WEBVTT - Bloomberg Wall Street Week - January 5th, 2024 0:00:00.240 --> 0:00:02.480 This is Bloomberg Wall Street Week. 0:00:02.480 --> 0:00:04.400 I mean may not have an overall recession, We're having 0:00:04.400 --> 0:00:06.720 a rolling recession to kind of roll looks pretty strongly 0:00:06.720 --> 0:00:07.320 it is when it comes. 0:00:07.240 --> 0:00:09.840 To jobs, the financial stories that shape our world. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.480 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:17.000 generative AI. 0:00:16.920 --> 0:00:19.320 Through the eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, Bank of America, 0:00:22.560 --> 0:00:25.279 deebro Lair of the Paulson Institute, well then Hubbard of 0:00:25.280 --> 0:00:26.280 the Columbia Business School. 0:00:26.280 --> 0:00:30.120 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.400 --> 0:00:33.720 Harvard President leaves a war in the Middle East, stays 0:00:33.840 --> 0:00:36.960 and Santa takes his rally with him on his sleigh. 0:00:37.520 --> 0:00:40.839 This is Bloomberg Wall Street Week. I'm David Weston, this 0:00:40.880 --> 0:00:43.960 week's secial contributor to Larry Summers and the US jobs numbers. 0:00:44.280 --> 0:00:49.000 It's certainly increasingly possible that we'll have that much valleyhed 0:00:49.240 --> 0:00:53.880 soft landing as rare as those who have been historically. 0:00:54.240 --> 0:00:57.200 And David Otter of MIT on what to expect from 0:00:57.240 --> 0:00:58.320 Generative AI. 0:00:58.920 --> 0:01:01.160 Part of that on a game that's so called you 0:01:01.160 --> 0:01:03.800 know AI, give it in will actually be squandered on 0:01:04.280 --> 0:01:04.960 AI defense. 0:01:17.720 --> 0:01:20.399 Global Wall Street got the new year underway this week 0:01:20.480 --> 0:01:23.039 with big changes at the top of Harvard. 0:01:23.360 --> 0:01:27.240 The Harvard Crimson reporting that Claudine Gay will resign today. 0:01:27.360 --> 0:01:30.360 And keep in mind she was Harvard's first black president. 0:01:30.640 --> 0:01:32.920 She just took the post up in July, so this 0:01:32.959 --> 0:01:36.279 is the shortest tenure in Harvard's history, just six months 0:01:36.680 --> 0:01:37.399 and two days. 0:01:37.520 --> 0:01:40.440 While things in the Middle East showed little signs of changing, 0:01:40.520 --> 0:01:41.840 at least for the better. 0:01:42.080 --> 0:01:45.720 I think as events unfold, we're likely to see more escalation, 0:01:46.440 --> 0:01:49.160 stepped up attacks, and as a result, the market's going 0:01:49.200 --> 0:01:51.960 to sort of be dragged back to this Polish Middle 0:01:52.000 --> 0:01:53.000 East risk. 0:01:53.000 --> 0:01:55.760 And Bob Ayer's challenges A Disney stretched into the new 0:01:55.840 --> 0:01:59.080 year as Nelson Pelts continued to challenge his leadership, even 0:01:59.120 --> 0:02:02.160 as another active Blackwells came to his defense. 0:02:02.920 --> 0:02:04.720 This is going to be a really contentious fight I 0:02:04.760 --> 0:02:06.200 think between False and Disney. 0:02:06.240 --> 0:02:09.880 He obviously does definitely want to put himself on the board. 0:02:09.919 --> 0:02:12.160 He definitely wants to see Jay Rizzulu on the board. 0:02:12.360 --> 0:02:15.480 The Federal Reserve released its minutes from the December meeting 0:02:15.560 --> 0:02:18.959 showing a cautious approach, with members talking about the possibility 0:02:18.960 --> 0:02:23.320 of holding for longer than expected, cutting or even raising rates. 0:02:23.639 --> 0:02:26.240 I think we do have to pay a very careful 0:02:26.240 --> 0:02:28.919 attention to that tug of war between what markets are 0:02:28.960 --> 0:02:31.920 seeing in terms of FED easing and whatnot in what 0:02:31.960 --> 0:02:33.800 the macro data are suggesting. 