Transcripts For BLOOMBERG Bloomberg BusinessWeek 20170903

Are looking at Hurricane Harvey. How as a weekly did we plan for this coverage . We were going to wait to see what the storm was like because when we were planning over the weekend, the storm had not hit. By sunday it was clear that it was a huge disaster. Peter was back from vacation, he is an economist and he can take almost any story and look at the economic angle but also a human angle. He was perfect for this. There is another story. Chris has been doing work with fema and reporting on National Building codes and how a place like houston and texas in general are allergic to building codes. The combination of those two, the economy in houston and how things are put together, the cando attitude, but, lets do anything we want to do, and how this patchwork of Flood Control came together, and then there is this attitude about building codes. We dont like building codes. Carol ive got a lot of family in texas and i love them dearly, but they do things their own way. [laughter] oliver i wonder, when we tried to strike the tone for Something Like this, bloomberg is through the lens of Financial Markets and how it affects the economy. This is one of these events that has a great human toll as well. When you talk about it, we want to make sure that we say, here is the thing that is most important. How you find that tone in the magazine . In the magazine, we have to always point out that there is huge human suffering. We point out that the Energy Markets have been affected, but we point out that there is a huge cost to the way people will actually go home and live in homes that are wrecked by the flood. They go back and not only are most homes not insured but people will go back to homes over the next few weeks and months that have them develop Health Problems from mold. There are sorts of human details but peter paes attention to. Carol i wonder and maybe more details will come out in the aftermath of the storm it seems that more people with people on the lower economic and of the scale, they cannot afford to go anywhere. It will be interesting to see if there are people that really needed assistance. Exactly, exactly. The lesson from the previous hurricane was that evacuation does not really work because people died in the last evacuation. They learned that evacuation does not work, but now people are trapped and there is so much water. Oliver peter wrote the story examining the effect on the economy. Peter houston has been wet since it was born. For reasons, including that it had a navigable channel, it grew and grew and is now the fourth biggest city in the country. A Major Medical center, refineries. It is a happening place and a strong city. But it is built on a swamp. That never changed. If you are going to be built on a swamp, then you need to take some pretty extreme methods of drainage. So the approach houston has tried to take all these years is natural drainage and adding to it multiple channels, concrete sluices and so on to get the water out after it rains. And that has proven inadequate. Carol is it just a case, though, as we talk about the storm of the century, how can we plan for more than 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 planning was. But it just made it worse than it would have been. So what people are saying is that in addition to trying to get water off the land and down to the gulf as quickly as possible, you have to understand that you absorb some of it in place. So it gets soaked into the ground and ponds and such. Then, gradually discharged over days or weeks. That is what they have not done enough of. Carol powerful and disturbing images from the gulf coast all week. Oliver we talked to creative director rob vargas about the challenge. I imagine the challenge is the best way to convey such a large and project incident as houston. Rob we have seen a lot of incredible pictures of the flooding. We, along with many people, had a photographer out there shooting. We wanted to picture it in a more contemplative way. A lot of people being rescued and newsy images but we wanted something more like frozen in time. It is a look ahead at a look at what could be done differently. And so we found this image of this one man who is struggling, kind of wading through the water. Carol very dark. The actual image itself. You could have lightened it up but you left it. Rob montgomery has that style. Oliver up next, bestselling electric cars losing ground to tesla. Carol activist investors are not known for patients. A Surprising New tone. Oliver this is Bloomberg Businessweek. Carol welcome back to Bloomberg Businessweek. Oliver you can also catch us online on businessweek. Com. Carol in the business section, since its introduction in 2010, the nissan has been the bestselling electric car. Oliver now, a makeover. Jim ellis explains. Jim the plan is to come up with something that, it will not be a tesla killer, it can go oneonone against the new, lowpriced tesla and the chevrolet volt. That is going to be tough for a couple of reasons. The first is that the leaf does not have the range. The old leaf tops out at 107 mile range. The regular one only has 80. That is against 220 four the tesla model three and almost 240 for the chevy volt. That means a lot, if you can even double miles. Oliver the price difference is