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Speaker 1: This is Bloomberg Wall Street Week. We turn our attention

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Speaker 1: to the markets this week. U s CPI never's reinforcing

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Speaker 1: concerns about inflation. The financial stories that chief are worth

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Speaker 1: a really different reaction to mark. Its more indications of

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Speaker 1: just how hot the U. S economy really is. Through

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Speaker 1: the eyes of the most influential voices Larry Summers, the

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Speaker 1: former Tritor Secretary, Katherine Keating, CEO of the n y

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Speaker 1: Mollen Sam's l Sharman and founder of Equatic Group Investment.

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Speaker 1: In Bloomberg Wall Street Week with David Weston from Bloomberg

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Speaker 1: Ready storm season, from pipeline leaks in the North Sea

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Speaker 1: to emergency repair of a broken guilt market in the

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Speaker 1: UK to Hurricane Ian rampaging through Florida. This is Bloomberg

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Speaker 1: Wall Street Week. I'm David Weston. This week's special contributor

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Speaker 1: Larry Summers and the Bank of England's abrupt move to

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Speaker 1: shore up the British bond market. We're in very complex

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Speaker 1: and uncharted territory with what's happening in the UK and

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Speaker 1: New Vine CEO jose meniah On seeking refuge from the

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Speaker 1: dorm in the market. It's not just about stocks and bonds.

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Speaker 1: Now it's about alternatives. It was a week of stormy weather,

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Speaker 1: starting with unexplained leaks in the nord Stream pipeline off

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Speaker 1: the coast of Denmark, something special Climate Envoy John Kerry

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Speaker 1: says is a real risk for the environment. This is

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Speaker 1: a massively bubbling up under the water. Methane is twenty

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Speaker 1: eight times more damaging than c O two, so it

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Speaker 1: has a profound impact in adding the amount of methane

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Speaker 1: in the air. A major storm hit the market for

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Speaker 1: British government bonds this week, triggered by the new government's

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Speaker 1: proposed tax cuts, which had unintended consequences for the big

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Speaker 1: pension plans as guilt yields shot up, requiring the Bank

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Speaker 1: of England to step in. As explained by former MPC

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Speaker 1: member Kristen Forbes, we are now in situation every central

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Speaker 1: banker doesn't want to be in where the fiscal side

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Speaker 1: is going in a direction opposite what the monetary side

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Speaker 1: is trying to do. The US banks weren't immune from

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Speaker 1: the stormy weather either, as major banks were hit with

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Speaker 1: one point eight billion dollars in fines for improperly allowing

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Speaker 1: their employees. Even some executives to use social media outlets

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Speaker 1: outside the record keeping requirements. Regulators reached settlements with a

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Speaker 1: dozen banks for failing to monitor employees communications unauthorized messaging

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Speaker 1: apps like WhatsApp. And then there was the big storm,

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Speaker 1: Hurricane Ian that came up through the Caribbean and slammed

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Speaker 1: into Florida, causing destruction. We're still getting our arms around

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Speaker 1: the pictures that were coming out of Florida where you know,

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Speaker 1: there was just nifting cars up and floating down the street,

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Speaker 1: you know, yet corn affter pictures of beautiful little homes

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Speaker 1: and then all you could see if the tops of

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Speaker 1: the roots. So the storm search looked up to the hype,

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Speaker 1: but a really diffut a day. And the markets they

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Speaker 1: reflected all that stormy weather with stocks close and down

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Speaker 1: for the week, down for the month, and down for

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Speaker 1: the quarter. The SMP five hundred lost two point nine

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Speaker 1: percent for the week and closed the quarter at the

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Speaker 1: lowest point in two years, finishing under thirty six hundred,

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Speaker 1: while the NASDA gave up two point seven percent for

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Speaker 1: the week, down four point one percent for the quarter.

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Speaker 1: Bonds sold off as well, with the yield on the

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Speaker 1: tenure up thirteen basis points since the week began, ending

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Speaker 1: up at three point a two. And here to take

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Speaker 1: us through another tough week in the markets are David Bianco,

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Speaker 1: chief investment Officer at DWS America, and Lori Calvacina, head

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Speaker 1: of equity strategy at RBC Capital Markets. Welcome both of

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Speaker 1: you to Wall Street. Good to have you back. So

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Speaker 1: let me start with you, David, and the most basic question,

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Speaker 1: how bad is it going to get? How bad is

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Speaker 1: it gonna get? Well, thank goodness it's Friday. The weekend

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Speaker 1: should be a reprieve. Uh. Tough day, tough week, tough year.

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Speaker 1: The SMP five hundreds down from its all time high.

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Speaker 1: This is uh, this is a bear market. I find

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Speaker 1: myself thinking about the nineteen seventies lately, and I think

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Speaker 1: something to keep in mind is that you bear market

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Speaker 1: when the Fed was fighting inflation aggressively. Back then the

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Speaker 1: SMP fell, But in the SMP fell, So I think

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Speaker 1: a key question is is this the beginning of a

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Speaker 1: high inflationary period? Where we near the end of a

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Speaker 1: high inflationary period. If you think we're near the end

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Speaker 1: of a high inflationary period, the worst is largely behind

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Speaker 1: and the market shouldn't go too much further down. But

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Speaker 1: that's the key question, Laura, I'm not feeling much better.

