Speaker 1: This is Bloomberg Wall Street Week. We turn our attention
Speaker 1: to the markets this week. Us CPI nevers reinforcing concerns
Speaker 1: about inflation. The financial stories that chief are worth a
Speaker 1: really different reaction to Mark. It's more indications of just
Speaker 1: how hot the U. S economy really is through the
Speaker 1: eyes of the most influential voices Larry Summers, the former
Speaker 1: Treachery Secretary, Katherine Keening, CEO of the n Y Mollins
Speaker 1: Sam's l Sharman, and founder of Equatic Group Investment. In
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio,
Speaker 1: China blinks, Russia threatens, and Democrats sealed the deal in Georgia.
Speaker 1: This is Bloomberg Wall Street Week. I'm David Weston. This
Speaker 1: week special contributor Larry Summers on the search for growth
Speaker 1: in China and in the United States. But we're going
Speaker 1: to be seeing probably the biggest set of policy experiments
Speaker 1: that we've seen in China in decades. And Jeff blau
Speaker 1: related on why the market for upscale office space is hot.
Speaker 1: You look at new modern buildings with the right features,
Speaker 1: the right amenities, and the demand for those buildings is tremendous.
Speaker 1: Global Wall Street saw a week of confrontation as Democrat
Speaker 1: Raphael Warnex facedown Republican herschel Walker and yet another runoff
Speaker 1: election in Georgia and came out the winner. It is
Speaker 1: out of the four most powerful words ever spoken in
Speaker 1: a democracy, The people have spoken. Ukraine continued it's bloody
Speaker 1: confrontation with Russia using drones to strike bases inside of Russia.
Speaker 1: A third air field has come under attack by drones.
Speaker 1: State run Task news service purported that an oil shortage
Speaker 1: tank caught fire attacks where the furthest penetration yet on
Speaker 1: Russian soil since the invasion began, provoking Russian President Putin
Speaker 1: to raise once again the specter of nuclear war. Putin, however,
Speaker 1: I think has used this nuclear card an awful lot
Speaker 1: during the last few months of the war, and what
Speaker 1: he found out from President she of China is a
Speaker 1: warning not to do that. And China took a hard
Speaker 1: look at the pushback from citizens over its zero COVID
Speaker 1: policy and decided to back down at least a bit.
Speaker 1: It includes measures such as allowing people who get sick
Speaker 1: to quarantine at home instead of a government facility. They're
Speaker 1: easing up on testing to get into public spaces, for example.
Speaker 1: So it's a whole series of micro measures that are
Speaker 1: being interpreted as another step away from COVID zero by
Speaker 1: the authorities. Though it may have been encouraged by the
Speaker 1: dismal trade numbers, even as the United States kept up
Speaker 1: the pressure on semiconductors by breaking ground for a new
Speaker 1: plant in Phoenix. These investments happen. It's built on strengthen
Speaker 1: the supply chain here in America. I want to be clear.
Speaker 1: As we build a stronger supply chain, our allies and
Speaker 1: partners are building alongside us as well. I'm not sure
Speaker 1: whether it was all that conflict and confrontation. It may
Speaker 1: just have been growing concerns over a session. But the
Speaker 1: markets were not in a risky mood this week, as
Speaker 1: the SMP five hundred lost three point four percent over
Speaker 1: the week and the NASTAC was off almost four percent,
Speaker 1: while the yield yield on the tenure dipped under three
Speaker 1: point five in the middle of a week, but ended
Speaker 1: up at three point five eight percent at the end
Speaker 1: of the week. Let's bring in now Lazen Saunders, chief
Speaker 1: Investment Strategies for Charles Swab for her view on what
Speaker 1: we saw this week, Lisen, great to have you here
Speaker 1: in New York with us. I am so thrilled to
Speaker 1: be here, first time back in studio in a couple
Speaker 1: of YEARSS A real treat for So give us your
Speaker 1: take on what we saw this week, because, as I say,
Speaker 1: there were some indications the markets were getting a little
Speaker 1: nervous about risk. So I think the economic data was
Speaker 1: at least on the margin weeker than expected. P p
Speaker 1: I obviously came out a bit hotter than expected, and
Speaker 1: I think that there's just more realization that the path
Speaker 1: from here is too slower growth. Whether we ultimately find
Speaker 1: it's declared an official recession, as you and I have
Speaker 1: talked about, I think we're in already a form of recession.
Speaker 1: It's just of a rolling variety. We've seen the hit
Speaker 1: areas like housing to certain segments within the good side
Speaker 1: of the economy, the areas that had the big surge
Speaker 1: in the early stage of the pandemic that was also
Speaker 1: the breeding ground for the inflation problem we're still dealing with.
