1 00:00:00,520 --> 00:00:03,760 Speaker 1: This is Bloomberg Wall Street Week. We turn our attention 2 00:00:03,840 --> 00:00:07,080 Speaker 1: to the markets this week. U s CPI never's reinforcing 3 00:00:07,160 --> 00:00:10,639 Speaker 1: concerns about inflation. The financial stories that chief are worth 4 00:00:10,720 --> 00:00:13,480 Speaker 1: a really different reaction to Mark. It's more indications of 5 00:00:13,640 --> 00:00:16,239 Speaker 1: just how hot the U. S. Economy really is. Through 6 00:00:16,239 --> 00:00:19,439 Speaker 1: the eyes of the most influential voice of Larry Summers, 7 00:00:19,480 --> 00:00:22,279 Speaker 1: the former Tractor Secretary, Katherine Keening, CEO of the n 8 00:00:22,400 --> 00:00:26,239 Speaker 1: Y Mollins Sam's l Shairman and founder of Equitic Group Investments. 9 00:00:26,320 --> 00:00:30,320 Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Rede 10 00:00:30,480 --> 00:00:33,360 Speaker 1: call it the rescue week, with the President trying to 11 00:00:33,479 --> 00:00:36,680 Speaker 1: rescue buyers at the gas bump, earnings trying to rescue 12 00:00:36,720 --> 00:00:39,880 Speaker 1: troubled markets, and the British government just plane needing a 13 00:00:40,000 --> 00:00:43,960 Speaker 1: rescue period. This is Bloomberg Wall Street Week. I'm David Weston. 14 00:00:45,120 --> 00:00:47,840 Speaker 1: This week special contributor Larry Summers on having to make 15 00:00:47,880 --> 00:00:52,040 Speaker 1: hard choices to get inflation down. If your deficit projection 16 00:00:52,240 --> 00:00:56,600 Speaker 1: starts to get out of control and your real interest 17 00:00:56,680 --> 00:01:00,279 Speaker 1: rates start to rise, you can get into who are 18 00:01:00,400 --> 00:01:03,240 Speaker 1: kind of doom? Loup and Debrael Laire of the Paulson 19 00:01:03,320 --> 00:01:07,680 Speaker 1: Institute on whether President Je's ideology can get China's economy 20 00:01:07,800 --> 00:01:11,120 Speaker 1: growing again. She's facing a lot of headwinds when it 21 00:01:11,120 --> 00:01:26,520 Speaker 1: comes to the economy. It was a tough time on 22 00:01:26,560 --> 00:01:29,320 Speaker 1: Global Wall Street, but nowhere was a tougher than at 23 00:01:29,400 --> 00:01:32,119 Speaker 1: Number ten Downing Street, where Liz trust Is on her 24 00:01:32,120 --> 00:01:35,760 Speaker 1: way to becoming the shortest serving Prime Minister in British history, 25 00:01:36,080 --> 00:01:38,640 Speaker 1: forced to resign after concluding she just couldn't get done 26 00:01:38,880 --> 00:01:42,039 Speaker 1: what she'd set out to do. I cannot deliver the 27 00:01:42,080 --> 00:01:45,959 Speaker 1: mandate on which I was elected by the Conservative Party. 28 00:01:46,360 --> 00:01:49,440 Speaker 1: I have therefore spoken to His Majesty, the King to 29 00:01:49,560 --> 00:01:53,280 Speaker 1: notify him that I am resigning as leader of the 30 00:01:53,360 --> 00:01:57,440 Speaker 1: Conservative Party. It wasn't easy for President Biden either, as 31 00:01:57,440 --> 00:01:59,880 Speaker 1: he continued to fight high gas prices, for which he 32 00:02:00,120 --> 00:02:03,760 Speaker 1: largely blamed the oil companies encountered with yet another release 33 00:02:03,840 --> 00:02:07,640 Speaker 1: from the Strategic Petroleum Reserve. The Department advantage, you release 34 00:02:07,680 --> 00:02:12,320 Speaker 1: another fifteen million barrels from the Strategic Patrolling Reserve, extending 35 00:02:12,360 --> 00:02:15,800 Speaker 1: our previously announced release through the month of December. The 36 00:02:15,880 --> 00:02:18,600 Speaker 1: market spent the week looking for some form of rescue 37 00:02:18,639 --> 00:02:20,720 Speaker 1: from earnings, and they did get a bit of it 38 00:02:20,840 --> 00:02:25,239 Speaker 1: from companies like Netflix with read hastings giving thanks well, 39 00:02:25,280 --> 00:02:29,239 Speaker 1: thank god, we're done with shrinking quarters, so the big 40 00:02:29,280 --> 00:02:33,120 Speaker 1: feeling of we're back to the positivity. But Tesla didn't 41 00:02:33,120 --> 00:02:36,160 Speaker 1: help much by disappointing on sales, though Elon Musk predicted 42 00:02:36,360 --> 00:02:38,680 Speaker 1: it would make it up in the fourth quarter. As 43 00:02:38,720 --> 00:02:41,640 Speaker 1: a factors ran, we're looking forward to a record breaking pupil, 44 00:02:41,880 --> 00:02:45,080 Speaker 1: so it's literally no one would it looks it looks 45 00:02:45,120 --> 00:02:48,160 Speaker 1: like we'll have an happy command of here. And although 46 00:02:48,240 --> 00:02:52,120 Speaker 1: Goldman Sachs earnings were a pleasant surprise, Chief DJ Officer 47 00:02:52,200 --> 00:02:54,320 Speaker 1: David Solomon said they have a fair amount of work 48 00:02:54,360 --> 00:02:59,160 Speaker 1: to do. Importantly, talent is moving around tremendously at Goldman 49 00:02:59,200 --> 00:03:03,200 Speaker 1: Sacks to a lie behind David Solomon's new new vision 50 00:03:03,600 --> 00:03:08,280 Speaker 1: remix the Remix, And at the end of what was 51 00:03:08,320 --> 00:03:11,239 Speaker 1: a wild week, the markets did find similarly finally, with 52 00:03:11,320 --> 00:03:14,959 Speaker 1: the SMP five four point seven four percent for the week, 53 00:03:15,080 --> 00:03:17,720 Speaker 1: while the NASTAC was up five point to two percent, 54 00:03:18,000 --> 00:03:20,560 Speaker 1: and it was all pretty much driven by anticipation of 55 00:03:20,560 --> 00:03:22,600 Speaker 1: where the Fed is heading, as the yield and the 56 00:03:22,639 --> 00:03:24,960 Speaker 1: ten year climbed for much of the week, but after 57 00:03:25,080 --> 00:03:28,520 Speaker 1: peaking over four point three midday and Friday it fell 58 00:03:28,600 --> 00:03:31,040 Speaker 1: to four point two percent to end the week, while 59 00:03:31,080 --> 00:03:33,480 Speaker 1: the two years, well, the two year fell thirteen basis 60 00:03:33,480 --> 00:03:37,080 Speaker 1: points on Friday alone, after speculation grew that the center 61 00:03:37,160 --> 00:03:40,280 Speaker 1: right might just slow its rate hikes after November. To 62 00:03:40,360 --> 00:03:42,360 Speaker 1: take us through the week in the markets, we welcome 63 00:03:42,400 --> 00:03:45,320 Speaker 1: now you're in Timor he's director of Global Macro for 64 00:03:45,320 --> 00:03:48,280 Speaker 1: Fidelity Management, and Sonal Decide c I O for the 65 00:03:48,320 --> 00:03:51,320 Speaker 1: Franklin Templeton Fixed Income Group. Welcome both of you back 66 00:03:51,360 --> 00:03:52,800 Speaker 1: to Wall Street week. Good to have you here. So 67 00:03:52,800 --> 00:03:54,600 Speaker 1: now let me start with you because so much after 68 00:03:54,680 --> 00:03:56,720 Speaker 1: this week I think was driven off of fixed income, 69 00:03:56,720 --> 00:04:00,320 Speaker 1: particularly those treasury rates. So what did we see this again? 