tv Bloomberg Markets Americas Bloomberg April 30, 2021 10:00am-11:00am EDT
guy: friday the 30th. last day of the month. 30 minutes into the trading day in the united states. in london, i'm guy johnson. alix steel is in new york. last trading day. it has been a pretty choppy month. and the data out of the states continues to look pretty sharp. alix: really good. i just want to update you on where we set on the markets. we got some amazing personal income and savings numbers. we will break that down in just a sec. jp morgan had a note out that said don't sell and go away in may. today, everything feels kind of soggy. the s&p off by 0.3%. most sectors are in the red. i pointed out communications services, that is where twitter is going to stay here. 10 year yield pretty much going nowhere. i did want to highlight the copper trade. it broke $10,000, but there are
some signs that maybe we are getting a little heavy inventories building in china. maybe the demand sorry is going to see -- demand story is going to see a bit of a break. maybe the super cycle story takes a bit of up here. guy: data continues to come out, and it continues to be pretty strong. you talked about the numbers earlier on on pce. university of michigan coming out, headline number a bit of a beat, 88.3, up from 86.5. the survey number, 87.5. let's dig into the details. current conditions, 97 point two. that's a little bit softer, but adding in line -- but bang in line with last time around. expectations, 82.7. alix: we are cruising, and inflation expect patients are kind of cruising, too. the one you're inflation expectation, 3.4%. for sure above -- the one-year inflation expectation, three point 4%.
for sure above 2%, but less than the last read. mike mckee has more. michael: at 8:30 we got some very good news brought on by the stimulus, which probably made people a lot happier as well. we saw personal incomes rise by more than 20%. 21.1%, the fastest, highest, biggest, whatever you want to call it since 1943, when the data series began. we spent more money, 4.2% of our income. we also saved more money, 27 .7% in the personal savings rate. so there is still some money that can go into spending, which is probably why people's view of the future got a little bit better. i think the numbers that the fed are watching most closely is that university of michigan five-year inflation figure. it is 2.7 percent. did not change. the one-year inflation number does fall to 3.4 percent from 3.7%. that's going to be a bit of a
surprise, given the talk about how people are going to be experiencing inflation in the short run. they don't seem to be. if that is the case, it makes the case for more, hold onto your coffee cup or your shot glass, transitory. alix: ok. lisa: preston cope -- guy: percent go -- guy: proseco glass in alix's case. alix: or proseco rose. that's the thing. guy: it's been the busiest earnings we can the u.s., coming to a close now. what a week it has been. amazon up 2.4%. just hit an intraday record. abigail doolittle is here to talk us through what we have seen and what we got. abigail: another blowout quarter from one of the mega cap tech companies.
profits of $8.1 billion tripling. $26 billion in profits, more than the previous three years combined. that is really extorting their. the stock in the premarket -- or the post market, excuse me, really popping in reaction to the strong quarter. gaining some ground because earlier, it was actually only up less than 1%. some investors, one of the things they wanted was the announcement of a split first box that is more than -- for a stock that is more than $3500. it makes it a little bit more palpable. relative to the reactions, one of the puzzling reactions this week, amazon up nicely, but maybe you would want it to be up more. the best sector on the earnings reaction is the telecom communications services, up 1.4%. but the rest, very muted
reactions. tech overall down 1.6%. putter today absolutely plunging on a mediocre quarter. apple closed down yesterday after a pretty good quarter. if we go into the bloomberg terminal, we are going to see something that doesn't necessarily reflect this on top is the foot to -- this on top. -- reflect this. on top is the put to call ratio. they are going into names, but doing a little more hedging on a broader level. alix: great set up. really appreciate it. less break that down even more. earnings growth and peeking profits are two of the things that market strategists like lori calvasina of rbc are watching. she wrote, "expect patients for decelerating growth in the back half of -- "expectations for decelerating growth in the back half of 2021 are a problem." going us now is amy wu silverman, rbc capital markets equity derivatives strategist.
how do you play that in the options market? amy: it is a great question. one thing i would tag onto that is when you actually look at the earnings moves that were implied by the options, and then what actually happens on earnings day, most of these companies are not beating their implied moves unless it is a move to the downside. twitter is a good example of that. if you are selling the upside through calls, you are essentially saying there's going to be a move that beats that option implied move. it is probably going to be on the downside. why is that? because expectations have been set very high, and we are seeing that with stocks not really getting rewarded that much when they do great. guy: can you just talk to me about the pricing of downside protection? are people paying too much for it right now?
