openpolitics.com

00:01

populism hits the financial markets

00:03

is it a fluke or does it point to

00:05

something deeper this is bloomberg wall

00:07

street week i’m david weston

00:10

this week special contributor larry

00:12

summers of harvard

00:14

yes there is retail fraud

00:17

not everything that’s done by short

00:19

sellers

00:20

is especially attractive bank of america

00:23

ceo

00:24

brian moynihan it’s good people

00:26

investing i think people have to be

00:28

careful and we all know that

00:29

charming mossovar rachmani of goldman

00:32

sachs

00:33

it is clear that this is not necessarily

00:35

justified from a valuation perspective

00:38

jared bernstein of the council of

00:40

economic advisors

00:42

related company’s ceo jeff blau

00:45

and peter atwater of financial insights

01:01

there was a lot going on this week the

01:03

federal reserve had its first meeting of

01:05

the new year

01:06

the economy is a long way from our

01:08

employment and inflation goals

01:10

and it is likely to take some time for

01:12

substantial further progress to be

01:14

achieved

01:14

president biden issued a new series of

01:16

executive orders janet yellen was sworn

01:19

in as the first woman to be the u.s

01:21

treasury secretary and oh yes the titans

01:24

of tech

01:24

announced their earnings from last

01:26

quarter but despite

01:28

all of the major news global wall street

01:30

was consumed with the story of what had

01:33

been

01:33

a small largely overlooked company that

01:36

sold

01:36

video games at the local mall a company

01:39

that the big hedge funds were happy to

01:41

bet against

01:42

until a flash mob on the social media

01:44

site reddit

01:45

decided to take on the shorts and the

01:48

rest

01:48

is history this has captured the

01:50

attention of the america

01:52

and every trader and nitrater alike the

01:55

word nuttiness comes to mind to be

01:57

honest

01:57

the gamestop story is good fun to watch

02:00

a sort of financial porn

02:02

but we need to ask ourselves whether

02:04

there’s more to it than just a battle of

02:06

the netizens versus the shorts

02:08

whether a combination of the liquidity

02:10

in the market driven by the fed

02:12

put together with the phenomenon of

02:13

social media with just a pinch of

02:15

lingering resentment of a financial

02:17

system

02:18

that seems to be rigged is part of a

02:20

larger truth

02:21

something that could point to an ugly

02:23

reckoning around the corner

02:24

with historically loose monetary and

02:27

fiscal policy

02:28

it’s really been the printing of money

02:30

by the central bank and the distribution

02:32

by the the government that’s financed a

02:35

lot of the activity

02:38

here to help us make some sense out of

02:40

these markets and how they’re reacting

02:41

to the news of the week

02:43

is charming most of our rachmani she is

02:45

chief investment officer at goldman

02:46

sachs wealth management sure i mean

02:48

always a pleasure to have you on we had

02:50

a fair amount of up and down in the

02:51

equity markets this week on wednesday

02:53

they were down the most since october

02:55

and you can tell us why that is maybe

02:57

because of what we heard of jay powell

02:58

the fetch here

02:59

and then on thursday they came roaring

03:00

back again what do we make out of all

03:02

this is it telling us anything more

03:04

fundamental about the economy

03:06

first of all thank you for having me i

03:07

always enjoy being on your show as well

03:10

in terms of the specifics of this type

03:12

of volatility

03:13

if you think about the equity markets on

03:15

average the volatility is around 15

03:18

now since the pandemic we’ve been above

03:20

20 for a long period of time

03:22

so seeing this type of market moves is

03:24

inevitable

03:26

in fact if we go back and look at the

03:28

post global financial crisis period

03:30

we have had episodes of the market down

03:32

five percent

03:33

uh at least 95 percent of the time

03:36

episodes of down 10 75 of the time

03:40

so one has to look at this at this kind

03:43

of market move and recognize

03:45

that this is just a lot of noise the

03:48

main

03:48

signal and the main message that we’re

03:50

giving our clients

03:51

is to stay invested we have good

03:53

economic growth

03:55

we have a very very favorable

03:58

earnings outlook and so when you combine

04:01

all of those

04:01

our recommendation continues to be stay

04:04

invested

04:05

and look beyond this kind of volatility

04:07

at this time

04:08

as you know we heard from chair powell

04:10

this week and he was asked about the

04:12

question of

04:13

bubble or froth or sort of extended

04:16

valuations because of the

04:17

very accommodative monetary policy he

04:19

sort of dismissed that i think it’s fair

04:21

to say he didn’t think that’s

04:22

the real problem here do you have any

04:24

concern about that at all because

04:25

there’s a lot of talk around right now

04:27

about

04:27

things being overextended when we look

04:30

at equity valuations

04:31

uh there are a couple of different

04:32

perspectives we bring to bear

04:34

first and foremost we look at a series

04:36

of metrics

04:37

but we look at them not just compared to

04:39

long-term averages

04:41

but one actually has to look at them in

04:43

the context of a period of low and

04:45

stable inflation

04:46

so when you’re looking at the

04:48

environment we have been in since

04:50

april of 1996 which is low and stable

04:54

inflation

04:55

we actually are not as expensive as

04:57

people think we are

04:58

in fact based on looking at the broad

05:00

range of uh

05:02

these metrics our view is that given a

05:05

view on where we’re going to be

05:06

on earnings this year we’re probably

05:09

about 14 to 20 percent overvalued

05:12

that is not a bubble in addition we

05:14

actually look at equity risk premium

05:16

what are equities yielding relative to

05:19

what bonds are we

05:20

yielding that is also above average and

05:23

finally we actually have something we

05:24

called

05:25

um is it’s an indicator that looks at

05:27

explosive price behavior

05:29

and we have to get that to around 90 to