Speaker 1: That then went into recession type conditions. Disinflation in the
Speaker 1: good side of the economy housing related, but we've got
Speaker 1: the offsetting lift on the services side which services is
Speaker 1: a larger employer, so that has kept the labor market
Speaker 1: to flow. But I think we're going to continue to
Speaker 1: see weakness roll through the economy, and I think whether
Speaker 1: it's ultimately declared an official recession is almost an academic
Speaker 1: exercise at this point, and looking back on it, I
Speaker 1: think it's fair to say we had asset inflation before
Speaker 1: we had real price inflation for consumers. Has the FED
Speaker 1: been successful in pricking the bubble on some of the
Speaker 1: station you mentioned housing? For example, we have cryptocurrency certainly
Speaker 1: taken a hit. For that matter, big tech has come down.
Speaker 1: Are we starting to see some of those asset bubbles
Speaker 1: at least deflate a bit? Crypto specs and f T
Speaker 1: s um certain, if not most pockets of the housing market.
Speaker 1: To your point, big tech, other narrative driven, speculation driven
Speaker 1: areas like heavily shorted stocks, nonprofitable, All of those what
Speaker 1: what we've been calling micro bubbles undoubtedly have gotten not
Speaker 1: just pricked, but they sort of popped in spectacular fashion.
Speaker 1: You know. The good news is is a lot of
Speaker 1: that speculative excess, even when we were in the heights
Speaker 1: of those bubbles, had not fully filtered over into the
Speaker 1: traditional market areas. And that's what we were always saying
Speaker 1: was very distinct from the current ironment or the most
Speaker 1: the recent environment and where the speculative excess was concentrated
Speaker 1: in the major averages. It's been just a little bit
Speaker 1: outside that mainstream, say for some of the the big
Speaker 1: cap tech names. And I think it's just evaluation compression
Speaker 1: that was necessary in in large part due to the
Speaker 1: inflation backdrop. And we are joined now by Peter Crests
Speaker 1: of Aperture Investors. Welcome Peter. Great to have you here
Speaker 1: with us, could be here. So once again we're seeing
Speaker 1: rachel ries, although not full points every three weeks, but
Speaker 1: still they're going up, probably going to go up and
Speaker 1: again next week. What does that mean in a broader
Speaker 1: sense for an investor, I mean, this is a different
Speaker 1: world than we've seen for several years now. Yeah. Well, look,
Speaker 1: I think for if you look at the longer time period,
Speaker 1: think of it from a strategic point of view, investors
Speaker 1: have been investing really inequities and very little and fixed
Speaker 1: income for fifteen years, and people have moved away from
Speaker 1: negative interest rates. They've blood private credit, they've bloy private assets,
Speaker 1: they've blood equities, you know, assuming that that's where return
Speaker 1: was going to be. So now you have a paradigm shift,
Speaker 1: and you know you can't say, well, this is what
Speaker 1: I'm gonna do with my money tomorrow. But over the
Speaker 1: next eighteen months you're going to see significant shifts of
Speaker 1: capital into the fixed income complex. That will include longer
Speaker 1: duration securities, that will include high yield securities, that will
Speaker 1: include invest in grade securities, which for the first time
Speaker 1: will actually be attractive, and will include the short duration
Speaker 1: complex as well. I also think interesting enough, emerging markets
Speaker 1: has got to be a place where you look, and
Speaker 1: emerging markets are down. The MBI's down twenty percent, maybe sixteenth,
Speaker 1: and it's probably got a yield of eight percent. Uh.
Speaker 1: And you know, next year, if everybody's predictions are wrong
Speaker 1: and the Fed doesn't rage rage by much, everybody thinks
Speaker 1: fight you're gonna go down, then more than likely you're
Speaker 1: gonna see some recovery and emerging market debt and that
Speaker 1: could yield eight percent plus some price appreciation see ten.
Speaker 1: So frankly, you know, that's a place where I don't
Speaker 1: think people are looking, and I think probably there are
Speaker 1: some If you take what Peter said Lausanne. Ultimately does
Speaker 1: that end up in cash because that's the shortest term investment.
Speaker 1: You can move that around quickly, and maybe you have
Speaker 1: to get ready for a bounce back in eighteen months.
Speaker 1: So I think it depends on who the investor is.
