The administration keeps its economic agenda alive and the inflation debate continues in earnings while they just keep chugging along. This is Bloomberg Wall Street week. I'm David Westin. This week's special The Trigger Larry Summers on his inflation debate with Treasury Secretary Yellen. I have an enormous respect for Secretary Yellen and I see a variety of things suggesting that inflation may accelerate. And New VIX CEO Jose Minaya on his way of hedging against inflation. In case Larry just might be right I always say is one of the best investment pieces I've come across because it's as simple as people need to eat. We had another week consumed negotiations back and forth over President Biden's economic agenda.
All within the Democratic Party with President Biden announcing a framework just as he got out of town for his trip to Europe for the G 20 and the COP 26 summits. These plans are fiscally responsible. They are fully paid for. They don't add a single penny to the deficit. And whatever ultimately gets passed into law for infrastructure and build back better. This week continued the debate over inflation with two of those who should know best directly taking one another on. When Treasury Secretary Janet Yellen disagreed on CNN with what Larry Summers had said right here on Wall
Street week about the problem of inflation. We are going through a period of inflation that's higher than Americans have seen in a long time. And it's something that's obviously a concern and worrying. But we haven't lost control. And Larry came right back at Janet Yellen on Twitter saying until the Fed and Treasury fully recognize the inflation reality they are unlikely to deal with it successfully. But for all the talk of more fiscal stimulus and inflation the weak on global Wall Street was really given over to earnings particularly those from big tech. Here's Apple's Tim Cook. We are optimistic about the future especially as we see strong demand for our new products and also from the auto companies.
Here's GM's Mary Barra. We're selling every vehicle we can make. And I think that along with her you know the overall environment is what allowed us to have a beat for the quarter. And when it came to equities those earnings were enough to pull out a win with the S&P 500 up six point nine percent for the month making this October the best for the index in six years while the Nasdaq was up two point four percent for the week and the bond yield curve flattened somewhat with the short end moving up and the 10 year yield coming down under one point six this week. Take us through what the market's had to teach us this week. Welcome now Katie CAC Goldman Sachs co head of
Fundamental Equity Funds and Kate L.. Hello. She's as Russell Investments chief investment officer. Kate welcome to Wall Street Week. Congratulations on your promotion by the way. Give us a sense of what you saw on the markets this week. As I say the equities did really well. Well despite the fact they had a little headwind from a couple of big tech companies. David
thanks so much for having me. And you know earnings season about 50 percent of the way through. And it has been it's been good. I mean not great like we saw in Q1 and Q2. But 85 percent of the company eating and still above you know kind of average. But the one big caveat we would flag is around company guidance. And yet a lot of that has been focused around a lot of I.T. issues and
other impacts that pricing power initially. Yeah. For the companies that can do it should be able to work through. But that is something they continue to look out for as we go into Q4. I think for companies that did miss they have gotten hit reasonably hard until we've seen the market react overall well to earnings on average 4 percent down for companies that you aren't meeting expectations. And so from our point of view you can get healthy spread between winners and losers is a really good opportunity for active management and really having to dig into some of the differentiation that we expect to see going forward. This is OK. Let's talk about tech for a second because we had so many big tech earnings out this week. A lot of them
positive. But then we had the Amazon and Apple was really a hiccup one of which was really supply chain. Now in the case of Apple the other was really more labor like Amazon. Did it tell us anything in the longer term. Big tech driving this market which it has done for so long. And now they they did disappoint. But I just take Apple for a second.
People are disappointed but they should remember iPhone sales were still up 46 percent year over year. So there still is good growth there. But expectations of course were for fifty three percent. I think what you've seen there is very specific to what you just said and maybe we can unpack it later which is supply chain issues and also labor. And we don't think that that's going to. We think that's an
issue that they can actually get over. Other interesting trends that we're focused on in tech earnings generally would be I could maybe touch on payments as an example and what's happening in the finance space. I'm really interested in the third quarter of this year as being kind of the first quarter that we've seen the potential for how much disruption we think is coming at the financial sector. Just for context there are 16 trillion dollars of market capitalization in financials compared to for example 14 trillion dollars of market capitalization in the Internet. And we are on the precipice of seeing major disruption across that whole sector. We saw some big losers get printed in the third quarter. So the merchant acquirer sector if you look at the earnings of those
companies they disappointed a lot because they're getting disintermediation by companies like Shopify or toast for example that are offering those services better product better pricing. And then on the winning side and I'll end my comments there. But in terms of winners in this space you would look at by now pay later which as my husband says to me isn't that just the same thing as a credit card. What's what's buy now. Pay later but effectively what a great product for the millennial and Genesee consumer. You basically pay on deferred payments. There's no late fee and
there's actually no interest charged either. And the reason it works is because they charge the merchants a higher fee. And those merchants tolerate that higher fee because they're getting a bigger addressable market and higher volume. Now of course we need to go through our credit cycle to see if this is a durable business model but they are taking tremendous market share from traditional banks. So OK apply your advocacy of active management in this marketplace. Apply it to tech.
