Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: And we may not have an overall recession, We're having
Speaker 2: a rolling recession to conge roll looks pretty strongly it
Speaker 2: is when it comes to jobs.
Speaker 1: The financial stories that shape our world.
Speaker 2: Three major regional bank failures send shockwaves through the banking system.
Speaker 2: We're all trying to figure out what to make of
Speaker 2: generative AI.
Speaker 1: Through the eyes of the most influential voices.
Speaker 2: Welcome down, Doctor Paul Krugman, Ryan moynihan, Bank of America,
Speaker 2: deebro Lair of the Paulson Institute, well then Hubbard of
Speaker 2: the Columbia Business School.
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: Taking different paths. China slows down as the United States
Speaker 2: heads toward a soft landing after all, and Morgan Stanley
Speaker 2: fires on all cylinders while Goldman reboots. This is Bloomberg
Speaker 2: Wall Street Week. I'm David Weston. This week contributors Larry
Speaker 2: Summers of Harvard and Steve Rattner of will It Advisors
Speaker 2: on what generative AI could mean for the economy and
Speaker 2: for investors.
Speaker 3: I have a suspicion that AI is coming for the
Speaker 3: cognitive clash.
Speaker 4: History is probably still on the side that we will
Speaker 4: find our way through this in a positive way.
Speaker 2: Oh And Thomas of Boston Properties on just how bad
Speaker 2: it could get in commercial real estate.
Speaker 5: The sentiment is worse than the reality that we're experiencing.
Speaker 2: And Dennis Arfa of Artist Group International about what Taylor
Speaker 2: Swift's billion dollar tour means for the business of music.
Speaker 6: She's raised the bar, she said, a new bar.
Speaker 1: Global.
Speaker 2: Wall Street spent the week looking two different directions as
Speaker 2: China economic numbers once again pointed to a disappointing year.
Speaker 7: The private sector is a big part of the Chinese economy.
Speaker 7: They're just not spending or investing like they used to, and.
Speaker 2: Kris Delina Giorgieva of the IMF warned about what that
Speaker 2: could mean for the rest of the world.
Speaker 1: In a slowing down, of course, affects Setia, affects the worlds.
Speaker 2: But at the same time that the numbers seem to
Speaker 2: be getting worse in China, they continue to point towards
Speaker 2: strength in the United States, leading Treasury Secretary of Yellen
Speaker 2: to say a US recession may be off the table.
Speaker 6: I don't expect a recession.
Speaker 5: I think that we're on a good pass to bringing
Speaker 5: inslation downs that.
Speaker 2: Stronger than we saw at US economy helped most of
Speaker 2: the big banks do better than we expected on their earnings,
Speaker 2: led by Morgan Stanley, with CEO James Gorman chalking the
Speaker 2: success up to three basic things.
Speaker 8: The combination of really high conservative capital levels, pl vious.
Speaker 2: Organic growth within a couple of cool businesses, and very
Speaker 2: high diven end yeok. But things weren't quite as rosy
Speaker 2: over at Gold and Sachs, with reduced profits in part
Speaker 2: because of challenges in the commercial real estate business.
Speaker 7: They have about twenty eight billion dollars in loans in
Speaker 7: the commercial real estate space, so that's about fifteen percent
Speaker 7: of their total lown portfolio.
Speaker 2: And CEO David Solomon admitted that the bank is going
Speaker 2: through something of a rebuilding period. We're making tough decisions
Speaker 2: that are driving the strategic evolution of firm. Given both
Speaker 2: these factors, that should come as no surprise that we're
Speaker 2: going to a period of lower results through it all,
Speaker 2: The S and P five hundred continued, it's surprising march upward,
Speaker 2: adding another seven tens of an percent to end the
Speaker 2: week at forty five thirty six, way above where the
Speaker 2: Bloomberg elves had been, although in fairness, the Elves have
Speaker 2: been taking their median estimate up now indicating a forty
Speaker 2: three hundred SMP by the end of the year. The
Speaker 2: NANTSAC didn't do quite well, giving up just under six
Speaker 2: tens percent, while the yield and the tenure was just
Speaker 2: about flat, hanging out at three point eight three, though
Speaker 2: it did dip as low as three point seven three
Speaker 2: on Wednesday and then flirted with three point eighty seven
Speaker 2: late on Thursday. To take us through the week in
Speaker 2: the markets and what investors should make of then we
Speaker 2: welcome back Sarah Malak, she's Nouvene chief Invents one officer,
Speaker 2: and Christina Hooper and Vesco chief Global Market Strategy. So
Speaker 2: welcome to both of you. Thanks for being back with this.
