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: Federal 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 up. We have more spending
Speaker 1: coming out of Congress. One of the big questions I
Speaker 1: think on investor's minds inflation through the eyes of the
Speaker 1: most influential voices. Larry Summer is the former Treasury Secretary
Speaker 1: Bryan Wynahan a backup America Will Saro CEO Charlie Sharp.
Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Radio,
Speaker 1: Geopolitics to the forefront, even as the economy stays hot.
Speaker 1: This is Bloomberg Wall Street Week. I'm David Weston. It
Speaker 1: was a week when we woke up every morning and
Speaker 1: looked to see whether Europe was still intact with concerns
Speaker 1: about a possible Russian invasion of Ukraine, despite President Putin's
Speaker 1: protests to the contrary, even as he said he was
Speaker 1: running out of patients and appearing with the German Chancellor
Speaker 1: Schultz suggesting bombing might be necessary to stop what he
Speaker 1: called a genocide. We should allow me to add that
Speaker 1: in our assessments, what is happening now in the don
Speaker 1: Bass constitutes genocide. But while we were all focused on Ukraine,
Speaker 1: we had more indications of just how hot the U
Speaker 1: s economy really is, with retail sales nombers for January
Speaker 1: surprisingly high retail sales, a strong advance in January, a
Speaker 1: big rebound from what we saw in the month of December,
Speaker 1: and corporate earnings continue to pour in with mixed results
Speaker 1: from paramount CEO Bob Bakish falling short of expectations because
Speaker 1: of his streaming investments. We would have peak streaming losses
Speaker 1: UH in terms of investment in UH, and then they
Speaker 1: would improve from there, which would return the company to
Speaker 1: total earnings growth in twenty four and beyond. But in
Speaker 1: the end, the geopolitics and continued concern about the Fed
Speaker 1: one out over any positive news of the week, as
Speaker 1: the Spire was down for a second week in a row,
Speaker 1: this time by one point six putting it off by
Speaker 1: nine said for the year. Today, the NAZAC fell by
Speaker 1: one point seven six percent on the week, while bonds
Speaker 1: fluctuated but ended up not far from where they started
Speaker 1: with the yield in the tenure continue to hover just
Speaker 1: over one and oil actually was down despite all the
Speaker 1: anxiety over Ukraine, ending up at about ninety three dollars
Speaker 1: of barrel for Brent. To put this all in perspective.
Speaker 1: We welcome now Katherine Keating, she's CEO of b N
Speaker 1: y Melon Wealth Management and Joanne Feeny Advisers Capital Management
Speaker 1: portfolio Manager. Thank you both for being your welcome back
Speaker 1: to walstere Week. Joe, and let me start with you
Speaker 1: on this geopolitics. As you talked to your clients, how
Speaker 1: concerned are they about this? What do you tell them? Well,
Speaker 1: you know, in the last week, I've actually feeled a
Speaker 1: number of calls with clients and some of them ask,
Speaker 1: you know, why aren't more people talking a bit about
Speaker 1: this on the investment front. So they're clearly concerned about
Speaker 1: the you know, tensions in Ukraine, what we seem to
Speaker 1: be escalating um in addition to the concerns we've been
Speaker 1: talking about for months like inflation and interest rates and
Speaker 1: slowing economic growth. So you know, they want to know
Speaker 1: if they need to do anything different in their portfolios.
Speaker 1: Do we need to change things for them um or
Speaker 1: are they well positioned, and the answer that comes down to, really,
Speaker 1: you know, what's their time frame. We've seen the world
Speaker 1: confront pandemics, wars, recessions, the stock markets suffers for a
Speaker 1: while but eventually recovers. So the time horizon for the
Speaker 1: investor really matters here as well. There risk tolerance for
Speaker 1: suffering through the volatility. So there are solutions out there,
Speaker 1: and the solution really depends on the the individual investor. Yeah,
Speaker 1: I agree with that, Joanne. And in fact, when we
Speaker 1: think about geopolitical events, believe it or not, they tend
Speaker 1: to have very short lived impact on the markets. What
Speaker 1: really matters is the larger ecosystem in which they're happening.
