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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
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Speaker 2: rights in this we continue to see volatility in the
Speaker 2: markets as the uncertainty surrounding the rate path in the
Speaker 2: US remains high, keeping us cautious as cracks in the
Speaker 2: labor market begin to appear. Victoria's with us right now, Victoria,
Speaker 2: let's start with the sustainability of this up trend other
Speaker 2: question marks around that.
Speaker 3: Now, given that we've seen.
Speaker 2: A big move in the biggest name, the most important
Speaker 2: name of this equity market three days, twenty percent game
Speaker 2: from Vidia and this secretary market more broadly has done nothing.
Speaker 4: No, I think you're absolutely right, Jonathan, and in Vidia
Speaker 4: is kind of playing a game all by itself over
Speaker 4: there in the games that we're seeing. But you look
Speaker 4: at the rest of the market and there are some concerns.
Speaker 4: Look at the diversification and the difference between the DOW
Speaker 4: and the transports.
Speaker 5: That's worrying to us.
Speaker 4: Transports have been coming down pretty significantly. That's usually a
Speaker 4: key indicator and a leading indicator of what we're going
Speaker 4: to see in the markets. And so we're seeing that
Speaker 4: divergence come there. We're seeing cyclicals no longer being leadership.
Speaker 4: We're seeing other names start to come up now. Cyclicals
Speaker 4: are becoming leadership overseas. So we're starting to see a
Speaker 4: pickup over there, but pulling it down here. And look
Speaker 4: a couple of weeks ago, Jonathan, when we were talking,
Speaker 4: Yu said, Victoria, where's the weakness in the market, And
Speaker 4: we've started to see that now since we spoke last time.
Speaker 4: You're seeing weakness in the consumer. Look at retail sales.
Speaker 4: We are actually flat with real retail sales over the
Speaker 4: last four months. Regional pmis, regional manufacturing reports are weaker
Speaker 4: as well.
Speaker 5: There's different weaknesses that we're seeing.
Speaker 4: Housing also, we've got a five percent gain in housing
Speaker 4: prices right now, which again all of this feeding into
Speaker 4: the idea that the FED is going to be very
Speaker 4: uncertain in its path forward, and I think that's why
Speaker 4: we'll have a vo little market going forward.
Speaker 3: Lectoria.
Speaker 2: Sometimes it's difficult to draw a distinction between a single
Speaker 2: name issue and a broader sector problem. Great example of
Speaker 2: that this morning is American Airlines. The name is down
Speaker 2: by more than eight percent. If had to cut the outlook,
Speaker 2: how would you distinguish between a single name issue in
Speaker 2: that sector and a broad a sector problem.
Speaker 4: Yeah, you have to really take a step back and
Speaker 4: look at what's going on across the board. When we
Speaker 4: look at airlines and you know, we're not strongholders of
Speaker 4: airlines and our portfolios, but when you look at America
Speaker 4: and they have had some idiosyncratic issues going on there,
Speaker 4: we know that they have a key individual leaving. That
Speaker 4: person was responsible for some of the revenue generationally around
Speaker 4: the credit card issues that they were having, where they
Speaker 4: have not succeeded like United has done, like Delta has done.
Speaker 4: So there are some issues specifically for American, but you
Speaker 4: also have to wonder if that travel sector that had
Speaker 4: such a huge comeback after COVID if that's going to
Speaker 4: start to pull back as we see the lower income
Speaker 4: and the middle income consumers really struggle. I know in
Speaker 4: the little montage that y'all played, there were different voices
Speaker 4: in regards to whether consumers are doing well or not.
Speaker 4: But we are seeing those lower and middle income consumers
Speaker 4: struggle both in the balances they're carrying on their credit cards.
Speaker 4: You've got almost sixty percent of those lower middle income
Speaker 4: consumers carrying balances, and now they're turning to the buy now,
Speaker 4: pay later, which doesn't even.
Speaker 5: Show on their credit reports.
Speaker 4: That's a whole other issue where almost ten percent of
Speaker 4: those people are using it to buy necessities. So it
Speaker 4: tells me we're going to be struggling with the consumer,
Speaker 4: So that could flow through to the sector as a
Speaker 4: whole going forward.
Speaker 6: It raises a question, what does it mean to be cautious?
Speaker 6: And we hear this a lot. You know, we're cautious
Speaker 6: moving up in quality. How do you even determine what
Speaker 6: that is? Is that just to continue to buy in
Speaker 6: video because they run the world. Is it to go
Speaker 6: into utilities that are increasingly thought of as an artificial
Speaker 6: intelligence play and that have been bid up or is
Speaker 6: it to go into the oil patch, which is often
Speaker 6: thought about as actually leveraged to the consumer, but seems
Speaker 6: to be dancing to its own music. How do you
Speaker 6: view caution in a new world?
Speaker 5: So, Lisa, I don't.
Speaker 4: Think it's a specific name or sector when we say
Speaker 4: we're being cautious when we're looking for high quality names
Speaker 4: for us. That's in regards to the dependability of their earnings,
Speaker 4: the quality of their earnings, the cash.
