1 00:00:00,520 --> 00:00:04,320 Speaker 1: Lots of talk about the FED, about the economy, about China, 2 00:00:04,400 --> 00:00:08,479 Speaker 1: about European natural gas, but how much really changed. This 3 00:00:08,560 --> 00:00:12,039 Speaker 1: is Bloomberg Wall Street Week. I'm David Weston this week's 4 00:00:12,039 --> 00:00:14,920 Speaker 1: special contributer to Larry Summers of Harvard on the FED 5 00:00:15,240 --> 00:00:18,640 Speaker 1: and getting the economy back on track. Guiding J. Powell 6 00:00:18,720 --> 00:00:24,400 Speaker 1: said things that to be blunt were analytically indefensible. And 7 00:00:24,480 --> 00:00:27,920 Speaker 1: Ken Jacobs of Lazard on how a changing Supreme Court 8 00:00:27,960 --> 00:00:31,400 Speaker 1: could affect his business. You have an industry like insurance, 9 00:00:31,400 --> 00:00:40,240 Speaker 1: which has fifty different regulators in fifty different states. It 10 00:00:40,360 --> 00:00:43,440 Speaker 1: was an extravaganza of talk and data this week, with 11 00:00:43,520 --> 00:00:46,880 Speaker 1: President Biden finally having that talk with China's President g 12 00:00:47,680 --> 00:00:50,880 Speaker 1: President she actually emphasizing to President Biden that they should 13 00:00:50,880 --> 00:00:55,280 Speaker 1: coordinate on macroeconomic policies. According to the Chinese Foreign Minister 14 00:00:55,360 --> 00:00:58,480 Speaker 1: read out the EU Energy Commissioner laying out plans to 15 00:00:58,520 --> 00:01:01,920 Speaker 1: deal with further natural gas cuts from Russia. We will 16 00:01:01,960 --> 00:01:06,039 Speaker 1: start saving cast now, and that we had a blue 17 00:01:06,120 --> 00:01:10,160 Speaker 1: print to act together in a coordinate debate if the 18 00:01:10,280 --> 00:01:14,720 Speaker 1: situation doosn't. Congress moved that chips bill towards the President's 19 00:01:14,720 --> 00:01:17,600 Speaker 1: desk and to top it off. Senator Schumer and Mansion 20 00:01:17,640 --> 00:01:19,800 Speaker 1: tried to pull our rabbit out of the hat with 21 00:01:19,880 --> 00:01:23,560 Speaker 1: a surprise deal on climate and deficit reduction. This bill 22 00:01:23,680 --> 00:01:27,040 Speaker 1: is far from perfect. It's to compromise, but is that's 23 00:01:27,120 --> 00:01:31,280 Speaker 1: often how progress is made. And of course the big one, 24 00:01:31,680 --> 00:01:34,440 Speaker 1: the Fed setting a new funds rate and share pow, 25 00:01:34,640 --> 00:01:38,000 Speaker 1: saying they'll keep tightening and we're strongly committed to returning 26 00:01:38,040 --> 00:01:40,800 Speaker 1: inflation to our two percent objective. As the stance of 27 00:01:40,840 --> 00:01:44,880 Speaker 1: monetary policy titans further, it likely will become appropriate to 28 00:01:44,920 --> 00:01:48,320 Speaker 1: slow the pace of increases, but we shouldn't expect a 29 00:01:48,440 --> 00:01:52,320 Speaker 1: lot more of that forward guidance. We think it's time 30 00:01:52,360 --> 00:01:55,600 Speaker 1: to to just go to a meeting by meeting basis 31 00:01:55,720 --> 00:01:58,200 Speaker 1: and not provide the kind of clear guidance that we 32 00:01:58,360 --> 00:02:02,440 Speaker 1: had provided on the way to new and if the 33 00:02:02,440 --> 00:02:04,320 Speaker 1: Fed thought he would have an easy time, but the 34 00:02:04,440 --> 00:02:07,200 Speaker 1: numbers kept coming in this week, making it more complicated, 35 00:02:07,200 --> 00:02:10,160 Speaker 1: with GDP down for a second straight quarter on Thursday, 36 00:02:10,400 --> 00:02:13,440 Speaker 1: and then on Friday, personal consumption and employment cost index 37 00:02:13,520 --> 00:02:16,600 Speaker 1: numbers coming in higher than expected, showing that inflation is 38 00:02:16,600 --> 00:02:19,760 Speaker 1: not close to done with us yet. And the markets, well, 39 00:02:19,800 --> 00:02:22,080 Speaker 1: they pretty much took it all in stride, with the 40 00:02:22,160 --> 00:02:25,000 Speaker 1: SMP up almost four point three percent for the week, 41 00:02:25,240 --> 00:02:28,840 Speaker 1: ending the month with its best performance since November, and 42 00:02:28,880 --> 00:02:32,440 Speaker 1: the NASDAC posted even higher weekly gains, up some four 43 00:02:32,480 --> 00:02:36,200 Speaker 1: point seven while bond yields remained subdued, with the ten 44 00:02:36,280 --> 00:02:38,840 Speaker 1: year yield ending the week at two point six five, 45 00:02:39,120 --> 00:02:41,840 Speaker 1: giving up nearly thirty five basis points. To help us 46 00:02:41,840 --> 00:02:44,240 Speaker 1: sort through all of this, we welcome now Rebecca Patterson, 47 00:02:44,280 --> 00:02:49,040 Speaker 1: Bridgewater Chief Investment Strategists and Sarah Ketder, CEO of Causeway Capital. 48 00:02:49,120 --> 00:02:51,520 Speaker 1: So welcome both of you back to Wall Street again. Rebecca, 49 00:02:51,560 --> 00:02:53,160 Speaker 1: let me start with you and what the FED has 50 00:02:53,160 --> 00:02:54,600 Speaker 1: in front of it. What is it trying to do. 51 00:02:54,800 --> 00:02:58,840 Speaker 1: The Fed is trying to get goldilocks, and that means 52 00:02:58,919 --> 00:03:01,240 Speaker 1: it wants to get inflation back down as fast as 53 00:03:01,240 --> 00:03:04,800 Speaker 1: it can towards its two percent target without engineering a recession, 54 00:03:05,240 --> 00:03:07,280 Speaker 1: and the market is giving it the benefit of the doubt. 55 00:03:07,320 --> 00:03:10,000 Speaker 1: If you look at what's discounted into markets today, it 56 00:03:10,200 --> 00:03:13,480 Speaker 1: is basically two and a half percent inflation in just 57 00:03:13,639 --> 00:03:16,639 Speaker 1: over a year and only a moderate slowdown in growth. 