Speaker 1: So if we think about nine eleven terrible, terrible tragedy,
Speaker 1: markets closed for four days. When they reopened the following week,
Speaker 1: you had a very significant sell off, but within two
Speaker 1: months that had actually been recovered. What was more important
Speaker 1: was the was the ecosystem that that happened, and we
Speaker 1: were already in a bear market on the tech bubble bursting,
Speaker 1: and that market continued for a couple of years. I
Speaker 1: think the other thing that is important when you're thinking
Speaker 1: about war is um you know, worst take time right,
Speaker 1: We've we've learned that as a country, they take time,
Speaker 1: they can really impact your fiscal budget for a very
Speaker 1: long time. Well. Part of the ecosystem, though, Catherine, order
Speaker 1: is just volatility. We already had volative because the uncertainty
Speaker 1: about the FED triggered by the inflation of the factors.
Speaker 1: So putting more volatility into that more uncertainty, what does
Speaker 1: that do to you as an investor? How do you
Speaker 1: how do you deal with that kind of volatility going forward? Catherine,
Speaker 1: so Joanne said it right, time horizon matters, and for
Speaker 1: most investors, their time horizon is actually quite long. They're
Speaker 1: saving for their retirement or maybe even their children and grandchildren,
Speaker 1: and so you can withstand volatility if your time horizon
Speaker 1: is long. The other thing I would say about volatility is,
Speaker 1: you know, when we come out of a recession at
Speaker 1: a bear market, as we did over the last two years,
Speaker 1: those early months and years, everything goes in the same direction,
Speaker 1: it goes up. You don't have the nor more volatility,
Speaker 1: and we haven't. But in fact, when you look at
Speaker 1: the s MP five hundred, the average intra year correction
Speaker 1: over time is and yet seventy percent of the time
Speaker 1: the market ends up by the end of the year.
Speaker 1: This is normal volatility. It just may not feel that
Speaker 1: way right now. Joanne entering Chasm just talked about a
Speaker 1: bear market. Is it possible we are entering into a
Speaker 1: bear market right now? Well, in some areas of the
Speaker 1: stock market, we're already in a bear market, alright. Look
Speaker 1: at info tech, look at other areas of growth, some
Speaker 1: areas of consumer discretionary communication services. A lot of these
Speaker 1: stocks have come down, you know, well more than ten
Speaker 1: percent um and there multiples have come down accordingly. And
Speaker 1: that started before really the UK intentions really heated up,
Speaker 1: and it was primarily triggered by the FED signaling that
Speaker 1: they were going to be raising rates and when rates
Speaker 1: actually rose. But you know, back to Catherine's point on
Speaker 1: on the environment in which this higher risk has now arrived.
Speaker 1: We we are the U S economy and the global
Speaker 1: economy still in the midst of a recovery from the
Speaker 1: worst of the pandemic. So we have a backdrop of
Speaker 1: production increasing, whether it's in industrials, consumer products, housing market, right,
Speaker 1: and these are all trends that are likely to continue
Speaker 1: despite what is happening in the Ukraine, because you know,
Speaker 1: there's more and more production coming online cars for example,
Speaker 1: it's really been held back and that should ease in
Speaker 1: the back half of the year, for example, as semiconductor production.
Speaker 1: A new factories come online starting in the middle of
Speaker 1: this year. So the economic environment is actually fairly positive.
Speaker 1: We worry, though, right about the Ukraine situation and how
Speaker 1: the sanctions that may end up being triggered if this
Speaker 1: really goes forward, will affect particularly the European economy. Thank
Speaker 1: you so much, Katherine Keating and Joe A. Fini. They're
Speaker 1: gonna be staying with us as we turned to the
Speaker 1: question of what we should expect from the rest of
Speaker 1: the year. That's gonna be up next on Wall Street
Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with
Speaker 1: David weston draw Bloomberg Radio. We are back with Joe
Speaker 1: and Feeni of Advisor's Capital Management and Katherine Keating of
Speaker 1: bny Melon Wealth Management. So Canton, when we come to you,
Speaker 1: we add this discussion, good discussion. I was going to
Speaker 1: ask you about the rest of the year where the
Speaker 1: sp forget that, what about inflation, because that's what everyone's
Speaker 1: talking about. Where do you see inflation now and where's
Speaker 1: it going the rest of the year. Do you think
Speaker 1: it is the most important question? Actually, and it's the
Speaker 1: first one on everybody's minds. And I think to really
Speaker 1: understand that, we have to step back and reflect for
Speaker 1: a moment on what we've been through. As I said,
Speaker 1: we were in a healthy business cycle that got interrupted
Speaker 1: by a health recession, not a normal recession, a health recession.
