Speaker 1: This is Bloomberg Wall Street Week. We turn our attention
Speaker 1: to the markets this week. U S CPI nevers reinforcing
Speaker 1: concerns about inflation. The financial stories that chief are worth
Speaker 1: a really different reaction to markets. More indications of just
Speaker 1: how hot the U. S. Economy really is. Through the
Speaker 1: eyes of the most influential voices Larry Summers, the former
Speaker 1: Streatory Secretary, Katherine Keening, CEO of v n Y mom
Speaker 1: Sam's l Sharmon and founder of Equatic Group Investment. In
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio,
Speaker 1: China slows, the Fed worries and former President Trump strikes back.
Speaker 1: This is Bloomberg Wall Street Week. I'm David Weston, this
Speaker 1: week's special contributor to Larry Summers of Harvard on where
Speaker 1: the housing market is headed. I do think we're looking
Speaker 1: towards softness in the future with respect to housing. And
Speaker 1: Sonya Gibbs of the Institute of International Finance on the
Speaker 1: risk and the opportunity of zombie companies. Money that's being
Speaker 1: spent to keep zombie companies afloat is money that could
Speaker 1: be more productively deployed elsewhere. It was a week of signals,
Speaker 1: some subtle and some not. China sent an unmistakable signal
Speaker 1: that its economy is slowing, something that a ten basis
Speaker 1: point rate cut doesn't seem likely to fix. President she
Speaker 1: is confronting a number of both, you know, short term
Speaker 1: and long term challenges right now, and probably the number
Speaker 1: one thing is the poor performance of the economy. While
Speaker 1: former President Trump kept up his attack on Republicans who
Speaker 1: supported his impeachment, so Congressman Liz Cheney of Wyalming said
Speaker 1: she wouldn't stop even after she was soundly beaten in
Speaker 1: her primary. I have said since January six that I
Speaker 1: will do whatever it takes to ensure Donald Trump is
Speaker 1: never again anywhere near the Oval Office, and I mean it.
Speaker 1: And there was nothing subtle about the inflation signal we
Speaker 1: got out of Great Britain, coming in over ten percent
Speaker 1: and apparently headed even higher. I'd go to the UK way.
Speaker 1: You're seeing an explosive move higher in UK guilt yields
Speaker 1: tom and I don't think I'm o a divnt us
Speaker 1: in that language. But the Fed, well, the FED was
Speaker 1: a little less clear in the minutes from its July meeting,
Speaker 1: with the nuance balancing of the concern over timing too
Speaker 1: much and concern over inflation expectations becoming entrenched. Reading the minutes,
Speaker 1: you have to feel that this is a sort of
Speaker 1: a dovish lead, and it supports Chairman J. Powell's tone
Speaker 1: at the news conference following the June meeting. Beneficials noted
Speaker 1: that some parts of the economy, notably housing, we're starting
Speaker 1: to slow as a result of higher interest rates. And
Speaker 1: if you wanted confirmation of just how I'm big, as
Speaker 1: those Fed minutes were, just take a look at the
Speaker 1: markets this week, with the some shooting up on Tuesday,
Speaker 1: when we'll fall back down to earth and beyond on Friday,
Speaker 1: ending the week down one point two eight and the
Speaker 1: NASDAC was even worse again, climbing nicely earlier in the week,
Speaker 1: only to plunge on Friday, ending up down two point
Speaker 1: six percent. Helped, no doubt, by concern about bonds, with
Speaker 1: the yield on the ten year rising fourteen basis points
Speaker 1: for the week and ending up just under three percent
Speaker 1: at two point nine seven. To help us understand what
Speaker 1: the markets may be trying to tell us, Welcome now,
Speaker 1: Bob Prince. He's co Chief Investment Officers for Bridgewater Associates
Speaker 1: and Ed Hyman, Chair of ever Cores I s I
Speaker 1: and Vice chair of ever Core Partners. So welcome both
Speaker 1: of you back to Walster. We gets really a pleasure
Speaker 1: to have you. And let me start with you. You
Speaker 1: follow the economy and what's going on with the economy.
