Kravis Says 'Wall St. Is Behind'

Week on iTunes, SoundCloud, bl Bloomberg dot com. You can also listen to our radio show at two pm Eastern on Bloomberg Radio every weekday, or watch us on YouTube by searching Bloomberg Global News. The US labor market, as you've been hearing from Charlie and others right here at Bloomberg continuing to regain some ground in July was at a slower pace, indicating the economic rebound still making headway,

depue a surge in coronavirus infections. Larry Cudlow, the President's Chief Economic advisor, ahead of the National Economic Council, weighing about the report earlier on Bloomberg Radio and Bloomberg TV. This was a hot spot report. This is July eighteen, and the surging hotspots in the south and West and some other places began in the back end of June

and lasted through July. You know, there was some pullback of reopenings and so forth, and yet and yet we still got one point eight million, with a big decline, almost a full percentage point drop in the unemployment rate, which will move to single digits easily in the summer and fall. It seems like just about anybody looking at this had the end Yet regardless of what you made of it. Let's put it to Chris Lew, Senior fellow at University of Virginia's Miller Center. He, of course, is

former Deputy Secretary of Labor under President Obama. He joins us on the phone from in and around the nation's capital. So, Chris, as you've had a little bit of time, a few hours to digest this, and you know the mechanics of this better than anyone. What should we take away from this specific jobs report? Well, look, I think the top line number one eight million, as well as the drop

in unemployment or both positive signs. But I think when you look beneath this, you know you also have to consider the context that we lost about twenty two million jobs in the spring, We've are still down about thirteen million jobs. Uh, and it and it's pretty obvious that the economy or the economic recovery is slowing pretty dramatically from what we saw two or three months ago. Um. So there are a couple of things that I look at. I look at, uh, you know, the five million people

that have left the workforce. Obviously, we saw yesterday that about thirty one million people are unemployment, So we're still in a pretty big hole. And you know, again, I mean this sort of confirms what we've always known, which is we're never going to have a sustained recovery until we get our arms around this virus. And you know, every time this kind of breaks out in a different part of the country, we have these reopenings being paused or rolled back again. And that's just a really off

environment for this economy to get any legs in. So then what kind of visibility would you think you might be able to feel comfortable talking about Chris in terms of the types of labor reports that maybe we should all get ready for over the next few months as a society, because we know the vaccines coming, but the dates are maybe the end of the year, maybe early next year. Well, look, I think I think we're going to continue to kind of climb out of this hole.

But I would take issue with where Larry Cudlow is as to whether you know, this is really kind of a hotspot or a v shape recovery. I think it's kind of crawling out of this. And I think what we see in among the different data that we've seen over the last couple of weeks, you know, some concerns whether temporary layoffs or what we thought were temporary are

now going to become permanent. Um, we continue to have this issue about UH state and local government employees and whether they're going to faith layoffs if there's no relief from Washington as well, and the other thing I just started look in this number, I mean, two thirds of the gains in these report we're from basically leisure, hospitality, restaurants, and retail, and we know that those are kind of the industries where it really there's a lot of face

to face interaction with people, and you do wonder if we can't get our arms around this pandemic, um, whether the gains just sort of stop at that point, and whether people are just going to permanently change their spending habits. Um. You know, it's hard to imagine kind of the travel

and toursm industry going back to normal anytime soon. Alright, So, Chris, you mentioned help coming from Washington, and that's where I want to go next, because I feel like everyday, folks, and I would put myself in that category, even knowing enough to be dangerous looking at Washington, think, hold on a second, Like there's a clear need here. Why can't these guys get together and agree on something what's going

on here? I mean, help us understand what the stalemate is and what you thing may happen given that you know how Congress works, you've worked there, Yeah, I mean, look, the lesson we learned from the Great Recession is that if you come to the table with two little stimulus or you end it too quickly, uh, it means the downturn goes on longer. You know. During in two thousand nine, the Obama Administration's got an eight hundred billion dollars stimulus

package path and that was it. And you know, we're now talking trillions of dollars that have already spent we're talking about, you know, a House Democratic proposal about three trillion, and then the White House coming in at about a trillion right now, And so I applaud them for saying more money needs to go in, UM, but it's very clear when you look at things like enhanced unemployment benefits, whether you look at kind of assistance to state and

