WEBVTT - Bloomberg Wall Street Week - September 22nd, 2023 0:00:00.240 --> 0:00:02.960 This is Bloomberg Wall Street Week, and we may not 0:00:03.000 --> 0:00:05.280 have an overall recession, We're having a rolling recession. To 0:00:05.360 --> 0:00:07.040 kind of roll looks pretty strongly it is when it 0:00:07.080 --> 0:00:09.840 comes to jobs. The financial stories that shape our word. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.440 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:19.320 generative AI through the eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 0:00:22.520 --> 0:00:25.320 Debro Lair of the Paulson Institute, Len Hubbard of the 0:00:25.360 --> 0:00:28.760 Columbia Business School. Bloomberg Wall Street Week with David Weston 0:00:28.880 --> 0:00:33.640 from Bloomberg Radio. This Week contributor Larry Summers of Harvard 0:00:33.680 --> 0:00:36.680 on how the FED is handling a stronger than expected economy. 0:00:36.840 --> 0:00:40.599 Still think the FAT is considerably too optimistic. 0:00:41.040 --> 0:00:44.320 Stephen Rattner of Wild Advisors on a car industry at 0:00:44.320 --> 0:00:45.280 a crossroads. 0:00:45.720 --> 0:00:48.440 For the Detroit companies to be winners in ev they 0:00:48.479 --> 0:00:49.720 need help from the union. 0:00:49.920 --> 0:00:53.480 And jose Maniyah of Neuvene on investment ideas. You may 0:00:53.520 --> 0:00:54.920 not have thought of that. 0:00:55.000 --> 0:00:58.560 Narrative, which was one that was largely academic around alternatives 0:00:58.560 --> 0:01:00.560 and how do you get a better portfolio that are 0:01:00.560 --> 0:01:14.880 correlated assets. Today it's not an academic discussion, it's an urgency. 0:01:17.120 --> 0:01:19.720 This week, Global Wall Street watched as people tried to 0:01:19.720 --> 0:01:22.840 get started, or at least back on track around the world. 0:01:23.200 --> 0:01:25.600 President Biden went to the United Nations to send China 0:01:25.680 --> 0:01:28.360 message that there's still room for cooperation. 0:01:28.880 --> 0:01:33.360 I want to be clear and consistent. We seek to 0:01:33.480 --> 0:01:38.200 responsibly manage the competition between our countries. We are for 0:01:38.520 --> 0:01:42.640 d risky, not decoupling the child. We will push back 0:01:42.640 --> 0:01:45.319 on aggression and intimidation and defend the rules of the road. 0:01:45.560 --> 0:01:46.120 Good Chair J. 0:01:46.319 --> 0:01:48.720 Powell steps the podium to get everyone to believe in 0:01:48.720 --> 0:01:49.800 that soft landing. 0:01:50.000 --> 0:01:52.720 After all, soft landing is a primary objective, and I 0:01:52.720 --> 0:01:53.800 did not say otherwise. 0:01:54.000 --> 0:01:56.640 That's what we've been trying to achieve for all this time. 0:01:56.880 --> 0:01:59.720 The public offering market took another step forward with an 0:01:59.720 --> 0:02:02.760 instant cart finally going on sale on the NASDAK. 0:02:03.000 --> 0:02:05.280 We have the shares of instacart trading hire by thirty 0:02:05.360 --> 0:02:08.400 nine percent right now, so we're looking at evaluation that 0:02:08.480 --> 0:02:09.840 is closer to fourteen. 0:02:09.480 --> 0:02:12.760 Billion, Quickly followed by eMarketer Klavio, Well, the. 0:02:12.760 --> 0:02:14.120 Way we think about it is that part of being 0:02:14.120 --> 0:02:16.560 a public company is showing the world you know how 0:02:16.560 --> 0:02:18.080 you run your business and saying that you're going to be. 0:02:18.080 --> 0:02:18.880 There for a long time. 0:02:19.080 --> 0:02:21.960 The auto industry tried to get going again, leading to 0:02:21.960 --> 0:02:25.160 the UAW expanding its strike to additional plants. At the 0:02:25.240 --> 0:02:26.720 end of the week, we will. 0:02:26.520 --> 0:02:31.119 Be striking thirty eight locations across twenty states across all 0:02:31.200 --> 0:02:32.760 nine regions of the UAW. 0:02:34.600 --> 0:02:37.200 The equity markets reacted to all of this, and particularly 0:02:37.200 --> 0:02:39.440 what came out of the fad by selling off, with 0:02:39.520 --> 0:02:41.680 the S and P five hundred having its worst week 0:02:41.760 --> 0:02:44.560 since March, down two point nine three percent for the 0:02:44.600 --> 0:02:47.360 week to forty three twenty eight. That is, falling below 0:02:47.480 --> 0:02:50.240 the median year end forecast of our Bloomberg Els that's 0:02:50.280 --> 0:02:52.880 forty four to thirty five, while the Nasdaq took an 0:02:52.960 --> 0:02:55.920 even bigger head, dropping just over three point six percent. 