Speaker 1: We've talked about the markets, We've talked about the FED.
Speaker 1: What's the economy telling us? Well, the economy has two
Speaker 1: parts to it. Obviously, one part is what real GDP
Speaker 1: is there auto sales. Then there's inflation, and inflation is
Speaker 1: by far the more important part right now. But on
Speaker 1: the first part, Uh, the economy is doing okay. As
Speaker 1: you know, we survey companies and our retail survey dropped
Speaker 1: sharply this week but still pretty elevated. Housing is really
Speaker 1: getting hit. But on balanced, economy is doing okay. I
Speaker 1: think it's probably growing two or three but headed to one. Uh.
Speaker 1: The recount, I'm sorry, bank bank loans came out this
Speaker 1: afternoon and they're up eleven percent now, Uh, and retail
Speaker 1: sales this week, we're you know, pretty decent on inflation,
Speaker 1: which is much more important. UM, I'm pretty convinced that
Speaker 1: inflation is slowing of oil prices came down. Gasoline prices
Speaker 1: came down, and in the weeds, used car prices dropped
Speaker 1: about three in the latest month. And we survey retailers
Speaker 1: pricing power that's now plunging. You've heard the stories about
Speaker 1: the inventories being high, and we have been tracking that
Speaker 1: for a long time. It's now really coming down. But
Speaker 1: the most important part, and we don't get much data
Speaker 1: on this, or wages, And obviously the labor markets are
Speaker 1: very tight, but they had from the conference board this
Speaker 1: week a measure of CEO confidence was almost a record low,
Speaker 1: and another survey UH that showed of workers were concerned
Speaker 1: about losing their job. Go figure that. Uh. But we
Speaker 1: serve as employment agencies every week UH and ask them,
Speaker 1: among other things, about wage pressure. And that's now pretty
Speaker 1: clearly hooked down. So I think you're beginning to see
Speaker 1: some moderation in wages on top of you know, prices
Speaker 1: now cooling and the economy is cooling. So Bob Ed's
Speaker 1: seas inflation started to come down. The question is how
Speaker 1: fast it's coming down but starting to come down, how
Speaker 1: do you see it? And is it coming down enough
Speaker 1: and fast enough so the FED will not have to
Speaker 1: go much further in rate hikes. It's definitely on the down.
Speaker 1: But the question is where as it settled out, and um,
Speaker 1: and doesn't settle out at the level that the Fed
Speaker 1: expects it too, and that the markets are discounting. The
Speaker 1: markets are discounting two and a half and you know
Speaker 1: we're coming down from six so or higher on the
Speaker 1: core right so, but there are really two big imbalances
Speaker 1: in the economy right now that are need to be
Speaker 1: resolved through this tightening cycle. And we're still in this
Speaker 1: tightening cycle. Um, it's it's too early to really see
Speaker 1: the effects. It hasn't been that long to see the effects,
Speaker 1: and so chances are you're going to get more of
Speaker 1: that weakness as you as you go along. Bob Princeton
Speaker 1: Ed Kimon will be back with us for more Wall
Speaker 1: Street Week after the break. This is Bloomberg Wall Street
Speaker 1: Week with David Weston from Bloomberg Radio. New construction contracts faltered,
Speaker 1: and while unemployment actually went down, more significant was back
Speaker 1: to back monthly declines and paying jobs. The bottom line
Speaker 1: seemed to be that the economy was beginning to move forward,
Speaker 1: but with many a lagging part and overall at a
Speaker 1: pace that would embarrass a tortoise. That was Lewis Rockeys
Speaker 1: around Wall Street week Back in August, when the United
Speaker 1: States had just come off of a relatively mild and
Speaker 1: short recession. The number one song, if you remember, was
Speaker 1: Brian Adams Everything I Do, I Do It for You,
Speaker 1: and the top movie was Terminator to Judgment Day. Still
Speaker 1: with us are Bob Princeton, Bridgewater and Ed Hyman. Of ever, course,
Speaker 1: so it's a bit of a different world today. Bob,
Speaker 1: for example, on the job situation, we still have a
Speaker 1: pretty robust jobs economy. But from everything we discussed before
Speaker 1: about the uncertainty of we are on the tightening cycle,
Speaker 1: what comes next? What is that stage? To an investor, Well,
Speaker 1: right now, we're in an in between stage right now right,
Speaker 1: so you if you, if you go back, just not
Speaker 1: too many months ago, it became evident that we had
Speaker 1: a self sustaining inflation, that there was going to be
Speaker 1: a tightening monetary policy. The markets price that in yields
Speaker 1: went up. You got the tightening of policy. It's still happening.