05:32

100 to think we’re in a bubble

05:34

that currently stands at 26 it’s at a

05:37

hundred percent for bitcoin

05:38

but for something like equities it is

05:41

not showing bubble levels at all

05:43

furthermore if we compare it to where we

05:45

were in the dot-com bubble levels

05:47

we’re substantially below that so

05:49

definitely not a bubble trouble yet from

05:51

our perspective

05:52

charming a moment ago you explo referred

05:54

to explosive growth

05:55

we cannot talk about explosive growth

05:57

this week without talking about gamestop

05:59

i mean you just have to talk about it

06:01

give us your take on game stock what is

06:02

going on there is that a fluke is it a

06:04

symptom of something else

06:06

what’s driving that when we look at

06:08

these types of uh

06:09

headlines and this kind of price action

06:12

um it is clear that you this is not

06:14

necessarily justified from a valuation

06:16

perspective

06:17

so what is it driving driving in an era

06:20

of social media

06:21

easy access to trading very low cost

06:24

in terms of transaction costs for people

06:27

you could have a lot of momentum and a

06:28

lot of investors can pile into an

06:30

investment theme

06:31

and that does mean that you’re going to

06:33

end up with prices that

06:35

don’t probably reflect fair value and

06:37

this could be seen

06:38

in many areas it’s not just individually

06:40

in a particular stock

06:42

you could see it in other sectors and

06:44

asset classes and again cryptocurrencies

06:46

are a good example where you see the

06:47

same

06:48

type of price action where it’s not

06:50

clear these are justified by

06:52

any value argument and any fundamental

06:54

arguments

06:55

yeah i don’t hear anybody arguing that

06:56

it was justified by value arguments

06:58

does it pose anything of a risk for the

07:00

rest of the market in terms of the price

07:02

action it’ll get some attention it’ll

07:04

get a lot of headlines

07:05

but at the end of the day again one has

07:07

to separate all this noise

07:09

from the main signal it’s not as if we

07:11

would recommend our clients have a

07:13

significant

07:14

allocation to any of these sectors or

07:17

specific talks

07:19

core assets really need to be uh in

07:22

something like the s p 500 in something

07:25

like ifa

07:26

very small allocation for example to

07:28

emerging markets but it needs to be more

07:30

diversified

07:31

one of the pillars of our investment

07:32

philosophy is the real way

07:35

to create good long-term wealth is

07:36

through having some diversification in

07:38

the portfolio

07:39

okay charming as i say it’s always a

07:41

great pleasure to have you with us that

07:42

charming most of our rachmani

07:44

of goldman sachs coming up

07:47

what caused the gamestop spectacle and

07:50

what should be done about it

07:52

from peter atwater of financial insights

07:55

what we’re seeing today is very aimed at

07:58

going after companies that everybody was

08:01

convinced was

08:02

you know we’re on their way out in the

08:03

stretcher

08:05

this is wall street week on bloomberg

08:13

[Music]

08:22

a video game store is at the heart of a

08:24

titanic struggle between

08:25

short sellers and retail investors until

08:28

recently gamestop

08:29

was a company whose time seemed to have

08:31

passed with serious gamers turning to

08:33

the internet not the mall to get their

08:35

games

08:36

but then social media got involved

08:38

starting a meteoric rise

08:40

in gamestop stock after reddit’s wall

08:43

street bets forum started pumping the

08:44

stock to its users

08:46

the army of social media empowered day

08:49

traders catapulted the former small caps

08:51

market value

08:52

beyond those of even members of the s p

08:55

500.

08:56

it just reflects the liquidity that

08:57

exists and the new players in the

08:59

markets you know historically it’s

09:01

indicative of a bubble type environment

09:03

but you know to go for a long time

09:05

the amateur day traders were targeting

09:07

short positions held by

09:08

gabe plotkin’s melvin capital and andrew

09:11

left

09:12

citroen research hedge fund titans ken

09:14

griffin and steve cohen

09:16

injected a total of two and

09:17

three-quarters billion dollars into

09:19

melvin capital

09:20

amid the short squeeze distress what’s

09:22

happening is that the retail right now

09:24

is stronger but

09:25

the short bets come back and fill in so

09:27

it’s it’s just a battle that’s going to

09:29

continue you’re going to see

09:30

game stuff go way higher within a matter

09:32

of days the reddit army had pushed the

09:35

rally so high

09:36

that melvin capital and citroen threw in

09:38

the towel on their short positions

09:40

citron research will no longer be

09:42

publishing what can be considered

09:45

as short selling reports the reddit army

09:47

of day traders also boosted other

09:49

has-beens including blackberry

09:51

retailer express and amc which is

09:53

fighting to save

09:54

off bankruptcy hedge funds are now on

09:56

the hunt for other companies that could

09:58

end up on the reddit mob’s radar

10:01

i think you’re going to see a number of

10:02

hedge funds declare bankruptcy in the

10:03

next several days

10:04

online brokerages reported service

10:07

disruptions caused by the retail trading

10:09

frenzy

10:09

and a number of them including robin

10:11

hood took the rare step of limiting some

10:13

transactions on shares of gamestop

10:15

amc and others you’re witnessing the

10:18

french revolution of finance where the

10:21

proletariat is rising up to change

10:24

the order structure and finance there’s

10:27

been a surge in overall retail

10:29

trading activity as people stuck at home

10:32

tried their hands at trading

10:34

according to bloomberg intelligence

10:35

individual investors accounted for

10:37

almost 20

10:38

of the trading volume in 2020. the fact

10:40

that retail investors are going to be

10:42

able to communicate with one another

10:44

that they can actually consolidate their

10:46

buying power is something i don’t think

10:48

the regulars would have anticipated

10:49

even three years ago

10:51

[Music]

