WEBVTT - Bloomberg Wall Street Week: Kaplan, Keating, Tett 0:00:00.240 --> 0:00:05.000 This is Bloomberg Wall Street Week, market shruggle, higher consumer prices. 0:00:05.040 --> 0:00:07.400 The economy is in the process of rebounding. Will the 0:00:07.400 --> 0:00:10.479 futteral reserve have its own digital currency? The financial stories 0:00:10.520 --> 0:00:12.879 that cheap hard work. Many people think the deals are 0:00:12.880 --> 0:00:15.080 just going to keep marching up. We have more spending 0:00:15.120 --> 0:00:17.200 coming out of Congress. One of the big questions I 0:00:17.200 --> 0:00:19.880 think on investor's minds inflations through the eyes of the 0:00:19.880 --> 0:00:23.560 most influential voices. Larry Summer is the former Treasury Secretary 0:00:23.640 --> 0:00:26.759 Bryan wynhand a back of America, Will CEO of Charlie 0:00:26.920 --> 0:00:31.560 Sharp Bloomberg wool Street Week with David Weston from Bloomberg Radio. 0:00:31.800 --> 0:00:35.440 Suddenly we want more more goods as we saw in 0:00:35.440 --> 0:00:39.000 the strong retail sales numbers on Friday, and more workers 0:00:39.040 --> 0:00:41.960 as we saw in those disappointing jobs numbers last week. 0:00:42.400 --> 0:00:45.400 But the supply isn't there yet, as we saw this 0:00:45.440 --> 0:00:48.919 week in consumer prices, with core CPI coming in at 0:00:48.920 --> 0:00:54.200 a whopping three, well above expectations. This time, the markets 0:00:54.240 --> 0:00:56.160 didn't take it all in stride the way they have 0:00:56.240 --> 0:00:58.720 in the past, with the stock market having its worst 0:00:58.800 --> 0:01:02.160 day since February after those consumer price numbers hit us 0:01:02.160 --> 0:01:06.160 on Wednesday, got to bounce back on Thursday well, ten 0:01:06.240 --> 0:01:09.640 year bond yields climbed up toward one point seven and 0:01:09.800 --> 0:01:13.559 five year break evens pointed toward more inflation yet to come. 0:01:14.200 --> 0:01:16.600 The FIT has done a wonderful job. They've done a 0:01:16.640 --> 0:01:20.160 great job and supervising the banking system, which has performed 0:01:20.160 --> 0:01:23.280 beautifully during this two year period. And the sharp reductions 0:01:23.280 --> 0:01:25.760 and short term interest rates have done a terrific job 0:01:25.800 --> 0:01:30.120 of stimulating housing and autos. They may be done um, 0:01:30.160 --> 0:01:32.360 but we think they will wait a while before they 0:01:32.440 --> 0:01:34.920 raise short term interest rates again. I think they want 0:01:34.920 --> 0:01:37.920 to make sure that the labor markets have stabilized. That 0:01:38.040 --> 0:01:40.560 was Abby Joseph Cohen on Wall Street Week back in 0:01:40.600 --> 0:01:43.800 two thousand two. In some ways, things haven't changed all 0:01:43.840 --> 0:01:47.240 that much. Then as now the Fed is keeping interest 0:01:47.319 --> 0:01:50.600 rates low to stimulate the housing market. Then, as now 0:01:50.800 --> 0:01:53.760 it's trying to strengthen the jobs market. But when do 0:01:53.800 --> 0:01:56.080 you know that it's time to ease off of that 0:01:56.120 --> 0:01:59.480 gas pedal. That's the question a lot of people are asking. 0:02:00.080 --> 0:02:02.840 Dallas Fed President Rob Kaplan says that while it may 0:02:02.880 --> 0:02:06.360 be too early, the time is coming as we see 0:02:06.400 --> 0:02:10.640 demand kick in so This is a contrast to the 0:02:10.639 --> 0:02:14.600 Great Recession, where we had a very slow recovery because 0:02:14.600 --> 0:02:19.200 of sluggish demand. Households weren't spending. In the current situation, 0:02:19.480 --> 0:02:25.200 we've got substantial demand. Households are spending. But what we're seeing, 0:02:25.639 --> 0:02:29.720 UH from our contacts across the board is supply issues. 