Speaker 1: It's not over. Uh. Markets got a little bit excited
Speaker 1: about to dip in some of the inflation. They started
Speaker 1: to bite on that yield, but that we've already given
Speaker 1: up half of the yield rise that occurred, and that
Speaker 1: actually means if it needs to do more than if
Speaker 1: the yields had stayed up where they were right, including equity.
Speaker 1: So so we're still in this thing. We're still in
Speaker 1: this tightening cycle. And like I said, there are really
Speaker 1: there's going to be a mixture of three things, and
Speaker 1: you don't know what the mixes yet because it's too
Speaker 1: early to tell, but you're going to get some mixture
Speaker 1: of wheat growth, high inflation, and rising interest rates. The
Speaker 1: more the interest rates rise, the more it's the weak growth.
Speaker 1: The less the interest rate rise, the more it's the
Speaker 1: high inflation because and if the fit takes the foot
Speaker 1: off the brake, you're gonna that inflation improvement is going
Speaker 1: to go away, and they're gonna, you know, and they're
Speaker 1: gonna favor growth. So you don't know which, which which
Speaker 1: how they're going to play it quite yet. So what
Speaker 1: we try to do in this kind of environment is
Speaker 1: maintain some balance, right diversification obviously, don't not too heavily
Speaker 1: committed to any one direction, but also even within the
Speaker 1: equity market, um, you know, structuring equity portfolios that have
Speaker 1: a cash flow and balance sheet base under them, so
Speaker 1: that if you tightening is very aggressive, that there's a
Speaker 1: strong enough balance sheet to hold that up to to
Speaker 1: sustain their their their position in the markets, or uh,
Speaker 1: sustain a positive cash flow. UH. And I think that
Speaker 1: the companies that are you have a lot of debt
Speaker 1: in relation price value or vulnerable profit margins, that sort
Speaker 1: of thing, um, you know, are the are the type
Speaker 1: that are most vulnerable for that environment. So it sounds
Speaker 1: like an awful lot of hinges on the FED. Surprise surprise,
Speaker 1: Jackson Hole coming up next week. Okay, a lot of
Speaker 1: people are gonna pay attention to j pals to say,
Speaker 1: if we remember last year at this he was talking
Speaker 1: about transitory still that doesn't work so well this year.
Speaker 1: So how much guidance can the FED give us about
Speaker 1: exactly where they're heading on some of the questions that
Speaker 1: Bob just talked about, Well, it's hard to hard to know.
Speaker 1: I do think we're going to get a financial crisis
Speaker 1: some queer somewhere pretty soon. It's always been part of
Speaker 1: the of the tightening cycle. But like you point out, David,
Speaker 1: you know, last year it was really about transitory. He
Speaker 1: had five differ you which you went through five different
Speaker 1: things that would prove transitory. And I personally think the
Speaker 1: FED is now on the other side of the wrong foot.
