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 --> 00:00:07,120 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 cheap 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 --> 00:00:19,520 Speaker 1: the eyes of the most influential voices Larry Summers, the 7 00:00:19,560 --> 00:00:22,920 Speaker 1: former Treker Secretary, Katherine Keating, CEO of d n Y Mollins, 8 00:00:22,960 --> 00:00:26,239 Speaker 1: Sam's l Sharmon and founder of Equatic Group Investment in 9 00:00:26,320 --> 00:00:30,240 Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio, 10 00:00:30,640 --> 00:00:36,159 Speaker 1: Inflation easing, China reopening, and Africa waiting. But all anyone 11 00:00:36,240 --> 00:00:39,919 Speaker 1: can talk about is Samuel Bankman Free. This is Bloomberg 12 00:00:39,920 --> 00:00:43,680 Speaker 1: Wall Street Week. I'm David Weston, this week's special contributor 13 00:00:43,680 --> 00:00:46,880 Speaker 1: to Larry Summers of Harvard on easy inflation and whether 14 00:00:46,920 --> 00:00:50,680 Speaker 1: we're on our way to that soft landing. Chairman is 15 00:00:50,760 --> 00:00:53,280 Speaker 1: in about the right place. I think we are in 16 00:00:53,360 --> 00:00:57,280 Speaker 1: better shape than I thought we were. And Rick Reader 17 00:00:57,320 --> 00:01:01,080 Speaker 1: of Black Rocket on the historic opportunity hec in fixed income. 18 00:01:01,360 --> 00:01:03,880 Speaker 1: If I can lock in these yields through a little 19 00:01:03,880 --> 00:01:05,720 Speaker 1: bit longer without having to go out to tens or 20 00:01:05,760 --> 00:01:20,920 Speaker 1: thirties back to me is a sweet spot today. There 21 00:01:21,000 --> 00:01:23,200 Speaker 1: was a lot of news this week for Global Wall Street, 22 00:01:23,319 --> 00:01:25,640 Speaker 1: but we found ourselves spending just about all of our 23 00:01:25,720 --> 00:01:28,720 Speaker 1: time focused on f t X and its former CEO, 24 00:01:29,000 --> 00:01:33,400 Speaker 1: Samuel Bankman Freed as its curren CEO bluntly told Congress 25 00:01:33,440 --> 00:01:37,640 Speaker 1: what had happened. This isn't a sophisticated whatsoever. This is 26 00:01:37,680 --> 00:01:41,080 Speaker 1: just plain old embezzlement. And some members of Congress, like 27 00:01:41,160 --> 00:01:44,080 Speaker 1: Brad Sherman of California, said we should just do away 28 00:01:44,120 --> 00:01:48,760 Speaker 1: with cryptocurrencies altogether. What does cryptocurrency have over the US 29 00:01:48,840 --> 00:01:51,720 Speaker 1: dollar or other major currencies. It's right there in the 30 00:01:51,800 --> 00:01:56,960 Speaker 1: name hidden money. My goal is to say enough is enough. 31 00:01:57,480 --> 00:02:01,320 Speaker 1: It's time to prohibit Americans from investing in cryminal. President 32 00:02:01,360 --> 00:02:04,480 Speaker 1: Biden convened the summit in Washington to deal with Africa, 33 00:02:04,640 --> 00:02:09,639 Speaker 1: with Secretary of State Anthony Blinkin emphasizing cooperation. Partnership is 34 00:02:09,680 --> 00:02:13,640 Speaker 1: at the heart President biden strategy for Africa partnerships between 35 00:02:13,639 --> 00:02:16,640 Speaker 1: the United States and African nations, with the private sector, 36 00:02:17,040 --> 00:02:19,880 Speaker 1: and between our people. But Ian Bremer of Eurasia Group 37 00:02:19,960 --> 00:02:22,200 Speaker 1: said that the United States has to work to catch 38 00:02:22,280 --> 00:02:25,320 Speaker 1: up with China. When it comes to Africa, the Chinese 39 00:02:25,800 --> 00:02:29,120 Speaker 1: invests a lot more, but the African governments want to 40 00:02:29,120 --> 00:02:32,280 Speaker 1: see the money they need the baseline infrastructure. In so far, 41 00:02:32,320 --> 00:02:34,200 Speaker 1: the Chinese have done a lot more on the ground 42 00:02:34,280 --> 00:02:37,880 Speaker 1: to invest. Secretary Granholm announced that the Department of Energy 43 00:02:38,120 --> 00:02:43,040 Speaker 1: had made a major breakthrough in nuclear fusion. This demonstrates 44 00:02:43,440 --> 00:02:46,600 Speaker 1: it can be done. That threshold being crusted allows them 45 00:02:46,639 --> 00:02:50,480 Speaker 1: to start working on the things that are necessary to 46 00:02:50,520 --> 00:02:54,440 Speaker 1: allow it to be modularized and taken to commercial scale. 47 00:02:54,680 --> 00:02:58,400 Speaker 1: And Elon Musk gave up his title as world's richest man, 48 00:02:58,880 --> 00:03:01,600 Speaker 1: at least for now. He's no longer the richest man 49 00:03:01,639 --> 00:03:03,799 Speaker 1: in the world if you look at Tesla stock, specifically 50 00:03:03,840 --> 00:03:08,200 Speaker 1: their market value now falling below five billion dollars. But 51 00:03:08,320 --> 00:03:11,200 Speaker 1: for all the drama, the big news really came from 52 00:03:11,280 --> 00:03:14,960 Speaker 1: the central banks, starting with the Federal Reserve. On Tuesday, 53 00:03:15,040 --> 00:03:17,520 Speaker 1: the Fed got the good news that inflation was slowing 54 00:03:17,639 --> 00:03:21,720 Speaker 1: faster than we had thought. Investors didn't think inflation was 55 00:03:21,760 --> 00:03:25,040 Speaker 1: going to come down as fast as economists were forecasting, 56 00:03:25,320 --> 00:03:28,640 Speaker 1: and now it's coming down even faster. And on Wednesday, 57 00:03:28,680 --> 00:03:33,200 Speaker 1: the Fed responded by saying, well, not so fast. It's good, 58 00:03:33,480 --> 00:03:37,400 Speaker 1: but not good enough to declare victory. The MC raised 59 00:03:37,400 --> 00:03:41,000 Speaker 1: our policy interest rate by a half percentage point. We 60 00:03:41,040 --> 00:03:44,760 Speaker 1: continue to anticipate that ongoing increases will be appropriate. I 61 00:03:44,760 --> 00:03:47,920 Speaker 1: wouldn't see us considering RAID cuts until the Committee is 62 00:03:47,960 --> 00:03:51,240 Speaker 1: confident fit inflation is moving down to two in a 63 00:03:51,280 --> 00:03:54,440 Speaker 1: sustained way. And then on Thursday, the Bank of England 64 00:03:54,480 --> 00:03:57,400 Speaker 1: and the European Central Bank raised their own rates another 65 00:03:57,480 --> 00:04:01,360 Speaker 1: fifty basis points each, with ECB pre Christine Legarde saying 66 00:04:01,480 --> 00:04:04,720 Speaker 1: they won't be taking their foot off the break anytime soon. 67 00:04:05,200 --> 00:04:10,880 Speaker 1: We should expect to raise interest rates at a fifty 68 00:04:10,960 --> 00:04:17,240 Speaker 1: basis points face for a period of time. And the 69 00:04:17,320 --> 00:04:19,680 Speaker 1: markets well, as much as they were encouraged by those 70 00:04:19,680 --> 00:04:22,560 Speaker 1: CPI numbers on Tuesday, they were just that disappointed by 71 00:04:22,560 --> 00:04:25,320 Speaker 1: the fed chairs reaction, as stocks were down again for 72 00:04:25,320 --> 00:04:27,600 Speaker 1: the week, with the SP losing just over two p 73 00:04:28,080 --> 00:04:31,000 Speaker 1: the NASAC off two point seven percent, while the yield 74 00:04:31,000 --> 00:04:33,760 Speaker 1: and the tenure was down just over nine basis points 75 00:04:33,760 --> 00:04:36,920 Speaker 1: to end the week just under three. Take us through 76 00:04:36,960 --> 00:04:40,000 Speaker 1: this combination of economic and market data. Welcome now. Joe 77 00:04:40,040 --> 00:04:43,320 Speaker 1: and Feeney partnered in Advisor's capital management and Sonalda, said 78 00:04:43,600 --> 00:04:46,640 Speaker 1: Franklin Templeton, CEO of Fixed Income. So, Joe, let me 79 00:04:46,680 --> 00:04:48,880 Speaker 1: start with you. Did I detect just a wee tension 80 00:04:48,960 --> 00:04:51,120 Speaker 1: this week between other one hand, the markets and the 81 00:04:51,160 --> 00:04:54,320 Speaker 1: other the Federal Reserve? Yeah, just a little bit, David. 