0:02:29.760 --> 0:02:32.440 And my team, to their credit, had warned me for 0:02:32.480 --> 0:02:34.800 the two weeks leading up to this report that there 0:02:34.840 --> 0:02:37.120 was a meaningful chance it could be disappointed because we 0:02:37.360 --> 0:02:42.200 were seeing Our estimate is something like two million fifty 0:02:42.240 --> 0:02:47.280 five year old and above workers have have either retired 0:02:47.320 --> 0:02:50.639 on schedule or accelerated their retirement. Got a million and 0:02:50.639 --> 0:02:55.200 a half working mothers UH that are home with their kids. UH, 0:02:55.720 --> 0:02:58.960 lack of childcare, school reopening is an issue. And yet 0:02:59.080 --> 0:03:02.960 we are hearing broadly UH. Employers are trying to hire, 0:03:03.400 --> 0:03:07.040 but they're struggling to compete with unemployment benefits. And then 0:03:07.040 --> 0:03:10.079 the last thing we're hearing from goods companies is they're 0:03:10.120 --> 0:03:13.639 cutting back production runs because they lack inputs. And they've 0:03:13.680 --> 0:03:16.959 even done some temporary laidoffs. They've been telling us, UH, 0:03:16.960 --> 0:03:19.880 and we saw all that because but they're they're gonna 0:03:19.880 --> 0:03:22.880 be temporary because they lack the ability to have full 0:03:22.880 --> 0:03:25.440 production runs. So we saw all that in this Job's report. 0:03:25.760 --> 0:03:29.040 And to what extension you these specific issues in er region, 0:03:29.200 --> 0:03:33.000 in Texas and northern Louisiana and New Mexico. We we 0:03:33.080 --> 0:03:36.280 saw all these issues. I can tell you across the board, 0:03:36.320 --> 0:03:39.240 and you know, we do extensive outreach here and we've 0:03:39.280 --> 0:03:43.120 redoubled it since the pandemic, not only talking to businesses, 0:03:43.120 --> 0:03:45.400 but I took a lot to community leaders, heads of 0:03:45.560 --> 0:03:49.040 heads start across our district and they've been the ones 0:03:49.120 --> 0:03:54.840 warning us UH skill training pipelines have have been reduced. 0:03:54.920 --> 0:03:58.320 They can't get people to take money to enter skills training. 0:03:58.360 --> 0:04:03.000 They're seeing many workers who are taking unemployment. They're reluctant 0:04:03.040 --> 0:04:05.720 to enter full time jobs. They may be doing day 0:04:05.760 --> 0:04:08.720 work as a replacement, which allows them to continue to 0:04:08.720 --> 0:04:13.279 collect unemployment. And again we're seeing elevated high school dropouts. 0:04:14.000 --> 0:04:17.200 And you notice in this Job's report one group that 0:04:17.279 --> 0:04:20.520 had an increase in their employment with sixteen and nineteen 0:04:20.560 --> 0:04:22.919 year olds, and normally it's say that might be good, 0:04:22.920 --> 0:04:24.880 but a number of them were a little alarmed by 0:04:24.920 --> 0:04:27.920 our high school dropouts that I think they would be 0:04:27.920 --> 0:04:29.640 better off in the economy and the long run would 0:04:29.680 --> 0:04:33.280 be better off if they finished high school, got their 0:04:33.360 --> 0:04:35.720 g e d. At least so they could then eventually 0:04:35.720 --> 0:04:38.680 get into skills training. But we're seeing all these trends. 0:04:39.160 --> 0:04:41.280 I suspect that any of these decisions whether to go 0:04:41.320 --> 0:04:44.040 back to work or not are influenced by several factors, 0:04:44.080 --> 0:04:47.160 not just one factor. But talk about their unemployment insurance 0:04:47.200 --> 0:04:50.400 is specifically there was a time go a year back, 0:04:50.800 --> 0:04:54.120 where we wanted people to stay home for safety concerns, 0:04:54.160 --> 0:04:56.599 for health concerns, we wanted to pay them to stay home. 0:04:57.000 --> 0:05:00.240 That time is passing. If it hasn't already passed, does 0:05:00.279 --> 0:05:04.520 the impetus for enhanced unemployment insurance really fade as it's 0:05:04.520 --> 0:05:06.280 safer to get back. I think we want people to 0:05:06.320 --> 0:05:08.599 go back to work now, don't we. So I'll answer 0:05:08.680 --> 0:05:11.000 it this way because I'll stay out of the political 0:05:11.040 --> 0:05:14.560 aspects of this. What we're hearing from contacts. You know, 0:05:14.560 --> 0:05:16.840 if you go back six months or more obviously, or 0:05:16.839 --> 0:05:18.880 even three months, there were a number of sectors that 0:05:18.960 --> 0:05:22.080 hadn't yet reopened, and number of their workers didn't have 0:05:22.160 --> 0:05:26.280 the option to come back. As sectors reopened. For example, 0:05:26.400 --> 0:05:30.160 dining were unusual in Texas we we are now exceeding 0:05:30.600 --> 0:05:34.080 pre pandemic levels, but still movie theaters are just starting 0:05:34.120 --> 0:05:36.200 to reopen. I know in other parts of the country. 