WEBVTT - Bloomberg Wall Street Week: Sonders, Ketterer, Jacobs 0:00:00.240 --> 0:00:05.000 This is Bloomberg Wall Street Week. Market shruggle, higher consumer prizes. 0:00:05.040 --> 0:00:07.400 The economy is in the process of rebounding. Will the 0:00:07.400 --> 0:00:10.479 futteral reserve have its own digital currency? The financial stories 0:00:10.520 --> 0:00:12.879 that cheap hard work. Many people think the eels are 0:00:12.880 --> 0:00:15.080 just going to keep marching up. We have more spending 0:00:15.120 --> 0:00:17.200 coming out of Congress. One of the big questions I 0:00:17.200 --> 0:00:19.880 think on investor's minds inflation through the eyes of the 0:00:19.880 --> 0:00:23.560 most influential voices. Larry Summer is the former Treasury Secretary 0:00:23.640 --> 0:00:27.240 Bryan Whan, a backup America, Will Smart CEO Charlie Sharp, 0:00:27.360 --> 0:00:31.560 Bloomberg wool Street Week with David Weston from Bloomberg Radio, 0:00:34.000 --> 0:00:38.400 rethinking where we are on rates, on oil, on banker's pay, 0:00:38.560 --> 0:00:42.400 and on the Biden administration. This is Bloomberg Wall Street Week. 0:00:42.600 --> 0:00:46.040 I'm David Weston. It was a week for taking stock 0:00:46.360 --> 0:00:49.600 as President Biden tried to reset his agenda after a 0:00:49.720 --> 0:00:52.720 year in the job. But I'm not going to give 0:00:52.840 --> 0:00:55.880 up and accept things as they are now. I call 0:00:55.960 --> 0:01:00.280 it a job not yet finished. And it did it 0:01:00.520 --> 0:01:02.760 that he wasn't going to get all of that build 0:01:02.800 --> 0:01:05.720 back better package, at least not all in one piece. 0:01:06.280 --> 0:01:09.440 I think we can break the package up, get as 0:01:09.520 --> 0:01:11.400 much as we can now and come back and fight 0:01:11.440 --> 0:01:13.720 for the rest of lator. All markets took stock of 0:01:13.800 --> 0:01:16.240 where they are to, sending the price of Brent crude 0:01:16.319 --> 0:01:18.680 up over eighty nine dollars a barrel at one point, 0:01:18.959 --> 0:01:21.240 with talk of it maybe going to one hundred dollars 0:01:21.280 --> 0:01:25.840 of barrel. Here's amrita send from energy aspects. I think 0:01:25.840 --> 0:01:28.240 the fact that demand is so strong and refining margins 0:01:28.280 --> 0:01:32.080 in particular are still very, very robust despite the crewe 0:01:32.080 --> 0:01:35.040 galley we've seen, is a very promising sign. But when 0:01:35.040 --> 0:01:37.920 it comes to taking a fresh look, equities led the way, 0:01:37.959 --> 0:01:40.640 suffering the worst week since the pandemic royal the market, 0:01:40.959 --> 0:01:43.480 with tech shares leading the way down, help by uneven 0:01:43.480 --> 0:01:46.160 earnings and the anticipation of higher rates, with the SMP 0:01:46.240 --> 0:01:48.200 down five points six percent for the week and the 0:01:48.320 --> 0:01:52.320 NASDAC down another seven percent, putting the index into correction territory. 0:01:52.680 --> 0:01:54.640 For all the talk about rate hikes, the ten year 0:01:54.680 --> 0:01:57.440 bond yield actually went down to basis points to one 0:01:57.480 --> 0:02:00.760 point seven six while the dollar climbed nearly four tenths 0:02:00.800 --> 0:02:03.560 of a percent. Help sort out a very vulnerable week. 0:02:03.680 --> 0:02:06.760 We welcome now Sarah Ketder, she's CEO of Causeway Capital, 0:02:07.040 --> 0:02:10.639 and liz Ant Sanders, she's chief investment strategist at charl Schwab. 0:02:10.720 --> 0:02:13.040 So as a strategist, we've got to turn to you first, Lisi, 0:02:13.080 --> 0:02:15.640 on what is going on here with the markets, is 0:02:15.680 --> 0:02:18.920 that the rates anticipation is that the earnings isn't something else. 0:02:19.160 --> 0:02:21.720 So there may be a little bit of a tie 0:02:21.800 --> 0:02:25.000 into earnings just in terms of the companies that haven't 0:02:25.200 --> 0:02:28.040 beaten expectations have gotten hit a little bit more. But 0:02:28.120 --> 0:02:30.200 I think there are bigger picture issues here. It's the 0:02:30.639 --> 0:02:34.200 combination of the FED having moved from very loose policy 0:02:34.280 --> 0:02:38.239 to tighter