Speaker 1: I think for investors that are much less risk tolerant,
Speaker 1: that if there and I'm talking from the respect of
Speaker 1: an individual investors, if they're older, if they're in retirement,
Speaker 1: they were forced way out the risk spectrum in a
Speaker 1: zero interest rate environment. And for anybody that doesn't have
Speaker 1: a high risk tolerance, that have those liquidity needs, that
Speaker 1: have the need to live off of income getting a
Speaker 1: real yield on a cash like or a very short
Speaker 1: term security, that's the first time they've experienced that in
Speaker 1: in quite some time. But I also agree with with Peter.
Speaker 1: I think there are paradigm shifts that happen when you
Speaker 1: go through cycles, particularly when you go through a full
Speaker 1: cycle where you have an economic contraction and you go
Speaker 1: from a bull market to a bear market into a
Speaker 1: new bull market. There's always that recency bias. There's always
Speaker 1: that obsession with looking at what had been the leadership
Speaker 1: and feeling that there's not going to be momentum and
Speaker 1: asset class. One should go back to that leadership, leadership changes.
Speaker 1: I think there is opportunity in fixing. There is opportunity international.
Speaker 1: We've got to look through the windshield, not the review Marreor.
Speaker 1: It's interesting. I just saw a note from Rock Creek
Speaker 1: outside in Best Losses note that said something I hadn't
Speaker 1: focused on, which is actually one of the winners this
Speaker 1: year has been Latin America. The Latin America has done
Speaker 1: surprisingly well. I've not been paying any attention to Latin
Speaker 1: American at all. I must say mostly commodity driven, oil driven.
Speaker 1: You know that that's what's driving that. But look, I
Speaker 1: I don't think that we're saying don't invest in equities.
Speaker 1: I just think that the when you look at the
Speaker 1: where your money is allocated, you're going to start to
Speaker 1: allocate more money to the fixed income complex and pretty
Speaker 1: much you're gonna go through a period of volatility here
Speaker 1: where private assets are probably going to have some challenges. Uh,
Speaker 1: you won't be able to get any liquidity. They're just
Speaker 1: gonna have to hold them. So you're gonna have opportunity
Speaker 1: losses there. You've seen some that already in these large
Speaker 1: pools of private assets that have cash with rows or
Speaker 1: cash requirements, and I think you're going to continue to
Speaker 1: see that as people try to take their liquidity and
Speaker 1: get eight to nine percent, which they haven't seen for
Speaker 1: fifteen years. Thank you so much to Peter Cross of
Speaker 1: Apature Investors and liz Ane Saunders of Charles Schwapp for
Speaker 1: being with us on Wall Street Week. Coming up, we're
Speaker 1: gonna take a look at the mood on Wall Street
Speaker 1: as we head into a bumpy patch. That's next on
Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street
Speaker 1: Week with David Weston from Bloomberg Radio. Real Estate. It's
Speaker 1: the investment people turned to in times of inflation. The
Speaker 1: real estate market is probably the best major markets investing
Speaker 1: right now. Inflation in general is good for real estate
Speaker 1: and rock creeks. Asani Beschelis says, they are seeing portfolios
Speaker 1: shift to real estate as investors turned to private investments
Speaker 1: in an uncertain time. The big thing that is happening
Speaker 1: in the ports and as we're looking at is obviously
Speaker 1: a lot of investors, institution investors have been also investing
Speaker 1: in venture, private equity, real estate in private form, and
Speaker 1: I think that is going to some sort of transformation too,
Speaker 1: but with interest rates climbing, real estate is becoming trickier.
Speaker 1: Tom Shapiro of g T I S says the housing
Speaker 1: market is taking a real hit. The housing market is
Speaker 1: tremendously decelerating at this point sales or optomendastin. Famed investor
Speaker 1: Sam Zell says it may be worth less than the
Speaker 1: market thinks. I felt that the real estate market generally
Speaker 1: has been overpriced, particularly in on the private sector. And
Speaker 1: now Blackstone has limited withdrawals from its massive real estate
Speaker 1: investment fund because too many people were taking their money
Speaker 1: out too fast, which Larry Summers sees as a potentially
Speaker 1: ominous sign. When you see prominent financial institutions telling people
Speaker 1: that they can't take their money out, that's never a
Speaker 1: happy thing. Makes me wonder about what's head And we
Speaker 1: welcome back to Wall Street Week. Now somebody who knows
Speaker 1: real estate terribly well. He's Jeff Blau. He's the CEO
Speaker 1: of Related and that is, of course one of the
Speaker 1: largest real estate developers around the country. They have properties
Speaker 1: throughout the countries and our unlast time I checked the
Speaker 1: largest landlord in New York City. I think Jeff one Off.
