Bloomberg Wall Street Week: Summers & Ferguson

Kevin Johnson sec Chairman Jake Clayton. Bloomberg wool Street Week with David Weston on Bloomberg Radio, Davos decides what the world should be concerned about, and competition and streaming video heats up. I'm David Weston. Welcome to Bloomberg Wall Street Week. This week was the Week of Davos, that annual gathering the Swiss Alps, when the great and the good convened to reassure one another that they are both great and good.

We've talked this year about growth and reduced trade tensions and high hopes for one of our Wall Street Week contributors, Chief Bloomberg economist Stephanie Flanders, was on the scene and gave us this week's contributors take they like to talk big hit in Davos about the threats the world must confront climate change, the dark side of the Internet technology turning old business models on their heads, but about the short term state of the global economy. The conversation here

has been remarkably upbeat. But don't be fooled. The past two years of drama have come at a cost, and if we don't pay it in twenty we will almost certainly feel it down the road. And remember, the US China trade deal has not removed most of the tariffs the Trump administrations slapped on Chinese goods. The average tariff on Chinese imports to the US is now nearly twenty up from three percent two years ago, and China has

put similar tariffs on US imports. Everyone agrees all the really important stuff has been left for the Phase two deal, and there's little chance of that happening to this side of the presidential election. And because the US has refused to appoint anyone to the appeal system within the World Trade Organization, there is now no global system for resolving

trade disputes. The Europeans say even the U S China deal violates w t O rules, but without that appeal system, it's not clear they could do anything about it even if they were right. So the global trading system has taken a hit, and Britain leaving the EU is going to make it harder for British companies to do business with their most important trading partner in a year's time. And that won't sink the UK economy, but it's going

to make it hard to sustain that Boris bouts. And don't forget the most important consequence of all the dramas we've seen since the US Central Bank never got to take interest rates closer to normal levels, and neither did central banks in the Eurozone, China or the UK. So after more than a decade of economic recovery, interest rates

are still at or rather close to record lows. So yes, the FED coming to the rescue of the U s economy and the financial markets last year has probably put off the date of the next recession, but it's also taken away central banks ammunition for fighting one when it comes. Then I expect the movers and shakers here in Davos will be looking for those same governments to all come together to collaborate to prop up the global economy as

they did in two thousand and eight. But after everything that's happened, I wonder is there any chance of that happening again? Now? To our contributors with us today are Larry Summers are Harvard, who is not only an esteemed economist in his own right, but the nephew of two Nobel laureates and economics Paul Samuelson and Kenneth Arrow. What you might not know about Larry, but you should be

careful about this. He as an undergraduate and M I T was a serious debater, qualifying three times for the National Debate Tournament, which explains a lot about Larry Summers, I think. And Roger Ferguson is with us for t I a A. Roger was the only member of the Federal Reserve Board in Washington when terrorist attacked the United States on nine eleven, and drew on his experience with the New York banking system to make sure the financial system remained up and running to avoid a possible panic.

Roger has a long affiliation with Wall Street Week, having watched the original Lewis Rockheiser program with his father as a young boy growing up in Washington, so welcome, Larry Roger, good to have you here. You just heard what Stephie Flanders, our contributor, had to say that things look pretty good for the short term, but if there's a down term, we're not prepared for it. What's your take, Larry, I think that's about I think Stephanie was right about that.

I thought her comments were in general right on the mark. I don't think she's right that it's only trade frictions and the like that explain why the FED hasn't been

able to raise interest rates. I think it's the much more fundamental things we talked about a couple of weeks ago, having to do with secular stagnation, rising savings, diminished investment propensity, all that, and I think we have a deep problem of maintaining demand without having unsound uh financial conditions, and they should be talking about that in Davos, but I actually don't think uh they are. I also have to say I've been going to Davos probably and last thirty years.

