Refinitiv Newscasts - LSEG CEO David Schwimmer talks at the Reuters Next event 1

Omni Bridgeway

01/12/2022 19:54

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Source: Reuters

Description: Reuters Next Interview with LSEG CEO David Schwimmer on
strengthening the global financial system
Short Link: https://refini.tv/3H2hw2P

Video Transcript:

>> Before emerging markets and developing countries, this translates into 25%
of emerging markets trading in distress territories, 60% of low-income
countries being on the debt distress. We don't act decisively and as you know,
the World Bank and the IMF came up with very pragmatic proposals, debt stand
still, clear rules and time-wise for common framework resolution and including
countries like Sri Lanka. In other words, expanding the common framework. We
have to get the capacity to move much faster this time around. >> Are you
concerned about another looming systemic debt crisis? We have countries like
Sri Lanka that are in discussions with you, Egypt and we're talking about
countries that are much larger than the Zambia and Chad. So how high is the
risk of another systemic debt crisis? >> We are concerned that there is risk
for the confidence in that resolution to be eroded at the time when the level
of debt is very high. We don't see at this point, Andrea, a risk of a systemic
debt crisis. We are still talking about countries that are not systemically
triggers of a debt crisis, Sri Lanka or Ghana. What we are concerned though,
is that we're stepping into a difficult year. 2023 is going to be hard. For
the first time in decades, inflation is running high and interest rates are
going up. How we are going to move through this year is so paramount and yet,
as you know, we're in a world that is actually more fragmented. So getting to
resolution requires us to recognize that there are issues, debt, trade,
climate, pandemics, that can only be resolved with the world coming together.
And I see the role of the IMF together with the World Bank and the other
international organizations to make this simple, straightforward case.
Together, we are all better off than separately. >> We are in the middle of a
war in Europe. You have a personal connection. I know your brother-in-law was
living in Ukraine, is married to a Ukrainian woman. The war is continuing.
Russia is continuing to pound the civilian infrastructure there. The damage is
mounting daily. Just about a month and a half ago at the IMF, World Bank
annual meetings, you've talked about the budgetary need for 3-4 billion a
month for Ukraine to keep its government going, to keep the society running.
Has that number changed? Are you thinking that the number is higher now
because of the extent of the civilian damage? And do you have any rough idea
of how much damage has been caused since the beginning of the Russian bombing
campaign in October? >> It is very difficult time for the Ukrainian people. My
heart goes to them. It is a devastating situation in terms of access to
electricity, heating, water. Dark, cold, scary with bombardments going on. And
yes, the costs to keep Ukrainian going have gone somewhat up. We are now
talking about 3-5 billion dollars a month for the next year, as long as the
war goes on and especially important to get funding for Ukraine frontloaded,
because it is the winter months that are the hardest for the country. So far
we have seen remarkable support for Ukraine. As you know the European Union is
working on €18 support package. This would be €1.5 billion a month.
Similarly, US is looking into $18 billion support package and we at the IMF
are working hard to be able to step up our own support for Ukraine. So far we
have provided $2.7 billion in emergency financing. We have channeled over two
billion, going closer to $3 billion of contributions through a font
administered account. And we have just completed an engagement with Ukrainian
authorities on a board monitored program that is paving the way for the font
to be able to provide the financing to Ukraine. Because if you look at the
Ukrainian economy, there are two factors that are going to be critical. One is
the capacity of the government to continue to function despite the horrific
war imposed on them. And they have done an incredible job to collect revenues
and to manage their expenditures carefully. And two, on the steady financial
support. So what is remaining of the Ukrainian economy? You know that it was
cut by about 1/3 by the war, but that this part that is not affected by the
war can continue to function. And there, there is an interesting positive sign
that we see actually more capacity of debt part of the economy that is not
directly affected by the war, despite all of the difficulties to deliver. So
to sum it up, Ukraine cannot go through next year without international
support. They are very responsive to our calls to put clear mechanisms, so we
can see how the money flows in and goes to affected parts of the country, to
have the accountability that goes with that support. And at this point, I'm
confident that this support is forthcoming and rightly so. >> Thank you so
much, Kristalina Georgieva, Managing Director of the International Monetary
Fund. We're delighted you could join us. Thank you so much. >> Thank you,
Andrea. >> Thank you so much, Andrea for that great way of kicking us off.
We've just been hearing about the various different problems facing the world
and how we need to face them together. So right now I want to introduce you to
Francesco Starace, the CEO of Enel, who is going to be speaking to my
colleague David Geffen US energy editor, about how Enel and it's the energy
industry is trying to deal with some of these challenges. Mr. Starace, David
up to you. >> Thank you. Welcome. Good morning everyone, I'm David Geffen,
North American energy editor or Reuters and writer of the powerup newsletter
twice a week. And I'm proud to be here to present Francesco Starace, CEO of
Enel, one of the largest power companies in the world. He's been CEO since
2014. Let's just jump in. It's been an absolute year of turmoil in energy
markets and already still dealing with the effects of COVID, aggressive
efforts on energy transition. And then of course earlier this year Russia's
invasion of Ukraine that upended the markets which were already dealing with
higher prices as well and that has certainly continued this year. What would
you say is and has been the biggest challenge of this year and what do you
expect it will be in the next year and years going forward? >> Well, there
have been so many challenges of this, a big choice, which is the biggest one
at this point, but because we've been very busy in coping with incredible
disruption that the COVID, two years roughly around the world created on the
energy markets. It was a huge change maybe not many of you can see this but
the patterns of energy consumption has changed dramatically which means that
the energy systems in different parts of the world in different moments had to
adapt to this without having a clue of how to do this because it was
completely new. So we were getting out of that and then we saw what happened
in Europe which from an energy standpoint was basically a gradual but
continued reduction of the gas flows out of Russia, which choked basically the
energy supply of Europe. And now we know that this is not going to change and
it is going to remain like that for a while and I think it's likely to say
that nothing can be expected to improve from that front in the next 2, 3, 4
years maybe. So that is now the job. Adapt again to another incredible and
foreseeable, to some extent shock which is get rid basically over a third of
the gas supply that fed into the European large gas demand which is something
that needs to happen in a year and a half so can you can imagine it's not an
easy challenge. I'm confident they can be made actually as a combination of
different factors. We can then go through them, but it is possible that, say,
five years down the road, we'll go back and say, how did it happen? How could
we make it in such a short time? And why didn't we do this before when we
needed this stress but it is possible to do this. And I think honestly, it's a
pity that you needed such a tragedy in order to discover you have in yourself
then the capability to do this. I think other parts of the world can look and
say, "If this guy is did it, why don't we do it too?" So you can say Japan
could do it, the US could do it. And anybody can just get out of this
dependence in many of our energy needs and leave gas for what it is worse for
the chemical industry, for the industries that need gas for their own
production. I think that's really the challenge we're in today. And doing that
without telling people go home and come back two years from now. That's you
cannot do for me and then he keep working in delights, need to be kept on. So
that's a little bit the balanced with trying to find. >> What would you say is
the challenge with the way in which Energy Cooperation has now changed in some
ways it is ended with the likes of Russia and it was not seen as something
that could have happened in the past or at least in the same way as it's
happening right now. >> We had some warnings, to be honest in Europe we saw
that Russian took over Crimea and Dubass in 2014. I remember then that was my
first year as a CEO by the way, I was not really aware of but I do remember
then Debates saying, We think we depend too much on gas coming from Russia,
that was 2014. And then this thing got washed away and then we had warnings.
But in general, I think it's unhealthy to have so much of a single source
dependence on anything that, now it's gas it could be other stuff. It's a
moment in which you have to think about the supply chains in general and see
if they are healthy in the diversification of anything. Total autonomy is
impossible, excessive single source dependence also is crazy. So now that's
the time now to think about how many other things for me follow the same
pattern and there are several others. If you want, you can go through that.
You're looking at PV panels in the industry. It's a known fact that it's 90%
dependent from China. No problem so far. But is it okay to have one single
source for such a strategic item and I think what this administration is doing
in the US is trying to hedge a little bit this excessive dependence in several
strategic fronts. Being PV panels, just one you have cheap and that stuff. I
think it's a broader problem that out of this crisis, you also learn that
there are many other things that might follow the same pattern. >> What we've
seen is that obviously inflation has arisen around the globe. There is a big
interest in further development of projects like offshore wind solar panels
and arrest, as you're saying that there have been a number of projects that
have been delayed from last year and that appears it will be a challenge going
forward. How will you be able to address both the needs for parts for supply,
for labor to handle all the things that people want to do and is coming
online, but certainly will take time? >> I think there is a view that the
industry needs to adapt to a jump in global demand of this goods, which
happened already in the past. The cycle of the industry is a two years,
three-year cycle to get capacity at par with demand. So during this time, you
always have a little bit over suffering. And of course, it depends on the
player and what the size of display are in, and how much is it. Is it
important for this player on the market? So we are important, we suffer less.
