1 00:00:00,560 --> 00:00:03,720 Speaker 1: This is Bloomberg Wall Street Week. We turn our attention 2 00:00:03,880 --> 00:00:07,600 Speaker 1: to the markets this week. Us CPI never's reinforcing concerns 3 00:00:07,640 --> 00:00:10,800 Speaker 1: about inflation. The financial stories that sheep are were a 4 00:00:10,840 --> 00:00:13,760 Speaker 1: really different reaction to mark Its more indications of just 5 00:00:13,960 --> 00:00:16,360 Speaker 1: how hot the U. S economy really is. Through the 6 00:00:16,400 --> 00:00:19,799 Speaker 1: eyes of the most influential voices. Larry Summers, the former 7 00:00:19,840 --> 00:00:22,840 Speaker 1: Treachery Secretary, Katherine Keening, CEO of v n Y, Mom 8 00:00:22,960 --> 00:00:26,880 Speaker 1: Sam's l chairman and founder Equity Group Investment in Bloomberg 9 00:00:26,920 --> 00:00:31,680 Speaker 1: Wolf Street Weet with David Weston from Bloomberg Radio. Rising 10 00:00:31,800 --> 00:00:34,960 Speaker 1: recession concerns, a budget moved to the center, and the 11 00:00:35,080 --> 00:00:38,840 Speaker 1: killing continues in Ukraine. This is Bloomberg Wall Street Week. 12 00:00:38,920 --> 00:00:43,080 Speaker 1: I'm David Weston. This week's special contributor Larry Summers on 13 00:00:43,159 --> 00:00:45,720 Speaker 1: what happens when you run the economy hut for the 14 00:00:45,760 --> 00:00:50,000 Speaker 1: sake of employment. We do not do anybody a favor 15 00:00:50,520 --> 00:00:54,600 Speaker 1: by overheating the economy, because when we overheat the economy, 16 00:00:54,880 --> 00:00:58,400 Speaker 1: the chickens do come home to rush and former IBM 17 00:00:58,440 --> 00:01:01,520 Speaker 1: CEO Sam Pomisano the opportunity for the United States to 18 00:01:01,560 --> 00:01:04,559 Speaker 1: form a new coalition to compete with China in tech. 19 00:01:05,400 --> 00:01:08,480 Speaker 1: I caught the Super Bowl. Geopolitics, the US needs to 20 00:01:08,560 --> 00:01:24,880 Speaker 1: leverage the world. It was a week of anticipating what 21 00:01:25,160 --> 00:01:28,560 Speaker 1: didn't happen, at least not yet, with encouraging reports on 22 00:01:28,640 --> 00:01:32,319 Speaker 1: possible progress in talks between Ukraine and Russia giving way 23 00:01:32,520 --> 00:01:36,680 Speaker 1: to skepticism and disappointment. We can say that the signals 24 00:01:36,680 --> 00:01:39,560 Speaker 1: we hear from the talks are positive, but these signals 25 00:01:39,560 --> 00:01:43,319 Speaker 1: can't silence the explosions of Russian shells. We'll see. I 26 00:01:43,360 --> 00:01:45,480 Speaker 1: don't read anything into it until I see what their 27 00:01:45,520 --> 00:01:49,120 Speaker 1: actions are. Kremlin very much downplaying now the outcome of 28 00:01:49,240 --> 00:01:53,000 Speaker 1: peace talks in Istanbul, a spokesman for the Kremlin saying 29 00:01:53,000 --> 00:01:55,840 Speaker 1: that has been no breakthrough, even though Russia pledged to 30 00:01:55,840 --> 00:01:59,680 Speaker 1: scale back some military operations in Ukraine. It was a 31 00:01:59,720 --> 00:02:02,440 Speaker 1: week when the Biden administration gave us a proposed budget 32 00:02:02,440 --> 00:02:05,440 Speaker 1: that anticipated in producing the deficit but not the debt. 33 00:02:06,120 --> 00:02:08,560 Speaker 1: It's a laundry list, it's what we believe in. It's 34 00:02:08,560 --> 00:02:10,880 Speaker 1: almost a campaign speech if you think of it that way. 35 00:02:11,240 --> 00:02:13,520 Speaker 1: Knowing the White House knows all too well that this 36 00:02:13,560 --> 00:02:17,440 Speaker 1: will be uh twisted into a lot of different pretzel 37 00:02:17,480 --> 00:02:20,760 Speaker 1: pieces before this ever becomes a long This budget has 38 00:02:20,800 --> 00:02:25,959 Speaker 1: a plan to borrow a fourteen point four trillion dollars 39 00:02:26,000 --> 00:02:28,960 Speaker 1: in deficits over the budget window, which is ten years. 40 00:02:29,040 --> 00:02:30,959 Speaker 1: And it was a week when former New York Fed 41 00:02:31,040 --> 00:02:34,080 Speaker 1: chair Bill Dudley warned about the danger of a recession. 42 00:02:34,520 --> 00:02:36,320 Speaker 1: Every time the unemployer rate goes up by more than 43 00:02:36,360 --> 00:02:38,360 Speaker 1: a half a percentage point, the next stop is a 44 00:02:38,360 --> 00:02:42,079 Speaker 1: full blown recession, and pros like Mike Schumacher of Wells 45 00:02:42,080 --> 00:02:45,720 Speaker 1: Fargo kept an ego eye on a yield curve inversion 46 00:02:46,360 --> 00:02:49,160 Speaker 1: these times. It's very for a nano secondary said yesterday, 47 00:02:49,200 --> 00:02:52,320 Speaker 1: but we think the curve gets substantially inverted very quickly. 48 00:02:52,560 --> 00:02:54,160 Speaker 1: And if you look at what the bond market is 49 00:02:54,160 --> 00:02:58,000 Speaker 1: telling us and fowards something like minus thirty minus thirty 50 00:02:58,000 --> 00:03:00,200 Speaker 1: five at the end of the year. Those are day 51 00:03:00,480 --> 00:03:04,720 Speaker 1: numbers Mike Schumacher was talking about in Nanasaka on Wednesday. 52 00:03:04,720 --> 00:03:07,440 Speaker 1: But by Friday we got that inversion as yields on 53 00:03:07,520 --> 00:03:10,680 Speaker 1: two year treasuries rose above that on tens after the 54 00:03:10,720 --> 00:03:14,120 Speaker 1: ten years sold off in response to the jobs numbers 55 00:03:14,120 --> 00:03:16,760 Speaker 1: coming out on Friday, which were pretty robust numbers that 56 00:03:16,800 --> 00:03:19,720 Speaker 1: took the unemployment rate down to three point six percent. 57 00:03:20,080 --> 00:03:22,080 Speaker 1: And this came on the heels of a quarter that 58 00:03:22,280 --> 00:03:25,720 Speaker 1: ended on Thursday with the biggest drop and treasury bonds 59 00:03:25,760 --> 00:03:28,680 Speaker 1: in history. In the face of all this, bond action 60 00:03:28,760 --> 00:03:32,680 Speaker 1: equities actually were prelatively well behaved, with the SMP five hundred, 61 00:03:32,720 --> 00:03:35,400 Speaker 1: the NAZAC up a bit and the down down a bit, 62 00:03:35,680 --> 00:03:38,040 Speaker 1: and the price of oil, which has been driven by 63 00:03:38,040 --> 00:03:40,800 Speaker 1: the war in Ukraine, fell the most in two years 64 00:03:41,080 --> 00:03:43,880 Speaker 1: after present Biden announced he'd be releasing a million barrels 65 00:03:44,200 --> 00:03:47,240 Speaker 1: a day from the Strategic Patrolling Reserve to helps makes 66 00:03:47,240 --> 00:03:50,040 Speaker 1: sense of all of this. Welcome now, Sarah Kett, CEO 67 00:03:50,080 --> 00:03:53,560 Speaker 1: of Causeway Capital, and liz Ana Saunders Charles Schwab, Chief 68 00:03:53,600 --> 00:03:56,320 Speaker 1: Investment Strategies. Lizien, let me start with you to make 69 00:03:56,360 --> 00:03:58,800 Speaker 1: sense of all this. It was a tumultuous quarter and 70 00:03:58,840 --> 00:04:01,760 Speaker 1: a pretty eventful as well. What are we learning from 71 00:04:01,800 --> 00:04:05,360 