i appreciate the earnings season hasn't delivered the upside move in equities that somewhat haven't is abated, given the strength of the numbers, but can you give me the skew on the pricing? what am i looking at in terms of what i have to pay for downside protection? amy: your commentator earlier highlighted this, which is if you look across single stocks, there's not really that much hedging going on. but it is happening on a broader index level. we are seeing this activity in hedging pickup in iw m, s&p, and qs. -- and q's. three months ago it was all about vaccine recovery versus the stay-at-home trade, and the market isn't really trading like that anymore. it hasn't been rotational. it has really been a broad-based pickup at index levels, but not really on particular stocks. when you think about pricing and the fact that some of these earnings when they do actually
beat to the downside, that is not being priced into the options yet. if you are going to own downsides, it is probably better to be selective and do it on the single stock level than may be the index level, without a -- index level, where that pickup has happened. alix: where are the options cheap enough to do it? amy: we are obviously through a lot of the mega cap tech names. some of the late reporters tend to be more on the consumer discretionary and retail side. we still have weeks six through eight of her earnings. some of the cruise lines, we look at sort of the implied moves relative to an eight quarter history, that still remain inexpensive. the bulk of mega cap tech right now is probably going to continue to decline, given that the earnings catalyst is out of the way. guy: vix is at 18. buy or sell? amy: it is probably still a sell.
the one thing i will say is when you look at vix normalization in the last few markets, like 2008 and even back to the internet bubble, it takes a lot longer for it to normalize. this has been the speediest renormalization in the past 30 years, and part of that is it has been the speediest move up and down because of the pandemic , which really is an unprecedented event, so i think it will probably go lower. alix: usually it is sell in may, go away. jp morgan mentioned this year, you don't want to do that because the inflation risk is probably going to come back. however, liquidity is going to thin over the summer. are you noticed that -- are you going to notice that preston -- are you noticing that priced in? amy: your term structures, your future options still remain kind of ick, especially on vix. but the one thing i would say, we were talking to a client about this, when you lack the pandemic, there are some things
that are going to happen this year that did not happen last year. of course, there's back to school. there was no back to school season last year. when you are looking for ways to play events, you're now getting events that weren't really priced into a one year history of options that are coming back that people need to focus on for the summer months. alix: as our daughters will be very happy to hear. thanks a lot, amy wu silverman of rbc capital markets. coming up, chevron seeing bumper cash flow on crude rally. the company's cfo p or briber -- cfo pierre breber is joining us next. this is bloomberg ♪ -- this is bloomberg. ♪ mberg. ♪
today. the stock up 2%. on adjusted basis, earnings coming in $0.92 a share. earnings your on your weaker, as well as upstream earnings, but the big number was that cash flow, throwing up a lot of extra fee cash flow at these oil -- extra free cash flow at these oil prices. let's break more down with pierre breber, chevron cfo. thanks for joining us. earlier this week, you guys raised your dividend. it feels like a lot of the analysts and shareholders were hoping for some buyback clarity. why not do buybacks now when you are throwing off so much free cash flow? pierre: well, it was our strongest quarter since the pandemic, with our highest earnings and cash flow. the dividend increase you talked about, some really strong balance sheets. the dividend increase is
consistent with our priorities. our number one funds go priority is to sustain our dividend. in terms of a share by that we will look to sustain a share buyback program for multiple years through the commodity price cycle, and that means we want to have confidence around future excess cash generation and have the balance sheet in an even stronger position. alix: does that say something about where you feel the price of oil or oil demand is going to go? it feels like this is may be as good as we are going to get, so why not now? pierre: i thing it is going to get better. certainly in this country, there is reason for optimism with the high vaccination rates and the stimulus package coming. other countries have control of the virus. unfortunately, a number of others do not, so we are not yet on a path to sustained global economic recovery. but as we look to demand for our product, gasoline is back to pre-covid levels, diesel is probably a little bit higher. jet fuel is really the last piece, and it is poised for a comeback. we will see that in domestic air
travel, and the hopefully international travel soon after. so we are optimistic about the future. we will generate even more cash where oil prices are and refining and chemicals margins. guy: we are all looking forward to getting on a plane, to flying internationally again. the oil price and derivatives are pretty much back to where it was pre-pandemic. your share price isn't. u.k. minute one under 20 want -- you came in at $121, now trading at $104. pierre: we need to earn higher returns, and that is by being disciplined with our capital, and we need to sustain those higher returns in a lower carbon future. we are very aware of where our stock prices, and working hard to win back investors to the sector. we can do that by generating more cash and continuing to advance a lower carbon future. we have exciting announcements
