WEBVTT - Bloomberg Wall Street Week: July 8th, 2022 0:00:00.520 --> 0:00:03.920 This is Bloomberg Wall Street. We turn our attention to 0:00:03.960 --> 0:00:07.600 the markets this week. U s CPI never's reinforcing concerns 0:00:07.600 --> 0:00:10.800 about inflation. The financial stories that chief are worth a 0:00:10.840 --> 0:00:13.760 really different reaction to Mark. It's more indications of just 0:00:13.960 --> 0:00:16.360 how hot the U. S. Economy really is. Through the 0:00:16.400 --> 0:00:19.520 eyes of the most influential voice of Larry Summers, the 0:00:19.560 --> 0:00:22.480 former Treator Secretary Katherine Keene, CEO of the n Y 0:00:22.600 --> 0:00:26.160 mom Sam's l Sharmon and founder of Equatic Group Investment 0:00:26.239 --> 0:00:30.280 in Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.480 --> 0:00:34.600 This hasn't happened in Japan in decades and decades to 0:00:35.280 --> 0:00:40.600 the present Prime minister is a very solid guy. Japan 0:00:40.840 --> 0:00:44.440 is a very very stable ally. It is cleaning out 0:00:44.440 --> 0:00:48.880 of the will of the parliamentary Conservative Party that that 0:00:49.000 --> 0:00:51.680 should be a new leader of that party, and that 0:00:51.840 --> 0:00:56.120 for a new prime minister. Two world leaders gone, Boris 0:00:56.200 --> 0:01:00.320 Johnson from Scandal and Shinzo Abe from an Assassin's Bullet. 0:01:01.440 --> 0:01:03.880 This is Bloomber of Wall Street Week. I'm David Weston. 0:01:04.440 --> 0:01:07.160 This week special contributor Larry Summers on how we can 0:01:07.200 --> 0:01:11.640 have our recession with full employment it's not something we 0:01:11.720 --> 0:01:16.920 have ever seen before. And Deborah Jackson of plumb Alley 0:01:17.080 --> 0:01:20.800 on what a downturn could mean pre venture capital. Will 0:01:20.880 --> 0:01:24.440 the market be there? In my opinion, look at look 0:01:24.480 --> 0:01:41.800 at history. Two influential leaders left the world stage this week. First, 0:01:41.920 --> 0:01:44.720 British Prime Minister Boris Johnson quit after a soap opera 0:01:44.800 --> 0:01:48.920 played out at Number ten Downing Street, a board bullying 0:01:49.120 --> 0:01:53.280 and abuse of power anywhere in this party or in 0:01:53.320 --> 0:01:56.240 any other party. None of that explains why he promoted 0:01:56.320 --> 0:01:59.120 him in the first place. I'm not going to trivialize 0:01:59.480 --> 0:02:02.720 what it's absolutely true, Mr Speaker, that it was raised 0:02:02.760 --> 0:02:06.520 with me. I greatly regret that he continued in office, 0:02:06.960 --> 0:02:10.480 ultimately leading to Prime Minister Johnson stepping down and triggering 0:02:10.480 --> 0:02:13.239 a search for a new government. And then at the 0:02:13.360 --> 0:02:15.760 end of the week, an assassin took the life of 0:02:15.880 --> 0:02:23.079 former Japanese Prime Minister Shinzo Abe. It was for us, 0:02:24.840 --> 0:02:29.959 clearly it was great leader or death. NATO Secretary of 0:02:30.000 --> 0:02:33.280 General Stoltenberg said that he would welcome Sweden and Finland 0:02:33.320 --> 0:02:35.720 into the Alliance and said, by the way, there's room 0:02:35.760 --> 0:02:41.840 for more. This is an historic day for Philon, for Sweden, 0:02:42.360 --> 0:02:47.200 for natal and for you Atlantic security, while minutes from 0:02:47.240 --> 0:02:50.280 the fo MC meeting last month did nothing to suggest 0:02:50.280 --> 0:02:52.560 that the FED is looking to back off of its 0:02:52.600 --> 0:02:58.239 tightening path regardless of the recession risk. In recent discussions, 0:02:58.280 --> 0:03:02.040 Pale has been very very clear that that he understands 0:03:02.040 --> 0:03:03.760 they have a big problem and they need to be 0:03:03.840 --> 0:03:06.720 more and more restrictive. In the midst of the turmoil, 0:03:06.880 --> 0:03:09.480 the Great and the Good of media and Tech gathered 0:03:09.520 --> 0:03:13.280 for their annual Sun Valley retreat with Discoveries, David Zaslow 0:03:13.400 --> 0:03:16.800 saying the downturn could be good for his media behemoth, 0:03:17.200 --> 0:03:24.240 a lot of termoils hitting a lot of opportunity, and 0:03:24.400 --> 0:03:27.160 with all