WEBVTT - Surveillance: Persistent Inflation with Li 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jailee. We bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment and international relations. 0:00:18.960 --> 0:00:23.799 Find Bloomberg Surveillance and Apple Podcast SoundCloud, Bloomberg dot Com 0:00:23.920 --> 0:00:31.080 and of course on the Bloomberg Terminal. Yeah, while the 0:00:31.240 --> 0:00:33.640 global Chief Investment Strategy A black Rock joins us. Now, 0:00:33.640 --> 0:00:35.000 while I want to go straight to a quote with 0:00:35.040 --> 0:00:38.240 yours on a recession in Europe. You've been on top 0:00:38.240 --> 0:00:40.360 of that story for a while. You've pushed the same 0:00:40.400 --> 0:00:44.000 story recently, and you've asked the question why equities pricing 0:00:44.080 --> 0:00:46.279 kit and you're not alone widely. Why do you think 0:00:46.280 --> 0:00:50.960 that's the case. Why do I think equity is pricing 0:00:51.000 --> 0:00:53.159 in not a recession? I think there is a lot 0:00:53.200 --> 0:00:59.360 of hope in market that the innovation of corporate would 0:00:59.480 --> 0:01:03.920 eventually continue to come through and margin will stay elevated. 0:01:04.000 --> 0:01:08.080 But in our view, actually that is unrealistic to to 0:01:08.200 --> 0:01:12.360 expect that in this environment where coastal production is going higher, 0:01:12.920 --> 0:01:16.600 labor shortage is prevalent, not just in Europe, in the 0:01:16.720 --> 0:01:18.759 US as well, where I am right now, it feels 0:01:18.760 --> 0:01:22.560 like I'm man in your studio for you today. In 0:01:22.600 --> 0:01:25.640 that kind of environment, we expect margin to actually come 0:01:25.720 --> 0:01:30.840 under pressure, and eventually the current market consensus for earnings growth, 0:01:30.959 --> 0:01:33.440 not just in Europe but also in the US will 0:01:33.480 --> 0:01:37.080 have to come down to meet the reality that we 0:01:37.120 --> 0:01:41.000 are heading into a recession in Europe this year and 0:01:41.440 --> 0:01:45.880 one in the US likely next year as well. Realie, 0:01:46.120 --> 0:01:48.520 I find your note to be the Grimce note on 0:01:48.680 --> 0:01:51.320 Europe I have read and will not mince words about it. 0:01:51.320 --> 0:01:55.760 It's very, very difficult. Does Madame Leguarde have the nominal 0:01:55.920 --> 0:02:02.320 GDP firepower, the economic animals spirit to affect the rate 0:02:02.360 --> 0:02:06.280 path you suggest? Can? Can do? They have the interior 0:02:06.480 --> 0:02:11.880 structure to do higher interest rates. I want to pick 0:02:11.960 --> 0:02:14.880 up on something that Lisa talked about, which is this 0:02:15.560 --> 0:02:18.760 idea of own reality. Right, So, we're in an environment 0:02:19.080 --> 0:02:23.560 shaped by supply constraint, which is very very different from 0:02:23.600 --> 0:02:28.200 the Great Moderation that has been shaped by demand and spending. 0:02:28.440 --> 0:02:32.560 And in this environment, actually the tradeoff facing central banks 0:02:32.600 --> 0:02:36.280 are so much harder, the trade off between growth and inflation, 0:02:36.400 --> 0:02:38.720 and so far what we have heard from Madame la 0:02:38.800 --> 0:02:42.720 guard is perhaps some leap service to this tradeoff, but 0:02:42.919 --> 0:02:48.600 not really acknowledging how costly it would be to actually 0:02:49.000 --> 0:02:51.520 bring down inflation through hiking rates and what that means 0:02:51.560 --> 0:02:54.720 for growth and what that means for the labor market. 0:02:54.919 --> 0:02:59.880 So we believe that until central bankers acknowledge that tradeoff 0:02:59.880 --> 0:03:02.920 and choose to live with inflation, we are going to 0:03:02.960 --> 0:03:05.480 be in this environment for an extended period of time 0:03:05.480 --> 0:03:10.360 where the politics of inflation will be prevalent instead of 0:03:10.400 --> 0:03:14.400 the economics of inflation will, which will become clearer as 0:03:14.440 --> 0:03:17.560 we enter next year. But right now, all eyes and 0:03:17.760 --> 0:03:21.640 fighting inflation, which based on what we saw yesterday, the 0:03:21.680 --> 0:03:26.280 core part of inflation is proving to be sticky and persistent. Well, 0:03:26.320 --> 0:03:28.320 a lot of people would agree with you about Europe, 0:03:28.400 --> 0:03:30.880 and you're hearing a lot of notes are reading them 0:03:31.120 --> 0:03:33.920 that are saying underway Europe, it's not so clear. In 0:03:33.960 --> 0:03:36.920 the US, it's not consistent in terms of the messaging. 