I missed it this year, And in general, I'm not sure it's a leading indicator. I think it might be a contrary indicator. When Davos is most optimistic, that's when things tend to get worse. When Davos is most pessimistic, that's when things tend to get better. Right, I want to pick about one thing Larry said, it's not all about trade, but people are talking about trade. We had Christine Lagarde about what was going on with Europe and this is what she said. She said, part of the

turner in Europe is because of trade. The risks surrounding the euro Area growth outlook related to geopolitical factors, rising protectionism, and vulnerabilities in emerging markets remain tilted to the downside, but have become less pronounced as some of the uncertainty surrounding international trade is receding. Okay, so how much of them in the economy overall is because of at least

a receiving of trade tensions. I think fair amount of it. Frankly, as one thinks about what was happening last year, a year and a half ago, there was anxiety about recession that receded anxiety about trade as Trump put on more and more terroffs, and indeed, as we got through the so called Phase one deal, my senses that markets were breathing a bit of a side relief, having set out of that. If you listen to everything Christine had to say, she also points to a number of other risks, some

which are still, as she says, tilted the downside. And so if I put Christine's comments and a brought a context of what's next, partically for the ECB, what I take from the entire pictures trade uncertainty perhaps has receded that might help growth this a little bit. Okay, we're gonna be back with our contributors coming up next from Davos to a different kind of entertainment, the kind on

film that gets Oscars and Emmy's. We talked of the streaming media transformation with dean of media analysts, Jessica reef Erlick from Back America. This is Boomberg Wall Street greeting. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. Shaping up to be the year of streaming video and the competition is really heating up. Comcast Peacock app is the latest on the scene, entering a crowded

space already occupied by Netflix, Amazon and Disney. So consumers who were hoping they might just save some money by cord cutting are now facing the prospect of paying seven dollars, thirteen dollars, fifteen dollars for each of the individual streaming services,

but so far it isn't slowing them down. Banc of America sees people continuing to add to their streaming this year and then at least three streaming subscription for each of us will become the new norm, and the services appear to be willing to spend whatever it takes to keep their growing customer base. It that critical race to create streaming content. Netflix last year outproduced everybody else with

nearly sixty releases. Now two of their streaming films, The Irishman and Marriage Story are in the Oscar running for Best Picture. So, whether you've jumped on the streaming bandwagon yet or not, if you're rooting for Robert de Niro in The Irishman, you are a streaming fan. We are back with Roger Ferguson and Larry Summers, and we welcome now our special guest, Jessica reef Erlick from Bank of America.

Back when I ran the ABC Television Network and then ABC News, Jessica was the person on the outside we paid attention to when we wanted a smart inform take on what was going on in media, generally in the companies we were competing with, and I have to say sometimes even within our own company. She covers broadcast, cable, satellite, filmed entertainment, and now streaming video for Bank of America. Jessica, welcome, great to head. Thank you so much. What an introduction.

It's all true, you know it's all true. So let's start with the most basic question. Why is a year We've heard about streaming for some time. Now it's coming, It's coming, It's coming. You think this is the year. This is the year of comody launches. So Disney Plus launched well late to thos nineteen, but it was an amazing launch, a ten million subscribers the first day and

way past the estimates. What way I mean they were they've been talking about well they said, um sixty ninety billion subs in five years, of which would be in the US. I mean, they're obviously going to blow past their forecasts. Not even a question. But then we have Peacock, which is owned by Comcast or NBC Universal parent company Comcast launching Phase launched April, and then bigger push behind

the Olympics, HBO Max is launching. So that's just all the traditional media companies have to get in the game. Discovery has launched also in a very different way, but every media company has got to be in streaming. That is, this is the new distribution system. Is this an offensive move or a defensive move? I mean, do they see a lot of money out there to be made or they're saying we have to get there because otherwise we

lose our base. It's both. I mean it clearly it was defensive and they you know, everybody sort of held back. But it takes a long time to have the technology, and there's a lot of content. It's not just library content that's going in but original to keep people on and you know, all the strategy strategy is a little bit different. But the traditional media companies are compete with the fan companies who have not unlimited funds but eumongus

eumongus balance sheets. Can we talk a bit about those funds because if one looks at what Netflix has been doing, three billion dollars spend the free crash flow burn rate, it is pretty high. The market sort of hoping at it settles down to only two and a half bay and next year the cost of interests is huge. You've had both content and the technology. So how does this how does this become profitable for a lot of these businesses. It's I mean, the traditional media companies have given a

path to profitability and they are different. Netflix suspending seventeen billion dollars in cash on content this year, and and the burn is as you said, the free cashold and it's negative more than three billions. So it's and that would not be accepted from traditional media investors. Having said that,