Speaker 5: Flow on the balance sheets.
Speaker 4: I mean you look at the energy story you were
Speaker 4: just talking about with Conoco Phillips. I mean, they can
Speaker 4: do these deals because their cash flow is so high
Speaker 4: and so strong. It gives them the opportunity to make
Speaker 4: these acquisitions like marathons.
Speaker 5: So you want to have.
Speaker 4: Companies that have that cash flow, those earnings. That doesn't
Speaker 4: have to be in one sector or another. But I
Speaker 4: do think it means you have to be stock picking.
Speaker 4: You can't just pick a sector like you previously and say, oh,
Speaker 4: tech is doing great, let's go in. I mean you
Speaker 4: look at healthcare, for example, it's been down pretty significantly.
Speaker 4: But you can find a specific name like Gilead that
Speaker 4: we own, or you've got, you know, a stock trading
Speaker 4: at less than ten times priced to cash flow, you've
Speaker 4: got amost a five percent dividend, and you've got strong earnings.
Speaker 4: Those are the types of names that we think fit
Speaker 4: into that cautious scenario.
Speaker 6: It seems like a lot of cylinders in the United
Speaker 6: States are working for it in terms of the tech
Speaker 6: plays in Nvidia among some of the others. We're talking
Speaker 6: about oil, all of a sudden oil price is going up.
Speaker 6: Is actually not necessarily so negative for the United States
Speaker 6: that actually is becoming an increasing exporter and sort of
Speaker 6: more self sufficient. You're looking at even some of the
Speaker 6: drug innovations, albeit maybe the OBC drugs launching from certain
Speaker 6: European con But I'm just curious, from your vantage point,
Speaker 6: is a US still the place to be cautious in.
Speaker 4: Yeah, Look, we're we want to see some exposure in
Speaker 4: our client's portfolios to international because, like as I mentioned earlier,
Speaker 4: we're seeing some of the cyclicality in the market, some
Speaker 4: of those cyclical names, discretionary names doing.
Speaker 5: Better outside the US.
Speaker 4: So maybe you start to dip your toe in some
Speaker 4: of those international markets that are doing well. But when
Speaker 4: you look at the US, I do think you have
Speaker 4: to take that cautious approach.
Speaker 5: And it doesn't mean you're not invested in the market.
Speaker 5: We are in the market.
Speaker 4: One hundred percent, but you have to be careful as
Speaker 4: to where you're putting your money to work. Does it
Speaker 4: make sense to dump everything into those MAGS seven names.
Speaker 5: Well, probably not.
Speaker 4: We think we'll see some earning seterioration in those names
Speaker 4: over the second half of this year, and other areas
Speaker 4: like utilities, like healthcare will start to pick up. So
Speaker 4: being cautious just means be careful where you're putting your
Speaker 4: money to work. But we do think being in the
Speaker 4: US makes a lot of sense. Dipping your toe in
Speaker 4: other markets starts to make sense as we're seeing cyclicality
Speaker 4: pick up.
Speaker 7: When you look at the hedge fund exposure to big tech,
Speaker 7: the Magnificent seven that you're saying, potentially you're seeing a
Speaker 7: little bit of cracks.
Speaker 8: Cracks in twenty point.
Speaker 7: Seven percent of hedge funds total net exposure to US
Speaker 7: single stocks that's what they account for now in these
Speaker 7: Magnificent seven. Do you think that's way too much?
Speaker 5: It seems really strong, right, Henry.
Speaker 4: I mean you look top five names in the S
Speaker 4: and P hundred are almost thirty percent, and you look
Speaker 4: at Semis, that's eleven percent of the SMP. A few
Speaker 4: years ago it was only two percent. So we've had
Speaker 4: this tremendous amount of growth in those names. It is
Speaker 4: one of the reasons why we remain cautious or do
Speaker 4: we have exposure.
Speaker 5: Of those names.
Speaker 4: We do, but we're underweight versus the benchmark. So you
Speaker 4: want to be able to take advantage of some of
Speaker 4: the gains there, but also be a little underweight because
Speaker 4: we do think we'll see a pullback and it gives
Speaker 4: us a little dry powder when we trim those names
Speaker 4: to go into other areas of the market. So it
Speaker 4: does seem pretty heavily weighted. And as we all know,
Speaker 4: there is a difference between their waiting in the S
Speaker 4: and P on their market cap, and they're waiting in
Speaker 4: earnings as well, So you have to look at that
Speaker 4: difference and decide where you think it's the best.
Speaker 5: Place to be.
Speaker 2: Victoria busy morning, it's going to catch up passive White,
Speaker 2: Victoria Finande.
Speaker 3: Is there a cross smock?
Speaker 2: No, that's a remack around the table with us alongside
Speaker 2: New Veg's Tonny Rodriguez. Gens is going to see you Neil,
Speaker 2: let's talk about why you're still constructive on this economy. Why, Well, I.