that, the week still wasn't over, with US 0:03:27.240 --> 0:03:30.000 jobs numbers on Friday coming in higher than anticipating in 0:03:30.160 --> 0:03:33.120 number and a bit lower in wage growth, indicating that 0:03:33.120 --> 0:03:36.320 the economy is still strong, much stronger, as it turned 0:03:36.360 --> 0:03:39.680 out than Elon Musk's promised to buy Twitter. Because Friday 0:03:39.680 --> 0:03:42.120 evening we learned that Mr Musk had thought better of 0:03:42.200 --> 0:03:45.680 the deal he'd offered and was calling the whole thing off. Well, 0:03:45.680 --> 0:03:48.160 what did the markets make of all this wild week? Well, 0:03:48.280 --> 0:03:51.200 stocks were up, with the SMP five hundred higher by 0:03:51.240 --> 0:03:54.119 just under two percent and the NASDAC rising four point 0:03:54.200 --> 0:03:57.240 six percent, while bonds sold off a bit, leaving the 0:03:57.240 --> 0:04:00.120 ten year yield just above three percent rather than just 0:04:00.280 --> 0:04:02.720 under as it was last week, and the dollar posted 0:04:02.800 --> 0:04:05.800 another week of games here to help us sort it 0:04:05.800 --> 0:04:08.360 all out? Or liz Ane Saunders, chief strategist for Charles 0:04:08.400 --> 0:04:13.280 Schwab and then only Causeway Capital Management, fundamental portfolio manager. 0:04:13.440 --> 0:04:15.240 So let me start, Lisane, if I could with you, 0:04:15.440 --> 0:04:17.400 what did we learn from the markets this week on 0:04:17.440 --> 0:04:20.480 the economy? You know, if we start with the job's number, 0:04:20.839 --> 0:04:23.479 I don't want to say on the surface it was strong. 0:04:23.600 --> 0:04:26.039 I think there was you could you could nip pick 0:04:26.080 --> 0:04:28.000 a little bit with the average work week down as 0:04:28.040 --> 0:04:31.560 you mentioned, David, wages coming down. But I think that 0:04:31.760 --> 0:04:34.440 the shift in the market maybe had less to do 0:04:34.720 --> 0:04:38.640 with some change and outlook for the economy, because you 0:04:38.760 --> 0:04:41.680 just sort of, for whatever reason, saw speculative juice is 0:04:42.160 --> 0:04:45.040 sort of kick in again, the leadership back in those 0:04:45.160 --> 0:04:50.000 highly speculation driven, lower quality segments of the market, which 0:04:50.000 --> 0:04:52.680 at this point looks a little bit more like your 0:04:52.720 --> 0:04:55.960 typical bear market rally where you see just some counter 0:04:56.000 --> 0:05:00.600 trend moves versus new assessment of either the plaction or 0:05:00.720 --> 0:05:03.920 the economic landscape. And I'm not sure that the jobs 0:05:03.960 --> 0:05:06.799 data changed that to any significant degree either. So only 0:05:06.800 --> 0:05:08.760 what about from your point of view as a as 0:05:08.800 --> 0:05:11.760 an investor, here is it time to say maybe there 0:05:11.880 --> 0:05:14.840 is an area for a bear market rally or is 0:05:14.920 --> 0:05:17.960 this just a tiny blip? You know, the real earnings 0:05:18.040 --> 0:05:22.120 hit will come in second half, as we're seeing, we're 0:05:22.160 --> 0:05:26.719 hearing from companies, especially retailers, saying they're already seeing weakness 0:05:27.200 --> 0:05:31.680 from consumers. And I believe this is a tiny blip. 0:05:32.160 --> 0:05:37.080 Rates are up, you know, investment sentiment is down, and consumers, 0:05:37.240 --> 0:05:40.600 especially to the middle to the lower level of income level, 0:05:41.400 --> 0:05:46.440 they're getting squeezed. And we're already seeing consumer downtrading. Listen, 0:05:46.640 --> 0:05:48.960 what about the consumer of the U. S economy? And 0:05:49.040 --> 0:05:51.520 we kind of the consumer yet again, I don't think so. 0:05:51.640 --> 0:05:54.680 I don't know that we see a significant implosion. But 0:05:54.720 --> 0:05:57.800 what you're seeing in the data already is a slowdown 0:05:57.839 --> 0:06:01.360 and demand is slow downa spending, specially in the stay 0:06:01.400 --> 0:06:04.320 at home area, the goods oriented side of the economy, 0:06:04.520 --> 0:06:07.360 which if there's a silver lining, that bodes well for 0:06:07.600 --> 0:06:11.279 those components of metrics like CPI and