70 00:04:00,360 --> 00:04:03,440 Speaker 1: Why were there so many apparently violent moves up and down? 71 00:04:04,240 --> 00:04:07,720 Speaker 1: It was a crazy week, but it's been several crazy weeks. 72 00:04:07,800 --> 00:04:12,000 Speaker 1: I think until the market gets a sense of where 73 00:04:12,040 --> 00:04:15,080 Speaker 1: the Fed is going to go and stop, we're going 74 00:04:15,120 --> 00:04:18,440 Speaker 1: to keep getting these wild bouts of volatility. We've been 75 00:04:18,480 --> 00:04:21,120 Speaker 1: expecting it for a while in a sense, you know, 76 00:04:21,600 --> 00:04:24,480 Speaker 1: there was not that much of news in the Fed 77 00:04:24,600 --> 00:04:27,080 Speaker 1: saying that they're close to being done. Well, of course 78 00:04:27,080 --> 00:04:29,440 Speaker 1: they are. We already know that we're going to get 79 00:04:29,520 --> 00:04:31,839 Speaker 1: up to five, maybe five point two five, maybe a 80 00:04:31,839 --> 00:04:34,720 Speaker 1: bit more, but quite early in the new year, it's 81 00:04:34,760 --> 00:04:37,040 Speaker 1: pretty clear that they will be getting close to an end. 82 00:04:37,040 --> 00:04:39,920 Speaker 1: We get a seventy five, maybe we get another fifty, 83 00:04:39,960 --> 00:04:42,520 Speaker 1: after which do we get another fifty, another twenty five? 84 00:04:42,839 --> 00:04:45,599 Speaker 1: I think the more interesting thing is what happens after that, 85 00:04:46,080 --> 00:04:49,560 Speaker 1: once the market feels that they know that the FED 86 00:04:49,880 --> 00:04:53,000 Speaker 1: is not going to pivot on a dime. I think 87 00:04:53,040 --> 00:04:55,560 Speaker 1: we might get to a point where we stop seeing 88 00:04:55,600 --> 00:04:59,160 Speaker 1: these wild back and forths because these are these are 89 00:04:59,200 --> 00:05:04,159 Speaker 1: truly massive moves in the treasury market. And uh I 90 00:05:04,200 --> 00:05:08,040 Speaker 1: would just note that every single data point is going 91 00:05:08,080 --> 00:05:11,279 Speaker 1: to carry with it this level of gravity in terms 92 00:05:11,279 --> 00:05:14,080 Speaker 1: of the moves that we see until we get to 93 00:05:14,080 --> 00:05:17,560 Speaker 1: the stage that the market buys what the FED is selling. 94 00:05:17,760 --> 00:05:19,640 Speaker 1: And you're in, where are we headed? Where is the 95 00:05:19,640 --> 00:05:21,800 Speaker 1: FED head? Because I look at my Bloomberg right now, 96 00:05:21,920 --> 00:05:24,120 Speaker 1: the FED futures rate looks like it's about five point 97 00:05:24,120 --> 00:05:25,839 Speaker 1: oh five. At one point this we goes up close 98 00:05:25,880 --> 00:05:28,400 Speaker 1: to five point two in terms of a terminal rate. Yeah, 99 00:05:28,400 --> 00:05:31,960 Speaker 1: so when you look at the SOFA curve, it peaks 100 00:05:31,960 --> 00:05:35,479 Speaker 1: it around five percent um and you look at the 101 00:05:35,560 --> 00:05:38,320 Speaker 1: you know, the implied terminal rate. You know, it's around 102 00:05:38,520 --> 00:05:40,520 Speaker 1: the it's around the same. You know, the markets have 103 00:05:40,600 --> 00:05:45,320 Speaker 1: been in a relentless mode of price discovery this year, right, 104 00:05:45,360 --> 00:05:48,200 Speaker 1: and the glass has been half empty for the last 105 00:05:48,360 --> 00:05:51,040 Speaker 1: nine months, where you know, every time we think maybe 106 00:05:51,080 --> 00:05:53,039 Speaker 1: the markets are bottoming and the FED is going to 107 00:05:53,080 --> 00:05:57,080 Speaker 1: be close to being done, that moving target starts to 108 00:05:57,400 --> 00:05:59,800 Speaker 1: starts to move again in the wrong direction. But I 109 00:06:00,120 --> 00:06:03,200 Speaker 1: do think we're we're getting to a more glass half 110 00:06:03,240 --> 00:06:05,800 Speaker 1: full mode. And I think that's what the stock market 111 00:06:05,880 --> 00:06:09,400 Speaker 1: is starting to signal here that you know, at this 112 00:06:09,440 --> 00:06:12,640 Speaker 1: point the expectations for the FED are are so bad 113 00:06:12,720 --> 00:06:16,240 Speaker 1: and meaning they're going to go so far that the 114 00:06:16,920 --> 00:06:20,400 Speaker 1: possibility of a surprise may start to you know, go 115 00:06:20,480 --> 00:06:23,440 Speaker 1: more in our favor. So maybe the fat doesn't have 116 00:06:23,520 --> 00:06:25,240 Speaker 1: to go all the way to five. Maybe it only 117 00:06:25,279 --> 00:06:27,440 Speaker 1: needs to go to four and a half. Uh. You know, 118 00:06:27,480 --> 00:06:32,479 Speaker 1: financial conditions have tightened significantly, so maybe the FED is 119 00:06:32,520 --> 00:06:35,719 Speaker 1: closer to being done than we think. But you know, 120 00:06:36,040 --> 00:06:39,039 Speaker 1: I think the FED is pretty committed to getting inflation 121 00:06:39,160 --> 00:06:42,240 Speaker 1: back towards its target of let's say two two and 122 00:06:42,279 --> 00:06:45,320 Speaker 1: a half percent, and you know, we're a long ways 123 00:06:45,400 --> 00:06:47,479 Speaker 1: from that, and so I think the risk is not 124 00:06:47,600 --> 00:06:50,720 Speaker 1: so much that the FED overshoots or undershoots in the 125 00:06:50,720 --> 00:06:53,359 Speaker 1: near term, but that it's going to take longer to 126 00:06:53,440 --> 00:06:56,080 Speaker 1: get back to a neutral policy after it gets to 127 00:06:56,160 --> 00:06:59,039 Speaker 1: that terminal point. So I'll design your intim we're gonna 128 00:06:59,040 --> 00:07:00,640 Speaker 1: be staying with us as we turn to what investors 129 00:07:00,680 --> 00:07:03,200 Speaker 1: should be doing in these uncertain times. That's going to 130 00:07:03,240 --> 00:07:08,159 Speaker 1: go next on Wall Street Week Unhindered. This is Bloomberg 131 00:07:08,200 --> 00:07:13,640 Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. There's 132 00:07:13,840 --> 00:07:18,200 Speaker 1: Governor Reagan now conceived that it would be inflationary if 133 00:07:18,200 --> 00:07:20,960 Speaker 1: we just cut federal taxes and didn't cut federal spending. 