Speaker 1: This is Bloomberg Wall Street Week. Market shruggle, higher consumer prices.
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 minds inflation through the eyes of the
Speaker 1: most influential voices. Larry Summer is the former Treasury Secretary
Speaker 1: Bryan Wynhan a backup America, Will Smart, CEO of Charlie Sharp.
Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Radio.
Speaker 1: Everything's coming up. Roses were back outside of the masks.
Speaker 1: People are getting back to work. The economy is growing,
Speaker 1: So should we be worried? This is Bloomberg Wall Street Week.
Speaker 1: I'm David Weston. This week we saw more of everything,
Speaker 1: more stimulus as both the Fed and the ECB say
Speaker 1: they'll keep buying those bonds at accelerated rates. More inflation
Speaker 1: is the U s CPI grew at the top of
Speaker 1: the range of expectations. It was up five per cent
Speaker 1: year over year for the month of May. And Chinese
Speaker 1: producer prices shot up, more job openings for those looking
Speaker 1: for work as the jolts numbers are running at record highs,
Speaker 1: and more mean stocks as AMC and game Stuff are
Speaker 1: so last month, replaced by stocks like Clover Health and
Speaker 1: Clean Energy Fuels and prison operator Geo Group. But the
Speaker 1: one thing there wasn't more of was fear as the
Speaker 1: ten year yield dipped back down below one and equities
Speaker 1: spent the week flirting with record highs, with the SMP
Speaker 1: five hundred up for a third week in a row.
Speaker 1: So being a trader may have been some fun this week,
Speaker 1: but won was it for investors? Then we learn anything
Speaker 1: for the longer term? And is there a downside to
Speaker 1: all this forward momentum for some answers? Welcome now Steve Rattner.
Speaker 1: He's chairman CEO of Willow Advisors, which invest the family
Speaker 1: and philanthropic assets of Michael Bloomberg, founder and majority owner
Speaker 1: of our parent company, and Katikotch Global, co head of
Speaker 1: fundamental equity funds at Golden Sex. So welcome both to
Speaker 1: both of you, Steve and Katie cam Let's start with you.
Speaker 1: The headline for me this week is we had as
Speaker 1: I say five percent inflation. You ever, you're in the
Speaker 1: month of May. That's the highest has been in thirty years. Uh,
Speaker 1: the real yield is at negative rates that we're we
Speaker 1: haven't seen since Thanking eighty when inflation was out of
Speaker 1: control and the market just shrugged it off. How can
Speaker 1: that be? Right? Yeah, very interesting inflation print. Like you said,
Speaker 1: the CPI basket clearly showing a lot of upward pressure.
Speaker 1: And to answer your question, why is the market shrugging
Speaker 1: it off? It's obviously because the Fed is telling us
Speaker 1: this is transitory, and the market also is believing its transitory.
Speaker 1: And that's the reason we haven't seen a lot of
Speaker 1: movement in the tenure. And so this is what people
Speaker 1: are really gonna have to get their heads around in
Speaker 1: the coming weeks as to whether or not this will unlock.
Speaker 1: Is it really a supply chain issue? Um as as
Speaker 1: an example, that's driving that. So we have to spend
Speaker 1: some time thinking through that. But I would separate the
Speaker 1: CPI basket issue from the wage issue, and I just
Speaker 1: want to comment on that quickly. Um I can make
Speaker 1: a case for a lot of things in that basket
Speaker 1: being transitory. We are worried about some of the inflationary
Speaker 1: pressures that we're seeing in wages. You mentioned her jobs
Speaker 1: available over nine million, the biggest in history. From our
Speaker 1: portfolio companies, we're seeing some people have to increase we
Speaker 1: just by to bring people back into the labor market.
Speaker 1: It may be possible, and this could be good in
Speaker 1: some ways. That we are at the precipice of a
Speaker 1: redis redistribution cycle from capital to labor and that is
Speaker 1: going to have some inflationary pressures that we're really gonna
Speaker 1: need to watch. And if that is the case, that
Speaker 1: will show up in margins of companies and that's something
Speaker 1: we have to be vigilant around. So taking that all together,
Speaker 1: people think it's transitory. The market may be too complacent
Speaker 1: about this, and we're very very focused on how it's
Speaker 1: coming through on wages. So Steve, as a major investor,
Speaker 1: are are is there a danger we are being too complacent?
