Speaker 1: Welcome to Bloomberg Opinion. I'm Vonnie Quinn this week, if
Speaker 1: the FIT successfully engineers a soft landing that does involve
Speaker 1: companies having to pay more to borrow for quite an
Speaker 1: extended period of time and finding it that much harder
Speaker 1: to pass costs on. John author Is on how a
Speaker 1: soft landing for the economy does not mean a soft
Speaker 1: landing necessarily for markets. Also Alexis Leanders and how exactly
Speaker 1: you can be making a quarter of a million dollars
Speaker 1: a year and still be living paycheck to paycheck. Later,
Speaker 1: we'll speak with Stephen Mim on the history of remote work.
Speaker 1: As the number of workers back in offices drops once again,
Speaker 1: it's partially due to a COVID resurgence. Sure Another factor, though,
Speaker 1: the fear of crime in big cities such as New York.
Speaker 1: So let's kick off this week with Justin Fox. He's
Speaker 1: been digging into the available data for some clarity on
Speaker 1: just how dangerous our metropolis is. So Justin I think
Speaker 1: there's a bit of a trope out there that crime
Speaker 1: is higher in New York City and that perhaps even
Speaker 1: the city is going back to the nineteen eighties. Is
Speaker 1: there any truth to that crime is higher in the city.
Speaker 1: Basically as people emerge from the lockdown. In two thousand twenty,
Speaker 1: murders and shooting shot up really dramatically. Other crime didn't.
Speaker 1: Now the murders and shootings are starting to decline a little.
Speaker 1: Other crimes are up, but it's still miles away from
Speaker 1: the sort of homicide rates that New York had in
Speaker 1: the nineteen eighties or early nineties. Some big cities it
Speaker 1: is back to about as bad as it was then, Philadelphia, Chicago.
Speaker 1: But it's kind of funny, is not New York, not
Speaker 1: l A, which seemed to be the place is getting
Speaker 1: the most publicity about crime exactly. So you write that
Speaker 1: the rate is still less than a fifth of what
Speaker 1: it was in I think a lot of people would
Speaker 1: be really really surprised to hear that, but it's not
Speaker 1: the case all over the country. You dug into the
Speaker 1: CDC's wonder databases. Tell us a little bit about these wonderments. Yeah,
Speaker 1: I I mean, I'd heard about them before the pandemic,
Speaker 1: but I first waited into them sadly not long after
Speaker 1: the pandemic started. And um, it's a remarkable, if pretty
Speaker 1: confusing at first, set of databases that, among other things
Speaker 1: allow you to just look at all causes of death
Speaker 1: in the US. You can sort it by cause of death,
Speaker 1: you can sort it by place, you can sort it
Speaker 1: by year, you can sort it by demographic groups. And
Speaker 1: of course you did all of that, and what conclusions
Speaker 1: did you come to in terms of things like location
Speaker 1: and how that matters, or incomes and how that matters. Well,
Speaker 1: what I did for this particular exercises, I was looking
Speaker 1: at homicide rates. Normally it's the suburban counties and large
Speaker 1: metorias have the lowest homicide rates most years. New York
Speaker 1: City has had actually fallen below even that for a
Speaker 1: couple of years before the pandemic. Since the pandemic it's
Speaker 1: slightly higher. But you know, New York City has a
Speaker 1: lower homicide rate than rural America. Even now, subdansolutely lower.
Speaker 1: And then I just started thinking about one of the
Speaker 1: things people are very concerned about right now and with reason,
Speaker 1: is that the subways seems more dangerous than it was
Speaker 1: a couple of years ago, and it is more dane
Speaker 1: dress than it was a couple of years ago. Basically,
Speaker 1: overall crime levels in the subway about the same, but
Speaker 1: ridership is about less so if you're riding at the
Speaker 1: higher risk of crime, I think this way, and I
Speaker 1: think a lot of people don't. But when I think
Speaker 1: about the subway and the risks I faced in there,
Speaker 1: I also think about things like tee, what if I
Speaker 1: had to drive on the freeway in Houston all the time.
