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00:00♪ GUY: TUESDAY, 16TH OF FEBRUARY. WITH 30 MINUTES INTO THE TRADING DAY IN THE UNITED STATES, WELCOME BACK. I'VE GOT JOHNSON -- I'M GUY JOHNSON IN LONDON. ALIX STEEL IS IN NEW YORK. THIS IS "BLOOMBERG MARKETS." ALIX: EVEN THOUGH TEXAS IS A WEATHER IDIOSYNCRATIC ISSUE, IT DOES PROVIDE FUEL. WE WILL TALK ABOUT THAT OVER THE NEXT COUPLE OF HOURS. LET'S TALK ABOUT THE MARKET. IT IS DEFINITELY RISK ON. A BIG PART OF THAT IS WHAT IS HAPPENING WITH THE YIELD. YIELDS UP BY FIVE BASIS POINTS HERE IN THE U.S., 1.26%. PLAYING CATCH UP WITH WHAT WE SAW IN EUROPE YESTERDAY. IT MAY BE REDUNDANT, BUT THE CURVE IS STEEPENING. THE LONG END GETTING HIT THE HARDEST. CRUDE IS JUST ONE PART OF THE COMMODITY CYCLE. YOU'VE GOT TIN, YOU'VE GOT COTTON AT A DOING MATH YOUR HIGH. IN ADDITION, DEMOCRATS ARE TRYING TO MOVE QUICKLY TO ACT PRESIDENT JOE BIDEN'S STIMULUS EFFORTS. FOR MORE, WE ARE JOINED BY KEVIN CIRILLI, CHIEF WASHINGTON CORRESPONDENT. KEVIN: DEFINITELY, THE STIMULUS TALKS ARE MOVING ALONG AND ON PACE FOR FINAL PASSAGE IN THE NEXT THREE TO SIX WEEKS, I'M TOLD BY SENIOR STAFFERS. IN THE HOUSE OF REPRESENTATIVES, PIECES OF THE BILL ARE MAKING THEIR WAY THROUGH THE COMMITTEES. MEANWHILE, IN THE SENATE, THEY ARE GOING TO BYPASS THAT. THE BIDED AND ADMINSTRATION SAY THEY ARE WORKING WITH REPUBLICANS -- THE BIDEN ADMINSTRATION SAY THEY ARE WORKING WITH REPUBLICANS AT THE STATE LEVEL. THIS AS REPUBLICANS IN THE SENATE ARE SAYING, WHY AREN'T YOU WORKING WITH US. BECAUSE THE ADMIN ASTRAY SHOULD HAS DECIDED TO GO AROUND REPUBLICANS IN CONGRESS, THAT IS GOING TO -- THE ADMINISTRATION HAS DECIDED TO GO AROUND REPUBLICANS IN CONGRESS, THAT IS GOING TO SPEED UP THE PROCESS, WHICH COULD HAVE TAKEN ANYWHERE FROM FIVE TO SEVEN MONTHS. I JUST GOT OFF THE PHONE WITH A SENIOR STAFFER TO CONGRESSWOMAN LIZZIE FLESHER. SHE REPRESENTS THE -- CONGRESSWOMAN LIZZIE FLETCHER. SHE REPRESENTS THE HOUSTON AREA. SHE REPRESENT MANY WHO ARE WITHOUT POWER. NO DOUBT IT IS ON THE MINDS OF THE BIDEN ADMINSTRATION. THEY HAVE DECLARED A NATIONAL EMERGENCY. GUY: THE DEMOCRATS ARE MOVING FAST ON STIMULUS, BUT YOU BRING UP TEXAS, SO LET'S TALK ABOUT THAT. INFRASTRUCTURE IS GOING TO BE SOMETHING WE ARE GOING TO HAVE TO TALK ABOUT AT SOME POINT. ARE THE DEMOCRATS BURNING BRIDGES ON INFRASTRUCTURE WITH THIS STIMULUS PACKAGE? AND HOW DOES TEXAS IMPACT THAT DEBATE? KEVIN:KEVIN: IT IS A GREAT QUESTION. IN TERMS OF POWER GRIDS AND STRUCTURES, AND SECURITY FOR INFRASTRUCTURE AS IT RELATES TO ENERGY, NO DOUBT THIS IS GOING TO BE THE LATEST HEADLINE THAT WOULD BE A POINT THAT DEMOCRATS AND SUPPORTERS ARE SPENDING MORE GOVERNMENT MONEY ON INFRASTRUCTURE ARE GOING TO POINT TO. CONGRESSWOMAN FLETCHER WAS ONE OF FOUR DEMOCRATS WHO JUST THE OTHER WEEK SIGNED A LETTER TO PRESIDENT BIDEN IN THE HOUSE AND SAID FOR THEM TO REMOVE SOME OF THE RESTRICTIONS AND REGULATIONS THEY PUT IN PLACE ON THE ENERGY SECTOR. TEXAS IS A STATE THAT HAS BEEN PUMMELED NOW BY ENERGY AND POWER OUTAGES, BUT ALSO BY COVID-19. THEY ARE SAYING THE GREEN NEW DEAL POLICIES, IT IS NOT THE TIME OR THE PLACE. THE CHAIRMAN OF THE SENATE ENERGY COMMITTEE, JOE MANSION, DEMOCRAT FROM WEST -- JOE MANCHIN, A DEMOCRAT FROM WEST VIRGINIA, ALSO CALLING ON THEM TO BACK UP ON THESE POLICIES. GUY: THANK YOU VERY MUCH. KEVIN CIRILLI JOINING US FROM WASHINGTON. AUSTAN GOOLSBEE, ECONOMIC PROFESSOR, IS JOINING US TO GIVE HIS TAKE FROM CHICAGO, FORMER CHAIR OF COUNCIL OF ECONOMIC ADVISORS UNDER PRESIDENT OBAMA. YOU'VE ARGUED FOR GOING BIG. MY QUESTION TO YOU IS, AS THE U.S. ECONOMY STARTS TO RECOVER, AND WE ARE SEEING LOTS OF EVIDENCE OF THAT AT THE MOMENT, HAVE YOU EVER SEEN FINANCIAL CONDITIONS THIS EASY OUTSIDE OF WARTIME? AND DO YOU WORRY ABOUT ADDING TO THAT? AUSTAN: I WORRY ABOUT IT A LITTLE. WE HAVE SEEN SADLY MULTIPLE PERIODS WHERE FINANCIAL CONDITIONS WERE FROTHY, TO SAY THE LEAST. MY ARGUMENT ABOUT GOING BIG AND GOING EARLY IS THAT THE PANDEMIC IS FUNDAMENTALLY DIFFERENT FROM OTHER BUSINESS CYCLES, AND LET'S WAIT AND SEE HOW IT GOES IS THE WORST STRATEGY YOU CAN HAVE WHEN THERE IS A PANDEMIC. WE HAVE MULTIPLE TIMES SEEN ON THE HEALTH AND COMICS SIDE THAT -- AND ECONOMIC SIDE THAT WAIT AND SEE IS JUST PREPARING TO FAIL. LIKE A SUNBURN, IT IS TOO LATE TO PUT THE SUNSCREEN ON. SO I THINK THE SLOWDOWN OF THE ECONOMY NOW IS ABSOLUTELY THE RESULT OF PLAYING THIS WAIT-AND-SEE GAME THROUGH THE SUMMER AND HOPING IT WAS GOING TO GET BETTER, AND WHEN IT GOT WORSE, WE SUFFERED. SO WE WOULD BE MUCH BETTER OFF VIEWING THE PROBLEM OF HAVING THE ECONOMY GET SO STRONG THAT IT STARTED TO OVERHEAT THEN WE WOULD TO PREEMPTIVELY DECLARE THAT THE BATTLE IS ALREADY