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Speaker 1: What do you think? All right, I'm going to try

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Speaker 1: to make you feel a little bit better. Um. So, look,

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Speaker 1: we think that the market is set to stage a major,

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Speaker 1: major battle at thirty five level. And the reason for

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Speaker 1: that is if you look back over the course of

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Speaker 1: recessions into the thirties, a median recessionary draw down is

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Speaker 1: about twenty seven percent, and so we'll get there when

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Speaker 1: we're around thirty on the smp UM. And I still,

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Speaker 1: as I talked to investors, I think many are still

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Speaker 1: in the mild, kind of quicker, shallow camp. But do

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Speaker 1: think there's gonna be a sluggish growth backdrop afterwards. I

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Speaker 1: think people are not really looking for an anything major

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Speaker 1: like what we had in the financial crisis. So I

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Speaker 1: think that at least we've gotten that at our back

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Speaker 1: I will tell you if you think about kind of

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Speaker 1: where investors heads are at. Something else that makes me

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Speaker 1: feel a little bit better is I'm not sensing a

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Speaker 1: ton of panic. Definitely alarm um. But the big question

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Speaker 1: of the day is what do higher rates for longer

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Speaker 1: mean for valuation multiples? And that's a very constructive conversation. UM,

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Speaker 1: and we've done some work suggesting that we're probably getting

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Speaker 1: pretty close if you hit that level on the SMP

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Speaker 1: to the same kind of multiple contraction you saw back

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Speaker 1: in the seventies over the course of the entire decade.

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Speaker 1: I want to come back to earnings. But before that,

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Speaker 1: we just heard from Laura shortened shallow. I think you said,

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Speaker 1: I think he's referring to a recession. Are you rejecting recession?

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Speaker 1: And I guess my question really is, normally, if you

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Speaker 1: have a recession, we turn our heads and look at

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Speaker 1: the FED and say, okay, please cut rates. Do we

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Speaker 1: have much room to really deal the recession if and

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Speaker 1: when it comes. We're expecting a shortened shallow recession, but

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Speaker 1: we're a bit concerned that the troughs might linger. Well.

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Speaker 1: We're not expecting a V shaped recovery after the small

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Speaker 1: rest US and I think it's gonna be slow real

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Speaker 1: growth afterward. The trouble here is that the FED can't

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Speaker 1: rescue US because of the inflation problem, and they can't

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Speaker 1: attempt to rescue the equity market or even the economy

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Speaker 1: broadly until they're confident that the inflation battle has been

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Speaker 1: one so I think what you people know, it's pretty

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Speaker 1: clear at this stage the FED is committed to fighting inflation,

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Speaker 1: and they've decided they're willing to risk a small moderate

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Speaker 1: recession Tolery one to make sure that this inflation beast

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Speaker 1: is slain. What are you expecting on earnings? We're expecting

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Speaker 1: earnings for two to be two. I think at this

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Speaker 1: stage you should not expect any growth. It should be

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Speaker 1: flat uree. But every day that goes by, with the

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Speaker 1: shocks that we're experiencing, higher interest rates, a super strong

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Speaker 1: daughter collapses and other currencies around the world. Even oil

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Speaker 1: prices have come down a lot, and we are beginning

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Speaker 1: to see a lot of companies come out and say

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Speaker 1: things are slowing. Okay, Lori Calvacina and David Bianco will

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Speaker 1: be staying with us to you give us some investment

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Speaker 1: advice next. That's coming up on Wall three Week here

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Speaker 1: on Bloomberg. This is Bloomberg Wall Street Week with David

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Speaker 1: Weston from Bloomberg Radio. Frailty thy name is Woman, wrote

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Speaker 1: William Shakespeare, thereby proving not only that he was arguably sexist,

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Speaker 1: but that he indisputably had no knowledge of Wall Street.

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Speaker 1: For the most fickle female of poetic imagination would seem

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Speaker 1: a symbol of romantic constancy next to the recent behavior

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Speaker 1: of the stock market. Indeed, to paraphrase that other male chauvinist,

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Speaker 1: Sigmund Freud, what does Wall Street want? One thing it wanted,

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Speaker 1: we were told, was Paul Woker. It got him. That

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Speaker 1: was Lewis Ruckheiser, of course, calling Shakespeare a sexist. I

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Speaker 1: understand it backage j when the stock market was on

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Speaker 1: its upward climb after chair of Walker's interest rate shock therapy,

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Speaker 1: and the bull market in bonds was just really getting started.

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Speaker 1: By then, the CPI was climbing only two point five

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Speaker 1: percent a year. The top movie with Star Wars for

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Speaker 1: Return of the Jedi and the Police top the charts

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Speaker 1: with every breath you take. Things I can remember actually

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Speaker 1: and were welcome back now, David Bianco and Lorie Calvacino. So,

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Speaker 1: given what we just talked about, with what's going on

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Speaker 1: in the markets, Larry, what's an investor to do? Where

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Speaker 1: is their safe harbor from this storm? So look, I

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Speaker 1: think it's a question of what your time horizon is,

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Speaker 1: and if you're concerned about volatility and markets in the

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Speaker 1: near term and want to add some more defense to

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Speaker 1: the portfolio. I think the clear choice at this point

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Speaker 1: is healthcare. UM. If you look at other defensive sectors

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Speaker 1: staples and utilities, you're basically at peak valuation relative to

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Speaker 1: the broad market. UM. We also think they're significant earnings

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Speaker 1: risk for consumer staples as the consumer weakens, pricing power

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Speaker 1: wanes for some of these companies. And also staples have

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Speaker 1: massive exposure to the dollar to international issues UM, and