0:02:35.480 --> 0:02:38.240 And then on Friday, US jobs numbers came out stronger 0:02:38.280 --> 0:02:41.040 than expected, pointing to a surprising strength in the economy, 0:02:41.360 --> 0:02:44.120 only to be countered by ISM numbers ninety minutes later 0:02:44.120 --> 0:02:47.320 suggesting some slowing. The markets took all this into account 0:02:47.320 --> 0:02:49.600 and decided that Santa had after all gone back to 0:02:49.680 --> 0:02:51.760 the North Pole and taken his rally with him, with 0:02:51.840 --> 0:02:53.480 the S and P five hundred down one and a 0:02:53.480 --> 0:02:55.200 half percent for the first week of the new year, 0:02:55.320 --> 0:02:57.600 ending at forty six to ninety seven, which is still 0:02:57.720 --> 0:02:59.959 nicely above the forty five hundred number of the bloomer 0:03:00.240 --> 0:03:02.840 El's are predicting for the median. At the year end, 0:03:03.080 --> 0:03:05.800 the NASDAG gave up three and a quarter percent, while 0:03:05.840 --> 0:03:08.320 the yield on the tenure decided to peek its head 0:03:08.400 --> 0:03:11.360 back above four percent, ending the week up over eleven 0:03:11.400 --> 0:03:14.320 basing spoints at four point five to take us through 0:03:14.360 --> 0:03:16.640 the start of the year. Welcome back now, David Bianco, 0:03:16.680 --> 0:03:19.760 he's DWS Chief Investment Officer for the Americas. Welcome back, 0:03:19.760 --> 0:03:20.840 great to have you, happy news. 0:03:20.680 --> 0:03:22.280 Happy new year. That's great to be here for the 0:03:22.280 --> 0:03:22.880 first Friday. 0:03:23.200 --> 0:03:25.799 So Friday was a bit of a whiplash, at least 0:03:25.800 --> 0:03:27.799 for me, because we had those jobs numbers come out. 0:03:27.919 --> 0:03:29.440 The markets seemed to know what to do about that. 0:03:29.480 --> 0:03:31.680 They didn't like it very much, and then the sm 0:03:31.720 --> 0:03:34.240 numbers came out, turn right around. What did we take 0:03:34.280 --> 0:03:34.600 out of this? 0:03:35.600 --> 0:03:38.360 Well, the week, first week of the year, and not 0:03:38.440 --> 0:03:42.640 a great start. Many investors are calling for us to 0:03:42.640 --> 0:03:45.960 pay attention to the January indicator the first several days, 0:03:46.000 --> 0:03:48.960 first five days of the year. Often investors say that's 0:03:48.960 --> 0:03:51.160 the way the rest of the year will go. Not 0:03:51.240 --> 0:03:54.120 a great start, but it's just a start to the year. 0:03:54.160 --> 0:03:55.920 We'll see how things play out. 0:03:56.400 --> 0:03:57.400 The first data, as. 0:03:57.240 --> 0:04:00.960 You said, key data, job market data for SUMBER and 0:04:01.120 --> 0:04:05.200 the manufacturing and the service ism. The way I see 0:04:05.200 --> 0:04:08.920 it is that the job market is absolutely solid. Another 0:04:09.040 --> 0:04:10.800 month of more than two hundred, tw hundred and sixteen 0:04:10.800 --> 0:04:16.000 thousand jobs created on the establishment survey, and we still 0:04:16.040 --> 0:04:20.160 see strong wage growth, more than four percent. 0:04:20.680 --> 0:04:22.440 Sequentially and year on year. 0:04:23.120 --> 0:04:25.600 And another interesting thing is that not only did the 0:04:25.680 --> 0:04:29.400 unemployment rate stay at three point seven percent, among the 0:04:29.440 --> 0:04:33.840 lowest in many many decades, we saw something interesting where 0:04:33.880 --> 0:04:38.320 it looks like nearly seven hundred thousand people who recently 0:04:38.480 --> 0:04:42.159 entered the labor market decided for whatever reason, to exit it. 0:04:42.600 --> 0:04:46.080 So the participation rate is sixty two point five percent, 0:04:46.560 --> 0:04:50.880 well above the lows during the pandemic, but still below 0:04:51.800 --> 0:04:54.680 the sixty three percent level before the pandemic. It's a 0:04:54.720 --> 0:04:58.960 full employment economy. We're still creating jobs, mostly on the 0:04:58.960 --> 0:05:01.640 service side of the economy. Manufacturing is still weak, but 0:05:01.680 --> 0:05:04.720 it's definitely a full employment economy with no slack in my. 0:05:04.720 --> 0:05:08.120 View, Does that give the FED permission to cut anytime soon? 0:05:08.160 --> 0:05:09.760 And we came out of last year with a lot 0:05:09.760 --> 0:05:13.440 of momentum, basically with anticipated cuts perhaps even early in 0:05:13.480 --> 0:05:16.599 the new year. Given those jobs numbers and the numbers 0:05:16.600 --> 0:05:18.360 we're getting right now, does it give the permission that 0:05:18.400 --> 0:05:20.240 have FED any permission to cut at this point? 