now not that big. Jim only 5,000. What is going to happen is that the leaf is going to have to come up with a car that has much better range, probably double what it has right now, and a lot of snazzy features that people expect. Carol to be fair, that price differential is for the barebones model. Jim that is true. Carol business week did a story that it becomes pricier. So lets talk about because nissan is going to unveil a new leaf september fifth. How much do we know . Jim it will have new styling. Right now it is quirky and does not work for most people. The first major redo in seven years. It will look more like todays car. They have been doing sort of spy shots but have been so far very quiet about what kind of range it will have. Carol that is what we care about . Jim that is what you care about. A lot of analysts say that it will have an optional engine battery that will take it up to the range of a beginning model three, a beginning tesla model three, or a volt. That will break the 200mile barrier which seems to be where you need to be these days. Oliver it seems that they need to engender some excitement around the brand. Part of it might be branding as well. Carol are you saying that the nissan leaf has cache . [laughter] jim that is going to be difficult to do for a Japanese Company. That is not how they are. They do it by adding technology to the car. This is the first car they are going to have sold over here that is going to be able to park itself. It is going to have some Driverless Technology added to it. It is going to have something that is unusual, a new feature that is going to allow acceleration and braking on a single pedal. Carol huh. That was popular on another nissan car in japan, the note. But a lot of things that work in japan with auto consumers sometimes do not connect in the u. S. Oliver continuing in the business section, activist investors are supposed to be shortterm raiders. Carol legendary investor nelson is taking a soft approach. About a month or so, when the Procter Gamble proxy fight was taking off, nelsons fund started to put up a section on its website were declared that it had a special interest in esg issues. Environmental, social, government. Oliver they are angling to get nelson on the board. That is the proxy fight. Why do they think this is going to help . Or do they . Is that a part of the effort . The timing is a little too coincidental to say it is not a part of the effort. At the same time, if you ask them, they will say it has been a longterm issue them something they look at when they are choosing a target because these are risks that they need to manage when they go into an investment. Triad is a little different than the average activist fund. They do not like to consider themselves activists, they consider themselves highly engaged. Instead of a fighter. Carol who is nelson peltz playing to in this show of corporate stewardship . Investors are very interested but at the same time he has to win somebody over to win a proxy fight. There are firms like blackrock, state street, and the like invested in this company who like the esg issue themselves. Carol they are the major investors in this company, more than nelson peltz even. You have to listen to what they are interested in. You do not win a proxy fight with 1 or whatever of the company. Youre not going to be able to get your seat on the board unless you win people over. Every little bit helps. Obviously this is a little bit but it helps. Oliver maybe this is editorializing, but give me the feedback, i think there is a lot of focus on activist investors throughout this bull market, a lot of hubbub around these guys and investors as sort of icons and very much artistic in some sense. There is a lot of excitement behind their investments, everybody follows it and a lot of times the Investment Community thinks they are being very hawkish. Nurses Cultural Movement behind activist investors. It will towards saying we are going to be better stewards, to borrow carols words. We want to make sure we can make money on the longterm. Is it an image thing . Scott partly. But in particular, the funds we cite in the article, they are different than the carl icahns of the world. They are not afraid to go to a proxy fight but at the same time blue harbor does not do proxy fights, they never go in that direction, and trian is trying to position itself as not an activist fund. They are saying, look, we are not in this for the shortfall, we are in this to fix the company and maybe sell later on. Carol up next, a hefty chunk of yales investment is tied up in timber. All is not good in ward. Oliver the federal Investment Program was in trouble before harvey and now it deepens. Carol this is Bloomberg Businessweek. Oliver welcome back to Bloomberg Businessweek. Im oliver rennick. Carol and im carol massar. You can catch us on radio on sirius fm 119 and am 1130 in new york, am 1330 in boston, 9011 in washington, and in the bay area. Oliver in asia on the Bloomberg Radio plus app. Carol Many Companies have added timber to the endowment portfolio. Oliver you has discovered that it is cutting down on prices. Yale has led the way. It is a hedge against volatility. You own this other asset. As yale went, a lot of other endowments wanted to follow that. Oliver it seems to be something that happens in markets, where