monetary policy, whether or not that what they 0:02:38.360 --> 0:02:42.200 will start to do with rate hikes ending tapering and 0:02:42.200 --> 0:02:45.640 then potentially moving to QT is the elixir for what 0:02:45.680 --> 0:02:48.040 ails us in terms of the inflation problem, which in 0:02:48.120 --> 0:02:51.280 turn is putting downward pressure on growth. And I just 0:02:51.320 --> 0:02:54.080 think you have a rerating going on, and certainly a 0:02:54.080 --> 0:02:57.360 bit of a excuse the term puking of some of 0:02:57.400 --> 0:03:01.440 the higher spec lower quality segments of the market. So, Sarah, 0:03:01.600 --> 0:03:04.080 a puking a technical term I hadn't heard before. But 0:03:04.080 --> 0:03:06.440 but but what are you saying as an investor, what 0:03:06.800 --> 0:03:08.640 are you seeing there? What are the opportunities? What are 0:03:08.639 --> 0:03:10.560 the real risks out there in the market place right now? Well, 0:03:10.560 --> 0:03:13.880 the market is certainly rewarding certain areas such as energy 0:03:14.000 --> 0:03:21.560 and financials, banks, insurance stocks, but it's and value indices 0:03:21.560 --> 0:03:24.360 are outperforming growth by wide margin. And this is just 0:03:24.400 --> 0:03:27.639 three weeks into the year. But if you look beneath 0:03:27.680 --> 0:03:32.519 that that as lizanner, that, they're definitely pain associated with 0:03:32.680 --> 0:03:37.119 the extremely high valuation stocks, but not all the very 0:03:37.200 --> 0:03:41.400 low valuation stocks are doing well. Again, the market seem 0:03:41.480 --> 0:03:47.160 to rewarding those associated with rising commodities and the financials. 0:03:47.400 --> 0:03:49.120 Maybe the value of dias are pulling up some of 0:03:49.160 --> 0:03:53.480 the financials. They have some I think serious headwinds, But 0:03:54.200 --> 0:03:56.760 the area that might have the greatest amount of upside 0:03:56.920 --> 0:03:59.760 as the market begins to discern the winners and losers 0:03:59.760 --> 0:04:02.800 in is as we moved towards post pandemic will be 0:04:02.800 --> 0:04:06.160 those who are most badly affected by COVID And there's 0:04:06.200 --> 0:04:10.520 a whole range of those stocks that have outperformed thus 0:04:10.520 --> 0:04:14.000 far should continue to do so as the year progressed. Yeah, 0:04:14.200 --> 0:04:16.720 and David, I think what Sarah said is absolutely right 0:04:16.760 --> 0:04:18.560 with regard to sort of the push and poll of 0:04:18.640 --> 0:04:21.640 energy and financials, and then the relationship that that has 0:04:21.680 --> 0:04:24.839 with the value indexes. But what's also interesting, it's a 0:04:24.839 --> 0:04:27.560 lot of times when people talk about growth versus value 0:04:27.560 --> 0:04:29.719 and value doing well, they're thinking about it at the 0:04:29.720 --> 0:04:33.840 index level. But even in a sector like technology over 0:04:33.880 --> 0:04:38.360 the past few months, those stocks within tech that screen 0:04:38.400 --> 0:04:43.479 well on value characteristics like free cash flow yield, dividend 0:04:43.560 --> 0:04:46.839 yield are the ones that are outperforming, whereas the stocks 0:04:46.880 --> 0:04:50.400 within tech that have negative earnings are the ones getting hammered. 0:04:50.400 --> 0:04:54.160 So even within call it growthier segments of the market, 0:04:54.480 --> 0:04:57.400 of the value oriented stocks are the ones that are 0:04:57.400 --> 0:05:00.400 doing better. Yeah, we even see this within semicon actors. 0:05:00.440 --> 0:05:04.800 You can see an incredibly expensive semi vector stock like 0:05:04.839 --> 0:05:10.239 an Nvidio under form of maybe a less expensive stock 0:05:10.880 --> 0:05:15.279 in memory. So the distinction is happening right before us, 0:05:15.360 --> 0:05:19.080 and it's a it's a reason to be grounded portfolio 0:05:19.200 --> 0:05:23.919 wise in reasonably value, higher quality companies. Listen, as far 0:05:23.960 --> 0:05:25.599 as there's uncertain of market right now, are we going 0:05:25.680 --> 0:05:27.200 to get some help from the Fed? Next week? We're 0:05:27.240 --> 0:05:30.359 gonna get another FMC ruling, So it'll be an interesting meeting. 