Speaker 1: You throw in transport accidents, which is a grab bag
Speaker 1: of mostly car crashes, but also I guess you could
Speaker 1: tip over your tractor or whatever. And you put the
Speaker 1: two together and suddenly New York City goes to being
Speaker 1: much safer than any other broad classification, three times safer
Speaker 1: than rural and small town America. Brooklyn and the Bronx
Speaker 1: come in a respectable forty one, twenty seventh place in
Speaker 1: the country's mortality rankings. Did you expect that? Um? I
Speaker 1: was a little surprised, and that the difficulty. One of
Speaker 1: the things that the CDC does is it knows everything
Speaker 1: about mortality, but it won't tell you everything. So if
Speaker 1: there are fewer than ten deaths in a county, it
Speaker 1: just doesn't disclose it at all because it is afraid
Speaker 1: that you can figure out who they were. So what
Speaker 1: I did, I then went beyond traffic accidents and looked
Speaker 1: at other external causes of death, which you know. You
Speaker 1: look through the list and there's things like being bitten
Speaker 1: by a snake or drowning in the pool, and most
Speaker 1: of those seem less likely to befall you in New
Speaker 1: York City than other places. They're bitten by rats is
Speaker 1: in there too, which yeah, exactly, I didn't actually didn't
Speaker 1: look up that specifically, So so I came up with
Speaker 1: with some tweaking and such a sort of list of
Speaker 1: deaths from external causes that aren't things that basically just
Speaker 1: hit old people like falls. And when you do that list,
Speaker 1: what you get is the counties with the lowest mortality
Speaker 1: rates include a lot of yeah, Brooklyn, the Bronx, a
Speaker 1: bunch of wealthy suburban counties, and definitely New York City
Speaker 1: and the New York Metropolitan Area. You are among the
Speaker 1: safest places in the country overall. The police officer's job
Speaker 1: is not to find out what is the psychological profile,
Speaker 1: what is if the person has the issues at home?
Speaker 1: That's our job as a city. Their job is to
Speaker 1: take dangerous people up the street. My job and the
Speaker 1: job of my agencies is to prevent people from being dangerous.
Speaker 1: What should the mayor be doing. He comes out and
Speaker 1: he gives press conferences, he talks a good game, he
Speaker 1: obviously has good intentions. At the same time, attitudes aren't changing,
Speaker 1: behavior isn't changing, and there's still such a huge question
Speaker 1: mark over remote work and whether it's necessary or not
Speaker 1: to go into the office. And this isn't the answer
Speaker 1: to all of that. I mean, things have been getting
Speaker 1: worse in New York over the past couple of years.
Speaker 1: It looks like the murder wave is fading, but other
Speaker 1: kinds of crimes are up. And so, you know, it's
Speaker 1: someone who felt comfortable coming into New York four years ago,
Speaker 1: it's reasonable that they might feel a little less comfortable now.
Speaker 1: What is just so striking, though, is when you look
Speaker 1: at it and you have this broader view of what
Speaker 1: risk is than just violent crime, you know, and there
Speaker 1: are arguments for and against doing it that way, then
Speaker 1: New York is a really safe place, one of the
Speaker 1: safer places you can be in this country. Some of
Speaker 1: the received wisdom is still true, unfortunately. For example, of
Speaker 1: the city of Baltimore's homicide rate is still a staggering
Speaker 1: fifty eight and a half per one thousand residents. That's
Speaker 1: twice that of Chicago and more than ten times New
Speaker 1: York cities. As you point out, so there are other
Speaker 1: places where it's urban crime is not a myth, and
Speaker 1: you know, crime in New York is not a myth.
Speaker 1: But it's just it's so much lower than in other cities,
Speaker 1: and in a lot of places that aren't big cities,
Speaker 1: And as Justin points out, even the safest areas in
Speaker 1: the US remain killing fields compared with most of Western Europe.
Speaker 1: In Paris, for example, a homicide rate in recent years
Speaker 1: below one per one thousand. Don't forget get in touch
Speaker 1: via Twitter at Vonny Quinn or email v Quinn at
Speaker 1: Bloomberg dot net. Opinions and comments always welcome. So if
Speaker 1: you're not going into the office for whatever reason, you
Speaker 1: might be repeating a pattern from past eras. Let's get
Speaker 1: to University of Georgia history professor and Bloomberg opinion columnist
Speaker 1: Stephen men So, Stephen, telecommuting has obviously been around for
Speaker 1: a long time, but we don't often think about its origins.
Speaker 1: Talk to us a little bit about how it developed
Speaker 1: in the first place. So it goes back to a
Speaker 1: kind of heady period in the sixties when some urban
Speaker 1: planners and theorists of urban life who were concerned about
Speaker 1: traffic congestion, especially in places like Los Angeles, began to
Speaker 1: think about whether it might be possible to substitute communication
Speaker 1: for transportation, in other words, had people to communicate with
Speaker 1: their offices rather than commuting to their offices. It began
Speaker 1: with a couple kind of obscure articles and academic journals,
Speaker 1: as movements oftentimes do, and then in the late nineties
Speaker 1: sixties there was a good illustration of some of these
Speaker 1: concepts that the government sponsored, not because it was trying
Speaker 1: to prove that telecomedian could work, but it was trying
Speaker 1: to do something else, namely, run the space program right.
