Bloomberg Wall Street Week: Mnuchin, Rattner, Summers

coming out of Congress. One of the big questions I think on investor's minds inflations through the eyes of the most influential voices, Larry Summers, 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. It was the dog that didn't bark, at least not yet, as natural gas prices, a Chinese property collapse, and a US debt default all reared their ugly heads and then

went back to sleep. This is Bloomberg Wall Street Week. I'm David Weston. Despite those disappointing jobs numbers of Volatile Week and equities showed a modest gain for the week overall, with the SMP up a bit under one percent in the Dow up a bit more than one percent, But there was more action with the ten year tree as yields went up for the seventh straight week, ending up over one point six percent. To take us through the week and the longer term prospects for investors, Welcome to

Stephen Ratner. He's chairman and CEO of Will and Advisors, which invests the personal and philanthropic assets of Michael Bloomberg. He's the founder majority owner of our parent company, and Joe Anne Feenie, partner in Advisors Capital Management. Joe, and let me start with you. As I said, there were a lot of little spooks this week. We're a little nervous about things. Are there real risks out there that just happen to go away for the time being, or

did we overreact? You know, David, it's as if investors just woke up and realized that the stock market is a risky place. You know, you see COVID having surged for a while, You see a slowdown economic growth because of all the shortages we're having. You know, people are now paying more attention to inflation and recognizing that interest rates will eventually have to move higher, and you know that that has created a bit of volatility. It's volatility

that you know, if we think back is actually pretty normal. Uh, And so you know, yes, investors got a little bit nervous. We saw also volatile little we've seen you know, growth Bow continuing to outperform as investors run to some of the bigger cap stocks that appear to have a longer

runway of secular growth ahead of them. So, Steve, what about you, you're a longer term investor, as you sort through this, which are the false negatives and which are the ones that you're really worried about in the longer term. Let me start with the ones that I worry about. The thing I worry most about is inflation transmitting itself into higher interest rates, interest higher interest rates being the enemy of the stock market and of investing in general,

and that, to me is the singular biggest risk. There plenty of other risks, but I do think for the foreseeable future we're on a positive growth growth trajectory. Is still an enormous amount of excell calling you can call it access or surplus or whatever you want to call it,

money rattling around in the economy. Government transfers money that people didn't spend last year during the lockdown and so forth, And so I don't think there's any growth issue, but I do think there's a serious inflation interest rate risk out there. So Joan, let's pick up on of that specifically. I talked to see the Nut in the former Treasury sectary this week and he said he thinks the ten years going to three point five in part because he

agrees with Steve he's really concerned about inflation. Is the stock market ready for three point five percent in the ten year yield? Well, we've already seen some pullbacks in some of those higher multiple stocks because investors are finally realizing that market interest rates right here are too low, and the fan has made it clear they're gonna get the taper their purchases and they're gonna hold away from

raising short term rates. But as they taper, the long term rates are are going to start to rise, and we should expect that the filter into higher multiple stocks. Those are the stocks are going to see the biggest declines in their multiples. And that's why we advise our clients to make sure if you're gonna own expensive stocks like that, make sure they have very good growth profiles, you know, which a lot of them do. But yeah,

it's a risk. I think it's an asymmetric risk across the stock market because not all stocks trade at multiples that are vulnerable to rising interest rates, but some of them really are, and so investors really need to stay away from owning concentrated positions and all those stocks that it's so well during the heart of the COVID crisis, So Steve, the consensus seemed to be in response to those very disappointing jobs numbers that in fact, it wasn't

going to deter the FED, which seems to attracted to start tapering perhaps November, the next meeting they have. At the same time, if the inflation really is worse than what the FED is understanding, is there a danger they'll have to really react much more violently when it comes Well first, I think it's I think it's risk you to try to read too much into any month of jobs numbers. This month had a bunch of abnormalities in it relating to UH people teachers and school employees going