Speaker 1: all this? Clearly, the the inversion of the Yeld curve, 72 00:04:05,360 --> 00:04:07,640 Speaker 1: which couple of days ago it happened briefly in tra 73 00:04:07,760 --> 00:04:10,360 Speaker 1: day and didn't close at that level, has I think 74 00:04:10,440 --> 00:04:12,800 Speaker 1: garnered most of the attention, certainly a lot of the 75 00:04:12,840 --> 00:04:16,720 Speaker 1: financial media attention, and and lots of confusion about what 76 00:04:16,760 --> 00:04:19,600 Speaker 1: it actually says about the risk of recession. I think 77 00:04:19,640 --> 00:04:23,120 Speaker 1: anytime you have an inversion, anytime you've got a FED 78 00:04:23,160 --> 00:04:26,880 Speaker 1: moving from extremely easy policy to tighter policy, you need 79 00:04:26,920 --> 00:04:29,800 Speaker 1: to dust off the checklist for a recession. But to 80 00:04:29,880 --> 00:04:35,400 Speaker 1: see the market behave somewhat resiliency is actually not out 81 00:04:35,400 --> 00:04:39,520 Speaker 1: of the ordinary yield curb in versions of historically generally 82 00:04:39,600 --> 00:04:43,080 Speaker 1: seen rising equity markets. It's really not until the point 83 00:04:43,120 --> 00:04:46,560 Speaker 1: where recession seems like a higher likelihood do you run 84 00:04:46,560 --> 00:04:49,279 Speaker 1: into trouble. But I think we're in a relief rally 85 00:04:49,400 --> 00:04:52,880 Speaker 1: relative to the correction that preceded it. I wouldn't bank 86 00:04:53,000 --> 00:04:59,159 Speaker 1: on it continuing uh with without another bit of a pullback. Sarah, 87 00:04:59,200 --> 00:05:01,960 Speaker 1: do you believe the really Foley? Is it here to stay? 88 00:05:02,360 --> 00:05:05,200 Speaker 1: It all depends, David, on what real interest rates do. 89 00:05:05,440 --> 00:05:08,920 Speaker 1: So it's very important to note that its inflation is rising. 90 00:05:09,480 --> 00:05:12,760 Speaker 1: We're seeing and this particularly acutely an issue in Europe 91 00:05:12,760 --> 00:05:16,279 Speaker 1: and in the US. Real interest rates are going more 92 00:05:16,400 --> 00:05:20,120 Speaker 1: negative and that creates more fuel for equity buying. So 93 00:05:20,240 --> 00:05:23,040 Speaker 1: that's one of reasons why we keep fully invested, because 94 00:05:23,080 --> 00:05:25,080 Speaker 1: we want to make sure our clients get access to 95 00:05:25,400 --> 00:05:28,120 Speaker 1: what the only place you can put money is in 96 00:05:28,160 --> 00:05:31,760 Speaker 1: equity markets in our view. And also note I mean 97 00:05:31,800 --> 00:05:34,640 Speaker 1: there's plenty of bad news, but oil price shocks historically 98 00:05:34,640 --> 00:05:39,120 Speaker 1: in the seventies, early nineties, in uh in two thousand, 99 00:05:39,880 --> 00:05:42,920 Speaker 1: they're not always followed by weak equity markets. That those 100 00:05:42,920 --> 00:05:45,279 Speaker 1: two are not correlated. So there are reasons to be 101 00:05:45,320 --> 00:05:50,680 Speaker 1: optimistic in what looks like a very dark environment. So Luzienne, 102 00:05:50,720 --> 00:05:53,159 Speaker 1: I wonder in the face of these negative real rates 103 00:05:53,200 --> 00:05:55,120 Speaker 1: that we just heard about from Sarah, as well as 104 00:05:55,160 --> 00:05:57,160 Speaker 1: oil shocks at the moment, there's a lot of talking 105 00:05:57,160 --> 00:05:59,280 Speaker 1: about the seventies where we had over stimulus and then 106 00:05:59,279 --> 00:06:01,640 Speaker 1: on top of that oil shocks. It really does raise 107 00:06:01,680 --> 00:06:04,359 Speaker 1: the question about the inflation. Negative real rates indicate we 108 00:06:04,400 --> 00:06:06,359 Speaker 1: still have our foot on the accelerator at the break. 109 00:06:06,600 --> 00:06:08,240 Speaker 1: How far do we have to go to slow down 110 00:06:08,240 --> 00:06:12,520 Speaker 1: this economy to get inflation under control. Well, even even 111 00:06:12,560 --> 00:06:16,839 Speaker 1: Powell has said he's willing to accept a recession as 112 00:06:16,880 --> 00:06:21,359 Speaker 1: a as the end game associated with finally bringing down 113 00:06:21,560 --> 00:06:25,800 Speaker 1: this inflation problem. I don't think we're really looking at 114 00:06:25,800 --> 00:06:28,520 Speaker 1: the seventies type of environment. I think there's more differences 115 00:06:28,640 --> 00:06:31,680 Speaker 1: between today in the nineties seventies than there are similarities. 116 00:06:32,080 --> 00:06:36,279 Speaker 1: Stagflation I think used with a lower casees. Generically maybe 117 00:06:36,320 --> 00:06:39,919 Speaker 1: as appropriate given weaker growth and high inflation, but really 118 00:06:39,920 --> 00:06:42,520 Speaker 1: what that represented in the seventies was a high and 119 00:06:42,760 --> 00:06:47,280 Speaker 1: rising unemployment rate, which is clearly different than the current environment. 120 00:06:47,720 --> 00:06:49,880 Speaker 1: And Saunders and Sarah Ketty will be staying with us 121 00:06:50,000 --> 00:06:52,000 Speaker 1: as we come back and look around the corner to 122 00:06:52,120 --> 00:06:54,400 Speaker 1: what's coming up, not just next week, next next quarter, 123 00:06:54,520 --> 00:06:56,719 Speaker 1: but down the road. This is Wall Street Week on 124 00:06:56,760 --> 00:07:04,520 Speaker 1: bloomber This is Bloomberg Wall Street Week with David Weston 125 00:07:04,800 --> 00:07:08,200 Speaker 1: from Bloomberg Radio. I think one of the nice things 126 00:07:08,200 --> 00:07:11,520 Speaker 1: about this environment is that with all the carnage out there, 127 00:07:11,600 --> 00:07:14,040 Speaker 1: with so many of the smaller companies and the less 128 00:07:14,040 --> 00:07:17,640 Speaker 1: well capitalized companies and the less well managed companies are 129 00:07:17,640 --> 00:07:20,000 Speaker 1: starting to really have difficulty in some cases going out 130 00:07:20,000 --> 00:07:21,880 Speaker 1: of business. And I think this environment is going to 131 00:07:21,960 --> 00:07:24,600 Speaker 1: afford the bigger, well managed companies the ability to pick 132 00:07:24,640 --> 00:07:27,520 Speaker 1: up market share and in many cases maintain their dominance. 