Speaker 1: And so the system emergence from the Apollo moon landing
Speaker 1: program explained to us what it is right. So the
Speaker 1: Apollo missions were extraordinarily complex, and they linked to all
Speaker 1: of these different contractors and mission control areas and military
Speaker 1: people across the country, and so these people had to
Speaker 1: communicate in real time, and you couldn't just keep flying
Speaker 1: them back and forth across the country. So the several
Speaker 1: government set up these things called Apollo Action Centers, which
Speaker 1: were prototypes of a kind of telecomeeting, meaning that people
Speaker 1: in different parts of the country would gravitate towards their
Speaker 1: local control center and tapped in via this two way
Speaker 1: speaker phone connection that the government set up that worked
Speaker 1: at fifty per second for communicating data, which is one
Speaker 1: of our current upload speed. And after they finished it,
Speaker 1: they did a cost assessment and they realized that they had, say,
Speaker 1: for a dollar, they plowed into this nine dollars and
Speaker 1: travel and salary costs, and so that was pretty dramatic.
Speaker 1: And so one of the people who had worked for
Speaker 1: NASA was this guy Jack Nillis, who was a rocket scientist,
Speaker 1: kind of worked on classified projects. We don't even know
Speaker 1: what he did, honestly, but he went to University of
Speaker 1: Southern California, which was of course traffic congestion central, and
Speaker 1: it was there that he took command of a team
Speaker 1: of people who wanted to figure out if there were
Speaker 1: a way to kind of implement some version of this
Speaker 1: for civilians, and they came up with this pilot program
Speaker 1: with an insurance company where they did the exact same thing,
Speaker 1: but in l A it wasn't people working from home.
Speaker 1: It was people coming to like the nearest node and
Speaker 1: they would commute in to the central office, but over
Speaker 1: phone lines and eventually computer lines, because it was at
Speaker 1: that moment that all of this technology, computer networks like
Speaker 1: arponnet to, the technology came online. Right, And if you
Speaker 1: would ask me, I probably would have mumbled something about
Speaker 1: telephone networks or as you said, the diminishing size of computers,
Speaker 1: or maybe even the rise of skyscrapers and inner city living.
Speaker 1: But in actual fact, when it really took hold was
Speaker 1: in response to the OPEC oil embargo, as you point
Speaker 1: out in nineteen three, right, And so these guys were
Speaker 1: doing this project and all of a sudden, everyone wants
Speaker 1: to save money on gasoline, and there they are. They've
Speaker 1: got a solution, you know, like don't go into the office.
Speaker 1: That was the first iteration of teleco meeting was a
Speaker 1: kind of dispersal of the workforce as opposed to like
Speaker 1: total diffusion where everyone's working from their home. Now, I'm
Speaker 1: curious unions were a lot stronger back in the day
Speaker 1: and more prevalent in the workplace then, So how did
Speaker 1: unions react. Was this something that they reacted to positively
Speaker 1: or negatively? Rather negatively, As soon as telecom meeting became chicked,
Speaker 1: around in policy circles, unions like the A f l C.
Speaker 1: I Oh said, well, you know, wait a second, there's
Speaker 1: some peril here, because how are you gonna force workplace
Speaker 1: safety at home? You know, when someone trips over the
Speaker 1: extension cord, are they on on the company's workmen's comp
Speaker 1: are they Is it just their faults? So there are
Speaker 1: all these things that they criticized, but the real criticism actually,
Speaker 1: interestingly came eventually from an unlikely source, which was management.
Speaker 1: How is that unlikely? Well? True, Well, you think about management.
Speaker 1: If given an opportunity to stay money, they would take
Speaker 1: it right. But the idea of letting their employees work
Speaker 1: off site, that was worrisome. But that didn't stop a
Speaker 1: lot of futurists in the late seventies, people like Alvin Toffler,
Speaker 1: from counting the vision that we would by the end
Speaker 1: of the nineteen eighties all be working at home and
Speaker 1: what he called our electronic cottages. We all electronic cottages.