Speaker 2: Let me start with you. As for Christina, what did
Speaker 2: you make of the week of the markets?
Speaker 9: So I was happy to see a continued broadening in markets.
Speaker 9: So we didn't see tech do well, but that's okay
Speaker 9: because there was more participation from a variety of sectors.
Speaker 9: So I think in general this is a fairly healthy environment,
Speaker 9: but we should expect that it's not surprising if we
Speaker 9: get some kind of pullback we've had a strong rally
Speaker 9: this year, there should be or there should likely be,
Speaker 9: a digestion period over the coming months, So a.
Speaker 2: Broadening in the market. Do you see that as well, Sarah,
Speaker 2: We actually at Bloomberg have a chart indicating the relationship
Speaker 2: between small caps and the S and P five hundred,
Speaker 2: suggesting is a bigger divergence that there been in twenty years.
Speaker 2: Are you seeing a broadening of the markets or not.
Speaker 10: Well, there's three reasons why the bulls beat the bears
Speaker 10: again this week. One is broader participation in the indexes,
Speaker 10: Second is inflation, which is continuing to moderate, and third,
Speaker 10: of course is earning seas and so participation rate for
Speaker 10: everything outside of those top ten technology socks has been
Speaker 10: very strong since June. First, that's a healthy sign for
Speaker 10: the markets. Moderating inflation with CPI and PPI coming in
Speaker 10: under expectations is another positive. But we are still concerned
Speaker 10: about wage inflation and core inflation, which remains above the
Speaker 10: FEDCE target.
Speaker 2: So sure, we're still early on in the earning scenes
Speaker 2: so far, so we'll have to find out what actually happens.
Speaker 2: But where are you in the S and P five
Speaker 2: hundred by the end of the year.
Speaker 10: We still think there's upside as long as employment markets
Speaker 10: remain strong and the consumers keep spending, and you tend
Speaker 10: to see that when people are comfortable with their jobs,
Speaker 10: they will keep spending money. I think the market still
Speaker 10: has upside if that's the case now. I do acknowledge
Speaker 10: sixteen months of monetary tightening, including what we think is
Speaker 10: one more rate hike next week until and then we're
Speaker 10: done with rate hikes for a while. But all of
Speaker 10: that putting together, as long as we don't see a
Speaker 10: recession this year, which we doubt that we will, I
Speaker 10: think the markets keeps climbing higher. Technology. I wouldn't count
Speaker 10: that out either. It has a lot of tailwinds like
Speaker 10: lower inflation, heels that are moderating, and artificial intelligence. I
Speaker 10: think tech sucks also will continue to move higher once
Speaker 10: they can.
Speaker 2: Solve what eight David.
Speaker 9: I don't disagree with Sarah. I think after that digestion
Speaker 9: period that I talked about and the potential for a
Speaker 9: modest pullback, what we're likely to see is some improvement
Speaker 9: in the S and P five hundred by year end.
Speaker 9: And I would argue that that is being fueled by
Speaker 9: what I will call a bumpy landing. I don't think
Speaker 9: it's a soft landing, but I don't think we go
Speaker 9: into any kind of significant, broad based recession. We're also
Speaker 9: going to see history help us. What we know is
Speaker 9: that when the FED stops hiking rates, typically in the
Speaker 9: one year period the two years after the end of
Speaker 9: rate hikes, that is when we tend to see good performance,
Speaker 9: strong returns, usually from the S and P five hundred.
Speaker 9: I don't think this is going to be different this year,
Speaker 9: especially since this time around, this kind of downturn is
Speaker 9: a job full downturn, and so we see the consumer
Speaker 9: continuing to spend, as Sarah mentioned, because they have jobs
Speaker 9: and they can spend, and with inflation coming down that
Speaker 9: also helps helps with discretionary spend.
Speaker 2: If it is summer, it is time to catch some
Speaker 2: live music, and this summer, the biggest live music that
Speaker 2: there is out there comes from Taylor Swift, whose Eras
Speaker 2: tour is expected to bring in a billion dollars. Welcome now,
Speaker 2: Dennis Arfa. He's head of Global Music at IAG. He
Speaker 2: has represented artists such as Billy Joel, Metallica, Rod Stewart,
Speaker 2: and many others. Thanks so much, Dennis for being with
Speaker 2: us appreciated. So we have a sense as fans, as
Speaker 2: people who follow Tyror Swift that she's really big. But
Speaker 2: for the music business, how big is she?
Speaker 6: Well, what she has accomplished with her tour is unprecedented.
Speaker 6: Never before have we ever seen an artist put multiple
Speaker 6: stadium shows on sale in the same city and blow
Speaker 6: them all out on the on sale, and that's never happened.
