker 1: go to banks? Uh, great question. I don't think they're
Speaker 1: more reluctant to go to banking. I think it's a
Speaker 1: couple of things. One is graduates, whether their undergraduates going
Speaker 1: into those analyst programs are are NBA graduates they want
Speaker 1: to receive a fair kind of market compensation for the
Speaker 1: skills they're bringing to their organization. And again, the demand
Speaker 1: for those skills globally continues to rise quite sharply, so
Speaker 1: they care about compensation. I think one of the changes
Speaker 1: to echo on your earlier question, I think there's a
Speaker 1: bit more sense of our NBA graduate's definitely talking in
Speaker 1: other industries. They're devoted to their careers, and yet they
Speaker 1: want to have work that helps them live their lives
Speaker 1: as opposed to sort of living to work. And so
Speaker 1: I think individuals are more seeking a match with an
Speaker 1: organization that thinks about the stakeholders that the global organization
Speaker 1: connects with, and they see of leaders in those organizations
Speaker 1: articulating values and taking stands on issues that um are
Speaker 1: broad definitions of who are the stakeholders for these companies,
Speaker 1: and so I think that's a change compared to an
Speaker 1: earlier time. Our students than what they want to learn
Speaker 1: in out of the classroom reflects that, and I think
Speaker 1: the organizations that are recruiting our students they need to
Speaker 1: present a value proposition for that. And I think that's
Speaker 1: really exciting. I think it's going to help our world,
Speaker 1: you know, better the world through business as we echo
Speaker 1: our mission statement and talk. So I have no doubt
Speaker 1: that you don't have any shortage of applicants to dart
Speaker 1: with talk and by the way, that they go on
Speaker 1: to really successful careers. But is that equally true throughout
Speaker 1: the range of business schools? Is there increasingly sort of
Speaker 1: assorting of the top schools really doing extremely well and
Speaker 1: maybe in the middle range, maybe it's not such a
Speaker 1: good investment frankly to go to business school. Yeah, boy,
Speaker 1: great question. UM. Like a lot of other industries we see,
Speaker 1: I think there is a sense where some of the
Speaker 1: more successful organizations they're seeing strong demand for us. Again,
Speaker 1: the demand is joined between the prospective students and the
Speaker 1: organizations that you're them, and I think some of the
Speaker 1: organization the past, we're quite good and yet and sort
Speaker 1: of a general growth market, which was business education in
Speaker 1: the last part of the twenties century. In the first
Speaker 1: maybe decade of the century, they were able to build
Speaker 1: programs and have them scale, especially as the rest of
Speaker 1: the world was recognized in the value of an m
Speaker 1: B A. But you're definitely right that in recent years
Speaker 1: there's been more of a quality sorting, and every organization
Speaker 1: talk no difference, has had to be very clear about
Speaker 1: what is its particular value proposition to the market and
Speaker 1: what what it thinks it's delivering on. So we speak
Speaker 1: of a personal and connected and therefore transformative experience here
Speaker 1: at talk UM making sure that we are delivering on
Speaker 1: that is why we wake up every day. I think
Speaker 1: NBA education, like a lot of other industries, there's been
Speaker 1: this competitive dynamic that you point to, So it keeps
Speaker 1: us UM waking up every day and listening even more
Speaker 1: intentionally to our students, to our great faculty, to the
Speaker 1: organizations that are part of our ecosystem. That's Dean Matthew
Speaker 1: Slaughter of the Dartmouth Talk School of Business coming up.
Speaker 1: Blair Efron of Center View Partners on what the c
Speaker 1: suite thinks about the tax debate that's going on in Washington.