133 00:07:27,720 --> 00:07:29,280 Speaker 1: It was one favorite that you think still has a 134 00:07:29,320 --> 00:07:31,480 Speaker 1: ways to go. I still like Microsoft, speaking of the 135 00:07:31,520 --> 00:07:33,680 Speaker 1: behemoths and a o LL although I wouldn't have sort 136 00:07:33,720 --> 00:07:37,080 Speaker 1: of considered that a technology company anymore. That was our 137 00:07:37,160 --> 00:07:39,480 Speaker 1: very own Lizana Sanders appearing on Wall Street Week with 138 00:07:39,520 --> 00:07:41,720 Speaker 1: Lewis R. Back in two thousan when A. O. L 139 00:07:41,920 --> 00:07:44,600 Speaker 1: was still a behemoth. By the way, Losan has remained 140 00:07:44,600 --> 00:07:47,080 Speaker 1: with us along with Sarah Ketder a Causeway Capital. So 141 00:07:47,120 --> 00:07:49,760 Speaker 1: we've had a conversation about what's happened this quarter, what's 142 00:07:49,760 --> 00:07:51,600 Speaker 1: going to be coming up around the corner here. But 143 00:07:51,680 --> 00:07:53,760 Speaker 1: let's look down the road, Sarah, let me start with you. 144 00:07:54,520 --> 00:07:56,120 Speaker 1: Where is there cause for hope. We've got a lot 145 00:07:56,120 --> 00:07:59,320 Speaker 1: of concerns about inflation, about the tightening we're expecting plans, 146 00:07:59,360 --> 00:08:00,880 Speaker 1: and by the way, we still have a war going 147 00:08:00,880 --> 00:08:03,160 Speaker 1: on where people are dying every day over in Ukraine. Well, 148 00:08:03,160 --> 00:08:05,640 Speaker 1: what are some of the possible upsides for investors down 149 00:08:05,640 --> 00:08:08,800 Speaker 1: the road? Maybe perhaps not too far down the road. 150 00:08:08,840 --> 00:08:12,160 Speaker 1: And I hinted that before the break are the pandemic 151 00:08:12,200 --> 00:08:16,560 Speaker 1: recovery stocks. They were certainly hit very hard and had 152 00:08:16,600 --> 00:08:19,920 Speaker 1: a false dawn in early one and then the omicron 153 00:08:20,080 --> 00:08:23,320 Speaker 1: variant UH gripped them again and dragged them lower. They 154 00:08:23,400 --> 00:08:27,280 Speaker 1: rallied a bit, and they were doing very well from 155 00:08:27,440 --> 00:08:32,000 Speaker 1: January of this year until February, particularly the ones in Europe, 156 00:08:32,520 --> 00:08:35,280 Speaker 1: and then we had this as you note did this 157 00:08:35,360 --> 00:08:40,520 Speaker 1: horrendous invasion, so that UH really hit these stocks hard. 158 00:08:41,160 --> 00:08:44,040 Speaker 1: Some of the great airline companies, like one of the 159 00:08:44,040 --> 00:08:47,959 Speaker 1: best discounters in the world, Ryanair, crushed. And these are 160 00:08:48,000 --> 00:08:52,280 Speaker 1: opportunities for investors because we can't assume that invasions last forever. 161 00:08:52,520 --> 00:08:57,840 Speaker 1: And this pandemic is thankfully dissipating. So there are other 162 00:08:57,880 --> 00:09:02,840 Speaker 1: ones in aerospace, travel and leisure. You can find airport companies, 163 00:09:04,000 --> 00:09:07,400 Speaker 1: aircraft engine manufacturers have only one or two competitors, like 164 00:09:07,520 --> 00:09:11,240 Speaker 1: it's a This is where active management gets very excited. 165 00:09:11,240 --> 00:09:14,520 Speaker 1: As you can tell, they there are pandemic recovery stocks 166 00:09:14,559 --> 00:09:17,360 Speaker 1: out there. They're in food, catering, and retail. They just 167 00:09:17,480 --> 00:09:22,440 Speaker 1: need they need the uh, the mass to be off, 168 00:09:22,480 --> 00:09:26,120 Speaker 1: the people be out again and then UH and as 169 00:09:26,120 --> 00:09:29,240 Speaker 1: we discussed before, not too great of an inflation head 170 00:09:29,280 --> 00:09:33,240 Speaker 1: when cutting into their discretionary spent. So listen, In addition 171 00:09:33,240 --> 00:09:35,960 Speaker 1: to possibly the pandemic recovery, you may agree with exactly 172 00:09:36,200 --> 00:09:38,079 Speaker 1: what we just heard from Sarah, but there's one other 173 00:09:38,120 --> 00:09:40,719 Speaker 1: factor I wonder about. That's fiscal stimulus. Right now, we 174 00:09:40,760 --> 00:09:44,040 Speaker 1: have essentially a d stimulus because we're coming off of 175 00:09:44,080 --> 00:09:45,719 Speaker 1: so much fiscal stimus. And I say it's at the 176 00:09:45,760 --> 00:09:48,480 Speaker 1: same time that horrendous war in Ukraine, the goodness knows 177 00:09:48,480 --> 00:09:50,240 Speaker 1: we want to be over soon. At some point will 178 00:09:50,280 --> 00:09:51,920 Speaker 1: be over and they'll have to be the need to 179 00:09:51,920 --> 00:09:54,560 Speaker 1: invest a fair amount. Could that be a potential fiscal students, 180 00:09:54,600 --> 00:09:58,920 Speaker 1: at least in Europe. Yeah. I think the the investment 181 00:09:59,040 --> 00:10:03,920 Speaker 1: story along your term not just driven by the terrible 182 00:10:03,960 --> 00:10:07,440 Speaker 1: tragedy going on in Europe right now, although that clearly 183 00:10:07,559 --> 00:10:13,800 Speaker 1: will stimulate some investment, whether it's energy infrastructure, UM, food infrastructure, 184 00:10:13,880 --> 00:10:18,320 Speaker 1: not to mention the rebuilding of actual infrastructure in Ukraine, 185 00:10:18,400 --> 00:10:21,680 Speaker 1: but even prior to that, I think what the pandemic 186 00:10:21,760 --> 00:10:26,000 Speaker 1: brought about was the necessity of investments in certain areas, 187 00:10:26,120 --> 00:10:29,400 Speaker 1: and there was so much low hanging fruit of inefficiency 188 00:10:29,600 --> 00:10:34,559 Speaker 1: in UH quite a few segments of our economy, healthcare, education, 189 00:10:34,840 --> 00:10:38,400 Speaker 1: and I think the necessity of sort of stepping up 190 00:10:38,440 --> 00:10:42,080 Speaker 1: and becoming more efficient and investing in digital driven by 191 00:10:42,120 --> 00:10:45,760 Speaker 1: the pandemic, I don't think kind of goes back under 192 00:10:45,800 --> 00:10:49,720 Speaker 1: the rock. I think we have unleashed what is likely 193 00:10:49,800 --> 00:10:53,600 Speaker 1: to be an era of of stepped up investment and 194 00:10:53,760 --> 00:10:57,920 Speaker 1: probably along with it higher productivity. It doesn't prevent a 195 00:10:57,960 --> 00:11:01,160 Speaker 1: possible recession. In the near term. But that's where I 196 00:11:01,200 --> 00:11:03,480 Speaker 1: think there is sort of a shining light when you 197 00:11:03,559 --> 00:11:06,720 Speaker 1: think longer term about what may come out of the 198 00:11:06,800 --> 00:11:10,280 Speaker 1: combination of both the pandemic and the war. It may 199 00:11:10,320 --> 00:11:13,800 Speaker 1: even the medium term to the degree that that digital 200 00:11:13,840 --> 00:11:17,680 Speaker 1: spend is so necessary that will take precedent even when 201 00:11:17,760 --> 00:11:22,000 Speaker 1: other if there's some sort of curtailment of capital expenditures, 202 00:11:22,400 --> 00:11:25,240 Speaker 1: companies have to make that transition, and they need to 203 00:11:25,240 --> 00:11:27,880 Speaker 1: do so globally, So we think of that as somewhat 204 00:11:28,760 --> 00:11:32,680 Speaker 1: non cyclical part of the whole technology spend. Lissen, I 205 00:11:32,679 --> 00:11:34,760 Speaker 1: don't think I know many people who are rooting for 206 00:11:34,800 --> 00:11:37,120 Speaker 1: a recession, although as you suggest, a lot of people 207 00:11:37,280 --> 00:11:39,280 Speaker 1: have to be prepared for the possibility of it. But 208 00:11:39,480 --> 00:11:41,679 Speaker 1: is there a potentially if I can say that upside 209 00:11:41,720 --> 00:11:44,120 Speaker 1: potential to some creative destruction. I think that's what you 210 00:11:44,160 --> 00:11:46,439 Speaker 