Wall Street Week 08/23/2024

Democrats nominate their candidate for president. Ford abandons its all-electric SUV and the Fed moves closer to a September rate cut. This is Bloomberg Wall Street week, I'm David Westin.

This week Scott Bessent of Key Square Capitol on a precarious equilibrium for investors and the economic choice looming in November. The U. S.

economy, in my mind, is starting to look like an emerging market economy. And Jennifer Huddleston of the Cato Institute, on the path forward for Google. The question is not just what it means for Google, but what it means for consumers.

We start with Chairman Powell remarks in Jackson Hole. And welcome back our very special contributor, Larry Summers of Harvard. So, Larry, we heard this week from Chair Powell.

What did you make of what he had to say? Look, I think he's in the right broad, place. Inflation is coming down.

The economy is slowing. On current facts. Absolutely.

The next move should be towards monetary policy easing. And that's what he said. And I'm glad he said that.

I think there were a number of really important issues that are likely to be shaping of the policies, for the Fed and for the economy more broadly that he didn't address. He didn't say anything about epic budget deficit challenges in the years ahead. At the same time, we've got a huge investment demand for the green economy and a huge investment demand for data centers and the like.

And so the question of what the neutral interest rate is was one he talked about, he didn't really engage with. The Fed is saying that the neutral interest rate is somewhere in the twos. I think that's extremely unlikely.

And if you don't have the right North Star, you don't navigate very accurately. And so I think the Fed's making a serious mistake by believing that the neutral interest rate is so low and therefore is misjudging how restrictive any given level of policy is. So I'd be surprised, quite surprised if it actually proves possible with sustainability to bring inflation down by nearly as much as the market is expecting, or bring interest rates down by nearly as much as the market is expecting over the next two years.

The other thing that the Fed must be aware of, and I understand why the Chair didn't address it, but it seems to me it's something they have to be keeping in mind is we've got what people regard as a 50/50 presidential election coming. And one of the candidates says that the Fed shouldn't be independent any more. That same candidate, Donald Trump, says that we need a much weaker dollar.

That same candidate says we need to push tariffs way up, meaning higher prices of consumer goods and more of an inflation threat. That same candidate talks about sending millions of workers home, which would create epically tight labor markets in our country and would surely go back to labor shortages and wage inflation. Larry, turning back for a minute to Jay Powell remarks this week, he had sort of an initial explanation of what happened with inflation, where it came from, what the Fed did in response.

And at least my take on it was if we had, really, supply shocks were really unprecedented. It took a longer to sort them out. And we had this big demand push, particularly in goods that spilled over into services.

So it was sort of understandable why we sort of made a mistake on Team Transitory. What's your reaction? Look, I guess it's, I guess it's understandable.

I think I was reasonably clear in the spring of 2021 that it seemed to me that there were enormous inflation risks. I think looking back, it's kind of incredible that the Fed could have said in May of 2021 that it expected to hold interest rates at zero until the summer of 2024. And so the misjudgment was a pretty egregious one.

They're trying to leave the impression that it was all surprising supply shocks. And I think there are two problems with that view. One is there shouldn't have been anything very surprising about it.

It's not like everybody didn't know that Covid was affecting the supply capacity of the economy. So when supply capacity is down, that means you have to adjust the demand. And the other is that if you look at nominal GDP growth, so that dollar GDP, it's the money stock adjusted for the velocity, it averaged 10% in 2021 and 2022 and above 8% for the three years 2021 to 2023.

So how can you think with 8 to 10% nominal GDP growth, that you're going to have anything like target inflation and that nominal GDP is just a measure of demand, which is what monetary policy is supposed to be all about. So I think the Fed got it wrong. And in all honesty, I don't think it was, I think it was a low point in terms of monetary policy judgment.

But, you know, we all make lots of mistakes, and the important thing is when you make a mistake to recognize it and fix it. And I've got to give the Fed credit for the fact that while it wasn't always obvious that this would be the case, they moved strongly enough and vigorously enough to keep expectations anchored. And that's why it now looks more, frankly than I would have expected, like, we're going to get out of this very costly inflation episode without a major recession.

