Transcripts For BLOOMBERG Bloomberg BusinessWeek 20170902

Editor, howard. This week, as a cover story you are looking at Hurricane Harvey. You knew the storm is coming, but how did you plan for this coverage . Howard weaver going to wait and see with the storm is like. When we were planning over the weekend, the storm had not yet quite hit. We slowly got the news in a slowly built. By sunday it was clear it was a huge disaster. Who is back from vacation is our great synthesizer, our resident economist. He can take almost any story and look at it from an economic angle and a very human angle. Peter was perfect for this. There was also a story that was going on. Chris lindell had been doing work with fema and with reporting on National Building codes and have a place like houston and taxes in general, they are allergic to building codes. The combination of those two, peter talking about the general, largescale big picture of the economy in houston, and looking how things are put together, their cando attitude and how this patchwork of Flood Control came together. And then there is this attitude about building codes and how things really we dont like building codes. Carol i have family and texas but they do think the runway. Try to strikeou the tone for Something Like this, bloomberg, we are always trying to look at everything to the lens of Financial Markets and how it affects the economy. This is one of those events it is a great human toll as well. Anytime you want to talk about the market angle we want to make sure we always say, heres the first thing that is most important. How you find that town to strike . Howard we have to always point out that there is huge human suffering. We point out the Energy Markets have been affected. We point out there is a huge cost to the way people will go back and live in their homes that have been wrecked by the floods. Peter points out you go back. Not only are most homes not insured, the people go back to their homes and developing mold problems and Health Problems will develop. There are all sorts of human details that peter pays attention to. Carol i wonder if more information will come out in the aftermath of the storm. It does seem a lot of people at the lower economic end of the scale i have seen interviews were people are like, why didnt you evacuate . I could not afford to go anywhere. It will be interesting to see their people who may really need an awful lot of assistance to get back on their feet. Howard i think the lesson from the previous hurricane was the evacuation to not work. A lot of people died in a previous evacuation. Now a lot of people are trapped because there is so much water. Oliver is a major event and covering it is difficult. Here kuwait peter coy wrote a story covering the effects in the economy. Peter people who went there got their wheels stuck in the mud and they kind of new it was a swamp. For ideal reasons, and the fact that had a navigable channel, a group and group and gro grew and grew. It has a Major Medical center, refineries. It is a happening place in a strong city. But it is still built on a swamp. That never changed. If youre going to be built on a swamp, you need to take extreme measures to deal with that, to work on drainage. The approach houston has used all these years is to try to take the natural drainage and add to it. A lot more channels, concrete sluices, conduits. Trying to get the water out after it rains. That has proven inadequate. Carol is it just a case as we talk about the storm of the century, have been you plan for 50 inches of rain . Or is it something more significant that even a few inches can be problematic . Peter they have regular flooding and it is a problem in houston. Yes, harvey would have devastated any city no matter how sound their planning was. But it just made it worse than it would have been. What people are saying is in addition to trying to get the water off the land and down to the gulf as quickly as possible, you need to understand you want to absorb some of it in place so it gets soaked into the ground, and the ponds and so on and gradually discharged over days and weeks. That is what they have not done enough of. Carol powerful and disturbing images came from the gulf coast all week. Oliver we talked with rob vargas about the challenge of creating the cover. I imagine the challenge for treating the cover when you think about the best way to convey such a large and tragic incident in houston. Rob we have seen a lot of incredible pictures of the flooding. We, along with many people had people shooting. The way we wanted to depict it was a more contemplative way. People getting rescued and newsy images. They wanted something that felt while at the moment frozen in time. The piece is sort of like a look ahead at a look at what could have been done differently. We found this image of this one man who looks like he is struggling in the water. Carol is very dark. The actual image itself. Either you chose to target it or left it as is. Montgomery is a good cross between an art photographer and a photojournalist. He has this very dark, rich style to him. Oliver hes ons best nissans bestselling electric car is losing ground the tesla. Carol activist investors are not known for patients. Nelson petls is taking a Surprising New town. Tone. Carol welcome back to Bloomberg Businessweek. Oliver keeping kids is online at businessweek. Com. Carol and our mobile app. The introduction of 2010 of the nissan leaf, it is in the worlds bestselling electric car. Oliver with a resin tesla, the are giving their