Speaker 1: That's next on Wall Street Week on Bloomberg. This is
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: Build back Better. That's the promise presidential candidate Joe Biden
Speaker 1: made the voters over a year ago. It's time to
Speaker 1: reverse the priorities in this country. When the federal government
Speaker 1: spends taxpayers money, we should use it to buy American
Speaker 1: products and support American jobs. And that's the plan President
Speaker 1: Joe Biden laid out to Congress starting last March. But
Speaker 1: from the beginning he insisted he would not just borrow
Speaker 1: to get it done, that we had to figure out
Speaker 1: how to pay for it. The investments I'm proposed and
Speaker 1: would be fully paid for over the long term by
Speaker 1: having the largest corporations, including the corporations have paid zero
Speaker 1: of federal tax last year, and the super wealthy began
Speaker 1: to pay their fair share. And this week we got
Speaker 1: some specifics on just what it will take to pay
Speaker 1: for what the president wants. It may not be as
Speaker 1: dramatic as the fashion statement made by Representative Alexandria Ocasio
Speaker 1: Cortez at the met Gala this week, but it still
Speaker 1: would be the most sweeping set of tax increases in
Speaker 1: nearly thirty years, including raising the top rate on personal taxes,
Speaker 1: increasing taxes on capital gains, and imposing a three percent
Speaker 1: surcharge on anyone making more than five million dollars a year.
Speaker 1: And it's not just individuals who would get hit. The
Speaker 1: top corporate rate would go up to twenty six point five,
Speaker 1: there'd be new levies on overseas corporate income, and the
Speaker 1: carried interest breaks so beloved by private equity would get
Speaker 1: cut back further, applying only if you hold the asset
Speaker 1: for at least five years before you sell it. Not surprisingly,
Speaker 1: Democrats and Republicans see these proposals vary differently, with Brian
Speaker 1: D's president and chief economists claiming the corporate tax changes
Speaker 1: would bring more investment on shore. So I think that
Speaker 1: the core values the presidents put forward is reverse the
Speaker 1: most negative impact of the Trump tax cuts and get
Speaker 1: this corporate tax reform right so that we are encouraging
Speaker 1: more incentives to invest here domestically. While Republicans warned these
Speaker 1: hikes would make American industry less competitive. Here's Kevin Brady,
Speaker 1: the ranking chair of the House Ways and Means Committee.
Speaker 1: They'll be crippling for main street businesses. Certainly they'll land
Speaker 1: on working families. But as importantly, we're going to drive
Speaker 1: you as jobs overseas. Uh And and this is trying
Speaker 1: to find our way out of the pandemic. It is
Speaker 1: the biggest economic blunder I've ever seen a country make. Well,
Speaker 1: whatever the politicians think about tax hikes, what do the
Speaker 1: people who will have to pay them things? Will they
Speaker 1: affect the way they do business? Welcome now, someone who
Speaker 1: deals in the real world with real CEOs who make
Speaker 1: the decisions to drive the real economy. Blair efron is
Speaker 1: co founder and partner of Center Fing Partners. But are
Speaker 1: great to have you back with us. You talk with
Speaker 1: CEOs all the time. You can understand why they might
Speaker 1: be nervous given what we just heard from President Biden
Speaker 1: saying we're gonna pay for this by making sure the
Speaker 1: largest corporations pay their fair share. Our CEO is concerned
Speaker 1: about this. So what I would say is this, I
Speaker 1: think there is enough telling an economy that we'll be
Speaker 1: able to do this comfortably. Let's have a little bit
Speaker 1: of a historical perspective, uh. Donald Trump cut taxes two
Speaker 1: trillion dollars UH. If you look at the impact of
Speaker 1: that also neglative bold. In fact, you go back to
Speaker 1: the second term of President Obama, compare that to the
Speaker 1: Trump three and a half years before COVID. Fundamentally, UH
Speaker 1: under Obama the market was up nine more UH growth
Speaker 1: during both parioses around two and a half. The point is,
Speaker 1: I just don't think it's going to have a meaningful impact. Also,
Speaker 1: let's keep in mind that during COVID UH tremendous wealth
Speaker 1: has been created. The top UH ten percent have created
Speaker 1: ten trillion dollars wealth. I think the idea of a
Speaker 1: tax UH increase, particularly where half of it is corporate
Speaker 1: and only as personal, is something we can handle. Now.
Speaker 1: Of course, the key, very importantly, the key is that
Speaker 1: it is done for investment. And when we talked about infrastructure,
Speaker 1: be a physical or a human where the money gets applied,
Speaker 1: I think is going to really be the most important
Speaker 1: question we have. And to the extent um we really
Speaker 1: are focused on the physical side, water, airports, railroads, electric grid,
Speaker 1: that's a good thing. On the human side, to the
Speaker 1: extent it really goes to caregivers who can get back
Speaker 1: to work to the extent it goes to education, therefore
Speaker 1: getting more skills for UH future employment also a good thing.
