Bloomberg Wall Street Week: Rattner, Koch, Tett

most influential voices. Larry Summer is the former Treasury Secretary Bryan Wynhan a backup America, Will Smart, CEO of Charlie Sharp. Bloomberg wool Street Week with David Weston from Bloomberg Radio. Everything's coming up. Roses were back outside of the masks. People are getting back to work. The economy is growing, So should we be worried? This is Bloomberg Wall Street Week. I'm David Weston. This week we saw more of everything, more stimulus as both the Fed and the ECB say

they'll keep buying those bonds at accelerated rates. More inflation is the U s CPI grew at the top of the range of expectations. It was up five per cent year over year for the month of May. And Chinese producer prices shot up, more job openings for those looking for work as the jolts numbers are running at record highs, and more mean stocks as AMC and game Stuff are so last month, replaced by stocks like Clover Health and

Clean Energy Fuels and prison operator Geo Group. But the one thing there wasn't more of was fear as the ten year yield dipped back down below one and equities spent the week flirting with record highs, with the SMP five hundred up for a third week in a row. So being a trader may have been some fun this week, but won was it for investors? Then we learn anything for the longer term? And is there a downside to all this forward momentum for some answers? Welcome now Steve Rattner.

He's chairman CEO of Willow Advisors, which invest the family and philanthropic assets of Michael Bloomberg, founder and majority owner of our parent company, and Katikotch Global, co head of fundamental equity funds at Golden Sex. So welcome both to both of you, Steve and Katie cam Let's start with you. The headline for me this week is we had as I say five percent inflation. You ever, you're in the

month of May. That's the highest has been in thirty years. Uh, the real yield is at negative rates that we're we haven't seen since Thanking eighty when inflation was out of control and the market just shrugged it off. How can that be? Right? Yeah, very interesting inflation print. Like you said, the CPI basket clearly showing a lot of upward pressure. And to answer your question, why is the market shrugging

it off? It's obviously because the Fed is telling us this is transitory, and the market also is believing its transitory. And that's the reason we haven't seen a lot of movement in the tenure. And so this is what people are really gonna have to get their heads around in the coming weeks as to whether or not this will unlock. Is it really a supply chain issue? Um as as an example, that's driving that. So we have to spend

some time thinking through that. But I would separate the CPI basket issue from the wage issue, and I just want to comment on that quickly. Um I can make a case for a lot of things in that basket being transitory. We are worried about some of the inflationary pressures that we're seeing in wages. You mentioned her jobs available over nine million, the biggest in history. From our portfolio companies, we're seeing some people have to increase we just by to bring people back into the labor market.

It may be possible, and this could be good in some ways. That we are at the precipice of a redis redistribution cycle from capital to labor and that is going to have some inflationary pressures that we're really gonna need to watch. And if that is the case, that will show up in margins of companies and that's something we have to be vigilant around. So taking that all together, people think it's transitory. The market may be too complacent about this, and we're very very focused on how it's

coming through on wages. So Steve, as a major investor, are are is there a danger we are being too complacent? And go back to the FED for a second. We all like to focus on the Fed and what they're doing. They have control over things like interest rates, particularly short end of the curve. They can really affect that. They can certainly affect financial conditions. They can't really determine inflation they could only sort of predict where it's going. Do

we think they have it right? The FED can not only predict inflation, they can create inflation. But that that's maybe another story. But I think what Katie said at the beginning of all of the Katie said was I think dead on, But particularly at the beginning of her answer, she pointed out this disconnect between what many professional economists like Barry Summers, who I have no agree with, as you know, but also a lot of CT goes and other people outside of the markets, I think is going

on with what the markets think is going on. When you look at what's happening to inflationary expectations as measured by the markets, they remained to use the fed's famous phase, in fact favorite phrase and famous phrase, they remained well angered.

Whether you look at the break evens between tips and nominals, whether you look at the forwards, whether you look at the five year five year forwards, any place you look in the market, it's it's suggesting that inflation will remain in the two and a quarter or two and a half percent range. Many of the rest of us have different views about that, but that's at least what the market thinks at the moment as and when the facts change.