inflation, because that 0:06:11.320 --> 0:06:14.160 was the breeding ground for the inflation problem with which 0:06:14.160 --> 0:06:17.279 we're still dealing. So that's a positive sign. You know, 0:06:17.320 --> 0:06:21.280 there's this debate out there about excess savings and and 0:06:21.360 --> 0:06:23.839 the strength of household balance sheets. David, we talked about 0:06:23.839 --> 0:06:27.240 that earlier, and the only rub with that analysis if 0:06:27.279 --> 0:06:29.680 you do it in the aggregate, it doesn't pick up 0:06:29.680 --> 0:06:32.920 the fact that most of that call it excess savings 0:06:33.360 --> 0:06:37.280 is concentrated up the income spectrum. So I think that 0:06:37.560 --> 0:06:40.479 the surge that was represented by the consumer in the 0:06:40.520 --> 0:06:43.279 economy coming out of the lockdowns, I think that's that's 0:06:43.400 --> 0:06:45.479 very much in the review. It's such a good point. 0:06:45.560 --> 0:06:48.000 Thank you so much, liz Ane Saunders and Eli will 0:06:48.000 --> 0:06:49.880 be staying with us as we turned to some investment 0:06:49.880 --> 0:06:53.320 advice in a somewhat conflicted market. That's gonna have next 0:06:53.320 --> 0:07:01.719 on Wall Street Week on Bloomberg. This is Bloomberg Wall 0:07:01.760 --> 0:07:11.640 Street Week with David Weston from Bloomberg Radio. But even 0:07:11.680 --> 0:07:15.559 the slowdown seemed to be slowing down. While the mixed 0:07:15.560 --> 0:07:18.960 news they are carried some unexpected blessings, such as a 0:07:19.040 --> 0:07:22.120 temporary drop in the unemployment rate, the hope that the 0:07:22.120 --> 0:07:25.680 recession might squeeze out substantial amounts of inflation seemed to 0:07:25.680 --> 0:07:30.000 be generally fading even in the government's forecasts, and so 0:07:30.160 --> 0:07:34.960 with eminently good cause to panic and crash the stock market, 0:07:35.360 --> 0:07:40.080 that perverse little devil rallied and surged. And that was 0:07:40.120 --> 0:07:42.280 the way Lewis Roguiser saw it on Wall Street. We've 0:07:42.280 --> 0:07:44.800 been in the back in the fall of nine. We 0:07:44.800 --> 0:07:47.400 were trying to address a much bigger beast of inflation 0:07:47.640 --> 0:07:49.840 and looking for an economic downturn to do the trick 0:07:50.200 --> 0:07:52.680 liz Ane Saunders of Charles Schwab and Ellen Lee of 0:07:52.760 --> 0:07:55.320 Causeway Capital Management have saved with us. So let me 0:07:55.520 --> 0:07:58.280 start to you with you about specific investment advice, because 0:07:58.440 --> 0:08:00.679 I came across this and find it in shreaking idea 0:08:00.680 --> 0:08:03.360 of idiosyncratic self help. I think you call it what 0:08:03.440 --> 0:08:06.440 does that tell us about a company? So basically, i'd 0:08:06.440 --> 0:08:09.160 caused we were looking at companies on a bottom up basis. 0:08:09.520 --> 0:08:12.680 So I'm trying to find, you know, risk reward where 0:08:13.040 --> 0:08:16.800 we're taking a conservative view on the outlook of the company, 0:08:16.840 --> 0:08:19.360 but there are things within the control of the company 0:08:19.520 --> 0:08:24.000 where the company can increase its earnings and better the 0:08:24.040 --> 0:08:26.760 business model of the company. So an example, I will use. 0:08:26.840 --> 0:08:30.280 Here is a company called Unilever, you know, based in 0:08:30.480 --> 0:08:36.000 UK slash Netherlands, a massive consumer company. They recently had 0:08:36.200 --> 0:08:39.400 Nelson Pelts, a share older activists come in and join 0:08:39.520 --> 0:08:42.880 the board. And this is actually great news because the 0:08:42.920 --> 0:08:46.199 restructuring that they had take on themselves, you know, is 0:08:46.240 --> 0:08:50.280 going to be accelerated by a shareholder minority shareholder advocate 0:08:50.520 --> 0:08:54.240 to push things forward. They had not been as good 0:08:54.440 --> 0:08:58.600 as pushing the innovations as in a timely manner. We 0:08:58.679 --> 0:09:02.360 believe an activists being there will really push the management 0:09:02.720 --> 0:09:06.120 to accelerate that timetable. And this has nothing to do 0:09:06.240 --> 0:09:10.319 with the economic slowdown