10:55

so what caused the perfect storm that

10:57

some call gamestop

10:59

we asked peter atwater president of

11:01

financial insights

11:02

and he said it was something that had

11:04

been in the works for some time

11:08

what we’ve seen over the past couple of

11:09

years have been these flash mobs with

11:11

money as i call them where

11:13

investors particularly using social

11:15

media get together and

11:18

you know aim at a single company you saw

11:20

this with tilray beyond

11:22

me just one after the other and what

11:24

we’ve started to see

11:25

is they move from moving shares to

11:28

buying options to now buying options and

11:30

things that are

11:31

you know most shorted and to me this

11:33

just reflects

11:34

on the the confidence of the crowd

11:37

they’ve gotten much more strident

11:39

much more aggressive and and honestly

11:41

they’ve succeeded at it so

11:43

so behaviorally this looks very very

11:45

predictable

11:46

and it’s coming to a head let’s talk

11:48

about regulation

11:49

because there’s various discussion about

11:51

whether the sec or someone else should

11:53

be getting involved does this

11:54

potentially

11:55

lie afoul of what’s going on with the

11:57

sec in terms of

11:58

existing regulation i i don’t know if it

12:01

runs a foul or not

12:02

but as a researcher i have found that

12:05

regulators

12:07

when they act react to sentiment and so

12:11

i expect that if sentiment becomes too

12:13

extreme

12:14

people become concerned about systemic

12:16

safety

12:17

then you’ll see the regulators moving in

12:19

force and and

12:20

you know that that’s what they do they

12:22

will close the barn

12:24

doors at the moment that the the animals

12:26

have already left they’ll they’re going

12:28

to pour

12:28

water on a fire that was already

12:30

extinguishing

12:32

those who defend short selling say this

12:34

is a way of really communicating

12:35

information in early stage

12:37

at least questions about a company that

12:39

really facilitates an effective market

12:41

functioning

12:42

uh does this get in the way of that or

12:44

is this just that same

12:45

market signaling on steroids as it were

12:48

yeah

12:48

i’m in the camp that this is signaling

12:50

on steroids i mean what you

12:52

have right now is absolute speculation

12:56

using enormous leverage

12:57

you know targeted where they believe it

13:00

will be most effective

13:01

and i step back and say that only

13:04

happens david

13:05

near the climax of a confidence cycle

13:08

where people are so certain that they’re

13:10

going to win

13:11

that they bet the ranch in things that

13:13

have enormous leverage this is

13:15

this is flipping houses um you know from

13:18

2005

13:19

on steroids in 2021 well that’s one of

13:22

my questions actually because you are a

13:23

researcher

13:24

looking back through history whether

13:25

it’s the housing bubble or going back

13:27

further than that to tulips and south

13:29

sea and things like that

13:30

are there analogies that would inform us

13:32

now that might inform where we’re going

13:34

or is this a one-off

13:35

no i think that the the analogies hold

13:37

these are these tend to be climatic

13:39

events

13:40

where you know the crowd is enormous

13:43

it’s moving

13:44

in a manic very frequent way i mean it’s

13:47

to me it’s less

13:48

of a bubble than it’s a series of one

13:50

craze right after the other

13:52

and those those high energy moments tend

13:55

to happen

13:56

you know just at the at the peak in the

13:58

confidence cycle

14:00

peter we can’t get in the minds of the

14:02

people who are participating

14:03

particularly on reddit here

14:05

but from your research from your

14:06

reporting is this about finance as a

14:09

base or is it actually about

14:11

politics or about social norms and a

14:14

real resistance to sort of

14:16

some of the institutions we’ve had

14:18

including going all the way back to 2008

14:19

and

14:20

sort of a resentment about the fact that

14:22

perhaps those in the financial

14:24

system were not held properly to account

14:27

i i i sort of look at the evolution of

14:30

of this

14:30

this paradigm starting with sort of

14:33

gamesmanship people going online and

14:35

using

14:36

uh social media to to make money almost

14:39

as a game

14:40

then it became very greed filled and now

14:43

what you’re seeing

14:44

is i i think a consequence of that

14:47

k-shaped recovery

14:49

that i’ve been talking about for the

14:50

past year where

14:52

there is a there’s a jealousy there’s an

14:55

anger there’s a frustration at the

14:56

system and i think

14:58

that the size of the crowd now

15:00

encompasses that

15:02

aspect i mean don’t get me wrong there’s

15:03

there’s always a stridents to peaks in

15:05

the market

15:06

but this is this has got anger behind it

15:10

and the behavior of the mob in many ways

15:13

reminds me of what we saw two weeks ago

15:15

at the capitol it’s a it’s a mishmash of

15:18

a whole lot of people

15:20

again we’re reaching for analogies

15:21

because it’s so unprecedented but i also

15:23

wonder if it has

15:24

something to do in parallel with some of

15:26

the cryptocurrency speculation the

15:28

extreme volatility there and is it

15:31

perhaps a generational issue

15:33

you know what started though was was

15:35

very futuristic

15:36

you know bitcoin tesla you know evs it

15:39

was very

15:40

oriented towards possibility what we’re

15:43

seeing today is very

15:45

aimed at going after companies that

15:48

everybody

15:49

was convinced was you know were on their

15:51

way out in a stretcher

15:52

you know the retailers these are these

15:54

are companies that nobody

15:56

was expecting to prosper and the short

15:59

interest just

16:00

really has enabled the crowd to catalyze

16:02

around them

16:05

that was peter atwater president of

16:06

financial insights

16:09

coming up bank of america ceo brian

16:11

moynihan on the rise of retail investors

16:14

and

16:14

what it means for the markets it’s

16:16

already been pretty democratized it’s

16:18

good people are investing i think people

16:19

have to be careful and we all know that

16:23

this is wall street week on bloomberg

16:36

this is wall street week i’m david

16:38

weston brian moynihan during his time as

16:40

chairman and ceo of bank of america has

16:42

emphasized the strategy of responsible

16:44

growth

16:45

what went on with gamestop this week

16:48

seems like just the opposite of that as

16:49

some

16:50

would say was the earlier parabolic

16:52

increase in bitcoin

16:53

but brian says that it’s not a problem

16:55

with the democratization of finance

16:58

the forces are larger than that

17:01

it’s already been pretty democratized we

17:03

we everybody talked about free trading

17:06

i think somewhere in like 2007 or

17:09

something like that i

17:10

i was riding around manhattan on a

17:12

double decker bus was free trading on

17:14

the side

17:14

side of it from bank of america this is

17:16

not a new concept and so

17:18

you know we we’ve seen 30 percent growth

17:21

in in our

17:22

uh balances for our in our maryland

17:24

which is our more affluent segment we’ve

17:26

seen a

17:27

net growth of 10 i think in in

17:30

what you call sort of digital brokerage

17:32

accounts and stuff and so it’s it’s good

17:34

people are investing i think people have

17:35

to be careful and we all know that but i

17:37

think if you look at it overall

17:38

if you look longer term what what are

17:40

the themes in financial services

17:42

more and more digital we saw we’re now

17:44

up to 80 of our direct consumer loans

17:46

done digitally

17:47

up from the start three years ago uh

17:50

more and more digital

17:51

more and more demand for i want digital

17:53

and i want high touch i want the

17:55

branches and i want the digital

17:57

more and more artificial intelligence

18:00

applied more and more operational