How does that work. Where do you look for real opportunities in tech. What do you tend to stay away from. Yeah I think when you're talking about tech too I think it's important to focus on both public and private markets and you just way you're starting to see disruption. I think Katie often will you know focus on some of the trends and the themes and the structural shifts that we're seeing. And I think that that's where again active management and really being able to dig into some of the disruptors and the different ways that we're seeing companies be able to change the way that we're operating it often is being done. Yeah. As much as I'm sure Katie will come back as that in the private markets as much as you're seeing in the public market. So I would say from a tech perspective we do try to focus on across everything from obesity early stage all
the way through to the public markets. And yeah I think that the other thing that we talk about it's now like CAC isn't a sector. Like it's it's in every industry in every company. And so really thinking through you know where some of the big shifts are going to be and where the investments happening. And that's where I think that active management element of it and really
understanding what management teams are doing and and getting it right is so critical. So as an active manager Katie I would assume you go company by company but are there some categories and let me specifically address one B2B versus B2C and tech. For example this week we saw SNAP really take a hit because of some privacy changes made by Apple. Do you get a little nervous about possible regulatory problems in the B2C area. That's OK. Oh sorry. Yes. In the beauty area. Yeah I think. Yeah. Companies from regulatory perspective changes that are happening in lots of ways. I think it is healthy for us to be
challenging and thinking through some of the shifts that this type of change related later operating is impacting. You know how we live day to day. And so while you know there are challenges that we expect these companies to to have to deal with. The fact is that the they're going to be around in the profitability and the growth that we expect from them is going to be there. And you maybe you end up getting some more competition that comes out of this and you get some of the less
known mega tech companies. You get a bit more of an inroads as you see a little bit more regulation and challenges coming through. Until we look at it as healthy you kind of progress that I'm used to having some of that come into the discussion. So OK you catch one of things that we've talked about a lot is what's going on in Washington or not going I'm watching it right now. But they have some sort of a framework whatever that means. And I think a lot of corporations breathe a little bit of sigh of relief that the tax part of it didn't go farther than they thought it was going to go. Right. Do you take into account the
specter of future earnings projections. Yeah of course. I mean we we understand that the tax burden which went down is going to shift back upwards to support all of the spending that we need to do some of which is really important in this country to address systemic issues around income inequality et cetera. And we are able to take that into the margins of companies. And while we expect to see some hit from that and also a hit from supply chain resilience which we'll talk about later we still see tremendously strong demand and actually a path forward for companies to continue to generate earnings. The one thing I want to comment about markets here is we've had the best October. What was it you said for six years. Six years. So we got markets up 25 percent year to date. We've had a lot of strength out of equity markets. And people always ask me what's going to be the catalysts like what would make things inflect. And I would really point if we get a troubled earnings season because that's
what supporting markets at these valuations. And so yes you know being able to predict margins and what's the impact on that's really important. OK. Prediction. Kate l hello. Let's go. Last one to you. What about earnings going forward. We've had a really good run. What are you looking at in the fourth quarter and 2022. Yeah we do expect a slowdown in the growth that we have been benefiting from but we're still constructive on the cycle. We think a lot of the supply chain issues will continue into 22 but they're going to start to dissipate and maybe you'll get a bit of a demand balance out from the consumer. But the consumer is still healthy. Companies are flush with cash and we're seeing more indicators of companies actually investing.
And from that perspective we feel good about kind of where earnings are but it's certainly going to taper off from what we saw in kind of the four quarters coming out of the other crisis. And you're starting to see that with this quarter but we're still constructive going on next year and companies will be able to you know kind of survive through kind of any inflationary pressures. And we're still much in the transitory camp. So we think that this will temper but it's still going to be a positive place for equities and earnings are going to help drive that car. Thank you so much for being with us. That's Kate L.