82 00:04:54,440 --> 00:04:57,039 Speaker 1: You know, we've seen this play before. The market gets 83 00:04:57,080 --> 00:04:58,920 Speaker 1: all excited to see a data point and they think, 84 00:04:58,920 --> 00:05:01,320 Speaker 1: okay that that's finally going to ease off or signal 85 00:05:01,320 --> 00:05:03,839 Speaker 1: that'll ease off, and and then we get that bucket 86 00:05:03,839 --> 00:05:06,320 Speaker 1: of cold water. The fact of the matter is there's 87 00:05:06,360 --> 00:05:07,840 Speaker 1: just a lot of work for the Fed to do 88 00:05:08,240 --> 00:05:11,200 Speaker 1: to get back to that two percent targets. And uh, 89 00:05:11,240 --> 00:05:14,040 Speaker 1: you know, they're going to keep rates elevated and continue 90 00:05:14,040 --> 00:05:18,000 Speaker 1: to raise until they have a much clearer and broader signal. 91 00:05:18,360 --> 00:05:21,400 Speaker 1: And one CPI print is not going to convince them 92 00:05:21,480 --> 00:05:24,479 Speaker 1: that the hard work has has been done. There's just 93 00:05:24,520 --> 00:05:27,200 Speaker 1: too much in terms of labor shortages right now driving 94 00:05:27,200 --> 00:05:30,760 Speaker 1: wage growth for them to ease off on this efforts 95 00:05:30,800 --> 00:05:33,600 Speaker 1: to constrain economic activity. So so now the FET has 96 00:05:33,640 --> 00:05:36,680 Speaker 1: been fairly explicit, why doesn't the bond market believe it? So, 97 00:05:36,800 --> 00:05:39,359 Speaker 1: you know, I think that it's a question of what 98 00:05:39,480 --> 00:05:42,280 Speaker 1: your call credibility. Is it credibility, does the FED a 99 00:05:42,400 --> 00:05:45,440 Speaker 1: credibility that's going to fight inflation? Or is it more 100 00:05:45,520 --> 00:05:48,840 Speaker 1: that the market does not believe the FED has credibility 101 00:05:48,960 --> 00:05:51,440 Speaker 1: to stick to the guns in terms of raising rates. 102 00:05:51,640 --> 00:05:54,280 Speaker 1: They're not taking the FED very seriously. Right. We are 103 00:05:54,320 --> 00:05:58,599 Speaker 1: looking at what markets are pricing, both in terms of 104 00:05:58,640 --> 00:06:01,480 Speaker 1: the peak FED funds, right, which is not five certainly 105 00:06:01,480 --> 00:06:03,920 Speaker 1: not between five and five point two five as the 106 00:06:04,040 --> 00:06:08,200 Speaker 1: s EPs are describing. It's below didn't change after Chair 107 00:06:08,240 --> 00:06:13,680 Speaker 1: Powell's uh Q and A. And furthermore, the market still 108 00:06:13,680 --> 00:06:15,760 Speaker 1: pricing and rate cuts by the end of next year. 109 00:06:15,800 --> 00:06:18,640 Speaker 1: We're looking at four thirty five fill FED funds at 110 00:06:18,640 --> 00:06:20,599 Speaker 1: the end of next year. So I think FED is 111 00:06:20,760 --> 00:06:22,599 Speaker 1: FED has a problem. It's got its work cut out 112 00:06:22,640 --> 00:06:27,240 Speaker 1: for it. Markets have been conditioned to actually not believe 113 00:06:27,279 --> 00:06:29,760 Speaker 1: the FED when it says it's going to be really tough. 114 00:06:30,640 --> 00:06:33,279 Speaker 1: So joy and given this disagreement, if I can put 115 00:06:33,279 --> 00:06:35,800 Speaker 1: it that way, what does an investor do? It does 116 00:06:35,839 --> 00:06:37,800 Speaker 1: strike me the bonds are a lot more attractive at 117 00:06:37,800 --> 00:06:39,200 Speaker 1: the end of the year than they were at the beginning. 118 00:06:39,240 --> 00:06:40,720 Speaker 1: I think the year was something like one point eight 119 00:06:40,760 --> 00:06:44,160 Speaker 1: at the beginning. Here and we're up around three point five. Now, yeah, 120 00:06:44,200 --> 00:06:48,279 Speaker 1: there's no question that finally investors can look to bonds 121 00:06:48,320 --> 00:06:51,800 Speaker 1: to really fill an important role in their portfolios. Not 122 00:06:51,880 --> 00:06:55,159 Speaker 1: only are they getting decent incomes off the bonds um 123 00:06:55,360 --> 00:06:59,280 Speaker 1: and that's allowing them to build more balanced portfolios so 124 00:06:59,320 --> 00:07:01,839 Speaker 1: that they can stay in equities to some degree and 125 00:07:01,839 --> 00:07:04,440 Speaker 1: hopefully get that long term appreciation that they need. But 126 00:07:04,480 --> 00:07:06,400 Speaker 1: now they're getting some decent income on the on the 127 00:07:06,440 --> 00:07:09,320 Speaker 1: fixed income style, which is a relief. Right now, real 128 00:07:09,440 --> 00:07:12,120 Speaker 1: yields are negative because inflation is running ahead, but when 129 00:07:12,120 --> 00:07:14,120 Speaker 1: you look to the longer term out you know, two 130 00:07:14,240 --> 00:07:17,560 Speaker 1: three or four years, those real yields now look look 131 00:07:17,600 --> 00:07:19,880 Speaker 1: positive and they're really going to help purchasing power for 132 00:07:19,920 --> 00:07:21,960 Speaker 1: those investors going forward. So now there is a lot 133 00:07:22,000 --> 00:07:24,520 Speaker 1: of volatility though on the bond markets or not there 134 00:07:24,560 --> 00:07:27,320 Speaker 1: really is. There is a lot of volatility, and honestly, 135 00:07:27,400 --> 00:07:29,800 Speaker 1: until we get to a stage where the market is 136 00:07:29,960 --> 00:07:32,200 Speaker 1: market starts buying whatever it is the fat is selling, 137 00:07:32,520 --> 00:07:35,000 Speaker 1: I think we're going to keep seeing these moves which 138 00:07:35,040 --> 00:07:38,240 Speaker 1: are remarkable. If you look at tenure tenure yields, which 139 00:07:38,400 --> 00:07:41,800 Speaker 1: which I think over the month of November went at 140 00:07:41,840 --> 00:07:45,080 Speaker 1: one point from four five all the way down and 141 00:07:45,160 --> 00:07:48,200 Speaker 1: then back copy. We've seen around seventy eight basis points 142 00:07:48,200 --> 00:07:52,000 Speaker 1: of moves up to thirty basis points in literally days, 143 00:07:52,120 --> 00:07:55,200 Speaker 1: twenty basis points in the last few You look at 144 00:07:55,240 --> 00:07:58,840 Speaker 1: these this level of volatility, it's almost too much, far 145 00:07:58,920 --> 00:08:02,360 Speaker 1: too much. And as I look into next year, I 146 00:08:02,400 --> 00:08:05,760 Speaker 1: think it's probably going to be a few months at least, 147 00:08:05,840 --> 00:08:07,920 Speaker 1: maybe a quart or two until we see the FED 148 00:08:07,960 --> 00:08:12,480 Speaker 1: having raised before we see some reduction and volatility. Nonetheless, 149 00:08:12,880 --> 00:08:16,960 Speaker 1: you know, echoing what Joanne said, when you're getting yields 150 00:08:17,480 --> 00:08:20,640 Speaker 1: in areas such as high for example, you're getting as 151 00:08:20,720 --> 00:08:24,840 Speaker 1: much as nine on low dollar price bonds. Certainly there 152 00:08:24,840 --> 00:08:28,240 Speaker 1: are specific bonds, specific areas which look attractive, but I 153 00:08:28,240 --> 00:08:31,400 Speaker 1: don't think I would go wholesale into adding risk. It's 154 00:08:31,400 --> 00:08:35,040 Speaker 1: actually quite a nice time to be low and duration 155 00:08:35,120 --> 00:08:37,520 Speaker 1: and high and quality in the bond market. Well, let 156 00:08:37,520 --> 00:08:39,160 Speaker 1: me pursue that if I could for moments a now, 157 00:08:39,200 --> 00:08:40,520 Speaker 1: and this is the end of the year, So we 158 00:08:40,600 --> 00:08:43,040 Speaker 1: traditionally say, what's your conviction trade going in next year? 159 00:08:43,120 --> 00:08:45,520 Speaker 1: What's your conviction trade given that volatil the bond market? 