0:05:36.200 --> 0:05:40.280 In New York, restaurants are just starting to fully reopen. Uh. 0:05:40.480 --> 0:05:42.640 You want to help people that have lost their jobs, 0:05:42.720 --> 0:05:46.160 but as we more fully reopened, and we want to 0:05:46.160 --> 0:05:49.040 incentivize people to come back either to the jobs they 0:05:49.120 --> 0:05:52.520 left or two other jobs. UH. Contacts are telling me 0:05:52.600 --> 0:05:55.560 this is a real issue. One of the numbers that 0:05:55.720 --> 0:05:58.480 people paid attention to is actually the increase in wages, 0:05:58.520 --> 0:06:01.760 how much people were making. Given that need to get 0:06:01.760 --> 0:06:04.440 those people off the sidelines, are we looking at possible 0:06:04.440 --> 0:06:07.560 wage inflation just around the corner. We're hearing across the 0:06:07.640 --> 0:06:11.600 board for unskilled workers as well as skilled workers. But but, 0:06:11.880 --> 0:06:15.560 but but notably unskilled workers. Businesses tell us they're either 0:06:15.640 --> 0:06:18.880 offering higher wages, but that's not doing it to get 0:06:18.880 --> 0:06:22.680 people back, and they're offering bonuses, you know, signing bonuses. 0:06:23.000 --> 0:06:26.560 And even with that, I think, based on our our work, 0:06:27.080 --> 0:06:30.919 you would have seen much greater hiring in leisure and 0:06:31.000 --> 0:06:36.000 hospitality than we saw if if they were able to 0:06:36.080 --> 0:06:38.640 learn more works, in other words, to demand from these 0:06:38.680 --> 0:06:41.799 businesses to higher is greater than you saw in the 0:06:41.839 --> 0:06:45.640 growth and employment there thanks to Dallas Fed President Rob Kaplan. 0:06:45.800 --> 0:06:49.800 Coming up, cryptocurrencies take a hit from an unexpected source. 0:06:50.279 --> 0:06:54.640 Advocate Elon Musk, our crypto experts Jillian Tet at The 0:06:54.640 --> 0:06:58.800 Financial Times and Peter Krause of Aperture Investors take us 0:06:58.839 --> 0:07:02.680 through the climate olenges of bitcoin. That's next on Wall 0:07:02.680 --> 0:07:11.720 Street Week on This is Bloomberg Wall Street Week with 0:07:11.800 --> 0:07:15.720 David Weston from Bloomberg Radio. Elon Musk has done a 0:07:15.760 --> 0:07:20.160 lot to boost cryptocurrencies like bitcoin and dogecoin, but suddenly 0:07:20.200 --> 0:07:23.320 he's on the other side of the trade, joking about 0:07:23.360 --> 0:07:26.720 doge coin being a hustle on Saturday Night Live and 0:07:26.760 --> 0:07:29.560 then reversing his decision to accept bitcoin and payment for 0:07:29.600 --> 0:07:33.040 Tesla's We talked with Jillian Tech, chair of the editorial 0:07:33.040 --> 0:07:36.120 board and editor at large US for The Financial Times, 0:07:36.360 --> 0:07:40.120 and Peter Krauss, CEO of Aperture Investors about whether the 0:07:40.200 --> 0:07:44.280 setbacks are just a blip or reflect something deeper in 0:07:44.320 --> 0:07:48.240 a nutshell, Well, duh, because we have warned at The 0:07:48.240 --> 0:07:53.520 Financial Times now for many months that cryptocurrency is filthy 0:07:53.720 --> 0:07:56.040 and there's really just two key stats you need to 0:07:56.040 --> 0:08:01.080 know to understand why. Firstly about clip currency has been 0:08:01.160 --> 0:08:07.240 mined using the computer algorithms in China, overwhelmingly using Chinese coal, 0:08:07.680 --> 0:08:11.400 mostly in the west of the country. And secondly, the 0:08:11.440 --> 0:08:15.320 sector has grown so rapidly that it now has the 0:08:15.360 --> 0:08:19.360 carbon footprint people calculate around the size of say Sweden 0:08:20.040 --> 0:08:22.760 UM and that is worrying. I mean, there have been 0:08:22.800 --> 0:08:27.640 any number of activists, scientists, um investors pointing this out 0:08:27.680 --> 0:08:31.880 and pointing out the tremendous irony that that Tesla has 0:08:31.880 --> 0:08:35.199 been branded as e s G friendly, good for environmental, 0:08:35.240 --> 0:08:39.439 social and governance even while it's got this filthy footprint 0:08:39.520 --> 0:08:42.480 in bitcoin. So, Peter, there's more than a little irony here, right, 0:08:42.480 --> 