Speaker 6: And so she's raised the bar, she said, a new bar,
Speaker 6: because now that somebody can play whatever I believe it's
Speaker 6: fifty one stadium shows and sell it out on the
Speaker 6: on sale is incredible. It's what I'd call a beatlesque.
Speaker 2: It's what we would.
Speaker 6: Have expected the Beatles to do had they been touring
Speaker 6: in prime time as today they would kind of we
Speaker 6: would expect to have that same kind of result.
Speaker 2: So we talked to investors. Here give us a sense
Speaker 2: of the economics of this. You refer to the Beatles.
Speaker 2: My understanding for reading about it is the economics were
Speaker 2: different back then, that a lot of the economics were
Speaker 2: driven by the records, the old LPs that we bought.
Speaker 2: Not so much anymore when we talk about perhaps a
Speaker 2: billion dollars in this tour, where does that money come from?
Speaker 2: How does it break down?
Speaker 6: Well, it breaks down from ticket sales and then the
Speaker 6: additional moneies that come from ticket sales, platinum tickets, VIP tickets,
Speaker 6: merchandising as a big gradient sponsorship, you know, so those
Speaker 6: are kind of the things that bring up the dollar amounts.
Speaker 6: But it's ticket sales is the base.
Speaker 2: We're just recorded music fit in anymore.
Speaker 6: Well, you know, today you can have a record that's
Speaker 6: number one and be one hundred thousand or fifty thousand units.
Speaker 6: Twenty five years ago, you know, many artists were selling
Speaker 6: a million, million albums, million records, you know, on release
Speaker 6: or you know, it was it was more common. So
Speaker 6: the album sales are diluted and the record sales are
Speaker 6: diluted in comparison to what it used to be. I mean,
Speaker 6: there's artists, whether it's the Eagles or Billy Joel and
Speaker 6: twenty four million, twenty seven million, Michael Jackson the Thriller,
Speaker 6: those numbers really don't exist, and if they do, they're
Speaker 6: really aberrations. The Adele success to Taylor Swift's success, those
Speaker 6: are our that really wasn't the case twenty five years ago.
Speaker 6: I have a lot of gold records and platinum records
Speaker 6: on my wall, and some of those artists you don't
Speaker 6: even know who they are. And today you know, if
Speaker 6: you did twenty five thousand in the week, you could
Speaker 6: end up being in the top ten.
Speaker 2: Okay, Dennis, thank you so much for being on Wall
Speaker 2: Street Week. That is Dennis Arfa. He's the founder of AGI.
Speaker 2: Coming up everywhere return we hear about problems with commercial
Speaker 2: real estate. We'll talk with the head of the largest
Speaker 2: public and traded developer of high end office space in
Speaker 2: the country, Owen Thomas of BXP.
Speaker 5: Remote work is like a benefit, it's like compensation. You
Speaker 5: have to meet the market.
Speaker 2: That's next on Wall Street Week on Bloomberg. This is
Speaker 2: Wall Street Week. I'm David Weston. This week brought another
Speaker 2: round of bad news and commercial real estate from Goldwyn
Speaker 2: Sacks sing a four hundred and eighty five million dollars
Speaker 2: it from the property market to news. Have yet another
Speaker 2: big mortgage default, this one for two hundred and twelve
Speaker 2: million dollars on an Atlanta office tower owned by Star
Speaker 2: would Capital. To put it all in a broader perspective,
Speaker 2: the good and maybe even the not so good. Welcome
Speaker 2: back now, Owen Thomas. He's chairman and CEO of XP
Speaker 2: that is the largest publicly traded developer of high end
Speaker 2: office space in the country. Own always great to have
Speaker 2: you with us, as I say, and you know, there's
Speaker 2: so much bad news in commercial real estate. Put in
Speaker 2: a larger perspective exactly where we are at this way?
Speaker 2: What are you seeing in your business particular in terms
Speaker 2: of occupancy rates? Are people really coming to the office yet?
Speaker 5: Yeah, Well, David's nice to be with you. I would
Speaker 5: say in summary that the sentiment is worse than the
Speaker 5: reality that we're experiencing. So let's talk a little bit
Speaker 5: about usage of buildings. There's a steady stream of corporate
Speaker 5: announcements going on right now. If companies returning to the
Speaker 5: office like Amazon did on May first, companies that were
Speaker 5: in the office three days a week moving to four days,
Speaker 5: even some companies saying we're going to evaluate all new
Speaker 5: employees based on your office attendance that you're in. So
Speaker 5: you're seeing more and more of this. I think CEOs
Speaker 5: all want more in person work. They recognize that remote
Speaker 5: work is like a benefit, it's like compensation you have
Speaker 5: to meet the market, but it comes with a real
Speaker 5: cost of productivity and culture.
