1 00:00:00,240 --> 00:00:02,440 Speaker 1: This is Bloomberg Wall Street Week. 2 00:00:02,480 --> 00:00:04,400 Speaker 2: And we may not have an overall recession, we're having 3 00:00:04,400 --> 00:00:06,760 Speaker 2: a rolling recession. To conye, roll looks pretty strongly. It 4 00:00:06,760 --> 00:00:09,000 Speaker 2: is when it comes to jobs. The financial stories that 5 00:00:09,119 --> 00:00:12,640 Speaker 2: shape our world. Three major regional bank failures send shockwaves 6 00:00:12,680 --> 00:00:14,880 Speaker 2: through the banking system. We're all trying to figure out 7 00:00:14,880 --> 00:00:17,000 Speaker 2: what to make of generative AI. 8 00:00:16,920 --> 00:00:19,320 Speaker 1: Through the eyes of the most influential voices. 9 00:00:19,440 --> 00:00:22,400 Speaker 2: Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 10 00:00:22,520 --> 00:00:25,279 Speaker 2: deebro Lair of the Paulson Institute, well then Hubbard of 11 00:00:25,280 --> 00:00:26,280 Speaker 2: the Columbia Business School. 12 00:00:26,280 --> 00:00:30,160 Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 13 00:00:30,440 --> 00:00:33,440 Speaker 2: A tale of two cities. As the bricks meet in 14 00:00:33,520 --> 00:00:37,320 Speaker 2: Johannesburg and the central bankers and Jackson Hole, while race 15 00:00:37,520 --> 00:00:40,760 Speaker 2: just keep going up all around the world. This is 16 00:00:40,760 --> 00:00:44,320 Speaker 2: Wall Street Week. I'm David Weston. This week, I'm Sonny 17 00:00:44,320 --> 00:00:47,159 Speaker 2: Bechelists of Rock Creek. On the bricks searching for a 18 00:00:47,240 --> 00:00:49,240 Speaker 2: new engine for economic growth. 19 00:00:49,640 --> 00:00:53,120 Speaker 3: These new countries that got added the accounts for very 20 00:00:53,200 --> 00:00:55,000 Speaker 3: little in terms of economic clouds. 21 00:00:55,520 --> 00:00:58,560 Speaker 2: Dan Trulo of Harvard on new limits on the banks. 22 00:00:58,880 --> 00:01:02,040 Speaker 4: These banks really they are facing, I think a real 23 00:01:02,160 --> 00:01:05,160 Speaker 4: challenge to their business model over the medium term. 24 00:01:05,400 --> 00:01:08,120 Speaker 2: And Eric Canter of Molus on what all the new 25 00:01:08,200 --> 00:01:11,520 Speaker 2: issuance is doing to yield on government bonds. 26 00:01:11,840 --> 00:01:15,480 Speaker 5: At some point you will reach a mark in which 27 00:01:15,800 --> 00:01:18,560 Speaker 5: you know investors say, well, how much more are you 28 00:01:18,600 --> 00:01:33,800 Speaker 5: going to pay me to keep borrowing like this? 29 00:01:33,800 --> 00:01:36,000 Speaker 2: This week Global Wall Street had to keep an eye 30 00:01:36,040 --> 00:01:39,800 Speaker 2: on two very different events some ten thousand miles apart. 31 00:01:40,040 --> 00:01:43,840 Speaker 2: In Johannesburg, the so called Bricks countries held their annual summit, 32 00:01:44,000 --> 00:01:48,000 Speaker 2: seeking to reinject some economic growth through a range of initiatives. 33 00:01:48,560 --> 00:01:52,520 Speaker 6: Are we need to fully leverage the role of the 34 00:01:52,560 --> 00:01:57,680 Speaker 6: new development banks, push forward reform of the international financial 35 00:01:57,880 --> 00:02:01,840 Speaker 6: and the monetary systems, and past the representation and voice 36 00:02:02,200 --> 00:02:03,480 Speaker 6: of developing countries. 37 00:02:03,880 --> 00:02:06,640 Speaker 2: And while the Bricks were searching for growth, Chair Powell 38 00:02:06,760 --> 00:02:09,760 Speaker 2: led central bankers out to Jackson Hall, Wyoming in search 39 00:02:09,800 --> 00:02:12,720 Speaker 2: of some clarity, maybe even steadiness, in the quest to 40 00:02:12,800 --> 00:02:16,320 Speaker 2: keep growth going but still get inflation under control. 41 00:02:16,680 --> 00:02:19,880 Speaker 7: We are prepared to raise rates further if appropriate, and 42 00:02:19,960 --> 00:02:23,440 Speaker 7: intend to hold policy at a restrictive level until we 43 00:02:23,480 --> 00:02:27,840 Speaker 7: are confident that inflation is moving sustainably down toward our objective. 44 00:02:28,600 --> 00:02:33,880 Speaker 8: Regularities are no longer regular, and we have more irregularities 45 00:02:33,919 --> 00:02:39,040 Speaker 8: than regularities. We cannot exclusively rely on inflation OUTLUK as 46 00:02:39,040 --> 00:02:40,240 Speaker 8: determined by models. 47 00:02:40,400 --> 00:02:42,400 Speaker 2: But there was also a lot going on in between 48 00:02:42,480 --> 00:02:45,880 Speaker 2: Johannesburg and Jackson Hole, as reports came in midweek that 49 00:02:45,960 --> 00:02:49,720 Speaker 2: mister Progosian's private plane had gone down northwest of Moscow 50 00:02:49,919 --> 00:02:52,600 Speaker 2: and what just happened to be the two month anniversary 51 00:02:52,680 --> 00:02:56,200 Speaker 2: of his mutiny against President put in Washington, the SEC 52 00:02:56,240 --> 00:02:59,000 Speaker 2: came out with its new disclosure rules for hedge funds 53 00:02:59,000 --> 00:03:00,200 Speaker 2: and private equity. 54 00:03:00,080 --> 00:03:03,959 Speaker 4: Firms, increased fee disclosure for hedge funds and private equity firms. 55 00:03:04,000 --> 00:03:08,000 Speaker 4: This is a seventeen trillion dollar industry and all across 56 00:03:08,000 --> 00:03:08,480 Speaker 4: the country. 57 00:03:08,600 --> 00:03:11,280 Speaker 2: People took a hard look at mortgage rates over seven 58 00:03:11,320 --> 00:03:14,560 Speaker 2: point three percent and decided they could wait, as mortgage 59 00:03:14,600 --> 00:03:18,520 Speaker 2: applications fell to their lowest since nineteen ninety five. On 60 00:03:18,560 --> 00:03:21,600 Speaker 2: the other hand, owners of Nvidia didn't have to worry 61 00:03:21,720 --> 00:03:24,359 Speaker 2: much about high mortgage payments as they saw the AI 62 00:03:24,440 --> 00:03:27,600 Speaker 2: chip maker come out with yet another gangbuster set of 63 00:03:27,680 --> 00:03:30,960 Speaker 2: numbers and predictions on just how high the sky might be. 64 00:03:31,440 --> 00:03:34,920 Speaker 9: This was a historic guidance that we saw from the 65 00:03:35,000 --> 00:03:40,520 Speaker 9: godfather of Ai, Jensten Nvidia. 66 00:03:39,440 --> 00:03:41,880 Speaker 2: And although Tech gave up some of the Nvidia gains 67 00:03:41,880 --> 00:03:44,160 Speaker 2: on Thursday, the Nasdaq by the end of the week 68 00:03:44,200 --> 00:03:46,880 Speaker 2: was up a robust two point twenty six percent. The 69 00:03:46,960 --> 00:03:48,920 Speaker 2: S and P five hundred didn't do quite as well, 70 00:03:49,000 --> 00:03:51,920 Speaker 2: adding eight ten percent, ending the week at forty four 71 00:03:52,000 --> 00:03:54,200 Speaker 2: or five. That's just over one hundred points above the 72 00:03:54,320 --> 00:03:56,920 Speaker 2: median number our Bloomberg L's project for the end of 73 00:03:56,920 --> 00:03:59,360 Speaker 2: the year, and the yield on the ten year stayed 74 00:03:59,480 --> 00:04:02,880 Speaker 2: reasonably flat, adding just over two basis points, leaving it 75 00:04:02,920 --> 00:04:05,800 Speaker 2: at four point two three percent. Take us through the 76 00:04:05,840 --> 00:04:08,280 Speaker 2: news in the markets this week. We welcome now Scott Kronert, 77 00:04:08,320 --> 00:04:12,840 Speaker 2: He's City US equity strategist, and Laurie Capacina, RBC Capital Markets, 78 00:04:12,880 --> 00:04:15,120 Speaker 2: head of US equity strategy. Welcome to both of you. 79 00:04:15,200 --> 00:04:17,039 Speaker 2: Great Ja you Lauria. Let me start with you first 80 00:04:17,040 --> 00:04:19,360 Speaker 2: of all, what were the big stories in the markets 81 00:04:19,400 --> 00:04:20,720 Speaker 2: this week from your point of view? 82 00:04:21,000 --> 00:04:22,920 Speaker 4: So look, I think it was big tech earnings. I 83 00:04:23,040 --> 00:04:25,320 Speaker 4: was out marketing seeing clients this week. I couldn't get 84 00:04:25,320 --> 00:04:27,880 Speaker 4: out of a meeting without having a debate over a 85 00:04:27,880 --> 00:04:30,280 Speaker 4: certain company and then also, I think jackson Hole was 86 00:04:30,320 --> 00:04:33,040 Speaker 4: the other one, and I would say, look, with jackson Hole, 87 