March 21, 2025 • 35 mins
This week, Former US Treasury Secretary Lawrence H. Summers says that President Trump's policies are "self-inflicted" wounds to the economy. And, we take a look at the tug-of-war between the new administration's "drill, baby, drill" goal and what oil and gas companies want. Plus, a look at some of the most recent bandwagon innovations and initiatives that are fading in the face of challenges.
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Episode Transcript
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Speaker 1 (00:13):
This is Wall Street Week. I'm David Weston bringing you
stories of capitalism, whether it's DEI or electric vehicles or
the rush to southern Florida. Every week we see some
crowded trades getting reversed. We tell the story of what
happens when the bandwagon everyone jumped on suddenly slows down.
And Drill Baby Drill is another theme of the Trump administration.
(00:36):
But it's not at all clear that the oil companies
and their shareholders will be joining in the chant. But
we begin with the big story of the week for
Global Wall Street.
Speaker 2 (00:47):
You see weaker growth but higher inflation they kind of
offset and also, frankly, a little bit of inertia when
it comes to changing something in this highly uncertain environment.
You know, I think there is a level of inertia
where you just say, maybe I'll day where I am.
Inflation has started to move up now, we think, partly
in response to tariffs, and there may be a delay
(01:08):
in further progress over the course of this year. It
can be the case that it's appropriate sometimes to look
through inflation if it's going to go away quickly without
action by us, if it's transitory, and that can be
the case in the case of tariff inflation. I think
that would depend on the tariff inflation moving through fairly quickly,
(01:30):
and would depend critically as well on inflation expectations being
well anchored.
Speaker 1 (01:35):
Larrus Sommerso Harvard is our special contributor here on Wall
Street Week.
Speaker 3 (01:42):
He should be focused on the fact that we had
a shock that pushed inflation up and growth down, and
that's a bad supply shock, that's a self inflicted wound,
and it tells us that policy is moving in the
wrong direction, and it's a shot against the bat of
the Trump tariff policies, which clearly have materially changed the
(02:05):
picture in a way that the FED is seeing both
as more uncertain and more problematic on both their key objectives.
Speaker 1 (02:15):
I was struck by the fact that in the projections,
the growth projections were taken down not just for twenty five,
but twenty six and twenty seven as well. On the
inflation side, it was really mainly in twenty five, And
you heard chair Pal say maybe the effects are transitory,
using that word we've heard before.
Speaker 3 (02:33):
I would have thought the chairman would retire the words translittory.
That is perhaps the most notoriously ill chosen phrase of
his excellent seven and a half year run as FED chair,
and so I was astonished to see him resurrect that
(02:55):
concept he might turn out to be right, particularly if
the economy suffers a recession. It's conceivable that the economy
won't suffer a recession and he'll turn out to be right,
but it's certainly not something that I would want to
bank on. There's another point that I think most observers
(03:15):
have missed, which is if you look at the dot plot,
the median, the person in the middle on interest rates
has not changed. That's what everybody's highlighted. But the average,
if you just take an average of everybody's forecast, that's
moved up a fair amount in the last few months,
(03:38):
reflecting the fact that with these tariffs, with the inflation
they're bringing, there's less confidence on the part of the
FED that they're going to be able to cut rates,
even as there's a prediction of more cyclical weakness in
the economy. So this is clearly a more worrying picture
(04:00):
than we had in December. And there's only been one
important change, and that's been the change in tariff policy,
and more broadly, the political approach to economics.
Speaker 1 (04:14):
One of the themes throughout what cher Pal had to
say was uncertainty. Because there's the concern about what is
being done, there's also the concern about what we don't
know around the corner. We have an enormous uncertainty. What
does that do to the economic machinery in and of itself?
Speaker 3 (04:30):
Nothing good. Look, the task of policy is to reduce uncertainty.
The task of policy is to give confidence about sustainability.
When policy makers are confidently promising a stock market boom
(04:51):
when they come in and then they deliver the tenth
eleventh fastest correction in the last seventy five last century,
one of the fastest corrections in the last century. And
then they discover that they think the economy needs some
kind of detox, and they don't give any indication of
(05:13):
whether it's going to end, and they vow unprecedented levels
of protection to be declared on a date in the future.
That is introducing uncertainty, not reducing uncertainty. And I think
that's really quite dangerous.
Speaker 1 (05:35):
I am Structlarry that as we talk about what the
Federal Open Market Committee did, we're talking about the White
House almost exclusively and talk about more broadly what we
are seeing coming out of the White House, how it
is affecting, could affect the economy. For example, this week
we had the President say I'm going to dismiss to
sitting FTC commissioners even though they're an independent agency, a
(05:57):
concern that might extend into the federals. What are the
ramifications throughout the government and the economy of the actions
we're seeing.
Speaker 3 (06:05):
Let me speak very directly, David, we are not there yet,
but every week for the last two months, the risk
of an attempt to impose authoritarianism in the United States
(06:28):
have gone up. The dismissals that you mentioned are one example.
The lawless cutbacks of spending are another example. The impositions
and threats to universities with no process, nothing of what
(06:50):
is required in Title six law is another example. The
steps with respect to expelling people who are here without
the process protections contained in law are another example. The
assertion that if the president does it to help the
(07:14):
country save the country, it can't be illegal is another example.
The flirtation with fascists abroad, such as the AfD in
Germany by the Vice President is yet another example, and
(07:34):
there are many more. We have not crossed a rubicon
yet where court orders are being defied. That hasn't happened yet,
but we are getting much closer to that rubicon. The
(07:54):
so called Overton window of things that are seen as
possible and imaginable broaden, and ultimately that is going to
be alarming for what America is and therefore potentially going
to do grave damage to our economy and the worlds.
(08:16):
We are not there quite yet, but I have to say,
what was a possible concern two months ago now seems
to me to be a genuinely alarming prospect, and that
(08:37):
should disturb and worry every investor, and our country's leaders
in the business and financial community, who know how much
they have depended on the rule of law, should be
(08:59):
organized to resist what could be a extraordinarily damaging long
term change in policy. It takes decades to grow afarce
and a few minutes to burn it down. Something like
(09:20):
that is true with respect to our nation's credibility and
commitment to rule of law. And so I do not
remember in the last fifty years a more alarming moment
in terms of the approach that the US government is
taking to our democratic institutions.
Speaker 1 (09:45):
One way that President Trump says he'll get inflation down
is by producing more oil, but those doing the producing
aren't so sure they want to go that way, no
matter what regulatory relief comes their way. That's next on
Wall Street Week. This is a story about irony. For years,
(10:15):
the oil industry complained about all those federal regulations that
kept them from pumping more into the market. Now they
have a president who wants to give them what they've wanted.
And our colleague Alex Steel has the story of why
they may be having second thoughts.
Speaker 4 (10:34):
As the Rolling Stone say, you can't always get what
you want. And President Trump wants energy companies to produce
more oil.
Speaker 3 (10:41):
We will bring prices down, fill our.
Speaker 5 (10:44):
Strategic reserves up.
Speaker 3 (10:46):
Again right to the top, and export American energy all
over the world.
Speaker 6 (10:53):
It's called Drill, Baby, Drill.
Speaker 4 (10:56):
One of the pillars of President Trump's economic plan is
ramping up US energy production. Pump a lotta oil, lower
gasoline prices, people have more money. City says that oil
at sixty dollars a barrel and the US economy could
see as much as one hundred billion dollars of a
deflation impulse.