0:05:30.360 --> 0:05:34.400 I don't expect anything um particularly formal in terms of 0:05:34.440 --> 0:05:35.920 what they're going to do. They're not going to start 0:05:35.920 --> 0:05:38.240 to raise interest rates. Maybe in the statement they give 0:05:38.240 --> 0:05:41.360 a little bit more color about tapering, but there's no 0:05:41.440 --> 0:05:44.479 question that during the press conference, I'm sure John Powell 0:05:44.600 --> 0:05:48.480 is going to be peppered with questions about the span 0:05:48.560 --> 0:05:52.320 of time between papering and QT, whether or not they're 0:05:52.320 --> 0:05:55.240 going to have to act with a faster pace, or 0:05:55.400 --> 0:05:57.760 a lot of chatter today. Might they have to do 0:05:57.880 --> 0:06:01.840 fifty basis points in the early stages versus only twenty five. 0:06:02.000 --> 0:06:04.640 So I don't expect much of any of that to 0:06:04.680 --> 0:06:07.080 be in the statement. But given that every f o 0:06:07.200 --> 0:06:10.320 MC meeting has a press conference, those these days I 0:06:10.360 --> 0:06:13.120 think are even more interesting than when we first here 0:06:13.160 --> 0:06:15.640 at two o'clock Eastern. And what we can't it's so 0:06:15.760 --> 0:06:18.520 interesting that the said, nor can the Bank of England 0:06:18.640 --> 0:06:21.600 or the European Central Bank. They can't ignore what's right 0:06:21.600 --> 0:06:25.760 in front of their face, which is inexorable wage increases 0:06:25.880 --> 0:06:28.800 that every company we talked to and companies we don't 0:06:28.839 --> 0:06:33.480 talk to, we just read transcripts, they are facing wage inflation, 0:06:33.560 --> 0:06:36.599 and wage inflation that gets more so wage rises get 0:06:36.640 --> 0:06:41.000 more wage rises, which is what makes inflation somewhat difficult 0:06:41.000 --> 0:06:44.960 to eradicate. So central banks may very well be behind 0:06:45.320 --> 0:06:47.880 the ball here. Thank you so very much to liz 0:06:47.880 --> 0:06:50.560 An Sanders of Charles Schwab and Sarah Kettter of Causeway 0:06:50.600 --> 0:06:54.440 Capital Management. Coming up, Bank of America Chair and CEO 0:06:54.600 --> 0:06:57.440 on the future of digital banking. That's next on Wall 0:06:57.440 --> 0:07:06.120 Street Week on gloom Work. This is Bloomberg Wall Street 0:07:06.160 --> 0:07:09.960 Week with David Weston from Bloomberg Radio. The move into 0:07:10.000 --> 0:07:12.480 digital was a big part of the earnings announcements of 0:07:12.520 --> 0:07:15.960 the big banks this season, with projections of large investments 0:07:16.240 --> 0:07:19.880 dampening profit expectations in the near term. Bank of America 0:07:20.040 --> 0:07:23.240 Chair and CEO Brian moynihan has made digital priority for 0:07:23.480 --> 0:07:26.640 years now and he's not backing off, seeing it as 0:07:26.680 --> 0:07:30.600 a major component of the bank's future and the broadest strokes. 0:07:30.840 --> 0:07:33.280 We are a high touch, high tech company, so digital 0:07:33.360 --> 0:07:35.560 is part of the strategy, but it has to be 0:07:35.560 --> 0:07:38.239 incorporated with our relationship manage of businesses think the private 0:07:38.280 --> 0:07:41.800 bank or MARYL, or the commercial bank or UH, the 0:07:42.000 --> 0:07:45.160 trading businesses. So and also our branches three or four 0:07:45.320 --> 0:07:47.120 D thousand people coming to our branches, so it's a 0:07:47.120 --> 0:07:50.720 combined strategy. But why digital is so important, it's from 0:07:50.720 --> 0:07:55.080 the customer interface. It's from the how employees can work together, 0:07:55.400 --> 0:07:58.280 and then how the customers can receive the uh, the 0:07:58.320 --> 0:08:01.120 goods and services, how they by them, how they interact 0:08:01.160 --> 0:08:03.840 with So it makes us tremendously efficient and a great 0:08:03.880 --> 0:08:06.400 client experience, which is a pretty good thing. There's a 0:08:06.400 --> 0:08:08.520 lot of talk right now, but particularly the big banks 0:08:08.560 --> 0:08:11.120 investing in digital. I know you've been investing for some time. 0:08:11.160 --> 0:08:13.520 I think your numbers around three