WEBVTT - Bloomberg Wall Street Week - February 3, 2023 0:00:00.520 --> 0:00:03.760 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.840 --> 0:00:06.240 to the markets this week at U S CPI members 0:00:06.440 --> 0:00:10.280 reinforcing concerns about inflation. The financial stories that chiep are 0:00:10.360 --> 0:00:13.400 worth a really different reaction to mark its more indications 0:00:13.400 --> 0:00:15.960 of just how hot the U. S. Economy really is. 0:00:16.000 --> 0:00:19.439 Through the eyes of the most influential voices Larry Summers, 0:00:19.480 --> 0:00:22.279 the former Tretory Secretary, Katherine Keening, CEO of the n 0:00:22.400 --> 0:00:25.600 Y Mollins Sam's l Sharmon and founder of Equatic Group 0:00:25.720 --> 0:00:29.200 Investment in Bloomberg Wall Street Week with David Weston from 0:00:29.320 --> 0:00:33.320 Bloomberg Radio, do we know which way we're headed? Markets 0:00:33.360 --> 0:00:36.120 don't believe the Fed, the U S isn't sure about 0:00:36.159 --> 0:00:39.240 paying all those bills that it's wracked up, and earnings, well, 0:00:39.320 --> 0:00:42.720 earnings are just all over the place. This is Bloomberg 0:00:42.760 --> 0:00:46.280 Wall Street Week. I'm David west this week's special contributor 0:00:46.360 --> 0:00:49.760 Larry Summers of Harvard on a FED sending mixed signals. 0:00:50.159 --> 0:00:54.960 I think the FEDS doing a good job of portraying 0:00:55.800 --> 0:01:01.680 substantial uncertainty in the account. To me and Musher Sharma 0:01:01.720 --> 0:01:05.600 of Rockefeller International on whether India is finally coming into 0:01:05.600 --> 0:01:08.800 its own for investors. This is a country that has 0:01:09.040 --> 0:01:25.400 consistently disappointing the optimist and defaceims. It was a week 0:01:25.440 --> 0:01:28.800 of contradictions the Federal Reserve height rates and other twenty 0:01:28.800 --> 0:01:31.360 five basis points, and warned that more is coming and 0:01:31.480 --> 0:01:35.000 continue to anticipate that ongoing increases will be appropriate in 0:01:35.160 --> 0:01:37.480 order to attain a stance of monetary policy that is 0:01:37.600 --> 0:01:42.040 sufficiently restrictive to return inflation to two over time. Whatever 0:01:42.160 --> 0:01:45.759 Chair Pile said, the markets apparently heard only that things 0:01:45.800 --> 0:01:48.960 may be getting better. I think there are opportunities for 0:01:49.040 --> 0:01:52.760 this rally to go longer and higher, while the European 0:01:52.840 --> 0:01:55.240 Central Bank and the Bank of England continue to play 0:01:55.320 --> 0:01:59.279 catch up, with both raising rates the expected fifty basis points. 0:01:59.560 --> 0:02:02.200 We know we have ground to cover. We know that 0:02:02.240 --> 0:02:05.360 we are not don't. President Biden met with Speaker McCarthy 0:02:05.360 --> 0:02:07.960 at the White House and afterward they agreed only on 0:02:08.120 --> 0:02:11.240 continuing to talk with no resolution in sight of the 0:02:11.280 --> 0:02:15.200 debt ceiling dilemma. My role right now is to make 0:02:15.240 --> 0:02:19.600 sure we have a sensible, responsible ability to raise the 0:02:19.680 --> 0:02:24.079 debt ceiling, but not continue this runaway spin. Earnings were 0:02:24.160 --> 0:02:27.400 all over the place, with snaps selling off while metas 0:02:27.440 --> 0:02:30.080 surprise to the upside. It is a good sign that 0:02:30.280 --> 0:02:33.919 both daily active users and monthly active users for platform 0:02:34.000 --> 0:02:37.280 like Facebook that is you know, quite quite old in 0:02:38.000 --> 0:02:43.000 social network terms, is still gaining. Caterpillar miss on profits 0:02:43.000 --> 0:02:46.960 while GM scored big. Where we see consumer demand for 0:02:47.000 --> 0:02:49.600 our vehicles at our price points is really strong. We 0:02:49.680 --> 0:02:52.000 just need to make sure we get production up to 0:02:52.040 --> 0:02:54.560 be able to meet that demand. But over in India, 0:02:54.800 --> 0:02:58.280 the Adane conglomerate had bigger problems than just earnings as 0:02:58.320 --> 0:03:01.280 it tried to stabilize with a stock offer after being 0:03:01.360 --> 