WEBVTT - Bloomberg Wall Street Week: Ketterer and Sonders 0:00:00.560 --> 0:00:03.720 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.880 --> 0:00:07.600 to the markets this week. Us CPI never's reinforcing concerns 0:00:07.640 --> 0:00:10.800 about inflation. The financial stories that sheep are were a 0:00:10.840 --> 0:00:13.760 really different reaction to mark Its more indications of just 0:00:13.960 --> 0:00:16.360 how hot the U. S economy really is. Through the 0:00:16.400 --> 0:00:19.799 eyes of the most influential voices. Larry Summers, the former 0:00:19.840 --> 0:00:22.840 Treachery Secretary, Katherine Keening, CEO of v n Y, Mom 0:00:22.960 --> 0:00:26.880 Sam's l chairman and founder Equity Group Investment in Bloomberg 0:00:26.920 --> 0:00:31.680 Wolf Street Weet with David Weston from Bloomberg Radio. Rising 0:00:31.800 --> 0:00:34.960 recession concerns, a budget moved to the center, and the 0:00:35.080 --> 0:00:38.840 killing continues in Ukraine. This is Bloomberg Wall Street Week. 0:00:38.920 --> 0:00:43.080 I'm David Weston. This week's special contributor Larry Summers on 0:00:43.159 --> 0:00:45.720 what happens when you run the economy hut for the 0:00:45.760 --> 0:00:50.000 sake of employment. We do not do anybody a favor 0:00:50.520 --> 0:00:54.600 by overheating the economy, because when we overheat the economy, 0:00:54.880 --> 0:00:58.400 the chickens do come home to rush and former IBM 0:00:58.440 --> 0:01:01.520 CEO Sam Pomisano the opportunity for the United States to 0:01:01.560 --> 0:01:04.559 form a new coalition to compete with China in tech. 0:01:05.400 --> 0:01:08.480 I caught the Super Bowl. Geopolitics, the US needs to 0:01:08.560 --> 0:01:24.880 leverage the world. It was a week of anticipating what 0:01:25.160 --> 0:01:28.560 didn't happen, at least not yet, with encouraging reports on 0:01:28.640 --> 0:01:32.319 possible progress in talks between Ukraine and Russia giving way 0:01:32.520 --> 0:01:36.680 to skepticism and disappointment. We can say that the signals 0:01:36.680 --> 0:01:39.560 we hear from the talks are positive, but these signals 0:01:39.560 --> 0:01:43.319 can't silence the explosions of Russian shells. We'll see. I 0:01:43.360 --> 0:01:45.480 don't read anything into it until I see what their 0:01:45.520 --> 0:01:49.120 actions are. Kremlin very much downplaying now the outcome of 0:01:49.240 --> 0:01:53.000 peace talks in Istanbul, a spokesman for the Kremlin saying 0:01:53.000 --> 0:01:55.840 that has been no breakthrough, even though Russia pledged to 0:01:55.840 --> 0:01:59.680 scale back some military operations in Ukraine. It was a 0:01:59.720 --> 0:02:02.440 week when the Biden administration gave us a proposed budget 0:02:02.440 --> 0:02:05.440 that anticipated in producing the deficit but not the debt. 0:02:06.120 --> 0:02:08.560 It's a laundry list, it's what we believe in. It's 0:02:08.560 --> 0:02:10.880 almost a campaign speech if you think of it that way. 0:02:11.240 --> 0:02:13.520 Knowing the White House knows all too well that this 0:02:13.560 --> 0:02:17.440 will be uh twisted into a lot of different pretzel 0:02:17.480 --> 0:02:20.760 pieces before this ever becomes a long This budget has 0:02:20.800 --> 0:02:25.959 a plan to borrow a fourteen point four trillion dollars 0:02:26.000 --> 0:02:28.960 in deficits over the budget window, which is ten years. 0:02:29.040 --> 0:02:30.959 And it was a week when former New York Fed 0:02:31.040 --> 0:02:34.080 chair Bill Dudley warned about the danger of a recession. 0:02:34.520 --> 0:02:36.320 Every time the unemployer rate goes up by more than 0:02:36.360 --> 0:02:38.360 a half a percentage point, the next stop is a 0:02:38.360 --> 0:02:42.079 full blown recession, and pros like Mike Schumacher of Wells 0:02:42.080 --> 0:02:45.720 Fargo kept an ego eye on a yield curve inversion 0:02:46.360 --> 0:02:49.160 these times. It's very for a nano secondary said yesterday, 0:02:49.200 --> 0:02:52.320 but we think the curve gets substantially inverted very quickly. 0:02:52.560 --> 0:02:54.160 And if you look at what the bond market is 0:02:54.160 --> 0:02:58.000 telling us and fowards something like minus thirty minus thirty 0:02:58.000 --> 0:03:00.200 five at the end of the year. Those are day 0:03:00.480 --> 0:03:04.720 numbers Mike Schumacher was talking about in Nanasaka on Wednesday. 