As King's famously uh said, Uh, we can change our minds and the market may change it mind And to a comment you made a second ago, the FED can control inflation and create it and and stop it. But the one thing that really can't do is control the

long end of the treasury curve. And in a fight between the Fed and the markets of what happens so longer term interest rates, not the FED funds right, not the two year, but when you get out to ten, twenty and thirty years, I believe, and I think history would suggest that the markets are were often right than the Fed is right, and that becomes a test of wills. So O, Katy, you mentioned inflation, particularly when it comes to wages, But what does that do to you as

an investment in equities? Do you have to really discern between companies, for example, with smaller margins that might get really squeezed with wage pressure, because one of the things that can happen inflation, whether it's wages or its input costs,

you can really hurt the margins. Yeah. Absolutely, And so I think with wages one thing the main thing that we have to figure out here is that we know that wages are going up, as as I said, we're seeing a lot of data on that from our portfolio companies. Um we need to and it's quite an interesting thing because we've actually been able to achieve through this stimulus and increase effectively in the minimum wage that we have not been able to do through policy ever, and so

that's in and of itself quite interesting. Then we need to actually see with these wages, is this a one time reset or were actually going to have growth of upward growth on wage pressure going forward, And so that's what we have to monitor. If we have that, it is going to start to erode margins more meaningfully and

that could be negative for equity markets. Just taking one step back here though, I think what we're seeing in equity markets now as it relates to inflation is that markets are up so very healthy return for equity markets here to date, but the inflation is playing out what's happening under the markets obviously with value having strong leadership over growth markets, and that's directly because of inflationary pressures. Many thanks to Steve Rattner of Willow Advisors and Katie

Kotch from Goldman Sachs Asset Management coming up. Jeff Bezos says he's going into space this summer, but can he make some money up there? We ask test Patch of Messember Venture Partners. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. Space is now open not just to astronauts, but to billionaires. Jeff Bezos announced this week that he's going to take on an eleven minute trip to space

on a Blue Origin rocket next month. And he's not the only one. Virgin Galactics Richard Branson plans to take a similar trip as early as this summer. We're asking our founder Richard Branson to come on and really test the private astronaut experience for us. We think who better to do that? That's Virgin Galactic CEO Michael Cole Glacier.

For investors, space is a growth market. Morgan Stanley estimates that the global space industry could grow to one trillion dollars in competition among the space barons started when Jeff Bezos founded Blue Origin back in two thousand. My vision for Blue Origin, the long term vision is millions of people living and working in space. We need a space staring civilization for a whole bunch of reasons, and that's the vision. The company operated quietly for fifteen years until

it started testing its new Shepherd rocket. SpaceX was second into the private space race, joining in two thousand two. In just a few years, it launched its Falcon one rocket and pulled ahead of its competitors in a series of first SpaceX led the first private mission to the International Space Station, filling a role left vacant after NASA retired its space Shuttle fleet in two thousand eleven. Here's Morgan Stanley's Adam Jonas. SpaceX is the apex predator in

the space market. Some would argue they're sucking the air out of the universe right now in terms of talent and capital. While SpaceX and Blue Origin compete over NASA contracts to launch satellites and service the space station, Virgin Galactic focuses on space tourism. It celebrated its first manned space flight in May and is planning to conduct more test flights with the goal of taking commercial passengers to the edge of space again. Here's Virgin Galactic CEO Michael

cold Glazier. We believe this is going to be a supply constrained business for quite some time. The demand of this is going to be well out in front of our ability to build and scale the fleet up for a while, and as such it will be reasonably expensive as it goes forward. There is so much excitement and yes, romance in space, but the question is is it investival? Can we make money out there in space? Welcome now test Hatch, who is devoting her career to answering that