0:03:04.160 hit hard by a short seller, only to have to 0:03:04.280 --> 0:03:07.760 cancel the offering as the company lost over one hundred 0:03:07.800 --> 0:03:10.680 billion dollars in market value. Hey, it's all about good 0:03:10.919 --> 0:03:15.480 having a company and its associates heavily and bad and 0:03:15.520 --> 0:03:21.280 that's what hits away. And then came Friday with US 0:03:21.400 --> 0:03:24.560 jobs numbers coming in far above what anyone had predicted, 0:03:24.720 --> 0:03:28.520 adding five seventeen thousand new jobs to an already type market, 0:03:28.720 --> 0:03:31.880 dropping the unemployment rate to three point four percent, which 0:03:31.960 --> 0:03:34.720 drove bond yields up, with the yield on the tenure 0:03:34.800 --> 0:03:38.680 adding thirteen basis points on Friday alone, but remaining nearly 0:03:38.720 --> 0:03:41.080 flat for the week overall, ending up at three point 0:03:41.200 --> 0:03:44.040 five to while the SMB five hundred climbed one point 0:03:44.120 --> 0:03:46.600 six percent over the week and the NASDAC gained a 0:03:46.680 --> 0:03:50.080 robust three point three percent today through a very busy 0:03:50.160 --> 0:03:52.160 week in the markets, we welcome now Bob Michael He's 0:03:52.240 --> 0:03:55.360 JP Morgan Asset Management, Head of Global fixed Income, Currency 0:03:55.360 --> 0:03:58.800 and Commodities, and Aaron Brown, Pimco portfolio manager for multi 0:03:58.800 --> 0:04:01.840 asset Strategies. Welcome both of you for being back with us. Aaron, 0:04:01.880 --> 0:04:04.520 I'll start with you. This is a very busy week 0:04:04.600 --> 0:04:07.040 and the markets were not always clear about what they thought. 0:04:07.240 --> 0:04:09.040 What did you make of what happened over the course 0:04:09.040 --> 0:04:12.839 of the week, in particularly jobs numbers. I think that 0:04:12.960 --> 0:04:17.840 the jobs numbers came well above consensus expectations and certainly 0:04:18.000 --> 0:04:21.039 underpinned the fact that the economy is not in a 0:04:21.080 --> 0:04:25.000 recession right now. The job growth still remains quite strong, 0:04:25.080 --> 0:04:27.919 and the labor market is still quite tight. And it 0:04:28.000 --> 0:04:31.120 probably also underscores the fact that the Fed has more 0:04:31.120 --> 0:04:34.320 work to do with respect to, you know, keeping rates 0:04:34.320 --> 0:04:38.240 in restrictive territory. The FED has already indicated that they're 0:04:38.320 --> 0:04:41.360 likely hike and at least an additional time one time 0:04:41.440 --> 0:04:44.960 in March, and then after that, I think, you know, 0:04:45.080 --> 0:04:48.320 certainly there's scope for the Fed to potentially hike an 0:04:48.360 --> 0:04:52.760 additional one time or pause there, but in either case, 0:04:52.839 --> 0:04:56.760 the Fed will likely not cut rates for an extended period, 0:04:56.880 --> 0:05:00.800 continue to remain restrictive for quite some time time, and 0:05:00.839 --> 0:05:05.119 then really observe and see how the data unfolds from there. 0:05:05.240 --> 0:05:08.640 And so while the market has been romancing this idea 0:05:08.839 --> 0:05:11.719 of the Federal Reserve starting to cut at the tail 0:05:11.839 --> 0:05:15.760 end of three, the Federal Reserve, at least for now, 0:05:15.960 --> 0:05:19.280 is likely to continue to keep rates on hold for 0:05:19.320 --> 0:05:22.159 an extended period of time and not meet the market's 0:05:22.200 --> 0:05:27.320 expectations for rate hikes as soon as the market is expecting. Bob, Yeah, David, 0:05:27.520 --> 0:05:30.280 I wasn't confused at all. Actually, for the first time, 0:05:30.680 --> 0:05:34.240 I think the Federal Reserve and the labor data confirmed 0:05:34.400 --> 0:05:38.400 what the average investor, the average consumer is seeing. The 0:05:38.400 --> 0:05:41.000 Federal Reserve could have walked in and said, inflation is 0:05:41.000 --> 0:05:44.800 nowhere near our target. We've got to raise rates indefinitely 0:05:45.240 --> 0:05:49.680 and push FED rates expectations much higher, maybe the terminal 0:05:49.760 --> 0:05:53.640 rate to five and have even five and three quarters percent. Instead, 0:05:53.680 --> 0:05:56.200 they came in and said, what I see, which is 0:05:56.400 --> 0:06:00.880 inflation is moderating. We can see an end two rate hikes. 