Speaker 1: And go back to the FED for a second. We
Speaker 1: all like to focus on the Fed and what they're doing.
Speaker 1: They have control over things like interest rates, particularly short
Speaker 1: end of the curve. They can really affect that. They
Speaker 1: can certainly affect financial conditions. They can't really determine inflation
Speaker 1: they could only sort of predict where it's going. Do
Speaker 1: we think they have it right? The FED can not
Speaker 1: only predict inflation, they can create inflation. But that that's
Speaker 1: maybe another story. But I think what Katie said at
Speaker 1: the beginning of all of the Katie said was I
Speaker 1: think dead on, But particularly at the beginning of her answer,
Speaker 1: she pointed out this disconnect between what many professional economists
Speaker 1: like Barry Summers, who I have no agree with, as
Speaker 1: you know, but also a lot of CT goes and
Speaker 1: other people outside of the markets, I think is going
Speaker 1: on with what the markets think is going on. When
Speaker 1: you look at what's happening to inflationary expectations as measured
Speaker 1: by the markets, they remained to use the fed's famous phase,
Speaker 1: in fact favorite phrase and famous phrase, they remained well angered.
Speaker 1: Whether you look at the break evens between tips and nominals,
Speaker 1: whether you look at the forwards, whether you look at
Speaker 1: the five year five year forwards, any place you look
Speaker 1: in the market, it's it's suggesting that inflation will remain
Speaker 1: in the two and a quarter or two and a
Speaker 1: half percent range. Many of the rest of us have
Speaker 1: different views about that, but that's at least what the
Speaker 1: market thinks at the moment as and when the facts change.
Speaker 1: As King's famously uh said, Uh, we can change our
Speaker 1: minds and the market may change it mind And to
Speaker 1: a comment you made a second ago, the FED can
Speaker 1: control inflation and create it and and stop it. But
Speaker 1: the one thing that really can't do is control the
Speaker 1: long end of the treasury curve. And in a fight
Speaker 1: between the Fed and the markets of what happens so
Speaker 1: longer term interest rates, not the FED funds right, not
Speaker 1: the two year, but when you get out to ten,
Speaker 1: twenty and thirty years, I believe, and I think history
Speaker 1: would suggest that the markets are were often right than
Speaker 1: the Fed is right, and that becomes a test of wills.
Speaker 1: So O, Katy, you mentioned inflation, particularly when it comes
Speaker 1: to wages, But what does that do to you as
Speaker 1: an investment in equities? Do you have to really discern
Speaker 1: between companies, for example, with smaller margins that might get
Speaker 1: really squeezed with wage pressure, because one of the things
Speaker 1: that can happen inflation, whether it's wages or its input costs,
Speaker 1: you can really hurt the margins. Yeah. Absolutely, And so
Speaker 1: I think with wages one thing the main thing that
Speaker 1: we have to figure out here is that we know
Speaker 1: that wages are going up, as as I said, we're
Speaker 1: seeing a lot of data on that from our portfolio companies.
Speaker 1: Um we need to and it's quite an interesting thing
Speaker 1: because we've actually been able to achieve through this stimulus
Speaker 1: and increase effectively in the minimum wage that we have
Speaker 1: not been able to do through policy ever, and so
Speaker 1: that's in and of itself quite interesting. Then we need
Speaker 1: to actually see with these wages, is this a one
Speaker 1: time reset or were actually going to have growth of
Speaker 1: upward growth on wage pressure going forward, And so that's
Speaker 1: what we have to monitor. If we have that, it
Speaker 1: is going to start to erode margins more meaningfully and
Speaker 1: that could be negative for equity markets. Just taking one
Speaker 1: step back here though, I think what we're seeing in
Speaker 1: equity markets now as it relates to inflation is that
Speaker 1: markets are up so very healthy return for equity markets
Speaker 1: here to date, but the inflation is playing out what's
Speaker 1: happening under the markets obviously with value having strong leadership
Speaker 1: over growth markets, and that's directly because of inflationary pressures.