0:05:20.400 --> 0:05:25.039 Not yet. I think the disinflation that we've seen during 0:05:25.200 --> 0:05:28.279 twenty twenty three and it more needs to occur in 0:05:28.320 --> 0:05:31.560 twenty twenty four has opened the door to cuts beginning 0:05:32.080 --> 0:05:34.600 in twenty twenty four. We think the first one will 0:05:34.640 --> 0:05:38.560 be in June, and should be no earlier than June, 0:05:38.920 --> 0:05:42.440 and it would just be so odd. There's no historical 0:05:42.440 --> 0:05:46.840 precedent since nineteen sixty of the FED cutting when unemployments 0:05:46.880 --> 0:05:50.480 below four percent. The stock market is basically at all 0:05:50.600 --> 0:05:53.320 time highs. 0:05:53.360 --> 0:05:54.839 There's no reason for them to rush it. 0:05:54.880 --> 0:05:56.840 And the more the markets try to rush the FED 0:05:56.880 --> 0:05:59.080 to cut, the more I think the FED should make 0:05:59.120 --> 0:05:59.640 markets wait. 0:06:00.040 --> 0:06:02.559 Numbers were getting indicate that the fourth quarter was probably 0:06:02.560 --> 0:06:04.560 stronger in growth than a lot of people were anticipated. 0:06:04.560 --> 0:06:06.719 As a product matter, what is driving this economy at 0:06:06.720 --> 0:06:09.280 this point, because it is stronger than most people anticipated, 0:06:09.760 --> 0:06:11.360 stronger than most of the rest of the world at 0:06:11.360 --> 0:06:12.000 this point. 0:06:12.320 --> 0:06:15.440 Well, the fourth quarter, still yet to fully be reported, 0:06:16.279 --> 0:06:20.279 is slower than the third quarter, and we expect the 0:06:20.279 --> 0:06:23.039 first quarter of this year to be even slower. So 0:06:23.080 --> 0:06:25.479 there is a clear slowdown in the job creation on 0:06:25.520 --> 0:06:28.920 the services side. On the consumption side, there is a slowdown, 0:06:29.240 --> 0:06:33.440 but less slowly than anybody would have thought. Including nos, 0:06:34.800 --> 0:06:41.600 consumption stay strong. Lifestyle is sticky. People have a powerful 0:06:41.680 --> 0:06:44.400 we talk about pent up savings, but the wealth effect 0:06:44.920 --> 0:06:47.320 that has come from the stock market, and maybe a 0:06:47.320 --> 0:06:49.680 little bit of confidence that by the spring the housing 0:06:49.720 --> 0:06:54.480 market starts to recover in terms of activity. People feel 0:06:54.520 --> 0:06:57.080 really good about their balance sheets and they have their jobs. 0:06:57.200 --> 0:06:59.960 Let's talk about the nineties. Are we're embarking on a 0:07:00.080 --> 0:07:01.880 time like the nineties and ninety is pretty interesting? 0:07:02.240 --> 0:07:02.400 Yeah. 0:07:02.400 --> 0:07:04.320 At the start of twenty twenty four, I actually find 0:07:04.320 --> 0:07:07.680 myself thinking about the nineteen nineties quite a bit. Some 0:07:07.760 --> 0:07:09.720 are wondering if it's the end of nineteen nineties as 0:07:09.720 --> 0:07:12.040 it was twenty twenty three like nineteen ninety nine, and 0:07:12.160 --> 0:07:14.560 are we going to have a popping of a tech bubble. 0:07:15.840 --> 0:07:17.840 I don't think so, but there's a rest The equity 0:07:17.880 --> 0:07:20.440 market has some tough years. I had given the gains 0:07:20.480 --> 0:07:22.160 of the past few years, and then if you go 0:07:22.200 --> 0:07:24.120 the way back to the early the start of the 0:07:24.200 --> 0:07:27.960 nineteen nineties, nineteen ninety there are some issues on the 0:07:27.960 --> 0:07:30.640 table where inflation not as bad as we had recently, 0:07:30.680 --> 0:07:33.600 but inflation was a problem Greenspan had to do something 0:07:33.600 --> 0:07:36.520 about it in ninety four. But also