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 up. 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 wynhand back of America, Will smar Ceo, Charlie Sharp,
Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Radio,
Speaker 1: searching for direction in corporate earnings in Ukraine and in
Speaker 1: the economy. This is Bloomberg Wall Street Week. I'm David Weston.
Speaker 1: Markets turned to earnings this week to find some relief
Speaker 1: from that bad January start, and it looked like tech
Speaker 1: might help us. When Alphabet shot the lights out in
Speaker 1: growing ad search revenue at Google, something CFO Ruth Porrett
Speaker 1: said was because of the strength of the overall economy
Speaker 1: and the shift to e commerce. But then then Meta
Speaker 1: came out with its earnings, sending its stock and sharply
Speaker 1: downward over on news of solid Facebook and user growth,
Speaker 1: which Mark Zuckerbert blamed on stiffer competition. People have a
Speaker 1: lot of choices for how they want to spend their time,
Speaker 1: and apps like TikTok are growing very quickly, and this
Speaker 1: is why our focus on real is so important over
Speaker 1: the long term. And at the end of the week,
Speaker 1: Amazon completed the tech whipsaw by posting strong cloud earnings
Speaker 1: and raising the price for Amazon Prime, which sent its
Speaker 1: stock sharply higher. And we didn't get any real break
Speaker 1: and geopolitics either, as President Biden and President Putin continued
Speaker 1: to talk past one another over the crisis in Ukraine,
Speaker 1: but with Russia's continued his build up if its forces
Speaker 1: around Ukraine, we are ready no matter what happens when
Speaker 1: you might we are analyzing written response is that US
Speaker 1: and NATO received on January six, but it's already clear.
Speaker 1: I inform Mr. Prime Minister about it that principal Russian
Speaker 1: concerns were ignored and if earnings and geopolitics weren't enough
Speaker 1: to confuse this. Along came those US jobs numbers on Friday,
Speaker 1: stunning the markets and economists alike with four and sixty
Speaker 1: seven thousand new jobs in January, we expect only one
Speaker 1: thousand and adding another three in a thousand or visions
Speaker 1: for December. Well, how do markets respond to so much confusion?
Speaker 1: They get volatile, with the SMP five moving up in
Speaker 1: the beginning of the week, dropping on Thursday into Friday,
Speaker 1: and then coming back to end the week up one
Speaker 1: point five and the NASDAC followed a similar pattern, but
Speaker 1: a bit more dramatically, shooting up only to plunge on
Speaker 1: Thursday and rising again on Friday to add two point
Speaker 1: four percent of the week. While in bonds, the ten
Speaker 1: uere yields seemed relatively tame, hovering around one point eight
Speaker 1: percent for most of the week, but then shooting up
Speaker 1: to over one point nine when those jobs numbers came
Speaker 1: in at the end of the week. Tell Us makes
Speaker 1: sense about lo called weekend the markets welcome now Sonal
Speaker 1: DCAI Franklin Templeton Fixed Income chief investment Officer, and Charmine
Speaker 1: most of our Rochmanny. She's chief investment officer for Goldman
Speaker 1: Sex Consumer Wealth Management. So let me start with you. Charmine.
Speaker 1: You have your outlook for two out I've pictured right
Speaker 1: now the cover you have an icebreaker going through some
Speaker 1: really perilous waters here with a lot of icebergs. Tell
Speaker 1: us what you're concerned about for US equities going into
Speaker 1: the key messages an icebreaker, it's a U S Coast
Speaker 1: Guard icebreaker that we've called USS equities, and it's going
Speaker 1: through all these icebergs. Hence the term piloting through. And
Speaker 1: our view is that US equities are best positioned to
Speaker 1: pilot through all the risks, and the icebergs are labeled
Speaker 1: according to the risks we know are inevitable in the
Speaker 1: year like this. So the biggest iceberg out there is
Speaker 1: first inflation, then the next iceberg is interest rate hikes,
Speaker 1: and much further out we have the prospect that maybe
Speaker 1: we're going to have a recession. But there's some icebergs
Speaker 1: we've passed through, like Omicron and big energy prices. And
Speaker 1: so the recommendation to our clients is that stay invested.
Speaker 1: And we're calling it USS equities because we're emphasizing US equities.