Larry, you mentioned the possibility of Donald Trump being elected in November. There is another candidate, as you also said, it's at this point it looks like a virtual toss up between Donald Trump and Kamala Harris, where now are beginning to get some indications from Kamala Harris about what she might do for into the economy. What do you make of her positions you've heard so far?

I have been active in these policy debates on the Democratic side for a long time. And I've always tended to be part of the group that favors policies that are more growth-oriented, that worry more about financial responsibility, that stress letting markets operate strongly and vigorously. I've liked universalist themes rather than themes that pit business against labor or one class or one identity group against another.

And so I was very encouraged by the speech last night. There was one word that came through so strongly when the vice president talked about the economy, and that was opportunity. And I think that's exactly the right word, because it's a word that embraces everybody.

It's a word that embraces the need to make sure that poor children get the help they need from Head Start. It's a word that embraces making sure that families have the resources they need to support their newborn and then their children as they grow. It's a word that embraces the need for affordability of higher education.

It's a word that embraces. And I think this is critical, and I hope that Vice President Harris will talk much more about this, not just celebrating public education, but recognizing that public education needs to be made much better. Because, you know, David, in an earlier and much more elitist age, the Duke of Wellington said in Britain in the 19th century that the Battle of Waterloo had been won on the playing fields of Eton.

I'm here to tell you that the battle for America's future will be won or lost in our nation's public schools. And I heard all of that when I heard the Vice President talking about opportunity. And I hope that those themes, rather than some of the themes that I think are harder to justify about, gouging and the like, even if they do have their political appeal, I hope those will be a larger fraction of the campaign going forward and much, much more important.

I hope that if, as I expect, Vice President Harris is elected president, that the broader economic strategy is going to be one that is all about opportunity. Larry, thank you so much. It's always a treat to have you with us.

That is our special contributor here on Wall Street Week. He's Larry Summers of Harvard. Coming up we get a read on the week in the markets from Scott Chronert of Citi.

That's next on Wall Street Week on Bloomberg. This is Wall Street week. I'm David Westin.

The stock market continued its upward climb this week with one short detour on Thursday, as the S&P 500 added another 1. 45% to end the week at 5634. That's nicely above the median number for year end set by our Bloomberg allies at 5600.

The Nasdaq was just behind the S&P, up 1. 4% for the week, while the yield on the ten year was down almost nine basis points, ending the week at 3. 8%.

To take us through the markets, we welcome back now Scott Cronert of Citi. Scott, great to have you back with us. We think of you as our equity expert here.

So tell me what's going on with these markets. They just seem to go one direction pretty much. And that's up.

Should we be getting worried? Well David, great to be here. I'd say the risk reward from our perspective has gotten more balanced with this rally.

We've had, essentially, we went into Q3 with the view that S&P 500 at 5600 by year end made some sense. We argued that valuations around 22 times were sustainable. We're now at 23 times.

We've argued that earnings growth under the surface for the S&P 500 is in good shape. That came through with Q2 reporting. The bigger picture you've got three forces at work in equities right now.

One is the AI tailwind that's been supporting the mega mega cap growth part of the market. The other is is soft landing conviction yes or no. And it's been more yes of late aided by Chairman Powell’s commentary at Jackson Hole today.

And then the third element is the election impact. And that's I'm going to say a little bit more of a tail risk that's been pushed aside for now as we continue to kind of work our way through the aftermath of the DNC. So let's go back to the first one there, the AI momentum, if I can put it that way.

We've got Nvidia earnings coming up next week. How important does that make something like Nvidia's earnings indicating whether we're keeping the momentum or losing some of it. Well the starting point is you look at where we ended the first half.

The S&P was up about 15% and we'd attribute about five percentage points of that move to each of Nvidia, the rest of the mag seven and the other for 93 within the S&P. So Nvidia has been an important contributor to the S&P 500 move. Obviously, it pulled back from mid-July into early August and now has recovered.

So I'd say absolutely yes. The way they report, the way they positioned themselves in terms of future growth expectations, is going to have an important influence on its stock, but also on the balance of the Mag seven. And this I play well.