18:01

excellence

18:02

across all our platforms in terms of

18:04

process engineering and taking out paper

18:06

and

18:06

putting in digital work those are the

18:08

themes are just going to be tremendous

18:09

artificial intelligence distributed

18:11

networks

18:12

data information movement all those

18:15

things are incredibly important

18:17

but those things have been with us now

18:18

the questions we may have made a step

18:20

change and we’ll be after that so

18:22

yes investors yes borrowers yes

18:24

everything but

18:25

it’s really the digital it’s the new

18:27

news not as much as the underlying

18:29

asset cost when we talk about a lot of

18:31

capital looking for

18:32

a limited number of investments it’s not

18:34

limited to esg goodness knows

18:36

we’re seeing a lot of situations that

18:38

some people think

18:39

might be a bubble or at least froth or

18:41

something are you concerned that in fact

18:42

because the liquidity that’s been

18:44

injected for good and sufficient reason

18:45

to help the economy

18:46

that we really are risking ourselves in

18:48

some places i’ll give you two examples

18:50

bitcoin goodness knows has gone all over

18:52

the place and another gamestop right now

18:54

that is really quite a phenomenon and

18:55

it’s not the only one right now that’s

18:57

really getting bid way up

18:58

should we be concerned that maybe this

18:59

is an indication that maybe we’re

19:00

getting a little bit out over our skis

19:03

yeah you know those issues the moment

19:06

happen that time you know in the ebbs

19:08

and flows in the market and frankly i

19:10

don’t have great insight as to

19:12

uh those things uh we’ve been clear

19:14

about how we stand on bitcoin and

19:16

versus blockchain which is a technology

19:17

and stuff but let me let me back up

19:19

and and and the question is when you

19:22

look at the economy

19:24

and it’s about as big as it was in 2018

19:27

the projections from our team offered to

19:28

grow up five percent this year

19:30

in 21. um laugh at in 2018 in the

19:33

in the second quarter was the economy

19:35

was this big it was projected to grow at

19:37

like one half to two percent

19:38

and the interest rate environment was

19:39

100 150 basis points higher

19:42

and there wasn’t all this uh so there

19:44

wasn’t interest rate accommodation there

19:45

was a fiscal stimulus out there

19:47

now you have the same thing so the

19:49

fiscal stimulus is needed to help people

19:51

make it across the river here you have

19:53

six percent plus unemployment you have

19:54

these companies have an open that’s the

19:56

ppp

19:56

program you have holes in state budgets

19:58

and and that were created by the

20:00

cost of paying for all this work and

20:03

maybe tax

20:04

loss revenues and stuff those ought to

20:06

be dealt with and i think if we deal

20:07

with that

20:08

responsibly then what happens but the

20:10

possibility of overshooting here

20:12

is real and that’s what you’re hearing

20:13

less about the equity trading values the

20:15

moment but more about the question

20:17

when rates are one percent are going to

20:18

stay there for a long time

20:20

it’ll lead to risk and that could lead

20:21

to bubbles but the real question that

20:23

would be fundamentally bad for everybody

20:25

is if

20:25

if we miss the inflation turn and it’s

20:27

not there now but that’s one of the

20:29

challenges that

20:30

you know every that chair powell and his

20:32

colleagues have is to is to really be

20:34

watching this thing and they need to

20:36

make sure this great economy

20:37

grows again at the right rate and above

20:39

that right rate

20:40

and there’s some inflation in order to

20:42

make sure it doesn’t go backwards but on

20:43

the other hand

20:44

it’s going to be an interesting you know

20:46

as we move through the end of this year

20:47

the next year when this has all come

20:48

true the vaccine’s out and stuff it’ll

20:50

be interesting to see how they play

20:51

through that

20:52

well exactly let’s pursue that just for

20:54

a moment because uh there’s been a lot

20:56

of money given to a lot of people

20:58

again for good and sufficient reason

20:59

they’ve needed it but the indications

21:01

are a lot of it’s getting saved it’s not

21:02

getting spent in part because they don’t

21:04

have a place to spend it frankly because

21:05

a lot of the economy is shut down

21:07

how concerned are you as you look at the

21:09

economy because you have a real vantage

21:10

point into the economy broadly

21:12

i’ll continue there might be a snapback

21:14

that might actually trigger

21:16

believe it or not inflation we haven’t

21:17

talked about in a long time well

21:19

there’s been i mean it’s kind of

21:20

interesting if you traced last year

21:22

and we’ll see what the fourth quarter

21:24

all ends up final but

21:25

if you think about down 30 up 30 and up

21:28

a few percent

21:29

you have three four percentage points or

21:30

whatever it turns out to be and then

21:32

this quarter

21:32

the projections are may come down closer

21:34

to flat and that has a little bit to do

21:35

with the first quarter but

21:37

if you actually then pull that apart and

21:38

look at our our consumer

21:40

uh what we call consumer spending and so

21:43

debit and credit card spending is one

21:45

thing but this is around you know people

21:46

taking money on

21:47

atms and spending it writing checks for

21:50

services

21:50

uh p2p the zell product which is huge

21:53

right now

21:54

if you look at that spending through the

21:57

first 23 days of january

21:59

it’s up eight or nine percent over last

22:01

year’s first 23 days of january which

22:03

was up nine percent of the year before

22:05

so it is bigger in dollar amount it is

22:07

growing faster than it grew from

22:10

uh uh from eight uh from 19 to 20 18 to

22:14

19 and as fast as 19 to 20

22:16

if you look at the customer obviously

22:17

for the people who are unemployed and

22:19

you can see them receiving unemployment

22:20

benefits they’re using the money faster

22:22

if you look at the rest of customers

22:23

they’re using a discretionary retail not

22:25

uh sustenance retailing not you know so

22:27

they they are paying for their food

22:28

because they’re employed and so i think

22:30

these stimulus dollars can be spent much

22:32

more precise and i think the last

22:34

case was a good one and that it went

22:35

unemployment to the unemployment some

22:37

supplement there this

22:39

dollars under seventy five thousand

22:40

those are those are good items and

22:41

future stimulus ought to be likewise

22:43

geared

22:44

because otherwise it gets diminishing

22:46

returns and then you have the issue how

22:47

you pay for it long term and

22:50

the issue of whether it creates

22:51

inflation but there’s a lot of pent-up

22:53

savings and we would expect a good

22:54

second half of the year

22:56

now this is the mistake everybody makes

22:58

is they get talked about all the

22:59

economics and they forget there’s one

23:01

simple question

23:02

which is we have to win the war on the

23:03

virus and

23:05

right now we’re going in with a much

23:07

better

23:08

situation from a fight and that we have

23:10

this vaccine

23:11

and there’s vaccines going into people’s

23:13

arms and that then changes the course of

23:15

this

23:15

and yet that’s still out there but

23:17

that’s a light in a tunnel that wasn’t

23:19

here this year

23:19

you know last year in the summer

23:23

that was brian moynihan chairman and ceo

23:25

of bank of america

23:28

coming up working from home once seemed

23:30

to be the bold new innovation

23:33

but now for many the question is when

23:35

can i come back

23:36

to work people don’t come back to the

23:38

office new york cannot recover

23:40

and that’s really that’s really the sad

23:42

thing that’s happening now

23:45

this is wall street week on bloomberg

23:51

[Music]