Speaker 1: But let's recognize all the risks out there that we
Speaker 1: think will introduce a lot of volatility, as you said,
Speaker 1: but will not derail the economy or derail modestly positive
Speaker 1: returns and equities, we still recommend staying invested because we
Speaker 1: have about a six percent total return as our base case.
Speaker 1: So certainly a lot of volatility, certainly risks that we
Speaker 1: have to navigate, but something that we think is manageable
Speaker 1: for two. So sent out to continue the analogy here
Speaker 1: for a moment. It did feel this week sometimes in
Speaker 1: the markets like it was an icebreaker, zig zagging around
Speaker 1: some of these icebergs, and two of them, as we
Speaker 1: heard from Charmine, were rate hikes and inflation. Tell us
Speaker 1: about those jobs numbers that came out stunned a lot
Speaker 1: of people on Friday. Does that send a signal to
Speaker 1: the Fed? You got to raise your rates even faster
Speaker 1: and even more so? You know, those jobs numbers, we
Speaker 1: have to recognize that we have seasonal adjustment factors playing
Speaker 1: into these jobs numbers. So the jobs numbers, the participation
Speaker 1: rate numbers, actually it's not very clear what they're telling you.
Speaker 1: You know, you talked a little bit about the revision
Speaker 1: data December's numbers. There was also a revision to November's numbers,
Speaker 1: largest revisions on record. However, if you look at the
Speaker 1: year as a whole, some numbers were revised down. It's
Speaker 1: seasonal adjustments. So you know, what you actually take away
Speaker 1: from that is a little hard to see. What I'm
Speaker 1: taking away from the entire report really is that five
Speaker 1: point seven wage increased number. And then if you look
Speaker 1: at non managerial you're looking at six point five, so
Speaker 1: you're looking at really strong wage growth. That's the number
Speaker 1: which I am focused on. And if I look further
Speaker 1: and think about inflation next week, I think that I
Speaker 1: would start getting worried if you've got that upside surprise
Speaker 1: to what is rudely expected to be a zero point
Speaker 1: fourish style increase, which will give you a headline of
Speaker 1: all the seven cent But I'd say that's where my
Speaker 1: concerns would be about the FED speeding up, but it
Speaker 1: would have to be in conjunction with that inflation number. Sherman,
Speaker 1: I don't know about you, but when I hear wage increases,
Speaker 1: I think two things. Number, When it's nice for the
Speaker 1: people getting paid more money, that's really good. On the
Speaker 1: other hand, it can do something to margins for corporations.
Speaker 1: Did it give you any pause at this point? Going two?
Speaker 1: About earnings. When we think about earnings, we believe that
Speaker 1: they have been the strongest driver of the returns since
Speaker 1: the global financial crisis, and they will also be the
Speaker 1: primary driver of returns in twenty two. So our base
Speaker 1: case is about twelve percent growth and earnings, but we
Speaker 1: are assuming that we will see some reduction in margins.
Speaker 1: Last thank thank you so much, Sonaleci, and and most
Speaker 1: of our recommendy will be staying with us as we
Speaker 1: turn to geography and how the United States maybe diverging
Speaker 1: from much of the rest of the world. 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. It wasn't
Speaker 1: just the US markets that got some surprises this week.
Speaker 1: The European Central Bank didn't move, but Manamin Guarde sure
Speaker 1: made a turn in the direction of tightening, and the
Speaker 1: Bank of England moved up a full fifty basis points.
Speaker 1: Show mean, most of our Rochmani of Golden Saxon, Sonaldsai
Speaker 1: of Franklin Templeton remained with us to talk about what
Speaker 1: geography has to do with it, at least when it
Speaker 1: comes to investing these days. So so so now let's talk
Speaker 1: to start with you, because as I say, we saw
Speaker 1: more action on the central back front in Bank of
Speaker 1: England and also ECB. This way, it's surprised, I think
Speaker 1: some people at least what did it do to the
Speaker 1: bond market. Well, we finally saw Blunden School positive cross
Speaker 1: samon three years right, so we it definitely had an impact.
