Speaker 1: This is Bloomberg Wall Street Week. Market shruggle, higher consumer prizes.
Speaker 1: The economy is in the process of rebounding. Will the
Speaker 1: Utter Reserve have its own digital currency? The financial stories
Speaker 1: that cheap hard work. Many people think the eels are
Speaker 1: just going to keep marching out. We have more spending
Speaker 1: coming out of Congress. One of the big questions I
Speaker 1: think on investor's mind inflation. Through the eyes of the
Speaker 1: most influential voices. Larry Summer is the former Treasury Secretary,
Speaker 1: Bryan Wynihan Bank of America, Will Smart, CEO of Charlie
Speaker 1: Sharp Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: It's a whole new world of diplomacy and maybe of
Speaker 1: monetary policy. So what difference will it make? This is
Speaker 1: Bloomberg Wall Street Week. I'm David Weston. Bank of America
Speaker 1: Chairman and CEO. Brian moynihan has been a leader in
Speaker 1: bringing private industry together to establish standards for the environmental,
Speaker 1: social and governments, working with both the World Economic Forum
Speaker 1: and with His Royal Highness Prince Charles. It was in
Speaker 1: that capacity that he was invited to participate in the
Speaker 1: G seven Summit in Cornwall last weekend and we asked
Speaker 1: what happened. His Royal Highness, Prince Charles for years, for
Speaker 1: four decades plus, has been focused on the environment a
Speaker 1: few years and he's had various initiatives with business people
Speaker 1: and other groups over the years. A couple of years ago,
Speaker 1: UM a group of us sat with him and talked
Speaker 1: about how we could get the private sector really who
Speaker 1: has to drive this change aligned and so he announced
Speaker 1: in early two thousand twenties Sustainable Markets Initiative. Yes m I,
Speaker 1: that is three CEO is working as a coalition the
Speaker 1: willing to help along industry groups to help share best practices,
Speaker 1: to help figure out how we can move things faster,
Speaker 1: to help promote public policy ideas that would be helpful.
Speaker 1: And that SMI group, through the leadership as Royal Highness,
Speaker 1: was able to meet with the G seven leaders for
Speaker 1: an engagement around you know, the private sectors here. We
Speaker 1: don't need money. We were ready to move or moving fast,
Speaker 1: but if he did these types of policy implementations, we
Speaker 1: could move even faster. So I'm a leader of the
Speaker 1: group like co chair was. Royal Highness had a chance
Speaker 1: to speak a bit and then we had a interaction
Speaker 1: with the eight or nine c e o s were
Speaker 1: there with the G seven leaders to kind of make
Speaker 1: sure they understood that we're there to help them, support
Speaker 1: to make this transition be a just transition and help
Speaker 1: have it help but happen. So I know that you've
Speaker 1: been heading up the initial Business Council for the World
Speaker 1: Economic Forum. How does this fit with that? Because I
Speaker 1: know you're coming up with uniform standards. You've got quite
Speaker 1: a few companies to sign onto that so far. What
Speaker 1: kind of progress are you making? So the World Economic Forum,
Speaker 1: UH International Business Council, which I've been chairing for the
Speaker 1: last couple of years UH with a group of hundred
Speaker 1: thirty CEOs or so, they adopted a set of metrics
Speaker 1: in ninety years. So companies have signed up and we're
Speaker 1: pushing that through the system that basically aligned against the
Speaker 1: sustainable development goals are you unadopted in two thousand fifteen
Speaker 1: and frankly defined stakeholder capitalism and those you know, people place,
Speaker 1: planet and prosperity and so on the environment which links
Speaker 1: to this obviously it's disclosure scope one two three and
Speaker 1: what are you doing about things like that? So one
Speaker 1: of the things we told the G seven leaders is
Speaker 1: you need convergence and met trics and the IBC work
Speaker 1: led by the Big four accounting forms bringing together the
Speaker 1: work and pushing for a convergence with even the groups
Speaker 1: that support metrics sas by g R, I, etcetera. The
Speaker 1: idea is to push to one set of metrics. So
Speaker 1: we don't have all the work as I said that
Speaker 1: she said was going into calculating things. We have the
Speaker 1: work going and actually making the metrics better. And so
Speaker 1: you know, you have the SEC looking at these metrics,
Speaker 1: you have the I, f R S looking at these metrics,
Speaker 1: that e. Looking through metrics, and then you have all
Speaker 1: the unofficial sectors. The idea is to push the metrics together,
Speaker 1: get to standard set of metrics. That's what the IBC
Speaker 1: did and that feeds directly into the SMI because those
Speaker 1: are the metrics the s m I believes should be
Speaker 1: adopted by companies around the world to show them making
Speaker 1: progress on the SDGs. Brian, you studied this so careful
Speaker 1: and you understand it well as a practical matter. Will
Speaker 1: we get where we need to go without the government's
Speaker 1: adopting those metrics? Can the private sector do it on
Speaker 1: its own Well. I think the important thing is the
Speaker 1: private sector has the money. So if you think about
Speaker 1: the calculation of what the sustainable development goals cost per
Speaker 1: annum is about six trillion, So charity, you know, is
Speaker 1: a trillion plus a year. It's wonderful think about all
Speaker 1: that money people are giving a way to help things.