the deficit was 0:07:36.560 --> 0:07:39.880 a problem in the early nineties, and we have yet 0:07:39.880 --> 0:07:42.680 to do anything about the deficit. And a lot of 0:07:42.680 --> 0:07:46.400 people talk about nineteen ninety five being a good analogy 0:07:46.480 --> 0:07:49.240 for this year because of the soft landing. That may 0:07:49.280 --> 0:07:52.360 be the case, but we have an election this year, 0:07:52.440 --> 0:07:55.160 we have a deficit to deal with, and we have 0:07:55.560 --> 0:07:58.560 plenty of geopolitical concerns that are much more adverse than 0:07:58.560 --> 0:07:59.480 the case in the nineties. 0:08:00.120 --> 0:08:01.960 Call By in nineteen eighty five, we did have the 0:08:02.000 --> 0:08:03.920 Carter tax plan that was starting to address on those 0:08:03.920 --> 0:08:04.720 fiscal questions. 0:08:05.360 --> 0:08:06.640 Clinton, Yeah, Clinton. 0:08:06.440 --> 0:08:11.360 Yeah, Yeah, that's right. So Clinton, to his credit, and 0:08:11.400 --> 0:08:15.760 don't forget, this was a big election issue in nineteen 0:08:15.800 --> 0:08:16.520 ninety two. 0:08:17.440 --> 0:08:21.200 The deficit, And in. 0:08:20.360 --> 0:08:24.280 The middle of nineteen ninety three, Clinton with Congress passed 0:08:25.040 --> 0:08:27.640 tax hikes that took effect in ninety three and played 0:08:27.640 --> 0:08:30.720 off in nineteen ninety four fully and they put together 0:08:30.760 --> 0:08:33.959 a plan to reduce the deficit over the nineteen nineties, 0:08:33.960 --> 0:08:36.200 as they successfully did, and we went to surplus. And 0:08:36.280 --> 0:08:39.560 then in nineteen ninety four, with the midterm elections and 0:08:39.600 --> 0:08:42.040 the Republicans come into power, a lot more was done 0:08:42.080 --> 0:08:45.520 to improve the fiscal situation and improve spending. 0:08:45.600 --> 0:08:47.240 So, David, let's talk about how you're going to make 0:08:47.280 --> 0:08:49.280 money the rest of this year. You've already said that 0:08:49.360 --> 0:08:52.880 you think the evaluations are robust and big tech we 0:08:52.960 --> 0:08:54.640 are there places you think that maybe they're not quite 0:08:54.640 --> 0:08:56.600 as robust, maybe we're missing some things. 0:08:57.200 --> 0:08:59.000 Well, I do scour over the equity market all the 0:08:59.000 --> 0:09:04.120 time to find some the best opportunities. We store are 0:09:04.200 --> 0:09:07.959 bullish on big banks. We see the best value at 0:09:07.960 --> 0:09:09.480 the big banks in the US, and they're doing very 0:09:09.520 --> 0:09:12.479 well the past several weeks as the recession fear. 0:09:14.040 --> 0:09:15.000 As dissipated. 0:09:15.840 --> 0:09:20.160 But I also like big biotech and pharmaceuticals because there 0:09:20.320 --> 0:09:24.719 I see strong long term growth potential that is at 0:09:24.760 --> 0:09:30.439 a very un demanding valuation right now. So tech companies, 0:09:30.559 --> 0:09:34.560 they're great, but the valuations are so demanding that even 0:09:34.559 --> 0:09:36.640 if these companies do wonderful things, they might not live 0:09:36.720 --> 0:09:40.199 up to the expectations of investors, particularly over the short term. 0:09:40.679 --> 0:09:43.400 And I'm looking for companies where there is that big 0:09:43.800 --> 0:09:48.079 upside optionality that investors are not pricing. 0:09:48.360 --> 0:09:50.320 We see that pharmaceuticals and biotech. 0:09:50.600 --> 0:09:53.160 What about pharma schools. What's going on specifical with pharma schools? 0:09:53.160 --> 0:09:56.000 So and for example, Pfizer's had a bit of a struggle, Yeah. 0:09:55.880 --> 0:09:58.040 Yeah, Pfiser's definitely had a bit of a struggle. 0:09:58.080 --> 0:09:59.960 And then on the opposite end you've got names like 0:10:00.400 --> 0:10:04.120 Ela Lilly which are going gangbusters, and then everything in 0:10:04.160 --> 0:10:06.959 between and then the companies are going through We've known 0:10:07.000 --> 0:10:11.200 this a transition period from old on patent drugs to 0:10:11.360 --> 0:10:12.360 the new pipeline. 