It's inching, as you said, it's sort of a third or third a third, but the third third was actually the rest of the pack. Are we starting to see some broadening out now? Because for a long time we were worried there was such a narrow driving of the S&P.

Well, it's fascinating when you look at the way Q2 results have finished okay. And we're pretty close. We still have to get Nvidia and a few others to report.

You actually had that mag seven component growing earnings in Q2 by roughly 38%, which is pretty astonishing okay. We think there are some persistence of that in the second half. Interestingly, the other 493 grew earnings in the aggregate.

5% doesn't sound like much, but that's the first quarter of the last six where we've actually gotten a positive earnings growth dynamic out of the rest of the 493. How are we positioned going into the second half of the year? We've now starting the second half of the year.

Go ahead. Get that piece back in there. You got it.

Okay. Scott, what I was asking was how are we position going in the second half of the year? So we think we're pretty well positioned from the following perspective.

On the pullback, we were very comfortable reengaging in that Mega-cap growth cohort on this mantra that growth is defensive as we navigate signs of economic weakness, which is ongoing. But more directly, we put our other major sector focus on those areas most likely to benefit from the Fed pivot, which apparently is getting closer and closer. Obviously, September coming up.

So we've been quite constructive on areas such as consumer discretionary financials via the banks. And then interestingly, also through the real estate part of the S&P. So Scott, talk about that second factor you talked about, which is the possibility of a recession.

There was a time that a lot of people, including Larry Summers, were really quite worried about a recession that seems to be subsiding. Where is Citi at this point? Where are you?

Well, my economic colleagues are still of the view that we're facing a second half recession risk. So the way they're manifesting this is through a Fed funds rate view, which is essentially that we can get as much as 125 basis points of cuts between now and year in. The focus here becomes on labor.

Okay. Now we know we have some BLS revisions this this past week that are their own topic of discussion. But the important point here is that we're seeing signs of weakening on the labor front.

And if that were to sort of steamroll, if you will, then you put yourself in a little bit more precarious situation versus this soft landing scenario. From my perch, we're a little bit more balanced on this. We are seeing some softening in labor.

We have to be attentive, though, that what comes with this is the ability to get to this Fed pivot without the risk of having that much of an earnings drawdown versus history. So all told, we walk away pretty constructive here that the S&P 500 is going to be able to navigate any ongoing economic weakness. And then in our back pocket, we have the potential for an easing Fed as we go into the end of the year to begin to set up for recovery out the other side.

Scott, that's why you're our equities expert. Always. Thank you so much.

That's Scott Chronert of Citi. Coming up Michael Milken has said the drive to LBOs was made possible by VisiCalc. What changes could be driven by the current crop of tech innovations?

We talked with William Deringer of MIT. That's coming up next on Wall Street Week on Bloomberg. This is Wall Street Week, I'm David Westin.

Junk bond King Michael Milken once said that it was the earlier spreadsheet program VisiCalc, that made possible the LBOs and takeovers of the 1980s. Technology has come a long way from then. Professor William Deringer of MIT has studied what effects this ever increasing computing power is having on which deals get done and how.

We asked him what led to his research. So this is sort of an interesting story. I was actually at a, an event at MIT, and I was speaking with someone who was one of the board members at MIT, and he mentioned, you know, I used to know some of the people who were involved with VisiCalc early on.

And a series of conversations led me to this kind of interesting anecdote that apparently, Michael Milken at one point had said that, if you really want to understand what happened in the 80s, and the kind of the rise of buyouts and the sort of mega deals of that period, the real key is VisiCalc. So it was with spreadsheet software. and so I spent some time trying to kind of track down this anecdote.

I found it mentioned a couple of, a couple of other places, and it took me on a sort of interesting journey of trying to figure out, well, what what would that have actually looked like. But so how would spreadsheet software actually have changed things? And, what I found was that it's sort of more than just a matter of kind of making calculations easier, but that it really seemed to change the kind of limits of financial thinking and imagination.

So things that were pretty hard to do. So modeling and modeling and LBO by hand, kind of, you know, on paper, was a very arduous, very time consuming. And importantly, it was not sort of dynamic.

