Bloomberg Wall Street Week: Krishna, Fiorina, Yergin

Johnson sec Chairman J Clayton. Bloomberg wool Street Week with David Weston from Bloomberg Radio Markets struggled a price, political risk of an election, a sick president, and stimulus that never seems to come. Welcome to Bloomberg Wall Street Week. I'm David Weston. It all began in with a backrob That was the name of the original algorithm the Google founders, Larry Page and Sergey Brin, developed first as PhD students

at Stanford University. Page had a vision to rank links resulting from an Internet search by how often they were linked by other pages. In paper, Page Brind made a case against ad supported search engine, saying, in general it could be argued from the consumer point of view that the better the search engine is, the fewer advertisements will be needed for the consumer to find what they want.

Google went public in two thousand four with evaluation of twenty seven billion dollars and a perspectives that included the company's declared code of conduct, don't be evil. By that time, Eric Schmidt had been brought in as CEO, but Larry Page and Sergey Brin still charted the company's course as a tech giant. In two thousand five and two thousand and six, the pair expanded Google's reach by acquiring Android

and YouTube. Larry Page officially took over a CEO once again in two thousand eleven, but stepped aside just a few years ago in two thousand fifteen, when the company restructured itself as Alphabet. Alphabet is now an Internet search giant, serving as the parent company of many businesses touching on many parts of consumers daily lives. In a report targeting Alphabet, Apple, Amazon, and Facebook, house panel seeks sweeping reforms to curb the

tech giant's power. Carlie Fiorina, former CEO Hewlett Packard, says that the regulatory scrutiny is the new normal for Silicon Valley. I think if you look at where innovation traditionally has come from, it has come from the smaller startups. After all, that's what Google wants was, That's what Amazon once was, That's what Apple wants was, that's what all these companies

Facebook wants were. And it's also true that these huge technology companies now have a great interest in leveraging others innovation, but they do so by buying them up. That's what they have done. And finally, I would say it is undoubtedly true that these companies have a market power and

a power over consumers, not to mention consumer information. That's really all the unprecedented, and so I think they can Technology companies can no longer make a credible argument that somehow they are in a different category, that if you do anything to Internet based companies in terms of regulation or oversight, that somehow you are going to curtail their growth.

I just don't think that argument rings true anymore. And that's why I think strategically they need to think about how to be a part of this conversation instead of just saying no, no, there's nothing to see here, there's nothing to do here. That's not going to fly Carlie. You mentioned earlier the leadership of some of these companies. Let's talk about leadership right now. How do you lead a company that arguably is winning by too much. You had a phenomenon with IBM, You could say that happened

with you could say it happened with Microsoft. What can a leader do in that situation? Well, first, I think I don't want to be too critical here, but I do think that some of the leaders of some of these companies have um damaged their case a bit by being we now know less than forthcoming about what was

really going on. And so we've seen I think too many instances where leaders have come before Capitol Hill, and let's face it, that's not a pleasant experience for any CEO, and CEOs get very outraged about the hypocrisy, all of which is deserved. Nevertheless, when a CEO is found to be less than forthcoming, that's not helpful to their cause. So I think the most important thing for these tech ceo s to do is to decide strategically that the best course is not resistance at all costs, but instead

to try and be part of the solution here. You know, I started my career out in telecommunications, and there was a long period of time where A T and T as the big power, resisted at all costs being part of solution. That resistance cost them in the end. And so I think these CEOs need to think through what are they willing to live with? How can they influence the legislative process here on both sides of the aisle

to come up with something that's gonna work. But just leave us alone isn't politically feasible anymore, and I think the economic arguments for just leave it alone, honestly, are no longer completely credible. Just briefly here the conclusion, Carlie, is it a plausible defense to say we've got to re about China? Well, yes and no. I mean yes, of course we do need to worry about China, and that is why our approach to China must be consistent

and persistent and strategic. And that requires collaboration between government and business, which hasn't always been in evidence over the last twenty years. It also means that we need to be consistent across administrations when we deal with China and between parties, which we haven't always been. However, these tech companies are winning globally. It's why the European Union has taken some of them on, and so that argument is important, but I don't think it will be successful in saying

just leave us along. That was Carly Fiorina, founder and chair of Carly Fiorina Enterprises, coming up. The tech company that's constantly evolving, IBM is taking another step forward becoming a major cloud services provider. CEO Arvid Krishna says this is just the beginning that's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. It's one hundred one year history. IBM has reinvented itself to stay at the top of

its game. This week, the company did it again with its announcement that it would be spinning off its infrastructure services unit to focus more on cloud computing and artificial intelligence. Arvin Krishna, who took over as CEO in April, has said he will pursue growth relentlessly, and his services business has been struggling during the pandemic. I asked him how this shift fits in with his vision for IBM's future.