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Speaker 1: they're very, very sensitive to a stronger dollar. So I

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Speaker 1: think health care you have less of that sensitivity, and

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Speaker 1: you have reasonable valuations. It's not a great story, UM,

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Speaker 1: but I think it's the best one you can tell

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Speaker 1: on the defensives. So what about that? And I think

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Speaker 1: of defensive, I think about things like stables or utilities

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Speaker 1: and things like that. Good right now, I think the

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Speaker 1: consumer staples are not a great place to hide, especially

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Speaker 1: if you believe that the market is a you know,

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Speaker 1: an a bottoming process. Uh. They are going to suffer

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Speaker 1: from the currency hit. They still have a stretch consumer

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Speaker 1: packaging costs. So we also prefer healthcare. UM. The thing

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Speaker 1: about healthcare is that is not the second largest sector

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Speaker 1: of the SMP five hundred, not financials, not industrials, certainly

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Speaker 1: not energy or materials. So the SMP is global, the

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Speaker 1: SMP is digital tech businesses, and the SMPS medical Now

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Speaker 1: the global parts and the foreign currency exposure and helping

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Speaker 1: right now. And there's a little bit of valuation risks

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Speaker 1: still at some of the big digital names, but the

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Speaker 1: medical part has on demanding valuations, and we are quite

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Speaker 1: excited about some of the innovation that we're seeing coming

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Speaker 1: from the biotech and the and the and the and

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Speaker 1: the pharmaceutical companies and medicine makers. You mentioned digital in tech,

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Speaker 1: and there are some people, as you know, David, who

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Speaker 1: say you want to go into tech right now because

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Speaker 1: it comes out of recession. First. It is a bit

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Speaker 1: of an early circlical uh it's so or consumer discretionary stocks.

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Speaker 1: But every cycle is different, and I think there are

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Speaker 1: a few things that we have to be mindful of.

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Speaker 1: I think this is going to be the consumer will

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Speaker 1: be resilient, but a lot of consumer business models might

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Speaker 1: not be able to expand the way they have been

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Speaker 1: over the past ten twenty years of low inflation, low

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Speaker 1: interest rates. We're trying to find which businesses have that

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Speaker 1: long term growth potential through innovation and through solving the

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Speaker 1: problems that are causing us to have the weaken productivity.

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Speaker 1: One thing is we expect jobs to hold up but

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Speaker 1: a small recession. But if you're adding jobs and the

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Speaker 1: economy is not growing much, that means productivity is really weak.

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Speaker 1: That's where we need companies to address that. That that

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Speaker 1: that that problem, which Lauria I think takes us back

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Speaker 1: to something David said earlier, which is it depends on

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Speaker 1: what you think the comeback and sooner later there will

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Speaker 1: be a rebound. What does it looks like? Is it

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Speaker 1: a v or is it more gradual, because that will

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Speaker 1: affect which one is a better place to be, right.

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Speaker 1: I think if you're thinking about rebound place, I think

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Speaker 1: you do want to look to some of these beaten

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Speaker 1: up growth areas. I think you want to be very selective.

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Speaker 1: I think you want to stick with quality. I think

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Speaker 1: you want to stick with bigger market caps. But technology

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Speaker 1: is area that we think looks really really interesting with

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Speaker 1: reasonable valuations. Areas like semiconductors look to me like they've

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Speaker 1: bottomed out in terms of earning sentiment. Basically nobody is

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Speaker 1: taking numbers up there right now, and that's usually a

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Speaker 1: good contrarian buy signal for that part of the market.

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Speaker 1: But you know, going back to kind of what does

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Speaker 1: this recovery look like. If you think it's going to

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Speaker 1: be a hot economy, you want to buy value stocks,

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Speaker 1: you want to buy cyclicals. But if you think it's

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Speaker 1: going to be a cool economy, you do want to

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Speaker 1: buy secular, growth oriented areas of the market. They typically

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Speaker 1: outperform when GDP is below two per cent, and I

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Speaker 1: think that is probably the kind of recovery we're headed for.

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Speaker 1: How do you feel about them? Um, you're asking me

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Speaker 1: to talk about my first professional child. So I spent

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Speaker 1: a long time covering this space, um, and I think

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Speaker 1: people who have covered this space for quite some time

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Speaker 1: realized that in the middle of recessions, in the middle

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Speaker 1: of these very challenging periods economically, this is when you

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Speaker 1: do want to buy them. And if you look at

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Speaker 1: small caps, they've been in a trading range versus large

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Speaker 1: all year. There's some stability in the performance. They're mostly domestic,

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Speaker 1: they're very cheap on valuation, basically at the bottom of

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Speaker 1: their of their historical range, and small caps are already

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Speaker 1: pricing in a collapse in manufacturing. Two typical troughs and

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Speaker 1: a big spike and jobless claims from here. So I

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Speaker 1: think the recession is largely baked in, and this is

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Speaker 1: where you typically want to be on the rebound, and

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Speaker 1: people want domestic us exposure right now. So what about

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Speaker 1: that issue domestic us exposure? Do you want to hide

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Speaker 1: in America? You want to hide in America for now? Yeah? Um,

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Speaker 1: And we are looking for businesses that, like Gloria said,

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Speaker 1: the ones that we'll have a strong rebound. We want

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Speaker 1: to be a little bit careful in small caps and

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Speaker 1: some my conductors for a little longer, but those are

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Speaker 1: ones that will likely have v shaped price recoveries once

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Speaker 1: we get past this. Um. The cousin of technology is communications,

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Speaker 1: and that's been beaten up very badly this year. We

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Speaker 1: think that's overdone, so banks and communications, entertainment companies, internet companies.

