WEBVTT - Bloomberg Wall Street Week: July 29, 2022 0:00:00.520 --> 0:00:04.320 Lots of talk about the FED, about the economy, about China, 0:00:04.400 --> 0:00:08.479 about European natural gas, but how much really changed. This 0:00:08.560 --> 0:00:12.039 is Bloomberg Wall Street Week. I'm David Weston this week's 0:00:12.039 --> 0:00:14.920 special contributer to Larry Summers of Harvard on the FED 0:00:15.240 --> 0:00:18.640 and getting the economy back on track. Guiding J. Powell 0:00:18.720 --> 0:00:24.400 said things that to be blunt were analytically indefensible. And 0:00:24.480 --> 0:00:27.920 Ken Jacobs of Lazard on how a changing Supreme Court 0:00:27.960 --> 0:00:31.400 could affect his business. You have an industry like insurance, 0:00:31.400 --> 0:00:40.240 which has fifty different regulators in fifty different states. It 0:00:40.360 --> 0:00:43.440 was an extravaganza of talk and data this week, with 0:00:43.520 --> 0:00:46.880 President Biden finally having that talk with China's President g 0:00:47.680 --> 0:00:50.880 President she actually emphasizing to President Biden that they should 0:00:50.880 --> 0:00:55.280 coordinate on macroeconomic policies. According to the Chinese Foreign Minister 0:00:55.360 --> 0:00:58.480 read out the EU Energy Commissioner laying out plans to 0:00:58.520 --> 0:01:01.920 deal with further natural gas cuts from Russia. We will 0:01:01.960 --> 0:01:06.039 start saving cast now, and that we had a blue 0:01:06.120 --> 0:01:10.160 print to act together in a coordinate debate if the 0:01:10.280 --> 0:01:14.720 situation doosn't. Congress moved that chips bill towards the President's 0:01:14.720 --> 0:01:17.600 desk and to top it off. Senator Schumer and Mansion 0:01:17.640 --> 0:01:19.800 tried to pull our rabbit out of the hat with 0:01:19.880 --> 0:01:23.560 a surprise deal on climate and deficit reduction. This bill 0:01:23.680 --> 0:01:27.040 is far from perfect. It's to compromise, but is that's 0:01:27.120 --> 0:01:31.280 often how progress is made. And of course the big one, 0:01:31.680 --> 0:01:34.440 the Fed setting a new funds rate and share pow, 0:01:34.640 --> 0:01:38.000 saying they'll keep tightening and we're strongly committed to returning 0:01:38.040 --> 0:01:40.800 inflation to our two percent objective. As the stance of 0:01:40.840 --> 0:01:44.880 monetary policy titans further, it likely will become appropriate to 0:01:44.920 --> 0:01:48.320 slow the pace of increases, but we shouldn't expect a 0:01:48.440 --> 0:01:52.320 lot more of that forward guidance. We think it's time 0:01:52.360 --> 0:01:55.600 to to just go to a meeting by meeting basis 0:01:55.720 --> 0:01:58.200 and not provide the kind of clear guidance that we 0:01:58.360 --> 0:02:02.440 had provided on the way to new and if the 0:02:02.440 --> 0:02:04.320 Fed thought he would have an easy time, but the 0:02:04.440 --> 0:02:07.200 numbers kept coming in this week, making it more complicated, 0:02:07.200 --> 0:02:10.160 with GDP down for a second straight quarter on Thursday, 0:02:10.400 --> 0:02:13.440 and then on Friday, personal consumption and employment cost index 0:02:13.520 --> 0:02:16.600 numbers coming in higher than expected, showing that inflation is 0:02:16.600 --> 0:02:19.760 not close to done with us yet. And the markets, well, 0:02:19.800 --> 0:02:22.080 they pretty much took it all in stride, with the 0:02:22.160 --> 0:02:25.000 SMP up almost four point three percent for the week, 0:02:25.240 --> 0:02:28.840 ending the month with its best performance since November, and 0:02:28.880 --> 0:02:32.440 the NASDAC posted even higher weekly gains, up some four 0:02:32.480 --> 0:02:36.200 point seven while bond yields remained subdued, with the ten 0:02:36.280 --> 0:02:38.840 year yield ending the week at two point six five, 0:02:39.120 --> 0:02:41.840 giving up nearly thirty five basis points. To help us 0:02:41.840 --> 0:02:44.240 sort through all of this, we welcome now Rebecca Patterson, 0:02:44.280 --> 0:02:49.040 Bridgewater Chief Investment Strategists and Sarah Ketder, CEO of Causeway Capital. 