Speaker 7 (11:13):
I always say people may not know their atm PIN
number or their anniversary, But they know to the scent
what gasoline prices are that day. And it's really because
it's the only price that we see written in ten
foot high letters.
Speaker 4 (11:25):
The problem is people might want lower oil prices, but
oil producers want returns.
Speaker 7 (11:31):
The end of the day, oil is a business. Companies
have to make investment decisions based on what they think
is a price that they will be able to achieve
for this product that the that they bring on.
Speaker 4 (11:43):
Sadram is the chief economist of traffic Gura, one of
the biggest commodity trading companies in the world, and it's
his job to forecast prices.
Speaker 7 (11:51):
Dallas Federal Reserve just recently did a survey of the
companies within its region, mainly the oil producer, so asking
what do you think you know average break even prices
are for their different plays, and ultimately the lowest one
came in at about sixty dollars, So really, you know,
anything at sixty or below is really going to then
(12:11):
impact decision making and the profitability of these investments. Even
when oil prices averaged eighty dollars last year, over the
course of the entire year, really crude oil production really
only grew about two hundred thousand barols a day. So
that's telling you that even at eighty dollars, which is
a much higher price than that range, companies are not
deploying a huge amount of capital.
Speaker 4 (12:31):
This time, oil companies will prioritize shareholders' returns over most
everything else, Unlike last time when things ended with a
spectacular crash and oil prices, bankruptcies and burned investors.
Speaker 8 (12:43):
We were all caught up into Wall Street and the
multiples that were being paid. It's like it reminds me
of the tech side now. And so it was the
same thought process that went through our minds back and
called it the tw ten twenty nineteen time period, pione
irustrating at ten times sibadah back in twenty.
Speaker 9 (13:02):
Twelve to the fifteen time period.
Speaker 4 (13:05):
Scott Chatfield was CEO of Pioneer Natural Resources for over
twenty years until he sold the company to Exon Mobile
for sixty billion dollars. He's one of the original wildcatters,
a risk taker who drills for oil in unproven areas.
Speaker 6 (13:19):
What led to the.
Speaker 4 (13:21):
Massive amount of exploration and development like was it also
cheap money.
Speaker 8 (13:25):
We went public in nineteen ninety one. The reason you
go public is to be able to raise capital. We
ended up raising probably five to six billion, probably more
than top one or two percent of all public independence,
to acquire opportunities to grow. And then eventually the shareholder,
said Scott, and the rest of the independence, live within
(13:48):
your cash flow. So create a free cash flow model
that returns US dividends, returns US buybacks and live within
that cash flow to be able to do the move forward.
Speaker 4 (14:03):
Sheffield and others like billionaire Herald Ham were credited with
the innovation, technology, and perseverance that led to the shale revolution,
unleashing a flood of American oil into global markets.
Speaker 5 (14:14):
You know that going in there's a certain amount of
risk there, but if you could also be rewarded greatly.
But you know, we took a lot of risk with
the Bukan one point three million acres, and so you
know that paved the way, that paved the future.
Speaker 4 (14:34):
In two thousand and eight, oil prices spiked to one
hundred and forty dollars a barrel and mostly stayed between
eighty and one hundred. Between twenty ten and twenty fourteen,
capital markets were wide open and companies took advantage. US
independence raised a whopping three hundred and seventy one billion
dollars in debt.
Speaker 7 (14:50):
We had Arab spring, you know, so we were in
the one hundred hundred and ten one hundred and twenty
dollars range. So at that point people were saying, great
future barrels at those prices. But with a break even
that is, you know, fifty dollars, that spread is enormously profitable.
Speaker 4 (15:05):
The oil came fast, as did the cash, and neither lasted.
US shale has a quick initial production and a steep
production decline. When shale oil is first produced, it's like
the opening of a fire hydrant, a ton of oil
really fast. Once that initial flows subsides, the oil slows down.
In order to keep the same net amount of oil flowing,
producers needed to keep pouring money into new wells.
Speaker 5 (15:27):
You had to produce basically just holding leases, so you
had to drill so it wouldn't know whether you locked
it or not or wanted to. But you know, you're
trying to perfect those leases that you've taken on. So
did that always serves your holders? I think it did,
(15:49):
because you just preserving the future forum, But some of
them didn't see that they wanted a media free terms.
Speaker 4 (15:58):
When oil prices crumbled.
Speaker 7 (15:59):
The part he ended, I think the washout really was
that drop in twenty fourteen. So we went very rapidly
from about one hundred and ten dollars down to at
one point I think it was the low was about
twenty eight dollars, right, So imagine any industry that where
that happens, but in particular in a capital heavy, capital
intensive industry that has long lead times where you have
(16:20):
to invest over a period of years, that obviously, really,
you know, was the reckoning behind.
Speaker 4 (16:25):
That equity is tanked. The XOP, which tracks publicly traded
US oil and gas producers, lost over ninety percent from
its peak in twenty fourteen to trough in twenty twenty.
High yield spiked almost twenty two percent, and there are
more than two hundred bankruptcies.
Speaker 7 (16:41):
We came down very, very sharply, to the point where
we weren't just below break even, we were getting to
what we call cash costs, so basically just the amount
to keep the lights on. There was certainly a lot
of loss of shareholder value, which is why I think
shareholders are now saying, if you're making money, I prefer
you return it to me.
Speaker 4 (16:58):
Now, older pressure can be stubborn, and so is economics.
Speaker 7 (17:03):
I think ultimately it is inflation across everything. So whether
it is materials, whether it is labor. You know, you're
starting to see those things move higher, and I think
ultimately also you're seeing a lack of that talent coming
into the industry. We also then look at what's happening
around increased cost around steel, you know, potentially teriffs having
impact and all that starting to add up.
Speaker 4 (17:24):
There are things that could help producers drill at fifty
dollars oil, lower taxes, less regulation, cheaper federal land leases,
and less perceived hostility from the government. Natasha Kaneva is
Global head of Commodities at JP Morgan.
Speaker 10 (17:37):
We do believe that it can't happen. So, first of all,
the fifty dollars is a target. Yes, at the moment,
if you look at the break events, they at about
fifty five dollars. What the administration can do they can
bring the cost of production, the cost of drilling lower.
So we actually believe that forty five is the new
fifty five. So we believe that they can bring the
cost of drilling by about ten dollars lower.
Speaker 4 (17:58):
CANEVA gets there in three ways, lower royalty fees on
production on federal land, corporate tax reduction to fifteen percent
on things produced domestically, and bringing back the bonus appreciation
from the twenty seventeen Tax Cuts and Jobs Act. This
lets businesses deduct one hundred percent of certain capital investments
that alone could cut break events by nine dollars.
Speaker 10 (18:17):
Se Yes, they have this additional ten dollars. What they
can decide is they can say, okay, we'll pay ourselves
more diffidend, we'll increase the divent deal, who increase the
buyback or all other things that they can do. Is
this money, or they can say half of that actually
will go into the ground and will increase production. So
this we don't know. What we're saying is that we
believe it's doable.
Speaker 4 (18:36):
CANEVI says, you don't need to spend that much money
to produce more oil.