When I first became CEO, I talked about our commitment to growth, and I talked about a maniacal focus on hybrid cloud and AI. As we look at that market, that's a trillion dollar addressable opportunity, and as we look at our client buying behaviors, they are changing. How to do application modernization and how to buy infrastructure modernization is separating. So that says it behooves us to unlock growth by creating two companies. One company focused on hybrid cloud and

AI and the other company focused unmanaged infrastructure services. So, in the first company, the platform, the open hybrid cloud platform that's based on red Hat technology, all of the software that gives clients the capability to leverage that platform. Then going from there into all the services they can

use to do their journey to cloud. You put all that together, that's going to be IBM, together with the infrastructure that they run their most mission critical services on, and that company we believe will deliver mid single digit growth in a sustainable way in the medium term. The other company, we're calling it new code because we don't have a name for it yet, is the managed infrastructure company.

On day one, twice the size of its nearest competitor over four thousand clients in a hundred and fifteen countries and counting really enables it with a investment grade balance sheet to go out and take share and be on an improved growth tragic tree. So David, really exciting to be able to do this and yet again reinvent our company for the future. So are when you talk about growth, and you have consistently said that is the question of growth for IBM. Compare those two companies. You said mid

single digits for the one. Are you expecting much higher for the hybrid cloud and AI company to do? My aspiration and my goals for the company will always be higher. We're going to invest to be able to unlock even more growth. But I think it's prudent, given where you've been for the last few years, to be able to

put a target out there. So I say in the medium term, So think uh, in the in the medium term, not the short term, because we've got to execute the spin and then do all the work ready to be able to generate that And so I would say that that's a milestone. Maybe go for higher, that's certainly possible, but I think it's prudent to be able to commit things that we have high confidence in I be. I'm sure it immediately. It took a step up on an announcement of this news. How am I? This is a

question of valuation. How differently are cloud companies valued by the marketplace right now as opposed to information services companies. So if I look at it UM previous announcement, we have a majority services company. Post this announcement, um IBM will become over half as a software and solutions company and even a larger number in terms of overall product.

And if I look at the annuity based on the new company, it's about a little over So if you look at that, that's a very attractive company that promises a different valuation than the current structure. So that is a piece of it. But I think it's actually more the growth and the addressable market opportunity of a trillion dollars that I think is driving it. But David, you're closer to that audience than probably I am in terms of how they think and how they react. Son, what

will be the relationship continues two companies? Will they be contracting with one another? Will they be free to contract with other people that might be a competitor of their sister company vote. So absolutely you unlocked growth for both companies by being allowed to partner with those that maybe competitors. Certainly for NUKO they may today not so much to be restricted, but others who are competitors of the aggregate may feel reluctant to partner deeply with them. That gets unlocked, No,

no constraints, no restrictions on that side. That said, I think it's likely that each other's biggest customers on day one, day one post spin, they certainly purchase a lot of hardware and software from IBM. IBM certainly purchased the services from NUKO in terms of how we run I T infrastructure and so on. So the two companies are going to have a deep strategic relationship, but that is not going to constrain them both from pottering with whoever they

want to. Arvin, what can you tell us about the leadership of the two companies going forward? Who do you expect to be the leaders that to assume you're one of them? And what about Jim Whitehurst from Red Hat what role will we he have going forward? So both Jim and myself remained with ib AM and a lot of the leadership. Who runs the businesses at IBM is going to stay at IBM. The leadership who runs managed

infrastructure services goes with MUCO. Now, as you know, in these spins, the board, the government structure of IBM stays in place because the company is staying in place. In the new coal we have to create a new board. Once the new board is formed, they'll be able to select a stop management team. We certainly expect that they will select many people from the current management team. But as that goes forward, the new board of the company