local governments, particularly assistance to schools that are trying to reopen up, there is a real financial need around the country right now. UM. And I guess the only question is is can they compromise in the middle. I think that they probably win, ill Um, but but I do wonder about, you know, all of those people trying to figure out, hey, how do I make my rent payment? How do I buy groceries? While Congress is kind of

diithering over all of this. Well, and we're going to continue this conversation because Chris, I want to ask you about a tweet that the President UM put out yesterday about working on executive orders when it comes to payrell tax cuts, of fviction protections, unemployment extensions, and student loan repayment options. Because we are trying to understand exactly what

authority the president has to has to do with this. Chris, we talked about President Trump his tweet yesterday, how we talked about working on these executive order when it comes to apparel, tax cut, of viction protections, unemployment extensions, and student loan repayment options executive orders. My understanding is some things he might be able to do, some things are dicier.

I think that's exactly right. I think when you talk about uh, mortgage or rent relief to the extent that the mortgages are backed by the federal government or or you know, it's it's it's someone who's in federal public housing, I think that's certainly possible. I think obviously student loans since a lot of them are backed by the federal government. Um, some kind of extension of the mortoring is possible. The wholesale shifting of money to provide enhance unemployment, I'm pretty

dubious that you can do this. You know, it's a cardinal rule of appropriations law that appropriated funds can only be used for appropriated or purposes, So you can't just kind of move pots of money around. And what it appears that he's doing is that there's money that was in the Cares Act that they think has not been spent that they want to shuffle around, And the truth of it is that while it's not been spent, it's already been allocated, and a lot of that has already

been allocated to to state and local government. So all you're doing is basically robbing one pot for another part, even if you could do it so um, he might be able to do some things, but he can't. He can't do everything that is being discussed right now in

cong Us. So speaking of some of the president's actions, Chris, I got to ask you about what's been going on with the president and China and TikTok and bite tens and tens and h what do you make of that from the perspective of someone who understands global trade policy and US China relationships, Like, what are we to make of this and what's most likely to happen next in

your estimation? Yes, so there there, Look, there is a legitimate issue when we're talking about TikTok and wheat Chat in terms of data being shared with the Chinese government, data about US users or the censorship that's on the wheat Chat platform, which we don't talk about enough, but it's a pretty big platform here in the United States among Chinese Americans. Um. So there is a legitimate issue,

and there's a bipartisan concern about it. It's the reason why if you're a Department of Defense of show you you're you're instructed not to have TikTok on your phone. But how you're going about this is odd and I think, um, you know, unconventional. Um to use an executive order under the guys in national security probably stresses, stretches the bounds of what I can consider appropriate. And I think what the president is doing with respected TikTok and trying to

force a transaction. Uh. And then you know this thing he throughout the other day saying hey, and the federal government should take a cut of that. Um. You know, I think against stretches. I think what Democrats and Republicans would would say is acceptable behavior of the federal government towards the business. Um. And so look, I think the aim um is probably right in trying to rain them in, but I have some serious questions about how he's going

about doing this in terms of the U. S. China relationship. Chris, you know, I'm curious about some of the conversations you guys had in the Obama White House. I mean, are you surprised at how contentious is it has become and kind of how this tech war between the two nations has progressed. Do you think we would have gotten there ultimately? Maybe in a different way, But you know, China is a much more developed nation. It's much more important to

the global economy. It's not like it was ten years ago, right, And I would argue that if you wanted to counter China, the one thing we should have done, um, was to pass to be part of the Transpacific Partnership, which I would have put the US in a trading relationship with a lot of the other countries in Asia. So I think that was a huge missed opportunity by this administration.