Speaker 1: I don't know if all of the largest, but who
Speaker 1: are up there, so welcome back. Great, So tell us
Speaker 1: about real estate right now. It has been a good
Speaker 1: hedge against inflation. Inflation is a problem. At the same
Speaker 1: time interest rates are going up. At this end, we
Speaker 1: have some real problems with some office occupancy. So you've
Speaker 1: got a lot of topics in there. Uh. First, if
Speaker 1: you think about what's happened over the last year, we've
Speaker 1: had the fastest rise in interest rates in in probably
Speaker 1: twenty plus years, and the impact on real estate is
Speaker 1: pretty significant. Now you break down different parts of real
Speaker 1: estate because real estates broad so unstabilized assets buildings that
Speaker 1: people own, whether it's apartment buildings or office buildings. In
Speaker 1: a in a way, inflation is good for those assets, right,
Speaker 1: rents eyes they go up, and if you did a
Speaker 1: good job managing your assets, you might have fixed rate
Speaker 1: long term debt, so cash flows increase. So in the
Speaker 1: in that bucket of real estate, inflation is a great head. Uh.
Speaker 1: Inflation is great for for real estate assets. Um, if
Speaker 1: you're in the funds business, whether they're credit funds or
Speaker 1: equity funds, this is a great time for that business.
Speaker 1: The banks, as you know, have stopped lending or have
Speaker 1: certainly pulled back um significantly, and so the private credit
Speaker 1: markets are are booming because where they were competing with
Speaker 1: the banks in the past, the in effect could make
Speaker 1: bank type loans at two times the rate. So that's
Speaker 1: a great opportunity for credit funds equity funds. We haven't
Speaker 1: yet seen real distress. We might start seeing that in
Speaker 1: the in the next couple of months, So I think
Speaker 1: the funds management business in real estate is going to
Speaker 1: be very strong going into twenty three. The difficult part
Speaker 1: for real estate is is anything you want to do
Speaker 1: new new development is difficult if there's not a lot
Speaker 1: of financing. There's not a lot of construction loans. Costs
Speaker 1: have gone up, UM, so it makes harder to build UM.
Speaker 1: So it's it depends where you are in the real
Speaker 1: estate markets. UM. As to what you know, the impact
Speaker 1: is the office sector. As you mentioned, that's that's a
Speaker 1: whole topic into itself, UM. And I think really people
Speaker 1: people ask me all the time tell me about what
Speaker 1: the office market, and really the office market is very bifurcated,
Speaker 1: and I don't think there's one answer. Again, UM, what
Speaker 1: we have seen is is a real dispersion in values
Speaker 1: between older buildings and and brand new buildings. Um. And
Speaker 1: it's not just new, it's new with the right features,
Speaker 1: the right amenities that tenants are looking for today. UM.
Speaker 1: So we're seeing more and more corporations thinking about how
Speaker 1: do they get people back to their office and thinking
Speaker 1: about using the physical space as the attraction to bring
Speaker 1: people back. But truthfully, people don't want to go back
Speaker 1: to old kind of quiet offices that are dark and
Speaker 1: have bad air circulation and long waits in the elevators
Speaker 1: and no amenities. So what corporations are doing is investing
Speaker 1: in their office space not for occupancy but for talent
Speaker 1: attraction and retention. And I think that's where you're really seeing, uh,
Speaker 1: the A buildings and the new buildings that are focused
Speaker 1: on this, that have the right amenities, that have the
Speaker 1: right h v A C circulation, that have hospitality type services,
Speaker 1: that have great air and light, um and the right
Speaker 1: type of build out. The build out in office space
Speaker 1: is changing tremendously. Where we used to see kind of
Speaker 1: the old mad Max version of a build out with
Speaker 1: you know, private offices on the exterior wall and assistance
Speaker 1: offices or cubes inside. That's really not the way office
Speaker 1: is built today. We're seeing well much more collaboration space,
Speaker 1: teeming space, meeting space, food service tables around food where
Speaker 1: people are using for gathering and working as opposed to
Speaker 1: private offices. So this type of office of the future
Speaker 1: UM we think can be successful and is successful. The
Speaker 1: data is there today, UM for these new buildings. So
Speaker 1: we compared brand new buildings across markets in the United States, UM,
Speaker 1: not just here in New York. And you look at
Speaker 1: new modern buildings with the right features, the right amenities,
Speaker 1: and the demand for those buildings is tremendous. And at
Speaker 1: the very same time, you can go a couple of blocks,
Speaker 1: like if you take huts in Yards for example, we
Speaker 1: just opened last last week. Actually a first tenant moved
Speaker 1: in at fifty Huts and Yards. Fifty Huts and Yards
Speaker 1: is a three million square foot building. It costs US
Speaker 1: over four billion dollars to build this building, and and
Speaker 1: it's essentially ninety plus percent at least at this point,
Speaker 1: we're getting the highest rents in New York City in
Speaker 1: that building, over two hundred dollars a foot in that building.