58 00:03:16,639 --> 00:03:19,520 Speaker 1: And I think it's gonna be almost impossible for the 59 00:03:19,560 --> 00:03:21,600 Speaker 1: FED to get everything it wants here. The porridge is 60 00:03:21,600 --> 00:03:23,639 Speaker 1: gonna be too hot or too cold. Either inflation will 61 00:03:23,680 --> 00:03:26,200 Speaker 1: end up running much higher than the Fed's target and 62 00:03:26,240 --> 00:03:29,760 Speaker 1: they risk losing their credibility, or if they're serious about 63 00:03:29,760 --> 00:03:33,079 Speaker 1: getting inflation down, especially from the current high levels, it's 64 00:03:33,080 --> 00:03:36,119 Speaker 1: going to require more targ more tightening, which we think 65 00:03:36,160 --> 00:03:38,600 Speaker 1: is going to engineer a deeper recession, and that's what 66 00:03:38,720 --> 00:03:41,320 Speaker 1: we're focused on. We think that within six to nine 67 00:03:41,320 --> 00:03:43,920 Speaker 1: months we're going to be looking at us GDP that's 68 00:03:44,080 --> 00:03:47,240 Speaker 1: negative to negative three. So, Sarah, where aren't you on this? 69 00:03:47,280 --> 00:03:49,800 Speaker 1: Because it felt like a tension this week between the markets, 70 00:03:49,800 --> 00:03:51,680 Speaker 1: the futures markets on the one hand saying exactly what 71 00:03:51,680 --> 00:03:54,120 Speaker 1: Rebcca just said, and economists on the other hand saying, 72 00:03:54,200 --> 00:03:55,880 Speaker 1: you know what, we've got to really jack up the 73 00:03:55,960 --> 00:03:58,280 Speaker 1: rates a lot to get inflation on control. Which side 74 00:03:58,280 --> 00:04:00,800 Speaker 1: are you on more skeptical? I don't think that's how 75 00:04:00,840 --> 00:04:02,840 Speaker 1: we are as value managers always want to have it 76 00:04:02,920 --> 00:04:05,960 Speaker 1: proven to us. But but note that we've had so 77 00:04:06,080 --> 00:04:11,320 Speaker 1: much liquidity created four trillion dollars of of enlargement to 78 00:04:11,360 --> 00:04:14,760 Speaker 1: the Fed's balance sheet since the beginning of the pandemic 79 00:04:14,840 --> 00:04:19,360 Speaker 1: in early that's a lot of liquidity, and it's still there. 80 00:04:19,400 --> 00:04:23,120 Speaker 1: The FED only just started to reduce go into it 81 00:04:23,240 --> 00:04:26,880 Speaker 1: from a quantitative eavening to quantitative tightening starting to one 82 00:04:26,920 --> 00:04:30,400 Speaker 1: of this year, and it's just beginning, and it'll go 83 00:04:30,440 --> 00:04:32,880 Speaker 1: from thirty billion a month and then bump that up 84 00:04:32,920 --> 00:04:37,520 Speaker 1: to to sixty billion a month. Uh and letting those 85 00:04:37,560 --> 00:04:41,440 Speaker 1: bonds roll off that again starts to compress bank reserves. 86 00:04:41,600 --> 00:04:45,960 Speaker 1: This will take It's quite be quite lagged in its effect. 87 00:04:46,520 --> 00:04:50,719 Speaker 1: So financial conditions will just tighten due to that reason alone. 88 00:04:50,800 --> 00:04:53,359 Speaker 1: And we don't think markets anticipate that at all. And 89 00:04:53,400 --> 00:04:56,040 Speaker 1: I think, just building Sarah on your point, it's it's 90 00:04:56,120 --> 00:04:58,880 Speaker 1: important to remember that the markets are really looking at 91 00:04:59,440 --> 00:05:03,120 Speaker 1: um the rates. They're not thinking as much about quantitative 92 00:05:03,160 --> 00:05:05,279 Speaker 1: tightening or do the roll off of the Fed's balance sheet, 93 00:05:05,320 --> 00:05:08,160 Speaker 1: which is on autopilot, that's going to keep going. And 94 00:05:08,200 --> 00:05:10,520 Speaker 1: so we don't have the Fed buying bonds, we don't 95 00:05:10,520 --> 00:05:14,160 Speaker 1: have banks buying bonds anymore. And so we've seen bond 96 00:05:14,240 --> 00:05:17,240 Speaker 1: yields come down in the last couple of weeks, But 97 00:05:17,360 --> 00:05:21,240 Speaker 1: how much further can they come down without retail investors 98 00:05:21,320 --> 00:05:25,040 Speaker 1: institutional investors moving out of equities into bonds. I think 99 00:05:25,200 --> 00:05:29,039 Speaker 1: what we've seen historically is when stocks go down, bonds 100 00:05:29,120 --> 00:05:31,719 Speaker 1: rally and you get that diversification. We've had that for 101 00:05:31,720 --> 00:05:33,440 Speaker 1: the last few weeks. We didn't have it for the 102 00:05:33,440 --> 00:05:35,480 Speaker 1: first half of the year. I don't think we can 103 00:05:35,520 --> 00:05:39,760 Speaker 1: count on that. As we get QT continuing quantitative tightening, continuing, 104 00:05:40,080 --> 00:05:42,200 Speaker 1: bond yields may come down, but it's going to be 105 00:05:42,200 --> 00:05:44,520 Speaker 1: a lot harder for them to do that in this 106 00:05:44,680 --> 00:05:48,040 Speaker 1: environment where the Fed's created a liquidity hole. It's taking 107 00:05:48,040 --> 00:05:50,599 Speaker 1: liquidity out and it's not as clear today who's going 108 00:05:50,640 --> 00:05:53,080 Speaker 1: to fill that, who's going to supply the demand to 109 00:05:53,200 --> 00:05:55,800 Speaker 1: keep bond yields going further down. So let me pursue 110 00:05:55,800 --> 00:05:57,920 Speaker 1: that liquidity issue a little bit, Sarah, because you mentioned 111 00:05:58,120 --> 00:06:00,960 Speaker 1: the lack of liquidity that really makes the market DESI 112 00:06:01,000 --> 00:06:03,960 Speaker 1: understand much more voluerable. So what does that do to 113 00:06:04,000 --> 00:06:06,080 Speaker 1: an investor? How do you do you have a GPS 114 00:06:06,120 --> 00:06:08,400 Speaker 1: at this point given where we are, The key is 115 00:06:08,440 --> 00:06:10,719 Speaker 1: to have a low entry price because you've got to 116 00:06:10,760 --> 00:06:13,560 Speaker 1: have that margin of safety. And what this will mean 117 00:06:13,680 --> 00:06:16,920 Speaker 1: if if massive increases in liquidity, And again this wasn't 118 00:06:16,960 --> 00:06:19,640 Speaker 1: just the FED, central banks globally, we're all at this 119 00:06:19,839 --> 00:06:23,120 Speaker 1: The European Central Bank, the Bank in Japan, and as 120 00:06:23,160 --> 00:06:26,640 Speaker 1: they take all in unison, take liquidity out of the system. 121 00:06:26,640 --> 00:06:30,719 Speaker 1: What pushed up market multiples, what made valuations expand what 122 00:06:30,839 --> 00:06:34,279 Speaker 1: made investors in different devaluations, it'll to be just the opposite. 123 00:06:34,320 --> 00:06:36,960 Speaker 1: And we've already seen that start because some of the 124 00:06:37,040 --> 00:06:40,480 Speaker 1: hardest hit stocks globally, including in the US market, and 125 00:06:40,600 --> 00:06:43,960 Speaker 1: they had the most bloated valuations. Okay, Sarah Kader and 126 00:06:43,960 --> 00:06:46,159 Speaker 1: Rebecca Patterson, we'll stay with us as we take a 127 00:06:46,160 --> 00:06:48,120 Speaker 1: look at earnings. It was a big earnings week as 128 00:06:48,120 --> 00:06:50,359 Speaker 1: well for Wall Street and that's coming up next on 129 00:06:50,360 --> 00:06:59,480 Speaker 1: Wall Street Week on Bloomberg about today that could be 130 00:06:59,520 --> 00:07:03,720 Speaker 1: little launched corporations reported their worst profit decline in twenty 131 00:07:03,760 --> 00:07:07,760 Speaker 1: nine years. Revised Commerce Department figures for the first quarter 132 00:07:08,120 --> 00:07:11,520 Speaker 1: showed that both the economy's downturn and the pressures of 133 00:07:11,520 --> 00:07:16,920 Speaker 1: inflation were worse than previously reported, and international speculators began 134 00:07:17,200 --> 00:07:21,520 Speaker 1: dumping dollars and acquiring gold with a fervor not seen 135 00:07:21,640 --> 00:07:25,120 Speaker 1: for quite some time. That was the way things look. 136 00:07:25,200 --> 00:07:27,040 Speaker 1: The Lewis ruck has around Wall Street week. Back in 137 00:07:28,360 --> 00:07:30,560 Speaker 1: we were coming out of a recession. Today we may 138 00:07:30,600 --> 00:07:33,720 Speaker 1: have inflation, but we haven't really seen a downturn in 139 00:07:33,800 --> 00:07:36,880 Speaker 1: corporate profits at least yet, much less a week er dollar. 