And then obviously we've had, you know, a trade war for the better part of the Trump administration, which is now morphed into kind of a war over the you know, cause of coronavirus and and how forthcoming they've been, which is now morphed into kind of a tech trade war as well. UM. I don't think this is good, um, but I think we need to recognize, you know, the

U S. China relationship is a complicated one. Uh. There are certainly areas where we need to find a way to collaborate with them on something like um climate change being the most important one. But there are obviously tensions. I mean they are a rival economically and increasingly militarily. So I think we need to look at this in

a in a holistic way. And and my concern is that too much of these are kind of one off battles between the US and China without engaging our allies, and I think without having a clear understanding of two, three, four steps down the road. Absolutely all right, great context is always timely and insightful. We love catching up with you. Chris Lew down at University of Virginia's Miller Center, of course, a former member of the Obama administration. Great to get

his insight. We're listening to Bloomberg Business Week, Jason Kelly, Carroll Masser, and you know, as we look to wrap up the first hour of the show, Carol, I think it's worth dwelling a bit if we can on our conversation with Chris Lew only because you know, you and I were messaging to each other back and forth towards

the end of that interview. He's really become a go to guy for us and and I think one of the most important things to remember about him, and he really demons rate in that conversation, was that he has worked across the various branches of government. Because we didn't get to talk about Supreme Court, he worked in the judiciary system as well, so he knows all the levers and so his perspective one what the executive branch can and can't do, I think is critical right now in

terms of figuring out what happens next. Yeah, totally. And that's why I love, you know, talking to him, because he really does understand how government works, as you said, from the three branches of government. I put it out on Twitter. I put the link out for our Apple podcast feed, um, so that folks can It'll be uploaded a little bit later on, but definitely check it out. It's a great thing for I was going to say

the ride home, but your home probably already exactly. Maybe you could have a glass of one at the end of the danes. I listened a lot of podcasts doing dishes, all right, U. Joe Weber the editor of Bloomberg Business Week. He is joining us from Massachusetts to talk about a really interesting story. Uh it's a out Italy. It's about bicycles, and it really is a window into how we are recovering very unevenly, shall we say, from everything that's going

on right now. Joel tell us about this story by Vernon silver Well, on its face, it sounds like a great program, right, Uh, the bicycle bailout that it came up with, And that was what really um intrigued me about it because, uh, you know, here, here's a here's a country known for bicycles and known for cycling, and um and also goes to say, like, you know, let's

have fewer automobiles on the road. Um As this program is sort of attempting to do, but at the same time it risks alienating um, large portions of the country who can't even afford to buy a bike in the first place. Right. So what's ironic about this is that one of the ways that governments are attempting to stimulate the economy is to give consumers a break. But then there's so many people who have fallen on hard times during the pandemic that what's really going to happen here

is that we're gonna have inequality being exacerbated. Yeah, I mean, I love I love this story, and I love what m Vernon and the team, right you know, Joel that they talk about, you know, these trillions of dollars. We're just talking about it with Chris lou who was in the Obama administration. You know, trillions of dollars that are going for everything, and by everything that sometimes means you know,

like a really expensive bicycle. And you're right, it's it's helping to kind of widen ultimately, the income gaps that are already laid bay are by the virus. Um, let's bring Vernon Silver into the conversation as well. He joins us right now, and he is UH Projects and Investigations Report, and he joins us on the phone I believe from Rome. So Vernon talked to us about this story. Um, because it really is a great read, but it also kind of makes you stop for a moment and realize, you know,

the inequal qualities that are out there. Yeah, honestly, it's this thing starts with the moment that Italy comes out of the beginnings of of this lockdown, and one of the most noticeable things on the streets where the piles of boxes of bicycles and the crowds of people in front of the bike shop. Um, because when you are giving people essentially the ability to get a bike of up to a value of a thousand dollars at six off, people are gonna grab it. But those people are not,

you know, the delivery bicycle guys. It's people like people. You know that. We saw an interview which is, you know, someone who needs a couple a couple of folding bicycles to take to their beach house in Tuscany so vernon how expensive were the bikes that that you bought? Okay, this is you got me out. I was saying, we have not discussed this, and I was gonna save it for the end, but I had to try, right, I mean, um, so here's here, and this is interesting because this is

also about inequality. Um. I've sprung for a three hundred euro bipe. It's a mint green number with a brown

seed It's really nice. Um. But I did not go for the super expensive one because the decree that announced this thing said resident citizens in Italy of large of cities could get this, and I'm not an Italian citizen, so I had no guarantee that I was going to get the rebate, and they're like, tonight, literally tonight, the government is working on finalizing the wording of who exactly gets it, and I won't know yet if I get it. But if they keep it with just citizens, talk about inequality.