there are advantages that the traditional media companies have. They have brands, they have they have content that they already produced in any case, they have deep libraries, and maybe most important, they have you manga platforms to promote from. So think about Peacock's launch. They will launch UM initially Enapril, and with all of Comcast properties and its theme parks, films,

there are a lot of touchpoints cable networks. And then when they really fully launched, it will be behind the Olympics. Two fifty million people in the US watched the Olympics. That's an unparalleled platform. When Disney launched, of the US was aware of the service launching, So it's gonna be a game where scale will win out, and as you point out, the ability to cross market, etcetera. And so if one were an investor, maybe you think not as

much disruption as one might have imagine. And the big names, the historic names, the NBC, Universal's, the the Disneys have a real shot at holding on and not being disintermediated. They sort of have been already and they're fighting back. You know, we're going through this transition period and the stocks reflect that. We've in my entire career decades, I've never seen multiples this low for media. So the stocks reflect the worst and now they're coming back. So it's defensive,

but it's also offensive, and it's it's really interesting. Peacock had an analyst event recently, and it's it's a different strategy than Disney. You know, Disney is sort of family and kids and amazing titles. You know, boys with Marvel, you know what you you know exactly what you're not geo.

You know, you know what you're getting. NBC U or Peacock will have news and sports and you know, all of their library and original content, but they're also curating stuff differently, so it's you know, it's the curating channels and it's it is they actually isn't a lot of comedy. There's there's my question not about this, not about the stock market. It's like a golden age for the viewer. There's huge amounts of stuff being produced from lots of sources,

really high quality. Seems to me as an amateur, really high production values. Is it economic to produce as much new content, as many new series, as many new films as are being produced right now, or are we in a situation like when a lot of new airlines crowd into a route where sooner or later it shakes out and the amount of capacity comes down. Is this a golden age that we're going to remember as being special in the amount of content that's being produced, or is

this the new normal? There has to be a shakeout. There is no way you can have five hundred plus original you know, episodic shows and there's not just no time for everyone to watch and and and you know viewers are watching YouTube as well. I mean, there's just there's just so many options right now, So there has to be a shakeout. So it's interesting to see everybody's different approaches um different revenue drivers, some the subscription, some

is advertising. The case of Discovery, there's a big piece of e commerce as well. Um, but there's there's no question that they can also live with old. This new competition is the price for standard properties half an hour new show at six thirty in the afternoon, the World, the World Series, Uh, the Masters, the NFL. Are the prices for those things coming down just because there's so much more stuff, or the prices going up because their flagships that will bring everything else in, I mean the

cost of sports. We're all waiting for the NFL to be renewed. Um, there is no way that's going down. There will be a lot of competition. Our view is that it will stay on broadcast TV because of the reach and the production capability. But the digital rights there's gonna going to be a battle. But there's a real bifurcation between live sports on the one hand, that is much more resistant to some of the forces we've seen

as opposed to filmed entertainment. So the sports rice go up, as you say, the NFL, NBA, major League Baseball I think went out. The sports rights are going to come down. You know, they're just not okay. Thanks so much to Jessica Weak Girl, We're gonna be back with our contributors. This is Bloomberg Wall Street Week. This is Bloomberg Will

Street Week with David Weston from Bloomberg Radio. The Hills were alive this week in Davos with the sounds of what everyone's going to do about climate change, from investment funds talking about what they would and wouldn't invest in the government saying how they were going to invest in green or what they've already done for that matter, to reports that even the big oil companies were meaning to try to come up with a common approach to louving