OVER AND THAT WE DON'T WANT TO SEE INFLATION. I JUST THINK THAT IS A CONFUSED WAY TO GO. ALIX: WHEN WE TAKE A LOOK AT THE MOVE WE HAVE SEEN IN THE BOND MARKET, THE BY EVERYTHING RALLY, IS IT JUSTIFIED? WHAT IS YOUR TAKE ON THAT IN RELATION TO WHAT WE MIGHT SEE OUT OF D.C.? AUSTAN: YOU GUYS ARE FAR MORE EXPERT ON WHAT THE MARKET PSYCHOLOGY IS THEN I AM, SO I AM NOT GOING TO SAY WHAT'S JUSTIFIED OR NOT. THE MARKET HAS BEEN SAYING -- AND THE FED, THEY HAVE BOTH BEEN SAYING THEY WANT SOME KIND OF INFLATION. THE FED HAS BEEN SAYING FOR 14 YEARS THAT IT EXPECTED INFLATION TO GET TO 2%, AND FAILED TO GET IT UP THAT HIGH. SO IF WE'VE GOT A LITTLE BIT OF INFLATION ON A TEMPORARY BASIS FROM A TEMPORARY INJECTION OF MONEY, THERE WOULD BE MANY WAYS TO LOOK AT THAT AS A POSITIVE. THAT'S WHAT WE HAVE BEEN TRYING TO DO FOR THE LAST 14 YEARS AND FAILED AT DOING, SO I THINK THE MARKETS REFLECT THAT YOU MIGHT SEE SOME TEMPORARY UPTICK IN INFLATION, BUT IT IS PRETTY MODEST IF YOU JUST LOOK AT THE IMPLIED INFLATION RATE IN THE TIPS. IT'S NOT VERY BIG. GUY: NO, IT'S NOT, BUT THE TRAJECTORY IS DEFINITELY UPWARDS YOU HAVE TO WORRY AT THIS POINT THAT IF INFLATION WERE TO GET A GRIP ON THE ECONOMY, THAT IT WOULD BE HARD TO STOP. I APPRECIATE THAT WE HAVE THE SKILLS AND UNDERSTANDING TO BE ABLE TO DO THAT. MR. VOLCKER TAUGHT US THAT A NUMBER OF YEARS AGO. BUT IF WE ARE INJECTING A REASONABLE AMOUNT OF INFLATION INTO THE SYSTEM, IT MAY NOT HELP THOSE PEOPLE. AUSTAN: I HEAR YOUR ARGUMENT. I THINK IT IS A LITTLE CONFUSED IN THIS CURRENT SETTING. THIS IS TOTALLY UNLIKE, SAY, JOHNSON RUNNING THE VIETNAM WAR SEVEN YEARS STRAIGHT. WE ARE WELL ABOVE BUT INTO OUTPUT BEFORE THAT STARTS GENERATING INFLATION. THIS IS A TEMPORARY, ONE-TIME DISASTER RELIEF PAYMENT FOR SOMETHING THAT IS NOT A NORMAL BUSINESS CYCLE. WE'VE BEEN 14 YEARS WITH A NUMBER OF PROMINENT PEOPLE SAYING THERE IS IMMINENT DANGER OF HYPERINFLATION. WE SHOULD HAVE THE FED START UNWINDING, RAISING RATES PREEMPTIVELY TO PREVENT THAT INFLATION. GOOD THING WE DID NOT LISTEN TO THAT LOGIC OVER THE LAST 10 YEARS BECAUSE IT WOULD HAVE PREEMPTED THE DROP IN THE UNEMPLOYMENT RATE. I DON'T THINK IT LOGICALLY MAKES SENSE TO STOP GIVING RELIEF WHEN WE ARE SEEING RECORD LEVELS OF FOOD BANK DEMAND AND PEOPLE GETTING THREATENED TO THROWN OUT OF THEIR HOMES. GUY: SOME OF THE FORCES THAT WERE DEFLATIONARY DURING THAT ERA, THOUGH, ARE STARTING TO FADE. THE BABY BOOMERS ARE STOPPING SAVING NOW. THEY ARE MOVING INTO RETIREMENT. GLOBALIZATION IS BEING PUSHED BACKWARDS. THERE IS STRAIN IN SOME OF THE SUPPLY CHAINS. IT IS GOING TO BE INTERESTING TO SEE WHAT PPI INFLATION LOOKS LIKE TOMORROW. SOME OF THOSE HUGE DEFLATIONARY FORCES THAT WERE REALLY MANIFEST OVER THE LAST YEARS ARE FADING. THEN YOU PUT THAT SIDE-BY-SIDE WITH THE CHART WE JUST SHOWED, AND IN THEORY, YOU MIGHT GET SOME INFLATION HERE. AUSTAN: MAYBE. ALL I WILL REMIND YOU IS THAT IN THAT THEORY, YOU'VE GOT TO THINK ABOUT THE VELOCITY OF MONEY, AND THE VELOCITY OF MONEY IS DOWN JUST AS MUCH, IF NOT MORE THAN THE QUANTITY OF MONEY IS UP. IF YOU WERE GOING TO GET THIS INFLATION, THIS IS EXPLICITLY EMPEROR PARIS ASSISTANCE OF DISASTER RELIEF -- EXPLICITLY TEMPORARY ASSISTANCE OF DISASTER RELIEF. THE THREAT OF A TEMPORARY BLIP UP IN PRICES OF 1% TO 2%, WOULD WE HAVE BEEN WANTING TO GET INFLATION UP BY A COUPLE OF PERCENT FOR THE LAST 14 YEARS, I JUST DO NOT SEE WHY YOU WOULD WANT TO PREEMPTIVELY PREVENT THE COMEBACK OF THE ECONOMY WHEN THERE IS A HUGE RISK THAT WE COULD SEE A RESURGENCE OF ONE OF THESE NEW VARIETIES OF THE VIRUS. ALIX: TWO GUY -- TO GUY'S POINT, WE WANT THAT WAGE INFLATION. IS THE STIMULUS GOING TO GIVE US ANY OF THAT? AUSTAN: AFTER-TAX WAGES, FOR SURE. IT IS PROVIDING DIRECT MONETARY RELIEF TO PEOPLE WHO NEED IT, TO PEOPLE WHO HAVE LOST THEIR JOBS, TO PEOPLE WHO HAVE KIDS. ASSISTANCE ON FOOD STAMPS, MONEY TO SMALL BUSINESS SO THEY CAN REOPEN. ALL OF THOSE THINGS ARE WHAT YOU DO IN A DISASTER. THIS IS MUCH MORE LIKE A NATURAL DISASTER THAN IT IS LIKE A BUSINESS CYCLE. IF WE ARE TALKING ABOUT TURNING THIS INTO PERMANENT STIMULUS, THEN I THINK YOUR ARGUMENT CARRIES A LOT OF WEIGHT. YOU SHOULDN'T DESIGN DISASTER RELIEF TO BE A PERMANENT SPENDING CONDITION. BUT THIS ISN'T A PERMANENT SPENDING CONDITION. THESE ARE TEMPORARY MONEYS THAT ARE IN INSURANCE POLICY AGAINST THE VIRUS GETTING WORSE. IT WOULD HAVE BEEN FAR BETTER IF WE HAD DONE IT IN THE SUMMER BECAUSE, AS I SAY, WAIT AND SEE IS THE WORST STRATEGY TO FOLLOW FOR A PANDEMIC. ALIX: IT WAS SO GOOD TO CATCH UP WITH YOU. COME BACK SOON. WE LOVE TO TALK TO YOU. AUSTAN GOOLSBEE, THANK YOU VERY MUCH. SOME BREAKING NEWS FOR YOU CONCERNING THE TEXAS POWER