0:02:56.280 --> 0:02:59.840 The yield on the tenure added almost ten full basis points, 0:03:00.520 --> 0:03:03.200 ending the week at forty four point four to three 0:03:03.320 --> 0:03:06.360 one seven after spiking above four point five early in 0:03:06.400 --> 0:03:08.360 the day on Friday. Here to help us sort it 0:03:08.360 --> 0:03:11.120 all out, our Peter Crass, chair and founder of Aperture 0:03:11.160 --> 0:03:14.799 Investors and Sarah Hetter, CEO and co founder of Cosway Capital. 0:03:14.880 --> 0:03:16.960 Welcome back to both of you. Peter' always start with 0:03:16.960 --> 0:03:18.320 you what is going on in the market. So I 0:03:18.360 --> 0:03:19.640 didn't think what the Fed had to say was that 0:03:19.760 --> 0:03:21.840 radically different from what we've heard before. But boy, the 0:03:21.880 --> 0:03:23.160 market shore reacted this time. 0:03:23.360 --> 0:03:26.040 We look in the short run, what the markets are 0:03:26.080 --> 0:03:30.200 reacting to is their expectation of where interest rates are 0:03:30.240 --> 0:03:34.800 going to be in twenty four. Investors believed that the 0:03:34.840 --> 0:03:36.960 Fed was going to be able to engineer a soft landing, 0:03:36.960 --> 0:03:40.000 which Pale again reiterated he was trying to do. But 0:03:40.240 --> 0:03:43.360 investors believe that in twenty four interest rates would begin 0:03:43.440 --> 0:03:46.160 to be cut, and the FED has been a little 0:03:46.160 --> 0:03:48.119 bit more hawkish on that. The Fed has said, well, 0:03:48.160 --> 0:03:51.120 there's probably another rate increase this year. And if you 0:03:51.120 --> 0:03:54.560 look at the dot, which is the explanation of the 0:03:54.640 --> 0:03:57.600 committee's estimation of where rates are going to be, those 0:03:57.640 --> 0:04:00.000 dots moved up and that's what unsettled them are. 0:04:00.000 --> 0:04:00.360 Market. 0:04:00.840 --> 0:04:04.280 Now, that's a very short term activity, but the market 0:04:04.320 --> 0:04:06.400 reacted significantly to that, Sir. 0:04:06.520 --> 0:04:08.400 At the same time, the FED, I thought said, boy, 0:04:08.440 --> 0:04:10.600 the economy, if anything, looks stronger than we thought it 0:04:10.640 --> 0:04:13.080 would before. Is that good news or bad news? I mean, 0:04:13.120 --> 0:04:14.960 if it's stronger than we thought, does that mean actually 0:04:15.000 --> 0:04:17.239 the FED will have to keep pushing on the interest rates, 0:04:17.279 --> 0:04:20.080 which could lead to something breaking likely. 0:04:20.200 --> 0:04:25.440 It appears that Fed might have underestimated how insensitive US 0:04:25.560 --> 0:04:31.200 market is to rise communists to rising rates. There's many corporates, 0:04:31.200 --> 0:04:34.760 for example, have turned out they're dead, So longer duration dead, 0:04:34.839 --> 0:04:38.440 its fixed rate creates a level of insulation to what 0:04:38.480 --> 0:04:40.960 the Fed is doing. So there may be less sensitivity, 0:04:41.120 --> 0:04:44.880 but ultimately, as rates remain higher for longer, this will 0:04:44.920 --> 0:04:47.719 catch up with those who have borrowed too much or 0:04:48.040 --> 0:04:52.080 where assets prices are falling. Thinking particular about parts of 0:04:52.080 --> 0:04:54.400 the real estate sector, Peter. 