key question. She started out as an aeronautical engineer hoping to be an astronaut, worked at SpaceX and at Boing, but now she's become a venture capitalist. She has a partner at Bessemer Venture Partners, and we welcome right now to Wall Street Week. So give us a sense of how we might make money out there beyond just getting excited about it. Of course, when investing in any company, there's a handful of things you want to look at. You want to look at the top line revenue, how

quickly and efficiently it's growing. You want to look at the competitors in the space and the quality of the team. When it comes to space companies specifically, there's additional nuances you want to factor into your consideration. Let's use three of the most common examples, launch vehicles, satellites, and space tourism. When it comes to launch vehicles, you want to look at the number of successful launches and the number of

assets that rocket is launched into space. When it comes to satellites, you want to look at the number of satellites and specifically what sensors they have in space. And then space tourist companies eventually you want to look at people that they've launched into space. That's not reality at

the moment. So an early indicator is successful test flights, and all of these things are an early proxy in space tourists case and an actual in launch vehicle in satellitees case to revenue, again, a very important thing for all companies, even space companies test right now for many of us who aren't as initiating in this as you are.

When we think about private at space race, we think about three big companies, right, We think about SpaceX, We think Abou Blue Origin, we think of Virgin Galactic, two of which are private actually, but essentially that there are other companies out there as well that may not be as well known or as big. It's amazing all that space X, Blue Origin and Virgin Galactic are doing for the space industry. They're really paving a path for hundreds.

There are over four hundreds space startups following in in in those three footsteps and hope to be those next three. Uh. There's about a dozen space startup companies that are going public this year via s back a special purpose acquisition company, and will be available to the public by the end

of the year. It's a really large market, and it's an overall three hundred and fifty billion dollar economy that we use in our everyday lives, whether it's to watch TV, listen to the radio, navigate us to our destination, and and and these startups are really lowering the barrier of entry to space and continuing to open space for business. So pick up on that specifically, how much of this is telecom muncations is putting satellites up? I mean, you've

taught me actually about something called cube SATs. I didn't know they existed. I just think about the big ones. Tell Star back to the old days, right, But we have a whole new range of satellites that some of

these private companies are putting up there. Decades of Moore's law has exponentially decreased the size and increased the power of commercial off the shelf electronics to allow for the invention of the cubes at, which reversed the model that you were just sharing of massive school best sized satellites that would take years of not decades, and tens, if not hundreds of millions of dollars to design, build, test, and launch into geostationary orbit thirty six thousand kilometers away

from the world. The invention of the cubes at flipped that model so that you can launch your camera onto a tissue boxed size satellite whizzn't around the Earth every ninety minutes. If you saw the movie Gravity, it's where Sandra Bolock and George clooneyware on our International Space Station. And these cube SATs have really allowed entrepreneurs, students, people's imagination to launch unique sensors to take photos of the Earth,

to communicate with the Earth. And I especially am interested in novel or unique sensors that are in space on this CubeSat that help life on Earth. What sorts of profit margins can you make on things like launching CubeSats is that a profitable business. Hey, every business, even if it's space, needs to be profitable at least from a

venture capital investment perspective. And once you make your constellation, once you get to a carrying capacity where you have the number of assets you need in space, the margins can be can be quite good north of if not more or less depending on how often you need to replenish your satellites. So I can use a specific example, um Bestumber venture partners firm, I'm a partner at has invested in a company called spire Global, the largest general

purpose cubes at constellation. We have three very specific sensors for aviation, maritime and weather monitoring and protecting. It is one of the companies that has announced its back merger with Knapsite and embarking down that path to go public. We have about eight lemurs, which we call our cub