0:10:12.440 --> 0:10:13.199 It takes time. 0:10:13.960 --> 0:10:16.440 You never know which in the pipeline is going to 0:10:16.440 --> 0:10:19.280 be the hit and when. Like I said, the valuations 0:10:19.280 --> 0:10:21.120 are really on demanding. Now we're going into an election 0:10:21.240 --> 0:10:23.760 year and a lot of investors are shy to buy 0:10:24.400 --> 0:10:27.160 healthcare stocks during an election year. I might be a 0:10:27.200 --> 0:10:30.880 little bit cautious on some managed care prescription drug benefit managers, 0:10:30.920 --> 0:10:35.520 but the innovators in the space, the medicine makers, this 0:10:35.600 --> 0:10:38.880 is what we need, and I hope the policy makers 0:10:38.920 --> 0:10:40.400 allow these companies. 0:10:39.920 --> 0:10:41.480 To reach for the stars. 0:10:41.760 --> 0:10:43.760 Thank you so much. Great to have you with us always, 0:10:43.800 --> 0:10:49.880 as David Bianco of DWS. Coming up, we go over 0:10:49.920 --> 0:10:52.040 those jobs numbers out at the end of the week 0:10:52.080 --> 0:10:56.600 with our special contributor Larry Summers of Harvard. That's next 0:10:56.720 --> 0:10:58.319 on Wall three Week on Bloomberg. 0:11:02.000 --> 0:11:06.200 This is Bloomberg Wall Street Week with David Weston from 0:11:06.320 --> 0:11:09.080 Bloomberg Radio. 0:11:14.080 --> 0:11:16.400 This is Wall Street Week. I'm David Weston. We're now 0:11:16.480 --> 0:11:19.520 joined by our special betur Larry Summers of Harvard's. So, Larry, 0:11:19.679 --> 0:11:21.920 thank you so much for being with us. We got 0:11:21.920 --> 0:11:24.160 those jobs numbers at the end of the week on Friday. 0:11:24.200 --> 0:11:26.440 They were significally better than expecto. There were some down 0:11:27.040 --> 0:11:29.800 revisions for the prior month. At the same time, IM 0:11:29.880 --> 0:11:31.560 numbers came in a little softer. What do you make 0:11:31.600 --> 0:11:35.440 of these jobs numbers and particularly perhaps the wage numbers, David. 0:11:35.080 --> 0:11:38.120 Look, I think we're in the same kind of pattern 0:11:38.280 --> 0:11:44.000 we've been in for us some time. As of right now, 0:11:44.080 --> 0:11:51.280 the economy looks pretty strong and inflation looks relatively under control, 0:11:52.040 --> 0:11:55.040 but there's a lot going on underneath the surface, and 0:11:55.120 --> 0:12:04.560 there are still substantial risks with my three scenarios paradigm, 0:12:05.000 --> 0:12:10.439 some risk of a downturn. We still keep not seeing 0:12:10.480 --> 0:12:16.040 it at all in the employment numbers. In the data 0:12:16.080 --> 0:12:20.600 on GDP, there's this big gap between total income and 0:12:20.679 --> 0:12:24.680 total output that makes things hard to read, and there's 0:12:24.720 --> 0:12:28.400 some worrying developments some of the business surveys like that 0:12:28.520 --> 0:12:34.760 ism and in some of the credit data. So I 0:12:34.800 --> 0:12:37.840 think it's possible that the economy will go into recession 0:12:38.000 --> 0:12:42.839 in delayed response to monetary policy. That looks less likely 0:12:42.880 --> 0:12:46.640 to me that I might have fought some months ago. 0:12:47.360 --> 0:12:52.079 It's certainly increasingly possible that we'll have that much valuehooed 0:12:52.320 --> 0:12:57.800 soft landing, as rare as those have been historically, and 0:12:57.840 --> 0:13:02.040 I think there's a risk that people are still underestimating 0:13:02.760 --> 0:13:09.680 given the very worrisome fiscal prospect of the country, given 0:13:09.720 --> 0:13:16.200 the recent easing, quite substantial in financial conditions, given still 0:13:16.360 --> 0:13:20.640 tight and the wage numbers again are not running right now, 0:13:21.000 --> 0:13:25.080 today's number not running at a rate that's consistent with 0:13:25.320 --> 0:13:32.400 the two percent inflation target, given the uncertainties in geopolitics 0:13:32.520 --> 0:13:38.160 that could point the problems in supply chains. My gut 0:13:38.400 --> 0:13:44.800 is still that the market is underestimating the inflation risks 0:13:44.880 --> 0:13:51.160 in the current situation, and therefore probably overestimating the amount 0:13:51.280 --> 0:13:54.720 of FED cutting that is going to take place. But 0:13:54.800 --> 0:13:57.679 it's a fairly close call, and the FED is certainly 0:13:57.720 --> 0:14:05.680 doing the right thing by being entirely vigilant and signaling 0:14:06.240 --> 0:14:12.000 that it is very much going to be data dependent 0:14:15.160 --> 0:14:21.640 going forward. Right here, I do read the continued strength 0:14:21.720 --> 0:14:27.120 of the economy in the face of what's happened to rates, 0:14:27.960 --> 0:14:32.280 as suggesting either that the neutral rate has risen substantially, 0:14:33.480 --> 0:14:38.280 or as suggesting that the economy is less sensitive to 0:14:38.400 --> 0:14:42.600 interest rates than we might have thought. Either one of 0:14:42.640 --> 0:14:48.240 those considerations will suggest a bit less urgency to rate 0:14:48.320 --> 0:14:55.800 cutting than many people suppose at the current moment. 0:14:56.200 --> 0:14:58.120 Larry, we had a major development in something that you've 0:14:58.120 --> 0:15:00.720 talked about in this program more than once, and that 0:15:01.000 --> 0:15:04.600 is at Harvard, where you are a tenured professor, were 0:15:04.680 --> 0:15:07.400 president there, but more generally at college campuses that we 0:15:07.440 --> 0:15:12.080 saw the resignation of Cardinay from Harvard as president. I 0:15:12.160 --> 0:15:14.040 wonder what you make of it, now that we're getting, 0:15:14.040 --> 0:15:17.160 perhaps somewhat past the worst of the conflict, what are 0:15:17.160 --> 0:15:19.920 the larger lessons we should learn, what can be done 0:15:19.960 --> 0:15:22.000 in terms of reformation by the universities. 0:15:22.080 --> 0:15:27.600 Otherwise, David, I think this is a time of testing 0:15:27.720 --> 0:15:34.680 for universities, certainly unlike any other, certainly since the Vietnam 0:15:34.720 --> 0:15:40.160 War period, and perhaps even going beyond that. Some of 0:15:40.200 --> 0:15:46.760 our leading universities are under investigation, both from Republicans in 0:15:46.800 --> 0:15:53.880 the House of Representatives and from the Education Department of 0:15:53.960 --> 0:15:59.200 the Biden demonstration. Biden administration. You're seeing a degree of 0:16:00.360 --> 0:16:05.320 divisiveness on campus I haven't seen since I first got 0:16:05.360 --> 0:16:13.520 to the Harvard campus in nineteen seventy five. So I 0:16:13.560 --> 0:16:19.400 think there's going to be a very profound challenge of 0:16:20.000 --> 0:16:28.880 finding a vital center. Universities must stand up to some 0:16:29.040 --> 0:16:33.840 of the vitriolic forces on the populist right that seem 0:16:33.920 --> 0:16:39.200 to be in favor of everything up to book burning 0:16:39.880 --> 0:16:47.880 in support of enforcing some very particular risk vision on universities. 0:16:48.760 --> 0:16:51.360 At the same time, I don't think there's any question 0:16:52.160 --> 0:16:59.560 that they have been threatened from within by stifling orthodoxies 0:17:00.120 --> 0:17:05.560 have led to the cancelation of speakers that have led 0:17:05.720 --> 0:17:16.160 to people being discomforted discomforted by discussing issues like crime, 0:17:16.600 --> 0:17:24.520 like education except in particular prescribed ways. And it's going 0:17:24.600 --> 0:17:28.960 to be the challenge of university leaders to find a 0:17:29.000 --> 0:17:37.080 way between those twin abhorrent polls. I have to say 0:17:37.119 --> 0:17:44.600 that this goes way beyond any individual. I think universities 0:17:44.680 --> 0:17:50.280 have in many cases, including at Harvard, been failed by 0:17:50.320 --> 0:17:57.840 their trustees. At Harvard we call the group the corporation, and. 0:17:57.800 --> 0:18:02.840 In many ways it is their job above all to 0:18:02.960 --> 0:18:09.280 maintain a healthy interface between the university and the broader society. 