160 00:08:46,520 --> 00:08:49,000 Speaker 1: Oh no, I think my conviction trade on fixed income 161 00:08:49,040 --> 00:08:52,040 Speaker 1: overall is high. I think I like to stay, like 162 00:08:52,080 --> 00:08:54,920 Speaker 1: I said, relatively short duration, high and quality. I do 163 00:08:55,000 --> 00:08:58,320 Speaker 1: like investment grade, and I think fairly soon into the 164 00:08:58,320 --> 00:09:01,880 Speaker 1: new year, we're going to start very attractive opportunities and 165 00:09:02,360 --> 00:09:04,480 Speaker 1: within the first quatural quarter and a half are going 166 00:09:04,520 --> 00:09:07,240 Speaker 1: to see some good opportunities and risking a segments like 167 00:09:07,360 --> 00:09:11,040 Speaker 1: high yield as well. Emerging markets look very attractive to So, John, 168 00:09:11,120 --> 00:09:12,880 Speaker 1: what about you do you take your incremental dollar and 169 00:09:12,880 --> 00:09:15,120 Speaker 1: put into bonds right now rather than the stocks. Given 170 00:09:15,160 --> 00:09:17,000 Speaker 1: where bonds are, they're much more attractive than they work. 171 00:09:17,040 --> 00:09:19,280 Speaker 1: As you said, you know, we've already seen that happen 172 00:09:19,320 --> 00:09:21,520 Speaker 1: a little bit. But right now, you know, it's not 173 00:09:21,559 --> 00:09:26,160 Speaker 1: that the equity markets are particularly cheap. Volatility has been high. 174 00:09:26,240 --> 00:09:28,199 Speaker 1: The bond yield is certainly more attractive, So we get 175 00:09:28,200 --> 00:09:31,960 Speaker 1: a balanced strategy. You know, at seventy sixty can do 176 00:09:32,040 --> 00:09:35,400 Speaker 1: a lot for for clients, and so that incremental dollar, 177 00:09:35,480 --> 00:09:39,280 Speaker 1: it really depends on the client's horizon. Obviously, a shorter 178 00:09:39,360 --> 00:09:41,800 Speaker 1: Verizon client had better be more in bonds at this point. 179 00:09:41,880 --> 00:09:44,920 Speaker 1: Despite that bond volatility that we're seeing and likely to 180 00:09:44,920 --> 00:09:47,440 Speaker 1: continue to see, and while the stock market isn't particularly 181 00:09:47,520 --> 00:09:51,000 Speaker 1: cheap roughly eighteen times forward earnings, and those earnings likely 182 00:09:51,040 --> 00:09:53,559 Speaker 1: to come down some more. There are still some very 183 00:09:53,600 --> 00:09:58,040 Speaker 1: attractively priced stocks out there, conservative companies that pay a dividend, 184 00:09:58,440 --> 00:10:01,000 Speaker 1: that offer dividends that go up year after year, and 185 00:10:01,000 --> 00:10:04,320 Speaker 1: that's another way of creating income for for investors in 186 00:10:04,320 --> 00:10:07,560 Speaker 1: the short term, even while equities remain a bit of volatile. 187 00:10:07,840 --> 00:10:09,240 Speaker 1: So if you can wait it out, you can get 188 00:10:09,240 --> 00:10:12,440 Speaker 1: both the dividend income perhaps well above the market average 189 00:10:12,559 --> 00:10:15,599 Speaker 1: to ride this out, and then still the position to 190 00:10:15,760 --> 00:10:18,319 Speaker 1: have a portfolio on the equity side that's going to 191 00:10:18,920 --> 00:10:21,360 Speaker 1: really help the portfolio appreciate over the next three to 192 00:10:21,400 --> 00:10:23,920 Speaker 1: five years. Okay, So, so one quick one to you. 193 00:10:24,040 --> 00:10:25,760 Speaker 1: I know you're fixed income, but do you think the 194 00:10:25,760 --> 00:10:28,319 Speaker 1: equity markets have really taken into account the decline and 195 00:10:28,400 --> 00:10:32,080 Speaker 1: earnings is coming. So from my equity colleagues, I hear 196 00:10:32,160 --> 00:10:35,560 Speaker 1: that essentially we're not looking. We haven't seen major earnings 197 00:10:35,600 --> 00:10:38,400 Speaker 1: sound grades now. While I don't expect a major recession 198 00:10:38,480 --> 00:10:40,880 Speaker 1: next year, some slowdown in the second top of next 199 00:10:40,960 --> 00:10:44,880 Speaker 1: year is pretty much a given. So I not sure 200 00:10:45,200 --> 00:10:49,080 Speaker 1: that that earning sound grades have been factored fully. Okay, 201 00:10:49,080 --> 00:10:51,440 Speaker 1: Thank you so very much to Sinalte, Siah Franklin Temple, 202 00:10:51,920 --> 00:10:55,120 Speaker 1: and Joanne Peony of Advisors Capital Management. Coming up, we're 203 00:10:55,120 --> 00:10:57,160 Speaker 1: going to talk with you Rick Reader of black Rock 204 00:10:57,200 --> 00:10:59,720 Speaker 1: about what has already been an eventful year for markets 205 00:10:59,840 --> 00:11:02,360 Speaker 1: and why he sees an historic opportunity to fixed income. 206 00:11:02,600 --> 00:11:06,840 Speaker 1: That's next on Wall Street Week on Bloomberg. This is 207 00:11:06,880 --> 00:11:11,280 Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 208 00:11:18,080 --> 00:11:21,120 Speaker 1: This is Wall Street Week. I'm David Weston. Two has 209 00:11:21,120 --> 00:11:23,920 Speaker 1: been a year of change, change in the FED and 210 00:11:24,000 --> 00:11:26,839 Speaker 1: other central banks, pulling back support for the economy of 211 00:11:26,840 --> 00:11:29,520 Speaker 1: the markets, changing the stock markets as they adjust to 212 00:11:29,520 --> 00:11:32,040 Speaker 1: the central banks, changing the rate of inflation and the 213 00:11:32,120 --> 00:11:34,960 Speaker 1: underlying economic growth. Take us through what we have seen 214 00:11:35,000 --> 00:11:37,000 Speaker 1: so far this year and to look forward to what 215 00:11:37,160 --> 00:11:39,800 Speaker 1: may come next year. Welcome back, Rick Riager. He is 216 00:11:39,840 --> 00:11:42,960 Speaker 1: black Rock ce IO of Global Fixed Income and head 217 00:11:42,960 --> 00:11:45,400 Speaker 1: of Global Asset Allocation. Rick, welcome back. First of all, 218 00:11:45,480 --> 00:11:47,480 Speaker 1: the big news on Global Wall Street this week was 219 00:11:47,520 --> 00:11:50,160 Speaker 1: you got a promotion. You're on the Global Executive Community 220 00:11:50,200 --> 00:11:53,800 Speaker 1: A black congratulations, sir. I appreciate that, Thank you very much. 221 00:11:53,800 --> 00:11:55,599 Speaker 1: A lot more stripes and epulots, so so talk to 222 00:11:55,640 --> 00:11:57,320 Speaker 1: us about the change we've seen, because there has been 223 00:11:57,360 --> 00:11:58,920 Speaker 1: a lot. If you look back to where we were 224 00:11:59,040 --> 00:12:01,360 Speaker 1: January one of this year where we are now, it's 225 00:12:01,360 --> 00:12:03,840 Speaker 1: really different, for example, from zero to three point seven 226 00:12:03,880 --> 00:12:07,560 Speaker 1: five percent, even higher than that four point on the FED. 227 00:12:08,240 --> 00:12:10,040 Speaker 1: Pretty incredible. Actually, when you go through I've been doing 228 00:12:10,040 --> 00:12:12,000 Speaker 1: this almost thirty six years and you say, what were 229 00:12:12,040 --> 00:12:14,440 Speaker 1: the years that were you had this sort of changed. 