0:06:00.920 --> 0:06:04.840 They confirm that. You look at the jobs data, and 0:06:05.040 --> 0:06:07.480 yes it was a very big number, but how many 0:06:07.560 --> 0:06:11.400 times have we been here and we've said everywhere we 0:06:11.520 --> 0:06:14.960 go in the services economy there's a shortage of worker. 0:06:15.600 --> 0:06:19.200 You look at airports, you look at restaurants, they're complaining 0:06:19.240 --> 0:06:22.360 about not being able to hire enough workers. And this 0:06:22.760 --> 0:06:27.440 confirm that this labor for this labor report confirmed that 0:06:27.839 --> 0:06:32.120 the economy has shifted consumption from work from home sort 0:06:32.160 --> 0:06:36.120 of expenditures to things that are more services, travel and leisures. 0:06:36.440 --> 0:06:37.760 And what about that, because that's one of the things 0:06:37.800 --> 0:06:40.200 that struck everybody that you added so many jobs got 0:06:40.240 --> 0:06:42.120 tighter and tighter, and labor market at the same time, 0:06:42.200 --> 0:06:44.919 actually the wages came down a little bit. Where is 0:06:44.960 --> 0:06:48.800 the wage pressure and is it coming and when? Well, 0:06:48.800 --> 0:06:50.720 I think part of it is a mix shift issue, 0:06:50.839 --> 0:06:53.359 and we know that average hourly earnings does have some 0:06:53.440 --> 0:06:56.880 distortions with respect to the mix shift, and so looking 0:06:57.000 --> 0:07:00.560 at e c I Atlantic wage data is probably more 0:07:00.600 --> 0:07:04.280 appropriate indicators. You know that said, I do think that 0:07:04.320 --> 0:07:08.640 there is continued pressure, particularly on some of the services 0:07:08.800 --> 0:07:12.360 UM side, and particularly some of the areas that Bob 0:07:12.400 --> 0:07:17.840 mentioned with respect to leisure, travel transportation, which saw some 0:07:18.040 --> 0:07:21.720 of the you know, significant job gains this last month. 0:07:22.280 --> 0:07:25.360 UM that said, you know, we are starting to see 0:07:25.440 --> 0:07:28.160 peak inflation. On the wage side. We are starting to 0:07:28.200 --> 0:07:31.560 see measures of inflation start to move lower with respect 0:07:31.600 --> 0:07:34.080 to wage growth, and I think that that's likely to 0:07:34.160 --> 0:07:36.440 continue as we move through you know, the course of 0:07:37.280 --> 0:07:41.720 three will still see wage gains, but at a slower pace. 0:07:41.800 --> 0:07:44.000 And I think that's what they've FED is really keyed 0:07:44.040 --> 0:07:46.920 in on in terms of you know, setting and determining 0:07:46.920 --> 0:07:50.320 their policy. If they continue to see wage growth move 0:07:50.480 --> 0:07:53.960 lower UM, which we're starting to see, that will allow 0:07:54.160 --> 0:07:57.440 the FED to eventually back off and and really pause. 0:07:57.600 --> 0:07:59.920 And so I think that's what the key thing to 0:08:00.120 --> 0:08:03.280 watches is the pace of wage gage which is slowing 0:08:03.360 --> 0:08:05.880 from here so soon I pick up on that very 0:08:05.920 --> 0:08:09.360 point because I think most people agree. Certainly j Pal said, 0:08:09.400 --> 0:08:12.400 we're starting to see some disinflationary forces. We're starting to 0:08:12.440 --> 0:08:14.680 see seven inflation come off. But there's a question about 0:08:14.720 --> 0:08:17.280 whether that's going to continue as you suggested, or whether 0:08:17.360 --> 0:08:19.080 you're really gonna be able to get down to anything 0:08:19.120 --> 0:08:22.320 like two without a lot more increases on the FED. 0:08:24.120 --> 0:08:27.520 So I don't think the FED is likely to hike rates, 0:08:27.600 --> 0:08:30.640 you know, significantly higher than here. I think one additional 0:08:31.160 --> 0:08:34.719 basis point hiker potentially two is probably the most that's 0:08:34.760 --> 0:08:37.160 in the cards for the FED at this time. And 0:08:37.160 --> 0:08:39.000 then they're going to sit and wait. And you know, 0:08:39.040 --> 0:08:43.400 we all know that Federal reserve policy, you know, moves 0:08:43.480 --> 0:08:47.120 with variable and lagged effects, and so I still think 0:08:47.160 --> 0:08:50.200 that the FED thinks that that the effects of the 0:08:50.240 --> 0:08:53.960 tightening last year will still continue to make their way 0:08:53.960 --> 0:08:57.760 through the economy uh this year, and therefore, you know, 0:08:57.800 --> 0:09:00.439 there may not be future rate hikes that are necessary. 