00:04:33,080 --> 00:04:35,159 Speaker 4: I don't think there were any big surprises there, but 88 00:04:35,200 --> 00:04:36,960 Speaker 4: I do think it was good to get that event 89 00:04:37,000 --> 00:04:37,560 Speaker 4: out of the way. 90 00:04:37,760 --> 00:04:40,479 Speaker 2: What about Jackson Hole from your perspective, Scott, did you 91 00:04:40,480 --> 00:04:42,760 Speaker 2: hear anything that surprised you to anything that might change 92 00:04:42,800 --> 00:04:44,680 Speaker 2: where the markets are headed? Well? 93 00:04:44,960 --> 00:04:47,440 Speaker 10: I think what Sherman and Paul gave us was a 94 00:04:47,920 --> 00:04:50,680 Speaker 10: continuation of an ongoing theme that he's going to stay 95 00:04:50,680 --> 00:04:53,720 Speaker 10: the course on his focus on inflation and wants to 96 00:04:53,760 --> 00:04:57,279 Speaker 10: see the path to two percent very clearly. In the meantime, 97 00:04:57,680 --> 00:04:59,880 Speaker 10: I think the question that continues to come up with 98 00:05:00,080 --> 00:05:02,840 Speaker 10: many clients and investors as so, how do I think 99 00:05:02,880 --> 00:05:06,000 Speaker 10: about interest rates breaking through ten percent of the ten 100 00:05:06,040 --> 00:05:09,280 Speaker 10: year and moving through four point two percent or higher? 101 00:05:09,640 --> 00:05:13,080 Speaker 10: And so they're the discussion very quickly goes from Okay, 102 00:05:13,120 --> 00:05:16,640 Speaker 10: we get it, fed funds probably higher for longer. How 103 00:05:16,680 --> 00:05:19,120 Speaker 10: do I think about longer term interest rate trends and 104 00:05:19,160 --> 00:05:22,440 Speaker 10: how does that affect the valuation paradigm on US equity skin. 105 00:05:22,520 --> 00:05:24,240 Speaker 2: I think one of the things we've heard from Jaypowe 106 00:05:24,400 --> 00:05:26,960 Speaker 2: on Friday was we're not sure where we're going, as 107 00:05:26,960 --> 00:05:29,640 Speaker 2: they say, data dependent. It depends on how the numbers 108 00:05:29,680 --> 00:05:33,440 Speaker 2: come in. So what do you advise clients. On the 109 00:05:33,480 --> 00:05:36,200 Speaker 2: one hand, it's four point five percent yield on the 110 00:05:36,200 --> 00:05:38,480 Speaker 2: ten year versus three point five percent. I mean, that's 111 00:05:38,560 --> 00:05:40,719 Speaker 2: one percent, but it could make a real difference in 112 00:05:40,720 --> 00:05:41,640 Speaker 2: the value of stocks. 113 00:05:41,760 --> 00:05:43,719 Speaker 10: The easy answer for me is that we look for 114 00:05:43,800 --> 00:05:47,159 Speaker 10: pullbacks to be more opportunistic getting long US equities going 115 00:05:47,200 --> 00:05:49,600 Speaker 10: into a fairly robust target for the end of this 116 00:05:49,720 --> 00:05:52,680 Speaker 10: year at forty six hundred and our midyear target for 117 00:05:52,720 --> 00:05:57,200 Speaker 10: next year five thousand. So we're looking at any market 118 00:05:57,240 --> 00:06:01,920 Speaker 10: pullback is a function of valuation compression around the rate 119 00:06:02,040 --> 00:06:06,040 Speaker 10: discussion as ultimately a buying opportunity. As we think under 120 00:06:06,080 --> 00:06:08,840 Speaker 10: the surface, the S and P five hundred is probably 121 00:06:08,960 --> 00:06:12,240 Speaker 10: less connected to the aggregate US economy the most expect 122 00:06:12,600 --> 00:06:15,440 Speaker 10: and in that regard, earning has become a more important driver. 123 00:06:15,520 --> 00:06:18,600 Speaker 10: And there were table pounding bullish in terms of how 124 00:06:18,640 --> 00:06:22,240 Speaker 10: corporate America is contending with the macro influences. 125 00:06:21,760 --> 00:06:24,239 Speaker 2: Right now, Laurier, we have a rare opportunity here tonight 126 00:06:24,320 --> 00:06:26,880 Speaker 2: because we have not one but two bloomberg Ols President 127 00:06:27,080 --> 00:06:29,640 Speaker 2: you and Scott and he just mentioned he's at forty 128 00:06:29,680 --> 00:06:33,080 Speaker 2: six hundred year end this year, you're at forty two 129 00:06:33,080 --> 00:06:35,720 Speaker 2: to fifty, right and the forty three hundreds the median. 130 00:06:36,040 --> 00:06:38,360 Speaker 2: Is there very much difference between forty six hundred and 131 00:06:38,480 --> 00:06:40,760 Speaker 2: forty two to fifty in what might push you to 132 00:06:40,839 --> 00:06:41,599 Speaker 2: the lower number. 133 00:06:42,040 --> 00:06:44,560 Speaker 4: So we're basically at the median right now. And that's 134 00:06:44,600 --> 00:06:47,320 Speaker 4: also basically the average of six different models that we run, 135 00:06:47,360 --> 00:06:49,400 Speaker 4: and our most bullish model gets us up to forty 136 00:06:49,400 --> 00:06:51,200 Speaker 4: eight hundred on the S and P. That's looking at 137 00:06:51,240 --> 00:06:54,039 Speaker 4: where we think valuations could be and our earnings forecast. 138 00:06:54,320 --> 00:06:56,320 Speaker 4: But the real drag on our model, I would say, 139 00:06:56,360 --> 00:06:58,919 Speaker 4: is actually our cross asset indicators, which look at stocks 140 00:06:58,920 --> 00:07:01,560 Speaker 4: relative to bonds. Now, that was a reason to be 141 00:07:01,600 --> 00:07:03,440 Speaker 4: bearish at the beginning of the year, but we did 142 00:07:03,440 --> 00:07:05,719 Speaker 4: see some improvement on those models in the second quarter. 143 00:07:05,800 --> 00:07:07,880 Speaker 4: What we've seen recently with this move up in bond 144 00:07:07,960 --> 00:07:11,360 Speaker 4: yields is that those models are rapidly getting more or 145 00:07:11,440 --> 00:07:13,920 Speaker 4: less favorable for equities, more of a pressure point, and 146 00:07:13,960 --> 00:07:16,680 Speaker 4: we are actually starting to see money flows come out 147 00:07:16,680 --> 00:07:18,040 Speaker 4: of the US equity. 148 00:07:17,640 --> 00:07:18,280 Speaker 11: Market as well. 149 00:07:18,280 --> 00:07:20,440 Speaker 2: That was just my question because you've always, Laurie been 150 00:07:20,480 --> 00:07:22,400 Speaker 2: telling us you know, we really need to be in equities. 151 00:07:22,440 --> 00:07:25,400 Speaker 2: People are underrating equities, but are you starting to see flows? 152 00:07:25,480 --> 00:07:28,200 Speaker 2: It is substantial right now as the bonds become more 153 00:07:28,200 --> 00:07:29,240 Speaker 2: attractive with those yields. 154 00:07:29,280 --> 00:07:32,480 Speaker 4: So what's interesting is that to start the year everyone said, okay, 155 00:07:32,520 --> 00:07:34,560 Speaker 4: bonds are more attractive than equities, and we did see 156 00:07:34,560 --> 00:07:36,920 Speaker 4: money flow go into bonds, and then we actually saw 157 00:07:36,920 --> 00:07:39,760 Speaker 4: in the second quarter money come back into US equities 158 00:07:39,800 --> 00:07:41,760 Speaker 4: as it was being pulled out of Europe. So there 159 00:07:41,800 --> 00:07:44,800 Speaker 4: was an international dynamic that helped the US equity market. 160 00:07:45,280 --> 00:07:47,480 Speaker 4: But what we are seeing now is that we're getting 161 00:07:47,520 --> 00:07:49,400 Speaker 4: to a point in the year where these flow trends 162 00:07:49,440 --> 00:07:51,680 Speaker 4: tend to fade a bit. You're seeing those European equity 163 00:07:51,680 --> 00:07:54,720 Speaker 4: flows stabilize and that money is actually coming specifically out 164 00:07:54,720 --> 00:07:56,880 Speaker 4: of the growth part of the market, and that's pulling 165 00:07:56,920 --> 00:07:58,520 Speaker 4: the overall US equity flows down. 166 00:07:58,640 --> 00:08:01,600 Speaker 2: Scott, one of the things that make people into equities 167 00:08:01,760 --> 00:08:03,880 Speaker 2: is earnings. Where are you on earnings right now? What 168 00:08:03,880 --> 00:08:05,320 Speaker 2: do you think about the seasons we've just been through, 169 00:08:05,400 --> 00:08:07,000 Speaker 2: and what are you looking at in twenty twenty four. 170 00:08:07,240 --> 00:08:09,840 Speaker 10: So the change with Q two earnings was that in 171 00:08:10,520 --> 00:08:13,520 Speaker 10: comparison to Q one we saw earnings for the four 172 00:08:13,600 --> 00:08:16,200 Speaker 10: yer move higher posts Q one, but you didn't see 173 00:08:16,240 --> 00:08:19,320 Speaker 10: too much in the out quarter side of the equation. 