134 00:07:21,280 --> 00:07:23,400 Speaker 1: I don't know whether he does or doesn't, but that's 135 00:07:23,400 --> 00:07:27,200 Speaker 1: not his program. His program is in fact too, cut 136 00:07:27,400 --> 00:07:31,480 Speaker 1: taxes significantly ten percent a year over the next three 137 00:07:31,560 --> 00:07:35,040 Speaker 1: years each year, but also to restrain the growth in 138 00:07:35,120 --> 00:07:37,960 Speaker 1: federal spending. That, of course is Lewis Rockaiser talking with 139 00:07:38,000 --> 00:07:40,720 Speaker 1: a pre chairman, Alan Greenspan on Wall Street Week back 140 00:07:40,720 --> 00:07:44,720 Speaker 1: on October eight, back when Alan was simply part of Townsend, 141 00:07:44,720 --> 00:07:47,920 Speaker 1: Greenspan and Company. It was just before Governor Reagan was 142 00:07:47,960 --> 00:07:50,680 Speaker 1: elected president, and the concern back then was about tax 143 00:07:50,720 --> 00:07:53,520 Speaker 1: cuts without spending cuts, something that frankly, we're still talking 144 00:07:53,600 --> 00:07:56,880 Speaker 1: about today. The top movie back then was Goldie Hans, 145 00:07:56,960 --> 00:07:59,720 Speaker 1: Private Benjamin and Woman in Love. Do you remember it? 146 00:07:59,760 --> 00:08:03,120 Speaker 1: By Barbara streisand top the Billboard Hot one chart for 147 00:08:03,160 --> 00:08:06,320 Speaker 1: the week. So where's Arsenal Deci of Franklin Templeton and 148 00:08:06,320 --> 00:08:08,920 Speaker 1: you're in Timber of Fidelity Management. You're gonna start with you. 149 00:08:09,320 --> 00:08:11,640 Speaker 1: What's an investor to do in this environment where we 150 00:08:11,720 --> 00:08:14,680 Speaker 1: do have inflation that seems to be broad maybe entrenched, 151 00:08:14,840 --> 00:08:16,680 Speaker 1: we have a FED that's on the move. What does 152 00:08:16,680 --> 00:08:19,800 Speaker 1: an investor do? What's overpriced? What's underpriced? Well, you know, 153 00:08:20,000 --> 00:08:23,840 Speaker 1: the good news is um in a in a period 154 00:08:23,960 --> 00:08:27,640 Speaker 1: where there isn't very much of it, is that both 155 00:08:27,720 --> 00:08:31,880 Speaker 1: the forty and the sixty side of the sixty paradigm 156 00:08:31,920 --> 00:08:34,880 Speaker 1: I think, are now, you know, really attractively valued. I mean, 157 00:08:34,920 --> 00:08:36,880 Speaker 1: you can get a ten year yield at a ten 158 00:08:36,960 --> 00:08:39,600 Speaker 1: year note at four point to a two year note 159 00:08:39,640 --> 00:08:42,360 Speaker 1: at four and a half. You can buy the SMP 160 00:08:42,480 --> 00:08:46,400 Speaker 1: five hundred at around fifteen sixteen times forward earnings. Now 161 00:08:46,960 --> 00:08:49,480 Speaker 1: that pe is only as good as the forward earnings. 162 00:08:49,480 --> 00:08:52,360 Speaker 1: So we will find out whether the earnings hold so 163 00:08:52,480 --> 00:08:57,120 Speaker 1: far they have, so valuations have had a tremendous reset 164 00:08:57,760 --> 00:09:02,359 Speaker 1: from the overvaluation days, you know, following the COVID lockdown, 165 00:09:02,760 --> 00:09:06,240 Speaker 1: when the FED basically repressed interest rates down to much 166 00:09:06,320 --> 00:09:10,000 Speaker 1: lower levels than they really deserve to be, and that 167 00:09:10,200 --> 00:09:14,000 Speaker 1: raised asset price inflation in the stock market, because again, 168 00:09:14,080 --> 00:09:18,800 Speaker 1: interest rates are an important factor in valuation. And so 169 00:09:18,920 --> 00:09:22,920 Speaker 1: it's been a very painful nine months during which neither 170 00:09:23,000 --> 00:09:25,880 Speaker 1: the forty nor the sixty has worked. That's a very 171 00:09:26,000 --> 00:09:29,080 Speaker 1: unusual environment to be in. But I think, you know, 172 00:09:29,160 --> 00:09:32,359 Speaker 1: the good news is that if the Fed does overshoot, 173 00:09:32,440 --> 00:09:35,360 Speaker 1: I think the forty will really present a lot of 174 00:09:35,440 --> 00:09:38,880 Speaker 1: value at four plus yields, and maybe the forty will 175 00:09:38,880 --> 00:09:43,360 Speaker 1: start becoming negatively correlated again to the sixty. And if 176 00:09:43,520 --> 00:09:46,680 Speaker 1: our recession is averted, then the sixty I think will 177 00:09:46,720 --> 00:09:49,600 Speaker 1: do well because earnings then will likely hold up and 178 00:09:49,720 --> 00:09:52,840 Speaker 1: valuations are now much more reasonable. So for me, the 179 00:09:52,880 --> 00:09:56,800 Speaker 1: glass half full, you know view here is that at 180 00:09:56,840 --> 00:09:59,520 Speaker 1: least one of those two engines is going to start working. 181 00:09:59,800 --> 00:10:02,600 Speaker 1: I can't tell you which one it is, unfortunately, but 182 00:10:02,720 --> 00:10:05,640 Speaker 1: I do think it's not going to be any longer 183 00:10:05,720 --> 00:10:10,559 Speaker 1: this monolithic market where basically nothing works, So now when 184 00:10:10,559 --> 00:10:13,040 Speaker 1: will the bond market be the engine that starts working. 185 00:10:13,080 --> 00:10:14,840 Speaker 1: Our bonds getting cheap enough, now there's time to go 186 00:10:14,880 --> 00:10:17,880 Speaker 1: back in. They're beginning to look interesting. Let's put it 187 00:10:17,920 --> 00:10:20,160 Speaker 1: this way, because if I look at investment grade bonds, 188 00:10:20,640 --> 00:10:24,400 Speaker 1: I look at short short paper. You know, uh, we 189 00:10:24,440 --> 00:10:27,439 Speaker 1: already we just discussed her, and just discussed that. We 190 00:10:27,440 --> 00:10:31,080 Speaker 1: were talking about four point four, four point five. I 191 00:10:31,080 --> 00:10:34,520 Speaker 1: think we're getting getting to interesting levels. We're seeing something 192 00:10:34,679 --> 00:10:38,040 Speaker 1: finally that we haven't seen four again, close to seventeen years. 193 00:10:38,240 --> 00:10:42,560 Speaker 1: Fixed income delivering income what a concept. I think income 194 00:10:42,600 --> 00:10:45,720 Speaker 1: becomes more and more important as we look forward. I 195 00:10:45,760 --> 00:10:49,360 Speaker 1: do think that tenure yields are likely to still go up, 196 00:10:49,559 --> 00:10:54,240 Speaker 1: but having said that, it does start becoming attractive. So 197 00:10:54,320 --> 00:10:57,480 Speaker 1: over the coming weeks and sorry, coming weeks and months, 198 00:10:57,640 --> 00:11:02,000 Speaker 1: I think the first step would be areas like investment grade, 199 00:11:02,040 --> 00:11:07,800 Speaker 1: because you're getting paid healthily to hold good credit, and 200 00:11:08,280 --> 00:11:11,160 Speaker 1: our baseline is not to have a steep recession. We'll 201 00:11:11,160 --> 00:11:12,960 Speaker 1: have a recession, but I think we might be able 202 00:11:13,000 --> 00:11:15,760 Speaker 1: to avoid a steep one, which means that fundamentals can 203 00:11:15,800 --> 00:11:20,000 Speaker 1: still look good. And furthermore, if I look in areas 204 00:11:20,040 --> 00:11:24,199 Speaker 1: like high yield and emerging markets. You we are now 205 00:11:24,240 --> 00:11:27,640 Speaker 1: getting paid between eight and ten percent in these areas, 206 00:11:27,840 --> 00:11:32,360 Speaker 1: which means that finally liquid fixed income starts becoming a 207 00:11:32,480 --> 00:11:37,920 Speaker 1: very decent alternative to alternatives, which up till now have 208 00:11:38,120 --> 00:11:41,440 