0:09:00.760 --> 0:09:03.480 But you know, I think that they're willing to to 0:09:03.960 --> 0:09:06.880 wait and see whether or not future rate hikes are 0:09:06.920 --> 0:09:10.080 are necessary after another one or two hikes. And so, 0:09:10.600 --> 0:09:13.400 you know, I do think that the FED right now, 0:09:13.960 --> 0:09:18.840 you know, does expect that they're at least not there's 0:09:18.880 --> 0:09:22.520 not significantly more hikes that are necessary, and as a 0:09:22.559 --> 0:09:24.760 result of that, they're you know, willing to take a 0:09:24.800 --> 0:09:27.000 little bit of a weight and see approach. You know 0:09:27.080 --> 0:09:31.040 that said, um, you know, we have seen some disinflation 0:09:31.559 --> 0:09:34.840 will likely see more, but to expect that we're going 0:09:34.880 --> 0:09:37.480 to move, you know, close to two percent by year end. 0:09:37.600 --> 0:09:40.400 I don't think you know, many are expecting that. And 0:09:40.600 --> 0:09:42.319 you know, I think that at this point the FED 0:09:42.400 --> 0:09:45.600 will think of anything less than three percent. Uh, you know, 0:09:45.640 --> 0:09:49.080 in terms of core PC inflation is a win. So 0:09:49.200 --> 0:09:51.360 I think that's the number to be looking for. Not 0:09:51.440 --> 0:09:54.719 to percent is really sub three percent? Well, last one, 0:09:54.800 --> 0:09:57.040 last one two on this subject, and that is what 0:09:57.080 --> 0:09:59.320 do you expect the Fed to do? And number two, 0:09:59.640 --> 0:10:01.760 what are the bond markets anticipating? Those could be two 0:10:01.760 --> 0:10:07.320 different things. Well, we expected two different things. So I 0:10:07.360 --> 0:10:09.680 agree with Aaron. The FED is setting us up to 0:10:09.760 --> 0:10:12.640 do one or two more rate hikes, and as she said, 0:10:12.679 --> 0:10:15.559 they pause, they wait for the cumulative and lagged effects 0:10:15.559 --> 0:10:18.720 to hit. Our analysis shows that from the last rate 0:10:18.800 --> 0:10:22.959 hike until recession, it's roughly a year, so you're gonna 0:10:22.960 --> 0:10:25.480 have to wait out several quarters to see are you 0:10:25.559 --> 0:10:28.920 going to have that mythical soft landing? Are you headed 0:10:29.080 --> 0:10:32.360 into recession? The market is starting to front run that. 0:10:32.480 --> 0:10:34.560 We've all done the work. We know at the time 0:10:34.920 --> 0:10:37.720 of the Fed's last rate hike, that's the peak in 0:10:37.800 --> 0:10:41.760 yields and things rally like crazy, particularly the front end 0:10:41.840 --> 0:10:44.360 of the yield curve. That's what we're seeing in bond 0:10:44.400 --> 0:10:47.600 markets absent today. We think that's what we're going to 0:10:47.640 --> 0:10:50.160 see going forward. Okay, thank you so much, Aaron Brown 0:10:50.240 --> 0:10:52.520 PIMCO and Bob Michael JP Morgan. They're gonna be staying 0:10:52.559 --> 0:10:54.200 with us as we turn to some of the other 0:10:54.280 --> 0:10:56.199 big issues out there for the market. That's gonna be 0:10:56.240 --> 0:11:03.960 up next on Wall Street Week on Bloomberg. This is 0:11:04.040 --> 0:11:08.440 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:11:14.320 --> 0:11:18.000 The market has disappointed the bulls. It is disappointed the bears. 