bestselling ev a makeover. They are trying to come up with something that certainly will not be a tesla killer, but it can go oneonone against the new low price tesla and the chevrolet volt, also a similar car. That is going to be tough for a couple of reasons. The leaf does not have the range of these newer cars. The old leaf. The old leaf really tops out, even with the extended battery at107 miles. The regular one only has 80 something mile range. That goes up against about 220 for the new tesla model 3. And almost240 for the chevy volt. That means a lot. You can go double the miles. Oliver the price differential is not that big. Jim it is only by 5,000. What will happen is the leaf is going to have to come up with a car that has much greater range, probably double the range it has now. It will have to come up with a lot of snazzy tech features people expect from people like tesla. Carol the price differential of 5,000, that is for the barebones model. Business week has done this story that said want to add things in, it becomes a bit pricier. Nissan is going to unveil a new leaf the first week of september. Jim ptemberm 5. September 5. There will be a new car. It will definitely have new styling. Right now it has a quirky styling that does not work for a lot of people. This is the first major redo and seven years. It will look more like todays car. They have been doing spy shots of it. They have been quiet about what kind of range it is going to have. That is what you care about, what a lot of analyst say it will have to you will likely have an engine that is either standard or an engine battery that is standard or optional that will take it up to the range of the beginning model 3, a tesla model 3. That will break the 200 mile range barrier, which seems to be where you need to be these days. Oliver it seems like they need to engender some excitement around the brand. I feel it a big part of this might be branding as well. Everyone has been talking about the tesla. Carol are you saying believe has no cachet . Jim that will be difficult to do for a Japanese Company. That is not the way they are. They are trying to do it is japanese guppies typically do by adding technology to the car. They are adding this is the first part they will have sold over here that will be able to park itself. It will have some Driverless Technology added to it. It will have something unusual. They have a new feature that will allow the acceleration and braking to be done in a single paddle. Peddle. That is really popular on another nissan cars sold in japan, the note. A lot of things that work in japan with auto consumers sometimes dont connect with the u. S. Oliver activist investors are supposed to be hardnosed raters with shortterm raiders with shortterm goals. Arol nelson petlz is taking softer approach. s about a month ago when the Procter Gamble proxy fight started to kick off, nelson petlzuld try to find s fund put it a special section where they declared that a special interest in the sg issues. Esg issues. Environmental, social and governmental issues. Oliver a little over 1 of Procter Gamble. They are angling to get nelson petlz on the board. The timing is to quit cito too coincidental to states not part of the effort. Im sure they would say this is like a longterm issue for them, something they look at when they are choosing a target. These are risks they need to manage when they going to an investment. Its a little different than the typical activist fund. They dont consider themselves confrontational. They like to consider themselves as a highly engaged activist and saturday fighter. Carol who is nelson petlz playing to in this corporate stewardship . Is investors are interested in this. He has to win someone over to win a proxy fight. There are a lot of institutional firms like blackrock, state street in the likes invested in this company who also like the esg issues themselves. That is part of their decision as well. Carol they are the major investors in this company. Or that even nelson petlz. More than even nelson petlz. You dont win a proxy fight with 1 of the company. He will not be able to get your seat on the board unless you win other people over. Obviously this is a little bit but it helps. Oliver maybe this is editorializing, for give me the feedback. Has been a lot of focus on active investors throughout this bull market. There has been a lot of hubbub around these guys and investors artisticand very much in some sense. There is a lot of excitement by their investments. A lot of times the community thinks they are being hawkish and they dont like the attitude behind it. There is this Cultural Movement behind activist investors. Is a push towards saying we will be better stewards and look for these other types of things besides just making money. We want to make money on esg. Is it an image thing . These two funds that we cite in the article, blue harbor and from, they are different the carl icahns of the world. They are not afraid of a proxy fight, but they never go in that direction. Trian isme time, trying to position itself as not an activist, corporate raider fund. Look, we are not in this for the shorthaul. , were in this to fix this company put it on the right path and maybe i will sell later down the line. Carol a hefty chunk of yales endowment is tied up in timber, but lately not all is good with wood. This is Bloomberg Businessweek. Oliver welcome back to Bloomberg Businessweek. Carol you can catch us on radio a. M. Rius xm channel 119, 1330 in boston, 99. 