Speaker 1: You know, now they're doing the entrenched and uh, you know,
Speaker 1: a year ago I thought Bonnio could go to five
Speaker 1: percent and FED funds go to five percent, and I'm
Speaker 1: not quite sure what's happened. But you know, money growth
Speaker 1: DIDs slow dramatically, and commity prices have come down dramatically,
Speaker 1: and now I'm saying pricing power coming down. And so
Speaker 1: I think we've made a lot more progress on inflation
Speaker 1: than I expected. And that's why the market was going
Speaker 1: up until today. But that's that's if inflation keeps coming down, uh,
Speaker 1: then the market is gonna appreciate that. So one thing
Speaker 1: I don't understand, Bob, we heard why ED thinks the
Speaker 1: FEDS job maybe it's gotten easier actually with some of
Speaker 1: the things that have happened, But financial conditions actually have
Speaker 1: not tightened. Actually, if anything, that in someone looser that
Speaker 1: makes the FEDS job harder. In recent weeks, yeah, I
Speaker 1: mean the first half, the first half of the year,
Speaker 1: literally the first quarter of the markets were doing the
Speaker 1: fed's job entirely, and then the FED joined in. And
Speaker 1: once the FED joined in and the markets saw some
Speaker 1: you know, positive signs of inflation, you know, they actually
Speaker 1: pulled back, and so bond yields came back down, equity yields,
Speaker 1: you know, came back down. Um. And so you know that,
Speaker 1: as you said, about half of the tightening that the
Speaker 1: markets were applying has been retracted. If if yields had
Speaker 1: stayed where they were, uh, it would be that much
Speaker 1: less that the FED needs to do. But the fact
Speaker 1: that the yields have actually dropped some and kind of
Speaker 1: given back some of the work that they were doing,
Speaker 1: it's that much more that the FED needs to do. Um.
Speaker 1: And so I think you know it's into ed referred
Speaker 1: to the last you know you you you raised it,
Speaker 1: and then you know, we talked about last year's Jackson
Speaker 1: whole speech bit. Um. They were clearly wrong about transitory inflation.
Speaker 1: If you actually look at the indicators that they followed,
Speaker 1: they tend to be lagging indicators. UM. I haven't heard
Speaker 1: yet an explanation about how they think inflation, why they
Speaker 1: think there is an inflation, why they think that that
Speaker 1: was wrong. And I think that that cau caused you
Speaker 1: to question how well this this process is going to
Speaker 1: be managed, just gonna be very tricky. Well, and that's
Speaker 1: a really powerful point. I think. Does the Fed need
Speaker 1: to explain to us what went wrong and why they're
Speaker 1: not going to do a mistake again for us to
Speaker 1: really believe in this time it would be helpful. But
Speaker 1: you know, from my vantage point, as you can see,
Speaker 1: what they missed was that fiscal stimulus, quantitative easing led
Speaker 1: to increase in the money supply, and that did it.
Speaker 1: And if you look back at that Jackson hole, they
Speaker 1: completely missed that. Now money growth is plunging and my
Speaker 1: prices are coming down, all sorts of signs that early signs,
Speaker 1: and so the job not over by any means. Do
Speaker 1: you agree with Ed that in all likely we'll have
Speaker 1: some sort of financial crisis, that that's what happening happens
Speaker 1: in serious tightening cycles. Uh, odds are pretty good. Yeah, yeah,
Speaker 1: I mean we haven't had enough tightening get to really
Speaker 1: have that, But um, odds are good. Yeah. I mean
Speaker 1: we haven't had the downturn yet. If there's gonna be
Speaker 1: a downturn, it hasn't happened yet. It's gonna be hard
Speaker 1: to bring inflation down. How are you going to bring
Speaker 1: nominal spending down from ten percent to five without a
Speaker 1: significant contraction? And credit? You need to slow credit growth
Speaker 1: by about half. Money growth is slowed, but you need
Speaker 1: to slow credit growth in half. But it's still rising.
Speaker 1: You're gonna have to You're gonna have to hold interest
Speaker 1: rates up enough. And that's when things that's when bad
Speaker 1: things happen. I have to tell you this is not
Speaker 1: a bad thing. It's a real treat. They had the
Speaker 1: two of you here on Wall Street. We really thank
Speaker 1: you so much. That is Ed Hyman of Evercourt and
Speaker 1: Bob Prince of Bridgewater coming up. Do you know what
Speaker 1: Warren Buffett says about the tide going out? Well, some
Speaker 1: of those who may be caught are those so called
Speaker 1: zombie companies who've loaded up on debt when it was cheap.