You're a small player, you may be getting back in the queue where the
suppliers. That's a little bit unfair but that's the way life is. Now, I think
inflation is there and we've heard now from Kristalina that not only inflation
interest rates both, which is really bad. Say you buy this panel today, or you
buy this wind turbine today, you're going to be paying 10 or 15% more than the
price you will have paid maybe a two year, so one year ago. So what does that
do you not match why that? Because this stuff is going to be fed into plans
that go in operation in 2025. By then you have production, the energy produced
by these machines will probably cost of 4-5% more because the cost of the
stuff goes into the price of energy. But you're facing an energy situation
where prices are much higher than that in 2025. This is not good news for
everyone, but it is. So the spread between the energy you generate with this
new machines and whatever energy you can displace is even more, is increased
so the case for that is still they're pretty strongly. Actually the more you
do now the better. That for the inflation. Another problem is, can you find
this stuff? Can you actually get the machines in time? And that's where the
supply chain problem comes up. That's where you really need to think a little
bit strategically and say, can I keep buying this from that single source at
so far was okay but my turn this back on me and what do I do with that? So
that's why for example we decided to invest in manufacturing PV panels in
Europe, and in doing the same in the US to hedge that risk. Of course you have
to be competitive, but that's okay, but then you have also to worry about,
"I'm competitive, but theoretically, can I really get this stuff in time
without waiting at the borders for some rules to be established that tells me
if I can import this panel, that panel from this part and that part, can I
just just go do my job?" It is now the case that both in Europe and in the US
you have regulation and laws that make it easier and more economically
appealing to do this reshoring. So you think that's what we're trying to do,
3,000 Omega in Europe, 3,000 Omega in the US, so that we hedge our needs going
forward. And I think many other companies are looking at several different
things in that sense. >> Let's talk about that you've mentioned reshoring and
you've mentioned the United States, one of the biggest events of this past
year that a lot of people have talked about in this industry was the passage
of the inflation Reduction Act, which of course has a very big component
related to the tax breaks to related to climate investment. Has that changed
your view in terms of investment in the United States? Has it made you look
more favorably upon investing here versus Europe? So let's take that first. >>
I do not want to step into this minefield. >> There is now a lot of noise. >>
Yeah. >> Which maybe not really belonging to the energy sector. As far as the
industry sector is concerned, so that's the little caption before I speak.
This is just for the energy sector. I'm not talking for the automotive sector.
I'm talking for our sector, the one I know. The combined effect of the EU
measures. So the next-generation EU funds, the repower EU second round and
compared with what the IRA is doing for the energy sector. They are completely
different in the ways in which they try to get to their goal, but they are
more or less equivalent. I know this seems strange because you hear a lot of
noise. IRA is much better, maybe for other sectors. For the energy sector,
they are roughly equivalent. They are totally different. Mostly the European
system is cash upfront grants, or super cheap debt. The IRA is more fiscal. So
production tax credits, ITC. The good thing about the IRA today for the power
sector is that, it includes also battery systems which were out before into
the ITC system, which is huge and it's really important going forward. And it
gives stability for 10 years to a system that was used to have a three-year
cycle. Will PTC be extended another time? And so there was this anxiety at the
end of the period with a blank void waiting for this bipartisan agreement to
be reached again. We went through the Bush administration to Obama's, Mr.
Trump and then Joe Biden. And we knew that this was going to happen all the
time, but you couldn't plan at this. Now with 10 years, it's fantastic. So I
think it was good. But since we were talking about manufacturing, now we have
two manufacturing entities, one making finance in Europe, the other one in the
US. In Europe, we've got like 30% grant. So great. We thought it was
fantastic, but the IRA is much better. I have to say on the manufacturing
side, there is a difference and our experience is limited to this two
factories. So maybe it's just partial. I believe there is some better ways of
doing things than the system in Europe here, and the US I think has great
package there to not only change the way the infrastructure and the mix of
generating power is in the US, but also how to reassure some critical
components. >> You have a solar plant now that you're a manufacturing plant
that you're going to open here, have you figured out where that's going to be
and when it's going to open or? >> There is a four phase, final round that we
have to go through getting the best package out there. And then basically
we're going to tell you where. I cannot tell your now. >> Will the technology
be coming from Europe as well? >> This is the same technologies. The fact is
it's going to be like a copy paste, same setup, same layout, same vendors. So
that if you sleep and go from one factory to the other, you cannot tell the
difference which, is good, so that you can actually optimize. >> As part of
your plans, you have US assets and then you have your electric mobility sect
group NLX way. Have you made decisions as far as whether you're going to list
those businesses or sell them in any way? Or is there anything you've done on
that front yet? >> We think for the reasons that you've heard from Kristalina
before and maybe you're going to hear after this meeting that maybe an IPO in
2023 is a little ambitious, let's say. Maybe not the best climate. So we're
not in a hurry. We can still create value with that. We might look at '24,
hopefully for some market exits of these entities. In the US, now we're
focusing on keep growing the renewable space and we have about 8,000 megahertz
in place, 3,100 under construction that will come on line 23 in beginning of
'24. The public charging network we have is huge. It's mostly on private
basis. So you don't find public NLX, but you go into the home of people, you
find a lot of NLX stuff. If you go on Amazon, you buy it from Amazon. We're
focusing on adding stuff, creating value. We're opening a retail business to
business franchise in ERCOT and in PJM because that's where markets allow that
to happen, so that more customers can have renewable energy on a 1-3 year
basis without having to buy large quantities. It's more tailored for smaller
business activities that really want that. Then we have a huge business in
batteries and demand response. The flexibility that networks you need to have
to work. And that's where really, I think the systems are going and where we
have a unique know-how. So that's the next frontier. >> Right. >> Yeah. >> One
other question was, do you have any comments on the proposed gas cap in
Europe, the big gas price cap? >> We've been advocating the gas cap a year
exactly. So it's November last year when we started talking about it and
people are looking at us saying, "What are you talking about? The gas cap for
what? Free markets. No, gas caps are bad." First of all, we're not advocating
price cap on gas. We are advocating a cap to the volatility of the index, the
European index to which gas prices are linked. Because that's where really the
problem lies. So say that the reason news saying the storage of Germany is now
at 73.5% and people thought they would have to be at 76. All of a sudden, TTF
index goes up €50. It's nuts. It's crazy. It doesn't have any
relationship with supply and demand anymore. It's like a psychoanalytical
place where people go and vent their frustrations and fears. I think this is
unhealthy because it's real money at the end. Now we're paying this money.
This is money that goes. The point is, we should stop this volatility and
bring it back to a normal level. I'm not saying that there's anything wrong
with giving signals. But can you have a gas price that for the last eight
years moved between €20-30 per Megawatt hour in Europe, and all of a
sudden go to 300. The same gas. The same gas. So that's too much. So we're
saying, let's put a cap, then we can change this cap if we see that it's not
enough or whatever. An alternative would be let's link this index, which is
completely volatile to another index which is not as volatile, which could be
the Asian LNG index. Because at the end of the day, what we're talking about
now is let's take this cargo from here and bring it there rather than there
because the price is higher. So let's couple these indexes, so that they work
as a large market area. And LNG can actually work more efficiently. But
because in Europe we are 28 states and decisions typically take a little time.
I think it would have to suffer a little more and eventually this will happen.
It's just a question of time and how much money we're wasting in impulses, but
that's it. >> Got it. Okay. That's all the time we have. Thank you all very
much. Thank you, Francesco Starace from Enel. >> You're welcome. >> Really
appreciate it. I hope you enjoy the rest of the day. >> Thanks. >> Thank you.
>> Thank you. >> Thank you so much for that. As Mr. Starace said, we are now
going to turn our minds to some markets. He said 2023 is probably not a great
year for an IPO, but maybe 2024. So here to give his wisdom is David
Schwimmer, the CEO of LSEG, the London Stock Exchange Group, being interviewed
by my colleague Peter Thal Larsen, who is the Global Editor for Breaking
Views. David, Peter, over to you. >> Good morning, everyone. Thank you for
tuning in. David thank you for being here. >> Thank you. >> Welcome to what
was next, this was built as a fireside chat. So I think you just have to ask
you to imagine that it's actually 9 o'clock in the evening or 9 o'clock in the
morning and the fire is here, and maybe there's a sleeping dog at your feet or
something. But we're on a tight deadline, so I'm going to jump straight in. I
think I just wanted to start really with to get a bit of a perspective from
you. Having done a big acquisition, you're running a big global company, 70
odd countries, 20,000 people. In a world that feels like it's becoming a bit
less global. And I guess I'm just wondering from your perspective what it's
like to try and navigate that world when you have this business and all these
places? >> So Peter, thanks for the question, thanks for having me here. It is
clearly a shift in terms of what we're seeing going on around the world in
terms of fragmentation. And we are as systemic market infrastructure, but also
as one of the world's leading financial data and analytics providers. We see
this fragmentation in a number of different areas. Capital flows, where
there's been a lot of focus and a lot of attention. But also in terms of
dataflows, where they're probably hasn't been quite as much focus and
attention. I think in both areas, we play a big role and in both areas, it's
something worth keeping an eye on and being very thoughtful and careful about.