0:08:44.280 because at least we tend to think of people who 0:08:44.280 --> 0:08:47.400 tend to invest in crypto as being very environmentally conscious, 0:08:47.400 --> 0:08:49.280 and it turns out they may be polluting the environment, 0:08:49.280 --> 0:08:53.080 warming up admitting a lot of greenhouse gases. Yeah. Look, 0:08:53.160 --> 0:08:56.360 I mean, we spend an enormous amount of time every 0:08:56.400 --> 0:08:59.640 week trying to think about e s G. Countists and 0:08:59.720 --> 0:09:04.760 vest We designed investment processes, We have information and data 0:09:05.760 --> 0:09:10.199 we look to enquire as to managements views on e 0:09:10.440 --> 0:09:13.199 s G and how they deal with those different conditions, 0:09:13.200 --> 0:09:17.040 and investors are demanding, in particular in Europe, but all 0:09:17.080 --> 0:09:20.240 over the world investment portfolios that are e s G 0:09:20.440 --> 0:09:23.880 friendly and in fact even e s G compliant with 0:09:23.920 --> 0:09:27.000 some of the new regulations in Europe. So it is 0:09:27.080 --> 0:09:30.360 in fact a paradox for investors to be investing in bitcoin, 0:09:30.559 --> 0:09:33.480 which is exactly the opposite of that, not even close 0:09:33.679 --> 0:09:36.520 and more interesting to the Jilly point, if it continues 0:09:36.559 --> 0:09:40.480 to grow, If it continues to grow, the exponential effect 0:09:40.600 --> 0:09:44.160 on the use of poor use of energy coal, dirty 0:09:44.280 --> 0:09:48.800 energy is palpable. And so I find it, you know, 0:09:48.960 --> 0:09:53.040 kind of almost humorous that people are investing in bitcoin, 0:09:53.160 --> 0:09:55.960 thinking that they're doing something that's citing, and at the 0:09:56.000 --> 0:10:00.079 same time they're acting in exactly the opposite way that 0:10:00.200 --> 0:10:02.320 they want the rest of the world to behave. So 0:10:02.320 --> 0:10:04.240 so Julian, that says one thing to people who want 0:10:04.240 --> 0:10:06.600 to buy or hold the cryptocurrencies. What does it say 0:10:06.640 --> 0:10:08.559 for the big banks? Because the big banks are getting 0:10:08.559 --> 0:10:11.400 some pressure actually to manage some funds that actually would 0:10:11.400 --> 0:10:13.760 include some crypto and it we have JP Morgan for example, 0:10:13.800 --> 0:10:15.120 as we're coming out, so we're really gonna get to 0:10:15.200 --> 0:10:17.720 zero missions. Everyone wants to get to zero missions. If 0:10:17.720 --> 0:10:19.160 they really want to do that, does that mean they 0:10:19.200 --> 0:10:21.720 can't hold crypto? Well, what I argue the column the 0:10:21.720 --> 0:10:25.319 Bananche times are three key points. Firstly, this shows that 0:10:25.400 --> 0:10:28.960 nobody can afford to ignore E s G risks, even 0:10:29.040 --> 0:10:31.800 if they have an E S G label on of 0:10:31.840 --> 0:10:34.600 an asset. And essentially what you're seeing is a very 0:10:34.600 --> 0:10:39.520 fast moving sector where there aren't many binary situations. It's 0:10:39.559 --> 0:10:42.720 not static. It's often a question of trade off and 0:10:42.760 --> 0:10:44.800 the only way from investors to code is to take 0:10:44.840 --> 0:10:49.480 a holistic view and recognize they will need to adjust. Secondly, though, 0:10:49.520 --> 0:10:52.440 in coming out of that point in fact, there is 0:10:52.520 --> 0:10:55.240 now a scramble a foot in the crypto world to 0:10:55.360 --> 0:10:59.200 tackle these green issues or these dirty issues, and the 0:10:59.240 --> 0:11:02.000 Unitine Nations just teamed up with the Rocky Mountain Institute 0:11:02.040 --> 0:11:05.080 and a group of fintech leaders to explore ways to 0:11:05.120 --> 0:11:08.240 try and deal with it. Two options. One, you change 0:11:08.280 --> 0:11:11.240 the computing process is to slash the amount of electricity 0:11:11.280 --> 0:11:14.040 they consume, and there's been a cryptocurrency this week called 0:11:14.080 --> 0:11:17.839 Cheer launched to do just that. Secondly, you can try 0:11:17.880 --> 0:11:22.080 and source it from clean energy sources, say Icelandic hydro 0:11:22.120 --> 0:11:25.199 electric power, and create a registry. There are efforts on 0:11:25.320 --> 0:11:29.600 that way, but the third point is that regulators clearly 0:11:29.600 --> 0:11:31.720 need to start getting involved. I mean, the reason why 0:11:31.760 --> 0:11:34.720 someone like Elon Musk can have almost this Wizard of 0:11:34.760 --> 0:11:38.160 Ods like effect on the crypto market is because it's 0:11:38.280 --> 0:11:43.079 opaque and unregulated and probably highly concentrated in its holdings. 