Speaker 9: Definitely think the trade offs are getting a little bit
Speaker 9: trickier for the FED. So I tend to think that,
Speaker 9: you know, we're still at the end of the year
Speaker 9: going to be talking about an economy that's growing, and
Speaker 9: how much has the FED been cutting? I still think
Speaker 9: that's really the name of the game. But you know,
Speaker 9: I do think that to me, it's not as obvi
Speaker 9: is that, you know. I mean, the FED goes around
Speaker 9: saying we have time, I don't have to worry about things.
Speaker 9: I mean, you never have as much time as you
Speaker 9: think in hindsight, And we know that the risks with
Speaker 9: unemployment are always that their nonlinear in nature, right, So
Speaker 9: it's never just that unemployment goes up a little bit,
Speaker 9: It goes up a lot of bit, right, And so
Speaker 9: I think, you know, when I look at the when
Speaker 9: I look at what the FED is doing and the
Speaker 9: data as it's unfolding, I mean, all it really feels
Speaker 9: like they're doing right now is just taking the last
Speaker 9: few months of data and just extrapolating that forward.
Speaker 8: And things can change.
Speaker 9: And and I think that's especially true of the inflation data,
Speaker 9: and you know, I don't think you can really make
Speaker 9: a fundamental story for why inflation perked up. I mean,
Speaker 9: you can point to specific things here and there, right
Speaker 9: auto insurance, people talk about healthcare services, but generally speaking,
Speaker 9: it really boils down, in my mind, to what's going
Speaker 9: on with the labor markets. And the labor markets are cooling.
Speaker 9: I mean, I don't think that that's even a debatable point.
Speaker 9: If you look at average hourly earnings for all employees
Speaker 9: over the last three months, it's up less than three
Speaker 9: percent at an annual rate. So if you believe that
Speaker 9: inflation's going to remain sticky, John, you need to start
Speaker 9: worrying then about a decline in real wages. And if
Speaker 9: real wages are contracting, then consumer spending will slow, and
Speaker 9: if consumer splending will slow, corporate earnings will slow. So
Speaker 9: you know, I don't think that's strong. I mean, in
Speaker 9: the first quarter, you had this strong inflation data, and
Speaker 9: I think a lot of investors sort of said thought, Okay,
Speaker 9: this is reinforcing this inflationary boom narrative. But the labor markets, frankly,
Speaker 9: just are not in the same place as they were
Speaker 9: a year ago, and you need labor costs are basically
Speaker 9: one percent, so I just wonder where the inflation comes from.
Speaker 9: So my sense is that if you want to be
Speaker 9: optimistic on the economy, you almost have to think that
Speaker 9: inflation slows down, because if it doesn't, then you need
Speaker 9: to start raising your recession probabilities.
Speaker 2: Going into the pandemic, the Federal Reserve used to say
Speaker 2: things like we need to extend the signe cop and
Speaker 2: some of the language I remember phrase I think of
Speaker 2: his fiz check crowd at the time would say things
Speaker 2: like an ounce of protection was worth a pound of cure.
Speaker 2: Are you saying they should move preemptively and begin to
Speaker 2: reduce interest rates just on the margin surgically.
Speaker 9: Well, I think, I mean, I think that's all we
Speaker 9: should really expect. I mean, I've been saying that they
Speaker 9: should be recalibrating policy, but I think that they should
Speaker 9: be focusing on what's happening with the labor markets. And
Speaker 9: the labor markets are clearly moderating, and so you're basically saying,
Speaker 9: you know, we're waiting on what like healthcare services, inflation
Speaker 9: to moderate, and some of these idiosyncratic factors. I mean, again,
Speaker 9: you know, to me, it's you know, and in many cases,
Speaker 9: economics is basically like identity. Like an identity, things on
Speaker 9: one side of the equation have to equal things on
Speaker 9: the other side of the equation, and certain things just
Speaker 9: need to be true. And so in my from my perspective,
Speaker 9: I mean compensation growth should equal inflation plus productivity. And
Speaker 9: what do we know about those things? We know that
Speaker 9: compensation growth has been slowing, right, no matter what you
Speaker 9: look at and all you know, job labor tournovers down,
Speaker 9: the number of people that don't have haven't seen a
Speaker 9: movement in their wages over the last year, that numbers up.
Speaker 9: If you look at quits hires, those have all moderated.
Speaker 9: If you look at posted wage growth, that's moderating. So
Speaker 9: we have a pretty good indication that wage growth is slowing.
Speaker 9: If you look at across a whole number of industries,
Speaker 9: whether that's professional and business services, retail trade, leisure and hospitality,
Speaker 9: wage growth in those industries, particularly leisure and hospitality and
Speaker 9: retail trade, because you know, those are the folks with
Speaker 9: the higher propensities to spend, those industries are seeing wage
Speaker 9: growth at the lowest, at the low end of their
Speaker 9: range over the last year. So if compensation growth is
Speaker 9: moderating and productivity is normalized.
Speaker 8: You don't really get much.
Speaker 9: Of it, don't I don't think you can really make
Speaker 9: a very strong case for inflation other than.
Speaker 8: You know, it's been strong.