Speaker 1: And because it is it has all those features and amenities.
Speaker 1: It is new, it has all those things that we're
Speaker 1: talking about. You can go three blocks away and find
Speaker 1: as much space as you want in B buildings that's
Speaker 1: probably listed for six exteen dollars and they can't at
Speaker 1: least even with everything you say about the A. Are
Speaker 1: people needing a little less A space? I mean we
Speaker 1: had the Meta situation actually hunts in yards where they
Speaker 1: gave back two or fift square feet. Are you seeing
Speaker 1: that more broadly where people saying, yes, I really like
Speaker 1: A but I don't need as much of it? So
Speaker 1: not really. So there's a couple of different situations. So Meta.
Speaker 1: Actually what Meta did is when we made the deal
Speaker 1: with them, they are anchored one of the anchor tenants
Speaker 1: along with Black Rock in in fifty Huts and Yards.
Speaker 1: When we made the deal for them to move into
Speaker 1: fifty huts and yards, that was three plus years ago,
Speaker 1: four years ago UM, and they needed space immediately, so
Speaker 1: they took some swing space in thirty UM with the
Speaker 1: intent to move into fifty So that's the space that
Speaker 1: they are not staying in today. Everyone thinks there was
Speaker 1: this big announcement, but that was that's that was the plan.
Speaker 1: So they are moving the employees that they have in
Speaker 1: thirty huts and yards, which was which were in swing
Speaker 1: space into fifty And answer your question, there are companies
Speaker 1: like Meta today that are back on office space in general,
Speaker 1: but that has nothing to do with their build out
Speaker 1: of the space. That's you know, the tech sector is
Speaker 1: pulling back, they're cutting costs. That's based on their business.
Speaker 1: That's based on kind of what's happening in the broader economy.
Speaker 1: If you if you ask Meta about their office space
Speaker 1: per employee in their new types of buildouts, and so
Speaker 1: they have actually stepped back rethought about the office space
Speaker 1: of the future, and it's all the things that I
Speaker 1: talked about. Much fewer private offices, much more gathering and
Speaker 1: meeting spaces. And when you when you take the same
Speaker 1: when you take the the same number of employees and
Speaker 1: compared the old build out and the new build out,
Speaker 1: the mix of public space and private space is completely different.
Speaker 1: But the total square footage per employee is the same.
Speaker 1: Now if they have if they're pulling back because of
Speaker 1: general economic issues, that's not a real estate issue, right,
Speaker 1: It's not an office space issue. Let's come back to
Speaker 1: the BNC buildings as we call them. I've read about
Speaker 1: so called zombie office buildings now in New York City
Speaker 1: they're really empty. How bad a problem is that? What
Speaker 1: are we going to see? What's the followup? And by
Speaker 1: the way, does that also create some opportunities and bargains
Speaker 1: to pick things up cheap? Right? So I think it
Speaker 1: is a pretty significant issue for New York City. You've
Speaker 1: had some companies leave New York. Um, You've had some
Speaker 1: companies suffer through the economic downturn and COVID and supply
Speaker 1: chain and all the things that have happened, UM, and
Speaker 1: have vacated space in those B buildings. UM. The problem
Speaker 1: is there's not there's not a lot of tenants that
Speaker 1: want to release those spaces. So we're seeing vacancy in
Speaker 1: the B buildings increased significantly. We're seeing the vacancy in
Speaker 1: the not just A buildings, but in new product A buildings. Jeff,
Speaker 1: thank you so much, Jeff Bloggy, CEO of Related Coming up,
Speaker 1: we'll 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 Wall Street Week. I'm David Weston, and we
Speaker 1: welcome back now our special contributor in Wall Street Week.