1: were talking about. Whenever you have a lot of money 211 00:11:46,440 --> 00:11:49,360 Speaker 1: slashing around, some bad decisions that made, if you take 212 00:11:49,400 --> 00:11:52,040 Speaker 1: some of that liquidity away, then actually people have to 213 00:11:52,040 --> 00:11:54,440 Speaker 1: make some tough decisions and maybe you sort of maybe 214 00:11:54,440 --> 00:11:57,520 Speaker 1: the sheep from the goats. Yeah, I think there have 215 00:11:57,679 --> 00:12:01,040 Speaker 1: been some maybe unintended concept onnes is of this massive 216 00:12:01,040 --> 00:12:05,360 Speaker 1: amount of liquidity, whether it's a mispricing in various markets 217 00:12:05,400 --> 00:12:08,440 Speaker 1: and asset bubbles. So I think there's a benefit that 218 00:12:08,480 --> 00:12:10,920 Speaker 1: will accrue there. And then, as we already touched on 219 00:12:11,520 --> 00:12:17,640 Speaker 1: the unfortunate possible necessity of constraining aggregate demand in order 220 00:12:17,720 --> 00:12:22,119 Speaker 1: to rein in the combination of the supply chain problems 221 00:12:22,280 --> 00:12:25,559 Speaker 1: and and just the feeder effect it's having on on 222 00:12:25,640 --> 00:12:29,480 Speaker 1: pricing and inflation, we may need a recession to calm 223 00:12:29,520 --> 00:12:32,440 Speaker 1: all of those forces, and it may not have to 224 00:12:32,440 --> 00:12:35,320 Speaker 1: be a particularly deep one. But I do think what 225 00:12:35,360 --> 00:12:39,840 Speaker 1: we're looking at is a more kind of normal cycle. 226 00:12:40,040 --> 00:12:42,920 Speaker 1: If we're heading into recession, what it looks like it 227 00:12:43,000 --> 00:12:46,520 Speaker 1: causes of it being tighter monetary policy. That's sort of 228 00:12:46,600 --> 00:12:50,359 Speaker 1: traditional that the last cycle, the COVID recession, the aftermath 229 00:12:50,440 --> 00:12:53,400 Speaker 1: of it, um there was no playbook for that. That 230 00:12:53,520 --> 00:12:57,600 Speaker 1: was incredibly unique. I think this next cycle, both into 231 00:12:57,640 --> 00:13:00,880 Speaker 1: the next recession and coming out will be a little 232 00:13:00,920 --> 00:13:02,840 Speaker 1: more I don't want to say garden variety, but a 233 00:13:02,840 --> 00:13:08,120 Speaker 1: little more in keeping with your typical recession recovery type cycle. So, Sarah, 234 00:13:08,200 --> 00:13:10,720 Speaker 1: give us just a little taste of your secret sauce here. 235 00:13:10,880 --> 00:13:13,920 Speaker 1: As an investor, somebody who maintains the portfolio. As you 236 00:13:13,920 --> 00:13:15,760 Speaker 1: take a look. You've talked about things like coming back 237 00:13:15,800 --> 00:13:18,040 Speaker 1: from pandemic. That's sort of a structural thing across the 238 00:13:18,080 --> 00:13:20,920 Speaker 1: board as you try to figure out which companies really 239 00:13:20,960 --> 00:13:24,280 Speaker 1: are being run well and efficiently, are making sensible decisions, 240 00:13:24,320 --> 00:13:26,440 Speaker 1: what do you look at and what other companies giving 241 00:13:26,480 --> 00:13:28,960 Speaker 1: an example or two, Well, just to take up what 242 00:13:29,160 --> 00:13:31,560 Speaker 1: Lizzen just mentioned, to the degree we've got we're going 243 00:13:31,640 --> 00:13:35,680 Speaker 1: to see a typical recovery or typical recession recovery, then 244 00:13:35,760 --> 00:13:39,520 Speaker 1: let's find those stocks that tend to do well in 245 00:13:39,559 --> 00:13:43,280 Speaker 1: that environment. So what doesn't do well initially as you 246 00:13:43,520 --> 00:13:46,360 Speaker 1: head into the bottom of the economy, and I'm speaking 247 00:13:46,360 --> 00:13:49,360 Speaker 1: really for everything ex China, The rest of the world 248 00:13:49,400 --> 00:13:52,600 Speaker 1: is lodging on the same monetary policy cycle meaning tightening. 249 00:13:52,600 --> 00:13:57,960 Speaker 1: Other than China and UH banks, other financials, they tend 250 00:13:57,960 --> 00:14:01,000 Speaker 1: to bottom somewhere as as we get into that significant 251 00:14:01,000 --> 00:14:03,880 Speaker 1: amount of tightening and the recession takes hold, and then 252 00:14:03,920 --> 00:14:08,360 Speaker 1: they rally very strongly. May remember they're really part of 253 00:14:08,400 --> 00:14:13,000 Speaker 1: two thousand nine unbelievable performance. So if if history is 254 00:14:13,040 --> 00:14:15,920 Speaker 1: going to repeat itself, what Lizan says is correct, which 255 00:14:15,960 --> 00:14:19,120 Speaker 1: I agree with this is a little more normal, a 256 00:14:19,160 --> 00:14:22,120 Speaker 1: little more then then those will be good stocks to own. 257 00:14:22,160 --> 00:14:24,280 Speaker 1: And the most bombed out ones are in that part 258 00:14:24,280 --> 00:14:26,880 Speaker 1: of the world has really been hit hard, which is Europe, 259 00:14:27,240 --> 00:14:29,720 Speaker 1: so European financials. And you could also go with the 260 00:14:29,800 --> 00:14:33,480 Speaker 1: energy transition. One of the silver linings of this horrendous 261 00:14:34,120 --> 00:14:39,000 Speaker 1: energy disruption is the greater need to accelerate, then move 262 00:14:39,200 --> 00:14:43,760 Speaker 1: to low and then zero carbon type renewable energy. And 263 00:14:44,120 --> 00:14:46,640 Speaker 1: some of the European utilities are expert at this and 264 00:14:46,680 --> 00:14:50,400 Speaker 1: they're trading more six percentivity fields. Thank you so much 265 00:14:50,400 --> 00:14:55,000 Speaker 1: for Liziane Saunders and Sarah Header. Coming up, what does 266 00:14:55,040 --> 00:14:59,000 Speaker 1: a post sanctions world mean for tech competition during China 267 00:14:59,080 --> 00:15:01,520 Speaker 1: and the United States. Where we find out from former 268 00:15:01,560 --> 00:15:05,440 Speaker 1: IBM CEO Sam Palmisano. That's next on Wall Street Week 269 00:15:05,760 --> 00:15:11,360 Speaker 1: on Bloomberg. This is Bloomberg Wall Street Week with David 270 00:15:11,400 --> 00:15:19,160 Speaker 1: Weston from Bloomberg Radio. Hundreds of thousands of people who 271 00:15:19,160 --> 00:15:25,240 Speaker 1: are being cut off from help by Russian forces placed 272 00:15:25,320 --> 00:15:31,320 Speaker 1: like Mary stop. It's like something out about science fri. 273 00:15:32,040 --> 00:15:35,040 Speaker 1: President Biden described the death and destruction we're seeing from 274 00:15:35,080 --> 00:15:38,560 Speaker 1: Russia's military invasion of Ukraine during his recent trip to Europe. 