back to work in September and so on and so forth. UH. The labor force participation number was very disappointing that people are actually still dropping out of the labor force, not coming back into the labor force, So all of that obviously does push you onto the slower side of the economy. But on the other side, um, I do think I don't think it's a question of when the FED decides

the taper. I think it's a question of when the bond market decides that inflation is now the biggest concern rather than slower growth, and the FETE is going to end up, perhaps in a reactive position rather than a leading position on that issue. Joanne, if that is a risk taking in account of all the other risks as well, what specific stocks do you do you like at this point, Well, there there are several to choose from, depending on what

you're trying to accomplish. We try to add a few different elements secular growth stocks that can hold up against those inflation increases and interested increases. Steve, I understood you were saying at the beginning, you're not so worried about the growth pattern as you are about possible inflation. But

talk to me about China. Am I overly focused on Evergrand and the Chinese property market, because I've seen some remarkable numbers about how much of Chinese growth is depending upon that property market, and therefore how much of global growth is because we defended so much on China over

recent years. Well, you're certainly right to worry about everywhere, and the problem with China in general, Ever Grand certainly being an example of it, is there's so much opacity in China that it's really hard to know what the facts are, what we should even be worrying about. I think the Chinese. Look, I think everybody on the planet is aware of the ever Grand problem. I think the Chinese is certainly aware of it. I think they're trying

to manage their way through it. I would be cautiously optimistic that they will be able to manage their way through it. They have a lot of tools at their disposal, they don't have to deal with Congress and so on and so forth. But but it is certainly, it is certainly a risk. But let me mention just one of the risk quickly, which I've meant to mention before, which is the risk of corporate profit margins. So I agree that as or as I said, growth is definitely happening

out there. But the question is really where the companies are going to continue to be able to pass along the increasing costs of their raw materials and their other and their other supplies, and that is an issue for corporate profits and then obviously for the stock market. After that reassuring note to finish on, thank you so much to Joe and Feenie of Advisor's Capital Management. Thank you

so much to Steve Ratner of will A Advisors. Coming up, the investment opportunities in fintech and the need for crypto regulation from a new player in the space, former Treasury Secretary Stephen Manuchin. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. Fintech, everybody's talking about it, even if we're not always sure what it is we're talking about. For some, it's all about cryptocurrencies with all the promise and all

the uncertainty. Here's Don Fitzpatrick, Sorrow's fund management CEO. There's two million users around the world. Um so I think this has gone mainstream. For some, like Citadel CEO Ken Griffin, all that uncertainty keeps them from even touching crypto. We don't trade crypto because of the regulatory uncertainty. For others, it's not about cryptocurrency as such, but about a better way to transfer money and settle accounts. Here's Bank of

America's Brian moynihan and Aperture investors Peter Krauss. One half the money moved by consumers today a Bank America today has moved digital one half. The more interesting aspect of cryptocurrency is not the fact that it is a speculative value, but did it's a mechanism by which you can actually trade, settle,

and effectively record transactions immediately or instantaneously. That's the much more valuable part of crypto, and some see the move to digital currencies as a way to democratize all the finance, removing some of the costs and frictions that keep much of the world's population out of the system. That are many frictions and international finance and domestic finance. Many people don't have easy access to digital payments. You know, in the US you need a debit or credit card or

a bank account to have access to digital payments. International payments are still beset by lots of impediments. They're expensive, they are very time consuming, it's very difficult to track payments. So there is a real need for better digital payments. That was Cornell professors. But however, you regard the move to digital of our financial systems, the one thing that's for certain is that it is coming, and that as

it comes, we will see regulations shape its future. Something SEC Chair Gary Ginstler, Investor Ken Griffin, and Senator Elizabeth Warren all agree is needed. Many of these tokens do meet the tests of being an investment contract or a note or some other form of security that we bring them within the investor protection remit of the SEC. Chairperson Ginstler is spot on on the need to have thought