23:58

this is wall street week i’m david

24:00

weston wall street has joined so many

24:02

others in figuring out how to work from

24:04

home

24:04

efficiently and effectively but the

24:07

appreciation for all that added

24:08

flexibility just

24:09

may be wearing off it feels like it is

24:13

fraying it is hard it takes a lot of

24:18

inner strength it’s remarkable that it’s

24:20

working as well as it is but i don’t

24:21

think it’s sustainable we have

24:23

10 12 back we weren’t telling they come

24:25

back but a lot of people want to come

24:26

back

24:28

related companies is the largest

24:30

landlord in new york city

24:32

and one of the most important real

24:33

estate developers in the entire country

24:35

and we asked its ceo jeff blau what it’s

24:38

going to take to get people back

24:39

into the office in new york the two

24:42

obvious answer answers are

24:44

vaccine roll out but probably even more

24:47

critical right now is testing um you

24:50

know we all thought

24:51

after new year’s that everyone would

24:52

would return right back to the office

24:54

but

24:55

in an interesting twist i i have a

24:57

feeling that the vaccine announcement

24:59

and the

25:00

closeness of it has really enabled

25:02

companies to just say you know i’m going

25:04

to

25:04

just wait it’s so close i’m not going to

25:06

pull everyone back to the office yet

25:08

you know unfortunately in new york

25:11

you know office actual occupancy people

25:13

showing up for

25:14

at their desk every day is under 10

25:17

um and it’s it’s critical that we kind

25:20

of

25:20

really push testing make people feel

25:23

safe and comfortable

25:24

until they ultimately do get vaccine so

25:26

people come back to the office if people

25:28

don’t come back to the office new york

25:29

cannot recover one of the things we’re

25:31

very conscious of in new york obviously

25:32

are the financial organizations uh do

25:34

you have a sense of companies in

25:36

in wall street how eager they are to get

25:38

their people back in

25:40

you know i’d say it varies i mean i’m

25:42

sure you’ve heard david solomon really

25:44

encouraging

25:45

uh goldman to encourage his employees to

25:48

get back

25:49

he had a very uh funny quote he kind of

25:52

said

25:52

well sure you guys all want to work home

25:54

from your living room and you can do

25:56

that

25:57

until your competitor shows up in person

25:59

and wins an assignment

26:00

you guys need to get back to the office

26:02

right so i do think that there is

26:04

pressure

26:05

um the market will ultimately bring

26:07

pressure for people to come back

26:09

you know it’s interesting you hear a lot

26:10

about uh tech tenants or ceos saying

26:14

i’m gonna let my employees just work

26:15

from home until june or december or or

26:18

forever in some cases

26:20

and yet behind the scenes when you talk

26:22

to them and i i spent a lot of my time

26:25

doing exactly that really trying to

26:26

understand

26:27

what their plans are they realize that

26:30

this doesn’t work from a

26:32

long-term perspective they realize that

26:34

culture is not

26:35

does not work it is not created over

26:37

zoom over skype or

26:39

whatever we’re using today and you

26:42

really

26:42

interactions happen in the hallway and

26:44

you bump into each other i know

26:46

certainly here at related that’s how

26:48

we work it’s a little bit less formal

26:50

and our best meetings just occur

26:52

when you walk down the hall and see

26:53

somebody and it’s it’s hard to

26:56

to create that on zoom you can’t

26:57

schedule that interaction

26:59

um how do you how do you train new

27:02

people

27:03

you know you have an incoming class of

27:05

analysts

27:06

uh goldman has 2500 new analysts come in

27:10

and what are they supposed to do on zoom

27:12

so i i ultimately do think

27:14

um i think the long run answer here is

27:18

that

27:18

there will be more flexibility in the

27:20

workplace

27:21

i think that employees value the ability

27:24

to work from home

27:25

a portion of the time if you divide a

27:27

person’s day into

27:29

the bump into a hall an interactive

27:31

meeting and

27:32

writing an investment memo which they

27:34

can do by themselves

27:35

maybe there’s a way to divide that work

27:37

up and the i’m just using this the

27:39

investment memo writing actually happens

27:41

you know on friday at home

27:43

um and the rest is but it also needs to

27:46

be a coordinated day

27:47

in that world of more flexibility as you

27:49

call it does that affect the long-term

27:51

demand

27:52

for commercial real estate as a

27:54

practitioner are you looking at a

27:55

different curve on the out years

27:58

um i don’t really think so because

28:00

ultimately you still need

28:02

for those days that you’re coming in

28:05

people to have an office

28:06

i what i think might happen is that the

28:09

build out of space

28:10

might change so there might be more

28:12

meeting rooms more conference facilities

28:14

more auditoriums

28:15

and smaller certainly private offices

28:18

and and maybe more open cube type

28:22

seating so

28:23

i think it’s going to change i don’t i

28:25

don’t think it will really affect

28:26

the overall demand are you seeing a

28:29

shift in your own business between

28:31

commercial on the one hand and

28:33

and uh residential on the other and

28:35

particularly when it comes to some of

28:36

the big luxury malls you had a really

28:38

big one there

28:39

at hudson yards are you shifting your

28:41

use at that massive project on hudson

28:43

yards

28:44

yes so we spent a lot of time thinking

28:47

about the future of real estate

28:48

development

28:49

um in response to the pandemic but also

28:52

just over time that everything evolves

28:55

and actually if you think about hudson

28:56

yards it really

28:58

had uh many of the features that we

29:00

think are critical today

29:02

i mean the the the words that people

29:04

like to say today are

29:05

15 minute cities what does that really

29:07

mean it means that you want basically

29:09

everything you could work your whole day

29:11

or spend your whole day within a

29:12

15-minute walk so it goes back to

29:15

kind of the live work play nature of of

29:17

the way we’ve been designing our

29:19