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Speaker 1: We think that's an area where investors can start, um uh,

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Speaker 1: stepping up and buying where the reward should be worth

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Speaker 1: the risks. I know you've been going around the country

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Speaker 1: talking to people. What are you hearing in terms of

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Speaker 1: what they're interesting? What are they nervous about when it

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Speaker 1: comes to investment. So it's funny I mean, nobody feels

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Speaker 1: particularly bullish right now. Um, but I think there is

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Speaker 1: a general recognition that people have plenty of defense in

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Speaker 1: their portfolio, plenty of safety trades, and so they are

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Speaker 1: concerned about when does the market bottom, what do I

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Speaker 1: need to own coming out on the other side, because

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Speaker 1: I think there's a general recognition that when rebound, when

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Speaker 1: the rebound finally does happen, they're under exposed to the

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Speaker 1: kinds of things that do well in those rebounds. Do

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Speaker 1: you hear from people I don't want to be an

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Speaker 1: equities no matter what they are, if this is not

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Speaker 1: the time to be an equity, I don't hear that.

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Speaker 1: I mean, to be honest, you know, as I talked

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Speaker 1: to some of my more bearish kind of global multi

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Speaker 1: caap multi asset investors, UM I can usually talk them

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Speaker 1: into looking into small caps right now. UM So, I

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Speaker 1: think kind of the desire to kind of put everything

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Speaker 1: in cash, it's just not something that's in the DNA

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Speaker 1: of a lot of these people. But I do think

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Speaker 1: even the most barish investors out there are trying to

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Speaker 1: figure out what has been de risked and if there's

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Speaker 1: an opportunity to put money to work in here and

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Speaker 1: ultimately that is very healthy. What are the bonds? Is

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Speaker 1: it time to go back into bonds? Well, I think

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Speaker 1: it's more of environment to go into bonds right now,

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Speaker 1: you know, very short to rage and cash and trying

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Speaker 1: to find the equities where the upside is worth taking

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Speaker 1: the risks, in the pain and the volatility you'll like

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Speaker 1: you to go through the next few months. I think

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Speaker 1: this week frayed nerves though a lot of people were

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Speaker 1: fairly calm up until this week, and and even today

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Speaker 1: didn't end very well. Um, so we still want to

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Speaker 1: be a bit cautious. We are acting on this tip,

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Speaker 1: we are buying it, but we're also keeping dry powder

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Speaker 1: with cash, and it's probably best to just keep in

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Speaker 1: mind that this will be a market that I think

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Speaker 1: has a rally during the holidays on the idea that

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Speaker 1: the FED is done hiking. They won't cut anytime soon,

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Speaker 1: but they'll be done hiking probably at the end of

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Speaker 1: the year. That probably gives us a rally. But I

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Speaker 1: think we find ourselves at these levels once again early

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Speaker 1: next year in the spring. Okay, thank you so very much.

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Speaker 1: It was great to have you both as Lori Calvacina

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Speaker 1: and David Bianco. Coming up, we'll get some advice on

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Speaker 1: where investors should hide out in these turbulent times from

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Speaker 1: Moving CEO Jose Mania. That's coming up next on Wall

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Speaker 1: Street Week on Bloomberg. This is Bloomberg Wall Street Week

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Speaker 1: with David Weston from Bloomberg Radio. That rainy day is here.

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Speaker 1: Everywhere you look, economies and markets are struggling, with Jason

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Speaker 1: Furman of the Kennedy School saying Europe maybe in the

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Speaker 1: worst shape. I think Europe is one of the biggest

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Speaker 1: risks for a recession. Even as the world was also

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Speaker 1: focused this week in the United Kingdom and the British pound,

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Speaker 1: something the British Opposition Party hammered home. What we've seen

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Speaker 1: in the past few days has no precedent. The government

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Speaker 1: has lost control of the British economy and for what

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Speaker 1: they've crushed the pound. But what happens in the UK

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Speaker 1: and Europe doesn't necessarily stay there. As Atlanta FED President

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Speaker 1: Raphael Bostick pointed out, what we've seen in terms of

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Speaker 1: Markeury action is that the proposal has really increased uncertainty

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Speaker 1: and really cause people the question about what the trajectory

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Speaker 1: of the economy is going to be or might be

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Speaker 1: moving forward. All of this leads Alvaro Pereira, the chief

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Speaker 1: O E c D Economists, to take down growth estimates

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Speaker 1: overall worldwide. Our forecast certainly is a challenging one because

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Speaker 1: we are forecasting a significant slowdown of the economy um

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Speaker 1: to say, the United States growing zero points of episode

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Speaker 1: next year, the Euro Area growing zero point globally, we're

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Speaker 1: talking about significant slowdown right now. It looks like more

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Speaker 1: than just a rainy day. We may be headed into

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Speaker 1: a real storm. And if so, where are the ports

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Speaker 1: for the smart investor to head into? As we battened

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Speaker 1: down the hatches, and we welcome now someone whose job

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Speaker 1: it is to figure out how bad the storm is

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Speaker 1: and where we should head as investors when it happens.

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Speaker 1: He is Jose Mania. He's the CEO of Nuvin. Welcome back.