Speaker 1: People were getting sick from this terrible virus that made
Speaker 1: the economy sick. And then we got an unusual kind
Speaker 1: of medicine. Right, we got this six trillion dollars in
Speaker 1: fiscal stimulus in this country, which really changed some things
Speaker 1: in the recession. The first thing it changed is incomes
Speaker 1: didn't go down. That's very unusual. Incomes didn't go down,
Speaker 1: Spending didn't go down. That's very unusual. Normally in a pandemic,
Speaker 1: we tighten our belts. It happened was people kept spending,
Speaker 1: but they shifted their spending two goods. Right. We weren't
Speaker 1: buying services, we weren't going on vacation, but we were
Speaker 1: buying goods. All the things we needed to work at home.
Speaker 1: The UM laptops and computers and monitors and all of
Speaker 1: those things. UM and and all the things we needed
Speaker 1: to do life everything in our lives at home, and
Speaker 1: we're we're I think we're starting to get past some
Speaker 1: of that. We see some of the um. You know,
Speaker 1: it's sort of economics one oh one, right, you have
Speaker 1: all of this demand for goods and you don't have
Speaker 1: the supply to get them. We see that starting to
Speaker 1: correct a little bit. The fourth quarter was really a
Speaker 1: story about restocking inventories, and so I think the question
Speaker 1: about inflation is does the torrid pace of consumers buying
Speaker 1: goods start to come off of its peak and do
Speaker 1: we see more normal behavior which is shifting two services?
Speaker 1: Joe and aswer that question. Sure, that's exactly right. I'll
Speaker 1: put on my economists at here for a second. But
Speaker 1: uh yeah, when you have this demand so high, it's
Speaker 1: apply not able to catch up, and interest rates not
Speaker 1: rising for various reasons, the only place the pressure valve
Speaker 1: can you know, can be turned is on the inflation front.
Speaker 1: And we should, towards the middle of this year start
Speaker 1: to lack some of the biggest price increases. So with
Speaker 1: fiscal spending less um than last year, uh, and with
Speaker 1: a shift back over to services spending, we're already seeing
Speaker 1: that in the mobility data. More travel, more hotel bookings,
Speaker 1: more Airbnb bookings coming. That should take a lot of
Speaker 1: the pressure off inflation, uh is, particularly in the beginning
Speaker 1: of the year. Plus more supplies I mentioned before, more
Speaker 1: chips from the semiconductor companies mean more cars can be
Speaker 1: produced and everything else. Um. You know, on the other hand,
Speaker 1: that we have to worry a little bit about the
Speaker 1: labor situation because the pandemic did trigger an awful lot
Speaker 1: of people to just leave the workforce, particularly the baby
Speaker 1: boomer generation, and they're not likely to come back. So
Speaker 1: we have a shortage of labor. We're going to have
Speaker 1: higher wages. That's going to continue to keep the upward
Speaker 1: pressure on prices. But with the FEDS actions, with more
Speaker 1: supply coming on, with the shift over to services spending,
Speaker 1: you know, it's likely that the torrid pace of inflation
Speaker 1: does ease a little bit through the course of this year,
Speaker 1: but it's going to take some time. Probably inflation gets
Speaker 1: worse as the housing price increases start to filter into
Speaker 1: the measured inflation numbers UM, as they've begun to do.
Speaker 1: It's probably gonna get a little bit worse before it
Speaker 1: actually gets better. Yeah, we would agree with that. And
Speaker 1: you know, the thing about goods inflation is that it
Speaker 1: tends not to be very high. Right, there's so much competition,
Speaker 1: so many brands out there competing for consumer dollars. Uh.
Speaker 1: Sticky inflation is what we really worry about. So we
Speaker 1: worry about um, you know, rents and wages in particular.
Speaker 1: And if you asked us about the one thing we're
Speaker 1: most focused on, it is that increase in labor costs
Speaker 1: because it's running at about four percent a year right now.
Speaker 1: And what we need is for the FED to do
Speaker 1: what it will do, which is raizor rates a bit.
Speaker 1: We need employers to do what they want to do,
Speaker 1: which is manage their costs and grow their prof fits um.
Speaker 1: And we need employees to come back to the workforce.