Speaker 1: Many thanks to Steve Rattner of Willow Advisors and Katie
Speaker 1: Kotch from Goldman Sachs Asset Management coming up. Jeff Bezos
Speaker 1: says he's going into space this summer, but can he
Speaker 1: make some money up there? We ask test Patch of
Speaker 1: Messember Venture Partners. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. Space is now open not just to astronauts,
Speaker 1: but to billionaires. Jeff Bezos announced this week that he's
Speaker 1: going to take on an eleven minute trip to space
Speaker 1: on a Blue Origin rocket next month. And he's not
Speaker 1: the only one. Virgin Galactics Richard Branson plans to take
Speaker 1: a similar trip as early as this summer. We're asking
Speaker 1: our founder Richard Branson to come on and really test
Speaker 1: the private astronaut experience for us. We think who better
Speaker 1: to do that? That's Virgin Galactic CEO Michael Cole Glacier.
Speaker 1: For investors, space is a growth market. Morgan Stanley estimates
Speaker 1: that the global space industry could grow to one trillion
Speaker 1: dollars in competition among the space barons started when Jeff
Speaker 1: Bezos founded Blue Origin back in two thousand. My vision
Speaker 1: for Blue Origin, the long term vision is millions of
Speaker 1: people living and working in space. We need a space
Speaker 1: staring civilization for a whole bunch of reasons, and that's
Speaker 1: the vision. The company operated quietly for fifteen years until
Speaker 1: it started testing its new Shepherd rocket. SpaceX was second
Speaker 1: into the private space race, joining in two thousand two.
Speaker 1: In just a few years, it launched its Falcon one
Speaker 1: rocket and pulled ahead of its competitors in a series
Speaker 1: of first SpaceX led the first private mission to the
Speaker 1: International Space Station, filling a role left vacant after NASA
Speaker 1: retired its space Shuttle fleet in two thousand eleven. Here's
Speaker 1: Morgan Stanley's Adam Jonas. SpaceX is the apex predator in
Speaker 1: the space market. Some would argue they're sucking the air
Speaker 1: out of the universe right now in terms of talent
Speaker 1: and capital. While SpaceX and Blue Origin compete over NASA
Speaker 1: contracts to launch satellites and service the space station, Virgin
Speaker 1: Galactic focuses on space tourism. It celebrated its first manned
Speaker 1: space flight in May and is planning to conduct more
Speaker 1: test flights with the goal of taking commercial passengers to
Speaker 1: the edge of space again. Here's Virgin Galactic CEO Michael
Speaker 1: cold Glazier. We believe this is going to be a
Speaker 1: supply constrained business for quite some time. The demand of
Speaker 1: this is going to be well out in front of
Speaker 1: our ability to build and scale the fleet up for
Speaker 1: a while, and as such it will be reasonably expensive
Speaker 1: as it goes forward. There is so much excitement and yes,
Speaker 1: romance in space, but the question is is it investival?
Speaker 1: Can we make money out there in space? Welcome now
Speaker 1: test Hatch, who is devoting her career to answering that
Speaker 1: key question. She started out as an aeronautical engineer hoping
Speaker 1: to be an astronaut, worked at SpaceX and at Boing,
Speaker 1: but now she's become a venture capitalist. She has a
Speaker 1: partner at Bessemer Venture Partners, and we welcome right now
Speaker 1: to Wall Street Week. So give us a sense of
Speaker 1: how we might make money out there beyond just getting
Speaker 1: excited about it. Of course, when investing in any company,
Speaker 1: there's a handful of things you want to look at.
Speaker 1: You want to look at the top line revenue, how
Speaker 1: quickly and efficiently it's growing. You want to look at
Speaker 1: the competitors in the space and the quality of the team.
Speaker 1: When it comes to space companies specifically, there's additional nuances
Speaker 1: you want to factor into your consideration. Let's use three
Speaker 1: of the most common examples, launch vehicles, satellites, and space tourism.
Speaker 1: When it comes to launch vehicles, you want to look
Speaker 1: at the number of successful launches and the number of
Speaker 1: assets that rocket is launched into space. When it comes
Speaker 1: to satellites, you want to look at the number of
Speaker 1: satellites and specifically what sensors they have in space. And
Speaker 1: then space tourist companies eventually you want to look at
Speaker 1: people that they've launched into space. That's not reality at
Speaker 1: the moment. So an early indicator is successful test flights,
Speaker 1: and all of these things are an early proxy in
Speaker 1: space tourists case and an actual in launch vehicle in
Speaker 1: satellitees case to revenue, again, a very important thing for
Speaker 1: all companies, even space companies test right now for many
Speaker 1: of us who aren't as initiating in this as you are.
