Bloomberg Wall Street Week: Bhansali, Rogoff, McNamee

most influential voices. Larry Summer is the former Treasury Secretary Bryan Wynahan back of America, Will Smart, CEO of Charlie Sharp Bloomberg wool Street Week with David Weston from Bloomberg Radio. Strong earnings. Trump fears that the variant will slow down the recovery, and so we continue on our upward path.

This is Bloomberg Wall Street Week. I'm David Weston. And that near panic attack from the first part of the week, along with the quick midweek recovery, were reflected in equity markets, where the SMP on Monday dropped the most in two months, only to recover to reach for new highs ending the week over and the NASDAK reaching towards fifteen thousand, while the flight is safety early in the week led to the ten year yield treasury yield dropping below one and

fifteen basis points and then climbing back to end the week a bit higher actually than it was back on Monday. Todays through the drama of the week, we welcome now RuPaul bin Sally. She's Aerial Investments, chief investment officer of International and Global Equities and author of non Conventional Investing, Being Right when everyone Else is Wrong, and my colleague Gina Martin Adams. She's chief equity strategist for Bloomberg Intelligence.

So welcome to both of you. Gina, let me start with you explained to me what happened this week, because it was pretty dramatic. It was a relatively volatile week, particularly after you know, six months of pretty much continuous games in the equity market. To have a little bit of volatility felt a bit uncomfortable for many investors. That's certainly what we did see. I think you accurately captured, David is the market and gyrating around the delta variant,

as well as inflation expectations. Maybe a little bit of worries carry over from last week, which was more about global central banks earnings playing a part of the story. But when we when we really dig into the details, we actually find the companies that reported earnings over the course of the last week have not received derived any benefit from those reports. So certainly we are in the midst of a lot of mayhem, I would say, in the market where investors seem to have kind of lost

their footing. I think it's a continuation. Frankly, it's what's been happening since May, when inflation expectations peaked, When we started to price in peak growth coming over the summer, we lost a lot of leadership on the index, and that really took hold over the course of the last couple of weeks with a lot of get on again,

off again trading. So, RuPaul, you wrote the book non Conventional Investing, explain the non conventional approach to what's going on right now, because the conventional wisdom, I think is we thought we were all going to rush back in a lot of fears about inflation. Now I think we're not quite as sure. But what's the non conventional take on what's happening? David, thank you for that, And just to correct you, it's non consensus investing. Uh and known

to be a contrarian. So here's I think a couple of things to note. One is that equity markets, I think are paying more attention to the credit markets, and rightly so, because the credit markets tend to be much more prescient about you know, future economic outlook, which ultimately

then drives profit outlook for the equities. And the big dichotomy that's occurred in the last couple of weeks in the indust rate environment, where the tenure bond rate has been correcting against all expectations and against all punditory views, which I'm going to call, you know, all the consensus views that industrates would rise, they actually did the opposite. They fell, And frankly, inflation has not been higher than

the statistics have reported. CPO was over five percent. So you have a record level of negative real rates and that's putting a bid onto equity markets, which is why every time you see any kind of pullback, they go right back up. And also, I think, you know, to Gina's point, it's also caused for rotation in the market. People who all gung ho about value making big comeback

that was the consensus reflation trade. Well, guests, what that's been put to pay with what the industrates are telling us that inflation is not likely to get out of control, and that also caused rotation into group stocks versus value stocks. So let's come back to you on this and I take the points non consensus. I beg your partner on the non conventional non consensus. But but how much of the equity valuation right now is just supported by the

interest rates being so terribly low? I mean, we a lot of people are saying we're going towards the to the two level on the ten year yield, and instead we, as I said, drip that down below a hundred fifteen basis points. I think we're about now. Well, I think you have to think about equities relative to bonds in

a longer term scope. I mean, we got the point back in May where the equity risk premium relative to bonds had fallen out of its fourth quintile really for the first time in more than a decade, which said to a lot of investors, hey, look at but he's relative to bonds are no longer offering us quite as

extreme value as they did. At the same time, inflation expectations started started to turn over, and then the story was written from there right by Monday's clothes, that equity risk premium relative to bonds had finally reached back into the fourth quintile, offering investors an opportunity to buy into a dip in the equity market for the first time in quite a while. And I think we did see that.