Speaker 1: really been the only area in the last multiple years 209 00:11:41,840 --> 00:11:44,400 Speaker 1: that could deliver those style of style of return. So 210 00:11:44,440 --> 00:11:46,880 Speaker 1: I actually am also gloss half full at this point 211 00:11:46,880 --> 00:11:49,040 Speaker 1: for the first time in quite a while. Ur in 212 00:11:49,200 --> 00:11:50,600 Speaker 1: just coming back to you and just kind of cash 213 00:11:50,640 --> 00:11:53,360 Speaker 1: for a way of looking at stock valuations as understanding 214 00:11:53,400 --> 00:11:55,719 Speaker 1: in fact you've taught me in fact the FED has 215 00:11:55,760 --> 00:11:58,280 Speaker 1: been buying bonds, but they've also in buying tips. Is 216 00:11:58,320 --> 00:12:01,920 Speaker 1: that skewing that as a measurements? It's it's interesting you 217 00:12:01,920 --> 00:12:05,560 Speaker 1: you you mentioned that because I'm trying to I'm trying 218 00:12:05,600 --> 00:12:09,080 Speaker 1: to figure that out actually in my latest my latest research, 219 00:12:09,320 --> 00:12:13,360 Speaker 1: because the FAT owns thirty three of the Bloomberg Tips index, 220 00:12:13,400 --> 00:12:15,400 Speaker 1: so that may not be all of all tips, so 221 00:12:15,720 --> 00:12:18,920 Speaker 1: the overall number will be less than that um and 222 00:12:19,000 --> 00:12:22,679 Speaker 1: so it makes you wonder whether there's any price signal left. 223 00:12:23,760 --> 00:12:26,400 Speaker 1: But you know, when I compare, for instance, the tips 224 00:12:26,520 --> 00:12:29,840 Speaker 1: break even to the inflation swap market, which is you know, 225 00:12:29,920 --> 00:12:33,400 Speaker 1: a direct swap. I don't really see a tremendous amount 226 00:12:33,440 --> 00:12:36,960 Speaker 1: of price distortion from the FED owning so many tips, 227 00:12:36,960 --> 00:12:39,480 Speaker 1: and of course the FAT owns a bunch of nominals 228 00:12:39,480 --> 00:12:42,840 Speaker 1: as well, so maybe one cancels out the other. So 229 00:12:43,280 --> 00:12:46,400 Speaker 1: I think that the jury is still out. But clearly 230 00:12:46,440 --> 00:12:50,080 Speaker 1: the tips market is saying a different message than the 231 00:12:50,160 --> 00:12:53,520 Speaker 1: headline inflation numbers are, because the tips break evens are 232 00:12:53,559 --> 00:12:56,800 Speaker 1: around two and a half across the curve, and that 233 00:12:56,960 --> 00:13:00,200 Speaker 1: that's that's totally different from an eight CPI's And now 234 00:13:00,280 --> 00:13:03,080 Speaker 1: one more here. Maybe the Bank of Japan has tamed 235 00:13:03,080 --> 00:13:05,720 Speaker 1: the bond market, it sure hasn't tamed the FX market. 236 00:13:05,920 --> 00:13:07,640 Speaker 1: And then on Friday we got that news out of 237 00:13:07,679 --> 00:13:09,880 Speaker 1: Nique at least that they are now intervened to support 238 00:13:09,880 --> 00:13:11,680 Speaker 1: that yen, which a weekend so much we've got the 239 00:13:11,720 --> 00:13:13,880 Speaker 1: b o J next week tell us about that. What 240 00:13:13,920 --> 00:13:16,240 Speaker 1: does that mean? Is the yend broken? So you know, 241 00:13:16,400 --> 00:13:18,120 Speaker 1: what we're seeing is something we haven't seen in a 242 00:13:18,200 --> 00:13:21,560 Speaker 1: very long period of time. We have the EU, Japan, 243 00:13:21,960 --> 00:13:26,880 Speaker 1: and the US all with dramatically different monetary policies, you know, 244 00:13:26,920 --> 00:13:30,280 Speaker 1: So I think about this and when times were good 245 00:13:30,480 --> 00:13:36,280 Speaker 1: to uh misculled Tolstoy. All good markets, functioning markets look 246 00:13:36,360 --> 00:13:39,640 Speaker 1: the same, and all of these markets, as they're breaking, 247 00:13:39,679 --> 00:13:42,400 Speaker 1: they're breaking in different ways. And I think that is 248 00:13:42,600 --> 00:13:46,040 Speaker 1: that could just could. It's never been more apparent than 249 00:13:46,120 --> 00:13:48,880 Speaker 1: what you see in Japan. The reality is the yen 250 00:13:49,040 --> 00:13:52,240 Speaker 1: is moving in line with infrast rate differentials with the US. 251 00:13:52,320 --> 00:13:54,240 Speaker 1: You look at US tenure yields and you look at 252 00:13:54,280 --> 00:13:57,120 Speaker 1: where Japan's YenS and it continues to move. Can the 253 00:13:57,120 --> 00:14:02,640 Speaker 1: Bank of Japan actually be actually can they control the end? 254 00:14:03,920 --> 00:14:06,040 Speaker 1: I have my doubts. You know, they might take some 255 00:14:06,120 --> 00:14:08,079 Speaker 1: of the air out of it, but ultimately this is 256 00:14:08,120 --> 00:14:11,240 Speaker 1: a global system which is very interlinked, and the interest 257 00:14:11,360 --> 00:14:14,320 Speaker 1: rate differential is simply too extreme right now to simply 258 00:14:14,640 --> 00:14:17,600 Speaker 1: intervene to fix it. The other issue, of course, as 259 00:14:17,679 --> 00:14:21,760 Speaker 1: Japan does not have the US, is inflation issue. And 260 00:14:22,640 --> 00:14:25,360 Speaker 1: speaking to the size of the bond market that is 261 00:14:25,400 --> 00:14:28,080 Speaker 1: held the U in the US, you're, depending on what 262 00:14:28,120 --> 00:14:30,680 Speaker 1: the bonds you're looking at the FED ones between twenty 263 00:14:30,680 --> 00:14:33,640 Speaker 1: five and thirty of the bond market, right So it's huge, 264 00:14:33,760 --> 00:14:36,560 Speaker 1: it's a huge impact. It's a great discussion. I really 265 00:14:36,560 --> 00:14:38,080 Speaker 1: owe it to both of you. Thank you so much 266 00:14:38,200 --> 00:14:41,000 Speaker 1: as Sonal Desiah Franklin Templeton, and you're in timor of 267 00:14:41,040 --> 00:14:43,320 Speaker 1: Fidelity Management. Coming up, le we take a look at 268 00:14:43,440 --> 00:14:55,000 Speaker 1: next week on Wall Street Week on Bloomberg seen through 269 00:14:55,040 --> 00:14:57,400 Speaker 1: the eyes of experts gives you a better view. So 270 00:14:57,480 --> 00:14:59,840 Speaker 1: let's talk about the paint's right and that Bloomberg or 271 00:15:00,040 --> 00:15:02,920 Speaker 1: market vision is twenty twenty. I am shocked by the 272 00:15:02,960 --> 00:15:05,360 Speaker 1: moves that we're seeing in the rates market. Bloomberg Radio. 273 00:15:05,480 --> 00:15:10,640 Speaker 1: The Bloomberg business happened, Bloomberg Radio dot com. This is 274 00:15:10,680 --> 00:15:15,040 Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 275 00:15:17,080 --> 00:15:20,800 Speaker 1: Ten years of remarkable growth. That's what President Jijin Ping 276 00:15:20,920 --> 00:15:23,480 Speaker 1: of China focused on in his speech to the Party 277 00:15:23,520 --> 00:15:30,840 Speaker 1: Congress last Saturday about the historical lives in China's economic constraint. 