CEO two emissions from the oil and gas they produced spoiler alert. The reportedly all agreed something needs to be done, but they couldn't agree on what to do. Here's a sample of what we heard. Given the signs that climate change, it requires immediate action. This is the decade and so be more need to start by saying, look, let's make some good commitments. These issues have moved very swiftly from being corporate social responsibility issues or more niche issues within

finance to fundamental value drivers. You will ultimately invest in a company who really think we're not getting the traction that we need We do need real breakthroughs. This is no one company is going to do this. We do a little with millennials in terms of the next generation, and clearly they are very focused on the um if

you we should be ethical signature. We've got to set up policies around the world that changes the demand patterns of the market, because it isn't supply that creates economics. That's supply and demand. Climate change is not going to be fixed by a central bank, and it's gonna be fixed by combination of public and private. We want to invest in clean technology, in the green new procedures. We are doing better right now than we've ever done in

terms of cleanliness, in terms of numbers. We have a beautiful ocean called the Pacific Ocean with thousands and thousands of tons of garbage flows towards us, and that's put there by other countries. It's time now to turn back to our contributors, Larry Summers and Roger Ferguson. So Roger, I'll pick on you first, because this is not new to you at t i A. You've been involved in this for some time. What do you do and what have you learned from it? All? Right, So you're right,

it's not new to us. We've been involved in climate and E s G issues for about fifty years and we're really proud to be one of the leaders. And what we've learned over that period of time is you have to take a holistic approach. So first, we are a very large asset manager, and we think about first how do we vote the shares in the proxies And we're really proud that we voted with shareholder resolutions about eighty two of the time, much higher than a lot

of others in the industry. And so, you know, the first thing is use your voice as a shareholder to let management know that your care. The second thing that we've learned is really are going to have to start to build a databases and to really understand and dig in with what companies that actually are doing and use that to engage them on getting more transparency, more disclosure,

including oil companies and others. And the funny thing that we've learned in terms of this being a holistic solution is we also own and manage a lot of assets and think about managing and owning those in a responsible way, be real estate agg timber So it's a holistic story. Crashings you get credit for that, we get drum credit. To be fair, we've got two classes of investors. We've got a group for whom E s G. Climate very

important and they want to put their money there. We have a number of brothers who I think are less focused. One of the things that we've learned over time, though, is all of these factors e s G. Climate, governance, et cetera important risks to manage. And now we're starting to see the conversation turn towards the fact that this is a positive return generator, taking these factors in consideration and creating investment thesis around us. So, Larry, can private

investment make the difference in climate? I think most of what you heard is a pretty total avoidance of the real problem, and that as long as this kind of thing is the focus, the problem is going to get worse. There are three things that need to happen if the world's are going to make real progress on climate, none of which were mentioned by any of those people. One is we need to scale back the hundreds of millions of dollars that the world spends on fossil fuels and

fossil fuel subsidies. We need to have governments stop around the world subsidizing fossil fuels and their ability and their use. Second, we need much more invested by governments in clean energies. And the way governments need to get the revenue to make those investments is by levying taxes and having the people and the organizations represented in that video paying more in taxes. And none of them are willing to say that.

They'd rather talk about how they've got a pied a chief Green officer and how they're using a putting up solar power plant SOL or something or other on their roof than recognize that they need to pay more taxes. And the third thing is we need to tax things that are bad. Right now, we have a world that's oriented to taxing things that are good, like work and saving, and we need to think tax things that are bad,

like putting emissions UH into the air. So as long as the word tax and subsidy are outside of the conversation and it's all just will feel better if we do this, the world's not going to make progress in UH solving UH this problem. And the president notwithstanding emissions, the idea is that we're supposed to in twenty or thirty years, get a mission, get the level of emissions to zero. We haven't even achieved the much more modest goal of stopping emissions from growing year after year. Okay,

we will come back with our contributors coming up. Here we turn from investing in climate to changing operations on the ground and one of the most difficult industries. Sophia Mendelssohn is here from Jet Blue who tells how she's trying to take an entire airline industry green. This is Bloomberg Wall Street Week. This is Bloomberg Wall Street Week with David Weston from bloom Bird Radio. We're going to stay on the subject of climate and get a second opinion.

Now that takes us beyond the world of investing in economics to the world of operating a company. Sophia Mendelssohn is Jet Blues head a sustainability Thank you very much for being here. Sylvia, So you're trying to take an airline company green, which doesn't sound like an easy thing to do. Well, it's not easy, but that doesn't mean we can't do it, and we don't have to do it quickly. The larger, the polluter. The more you rely on fossil fuels, the faster you have to act now.