in terms of projects with partners, toyota, schlumberger, and low carbon businesses going forward. alix: not to harp on this, but does that mean you have to get back to pre-pandemic levels for you to do buybacks? is that the qualification your kind of hinting at? pierre: no, there's no target. we are going to use judgment. our free cash flow is actually higher this quarter than it was in 2019, so similar oil prices, even with refining and chemical margins, is a little bit weaker. they look better going forward. our free cash flow is higher because our capital is so much more efficient. so we have strong free cash flow. we are now over $60. we will generate excess cash, even more excess cash, but we are going to do things consistent with our priorities, increasing the dividend by way of most of our peers. we are the only one that sustained it and grow it. we grew it 8% last year, so on
average, 6% during a pandemic. looking forward, we will generate excess cash, but use our judgment on when is the appropriate time to start a buyback, and sustain it for multiple years. this is the first quarter of positive free cash flow. we want to sustain the program for multiple years. alix: in terms of cutting the dividend, that really shines the light on european majors like bp. it is being widely reported that exxon and chevron talked about teaming up. would you look at bp, for example? pierre: i am not going to speculate about m&a, but i can say we were the first to do an acquisition with noble energy in july, just a few months after the worst of the economic crisis. we closed it in october. we have been operating as a combined company for two quarters. we have assets in the eastern mediterranean and in colorado. we are really happy with the integration.
we don't need to do a transaction. we showed during our investor day that we can sustain and grow our enterprise organically. of course, if there's an acquisition we think and mick that story better, we will pursue it if it is in the interest of our shareholders. guy: is the lesson that the acquisition has worked must that are -- worked much better than you went is abated? you have accelerated the timeline which you have been able to generate returns. has that given you confidence that you can continue to do this, or was that simply a one-off, just a really nice fit, and maybe couldn't be replicated elsewhere? pierre: the timing was right, it was the right company, and what looked like a good deal then has only become better. i thing this industry will continue to consolidate. whether chevron participates are not really depends on if we can get the quality assets at the right value. it makes our story even better. we don't need to do a transaction, but we have shown
in the past, if you go back to texaco decades before, that a transaction that makes the company better is something we can pursue. guy: the world feels like a pretty volatile place right now. we are dealing with a number of challenges. the pandemic is but one. climate change is another. geopolitics continues to feature as well. do you think that you and the industry are looking more nimble now than you ever have before, certainly over the last few years? there was a time when oil majors did huge projects in really difficult to reach places. that time feels like it is over. are you more nimble now? are you more able to react as things change? pierre: yes, i think so, to a certain degree. talked on our investor day about being prepared and adaptive. it requires all three of those characteristics. what is very different is the
shale resources like in the permian basin that are much shorter cycle investments, much more flex will. if you go back a year, we were planning to do a $20 billion capital program. when the world changed in march, we ended up under $14 billion for our capital. we could not have done that five years ago. we can do that because our capital program is much more flexible, much more efficient. alix: to that point, does that mean that you will not be buying more permian assets? you said that you guys are kind of done there. do you stand by that? i know you are not into the huge projects, but guiana is a huge project for oil that you are not in yet. it is definitely more of an exxon thing. do you feel pressure to look at that at all? pierre: we have one of the world's biggest projects in kazakhstan that we are close to completing, so we certainly have a major project there. we have some great develop at
offshore in gulf of mexico that you will see under construction, and moving forward over the next several years. but shale is a very competitive asset class. we showed in the permian basin with our royalty advantage, we were free cash flood positive last year. we can grow that free cash flow over time. we showed at our investor day we can still reach when million barrels of oil equivalent per day. we haven't said we wouldn't do an acquisition in the permian basin. we are just so well-positioned that anything we do has to make us even better there. alix: does that mean guyana is something you aren't looking at? pierre: we have some and s -- we have some in sewer and -- in suriname. we are not going to be in all the assets in the world. guy: what tax rates are you plugging in for next year? pierre: first of all, we support strengthening infrastructure in this country. it is important that our tax
code is competitive with other jurisdictions. if not, we have seen capital moved to other countries, and that will move the jobs, and jobs in the oil and gas business are very good paying jobs you can raise a family on. so i am not going to speculate on that. we are certainly going to work with the biden adminstration to have a fair tax code and competitive. -- and competitive tax code. alix: but it does seem what the path of least resistance is higher taxes. i am wondering if you think that overall, especially if we see some subsidies come out of the market, are you going to see higher cost of capital to drill? is it going to cost more? is it going to slow production? pierre: right now we are not seeing higher costs in our sector. we are seeing a little bit on steel that is in our drilling operations. we have to win back investors by delivering higher returns, lower carbon. if our cost of capital is up, it is primarily because the sector has underperformed other sectors. we are one of the few that is lower post-covid than pre-covid.