Speaker 1: And we have a lot of as I said, a
Speaker 1: lot of telement economy done right, this hopefully will keep
Speaker 1: that tail went on a much more sustainable trajectory. So
Speaker 1: it was a lot. I don't want to be too
Speaker 1: cute here, but I noticed a couple of things you
Speaker 1: didn't mention in there, things like medicare for the elderly,
Speaker 1: for vision and dental help, things like I earned income
Speaker 1: tax credits and child tax credits. Because if you look
Speaker 1: at like the pen Morton budget model, they say those
Speaker 1: things don't improve productivity. Things you mentioned Blair do So
Speaker 1: do you draw a distinction. Do CEOs draw distinction between
Speaker 1: investment in something that's going to increase I think distinction, David,
Speaker 1: very fair question. We all draw distinction. I think out
Speaker 1: of four trillion that we're talking about, you can and
Speaker 1: again that number will change and we both know that.
Speaker 1: UM let's assume that at least what I've seen two
Speaker 1: thirds of it actually is investment oriented. UH, if you
Speaker 1: look at the almost six trillion already spent, clearly, when
Speaker 1: you get six percent growth last quarter, you can assume
Speaker 1: directly because the tail and that's created. And I also
Speaker 1: again do think that given how well so many have done, uh,
Speaker 1: the idea share prosperity makes sense because really the goal
Speaker 1: here is to keep our economy growing. That's Blair Affront
Speaker 1: of Center View Partners. Coming up, we wrap up. Coming up,
Speaker 1: we wrap up the week as we always do with
Speaker 1: our special contributor Larry Summers of Harvard. This is Bloomberg
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. We're
Speaker 1: gonna conclude our week as we do every week with
Speaker 1: Larry Summers of Harvard, our special contributor here on Wall
Speaker 1: Street Week. So Larry, let's start with all of the
Speaker 1: back and forth on Capitol Hill about the budget about taxes.
Speaker 1: This week, we had a group of Nobel laureates in
Speaker 1: economics write a letter saying they think it makes good
Speaker 1: sense to invest in in fact, it won't be inflationary.
Speaker 1: What did you make of that letter? I agree that
Speaker 1: we absolutely need a bill that contains substantial public investment,
Speaker 1: and I was glad to see the latter. I think
Speaker 1: the letter could have said more. He could have warned
Speaker 1: about inflation expectations becoming unanchored unless we pay for the
Speaker 1: investments we make with revenue increases. It could have stressed
Speaker 1: the importance of designing those investments so that they're maximally effective,
Speaker 1: with benefits exceeding UH costs. It could have very usefully
Speaker 1: warned against UH budget gimmicks where you only pay for
Speaker 1: investments for a limited UH period of time. Yes, we should,
Speaker 1: and have and need to pass a major investment in
Speaker 1: the future of our country bill, but especially after the
Speaker 1: indiscriminate spending early this year, we need to do it
Speaker 1: in a rational, disciplined way. So that you mentioned inflation, particularly,
Speaker 1: something we've talked about pretty much every week. Now. We've
Speaker 1: got CPI numbers and states in this week, and they
Speaker 1: came in a little lower than people expected. Some people
Speaker 1: breathe the sort of collective sigh of relief. Are we
Speaker 1: out of the woods yet? Or is that premature? I
Speaker 1: think it's way premature. The labor market still looks extraordinarily tight.
Speaker 1: The most interesting number of the week to me was
Speaker 1: the New York Fed survey that really shows pretty clear
Speaker 1: evidence that both one year inflation expectations and three year
Speaker 1: at inflation expectations maybe becoming unanchored. If you did the
Speaker 1: things that the inflation doves have done month after month,
Speaker 1: and you looked at median inflation, or you took out
Speaker 1: the outliers, the figures this week actually looked more ominous
Speaker 1: relative to history. So we're not gonna know yet, but
Speaker 1: the data flow, whether it's housing, whether it's more and
Speaker 1: more anecdotes and more and more places of supply chains,
Speaker 1: whether it's direct measures of expectations, looks increasingly concerning to me, So, Larry,
Speaker 1: it seemed to be a week for letters. We not
Speaker 1: only had the Nobel Lawyer's writing in about the budget,
Speaker 1: we also had Leona Panetta, former Secretary of Defense, and
Speaker 1: other former national security officials writing. It's a letter saying
Speaker 1: we've got to be careful about applying or expanding and
Speaker 1: trust when it comes to our tech companies because China's
Speaker 1: taking a very different course. China's embracing their big tech.