Speaker 1: I like that. What, though, did we find out conclusively
Speaker 1: about productivity and expense reduction? That's an excellent question and
Speaker 1: one that it depends on who you talked to. The
Speaker 1: early research church and much of the later research suggested
Speaker 1: that in fact, there were productivity gains for that pool
Speaker 1: of employees that was somewhat self selecting who worked from home. So,
Speaker 1: in other words, in the seventies and eighties and even
Speaker 1: well into the outs the pandemic, though, case studies that
Speaker 1: are coming out of that suggests something else happened, which
Speaker 1: is the productivity actually went down and that there were
Speaker 1: other problems with cohesion of workforces. This is probably easier
Speaker 1: to square than it sounds, namely that like, if three
Speaker 1: percent of your workforce is working off site and they're
Speaker 1: really well suited for that kind of work, fine, But
Speaker 1: when you take everyone and send them home to their
Speaker 1: electronic cottages, to Toffler's phrase, a lot of them are
Speaker 1: trying to contend with everything from like walking the dog,
Speaker 1: caring for toddlers, to doing everything else that they really
Speaker 1: would prefer not to be doing while they work and
Speaker 1: previously had divided. So there may be ways in which
Speaker 1: these two experiments, the experiments of early telecommunititting and the
Speaker 1: pandemic experiment, are really apples and orange in terms of
Speaker 1: well the other thing, And these are very much ongoing investigations.
Speaker 1: How much did cities and do cities and their planners
Speaker 1: have a say in the remote versus in office workplace debate.
Speaker 1: That would seem like they would want to have a say.
Speaker 1: And obviously some cities are very much suffering post pandemic
Speaker 1: because of remote work. Other cities are thriving. Is there
Speaker 1: a conclusion on that. There isn't a conclusion, But you're
Speaker 1: absolutely right that for urban planners this is extraordinarily disruptive
Speaker 1: because there are ways in which obviously this hurts central
Speaker 1: business districts if people ceased to come in at the
Speaker 1: same time, though it could also create massive demand for
Speaker 1: services in more decentralized, scattered nodes. So it's there are
Speaker 1: ways this could play out that are really kind of
Speaker 1: in many cases, perhaps even counterintuitive. So, for example, we
Speaker 1: think of how telecommuting limits traffic congestion. The flip side
Speaker 1: of that is, if everyone can go anywhere at any time,
Speaker 1: you're also maybe putting a kind of constant lower level
Speaker 1: of congestion on the traffic rid at all times, and
Speaker 1: that could in a way be very disruptive in its
Speaker 1: own right and hard to plan for. Just on all
Speaker 1: of this, thinking back to the competition for the new
Speaker 1: Amazon headquarters, it almost seems quaint. It almost seems like
Speaker 1: a waste of resources for local governments to be doing
Speaker 1: things like offering incentives in an era of remote work.
Speaker 1: Yeah no, because think about it in terms of what
Speaker 1: if the jobs that you're bringing here are being performed
Speaker 1: by people like you bring them here, and then they
Speaker 1: end up being performed by people in another stage. There
Speaker 1: are all sorts of ways in which this messages with
Speaker 1: a lot of the usual incentive structures that we think
Speaker 1: about when it comes to cities and attracting economic growth.
Speaker 1: Stephen Mims There, So you're working from anywhere and you're
Speaker 1: making a quarter of a million dollars, sounds perfect right, Well,
Speaker 1: Alexis Leander's dug into some data which show more than
Speaker 1: a third of you are that paycheck to paycheck sounds startling. Well,
Speaker 1: let's hear more from Alexis herself. So, Alexis, how on
Speaker 1: earth can you be making a quarter of a million
Speaker 1: dollars a year and still be living paycheck to paycheck?