so we are going to win back investors by being disciplined on our capital. we are a global company, and our capital can earn the best returns, and tax policy is absolutely relevant to that. but again, we have opportunities around the world. we are a big investor in the united states. oil and gas jobs are good paying jobs you can raise a family on, so we hope to invest here and see where it goes. alix: this is not a numbers question, but may be you can give me some hints into how you guys are thinking about it. in terms of texas, that was a huge event for the entire industry. do you have any plans to winterize any equipment after that storm? do you think we are going to see that pressure from regulators? pierre: it is being looked at by the texas state legislature. there could be instances where we do weatherize our equipment more, but it is a very integrated energy system. in some cases, it is the power that goes to our facilities that was the issue. in some cases it with the pipelines in the processing facilities downstream. so i think the industry has to
look at it with the regulators as an energy system and work on all of the components because if one piece of the puzzle fails, you might have made other parts more resilient and still not delivered. so we count on being a reliable industry, and we can absolutely make our energy system more resilient going forward. alix: we really appreciate you spending the time. pierre breber, chevron cfo, thank you very much. i do think that the idea of how you deal with winterizing texas is just one piece of the puzzle. you have to wonder, as these guys are confronting esg investors in the long run, doesn't wind up raising your cost of capital? it seems like investors are saying please don't do that. please just drill well and drill fast, and give us money. guy: absolutely. that is the point at the moment about returning money to shareholders, and that continues to be the consistent theme you hear from the majors, from the
listed shale guys as well. what you don't hear it from is the private guys. to the point about whether you winterize or not, that was a long-term event. you get these events every once in a while. they are going to happen. you prepare for them? do you invest in them? i don't know. we don't get much snow here in london, therefore we don't invest that much. but when we get snow, it is pretty bad. you then have to think about, just to bring the climate change thing for circle, we are experiencing more and more extreme weather events. alix: exactly. guy: so all of these industries in different parts of the world, i think it becomes more and more difficult. do you invest in them or just suck it up when it happens? i think that is the real challenge in terms of the budget. alix: also, in terms of oil in particular, they are under pressure not to spend a lot of money, but they still have to spend a lot of money in order to keep current production flat. not even grow production, but
keep it flat. that is another wrinkle as well, an addition to spending on stuff like winterizing or alternative energy. chevron has a biofuel segment that is near and dear to your heart, which is very profitable, but still quite small at the end of the day. guy: in some ways, this is industry runoff. do you want to invest in that kind of business? do you take the cash and invested in the nexgen business? how much do you actually want to put into current jen business -- current gen business is a tricky question. alix: which is the whole question with the bp stock as well. it was a fun conversation. thank for that. it is time now for the bloomberg business flash. here's ritika gupta. ritika: bloomberg has learned that apple will be formally warned by the european union that it that payments -- that it's app payment systems may violate antitrust laws. that could lead to big fines.