174 00:08:19,800 --> 00:08:22,000 Speaker 10: With Q two, we began to see an upper revision 175 00:08:22,040 --> 00:08:24,480 Speaker 10: bias to Q three and Q four. We think at 176 00:08:24,520 --> 00:08:27,800 Speaker 10: this point the twenty three earnings and around two twenty 177 00:08:27,840 --> 00:08:29,480 Speaker 10: are more or less dialed in. 178 00:08:29,800 --> 00:08:30,920 Speaker 12: But where we think. 179 00:08:30,800 --> 00:08:33,880 Speaker 10: This is headed is that as we work through either 180 00:08:34,040 --> 00:08:38,000 Speaker 10: economic slowing or mild recession, the path is still for 181 00:08:38,120 --> 00:08:40,960 Speaker 10: higher earnings as we move into twenty twenty four, and 182 00:08:41,000 --> 00:08:42,959 Speaker 10: we're on the more bullish side of the outlook for 183 00:08:43,000 --> 00:08:46,400 Speaker 10: twenty twenty four looking for roughly two forty five of earnings. 184 00:08:46,600 --> 00:08:49,880 Speaker 10: There's some sector differences in here that influence the way 185 00:08:49,960 --> 00:08:52,680 Speaker 10: this year versus next year play out, and so we're 186 00:08:52,679 --> 00:08:57,120 Speaker 10: looking for let's call it less disperse sector setup as 187 00:08:57,160 --> 00:09:01,079 Speaker 10: an underlying driver of an earnings acceleration into twenty twenty four. 188 00:09:01,200 --> 00:09:03,120 Speaker 2: Lord, do you see some sector differences as you look 189 00:09:03,120 --> 00:09:03,960 Speaker 2: into twenty twenty four. 190 00:09:04,440 --> 00:09:06,440 Speaker 4: So what we've seen for next year is that if 191 00:09:06,480 --> 00:09:09,320 Speaker 4: you look at the change in anticipating growth rates on earnings, 192 00:09:09,320 --> 00:09:11,640 Speaker 4: I believe it's healthcare and energy are the two that 193 00:09:11,679 --> 00:09:15,080 Speaker 4: have actually seen some upward revisions recently to that year specifically, 194 00:09:15,120 --> 00:09:16,920 Speaker 4: and those have actually been two of the better performing 195 00:09:16,960 --> 00:09:19,800 Speaker 4: sectors in August in the US equity market for the 196 00:09:19,880 --> 00:09:23,280 Speaker 4: SMP specifically, so you are seeing investors pay attention to 197 00:09:23,360 --> 00:09:25,640 Speaker 4: that kind of issue. I think the other thing though, 198 00:09:25,679 --> 00:09:27,199 Speaker 4: to keep in the back of your mind on twenty 199 00:09:27,240 --> 00:09:30,600 Speaker 4: twenty four earnings is that inflation is anticipated to moderate. 200 00:09:30,800 --> 00:09:33,200 Speaker 4: I think this will affect energy and healthcare less. But 201 00:09:33,280 --> 00:09:35,800 Speaker 4: as that happens, our model actually shows it's a drag 202 00:09:35,840 --> 00:09:37,720 Speaker 4: on revenue. So we think there could be some earnings 203 00:09:37,720 --> 00:09:39,319 Speaker 4: pressures people need to get prepared for. 204 00:09:39,480 --> 00:09:41,880 Speaker 2: Inflation may moderate, but we've heard Scott say there maybe 205 00:09:41,880 --> 00:09:44,400 Speaker 2: a slowdown or even a recession in twenty twenty four. 206 00:09:44,440 --> 00:09:47,440 Speaker 2: That's still a possibility. Did you think earnings will hold 207 00:09:47,520 --> 00:09:48,480 Speaker 2: up in that situation. 208 00:09:49,080 --> 00:09:50,880 Speaker 4: I think there are a lot of cross currents. But 209 00:09:51,000 --> 00:09:54,199 Speaker 4: we have found that revenues in SMP earnings are really 210 00:09:54,280 --> 00:09:57,400 Speaker 4: dictated by two things, inflation and GDP trends. So I 211 00:09:57,480 --> 00:09:59,240 Speaker 4: do think it would be tough if we do see 212 00:09:59,640 --> 00:10:01,960 Speaker 4: sort of the session just pushed into twenty twenty four. 213 00:10:02,000 --> 00:10:03,960 Speaker 4: I think that ends up being another challenge to earnings. 214 00:10:03,960 --> 00:10:05,280 Speaker 4: It's hard to get around. 215 00:10:05,120 --> 00:10:06,960 Speaker 2: Scott, how much attention do you pay to the GDP, 216 00:10:07,000 --> 00:10:09,439 Speaker 2: because you know, though GP numbers coming in, some of 217 00:10:09,480 --> 00:10:12,760 Speaker 2: the numbers are really extraordinary for five plus percent at 218 00:10:12,760 --> 00:10:14,800 Speaker 2: this point, do you believe those numbers? And how much 219 00:10:14,800 --> 00:10:16,080 Speaker 2: does that affect your advice? 220 00:10:16,200 --> 00:10:19,120 Speaker 10: I think that the correlation of earnings to GDP is 221 00:10:19,160 --> 00:10:21,960 Speaker 10: certainly high and an impoortant element. I think we have 222 00:10:22,000 --> 00:10:25,480 Speaker 10: to look at correlation alongside leverage or beta to GDP, 223 00:10:26,280 --> 00:10:28,880 Speaker 10: and there I'd be a little bit differentiated. In terms 224 00:10:28,880 --> 00:10:32,040 Speaker 10: of the way we break the SMP down, it's essentially 225 00:10:32,080 --> 00:10:35,880 Speaker 10: in the three clusters, growth, cyclicals, and defensives. Our growth 226 00:10:35,880 --> 00:10:39,800 Speaker 10: cluster is roughly forty percent of the SMP, so almost 227 00:10:39,800 --> 00:10:43,600 Speaker 10: by definition it should be less economic sensitive. Defensives we 228 00:10:43,640 --> 00:10:46,600 Speaker 10: know are defensive for a reason, they're less economic sensitive. 229 00:10:46,880 --> 00:10:48,439 Speaker 2: So that leaves your thirty. 230 00:10:48,200 --> 00:10:50,920 Speaker 10: Percent of the market that we characterize as cyclicals that 231 00:10:51,080 --> 00:10:53,640 Speaker 10: ought to be more exposed and leveraged to GDP. 232 00:10:53,880 --> 00:10:56,480 Speaker 2: Okay, Laur Kalacina and Scott Krohnitt will be staying with 233 00:10:56,600 --> 00:10:59,120 Speaker 2: us as we turn to new paradigms for the markets 234 00:10:59,200 --> 00:11:01,120 Speaker 2: in the wake of the Great Financial Crisis, and by 235 00:11:01,160 --> 00:11:04,320 Speaker 2: the way, that pandemic. That's next on Wall Street Week 236 00:11:04,559 --> 00:11:05,319 Speaker 2: on Bloomberg. 237 00:11:07,920 --> 00:11:12,160 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 238 00:11:12,280 --> 00:11:15,240 Speaker 1: Bloomberg Radio. 239 00:11:20,080 --> 00:11:22,800 Speaker 2: This is Wall Street. I'm David Weston. Central bankers gathered 240 00:11:22,800 --> 00:11:25,280 Speaker 2: in Jackson Hole this week to take a broader and 241 00:11:25,440 --> 00:11:28,200 Speaker 2: longer term look at the economy and their approaches to 242 00:11:28,240 --> 00:11:31,640 Speaker 2: monetary policy. Which rains is the question whether overall we're 243 00:11:31,640 --> 00:11:34,439 Speaker 2: facing something of a paradigm shift after the traumas of 244 00:11:34,480 --> 00:11:36,960 Speaker 2: the Great Financial Crisis and then the pandemic. It's got 245 00:11:37,000 --> 00:11:40,080 Speaker 2: cornative city and Lori Calvacina of RBC Capital Markets have 246 00:11:40,160 --> 00:11:42,360 Speaker 2: stayed with us to give us the markets perspective on 247 00:11:42,440 --> 00:11:44,200 Speaker 2: where we may be headed. So Scott, let me start 248 00:11:44,200 --> 00:11:47,120 Speaker 2: with you on this paradigm shift. Overturn used term, but 249 00:11:47,240 --> 00:11:50,200 Speaker 2: it may well apply here. We've had the paradigm since 250 00:11:50,200 --> 00:11:52,120 Speaker 2: the Great Financial Crisis and then we had to respond 251 00:11:52,120 --> 00:11:54,320 Speaker 2: to the pandemic. Where are we headed next? 252 00:11:54,679 --> 00:11:56,920 Speaker 10: Well, I want to focus on two elements of this, David, 253 00:11:56,960 --> 00:11:59,280 Speaker 10: So I think first is regarding interest rates, which is 254 00:11:59,360 --> 00:12:01,440 Speaker 10: continues to be elephant in the room, and we've talked 255 00:12:01,480 --> 00:12:04,120 Speaker 10: about this in the context of valuations. But what we 256 00:12:04,240 --> 00:12:06,560 Speaker 10: have to remember is that, Yes, we've been in a 257 00:12:06,559 --> 00:12:10,400 Speaker 10: certain interest rate regime in the post GFC timeframe, but 258 00:12:10,440 --> 00:12:13,200 Speaker 10: when you go back to look historically, it's fascinating the 259 00:12:13,240 --> 00:12:16,800 Speaker 10: correlation between nominal and ten yure yields and SMP performance 260 00:12:16,840 --> 00:12:20,360 Speaker 10: has varied by decade, going back to the sixties. So 261 00:12:20,400 --> 00:12:22,280 Speaker 10: we do have to be all eyes open that as 262 00:12:22,280 --> 00:12:25,360 Speaker 10: we move forward from here, higher for longer rates may 263 00:12:25,400 --> 00:12:27,960 Speaker 10: be part of the investment landscape. And that's just an 264 00:12:28,000 --> 00:12:30,600 Speaker 10: important element to keep a focus on. Is we look 265 00:12:30,880 --> 00:12:34,480 Speaker 10: for the impact of rates on equity valuations. Now, the 266 00:12:34,520 --> 00:12:37,000 Speaker 10: offset of that is growth drivers, and we do have 267 00:12:37,520 --> 00:12:39,480 Speaker 10: a new sheriff in town, if you will, with AI. 268 00:12:39,920 --> 00:12:44,199 Speaker 10: Over the past decade, we've had focus on areas such 269 00:12:44,240 --> 00:12:48,400 Speaker 10: as cloud computing as a driver of productivity. Going forward 270 00:12:48,679 --> 00:12:50,840 Speaker 10: enter AI. We definitely think there are going to be 271 00:12:50,840 --> 00:12:53,440 Speaker 10: companies within the S and P five hundred that have 272 00:12:53,520 --> 00:12:56,719 Speaker 10: a very real revenue and earnings benefit from AI. But 273 00:12:56,800 --> 00:12:59,800 Speaker 10: more broadly and perhaps more important is under the surface. 274 00:13:00,240 --> 00:13:03,200 Speaker 10: We think the productivity enhancement that can come to the 275 00:13:03,280 --> 00:13:06,960 Speaker 10: broader industry economy is really fascinating to us. It has 276 00:13:07,040 --> 00:13:11,240 Speaker 10: us structurally overweight industrials and it has us very focused 277 00:13:11,280 --> 00:13:14,800 Speaker 10: on this notion that as corporate America is better able 278 00:13:14,840 --> 00:13:18,840 Speaker 10: to real time manage their business models courtesy of technology, 279 00:13:19,120 --> 00:13:21,959 Speaker 10: you may implicitly lower the economic sense at a bias 280 00:13:22,000 --> 00:13:23,240 Speaker 10: to the underlying index. 281 00:13:23,440 --> 00:13:25,760 Speaker 2: So Scott and Laura, I must say you have something 282 00:13:25,760 --> 00:13:28,120 Speaker 2: of an ally here in Larry Summers, the former Treasury 283 00:13:28,120 --> 00:13:30,120 Speaker 2: secretary wh's a special contributor here. I talked to him 284 00:13:30,120 --> 00:13:32,080 Speaker 2: earlier today and one of the things he emphasized was 285 00:13:32,080 --> 00:13:35,040 Speaker 2: possible a paradigm shift in the Fed fund rates and 286 00:13:35,080 --> 00:13:36,520 Speaker 2: exactly what's going on with the interest rates. This is 287 00:13:36,559 --> 00:13:37,320 Speaker 2: part we had to say. 288 00:13:38,280 --> 00:13:41,880 Speaker 12: You may see the Fed funds rate have to go 289 00:13:42,080 --> 00:13:45,920 Speaker 12: up once or even more than thatch over the next 290 00:13:46,000 --> 00:13:52,440 Speaker 12: few few months. I think that there is an underappreciation 291 00:13:53,040 --> 00:13:59,680 Speaker 12: in general of the fact that substantially enlarged government budget 292 00:13:59,720 --> 00:14:07,960 Speaker 12: deaths means substantially more absorption of saving, means substantially more demand, 293 00:14:08,679 --> 00:14:12,080 Speaker 12: and all of that means that the neutral interest rate 294 00:14:12,640 --> 00:14:17,280 Speaker 12: is increased and is increase now and in the future. 295 00:14:17,440 --> 00:14:19,440 Speaker 2: So Laurie, let me turn to you. To what extent 296 00:14:19,520 --> 00:14:22,480 Speaker 2: do you agree with Larry, and if so, what does 297 00:14:22,520 --> 00:14:23,960 Speaker 2: it mean for your clients? 298 00:14:24,360 --> 00:14:26,000 Speaker 4: So I would say, on you know, the issue of 299 00:14:26,000 --> 00:14:27,960 Speaker 4: the neutral rate. One of the things our Rate Strategies 300 00:14:27,960 --> 00:14:30,000 Speaker 4: pointed out today that was that powising to kind of 301 00:14:30,000 --> 00:14:32,200 Speaker 4: punt on that issue and say we don't really know 302 00:14:32,240 --> 00:14:34,480 Speaker 4: what it is and kind of squirm out of it 303 00:14:34,520 --> 00:14:37,040 Speaker 4: a little bit. I have some sympathy for that, but 304 00:14:37,160 --> 00:14:39,240 Speaker 4: I will say, as I talk to investors, I'm not 305 00:14:39,320 --> 00:14:42,800 Speaker 4: quite so sure. I think this notion is completely unappreciated. 306 00:14:43,160 --> 00:14:45,400 Speaker 4: I talk to mostly equity folks, and I think they 307 00:14:45,440 --> 00:14:47,480 Speaker 4: are very much of the opinion that we do have 308 00:14:47,560 --> 00:14:50,800 Speaker 4: to brace ourselves for higher interest rates, you know, not 309 00:14:50,880 --> 00:14:54,360 Speaker 4: a FED sitting at zero essentially propping everything up with 310 00:14:54,400 --> 00:14:57,720 Speaker 4: the balance sheet, and also associated with that, frankly, they're 311 00:14:57,720 --> 00:14:59,880 Speaker 4: looking for, you know, a higher run rate on inflation. 312 00:15:00,080 --> 00:15:03,320 Speaker 4: So I was also struck today by chairmpin Powell's comments 313 00:15:03,640 --> 00:15:05,720 Speaker 4: of really, you know, kind of reinforcing the idea of 314 00:15:05,760 --> 00:15:07,680 Speaker 4: the two percent target, because frankly, a lot of the 315 00:15:07,720 --> 00:15:09,680 Speaker 4: equity folks I talk to think maybe it should be 316 00:15:09,680 --> 00:15:10,360 Speaker 4: a little bit higher. 317 00:15:10,440 --> 00:15:12,280 Speaker 2: In a word, is AI going to bail us out? 318 00:15:12,320 --> 00:15:13,560 Speaker 2: Scott thinks it may help us. 319 00:15:14,040 --> 00:15:16,480 Speaker 4: Look, I think that AI is a positive driver. I 320 00:15:16,560 --> 00:15:18,400 Speaker 4: agree with what a lot of what he said I 321 00:15:18,480 --> 00:15:22,080 Speaker 4: view it as another productivity enhancing tool, not necessarily something 322 00:15:22,120 --> 00:15:24,520 Speaker 4: that's going to completely change things, but I do think, 323 00:15:24,760 --> 00:15:28,160 Speaker 4: you know, it's an important component of the idea that 324 00:15:28,240 --> 00:15:29,840 Speaker 4: we do need to get used to a new world, 325 00:15:29,840 --> 00:15:34,520 Speaker 4: and whether that's more technological innovation or reinvigorating the old economy. 326 00:15:34,560 --> 00:15:37,880 Speaker 4: The reindustrialization theme, I think is another paradigm shift we're 327 00:15:37,880 --> 00:15:40,800 Speaker 4: going through, really reversing globalization. I think it's all part 328 00:15:40,840 --> 00:15:41,640 Speaker 4: of the same ball of wax. 329 00:15:41,720 --> 00:15:43,720 Speaker 2: And there's the question when it comes when we get 330 00:15:43,720 --> 00:15:46,800 Speaker 2: that productivity gain. Many thanks to Lori Calvasena of RBC 331 00:15:46,920 --> 00:15:51,280 Speaker 2: Capital Markets and Scott Kroner of City. Higher rates for 332 00:15:51,440 --> 00:15:54,000 Speaker 2: longer seems to be the order of the day. But 333 00:15:54,160 --> 00:15:56,840 Speaker 2: how much higher and for how much longer? And what 334 00:15:56,920 --> 00:15:59,440 Speaker 2: will these higher rates mean for things like deal making, 335 00:15:59,480 --> 00:16:01,960 Speaker 2: which was all already struggling to come back. For some 336 00:16:02,000 --> 00:16:05,400 Speaker 2: answers to these questions. Welcome now back Eric Canter. He's 337 00:16:05,400 --> 00:16:08,600 Speaker 2: a vice chairman at Molison Company. Mister Canter earlier served 338 00:16:08,600 --> 00:16:11,560 Speaker 2: from Virginia in the US Congress, including as House Majority 339 00:16:11,600 --> 00:16:13,240 Speaker 2: of Leaders. So Eric, thank you so much for being 340 00:16:13,280 --> 00:16:14,600 Speaker 2: a Wall Street We really appreciate it. 341 00:16:14,680 --> 00:16:15,840 Speaker 5: David's a pleasure to be here. 342 00:16:15,920 --> 00:16:19,120 Speaker 2: So now you're on Wall Street having been back down 343 00:16:19,320 --> 00:16:21,160 Speaker 2: on the Capitol, give us a sense of where the 344 00:16:21,240 --> 00:16:22,520 Speaker 2: rates are and where they're headed. 