Speaker 1: And there are things that we're missing, right. We didn't
Speaker 1: have the normal mobility and immigration over the last couple
Speaker 1: of years, which is which is very important. We didn't
Speaker 1: have mobility of people be able to move from one
Speaker 1: place to another to take a job. UM. I think
Speaker 1: the flexibility that a lot of businesses are adopting are
Speaker 1: going to invite will invite people back to the workforce. UM.
Speaker 1: And we need productivity, which actually we've been living a
Speaker 1: productivity boom. That's how you recover corporate earnings and recover
Speaker 1: all the GDP that was lost without with fewer workers.
Speaker 1: We still have three million fewer workers. Joy. And you
Speaker 1: talk about pressure on prices, what about pressure on portfolio managers?
Speaker 1: Because in a world where you've got to or three
Speaker 1: present inflation, a five percent return every year on your
Speaker 1: portfolio looks pretty good. In a world of seven present inflation,
Speaker 1: it doesn't look so good. Do you have investors basically saying,
Speaker 1: wait a second, how can I keep up with this inflation? Yeah?
Speaker 1: That's obviously more of a problem for those heavily exposed
Speaker 1: to fixed income, right, and that's where there's gonna be
Speaker 1: a real challenge in keeping up. But you know, when
Speaker 1: you think about inflation and stock prices, you recognize that
Speaker 1: the source of inflation is coming from companies raising prices.
Speaker 1: They raise prices, that means their revenue goes up, that
Speaker 1: means their earnings go up, and you know, commensurately, stock
Speaker 1: prices tend to follow that. So there's a lot of
Speaker 1: protection in stock prices for inflation. Plus you can always
Speaker 1: direct your portfolio more towards the sort of companies that
Speaker 1: do better when inflation and instrates are higher. That could
Speaker 1: be banks, that could be real estate companies, that could
Speaker 1: be energy companies. So there are ways to build protection
Speaker 1: and we've been doing that for clients for for actually
Speaker 1: quite a while now. So which stocks do you like
Speaker 1: right now? Well, it depends on the sort of clients.
Speaker 1: So for the sort of more conservative client, we're looking
Speaker 1: for stocks that will deliver some dividend yield, for example,
Speaker 1: but it also can appreciate. So in the tech world,
Speaker 1: a company like Qualcom or Cisco for a safer play
Speaker 1: of Philip Morris that has a very high dividend yield.
Speaker 1: Than in the energy world, we like Chevron, we like
Speaker 1: Kinder Morgan. You know, the energy demand is going to
Speaker 1: continue to be strong because we do think the recovery continues. Plus,
Speaker 1: by the way, that adds a little bit of insurance
Speaker 1: against this uh, this Ukraine Russia situation. So Catherine, take
Speaker 1: a look at the rest of the year. As you
Speaker 1: look out, we can't know for sure what do you
Speaker 1: anticipate And for the rest of it's been a rough
Speaker 1: start to the year. I think it's fair to say
Speaker 1: I think I would say that we anticipated coming back
Speaker 1: to a new normal. And what do I mean by that.
Speaker 1: I mean that we will still have economic growth, but
Speaker 1: it will be lower than it was right maybe four
Speaker 1: percent this year in the US, we continue to think
Speaker 1: that stocks can do well, but it will be lower
Speaker 1: than they were doing the last three years, actually when
Speaker 1: the SMP five almost doubled. Um. We think that we
Speaker 1: will have inflation, but we think we will transition to
Speaker 1: a lower inflation rate. And in fact, the end point
Speaker 1: of inflation really matters because if you if you have
Speaker 1: inflation between three and four percent, you know over time
Speaker 1: markets can do very well. That's what That's what it's
Speaker 1: been for most of our careers. So the endpoint for
Speaker 1: an lation really matters. Thank you so very much to
Speaker 1: Katherine Keating of CEO of b n y Moan Wealth
Speaker 1: Management and Joanne Pheenie and she's portfolio manager at Adviser's
Speaker 1: Capital Management. Thank you so much for being with Wall
Speaker 1: Street Week today. Coming up, retail sales are back up,
Speaker 1: but how long will it last? And what's the next
Speaker 1: new thing in retail? We ask retail guru Mickey Drexler.
Speaker 1: I think so is the enemy of any retail. This
Speaker 1: is Wall Street Week on Bloomberg. This is Bloomberg Wall
Speaker 1: Street Week with David Weston from Bloomberg Radio. Everything seems
Speaker 1: like it's going up. I still worry about prices increasing,
Speaker 1: consumers spending. When it comes to the U. S. Economy,
Speaker 1: it's one of the main indicators of how we're doing.