we talked about in the previous segment, 0:09:10.720 --> 0:09:15.880 because they're doing things internally to really energize their sales 0:09:15.960 --> 0:09:19.559 and ultimately increased earnings of the company. So listen, I 0:09:19.600 --> 0:09:21.280 love me put that and sell with different terms which 0:09:21.280 --> 0:09:23.959 Ellen may agree with or disagree with. You know, we 0:09:24.040 --> 0:09:25.920 say a rising tide lifts all boats. I think what 0:09:26.000 --> 0:09:27.800 you're saying is that when the tides that going up, 0:09:27.800 --> 0:09:29.320 you have to find some boats that float a little 0:09:29.320 --> 0:09:32.000 better than other boats do. What are you looking for 0:09:32.160 --> 0:09:35.760 is and in terms of advising people on investments right now, yeah, 0:09:35.800 --> 0:09:38.199 so we have. We've really been taking more of a 0:09:38.240 --> 0:09:42.360 factor based approach versus say, either a sector based approach 0:09:42.600 --> 0:09:46.800 or trying to pick your traditional style boxes of large 0:09:46.800 --> 0:09:50.600 cap small cap growth value. And really what the theme 0:09:50.640 --> 0:09:53.040 has been around the factors we've been emphasizing. It's sort 0:09:53.080 --> 0:09:56.800 of a quality wrapper um and almost hybrid factors where 0:09:56.880 --> 0:10:00.199 where you look for reasonable value. But also especially in 0:10:00.880 --> 0:10:03.640 what we think, and I know Ellen agrees, we're go 0:10:03.880 --> 0:10:07.960 heading into I think a more earnings constrained environment. So 0:10:08.360 --> 0:10:11.559 when that happens, earnings become more dear and there's more 0:10:11.640 --> 0:10:14.640 value than two. Companies that have that higher profitability, have 0:10:14.720 --> 0:10:18.320 that positive earnings revisions trends, while also keeping a mind 0:10:18.320 --> 0:10:21.160 the need to have strong free cash flow, healthy balance 0:10:21.240 --> 0:10:23.880 sheet with high cash, low debt. You sort of look 0:10:23.880 --> 0:10:27.520 at the macro picture, see what's lacking, and then look 0:10:27.600 --> 0:10:30.840 for companies that have that in relative terms, and you 0:10:30.880 --> 0:10:34.400 can apply factor based analysis or factor based screening, and 0:10:34.400 --> 0:10:38.439 Bloomberg has great data on factors across the spectrum of 0:10:38.520 --> 0:10:42.840 large cap small cap. You can look for growth characteristics 0:10:42.840 --> 0:10:45.720 in stocks that live in the value indexes and vice versa. 0:10:45.880 --> 0:10:49.120 So I think it's you're less constrained when you take 0:10:49.120 --> 0:10:51.559 a factor approach, then if you're just trying to make 0:10:51.600 --> 0:10:55.440 a sector caller to let me put a geographic lens 0:10:55.480 --> 0:10:58.000 on this if I could, and I'll start with you here. 0:10:58.600 --> 0:11:01.320 What about your What about China? Some people are investors 0:11:01.360 --> 0:11:03.079 are saying right now China is a good place for example, 0:11:03.120 --> 0:11:05.480 to look because they're loosening monetary policy at the same 0:11:05.520 --> 0:11:08.280 time the rest of the world is tightening it. I 0:11:08.360 --> 0:11:11.640 think in you know, China recently, there's been a lot 0:11:11.880 --> 0:11:15.800 of bad news price then because of the regulatory risk 0:11:16.000 --> 0:11:20.400 and the COVID policy. And as an investor myself looking 0:11:20.440 --> 0:11:23.720 at companies on the bottom up basis, you know, the 0:11:23.760 --> 0:11:26.720 fact that there is you know that they're they're in 0:11:26.720 --> 0:11:31.240 a loosening policy. Plus you know, hopefully in in the 0:11:31.520 --> 0:11:35.199 foreseeable future, the zero COVID policy goes away. I think 0:11:35.240 --> 0:11:39.720 there are companies like Macau, casino operators like Las Vegas, 0:11:39.720 --> 0:11:42.920 Sands or Sands China that could really benefit from a 0:11:43.000 --> 0:11:46.240 reopening of the country. And hence, you know, we find 0:11:46.280 --> 0:11:51.079 those opportunities to be very attractive in the current time. 0:11:51.559 --> 0:11:54.800 And in the case of Europe, you know, you you 0:11:54.800 --> 0:11:57.080 you mentioned