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Speaker 1: Great to have you. Okay, thanks for having me the

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Speaker 1: first on the storm as I'm calling it. How bad

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Speaker 1: is the storm? Do you think? Economically? Like? The storm

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Speaker 1: is choppy, but it hasn't really changed much in our view,

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Speaker 1: right I've been going into now the latter half of

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Speaker 1: the year. We still see volatility ahead, but you know,

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Speaker 1: the fundamentals are strong, and that you're seeing consumer household

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Speaker 1: balance sheets are really good, the labor market, so we're

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Speaker 1: not really forecasting a prolonged downturn or or recession. That

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Speaker 1: being said, I think our view is the same it

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Speaker 1: was back in right. We we we've been telling our

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Speaker 1: clients be prepared for lower returns in the previous decade,

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Speaker 1: be prepared for more volatility and by the way, inflation

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Speaker 1: while you haven't seen it for a long time and

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Speaker 1: may show up, and here it is in our shores. Right,

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Speaker 1: So for us, it's about staying invested, staying disciplined, maybe

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Speaker 1: more defensive today, but always diversification. Right, it's not just

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Speaker 1: about stocks and bonds now, it's about alternatives. How do

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Speaker 1: you get more outcomes and solutions because there's really nowhere

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Speaker 1: to hide in a world where all correlations go to one. Well,

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Speaker 1: let's talk about it. That exactly as we have a

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Speaker 1: federal Reserve and other center banks raising rates, it looks

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Speaker 1: like they're going to continue doing it for a while.

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Speaker 1: It necessarily takes asset values down, whether it's stocks or

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Speaker 1: its bonds, and we're seeing that, goodness knows, in the

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Speaker 1: market's overall. Right, Now, what do you do if you're

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Speaker 1: an investor in that world, are there some assets that

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Speaker 1: are better than other assets? Well, one I would say

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Speaker 1: this is where active management I think comes back into

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Speaker 1: the fold. Right, So there's going to be winners and losers. Clearly,

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Speaker 1: in today's environment, we see buying opportunities. You have to

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Speaker 1: be careful at value traps um as well. But then

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Speaker 1: you think about inflation rising rates. While you look at

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Speaker 1: middle market bank loans, senior loans while they have floating

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Speaker 1: rate paper, you think about getting more exposure to commodities,

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Speaker 1: things that have a higher correlation to inflation as well,

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Speaker 1: real estate um. These are all the different mixes. That's

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Speaker 1: why when I talked about diversification, it's like there's active management,

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Speaker 1: but there's also you can be more explicit and intentful

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Speaker 1: to ride the wave with benefit from rising rates to

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Speaker 1: actually be highly correlated to inflation and inflation. Every environment

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Speaker 1: in active advantage that you're going to have options to

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Speaker 1: any rule, so you have to be careful. But as

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Speaker 1: a rule is that it's time to stay away from

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Speaker 1: equities because that discount rate is going up and that

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Speaker 1: automatically just reduces the value of the equities. I would

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Speaker 1: never say it's time to stay away from equities obviously,

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Speaker 1: when you know, we believe in staying invested. That being said, today,

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Speaker 1: on the margins, we see more value in on the

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Speaker 1: fixed and club side versus credit. We see more value

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Speaker 1: actually in high yield. Right, you've got a high yield

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Speaker 1: market almost topping eight percent in yields. You know, maybe

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Speaker 1: again more active management, they're picking the better, better credits,

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Speaker 1: stronger credits. So yeah, on average we see a tilte

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Speaker 1: more towards fixed income, a tilted more towards private markets.

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Speaker 1: But I would never say completely stay away from equities.

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Speaker 1: So talk about HW yields because I've heard others suggest

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Speaker 1: that's sort of almost a substitute for equities in a way.

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Speaker 1: And obviously we're getting some bigger returns now, but we're

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Speaker 1: getting bigger returns for a reason. As we're worried about

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Speaker 1: a recession of downturn. You're worried about some of those

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Speaker 1: companies not being able to pay back the money. And

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Speaker 1: by the way we we acknowledge it, actually spreads can

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Speaker 1: continue to widen from here. That being said, when you

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Speaker 1: look at a risk return perspective, you look at some

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Speaker 1: of the most attractive pricing we've seen you know, in

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Speaker 1: quite a long time. These are still the areas where

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Speaker 1: again active management picking the right credits, maybe still being

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Speaker 1: more defensive picking the stronger credits. But the yield versus

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Speaker 1: the risk that we're taking and the pricing you're saying

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Speaker 1: in equities versus the high yield and the fixing cole

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Speaker 1: market today we see more opportunities there. But look, this

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Speaker 1: is you know, we're in year three of this kind

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Speaker 1: of quote unquote interesting and challenging year. Guess what I

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Speaker 1: think is gonna be more the same of that You're

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Speaker 1: gonna have volatility. Now is the time to again stick

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Speaker 1: to your discipline, you know, stick to uh to diversified portfolio.

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Speaker 1: But then again actively you can find these pockets where

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Speaker 1: you can do well. Okay, thank you so much, as

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Speaker 1: I really appreciate this. Jose and I he is the

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Speaker 1: CEO of New Ven helling up, we'll wrap up the

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Speaker 1: week with our special contributor Larry Summers are Harvard. This

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Speaker 1: is Wall Street Week on Bloomberg. This is Wall Street Week.

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Speaker 1: I'm David Weston, and we're delighted to welcome back once

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Speaker 1: again our very special contributor here on Wall Street Week.