point five billion dollars 0:08:13.560 --> 0:08:15.640 a year is as steady as you go. Do you 0:08:15.640 --> 0:08:18.600 expect that to continue into the future or ramp up? Well, 0:08:18.920 --> 0:08:20.960 it's always changing as to what we spend it on. 0:08:21.000 --> 0:08:22.920 It's a gross amount of money, which is a pretty 0:08:22.920 --> 0:08:25.480 good sized amount of money. So when people talk about 0:08:25.480 --> 0:08:27.280 three and a half billion for us, that means literally 0:08:27.280 --> 0:08:30.400 incremental new products and services and new capabilities. So it's 0:08:30.440 --> 0:08:32.559 a lot of money to run the platforms another ten 0:08:32.600 --> 0:08:35.080 or twelve billion dollars. It just goes on every day. 0:08:35.160 --> 0:08:38.240 But what are we investing in greater capabilities? So Erica 0:08:39.080 --> 0:08:42.080 to our consumer clients, you know, is huge, but we 0:08:42.120 --> 0:08:44.680 can keep increasing the functionality. So year every year, we 0:08:44.720 --> 0:08:47.920 had a fourfold increase in the fourth quarter of twenty 0:08:48.559 --> 0:08:51.880 one people using Erica, not because Erica it had a 0:08:51.880 --> 0:08:54.120 growth in customers, but really came from people using it 0:08:54.200 --> 0:08:58.400 more and more or Zel getting it more easily accessible 0:08:58.440 --> 0:09:00.680 through a widget it's called. Those are the types of 0:09:00.720 --> 0:09:03.520 things we're doing it in. On the institutional side, cash pro, 0:09:03.640 --> 0:09:07.800 which is the way companies move money, more engagements by customers. 0:09:08.160 --> 0:09:10.400 They can see everything in a in a portal type 0:09:10.400 --> 0:09:13.160 app as opposed to a bunch of different systems. These 0:09:13.160 --> 0:09:16.280 are just core executions we drive through the platform. I 0:09:16.320 --> 0:09:20.560 believe you passed a road mark this actually quarter in 0:09:20.920 --> 0:09:24.320 Zell actually having more transactions than you're checking accounts? Do 0:09:24.480 --> 0:09:27.040 I believe? I read that? If true, give us a 0:09:27.080 --> 0:09:29.679 sense of overall in your business. Will that continue to progress? 0:09:29.679 --> 0:09:32.480 I mean, at some point does digital eat the entire bank? Well, 0:09:32.640 --> 0:09:35.400 so what happened with Zell is we keep track of 0:09:35.520 --> 0:09:38.680 the checks written by our customers. So, uh, you're sitting 0:09:38.679 --> 0:09:40.760 down and writing a checkout and handing putting in the 0:09:40.840 --> 0:09:42.400 mail to pay a bill or to hand it to 0:09:42.440 --> 0:09:45.439 somebody that's down of the last couple of years, and 0:09:45.520 --> 0:09:48.080 Zel has been growing fifty percent a year, so the 0:09:48.160 --> 0:09:51.600 numbers of transactions by zel is actually exceed the number 0:09:51.679 --> 0:09:54.640 checks written by our consumer customers. That was a milestone 0:09:54.640 --> 0:09:57.600 because it shows you what's really happening is that Zel 0:09:57.720 --> 0:10:00.640 is eating into those low balanced checks. And if you 0:10:00.679 --> 0:10:02.320 look at a dollar amount of checks right, not the 0:10:02.400 --> 0:10:04.880 number of transactions. Dollar amounts actually up a little bit, 0:10:04.920 --> 0:10:08.439 so less checks of higher amounts to two thousand dollar 0:10:08.520 --> 0:10:10.720 checks versus twy dollar checks, and those low checks are 0:10:10.720 --> 0:10:12.800 being taken over by Zell, which is good because it's 0:10:12.800 --> 0:10:14.960 easier for the clients to move money to each other. 0:10:15.000 --> 0:10:17.880 It's easy instead of giving your your son or daughter 0:10:17.920 --> 0:10:20.720 a check, David Ido, you just zelling the money. And 0:10:20.720 --> 0:10:23.520 and in the volume of Zell now exceeds Vemo overall 0:10:23.559 --> 0:10:26.280 in the industry, and I think we're basically equal to 0:10:26.360 --> 0:10:29.079 Venmo in terms of transactions a quarterly basis, So we're 0:10:29.160 --> 0:10:31.599 driving that through. It's really convenient, but that is a 0:10:31.640 --> 0:10:33.760 big milestone to think that what you and I grew 0:10:33.840 --> 0:10:35.880 up with, David, is the way to get money out 0:10:35.880 --> 0:10:38.040 of the bank was to write a check and hand 0:10:38.080 --> 0:10:40.120 it to somebody and then they could negotiate that check 0:10:40.400 --> 0:10:42.240 has now gone to where you can just say giving 0:10:42.280 --> 0:10:44.160 your cell phone number and you pay them. That's pretty good. 0:10:44.679 --> 0:10:47.680 It's extraordinary development, certainly for somebody at my age. That's right, Brian. 