Hill. She is Russell Investments CIO Katie Catch of Goldman Sachs. We'll be staying with us as we focus specifically on supply chains and how prominently they have figured this week in those earnings reports. This is Wall Street week on Bloomberg. This is Bloomberg Wall Street week. I'm David Westin. If earnings were the big story this week supply chain difficulties were the constant narrative through all of those reports as we heard from the CEOs of Raytheon GM and Carrier. We're not immune from the challenges of supply chain. In fact we talked about this morning on our earnings call. The fact is we'll probably see almost 300 million dollars of lower revenues this year because we can't get material into our shops and we can't get the labor that we need. It will linger into next year. And we're right now where our feeling is we'll be in much better
shape in the second half of 2022. And we're also taking steps over the medium term to make sure we're never seen this kind of constraint not only with chips but with other you know whether it's critical materials or just the overall supply chain because we have an aggressive growth strategy in front of us and we're going to make sure that we can execute it. So it's a very it's a near-term problem that we'll work through supply. Demand is really out of whack. You see it in chips. Whenever you have to
buy chips right on the brokerage market it's always going to be painful and expensive. We see it on raw materials copper price steel aluminum. So we're seeing a lot of pressures on raw materials and Tier 1 year to pricing but we're managing it through price increases and we're having to be very aggressive on things like DNA having to be very creative on how we manage logistics. Katie Cacho Goldman Sachs has remained with us so we can talk about supply chains. So I heard about it all week long after you have to CEO. Tell us about supply chains. Where are we. So two main takeaways I think from this earnings season. I've also been speaking to a lot of CEOs. And the first is that it is very clear that unit growth has been constrained by supply
chain issues. So we'll talk a lot about tech. But let me talk about something very different from TAC. Let's talk about pools. We love pools. We've liked them for a while. They've been big pandemic beneficiaries are pool CEOs the ones building the pools and the supply. That's the one supplying the pools believe that unit growth could have been 50 percent higher without the supply chain issues there. They're facing the supply itself and of materials and also the labor because we're facing a great resignation in this country. And we're currently have the lowest labor force participation rate since World War 2. So that's a
big problem. So that all goes under. Unit growth is constrained. And then the second issue that the second thing that I would highlight on is something that Mary said I think is really really important. What she said is that when I heard her say is that over the longer term they're going to address this issue because they need to be positioned for growth. And I think what she means by that is that they're going to have to reassure some of this capacity and focus on supply chain resilience. And it is
it is my view that actually Wall Street has probably put too much pressure on companies to optimize their supply chain. And we're going to get a very a much better balance going forward between that supply chain optimization and the resilience that becomes very obvious that we need. So there are a couple of issues there. I think what is where do you get the materials from. Yeah. We relied upon some countries perhaps too much. We have to diversify. And that. Yeah. The other is how much
inventory we maintain. Justin time was very popular for a long time. Yeah very efficient for a lot of companies. Yeah. Is this going to affect margins going forward. If we make those adjustments in supply chains it costs more money. It will and it will impact margins. Most likely. And we're going to have to kind of get used to that. But of course we need the top line to come through too. And if people want to sell product they need to have inventories. So again it's going to come back to the
balance of these two things. I do think there is an incredible investment opportunity and our team believes there's an incredible investment opportunity in investing in the companies that are going to help reassure some of the manufacturing capacity of the United States of America. And so there I would point to you heard all those people are dependent on chips. Chips feel the world's they're fueling the technological advancement that we're seeing across all sectors. And so we can't be dependent on not just from another corner of the world. We're going to have to take some of that manufacturing capacity here. So we love chip manufacturing equipment. So back when I was running a budget cap cities Disney one of the questions I
ask every quarter we were down is is this a timing issue or have we permanently lost this revenue for someone. Let me ask a question with supply chains. When you see it down because the units as you know is that demand waiting for when the supplies there. Or could we lose some of the demand. Yeah. So in other words are people still going to buy pools and iPhones. Exactly.