OUTAGES. . THE LATEST HEADLINE IS THAT THE BLIZZARD IS CUTTING USL OIL OUTPUT BY OVER 2 -- CUTTING U.S. OIL OUTPUT BY OVER 2 MILLION BARRELS A DAY. THEY SAY THE LOSSES ARE VERY BIG IN THE PERMIAN. NOW THAT THE WEATHER IS WARMING UP A BIT, IT SHOULD TAKE ANYWHERE BETWEEN FIVE AND 10 DAYS FOR THINGS TO REALLY COME OUT AND THINGS TO BE OK, BUT THE EQUIPMENT IS NOT SET UP FOR THIS KIND OF COLD. GUY: NO. IT SHOULD BE A RELATIVELY TEMPORARY HIT, BUT THOSE ARE BARRELS THAT ARE ULTIMATELY GOING TO BE LOST, AND YOU ARE FEEDING INTO A MARKET WHERE SAUDI HAS ALREADY BEEN CUTTING BACK. IT WILL BE INTERESTING TO SEE HOW IT IS ABLE TO SUSTAIN A PRICE OVER $60 FOR THE NEXT FEW DAYS. I CERTAINLY, FROM MY READING THIS MORNING, THINK THAT IS GOING TO BE TOUGH. ALIX: THERE ARE SO MANY ANGLES TO THE STORY. COMING UP, WE WILL BREAK DOWN U.S. ENERGY POLICY AND LOOK AT HOW THE BITTER COLD IS RAISING QUESTIONS ABOUT THE U.S.'S READINESS TO DEAL WITH CLIMATE CHANGE, AND WHAT IT MEANS FOR THE GREEN AGENDA FOR THE BIDEN ADMINSTRATION. IAN BREMMER WILL BE JOINING US. THIS IS BLOOMBERG. ♪ GUY: QUARTER PAST THE HOUR. WELCOME BACK. TEXAS SAW UNPRECEDENTED SNOWFALL THAT CRIPPLED POWER GRIDS AND LEFT MILLIONS WITHOUT POWER AT HOME AND IN THE OFFICE. JOINING US FROM HOUSTON IS BLOOMBERG'S RACHEL ADAMS-HEARD. RACHEL: MILLIONS OF PEOPLE WOKE UP TO ANOTHER DAY WITHOUT POWER. LOOKING OUT THE WINDOW THIS MORNING, IT WAS STRIKING TO SEE HOW MUCH OF THE CITY WAS IN DARKNESS. IN HOUSTON IT WAS ABOUT 14 DEGREES THIS MORNING. HEADING INTO LAST NIGHT, THERE WERE A LOT OF FOLKS TRYING TO MAKE A DECISION. DO WE TRY TO DRIVE ON THE HIGHWAY TO GET TO A FRIEND OR FAMILY NUMBERS HOUSE EVEN THOUGH IT IS ICY, OR DO WE STAY AT HOME WITHOUT HEAT? I THINK JUST THE OPEN ENDED THE NATURE OF THIS CRISIS MIX IT ALL THE MORE FRIGHTENING. -- OF THIS CRISIS MAKES IT ALL THE MORE FRIGHTENING. 30 PLUS HOURS IS A DIFFERENT BALLGAME, AND I THINK ESPECIALLY FOR THOSE VULNERABLE POPULATIONS, THIS IS A DANGEROUS SITUATION. IT IS JUST CLEAR THAT OUR GRADE WASN'T READY FOR THIS KIND OF EVENT. TEXAS IS ALREADY A UNIQUE SITUATION IN THAT OUR POWER MARKET IS REGULATED. WE WERE SEEING SIGNS THAT A MAJOR CRUNCH WAS COMING, BUT THE QUICK DROP IN PRESSURE JUST HIT PERMIAN PRODUCTION SO MUCH MORE THAN FOLKS EXPECTED, AND THESE PLANTS WEREN'T READY FOR THE COLD TEMPERATURES THAT WE SAW SUNDAY INTO MONDAY. THEN THESE PROBLEMS ESCALATED AT A TIME THAT YOU HAD THIS HUGE INCREASE IN DEMAND, AND ROLLING OUTAGES WEREN'T ENOUGH TO STAVE OFF THIS SYSTEMWIDE FAILURE. ALIX: RACHEL, REALLY APPRECIATE IT. STAY WARM. WHAT THIS DID DO IS PUT THE FOCUS ON U.S. ENERGY POLICY OVER THE WEEKEND. "THE WALL STREET JOURNAL" WROTE IN AN OP-ED THAT LIBERALS CLAIM THE PRICE EVER DOABLE'S AND FOSSIL FUELS IS NOW COMPARABLE, WHICH MAY BE TRUE -- THE PRICE OF RENEWABLES AND FOSSIL IS NOW COMPARABLE, WHICH MAY BE TRUE, BUT THERE IS NO FREE LUNCH, AND THAT THE PLAN TO BANISH FOSSIL FUELS IS A GREATER EXISTENTIAL THREAT TO AMERICANS THE CLIMATE CHANGE. AREA STRONG WORDS. JOINING US IS -- VERY STRONG WORDS. JOINING US AS IAN BREMMER, EURASIA GROUP PRESIDENT. IS THAT TRUE, THAT THIS IS A GREATER THREAT THAN CLIMATE CHANGE? IAN: I THINK PEOPLE WHO STAND TO LOSE HAVE BEEN SHIFTING THEIR POSITIONS AS THE NEWS HAS GONE AGAINST THEM. IT STARTED WITH CLIMATE ISN'T CHANGING, AND THAT WORKED FOR DECADES. THEN THE CLIMATE IS CHANGING, BUT IT ISN'T CAUSED BY HUMANS. THEN IT IS CLIMATE IS CHANGING, BUT WE REALLY CAN'T AFFORD THE SOLUTION. NOW IT IS CLIMATE IS CHANGING, IT IS CAUSED BY HUMANS, WE CAN AFFORD THE SOLUTIONS, BUT WE CAN'T RELY ON THEM. YOU KNOW, THERE ARE LOTS OF PEOPLE WITH A LOT OF VESTED INTEREST IN TRYING TO CONTINUE TO SLOW THE CLIMATE AGENDA DOWN, BOTH IN THE UNITED STATES AND GLOBALLY. BUT IT IS IRRESPONSIBLE, AND OF COURSE, WHAT IT IMPLIES IS A MASSIVE DISCOUNT RATE FOR THE FUTURE. IT MEANS THAT WE CARE VASTLY MORE ABOUT WHAT WE ARE SPENDING TODAY THAN ABOUT THE CONSTRAINTS ON GROWTH AND CONSTRAINTS ON THE PLANET FOR OUR FUTURE IN THE FUTURE OF OUR KIDS. INCREASINGLY, WE ARE SEEING THE DEMOGRAPHICS IN THE UNITED STATES AREN'T WILLING TO ACCEPT THAT. THAT IS, I THINK, ONE OF THE REASONS WHY BIDEN HAS CHOSEN TO BE MORE RISK ACCEPTANT ON CLIMATE THAN ON ANY OTHER ISSUE. GUY: THE BIDEN ADMINSTRATION IS FOCUSING HEAVILY ON THE STIMULUS/RELIEF PACKAGE THAT IT IS GOING TO FORCE THROUGH CONGRESS OVER THE NEXT FEW WEEKS. THE DANGER PRESUMABLY IS THAT THEY BURNED THEIR BRIDGES, THE USE UP SO MUCH OF THEIR POWDER ON THIS PACKAGE THAT INFRASTRUCTURE ISN'T DELIVERED UPON IN THE SIZE AND SCALE THAT MAY BE AS REQUIRED. HOW BIG A RISK IS THAT? IAN: THAT WAS LARRY SUMMERS' POINT, THAT YOU CAN'T GO BIG RIGHT NOW