Bloomberg Wall Street Week: Ailman, Bernard, Summers

most influential voices. Larry Summer is the former Treasury Secretary Bryan Wynhan a backup America, Will Smart, CEO of Charlie Sharp. Bloomberg wool Street Week with David Weston from Bloomberg Radio. Now you see it, now you don't. Concerns about inflation and tightening went up in a proof of smoke this week, and all it took was a few more words from Fed chair J. Powell. This is Bloomberg Wall Street Week.

I'm David Weston. Whatever the market saw this week, they certainly liked it, as equities were up across the board, the SMP ending the week at another record high, joining the Dow Jones and the NASTAC and rising more than two percent, while the ten year Treasury added nine basis points, and the yield curve overall steeping about ten basis points. To give us a sense of how investors see this round trip with the market to the last two weeks.

Welcome now Barbara and Bernard. She is founder of Windcrest Capital and Chris Alman, Calcar's chief investment officer. Welcome to both of you to Wall Street Week. So Barbara and let me start with you first. We had sort of two versions from what at least what the market saw and what's going on. One is we gotta be worried on inflation. It may be sticking around. The other is, don't worry about it. It's a long way off. It's

not the bigger problem. Which was right, I categorize this market is all great and no fear, and that's exactly what you saw this week. You know, if I Finance were taught the love of seventy two, which essentially means if you're annulyzing your returns at seven percent a year, you're going to double your money every ten years. The

pp I clopped six point two. That's really meaningful because by that same math, you're losing half of your purchasing power every eleven point two years, and this is what the market really needs to be focused on. Inflation is here to stay. It's not transitory. How will try to paint it, is this inflation rat going through the anaconda. We all see the bulge in it's moving, don't worry about it. I disagree because of the way inflation is calculated.

It's a year on year number. So sure, cars being up thirty five, used cars being up thirty this year maybe part of a reopening trade. Lumber being up maybe part of a reopening trade, and people going back and stop, you know, working on their porches. Maybe why lumbers falling. But things like wages, wage, that's sticky, that's not falling. And so even if you had zero percent inflation next year, that's still a six point increase in the cost of goods,

So that, in my opinion, is permanent. Um. The other thing I would say is that Al kept talking about an inclusive and equitable recovery, and what you've gone from is an administration that was obsessed with wealth creation to one that's really obsessed with wealth redistribution that is inflationary as well. And you also look at the Biden administration, they're quite focused on decarbonization that is going to take a sustained investment, and investment is inflationary. So for multiple reasons,

I think inflation is here to stay. I think it's being underappreciated um and it's something we really need to focus on. So Chris Alwin, give us your perspective. You are all long term investor. You have a lot of money to invest, you also have a lot of obligations in the out years. At this point, are you adjusting your investment calculus because of the prospect of increased inflation? We are, And I agree with Barbara Anna. I think that inflation is here to stay, and I think that

it's subtle and creeping. In the way the government measures c p I is not effective at all. But if you ask the average person, they're feeling it. They see it in prices they're paying, and as she pointed out, it's going to be a wage pull as well as a price push on inflation. So I'm not sure when CPI will really pick it up, but I know we feel it and it showing up in lots of different places. So as a long term pension plan, as you put David with a thirty year horizon, inflation is the real threat.

So we're actually increasing our inflation sensitive assets, which is a whole basket of different things, uh, and increasing it pretty steadily over time. We really wanted to be a

larger percentage of our portfolio. So Barbara, and let me ask you about something that was a little bit a debate this week on Bloomberg between Severda supermani and of Bank of America and Jonathan Golub from the Credit Suite about whether an investor should take ano account the ability of a company to pass on increased costs to customers. Is that doable because some people think it is something that is that one way to try to compensate for inflation.

We're expecting absolutely. I mean, I think you want to invest in companies with a high inflation pass through, right. If you look at something like Amazon, it's nothing more than a price comparison website. If you're selling white goods through a price comparison website, it's really hard to pass through those costs. You know. You also had Worldpool this this this week say they were trying to increase costs, but it's you know, it's a crisis. Steals up substantially,

It's gonna hit margins. So I don't want to be in those companies. I want to be in companies with a very high inflation passed through rate. Chris, let me ask a slightly different question. Another thing that happened this week was infrastructure. I mean, it's not there yet, but certainly the President announced bipartisan agreement. It looks more likely

than it did last week. I think it's fair to say that, Uh, to what extent does that affect an investor's perspective of infect we get a substantial investment infrastructure, What does that mean for the long term growth of the economy. Well, David, I remember you and I talking about inflate infrastructure a couple of years ago. You watch Washington much closer than I do. So, yes, we got closer. I'll believe it when I see it. But longer term,