Because it's just on the dataflows for example. So it's estimated that by
2025, digital trade data information will be larger globally, then trade in
intangible goods by 2025. And when you look at what's going on in the world
today and some of the fragmentation as you talk about it. And this is
appearing in a number of different ways. Whether that's data localization
requirements. Some countries requiring data centers in their countries to be
used, whether they're restrictions on the flow of data. That has negative and
impact as other restrictions on trade and can slow down innovation. It can
reduce jobs, it will slow down growth. The estimates that we've seen have it
slowing down growth in sort of just below 1% to a little over 2%, which on a
global basis, on a national basis, especially given what the world is working
through right now, those are some big numbers. So that's an area that we're
very focused on. We're working with other companies and with governments in
terms of advocating real focus on and better agreement around free flow of
data. >> What does that look like? The trying to keep that flowing because
physical trade, you talk about tariffs and barriers to movements. This is
harder to identify. >> Well, yes and no. There has been a lot of focus on it
in some of these multilateral forums. What we're calling for is for the G7 to
take this on and create a forum for greater cooperation among governments,
private sector, and public sector. And the vision is, if the G7 adopts a
framework along these lines, that will create a pretty powerful club that will
maybe incentivize others to join. We're also encouraging there are a number of
very good trade agreements for data, for examplethe UK and Singapore have an
excellent one. The US and Japan have an excellent one. We'd love to see those
be used as templates for a number of broader ones because this is an issue
that is really at this point going in the wrong direction. And again, given
the importance of data to all of our economic opportunities, important that we
get it right. >> Yeah, actually reaching the G7 has got a lot on its plate at
the moment. >> It does. >> Let's add something else. I'm interested to talk to
you about financial markets, it's been a pretty turbulent year. I guess a lot
of assumptions have been challenged about whether or not inflation is going to
come back down, interest rates going up, war in Europe and so forth., just
hearing about the energy crisis. From your perspective, what assumptions have
you had to rethink in terms of how the markets work and how that plays out? >>
Well, we are regularly engaging in scenario planning and thinking about all
different things that might happen. And we had run an analysis a couple of
months before the mini budget in the UK on what it would look like with a
pound at parody, if I can put it that way. And so we think about these issues
all the time from a risk management perspective and again, a systemic market
infrastructure and critical data provider. We have to try to be prepared. I
would say, when I look at the environment over this past year, on one hand, it
feels very challenging and very surprising, on the other hand, in many ways,
it is a bit of a return to normal if I can put it that way. And normal doesn't
mean the past 20 years. But if you go before that, the interest rates we're
seeing today, they're not that unusual. Relative to negative interest rates
for the last t10 years or so, they're pretty unusual. In terms of some of the
geopolitical conflict relative to the last, again, maybe 20 years or so
depending on what conflicts you include. We have had a pretty, I'll say,
aligned global direction and a sense of consensus. Whether it was actual
consensus, we could have a discussion about. If you go back into the '90s and
before that, we did not have that. And there was a lot of geopolitical
tension, whether Cold War or otherwise. So it does feel to us as if we're
seeing a bit of a reversal out of what was more of a historically anomalous
period into more of a longer-term timeframe, a more normal period. And we
expect there'll be more volatility and potential surprises ahead as we get
back into this, as I said, more normalized environment. >> I'm interested in
this idea of scenario planning. I hear this a lot from CEOs. And obviously it
makes sense that it's very hot. There were many different possible outcomes at
the moment, so it's quite hard to forecast. You have to prepare for different
eventualities, but hace you then run a business with that in mind, how do you
prevent that from parallelizing? You are saying, we can't do anything because
this terrible thing might happen. Have you feed that into your actual
day-to-day? >> Well, all the decisions we make are almost by definition
without perfect information. So you have to make judgments based on imperfect
information and you have to take a look at a lot of different scenarios. And
we do a lot of scenario planning. And even so, sometimes you're still
surprised. So that means that you also have to have resilience in terms of
your infrastructure, in terms of how you build and manage your business, in
terms of your business model. And that's actually an area that LSEG has very
intentionally put in place a very robust business model. So we have something
like 70% of our revenues are effectively recurring and very stable and
growing. And then we have about 30% of our revenues that are exposed to market
activity. But tend to get the benefit of or tend to benefit from volatility of
the market. So in our FX trading business or our fixed-income trading
business, or our clearing business, we've actually seen relatively high
volumes this past year. So it goes to planning for particular scenarios, but
it also goes to how you design the business model and then what leverage you
run with, etc. >> You at a certain stage in a previous career, you worked in
Moscow for a bit. Obviously, what's happened with Russia has been one of the
big things that probably not everybody fully foresaw. Just being shed from a
set of market infrastructure, financial market point of view, do you see that
as a one-off, or do you think there's a set of template in terms of unplugging
countries from the financial system in short order, is that something that
could happen again? >> It certainly could. I think, if there's a lesson to be
learned globally from the Russian invasion of Ukraine. Well, there are
probably a couple of lessons to learn. I think a lot of people were surprised
by it because it seemed to be such a potentially risky and damaging move for
Russia. And it is proving to be a very risky and damaging move for Russian.
And I think there will be very long-term impacts on Russia because of that. I
think that the lesson that we all have to learn is sometimes people and
countries do things that may not seem rational. And of course, there's a lot
of discussion today, in part as a result of Russia's activity. There's a lot
of discussion today in terms of revisiting how to think about tension with
China and the situation there. And that again has to go into, I think every
business's scenario planning. And we're not making any predictions about
anything, we have to go into scenario planning. I think there are other
aspects of the reaction to the Russian invasion, again, that have shifted the
discussion a little bit in terms of, for example the activity that the central
with respect to Russia's central bank reserves. Very surprising for Russia,
but also very surprising for a lot of other countries around the world. Ad so
that I think has created a lot of thinking. >> Yeah, absolutely. >> You
mentioned that the return in terms of interest rates and so forth is returned
to a world from 20 years ago. Although obviously a lot of people hadn't
really, maybe never lived through that, or I hadn't really expected it. I'm
just interested in given what's happened in financial markets. What do you see
as the potential risks out there the unexploded bombs that might be in the
landscape? What are you particularly focusing on? >> I think there are
probably two areas that I would highlight. One is that we have seen a very
large growth in capital in private markets, both equity and debt, and a lot of
leverage in there and a lack of transparency. I don't think there's any great
insight to this. I think a lot of people are wondering and watching, how does
that play out as rates continue to go up. The other area which is a little bit
closer to home for us at Alle Sag is that we see much more electronic trading
driven by algorithms. What that means is that when the markets react, they can
react much more quickly and in much greater volumes than you might've seen
5-10 years ago. What that means when there's an event, a major volatility
driving event, some of crisis the onset of COVID and the spring of 2020, you
see massive moves into the markets very quickly. A lot of the plumbing out
there can not handle that. What that ends up doing is it exacerbates I'll call
it the primary crisis or the primary volatility. They can then exacerbate that
and lead to a secondary issue in terms of how the markets are struggling to
react to that. We saw this in March 2020, where some of the aspects of the
system particularly in settlement, in post-trade, some of those institutions
really got backed up. We had some banks reaching out to us, asking us to close
our markets for a day or two so they could catch up with a lot of the
processing they had to do. >> Clues and equity markets? >> Yeah, we didn't do
that. Obviously, because that's important for us to keep the markets open and
maintain that functionality. But I mentioned that because it's where there may
be some progress made over time. I think there are weak links in the system
out there. And when you see these kinds of very large spikes in volume
associated with the electronic trading in response to certain elements of
surprise or volatility that highlights some of the aspects of the plumbing
weakness, if I can call it that with respect to the LDA issue in the UK, just
recently, a lot of that was driven by the fact that pension funds and their
custodians were not able to move quickly enough. In response to a capital call
for that afternoon. They're used to doing things over the course of a few
days. So that's an example of that. >> Yeah. And I guess what we've seen then
is that, is that central banks and regulators have been forced to step in to
support the markets. We're going show the market functions normally. I mean,
is that something that you think just becomes a permanent feature of the
system? >> Well, I think if you are a policymaker, you hope not because of the
moral hazard. And I think in many ways it's interesting to see how the markets
react to the latest news on interest rates. And you have a whole generation.