Speaker 1: I know it sounds absurd. I mean, you know, just
Speaker 1: to put it in perspective, two hundred fifty thousand dollars
Speaker 1: is almost four times the media and US salary and
Speaker 1: put those earners in the time top five percent of
Speaker 1: all earners in America. So to hear so many according
Speaker 1: to this survey that I highlighted in my column, one
Speaker 1: third of them, more than one thirty six percent of
Speaker 1: them say that even with that kind of income, they're
Speaker 1: basically spending everything they make each month and living quote
Speaker 1: unquote paycheck to paycheck is very unnerving. Does this have
Speaker 1: anything to do with the pandemic working from home large
Speaker 1: item expenses perhaps, or or perhaps people were eating out
Speaker 1: or getting take out more because they potentially had a
Speaker 1: more flexible schedule. That's a good question. I don't know
Speaker 1: if it's so much without remote work, but I do
Speaker 1: think housing is one of the big culprits. I think
Speaker 1: with housing, we've seen mortgage rape sky rocket, We've seen
Speaker 1: home prices appreciate so incredibly much. So I think when
Speaker 1: you take those two things together, and especially for this
Speaker 1: high income group, they tend to probably leverage themselves. And
Speaker 1: because of that, I think housing is one of the
Speaker 1: reasons folks and missed cohort are feeling so stretched. Is
Speaker 1: there a need to put in a bit of a
Speaker 1: caveat that this might be a bit of an inflation
Speaker 1: story as well. Are we definitely seeing the impact of
Speaker 1: inflation on these salary earners? Definitely, And I think it
Speaker 1: ties into what you've said before, which is we're also
Speaker 1: seeing people who because they were home, you know, at
Speaker 1: this level, they're starting to travel more, they're starting to
Speaker 1: eat out, they're starting to do more things. So all
Speaker 1: of these things are kind of happening at the same time.
Speaker 1: And right now they've been lucky enough to have their
Speaker 1: student loan payment on hold, um, but that's going to
Speaker 1: change soon. So that's something really people have to start
Speaker 1: thinking about and budgeting for. That was really eye opening.
Speaker 1: So hundreds of dollars a month that would have been
Speaker 1: potentially coming out of that salary is on moratorium because
Speaker 1: they're taking advantage of the student loan repayment moratorium. So
Speaker 1: what happens when that takes back in again, ssuming it
Speaker 1: does right? Right? I mean, student loan debt for this
Speaker 1: for this crowd is a very big deal. Um. More
Speaker 1: than of total federal student loan debt is held by
Speaker 1: households with incomes from about a hundred thousand dollars to
Speaker 1: three hundred seventy five thousand dollars and that's the largest
Speaker 1: percentage of any income group. So so many high earners
Speaker 1: have professional or doctorate degrees. So if you're an average
Speaker 1: student or your you went to graduate school, and if
Speaker 1: you take your undergraduate loans coupled with your graduate student loans,
Speaker 1: you could be looking at total debt is more than
Speaker 1: eighty two thousand dollars. That means monthly payments about nine
Speaker 1: fifty dollars a month has been on hold for almost
Speaker 1: thirty months, which is terrifying given that rents are going
Speaker 1: up in big cities as well as this potentially coming
Speaker 1: back into play for these people. I mean, it's terrifying
Speaker 1: within reason. We're talking about people who are in a
Speaker 1: quarter of a million dollars here, so let's be too concerned.
Speaker 1: But you do have to wonder if they're making four
Speaker 1: times the median wage in the United States, what are
Speaker 1: those earning less than that doing to finance their lives?
Speaker 1: Exactly right, exactly right. I mean I think the big
Speaker 1: difference again is mortgage, so homeownership versus renting. A lot
Speaker 1: of people who are making less money, they don't have
Speaker 1: to deal with rising mortgage costs, but they do have
Speaker 1: to deal with rising rents. So that's obviously something that
Speaker 1: has to be factored into it. And I just want
Speaker 1: to point out one key detail of this group. These
Speaker 1: people who are making at least two hundred fifty thousand dollars,
Speaker 1: who say they're living paycheck to paycheck. They're able to
Speaker 1: still pay their bills, but the bills that they're paying
Speaker 1: include automated savings for things like retirement in college plans.
