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Rosenstein Resignation Would Be Greatest Gift To Trump · Bloomberg Intelligence

0:05
Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
0:08
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
0:11
Speaker 1: bring you the most important, noteworthy, and useful interviews for
0:15
Speaker 1: you and your money, whether you're at the grocery store
0:17
Speaker 1: or the trading floor. Find the Bloomberg p m L
0:20
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Rob Rosenstein,
0:32
Speaker 1: the Deputy Attorney General, is heading to the White House.
0:35
Speaker 1: He's been summoned apparently, and they're conflicting reports about whether
0:39
Speaker 1: he is going to resign or president. As we speak.
0:44
Speaker 1: It's just changing every every second because now there's an
0:46
Speaker 1: indication that perhaps he's resisting, which is what we would
0:50
Speaker 1: have expected before because he's been through so many of
0:53
Speaker 1: these turmoils and has always resisted. So that's why this
0:57
Speaker 1: report was so shocking to you when it said that
0:59
Speaker 1: he was going to just hanging in. Let's bring into
1:02
Speaker 1: Al Hunt's opinion columnist. I want to get your thoughts
1:05
Speaker 1: out about how how big of a deal this is. Basically,
1:08
Speaker 1: what's the implication. I think that's what markets are trying
1:10
Speaker 1: to figure out. That's what a lot of political strategistic
1:13
Speaker 1: trying to figure out as well. If I were Joe Biden,
1:16
Speaker 1: I would say things I can't say in radio, to
1:17
Speaker 1: say there's a big deal, A big blanking deal. I
1:21
Speaker 1: mean it really, we got it. I think that I
1:23
Speaker 1: think most listeners got at the first time. Um it is.
1:28
Speaker 1: And whether he resigns or is fired is also a
1:31
Speaker 1: very big deal. And there's a there's an uncertainty at
1:34
Speaker 1: this stage if he resigns because he feels he has to.
1:37
Speaker 1: That's a that's that's the greatest gift that Donald Trump
1:40
Speaker 1: has had, maybe in a year and a half. Because
1:43
Speaker 1: whoever takes over this investigation, and there is the law
1:47
Speaker 1: spells out who would who would be the next in line?
1:50
Speaker 1: It would be the Solicitor General, who would probably recuse
1:54
Speaker 1: himself because his law firm is involved in this. And
1:56
Speaker 1: then it would probably be the head of O l
1:57
Speaker 1: C and Mr Angle. I think it's almost certain they're
2:00
Speaker 1: both movement conservatives. It's almost certain that they would not
2:03
Speaker 1: want to give Bob Mueller the kind of freedom and
2:07
Speaker 1: flexibility and independence the Rosen scene did. So therefore I
2:11
Speaker 1: doubt they would fire Mueller, but I think they would
2:14
Speaker 1: probably try to undercut the investigation. So it is a
2:17
Speaker 1: very big deal. Al hunt. Are there figures and individuals
2:22
Speaker 1: that are currently working in the White House that are
2:24
Speaker 1: trying to undercut the president? Oh? Yeah, yeah, they really are.
2:30
Speaker 1: I mean, you know, every day he commands no loyalty,
2:33
Speaker 1: and there there are fights, they're internees, seeing warfarees that
2:37
Speaker 1: go on, those going and go have going on in
2:39
Speaker 1: other and other administrations. They're probably more in this administration.
2:43
Speaker 1: The stakes are probably more petty than before, and there
2:49
Speaker 1: is almost no loyalty to this president. So every day
2:52
Speaker 1: there is a sense, I think among a number of
2:55
Speaker 1: people who work there is my god, what is he
2:58
Speaker 1: up to? I mean, we've had the quotes attributed to
3:01
Speaker 1: Gymatics and attributed to John Kelly and attributed to Gary
3:04
Speaker 1: Cone that he's a fifth or sixth grade education, he's
3:07
Speaker 1: an idiot. I think there's a widespread weef among a
3:10
Speaker 1: number of people who are in the administration that he's
3:13
Speaker 1: not up to this job and and and it's dangerous,
3:15
Speaker 1: all right. So I want to want to push back
3:17
Speaker 1: on you with that, because the economy is doing well,
3:20
Speaker 1: and I'm looking at markets, and frankly, markets have not
3:22
Speaker 1: been taking that big of a hit from this. I
3:24
Speaker 1: mean Initially there was a spike down, but otherwise it's
3:27
Speaker 1: steady as she goes. We're down a little bit today,
3:29
Speaker 1: but that's to be expected in between earning season and
3:32
Speaker 1: then they're There are a bunch of other reasons, in
3:34
Speaker 1: particular trade, the idea that the US and trying to
3:36
Speaker 1: trade discussions are not going that well. I'm just wondering,
3:40
Speaker 1: do you think that people are too sanguine about what's
3:43
Speaker 1: happening and that it will affect things, just not in
3:45
Speaker 1: the near term, or do you think that this is
3:47
Speaker 1: just you know, the political and economic are two totally
3:50
Speaker 1: separate universes that aren't intersecting right now. You know probably
3:54
Speaker 1: better than I do, that it's impossible to separate the
3:56
Speaker 1: two um But I do think that there is a
3:59
Speaker 1: sense the economy is doing well, the underlying fundamentals are strong.