will select the overall leadership. But in terms of the day to day operations, a lot of the people are in place. They run infrastructure services today and they will continue to do that RF and you clearly want to gain some growth by freeing up the hybrid services and and the AI part of the company. Do you also run the risk of losing some of such a cross selling have customers you can cross sell both sides of your business. I think that that's a risk that can

be managed, David. So the word I would use is I don't have any concerns about it. And then I was gonna say, of course I'm going to be parted out about it, and I've gotta have lots of work around it, and so I'm going to mitigate any of that risk in terms of how we work um. There are certainly common clients across both sides of the business, but the clients tend to contract separately for the different parts of the business already, so we have to go

manage that risk. But as I said, also the two businesses that will have deep in strategic relationships with each other, and that will also help mitigate that part of the risk. So I think we'll unlock growth and I think that the risk on the aspect you mention can be mitigated. This is obviously a very big initiative of IBM. It will take a while, I'm sure to put it all together to digest it. When do you expect the spinoff

to be effective effectuated? We believe based on history and looking at others who have done similar spinoffs, they seem to take about a year to get done, So I'll say a year plus minus a few months. So that takes us into the latter part of We have to get through all of the structure of the new company. We have to file to the SEC. There stands we expect that will happen somewhere early to mid part of next year. You get to get through all of those approvals.

You've got to get to a final board approval, and that then allows us to to impact all this. But I think twelve months plus minus some number of months is probably a good timeline to expect. That was Arvin Krishna, CEO of IBM coming up. Energy policy is one of the major issues that separates President Trump and former Vice President by Dan Jurgen, vice chairman of I H S Market, says the future of energy might be out of either of their hands. That's next on Wall Street Week on Bloomboard.

This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. President Trump and former Vice President Joe Biden have very different ideas is about energy policy in the United States. President Trump wants to solidify America's position as a top oil and gas producer and democratic now and new Biden is setting his sights on reducing the company's reliance on fossil fuels with a two trillion dollar climate plan.

Dan Jurgen, chairman of I H S Market and author of the new book The New Map Energy, Climate and the Clash of Nations says that there is an inevitable energy shift underway. The Trump administration has been focused on this new position the United States has as the world's number one producer of oil and gas and what that does for the economy and what it does for the

position in the world. Joe Biden has a two trillion dollar Climate Action Plan which is very focused on addressing climate things, and I think in terms of oil and gas,

it's a little unclear where where he is. He made a point to say when he was in Pennsylvania, where there are a lot of jobs related to uh fracking as it's called, that he's I'm not going to ban fracking, but clearly it's it's a pivot towards climate and I think certainly more regulation around oil and gas from what you know of the technology and the development and the markets, because the market drives it as well with the prices. Is this sooner or later that we're gonna have a

fundamental shift away from fossil fuels. I think it's an evolution that's going on. I think you mentioned electric power, and I was recently with a bunch of the leaders of the electric power industry. They do look to be net zero carbon by or many of them are moving that direction other parts of it. I think it evolves over time. There are two eight million cars in the United States and about two hundred seventy nine million run on gasoline, and I don't think people are gonna throw

away their cars. So I think it's this is the longer evolution. And I think there's what's happens in the US, But the US remembers only fifteen percent of CEO two emissions, China's twice that. India other emerging markets are looking towards commercial energy to get away from burning wood and waste in people's houses with the health consequences. So I think this is something that unfolds time directionally. Where it's going, that's clear directionally, the timing really matters, and the bets

can be rather substantial. In your book, you point out how many jobs you know, I think there's ten million are tied to the energy industry. We also have trillions of dollars globally who's putting bets on which side of this? And we saw a report that Exon, basically internal documents leaked suggests that EXON is not moving as quickly as maybe some others away from fossil fuel emissions. China certainly might benefit. You point out in your book Russia, maybe not.

Who's betting on which side of Well, let me say I think the X and thing. Of course that's still unfolding story. But I think what's happening is all major companies now are looking at their at their at their emissions and saying what are they going to be? And

then the question becomes how do you mitigate them? And in the in the new Map, you know, there's this whole chapter called Breakthrough Technologies, based upon the work that Ernie more Needs, a former Energy Secretary, and I did for lead for Bill Gates Foundation and Breakthrough Energy Coalition about the technologies we need. And one of them that's really very major is what's called carbon capture carbon mitigation.