for regulation around cryptocurrency. If people are going to be out there trading in it, there needs to be a cop on the b Whatever we mean by fintech. Former Treasury Secretary Steve Manuchin means to invest in it through his new two point five billion dollar fund called Liberty Strategic Capital, And for the former secretary, it all begins with payment systems. But we really like the payment space. We think that's a gigantic opportunity, particularly for real time

cross border occurrences. I think the underlying technology of blockchain and using stable coins is something that's very interesting. But let me just comment because I saw a Bloomberg article on one of the big stable coins. In my view, you know, one, some of these stable coins should most likely be regulated. In two, if they're backed by dollars, they should be freely transferable, and we should make sure that they're really backed by dollars, so that dollars are

held by a custodian bank and that they're secure. Let's go exactly. I'm glad you raised that because it was a piece on Bloombergs about Tether, specifically saying that right now they have sixty nine billion tether's outstanding and forty eight billion of them were issued this year. Theoretically, that means they have six and nine billion dollars of more or less US cash somewhere. How sured are we that

they actually have that money. Well, I don't know much about Tether other than what I wrote about, and I thought the piece was actually quite interesting, but again that they shouldn't be like casino chips, that they should be in my opinion, if you're going to issue a stable coin, the actual money should go be held in a regulated bank, uh in a trust account, and the people who hold the stable coins should be able to exchange those for real dollars at any time, So the stable coins should

be invested in US treasuries or things that look like US treasuries, money markets of highly liquid backed investments. As soon as not your job anymore. It was your job. Now it's Janet Gellen's job to figure out how you should best regulate that. She's had some meetings, as you know, to try to figure out regulation of things like stable coins. From your point of view, is that something that should be the FED responsibility? Is that the SEC? Where does

that responsibly lie? Well, the Secretary of Treasury oversees a committee of all the different regulators, and that's the right place. So these issues cross different regulators. Some of them are Treasury regulations through Finsen, some of them are the o c C for banks, some of them are the FED, and some of them are the SEC. And in general, um, you know, I'm fine if people want to trade bitcoin and cryptocurrencies, but I think there should be full transparency.

These shouldn't be the equivalent of a Swiss numbered bank account, So if you're going to trade in these, they should be fully regulatory compliant, fully b s A compliant. And one of our big issues is to focus on cyber security, and again one of the problems with ransomware is right now it's way too easy to pay a twenty five million dollar ransom payment in bitcoin. You know, you can't wire twillion dollars to people who you don't know, you

can't deliver cash. I believe the regulation should be same on these other cryptocurrencies. So as you look to make investments with your fun in this area, how vulnerable are your investments to sort of regulatory changes? I mean, is that a risk and opportunity a little bit of both well, As I like to say, I've been regulated when I ran a O c C bank, and I've been a

regulate tour, so I understand both sides. We actually like investing in companies in regulated entities because we think the legal and political risk is a lot less and we think their safety in a regulated institution, particularly whether a US institution, whether it's a regulated by the O c C, you are regulated by finn Send or or regulated by the SEC. So I as an investor, would be very

careful investing in unregulated entities. There are clearly places where it makes sense to do that, but one has to be aware of the regulatory risk. To do you have a sense of the possibility of contagion. Let me be specific. Let's go back to tether promote. There's a suggestion that perhaps if tether collapse, I'm not saying it will, but if it did, it could affect other currencies. Is there a danger of contagion across cryptocurrencies, Well, let me just

say I'm less focused on the contagion. I'm more focused on there are people who are buying that thinking they're buying the equivalent of US dollars. So when you say you're buying into a stable coin backed by US dollars, there should really be US dollars there. So, whether it's an issue that drifts into other things, or whether it's just investors can't get their money back, I think that's

a big problem, and that's a regulatory concern. That was former US treasure Secretary Stephen Manuchin coming up a look inside the future of electric vehicles with the CEO of General Motors. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. General Motors held its Investors Day in Detroit this week with a series of announcements, including the debut