Speaker 1: When we think about private at space race, we think
Speaker 1: about three big companies, right, We think about SpaceX, We
Speaker 1: think Abou Blue Origin, we think of Virgin Galactic, two
Speaker 1: of which are private actually, but essentially that there are
Speaker 1: other companies out there as well that may not be
Speaker 1: as well known or as big. It's amazing all that
Speaker 1: space X, Blue Origin and Virgin Galactic are doing for
Speaker 1: the space industry. They're really paving a path for hundreds.
Speaker 1: There are over four hundreds space startups following in in
Speaker 1: in those three footsteps and hope to be those next three. Uh.
Speaker 1: There's about a dozen space startup companies that are going
Speaker 1: public this year via s back a special purpose acquisition company,
Speaker 1: and will be available to the public by the end
Speaker 1: of the year. It's a really large market, and it's
Speaker 1: an overall three hundred and fifty billion dollar economy that
Speaker 1: we use in our everyday lives, whether it's to watch TV,
Speaker 1: listen to the radio, navigate us to our destination, and
Speaker 1: and and these startups are really lowering the barrier of
Speaker 1: entry to space and continuing to open space for business.
Speaker 1: So pick up on that specifically, how much of this
Speaker 1: is telecom muncations is putting satellites up? I mean, you've
Speaker 1: taught me actually about something called cube SATs. I didn't
Speaker 1: know they existed. I just think about the big ones.
Speaker 1: Tell Star back to the old days, right, But we
Speaker 1: have a whole new range of satellites that some of
Speaker 1: these private companies are putting up there. Decades of Moore's
Speaker 1: law has exponentially decreased the size and increased the power
Speaker 1: of commercial off the shelf electronics to allow for the
Speaker 1: invention of the cubes at, which reversed the model that
Speaker 1: you were just sharing of massive school best sized satellites
Speaker 1: that would take years of not decades, and tens, if
Speaker 1: not hundreds of millions of dollars to design, build, test,
Speaker 1: and launch into geostationary orbit thirty six thousand kilometers away
Speaker 1: from the world. The invention of the cubes at flipped
Speaker 1: that model so that you can launch your camera onto
Speaker 1: a tissue boxed size satellite whizzn't around the Earth every
Speaker 1: ninety minutes. If you saw the movie Gravity, it's where
Speaker 1: Sandra Bolock and George clooneyware on our International Space Station.
Speaker 1: And these cube SATs have really allowed entrepreneurs, students, people's
Speaker 1: imagination to launch unique sensors to take photos of the Earth,
Speaker 1: to communicate with the Earth. And I especially am interested
Speaker 1: in novel or unique sensors that are in space on
Speaker 1: this CubeSat that help life on Earth. What sorts of
Speaker 1: profit margins can you make on things like launching CubeSats
Speaker 1: is that a profitable business. Hey, every business, even if
Speaker 1: it's space, needs to be profitable at least from a
Speaker 1: venture capital investment perspective. And once you make your constellation,
Speaker 1: once you get to a carrying capacity where you have
Speaker 1: the number of assets you need in space, the margins
Speaker 1: can be can be quite good north of if not
Speaker 1: more or less depending on how often you need to
Speaker 1: replenish your satellites. So I can use a specific example,
Speaker 1: um Bestumber venture partners firm, I'm a partner at has
Speaker 1: invested in a company called spire Global, the largest general
Speaker 1: purpose cubes at constellation. We have three very specific sensors
Speaker 1: for aviation, maritime and weather monitoring and protecting. It is
Speaker 1: one of the companies that has announced its back merger
Speaker 1: with Knapsite and embarking down that path to go public.
Speaker 1: We have about eight lemurs, which we call our cub
Speaker 1: SATs in space and that's all we need. We've hit
Speaker 1: that capacity and it will dramatically increase the margins for
Speaker 1: the business now that we only need to replenish every
Speaker 1: three to five years rather than launch to get to
Speaker 1: the A D in first place test. We think of
Speaker 1: this as a massively capital intensive business. I mean, it
Speaker 1: was at one point only the government, and now when
Speaker 1: you have some of these big companies, there's a lot
Speaker 1: of capital involved. Is that true? Even with things like
Speaker 1: cubes at companies, it's more capital intensive and it takes
Speaker 1: longer than let's stay software software companies, you change a
Speaker 1: lot of code, you push it into the ether, and
Speaker 1: you get your result. Versus satellites and launch vehicles, you
Speaker 1: have to launch your asset into space before you start
Speaker 1: generating your product and therefore revenue. Thank you so much
Speaker 1: to Tess Hatch, partner at Bessemer Venture Partners. Coming up
Speaker 1: on Wall Street, we contributor Jillian Tett of The Financial
Speaker 1: Times explains why being an anthropologist, or at least knowing one,
Speaker 1: could make us better investors. That's next on Wall Street
Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio. To those of us coming
Speaker 1: from the outside global, Wall Street might just remind us
Speaker 1: those exotic tribes from Papua New Guinea or Borneo that
Speaker 1: we read about in our undergraduate anthropology classes. But it
Speaker 1: turns out that the similars are more than just superficial something.
