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Speaker 1: This is Bloomberg Wall Street Week. What's the state of

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Speaker 1: corporate governance? A defresent is a real issue to use.

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Speaker 1: Economy continues to send mixed signals, the financial stories that

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Speaker 1: cheap our world, FED action to con concerns over dollar

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Speaker 1: liquidity and encouraging China data the five hundred wealthiest people

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Speaker 1: in the world. Through the eyes of the most influential

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Speaker 1: voices Larry Summers, the former Treasury Secretary, star Ward CEO,

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Speaker 1: Kevin Johnson sec Chairman Jake Clayton. Bloomberg wool Street Week

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Speaker 1: with David Weston from Bloomberg Radio. Please, sir, may I

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Speaker 1: have some more more stimulus, more bond yield and more vaccine.

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Speaker 1: Spring is in the air. This is Bloomberg Wall Street Week.

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Speaker 1: I'm David Weston. Easy money has been fueling a borrowing

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Speaker 1: binge that might be here to stay. As FED chair

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Speaker 1: j Pal more or less promised this week in his

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Speaker 1: testimony on Capitol Hill, we won inflation expectations to be

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Speaker 1: anchored right and not somewhere below two percent. We are

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Speaker 1: committed to using our tools to achieving that purchasing assets

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Speaker 1: at least at the current case until we see substantial

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Speaker 1: further progress toward our goals. Even the devilish pal has

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Speaker 1: to admit that the FEDS policies, combined with even more

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Speaker 1: stimulus on the way and vaccines as well, could move

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Speaker 1: inflation up. Here's Wall Street we contributed Larry Summers. I

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Speaker 1: don't think the right question is whether this package would

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Speaker 1: overheat the economy. I think if it were passed as written,

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Speaker 1: it would overheat the economy. But it's not just inflation.

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Speaker 1: That could be an unintended consequence of all that stimulus.

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Speaker 1: Those rock bottom interest rates also promote so called zombie companies,

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Speaker 1: firms that don't generate enough income to pay interest on

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Speaker 1: their debt. Those underperforming companies have borrowed one billion dollars

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Speaker 1: despite credit ratings below investment grade. Borrowing is cheap money

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Speaker 1: is really kind of not an object amazingly in all

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Speaker 1: of this stuff. That's Nobel Laureate Paul Krugman. These walking

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Speaker 1: dead companies include many we all know, like macy In,

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Speaker 1: Carnival and ex On Mobile. Here's Thomas Freeman from the

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Speaker 1: New York Times. They're soaking up town. They're soaking up

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Speaker 1: capital um, and that slows down innovation because the natural

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Speaker 1: process of capitalism, which is like forest fires in nature,

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Speaker 1: you clear out the dead wood in order for new

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Speaker 1: growth to emerge. Isn't happening. All four major US airlines

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Speaker 1: became zombies in after the lockdowns forced them to limit

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Speaker 1: or shut down their operations. And it's not just obviously

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Speaker 1: her travel. It's just the hotels, is the theme parks,

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Speaker 1: is the casinos, it's the cruise lines that is there

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Speaker 1: are all such big contributors our industry broadly, is is

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Speaker 1: the single biggest contributor to overall GDP in our nation.

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Speaker 1: That's Delta CEO ed Bastion. And it's not just that

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Speaker 1: these zombies maybe living past their useful life. It's the

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Speaker 1: opportunity cost of their consuming talent and capital that could

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Speaker 1: be put to more productive uses. Thomas Friedman. Again, this

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Speaker 1: is Rusher Charma's point that basic when you have all

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Speaker 1: these zombie companies, first of all, they soak up a

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Speaker 1: lot of town just got engineers kind of sitting around um.

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Speaker 1: And at the same time they soak up a lot

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Speaker 1: of capital um and it leaves less room for startups.

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Speaker 1: One of the first to see what all that steamus

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Speaker 1: may be doing to our economy is Rusher Sharma. Morgan

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Speaker 1: Stanley Investment Management, Chief Global Strategists and author of ten

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Speaker 1: Rules of Successful Nations, who says the health of our

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Speaker 1: free enterprise system itself may be at issue. Capitalism, I think,

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Speaker 1: is being undermined when you keep on doing these kind

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Speaker 1: of interventions. So therefore, what you see here is the

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Speaker 1: zombification of capitalism in a way. Um and there's one

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Speaker 1: statistic which highlights this. The number of zombie companies, let's

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Speaker 1: see the United States today is twenty percent, which with

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Speaker 1: twenty percent of all listed companies in the United States

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Speaker 1: have not earned enough profit to cover their interest expence

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Speaker 1: for three years in a row. This number in the

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Speaker 1: ninth in eighties was a mere two percent. You know.