And that's why recently Jet Blue has made an announcement there we are going carbon neutral on all our domestic flying. We're already have a carbon deal for a lot of our international flying, and we see this as the way of business going. Well, how do you do that? Is that? Is that buying offsets and do those really work? Does that really make us carbon neutral? Well, the first step is that you avoid burning fuel where you don't have to, you don't want to spend the money or burning emissions

in the first place. The second immediate step is carbon offsets now and we've been very clear these these work for now. They're verifiable, they're traceable, they're retired on our behalf, they're permanent, and they're also only the first step and certainly not a silver bullet. Next has to come sustainable aviation fuel, a lower carbon alternative to a liquid fossil fuel, and of course, finally we want to make the transition to electric aircraft at least for short and medium hall.

How do you think this plays into pricing consumer demand? Are you expecting that you're gonna be a bunch of consumers who are going to sort of sign up for that view, and you know, this is a way that they expressed their support by, you know, switching some of their demand over to your airline. Absolutely, we don't expect it. We're already seeing it. Europe has already seen it. And our job here at jeff Blue, my job is to stay ahead of customer demand. We know people need to

keep flying. They want to keep flying. Quite frankly, we need flying to keep the global economy together. Well, let's be real concrete. As I understand, sustainable jet fuel is more expensive than on the jet fuel by the way, there's not a lot of availability, but it's more expensive. Are your customers willing to pay more for their airline ticket because they know jet flew is green and the next guy isn't. Right now, what Jet Blue has done is take care of the carbon on the customer's behalf.

We are paying for the carbon offset as a cost of doing business, which it is and which we know other companies are increasingly seeing it. As As for sustainable aviation fuel being more expensive, there's nothing inherently more expensive. There's nothing about the physics of it that makes it need to be more expensive. What we need is volume, and we need economies of scale to bring that price down. Let me ask you about something I've wondered about for

a long time. Thirty years ago, I could fly to Chicago in half an hour less. From Boston. I could fly to California in about forty five minutes less. I could fly from Boston to New York in fifteen to twenty minutes less. Some of that's about congestion and landing rights, but some of that's about airlines fly their plane slower so that they're gonna be more fuel of more fuel of Well, that's what people have told me. Do you make flights longer on Jet Blue in order to save

on carbon admissions and save on energy costs? Could you fly the plane's faster if you wanted to. Each airline flies their plane differently. What we're doing is taking care of the carbon on the customer's behalf without asking the customer to make a sacrifice. We're not saying squeeze your knees in or give up first class. We're saying flying needs to happen. You need to be on our aircraft, and that creates carbon emissions, which we need to take care of as a costom doing business. So how about

the speed at which you fly the planes? So flying slower does in some cases save fuel. A much more business friendly, customer savvy way to do it is to buy new aircraft, much like Jet Blue has. The new aircraft are increasingly fuel efficient. So if we talk a bit more about that, so technology, I'm hearing offing the answer is gonna be technology driving down the need to consume fossil fuels while we're waiting for better you know,

sort of green fuels. What are you seeing when you talk to the providers of jet engines that is helping us give you some sense of confidence. This is going to get better and better over time. Yeah, aviastion is a bright spot in this. We're not waiting for the technology. The technology is here. The new aircraft are more fuel efficient. We've already made investments in new electric aircraft companies. Um, the carbon offsets are happening now, that's today, that's carbon

being avoided and sucked out of the environment today. Sustainable aviation fuel already exists, it's already safe. We need more of it, We need economies of scale. That's an economics problem, not a technology problem. Feel one piece of technology the airlines can't fix on their own is air traffic control. That's true. If we were to really revamp, which I understand we need to do, it's absolutely If we were tomorrow to revamp our air traffic control system, how much

would it save in terms of carbon? It would be significant. And it would not just save carbon, It would save time, it would save money. This is a really good example of the intersection of business US in government. The global climate crisis is so big, it's affecting us so quickly. There is no corner of the economy that hasn't already been affected, that isn't going to be potentially crippled by it. Everyone needs to be coming with part of the solution.