140 00:07:36,960 --> 00:07:39,400 Speaker 1: We've seen just the reverse. In fact, Rebecca Patterson of 141 00:07:39,480 --> 00:07:42,680 Speaker 1: Ridgewater and Sarah Kettter of Causeway Capital have stayed with us. 142 00:07:42,800 --> 00:07:45,160 Speaker 1: So Sarah, let me go to you on the equities question. 143 00:07:45,200 --> 00:07:46,920 Speaker 1: We had a lot of earnings that this week. They 144 00:07:46,920 --> 00:07:49,720 Speaker 1: went both ways, but I think sort of overall, earnings 145 00:07:49,760 --> 00:07:53,400 Speaker 1: came in pretty well so far they have, and I 146 00:07:53,400 --> 00:07:57,360 Speaker 1: think both Rebecca and I've commented on what's happened in 147 00:07:57,440 --> 00:08:01,440 Speaker 1: the past is initially reflective of this future. In other words, 148 00:08:01,760 --> 00:08:05,200 Speaker 1: there are so many challenges ahead in a persistent inflationary 149 00:08:05,280 --> 00:08:09,280 Speaker 1: environment for companies in terms of cost increases, not to 150 00:08:09,360 --> 00:08:14,640 Speaker 1: mention a consumer that's deliberately being reined in that this 151 00:08:14,760 --> 00:08:17,520 Speaker 1: just made me a really tough next several quarters of reporting. 152 00:08:18,400 --> 00:08:21,520 Speaker 1: How tough, hard to say, but unlikely to be buoyant. 153 00:08:21,560 --> 00:08:25,640 Speaker 1: And that's to the point that we've seen multiple de rating. 154 00:08:25,640 --> 00:08:27,840 Speaker 1: Now we made variable see earnings fall two, and that's 155 00:08:27,880 --> 00:08:31,840 Speaker 1: typically what happens in market pullbacks, both multiples and earnings fall, 156 00:08:32,320 --> 00:08:37,679 Speaker 1: and that again is a phenomena that likely occur globally. So, Rebecca, 157 00:08:37,760 --> 00:08:39,480 Speaker 1: you have a little bit of money at Bridgewater you 158 00:08:39,520 --> 00:08:41,000 Speaker 1: have to put to work every once in a while. 159 00:08:41,679 --> 00:08:45,840 Speaker 1: What about the question, particularly that versus equity you mentioned before, 160 00:08:45,880 --> 00:08:48,200 Speaker 1: the question of when stocks are attractive. We had that 161 00:08:48,240 --> 00:08:50,240 Speaker 1: Bank of America fund managers report coming in and saying, 162 00:08:50,280 --> 00:08:52,479 Speaker 1: look at you're better off right now going into bonds. 163 00:08:53,440 --> 00:08:56,960 Speaker 1: We don't see bonds as attractive at this point, um, 164 00:08:57,000 --> 00:09:00,640 Speaker 1: in the US, but also in places like Europe. Um. 165 00:09:01,080 --> 00:09:03,679 Speaker 1: You know, with the FED still tightening, with the Fed, 166 00:09:04,040 --> 00:09:06,560 Speaker 1: demand for bonds now gone, it's going the other way. 167 00:09:06,679 --> 00:09:09,400 Speaker 1: Banks were huge buyers of bonds last year. They're gone. 168 00:09:09,880 --> 00:09:12,080 Speaker 1: We think there's gonna be a greater challenge for demand 169 00:09:12,080 --> 00:09:14,480 Speaker 1: to meet supply there um. But there was a there 170 00:09:14,480 --> 00:09:18,920 Speaker 1: was another great point just made when we were referencing there, 171 00:09:18,960 --> 00:09:21,720 Speaker 1: which was this fall in the dollar and this move 172 00:09:21,800 --> 00:09:24,640 Speaker 1: into gold and and it's so interesting to compare what 173 00:09:24,679 --> 00:09:28,720 Speaker 1: was happening then versus now, uh and and back then 174 00:09:28,920 --> 00:09:31,800 Speaker 1: we saw the dollar fall in part because people thought 175 00:09:32,200 --> 00:09:35,880 Speaker 1: that inflation expectations were unanchored and high inflation was going 176 00:09:35,920 --> 00:09:38,280 Speaker 1: to undermine the value of currency. And as you just said, 177 00:09:38,480 --> 00:09:40,920 Speaker 1: it's the opposite right now. We've seen a strong dollar 178 00:09:41,080 --> 00:09:43,120 Speaker 1: as the US has looked like the nicest house in 179 00:09:43,160 --> 00:09:45,800 Speaker 1: a bad neighborhood. What what I would say, though, as 180 00:09:45,840 --> 00:09:49,359 Speaker 1: we think about earnings and equities and bonds and people's portfolios, 181 00:09:49,520 --> 00:09:51,960 Speaker 1: is that we're in a world that's so different from 182 00:09:51,960 --> 00:09:55,480 Speaker 1: the last decade. When it comes to currency markets, volatility 183 00:09:55,559 --> 00:09:59,119 Speaker 1: is picking up and as we have inflation surprises, monetary 184 00:09:59,160 --> 00:10:02,320 Speaker 1: policy surprise is and a huge cone of uncertainty, we 185 00:10:02,320 --> 00:10:05,600 Speaker 1: should expect that FX volatility to continue and it flows 186 00:10:05,679 --> 00:10:09,040 Speaker 1: through to companies. I think two big ways. One just 187 00:10:09,200 --> 00:10:11,800 Speaker 1: if the companies themselves are hedging that risk or not. 188 00:10:11,920 --> 00:10:16,480 Speaker 1: So we are seeing multinationals underperforming more domestic companies by 189 00:10:16,520 --> 00:10:19,240 Speaker 1: wide margins just year to date. We think that is 190 00:10:19,360 --> 00:10:22,959 Speaker 1: likely to continue as these kind of relatively wild moves 191 00:10:23,000 --> 00:10:26,680 Speaker 1: continuing currencies. And then more broadly, if you're thinking about 192 00:10:26,720 --> 00:10:30,600 Speaker 1: your portfolio, what currency are you denominated and what currency 193 00:10:30,679 --> 00:10:33,040 Speaker 1: risk are you taking, and it can make a very 194 00:10:33,080 --> 00:10:35,720 Speaker 1: big difference to your performance. I mean, just year to date, 195 00:10:35,840 --> 00:10:39,240 Speaker 1: if you think about if you hedged foreign currency equity 196 00:10:39,360 --> 00:10:41,480 Speaker 1: or didn't hedge, it could be the difference in ten 197 00:10:41,600 --> 00:10:44,840 Speaker 1: percentage points and performance for those stocks. And we think 198 00:10:44,880 --> 00:10:47,920 Speaker 1: that's going to continue and possibly escalate. So I would 199 00:10:47,960 --> 00:10:49,880 Speaker 1: just say as we think about equities, we think about 200 00:10:49,880 --> 00:10:52,400 Speaker 1: bonds and earnings. UM. I would also make sure not 201 00:10:52,480 --> 00:10:55,000 Speaker 1: to ignore currencies as part of that equation for your 202 00:10:55,040 --> 00:10:57,520 Speaker 1: total return. So Sarah, take all that, put it together. 