Speaker 1: He is Larry Summers of Harvard, So Larry, normally we
Speaker 1: talked about what's happened during the week, particularly what the
Speaker 1: FED might make of it, what might happen with rates,
Speaker 1: But it strikes me there isn't a lot of that
Speaker 1: this week. Let's talk about larger issues that really you
Speaker 1: are focused on. David. I think it's important for us
Speaker 1: always to remember that ultimately, trends are more important than events,
Speaker 1: and trends most of the time are positive, and events
Speaker 1: most of the time are negative. So we have to
Speaker 1: step back and look at things that may be markers
Speaker 1: of trends. And I saw too such things this week,
Speaker 1: China's huge evolution away from the zero COVID strategy, and
Speaker 1: what happened with chat GPT from open Ai, which may
Speaker 1: be a marker of a profound change in what it
Speaker 1: means to be a machine and what it means to
Speaker 1: be human. So let's take each of those up in turn,
Speaker 1: if we could. Let's start with China, because as you say,
Speaker 1: they really are backing off of their strict policy on
Speaker 1: COVID and the isolation and that they've been pursuing, and
Speaker 1: also up a lot of the testing. But do we
Speaker 1: know yet, well, that's gonna be positive or negative. It
Speaker 1: could be positively for the economy. But now and if
Speaker 1: they have a real spike in cases and really overload
Speaker 1: their medical system, we may have a problem. Look, I
Speaker 1: think we know two things. We know that a big
Speaker 1: change in China happened because of an expression of popular
Speaker 1: will and protests. That's a profound thing for the governance
Speaker 1: of that superpower with one point four billion people. You're
Speaker 1: quite right, we don't yet know how this is going
Speaker 1: to work out. Is this going to be a successful
Speaker 1: rejoining of the reality of the rest of the world,
Speaker 1: or or is this going to lead to catastrophic delegitimizing
Speaker 1: performance of the Chinese healthcare system? And we don't know.
Speaker 1: But either way, there's a big chance that China is
Speaker 1: going to be a quite different country six months from
Speaker 1: now than it is today. And so I think all
Speaker 1: of us are always watching China carefully, but we need
Speaker 1: to be watching China much more carefully over the next
Speaker 1: over the next six months, when you're gonna be seeing
Speaker 1: leadership change at the same below the level of shijimping.
Speaker 1: Of course, at the same time that we're gonna be
Speaker 1: seeing probably the biggest UH set of policy experiments UH
Speaker 1: that we've seen in China in decades. So let's turn
Speaker 1: to that second SUT together, the open AI creation of
Speaker 1: chat GPT. I won't pretend that I understand this, but
Speaker 1: I have read about it. Again, Is this a positive
Speaker 1: thing or potentially a negative thing? Because we already have
Speaker 1: a lot on the Internet, we don't know where it
Speaker 1: comes from or its origins. Now we're gonna have something
Speaker 1: we can't even tell whether a person created it. Look,
Speaker 1: when I went to graduate school, we used to estimate
Speaker 1: statistical models with five parameters. Now they're gonna be a
Speaker 1: hundred and seventy five billion parameters that go into UH
Speaker 1: one of these UH systems. The great computer scientist Alan
Speaker 1: Turing seven years ago said that it was going to
Speaker 1: be a threshold for humanity when a machine could sept
Speaker 1: could it could imitate a human being's answers to questions
Speaker 1: in a way where another human being wouldn't be able
Speaker 1: to tell the difference. We're somewhere in the territory of
Speaker 1: that right now, and that is a profound thing for humanity.
Speaker 1: It points to a profound change in the way we're
Speaker 1: all going to be working. We're all going to have
Speaker 1: a kind of caddy that or many of us are
Speaker 1: going to have a kind of caddy that is going
Speaker 1: to augment our creativity, augment our capacities, to bring knowledge
Speaker 1: to bear on what we do, augment our accuracy. But
Speaker 1: just as the printing press or electricity was a huge
Speaker 1: change because it was a general purpose technology, this could
Speaker 1: be the most important general purpose technology since the wheel
Speaker 1: or fire, and that is something we are all going
Speaker 1: to be changed by. My hope is that the very
Speaker 1: transcendence of these kinds of events can bring a kind
Speaker 1: of unity, can bring a kind of unity because they
Speaker 1: are so large relative to the differences between Democrats and Republicans,
Speaker 1: or even the difference between the West and China, that
Speaker 1: these opportunities and threats because they are both, whether it's microbes,
Speaker 1: whether it's artificial intelligence, whether it's a climate change, that
Speaker 1: the very transcendence of these global events can become a
Speaker 1: source of cohesion and progress. But there is no assurance
Speaker 1: at all of that we are living in truly historic times.
Speaker 1: Learn I want to talk about a different sort of
Speaker 1: threshold that I came across this week, and I was
Speaker 1: a little bit surprised. I was reading Bono the Leader
Speaker 1: of You too. His new memoir called Surrender is a
Speaker 1: fascinating book. I find it very, very compelling. And who
Speaker 1: do I find in there but one Larry Summers when
Speaker 1: you were, according to Bano, originally new Treasury secretary, and
Speaker 1: he came in to meet with you and Cheryl Sandberg
Speaker 1: and Stephanie Flanders to talk about debt forgiveness for the
Speaker 1: poorest countries. And according to his rendition of it, it
Speaker 1: really started. You started with President Clinton, a real process
Speaker 1: that led to really historic changes in the debt of
Speaker 1: some of the poorest countries in the world. What about that.