Speaker 1: You talked about the risks and possible opportunities with selling
Speaker 1: your gifts of the Institute for International Finance. That's next
Speaker 1: on Wall Street Week on Bloomberg. This is Bloomberg Wall
Speaker 1: Street Week with David Weston from Bloomberg Radio. It was
Speaker 1: nice while it lasted, all that support from the Fed
Speaker 1: from zero interest rates. We continue to expect it will
Speaker 1: be appropriate to maintain the current zero to one percent
Speaker 1: target range for the Feller Funds rate. To pumping money
Speaker 1: into the economy. More directly, we are deploying these lending
Speaker 1: powers to an unprecedented extent, enabled in large part by
Speaker 1: the financial backing from the Congress and the Treasury. We
Speaker 1: will continue to use these powers forcefully, proactively, and aggressively
Speaker 1: until we're confident that we are solidly on the road
Speaker 1: to recovery. All of which allowed companies to borrow as
Speaker 1: much as they wanted, which was worrying to Russ Kastrick
Speaker 1: of Black Rock as much as four years ago. The
Speaker 1: eight pound guerrilla, which eventually we're all going to have
Speaker 1: to question, is whether or not that's built up in
Speaker 1: corporate leverage which we've seen over the past three or
Speaker 1: four years, is that sustainable. Now those happy days are over,
Speaker 1: as the Fed has reversed course and says it will
Speaker 1: keep raising rates until the inflation dragon is slain. The
Speaker 1: idea that we're going to start cutting rates early next
Speaker 1: year when inflation is very likely going to be well
Speaker 1: well well in excess of our target. I just think
Speaker 1: it's not realistic. Where does that leave all those companies
Speaker 1: who have borrowed so much, Well, at least some of
Speaker 1: them are so called zombies. No, not those zombies, companies
Speaker 1: that don't generate enough cash to pay their debt. And
Speaker 1: that leads economists like Neural Robini to say, we're going
Speaker 1: to see some of them fail, which may just be
Speaker 1: what we needed to get to the other side. There
Speaker 1: are tons of firms that were highly leverage, you didn't
Speaker 1: have much profits, that were zombie that would have gone fast.
Speaker 1: But during COVID we bailed out. Everybody's zero rate, negative rates,
Speaker 1: wants toy easy, credit easy, not that they we have
Speaker 1: to tighten as inflation is higher. The zombe is not
Speaker 1: going too And to thank us to the strange and
Speaker 1: exotic world of zombie companies, we welcome now Sonya Gibbs.
Speaker 1: She's managing director and headed Sustainable Finance at the Institute
Speaker 1: of International Finance. So Sonia, thank you so much for
Speaker 1: joining us on Wall Street Week. Let me start with
Speaker 1: those basic of questions, what exactly is the zombie company
Speaker 1: and how many of them are they're out there? First
Speaker 1: of all, to take a step back, what you need
Speaker 1: to think about is that over the past ten or
Speaker 1: fifteen years, global debt levels have skyrocketed. We've had very
Speaker 1: low interest rates, and for example, non financial corporate debt
Speaker 1: around the world is now close to a of g
Speaker 1: d P and that's more than double what it was
Speaker 1: a decade ago. So that's a very worrying backdrop. And
Speaker 1: so what we mean by zombie companies is a company
Speaker 1: that essentially has to borrow to keep going. They're highly leveraged,
Speaker 1: they're not growing very fast, their revenues are not up
Speaker 1: to power, and at the want they face a very
Speaker 1: difficult situation. You've got higher input costs, so your commodity
Speaker 1: prices are higher, wages are rising. At the same time,
Speaker 1: you don't earn enough revenue to cover all of these
Speaker 1: higher costs and your debt service. So if you have
Speaker 1: a ratio of revenues to interest costs that's one or less.
Speaker 1: If you can barely cover your debt service costs, we
Speaker 1: call you a zombie company. And it's a very good name.
Speaker 1: It's very evocative. And for how many I mean, it's
Speaker 1: difficult to calculate, right, because for a lot of firms that,
Speaker 1: for example, aren't publicly listed, the information might be less available.