And I believe they will. And they're just going to wait a little bit longer. Now of course that requires us to have a reasonable economic backdrop so that with that caveat. But they will add in the iPhone space if you had to wait longer you're not going to switch to another provider. You will go out and buy that iPhone. So in some ways we know that that demand has been kicked into to next year. But again these companies still have to position themselves for the long term runway of growth and they will invest in the restoring of their supply chains. Katy with just about every CEO I talked to the supply chain discussion came
right up with cost increases. Yeah. And inflation. It is the question. Okay is this last well into 2022 which it seems clearly will some people say even to the late 20s within. What possible effect might that have on. Because a lot of the CEOs we've talked to said we raised prices. Yeah absolutely. And so of course you want to be with the companies that have the pricing power to pass that through. I'd say three quick things. I am. We are in the camp that these supply chain issues last throughout 2022. There's not there's not an easy fix for them. And there's an investment opportunity on the back of that which we which we talked about. The second thing I would say is that the inflation in the labor
space is is real. We've talked you and I've talked a little bit about this before but we have failed to pass minimum wage in this country for many decades. We've now actually jumped over minimum wage because we've had to bid people back into the labor market. Now the question that we have to really think about is is that then a one time reset in wages. Are we going to get upward continued upward pressure. And time will what time will tell on that. But both of those suggest a higher cost structure. And I wonder whether our wage increase is actually lagging because if you
look at the consumer price index. Yeah it is going up faster than the wages are wages going up but not as fast. Does that mean we have to catch up at some point we could have even more wage increases. Well that's how you get inflation right. But it's very it's very determinant on on get that sticky upward pressure of wages going up which will put you know how that cycle works going forward. But it does benefit which companies you want invest in. And since it's so sensitive to that that wage inflation than others are. Yeah. So I would say right now we see a very healthy consumer. They're benefiting from higher
wages and we're seeing that come out in the data. If you look at credit card data just to show you the health of the consumer and why we like the consumer. We have American Express publishes spending trends. Spending is up 36 percent vs. two thousand nineteen. So we've had a big big jump in spending. The other thing I just want to say about consumer in terms of where we're focused. It's the millennial and Gen Z consumer that are driving a lot of
that increase because they like experiences over things. And it's safe now to go out and have experiences. And they also have a higher risk tolerance around experiences than baby boomers. Baby boomers spending according to American Express date is actually down 6 percent relative to two thousand nineteen. So we see health in the consumer that's repair. Their balance sheet has firepower and we're very much leaning into those consumer companies that have pricing power and can benefit from a healthier consumer. So unless feel we pushed you too far. Let's take you to the metaverse. And I think because if you're talking
about millennials and and experience rather. Yes that sounds to me a little bit like the metaverse. Yeah. So I love that you brought up the metaverse. Obviously we have one of the largest companies in the US decided to rename themselves this week to better which is Facebook. Not everybody knows what the metal versus. Very simply put it's the idea of looking at going from looking at the Internet to kind of living on the Internet. And for those of you at home who have young children you probably
know the road blocks company that allows you to build these virtual communities. And yes this is driving consumption online in new ways. And that consumption is going to be maybe funded by cryptocurrency. So it is very much a brave new world. The one thing I will tell you Facebook is excited about it. They've renamed themselves obviously and they're a plant. They spent 10
billion dollars this year against that goal. And that spending is going to go up year after year. They've told everyone that publicly. But if you're worried about living online all the time. I still think it's a long way out until we get to the full metaverse. For now we're still in real life. And if I had to pick invest in something right now it would be the great outdoors over the metaverse. Is that the next couple of years the universe rather than metaphor. Really universe. Exactly. Oh it's very retro of you by the way. For those of us who are small children we hope that it's going to take a while. That's true. It looks a little scary. It isn't real scary. OK. Thank you so much Katie. It's
always great to have you in the studio now. Yeah. That is Katie Couch in real life. In real life. The multiverse. We're not together. That's Katie CAC from Goldman Sachs. Coming up we take a look at the week ahead on Global. Wall Street. This is Wall Street week on Bloomberg. This is Wall Street week. I'm David Westin. Let's take a look at the week ahead on global Wall Street starting with Annabel Drillers in Hong Kong. Well David we'll be digesting the results of this weekend's election in Japan over the coming days. Over in China we'll have another pulse check on the depth of the slowdown. Now a private
PMI survey is due Monday and the annual International Import Expo will be another focus. Now that starts on Friday. Over in Shanghai and typically begins with a keynote from President Xi. Plus we'll have a closely watched right decision in Australia on Tuesday. This of course the latest battleground for market bets that central bankers will need to tighten quicker than planned. To Lauren right now. Banks are unavailable here in Europe. It's all about COP 26.