earlier in the segment. You know, dollar has 0:11:57.080 --> 0:12:00.079 never been stronger, and now you know with your of 0:12:00.240 --> 0:12:04.280 what it's based with the Ukraine situation, there's gonna be 0:12:04.360 --> 0:12:08.080 a lot of fiscal spending to beef uppets infrastructure. I 0:12:08.120 --> 0:12:10.880 know there's a lot of concerns about recession because energy 0:12:10.920 --> 0:12:13.679 prices are going up, But if you are able to 0:12:13.720 --> 0:12:18.640 find companies where they're going to be beneficiaries of more 0:12:18.720 --> 0:12:23.280 spending because energy infrastructure has to go, has to be 0:12:23.280 --> 0:12:26.840 beefed up, you will find good opportunities in those markets 0:12:26.840 --> 0:12:32.720 as well los An opportunities geographically. So I think there's 0:12:32.760 --> 0:12:35.160 still probably some storms that are going to have to 0:12:35.200 --> 0:12:40.000 be weathered globally with with bouts of volatility, especially given 0:12:40.120 --> 0:12:43.160 what's going on in currency markets, and not to mention 0:12:43.200 --> 0:12:46.480 the war and the impact on the consumption side of 0:12:46.480 --> 0:12:50.480 economies in UH in Europe. But I think, thinking from 0:12:50.520 --> 0:12:53.760 a more secular standpoint longer term, I think when we 0:12:54.720 --> 0:12:57.280 whenever we do come out of this, I like to 0:12:57.280 --> 0:12:59.400 think of as a dual cycle when we're through the 0:12:59.400 --> 0:13:02.880 bear mark it, when we're through the recession that that 0:13:02.960 --> 0:13:06.280 I think is either happening or will happen. What tends 0:13:06.320 --> 0:13:08.319 to happen when you come out of those dual cycles, 0:13:08.400 --> 0:13:11.000 especially if they're global in nature, is you tend to 0:13:11.040 --> 0:13:15.520 see a change and where leadership resides from a macro perspective, 0:13:15.559 --> 0:13:18.000 And it is our view that we're going to see 0:13:18.080 --> 0:13:22.640 more the greater benefits of diversification outside the United States. 0:13:22.679 --> 0:13:24.760 That's different than saying we think, you know, non US 0:13:24.880 --> 0:13:27.640 is going to handle the outperform US, but there hasn't 0:13:27.679 --> 0:13:30.520 been that benefit of that global diversification. We think that's 0:13:30.559 --> 0:13:32.440 the next secular shift. Is that I can't let you 0:13:32.440 --> 0:13:34.600 go over that as well, Leon Musk and Twitter here, 0:13:34.640 --> 0:13:36.600 I know you don't like to invest by sectors. Does 0:13:36.640 --> 0:13:38.960 that phenomenon tell us anything about the sector of tech? 0:13:39.080 --> 0:13:41.559 Or is it should use the word idiosyncratic when it 0:13:41.600 --> 0:13:44.720 comes to along Musk, I don't think it's it's a 0:13:44.800 --> 0:13:47.960 news slash that he's a bit of a quirky guy. 0:13:48.200 --> 0:13:53.600 So I think making a broader inference about the industry um, 0:13:53.640 --> 0:13:55.840 at least at this point, I think is a is 0:13:55.880 --> 0:13:58.560 a stretch. I think it is more idiosyncratic that the 0:13:58.600 --> 0:14:01.640 popular word of our segment here today. Does that sound 0:14:01.720 --> 0:14:05.480 right to you? Ellen? Totally agree? Okay, that's nice to 0:14:05.559 --> 0:14:08.120 end a note of agreement here many thanks now to 0:14:08.200 --> 0:14:11.040 Ellen Lee of Causeway Capital Management and also to liz 0:14:11.080 --> 0:14:16.440 Anne Saunders of Charles Schwab coming up. The economic slowdown 0:14:16.520 --> 0:14:19.320 is hitting the public markets hard, but what's going on 0:14:19.440 --> 0:14:23.440 behind the scenes in venture capital? We asked Deborah Jackson 0:14:23.520 --> 0:14:28.200 of plumb Valley. This is Wall Street Week on Bloomberg. 