Speaker 1: This is Bloomberg Wall Street Week. What's the state of
Speaker 1: corporate governance? The deficit is a real issue. The US
Speaker 1: economy continues to send mixed signals. The financial stories that
Speaker 1: cheap our world fed action to con concerns over dollar
Speaker 1: liquidity and encouraging China data. The five hundred wealthiest people
Speaker 1: in the world. Through the eyes of the most influential
Speaker 1: voices Larry Summers, the former Treasury Secretary, Star CEO, Kevin
Speaker 1: Johnson sec Chairman j Clayton. Bloomberg wool Street Week with
Speaker 1: David Weston from Bloomberg Radio. A glass half full with
Speaker 1: the new president and a vaccine on the horizon. This
Speaker 1: is Bloomberg Wall Street Week. I'm David Weston. Four years ago,
Speaker 1: President Trump committed his administration to undoing much of what
Speaker 1: came before him, whether it was trade policy, or financial
Speaker 1: regulation or international agreements. President elect Biden has promised to
Speaker 1: reverse much of that course, but to grow the economy,
Speaker 1: even as he pursues his goals on climate change, racial justice,
Speaker 1: and inequality. Can you do both? We asked Dan't rule
Speaker 1: of former Federal Reserve governor who held senior economic policy
Speaker 1: roles in the Obama and Clinton administrations. I mean, in
Speaker 1: the short term, as as we've all been saying for
Speaker 1: nine months now, uh, getting ahold of the virus, getting
Speaker 1: a vaccine out is the single most important thing to
Speaker 1: continue a cyclical recovery, and that in and of itself
Speaker 1: will provide a substantial boost hopefully through all and into
Speaker 1: two So there, I think, as again as we've all
Speaker 1: been saying, the public health issue is the most important
Speaker 1: economic issue. In the short term, there is stimulus. I
Speaker 1: think there's a crying need for stimulus to carry us
Speaker 1: into the period where the whether the vaccine is going
Speaker 1: to take effect. But after that you are going to
Speaker 1: get some tail winds basically from from their recovery. Longer term,
Speaker 1: I think it's it's a question of whether the now
Speaker 1: president elect is going to be able to manage to
Speaker 1: get Congress to go along with some of the spending
Speaker 1: priorities that he has as an enormous amount he can
Speaker 1: do just by having control of the executive branch, but
Speaker 1: it is going to be important for Congress to at
Speaker 1: least be somewhat cooperative. Well, and when you talk Congress
Speaker 1: as a practical we're probably talking the Senate right because
Speaker 1: as we sit here we're not gonna until late in January,
Speaker 1: where the Republicans or Democrats have the majority. Right now,
Speaker 1: I think you'd probably say it's likely that the Republicans will.
Speaker 1: Is it possible for a president buying to do business
Speaker 1: with Mitch McConnell and get some things done that certainly
Speaker 1: knows we hadn't gotten done last time? Well, I think
Speaker 1: I would say, David, if it's possible for any Democrat
Speaker 1: to do it, it's probably Joe Biden who can do it.
Speaker 1: He has he's not only a veteran of the Senate,
Speaker 1: but obviously has a longstanding relationship with the Senator McConnell. Um.
Speaker 1: But if we step back from personalities a bit, I
Speaker 1: think there may also be some motivation that at least
Speaker 1: Republican a handful of Republican members of the Senate may have.
Speaker 1: So consider, for example, in infrastructure investment, I mean that
Speaker 1: that elicits raised eyebrows now in Washington, New York, and
Speaker 1: just about everywhere else. People have been talking about it
Speaker 1: as a potential bipartisan um project and it hasn't happened.
Speaker 1: But I think you've gotten an administration, as we will,
Speaker 1: that has competence, that coordinates its policies, and that has
Speaker 1: a consistent set of policy, there are chances of working
Speaker 1: something out become much greater. And consider, for example, if
Speaker 1: the EPA administrator and other heads of agencies in the
Speaker 1: federal government begin to implement regulations directed towards climate change.
Speaker 1: So you dealt with ecademy policies, certainly when you remember
Speaker 1: the Federal Reserve, but also before that in the administration,
Speaker 1: in the Clint administration, you really dealt with econdic policy.