BECAUSE IF YOU GO 1.9 TRILLION DOLLARS, YOU'RE NOT GOING TO HAVE MONEY FOR CLIMATE INFRASTRUCTURE LATER IN THE YEAR. BUT LOOK, NUMBER ONE, INTEREST RATES ARE LOW. ACCEPTANCE OF HIGH DEFICITS ARE HIGH. NO ONE THINKS THAT IS GOING TO REALLY CHANGE TOWARDS THE END OF THIS YEAR. SECONDLY, BIDEN CONTINUES TO BE IN THE MOST SIGNIFICANT CRISIS OF OUR LIFETIMES. THOUSANDS OF PEOPLE DYING EVERY DAY. IT IS ALL SORTS OF SMALL AND MEDIUM BUSINESSES THAT ARE SHUT DOWN AND MEIKO TO BE ASH AND MAY BE FORCED INTO BANKRUPTCY. AVERAGE AMERICANS ARE FACING POTENTIAL EVICTION AND HAVE HIGH LEVELS OF UNEMPLOYMENT, PARTICULARLY THOSE THAT DON'T HAVE COLLEGE DEGREES AND CAN'T WORK IN A DISTANCE WAY. THAT IS GOING TO BE THE TOP PRIORITY. ANY PRESIDENT FACING THAT IS GOING TO HAVE TO RESPOND. THE IMMEDIACY OF THAT, EVEN IF IT MEANS IT MIGHT BE HARDER TO GET INFRASTRUCTURE IN A BIG WAY LATER ON, I THINK THIS IS AN ADMINISTRATION THAT IS CAPABLE OF WALKING AND CHEWING GUM. IT IS NOT THAT REPUBLICANS HAVE SUDDENLY DISCOVERED FISCAL RESPONSIBILITY JUST BECAUSE THEY ARE IN THE MINORITY. IT MEANS THAT THE DEFICITS ARE PROBABLY GOING TO BE EVEN HIGHER BECAUSE FOR THE DEMS TO GET WHAT THEY WANT, THEY ARE GOING TO HAVE TO PAY REPUBLICANS OFF. THAT IS WHAT I THINK WE ARE LOOKING AT, JUST HIGHER LEVELS OF DEFICIT SPENDING. ALIX: BIDEN MIGHT BE ABLE TO WALK AND CHEW GUM. CONGRESS, I DON'T KNOW. IAN: I AGREE WITH YOU. ALIX: WHAT I FIND INTERESTING WITH THE RELATIONSHIP BETWEEN GREEN AND CLIMATE CHANGE IS THIS IS AN AREA WHERE THE U.S. AND EUROPE COULD WORK TOGETHER. THIS COULD BE THE WAY FORWARD FOR THOSE TWO NATIONS. WHAT DO YOU THINK ABOUT THAT? IAN: I THINK THAT THERE IS GOING TO BE A VIRTUOUS COMPETITION IN TERMS OF REDUCING CARBON EMISSIONS, AND TERMS OF COMPETING NET ZERO PLANS. I THINK THE COST SUMMIT COMING UP IN SCOTLAND IN NOVEMBER IS LIKELY TO BE A HISTORIC BREAKTHROUGH MEETING THAT SHOWS A LOT MORE WILLINGNESS OF ALL SIDES, BUT LED BY THE AMERICANS AND THE EUROPEANS, TO DO MORE. THAT IS THE BIGGEST CHANGE IN THE POLICY ORIENTATION FROM TRUMP TO BIDEN ON THE ENTIRE GLOBAL STAGE. BUT I WANT TO BE CLEAR THAT WHEN THE AMERICANS START PAYING SERIOUS ATTENTION TO CLIMATE AS A GOVERNMENT, WE ARE GOING TO WANT TO DOMINATE A LOT OF THOSE TECHNOLOGIES. UNDER BIDEN AND OBAMA, WE BECAME THE LARGEST OIL AND GAS PRODUCER IN THE WORLD, AND WE EXPANDED THAT UNDER TRUMP. IF BIDEN IS NOW SAYING WE ARE GOING TO MOVE AWAY FROM FOSSIL FUELS, HE IS GOING TO WANT THE UNITED STATES TO BE THE DOMINANT PLAYER, AS WILL BIG AMERICAN VESTED INTEREST IN THINGS LIKE ELECTRIC VEHICLES. YOU SAW THAT SUPER BOWL COMMERCIAL WHICH WAS SO INTERESTING IN THAT YOU COULDN'T HAVE MADE IT TWO YEARS AGO. IT WOULDN'T HAVE MADE SENSE. BUT IT WAS CULTURALLY RELEVANT TODAY, FOR AMERICANS TO DOMINATE THE NORWEGIANS IN ELECTRIC VEHICLES. THE SAME THING WILL BE TRUE WITH THINGS LIKE WIND AND SOLAR AND THE SMART GRID. I THINK WE SHOULD NOT IMPLY THAT GEOPOLITICS WILL SUDDENLY DISAPPEAR JUST BECAUSE WE ARE TALKING ABOUT EVERYONE DOING CLIMATE AND POST CARBON ATOMS AS OPPOSED TO CARBON ATOMS. I THINK THE U.S. HAS THE WORLD'S -- THE U.S. AS THE WORLD'S MOST POWERFUL ECONOMY WILL WANT TO HAVE THE DOMINANT ROLE, AND THE EUROPEANS WILL RESIST THAT. GUY: YOU ARE ABSOLUTELY RIGHT ON THAT. THE EUROPEANS ARE STILL LOOKING AT AN ENERGY MIX THAT INCLUDES GAS. IT IS GOING TO BE FASCINATING TO HEAR WHAT THE PRESIDENT HAS TO SAY AT THE MUNICH SECURITY CONFERENCE BECAUSE ANGELA MERKEL STILL THINKS SHE CAN CONVINCE BIDEN THAT NORD STREAM 2 MAKES SENSE. DO YOU THINK THAT IS POSSIBLE? SAM: NO -- IAN: NO BECAUSE THE U.S.-RUSSIA RELATIONSHIP IS BADLY BROKEN, AND THERE IS NO CHANCE OF FIXING IT. BUT THIS MUNICH SECURITY CONFERENCE MEETING COMING UP VERY SHORTLY IS GOING TO BE A HONEYMOON BECAUSE IT IS BIDEN DOING THE EASY THINGS THAT TRUMP BROKE THAT THE EUROPEANS WERE REALLY OFFENDED BY. IT IS NO MORE AMERICA FIRST. THE U.S. IS GOING TO COOPERATE WITH THE WORLD HEALTH ORGANIZATION AND FOR COVAX FOR COVID VACCINE DISTRIBUTION. AYDEN WANTS TO REJOIN THE IRANIAN NUCLEAR DEAL. THE START AGREEMENT EXTENDING FOR FIVE YEARS -- BIDEN WANTS TO REJOIN THE IRANIAN NUCLEAR DEAL, THE START AGREEMENT EXTENDING FOR FIVE YEARS. IT DOESN'T MEAN THAT THE U.S./EUROPE RELATIONSHIP IS GOING TO BE WHAT IT WAS. BUT CERTAINLY THERE'S A BIT OF A HONEYMOON HERE, AND BOTH SIDES WILL ENJOY IT. GUY: YEN, WE'VE GOT TO GO. GREAT TO HAVE YOU ON THE SHOW. THANKS FOR YOUR TIME. THIS IS BLOOMBERG. ♪ GUY: FROM LONDON, I'M GUY JOHNSON. ALIX STEEL IS IN NEW YORK. THIS IS "BLOOMBERG MARKETS." THE TRADITIONAL IPO HAD A BANG UP 2020. 