203 00:10:57,600 --> 00:11:00,160 Speaker 1: I think somebody who's really look at a particular kind 204 00:11:00,160 --> 00:11:02,400 Speaker 1: of value investor. You look for good value in terms 205 00:11:02,400 --> 00:11:05,520 Speaker 1: of low valuations, buying at the bottom, moving up with it. 206 00:11:05,640 --> 00:11:10,000 Speaker 1: What's attracted to you right now? The go where the 207 00:11:10,000 --> 00:11:13,760 Speaker 1: currencies have been the weakest, where there's potential for a 208 00:11:14,080 --> 00:11:17,440 Speaker 1: return to some sort of more normal currency valuation, and 209 00:11:17,480 --> 00:11:19,760 Speaker 1: the euro might be a good place to start. The 210 00:11:19,760 --> 00:11:22,480 Speaker 1: euros off about twelve versus the dollar year to date, 211 00:11:22,520 --> 00:11:25,800 Speaker 1: and maybe fifteen over the last twelve months. So yes, 212 00:11:25,800 --> 00:11:30,560 Speaker 1: it's on sale, and it has been painful having stocks 213 00:11:30,600 --> 00:11:33,920 Speaker 1: denominated in the euro unless they were dollar earners. But 214 00:11:34,440 --> 00:11:39,000 Speaker 1: this does present an opportunity because likely the Eurozone will 215 00:11:39,040 --> 00:11:41,600 Speaker 1: go into some sort of pullback as energy becomes scarce, 216 00:11:41,679 --> 00:11:44,840 Speaker 1: particularly this winter, natural gas in particular. But out of 217 00:11:44,840 --> 00:11:47,600 Speaker 1: that is the recovery, especially given them on spending that 218 00:11:48,320 --> 00:11:52,160 Speaker 1: the Eurozone has in mind in order to revitalize their economies, 219 00:11:52,720 --> 00:11:55,000 Speaker 1: and you know, worked for the US, it's likely to 220 00:11:55,040 --> 00:11:58,840 Speaker 1: work for the Eurozone. So there are stocks that companies 221 00:11:58,880 --> 00:12:03,080 Speaker 1: now buying back large portions of their outstanding market cap. 222 00:12:03,200 --> 00:12:06,120 Speaker 1: That's really interesting. You can if they're that confident in 223 00:12:06,120 --> 00:12:07,800 Speaker 1: the future and they know a whole lot more about 224 00:12:07,800 --> 00:12:09,760 Speaker 1: it than we do in terms of their own companies. 225 00:12:10,360 --> 00:12:12,640 Speaker 1: There are a number of European banks. Unit Credit in 226 00:12:12,720 --> 00:12:15,400 Speaker 1: Italy is one example. Not only they buying back four 227 00:12:15,640 --> 00:12:18,199 Speaker 1: percent of their stock, they have a six percent dividend yield, 228 00:12:18,480 --> 00:12:24,559 Speaker 1: that's like twenty payout yield. That's fantastic on on of 229 00:12:24,600 --> 00:12:27,559 Speaker 1: tangible book value. You may think that sounds terrified. Who 230 00:12:27,559 --> 00:12:30,280 Speaker 1: wants to be in Italy right now? There's political uncertainty, 231 00:12:30,360 --> 00:12:32,920 Speaker 1: But that's exactly when you want to buy, because the 232 00:12:33,000 --> 00:12:35,440 Speaker 1: next stage you get back to sixty or seventy percent 233 00:12:35,440 --> 00:12:38,080 Speaker 1: of tangible book and you've doubled your money. And I 234 00:12:38,120 --> 00:12:41,160 Speaker 1: guess I would contrast that you might be seeing great 235 00:12:41,200 --> 00:12:45,400 Speaker 1: opportunities in in specific companies, but when we look at 236 00:12:45,480 --> 00:12:49,400 Speaker 1: Europe overall from from our perspective, we are still bearished. 237 00:12:49,440 --> 00:12:51,640 Speaker 1: Now there might be a timing element, Sarah, between what 238 00:12:51,720 --> 00:12:54,679 Speaker 1: you're saying and I'm saying, but um, I agree that 239 00:12:54,679 --> 00:12:57,960 Speaker 1: they're doing some fiscal stimulus. I think with the potential 240 00:12:58,040 --> 00:13:00,560 Speaker 1: for them to lose more energy supply in the winter, 241 00:13:01,120 --> 00:13:03,200 Speaker 1: it will be important to see if the governments take 242 00:13:03,240 --> 00:13:07,440 Speaker 1: those losses off the companies and onto the government balance sheets, 243 00:13:07,480 --> 00:13:09,600 Speaker 1: just like we saw the US do for some US 244 00:13:09,640 --> 00:13:12,480 Speaker 1: companies during COVID, Will Europe do that as well? That 245 00:13:12,480 --> 00:13:15,719 Speaker 1: would certainly be a positive for European equities if that 246 00:13:15,800 --> 00:13:18,840 Speaker 1: move happens. In the absence of that, I do think 247 00:13:18,880 --> 00:13:20,920 Speaker 1: you have to reckon with the e c V tightening 248 00:13:20,960 --> 00:13:24,400 Speaker 1: and what is an incredibly challenging environment, so the European 249 00:13:24,480 --> 00:13:27,720 Speaker 1: Central Bank slowing growth even worse than what we're seeing 250 00:13:27,720 --> 00:13:31,359 Speaker 1: in the United States so far, and very high multidecade 251 00:13:31,440 --> 00:13:34,080 Speaker 1: high inflation. So they're stuff between a rock and a 252 00:13:34,080 --> 00:13:37,160 Speaker 1: hard place. And you mentioned Italy. You know, look, Italy 253 00:13:37,280 --> 00:13:40,600 Speaker 1: tends to go through governments roughly every eighteen months going 254 00:13:40,640 --> 00:13:43,840 Speaker 1: back to World War Two, so this is not that unusual. However, 255 00:13:44,400 --> 00:13:48,120 Speaker 1: Italy right now desperately needs these fiscal transfers from the 256 00:13:48,160 --> 00:13:51,559 Speaker 1: European Union. And if this this government, which isn't as 257 00:13:51,640 --> 00:13:56,199 Speaker 1: cohesive today, is unable to pass reforms the fiscal tap 258 00:13:56,240 --> 00:13:58,840 Speaker 1: gets turned off. And if the fiscal tap gets turned 259 00:13:58,840 --> 00:14:02,160 Speaker 1: off while the ECB is tightening, I think European equities 260 00:14:02,200 --> 00:14:05,000 Speaker 1: are really going to struggle. Thank you so very much. 261 00:14:05,120 --> 00:14:08,920 Speaker 1: Rebecca Patterson of Bridgewater and Sarah Header of Causeway Capital. 