0:03:37.400 --> 0:03:40.560 How far away from realistic pricing do you think we 0:03:40.640 --> 0:03:45.520 are in equities even after what we saw yesterday? Right now, 0:03:45.560 --> 0:03:50.360 obviously markets are moving very very quickly. Yesterday very dramatic self, 0:03:50.440 --> 0:03:53.240 but today bouncing back a little bit. We believe that 0:03:53.400 --> 0:03:58.000 actually more needs to be given back to properly reflect 0:03:58.120 --> 0:04:02.440 the fact that we should be looking at the earnings recession. 0:04:02.480 --> 0:04:04.880 So right now, if you look at your today market pricing, 0:04:05.480 --> 0:04:09.840 we think that actually the rate path is to some 0:04:09.920 --> 0:04:14.600 extent fully uh reflected in equity pricing, but the fact 0:04:14.600 --> 0:04:18.919 that earnings is going to store uh greatly is is 0:04:18.960 --> 0:04:23.400 not yet reflected in comparison. However, credit is pricing in 0:04:23.440 --> 0:04:26.520 a version of growth stalling, which is why in a 0:04:26.560 --> 0:04:31.719 whole portfolio context we prefer to own credit over over 0:04:31.800 --> 0:04:37.440 equity and just building on this this idea of un reality. UM. Now, Lisa, 0:04:37.480 --> 0:04:40.200 you asked about the US, we also believe that the 0:04:40.240 --> 0:04:43.000 Fed has yet to acknowledge the very difficult trade off 0:04:43.080 --> 0:04:46.640 between growth and inflation. UM. Will pay attention to the 0:04:46.880 --> 0:04:51.960 economic forecast next next week, but in our assessment, actually 0:04:52.000 --> 0:04:55.599 in order to bring inflation back down to two percent 0:04:55.760 --> 0:04:59.120 over two years, we could be looking at three million 0:04:59.120 --> 0:05:03.200 additional people out of a job and also deep procession, 0:05:03.279 --> 0:05:06.839 true present contraction, which is currently not being talked about. 0:05:07.200 --> 0:05:09.680 This is the sort of tough tradeoff that we're looking 0:05:09.760 --> 0:05:12.479 at in this environment shaped by supply constraint, and we 0:05:12.480 --> 0:05:15.760 think that markets will wake up to that in time. 0:05:16.839 --> 0:05:25.599 Welly of Black Rock White Fantastic as olwise right now 0:05:25.600 --> 0:05:28.159 and this is the most interesting time to speak to 0:05:28.200 --> 0:05:32.400 the gentleman from Rice University with mechanical engineering is a background, 0:05:32.400 --> 0:05:35.520 he went on to engineer all sorts of efforts in 0:05:35.640 --> 0:05:40.040 private equity and venture capital. He's the governor the Republican 0:05:40.160 --> 0:05:42.640 from Virginia, Glen Youngcan, and we're thrilled the governor could 0:05:42.720 --> 0:05:46.279 join us this morning. Governor, I cannot think of a 0:05:46.400 --> 0:05:50.000 time to speak to you with someone who's pro business, 0:05:50.120 --> 0:05:54.160 pro innovation, dealing with the Republican Party that wants to 0:05:54.240 --> 0:05:58.520 bob bomb Rob Portman and the rest. Back to an 0:05:58.600 --> 0:06:04.039 anti business time? How anti business anti young Can is 0:06:04.080 --> 0:06:08.440 your Republican party? But I don't think the Republican Party 0:06:08.560 --> 0:06:13.159 is anti business. And in fact, Republican governors all over 0:06:13.320 --> 0:06:16.520 the country have been leading the recovery coming out of 0:06:16.560 --> 0:06:19.040 the pandemic. And that's exactly what we've been doing in Virginia. 