Now the question remains as to how much we should be paying for equities globally, how much we should be paying for US equities relative to rest of world equities and the like. But I think that fundamental shift is important to note that. You know, we've been sitting in this fourth quintele for so long, and the relative value of equities in comparison to bonds is has been incredibly compelling, But we lost a little bit of that in that

really strong rip into May. Now it came back with the sell off that we that we've seen, and investors took advantage all. One of the things I took away from your book, the non consensus investing book, was you like to manage risk rather than return. You focused on not losing money as much or more than you do on making money. So in this world, what is the risk we need to avoid as an investor? Spot on

David Uh. You know, to Gina's point, I think a lot of investors are thinking about putting money to work in equities simply based on a relative valuation trade. I think they should look at absolute value, intrinsic value, not relative. I think both equity and credit markets are quite overvalued, and frankly, instead of just looking at the earnings multiples on stocks, which is what most equity investors do, they

should actually stop being attention to the debt multiple. Thanks to rupap and Sally of Aerial Investments and Gina Martin Adams from Bloomberg Intelligence. Coming up, Treasury Secretary Janet Yellen had her eye on cryptocurrencies this week, even as bitcoin dip back below thirty dollars. We talk with economists Ken Rogoff of Harvard about the future of crypto and what regulators are likely to do about it. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street

Week with David Weston from Bloomberg Radio. Thirty thousand dollars. That was the level in focus for bitcoin this week. The cryptocurrency fell along with equities early in the week as concerns of the spread of the delta variant rattled investors. Here's FED chair J. Powell. We see bitcoin going up in value and down in value, so it's it's a you know, it's a at times, it's felt like a somewhat frothy market. Bitcoin is down about fift from the April peak, a sign that the bubble may be deflating.

I think something in the neighborhood of fifteen thousand dollars is where we're going to end up. And uh, you know, given all the uncertainty and the new competition from new coins and everything else, Uh, you know, I think that there's more downside to go. That's Scott Minored of Guggenheim. Crypto speculators are losing steam. Volumes for cryptocurrency spots and derivatives have slipped to their lowest since December. Here's JP

Morgan's Mary Callaghan urdos. Digital currencies are new, and in general, digital currencies are being debated as to whether they're an asset class or not. But the volatility that you see in it today it is just has to play itself out over time. Elon Musk gave bitcoin a temporary boost at the b Word conference hosted this week by the Crypto Council for Innovation, saying he personally owns bitcoin, Ethereum

and dogecoin, while Tesla and SpaceX both own bitcoin. Cryptocurrencies plunged in May after Musk said Tesla would stop accepting bitcoin as a form of payment because of the energy used to mine bitcoin. And we wonder a little bit more diligence. UM, so you can quote uh, that's the concom with deep so of renewable entine usage is most likely UH are sort of or above designs UM, and that there is that that that there is a friend towards increasing that number UM and if so then tells

it we'll resume bitcoin accepting bitcoin. Bitcoin status is a store of value is one of the things that separates bitcoin believers from skeptics. I don't completely buy the whole thing. You're essentially saying that we're going to create a store of value and a medium of exchange around something that only exists inside of a computer somewhere. It's not a physical asset that Steve Rattner of will It Advisers. Treasury Secretary Yelling is among those who wants more scrutiny of cryptocurrencies.