Speaker 1: But it's a trillion if you look at all the foundations,
Speaker 1: and one of debates in the world is why all
Speaker 1: these foundations just don't give away all their money tomorrow?
Speaker 1: What that gets you through about a third of a
Speaker 1: year to Also, if you look at governments arounding huge deficits,
Speaker 1: is because the pandemic, they can only do so much.
Speaker 1: The private sector has trillions of dollars in market, capt
Speaker 1: trillions of dollars, many trillions of dollars of market, many
Speaker 1: trillions dollars of bounty. But importantly, many trillions dollars are
Speaker 1: operating expenses. So how they operate in their company and
Speaker 1: how they buy services including electricity and power and things
Speaker 1: like that can move markets. And that's why the private
Speaker 1: sector has to lead it. Innovation, inovation, uh, and when
Speaker 1: your private sector leads it, it becomes capitalism. When capitalism
Speaker 1: has it will keep sustaining itself. And so that's that's
Speaker 1: the sort of intellectual thought process. Can the private sector
Speaker 1: do it on its own? Absolutely not. This is going
Speaker 1: to take everybody. But I will use a specific example,
Speaker 1: David sustainable aviation fuels. If there's a mandate for ten
Speaker 1: percent in in in in the world, you will then
Speaker 1: get an instant market that people can build the plans
Speaker 1: to produce it. It works today, it's going in planes today,
Speaker 1: but until there's a more of a requirement, it becomes
Speaker 1: you know, uh, country by country, region by region very hard.
Speaker 1: The airlines are in there doing it already, and the
Speaker 1: question is we could create much more stable markets and
Speaker 1: then the private set you provide all the financing, all
Speaker 1: the stuff because they know the market's going to be there.
Speaker 1: That's how the policy and a private market can work
Speaker 1: in tandon to make something happen right. One of the
Speaker 1: things that the G seven took up over there was
Speaker 1: that to propose global minimum tax that would have to
Speaker 1: go to the G twenty and then O E C
Speaker 1: D have to go through Congress. Have you taken a
Speaker 1: hard look, I'm sure you have what effect they would
Speaker 1: have on Bank of America and perhaps as important, more
Speaker 1: important to your customers if it went through well. Banks,
Speaker 1: as you know, David, are pay a lot, a lot
Speaker 1: of taxes, so we have very little shelter. So the
Speaker 1: only reason why our tax rates not the exact tax
Speaker 1: rate in place like the United States, has more to
Speaker 1: do with the uh investments we make in lower modern
Speaker 1: income housing and sustainable energy. When when solar et cetera,
Speaker 1: that allows to the tax and centers to bring it down.
Speaker 1: But that's it. We don't have big depreciation things other
Speaker 1: other companies do. So the banking system is always affected
Speaker 1: by taxes. They pay a lot of taxes, frankly, and
Speaker 1: that's that's the reality. Highest percentage of taxes paid and
Speaker 1: highest dollar mount in the US. The globalization of it's
Speaker 1: really to try to get out of the What goes
Speaker 1: on in the US and other countries, even within regions
Speaker 1: is people bidding using attacks, right, and they're trying to
Speaker 1: put a floor in. That was Bank of American CEO
Speaker 1: Brian William coming up. Bubbles, bubbles everywhere, but are they
Speaker 1: really bubbles? And what does it look like if they pop?
Speaker 1: From sure? Sharma of Morgan Stanley puts some of what
Speaker 1: we're seeing now into an historical context and has some
Speaker 1: answers for us. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street with David Weston from Bloomberg Radio.