Speaker 6: But you know, Tony, I'd love you to weigh in
Speaker 6: on this. You believe that the disinflation story is true
Speaker 6: and you expect it to continue. But we're talking here
Speaker 6: a nuance because at a certain point, if it stays
Speaker 6: sticky at a certain rate, it can still lead to
Speaker 6: some real problems. So can you give us a sense
Speaker 6: of what the trajectory is and kind of where the
Speaker 6: margin of error is for the FED at this point?
Speaker 10: Sure? So, I mean we can kind of agree with
Speaker 10: the idea that, you know, the wage the labor market
Speaker 10: is softening, and we think that's going to kind of
Speaker 10: flow through the wage pressures declining as we go through
Speaker 10: the year. Our view is that while inflation is going
Speaker 10: to continue to decline, it's going to do it really slowly.
Speaker 10: So it really was rapid in the second half of
Speaker 10: last year. We saw this spike kind of early in
Speaker 10: the year that was really a surprise to us. I
Speaker 10: think in the man the market that inflation was so
Speaker 10: hot Our view is that we're sitting at maybe a
Speaker 10: two seven kind of PC level by the end of
Speaker 10: the year, so kind of flat to where we are now,
Speaker 10: maybe down a tenth. Next year we again move very
Speaker 10: slowly towards more like a two three, and getting back
Speaker 10: to the target is more of a twenty twenty sixth event.
Speaker 10: So in that environment allows the FED to us be
Speaker 10: basically higher for longer because the economy remains pretty resilient
Speaker 10: while we're seeing that softening in the labor market. It's
Speaker 10: not under sub one hundred thousand jobs. It's more than
Speaker 10: one hundred hundred and fifty range rather than what had
Speaker 10: been a two hundred and fifty range, So still reasonably
Speaker 10: healthy macro environment.
Speaker 6: What does hire for longer mean at a time where
Speaker 6: you've got tom Csaurus to Adam Posen saying basically, a
Speaker 6: federate cut here would be a policy error because of
Speaker 6: some of the inflation that could fuel later on.
Speaker 10: Yeah, so RBS right now we have a real rate
Speaker 10: that's well over two percent. We think that one cut,
Speaker 10: maybe two by the end of the year is the
Speaker 10: most that we'll see. That kind of recalibration to us
Speaker 10: is not going to drive a spike up again in
Speaker 10: Inflation's just going to keep the real rate at a
Speaker 10: level that is not overly restrictive and therefore putting the
Speaker 10: labor market a greater risk than is necessary given the
Speaker 10: current overall environment.
Speaker 2: Can we talk about what everyone's been talking about over
Speaker 2: the last several months, which is the supply side story, Neil,
Speaker 2: I know you've got thoughts on this. Allen Center and
Speaker 2: Morgan Stanley has made the point that this economy can
Speaker 2: get bigger without getting tighter. And what everyone's pointing to
Speaker 2: is the amount of immigration we've seen in this country. We'
Speaker 2: putting too much weight on the explanation as to what
Speaker 2: is developing in the labor market.
Speaker 9: I mean, this is a very hot button issue, John,
Speaker 9: but I do I think that. I mean, America is
Speaker 9: not the only place in the world that's seen rising
Speaker 9: population growth or I mean, just look to our friends
Speaker 9: in the north in Canada. They've had very rapid immigration
Speaker 9: growth has to stopped their economy.
Speaker 8: From not doing well.
Speaker 9: I mean, if you look at per capita GDP and
Speaker 9: candidates in the toilet, so just because you have a
Speaker 9: lot of immigration doesn't necessarily mean that your economy is strong.
Speaker 9: So I really think the immigration angle is something that
Speaker 9: people are looking at as a way to work back.
Speaker 9: Lots of places across G ten have seen very rapid
Speaker 9: growth in immigration. What's not clear across all those countries
Speaker 9: is strong growth. The US in that respect is the
Speaker 9: one that stands out, which would suggest that productivity in
Speaker 9: the US is the primary reason of why we've seen
Speaker 9: this outperformance.
Speaker 3: I just asked me.
Speaker 6: Although a lot of people are saying it's not just
Speaker 6: strong growth, it's that the growth came without the inflation
Speaker 6: as a result of wages climbing as much as people
Speaker 6: previously expected. That was the component of immigration that people
Speaker 6: were talking about.
Speaker 8: Do you buy that. I don't follow that basically.
Speaker 6: Because immigrants were coming to this country willing to work
Speaker 6: even for wages that were lower, or potentially that it
Speaker 6: actually kept down some of the wage inflation that otherwise
Speaker 6: would have been given the natural tightness in the labor market.
Speaker 9: I'm sure you could find some I mean, you have
Speaker 9: seen some slow in wages, so maybe you know you
Speaker 9: can make more of a labor market case. But generally speaking,
Speaker 9: I mean, I think there are lots of other reasons
Speaker 9: beyond immigration that you know. I mean, for example, we're
Speaker 9: less exposed to what's going on in.
Speaker 8: Ukraine and Russia than Europe.