275 00:15:38,840 --> 00:15:42,000 Speaker 1: But this war goes beyond the military is being fought 276 00:15:42,040 --> 00:15:44,880 Speaker 1: in the markets as well, with the US and its 277 00:15:44,880 --> 00:15:48,960 Speaker 1: allies imposing severe sanctions on the Russian economy, something Ukrainian 278 00:15:49,000 --> 00:15:52,200 Speaker 1: President Zelinsky says is the only thing likely to get 279 00:15:52,240 --> 00:15:55,520 Speaker 1: through to Vladimir Putin. There's no other language than if 280 00:15:55,560 --> 00:16:01,040 Speaker 1: efficient sanctions that Russian leadership can understand that Woolmarstian has 281 00:16:01,120 --> 00:16:05,160 Speaker 1: to be cut off from the means of existence. And 282 00:16:05,200 --> 00:16:07,400 Speaker 1: when it comes to the economic battle, it's not just 283 00:16:07,440 --> 00:16:11,320 Speaker 1: the United States versus Russia. China plays a crucial role 284 00:16:11,720 --> 00:16:14,680 Speaker 1: that made it clear to him that makes sure he 285 00:16:14,760 --> 00:16:18,400 Speaker 1: understood the consequences of him helping Russia. But I pointed 286 00:16:18,400 --> 00:16:22,880 Speaker 1: out the number of American and foreign corporations left Russia 287 00:16:22,920 --> 00:16:26,880 Speaker 1: as a consequence of their barbaric behavior, which poses a 288 00:16:26,920 --> 00:16:30,400 Speaker 1: difficult question for President g who has pledged to support Mr. 289 00:16:30,480 --> 00:16:33,400 Speaker 1: Putin but has to keep a careful eye on his 290 00:16:33,480 --> 00:16:37,240 Speaker 1: country's role in the global economy, which Nobel Laureate Michael 291 00:16:37,240 --> 00:16:42,600 Speaker 1: Spence says he is surely doing. China understands something that 292 00:16:43,280 --> 00:16:46,120 Speaker 1: President Putin doesn't seem to understand, and that is that 293 00:16:46,240 --> 00:16:49,320 Speaker 1: any economy, even a big one like China or even 294 00:16:49,360 --> 00:16:52,880 Speaker 1: the United States can't perform and anything like its full 295 00:16:52,920 --> 00:16:56,880 Speaker 1: potential in isolation, and so I expect China to sort 296 00:16:56,880 --> 00:17:00,480 Speaker 1: of move carefully and and try to thread needle. But 297 00:17:00,600 --> 00:17:04,240 Speaker 1: to avoid a scenario in which we start dividing the 298 00:17:04,280 --> 00:17:09,160 Speaker 1: world up into blocks when it comes to international economics 299 00:17:09,160 --> 00:17:11,800 Speaker 1: and particularly when involves technology, we turn to our very 300 00:17:11,840 --> 00:17:14,560 Speaker 1: special controller. He is Sam Paul is not a former 301 00:17:14,840 --> 00:17:17,560 Speaker 1: CEO of IVM. Thank you so much for being with us, Sam. 302 00:17:17,640 --> 00:17:20,840 Speaker 1: So we're seeing a lot of changes in trade patterns, 303 00:17:20,920 --> 00:17:23,639 Speaker 1: in economic dealings, in payment systems around the world because 304 00:17:23,640 --> 00:17:25,720 Speaker 1: of the war in Ukraine. Talk to us about what 305 00:17:25,880 --> 00:17:28,680 Speaker 1: specifically that may mean in the area of technology, whether 306 00:17:28,720 --> 00:17:33,200 Speaker 1: it's Russia or China, depending on which way China comes down. Well, David, 307 00:17:33,240 --> 00:17:36,000 Speaker 1: it's actually an excellent point, and I think that the 308 00:17:36,000 --> 00:17:39,840 Speaker 1: the sad controversy of the Ukraine is just accelerating transition 309 00:17:39,960 --> 00:17:42,840 Speaker 1: or changes that I believe will potentially occur. I mean, 310 00:17:43,040 --> 00:17:45,879 Speaker 1: as you know, everybody's talking about Russia, but also the 311 00:17:45,920 --> 00:17:49,040 Speaker 1: implications in the US China relationships, and there's no doubt 312 00:17:49,040 --> 00:17:51,840 Speaker 1: about it, and there's a lot of speculation that China 313 00:17:52,040 --> 00:17:55,639 Speaker 1: and the US will separate economically, Uh, I really don't 314 00:17:55,680 --> 00:17:58,440 Speaker 1: think that will occur. The reason I say that is 315 00:17:58,480 --> 00:18:00,520 Speaker 1: these economies are too large and too to are connected 316 00:18:00,560 --> 00:18:02,880 Speaker 1: to the world. You mentioned payment systems, full of capital, 317 00:18:02,920 --> 00:18:06,560 Speaker 1: all those things these economies are dependent upon. So I 318 00:18:06,560 --> 00:18:10,520 Speaker 1: don't think separation totally occurs. However, as I say that, 319 00:18:10,840 --> 00:18:12,879 Speaker 1: there's no doubt I believe that when it comes to 320 00:18:12,920 --> 00:18:16,600 Speaker 1: technology and future technologies, there's gonna be competition between the 321 00:18:16,640 --> 00:18:20,040 Speaker 1: two countries. And that's more so I'll say China uls 322 00:18:20,119 --> 00:18:22,439 Speaker 1: I mean, Russia really doesn't have the kinds of technologies 323 00:18:22,440 --> 00:18:24,640 Speaker 1: that we're talking about. But if you think about things 324 00:18:24,680 --> 00:18:29,960 Speaker 1: like semiconductors, artificial intelligence, quando computing, cyber computing, clearly there's 325 00:18:29,960 --> 00:18:32,119 Speaker 1: going to be competition, and therefore I think that'll be 326 00:18:32,200 --> 00:18:35,520 Speaker 1: less collaboration between China and the United States. So if 327 00:18:35,560 --> 00:18:37,560 Speaker 1: that happens, because it certainly looks right now like that's 328 00:18:37,600 --> 00:18:39,600 Speaker 1: where it's heading. We're not heading to a one big 329 00:18:39,640 --> 00:18:41,520 Speaker 1: globe where we're all the same, we all do with 330 00:18:41,560 --> 00:18:44,880 Speaker 1: each other, maybe more separation, particularly areas like tech. If 331 00:18:44,920 --> 00:18:47,520 Speaker 1: that happens, how are we and for we for the moment, 332 00:18:47,520 --> 00:18:49,560 Speaker 1: I'll say the United States situated because some people are 333 00:18:49,560 --> 00:18:52,600 Speaker 1: concerned that China, for example, has really been investing a 334 00:18:52,640 --> 00:18:55,840 Speaker 1: lot more in tech than we have been. There's no 335 00:18:55,880 --> 00:18:57,879 Speaker 1: doubt about it. I mean, I think last year alone 336 00:18:58,000 --> 00:19:00,440 Speaker 1: is one point five Trilly and Burnt estimates in range. 337 00:19:00,440 --> 00:19:02,520 Speaker 1: So yes, China is out invest in the United States. 338 00:19:02,560 --> 00:19:05,280 Speaker 1: They're not out investing the West. And I'll comment on 339 00:19:05,359 --> 00:19:07,360 Speaker 1: that a little bit, but I mean, as you think 340 00:19:07,359 --> 00:19:09,840 Speaker 1: of it, it's on this US China focus. I mean, 341 00:19:09,880 --> 00:19:13,000 Speaker 1: I call it the Super Bowl geopolitics. You know, it's 342 00:19:13,040 --> 00:19:15,560 Speaker 1: the Titans. Uh if you look at it today. To 343 00:19:15,640 --> 00:19:17,920 Speaker 1: use a sports analogy, the US is about a three 344 00:19:17,960 --> 00:19:21,240 Speaker 1: point favorite in the game going into the game. However, 345 00:19:21,560 --> 00:19:23,440 Speaker 1: China is spending a lot and they're catching up. Can 346 00:19:23,440 --> 00:19:25,919 Speaker 1: big kick have a heck of a fourth quarter? So 347 00:19:26,080 --> 00:19:28,840 Speaker 1: my point being in that analogy, David, is the fact 348 00:19:28,880 --> 00:19:31,919 Speaker 1: that the US needs to leverage the world. If they 349 00:19:31,960 --> 00:19:35,199 Speaker 1: could come together and optimize their focus their investments, I 350 00:19:35,240 --> 00:19:39,240 Speaker 1: think they clearly could continue to lead and out compete China. 