Global leaders will descend on Glasgow with the primary goal of preserving a target no more than one point five degrees of global warming. On the agenda ending coal use stops in light of an energy crisis within Europe and Asia have also raised one hundred billion dollars for poor nations and the 2015 powers pledges. We also have a rate decision from the Bank of England sticking with financials. Earnings from Credit Suisse on Standard Chartered Taylor. Thank you Laura. I'm Taylor Riggs here in New York. I'll take over for some of the U.S. news that we're looking forward to. Of course big earnings still to come. Uber and Lyft of course you know that these are such a gauge for the reopening mobility food
delivery. But frankly we have to say the big news all comes from the economic side. First starting of course on Wednesday going to be that Fed meeting where economists are really looking for the Federal Reserve to announce a taper of those asset purchases. Sticking with the economics the third big piece of news that we're going to be watching on Friday is Jobs Day. We're coming also the third quarter GDP that was a little weak. But weekly jobless claims that do look strong. The median survey here on the Bloomberg terminal showing about 500000 jobs to be added. Back to you David. Thanks to Annabel Laura and Taylor. Coming up the inflation hedge you may not have thought much about the beauty of owning land especially when it's farm land with new VIX CEO Jose Minaya. That's next on Wall Street week on
Bloomberg. Inflation. It's all the talk these days among investors because of what it could do to your portfolio. As Nancy Davis of Quadratic Capital explains inflation is a risk to every investor portfolio because it reduces purchasing power. And Treasury Secretary Janet Yellen took to the airwaves on CNN to disagree with our own Larry Summers about how long it will last. But
while people are debating the size of the problem investors are left to make sure they're protected against the downside. Looking for what Bob Prince calls inflation hedge assets. You want inflation hedge assets because it's very likely that the rise in interest rates will lag inflation and lag the economy. The Fed doesn't really want to get ahead of it ranging from things like gold to things like cryptocurrency according to Larry Summers. Bitcoin has had some emergence as digital gold. The thing you want to hold if you're worried about inflation. When asked if that might get overlooked as farmland. Historically farmland returns have outpaced inflation in a variety of market environments. Fighting returns more than
double the inflation rate for decades. And right now the farming sector is booming. It's a really robust story right. Net farm income is projected by the Department of Agriculture to be up 20 percent to a level of one hundred and thirteen million dollars which is a level we haven't seen since 2013. So in aggregate on average across the country that's a really good story. Welcome now to Wall Street with one of those who is focused on farmland investing as a sensible hedge against inflation. Hosam and I is the CEO of Newsline which manages over one trillion dollars in assets. Welcome. It's great to have you here. Thank you for having me David. So. So you really are introducing me to this whole idea about farmland as a hedge against inflation. Tell me how you came to it and how you think of it today. You know we came through it through our traditional portfolio
construction process. Right. We were looking for assets that brought attractive correlation benefits to to our portfolio. We were looking to smooth out volatility. We're looking to kind of find a good hedge against inflation and also looking at total returns of where we're more skewed towards income income returns. And we found that in land. But what made farmland really attractive to us. I always say is one of the best investment theses I've come across because it's as simple as
people need to eat. Yet what we found was you have a inelastic demand supply. Right. It's one that the populations are growing middle classes. The middle class is growing. It takes 10 pounds of grain to make one pound of protein so that as they're consuming more protein that demand is continues to be pushed and it accelerates. You look at the supply side it's also inelastic because they're not making any more land. If anything production is being trained by environmental factors. So when you combine that it made for a perfect place for we can fit in our portfolio construction. So give us a sense of the return from this sort of
investment over the longer term. Because I've seen some pretty staggering numbers and you know and obviously like many many different investments there are different risk return profiles. But for us typically we're seeking call it mid to high single digit returns. If you say 8 to 10 8 to 10 percent returns half of that is coming from income. The other half is coming from from capital appreciation. And the lower return is because there's different risk profiles. We we go to the areas that we're more protected against natural disaster issues or climate change. Water is a key factor in this asset class. And you can
you can mitigate mitigate that risk by going to areas that have more a better source of water. They're going to be more expensive. Your cap rates or returns are going to be lower. But again we're not investing in farmland or really alternatives in general for an outsized return. We're really looking for where can we find some of that stable stable income with good
protection of our principle. All right. When I think about farmland we're buying land that is producing an essential need for society into perpetuity. So that gives me really strong intrinsic value. So it's almost like owning a triple A bond yet I'm getting it for plus or so percent coupon on that particular asset that has really been stable through the years. No volatility perspective pose a compare and contrast a little bit. This asset class from other alternatives on two different
