Bloomberg Wall Street Week: Moynihan, Sharma, Summers

most influential voices. Larry Summer is the former Treasury Secretary, Bryan Wynihan Bank of America, Will Smart, CEO of Charlie Sharp Bloomberg Wall Street Week with David Weston from Bloomberg Radio. It's a whole new world of diplomacy and maybe of monetary policy. So what difference will it make? This is Bloomberg Wall Street Week. I'm David Weston. Bank of America

Chairman and CEO. Brian moynihan has been a leader in bringing private industry together to establish standards for the environmental, social and governments, working with both the World Economic Forum and with His Royal Highness Prince Charles. It was in that capacity that he was invited to participate in the G seven Summit in Cornwall last weekend and we asked

what happened. His Royal Highness, Prince Charles for years, for four decades plus, has been focused on the environment a few years and he's had various initiatives with business people and other groups over the years. A couple of years ago, UM a group of us sat with him and talked about how we could get the private sector really who has to drive this change aligned and so he announced

in early two thousand twenties Sustainable Markets Initiative. Yes m I, that is three CEO is working as a coalition the willing to help along industry groups to help share best practices, to help figure out how we can move things faster, to help promote public policy ideas that would be helpful. And that SMI group, through the leadership as Royal Highness, was able to meet with the G seven leaders for an engagement around you know, the private sectors here. We

don't need money. We were ready to move or moving fast, but if he did these types of policy implementations, we could move even faster. So I'm a leader of the group like co chair was. Royal Highness had a chance to speak a bit and then we had a interaction with the eight or nine c e o s were there with the G seven leaders to kind of make sure they understood that we're there to help them, support to make this transition be a just transition and help

have it help but happen. So I know that you've been heading up the initial Business Council for the World Economic Forum. How does this fit with that? Because I know you're coming up with uniform standards. You've got quite a few companies to sign onto that so far. What kind of progress are you making? So the World Economic Forum, UH International Business Council, which I've been chairing for the last couple of years UH with a group of hundred thirty CEOs or so, they adopted a set of metrics

in ninety years. So companies have signed up and we're pushing that through the system that basically aligned against the sustainable development goals are you unadopted in two thousand fifteen and frankly defined stakeholder capitalism and those you know, people place, planet and prosperity and so on the environment which links to this obviously it's disclosure scope one two three and

what are you doing about things like that? So one of the things we told the G seven leaders is you need convergence and met trics and the IBC work led by the Big four accounting forms bringing together the work and pushing for a convergence with even the groups that support metrics sas by g R, I, etcetera. The idea is to push to one set of metrics. So we don't have all the work as I said that she said was going into calculating things. We have the

work going and actually making the metrics better. And so you know, you have the SEC looking at these metrics, you have the I, f R S looking at these metrics, that e. Looking through metrics, and then you have all the unofficial sectors. The idea is to push the metrics together, get to standard set of metrics. That's what the IBC did and that feeds directly into the SMI because those are the metrics the s m I believes should be adopted by companies around the world to show them making

progress on the SDGs. Brian, you studied this so careful and you understand it well as a practical matter. Will we get where we need to go without the government's adopting those metrics? Can the private sector do it on its own Well. I think the important thing is the private sector has the money. So if you think about the calculation of what the sustainable development goals cost per annum is about six trillion, So charity, you know, is

a trillion plus a year. It's wonderful think about all that money people are giving a way to help things. But it's a trillion if you look at all the foundations, and one of debates in the world is why all these foundations just don't give away all their money tomorrow? What that gets you through about a third of a year to Also, if you look at governments arounding huge deficits, is because the pandemic, they can only do so much.