Speaker 1: I would say that the Bank of England is the
Speaker 1: one which I find fascinating. Definitely. The ECB moves large
Speaker 1: ship pools of money. When you see the see a
Speaker 1: major central bank shift on a dime between December and
Speaker 1: now December, probably no rate increases this year and now
Speaker 1: pretty clear that we'll have a couple of rate increases
Speaker 1: i'd say later on this year. It's it's a big
Speaker 1: change if you look at the Bank of England. And
Speaker 1: that was a truly hawkish term because not only are
Speaker 1: we talk in the US, there's still open questions and
Speaker 1: the market fully believes that when the FED reduces the
Speaker 1: size of its balance sheet, it won't actively be selling
Speaker 1: down the balance sheet, which would be big, big news
Speaker 1: for the US the UK. The Bank of England has
Speaker 1: made actually said that they might do that. That's very
Speaker 1: hawkish and very unexpected. And I always look at the
Speaker 1: Bank of England because it's so interesting. They have the
Speaker 1: liberty to move because it's a smaller country own currency,
Speaker 1: and I often look at them as a leading indicator
Speaker 1: of the potentially other major central banks would go. So
Speaker 1: something to keep keep an eye on. Markets potentially have
Speaker 1: room to be majorly surprised and loads of voluntility. I mean,
Speaker 1: talk about the equity side, US versus Europe. US, yes, first,
Speaker 1: the rest of the world. How did you look in
Speaker 1: is it gonna look like that? We have been much
Speaker 1: more bullish on US equities and have recommended that our
Speaker 1: clients actually overweight US equities and their portfolios relative to
Speaker 1: market cap. And just to give you a sense of
Speaker 1: the magnitude of the difference in terms of US and
Speaker 1: other parts of the world, since the trough of the
Speaker 1: global financial crisis, US equities have returned about seven hundred
Speaker 1: sixty And we'd like to use culative numbers because we
Speaker 1: think it is just such a huge number. It has
Speaker 1: more impact when people hear the culative numbers. Developed equities
Speaker 1: outside the US returned around let's say two hundred and sixty,
Speaker 1: so roughly five hundred percent lower returns. Emerging markets a
Speaker 1: little bit less than that. In China just two d
Speaker 1: so US has far out earned an outpaced in terms
Speaker 1: of returns the rest of the world, and last year
Speaker 1: just was an incredible example of that. So last year
Speaker 1: US equities up just under thirty percent, let's say twenty nine,
Speaker 1: non US developed equities around twenty, emerging markets flat and
Speaker 1: China down. While that kind of a difference can't persist forever,
Speaker 1: as they say, trees do not grow to the skies, however,
Speaker 1: we do think US will continue to out earn other
Speaker 1: parts of the world, other regions, and so even though
Speaker 1: they appear cheaper, we think some of that cheapness is
Speaker 1: just because of the sector exposure. US has a lot
Speaker 1: more earnings, for example, from technology and faster growing sectors.
Speaker 1: They have less market cap weight in areas like energy
Speaker 1: and financials that are cheaper, while emerging markets and non
Speaker 1: US developed economies have more of that. And so, now,
Speaker 1: what about on the bond side, given what's going right now,
Speaker 1: does it make any sense, for example, to be owning
Speaker 1: European bonds, particularly sovereign bonds right now? Again, you've got
Speaker 1: to pick and choose. You The one thing about Europe
Speaker 1: which is true is there are different countries in Europe
Speaker 1: different underlying fundamentals, and there's always going to there will
Speaker 1: always be parks of Europe which look attractive at different
Speaker 1: points in time, and I think that as you start
Speaker 1: seeing you wills go up in your roope. Conversely, one
Speaker 1: of the anchors which kept which people expected would keep
Speaker 1: US ten years from going up too high, which is
Speaker 1: that as the differential with Europe, with the Europe Eurozone
Speaker 1: kept increasing, you would see influence into into the US,
Speaker 1: and thus the long end would stay anchored. That starts
Speaker 1: that that argument starts becoming a bit a bit weaker
Speaker 1: as you get some kind of normalization, and it's gonna
Speaker 1: be much lower Sherman. When you describe the really substantial
Speaker 1: difference between for example, US and Europe with equities, I
Speaker 1: tend to think over the long term, you can't have
Speaker 1: those kind of differentials are to serve a law of
Speaker 1: osmosis in financial markets? Does that suggest maybe it is
Speaker 1: time to actually go into so the markets such as
Speaker 1: Europe because they are undervalued. That is actually one of
Speaker 1: the questions or clients ask us. So when you look
Speaker 1: at valuations across a series of metrics, US is trading
Speaker 1: at a much higher premium relative to again emerging markets
Speaker 1: and non US developed and clients are asking, isn't this
Speaker 1: time to go, given that it's much cheaper than even
Speaker 1: average levels, But first of all, we do adjust for
Speaker 1: sector weights and it doesn't look as cheap. And as
Speaker 1: we project forward, US trend growth is actually higher than
Speaker 1: that of let's say, the Eurozone or Japan, so you'd
Speaker 1: expect better earnings growth. The other two really interesting facts
Speaker 1: are US labor is a much more productive labor force
Speaker 1: and US corporate management has much better UH management scores,
Speaker 1: so actually they get better earnings out of similar levels
Speaker 1: of growth. And so our view is that the earnings
Speaker 1: gap will continue, but the outperformance will not be as significant.