0:04:54.279 --> 0:04:56.640 What about the real estate sectors? We don't want anything 0:04:56.640 --> 0:04:59.080 to break, but it's a decided possibility. I think it's 0:04:59.120 --> 0:05:00.880 fair to say, is that what we should be looking on. 0:05:01.240 --> 0:05:03.960 So the real estate sector in the economy breaks into 0:05:03.960 --> 0:05:06.919 two pieces. There's the residential real estate business, which is 0:05:07.000 --> 0:05:09.360 very large and affects a lot of people, And to 0:05:09.480 --> 0:05:12.200 Sarah's point, is the part of the economy that is 0:05:12.360 --> 0:05:18.000 very rate insensitive today because most mortgages today are fixed rate, 0:05:18.360 --> 0:05:20.960 and they were fixed at low interest rates. So households 0:05:20.960 --> 0:05:23.960 today have a big, big benefit. They own a very 0:05:24.040 --> 0:05:27.360 long liability or effective we had asset to them at 0:05:27.440 --> 0:05:30.120 very low rates, which allows them to continue to spend 0:05:30.480 --> 0:05:34.320 and gives them positive operating leverage in their daily budgets. 0:05:34.600 --> 0:05:37.320 In the commercial space, however, that's totally different. In the 0:05:37.320 --> 0:05:42.000 commercial space, there you had buyers buying buildings at low 0:05:42.080 --> 0:05:45.240 cap rates and low interest rates which do need to 0:05:45.240 --> 0:05:48.320 be refinanced, and their sair again is absolutely correct. We 0:05:48.400 --> 0:05:51.040 are going to see refinancing that is going to cause 0:05:51.520 --> 0:05:52.200 problems in the. 0:05:52.240 --> 0:05:54.240 Real estate business. We've already seen that. 0:05:54.360 --> 0:05:57.000 We've seen significant owners in real estate of the last 0:05:57.040 --> 0:06:01.640 six months literally walk away from buildings, unusual just. 0:06:01.680 --> 0:06:03.920 Because at the time that bank credit is tightening too. 0:06:04.120 --> 0:06:07.800 So it's a it's a double whamming well and the SARTA. 0:06:07.880 --> 0:06:09.480 Let me ask you, some people are not saying forget 0:06:09.520 --> 0:06:12.480 about the longer, for higher for longer. What if it's 0:06:12.560 --> 0:06:15.560 higher forever? I mean, what is this Basically there's a 0:06:15.600 --> 0:06:17.680 new normal, as it were. What does that do to 0:06:17.720 --> 0:06:18.680 investment proposition? 0:06:19.440 --> 0:06:23.320 Well, cycles don't normally work that way. Our expectations fall 0:06:23.440 --> 0:06:26.839 at causeway is that the FED will achieve its two 0:06:26.839 --> 0:06:29.440 percenter thereabouts level of inflation, but that will come at 0:06:29.480 --> 0:06:33.320 cost with importment, and as the US economy shifts downward 0:06:33.360 --> 0:06:38.280 and slows dramatically, that in turn will precipitate the FED easing. 0:06:38.680 --> 0:06:40.840 But that might not happen again for quite a lot. 0:06:40.880 --> 0:06:42.919 Couldn't be several more quarters, it could be here, it 0:06:42.960 --> 0:06:46.320 could be longer. It's very hard to say. But the 0:06:46.400 --> 0:06:49.279 longer rates remain high, it's like a slow asphyxiation for 0:06:49.360 --> 0:06:52.359 those that are overleveraged. And there's plenty of that across 0:06:52.400 --> 0:06:54.520 this economy. In fact, there's plenty of that globally. 0:06:55.320 --> 0:06:59.159 It might be a slightly different outcome there. Certainly the 0:06:59.160 --> 0:07:00.880 FED is said they want to get to two percent, 0:07:01.520 --> 0:07:05.240 but I don't think the FED will consciously break the 0:07:05.279 --> 0:07:07.920 economy to get there. And it may be that we 0:07:08.000 --> 0:07:12.760 see inflation at three percent and then the term structure 0:07:12.800 --> 0:07:16.800 of interest rates may shift a bit and perhaps the 0:07:16.920 --> 0:07:18.920 ten uere isn't going to go down to three percent, 0:07:18.960 --> 0:07:21.040 it's going to be at five to six percent and 0:07:21.120 --> 0:07:22.840 cash is going to be at three to four percent. 