The private sector has trillions of dollars in market, capt trillions of dollars, many trillions of dollars of market, many trillions dollars of bounty. But importantly, many trillions dollars are operating expenses. So how they operate in their company and how they buy services including electricity and power and things like that can move markets. And that's why the private sector has to lead it. Innovation, inovation, uh, and when

your private sector leads it, it becomes capitalism. When capitalism has it will keep sustaining itself. And so that's that's the sort of intellectual thought process. Can the private sector do it on its own? Absolutely not. This is going to take everybody. But I will use a specific example, David sustainable aviation fuels. If there's a mandate for ten percent in in in in the world, you will then get an instant market that people can build the plans

to produce it. It works today, it's going in planes today, but until there's a more of a requirement, it becomes you know, uh, country by country, region by region very hard. The airlines are in there doing it already, and the question is we could create much more stable markets and then the private set you provide all the financing, all the stuff because they know the market's going to be there. That's how the policy and a private market can work

in tandon to make something happen right. One of the things that the G seven took up over there was that to propose global minimum tax that would have to go to the G twenty and then O E C D have to go through Congress. Have you taken a hard look, I'm sure you have what effect they would have on Bank of America and perhaps as important, more important to your customers if it went through well. Banks, as you know, David, are pay a lot, a lot

of taxes, so we have very little shelter. So the only reason why our tax rates not the exact tax rate in place like the United States, has more to do with the uh investments we make in lower modern income housing and sustainable energy. When when solar et cetera, that allows to the tax and centers to bring it down. But that's it. We don't have big depreciation things other other companies do. So the banking system is always affected by taxes. They pay a lot of taxes, frankly, and

that's that's the reality. Highest percentage of taxes paid and highest dollar mount in the US. The globalization of it's really to try to get out of the What goes on in the US and other countries, even within regions is people bidding using attacks, right, and they're trying to put a floor in. That was Bank of American CEO Brian William coming up. Bubbles, bubbles everywhere, but are they really bubbles? And what does it look like if they pop?

From sure? Sharma of Morgan Stanley puts some of what we're seeing now into an historical context and has some answers for us. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street with David Weston from Bloomberg Radio. It's hard to talk about investments these days without hearing the word bubble. We're getting towards the end of an asset bubble, housing bubble, warnings, trouble, bubble. Since we're talking about it, is it a bubble or not? The bubble

I think in the bottom market creating these bubbles. But for all the talk, how can we tell what's a bubble and what's not and what happens if it is a bubble and it bursts. Morgan Stanley's Rusher Charma decided to go back in history, analyzing the ten biggest bubbles over the last century, everything from the U S Stock market in nine to Chinese shares in two thousand fifteen.

And what they had in common was a price that rose one in the year before they peaked, with much of the gain packed into frenzied trading in the last few months as day traders and other latecomers came rushing in. So if history is a guide, where do we see those traits. Today, We're welcome back now to Wall Street Week. We're sure. Charma, the man who has done this work on the history of bubbles, is the chief Global strategist for Morgan Stanley Investment Management and author of the book

The Ten Roles of Successful Nations. Fascinating study you did, but take a suit of it. You went back over a hundred years, the ten biggest bubbles. One are the things that you found in common about these bubbles? That David, there's so much chattering the market about bubbles, but yet what exactly is a bubble? How do you define a bubble? Is subject to much speculation itself and subjectivity. So what I did was to look at the ten biggest bubbles of the past century and see what were the common

features here? And some uh objective characteristics were present in all the bubbles, and some of it was obviously subjective, but the one common factor was this that typically a bubble is a trend that has been going on for a while, and in the final year, the final twelve months, you see a massive acceleration in that trend, with prices increasing by typically hundred percent over a twelve month period, and a lot of the gains packed into the last

few months of that twelve month period. So that is the most objective criteria of looking at any bubble. The most subjective one is that it's also accompanied by a lot of speculative activity, frenzy trading, uh, mass, detailed participation. Those are some of the other subjective criteria that go

hand in hand. But a hundred percent increase in the price of any acid that has already been rising for a while but concentrated towards the game is one objective criteria that you can see in every single big bubble of the past century. Sure, I think it's fair to say just about every week we're seeing some frenzy speculations someplace or the other. But applying your objective criteria that run up up to the peak, what do you see right now in the market place? Where do you see

things that fit that those criteria? So I think if you look at both the objective and the subjective triteria, remember about a but it's not just something about one stock rising. It's a concept. It's about the fact that everyone believes in some new new thing, 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. So what is it in the marketplace today that we see which looks like about a bubble?