Speaker 1: It's hard to talk about investments these days without hearing
Speaker 1: the word bubble. We're getting towards the end of an
Speaker 1: asset bubble, housing bubble, warnings, trouble, bubble. Since we're talking
Speaker 1: about it, is it a bubble or not? The bubble
Speaker 1: I think in the bottom market creating these bubbles. But
Speaker 1: for all the talk, how can we tell what's a
Speaker 1: bubble and what's not and what happens if it is
Speaker 1: a bubble and it bursts. Morgan Stanley's Rusher Charma decided
Speaker 1: to go back in history, analyzing the ten biggest bubbles
Speaker 1: over the last century, everything from the U S Stock
Speaker 1: market in nine to Chinese shares in two thousand fifteen.
Speaker 1: And what they had in common was a price that
Speaker 1: rose one in the year before they peaked, with much
Speaker 1: of the gain packed into frenzied trading in the last
Speaker 1: few months as day traders and other latecomers came rushing in.
Speaker 1: So if history is a guide, where do we see
Speaker 1: those traits. Today, We're welcome back now to Wall Street Week.
Speaker 1: We're sure. Charma, the man who has done this work
Speaker 1: on the history of bubbles, is the chief Global strategist
Speaker 1: for Morgan Stanley Investment Management and author of the book
Speaker 1: The Ten Roles of Successful Nations. Fascinating study you did,
Speaker 1: but take a suit of it. You went back over
Speaker 1: a hundred years, the ten biggest bubbles. One are the
Speaker 1: things that you found in common about these bubbles? That David,
Speaker 1: there's so much chattering the market about bubbles, but yet
Speaker 1: what exactly is a bubble? How do you define a bubble?
Speaker 1: Is subject to much speculation itself and subjectivity. So what
Speaker 1: I did was to look at the ten biggest bubbles
Speaker 1: of the past century and see what were the common
Speaker 1: features here? And some uh objective characteristics were present in
Speaker 1: all the bubbles, and some of it was obviously subjective,
Speaker 1: but the one common factor was this that typically a
Speaker 1: bubble is a trend that has been going on for
Speaker 1: a while, and in the final year, the final twelve months,
Speaker 1: you see a massive acceleration in that trend, with prices
Speaker 1: increasing by typically hundred percent over a twelve month period,
Speaker 1: and a lot of the gains packed into the last
Speaker 1: few months of that twelve month period. So that is
Speaker 1: the most objective criteria of looking at any bubble. The
Speaker 1: most subjective one is that it's also accompanied by a
Speaker 1: lot of speculative activity, frenzy trading, uh, mass, detailed participation.
Speaker 1: Those are some of the other subjective criteria that go
Speaker 1: hand in hand. But a hundred percent increase in the
Speaker 1: price of any acid that has already been rising for
Speaker 1: a while but concentrated towards the game is one objective
Speaker 1: criteria that you can see in every single big bubble
Speaker 1: of the past century. Sure, I think it's fair to
Speaker 1: say just about every week we're seeing some frenzy speculations
Speaker 1: someplace or the other. But applying your objective criteria that
Speaker 1: run up up to the peak, what do you see
Speaker 1: right now in the market place? Where do you see
Speaker 1: things that fit that those criteria? So I think if
Speaker 1: you look at both the objective and the subjective triteria,
Speaker 1: remember about a but it's not just something about one
Speaker 1: stock rising. It's a concept. It's about the fact that
Speaker 1: everyone believes in some new new thing, that this concept
Speaker 1: is here to stay and about to change the world.
Speaker 1: So it is um as I say, a good idea
Speaker 1: going too far. So what is it in the marketplace
Speaker 1: today that we see which looks like about a bubble?
Speaker 1: So I think that you see this ince and obviously
Speaker 1: some of the cryptocurrency space. We see this in, uh,
Speaker 1: some of the clean energy stocks. We see this in
Speaker 1: some of the stacks. We see this in some of
Speaker 1: those pandemic stocks, the small cap stocks which have benefited
Speaker 1: a lot because of the pandemic. And we also see
Speaker 1: this in some of these tech companies that really have
Speaker 1: no earnings. Uh. You know. So there are various indcas
Speaker 1: on Wall Street that define these uh trends um. And
Speaker 1: these are what I call bubblets. And I think that
Speaker 1: this is a slight a new concept. Bubbles are industrial uh,
Speaker 1: the entire market white. Right that you had the big
Speaker 1: bubble of nine, you had the Chinese they share bubble
Speaker 1: of two fifteen, You had the gold bubble of the nineties,
Speaker 1: seventies oil. Uh, those are the really big market bubbles.