Speaker 10 (18:39):
All our numbers are showing that one million dollars spent
today versus twenty fourteen gives you about eighty six percent
more production. So pretty much you are doubling production through
efficiency gains.
Speaker 4 (18:50):
The math says producers can drill more worth less now
shareholders have to let them.
Speaker 7 (18:56):
Now, maybe it takes a change on the part of
shareholders to then say, actually, what we do want is
to go back to production growth because production growth obviously
ultimately is that's future revenue that's coming in. And I
think we've been in this period where they're not valuing
that production growth and partly maybe because of concerns around
peak oil demand.
Speaker 4 (19:16):
So if President Trump could incentivize long term oil demand
growth past twenty thirty.
Speaker 7 (19:22):
That might change things. Whoever's in the White House has
a bigger impact on the demand side of the equation
than on the supply side of the equation.
Speaker 4 (19:30):
If more oil production isn't the answer, an alternative for
President Trump might be gas.
Speaker 1 (19:34):
Baby gas.
Speaker 4 (19:36):
In a recent speech at the premier energy conference Sarah
Week in Houston, Texas, the Secretary of Energy Chris Wright
mentioned LNG or gas eight times and oil only twice.
It was a fiery speech that had industry leaders abuzz.
Speaker 11 (19:49):
President Trump immediately ended the pause on LNG export permits. Today,
I can announce our fourth action in this regard improving
the Dell and Offshore Louisiana LNG export terminal.
Speaker 4 (20:04):
Oil gets all the headlines, while US natural gas production
also sits at a record one hundred and seven billion
cubic feet a day of ninety percent since two thousand
and eight.
Speaker 10 (20:13):
It's called bessence. The three point plan is considering. Yes,
it's about three million barrels podet of oil coil and
grows between now and then of twenty twenty eight, so
we actually believe the two numbers closer to four million
barrels podet of oilcoiling. Majority of that would be done
by the gas. Actually it's not by the oil, but
by the guess.
Speaker 4 (20:30):
It's a lot harder to export natural gas. You have
to freeze it in order to ship it, with a
similar process on the importer side. Those facilities are expensive
to build, but more and more coming online, helping to
expand America's potential. By twenty thirty, the US should have
over two hundred and fifty million metric tons of LERG
export capacity a year based on current regulatory approvals.
Speaker 9 (20:51):
I think AILERG has a great future.
Speaker 8 (20:53):
It could be more focused on inngls liquids and could
be more focused on.
Speaker 9 (20:58):
The natural gas side. Is the ol side. We don't
have many all plays left in this country.
Speaker 4 (21:05):
The biggest problem for producers, either oil or gas is
infrastructure moving the hydrocarbon from the well head to the
Gulf coast or your local utility. The permitting process is
pretty much hated by all energy folks, oil, gas and
renewable alike.
Speaker 10 (21:19):
Permitting as difficult for many different reasons, but to one
of them, it's not in my backyard. And because of that,
there is a lot of those environmental considerations that need
to be solved for and decide exactly how you approach that.
Speaker 4 (21:30):
Many pipelines have been scrapped or held up in courts
for years, leading to bizarre pricing like twenty dollars gas
in the Bronx versus three dollars gas in Chicago.
Speaker 9 (21:39):
It's crazy.
Speaker 5 (21:39):
I mean, you get some markets that you know, even
get into a negative market. If you can't get your
product market, it does distort it in a lot of
different ways, and it also distorts it to the consumers.
Speaker 4 (21:56):
We think away from build a drill, baby drill, what's
something better? Is it gas baby gas? Is it dig
baby dig? Is it build baby build?
Speaker 10 (22:04):
The reality of that that if we want to achieve
all those targets that the Trump administration put force, Yes,
and it's a lot of that bring inflation down. Yes,
we have particular objectives in terms of trade, we have
particular objectives in terms of geopolitics. So it's definitely droll
baby drill. It's definitely dig baby dig. It's produced, baby produced.
We have all of that in the ground, but we
(22:24):
need to be able to move that.
Speaker 4 (22:27):
Maybe the rolling Stones were right. You can't always get
what you want, but if you try, sometimes you'll find
you get what you need. And in this case, what
we just might need is more gas drilling and pipelines
instead of oil. In that case, everyone wins shareholders, President Trump, and.
Speaker 1 (22:44):
US coming up getting on the bandwagon just as it's
coming to a halt, We bring you the ironic story
of three trends, Electric vehicles, DEI, and moving to Southern Florida.
(23:08):
This is a story about getting on the bandwagon, something
that feels so good when everyone is doing it, but
that may get awkward when people start jumping off. Electric vehicles, Diversity,
equity and inclusion, and moving to Southern Florida have all
had their time in the sun, but all are now
seeing some shade coming their way.
Speaker 12 (23:30):
The historical track record for automotive startups in the United
States is extremely bad. The only two American car companies
in history that have not gone backrupt are Ford and Tesla.
Speaker 1 (23:43):
Traditional automakers followed elon Musk embedding big on evs. In
twenty twenty one, GM announced that it would end production
of all of its gas and diesel powered vehicles by
twenty thirty five and go fully electric by twenty forty.
Speaker 13 (23:59):
Well, I think of car companies were responding with enthusiasm
and hope for the new vehicles.
Speaker 1 (24:07):
Mary Nichols is a believer in evs. During her tenure
as the chair of California's Air Resources Board, she implemented
the state's landmark greenhouse gas emission standards.
Speaker 13 (24:18):
Here in California, the sales rates are almost equal now
to gasoline powered vehicles. In other places, the penetration is
going more slowly.
Speaker 1 (24:31):
As much as California may be the EV leader, the
rest of the country doesn't seem to be keeping up.
It turns out that the EV bandwagon needs some support
from an infrastructure for charging the cars that just isn't
there yet.
Speaker 13 (24:45):
It's just that the hope had been that they would
really overtake gasoline vehicles faster than they did, and it
turned out that there was more reluctance on the part
of people, especially in parts of the country where they
don't have the infrastructure in place for supporting those vehicles,
(25:05):
particularly where the electric utilities didn't step up as fast
to provide charging, where building owners in some cases were reluctant.
It takes a lot of changes in the system to
match what has been achieved over one hundred years.
Speaker 1 (25:26):
BNF estimates that the fourteen automakers who set ambitious EV
goals for twenty thirty have trimmed back their expectations from
twenty seven million vehicles that year to twenty three point
seven million. One of those pumping the brakes on evs
is Ford, which shelved its plans for an all electric
three to row SUV last year. CEO Jim Farley took
(25:49):
us through some of the challenges several months ago.
Speaker 10 (25:52):
Well.
Speaker 14 (25:52):
First of all, the electric market in the US is
about eleven percent of the market. In California, it's the
third of the sales, so it's a huge market, growing
really fast and competitively globally. I think what's happened is
we're in the mainstream customer and the mainstream customer is
totally different than the early adopters.
Speaker 9 (26:09):
They're really adopters.
Speaker 14 (26:10):
We didn't need to convince them to go charge, or
they didn't really worry about resale value. But the customers
now do and that means on us we have to
really transform our.
Speaker 1 (26:19):
Cost And now it's not just the lack of charging
stations that's slowing the move to evs. We have a
new administration in Washington that appears to be reversing the
nation's pro EV policy.
Speaker 3 (26:31):
We ended the.