four years ago, the bloc ordered apple to pay back billions in back taxes. shares of clorox are lower after it cut its earnings forecast and sales declined. that highlights the company's challenging path as the pandemic wanes and americans buy fewer disinfecting supplies. clorox also faces higher commodity costs across its most profitable segments. china is cracking down on tech companies expanding and finance. regulators have imposed wide-ranging restrictions on the finance arms of 13 companies, including tencent and i dance -- and white dance -- and byte dance. guy: rick at talking about what is happening now with the eu, and this relates to the app store. it relates to a case brought by spotify, and maybe reinforces that case. the big question, and i think the more interesting story around apple right now, is not
what is happening at the eu, but what is about to happen in california when we get this case coming up with epic games. i have two sons. "fortnite" is something i'm aware of. and i think this is where -- alix: -- it has been growing, so does a crib their growth in the future? that is a sink under conversation we have with facebook and amazon. kennett crib -- the same conversation we have with facebook and amazon. can it crimp the growth? guy: it relies on that install base and being able to monomer
eyes -- to monetize in a number of different ways. in the app store is sort of front and center. the question is, are they doing what they say they are doing with that app store? are they delivering on that side of the promise? that is where epic games has an issue. alix: i didn't know this, but there's also an antitrust case, or scrutiny, in the netherlands and russia. i did not know it was also in the netherlands and russia as well. there's also been probes into apple pay as well, and looking into the gaming apps. guy: but this is a company that just continues to make money. alix: a lot of money. guy: my biggest take away from this week, i am trying to figure out exact a what it is in terms of the detail in the granularity of it. the faang stocks, the big tech, basically everything absolutely making masses and masses of
money. wall street really missed just how strong these numbers were going to be. stocks have drifted sideways. it picked up a little bit recently. the question now is does the muted reaction signal that we are about to get a series every ratings -- series of re-ratings, then we get another like higher? or is this an indication that it will be a struggle from here to mcmahon -- to make money? my sense is that there is potential for a re-rating. i am really fascinated to see what the analysts say because everyone has been so surprised. the analysts are in catch-up mode. or in your case, catch -- your case, ketchup mode. alix: they sound the same. to your point, amazon rallying to an intraday record high on friday, over $3500 a share. so that number continuing to come in, and actually getting some upside due to how much
money at actually wound up making in the quarter. however, rest of the stocks still trading pretty heavy. twitter bringing down communications, copper turning a little bit negative. but it does feel like we are in a bit of a wait and see mode to get an earnest -- to get an earnings break next week as well. this is bloomberg. ♪
alix: this is "bloomberg markets ." bernard delpit, safran cfo, will be joining bloomberg 11:30 a.m. new york, 4:30 p.m. in this is bloomberg. ♪ this is "bloomberg markets." i'm alix steel, alongside guy johnson in london. on this friday, as we are getting you a bit of big oil earnings, it is a pretty heavy day in the markets despite the fact that we have an amazon blowout number and a record intraday high. joining us now is the anchor of "balance of power," david
westin. we are looking ahead to where we go now in terms of the tax plan, etc. what are you hearing now on the ground? david: some democrats are saying you don't have to worry about taxes. borrow the money. deficit spending is just fine right now. he has a big challenge because he has to hold his entire caucus together. joe manchin is very reluctant to raise taxes. but there's a general consensus that if they are going to go forward, it is probably going to have to be through reconciliation. that is to say, not having any republicans go with them. guy: what are you hearing about the midterms? because this is where life gets quite interesting. the package so far, the real question is, does it get done well? does it get done with checks and balances? does the u.s. economy benefit from it? how does that play into the politics of the midterms?
you're talking to a lot of people in the democratic party at the moment. what does it say about their since of the wave they will be writing into -- they will be riding into the midterms? david: some of the relatively new embers of congress who came in purple districts, you would think that they would really be reluctant to spend big, tax big, things like that, but they actually say it is pulling really well with their constituents, in part because the strategy from the biden white house is let's give a lot to the middle class, allete to suburban women and white workingmen in terms of new jobs and new money, and they don't care so much about the rich people. as long as they don't get taxed, but they get more jobs and more money, that's the strategy. the polls seem to be indicating that might be right. alix: i also want to welcome our radio audience, as well as our bloomberg tv audience. david is moment away from
interviewing gina raimondo, the u.s. commerce secretary. one of the big questions that has weighed on markets is the chip shortage. i am wondering how you think commerce, how d.c. is going to do with that. david: the secretary of commerce has just been in a meeting in d.c. on that. it is more than just a u.s. problem. it is a global problem. so we will ask her about exactly what can be done about the chip shortage and the supply chain. it is a very big problem. as we saw, it is affecting ford, affecting general motors. to me, the tech companies seem to be doing better because they have the long-term relationships. it is the automotive companies that are sort of like to the game -- sort of late to the game that are struggling to get access to those tips. guy: we just talked to the cfo of chevron about taxes. his argument was you've got to keep the tax rates competitive.