0:07:23.040 --> 0:07:25.760 And that's not an unusual position for the term structure 0:07:25.760 --> 0:07:28.240 of rates to be. In fact, over the last seventy 0:07:28.240 --> 0:07:30.920 to eighty years was more likely that than not. And 0:07:31.000 --> 0:07:33.160 the economy can be just fined there and stocks could 0:07:33.200 --> 0:07:36.080 you just find there, And that I think is also 0:07:36.120 --> 0:07:37.480 a possibility. 0:07:37.040 --> 0:07:39.160 Sometimes, Peter, I think we tend to focus on the 0:07:39.200 --> 0:07:41.360 FED and the economy like that's the only two players 0:07:41.440 --> 0:07:44.160 in the game. There's also a federal government that is 0:07:44.200 --> 0:07:46.280 spending a lot of money and borrowing a lot of money. 0:07:46.680 --> 0:07:49.520 What does that mean potentially for the rate structure. 0:07:49.720 --> 0:07:52.520 Well, that's going to crowd out borrowers on the duration side, 0:07:52.560 --> 0:07:55.520 and so that is one That is another reason why 0:07:55.600 --> 0:07:58.000 tenure rates may not drop back to three percent or 0:07:58.040 --> 0:08:00.360 three and a half. The federal government is spending a 0:08:00.360 --> 0:08:05.320 lot of money. We have three big programs infrastructure, chips, 0:08:05.320 --> 0:08:10.040 and other spending programs in climate. So I think that 0:08:10.120 --> 0:08:12.320 that stimus is going to continue. That's going to make 0:08:12.360 --> 0:08:14.480 it hard for rates to come down. We could have 0:08:14.520 --> 0:08:17.160 a complete recession of bad recession, and then of course 0:08:17.240 --> 0:08:19.360 rates will come down and we will see low rates, 0:08:19.400 --> 0:08:20.440 but I don't think they'll stay there. 0:08:20.480 --> 0:08:22.720 There are also some other risks out there we're seeing 0:08:22.760 --> 0:08:24.640 right now in the marketplace. One of them is that 0:08:24.640 --> 0:08:27.600 big uaw strikeing actually got expanded some on Friday, at 0:08:27.640 --> 0:08:30.000 least against two of the big automakers. How big a 0:08:30.080 --> 0:08:32.040 risk is that for the markets? Do you think over 0:08:32.080 --> 0:08:34.079 the medium term? I won't even talk about longer term, 0:08:34.120 --> 0:08:34.800 but medium term. 0:08:36.040 --> 0:08:39.480 The risk for inflation in the US and the reason 0:08:39.559 --> 0:08:42.079 why some of this comes from one of our favorite economists, 0:08:42.120 --> 0:08:46.320 Nancy Lazar. She noted that since twenty sixteen, auto industry 0:08:46.400 --> 0:08:49.880 productivity has been declining while auto industry and compensation has 0:08:49.880 --> 0:08:52.319 been rising, So that means labor costs in the auto 0:08:52.360 --> 0:08:57.800 industry have been increasing quite significantly. So without better productivity 0:08:58.720 --> 0:09:01.760 and having wage hikes, this is going to be really 0:09:01.800 --> 0:09:04.440 hard on auto industry and profitability, which is why this 0:09:04.559 --> 0:09:08.200 negotiation is so incredibly fierce. The thirty to our work 0:09:08.200 --> 0:09:12.319 week is definitely not an increase in productivity. So let's 0:09:12.400 --> 0:09:15.439 just say the UEF gets what they want or something 0:09:15.480 --> 0:09:18.280 close to that, then there's a cogningient effect because labor 0:09:18.520 --> 0:09:23.119 across the country the globallyses how we want that, and 0:09:22.720 --> 0:09:27.120 that just adds to to labor inflation, which is something 0:09:27.160 --> 0:09:29.400 that I think that that is very concerned about, given 0:09:29.480 --> 0:09:31.319 how tight and plant it is in this. 0:09:31.320 --> 0:09:32.080 Country and Peter. 0:09:32.120 --> 0:09:34.600 We're focused on the auto industry, but it's broader than 0:09:34.600 --> 0:09:37.440 the utter industry. We've already always, already had the Writer's Guild. 0:09:37.480 --> 0:09:39.520 They're in talks again now they haven't settled it. We 0:09:39.559 --> 0:09:42.480 have the actors, we had ups, we had the ports, 0:09:42.640 --> 0:09:45.000 We've got others waiting in the wings right now. Is 0:09:45.040 --> 0:09:47.880 there the possibility of really a broader set of labor 0:09:48.000 --> 0:09:50.880 issues here that will increase wages rather substantially. 