0:06:19.080 --> 0:06:22.520 We've got taxes down, we're open for business. We're seeing 0:06:22.560 --> 0:06:26.000 great announcements from companies. We have a lot of open jobs, 0:06:26.040 --> 0:06:28.479 and that's one of our biggest challenges is getting people 0:06:28.560 --> 0:06:32.440 back to work. I am really concerned about the inflationary 0:06:32.480 --> 0:06:35.080 policies that we see coming out of the Biden administration, 0:06:35.160 --> 0:06:38.440 and tom we see the ramifications of that yesterday, which 0:06:38.480 --> 0:06:41.040 is and anybody who thought that this was going to 0:06:41.120 --> 0:06:45.560 be short lived has been shaken because what we're seeing 0:06:45.640 --> 0:06:49.520 is the persistent result of bad policies, inflationary policies, with 0:06:49.600 --> 0:06:53.360 grocery prices up, fuel prices up, and Virginians and Americans 0:06:53.400 --> 0:06:55.440 feeling it in their wallet and they're having to make 0:06:55.480 --> 0:06:59.960 compromises as a result. We have iconic American companies moving, 0:07:00.080 --> 0:07:04.719 for instance, from Chicago to Greater Washington, d C translated Virginia. 0:07:04.960 --> 0:07:08.880 We've got entrepreneurial companies such as your announcement today on 0:07:08.920 --> 0:07:13.080 an innovative company and on a wage basis, they're competing 0:07:13.120 --> 0:07:18.360 with Amazon, who's lifting compensation for drivers and hundreds of 0:07:18.440 --> 0:07:23.920 thousands of their employees. Is there a wage spiral in Virginia, Well, 0:07:24.040 --> 0:07:27.520 there is a There is a real wage inflation challenge 0:07:28.040 --> 0:07:30.800 um there. These these wages are growing, but they're not 0:07:30.840 --> 0:07:34.000 growing as fast as inflation and and the cost of living. 0:07:34.440 --> 0:07:37.680 I am really excited about these new companies that are coming, 0:07:37.760 --> 0:07:40.760 like Plenty Unlimited that we're announcing today that is going 0:07:40.800 --> 0:07:44.560 to build the largest indoor growing facility in the world, 0:07:45.120 --> 0:07:47.520 and we're gonna see them right here in Virginia. They're 0:07:47.520 --> 0:07:50.040 gonna compete for talent. This is why we have to 0:07:50.040 --> 0:07:53.040 get people back into the labor force. We've seen labor 0:07:53.080 --> 0:07:57.520 participation drop substantially in Virginia. We were up near sixty 0:07:57.560 --> 0:08:01.440 seven percent prior to the pandemic, and unfortunately we dropped 0:08:01.480 --> 0:08:03.520 and we're in the sixty three and a half percentage 0:08:03.600 --> 0:08:05.800 is now. We've got to get people back to work. 0:08:06.080 --> 0:08:10.680 These great jobs, these next generation kinds of opportunities will 0:08:10.720 --> 0:08:13.040 pull people back into the workforce, but we've got to 0:08:13.080 --> 0:08:16.320 stop all of the underpinnings that have encouraged them to 0:08:16.360 --> 0:08:18.360 stay home and out of the workforce and get them 0:08:18.360 --> 0:08:23.600 back to work. Governor, this indoor vertical farming company and 0:08:23.640 --> 0:08:27.880 the indoor vertical farm that you're espousing really speaks to 0:08:28.120 --> 0:08:31.720 an agenda more commonly associated with the Democrats in terms 0:08:31.880 --> 0:08:35.440 of trying to make things greener and make things more 0:08:36.120 --> 0:08:38.679 modern with respect to the carbon footprint. Do you find 0:08:38.679 --> 0:08:42.480 yourself bumping up against that stereotype when trying to have 0:08:42.720 --> 0:08:47.640 a more modern approach that brings in more young workers. Well, 0:08:47.880 --> 0:08:52.960 not really. I mean, agriculture is Virginia's largest private industry, 0:08:53.040 --> 0:08:56.960 and technology is one of our fastest growing sectors. And 0:08:57.040 --> 0:09:00.000 so to bring agriculture and technology together in the common 0:09:00.000 --> 0:09:02.880 and Wealth of Virginia makes perfect sense. And in fact, 0:09:02.960 --> 0:09:07.160 we have absolutely become the hub. With today's announcement with Plenty, 0:09:07.240 --> 0:09:09.640 which is going to build a three hundred million dollar 0:09:09.720 --> 0:09:13.360 facility right outside of Richmond, three hundred new jobs, and 0:09:13.360 --> 0:09:17.040 our announcement two days ago with Aero Farm, we will 0:09:17.080 --> 0:09:21.160 have the first and second largest indoor growing facilities in Virginia. 0:09:21.160 --> 0:09:25.640 And yesterday we announced another company being stock expanding their facilities. 