Speaker 1: So now we've had this whole discussion without once mentioned
Speaker 1: supply chains, which has been talked about an awful lot.
Speaker 1: Talk about supply chains, and do you see a differential
Speaker 1: potential between the United States and Europe, or United States
Speaker 1: and Asia with respective relief of some of the clogging
Speaker 1: of the supply chains. I'm not so sure we're going
Speaker 1: to see differences on supply chains. I would actually say
Speaker 1: that one thing which has really kept me a little
Speaker 1: bit amused is that when I look at the inflation
Speaker 1: expectations for most of this year. The second half of
Speaker 1: the year, you typically see a very sharp decline in
Speaker 1: expectations of where inflation will go, partly related to the
Speaker 1: idea that you know, you've got these effects which fallout,
Speaker 1: but then also with this idea that supply chains are
Speaker 1: going to clear up, and I don't. I really don't
Speaker 1: think supply chains follow the years, so I don't I
Speaker 1: don't put much faith in that. The other thing I'd
Speaker 1: say is, we haven't talked about this much, but fortunately
Speaker 1: it is only China, but China is committed to a
Speaker 1: zero COVID policy. Now, zero COVID is interesting because you
Speaker 1: can have completely, very difficult to predict stocks and stocks
Speaker 1: to supply chains, and therefore I remain a little bit
Speaker 1: skeptical about an easy, smooth unclogging of all the supply chains.
Speaker 1: That's one thing. That's another point I would say, which
Speaker 1: is different to me between the US and certainly Europe,
Speaker 1: would be that UH would be that in the U
Speaker 1: S you've got very very strong demand, no question, We've
Speaker 1: got no trouble with demand in the United States and
Speaker 1: to supply holding it back many thanks. Now that's anat
Speaker 1: of Franklin Temple and Charmine. Most of our rakimany of
Speaker 1: Golden Sachs coming up. If inflation is the question, can
Speaker 1: real estate be at least part of the answer. We
Speaker 1: had to read on the state of the market from
Speaker 1: Jeff blah CEO of Related companies in our buildings were
Speaker 1: essentially full and rents, you know, even higher than pre COVID.
Speaker 1: This is Wall Street Week on Bloomberg. This is Bloomberg
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. FED
Speaker 1: chair j Pal made it official last week. Dealing with
Speaker 1: inflation has become job one. Inflation remains well above our
Speaker 1: longer run goal of two. Supply and demand and balance
Speaker 1: is related to the pandemic and the reopening of the
Speaker 1: economy have continued to contribute to elevated levels of inflation.
Speaker 1: But as the FED tries to get inflation under control,
Speaker 1: real estate maybe pushing the other way. All of us,
Speaker 1: from New York City mayor Adams on down want to
Speaker 1: get people back into the office. I need my companies
Speaker 1: back open and operated. You can't run a city like
Speaker 1: New York even as the prices are going up for tenants.
Speaker 1: Our data has a rent increase of almost eighteen percent
Speaker 1: over the course of one But what may not be
Speaker 1: good for inflation or renters may work just fine for investors.