278 00:15:31,760 --> 00:15:35,760 Speaker 1: In past decade, China's GDP has grown from fifty five 279 00:15:36,160 --> 00:15:41,560 Speaker 1: trilling them to fourteen mmen and come to account for 280 00:15:42,400 --> 00:15:46,760 Speaker 1: eighteen of the world economy. Not a bad track record 281 00:15:46,840 --> 00:15:50,000 Speaker 1: during she's time in office. But if president she had 282 00:15:50,000 --> 00:15:52,160 Speaker 1: been willing to go back to before he was president, 283 00:15:52,320 --> 00:15:55,400 Speaker 1: the story is even more dramatic. Since Dung shaal Ping 284 00:15:55,480 --> 00:16:00,000 Speaker 1: initiated the open door policy in China's economy has gone 285 00:16:00,000 --> 00:16:04,120 Speaker 1: from under one fifty billion dollars to nearly eighteen trillion 286 00:16:04,160 --> 00:16:07,680 Speaker 1: dollars last year. Now that growth is slowing down with 287 00:16:07,760 --> 00:16:10,680 Speaker 1: possible repercussions for the rest of the world. According to 288 00:16:10,720 --> 00:16:13,280 Speaker 1: the head of the w t O, if China's economy 289 00:16:13,320 --> 00:16:16,240 Speaker 1: continues to slow the way we have seen, that will 290 00:16:16,240 --> 00:16:18,240 Speaker 1: have a big impact on what happens to the world 291 00:16:18,280 --> 00:16:21,720 Speaker 1: economy and u S officials like Deputy Treasury Secretary Wally 292 00:16:21,800 --> 00:16:25,160 Speaker 1: Adamo say that the open door isn't as open as 293 00:16:25,160 --> 00:16:27,840 Speaker 1: it used to be. In addition to add resilient supply chains, 294 00:16:28,000 --> 00:16:30,120 Speaker 1: we want to make sure that American companies are competing 295 00:16:30,120 --> 00:16:32,760 Speaker 1: on a level playing field with companies in China and 296 00:16:32,760 --> 00:16:35,200 Speaker 1: around the world, and that's why we've taken actions like 297 00:16:35,680 --> 00:16:39,960 Speaker 1: restraining the ability to shift some key components. But Bridgewater's 298 00:16:40,080 --> 00:16:42,240 Speaker 1: Ray Dalio, who has been back and forth to China 299 00:16:42,280 --> 00:16:46,000 Speaker 1: over the last thirty years, insists that despite all the problems, 300 00:16:46,280 --> 00:16:49,560 Speaker 1: he wouldn't bet against Beijing over the long term. I 301 00:16:49,600 --> 00:16:52,880 Speaker 1: think the longer term victory in China is still bright 302 00:16:53,120 --> 00:16:55,880 Speaker 1: because I know the people and I know the culture, 303 00:16:56,040 --> 00:16:59,400 Speaker 1: and I think it's good. But they have major issues 304 00:16:59,560 --> 00:17:03,560 Speaker 1: now and when it comes to China. The person we 305 00:17:03,640 --> 00:17:06,560 Speaker 1: turned to here at Wall Street Week is Deborah Lair. 306 00:17:06,760 --> 00:17:10,480 Speaker 1: She is the CEO Edelman Global Advisory and executive director 307 00:17:10,520 --> 00:17:12,960 Speaker 1: of the Pulse and Institute. Debor, welcome back, Good to 308 00:17:13,000 --> 00:17:15,760 Speaker 1: have you. We are all focused on President g and 309 00:17:15,760 --> 00:17:18,639 Speaker 1: what's going on over in Beijing this week. Give us 310 00:17:18,640 --> 00:17:20,479 Speaker 1: your sense about what we're learning. It strikes me one 311 00:17:20,480 --> 00:17:23,639 Speaker 1: of the biggest challenges he has is the economy and 312 00:17:23,680 --> 00:17:26,080 Speaker 1: growing the economy. And yet I'm not sure we're hearing 313 00:17:26,160 --> 00:17:28,600 Speaker 1: much about his economic policy. I hear a lot of politics, 314 00:17:28,640 --> 00:17:31,520 Speaker 1: a lot about security. That's right, I mean she didn't. 315 00:17:31,520 --> 00:17:34,520 Speaker 1: He gave his all important work report at the beginning 316 00:17:34,520 --> 00:17:37,719 Speaker 1: of the plantum and it gave up a few previews 317 00:17:37,960 --> 00:17:40,200 Speaker 1: of how he's going to start to look at the economy. 318 00:17:40,400 --> 00:17:44,280 Speaker 1: One of the things that he's emphasizing is common prosperity, 319 00:17:44,400 --> 00:17:48,600 Speaker 1: his slogan about how he brings greater equality. One of 320 00:17:48,640 --> 00:17:52,480 Speaker 1: the things that he's looking at is also how the 321 00:17:52,560 --> 00:17:55,359 Speaker 1: Party can continue to play an important role in the economy. 322 00:17:55,440 --> 00:17:58,960 Speaker 1: And also he did give reassurance to foreign companies that 323 00:17:59,040 --> 00:18:01,480 Speaker 1: they will continue to wish for market opening in Key 324 00:18:01,520 --> 00:18:04,399 Speaker 1: areas well we get a sense from the personnel that 325 00:18:04,520 --> 00:18:06,639 Speaker 1: surround him of where it might be headed, because as 326 00:18:06,640 --> 00:18:09,520 Speaker 1: I understand it, eventually we will see him come out 327 00:18:09,600 --> 00:18:12,920 Speaker 1: from behind the curtain, and we assume everybody assumes that 328 00:18:12,960 --> 00:18:15,080 Speaker 1: he will get his third term, but there's gonna be 329 00:18:15,119 --> 00:18:17,440 Speaker 1: a critical question of who's with him and he comes 330 00:18:17,440 --> 00:18:20,760 Speaker 1: out absolutely the important thing, and we're all watching for 331 00:18:20,800 --> 00:18:23,280 Speaker 1: this weekend when the new party lineup is going to 332 00:18:23,320 --> 00:18:26,959 Speaker 1: be announced. There's a lot of rumors starting to fly around, 333 00:18:26,960 --> 00:18:30,520 Speaker 1: although not as many as there usually are, but it's 334 00:18:30,560 --> 00:18:33,160 Speaker 1: a big guessing game because that will give us really 335 00:18:33,160 --> 00:18:35,960 Speaker 1: our first clue into what the third term is going 336 00:18:36,040 --> 00:18:38,520 Speaker 1: to look like. And I think there's three important things 337 00:18:38,560 --> 00:18:42,119 Speaker 1: to watch. One is going to be what happens to 338 00:18:42,200 --> 00:18:46,040 Speaker 1: Lee Ka Chung, the current premiere. Does he continue to 339 00:18:46,080 --> 00:18:49,240 Speaker 1: stay on the standing committee? He's termed out of staying 340 00:18:49,240 --> 00:18:51,480 Speaker 1: on at the premiere, but could they make him the 341 00:18:51,560 --> 00:18:54,480 Speaker 1: number two and head of the National People's Congress to 342 00:18:55,280 --> 00:18:57,480 Speaker 1: who will be in the lineup too then take the 343 00:18:57,520 --> 00:19:02,840 Speaker 1: premiere position. And the two leading candidates appeared to be 344 00:19:02,920 --> 00:19:07,040 Speaker 1: Wang Yang whose viewed as being more open on the 345 00:19:07,080 --> 00:19:11,040 Speaker 1: economic issues, and Wang Hu Ning, who really isn't ideologue. 