345 00:16:23,040 --> 00:16:26,880 Speaker 5: Well, I mean, listen, I think many would say that 346 00:16:26,960 --> 00:16:30,400 Speaker 5: the days of free money are over and that we 347 00:16:30,600 --> 00:16:33,120 Speaker 5: are no longer going to see sort of the benefit 348 00:16:33,200 --> 00:16:35,680 Speaker 5: of that and perhaps be paying the price for that. 349 00:16:36,080 --> 00:16:38,880 Speaker 5: But there's no question that now we are seeing real 350 00:16:38,920 --> 00:16:43,440 Speaker 5: interest rights now exists, and the cost for borrowing has 351 00:16:43,480 --> 00:16:47,160 Speaker 5: gone up. And you know, from a deal making perspective, 352 00:16:47,200 --> 00:16:50,560 Speaker 5: I think what we would like to see from Molas's 353 00:16:50,600 --> 00:16:53,520 Speaker 5: perspective is a little bit more certainty. You know, you know, 354 00:16:53,640 --> 00:16:56,080 Speaker 5: people projectble. Is there going to be a soft landing, 355 00:16:56,320 --> 00:16:58,760 Speaker 5: is there going to be a recession? I mean, from 356 00:16:58,800 --> 00:17:02,200 Speaker 5: our standpoint, it's about the Fed reaching a point where 357 00:17:02,520 --> 00:17:06,320 Speaker 5: you can gain some certainty with the rate hikes. 358 00:17:06,359 --> 00:17:08,320 Speaker 2: And the thing keep saying their data dependent depends on 359 00:17:08,359 --> 00:17:10,639 Speaker 2: what the data are. It comes in what they're going 360 00:17:10,720 --> 00:17:14,159 Speaker 2: to do. One point of data that seems not to 361 00:17:14,200 --> 00:17:16,640 Speaker 2: be up for debate is how much money the US 362 00:17:16,720 --> 00:17:19,280 Speaker 2: governments have to borrow the issuance of treasuries, because that 363 00:17:19,400 --> 00:17:21,320 Speaker 2: certainly is a factor on what happens to the rates. 364 00:17:21,440 --> 00:17:23,240 Speaker 2: The more we have to issue, the more interest you 365 00:17:23,240 --> 00:17:23,760 Speaker 2: have to pay. 366 00:17:24,160 --> 00:17:26,320 Speaker 5: Well, there's no question, and as we know, we went 367 00:17:26,520 --> 00:17:28,960 Speaker 5: right up the country went right up to the edge 368 00:17:29,000 --> 00:17:32,000 Speaker 5: in terms of the debt ceiling, which caused the coffers 369 00:17:32,040 --> 00:17:35,560 Speaker 5: to really empty out, which has now caused the federal 370 00:17:36,280 --> 00:17:40,200 Speaker 5: government to have to incur an incredible amount over twenty 371 00:17:40,240 --> 00:17:44,119 Speaker 5: dollars of issuances. I think since that sort of standoff 372 00:17:44,160 --> 00:17:46,840 Speaker 5: in Washington, So you know, look, David, I think that 373 00:17:47,000 --> 00:17:49,719 Speaker 5: certainly you could look at some of the auctions that 374 00:17:49,800 --> 00:17:53,200 Speaker 5: have taken place. Some haven't gone as well as expected, 375 00:17:53,240 --> 00:17:55,720 Speaker 5: but most by far have gone very well. 376 00:17:55,800 --> 00:17:56,400 Speaker 2: I don't think the. 377 00:17:56,359 --> 00:17:59,520 Speaker 5: Federal government has a problem in borrowing right now, but 378 00:17:59,600 --> 00:18:03,240 Speaker 5: at some point you will reach a mark in which, 379 00:18:03,520 --> 00:18:07,119 Speaker 5: you know, investors say, well, you know, is how much 380 00:18:07,240 --> 00:18:09,720 Speaker 5: more are you going to pay me to keep barring 381 00:18:09,840 --> 00:18:11,760 Speaker 5: like this? And that's the point you don't want to 382 00:18:11,760 --> 00:18:15,880 Speaker 5: get to. And I think from a deal making perspective, again, 383 00:18:15,960 --> 00:18:18,239 Speaker 5: it gets back to the point of certainty. When are 384 00:18:18,240 --> 00:18:21,959 Speaker 5: we going to see the ability for this country to 385 00:18:21,960 --> 00:18:26,000 Speaker 5: have policies in place to grow at a quicker rate 386 00:18:26,160 --> 00:18:29,040 Speaker 5: than the debt is growing. And that's ultimately the goal. 387 00:18:29,280 --> 00:18:31,480 Speaker 2: Right now, we're seeing projections, for example, coming out of 388 00:18:31,520 --> 00:18:34,159 Speaker 2: the Congressional Budget Office suggesting that because of just the 389 00:18:34,200 --> 00:18:36,879 Speaker 2: increase we've already seen in the rates, our interest payments 390 00:18:36,920 --> 00:18:38,439 Speaker 2: are going to be much much higher. It's going to 391 00:18:38,440 --> 00:18:40,199 Speaker 2: add a fair amount to that debt that we have 392 00:18:40,280 --> 00:18:42,840 Speaker 2: to service at some point starts to crowd out other 393 00:18:43,000 --> 00:18:44,520 Speaker 2: things that we will be doing with the money. 394 00:18:44,760 --> 00:18:49,480 Speaker 5: So I think this is the accurate statistics that the 395 00:18:49,680 --> 00:18:52,560 Speaker 5: interest cost has gone up over thirty five percent over 396 00:18:52,560 --> 00:18:55,720 Speaker 5: the past year. We are going to reach a point, 397 00:18:55,720 --> 00:18:59,200 Speaker 5: maybe in fiscal year twenty four or twenty five, that 398 00:18:59,240 --> 00:19:02,280 Speaker 5: the federal government and it's interest bill will be as 399 00:19:02,400 --> 00:19:05,680 Speaker 5: much as what the federal government funds the Pentagon with. 400 00:19:05,840 --> 00:19:09,199 Speaker 5: I mean, that's a really dawning thought, and so we 401 00:19:09,280 --> 00:19:11,720 Speaker 5: can't sustain that. You know, there's a great sort of 402 00:19:11,800 --> 00:19:15,040 Speaker 5: stat in history when you look at the interest bill 403 00:19:15,119 --> 00:19:17,760 Speaker 5: for the federal government on an annual basis, When you 404 00:19:17,800 --> 00:19:20,120 Speaker 5: look at it in two thousand, it was two hundred 405 00:19:20,160 --> 00:19:22,600 Speaker 5: and twenty three billion dollars. If you look at it 406 00:19:22,600 --> 00:19:25,640 Speaker 5: in twenty fifteen, it was two hundred and twenty three 407 00:19:25,680 --> 00:19:28,040 Speaker 5: billion dollars, And you have to sort of ask yourself 408 00:19:28,160 --> 00:19:31,439 Speaker 5: why is that, Because in fact, during that period of 409 00:19:31,480 --> 00:19:35,399 Speaker 5: time there was nine point seven trillion dollars of additional 410 00:19:35,480 --> 00:19:37,840 Speaker 5: debt incurred. How in the world are you paying the 411 00:19:37,840 --> 00:19:40,960 Speaker 5: same amount of interest? It's because rates have been so 412 00:19:41,119 --> 00:19:44,760 Speaker 5: low and so again that's not sustainable. And that's when 413 00:19:44,760 --> 00:19:47,639 Speaker 5: I say again, we're going to have to do something 414 00:19:47,680 --> 00:19:50,440 Speaker 5: about this. And that's why I think the markets too 415 00:19:50,600 --> 00:19:53,680 Speaker 5: are now looking to see longer term while the ten 416 00:19:54,200 --> 00:19:56,840 Speaker 5: year has gone up so much erictually. 417 00:19:56,920 --> 00:19:58,560 Speaker 2: Really great to have you on, Thank you so much 418 00:19:58,560 --> 00:20:02,400 Speaker 2: of the time. That is Eric of Molus and Company 419 00:20:03,240 --> 00:20:05,800 Speaker 2: coming up, the group that was supposed to challenge the 420 00:20:05,840 --> 00:20:08,840 Speaker 2: economic supremacy of the G seven nations. We'll talk about 421 00:20:08,880 --> 00:20:11,359 Speaker 2: Sunny Bachelors of Rock Creek, about the Bricks meeting in 422 00:20:11,440 --> 00:20:14,440 Speaker 2: Johannesburg this week and what we learned. 423 00:20:14,840 --> 00:20:18,920 Speaker 3: She really really needed a major breakthrough this week. 424 00:20:20,880 --> 00:20:23,159 Speaker 2: That's next on Wall Street Week on Bloomberg. 425 00:20:25,200 --> 00:20:29,400 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 426 00:20:29,520 --> 00:20:30,480 Speaker 1: Bloomberg Radio. 427 00:20:37,200 --> 00:20:41,520 Speaker 2: The Bricks Brazil, Russia, India, China and South Africa, a 428 00:20:41,560 --> 00:20:44,680 Speaker 2: group of countries with fast growing economies that are expected 429 00:20:44,720 --> 00:20:46,919 Speaker 2: to dominate the world by twenty fifty. 