You couldn't kind of tweak one parameter, you know, tweaking interest rate, tweak, tweaking projection for revenue growth or something, and then kind of get a new answer, and so what seems to happen very quickly, and there are, you know, interesting quotations about this from, from people at the time, was dealmakers realized that, that you could use spreadsheet software to not only model potential deals, but also to sort of scan the realm of possible deals. So instead of having to just look at one possible deal, and you could run similar sorts of scenarios across a kind of wide range of different, potential target companies. And I think that in some ways, really, you could even say it sort of changed the way in which business was understood from the sort of perspective of Wall Street.

From your work, could Mike Milken have done what he did without spreadsheets? I don't think so. I mean, I think, well, I think there would have been significant limitations.

I mean, among the things that's interesting about the Milken story, and this was actually a lot of what my research was interested in, was he was sort of simultaneously, his work was simultaneously very technologically innovative and at the same time sort of very personality event. But there were certain aspects of the kind of Milken machine that was built and built that was highly technical. I mean, much of it was, even down to things like being able to track, and sort of catalog, the existence sort of where the market was in high yield bonds, who owned banks, who were, you know, who were potential buyers, but then also, kind of valuation techniques.

There were sort of longstanding methods, of course, for valuing bonds, but with new sort of handheld calculators and spreadsheets, those the ability to kind of, analyze and value, income instruments became kind of radically easier. Where are we now? How is the current technology changing the nature of dealmaking and private equity?

And let me ask you a very specific question. Do we just not need as many private equity bankers anymore? Yeah.

So I mean, as a as someone who spent most of my time in the, in the past, I know, I know sort of about as much about the kind of really cutting edge stuff as, certainly, you know, many of your, of your viewers, but, from what I understand, you know, one of the areas of development as for example trying to find sort of use, the capacity of AI to sort of simplify and automate things like modeling. Obvious. Right.

So, you know, when I was in, did training, you know, my first day as an investment banker, you— not the first day, but maybe, you know, week two or something, you learned how to kind of build LBO models on spreadsheets. And that's the sort of thing that required a quite a lot of training, required a certain kind of technical artifice and expertise. And, and that's the sort of thing that may go towards, that, that may require less sort of direct kind of time and training.

But one thing I think you know, we know from the history of technology, and certainly the history of the kind of calculation tools that I like to study. is that the kind of automation of some of those calculations, and the automation of kind of lots of different things in the world don't necessarily lead to less work. So if I had to guess, and I mean, as a historian, we're always sort of cautious about making prognostications, I would not think that new tools would sort of lead to the need for fewer people, but rather what I would expect to happen was that they would kind of change the nature of the work.

That was Professor William Deringer of MIT. Coming up, a precarious equilibrium. That's how Scott Beasant of Key Square Capital describes the US economy.

He joins us to say why and what can investors to do about it. Investors should be ready for more volatility. That's next on Wall Street Week on Bloomberg.

This is Wall Street Week. I'm David Westin. At the end of a week focused on Kamala Harris's plans for the economy and how they differ from Donald Trump's, we welcome back now, macro investor Scott Bessent, founder and CEO of Key Square Capital.

So Scott, welcome back. Good to have you here. Always nice to be with you.

Before we get to the rival economic theories here, let's talk about where we are on the economy generally. You have a note out right now talking about a precarious equilibrium in the economy. What makes that precarious?

Well, look, I now I've been doing this 30, 35 years now, and the U. S. economy, in my mind, is starting to look like an emerging market economy that, you know, I or every kind of emerging market blow up that I've seen in my career.

And that is you have rising asset prices. So in the US, stocks and housing that is fueling consumption by the top 10 or 20% of households, top 10 or 20% of households, or account for more than 50% of U. S.

consumption. Then the you know below that the rising asset price is being fueled by a 7% to GDP budget deficit, biggest we've ever had when it's not a war, not a recession. Then the third leg of that is Janet Yellen has moved the quarterly refunding to much shorter term debt, which has had the effect of suppressing interest rates.

So, you know, you've got, you know, I call it the three-body problem after the Chinese science fiction book and the famous math problem. So the we don't know which one of those could go first, but it's one of these that if the stock market were to go down, then it could create a gap in consumer spending. So so that does sound pretty perilous for investors.