Speaker 1: As you look at the economy today, we still have
Speaker 1: ways to come back. We've come back some, we still
Speaker 1: always to come com particularly it comes to jobs. We've
Speaker 1: still got over ten million people who don't have jobs
Speaker 1: today who did before the pandemic. Is infrastructure the best, quickest,
Speaker 1: more sure way to restore some of that in the
Speaker 1: economy now. Coronavirus vaccine is the quickest, insurest way to
Speaker 1: do it, because that's what's going to get the service
Speaker 1: sectors back up. And environment, I would say, David, the
Speaker 1: infrastructure investment is the medium to longer term project. It's
Speaker 1: one that would both improve productivity and create good jobs
Speaker 1: along the way. But as we've seen it again and again,
Speaker 1: no matter how many times people say that projects are
Speaker 1: shovel ready. Yeah, they're they're ready enough that you can
Speaker 1: start walking to the truck to get the shovel, But
Speaker 1: they never seem to be ready to have as much
Speaker 1: impact as quickly as you'd like them too. So you
Speaker 1: mentioned earlier, Dan that there are some things that the
Speaker 1: executive branch can do on its own, pretty much without
Speaker 1: support through a divided Congress. Give us a sense in
Speaker 1: the economic sphere, one are the things that this president,
Speaker 1: President Biden could get done in a reasonably short period
Speaker 1: of time. Well, within the labor department, for example, where
Speaker 1: you've got the uh Fair Labor Standards Act, he can
Speaker 1: his appointees and make different determinations as to who's covered
Speaker 1: by minimum wage laws when you have to pay over time,
Speaker 1: that sort of thing which could have a big effect.
Speaker 1: Within the gig economy. Um, he can do things on
Speaker 1: student debt relief as well. Uh. There there are any
Speaker 1: number of regulatory actions that he can take, and of
Speaker 1: course he can also use such spending powers as he
Speaker 1: has with already appropriated or soon to be appropriated funds
Speaker 1: to redirect them. So in terms of economic priorities, there's
Speaker 1: quite a bit that he can do where he needs
Speaker 1: the cooperation of Congress is obviously in increasing total spending
Speaker 1: or total tax reforms. Should we be concerned all about
Speaker 1: the effect of regulation more regulation on the economic growth?
Speaker 1: That's always a question, right UM, in any administration, no
Speaker 1: matter what its ideological leanings. But I think in the
Speaker 1: areas where the President elect has emphasized most the regulatory agenda,
Speaker 1: which would be on climate change, which would be on
Speaker 1: worker protection UH, and to a lesser extent, financial regulation UH.
Speaker 1: In each of those areas, I think that it's quite
Speaker 1: possible to get a set of regulations to achieve your
Speaker 1: regulatory end, but do so in a sensible way that
Speaker 1: doesn't create unnecessary disruption. That was Dan Trullo of Harvard
Speaker 1: Law School. Coming up, we'll talk with Tom Monte, chief
Speaker 1: operating officer of Bank of America, and and finukin the
Speaker 1: Bank's co vice chairman about why they're taking the lead
Speaker 1: in issuing sustainability bonds. That's coming up on Wall Street
Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio. E s G. Environmental, social
Speaker 1: and governance investing is all the rage, But how far
Speaker 1: can it go. Bank of America has been a leader
Speaker 1: in sustainable investing, and it's not limited to the environment
Speaker 1: or to governance. Last month, b of A issued a
Speaker 1: two billion dollar sustainability bond tied to equality, with proceeds
Speaker 1: going not just a clean transportation and energy, but also
Speaker 1: to alleviating inequalities in Black and Hispanic Latino communities. Tom Monteg,
Speaker 1: chief operating officer of Bank of America, and and Fanuken,
Speaker 1: the bank's co vice chairman, explained the how and the why.
Speaker 1: You know, we had made our billion dollar pledge for
Speaker 1: racial equality, and after that, because we've been a leader
Speaker 1: in the green and social bonds, we decided it would
Speaker 1: be good to prod a blueprint for everyone else to
Speaker 1: be able to access this market, and so we put
Speaker 1: together the two billion dollar sustainability bond, and it was
Speaker 1: green and social. As you say, the difference for this
Speaker 1: was the social aspect of it was all for financial
Speaker 1: empowerment for Black African American Hispanic Latino communities, and so
Speaker 1: the entire social aspect is there. And then this is
Speaker 1: hard work because once you do that, you have to
Speaker 1: track the things that you're doing and make sure you're
Speaker 1: doing them, and so there was a lot of work
Speaker 1: internally and with finance to be able to have the
Speaker 1: tracking elements and know what we were gonna do. So
Speaker 1: we track how much we do in affordable housing, we
Speaker 1: track how much we do for health practices. We tracked
Speaker 1: supply change for minorities, and so all those things are
Speaker 1: part of the social aspect, David. So this was two billion.