430 00:20:47,840 --> 00:20:53,679 Speaker 4: It is a club of you know, nations that have 431 00:20:53,840 --> 00:20:57,200 Speaker 4: the same outlook in terms of how the world should 432 00:20:57,320 --> 00:21:00,520 Speaker 4: look in terms of mutelectural operations. 433 00:21:00,840 --> 00:21:04,320 Speaker 2: And they have grown fast. Accounting for just over twenty 434 00:21:04,320 --> 00:21:07,000 Speaker 2: percent of global GDP when first discussed back in two 435 00:21:07,000 --> 00:21:09,639 Speaker 2: thousand and one, they've shot up to over a third 436 00:21:10,000 --> 00:21:12,879 Speaker 2: and are projected to be over forty percent by twenty forty, 437 00:21:13,160 --> 00:21:15,960 Speaker 2: while the G seven has gone the other way, from 438 00:21:16,000 --> 00:21:20,560 Speaker 2: over forty percent down to thirty percent today. What started 439 00:21:20,600 --> 00:21:23,600 Speaker 2: out is simply a way of thinking about investments has 440 00:21:23,640 --> 00:21:27,760 Speaker 2: turned into a more formal arrangement among governments holding annual 441 00:21:27,800 --> 00:21:31,400 Speaker 2: summits this year in Johannesburg, where they decided to expand 442 00:21:31,440 --> 00:21:33,880 Speaker 2: their membership from five to eleven. 443 00:21:34,640 --> 00:21:41,959 Speaker 13: We have decided to invite the Argentine Republic, the Arab 444 00:21:42,040 --> 00:21:49,159 Speaker 13: Republic of Egypt, the Federal Democratic Republic of Ethiopia, the 445 00:21:49,320 --> 00:21:56,280 Speaker 13: Islamic Republic, ran, the Kingdom of Saudi Arabia, and the 446 00:21:56,440 --> 00:21:59,840 Speaker 13: United Arab Emirates to become. 447 00:21:59,600 --> 00:22:03,760 Speaker 2: Full of bigs. But as much as they may consider 448 00:22:03,760 --> 00:22:06,200 Speaker 2: themselves a group, the five countries in the bricks are 449 00:22:06,240 --> 00:22:10,480 Speaker 2: pursuing very different economic paths, with China being the outstanding 450 00:22:10,520 --> 00:22:13,399 Speaker 2: growth leader over the last twenty years, as observed this 451 00:22:13,480 --> 00:22:16,520 Speaker 2: week by Jim O'Neil, the person at Goldman behind the 452 00:22:16,560 --> 00:22:18,480 Speaker 2: original idea of the Bricks. 453 00:22:19,480 --> 00:22:25,200 Speaker 13: Economically, the only reason why the group is that interesting, frankly, 454 00:22:25,359 --> 00:22:26,800 Speaker 13: is because of course China. 455 00:22:27,320 --> 00:22:30,800 Speaker 2: Though China shows signs of giving up its economic leadership, 456 00:22:31,440 --> 00:22:33,840 Speaker 2: the second big problem they have is Ji. 457 00:22:35,560 --> 00:22:39,119 Speaker 10: Who has reasserted control of the economy, who many of 458 00:22:39,160 --> 00:22:41,800 Speaker 10: our investors that we talked to their field doesn't even 459 00:22:41,800 --> 00:22:43,160 Speaker 10: even understand economics. 460 00:22:43,960 --> 00:22:47,080 Speaker 2: While Russia and South Africa have fallen behind, the first 461 00:22:47,119 --> 00:22:49,399 Speaker 2: in the aftermath of the war in Ukraine and the 462 00:22:49,440 --> 00:22:54,040 Speaker 2: second facing a wide range of problems. President Ramafosa has 463 00:22:54,080 --> 00:22:58,320 Speaker 2: been in lots of international meetings looking for ways to 464 00:22:58,359 --> 00:23:02,000 Speaker 2: pull the country forward, leaving it largely to India to 465 00:23:02,080 --> 00:23:07,399 Speaker 2: drive the bricks forward. Despite some disappointment in the past. 466 00:23:06,680 --> 00:23:09,439 Speaker 14: A line that I've always repeated without India is that 467 00:23:09,480 --> 00:23:12,720 Speaker 14: this is a country that has consistently disappointed the optimists 468 00:23:12,720 --> 00:23:15,840 Speaker 14: in the pessimists. So the last few years it has 469 00:23:15,960 --> 00:23:20,840 Speaker 14: clearly disappointed the pessimists because it's done much better than 470 00:23:20,880 --> 00:23:24,960 Speaker 14: what the worst forecasts were. Now, I think that we 471 00:23:25,080 --> 00:23:27,400 Speaker 14: just have to be careful that India doesn't follow its 472 00:23:27,440 --> 00:23:30,560 Speaker 14: past pattern and disappoint the optimists as well. 473 00:23:33,000 --> 00:23:35,320 Speaker 2: When it comes to emerging markets, particularly the bricks, there's 474 00:23:35,359 --> 00:23:37,200 Speaker 2: nobody who knows it quite as well as of Sunny 475 00:23:37,240 --> 00:23:40,679 Speaker 2: pecialist of Rock Creeky Walk or back now to ostri Rica, Sonny, 476 00:23:40,680 --> 00:23:42,679 Speaker 2: thanks so much for being back with us. So it 477 00:23:42,680 --> 00:23:45,400 Speaker 2: turned out to be a fairly eventful meeting in Johannesburg 478 00:23:45,480 --> 00:23:48,080 Speaker 2: as they decided to go from five members to eleven members. 479 00:23:48,280 --> 00:23:50,480 Speaker 2: Were you surprised and what do you think brought this about? 480 00:23:51,960 --> 00:23:57,560 Speaker 3: So, David, I think President she really really needed. 481 00:23:57,240 --> 00:23:59,240 Speaker 11: A major breakthrough this week. 482 00:23:59,720 --> 00:24:03,240 Speaker 3: And with everything that we saw that is going on, 483 00:24:03,440 --> 00:24:07,320 Speaker 3: almost ten billion leaving UH, leaving the markets in China 484 00:24:07,880 --> 00:24:12,439 Speaker 3: over just the last few weeks. You have consumers not 485 00:24:12,440 --> 00:24:16,600 Speaker 3: not really buying into consuming in China. You have the 486 00:24:16,640 --> 00:24:20,800 Speaker 3: real estate problems, you have growth rates down, you have 487 00:24:20,920 --> 00:24:21,880 Speaker 3: youth unemployment. 488 00:24:21,960 --> 00:24:24,080 Speaker 11: He had everything going wrong. 489 00:24:23,880 --> 00:24:26,080 Speaker 3: So this meeting could not have been at the worst time, 490 00:24:26,480 --> 00:24:30,600 Speaker 3: and he really worked hard to convince the other members, 491 00:24:30,640 --> 00:24:36,360 Speaker 3: including Modi and Brazil to UH to agree to this extension, and. 492 00:24:36,359 --> 00:24:38,800 Speaker 11: It seems like the timing was good for India. 493 00:24:38,840 --> 00:24:41,679 Speaker 3: You know, India did manage to UH to be the 494 00:24:41,720 --> 00:24:47,400 Speaker 3: fourth country that's landed on Moon this week, while Russia 495 00:24:48,119 --> 00:24:51,160 Speaker 3: actually could not land on Moon, even though it had 496 00:24:51,160 --> 00:24:56,000 Speaker 3: been an early early UH player in space. So so 497 00:24:56,080 --> 00:24:59,800 Speaker 3: I think India felt comfortable that it may not necessarily 498 00:24:59,800 --> 00:25:02,480 Speaker 3: be in a weak position in this grouping. So that's 499 00:25:02,600 --> 00:25:07,080 Speaker 3: I think how the various leaders got to agree to 500 00:25:07,280 --> 00:25:11,200 Speaker 3: have these six new countries, which are a rather mismatch 501 00:25:11,320 --> 00:25:14,919 Speaker 3: of countries to join the new groupings. 502 00:25:15,200 --> 00:25:17,119 Speaker 2: Well, let me ask about that mismatch. Let me ask 503 00:25:17,160 --> 00:25:19,480 Speaker 2: about the mismatch, because I don't know, by the way, 504 00:25:19,480 --> 00:25:21,639 Speaker 2: what they're going to call it when they admit these countries, 505 00:25:21,640 --> 00:25:23,680 Speaker 2: assuming that they do. There's some formalities or things. But 506 00:25:24,160 --> 00:25:26,879 Speaker 2: when it was created back by Jim O'Neil at Goldman Sachs, 507 00:25:26,960 --> 00:25:29,320 Speaker 2: it was a way of looking at the fastest growing 508 00:25:29,400 --> 00:25:32,840 Speaker 2: economies a group of them there were four originally later 509 00:25:32,880 --> 00:25:36,560 Speaker 2: at five as an investment matter, where to invest What 510 00:25:36,840 --> 00:25:39,080 Speaker 2: is this new entity now, because as you say, it 511 00:25:39,160 --> 00:25:41,560 Speaker 2: is a mismatch. It doesn't fit together the way when 512 00:25:41,640 --> 00:25:42,760 Speaker 2: Jim O'Neil created it. 513 00:25:43,720 --> 00:25:46,600 Speaker 3: Absolutely, and I think Jim, you know, in two thousand 514 00:25:46,600 --> 00:25:47,679 Speaker 3: and one, when he created it. 515 00:25:47,680 --> 00:25:50,440 Speaker 11: He was absolutely right. These countries were growing. 