Who are the people who are coming to Italy who need to do the jobs that might require a bicycle, Immigrants from Africa, from the Middle East, from you know, Filipino delivery men. Right, if you if you only give it to Italian citizens, you're cutting out like all the people who you can see on a daily basis who need a bicycle. So I might not qualify as somebody who's not an Italian citizen for a second. For a second there say who really needs bikes? Hard working award

winning journalists. So but and then we might have shot off your mic. I'm just gonna tell you, um no. But it really reminds us, right, these programs, I mean, I don't know, are we supposed to say it's not going to be perfect. We get it and there are ways to hopefully fix it. I mean, I don't know what's the takeaway from this reporting that you did? I mean, what's interesting is we made a global right. We put out the call to reporters around the world and came

up with amazing stuff. You can get an electric car for free in Germany, but you have to have you know, over ten thousand euros to spend on the electric car in the first place. You can get dollars Australian back for renovating your house in the suburbs of Melbourne, but you have to own a house. You have to have the money to put up to the renovation. Right, these are these are people with means. This is not getting

the money to everybody. What we from the economists, what we got was really interesting is you can deploy as a government the money in better ways, whether it's through paying everybody a living wage no matter what you know, whether they're out of work or not. Um, you know, cutting everybody's payroll tax, just pumping money directly into the economy rather than doing it piecemeal in ways that might

be less equal. So I mean that really brings it to a head, right Vernon, like you can either do these bailout programs that help consumers for for purchases of luxury items, let's call them. What in practice is anybody got the other thing dialed yet No, it's it's I mean, essentially, once you're spending trillions, you might as well throw it

it at everybody. I mean, on the other end, there are the richest families in countries like Italy that were able to borrow billions of dollars that they might not even need, hey back to run their companies. Maybe that's good. Maybe you know, they don't have to fireworkers, but they are. They are benefiting at the top end. People are benefiting at the middle. But you know, if you have a fire hose of trillions, why not just spread everywhere? Is the reply that we got. Yeah, interesting, Well it is

a sort of force of reporting. And I'm glad you mentioned sort of the call that went out to the Empire, because it is a really nice effort that you put together. As always. Vernon Silver joining us from Rome H, one of our senior writers at Bloomberg, just love, love, love his work, and it's a way to tell the story

that we don't always here. Earlier in the week, yesterday, in fact, was the Bloomberg Equality S of the latest edition, and it was all about race on Wall Street trying to make some significant changes, and I was fortunate to catch up with Henrykravis. He is the co chairman, co CEO, co founder at kk ARE, the private equity firm been around for forty plus years. It bears his name and that of his cousin George Roberts and Jerome Colberg, their

fellow founding partner, also was joined by William Goodlow. He's the president and CEO of s EO. That is a group that works with people like Henry Kravis, who is the chairman of that group. Two basically prepare folks who come from more diverse backgrounds to work on Wall Street. Here is what Henry Kravis had to say. We're behind Wall Streets, behind, the c suite is behind. We've all been slow and recognizing the problem and doing something about it.

I really believe that maybe now for a change, we have the opportunity to make a big difference the There's no question the numbers are bleak. You can look anywhere. There's no way that the UH corporations and Wall Street firms have not hired the diverse candidates. Eat will to or an access of the percentage of the black population in America. None of us have that. But we have a long way to go and I really believe that we will. But let me just say, it starts at

the top. If the CEO of any company, whether it be Wall Street or c Suite, has made a decision that they're going to make a change, and they really are going to now make a difference, it will happen. We all have to overcome, in my view, the unconscious bias nous that exists everywhere. You know, if you think about what we all go through every day, the slight injustices that minorities face every day is incredible. These slight injustices white the executives don't face. And so we've got

to be patient. We've got to make a decision that we're going to change this. And it starts maybe not only with the CEO, but it starts with boards of directors. So if the board of directors is a diverse board of directors for any company, you'll start to have a change.