4:04
Speaker 1: There's not a sense there's going to be a problem
4:06
Speaker 1: in the foreseeable future, and there's a feeling that whatever
4:09
Speaker 1: the political instability in Washington is, that that's not going
4:12
Speaker 1: to affect it much. Whether that's right or not, I'm
4:14
Speaker 1: not sure, uh, And I'd have to go back and
4:16
Speaker 1: check all the data during the next years, but my
4:19
Speaker 1: impression is that that that the the economy at least
4:22
Speaker 1: didn't tank because of the perception that there was a
4:26
Speaker 1: lack of stability in Washington back in seventy three and
4:28
Speaker 1: seventy four. So I'm not really surprised by that. L
4:32
Speaker 1: This is June. Um. What do you think will happen
4:35
Speaker 1: if it turns out that Rod Rosenstein is retiring? How
4:39
Speaker 1: do you think Democrats will react? Well, you put it,
4:43
Speaker 1: you put it very diplomatically, retiring. Is he going to
4:45
Speaker 1: resign or resign? Sorry, resigning? I keep on saying retiring,
4:48
Speaker 1: because I think he's had a tough go of it.
4:50
Speaker 1: He sure has. Um. Look, he was appointed in the
4:53
Speaker 1: first place by Jeff Sessions in order to run the
4:56
Speaker 1: Department of Justice manage U S attorneys, and then only
4:59
Speaker 1: after he was appointed did it come out that Sessions
5:02
Speaker 1: had his own conflict of interest with the Russians, so
5:05
Speaker 1: he was he was It was almost an accident that
5:07
Speaker 1: he was put in charge of this, which is what
5:09
Speaker 1: drives Trump so crazy. So if he is fired, I
5:12
Speaker 1: think the Democrats will go ballistic. I think they will
5:14
Speaker 1: try to get legislation that some Republicans have sponsored to
5:18
Speaker 1: assure Mother's independence. I think there will be a sense
5:21
Speaker 1: that it could be very harmful for Republicans in the
5:24
Speaker 1: midterm elections if he, however, resigns because he says, I
5:27
Speaker 1: just can't, I can't, I can't stay there anymore because
5:30
Speaker 1: of the perception. Although all of his people have said
5:33
Speaker 1: that whatever he said about wearing a wire and it's
5:35
Speaker 1: likely for the men's going for the men were said
5:37
Speaker 1: in jest. But if he feels he has to resign,
5:39
Speaker 1: I think that takes a lot of the pressure off
5:41
Speaker 1: Republicans al Hunt. The ongoing question of whether he resigns
5:48
Speaker 1: or whether he will be fired, does it really matter it?
5:52
Speaker 1: Does it? Does it matters? Uh? It certainly matters politically
5:57
Speaker 1: number one. And secondly it matters and the kind of
6:00
Speaker 1: pressure that is brought to bear on whoever takes his
6:04
Speaker 1: place overseeing the Mueller investigation. If he is fired, and
6:09
Speaker 1: say Mr Engel, who is the head of the OLC,
6:11
Speaker 1: becomes in charge of the Mueller investigation, Uh, they're going
6:15
Speaker 1: to be whether it's the Congress, whether it's outside groups,
6:18
Speaker 1: whether it's the press, They're gonna be watching him like
6:20
Speaker 1: a hawk. And I think there'll be a lot more
6:22
Speaker 1: pressure on him not to blow out the case. So
6:25
Speaker 1: I think it does matter. What do you expect us
6:29
Speaker 1: to actually find out what Mueller has been doing aside
6:31
Speaker 1: from the cases that currently have been prosecuted. In other words,
6:33
Speaker 1: does he have the goods to actually get up to
6:35
Speaker 1: the White House or is it just gonna be sort
6:38
Speaker 1: of left where we've seen it? Well, I don't think
6:41
Speaker 1: we're gonna know for certainly months. Um, you know, on
6:45
Speaker 1: the relative uh spectrum of independent councils, this has not
6:50
Speaker 1: been in the joint out process. I mean, what can
6:52
Speaker 1: start to four years, five years and you know, much
6:55
Speaker 1: less serious charges and much less success. So, you know,
7:00
Speaker 1: I think we're talking about at least until the early
7:02
Speaker 1: part of next year. That assumes that there's not an
7:05
Speaker 1: interference in the investigation in the process. I don't think
7:07
Speaker 1: he's going to doing between now and November six, and
7:10
Speaker 1: then afterwards, I'm not sure what he's gonna do. But
7:11
Speaker 1: there's a whole bunch of people, whether it's Michael Cohen
7:13
Speaker 1: or Paul Manaford or some of the others who you
7:17
Speaker 1: know who, as they say, flipped and they're telling him
7:20
Speaker 1: stuff they don't. He doesn't give them that kind of
7:22
Speaker 1: a deal unless he thinks they have something to tell,
7:25
Speaker 1: something to reveal, and that is almost always about someone
7:28
Speaker 1: higher up, and there's a limited number of people who
7:31
Speaker 1: were who are higher up. Yeah, Alhan, thank you so
7:34
Speaker 1: much for being with us. I hear your phone beeping.