Simply when you look at the numbers, and I think that's where you know we're going to see increased UH investment going in terms of research on that to meet it. In terms of countries, China is a significant winner here because it, unlike the US, it imports its oil and it regards that as a major strategic problem, particularly in the geopolitical issues that are now developing, and it has a dominant position in many of what might call that

they call the new energies. For instance, about sevent the solar panels of the world are made in China, another ten percent by Chinese companies, and it's Chinese manufacturing that's partly responsible for this revolution as solar costs which have come way down, so you know, they would be a

big beneficiary of this. One of the things that I was surprised I learned from your book is the Department Energy under President Trump is investing an awful lot of money in research, science and research, some of which actually has to go to renewables, right, uh six and a half billion dollars in UM in basic science research. And that's the foundation, really the true foundation of an energy transition,

and that's been pretty consistent. That has been one area of bipartisan cooperation in seeing the importance of maintaining that commitment. And this is where the u S strength really comes from, which is we have this incredible ecosystem that goes from seventeen national labs that kind of expenditure, universities, companies, startups. No other country has that advantage in new technologies, take

wind and solar there. Those are fifty years old industries, but it's only in the last ten years that they've really become so competitive. So it takes time, and so the investment you make now really pays off, but it can take ten or twenty years from now. Dan draw one other contrast that again I got from your book, the New Map, and that is between Russia, which is very dependent on fossil fuel's goodness knows, and Saudi Arabia, which is also very matter but they have that vision

campaign going on. Does Russia have anything similar to that about what ms after fossil fuels? No, I don't think so. I mean, the other day Vladimir Putin said, it's great, O our budget is only now thirty percent to oil instead of being oil that money coming from it. But I think Russia has been talking about diversification for UH for twenty years since Pootin came to power, and it's really not happening. In fact, I was at a conference

where I asked Putin that question. He and Chancellor Merkel were on the platform about diversification, but we got sidetracked whose I mentioned shale, and he really doesn't like US shale, so he gave me his, uh, his his opinions on that, which were pretty strong. That was Dan Jurgen, chairman of I h S Market. Coming up. We wrap up the week with our special contributor Larry Summers. This is Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week

with David Weston from Bloomberg Radio. As we do every week, we welcome now our special contributor, Larry Summers or Treasure Secretary talbut makes sense out of this week, And I have to say, let me start Larry with the drama maybe soap opera of the of the Simulus bill on again, off again sometimes. In the same day, we had President Trump saying I'm walking away from the table and I want to talk about it. We had Nancy Plosi tell us here at Bloomberg, I'm not doing this. It's a

big deal. And at the very end of the week, President Trump came back and said, no, I want to do more stimuless than anybody. I want to do more than Nancy Pelosi. But in the end, do we need it, David, We do need it. It's very clear that it's the right thing to do. Look doing without stimulus at a moment like this is kind of like waiting into a

crowd not wearing a mask. In the era of COVID, it might turn out just to have been a mistake for which you didn't pay a price, but very likely it will be a mistake for which you will pay a very big price. They are all kinds of lines that the fast bounce back that the economy was enjoying isn't going to continue. Of its own devices. COVID's getting

further out of control as we moved to winter. Financial strains are increasing and interfering with the flow of credit layoffs, which people hope to avoid their bowing to necessity and uh laying people off. The situation globally is complex at best. Stimulus is recovery insurance, and nothing is more important than maximizing the prospect that the recovery continues and so learning. Given that, and the markets were up. The SMP was up the most since July this past week, and it's

had two weeks up in a row. The markets basically saying we're gonna get the stimulus sooner or later, no matter what, because we think maybe Joe Biden is gonna end up being president. If you look at the internals of the mark that there are signs in UH that direction.