0:03:04.720 --> 0:03:07.440 But by Friday we got that inversion as yields on 0:03:07.520 --> 0:03:10.680 two year treasuries rose above that on tens after the 0:03:10.720 --> 0:03:14.120 ten years sold off in response to the jobs numbers 0:03:14.120 --> 0:03:16.760 coming out on Friday, which were pretty robust numbers that 0:03:16.800 --> 0:03:19.720 took the unemployment rate down to three point six percent. 0:03:20.080 --> 0:03:22.080 And this came on the heels of a quarter that 0:03:22.280 --> 0:03:25.720 ended on Thursday with the biggest drop and treasury bonds 0:03:25.760 --> 0:03:28.680 in history. In the face of all this, bond action 0:03:28.760 --> 0:03:32.680 equities actually were prelatively well behaved, with the SMP five hundred, 0:03:32.720 --> 0:03:35.400 the NAZAC up a bit and the down down a bit, 0:03:35.680 --> 0:03:38.040 and the price of oil, which has been driven by 0:03:38.040 --> 0:03:40.800 the war in Ukraine, fell the most in two years 0:03:41.080 --> 0:03:43.880 after present Biden announced he'd be releasing a million barrels 0:03:44.200 --> 0:03:47.240 a day from the Strategic Patrolling Reserve to helps makes 0:03:47.240 --> 0:03:50.040 sense of all of this. Welcome now, Sarah Kett, CEO 0:03:50.080 --> 0:03:53.560 of Causeway Capital, and liz Ana Saunders Charles Schwab, Chief 0:03:53.600 --> 0:03:56.320 Investment Strategies. Lizien, let me start with you to make 0:03:56.360 --> 0:03:58.800 sense of all this. It was a tumultuous quarter and 0:03:58.840 --> 0:04:01.760 a pretty eventful as well. What are we learning from 0:04:01.800 --> 0:04:05.360 all this? Clearly, the the inversion of the Yeld curve, 0:04:05.360 --> 0:04:07.640 which couple of days ago it happened briefly in tra 0:04:07.760 --> 0:04:10.360 day and didn't close at that level, has I think 0:04:10.440 --> 0:04:12.800 garnered most of the attention, certainly a lot of the 0:04:12.840 --> 0:04:16.720 financial media attention, and and lots of confusion about what 0:04:16.760 --> 0:04:19.600 it actually says about the risk of recession. I think 0:04:19.640 --> 0:04:23.120 anytime you have an inversion, anytime you've got a FED 0:04:23.160 --> 0:04:26.880 moving from extremely easy policy to tighter policy, you need 0:04:26.920 --> 0:04:29.800 to dust off the checklist for a recession. But to 0:04:29.880 --> 0:04:35.400 see the market behave somewhat resiliency is actually not out 0:04:35.400 --> 0:04:39.520 of the ordinary yield curb in versions of historically generally 0:04:39.600 --> 0:04:43.080 seen rising equity markets. It's really not until the point 0:04:43.120 --> 0:04:46.560 where recession seems like a higher likelihood do you run 0:04:46.560 --> 0:04:49.279 into trouble. But I think we're in a relief rally 0:04:49.400 --> 0:04:52.880 relative to the correction that preceded it. I wouldn't bank 0:04:53.000 --> 0:04:59.159 on it continuing uh with without another bit of a pullback. Sarah, 0:04:59.200 --> 0:05:01.960 do you believe the really Foley? Is it here to stay? 0:05:02.360 --> 0:05:05.200 It all depends, David, on what real interest rates do. 0:05:05.440 --> 0:05:08.920 So it's very important to note that its inflation is rising. 0:05:09.480 --> 0:05:12.760 We're seeing and this particularly acutely an issue in Europe 0:05:12.760 --> 0:05:16.279 and in the US. Real interest rates are going more 0:05:16.400 --> 0:05:20.120 negative and that creates more fuel for equity buying. So 0:05:20.240 --> 0:05:23.040 that's one of reasons why we keep fully invested, because 0:05:23.080 --> 0:05:25.080 we want to make sure our clients get access to 0:05:25.400 --> 0:05:28.120 what the only place you can put money is in 0:05:28.160 --> 0:05:31.760 equity markets in our view. And also note I mean 0:05:31.800 --> 0:05:34.640 there's plenty of bad news, but oil price shocks historically 0:05:34.640 --> 0:05:39.120 in the seventies, early nineties, in uh in two thousand, 0:05:39.880 --> 0:05:42.920 they're not always followed by weak equity markets. That those 0:05:42.920 --> 0:05:45.279 two are not correlated. So there are reasons to be 0:05:45.320 --> 0:05:50.680 optimistic in what looks like a very dark environment. So Luzienne, 0:05:50.720 --> 0:05:53.159 I wonder in the face of these negative real rates 0:05:53.200 --> 0:05:55.120 that we just heard about from Sarah, as well as 0:05:55.160 --> 0:05:57.160 oil shocks at the moment, there's a lot of talking 0:05:57.160 --> 0:05:59.280 about the seventies where we had over stimulus and then 0:05:59.279 --> 0:06:01.640 on top of that oil shocks. It really does raise 0:06:01.680 --> 0:06:04.359 the question about the inflation. Negative real rates indicate we 0:06:04.400 --> 0:06:06.359 still have our foot on the accelerator at the break. 