0:09:51.000 --> 0:09:52.080 I think we already have it. 0:09:52.200 --> 0:09:55.520 I mean, the amount of union labor in the country 0:09:55.600 --> 0:09:56.480 we know is low. 0:09:56.520 --> 0:09:57.800 It's certainly historically low. 0:09:58.240 --> 0:10:02.559 Sarah's right about the demands of the UAW and what 0:10:02.600 --> 0:10:05.760 that may portend, at least for that codie of workers. 0:10:06.200 --> 0:10:08.280 But there's a large number of workers in the country 0:10:08.320 --> 0:10:11.200 that are not unionized. They are also demanding higher wages. 0:10:11.520 --> 0:10:13.080 And we also know that we've got a very tight 0:10:13.160 --> 0:10:16.040 labor market, which is frankly the real source of the issue. 0:10:16.360 --> 0:10:19.640 Unemployment still remains relatively low, it's not rising very much, 0:10:20.200 --> 0:10:23.120 and that means labor has a stronger leg at the 0:10:23.120 --> 0:10:26.000 bargaining table, and frankly they probably shouldn't because the last 0:10:26.040 --> 0:10:28.920 ten or fifteen years they haven't. So I think that 0:10:29.000 --> 0:10:31.120 the FED knows that the FED is why the FED 0:10:31.240 --> 0:10:33.480 is being tough on rates and why it's not talking 0:10:33.480 --> 0:10:36.320 about taking them down, and I think why it's going 0:10:36.360 --> 0:10:38.280 to be longer higher, for. 0:10:38.240 --> 0:10:41.199 Longer many Thanks to Sarah Ketterer of Causeway Capital and 0:10:41.240 --> 0:10:46.480 Peter Krauss of Aperture Investors. Coming up, the auto industry 0:10:46.600 --> 0:10:50.040 enters the second week of selective strikes hitting the Big three. 0:10:50.240 --> 0:10:52.880 We talk with where it all could end with former 0:10:52.920 --> 0:10:55.719 cars are Stephen Rattner of Willed Advisors. 0:10:56.320 --> 0:10:58.600 The more the autoworkers get paid, and I'm in favor 0:10:58.600 --> 0:11:01.000 of them getting paid more, the fewer jobs they're going 0:11:01.080 --> 0:11:01.240 to be. 0:11:01.640 --> 0:11:06.360 That's next on Wall Street Week on Bloomberg. This is 0:11:06.400 --> 0:11:10.760 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:11:13.120 --> 0:11:16.400 Automotive Breakdown. That's what's happened to Detroit with the auto 0:11:16.480 --> 0:11:19.880 workers into their second week of striking, selective GM Ford 0:11:19.920 --> 0:11:24.040 and stillants plants with no end in sight. President Biden 0:11:24.080 --> 0:11:26.600 has more or less cited with the UAW demand that 0:11:26.640 --> 0:11:29.560 the Big three share their record profits to make up 0:11:29.600 --> 0:11:30.679 for lost time. 0:11:31.280 --> 0:11:35.880 Auto companies have seen record profits, including the last few 0:11:35.960 --> 0:11:40.200 years because of the extraordinary skill and sacrifices the UAW workers. 0:11:41.000 --> 0:11:44.720 Those record profits have not been shared fairly in my view, 0:11:44.960 --> 0:11:45.880 with those workers. 0:11:46.040 --> 0:11:49.200 While Republicans like former Vice President Mike Pence say President 0:11:49.320 --> 0:11:52.400 Biden has helped create the problem with his push for 0:11:52.480 --> 0:11:53.960 electric vehicles. 0:11:53.840 --> 0:11:57.480 What I'm hearing around the country is that that auto 0:11:57.520 --> 0:12:01.720 workers are very concerned about Joe Iden's Green New Deal 0:12:01.840 --> 0:12:06.880 heavy handed effort to use taxpayer dollars to drive these 0:12:06.920 --> 0:12:11.960 automotive companies into electric vehicle production. I meant, you've got 0:12:12.000 --> 0:12:13.959 one hundred and forty five thousand workers out there that 0:12:14.000 --> 0:12:19.040 have been many of them built a lifetime making gasoline powered. 