Speaker 1: We've still got a long way to go, don't we.
Speaker 1: David Barno is an unlikely but very close friend. I
Speaker 1: will confess it. I'd never heard of him before we
Speaker 1: had our meeting, and Cheryl Sandberg had to force me
Speaker 1: to take the meeting because I thought Secretaries of the
Speaker 1: Treasury should only meet with people who had a first
Speaker 1: name and a last name. But he was mesmerizing both
Speaker 1: in his charisma and his knowledge, and he drove that
Speaker 1: debt relief program forward. We had an unlikely coalition. Pat
Speaker 1: Robertson Senator Jesse Helms, and we were able to do
Speaker 1: something that I think was hugely important for the African
Speaker 1: continent at that time. Sad to say, right now, the
Speaker 1: world needs comprehensive debt relief for the poorest countries, and
Speaker 1: what the world is getting is grudging, incremental, partial, limited,
Speaker 1: small efforts. And we've got to find a way to
Speaker 1: do UH better. And I hope bot I was going
Speaker 1: to get the band together again. I'm certainly willing to
Speaker 1: do my part UH to help. This time it is
Speaker 1: going to be different because a lot of that debt
Speaker 1: is owed to China, and finding a way, even when
Speaker 1: things are vexed with China, to involve them in helping
Speaker 1: these countries UH move forward based on an understanding of
Speaker 1: how they see UH. The you is going to be
Speaker 1: UH necessary and profoundly important for a large number of
Speaker 1: human loves. And finally, Larry, give us a moment, if
Speaker 1: you would, on what we normally do on this program,
Speaker 1: which is talking about what happens this week and specifically
Speaker 1: the question of the likelihood recession. We saw developments in
Speaker 1: the marketplace, oil price coming down, bond deals coming down,
Speaker 1: stocks coming down. Most people think that has to do
Speaker 1: with real anticipation of a significant recession. Where are you
Speaker 1: on that I've been I've been saying, uh, soft landing
Speaker 1: very unlikely for a while, and I think it's looking
Speaker 1: even more unlikely. Uh right now, I noticed that the
Speaker 1: consensus is reflected by the Ft University Chicago survey of
Speaker 1: a group of fifty economists, is now moving closer to
Speaker 1: where I've been. They're saying that we're going to have
Speaker 1: a recession and that the unemployment rate will peak at
Speaker 1: five and a half percent. That's up from where they were,
Speaker 1: way ahead of of the fat Is I've been saying
Speaker 1: six percent. So I think there's a growing coming together
Speaker 1: that we probably are going to make more progress on
Speaker 1: inflation than many people expected. But it's because the fat
Speaker 1: is gonna do what's necessary. But there's likely to be uh,
Speaker 1: some adverse aspect of that. But you know, David, next week,
Speaker 1: I hope we can talk about what's happening globally, because
Speaker 1: we tend to focus here just on the American picture,
Speaker 1: but the two other major polls of the economy, China
Speaker 1: and Europe, are both going to have a huge impact
Speaker 1: on how the soul plays out globally. Let's do exactly
Speaker 1: that next week. Thank you so much to Larry Summers,
Speaker 1: our very special contributor here on Wall Street Week, coming
Speaker 1: up to the winners go to spoils, or at least
Speaker 1: to the big time pro baseball players. That's next on
Speaker 1: Wall Street. Reek on Bloomberg. This is Wall Street Week.
Speaker 1: I'm David weston Bloomberg. Wall Street reporter Chaney Bosset got
Speaker 1: a ringside seat at the Goldman Secs US Financial Services
Speaker 1: Conference in New York this week, and this is what
Speaker 1: she learned about the mood on Wall Street. Thanks David.
Speaker 1: When it comes to the mood on Wall Street, a
Speaker 1: lot of the energy has been focused on talent. Talent
Speaker 1: is often the biggest cost. And for all the talk
Speaker 1: of podential job cuts and reductions and pay it's worth
Speaker 1: taking a look at which jobs are under pressure, which
Speaker 1: are not, and how employees can adjust to new positions
Speaker 1: As they try to realign to a new macro economic environment. Now,
Speaker 1: bankers are looking to reinvent themselves. Investment banking at Bank
Speaker 1: of America is on track to drop by more than
Speaker 1: fifty this year, for example, and that bank has actually
Speaker 1: gained market share in mergers and acquisitions and investment grade underwriting.