7:37
Speaker 1: I'm sure it's on fire. I'm sure you're getting calls
7:39
Speaker 1: from everyone under the sun, and I would love to
7:42
Speaker 1: hear what they have to say. Alhant Bloomberg Opinion columnists
7:45
Speaker 1: coming to us from Washington, d C. Just in the
7:59
Speaker 1: past a few weeks, leaders from the corporate as well
8:03
Speaker 1: as the governmental worlds came together to try to figure
8:05
Speaker 1: out how to steve off some of the malefacts of
8:09
Speaker 1: global warming. One of them was Berry Parking is Chief
8:12
Speaker 1: Sustainability and procubent Officer for Mars Incorporated, and he joins
8:16
Speaker 1: us here in our studios. So, Brian and Barry, I
8:19
Speaker 1: was talking about the Global Climate Action Summit in San Francisco.
8:22
Speaker 1: You have pledged to reduce mars is economic ecological footprint
8:29
Speaker 1: carbon footprint by more than sixty percent by the year
8:33
Speaker 1: How do you plan to do that? Well, good morning,
8:36
Speaker 1: all um. It's an incredibly tough challenge because we plan
8:40
Speaker 1: to do that while we continue to grow. So we're
8:43
Speaker 1: going to do that by getting to zero carbon from
8:46
Speaker 1: our own factories and then transforming what we buy and
8:49
Speaker 1: where we buy it. Because most of our greenhouse gas
8:51
Speaker 1: footprint is upstream in the raw materials in agriculture, So
8:55
Speaker 1: we have to change the way agricultural works today. Bart
8:58
Speaker 1: and One, if you could just suscribe a trip that
9:01
Speaker 1: you made to a Indonesian coconut supplier, tell that story
9:09
Speaker 1: about how that opened your eyes. I mean, you're a
9:11
Speaker 1: veteran at Mars. How did this open your eyes to
9:14
Speaker 1: this new area for the company. Yeah? Absolutely, you know,
9:18
Speaker 1: I think I didn't grow up believing my career was
9:21
Speaker 1: going to be in sustainability. So it came to me,
9:23
Speaker 1: and it came to me through procurement and buying raw materials.
9:26
Speaker 1: So I guess maybe fifteen years ago I visited a
9:31
Speaker 1: coconut plantation in Southeast Asia and the scale of this
9:36
Speaker 1: thing is incredible. Hundred kilometers by a hundred kilometers if
9:40
Speaker 1: you can imagine that, just coconut sixty miles by sixty miles,
9:44
Speaker 1: and you can't get to it by road. No, you
9:46
Speaker 1: get there by boats, and you get onto a canal
9:48
Speaker 1: system and you travel around the whole day and all
9:51
Speaker 1: you see is coconut. At the end of the day,
9:54
Speaker 1: I got back to the to their ports and they
9:56
Speaker 1: have two huge factories where they're processing this coconut and
10:00
Speaker 1: a the thing that then it's a big place. And
10:03
Speaker 1: then they said, you're our biggest customer and this is
10:05
Speaker 1: quite a small ingredient for us. And I suddenly got
10:08
Speaker 1: a sense of the amount of land, the amount of
10:10
Speaker 1: people that were at that point almost invisible to us
10:14
Speaker 1: upstream in our supply chain. And and that's what got
10:17
Speaker 1: really really interested in. You know, what's our footprint on
10:19
Speaker 1: the planet and what's our footprint on people? And how
10:22
Speaker 1: do we bring that into our thinking and into our strategies.
10:25
Speaker 1: So how do you make it more sustainable and how
10:28
Speaker 1: do you do it with a cost effectiveness that allows
10:31
Speaker 1: your business to grow? Well, you you start by setting
10:35
Speaker 1: the right goal, and we've talked about that extremely challenging goal,
10:39
Speaker 1: but you have to you have to drive transformation and
10:42
Speaker 1: and that means that we have to We have about
10:44
Speaker 1: a million smallholder farmers in our supply chain. And you
10:48
Speaker 1: know the story about smallholder farmers today is they're they're
10:51
Speaker 1: either the victim of climate change, their livelihoods are going
10:54
Speaker 1: to get impacted. Although the villains of of climate change
10:58
Speaker 1: that they're the ones deforesting UH and an expand expanding
11:02
Speaker 1: their land use. So we believe we can move them
11:05
Speaker 1: from the victim or or them or the villain to
11:08
Speaker 1: the hero. And we can do that by the way
11:11
Speaker 1: they grow the crops in the future. They grow diversified crops,
11:15
Speaker 1: lots of different plants and trees, and they work on
11:17
Speaker 1: the quality of the soil. They can actually pull carbon
11:20
Speaker 1: from the atmosphere and and actually be a big part
11:23
Speaker 1: of the change that we see. So we have to change.