2021 LOOKS LIKE IT COULD BE EVEN BETTER. JOINING US IS KEN MOELIS, AND WALL STREET CORRESPONDENT SONALI BASAK. SONALI: THANK YOU, AND THANK YOU, KEN, FOR JOINING US. YOU RAISED MILLIONS OF DOLLARS FOR A SPAC AND PUT THAT TOGETHER IN MONTHS. YOU TOLD US YOU THINK IT IS THE FUTURE OF THE MARKET. HOWEVER, WE ALREADY HAVE SPAC VOLUMES BALLOONING TO ABOUT HALF OF THE RECORD WE SAW LAST YEAR. HOW COULD THIS POSSIBLY CONTINUE? KEN: GOOD TO BE ON, SONALI. FIRST OF ALL, YOU HAVE TO SIZE IT FOR MANY DECADES NOW. MONEY HAS BEEN POURING INTO ALTERNATIVES. I THINK IT IS FOR TRILLION DOLLARS IN PRIVATE EQUITY. WHAT HAVE THEY HAD ALL THIS TIME? THEY'VE HAD THE ABILITY TO SIT DOWN WITH A COMPANY, LOOK AT THEIR PROJECTIONS, GET TO SEE WHAT THE INSIDE OF A COMPANY AND WHAT THEIR FUTURE LOOKS LIKE. THE SAME WITH LATE STAGE WORKING CAPITAL, WHICH HAS DIVERTED MANY COMPANIES FROM GOING PUBLIC. IN FACT, OVER THE LAST 20 YEARS, I THINK THERE'S 50% LESS STOCKS TRADING PUBLICLY THAN THERE WERE 20 YEARS AGO. SO WHAT THE SPAC MARKET IS PROBABLY UP TO $350 BILLION TODAY, ASH SO WITH THE STOCK MARKET -- SO WITH THE SPAC MARKET PROBABLY UP TO $350 BILLION TODAY, IT IS JUST AN OPPORTUNITY WITH THE BENEFIT OF DUE DILIGENCE AND THINKING IN ADVANCE. SONALI: YOU HAVE A WHOLE SLATE OF BANKERS. BRING US INTO THE PROCESS HERE BECAUSE IF SOMEBODY DOESN'T HAVE THAT KIND OF CAPABILITY, HOW HARD IS IT TO GET A DEAL DONE? I KNOW YOU ARE LOOKING AT ANOTHER DEAL RIGHT NOW FOR YOUR OTHER SPAC, ATLAS 2. KEN: WELL, I DON'T KNOW HOW YOU KNOW THAT, BUT YOU MIGHT HAVE BETTER SOURCES THAN ME, SONALI. [LAUGHTER] SONALI: WELL, YOU HAVE TO. IS IT A HARD DEAL TO DO FOR ANYBODY? KEN: WHAT WE ARE VIEWING THIS AS IS REALLY AN ALTERNATIVE, A PARALLEL TO WHAT I CONSIDER AN OLD METHOD OF GOING PUBLIC. I WENT PUBLIC GOING ON SIX YEARS NOW, AND IT TOOK ME 12 MONTHS FROM THE TIME I SAID TO MY ORGANIZATION LET'S GO PUBLIC. IT WAS A 12 MONTH PROCESS, AND IT WAS VERY NERVE-RACKING. YOU HAVE YOUR WHOLE ORGANIZATION READY TO GO, AND YOU DON'T KNOW WHAT THE OUTCOME IS UNTIL THE FINAL DAY. SOMETHING COULD HAPPEN IN THE MARKET. THE BRILLIANCE OF WHAT IS GOING ON WITH THIS NEW METHOD OF SPAC IS THAT IN A VERY SHORT PERIOD OF TIME, AND ENTREPRENEUR HAS CERTAINTY. I WILL TELL YOU, HIGH-GROWTH COMPANIES, ENTREPRENEURS, CERTAINTY AND KNOWLEDGE OF WHERE YOUR COMPANY IS GOING IS VERY VALUABLE, AND THEY ARE WILLING TO PAY FOR IT. WHAT WE ARE TRYING TO DO IS REALLY FIND DISRUPTIVE COMPANIES WHO ARE ALTERNATIVE REALLY TO IPO'S. WE DON'T VIEW IT AS A SPECIAL PURPOSE ACQUISITION COMPANY. IT SHOULD BE NAMED A SPECIAL PURPOSE IPO VEHICLE, AND I THINK WE ARE IN A WONDERFUL POSITION TO ASSESS. WE HAVE 900 PEOPLE AROUND THE WORLD, TO ASSESS WHO ARE THE BEST COMPANIES IN THE WORLD, WHO ARE THE BEST PARTNERS. DO THE DILIGENCE, INTRODUCE THEM TO THE BEST INVESTORS IN THE WORLD. I AM VERY EXCITED ABOUT WHAT THIS MIGHT LEAD TO GOING FORWARD. SONALI: SPEAKING OF INTRODUCING PEOPLE TO INVESTORS, ONE OF THE THINGS YOU MENTIONED TO ME WAS THAT YOU DID THIS WITHOUT A TRADING FLOOR. WHAT KIND OF OPPORTUNITY IS THERE TO DISRUPT THE INVESTMENT BANKING MODEL? IPO'S USED TO BE A HUGE FEE ENGINE FOR BIG BANKS. KEN: IT IS INTERESTING, I ALWAYS WONDERED WHY THE BIG OIL COMPANIES DIDN'T ULTIMATELY COME AFTER TESLA. THEN IT HIT ME THAT IT IS HARD TO DECLARE CARBURETORS NOT WORTH A LOT OF MONEY IF YOU HAVE $1 BILLION OF THEM IN INVENTORY. WHAT I SEE GOING ON RIGHT NOW IS MANY OF THE BIG INSTITUTIONS ARE STUCK WITH A TREMENDOUS INVESTMENT IN TANGIBLE TRADING FLOORS, TECHNOLOGY, OLD TECHNOLOGY, AND THE WORLD I THINK IS SKIRTING RIGHT BY IT AND FINDING ENTREPRENEURS AND BEING ABLE TO FUND THEM AND ACCESS THEM MUCH QUICKER AND MUCH MORE CAPITAL LIGHT. WE DID THIS TRANSACTION RECENTLY WHERE WE RAISED $1.1 BILLION PROBABLY IN AN EIGHT TO 12 WEEK PERIOD, AND YOU ARE RIGHT, WE HAD NO TRADING FLOOR, AND WE DID IT RIGHT HERE IN FRONT OF OUR COMPUTERS. SONALI: THAT DRIVES THE QUESTION, HOW ARE YOU GOING AFTER THE BIGGER BANKS? KEN: I'M NOT GOING AFTER THE BIGGER BANKS. I AM GOING AFTER OUR CLIENTS. THE CLIENTS THESE DAYS ARE NOT AS WRAPPED UP IN IT. THEY ARE OVER THE BRAND IMAGES. THEY ARE EXCITING. JUST BEING INVOLVED NOW WITH ATLAS CREST AND SEEING THE CREATIVITY AND WHAT IS GOING ON IN THE WORLD, IT IS REALLY ALMOST A NEW PLACE FOR ME TO SEE HOW CREATIVE AND HOW FORWARD THINKING PEOPLE ARE OUT THERE, AND IT IS FUN. IT IS FUN TO SEE WHAT PEOPLE ARE DREAMING ABOUT AND WHAT THEY WANT TO HAVE HAPPEN IN THE FUTURE. SONALI: THE OTHER THING PEOPLE ARE TALKING ABOUT WITH SO MANY COMPANIES GOING PUBLIC IS WHERE WE ARE IN THE MARKET CYCLE. I KNOW YOU HAVE STUDIED THIS VERY CLOSELY. ARE YOU WORRIED ABOUT THE VALUATIONS WE ARE SITTING AT RIGHT NOW? KEN: I'VE BEEN IN WALL STREET 40 YEARS, AND I AM WORRIED