0:02:49.120 --> 0:02:51.520 So welcome both of you back to Wall Street again. Rebecca, 0:02:51.560 --> 0:02:53.160 let me start with you and what the FED has 0:02:53.160 --> 0:02:54.600 in front of it. What is it trying to do. 0:02:54.800 --> 0:02:58.840 The Fed is trying to get goldilocks, and that means 0:02:58.919 --> 0:03:01.240 it wants to get inflation back down as fast as 0:03:01.240 --> 0:03:04.800 it can towards its two percent target without engineering a recession, 0:03:05.240 --> 0:03:07.280 and the market is giving it the benefit of the doubt. 0:03:07.320 --> 0:03:10.000 If you look at what's discounted into markets today, it 0:03:10.200 --> 0:03:13.480 is basically two and a half percent inflation in just 0:03:13.639 --> 0:03:16.639 over a year and only a moderate slowdown in growth. 0:03:16.639 --> 0:03:19.520 And I think it's gonna be almost impossible for the 0:03:19.560 --> 0:03:21.600 FED to get everything it wants here. The porridge is 0:03:21.600 --> 0:03:23.639 gonna be too hot or too cold. Either inflation will 0:03:23.680 --> 0:03:26.200 end up running much higher than the Fed's target and 0:03:26.240 --> 0:03:29.760 they risk losing their credibility, or if they're serious about 0:03:29.760 --> 0:03:33.079 getting inflation down, especially from the current high levels, it's 0:03:33.080 --> 0:03:36.119 going to require more targ more tightening, which we think 0:03:36.160 --> 0:03:38.600 is going to engineer a deeper recession, and that's what 0:03:38.720 --> 0:03:41.320 we're focused on. We think that within six to nine 0:03:41.320 --> 0:03:43.920 months we're going to be looking at us GDP that's 0:03:44.080 --> 0:03:47.240 negative to negative three. So, Sarah, where aren't you on this? 0:03:47.280 --> 0:03:49.800 Because it felt like a tension this week between the markets, 0:03:49.800 --> 0:03:51.680 the futures markets on the one hand saying exactly what 0:03:51.680 --> 0:03:54.120 Rebcca just said, and economists on the other hand saying, 0:03:54.200 --> 0:03:55.880 you know what, we've got to really jack up the 0:03:55.960 --> 0:03:58.280 rates a lot to get inflation on control. Which side 0:03:58.280 --> 0:04:00.800 are you on more skeptical? I don't think that's how 0:04:00.840 --> 0:04:02.840 we are as value managers always want to have it 0:04:02.920 --> 0:04:05.960 proven to us. But but note that we've had so 0:04:06.080 --> 0:04:11.320 much liquidity created four trillion dollars of of enlargement to 0:04:11.360 --> 0:04:14.760 the Fed's balance sheet since the beginning of the pandemic 0:04:14.840 --> 0:04:19.360 in early that's a lot of liquidity, and it's still there. 0:04:19.400 --> 0:04:23.120 The FED only just started to reduce go into it 0:04:23.240 --> 0:04:26.880 from a quantitative eavening to quantitative tightening starting to one 0:04:26.920 --> 0:04:30.400 of this year, and it's just beginning, and it'll go 0:04:30.440 --> 0:04:32.880 from thirty billion a month and then bump that up 0:04:32.920 --> 0:04:37.520 to to sixty billion a month. Uh and letting those 0:04:37.560 --> 0:04:41.440 bonds roll off that again starts to compress bank reserves. 0:04:41.600 --> 0:04:45.960 This will take It's quite be quite lagged in its effect. 0:04:46.520 --> 0:04:50.719 So financial conditions will just tighten due to that reason alone. 0:04:50.800 --> 0:04:53.359 And we don't think markets anticipate that at all. And 0:04:53.400 --> 0:04:56.040 I think, just building Sarah on your point, it's it's 0:04:56.120 --> 0:04:58.880 important to remember that the markets are really looking at 0:04:59.440 --> 0:05:03.120 um the rates. They're not thinking as much about quantitative 0:05:03.160 --> 0:05:05.279 tightening or do the roll off of the Fed's balance sheet, 0:05:05.320 --> 0:05:08.160 which is on autopilot, that's going to keep going. And 0:05:08.200 --> 0:05:10.520 so we don't have the Fed buying bonds, we don't 0:05:10.520 --> 0:05:14.160 have banks buying bonds anymore. And so we've seen bond 0:05:14.240 --> 0:05:17.240 yields come down in the last couple of weeks, But 0:05:17.360 --> 0:05:21.240 how much further can they come down without retail investors 0:05:21.320 --> 0:05:25.040 institutional investors moving out of equities into bonds. I think 0:05:25.200 --> 0:05:29.039 what we've seen historically is when stocks go down, bonds 0:05:29.120 --> 0:05:31.719 rally and you