Speaker 2: Are you seeing your buildings though, and actually people showing
Speaker 2: up because we have things like castle card reporting, it's
Speaker 2: still like fifty percent in Manhattan. Are you seeing it
Speaker 2: move up?
Speaker 5: So the building we don't use castle systems and a
Speaker 5: lot of the landlords that we compete with don't, So
Speaker 5: I know the industry uses their data, So I'll tell
Speaker 5: you what we're experiencing. So in New York and Boston, Tuesday, Wednesday,
Speaker 5: Thursday is more or less at pre pandemic attendance. I
Speaker 5: think Monday's about sixty percent of that peak and Friday's
Speaker 5: probably less than thirty percent of that peak. The West
Speaker 5: coast markets where we operate, Seattle, San Francisco, and LA
Speaker 5: they're probably fifty percent of all those known or so
Speaker 5: well behind.
Speaker 2: What about repurposing some of these others buildings because we've
Speaker 2: heard a lot about that and whether we're residential or
Speaker 2: I think you've been big in life sciences? Actually haven't
Speaker 2: you at VXB?
Speaker 1: Yes?
Speaker 2: How's that going? Is there too much of a move
Speaker 2: into life sciences? Are you seeing a glut?
Speaker 5: Yeah? Well, let me talk about the repurposing. We definitely
Speaker 5: have repurposed several office buildings successfully into life science, and
Speaker 5: we've done it very carefully in some of the premiere
Speaker 5: life science markets in the country. But on the residential
Speaker 5: conversions which you asked about, this is something that theoretically
Speaker 5: makes a tremendous amount of sense. We need more housing
Speaker 5: in our cities. We need less obsolescent office buildings, we
Speaker 5: need more real estate tax revenues, we need more activity
Speaker 5: on the street. And when you repurpose an asset, the
Speaker 5: carbon footprint of doing that is much lower than demolishing
Speaker 5: and reconstructing. However, there are obstacles to doing all these things.
Speaker 5: Regulatory zoning requirements, residential zoning versus commercial zoning, physical requirements.
Speaker 5: Building has to be empty, the depth of the buildings.
Speaker 5: Residential needs more light and air than office, and many
Speaker 5: office buildings have deep floor plates. And then financial you know,
Speaker 5: to do a successful conversion, the office building has to
Speaker 5: be contributed at something pretty close to land value. So
Speaker 5: there it makes a tremendous amount of sense. There are
Speaker 5: a lot of obstacles, but I would think about it
Speaker 5: this way, David. There are four hundred million square feet
Speaker 5: of office space in New York. If one to two
Speaker 5: percent was converted, that's four to eight million square feet
Speaker 5: of new housing, and it's also probably you know, five
Speaker 5: to ten percent of the vacant office building, so not
Speaker 5: a lot, as a percent has to happen for it
Speaker 5: to be meaningful.
Speaker 2: You raised the geography question because you particularly are obviously
Speaker 2: in Boston, but also New York, San Francisco. Some of
Speaker 2: the cities have been hit a little harder when it
Speaker 2: comes to residential I'm sorry, office space. Are you thinking
Speaker 2: about going to other places? We hear a lot about Austin,
Speaker 2: we hear about Miami, we hear about Florida. Are you
Speaker 2: thinking about expanding into the geographic areas well.
Speaker 5: We're very happy with our footprint. We believe in having
Speaker 5: real estate where they are barriers to new supply and
Speaker 5: also knowledge clusters of workers, and we think our cities
Speaker 5: have those. There's clearly been some migration to the Sun Belt,
Speaker 5: and there's been strong growth in the Sun Belt markets,
Speaker 5: but there's also been a lot of development. If you
Speaker 5: look at the vacancy rates in many of the Sun
Speaker 5: Belt cities, they've gone up very significantly over the last
Speaker 5: year to eighteen months, and in many cases are above
Speaker 5: the vacancy rates in the cities where we operate when.
Speaker 2: You're in a particular position, which is a publicly traded company,
Speaker 2: the largest publicly traded company when it comes to high
Speaker 2: end office buildings, which means you have a lot of resources,
Speaker 2: access to a lot of resources, and you have to
Speaker 2: there's a marked to market every single day in a
Speaker 2: sense that's affected your stock like every else's. As you
Speaker 2: look at it right now, do you see opportunities? I mean,
Speaker 2: are there bargains out there, because in fact there are
Speaker 2: problems getting financing, the prices are coming down. I think
Speaker 2: there are.