SATs in space and that's all we need. We've hit that capacity and it will dramatically increase the margins for the business now that we only need to replenish every three to five years rather than launch to get to the A D in first place test. We think of this as a massively capital intensive business. I mean, it was at one point only the government, and now when you have some of these big companies, there's a lot

of capital involved. Is that true? Even with things like cubes at companies, it's more capital intensive and it takes longer than let's stay software software companies, you change a lot of code, you push it into the ether, and you get your result. Versus satellites and launch vehicles, you have to launch your asset into space before you start generating your product and therefore revenue. Thank you so much

to Tess Hatch, partner at Bessemer Venture Partners. Coming up on Wall Street, we contributor Jillian Tett of The Financial Times explains why being an anthropologist, or at least knowing one, could make us better investors. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. To those of us coming from the outside global, Wall Street might just remind us those exotic tribes from Papua New Guinea or Borneo that

we read about in our undergraduate anthropology classes. But it turns out that the similars are more than just superficial something. It takes a true anthropologist to explain. Before she became an acclaimed financial journalist and author, Jillian Tett of The Financial Times trained as an anthropologist at Cambridge and she brings us a different way to look at many of the stories recovery every day in her new book and through vision, a new way to see in business and life.

And we welcome her now to give us someone of the taste of the lessons this book has to teach us all. So welcome Jillian. Congratulations on this book. It's a fascinting book because you go through quite a few stories actually that we know about it, and then you've covered through the years and we think of a sort of Wall Street stories and apply and anthro vision as it were, to them. We can't go through them all. I recommend somebody get the book. Area, But let's take

one that's very timely right now. Let's work from home and what happened when we were forced to separate from one another? And now as we re enter, explain what anthropology might teach us about that phenomenon. Well, one of the things anthropology argues is that culture matters. In a world of artificial intelligence. We need to use some anthropology intelligence to really look at all the things that big data contract, which is these cultural patterns which are often

contradictory and lookdown. Has made many of us in amateur anthropologists almost by default, because we've just had a big culture shock where all the things that we used to take for granted about our work lives and home lives have been turned upside down, and suddenly we've had to think about things like social boundaries whose are in our cod or our trial life, and we've had to think about the rituals that shape our lives. We've had to think about all the daily routines that we rely on.

And what's fascinating is that many people have learned that being at home you can do some things incredibly well. Many people have realized actually value having that boundary between home life and work life in space and in time UM. And they've also realized that one of the benefits of being in an office is not what people think. It's not the processes and the formal tools that we use

to get work done. It's often the sent through experience of interacting with colleagues and bumping into people and having so indipudous encounters that really matters. UM. There's a process of what anthropologists call sense making going on in offices, and many people have found that pretty hard to replicate

in zoom. So the question that's fascinating now is as we go back to the office, or some of us do, what are we going to keep How are we going to redefine our rich alls and our social groups, and now that we have an opportunity to reset them with much more awareness in the past, how are we going to choose to do that? And just to be clear from your book, I learned we're not just talking about soft science here, we're talking about making money. Some people

anticipated this. You talk about some trading rooms before the pandemic where some people will understood the importance of that lateral vision, as it were, even by having lower computers, they can see one another absolutely. I mean, one of the key messages in anthropology is that if you live your life with tunnel vision, just looking at things that are directly under your nose, and you don't take time to have lateral vision to look around you, then you're

losing out. And ironically, financial trader has known that for a long time because actually there's an anthropologist who went to study Wall Street traders around the turn of the century. And notice that even though Wall Street traders technically have the ability to work from home, way back in the year two thousands with a Bloomberg terminal or other tools like that, banks were building bigger and bigger trading flaws.

And when he asked why, he realized it was because of this issue of sense making, awareness of others of lateral perspective, and also something called incidental information exchange, which is really what happens when you have small teams who may have very good levels of social capital inside the team, needing to bump into each other and collide and swap ideas and the keepon is this with zoom calls, small teams doing specific tasks can usually replicate that quite well

in cyberspace, but we all know that having that incidental information exchange, that serendipitous encounter, basically running into someone in the corridor, that's what you can't replicate with zoom. So one of the other very interesting questions that companies are going to have to think think about culturally when they go back to the office is what do you do if part of your workforce is at home and part of it is actually in the office. And that's going