0:09:25.880 --> 0:09:29.520 So we're bringing together our agriculture roots are technology future, 0:09:29.920 --> 0:09:32.800 and UH forging the way for for an industry of 0:09:32.840 --> 0:09:37.240 the future. A tech uses far less natural resources as 0:09:37.360 --> 0:09:40.680 higher yields and and and a great product. And I 0:09:40.760 --> 0:09:43.000 just think this is part of the future of agriculture 0:09:43.080 --> 0:09:46.280 is happening right here in Virginia. Just real quick, Governor, 0:09:46.320 --> 0:09:48.439 I remember speaking with you when you had your private 0:09:48.920 --> 0:09:52.200 private sector had on about infrastructure and plans that you're 0:09:52.240 --> 0:09:54.320 looking for, and I'm wondering now that you're in the 0:09:54.360 --> 0:09:58.080 public sector, if you've been surprised by the partisanship that 0:09:58.200 --> 0:10:01.640 prevents certain things from happening. If you've been a surprising 0:10:01.640 --> 0:10:06.360 the other way, well, I do believe that investing in 0:10:06.360 --> 0:10:11.160 infrastructure broadly is critically important to facilitate growth. I mean, 0:10:11.200 --> 0:10:15.120 we're seeing capacity issues across our infrastructure. I mean we're 0:10:15.120 --> 0:10:17.960 still rated a D as a nation. We gotta address this. 0:10:18.520 --> 0:10:21.559 So we're doing it. In Virginia. We moved up substantially 0:10:21.559 --> 0:10:24.480 in the rankings that infrastructure. Our port is being deepened 0:10:24.520 --> 0:10:28.040 and widened, our road infrastructure is being improved, Our connectivity 0:10:28.040 --> 0:10:31.640 and broadband is taking a huge step forward. And this 0:10:31.720 --> 0:10:35.040 is the kind of progress that we must make. We're 0:10:35.080 --> 0:10:38.160 doing it both with government led things, but more importantly 0:10:38.240 --> 0:10:41.960 with public private partnerships. And I think investing in infrastructure 0:10:41.960 --> 0:10:44.520 will continue to be one of the great challenges and 0:10:44.640 --> 0:10:48.280 the great opportunities in Virginia in the nation at leasta 0:10:48.400 --> 0:10:50.720 is that one step closer to asking about count interest 0:10:51.080 --> 0:10:52.240 is that what you want to store at the government 0:10:52.240 --> 0:10:56.480 next at a time, so you're you're you're in luck. 0:10:56.640 --> 0:10:58.520 Going on. Now, we have some technical problems to stop 0:10:58.559 --> 0:11:00.240 the interview, so we have run out of time set. 0:11:00.280 --> 0:11:02.800 But next time we love alonga conversation. Governor Glenn Young 0:11:02.840 --> 0:11:16.079 Cannett of Virginia. Governor, thank you right now, and this 0:11:16.200 --> 0:11:18.000 is really an honor because I can give you a 0:11:18.040 --> 0:11:22.120 story about how economists becomes stars. Michelle Meyer. There's a 0:11:22.240 --> 0:11:26.160 MasterCard economics institute, but far more. One day a girl 0:11:26.200 --> 0:11:30.680 fell out of Boston University and everybody stopped and said, wow, 0:11:30.920 --> 0:11:34.440 does she know housing? Michelle Meyer joins us now after 0:11:34.520 --> 0:11:37.720 years at Bank of America and truly expert on your 0:11:37.760 --> 0:11:40.800 next mortgage and rent payment. Michelle, let me cut to 0:11:40.840 --> 0:11:44.000 the chase. How bad is it? How bad? And how 0:11:44.120 --> 0:11:49.760 persistent will the housing inflation be? Well? Thank you Tom 0:11:49.800 --> 0:11:52.800 for that wonderful intro um. You know, I think the 0:11:52.800 --> 0:11:56.040 big challenge for the housing market right now is simply affordability, 0:11:56.120 --> 0:11:59.160 and that comes from two factors. One is at home 0:11:59.240 --> 0:12:03.600 prices increased at an extraordinary rate across the country of 0:12:03.600 --> 0:12:06.240 the last two years running and double digit rates for 0:12:06.320 --> 0:12:10.120 the major metropolitan areas by our metrics, And we looked 0:12:10.160 --> 0:12:14.040 at home prices relative to income growth across all of 0:12:14.040 --> 0:12:18.000 those really specific metro areas. About sixty five percent of 0:12:18.080 --> 0:12:22.400 the country is considered overvalued. So you have that coupled 0:12:22.480 --> 0:12:26.319 now with this extraordinary increase of mortgage rates and that 0:12:26.520 --> 0:12:29.199 has created a huge shock to the housing market. So, 0:12:29.360 --> 0:12:31.920 as you know, homesales have been falling steadily since the 0:12:32.000 --> 0:12:35.800 beginning of the year. Right, multi family to the rescue. 