So I think that you see this ince and obviously some of the cryptocurrency space. We see this in, uh, some of the clean energy stocks. We see this in some of the stacks. We see this in some of those pandemic stocks, the small cap stocks which have benefited a lot because of the pandemic. And we also see this in some of these tech companies that really have no earnings. Uh. You know. So there are various indcas on Wall Street that define these uh trends um. And

these are what I call bubblets. And I think that this is a slight a new concept. Bubbles are industrial uh, the entire market white. Right that you had the big bubble of nine, you had the Chinese they share bubble of two fifteen, You had the gold bubble of the nineties, seventies oil. Uh, those are the really big market bubbles. But I think that one step below that is what I call bubblets. These are not market white bubbles, but

sector specific bubbles. And what we have today is I don't think we have a market white bubble because the earnings have been very strong. But I think we do have sector white bubbles where you do not really have any earnings or any great fundamental free cash flow for these companies, and yet you have massive run ups on the back of the concept. So that I think is the important defining feature today and also differentiating feature today

of the bubblets we have in the marketplace. As you look at past bubbles or bubbles, Uh, do you see situations where there's a correction then it resumes its rise up or is there a correction it resumes it's right, it's fall down. That's a great point, David, And we looked at that specifically, and here's what I came up with, which is that if you look at most trends, nothing

goes up in a straight line. Uh. It only seems so in retrospect, But typically what we found was that you have draw downs of around those do not classify as a break in trend. But once any of these trends decline by more than thirty five percent, that usually

marks the end of the bubble. That means the trend is broken, and they often want to decline as much as seventy from the peak over two year time horizon, so that is the broad template, and what we see in the bubble it's today is that most of them have declined by more than thirty five set. So that's what makes me feel that the trend is broken in many of these bubblets, and we may have further downside

in the months, if not quarters ahead. One of the big debates going on in all sorts of ways, including with the inflation and other things right now, is is it different this time? And certainly it is different, at least in the fact of a very rapid fall in the economy as we shut it down, and then a very rapid rise. But it's also different in the degree of monetary and fiscal support for the economy. Could that make us have a different result when it comes to

your bubblets? Yes, entirely possible. You know, we have never had such an extraordinary um uh accommodation in monetary policy and fiscal policy to go with it. There's one statistic I keep repeating, which are the twenty percent of all the dollars in circulation in the world were printed just last year, So that's an extraordinary amount of monetary accommodation. And even if you end up getting some hawkish not noises from FED in other central banks to reverse their

accommodation will mean a lot. So it's entirely possible that this trend lasts longer, and maybe the historical template doesn't follow this time, but I still feel the probability is kewed on the downside because uh, these trends are very extended.

We are getting some amount of less monetary accommodation, and so even though it could be different this time, and maybe some of these UH patterns don't apply to things like cryptocurrency on which I had been very polish last year because this is a new news thing and this is still not something which people are used to, but I still feel broadly, for these buglets, the trend is down and the risks are skewed to the downside. Okay, sure, thank you so much for your time today, that's for sure,