0:10:48.200 --> 0:10:50.360 Give me a sense as you look at the digital 0:10:50.400 --> 0:10:53.440 strategy going forward, how much of this is basically doing 0:10:53.480 --> 0:10:55.520 a form of the business you've been doing, for example 0:10:55.640 --> 0:10:58.520 zel replacing checks as opposed to actually moving into new 0:10:58.559 --> 0:11:01.319 businesses potentially with new stomers. Well, I think if you 0:11:01.520 --> 0:11:03.560 if you look on the wealth management business, the financial 0:11:03.559 --> 0:11:06.360 advisory team we have at MARYL and the private bankers 0:11:06.360 --> 0:11:09.040 we have their cord of what we do for clients. 0:11:09.440 --> 0:11:11.760 But if you think about what happened during the pandemic, 0:11:11.800 --> 0:11:13.520 the ability for us to get information to clients and 0:11:13.559 --> 0:11:17.600 blue our insights to clients through through Zoom and WebEx 0:11:17.600 --> 0:11:20.240 and other types of meetings allowed us to get out 0:11:20.280 --> 0:11:22.880 to clients in a very intimate setting, one to one, 0:11:22.960 --> 0:11:26.160 but through the through the screen many more times. So 0:11:26.320 --> 0:11:29.160 you enabled your reach of those teammates. But behind the scenes, 0:11:29.200 --> 0:11:32.280 also just thinking the investment products like our our Life 0:11:32.280 --> 0:11:35.000 Events investment product has seven million users now who are 0:11:35.000 --> 0:11:38.040 loading in a financial plan, a life event plan for 0:11:38.080 --> 0:11:40.720 them and It keeps them on uh you know, on 0:11:40.840 --> 0:11:44.440 parting and moving forward on task, showing them what's happening. 0:11:44.480 --> 0:11:46.200 If they say this much, they want to say for 0:11:46.240 --> 0:11:48.960 this purpose, what are the priorities? You know, is that 0:11:49.000 --> 0:11:51.319 a new product not an advisor did that for years? 0:11:51.360 --> 0:11:55.320 But is it enablement advisor to add more value to 0:11:55.400 --> 0:11:57.559 the insight knowledge they have as opposed to putting the 0:11:57.559 --> 0:12:00.160 stuff in a financial planning module or doing calculations is 0:12:00.160 --> 0:12:03.040 on spreadsheets? So you know, as you think about these, yes, 0:12:03.120 --> 0:12:04.880 some are very new products. L is a new way 0:12:04.920 --> 0:12:08.680 to move money. Others are digital embodiments of old products. 0:12:08.679 --> 0:12:11.640 But light have reach and access and capabilities far different. 0:12:11.880 --> 0:12:14.719 And that's pretty fun and interesting. Are there customers that 0:12:14.800 --> 0:12:16.480 you will reach their digital that you would never have 0:12:16.520 --> 0:12:18.560 reached their back of America or is it basically that 0:12:18.600 --> 0:12:21.800 customer base that of course you're always trying to grow. Yeah, well, 0:12:22.280 --> 0:12:23.960 you know, we have basic things. We have more to do. 0:12:24.120 --> 0:12:25.760 We can do with every customer because we have the 0:12:25.760 --> 0:12:28.360 best capabilities of anybody in the market. And if a 0:12:28.400 --> 0:12:32.240 customer simply does has a product with us and does 0:12:32.280 --> 0:12:34.640 something with somebody else, We're like, we're not serving them 0:12:34.640 --> 0:12:36.480 well because we're the best, therefore they should do it 0:12:36.480 --> 0:12:39.000 with us. That's our basic principle. But on the other hand, 0:12:39.000 --> 0:12:41.000 we can gather customers. So if you think about it 0:12:41.400 --> 0:12:44.520 in the in the consumer side, especially as we've been 0:12:44.520 --> 0:12:48.080 going into new markets at Pittsburgh or Columbus, are Cleveland, Cincinnati, 0:12:48.200 --> 0:12:50.920 Salt Lake, or Denver, Minneapolis that we've opened up in 0:12:51.240 --> 0:12:53.480 with branches. When we go in there, we go in 0:12:53.559 --> 0:12:56.520 digital first, and we'll have ten twenty thousand checking accounts 0:12:56.559 --> 0:12:59.760 going before we ever opened the first branch. So those 0:13:00.000 --> 0:13:02.520 stomers can do, you know, can work with this completely 0:13:02.559 --> 0:13:05.880 digitally and it works and so but we we firmly 0:13:05.920 --> 0:13:08.079 believe it's a high touch high tech. At some point 0:13:08.360 --> 0:13:11.120 most customers on the consumer size come to the branch. 