matrices. One of them is stability. You just said volatility. How does it compare to volatility. And the other is we're all talking about inflation right now and how we're gonna protect against inflation. How does farmland do. Well farmland again how it compares to other asset classes today is that it's it's not as further along in terms of its access to capital markets where when you look at Sharpe ratios for example farmland really pops relative to another real asset like real estate that a lot of that has to do with liquidity and access to capital. If you look at far if you looked at real estate 50 60 plus years ago it had around a similar profile in terms of who were the owners of those assets today. You and I can go to talk to an advisor or a broker and get exposure to real estate. You can't do that in farmland as much. So that again that inefficiency kind of adds to the alpha in the excess returns that we can derive from from from that asset. And then ultimately it's a commodity. So from
an inflation perspective that dynamic of inelastic demand inelastic supply right. As that as that stretches and commodity prices typically go up and follow inflation it's proved to be a very very strong hedge against inflation. So why hasn't farmland historically had the same access to capital markets. I mean what are the markets missing here. Where's the fail. Well look I
think it's you could said the same thing around is just when these CAC when these opportunities come to market in what is happening from a societal perspective. Right. So today that demand is being stretched. Right. We've seen production productivity of agriculture go up about 70 plus percent since the 60s. So if I think about we're projected to have around call it 10 billion people approximately by the year 2050. We also know that today around 35 percent of the population consumes less than twenty five hundred calories a day. That's forecasted to go to 3 percent in the future. That is an immense stretch on
the need and the demand to improve productivity. And it makes this asset class more attractive. So as individuals when we went from just investing in stocks and bonds then finding more alternatives like private equity like real estate like infrastructure it is that need of where are the places you can put capital that continue to provide better diversification diversification benefits for your portfolio. One aspect of liquidity. In general we think you're giving up liquidity if you're going to make this investment is that right. Or are there vehicles in which an investor could actually have somewhat more liquidity. Yeah. NYSE term. But I'm obviously somewhat biased because I grew up in the on the private side of investing and I was liquidity as an illusion. Right. And what we found even in the global financial crisis other areas you know your bonds
trading at 20 cents on the dollar do not feel like liquidity to me yet. We also understand that that we love investing in illiquid assets because it adds to the excess returns that we can get. Our ability to diversify our portfolios get access to these assets. We're willing to trade the liquidity for this stability in the excess returns that we get. Let's talk about how the business of farmlands are likely to evolve in the coming years. First of all talk about climate change. One of the things we hear from the people who are most concerned that climate is farming is really continuing sort of the problem. We're putting
carbon into the atmosphere. The mere tilling of soil as I understand it will generate some carbon. But certainly you have things like cattle and things. How is that going to evolve as we go forward. How we're gonna meet some of our goal goals globally for the climate climate. Consistent with the need for farming that you describe. And I think you know usually that on the carbon side of things livestock is kind of more of a bigger contributor to kind of the carbon footprint on the farmland side. I think farmland actually could be a benefit of reducing carbon footprints. And you're seeing technology come into play today that is transforming the industry. You've got driverless tractors that are there. You have the ability where before you had to spray an entire field. Now you have technology that can identify the spots to kind of go in and say OK I'm going to
spray here but I don't have the spray in this other location. We ourselves use satellite technology and intellectual property that we can look from above and say well one where the areas where do we see yields improving or worsening. Where how do we become more specific with how we deploy insecticides or how we deploy different soil soil amendments and even aid. Now being
able to use that technology and saying what would happen to the productivity of this region or this farm if temperatures went up by one degree or when it went down by two degrees we can forecast that now and mitigate these risks and go to the areas that we think there's going to be higher value in the future or areas that we think might be at risk in the future. Exactly. Can I ask you because there's no other way climate interacts with farmland which is we read now that the areas of the world that have not been something you could raise crops on that will become Siberia something you hear about other areas including perhaps for the United States that will no longer be usable. And we follow those trends down. The interesting thing is that you know the amount of infrastructure that is in place to make agricultural work in the areas that it does today is in the trillions. Right. You think about the Mississippi River you think about barges ports storage
processing. So the first thing that will happen is it'll impact values. Right. Because commodity prices if they're strained because the weather's changing commodity values will up. Yet if you go to Siberia it becomes a tropical paradise. It would take trillions of dollars if not hundreds of billions to get the infrastructure in place in time to be able to make that area that you can grow a crop. But now you have to be able to transport that crop. You have to be able to process that crop. And that's why again when you think about demand supply there's so inelastic is making broad moves within agriculture takes a tremendous amount of time and capital. There's an awful lot of international trade in agricultural products. How do you take