Speaker 1: We had incredible demand across from corporate, corporate treasurers and
Speaker 1: from investors, and so we were very pleased with it.
Speaker 1: It's interesting, I think you'd like this that five years ago,
Speaker 1: in two thousand fifteen, there was thirty eight billion dollars
Speaker 1: of green social sustainable bonds. This year they'll be almost
Speaker 1: fo so and we've been so ten times in five years,
Speaker 1: and so we're really pleased with the bond and what's happened.
Speaker 1: And alway, it's part of how we work here. I
Speaker 1: was looking yesterday at just at affordable housing. Last year
Speaker 1: we had over eight thousand affordable housing units that we
Speaker 1: helped finance, and of those eight thousand, over half of
Speaker 1: them almost half of them, excuse me, we're green themselves.
Speaker 1: And so we've tried to take green and social and
Speaker 1: a lot of the things we do. So we we
Speaker 1: were so excited about this, this bond and what represented
Speaker 1: in the blueprint it's set for America. So an as
Speaker 1: Tom just suggested, this is part of a larger plan,
Speaker 1: a strategy for Bank of America. Put it in context,
Speaker 1: how does this fit with the other things that Bank
Speaker 1: of America is doing. E s G is sort of
Speaker 1: a good reflection of our strategy of responsible growth. Uh,
Speaker 1: how could you be responsible if you're not thinking about
Speaker 1: sustainability in the long term. It's also, as as Tom
Speaker 1: is laying out, a very good business opportunity for us.
Speaker 1: We probably represent about a quarter one fourth of the
Speaker 1: social or E s G bonds that have been issued
Speaker 1: and underwritten in the last eight or nine year. Also,
Speaker 1: it's just been and we meet with maybe the top
Speaker 1: fifty institutional investors. All of them are asking about this.
Speaker 1: All of them expect for you to uh be be
Speaker 1: progressive in this regard and to do more. And our
Speaker 1: employees care about it too. And I might add that
Speaker 1: we see a lot of regulation that will be coming
Speaker 1: out of Europe and the next year or so, so
Speaker 1: we think that this is the place to be. There's
Speaker 1: a big business opportunity, and we're going to have to
Speaker 1: do it anyway. So Tom pick upout the business opportunity.
Speaker 1: How do you make money on this bond? How does
Speaker 1: an investor make money? How do the proceeds come back?
Speaker 1: Who's making the money can pay off the bond? Well,
Speaker 1: it's the bonds proceeds to whoever issues the bond. On
Speaker 1: one hand, the bonds proceeds are used by us on
Speaker 1: funding the things that we have written down that we're
Speaker 1: going to trap, be it green or be at the
Speaker 1: social aspect. So for that, that's how we invest our money,
Speaker 1: and that's why it's called a green or social bond.
Speaker 1: As far as the investor, they like these bonds because
Speaker 1: there's lots of E s G funds out there are
Speaker 1: people that want to invest in E s G product.
Speaker 1: Uh At times the s G product will trade better
Speaker 1: than the non E s G product, and so they
Speaker 1: can make money in that way. And in general, I
Speaker 1: think there's more and more money that's being used by
Speaker 1: people to support this and this kind of effort, and
Speaker 1: that's why so much is being issued this way. And
Speaker 1: talk about that pricing issue. When you price the bond,
Speaker 1: do you have to put a premium in to encourage
Speaker 1: investors come in. And how is it traded SITUATIONE. It's
Speaker 1: traded well. I mean the market has been you know,
Speaker 1: it's been a month and a lot as you know,
Speaker 1: a lot of things have happened in the month. So
Speaker 1: it's it's it's traded well. You know. You usually it
Speaker 1: will come at or slightly tighter than than a normal
Speaker 1: than a normal bond would at the time. Um, but
Speaker 1: you can't see it all the time. And by the way,
Speaker 1: people are issuing different kinds of bonds too in this
Speaker 1: in this area in green where things are coupons can
Speaker 1: go up and down based on how you meet the
Speaker 1: different hurdles that you put for yourself, for a manufacturer
Speaker 1: or someone on the paper industry, for example. So there's
Speaker 1: all sorts of bonds being done in the market right now.