Speaker 1: So after retail sales trailed off at the end of
Speaker 1: last year, we breathed a collective sigh of relief when
Speaker 1: they bounced back strongly up three point five percent in January,
Speaker 1: although some of that was really from inflation an a
Speaker 1: phenomenal basis. I say that very deliberately, of course, because
Speaker 1: we saw also inflation spike in the month of January,
Speaker 1: so we're not used to seeing these inflation and additional
Speaker 1: juiced sales in retail sales. And the rest of two
Speaker 1: maybe a challenging one for retailers as money from that
Speaker 1: child tax credit expires. We are concerned that the expiration
Speaker 1: of the child tax credit leaves millions of families without
Speaker 1: that added source of income that they really need to
Speaker 1: be able to support their families. Of course, it's not
Speaker 1: only about how much we shop, but also about how
Speaker 1: we shop with brick and mortar stores taking the biggest
Speaker 1: hit in commercial real estate from the pandemic. And I
Speaker 1: think there will be some conversions UM where possible away
Speaker 1: from uses that are not slighted by one in more
Speaker 1: retail being the top one even as online sales grew dramatically.
Speaker 1: And when it comes to roots, OH, there's really only
Speaker 1: one person we want to talk to, and that is
Speaker 1: Mickey Drexler. He founded made Well an old Navy, He
Speaker 1: ran the Gap and J Crew and built them into
Speaker 1: behemus in the retail industry. And we're delighted to have
Speaker 1: him on Wall Street Week now. Mickey, thank you so
Speaker 1: much for joining us. Let's start with this pandemic. How
Speaker 1: did it change the retail business? Well, I think it
Speaker 1: changed it pretty dramatically. I also think the changes were
Speaker 1: passed two way too many stores in America, which is
Speaker 1: no secret overstowed UH. Certainly healthy online business around UH.
Speaker 1: And I think it changed also, And I don't think
Speaker 1: it's the pandemic that there's so many companies now UH
Speaker 1: taking UH paying a lot of attention to statistics, I
Speaker 1: think more than UH, more than merchandise. Lastly, I find
Speaker 1: it difficult UH that many companies in my industry, at
Speaker 1: least for them, are not going into an office every
Speaker 1: day when it's critically important to see and touch merchandise.
Speaker 1: But I think it's changed it that way. I think
Speaker 1: clearly changed the way people addressed for the last year
Speaker 1: or two, and this changes, dramatic change is always going on.
Speaker 1: For a year, we've been up against what I called
Speaker 1: a snowstorm easy year one, up against really bad numbers,
Speaker 1: and I felt that starting this month February, that it
Speaker 1: would get tougher again because the numbers aren't easy. People
Speaker 1: all had pretty good years, actually surprisingly good, but they
Speaker 1: really weren't that surprising if you figure what they were
Speaker 1: up against. Uh the money stopped flowing from the government.
Speaker 1: UH more difficult figures. And at the end of the day,
Speaker 1: for me and always has been, I think the merchandise
Speaker 1: matters the most. Business. What I hear, because you know,
Speaker 1: I'm a small part of it, what I hear is
Speaker 1: quite challenging and difficult. In February, and perhaps part of
Speaker 1: January supply chain issues. Price of cotton has gone up,
Speaker 1: I think about UH freight, so it's caused a lot
Speaker 1: of inflation in our out business, and I think obviously
Speaker 1: in the retail business, so it's not easier. I think
Speaker 1: we're headed for much more difficult times. But by nature
Speaker 1: I'm always pessimistic. Making Let me pick up on one
Speaker 1: thing you've been talking about, and that is seeing and
Speaker 1: feeling the merchandise. I know you, I know the kind
Speaker 1: of retailer you are. You would walk around your stores
Speaker 1: and get a real sense of the merchandise and the
Speaker 1: interaction with people. How does that survive in an online
Speaker 1: AI world where artificial intelligence, they're big data things like that,
Speaker 1: or is that a thing in the past. If it
Speaker 1: is the companies, I think, look, it's it's about product.