11:26
Speaker 1: We have to go back. So we're you know, we're
11:27
Speaker 1: an industrial food business. We have to go back to
11:29
Speaker 1: agriculture and go all the way back to those farmers
11:33
Speaker 1: at the beginning our supply chain and work with them
11:35
Speaker 1: to change what they do. That that's what will make
11:37
Speaker 1: the big difference. I just want to bring a headline
11:41
Speaker 1: to you that this is coming to to us from
11:44
Speaker 1: axios Is. The Deputy Attorney General Rod Rosenstein has verbally
11:48
Speaker 1: resigned to the Chief of Staff John Kelly in anticipation
11:53
Speaker 1: of being fired by President Donald Trump. This is according
11:56
Speaker 1: to a source with direct knowledge of the situation, and
11:59
Speaker 1: this of course from Axios. Will be bringing you more
12:01
Speaker 1: details as we get them. And just to give you
12:03
Speaker 1: a sense of the market reaction, the SMP five hundred
12:06
Speaker 1: does is dropping to a session low in response to
12:10
Speaker 1: this news, but very you know, I want to pick
12:12
Speaker 1: up on what you're talking about, how you have to
12:14
Speaker 1: go to the farmers and I just want to go
12:17
Speaker 1: more to the corporate leaders. When you were in San Francisco,
12:21
Speaker 1: did you feel like there was sort of a ground
12:24
Speaker 1: swell of support for this view that you have and
12:26
Speaker 1: trying to push companies in this exact direction or is
12:29
Speaker 1: there more pushback given the political situation? Talking about politics, uh,
12:34
Speaker 1: and sort of a reduction of some of the gas
12:36
Speaker 1: emitting regulations. I think everybody gets the size of the
12:41
Speaker 1: challenge and the urgency here and and most big companies
12:43
Speaker 1: are working on this. I think what we're saying is
12:46
Speaker 1: that the level of of disruption that has to happen
12:50
Speaker 1: is huge. And you know, we talk about a transparency race.
12:55
Speaker 1: You know, we have to know where all of these
12:57
Speaker 1: materials come from, because that's what I can sumers expect
13:00
Speaker 1: and that's what the activists in our supply change. So
13:03
Speaker 1: we're seeing a level of disruption and transformation that perhaps
13:07
Speaker 1: others are not yet seeing. I talk about the end
13:09
Speaker 1: of the commodity's era. You know, we used to buy
13:11
Speaker 1: these raw materials at arm's length, not really knowing where
13:15
Speaker 1: they came from and not really knowing what conditions. We
13:18
Speaker 1: think that's that era is over. You have to know
13:21
Speaker 1: where everything that's going into your products, whether it's food
13:24
Speaker 1: products or electronics or wherever, you have to know where
13:26
Speaker 1: it all comes from. I just am struck by coconut
13:29
Speaker 1: water that there's an advertisement for it where it says
13:31
Speaker 1: feel good about your life and feel good about what
13:33
Speaker 1: you've putting your body in a cost about eight dollars
13:36
Speaker 1: to buy, you know, twelve ounces, and I just have
13:38
Speaker 1: to wonder, you know, is there a cost that people
13:40
Speaker 1: are not willing to pay in order to make things
13:43
Speaker 1: more sustainable? On the consumer side, yeah, you know, I
13:46
Speaker 1: think it's been slower than anybody would expect, but consumers
13:50
Speaker 1: are moving towards sustainability. There's always been a few percent
13:55
Speaker 1: that really care about this, and I think we're slowly
13:57
Speaker 1: seeing that grow. It's not happening as fast there's probably
14:00
Speaker 1: any of us predicted, but our view going forward is
14:03
Speaker 1: that in five, ten, fifteen years, consumers will make more
14:07
Speaker 1: and more conscious choices around more sustainable products. And we
14:11
Speaker 1: want to be at the forefront of that. And that
14:13
Speaker 1: means one of the things that they have to know
14:15
Speaker 1: where everything that's going into the product that they're going
14:17
Speaker 1: to eat comes from. And and that's the big change.
14:21
Speaker 1: And if you if you do that, then you're inevitably
14:24
Speaker 1: into longer term relationships and more direct relationships with those farmers.
14:28
Speaker 1: And and that's the big procurement sourcing change that's happening
14:32
Speaker 1: in the world at the moment. Barry because of Eminem's,
14:35
Speaker 1: because of Mars Bars, because of all the great chocolate
14:38
Speaker 1: confectionery products that you make. I want you to talk
14:41
Speaker 1: if you can about coco supply because the whole supply
14:45
Speaker 1: chain topic that you just described as something that you're
14:48
Speaker 1: currently working on with Coco. Indeed, this is part of
14:52
Speaker 1: our overall initiative. You're going to be spending what a
14:54
Speaker 1: billion dollars over the next decade. Yeah, you know, we
14:58
Speaker 1: all love chocolate and the that the truth is you
15:00
Speaker 1: can't make chocolate without cocoa. So we have to fix
15:04
Speaker 1: the supply chain of cocoa and and it's incredibly hard.