Speaker 1: So and as you say, thank you, America has been
Speaker 1: dressing directly investing equity as well as loans into areas
Speaker 1: that need the help goodness nokes in this country. How
Speaker 1: do you coordinate if you coordinate at all, with the
Speaker 1: proceeds of this bond, the sustainability bond that we've been
Speaker 1: talking about, with the other efforts do you do it
Speaker 1: with the same sorts of entities in some of the
Speaker 1: Hispanic and the Black communities. Yeah, the two are coordinated,
Speaker 1: but but I think there's even a bigger effort here.
Speaker 1: This one is a jump start to the other. The
Speaker 1: one billion dollars is intended to do things that we
Speaker 1: might ordinarily not have been able to do. So perhaps
Speaker 1: concessionary capital, maybe it's philanthropy. It's investigating and investing where
Speaker 1: we might not have before. So for instance, we've put
Speaker 1: We've got a program with minority deposit institutions where we
Speaker 1: will put money, and we have always put deposits into
Speaker 1: these institutions, but now we're going to put equity, and
Speaker 1: we've already done twelve of them. And the idea here
Speaker 1: is that when we put money into those institutions, they
Speaker 1: give more, they can lend more at a community level,
Speaker 1: so one begets the next, and it it just increases
Speaker 1: the opportunity. The two billion dollar bond just means there's
Speaker 1: that much more opportunity to land and invest than we
Speaker 1: might have had otherwise. Tom, what about the accountability for
Speaker 1: all this. I'm not even necessarily talking about Bank of America,
Speaker 1: but in general, there's a lot of people saying they're
Speaker 1: doing environmental sustainable things, things good for social the social compact.
Speaker 1: How do we know that that's true because we don't
Speaker 1: really have standards yet, do we? Well? We well, we
Speaker 1: have standards and the standards that we we literally have
Speaker 1: our our auditors come in and make sure we are
Speaker 1: doing the things that we list that we're going to do.
Speaker 1: And so it is a it is a well trapped process.
Speaker 1: We you know, did we have as I said, ten
Speaker 1: billion dollars of these type of bonds outstanding, five green
Speaker 1: bonds to social We did a COVID bond also this
Speaker 1: year which was one billion, and this two billion sustainable bonds.
Speaker 1: So all of those bonds, I have a list of
Speaker 1: things that the proceeds can be used for and that
Speaker 1: list is tracked and maintain an audited UH to make
Speaker 1: sure we're doing that in success. In success, does this
Speaker 1: create more customers for Bank of America as well? Sure,
Speaker 1: there's plenty of research to indicate that those companies that
Speaker 1: are good in E s G also have higher satisfaction
Speaker 1: levels with their employees, with their customers, with their clients.
Speaker 1: They're less volatile. Uh. There are any number of reasons
Speaker 1: why you might do this. I also think, as I
Speaker 1: mentioned earlier, that we will see legislation and regulation first
Speaker 1: out of Europe and potentially with the Biden administration here
Speaker 1: United States. That was Antonucn, co vice chairman of Bank
Speaker 1: of America and Tom Monteg, the Bank's chief operating officer
Speaker 1: coming up. The election may not have gotten us past
Speaker 1: our partisan disagreements, but economist Paul Wimer says the coronavirus
Speaker 1: may force us to do just that, because in the
Speaker 1: world of the pandemic, there are no blue or red states.
Speaker 1: That's next on Wall Street Week on Bloomberg. This is
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: President like Joe Biden will come to office with a
Speaker 1: series of policy goals, but may well face a divided Congress.
Speaker 1: And so we begin to look at the next four
Speaker 1: years of a Biden administration and what it might hold.
Speaker 1: We asked n y U economist and Nobel Laureate Paul Romer,
Speaker 1: what will determine the course of the next four years
Speaker 1: under a President Biden? And he began with the pandemic.
Speaker 1: I'm afraid that this might turn into an exercise where
Speaker 1: people say, well, the Blue States had it right. The
Speaker 1: Red States had it wrong. They've got to behave more
Speaker 1: like the Blue States. Neither of them did that that well.
Speaker 1: The Blue States had a lower death rate, but they've
Speaker 1: also had slower recoveries of employment back to where we
Speaker 1: were in January. So we need a new measure. Uh.
Speaker 1: That's different from what either side was doing, uh in
Speaker 1: the last three or four months. And I think it's
Speaker 1: clear what that measure is. Do what the NBA did,
Speaker 1: Do what Harvard and Cornell and NYU were doing. Test
Speaker 1: people frequently, isolate them, and then let's get back to business.