Let me give you an example, Okay. At KKR, we made a decision about two years ago that we were going to change, uh the makeup of the boards of all the companies that we controlled, and we had a goal to get to over a hundred diverse board members in our portfolio companies, and I'm happy to say we got there. So now what we have to do. We've got to increase the hiring. It's it's not just the hiring, but it's the training. It's being patient and working with

diverse candidates that come in. So we have a long way to go. But if you make up your mind that you can do it, you'll do it. You'll get it done. So let's talk about getting it done. And William Goodlow, you are the CEO of s e O. And for anyone who's been paying attention to Bloomberg this week, the cover story of Bloomberg Markets featured an incredibly powerful

series of conversations. And as I talk to people about those conversations, there are a number of alumni of your organization there, William talking about their experiences, talking about them in a very honest way. Help us understand what SEO does, especially when it comes to changing the face of Wall Street. It goes back to SEO founding in n with founded with a mission to create a more equitable society, and that's at every level, including the highest economic levels of society.

Because we know that talent is widely distributed and yet it's unevenly developed. And if there's one takeaway we hope your audience UH takes is that s c O is in the talent development business and we've been doing it for fifty seven years. Um. You know. Unfortunately, the murder of George Floyd brought more attention to some of the inequities in society, and we needed the protests to bring

that attention to it. But the real change will come when we change the systems and the structures, and that's what SCO has been doing. Each year, we serve over four thousand young people, overwhelmingly Black and Latin x uh, and we address systemic and equities through four different programs. That's the old founding program. The Scholars program serves high school and college students two thousand from New York City

Public school the loan from grades nine through twelve. Students attend several hundred hours of intense s CEO academic classes while still attending their public schools. By twelfth grade, students are truly academically prepared for college level work. But s

CEO doesn't stop there. We provide comprehensive support for students throughout college and earned a college degree first for similar students from low income backgrounds nationally, and that is William Goodlow, the CEO of s c O, joined by Henry Crevice, of course, the co founder, co chairman and co CEO of KKR. Carol. Yeah, great conversation. I think the more and more that we talk about this and we hear from the likes of someone like Henry Cravis or William Goodlow,

we get an idea of what's going on. We also get an idea of what the problems are and what still needs to be done. But I think we've got to make sure that this conversation continues to happen. Jason, Well, and it starts as at the top as Henry said. And that board of director's piece, I think is really important because the governance of companies it's got to change. Brother, journal. Yeah, but you let me drive. Oh no, no, no no, no, he's going to drive, honey, please, I'll do the riding drivel.

I want to drive. Just drive, baby, good questions trying. This is the drive to the globe. Give me thanks, We'll drying us down on Bluebird Radio. All right, it is a time before the drive to the clothes on this Friday to wrap up the trading week. Let's break it down with Jim Lowell, chief investment officer of Advisor Investments. They're looking after a little more than five billion dollars. Joining us on the phone from Nita Massachu, says Jim, how are you? How are things up in the Greater

Austin area. They're doing just fine. Obviously we live in crazy times, not just in terms of COVID nineteen, but obviously in an election year and with a market that's probably a way ahead of the medical facts. We think now it's a very good time to stay rational, calm, collected, and of course disciplined. That is a great place to start. What does rational mean then? Does it mean gold which has been on a tear? Does it mean cash? And

you know under the mattress? What does it really mean Jim, Well, you certainly could have some cash on hand. We think it's was both as a buffer for what we suspect will be increased volatility as we get closer to the election, but also as some dry powder for opportunities that may manifest themselves along the way. If, of course, we get a vaccine, all bets are suddenly going to be on the economy being able to whether the storm of the COVID storm is better than it than it will without it.