that into account. I mean we've seen that within the last couple of years actually the fact that China and soybeans and Brazil the United States. Well for us look at one key tenant to our investment thesis. And in our actually said our investment process we only invest in the regions that are the major grain exporting regions around the world. Right. So we don't want to be involved with food security. Number one we also want to be closer to the areas that we know are growing quicker. So do you
think about the US for example. It's in the mid single digits the amount of our disposable income that goes towards food. Other regions that's 50 60 30 40 percent of disposable income is going towards food. Now what's meeting and lowering that number is increased productivity. It's kind of going in and go into these regions that we know are closer to places like Asia that
are had the faster growing middle class. Zaman ISE thank you so very much. She's moving CEO here on Wall Street. Coming up we wrap up the week once again with our special contributor Larry Summers of Harvard. That's next on Wall Street week on Bloomberg. This is Wall Street week. I'm David Westin and we're delighted to welcome once again our special contributor to Wall Street
Week. He is Larry Summers of Harvard. Larry thanks for being back with us. Let's start with what happened actually on Thursday just as the president was leaving to go over to Europe. He announced what he called a framework for something on his build back. Better plan. Not clear how that's going to develop. What's going to turn into law. But let's assume it was enacted just as it's proposed described by the White House. What would it do in macroeconomic terms. What would it do to growth. What would it do to inflation. I don't think the effects are likely to be large in the very short run but I think over the medium term it'll be a positive for growth because it will expand the capacity of the economy. And I think there might be some benefit
in terms of inflation. I don't think it's likely to be large. I think there are a number of important investments there including in the bipartisan infrastructure bill which will come along with it. I think there are some movements to promote clean energy which ultimately I think can help our economy. I think it's a very positive thing that it's there's a significant increase in revenue that matches the increases in expenditure. So I certainly hope that this bill will pass. It's far from perfect but I think it's a real achievement and is in many ways one of the most significant
pieces of economic legislation we've had. It might be the most significant between the two bills piece of economic legislation we've had in the 21st century so far. So Larry you mentioned how it's gonna get paid for the proposals at least on taxes. And you saw at the very end they backed off of the so-called millionaire's tax which is actually a proposed tax on the appreciation of assets held by people rather than income. They now have sort of a surcharge on multimillionaires as they call them as well as a minimum corporate tax of 15 percent. Is that as a matter of tax policy a more sensible way to go. I thought the billionaires tax was not the right thing to do. I thought the mark to market capital gains aspect was impracticable and I thought the general idea of targeting a few hundred people for a special tax was something that didn't fit with my sense of the right values. Much better to have a broader base tax. Frankly David what I think is disturbing is that in the way this bill is
likely to pass it's not completely clear yet. Depending on what happens to state and local taxation there will be a large number of people with incomes of say 8 or 9 million dollars who are going to see their taxes go down. And I'm not sure that this was a time when people in the top tenth of a percent of the income distribution top hundredth of a percent of the income distribution should be getting tax cuts. And so I'm disappointed that in a bill that's passing only with Democratic support we're not doing anything about top rate taxpayers until they get above 10 million dollars. We're not doing anything about capital
gains. We're not doing anything about carried interest. We're not doing anything about so-called stepped up basis and estate tax issues. I think it's an odd thing for there not to have been more taxation on people who can afford to pay it without going to the rather different step of signal singling out a few hundred people. So let's talk about the overall economy here. We've got numbers out this week showing that growth was slowing as Bill expected but it's slowed a bit more than we thought in the third quarter in terms of GDP at the same time. Corpus continues to move up and we've talked about inflation a fair amount. You were certainly in the news this week because
actually on Sunday CNN played for Janet Yellen as treasury secretary. One of the things you said on Wall Street week right here she disagree with it and then you disagreed with her on Twitter. Take us into that debate that you're having right now with the treasury secretary. Look I have enormous respect for Secretary Yellen and I hope her judgments about inflation prove to be correct. I have the view that we've got substantial risks right now. It
seems to me that almost everyone is experiencing a shortage of something. Almost every employer is having trouble finding workers. Those seem to me to be. The conditions for inflation to take a ratchet up from the 2 percent level we've been used to and I think that's going to happen and it's going to happen with an indefinite horizon unless somebody does something pretty strong to stop it or unless we have some kind of financial accident. That's the position that I've been trying to make. I was glad to see Secretary Yellen recognize that certainly out to the second half of next year. So that's almost