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Speaker 1: So I think that this is the entire problem today

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Speaker 1: with the way we think about stimulus and what the

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Speaker 1: effects are. That the conventional wisdom and the consensus is

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Speaker 1: that as long as you don't have inflation, there is

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Speaker 1: really no downside to having constant intervention in the markets

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Speaker 1: and to having all this stimulus, because people are trained

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Speaker 1: to think that inflation is what really should come through

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Speaker 1: as a negative consequence. And the point that I've been

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Speaker 1: making is that there are many insidious consequences of this

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Speaker 1: constant intervention um and always supporting the markets. And one

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Speaker 1: of them is the fact that you have a rise

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Speaker 1: in zombie companies, which is why I think that productivity

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Speaker 1: growth around the world and including the United States, has

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Speaker 1: been so weak over the last few years. So that's

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Speaker 1: a critical point productivity ultimately in terms of really healthy growth.

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Speaker 1: Have we essentially suspended creative destruction up creative actually, because

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Speaker 1: I think a lot of increasing productivity has thought to

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Speaker 1: become from creative destruction. Yeah, because we see it from

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Speaker 1: both sides. Look at what's going on, which is that

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Speaker 1: the number of new startups that's declining, the number of

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Speaker 1: zombie companies is going up. And as far as existing

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Speaker 1: companies are are concerned, we have really had so much

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Speaker 1: monopoly power as we have now. So this combination tells

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Speaker 1: you that there's something wrong with creative destruction now. Not

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Speaker 1: always lost, but this is being undermined um over time.

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Speaker 1: And I think that these consequences of stimulus and nobody

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Speaker 1: is too small or even big to fail. I think

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Speaker 1: that this is what the consequences are which are less

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Speaker 1: appreciated because most people appreciate the consequences when there's an

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Speaker 1: apparent crisis, or if there's some big upsurgeon inflation. But

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Speaker 1: what's happening beneath the hood when you look at productivity

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Speaker 1: and why is productivity declining? I think that these reasons

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Speaker 1: are being grammatically underestimated. Uh, connect up monopoly part on

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Speaker 1: the one hand with what you're describing here with keeping

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Speaker 1: alive companies otherwise might fail. Why does the one lead

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Speaker 1: to the other. Is because money is so cheap so

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Speaker 1: people could afford to borrow money to buy other companies

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Speaker 1: or is it something else? Absolutely, you hit the nail

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Speaker 1: on the head, which is that a lot of academic

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Speaker 1: work here has been done to show that, Uh, the

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Speaker 1: larger companies get larger because they have access to cheap

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Speaker 1: finance and they're able to make acquisitions. And at the

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Speaker 1: other end of the spectrum, you have zombie companies that

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Speaker 1: they're able to stay alive because they keep getting easy

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Speaker 1: and easy finance. So what gets squeeze are people in

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Speaker 1: the middle and firms in the middle. And also it

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Speaker 1: keeps out new startups from coming. That was for sure

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Speaker 1: Sharma of Morgan Stanley. Coming up, we go through the

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Speaker 1: weekend markets with our roundtable and contributor Jillian Tet from

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Speaker 1: the Financial Times and Peter Krausse of Aperture. That's next

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Speaker 1: on Wall Street Week on Bloomberg. Yeah, this is Bloomberg

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Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. You

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Speaker 1: can't talk about the markets this week without talking about

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Speaker 1: the back and forth between the ten year yield on

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Speaker 1: the one hand, and equities and any other or for

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Speaker 1: that matter, about the real tug of war being played

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Speaker 1: between the stay at home stocks things like the tech

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Speaker 1: stocks on the one hand. On the other hand, let's

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Speaker 1: get back to work stocks like financials and like energy.

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Speaker 1: And here to take us through that, we have a

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Speaker 1: very special roundtable. We have Jillian Ted she is chair

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Speaker 1: of the editorial board at the Financial Times as well

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Speaker 1: as editor at large for the US for the Financial Times.

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Speaker 1: And we have Peter Krauss he is chairman and CEO

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Speaker 1: of Aperture. Welcome to both of you. Great to have

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Speaker 1: you here. Jillian. I want to start with you because you,

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Speaker 1: in my experience, one of the early ones talking about inflation,

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Speaker 1: and people are coming around to your view that at

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Speaker 1: least we should be talking about it, even if it's

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Speaker 1: not here. And let me start with the most basic question.

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Speaker 1: I think which is what's that difference between reflation and inflation?

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Speaker 1: We had Chair J. Powell this week say no, this

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Speaker 1: is just hell because we're just getting back to normally economy.

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Speaker 1: When do we get worried about it? Well, the point is, David,

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Speaker 1: that actually a difference between reflation and inflation really is

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Speaker 1: in the eye of the beholder's when prices go up.

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Speaker 1: And I am not arguing that prices going up is

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Speaker 1: a bad thing, Absolutely not. It's exactly what you expect

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Speaker 1: to see when you have their recovery. What are the

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Speaker 1: bad thing, though, is to have a market completely positioned

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Speaker 1: around the presumption that either prices will never go up

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Speaker 1: or that the Federal Reserve will never raise rates, and

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Speaker 1: that is essentially where we've been in the last few years.