Speaker 1: It takes a true anthropologist to explain. Before she became
Speaker 1: an acclaimed financial journalist and author, Jillian Tett of The
Speaker 1: Financial Times trained as an anthropologist at Cambridge and she
Speaker 1: brings us a different way to look at many of
Speaker 1: the stories recovery every day in her new book and
Speaker 1: through vision, a new way to see in business and life.
Speaker 1: And we welcome her now to give us someone of
Speaker 1: the taste of the lessons this book has to teach
Speaker 1: us all. So welcome Jillian. Congratulations on this book. It's
Speaker 1: a fascinting book because you go through quite a few
Speaker 1: stories actually that we know about it, and then you've
Speaker 1: covered through the years and we think of a sort
Speaker 1: of Wall Street stories and apply and anthro vision as
Speaker 1: it were, to them. We can't go through them all.
Speaker 1: I recommend somebody get the book. Area, But let's take
Speaker 1: one that's very timely right now. Let's work from home
Speaker 1: and what happened when we were forced to separate from
Speaker 1: one another? And now as we re enter, explain what
Speaker 1: anthropology might teach us about that phenomenon. Well, one of
Speaker 1: the things anthropology argues is that culture matters. In a
Speaker 1: world of artificial intelligence. We need to use some anthropology
Speaker 1: intelligence to really look at all the things that big
Speaker 1: data contract, which is these cultural patterns which are often
Speaker 1: contradictory and lookdown. Has made many of us in amateur
Speaker 1: anthropologists almost by default, because we've just had a big
Speaker 1: culture shock where all the things that we used to
Speaker 1: take for granted about our work lives and home lives
Speaker 1: have been turned upside down, and suddenly we've had to
Speaker 1: think about things like social boundaries whose are in our
Speaker 1: cod or our trial life, and we've had to think
Speaker 1: about the rituals that shape our lives. We've had to
Speaker 1: think about all the daily routines that we rely on.
Speaker 1: And what's fascinating is that many people have learned that
Speaker 1: being at home you can do some things incredibly well.
Speaker 1: Many people have realized actually value having that boundary between
Speaker 1: home life and work life in space and in time UM.
Speaker 1: And they've also realized that one of the benefits of
Speaker 1: being in an office is not what people think. It's
Speaker 1: not the processes and the formal tools that we use
Speaker 1: to get work done. It's often the sent through experience
Speaker 1: of interacting with colleagues and bumping into people and having
Speaker 1: so indipudous encounters that really matters. UM. There's a process
Speaker 1: of what anthropologists call sense making going on in offices,
Speaker 1: and many people have found that pretty hard to replicate
Speaker 1: in zoom. So the question that's fascinating now is as
Speaker 1: we go back to the office, or some of us do,
Speaker 1: what are we going to keep How are we going
Speaker 1: to redefine our rich alls and our social groups, and
Speaker 1: now that we have an opportunity to reset them with
Speaker 1: much more awareness in the past, how are we going
Speaker 1: to choose to do that? And just to be clear
Speaker 1: from your book, I learned we're not just talking about
Speaker 1: soft science here, we're talking about making money. Some people
Speaker 1: anticipated this. You talk about some trading rooms before the
Speaker 1: pandemic where some people will understood the importance of that
Speaker 1: lateral vision, as it were, even by having lower computers,
Speaker 1: they can see one another absolutely. I mean, one of
Speaker 1: the key messages in anthropology is that if you live
Speaker 1: your life with tunnel vision, just looking at things that
Speaker 1: are directly under your nose, and you don't take time
Speaker 1: to have lateral vision to look around you, then you're
Speaker 1: losing out. And ironically, financial trader has known that for
Speaker 1: a long time because actually there's an anthropologist who went
Speaker 1: to study Wall Street traders around the turn of the century.