And given the fact we don't know which one will break, although you think one of them is likely to break at some point, what does an investor do? How do they position themselves for something breaking? Well, I think, investors should be ready for more volatility, which I also talked about in the note.

You know, I think gold's very interesting here. It's at an all time high, I think, as we're speaking today. And, you know, I think just in general, everyone should do a gut check, make sure they're not too far out on the risk curve because, you know, it's been a pretty good run.

So let's turn to the question of rival economic plans from Donald Trump, somebody whom you know, have known for a lot of years and talk to from time to time. And then Kamala Harris, someone new out of the scene, at least with respect to her economic plans. How does an investor really, really address those two alternatives?

How do you macro invest around this tour, start with Kamala Harris? Well, look, I think it's two competing visions there. The Michael Boskin had a very good editorial in the Wall Street Journal yesterday.

And he said, you know, we're not getting a lot of meat out of Kamala Harris's programs yet, but we can go back and look. And there are three different sources there. What did she say in the 2020 campaign?

What did Harris-Biden do, and then what has she said so far? So in the 2020 campaign, which, you know, she's running from, in a single payer health care, you know, lots of restrictions. the, you know, big, big, big spending stopping fracking, which she has backed off of.

She said she's thinking better now. Well, you know, I always think with a politician it's where's your heart and where's your head? And I think at her heart, she still believes that, you know, with with Joe Biden.

He campaigned as Scranton, Joe and then broke hard left. And, you know, we ended up with a great inflation. I think she is hard left.

She's trying to, you know, maybe constructive ambiguity. And, you know, I think maybe that's why CNN and The Washington Post came out and chastised or chastised her over the policy she talked about in Raleigh on Friday because she's supposed to keep the mask on past November 5th, however we read it. What about things like housing?

She's trying to address that. We do have a housing problem in this country. I think you'd agree.

We do not have enough housing. We're not building enough housing. She has a plan, at least, to try to stimulate that.

Well, there is no plan to say how she's going to stimulate. What she's going to stimulate is buying. We don't need more house buyers.

We need more houses. And there is nothing for how that's going to happen. But don't the markets react to that and say, is there going to be house more house buyers.

We better start building some houses. No, it just means prices are going to go up. Costs are going to go up.

You know what? Why don't you know there's no solution to the root cause? Why don't we have more, more housing now?

You know, is that, you know, Blue City, the zoning problems. Is it that we need some kind of nationalized, regulatory, you know, in terms of building codes? Is there an affordability problem?

Because, you know, I will tell you that a lot of the policies from Harris-Biden over the past three and a half years have added to the cost of housing. So let's turn to the other side of the aisle, if we could, to Donald Trump, something you know a fair amount about. A lot of criticism that his economic plans would actually be inflationary, particularly on the tariffs and curtailing employment from immigrants, curtailing immigration.

What do you respond? Well, first, let's talk about curtailing immigration. So for the first time in my career, first time in my career, the left is actually admitting that immigration suppresses wages.

For 35 years. We heard immigration does not suppress wages. Now it seems like the only, supply side solution that Harris Biden had in the past three and a half years is more low in workers, but it did keep inflation down below where it otherwise would have been.

Do you agree? in the Harris Biden world? Sure they have, because they also constricted, you know, heavy regulation.

And, you know, they kept people out of the workplace. So and then, you know, I actually don't think that they have a problem with low end workers doing better. So, you know, flow and wages go up and, you know, as you said, you know, tariffs, tariffs or one time price adjustment, it's not inflationary.

You don't set off an inflationary spiral. It's what, you know, in the UK they call it an administrative adjustment provided you don't keep escalating them, providing you don't keep escalating them. Most of this would be aimed at China.

And China seems to be you know, it's a it's a subsidy model. So they're just pushing out the, you know, all these products as an employment scheme. These companies aren't making much money.

So if you just want to keep the employment going and, you know, I also think, you know, I've been thinking about this a lot. I think that tariffs can in a way be regarded as a kind of economic sanction without a sanction. So if you do not like Chinese economic policy and they are, you know, forced labor, cheap, cheap financing, flooding the market with overproduction, you know, you could do two things.