Speaker 1: They might be smaller non public companies, but the Federal
Speaker 1: Reserve estimates that between five and ten percent of US
Speaker 1: firms fall into this category. It's also important to remember
Speaker 1: that this is not a static world. It's not once
Speaker 1: a zombie, always a zombie. Conditions change, and in fact,
Speaker 1: coming a zombie company is a little bit cyclical in
Speaker 1: the sense that when times are good, maybe interest rates
Speaker 1: are low, growth is high, maybe you're not a zombie,
Speaker 1: but then you know, bad things happen, pandemics happen, shocks happen,
Speaker 1: interest rates go up, and a company that was formally
Speaker 1: doing reasonably well might suddenly fall into the zombie category.
Speaker 1: So so you mentioned the overall debt load is true
Speaker 1: st in the United States and not just in the
Speaker 1: United States, in part because interest rates are so low.
Speaker 1: There's a very, very successful, healthy companies that loaded up
Speaker 1: on debt because it was so cheap. But whenever we've
Speaker 1: talked about this risk in the last few years, they said,
Speaker 1: don't worry. As long as interest rates are low, we're fine.
Speaker 1: It looks like those days maybe on their way out,
Speaker 1: we're gonna have higher interest rates. So what kind of
Speaker 1: pressures that put on these zombie companies. Well, I think
Speaker 1: it's a good analogy. Right. It's all fine until it's not.
Speaker 1: And so you've had a kind of a confluence of
Speaker 1: factors that have hit pretty much at the same time.
Speaker 1: You had a pandemic which hit growth, had a commodity
Speaker 1: price shock, you have rising inflation, you have higher interest rates,
Speaker 1: and you also have firms whose whose business models, for example,
Speaker 1: have been entirely changed by the pandemic. I mean, amongst
Speaker 1: the list of zombie companies, you might find a company
Speaker 1: like we Work, you know, a company that has been
Speaker 1: very successful, but at the same time the pandemic has
Speaker 1: changed a lot of things for that for that company.
Speaker 1: Carnival Cruise Lines is another good example of a type
Speaker 1: of company who's now in the zombie category. Or some
Speaker 1: of the meme stocks, you know, a mc R game stop.
Speaker 1: So these are really household names. Sonia, thank you so
Speaker 1: much for that tour of the exotic world of zombie
Speaker 1: companies that Sonya gives. She is from the Institute of
Speaker 1: International Finance, plans you to be here. Coming up, we
Speaker 1: wrap up our week with special contributor Larry Summers of Harvard.
Speaker 1: This is Wall Street Week on Bloomberg. This is Walter.
Speaker 1: I'm David Weston. We're gonna wrap up the week once
Speaker 1: again with our special contributer Larry Summers of Harvard. Larry,
Speaker 1: thanks so much for being back with us. So let's
Speaker 1: start with those Fed minutes that everybody was waiting for eagerly,
Speaker 1: and they came out. The markets didn't know quite what
Speaker 1: to do with them. What did you make out of
Speaker 1: those minutes? They confirmed what I suspected, which was that
Speaker 1: the FED doesn't know where it is, that the world
Speaker 1: is very ambiguous at this point, and minutes of a
Speaker 1: meeting are a very poor way to convey a collective message. Look,
Speaker 1: the FED has a fundamental problem about which it is
Speaker 1: not yet willing to be realistic, and that is that
Speaker 1: it is exceedingly unlikely that inflation can be brought down
Speaker 1: to target levels without a substantial increase in unemployment. They
Speaker 1: launt to be very concerned about unemployment and about inflation,
Speaker 1: and the reality is that it's probably not so realistic
Speaker 1: to think that they're going to get inflation all the
Speaker 1: way down without getting unemployment up, and they don't want
Speaker 1: to acknowledge that, and that forces a certain confusion uh
Speaker 1: into all of their UH statements. I can sympathize and
Speaker 1: understand why they don't want to acknowledge that part of
Speaker 1: the problem is they've taken on an excessive obligation UH
Speaker 1: to UH communicate. So I think they're in a very
Speaker 1: very difficult situation. I don't know to what extent they're
Speaker 1: going to choose to take the pain that is ahead
Speaker 1: on the stag side, and to what extent they're going
Speaker 1: to choose to take it on inflation UH side. That
Speaker 1: remains to be seen. I suspect in some ultimate sense
Speaker 1: they don't really know either which way it's going to go.