Speaker 1: During this week, Market CEO Brian moynihan said the company
Speaker 1: is slowing hiring ahead of a possible recession, but he's
Speaker 1: also said they're trying to move traditional dealmakers to new
Speaker 1: roles within the bank. He spoke to me at the
Speaker 1: annual Goldman's Acts Financial Services Conference this week. We know
Speaker 1: we can absorb those teammates. We we by just manage
Speaker 1: our headcap carefully. So what do we do in at
Speaker 1: times like this? You look at your open positions, You
Speaker 1: look at your phil rate, which is how many people hires.
Speaker 1: Acent of people leave and in shape ahead come back
Speaker 1: in across the whole company. We take some of us
Speaker 1: talent teammates investment banking and bring them into other parts
Speaker 1: of the company at times like this. Finally, one more thought,
Speaker 1: maybe we're not really all in this together. Just about everyone,
Speaker 1: at least every economist agrees that we are in for
Speaker 1: some harder economic times, and that includes former presidential economic
Speaker 1: advisor Glenn Hubbard of Columbia. I think it's still likely
Speaker 1: that we will see a recession at the Federal Reserve
Speaker 1: pursues its path to get to two percent inflation relatively quickly,
Speaker 1: But to say that we are all facing an economic
Speaker 1: downturn does not mean that we will all take the
Speaker 1: same hit from that downturn. Some of us will get
Speaker 1: laid off, of which Morgan Stanley's Mike Wilson says is
Speaker 1: necessary and could actually be a good side for investors.
Speaker 1: One layoffs cycle picks up in earnest, that will actually
Speaker 1: be one of the keys for us to get bullish,
Speaker 1: because that means the bleeding will stop on the operating leverage.
Speaker 1: One of the first group of workers to get hit
Speaker 1: has been tech, particularly big tech, which in some cases
Speaker 1: it may have been overdue the hiring that we sold
Speaker 1: through the pandemic, where companies like Amazon and Matza basically
Speaker 1: double the workforce. Clearly the semexis there then needs unwind
Speaker 1: I thought echoed by for Tero's Dean Forbes. Most of
Speaker 1: these layoffs at scale are happening in the supers right,
Speaker 1: the happening in the metsas the happening in the Facebook's
Speaker 1: that happening in Twitter, and to a degree, it's just
Speaker 1: kind of right sizing. Even if we're not losing our jobs,
Speaker 1: most of us are finding that we make less because
Speaker 1: of the bite of inflation and now Goldman Sachs CEO
Speaker 1: David Solomon says that at least some of his bankers
Speaker 1: should expect cuts in compensation over and above what inflation
Speaker 1: is doing. It shouldn't be surprising to people why the
Speaker 1: performance of the business this year. That one was an
Speaker 1: exceptional year. It was a record year for the firm,
Speaker 1: was the highest revenue year ever for the firm. Twenty
Speaker 1: two is a different year, and so naturally compensation will
Speaker 1: be a lower But never fear those layoffs and comp
Speaker 1: couents won't be reaching all workers, not by a long shot,
Speaker 1: and certainly not if you are a star pro baseball player.
Speaker 1: Just last week, the Texas Rangers took two time Cy
Speaker 1: Young Award winner Jacob Degram away from the New York Mets,
Speaker 1: and in the process gave him a nice raise to
Speaker 1: thirty seven million dollars a year. But the Mets didn't
Speaker 1: grieve for too long. They turned around inside Justin Verlander,
Speaker 1: raising his pay to a cool forty three million dollars
Speaker 1: a year, putting him just about on a par with
Speaker 1: his Mets teammate now Max Scherzer. But then we had
Speaker 1: the Yankees step up with three or sixty million dollars
Speaker 1: or nine years to keep star slugger Aaron Judge in
Speaker 1: pinstripes million our deal for nine years with the Yankees.
Speaker 1: That being reported by the Athletic forty million dollars a year.
Speaker 1: And I'm sorry, Lisa, it's just simple sports wins. The fact,
Speaker 1: as you see it, in the signing season of baseball,
Speaker 1: big money is being thrown around. Now. Nobody can deny
Speaker 1: that all of these are truly great players, sure to
Speaker 1: make it into the Hall of Fame. But to put
Speaker 1: it all in a broader perspective, Mickey Mantle, surely one
Speaker 1: of the greatest players ever in the game, became the
Speaker 1: highest paid baseball player in the land back in nine
Speaker 1: And what do you get paid? Whopping one hundred thousand
Speaker 1: dollars a year And that is just over two percent
Speaker 1: of what Justin Verlander will make next year. And yes
Speaker 1: that is adjusted for inflation. That does it for this
Speaker 1: episode of Wall Street Week, I'm David Weston. This is Bloomberg.
Speaker 1: See you next week.