230 00:12:14,480 --> 00:12:17,040 Speaker 1: Two thousand and eight maybe still the biggest, but this 231 00:12:17,280 --> 00:12:19,080 Speaker 1: ranks right up in there at the top. And think 232 00:12:19,120 --> 00:12:21,840 Speaker 1: about we came into the year in March the FED 233 00:12:21,920 --> 00:12:24,800 Speaker 1: was still doing que and had the funds rated zero. 234 00:12:24,920 --> 00:12:27,560 Speaker 1: Now we've priced the funds rate at about five as 235 00:12:27,559 --> 00:12:30,479 Speaker 1: a terminal. I mean, that's pretty I mean, that's pretty extraordinary. 236 00:12:30,520 --> 00:12:33,000 Speaker 1: And a year that you've never seen, nobody's ever seen, 237 00:12:33,040 --> 00:12:35,560 Speaker 1: even in my long tenure in the industry, where the 238 00:12:35,600 --> 00:12:39,160 Speaker 1: bondmark in the stock market all traded down, so your hedges, 239 00:12:39,600 --> 00:12:43,240 Speaker 1: how you did portfolio allocation change, the leadership in the 240 00:12:43,320 --> 00:12:46,920 Speaker 1: UK and all of the pension system dynamic that a 241 00:12:47,000 --> 00:12:49,160 Speaker 1: war that you know, who thought that we'd go through 242 00:12:49,160 --> 00:12:52,880 Speaker 1: a deglobalization process and the impact that has on inflation, 243 00:12:53,280 --> 00:12:57,000 Speaker 1: impact on fuel cost, food costs. I mean, this is extraordinary, 244 00:12:57,000 --> 00:12:59,760 Speaker 1: and I mean, by the way, did think about that 245 00:12:59,840 --> 00:13:02,960 Speaker 1: and emergence from COVID, not emergence from COVID, Now do 246 00:13:03,040 --> 00:13:05,440 Speaker 1: we start to grow? I mean, it's it's pretty extraordinary. 247 00:13:05,480 --> 00:13:08,120 Speaker 1: It felt like five years wrapped into one. So the 248 00:13:08,160 --> 00:13:10,880 Speaker 1: economy is absorbed a surprising amount. Actually, if you think 249 00:13:10,920 --> 00:13:13,880 Speaker 1: about what's happened here, uh candidate absorbed what's going on 250 00:13:14,000 --> 00:13:16,120 Speaker 1: right now? I mean, what are your prospects for as 251 00:13:16,120 --> 00:13:19,000 Speaker 1: a so called soft landing at this point, Soda? But 252 00:13:19,040 --> 00:13:24,480 Speaker 1: I think people underestimate how flexible, adaptive, innovative, particularly the 253 00:13:24,559 --> 00:13:27,480 Speaker 1: U S economy is harder in emerging markets. You saw 254 00:13:27,520 --> 00:13:30,480 Speaker 1: a year where a dollar appreciated. Emerging markets come under stress. 255 00:13:30,840 --> 00:13:33,800 Speaker 1: But I think people underestimate how darn flexible, and you're 256 00:13:33,800 --> 00:13:36,080 Speaker 1: seeing it play out in the US economy. Think about 257 00:13:36,080 --> 00:13:38,520 Speaker 1: when we emerge from COVID. All of a sudden, people 258 00:13:38,559 --> 00:13:42,599 Speaker 1: needed a TV, electronics, furniture, massive goods grow and you 259 00:13:42,640 --> 00:13:46,160 Speaker 1: saw jobs moving into the good sector. Then people had 260 00:13:46,200 --> 00:13:48,080 Speaker 1: had already gotten what they need to get. They didn't 261 00:13:48,080 --> 00:13:50,720 Speaker 1: need another computer or TV. Now you shift to the 262 00:13:50,760 --> 00:13:55,680 Speaker 1: service sector. Growth from the service sector and you're seeing jobs, leisure, restaurants, hospitality, 263 00:13:56,080 --> 00:13:59,200 Speaker 1: healthcare that are now. It's pretty extraordinary. So can the 264 00:13:59,240 --> 00:14:03,320 Speaker 1: economy with stand this? Listen, this is a historic move 265 00:14:03,400 --> 00:14:06,280 Speaker 1: up and interest rates, tightening of liquidity through the balance 266 00:14:06,320 --> 00:14:09,000 Speaker 1: sheet channel. But yes, I think that. I think you 267 00:14:09,040 --> 00:14:11,040 Speaker 1: know what we've talked about in your show. I just 268 00:14:11,080 --> 00:14:13,400 Speaker 1: don't know why. Soft landing is like landing the plane 269 00:14:13,400 --> 00:14:15,920 Speaker 1: on a pin needle. It's you have an economy of 270 00:14:16,000 --> 00:14:17,920 Speaker 1: a savings right, that's still that still in good shape. 271 00:14:18,000 --> 00:14:20,440 Speaker 1: Leverage in the system. I've gone through two thousand two, 272 00:14:20,480 --> 00:14:22,160 Speaker 1: two th eight, we had too much leverage in the 273 00:14:22,200 --> 00:14:26,680 Speaker 1: financial system, consumers, corporates. Leverage is in pretty good shape. 274 00:14:26,720 --> 00:14:30,560 Speaker 1: So the economy has some a series of buffers alongside 275 00:14:30,560 --> 00:14:32,720 Speaker 1: of it. Listen to economy slowing. Could we have a 276 00:14:32,760 --> 00:14:36,160 Speaker 1: shallow recession, for sure? But I think people will underestimated. 277 00:14:36,160 --> 00:14:39,920 Speaker 1: Developed economy, particularly the US, has as much more reflective 278 00:14:39,920 --> 00:14:42,600 Speaker 1: than people give credit to. Can say the economies were resilient. 279 00:14:42,720 --> 00:14:45,320 Speaker 1: How resilient are the markets because you mentioned one of 280 00:14:45,320 --> 00:14:47,720 Speaker 1: the issues that we've talked about before, which is liquidity. 281 00:14:47,760 --> 00:14:49,560 Speaker 1: A lot of liquidity coming out of the markets and 282 00:14:49,680 --> 00:14:52,360 Speaker 1: the markets held up. Are they prepared for what comes next. 283 00:14:52,920 --> 00:14:55,760 Speaker 1: So I'd say the markets are less adaptive and flexible. 