get that diversification. We've had that for 0:05:31.720 --> 0:05:33.440 the last few weeks. We didn't have it for the 0:05:33.440 --> 0:05:35.480 first half of the year. I don't think we can 0:05:35.520 --> 0:05:39.760 count on that. As we get QT continuing quantitative tightening, continuing, 0:05:40.080 --> 0:05:42.200 bond yields may come down, but it's going to be 0:05:42.200 --> 0:05:44.520 a lot harder for them to do that in this 0:05:44.680 --> 0:05:48.040 environment where the Fed's created a liquidity hole. It's taking 0:05:48.040 --> 0:05:50.599 liquidity out and it's not as clear today who's going 0:05:50.640 --> 0:05:53.080 to fill that, who's going to supply the demand to 0:05:53.200 --> 0:05:55.800 keep bond yields going further down. So let me pursue 0:05:55.800 --> 0:05:57.920 that liquidity issue a little bit, Sarah, because you mentioned 0:05:58.120 --> 0:06:00.960 the lack of liquidity that really makes the market DESI 0:06:01.000 --> 0:06:03.960 understand much more voluerable. So what does that do to 0:06:04.000 --> 0:06:06.080 an investor? How do you do you have a GPS 0:06:06.120 --> 0:06:08.400 at this point given where we are, The key is 0:06:08.440 --> 0:06:10.719 to have a low entry price because you've got to 0:06:10.760 --> 0:06:13.560 have that margin of safety. And what this will mean 0:06:13.680 --> 0:06:16.920 if if massive increases in liquidity, And again this wasn't 0:06:16.960 --> 0:06:19.640 just the FED, central banks globally, we're all at this 0:06:19.839 --> 0:06:23.120 The European Central Bank, the Bank in Japan, and as 0:06:23.160 --> 0:06:26.640 they take all in unison, take liquidity out of the system. 0:06:26.640 --> 0:06:30.719 What pushed up market multiples, what made valuations expand what 0:06:30.839 --> 0:06:34.279 made investors in different devaluations, it'll to be just the opposite. 0:06:34.320 --> 0:06:36.960 And we've already seen that start because some of the 0:06:37.040 --> 0:06:40.480 hardest hit stocks globally, including in the US market, and 0:06:40.600 --> 0:06:43.960 they had the most bloated valuations. Okay, Sarah Kader and 0:06:43.960 --> 0:06:46.159 Rebecca Patterson, we'll stay with us as we take a 0:06:46.160 --> 0:06:48.120 look at earnings. It was a big earnings week as 0:06:48.120 --> 0:06:50.359 well for Wall Street and that's coming up next on 0:06:50.360 --> 0:06:59.480 Wall Street Week on Bloomberg about today that could be 0:06:59.520 --> 0:07:03.720 little launched corporations reported their worst profit decline in twenty 0:07:03.760 --> 0:07:07.760 nine years. Revised Commerce Department figures for the first quarter 0:07:08.120 --> 0:07:11.520 showed that both the economy's downturn and the pressures of 0:07:11.520 --> 0:07:16.920 inflation were worse than previously reported, and international speculators began 0:07:17.200 --> 0:07:21.520 dumping dollars and acquiring gold with a fervor not seen 0:07:21.640 --> 0:07:25.120 for quite some time. That was the way things look. 0:07:25.200 --> 0:07:27.040 The Lewis ruck has around Wall Street week. Back in 0:07:28.360 --> 0:07:30.560 we were coming out of a recession. Today we may 0:07:30.600 --> 0:07:33.720 have inflation, but we haven't really seen a downturn in 0:07:33.800 --> 0:07:36.880 corporate profits at least yet, much less a week er dollar. 0:07:36.960 --> 0:07:39.400 We've seen just the reverse. In fact, Rebecca Patterson of 0:07:39.480 --> 0:07:42.680 Ridgewater and Sarah Kettter of Causeway Capital have stayed with us. 0:07:42.800 --> 0:07:45.160 So Sarah, let me go to you on the equities question. 0:07:45.200 --> 0:07:46.920 We had a lot of earnings that this week. They 0:07:46.920 --> 0:07:49.720 went both ways, but I think sort of overall, earnings 0:07:49.760 --> 0:07:53.400 came in pretty well so far they have, and I 0:07:53.400 --> 0:07:57.360 think both Rebecca and I've commented on what's happened in 0:07:57.440 --> 0:08:01.440 the past is initially reflective of this future. In other words, 0:08:01.760 --> 0:08:05.200 there are so many challenges ahead in a persistent inflationary 0:08:05.280 --> 0:08:09.280 environment for companies in terms of cost increases, not to 0:08:09.360 --> 0:08:14.640 mention a consumer that's deliberately being reined in that this 0:08:14.760 --> 0:08:17.520 just made me a really tough next several quarters of reporting. 