0:12:35.880 --> 0:12:39.679 That's what always happens in the cycle. Can multi family 0:12:39.840 --> 0:12:43.640 come to the rescue in Nashville or Denver, never to 0:12:43.720 --> 0:12:47.480 the rescue in New York. But as multi family, are 0:12:47.559 --> 0:12:51.200 we getting more units? We are? We certainly are. I mean, 0:12:51.240 --> 0:12:53.760 if you look at housing starts, they're still running above 0:12:53.840 --> 0:12:56.240 what you would consider to break even rate, particularly for 0:12:56.400 --> 0:12:59.800 multi family UM. And remember the lags with multi family 0:12:59.880 --> 0:13:02.360 is while it takes about a year from the beginning 0:13:02.760 --> 0:13:06.960 of the project completion UM on average once the construction starts. 0:13:07.080 --> 0:13:09.320 So UM, you know, you had a lot of projects 0:13:09.360 --> 0:13:11.640 that were ongoing, the development was happening, and now you're 0:13:11.640 --> 0:13:13.760 starting to see those completions. So you're starting to see 0:13:13.800 --> 0:13:16.040 those projects enter the market in a bigger way. So 0:13:16.440 --> 0:13:18.959 you still have supply hitting the market, particularly in the 0:13:19.040 --> 0:13:22.720 multifamily space UM and that should help because you can 0:13:22.840 --> 0:13:26.080 have some conversion from owning to renting given the affordability 0:13:26.120 --> 0:13:29.800 strange in the housing market, But look at owner's equivalent 0:13:29.880 --> 0:13:33.199 rent um in last yesterday's report and c p I 0:13:33.360 --> 0:13:37.400 that is accelerating further. UM. So there's still rental pressures 0:13:37.440 --> 0:13:42.480 as well, which further strains affordability across all the do 0:13:42.640 --> 0:13:45.120 about that, What can right hikes do about that rental 0:13:45.240 --> 0:13:49.079 price pressure with same build Well, I would argue that 0:13:49.200 --> 0:13:52.599 that transmission from monetary policy is quite apparent in the 0:13:52.679 --> 0:13:55.160 housing market right now and will be increasingly in the 0:13:55.200 --> 0:13:59.120 rental market as well. You know, these are interest sensitive sectors, UM, 0:13:59.240 --> 0:14:02.160 and the fact that the fat is increasing as rapidly 0:14:02.320 --> 0:14:05.040 as they have, and you'd argue, for reasons that are 0:14:05.160 --> 0:14:09.600 quite clear to contain prices and inflation UM, that increase 0:14:09.679 --> 0:14:13.120 in interest rates has slowed down demand of housing and 0:14:13.400 --> 0:14:15.880 in turn it will put that type of downward pressure 0:14:16.000 --> 0:14:18.520 on on home prices as well, on home price appreciation, 0:14:18.840 --> 0:14:22.320 which then spills into rental inflation. But that all takes time, 0:14:22.560 --> 0:14:24.840 It is not immediate, but I would argue it's already 0:14:24.920 --> 0:14:29.320 underway that transmission, well, at least on the housing price side, 0:14:29.440 --> 0:14:31.000 but on the rental issue, I just want to pick 0:14:31.080 --> 0:14:33.400 up John's right to bring up the fact that rents 0:14:33.400 --> 0:14:36.160 are still climbing and faster than people have previously expected, 0:14:36.200 --> 0:14:38.960 at least based on the CPI report from yesterday. And 0:14:39.040 --> 0:14:42.280 there's an argument that the higher prices go on houses, 0:14:42.880 --> 0:14:45.680 the more people are forced to rent, the less affordable 0:14:45.720 --> 0:14:50.200 it goes, especially given uh the high mortgage rates. Where 0:14:50.400 --> 0:14:54.560 is this potential for an overshoot at the same time 0:14:54.920 --> 0:14:57.560 that the people who are least able to handle inflation 0:14:57.640 --> 0:15:01.120 are feeling all the more pain. Yeah, I mean, look, 0:15:01.200 --> 0:15:03.480 these are these are these are certainly some of the 0:15:03.600 --> 0:15:07.680 challenges here in terms of finding that ultimate equilibrium in 0:15:07.760 --> 0:15:11.560 the economy after creating you know, some real imbalances in 0:15:11.720 --> 0:15:15.200 terms of excess stimulus UM and I think you know, 0:15:15.280 --> 0:15:19.480 the adjustment is happening, but it's not