Sharma of Morgan Stanley. Coming up, we take a look at the week ahead on Global Wall Street. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio, p WC Privorice water as Cooper's Where where we used to know. It is investing twelve billion dollars across its global business in an overhaul, and important part of it has to do with PwC US as it's really reorganizing the way it does business in a very different way. We welcome

now Tim Ryan. He's p w c US chairman and senior partners. So Tim, thank you for being here. Take us through what you're doing here, because it's it's fascinating, it really reflects a fundamental redo of your professional services organization. What we did the last couple of years is we try to look around the corner. A big thing our clients look for us is not just to tell them what's happening today, but to help them peak around the corner and see what's going to define the big issues

over the next ten years. And as we did that, it became very clear that the single biggest element of in terms of opportunity and challenges our clients will have is gaining trust and maintain aiming trust. Where expectations are going up and the topics are becoming broader over the next ten years, and how companies balance profits and purpose

gain competitive advantage all across the globe. It's the issue that has led us to launching this new strategy, which is we call the New Equation until I dare say, I think we saw some glimmers of that in the G seven meetings, actually in the in the Cornwall Consensus, where the nations now are reaching out. They're not just dealing with geopolitical issues, they're dealing with health issues. They're

dealing with with equality and inclusion. Uh So when you're talking about trust, because as I'm saying, one of your divisions with the Trust Right consultancy, what does that include? Yeah, So, David great point. What we saw very clearly there's good news for business. The good news today is businesses amongst the most trusted institutions in the world. But when we peek around the corner, what's clear is the bar is going up and the number of topics that businesses will

be expected to be trustworthyond is widening. So, for example, we see financial reporting hugely important, supporting hugely important. But what's going to happen over the next several years. It will go to issues like E. S G. Likes, tax like, tax, morality like tax fairness, data protection, data security, how you treat your workers, worker pay, and we see the number of topics going broader where businesses that need to be

trusted on. We did see a glimpse at the G seven and we'll continue to see that more and more. And a big part of what we're trying to do is make sure we're ready to meet our clients needs as we lead them into the future. So one of the things that we're doing is we're in the US reorganizing our business and we will have the largest trust solutions business in the world as one of our two major segments to help our clients meet these needs. It will drive investment and where we drive our clients and

work with them to help them succeed. Break that down and trust solutions as opposed to consulting solutions. What goes in each of those buckets great questions. So what goes into trust solutions is first our legacy assurance business, which is hugely important, and we'll continue to drive out of quality up our legacy tax reporting businesses, but also are very fast growing businesses such as E s G, Diversity inclusion, governance.

All goes in that business cybersecurity, where we look to drive more capabilities up again because they will define trust and our consulting solutions business. It's our legacy advisory deals consulting and tax consulting businesses because in order to give strategy or execution consulting, we need to make sure taxes at the table because it's so important to company's future strategies as well. So that's what's in the two segments. Both will see significant investment in as we look to

meet those needs of our clients. Tim, you run up tax a couple of times. Now, that was one of the things addressed to the G seven with the proposal for a global minimum tax. I mean, you know this area terribly well. Give us a sense of where that's going, and particularly talked about tax fairness. I guess that's one of the arguments for it. Yeah, without a doubt, David. So when we look at what's happened all across the globe, virtually every major country has done a major stimulus package.

They've used their balance sheets to guide their countries their citizens through this incredible, big crisis that we've seen. Ultimately, somebody has to pay for that. As we studied the trends, what's clearly going to be important as tax will be critical oment of that. It's critical the individual countries, it's also critical to the overall global tax system. So it's not it's not unreasonable. It's not a surprise that we're

seeing things like a global minimum tax discussed. But what's equally important is each country will need their share as well to pay down their debt as they look to deal with those balance sheets. So we expect ongoing dialogue. And when I talk to CEOs, people understand that taxes will likely go up. They want to read sure it's fair, predictable so they can plan for the long term. We'll

see more and more. This is this places out. I think the G seven is just the beginning Artimilarly, try to put together two subjects that I think would go into your trust category. On the one hand, diversity and equity and inclusion very much an issue on everyone's mind and particularly us business right now, and audits because one of those issues is the racial audits. Where do you come out on that. Do you have clients who are

engaging that or thinking about it deciding not to do it? David, one of the things that gives me great optimism is I trouble around not now physically again, which is great and virtually over the last year. As I speak with CEO is what we're constantly hearing is a number of topics right to the top of the list. I'm inspired by the fact that diversity inclusion is on every CEO's minds.