15:07
Speaker 1: Coco is grown by hundreds of thousands, millions of smallholder
15:11
Speaker 1: farmers and we have to help them become more productive
15:16
Speaker 1: and and increase their incomes. That many of them are
15:19
Speaker 1: not doing great, and it's been really challenging. We and
15:23
Speaker 1: the rest of the instrument working on this for decades.
15:25
Speaker 1: So we announced in the last couple of days a
15:27
Speaker 1: big new investment, as you say, a billion dollars to
15:30
Speaker 1: be spent over the next ten years to to invest
15:33
Speaker 1: with farmers to move them from being smallholder farmers that
15:37
Speaker 1: just grow coco too larger farms. We think that that
15:42
Speaker 1: that will happen over time and they'll grow more things
15:45
Speaker 1: than coca. Because it's seventy five thou farmers. You're talking
15:47
Speaker 1: about a lot of people right now. Yeah, that's the start.
15:50
Speaker 1: And I think what we need to do is we
15:52
Speaker 1: need to demonstrate at scale as a path to those
15:54
Speaker 1: farmers becoming more and more successful, employing other people and
15:59
Speaker 1: and you back to what we're talking about earlier, also
16:02
Speaker 1: pulling carbon out of the atmosphere into their into their farms.
16:05
Speaker 1: We've we've proven this at small scale. The challenge has
16:08
Speaker 1: always been to scale this up to tens and hundreds
16:11
Speaker 1: of thousands, and that's why we're investing more money. So
16:14
Speaker 1: I'm just wondering which countries that are major farm producers
16:18
Speaker 1: have been the most eager to work with you and
16:20
Speaker 1: the most effective in making some of these changes. Um
16:24
Speaker 1: we source from Africa, Asia, all over the world. I think,
16:28
Speaker 1: you know, a good example would be on on deforestation
16:31
Speaker 1: in West Africa, where we've made a real breakthrough and
16:34
Speaker 1: building a public private partnership industry and the governments of
16:38
Speaker 1: Code of War a Ghana. We've got a really strong
16:41
Speaker 1: Cocoa and Forests Initiative now where it lays up very
16:44
Speaker 1: clearly what government going to do and very clearly what
16:46
Speaker 1: industry is going to do. And I think that's a
16:47
Speaker 1: great example of you know, if you really spend the
16:51
Speaker 1: time to work out and get an alignment of interest,
16:53
Speaker 1: you can make progress. And and we think we can
16:56
Speaker 1: stop deforestation by working together. This is not easy, you know,
17:00
Speaker 1: and and many other countries were not yet necessarily on
17:03
Speaker 1: the same wavelength. And but that's what we have to do.
17:05
Speaker 1: I think we've shown over and over the industry can't
17:08
Speaker 1: solve this on their own, and often government can't solve
17:10
Speaker 1: this on their own and it's the two together that
17:13
Speaker 1: will get this done. Berry Parkin, thank you so much
17:15
Speaker 1: for being with us. Truly a pleasure having you. Berry
17:18
Speaker 1: Parking his chief sustainability and procurement officer for Mars in
17:22
Speaker 1: New York. They have a one billion dollar sustainability investment
17:25
Speaker 1: currently to reduce the carbon footprint of its businesses and
17:28
Speaker 1: supply chain by more than six A Crisis of Beliefs,
17:45
Speaker 1: Investor Psychology and Financial of fragility and is the title
17:49
Speaker 1: of a new book written by Professor Andre Schleifer. He
17:53
Speaker 1: is a professor of economics at Harvard University. His co
17:56
Speaker 1: author with the book is Nicola Genali is the professor
18:00
Speaker 1: of finance at the Bocona University in Italy. In Milan,
18:04
Speaker 1: and Andre Schleifer joins us now. Professor, thank you very
18:07
Speaker 1: much for being here. Talk a little bit about the
18:10
Speaker 1: misconceptions that investors, or indeed anyone has about financial crises. Well. Thanks,
18:17
Speaker 1: it's a pleasure to be here. Uh. This is a
18:19
Speaker 1: book about financial crisis. It uh kind of takes off
18:24
Speaker 1: from where Charlie Kindelberger, the great economic historian, has left off,
18:30
Speaker 1: maybe forty years ago, and it says that, uh, most
18:34
Speaker 1: financial crisis are kind of the same, which is to
18:37
Speaker 1: say that they start with a bubble. Uh. This time
18:41
Speaker 1: it was a bubble in the housing market sometimes as
18:43
Speaker 1: bubble and government bonds. When the bubbles collapse, people lose
18:47
Speaker 1: a lot of money, but more importantly, banks lose a
18:50
Speaker 1: lot of money. And that's how you get into a crisis.