0:06:06.600 --> 0:06:08.240 How far do we have to go to slow down 0:06:08.240 --> 0:06:12.520 this economy to get inflation under control. Well, even even 0:06:12.560 --> 0:06:16.839 Powell has said he's willing to accept a recession as 0:06:16.880 --> 0:06:21.359 a as the end game associated with finally bringing down 0:06:21.560 --> 0:06:25.800 this inflation problem. I don't think we're really looking at 0:06:25.800 --> 0:06:28.520 the seventies type of environment. I think there's more differences 0:06:28.640 --> 0:06:31.680 between today in the nineties seventies than there are similarities. 0:06:32.080 --> 0:06:36.279 Stagflation I think used with a lower casees. Generically maybe 0:06:36.320 --> 0:06:39.919 as appropriate given weaker growth and high inflation, but really 0:06:39.920 --> 0:06:42.520 what that represented in the seventies was a high and 0:06:42.760 --> 0:06:47.280 rising unemployment rate, which is clearly different than the current environment. 0:06:47.720 --> 0:06:49.880 And Saunders and Sarah Ketty will be staying with us 0:06:50.000 --> 0:06:52.000 as we come back and look around the corner to 0:06:52.120 --> 0:06:54.400 what's coming up, not just next week, next next quarter, 0:06:54.520 --> 0:06:56.719 but down the road. This is Wall Street Week on 0:06:56.760 --> 0:07:04.520 bloomber This is Bloomberg Wall Street Week with David Weston 0:07:04.800 --> 0:07:08.200 from Bloomberg Radio. I think one of the nice things 0:07:08.200 --> 0:07:11.520 about this environment is that with all the carnage out there, 0:07:11.600 --> 0:07:14.040 with so many of the smaller companies and the less 0:07:14.040 --> 0:07:17.640 well capitalized companies and the less well managed companies are 0:07:17.640 --> 0:07:20.000 starting to really have difficulty in some cases going out 0:07:20.000 --> 0:07:21.880 of business. And I think this environment is going to 0:07:21.960 --> 0:07:24.600 afford the bigger, well managed companies the ability to pick 0:07:24.640 --> 0:07:27.520 up market share and in many cases maintain their dominance. 0:07:27.720 --> 0:07:29.280 It was one favorite that you think still has a 0:07:29.320 --> 0:07:31.480 ways to go. I still like Microsoft, speaking of the 0:07:31.520 --> 0:07:33.680 behemoths and a o LL although I wouldn't have sort 0:07:33.720 --> 0:07:37.080 of considered that a technology company anymore. That was our 0:07:37.160 --> 0:07:39.480 very own Lizana Sanders appearing on Wall Street Week with 0:07:39.520 --> 0:07:41.720 Lewis R. Back in two thousan when A. O. L 0:07:41.920 --> 0:07:44.600 was still a behemoth. By the way, Losan has remained 0:07:44.600 --> 0:07:47.080 with us along with Sarah Ketder a Causeway Capital. So 0:07:47.120 --> 0:07:49.760 we've had a conversation about what's happened this quarter, what's 0:07:49.760 --> 0:07:51.600 going to be coming up around the corner here. But 0:07:51.680 --> 0:07:53.760 let's look down the road, Sarah, let me start with you. 0:07:54.520 --> 0:07:56.120 Where is there cause for hope. We've got a lot 0:07:56.120 --> 0:07:59.320 of concerns about inflation, about the tightening we're expecting plans, 0:07:59.360 --> 0:08:00.880 and by the way, we still have a war going 0:08:00.880 --> 0:08:03.160 on where people are dying every day over in Ukraine. Well, 0:08:03.160 --> 0:08:05.640 what are some of the possible upsides for investors down 0:08:05.640 --> 0:08:08.800 the road? Maybe perhaps not too far down the road. 0:08:08.840 --> 0:08:12.160 And I hinted that before the break are the pandemic 0:08:12.200 --> 0:08:16.560 recovery stocks. They were certainly hit very hard and had 0:08:16.600 --> 0:08:19.920 a false dawn in early one and then the omicron 0:08:20.080 --> 0:08:23.320 variant UH gripped them again and dragged them lower. They 0:08:23.400 --> 0:08:27.280 rallied a bit, and they were doing very well from 0:08:27.440 --> 0:08:32.000 January of this year until February, particularly the ones in Europe, 0:08:32.520 --> 0:08:35.280 and then we had this as you note did this 0:08:35.360 --> 0:08:40.520 horrendous invasion, so that UH really hit these stocks hard. 0:08:41.160 --> 0:08:44.040 Some of the great airline companies, like one of the 0:08:44.040 --> 0:08:47.959 best discounters in the world, Ryanair, crushed. And these are 0:08:48.000 --> 0:08:52.280 opportunities for investors because we can't assume that invasions last forever. 0:08:52.520 --> 0:08:57.840 And this pandemic is thankfully dissipating. So there are other 0:08:57.880 --> 0:09:02.840 ones in aerospace, travel and leisure. You can find airport companies, 0:09:04.000 --> 0:09:07.400 aircraft engine manufacturers have only one or two competitors, like 0:09:07.520 --> 0:09:11.240 it's a This is where active management gets very excited. 0:09:11.240 --> 0:09:14.520 As you can tell, they there are pandemic recovery stocks 0:09:14.559 --> 0:09:17.360 out there. They're in food, catering, and retail. They just 0:09:17.480 --> 0:09:22.440 need they need the uh, the mass to be off, 0:09:22.480 --> 0:09:26.120 the people be out again and then UH and as 0:09:26.120 --> 0:09:29.240 we discussed before, not too great of an inflation head 0:09:29.280 --> 0:09:33.240 when cutting into their discretionary spent. So listen, In addition 0:09:33.240 --> 0:09:35.960 to possibly the pandemic recovery, you may agree with exactly 0:09:36.200 --> 0:09:38.079 what we just heard from Sarah, but there's one other 0:09:38.120 --> 0:09:40.719 factor I wonder about. That's fiscal stimulus. Right now, we 0:09:40.760 --> 0:09:44.040 have essentially a d stimulus because we're coming off of 0:09:44.080 --> 0:09:45.719 so much fiscal stimus. And I say it's at the 0:09:45.760 --> 0:09:48.480 same time that horrendous war in Ukraine, the goodness knows 0:09:48.480 --> 0:09:50.240 we want to be over soon. At some point will 0:09:50.280 --> 0:09:51.920 be over and they'll have to be the need to 0:09:51.920 --> 0:09:54.560 invest a fair amount. Could that be a potential fiscal students, 0:09:54.600 --> 0:09:58.920 at least in Europe. Yeah. I think the the investment 0:09:59.040 --> 0:10:03.920 story along your term not just driven by the terrible 0:10:03.960 --> 0:10:07.440 tragedy going on in Europe right now, although that clearly 0:10:07.559 --> 0:10:13.800 will stimulate some investment, whether it's energy infrastructure, UM, food infrastructure, 0:10:13.880 --> 0:10:18.320 not to mention the rebuilding of actual infrastructure in Ukraine, 0:10:18.400 --> 0:10:21.680 but even prior to that, I think what the pandemic 0:10:21.760 --> 0:10:26.000 brought about was the necessity of investments in certain areas, 0:10:26.120 --> 0:10:29.400 and there was so much low hanging fruit of inefficiency 0:10:29.600 --> 0:10:34.559 in UH quite a few segments of our economy, healthcare, education, 0:10:34.840 --> 0:10:38.400 and I think the necessity of sort of stepping up 0:10:38.440 --> 0:10:42.080 and becoming more efficient and investing in digital driven by 0:10:42.120 --> 0:10:45.760 the pandemic, I don't think kind of goes back under 0:10:45.800 --> 0:10:49.720 the rock. I think we have unleashed what is likely 0:10:49.800 --> 0:10:53.600 to be an era of of stepped up investment and 0:10:53.760 --> 0:10:57.920 probably along with it higher productivity. It doesn't prevent a 0:10:57.960 --> 0:11:01.160 possible recession. In the near term. But that's where I 0:11:01.200 --> 0:11:03.480 think there is sort of a shining light when you 0:11:03.559 --> 0:11:06.720 think longer term about what may come out of the 0:11:06.800 --> 0:11:10.280 combination of both the pandemic and the war. It may 0:11:10.320 --> 0:11:13.800 even the medium term to the degree that that digital 0:11:13.840 --> 0:11:17.680 spend is so necessary that will take precedent even when 0:11:17.760 --> 0:11:22.000 other if there's some sort of curtailment of capital expenditures, 