Speaker 8 (26:32):
Last administrations in saying electric vehicle mandate saving our auto
workers and companies from economic destruction.
Speaker 13 (26:42):
It's a trend that I think is well underway and
it's going to continue. I do think that the election
sent a message that in some states in particular, this
is like a political issue, which certainly is not helpful
for any industry. I don't think vehicles are partisan. I
(27:06):
don't think there are Democrat or Republican vehicles. You're just
looking for the best vehicle that you can get for
your money.
Speaker 1 (27:14):
Whether powered by electricity or gasoline. The bandwagon of DEI
was moving full speed ahead in much of corporate America
when Blackrock CEO Larry Fink wrote to shareholders in twenty
twenty one that he had a quote long term strategy
aimed at improving diversity, equity and inclusion. Four years later,
I think was writing to BlackRock's staff saying it was
(27:36):
quote committed to creating a culture that welcomes diverse people
and perspectives, but acknowledging quote significant changes to US legal
and policy environment related to DEI.
Speaker 15 (27:48):
Now, the real question is what are the policies and
practices that organization should have in place in order for
the organization to function effectively. And we spent a lot
of time talking to employees and looking at trends across corporations.
Speaker 1 (28:02):
Tracy Sitsman is Professor of Management at the University of Colorado, Denver,
and has studied DEI policies throughout corporate America, why we
have them, and which ones work and don't work.
Speaker 15 (28:13):
And the clear and consistent trend that we're seeing is
that employees want to work for an employer that's authentic
in their approach to dealing with their employees.
Speaker 1 (28:23):
Sitzman's studies have led her to the conclusion that whether
a DEI program makes a company run better and ultimately
make more money depends on how it is done.
Speaker 15 (28:33):
One of the most popular programs for enhancing diversity and
inclusion has been diversity training, and this is an example
of a program that can work really well or can
undermine our workforce. People work hard, they diversify the workforce
and it's successful. By contrast, many corporations implement diversity and
inclusion training and they have a legal undertone as part
(28:53):
of the training, so they teach people just how questionable
their behavior can become before it as the line to
being illegal. And when we implement training with an illegal undertone,
it actually results in people this behavior becoming more questionable.
Speaker 1 (29:09):
But can a program targeting diversity, equity, and inclusion succeed
without focusing on identity politics, without setting targets to become
a form of quotas. Robbie Starbuck is a faith based
investor who has championed the cause of cutting back on
DEI programs.
Speaker 16 (29:26):
Even if you wanted to pretend DEI was ultimately a
good thing, how can we do the things that we
proclaim to want to do without violating the law. And
at the end of the day, if you look at
these policies like racial quotas for hiring, it's not possible.
You can't have a racial quota for hiring and not
violate the law. But therein lies the real core of
almost every DEI policy in America is that we should
(29:48):
look at people and judge them by their skin tone,
which is diametrically opposed to the ideas of the civil
rights movement, which was that we're not supposed to judge
people by their skin tone. We're actually supposed to look
at them as an individual and say, your value lies
and your actions, what you can do, your merit, and
so that's what we want to see.
Speaker 1 (30:04):
Sitzman may not favor quotas, but she readily admits that
it's awfully hard to drive diversity, equity, and inclusion without
setting numerical targets.
Speaker 15 (30:14):
What strategic goal would you set in a corporation where
you would not measure it. It just doesn't make sense right.
Without a goal, without some numbers behind something, we don't
know how well we're doing, and therefore we're not going
to be managing the process towards hitting that target.
Speaker 1 (30:30):
In addition to the bandwagons heading toward Eves and DEI,
a third movement was wall Street's migration south to the
Sunnier and less regulated pastures of Miami. It began earlier,
but when the pandemic hit in twenty twenty, its speed
picked up. From twenty twenty to twenty twenty one, Florida
experienced the largest uptick in registered independent advisors and broker
(30:53):
dealers of any state, and by twenty twenty two it
had become home to Elliott Management, citadel Icon Capital, and
expanded footprints from the likes of JP Morgan. Michael Schoe
is a luxury real estate developer with properties in Miami
and New York.
Speaker 6 (31:10):
What's interesting because that moment in Miami was an extremely
surreal experience. You'd have billionaires roaming around North Bay Road,
you know, Palm Island, Star Island, looking for homes and
literally willing to pay anything just to find a house
on the water. Because the idea was nobody with means
(31:30):
wanted to stay at home, locked up here in New
York City. And obviously today, you know, hindsight, things haven't
really worked out exactly like that. People moved to Miami.
Mammy turned to be a real city because you have
now real restaurants, you have real people, you have education,
you have culture there. But it didn't take the place
of New York. Like a lot of people predicted.
Speaker 1 (31:51):
The growing pains come in the form of lack of schools,
unfinished offices, and traffic.
Speaker 6 (31:57):
So there's there's lack of schools in Miami, there's no
doubt of it, and that's kind of the main issue.
Infrastructure depends where right Miami Beach. Sections of Miami Beach
are okay, but because you have houses there, there's not
real main infrastructure issues. The infrastructure issues really became more
apparent in transportation. Crossway didn't have enough planes, There was
(32:21):
a lot of traffic, There was congestion because the amount
of cars all of a sudden in Miami. People that
are coming to work in Miami is something that Miami
has not experienced, and the acceleration of growth was so
quick that they did not have the infrastructure. They're catching
up now, but again now less people are working there,
So both the infrastructure is catching up, but we're seeing
(32:43):
less people there, at least on a permanent base from
what we thought we're going to have.
Speaker 1 (32:48):
You know, post COVID, I wonder the role of demographics
and people moving in both the commercial side, the office
and also the residential that you're involved in. Because if
you look at the numbers, overall, California is losing people,
Illinois is losing people, New York losing google, Florida gaining people,
Texas gaining people. Does that tell you something about those
real estate markets?
Speaker 6 (33:07):
Well, yes or no, because it depends who you're gaining.
Because if we're talking about commercial real estate, the reality
is are we losing the companies that are we losing
the workforce that's here, or are you losing you know,
people that are retired and not working and decided it's
territory tie in Florida because taxes. The tax situation is
better there, which is a lot of the reason that
(33:29):
you're seeing, you know, people move out of New York
and California is you know that there's obviously tax incentive
to move to some of the to some of the
southern states. So I don't think we're seeing we're not
seeing the movement of the true workforce.
Speaker 1 (33:43):
Those moving to Miami may have gotten a better climate,
but they weren't looking for much different in the spaces
they occupy.
Speaker 6 (33:50):
So the difference between Tennessee and Miami and New York,
you know, and again, as such, FOE operates only the
super prime real estate. So for us, we focus on
the psychographic the tenant, and in our mind, the psychographic
of a JP. Morgan, Okay, is no difference in New
York than it is in Mammie. Maybe the office needs
are a bit different, a little bit more outdoor space
(34:10):
in Mammi. There's that desire to have kind of indoor
outdoor spaces. But the reality is that you don't change
your mindset from a service perspective, from a space perspective,
from an environment because you're in Miami or New York
or in San Francisco.
Speaker 1 (34:26):
To that effect, whether it's picking up stakes and moving
to Miami, or ditching our gas powered cars, or changing
the very nature of our workforce. There's all sorts of
good ideas out there, ideas that may make sense, But
no matter how good the idea, it pays to have
a pretty good sense where that bandwagon is headed before
we jump onto it. That does it for us here
(34:50):
at Wall Street Week, I'm David Weston. See you next
week for more stories of capitalism.