Market participants and traders and investors who are used to being bailed out
by central banks. And I think the anticipation, this breathless anticipation
for the Fed to pivot is an example of that. And I'll say it's surprising that
the market is excited about a 50% basis point rise in interest rates. I think
that's an example of that. >> Well, I need to ask you about is crypto. And I
think without giving away any sort of competencies, I think it's fair to say
that you were on the more skeptical end of the debate, even when things were
much more buoyant than they are now. What, if anything, has surprised you
about what's happened in the last six,12 months, and is there anything of
value to be salvaged, do you think from the wreckage? >> So if you think about
the explosion of interest in crypto as a byproduct of excess liquidity in the
system, which is tied to the comment about the last 20 years of monetary
policy, then it's not that surprising that we're seeing pick your term of
crypto winter or collapse of crypto as interest rates go up. So no, not that
surprising that we're seeing what we're seeing in terms of a very significant
correction or deflation of the world of crypto. And we have been, Adele said
we'd been very cautious about crypto. We do provide data on digital assets,
and we tried to do it in a very thoughtful, verifiable way. But we haven't
engaged in any kind of crypto trading in part because our concerns about some
of the aspects of the structure of the market. We are very open to and doing a
lot of work with the underlying technology. So not crypto trading, but what
I'll call it digital technology, whether that is distributed ledger
technology, whether it's digitization and other forms. Because there are a
number of different aspects of what we do that can be helped by that can
benefit from improved digitization, improved efficiency. Now, again, we are at
the center of the market ecosystem. So it's very, very challenging and we're
not going to flick a switch one day and shift over from an existing highly
liquid ecosystem of, for example, the trading of equities where you have
thousands of participants in millions of shares traded every single day. But
we are looking very carefully at where does make sense to shift over to a more
digitized approach. And I think you'll see as we think about that It's more
natural and more obvious to do that in new asset classes and roll out new
asset classes with a more digitized process. So that some of the existing
markets that are very complex ecosystems and have a lot of liquidity. And in
general are working relatively well. We can deal with those significantly
further down the road. >> Okay. Well, David, the fire has burned down a little
bit and our time is up. But I wanted to say, thank you for joining us and
please join me in thanking David. >> Thank you very much, David, thank you,
Peter. Spitting on that topic of digitizing in financial markets and financial
world. So I'd now like to welcome to the stage my colleague Lananh Nguyen, the
US finance editor for Reuters, who's going to be in conversation now with
James Gorman, the CEO of Morgan Stanley. Lananh, I'll hand it over to you. >>
Thank you very much Jane. Hello everyone. I'm Lananh Nguyen, I am the US
Finance Editor at Reuters here in New York. And with us today is James Gorman.
He is the CEO and Chairman of Morgan Stanley, just up the road. And James has
been CEO since 2010. He has run the bank since the aftermath of the global
financial crisis and also presided over key acquisitions including that of
brokerage Smith Barney, asset manager, eaten bands, as well as online
brokerage E-Trade. These have been major acquisitions sir James has made in
prior to his time at Morgan Stanley, he was also an executive at Merrill Lynch
and partner at McKinsey. He has a law degree from the University of Melbourne,
and you'll soon hear that he's also from Australia. James also has an MBA from
Columbia University, and I've just learned he's also a big music fan. So thank
you James for joining us. >> Great to be here. Thank you. >> Let's start with
the economy. You've talked in your last earnings report about inflation, the
federal reserve rating, raising interest rates and war, and saying that no one
should be surprised that we're seeing volatility in markets right now. How bad
could things get? >> Well, I think they were bad. We came through the biggest
health crisis we've had in a century. And I think global GDP fell 33%
one-quarter. So the range of bad economic outcomes related to an existential
event we've had in the second quarter of 2020. While right now is an
adjustment to frankly the financial crisis. What we're living is the child of
the financial crisis. You have zero interest rates for 10 years and you flood
the market with money to stimulate growth. And eventually, you've done too
much. And the central banks around the world have to manage that transition
point, which is very difficult because they're trying to judge rate increases
with bringing down inflation, with economic growth, with unemployment, so
they're juggling all of these pieces. So I don't think this is frankly
particularly bad. Maybe I'm the only person who feels this way. This is the
consequence of free money for 10 years, and it can be a little painful. But
that's okay. I think we're navigating this pretty well and what the Fed said
yesterday about or this morning, I don't know when it was last night, I guess
about rate increases in the future, I think it's sensible. >> Where do you
think the terminal rate could go? >> I have a personal view which aligns with
our house view. I've given this concept of four, four and four which is to
bring inflation down to around four percent, I think gets much harder after
that. I think the 4-2% is pretty significant change and structural change
because of some of the supply-side inflation. But I think on the demand side,
we're likely to get inflation down. I think it's peaked and the Fed signaling
what they did about rate suggests that. So inflation around four percent,
unemployment 4-5 %, rates 4-5% and then we deal. That's stage 1 is getting
back from a very abnormal eight, 10% inflation, 0% rates, three,
three-and-a-half percent unemployment. That's not normal. We go from that path
to normal. I remember Chairman Bernanke used to say that the target was six
percent unemployment, two percent inflation. And at one point, I commented
that they were over achieving on one and underachieving on the other. We had
4% unemployment and 1% inflation, maybe not even. I think 4, 4, 4, somewhere
in that zone by the later part of next year, the high bidder is now getting
inflation, which I suspect will remain higher than people want. >> Sure. So
let's bring this home to Morgan Stanley. Last year was a blockbuster record
year. This year, not so much. So tell us a little bit about what that looks
like at Morgan Stanley in terms of how you managed headcount, which you said
you're looking at and also how you manage as we come into your end bonuses and
how you pay people. >> I think you've got to separate the performance of
certain businesses in this environment from the stability and the strength of
the institution. Last year was a record year. The year before that was a
record year and I think two years before that was a record year. So we've come
through a pretty extraordinary period. At some point, you don't keep making
records. This year is obviously down from that, but it's not like it's a
crisis. I think we made two-and-a-half billion last quarter during a very
difficult period. We used to dream years ago making two-and-a-half billion. We
had a 15% ROTC and the firm is frankly doing very well. I think we've brought
in through the first three quarters, over 250 billion of new clients money.
There aren't many asset managers in the world that have 250 billion. We did it
in 9 months in a very difficult environment. So I'm actually pretty relaxed
about the overall financial conditions of how the firm is performing relative
to the challenge of the financial conditions. I think we're doing well. But
clearly the underwriting calendar is effectively zero. And if you're an
underwriting business, you're not making any revenue and that's a challenge.
M&A is more challenge, it's not that more frothy levels over the last couple
of years, but it's not terrible. Asset prices have come down, so any fees tied
to asset prices come down. I think it's obviously more difficult year and this
environment continues to be challenging until we see better signals from the
Fed. Obviously any prudent business person looks at headcount after many years
of growth, we've got 83,000 people, four or five years ago we;re 60,000. So
we've had tremendous growth, some great acquisitions along the way. So some
prudent headcount management is not surprising, it's your job. >> Reuters and
others have reported on cuts that you're making. Can you characterize the
nature of this headcount management that you are doing right now? >> Some
people are going to be let go. >> How many? Where? >> Not about to name names.
I had a fantasy of individuals. Listen, we're making some modest counts all
over the globe in most businesses, that's what you do after many years of
growth, you realize, maybe we didn't need all of that capacity in some era or
business conditions change enough where you reflect on it and it makes them
change. One thing that we did during COVID, for two years in a row, we
guaranteed everybody their job. Every single employee was guaranteed their
job. They could choose to leave, but we weren't going to ask anybody to leave.