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Speaker 1: Now you're starting to see some in Bester say well,

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Speaker 1: actually we should start preparing for a regime shift. But

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Speaker 1: to my mind, the question is is the Fed doing

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Speaker 1: enough to make investors understand that they're the two way

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Speaker 1: risk right now around prices and rates or is it

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Speaker 1: still lulling people into this false sense of security that

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Speaker 1: rates will stay low forever. And my concern is that

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Speaker 1: it is, well, nothing in jap testimony in Congress this

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Speaker 1: week would really avoid that lulling into a sense that

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Speaker 1: there's not two way risk. But are the equity markets

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Speaker 1: pricing this in at all? At this point? I think

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Speaker 1: the equity markets are beginning to take notice of the

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Speaker 1: principles that Chilian laid out. Actually think she laid it

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Speaker 1: out perfectly. Uh. You know, we need a healthy environment,

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Speaker 1: which means that prices go up. It doesn't mean they

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Speaker 1: go up at four or five percent a year, but

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Speaker 1: it does mean they go up at two or three

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Speaker 1: percent a year. That's a healthy environment. We haven't actually

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Speaker 1: been in that kind of a price regime for quite

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Speaker 1: some time. And real interest rates, which are key to

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Speaker 1: the actual economic consequences of the marketplace, have been negative.

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Speaker 1: They're negative in Europe, and they're negative in the United States.

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Speaker 1: And the Fed and the central banks around the world have,

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Speaker 1: a Chilian points out, for the last three or four

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Speaker 1: even five years, been very aggressive at injecting liquidity into

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Speaker 1: the system, forestalling any potential decrease, and creating lots of

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Speaker 1: interest in negative real rates. And so the market has

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Speaker 1: become accustomed to that as a reality. And when the

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Speaker 1: market becomes accustomed to that as a reality, it starts

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Speaker 1: to overpay for securities that do well in that environment,

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Speaker 1: and it underpays for securities to do poorly in that environment.

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Speaker 1: And if that's persistent, you get a wide gap invaluation.

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Speaker 1: And that is where we are coming into this. Actually,

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Speaker 1: the last two or three months, where rates have gone

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Speaker 1: forty fifty, even sixty basis points higher, and the volatility

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Speaker 1: we see in the market right now is the market

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Speaker 1: trying to reconcile the points that Jillian made. So Jenny,

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Speaker 1: as Peter says, we still have negative real interest rates,

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Speaker 1: but they're less negative than they were. That's true both

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Speaker 1: in the the United States and in Europe. Are we headed

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Speaker 1: to the good old days of positive real interest rates?

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Speaker 1: And what will that do to the market? Well, I

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Speaker 1: think where we are heading towards the days of positive

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Speaker 1: interest rates, I'm in the camp of those who think

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Speaker 1: that's a thoroughly good thing, frankly um, and I hope

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Speaker 1: that it curves gradually and gently, and I hope that

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Speaker 1: we do have a few little minors market shocks or

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Speaker 1: panics along the way, because there's nothing better to remind

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Speaker 1: investors are the need to guard against complacency than to

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Speaker 1: have regular small shocks. My concern though, is that one

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Speaker 1: of the things the Federal Reserve has done implicitly, if

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Speaker 1: not explicitly, in the last few years, is to not

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Speaker 1: just indicate that its policy is data dependent, i e.

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Speaker 1: Will change when prices go up, but it's also indicated

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Speaker 1: it's time dependent. It's given people the impression that this

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Speaker 1: will last for two or three years. So one way

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Speaker 1: to understand the discrepancy between the long and short end

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Speaker 1: of the curve, or between what's happening in equity markets

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Speaker 1: and bond markets, is that people are saying, well, yes,

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Speaker 1: we think that policy will be super loose for quite

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Speaker 1: a while, because j Palace told us that effectively twice

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Speaker 1: this week. But we can see that longer term that

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Speaker 1: could create the type of risks that Peters talking about.

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Speaker 1: So there was a time then we talked about basically

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Speaker 1: sixty blend in your investment decisions. At this point doesn't

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Speaker 1: make any sense to be in fixed income at all.

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Speaker 1: Really good question. Um fixed income is as expensive as

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Speaker 1: it has been in probably thirty years. You know, I'm

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Speaker 1: a little bit of a historian or economic historian. I

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Speaker 1: like looking at the history nine eighty three inflation, which

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Speaker 1: was real inflation. You know, with seven eight nine and

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Speaker 1: the ten year bonds were at fourteen percent, and since

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Speaker 1: then we've done nothing but see a reduction in bond

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Speaker 1: yields and increases and prices for thirty seven years. So

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Speaker 1: to think that you're going to stay at this level

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Speaker 1: of yield for the next five years is just your

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Speaker 1: rational doesn't make sense. So if that's the case, and

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Speaker 1: you're an investor, not a trader, but you're an investor,

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Speaker 1: over the next three or four years, you have to

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Speaker 1: be thinking that yields are going to rise. You have

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Speaker 1: to be thinking that duration is expensive, and so if

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Speaker 1: duration is expensive, why would you hold as much of

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Speaker 1: it as you normally would. The other side of that,

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Speaker 1: of course, is equities will outperform funds. By the way,

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Speaker 1: in that thirty year time period, equities underperformed ten year bonds,