complete. And in 0:15:19.560 --> 0:15:22.280 the interim, yes, you've seen this, you know, some push 0:15:22.360 --> 0:15:25.560 into owning to renting, which is increasing demand for rentals 0:15:26.040 --> 0:15:29.200 when there's still some um, you know, lag in terms 0:15:29.280 --> 0:15:31.040 of getting all that supply into the market. But it 0:15:31.120 --> 0:15:34.080 will come. And frankly, you know, one of the ways 0:15:34.120 --> 0:15:38.440 it will come in terms of normalizing inflation, normalizing particularly 0:15:38.440 --> 0:15:41.480 rental inflation, is through the demand side, UM, in the 0:15:41.600 --> 0:15:46.080 sense of weakening the broader economy, particularly labor market. UM. 0:15:46.160 --> 0:15:48.080 You have a bit of an income shock and then 0:15:48.160 --> 0:15:51.480 naturally you start to see that feed through UM. And 0:15:51.560 --> 0:15:53.680 that's what the share Powell I think it's been saying 0:15:53.760 --> 0:15:57.240 quite clearly, which is that they are keenly focused on 0:15:57.440 --> 0:16:00.920 price stability and reducing inflation, and that does mean, you know, 0:16:01.040 --> 0:16:04.880 sacrificing some real growth. But this really leads to the 0:16:04.960 --> 0:16:07.000 question of how much pain needs to be inflicted on 0:16:07.040 --> 0:16:09.000 this economy or how much pain will be inflicted on 0:16:09.040 --> 0:16:11.560 this economy based on the rate hiking cycle being priced 0:16:11.600 --> 0:16:13.360 into the market in a way that we are not 0:16:13.480 --> 0:16:17.000 anticipating because of the lag time, because we're not seeing 0:16:17.080 --> 0:16:19.920 it yet in some of the metrics. What's your sense 0:16:20.120 --> 0:16:22.920 of how likely or unlikely a hard landing? I hate 0:16:23.000 --> 0:16:26.960 using that, but a recession that somewhat significant is given 0:16:27.040 --> 0:16:30.640 the report that we got yesterday on cp I. Well, 0:16:30.680 --> 0:16:33.560 I think the report yesterday show two things. One is 0:16:33.640 --> 0:16:36.280 that you are seeing relief on the supply side, and 0:16:36.400 --> 0:16:38.760 that you know you have. We've seen a drop in 0:16:38.960 --> 0:16:42.640 energy prices, UM, we're starting to see some easing of 0:16:42.760 --> 0:16:46.280 goods inflation. That and more should come given what you've 0:16:46.280 --> 0:16:49.880 seen from container costs coming down, supply chain issues easing, 0:16:50.360 --> 0:16:52.680 but the demand side. There's still a lot of inflation 0:16:52.760 --> 0:16:56.080 there and the services economy is feeling that. Um So 0:16:56.320 --> 0:16:59.080 for the FED that has a lot more control over 0:16:59.120 --> 0:17:02.080 the demand side, it does give them that type of 0:17:02.280 --> 0:17:05.200 you know, pushed to continue to raise interest rates cool 0:17:05.240 --> 0:17:07.920 down the economy, and least to your point, it is 0:17:08.040 --> 0:17:11.840 taking time because the starting point was really high. As 0:17:11.880 --> 0:17:13.720 we've been talking about, as I'm talking to you off 0:17:13.720 --> 0:17:17.280 the last few months. The consumers healthy, there's strong balance sheets, 0:17:17.440 --> 0:17:23.040 consumers still out there spending and they're navigating this inflation environment. Okay, Michelle, 0:17:23.080 --> 0:17:24.679 you've been brilliant on the end. Of course, you've got 0:17:24.720 --> 0:17:26.920 all the resources, a master card to figure that out. 0:17:27.040 --> 0:17:30.200 Jim Glass when a JP Morgan is pushing against the 0:17:30.240 --> 0:17:32.760 gloom like no one I've ever seen in the decades 0:17:32.840 --> 0:17:36.359 he's done this, help us with the Glassman Meyer consumer. 0:17:36.840 --> 0:17:41.320 How boomy is the consumer? Right now? Look from our dad, 0:17:41.359 --> 0:17:43.600 we're looking at our our spending pole Stata for the 0:17:43.720 --> 0:17:46.520 month of August, there was an acceleration in the year 0:17:46.720 --> 0:17:50.320 year growth rate of consumer spending. And that's you know, 0:17:50.600 --> 0:17:54.280 even controlling for these movements and gas and oil and 0:17:54.640 --> 0:17:58.080 autos et cetera. So like the underlying demand that did accelerate. 