This week, she convened a meeting of regulators and policymakers to discuss the growth of stable coins and the potential risks to consumers. I think cryptocurrencies we don't really have an adequate framework to deal with different issues that they um pose from a regulatory perspective. One of those who's raised at least some questions about the future of cryptocurrencies and whether regulators in the long run can just let them run is Ken Rogoff. He's professor of public policy

and of economics at Harvard University. So, professor, thank you so much for being with us. As I say, I don't want to put working without. You've expressed some skepticism. But where this all is going. One of the things we just heard there is there's just so much volatility involved. On the other hand, there's something called stable coin. I guess stable coin is tethered to specific fiat currencies to

try to eliminate some of that volatility. Yeah, there are a lot of different kinds of stable points, but the basic idea is something that you can exchange for a dollar and fiat currency, just like you used to be able to exchange gold. Of course, then you're not speculating on it in the same way, but the ideas to try to get stable coins some of the attractive pseudo anonymous properties that bitcoin nows, which is I think a

lot of the underlying appeal at the same time. And my understanding is theoretically stable coins says, whoever is issuing these has those dollars or yen or whatever reserved against those to tie to them. How do we make sure that happens? And is that really what Janet Yell is concerned about, is she meets with regulators. Well, I don't think that's the only thing she's concerned about. I mean, I think regulators are very late to the game here

in general and thinking about cryptocurrencies. They should have been thinking about it years ago. Uh. Certainly the stable coins are not necessarily stable. That's a long history of fixed exchange rates. It's the same thing. Uh, you make money by using the money that you're supposedly holding an escoro and speculating. It doesn't always go well. It leaves you

vulnerable to attack. I actually think in the very long run, if stable coins UH persist, and I think the central banks are more sympathetic to them than anything else, they probably will need access to the central banks balance sheet, just like banks do to deal with runs. So give us this perspective. The spectrum here from bitcoin to stable coin to a central bank digital currency is that is it inevitable we're heading towards central bank digital digital currency.

I think it's inevitable we're heading towards central bank digital currency. But it's not the same thing. And I've heard Governor Powell say, well, we want to take away, you know, some of the appeal of bitcoin. No, you won't, um yes, for doing certain digital transactions. It may be more convenient than using master card or you know, other things, and

we may be headed that way. But obviously, if it's issued by the central bank, it's very hard to have the same kind of pseudonymity that you can get with bitcoins. So I mean, I think they I believe they need

to sharply regulate the anonymous cryptocurrencies. I know a lot of people in the cryptocurrency world probably hate me for saying that, but I do think it's coming, and we're probably headed towards some world in which, at least under duress, the government can fairly easily find out about transactions, even

if it's not monitoring them constantly. Well, I wonder about just the mechanics that regulation, because I think a lot of transactions in bitcoin or another cryptocurrency are done offshore, they're done through corporations that are not US corporations, and they're done, as you say, pseudonymously. So how do you regulate that? Is it possible? Well, it's a good question. I've been thinking about it a lot for a long time. Uh.

You know, you can't totally shut it down. If North Korea and Russia and Iran decide they're going to use it, that provides a home for it. What you can do is make it much harder to you, say, to buy tesla uh in advanced countries, probably in China, that that prevents it from having the same value. I've actually always been careful not to say bitcoin is going to zero like many people nor over Bini for example, has you know, emphatically, because I don't think it's I don't think that's going

to happen. But I think as the guard rails tighten, uh, its appeal is going to go down. Maybe its value is going to go down. Who knows. Thanks to Ken Rogoff of Harvard coming up, we look at the Robin Hood, I p O with the former CEO of E Trade, Carl Rossner. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from

Bloomberg Radio. Robin Hood's Reddit Army will soon be able to own a piece of the retail trading app, as the company plans to list on the NASDAC under the ticker h O O D and says it's market cap may reach as high as thirty five billion dollars. Here is Robin Hood, CEO of Vlad Tennis. I think you can look at our our vision broadly and say that right now about half of US households invests. We'd like to get that number up to plus percent. Investing should

be as ubiquitous as shopping online. It should just be something that people do. Robin Hood will join the ranks of coin Base, worth about forty seven billion dollars and Charles Schwab, which bought competitor t d Ameritrade and has a market value of about one billion dollars. The most important lesson is just we're seeing what technology is doing in terms of transforming the markets. Access to information, um the ability to trade, empowering smaller investors is something that

is very real. That's Brady Dugan of Exos Financial. Robin Hood boom during the pandemic by providing easy access to retail investors, playing a starring role in the meme stock frenzy that took off in Annuary. Here's Robin and CEO of lad Tenef being questioned by New York Congresswoman Alexandria Akazia Cortez. Robin Hood is a for profit business. Doesn't that mean that trading on robin Hood isn't actually free

to begin with? I think we've proven that otherwise by making this the standard model by which brokerage is operate now. It's monthly active users have more than doubled in the past year, with seventeen point seven million as of the first quarter, up from eight point six million in the same period. In the robin Hood I p O comes just a month after FINRA imposed a nearly seventy million dollar fine in the company. That's a record for the watchdog.