Speaker 1: Investors like John Gray of Backstone the real estate market,
Speaker 1: for instance, because the fundamentals are very strong, particularly the
Speaker 1: sectors were focused on. We're seeing pretty robust SAMs. And
Speaker 1: of course, if it's inflation you're worried about. Mark Kissel
Speaker 1: of PIMCO reminds us that real estate is the tried
Speaker 1: and true hedge. We like apartment rates for a lot
Speaker 1: of reasons. It's not just the fact that they're real assets.
Speaker 1: The fact that they are an implicit inflation hedge for
Speaker 1: higher rents UH and higher wages as another reason. And
Speaker 1: when it comes to real estate, particularly real estate in
Speaker 1: the New York area, there is no one who knows
Speaker 1: it better than Jeff Blau Here's the CEO of Related Companies. So, Jeff,
Speaker 1: thanks so much for joining us. Let's start with New York.
Speaker 1: Tell us what's going on with residential, what's going on
Speaker 1: with officers. We hear a lot of stories about dramatically
Speaker 1: increased prices. New York is really, i would say, on
Speaker 1: a tremendous rebound post COVID. You know, I would say
Speaker 1: everyone really thought we'd be fully back to the office,
Speaker 1: back to everything's fighting in New York right after New
Speaker 1: Year's within with the variant. I think that got delayed
Speaker 1: a little bit, but it seems to be blowing its
Speaker 1: way through the city. And certainly I can tell you
Speaker 1: on the office side, our tenants are all planning for
Speaker 1: real return back to work UM whatever that new definition
Speaker 1: is UM, you know, sometime in the month of February.
Speaker 1: And I think that's very very positive. We've got double
Speaker 1: digit increases of occupancy UM, people actually showing up to
Speaker 1: the office UM week over week, and so I think
Speaker 1: that's a very positive trend in terms of the city overall. UM.
Speaker 1: You've definitely seen people who had left during COVID come back.
Speaker 1: Apartment buildings that went down in terms of occupancy to
Speaker 1: roughly are now back to UM. In our buildings were
Speaker 1: essentially full UM at rents, you know, even higher than
Speaker 1: pre COVID. So that's been a tremendous bounce back because
Speaker 1: we were down to that roughly number and concessions and
Speaker 1: so on, and so that's been a tremendous rebound on
Speaker 1: the for sale condominium side, New York City had its
Speaker 1: best for sale year since two thousand seven. UM, So
Speaker 1: I think again showing that resilience of the market. And
Speaker 1: back to the city. UM, there's something like seventeen thousand
Speaker 1: apartments that traded hands last year, as they said, the
Speaker 1: biggest increase since UM, the biggest sales volume since two
Speaker 1: thousand seven. So I think the city is feeling pretty
Speaker 1: vibrant almost all parts of the city. Uh. If you
Speaker 1: try to go out to a restaurant. UM. While again
Speaker 1: there was a dip in January, it seems to me
Speaker 1: now things are busy again. The streets are busy, traffics back. UM,
Speaker 1: it feels good. I'd say. The only areas that feel
Speaker 1: kind of quiet to me are are really true commercial
Speaker 1: districts in Midtown a little bit UM here at Hudson Yards,
Speaker 1: it's it's very vibrant if you're outside. UM feels great.
Speaker 1: And so all the things that we love about New
Speaker 1: York seemed to be kind of back in place. And
Speaker 1: I'm feeling good. On the commercial front. You say that
Speaker 1: you are getting back into full occupancy. Are you repurposing
Speaker 1: some of that because we certainly read stories about, particularly
Speaker 1: in the retail area that there's not the same demand
Speaker 1: for space. Are you having to repurpose some of your
Speaker 1: commercial space? We actually we're repurposing. As you said, UM
Speaker 1: retail has probably suffered the most of all the asset
Speaker 1: classes UM at Hudson Yards, I think, you know, we
Speaker 1: built a seven level retail center that was anchored by
Speaker 1: Neiman Marcus, and when Nieman's filed bankruptcy, instead of trying
Speaker 1: to retenant that for retail, we decided to repurpose that
Speaker 1: to office. And so we now we we are in
Speaker 1: the process of converting UM and creating about four hundred
Speaker 1: thousand feet of new office space at Hudson Yards to
Speaker 1: deal with the increased demand that we're seeing from actually
Speaker 1: mostly a lot of it from tenants that are in
Speaker 1: place today that are growing and expanding. And so while uh,
Speaker 1: the office occupancy might be kind of in the mid
Speaker 1: thirties or we I think we had UM day in
Speaker 1: and day out, today companies are a thinking forward beyond
Speaker 1: kind of that full return to the office and making
Speaker 1: the decision to take even more space. And so we're
Speaker 1: feeling pretty optimistic about the office side. And like you said,
Speaker 1: I think there will be some conversions UM where possible
Speaker 1: away from uses that are not quite as valuable anymore,
Speaker 1: retail being the top one. There's been a lot of
Speaker 1: talk about, uh converting hotels into residential or offices into
Speaker 1: different uses. I think it's pretty hard to do those conversions.