0:14:29.120 --> 0:14:32.520 Neil Armstrong waited six hours and thirty nine minutes to 0:14:32.560 --> 0:14:36.080 step onto the surface of the moon. Jackie Robinson waited 0:14:36.120 --> 0:14:38.960 twenty months to play his first game with the Brooklyn Dodgers, 0:14:39.480 --> 0:14:42.200 and even DiCaprio had to wait twenty two years to 0:14:42.280 --> 0:14:46.520 win an oscar. You can wait until your destination. Don't 0:14:46.600 --> 0:14:51.080 text and drive, Visit stop Text Stop rex dot Org. 0:14:51.400 --> 0:14:53.760 A message brought to you by the National Highway Traffic 0:14:53.760 --> 0:14:59.320 Safety Administration, Project yellow Light and the AD Council. This 0:14:59.840 --> 0:15:04.360 is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:15:12.800 --> 0:15:16.320 Whether you call it a recession, there's probably close to 0:15:16.320 --> 0:15:19.359 a fifty chance. Maybe it's a bit less than that 0:15:19.360 --> 0:15:23.280 that we've had two negative quarters in a row or not. 0:15:23.680 --> 0:15:26.640 I think there's nothing inevitable about this recession. There is 0:15:26.680 --> 0:15:29.400 no question at this point that the economy is slowing 0:15:29.880 --> 0:15:33.120 changing the world. Whether it's the world of stocks, we're 0:15:33.120 --> 0:15:35.600 pretty close, you know, it's um it's sort of a 0:15:35.600 --> 0:15:37.960 losing game to who call the bottom of the market 0:15:38.200 --> 0:15:42.520 or of credit. Spreads were again much lower than you 0:15:42.600 --> 0:15:45.760 might look at from a tenure average relative to economic outcomes. 0:15:45.880 --> 0:15:49.360 But what about the world of patient capital, capital directed 0:15:49.400 --> 0:15:53.720 toward long term innovation capital that's meant to change the world. 0:15:54.000 --> 0:15:57.720 President Biden's Special Climate Envoy John Kerry thinks that there's 0:15:57.760 --> 0:16:01.280 a lot of money in venture capital still headed toward 0:16:01.360 --> 0:16:06.040 new technologies, directed to the energy transition. It is appropriate, 0:16:06.120 --> 0:16:11.160 I think, to have a gas transition while you bring 0:16:11.280 --> 0:16:14.440 technology to scale that is going to change altogether what 0:16:14.560 --> 0:16:17.160 we're doing. And frankly, it's about a trillion dollars a 0:16:17.280 --> 0:16:21.280 venture capital already moving towards these new technologies. But others 0:16:21.720 --> 0:16:25.120 like Ben at Coasla of Coastal Ventures, think the downturn 0:16:25.200 --> 0:16:28.640 will have to effect at least the more vulnerable venture 0:16:28.680 --> 0:16:31.840 capital firms. So I do think given the hype we've 0:16:31.880 --> 0:16:36.600 seen the last five years, we will see decline and returns. 0:16:37.000 --> 0:16:40.960 The good firms continue to be disciplined about valuations. But 0:16:41.520 --> 0:16:44.240 I do think in general for the industry will see 0:16:44.240 --> 0:16:51.240 a decline, the best phones will still do well. Debord 0:16:51.320 --> 0:16:54.240 Jackson's at the very center of venture capital with the 0:16:54.320 --> 0:16:56.920 firm that she founded and now runs. It's called plumb Alley. 0:16:57.120 --> 0:16:59.120 And we welcome right now to Wall Street Week. Great 0:16:59.120 --> 0:17:00.920 to have you here, Debora, Thank you for joining us. 0:17:01.160 --> 0:17:03.800 Thank you for having me, David. So, the big question 0:17:03.880 --> 0:17:06.240 is there's a downturn, without doubt, you look at the 0:17:06.240 --> 0:17:09.720 markets with its equities or dead or whatever downturn, is 0:17:09.760 --> 0:17:14.000 it affecting venture capital? And if so, how well the 0:17:14.119 --> 0:17:17.720 big macro issues that we're facing in the public markets 0:17:17.800 --> 0:17:24.200 like inflation, um, supply chain challenges, and also things like 0:17:24.320 --> 0:17:29.119 the recent Supreme Court ruling that would affect EPA regulations. 0:17:29.160 --> 0:17:32.960 All of those factors come into play for the public markets. 