0:11:43.440 --> 0:11:46.760 And there are efforts underway now amongst the regulators to 0:11:46.960 --> 0:11:50.200 exert more oversight, not just all over the questions of 0:11:50.920 --> 0:11:55.240 market manipulation, but also money laundering and frankly, every single 0:11:55.280 --> 0:11:58.040 big bank who's dealing with crypto or thinking about it, 0:11:58.200 --> 0:12:00.920 and farm managers, whether it's Ferdella to your Golden Facts, 0:12:01.360 --> 0:12:04.800 needs to throw that weight around it behind this process 0:12:04.840 --> 0:12:09.000 big time, and ironically, green issues might turn out to 0:12:09.040 --> 0:12:13.000 be the issue that causes everyone to runny together, even 0:12:13.160 --> 0:12:15.560 the libertarians. I just want to jump on something to 0:12:15.640 --> 0:12:19.200 just inject another idea into the conversation. There are there 0:12:19.240 --> 0:12:25.040 are two uh issues around around cryptocurrencies. One is the 0:12:25.200 --> 0:12:29.280 mining issue, which creates the sort of scarcity value and 0:12:29.400 --> 0:12:33.679 the desire to actually earn something for producing a new bitcoin, 0:12:34.160 --> 0:12:37.559 and that you know, that's the speculative aspect of bitcoin. 0:12:38.200 --> 0:12:42.520 And the speculative aspect of cryptocurrency. But the more interesting 0:12:42.559 --> 0:12:46.000 aspect of cryptocurrency is not the fact that it is 0:12:46.000 --> 0:12:49.600 a speculative value, but that it's a mechanism by which 0:12:49.640 --> 0:12:55.960 you can actually trade, settle, and effectively record transactions immediately 0:12:56.040 --> 0:12:59.360 or instantaneously. That's the much more valuable part of crypto. 0:12:59.400 --> 0:13:04.040 And you don't need mining exercises and energy um utilization 0:13:04.080 --> 0:13:07.439 in order to go after that. So I think you 0:13:07.559 --> 0:13:11.520 have to start thinking about unbundling the sort of speculative 0:13:11.600 --> 0:13:15.120 aspect of crypto, which frankly has no value to it, 0:13:15.200 --> 0:13:17.320 and now we know it's dirty as it as it 0:13:17.360 --> 0:13:21.560 relates to the environment and the actual value crypto, which 0:13:21.640 --> 0:13:26.760 is a currency that settles immediately, instantaneously, records the transaction, 0:13:27.000 --> 0:13:30.240 and lowers the cost of transactions in the world, and 0:13:30.520 --> 0:13:33.280 is the most valuable part. And so I think this 0:13:33.360 --> 0:13:36.040 might be, to Jillian's point again, the sort of start 0:13:36.160 --> 0:13:40.800 of unappealing the onion between the speculative aspects, which frankly 0:13:41.040 --> 0:13:43.120 are not that valuable, and what the true value of 0:13:43.160 --> 0:13:46.360 crypto could be over time. So so Jillian and Peter says, 0:13:46.400 --> 0:13:48.959 you can separate out the immediate settlement on the one 0:13:49.040 --> 0:13:51.800 hand from the speculu on the other, what about another aspect, 0:13:51.880 --> 0:13:54.560 which is the complete anonymity, which I think we saw 0:13:54.640 --> 0:13:57.640 this week and the Colonial pipeline hack. Actually, as we 0:13:57.679 --> 0:13:59.960 look at all these ransomware attacks, there've been almost four 0:14:00.120 --> 0:14:05.120 hundred on infrastructure. Could we have those ransomware infantachs without 0:14:05.160 --> 0:14:06.960 crypto if you had to actually rate a check in 0:14:06.960 --> 0:14:09.320 your bank account, I'm not sure the ransomware would work. 0:14:10.240 --> 0:14:12.480 That's a great point, David, and I think the issue 0:14:12.480 --> 0:14:15.680 is not so much anonymity, but pseudent anonymity that basically 0:14:15.720 --> 0:14:18.760 don't know who lies behind these accounts. You canteract the accounts, 0:14:18.800 --> 0:14:21.760 and notly enough, some law enforcement officials actually think that 0:14:21.920 --> 0:14:24.440 the benefit to having this because they can actually see 0:14:24.640 --> 0:14:27.200 once you get inside system, you know where accounts are 0:14:27.240 --> 0:14:30.080 coming from. But pseudonomity is absolutely part of the issue. 