I think it is an interesting area. UM. You know, we really do think that that internet services an infrastructure type of investment. Broadband UH and the charging stations. That's reality, that that's going to be an investment opportunity. UH. The government needs to step in and be in the first lost position. But I think you'll see private capital flow. There's a ton of capital not just in the USA but around the world. It's very interested in long, stable

returns from an infrastructure play. And they love the USA because we have a rule of law. We have very clean rules and contracts. But they've got to see an opportunity where they can make a steady return out of it. So the USA always has that challenge in infrastructure and just full bonds are always the cheapest form of cost of capital to build something, but let's face it, they're not good at maintaining it. So if you want to build something and maintain it, you've got to have some

private capital in there. And that's going to be the challenge with this bill is figuring out with all this federal money coming in, how does private capital fit in that capital stack. Okay, our panel of Chris Element of Kelster's and Barbara and Bernard of Windcrest Capital will be staying with us as we turn to the E s G investing and how it could change our world. This is Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. E s

G Environmental, Social and Governance Investing. He's gonna a lot of talk these days, and lately it's getting some action as well, with the Engine Number one Dissidents Shareholder group up ending the x ON Mobile board and this week launching an e t F to take that campaign into other boardrooms as well. Chris Alement of Callister's and Barbara

and Bernard of Windcrest Capital are still with us. So Chris, I want to start with you because you had a little something to do with this with Engine number one. Give us your sense of why you back these dissidents and what effect you think it's going to have on ex On. David, we have been having engagement and dialogue with the integrated oil companies for several years now because we're really concerned about the future and then and it's going to be a lower carbon and these companies have

to change and adjust. XL Mobibile has just been calcil Trent. They have just ignored shareholders for several years. New York Common May to run at them um New York City Calipers and they just rebuffed everybody. We felt that it's time to change at the top. When Engine went approached us and said they're going to propose an alternative slate for a board, we said we would get behind them. So when they announced in December, we came out the

same day endorsing their slate UH. And that was intentional, and we worked behind that UH, supporting their effort. We weren't proxy solicitors. What we were doing was really just calling our huge network of institutional investors in all the groups and raising this and making them aware. UH. And I think in the end it was Exon's own actions of adding board members suddenly talking about carbon sequestration. They really changed their tune because they realized that shareholders were

unhappy and we're frustrated. And look at that stock chart. It really turned around. Now all the integrated oils have come up, but look at Exon relative to the others. And I think the fact that we were finally engaging with them and making some traction with management was waking the shareholders up and they cared and it was a huge move. So I think the the announcement that we saw that we elected three they elected three board members onto the Excellent Mobile board is dramatic and it really

is going to signal a change from the top. Now their hard work begins. I don't want ex On Mobile to become a codact a Blockbuster video store, or I'll go back in my time a warehouse record store. We want to see ex On Mobile actually exist twenty and thirty years from now. But they've got to change and adapt to be able to do that. They can't just stick their head in an oil and gas only and I now we've received criticism that because that's their main calling.

But they can adapt and they can adjust. Have a become an energy company, and we're gonna need the hydrocarbons into the future, but we're not gonna in necessarily need to burn them. We're gonna use them for lubricants and other things. So they've got a product mix, They've got

a very solid company, they have good research. I'm optimistic with a new fresh board at the top and a change of tone at the top that this company can can adjust and adapt into the future and survive as we're seeing with all the major oils having to do to recognize the future is lower and lower carbon emissions. Barbara,

and what about it. You're an expert in E s G investing and something I think of an enthusiast for Chris, what I think you did was great, and if you can change their capital allocations decisions and save your investment. Good on you. That is phenomenal. But what happened this week with the launch of another index tracking e t F, I don't think is the answer. There is no energy

transition without an investor transition. So E s G one point oh was by the end X and slightly overweight tech and underweight oil and gas and charge a premium for it. So we've gone from passive B s G to what I would now call passive aggressive E s G with engine one point oh. And while it's good and I hope you know I wish them, I wish them well. I think E s G two point oh

is not engine number one. E s G two point oh is the little engine that could, and the little engine that could invest in the renewables and the copper and nickel and lithium minds that are mining and sustainable ways that are going to drive this transition. It's investing in E s G leaders who are decarbonizing and are disrupting their models because we do need, as Chris says, their services, but we need them with less carbon. So I don't think E s G two point I was

about the index at all. I think it's about decarbonization, and it takes investment, not divestment. If you listen to all they wrote a report they said we need fifty trillion to solve climate change. A hundred and three trillion has been committed for the un principle responsible investment, two times what's needed. So the problem isn't the money. The problem is it's going to all the wrong places. And so, Chris, I'm so excited that institutional capital is finally starting to