1 fm in boston washington, d. C. Oliver and in asia on the Bloomberg Radio plus app. Carol Many American universities have added timber to their endowment portfolio. Oliver but le has found it has downsides. Mary it is a hedge against inflation and new volatility in stocks and bonds. You own this other asset. Ale went, a lot of other endowments wanted to follow. Oliver this seems to be something that often happens in markets. There is not only a search for yield, the perhaps that lisa risky places. You have to get more creative. They have a big investor, a big pension fund or Endowment Fund that leads the way and everyone gets on board. Assessment and how big it is across different types of investors . Mary it is like the big ones like harvard and yale that have a lot of assets in it, in endowments. They have a long time horizon. Centuries. Where you see may be an issue is where some of the smaller endowments follow. They may not really have the expertise or enough assets to stay in it for the long term, along game. Carol there had to be returns. Talk to us about the terms timber provided yale and others. Pary it was going up, up, u for quite a while. Doubledigit returns. Now the returns have not been there. A lot of players got into the game. Some of them the endowments now like wake forest are pulling back. They are not seeing the returns. For the foreseeable future. Carol it is causing some investors to do other things with their land. Talk to us about their relationship and the leeway they had that maybe it is not just about harvesting timber. They can do other things. Mary they own the land outright. And they have forest managers. It. Can harvest some of it could be just investment return. Some of like harvard for instance, they had romanian forests. They just recently sold in uruguay eucalyptus plantations. They were being harvested for the timber and it was not as lucrative or they just decided to make the sale. There are a lot of those Different Things they can do. Carol talk to us about yale. They were something controversial they came up in terms of a powerplay that is fascinating. Mary yales manager entered into a lease for a power line that will through quebec. The 24 miles of yales land for New Hampshire that will power new england. It is controversial because yale activists say they are not harvesting in the right way or being responsible. Locals are saying it is not necessary. It will not create jobs. Managers areale not being responsible in the linear clearcutting in the way they are clear cutting. They are canadian tribes who are saying it will desecrate their tribal land. Environmentalists say it will impact moose and caribou and salmon. Carol that they get money releasing it to the power plant. Mary and allowing access, yes, yale will make money from this. Carol storms like Hurricane Harvey dont come along every day, but Many American coastal communities cope with flooding every year. Oliver the National Foot insurance is an dire financial straits. Here is editor matt phillips. Tt it basically subsidizes private insurers to go and write policies for homes that are in very flood prone areas. This has been around since the 1960s. It was used as a way to incentivize the private market to get in there and write policies they would not have otherwise. It has lowered the cost of building and staying in homes in places we probably it is clear we might not should be there. In the 50 years that this program has been in place, Coastal Development has exploded, but so has flood claims. The u. S. Government through this program basically backstops and pays out the majority of residential flood claims in the united states. It is currently 25 billion in debt. Can ecb reauthorized by the end of september. This is already a problem. Harvey put a big spotlight on it. Oliver business publicly funded and then basically puts the responsibility on private insurers to handle this. Where does the debt buildup from . Is it just there are too many storms or houses in these locations . Matt over the past few years it has gotten a lot worse. In some years your claims are far less than what your revenue is so you are ok. This program borrows from treasury. Over the past decade it has gotten severely strained and has been in debt to the tune of tens of billions of dollars for years. Carol borrowing more from treasury . Matt that is right. It is forcing this debate in light of harvey. The need to think about the vested interests on either side. You have Home Builders on one hand who want to make sure they can build homes at the cheapest cost possible, and to be honest, dont mind too much rebuilding homes again and again. Especially if it is subsidized by the Insurance Industry which would not be there to begin with about the government. Without the government. We had a situation in 2012 or Congress Found the political will to overhaul the nfip. You have this Rare Alliance between Tea Party Republicans who looked at this and said why are we spending this money . And your climate activists saying, from a climate standpoint we should not be here. They overhauled the program. The result was that your average homeowner policy for Flood Insurance in a lot of coastal areas went through the roof. Talking about from hundreds of dollars to tens of thousands of dollars. That lasted for two years. Congress rolled it back in 2014 because of the opposition was so great. Whether there is the political will this time around to have the same conversation is a big question. They have a month the reauthorized it. Does not seem likely they will tackle the big fundamental questions