ABOUT VALUATIONS PROBABLY FOR 39 OF THOSE YEARS. [LAUGHTER] IT IS JUST WHAT WE DO. I THINK THE PART ABOUT BEING IN THIS IS TO BE STABLE. TO NOT GET YOURSELF LEVERED. THE FREE MARKET ECONOMY IS INCREDIBLY CREATIVE, AND EVERY TIME THEY COME UP WITH SOMETHING NEW AND SOMETHING INTERESTING IN THE WORLD MOVES FORWARD, THE KEY IS TO MAKE SURE YOU AND THE INSTITUTION AROUND YOU IS STABLE. AT MOELIS & COMPANY, THAT IS WHY WE KEEP AN UNLEVERED BALANCE SHEET WITH A LOT OF EXCESS CAPITAL. A LOT OF OUR BIG COMPETITORS, EVEN THE MOST SOLID ONES, ARE LEVERED 10 OR 12 TO ONE. THAT IS JUST THE WAY A BIG BANK WORKS. SO WHEN THINGS ARE IN TROUBLE, THEY HAVE TO PULL BACK. WE DO THE OPPOSITE. WE HAVE NO LEVERAGE, AND WE MOVE FORWARD. I LIKE TO GET AGGRESSIVE WHEN EVERYONE ELSE IS MOVING BACKWARD . GUY: WHETHER WE ARE IN A BUBBLE OR NOT, WHETHER WE ARE SEEING FROTH OR NOT, THERE IS GOING TO COME A POINT IN TIME WHERE THIS MARKET CORRECTS. WHAT DO YOU THINK IS GOING TO DO WELL WHEN THESE MARKETS CORRECT? DO YOU THINK PRIVATE ASSETS WILL OUTPERFORM? DO YOU THINK THE MARKET ISSUE WILL ACTUALLY WORK IN THEIR FAVOR, THE FACT THAT YOU DON'T HAVE TO DO IT IN THE SAME WAY THAT YOU HAVE TO IN PUBLIC MARKETS? WILL THERE BE AN ILLIQUIDITY PREMIUM WHEN WE HAVE THAT CORRECTION? KEN: THERE ALWAYS IS. PEOPLE TEND TO, WHEN THINGS GET PRETTY BUBBLY, THEY DISCOUNT LIQUIDITY, AND LIQUIDITY IS AN ASSET. IT IS ONE OF THE REASONS WHY YOU ARE SEEING THIS IPO BOOM IN SPAC'S. LIQUIDITY IS A WORTHWHILE THING TO HAVE, SO I AGREE THAT LIQUIDITY WILL COME. IT WILL ALL COME DOWN TO LEVERAGE. IT ALWAYS DOES. SO I THINK THERE'S LOTS OF GREAT WAYS TO PUT YOUR MONEY TO WORK AND TO BE INVOLVED WITH THIS MARKET, AND I WOULD JUST DISCOURAGE PEOPLE FROM TAKING ON THAT MARGINAL BIG RISK ON LEVERAGE. TIME IS YOUR FRIEND HERE, AND LEVERAGES YOUR ENEMY. LEVERAGE IS UNCONTROLLABLE, AND LEVERAGE COMES AND PEOPLE TEND TO WANT THEIR MONEY BACK USUALLY AT THE EXACT MOMENT YOU REALLY DON'T WANT TO GIVE IT BACK TO THEM. SONALI: THIS IS A GREAT POINT BECAUSE WE ARE REACHING RECORD AMOUNTS OF LEVERAGE IN CORPORATE AMERICA. YOU STARTED YOUR CAREER AT DREXEL BURNHAM, SO YOU KNOW A THING OR TWO ABOUT LEVERAGE AND THE DANGERS OF IT AND WHERE IT GOES FROM HERE. DO YOU HAVE ANY CONCERNS ABOUT FRANKLY CORPORATE AND SOVEREIGN BALANCE SHEETS RIGHT NOW? KEN: THERE'S SOME INDUSTRIES THAT HAVE HAD TO TAKE ON LEVERAGE AND THE PANDEMIC JUST TO GET THROUGH IT. I THINK THAT IS ONE OF THE THINGS THAT, SURE, THE FED PROVIDED LIQUIDITY, BUT THE ECONOMY IS GOING TO HAVE TO COME BACK AND RECALIBRATE AND PROVIDE ENOUGH CASH FLOW TO PROVIDE LEVERAGE, SO I WORRY A LITTLE BIT ABOUT THAT. I DON'T SEE LEVERAGE THROUGHOUT THE SYSTEM. AGAIN, WARREN BUFFETT ALWAYS SAYS WHEN THE TIDE COMES OUT, YOU SEE WHO IS SWIMMING NAKED. IT DOES AMAZE ME THAT THE UNDERLYING HIDDEN RISKS THAT YOU FIND ONCE THE TIDE GOES OUT, I ALWAYS WONDER WHAT I DON'T KNOW. I THINK THERE MAY BE LEVERAGE GOING ON BEHIND THE SCENES THAT ISN'T AS OBVIOUS TO ALL OF US AS WE THINK, BUT AGAIN, MY COMMENT WOULD BE TO STAY AWAY FROM THAT. ALIX: KEN, LET'S MARRY A COUPLE OF THOSE THOUGHTS. I AM CURIOUS AS TO THE ELECTRIC AIRCRAFT STARTUP ARCHER, WHICH MERGED WITH YOUR POINT CHECK COMPANY THAT WAS BACKED BY YOU -- YOUR BLANK CHECK COMPANY THAT WAS BACKED BY YOU. I'M CURIOUS HOW YOU THINK ABOUT THIS ENERGY TRANSITION SHIFT TO GREEN. HOW AGGRESSIVE DO YOU WANT TO BE IN THIS SPACE, AND WATER VALUATIONS LIKE AT THIS POINT? KEN: IT'S A GREAT QUESTION -- AND WHAT ARE VALUATIONS LIKE AT THIS POINT? KEN: IT'S A GREAT POINT, ESPECIALLY CONSIDERING WHAT IS GOING ON IN THE SOUTH OF THE COUNTRY. I WORRY A LOT ABOUT THAT. WHEN YOU FORCE THE FREE MARKET TO DO THINGS THAT THEY ARE NOT READY TO DO, IT CAN HAVE TERRIBLE CONSEQUENCES. I AM VERY EXCITED ABOUT IT. WE ARE STARTING TO LOOK AT THINGS LIKE, AND I THINK THE COUNTRY IS READY TO TAKE A BIG LEAP. I REALLY BELIEVE ENERGY DENSITY IS IMPORTANT. I BELIEVE THAT THERE IS GOING TO BE A RESURGENCE OF NUCLEAR AND THINGS THAT ARE MUCH MORE BASE POSITIVE AND ENERGY DENSE, AND I DO THINK THERE'S GOING TO BE A LOT OF MONEY MADE AND LOST IN TRYING TO FIGURE OUT HOW WE GET GREEN AND WHICH OF THOSE ENERGIES ARE THE FUTURE. SO IT IS AN EXCITING TIME. SONALI: YOU MENTIONED WHAT IS HAPPENING WITH THE POWER GRID. WHAT ARE YOUR CLIENTS SAYING? HOW BIG OF A DEAL IS THIS? KEN: THIS HAPPENED OVER THE WEEKEND, BUT I THINK IT IS OBVIOUS WHAT HAPPENED HERE. YOU CANNOT FORCE A GOVERNMENT MANDATE ON CERTAIN THINGS THAT AREN'T READY TO SUPPLY THE BASIC NEEDS OF PEOPLE. I DON'T KNOW THE TOTAL RAMIFICATIONS. I HAVE BEEN WORRIED ABOUT MY FRIENDS DOWN IN HOUSTON AND DALLAS. THOSE ARE COLD TEMPERATURES, AND THEY ARE