FINRA claims the trading app mislaed its customers about margin trading and had lapses in its oversight of technology and approvals for options traders. Take us through the phenomenon that is robin Hood and how it fits into the much larger picture of retail investing. Welcome now, Karl Rossner. He's former CEO of E Trade. So Carl, thank you so

much for being with us. Really a pre created without regard to the specifics of robin Hood, because we don't know what's gonna happen exactly're gonna go public, We don't know the circumstances. Give us a sense of this robber, this retail trade phenomenon. Is it here to stay? It's exploded? Has it not? It has? And and thanks for having me, David. I think the way that I look at it, I mean,

Gina just said it on the last segment. The retail household, you know, during the pandemic and otherwise was flushed with cash. So what what do you start to do? You say, Okay, I'm gonna get in on some of the stock trading and I'm gonna understand how to do it. And robin Hood has created a phenomenal customer acquisition machine. The way that they put the app together, how easy they make it to trade, how easy they make it to open

an account. It's seamless, you know, it's very well done in terms of having that beginner trader really have the opportunity to go in and buy some shares. So you know, there is some there are some different things that you know, we should talk about in terms of the risks involved to the you know, to that first time investor. But you know, I plaud them in terms of the customer acquisition and just the explosive growth they've demonstrated over the

past two years. So I want to talk about the risk which just before we get to that, to pick up on what you just said, how much of this is because we were trapped at home and a lot of people, particularly frankly maybe some younger people got some checks from the government they wanted to put him somewhere. Ye. So I think it's to be seen in terms of how many stick around and how many continue to do this post pandemic. But I do believe that it's here

to stay. And once you show individuals and you start to educate them on dealing with their finances and how simple it can be once you start with a bank account and budgeting, and then understanding where stocks and bonds and other asset classes can fit. As you continue to grow and become a more savvy investor. I think places like robin Hood have really open doors for people, so I do expect a great deal of that to stick around.

So give us a minuteor two on the risks. And as we talk about the risk, one thing I'd like to focus on is it a risk to the investor, which is serious we want to take about. Or is there a larger risk to the system that goes beyond

the individual investor who might lose their money. So so I think there are both actually, so just taking the the individual investor first, which has always been, you know, my focus, I think that first and foremost, there has to be the education they have to understand that when you invest in stocks, when you invest in crypto or

other asset classes, there's a complete risk of loss. Right over the past couple of years, and and sort of the growth that we've seen some of the meme stocks, the amount of money that can be made on trades, it's been rather fantastic upside for everyone involved. So you see your friend makes some money, what are you gonna do.

You take that stimulus check, you take the extra dollars, you open up a robin Hood account, and you get on the train right and you continue to make money, but there is that downside risk, and it's that downside that I think it's incumbent upon all of us work in financial services to really help that new retail investor understand what it is that you're doing, Understand the options that they have to invest to trade. Does that fit with their overall profile? Is that part of their budget?

Can they actually afford to lose the money they just put in the stock market? And we've all seen indications of those dollars turning very quickly from the profit to a serious loss, and that can be very damaging if those are the only funds that you have in your bank account. So so that that's sort of the individual side, and I just hope that we continue as as a group to focus on on education more so than gamification. Thank you, Carl. That's former E tre CEO Carl Rossner.