262 00:14:11,240 --> 00:14:13,800 Speaker 1: Coming up, we have a Supreme Court taking a different 263 00:14:13,800 --> 00:14:17,040 Speaker 1: direction on a wide range of issues. But what could 264 00:14:17,040 --> 00:14:19,800 Speaker 1: it mean for the markets and for that matter, deals, 265 00:14:20,320 --> 00:14:23,760 Speaker 1: We asked Ken Jacobs of Lazard Prayer. That's next on 266 00:14:23,920 --> 00:14:36,480 Speaker 1: Wall Street Week on Bloomberg. The Supreme Court is rocking 267 00:14:36,520 --> 00:14:39,360 Speaker 1: the boat for us all. In an historic term, the 268 00:14:39,400 --> 00:14:41,600 Speaker 1: Court managed to turn the heat up on just about 269 00:14:41,640 --> 00:14:45,560 Speaker 1: everything it touched. From its overturning Row versus Wade, the 270 00:14:45,640 --> 00:14:49,000 Speaker 1: health and life of women in this nation are now 271 00:14:49,160 --> 00:14:52,760 Speaker 1: at risk. It will save the lives of millions of children, 272 00:14:53,080 --> 00:14:56,320 Speaker 1: and it will give families hope. To its permitting concealed 273 00:14:56,320 --> 00:14:59,680 Speaker 1: weapons unquestionably the biggest Second Amendment ruling in more than 274 00:14:59,720 --> 00:15:01,840 Speaker 1: a dead kid from this court to it's telling the 275 00:15:01,840 --> 00:15:04,840 Speaker 1: e p A to back off on regulating power plants. 276 00:15:05,160 --> 00:15:08,680 Speaker 1: The U. S. Supreme Court has restricted the Environmental Protection 277 00:15:08,760 --> 00:15:13,240 Speaker 1: Agencies authority to curb greenhouse gases from power plants. The 278 00:15:13,320 --> 00:15:16,280 Speaker 1: debate continues on the wisdom of all these decisions, but 279 00:15:16,400 --> 00:15:20,240 Speaker 1: taken together, they raised important questions for business and the markets, 280 00:15:20,560 --> 00:15:23,520 Speaker 1: questions about how the rule of law that underpins our 281 00:15:23,720 --> 00:15:27,200 Speaker 1: entire system will work under this new court, with some 282 00:15:27,360 --> 00:15:30,480 Speaker 1: like Senator Deportment of Ohio saying, it's just an appropriate 283 00:15:30,480 --> 00:15:33,840 Speaker 1: reminder that the power ultimately remains with the Congress, not 284 00:15:34,160 --> 00:15:37,400 Speaker 1: the regulators, not to Supreme Court. Was was essentially saying, 285 00:15:37,520 --> 00:15:39,280 Speaker 1: is that, wait a minute, We've got to be sure 286 00:15:39,360 --> 00:15:43,160 Speaker 1: that the Congress, which is the representative of the people, uh, 287 00:15:43,280 --> 00:15:45,880 Speaker 1: you know, has has the final say. Well, Critics like 288 00:15:46,000 --> 00:15:49,520 Speaker 1: Larry Tribes say the Court has abandoned principle in favor 289 00:15:49,640 --> 00:15:55,080 Speaker 1: of personality. Strikes me as profoundly unprincipled, because the Supreme 290 00:15:55,120 --> 00:16:01,680 Speaker 1: Court has long said that decisions of durability should not 291 00:16:01,840 --> 00:16:06,960 Speaker 1: be overruled in the absence of some extraordinary change other 292 00:16:07,080 --> 00:16:12,880 Speaker 1: than the mere personnel of the Court. And to tell 293 00:16:12,920 --> 00:16:15,240 Speaker 1: us whether there might really be a connection between what 294 00:16:15,240 --> 00:16:17,160 Speaker 1: the Supreme Court is during the one hand, and the 295 00:16:17,240 --> 00:16:19,480 Speaker 1: business world and the other, We're welcome a true leader 296 00:16:19,480 --> 00:16:22,000 Speaker 1: in the business world. He is the chairman and CEO 297 00:16:22,040 --> 00:16:24,880 Speaker 1: of Lazar For he is Ken Jacobs Ken great to 298 00:16:24,880 --> 00:16:28,240 Speaker 1: have you back on. So we tend to think of 299 00:16:28,280 --> 00:16:31,160 Speaker 1: things like abortion and social issues and the Supreme Court 300 00:16:31,240 --> 00:16:33,440 Speaker 1: and even some of the regulary issues as more in 301 00:16:33,480 --> 00:16:37,440 Speaker 1: the zone of politics or even political philosophy. Can they 302 00:16:37,480 --> 00:16:41,040 Speaker 1: affect the business world as well? Yes. So when you 303 00:16:41,040 --> 00:16:43,000 Speaker 1: step back and you think about the United States, US 304 00:16:43,080 --> 00:16:47,760 Speaker 1: has a handful of really true competitive advantages. One is 305 00:16:48,000 --> 00:16:53,200 Speaker 1: um rule of law, a second is demographics uh, and 306 00:16:53,320 --> 00:16:57,240 Speaker 1: a third is UH one market and by one market, 307 00:16:57,280 --> 00:17:01,680 Speaker 1: where we're market of three million people with essentially one 308 00:17:01,720 --> 00:17:03,880 Speaker 1: set of rules. So when a company goes to do 309 00:17:03,960 --> 00:17:07,280 Speaker 1: business in the United States, by and large, it's it's 310 00:17:07,320 --> 00:17:10,320 Speaker 1: one set of rules for the whole country. And what 311 00:17:10,359 --> 00:17:14,920 Speaker 1: the Supreme Court is doing is essentially saying, look, Uh, 312 00:17:14,960 --> 00:17:18,520 Speaker 1: the administrative state has become unwieldy. Uh, it's taken on 313 00:17:18,800 --> 00:17:22,280 Speaker 1: too much responsibility. Uh. Congress really should do a better 314 00:17:22,400 --> 00:17:26,480 Speaker 1: job of writing laws more specifically, and we're gonna start 315 00:17:26,480 --> 00:17:28,880 Speaker 1: to whittle back some of the things that the administrative 316 00:17:28,880 --> 00:17:31,639 Speaker 1: is doing. Well. On paper, that sounds great, I mean, 317 00:17:32,160 --> 00:17:34,760 Speaker 1: perhaps will be less regulation, maybe the laws will be clearer, 318 00:17:34,840 --> 00:17:39,160 Speaker 1: better written, But the reality is Congress is rife with polarization, 319 00:17:39,240 --> 00:17:42,320 Speaker 1: it's difficult to get anything done without a supermajority. So 320 00:17:42,560 --> 00:17:45,680 Speaker 1: the reality is that there's a vacuum. And so we're 321 00:17:45,680 --> 00:17:48,919 Speaker 1: going from a from from a place where we have 322 00:17:49,000 --> 00:17:51,280 Speaker 1: a clear sense. We may not like all the regulation, 323 00:17:51,359 --> 00:17:53,320 Speaker 1: but we have a clear sense of the rules to 324 00:17:53,400 --> 00:17:56,520 Speaker 1: a place where the rules are uncertain, and increasingly the 325 00:17:56,600 --> 00:17:59,480 Speaker 1: states are stepping in and making decisions on many of 326 00:17:59,520 --> 00:18:02,040 Speaker 1: these rules. And what's ending up happening is is gonna 327 00:18:02,080 --> 00:18:05,600 Speaker 1: end up with multiple rules with multiple states and candid league, 328 00:18:05,600 --> 00:18:09,879 Speaker 1: probably written by by groups or people that aren't as 329 00:18:09,920 --> 00:18:13,280 Speaker 1: competent as exists in Congress. And that's worrisome. Take us 330 00:18:13,280 --> 00:18:16,560 Speaker 1: into your business specifically, you've got a very large advisory business. 