Speaker 10 (35:01):
It also
This is Wall Street Week. I'm David Weston bringing you
stories of capitalism, whether it's DEI or electric vehicles or
the rush to southern Florida. Every week we see some
crowded trades getting reversed. We tell the story of what
happens when the bandwagon everyone jumped on suddenly slows down.
And Drill Baby Drill is another theme of the Trump administration.
(00:36):
But it's not at all clear that the oil companies
and their shareholders will be joining in the chant. But
we begin with the big story of the week for
Global Wall Street.
Speaker 2 (00:47):
You see weaker growth but higher inflation they kind of
offset and also, frankly, a little bit of inertia when
it comes to changing something in this highly uncertain environment.
You know, I think there is a level of inertia
where you just say, maybe I'll day where I am.
Inflation has started to move up now, we think, partly
in response to tariffs, and there may be a delay
(01:08):
in further progress over the course of this year. It
can be the case that it's appropriate sometimes to look
through inflation if it's going to go away quickly without
action by us, if it's transitory, and that can be
the case in the case of tariff inflation. I think
that would depend on the tariff inflation moving through fairly quickly,
(01:30):
and would depend critically as well on inflation expectations being
well anchored.
Speaker 1 (01:35):
Larrus Sommerso Harvard is our special contributor here on Wall
Street Week.
Speaker 3 (01:42):
He should be focused on the fact that we had
a shock that pushed inflation up and growth down, and
that's a bad supply shock, that's a self inflicted wound,
and it tells us that policy is moving in the
wrong direction, and it's a shot against the bat of
the Trump tariff policies, which clearly have materially changed the
(02:05):
picture in a way that the FED is seeing both
as more uncertain and more problematic on both their key objectives.
Speaker 1 (02:15):
I was struck by the fact that in the projections,
the growth projections were taken down not just for twenty five,
but twenty six and twenty seven as well. On the
inflation side, it was really mainly in twenty five, And
you heard chair Pal say maybe the effects are transitory,
using that word we've heard before.
Speaker 3 (02:33):
I would have thought the chairman would retire the words translittory.
That is perhaps the most notoriously ill chosen phrase of
his excellent seven and a half year run as FED chair,
and so I was astonished to see him resurrect that
(02:55):
concept he might turn out to be right, particularly if
the economy suffers a recession. It's conceivable that the economy
won't suffer a recession and he'll turn out to be right,
but it's certainly not something that I would want to
bank on. There's another point that I think most observers
(03:15):
have missed, which is if you look at the dot plot,
the median, the person in the middle on interest rates
has not changed. That's what everybody's highlighted. But the average,
if you just take an average of everybody's forecast, that's
moved up a fair amount in the last few months,
(03:38):
reflecting the fact that with these tariffs, with the inflation
they're bringing, there's less confidence on the part of the
FED that they're going to be able to cut rates,
even as there's a prediction of more cyclical weakness in
the economy. So this is clearly a more worrying picture
(04:00):
than we had in December. And there's only been one
important change, and that's been the change in tariff policy,
and more broadly, the political approach to economics.
Speaker 1 (04:14):
One of the themes throughout what cher Pal had to
say was uncertainty. Because there's the concern about what is
being done, there's also the concern about what we don't
know around the corner. We have an enormous uncertainty. What
does that do to the economic machinery in and of itself?
Speaker 3 (04:30):
Nothing good. Look, the task of policy is to reduce uncertainty.
The task of policy is to give confidence about sustainability.
When policy makers are confidently promising a stock market boom
(04:51):
when they come in and then they deliver the tenth
eleventh fastest correction in the last seventy five last century,
one of the fastest corrections in the last century. And
then they discover that they think the economy needs some
kind of detox, and they don't give any indication of
(05:13):
whether it's going to end, and they vow unprecedented levels
of protection to be declared on a date in the future.
That is introducing uncertainty, not reducing uncertainty. And I think
that's really quite dangerous.
Speaker 1 (05:35):
I am Structlarry that as we talk about what the
Federal Open Market Committee did, we're talking about the White
House almost exclusively and talk about more broadly what we
are seeing coming out of the White House, how it
is affecting, could affect the economy. For example, this week
we had the President say I'm going to dismiss to
sitting FTC commissioners even though they're an independent agency, a
(05:57):
concern that might extend into the federals. What are the
ramifications throughout the government and the economy of the actions
we're seeing.
Speaker 3 (06:05):
Let me speak very directly, David, we are not there yet,
but every week for the last two months, the risk
of an attempt to impose authoritarianism in the United States
(06:28):
have gone up. The dismissals that you mentioned are one example.
The lawless cutbacks of spending are another example. The impositions
and threats to universities with no process, nothing of what
(06:50):
is required in Title six law is another example. The
steps with respect to expelling people who are here without
the process protections contained in law are another example. The
assertion that if the president does it to help the
(07:14):
country save the country, it can't be illegal is another example.
The flirtation with fascists abroad, such as the AfD in
Germany by the Vice President is yet another example, and
(07:34):
there are many more. We have not crossed a rubicon
yet where court orders are being defied. That hasn't happened yet,
but we are getting much closer to that rubicon. The
(07:54):
so called Overton window of things that are seen as
possible and imaginable broaden, and ultimately that is going to
be alarming for what America is and therefore potentially going
to do grave damage to our economy and the worlds.
(08:16):
We are not there quite yet, but I have to say,
what was a possible concern two months ago now seems
to me to be a genuinely alarming prospect, and that
(08:37):
should disturb and worry every investor, and our country's leaders
in the business and financial community, who know how much
they have depended on the rule of law, should be
(08:59):
organized to resist what could be a extraordinarily damaging long
term change in policy. It takes decades to grow afarce
and a few minutes to burn it down. Something like
(09:20):
that is true with respect to our nation's credibility and
commitment to rule of law. And so I do not
remember in the last fifty years a more alarming moment
in terms of the approach that the US government is
taking to our democratic institutions.
Speaker 1 (09:45):
One way that President Trump says he'll get inflation down
is by producing more oil, but those doing the producing
aren't so sure they want to go that way, no
matter what regulatory relief comes their way. That's next on
Wall Street Week. This is a story about irony. For years,
(10:15):
the oil industry complained about all those federal regulations that
kept them from pumping more into the market. Now they
have a president who wants to give them what they've wanted.
And our colleague Alex Steel has the story of why
they may be having second thoughts.
Speaker 4 (10:34):
As the Rolling Stone say, you can't always get what
you want. And President Trump wants energy companies to produce
more oil.
Speaker 3 (10:41):
We will bring prices down, fill our.
Speaker 5 (10:44):
Strategic reserves up.
Speaker 3 (10:46):
Again right to the top, and export American energy all
over the world.
Speaker 6 (10:53):
It's called Drill, Baby, Drill.
Speaker 4 (10:56):
One of the pillars of President Trump's economic plan is
ramping up US energy production. Pump a lotta oil, lower
gasoline prices, people have more money. City says that oil
at sixty dollars a barrel and the US economy could
see as much as one hundred billion dollars of a
deflation impulse.