0:12:18.720 --> 0:12:22.040 Cars, and auto CEOs like GM's Mary Borrow say that 0:12:22.280 --> 0:12:25.440 whatever the politics, they need to invest all those profits 0:12:25.559 --> 0:12:27.720 so they can make the move into evs. 0:12:28.280 --> 0:12:30.640 We need to invest in our future, and we have 0:12:30.679 --> 0:12:32.760 a plan to take all of our employees along. I 0:12:32.760 --> 0:12:35.840 think this is very important. We have worked very carefully 0:12:35.880 --> 0:12:38.040 to have a job for everyone so we can make 0:12:38.080 --> 0:12:41.679 this transformation together. And frankly, when you put it up 0:12:41.800 --> 0:12:44.000 you have a strike and we're not making vehicles, you 0:12:44.040 --> 0:12:45.160 start to put that at risk. 0:12:45.360 --> 0:12:48.559 Some investors, like Bruce Richards of Marathon Asset Management think 0:12:48.600 --> 0:12:51.520 the shift back from capital to labor can ultimately be 0:12:51.600 --> 0:12:52.199 good for us. 0:12:52.200 --> 0:12:55.880 All companies in the next few years are going to 0:12:55.920 --> 0:12:58.760 have a real issue because they're going to pay a 0:12:58.800 --> 0:13:01.319 lot higher labor calls. You see that with the UAW, 0:13:01.800 --> 0:13:04.120 you see that in Hollywood, you see that with what 0:13:04.280 --> 0:13:10.120 the pilots negotiate with the airlines. The labor costs are increasing, 0:13:10.280 --> 0:13:12.160 and we love to see labor costs increases. 0:13:12.200 --> 0:13:14.240 It's good for America. It's good for Americans. 0:13:14.320 --> 0:13:17.200 But former Treasury Secretary Larry Summers warns that this may 0:13:17.240 --> 0:13:19.640 turn out to be a zero sum game where the 0:13:19.760 --> 0:13:23.000 union can't afford to lose and the auto companies can't 0:13:23.000 --> 0:13:26.040 afford for them to win, which could mean things will 0:13:26.080 --> 0:13:28.080 get worse before they get better. 0:13:28.520 --> 0:13:32.560 I fear that there's a bit of an in game 0:13:32.679 --> 0:13:37.720 dynamic going on here, and in that situation, the incentives 0:13:37.720 --> 0:13:41.760 for the union, like the incentives at one stage for 0:13:42.160 --> 0:13:45.880 the coal miners, like the incentive one stage for the 0:13:45.960 --> 0:13:52.079 steel workers, are to get as absolute much as they 0:13:52.120 --> 0:13:55.760 can while they can. 0:13:59.200 --> 0:14:01.280 And here to take us through the auto industry as 0:14:01.320 --> 0:14:04.160 we find it today is Stephen Rattner. He is the 0:14:04.240 --> 0:14:07.760 chairman and CEO of Willet Advisors, which invests the personal 0:14:07.760 --> 0:14:10.480 and film topic assets of Michael R. Bernblerg. He is 0:14:10.520 --> 0:14:12.800 our founder and majority share over. Steve, thanks so much 0:14:12.840 --> 0:14:14.360 for being back with us. You know a little bit 0:14:14.400 --> 0:14:17.479 about cars, goodness knows, given your service in the obamaministration 0:14:17.559 --> 0:14:20.640 putting the industry back together beforehand. Is there a way 0:14:20.680 --> 0:14:22.800 out of this impast right now? Because I sure don't 0:14:22.840 --> 0:14:23.200 see it. 0:14:23.600 --> 0:14:26.280 Look, it does certainly look tougher than I've ever seen 0:14:26.280 --> 0:14:29.080 in any of these contract negotiations. First of all, the 0:14:29.320 --> 0:14:32.920 uaw's demands are, even by the standard of opening demands, 0:14:32.960 --> 0:14:37.120 pretty extreme. Secondly, they're conducting this negotiation largely in public, 0:14:37.440 --> 0:14:39.840 which makes it harder for the union in particular to 0:14:39.880 --> 0:14:42.560 back off their positions if and when they need to. 0:14:43.120 --> 0:14:45.280 But all that said, there's never been a strike that 0:14:45.360 --> 0:14:47.560 I know of that hasn't gotten resolved one way or another, 0:14:47.600 --> 0:14:50.000 and it's not hard to see a resolution here. But 0:14:50.600 --> 0:14:52.200 I think the mood is that it's going to take 0:14:52.200 --> 0:14:52.720 a good while. 