0:17:58.119 --> 0:18:00.359 So we'll see what the retail sales report shows tomorrow. 0:18:00.480 --> 0:18:05.720 But you know, it seems like we're up Thursday, retail Thursday. 0:18:07.720 --> 0:18:17.920 She will give her credit for it right now. Joining 0:18:18.080 --> 0:18:21.560 us on a phrase, it is simple how to invest, 0:18:21.800 --> 0:18:24.440 and the archway to invest is to not lose money. 0:18:24.520 --> 0:18:27.800 David Rubinstein is with as co founder of Carlisle Group 0:18:27.840 --> 0:18:31.880 and author of the new book How to Invest. David's 0:18:31.920 --> 0:18:34.400 just a great concept, and to me, what's important here 0:18:34.480 --> 0:18:37.040 is the team you have at Carlyle, which can talk 0:18:37.119 --> 0:18:40.560 about log normal distributions and tail risk and all the 0:18:40.600 --> 0:18:45.120 other mathematical bladder. The foundational issue is the how to invest. 0:18:45.600 --> 0:18:48.320 How to make money over long term is to not 0:18:48.880 --> 0:18:53.560 lose money. How do you avoid losses in investment? Well, 0:18:53.640 --> 0:18:56.240 if you're really investing, you're probably not going to be 0:18:56.440 --> 0:18:59.760 avoid losses at some point. No great investor has been 0:18:59.800 --> 0:19:03.000 able to avoid losses at some point. Even Warren Buffett 0:19:03.040 --> 0:19:05.480 has lost money on investments. So you have to be 0:19:05.600 --> 0:19:08.440 in the game and recognize if you're reasonably good at it, 0:19:08.640 --> 0:19:11.200 you'll probably make more money than you'll lose money. And 0:19:11.440 --> 0:19:13.200 what I try to do is to interview some of 0:19:13.240 --> 0:19:15.800 the best investors in the United States and talk to 0:19:15.880 --> 0:19:18.480 them about what their secrets were, how they got where 0:19:18.520 --> 0:19:21.000 they are, and what they would recommend to other people 0:19:21.040 --> 0:19:24.800 who want to be investors. Part of this is a 0:19:24.880 --> 0:19:28.879 definition of short term. How short is short term for 0:19:28.960 --> 0:19:31.920 the different chapters of your book. Well, of course, some 0:19:32.200 --> 0:19:35.720 investors are trading daily, but for people that do what 0:19:35.920 --> 0:19:38.359 I have typically done, which is private equity, it's a 0:19:38.440 --> 0:19:42.679 longer term investment hold, which is typically three to five years. Clearly, 0:19:42.760 --> 0:19:45.880 people like Warren buffet or holding almost forever. But I'd 0:19:45.920 --> 0:19:49.280 say generally investors who put money to work are trying 0:19:49.320 --> 0:19:51.359 to get some kind of good rate of return somewhere 0:19:51.400 --> 0:19:53.720 between the three and five year period of time, typically 0:19:53.800 --> 0:19:58.240 in the private equity or venture capital growth capital areas. David, 0:19:58.280 --> 0:20:00.720 were you surprised what any of these aminary is said 0:20:00.760 --> 0:20:04.679 in terms of their investing secrets of their mantras. Well, 0:20:04.680 --> 0:20:06.480 I don't know if I was surprised. I've known many 0:20:06.520 --> 0:20:09.040 of them over the years, and so I've I've really 0:20:09.080 --> 0:20:11.720 spent some time with them before. But generally, what they 0:20:11.760 --> 0:20:14.520 would say is that you have to take some risks, 0:20:14.920 --> 0:20:18.080 and the great investors are basically going against conventional wisdom. 0:20:18.320 --> 0:20:21.160 The conventional wisdom will say to sell, and the great 0:20:21.200 --> 0:20:22.960 investors will say now is the time to buy, or 0:20:23.080 --> 0:20:25.800 vice versa. And the most common mistake that they all 0:20:25.920 --> 0:20:28.040 felt people make is that when the markets go up, 0:20:28.280 --> 0:20:30.439 people tend to get in. When markets go down, they 0:20:30.480 --> 0:20:32.920 tend to sell, and the great investors tend to do 0:20:33.000 --> 0:20:35.879 the opposite. When markets are in trouble as they are now, 0:20:36.000 --> 0:20:38.160 you could argue, now it's probably a pretty good time 0:20:38.160 --> 0:20:40.800 to invest. You won't see the results of your investment 0:20:40.880 --> 0:20:43.840 for two or three years if it's successful, But generally 0:20:43.880 --> 0:20:46.800 people are now really skilled investors I