I tell you a story when I entered the government, and we were in the beginning in two thousand and nine, the government was thinking about it's uh priorities. I had a meeting as the head of the President's National Economic Council with the CEOs. Then there were half a dozen or more airlines and they all told me we needed to work on the air traffic control system. And they had a plan and it was called next Gen. And the thing about the plan was it was going to

take a whole gen, a whole generation. And I said, if we did this according to your plan, when would we have a modern air traffic control system. This was in two thousand and nine, and they said wow, And I said to them, that's really very interesting, and I appreciate it. And I know this is a really big, complicated problem. But World War two is a really big and complicated war. And it took three and a half years from the time we entered till the time we

won with twelve million people under arms. So why was it going to take a quarter century to get a better air traffic control system? Has any progress really been made on that? Yeah, there's been there's been progress made. And I will say, you know, it's not the job of CEO's. No one's ever made money just waiting on congressional action, betting on what congressional action might or might not do. So what we need to do, as airlines, as the people running the companies today is find the

solutions that we can work on today. White carbon offsets like sustainable aviation fuel. How about airlines contributing How about airlines contributing to an infrastructure that would enable them to save fuel costs by not spending as much time circling that would enable the land scarce landing slide to be used.

Do you don't you think the airline industry should be willing to contribute to the airline traffic air traffic control system we need so we have we have next gen equipment on our aircraft, and that aircraft needs to talk to other parts of the system. Government does need to build out some of that. And every time we land a plane, every time we fly a plane, there's so much going on. There's so many ways that we can

be reducing those emissions. And what we're really looking for is the ways that affect the customer today, because this is a customer driven revolution that we're saying, Sophia, Are you seeing action on the part of your partners, the major oil companies, that the engine companies, those are the manufacturing the planes. Is this becoming an ecosystem of folks supporting what you're trying to do and helping you drive it forward. I think there's a lot of room for

opportunity there. I'd like to see more of the majors in the sustainable aviation fuel space. There's some companies that have started making it on the smaller side. We're really looking for economies of scale going forward in and I think is going to be the year where customers begin to demand that where is big energy on this? Because we heard they just met Oro in Dallas to figure out what they could do about CEO two emissions. It sounds like there's a proposal, So okay, you want to

do something, here's one concrete thing you can do. What did they say when you when you're talking about this, you know they're they're working on a number of things. Our job in the conversation is to say the demand is here, and it's not just because we're good people who want to sleep easy at night. It's because our primary fiduciary responsibility on a daily basis is to protect that share price over the long run, and reducing carbon emissions taking care of the carbon emissions you can't avoid

is part of that financial value. So this goes back to our point and we're making earlier we're talking about good returns in this space, and it sounds like you've just convinced yourself and present your shareholders that over the long term, share price would be higher if you become a Green Airline as opposed to if you didn't do that, I'm reading it's correctly. And look at the facts that we know. We know at the climate crisis is getting worse.

We know that we can't have a global economy without aviation. That means, in some fundamental way, aviation is going to have to deal with their emissions. And that's not just our industry as you guys have seen, as you've said, it's literally going to be every industry. So the price of carbon is going to rise over time. Not taking a stance on that is effectively still making a joint, shouldn't we. I I admire enormously, Really I do what your company is doing in the energy or bringing uh

to this. But when you say the solutions or customer driven, actually wonder whether you're right. That's what the tobacco industry used to say. They used to say the solutions to access smoking or educating consumers about the bad health and consequences and letting it be customer driven. And in fact it turned out we've made enormous progress, almost none of which has been customer driven. We tax tobacco, we've stopped

outlawed smoking in restaurants, we've outlaw smoking in airplanes. It was basically when we decided it wasn't going to be customer driven, it was going to be policy driven that we solve the problem. And shouldn't we not be putting you at a competitive disadvantage if you decide that you want to do the right thing and do complete offsets and your airline competitors don't. Isn't the right thing to do to make there be rules so you can do the right thing by the environment and by the future

without being at a competitive disadvantage. Don't we need much more active public policy rather than this talk and hopes about private policy. Well, well, where the kicker is. I'm not trying to do the right thing. I'm in doing the smart thing because dealing with carbon is part of going forward for any business. Sophia, thank you so much

for being here. That's Sophia Mendelssohn of Jet Blue. This has been another edition of Bloomberg Wall Street Week and had to Boomberg dot com for more exclusive thoughts from our weekly contributors, along with full episodes and the official Bloomberg Wall Street Week podcast. This is Bloomberg Wall Street Week. H