Speaker 1: By the way, do what Taiwan did, as I understand,
Speaker 1: to do what South Korea did as well. So it's
Speaker 1: pretty basic. We gotta test, we gotta do contact tracing,
Speaker 1: where a mask, whatever you do. And he said specifically,
Speaker 1: it doesn't matter who you voted for. Now, that seems
Speaker 1: pretty simple, but the simple can sometimes be hard because
Speaker 1: it's not clear people are going to comply with that. Yeah, well,
Speaker 1: you know. There was an interesting comparison of how New
Speaker 1: Jersey responded to an outbreak in the Orthodox Jewish community
Speaker 1: as opposed to how New York responded. New York responded
Speaker 1: with the more traditional public health measures mandates, don't group
Speaker 1: together in big groups, don't do this, don't do that,
Speaker 1: wear masks. In New Jersey, they just started testing people
Speaker 1: and gave people the information and this produced less of
Speaker 1: a backlash in New Jersey and more compliance because once
Speaker 1: people started to see how many of them were infected,
Speaker 1: they they took this much more seriously. So, as you say,
Speaker 1: we've got to figure out a way to do both
Speaker 1: walk and chew gum as it were, which is to say,
Speaker 1: keep the kind as open as we can at the
Speaker 1: same time protect people. But beyond that, there are larger
Speaker 1: issues over the next four years, eight years, twelve years
Speaker 1: we need to address with the economy, and we have
Speaker 1: some people saying, look in order to really get growth
Speaker 1: going again, because as you know well, professor Roma, we've
Speaker 1: not had really growth rates with the developed countries for
Speaker 1: some time the way we did before. We need some
Speaker 1: massive things, something like a martial plan effectively to really
Speaker 1: invest in the economy by the way we could use
Speaker 1: the infrastructure, and we need to move to green technology.
Speaker 1: At the same time, You're absolutely right if you look
Speaker 1: at the growth over this entire recovery up until the pandemic,
Speaker 1: both like the second Obama term and the Trump turn.
Speaker 1: This had the lowest rate of GDP growth of any
Speaker 1: recovery since uh the end of World War two. So
Speaker 1: there is something deeper structural that we have to address.
Speaker 1: And you know, this is the time when borrowing is inexpensive.
Speaker 1: This is the time to go big on borrow and build.
Speaker 1: So I hope we can reach a consensus on the
Speaker 1: kinds of things we could borrow and then build to
Speaker 1: make the country better and profess as I say, you
Speaker 1: received the Nobel Prize where you're working economics, and in
Speaker 1: part I understand that was a growth theory that had
Speaker 1: to do with information and particularly government investing. We have
Speaker 1: Arvin Krishna, who's the CEO of IBM, just provided me
Speaker 1: with a letter that he's written to President elect Biden saying,
Speaker 1: look at we need to leverage science technology, We can
Speaker 1: to close the skills gap, We need to modernize digital infrastructure.
Speaker 1: It sounds like the sorts of things you talk about. Yeah,
Speaker 1: although you know, you know the joke about economists, there's
Speaker 1: always this other hand. I worry just a little bit
Speaker 1: that this is gonna sound like the scientists saying we
Speaker 1: told you so like we told you so, we were right.
Speaker 1: Give us more money, give us more power, and everything
Speaker 1: will be fine. I think the scientific community, the academic community,
Speaker 1: has to take ownership of the fact that expertise is
Speaker 1: not respected in the same way it once was. So
Speaker 1: we need to figure out what it will take to
Speaker 1: rebuild the confidence and trust amongst most members of the public.