otherwise, you are going to see capital and jobs going elsewhere. but there's also this effort that the biden effort is pursuing to try to get a minim corporate tax rate around the world that kind of ends the race to the bottom that the chevron ceo is talking about. what progress are we seeing here? david: i've been surprised about this, actually. i said, good luck with getting the oecd together and having this coordinated corporate tax around the world, but the more i talk to people, not just the administration, but business people, they are more optimistic that something might actually get done, talking about maybe a deal as soon as this summer. obviously there would have to be legislation back in the home countries, but it would help you norma sleep. the question is, are we or are we not competitive? the obama administration what'd to cut the corporate rate. they just not want -- they just did not want to cut it to where obama did.
-- to where president trump did. what i do hear from wall street is they know it's coming. the question is how much, how big. the other thing is, from the biden adminstration, they know they are not going to get all this. the capital gains tax, they know they are not going to get that. but they do think it should go up and can go up some. so i think they are fairly realistic about what they can get done. guy: what is your assessment of the first 100 days? i think a lot of people have been surprised. there was this expectation, may be propagated by the republicans, by president trump coming into this election, that joe biden wouldn't be off to the races as soon as he got his feet under the deck. it has been quite the opposite. just in terms of why this is happening, we talked about the midterms a moment ago. is biden aware that this is his legacy?
he's in the later stages of his political career, he wants to make sure his legacy is that he can change america. he knows that the midterms are coming. he doesn't have much time to do it. is that why we have seen such a flurry of action during these first 100 days? david: i think we are seeing it in part because he's been the understudy forever. he's been eager to get his hands on the levers of power himself. i think the other thing we have to keep in mind is the significance of the pandemic. if you go back to ronald reagan, he said the government isn't the solution to the problem, it is a problem. right now in the united states, it is the reverse, and i think you pandemic really affected that. we had larry summers saying a year ago that the pandemic has gotten people saying we want more government, and joe biden has seen the opportunity to push it through. i think a lot of americans across the country are saying, you know what? more government isn't so bad right now. we've been really scared. alix: this is quite interesting
because when we are starting to talk to some european strategists, they are highlighting that there's a lot of election risk coming in 2022 in europe, which is also when we will have the midterms, and to see what is happening particularly in germany with the green party, and in france with macron. guy: absolutely. it could be a three-way race in france. politics is going to be the big story out of europe next year. you've got the recovery that is kind of underway, but the politics, does that recovery come strongly enough to impact the politics? there's a lot to play for your. you completely remake german politics, european politics, and you could remake french politics. is the european trade a tactical one? in that political background, maybe. alix: let's get right to the details now. david westin is joined now by gina raimondo, u.s. commerce secretary. david: i'm david westin, and we welcome now gina raimondo, the
secretary of commerce. madam secretary, thank you for joining us. sorry for the technical difficulties. let me start with you because you of course are the secretary of commerce. before that, you were governor of rhode island, treasurer of rhode island, and a venture capitalist, starting the first venture capital firm in rhode island. what do you make of the republican response to what resident biden is proposing right now? they came out and said this is a job killing proposal. you had to create jobs. you had to invest money. how do you respond? sec. raimondo: good morning. it is good to speak with you. obviously we strongly disagree with that, but the president is actually proposing cutting taxes. he's cutting taxes on a lot of hard-working middle-class, working-class americans. he's raising taxes on the wealthiest among us, and closing loopholes in the corporate tax structure that were so large
that almost last year that -- that last year, large companies paid all most nothing in taxes. you want to be competitive. you don't want to be so far out there that it is anti-competitive. his proposals are competitive, but more important than all of this, the investments that the president is calling for an infrastructure, in broadband, in job training, and basic research , are absolutely vital for american businesses to remain competitive and necessary, and have been delayed for far too long. so i think it is very good for both big is this and small businesses. david: what about the claim that if you really eliminate the preferential treatment for capital gains, it will be much more difficult get the capital put together? that people will not invest for the long term? sec. raimondo: first of all, i don't believe that to be true.