And for two of the last three years, we gave every single employee a bonus who
were not eligible for bonuses. And that's a big deal, that's standing by your
people when things are really tough, and that's what we did. Now, three years
later we've had phenomenal years, tremendous growth. It makes sense to
modestly adjusts what is an 83,000 people globally. I'm sorry, I'm not going
to create great news for you because it's not a big drama. It's like doing
your job. This is what CEOs are supposed to do. >> So let's pick on that a
little bit. Are we talking hundreds of people you say? >> I'm not going to get
into numbers. >> Got it. So let's move on to let's slightly easier topic,
China. Obviously, we've seen protests in China which I think everyone was
pretty surprised by the nature of those protests. We know that banks and Wall
Street are trying to deepen their relationships. In China, you yourselves are
trying to get full ownership of your securities venture there as much of the
ownership as you can. Please talk a little bit about how you navigate the
contentious waters between China and US. >> Well, we're a global company
headquartered and regulated in the US and proudly so. We don't front end to US
policy. So last time I checked the US and China continue to do business and
trade with each other. I was in Hong Kong couple of weeks ago for the opening
up of Hong Kong where the Hong Kong Monetary Authority. And we've got
two-and-a-half thousand people in Hong Kong, we've got hundreds of people in
China, we stand by those people, they're serving clients doing what they're
supposed to be doing. So my job is not to opine on the political rhetoric
between the respective governments. We don't do business in countries where
the US government doesn't want us to do business. So we don't do business in
Iran and North Korea and Russia and a couple of other places. But China is the
second largest economy in the world. It has many great companies. It's going
through an extraordinary transition of 30, 40-year transition. And putting the
politics aside, the Chinese people deserve the shot to make this economic leap
that that it has been taking place over 30 years. So our job is to serve their
clients there. >> Excellent. And part of that job I think is organizing ideas
for instance, and Chinese IPOs obviously have struggled as well as other IPOs
in this country. As you look forward, do you see Chinese IPOs really happening
given the regulatory environment? Do you see Chinese companies meeting the
listing standards of the US, or are you going to focus on maybe the larger
deals that are more likely to go through? >> No, I think IPOs will happen. But
nobody is doing IPOs right now. It doesn't matter if you're China or Silicon
Valley, it's like there are no IPOs. I'm sorry to disappoint people, but the
underwriting calendar both debt and equity is modest. It's done like 95%. And
I assume analysts and investors factor that in when they look at these kinds
of institutions. So the US and China will continue to trade and work together
over the next many decades. There'll be points of tension as there are between
major players in the market, that's not surprising. And sometimes it may get
more political. But I think economically, there will be good Chinese companies
brought to market, I'm sure that. >> Got it. So one of the key companies that
everyone has been talking about recently is Twitter. Talk to us a little bit
about the debt that you are taking on for the Twitter deal and then also what
your outlook is for that company. >> You've got a good lineup of questions.
You've gone from headcount reduction to China geopolitics to Twitter. >>
That's my job. >> Let me guess Bitcoin as far up on the list. >> Which you
believe it's the next question, so yes. After we after we finished to. >>
Follow both succession maybe. >> Maybe, no. Possibly. >> I've done a few of
these, that's why I'm so old and gray. >> Exactly. We've got six minutes and
those are the three topics. >> And you can tell I'm not going to answer the
first time by continuing to talk to you. >> How big is the write-down going to
be on Twitter? That's the question to be blunt. >> Firstly, Twitter is a great
company and Elon Musk is an extraordinary executive. Very few people create
global businesses that are transformational and industries. Many people aspire
to very few actually pull it off. What he's done with Tesla it's truly
remarkable. It's an operational industrial innovative company, which I think
if you haven't been to a Tesla factory, I would strongly recommend it. It is
absolutely extraordinary at the same time to build SpaceX to be now
collaborating with NASA because of the capability that technology at the same
time to have built a company called The Boring company, maybe not the best
name. >> Exactly, not boring by the way. >> But he is not boring. But it's a
drilling company that he's built. So I wouldn't bet against Elon Musk. If
you're going to bet against people in this world, there are a lot of people I
could give you names to bet against, that wouldn't be one of them. He's an
innovator, he's obviously very sophisticated financially. He has enormous
financial resources, institutions like ours and not stupid. We don't get
behind that business and that opportunity unless we believe it's real and it's
very real. So I would watch this space. There have been a lot of pundits, how
they're projecting cataclysmic results and they know nothing. They actually
know nothing. So I would not bet against Elon Musk. >> And you're betting on a
long-term bet on Elon Musk as a client? >> It's not bad we serve clients.
That's what we do want about five core values as clients come first. He's
probably along with Steve Jobs and Bill Gates and one or two others, the most
interesting entrepreneur over the last 50 years. Who would not want to do
business with a person who has that capability? I mean, shame on an
institution would walk away from that. Are there risks in any particular
transaction involved in building great companies and expanded Coursera? That's
what we do. We manage the risk, I'm not troubled by it whatsoever. >> What
about reputational risk and interesting spicy tweets? >> Listen, my job is not
to manage everybody's personal life. My job is to run Morgan Stanley. And some
people wear ties and some people don't. We all have different ways of going
about our business, so I'm not bothered by that at all. Listen if I would just
encourage you to go on a factory tour of the Tesla factory, which I did in LA
and I think you get a slightly different view of what you're dealing with,
this is the real deal. And he has extraordinary capability. So it would not
bet against him. >> Got it. Someone else who does not wear a tie is Sam bank
been freed, the former CEO of FTX. So talk to us a little bit about crypto. I
mean, you have been very skeptical on crypto for a long time. But now that the
fallout is happening and we're seeing comments from lots of people are curious
as to where you think things stand in the crypto business, what you're wealthy
clients are saying about crypto, and how you proceed? >> I had a fundamental
view which is, does the world need another form of stored value. And nobody's
been able to really present a compelling reason why it does. Secondly, do we
need currencies which are unregulated? Will they be allowed to people have
said they're going to supplant the US dollar as a reserve currency it's
ludicrous. But these things that just ludicrous, it's fantasy. Maybe if you
own the stuff you're saying that because you are, but it's go up. If at some
point, at what point to governments say that they don't want significant
monetary flows to move around the globe completely unregulated. I think that
point is rapidly approaching. And what happens whenever you start these
industries which operate outside the regulatory framework, nobody's watching
and when nobody is watching bad stuff happens not to all of them. Some of
these have a very good companies, but some of them as it appears to have
happened with FTX. So crypto itself, listen as long as you have user
acceptance, you'll have usage. I've said before I'd only it's a fed, I don't
think it's going away, but I can't put an intrinsic value on it. I don't know
if it's worth. If you take Bitcoin for example, I don't know if it's worth $60
or $60,000. So I don't like investing in things that have that range of
outcome. >> Sure. >> And I don't like putting clients and all those things. If
they want to speculate, you can speculate. You can go the racecourse and
speculate on the horse's. You can speculate, go to a casino and play roulette,
I mean, you can do a lot of things too. But by definition, something which
drops invade from 60,000 or 16 or whatever it is today, is by definition, and
speculative asset. Doesn't mean that it's inappropriate for everybody, but
plenty of people speculate on stuff. That's fine. I don't mind, people invest
in companies that trade at 50 times revenues. But I don't understand that, but
people do it. And some of them every now and then get lucky, those revenues
turn into earnings and the earnings turned into stable earnings and they get
rewarded for their early foresight. So I just haven't seen in crypto or don't
understand the intrinsic value and I don't know how you'd set a price for it.
I don't understand why governments wouldn't over the now probably short-term
figure out how to regulate it. So it's got too much Risto, but do I begrudge
somebody investing in it? No. I wish I bought it at $60 and sold at 60,000.
But I'm a lot happier, I didn't buy 60,000 [inaudible 01:04:41] 16. >> Very
clear. >> It doesn't cause me that much. I just don't think it's nearly as
central to the global financial infrastructure and debate that we all deal
with in our lives as the media, not this media of course, but the media at
large has given at it. Because it's a shiny new toy, everybody gets over
excited about it. Everybody loves a shiny new toy. And we've got one and
suddenly that becomes the be-all and end-all. It's not. >> Excellent. So we're
going to end on an optimistic note. >> I thought I was being optimistic. I was
saving you losing money. How much more optimism do you want? >> Yes. Let's
keep it rolling. So you have set a very ambitious target of $10 trillion of
client assets. >> Yes. >> That might be a little harder given the economic
environment perhaps, but also, are you going to stick it out to see through
that goal? >> You got to look at where we started. When I started in this job,
we had between wealth and asset management, I think about 700 billion. And we
currently have between wealth and asset management about 5.5 trillion. That's
pretty cool. Our target is to bring in a trillion dollars of new money every
three years. That is extraordinary. So far, last year we brought in I think
425 billion. Through the first nine months of this year, we brought in over
260 or 250. I don't know the exact number. So we appear to be on track in that
during an incredibly difficult environment where presumably people are paying
down debt and conserving their money and they're not thinking about investing
in the market. So if you look at our business model and you look at all of the
funnels that create asset flows from the acquisition of e-trade, which brings
in the pure, self-directed client. The acquisition of Solium together with the
trades workplace. But since that puts us in the flow of all the stock that we
run 35%, I think it has stock plants in this country. So all of this at work,
asset accumulation, we're in the middle of that then with their wealth
business with 15,000 advisors and over 4 trillion, we're dealing with an
aggregate something like 15 million clients. So the trillion dollar number, I
don't know if full exactly hit a trillion in every three years and I will be
at $10 trillion business that I'm sure of. I mean, if you just compound out
the rate of growth at a modest market growth with roughly trillion every three
years we've probably there in five years. >> You're working with to
co-presidents, are you going to stick it out to make that 10 trillion happen
or are you going to hand over the reigns? >> Probably not. I don't think that
happens. I think that'll take several years to happen and I've been doing this
job a long time. I'm very clear that I think succession planning is just like
any other management process. You treat it in exactly the same way as
budgeting, as promotion, as compensation structures, as investing in
technologies, global expansion, they're all just management processes that
have systems. You don't leave it to random stuff. So we have a very concrete.