Speaker 1: And we're not going to get there by just rooteful
Speaker 1: or scolding people. Well, when you talk about expertise, it
Speaker 1: makes me think a bit about the government itself, the
Speaker 1: federal government itself, because various experts have written saying that
Speaker 1: under the Trump administration, there has been a d emphasis
Speaker 1: if I can put it that way, on expertise, and
Speaker 1: that perhaps we don't have the same intellectual firepower, the
Speaker 1: inectual capital that we had before within the government. Yeah,
Speaker 1: we we not only haven't promoted people, we've left positions unfilled,
Speaker 1: but we've also frozen people. We've paralyzed them so that
Speaker 1: they're afraid to make decisions. I think this poor woman
Speaker 1: whose job it is at the g O to decide
Speaker 1: whether there's a consensus that the election is over and
Speaker 1: then triggers the transition process. This woman is like frozen
Speaker 1: in place, afraid to make a decision because she's afraid
Speaker 1: she'll get yelled at if she does. What's the obvious
Speaker 1: thing is to recognize the the election is over, and
Speaker 1: there were people in the f d A, people in
Speaker 1: the CDC in the same way, they were frozen. They
Speaker 1: wouldn't take leadership, they wouldn't act, they wouldn't take the
Speaker 1: kind of bold steps we needed to take. So we
Speaker 1: need an administration that gives people the confidence to rely
Speaker 1: on their professional expertise and do their jobs. Do we
Speaker 1: know whether that's something the president could do with his
Speaker 1: administration without the support of the Congress, because it looks
Speaker 1: like right now it's more likely than that that the
Speaker 1: Senate will have a majority of Republicans. Yeah. I think
Speaker 1: that the person who's at the very top of the
Speaker 1: executive branch exerts an enormous influence over all of the
Speaker 1: decisions made by all of the people under the executive branch.
Speaker 1: And I think the signal from the top that you
Speaker 1: will be trusted, you will be respected, even if you
Speaker 1: disagree with some of your peers or some other UH
Speaker 1: policy statement from within this this um UH this administration
Speaker 1: that that respect I think can enable the people all
Speaker 1: up and down the bureaucracy to to do their jobs.
Speaker 1: That was Professor of economics Paul Rohmer of n y U.
Speaker 1: Coming up, we wrap up the week with our special
Speaker 1: contributor Larry Summers. This is Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. It felt like we took a turn this
Speaker 1: week toward a new president elect who called for unity.
Speaker 1: The selection is over. It's trying to put aside the
Speaker 1: partners of the partisanship and the rhetoric that designed to
Speaker 1: demonize one another, toward a new Congress that looks like
Speaker 1: it won't go too far out on the progressive wing,
Speaker 1: and toward a promising vaccine candidate from Fiser and beyond
Speaker 1: Tech that initial data suggested could be much more effective
Speaker 1: than we thought. And so the markets were pretty much
Speaker 1: off to the races and treasury yields signaled better times
Speaker 1: lay ahead, at least until the end of the week.
Speaker 1: But is there a half empty part of that glass
Speaker 1: that we're looking past with continued division in a country
Speaker 1: still led by a president who won't concede that he's
Speaker 1: lost for a reality check. We welcome to our rush
Speaker 1: All Wall Street. We contributed Larry Summers and Steve Ratner,
Speaker 1: the chairman and CEUO Will Advisors, which manages the private
Speaker 1: and philanthropic funds for our founder and majority owner of
Speaker 1: Michael R. Bloomberg. So welcome to both of you. Letter.
Speaker 1: Let me start with you. That's the question I've been
Speaker 1: asking myself all week long. Are the markets getting ahead
Speaker 1: of themselves? We've got record numbers here at the end
Speaker 1: of the week from the SMP and the Russell as well.
Speaker 1: We got that problems of vaccine, but at the same
Speaker 1: time we have a hundred and fifty new cases a
Speaker 1: day at this point in the United States. Who knows
Speaker 1: for sure, but I think it's important to remember that
Speaker 1: at least nine of the value of the market, and
Speaker 1: probably of the value of the market is from earnings
Speaker 1: to companies who are going to generate sometime after nine
Speaker 1: months from now, And as long as that's true, it's
Speaker 1: really long run prospects that matter more than short run prospects,
Speaker 1: and I think the vaccine is a big deal in
Speaker 1: that regard. I think the fact that we're going to
Speaker 1: have a transition of power um in America is a
Speaker 1: deal in that regard. So while I feel much worse
Speaker 1: about the grimness of the winter than I did a
Speaker 1: week or ten days ago, I feel better about the
Speaker 1: long run UH future of the prospects, at least for
Speaker 1: corporations UH in UH the United States. I think the
Speaker 1: combination of the fact that we're going to have a
Speaker 1: more stable government and whether it's good or bad, ultimately,
Speaker 1: and I've got reservations about it, they're gonna be more
Speaker 1: stymied in their abilities to promote inequality UM in the Congress.
Speaker 1: That combination is pretty benign from the point of view
Speaker 1: of corporate interests. And that's of course with the stock
Speaker 1: market reflects and Steve, what about that transition. It's not
Speaker 1: as abrupt of transition as we thought. It looks right
Speaker 1: now at least like this, and it may well remain
Speaker 1: in repult your hands. What does that say about the
Speaker 1: positive stimulus which all of it thought we needed rather badly,
Speaker 1: including to deal with the COVID NINETEAM problem. Yeah, I
Speaker 1: think I agree with everything like I said, and I
Speaker 1: think adding stimulus or lack of stimulus into the equation
Speaker 1: is an important part of trying to understand the market.