Speaker 5: We So for example, we launched at the end of
Speaker 5: last year a billion and a half dollars of life
Speaker 5: science development in East Cambridge. We're building a six hundred
Speaker 5: plus thousand square foot lab building for AstraZeneca at attractive
Speaker 5: yields to our shareholders. We're also converting another significant office
Speaker 5: building in East Cambridge to life science for the Broad Institute,
Speaker 5: also at attractive yields. So those are the types of
Speaker 5: things that we've been investing in. But I think as
Speaker 5: this market evolves and there's more pricing, discovery and a reset,
Speaker 5: I do think it will create great opportunities for a
Speaker 5: well capitalized player like BXP.
Speaker 2: Thank you so much, Always a treat to have you
Speaker 2: with us. That's Owen Thomas of b XP. To everything
Speaker 2: there is a season, but sometimes that season can last
Speaker 2: pretty long. It's the summer of everything old being new again.
Speaker 2: We're a year away from the true start to the
Speaker 2: next presidential race, and a lot of the focus is
Speaker 2: already on the age of the two front runners, as
Speaker 2: former President Trump, a spry seventy seven year old, looks
Speaker 2: to reclaim the White House from the more senior President Biden,
Speaker 2: clocking in at a mature eighty. But then again, Senate
Speaker 2: Minority Leader Mitch McConnell beats them both at eighty one,
Speaker 2: and some of those after mister Biden's job aren't too
Speaker 2: shy about showing off how useful and vigorous they are.
Speaker 2: From Robert Kennedy Junior doing bear chested pushups for the
Speaker 2: camera at age sixty nine, it's a good boy to
Speaker 2: the baby in the group. Forty five year old Miami
Speaker 2: mayor Francis Suarez demonstrating he can run all over town
Speaker 2: in a tight T shirt and shorts. I'm going to
Speaker 2: run for present. It's not just Washington where the mature
Speaker 2: are showing their staying power. Bob Iger retired as CEO
Speaker 2: of Disney at age seventy after fifteen years running the company,
Speaker 2: only to come back for return performance with a contract
Speaker 2: that now will keep him in charge until he's at
Speaker 2: least seventy five. This isn't really a huge surprise, right
Speaker 2: that his contract has been renewed at this point. It's
Speaker 2: incredibly enticing, I think, and very tempting to keep him
Speaker 2: on board. But Bob is just the right age to
Speaker 2: deal with. Some of the leading men driving the box
Speaker 2: office this summer. From Tom Cruise at sixty starring in
Speaker 2: yet another mission Impossible, I don't accept that. To Arnold
Speaker 2: Schwarzenegger at seventy five saving the world in Foo Bar
Speaker 2: I'm retired. To Harrison Ford returning as Indiana Jones at
Speaker 2: age eighty. I've been looking for this all my life.
Speaker 2: But wait, there's more. The star of what may well
Speaker 2: be the hit movie of the summer tops them all
Speaker 2: at the age of eighty three. Yes, eighty three years old,
Speaker 2: and she is a leading lady. I'm talking, of course,
Speaker 2: about the one and only Barbie. You might say, no,
Speaker 2: Barbie is only nineteen. Well, that is the age she
Speaker 2: was when she first appeared.
Speaker 10: My Barbie Dull is really.
Speaker 2: But that was back in nineteen fifty nine. Since then,
Speaker 2: she's come back again and again, including for the Millennium,
Speaker 2: when she made a guest appearance on Wall Street Week
Speaker 2: with Lewis Rockeiser for Christmas back in two thousand.
Speaker 8: Barbie is stating another of her periodic comebacks, Betell's Millennium
Speaker 8: Princess version as a hot seller this season at forty dollars.
Speaker 2: And now Barbie is back bigger than ever in her
Speaker 2: own blockbuster movie as a thoroughly mature eighty three year old,
Speaker 2: something that even Barbie herself may not want to think
Speaker 2: too hard about. The best day ever. It is the
Speaker 2: best day ever.
Speaker 9: So is yesterday, and so is tomorrow. In every daypnurship.
Speaker 5: Forever, you don't ever think about nine.
Speaker 2: Here's to eternal use coming up. We're told the generative
Speaker 2: AI will change all of our lives in ways we
Speaker 2: just can't imagine. We put together a special Wall Street
Speaker 2: Week roundtable of Larry Summers and Steve Radner to give
Speaker 2: us an early read and the possible effects of this
Speaker 2: revolution on macroeconomics and on investors.
Speaker 3: Here's a substantial chance the AI is going to be
Speaker 3: much more of a threat to IQ than it is
Speaker 3: to EQ.