0:08:18.400 --> 0:08:21.520 How tough, hard to say, but unlikely to be buoyant. 0:08:21.560 --> 0:08:25.640 And that's to the point that we've seen multiple de rating. 0:08:25.640 --> 0:08:27.840 Now we made variable see earnings fall two, and that's 0:08:27.880 --> 0:08:31.840 typically what happens in market pullbacks, both multiples and earnings fall, 0:08:32.320 --> 0:08:37.679 and that again is a phenomena that likely occur globally. So, Rebecca, 0:08:37.760 --> 0:08:39.480 you have a little bit of money at Bridgewater you 0:08:39.520 --> 0:08:41.000 have to put to work every once in a while. 0:08:41.679 --> 0:08:45.840 What about the question, particularly that versus equity you mentioned before, 0:08:45.880 --> 0:08:48.200 the question of when stocks are attractive. We had that 0:08:48.240 --> 0:08:50.240 Bank of America fund managers report coming in and saying, 0:08:50.280 --> 0:08:52.479 look at you're better off right now going into bonds. 0:08:53.440 --> 0:08:56.960 We don't see bonds as attractive at this point, um, 0:08:57.000 --> 0:09:00.640 in the US, but also in places like Europe. Um. 0:09:01.080 --> 0:09:03.679 You know, with the FED still tightening, with the Fed, 0:09:04.040 --> 0:09:06.560 demand for bonds now gone, it's going the other way. 0:09:06.679 --> 0:09:09.400 Banks were huge buyers of bonds last year. They're gone. 0:09:09.880 --> 0:09:12.080 We think there's gonna be a greater challenge for demand 0:09:12.080 --> 0:09:14.480 to meet supply there um. But there was a there 0:09:14.480 --> 0:09:18.920 was another great point just made when we were referencing there, 0:09:18.960 --> 0:09:21.720 which was this fall in the dollar and this move 0:09:21.800 --> 0:09:24.640 into gold and and it's so interesting to compare what 0:09:24.679 --> 0:09:28.720 was happening then versus now, uh and and back then 0:09:28.920 --> 0:09:31.800 we saw the dollar fall in part because people thought 0:09:32.200 --> 0:09:35.880 that inflation expectations were unanchored and high inflation was going 0:09:35.920 --> 0:09:38.280 to undermine the value of currency. And as you just said, 0:09:38.480 --> 0:09:40.920 it's the opposite right now. We've seen a strong dollar 0:09:41.080 --> 0:09:43.120 as the US has looked like the nicest house in 0:09:43.160 --> 0:09:45.800 a bad neighborhood. What what I would say, though, as 0:09:45.840 --> 0:09:49.359 we think about earnings and equities and bonds and people's portfolios, 0:09:49.520 --> 0:09:51.960 is that we're in a world that's so different from 0:09:51.960 --> 0:09:55.480 the last decade. When it comes to currency markets, volatility 0:09:55.559 --> 0:09:59.119 is picking up and as we have inflation surprises, monetary 0:09:59.160 --> 0:10:02.320 policy surprise is and a huge cone of uncertainty, we 0:10:02.320 --> 0:10:05.600 should expect that FX volatility to continue and it flows 0:10:05.679 --> 0:10:09.040 through to companies. I think two big ways. One just 0:10:09.200 --> 0:10:11.800 if the companies themselves are hedging that risk or not. 0:10:11.920 --> 0:10:16.480 So we are seeing multinationals underperforming more domestic companies by 0:10:16.520 --> 0:10:19.240 wide margins just year to date. We think that is 0:10:19.360 --> 0:10:22.959 likely to continue as these kind of relatively wild moves 0:10:23.000 --> 0:10:26.680 continuing currencies. And then more broadly, if you're thinking about 0:10:26.720 --> 0:10:30.600 your portfolio, what currency are you denominated and what currency 0:10:30.679 --> 0:10:33.040 risk are you taking, and it can make a very 0:10:33.080 --> 0:10:35.720 big difference to your performance. I mean, just year to date, 0:10:35.840 --> 0:10:39.240 if you think about if you hedged foreign currency equity 0:10:39.360 --> 0:10:41.480 or didn't hedge, it could be the difference in ten 0:10:41.600 --> 0:10:44.840 percentage points and performance for those stocks. And we think 0:10:44.880 --> 0:10:47.920 that's going to continue and possibly escalate. So I would 0:10:47.960 --> 0:10:49.880 just say as we think about equities, we think about 0:10:49.880 --> 0:10:52.400 bonds and earnings. UM. I would also make sure not 0:10:52.480 --> 0:10:55.000 to ignore currencies as part of that equation for your 0:10:55.040 --> 0:10:57.520 total return. So Sarah, take all that, put it together. 