Speaker 1: I'm not going to make short term predictions either, but
Speaker 1: I would note that essentially on the same day, we
Speaker 1: had the announcement of the vaccine, and we had the
Speaker 1: news that we were going to have divided government, which
Speaker 1: the market I think correctly interpreted to mean we were
Speaker 1: going to have a lot less stimulus, and that sent
Speaker 1: interest rates down, even as the vaccine and theory should
Speaker 1: have been more bullish for the economy. And so it
Speaker 1: was almost like the opposite of a perfect storm for
Speaker 1: the market, and that I had two good things happened
Speaker 1: more or less at the same time. Low interest rates,
Speaker 1: which are very bullish for the market, as well as
Speaker 1: the prospect, the real prospect for the first time of
Speaker 1: a vaccine that could be a game changer within a
Speaker 1: reasonable time horizon. So so, Larry, what about the interest
Speaker 1: rate issue, and particularly the yield curve, because it really
Speaker 1: steep and it's come off that a little bit towards
Speaker 1: the end of the week. What is that yield curve
Speaker 1: telling us anything relevant right now? You know, these movements
Speaker 1: are big in the slope of the yield curve relative
Speaker 1: to what we've seen lately, but but well, but by
Speaker 1: the standards of the longer term of economic history. Uh,
Speaker 1: These movements of ten twenty points, if that in UH
Speaker 1: the yield curve, aren't that immense, So I wouldn't overdo
Speaker 1: uh the significance of those movements. And of course movements
Speaker 1: in the yield curve are different when they're about real
Speaker 1: interest rates than when they're about UH nominal interest rates.
Speaker 1: I do think we're at risk of making a consequential
Speaker 1: error in not providing UH more stimulus. It may be
Speaker 1: that will be okay, because there's a lot of cash
Speaker 1: that got built up from unspent stimulus in the past,
Speaker 1: but it may be that we're not okay. And so
Speaker 1: I think we're taking much more of a risk of
Speaker 1: a double dip than he is prudent. And UH, you know,
Speaker 1: you look at what's happening around the rest of the world,
Speaker 1: and the risk that they're gonna be some real financial
Speaker 1: aftershocks here is not something I'm prepared to predict, but
Speaker 1: it's certainly something that as a policy maker I would
Speaker 1: want to be UH ensuring the givest steve. As an investor,
Speaker 1: looking below the top line numbers on the equity indusease,
Speaker 1: what did we see this week? Because tech had been
Speaker 1: driving things up. Then tech came off some of this week,
Speaker 1: it looked like we were at least flirting with some
Speaker 1: cyclicals and even some value stocks. What is that telling
Speaker 1: us about what investors are thinking. Yeah, No, there was
Speaker 1: a significant rotation in the market uh this week, and
Speaker 1: again it really related to the vaccine more than anything,
Speaker 1: because the cyplicals have that You've had the greatest dispersion
Speaker 1: between growth so called growth stocks and so called value
Speaker 1: stocks and cypical stocks. Uh, certainly in my recollection, I
Speaker 1: think probably in fact, I know essentially in history where
Speaker 1: like the nine we were at the pile dispersion between
Speaker 1: those two fundamentally different investment strategies. And when the market
Speaker 1: perceived that there was a light at the end of
Speaker 1: the so called tunnel, two interesting things happened. First, the
Speaker 1: civical stocks rallied enormously. You had airlines up twenty percent
Speaker 1: in one day, hotel stocks, leisure stocks, everything that has
Speaker 1: been really beaten up because of the virus. At the
Speaker 1: same time, ironically, you had the growth stocks come off
Speaker 1: because people uh perceived that there was might be less
Speaker 1: use of these things going forward. So you had Zoom
Speaker 1: stock go down I think four the first day after
Speaker 1: all this hit the news, and so markets. You know, we,
Speaker 1: Larry and I have had many discussions about the efficiency
Speaker 1: of markets, but this was a case where the market
Speaker 1: suddenly woke up and decided the world was going to
Speaker 1: be different than what I thought it was going to be.