Speaker 1: But I think that one step below that is what
Speaker 1: I call bubblets. These are not market white bubbles, but
Speaker 1: sector specific bubbles. And what we have today is I
Speaker 1: don't think we have a market white bubble because the
Speaker 1: earnings have been very strong. But I think we do
Speaker 1: have sector white bubbles where you do not really have
Speaker 1: any earnings or any great fundamental free cash flow for
Speaker 1: these companies, and yet you have massive run ups on
Speaker 1: the back of the concept. So that I think is
Speaker 1: the important defining feature today and also differentiating feature today
Speaker 1: of the bubblets we have in the marketplace. As you
Speaker 1: look at past bubbles or bubbles, Uh, do you see
Speaker 1: situations where there's a correction then it resumes its rise
Speaker 1: up or is there a correction it resumes it's right,
Speaker 1: it's fall down. That's a great point, David, And we
Speaker 1: looked at that specifically, and here's what I came up with,
Speaker 1: which is that if you look at most trends, nothing
Speaker 1: goes up in a straight line. Uh. It only seems
Speaker 1: so in retrospect, But typically what we found was that
Speaker 1: you have draw downs of around those do not classify
Speaker 1: as a break in trend. But once any of these
Speaker 1: trends decline by more than thirty five percent, that usually
Speaker 1: marks the end of the bubble. That means the trend
Speaker 1: is broken, and they often want to decline as much
Speaker 1: as seventy from the peak over two year time horizon,
Speaker 1: so that is the broad template, and what we see
Speaker 1: in the bubble it's today is that most of them
Speaker 1: have declined by more than thirty five set. So that's
Speaker 1: what makes me feel that the trend is broken in
Speaker 1: many of these bubblets, and we may have further downside
Speaker 1: in the months, if not quarters ahead. One of the
Speaker 1: big debates going on in all sorts of ways, including
Speaker 1: with the inflation and other things right now, is is
Speaker 1: it different this time? And certainly it is different, at
Speaker 1: least in the fact of a very rapid fall in
Speaker 1: the economy as we shut it down, and then a
Speaker 1: very rapid rise. But it's also different in the degree
Speaker 1: of monetary and fiscal support for the economy. Could that
Speaker 1: make us have a different result when it comes to
Speaker 1: your bubblets? Yes, entirely possible. You know, we have never
Speaker 1: had such an extraordinary um uh accommodation in monetary policy
Speaker 1: and fiscal policy to go with it. There's one statistic
Speaker 1: I keep repeating, which are the twenty percent of all
Speaker 1: the dollars in circulation in the world were printed just
Speaker 1: last year, So that's an extraordinary amount of monetary accommodation.
Speaker 1: And even if you end up getting some hawkish not
Speaker 1: noises from FED in other central banks to reverse their
Speaker 1: accommodation will mean a lot. So it's entirely possible that
Speaker 1: this trend lasts longer, and maybe the historical template doesn't
Speaker 1: follow this time, but I still feel the probability is
Speaker 1: kewed on the downside because uh, these trends are very extended.
Speaker 1: We are getting some amount of less monetary accommodation, and
Speaker 1: so even though it could be different this time, and
Speaker 1: maybe some of these UH patterns don't apply to things
Speaker 1: like cryptocurrency on which I had been very polish last
Speaker 1: year because this is a new news thing and this
Speaker 1: is still not something which people are used to, but
Speaker 1: I still feel broadly, for these buglets, the trend is
Speaker 1: down and the risks are skewed to the downside. Okay, sure,
Speaker 1: thank you so much for your time today, that's for sure,
Speaker 1: Sharma of Morgan Stanley. Coming up, we take a look
Speaker 1: at the week ahead on Global Wall Street. That's next
Speaker 1: on Wall Street Week on Bloomberg. This is Bloomberg Wall
Speaker 1: Street Week with David Weston from Bloomberg Radio, p WC
Speaker 1: Privorice water as Cooper's Where where we used to know.