there is not only the search for yields, you have to hedge it, you think about a big Endowment Fund like yale to lead the way and everybody gets on board. Do we have anything about how many investment pieces there are across investors . It is the big ones like harvard and yale that have a lot of assets in endowments because they have a long time horizon. Oliver centuries. Centuries. Where you see an issue is the small endowments, they follow. They may not have the expertise to really stay in it for the long term, the long game. Carol you said hell lead the way but there had to be returns. Tell us about the returns. It was going up for a long while. Doubledigit returns. And now you see that the returns just have not been there. And a lot of players got into the game. Some of them, you know, the endowments now are saying that they are pulling back because they are just not seeing be returns. And for the foreseeable future. Carol it is causing some investors such as yale to do other things with their land. Talk about that relationship. It is not just about harvesting timber. They own the land outright and then they have farms, managers. They can harvest it or some of it could be just for investment return. But someone like harvard, for instance, they had romanian forests, or they recently sold in uruguay eucalyptus plantation. They were being harvested for the timber. And it was not as lucrative and they decided to make the sale. There are a lot of those Different Things they can do. Carol we talk about yale because there was something controversial but came up about the power play that is happening. Yales manager has entered into negotiation for a power line through quebec coming through 23 miles through New Hampshire that would supply power for new england. And it is controversial because, yale activists say that they are not harvesting in the right way, they are not being responsible. Locals are saying it is not necessary. It wont create jobs. Again, the yale manager is not being responsible in the way that they are clearcutting. There are canadian tribes in canada that are saying it is going to desecrate tribal lands. And environmentalists say it is going to impact on the moose and caribou and salmon. Carol they are making a lot money from it from leasing it to the power plants. Yes. And allowing the access, yes, yale will make money from this. Carol storms like Hurricane Harvey do not come along every day. Many coastal communities cope with flooding every year. Oliver they turn to the National Flood Insurance Program for help. Unfortunately, it is in trouble. It writes policies for homes that are in flood prone areas. It has been around since the 60s. It is a way to incentivize the private market to write policies they would not otherwise that it has lowered the cost of building and staying in homes in places where it is becoming clear that we should might not be there. In the 50 years that the program has been in place, Coastal Development has exploded and so have flooded claims. The u. S. Government basically backstops and pays out the majority of residential flooded claims in the united states. It is currently 25 billion in debt and needs to be reauthorized by september. Harvey is a big spotlight on it. Oliver a publicly funded program that put the responsibility on private insurers to handle this. Where did the debt buildup from . What is not making sense . To many storms, too many houses they have to pay out for . Over the past few years it has gotten worse. Some years, the claims are far less than what your revenue is. So youre ok. This program borrows from treasury. Over the past decade or so it has gotten strained and is in debt to the tune of tens of billions of dollars, four years now. Carol borrowing from treasury. That is right. It is forcing this debate in light of harvey. You have to think about the vested interests. Carol i want to get to the political side of it. You have homeowners that want to build at the cheapest cost possible and also, to be honest, do not mind rebuilding again and again especially if it is subsidized by the insurance industry. We have a very interesting situation back in 2012 when sandy hit where Congress Found the political will to overhaul it. This Rare Alliance between Tea Party Republicans who looked at it and said, why are we spending this money, and your climate activists who are saying, from a climate standpoint we should not be here. They overhaul this program and the result was the average homeowner policy for Flood Insurance went through the roof, from hundreds of dollars to tens of thousands of dollars. That lasted two years. Congress rolled up back in 2014 because the opposition to it was too great. Have a month to reauthorize it. It does not seem likely that they will tackle the fundamental questions that are plaguing this problem. Shortterm reauthorization. We have this brief moment in time where we overhauled this thing but it gives you a sense of the business interests in play. Carol up next, an italian city is the scene of a political battle. Oliver profit and purpose mix. Carol this is Bloomberg Businessweek. Oliver welcome back to Bloomberg Businessweek. Im oliver rennick. Carol and im carol massar. This week, can you trust medical journals . Controversy over a new publishing model. Oliver and delta gives its pilots a chance to vault