0:11:18.679 --> 0:11:21.320 It has been, if anything, a cat on a hot 0:11:21.320 --> 0:11:25.240 ten economy. Those who believe, against all the evidence that 0:11:25.280 --> 0:11:29.280 the market is always efficient, sophisticated and prescient may have 0:11:29.320 --> 0:11:32.200 a little trouble explaining the last two weeks when the 0:11:32.240 --> 0:11:35.360 market first sword in its best day in ten months 0:11:36.160 --> 0:11:39.559 and then two sessions later panicked for its worst day 0:11:39.559 --> 0:11:43.040 in five months. That, of course, is luifer has around 0:11:43.080 --> 0:11:46.439 Wall Street Week back in February when the number one 0:11:46.480 --> 0:11:49.960 movie was on Golden Pond and the top song was 0:11:50.200 --> 0:11:52.360 Centerfold by the j Giles. But I have to say 0:11:52.360 --> 0:11:54.360 people to remind me what that song was, but I 0:11:54.400 --> 0:11:57.240 remember it now. Aaron Brown of PIMCO and Bob Michael 0:11:57.360 --> 0:11:59.680 from JP Morgan are still with the soul. Let me 0:11:59.679 --> 0:12:01.960 start with you, Bob. We've talked about the central banks, 0:12:02.000 --> 0:12:03.760 We've talked about jobs. I don't know if we have 0:12:04.360 --> 0:12:06.840 a market on a hot tin economy is that we've 0:12:06.840 --> 0:12:10.400 just learned from. But apart from the center bank and 0:12:10.480 --> 0:12:12.560 central bank, and apart from the jobs, one of the 0:12:12.559 --> 0:12:14.320 things that you're looking at that there and now they 0:12:14.360 --> 0:12:17.199 could have fixed investors. Well. I think that's a very 0:12:17.200 --> 0:12:20.080 good clip to go to because that's a reminder of 0:12:20.120 --> 0:12:23.320 the era when the Fed declared victory on inflation too 0:12:23.320 --> 0:12:26.600 soon and then had to go back and raise rates again. 0:12:26.920 --> 0:12:29.760 And for us, that's the biggest risk that that happens again. 0:12:29.840 --> 0:12:32.360 We're looking at a number of things. I think the 0:12:32.400 --> 0:12:36.600 one most recently that's occurred is China is reopening and 0:12:36.679 --> 0:12:40.560 suddenly you're going to have a billion for consumers out 0:12:40.559 --> 0:12:43.960 there consuming that's twice the size of the US and 0:12:44.040 --> 0:12:47.720 Europe put together. That could create a lot of pressure 0:12:47.800 --> 0:12:50.520 on the price of goods and services. The other thing 0:12:50.679 --> 0:12:53.960 out there that we're very mindful of is that the 0:12:54.080 --> 0:12:57.400 US and Europe got away with a very mild winter 0:12:57.920 --> 0:13:01.400 and that kept energy prices low, as did releasing the 0:13:01.440 --> 0:13:04.800 strategic petroleum Reserve. So Aaron, what about those are two 0:13:04.920 --> 0:13:07.560 very interesting risks, one of those that inflation is not 0:13:07.600 --> 0:13:09.880 going away, that federill actually have to keep raising or 0:13:09.880 --> 0:13:12.679 after pausing, after raise again maybe because of China. How 0:13:12.679 --> 0:13:16.760 big a risk is China in terms of inflation. I 0:13:16.760 --> 0:13:21.200 think that China, with respect to global inflation and particularly 0:13:21.240 --> 0:13:24.400 developed market inflation, is actually going to be quite small. 0:13:25.240 --> 0:13:28.280 The way that we think about it. From a growth perspective, 0:13:28.320 --> 0:13:32.640 it probably has about a point to percentage point increase 0:13:32.720 --> 0:13:36.959 to US growth and maybe point three increase to European 0:13:37.000 --> 0:13:41.160 growth just because of the trade effects, and pretty similar 0:13:41.320 --> 0:13:45.960 impact to inflation, albeit potentially even a little bit smaller 0:13:46.000 --> 0:13:49.760 than those impacts. And that's because you know, typically in 0:13:49.800 --> 0:13:53.680 an environment where you see China growth really rebounding, those 0:13:53.760 --> 0:13:56.600 tend to be the typical effects to growth and inflation 0:13:56.640 --> 0:14:00.800 to global Developed market GDP and inflation. This time around, 0:14:00.800 --> 0:14:03.320 it could be even a little bit smaller, given the 0:14:03.360 --> 0:14:07.640 fact that the reflation story and the and the growth 0:14:07.640 --> 0:14:11.520 story in China is going to be really centered in 0:14:11.679 --> 0:14:16.360 domestic growth drivers and more service reopening drivers rather than 0:14:16.400 --> 0:14:19.119 what you typically see, which tends to be more investment 0:14:19.160 --> 0:14:21.880 in infrastructure. Lad So this time it's going to be 0:14:21.920 --> 0:14:25.720 really focused on travel, getting back to work, getting back 0:14:25.760 --> 0:14:29.840 to you know, typical service oriented economy, which is very domestic, 0:14:30.200 --> 0:14:33.840 China focused. It probably has a bigger impact into the 0:14:33.880 --> 0:14:37.440 region than the region and sort of the country's closest 0:14:37.440 --> 0:14:41.400 to China rather than to the US and into Europe, 0:14:41.400 --> 0:14:45.560 into more developed market economies in the Western world. And 0:14:45.600 --> 0:14:48.200 so I think that the effects are going to be 0:14:48.400 --> 0:14:52.359 good for for China, good for maybe Korea, for Thailand, 0:14:52.880 --> 0:14:57.280 to Singapore, to Hong Kong, but but not as strong 0:14:57.600 --> 0:15:00.880 as a driver for growth and inflation, you know, in 0:15:01.040 --> 0:15:03.920 the US or in Europe. Well, although we did see 0:15:03.960 --> 0:15:07.880 the price of copper shoot up pretty smartly once China 0:15:08.000 --> 0:15:12.239 started to reopen, so they're out there competing for the 0:15:12.280 --> 0:15:17.040 same resources that the Western world is. Now that's inflationary pressure. Well, 0:15:17.080 --> 0:15:19.120 what about broke broadly to want to think you taking 0:15:19.120 --> 0:15:21.680 into account of emerging markets in your decisions about bond investing. 0:15:21.720 --> 0:15:23.520 We're gonna have sure, Shama. On a few minutes, you're 0:15:23.520 --> 0:15:26.880 talking about India is that a factor is making investment decisions, Bob, 0:15:27.080 --> 0:15:30.600 It's an enormous factor. As we look across bond markets, 0:15:30.920 --> 0:15:33.760 we've been very impressed with the emerging markets. We like 0:15:33.880 --> 0:15:37.280 to track the cumulative number of rate hikes since the 0:15:37.280 --> 0:15:41.080 start of the development markets have done close to four 0:15:41.120 --> 0:15:45.320 thousand basis points. The emerging markets have done over twenty 0:15:45.440 --> 0:15:49.120 two thousand basis points of rate hikes. They got in 0:15:49.200 --> 0:15:52.680 front of this, they raised rates. Real yields are high, 0:15:52.720 --> 0:15:56.960 they slay slowed growth and inflationary pressures. We can go 0:15:57.040 --> 0:15:59.840 into those markets, get high real yields and you know what, 0:16:00.160 --> 0:16:02.720 we do. Think the dollar has topped, it will come 0:16:02.760 --> 0:16:05.320 down over the balance of the year. That's a pretty 0:16:05.440 --> 0:16:08.320 nice tail went to local emerging market debt, and I 0:16:08.320 --> 0:16:11.600 think I cut you off. No, what I was gonna 0:16:11.640 --> 0:16:15.160 say was the biggest driver for inflation, particularly in the 0:16:15.280 --> 0:16:18.800 US from a commodity perspective, tends to be energy. And 0:16:18.840 --> 0:16:22.000 we've seen even since the China reopening which started in 0:16:22.040 --> 0:16:26.120 early in early October, we've seen energy prices come down, 0:16:26.280 --> 0:16:29.720 you know, fairly significantly, and gas prices also fall pretty 0:16:29.720 --> 0:16:33.800 precipitously as well. So while typically you would think that 0:16:33.920 --> 0:16:37.000 if it was going to have a significant commodity impact 0:16:37.120 --> 0:16:41.240 from China reopening, you would see that occurrent in energy costs. 0:16:41.520 --> 0:16:43.960 We've actually seen the opposite occur, which is why I 0:16:44.040 --> 0:16:46.800 don't think, you know, just looking at the data and 0:16:46.880 --> 0:16:51.000 looking what's transpired and looking at how China is reopening 0:16:51.320 --> 0:16:54.240 and the sectors is going to be impacted. It's why 0:16:54.280 --> 0:16:56.400 I don't think you're going to see a huge, you know, 0:16:56.400 --> 0:17:01.000 sort of impact to inflation from China real winning. I 0:17:01.040 --> 0:17:04.000 hope that's right. I hope the Fed engineers a soft landing, 0:17:04.359 --> 0:17:07.600 but China is going to be out there consuming and spending. 