284 00:14:55,800 --> 00:14:57,880 Speaker 1: And you know, I learned over my care there's a 285 00:14:57,880 --> 00:15:01,960 Speaker 1: cultural dynamic around markets. People don't like to lose money, 286 00:15:02,120 --> 00:15:03,960 Speaker 1: but not in of course, they don't like to lose money, 287 00:15:03,960 --> 00:15:06,480 Speaker 1: but it's not symmetric to making money. I've always found 288 00:15:06,520 --> 00:15:08,960 Speaker 1: this markets go down five times faster than they go up. 289 00:15:09,440 --> 00:15:12,560 Speaker 1: People like to protect what they've made and don't like 290 00:15:12,640 --> 00:15:15,040 Speaker 1: to lose money. And when people think the prospects they 291 00:15:15,040 --> 00:15:18,560 Speaker 1: could lose more money, markets go down even faster. And 292 00:15:18,640 --> 00:15:20,640 Speaker 1: it's pretty short to me why we witness that. And 293 00:15:20,640 --> 00:15:23,040 Speaker 1: I've always found that people buy on up markets and 294 00:15:23,080 --> 00:15:25,320 Speaker 1: sell on denmarks as they guess can't take the losing 295 00:15:25,320 --> 00:15:28,480 Speaker 1: more money. Now we're at a place today that if 296 00:15:28,520 --> 00:15:31,280 Speaker 1: the FED starts to come off the boil, which I 297 00:15:31,280 --> 00:15:33,200 Speaker 1: think is the case, that now we're talking about rate 298 00:15:33,280 --> 00:15:36,320 Speaker 1: volatility on the risk free rate on interest rates, that's 299 00:15:36,320 --> 00:15:38,800 Speaker 1: going to come down a lot. That gives you know, 300 00:15:38,800 --> 00:15:41,000 Speaker 1: when you there are two components, particularly fixed income at 301 00:15:41,000 --> 00:15:43,400 Speaker 1: any assets, a risk free rate plus your risky rate. 302 00:15:43,680 --> 00:15:46,600 Speaker 1: And we always think about whether it's debt equity, where's 303 00:15:46,600 --> 00:15:48,200 Speaker 1: my wrist free rate, where's my risky rate? But if 304 00:15:48,200 --> 00:15:50,800 Speaker 1: your wrisk free rate is moving all over the place 305 00:15:51,120 --> 00:15:55,160 Speaker 1: and moving higher, you can't value any financial asset that 306 00:15:55,360 --> 00:15:59,640 Speaker 1: If that stabilizes risk premia, term premier comes down, and 307 00:15:59,680 --> 00:16:02,040 Speaker 1: I think it's a really big deals. But are we 308 00:16:02,120 --> 00:16:04,600 Speaker 1: going to have some vall into next year? Yes, I 309 00:16:04,680 --> 00:16:07,840 Speaker 1: just think less than twenty two if if the FED pauses, 310 00:16:07,880 --> 00:16:09,800 Speaker 1: and by the way, the ECB starts to tone up 311 00:16:09,800 --> 00:16:12,320 Speaker 1: a Bank of England, etcetera, well you can talk about 312 00:16:12,320 --> 00:16:13,920 Speaker 1: the FED coming off the boil. Looks like at least 313 00:16:13,920 --> 00:16:16,040 Speaker 1: a're gonna slow down the rate of increases. I'm not 314 00:16:16,040 --> 00:16:18,120 Speaker 1: sure they're going to cut right away, but slow in 315 00:16:18,120 --> 00:16:20,840 Speaker 1: the rate of increases. What do the economic numbers show 316 00:16:20,920 --> 00:16:23,080 Speaker 1: us about that? Because we did get CPI numbers out 317 00:16:23,080 --> 00:16:25,400 Speaker 1: this week that a lot of people reacted to very favorably, 318 00:16:26,160 --> 00:16:27,960 Speaker 1: So it's really encouraging. By the way, we've had head 319 00:16:28,000 --> 00:16:29,560 Speaker 1: fixed before, you know, we had it in the summer, 320 00:16:29,600 --> 00:16:31,440 Speaker 1: would look like Okay, we're on the back side, and 321 00:16:31,440 --> 00:16:32,960 Speaker 1: then all of a sudden it popped up again. I 322 00:16:33,000 --> 00:16:36,080 Speaker 1: don't think it's over around around what is elevated rates 323 00:16:36,120 --> 00:16:39,000 Speaker 1: of inflation? You see it through wage stresses in the system. 324 00:16:39,040 --> 00:16:42,000 Speaker 1: That being said, when we break down the component parts 325 00:16:42,000 --> 00:16:44,960 Speaker 1: of inflation, you think about shelter, you think about food costs, 326 00:16:45,040 --> 00:16:48,680 Speaker 1: use cars, supply chain freight costs are all coming down, 327 00:16:49,280 --> 00:16:51,320 Speaker 1: so you get you you take some comfort in that 328 00:16:51,360 --> 00:16:53,840 Speaker 1: we're on the back side of the elevated inflation. You know, 329 00:16:53,880 --> 00:16:57,440 Speaker 1: we've run some numbers that even if inflation and most 330 00:16:57,440 --> 00:17:00,960 Speaker 1: products stays elevated four to five because of were energy 331 00:17:01,040 --> 00:17:02,600 Speaker 1: is today, because of how much has come to worst 332 00:17:02,720 --> 00:17:05,240 Speaker 1: but worse of where it was, because of house prices, 333 00:17:05,280 --> 00:17:08,000 Speaker 1: shelter coming down, we still get in the high two 334 00:17:08,040 --> 00:17:09,679 Speaker 1: is an inflation by the middle of the year. So 335 00:17:09,720 --> 00:17:11,719 Speaker 1: you can live with that. And as part of why 336 00:17:11,760 --> 00:17:14,480 Speaker 1: I think the FED, if the momentum is moving in 337 00:17:14,520 --> 00:17:18,159 Speaker 1: that direction to a more normalized state, although elevated from history, 338 00:17:18,480 --> 00:17:21,159 Speaker 1: FED can pause. But you've made a critical point. The 339 00:17:21,200 --> 00:17:22,840 Speaker 1: markets a price in the FEDS gonna start easing in 340 00:17:22,880 --> 00:17:25,119 Speaker 1: twenty three. I don't think that's right at all. I 341 00:17:25,119 --> 00:17:26,639 Speaker 1: think the FED is gonna sit with us for a 342 00:17:26,680 --> 00:17:31,400 Speaker 1: while and a restrictive policy. Maybe you'll start not maybe 343 00:17:31,440 --> 00:17:34,680 Speaker 1: I think five you'll start normalizing rates back down again. 344 00:17:35,080 --> 00:17:37,959 Speaker 1: But we're not going there. Yet, so what is generational 345 00:17:37,960 --> 00:17:40,800 Speaker 1: inflection point? You know, I mean, I've said this for 346 00:17:40,960 --> 00:17:43,639 Speaker 1: I'm I've never been more excited coming into a year. 347 00:17:44,400 --> 00:17:46,360 Speaker 1: First of all, twenty two wasn't a lot of fun 348 00:17:46,400 --> 00:17:49,000 Speaker 1: and a lot of the markets. But now when you 349 00:17:49,080 --> 00:17:52,840 Speaker 1: put in perspective where we are. For the last ten years, 350 00:17:52,880 --> 00:17:54,720 Speaker 1: the short end of the Yolker of the one to 351 00:17:54,840 --> 00:17:58,359 Speaker 1: three year portion of the aggregate index, the benchmark for 352 00:17:58,440 --> 00:18:02,120 Speaker 1: fixed income, the average average yield was one point one 353 00:18:02,280 --> 00:18:04,480 Speaker 1: percent one point one eight percent. The last three years 354 00:18:04,480 --> 00:18:06,760 Speaker 1: at one point one percent, we're talking about four and 355 00:18:06,760 --> 00:18:09,760 Speaker 1: a half now. So you've got an opportunity where you 356 00:18:09,800 --> 00:18:12,600 Speaker 1: can in fixed income, you can buy yielding assets and 357 00:18:12,640 --> 00:18:16,320 Speaker 1: you don't have to stress around ill liquid, really deep 358 00:18:16,359 --> 00:18:18,879 Speaker 1: down in leverage loans, really deep down in parts of 359 00:18:18,920 --> 00:18:23,080 Speaker 1: emerging markets. You can build a portfolio investment grade credit, 360 00:18:23,640 --> 00:18:26,840 Speaker 1: some of the triple A parts of credit card finance, 361 00:18:27,160 --> 00:18:29,800 Speaker 1: UH student loan finance, etcetera, and you can create six 362 00:18:29,880 --> 00:18:33,239 Speaker 1: to six and a half. That is we haven't seen that, 363 00:18:33,240 --> 00:18:35,080 Speaker 1: Gosh has been I don't know, I don't got it 364 00:18:35,119 --> 00:18:37,280 Speaker 1: since the eighties and nineties that you've seen those sort 365 00:18:37,280 --> 00:18:40,679 Speaker 1: of yields by buying quality assets. David, that is a 366 00:18:40,720 --> 00:18:43,360 Speaker 1: critical moment without taking a lot of interest rate risk, 367 00:18:43,440 --> 00:18:45,119 Speaker 1: without taking a lot of beta risk, without taking a 368 00:18:45,160 --> 00:18:47,840 Speaker 1: lot of convexity risk. And you think about what does 369 00:18:47,840 --> 00:18:50,120 Speaker 1: that mean for equities? What does that mean for private equity? 