Speaker 4: It is the cognitive classes, as you call them, who
Speaker 4: are most at risk.
Speaker 2: This is Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: Artificial intelligence. We may not yet know exactly what it is,
Speaker 2: even though the technology isn't all that new, but everyone
Speaker 2: agrees it's going to be huge.
Speaker 6: We don't know yet all of the different applications that
Speaker 6: are going to come up.
Speaker 2: Well, you're seeing that just.
Speaker 6: Swipping the past six months is a revolution.
Speaker 2: With Julie's Sweet of accenture saying just about all executives
Speaker 2: believe it will change their world.
Speaker 9: In fact, ninety seven percent of executives and a recent
Speaker 9: survey that we did have said they believe that Jenna
Speaker 9: I will transform their industry and their company, leading.
Speaker 2: Those funding startups to shift their investments. With Pitchbook reporting
Speaker 2: VC's last quarter spend less on crypto and digital assets
Speaker 2: than at any time since twenty twenty, while investing more
Speaker 2: in A than crypto even at its peak. Hopes are
Speaker 2: high the AI will make our lives better.
Speaker 10: We'll also see AI coming more and more to the forefront,
Speaker 10: both to help folks say productive and from a security perspective.
Speaker 2: But as with all powerful tools, there are also risks involved.
Speaker 2: With the head of Google's Deep Mind calling for more
Speaker 2: work on guardrails.
Speaker 10: The number one thing that needs to be done right
Speaker 10: now is to put more investment into AI safety research
Speaker 10: and understanding what these systems can do and what God
Speaker 10: wills that we therefore should have.
Speaker 2: And Elon Musk urging the government to step up to
Speaker 2: the challenge. I'm in favor of AI regulation because.
Speaker 5: I think advanced AI is a risk to the public.
Speaker 2: But chat GPT pioneer Sam Altman warns about the difficulties.
Speaker 2: Global regulation is hard.
Speaker 8: You know, you don't want to overdo it for sure,
Speaker 8: but I think global regulation can help make.
Speaker 2: It safe, leaving us all with some difficult questions about
Speaker 2: how to get the best of what artificial intelligence promises
Speaker 2: and yet manage the risks. To help us begin to
Speaker 2: explore some of the questions we have about AI, welcome
Speaker 2: now our special contributor Larry Summers of Harvard and Steve Ratner,
Speaker 2: Chairman and CEO of will It Advisors, which manages the
Speaker 2: personal and philanthropic assets of our founder and majority shareholder
Speaker 2: Michael Bloomberg. So welcome to back to both of you. Steve,
Speaker 2: let me start with you, because you wrote a piece
Speaker 2: in The New York Times that a lot of us
Speaker 2: thought was quite thoughtful about this, making the point of
Speaker 2: part this is not a new thing. You like the
Speaker 2: seventeenth century their questions about looms give us your sense
Speaker 2: about AI the opportunity to offer us and some of
Speaker 2: the resistance to it.
Speaker 4: As I wrote in the piece, I think that that
Speaker 4: economic growth and prosperity and better living standards for everybody
Speaker 4: in the world, no matter who they are, where they are,
Speaker 4: depends on increasing productivity efficiency at work, and in my
Speaker 4: mind AI it may be a quantum leap. We don't
Speaker 4: know that yet, but as part of a continuum going
Speaker 4: back to even the thirteenth century. I wrote about all
Speaker 4: that piece briefly of improvements and in productivity and getting
Speaker 4: those into the hands of the workers so that people
Speaker 4: can have a higher standard of living. And as part
Speaker 4: of that you have what Trumpeter famously called creative destruction.
Speaker 4: You have some jobs that are lost and other jobs
Speaker 4: that are gained. We had four hundred and fifty thousand
Speaker 4: telephone operators in this country in the nineteen fifties. You
Speaker 4: tell me the last time you talked to a telephone operator,
Speaker 4: we had close to two million people. I assume most
Speaker 4: of them women classified as typists. That's not even a
Speaker 4: job category anymore in the BLS. This is all things
Speaker 4: that have happened. And alternatively, we've developed millions of jobs
Speaker 4: in technology industries and finance and other sectors that have
Speaker 4: actually been helped by the development of technology.
Speaker 2: So Steve, of course is an investor. Larry, you were
Speaker 2: a macroeconomist. As a macroeconomist, is Steve on the right
Speaker 2: trail about restoring the growth of productivity which has dropped off?
Speaker 2: As Steve pointed out his piece, it really has dropped
Speaker 2: off significantly.