that are plaguing this. They will probably do a shortterm reauthorization. We had a brief moment to read it over all this thing, but it gives you a sense of the business interests at play. Carol and italian city is the scene of a political battle over pollution. This is Bloomberg Businessweek. So we need tablets installed. With the menu app ready to roll. In 12 weeks. Yeah. The world of fast food is being changed by faster networks. Data, applications, customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Fast connections everywhere. Thats how you outmaneuver. Oliver welcome back. Carol still ahead, can you trust what you read in medical journals . Controversy breaks out over a new publishing model. Oliver delta gives its pilots a chance to fall into the captains seat. All that had right eardrum Bloomberg Businessweek right ahead on Bloomberg Businessweek. Oliver we are back with Bloomberg Businessweek Deputy Editor to talk about more stories, some must reads this week. A great story on a level unilever. Everyone pretty much has a unilever product. There is a big effort in the way it is going to be perhaps the most visible element of them. Howard they have over the last few years since paul taubman became ceo, he sees it as a big do good company. Carol , chances capitalism. It sounds so grand. Howard it helps to make a lot of money. There is a new generation of consumers not only in impoverished countries where he is trying to present unilever as the proponent of hygiene and Better Health for children in vietnam and other places, but some of the people in the more developed and prosperous lands will say i want to buy things from the company that does well and does good. Carol it is brilliant. He is going to the high end for those that are willing to pay more for a product and want to help out the world. And there is a developing market. Where people dont use products that can be made into a customer for many years. Howard they are buying the soap that will keep them in business for a while. Carol that is a feature on unilever. There is another that takes look in medical journals in the digital age. And the controversy over it. Howard that is fascinating. Most of the peerreviewed take we pute our very expensive. People have to pay huge subscriptions to get them to be able to read them. There is a new genre called open access that is example five of the company in this story that allows people who have written studies to pay the company a little bit and have their articles published. A lot of pharmaceutical companies are sending their articles that way as well. Carol bigname companies. Howard pfizer among them. Oliver i live is conceptually interesting. There are 70 places where you rely on academic studies, but if you dont know the quality of those studies it drew a parallel to the topic of fake news. There are side effects not good for the open exchange of ideas and the internet and all this type of stuff. Howard exactly. Is go to have done this company and see how it actually works. It is both eyeopening and hilarious. When you look at the magazines and see all these emails going up to people. They are basically spam asking for stories. It is quite fascinating. Carol we have more on the evolving world of medical journals from caroline chan. Caroline it has always been exclusive traditionally. The journals decide what gets published. You have to pay thousands of dollars in subscriptions to be able to access these journals. There has been a movement called the open Access Movement that is trying to flip this on its head. We are going to get out the information for free, but authors need to pay to publish. What we have been looking at is the subset of the open Access Movement, which is come to be known as predatory journals. People are taking advantage of the model and taking anything and publishing anything because they just want to be paid for publication. Carol this is so appropriate a story in the world of fake news or allegations of fake news. We like thatals, they were exclusive and they were selective. We trusted the information i felt like there was deep screening in terms of any research or articles. What kind of screening is being done in the open access journals where these predatory journals . Caroline it varies. You can have perfectly good science in a predatory journal. It is just hard to tell how good it is. A lot of these journal say the new peerreviewed. When you look at the dates for submission to acceptance, known as the review time, sometimes they are as short as days. You have to ask if the review time is three days, how much reviewing actually happened . A lot of them have very similar names to the traditional journals. With the proliferation of thousands of these journals it is just getting more and more muddy. Oliver dji has a serious problem. Carol that exploded when an Army Internal memo leak. Now the company is making security a top rarity. Itthey have sort of ignored they have not ignored it but it has been a huge part of their messaging. It came up as a big issue earlier this month because the army issued guidance saying stop using dgi equipment. This was not a public issue. The memo was leaked. Djis response was we dont make drones for the military. Oliver this w the u. S. Government saying drones being used for their purposes . This is the army for all its units. No units can use dji drones. The army has their own military drones, but we dont know exactly how they are being used. Dji drones were definitely in use in the army. Carol initially dji said whatever u. S. Army . We