Speaker 1: That's what they call national champions. What is the challenge
Speaker 1: for the United States and both being competitive globally in
Speaker 1: tech but also making sure that our big tech doesn't
Speaker 1: get out of control? You know, this is gonna be
Speaker 1: a big process challenge for the Biden administration, for Brian Deese,
Speaker 1: the director of the National Economic Council for Attorney General
Speaker 1: Merrick Garland for National Security Advisor Jake uh Saw, and uh,
Speaker 1: we've got to figure out that on the one hand,
Speaker 1: there's much to worry about coming from our tech companies
Speaker 1: on privacy, on market concentration, on what they're doing to uh,
Speaker 1: the nature of our public dialogue, and we need public
Speaker 1: policy there. But they're also our national champions in important
Speaker 1: respects in key areas of competition around the globe, what
Speaker 1: Secretary Panetta was stressing, and we've got to make a
Speaker 1: policy that integrates those realities. And frankly, our national security
Speaker 1: establishment isn't used to thinking about the first set of realities,
Speaker 1: and our economic and antitrust policy makers aren't used to
Speaker 1: thinking about the second set of realities, and so the
Speaker 1: government's gonna need to find a way of bringing them
Speaker 1: together so that we can craft uh the right uh
Speaker 1: new HUNST policy. I think it's a hugely important area,
Speaker 1: and I think so far we've probably had too much
Speaker 1: in the way of sloganeering about some of the risks
Speaker 1: on both sides, and we really need a very thoughtful
Speaker 1: and serious policy process that brings together different parts of
Speaker 1: the government that aren't usually in dialogue with each other. Larry, you,
Speaker 1: of course co chaired the G twenty panel to address
Speaker 1: how to really avoid the next pandemic. You have a
Speaker 1: piece out in the Washington Post this week. We have
Speaker 1: the United Nations General Assembly coming up next week. Give
Speaker 1: us a sense of where you are in that process.
Speaker 1: You were compared to sort of Bretton Woods, a new
Speaker 1: version of Bretton Woods. US leadership really got Bretton Woods done?
Speaker 1: Do we have that kind of U S leadership this time?
Speaker 1: I'm encouraged by what President Biden has said and by
Speaker 1: the meeting he's convening. Um, We've got this set of
Speaker 1: meetings this week and next week, and then we have
Speaker 1: a G twenty meeting that will take place at the
Speaker 1: end of October. So I think the potential is there.
Speaker 1: But look, I want to take a big picture of
Speaker 1: you on this Uh, David. We've been celebrating the twentieth
Speaker 1: anniversary of nine eleven, but something very important has happened.
Speaker 1: We haven't had a major terrorist attack again. That Look,
Speaker 1: that's a great victory relative to what people expected on
Speaker 1: September twelve or October twelfth of two thousand and one,
Speaker 1: and we should give credit for that. But at the
Speaker 1: same time, I think with the twenty year Afghanistan War,
Speaker 1: with the Iraq War, with various changes that have taken
Speaker 1: place in the United States, people see many elements of
Speaker 1: overreaction and excess. I am worried that twenty years from now,
Speaker 1: a hundred million people will have died in pandemics, and
Speaker 1: the world's climate will have been radically altered, and the
Speaker 1: concern will not be overreaction but under reaction and to
Speaker 1: what I think are an immense set of security challenges.
Speaker 1: And so I think there's no danger we're gonna overreact
Speaker 1: to the pandemic threat or the climate threat, and there's
Speaker 1: enormous reason to fear that until we start seeing these
Speaker 1: as top national security challenges, that we're gonna fall away short. Finally, Larry,
Speaker 1: I'd like get one quick thought from you on something
Speaker 1: I know you've dealt with before, and that's the dead ceiling.
Speaker 1: We now are back up against that in Washington. It's
Speaker 1: not clear exactly when we'll run a crowl of it.
Speaker 1: Sometime late October maybe November. First. We had Janet Yellow,
Speaker 1: the Secretary of Treasury, this week, calling up Mitch McConnell
Speaker 1: and earlier saying you've got to do something with this.