into the captains seat. All of that ahead, right here on Bloomberg Businessweek. Oliver we are back with Bloomberg Businessweek Deputy Editor to talk about more stories from this magazine this week. A great story on unilever that i want to start with because it is such a household name. Everybody has products. But they are making a big effort that may be in a way that is visible to them. Since paul has been the ceo, he has approached it as a do good company. Carol it sounds so grand. It makes a lot of money because there is a holder generation of consumers, not onlyu in impoverished countries where he is trying to present unilever as a proponent of hygiene in vietnam and other places, it also people in other places will so they want to buy things from a company that does well and does good. Carol it is brilliant, right . Like, he wants to go for people that can be made into customers for many years. Exactly, they will keep them in business for a while. That is what they think. Carol there is another feature that takes a look at medical journals in the digital age. The controversy. That is fascinating because most of the peerreviewed articles that we put our trust in, the pharmaceuticals depend on, are very expensive. People have to pay huge subscriptions to get them and read them. There is this new genre called open access that is exemplified, that basically allows people who have written stories, written studies to pay the company a little bit and have their articles published. And so a lot of pharmaceutical companies are sending their articles that way as well. Pfizer among them. Oliver a lot of big corporate names of the story. I thought it was conceptually interesting as there are so many places that rely on academic studies, but if we dont really know the quality of those studies, the topic of fake news we have been talking about. There are some side effects good to the open exchange of ideas and the internet. Exactly. What caroline has done is go to this company and see how it actually works. It is both eyeopening and hilarious. And when you look at this idea, you look at some of the magazines and the emails to go out to people and they are basically spam, asking for stories, it is quite fascinating. Carol we have more on the evolving world of medical journals from our reporter. The world of academic journals has been exclusive traditionally. The journals decide what gets published in them that you have to pay thousands of dollars to access these journals. There has been a movement called the open Access Movement that is trying to flip this on have. We are going to give all the information for free and then authors need to pay to publish. We have been looking at is a subset of the open Access Movement has come to be known as predatory journals, people taking advantage of his money and taking anything and taking anything in publishing anything because they just want to be paid. Carol it just feels like, you know, so appropriate a story in the world of fake news or allegation of fake news. We like that they were exclusive, we trusted the information, we felt there was deep screening in terms of research or articles that went in. What kind of screening is being done in these predatory journals . Caroline it really varies and that is the problem. You can have perfectly good science in a predatory journal. It is just hard to tell how good it is because a lot of journalists say that they do peerreviewed, but when you look at the dates from submission to exception, sometimes they can be as short as days. How much reviewing actually happened . It is hard to tell because a lot of them have very similar names to traditional journals. With the proliferation of thousands of journals it is just getting more muddy. Carol it exploded when the armys internal memo leaked to business customers. Now the company is making security a top priority. They sort of ignored it. To a degree. Well, they havent ignored it but it has not been a huge part of their messaging to investors but it came up as a big issue earlier this month. Because there was the army issued guidance saying units, stop using dgi equipment, uninstall the software. This was not a public issue, the memo was leaked. Dgis response was, we do not make drones for the military. Oliver drones in general . This is the army for all of its units, no army units can use dgi drones. They were definitely in use in the army and that is why the issue this guidance. Carol initially, dgi said, yeah, whatever, u. S. Army. Kind of a brushoff. But the interesting thing is, the Growth Opportunity for ddis commercial users. It is not my mom flies it. It is, you know, you take out a drone and you are surveilling critical infrastructure. One of the people i interviewed for this story, she just went out to houston to volunteer for the red cross for mapping and flooding. Using drones for the first time. Oliver you are collecting important data on structures of infrastructure and buildings, perhaps you do not want that floating around. And where your client might be a government department. Where they have like, you know, they have Data Security requirements. You have to be able to say this data is going to be totally, it is not going to any random cloud server. Not going to random servers we do not know where in the u. S. Or china. Carol i mean, you are also collecting