second of all, there isn't really great evidence to back up the claim that increasing capital gains taxes will result in a decrease in innovation capital. also, having been in the business and having spoken over the past week and a half to many folks in the business in one-on-one conversations, they will tell you the same thing. entrepreneurs like to invent, like to create businesses. venture capitalists, they are going to continue to invest in those entrepreneurs. truthfully, i think there are many who believe, even in the business, that getting preferential treatment to carried interest was never really fair. so i think the right thing to do , it is good for business. i don't worry too much about risk capital drying up. david: one of the things for we
heard from president biden this week was china. one of the things he said was why are those fan blades for power generation being made in beijing instead of in pittsburgh. at the same time, there's a lot of reasons why they might be made in beijing. what can you do as commerce secretary? what about competitive tax rates? what about supply chains? what about wages? sec. raimondo: right. so no one can outcompete to the american worker and american businesses if we have a level playing field. and china has been anti-competitive, coercive. frankly, they break the rules as it relates to ip. they have flooded our market and the european market with massive quantities of steel, making it impossible for us to compete. so it is true, we want to
continue to do business with china and in china, and it does obviously make sense to continue doing that. but it is also true that we have to stick up for american workers and make sure that they have a chance to compete. as it relates to the supply chain, it is amazing how we've lost a lot of ground. i think 25% of small and medium-sized manufacturers have gone away in america in the past 20 plus years. so suddenly -- not suddenly, but we wake up today and realize we don't make leading semiconductor chips in america. we make none of them. that's a problem. so that is going to be a big focus of my work, which is working with industry to incentivize them to build factories in america so we can make. we can't be totally dependent on the chinese or the taiwanese for our leading-edge semiconductors,
and as part of what the president says, building back better. alix: you mentioned steel -- david: you mentioned steel. we still have some of the trump tariffs in place. do you expect this to stay in place, or might we increase some of the limitations on export controls when it comes to china? sec. raimondo: great question. these are the discussions we are having real time right now. president trump definitely shone a light on the problems with china, and that is a good thing. they were not, however, strategic. there was no whole of government approach. so we are as a team looking at our overall strategy. but as it relates to china, i will tell you this. we will continue to use export controls because we need to. because we need to protect american innovation and american companies, and frankly, we can't afford for some of the
technology to get into the hands of the chinese government, which some of these can be used for literary purposes as well. so i have already engaged with my europe -- for military purposes as well. so i have already engaged with my european counterparts. there's a great desire to renew that. so it is to -- renew that partnership. so it is difficult. these are complex issues, but we will continue to use export controls where necessary because it is important to protect economic national and economic security. david: madam secretary, thank you so much for your time today. that is gina raimondo, u.s. secretary of commerce. alix: that was our david westin. we really appreciate that. stay with us in terms of politics and the tax plan from president biden. we will be speaking with libby cantrill, pimco had a public policy. and coming up, we will talk to sachin khajuria of achilles on
♪ guy: welcome back. one of the proposals in president biden's spending plan calls for an end to the carried interest loophole, which means private equity is going to lose a lucrative tax break potentially. sachin khajuria, former partner at apollo global management, founder of achilles, joins us now. also with us, bloomberg's sonali basak. thanks for your time today. this is a well-timed conversation. let's kick it off straight at the pointy end of where private equity is right now, carried interest. is it going away? is it completely going away? what are you expecting, and if it does go away, what impact is it going to have on this business and returns? sachin: thanks, guy. it is nice to be back.