it's much anticipated electric Silverado pickup. We talked with GM CEO and chair Mary Barra about GM's position in the race to an electric vehicle future with the scale that General Motors has. As we continue to leverage l t M, we get the scale, we keep leveraging the science to get the cost of the battery cells down. Yes, we we have a plan is and that's why we're very confident that as we move forward through the end of

the decade, we're going to see margin growth. Mary, I want to skip over the Silverado you mentioned it there in brief. Everybody's been waiting for this. Now we've seen some pictures of it. I know you're gonna have a formal unveiling. I think at c Yes coming up at

the beginning of next year. Why glass roof, Well, I think UM one because we can UM and I think when you see the entire Silverado E, you're going to see what doing a truck off at all electric platform, not trying to retrofit off of an existing platform, opens up all new design capability functionality. I'm so excited because I think the Silverado E will be a very strong reforming truck, but it's going to bring new buyers into

the truck market, into General Motors truck portfolio. Give us a sense of what you need General Motors needs from the government, and particularly talking about charging stations, because the budget proposals that's being kicked around a capital hill includes some serious money for charging stations. Do you need that in order for General Motors to be a true leader

in electric vehicles? Well, we're investing in infrastructure, but we do think that the federal government is going to play a very important part because think about it, David, we need to make sure that someone who only owns one vehicle, who may live somewhere where they don't have designated parking, to have access to reliable charging because that's what is

going to enable them to buy an electric vehicles. So we think it's a partnership between business and UH the government to make sure we provide that infrastructure across the country. And in addition to that, we want to make sure that we see the revisions to the e V tax credit that currently right now, um you know penalizes first movers in the way it was originally constructed. So you do need some help again in the affordability from from

the government in terms of tax credits. But we think that's just going to accelerate e V adoption and we think that's a very important part of accomplishing the president's goals for from a climate change perspective, and that will expedite the adoption of e V s. And again when we have a full portfolio with many different entries at

different price points, that's why we're well positioned. Mary. One of the things we've talked about before is we think of General Or as a vehicle company, a car company, if you will, but you can see it somewhat differently. It's a platform company, and sever your announcements go to some of the software that can be put onto this platform.

Talked to us, particularly about for example, Ultra Cruz. Sure, well, you know, if if I start with looking at what our ultim platform gives us, this platform to do not only a full range of electric vehicles, but also into other markets other transportation type vehicles. On top of that, then we have the Vehicle Intelligent platform that really allows for over the error updates to almost any um you know,

part of the vehicle. Now we're launching Altify, which gives us really a platform that we could offer services subscriptions like super Cruise. You know that it's not just you buy it in the vehicle, but it can be one of those things that you you use it on demand with a subscription. So we're very excited about the business

that we're unlocking. We really feel General Motors is moved from being an automaker to really a platform innovator and the vehicle itself has become a software defined vehicle that it really is going to unlock a lot of revenue that's at different margins and really serves the customer. You said at different margins. Give us a sense put to put aside revenue and talk about profit contribution. At what point will those services contribute as much as the vehicles

will to the profits of General Motors. Well, I think if you look at you know, our internal combustion business or e V business, um, the services are are going to play a very material role. But then on top of that, there's also cruise, and we think there's tremendous growth potential as we commercialize as crews in addition to