mixed-use developments

29:20

so you think about hudson yards here we

29:22

have office retail residential retail as

29:24

you said

29:26

yes is there too much retail in many of

29:28

these things today

29:29

yes and we are converting a former

29:32

neiman marcus base into

29:33

420 000 square feet of of incredible

29:36

office space

29:37

because there is demand for office and

29:39

less demand for retail

29:42

that was jeff blau ceo of related

29:44

companies at the bloomberg year ahead

29:46

summit

29:48

coming up the biden administration takes

29:50

on the battle with covet

29:52

and dealing with the economic

29:53

consequences of it we talked with

29:55

council of economic advisers member

29:57

jared bernstein about what is needed

30:00

this package

30:01

uh uh is is what is what it’s going to

30:05

take

30:05

to finally put covet 19 behind us

30:11

this is wall street week on bloomberg

30:24

this is wall street week i’m david

30:26

weston the bind administration is

30:27

hitting the ground running

30:29

but boy does it have a lot of ground to

30:30

cover we talked with the long time bind

30:33

advisor

30:34

just named to the council of economic

30:35

advisers jared bernstein

30:37

about what it needs to get done

30:40

the biggest problem is a dual problem

30:42

and you yourself david just

30:45

nailed it which is the dual impact

30:48

of the persistence of the virus

30:51

and its impact on economic activity on

30:54

commerce

30:55

unemployment on our ability to really

30:58

get

30:58

a recovery underway and as i think you

31:02

know

31:02

it’s not a uh an impact that is hitting

31:05

everyone

31:06

when the president talks about a

31:08

k-shaped recovery he’s talking about

31:09

something real

31:10

when he talks about racial equity he’s

31:12

also making a connection

31:14

between who gets most hurt by these

31:16

dynamics these dual dynamics were

31:18

describing

31:19

and this uh legislative priority top

31:22

legislative priority

31:23

of passing the american rescue plan uh

31:26

this package

31:27

uh uh is is what is what it’s going to

31:30

take

31:31

to finally put covet 19 behind us

31:35

and get a bona fide recovery underway it

31:38

funds a national

31:39

vaccine campaign to dramatically

31:42

increase the pace of inoculations of

31:45

vaccines it mobilizes a hundred thousand

31:48

public health workers

31:49

it ramps up testing treatments and

31:51

therapeutics

31:52

it engages with emergency paid leave it

31:55

brings science

31:56

back into the picture in a big way it

31:58

provides states and localities

32:00

with the money they need to reopen

32:01

schools which is so important for kids

32:03

and their parents and the economy

32:05

and that and you know i can say much

32:06

more about its components but

32:08

that is the dual challenge we face

32:11

and this plan is designed to attack it

32:14

and attack it hard

32:16

and i must say jared i don’t hear many

32:18

people republican or democrat

32:19

complaining about trying to really

32:20

attract the coronavirus getting the

32:22

vaccination program up supporting public

32:24

health things like that

32:25

there are other issues though that

32:26

people ask is it really targeted at that

32:28

k

32:28

aspect you just addressed how do we make

32:30

sure the dollars get to the people who

32:32

need it the most

32:33

for example on the 1400 payments anybody

32:35

will say some people really

32:36

need that desperately frankly some

32:38

people don’t they’ve kept their jobs

32:39

they’re doing just fine

32:41

yeah now that’s important and i think

32:43

the uh thing to recognize

32:45

there is that the checks are are better

32:48

targeted than i think many folks realize

32:50

now that doesn’t mean that they just go

32:52

to folks at the bottom

32:54

but that’s because it’s not just folks

32:56

at the bottom who need the money

32:57

and if anybody’s listening to me in the

32:59

you know 75 100k

33:01

range uh many of them yes many have kept

33:04

their jobs many have lost hours many

33:06

have lost wages

33:07

lots of those folks again i’m not just

33:10

talking about the poorest i’m talking

33:11

about folks in the middle class

33:12

something that’s always been

33:14

very important uh to uh to president

33:16

biden so he talks a lot about the

33:18

struggles that middle class families

33:20

have had in recent decades

33:21

many of those folks face um uh

33:24

uh issues around rent and um mortgage

33:27

payments so

33:28

there’s been these moratorium in play as

33:30

you know and that’s a lot that but

33:31

moratorium is not

33:33

you know forbearance is is not

33:34

forgiveness so at the end of these

33:36

moratoria

33:38

uh people face very significant bills

33:40

now that means that they and this is

33:42

really

33:42

important bit of economics here this

33:44

gets down into some keynesian

33:45

multipliers

33:47

um what we’re talking about here is that

33:50

yes

33:50

some of these expenditures will be

33:53

initially saved and not spent

33:55

and that gives them kind of you know a

33:57

low mo a lower multiplier in a keynesian

33:59

sense

34:00

but that’s just kind of a technocratic

34:02

concern

34:03

i think what’s most important is that we

34:05

finally

34:06

look ahead that was jared bernstein

34:10

member of president biden’s council of

34:12

economic advisors at the bloomberg

34:13

year ahead summit and now it’s time for

34:15

a look at the week ahead

34:17

on global wall street thanks david the

34:20

liquidity squeeze in china will remain

34:23

front and center

34:24

well we’ll be looking at the january

34:26

readings on china’s pmis to get an idea

34:28

of the economy’s pulse

34:30

we also have central bank meetings in

34:31

australia and thailand

34:33

with the rba expected to maintain its 77

34:36

billion

34:36

quantitative easing program india’s

34:39

finance minister has a tough job on her

34:41

hands to help spur a recovery in an

34:43

economy facing its worst recession

34:46

since 1952 when the country’s budget is

34:49

handed down on monday

34:51

and quiet show technology the main rival

34:53

to bike dance in china

34:55

is slated to list in hong kong on friday

34:57

in what would be the world’s

34:58

biggest internet ipo since uber danny

35:02

thanks juliet in the eu a dispute has

35:05

opened up