351 00:19:40,040 --> 00:19:42,040 Speaker 1: So saying I want to come back to if they 352 00:19:42,040 --> 00:19:43,919 Speaker 1: can come together, because that could be a big f 353 00:19:44,359 --> 00:19:47,159 Speaker 1: But let's assume that could happen. Who's on our team? 354 00:19:47,240 --> 00:19:49,760 Speaker 1: So to speak to continue your Super Bowl analogy, who 355 00:19:49,760 --> 00:19:53,199 Speaker 1: are the major players in tech on our team? I 356 00:19:53,240 --> 00:19:55,040 Speaker 1: think the major players if you go through it, I 357 00:19:55,040 --> 00:19:58,040 Speaker 1: mean there's if you look at the take semiconductors as 358 00:19:58,040 --> 00:20:01,080 Speaker 1: an example. I think it's a good example. Everybody's focused 359 00:20:01,119 --> 00:20:05,160 Speaker 1: on manufacturing capacity called FABS. That's important because there's such 360 00:20:05,160 --> 00:20:08,040 Speaker 1: a dependency on Taiwan and your concerns and risk over 361 00:20:08,160 --> 00:20:12,320 Speaker 1: China to Taiwan Taiwanese relationship. Having said all that, there's 362 00:20:12,440 --> 00:20:17,640 Speaker 1: there's different elements to the ecosystem and and semiconductors. There's fabrics, 363 00:20:17,680 --> 00:20:20,720 Speaker 1: there's the tools to fabricate, there's the design tools, there's 364 00:20:20,720 --> 00:20:24,679 Speaker 1: the materials, there's packaging, and there's great expertise, especially in Europe. 365 00:20:24,720 --> 00:20:27,040 Speaker 1: Europe has great research and great expertise in many of 366 00:20:27,119 --> 00:20:30,440 Speaker 1: these areas. South Korea and Japan has great expertise and 367 00:20:30,440 --> 00:20:33,080 Speaker 1: the manufacturing tools and manufacturing side of the house. So 368 00:20:33,119 --> 00:20:36,000 Speaker 1: my point being is that if you look at the capabilities, 369 00:20:36,000 --> 00:20:39,240 Speaker 1: the US certainly leads today in design and packaging. There's 370 00:20:39,280 --> 00:20:42,400 Speaker 1: no doubt about and the research capability. But you combine 371 00:20:42,440 --> 00:20:47,639 Speaker 1: these capabilities between Europe, mostly Germany, Japan, UH and I 372 00:20:47,680 --> 00:20:50,320 Speaker 1: say it's really South Korea and Singapore. But you know 373 00:20:50,400 --> 00:20:53,359 Speaker 1: those countries, within those regions, you can see how this 374 00:20:53,440 --> 00:20:56,000 Speaker 1: thing could align. Okay, Sam, thank you so very much, 375 00:20:56,000 --> 00:20:58,720 Speaker 1: really appreciate and Dela say Sam. Paulmisana is a contributor 376 00:20:58,720 --> 00:21:03,960 Speaker 1: to Wallstree Weekend. Of course, he's the former CEO of IBM. 377 00:21:03,960 --> 00:21:06,200 Speaker 1: Coming up, we wrap up the week with special contributor 378 00:21:06,280 --> 00:21:09,360 Speaker 1: Larry Summers of Harvard. That's next on Wall Street Week 379 00:21:09,680 --> 00:21:16,359 Speaker 1: on Bloomberg. This is Bloomberg Wall Street Week with David 380 00:21:16,400 --> 00:21:20,440 Speaker 1: Weston from Bloomberg Radio. We're joined again this week by 381 00:21:20,440 --> 00:21:23,200 Speaker 1: our special contributer Larry Summers of Harvard. So, Larry, we 382 00:21:23,320 --> 00:21:24,960 Speaker 1: got jobs numbers out at the end of the week 383 00:21:25,000 --> 00:21:28,399 Speaker 1: on Friday. Strong job numbers once again. Also by the way, 384 00:21:28,440 --> 00:21:32,080 Speaker 1: I should say strong increases in wages at the same time, 385 00:21:32,359 --> 00:21:35,680 Speaker 1: that doesn't raise the question whether this economy maybe even 386 00:21:35,680 --> 00:21:39,639 Speaker 1: more overheated than we thought. Look, I think the single 387 00:21:39,680 --> 00:21:43,920 Speaker 1: most important statistic for judging overheating is the ratio of 388 00:21:44,000 --> 00:21:48,200 Speaker 1: vacancies to unemployment. And with these Jolts numbers and these 389 00:21:48,280 --> 00:21:51,840 Speaker 1: unemployment numbers, that statistic is going to be plumbing new 390 00:21:51,920 --> 00:21:57,720 Speaker 1: highs uh in the in when it's next calculated, and 391 00:21:57,800 --> 00:22:01,080 Speaker 1: that suggests even more tightness in labor markets, and I 392 00:22:01,080 --> 00:22:05,919 Speaker 1: think that points towards UH even more inflation. So I 393 00:22:05,960 --> 00:22:09,040 Speaker 1: think near term we've got to, if anything, a bit 394 00:22:09,119 --> 00:22:13,560 Speaker 1: greater inflation concerned UH than we had before we saw 395 00:22:14,520 --> 00:22:17,439 Speaker 1: these numbers. Of course, it's good that the economy is 396 00:22:17,520 --> 00:22:21,479 Speaker 1: looking relatively strong. I think if you were in doubt 397 00:22:21,960 --> 00:22:25,359 Speaker 1: as to whether the previous weakness was fundamental or was 398 00:22:25,440 --> 00:22:28,960 Speaker 1: caused by omicron, this would tend to tilt you towards 399 00:22:29,000 --> 00:22:33,240 Speaker 1: thinking that it was caused by O Macron. But look, 400 00:22:34,160 --> 00:22:40,399 Speaker 1: labor market indicators are always contemporaneous. We're lagging, so we 401 00:22:40,480 --> 00:22:43,840 Speaker 1: don't know what the future holds, and certainly there are 402 00:22:44,640 --> 00:22:49,200 Speaker 1: worrisome signs in terms of what's happening with consumer sentiments. 403 00:22:49,240 --> 00:22:54,320 Speaker 1: But for now, I would say these are relatively inflationary numbers, 404 00:22:54,359 --> 00:22:57,560 Speaker 1: and that's how markets look to be reading them, with 405 00:22:57,840 --> 00:23:02,200 Speaker 1: significant movements towards you curve inversion. Larry. At the same time, 406 00:23:02,240 --> 00:23:04,800 Speaker 1: you'd be the first to say these jobs ms are 407 00:23:04,880 --> 00:23:07,560 Speaker 1: good for the people who are getting jobs, and particularly 408 00:23:07,600 --> 00:23:09,560 Speaker 1: some of the people at the lower end of the spectrum, 409 00:23:09,560 --> 00:23:11,720 Speaker 1: which is something we should be concerned about. Is there 410 00:23:11,760 --> 00:23:14,000 Speaker 1: no way that we can both take care of those people, 411 00:23:14,040 --> 00:23:16,560 Speaker 1: make sure they're employed, that they are getting paid fairly, 412 00:23:17,000 --> 00:23:21,280 Speaker 1: and not overheat the economy. David, Look, this is why 413 00:23:22,080 --> 00:23:24,480 Speaker 1: the earned income tax credit is such a good idea. 414 00:23:24,960 --> 00:23:29,920 Speaker 1: This is why I've supported increases in UH minimum wages. 