You could put a sanction on them, or you could put a tariff. You know, you can also do it. You know, the Chinese have been suppressing their currency.

So it's also an answer to currency manipulation. So but at the end of the day, you know, I do believe that Donald Trump has changed the conversation on tariffs because he's turned them into a negotiating tool. You know, he says we will drop ours if you they drop yours.

You know, it's kind of free trade versus fair trade. let's talk about the Secretary of Treasury, because you've been critical of Janet Yellen in the past being too political. One thing I think we're reasonably confident she will not be the Treasury Secretary a year from now.

And I do— are you confident that Donald Trump will not appoint someone as Treasury Secretary who in fact will be political? Look, you know, there's political and there's political, you know, all cabinet positions are political appointees there. Then there is what is appropriate, what is normal.

You know, for a cabinet official to step out and start talking about threats to democracy for the Treasury Secretary to show up at a rally for a candidate who is not the president, you know, highly inappropriate. Finally, debt and deficit, you've said in the past you believe former President Trump is very concerned about that. How do we reconcile that with the extension of the tax cuts and Jobs Act?

Well, I think that there are a lot I think there's a lot of demand, especially in the Republican House, for pay-fors. So the you know, as it stands, the Tax Cut and Job Act, CBO scoring, which, you know, it's never right, is saying that a full extension catus paribus would be 4. 5 trillion over ten years.

You know, not taking into account any more growth doesn't, that the Republican House has already identified at least half of that in pay-fors? You know, a lot of it would be turning off this IRA, which is a doomsday machine on the on the deficit. It was originally scored at a plus 50 billion.

And it's, you know, it's it's allowed to continue to you know, its final dynamic would probably be over 4. 5 trillion. The empowering states on the health care, you know maybe some tariff income.

So why don't we hear from former President Trump what you just said, which is I will not have an extension of the CCJ unless we have paid-fors. That might reassure the markets to some extent if we were confident of that. Well, there might be some of the advisers who are advising him to say that because, you know, I do think this debt and deficit is going to be one of one of the big issues of the day.

I think Americans are worried about it. And, you know, when we go back and look, prices have jumped to a high level. very good chance.

You know, no matter what. You know, Vice President Harris wants to do very hard to get grocery prices down, you know, from that level. But things you can get down are house payments, auto payments, credit card payments.

And you could do that by getting interest rates down. And I think the way to do that is to, you know, start with a good deficit reduction program. You know, we've been pedal to the metal fiscal.

The Fed has been pedal to the metal rates. So if you were to stop the big fiscal deficits, then the Fed could actually go into a proper easing cycle. Scott, it's always a treat to have you with us.

Thank you so much. That's Scott Bessant of Key Square Capital. Coming up, Google has been judged a monopolist.

What comes next for a leading hyperscaler? We ask Jennifer Huddleston of the Cato Institute. I think there's always a question when it comes to tech companies of what would a breakup actually mean, and what would that look like?

That's next on Wall Street Week on Bloomberg. This is Wall Street Week. I'm David Westin.

A federal district court has ruled that Google is a monopolist when it comes to search. And this fall, we'll decide what to do about it. To explain what's at stake and what to look for next, welcome back now, Jennifer Huddleston, Cato Institute senior fellow in technology policy.

Great to have you back, Jennifer. So let's start with what the court decided. It's a very long decision.

But having looked through it. There's a lot of talk about the Biden administration really trying to create new antitrust law. Is this new law or established law being applied to Google?

It's a bit complicated. So what we saw in this particular case was that the court ruled that Google had violated parts of the Sherman Act in two key regards when it comes to the exclusive distribution agreements that it had, as well as to a very specific type of search advertising. We saw Judge Mehta in this case, apply the Microsoft case to this, although there's a lot of questions around some of the decisions that were made.

Some of what the court decided to reject in terms of potential competitors, whether or not that's the market that consumers actually experience, some of the conversation around what some of these alternative products look like, whether or not they're actually equal products or inferior products. So while we didn't necessarily see new law or a change from the consumer welfare standard, we did see some questions about perhaps how some of those standards were being applied. What does this mean for Google?