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Speaker 1: which is highly unusual. That's not going to be the

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Speaker 1: case going forward. So, Julian, it sounds like equities might

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Speaker 1: be the place to look, at least initially, but it

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Speaker 1: depends on which equity is. Another thing we saw this

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Speaker 1: week was really what looked to be perhaps a rotation

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Speaker 1: away from tech. What you've been doing so terribly well,

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Speaker 1: and into some other places like energy and financials, presumably

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Speaker 1: because the prospect of our returning back into the marketplace

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Speaker 1: is that a rotation that will continue, and how big

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Speaker 1: could it get? Well, I think the rotation is going

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Speaker 1: to be significant for some time. You know. I'm not

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Speaker 1: like Peter paid to give us, you know, investment advice

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Speaker 1: or precise portfolio allocation ideas. However, I think one of

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Speaker 1: the things that's going on at the moment, apart from

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Speaker 1: this recognition that at some point the economy will reopen

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Speaker 1: and there is a chance of you know, quite a

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Speaker 1: sharp rebound, at least initially, it's also recognition that some

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Speaker 1: the text off might have got way over hyped, because yes,

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Speaker 1: we are seeing a really quite remarkable tectonic shift um

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Speaker 1: in terms of our alliance on digital platforms. But we're

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Speaker 1: also seeing a world where there could be regulatory clamped

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Speaker 1: downs um, and where much of the exuberance around tech

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Speaker 1: stocks has probably got pretty bubbly. Okay, many thanks to

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Speaker 1: a terrific roundtable Jillian Ted from the Financial Times and

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Speaker 1: Peter Krauss from Aperture coming up looking for yield and

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Speaker 1: all the right places we talked with any Shuman and

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Speaker 1: Polari's partners about the promise of biotech. That's next on

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Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street

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Speaker 1: Week with David Western from Bloomberg Radio. Markets are pretty

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Speaker 1: much enthusiastic about everything these days, from equities to commodities

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Speaker 1: to bitcoin. But in a world where every things seems

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Speaker 1: fully valued, where you going to beat the norm? Well,

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Speaker 1: one of the places maybe biotech. Softbanks certainly think so.

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Speaker 1: The Japanese firm is said to expand its investments in biotech,

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Speaker 1: including a three twelve million dollar stake in a US

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Speaker 1: based DNA sequencing company. And we talked with one of

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Speaker 1: the people who knows that world the best, Amy Shulman,

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Speaker 1: of Hilari's partners, about where there's money to be made,

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Speaker 1: maybe not over the short term, but over the lawn.

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Speaker 1: Anybody who tells you you can't lose money in biotech

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Speaker 1: would be kidding you. But what you try and do

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Speaker 1: is invest in portfolios. So as a venture capitalist, I

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Speaker 1: never invest in single asset plays because there's very little

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Speaker 1: that I can do to influence the outcome of that,

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Speaker 1: you know, turning over the card and a lot of

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Speaker 1: promising things fail in Phase three but if you're building

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Speaker 1: a platform, whether it's in vaccine development and you're looking

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Speaker 1: at you know, therapeutic vaccines or prophylactic vaccines, or if

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Speaker 1: you're looking at a modality that can work for neuropsychiatric

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Speaker 1: and oncology, you try and invest in things that can

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Speaker 1: be applied to different diseases and maybe that can be

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Speaker 1: applied in different ways, like a small molecule and a

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Speaker 1: monoclodal antibody. Those are far more diversified within one thing.

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Speaker 1: And of course a fund is a diversified approach to

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Speaker 1: venture capital investing as well. So you just mentioned vaccines,

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Speaker 1: which is on everyone's mind right now. How much has

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Speaker 1: the coronavirus and the really remarkably rapid development of vaccines.

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Speaker 1: How much of that has that changed your business is

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Speaker 1: already rushing to get into your business now. I think

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Speaker 1: it's had an impact in two distinct ways. One is

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Speaker 1: that it has reminded all of us how important science is,

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Speaker 1: how much it matters in terms of the trajectory of

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Speaker 1: human life, and in terms of reaching out to people

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Speaker 1: all across the economic and political spectrums in order to

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Speaker 1: change what has become, you know, one of the most

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Speaker 1: feared problems of our day, and for a long time,

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Speaker 1: pharmaceuticals and even biotechts were seen as something kind of abstract.

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Speaker 1: So in that sense, I think we've had a resurgence

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Speaker 1: of interest in science mattering to all of our lives.

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Speaker 1: It's also um for sure, affected the types of investments

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Speaker 1: we make. If you look at the way in which

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Speaker 1: our lives have changed and the rise in telemedicine, this

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Speaker 1: was something that was on the margins of the changes

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Speaker 1: that were happening, and they're now in the forefront. And

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Speaker 1: so I think, certainly in our portfolio and in many portfolios,

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Speaker 1: the investments that we've made prior to the pandemic in

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Speaker 1: telehealth and telemedicine have shown a remarkable and we think

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Speaker 1: durable growth. So when everyone comes to you and says, boy,

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Speaker 1: that's where we want to be, that's good because it's

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Speaker 1: confirming your judgment that that's where people want to be.