0:11:22.400 --> 0:11:25.240 companies have to make that transition, and they need to 0:11:25.240 --> 0:11:27.880 do so globally, So we think of that as somewhat 0:11:28.760 --> 0:11:32.680 non cyclical part of the whole technology spend. Lissen, I 0:11:32.679 --> 0:11:34.760 don't think I know many people who are rooting for 0:11:34.800 --> 0:11:37.120 a recession, although as you suggest, a lot of people 0:11:37.280 --> 0:11:39.280 have to be prepared for the possibility of it. But 0:11:39.480 --> 0:11:41.679 is there a potentially if I can say that upside 0:11:41.720 --> 0:11:44.120 potential to some creative destruction. I think that's what you 0:11:44.160 --> 0:11:46.439 were talking about. Whenever you have a lot of money 0:11:46.440 --> 0:11:49.360 slashing around, some bad decisions that made, if you take 0:11:49.400 --> 0:11:52.040 some of that liquidity away, then actually people have to 0:11:52.040 --> 0:11:54.440 make some tough decisions and maybe you sort of maybe 0:11:54.440 --> 0:11:57.520 the sheep from the goats. Yeah, I think there have 0:11:57.679 --> 0:12:01.040 been some maybe unintended concept onnes is of this massive 0:12:01.040 --> 0:12:05.360 amount of liquidity, whether it's a mispricing in various markets 0:12:05.400 --> 0:12:08.440 and asset bubbles. So I think there's a benefit that 0:12:08.480 --> 0:12:10.920 will accrue there. And then, as we already touched on 0:12:11.520 --> 0:12:17.640 the unfortunate possible necessity of constraining aggregate demand in order 0:12:17.720 --> 0:12:22.119 to rein in the combination of the supply chain problems 0:12:22.280 --> 0:12:25.559 and and just the feeder effect it's having on on 0:12:25.640 --> 0:12:29.480 pricing and inflation, we may need a recession to calm 0:12:29.520 --> 0:12:32.440 all of those forces, and it may not have to 0:12:32.440 --> 0:12:35.320 be a particularly deep one. But I do think what 0:12:35.360 --> 0:12:39.840 we're looking at is a more kind of normal cycle. 0:12:40.040 --> 0:12:42.920 If we're heading into recession, what it looks like it 0:12:43.000 --> 0:12:46.520 causes of it being tighter monetary policy. That's sort of 0:12:46.600 --> 0:12:50.359 traditional that the last cycle, the COVID recession, the aftermath 0:12:50.440 --> 0:12:53.400 of it, um there was no playbook for that. That 0:12:53.520 --> 0:12:57.600 was incredibly unique. I think this next cycle, both into 0:12:57.640 --> 0:13:00.880 the next recession and coming out will be a little 0:13:00.920 --> 0:13:02.840 more I don't want to say garden variety, but a 0:13:02.840 --> 0:13:08.120 little more in keeping with your typical recession recovery type cycle. So, Sarah, 0:13:08.200 --> 0:13:10.720 give us just a little taste of your secret sauce here. 0:13:10.880 --> 0:13:13.920 As an investor, somebody who maintains the portfolio. As you 0:13:13.920 --> 0:13:15.760 take a look. You've talked about things like coming back 0:13:15.800 --> 0:13:18.040 from pandemic. That's sort of a structural thing across the 0:13:18.080 --> 0:13:20.920 board as you try to figure out which companies really 0:13:20.960 --> 0:13:24.280 are being run well and efficiently, are making sensible decisions, 0:13:24.320 --> 0:13:26.440 what do you look at and what other companies giving 0:13:26.480 --> 0:13:28.960 an example or two, Well, just to take up what 0:13:29.160 --> 0:13:31.560 Lizzen just mentioned, to the degree we've got we're going 0:13:31.640 --> 0:13:35.680 to see a typical recovery or typical recession recovery, then 0:13:35.760 --> 0:13:39.520 let's find those stocks that tend to do well in 0:13:39.559 --> 0:13:43.280 that environment. So what doesn't do well initially as you 0:13:43.520 --> 0:13:46.360 head into the bottom of the economy, and I'm speaking 0:13:46.360 --> 0:13:49.360 really for everything ex China, The rest of the world 0:13:49.400 --> 0:13:52.600 is lodging on the same monetary policy cycle meaning tightening. 