I'm inspired that I see E. S. G In the topic for his minds in addition to the digital cyber In those topics, what I see is that businesses trying

to think think about how they look forward. One of the big things we're doing is part of the New Equation is we're launching a three hundred billion dollar three year commitment that we call Tomorrow takes trust a big element that is a trust institute where we will take ten thousand current in future, seek speed executives to get them ready in the future as they need to deal with these complicated questions where we need to make progress

as a business community. Really fascinating reposition to your company. Really appreciate your bringing it to us. That's Tim Ryan, he's PwC US chairman and senior partner. Coming up, we wrap up the week with our special contributor Larry Summers at Harvard. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. We're going to conclude our week with Larry Summers, our special contributor from Harvard, as we do every week,

So Larry, welcome. Good to have you here. I have to ask you, do feel vindicated the Fed actually at least somewhat caught up with you, I think this week and saying we do, after all, have to be concerned about inflation, transitory or otherwise. So are you feeling good today? David? Look, I think the Fed UH signaled uh that it recognized that we were in a different place than it had

expected on inflation. UH. The best measure of that is if you look at what the market is now saying about real interest rates over the next few years, you saw and unprecedented or nearly not unprecedented, but but very large five standard deviation UH move UH in the market's expectation around real interest rates because of what the Fed signals.

Principally with the dot plot. You saw that happening without the Fed changing in a major way it's forecast of economic growth or its forecasts of medium term inflation, simply marking to reality it's near term inflation forecast. So I think you did see yesterday. I see on Wednesday a signal that the FED had changed its reaction function uh

in a significant uh way. I think that was an appropriate change, uh given the inflation uh reality there was a lot of uh volatility under the surface uh in markets. So I think they're still processing what happened, and you shouldn't try to read every uh every detail as fitting together uh in uh in a pattern. But I think much much more than most f o MC meetings, as the beginning of the FEDS recognition UM that overheating is the issue uh that it has to uh it has

to deal with going forward. And given that overheating has been a major concern of mine, I'm glad to see that they have uh that recognition. But look at a certain point, Churchill talked about it not being the end, not being the beginning of the end, but maybe it

begin maybe it being the end of the beginning. And I think with respect to recognizing that the economy is now in a very very different kind of place where demand pressures are a crucial issue, I think that's exactly what we have uh seen uh seen here, And I was glad to see in particular the change in the dot plot, which showed that the basic implausibility in a labor short economy of rates being at zero out to is something that now a majority of the members of

the f O, m c H recognize, Hilary. They get the issue now. I think it's fair to say they've said the thirteen of the eight team members think the risk in inflation is the up side. So they get the issue. But are they doing anything about that issue? Because they moved some dots on their plot, to be sure, but they didn't actually cut back on their bond purchase billion dollars a month. As you've pointed out, that's increasing

the accommodation much less touched the rates. And by the way, if anything, it's a little surprising the rate in the on the tenure remained in the one point five range, and the equity markets they sold off some, but it wasn't that dramatic. So are they doing anything about the fundamental underlying causes of this overheating as you describe it.

I think we're gonna have to uh weight weight and judge that an optimistic view would be that because they signaled that they were on the case that was reassuring to everybody that the accident that people feared was less likely to happen, and that's why equities were relatively tranquil. That's why the ten year came down. After all. Part of what the tenure was pricing in was the risks I had been fearing uh significant increase in inflation or

the need for a major tightening at some point. So I think an optimistic view of those developments would be that, in fact, by changing expectations and changing their signals, that is policy in the monetary sphere, and they were rewarded for it. I think that optimistic view might be right. It might also be that markets My old mentor Bob Ruby used to say, markets go up, markets go down, and we shouldn't be interpreting every relative movement to intensely

days after a major a major event. But look, obviously we're gonna have to see what happens on uh the taper. I think most market participants saw this as probably bringing forward the moment when the tape he was going to uh start uh to happen. I think that's a positive thing. Uh. Frankly, I would have preferred it if the chairman had not been as dismissive of the dot plot um as he was uh in his UH in his press conference. But that's a that's a tactical detail. We're gonna have to see.