dont make it for you guys and we dont know what you do with it. Is the interesting thing that they Growth Opportunities for dji is commercial users. It is not just my mom who goes out of lies it intakes really cool photos of the dog doing something. Aretake out a drone and you serving Critical Infrastructure and inspecting skyscrapers and one of the people i interviewed for the story has just gone out to houston to volunteer for the red cross to use drones for the first time in mapping and looking at letting. Flooding. Oliver structure, infrastructure, buildings. Stuff perhaps you dont the information floating around. Dune and where your clients might be a Government Department with a have Data Security requirements. You have to be able to say this data will be totally it is not going to a random cloud server. It is not going to servers we dont know where in the u. S. Or china. Carol you are collecting data on the user, right . Essentially you can figure out where the user is located. You can spy on the user potentially. Dune potentially, yes. Once this memo got leaked, there is a very passionate drunk community and summer Cyber Security experts. Research started coming out showing quite specifically ways potentiali have the to find things like the user gps for drugs. Carol there was software that prevented people from figuring out stuff . Dune there was a particular code that was banned in the apple store. That allows stealth updates to an app where the user in app store would not know. Dji once to sell drones. It is not doing that stuff, but what about if a hacker got in there and did something . Oliver delta is offering junior pilots a fasttrack to captain. But there is a catch. Carol the city in italy that has fallen on hard times but has become incubator for economic ideas. Oliver this is Bloomberg Businessweek. Oliver welcome back to Bloomberg Businessweek. Carol you find us online at businessweek. Com. Oliver junior pilots that Major Airlines plan on waiting years to wub captains wings win captains wings. Carol the cash, flying at aging aircraft nicknamed the mad dog. Oliver teletype to become a pilot and a Major Airliner, the 747 airplanes we think about. Andell, you dont start dont ever become 747 captains. There is a range of aircraft smaller than that. Generally you start up going to a flight school. Many people are military. A smaller number our military these days in the past. Usually you have to get 1500 hrs of flight time to become a pilot. That is a load and it generally cost over 100,000 these days to get paid for that much training. At the end, you get on with a Commuter Airline or a regional airline. These are the Smaller Airlines that do the regional or commuter routes for Major Airlines. Down the road if youre lucky to get on with a Major Airline like delta or united. Carol the goal is to become a captain of a longhaul flight . Not work weekends and all that good stuff . Yeah, that ise sent of the gold standard. When you make it to a major like delta or united he generally would start at a smaller aircraft. That might be like one of the older Mcdonnell Douglas 88s over a boeing 717. These tend to do smaller routes. It is kind of a hectic schedule. You might floor fly four or five times a day. The more desirable jobs of the 777. Haul, the 747, the captains maybe one flight a day and the are going to asia or europe or whatnot. It is a much less hectic schedule. Intensity longhaul flights with a nice layover in europe or china or what not. They tend to be the most desirable jobs. Oliver one of the less desirable jobs, the lower tier airplanes. 88s,cdonnell douglas md for the mad dogs. This is the vehicle you are focusing on for the story. What makes it unique and why theyre having trouble getting pilots for these particular planes . Mike the md80 eight is the 88 is the oldest aircraft with the four Major Airlines. United, southwest and american, it is the oldest. The only one still operating that is delta. They arenerally kind of undesirable jobs in the Airline World because they tend to have hectic schedules. Is the workhorse of the american fleet. Atlanta to new york or atlanta to dallas and whatnot five times a day. That is undesirable. They tend to have technical quirks. They are a less automated airplane. All that leads to a little bit of difficulty getting captains 88. The md8 oliver the populist Fivestar Party is interesting a program that will help them be launched to victory in the upcoming elections. Christina italy had a recession that lasted from 2006 until 2013. Even before that the process of deindustrialization that we have seen in the u. S. And other countries, factories moving to asia and other places. We wanted to tell the story by focusing on a particular place and focusing on a place for people are trying to grasp solutions. Vorno. that place is labo port, but a has a lot of container traffic has been moving to other bigger ports in italy. It had a shipyard that closed in 2002 and many people are still reeling from the closure of that. It was the cradle of the communist party in italy. Though they had elections in which the mayor of a newer party called fivestar movement they dont want to call themselves a party he inaugurated this program where people who are considered to meet certain requirements for the program that are considered 500 euro subsidy per month. It lasted six months and covered one of your people only. Carol how is this different from a Welfare Program . Ristina these people never had fulltime employment or have not had in 10 years. They were not have qualified unemployment benefits. You have to have a job at a company. Than they run out after a certain amount of time. Carol what about welfare . Cristina there are strings attached. People did have some employment but they were underemployed. They are not making enough money to actually get by. Loses asamsungs heir corruption case. Carol and the japanese fountain pen Company Anticipates a renaissance for the classic writing tool. Oliver this is Bloomberg Businessweek. Carol welcome back to Bloomberg Businessweek. Oliver you can catch us on the xmdio at sisrius sirius radio, 99. 