0:13:52.600 --> 0:13:57.960 Other than China and UH banks, other financials, they tend 0:13:57.960 --> 0:14:01.000 to bottom somewhere as as we get into that significant 0:14:01.000 --> 0:14:03.880 amount of tightening and the recession takes hold, and then 0:14:03.920 --> 0:14:08.360 they rally very strongly. May remember they're really part of 0:14:08.400 --> 0:14:13.000 two thousand nine unbelievable performance. So if if history is 0:14:13.040 --> 0:14:15.920 going to repeat itself, what Lizan says is correct, which 0:14:15.960 --> 0:14:19.120 I agree with this is a little more normal, a 0:14:19.160 --> 0:14:22.120 little more then then those will be good stocks to own. 0:14:22.160 --> 0:14:24.280 And the most bombed out ones are in that part 0:14:24.280 --> 0:14:26.880 of the world has really been hit hard, which is Europe, 0:14:27.240 --> 0:14:29.720 so European financials. And you could also go with the 0:14:29.800 --> 0:14:33.480 energy transition. One of the silver linings of this horrendous 0:14:34.120 --> 0:14:39.000 energy disruption is the greater need to accelerate, then move 0:14:39.200 --> 0:14:43.760 to low and then zero carbon type renewable energy. And 0:14:44.120 --> 0:14:46.640 some of the European utilities are expert at this and 0:14:46.680 --> 0:14:50.400 they're trading more six percentivity fields. Thank you so much 0:14:50.400 --> 0:14:55.000 for Liziane Saunders and Sarah Header. Coming up, what does 0:14:55.040 --> 0:14:59.000 a post sanctions world mean for tech competition during China 0:14:59.080 --> 0:15:01.520 and the United States. Where we find out from former 0:15:01.560 --> 0:15:05.440 IBM CEO Sam Palmisano. That's next on Wall Street Week 0:15:05.760 --> 0:15:11.360 on Bloomberg. This is Bloomberg Wall Street Week with David 0:15:11.400 --> 0:15:19.160 Weston from Bloomberg Radio. Hundreds of thousands of people who 0:15:19.160 --> 0:15:25.240 are being cut off from help by Russian forces placed 0:15:25.320 --> 0:15:31.320 like Mary stop. It's like something out about science fri. 0:15:32.040 --> 0:15:35.040 President Biden described the death and destruction we're seeing from 0:15:35.080 --> 0:15:38.560 Russia's military invasion of Ukraine during his recent trip to Europe. 0:15:38.840 --> 0:15:42.000 But this war goes beyond the military is being fought 0:15:42.040 --> 0:15:44.880 in the markets as well, with the US and its 0:15:44.880 --> 0:15:48.960 allies imposing severe sanctions on the Russian economy, something Ukrainian 0:15:49.000 --> 0:15:52.200 President Zelinsky says is the only thing likely to get 0:15:52.240 --> 0:15:55.520 through to Vladimir Putin. There's no other language than if 0:15:55.560 --> 0:16:01.040 efficient sanctions that Russian leadership can understand that Woolmarstian has 0:16:01.120 --> 0:16:05.160 to be cut off from the means of existence. And 0:16:05.200 --> 0:16:07.400 when it comes to the economic battle, it's not just 0:16:07.440 --> 0:16:11.320 the United States versus Russia. China plays a crucial role 0:16:11.720 --> 0:16:14.680 that made it clear to him that makes sure he 0:16:14.760 --> 0:16:18.400 understood the consequences of him helping Russia. But I pointed 0:16:18.400 --> 0:16:22.880 out the number of American and foreign corporations left Russia 0:16:22.920 --> 0:16:26.880 as a consequence of their barbaric behavior, which poses a 0:16:26.920 --> 0:16:30.400 difficult question for President g who has pledged to support Mr. 0:16:30.480 --> 0:16:33.400 Putin but has to keep a careful eye on his 0:16:33.480 --> 0:16:37.240 country's role in the global economy, which Nobel Laureate Michael 0:16:37.240 --> 0:16:42.600 Spence says he is surely doing. China understands something that 0:16:43.280 --> 0:16:46.120 President Putin doesn't seem to understand, and that is that 0:16:46.240 --> 0:16:49.320 any economy, even a big one like China or even 0:16:49.360 --> 0:16:52.880 the United States can't perform and anything like its full 0:16:52.920 --> 0:16:56.880 potential in isolation, and so I expect China to sort 0:16:56.880 --> 0:17:00.480 of move carefully and and try to thread needle. But 0:17:00.600 --> 0:17:04.240 to avoid a scenario in which we start dividing the 0:17:04.280 --> 0:17:09.160 world up into blocks when it comes to international economics 0:17:09.160 --> 0:17:11.800 and particularly when involves technology, we turn to our very 0:17:11.840 --> 0:17:14.560 special controller. He is Sam Paul is not a former 0:17:14.840 --> 0:17:17.560 CEO of IVM. Thank you so much for being with us, Sam. 0:17:17.640 --> 0:17:20.840 So we're seeing a lot of changes in trade patterns, 0:17:20.920 --> 0:17:23.639 in economic dealings, in payment systems around the world because 0:17:23.640 --> 0:17:25.720 of the war in Ukraine. Talk to us about what 0:17:25.880 --> 0:17:28.680 specifically that may mean in the area of technology, whether 0:17:28.720 --> 0:17:33.200 it's Russia or China, depending on which way China comes down. Well, David, 0:17:33.240 --> 0:17:36.000 it's actually an excellent point, and I think that the 0:17:36.000 --> 0:17:39.840 the sad controversy of the Ukraine is just accelerating transition 0:17:39.960 --> 0:17:42.840 or changes that I believe will potentially occur. I mean, 0:17:43.040 --> 0:17:45.879 as you know, everybody's talking about Russia, but also the 0:17:45.920 --> 0:17:49.040 implications in the US China relationships, and there's no doubt 0:17:49.040 --> 0:17:51.840 about it, and there's a lot of speculation that China 0:17:52.040 --> 0:17:55.639 and the US will separate economically, Uh, I really don't 0:17:55.680 --> 0:17:58.440 think that will occur. The reason I say that is 0:17:58.480 --> 0:18:00.520 these economies are too large and too to are connected 0:18:00.560 --> 0:18:02.880 to the world. You mentioned payment systems, full of capital, 0:18:02.920 --> 0:18:06.560 all those things these economies are dependent upon. So I 0:18:06.560 --> 0:18:10.520 don't think separation totally occurs. However, as I say that, 0:18:10.840 --> 0:18:12.879 there's no doubt I believe that when it comes to 0:18:12.920 --> 0:18:16.600 technology and future technologies, there's gonna be competition between the 0:18:16.640 --> 0:18:20.040 two countries. And that's more so I'll say China uls 0:18:20.119 --> 0:18:22.439 I mean, Russia really doesn't have the kinds of technologies 0:18:22.440 --> 0:18:24.640 that we're talking about. But if you think about things 0:18:24.680 --> 0:18:29.960 like semiconductors, artificial intelligence, quando computing, cyber computing, clearly there's 0:18:29.960 --> 0:18:32.119 going to be competition, and therefore I think that'll be 0:18:32.200 --> 0:18:35.520 less collaboration between China and the United States. So if 0:18:35.560 --> 0:18:37.560 that happens, because it certainly looks right now like that's 0:18:37.600 --> 0:18:39.600 where it's heading. We're not heading to a one big 0:18:39.640 --> 0:18:41.520 globe where we're all the same, we all do with 0:18:41.560 --> 0:18:44.880 each other, maybe more separation, particularly areas like tech. If 0:18:44.920 --> 0:18:47.520 that happens, how are we and for we for the moment, 0:18:47.520 --> 0:18:49.560 I'll say the United States situated because some people are 0:18:49.560 --> 0:18:52.600 concerned that China, for example, has really been investing a 0:18:52.640 --> 0:18:55.840 lot more in tech than we have been. There's no 0:18:55.880 --> 0:18:57.879 doubt about it. I mean, I think last year alone 0:18:58.000 --> 0:19:00.440 is one point five Trilly and Burnt estimates in range. 0:19:00.440 --> 0:19:02.520 So yes, China is out invest in the United States. 0:19:02.560 --> 0:19:05.280 They're not out investing the West. And I'll comment on 0:19:05.359 --> 0:19:07.360 that a little bit, but I mean, as you think 0:19:07.359 --> 0:19:09.840 of it, it's on this US China focus. I mean, 0:19:09.880 --> 0:19:13.000 I call it the Super Bowl geopolitics. You know, it's 0:19:13.040 --> 0:19:15.560 the Titans. Uh if you look at it today. To 0:19:15.640 --> 0:19:17.920 use a sports analogy, the US is about a three 0:19:17.960 --> 0:19:21.240 point favorite in the game going into the game. However, 0:19:21.560 --> 0:19:23.440 China is spending a lot and they're catching up. Can 0:19:23.440 --> 0:19:25.919 big kick have a heck of a fourth quarter? So 0:19:26.080 --> 0:19:28.840 my point being in that analogy, David, is the fact 0:19:28.880 --> 0:19:31.919 that the US needs to leverage the world. If they 0:19:31.960 --> 0:19:35.199 could come together and optimize their focus their investments, I 0:19:35.240 --> 0:19:39.240 think they clearly could continue to lead and out compete China. 