Speaker 1: He said, basically, it's up to you. What do you
Speaker 1: make of this debt? Saying why do we have the dead?
Speaker 1: Something doesn't make sense. Are we dealing this in a
Speaker 1: in a sensible rational way? No. Um. As an investor,
Speaker 1: I would hold treasuries because you're gonna see a lot
Speaker 1: of stupid posturing and games games of Chicken and Washington.
Speaker 1: But I have every confidence that this will be worked
Speaker 1: out in the United States will honor its uh debts.
Speaker 1: As a former Treasury secretary, I empathize with Secretary Yellen,
Speaker 1: who's gonna probably have a sleepless night UM or two
Speaker 1: along the way, and it is going to be involved
Speaker 1: in all sorts of uh posturing that's uh necessary as
Speaker 1: she explains what he is and uh what he isn't
Speaker 1: uh possible. Uh. This is an area where I think
Speaker 1: everybody just needs to uh grow up. No one's really
Speaker 1: in doubt that when we borrowed money, the United States
Speaker 1: is going to pay it back. And so this whole
Speaker 1: ritual of pretending that we're gonna block paying it back,
Speaker 1: I think is a fairly sorry spectacle for our country.
Speaker 1: It diverts enormous amounts of political energy that could go
Speaker 1: to solving real problems rather than artificial and contrived ones
Speaker 1: like the dead silly. Okay, Larry Summers Harvard, thank you
Speaker 1: so very much for being back with us, Larry, of course,
Speaker 1: as our special contributor here at Wall Street Week. Finally,
Speaker 1: one more thought, what could you buy for three hundred
Speaker 1: million dollars? That's how much California spent this last week
Speaker 1: on its recall. And that's before you count the seventy
Speaker 1: million dollars the governor at Gavin Newsom spent to keep
Speaker 1: his job. But in the end it turned out it
Speaker 1: wasn't even close. Here's a way are enjoying overwhelmingly has
Speaker 1: no voting tonight here in the state of California. And
Speaker 1: it's not like it hasn't happened before. We all remember
Speaker 1: back in two thousand three when Governor Gray Davis lost
Speaker 1: his job only ten months into his second term. But
Speaker 1: he had a lot of challenges. Let's be frank, They'd
Speaker 1: had the collapse of the dot com bubble, which did
Speaker 1: really hit California, and even back then they had a
Speaker 1: lot of wildfires. Everyone running for office in California is
Speaker 1: well aware that the people in California have the first
Speaker 1: and last word. If you don't like that, well, don't
Speaker 1: run for August in California. Run someplace else. So you
Speaker 1: can't have mon and grown as his part of life
Speaker 1: in California. And oh yes, Gray Davis was up against
Speaker 1: a formidable opponent in the Terminator. But then again, Gavin
Speaker 1: Newsom in some senses, was running against a different kind
Speaker 1: of celebrity in the form of our most recent president.
Speaker 1: You either keep Gavin Newsom as your governor or no,
Speaker 1: get Donald Trump. California has made something a tradition of
Speaker 1: trying to recall its governors. In the roughly one years
Speaker 1: they've had the statute for the recall, they've had no
Speaker 1: fewer than fifty five attempts to recall the governor. Yes,
Speaker 1: if you're doing the math, that's roughly one every other year,
Speaker 1: But in all that time only two have actually made
Speaker 1: it to a formal election. Gray Davis that we talked
Speaker 1: about who lost, and now Gavin Newstone one. So if
Speaker 1: you're keeping score, it's roughly one and one at this point.
Speaker 1: Gavin Newsom, the current governor, has some ideas of what
Speaker 1: to do with that three million dollars. If you look
Speaker 1: at his most recent budget for the state, he proposes,
Speaker 1: for example, doing the way of the entire backlog of
Speaker 1: unemployment insurance claims and also maybe forgiving all of the
Speaker 1: traffic tickets issued to all low income residents of the
Speaker 1: state for the last six years. And the price tag
Speaker 1: for either one of those, well, it just happens to
Speaker 1: be yes, you guessed it, three hundred million dollars, So
Speaker 1: you make the call that does it. For this episode
Speaker 1: of Wall Street Week, I'm David Weston. This is Bloomberg.
Speaker 1: See you next week.