Speaker 1: It is investing twelve billion dollars across its global business
Speaker 1: in an overhaul, and important part of it has to
Speaker 1: do with PwC US as it's really reorganizing the way
Speaker 1: it does business in a very different way. We welcome
Speaker 1: now Tim Ryan. He's p w c US chairman and
Speaker 1: senior partners. So Tim, thank you for being here. Take
Speaker 1: us through what you're doing here, because it's it's fascinating,
Speaker 1: it really reflects a fundamental redo of your professional services organization.
Speaker 1: What we did the last couple of years is we
Speaker 1: try to look around the corner. A big thing our
Speaker 1: clients look for us is not just to tell them
Speaker 1: what's happening today, but to help them peak around the
Speaker 1: corner and see what's going to define the big issues
Speaker 1: over the next ten years. And as we did that,
Speaker 1: it became very clear that the single biggest element of
Speaker 1: in terms of opportunity and challenges our clients will have
Speaker 1: is gaining trust and maintain aiming trust. Where expectations are
Speaker 1: going up and the topics are becoming broader over the
Speaker 1: next ten years, and how companies balance profits and purpose
Speaker 1: gain competitive advantage all across the globe. It's the issue
Speaker 1: that has led us to launching this new strategy, which
Speaker 1: is we call the New Equation until I dare say,
Speaker 1: I think we saw some glimmers of that in the
Speaker 1: G seven meetings, actually in the in the Cornwall Consensus,
Speaker 1: where the nations now are reaching out. They're not just
Speaker 1: dealing with geopolitical issues, they're dealing with health issues. They're
Speaker 1: dealing with with equality and inclusion. Uh So when you're
Speaker 1: talking about trust, because as I'm saying, one of your
Speaker 1: divisions with the Trust Right consultancy, what does that include? Yeah, So,
Speaker 1: David great point. What we saw very clearly there's good
Speaker 1: news for business. The good news today is businesses amongst
Speaker 1: the most trusted institutions in the world. But when we
Speaker 1: peek around the corner, what's clear is the bar is
Speaker 1: going up and the number of topics that businesses will
Speaker 1: be expected to be trustworthyond is widening. So, for example,
Speaker 1: we see financial reporting hugely important, supporting hugely important. But
Speaker 1: what's going to happen over the next several years. It
Speaker 1: will go to issues like E. S G. Likes, tax like, tax,
Speaker 1: morality like tax fairness, data protection, data security, how you
Speaker 1: treat your workers, worker pay, and we see the number
Speaker 1: of topics going broader where businesses that need to be
Speaker 1: trusted on. We did see a glimpse at the G
Speaker 1: seven and we'll continue to see that more and more.
Speaker 1: And a big part of what we're trying to do
Speaker 1: is make sure we're ready to meet our clients needs
Speaker 1: as we lead them into the future. So one of
Speaker 1: the things that we're doing is we're in the US
Speaker 1: reorganizing our business and we will have the largest trust
Speaker 1: solutions business in the world as one of our two
Speaker 1: major segments to help our clients meet these needs. It
Speaker 1: will drive investment and where we drive our clients and
Speaker 1: work with them to help them succeed. Break that down
Speaker 1: and trust solutions as opposed to consulting solutions. What goes
Speaker 1: in each of those buckets great questions. So what goes
Speaker 1: into trust solutions is first our legacy assurance business, which
Speaker 1: is hugely important, and we'll continue to drive out of
Speaker 1: quality up our legacy tax reporting businesses, but also are
Speaker 1: very fast growing businesses such as E s G, Diversity inclusion, governance.
Speaker 1: All goes in that business cybersecurity, where we look to
Speaker 1: drive more capabilities up again because they will define trust
Speaker 1: and our consulting solutions business. It's our legacy advisory deals
Speaker 1: consulting and tax consulting businesses because in order to give
Speaker 1: strategy or execution consulting, we need to make sure taxes
Speaker 1: at the table because it's so important to company's future
Speaker 1: strategies as well. So that's what's in the two segments.
Speaker 1: Both will see significant investment in as we look to
Speaker 1: meet those needs of our clients. Tim, you run up
Speaker 1: tax a couple of times. Now, that was one of
Speaker 1: the things addressed to the G seven with the proposal
Speaker 1: for a global minimum tax. I mean, you know this
Speaker 1: area terribly well. Give us a sense of where that's going,
Speaker 1: and particularly talked about tax fairness. I guess that's one
Speaker 1: of the arguments for it. Yeah, without a doubt, David.
Speaker 1: So when we look at what's happened all across the globe,
Speaker 1: virtually every major country has done a major stimulus package.