Speaker 1: It's the only thing I know. Our business is extremely
Speaker 1: song because you know we're small. But I sit with
Speaker 1: the merchants every day. I sit with design, not because
Speaker 1: I'm the one with all the answers, because I've been
Speaker 1: there and done it. I've seen the movie a lot,
Speaker 1: and I've made every mistake in the book. The very
Speaker 1: young people kind of think when I make a mistake,
Speaker 1: they like to repeat that I made a mistake. I like.
Speaker 1: But in retail, predicting what's going to sell is a
Speaker 1: really important part of it. And the other thing is
Speaker 1: knowing what's kind of a day and day have. This
Speaker 1: is year to year, but I think, uh, you can't
Speaker 1: be there in my opinion, without being and watching the
Speaker 1: goods and business spontaneity, a creativity that happens. I met
Speaker 1: a woman the other day who works in a company
Speaker 1: fifteen people, uh, no office at all, and I said,
Speaker 1: how can you run a retail business where you're not
Speaker 1: uh looking and communicating? It's not just merchandise. I think,
Speaker 1: I don't know the finances of your world, but I
Speaker 1: know in my world, Uh, the creativity flows regularly. You
Speaker 1: can get an idea anywhere, any place, at any time
Speaker 1: based on what excites you, simulates you, or gives you
Speaker 1: a bigger imagination. It's really great to have you with this, Mickey,
Speaker 1: But as I say, the one man we always want
Speaker 1: to hear from on retail that is Mickey Drexler. Coming up,
Speaker 1: we wrap up the week with our special contributor Larry
Speaker 1: Summers of Harvard. This is Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. This is Wall Street Week. I'm David Weston,
Speaker 1: and we're joined once again by our very special contributor
Speaker 1: Larry Summers of Harvard. Larry, one of the things we've
Speaker 1: talked about is inflation, but very specifically, are the supply
Speaker 1: chain problems we're all seeing are they a cause of
Speaker 1: the effect. A friend of Yours Mind and the Program,
Speaker 1: Steve Rattner had a column New York Times to Day
Speaker 1: basically saying supply chain is a symptom, it's not the disease.
Speaker 1: What did you make of it? I think Steve broadly
Speaker 1: right in distilling what serious economists believe. First of all,
Speaker 1: the most of the goods where there's a bottleneck are
Speaker 1: having abnormally large quantity, not abnormally small quantity. So obviously
Speaker 1: if you have a big increase in demand, you're going
Speaker 1: to encounter capacity limits. Second, what the supply chain people
Speaker 1: ignore is that if more money is being spent, for example,
Speaker 1: on used cars, yes, that's associated with higher used car prices,
Speaker 1: but it means less money is being spent on other things,
Speaker 1: and so it means less inflation in uh those sectors.
Speaker 1: So while it's a widespread view, I think the interpretation
Speaker 1: of inflation largely around supply chains is mostly a confusion
Speaker 1: and mostly an evasion of what I predicted a year
Speaker 1: ago that if we overflowed the bathtub, we're gonna get
Speaker 1: an overflow as the economy overheated. Larry, one of the
Speaker 1: things that we're hearing out of the Capitol Hill this
Speaker 1: week is maybe it's not just all the FED that
Speaker 1: can address the question of inflation. Maybe we should leave
Speaker 1: alleviate some of the pressure on consumers by having a
Speaker 1: hattus on the gas tax, the federal gas tax. What
Speaker 1: do you think about things like that of limiting the
Speaker 1: cost to consumers. I think we are plumbing the depths
Speaker 1: of new bad ideas UH with that one. First of all,
Speaker 1: guess prices are gonna fluctuate all over the place, so
Speaker 1: nobody may see anything very substantial out of it. Second
Speaker 1: of all, lower prices for gasoline will tend to be
Speaker 1: offset by higher prices for other things as consumers have
Speaker 1: higher incomes that are able to shift spending UH to
Speaker 1: other spheres. Third, it runs exactly in the opposite direction
Speaker 1: of all the things we're trying to do in the
Speaker 1: environmental area. And fourth, you may get some if you
Speaker 1: did get some little bit of deflationary shock when you
Speaker 1: put the gas tax holiday into place, you're gonna get
Speaker 1: some offsetting inflationary shock. When you move the gas tax,
Speaker 1: it goes in exactly the opposite direction of paying for
Speaker 1: more infrastructure, which everybody thinks, uh, we need. Look, I
Speaker 1: think there needs to be a lesson learned about gimmicks
Speaker 1: that pull well, they're like sugar highs. They make you
Speaker 1: feel good, but they really often don't redown to anybody's
Speaker 1: anybody's substantial political benefit. What's remarkable is that all those
Speaker 1: much discussed tax credits, the two thousand dollar checks that
Speaker 1: we're getting mailed to everybody, did substantial economic damage and
Speaker 1: nobody remembers them, so they didn't even deliver the political benefit.