NOT PREPARED FOR IT. I HOPE EVERYBODY IS WELL. BUT WE ARE GOING TO HAVE TO BALANCE THE CHANGES WE NEED TO DO CARBONIZED -- TO DE- CARBONIZE WITH THE NEEDS OF THE EMERGING WORLD THAT STILL NEED ENERGY. THEY NEED CHEAP ENERGY TO LIVE A LIFE THAT IS EQUIVALENT TO WHAT WE ARE USED TO LIVING. MOST OF AMERICA IS USED TO LIVING WITH THE BENEFITS OF ACCESSIBLE ENERGY. WHEN YOU SEE WHAT IS GOING ON IN TEXAS RIGHT NOW, YOU REALIZE WHAT THE REST OF THE WORLD GOES THROUGH WHEN THEY CAN'T GET THAT CHEAP AND ACCESSIBLE AND DEPENDABLE ENERGY, AND I THINK WE HAVE TO BE VERY CAREFUL OF HOW WE DICTATE THIS. ALIX: IT WAS REALLY GOOD TO GET THAT PERSPECTIVE. THANK YOU SO MUCH. WE WOULD LOVE TO GET YOU BACK. KEN MOELIS, MOELIS & COMPANY CHAIRMAN AND CEO, THANK YOU. AND THANK YOU, SONALI BASAK. ENERGY MARKETS HAVE NEVER REALLY SEEN ANYTHING LIKE THIS. WE WILL LOOK AT HOW THIS IS TURNING INTO AN INDUSTRY AND POLICY CRISIS. THAT IS COMING UP NEXT. THIS IS BLOOMBERG. ♪ KARINA: THIS IS "BLOOMBERG MARKETS." I'M KARINA MITCHELL. COMING UP, LIZ ANN SONDERS, CHARLES SCHWAB CHIEF INVESTMENT STRATEGIST. THIS IS BLOOMBERG. ♪ LET'S CHECK IN ON THE BLOOMBERG FIRST WORD NEWS. WE GO TO OUR TOP STORY. . THE ENERGY CRISIS CRIPPLING TEXAS'S POWER SYSTEM KEEPS SPREADING. ALMOST 5 MILLION PEOPLE WERE PLUNGED INTO DARKNESS. MEANWHILE, AUTHORITIES ARE FIGHTING TO AVOID A TOTAL COLLAPSE OF THE GRID. HOMES AND BUSINESSES FROM NORTH DAKOTA TO TEXAS ARE LOSING POWER IN THE MIDDLE OF AN UNPRECEDENTED DEEP-FREEZE. BLACKOUTS ARE LIKELY TO CONTINUE THROUGHOUT THE DAY. MEANWHILE, CORONAVIRUS CASES AND HOSPITALIZATIONS ARE DROPPING DRAMATICALLY ACROSS THE U.S. THAT SUGGESTS MEASURES TO STOP TRANSMISSION ARE WORKING, AT LEAST FOR NOW. ALMOST 28 MILLION AMERICANS HAVE TESTED POSITIVE. THAT PROBABLY GIVES THEM SOME DEGREE OF IMMUNITY AND ALMOST 12% HAVE RECEIVED AT LEAST ONE DOSE OF A VACCINE. PLUS, DATA GATHERED FROM MOBILE PHONES SUGGEST PEOPLE ARE BEING MORE CAUTIOUS DAY TODAY -- DAY TO DAY. ON CAPITOL HILL, DEMOCRATS WANT TO PUSH THROUGH THE ONE POINT $9 TRILLION STIMULUS PACKAGE AND GET THE REST OF THE CABINET CONFIRMED. THE PRESIDENT IS UNLIKELY TO GET EVERYTHING HE WANTS IN THE STIMULUS BILL. AT LEAST TWO, CREDIT -- AT LEAST TWO DEMOCRATIC SENATORS OPPOSE THE $15 MINIMAL WAGE PROVISION. -- $15 MINIMUM WAGE PROVISION. GLOBAL NEWS 24 HOURS A DAY, ON AIR AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I'M KARINA MITCHELL. THIS IS BLOOMBERG. ALIX: BREAKING NEWS, THE 10-YEAR TREASURY YIELD RISING TO 1.27%. THAT BEATS THAT MARCH PEAK, AN UNBELIEVABLE MOVE JUST IN THE PAST FEW WEEKS. THIS REALLY BRINGS THE REFLATION THEME FRONT AND CENTER, BUT STOCKS DON'T CARE. GUY: YOU DO WONDER WHEN THAT POINT COMES WHERE STOCKS ULTIMATELY PAY ATTENTION TO THIS. WE ARE NOT THERE YET, IT SEEMS, AND STOCKS SEEM TO BE TAKING THIS AS A CUE THAT THE REFLATION TRADE IS THE RIGHT DIRECTION OF TRAVEL. IT IS GOING TO BE INTERESTING TO SEE AT WHAT POINT THE FED STARTS PAYING ATTENTION TO THIS. I THINK THEY WILL BECOME DOUBLE NOW, BUT THE MARKET HAS A TENDENCY TO PUSH THE FED AROUND. . I WONDER WHEN THE PUSHBACK STARTS. ALIX: HOW LONG DO WE PRICING NO HIKES? IF WE BRING THAT CLOSER, DOES THAT START TO DISRUPT EQUITIES AS WELL? WE ARE ALSO TAKING A LOOK AT WHAT IS HAPPENING IN TEXAS. 5 MILLION U.S. CUSTOMERS ARE CURRENTLY WITHOUT ELECTRICITY DUE TO UNPRECEDENTED WEATHER. YOU HAVE ROLLING BLACKOUTS, OIL SUPPLY OFF-LINE, NATURAL GAS SUPPLY OFFLINE. WE ARE JOINED BY AMY JAFFE OF THE FLETCHER SCHOOL AT TUBBS UNIVERSITY. MY BIGGEST TAKE AWAY FROM THE WEEKEND, I WONDER WHERE PRESIDENT BIDEN'S GREEN DEAL WILL END UP AFTER WHAT WE HAVE SEEN IN TEXAS, WITH MANY POINTING TO WIND AND WIND POWER BEING ONE OF THE PROBLEMS THAT LED TO THESE ROLLING BLACKOUTS. AMY: YOU KNOW, I THINK WE HAVE TO GO BACK TO THE BEGINNING. LAST WEEK, WHICH DIDN'T MAKE THE NEWS, WE HAD A LOSS OF 2.6 B CFG OF NATURAL GAS ON THURSDAY, AND AN AVERAGE OF 1.2 IN THE OHIO VALLEY/OKLAHOMA REGION. THAT STARTED US OFF, SO A NEW WORD FOR EVERYONE TO LEARN, FREEZE OFF. A FREEZE OFF IS WHEN OIL WELLS OR NATURAL GAS WELLS OR PIPELINE INFRASTRUCTURE FREEZE BECAUSE THERE'S LIQUID OR WATER IN THE PROCESS OF THE EQUIPMENT, AND THEREFORE THE EQUIPMENT CAN'T BE USED. SO TEXAS HAD ALREADY PREPARED FOR A REDUCTION IN WIND AVAILABILITY. MAYBE IT CAME OUT TO BE A LITTLE STRONGER-THAN-EXPECTED, BUT THAT IS NOT REALLY WHAT CAUSED THIS. IN OTHER WORDS -- ANOTHER WORD EVERY BUDDY NEEDS TO LEARN, CASCADING RISK -- ANOTHER WORD EVERYBODY NEEDS TO LEARN, CASCADING RISK. THAT IS WHEN YOU HAVE A PROBLEM IN ONE PART OF THE SYSTEM AND IT SPREADS TO EVERY THING ELSE. GUY: ONE PROBLEM IS IT DOESN'T HAVE THAT RESERVE CAPACITY. IS