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Speaker 1: Here is Larry Summers of Harvard So, Larry, maybe not

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Speaker 1: the most consequential thing, but certainly the most noteworthy thing

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Speaker 1: in the markets this week was the Bank of England

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Speaker 1: saying they're going to buy an unlimited number of long

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Speaker 1: term guild bonds to try to stabilize the market. I

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Speaker 1: know there was a specific problem there, but does that

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Speaker 1: indicate something broader about the markets? David? We're in very

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Speaker 1: complex and uncharted territory with uh what's happening in the UK,

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Speaker 1: and wouldn't amaze me if we had situations like that

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Speaker 1: in uh more places. Uh. Look, the UK has fundamentals

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00:21:47,000 --> 00:21:50,440
Speaker 1: that are out of whack, in which the market does

431
00:21:50,520 --> 00:21:56,919
Speaker 1: not believe that they have a sustainable path of macroeconomic

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00:21:57,080 --> 00:22:03,080
Speaker 1: policy that over time, no matter what interventions you do,

433
00:22:03,800 --> 00:22:08,840
Speaker 1: spells very difficult times for their long term bonds, for

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00:22:08,920 --> 00:22:14,320
Speaker 1: their currency, for their rate of inflation, and ultimately for

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00:22:14,840 --> 00:22:22,240
Speaker 1: their economy. They pursued yesterday what's called in this little

436
00:22:22,320 --> 00:22:27,920
Speaker 1: field um a market maker of last resort option. At

437
00:22:27,920 --> 00:22:31,840
Speaker 1: a moment when there were huge margin calls and so

438
00:22:32,240 --> 00:22:37,160
Speaker 1: there was great selling pressure but no buying pressure on

439
00:22:37,320 --> 00:22:41,040
Speaker 1: long term bonds, they committed to step in and buy

440
00:22:41,240 --> 00:22:45,680
Speaker 1: for the next two weeks, and that for a time

441
00:22:46,320 --> 00:22:51,960
Speaker 1: stabilized things. But it's not gonna stay stable uh forever

442
00:22:52,359 --> 00:22:55,520
Speaker 1: on the basis of two weeks buying. And it's probably

443
00:22:55,560 --> 00:23:00,240
Speaker 1: not even gonna stay stable for two weeks unless there

444
00:23:00,320 --> 00:23:03,479
Speaker 1: is a sense that this is a bridge to the

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00:23:03,520 --> 00:23:10,440
Speaker 1: fundamentals being fixed. And that's not what we are seeing

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00:23:10,560 --> 00:23:16,000
Speaker 1: from the indications we're getting uh this morning. That's UH

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00:23:16,119 --> 00:23:20,240
Speaker 1: why I encouraged the i m F to make clear

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00:23:20,320 --> 00:23:24,639
Speaker 1: that it was monitoring, uh this situation, and the i

449
00:23:24,840 --> 00:23:30,520
Speaker 1: m F made clear that it was concerned, even adding

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00:23:30,600 --> 00:23:35,720
Speaker 1: some editorialization on the regressivity of the tax policy of

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00:23:35,760 --> 00:23:40,080
Speaker 1: the tax UH code, which I'm not sure is their

452
00:23:40,280 --> 00:23:48,320
Speaker 1: usual uh role, but there's uh gotta be real concerned.

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00:23:48,600 --> 00:23:50,760
Speaker 1: So so Larry, it's clear the bank aving then step

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00:23:50,800 --> 00:23:52,600
Speaker 1: forward and saying we are willing to be, as you say,

455
00:23:52,640 --> 00:23:55,159
Speaker 1: the market maker of last resort. Are some other central

456
00:23:55,160 --> 00:23:57,480
Speaker 1: banks are going to have to potentially step up at

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00:23:57,560 --> 00:23:59,280
Speaker 1: least be willing stuff and be a market maker of

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00:23:59,320 --> 00:24:01,760
Speaker 1: last resort? What about Bank of Japan? What about for

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00:24:01,800 --> 00:24:05,000
Speaker 1: that matter, the feder Reserve. I don't think there's any

460
00:24:05,160 --> 00:24:12,600
Speaker 1: sign that I see yet of other markets being disorderly.

461
00:24:13,480 --> 00:24:19,680
Speaker 1: But we know that when you have extreme volatility, that's

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00:24:19,720 --> 00:24:23,879
Speaker 1: when these situations are more likely to arise. When you

463
00:24:24,000 --> 00:24:34,119
Speaker 1: have extreme volatility coupled with substantial UH leverage, coupled with

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00:24:34,960 --> 00:24:44,280
Speaker 1: UH substantial uncertainty about what's going to happen in policy,

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00:24:45,400 --> 00:24:49,840
Speaker 1: layered on top of the kind of uneasiness that you

466
00:24:49,960 --> 00:24:56,639
Speaker 1: have with high rates of inflation underlying, and with the

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00:24:56,800 --> 00:25:01,359
Speaker 1: kind of geopolitical and commodity uncertainty that's coming out of

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00:25:01,400 --> 00:25:09,119
Speaker 1: what's happening in Ukraine and UH China. This is certainly

469
00:25:09,240 --> 00:25:13,800
Speaker 1: not a time when very many firefighters should be taking

470
00:25:13,880 --> 00:25:22,600
Speaker 1: vacations UM and so I've got nothing to UH to predict,

471
00:25:23,320 --> 00:25:29,080
Speaker 1: but I do certainly think we're living through a period

472
00:25:29,680 --> 00:25:38,600
Speaker 1: of elevated UH risk and that earthquakes do not be

473
00:25:38,760 --> 00:25:44,919
Speaker 1: get Earthquakes don't come all of a sudden. There are

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00:25:45,080 --> 00:25:49,200
Speaker 1: tremors first, and most of the time when they're tremors,

475
00:25:49,240 --> 00:25:54,399
Speaker 1: they're just tremors, and it goes away. But not of

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00:25:54,440 --> 00:25:58,400
Speaker 1: the time when there are tremors does it just go away.