Speaker 1: So it is really important when at least when I
Speaker 1: think of paycheck to paycheck, to me, that's someone who
Speaker 1: whatever they're earning, they're spending basically on housing food. These people,
Speaker 1: that's not necessarily the case. They are doing things that
Speaker 1: ultimately will help them in retirement or their kids college
Speaker 1: plans down the line, and that is a huge covey
Speaker 1: out because those are things that catch lower income earners
Speaker 1: out later on in life, and it's very difficult. The
Speaker 1: other thing that I wanted to point out here is
Speaker 1: revolving loans credit card dead These people not necessarily suffering
Speaker 1: late fees or anything like that, because they do tend
Speaker 1: to pay off any credit card debt that they incur
Speaker 1: exactly right. That was kind of surprising to me because
Speaker 1: you would think if you're living paycheck to paycheck. And
Speaker 1: even among this cohort, there are those who are living
Speaker 1: paycheck to paycheck and aren't even able to pay all
Speaker 1: of their bills. So you would think someone be turning
Speaker 1: to credit cards. But according to a survey by payments
Speaker 1: dot Com and the Lending Club, for those who say
Speaker 1: they're earning at least two hundred fifty thousand dollars and
Speaker 1: are living paycheck to paycheck, six of them are saying
Speaker 1: they're not revolving a balance, so they're paying off their
Speaker 1: credit card balances in full every month. That said, though,
Speaker 1: there was a said report recently that said the end
Speaker 1: of student loan forbearance could lead to a deterioration and
Speaker 1: credit risk profiles for borrowers. It didn't look at specific
Speaker 1: income levels, but again it's just worth raising. So far,
Speaker 1: this group doesn't seem to be turning to credit cards
Speaker 1: to plug the gap, but will that continue once these
Speaker 1: student owned payments get turned back on Alexos? Was there
Speaker 1: any question asked about what happens if we do see
Speaker 1: a recession or if we start to see unemployment go
Speaker 1: up once again. So we're in a very tight labor
Speaker 1: market and a very labor friendly labor market. That's that's
Speaker 1: a great point that right now, it still seems like
Speaker 1: despite what consumers, especially at the higher end, maybe saying
Speaker 1: about being pessimistic with respect to their finances, they're still spending.
Speaker 1: You know, maybe they've rained in, they're spending a month,
Speaker 1: but they're still spending a bit above average. Once that
Speaker 1: starts to turn, and especially if we start to see
Speaker 1: some labor market changes, that's I think one will start
Speaker 1: to get worried, and you know, then maybe those credit
Speaker 1: card dances will start to go up. Alexis Leanders do
Speaker 1: get in touch with comments and opinions. I'm at Vonnie
Speaker 1: Quinn on Twitter or email v Quinn at Bloomberg dot net.
Speaker 1: Stanley drucken Miller told investors at the sone conference this
Speaker 1: week where maybe six months into a bear market and
Speaker 1: predicting a soft landing means going against decades of history.
Speaker 1: Yet more people are seeing the possibility, including Pimco's Tony Krisenzi.
Speaker 1: It does seem like the odds of a soft landing
Speaker 1: are reasonably good, but it's tough to manage what the
Speaker 1: federal reserve, of course, is to avoid an outright recession.
Speaker 1: I had a chat with John Authors, who's been warning
Speaker 1: that even if the FED does accomplish a soft landing
Speaker 1: doesn't mean it won't get ugly for investors. John, there
Speaker 1: does seem to be a little optimism out there, whether
Speaker 1: it's warranted or not, that the FED will be able
Speaker 1: to thread the needle and pull off a soft landing.
Speaker 1: But you point out the risk of a stock market
Speaker 1: hard landing is there and to be taken very seriously
Speaker 1: no matter what happens with the economy. Yes, that's true,
Speaker 1: and the same is also true of the of the
Speaker 1: credit market. If a soft landing means the FEDS getting
Speaker 1: rates up to say three three and a half percent,
Speaker 1: and successfully bringing inflation down while growth slows down, but
Speaker 1: we avoid outright contraction, and I think most people would
Speaker 1: deem that a pretty big policy success on the soft
Speaker 1: landing at this point, then that implies some pretty nasty
Speaker 1: things for profit margins, which are historically high. Companies are
Speaker 1: doing extremely well out of the amount of operating leverage
Speaker 1: they have at the moment. You explain that was a
Speaker 1: little sidebar, because how our profit margins widening when everything
Speaker 1: else seems to be contracting except for prices. Obviously, I mean,
Speaker 1: I guess there's your answer. Right. So far inflation has
Speaker 1: helped companies. Yes, inaggregate, there are obviously something have suffered,
Speaker 1: but generally speaking, they have had enough pricing power to
Speaker 1: pass on costs to the consumer. That means that the
Speaker 1: inflation problem continues, but profits so far aren't badly affected.
Speaker 1: And obviously those companies that really have had a problem
Speaker 1: passing on prices been punished very aggressively. Now you are
Speaker 1: at a point where I think there's a number of
Speaker 1: factors behind this. You could get into the political issue
Speaker 1: of whether it's due to the lack of antitrust and
Speaker 1: the fact that there's limited competition these days, but low
Speaker 1: rates is a very big part of it. If you
Speaker 1: can borrow as cheaply as you've been able to for
Speaker 1: the last decade or so, it's that much easier to
Speaker 1: make a profit on what you sell. And it does
Speaker 1: seem like in podcasts aren't going up as much, and
Speaker 1: that basically means if the FED successfully engineers are soft landing.