Speaker 1: And notice that even though Wall Street traders technically have
Speaker 1: the ability to work from home, way back in the
Speaker 1: year two thousands with a Bloomberg terminal or other tools
Speaker 1: like that, banks were building bigger and bigger trading flaws.
Speaker 1: And when he asked why, he realized it was because
Speaker 1: of this issue of sense making, awareness of others of
Speaker 1: lateral perspective, and also something called incidental information exchange, which
Speaker 1: is really what happens when you have small teams who
Speaker 1: may have very good levels of social capital inside the team,
Speaker 1: needing to bump into each other and collide and swap
Speaker 1: ideas and the keepon is this with zoom calls, small
Speaker 1: teams doing specific tasks can usually replicate that quite well
Speaker 1: in cyberspace, but we all know that having that incidental
Speaker 1: information exchange, that serendipitous encounter, basically running into someone in
Speaker 1: the corridor, that's what you can't replicate with zoom. So
Speaker 1: one of the other very interesting questions that companies are
Speaker 1: going to have to think think about culturally when they
Speaker 1: go back to the office is what do you do
Speaker 1: if part of your workforce is at home and part
Speaker 1: of it is actually in the office. And that's going
Speaker 1: to require a lot of reflection. An we have left here,
Speaker 1: I want to come up to this week in your
Speaker 1: calm on the Cornwall Consensus, and I wonder whether the
Speaker 1: G seven there's a little lateral vision going on. Absolutely,
Speaker 1: there's so much I'd love to say that where anviropology
Speaker 1: you can share light today. One thing that it really
Speaker 1: can make people think about is the importance of symbols
Speaker 1: and rituals. We often think they're empty and meaning it's
Speaker 1: but they present a vision on an idealized future people
Speaker 1: would like to have. And if you look at the
Speaker 1: G seven this week and look at the memos that
Speaker 1: have come out, yes they may not correspond to reality,
Speaker 1: but what's fascinating is a vision they give in terms
Speaker 1: of how they want the world to work. It's very
Speaker 1: different from where we were thirty years ago when you
Speaker 1: had things like the Washington Consensus come out, which is
Speaker 1: all about free market economics and globalization, the so called
Speaker 1: Cornwall Consensus, and that's actually lamb of memo. What's much
Speaker 1: more lateral, inclusive vision, that's frankly closer to anthrow vision. Yeah, exactly,
Speaker 1: were including things like climate change and public health. Thank
Speaker 1: you so much and congratulations once again. That's wall Stree.
Speaker 1: We contributed Jillian Tell the Financial Times and author of
Speaker 1: this new book You Have to Get It Answer Revision
Speaker 1: coming up. We wrap up the week with special contributor
Speaker 1: Larry Summers of Harvard. That's next on Wall Street Week
Speaker 1: on Bloomberg. This is Bloomberg Wall Street Week with David
Speaker 1: Weston from Bloomberg Radio. We're gonna wrap up our week
Speaker 1: as we always do, with our special contributing Larry Summers
Speaker 1: of Harvard. So Larry, thank you so much for being
Speaker 1: with us. It was another bad week on inflation. We
Speaker 1: had numbers we hadn't seen in thirty years now for
Speaker 1: the month of May year over year, it was five
Speaker 1: up in the top line number. What do you make
Speaker 1: of it? Look, it's it's more evidence that we've got
Speaker 1: a problem, that the risk to the economy is overheating.
Speaker 1: That you can't have COVID get to the rear view mirror.
Speaker 1: Fiscal policy be pushed to the floor, in terms of
Speaker 1: the accelerator, monetary policy be pushed to the floor, the
Speaker 1: consumer coming roaring back, and have it all fit together.
Speaker 1: You just can't, and it's gonna lead the problems and
Speaker 1: the sooner we recognize that, the better it will be.
Speaker 1: You know, David, here's something I think people don't appreciate
Speaker 1: that maybe it's worth highlighting for your listeners. Monetary policy
Speaker 1: isn't constant. Monetary policy is getting easier when the interest
Speaker 1: rate stays the same and inflation rises, real interest rates fall.