Speaker 3: Steve's right to be four technological progress and to recognize
Speaker 3: overall it's through change and evolution mediated through markeats that
Speaker 3: life has gotten so much better. And it's all right,
Speaker 3: just one thing. In the nineteen sixties, ninety six percent
Speaker 3: of American American men twenty five to fifty four were working,
Speaker 3: and only four percent were not. Today it's more like
Speaker 3: fourteen percent.
Speaker 2: Are there things we should be doing right now that
Speaker 2: we fail to do with automation and with globalization, to
Speaker 2: think about those distributional effects potentially of AI to make
Speaker 2: sure that we bring more people along with the progress.
Speaker 4: Absolutely, I don't think actually, Larry and I really disagree.
Speaker 4: I understand the problem he's talking about. It actually relates
Speaker 4: to automation a lot, and also to trade. And where
Speaker 4: I think, frankly, the economists Larry may jump down my
Speaker 4: throat for this part. I think the economists got it
Speaker 4: wrong on trade, which is similar in a lot of
Speaker 4: respects to automation or other technological improvements in terms of
Speaker 4: its impact. Is that trade had huge macroeconomic benefits for
Speaker 4: the country. We missed the macroeconomic impacts those workers in
Speaker 4: Flint or Detroit or in Ohio. Some of their jobs
Speaker 4: were and I actually just read something the other day,
Speaker 4: you know rough Justice. Maybe half their jobs were lost
Speaker 4: to automation, the other half were lost to trade. And
Speaker 4: we had this little trade adjustment assistance program which basically
Speaker 4: did nothing. And we have not really done a great
Speaker 4: job as a society both in getting the benefits of
Speaker 4: technology into the hands of everybody. There's been this lack
Speaker 4: of wage growth commensurate with the productivity growth over a
Speaker 4: fairly long period of time now, as well as individuals
Speaker 4: and finding them things to do where they can be
Speaker 4: more productive and happier.
Speaker 2: Lurie, what about it? Did the economists, and yes, the
Speaker 2: policymaker in Washington, it sort of let us all down
Speaker 2: with respect to both automation and trade.
Speaker 3: We should have done more to cushion the various changes
Speaker 3: associated with trade. I agree with that, I'm not sure
Speaker 3: I agree with Steve's quantification, and I think that a
Speaker 3: full calculus on trade has to recognize a large number
Speaker 3: of benefits in terms of jobs created and in terms
Speaker 3: of real wages enhanced. But that brings me to the
Speaker 3: other point I wanted to make about AI. And I
Speaker 3: don't know for sure about this, but if my suspicion
Speaker 3: is right, it's very big. Most of the technological changes
Speaker 3: we've had before came for working people doing relatively routine things.
Speaker 3: They were automatic ways of picking cotton. It came from
Speaker 3: agricultural workers. They were things that replaced typists or telephone operators.
Speaker 3: As Steve mentioned, I have a suspicion that AI is
Speaker 3: coming for the cognitive class. And part of the reason
Speaker 3: and you're seeing such hysteria now, is that it's the
Speaker 3: people who write articles and their friends, the people like
Speaker 3: the three of us, who are more at risk from
Speaker 3: AI competition than has been the case with most of
Speaker 3: the technological innovations in the past. I would say that
Speaker 3: there's a substantial chance the AI is going to be
Speaker 3: much more of a threat to IQ than it is
Speaker 3: to EQ.
Speaker 11: It will be a very long time before AI will
Speaker 11: replace many of the kinds of direct physical work. Think
Speaker 11: of working in a garden, for example.
Speaker 3: So I have a suspicion that the distributional consequences of
Speaker 3: AI for the bosses versus the boss may be very
Speaker 3: different than the distributional consequences of many of the other
Speaker 3: technological revolutions, and that affects how bosses are going to
Speaker 3: think about it in profound ways. They're going to be
Speaker 3: much more scared, and on the other side, may be
Speaker 3: more benign from the point of view of some of
Speaker 3: those who've been traditionally left behind.
Speaker 2: So Larry, I agree. I agree with that.
Speaker 4: I think it is the cognitive classes, as you call them,
Speaker 4: who are most at risk. I might make a dicis
Speaker 4: I'm not sure. I would think about it as bosses
Speaker 4: and boss and I'll use it but I will use
Speaker 4: this historical analogy to give us a little bit of hope.
Speaker 4: When I started on Wall Street as a young investment banker,
Speaker 4: I had nothing. I had an early HB twelve C
Speaker 4: calculator in my hand. We had no EXL we had
Speaker 4: no computers to speak of, we had know nothing. All
Speaker 4: of our spreadsheets were done by hand. They took a
Speaker 4: really long time. They had to then be typed up.