370 00:18:50,520 --> 00:18:54,040 Speaker 1: If you can get six ish in high quality assets, 371 00:18:54,080 --> 00:18:56,280 Speaker 1: even a bit higher than that, it means boy, you've 372 00:18:56,280 --> 00:18:58,520 Speaker 1: got to get higher numbers significantly, had to take a 373 00:18:58,560 --> 00:19:01,360 Speaker 1: liquidity risk of volatility cetera. It's a really big deal. 374 00:19:01,400 --> 00:19:03,280 Speaker 1: Money is gonna flow into fixed income as the result 375 00:19:03,280 --> 00:19:04,600 Speaker 1: of it. I want to come back to equity and 376 00:19:04,640 --> 00:19:07,880 Speaker 1: private equally before that duration is a particular duration you're 377 00:19:07,880 --> 00:19:11,760 Speaker 1: looking at, it's more attractive. Yeah, I mean so, you know, 378 00:19:11,760 --> 00:19:13,840 Speaker 1: obviously with the inversion of the yield curve it's been 379 00:19:13,960 --> 00:19:15,720 Speaker 1: you can capture and this is part of the beauty 380 00:19:15,720 --> 00:19:17,359 Speaker 1: of it. You don't have to take a lot of 381 00:19:17,400 --> 00:19:19,520 Speaker 1: interest rate risking and so many times in my career 382 00:19:20,000 --> 00:19:22,040 Speaker 1: you've got to hold go out to the ten year 383 00:19:22,080 --> 00:19:23,720 Speaker 1: part of the thirty year part to get your yield. 384 00:19:23,720 --> 00:19:26,160 Speaker 1: The curves inverted, you can stay in the front end 385 00:19:26,240 --> 00:19:28,680 Speaker 1: if you believe, which I think is right, the FED 386 00:19:28,800 --> 00:19:31,920 Speaker 1: is gonna pause. Um, you get to a place where gosh, 387 00:19:32,000 --> 00:19:33,960 Speaker 1: I'm just gonna try and clip that yield. What we've 388 00:19:33,960 --> 00:19:36,000 Speaker 1: been doing, and I think we've been on talking about 389 00:19:36,000 --> 00:19:38,600 Speaker 1: the show that we've started, stayed short. We've run a 390 00:19:38,640 --> 00:19:40,920 Speaker 1: lot of cash this year. Cash has been our best 391 00:19:40,920 --> 00:19:42,720 Speaker 1: performing asset. Did a lot of you think about the 392 00:19:42,760 --> 00:19:45,160 Speaker 1: financial markets? Now we can go a little bit longer. 393 00:19:45,160 --> 00:19:48,119 Speaker 1: Can you go out to three years? Five years? Because 394 00:19:48,280 --> 00:19:50,880 Speaker 1: the next evolution of the FED will be easy again. 395 00:19:50,920 --> 00:19:55,400 Speaker 1: I don't think it's still twenty three until but if 396 00:19:55,440 --> 00:19:57,920 Speaker 1: I can lock in these yields, go a little bit 397 00:19:57,960 --> 00:20:00,000 Speaker 1: longer without having to go out to tens or thirties. 398 00:20:00,320 --> 00:20:03,040 Speaker 1: Back to me as the sweet spot today, it's always 399 00:20:03,040 --> 00:20:04,600 Speaker 1: such a treat you haven't Wall Street Week, thank you 400 00:20:04,640 --> 00:20:06,720 Speaker 1: so much for being u's Rick reader of black Rock. 401 00:20:09,000 --> 00:20:11,040 Speaker 1: Coming up, we'll go through the week with our special 402 00:20:11,040 --> 00:20:15,639 Speaker 1: contributor Larry Summers of Harvard. That's next on Wall Street 403 00:20:15,640 --> 00:20:21,159 Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with 404 00:20:21,320 --> 00:20:31,000 Speaker 1: David Weston from Bloomberg Radio. Okay, this is Wall Street Week. 405 00:20:31,040 --> 00:20:32,879 Speaker 1: I'm David Weston. I'm joined once again by our very 406 00:20:32,920 --> 00:20:35,280 Speaker 1: special contribute to Wall Street Week. He is Mr Larry 407 00:20:35,320 --> 00:20:38,600 Speaker 1: summers of Harvard. So Larry, welcome back. We have to 408 00:20:38,680 --> 00:20:41,640 Speaker 1: talk about what happened this week before we get to China, 409 00:20:41,640 --> 00:20:43,080 Speaker 1: because last week he told us we're going to get 410 00:20:43,119 --> 00:20:45,119 Speaker 1: to China. But first, what happened this week? We got 411 00:20:45,200 --> 00:20:47,800 Speaker 1: the numbers in the CPI. We've got retail sales numbers, 412 00:20:48,000 --> 00:20:50,119 Speaker 1: and they tend to indicate that maybe inflation is not 413 00:20:50,200 --> 00:20:53,320 Speaker 1: quite so bad. And then we heard from chair Powell, 414 00:20:53,480 --> 00:20:55,600 Speaker 1: and he got up and said his mind doesn't change. 415 00:20:55,800 --> 00:20:57,879 Speaker 1: Was your mind changed as you looked at these numbers? 416 00:20:58,040 --> 00:20:59,879 Speaker 1: Do you think maybe we're a little better shape than 417 00:21:00,119 --> 00:21:02,240 Speaker 1: thought we were. Yeah, look, I think we are in 418 00:21:02,280 --> 00:21:06,640 Speaker 1: better shape than I thought we were. But I think 419 00:21:06,720 --> 00:21:10,480 Speaker 1: Powell is the Chairman is in about the right place. 420 00:21:10,920 --> 00:21:15,840 Speaker 1: He's recognizing that we can't forecast the economy with precision. 421 00:21:16,560 --> 00:21:21,600 Speaker 1: He's recognizing that it would be a terrible error if 422 00:21:21,680 --> 00:21:27,080 Speaker 1: we were to fail to stop inflation. In this episode, 423 00:21:27,680 --> 00:21:32,119 Speaker 1: he's rejecting the talk about this being a moment to 424 00:21:33,160 --> 00:21:42,280 Speaker 1: change the inflation target, and he's maintaining substantial flexibility with 425 00:21:42,880 --> 00:21:47,359 Speaker 1: respect to the future. I think that is broadly, uh, 426 00:21:47,480 --> 00:21:51,280 Speaker 1: the right place for him to be. But I think 427 00:21:51,320 --> 00:21:56,880 Speaker 1: we've got a very difficult challenge ahead of us, because 428 00:21:56,920 --> 00:22:00,639 Speaker 1: I think the old adage about things take longer to 429 00:22:00,680 --> 00:22:03,560 Speaker 1: happen than you think they will, and then they happen 430 00:22:03,760 --> 00:22:08,440 Speaker 1: faster than you thought they could is really operating. With 431 00:22:08,520 --> 00:22:14,040 Speaker 1: respect to the forecasted UH recession. It does look like 432 00:22:14,160 --> 00:22:17,680 Speaker 1: it's pushed back a bit in time, but there are 433 00:22:18,160 --> 00:22:21,200 Speaker 1: reasons to think, and this is what makes the chairman's 434 00:22:21,280 --> 00:22:24,480 Speaker 1: job so hard, that the economy could have a kind 435 00:22:24,520 --> 00:22:30,639 Speaker 1: of widely coyote UH moment that recession induced slow earnings 436 00:22:30,680 --> 00:22:35,280 Speaker 1: could pop into focus for stock market investors, with adverse 437 00:22:35,320 --> 00:22:40,399 Speaker 1: consequences for the market, that consumers could deplete their horde 438 00:22:40,520 --> 00:22:45,960 Speaker 1: of post COVID savings, That there's growing reason to think 439 00:22:46,040 --> 00:22:50,520 Speaker 1: that many businesses are holding on to workers because in 440 00:22:50,560 --> 00:22:55,480 Speaker 1: this labor short economy, they're afraid that if they were, 441 00:22:55,520 --> 00:22:57,840 Speaker 1: if they fire them or they let them go, they 442 00:22:57,880 --> 00:23:01,000 Speaker 1: won't be able to replace them. If that last thing 443 00:23:01,160 --> 00:23:05,119 Speaker 1: is true, then it could all of a sudden change 444 00:23:05,240 --> 00:23:11,000 Speaker 1: very dramatically, if labor markets starts to loosen. So I 445 00:23:11,040 --> 00:23:15,680 Speaker 1: think the broad picture is where it was. I've been 446 00:23:15,720 --> 00:23:20,040 Speaker 1: gratified to see the ways in which the FED has 447 00:23:20,960 --> 00:23:27,879 Speaker 1: caught up, but they've got very challenging judgments UH to 448 00:23:28,119 --> 00:23:33,919 Speaker 1: make going forward, and I think they're in broadly the 449 00:23:34,040 --> 00:23:37,359 Speaker 1: right place. The last thing, though, I would say, is, 450 00:23:37,400 --> 00:23:42,760 Speaker 1: you know, everybody is getting enormously excited about whether the 451 00:23:42,880 --> 00:23:46,159 Speaker 1: dot plot is calling for two increases from here or 452 00:23:46,240 --> 00:23:50,720 Speaker 1: three increases from here. The this is kind of the 453 00:23:50,800 --> 00:23:56,200 Speaker 1: narcissism of small differences. Compared to a year ago or 454 00:23:56,240 --> 00:24:00,320 Speaker 1: a year and a half ago, when the debate was 455 00:24:00,480 --> 00:24:06,920 Speaker 1: three percentage points three hundred basis points off of where 456 00:24:06,960 --> 00:24:10,760 Speaker 1: it where things have turned out to be. We're now 457 00:24:11,720 --> 00:24:18,520 Speaker 1: in a much narrower consensus around UH judgments, and we 458 00:24:18,600 --> 00:24:23,200 Speaker 1: need to appreciate UH that, and it will be great 459 00:24:23,840 --> 00:24:29,240 Speaker 1: if the FED turns out to be highly skillful. Larry, 460 00:24:29,280 --> 00:24:31,480 Speaker 1: you promised last week we would get to China this week, 461 00:24:31,520 --> 00:24:33,879 Speaker 1: So let's talk about China. Last week, we saw the 462 00:24:33,960 --> 00:24:37,320 Speaker 1: COVID zero policy sort of changing. This week we're starting 463 00:24:37,320 --> 00:24:39,320 Speaker 1: to see, at least anecdotally, some of the consequence that 464 00:24:39,480 --> 00:24:41,680 Speaker 1: the reports actually that a lot of China shutting down. 465 00:24:41,800 --> 00:24:43,600 Speaker 1: Some people are saying Beijing is like a ghost town. 466 00:24:43,960 --> 00:24:46,160 Speaker 1: So what potential effect does that have on the rest 467 00:24:46,160 --> 00:24:48,280 Speaker 1: of us, on the U S economy, on the global economy. 468 00:24:48,480 --> 00:24:54,760 Speaker 1: What should our response be. It's extraordinary the way mandatory 469 00:24:54,880 --> 00:25:00,679 Speaker 1: lockdowns are now giving way to voluntary lockdowns, with people 470 00:25:00,720 --> 00:25:05,679 Speaker 1: staying home more than UH they were a few weeks 471 00:25:05,680 --> 00:25:11,320 Speaker 1: ago in China. I think it's gonna be a very 472 00:25:11,400 --> 00:25:18,320 Speaker 1: challenging six weeks ahead of US in China, and it 473 00:25:18,359 --> 00:25:23,280 Speaker 1: will be fascinating to see what that means for UH 474 00:25:23,680 --> 00:25:31,160 Speaker 1: social stability, what kind of political ramifications UH that has, 475 00:25:31,680 --> 00:25:36,480 Speaker 1: And it's likely to be a very painful period for China. 476 00:25:36,720 --> 00:25:43,159 Speaker 1: Two things for US UH to remember in the United States. First, 477 00:25:44,400 --> 00:25:49,680 Speaker 1: even if this works out very badly in China, at 478 00:25:49,680 --> 00:25:52,600 Speaker 1: the end of the day, the Chinese fatality rate from 479 00:25:52,680 --> 00:25:56,720 Speaker 1: COVID will have been half of what it was in 480 00:25:56,760 --> 00:26:01,679 Speaker 1: the United States, and so we need to this any 481 00:26:01,920 --> 00:26:12,040 Speaker 1: strong tendency to be to feeling highly superior UH here. Second, UH, 482 00:26:12,359 --> 00:26:18,040 Speaker 1: precisely because this is burning so out of control, my 483 00:26:18,200 --> 00:26:24,280 Speaker 1: guess is that it's likely, like the fastest burning fires, 484 00:26:24,960 --> 00:26:29,760 Speaker 1: to burn out more quickly rather than more slowly, and 485 00:26:29,800 --> 00:26:35,520 Speaker 1: so I think ironically a consequence of this is probably 486 00:26:35,560 --> 00:26:41,199 Speaker 1: the lead to some upwards revision on Chinese economic forecasts 487 00:26:41,880 --> 00:26:47,480 Speaker 1: beginning next spring, and that's a factor tilting a little 488 00:26:47,520 --> 00:26:51,720 Speaker 1: bit towards higher commodity prices and a little bit more 489 00:26:51,920 --> 00:26:59,040 Speaker 1: inflationary pressure globally. But that's a highly uncertain, uh judgment. 490 00:26:59,240 --> 00:27:02,280 Speaker 1: And of course how all this plays in a broader 491 00:27:02,320 --> 00:27:06,760 Speaker 1: social sense in China will be very very important. Larry, 492 00:27:06,840 --> 00:27:09,359 Speaker 1: last week he brought a longer view with respects of 493 00:27:09,440 --> 00:27:13,959 Speaker 1: chat GBT that artificial intelligence, I will call it phenomenon 494 00:27:14,040 --> 00:27:16,879 Speaker 1: right now. But this week we have yet another development, 495 00:27:17,000 --> 00:27:20,280 Speaker 1: and that is fusion. Where in that Lawrence Livermore lab 496 00:27:20,280 --> 00:27:22,679 Speaker 1: out in northern California, they actually managed to have a 497 00:27:22,720 --> 00:27:25,400 Speaker 1: fusion reaction, whereas I understand, they got more energy out 498 00:27:25,400 --> 00:27:27,720 Speaker 1: than they put into it. So last week, when you're 499 00:27:27,720 --> 00:27:29,840 Speaker 1: talking about AI, you said that had the potential to 500 00:27:29,920 --> 00:27:33,440 Speaker 1: be as significant, perhaps as fire or the wheel. Where 501 00:27:33,440 --> 00:27:38,800 Speaker 1: does this rank? I think not remotely comparable, uh, David, 502 00:27:38,840 --> 00:27:41,439 Speaker 1: And of course I might well turn out to be wrong. 503 00:27:42,040 --> 00:27:47,920 Speaker 1: Here's why, there's a fundamental difference between innovations to give 504 00:27:48,000 --> 00:27:51,040 Speaker 1: mankind the capacity to do things they've never been able 505 00:27:51,080 --> 00:27:55,280 Speaker 1: to do before. On the one hand, that's what AI is, 506 00:27:56,280 --> 00:27:59,719 Speaker 1: and innovations that give mankind the ability to do what 507 00:27:59,760 --> 00:28:06,959 Speaker 1: we've done before forever cheaper. That's what fusion potentially is, 508 00:28:07,560 --> 00:28:11,280 Speaker 1: and the first, like fire and the wheel, are much 509 00:28:11,320 --> 00:28:16,920 Speaker 1: more fundamental than the second, so I'm gratified by the second. 