The companies UH, for example, those involved in green technology that are thought most likely to benefit from the kind of recovery program he would propose, are up disproportionately relative to other companies, such as those in very brown industries, where there's the sense that the company depends more on the Trump administration. So I think the expectation of Biden

stimulus is an important part of it. The expectation that if the economy starts to melt down, the FED will have to go into more rescue, and the feds rescue tricks are basically about credit, and that benefits stocks much more than it benefits workers. And so some of it's a bet that we're gonna have to rely on that. But anyone who said the stock more markets up, therefore

everything's okay is a fool. And you saw that this week when when there were moments when it looked like we weren't going to get stimulus now and we weren't going to get stimulus soon. Um, those were the moments when the market was weakest. And learn I have to give you credit here on this program. Earlier, some time ago, you said the chances were larger there be a blue wave, that is, say, the Senate would go Democrat as well as the president. Those were a larger atset of odds

than actually the possibility of Donald Trump getting reelected. But let's go to the other big risk out there, which is COVID nineteen, which we see rising once again in the United States. You say, we need stimulus for the economy. What do we need to battle COVID nineteen. We need to do the things that the rest of the world has figured out to do. You know, it's amazing. I

had occasion to see the statistics on Pakistan. Pakistan is not a country that's known for its competence and aptitude in getting things done effectively, but they are doing much better than we are in terms of containing uh COVID. Some of this is a broad cultural thing that in America we focus more on private health, and we be well advised to focus much more on public health in all of its various dimensions, like preventive medicine, like investing

in socioeconomic the depressed populations. That's a part of it. But the other part of it is raw, unadulterated in competence in rolling out tests in encouraging people to do dangerous things in leaders role modeling uh cataclysmically bad uh habits. I mean, let's be clear, in the same way that everyone knows that you tell your kid not to drive when they're inebriated, you don't go looking for COVID by

waiting into crowds. Were at potential super spreading events with no masks, And we are reaping what the President of the United States has suwn uh here, and it is inexcused. It is inexcusable. And there's more people that you know, there are more people than died in the Vietnam War and every war since who would not have died if we had managed to function at an average level of competence, not not a high level of competence, an average level

of incompetence for industrialized countries. So, Larry, we always want to conclude with a lightning round here of a few things. Let let's figure out who got who got too much? This week, we're pointing towards the airlines getting too much.

We do need to keep the planes flying, but there's no reason why we need to keep the stock prices and the airline's up, and there's no reason why people who bet on airline bonds uh an airline credit earning a seven percent spread, Because it might be risky, they should take the consequences and not get paid back in full as part of any bail out. And there's a bipartisan error being made on that. Okay, so the airlines are getting too much, who's in risk of getting too little?

Right now? Who's getting short change in the economy? Women? Uh, This, everything about the COVID recession is particularly burdensome for UH women. You've seen the female unemployment rate go above the male unemployment rate for the first time in a very long time. You see it in what people with careers are experiencing, because it's women who are just proportionately bearing the burden of kids who are still at home, and that's a

very costly thing for our country's future. The successful assimilation of women into the labor force over the last decades has been an important thing that has driven our economy forwards. And if that stops, that's gonna matter long after we somehow put COVID behind us. We're seeing a lot of contests, certainly in the United States of American around the world. We have presidential contest going on. We saw that vice

presidential debate earlier this week. So in all these contests, who's winning at this point authoritarians perhaps Ji Jin King. Look American democracy, democracy in the youth, k um democracy in Brazil, democracy just isn't looking like it can keep people secure. The central challenge going forward is making sure the government by the people also actually is government for

UH the people. And when you see things like our incompetence in dealing with UH COVID, when you see the magnitude of the way leaders in the United States and not only in the United States are pitting one group in the population against another UH group in the population. When you see the magnitude of the differentials that are arising between rich and poor, ten years of life expectancy, the equivalent of three times the total burden of cancer.

When you see all of that, it's got to be thing that makes our adversaries who believe in authoritarian systems feel like their example is managing to win out over ours. And going back to John Quincy Adams, to George Kennon's strategy for winning the Cold War, to the most thoughtful diagnoses of why the Berlin Wall came down. It has come down much less to the power of our arms than the power of our example, and our example is in more tawdry disarray than certainly any time in my lifetime. Well,

that's pretty sobering but very valuable at the same time. Arms. You can see what we turned to Larry at the end of the week, because he really has wrap it all up, goes around the world and explains it all to us. It makes some sense of it. We hope, in fact, that things get a little bit better and the fact that authoritarians don't end up winning the Larry

Summer's former treasure secretary predicts. So that's going to do it for Wall Street Week for right now at an eventful week in which an awful lot happens, only good some of them but not so good, but all of it affecting the markets. And that does it for this edition of Wall Street Week. I'm David Weston, This is Bloomberg. See you next week. Adopt