Speaker 9: Obviously, monetary policy transmits itself differently in the US because
Speaker 9: we have so many people on thirty year fixed rate
Speaker 9: mortgage debt. That's not the case in Europe. We had
Speaker 9: a very very robust fiscal response relative to Europe. And
Speaker 9: you know, I mean generally speaking, the US does set
Speaker 9: in my mind, productivity frontier for the world, so we're
Speaker 9: sort of on the leading edge of that. So there
Speaker 9: are lots of reasons for why the.
Speaker 8: US is outperformed.
Speaker 9: I think immigration, frankly, ranks very low on the list,
Speaker 9: and you know, I think that's shown in the fact
Speaker 9: that lots of countries across G ten I have seen
Speaker 9: very strong growth in immigration. Not every country has been
Speaker 9: enjoying the kind of economic performance the US has enjoyed.
Speaker 10: The tunny Yeah, So our view is that the immigration
Speaker 10: was just very well timed. It's not a long run
Speaker 10: fundamental force. It's going to be a driver of growth
Speaker 10: and higher potential growth for the US or the next
Speaker 10: five years. Given immigration policy in this country is challenging,
Speaker 10: but the timing of it, which was above expectations, really
Speaker 10: helped ye, some of those pressures on wages, but going forward,
Speaker 10: it's going to have to be much more about labor
Speaker 10: force participation. Helped grow potential growth for productivity remaining very high,
Speaker 10: which you know is possible with AI, but it's going
Speaker 10: to be more of a traditional either product or labor
Speaker 10: force participation that's second there's probably unlikely, so it's gonna
Speaker 10: have to rely on productivity in our mind.
Speaker 8: Well, I mean that's.
Speaker 9: That's I mean, that's a great point that it's temp
Speaker 9: It could be temporary, right, I mean a lot of
Speaker 9: the immigration that we're seeing could just be pent up
Speaker 9: demand from the pandemic. I mean, the visa approvals were
Speaker 9: basically shut down and then we reopened them, so you know,
Speaker 9: and now you have a lot of you know, foreign
Speaker 9: born workers coming into the workforce. But that shouldn't sustain
Speaker 9: I mean, I do think it's interesting that you've you've
Speaker 9: you've started to see the foreign born workforce moderate a
Speaker 9: bit at a time when everyone's talking about it kind
Speaker 9: of kind of makes me think about what it means
Speaker 9: that everyone's talking about not being long duration and thinking
Speaker 9: rates are going to be five percent, Like what that
Speaker 9: means for the next.
Speaker 6: Move But that's that's I think exactly where I was
Speaker 6: going to go tony, this idea that people saying that
Speaker 6: the reverse could happen, where suddenly that an immigration policy
Speaker 6: that would restrict some of the foreign workers and that
Speaker 6: would lead to a surge and inflation. Do you not
Speaker 6: buy that? But there could potentially be some sort of
Speaker 6: post election increase in inflation expectations that could really challenge
Speaker 6: the bond market.
Speaker 10: I think it'd probably be more likely to come election related.
Speaker 10: It'd be more likely to come from maybe potential texts
Speaker 10: changes that occurred. What happens with those texts changes are
Speaker 10: going to either roll off or not. Then necessarily integration policy.
Speaker 10: Immigration policy might take I think a little longer to
Speaker 10: work through. And we already have a labor market that's softening.
Speaker 10: As Neil pointed out, there's lots of metrics that we
Speaker 10: look at that say it's softening. So I don't think
Speaker 10: it'll be from the labor side that we might get
Speaker 10: that inflationary impulse that's election related, which.
Speaker 2: You expout to say this in Pyros next Friday that
Speaker 2: deceleration continued.
Speaker 10: Yeah, we would say that we're probably likely to see
Speaker 10: a two hundred or below number rather than moved back
Speaker 10: to two fifty. So it's not a week labor market,
Speaker 10: it's just one that's not overheated like we were.
Speaker 9: Fun with new Yeah, I would just say, I mean,
Speaker 9: you know, Lisa, you mentioned immigrations taking the pressure off
Speaker 9: of wages. I mean, let's be clear, excess labor demand
Speaker 9: has been slowing very rapidly, as proxied by job opening.
Speaker 9: So it's not just oh we have all this supply.
Speaker 9: I mean demand has come down. You know, businesses are
Speaker 9: trying to get the most out of their workers. They're
Speaker 9: not really trying to go out and hire more workers.
Speaker 9: And I think that's very important because that's what's keeping
Speaker 9: in a labor costs in check, which we'll, in turn,
Speaker 9: in my opinion, bring inflation down.
Speaker 2: Interesting payrolls two fridays away. The estimate in our survey
Speaker 2: at the moment of sneak pee for you one hundred
Speaker 2: and eighty k.
Speaker 3: The previous number one seventy five. No data.
Speaker 2: I've ren mac Tany Rodriguez, Nuvin gents, thank you, and
Speaker 2: Michael McKay's wall Thank you, sir.
Speaker 8: One.
Speaker 2: I guess now really pleased to say it's Tom Steyer,
Speaker 2: co founder of Galvanized Climate Solutions and author of the
Speaker 2: new book Cheaper, Faster, Better, How.