Speaker 1: So I hope we can step back and think about
Speaker 1: doing the right thing and move a bit away from
Speaker 1: trendy gimmicks. As you have pointed out more than once,
Speaker 1: we have a mismatch between supply and demand, not just
Speaker 1: in goods but also in labor. Right now, you've just
Speaker 1: co authored a piece that I saw this week really
Speaker 1: analyzing what the cause of that work is. It's really
Speaker 1: again a supply problem or demand problem. What did you conclude?
Speaker 1: I think it's more of a demand problem. Look, David,
Speaker 1: we have by a wide margin the highest ratio of
Speaker 1: vacancies jobs that need to be filled too unemployed people
Speaker 1: that we've ever had. It can't be surprising in the
Speaker 1: face of that that we're seeing very large nominal wage increases.
Speaker 1: And if you talk to businesses, they almost all feel
Speaker 1: that they can pass those wages on in the form
Speaker 1: of higher prices. And so that is the roots of
Speaker 1: our inflation UH problem. Many people say that it's not entrenched,
Speaker 1: there's no sign of a wage price spiral, not yet.
Speaker 1: I don't know what would be a sign of an
Speaker 1: incipient wage ace spiral. If an employment cost index approaching
Speaker 1: six and uh CPI inflation rate in excess of seven
Speaker 1: wasn't UH signs of a possible incipient waves price spiral.
Speaker 1: So I think we've made a substantial problem of for ourselves.
Speaker 1: And I think if we don't recognize that it's at
Speaker 1: root a demand problem and we don't adjust UH monetary
Speaker 1: policy in a substantial way, it's only going to become
Speaker 1: a more serious problem. Letry going international here for a moment.
Speaker 1: We now are going to have the Olympics conclude the
Speaker 1: Winter Olympics. Overvisioning this coming weekend. UH. You were on
Speaker 1: a panel I saw Institute of Politics up at Harvard
Speaker 1: talking about China and how China is positioned right now globally,
Speaker 1: suggesting maybe it's not quite as powerful as sometimes some
Speaker 1: of us sometimes think. I think that's right. I think
Speaker 1: we in the United States need to remember how wrong
Speaker 1: we were in our active view of Russia in nineteen
Speaker 1: sixty and how wrong we were in our collective view
Speaker 1: of Japan in the early nineteen nineties, and consider the
Speaker 1: possibility that we may be underestimating uh China's challenges now,
Speaker 1: and we need to be particularly careful about being overly
Speaker 1: uh provocative to them. Our provocations with respect to Russia
Speaker 1: after nineteen sixty contributed UH, many historians believe to the
Speaker 1: Cuban missile crisis, and so yes, we need to stand
Speaker 1: up for our interests visa the China. But I think
Speaker 1: we need to be quite careful, uh to avoid a
Speaker 1: kind of strategic narcissism and truculence in the approach that
Speaker 1: we take. Much of the news is we cause you know,
Speaker 1: Lawry was occupied with the crisis over Ukraine between Russia
Speaker 1: on the one hand, in the United States and NATO
Speaker 1: Allis on the other. I noticed, for example, the President
Speaker 1: she appeared with President Putin at the beginning of the Olympics.