it is nice that you started with the easiest topic of the day. [laughter] it is too early to tell if this is going anywhere, but i think the discussion does need a little bit of perspective. i think if you are going to say buy american, market american and so on with turbines, you also have to realize that private equity is an area where america leads. it is where it excel's, where it innovates. so it is a time for cool heads and measured conversation rather than an adversarial approach. if there's anything the last few years taught us, it is that adversarial approaches don't always lead to the best outcomes. we heard from warren buffett. i think we have heard from jamie dimon, other leading voices. we heard from president trump when he made some changes to the moves between income tax and capital gains. i think it would be interesting to hear from the customers
because remember that pension funds, retirement systems, endowments, they are absolutely reliant on private equity to deliver their returns, and they can pay their liability services. sonali: i want to jump in there because the pension funds are customers of the private equity funds. really the, this is being touched on in the carried interest rules. how could this impact the firm's at the top? do they need to be having these breaks and carried interest? sachin: there's a lot of people at work in private equity, not just the folks who founded the firm's. a lot of them -- the firms. a lot of them are going through generational changes. the tax is on the individuals rather than the firms. it is really important to understand where the customers are coming from because if those individuals who are generating those returns -- if it is those individuals who are generating
those returns, do they want that to fundamentally change? that i think is the voice we need to hear. but as i said, it is early days. i wouldn't just look at one segment of the market. i think you need to look at the thousands of people who work in this industry, many of whom are tied up in vested equity for years and years. i think you have to look a little bit further than just the founders. i think the customers' persp ective would be interesting. alix: sonali had a great scoop this week the talked about carlisle raising record funds. this is not just what we have seen from carlisle, but across the board. every time i look at a superlative for what private equity is raising, is there opportunity for all of that to go around? if so, where? sachin: the industry is in a really good place, in my view. earnings power, distribution,
fundraising, but also diversification. they are diversifying in sectors and products that they did not historically invest in, certainly for the top firms. they are doing social investment. they are in life sciences. who would have thought that 10 years ago? not only are they in hyper debt strategies, but they are also doing secondaries and credit now. so i think you need to raise more money as you actually grow, and with these kind of double digit growth numbers that most are putting out, it doesn't surprise me that they are raising. sonali: speaking about this generational change we are seeing in private equity, we can't ignore that it is the number one story today on the terminal that apollo is really seeing a shakeup at the top. there's a sidelining of one of its cofounders. not so different, right? we have also seen shakeups in private equity firms and a new generation turnover.
you are writing a book on this, on how the cultural logic and integration has played into the growth of this industry. how does this new generation of leaders start to change this industry and take it forward? sachin: i think on generational change, it is inevitable. many of these firms are 30, 40 plus years old. kkr is 76. so it is inevitable that there are transitions in these firms. you would find it in any business. in the same way that when private equity buys companies, they often buy them from founders who are moving on. you would expect the same within their own shops. question is whether or not they have generated enough of a good deal culture or principles culture to pass on. but i think these companies are so mainstream now, we talk about them as alternatives, but are they really that alternative when they are managing 100 --
they are managing hundreds of billions of dollars? i thing of them is mainstream. so look at the other big franchises. apple, amazon, google, microsoft. they have all done pretty well. -- done pretty well after the initial founders moved on. sonali: how does your book plan to address this aggression that is in the industry? do you think private equity will become a kinder place in some fashion? sachin: i think there's a lot of misconceptions about the industry, and thank you for mentioning the book. it is not about any particular firm. it is about the traits of success in the industry, the characteristics and principles of success in the industry. there is a fair amount of what i think is misconception, or sometimes you hear debates that are always on the extreme, either for private equity on one side or very much against private equity on the other.
the truth is this is just another mainstream big franchise industry in our economy. so much like private equity when it buys a company, we really see what are the good things, what are the things that can change. i hope it is of interest. it should be out for presale soon. guy: we look forward to it. one final question from me. these markets feel frothy to you right now? i look at ccc's every day. tighter, tighter. how much juice is there left in that trade? housetrained is that trade? sachin: that is a great quest -- how strained is that trade? sachin: that is a great question. i think first, i think for off -- i think for off -- i think froth is creeping back. if you look at high-yield
pricing, spac's, it is not quite here, but certainly the antenna is up. when you look at some of the risks, inflation creep, you look at how the fed might normalize getting out of this huge liquidity has provided, i think that volatility has not really gone away. it is just latent, patient. so we are trying to look through this strong growth we are seeing now. we are all excited about double-digit negative growth when we basically stop the economy. we are now -- alix: it looks like we may have some technical difficulties there. you've got to love remote taping. anyway, we really appreciate your time, sachin khajuria. and thank you for joining us, bloomberg's sonali basak. let's check on the markets here. something interesting that happened, in an interview with dallas fed president robert
kaplan, he said the fed should start tapering bond buying soon, and even more important for the markets, he said he saw excessive and imbalances in the market. so that is kind of wobbling markets as well. this is bloomberg. ♪ ♪ guy: let's reset. live from london, i'm guy johnson. alix steel is in new york. we are counting you down to the european close this friday on "bloomberg markets." the eurozone dropping into a double-dip recession, but with a strong summer recovery already priced, the markets and cyclicals are already starting to run two hot, running ahead of themselves.