Speaker 3: Will Win the Climate War? And I've got that book
Speaker 3: alongside me.
Speaker 8: Tom.
Speaker 3: Good morning to you, John.
Speaker 11: How are you?
Speaker 3: I'm good.
Speaker 2: This is a hopeful book. This is constructive. Can you
Speaker 2: walk us through the essence of what I'm holding this morning?
Speaker 11: Sure?
Speaker 1: I mean, basically, what I'm saying is that the news
Speaker 1: from the natural world about climate change is worse than
Speaker 1: most people know. And we read that virtually every day.
Speaker 1: There's a new study saying, oh you know, do you
Speaker 1: know what's happening in the Amazon? Do you know what's
Speaker 1: happening in Antarctica? Do you know what the temperature is
Speaker 1: around the globe? But what people don't know and what
Speaker 1: they don't see. But what I see all the time
Speaker 1: as an investor is the technology response. And what we're
Speaker 1: seeing is an amazing response in terms of the ability
Speaker 1: for clean products to win in the marketplace on their own.
Speaker 1: That's why I called the book Cheaper, Faster, Better. That
Speaker 1: you have products that people choose of their own volition,
Speaker 1: for their own reasons, and that's happening across the globe.
Speaker 1: What we say in the climate response world is we're
Speaker 1: not looking for a silver bullet. We're looking for silver buckshot,
Speaker 1: literally hundreds of ideas, hundreds of companies that in fact
Speaker 1: are going to solve this problem in the marketplace.
Speaker 11: We're winning in the marketplace, and we really have to
Speaker 11: keep that momentimum.
Speaker 3: Do you think government is helping or getting in the way?
Speaker 1: Well, I think there's I'm sure your question really is
Speaker 1: focused mostly on the United States, and I think the
Speaker 1: Biden administration has passed a series of legislations that most
Speaker 1: Americans do not know anything about, but which are designed
Speaker 1: to make clean technologies, the production of them and the
Speaker 1: sale of them much faster. And so in that ways, government,
Speaker 1: the US government, has held a great deal. But what's
Speaker 1: true is this is an international problem and we really
Speaker 1: need international cooperation between countries, with America in a leadership position,
Speaker 1: so that we have the same rules, the same standards,
Speaker 1: the same measurement around the world.
Speaker 2: Let's talk about one industry which is in the headlines
Speaker 2: every single day, and it's EVS And you know where
Speaker 2: I'm going with this. We've talked about this all morning.
Speaker 2: This new BYD hybrid with a super long range of
Speaker 2: two thousand kilometers thirteen eight hundred dollars, and the policy
Speaker 2: of this administration, and the next one of is Donald
Speaker 2: Trump Volume two is going to be to put up
Speaker 2: the walls make it really difficult to buy that car.
Speaker 2: Do you think China has comparative advantages to tackle the
Speaker 2: things that you're concerned about that we should embrace.
Speaker 1: So I think that China has a very troubled economy
Speaker 1: and they are using the power of the government to
Speaker 1: try and win in the clean energy arena to create
Speaker 1: jobs and some economic momentum. So do I think that
Speaker 1: BID gets advantages that in effect it is unfair competition
Speaker 1: between BID and American car makers?
Speaker 11: Sure, I absolutely do.
Speaker 1: Do I think that a thirteen thousand dollars car that
Speaker 1: you can drive to Miami from New York is a
Speaker 1: game changer in terms of clean energy? I also think
Speaker 1: that do I think you guys have been talking, we're
Speaker 1: just talking all the time about I think they call
Speaker 1: it inflation. It sounded like the nineteen eighties in this room.
Speaker 1: Every single.
Speaker 11: I mean crazy.
Speaker 1: Attention to every single bond auction. Yeah, okay, Well, you
Speaker 1: think a thirteen thousand dollars car make the difference in
Speaker 1: terms of the inflation equation?
Speaker 11: Absolutely, it does.
Speaker 1: So when we look around the world, this is a
Speaker 1: global problem. It requires a global solution. China is the
Speaker 1: biggest emitter by far, almost the third of global emissions.
Speaker 1: It is also the country which is focused on winning
Speaker 1: this from an industrial standpoint, you know, leading in terms
Speaker 1: of solar panels, evs.
Speaker 11: And everything else.
Speaker 1: So you know, as far as I'm concerned, from an
Speaker 1: American standpoint, we have to compete in this. This is
Speaker 1: critical for US game on. But everything we do in
Speaker 1: that will in fact help save these there's all this crisis.
Speaker 6: There is ultimately a question though about industrial policy in
Speaker 6: places like the US and Europe is less efficient than say,
Speaker 6: having it all in a centralized place that's perfecting it.
Speaker 6: It's not advantageous to us competitively, but it isn't necessarily
Speaker 6: going to advance the aim of trying to get to
Speaker 6: a cleaner world. If everyone has their separate industrial policies,
Speaker 6: that's competing and duplicating all of the processes. I mean,
Speaker 6: how much do you sort of embrace just some of
Speaker 6: the cheap goods and how much do you say NOE
Speaker 6: national security prompts some of the environmental concerns, at least
Speaker 6: for now.