My first board meeting in January of 2010, I laid out a succession plan for
the board and I've been on the job I think 21 days. Why, because stuff
happens. People get sick, people's circumstances change, you have to be
prepared for the exceptional do that. But then you also have to plan for the
inevitable. And you either die in your job or you leave it, I plan to leave. I
think it's just a better outcome for everybody. And I'd like to make sure when
I leave that I do it in a thoughtful way. Unfortunately, we have some very
talented executives at the top, who've been developed now and worked with me
for some of them 6, 8,10 years. And one of them will run Morgan Stanley and
they'll do a phenomenal job with it. >> I think when is the key question? >> I
actually don't think one is the key question, I think who is the key question.
>> That's you. >> And do they have the right skills. When it happens, it just
happens in a natural course. As I've said before, I have a plan and I don't do
a lot of things by accident when it comes to running the business. So there'll
be a plan that will be resolved. One of those for executives who run Morgan
Stanley, we will hit 10 trillion in assets. Bitcoin probably won't go back to
$60,000. And Twitter it will be just fine in the long run. So I think we've
covered pretty much all your anxiety. >> That great >> I've saved you Therapy
this week. >> Fantastic. Keep us posted of your plans, James. Thank you so
much you are doing excellent. >> Thank you very much. That's a great
conversation. We've got all now, our final session before the coffee break. So
I'd like to welcome to the stage. The Deputy Secretary of the US Treasury
Department's Wally Adeyemo who's going to be interviewed by US Economics
Editor , Dan Burns. So Dan and Wally [inaudible 01:09:59] >> Deputy Charity to
Secretary. Thanks so much for joining us, Wally. That's great to have you take
some time out of your busy schedule. Let's start immediately with what we have
some news this morning. We've reported out of Europe that there is a tentative
agreement among the bulk of the EU around a $60 price cap for Russian crude
oil. Is that an acceptable level for United States? What do you make of that
development? It's still tentative. >> Well then let me start by saying thanks
for having me and thanks for hosting this conversation. And stepping back for
a moment to give everyone some perspective on where we are with regard to
using economic measures to constrain Russia's ability to continue to wage it's
war. Our objectives are two-fold. One is to go after Russia's revenues, and
two is to go after and supply chain for their military industrial complex. The
price cap is a tool that goes with that first objective, which is going after
Russia's revenues and we're encouraged by the news we've seen out of Europe.
I'm not going to get ahead of our European allies and partners, but it's
important for us to note that Europe has been a real leader here in terms of
implementing the price cap, they put in place at six sanctions package in May.
Alongside that, they called for us to think about creating a price cap
coalition. The G7 leaders endorsed it and Alma during the German Presidency.
And now it looks as if Europe is moving towards implementing a price cap
that's in the range of prices that we've been talking about for a while in
terms of creating and helping us do two things. One is reducing Russia's
revenues, but the second one is making sure that we keep Russian barrels on
the market in order to make sure that we keep prices low for everyone. And we
think that the price ranges have been discussed, accomplish those two goals.
And we'll put us in a position where Russia's revenues come down while we're
ensuring that people get access to reliable, cheap energy going forward. >>
That has imparty here continues, I think to be Poland, which has been arguing
for a much lower cap on the basis that they don't see $60 as being restrictive
to Russian revenues in any meaningful way. How do you counter that argument?
>> So as I said, I'm not going to get into the European discussion, but what I
will say is that what we've seen is that at one point after the invasion,
Russia was earning up to $100 a barrel in terms of oil that they were selling
in the marketplace. We think that on average, they've been earning about more
than $70 a barrel since the invasion. And the reason I say we think is because
since the invasion, Russian oil our euros have been traded in opaque ways, not
transparently on the market, so it's hard to know exactly how much they're
earning. There have been quotes that have them below the amounts that we're
talking about here. But there have been plenty of quotes that have been above
that amount as well over the last few months. What we think the price cap can
accomplish is that if we set a price in the range that Europe has been
discussing, we create an anchor in which people will know that Russia will be
unable to earn above this amount and use Western services going forward to
move their seaborne oil. And what this will mean is that any country that is
buying Russian oil and wants to get the use of Western services will know they
have to pay underneath the amount that the coalition has said and for the
countries that decide to go outside of the West and create their own services
and infrastructure, they're going to try and negotiate a lower price as
possible with Russia. Both of these options lead to Russia earning less
revenue going forward and having less money to invest in conducting their war
in Ukraine, which is our ultimate objective. >> Our understanding is that the
revenue assumptions for Russia, for the contribution of oil to their budget
was around a $60 level. How does having a cap at that level actually make a
meaningful dent in their ability to fund the war in Ukraine? >> Most important
thing for us to remember is that the price cap is one of several tools that
we've used to go after Russia's ability to earn revenues going forward. As you
all recall, at the beginning of Russia's invasion in Ukraine, we took decisive
actions that coalition to go after their financial sector. Today, the IMF and
other independent forecasters estimate the Russia's economy is going to shrink
while the rest of the global economy grows. And it's going to shrink even more
next year. So ultimately, you can't look at the price cap in isolation. You
need to look at our overall strategy for taking apart Russia's, ability to
earn revenues. And we have been successful at doing this in areas like
finance. We went to other sectors of the Russian economy. And now the actions
that we're taking with regard to oil will further constrain them. And the key
thing to remember is that we're starting at 60, but we have the ability to
move the price cap to further use the price cap to constraint Russia's
revenues over time. So that as Russia goes into 2023, we all know that
Russia's economy will be smaller than it started in 2022 because the actions
that we're taking and by putting in place the price cap Russia's economy will
be even smaller in 2023 than it would have been before. >> What kind of
interval would you be comfortable with as an adjustment mechanism? >> We've
made very clear that as a coalition, that we're going to revisit the price cap
from time to time in order to make sure that we are in a position to adjust
it, to meet our two objectives. The goals to make sure that we're not doing on
a weekly basis because we want to provide some certainty of the market because
we do not want to increase volatility. But we know that we want to make sure
that even on a bi-monthly basis that we'd be open to the idea of coming back
and talking as a coalition about what we do with regard to price adjustments
potentially. >> As you mentioned, we're entering a period most economists
agree of a weakening economic outlook, which would lower demand for that.
There's been an enormous amount of negotiated capital invested by yourself, by
Treasury Secretary Yellen. What if we accomplished this and the cap is never
actually touched, is that not counterproductive on its own? If Russian crude
never makes it to the cap level and it's actually never  OVERLAPPING . >> So
the thing we have to think about is that the cap is a tool, a tool that is
intended for a purpose. And we have two purposes. One is to make sure that
Russian oil continues to flow, but the second one is to bring down their
revenues. And from our point of view, we've already had success in doing that
even before the cap comes into place. The idea that Russian oil is trading
lower today and the spread between Russian oil in euros is getting bigger is
because people know that the price is coming into place. We started to see
over the summer, that Russia started to negotiate with countries longer dated
contracts in order to try and get around the cap. And in those longer dated
contracts, they were offering discounts of as much as 30%. So the reality is
that the cap is a tool that is driving behavior both by Russia but also by the
purchases of Russian oil. So that what we're seeing already is that the
countries that may decide to have their own fleets or ask Russia to provide
insurance or ask Russia to provide other services, are negotiating lower
prices and little notice news the Russian Central Bank over the summer
provided their insurance agency with $19 billion in order to set up their own
insurance system. That's $19 billion that can't be used to purchase tanks, to
buy bullets, to continue to fight the war in Ukraine. And our goal is to make
sure that every step that we take be it the price cap tool or the sanctions
that we've put in place, we're forcing Russia to make a choice between
propping up their economy that is getting smaller or funding their
illegitimate war in Ukraine or making those choices harder every day. And the
price cap is helping us do that. >> Looking at it, there's a second step that
kicks in, potentially in February where this goes on to the product level.