Speaker 1: So monetary policy has been getting steadily easier through this year,
Speaker 1: even as the economy is booming. And if you do
Speaker 1: what the analysts most of the banks do, and it's
Speaker 1: a sensible enough thing to do, form a comprehensive index
Speaker 1: of financial conditions where you look at the stock market,
Speaker 1: and you look at the dollar, and you look at
Speaker 1: long term bond yields and what not. Then the rate
Speaker 1: at which is getting easier, and the extent to which
Speaker 1: it's unprecedentedly easier is faster, is even more so. The
Speaker 1: economy is like going ninety miles an hour. And not
Speaker 1: only are we not hitting the brake, we're pushing. Not
Speaker 1: not only are we keeping our foot on the accelerator,
Speaker 1: we're actually having more expansionary monetary policy by all the
Speaker 1: standard measures than we were four months ago. And I
Speaker 1: just think that defies good sense. So Larry, just to
Speaker 1: reinforce your point, and negative real yields are down lower
Speaker 1: in than ben since inflation was out of control. But
Speaker 1: let me play the red team here a little bit
Speaker 1: and make the argument it's transient. That's what we keep hearing,
Speaker 1: and it really has to do with the parts of
Speaker 1: the economy they're reopening. Look, David, we have transient inflation,
Speaker 1: annual inflation, and last month, according to Core cp I
Speaker 1: was above ten percent. Majority of that is surely UH transient.
Speaker 1: We've got used car prices, We've got other examples to
Speaker 1: people's site that are clearly transient. But it is an
Speaker 1: elementary fallacy to confuse the idea that we have some
Speaker 1: transient inflation with the false proposition that all the inflation
Speaker 1: is transient and we have nothing to be concerned about
Speaker 1: if you look at things that are longer lasting, labor
Speaker 1: shortages pervasive, if you look at things like the largest
Speaker 1: component of UH, the cost of Living index, housing, Housing
Speaker 1: is on fire, as you as you know, as your listeners,
Speaker 1: UH know, a majority of houses are selling above they're
Speaker 1: asking prices. In many parts of the country, housing inflation
Speaker 1: has been close to the vast majority of which is
Speaker 1: not yet shown up UH in uh Any index. And
Speaker 1: so if you look at what purchasing managers are saying,
Speaker 1: if you look at what households are expecting, all of
Speaker 1: this suggests that we're in the process of seeing a change.
Speaker 1: And the people who are big on this transient idea
Speaker 1: need to ask themselves. Do they really believe that ten
Speaker 1: pc growth which we're going to have this quarter, growth
Speaker 1: which people think we're gonna have next quarter, dramatic declines
Speaker 1: in unemployment or growth in labor shortage either way, that
Speaker 1: we're gonna have all that and that's going to be
Speaker 1: part of a process that drives inflation down. I don't
Speaker 1: think so, Hilaria. Let me ask you, assuming you're right,
Speaker 1: which I do, why aren't the markets reacting. I mean,
Speaker 1: you can sort of expect the inflation, but I think
Speaker 1: we would have expected the markets to react. Unlike many
Speaker 1: of the others in this debate, I admit it when
Speaker 1: I'm surprised and what happened is not what I expected,
Speaker 1: and I think about how I have to change my thinking.
Speaker 1: And just as they didn't anticipate what happened to the
Speaker 1: inflation figures, I didn't anticipate the kind of decline in
Speaker 1: nominally yields that we've seen. So I've spent a lot
Speaker 1: of time thinking about it. Here are some aspects of it. First, Uh,
Speaker 1: we have seen inflation expectations rise a bit over the
Speaker 1: last few months, even as interest rates have declined. Second,
Speaker 1: there is a sense that everybody has their eyes on
Speaker 1: the FED and the fact that the FED is sticking
Speaker 1: with it's super low interest, super big que e policies
Speaker 1: even as all this is going on and surprising people.
Speaker 1: Is I think contributing to our having uh lower interest
Speaker 1: rates than we otherwise would ironically, because people think that
Speaker 1: the FEDS policy is so tied to the unemployment rate.
Speaker 1: When we turn out to have bottle deckx that hold
Speaker 1: down hiring, then we have higher unemployment even as we
Speaker 1: have more inflationary pressure. But people think the FEDS just
Speaker 1: about the unemployment, not about the inflationary pressure, and so
Speaker 1: they take down their views about interest rates. Finn. Let's
Speaker 1: have a quick summer says here if we can, Larry,
Speaker 1: let's do a little bit differently. And you've been a
Speaker 1: professor for many years, tenure professor, give some letter grades
Speaker 1: about how some institutions have deal this pandemic. Start with
Speaker 1: the I m F A minus maybe and maybe an A.