Speaker 1: Absolutely I get that. I mean, at my heart, I'm
Speaker 1: a believer. Maybe it's from my econ one oh one
Speaker 1: courses decades ago. I'm a free trader in the sense that, yeah,
Speaker 1: the world produces the products in the places where it's
Speaker 1: best to produce those products, and American consumers get the
Speaker 1: advantage of that, and we do the things that we
Speaker 1: do best. And you know, the issue is, Okay, that's
Speaker 1: how the world equilibrates. China is dumping. That means they're
Speaker 1: giving us stuff very, very cheap. That's really hard for
Speaker 1: us to compete with sometimes from an industrial standpoint, but
Speaker 1: from a consumer standpoint, from an inflation standpoint, from a
Speaker 1: environmental standpoint, that's a gift to the world.
Speaker 6: So do you think that there is too much of
Speaker 6: a sort of industrial policy on a regional basis and
Speaker 6: there's just embrace free trade, or do you think that
Speaker 6: right now is a moment to lean into developing and
Speaker 6: competing on a domestic front, even at the expense of
Speaker 6: the advancement.
Speaker 1: What I can see when I talk about silver Buckshot,
Speaker 1: that is hundreds of companies doing hundreds of different things,
Speaker 1: and all of them growing like a weed and creating
Speaker 1: a lot of jobs. So I'm not worried about the
Speaker 1: United States abilities to compete. I know we can compete,
Speaker 1: and I think when I look around the world, I mean,
Speaker 1: look at let's just take a step back. So cars,
Speaker 1: you guys want to talk about cars. What is the
Speaker 1: car company in the United States that has grown like
Speaker 1: a weed that's worth hundreds of billions of dollars, which
Speaker 1: isn't in Detroit? Okay, So if we're really trying to
Speaker 1: protect the status quo, which is what I hear you
Speaker 1: guys saying, is we need to protect the status quo
Speaker 1: the existing companies. That's really hard to do. Like the
Speaker 1: companies that are going to succeed are the companies that
Speaker 1: are going to be on the cutting edge of the cheapest, best, cheaper, faster, better. Okay,
Speaker 1: let's produce the cheaper, faster, better products. And let's what
Speaker 1: we're saying is we need to protect these jobs that
Speaker 1: exist in companies that aren't evolving fast enough. Now is
Speaker 1: it true that China's dumping? Yeah, and when you say
Speaker 1: they have better industrial policy, I would excuse me for
Speaker 1: saying this, but really because I'd take a look at
Speaker 1: the little deeper at their economy and say, wow, they've
Speaker 1: really messed things up to a fare thee well.
Speaker 6: To this point, how much can this be done from
Speaker 6: central planning, you know, especially through the idea of subsidies
Speaker 6: for electric vehicles at a time when a lot of
Speaker 6: people are saying hybrids probably are the better, more ecologically
Speaker 6: friendly vehicle, so.
Speaker 1: Then they'll buy them. That's my point. How are we,
Speaker 1: I say, cheaper, faster, better? How will win the climate
Speaker 1: work in the marketplace? Letting people make their own decisions.
Speaker 1: I don't like central planning, you know what. I think
Speaker 1: three hundred and thirty million Americans are smarter than any
Speaker 1: group of central planners in the world, including in Washington, DC.
Speaker 1: Let the American people decide. That's why I love capitalism.
Speaker 1: It's disperse decision making. It's like democracy in economics. Human
Speaker 1: beings get to make their own choices for their own reasons,
Speaker 1: and they're smart.
Speaker 11: And that's why. That's how we're going to win.
Speaker 1: That's how we're going to save ourselves, and that's what
Speaker 1: we've traditionally done.
Speaker 11: We've done that.
Speaker 2: We've heard some automakers compare and complain about some of
Speaker 2: the things you're talking about, and I think it is
Speaker 2: important the automakers are saying, ultimately we want to leave
Speaker 2: it to the marketplace, but the government is setting these
Speaker 2: targets that we can't reach because the infrastructure does not exist.
Speaker 2: Yet we get and get back to front. We've got
Speaker 2: it the wrong way around. What would you change tomorrow
Speaker 2: about the policy towards say EVS and the build out.
Speaker 11: Well, everybody's focused.
Speaker 1: To be fair, you guys are really focused on EVS,
Speaker 1: which is playing two three companies in the United States
Speaker 1: that are very old that in fact did not lead
Speaker 1: the ev revolution, in fact tried to push back against
Speaker 1: the ev revolution for a really long period of time, right,
Speaker 1: And the company that actually leaned into it was the
Speaker 1: one that sells many more Yeah evs than any other.
Speaker 11: Company in the United States.
Speaker 1: So doesn't that making my point that in fact it's
Speaker 1: about innovation, it's about change, it's about being in the
Speaker 1: front with the product that is in fact cheaper, faster
Speaker 1: and better. That that's how we win, and that trying
Speaker 1: to protect protect people from those forces. You know, I
Speaker 1: always say to people, say, what will happen if there's
Speaker 1: a Republican administration? I say, you can't stop people from
Speaker 1: buying the cheap, good product. You know, it's the old
Speaker 1: story about King Canute putting is throne in the middle
Speaker 1: of the waves and telling the waves to stop coming in.