Speaker 7 (11:13):
I always say people may not know their atm PIN
number or their anniversary, But they know to the scent
what gasoline prices are that day. And it's really because
it's the only price that we see written in ten
foot high letters.
Speaker 4 (11:25):
The problem is people might want lower oil prices, but
oil producers want returns.
Speaker 7 (11:31):
The end of the day, oil is a business. Companies
have to make investment decisions based on what they think
is a price that they will be able to achieve
for this product that the that they bring on.
Speaker 4 (11:43):
Sadram is the chief economist of traffic Gura, one of
the biggest commodity trading companies in the world, and it's
his job to forecast prices.
Speaker 7 (11:51):
Dallas Federal Reserve just recently did a survey of the
companies within its region, mainly the oil producer, so asking
what do you think you know average break even prices
are for their different plays, and ultimately the lowest one
came in at about sixty dollars, So really, you know,
anything at sixty or below is really going to then
(12:11):
impact decision making and the profitability of these investments. Even
when oil prices averaged eighty dollars last year, over the
course of the entire year, really crude oil production really
only grew about two hundred thousand barols a day. So
that's telling you that even at eighty dollars, which is
a much higher price than that range, companies are not
deploying a huge amount of capital.
Speaker 4 (12:31):
This time, oil companies will prioritize shareholders' returns over most
everything else, Unlike last time when things ended with a
spectacular crash and oil prices, bankruptcies and burned investors.
Speaker 8 (12:43):
We were all caught up into Wall Street and the
multiples that were being paid. It's like it reminds me
of the tech side now. And so it was the
same thought process that went through our minds back and
called it the tw ten twenty nineteen time period, pione
irustrating at ten times sibadah back in twenty.
Speaker 9 (13:02):
Twelve to the fifteen time period.
Speaker 4 (13:05):
Scott Chatfield was CEO of Pioneer Natural Resources for over
twenty years until he sold the company to Exon Mobile
for sixty billion dollars. He's one of the original wildcatters,
a risk taker who drills for oil in unproven areas.
Speaker 6 (13:19):
What led to the.
Speaker 4 (13:21):
Massive amount of exploration and development like was it also
cheap money.
Speaker 8 (13:25):
We went public in nineteen ninety one. The reason you
go public is to be able to raise capital. We
ended up raising probably five to six billion, probably more
than top one or two percent of all public independence,
to acquire opportunities to grow. And then eventually the shareholder,
said Scott, and the rest of the independence, live within
(13:48):
your cash flow. So create a free cash flow model
that returns US dividends, returns US buybacks and live within
that cash flow to be able to do the move forward.
Speaker 4 (14:03):
Sheffield and others like billionaire Herald Ham were credited with
the innovation, technology, and perseverance that led to the shale revolution,
unleashing a flood of American oil into global markets.
Speaker 5 (14:14):
You know that going in there's a certain amount of
risk there, but if you could also be rewarded greatly.
But you know, we took a lot of risk with
the Bukan one point three million acres, and so you
know that paved the way, that paved the future.
Speaker 4 (14:34):
In two thousand and eight, oil prices spiked to one
hundred and forty dollars a barrel and mostly stayed between
eighty and one hundred. Between twenty ten and twenty fourteen,
capital markets were wide open and companies took advantage. US
independence raised a whopping three hundred and seventy one billion
dollars in debt.
Speaker 7 (14:50):
We had Arab spring, you know, so we were in
the one hundred hundred and ten one hundred and twenty
dollars range. So at that point people were saying, great
future barrels at those prices. But with a break even
that is, you know, fifty dollars, that spread is enormously profitable.
Speaker 4 (15:05):
The oil came fast, as did the cash, and neither lasted.
US shale has a quick initial production and a steep
production decline. When shale oil is first produced, it's like
the opening of a fire hydrant, a ton of oil
really fast. Once that initial flows subsides, the oil slows down.
In order to keep the same net amount of oil flowing,
producers needed to keep pouring money into new wells.
Speaker 5 (15:27):
You had to produce basically just holding leases, so you
had to drill so it wouldn't know whether you locked
it or not or wanted to. But you know, you're
trying to perfect those leases that you've taken on. So
did that always serves your holders? I think it did,
(15:49):
because you just preserving the future forum, But some of
them didn't see that they wanted a media free terms.
Speaker 4 (15:58):
When oil prices crumbled.
Speaker 7 (15:59):
The part he ended, I think the washout really was
that drop in twenty fourteen. So we went very rapidly
from about one hundred and ten dollars down to at
one point I think it was the low was about
twenty eight dollars, right, So imagine any industry that where
that happens, but in particular in a capital heavy, capital
intensive industry that has long lead times where you have
(16:20):
to invest over a period of years, that obviously, really,
you know, was the reckoning behind.
Speaker 4 (16:25):
That equity is tanked. The XOP, which tracks publicly traded
US oil and gas producers, lost over ninety percent from
its peak in twenty fourteen to trough in twenty twenty.
High yield spiked almost twenty two percent, and there are
more than two hundred bankruptcies.
Speaker 7 (16:41):
We came down very, very sharply, to the point where
we weren't just below break even, we were getting to
what we call cash costs, so basically just the amount
to keep the lights on. There was certainly a lot
of loss of shareholder value, which is why I think
shareholders are now saying, if you're making money, I prefer
you return it to me.
Speaker 4 (16:58):
Now, older pressure can be stubborn, and so is economics.
Speaker 7 (17:03):
I think ultimately it is inflation across everything. So whether
it is materials, whether it is labor. You know, you're
starting to see those things move higher, and I think
ultimately also you're seeing a lack of that talent coming
into the industry. We also then look at what's happening
around increased cost around steel, you know, potentially teriffs having
impact and all that starting to add up.
Speaker 4 (17:24):
There are things that could help producers drill at fifty
dollars oil, lower taxes, less regulation, cheaper federal land leases,
and less perceived hostility from the government. Natasha Kaneva is
Global head of Commodities at JP Morgan.
Speaker 10 (17:37):
We do believe that it can't happen. So, first of all,
the fifty dollars is a target. Yes, at the moment,
if you look at the break events, they at about
fifty five dollars. What the administration can do they can
bring the cost of production, the cost of drilling lower.
So we actually believe that forty five is the new
fifty five. So we believe that they can bring the
cost of drilling by about ten dollars lower.
Speaker 4 (17:58):
CANEVA gets there in three ways, lower royalty fees on
production on federal land, corporate tax reduction to fifteen percent
on things produced domestically, and bringing back the bonus appreciation
from the twenty seventeen Tax Cuts and Jobs Act. This
lets businesses deduct one hundred percent of certain capital investments
that alone could cut break events by nine dollars.
Speaker 10 (18:17):
Se Yes, they have this additional ten dollars. What they
can decide is they can say, okay, we'll pay ourselves
more diffidend, we'll increase the divent deal, who increase the
buyback or all other things that they can do. Is
this money, or they can say half of that actually
will go into the ground and will increase production. So
this we don't know. What we're saying is that we
believe it's doable.
Speaker 4 (18:36):
CANEVI says, you don't need to spend that much money
to produce more oil.
Speaker 10 (18:39):
All our numbers are showing that one million dollars spent
today versus twenty fourteen gives you about eighty six percent
more production. So pretty much you are doubling production through
efficiency gains.
Speaker 4 (18:50):
The math says producers can drill more worth less now
shareholders have to let them.