I mean, one thing it means they've already said they're going to appeal. And we know from the Microsoft case that you referred to that took a good long time, several years going up and down and finally settling. But what does it mean for Google in the long run, do you think?

It'll certainly be interesting to see. And I think the question is not just what it means for Google, but what it means for consumers and what it means for other businesses when it comes to businesses dealing with one another and businesses creating certain types of agreements. While this case specifically deals with some of Google's distribution agreements, it's likely to have some broader impact as well.

It'll be interesting to see what the remedies phase actually looks like if and when we get to that point. As you mentioned, the case is likely, is going to be appealed and it's likely to take several more months, if not years to come to a final decision. We have that remedies phase coming up in the fall now.

And one of the things that Bloomberg has reported is the Justice Department is at least considering the possibility of asking to have Google broken up. Is that likely? I think there's always a question when it comes to tech companies of what would a breakup actually mean and what would that look like?

And is that something that's even truly possible in many cases? Oftentimes, consumers like the fact that their products are able to be integrated with one another. That's one of the things that consumers are looking for.

We often see actually requests for more interoperability, not less. Let's talk specifically about if they don't break up Google, what the possible behavioral remedies could be. In particular, you mentioned the restrictive agreements that at least the judge found were restrictive with respect to Google paying Apple and others to have their search engine embedded as the default.

Is there any pro-competitive justification for doing that? Wasn't that something that was pretty nakedly a way of really deterring other competitors? We've seen default agreements reached in in multiple cases, and the judge did continue to uphold Trincoll and say there is no duty to deal.

So it is important to to recognize that there is a possibility to see these agreements continue in some way. The question is, was Google acting as a monopolist and abusing its ability to get these agreements? And this really is also going to come down to that question of are the alternative search engines inferior products?

If there's no price that Apple would pay to set being as its default? Is it fair to say that they can't have Google as their default? What does that mean for consumers?

Are we expecting consumers to get the inferior product when what companies are trying to do is provide their their consumers, whether it's a smartphone company or a web browser, the product that they actually want. When we look to Europe, where they changed the way that defaults could be done, and when you get a new phone out of the box or go to a new web browser, there is not necessarily a default search engine. We see that consumers overwhelmingly still choose Google because it's the search engine that they want right now, and it's the search engine that is bringing them the kind of results they expect.

Let me play devil's advocate here, actually, in reading this decision, because I hear what you're saying, and there are findings that if Google is just a better search engine. But if that's true, why were they paying all that money? I mean, Google's a pretty smart company.

They're not going to pay billions of dollars for nothing. And if they really are just a better search engine, they didn't have to pay any money. They would have been the default by default.

There continues to be a wide array of business decisions that go into these kind of complicated agreements. But we really need to be looking at is, is this a case where we see consumers being harmed? Is this a case where we see a company abusing its monopolist behavior?

And if not, then we should really focus on the fact that just because a company is large doesn't end. Just because a company is successful doesn't mean that it can't engage in standard business practices that we would allow other companies to do as well. This Google case was brought under President Biden and his administration by the Justice Department.

We do have an election coming up. You may have noticed in November, and we may have we will have a different president. It will either be Kamala Harris on the one hand, or we had Donald Trump at this point.

Do we have any sense of what a competition policy might look like under either of their regimes? When we look at the previous Trump administration, they were highly critical of several of America's leading tech companies. In fact, many of the antitrust cases started during the Trump administration, or the investigations at least started during the Trump administration.

Similarly, we've seen the Biden administration continue to be critical of big companies and in general, and really try and push towards more European style antitrust approach. So I think regardless of of who wins in November, we're likely to see continued scrutiny of large companies. And the question should be, is that good for consumers and is that good for innovation?

On the question of how much a consumer pays because there are problems with network effects and things. Is there an issue that we're not getting to see other competitors? They just never make it into the game at all?

That's one of the claims, I believe, that was made in the Google case that people just couldn't get into it. There may be a better, more innovative search product out there. We just never get to see it.