But we also have been noticing gold. Certainly, our tactical models have been picking up on the on the gold trend. UM. Our view is that gold is a very poor long term hold, but there are periods where it can give investors not just emotional comfort but even tactical return advantage. UM. Gold of course occupies that paradoxical space where investors tend to like it when they think the economy is going to heck, and they also tend to like it when

they think the economy is overheating. UM. We think we're probably between those two two moments. And while we do think gold may have a little bit of room to run, uh maybe even into next year, we would be very cautious about recommending it to anyone other than is a speculative. Best Jim, talk to me about China, because we talked

a lot about it this week. It's sort of a I was gonna say, tactical way, but in a very specific way as it relates to TikTok and now more recently what's going on with ten cent, and I mean the rhetoric is certainly being amplified, but these are some real actions potentially that are being taken. How does that give you pause when you think about any exposure to China?

How do you figure that into an investment thesis. So it's an excellent question, and we have been cautiously moving our games onto China, actually having a small take in some some China oriented positions inside of the actively managed funds that we own. We think that the rhetoric is

likely never going to die down. But the major trends I think is that in my life style I'm sixty years old, we've moved from an outright belief in a global economy to really a duopolate US China with every other country effectively playing second or third fiddle, some not even making it to band camp. So we think you want to have some China exposure, you want to have

US exposure. But we suspect that there will be clashes along along the road in any given year, whether it's an election year, whether it's a Republican or democratic president. China has been a hard country to bring to the

bargaining cable in any real way. All that said and done, it has grown its own economy better and better over the past decade to the point where we think there are some attractive opportunities are well, we definitely think that if you're looking inside of China and you want to look at brands that Chinese consumers tend to want to own, we we are first interest in China was really from an investment angle was parked by Apple and wondering whether

or not brand America products We're going to get hurt by China's UH social ranking system based on consumer interesting behavior, and what we saw was an opportunity in brand China for the Chinese consumers. So we like, we like technology and consumer related sectors inside of China's economy. Here at home, we could see to love the battleship balance sheets of bootship dividend growers UH and health care remains a significant

overweight in our portfolios. Talk to me more about health care because obviously so much focus on so many aspects of that, But healthcare is a big bucket. Drill down a level if you can. Health Care is effectively twenty plus percent of our economy, So you're right, it is. It is the biggest bucket in our economy. And when you look at the demographics demand from our aging population, that of Japan, that of Europe. There's obviously a necessary demand for more and less invasive ways to treat a

whole host of of illnesses for an aging population. But then you also have emerging market demand where consumers are finally able to demand first any healthcare, and then more are in better ways to treat themselves through healthcare. So we think that it is a sector that has uh long term benefits. It's risk adjusted return profile is stellar.

I would also say that when you look at health care, it is increasingly correlated to what's going on in the innovation side of the technology hub, which we also like, and so inside of healthcare you get a great risk adjusted necessary demands story with some real innovation. Hey, you know, on the health care side, Jim, Jason and I have had conversations with a lot of as you would expect because of the virus, healthcare professionals, people who are running

you know, massive health care systems. One of the things they say is that we are increasingly a need to but already slowly starting to move towards a system that's more about keeping folks well. We've talked about it a lot. We still have a long way to go, rather than you know, people coming in when everything's wrong, but rather you know this folk is I'm keeping everybody well. Is that an investment play that you're thinking about seriously and making bets on or you're kind of waiting to see

how it works out? Well, I would say it's it's kind of like thinking about investing in solar. If you own the major oils, you own a big stakes of solar power inside of their holdings. If you look at the h MOS people, the insurance companies, they're really trying to figure out ways too, as you say, help us live more healthfully. Not because they want us all necessary to live more healthily, but it's typically better for their

bottom line. And of course, you know, tragically inside of COVID ninety what we see is just take the simple issue of obesity having a higher morbidity rate with regard to COVID nineteen. So I think as a culture, um, this may be a this may be a turning point where we really all do look to live more helpfully. But yeah, don't tell that the Kraft mac and cheese yea oreos. We've gone, We've gone long oreos during this

pain endemic all right. Jim Little, chief investment officer for Advisor Investments, joining us on the phone from Niedham, Massachusetts. Thanks so much for listening to Bloomberg Business Week. Download the podcast on iTunes, Southcloud, Bloomberg dot com, or wherever you get your podcasts. And of course you can always listen to our radio show at two pm Eastern on Bloomberg Radio, or watch us on YouTube by searching Bloomberg Global News.