THAT BASICALLY WHAT THE PROBLEM HERE IS? WE DON'T HAVE THE REDUNDANCY NECESSARY TO COPE WITH A WEATHER SITUATION THAT WAS IN SOME WAYS PROTECTABLE. -- IN SOME WAYS PREDICTABLE. AMY: YES, INDEED. TAKE THE CAPACITY MARKET, WHICH MEANS THEY LITERALLY PAY AN INSURANCE PREMIUM THREE YEARS OUT TO ENSURE THAT GENERATORS AND SUPPLIERS WILL BE AVAILABLE IF YOU HAVE THIS ONE AND A MILLION EVENT. TEXAS DOESN'T BELIEVE IN THAT. THEY HAVE WHAT IS CALLED AN ENERGY MARKET, WHERE THEY ONLY PAY FOR THEIR RESERVE POWER WHEN THEY NEED IT. THAT MEANS THAT PEOPLE DON'T INSTALL BATTERIES, PEOPLE DON'T INSTALL EXTRA CAPACITY, AND TEXAS IS PAYING THE PRICE. IT IS INCREDIBLY IMPORTANT BECAUSE WHAT WE ARE ALL GOING TO LEARN UNLESS THE WEATHER WARMS UP REALLY QUICKLY IS THAT WHERE TEXAS GOES, THE REST OF THE NATION GOES. BECAUSE IT IS NOT JUST A LITTLE WIND OFF-LINE IN TEXAS. REFINERIES ARE OFF-LINE, ELECTRICITY AFFECTS THE PUMPING AND MOVEMENT OF FUEL ACROSS THE UNITED STATES. SO THIS IS NOT JUST FOR TEXAS TO DECIDE THAT THEY DIDN'T WANT TO PAY BECAUSE IT IS GOING TO AFFECT THE SECURITY OF THE WHOLE COUNTRY. ALIX: WHAT WE WERE LOOKING OUT ON THE SCREEN IS THE GENERATION CAPACITY OF TEXAS, AND HOW MUCH OF IT IS NATURAL GAS VERSUS WIND AND COAL. WHEN WE TAKE A LOOK AT THAT VERSUS WHERE WE WERE SIX YEARS AGO, THE. DIFFERENCE IS QUITE STARK. WIND IS ONLY -- THE DIFFERENCE IS QUITE STARK. THE SHIFT HAS BEEN HUGE. IF THIS MAKES THOSE THAT ARE PUSHING FOR THINGS LIKE NUCLEAR AND COAL MUCH MORE FRONT AND CENTER, YOU NEED TO BACKUP POWER. EVEN IF COAL ISN'T ECONOMIC, DON'T WE NEED THOSE PLANS TO CONTINUE TO STAY ONLINE? ? OR DIS-POLICY NEED TO BE DIVERTED IN A DIFFERENT WAY -- OR DOES POLICY NEED TO BE DIVERTED IN A DIFFERENT WAY? AMY: THE PLANTS ARE OFF-LINE TRIGGERED BY VARIOUS THINGS. THERE'S NO FREE LUNCH. 20% WIND IS A PRETTY SMALL AMOUNT OF WIND, AND EASY TO PLAN FOR WITH THE EXISTING FACILITIES BECAUSE THE THING THAT USUALLY BACKS UP WIND IS NATURAL GAS. THE PROBLEM HERE, TRULY, I KNOW EVERYBODY IS FOCUSED ON THE WIND, BUT THE PROBLEM IS REALLY BETWEEN NATURAL GAS, UNLESS WE FOLLOW ALONG THE RIGHT STORYLINE. WE ARE NOT GOING TO GET TO THE RIGHT ANSWER. SO THE CAPACITY MARKET IS VERY IMPORTANT. WHAT IS YOUR BACKUP? IF YOU ARE IN VERMONT, YOU DON'T HAVE TO WORRY ABOUT IT BECAUSE YOUR BACKUP IS CANADIAN. IT IS NOT NATURAL GAS. BUT IF YOU ARE IN THE MIDWEST USING PROPANE, IT IS FROZEN AND YOU'VE GOT NO SUPPLY. GUY: I AM STILL TRYING TO WORK OUT HOW I NUCLEAR PLANT IS OFF-LINE BECAUSE OF THE WEATHER, BUT WE WILL COME BACK TO THAT ANOTHER DAY. PROFESSOR, ARE WE STARTING TO WITNESS THE DANGERS OF OVER ELECTRIFYING OUR ECONOMY? WE HAVE A SITUATION WHERE THE POWER GRID HAS GONE DOWN. AT THE MOMENT, MOST PEOPLE CAN'T RUN ON GASOLINE -- MOST PEOPLES CARS RUN ON GASOLINE. MOST PEOPLE'S HOMES RUN ON PROPANE OR SOME OTHER MIX. BUT ELECTRICITY IS GOING TO PLAY A MUCH BIGGER ROLE. ARE WE REALLY READY TO PUT THIS MUCH RISK INTO ONE BASKET? AMY: DEFINITELY NOT. I THINK THE TEXAS SITUATION, 50% OF HOMES IN TEXAS ARE HEATED BY ELECTRICITY, ANOTHER 1/3 OR SO IS NATURAL GAS. SO IN TEXAS TODAY, IF YOU ARE HEATING EITHER BY ELECTRICITY OR NATURAL GAS, YOU ARE EFFECTED. SO WE DEFINITELY NEED TO THINK ABOUT THIS IN A SYSTEMS WAY. WHAT ARE MY BACKUP SYSTEMS? HOW DO I HAVE RESILIENT ELECTRICITY, AND WHAT DOES THAT REALLY MEAN? YOU MENTIONED THE NUCLEAR PLANT IN TEXAS, BUT IT DRAWS ON THE COLORADO RIVER. SO IF THERE WAS A DROUGHT, THEY WOULD HAVE TO TURN OFF THAT PLANT BECAUSE THEY WOULDN'T BE ABLE TO COOL IT USING THE RIVER WATER. I DON'T KNOW WHAT TRIGGERED IT THIS TIME. MAYBE IT WAS JUST A SAFETY PRECAUTION. THE POINT IS THERE ARE SOME THINGS YOU HAVE TO WORRY ABOUT WITH ALMOST EVERY ENERGY SOURCE, WHETHER IT IS THERMAL OR NUCLEAR. SO IT IS REALLY ABOUT HOW DO YOU INDOOR RESILIENT SUPPLY OF WHATEVER IT IS YOU ARE USING? BECAUSE IF THERE WAS NO ROLLING BLACKOUT IN TEXAS TODAY, BUT THERE WAS STILL THE PROBLEM OF NATURAL GAS, YOU WOULD STILL HAVE A HEATING PROBLEM ACROSS THE UNITED STATES. NATURAL GAS PRICES WENT TO $600 FOR ONE MILLION BTU AT THE HUB, RIGHT? AND THE PRICE OF ELECTRICITY IN TEXAS WENT ABOVE $9,000 PER MEGAWATT HOUR, WHEN IT IS USUALLY 25. SO WE HAVE MAJOR PROBLEMS WITH HOW WE ORGANIZE RESERVES IN THIS MARKET. GUY: WE ARE GOING TO LEAVE IT THERE. THANKS FOR YOUR TIME AND YOUR INPUT. AMY JAFFE, MANAGING DIRECTOR AT THE CLIMATE POLICY LAB AT THE FLETCHER SCHOOL AT TUBBS UNIVERSITY. TWITTER JUMPING BY 3.2 7%. A MOMENT AGO, IT WAS UP BY 4%. THAT WAS A RECORD HIGH FOR TWITTER.

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'Bloomberg Markets: America' Full Show 2/16/2021

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