Speaker 1: And you saw the stock prices, and just accordingly, Larry,
Speaker 1: we are on the border of a new era here
Speaker 1: with a new pres in maybe a divideed government, we'll see,
Speaker 1: But nonetheless we're turning a chapter here. As a practical matter,
Speaker 1: what do you think the chances are that the Biden presidency,
Speaker 1: whether it's one term or two years, could be consequential.
Speaker 1: I think that it will be made consequential by the
Speaker 1: magnitude of the events that gonna deal with. It's gonna
Speaker 1: deal with a reconceptualization of some kind of the U.
Speaker 1: S relationship with China. These are going to be crucial
Speaker 1: years for the global effort on climate change. Make no mistake,
Speaker 1: uh the expected return time of some kind of pandemic threat.
Speaker 1: This is nowadays more like a once every fifteen year
Speaker 1: thing than like a once every fifty year thing. And
Speaker 1: the world's gonna have to get it together to be
Speaker 1: ready for the next one. We're not, and that's going
Speaker 1: to depend on what happens in a Biden administration. Perhaps
Speaker 1: most fundamentally, Abraham Lincoln talked about government by the people
Speaker 1: in government for the people, and he assumed that those
Speaker 1: two things went together. And you saw in the number
Speaker 1: of people who voted for Donald Trump, what you saw
Speaker 1: in Brexit, what you saw in Boston, Naro's election in Brazil,
Speaker 1: what you've seen with Modi in India, what you see
Speaker 1: in the greater attraction of the Chinese model to people
Speaker 1: around the world. What you see in the number of
Speaker 1: young people in the United States who professed not to
Speaker 1: believe in democracy is the best system. Is increasing doubt
Speaker 1: about the proposition the government by the people will always
Speaker 1: be the best government for the people. And fundamentally, that's
Speaker 1: the task of this administration to reconvince people of that
Speaker 1: central American premise, both in the United States and a
Speaker 1: around the rest of the world. So I did succeed
Speaker 1: or fail, This is likely to be a very very
Speaker 1: consequential UH presidency. And I'm I'm optimal, I'm apt, but
Speaker 1: no one can be certain. Well, everyone has a hope
Speaker 1: for success, Steve, but as a practical matter. Can President
Speaker 1: Biden deal with a Mitch McConnell if he if he
Speaker 1: is a majority leader, and make it a government for
Speaker 1: the people. Whatever one could say about that, it means
Speaker 1: can he make fundamental change in what we're doing in
Speaker 1: this country. That That's exactly my concern about this. And
Speaker 1: I don't want anything else I say in this show
Speaker 1: at all to sound partisan, but I would say the following,
Speaker 1: which is that I understand why the markets to some
Speaker 1: degree and lots of people that we all know, I
Speaker 1: think divided government isn't such a bad idea to checks
Speaker 1: and balances limitation on what the president could do. But
Speaker 1: I worry a lot about I grew with everything like
Speaker 1: said about the fears about democracy, the threats to democracy,
Speaker 1: that the concerns that there may be a better system
Speaker 1: that democracies and working. You look at China's success in
Speaker 1: getting past the virus and the way their economy is
Speaker 1: going to grow this year, unlike the way any other
Speaker 1: developed country is going to grow this year. There's a
Speaker 1: lot to worry about about democracy, and I worry that
Speaker 1: divided government isn't going to help. Um. We are living
Speaker 1: in an ultrapartisan environment. There have been. You could count
Speaker 1: on one hand probably the number of bills that have
Speaker 1: been passed by Congress in the last four years that
Speaker 1: had any kind of bipartisan support of one kind or another.
Speaker 1: Um Larry will be able to speak to this better
Speaker 1: than I can. But we were both in Washington and
Speaker 1: two thousand and nine when the Democrats had sixty votes
Speaker 1: in the Senate until Teddy Kennedy died in August the
Speaker 1: two thousand and nine, and even then it required perculian
Speaker 1: efforts by by many people in the administration to get
Speaker 1: even what got passed past. There you have an economist
Speaker 1: and an investor giving us the balance of hope on
Speaker 1: the one side and caution on the other. Many many
Speaker 1: thanks to Larry Some is our special contributor to Wall
Speaker 1: Street Week. He is, of course from Harvard and see
Speaker 1: ratter of will It Advisors, who invests the personal and
Speaker 1: philmthropic funds of Michael R. Bloomberg. And that does it
Speaker 1: for this edition of Wall Street Week. I'm David Weston,
Speaker 1: this is Bloomberg. See you next week.