1 fm and washington, d. C. Carol and then asia on the Bloomberg Radio plus app. And the technology section, the to fivesamsung listens years in prison on a string of corruption charges. Oliver we talked about the case and its impact. The billionaire son has been seen as the heir apparent for the years his father has been behind the scenes after a heart attack. Sincee first two years 2014, he has been seen as the clear leadership figure and more conciliatory to some extent and careful leader than his bombastic father. He is selling off a bunch of extra private jets and suspending off arms divisions spinning off arms divisions to other countries. People were pretty comfortable with him behind and in front of the camera. Carol were ultimately the charges that brought him down . With fiveas charged counts related to bribery investigation that took down south koreas president not that long ago. Involvedof the charges jay and his top lieutenants are other people in the company looselyo bribe affiliated confidants of the president s by giving her a horse for her daughter and that sort of thing. Carol the trial has been closely watched. Cameras and reporters were in the courtroom as this was unfolding. There was a lot of reporting on what was said by jay and some of his associates. Het has come out is he said was not involved in the decisionmaking . Net impact of his sentence which was unusually strict by the standards of south korean business executives. He got five years, which means it is more than a threeyear sentence and cannot be suspended as his fathers two prison sentences were. Defense and his the others indicted was more or less the idea that he could not have had much to do with these allegations. That he knew barely anything about any business in the huge samsung empire the on the Core Electronics one. Oliver it seems the written word may be the ultimate luxury, at least judging from the 1 billion market for fountain pens. Carol when Japanese Company is poised to read the benefits. James it is a 1 billion market that caught my eye. Ikia, based in tokyo, was one of the First Companies to realize this that handmade craft and ship was like the way forward. Carol talk to us about the handmade cressman ship. They are gorgeous. James they are painted with lacquer ware, and intangible cultural asset in japan. Carol i was just talking about that yesterday. Jit is several years of lacquer. Hames it looks almost like the are underwater. It takes too much to make these. A lot of that is just the painting. They are all done in a small financial weston took peninsula west of tokyo. They make 1500 a year. Carol what do they cost . Jamses about 650 for the lowend fountain pens. Oliver the highend for bic. James you think about a month lanc 149, those can run over 1000. One thing that interested me about the company is the entrylevel price point is bringing new fountain pen fans into the fold. Carol they dont go to trade shows or to traditional marketing. There is a message board called the fountain pen geeks and other blogs and that is how the are getting known. 1. 0. very internet blogs are still the way people get information on the internet. As more and more key medication does happen online i had an exgirlfriend of love writing poetry and notes. I feel like this is the kind of thing that could really appeal the Something Like that. Letters. Andwritten who buys 1000 found tends . Fountain pens . James a writer of this piece went to a lot of shops where they sell these pens. In this community there is a tension between people who only two of eachthey get kind, and those that still use them at right with them. She claims it would be a crime against writing to use these pens. Oliver carols, we had to cover the hair can Hurricane Harvey story. Carol i love how they start off by saying hes been has been wet since houston has been wet since birth. They delve into the zoning codes in the laissezfaire attitude in houston when it came to building and development that for the city and harms way. Is a must read. Story i like carolyns about the idea there are all these different online servers that came from a good place which is trying to bring information and academics to places around the world really dont have access to expensive journals. There is a sort of fake element to what is being published. You have got these corporations saying maybe this is a good place to what some of our research we have done. A very interesting story. More Bloomberg Television starts right now. Coming up on bloomberg best, stories that shaped the week in business around the world. The damage around the storms in the gulf coast. What we are looking at is a production impact and refined product impact. Tensions rise over north Koreas Nuclear threat. I do not think that a military response is on the table. Brexit talks resume with sharp remarks from the eu. These two sides are as far away as they have ever been. And to top things off, the jobs number report. A gdp number of 3