Speaker 1: It's got to worry them that UH financial conditions are
Speaker 1: now materially looser than they were when the FED last met,
Speaker 1: and when in the middle of a tightening cycle, financial
Speaker 1: conditions are substantially loosening. That has to make a central
Speaker 1: bank UH nervous. David, There's one other aspect of the
Speaker 1: situation that I think is very important and underrecognized, and
Speaker 1: that is because everybody focuses, and focuses rightly on the geopolitics,
Speaker 1: what's happening with Russia and Ukraine, what's happening with droughts,
Speaker 1: all of it. They don't really fully internalized that oil
Speaker 1: prices and wheat prices have both come down substantially and
Speaker 1: are predicted to come down substantially in the future. That's
Speaker 1: what's driving the relatively limited inflation expectations. And those who
Speaker 1: were quick to focus on concepts of core inflation when
Speaker 1: headline inflation was higher than core inflation can't stop doing
Speaker 1: that when headline inflation is lower than uh core inflation.
Speaker 1: And I don't see that we're really making any great
Speaker 1: progress with perspect to core inflation. One of the things
Speaker 1: that Fed emphasized in the minutes, besides really being concerned
Speaker 1: about inflation expectations, on the other side of that was
Speaker 1: a softening housing market, something you referred to last week
Speaker 1: on this program. Give us your take of the housing market.
Speaker 1: Some people say we're in a housing recession right now.
Speaker 1: So I think you have to distinguish um movers from
Speaker 1: stayers sort of put it afferently. You have to look
Speaker 1: at you have to think about what the right way
Speaker 1: to look at rents is. Here's what's true. What's true
Speaker 1: is that last year people who were signing new leases,
Speaker 1: we're buying new homes. We're paying fifteen or more than
Speaker 1: they had a year ago. Nothing like that fed into UH,
Speaker 1: the consumer Price Index or the FEDS preferred measures pc
Speaker 1: UH index. All that fed through was the small fraction
Speaker 1: of people who saw their rents change and a constant
Speaker 1: rent for everybody else. What that means is that down
Speaker 1: the road, like now, you're seeing inflation, not because new
Speaker 1: leases are going up so fast, although they still are
Speaker 1: going up at a reasonable rate, but just because the
Speaker 1: people whose leases are coming up are seeing substantial increases.
Speaker 1: And so we're gonna see significant housing price inflation in
Speaker 1: the measures of inflation that are used probably for another
Speaker 1: six to nine months. That's a different thing than what
Speaker 1: builders are responding to. Builders aren't responding to that. Builders
Speaker 1: are responding to what they think the price of houses
Speaker 1: will be a year from now, and that come down,
Speaker 1: and so we're seeing a slowing in UH building. And
Speaker 1: that's what happens when UH interest rates UH. When interest
Speaker 1: rates go up, in some ways, it makes sense if
Speaker 1: we're going to have a decline in economic activity, it's
Speaker 1: better to have a decline in something where we've already
Speaker 1: got a huge stock of it and it's only the
Speaker 1: new flow that's being affected. Then in UH, the in
Speaker 1: something that we need to consume on a continuous basis
Speaker 1: and that doesn't have any duration to it. We're talking
Speaker 1: about softness and slow We certainly saw that in numbers
Speaker 1: coming out of China at the beginning of this week.
Speaker 1: And I wonder what you make of the Chinese problems
Speaker 1: as we know there are three or four then they're
Speaker 1: interlocked there. But on the other hand, is it possible
Speaker 1: that will give a little, at least a little relief
Speaker 1: to the Fed here on slowing inflation? I probably will. UH.
Speaker 1: It goes back to the issue we discussed a few
Speaker 1: minutes ago, UH David about oil prices and UH grain prices.