415 00:23:30,440 --> 00:23:34,040 Speaker 1: This is why we need stronger programs for people who 416 00:23:34,119 --> 00:23:39,080 Speaker 1: don't go to college of UH many kinds. But we 417 00:23:39,160 --> 00:23:44,200 Speaker 1: do not do anybody a favor by overheating the economy, 418 00:23:44,240 --> 00:23:48,000 Speaker 1: because when we overheat the economy, there the chickens do 419 00:23:48,160 --> 00:23:51,919 Speaker 1: come home to roost at some point, as the inflation 420 00:23:52,080 --> 00:23:56,440 Speaker 1: has to leave UH the system. And so I think 421 00:23:56,520 --> 00:24:00,399 Speaker 1: that this idea that we simply cheer on more and 422 00:24:00,480 --> 00:24:06,199 Speaker 1: more employment without thinking about the inflationary consequences is like 423 00:24:06,240 --> 00:24:10,320 Speaker 1: a doctor who celebrates the results of the prescription of 424 00:24:10,359 --> 00:24:14,119 Speaker 1: their pain killer without thinking about what's going to come 425 00:24:15,200 --> 00:24:19,320 Speaker 1: down the road. I think the FED, too late, has 426 00:24:19,359 --> 00:24:23,560 Speaker 1: awakened to that and is moving towards the strategy that 427 00:24:23,760 --> 00:24:29,040 Speaker 1: is much more oriented towards tightening. Larry, let's talk about 428 00:24:29,040 --> 00:24:31,080 Speaker 1: those chickens maybe coming home to rus. There is talk 429 00:24:31,119 --> 00:24:33,280 Speaker 1: about a possible recession here. You and I have talked 430 00:24:33,320 --> 00:24:35,880 Speaker 1: about that. This at various times. I know you've focused 431 00:24:35,880 --> 00:24:39,000 Speaker 1: on historically one of the issues about the four percent number, 432 00:24:39,080 --> 00:24:41,040 Speaker 1: under four percent unemployment in the same to you have 433 00:24:41,119 --> 00:24:44,520 Speaker 1: over four percent inflation. We also had the yield curve, 434 00:24:44,560 --> 00:24:46,960 Speaker 1: the twos tends yield curve invert a couple of times 435 00:24:46,960 --> 00:24:49,639 Speaker 1: this week, including after the job's nevers came out. Do 436 00:24:49,680 --> 00:24:51,760 Speaker 1: you pay much attention to yield curve at this point 437 00:24:51,760 --> 00:24:55,240 Speaker 1: as a predictor of recession. I pay a little less 438 00:24:55,240 --> 00:24:59,720 Speaker 1: attention to it than people in the markets. Uh do, 439 00:25:00,560 --> 00:25:03,000 Speaker 1: And I think it's important to understand that it's not 440 00:25:03,080 --> 00:25:07,560 Speaker 1: a causal relationship. If it exists, it's a canary in 441 00:25:07,560 --> 00:25:10,480 Speaker 1: the coal mine kind of relationship. So it's not that 442 00:25:11,160 --> 00:25:14,200 Speaker 1: changing the changing the tenure interest rate, if you could 443 00:25:14,200 --> 00:25:18,720 Speaker 1: do it in some way, will change the prospect of recession. Rather, 444 00:25:18,880 --> 00:25:22,359 Speaker 1: it's that when people are forecasting that the fan is 445 00:25:22,400 --> 00:25:26,560 Speaker 1: going to be cutting rates, they're also forecasting that that's 446 00:25:26,600 --> 00:25:29,359 Speaker 1: going to happen because there's a recession. So it's a 447 00:25:29,400 --> 00:25:34,440 Speaker 1: correlation thing, not a causation thing. I think that what's 448 00:25:34,440 --> 00:25:38,399 Speaker 1: happening with the yield curve adds to a sense of 449 00:25:38,440 --> 00:25:44,520 Speaker 1: economic anxiety that in situations like this Historically we have 450 00:25:44,680 --> 00:25:50,119 Speaker 1: not achieved soft landings, and we have seen recessions. Is 451 00:25:50,119 --> 00:25:52,399 Speaker 1: it a certainty that will see a recession in the 452 00:25:52,480 --> 00:25:56,159 Speaker 1: next two or three years. No, is it more likely 453 00:25:56,160 --> 00:25:58,280 Speaker 1: than not that we will see a recession in the 454 00:25:58,320 --> 00:26:01,520 Speaker 1: next two years. I don't see how anybody can look 455 00:26:01,560 --> 00:26:08,440 Speaker 1: at either the historical experience or what markets are predicting 456 00:26:09,080 --> 00:26:13,000 Speaker 1: and not think that it's fifty fifty batter than fifty 457 00:26:13,040 --> 00:26:17,359 Speaker 1: fifty that a recession will start sometime within the next 458 00:26:17,400 --> 00:26:21,000 Speaker 1: two years. Larry, we also got the budget from the 459 00:26:21,000 --> 00:26:23,000 Speaker 1: White House at the beginning of the week this week, 460 00:26:23,240 --> 00:26:26,280 Speaker 1: and everybody agrees it's aspirational. What is sent out as 461 00:26:26,320 --> 00:26:28,600 Speaker 1: the budget from Whiteos does not actually become law, but 462 00:26:28,640 --> 00:26:31,359 Speaker 1: it does reflect values, as person after person with the 463 00:26:31,359 --> 00:26:33,399 Speaker 1: White House reminds us, what are the values that you 464 00:26:33,440 --> 00:26:36,439 Speaker 1: saw in prison Biden's budget. So I was glad to 465 00:26:36,480 --> 00:26:40,840 Speaker 1: see increases in the defense budget. I was glad to 466 00:26:40,960 --> 00:26:47,040 Speaker 1: see a substantial indicative commitment towards doing something about COVID. 467 00:26:47,840 --> 00:26:53,080 Speaker 1: I was glad to see uh an emphasis on mental 468 00:26:53,119 --> 00:26:57,160 Speaker 1: health as a theme in the budget. I was glad 469 00:26:57,200 --> 00:27:03,880 Speaker 1: to see open mindedness, um and open to complete negotiation 470 00:27:04,680 --> 00:27:10,280 Speaker 1: on the remnants of build back better rather than represcribing 471 00:27:10,880 --> 00:27:16,119 Speaker 1: uh all of uh that expenditures. Those were all I thought, 472 00:27:16,520 --> 00:27:22,960 Speaker 1: UH positive steps. I would have liked to see more 473 00:27:23,080 --> 00:27:28,600 Speaker 1: realism on the tax side. I think the billionaires tax 474 00:27:29,440 --> 00:27:33,000 Speaker 1: is a bad idea whose time will never come. I 475 00:27:33,040 --> 00:27:37,080 Speaker 1: think it's mislabeled to give it a kind of populist 476 00:27:38,280 --> 00:27:42,760 Speaker 1: appeal relative to what's being proposed. I think the general 477 00:27:42,920 --> 00:27:47,680 Speaker 1: idea of taxing capital gains when people don't have those 478 00:27:47,720 --> 00:27:52,359 Speaker 1: capital gains and haven't sold the assets is not a 479 00:27:52,400 --> 00:27:56,800 Speaker 1: realistic one. I think a much better strategy would have 480 00:27:56,920 --> 00:28:00,760 Speaker 1: been to concentrate on a variety of loop whole issues 481 00:28:00,880 --> 00:28:04,880 Speaker 1: capital gains at death carried interest, which the administration has 482 00:28:04,960 --> 00:28:11,359 Speaker 1: still not gotten uh done changing like kind exchanges uh 483 00:28:11,520 --> 00:28:16,000 Speaker 1: for uh real estate. But the single most important thing, 484 00:28:16,040 --> 00:28:20,360 Speaker 1: even if nothing else happens, is that the historic bit 485 00:28:20,400 --> 00:28:26,120 Speaker 1: of economic diplomacy that Jenny Yellen concluded on corporate tax 486 00:28:26,600 --> 00:28:33,879 Speaker 1: with other countries is enabled by the necessary US legislative action, Larry. 