0:17:33.160 --> 0:17:36.760 They also have implications in the private markets. However, the 0:17:36.760 --> 0:17:40.159 private markets are very, very different. So the private markets, 0:17:40.200 --> 0:17:43.879 when you think of venture investors are looking at the 0:17:44.000 --> 0:17:47.280 medium term time frame, not like short day to day 0:17:47.320 --> 0:17:51.320 trading and immediate effects, but more over a course of 0:17:51.400 --> 0:17:55.080 seven years for a series A level financing, and so 0:17:55.440 --> 0:17:57.960 there are it's a it's a medium term kind of 0:17:58.000 --> 0:18:01.760 investor mentality that's happening. I think it's important to know 0:18:01.920 --> 0:18:05.120 that there is so much money that's been put out 0:18:05.200 --> 0:18:09.800 into venture capital over the last few years. We had 0:18:09.800 --> 0:18:13.879 a record amount it was over the previous year. So 0:18:13.960 --> 0:18:16.720 you think about it, we have this huge amount of 0:18:16.760 --> 0:18:21.200 capital that's already been deployed into early stage companies. We 0:18:21.280 --> 0:18:26.440 also have about six hundred thirty million billion of dry 0:18:26.480 --> 0:18:29.800 powder that's already been raised and ready to deploy. So 0:18:29.840 --> 0:18:33.800 what does that mean? That really means that these venture firms, 0:18:33.880 --> 0:18:36.679 early stage companies have a lot of fuel in the 0:18:36.760 --> 0:18:41.640 tank to keep going to weather this current market situation? 0:18:41.880 --> 0:18:44.720 Does that large amount of money, even huge amount of money, 0:18:44.800 --> 0:18:47.480 make your job more difficult? You're looking for presently for 0:18:47.680 --> 0:18:50.679 really great opportunities. If there are a lot of people 0:18:50.720 --> 0:18:54.560 in there, maybe maybe not as disciplined as plumb Alley is. 0:18:54.760 --> 0:18:57.520 What does that mean to valuations? Are people overbidding? Do 0:18:57.560 --> 0:19:00.720 you have a tough time finding a prop or prices 0:19:00.760 --> 0:19:03.280 for what you want to invest in? Yes? So at 0:19:03.320 --> 0:19:06.480 plumb Alley were very, very focused on the fundamentals. And 0:19:06.800 --> 0:19:09.320 I come from Wall Street. I spent twenty years on 0:19:09.440 --> 0:19:12.560 Wall Street at Goldman and other places, as do my 0:19:12.600 --> 0:19:15.400 team members. So we come at looking at venture from 0:19:15.400 --> 0:19:19.119 a kind of fundamental point of view, which means, do 0:19:19.160 --> 0:19:22.119 the companies have revenue, do they have real customers? Do 0:19:22.160 --> 0:19:24.240 they have a real product that we need in the world. 0:19:24.440 --> 0:19:26.720 If the answer to that is yes, then you drill 0:19:26.800 --> 0:19:29.280 down and look at the numbers. And in our case, 0:19:29.560 --> 0:19:33.160 the companies that we funded have revenues, but we only 0:19:33.160 --> 0:19:37.520 look at you know, six to seven times current revenues 0:19:37.880 --> 0:19:41.400 for a SAS company, and in the market that number 0:19:41.440 --> 0:19:45.160 has been about twelve times revenues. So we have seen 0:19:45.200 --> 0:19:51.080 this situation where valuations have been way overpriced um and 0:19:51.119 --> 0:19:53.040 I think that's a reflection of the fact there is 0:19:53.040 --> 0:19:55.199 so much capital coming into the market. When there's a 0:19:55.200 --> 0:19:58.280 lot of capital in the market, it pumps up valuations. 0:19:58.600 --> 0:20:00.639 But that's also presumably part why there's a lot of 0:20:00.680 --> 0:20:03.119 dry powder. Because if you if you're only willing to 0:20:03.119 --> 0:20:05.400 go to seven times and people are spending twelve times, 0:20:05.560 --> 0:20:07.159 you don't spend the money. You have to set on 0:20:07.240 --> 0:20:09.800 your money until you find the proper valuation. Where are 0:20:09.840 --> 0:20:13.160 the opportunities that you find right now? That makes sense? Well, 0:20:13.359 --> 0:20:18.320 we we've invested now sixty million in twenty seven companies, 0:20:18.320 --> 0:20:20.600 so we've been at this for five years, so we 0:20:20.680 --> 0:20:23.760 have had the opportunity to see the market change over time, 0:20:24.040 --> 0:20:25.879 but we have stuck to our knitting. We have stuck 0:20:25.880 --> 0:20:29.639 to the fundamentals, which is do what are the revenues? 0:20:30.040 --> 0:20:33.520 What is the company actually doing? Is the company essential 0:20:33.640 --> 0:20:37.719 for our future survival and for more productivity and industry? 0:20:37.960 --> 0:20:41.000 Does it really matter versus companies that are sort of 0:20:41.040 --> 0:20:44.080 optional like dog walking apps. Deborah Jackson, thank you so 0:20:44.119 --> 0:20:48.639 much for joining. Debora Jackson is with Plumber Alley coming up. 0:20:48.680 --> 0:20:51.119 We wrap up the week with our special contributor, Larry 0:20:51.160 --> 0:20:55.200 Summers of Harvard. That's next on Wall Street Week on Bloomberg. 