Speaker 1: I don't think there'll be too many of them. Um.
Speaker 1: I think I think it's it's hard if you've got
Speaker 1: a building that's got tenants to vacate. UM. So I
Speaker 1: think what we did at Hudson Yards was pretty unusual,
Speaker 1: and you know, we took the opportunity to make that change,
Speaker 1: and uh, that space is mostly least already, so we
Speaker 1: we we're pretty positive about the office sector here. Thank
Speaker 1: you so much to Jeff Blow He is the CEO
Speaker 1: of Related Companies. Coming up, we wrap up the week
Speaker 1: with special contributor Larry Summers of Harvard. This is Wall
Speaker 1: Street Week on Bloomberg. This is Bloomberg Wall Street Week
Speaker 1: with David Weston from Bloomberg Radio. This is Walter Week.
Speaker 1: I'm David west Today we're gonna wrap up this week
Speaker 1: once again with our very special contributing Larry Summers of Harvard. So, Larry,
Speaker 1: one of the big surprises this week were those jobs numbers.
Speaker 1: The estimates were one came out of four sixty seven. Also,
Speaker 1: there were over three hundred thousand jobs added for last
Speaker 1: month in a revision. So what does that tell us?
Speaker 1: Why are we so surprised by this? A lot of
Speaker 1: its special factors? They do a special year end revision
Speaker 1: of the seasonal factors, UH, David, I think the right
Speaker 1: takeaway from these numbers is that the economy is going
Speaker 1: UH strong, and I think the most significant number in
Speaker 1: it may have been the seven tenths of a percent
Speaker 1: almost nine annual rate UH increase in wages UH in
Speaker 1: the last month. It's hard to know exactly really what
Speaker 1: to UH make of make of that, but it sure
Speaker 1: looks like we've now got wage inflation in the United
Speaker 1: States at really a rate that is very strong. And unfortunately,
Speaker 1: since labor is sev of all costs, that suggests that,
Speaker 1: apart from all the special factors used, cars, housing, and
Speaker 1: so forth, we're moving towards entrenching UH inflation at well
Speaker 1: above the target two percent rate. Does this surprise upside
Speaker 1: and the jobs yield? This one more piece of evidence
Speaker 1: that the Fed is behind with the special monetary policy,
Speaker 1: and if so, is the message of Fed from this
Speaker 1: quite possibly, you've got to move faster and bigger than
Speaker 1: perhaps even you thought. There's no question, with the benefit
Speaker 1: of hindsight, that the FED is behind the curve. I
Speaker 1: think it's important to say, respecting the FED, that the
Speaker 1: errors of judgment they made last summer and last spring
Speaker 1: were quite widely shared in the economic forecasting community. But
Speaker 1: they were errors, nonetheless, and I think the Fed's got
Speaker 1: to uh catch up now. And I rather doubt that
Speaker 1: bringing real interest rates up all the way to negative two,
Speaker 1: which is about what's factored in right now, well, let
Speaker 1: me just be specific with you. Over a month ago
Speaker 1: on this program, you said there should be five rate hikes.