Speaker 1: That does involve companies having to pay more to borrow
Speaker 1: for quite an extended period of time and finding it
Speaker 1: that much harder to pass costs on, and that comes
Speaker 1: out of their profits. Now they have been borrowing, yes,
Speaker 1: frenetic rates, and as you point out, you know, companies
Speaker 1: with strong balance sheets are maybe not even exactly in
Speaker 1: fashion these days. Will they even need to borrow for
Speaker 1: a while, That would be It would be nice if
Speaker 1: they didn't. The problem I suspect is that a lot
Speaker 1: of companies are working on the assumption that they can
Speaker 1: roll over their debt pretty quickly, So the rate may
Speaker 1: not matter so much. It's whether the availability of credit
Speaker 1: to roll over loans once they come due that could
Speaker 1: be much more of an issue, because that's the way
Speaker 1: you get into suddenly having to pay a higher rate
Speaker 1: and finding it much harder to do that. Now, that
Speaker 1: does become an issue because the market has been rewarding
Speaker 1: companies for paying at dividends, for doing stock by backs,
Speaker 1: generally things that don't help you strengthen up your balance sheet.
Speaker 1: If you have protracted higher yields, and again we're not
Speaker 1: talking stagflation pull vulca. If you're just talking about yields
Speaker 1: staying where they are a little bit higher for a
Speaker 1: year or two, that very much changes the mathematics for companies.
Speaker 1: And what happened to the idea of the fortress balance sheet.
Speaker 1: That's an interesting one. I think partly you do have
Speaker 1: an array of companies brought to an extent that they
Speaker 1: became overpriced on the back of the strength of their
Speaker 1: balance sheets. One of the great appeals of the fang
Speaker 1: stocks was that they were seeing almost as a modern
Speaker 1: day equivalent of treasury bonds, in that you were so
Speaker 1: confident that nothing was going to go to wrong there.
Speaker 1: They were going to keep making profits and they had
Speaker 1: barely any debt. Suddenly I go on faces everywhere, well,
Speaker 1: well yeah, so so, but there's still none of those
Speaker 1: companies I just mentioned is going to go bust anytime soon.
Speaker 1: I'm prepared to say that one on the record. Yeah.
Speaker 1: And so it's important to say that the fact that
Speaker 1: weak balance sheets companies are actually out performing strong balance
Speaker 1: sheet companies quite significantly this year, which is an extraordinary
Speaker 1: thing to happen when rates are going up very sharply.
Speaker 1: That's in some parts of perverse reaction to the fact
Speaker 1: that people have noticed they paid too much for the fangs,
Speaker 1: and the fangs have been falling very sharply. So having
Speaker 1: discovered this fascinating factoid that weak balance sheets are actually
Speaker 1: doing well. I perhaps should admit that part. However, you
Speaker 1: would think weak balance sheets companies would be pummeled at
Speaker 1: this point because plainly the mathematics the arithmetic from is
Speaker 1: getting much worse, and that hasn't really happened. Not only that,
Speaker 1: but you also took a look at historic defold rates
Speaker 1: and published by the deutste Bank team once a year,
Speaker 1: and you found that even if recession arrives, really only
Speaker 1: looking at a peak specutt of default rate of about
Speaker 1: ten percent in the United States according to Deutsche Bank.
Speaker 1: I mean, that's not a lot, and that doesn't allow
Speaker 1: for much creative destruction. As you point out, Yes, that
Speaker 1: is an argument that I have some sympathy with. I'm
Speaker 1: not sure how far I'm prepared to go. But the
Speaker 1: argument of the people and what you might call the
Speaker 1: Austrian school of economics who believe in Shampeterian creative destruction
Speaker 1: is that the succession of bailouts, the very low rates
Speaker 1: that we've had for twenty years have led to a flabby,
Speaker 1: relatively uncompetitive, inefficient form of capitalism, because companies that ought
Speaker 1: to have gone bust by now are surviving and hogging
Speaker 1: capital that could be better used by somebody more innovative,
Speaker 1: and that does play very much into the whole idea
Speaker 1: of the industrialization and inequality. It makes it that much
Speaker 1: harder to create jobs for lots of people, and it
Speaker 1: means that those who are lucky enough to own stock
Speaker 1: do very well. So there's certainly a very good argument
Speaker 1: that a higher default rate would actually be helpful. What
Speaker 1: happens this time? Does the fair manage to do it?