What can you tell us about your conversations around that? And how concerned
are you that there is some concern that can be even more stringent. I have an
even greater stringency effect. >> One of the things that we've been committed
to doing as a coalition is making sure that we look at historical data and
then we're taking steps that meet our two objectives. One is to make sure that
in that case, product stays on the market. But two is reducing rescues
revenue. We think we have the ability to do that because we're in a position
where as a coalition, the key thing that we have is that the biggest service
providers for insurance for much of the shipping are within the G7. And by
having that as a point of friction, it creates an opportunity in which we have
the ability to help drive down the price of Russian oil in this case, but
refined products then, but at the same time create incentives for them to
continue to sell into the market. And I feel confident in the same way that
we're making progress in terms of blocking in the oil price before the
December 5 deadline that will do the same thing when it comes to refine
product. >> As we reported, it is still a tentative deal. I think Poland has
to later this afternoon to agree if they don't come on board and there isn't a
unanimity of agreement and we come down to Monday, what do you think we should
do? Should the imposition of sanctions be extended or should we live with the
December 5 deadline and let them take place? >> So maybe it is that we're
going to get this deal done. Because what we've seen over time is that each
time that Europe has faced a choice between imposing more costs on Russia and
not doing so they've done it. They've taken this action eight times and
oftentimes at a cost to their own economy because they care so deeply about
standing with the people of Ukraine. And that's exactly what I know that
Poland cares about as well. So I expect that we will get a price cap done in
Europe, and the rest of the coalition will join Europe and putting it in place
because it is the best tool we have at the moment to reduce Russia's revenues
going forward. >> It's important for us to realize that what Europe is, is a
coalition of 27 countries, and these 27 countries since February of last year,
have put in place eight sanctions packages. And our expectation is that when
they put in place the eighth sanction package which said that they're going to
implement the price cap, that's when they made the commitment to do it and now
they are finalizing those decisions. So we expect Poland and the other 26
countries to come together to implement a price cap on oil and the rest of the
coalition will join them in doing that. >> I'd like to turn to the US economy.
We had some key inflation and consumer spending data today. Your core PCE came
down on a monthly basis to the lowest since July, but if you look at the year
over year, both core and headline figures, they're really easing at a very
slow pace, food inflation is still close to 12% annualized. What do you make
of the really slow progress on the inflation Friday front? >> So let me say
that we're encouraged by the fact that the inflation data did surprise to the
downside, and we've seen that for a number of the other key readings,
including CPI, but to your point, on prices are still too high. We've seen
some downward pressure on those prices, for example, you look at the price of
gas at the gas pump, down $1.50 since it's highs of the summer. That's because
the actions that we've taken like the President's decision to use a strategic
petroleum reserve to release oil into the market. I'll also mention that
today, oil at points over the last week have been lower than they were before
Russia's invasion in Ukraine. And while the Fed has primary responsibility and
they've made a commitment to doing what it takes to bring inflation back to
their target , in the administration, we're doing everything we can on the
supply side to try and deal with some of the supply chain vulnerabilities that
have been created both by COVID but by Russia's war in Ukraine. We know that
there's more that we need to do. You look at the inflation Reduction Act, for
example, where in that Act, we've done things like help bring down premium
costs and also the cost of medical drugs going forward. And what the President
is committed to doing is continuing to do everything we can to try and deal
with easing some of the supply pressures in the economy in order to make sure
that we get inflation under track. But the underlying health of the US economy
is quite strong, we've created 10 million jobs over the course of the Biden
administration and consumer and corporate balance sheets are quite healthy,
and we think there is a path towards making sure that as we bring down
inflation, we continue to have a healthy economy in the United States. >> So
Fed Chair Jay Powell, yesterday in remarks at the Brookings Institution, which
I'm sure you tracked, he did send a signal that the Fed's ready to ease off
from the 75 basis point pace to probably 50 basis points at this next meeting,
but he also signaled a higher for longer regime for rates, probably an
environment with inflation is still slow to respond, and US economy that's
chronically starved of workers. Is that an assessment you share? >> So that's
in how I characterize the Fed cheers statement as true and be surprised by
that. But one of the things that I should say and I think that everyone knows
to be true is that the president has made very clear that we respect the
independence of the Fed and their responsibility for meeting their dual
mandate, and that's exactly what they're working towards. And I think from our
perspective, what we want to do as the administration, is do everything we can
to deal with the supply constraints that are in the economy and expand the
productive capacity of the US economy. That's why legislation like the Chips
Act, the Bipartisan Infrastructure Act, and the Inflation Reduction Act are so
important, because what they do is that they make long needed investments in
the US economy, which will mean that over time, they will mean that we're able
to bring inflation under control because we have more supply in the US
economy. You look at what we did in the IRA for example, we both reduced the
deficit by doing things like providing the IRS with resources to collect more
revenue, but also modestly increasing taxes in certain places, but also made
investments in things like clean energy, where we're going to build a more
clean energy economy going forward, which will help support millions of jobs
in the United States economy going forward, but also help us meet our climate
goals. You look at what we did in terms of the Bipartisan Infrastructure Law.
One of the challenges we have today is that when you were at the Port of Long
Beach, you'd see ships lined up further than the eye could see, and you'd ask
why that was going on, and part of it was we didn't have deep enough ports in
other parts of the country. The Bipartisan Infrastructure Law includes money
to deepen our ports, but in addition, the traditional infrastructure allows us
to make investments in things like broadband technology, which is the
infrastructure of the future, to mean that small businesses in rural
communities will have the ability to sell things not just to American citizens
in their cities, but around the world. So I think that our goal here is to
really try and make sure that as we bring down inflation, we're also making
the needed investments to make sure that the American economy is competitive,
not just next year, but in the decades to come. >> These are pretty capital
intensive investments that you're talking about. There's an argument to be
made that we're, we're entering a period where the cost of capital is going to
be significantly higher than it's been for the last two decades. Do you think
we're positioned to be able to thrive and grow along the optimistic track that
you see with that significant cost of investment? >> I think we are, and the
reason I think that, is because part of my job is talking to business leaders
in America, and they feel more confident today about making investments in
America. The nighttime in several decades because of the investments the
governments making. In addition to talking to business leaders, one of my
goals is also traveling abroad. And when you look around the world and you
look at other economies, America is better place than any other economy in the
world to do well going forward because the policy choices we've made and the
determination of the American people and also of our businesses so that we're
in a place where if we make the investments in the Bipartisan Infrastructure
Law, in the Chips Act, in Inflation Reductions Act, America's economy will be
more competitive than any economy around the world because of those
investments. And I know this because when I talk to investors, more of them
are now talking about taking flights to Ohio than taking them to Shanghai
because we're putting money into things like chips and they see companies like
Intel which are putting money there. And I'm in New York now, but if you go to
upstate New York, Micron just announced that they're going to make a massive
investment in upstate New York and that's going to draw an ecosystem of
investors there. So I feel confident that we have a strategy that's going to
put us in a place where America has the ability to invest here in America and
that investment's going to draw more capital from the private sector and
create more jobs here in America going forward, the key now is execution, and
I think that's something the President's focused on, the Secretary on is
focused on, and that we want to work with the private sector to get right in
order to make sure that our economy continues to grow into the future. >>
Well, these are investments to that could continue to maintain the pressure
we're seeing on labor demand. There's been a fair amount of optimism express
not just by Jay Powell but by your boss that we can achieve a fair bit of the
inflation reduction through an easing and job openings rather than a
significant increase in the unemployment rate. I think it was Randy Croston,
the former Fed Governor yesterday called that, said they were hoping for the
Immaculate disinflation. Is that an assessment you can share or do you think
the optimism is stretched or misplaced? >> No, I think we should remain
optimistic because we're seeing that play out now. We've been over the last
several months, been able to continue to create jobs in the US economy while
we've seen inflation come down, I think a big piece of this for us going
forward is not only a reduction in some of the openings, but also labor force
participation, where one of the things we're hoping to do is see more
Americans come back in the labor force. We think that the investments that
could be made in job training will be important to try and to get more
Americans into the labor force, and I think a number of the companies that are
taking advantage of things like the Chips Act, are also taking advantage of
the idea of training workers in the areas where they're building these
factories, be in Ohio or in upstate New York. That legislation doesn't only
include helping incentivize companies, but also includes money to train people
in the American economy to do these jobs going forward. So I think that like
in other parts of the economy, one of the challenges we face is we need more
supply of trained workers in our economy. And a number of the provisions in
the legislation that's passed, give us the ability to do that going forward in
order to make sure that we can meet the demand of these businesses, retrained
employees who can make sure they can do the jobs of the future. >> What's your
set so that the timeline for that to begin to kick in, because we haven't seen
any material improvement in labor force participation , certainly this year?
>> So we've seen labor force participation improve, not as much as we'd want
it to, and I think our goal is that we've got to continue to do this work
because from our standpoint, there are millions of Americans out there who
want to work and need the training to be able to do these jobs in the future.
I think that as we think about what the economy looks like today versus what
it looked like pre the pandemic, we have new opportunities because a number of
the jobs that you used to do from an office place, you can now potentially do
remotely. Which means that companies can look at hiring people in places that
they don't have officers going forward. The key though is how do we make sure
that we invest in training, and this training isn't something that's in the
distance. I was in Orlando earlier this year, sitting down with the mayor
there, and they're investing in training employees for technical jobs using
money from the American Rescue Plan. Yesterday I was in an event with Tribal
Nations, where a number of these tribes where you have higher rates of
unemployment are also making workforce investment in order to get their tribal
members capable of doing some of the new jobs in the economy going forward.