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Speaker 1: On the other hand, a lot of interest tends to

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Speaker 1: drive up prices. Is it harder to find real opportunities

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Speaker 1: in biotech now because everybody's crowding into the space. I

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Speaker 1: think both things are true. Certainly, we like to think

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Speaker 1: that when everybody is getting in that maybe exactly when

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Speaker 1: we're getting out, because a good venture capitalist figures this

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Speaker 1: stuff out a little bit ahead of quote everybody else. UM.

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Speaker 1: And yes, you see big private equity firms, big hedge

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Speaker 1: funds getting into the venture space, and you know, traditional

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Speaker 1: venture firms are at a different price point and at

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Speaker 1: a different stage of the spectrum. But if you've been

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Speaker 1: around as long as some of the firms have, as

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Speaker 1: long as Polaris has been, UM, then I think you're

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Speaker 1: not kind of paying to play, but you're working off

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Speaker 1: of relationships that you've nurtured for twenty or twenty five years.

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Speaker 1: One of the surprising things Dave it about our business

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Speaker 1: is what a human relationship driven business biotech investing and

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Speaker 1: venture capital is. And does that mean you have certain

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Speaker 1: relations you know, people who have been successful over time,

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Speaker 1: and you can go back to those people as opposed

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Speaker 1: to buying essentially a pig and a poke exactly. I mean,

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Speaker 1: it's an incredibly intimate relationship. The inventor, the academic founder

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Speaker 1: is entrusting you with his or her baby. This is

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Speaker 1: a science that they've been working on in many cases

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Speaker 1: for years, and they come to you because they want

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Speaker 1: to translate it out of the Academy into touching people's lives.

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Speaker 1: And we're lucky because we've been doing this for a

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Speaker 1: long time to have relationships with people with whom we founded,

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Speaker 1: you know, five, six, seven, sometimes more companies over the years.

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Speaker 1: Warren Buffet in the past that said he doesn't want

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Speaker 1: to invest in a company he can't understand, and that's

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Speaker 1: why he stayed at Tech for a long time. Alo

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Speaker 1: did come around to Apple sooner or later. Is that

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Speaker 1: true in biotech as well? I mean, how much science

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Speaker 1: do you need as an investor to assess who's got

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Speaker 1: the good science and who doesn't. That's a really tough

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Speaker 1: question because I think you certainly need to understand the science.

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Speaker 1: On the other hand, under the standing the science doesn't

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Speaker 1: necessarily tell you what's gonna win or doesn't, and so

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Speaker 1: understanding the science is a necessary but not sufficient. You

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Speaker 1: have to understand the commercial marketplace, the team that you're building,

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Speaker 1: the regulatory landscape, and you have to be willing to

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Speaker 1: believe that what you're investing in is not an incremental change,

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Speaker 1: because incremental changes are the way of the past in

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Speaker 1: terms of venture investing. That was Amy Shulman of Hilaria's

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Speaker 1: partners coming up. We wrap up the week with our

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Speaker 1: special contributor Larry Summers. This is Wall Street Week on Bloomberg.

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Speaker 1: This is Bloomberg Wall Street Week with David Weston from

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Speaker 1: Bloomberg Radio. So for the week overall, we had something

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Speaker 1: or a wild ride tech stocks. We're bounded a bit

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Speaker 1: on Friday, but the has like one hundred still posted

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Speaker 1: its worst week since October. The SMP five hundred it's

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Speaker 1: worst week in a month. And after spiking up and

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Speaker 1: getting everybody excited, the tenure yields settled back down just

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Speaker 1: a bit, ending up just over a hundred and forty

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Speaker 1: basis points. Joining us now his former Treasury secretary in

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Speaker 1: Wall Street Week special trainer Larry Summers to bring this

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Speaker 1: all into perspective. So, Larry, thank you so much for

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Speaker 1: being here. Let's start with the stimulus. We're on the

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Speaker 1: cusp of getting more stimulus. Looks at the House is

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Speaker 1: certainly going to prove it that we're gonna have the

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Speaker 1: Senate one point nine trillion, whether you like it or not,

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Speaker 1: Certainly business leaders like it. We've got a letter out

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Speaker 1: this week from a lot of business are saying this

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Speaker 1: is a great idea. The polls indicate the masses like it.

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Speaker 1: If business leaders and masses like it, can they be wrong?