0:13:11.400 --> 0:13:14.040 All the relationship managing customers the core interfaces through a person, 0:13:14.800 --> 0:13:19.200 a financial advisor, a commercial banker, but enablement helps and 0:13:19.240 --> 0:13:22.520 so you have to think about this as a combined 0:13:22.559 --> 0:13:25.120 strategy of high touch high tech. So, yes, we get 0:13:25.160 --> 0:13:28.240 customers digitally only that happens all day long. But the 0:13:28.320 --> 0:13:29.960 end of day, what makes us special. We have the 0:13:29.960 --> 0:13:34.440 best digital capabilities, plus we have the physical capabilities with them. Brian, 0:13:34.520 --> 0:13:36.440 as you say, you've invested a lot of money, continue 0:13:36.440 --> 0:13:38.200 to invest a lot. You've made a lot of progress. 0:13:38.480 --> 0:13:40.959 At the same time, do you envision possibly a major 0:13:41.000 --> 0:13:43.960 acquisition in this area to really take you forward, because 0:13:43.960 --> 0:13:46.719 you said the sky is unlimited and how far you 0:13:46.760 --> 0:13:50.000 can go with digital? So we've done major acquisition would 0:13:50.040 --> 0:13:52.600 be off the table probably in a lot of ways 0:13:52.600 --> 0:13:55.800 because it's just the does a business model work creature. 0:13:55.840 --> 0:13:59.600 But we have done an acquisition like an healthcare technology space. 0:13:59.640 --> 0:14:02.319 We did something to enable the payment side, surround payments. 0:14:02.559 --> 0:14:05.600 We bought back our joint venture on the merchant side 0:14:05.600 --> 0:14:07.240 a couple of years ago. That was a two billion 0:14:07.240 --> 0:14:09.800 dollar transaction and now we've put three hundred million dollars 0:14:09.800 --> 0:14:12.559 into the new system to drive that. So we're always 0:14:12.880 --> 0:14:16.480 going to make acquisitions which complement our behaviors and also 0:14:16.520 --> 0:14:18.760 partner with companies or a couple of our capabilities and 0:14:19.120 --> 0:14:21.920 partner with companies. But the reality is, you know, we 0:14:21.960 --> 0:14:25.160 have two point seven billion digital interactions and our consumer business. 0:14:25.280 --> 0:14:28.000 Last quarter, we have a huge business. We have fifty 0:14:28.000 --> 0:14:32.000 four million digital customers UH that are credited and forty 0:14:32.000 --> 0:14:35.040 one million were active. You know, we we we we 0:14:35.200 --> 0:14:37.360 need always be looking at what capabilities we need, and 0:14:37.400 --> 0:14:40.080 sometimes that's partnered with providers and ideas that come in. 0:14:40.440 --> 0:14:44.160 But the reality is acquiring more customers is not what 0:14:44.200 --> 0:14:46.040 we're after right now. Right What we're after right now 0:14:46.080 --> 0:14:49.760 is driving the usage in the capabilities and people understanding 0:14:49.760 --> 0:14:52.120 what they can get from Bank of America's digital capabilities 0:14:52.120 --> 0:14:54.760 across the whole platform. That was Brian Wynihan Chair and 0:14:54.840 --> 0:14:58.240 CEO of Bank of America coming up. How big is 0:14:58.320 --> 0:15:01.680 the semiconductor shortage problem? How long will it last? And 0:15:01.720 --> 0:15:03.960 how can we fix it? We hear from the former 0:15:04.000 --> 0:15:07.080 head of Qualcom, Paul Jacobs. That's next on Wall Street 0:15:07.120 --> 0:15:14.680 Week on Bloomberg. This is Bloomberg Wall Street Week with 0:15:14.840 --> 0:15:21.000 David Weston from Bloomberg Radio. Everybody's talking about it, the 0:15:21.120 --> 0:15:25.120 shortage of microchips, whether