0:19:40.040 --> 0:19:42.040 So saying I want to come back to if they 0:19:42.040 --> 0:19:43.919 can come together, because that could be a big f 0:19:44.359 --> 0:19:47.159 But let's assume that could happen. Who's on our team? 0:19:47.240 --> 0:19:49.760 So to speak to continue your Super Bowl analogy, who 0:19:49.760 --> 0:19:53.199 are the major players in tech on our team? I 0:19:53.240 --> 0:19:55.040 think the major players if you go through it, I 0:19:55.040 --> 0:19:58.040 mean there's if you look at the take semiconductors as 0:19:58.040 --> 0:20:01.080 an example. I think it's a good example. Everybody's focused 0:20:01.119 --> 0:20:05.160 on manufacturing capacity called FABS. That's important because there's such 0:20:05.160 --> 0:20:08.040 a dependency on Taiwan and your concerns and risk over 0:20:08.160 --> 0:20:12.320 China to Taiwan Taiwanese relationship. Having said all that, there's 0:20:12.440 --> 0:20:17.640 there's different elements to the ecosystem and and semiconductors. There's fabrics, 0:20:17.680 --> 0:20:20.720 there's the tools to fabricate, there's the design tools, there's 0:20:20.720 --> 0:20:24.679 the materials, there's packaging, and there's great expertise, especially in Europe. 0:20:24.720 --> 0:20:27.040 Europe has great research and great expertise in many of 0:20:27.119 --> 0:20:30.440 these areas. South Korea and Japan has great expertise and 0:20:30.440 --> 0:20:33.080 the manufacturing tools and manufacturing side of the house. So 0:20:33.119 --> 0:20:36.000 my point being is that if you look at the capabilities, 0:20:36.000 --> 0:20:39.240 the US certainly leads today in design and packaging. There's 0:20:39.280 --> 0:20:42.400 no doubt about and the research capability. But you combine 0:20:42.440 --> 0:20:47.639 these capabilities between Europe, mostly Germany, Japan, UH and I 0:20:47.680 --> 0:20:50.320 say it's really South Korea and Singapore. But you know 0:20:50.400 --> 0:20:53.359 those countries, within those regions, you can see how this 0:20:53.440 --> 0:20:56.000 thing could align. Okay, Sam, thank you so very much, 0:20:56.000 --> 0:20:58.720 really appreciate and Dela say Sam. Paulmisana is a contributor 0:20:58.720 --> 0:21:03.960 to Wallstree Weekend. Of course, he's the former CEO of IBM. 0:21:03.960 --> 0:21:06.200 Coming up, we wrap up the week with special contributor 0:21:06.280 --> 0:21:09.360 Larry Summers of Harvard. That's next on Wall Street Week 0:21:09.680 --> 0:21:16.359 on Bloomberg. This is Bloomberg Wall Street Week with David 0:21:16.400 --> 0:21:20.440 Weston from Bloomberg Radio. We're joined again this week by 0:21:20.440 --> 0:21:23.200 our special contributer Larry Summers of Harvard. So, Larry, we 0:21:23.320 --> 0:21:24.960 got jobs numbers out at the end of the week 0:21:25.000 --> 0:21:28.399 on Friday. Strong job numbers once again. Also by the way, 0:21:28.440 --> 0:21:32.080 I should say strong increases in wages at the same time, 0:21:32.359 --> 0:21:35.680 that doesn't raise the question whether this economy maybe even 0:21:35.680 --> 0:21:39.639 more overheated than we thought. Look, I think the single 0:21:39.680 --> 0:21:43.920 most important statistic for judging overheating is the ratio of 0:21:44.000 --> 0:21:48.200 vacancies to unemployment. And with these Jolts numbers and these 0:21:48.280 --> 0:21:51.840 unemployment numbers, that statistic is going to be plumbing new 0:21:51.920 --> 0:21:57.720 highs uh in the in when it's next calculated, and 0:21:57.800 --> 0:22:01.080 that suggests even more tightness in labor markets, and I 0:22:01.080 --> 0:22:05.919 think that points towards UH even more inflation. So I 0:22:05.960 --> 0:22:09.040 think near term we've got to, if anything, a bit 0:22:09.119 --> 0:22:13.560 greater inflation concerned UH than we had before we saw 0:22:14.520 --> 0:22:17.439 these numbers. Of course, it's good that the economy is 0:22:17.520 --> 0:22:21.479 looking relatively strong. I think if you were in doubt 0:22:21.960 --> 0:22:25.359 as to whether the previous weakness was fundamental or was 0:22:25.440 --> 0:22:28.960 caused by omicron, this would tend to tilt you towards 0:22:29.000 --> 0:22:33.240 thinking that it was caused by O Macron. But look, 0:22:34.160 --> 0:22:40.399 labor market indicators are always contemporaneous. We're lagging, so we 0:22:40.480 --> 0:22:43.840