346 00:19:11,320 --> 00:19:14,080 Speaker 1: And the third to watch is what happens to Leoja 347 00:19:14,160 --> 00:19:17,160 Speaker 1: who is currently the Vice premier, who's in charge of 348 00:19:17,200 --> 00:19:21,080 Speaker 1: the economy and finance. Does he stay he has good 349 00:19:21,119 --> 00:19:25,879 Speaker 1: relations with many foreign firms, or who really comes in 350 00:19:25,920 --> 00:19:28,400 Speaker 1: to take his portfolio? They were one of the things 351 00:19:28,400 --> 00:19:30,080 Speaker 1: that we watch in the West, and we may be 352 00:19:30,200 --> 00:19:32,000 Speaker 1: right or wrong, and watching it is the extent to 353 00:19:32,080 --> 00:19:34,800 Speaker 1: which the markets in some way play a substantial role 354 00:19:34,800 --> 00:19:38,440 Speaker 1: in economic policy over there. It strikes me that it's 355 00:19:38,440 --> 00:19:41,760 Speaker 1: possible to interpret presidenc Thus far is moving somewhat away 356 00:19:41,760 --> 00:19:43,320 Speaker 1: from the markets. A lot of what do you emphasis 357 00:19:43,400 --> 00:19:46,359 Speaker 1: right now is ideology and I think it's what he 358 00:19:46,440 --> 00:19:50,320 Speaker 1: came out of more than perhaps we've seen in the past. Absolutely, 359 00:19:50,359 --> 00:19:54,840 Speaker 1: we're seeing much more emphasis on ideology um under Shi Jimping, 360 00:19:55,119 --> 00:19:58,439 Speaker 1: and if we look back under Jacksonman, jackson Men was 361 00:19:58,480 --> 00:20:02,439 Speaker 1: saying the party is big enough to include business. She 362 00:20:02,920 --> 00:20:06,320 Speaker 1: takes it in a different way. He says the party 363 00:20:06,440 --> 00:20:10,720 Speaker 1: is all encompassing and it should be forced into business, 364 00:20:10,800 --> 00:20:13,960 Speaker 1: and so ideology is playing a much bigger role. Also, 365 00:20:14,320 --> 00:20:17,200 Speaker 1: we need to keep an eye on how She's favorite 366 00:20:17,200 --> 00:20:22,080 Speaker 1: slogan common prosperity is going to be implemented. China surprisingly 367 00:20:22,200 --> 00:20:26,680 Speaker 1: is actually much more unequal than the United States, and 368 00:20:26,800 --> 00:20:28,600 Speaker 1: one of the things that he's trying to do through 369 00:20:28,600 --> 00:20:32,639 Speaker 1: this common Prosperity uh slogan is say there should be 370 00:20:32,680 --> 00:20:35,800 Speaker 1: a cap on executive salaries. We should be looking at 371 00:20:36,040 --> 00:20:40,200 Speaker 1: big companies, particularly the private sector, giving back to the community. 372 00:20:40,480 --> 00:20:43,760 Speaker 1: And how that's going to be implemented. At the same 373 00:20:43,800 --> 00:20:45,960 Speaker 1: time when he's trying to grow the economy, when he's 374 00:20:45,960 --> 00:20:49,320 Speaker 1: trying to encourage entrepreneurship and create jobs, is going to 375 00:20:49,400 --> 00:20:52,480 Speaker 1: be a very tough thing for him to balance. Okay, Deborah, 376 00:20:52,480 --> 00:20:54,040 Speaker 1: it's always such a pleasure to have you here. You 377 00:20:54,080 --> 00:20:57,280 Speaker 1: are really are are China expert. That's Deborah Lair and 378 00:20:57,320 --> 00:21:02,760 Speaker 1: she CEO of Edelman Global Advisor. Coming up, we'll wrap 379 00:21:02,800 --> 00:21:05,439 Speaker 1: up the week with our special contributor Larry Summers of Harvard. 380 00:21:07,200 --> 00:21:12,000 Speaker 1: This is Wall Street Week on Bloomberg. This is Bloomberg 381 00:21:12,040 --> 00:21:16,119 Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. This 382 00:21:16,160 --> 00:21:18,440 Speaker 1: is Wall Street Week. I'm David Weston. We're welcome once again. 383 00:21:18,440 --> 00:21:21,040 Speaker 1: Our very special contributor in Wall Street Week is Professor 384 00:21:21,119 --> 00:21:24,280 Speaker 1: Larry Summers, of course, former Treasury Secretary, So thank you 385 00:21:24,359 --> 00:21:27,280 Speaker 1: so much for being with us, Larry. Once again. Much 386 00:21:27,320 --> 00:21:29,840 Speaker 1: of the week was consumed with the drama over the 387 00:21:29,920 --> 00:21:32,840 Speaker 1: United Kingdom, which is good and serious business for people 388 00:21:32,840 --> 00:21:35,560 Speaker 1: who are living in Great Britain, but what lessons might 389 00:21:35,600 --> 00:21:38,920 Speaker 1: it have for the rest of us. Look at one 390 00:21:39,040 --> 00:21:46,000 Speaker 1: level Bretain. Britain is unique. They went through Brexit, They've 391 00:21:46,000 --> 00:21:49,639 Speaker 1: had some unique political challenges that have taken place within 392 00:21:50,760 --> 00:21:56,040 Speaker 1: their Tory Party. We've rarely seen the kind of extreme 393 00:21:56,320 --> 00:22:03,359 Speaker 1: incompetence that was represented by the original trust proposals. But 394 00:22:03,480 --> 00:22:07,959 Speaker 1: I think there are two lessons that policy makers around 395 00:22:07,960 --> 00:22:12,760 Speaker 1: the world UH need to heed. The first is that 396 00:22:13,280 --> 00:22:20,080 Speaker 1: things can change extraordinarily fast if you lose uh credibility. 397 00:22:20,720 --> 00:22:23,640 Speaker 1: Just as it takes a long time to grow a forest, 398 00:22:24,240 --> 00:22:27,960 Speaker 1: but you can burn it down very quickly. Something similar 399 00:22:28,119 --> 00:22:33,560 Speaker 1: is true with respect to uh credibility and confidence. And 400 00:22:33,600 --> 00:22:38,840 Speaker 1: I think at a time of rising government debts and 401 00:22:39,440 --> 00:22:45,400 Speaker 1: rising interest rates, that's a lesson to be careful that 402 00:22:45,600 --> 00:22:50,960 Speaker 1: policy makers in many different countries need to take account. 403 00:22:52,280 --> 00:22:56,960 Speaker 1: I would say the second, more specific UH lesson just 404 00:22:57,240 --> 00:23:04,159 Speaker 1: goes to the potential instability in government debt markets, and 405 00:23:04,200 --> 00:23:08,600 Speaker 1: that's got both a macroeconomic aspect that if your deficit 406 00:23:08,680 --> 00:23:13,080 Speaker 1: projection starts to get out of UH control and your 407 00:23:13,160 --> 00:23:18,399 Speaker 1: real interest rates UH starts to rise UH rapidly, you 408 00:23:18,440 --> 00:23:21,679 Speaker 1: can get into a kind of doom loop. And it 409 00:23:21,760 --> 00:23:26,040 Speaker 1: also has to do with UH liquidity in the markets 410 00:23:26,280 --> 00:23:32,080 Speaker 1: and the possibility that you'll get a situation where they'll 411 00:23:32,119 --> 00:23:36,359 Speaker 1: be selling but there won't be buying, which will be 412 00:23:36,520 --> 00:23:40,359 Speaker 1: get a kind of liquidation cycle. And I think given 413 00:23:40,400 --> 00:23:43,520 Speaker 1: the magnitude of the increases and interest rates that you're 414 00:23:43,560 --> 00:23:49,000 Speaker 1: seeing in other parts of UH the world, that's something 415 00:23:49,040 --> 00:23:53,080 Speaker 1: that policymakers are going to have to be very careful of. 416 00:23:53,240 --> 00:23:58,120 Speaker 1: I thought Secretary Yellen was right to warn about issues 417 00:23:58,200 --> 00:24:04,200 Speaker 1: around illiquidity in the US treasury markets. I think we're 418 00:24:04,200 --> 00:24:07,720 Speaker 1: gonna need to be watching our own fiscal projections in 419 00:24:07,800 --> 00:24:11,800 Speaker 1: the United States very carefully because I think they're gonna 420 00:24:11,840 --> 00:24:16,240 Speaker 1: look different with current market UH interest rates. If you 421 00:24:16,680 --> 00:24:20,159 Speaker 1: factor in the recession it's likely to come, that's going 422 00:24:20,240 --> 00:24:24,280 Speaker 1: to have some significant effects. If you factor in all 423 00:24:24,320 --> 00:24:27,800 Speaker 1: the different steps that are being taken, whether it's the 424 00:24:28,600 --> 00:24:32,600 Speaker 1: student loan debt relief, for the emergency funding that's going 425 00:24:32,680 --> 00:24:37,159 Speaker 1: to take place because of the hurricane in Florida, or 426 00:24:37,240 --> 00:24:40,680 Speaker 1: the increases in national security expenditures that I think are 427 00:24:40,680 --> 00:24:45,359 Speaker 1: almost inevitable given what's happening in other parts of UH 428 00:24:45,480 --> 00:24:50,479 Speaker 1: the world. I suspect that the fiscal issue is going 429 00:24:50,520 --> 00:24:52,639 Speaker 1: to need sooner or later to be back on the 430 00:24:52,720 --> 00:24:57,240 Speaker 1: table in UH the United States. So I think that 431 00:24:58,440 --> 00:25:01,160 Speaker 1: we can be amused those of us who don't live 432 00:25:01,240 --> 00:25:04,640 Speaker 1: there by some of the things that are happening UH 433 00:25:04,760 --> 00:25:09,040 Speaker 1: in Britain. But if we think of it is an 434 00:25:09,160 --> 00:25:14,560 Speaker 1: experience that's entirely outside of any kinds of concerns that 435 00:25:14,600 --> 00:25:17,840 Speaker 1: other countries could have, that would be a real mistake. Well, 436 00:25:17,840 --> 00:25:20,320 Speaker 1: and Larry, as you say, we have to perhaps pay 437 00:25:20,400 --> 00:25:22,160 Speaker 1: much more attention on the fiscal side, be a bit 438 00:25:22,200 --> 00:25:24,680 Speaker 1: more responsible. That's at the same time that many people 439 00:25:24,720 --> 00:25:27,080 Speaker 1: and you included our warning that we may will be 440 00:25:27,160 --> 00:25:29,800 Speaker 1: heading to our session here in the past several years, 441 00:25:29,840 --> 00:25:31,679 Speaker 1: it's thought that if there's a session, we can just 442 00:25:31,720 --> 00:25:33,840 Speaker 1: write some fiscal checks for it. If we don't have 443 00:25:33,880 --> 00:25:35,680 Speaker 1: the ability that a way it turns out, Liz Trust 444 00:25:35,760 --> 00:25:37,640 Speaker 1: did not have over in the United Kingdom. What does 445 00:25:37,680 --> 00:25:39,199 Speaker 1: that mean of our ability to pull out of it, 446 00:25:39,200 --> 00:25:40,960 Speaker 1: and what is the prospect that when we've had so 447 00:25:41,000 --> 00:25:43,000 Speaker 1: many years of feast, we may be handed for some 448 00:25:43,040 --> 00:25:49,639 Speaker 1: famine on higher interest rates, lower growth, and lower productivity increase. Look, David, 449 00:25:49,720 --> 00:25:54,760 Speaker 1: there's always a tendency UH at the beginning or in 450 00:25:54,800 --> 00:26:00,760 Speaker 1: the early stages of very problematic periods to assume that 451 00:26:00,840 --> 00:26:04,399 Speaker 1: everything is going to be resolved much more quickly than 452 00:26:04,480 --> 00:26:08,080 Speaker 1: actually proves to be the case. Think about COVID. I 453 00:26:08,200 --> 00:26:13,800 Speaker 1: was early on your program and was very worried about COVID, 454 00:26:14,359 --> 00:26:17,679 Speaker 1: but I certainly didn't envision that it would be something 455 00:26:17,720 --> 00:26:20,959 Speaker 1: that would still be on people's minds going into the 456 00:26:20,960 --> 00:26:26,360 Speaker 1: winter of U three. And I think it's a mistake 457 00:26:26,480 --> 00:26:31,040 Speaker 1: to think that all of our economic challenges are going 458 00:26:31,160 --> 00:26:36,320 Speaker 1: to be met quickly, particularly if we heed what I 459 00:26:36,359 --> 00:26:40,879 Speaker 1: think would be the dangerous advice that are coming from 460 00:26:40,960 --> 00:26:45,680 Speaker 1: the erstwhile members of Team Transitory that the FED can 461 00:26:45,720 --> 00:26:51,240 Speaker 1: back off UM already and not carry through on the 462 00:26:51,359 --> 00:26:55,560 Speaker 1: increases that the market is now expecting. I think for 463 00:26:55,680 --> 00:26:59,960 Speaker 1: that to happen would be to almost guarantee a portray 464 00:27:00,040 --> 00:27:04,760 Speaker 1: active period of stagflation, as we had both we lacked 465 00:27:04,840 --> 00:27:10,679 Speaker 1: both price stability UH and UH confidence. I think we 466 00:27:10,720 --> 00:27:14,320 Speaker 1: need to remember that apart from anything we do with 467 00:27:14,480 --> 00:27:19,520 Speaker 1: discretionary policy. We have a whole set of natural stabilizers 468 00:27:19,520 --> 00:27:23,400 Speaker 1: to kick in in our economy. As UH the economy 469 00:27:23,560 --> 00:27:29,720 Speaker 1: goes down, tax collections go down, as unemployment crosses certain thresholds, 470 00:27:30,040 --> 00:27:36,280 Speaker 1: there are increases in unemployment insurance UH payments. But unfortunately, 471 00:27:36,400 --> 00:27:42,000 Speaker 1: I think we fired the fiscal cannon so strongly that 472 00:27:42,040 --> 00:27:47,920 Speaker 1: there's going to be limited room for discretionary fiscal policy 473 00:27:48,040 --> 00:27:51,320 Speaker 1: if we have another recession. Finally, Larry, one of the 474 00:27:51,359 --> 00:27:53,560 Speaker 1: other events of the week was the release of further 475 00:27:53,600 --> 00:27:57,240 Speaker 1: release from the Strategic Patrolling Reserve by President Biden, who 476 00:27:57,280 --> 00:27:59,399 Speaker 1: swears this is not a political issue, but could you 477 00:27:59,400 --> 00:28:02,240 Speaker 1: give us the economic potential effects of that those sorts 478 00:28:02,240 --> 00:28:08,440 Speaker 1: of releases, David, I think the the initial spro release 479 00:28:09,359 --> 00:28:13,160 Speaker 1: was a powerful thing that over the last months has 480 00:28:13,240 --> 00:28:18,080 Speaker 1: done a lot to contain oil prices, and I think 481 00:28:18,119 --> 00:28:22,919 Speaker 1: the Biden administration was exactly right to do it strongly, 482 00:28:23,400 --> 00:28:26,920 Speaker 1: do it for a long time, do it in coordination 483 00:28:27,480 --> 00:28:32,200 Speaker 1: UH with others. I think it's much less clear how 484 00:28:32,280 --> 00:28:36,160 Speaker 1: much scope there is for that policy to work going forward. 