0:14:30.520 --> 0:14:32.880 And again going back to my point that actually green 0:14:33.040 --> 0:14:37.280 might provide a spark to actually get community support for 0:14:37.400 --> 0:14:41.040 more accountability and transparency. If you started to create a 0:14:41.080 --> 0:14:46.360 register of green versus dirty cryptocurrencies, that's the kind of 0:14:46.400 --> 0:14:48.320 thing that could actually put this on a more with 0:14:48.480 --> 0:14:51.600 you're footing. That was Peter Krass of aperture Investors and 0:14:51.720 --> 0:14:55.160 Jillian Tett of The Financial Times coming up. Inflation was 0:14:55.280 --> 0:14:57.720 up this week and stacks and bounds were down. At 0:14:57.800 --> 0:14:59.960 least you're part of the week. What does that mean 0:15:00.040 --> 0:15:03.200 for investors? We ask Katherine Keating of b N y 0:15:03.400 --> 0:15:11.880 Melon that's next on Wall Street Week on Bloomberg. This 0:15:12.240 --> 0:15:16.720 is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:15:16.880 --> 0:15:19.720 It was a tricky week for investors as the market 0:15:19.760 --> 0:15:22.760 has been on a tear. Even some warned of gathering 0:15:22.880 --> 0:15:25.760 storm clouds, and this week it felt like we just 0:15:25.920 --> 0:15:29.240 might be feeling some raindrops as well, with those CPI 0:15:29.400 --> 0:15:32.840 numbers coming on the heels of disappointing jobs numbers last week. 0:15:33.280 --> 0:15:35.920 So investors have to be asking themselves whether they should 0:15:35.920 --> 0:15:39.000 be reaching for the umbrella or even running to shelter. 0:15:39.680 --> 0:15:42.600 We ask Katherine Keating, CEO of b N y Melon 0:15:42.680 --> 0:15:46.880 Wealth Management, whether investors are changing their strategy to hedge 0:15:46.880 --> 0:15:49.920 for inflation. Investors always have to be concerned about inflation 0:15:49.960 --> 0:15:51.880 because inflation is one of the things that can lead 0:15:51.880 --> 0:15:54.840 to the end of a business cycle, tightening rates, recession, 0:15:55.240 --> 0:15:58.120 bear markets. We don't see that yet. We actually agree 0:15:58.760 --> 0:16:01.440 um with Chairman Pale that we should expect inflation, and 0:16:01.440 --> 0:16:03.800 we should expect it to be transitory. There are a 0:16:03.840 --> 0:16:06.200 lot of inflationary forces at work in the market. Were 0:16:06.240 --> 0:16:08.960 reopening right, we wouldn't have been here together last May, 0:16:09.000 --> 0:16:11.520 and yet here we are. We're reopening um and so 0:16:11.760 --> 0:16:14.480 we need to expect inflation, and we need to expect 0:16:14.480 --> 0:16:18.560 some surprises because the economy closed down in a very 0:16:18.560 --> 0:16:21.960 synchronized manner, but it's reopening in stages, and so we 0:16:22.000 --> 0:16:24.600 need to expect some of these surprises. And I and 0:16:24.640 --> 0:16:26.800 I always think that Janet Yellen has a great way 0:16:26.840 --> 0:16:29.720 of making economics human, and she reminds us it's not 0:16:29.800 --> 0:16:32.760 just statistics, it's people's activity. And if I think of 0:16:32.760 --> 0:16:36.640 my own activity in April, I was representing the reopening 0:16:36.640 --> 0:16:38.640 of the economy and some of those sectors that really 0:16:38.680 --> 0:16:43.280 drove the CPI increase, I'm grateful to be fully vaccinated. 0:16:43.320 --> 0:16:45.840 I was traveling on my first business trip, renting a car, 0:16:46.000 --> 0:16:48.560 flying on a plane, going to restaurants. Those were some 0:16:48.600 --> 0:16:53.440 of the sectors. As we address transitory against not transitory, 0:16:53.520 --> 0:16:56.560 which j Pallis talked about repeatedly, how informed should we 0:16:56.560 --> 0:16:58.400 be about how much money is sitting on the sidelines, 0:16:58.400 --> 0:17:00.800 particularly in households. There's a lot lot of money sitting 0:17:00.800 --> 0:17:02.880 out there that doesn't really have a weight quite yet 0:17:02.920 --> 0:17:05.919 to express