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Speaker 1: Business leaders have been wrong a lot in history, and

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Speaker 1: they're right that stimulus is a good idea. Many of

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Speaker 1: the business leaders who signed that ladder have also been

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Speaker 1: saying that the level of the stimulus is risky, and

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Speaker 1: so we need stimulus, but not at all of this

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Speaker 1: uh stimulu us. I think that it's better to have

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Speaker 1: stimulus than not to have stimulus, But I think there's

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Speaker 1: enormous uh risk we are running that with all that

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Speaker 1: we're doing, there's not going to be in our own

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Speaker 1: public investments that are vitally important, and perhaps even more

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Speaker 1: importantly or as importantly, we're gonna set ourselves up for

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Speaker 1: inflation of concerns, and then we're either gonna have inflation

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Speaker 1: or we're gonna have a collision between fiscal and monetary

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Speaker 1: policy to contain inflation of a kind that doesn't usually

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Speaker 1: uh end. Well, it's not hard to see the internal

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Speaker 1: contradictions UM. An economy with three GDP gap getting nine

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Speaker 1: GDP fiscal stimulus is one way to see it. An

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Speaker 1: economy with a net private um savings rate, it's seven

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Speaker 1: eight percent UM dealing with an eighteen percent of g

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Speaker 1: d P budget deficit is another way UH to see it. Yes,

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Speaker 1: there's fundamental public investments we need to make. Yes there's

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Speaker 1: a need for relief from COVID, and God knows we

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Speaker 1: need to do things about inequality. But I think the

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Speaker 1: scale of what we are doing a nearly two trillion

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Speaker 1: dollar savings overhang, a fourteen percent of g d P,

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Speaker 1: two point eight trillion dollars of fiscal stimulus, the Fed

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Speaker 1: with its foot on the accelerator to the floor and

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Speaker 1: saying that it's going to stay that way for a

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Speaker 1: very long time and be pulled up without warning. I

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Speaker 1: don't think it's amazing that we've seen more turbulence in

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Speaker 1: financial markets. Some of that's got to do with the

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Speaker 1: micro mechanics of those financial markets, but some of it's

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Speaker 1: got to do with the broader environment. Well let's go

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Speaker 1: to that point just exactly, because after that dramatic spike

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Speaker 1: up in the tenures, some people said it was more

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Speaker 1: technical than something more fundamental. We heard from J. Powe,

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Speaker 1: the Chairman of the FED, this week saying, don't worry

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Speaker 1: about this. We're fine insofar as the yield goes up.

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Speaker 1: It's really because it's a vote in the confidence in

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Speaker 1: the future of the economy. Is that right? Is that

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Speaker 1: what we're seeing is a vote of confidence in the

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Speaker 1: future economy. We saw a lot of things. We saw

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Speaker 1: tech stocks go way down. That doesn't seem like a

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Speaker 1: vote of confidence in the future of the economy. We

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Speaker 1: saw commodity prices go way up. That doesn't seem like

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Speaker 1: a vote of confidence in the future of UH the economy.

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Speaker 1: We saw credit spreads wide. That doesn't seem like a

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Speaker 1: vote of confidence in UH the future of the economy.

431
00:24:57,720 --> 00:25:01,919
Speaker 1: So I don't think UH that this all has to

432
00:25:02,000 --> 00:25:07,360
Speaker 1: do with confidence. It's certainly true that with cyclical expansion

433
00:25:08,080 --> 00:25:15,640
Speaker 1: you could expect UH to see some normalization of interest rates.

434
00:25:15,680 --> 00:25:19,520
Speaker 1: But we've seen a move that's UH as large in

435
00:25:19,560 --> 00:25:24,560
Speaker 1: the last month as in any month in years, same

436
00:25:24,600 --> 00:25:29,960
Speaker 1: thing in the last UH quarter. I don't think anybody

437
00:25:30,119 --> 00:25:33,320
Speaker 1: should be slave to the markets. I don't think anyone

438
00:25:33,359 --> 00:25:38,520
Speaker 1: should be certain of any kind of inflation UH forecasts.

439
00:25:39,080 --> 00:25:43,480
Speaker 1: But I think on risk analysis grounds, we certainly shouldn't

440
00:25:43,480 --> 00:25:48,960
Speaker 1: be dismissive of the risks of inflation at this point.

441
00:25:49,080 --> 00:25:52,720
Speaker 1: We certainly shouldn't be dismissive of the risks of an

442
00:25:52,720 --> 00:25:58,120
Speaker 1: overheat UH in the economy at this point, and I'm

443
00:25:58,240 --> 00:26:03,560
Speaker 1: concerned that we're having a dynamic UH that is in

444
00:26:03,600 --> 00:26:09,359
Speaker 1: many ways reminiscent of the nineteen sixties, when conflicting demands

445
00:26:10,119 --> 00:26:18,880
Speaker 1: great social concern. Lad well intentioned are officials terribly dedicated,

446
00:26:19,040 --> 00:26:25,560
Speaker 1: serious and thoughtful officials to be too optimistic about what

447
00:26:25,640 --> 00:26:29,840
Speaker 1: the economy could handle and let things get away from them.

448
00:26:30,240 --> 00:26:33,520
Speaker 1: And inflation went from two percent in nineteen sixty six

449
00:26:33,600 --> 00:26:37,760
Speaker 1: to six percent in nineteen sixty nine before there were

450
00:26:37,800 --> 00:26:41,080
Speaker 1: any supply shocks. And it seems to me that we're

451
00:26:41,119 --> 00:26:44,520
Speaker 1: at risk of making that kind of mistake again. Well, Larry,

452
00:26:44,600 --> 00:26:46,640
Speaker 1: if we are on something of a sugar high right now,

453
00:26:46,640 --> 00:26:48,080
Speaker 1: how are we ever going to come down off of it?