516 00:25:50,240 --> 00:25:55,360 Speaker 3: So fast they were really changing directions. Usually, we saw 517 00:25:55,400 --> 00:25:58,240 Speaker 3: poverty go down in China, we saw poverty go down 518 00:25:58,240 --> 00:26:01,240 Speaker 3: a little bit in India. We saw a major major 519 00:26:01,320 --> 00:26:04,600 Speaker 3: change among the largest economies, which was sort of the 520 00:26:04,640 --> 00:26:07,320 Speaker 3: brick and then the S got added to bricks with 521 00:26:07,440 --> 00:26:08,080 Speaker 3: South Africa. 522 00:26:08,520 --> 00:26:09,720 Speaker 11: And if you look at. 523 00:26:09,600 --> 00:26:14,119 Speaker 3: Actual market terms, I think the S and P was 524 00:26:14,240 --> 00:26:16,639 Speaker 3: up about four hundred and twenty percent. If we go 525 00:26:16,800 --> 00:26:19,160 Speaker 3: back to two thousand and one when he coined the term, 526 00:26:19,600 --> 00:26:23,080 Speaker 3: and EM was up maybe around four hundred and three percent, 527 00:26:23,200 --> 00:26:26,400 Speaker 3: so you know, pretty much in line with the. 528 00:26:26,280 --> 00:26:27,280 Speaker 11: Rest of the market. 529 00:26:27,800 --> 00:26:31,479 Speaker 3: Things changed a lot by the time that the actual 530 00:26:31,560 --> 00:26:34,320 Speaker 3: organization got set up in two thousand and six, and 531 00:26:34,400 --> 00:26:41,320 Speaker 3: then really started going downhill, particularly because of China, Russia 532 00:26:41,400 --> 00:26:46,879 Speaker 3: and South Africa's returns being so negative. So now you know, 533 00:26:46,920 --> 00:26:50,240 Speaker 3: you went from a group that had some cohesion in 534 00:26:50,320 --> 00:26:53,760 Speaker 3: terms of economic growth to a group even before the 535 00:26:53,880 --> 00:26:56,480 Speaker 3: six got added, that have really. 536 00:26:56,280 --> 00:26:58,520 Speaker 11: Very little to do with each other economically. 537 00:26:59,040 --> 00:27:04,480 Speaker 3: And this countries that got added include three oil producers, 538 00:27:04,520 --> 00:27:09,240 Speaker 3: and then you have Egypt, you have Ethiopia, and and 539 00:27:09,400 --> 00:27:12,720 Speaker 3: you know these are countries that are in Argentina. Again, 540 00:27:12,840 --> 00:27:16,200 Speaker 3: countries that do not necessarily have very much in common 541 00:27:16,240 --> 00:27:20,000 Speaker 3: with each other except maybe grievance against the West. 542 00:27:19,800 --> 00:27:23,840 Speaker 11: In some form or other. And moving forward, like you said, 543 00:27:23,920 --> 00:27:25,800 Speaker 11: it will be interesting to see what name they come 544 00:27:25,880 --> 00:27:26,119 Speaker 11: up with. 545 00:27:26,200 --> 00:27:31,119 Speaker 3: But it's much more of a geopolitical group versus what 546 00:27:31,280 --> 00:27:34,480 Speaker 3: Jim really was talking about, which was an economic block. 547 00:27:35,000 --> 00:27:37,800 Speaker 2: Well, let's focus on what Jim were resiltually focusing on. 548 00:27:38,359 --> 00:27:42,120 Speaker 2: With the addition of these new countries. Does it make 549 00:27:42,200 --> 00:27:44,560 Speaker 2: the countries, any of them, more investable? Does it address 550 00:27:44,600 --> 00:27:46,760 Speaker 2: some of the issues you've already mentioned For President g 551 00:27:47,000 --> 00:27:49,720 Speaker 2: does it make his economy stronger at all to have 552 00:27:49,800 --> 00:27:50,840 Speaker 2: this expanded bricks. 553 00:27:52,440 --> 00:27:54,720 Speaker 3: First of all, you know you're going from a group 554 00:27:54,760 --> 00:28:00,320 Speaker 3: of countries. This five account for close to about third 555 00:28:00,400 --> 00:28:03,040 Speaker 3: of the world's purchasing power parity, if you know, we 556 00:28:03,160 --> 00:28:06,199 Speaker 3: go with PPP, they account for about a third of. 557 00:28:08,600 --> 00:28:09,399 Speaker 11: Global PPP. 558 00:28:09,560 --> 00:28:13,000 Speaker 3: But if you look at these new countries that got added, 559 00:28:13,160 --> 00:28:16,240 Speaker 3: they account for very little in terms of economic power, 560 00:28:16,680 --> 00:28:19,679 Speaker 3: so they're not really bringing in They're bringing in a 561 00:28:19,720 --> 00:28:23,400 Speaker 3: lot of population, but again not the largest countries necessarily 562 00:28:23,720 --> 00:28:27,880 Speaker 3: in terms of population and consumers. You know, one country, 563 00:28:28,200 --> 00:28:31,680 Speaker 3: namely Iran has its own sanctions and troubles, and what 564 00:28:31,720 --> 00:28:34,800 Speaker 3: we saw already with Russia being part of this entity, 565 00:28:35,320 --> 00:28:39,760 Speaker 3: the Brick Bank that is trying to lend kind of 566 00:28:39,800 --> 00:28:43,280 Speaker 3: anemically to the block was not able to. 567 00:28:43,240 --> 00:28:45,920 Speaker 11: Help Russia in its time of need. So it is not. 568 00:28:46,120 --> 00:28:52,720 Speaker 3: Clear that this grouping is really functioning very well Economicallysani. 569 00:28:51,520 --> 00:28:54,680 Speaker 2: As you suggest, Most economists I've heard from are skeptical 570 00:28:54,880 --> 00:28:58,200 Speaker 2: about the US dollar losing its position as a reserve currency. 571 00:28:58,560 --> 00:29:00,560 Speaker 2: But is there something other than that there might be 572 00:29:00,640 --> 00:29:04,840 Speaker 2: almost as a trading currency, that this sort of conglomeration 573 00:29:04,920 --> 00:29:07,240 Speaker 2: of countries could move toward that they would trade in 574 00:29:07,240 --> 00:29:08,720 Speaker 2: their own currencies. I guess that's one of the things 575 00:29:08,720 --> 00:29:10,560 Speaker 2: they're studying, right, to have a common currency. 576 00:29:11,600 --> 00:29:14,520 Speaker 3: I think they certainly are looking at the common currency, 577 00:29:15,080 --> 00:29:16,600 Speaker 3: digital currency. 578 00:29:16,920 --> 00:29:18,440 Speaker 11: A number of different options. 579 00:29:18,800 --> 00:29:22,080 Speaker 3: I think that if we look at it very carefully, 580 00:29:22,200 --> 00:29:25,120 Speaker 3: these countries are so disparate from each other, there is 581 00:29:25,360 --> 00:29:28,680 Speaker 3: I see very little likelihood that India would want to 582 00:29:28,720 --> 00:29:32,280 Speaker 3: have a common currency with China. For example, India is 583 00:29:32,320 --> 00:29:36,040 Speaker 3: setting up one of the most sophisticated payment systems inside 584 00:29:36,040 --> 00:29:39,880 Speaker 3: of India. In fact, some countries are working with India 585 00:29:39,920 --> 00:29:44,280 Speaker 3: because it's AI generated payment systems are extending even to 586 00:29:44,320 --> 00:29:46,480 Speaker 3: its own rural population. 587 00:29:47,160 --> 00:29:48,240 Speaker 11: The question of. 588 00:29:48,160 --> 00:29:50,960 Speaker 3: India moving away to give that sort of power up 589 00:29:51,040 --> 00:29:54,440 Speaker 3: to have one common currency with this group, I think 590 00:29:54,600 --> 00:29:55,600 Speaker 3: is very unlikely. 591 00:29:56,280 --> 00:29:58,320 Speaker 2: Sunny, It's always so good to have you on. Really 592 00:29:58,360 --> 00:30:01,400 Speaker 2: appreciate your time as a Sony bachcialist of Rock Creek 593 00:30:03,800 --> 00:30:06,440 Speaker 2: Coming up. Students may be having trouble covering the cost 594 00:30:06,480 --> 00:30:09,360 Speaker 2: of tuition, but what about the twenty thousand dollars they 595 00:30:09,400 --> 00:30:14,080 Speaker 2: may need for their sorority rush out fit. That's next 596 00:30:14,080 --> 00:30:15,720 Speaker 2: on Wall Street League on Bloomberg. 597 00:30:20,280 --> 00:30:24,520 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 598 00:30:24,640 --> 00:30:25,720 Speaker 1: Bloomberg Radio. 599 00:30:26,440 --> 00:30:28,800 Speaker 2: Wall Street Week notes the passing this week of one 600 00:30:28,840 --> 00:30:32,239 Speaker 2: of its stalwarts, Loslo Beinie. He was one of the 601 00:30:32,280 --> 00:30:36,240 Speaker 2: program's chief alves for years, earning him a place in 602 00:30:36,280 --> 00:30:39,480 Speaker 2: the Wall Street Week Hall of Fame for his stock predictions, 603 00:30:39,480 --> 00:30:41,520 Speaker 2: something in which he took great pride. 