OnStar insurance, Bright Drop and our GM defense operations. So that's why there's so much growth, and there's a different margin profile for each of those businesses that I think is going to lead to improve profitability. You mentioned bright Drop. I want to focus on that for a moment because one of the things that I think I see with General Motors is a move as well from B to C business or consumer to be to be business. You

have the bright Drop situation and their arrangement. FedEx take us through that where you are on it all again as as we look at bright Drop, what to me is so important about bright Drop. It's not simply taking an internal combustion light commercial vehicle and making it electric. It's really creating an ecosystem and allowing our customers to

be more efficient. You know, for example, in some of the piloting work we've done with fed X, you know, really working with their their truck, their drivers, and then how they do deliveries. Were able with our e palette system to drive more efficiency so they can actually deliver more packages in the same amount of time. And then providing a whole uh software system to manage all aspects

of managing the fleet. So it's really an ecosystem. It's a total solution for these customers and we've been working with them, and that's what they say they want, We're going to deliver. That's GM CEO Mary Barrow coming up. We wrap up the week as we always do with contributor Larry Summers of Harvard. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. This is Wall Stree Week.

I'm David Weston. We're going to conclude our week as we always do with our special contributor in Walltere Week. He is Larry Summers of Harvard. So, Larry, thank you so much for being back with us. Let's start with the jobs numbers came out on Friday this week, disappointing by quite a margin, I must say, although some people thought underlying it, the numbers weren't as bad as maybe they appeared. David looked. I think this fit the story

that we've been telling on this show almost exactly. We got a lot of demand, we don't have so much supply. That's why the unemployment rate came down more than people expected. That's why the wage growth was much higher than people expected. We don't have a soft economy in terms of demand. We have more of a more damage to people's willingness to work than people expected a few months ago. The

problem is that this points in favor of the inflationary diagnosis. Look, average hourly earnings this week this month rose at a seven and a half percent annual rate. That's not consistent with any reasonable theory of inflation. And with the unemployment rate lower and falling, it may even get the situation may even get worse. So I think we're in a uh very uh difficult situation. Here's one way to think about it. We've got interest rates way below their neutral level.

The FED thinks the neutral level of interest rates like two and a quarter percent. They've got interest rates close to a half percent. They've got interest rates close to zero. And I think given the vast structural changes under way after COVID, we've probably got unemployment below the natural or neutral rate of unemployment. And that's just not a combination that adds up to anything other than taking a big risk on the inflation side. So I'm pretty concerned about

where we are. So I want to turn to a different subject. Something you wrote on in the Washingt post at the end of the week, and it's this proposal actually as part of the Biden Packe aconomic page, that that the banks report to the I r S on the overall inflows on outflows, as I understand that the deposits being held basically as a way to get at some income that otherwise doesn't show up, for example on

your W two or your ten and nine. You wrote and you were pretty forceful about it, I must say in the Washington Post, explain your point of view on this, David, I think this is really an easy one. Right now, if you or I have an account in a bank, the bank reports on that account by reporting interest, so we're already sharing that information with the government, and the I r S is already learning about our bank account.

The proposal that's made is that in addition to reporting on the interest, state pay the report on the inflow when the money comes in. And the reason for that report is that we've got an epidemic of tax and non payment in this country on income that you get in a wage or a salary on a W two compliances above an income where you don't have information reporting by businesses it's below fifty and in total, the tax gap is going to cost a seven trillion dollars over

the next ten years. So the proposal is that when banks get substantial deposits, they have to report them. There's plenty of room for argument about exempting the little guy. There's plenty of room for argument about how if it's a paycheck, it's already being reported on, so you shouldn't have to report it again. Those are details that can be worked out. But when the banking industry is saying that this is some kind of major invasion of people's privacy,

this is something that's impossible to do. I mean, these are people who are like incredibly proud of the fact that they're letting you buy a fraction of a stock on your cell phone into and a half seconds. The idea that it's some kind of big burden to report a basic inflow to the I r S on an account where you already report is absurd. So Hilary speculate with me, you know these banks trely, well, what's driving if it's not the administrative word? And you sort of

dismissed that. If it's not the privacy concerns, why are they protesting so strongly. Some of it is probably that they want to maintain good relations with their customers who aren't only is honest about the tax law and don't want to be UH report reported on. You know, when you see a business do an unreasonable thing, it's often because they're in service of uh their customers. That's one possibility. Another possibility is that they're people who just don't like