0:17:07.800 --> 0:17:10.280 And we also have to look at Europe. Europe did 0:17:10.320 --> 0:17:13.080 not go through the pain that we all feared over 0:17:13.119 --> 0:17:15.320 the last several months. That's put them in a much 0:17:15.359 --> 0:17:18.560 better position to consume as well. Fascinating. Thank you so 0:17:18.640 --> 0:17:20.080 very much. It's great to have both of you back 0:17:20.080 --> 0:17:22.439 with us. It's always a treat, that is Bob Michael 0:17:22.560 --> 0:17:26.840 of JP Morgan and also Aaron Brown of Pimco. Well, 0:17:26.960 --> 0:17:29.399 this week was hedge fund Week down in Miami, and 0:17:29.400 --> 0:17:31.800 our very own Shinelle Boss went down to report on 0:17:31.960 --> 0:17:35.000 this really important event for hedge funds. Were welcoming now 0:17:35.040 --> 0:17:36.920 to Wall Street. We great to have your Chanelle. I'm 0:17:36.920 --> 0:17:39.080 glad you were down there for it. So talk to 0:17:39.119 --> 0:17:42.520 the smart long term investor who's looking at their portfolio. 0:17:43.320 --> 0:17:46.800 Why do why do I need hedge fund in my portfolio? 0:17:46.800 --> 0:17:48.960 I mean, it looks like some make money, some lose money. 0:17:49.240 --> 0:17:52.280 And as a whole, the industry has lost more than 0:17:52.280 --> 0:17:55.080 two hundred billion dollars last year. So it's not like 0:17:55.160 --> 0:17:57.240 the hedge funds at large are doing so well. But 0:17:57.280 --> 0:17:58.919 there are select few that I've had some of their 0:17:58.920 --> 0:18:02.480 best years in history. Take Citadel for example, which not 0:18:02.600 --> 0:18:05.800 only had sixteen billion dollars in profit last year, they 0:18:05.840 --> 0:18:09.600 surpassed on Paulson with the greatest trades ever. And so 0:18:09.680 --> 0:18:13.800 single trades as well as larger funds have had amazing years. 0:18:14.040 --> 0:18:16.560 But what strategy, I think is what you're asking here, 0:18:16.640 --> 0:18:19.760 What what is a hedge fund? I wanna take a 0:18:19.800 --> 0:18:22.760 listen here really quickly to seem to lead the black 0:18:22.800 --> 0:18:26.320 Swan author who was famous for navigating these types of events, 0:18:26.560 --> 0:18:30.320 because even in universe of the fund that he advises 0:18:30.400 --> 0:18:32.920 didn't have a favorable year. But this is what's ahead, 0:18:33.000 --> 0:18:35.720 is what he has to say. We have more debt 0:18:35.720 --> 0:18:38.440 than we ever did in history. We have the weirdest 0:18:38.520 --> 0:18:43.880 valuations in history, and we have a lot more connectivity 0:18:43.880 --> 0:18:47.480 than we did before. So these things up and realized that, hey, 0:18:47.520 --> 0:18:50.480 you know what, disney Land is over, the children go 0:18:50.520 --> 0:18:52.679 back to school and then make sure you're so now 0:18:52.680 --> 0:18:55.359 we're gonna go back to the war. It's a humbling time. 0:18:55.359 --> 0:18:57.639 But listen, I spoke to both to lead as well 0:18:57.680 --> 0:19:00.920 as Jim Chainos, for example, who expects that over time 0:19:00.960 --> 0:19:04.040 corporate profits could drop another fifty And so whether you're 0:19:04.040 --> 0:19:06.320 going short in the market like Jim Chainos is known for, 0:19:06.800 --> 0:19:09.920 or whether you're buying options likeness seems teleb or whether 0:19:09.960 --> 0:19:12.760 you're cliff fastness and believe that trend following will get 0:19:12.800 --> 0:19:14.919 you there. There are a lot of strategies that are 0:19:14.920 --> 0:19:17.399 coming back to the surface now and at a humbling time, 0:19:17.400 --> 0:19:19.560 as you call it. We have a new leader at 0:19:19.560 --> 0:19:21.639 the top of the largest head fund, a new co 0:19:21.880 --> 0:19:24.800 c i O for Bridgewater. Tell us about her. Yeah, 0:19:25.040 --> 0:19:27.560 remember Ray Dalio just stepped down from this post about 0:19:27.640 --> 0:19:30.679 four months ago and he was co c i O. 0:19:30.880 --> 0:19:34.240 But as he transitions, remember their two new CEOs as 0:19:34.240 --> 0:19:37.640 well at Bridgewater that started early last year and this 0:19:37.680 --> 0:19:39.959 is their new leadership team. This is a big change. 