18:55
Speaker 1: And oh, it was pretty similar. Now you asked about
18:58
Speaker 1: misconceptions that are kind of two stories that are often
19:02
Speaker 1: floating around that don't square well with this uh uh
19:07
Speaker 1: set of facts. The first one is that it's all
19:10
Speaker 1: the bank's fault. You probably have heard about two big
19:13
Speaker 1: to fail and how banks were speculating, uh and getting
19:19
Speaker 1: homeowners to households to buy houses. The truth is everybody
19:24
Speaker 1: was in on it. People wanted to buy homes, banks
19:28
Speaker 1: wanted to finance homes. Rating agencies wanted to make it simpler.
19:33
Speaker 1: When you have a bubble, everybody is speculating. So it's
19:36
Speaker 1: not just the banks, Uh, it's everybody. The second misconception,
19:41
Speaker 1: which is more dramatic one uh. And it's been a
19:45
Speaker 1: misconception that has been kind of um advocated or pursued
19:50
Speaker 1: by some of the protagonists, the policymakers in two thousand
19:54
Speaker 1: and eight, which is that the crisis is a total surprise,
19:58
Speaker 1: which is to say that Lehmann came out of nowhere.
20:01
Speaker 1: The fact of the matter is that bubbles move, bubbles
20:04
Speaker 1: and crisis move very very slowly, and there was eighteen
20:07
Speaker 1: months of banks facing stratospheric losses before we had Lehman.
20:12
Speaker 1: That's really a very big misconception. There also is a
20:14
Speaker 1: misconception of behavioral economics and how that plays into things.
20:19
Speaker 1: People talk about the post two thousand and eight era
20:22
Speaker 1: and how millennials, for example, have not been investing in
20:25
Speaker 1: stocks as much as their peers, and not to mention
20:28
Speaker 1: the fact that, you know, the sort of fervor that
20:30
Speaker 1: creates bubbles. How does behavioral economics and psychology plan into this. Well,
20:36
Speaker 1: the crucial part about bubbles is twofold. One is that
20:41
Speaker 1: people think that trees grow to the sky, which is
20:44
Speaker 1: to say, in this case that people felt that they
20:46
Speaker 1: would get ten percent a year returns on their homes forever,
20:51
Speaker 1: which is what happened for a few years, but it
20:53
Speaker 1: can't happen forever. The second part, and this is why
20:57
Speaker 1: behavioral economics also comes in, is that people don't see
21:02
Speaker 1: the risks of bubbles and in particular of imploding bubbles,
21:06
Speaker 1: and that gets them too optimistic. But then just as
21:10
Speaker 1: you said, incredibly scared. So when you talk about the millennials,
21:14
Speaker 1: the millennials, of course, to the extent that they were
21:17
Speaker 1: involved in it, got really terrified and have now stayed
21:20
Speaker 1: out of the market. So talking about that balance of
21:23
Speaker 1: being overconfident and too overly terrified, where are we right now?
21:28
Speaker 1: I think we clearly are in the regime of overconfidence
21:31
Speaker 1: and extrapolation. You know, stock market is at very high levels,
21:36
Speaker 1: they volatility is very very cheap, credit spreads are very
21:43
Speaker 1: very low, expectations are very optimistic. That are all the
21:46
Speaker 1: indicators of UH of financial markets being in a bubble. Now,
21:52
Speaker 1: the good news, just to finish this thought, is that,
21:55
Speaker 1: of course banks are in much better shape today than
21:59
Speaker 1: they were in two thou eight. So if this bubble
22:01
Speaker 1: starts UH imploding, I don't think we're going to see
22:06
Speaker 1: the crisis that we saw ten years ago. But in
22:08
Speaker 1: that same vein, if indeed the banks are unduly blamed
22:14
Speaker 1: for the financial crisis one of the misconceptions, then do
22:18
Speaker 1: you believe that the policy responses were overdone and that
22:22
Speaker 1: they don't necessarily need all this additional capital, since perhaps
22:26
Speaker 1: they were not as responsible as many people believe. Well, actually,
22:30
Speaker 1: I think quite the reverse. Um. It seems to me
22:33
Speaker 1: that to the extent that there was a policy here
22:36
Speaker 1: in two thousand and eight, it was that the policy
22:38
Speaker 1: makers were way too slow. They were way behind the curve.