Speaker 1: Should it be even higher than that? Look, one of
Speaker 1: the very good things about J. Powell's last press conference
Speaker 1: was he he he didn't say he was doing it,
Speaker 1: but he in effect ditched a lot of misguided framework
Speaker 1: that the FED had talked about earlier when he talked
Speaker 1: about being humble and nimble. And that's the way we've
Speaker 1: all got to be before the data. So I don't
Speaker 1: think there's any need to judge right now whether you
Speaker 1: need five or whether you need seven rate increases. Uh
Speaker 1: this year, my best guess is that they're in the
Speaker 1: end gonna need more than they now think, and UH
Speaker 1: that markets have to be prepared for a rate hike
Speaker 1: in every meeting, and they have to be prepared for
Speaker 1: the possibility that as the inflation process continues, we might
Speaker 1: need to have meetings with more than a single basis
Speaker 1: point UH rate hike. But the data are very uncertain,
Speaker 1: and we've all got to recognize and be humble about that.
Speaker 1: So it's hard for me to know what will happen.
Speaker 1: But certainly anyone who's not prepared for a rate hike
Speaker 1: at every moment me eating as a real possibility, even
Speaker 1: with multiple rate hikes um on occasion, I think is
Speaker 1: underestimating the range of possibility. Larry, you would be the
Speaker 1: first one to say there's a risk in undertightening, also
Speaker 1: a risk in overtightening. Where is that balance in your
Speaker 1: mind right now? What is the bigger risk for US
Speaker 1: overtightening or undertightening. I didn't get an economy with four
Speaker 1: percent and declining unemployment rate, with a record level of
Speaker 1: job vacancies, and with wage inflation now on more and
Speaker 1: more measures above six percent. I think the greater risk
Speaker 1: is that we undertighten and that we end up with
Speaker 1: UH an economy with underlying inflation above four percent, and
Speaker 1: then there's no alternative at some point to do the
Speaker 1: kind of thing that Paul Vulker had to do at
Speaker 1: the end of the n East. Now we're not going
Speaker 1: to have double digit inflation, we're not going to have
Speaker 1: interest rates, we're not going to have a recession of
Speaker 1: that UH magnitude. But I think we are at risk
Speaker 1: of having something directionally UH the same. We've already put
Speaker 1: that into put that risk into play with the delays
Speaker 1: that we have UH made, And the more we are
Speaker 1: on the side of letting inflation go and letting expectations rise,
Speaker 1: the more risk we take. Laurie, one of the developments
Speaker 1: of this week was the beginning of the Olympics, over
Speaker 1: invasing the Winter Olympics. And we see there a different
Speaker 1: system for ours, both politically and economically, being put on
Speaker 1: display for the world as we compete with China and
Speaker 1: other autocracies around the world. Where are we in that competition?
Speaker 1: Are we as strong in our alternative both on a
Speaker 1: political sense and economic term as we were in the past.
Speaker 1: I think we're going to endure and be strong and
Speaker 1: I think there are important respects in which people are
Speaker 1: gonna look back at the way China is viewed right now,
Speaker 1: and it's going to remind them of the way Japan
Speaker 1: was viewed in it's going to remind them of the
Speaker 1: way Russia was viewed in nineteen sixty. That these things
Speaker 1: look like terrible threats, but ultimately our system endures, that's
Speaker 1: my best guests, And I'm not sure, but it does
Speaker 1: depend on our preserving the basis of our system. And
Speaker 1: what's new and profoundly troubling is doubts about the presidential
Speaker 1: succession process. And not so much that there are people
Speaker 1: who want to subvert the process. That's always been true,
Speaker 1: but good mainstream people who don't have the courage to
Speaker 1: do what they know is right and work against and
Speaker 1: bring down those who would subvert the integrity of our
Speaker 1: election process. And that's gonna be a very important test
Speaker 1: for our democracy. And I might say to all those
Speaker 1: who listen to this show who are involved in uh markets,
Speaker 1: that one of the reasons why the American stock market
Speaker 1: has been so strong is that people believe so strongly
Speaker 1: in the rules law in the United States, and that's
Speaker 1: why the multiples on a given stock are much higher
Speaker 1: when it's an American company than when it's the Chinese company. Uh, frankly,
Speaker 1: And if our sense of the rule of law is
Speaker 1: called into question, that's gonna have, in addition to everything else,
Speaker 1: long term consequences for American asset values that we're not
Speaker 1: gonna We're not gonna like that's not the most important thing,
Speaker 1: but I think it's a significant thing and gives investors
Speaker 1: more interests than they may realize they have in these
Speaker 1: political debates. Something we don't hear often enough. It's not
Speaker 1: just politics. Politics are important, but it's also the economy
Speaker 1: and our entire financial system as well. Thank you so
Speaker 1: much to Larry Summers are Harvard, our very special contributor
Speaker 1: here on Wall Street Week. Finally one more thought spreading
Speaker 1: the wealth even to the goat. It's that magical time
Speaker 1: of year on global Wall Street bonus time, with the
Speaker 1: reports of pools going up thirty, forty, even fifty percent
Speaker 1: levels three nare. John of Bloomberg reports, we haven't seen
Speaker 1: in a good long time. Wall Street hasn't seen this
Speaker 1: level of excess in over ten years now, and it's
Speaker 1: hardly surprising. The banks did extremely well last year, and
Speaker 1: there's a lot of competition out there for that top talent.