data on the user. Right . Eventually you can figure out where the user is located, potentially. Potentially, yes. Once this army memo got leaked, there is a very passionate growing community and some of them are Cyber Security experts. Research started coming out showing very specifically ways in which dji had the potential to find things like the user gps for a particular drone. Carol there were backdoors in the software that would let people get in . Yes, there was a particular code which is banned in the apple store, it allows stealth updates to the app where the user would not know, the app store would not know. You could just, you know dji wants to sell drones and they are not doing bad stuff, what if a hacker got in the drones . Carol a city in italy has become an incubator for economic ideas. Oliver this is Bloomberg Businessweek. Oliver welcome back to Bloomberg Businessweek. Carol you can find us online at businessweek. Com. Oliver and on the mobile app. Junior pilots at major lines can plan on waiting years to earn her pilot wings. But now delta has a plan to get pilots in the air in six months. Carol flying in aging aircraft nicknamed the mad dog. De la salle, tell us how you became a pilot for a Major Airliner. Most people never become 747 captains. There is a range of aircraft smaller than that. You start out going to a flight school. Many of these people are military, although a smaller number than the past. You have to get usually 1500 hrs of flight time to become a pilot. That is a load and it costs over 100,000 these days in order to pay for that much training. Em then at the end of that, if youre lucky, you get on with a Commuter Airline or as they call them a Regional Airline in the united dates. These are the smaller lines that feed or do the regional or commuter routes for them Regional Airlines. Down the road, if youre lucky, you get on with a Major Airline like delta or united. Carol the goal is to become the captain of a longhaul flight and not work weekends . That is the gold standard. The pecking order is that when you get to delta or united you start with a smaller aircraft that might be one of these older Mcdonnell Douglas 88s or a boeing 770 or an embry aerojet. These tend to do smaller, shorthaul routes. It is a hectic schedule, you fly four or five times a day. The more desirable jobs are the longhaul, 747, triple seven captains flying. You know, maybe they do one flight a day, going to asia or europe. Much less hectic schedule, it tends to be obviously, with longhaul flights, you get a nice layover in europe or china or whatever. Those tended to be the most desirable jobs of the airline. Oliver one of the less desirable jobs, you mentioned the mcdonnelldouglas 88, the mad dog. The particular vehicle you are focusing on for this job. Tell us about what makes his vehicle unique and how they are having trouble finding pilots for this particular airplane . Sure, the md88 is the oldest aircraft still in operation at the major for airlines. There may be other aircraft that are slightly older at Smaller Airlines and such but at delta, united, southwest, and american, the md88 is the oldest. And the only one still operating that is delta. Theyre generally, as i said, kind of undesirable jobs in the Airline World because they tend to have very hectic schedules. The md88 is the workhorse of the fleet. You my fly atlanta to new york or from atlanta to dallas. You might fly five times a day and that is undesirable. They also have technical quirks. They are less automated airplane. That leaves to a difficulty getting captains. Carol in the economic section, unemployment is surging in italy. Oliver in one city, the populist Fivestar Party is introducing an Economic Program they hope will lead them to victory in national elections. Italy had a recession that lasted from 2006 to 2013. The process of deindustrialization we have seen in the u. S. And in europe, factories moving to asia and other places. We wanted to tell the story by focusing on a particular place and also focusing on a place for people are trying to grasp for solutions. This is a city in tuscany. It used to have a bigger pport. Many people are reeling from the closing of that. A shipyard in 2002. It was the cradle of the communist party in italy. Quite recently they had elections in which the mayor of a newer party called the fivestar movement was elected. They dont like to call themselves the party or coat a former engineer. He inaugurated this program where people who are considered to meet certain requirements for the program, that are considered needy, get a 500 a month euro subsidy. It is a small pilot. I think initially, it lasted six months and covered 100 people. Carol this is different than the u. S. Welfare programs . Several people that were covered never have fulltime employment or have not had it in the last 10 years or so. They would not qualify for Unemployment Benefits in the u. S. Or other countries where you have to have a job at a company and then they run out at a certain amount of time. Carol what about welfare . Again, there are strings attached. Some cases, people that qualified did have employment but they were underemployed. They were not making enough to get by. Oliver up next, samsungs heir loses a corruption case. We take a look. We will look at the courtroom drama that transfixed the