think are buying 0:20:46.920 --> 0:20:48.640 things now at the bottom of the market, are close 0:20:48.680 --> 0:20:53.199 to the bottom of the market. Hell has investing wisdom changed, 0:20:53.359 --> 0:20:56.520 or investing beliefs, as we've seen a complete change in 0:20:56.560 --> 0:20:59.000 the technology underpinning a lot of it, with a lot 0:20:59.080 --> 0:21:02.400 of it done more quickly, democratizing in many ways, who 0:21:02.480 --> 0:21:05.399 can get in, how people can trade. What used to 0:21:05.480 --> 0:21:08.359 be investing was really something available only to the top 0:21:09.320 --> 0:21:11.359 wealthiest people in the in the country, or in the world. 0:21:11.760 --> 0:21:15.200 Now everybody can participate and invest alongside some very good 0:21:15.200 --> 0:21:17.640 investors by going into their funds. One of the big 0:21:17.720 --> 0:21:19.920 changes is that the rate of return was always the 0:21:20.000 --> 0:21:22.440 most important thing. The highest rate of return you could 0:21:22.520 --> 0:21:25.359 legally get was what people wanted. Now people do worry 0:21:25.400 --> 0:21:27.879 about things like E s G. That was not a 0:21:27.960 --> 0:21:30.600 factor ten or twenty years ago. Now while E s 0:21:30.680 --> 0:21:32.760 G has been on there some attack lately, there's no 0:21:32.880 --> 0:21:35.359 doubt that E s G factors are important for a 0:21:35.440 --> 0:21:39.919 lot of investors, and for institutional investors as well. David 0:21:39.960 --> 0:21:43.320 is the next hour we will witness a Queen of 0:21:43.440 --> 0:21:47.760 the United Kingdom with her coffin moved through the door 0:21:48.000 --> 0:21:52.520 of Westminster Hall. It is an ancient, ancient edifice. It 0:21:52.680 --> 0:21:56.080 is as ancient as what you brought to America, which 0:21:56.160 --> 0:21:59.920 is a copy of the Magna Carta. Please explain your 0:22:00.200 --> 0:22:03.040 view is the one that helped the National Archives with 0:22:03.119 --> 0:22:07.520 our heritage. Please explain the reach from the time of 0:22:07.600 --> 0:22:11.840 the Magna Carta and Westminster Hall to Queen Elizabeth Well. 0:22:11.880 --> 0:22:14.480 The Magna Carta was designed and there are versions of 0:22:14.560 --> 0:22:17.360 it from twelve fifteen the twelve ninety seven to give 0:22:17.520 --> 0:22:20.359 people and generally the wealthier people at the time, not 0:22:20.480 --> 0:22:23.840 really the average person that had later evolved, the benefits 0:22:23.920 --> 0:22:30.000 of things like trial with juries. Uh no taxation without representation, 0:22:30.720 --> 0:22:35.000 right to habeas corpus, things like that. Interestingly, the Magna 0:22:35.040 --> 0:22:37.800 carta became less significant in England for a while and 0:22:37.880 --> 0:22:40.840 became more significant United States because when our charters were 0:22:41.119 --> 0:22:44.400 drafted for the colonies, that thirteen colonies, they typically had 0:22:44.640 --> 0:22:47.080 the rights of the Magna carta or has put into 0:22:47.160 --> 0:22:51.080 those uh those charters. So in many ways, our revolutionary war, 0:22:51.480 --> 0:22:54.600 which was against England, ironically was really based on the 0:22:54.720 --> 0:22:58.560 premise that we had the rights of the Magna carta. 0:22:58.680 --> 0:23:01.120 Many people in this country believe that they had those 0:23:01.240 --> 0:23:03.960 rights because they were guaranteed in the colonial charters, and 0:23:04.359 --> 0:23:06.879 for some period of time the Magna carta became much 0:23:06.960 --> 0:23:11.359 more significant in this country really than it did in England. David, 0:23:11.560 --> 0:23:14.520 we we see a United Kingdom with the changing of 0:23:14.640 --> 0:23:18.800 Prime Minister and clearly from their chancel the exchequer a 0:23:18.920 --> 0:23:22.720 growth at any cost strategy. Is there any history where 0:23:22.840 --> 0:23:26.760 growth at any cost works well? Growth and any cost 0:23:26.840 --> 0:23:29.960 will just produce inflation typically, So I think you have 0:23:30.080 --> 0:23:32.000 to be careful about any type of growth. I think 0:23:32.080 --> 0:23:34.680 the English economy, of the British economy has some real 0:23:34.800 --> 0:23:37.600