0:10:57.600 --> 0:11:00.160 I think somebody who's really look at a particular kind 0:11:00.160 --> 0:11:02.400 of value investor. You look for good value in terms 0:11:02.400 --> 0:11:05.520 of low valuations, buying at the bottom, moving up with it. 0:11:05.640 --> 0:11:10.000 What's attracted to you right now? The go where the 0:11:10.000 --> 0:11:13.760 currencies have been the weakest, where there's potential for a 0:11:14.080 --> 0:11:17.440 return to some sort of more normal currency valuation, and 0:11:17.480 --> 0:11:19.760 the euro might be a good place to start. The 0:11:19.760 --> 0:11:22.480 euros off about twelve versus the dollar year to date, 0:11:22.520 --> 0:11:25.800 and maybe fifteen over the last twelve months. So yes, 0:11:25.800 --> 0:11:30.560 it's on sale, and it has been painful having stocks 0:11:30.600 --> 0:11:33.920 denominated in the euro unless they were dollar earners. But 0:11:34.440 --> 0:11:39.000 this does present an opportunity because likely the Eurozone will 0:11:39.040 --> 0:11:41.600 go into some sort of pullback as energy becomes scarce, 0:11:41.679 --> 0:11:44.840 particularly this winter, natural gas in particular. But out of 0:11:44.840 --> 0:11:47.600 that is the recovery, especially given them on spending that 0:11:48.320 --> 0:11:52.160 the Eurozone has in mind in order to revitalize their economies, 0:11:52.720 --> 0:11:55.000 and you know, worked for the US, it's likely to 0:11:55.040 --> 0:11:58.840 work for the Eurozone. So there are stocks that companies 0:11:58.880 --> 0:12:03.080 now buying back large portions of their outstanding market cap. 0:12:03.200 --> 0:12:06.120 That's really interesting. You can if they're that confident in 0:12:06.120 --> 0:12:07.800 the future and they know a whole lot more about 0:12:07.800 --> 0:12:09.760 it than we do in terms of their own companies. 0:12:10.360 --> 0:12:12.640 There are a number of European banks. Unit Credit in 0:12:12.720 --> 0:12:15.400 Italy is one example. Not only they buying back four 0:12:15.640 --> 0:12:18.199 percent of their stock, they have a six percent dividend yield, 0:12:18.480 --> 0:12:24.559 that's like twenty payout yield. That's fantastic on on of 0:12:24.600 --> 0:12:27.559 tangible book value. You may think that sounds terrified. Who 0:12:27.559 --> 0:12:30.280 wants to be in Italy right now? There's political uncertainty, 0:12:30.360 --> 0:12:32.920 But that's exactly when you want to buy, because the 0:12:33.000 --> 0:12:35.440 next stage you get back to sixty or seventy percent 0:12:35.440 --> 0:12:38.080 of tangible book and you've doubled your money. And I 0:12:38.120 --> 0:12:41.160 guess I would contrast that you might be seeing great 0:12:41.200 --> 0:12:45.400 opportunities in in specific companies, but when we look at 0:12:45.480 --> 0:12:49.400 Europe overall from from our perspective, we are still bearished. 0:12:49.440 --> 0:12:51.640 Now there might be a timing element, Sarah, between what 0:12:51.720 --> 0:12:54.679 you're saying and I'm saying, but um, I agree that 0:12:54.679 --> 0:12:57.960 they're doing some fiscal stimulus. I think with the potential 0:12:58.040 --> 0:13:00.560 for them to lose more energy supply in the winter, 0:13:01.120 --> 0:13:03.200 it will be important to see if the governments take 0:13:03.240 --> 0:13:07.440 those losses off the companies and onto the government balance sheets, 0:13:07.480 --> 0:13:09.600 just like we saw the US do for some US 0:13:09.640 --> 0:13:12.480 companies during COVID, Will Europe do that as well? That 0:13:12.480 --> 0:13:15.719 would certainly be a positive for European equities if that 0:13:15.800 --> 0:13:18.840 move happens. In the absence of that, I do think 0:13:18.880 --> 0:13:20.920 you have to reckon with the e c V tightening 0:13:20.960 --> 0:13:24.400 and what is an incredibly challenging environment, so the European 0:13:24.480 --> 0:13:27.720 Central Bank slowing growth even worse than what we're seeing 0:13:27.720 --> 0:13:31.359 in the United States