Speaker 1: They've used their balance sheets to guide their countries their
Speaker 1: citizens through this incredible, big crisis that we've seen. Ultimately,
Speaker 1: somebody has to pay for that. As we studied the trends,
Speaker 1: what's clearly going to be important as tax will be
Speaker 1: critical oment of that. It's critical the individual countries, it's
Speaker 1: also critical to the overall global tax system. So it's
Speaker 1: not it's not unreasonable. It's not a surprise that we're
Speaker 1: seeing things like a global minimum tax discussed. But what's
Speaker 1: equally important is each country will need their share as
Speaker 1: well to pay down their debt as they look to
Speaker 1: deal with those balance sheets. So we expect ongoing dialogue.
Speaker 1: And when I talk to CEOs, people understand that taxes
Speaker 1: will likely go up. They want to read sure it's fair,
Speaker 1: predictable so they can plan for the long term. We'll
Speaker 1: see more and more. This is this places out. I
Speaker 1: think the G seven is just the beginning Artimilarly, try
Speaker 1: to put together two subjects that I think would go
Speaker 1: into your trust category. On the one hand, diversity and
Speaker 1: equity and inclusion very much an issue on everyone's mind
Speaker 1: and particularly us business right now, and audits because one
Speaker 1: of those issues is the racial audits. Where do you
Speaker 1: come out on that. Do you have clients who are
Speaker 1: engaging that or thinking about it deciding not to do it? David,
Speaker 1: one of the things that gives me great optimism is
Speaker 1: I trouble around not now physically again, which is great
Speaker 1: and virtually over the last year. As I speak with
Speaker 1: CEO is what we're constantly hearing is a number of
Speaker 1: topics right to the top of the list. I'm inspired
Speaker 1: by the fact that diversity inclusion is on every CEO's minds.
Speaker 1: I'm inspired that I see E. S. G In the
Speaker 1: topic for his minds in addition to the digital cyber
Speaker 1: In those topics, what I see is that businesses trying
Speaker 1: to think think about how they look forward. One of
Speaker 1: the big things we're doing is part of the New
Speaker 1: Equation is we're launching a three hundred billion dollar three
Speaker 1: year commitment that we call Tomorrow takes trust a big
Speaker 1: element that is a trust institute where we will take
Speaker 1: ten thousand current in future, seek speed executives to get
Speaker 1: them ready in the future as they need to deal
Speaker 1: with these complicated questions where we need to make progress
Speaker 1: as a business community. Really fascinating reposition to your company.
Speaker 1: Really appreciate your bringing it to us. That's Tim Ryan,
Speaker 1: he's PwC US chairman and senior partner. Coming up, we
Speaker 1: wrap up the week with our special contributor Larry Summers
Speaker 1: at Harvard. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. We're going to conclude our week with Larry Summers,
Speaker 1: our special contributor from Harvard, as we do every week,
Speaker 1: So Larry, welcome. Good to have you here. I have
Speaker 1: to ask you, do feel vindicated the Fed actually at
Speaker 1: least somewhat caught up with you, I think this week
Speaker 1: and saying we do, after all, have to be concerned
Speaker 1: about inflation, transitory or otherwise. So are you feeling good today? David? Look,
Speaker 1: I think the Fed UH signaled uh that it recognized
Speaker 1: that we were in a different place than it had
Speaker 1: expected on inflation. UH. The best measure of that is
Speaker 1: if you look at what the market is now saying
Speaker 1: about real interest rates over the next few years, you
Speaker 1: saw and unprecedented or nearly not unprecedented, but but very
Speaker 1: large five standard deviation UH move UH in the market's
Speaker 1: expectation around real interest rates because of what the Fed signals.
Speaker 1: Principally with the dot plot. You saw that happening without
Speaker 1: the Fed changing in a major way it's forecast of
Speaker 1: economic growth or its forecasts of medium term inflation, simply
Speaker 1: marking to reality it's near term inflation forecast. So I
Speaker 1: think you did see yesterday. I see on Wednesday a
Speaker 1: signal that the FED had changed its reaction function uh
Speaker 1: in a significant uh way. I think that was an
Speaker 1: appropriate change, uh given the inflation uh reality there was
Speaker 1: a lot of uh volatility under the surface uh in markets.