work together. But what I now that you've got directors and now that you've got disclosure, I think the next step is using your health to advocate for policy change, because if you enact attack on carbon, you're going to get the same the same result without having to jump up and down on the board room. When you change the incentive, you change behaviors. Chris, what do you say? No, Barbara,

and I agree with you. I was just gonna say that, you know, and I think that the key is we have been making very large sustainable and long term investments. We've been allocating more money to more sustainable companies. What we're trying to do is to recognize that everybody, whether it's an index and there's just still a lot of money in index funds, but that all the companies, if they want to survive in the future, have to change and adapt um. They can't just stay stuck in the

current methodology. And and you're right, David, We've got to take carbon out of the atmosphere. We've got to change the way we get energy, the way we transport, and especially the way we do agriculture, and then ultimately certain things like as we've talked, concrete steel manufacturers have to find new, better ways, less carbon intensive ways to do that. So for us, it's it's a holistic investment including our index, not excluding it, but including it. And it is active management.

I've said for a while, but I think of E, S and G climate change is the one active decision people have to make, and they have to make it now because in the next ten to twenty years the world is going to radically change and you can't just sit on an index and wait. You need to invest and make active decisions ahead of that to create capture those opportunities. So we think that the changes is inevitable.

We've got a big sustainable portfolio that we already invest over a billion in new sustainable solutions and we're gonna increase that over time. So this is a truly great discussion on s G. I want both of you come back and have it at greater the links because we have more to talk about. But I want to throw you a curve ball right now. I'll go to view Barbara, and because we now know the game stop that meme stock has been added, the Russell one thousand. That's just

happened at the end of the week. So what do you make of these meme stocks? Are they changing the entire index investing scene? Oh goodness, you know I don't. I love to short, but I don't even involved in those of these. It's not a good investment, right, and so it's it's a heartbreaking to see companies like that getting an index. We all know it's not worth what it is to what it's trading for today. Um, so yeah, I don't. I'm not I'm not for passive investing. There

you go. I really appreciate this panel has been terrific. It's our panel of Chris Aleman, he's Calcier's c I O, and Barbara and Bernard CEO and founder of Windcrest Capital coming up. So many ways to take a company of public from I p O s to direct listings to spacts. Which one is right for you? We asked Stacy Cunningham, the president of the New York Stock Exchange. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall

Street Week with David Weston from Bloomberg Radio. Spacks companies are turning to blank check mergers to go public more than ever before. Just this year, there have been more than five hundred and fifty SPACs so far, which is more than all of two twenty when more than eighty

three billion dollars flooded into the space. Here's James Zelter of Apollo, So with it with this fact product really gaining emergence in the equity markets because of what's going on the I P O process, You know, is our is our ecosystem of clients and borrowers are our spac issuers. We want to make sure that we have the tools to respond to them. But this back boom is seeing some bumps in the road. A blank check company might get you public, but thus far the returns after you

get the deal done haven't been all that impressive. One index that tracks SPACs is down since it's February. High fading trading volumes and the possibility of tighter monetary conditions are taking a toll on companies that went public through blank check mergers. Bab. It is not just something about one stock rising. It's a concept. It's about the fact that everyone believes it's some new newould saying that this concept is here to stay and about to change the world.

So it is um as I say, a good idea going too far. That's Rashier Sharma from Morgan Stanley Investment Management. SPACs provide a shortcut to the stock market which business is seeking to go public are eager to take on the other side of the equation. Investors and SPACs have the chance to score a big gain, but know that they'll get their money back if the SPAC doesn't meet its deadline in getting a big deal done. Here's Social Capitals Schamath, Paula Hapatia. It evens the playing field. It

democratizes access to high growth companies. How because it allows retail and it allows long tailed institutional investors. Folks that may not have necessarily been Tier one hatch funds now they can also play. Regulators have struggled to keep up with this back craze, and now the SEC is taking a closer look, at least at the disclosure issues. Investors in blank check companies give cash to sponsors before they

know what company they will be investing in. It's really making sure that the sponsor who's behind that is fully disclosing their take on it. These are very expensive dilutive products. That's SEC Chair Gary Gensler. Another concern with SPACs is that companies can pitch to investors based on their forward looking financials, which isn't allowed in a traditional I p O. Again,

here's Gensler, and it's those disclosures. Ensuring that the red tail investors get the right disclosures and are protected and somebody's not misleading them, and secondarily that they're participating just like the the institutional investors. So how do you know which way of going public is right for you? When we turn now to the woman really at the center of this process, she is Stacy Cunningham, President of the New York Stock Exchange. Stacy, thank you so much for