Speaker 1: The main impact of Chinese slowing is likely to be
Speaker 1: on commodity prices, and there's a question as to how
Speaker 1: much weight those should be given as we think about
Speaker 1: our inflation rate UH in this country. But it probably
Speaker 1: is a positive on inflation. I think the larger questions
Speaker 1: involved how we see China in the future and how
Speaker 1: China will be responding to these economic h difficulties. These,
Speaker 1: as I've been saying now for some time, are looking
Speaker 1: like increasingly profound events. UH. In China, it was taken
Speaker 1: as almost axiomatic six months or a year ago that
Speaker 1: at some point the Chinese economy would surpass the American
Speaker 1: economy in terms of total GDP at market exchange rates.
Speaker 1: That's now much less clear than it previously was. And
Speaker 1: I think you're seeing all kinds of challenges for China.
Speaker 1: There's the huge financial overhang, there's the where the growth
Speaker 1: is going to come from. There's the growing Communist Party
Speaker 1: involvement in a wider range of enterprises. There's the demographic challenge.
Speaker 1: I have been saying for some time that I think
Speaker 1: people are going to look back at some of the
Speaker 1: economic forecasts about China in the same way they looked
Speaker 1: back at economic forecasts for Russia that we're made in
Speaker 1: nineteen sixty or for Japan that we're made in ninete. Okay, Larry,
Speaker 1: thank you so very much, says Hilarry. Summers for Harvard
Speaker 1: are very special and trainer here on Wall Street Week. Finally,
Speaker 1: one more thought. Getting old. It's one thing that we
Speaker 1: all have to do, and none of us wants to
Speaker 1: think about it. And it sometimes seems like some of
Speaker 1: the oldest among us may be the deepest in denial.
Speaker 1: Where there's rock musicians like Mick Jagger still performing live
Speaker 1: on stage at the age of seventy nine, or Sir
Speaker 1: Paul McCartney, who's still going strong way past that age
Speaker 1: of sixty four he wants worried about. Or are political
Speaker 1: leaders in or nearing their eighties like President Biden and
Speaker 1: Mitch McConnell and Nancy Pelosi who snapped back at a
Speaker 1: reporter ten years ago when asked a question some of
Speaker 1: your colonies finally say that you're just going to stay
Speaker 1: on for the quality and having a younger leadership and
Speaker 1: to be first and first the party belong persons, questions
Speaker 1: Tonal and who can forget President Ronald Reagan, who in
Speaker 1: provoked the age old or should I say old age
Speaker 1: question after stumbling through his previous debate with Democratic challenger
Speaker 1: Walter Mondale, only to come back with this zinger, I
Speaker 1: will not make age an issue of this campaign. I
Speaker 1: am not going to exploit for political purposes my opponent's
Speaker 1: youth and inexperience. The world of business and finance isn't
Speaker 1: entirely immune from this, led by Warren Buffett, who at
Speaker 1: ninety one shows no signs of stepping down and told
Speaker 1: our own David Rubinstein his goal is to keep going.
Speaker 1: I'd like to be the oldest man that ever lived, actually,
Speaker 1: and who knows, maybe we don't really just get older,
Speaker 1: we get better. For those of us hoping that that
Speaker 1: may just be true, we now have a concrete, provable
Speaker 1: example coming from the world of golf, where a journeyman
Speaker 1: tour professional who'd struggled for years suddenly became a star
Speaker 1: simply by turning fifty, pushing him into the Older Player
Speaker 1: p G a tour champions League. To be sure, Stephen
Speaker 1: Alker from New Zealand happened to be at the very
Speaker 1: top of his game when his birthday came around, but
Speaker 1: according to The Wall Street Journal, adding that extra year
Speaker 1: has led him to make in one year three point
Speaker 1: five million dollars, which is more than he'd made in
Speaker 1: all the rest of his career put together. And if
Speaker 1: he keeps sinking extra long puts like he did to
Speaker 1: win the Boeing Classic, he may just be getting started.
Speaker 1: That does it For this episode of Wall Street Week,
Speaker 1: I'm David Weston. This is Bloomberg. See you next week.
Speaker 1: M