Speaker 11: Yeah, good luck that you can't do it right.
Speaker 2: So do you think we're overemphasizing the importance of who's
Speaker 2: in a white house for this transition?
Speaker 3: And if that's the case, it's important. Should it matter
Speaker 3: who's important?
Speaker 1: But not for the reason you're saying. Go on, tell
Speaker 1: me why, Because what I'm saying is economics. Trump, you know, wins,
Speaker 1: the good products, the cheap products win. But this is
Speaker 1: a question about global response, not American response. You were
Speaker 1: seeing it through American eyes. This world is a lot
Speaker 1: bigger than the United States of American. It takes it
Speaker 1: and so we need international cooperation so that the Chinese
Speaker 1: companies are held to the same standards as American companies,
Speaker 1: so that around the world.
Speaker 11: Okay, China is trying to win this industry.
Speaker 1: They're by far the biggest a minter of greenhouse gases,
Speaker 1: and their greenhouse gases went up five percent last year.
Speaker 1: Their greenhouse gas increase was more than the world's increase.
Speaker 1: So let's be clear. If we do the international cooperation,
Speaker 1: that's how we get a level playing field if we
Speaker 1: measure emissions so people know right down through their supply chain.
Speaker 1: That's how we get every company on the same playing field.
Speaker 1: That's under Republican administration. Do I think that will happen.
Speaker 1: I would be very skeptical that a Republican administration believes
Speaker 1: in international institutions, in international standards, in building the information
Speaker 1: systems to make all of that possible.
Speaker 6: Maybe I'm revealing too much, but I remember being a ten, eleven,
Speaker 6: twelve year old and learning about the deforestation of the
Speaker 6: Amazon and not being able to sleep at night. And then,
Speaker 6: you know, as I got older, reading all of these
Speaker 6: things about global warming and just it we were all
Speaker 6: evil and you know, all contributing to the.
Speaker 3: Rapid destruction of this globe.
Speaker 6: And it made me kind of tune out after a while,
Speaker 6: because if I wanted to sleep at night, I wanted
Speaker 6: to feel like I could actually have a normal life.
Speaker 11: It was hard to even pay attention.
Speaker 6: How much is that making it difficult to really get
Speaker 6: people engaged, to really get the investment strategies to continue
Speaker 6: with ecological sorts of focuses, because we've seen a lot
Speaker 6: of pullback from that.
Speaker 1: Well, Lisa, that's why I wrote the book to have
Speaker 1: Lisa sleep well pretty much, and to.
Speaker 11: Say that I deserve to get paid for it. I'm
Speaker 11: just I'm not even going to go there.
Speaker 1: It goes without saying. For goodness sakes, John, that's obvious.
Speaker 8: You know.
Speaker 1: My point is this, Look, there are two big memes
Speaker 1: in America about energy and about decarbonization and climate. And
Speaker 1: the memes are one, We're an oil and gas driven
Speaker 1: society and that will always be true.
Speaker 11: That is not true.
Speaker 1: That is absolutely not true. Every country in the world,
Speaker 1: every single country in the world, has agreed we need
Speaker 1: to get off oil and gas, that we need to
Speaker 1: get off fossil fuels. And the second one is we're
Speaker 1: in a doom loop, like we are destroying the natural world.
Speaker 1: We can't stop ourselves from destroying the natural world. You know,
Speaker 1: all the terrible things are going to happen. And the
Speaker 1: point of my book is, now, this is a huge
Speaker 1: struggle that we all need to join in on. But
Speaker 1: we have the tools and the abilities to win it.
Speaker 1: We will inevitably win it, but we have to win
Speaker 1: it as fast as possible. Basically, to create a safe society,
Speaker 1: to avoid almost unimaginable human suffering, but also to have
Speaker 1: American lead a new century in terms of doing the
Speaker 1: right thing and winning. So in terms of the Amazon,
Speaker 1: the Amazon has been providing a service to the rest.
Speaker 11: Of the world for free forever.
Speaker 1: It's the so called lungs of the world, and thirty
Speaker 1: percent of it's in drought now, which is a huge problem.
Speaker 1: But what we need if we have the international measurement
Speaker 1: systems that I was talking about. Basically, it's a system
Speaker 1: for trying to measure value being created and trying to
Speaker 1: move money to compensate people for doing all the things
Speaker 1: they're doing for each other for free, and charge people
Speaker 1: for doing all the things to hurt other people for free.
Speaker 1: That's really what we're talking about changing in this world.
Speaker 2: Tom this was thoughtful stuff and hopefully we can catch
Speaker 2: up again before November. I have a bigger conversation about
Speaker 2: this selection. Thank you, sir.
Speaker 11: Just remember we can win this.
Speaker 8: We will win this.
Speaker 11: We should keep our chins up and let America do
Speaker 11: its job.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
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