being with us on Wall Street Week. There are so many different ways I p o s and direct listings and SPACs. Now what determines which is the best way to take a given company public. It depends on the company. If you want to raise money the traditional way, you might consider using an I p O, going out on the road show with your bankers who are holding your hand throughout the process, and working to get that established

investor base that you want for the long term. And that's the reason why so many companies continue to choose the I p O processes. They want to choose that investor based with the allocation process. If you want to have more control around timing and price and work with a counterparty, a spact might make more sense for you as an issuer, and so you there's less dependency on market conditions. With this fact process, you have a little

bit more control. And then a direct listing really takes the elements of of democratizing access to that first day. All investors are on a level playing field with a direct listing, so retail and institutional alike can just enter their their interest and the market prices that opening. And so if you're focused on cost of capital and having equal access to all investors, that's been a real driver

for many of those companies choosing a direct listing. Another element of the direct listing that's been interesting to companies is being able to provide forward looking guidance. And so if it's a company that wants to talk about their future projections, they've been able to do so within a direct listing. They were also relying on that within a spack, But the SEC put out some guidance in April about the more accounting in spacts and about that future guidance

because it wasn't uh. Companies have been relying on the the a safe harbor provision that is typical for mergers to be able to provide that future guidance. In the SEC said, wait a minute, that might not apply here because as a spack you're really becoming a public company for the first time. And so those that those were elements that are being slowed down this back market a bit,

and you're starting to pick them up. The important thing is is companies have choices now and they're looking at what is the right path to the public markets for them. At the end of the day, no matter which path they choose, they become a public company and investors are going to price their their their stock in the public markets exactly the same way. Thank you. So much for being with us on Wall Street Week. That's Stacy Huntingham. She is the president of the New York Stock Exchange. Thanks.

Coming up, we get the take of our special contributor Larry's Summers of Harvard on a trust policy and whether the Biden administration just might be headed in the wrong direction. That's next down Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. And to wrap up the week, we're joined once again by our special contributor, Larry Summers of Harvard. So, Larry, We've had a lot of infrastructure Weeks over the last

few years. Maybe this one really will be infrastructure Week because President Biden came out of the White House and announced a bipartisan agree at least on a framework on infrastructure. There has about five eight billion dollars in new money. What do you make of what was agreed to? I was glad to see it. The investments overdue. The investment will strengthen our economy. The investment will help support employment

of groups that have had uh trouble. The investment will show that America is able to come together and do things. And the investment was paid for. I was particularly gratified to see for the first time a bipartisan congressional agreement recognizing that if we do what we need to do as a country and enforced the tax law, better give the I R S the resources it needs to go back to the strength once had that we can raise meaningful amounts of revenue. And I think all of that

bodes very well for the future. At the same time, Laurie, we quickly learned that it's one step in a two step process. It's a little bit of an ambiguity here about that second step, but certainly Nancy Pelosi, the Speak of the House, said we're not going anywhere with this agreement on bipartisan bill without having the more partisan approach that has the other part of infrastructure, with the White House calls the family part of the infrastructure. How essential

is that second component. Look, we need to make human investments in this country. We need above all to be investing in early childhood education, uh for our kids. We talk about STEM, but how can we how can our kids believe we're serious about STEM when huge fracts to the chemistry dribs in the country have air conditioning and heating systems and UH air air systems that UH don't work. So we need more investment than is in this bill.

This bill is a beginning, it is not an end, and so the aspiration too much more is in my view, completely correct. Um will it all fit together and happen? Here's what I know. We weren't going to get to the end of the race unless we've got out of the blocks, and we surely got out of the blocks in a really important way UH here, and I'm glad.

I'm glad to see that. And I hope we'll find an approach that will pay for the spending UH that we need, that will recognize its benefits to the economy in a clear way, that will make sure that we're investing in what, after all, is our most precious national resource UH, our people, that will be taking steps necessary in terms of the global issues, like the prevention of climate change and like the mitigation of future UH pandemics.