510 00:28:17,440 --> 00:28:21,000 Speaker 1: But my read is that we've got a long long 511 00:28:21,040 --> 00:28:26,960 Speaker 1: way to go before this is available at UH scale, 512 00:28:27,920 --> 00:28:33,679 Speaker 1: and I that the reports UH yesterday, reports this week 513 00:28:34,200 --> 00:28:38,720 Speaker 1: actually reminded me of all the stories you can read 514 00:28:38,760 --> 00:28:42,880 Speaker 1: in the nineteen fifties when the first nuclear fission fission 515 00:28:43,400 --> 00:28:47,800 Speaker 1: UH nuclear reactors were being built about how energy was 516 00:28:47,880 --> 00:28:52,080 Speaker 1: going to no longer be metered because it was gonna 517 00:28:52,120 --> 00:28:56,520 Speaker 1: be so cheap to produce, and it turned out that 518 00:28:56,520 --> 00:28:59,080 Speaker 1: that didn't really work because there were capital costs that 519 00:28:59,200 --> 00:29:03,040 Speaker 1: were transmission that we're all kinds reflege. My suspicion is 520 00:29:03,080 --> 00:29:08,440 Speaker 1: that this is both less fundamental than something like AI 521 00:29:08,600 --> 00:29:17,120 Speaker 1: or quantum computing, and that it is ultimately UH going 522 00:29:17,160 --> 00:29:22,240 Speaker 1: to prove to be quite a long way off. But 523 00:29:22,480 --> 00:29:26,120 Speaker 1: the only thing that's harder than forecasting inflation and unemployment 524 00:29:26,800 --> 00:29:31,400 Speaker 1: is forecasting the long run of UH technology. So I 525 00:29:31,440 --> 00:29:35,480 Speaker 1: sure hope it plays out to be even better than that. 526 00:29:36,120 --> 00:29:40,560 Speaker 1: Kudos to the researchers involved, and it certainly does bear 527 00:29:40,600 --> 00:29:44,160 Speaker 1: out something we've said on this show that if we 528 00:29:45,080 --> 00:29:50,480 Speaker 1: ultimately succeed with respect to climate change. It's more likely 529 00:29:50,560 --> 00:29:54,120 Speaker 1: to be because we find ways to produce clean energy 530 00:29:54,280 --> 00:29:59,920 Speaker 1: cheap than it is because we uh make carbon exp 531 00:30:00,000 --> 00:30:04,320 Speaker 1: really expensive. Thank you so much, Larry, especially Larry Summers. 532 00:30:06,120 --> 00:30:08,480 Speaker 1: Still to come. Maybe we all could use a little 533 00:30:08,480 --> 00:30:11,640 Speaker 1: more nuclear fusion in our lives, or at least someone 534 00:30:11,680 --> 00:30:14,320 Speaker 1: to make sure the energy we're using is worth it. 535 00:30:14,880 --> 00:30:25,600 Speaker 1: That's next on the Wall Street Week, I'm Gloomberg. Finally 536 00:30:25,760 --> 00:30:29,840 Speaker 1: one more thought saving your energy. The world got some 537 00:30:30,040 --> 00:30:32,880 Speaker 1: big news out of the Lawrence Liverwool Labs in northern 538 00:30:32,880 --> 00:30:36,480 Speaker 1: California this week. For the first time ever, scientists have 539 00:30:36,560 --> 00:30:40,000 Speaker 1: managed to create a nuclear fusion reaction that generated more 540 00:30:40,080 --> 00:30:45,040 Speaker 1: energy than it consumed. A fusion reactor on the grid 541 00:30:45,440 --> 00:30:48,600 Speaker 1: would be a complete game changer, and former e p 542 00:30:48,720 --> 00:30:52,000 Speaker 1: A administrator Christine Todd Whitman says it may be a 543 00:30:52,040 --> 00:30:55,400 Speaker 1: step towards saving the entire planet. This is a big 544 00:30:55,440 --> 00:31:01,120 Speaker 1: step forward, and fusion can certainly offer a major major 545 00:31:01,480 --> 00:31:04,520 Speaker 1: tool in the efforts that we need to make to 546 00:31:04,600 --> 00:31:07,760 Speaker 1: address the issue of climate change. But as exciting as 547 00:31:07,800 --> 00:31:11,160 Speaker 1: saving the planet would be, it's also pretty remarkable when 548 00:31:11,200 --> 00:31:14,000 Speaker 1: we find anything at all that gives us more than 549 00:31:14,040 --> 00:31:16,360 Speaker 1: we put into it. Take, for example, the case of 550 00:31:16,360 --> 00:31:18,960 Speaker 1: Elon Musk, and I don't mean just the money and 551 00:31:19,040 --> 00:31:21,800 Speaker 1: effort he's putting into Twitter and whether that will ultimately 552 00:31:21,880 --> 00:31:25,120 Speaker 1: be proved worth it. Remember all the energy his team 553 00:31:25,160 --> 00:31:27,760 Speaker 1: put into showing us that the window on the cyber 554 00:31:27,800 --> 00:31:32,960 Speaker 1: truck just could not be broken. Maybe that was a 555 00:31:32,960 --> 00:31:35,840 Speaker 1: little too hard. That sure didn't give him more than 556 00:31:35,880 --> 00:31:39,360 Speaker 1: he put into it, Or for that matter, those midterm elections. 557 00:31:39,480 --> 00:31:43,000 Speaker 1: Sure we managed to have a national election without an insurrection, 558 00:31:43,320 --> 00:31:46,640 Speaker 1: which counts for something democracy one, because we had massive 559 00:31:46,680 --> 00:31:50,120 Speaker 1: turnout across the country. But it costs billions of dollars 560 00:31:50,160 --> 00:31:53,000 Speaker 1: to do it. Now, don't get me wrong. Free and 561 00:31:53,040 --> 00:31:56,400 Speaker 1: fair elections are the life's blood of a democracy, but 562 00:31:56,480 --> 00:31:59,479 Speaker 1: it is not always clear that they generate more energy 563 00:31:59,600 --> 00:32:02,440 Speaker 1: than they soak up. And this week, the same week 564 00:32:02,480 --> 00:32:05,000 Speaker 1: we made nuclear fusion work, we had one of the 565 00:32:05,040 --> 00:32:08,400 Speaker 1: biggest examples around of something soaking up a whole lot 566 00:32:08,440 --> 00:32:11,760 Speaker 1: of energy and money and not coming close to returning 567 00:32:11,800 --> 00:32:13,840 Speaker 1: what's being put in. I'm telling you, of course, about 568 00:32:13,840 --> 00:32:18,040 Speaker 1: Samuel Bankman frees f t X, backed by so many celebrities. 569 00:32:18,360 --> 00:32:21,560 Speaker 1: Celebrities haven't been isolated or immune to the fallout. Details 570 00:32:21,600 --> 00:32:24,440 Speaker 1: on the sports stars that have been entangled in the 571 00:32:24,520 --> 00:32:29,240 Speaker 1: f t X mess and attracting billions of dollars. More 572 00:32:29,280 --> 00:32:32,520 Speaker 1: than a million customers had funds tied up, and more 573 00:32:32,560 --> 00:32:36,600 Speaker 1: than three billion dollars were owed to fifty creditors. But wait, 574 00:32:36,840 --> 00:32:40,560 Speaker 1: there's more. Because mining for all that cryptocurrency not only 575 00:32:40,640 --> 00:32:43,960 Speaker 1: uses time and money, it also is pretty much a 576 00:32:44,040 --> 00:32:48,920 Speaker 1: black hole soaking up energy, making the entire planet worse off. 577 00:32:49,360 --> 00:32:52,920 Speaker 1: Every transaction that you do takes more resources than the 578 00:32:52,920 --> 00:32:57,280 Speaker 1: transaction you did before. It is fundamentally and intrinsically inefficient, 579 00:32:57,400 --> 00:33:01,560 Speaker 1: and that is a huge energy ust. But maybe if 580 00:33:01,600 --> 00:33:03,920 Speaker 1: we can get that fusion thing going, we can save 581 00:33:03,960 --> 00:33:07,440 Speaker 1: the planet, though it probably comes too late to save 582 00:33:07,640 --> 00:33:10,440 Speaker 1: Mr Bankman Freed. That does it. For this episode of 583 00:33:10,480 --> 00:33:13,440 Speaker 1: Wall Street Week, I'm David Weston. This is Bloomberg. See 584 00:33:13,480 --> 00:33:14,040 Speaker 1: you next week.