35:06

between them and astrazeneca with the eu

35:09

saying that they need to fill their

35:10

contractual obligation to deliver more

35:13

vaccines

35:13

despite the fact there was a glitch in

35:15

belgium production

35:17

at the week ahead we also have a boe

35:19

meeting to look forward to

35:21

what will the reaction from the boe be

35:23

considering that data has significantly

35:26

weakened

35:26

in the uk we’ll see what type of

35:28

stimulus they might

35:30

propose or any other support measures

35:32

romaine

35:33

thanks danny well u.s investors will

35:35

have a slew of corporate earnings to

35:36

digest next week more than a quarter

35:39

of the 1000 largest u.s listed companies

35:41

set to report earnings

35:42

big tech will be in focus alibaba

35:45

alphabet and amazon

35:46

and in the healthcare space pfizer amgen

35:48

and regeneron

35:49

will be ones to keep an eye on based on

35:51

the company’s reporting so far

35:53

the s p 500 in aggregate has seen about

35:56

a one percent drop in earnings per

35:58

share despite the fact that revenues are

36:00

actually higher now on the economic

36:01

front keep an eye out for manufacturing

36:03

data on monday

36:04

auto sales on tuesday and u.s monthly

36:06

employment numbers

36:07

that arrives on friday and will be sure

36:09

to bring back into focus

36:11

that two trillion dollar fiscal stimulus

36:13

plan that president joe biden

36:14

is trying to push through congress david

36:18

thanks to juliet danny and romain

36:22

coming up we wrap up the week as always

36:24

with special contributor larry summers

36:26

of harvard

36:28

this is wall street week on bloomberg

36:41

this is wall street week i’m david

36:42

weston we wrap up every week with our

36:44

special contributor larry summers of

36:46

harvard

36:46

and this week we have to get larry’s

36:48

thoughts on the phenomenon that is

36:50

gamestop

36:51

and what it may tell us about the state

36:52

of our markets our economy and maybe our

36:55

politics

36:56

more broadly i should say larry so thank

36:58

you so much for being with us uh you’re

37:00

a macroeconomist you’re not a day trader

37:02

that i’m aware of you’re not a short

37:03

seller that i’m aware of

37:05

so i’m not asking about as a trader but

37:07

from a macro perspective

37:09

is gamestop let me put it simply a fluke

37:12

or a symptom

37:15

i think it’s a bit of i think it’s a bit

37:16

of both i think it

37:18

points up that there’s a lot of activity

37:22

in finance and in financial markets

37:24

that’s not necessarily particularly

37:26

productive

37:27

or particularly rational and that

37:29

there’s a need for

37:30

adult supervision uh sometimes

37:33

uh i don’t think that this is something

37:36

that’s either gonna

37:37

lift the economy up or bring the

37:40

american economy

37:42

uh down but it does seem like there’s

37:45

more risk uh than there has to be

37:49

born in a variety of directions so

37:52

that’s a question really could this be a

37:53

canary in the mine shaft

37:55

the economy’s not going to make it or

37:58

not make it based on gamestop goodness

37:59

knows

38:00

but it could be an indication couldn’t

38:02

it of of of sort of froth or even more

38:05

than fourth maybe a bubble as you know

38:06

chair powell has asked about that

38:08

this week look i i think you’ve got to

38:11

be

38:12

concerned gamestop is one thing

38:16

the uh ways in which ipos have

38:19

popped by a factor of two or three

38:23

the uh new financing vehicles

38:26

associated with some of what’s happened

38:30

in

38:31

the spac sector certainly not all of

38:33

what’s happened in the

38:34

uh spac sector all of this

38:37

has a slight feeling of 2000 or 1929

38:42

uh in the air and so i think the idea

38:46

that we’ve got a new group of financial

38:48

regulators coming in who are

38:50

more committed to regulation than the

38:53

previous

38:54

uh group i think that’s all welcome

38:58

whether that means that markets are in

39:00

some

39:01

aggregate sense uh overvalued uh

39:05

that’s not a judgment uh that i’d be

39:08

prepared to reach

39:09

uh certainly with confidence but i

39:12

certainly think

39:12

risks are uh in a

39:16

two-way direction but i also

39:20

think david that you got to look at both

39:22

sides as yes

39:23

there is retail froth not everything

39:27

that’s done by

39:28

short short sellers is especially

39:31

attractive

39:32

either and certainly there have been

39:34

excesses of the practice

39:37

of uh short selling and then trying to

39:40

disparage and

39:42

so there are things that have gone on in

39:44

the hedge fund

39:45

uh community that i think uh

39:48

can at least be uh questioned

39:51

uh as well and in general the activity

39:55

of some people trying to short and other

39:56

people trying to

39:58

uh squeeze them and people trying to

40:01

create bandwagons

40:02

to the down uh to the downside

40:06

it’s a pretty imperfect uh

40:09

business and i don’t think anybody can

40:12

feel entirely comfortable about what’s

40:14

there

40:15

i guess the other question i’d want to

40:17

put

40:18

is not all well-intentioned regulation

40:23

works out well and you know it turned

40:26

out that in their early incarnations

40:28

certainly circuit breakers ended up

40:31

exacerbating volatility because people

40:34

started selling when they were afraid

40:36

the market

40:37

might close in the incarnation that got

40:40

put in some of the rules we had on money

40:43

market funds

40:44

actually made runs on money market funds

40:47

more likely not less likely so

40:51

indignation and dismay about the status

40:54

quo

40:55

may be a necessary condition for new

40:57

regulation

40:59

but it’s not a sufficient condition for

41:01

any kind of

41:03

regulations i think we’re going to need

41:06

people who are with regulatory

41:07

responsibility to sit down

41:09

consult with all the parties reflect

41:12

very carefully

41:13

on what’s happened here and what its

41:16

lessons are

41:18

larry from your experience having

41:20

studied these things and lived through a

41:21

fair number of them

41:22

where does this all lead i mean this

41:24

week we had the likes of

41:25

alexandria ocasio-cortez joined together

41:28

with ted cruz for goodness sakes to

41:30

agree

41:30