22:42
Speaker 1: The way in which huge crisis like Liman occur is
22:46
Speaker 1: when banks UH lose a tremendous amount of money and
22:50
Speaker 1: when people think that there's ovency is threatened. When the
22:55
Speaker 1: economy or when the financial system in such a situation,
22:59
Speaker 1: the UH regulators and policymakers need to intervene fast, and
23:06
Speaker 1: they need to intervene aggressively. And what happened in two
23:08
Speaker 1: thousand and eight is that policy was pretty passive until Lehman,
23:14
Speaker 1: and of course it was very active and very aggressive
23:18
Speaker 1: right after Lehman, but it was too late to save
23:20
Speaker 1: the U s economy. Yeah, I just want to go
23:23
Speaker 1: back to something you said, where you said we're definitely
23:25
Speaker 1: in the overconfident part of the cycle. Some people would
23:29
Speaker 1: argue that you have so many daysayers out there threatening
23:32
Speaker 1: that we're going to see the downfall of markets, and
23:34
Speaker 1: they have been doing this for years that that is
23:36
Speaker 1: sort of a credible specter of threat that sort of
23:39
Speaker 1: keeps everything in check. Just quickly, here, we have a
23:41
Speaker 1: minute left. What's your what's your perspective on that. Look,
23:45
Speaker 1: it's one thing we know about bubbles is that it's
23:47
Speaker 1: impossible to call the top. All the evidence shows that.
23:51
Speaker 1: And so right now I'm not telling you the markets
23:53
Speaker 1: are going to go down next month, or next year,
23:57
Speaker 1: or even in two years. They might keep going up
23:59
Speaker 1: for while. The point is that there are all the
24:03
Speaker 1: signs of a financial system in the state of quite
24:07
Speaker 1: extreme exuberance. Thank you so much for being with us.
24:10
Speaker 1: Thank you, it's great to be here. Andre S. Lifers,
24:13
Speaker 1: Professor of economics at Harvard University in Boston, co author
24:17
Speaker 1: of a new book, A Crisis of Beliefs, Investor Psychology,
24:21
Speaker 1: and Financial Fragility, talking about some of the misconceptions of
24:25
Speaker 1: financial crises. So there has been a lot of discussion
24:38
Speaker 1: around investing with a lens toward gender, in other words,
24:43
Speaker 1: women and how much power they have in the workforce
24:46
Speaker 1: in a variety of different ways. Reading us now is
24:48
Speaker 1: someone who's been working deeply on that. Alicia Levine, chief
24:51
Speaker 1: market strategist at bny Melon Investment Management. Thank you so
24:55
Speaker 1: much for being here. Before we get started, I know
24:58
Speaker 1: you are announcing a new fund that focuses on gender
25:02
Speaker 1: parity in the Japanese workforce, but can you just talk
25:05
Speaker 1: more broadly about the concept of women nomics. Well, thanks
25:10
Speaker 1: for having me here today. So this is actually very
25:12
Speaker 1: exciting because women omics is actually an an economic platform
25:17
Speaker 1: of the Japanese government. In two thousand and thirteen, the
25:20
Speaker 1: Prime Minister san Zo Abe realized that there had to
25:23
Speaker 1: be socio economic changes in Japan in order to have
25:27
Speaker 1: economic growth. And that's because Japan has negative population growth,
25:32
Speaker 1: and in order to grow g g d P, you
25:35
Speaker 1: have to have a population that can work. And so
25:37
Speaker 1: with negative population growth, you can't grow g d P.
25:40
Speaker 1: So what does Japan have as a perfect resource, a
25:44
Speaker 1: highly educated population. Women were staying home and they weren't
25:49
Speaker 1: going into the public sphere and working. And so women Omics,
25:53
Speaker 1: which was launched in two thousand and thirteen by the government,
25:58
Speaker 1: is a policy and economic and social policy to encourage
26:02
Speaker 1: women to work and go into the workforce. So that
26:04
Speaker 1: means everything from building daycare centers to rewarding companies who
26:08
Speaker 1: promote and hire women, to senior leadership, and so everybody
26:11
Speaker 1: has a stake in this now the dry Fast Japan
26:15
Speaker 1: Women Omics Fund. It's the first US thematic fund for
26:21
Speaker 1: B N y Melon. Why was that the first one?
26:24
Speaker 1: So actually um B and y Melon Investment Management has
26:28
Speaker 1: launched eight thematic funds over the last seven years, but
26:33
Speaker 1: many in Europe and Asia. This is the first women
26:37
Speaker 1: on Mix fund that we're launching here in the US,
26:40
Speaker 1: and we think this is the perfect time for several reasons.
26:43
Speaker 1: The first is that we have a four year track record,
26:46
Speaker 1: and as we know, institutional and on the retail side,
26:50
Speaker 1: clients wants to see a track record and evidence that
26:54
Speaker 1: the thematic investing is actually working, and in fact, we're
26:59
Speaker 1: very proud and happy with our manager's track record here.
27:03
Speaker 1: The other thing is that we just feel like this
27:05
Speaker 1: is the right moment for thematic funds and gender lends investing.