604 00:30:42,800 --> 00:30:46,440 Speaker 9: As of today, we have the ninth best year in history, 605 00:30:47,040 --> 00:30:49,200 Speaker 9: and you know, I think that no one would have 606 00:30:49,240 --> 00:30:51,280 Speaker 9: expected this year to be there in top ten, So 607 00:30:51,320 --> 00:30:52,000 Speaker 9: I think we've got a. 608 00:30:51,920 --> 00:30:54,960 Speaker 2: Pretty good year. And Lewis Ruckheiser showed his appreciation on 609 00:30:55,000 --> 00:30:58,480 Speaker 2: the program whenever Laslo Barini joined him on the air. 610 00:30:59,120 --> 00:31:01,680 Speaker 9: As it happens, we have with us tonight one of 611 00:31:01,760 --> 00:31:05,320 Speaker 9: only two of our chief elves who are still bullish 612 00:31:05,400 --> 00:31:07,960 Speaker 9: on this market, meaning that they expect the DOO six 613 00:31:08,000 --> 00:31:10,320 Speaker 9: months from now to be at least one hundred points 614 00:31:10,360 --> 00:31:13,959 Speaker 9: higher than it is tonight. He's Laslow Berni. And the 615 00:31:14,000 --> 00:31:17,160 Speaker 9: operative question is why is this man smiling? 616 00:31:19,000 --> 00:31:21,520 Speaker 2: We lost a Wall Street Week legend this week who 617 00:31:21,560 --> 00:31:34,480 Speaker 2: had Lazoborini died at the age of seventy nine. Finally, 618 00:31:34,720 --> 00:31:38,440 Speaker 2: one more thought. An investment in knowledge always pays the 619 00:31:38,480 --> 00:31:41,560 Speaker 2: best interest, so wrote Benjamin Franklin in The Way to 620 00:31:41,680 --> 00:31:45,080 Speaker 2: Wealth in seventeen fifty eight. And these days it better 621 00:31:45,120 --> 00:31:47,480 Speaker 2: pay a pretty good rate of interest, given the amount 622 00:31:47,520 --> 00:31:50,680 Speaker 2: of investments some schools are asking for. We all know 623 00:31:50,760 --> 00:31:53,920 Speaker 2: about the level of student debt, something President Biden tried 624 00:31:53,960 --> 00:31:56,600 Speaker 2: to address with a debt forgiveness plan struck down by 625 00:31:56,640 --> 00:31:57,360 Speaker 2: the Supreme Court. 626 00:31:57,560 --> 00:32:00,400 Speaker 5: I know there are millions of Americans, millions of Americans 627 00:32:00,440 --> 00:32:04,880 Speaker 5: this country who feel disappointed and discouraged or even a 628 00:32:04,880 --> 00:32:07,480 Speaker 5: little bit angry with the course decision today. 629 00:32:07,480 --> 00:32:08,840 Speaker 9: One student did, but. 630 00:32:08,880 --> 00:32:11,560 Speaker 2: As much trouble as some middle class students may have 631 00:32:11,880 --> 00:32:14,880 Speaker 2: paying for their college, there are others who don't appear 632 00:32:14,920 --> 00:32:17,960 Speaker 2: to need much help at all, even for high school. Take, 633 00:32:18,000 --> 00:32:21,840 Speaker 2: for example, students at the prestigious Deerfield Academy in Massachusetts, 634 00:32:21,920 --> 00:32:24,520 Speaker 2: who will soon enjoy a new dining hall built just 635 00:32:24,560 --> 00:32:29,040 Speaker 2: for them for a mere eighty nine million dollars, financed 636 00:32:29,080 --> 00:32:33,480 Speaker 2: conveniently with minicial bonds. But then again, Deerfield students pay 637 00:32:33,480 --> 00:32:36,400 Speaker 2: a mere seventy thousand dollars a year to attend, more 638 00:32:36,440 --> 00:32:39,160 Speaker 2: than one hundred grand less than the students at the 639 00:32:39,240 --> 00:32:44,040 Speaker 2: ultra exclusive Institute alf dem Rosenberg in Switzerland, for which 640 00:32:44,080 --> 00:32:47,000 Speaker 2: you will pay one hundred and seventy five thousand dollars 641 00:32:47,040 --> 00:32:50,760 Speaker 2: a year, with meals prepared by chefs from Michelin starred restaurants, 642 00:32:50,920 --> 00:32:55,080 Speaker 2: physical therapists on call, and a fleet of Audietrons to drive. 643 00:32:55,600 --> 00:32:57,880 Speaker 2: As Town and Country reports, the head of the school 644 00:32:58,000 --> 00:33:01,560 Speaker 2: justifies the tuition simply saying we like excellence and that 645 00:33:01,720 --> 00:33:05,000 Speaker 2: comes at a price. Not clear whether that price includes 646 00:33:05,080 --> 00:33:05,880 Speaker 2: using cell. 647 00:33:05,640 --> 00:33:08,440 Speaker 11: Phones Ernie Love mobiles on weekends. 648 00:33:08,680 --> 00:33:10,760 Speaker 2: Thomas supposed to call my therapist. It isn't just the 649 00:33:10,760 --> 00:33:13,920 Speaker 2: elite prep schools attracting all that money. These days, we 650 00:33:14,000 --> 00:33:16,680 Speaker 2: sort of expect that the Harvards and the Yales attract 651 00:33:16,680 --> 00:33:20,520 Speaker 2: big contributions from alums, though former Harvard president Larry Summers 652 00:33:20,560 --> 00:33:23,400 Speaker 2: told us that wasn't the reason he's opposed to so 653 00:33:23,480 --> 00:33:25,200 Speaker 2: called legacy admissions. 654 00:33:25,480 --> 00:33:30,959 Speaker 12: MIT has long been without legacy admissions, and it seems 655 00:33:31,000 --> 00:33:33,000 Speaker 12: to do very well financially. 656 00:33:33,200 --> 00:33:36,240 Speaker 2: But the big bucks aren't just going to the ivys anymore. 657 00:33:36,680 --> 00:33:40,440 Speaker 2: McPherson College in McPherson, Kansas may have just eight hundred students, 658 00:33:40,680 --> 00:33:43,720 Speaker 2: but it just got a one billion dollar anonymous donation, 659 00:33:44,120 --> 00:33:46,320 Speaker 2: and I'll tell you I for one am a big fan. 660 00:33:46,840 --> 00:33:50,320 Speaker 2: McPherson offers the only four year Bachelor of Science degree 661 00:33:50,360 --> 00:33:54,160 Speaker 2: in the country in restoring classic cars like this nineteen 662 00:33:54,280 --> 00:33:57,680 Speaker 2: fifty three Mercedes Benz three hundred s that students restored 663 00:33:57,760 --> 00:34:01,360 Speaker 2: for the Pebble Beach Concord Delegon. And not all the 664 00:34:01,400 --> 00:34:03,600 Speaker 2: money being spent on students these days is going for 665 00:34:03,680 --> 00:34:07,400 Speaker 2: what you'd call traditional education. There's a good deal being 666 00:34:07,520 --> 00:34:11,759 Speaker 2: invested in the phenomenon known as the sorority rush. Most 667 00:34:11,760 --> 00:34:14,839 Speaker 2: particularly the rush has experienced at the University of Alabama. 668 00:34:15,239 --> 00:34:18,400 Speaker 2: Now there's nothing new about the ritual of rushing fraternities 669 00:34:18,400 --> 00:34:21,560 Speaker 2: and sororities. But what is new is pledges at BAMA 670 00:34:21,760 --> 00:34:24,480 Speaker 2: have taken to TikTok to show off their outfits for 671 00:34:24,560 --> 00:34:28,759 Speaker 2: the big event, including brand details that lets one TikToker 672 00:34:29,000 --> 00:34:31,520 Speaker 2: provide us all with a detailed accounting of how much 673 00:34:31,680 --> 00:34:34,160 Speaker 2: these young co eds are spending, like this. 674 00:34:34,040 --> 00:34:36,000 Speaker 11: One Menichus's David German. 675 00:34:36,200 --> 00:34:38,640 Speaker 4: These are Eniton, David Gruman and David German. 676 00:34:38,920 --> 00:34:42,560 Speaker 2: That outfit including accessories, tools, up to just under six 677 00:34:42,600 --> 00:34:45,640 Speaker 2: thousand dollars, way below some others which reach up to 678 00:34:45,719 --> 00:34:48,920 Speaker 2: over twenty grand, which may cause some of us to 679 00:34:48,960 --> 00:34:51,480 Speaker 2: ask where all that money is coming from. 680 00:34:52,080 --> 00:34:56,680 Speaker 7: Maybe these Bama, these students are are not the aspiracial consumer. 681 00:34:56,719 --> 00:34:58,759 Speaker 4: Maybe they're you know, their parents are paying for a 682 00:34:58,960 --> 00:35:02,520 Speaker 4: hundred Oh gosh, I I hope so yeah. I mean, 683 00:35:02,520 --> 00:35:04,680 Speaker 4: if I'm mainteening can get a twenty thousand cardier like 684 00:35:04,920 --> 00:35:05,359 Speaker 4: rock On. 685 00:35:05,920 --> 00:35:07,799 Speaker 2: That does it For this episode of Wall Street Week, 686 00:35:07,840 --> 00:35:10,439 Speaker 2: I'm David Weston. This is Bloomberg. See you next week.