331 00:18:16,600 --> 00:18:19,119 Speaker 1: You've also got a big asset management business. How do 332 00:18:19,240 --> 00:18:23,119 Speaker 1: those challenges was perhaps a very diffuse set of rules 333 00:18:23,119 --> 00:18:26,359 Speaker 1: and regulations laws? How could it potentially affect your bot's 334 00:18:26,359 --> 00:18:29,280 Speaker 1: take asset management as an example, that's probably the easier 335 00:18:29,320 --> 00:18:32,520 Speaker 1: one of the two to see the impact. So you 336 00:18:32,600 --> 00:18:35,560 Speaker 1: have a state that essentially says, look, we don't want 337 00:18:35,600 --> 00:18:39,080 Speaker 1: to hire an asset manager that is worried about climate, 338 00:18:39,880 --> 00:18:44,000 Speaker 1: and so they will restrict uh the ability of a 339 00:18:44,080 --> 00:18:47,040 Speaker 1: state pension fund to invest in that manager. Another state 340 00:18:47,119 --> 00:18:49,840 Speaker 1: may say, you know what, we will only invest in 341 00:18:49,880 --> 00:18:54,240 Speaker 1: managers that take into account climate. Now, if it's a 342 00:18:54,280 --> 00:18:58,159 Speaker 1: small state with very little population and very little um 343 00:18:58,560 --> 00:19:01,119 Speaker 1: assets under management in there's a pension funds, maybe it 344 00:19:01,160 --> 00:19:03,240 Speaker 1: doesn't matter that much. But when we start having big 345 00:19:03,240 --> 00:19:05,320 Speaker 1: states dueling on this, it's a real problem. Well, we're 346 00:19:05,320 --> 00:19:09,240 Speaker 1: starting to see its like Texas and Florida and California, 347 00:19:09,240 --> 00:19:11,320 Speaker 1: New York just to pick four. I seem to have 348 00:19:11,400 --> 00:19:13,879 Speaker 1: different added to destroy these things. Are you seeing infect 349 00:19:13,880 --> 00:19:15,840 Speaker 1: your business so far? Is this more on the horizon? 350 00:19:15,920 --> 00:19:18,280 Speaker 1: It's I would say it's on the horizon, but it's 351 00:19:18,320 --> 00:19:21,159 Speaker 1: worrisome and you sort of think about it. You have 352 00:19:21,200 --> 00:19:23,879 Speaker 1: an industry like insurance, which has fifty different regulators in 353 00:19:23,920 --> 00:19:26,800 Speaker 1: fifty different states. That's a complex industry. But that's a 354 00:19:26,960 --> 00:19:29,560 Speaker 1: real exception in the U. S economy. Most of the U. 355 00:19:29,640 --> 00:19:33,280 Speaker 1: S economy is dominated by company or driven by companies 356 00:19:33,280 --> 00:19:35,960 Speaker 1: that are able to operate in all fifty states without 357 00:19:35,960 --> 00:19:38,600 Speaker 1: a concern, And this is something that I think really 358 00:19:38,680 --> 00:19:42,040 Speaker 1: runs the risk of upsetting one of the true competitive 359 00:19:42,040 --> 00:19:44,600 Speaker 1: advantages of the United States. Ken, Thank you so much 360 00:19:44,600 --> 00:19:47,240 Speaker 1: for being here. Really appreciated. As Ken Jacobs, he is 361 00:19:47,280 --> 00:19:52,040 Speaker 1: the chairman and CEO of Lazard for Air coming off, 362 00:19:52,080 --> 00:19:54,400 Speaker 1: we wrap up a week with our special contributor Larry 363 00:19:54,400 --> 00:19:58,080 Speaker 1: Summers of Harvard. That's next on Wall Street Week on Bloomberg. 364 00:20:05,600 --> 00:20:07,760 Speaker 1: This is Wall Street Week. I'm David Weston. We're welcome 365 00:20:07,800 --> 00:20:11,040 Speaker 1: once again our very special contributor Larry Summers of Harvard. So, Larry, 366 00:20:11,080 --> 00:20:13,359 Speaker 1: a lot happened this week, but let's start at the 367 00:20:13,480 --> 00:20:15,480 Speaker 1: end of the week. Was what you told us last 368 00:20:15,520 --> 00:20:17,800 Speaker 1: week was the most important indicator that we should be 369 00:20:17,840 --> 00:20:20,560 Speaker 1: looking at the economy, and that is the Employment cost Index. 370 00:20:20,800 --> 00:20:24,600 Speaker 1: It came in. It came in above survey. David, We 371 00:20:24,600 --> 00:20:28,760 Speaker 1: we weren't sure what was gonna be happening with wage inflation. 372 00:20:29,440 --> 00:20:34,480 Speaker 1: We hoped that the indications in some of the monthly 373 00:20:34,560 --> 00:20:38,440 Speaker 1: surveys that earnings growth was slowing and that that might 374 00:20:38,840 --> 00:20:45,000 Speaker 1: slow the whole inflation process would materialize. That didn't happen. 375 00:20:45,600 --> 00:20:49,080 Speaker 1: Looks like inflation is running at a pretty stable rate. 376 00:20:49,720 --> 00:20:52,680 Speaker 1: It's still two and a half points at least above 377 00:20:52,840 --> 00:20:58,320 Speaker 1: where it was before this whole episode. Uh. Started. Uh 378 00:20:58,520 --> 00:21:02,080 Speaker 1: depends on just how you look at the figures. But really, 379 00:21:02,119 --> 00:21:06,960 Speaker 1: no evidence of a significant decline. If you look at 380 00:21:07,000 --> 00:21:10,640 Speaker 1: the private sector and you take out benefits, then it's 381 00:21:11,160 --> 00:21:13,600 Speaker 1: going up a bit. If you look at the twelve 382 00:21:13,640 --> 00:21:15,840 Speaker 1: month figure, it's going up a bit. Those may be 383 00:21:15,960 --> 00:21:18,879 Speaker 1: the wrong things to do, so it may be better 384 00:21:19,320 --> 00:21:22,840 Speaker 1: to look at the overall figure. But I think it's 385 00:21:23,440 --> 00:21:27,600 Speaker 1: showing what I've been saying for quite some time now, 386 00:21:28,160 --> 00:21:32,800 Speaker 1: which is that we are in ingrained moderate to high 387 00:21:32,840 --> 00:21:39,680 Speaker 1: inflation economy. Nothing like nine percent inflation is built in, 388 00:21:40,359 --> 00:21:45,439 Speaker 1: but inflation above four looks to be pretty securely built in, 389 00:21:46,240 --> 00:21:50,840 Speaker 1: and if productivity growth doesn't accelerate, it could be UH 390 00:21:51,119 --> 00:21:57,320 Speaker 1: worse than that UH quite easily. So I'm pretty uncomfortable 391 00:21:57,680 --> 00:22:02,720 Speaker 1: with UH the current UH situation, and I think it 392 00:22:02,880 --> 00:22:08,280 Speaker 1: just points to the difficulties that the Fed UH is 393 00:22:08,359 --> 00:22:14,639 Speaker 1: facing going forward and confirms the broad diagnosis that we 394 00:22:14,720 --> 00:22:18,280 Speaker 1: have an overheated economy that's not going to fix itself, 395 00:22:18,920 --> 00:22:22,320 Speaker 1: and therefore we're not likely to get out of this 396 00:22:23,000 --> 00:22:28,160 Speaker 1: excess inflation situation without having a recession. So so there 397 00:22:28,200 --> 00:22:30,720 Speaker 1: you have been steadfast on this program and elsewhere on 398 00:22:30,800 --> 00:22:33,320 Speaker 1: your views about inflation, and yet there's something of a 399 00:22:33,400 --> 00:22:36,240 Speaker 1: debate going on right now behind