454
00:26:48,160 --> 00:26:49,639
Speaker 1: Let me put it in in a different way. If j

455
00:26:49,760 --> 00:26:51,920
Speaker 1: Pal is reassuring us that we don't have a temper tantrum,

456
00:26:52,040 --> 00:26:54,360
Speaker 1: are we going to have a temper tansrum sooner or later?

457
00:26:54,440 --> 00:26:58,720
Speaker 1: No matter what you know, any time you say things will,

458
00:26:58,920 --> 00:27:02,120
Speaker 1: anything is sure to happen, no matter what. I think,

459
00:27:02,119 --> 00:27:04,720
Speaker 1: You're on very shaky ground, David. So I'm not gonna

460
00:27:04,760 --> 00:27:09,840
Speaker 1: say UH that I think there is a tension between

461
00:27:09,960 --> 00:27:13,040
Speaker 1: Chairman Powell and look, he's got an enormously difficult job,

462
00:27:13,080 --> 00:27:16,040
Speaker 1: and we're lucky that he is there. But I think

463
00:27:16,080 --> 00:27:21,160
Speaker 1: there is a tension between Chairman Powell's statements that there's

464
00:27:21,280 --> 00:27:26,480
Speaker 1: no way rates will be raised without large amounts of

465
00:27:26,560 --> 00:27:33,080
Speaker 1: warning on the one hand, and on the other hand that, um,

466
00:27:33,119 --> 00:27:36,080
Speaker 1: it's a long and it's a long way off, and

467
00:27:36,119 --> 00:27:38,720
Speaker 1: on the other hand, we're concerned and we'll do what's

468
00:27:38,760 --> 00:27:42,600
Speaker 1: necessary to maintain price stability. Because while it's certainly not

469
00:27:42,680 --> 00:27:46,200
Speaker 1: time to be raising rates or even cutting off QUEI

470
00:27:46,400 --> 00:27:51,439
Speaker 1: right now I think there's a real possibility that within

471
00:27:51,560 --> 00:27:55,359
Speaker 1: the year we're gonna be dealing with the most serious

472
00:27:56,119 --> 00:28:00,320
Speaker 1: incipient inflation problem that we have faced in the last

473
00:28:00,359 --> 00:28:04,440
Speaker 1: forty years. Now, that sounds very dramatic, and in part

474
00:28:04,560 --> 00:28:06,480
Speaker 1: the reason I say it is because we haven't really

475
00:28:06,520 --> 00:28:11,960
Speaker 1: faced for a serious inflation problems in the last forty years.

476
00:28:12,000 --> 00:28:15,639
Speaker 1: But I do think that we need very much to

477
00:28:15,720 --> 00:28:19,120
Speaker 1: have a sense of two sided risk, and right now,

478
00:28:20,080 --> 00:28:26,040
Speaker 1: I think the risks of inflation, of financial bubbles, of

479
00:28:26,200 --> 00:28:32,520
Speaker 1: economic overheating, of excessive euphoria in markets, I think those

480
00:28:32,640 --> 00:28:39,280
Speaker 1: risks are much greater than the risks of deflation of

481
00:28:39,640 --> 00:28:46,600
Speaker 1: insufficient aggregate uh demand. That could change, but right now,

482
00:28:47,240 --> 00:28:50,360
Speaker 1: I think we are still fighting the last war in

483
00:28:50,440 --> 00:28:55,760
Speaker 1: the rhetoric of policymakers. We're still fighting the war against

484
00:28:55,760 --> 00:29:00,120
Speaker 1: a COVID cause shortage of demand, when the greater or

485
00:29:00,280 --> 00:29:07,960
Speaker 1: threat is a war against COVID classic wartime inflation pressure.

486
00:29:08,560 --> 00:29:14,840
Speaker 1: And that's I think that disconnect between reality and a

487
00:29:14,920 --> 00:29:18,760
Speaker 1: certain amount of the policy thinking that's underway. Because Lay

488
00:29:18,800 --> 00:29:21,520
Speaker 1: we always finished with a lightning round of summer says

489
00:29:21,520 --> 00:29:23,120
Speaker 1: this time we may have only for one of them.

490
00:29:23,240 --> 00:29:25,800
Speaker 1: Let me ask you specifically present behind this week said

491
00:29:25,840 --> 00:29:28,040
Speaker 1: he's really gonna take a hard look at our supply

492
00:29:28,160 --> 00:29:30,959
Speaker 1: chain system. Are we gonna have substantial differences in our

493
00:29:31,000 --> 00:29:33,560
Speaker 1: supply chains? And year from now, I think we'll be

494
00:29:33,600 --> 00:29:36,959
Speaker 1: more secure in some key areas. I hope that's what

495
00:29:37,000 --> 00:29:39,720
Speaker 1: we'll focus on. And this isn't going to become an

496
00:29:39,760 --> 00:29:43,960
Speaker 1: excuse for a lot of protectionism. That's a real risk

497
00:29:44,000 --> 00:29:46,240
Speaker 1: in my view. Okay, let me sneak one more in

498
00:29:46,760 --> 00:29:48,200
Speaker 1: Yellen says that we are going to be taking a

499
00:29:48,200 --> 00:29:50,880
Speaker 1: look at corporate tax rates as well as capital gains.