There is a lot that is left to do that should be supported, and the question is are we gonna find ways of doing it that are carefully thought out, that are disciplined, that are involving the private sector where it can make a major contribution, and I hope that's what we'll see going forward. But I'm gratified by the progress we've seen. Larry, this may have been Infrastructure Week,

but ANNA trust is a near runner up. As a practical matter, we had five bills get through the Judiciary committea about fundamentally redoing our antitrust laws to really go after I think it's fair to say big tech to a large degree. We also have a new chair of the CFTC and Lena Khan, who has made a career thus far of really challenging some of the big tech and that more fundamentally, the antitrust approached, the overall approach

to the question what do you make of this? Do we need to be rethinking in a trust approach in light of what's happened with big tech? I'm halfway UH with the critics. A new economy needs new thinking and UH new approaches. UH. The old concepts weren't designed with issues like UH platform companies in mind. But I part company completely with UH. The legal scholars UH scholars who frankly in many cases are not very familiar with UH

economic reasoning UH in its intricacy. The people who call themselves neo Brandeisians and want to go back to what Justice Brandi said in nineteen sixteen. Ultimately, an efficient economy that serves consumers well is the right criteria for antitrust policy. Any attempt to change the goal of antitrust policy to be protecting competitors rather than protecting competition, I believe will

do grave damage to UH the American economy. So yes, we need new approaches, possibly new UH laws, but they need to be ultimately grounded in an economic approach that is based on having a more functional and efficient economy, and the idea that big is bad per se, or the idea that big should be broken up just so that smaller companies have a better chance to compete even

when they are less efficient. You read the traditional antitrust decisions of the nineties sixties, and they are a horror show in terms of their economic illiteracy, where companies make efforts to defend themselves by saying that they're inefficient and therefore they're not gonna win out over competitors and competition. That is the way to American failure, and we must make sure that we don't go back to that point. That is no argument for indiscriminate corporate power. That is

no argument for accepting what may maybe abusive practices. But let's have a new uh anti trust for a new economy, not go back to fail and replace doctrines of the past. So learn. Let's conclude with a quick round of summer says. Here. Number one, we had Janet Yell in the Treasury Secondary go up on Capitol Hills, was testing on her budget actually, and she said she's fairly confident the inflation we'd be back down under five percent at the end of the year.

What was your reaction, Gosh, Dave, that anybody was talking about five cent would have been inconceivable uh three or four months ago, when the consensus was in a completely uh different uh place. My guess is that at the end of the year inflation will for this year come out pretty close to five And it would surprise me if we had five percent inflation with no effect on

inflation UH expectations. It could go either way with respect to five percent, I'd be happy, happy to take the bet on over at UH four and a half four and a half percent. But I think the real comment is that it was only three weeks ago when acknowledgements that inflation would reach three percent UH this year were treated as significantly news UH newsworthy. So this is in

line with what I have to say. I have predicted on your show almost every week that inflation is going to surprise on the highside relative to expectations, and I'm afraid that continues to be my view. So very well, we're on the second half, looking at the second of the year. Let's talk about markets overall. What are you expecting? More urbulence, less turbulence. I think more UH. You know, I for the crisis in some ways that I grew up with, UH was the Japanese bubble in the late

nineteen eighties. And what was interesting was that there were a lot of people who were anxious about the Japanese market, and then it survived and it kept going and kept rising, and then more people got anxious and it grew and at a certain point most of the anxious to thrown in the towel, and that's when we had UH, really an epic UH financial collapse in Japan. And Japan isn't Japan's market isn't anywhere near back to where it was

UH thirty years UH thirty years ago. I don't think we're gonna get anything like that in the United States, but I think there's a point uh there, when warriors have been disproved a few times and people are saying we're in a new era, that's when you need to be very careful. So my guess is we'll see higher rates over the next six months, in the second half of the year, and with those higher rates, they'll probably

be uh more uh more turbulent. Uh. I was glad to see the Fed uh move in a quite significant way to reflect worries where I've been concerned and others have been concerned that they were behind the curve. But I think we've got a lot of processing ahead of us in markets. Okay, thank you once again to Larry Summers, our special contributor. Of course, he's a professor at Harvard. Finally, one more thought, and this one hits close to home. New York is, after all, the home of Wall Street.

That location in Lower Manhattan named for a wall the Dutch built in the seventeenth century to keep out the British and pirates. And let's be frank, I'm not sure how successful they were on either of those. New York has always been centered in business and in commerce. It's always been open to the world, particularly the commercial world. And so when the pandemic hit and commerce and imports, whether of goods or of tourists, shut down overnight, New

York was hit particularly hard. This week, New York took an important step toward coming back as it gathered at the polls for the first time since the pandemic. This first post pandemic election was to choose the candidates for mayor and controller and the rest of the city leadership. We don't know the results yet, we won't know for some weeks to come because of that ranked choice voting we've learned so much of about, but we do know that Wall Street will have a new mayor, and one

that sees the enormous potential for growth. So once again, it's time for New York to reinvent itself. And whatever our political persuasion, global Wall Street passed to be rooting it on. That does it. For this episode of Wall Street Week, I'm David Weston. This is Bloomberg. See you next week.