0:18:09.840 --> 0:18:12.040 Larry, if we cast our minds back to November of 0:18:12.040 --> 0:18:15.480 twenty sixteen, there were a lot of concerns about President 0:18:15.520 --> 0:18:17.880 Trump when it became clear that he had been elected, 0:18:17.960 --> 0:18:20.119 and in fact, you remember, the markets really went south, 0:18:20.400 --> 0:18:24.159 very dramatically initially, but then they rebounded. And if you 0:18:24.240 --> 0:18:27.199 look basically on the track record of the Trump presidency, 0:18:27.320 --> 0:18:29.679 just from the point of view of investors as well 0:18:29.680 --> 0:18:33.000 as the economy, it is not a terrible record. I 0:18:33.040 --> 0:18:34.680 think it's fair to say. I mean, the markets did 0:18:34.720 --> 0:18:39.479 reasonably well, there was employment created, there was a GDP growth. 0:18:39.800 --> 0:18:42.320 So is it possible that we might overreact to the 0:18:42.359 --> 0:18:44.600 possibility of a Trump two point zero? 0:18:45.359 --> 0:18:50.800 You know, there's an old saying, fool me once, shame 0:18:50.840 --> 0:18:55.560 on you. Fool me twice, shame on me. That's going 0:18:55.640 --> 0:18:57.480 to be the way the rest of the world is 0:18:57.520 --> 0:19:01.040 going to see it. The rest of the world, which 0:19:01.080 --> 0:19:05.600 has had so much faith in the United States for 0:19:05.720 --> 0:19:10.720 all their resentments, and so many have been so reliant 0:19:11.400 --> 0:19:16.480 for so long, were prepared to see a first TERMP 0:19:16.680 --> 0:19:21.879 term as an aberration. But after ninety one indictments, after 0:19:21.920 --> 0:19:27.680 the events of January sixth, that is not how they 0:19:27.680 --> 0:19:31.439 will see a second term that is not how they 0:19:31.480 --> 0:19:36.560 will ever see America again. That will represent a loss 0:19:37.119 --> 0:19:41.440 of the moral authority that the United States has had 0:19:42.000 --> 0:19:45.880 since it won the Cold War, since it won the 0:19:45.920 --> 0:19:50.240 Second World War, and that will, I think, make for 0:19:50.320 --> 0:19:53.240 a much less stable world. 0:19:53.359 --> 0:19:56.000 Okay, Larry, thank you very much for all those thoughts. 0:19:56.359 --> 0:19:58.200 As our special contribute here on Wall Street Week, he 0:19:58.280 --> 0:20:02.800 is Larry Summers of Harvard. Coming up, twenty twenty four 0:20:02.840 --> 0:20:05.280 may just be the year when we figure out how 0:20:05.359 --> 0:20:08.640 big generative AI could be. We'll talk with an economist 0:20:08.680 --> 0:20:11.400 who's done early important work on what it could mean 0:20:11.440 --> 0:20:14.960 for the labor market, David Otter of MIT. That's next 0:20:15.000 --> 0:20:16.680 on Wall Street Week on Bloomberg. 0:20:18.040 --> 0:20:22.280 This is Bloomberg Wall Street Week with David Weston from 0:20:22.400 --> 0:20:25.080 Bloomberg Radio. 0:20:29.760 --> 0:20:32.240 This is Wall Street Week. I'm David Weston. The new 0:20:32.320 --> 0:20:34.600 year will bring with it a presidential election in the 0:20:34.720 --> 0:20:38.400 United States with potentially very different approaches to the economy 0:20:38.440 --> 0:20:41.000 weighing in the balance. Here on Wall Street Week, we're 0:20:41.000 --> 0:20:43.760 going to cover the election by focusing specifically on what 0:20:43.920 --> 0:20:46.920 it could mean for the economy and for investors. So 0:20:46.960 --> 0:20:50.720 we ask Bloomberg International Economics and Policy courspondent Michael McKee 0:20:51.000 --> 0:20:53.520 to start the conversation by laying out what we know 0:20:53.680 --> 0:20:56.560 at this point about the approaches of the two front runners, 0:20:56.760 --> 0:20:59.119 President Biden and former President Trump. 