a year from now nine months. We are we're in agreement and expecting inflation well above 2 percent. I was very glad to see that. We'll see what happens after that. Certainly a lot can happen both in terms of policy and in terms of the economy until then. But right now I see a variety of things suggesting that inflation may accelerate starting from the tremendous shortage of labor that we're dealing with which is I think what held the economy back in terms of the GDP growth figures. So let's talk about those two things or both how long it's going to last into 2022 and the shortage of labor because we've had a lot of earnings out this week and we hear from CEO after CEO about problems in the supply chain in particular on labor. In fact we saw Amazon actually disappoint the markets because they say they're going to have to spend a lot of money to get the people they need to deliver things in Christmas. What is the importance of going into 2022
into the middle of 22 maybe even after that. How long does that affect the economy. You know we'll have to see. We'll have to see at what rate. Labor supply comes back. And if labor supply comes back when it comes back if it does we'll have to see how much that adds to spending power. You know if more people start working then more
people are going to be earning and more people are going to be spending. And so in terms of the supply demand balance it may not get us ahead by that large margin. So my own view is to be quite concerned that we're ratcheting up to a new kind of level of wage expectations. Larry finally as you know we've got a G 20 summit going on in Rome this weekend and then
followed by the top 26 in Glasgow. What do you hope. What do you expect might come out of that in concrete terms. On two fronts. One is the climate but the other one the things they have to address is really vaccination and getting our arms around a pandemic globally. I hope we're going to see commitments on funding for vaccines commitments on some kind of governance structure so that it's better managed the next time. And so we're focused on preventing the next global pandemic. And I hope we're going to see substantial commitments where there is a meaningful prospect of enforcement on the climate front. I'm not optimistic right now that we're going to see as much progress as I think future historians will think we needed on either global health or vaccines. But let's see when life can always happen in the course of these meetings. So let me be very concrete for a
moment. When we talk about trying to keep it down to one point five degrees centigrade do they need to come out of COP 26 with some specific commitments about limiting the use of coal at some date in the future. It would certainly be very helpful. Or they need to come out with some set of commitments on what they're going to get done in terms of being able to take carbon out of the atmosphere. We are not currently on a credible trajectory or anything like one point five. I think it would be a minor
miracle if coming out of cop we were committed to such a trajectory and the sand is running through the hourglass. Okay. Well we'll have to watch that. Thank you so much Taylor. It's always great to have you with us as Larry Summers of Harvard our very special contributor here on Wall Street. Week. Coming up one more thought of billionaire tax patriot tax. Who could have Jack. That's next on Wall Street week on Bloomberg. Finally one more thought. A trillion dollars just ain't what it used to be. The late senator from Illinois Everett Dirksen famously said a billion here a billion there. Pretty sure you're talking about real money. Well at least some people remember
they said it. There's no real record that he did say that. But this week we were talking about a thousand times that billion as Democrats struggled to get their spending package down under two trillion dollars. You hear these numbers three point five trillion or one point seventy five trillion. We pay for it all. It doesn't increase the deficit one single cent. So let's get to work. And the key Senator Joe Manchin pointed out that all of World War 2 and the Marshall Plan cost the United States only about four point seven trillion dollars in current dollars. And we've already blown way past that in the
last year and a half before adding another one point five. We saved the world and we're we're to we rebuilt Europe on today's dollars at four point seven. We already spent five point four. And we're about to spend a heck of a lot more. But it wasn't just the government this week who was talking about trillions of dollars. Tesla blew past the trillion dollar market cap. No. Making Elon Musk a quarter trillion air. It wasn't just the T word that connected Tesla with Congress this week when lawmakers went looking for some way to pay for some of those new programs they want to adopt. They quickly focused on the very wealthy people. Yes you guessed it. Just like Elon Musk. At first they came up with something called the billionaires tax which
actually is not a tax on income at all but a tax on the increased value of assets held by billionaires. That is something that made Republicans like Mitch McConnell apoplectic over the unfairness of it all. Our Democratic colleagues and President Biden are behind closed doors dreaming up creative new ways to grab literally historic amounts of the American people's money. But then again Democrats like Sherrod Brown of Ohio said it would only be fair. We've seen executive compensation explode upward. We've seen profits go up. Wages have been flat in Congress has rarely been on the side of workers. This Congress in these two bills were clearly on the side of workers into fixing that. Democrats who may have backed off of that so-called millionaire's tax but they replaced it with a multimillionaires surtax because in the end then that's got shall get. But you may
have to give some of it back. That does it for this episode of Wall Street Week. I'm David Westin. This is Bloomberg. See you next week.
2021-11-05