Coming up. Does Netflix keep on going now that we're able to get out of our living rooms again? We talked with tech investor Roger mcnabie about why he is still a believer. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from

Bloomberg Radio. Netflix was out with its earnings this week, and it under impressed investors because the growth pattern didn't look quite as robust as it has in recent quarters, but also raises questions about these big tech companies have come from almost nowhere, but what their future is in terms of growth, but also frankly in terms of government regulation potentially. We're welcome now somebody who comes from this industry.

He is Roger mcnamei. He is a co founder of Elevation Partners, and of course he is the author of the famous book Is Sucked about his experience with Facebook, and yes, I think it's fair to say some questions he raises about Facebook. Thank you, Roger very much for being with us. First, let's start with Netflix, and I understand you actually own some Netflix. You like the company, so give us your sense about where a Netflix is

and where it's going. So, David, I think the big issue for Netflix is that they won round one of the streaming wars, and that has forced every major media

company into the marketplace. And as I think investors, no, well, Disney and Apple, HBO have come in with really strong offerings, and Hulu and others are coming up as well, and so from Netflix point of view, they've gone from having the space to themselves to having to compete against people who have real libraries, real content, and are generally speaking,

very well financed. And to me, the sense earlier this summer, you know, over the last couple of months, that quarantine was coming to an end and that the pandemic was over, meant people were going to watch a lot less TV than they were watching when they were quarantined at home. So it's not surprising that this quarter showed a lot lower growth in new subscribers. But I'm afraid that the pandemic isn't over and that Netflix is still the strongest

player in that marketplace. So I do expect the company to rebound from this, and I think the future is still bright, albeit with a lot more competition than it had in the past. Yeah, Roger, I must say it certainly is the strongest in this space. The question is cann't maintain that or not, because as you say, a lot of people will come in. Warren Buffet likes to

talk about a motor around the business. Does it have a motor around the business or is the more just spending money hand over fist and new content can to keep that up well. To be clear, that strategy has worked unbelievably well, and I don't know why it would stop. I think they have really large advantages there, you know, relative to Disney in particular, and actually I think this

is true of HBO as well. Netflix really does have a new programming advantage, and I think they understand their audience better and they just have a lot more experience of doing this now. At the same time, I think there are other markets in which they can expand their testing things around games. I think that, you know, conceptually, you could imagine them eventually getting into other forms of streaming, you know, podcasting or music or whatever. And I don't

think that they're locked into anything now. I think the brand is really good. I think that the team there's just demonstrated time and again that they have a much clearer understanding of what the audience needs than any one else does, and I think that's still true. At the same time, we have to be cognizant of the fact that not everybody is going to wind up with an infinite number of streaming um streaming subscriptions, so Netflix is

going to have slower growth eventually. But I think it's going to remain an extraordinarily high profit margin business and I think it's position in the marketplace will remain solid even with all the competition that's out there. Roger, you raised the issue you mentioned gaming for example, does Netflix have to have while i'll call a second arrow in

its quiver. I mean, certainly you talk about Disney, what everything would strengthen Otherwise they've got several lines of business that can really cross subsidize and really support them through lean times. Does Netflix have to go the way perhaps for of Uber when they said let's be Uber eats, not just Uber Well, to be clear, I think Luber is a terrible business, and each time they're expanding, they're looking for a market that is going to have legs

for a long period of time. I think Uber is frankly, you know, the triumph of unlimited capital over a terrible business idea. The the situation Netflix is couldn't be more different. It's a very substantial business, and I think the question is less do they need the air on the quiver? Rather are their errors that they could put in their quiver if they want. And I think the answer to

that's an emphatic yes. At the same time, again, I think investors need to be changing their expectations for these large Czech tech companies. I don't think the kind of growth rates we've seen in recent years are going to be sustainable. And this isn't just about streaming. I think that's gonna be true everywhere. Roger. We also have a government in Washington it's paying a fair amount of attention to big tech companies, including places like Google and Facebook

and Amazon. What kind of risk or even opportunities could that post and let me there is one possibility with you when it comes to Netflix. We have this executive order out that's really from the President saying he doesn't like rgers very much these days. But that benefit Netflix because as the largest player, it may make it more difficult for some of the other players to get together to challenge it. So, David, I think that the situation with the government is really different today than it was

even six months ago. So the Biden administration brought a professor from Colombia named Tim Woo into the Council of Economic Advisors. It then appointed Lena Khan, a tech reformer, to be the head of the Federal Trade Commission and had announced it was going to appoint Jonathan Cantor to be the head of the Anti Trust Division of the