to require a lot of reflection. An we have left here, I want to come up to this week in your calm on the Cornwall Consensus, and I wonder whether the G seven there's a little lateral vision going on. Absolutely, there's so much I'd love to say that where anviropology you can share light today. One thing that it really can make people think about is the importance of symbols and rituals. We often think they're empty and meaning it's but they present a vision on an idealized future people

would like to have. And if you look at the G seven this week and look at the memos that have come out, yes they may not correspond to reality, but what's fascinating is a vision they give in terms of how they want the world to work. It's very different from where we were thirty years ago when you had things like the Washington Consensus come out, which is all about free market economics and globalization, the so called Cornwall Consensus, and that's actually lamb of memo. What's much

more lateral, inclusive vision, that's frankly closer to anthrow vision. Yeah, exactly, were including things like climate change and public health. Thank you so much and congratulations once again. That's wall Stree. We contributed Jillian Tell the Financial Times and author of this new book You Have to Get It Answer Revision coming up. We wrap up the week with special 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. We're gonna wrap up our week as we always do, with our special contributing Larry Summers of Harvard. So Larry, thank you so much for being with us. It was another bad week on inflation. We had numbers we hadn't seen in thirty years now for the month of May year over year, it was five up in the top line number. What do you make

of it? Look, it's it's more evidence that we've got a problem, that the risk to the economy is overheating. That you can't have COVID get to the rear view mirror. Fiscal policy be pushed to the floor, in terms of the accelerator, monetary policy be pushed to the floor, the consumer coming roaring back, and have it all fit together. You just can't, and it's gonna lead the problems and the sooner we recognize that, the better it will be.

You know, David, here's something I think people don't appreciate that maybe it's worth highlighting for your listeners. Monetary policy isn't constant. Monetary policy is getting easier when the interest rate stays the same and inflation rises, real interest rates fall. So monetary policy has been getting steadily easier through this year,

even as the economy is booming. And if you do what the analysts most of the banks do, and it's a sensible enough thing to do, form a comprehensive index of financial conditions where you look at the stock market, and you look at the dollar, and you look at long term bond yields and what not. Then the rate at which is getting easier, and the extent to which it's unprecedentedly easier is faster, is even more so. The economy is like going ninety miles an hour. And not

only are we not hitting the brake, we're pushing. Not not only are we keeping our foot on the accelerator, we're actually having more expansionary monetary policy by all the standard measures than we were four months ago. And I just think that defies good sense. So Larry, just to reinforce your point, and negative real yields are down lower in than ben since inflation was out of control. But let me play the red team here a little bit

and make the argument it's transient. That's what we keep hearing, and it really has to do with the parts of the economy they're reopening. Look, David, we have transient inflation, annual inflation, and last month, according to Core cp I was above ten percent. Majority of that is surely UH transient. We've got used car prices, We've got other examples to

people's site that are clearly transient. But it is an elementary fallacy to confuse the idea that we have some transient inflation with the false proposition that all the inflation is transient and we have nothing to be concerned about if you look at things that are longer lasting, labor shortages pervasive, if you look at things like the largest component of UH, the cost of Living index, housing, Housing is on fire, as you as you know, as your listeners,

UH know, a majority of houses are selling above they're asking prices. In many parts of the country, housing inflation has been close to the vast majority of which is not yet shown up UH in uh Any index. And so if you look at what purchasing managers are saying, if you look at what households are expecting, all of this suggests that we're in the process of seeing a change. And the people who are big on this transient idea

need to ask themselves. Do they really believe that ten pc growth which we're going to have this quarter, growth which people think we're gonna have next quarter, dramatic declines in unemployment or growth in labor shortage either way, that we're gonna have all that and that's going to be part of a process that drives inflation down. I don't think so, Hilaria. Let me ask you, assuming you're right,

which I do, why aren't the markets reacting. I mean, you can sort of expect the inflation, but I think we would have expected the markets to react. Unlike many of the others in this debate, I admit it when I'm surprised and what happened is not what I expected, and I think about how I have to change my thinking. And just as they didn't anticipate what happened to the inflation figures, I didn't anticipate the kind of decline in nominally yields that we've seen. So I've spent a lot

of time thinking about it. Here are some aspects of it. First, Uh, we have seen inflation expectations rise a bit over the last few months, even as interest rates have declined. Second, there is a sense that everybody has their eyes on the FED and the fact that the FED is sticking with it's super low interest, super big que e policies even as all this is going on and surprising people.