Speaker 7 (18:56):
Now, maybe it takes a change on the part of
shareholders to then say, actually, what we do want is
to go back to production growth because production growth obviously
ultimately is that's future revenue that's coming in. And I
think we've been in this period where they're not valuing
that production growth and partly maybe because of concerns around
peak oil demand.
Speaker 4 (19:16):
So if President Trump could incentivize long term oil demand
growth past twenty thirty.
Speaker 7 (19:22):
That might change things. Whoever's in the White House has
a bigger impact on the demand side of the equation
than on the supply side of the equation.
Speaker 4 (19:30):
If more oil production isn't the answer, an alternative for
President Trump might be gas.
Speaker 1 (19:34):
Baby gas.
Speaker 4 (19:36):
In a recent speech at the premier energy conference Sarah
Week in Houston, Texas, the Secretary of Energy Chris Wright
mentioned LNG or gas eight times and oil only twice.
It was a fiery speech that had industry leaders abuzz.
Speaker 11 (19:49):
President Trump immediately ended the pause on LNG export permits. Today,
I can announce our fourth action in this regard improving
the Dell and Offshore Louisiana LNG export terminal.
Speaker 4 (20:04):
Oil gets all the headlines, while US natural gas production
also sits at a record one hundred and seven billion
cubic feet a day of ninety percent since two thousand
and eight.
Speaker 10 (20:13):
It's called bessence. The three point plan is considering. Yes,
it's about three million barrels podet of oil coil and
grows between now and then of twenty twenty eight, so
we actually believe the two numbers closer to four million
barrels podet of oilcoiling. Majority of that would be done
by the gas. Actually it's not by the oil, but
by the guess.
Speaker 4 (20:30):
It's a lot harder to export natural gas. You have
to freeze it in order to ship it, with a
similar process on the importer side. Those facilities are expensive
to build, but more and more coming online, helping to
expand America's potential. By twenty thirty, the US should have
over two hundred and fifty million metric tons of LERG
export capacity a year based on current regulatory approvals.
Speaker 9 (20:51):
I think AILERG has a great future.
Speaker 8 (20:53):
It could be more focused on inngls liquids and could
be more focused on.
Speaker 9 (20:58):
The natural gas side. Is the ol side. We don't
have many all plays left in this country.
Speaker 4 (21:05):
The biggest problem for producers, either oil or gas is
infrastructure moving the hydrocarbon from the well head to the
Gulf coast or your local utility. The permitting process is
pretty much hated by all energy folks, oil, gas and
renewable alike.
Speaker 10 (21:19):
Permitting as difficult for many different reasons, but to one
of them, it's not in my backyard. And because of that,
there is a lot of those environmental considerations that need
to be solved for and decide exactly how you approach that.
Speaker 4 (21:30):
Many pipelines have been scrapped or held up in courts
for years, leading to bizarre pricing like twenty dollars gas
in the Bronx versus three dollars gas in Chicago.
Speaker 9 (21:39):
It's crazy.
Speaker 5 (21:39):
I mean, you get some markets that you know, even
get into a negative market. If you can't get your
product market, it does distort it in a lot of
different ways, and it also distorts it to the consumers.
Speaker 4 (21:56):
We think away from build a drill, baby drill, what's
something better? Is it gas baby gas? Is it dig
baby dig? Is it build baby build?
Speaker 10 (22:04):
The reality of that that if we want to achieve
all those targets that the Trump administration put force, Yes,
and it's a lot of that bring inflation down. Yes,
we have particular objectives in terms of trade, we have
particular objectives in terms of geopolitics. So it's definitely droll
baby drill. It's definitely dig baby dig. It's produced, baby produced.
We have all of that in the ground, but we
(22:24):
need to be able to move that.
Speaker 4 (22:27):
Maybe the rolling Stones were right. You can't always get
what you want, but if you try, sometimes you'll find
you get what you need. And in this case, what
we just might need is more gas drilling and pipelines
instead of oil. In that case, everyone wins shareholders, President Trump, and.
Speaker 1 (22:44):
US coming up getting on the bandwagon just as it's
coming to a halt, We bring you the ironic story
of three trends, Electric vehicles, DEI, and moving to Southern Florida.
(23:08):
This is a story about getting on the bandwagon, something
that feels so good when everyone is doing it, but
that may get awkward when people start jumping off. Electric vehicles, Diversity,
equity and inclusion, and moving to Southern Florida have all
had their time in the sun, but all are now
seeing some shade coming their way.
Speaker 12 (23:30):
The historical track record for automotive startups in the United
States is extremely bad. The only two American car companies
in history that have not gone backrupt are Ford and Tesla.
Speaker 1 (23:43):
Traditional automakers followed elon Musk embedding big on evs. In
twenty twenty one, GM announced that it would end production
of all of its gas and diesel powered vehicles by
twenty thirty five and go fully electric by twenty forty.
Speaker 13 (23:59):
Well, I think of car companies were responding with enthusiasm
and hope for the new vehicles.
Speaker 1 (24:07):
Mary Nichols is a believer in evs. During her tenure
as the chair of California's Air Resources Board, she implemented
the state's landmark greenhouse gas emission standards.
Speaker 13 (24:18):
Here in California, the sales rates are almost equal now
to gasoline powered vehicles. In other places, the penetration is
going more slowly.
Speaker 1 (24:31):
As much as California may be the EV leader, the
rest of the country doesn't seem to be keeping up.
It turns out that the EV bandwagon needs some support
from an infrastructure for charging the cars that just isn't
there yet.
Speaker 13 (24:45):
It's just that the hope had been that they would
really overtake gasoline vehicles faster than they did, and it
turned out that there was more reluctance on the part
of people, especially in parts of the country where they
don't have the infrastructure in place for supporting those vehicles,
(25:05):
particularly where the electric utilities didn't step up as fast
to provide charging, where building owners in some cases were reluctant.
It takes a lot of changes in the system to
match what has been achieved over one hundred years.
Speaker 1 (25:26):
BNF estimates that the fourteen automakers who set ambitious EV
goals for twenty thirty have trimmed back their expectations from
twenty seven million vehicles that year to twenty three point
seven million. One of those pumping the brakes on evs
is Ford, which shelved its plans for an all electric
three to row SUV last year. CEO Jim Farley took
(25:49):
us through some of the challenges several months ago.
Speaker 10 (25:52):
Well.
Speaker 14 (25:52):
First of all, the electric market in the US is
about eleven percent of the market. In California, it's the
third of the sales, so it's a huge market, growing
really fast and competitively globally. I think what's happened is
we're in the mainstream customer and the mainstream customer is
totally different than the early adopters.
Speaker 9 (26:09):
They're really adopters.
Speaker 14 (26:10):
We didn't need to convince them to go charge, or
they didn't really worry about resale value. But the customers
now do and that means on us we have to
really transform our.
Speaker 1 (26:19):
Cost And now it's not just the lack of charging
stations that's slowing the move to evs. We have a
new administration in Washington that appears to be reversing the
nation's pro EV policy.
Speaker 3 (26:31):
We ended the.
Speaker 8 (26:32):
Last administrations in saying electric vehicle mandate saving our auto
workers and companies from economic destruction.