you make cars. Like Mary Barra 0:15:25.280 --> 0:15:28.920 of GM, we saw significant impact with the semiconductor shortage 0:15:29.000 --> 0:15:31.480 last year. I would say every quarter it gets a 0:15:31.480 --> 0:15:34.240 little bit better, but we're not through it yet. There 0:15:34.280 --> 0:15:36.240 still is work to do. Or you make heating and 0:15:36.320 --> 0:15:40.240 air conditioning equipment. Like Dave Gitland of Carrier, we actually 0:15:40.720 --> 0:15:43.320 um don't have the kind of buying power with the 0:15:43.400 --> 0:15:45.960 chip O e ms that maybe some of some other 0:15:46.000 --> 0:15:47.920 folks in other industries do. But I can tell you 0:15:47.960 --> 0:15:51.640 that we have met directly with the CEOs of major 0:15:51.720 --> 0:15:55.000 chip manufacturers. We've done unique arrangements with them that we've 0:15:55.040 --> 0:15:56.840 never done in the past. And it's not just the 0:15:56.920 --> 0:15:59.920 buyers of chips feeling the pressure. The producers like Kurt 0:16:00.040 --> 0:16:03.880 Sivers of n XP Semiconductors are feeling every bit as 0:16:03.960 --> 0:16:07.960 much pressure. The entire semiconductor supply. Chaine is on the 0:16:08.120 --> 0:16:11.920 pretty heavy stress these days. Even FED Chair J. Powell's 0:16:12.000 --> 0:16:14.760 job has gotten harder because of the chip shortage, which 0:16:14.760 --> 0:16:17.760 he says is partly what's leading to the inflation. We're 0:16:17.760 --> 0:16:21.120 seeing people want to buy cars. Car carmakers can't make 0:16:21.160 --> 0:16:23.800 any more cars because there are no semi conductors. So 0:16:23.880 --> 0:16:27.880 that's that's never happening. So what's the solution. Congress is 0:16:27.920 --> 0:16:30.320 working on a Chips Act to get more investment in 0:16:30.400 --> 0:16:34.480 onshore production, which Congressman Hayley Stevens of Michigan says is 0:16:34.520 --> 0:16:38.320 critical for the auto industry in her district. Here in 0:16:38.480 --> 0:16:42.840 Automotive plan, one of the things that you cannot escape 0:16:43.440 --> 0:16:46.560 from our is the chip shortage. We have got to 0:16:46.720 --> 0:16:50.560 pass the Chips Act. But whatever the solution, just about 0:16:50.640 --> 0:16:54.040 everyone agrees that it's going to take time. Whether you're 0:16:54.040 --> 0:16:56.400 in the market to buy, we still think it's going 0:16:56.440 --> 0:16:58.560 to linger into the first half of this year and 0:16:58.600 --> 0:17:00.760 we should be farther out it by the end of 0:17:00.760 --> 0:17:03.480 this year, or in the market to sell. This is 0:17:03.520 --> 0:17:05.879 going to get better through next year, but I don't 0:17:05.880 --> 0:17:08.280 think everything is going to be imbalanced from a supplied 0:17:08.320 --> 0:17:14.960 amount perspective through the end of next year. And we 0:17:15.119 --> 0:17:18.200 turned now to someone who really knows this chip industry well. 0:17:18.320 --> 0:17:21.080 He's Paul Jacobs. He's now the chairman CEO of x 0:17:21.119 --> 0:17:24.000 CAM and he did for many years run qual Calm. 0:17:24.080 --> 0:17:25.920 So Paul, thanks so much for being with us. First 0:17:25.920 --> 0:17:27.480 of all, give us a sense of how big a 0:17:27.560 --> 0:17:29.600 problem this is. Is can you put your arms around 0:17:29.640 --> 0:17:32.440 how big a problem the shortage of semiconductors is right now. 0:17:33.359 --> 0:17:37.479 But as you know, everything is being digitized, and so 0:17:37.560 --> 0:17:40.520 semi conductors are in almost every product we use, from 0:17:40.600 --> 0:17:44.480 home appliances to cars and now even more so with 0:17:44.560 --> 0:17:48.720 electric vehicles. They're in the cloud, they're in our smartphones, 0:17:48.760 --> 0:17:51.840 are in just so many things in our lives. And 0:17:52.000 --> 0:17:56.960 what's happened is that we had some shocks in the system, 0:17:56.960 --> 0:18:01.280 which became big because we had this notion of being 0:18:01.359 --> 0:18:05.920 very efficient just in time manufacturing, lean manufacturing, so you 0:18:05.960 --> 0:18:08.880 didn't hold a lot of inventory on hand, and when 0:18:08.920 --> 0:18:12.840 there were