nation. Carol and a renaissance for a classic writing tool. Oliver this is Bloomberg Businessweek. Carol welcome back to Bloomberg Businessweek. Im carol massar. Oliver and im oliver rennick. You can also catch us on the radio on sirius fm and in new york and 1330 and 1069 in boston, 91 in washington, d. C. , and 8960 in the bay area. Carol and in asia on the Bloomberg Radio plus app. In the technology section, the heir to samsung was sentenced to prison one week ago on a string of corruption charges. Oliver we talked about the impact. Jeff the son, sort of the billionaire scion of the family, has been seen as the heir apparent. For the first two years or so since 2014, jy has been seen as the clear leadership figure. More concilitory to some extent than his father, sell it off jets and spinning off arms divisions. That sort of thing. Carol investors liked what he was doing . Jeff for the most part, yes. People were comfortable. He was concerned about the public face of the company. Carol what were the charges that brought him down . Jeff five charges related to a bribery investigation that brought down the president a while ago. A handful of top lieutenants and people within the company trying to bribe a confidante of the president by giving her an 800,000 horse for her daughter who liked to ride. Carol reporters were in the courtroom. So there is a lot of reporting on what was said by jay y and his associates and what seems to come out is that he was not involved in decisionmaking. [laughter] jeff yeah. It was sort of a national scandal. The net impact of jay ys sentence, which was unusually strict by the standards of south korean businessmen, five years, because it is more than a threeyear sentence, it cannot be suspended. As his fathers other two were. And, his defense throughout the trial, and those on his behalf from the other executives who were indicted, was more or less of a piece that the idea that he could not have had much to do with these bribery allegations, he knew nothing about any business and the huge samsung empire beyond the Core Electronics one which seemed pretty risible and the judge agreed. Oliver the ultimate luxury. The 1 billion market for fountain pens. Carol one Japanese Company saw it coming and is posed to get the benefits. It is a 1 billion market which caught my eye. A Japanese Company, based in tokyo, was one of the First Companies to realize this among fountain pens, that handmade craftsmanship was the way forward. Carol talk to us about handmade craftsmanship. You have pictures. They are gorgeous. They are painted with lacquer ware. It is an intangible cultural asset in japan. Carol i was just talking about it yesterday. [laughter] the materials in these. Carol it is several layers of lacquer. It almost looks like they are underwater to a certain degree. Multiple months, two months it takes to paint these. They are all done in this small peninsula to the west of tokyo. They make 1500 a year. Carol not a lot. The cost about 6,000 for the entrylevel pen. Oliver that is pricey. It is on the lowend for fountain pens. Oliver but the highend for bic. It is a status symbol purchase, a bic, they can run over 1000. One of the things that interested me, at least, about the company is that the entrylevel price point is bringing new fountain pens fans into the fold. Carol it is interesting because they do not go to trade shows, they do not do traditional marketing. There is a message board called fountain pen geeks and that is how they are getting known. Very internet 1. 0. Message boards, blogs. Oliver who, i wonder, is the community that is going to spend 800 on the pen. I have an exgirlfriend who liked writing poetry and writing notes, this is the kind of thing that could appeal to them. She also happened to live in japan, no coincidence. Who is the audience . Other than the five people still doing calligraphy . [laughter] the writer of this piece, jim thomas, who was in tokyo, went to the shops where they sell these, made the point that there is a tension between the people that collect and use them. She claims it would be a crime against writing. Just to leave these pens. Carol Bloomberg Businessweek is available on newsstands now. Oliver as well as our app. Carol the cover story, i love how they start out the story. Houston has been wet since birth. I mean, surrounded by swamps and bayous. They delve into the zoning codes and the laissezfaire development that publicity in harms way. They really did get into a lot of information, it is a must read, in my view. I will not you . Oliver i really like carolyn chans story, all of these online journals that i think came from a good place, trying to bring academic information around the world were they do not have access to expensive journals. The problem is people taking advantage, there is a fake element. Carol potentially. Oliver there are these companies behind it saying that it is a good place to put research, very interesting story. More Bloomberg Television starts right now. 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. Host the stories that shaped the week in business around the world. Gulf coast. Hed the there is production impact and refined product impact. Host tensions rise over the north Korea Nuclear threat. Sharp talks with from the eu. And, the jobs report. It is very good. This is a weak report