Speaker 1: As Bank of America Chair and CEO Brian moynihan recognizes,
Speaker 1: you have to pay people. We don't want people want
Speaker 1: to work for less next year, as does Ubs CEO
Speaker 1: Ralph Hamers. We pay competitively. We pay for performance. We
Speaker 1: have the talent to make our our plan and to
Speaker 1: the excent, we need to pay up, but we will
Speaker 1: do so as we have done so last year. But
Speaker 1: generally you don't have to pay up for the top
Speaker 1: talents once they've walked out the door. And that takes
Speaker 1: us to the greatest of all time. The quarterback who's
Speaker 1: won the most Super Bowls buy a lot, and, by
Speaker 1: the way, has the most touchdown passes, the most completed
Speaker 1: passes in the most games. One, not to mention a
Speaker 1: few other records unlikely to be broken anytime soon, if ever.
Speaker 1: This week, Tom Brady made it official he's retiring from
Speaker 1: the NFL after twenty two incredible seasons, explaining to his
Speaker 1: eleven million Instagram followers that his teammates, coaches, fellow competitors
Speaker 1: and fans deserve of me, but right now it's best
Speaker 1: I leave the field. Of play to the next generation
Speaker 1: of dedicated and committed athletes. His close friend and business
Speaker 1: partner in his fitness business TB twelve, Alex Guerrero, told
Speaker 1: ABC S G M A that it's not just his
Speaker 1: family that Brady will be spending more time on. I
Speaker 1: think he's excited about post football career. You know, he's
Speaker 1: got amazing businesses that he's involved in. Certainly, you know,
Speaker 1: he has a passion for health and wellness and and
Speaker 1: sharing you know, the TB twelve method and what we've
Speaker 1: been able to to start there and share that with
Speaker 1: the masses, like he wants people to know how to
Speaker 1: be able to do what they love doing for longer,
Speaker 1: and how to be able to do it regardless of age.
Speaker 1: It didn't come as a big surprise. There had been
Speaker 1: reports of its coming for days. By the end, the
Speaker 1: biggest question was why he was dragging it out, So
Speaker 1: why the weight speculation of the press focused on You
Speaker 1: guessed it his bonus. It turns out that his contract
Speaker 1: with the Tampa Bay Buccaneers specified this Friday is the
Speaker 1: day he would receive the remaining fifteen million dollars of
Speaker 1: his twenty million dollars signing bonus. Some sports were speculated
Speaker 1: that he might be waiting to make sure he got
Speaker 1: the cash, but at least this time it was not
Speaker 1: the bonus talking or even keeping Brady from talking. Under
Speaker 1: the terms of his deal, he was owed that bonus
Speaker 1: no matter what, although it was for a four year
Speaker 1: deal that he will complete only half of. So now
Speaker 1: it's up to the lawyers to figure out whether he
Speaker 1: owes some of that money back. And trust me, they
Speaker 1: will get paid no matter what. But however the money
Speaker 1: sorts out, a lot of fans are going to miss him.
Speaker 1: He gave us so much pleasure around here. Um all
Speaker 1: about women twenty years here for us six Super Bowl wins.
Speaker 1: You can't go wrong. That does it. For this episode
Speaker 1: of Wall Street Week, I'm David Weston. This is Bloomberg.
Speaker 1: See you next week.