Justice Department. These are three extraordinary people, all serious tech reformers, and I think what investors need to understand is that anti trust is the most pro growth form of government

intervention on Earth. Historically, it's been fantastic for investors. It does require changing your investment strategy, but what winds up happening afterwards is the target companies tend to growth more slowly, but they still grow, and then you get whole new industries that come out of the history of that in technology has been a hundred percent of the time, and he trust has led to a new industry and great new wealth opportunities for investors. So we should be embracing it,

not fighting it. The problem in tech and this is really a huge issue for the Internet platforms, but I think it's much broader than that effects artificial intelligence, It affects facial recognition. A lot of the new technologies we see out there that there are serious consumer safety issues, and I think the industry is today where the chemicals industry was in fifties, where the garment industry was when

it depended on child labor. You know, where the food and drug industries were before the creation of the f DA, when food and pharmaceuticals were unsafe, Where the railroad industry was before the regulation of that industry. So I think this is it's the right time. That this industry has undermined public health by amplifying disinformation about the pandemic. It has undermined democracy by being platforms for the creation of

things like Q and on and also the insurrection. And these are really serious issues, and I think the thing that investors need to do is to recognize that there are at least three tangents that the Biden administration can do without any kind of new legislation. There is an antitrust case that the Attorney General of Texas has created against Google and Facebook for price fixing in the advertising market.

That is a really serious issue. And if the federal government takes on that case, they can pursue it as a felony. And price fixing is the worst economic crime you can commit, and so the standard remedy is three plus years in prison for each count. And if I read the Texas case properly, there are two counts they're affecting the executives at Google and Facebook. That's a huge dealing.

Investors haven't focused on that at all. Where that's really really good advice certain people should taken into account and decide making their investment decsions. Thank you so much to Roger mcnamey. He is co founder of Elevation Partners. Finally, one more thought, when is a delicacy just a pain in the neck. Pity the poor organizers of the Tokyo Olympics. When Tokyo one it's bid back, there was no way for it to know that it would be in the

middle of a once in a century pandemic. And let's be frank, as great an honor as it may be, it's not always been a great business proposition for those cities holding Olympics. But then the pandemic hit and pretty much no one wanted to travel to Tokyo a year ago, or for that matter, anywhere else, so Tokyo had to be postponed a year, upping the cost to over fifteen billion dollars. And those those are the official numbers. A government audit suggests it may be more like twenty five

billion dollars, and it's not just the expenses. COVID is hitting the top line as well. A COVID surge in Japan means that there won't be anyone in the stands, leading to a loss of some eight hundred million dollars in revenue. But despite it all, Tokyo has stayed the course, even sticking to its brand name. Although that means that Tokyo will actually be held in and the games have begun, complete with all those COVID tests and quarantine and some

athletes testing positive and having to drop out. And if all that weren't enough, now they have to contend with oysters. Yes, I said, oysters. It turns out that the waterway where the canoeing and rowing events will take place may be infested with rogue oysters. According to the Washington Posts, a trial run back in showed that the devices that they have to have in the water that's to prevent waves from ruining the competition, while all those devices were sinking.

When Irish went down to investigate, they found thirteen metric tons or over thirty one thousand pounds of oysters had attached themselves to the equipment. They've now spent about one point three million dollars that's so far to keep the equipment on top of the water rather than under it,

but there's no guaranteed that it's all gonna work. It's not much of a consolation that this particular type of oyster, the maga kei or Pacific oyster, is considered by some to be among the best in the world to eat. They don't want to eat them, they just want to keep them out of the way. But then again, maybe they shouldn't be eating them anyway. July doesn't have an R in it, does it? That does it? For this episode of Wall Street Week, I'm David Weston. This is Bloomberg. See you next week.