Speaker 13 (26:42):
It's a trend that I think is well underway and
it's going to continue. I do think that the election
sent a message that in some states in particular, this
is like a political issue, which certainly is not helpful
for any industry. I don't think vehicles are partisan. I
(27:06):
don't think there are Democrat or Republican vehicles. You're just
looking for the best vehicle that you can get for
your money.
Speaker 1 (27:14):
Whether powered by electricity or gasoline. The bandwagon of DEI
was moving full speed ahead in much of corporate America
when Blackrock CEO Larry Fink wrote to shareholders in twenty
twenty one that he had a quote long term strategy
aimed at improving diversity, equity and inclusion. Four years later,
I think was writing to BlackRock's staff saying it was
(27:36):
quote committed to creating a culture that welcomes diverse people
and perspectives, but acknowledging quote significant changes to US legal
and policy environment related to DEI.
Speaker 15 (27:48):
Now, the real question is what are the policies and
practices that organization should have in place in order for
the organization to function effectively. And we spent a lot
of time talking to employees and looking at trends across corporations.
Speaker 1 (28:02):
Tracy Sitsman is Professor of Management at the University of Colorado, Denver,
and has studied DEI policies throughout corporate America, why we
have them, and which ones work and don't work.
Speaker 15 (28:13):
And the clear and consistent trend that we're seeing is
that employees want to work for an employer that's authentic
in their approach to dealing with their employees.
Speaker 1 (28:23):
Sitzman's studies have led her to the conclusion that whether
a DEI program makes a company run better and ultimately
make more money depends on how it is done.
Speaker 15 (28:33):
One of the most popular programs for enhancing diversity and
inclusion has been diversity training, and this is an example
of a program that can work really well or can
undermine our workforce. People work hard, they diversify the workforce
and it's successful. By contrast, many corporations implement diversity and
inclusion training and they have a legal undertone as part
(28:53):
of the training, so they teach people just how questionable
their behavior can become before it as the line to
being illegal. And when we implement training with an illegal undertone,
it actually results in people this behavior becoming more questionable.
Speaker 1 (29:09):
But can a program targeting diversity, equity, and inclusion succeed
without focusing on identity politics, without setting targets to become
a form of quotas. Robbie Starbuck is a faith based
investor who has championed the cause of cutting back on
DEI programs.
Speaker 16 (29:26):
Even if you wanted to pretend DEI was ultimately a
good thing, how can we do the things that we
proclaim to want to do without violating the law. And
at the end of the day, if you look at
these policies like racial quotas for hiring, it's not possible.
You can't have a racial quota for hiring and not
violate the law. But therein lies the real core of
almost every DEI policy in America is that we should
(29:48):
look at people and judge them by their skin tone,
which is diametrically opposed to the ideas of the civil
rights movement, which was that we're not supposed to judge
people by their skin tone. We're actually supposed to look
at them as an individual and say, your value lies
and your actions, what you can do, your merit, and
so that's what we want to see.
Speaker 1 (30:04):
Sitzman may not favor quotas, but she readily admits that
it's awfully hard to drive diversity, equity, and inclusion without
setting numerical targets.
Speaker 15 (30:14):
What strategic goal would you set in a corporation where
you would not measure it. It just doesn't make sense right.
Without a goal, without some numbers behind something, we don't
know how well we're doing, and therefore we're not going
to be managing the process towards hitting that target.
Speaker 1 (30:30):
In addition to the bandwagons heading toward Eves and DEI,
a third movement was wall Street's migration south to the
Sunnier and less regulated pastures of Miami. It began earlier,
but when the pandemic hit in twenty twenty, its speed
picked up. From twenty twenty to twenty twenty one, Florida
experienced the largest uptick in registered independent advisors and broker
(30:53):
dealers of any state, and by twenty twenty two it
had become home to Elliott Management, citadel Icon Capital, and
expanded footprints from the likes of JP Morgan. Michael Schoe
is a luxury real estate developer with properties in Miami
and New York.
Speaker 6 (31:10):
What's interesting because that moment in Miami was an extremely
surreal experience. You'd have billionaires roaming around North Bay Road,
you know, Palm Island, Star Island, looking for homes and
literally willing to pay anything just to find a house
on the water. Because the idea was nobody with means
(31:30):
wanted to stay at home, locked up here in New
York City. And obviously today, you know, hindsight, things haven't
really worked out exactly like that. People moved to Miami.
Mammy turned to be a real city because you have
now real restaurants, you have real people, you have education,
you have culture there. But it didn't take the place
of New York. Like a lot of people predicted.
Speaker 1 (31:51):
The growing pains come in the form of lack of schools,
unfinished offices, and traffic.
Speaker 6 (31:57):
So there's there's lack of schools in Miami, there's no
doubt of it, and that's kind of the main issue.
Infrastructure depends where right Miami Beach. Sections of Miami Beach
are okay, but because you have houses there, there's not
real main infrastructure issues. The infrastructure issues really became more
apparent in transportation. Crossway didn't have enough planes, There was
(32:21):
a lot of traffic, There was congestion because the amount
of cars all of a sudden in Miami. People that
are coming to work in Miami is something that Miami
has not experienced, and the acceleration of growth was so
quick that they did not have the infrastructure. They're catching
up now, but again now less people are working there,
So both the infrastructure is catching up, but we're seeing
(32:43):
less people there, at least on a permanent base from
what we thought we're going to have.
Speaker 1 (32:48):
You know, post COVID, I wonder the role of demographics
and people moving in both the commercial side, the office
and also the residential that you're involved in. Because if
you look at the numbers, overall, California is losing people,
Illinois is losing people, New York losing google, Florida gaining people,
Texas gaining people. Does that tell you something about those
real estate markets?
Speaker 6 (33:07):
Well, yes or no, because it depends who you're gaining.
Because if we're talking about commercial real estate, the reality
is are we losing the companies that are we losing
the workforce that's here, or are you losing you know,
people that are retired and not working and decided it's
territory tie in Florida because taxes. The tax situation is
better there, which is a lot of the reason that
(33:29):
you're seeing, you know, people move out of New York
and California is you know that there's obviously tax incentive
to move to some of the to some of the
southern states. So I don't think we're seeing we're not
seeing the movement of the true workforce.
Speaker 1 (33:43):
Those moving to Miami may have gotten a better climate,
but they weren't looking for much different in the spaces
they occupy.
Speaker 6 (33:50):
So the difference between Tennessee and Miami and New York,
you know, and again, as such, FOE operates only the
super prime real estate. So for us, we focus on
the psychographic the tenant, and in our mind, the psychographic
of a JP. Morgan, Okay, is no difference in New
York than it is in Mammie. Maybe the office needs
are a bit different, a little bit more outdoor space
(34:10):
in Mammi. There's that desire to have kind of indoor
outdoor spaces. But the reality is that you don't change
your mindset from a service perspective, from a space perspective,
from an environment because you're in Miami or New York
or in San Francisco.
Speaker 1 (34:26):
To that effect, whether it's picking up stakes and moving
to Miami, or ditching our gas powered cars, or changing
the very nature of our workforce. There's all sorts of
good ideas out there, ideas that may make sense, But
no matter how good the idea, it pays to have
a pretty good sense where that bandwagon is headed before
we jump onto it. That does it for us here
(34:50):
at Wall Street Week, I'm David Weston. See you next
week for more stories of capitalism.
Speaker 10 (35:01):
It also
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