Speaker 1: They've recognized the gravity of the problem. They organized the
Speaker 1: raising of uh SDRs. They all for UH dramatic UH responses.
Speaker 1: The reason I say a minus is they've been a
Speaker 1: bit more aggressive about telling everybody else to spend their
Speaker 1: money than they have about putting their own balance sheet
Speaker 1: UH on the table. But I think Crystalline and Georgieva
Speaker 1: has done a great job, and I wish our international
Speaker 1: institutions were as effective as the I m F. What
Speaker 1: about the World Bank? Incomplete? At best? The World Bank
Speaker 1: is committed. World Banks leadership has been committed to a
Speaker 1: model that sees the Bank as a kind of business
Speaker 1: institution that focuses on individual country lending, that focuses on
Speaker 1: debt restructuring. The World Bank needs to be about world
Speaker 1: public goods. That needs to be increasingly the focus of
Speaker 1: its efforts, and what they've done in that area has
Speaker 1: been slow, incremental, and UH grudging. I hope it will
Speaker 1: uh move uh over over time. UH. Frankly, if I
Speaker 1: was at the Treasury Um, we'd be having a lot
Speaker 1: of painful conversations between the major shareholder and UH the
Speaker 1: World Bank about how it can step up more quickly.
Speaker 1: Last one, United States Senate, how is it handled a pandemic? So?
Speaker 1: Uh so so uh. The fact that there is bipartisan
Speaker 1: legislation on competitiveness is something that's encouraging, although I sure
Speaker 1: wish it was more about research and less about bailing
Speaker 1: out particular US uh uh industries. Uh. I'm pretty disappointed
Speaker 1: that it doesn't look like we're going to manage to
Speaker 1: do what it seems to me we obviously need to do,
Speaker 1: which is to tax aft flowing people more to finance
Speaker 1: a significant increase in public investment. And I'm especially worried
Speaker 1: that the only bipartisan deals on the table leave out
Speaker 1: what's probably the most important historically part of Joe Biden's
Speaker 1: four trillion dollar program, which is the emphasis on green
Speaker 1: That is Larry Summers, thank you so much, our special
Speaker 1: contributor on Wall Street Week, of course, of Harvard University. Finally,
Speaker 1: one more thought, which twenties are we in? Things are
Speaker 1: looking up, not for everyone, not everywhere, but for an
Speaker 1: awful lot of business and the economy and people and
Speaker 1: the markets reflect the big bounce back. But how can
Speaker 1: we tell whether it's too much and too soon? Back
Speaker 1: in January, Berkley CEO Jeff Staley told our colleague France
Speaker 1: and Laqua at Davos that big search could peril the
Speaker 1: Roaring twenties if you go back to the you know,
Speaker 1: to the Spanish flu, which it's probably the greatest pandemic
Speaker 1: of UH of the century. You know what that led
Speaker 1: to and it finally got um arrested was the Raring twenties.
Speaker 1: And it's not just the recovery for a pandemic that
Speaker 1: makes these twenties look a bit like those twenties. Once again,
Speaker 1: we have records being set in the stock market with
Speaker 1: the meme stocks, this time defying all gravity. And once
Speaker 1: again we have tech innovation changing our lives, although we
Speaker 1: don't yet know whether Elon Musk and his e v
Speaker 1: s will have quite the effect that Thomas Edison did
Speaker 1: with his light bulb last time. But one big difference
Speaker 1: is that, as far as I know, in the Roaring twenties,
Speaker 1: no one was looking to replace the US dollar with
Speaker 1: some new fangled currency, something like say Bitcoin is bouncing
Speaker 1: all over the place. It's not clear when or if
Speaker 1: regulators will get their arms around this crypto currency rush,
Speaker 1: but we're not waiting, no, no, Despite the fact that
Speaker 1: it's unstable and so far not suitable either for exchange
Speaker 1: or for storing value, We're decided to try putting away
Speaker 1: for our retirement. This month, for us All, a provider
Speaker 1: of four O one case for four employers, announced it
Speaker 1: would team up with coin base to allow participants to
Speaker 1: put five of their retirement savings into crypto like bitcoin,
Speaker 1: ether or light coin. Now this is, to be sure,
Speaker 1: only a drop in the bucket of retirement savings, but
Speaker 1: it is worth asking ourselves whether it's a sign of
Speaker 1: the times and which times 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.