taxes and don't like anything about about out taxes. Look, I think in fairness, UM, the i r S has had some privacy problems. Some of these revelations that have been show shocking have also been wrong, and I think that contributes to uh this ethos. But I sure think that the thing everybody ought to be able to agree on,

democratic and republican whatever exactly. You think seven trillion dollars over the next decade in taxes that are legally owed, legally owed under the tax law legislated by Donald Trump and not paid, that's got to be a scandal that calls for us to do much more than we're doing. And information reporting is one part of that, and strengthening the i r S is another. One of the big developments potentially this week had to do with that Global

minimum corporate tax. Ireland surprised at least me you by saying yes, we'll go along with it, and now we know in fact it will go forward. Tell us about the significance of that potentially, David, I think this is the most important global economic agreement of the century so far. It's important in reality because it's going to fortify tax

collections from corporations for companies all over the world. It's important in principle because instead of countries running a race to the bottom with respect to taxing business income, they're now going to level up in a way that's going to be fairer and permit tax reductions on working people all over the world. And it's important in showing that global economic diplomacy can be something that's not just about the people who are in Davos, but about working people everywhere.

Joe Biden's talked about a middle class based farm policy. This is a huge triumph of for that. It's a great credit to the President who created the environment, to Secretary Yellen, who drove the agreement, and to a large number of officials who've been working in this area for many, many years. This is really a big uh deal for international economic diplomacy. Okay, Larry Summers, Harvard thank you so very much for being back with us. Larry, of course,

is our special contributor here at Wall Street Week. Finally, one more thought. Call it the mount Rushmore of tax havens. Taxes, none of us wants to pay them. But what's even worse is when you think you're paying yours and the other guy isn't, which is why it's red meat every time Democratic lawmakers pointed out to constituents when they want

to close loopholes. From Senator Amy Klobuchar of Minnesota, there are just too many people that have been using things that are maybe well meant in the tax code, or many times not well meant um, and they use it to make a lot of money at the expense of other people. It's just not fair. The Senator Elizabeth Warren of Massachusetts. Jeff Bezos is a billionaire grifter, and so are the rist of these hugely wealthy people who pay next to nothing in taxes, and all the way up

to President Biden himself. I'm not anti corporate, but it's about time they start paying their fair share. That wealthy people want to avoid paying taxes. There's nothing new, Let's be honest. Here's President Obama back in two thousand nine, pledging to close offshore tax loopholes. For years, we've talked about stopping Americans from illegally hiding their money overseas and getting tough with the financial institutions that let them get

away with it. Around the same time, US prosecutors went after Swiss banks because they claimed bank secrecy laws were protecting some of their clients from paying the taxes they owed. U b s will hand over the names of American account holders suspected of tax evasion. Now, other Swiss and European banks may be part of the government's crackdown on this practice. But now news comes with a new tax haven. Not the Cayman Islands, not the Channel Islands, not an

island at all. No, it's good old South Dakota, where the Washington Post reports that trust companies in the state have more than quadrupled their assets in the last ten years, up to three and sixty billion dollars, and a good part of that money comes from overseas. How are they doing It's the good old fashioned way. They're providing state

laws protecting assets from creditors and from taxing authorities. This is all based on millions of documents obtained by the Post and the International Consortium of Investigative Journalists, And although the money deposited itself may not have come from any illegal activity, it did come from some pretty controversial figures like the Colombian textiles are caught laundering international drug money, or a wealthy Brazilian alleged to have colluded to underpay

local farmers, or the family of the former head of a sugar company in the Dominican Republic accused of exploiting workers there. So, before we get too high and mighty about how other countries are letting wealthy taxpayers get out of paying their taxes, maybe we should look closer to home, like in the Shadow of Mount Rushmore. That does it for this episode of Wall Street Week. I'm David Weston. This is Bloomberg. See you next week.