0:19:40.240 --> 0:19:42.520 It comes at a tough time, David, because remember I 0:19:42.520 --> 0:19:46.080 was talking about Citadel. You have Citadel surpassing Bridgewater as 0:19:46.080 --> 0:19:49.680 the highest grossing hedge fund firm of all time according 0:19:49.720 --> 0:19:53.880 to l c H Investments. So Karen Carneal Tambor will 0:19:53.920 --> 0:19:56.640 take them into this new generation. She's only thirty seven 0:19:56.720 --> 0:19:59.680 years old, but started her career there being recruited there 0:19:59.680 --> 0:20:02.199 by Greg Jensen. Thank you so much to Shay Bask 0:20:02.320 --> 0:20:04.600 who reports on all things Wall Street right here for 0:20:04.640 --> 0:20:08.320 Wall Street Week coming up. We wrap up the week 0:20:08.359 --> 0:20:11.880 with our special contributor Larry Summers of Harvard. That's next 0:20:11.880 --> 0:20:22.160 on Wall Street Week on Bloomberg. This is Bloomberg Wall 0:20:22.280 --> 0:20:31.399 Street Week with David Weston from Bloomberg Radio. This is 0:20:31.440 --> 0:20:33.520 Wall Street Week. I'm David Western. We are joined once 0:20:33.560 --> 0:20:36.080 again by our very special contributor here on Wall Street Week. 0:20:36.080 --> 0:20:38.440 He is Larry Summers of Harvard. So, Larry, I gotta 0:20:38.440 --> 0:20:40.240 start with those jobs and never was out on Friday 0:20:40.560 --> 0:20:43.359 when they crossed. I actually thought maybe they were wrong. 0:20:43.520 --> 0:20:47.119 It is extraordinary FID jobs were adding given where we 0:20:47.160 --> 0:20:51.840 are already. It's a huge miss relative to the consensus, 0:20:52.600 --> 0:20:56.640 it's way out of line with what you'd expected with 0:20:58.040 --> 0:21:02.280 a DP. The labor mark, it's running very differently then 0:21:02.480 --> 0:21:06.640 lots of other indicators in the economy where you see 0:21:07.040 --> 0:21:13.280 some signs, particularly in manufacturing, of real slowing. So it's 0:21:13.320 --> 0:21:19.560 a pretty confused uh picture. UH. One idea would be 0:21:19.680 --> 0:21:22.800 that people are still worried about how much work they're 0:21:22.840 --> 0:21:26.200 going to get out of their workforces, given people UH 0:21:26.480 --> 0:21:31.000 working at home, given increased steps and teasm, given a 0:21:31.080 --> 0:21:36.359 variety of UH post COVID changes, and so they just 0:21:36.480 --> 0:21:40.160 feel that whenever they can get workers, they should take 0:21:40.200 --> 0:21:43.760 the opportunity. But it sure does seem like we have 0:21:43.880 --> 0:21:47.640 a lot of workers relative to the amount of demand 0:21:47.720 --> 0:21:51.400 we have or amount of production we have in UH 0:21:51.720 --> 0:21:55.760 the economy. And the question is, is all this gonna 0:21:55.800 --> 0:21:58.679 be income that's gonna be spent that's gonna lift the 0:21:58.720 --> 0:22:03.159 economy up a bunch? Is it going to turn out 0:22:03.200 --> 0:22:06.920 that at some point people realize they've got too much 0:22:07.000 --> 0:22:12.520 inventory and labor and we're gonna see a fairly sudden stop. 0:22:13.040 --> 0:22:16.040 I think it's as difficult to an economy to read 0:22:16.840 --> 0:22:22.320 as I can remember a year ago. At this time, 0:22:22.400 --> 0:22:26.440 I was pretty confident about what the principal imbalances were 0:22:26.520 --> 0:22:29.439 and how things we're gonna play out. I don't have 0:22:29.520 --> 0:22:32.959 that kind of confidence right now. Can we have this 0:22:33.000 --> 0:22:35.439 sort of addition to the job market and not have 0:22:35.560 --> 0:22:37.480 wages go up more than we thought? They went up 0:22:37.520 --> 0:22:39.560 four point four percent as a year over year now 0:22:40.080 --> 0:22:41.800 on the monthly, which was a tenth of a percent 0:22:41.880 --> 0:22:44.840 more than expected, but it wasn't that dramatic. Are we 0:22:44.920 --> 0:22:47.160 going to have wage inflation kick in here that will 0:22:47.160 --> 0:22:50.399 really give us problems once again on Terrey policy? David, 0:22:50.480 --> 0:22:55.000 that's a basic question. I went back and looked at 0:22:55.800 --> 0:23:01.680 forecasting model emphasizing vacancies that I had used a year 0:23:01.720 --> 0:23:06.520 ago to predict that we were headed for significant wage 0:23:06.560 --> 0:23:11.119