477
00:25:59,080 --> 00:26:05,440
Speaker 1: And so in the same way that people became anxious

478
00:26:05,560 --> 00:26:10,720
Speaker 1: in August of two thousand and seven, this is a

479
00:26:10,800 --> 00:26:16,919
Speaker 1: moment when there should be UH increased anxiety. So so

480
00:26:17,040 --> 00:26:20,879
Speaker 1: larry a couple more reasonably quick ones. Number one, should

481
00:26:20,880 --> 00:26:24,160
Speaker 1: the federal Reserve be particularly nimble at this point you said,

482
00:26:24,160 --> 00:26:26,919
Speaker 1: it's incredibly complex. Some people think they've built in so

483
00:26:27,000 --> 00:26:29,560
Speaker 1: much momentum on the rate hikes that they should actually

484
00:26:29,600 --> 00:26:32,359
Speaker 1: consider how they can adjust to the data. Look, I

485
00:26:32,720 --> 00:26:41,679
Speaker 1: think after a long time, when UH he was still

486
00:26:41,800 --> 00:26:47,840
Speaker 1: captain in team transitory, I think Chairman Powell is now

487
00:26:47,960 --> 00:26:54,840
Speaker 1: in the right place. I think Chairman UH. Chairman Powell

488
00:26:55,680 --> 00:27:03,600
Speaker 1: is UH saying UH that he sees the centrality of

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00:27:04,400 --> 00:27:10,439
Speaker 1: inflation as the concern. He's also say which is just

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00:27:10,600 --> 00:27:16,760
Speaker 1: the right thing to say that while it's their plan

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00:27:17,480 --> 00:27:22,440
Speaker 1: to move vigorously to the point where monetary conditions are restrictive,

492
00:27:22,440 --> 00:27:25,200
Speaker 1: and the three percent interest rate they have right now

493
00:27:25,359 --> 00:27:29,399
Speaker 1: is not restrictive, their plan is to move to a

494
00:27:29,640 --> 00:27:34,840
Speaker 1: restrictive place, and that's appropriate. He's also making clear that

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00:27:34,880 --> 00:27:38,560
Speaker 1: they're may going to maintain their peripheral vision on what's

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00:27:38,600 --> 00:27:44,000
Speaker 1: happening to the real economy and certainly to the emergence

497
00:27:44,400 --> 00:27:49,720
Speaker 1: of UH financial strains. So I think that is UH

498
00:27:49,960 --> 00:27:54,760
Speaker 1: broadly appropriate. You know, I certainly have written the sentence

499
00:27:54,840 --> 00:28:00,040
Speaker 1: many times about long and variable lags, and that is

500
00:28:00,040 --> 00:28:04,800
Speaker 1: sort of real feature of the difficulty of doing monetary policy.

501
00:28:05,320 --> 00:28:11,120
Speaker 1: UH Now, David, I think it's worth remembering that when

502
00:28:11,280 --> 00:28:17,320
Speaker 1: you're inner regime of signaled policy, I suspect the lags

503
00:28:17,400 --> 00:28:21,639
Speaker 1: maybe a bit smaller than they otherwise would be, in

504
00:28:21,680 --> 00:28:28,520
Speaker 1: the sense that the response to, for example, the hike

505
00:28:29,280 --> 00:28:34,000
Speaker 1: that will come in December is probably already happening because

506
00:28:34,040 --> 00:28:40,840
Speaker 1: it's been factored into prices, has fed through into medium

507
00:28:41,000 --> 00:28:45,480
Speaker 1: term UH rates. As a really interesting point one last one,

508
00:28:45,600 --> 00:28:47,960
Speaker 1: you really tweeted a fair amount of the Jones Act

509
00:28:47,960 --> 00:28:49,760
Speaker 1: this week. Finally there was a suspension of it with

510
00:28:49,800 --> 00:28:51,480
Speaker 1: respect to Puerto Rico, so they get some of that

511
00:28:51,520 --> 00:28:54,360
Speaker 1: fuel and explained to us why you're so wrought up

512
00:28:54,400 --> 00:28:57,280
Speaker 1: about the Jones Act. So look, the Jones Act was

513
00:28:58,080 --> 00:29:03,600
Speaker 1: Woodrow Wilson's by America Industrial Policy. They had the idea

514
00:29:03,680 --> 00:29:07,640
Speaker 1: that we'd require that stuff being carried between the United

515
00:29:07,720 --> 00:29:13,640
Speaker 1: between the United States, between Houston and h Boston to

516
00:29:13,760 --> 00:29:17,120
Speaker 1: Puerto Rico to Hawaii would have to be carried on

517
00:29:17,320 --> 00:29:21,040
Speaker 1: US ships because that would make us not dependent on

518
00:29:21,160 --> 00:29:25,320
Speaker 1: foreigners and not make us and make us UH more secure.