Speaker 1: So I think they're still processing what happened, and you
Speaker 1: shouldn't try to read every uh every detail as fitting
Speaker 1: together uh in uh in a pattern. But I think
Speaker 1: much much more than most f o MC meetings, as
Speaker 1: the beginning of the FEDS recognition UM that overheating is
Speaker 1: the issue uh that it has to uh it has
Speaker 1: to deal with going forward. And given that overheating has
Speaker 1: been a major concern of mine, I'm glad to see
Speaker 1: that they have uh that recognition. But look at a
Speaker 1: certain point, Churchill talked about it not being the end,
Speaker 1: not being the beginning of the end, but maybe it
Speaker 1: begin maybe it being the end of the beginning. And
Speaker 1: I think with respect to recognizing that the economy is
Speaker 1: now in a very very different kind of place where
Speaker 1: demand pressures are a crucial issue, I think that's exactly
Speaker 1: what we have uh seen uh seen here, And I
Speaker 1: was glad to see in particular the change in the
Speaker 1: dot plot, which showed that the basic implausibility in a
Speaker 1: labor short economy of rates being at zero out to
Speaker 1: is something that now a majority of the members of
Speaker 1: the f O, m c H recognize, Hilary. They get
Speaker 1: the issue now. I think it's fair to say they've
Speaker 1: said the thirteen of the eight team members think the
Speaker 1: risk in inflation is the up side. So they get
Speaker 1: the issue. But are they doing anything about that issue?
Speaker 1: Because they moved some dots on their plot, to be sure,
Speaker 1: but they didn't actually cut back on their bond purchase
Speaker 1: billion dollars a month. As you've pointed out, that's increasing
Speaker 1: the accommodation much less touched the rates. And by the way,
Speaker 1: if anything, it's a little surprising the rate in the
Speaker 1: on the tenure remained in the one point five range,
Speaker 1: and the equity markets they sold off some, but it
Speaker 1: wasn't that dramatic. So are they doing anything about the
Speaker 1: fundamental underlying causes of this overheating as you describe it.
Speaker 1: I think we're gonna have to uh weight weight and
Speaker 1: judge that an optimistic view would be that because they
Speaker 1: signaled that they were on the case that was reassuring
Speaker 1: to everybody that the accident that people feared was less
Speaker 1: likely to happen, and that's why equities were relatively tranquil.
Speaker 1: That's why the ten year came down. After all. Part
Speaker 1: of what the tenure was pricing in was the risks
Speaker 1: I had been fearing uh significant increase in inflation or
Speaker 1: the need for a major tightening at some point. So
Speaker 1: I think an optimistic view of those developments would be that,
Speaker 1: in fact, by changing expectations and changing their signals, that
Speaker 1: is policy in the monetary sphere, and they were rewarded
Speaker 1: for it. I think that optimistic view might be right.
Speaker 1: It might also be that markets My old mentor Bob
Speaker 1: Ruby used to say, markets go up, markets go down,
Speaker 1: and we shouldn't be interpreting every relative movement to intensely
Speaker 1: days after a major a major event. But look, obviously
Speaker 1: we're gonna have to see what happens on uh the taper.
Speaker 1: I think most market participants saw this as probably bringing
Speaker 1: forward the moment when the tape he was going to
Speaker 1: uh start uh to happen. I think that's a positive thing. Uh. Frankly,
Speaker 1: I would have preferred it if the chairman had not
Speaker 1: been as dismissive of the dot plot um as he
Speaker 1: was uh in his UH in his press conference. But
Speaker 1: that's a that's a tactical detail. We're gonna have to see.