We've got to keep doing this because that's the key to making sure that we
have the people who are ready to do these jobs in the future, and it's
something the President is committed to doing, and we're working with local
officials and state officials throughout the country to do. >> Like to turn
attention to China. Indications just in the last 24 hours that She's
government is willing to relax some of it's very stringent covered protocols
in the face of these really remarkable protests that have arisen over the last
week or two. What do you make of the latest developments there? >> We believe
in the rights of people to protest. And I think the key for us is that we
think that when you look at what's happening in China, it's a good example to
us as to why it was so important that the President when he came into office,
took every step you could to give every American who wanted access to a
vaccine. And we made the investments we made early on in terms of the American
rescue plan. And today, the United States economy is open. We have an economy
that is growing robustly. And in China, they are still locking down because
they haven't done the things that we did. And I think it demonstrates both the
success of the President's strategy, but also the fact that the United States
has taken a lot of, that we're in this position, not by chance, but because of
the choices that we've made. And that's exactly what we're going to do going
forward in terms of the choices we're making, in terms of the investments
we're making going forward. >> What's your sense of the risk? The Tailwind
risk for the US economy. If you have, say, six months a year from now, despite
some optimism that there may be some easing, we still see this fitful
reopening process in China, which clearly has a continuing effect on supply
chains that are material to the US. >> So one of the things that I think we
have been happy to see is that some of the supply chain challenges that we've
faced have eased over the course of this year. Our hope is that we'll continue
to happen going forward. I do think that not just the US economy, but the
global economy is impacted by what happens in China. It's one of the world's
largest economy is going forward and we're going to monitor closely on what
happens there. But I think the thing that gives me confidence is the fact that
the US economy has maintained its strength despite the headwinds that we've
had from COVID, despite the headwinds we've had from Russia as illegitimate
invasion of Ukraine. And I think the legislation that we've recently passed
puts us in a position in which we will have the ability to maintain that
strength over time. Despite some of the headwinds that are coming from places
like China where growth has disappointed to the downside and they continue to
struggle with their zero COVID policy. >> If you had to try to gauge the
degree to which you've seen any material shift in the last year or two of us
supply chain reliance on China. How would you quantify that? >> So I think
that in my conversations with companies, all of them are thinking about how
they build more resilience into their supply chains. Because one of the most
important lessons that we've learned from COVID-19 has been the importance of
building resilient supply chains. And in that process there are going to be
winners and losers. And I think one of the things that we thought about as we
design things like the climate provisions of the inflation Reduction Act or
the chips act, is how do we make sure that the United States is a net winner
about this rethinking. And that's why we've created these incentives to try
and make sure that manufacturing is done here in the United States. That we're
doing things like what Secretary Yellen calls friend shoring, in which we're
building more supply chains in countries that we have alliances with, in which
we have the reliability of supply going forward. I think that it takes time to
shift the supply chains they develop over years, not weeks or months. And we
think that the incentives that we're creating is going to ensure that more of
those supply chains are created here. And are created in places where we have
readily supplies that will be important to both our national and economic
security going forward. >> We only have a short time left and I didn't want to
let you get away without bringing up everybody's favorite topic on crypto.
What's the thinking or the level of anxiety inside the administration with
what we've seen over the last couple of weeks, the FTX blow up, other
bankruptcies occurring. >> This is an issue where Secretary Yellen has spoken
about extensively long before the recent events. And I think that we continue
to think that it's going to be critical that we get legislation done with
Congress and we look forward, hopefully working with Congress in that
legislation, especially when it gets to issues of financial stability. We've
also made clear that's important the regulators use the tools that they have
in to make sure that we're protecting investors, consumers, financial
stability and also preventing the illicit use of cryptocurrency to skirt our
financial system. But I'll point out is that FTX for example, was not a US
based company, they were in the Bahamas. So this is a global phenomenon and
what that means is that we're going to have to work closely with our
international partners to design a regulatory regime and a framework that
helps us to make sure we protect the global economy as we think about
innovation, like cryptocurrency. And I'm encouraged by our ability to do that
because over the course of this last year, you've seen the global community in
lots of ways come together around a number of things. For example the global
minimum tax, in which countries around the world have decided that instead of
a race to the bottom in terms of taxation, they're going to try and create a
level playing field. You look at the alliance that we've built around holding
Russia accountable going forward. And this hasn't only included the United
States and Europe who have taken actions that have mattered a great deal. But
a number of our allies and partners in Asia, some who have never taken actions
of these types, like Singapore have joined us here. So I'm confident that I'm
working together with various jurisdictions. We have the ability to do that,
but it's going to be critical that we take steps here in the United States,
including working with Congress to address some of these challenges. >> Paul
Krugman has made a fairly cogent argument in some circles that in 15 years of
existence, Crypto of one sort or another has failed to reach a genuine utility
beyond speculation and allowing criminals to skirt the system. Isn't there a
risk by going down the road of having legislation or regulating that you add a
veneer of credibility to a phenomenon that we're not really sure if it ever
will have an actual general purpose use. >> One thing we know about the
financial system is that it innovates and it innervates quickly. And I think
my first toward the Treasury Department was during the financial crisis. And
then we were in a position where the financial sector had innovated faster
than regulators were able to regulate it. The thing we want to ensure is that
as we think about innovation in the financial sector, that we have a
regulatory framework, they can deal with that innovation. And what crypto
looks like today is nothing like what it looked like 3-4 years ago and
probably nothing like what it will look like 3-4 years from now. But in order
for us to best protect investors, consumers, financial stability, and also to
prevent the risks of illicit finance, we do need to take steps and I think
that's exactly what the secretary has called for. That's what the reports that
we've put out have called for. I think from our standpoint, one of the things
we want to do is to ensure that we're in a place where we can support
responsible innovation. But in order to do that, you do need a framework that
protects the system in case those innovators and innovation creates risks to
it. >> Well, I think we'll leave it there. Deputy Treasury Secretary, Wally
Adeyemo, thank you so much for joining us and we'll take it there. >> Thank
you so much. Thank you for having me. >> Thank you so much Deputy Secretary,
that was a really interesting, wide ranging conversation. It's now coffee
time. You'll be glad to here. We have got a coffee break now that will last
until 10 past 11:00. At 10 past 11:00 we'll be playing out and interview that
our colleagues in Japan did with the Japanese Foreign Minister. So we'll start
with that and then we'll be going back into our live sessions. So 11: 10 back
in here for the Japanese Foreign Minister, and then we'll go back into the
live sessions at about 11:30. Thanks very much. >> Tesla has an ambitious plan
to deploy thousands of humanoid robots within its factories, expanding
eventually to millions around the world. >> The Tesla bot will be real. >> And
it's not just Tesla, other automakers like Honda and Hyundai have also been
leveraging robotics technology to expand automation at car factories. But not
without facing challenges and skepticism. Let's take a look at why companies
have struggled to create commercially viable human like robots despite decades
long development efforts. Tesla's humanoid robots, Optimus, will be initially
used in manufacturing and logistics to address a labor shortage. Think of
boring and repetitive work. Longer-term Musk said robots could be used in
homes, making dinner, mowing the lawn, and caring for elderly people. But
these robots are expensive and just like self-driving cars, humanoid robots
have trouble with unpredictable situations. Experts say to succeed, Tesla will
need to show their robots can do multiple unscripted actions, almost like
humans. Japanese automaker, Honda's Asimo bipedal robot had served as a face
for the company. But after more than two decades of development, it's still
not commercialized. Honda is now focusing on disaster relief robots and Avatar
robots for tasks like remote surgery, with the goal of deploying the machines
in the 2030s. Boston Dynamics created a buzz with videos of its humanoid
robots running, jumping back, flipping, and dancing. But to the laws making US
company changed hands several times with Google, SoftBank, and then Hyundai
becoming its owner. Boston Dynamics founder Marc Raibert. >> I think that
Hyundai and Boston Dynamics are a match made in heaven. Right now, most of the
robots used in factories are doing very repetitive, very specific precision
oriented jobs. And that's not what we see in the future. We see a future where
robots become much more intelligent, much more useful, really contribute to
productivity and safely and become a part of our everyday lives. >> In 2020,
Ford bought two humanoid robots, Digit, from Oregon-based Agility Robotics.
The carmaker wanted to test the delivery of a package to doorstep from a
delivery vehicle. Damion Shelton, CEO of Agility Robotics. >> We've been very
upfront that we've been focused on the logistics industry broadly construed.
And that includes all sides of logistics. Last-mile delivery working in
warehouses alongside of people. >> From 2007-2012, General Motors and NASA
joined hands to develop humanoid robots, R2, for assembly and space
exploration. But NASA says they're not under development anymore. Several
robot startups like Rethink Robotics also went out of business as they failed
to commercialize their products. >> We've seen there as governments have risen
and fallen. >> As well as leaders come and go. >> Until that is an
invigorating autumn of freedom and equality. >> We've seen businesses boom and
bust. >> And as the world continues to change. >> This is our new reality. >>
Our driving force