519
00:29:26,040 --> 00:29:28,320
Speaker 1: Whenever the logic of that idea when they had it

520
00:29:28,400 --> 00:29:33,320
Speaker 1: at nineteen twenty, it makes no sense today. Larry, thank

521
00:29:33,320 --> 00:29:35,360
Speaker 1: you so very much for back with us. That's Larry

522
00:29:35,400 --> 00:29:37,720
Speaker 1: Summers of Harvard, a very special contributor here on Wall

523
00:29:37,720 --> 00:29:41,200
Speaker 1: Street Week. Finally, one more thought. Mark Twain famously said

524
00:29:41,240 --> 00:29:44,560
Speaker 1: that history does not repeat itself, but it does sometimes rhyme,

525
00:29:45,120 --> 00:29:47,400
Speaker 1: and we have certainly seen that recently, and everything from

526
00:29:47,400 --> 00:29:50,320
Speaker 1: the echoes of Roger Merris with his record setting sixty

527
00:29:50,320 --> 00:29:52,760
Speaker 1: first home run that came actually sixty one years ago,

528
00:29:53,080 --> 00:29:56,040
Speaker 1: and that is now echoed by one Eron Judge also

529
00:29:56,240 --> 00:30:00,000
Speaker 1: of the New York Yankees, one of baseball's graades. Um

530
00:30:00,120 --> 00:30:02,880
Speaker 1: you know, be enshrined with him forever, as you know.

531
00:30:02,920 --> 00:30:06,880
Speaker 1: It's words. Can't describe it to Russia going to war

532
00:30:07,040 --> 00:30:09,800
Speaker 1: confident of a big, quick win, as it did with

533
00:30:09,880 --> 00:30:12,800
Speaker 1: Japan back at the very beginning of the twentieth century,

534
00:30:13,080 --> 00:30:17,840
Speaker 1: only to lose ignominiously, something that certainly hasn't done in Ukraine,

535
00:30:17,960 --> 00:30:20,880
Speaker 1: well at least not yet. But boy, as it gone

536
00:30:20,960 --> 00:30:24,640
Speaker 1: less well than Vladimir Putin ever imagined it would. To

537
00:30:24,760 --> 00:30:31,320
Speaker 1: have Ukraine conducting a strong offensive that's working is incredibly

538
00:30:31,440 --> 00:30:36,080
Speaker 1: important to putting real pressure on both Putin and the Russians.

539
00:30:36,120 --> 00:30:38,360
Speaker 1: And this week we saw the leader of the political

540
00:30:38,400 --> 00:30:42,719
Speaker 1: party descended from Benito Mussolini rising to lead Italy seventy

541
00:30:42,800 --> 00:30:48,040
Speaker 1: nine years after El Duce fell. Malony accomplished a threefolded

542
00:30:48,160 --> 00:30:53,120
Speaker 1: success political success. So her party clearly emerges from these elections,

543
00:30:53,120 --> 00:30:56,680
Speaker 1: says the clear winger of these elections. So now we're

544
00:30:56,680 --> 00:30:59,840
Speaker 1: hoping for a very different sort of historical rhyme, as

545
00:30:59,840 --> 00:31:02,680
Speaker 1: the current FED chair J. Pale is hoping to replicate

546
00:31:02,760 --> 00:31:05,680
Speaker 1: some version of what his predecessor, to Paul Woker, pulled

547
00:31:05,680 --> 00:31:08,760
Speaker 1: off forty three years ago with a series of dramatic

548
00:31:08,840 --> 00:31:11,720
Speaker 1: interest rate hikes that brought runaway inflation in the United

549
00:31:11,760 --> 00:31:15,520
Speaker 1: States to heal something Mr Powell is not subtle about

550
00:31:15,520 --> 00:31:17,560
Speaker 1: saying he'd like to repeat one way or the other

551
00:31:17,680 --> 00:31:21,200
Speaker 1: right here, right now. The successful Volker disinflation of the

552
00:31:21,240 --> 00:31:25,320
Speaker 1: early nineteen eighties followed multiple failed attempts to lower inflation

553
00:31:25,360 --> 00:31:28,320
Speaker 1: over the previous fifteen years. And as we hope that J.

554
00:31:28,480 --> 00:31:31,640
Speaker 1: Powell does get his way on inflation, might we look

555
00:31:31,680 --> 00:31:35,320
Speaker 1: for something similar on the strong dollar? For soon after

556
00:31:35,400 --> 00:31:38,040
Speaker 1: Chairman Volker got his arms around inflation in the United States.

557
00:31:38,080 --> 00:31:41,640
Speaker 1: The British pound back then started to collapse, something Treasury

558
00:31:41,640 --> 00:31:45,400
Speaker 1: Secretary James Baker wanted to fix to help his boss's friend,

559
00:31:45,680 --> 00:31:48,880
Speaker 1: Margaret Thatcher. But on that one, Secretary Baker took the

560
00:31:48,960 --> 00:31:52,440
Speaker 1: league by coordinating with other finance ministers, while the chairman

561
00:31:52,560 --> 00:31:56,440
Speaker 1: Chairman Volker went along, if somewhat reluctantly. So if history

562
00:31:56,600 --> 00:31:59,120
Speaker 1: rhymes on the strong U. S. Dollar, Britain may need

563
00:31:59,200 --> 00:32:01,600
Speaker 1: to wait for inflam Asian to come down before he

564
00:32:01,600 --> 00:32:05,160
Speaker 1: gets any US help for its pound. That does it

565
00:32:05,240 --> 00:32:07,280
Speaker 1: for this episode of Wall Street Week, I'm David Weston.

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Speaker 1: This is Bloomberg. See you next week