0:14:53.200 --> 0:14:55.080 You have written in the New York Times that you 0:14:55.160 --> 0:14:58.320 certainly can understand why there needs to be more wages 0:14:58.320 --> 0:15:01.360 for autoworkers. They've lagged behind for various reason. It's inflation, 0:15:01.400 --> 0:15:04.240 but also the contract that they had at the same time. 0:15:04.520 --> 0:15:06.840 It's about more than just money, is it not. Because 0:15:07.080 --> 0:15:10.040 the autoworkers say, you're going to electric vehicles will require 0:15:10.120 --> 0:15:13.280 fewer of us than the other side the auto industry stage, 0:15:13.320 --> 0:15:15.560 we have to go to electric vehicles or we're not 0:15:15.640 --> 0:15:16.840 going to be in business anymore. 0:15:17.720 --> 0:15:20.880 The classic Harvard Business School case is that a company 0:15:20.960 --> 0:15:23.360 or an industry that tries to protect protect an old 0:15:23.400 --> 0:15:26.560 business model when there's a new one coming ends up failing. 0:15:27.200 --> 0:15:29.520 If the Detroit companies want to be competitive, if we 0:15:29.560 --> 0:15:33.320 as a country want to have a viable domestic auto industry, 0:15:33.960 --> 0:15:36.200 and by the way, it is the government's policy to 0:15:36.280 --> 0:15:40.200 encourage electric vehicles, then we have to welcome this change, 0:15:40.520 --> 0:15:42.480 and there will be displacements and we have to deal 0:15:42.480 --> 0:15:42.840 with those. 0:15:43.200 --> 0:15:44.840 I guess I'm asking how much of this do you 0:15:44.840 --> 0:15:47.680 think in the end is about money? How much of 0:15:47.720 --> 0:15:49.520 a raise people get because everyone agrees they're going to 0:15:49.560 --> 0:15:51.680 get a significant raise, and how much it is more 0:15:51.880 --> 0:15:54.880 fundamental things about the way the companies actually run their businesses. 0:15:55.320 --> 0:15:57.800 I think it's mostly about money or money related things. 0:15:58.720 --> 0:16:01.000 I think, yes, there's a lot of concern about the 0:16:01.000 --> 0:16:02.840 future number of jobs, and so on and so forth. 0:16:03.080 --> 0:16:05.560 But I'm sympathetic to the union in the sense that 0:16:05.680 --> 0:16:09.520 if you look at the last fifteen years, auto workers 0:16:09.520 --> 0:16:12.200 as a whole in this country have basically stayed flat 0:16:12.200 --> 0:16:15.520 after inflation, whereas other workers have gotten some after inflation 0:16:15.680 --> 0:16:19.080 real income increases. And they are good reasons for good reasons. 0:16:19.080 --> 0:16:22.120 There are reasons for that, which is the fundamental competitiveness 0:16:22.120 --> 0:16:25.000 of the auto industry on a global scale. But nonetheless, 0:16:25.800 --> 0:16:28.000 in a world of three point eight percent unemployment and 0:16:28.000 --> 0:16:30.400 one and a half jobs for every American, I can 0:16:30.520 --> 0:16:33.080 understand why these workers feel like it's time for them 0:16:33.520 --> 0:16:35.160 to get a bigger share. 0:16:35.880 --> 0:16:38.720 Last week, President Biden weighed in on the issue, and 0:16:38.800 --> 0:16:41.080 at least to my hearing, weighed in pretty heavily on 0:16:41.120 --> 0:16:43.960 the UAW side, saying there have been record profits out 0:16:43.960 --> 0:16:45.840 of the car industries and there should be a record deal. 0:16:45.880 --> 0:16:47.880 I think he called it basically, is he making the 0:16:47.920 --> 0:16:50.480 situation better or worse? In the port situation. I don't 0:16:50.480 --> 0:16:52.960 recall him weighing in that heavily on the workers side. 0:16:53.240 --> 0:16:56.280 I think that's fair. I think we are closer to 0:16:56.320 --> 0:16:58.880 an election. I think we're talking about the Midwest, which 0:16:58.880 --> 0:17:01.720 are swing states, I don't think California is ever going 0:17:01.760 --> 0:17:05.360 to be a swing state, but I have to say 0:17:05.359 --> 0:17:08.480 I don't think it's overly helpful for him to put 0:17:08.480 --> 0:17:11.560 his finger on the scale. Look, the politics are what 0:17:11.640 --> 0:17:15.080 they are, and I get that. But this is a 0:17:15.119 --> 0:17:18.480 tough situation, and I think there are equities on both sides. 