27:08
Speaker 1: With everything that's happening and the conversations that are happening daily,
27:12
Speaker 1: we think there's a lot of interest. So it is
27:14
Speaker 1: the idea here to invest in companies that adhere to
27:17
Speaker 1: the sort of concepts of women omics. The most closely
27:20
Speaker 1: is that the idea so so the fund looks at
27:23
Speaker 1: companies through three different criteria. The first is do they
27:28
Speaker 1: hire and promote women into senior leadership? The second is
27:32
Speaker 1: is their consumer more likely to be a woman than
27:36
Speaker 1: a man? And third do they directly or indirectly benefit
27:40
Speaker 1: from women omics? So here's my question, how do you
27:44
Speaker 1: sort of correlate performance with respect to company earnings with
27:49
Speaker 1: some of these policies, Because at the end of the day,
27:51
Speaker 1: people want to make money. That's true. So let's let's
27:54
Speaker 1: let's back up a little bit and talk about labor
27:56
Speaker 1: force participation. So it took twenty years for or labor
28:00
Speaker 1: the female labor force partition participation rate to go from
28:04
Speaker 1: fifty to sixty percent, So that took twenty years. In
28:08
Speaker 1: five years too, from two thousand and thirteen to today,
28:12
Speaker 1: that rate went from six to sixty seven percent. It
28:16
Speaker 1: also means that the entire labor force is being driven
28:20
Speaker 1: by women entering the labor force, not by men. So
28:23
Speaker 1: if your consumer is a woman, you're more likely to
28:26
Speaker 1: be a growth company, you're more likely to outperform. And
28:29
Speaker 1: it's kind of a simple topic, but you can actually
28:31
Speaker 1: draw the lines between women working having more economic power
28:36
Speaker 1: and the decisions they make with their capital and it's
28:39
Speaker 1: it's kind of a simple thing, but it works, and
28:41
Speaker 1: it turns out that you can invest this way. In addition,
28:45
Speaker 1: it's UM companies which have or more women on executive
28:50
Speaker 1: committees or in senior leadership tend to outperform the Topics Index,
28:54
Speaker 1: So there is evidence that promotion of women to senior
28:57
Speaker 1: leadership does lead to company out performance. What would you
29:02
Speaker 1: measure the performance of the fund against? Since there is
29:05
Speaker 1: no specific benchmark, So so we use the Topics Index,
29:09
Speaker 1: which is uh an index of all the Japanese companies UM.
29:14
Speaker 1: That index has over two thousand stocks right now. Our
29:18
Speaker 1: fund is a high conviction fund with fifty positions that
29:22
Speaker 1: are curated and and picked specifically on one of these
29:26
Speaker 1: three criteria, and also growth going forward and you know,
29:29
Speaker 1: earnings going forward. One thing I'm wondering is how applicable
29:32
Speaker 1: this concept of women on mix is to say the US,
29:35
Speaker 1: because Japan is sort of uh its own story unto
29:38
Speaker 1: itself due to the population shrinkage, whereas a place like
29:41
Speaker 1: the United States has immigration, has a higher population rate.
29:45
Speaker 1: So we think right now Japan is the place to
29:48
Speaker 1: actually test the gender lens thesis because it's the only
29:52
Speaker 1: place where you have an enormous change of women entering
29:55
Speaker 1: the workforce driven by the government, and it's measurable, it's
29:59
Speaker 1: very hard. And other places where you already have very
30:02
Speaker 1: high labor force participation rates and closer gender parity in income,
30:08
Speaker 1: Japan still has a wage gap, a very wide wage gap,
30:11
Speaker 1: and as the government tries to get that to close,
30:15
Speaker 1: you can see that the spending power for women just increases.
30:20
Speaker 1: The criteria for the companies doesn't matter in terms of
30:23
Speaker 1: market cap size, it's all it's all sizes in our
30:27
Speaker 1: fund right now, it tends to be more skewed to
30:28
Speaker 1: small cap. But for instance, we look at sectors all
30:32
Speaker 1: over the place, and one of the most interesting sectors
30:34
Speaker 1: were looking at is construction because you wouldn't think that
30:38
Speaker 1: this would be a sector that would benefit from women
30:41
Speaker 1: on However, they can't find labor. And as construction becomes
30:46
Speaker 1: more tech oriented and less heavy lifting, it turns out
30:50
Speaker 1: that the marginal marginal employee is a woman right now.
30:53
Speaker 1: And so those are the kinds of decisions that we're
30:56
Speaker 1: looking and you can really only do it by fundamental
30:58
Speaker 1: analysis and knowing what you own. So we tend to
31:01
Speaker 1: be heavy in retail and services construction UM. But something
31:05
Speaker 1: for example as a as a UM, you know a
31:11
Speaker 1: when when when people are out of the house, you
31:13
Speaker 1: may need security services because there's nobody home. So security
31:16
Speaker 1: services are doing well because all of a sudden, the
31:18
Speaker 1: women are not at home anymore. So things you wouldn't
31:21
Speaker 1: think of, but you can definitely draw the line A.
31:24
Speaker 1: Thank you very much for being with us and sharing
31:27
Speaker 1: this information. Alicia Levine is the chief strategist for a
31:32
Speaker 1: b N Y Melon, speaking about the Dreyfuss Japan equity
31:36
Speaker 1: women on mix fund. Thanks for listening to the Bloomberg
31:43
Speaker 1: p m L podcast. You can subscribe and listen to
31:45
Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
31:50
Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
31:54
Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
31:57
Speaker 1: You can always catch us worldwide on Bloomberg Radio m