Speaker 1: What did you make of this geopolitical crisis and how
Speaker 1: it fits into the world more broadly, and how long
Speaker 1: lasting do you think the effects might be. Let me say,
Speaker 1: David Uh that I'm not an expert on everything geopolitical,
Speaker 1: but it seems to me that, as one who's been
Speaker 1: critical in a number of areas, this has been handled
Speaker 1: extremely well UH by the US administration. That doesn't mean
Speaker 1: the ultimate outcome is going to be successful and then
Speaker 1: an invasion is going to be forestalled, but I think
Speaker 1: they've played the hand that they had in a very
Speaker 1: skillful in a in a very skillful way. I think
Speaker 1: this is a big deal. Not because Ukraine is economically powerful,
Speaker 1: it isn't not even because Russia is economically powerful, It's
Speaker 1: not that powerful. But I think the question of whether
Speaker 1: there's some element of rule of international law and countries
Speaker 1: can't invade other countries with impunity is an issue that
Speaker 1: is very much here, and I think if this degrades,
Speaker 1: that will have costs for everybody, sends of certainty, which
Speaker 1: among other things, will affect the level of UH market valuations. Yeah,
Speaker 1: which Nixon go to China was specifically supposed to undo,
Speaker 1: is maybe undoing Henry Kissinger's work. Larry, thank you so
Speaker 1: very much. That was very helpful. That's Larry Summers of Harvard,
Speaker 1: our very special contributor here on Wall Street Week. Finally,
Speaker 1: one more thought banking in the metaverse. Having troubles in
Speaker 1: the world as we know it, worried about higher rates
Speaker 1: or a possible recession, or tanks coming across the Ukraine border. Well,
Speaker 1: maybe tech has the answer for you, and for all
Speaker 1: of us for that matter. At this point, we've all
Speaker 1: heard about the metaverse. That term taken from a sci
Speaker 1: fi book from thirty years ago and appropriated by none
Speaker 1: other than Mark Zuckerberg, who used it to rename Facebook Meta.
Speaker 1: And this is what he had to say about it
Speaker 1: when he made that announcement. It is time for us
Speaker 1: to adopt a new company brand to encompass everything that
Speaker 1: we do. Our company is now meta. This week, Mr
Speaker 1: Zuckerberg took it a step further in a memo to
Speaker 1: his staff, updating the company's values and what he called
Speaker 1: its cultural operating system, summing it up as focused on meta,
Speaker 1: meta mates and me. So Facebookers are now meta mats,
Speaker 1: which reminds me, at least if when Disney bought ABC
Speaker 1: and the company started addressing people like Peter Jennings and
Speaker 1: Ted Couple as castmates and employee emails. Well, let's hope
Speaker 1: that people at Meta embrace their new title with more
Speaker 1: enthusiasm than some of the folks at ABC News did
Speaker 1: back in the day. But it's not just met at
Speaker 1: a Facebook that's embracing the metaverse. When Disney CEO Bob
Speaker 1: Chapeck talked about his earnings just last week, he called
Speaker 1: the metaverse a quote third dimension of storytelling. I think
Speaker 1: it's a great opportunity for us. I think it's the
Speaker 1: next great horizon for Disney. I think it's the next
Speaker 1: great horizon and entertainment. And don't forget toys in this metaverse.
Speaker 1: The CEO of Mattel certainly hasn't the metaverse n F
Speaker 1: the s and other digital opportunities. Digital experiences will give
Speaker 1: us an opportunity to engage with consumers and create another
Speaker 1: opportunity for us to commercialize our brands and franchises in
Speaker 1: other ways. To be sure, not everyone is sure what
Speaker 1: exactly the metaverse is or whether it truly will change
Speaker 1: the world. Here's Eileen Lee of Cowboy Ventures. I think
Speaker 1: the metaverse is just like, what does that mean? Really?
Speaker 1: It's if you mean the metaverse, like, are we all
Speaker 1: going to be wearing the Arts headsets and staying in
Speaker 1: our houses all the time? I think that's, you know,
Speaker 1: if we're lucky enough to emerge from our caves after
Speaker 1: this pandemic. I think at least for the next three
Speaker 1: to five years, people are going to be more excited
Speaker 1: to engage in real life than ever before. But if
Speaker 1: we needed final confirmation that this metaverse thing is going mainstream,
Speaker 1: it came this week from the Big Banks with JP
Speaker 1: Morgan leading the way. The way that is into Onyx
Speaker 1: that's its name for its metaverse lounge, complete of course,
Speaker 1: with a JPEG image of CEO Jamie Diamond, and accompanied
Speaker 1: by an eighteen page paper on why the metaverse is
Speaker 1: a one trillion dollar Yes, I said, one trillion dollar opportunity. Now,
Speaker 1: if you want to get into the JP Morgan Meta Lounge,
Speaker 1: all you need to do is go to the Central
Speaker 1: Lands Meta Juku Mall, put that in your GPS and
Speaker 1: see what happens. That does it. For this episode of
Speaker 1: Wall Street Week, I'm David Weston and this is Bloomberg.
Speaker 1: See you next week.