This is a this is a long this is a long game. But um, you know, we're now in the second inning, um not in not still waiting for the first pitch. And I think that's a uh, that's a welcome that's a welcome development here, Larry. I certainly take your point about the danger of over interpreting the markets and what they're telling is but address one thing in particular, and that is the flattening yield curve. Because one of the things that happened this week was a pretty dramatic

flattening the yield curve. So the short end came up because the Fed certainly could arrived that quite immediately, at the same time the long end didn't. If anything came down, does that reflect the fact that the marks might think that maybe they are getting their arms around inflation. It reflects two things, and in just what proportions is hard to know. I think it reflects certainly an expectation that they may be getting their arms around UH inflation. But

you know, inflation expectations moved hugely. It may also be that if you thought that we were going to need to have some kind of big collision between monetary policy and the economy, those kinds of collisions send long rates way up, and we probably have taken out a bit of the risk of UH that kind of collision. So and we've made the world probably a safer place and taking risk premiums out. So I think all of those things are contribute itters to UH, the flattening UH, to

the flattening of UH the curve. But um, David, I've I've learned in this that it's easy to form a beautiful theory around the market pattern, UM, and then have that pattern dissipate on you two days UH later. And so I think the more detailed the pattern ones commenting on UH, the less confident one should be in prescribing a detailed theory. Okay, Larry, it's always great to end our week with you. That is our special contributor, Larry

Summers of Harvard. Finally, one more thought, going back to go forward, the important events of this week went beyond summit diplomacy and fed adjustments. The week ended with June tenth named for June eighteen sixty, when federal troops entered Galveston, Texas to announce that the Civil War was officially over and that all slaves in the state were free. It was the last state in the Union to receive word, and it was two and a half years after the

Emancipation Proclamation had taken effect. Juneteenth or Jubilee Day, has been commemorated by some Americans as far back as eighteen sixty six, when black citizens in Texas held celebrations. It's been an official state holiday in Texas since nineteen eighty and is now a holiday or a day of observation in forty six states. Still a gallop hole this month found that some sixty percent of Americans knew nothing at

all or only a little bit about Juneteenth. It took the police killings of black citizens like George Floyd and Briana Taylor last year to put it on the national agenda and this week this week we made Juneteenth are eleventh national holiday. There is no doubt that it is an important day in American history. But what does Juneteenth

have to do with Wall Street and financial markets in business? Well, some of the most prominent corporations in the country have made it an official company holiday places like Twitter and The New York Times and Quicken Loans, And in the end, it's not so much about commemorating a day as it is making up for so much lost time and making sure that everyone is included in the workplace as well as in life. Bank of American CEO Brian moynihan says when he sought a way to measure that inclusion, he

asked his fellow workers. Teammates came forward and said, why can't people have the kinds of conversations We have a work about the realities of being of a specific ethnicity in America day in case we have black or Hispanic, or a woman or a person with a disability, why can't they have these conversations about what they mean. So we we did that to help have those conversations outside

our company. Meanwhile, we've been had a lot of conversations inside the company, led by Tom Montag and many others that are just wonderful to get people thinking about it from not their standpoint but the other person stand point.

And that's very important too. I worked for one of the best of the most successful CEOs of his generation, Tom Murphy of Caps Cities, and I remember the day he came into the office and said that as he looked around at his senior management team, he realized we were leaving on the sidelines more than half of the brains and the talent because the underrepresentation of women and people of color. Now, this isn't about woke, It isn't

even about doing the right thing. June tenth is a day to reflect on what we all need to do to include everyone in the effort to be our collective best that does it. For this episode of Wall Street Week, I'm David Weston. This is Bloomberg. See you next week.