there’s got to be a congressional

41:31

investigation where does washington take

41:33

something like this

41:38

look i’d almost be prepared to say that

41:41

whenever aoc and ted cruz agree

41:44

they’re wrong and that there’s a general

41:47

principle

41:49

when a cause attracts the attention

41:53

of both extremes

41:56

you have to worry a lot about that

42:00

particular uh cause

42:03

and i think the idea that

42:06

somehow the people who are involved in

42:10

this

42:10

are really great social justice warriors

42:13

um and that this is an occasion to get

42:16

the man

42:17

i don’t think is a particularly fruitful

42:20

way to think about

42:21

uh policy but my guess is that two

42:25

things are going to happen

42:26

one is this thing’s gonna in some ways

42:30

set in its own undoing they’re gonna be

42:32

some painful lessons learned

42:34

people are gonna be more careful about

42:36

shorts about shorting

42:38

because they got squeezed and routed on

42:40

the one side

42:41

and people who are involved in pushing

42:43

this stock up to ludicrous levels are

42:45

probably going to end up losing a lot of

42:47

money

42:48

and they’re going to learn a lesson from

42:49

that too so to some extent

42:51

this thing is going to teach its own

42:53

lessons and

42:55

i think the dull work of government

42:58

we’re not going to have any instant

43:00

legislation

43:02

but we’re going to have committees

43:03

formed to study various aspects of this

43:07

to make recommendations that are then

43:09

considered

43:10

is actually going to probably lead us

43:12

with better financial

43:14

markets and a better set of rules

43:17

than the rules we have today okay larry

43:20

let’s wrap up the week as we do every

43:22

week

43:22

with some summer says three quick

43:24

questions number one on the vaccination

43:26

program

43:27

will it over perform or underperform

43:29

what is now expected

43:30

i think it’s going to over perform i

43:32

think it was a masterpiece of spin

43:35

frankly to define the objective as 100

43:38

million doses over

43:39

100 days at a time when even the trump

43:42

administration had figured out how to do

43:44

850 000

43:46

doses a day so i think they’re going to

43:49

see that

43:49

target massively outperformed on

43:52

my best guess would be you’ll see 175

43:56

million doses

43:57

in uh the first hundred days and that’s

44:00

as it should be

44:02

and if we don’t get a bad shock from

44:05

biology

44:06

i think we’re going to make more

44:07

progress more quickly on covid

44:10

than many people expect what kind of

44:12

progress we’re going to see with the

44:13

economy

44:13

second question is will we over perform

44:16

or underperform current expectations for

44:18

the u.s economy

44:19

different people have different

44:21

expectations but i’m betting on growth

44:23

above six percent this year

44:25

and i think that’s over performing on

44:28

most people’s expectations i really

44:30

think we

44:31

very much now are in a world of

44:34

two-sided risk

44:36

both in terms of real activity and in

44:38

terms of possible inflation risk

44:41

third thing jay powell chairman of the

44:44

federal reserve we heard from this week

44:45

we heard from the fomc

44:47

how do you react to what you heard and

44:49

saw

44:52

we’re lucky to have jay there and i

44:55

think in the fullness of it all he’s

44:57

made

44:58

very good judgments i

45:01

think that they need to be more mindful

45:04

of the possibility that the conventional

45:07

wisdom is wrong

45:09

and that we have a little more inflation

45:12

picking up

45:13

a little sooner or that financial

45:16

markets get away from us

45:18

and so i thought he was

45:21

so focused on providing reassurance

45:25

on the fed’s continued stimulus to the

45:28

economy

45:29

that he created a dynamic where if it

45:32

was necessary

45:33

to do things the other way it would come

45:36

as a pretty jarring shock

45:38

and that was my worry about how he

45:41

calibrated the balance

45:43

by all things considered i’m glad he’s

45:45

there

45:46

larry it’s always such a pleasure to

45:48

deal with you every single week that is

45:50

special wall street week contributor

45:51

larry summers

45:52

of harvard finally one more thought

45:57

the vaccination site 800 years in the

46:00

making

46:00

as we press forward urgently impatiently

46:03

to get as many people vaccinated as soon

46:06

as possible

46:06

we face a series of hurdles

46:08

manufacturing doses as fast as we can

46:10

testing and approving new vaccines

46:12

getting the medicine distributed

46:14

covering the last mile and getting it

46:16

into people’s arms

46:18

only vaccinating everybody everywhere

46:22

would get us out of the risk of this

46:24

mutation

46:25

but of all the problems we face real

46:27

estate isn’t really one of them

46:30

google the term mass vaccination sites

46:32

and you get almost

46:33

one and a half million results

46:35

everything from pharmacies to hospitals

46:37

to sports arenas we hope to open up in

46:40

roughly about

46:40

two weeks time to do base center for uh

46:43

mass

46:44

vaccination centers but there’s only one

46:46

that has the highest spire in all of

46:48

england

46:48

the largest cathedral clothes the

46:50

largest cloister and that is the

46:51

cathedral of salisbury

46:53

where according to legend at least back

46:55

in about 12 20 or so

46:57

a bishop shot an arrow into the air hit

46:59

a deer and where the deer fell is where

47:01

they built the cathedral

47:02

and that cathedral now is a mass

47:04

vaccination site

47:06

and now the chapel of saint michael the

47:08

archangel is filled with refrigerators

47:10

for the vaccine the huge nave is full of

47:13

chairs

47:13

rather than pews and that’s where the

47:15

elderly who have been inoculated wait to

47:18

make sure they have

47:19

no allergic reaction wait while two

47:22

church organists play soothing music

47:24

while they wait

47:25

you can call it song freud you can call

47:28

it a stiff upper lip

47:29

but as we all wait for the vaccine we

47:31

believe will save us

47:33

leave it to the brits to do it with

47:35

class

47:36

that does it for this episode of wall

47:38

street week i’m david weston this is

47:40

bloomberg

47:41

see you next week