so far, and very high multidecade 0:13:31.440 --> 0:13:34.080 high inflation. So they're stuff between a rock and a 0:13:34.080 --> 0:13:37.160 hard place. And you mentioned Italy. You know, look, Italy 0:13:37.280 --> 0:13:40.600 tends to go through governments roughly every eighteen months going 0:13:40.640 --> 0:13:43.840 back to World War Two, so this is not that unusual. However, 0:13:44.400 --> 0:13:48.120 Italy right now desperately needs these fiscal transfers from the 0:13:48.160 --> 0:13:51.559 European Union. And if this this government, which isn't as 0:13:51.640 --> 0:13:56.199 cohesive today, is unable to pass reforms the fiscal tap 0:13:56.240 --> 0:13:58.840 gets turned off. And if the fiscal tap gets turned 0:13:58.840 --> 0:14:02.160 off while the ECB is tightening, I think European equities 0:14:02.200 --> 0:14:05.000 are really going to struggle. Thank you so very much. 0:14:05.120 --> 0:14:08.920 Rebecca Patterson of Bridgewater and Sarah Header of Causeway Capital. 0:14:11.240 --> 0:14:13.800 Coming up, we have a Supreme Court taking a different 0:14:13.800 --> 0:14:17.040 direction on a wide range of issues. But what could 0:14:17.040 --> 0:14:19.800 it mean for the markets and for that matter, deals, 0:14:20.320 --> 0:14:23.760 We asked Ken Jacobs of Lazard Prayer. That's next on 0:14:23.920 --> 0:14:36.480 Wall Street Week on Bloomberg. The Supreme Court is rocking 0:14:36.520 --> 0:14:39.360 the boat for us all. In an historic term, the 0:14:39.400 --> 0:14:41.600 Court managed to turn the heat up on just about 0:14:41.640 --> 0:14:45.560 everything it touched. From its overturning Row versus Wade, the 0:14:45.640 --> 0:14:49.000 health and life of women in this nation are now 0:14:49.160 --> 0:14:52.760 at risk. It will save the lives of millions of children, 0:14:53.080 --> 0:14:56.320 and it will give families hope. To its permitting concealed 0:14:56.320 --> 0:14:59.680 weapons unquestionably the biggest Second Amendment ruling in more than 0:14:59.720 --> 0:15:01.840 a dead kid from this court to it's telling the 0:15:01.840 --> 0:15:04.840 e p A to back off on regulating power plants. 0:15:05.160 --> 0:15:08.680 The U. S. Supreme Court has restricted the Environmental Protection 0:15:08.760 --> 0:15:13.240 Agencies authority to curb greenhouse gases from power plants. The 0:15:13.320 --> 0:15:16.280 debate continues on the wisdom of all these decisions, but 0:15:16.400 --> 0:15:20.240 taken together, they raised important questions for business and the markets, 0:15:20.560 --> 0:15:23.520 questions about how the rule of law that underpins our 0:15:23.720 --> 0:15:27.200 entire system will work under this new court, with some 0:15:27.360 --> 0:15:30.480 like Senator Deportment of Ohio saying, it's just an appropriate 0:15:30.480 --> 0:15:33.840 reminder that the power ultimately remains with the Congress, not 0:15:34.160 --> 0:15:37.400 the regulators, not to Supreme Court. Was was essentially saying, 0:15:37.520 --> 0:15:39.280 is that, wait a minute, We've got to be sure 0:15:39.360 --> 0:15:43.160 that the Congress, which is the representative of the people, uh, 0:15:43.280 --> 0:15:45.880 you know, has has the final say. Well, Critics like 0:15:46.000 --> 0:15:49.520 Larry Tribes say the Court has abandoned principle in favor 0:15:49.640 --> 0:15:55.080 of personality. Strikes me as profoundly unprincipled, because the Supreme 0:15:55.120 --> 0:16:01.680 Court has long said that decisions of durability should not 0:16:01.840 --> 0:16:06.960 be overruled in the absence of some extraordinary change other 0:16:07.080 --> 0:16:12.880 than the mere personnel of the Court. And to tell 0:16:12.920 --> 0:16:15.240 us whether there might really be a connection between what 0:16:15.240 --> 0:16:17.160 the Supreme Court is during the one hand, and the 0:16:17.240 --> 0:16:19.480 business world and the other, We're welcome a true leader 0:16:19.480 --> 0:16:22.000 in the business world. He is the chairman and CEO 0:16:22.040 --> 0:16:24.880 of Lazar For he is Ken Jacobs Ken great to 0:16:24.880 --> 0:16:28.240 have you back on. So we tend to think of 0:16:28.280 --> 0:16:31.160 things like abortion and social issues and the Supreme Court 0:16:31.240 --> 