Is I think contributing to our having uh lower interest rates than we otherwise would ironically, because people think that the FEDS policy is so tied to the unemployment rate. When we turn out to have bottle deckx that hold down hiring, then we have higher unemployment even as we have more inflationary pressure. But people think the FEDS just about the unemployment, not about the inflationary pressure, and so

they take down their views about interest rates. Finn. Let's have a quick summer says here if we can, Larry, let's do a little bit differently. And you've been a professor for many years, tenure professor, give some letter grades about how some institutions have deal this pandemic. Start with the I m F A minus maybe and maybe an A. They've recognized the gravity of the problem. They organized the raising of uh SDRs. They all for UH dramatic UH responses.

The reason I say a minus is they've been a bit more aggressive about telling everybody else to spend their money than they have about putting their own balance sheet UH on the table. But I think Crystalline and Georgieva has done a great job, and I wish our international institutions were as effective as the I m F. What about the World Bank? Incomplete? At best? The World Bank

is committed. World Banks leadership has been committed to a model that sees the Bank as a kind of business institution that focuses on individual country lending, that focuses on debt restructuring. The World Bank needs to be about world public goods. That needs to be increasingly the focus of its efforts, and what they've done in that area has been slow, incremental, and UH grudging. I hope it will

uh move uh over over time. UH. Frankly, if I was at the Treasury Um, we'd be having a lot of painful conversations between the major shareholder and UH the World Bank about how it can step up more quickly. Last one, United States Senate, how is it handled a pandemic? So? Uh so so uh. The fact that there is bipartisan legislation on competitiveness is something that's encouraging, although I sure wish it was more about research and less about bailing

out particular US uh uh industries. Uh. I'm pretty disappointed that it doesn't look like we're going to manage to do what it seems to me we obviously need to do, which is to tax aft flowing people more to finance

a significant increase in public investment. And I'm especially worried that the only bipartisan deals on the table leave out what's probably the most important historically part of Joe Biden's four trillion dollar program, which is the emphasis on green That is Larry Summers, thank you so much, our special contributor on Wall Street Week, of course, of Harvard University. Finally,

one more thought, which twenties are we in? Things are looking up, not for everyone, not everywhere, but for an awful lot of business and the economy and people and the markets reflect the big bounce back. But how can we tell whether it's too much and too soon? Back in January, Berkley CEO Jeff Staley told our colleague France and Laqua at Davos that big search could peril the Roaring twenties if you go back to the you know, to the Spanish flu, which it's probably the greatest pandemic

of UH of the century. You know what that led to and it finally got um arrested was the Raring twenties. And it's not just the recovery for a pandemic that makes these twenties look a bit like those twenties. Once again, we have records being set in the stock market with the meme stocks, this time defying all gravity. And once again we have tech innovation changing our lives, although we don't yet know whether Elon Musk and his e v s will have quite the effect that Thomas Edison did

with his light bulb last time. But one big difference is that, as far as I know, in the Roaring twenties, no one was looking to replace the US dollar with some new fangled currency, something like say Bitcoin is bouncing all over the place. It's not clear when or if regulators will get their arms around this crypto currency rush, but we're not waiting, no, no, Despite the fact that it's unstable and so far not suitable either for exchange or for storing value, We're decided to try putting away

for our retirement. This month, for us All, a provider of four O one case for four employers, announced it would team up with coin base to allow participants to put five of their retirement savings into crypto like bitcoin, ether or light coin. Now this is, to be sure, only a drop in the bucket of retirement savings, but it is worth asking ourselves whether it's a sign of the times and which times that does it. For this episode of Wall Street Week, I'm David Weston. This is Bloomberg.

See you next week.