0:17:18.760 --> 0:17:21.840 Whenever we have a very large conflict like this, in 0:17:21.840 --> 0:17:24.760 my experience, at least, there are unintended consequences. There are 0:17:24.880 --> 0:17:27.000 the principal players and who does well who doesn't, But 0:17:27.040 --> 0:17:28.840 there are people are on the side. I can think 0:17:28.880 --> 0:17:33.840 of people like Tesla, other automakers around the world, certain states, 0:17:34.000 --> 0:17:36.919 they're right to work states. What are the unintended consequences 0:17:36.960 --> 0:17:39.119 you think perhaps of this dispute. 0:17:39.520 --> 0:17:41.960 Look, the unintended consequences are what happened is to the 0:17:42.080 --> 0:17:44.880 number of jobs, not the price paid for each job. 0:17:45.200 --> 0:17:46.840 The yin and the yang of this, and it's a 0:17:46.880 --> 0:17:49.760 tough one, is that the more the auto workers get paid, 0:17:49.760 --> 0:17:51.879 and I'm in favor of them getting paid more, the 0:17:51.920 --> 0:17:54.520 fewer jobs are going to be. That's just the inevitable 0:17:54.560 --> 0:17:58.000 result of this. If you look, for example, back since 0:17:58.040 --> 0:18:00.199 two thousand and nine, at the number of jobs that 0:18:00.240 --> 0:18:02.280 have moved to Mexico, and the fact that there are 0:18:02.280 --> 0:18:04.560 now more auto jobs in Mexico than there are in 0:18:04.560 --> 0:18:08.800 the United States. It tells you something about how capitalism 0:18:08.800 --> 0:18:11.600 and free enterprise works. It finds the lowest costs locale 0:18:11.640 --> 0:18:12.639 that can meet its needs. 0:18:13.440 --> 0:18:16.640 What is this safe potential to investors like you making investments, 0:18:16.800 --> 0:18:18.600 not just in the auto industry, about whether you invest 0:18:18.640 --> 0:18:21.240 in audustry, but more broadly, it's in fact there is 0:18:21.280 --> 0:18:24.040 a shift back toward labor that's got to squeeze margins. 0:18:24.040 --> 0:18:26.920 It's a practical matter. Does that mean that the prospects 0:18:26.920 --> 0:18:29.240 for equities come down some if. 0:18:29.119 --> 0:18:31.680 All that happens? The answer is sure, I don't think 0:18:31.720 --> 0:18:33.520 we know yet. Yes, there are a lot of strikes 0:18:33.520 --> 0:18:35.160 and a lot of high would look like big pay 0:18:35.280 --> 0:18:38.199 packages coming through. But you also have an economy on 0:18:38.200 --> 0:18:40.240 the other side where companies have more pricing power and 0:18:40.280 --> 0:18:44.960 they used to. There's less competition, frankly, less anti trust enforcement, 0:18:46.160 --> 0:18:49.720 fewer unions in general, and so forth, and so profit 0:18:49.800 --> 0:18:54.720 margins companies have stayed surprisingly robust. Corporate profits are far 0:18:55.080 --> 0:18:57.359 higher right now than I think most people thought they 0:18:57.359 --> 0:19:01.320 would be at this point in a cycle. And so yeah, sure, 0:19:01.520 --> 0:19:03.720 corporate profits could get squeezed a bit. Maybe they should 0:19:03.720 --> 0:19:07.119 get squeezed a bit, But I don't think that's not 0:19:07.160 --> 0:19:08.200 what keeps me awake at night. 0:19:08.880 --> 0:19:10.240 What does keep you awake at night? 0:19:10.680 --> 0:19:13.639 Well, if you want to talk about this area, I 0:19:13.640 --> 0:19:16.480 think the whole future of manufacturing is a conversation to have. 0:19:16.960 --> 0:19:19.640 President Biden has been clear, and so have a lot 0:19:19.640 --> 0:19:21.440 of other people that they would like to see a 0:19:21.480 --> 0:19:24.919 manufacturing renaissance in this country. The IRA and some of 0:19:24.920 --> 0:19:28.399 the infrastructure bill and other things are heavily tilted toward 0:19:28.960 --> 0:19:32.000 making things here rather than elsewhere. But we have to 0:19:32.040 --> 0:19:36.320