0:16:33.440 and even some of the regulary issues as more in 0:16:33.480 --> 0:16:37.440 the zone of politics or even political philosophy. Can they 0:16:37.480 --> 0:16:41.040 affect the business world as well? Yes. So when you 0:16:41.040 --> 0:16:43.000 step back and you think about the United States, US 0:16:43.080 --> 0:16:47.760 has a handful of really true competitive advantages. One is 0:16:48.000 --> 0:16:53.200 um rule of law, a second is demographics uh, and 0:16:53.320 --> 0:16:57.240 a third is UH one market and by one market, 0:16:57.280 --> 0:17:01.680 where we're market of three million people with essentially one 0:17:01.720 --> 0:17:03.880 set of rules. So when a company goes to do 0:17:03.960 --> 0:17:07.280 business in the United States, by and large, it's it's 0:17:07.320 --> 0:17:10.320 one set of rules for the whole country. And what 0:17:10.359 --> 0:17:14.920 the Supreme Court is doing is essentially saying, look, Uh, 0:17:14.960 --> 0:17:18.520 the administrative state has become unwieldy. Uh, it's taken on 0:17:18.800 --> 0:17:22.280 too much responsibility. Uh. Congress really should do a better 0:17:22.400 --> 0:17:26.480 job of writing laws more specifically, and we're gonna start 0:17:26.480 --> 0:17:28.880 to whittle back some of the things that the administrative 0:17:28.880 --> 0:17:31.639 is doing. Well. On paper, that sounds great, I mean, 0:17:32.160 --> 0:17:34.760 perhaps will be less regulation, maybe the laws will be clearer, 0:17:34.840 --> 0:17:39.160 better written, But the reality is Congress is rife with polarization, 0:17:39.240 --> 0:17:42.320 it's difficult to get anything done without a supermajority. So 0:17:42.560 --> 0:17:45.680 the reality is that there's a vacuum. And so we're 0:17:45.680 --> 0:17:48.919 going from a from from a place where we have 0:17:49.000 --> 0:17:51.280 a clear sense. We may not like all the regulation, 0:17:51.359 --> 0:17:53.320 but we have a clear sense of the rules to 0:17:53.400 --> 0:17:56.520 a place where the rules are uncertain, and increasingly the 0:17:56.600 --> 0:17:59.480 states are stepping in and making decisions on many of 0:17:59.520 --> 0:18:02.040 these rules. And what's ending up happening is is gonna 0:18:02.080 --> 0:18:05.600 end up with multiple rules with multiple states and candid league, 0:18:05.600 --> 0:18:09.879 probably written by by groups or people that aren't as 0:18:09.920 --> 0:18:13.280 competent as exists in Congress. And that's worrisome. Take us 0:18:13.280 --> 0:18:16.560 into your business specifically, you've got a very large advisory business. 0:18:16.600 --> 0:18:19.119 You've also got a big asset management business. How do 0:18:19.240 --> 0:18:23.119 those challenges was perhaps a very diffuse set of rules 0:18:23.119 --> 0:18:26.359 and regulations laws? How could it potentially affect your bot's 0:18:26.359 --> 0:18:29.280 take asset management as an example, that's probably the easier 0:18:29.320 --> 0:18:32.520 one of the two to see the impact. So you 0:18:32.600 --> 0:18:35.560 have a state that essentially says, look, we don't want 0:18:35.600 --> 0:18:39.080 to hire an asset manager that is worried about climate, 0:18:39.880 --> 0:18:44.000 and so they will restrict uh the ability of a 0:18:44.080 --> 0:18:47.040 state pension fund to invest in that manager. Another state 0:18:47.119 --> 0:18:49.840 may say, you know what, we will only invest in 0:18:49.880 --> 0:18:54.240 managers that take into account climate. Now, if it's a 0:18:54.280 --> 0:18:58.159 small state with very little population and very little um 0:18:58.560 --> 0:19:01.119 assets under management in there's a pension funds, maybe it 0:19:01.160 --> 0:19:03.240 doesn't matter that much. But when we start having big 0:19:03.240 --> 0:19:05.320 states dueling on this, it's a real problem. Well, we're 0:19:05.320 --> 0:19:09.240 starting to see its like Texas and Florida and California, 0:19:09.240 --> 0:19:11.320 New York just to pick four. I seem to have 0:19:11.400 --> 0:19:13.879 different added to destroy these things. Are you seeing infect 0:19:13.880 --> 0:19:15.840 your business so far? Is this more on the horizon? 