Speaker 1: Pull off the soft ending and to get back to
Speaker 1: Tony Kristenzi's point, a growth recession and sues, I think
Speaker 1: that possibility is rising. I'm not sure I would go
Speaker 1: along with Tony Krishnzi to the point of saying that
Speaker 1: it's more likely than any other option, But certainly, if
Speaker 1: you look at the latest unemployment data, claims and so on,
Speaker 1: you do have some inkling that the employment market maybe
Speaker 1: calming down somewhat without turning brutally negative. And it's also
Speaker 1: possible that you'll see inflation numbers begin to down. However,
Speaker 1: I still think this is going to be a very
Speaker 1: very difficult landing. You know, it is possible, and they're
Speaker 1: still just about on the path that would take them there,
Speaker 1: but it's narrow and it will be easy to be
Speaker 1: knocked off. Course. The biggest risk by a big margin
Speaker 1: is oil almost back to the highs in the first
Speaker 1: few days after the invasion of Ukraine. If that carries on,
Speaker 1: if the politics of OPEC don't deliver a cut, and
Speaker 1: if the geopolitics of the situation work out in one
Speaker 1: of the worst ways that seems possible at the moment
Speaker 1: rather than better ones, and oil gets up towards a
Speaker 1: hundred and fifty, that's problematic. That affects everybody's costs. It
Speaker 1: either destroys demands or it puts up inflation, and the
Speaker 1: political situation even harder as well than because you know
Speaker 1: the president will be blamed for it, and maybe he
Speaker 1: will engineer or something. Well, he has to try to
Speaker 1: do something, because the history is very plain that gas prices,
Speaker 1: particularly in this country where we are the states, are
Speaker 1: more important than far more important in fact, than their
Speaker 1: weight within the index. Their weight within people's actual budgets
Speaker 1: should dictate because they're so variable and they're so visible.
Speaker 1: You make your purchases regularly, you're aware of the price
Speaker 1: because it's literally they're in big numbers by the side
Speaker 1: of the road. It is so salient and so clear,
Speaker 1: and that means obviously it's one of the areas which
Speaker 1: the FED really has no control over at all. It
Speaker 1: does seem like there's a lot of it doesn't have
Speaker 1: control over these days. So as well, it's not just
Speaker 1: oil that's problematic Ukraine wise, it's also food and it's
Speaker 1: also you know, also something yes, the things that that well, yes,
Speaker 1: And though those things are very important, and there are
Speaker 1: alarming possibilities of you've seen Peru and you've seen Sri Lanka,
Speaker 1: some bigger emerging economies might yet see civil unrest over
Speaker 1: very high food prices. There's form for that. Arguably, the
Speaker 1: Arab Spring was lit by high food prices ten eleven
Speaker 1: years ago, and that has to be clear. I personally
Speaker 1: care more about the human beings who would be affected
Speaker 1: by that. But if we're being dispassionate and talking about
Speaker 1: it as an investment, that's also potentially very bad for
Speaker 1: the supply of certain commodities. The fact that certain commodities
Speaker 1: that are needed only come from places that have a
Speaker 1: problematic relationship with the West. You know, cobalts is from
Speaker 1: the democratric public of Congo, Lithium is Olivia. These are
Speaker 1: not places you would feel very comfortable about if you
Speaker 1: get the kind of unrest that is easy to imagine
Speaker 1: in places like that, that really messes up the attempt
Speaker 1: to move to electric cars, improve battery technology and so on.
Speaker 1: So yes, there are very great risks to the soft
Speaker 1: land thing for reasons that are beyond the fits control
Speaker 1: in terms of those things that are within the fetes
Speaker 1: control having allowed themselves to get blown badly off course,
Speaker 1: you know, the last month or two has moved in
Speaker 1: a direction that would have them feeling reasonably comfortable that
Speaker 1: things are consistent with their eventually landing softly. And of
Speaker 1: course the ECB is going to start raising raids soon
Speaker 1: as well, which won't hurt well that we haven't gotten
Speaker 1: there yet, but if that begins to weaken the dollar,
Speaker 1: that also helps avoid some of the really nastier knock
Speaker 1: on effects that are possible in the developing world. Yes, John,
Speaker 1: authors there, do get in touch to continue this conversation.
Speaker 1: I'm Att Vonnie Quinn on Twitter or email v Quinn
Speaker 1: at Bloomberg dot net. That does it for a Bloomberg Opinion.
Speaker 1: This week, we're produced by Eric Mollowe. Until next time,
Speaker 1: I'm Bloomberg opinion,