whips in the supply which happened because of COVID, 0:18:13.359 --> 0:18:16.160 these things spiraled out of control and became very very 0:18:16.240 --> 0:18:20.000 big issues in in the in the supply chain. And 0:18:20.040 --> 0:18:24.120 so you're seeing for big companies, some of them are 0:18:24.160 --> 0:18:29.480 able to get their components still, but for smaller companies, uh, 0:18:29.640 --> 0:18:31.960 some of them are having a very hard time, long 0:18:32.080 --> 0:18:35.600 lead times, some sometimes up as much as a year 0:18:35.720 --> 0:18:38.640 of waiting to get a part that you need, people 0:18:38.640 --> 0:18:42.000 who have been raising prices. So all these things are 0:18:42.040 --> 0:18:45.399 affecting sort of that innovation economy that the world depends on. 0:18:46.119 --> 0:18:48.120 When you talk about just in time, did we under 0:18:48.119 --> 0:18:52.600 invest globally? Did we underinvest in the capacity to design 0:18:52.680 --> 0:18:57.320 and manufacturer chips. I think that there's a lot of 0:18:57.320 --> 0:19:00.080 concentration in it, and there's only a few suppliers. Is 0:19:00.119 --> 0:19:03.320 there's not a lot of diversity in the the supply chain. 0:19:03.359 --> 0:19:07.000 But I think maybe to explain it a little bit simpler, 0:19:07.040 --> 0:19:09.240 if we think about it something close to home, like 0:19:09.359 --> 0:19:12.240 toilet paper. When you think about there was supply of 0:19:12.560 --> 0:19:16.439 toilet paper and a pretty constant demand of toilet paper, 0:19:16.800 --> 0:19:19.160 maybe a little bit more because people were working from home. 0:19:19.720 --> 0:19:22.679 But you didn't buy a lot of toilet paper at 0:19:22.720 --> 0:19:25.159 your house because I figured you could go down to 0:19:25.160 --> 0:19:28.360 the store and get it. Now what happened. People got 0:19:28.359 --> 0:19:30.320 nervous whether they could actually go down to the store 0:19:30.359 --> 0:19:33.000 and get it, so they started putting more at home. 0:19:33.040 --> 0:19:36.040 They started buying more, and the system wasn't set up 0:19:36.080 --> 0:19:39.879 for that. So there was this surgeon demand and that 0:19:40.040 --> 0:19:42.879 meant that there were shortages. And that is part of 0:19:42.920 --> 0:19:46.520 the problem with the chip business. The supply is there 0:19:46.640 --> 0:19:50.159 under normal constraints. But now with these things that have 0:19:50.240 --> 0:19:53.800 happened because of COVID, and very interesting things happened because 0:19:53.800 --> 0:19:57.280 at first the demand dropped, everybody thought the whole economy 0:19:57.359 --> 0:20:00.520 was slowing down to demand drop. Then the demand surge 0:20:00.600 --> 0:20:02.679 because all of this work from home and all the 0:20:02.680 --> 0:20:05.879 other other things. So there was this ripple in the 0:20:05.920 --> 0:20:09.719 demand side. The supply side was basically there, but it's 0:20:09.760 --> 0:20:13.240 kind of like this toilet paper situation. Now people who 0:20:13.800 --> 0:20:17.280 are have the ability are trying to hold more inventory 0:20:17.600 --> 0:20:19.800 so that they don't get hit by these ups and 0:20:19.840 --> 0:20:23.080 downs in the process. I would say though, that it 0:20:23.160 --> 0:20:26.840 is important to build more semiconductor uh fabs, and it's 0:20:26.840 --> 0:20:30.040 important not just for the making of the chips, but 0:20:30.119 --> 0:20:33.399 also the packaging of the chips, the testing of the chips, 0:20:33.640 --> 0:20:36.119 but even beyond that, it's all the little components that 0:20:36.200 --> 0:20:39.040 go around it aboards. I mean, we really, uh, you know, 0:20:39.080 --> 0:20:41.679 we have an issue where there were very few suppliers. 0:20:41.720 --> 0:20:45.439 There was a broad range of products out there that 0:20:45.080 --> 0:20:48.439 that and components that that people needed, and all this 0:20:48.760 --> 0:20:52.240 led to a lack of resiliency, you know, a lack 0:20:52.320 --> 0:20:55.840 of ability to adapt to these big shocks that might 0:20:55.920 --> 0:20:58.280 happen in the system. Paul, this has been very helpful. 0:20:58.320 --> 0:21:00.399