500
00:29:51,000 --> 00:29:54,280
Speaker 1: Two years from now, will they be different? I guess yes,

501
00:29:54,480 --> 00:29:58,760
Speaker 1: they certainly, certainly, corporate tax rates should go up. The

502
00:29:58,800 --> 00:30:02,280
Speaker 1: business community is confident that it would think it was

503
00:30:02,320 --> 00:30:06,760
Speaker 1: fantastic if rates were and they'd be happy if they

504
00:30:06,760 --> 00:30:09,800
Speaker 1: were twenty seven or twenty eight percent, and Donald Trump

505
00:30:09,880 --> 00:30:13,920
Speaker 1: produced them to one. That's a very poor use of resources,

506
00:30:14,400 --> 00:30:17,960
Speaker 1: certainly in terms of capital games. The loophole for a

507
00:30:18,080 --> 00:30:23,160
Speaker 1: state uh so called the absence of constructive realization at death.

508
00:30:23,200 --> 00:30:25,120
Speaker 1: We should get rid of that. Larry Summers, thank you

509
00:30:25,160 --> 00:30:28,960
Speaker 1: so much, our special contributor. Finally one more thought, finally

510
00:30:29,200 --> 00:30:32,959
Speaker 1: falling in love with our friendly retailer. Let's face it,

511
00:30:33,000 --> 00:30:35,600
Speaker 1: we've all been cooped up for far too long, and

512
00:30:35,720 --> 00:30:38,280
Speaker 1: virtual cocktails whether they just don't cut it any longer.

513
00:30:38,600 --> 00:30:41,520
Speaker 1: We need to connect, and some traditional bricks and mortars

514
00:30:41,560 --> 00:30:44,720
Speaker 1: retailers are trying to do just that. Take the second

515
00:30:44,800 --> 00:30:47,920
Speaker 1: largest clothing retailer in the world, fast fashion icon H

516
00:30:48,000 --> 00:30:50,920
Speaker 1: and M. It's profits plummeted when it had to close

517
00:30:51,040 --> 00:30:53,560
Speaker 1: eight percent of its stores, but now it's trying to

518
00:30:53,560 --> 00:30:56,480
Speaker 1: come back, not just online, but by turning its stores

519
00:30:56,520 --> 00:30:59,360
Speaker 1: into something you just can't get on the internet, things

520
00:30:59,400 --> 00:31:02,480
Speaker 1: like getting your clothes mended and renting a party dress

521
00:31:02,840 --> 00:31:06,040
Speaker 1: and doing your hair. It's all about engaging the customer,

522
00:31:06,280 --> 00:31:08,760
Speaker 1: and for that, no one comes close to h g B.

523
00:31:08,960 --> 00:31:11,400
Speaker 1: That's a grocery chain in Texas that is named with

524
00:31:11,520 --> 00:31:14,680
Speaker 1: the initials of its founder. When the winter storm came

525
00:31:14,880 --> 00:31:17,800
Speaker 1: and took out the power for millions of Texans last week,

526
00:31:18,080 --> 00:31:20,720
Speaker 1: h g B was there making sure they could get

527
00:31:20,720 --> 00:31:24,120
Speaker 1: the essentials morning, noon, and night, everything from drinking water

528
00:31:24,240 --> 00:31:27,520
Speaker 1: to a cake for your son's birthday. And in doing that,

529
00:31:27,840 --> 00:31:31,080
Speaker 1: h g BE cemented even further it's close relationship to

530
00:31:31,120 --> 00:31:33,880
Speaker 1: the communities that it serves, leading people, according to New

531
00:31:33,960 --> 00:31:36,160
Speaker 1: York Times, to buy t shirts saying h g B

532
00:31:36,480 --> 00:31:39,360
Speaker 1: for President, or a woman to post a video on

533
00:31:39,400 --> 00:31:42,040
Speaker 1: TikTok saying she wished for a boyfriend like h g B,

534
00:31:42,640 --> 00:31:46,200
Speaker 1: one that's always there, gives her flowers and feeds her.

535
00:31:46,880 --> 00:31:49,320
Speaker 1: So as we emerged from a year of isolation, it

536
00:31:49,400 --> 00:31:51,440
Speaker 1: may not just be our friends and our families that

537
00:31:51,480 --> 00:31:54,760
Speaker 1: we embrace. It may include our stores. We may not

538
00:31:54,840 --> 00:31:57,680
Speaker 1: want them as our president or our boyfriend, but it

539
00:31:57,680 --> 00:32:00,040
Speaker 1: wouldn't hurt to rely on in ways we've never a

540
00:32:00,160 --> 00:32:03,040
Speaker 1: thought of before. That doesn't For this episode of Wall

541
00:32:03,040 --> 00:32:08,920
Speaker 1: Street Week, I'm David Weston, see you next week. M