One of the things that we often see in technology sector, particularly when we're talking about these kind of antitrust cases, are questions of market definition. And the Google case, the judge very much locked into this kind of general search engine definition, things that allowed you to search and then go off site was what he really wanted to limit it to, to limit the number of competitors. But if we look at trends, particularly amongst younger users, Gen Z and you know, Gen Alpha that's starting to access the internet.

They're really looking at video forward often. They're going to TikTok or they're going to Google YouTube to do their searches, or they're doing much more specialized searches where they're not necessarily using those general search engine. That's something that's kind of changed with all users.

And the judge in this case kind of pushed that aside to really only focus on general search engines, he said. That couldn't be considered competition because you couldn't go off site. But the question is, is that really the consumer experience?

And this is also where AI comes up. Is AI going to be so revolutionary that this completely changes the way that we view what it means to conduct search is this. And it's looking at a general search engine in a few years, going to be the same as talking about video rental stores and streaming is coming about.

Jennifer, it's always great to have you on these antitrust questions. Thank you so much. That's Jennifer Hudson of the Cato Institute.

Coming up, violating Warren Buffett's two rules of investing with or without a QR code. That's next on Wall Street Week on Bloomberg. Finally, one more thought.

Rule number one: never lose money. Rule number two: never forget rule number one. So says Warren Buffett.

Unfortunately, too many of us appear to forget both of Buffett's rules too often. Just this week, Ford lost $1. 9 billion on its all electric three-row SUV.

When it concluded there wasn't enough consumer interest to make it work. I talked to Ford CEO Jim Farley, and he said the new mantra is that any new electric vehicle must be profitable within its first year on the market. If they can't do that, it won't be approved.

That's why they canceled this electric three row SUV. Others are losing money for less auspicious reasons. Former Representative George Santos lost $374,000 this week when he agreed to pay restitution after pleading guilty to charges of wire fraud and identity theft.

And if that weren't enough, he'll likely have to do some jail time as well. It occurs to me now that I allowed ambition to cloud my judgment, leading me to make decisions that were unethical and so pleading guilty is a step I never imagined I’d take. But it is a necessary one because it is the right thing to do.

Carl Icahn is losing $2 million in fines he owes to the SEC for not disclosing enough about margin loans, but all that's a drop in the bucket of the $19 billion in net worth he's lost in the last 15 months. Both Icahn and IEP have agreed to pay 1. 5 million and $500,000 in civil penalties to settle these charges, without admitting or denying the findings.

Very interestingly, these go through December of 2018 to the present, and this was 51-82% of IEPs outstanding securities as collateral pledged to secure margin loans worth billions. Many of us find ways to lose money that don't involve getting crosswise of the law. Buying lottery tickets, for example.

State lotteries took in over $100 billion last year, which is good for the states, but not necessarily for those buying the tickets. Over a third of that money stayed with the state, which means the rest of us lost about $37 billion on the deal. Betting on sporting events has yet to catch up with the state lotteries, but it's moving up fast, with the American Gaming Association saying about $37 billion was wagered in the first quarter of this year alone, with over 3 billion of that going to those taking the bets.

For the leagues, this is a revenue stream at a key time for them because we're seeing that media rights, there's a lot of tumult, a lot of disruption, especially at the team level. So I think bringing in the gambling money to supplement that has been something that they've really leaned on. Recently, sports has given us another way to separate us from our money.

It's the purchase of name, image and likeness of our favorite college football star. And as if betting on sports weren't enough, the football program at Oklahoma State University has found a way to make it easier for us to spend our money on those NILs. They now put QR codes on their player's helmets so you can use your smartphone when you're watching on TV, and purchase the NIL for your favorite player without having to go find it.

Of course, it's not only about losing money, there's always the enjoyment you get from just being in the game. Even if most of the money ends up going to the house. I'm no gambler, but I did have one great evening in Las Vegas when I spent a couple of hours at the craps table and actually ended up a little bit ahead of the game.

But then again, I had the smartest, funniest, and best tutor there ever was: Nora Ephron, who taught me how to calculate the odds of the dice coming up on any particular number, and then how to use the odds to place my pass versus don't pass and come versus don't come bet. Which actually worked, at least when she was with me. That does it for this episode of Wall Street Week.

I'm David Westin, this is Bloomberg.