0:21:00.640 --> 0:21:04.000 It's been thirty two years since political strategist James Carvel 0:21:04.160 --> 0:21:07.399 hammered home the idea that when it comes to presidential elections, 0:21:07.920 --> 0:21:11.639 it's the economy stupid. But in twenty twenty four, is 0:21:11.640 --> 0:21:15.680 it entering this election year Compared with election year's past. 0:21:15.920 --> 0:21:19.720 The economy is growing by around four percent, the most 0:21:19.880 --> 0:21:23.800 since two thousand and three, With one exception. Unemployment is 0:21:23.840 --> 0:21:26.719 the lowest it's been entering an election year since nineteen 0:21:26.800 --> 0:21:28.639 sixty eight, when a lot of men were employed by 0:21:28.640 --> 0:21:31.840 the US Army in Vietnam. The exception was twenty twenty, 0:21:32.000 --> 0:21:35.520 when COVID doubled the jobless rate between January and election 0:21:35.640 --> 0:21:38.600 day in November. Inflation is higher than any year since 0:21:38.720 --> 0:21:41.400 two thousand and seven, but it's been cut in half 0:21:41.480 --> 0:21:43.840 over the last twelve months and should be close to 0:21:43.840 --> 0:21:47.680 the election year average by November by the carvill yardstick, 0:21:47.920 --> 0:21:51.240 it's somewhat surprising that President Joe Biden isn't far ahead 0:21:51.280 --> 0:21:54.240 in the polls. It may be that voters haven't shaken 0:21:54.280 --> 0:21:57.359 off the COVID pandemic. Yet they're comparing the economy of 0:21:57.400 --> 0:22:00.399 the past three years to where it was under Trump 0:22:00.400 --> 0:22:03.560 in twenty nineteen, and they're not focused on what Trump 0:22:03.680 --> 0:22:08.919 is promising. Draconian changes. He wants across the board tariff increases, 0:22:08.960 --> 0:22:13.480 which would raise prices for just about everything, threatening inflation. 0:22:14.040 --> 0:22:18.000 Remember when the US raises tariff's, Americans, not foreigners pay 0:22:18.000 --> 0:22:22.639 the difference. Trump is talking about massive deportation of illegal aliens, 0:22:22.680 --> 0:22:26.280 which would hit the labor market hard. On employment, particularly 0:22:26.320 --> 0:22:30.359 in lower wage service sectors, would rise. He would renew 0:22:30.480 --> 0:22:34.680 and expand tax cuts expiring in twenty twenty five, increasing 0:22:34.680 --> 0:22:37.840 the deficit. The good news for President Biden is the 0:22:37.880 --> 0:22:42.160 economic outlook remains bright. If inflation keeps falling, interest rates 0:22:42.200 --> 0:22:45.959 are expected to follow, and that would stimulate faster growth 0:22:46.240 --> 0:22:50.679 and higher stock prices. The Biden camp is betting people 0:22:50.800 --> 0:22:54.600 will notice. The bad news is this year it may 0:22:54.640 --> 0:22:58.320 not be the economy stupid and Wall Street may not care. 0:22:58.960 --> 0:23:00.920 The S and P five hundre it rose twenty four 0:23:00.960 --> 0:23:04.520 percent under Biden last year, but it rose twenty nine 0:23:04.640 --> 0:23:08.560 percent under Trump in twenty nineteen, so this election may 0:23:08.600 --> 0:23:13.760 turn not on pocketbook issues, but personalities. Not that personalities 0:23:13.800 --> 0:23:17.120 are all bad. The nineteen ninety two election brought Larry 0:23:17.200 --> 0:23:18.640 Summers into government. 0:23:19.440 --> 0:23:24.080 David, the generative Artificial intelligence was one of the hottest 0:23:24.119 --> 0:23:26.840 topics for investors in twenty twenty three and looks to 0:23:26.880 --> 0:23:29.240 be the same in twenty twenty four. There's much we 0:23:29.359 --> 0:23:32.359 don't know about what it could ultimately mean, including about 0:23:32.359 --> 0:23:34.960 the effect on productivity and growth in the labor market. 0:23:35.200 --> 0:23:38.120 David Otter, he is MIT Professor of Economics, has done 0:23:38.160 --> 0:23:41.240 some of the earliest seminal work on this subject, and 0:23:41.240 --> 0:23:43.320 we welcome now to Wall Street Week. So Professor, thanks 0:23:43.320 --> 0:23:45.000 so much for being with us. As I say, it's 0:23:45.080 --> 0:23:47.679 really early going and we don't know a lot. But 0:23:48.000 --> 0:23:50.840 what do we think we might know about productivity and growth, 0:23:50.880 --> 0:23:53.320