0:19:15.920 --> 0:19:18.280 It's I would say it's on the horizon, but it's 0:19:18.320 --> 0:19:21.159 worrisome and you sort of think about it. You have 0:19:21.200 --> 0:19:23.879 an industry like insurance, which has fifty different regulators in 0:19:23.920 --> 0:19:26.800 fifty different states. That's a complex industry. But that's a 0:19:26.960 --> 0:19:29.560 real exception in the U. S economy. Most of the U. 0:19:29.640 --> 0:19:33.280 S economy is dominated by company or driven by companies 0:19:33.280 --> 0:19:35.960 that are able to operate in all fifty states without 0:19:35.960 --> 0:19:38.600 a concern, And this is something that I think really 0:19:38.680 --> 0:19:42.040 runs the risk of upsetting one of the true competitive 0:19:42.040 --> 0:19:44.600 advantages of the United States. Ken, Thank you so much 0:19:44.600 --> 0:19:47.240 for being here. Really appreciated. As Ken Jacobs, he is 0:19:47.280 --> 0:19:52.040 the chairman and CEO of Lazard for Air coming off, 0:19:52.080 --> 0:19:54.400 we wrap up a week with our special contributor Larry 0:19:54.400 --> 0:19:58.080 Summers of Harvard. That's next on Wall Street Week on Bloomberg. 0:20:05.600 --> 0:20:07.760 This is Wall Street Week. I'm David Weston. We're welcome 0:20:07.800 --> 0:20:11.040 once again our very special contributor Larry Summers of Harvard. So, Larry, 0:20:11.080 --> 0:20:13.359 a lot happened this week, but let's start at the 0:20:13.480 --> 0:20:15.480 end of the week. Was what you told us last 0:20:15.520 --> 0:20:17.800 week was the most important indicator that we should be 0:20:17.840 --> 0:20:20.560 looking at the economy, and that is the Employment cost Index. 0:20:20.800 --> 0:20:24.600 It came in. It came in above survey. David, We 0:20:24.600 --> 0:20:28.760 we weren't sure what was gonna be happening with wage inflation. 0:20:29.440 --> 0:20:34.480 We hoped that the indications in some of the monthly 0:20:34.560 --> 0:20:38.440 surveys that earnings growth was slowing and that that might 0:20:38.840 --> 0:20:45.000 slow the whole inflation process would materialize. That didn't happen. 0:20:45.600 --> 0:20:49.080 Looks like inflation is running at a pretty stable rate. 0:20:49.720 --> 0:20:52.680 It's still two and a half points at least above 0:20:52.840 --> 0:20:58.320 where it was before this whole episode. Uh. Started. Uh 0:20:58.520 --> 0:21:02.080 depends on just how you look at the figures. But really, 0:21:02.119 --> 0:21:06.960 no evidence of a significant decline. If you look at 0:21:07.000 --> 0:21:10.640 the private sector and you take out benefits, then it's 0:21:11.160 --> 0:21:13.600 going up a bit. If you look at the twelve 0:21:13.640 --> 0:21:15.840 month figure, it's going up a bit. Those may be 0:21:15.960 --> 0:21:18.879 the wrong things to do, so it may be better 0:21:19.320 --> 0:21:22.840 to look at the overall figure. But I think it's 0:21:23.440 --> 0:21:27.600 showing what I've been saying for quite some time now, 0:21:28.160 --> 0:21:32.800 which is that we are in ingrained moderate to high 0:21:32.840 --> 0:21:39.680 inflation economy. Nothing like nine percent inflation is built in, 0:21:40.359 --> 0:21:45.439 but inflation above four looks to be pretty securely built in, 0:21:46.240 --> 0:21:50.840 and if productivity growth doesn't accelerate, it could be UH 0:21:51.119 --> 0:21:57.320 worse than that UH quite easily. So I'm pretty uncomfortable 0:21:57.680 --> 0:22:02.720 with UH the current UH situation, and I think it 0:22:02.880 --> 0:22:08.280 just points to the difficulties that the Fed UH is 0:22:08.359 --> 0:22:14.639 facing going forward and confirms the broad diagnosis that we 0:22:14.720 --> 0:22:18.280 have an overheated economy that's not going to fix itself, 0:22:18.920 --> 0:22:22.320 and therefore we're not likely to get out of this 0:22:23.000 --> 0:22:28.160 excess inflation situation without having a recession. So so there 0:22:28.200 --> 0:22:30.720 you have been steadfast on this program and elsewhere on 0:22:30.800 --> 0:22:33.320 your views about inflation, and yet there's something of a 0:22:33.400 --> 0:22:36.240 debate going on right now behind between on the one hand, 0:22:36.240 --> 0:22:38.840 the markets and then the other hand economists with the 0:22:38.880 --> 0:22:41.040