487 00:28:33,920 --> 00:28:35,560 Speaker 1: If you read the facts she put up by the 488 00:28:35,560 --> 00:28:39,080 Speaker 1: White House earlier this week, they lead with fiscal responsibility, 489 00:28:39,120 --> 00:28:40,960 Speaker 1: the fact that they would be reducing the deficit at 490 00:28:40,960 --> 00:28:42,520 Speaker 1: the same time, you look at the projection over the 491 00:28:42,560 --> 00:28:44,880 Speaker 1: ten years that they do for budgets, actually, as a 492 00:28:44,920 --> 00:28:49,720 Speaker 1: percentage of GDP, the debt grows from something over to 493 00:28:49,840 --> 00:28:53,360 Speaker 1: something over one. Is that sustainable for the United States? 494 00:28:54,760 --> 00:28:59,600 Speaker 1: It's worse than that, David, because the intrast rate for 495 00:29:00,040 --> 00:29:05,640 Speaker 1: hasks in the President's budget look comical today in light 496 00:29:05,680 --> 00:29:10,000 Speaker 1: of what's happened to interest rates. That's fair enough they 497 00:29:10,080 --> 00:29:14,160 Speaker 1: lock in those budget forecasts months in advance. But my 498 00:29:14,280 --> 00:29:18,120 Speaker 1: guess is that if you used realistic forecasts, you'd add 499 00:29:18,120 --> 00:29:23,719 Speaker 1: another five percent to the debt to GDP ratio. I suspect, 500 00:29:23,840 --> 00:29:27,120 Speaker 1: given what's happening to interest rates, that there's going to 501 00:29:27,200 --> 00:29:32,640 Speaker 1: be a need for more fiscal adjustment than the administration imagines. 502 00:29:33,240 --> 00:29:38,600 Speaker 1: I suspect the administration has underestimated the national security expenditures 503 00:29:38,640 --> 00:29:42,200 Speaker 1: that will be necessary going forward. And I think we're 504 00:29:42,280 --> 00:29:46,280 Speaker 1: moving towards a moment when we're gonna have to start 505 00:29:46,360 --> 00:29:51,080 Speaker 1: thinking about fiscal policy as well as monetary policy as 506 00:29:51,160 --> 00:29:55,400 Speaker 1: an anti inflationary UH tool. Thank you so much for 507 00:29:55,440 --> 00:29:58,160 Speaker 1: our very special matrinity to Wall Street, Ricky's Larry Summers 508 00:29:58,200 --> 00:30:02,520 Speaker 1: of Harvard. Finally, one more thought, learning from our mistakes 509 00:30:02,680 --> 00:30:05,320 Speaker 1: or not. All of us can make mistakes, and sometimes 510 00:30:05,320 --> 00:30:08,120 Speaker 1: when we go back over them, we cannot believe what 511 00:30:08,160 --> 00:30:10,840 Speaker 1: we were thinking, or maybe what we were not thinking. 512 00:30:11,280 --> 00:30:13,800 Speaker 1: And the big banks certainly are no exception to this rule. 513 00:30:14,240 --> 00:30:17,400 Speaker 1: There's the London Big Whale fiasco JP Morgan that led 514 00:30:17,440 --> 00:30:21,760 Speaker 1: to the end of senior executive Aina Drew's thirty year career. 515 00:30:22,120 --> 00:30:25,400 Speaker 1: I accepted responsibility for the events that happened on my 516 00:30:25,480 --> 00:30:30,000 Speaker 1: watch in one of the portfolios in my division. And 517 00:30:30,040 --> 00:30:33,760 Speaker 1: there's Deutsche Bank in two eighteen mistakenly transferring thirty five 518 00:30:33,840 --> 00:30:36,800 Speaker 1: billion dollars to your ex clearing, which was more than 519 00:30:36,840 --> 00:30:39,480 Speaker 1: the total net worth of the bank at the time. 520 00:30:39,840 --> 00:30:43,000 Speaker 1: Germany's biggest lender has sent about thirty five billion dollars 521 00:30:43,040 --> 00:30:45,720 Speaker 1: to an exchange as part of its dealings. They already 522 00:30:45,720 --> 00:30:48,440 Speaker 1: have problems with risk management. This is not a headline. 523 00:30:48,480 --> 00:30:51,720 Speaker 1: Flow is a polite way and put yet, thirty billion 524 00:30:51,720 --> 00:30:53,880 Speaker 1: dollars just sort of walked out the door to City 525 00:30:54,080 --> 00:30:56,400 Speaker 1: in the height of the pandemic, paying over five hundred 526 00:30:56,480 --> 00:30:59,520 Speaker 1: million dollars to Revlon creditors, despite a fight over the 527 00:30:59,560 --> 00:31:03,280 Speaker 1: funds money that it could not get back. City Group 528 00:31:03,400 --> 00:31:07,480 Speaker 1: and unexpectedly lost its legal battle to recover half a 529 00:31:07,560 --> 00:31:11,400 Speaker 1: billion dollars it mistakenly sent to Revlon Landers Is to 530 00:31:11,480 --> 00:31:13,760 Speaker 1: lead us blow to the bank that's been forced answer 531 00:31:13,840 --> 00:31:17,400 Speaker 1: to regulators and time its internal controls. Mind you, this 532 00:31:17,560 --> 00:31:20,400 Speaker 1: all comes after Congress decided to make sure those banks 533 00:31:20,440 --> 00:31:23,600 Speaker 1: were paying attention, giving us all the protections of a 534 00:31:23,680 --> 00:31:27,520 Speaker 1: law called Dodd Frank. Because of this law, the American 535 00:31:27,520 --> 00:31:30,480 Speaker 1: people will never again be asked to foot the bill 536 00:31:30,600 --> 00:31:33,960 Speaker 1: for Wall Street's mistakes. So it must have been particularly 537 00:31:34,040 --> 00:31:36,480 Speaker 1: painful to Barclays this week when it found out that 538 00:31:36,480 --> 00:31:39,880 Speaker 1: it had a tenC weed see clerical error in selling 539 00:31:39,920 --> 00:31:42,840 Speaker 1: more in structured notes than the sec had given it 540 00:31:42,880 --> 00:31:46,000 Speaker 1: permission to sell. You see, it had asked for and 541 00:31:46,080 --> 00:31:49,400 Speaker 1: received the okay to sell twenty point eight billion dollars 542 00:31:49,440 --> 00:31:53,560 Speaker 1: worth of these securities, but apparently someone wasn't paying attention 543 00:31:53,720 --> 00:31:56,320 Speaker 1: and kept selling the way past the point they were 544 00:31:56,320 --> 00:31:59,720 Speaker 1: supposed to stop, like the tune of thirty six billion 545 00:31:59,760 --> 00:32:02,960 Speaker 1: dollars dollars, leaving Barkley's with an estimated loss of five 546 00:32:03,440 --> 00:32:06,320 Speaker 1: ninety one million dollars. I just think it's just a 547 00:32:06,440 --> 00:32:09,800 Speaker 1: simple finding area, like they forgot to add an extension 548 00:32:09,840 --> 00:32:14,760 Speaker 1: to the shelf full. And that's very embarrassing. Um, you know, logistic, Glara. 549 00:32:15,120 --> 00:32:18,280 Speaker 1: The financial head is bad, but you know, fairly manageable. 550 00:32:18,960 --> 00:32:22,200 Speaker 1: It's more of the reputational head. It may be April Fools, 551 00:32:22,240 --> 00:32:25,520 Speaker 1: but this one is no joke. Certainly enough for Barkley's management. 552 00:32:25,880 --> 00:32:29,000 Speaker 1: Let's see what we can learn from this one. That 553 00:32:29,080 --> 00:32:30,840 Speaker 1: does it For this episode of Wall Street Week, I'm 554 00:32:30,880 --> 00:32:40,640 Speaker 1: David Weston. This is Bloomberg. See you next week.