Speaker 4: We'll put the type of societ and then if I
Speaker 4: wanted to make a change, I had to start all
Speaker 4: over again. And now that can all be done with
Speaker 4: the click of a mouse with an Excel program by
Speaker 4: anybody with a small personal computer. And yet the number
Speaker 4: of people doing what I did forty years ago when
Speaker 4: I started on Wall Street has multiplied since then, and
Speaker 4: so it became a productivity enhancing tool, not a job
Speaker 4: destructing destructive tool. I'm perfectly prepared to believe that this
Speaker 4: may come out a different way. All I'm saying is
Speaker 4: I don't think we know yet, and I think history
Speaker 4: is probably still on the side that we will find
Speaker 4: our way through this in a positive way.
Speaker 2: Many thanks to Larry Summers of Harvard and Steve Radner
Speaker 2: of Willet Advisors coming up, has the strong dollar run
Speaker 2: its course? We'll go through where we are and how
Speaker 2: we got here. That next down Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is Wall Street Week. I'm David Weston. The US
Speaker 2: dollar had been on something of a tear, recently hitting
Speaker 2: its peak last September, driven by all those rate hikes
Speaker 2: and expectations of more to come. But since then it's
Speaker 2: given up over five percent, with prospects that the Fed
Speaker 2: may be nearing the end of turning up the heat,
Speaker 2: and JP Morgan warned this week it may get worse
Speaker 2: from here, but it's still nothing compared to what Lewis
Speaker 2: Rickhauser was looking at on Wall Street weeek. Back in
Speaker 2: nineteen ninety three.
Speaker 8: The American dollar repeatedly dived to new postwar lows against
Speaker 8: the Japanese yen, fast approaching the once unthinkable level of
Speaker 8: one hundred yen to the dollar, and one Japanese financier
Speaker 8: confided to me that the next logical step would be
Speaker 8: to revalue, knocking off the last two zeros so that
Speaker 8: one yen would equal and perhaps even exceed one dollar.
Speaker 8: Never mind that many amus seriously questioned the wisdom of
Speaker 8: a succession of our own governments whooping the yen higher
Speaker 8: and the dollar lower while beating on the Japanese to
Speaker 8: open their markets wider.
Speaker 2: To take us through where we are today with the
Speaker 2: dollar and where we may be going, we welcome back
Speaker 2: Bloomberg International Economics and Policy correspondent Michael McKee.
Speaker 7: Unfortunately for mister Ruchiser, the dollar continued its dive in
Speaker 7: nineteen ninety five, reaching the once unthinkable level of eighty yen.
Speaker 7: That was back in the days when American consumers seem
Speaker 7: to be buying everything Japan could manufacture. The slide wasn't
Speaker 7: arrested until Robert Rubin, who became Treasury Secretary just as
Speaker 7: the dollar reached its NATI, was able to hammer home
Speaker 7: a new mantra that a strong dollar was in the
Speaker 7: best interests of the United States, and since then, as
Speaker 7: you've often heard, markets go up and markets go down.
Speaker 7: By nineteen ninety eight, the yen had weakened so much
Speaker 7: the US was willing to join with other G seven
Speaker 7: nations to strengthen it. Why well, for one thing, the
Speaker 7: euphemisms strong and weak are quite misleading. There are advantages
Speaker 7: and disadvantages to both conditions. If the dollar appreciates, it
Speaker 7: means foreign goods are cheaper to buy. That helps hold
Speaker 7: down inflation, which means interest rates can stay lower than
Speaker 7: otherwise necessary. But it also means American exports cost more overseas.
Speaker 7: If the dollar is depreciating, those exports are cheaper and
Speaker 7: US companies can sell more. More foreign tourists can afford
Speaker 7: to visit, and American assets become more attractive to foreign buyers. Now,
Speaker 7: some politicians worry about what they call a week dollar,
Speaker 7: and it has been depreciating. The dollar rows because the
Speaker 7: US economy has been much stronger than others, and the
Speaker 7: FEDS raised US interest rates higher than other central banks.
Speaker 7: With the Fed almost done, that's changing against many currencies.
Speaker 7: Currency strategists forecasts some dollar weakening, but no crash. It's
Speaker 7: still historically strong. A drop may disrupt some carry trades
Speaker 7: and other strategies, but it's not necessarily a bad thing
Speaker 7: for the US. Just sounds bad.
Speaker 2: David, thanks to Bloomberg's Michael McKee. That does it. For
Speaker 2: this episode of Wall Street Week, I'm David Weston. This
Speaker 2: is Bloomberg. See you next week,