itself. Well, that's right. If you look at households, 0:17:05.920 --> 0:17:09.400 households are in very good shape, right, three trillion dollars 0:17:09.440 --> 0:17:13.080 in household household bank accounts, savings accounts. You look at 0:17:13.080 --> 0:17:16.080 stimulus this year, that's going to households, which will actually 0:17:16.080 --> 0:17:18.000 be twice as much as what went last year, you know, 0:17:18.080 --> 0:17:20.720 six hundred billion last year, a trillion two this year. 0:17:20.800 --> 0:17:23.840 So households are in very good shape, which again is 0:17:23.880 --> 0:17:25.920 a good sign for the economy because if we think 0:17:25.960 --> 0:17:28.880 about the two thousand and eight crisis, that's a crisis 0:17:28.920 --> 0:17:31.240 that really hit households in a different way because of 0:17:31.240 --> 0:17:34.359 the housing component of it. Households today are actually in 0:17:34.520 --> 0:17:38.840 very good shape. To one extent of people run away 0:17:38.840 --> 0:17:41.840 from bonds in this environment because it seems like whatever happens, 0:17:41.880 --> 0:17:44.680 it doesn't seem like bonds will gain in value very 0:17:44.720 --> 0:17:47.560 much going out. Well, that's right. We are we have 0:17:47.640 --> 0:17:50.720 seen interest rates, you know, decline for most of our 0:17:50.760 --> 0:17:54.040 investing lives, and now we're seeing them begin to rise. 0:17:54.119 --> 0:17:57.359 And so there's always a role for bonds in the portfolio. 0:17:57.440 --> 0:18:00.280 It's a smaller role going forward. It's a smaller role because, 0:18:00.280 --> 0:18:02.399 as you note, returns are going to be much lower, 0:18:02.440 --> 0:18:05.679 but there's always a role, and we're broadening portfolios portfolios 0:18:05.680 --> 0:18:08.040 to get exposure to other things to make up for 0:18:08.080 --> 0:18:09.919 what you used to get from your bond portfolio. We're 0:18:09.920 --> 0:18:12.359 seeing some of the tech stocks get particularly particularly hard now. 0:18:12.400 --> 0:18:14.320 They drove a lot of the market for a long time, 0:18:14.840 --> 0:18:17.760 and they're still well up overall. But at the same time, 0:18:18.119 --> 0:18:20.240 what is the problem with tech when it comes to inflation? 0:18:20.280 --> 0:18:23.280 Is it just because there is They're so richly valued 0:18:23.320 --> 0:18:25.720 that when people get nervous they run away from it. Look, 0:18:25.760 --> 0:18:27.520 I think there are two things. I think the tech 0:18:27.600 --> 0:18:30.359 stocks really, um you know, lead the recovery because of 0:18:30.359 --> 0:18:32.760 the way we were spending our time last year, right, 0:18:32.840 --> 0:18:35.879 they really enabled us to keep the economy open to 0:18:35.880 --> 0:18:39.399 a certain extent. So you saw tech stocks, um you know, 0:18:39.440 --> 0:18:41.959 get very high multiples because of that. And also because 0:18:42.160 --> 0:18:44.359 investors were willing to pay for growth in a sector 0:18:44.400 --> 0:18:46.520 that was growing when you had so many sectors not growing. 0:18:47.080 --> 0:18:50.159 Now what you see is with interest rates rising, it 0:18:50.280 --> 0:18:53.320 actually reduces the present value of the cash flows and 0:18:53.320 --> 0:18:55.520 earnings of tech stops and so that's what you're seeing 0:18:55.520 --> 0:18:58.560 a rotation, but it's a rotation into sectors that we 0:18:58.600 --> 0:19:02.320 should all be embracing. Mid cap, small cap value, non 0:19:02.400 --> 0:19:04.800 US stocks. We think all of these will play good 0:19:04.880 --> 0:19:06.800 roles in the portfolio. So follow up on that. Who 0:19:06.920 --> 0:19:11.800 might benefit actually from inflation? For example, financials, So financials 0:19:11.880 --> 0:19:15.040 um will benefit from inflation and in particular difference between 0:19:15.040 --> 0:19:17.240 short term and long term right, um, so that's a 0:19:17.280 --> 0:19:21.600 sector that benefits. Energy often benefits from inflation. Um. So 0:19:21.680 --> 0:19:24.800 many sectors benefit from higher rates. How concerned are your 0:19:24.840 --> 0:19:27.040 investors right now when you talk to them? How worried 0:19:27.160 --> 0:19:28.720 are there because there's a lot of