Speaker 1: This is a this is a long this is a
Speaker 1: long game. But um, you know, we're now in the
Speaker 1: second inning, um not in not still waiting for the
Speaker 1: first pitch. And I think that's a uh, that's a
Speaker 1: welcome that's a welcome development here, Larry. I certainly take
Speaker 1: your point about the danger of over interpreting the markets
Speaker 1: and what they're telling is but address one thing in particular,
Speaker 1: and that is the flattening yield curve. Because one of
Speaker 1: the things that happened this week was a pretty dramatic
Speaker 1: flattening the yield curve. So the short end came up
Speaker 1: because the Fed certainly could arrived that quite immediately, at
Speaker 1: the same time the long end didn't. If anything came down,
Speaker 1: does that reflect the fact that the marks might think
Speaker 1: that maybe they are getting their arms around inflation. It
Speaker 1: reflects two things, and in just what proportions is hard
Speaker 1: to know. I think it reflects certainly an expectation that
Speaker 1: they may be getting their arms around UH inflation. But
Speaker 1: you know, inflation expectations moved hugely. It may also be
Speaker 1: that if you thought that we were going to need
Speaker 1: to have some kind of big collision between monetary policy
Speaker 1: and the economy, those kinds of collisions send long rates
Speaker 1: way up, and we probably have taken out a bit
Speaker 1: of the risk of UH that kind of collision. So
Speaker 1: and we've made the world probably a safer place and
Speaker 1: taking risk premiums out. So I think all of those
Speaker 1: things are contribute itters to UH, the flattening UH, to
Speaker 1: the flattening of UH the curve. But um, David, I've
Speaker 1: I've learned in this that it's easy to form a
Speaker 1: beautiful theory around the market pattern, UM, and then have
Speaker 1: that pattern dissipate on you two days UH later. And
Speaker 1: so I think the more detailed the pattern ones commenting
Speaker 1: on UH, the less confident one should be in prescribing
Speaker 1: a detailed theory. Okay, Larry, it's always great to end
Speaker 1: our week with you. That is our special contributor, Larry
Speaker 1: Summers of Harvard. Finally, one more thought, going back to
Speaker 1: go forward, the important events of this week went beyond
Speaker 1: summit diplomacy and fed adjustments. The week ended with June
Speaker 1: tenth named for June eighteen sixty, when federal troops entered Galveston,
Speaker 1: Texas to announce that the Civil War was officially over
Speaker 1: and that all slaves in the state were free. It
Speaker 1: was the last state in the Union to receive word,
Speaker 1: and it was two and a half years after the
Speaker 1: Emancipation Proclamation had taken effect. Juneteenth or Jubilee Day, has
Speaker 1: been commemorated by some Americans as far back as eighteen
Speaker 1: sixty six, when black citizens in Texas held celebrations. It's
Speaker 1: been an official state holiday in Texas since nineteen eighty
Speaker 1: and is now a holiday or a day of observation
Speaker 1: in forty six states. Still a gallop hole this month
Speaker 1: found that some sixty percent of Americans knew nothing at
Speaker 1: all or only a little bit about Juneteenth. It took
Speaker 1: the police killings of black citizens like George Floyd and
Speaker 1: Briana Taylor last year to put it on the national
Speaker 1: agenda and this week this week we made Juneteenth are
Speaker 1: eleventh national holiday. There is no doubt that it is
Speaker 1: an important day in American history. But what does Juneteenth
Speaker 1: have to do with Wall Street and financial markets in business? Well,
Speaker 1: some of the most prominent corporations in the country have
Speaker 1: made it an official company holiday places like Twitter and
Speaker 1: The New York Times and Quicken Loans, And in the end,
Speaker 1: it's not so much about commemorating a day as it
Speaker 1: is making up for so much lost time and making
Speaker 1: sure that everyone is included in the workplace as well
Speaker 1: as in life. Bank of American CEO Brian moynihan says
Speaker 1: when he sought a way to measure that inclusion, he
Speaker 1: asked his fellow workers. Teammates came forward and said, why
Speaker 1: can't people have the kinds of conversations We have a
Speaker 1: work about the realities of being of a specific ethnicity
Speaker 1: in America day in case we have black or Hispanic,
Speaker 1: or a woman or a person with a disability, why
Speaker 1: can't they have these conversations about what they mean. So
Speaker 1: we we did that to help have those conversations outside
Speaker 1: our company. Meanwhile, we've been had a lot of conversations
Speaker 1: inside the company, led by Tom Montag and many others
Speaker 1: that are just wonderful to get people thinking about it
Speaker 1: from not their standpoint but the other person stand point.
Speaker 1: And that's very important too. I worked for one of
Speaker 1: the best of the most successful CEOs of his generation,
Speaker 1: Tom Murphy of Caps Cities, and I remember the day
Speaker 1: he came into the office and said that as he
Speaker 1: looked around at his senior management team, he realized we
Speaker 1: were leaving on the sidelines more than half of the
Speaker 1: brains and the talent because the underrepresentation of women and
Speaker 1: people of color. Now, this isn't about woke, It isn't
Speaker 1: even about doing the right thing. June tenth is a
Speaker 1: day to reflect on what we all need to do
Speaker 1: to include everyone in the effort to be our collective
Speaker 1: best that does it. For this episode of Wall Street Week,
Speaker 1: I'm David Weston. This is Bloomberg. See you next week.