485 00:28:36,840 --> 00:28:40,840 Speaker 1: In part that's because it's a little bit like q 486 00:28:41,080 --> 00:28:44,880 Speaker 1: e UH for the FED. Whatever you put out there, 487 00:28:45,360 --> 00:28:49,920 Speaker 1: you're gonna have to get back in at some point 488 00:28:50,360 --> 00:28:53,800 Speaker 1: and that's going to have the opposite uh impact on 489 00:28:54,800 --> 00:28:58,200 Speaker 1: oil prices. Okay, Larry, thank you so much once again 490 00:28:58,240 --> 00:29:00,840 Speaker 1: for joining us on Wall Street week. That's Larry Summers 491 00:29:00,880 --> 00:29:03,960 Speaker 1: of Harvard. Finally one more side, and this week it 492 00:29:04,000 --> 00:29:06,959 Speaker 1: comes from Bloombrook Senior Executive Or for Economics and Government, 493 00:29:07,240 --> 00:29:10,640 Speaker 1: and it's about her native land. Here is Stephanie Flanders. 494 00:29:11,520 --> 00:29:14,160 Speaker 1: I think Liz Trust started off with the right idea, 495 00:29:14,240 --> 00:29:18,240 Speaker 1: which is the UK has been held back by slow 496 00:29:18,320 --> 00:29:21,280 Speaker 1: growth since the global financial crisis of Actually, in the 497 00:29:21,360 --> 00:29:24,520 Speaker 1: in the two decades before two thousand and eight, we'd 498 00:29:24,560 --> 00:29:27,680 Speaker 1: averaged around two and a half percent growth, which was 499 00:29:27,760 --> 00:29:30,880 Speaker 1: higher than many of our trading partners. We sort of 500 00:29:30,920 --> 00:29:32,800 Speaker 1: caught up a bit with Germany, we caught up a 501 00:29:32,800 --> 00:29:36,400 Speaker 1: bit with us during that period, but since then growth 502 00:29:36,400 --> 00:29:40,040 Speaker 1: has been less than half that and certainly much slower 503 00:29:40,080 --> 00:29:43,880 Speaker 1: than other countries. So it did make sense to focus 504 00:29:43,920 --> 00:29:48,120 Speaker 1: on growth, and it made sense to also to be 505 00:29:48,200 --> 00:29:52,320 Speaker 1: spending some money in her initial mini budget on supporting 506 00:29:52,360 --> 00:29:55,960 Speaker 1: households through a massive energy squeeze as we approached the winter. 507 00:29:56,360 --> 00:29:59,280 Speaker 1: I think the problem for financial markets, is that the 508 00:29:59,280 --> 00:30:02,840 Speaker 1: government showed no willingness to engage with the difficult trade 509 00:30:02,840 --> 00:30:05,840 Speaker 1: offs that all governments are facing in this environment where 510 00:30:05,840 --> 00:30:08,880 Speaker 1: they want to stimulate growth, they want to help households 511 00:30:09,200 --> 00:30:11,959 Speaker 1: face rising energy bills, but they don't want to make 512 00:30:12,000 --> 00:30:15,280 Speaker 1: it harder for the central bank to bring down inflation, 513 00:30:15,720 --> 00:30:17,480 Speaker 1: and they don't want to be building up a lot 514 00:30:17,480 --> 00:30:19,600 Speaker 1: of debt just at the time when we know the 515 00:30:19,640 --> 00:30:22,040 Speaker 1: cost of money, the cost of borrowing all around the 516 00:30:22,080 --> 00:30:25,000 Speaker 1: world is going up. So it was not what she did, 517 00:30:25,600 --> 00:30:27,280 Speaker 1: but the way she did it and the kind of 518 00:30:27,320 --> 00:30:32,000 Speaker 1: gay abandoned with which the government was proposing tax cuts 519 00:30:32,040 --> 00:30:35,760 Speaker 1: that were not funded by any form of spending constraint 520 00:30:35,800 --> 00:30:38,440 Speaker 1: and not targeted to the people who in this particular 521 00:30:38,560 --> 00:30:41,320 Speaker 1: environment needed help the most. I think what we also 522 00:30:41,440 --> 00:30:44,480 Speaker 1: saw in the UK there had been this nervousness and 523 00:30:44,520 --> 00:30:48,560 Speaker 1: financial markets that maybe dates back to the Brexit referendum, 524 00:30:48,720 --> 00:30:53,800 Speaker 1: that some of the constraints, the institutional constraints on policymakers 525 00:30:53,880 --> 00:30:57,720 Speaker 1: in the UK that had prevented, you know, silly politicians 526 00:30:57,760 --> 00:31:01,160 Speaker 1: from doing silly things, that those have been worn away 527 00:31:01,240 --> 00:31:04,640 Speaker 1: in the years in the tunnult since since per Exit, 528 00:31:04,840 --> 00:31:07,120 Speaker 1: and I think what happened when you saw the new 529 00:31:07,200 --> 00:31:13,520 Speaker 1: chancellor installed, the seventh since sixteen. You saw potentially those 530 00:31:13,560 --> 00:31:16,800 Speaker 1: institutional constraints come back that the Treasury, the Bank of 531 00:31:16,840 --> 00:31:20,080 Speaker 1: England is still in charge. That's the message to markets, 532 00:31:20,320 --> 00:31:23,240 Speaker 1: even if politicians are still messing around at the edges. 533 00:31:23,600 --> 00:31:26,840 Speaker 1: There's a lot of schadenfreuder potentially, and certainly there but 534 00:31:27,000 --> 00:31:30,360 Speaker 1: for the grace of God go i. Central bankers and 535 00:31:30,480 --> 00:31:34,200 Speaker 1: treasury officials around the world. They are looking at the 536 00:31:34,320 --> 00:31:38,200 Speaker 1: UK and wondering what's happened to this previously great nation. 537 00:31:38,480 --> 00:31:42,560 Speaker 1: But they should also be looking at potential pitfalls that 538 00:31:42,600 --> 00:31:45,760 Speaker 1: they too will face as we go into this environment 539 00:31:46,120 --> 00:31:48,520 Speaker 1: in which interest rates are going to be higher, the 540 00:31:48,560 --> 00:31:51,000 Speaker 1: cost of government borrowing is going to be higher, and 541 00:31:51,040 --> 00:31:54,480 Speaker 1: potentially strains are going to be put on financial markets. 542 00:31:54,520 --> 00:31:59,880 Speaker 1: We saw a particular investment strategy, the liability driven investment 543 00:32:00,040 --> 00:32:03,120 Speaker 1: in the UK, which were which are particular to the 544 00:32:03,240 --> 00:32:06,160 Speaker 1: UK mess up the pension market forced the Bank of 545 00:32:06,200 --> 00:32:09,640 Speaker 1: England to intervene. But we know we saw similar fragility 546 00:32:09,680 --> 00:32:13,760 Speaker 1: in the US treasury market back in March of and 547 00:32:13,760 --> 00:32:15,760 Speaker 1: there may be other things out there that we should 548 00:32:15,800 --> 00:32:19,040 Speaker 1: be nervous about as we see this very significant shift 549 00:32:19,360 --> 00:32:22,800 Speaker 1: to a higher interest rate environment. That does it. For 550 00:32:22,840 --> 00:32:25,080 Speaker 1: this episode of Wall Street Week, I'm David Weston. This 551 00:32:25,240 --> 00:32:28,320 Speaker 1: is Bloomberg. See you next week.