uncertain in the 0:19:28.720 --> 0:19:30.800 marketplace right now. As you say, we've never seen this 0:19:30.840 --> 0:19:32.760 happen in our economy. Ever, shut it down and bring 0:19:32.800 --> 0:19:35.119 it back. That's how anxious are people out there. So 0:19:35.160 --> 0:19:36.960 if we talk to our clients, they really focus on 0:19:37.000 --> 0:19:39.639 three things. They focus on the economy because their business people, 0:19:39.960 --> 0:19:42.439 They focus on the markets because their investors, and they 0:19:42.480 --> 0:19:45.920 focus on taxes because their taxpayers and so um our 0:19:46.119 --> 0:19:48.639 our clients. Our clients are sort of living the reopening 0:19:48.640 --> 0:19:51.280 of the economy as business people, they see this supply 0:19:51.440 --> 0:19:53.720 demand and balances as they're trying to hire and trying 0:19:53.760 --> 0:19:57.200 to get workers. Um, they've benefited obviously from the markets 0:19:57.400 --> 0:19:59.919 as markets have you know, tipped to all time highs 0:20:00.000 --> 0:20:02.560 in recent weeks and even now still up nicely year 0:20:02.640 --> 0:20:04.800 to date. And so what we're talking to them a 0:20:04.880 --> 0:20:07.000 lot about right now is taxes. They feel that that's 0:20:07.080 --> 0:20:09.840 much more uncertain. They know that they know the proposals 0:20:09.880 --> 0:20:13.439 that have been um introduced by the Biden administration, but 0:20:13.480 --> 0:20:17.119 they're asking us will they pass. There are very narrow majorities. 0:20:17.280 --> 0:20:19.720 If they pass, when will they be effective? How will 0:20:19.760 --> 0:20:22.359 it affect the market. So one of the questions about 0:20:22.359 --> 0:20:25.720 tech actually I have is about taxes because if you've 0:20:25.760 --> 0:20:28.640 made a lot of money, at least on paper by 0:20:28.680 --> 0:20:32.119 the appreciation of the tech stocks does indicate maybe you 0:20:32.119 --> 0:20:34.159 should sell those right now and take the lower capital 0:20:34.160 --> 0:20:36.199 gains if you think it's around the corner. So what 0:20:36.280 --> 0:20:38.880 we tell our clients we tell them two things. Number One, 0:20:38.960 --> 0:20:41.719 as an investor, time is your biggest advantage because markets 0:20:41.720 --> 0:20:44.400 tend to grow over time. So we say planned don't 0:20:44.440 --> 0:20:47.480 panic do things that you would otherwise do for your portfolio. 0:20:47.920 --> 0:20:50.119 Tech stocks rose to be, you know, the five largest 0:20:50.119 --> 0:20:53.280 tech stocks rose to be something SMP five hundred. If 0:20:53.280 --> 0:20:56.399 you've got large concentrations outside positions, you might want to 0:20:56.440 --> 0:20:58.680 trim those. You might want to trim those for investment reasons, 0:20:58.720 --> 0:21:01.520 but also potentially for tax That was Katherine Keating of 0:21:01.600 --> 0:21:05.600 b n y Melon Wealth Management. Coming up, we wrap 0:21:05.680 --> 0:21:08.880 up the week with our special contributor, Larry Summers. This 0:21:09.040 --> 0:21:18.320 is Wall Street Week on Bloomberg. This is Bloomberg Wall 0:21:18.400 --> 0:21:22.199 Street Week with David Weston from Bloomberg Radio. So the 0:21:22.240 --> 0:21:25.320 markets were royal this week by one thing, really, the 0:21:25.400 --> 0:21:28.560 prospect of inflation. And we're blessed to have with us 0:21:28.720 --> 0:21:31.560 the special Wall Street Week contributor from Harvard, Larry Summers, 0:21:31.560 --> 0:21:33.960 who was really the first to warn about this possibility 0:21:33.960 --> 0:21:37.160 way back when President Biden proposed his American rescue plan 0:21:37.359 --> 0:21:40.080 back in late January. So Larry, welcome. Let me say, 0:21:40.200 --> 0:21:43.480 Jason Furman, an economist you know well you respect, was 0:21:43.520 --> 0:21:47.480 on Bloomberg this week saying that no credible economists ever 0:21:47.560 --> 0:21:50.920 doubted that this was too much stimulus. I don't remember 0:21:51.080 --> 0:21:53.840 all those economists agreeing with you at the time. I 0:21:53.840 --> 0:21:57.600 don't know. I didn't feel like I was echoing the 0:21:57.680 --> 0:22:02.879 conventional wisdom at UH at the time, and David, I 0:22:03.359 --> 0:22:06.800