0:21:02.240 --> 0:21:04.320 This is Wall Street Week. I'm David Weston. We are 0:21:04.400 --> 0:21:06.840 joined once again this week by our very special contribute 0:21:06.840 --> 0:21:09.640 to the Wall Street Week. He is Larry Summers of Harvard. So, Larry, 0:21:09.680 --> 0:21:12.080 thanks so much for your coming to us, actually from 0:21:12.119 --> 0:21:14.480 Sun Valley. It's good of you to do. We've lost 0:21:14.560 --> 0:21:17.359 It strikes me two world leaders in a sense this week, 0:21:17.359 --> 0:21:20.280 in very different circumstances. Boris Johnson of course forced to 0:21:20.320 --> 0:21:23.080 step down as Prime Minister of the United Kingdom. But 0:21:23.160 --> 0:21:25.080 then at the end of the week we lost to 0:21:25.280 --> 0:21:29.520 an assassin's bullet Shinzo Abe, the longest serving Japanese prime 0:21:29.520 --> 0:21:32.800 minister in history. I wonder is this telling us anything 0:21:33.000 --> 0:21:35.080 larger about the state of the world When we have 0:21:35.200 --> 0:21:38.680 these sorts of events in a single week. You know what, 0:21:39.320 --> 0:21:45.440 The assassination of shin zhuo Abi in Japan is a tragedy. 0:21:45.680 --> 0:21:50.199 Is a tragedy for his family, It is a tragedy 0:21:50.440 --> 0:21:57.120 for Japan. It is a tragedy for the Japanese American relationship, 0:21:57.200 --> 0:22:04.080 which is a lynchpin of our whole approach to Asia. Ultimately, 0:22:04.240 --> 0:22:10.639 I think it is a global tragedy, and I have 0:22:10.840 --> 0:22:16.800 to think about what it represents, and it represents a 0:22:16.920 --> 0:22:25.200 manifestation of a kind of swirling anger that seems far 0:22:25.320 --> 0:22:31.200 too pervasive in our politics almost everywhere in the world. 0:22:31.720 --> 0:22:39.120 In a very different way, Brexit Boris Johnson's ascendency represents 0:22:39.160 --> 0:22:45.679 that kind of swirling anger, and his ultimately falling UH 0:22:45.880 --> 0:22:50.800 from power is a product of these kinds of divisions. 0:22:50.840 --> 0:22:55.200 And we certainly see this Uh in our own country, 0:22:55.280 --> 0:23:00.560 with the question of wordly succession of power on table, 0:23:00.800 --> 0:23:06.879 with the bitter controversies that surround UH the Supreme Court. 0:23:07.200 --> 0:23:10.520 And so I think Ultimately all of us have to 0:23:11.560 --> 0:23:18.679 reckon with UH. This UH rage um. That seems to 0:23:18.720 --> 0:23:25.280 be a feature that cuts across very very many societies, 0:23:25.560 --> 0:23:31.480 and that is going to be a a framing aspect 0:23:31.640 --> 0:23:36.280 as we discuss the more narrow particulars of economic policy 0:23:36.359 --> 0:23:41.000 going forward. Larry strikes me that former Premnister Abbe had 0:23:41.680 --> 0:23:45.560 fairly profound I believe macro economic effect, unlike a lot 0:23:45.600 --> 0:23:47.879 of prime ministers and have matter of presidents. Even had 0:23:47.920 --> 0:23:51.199 it named after him, abanamics, what was aminamics? And in 0:23:51.200 --> 0:23:57.560 the end did it work? Abanomics was an attempt to 0:23:58.720 --> 0:24:04.960 jolt UH the Japanese economy out of two decades of 0:24:06.520 --> 0:24:15.239 secular stagnation and disinflation, with radically expansionary policy, both on 0:24:15.280 --> 0:24:18.880 the fiscal side and on the monetary side, and with 0:24:19.480 --> 0:24:25.760 UH structural policies like major efforts to get women working 0:24:26.280 --> 0:24:30.640 and enfranchised in UH the labor force. And I think 0:24:30.680 --> 0:24:35.359 one would have to say that it was a success 0:24:35.560 --> 0:24:39.320 by the standards of what had come before, but it 0:24:39.440 --> 0:24:43.960 was not a fully mission accomplished in terms of what 0:24:44.080 --> 0:24:48.560 was happening UH in UH Japan. But I think it 0:24:48.680 --> 0:24:53.600 will be remembered as one of the more aggressive and 0:24:53.840 --> 0:25:00.080 successful reprogrammings of macroeconomic strategy that we've seen in a 0:25:00.080 --> 0:25:05.159