between on the one hand, 400 00:22:36,240 --> 00:22:38,840 Speaker 1: the markets and then the other hand economists with the 401 00:22:38,880 --> 00:22:41,040 Speaker 1: markets sort of saying, Okay, the Fed will hike for 402 00:22:41,040 --> 00:22:42,640 Speaker 1: a while and then then I'll start backing off next 403 00:22:42,720 --> 00:22:46,600 Speaker 1: year and actually we'll have some reductions. But the economists say, boy, 404 00:22:46,640 --> 00:22:48,480 Speaker 1: the economy doesn't look that way. We're gonna have to 405 00:22:48,560 --> 00:22:51,080 Speaker 1: keep going and keep it pretty high. What do you 406 00:22:51,119 --> 00:22:52,760 Speaker 1: do when you have that kind of debate, You know, 407 00:22:52,840 --> 00:22:57,160 Speaker 1: we'll see what judgment the Feds make makes. Uh. The 408 00:22:57,280 --> 00:23:01,639 Speaker 1: challenge they're gonna have, and it's a agonizing challenge, and 409 00:23:01,720 --> 00:23:03,879 Speaker 1: it's why it would be better if we weren't in 410 00:23:04,400 --> 00:23:07,320 Speaker 1: the kind of configuration we were in, and it would 411 00:23:07,359 --> 00:23:11,360 Speaker 1: be better if we had not overstimulated. Uh. The economy 412 00:23:11,480 --> 00:23:14,400 Speaker 1: last year is that on the one hand, I think 413 00:23:14,440 --> 00:23:18,520 Speaker 1: you are likely to see a significant slowed down in growth, 414 00:23:18,600 --> 00:23:22,679 Speaker 1: you are likely to see recessionary forces developed over the 415 00:23:22,800 --> 00:23:25,600 Speaker 1: next year. And on the other hand, it's going to 416 00:23:25,720 --> 00:23:30,280 Speaker 1: take a lot to get the inflation out of the system. 417 00:23:30,320 --> 00:23:36,359 Speaker 1: The danger, David, is that they don't persevere strongly enough 418 00:23:37,040 --> 00:23:42,280 Speaker 1: in restrictive policy, and that's what gets you a stagflation 419 00:23:42,400 --> 00:23:46,679 Speaker 1: situation where growth slows and you don't beat the inflation 420 00:23:46,800 --> 00:23:49,159 Speaker 1: out of the system. It's like if you don't complete 421 00:23:49,560 --> 00:23:53,000 Speaker 1: your course of antibiotics and then your illness comes back 422 00:23:53,080 --> 00:23:57,679 Speaker 1: and the drugs are bacteria resistant. On the other hand, 423 00:23:57,800 --> 00:24:01,320 Speaker 1: I don't think we can deny that if they do 424 00:24:01,359 --> 00:24:07,840 Speaker 1: what's necessary to contain UH inflation, then it's not going 425 00:24:07,880 --> 00:24:14,280 Speaker 1: to be a happy economic situation over UH some over 426 00:24:14,400 --> 00:24:20,080 Speaker 1: some interval. Secretary Yellen said yesterday that she held out 427 00:24:20,119 --> 00:24:26,400 Speaker 1: the prospect of getting out of this without unemployment UH 428 00:24:26,600 --> 00:24:31,400 Speaker 1: going above UH five. I've got enormous respect for her 429 00:24:32,080 --> 00:24:36,280 Speaker 1: as an economist, but I have to say that statement 430 00:24:37,400 --> 00:24:40,399 Speaker 1: greatly surprised me. It didn't surprise me as much as 431 00:24:40,440 --> 00:24:42,280 Speaker 1: the FED saying we were going to get out of 432 00:24:42,320 --> 00:24:47,800 Speaker 1: this with four point one percent unemployment. But I don't 433 00:24:47,840 --> 00:24:53,040 Speaker 1: see any basis for thinking that either of those statements 434 00:24:53,800 --> 00:24:59,480 Speaker 1: is a reasonable UH prediction given what we know. What 435 00:24:59,520 --> 00:25:01,159 Speaker 1: do you him is due when you put together these 436 00:25:01,200 --> 00:25:04,480 Speaker 1: neutral rates. Look, I think J. Powell said things that 437 00:25:04,840 --> 00:25:11,239 Speaker 1: to be blunts were analytically indefensible. He claimed twice in 438 00:25:11,560 --> 00:25:15,280 Speaker 1: his press conference that the FED was now at the 439 00:25:15,359 --> 00:25:20,760 Speaker 1: neutral interest rate, calling it two and a half. It's 440 00:25:20,800 --> 00:25:25,040 Speaker 1: elementary that the level of the neutral interest rate depends 441 00:25:25,119 --> 00:25:29,679 Speaker 1: upon the inflation rate. We've got on the most quoted measure, 442 00:25:29,760 --> 00:25:34,240 Speaker 1: a nine point one percent inflation measure he extrapolated off 443 00:25:34,359 --> 00:25:40,960 Speaker 1: core or something. It's four or five percent inflation. There 444 00:25:41,080 --> 00:25:44,640 Speaker 1: is no conceivable way that a two and a half 445 00:25:44,760 --> 00:25:49,919 Speaker 1: percent interest rate in an economy inflating like this is 446 00:25:50,000 --> 00:25:54,600 Speaker 1: anywhere near neutral. And if you think it is neutral, 447 00:25:55,160 --> 00:26:00,000 Speaker 1: you are misjudging the posture of policy in a fundament 448 00:26:00,040 --> 00:26:04,480 Speaker 1: mental way. So I was very sorry uh to hear 449 00:26:04,600 --> 00:26:09,800 Speaker 1: him uh say that, and frankly surprised. He said back 450 00:26:09,840 --> 00:26:14,640 Speaker 1: in that the neutral interest rate that FED was approaching 451 00:26:14,680 --> 00:26:18,639 Speaker 1: the neutral interest rate at a time when the inflation 452 00:26:18,760 --> 00:26:21,760 Speaker 1: rate was one point nine percent. How he could be 453 00:26:21,800 --> 00:26:28,520 Speaker 1: saying the same thing today when the inflation rate is 454 00:26:29,040 --> 00:26:34,600 Speaker 1: where it is, is inexplicable, uh to me. And it's 455 00:26:34,640 --> 00:26:40,280 Speaker 1: the same kind of to be blunt, wishful thinking that 456 00:26:40,680 --> 00:26:44,840 Speaker 1: got us into the problems we have now, So Larry, 457 00:26:44,880 --> 00:26:47,840 Speaker 1: in the meantime, we have some legislation coming out of 458 00:26:48,440 --> 00:26:50,800 Speaker 1: Capitol Hill, something perhaps we didn't even expect. We had 459 00:26:50,840 --> 00:26:53,560 Speaker 1: the Chips Act, but now we have this proposed Inflation 460 00:26:53,600 --> 00:26:57,400 Speaker 1: Reduction Act. Last week on this program, and you sent 461 00:26:57,480 --> 00:26:59,880 Speaker 1: a powerful message to people who were saying increasing tax 462 00:27:00,160 --> 00:27:03,080 Speaker 1: is actually might be inflationary. He said, that's really not 463 00:27:03,160 --> 00:27:05,399 Speaker 1: true at all. I suspect one of the people you 464 00:27:05,440 --> 00:27:08,360 Speaker 1: were communicating with, maybe, but Joe mentioned through Wall Street Week. 465 00:27:08,400 --> 00:27:09,840 Speaker 1: I don't want to ask you about what you've said 466 00:27:09,880 --> 00:27:13,040 Speaker 1: specifically Joe mentioned, but give us your reaction to what 467 00:27:13,160 --> 00:27:16,000 Speaker 1: the proposal is now that's come up with respect to 468 00:27:16,200 --> 00:27:19,160 Speaker 1: increasing taxes he has paying for it, but also addressing 469 00:27:19,200 --> 00:27:22,000 Speaker 1: climate I was glad to see the bill. I think 470 00:27:22,000 --> 00:27:24,480 Speaker 1: it's going to reduce the rate of inflation because it's 471 00:27:24,520 --> 00:27:28,800 Speaker 1: going to reduce deficits and demand over time, because it's 472 00:27:28,840 --> 00:27:32,600 Speaker 1: going to use the federal government's power to negotiate lower 473 00:27:32,640 --> 00:27:38,240 Speaker 1: prices for pharmaceuticals, and because it's gonna increase UH supply 474 00:27:39,119 --> 00:27:44,480 Speaker 1: of energy, so demand, supply, pricing power all working to 475 00:27:44,640 --> 00:27:48,520 Speaker 1: reduce inflation. I think it's going to help the environment 476 00:27:49,400 --> 00:27:52,359 Speaker 1: because of the climate change measures. I think it's gonna 477 00:27:52,440 --> 00:27:57,199 Speaker 1: help fairness in our country because of the expansions in 478 00:27:58,400 --> 00:28:03,040 Speaker 1: healthcare available hility. I think it's going to help fairness 479 00:28:03,080 --> 00:28:07,800 Speaker 1: in our country by closing UH some very important tax 480 00:28:07,840 --> 00:28:13,679 Speaker 1: loopholes that allow very profitable companies to avoid paying uh 481 00:28:13,800 --> 00:28:17,840 Speaker 1: any any taxes, Thank you so much. That's our special contributer, 482 00:28:17,960 --> 00:28:20,480 Speaker 1: Larry Summers here on Wall Street week. Of course he's 483 00:28:20,520 --> 00:28:25,400 Speaker 1: from Harvard University. Finally, one more thought, it's the economy, stupid, 484 00:28:25,760 --> 00:28:28,919 Speaker 1: but which economy? There is no end of worrying and 485 00:28:29,000 --> 00:28:31,760 Speaker 1: complaining about the U. S economy these days. From too 486 00:28:31,840 --> 00:28:35,639 Speaker 1: much inflation we certainly see peak inflation coming sometime in 487 00:28:35,680 --> 00:28:38,880 Speaker 1: the second half, to too higher risk of recession. I 488 00:28:38,880 --> 00:28:40,960 Speaker 1: think there many reasons why we're gonna have a severe 489 00:28:41,080 --> 00:28:44,520 Speaker 1: recession and a severe that in financial crisis, to supply 490 00:28:44,640 --> 00:28:48,240 Speaker 1: change that just won't cooperate, fakes the supply chain. Uh. 491 00:28:48,320 --> 00:28:51,080 Speaker 1: These are all things that will be beneficial to the 492 00:28:51,080 --> 00:28:54,000 Speaker 1: country writ large. But through it all, the one thing 493 00:28:54,080 --> 00:28:56,880 Speaker 1: the United States does not seem to lack is jobs. 494 00:28:56,920 --> 00:28:58,840 Speaker 1: Just about twice as many jobs as we have people 495 00:28:58,840 --> 00:29:02,680 Speaker 1: to fill them are still seeing John's added at pretty 496 00:29:02,720 --> 00:29:06,680 Speaker 1: substantial fates, and that robust demand for labor may just 497 00:29:06,760 --> 00:29:09,480 Speaker 1: be the one thing that keeps the wolf of recession 498 00:29:09,840 --> 00:29:12,120 Speaker 1: from our collective door. You got some help, and you 499 00:29:12,240 --> 00:29:14,719 Speaker 1: got some down. You got the job market very strong, 500 00:29:14,960 --> 00:29:17,840 Speaker 1: and yet at the same time you've got GDP growth 501 00:29:17,960 --> 00:29:21,800 Speaker 1: stalling out, and so the FEDS got to figure out 502 00:29:21,880 --> 00:29:24,320 Speaker 1: how hard to step on the break. So as we 503 00:29:24,400 --> 00:29:27,600 Speaker 1: all continue to worry and complain about the US economy, 504 00:29:27,840 --> 00:29:30,000 Speaker 1: and as the markets continue to be buffeted by all 505 00:29:30,080 --> 00:29:33,080 Speaker 1: that worrying and complaining, you've got so many different cross 506 00:29:33,080 --> 00:29:35,360 Speaker 1: currents that are going on and so many different forces 507 00:29:35,400 --> 00:29:38,840 Speaker 1: acting on the market that you have these little mini moments. 508 00:29:39,080 --> 00:29:42,920 Speaker 1: Take a moment to consider the plight of China right now. Yes, China, 509 00:29:43,280 --> 00:29:47,200 Speaker 1: that economic miracle now facing slowing growth and a deeply 510 00:29:47,280 --> 00:29:51,440 Speaker 1: troubled property market. Unfortunately, the private sectors that's what's collapsing 511 00:29:51,480 --> 00:29:53,880 Speaker 1: as far as the eye can see that China is 512 00:29:53,880 --> 00:29:57,120 Speaker 1: going to take a wal to recover, and COVID shutdowns 513 00:29:57,160 --> 00:29:59,880 Speaker 1: that have reaked havoc with companies like Phillips needing in 514 00:30:00,000 --> 00:30:04,840 Speaker 1: puts for overseas markets. The second quarter was impacted by 515 00:30:04,920 --> 00:30:08,360 Speaker 1: a lot of headwinds. You had China lookdown supply issues 516 00:30:09,120 --> 00:30:14,720 Speaker 1: and rising inflation and Elon Musk's Tesla not getting what 517 00:30:14,880 --> 00:30:17,640 Speaker 1: it needs for the China market. Two was a unique 518 00:30:17,640 --> 00:30:21,360 Speaker 1: coute for Tesla to lunch setdown of our Stina factory. 519 00:30:21,480 --> 00:30:23,720 Speaker 1: The past few years that have been quite a few 520 00:30:23,720 --> 00:30:26,320 Speaker 1: of course measures, and it's been it's been kind of 521 00:30:26,320 --> 00:30:30,080 Speaker 1: supply chain hell for several years. Now. You can add 522 00:30:30,080 --> 00:30:33,880 Speaker 1: to China's woes and oversupply of young college graduates. It 523 00:30:33,960 --> 00:30:36,920 Speaker 1: has ten times the number of college graduates that it 524 00:30:37,040 --> 00:30:40,040 Speaker 1: had only ten years ago, and way too many of 525 00:30:40,080 --> 00:30:44,719 Speaker 1: them cannot find jobs, with almost young people unemployed twice 526 00:30:44,800 --> 00:30:47,520 Speaker 1: the rate in the United States. So as those of 527 00:30:47,560 --> 00:30:49,920 Speaker 1: us in the United States complained about too few workers, 528 00:30:49,920 --> 00:30:53,520 Speaker 1: are Chinese counterparts complained about too many. But in the end, 529 00:30:53,840 --> 00:30:57,200 Speaker 1: whichever version of labor issues you have, it does come 530 00:30:57,240 --> 00:31:01,200 Speaker 1: back to James Carville thirty years ago. It's the economy 531 00:31:01,240 --> 00:31:03,560 Speaker 1: stupid that doesn't. For this episode of Wall Street Week, 532 00:31:03,560 --> 00:31:08,440 Speaker 1: I'm David Weston. This is Bloomberg. See you next week. 533 00:31:10,920 --> 00:31:10,960 Speaker 1: M