1 00:00:00,520 --> 00:00:03,760 Speaker 1: This is Bloomberg Wall Street Week. We turn our attention 2 00:00:03,840 --> 00:00:06,199 Speaker 1: to the markets this week at U S CPI numbers 3 00:00:06,440 --> 00:00:10,280 Speaker 1: reinforcing concerns about inflation. The financial stories that chiep are 4 00:00:10,360 --> 00:00:13,400 Speaker 1: worth a really different reaction to Mark. It's more indications 5 00:00:13,400 --> 00:00:15,960 Speaker 1: of just how hot the U. S economy really is 6 00:00:16,040 --> 00:00:19,439 Speaker 1: through the eyes of the most influential voices Larry Summers, 7 00:00:19,480 --> 00:00:22,279 Speaker 1: the former Treatory Secretary, Katherine Keening, CEO of d n 8 00:00:22,400 --> 00:00:26,160 Speaker 1: Y Mom, Sam's l Sharman, and founder of Equatic Group Investment. 9 00:00:26,200 --> 00:00:30,280 Speaker 1: In Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 10 00:00:30,680 --> 00:00:34,479 Speaker 1: New governments face old problems, and this time it doesn't 11 00:00:34,520 --> 00:00:37,199 Speaker 1: look like tech will give us the solutions. This is 12 00:00:37,200 --> 00:00:41,000 Speaker 1: Bloomberg Wall Street Week. I'm David Weston, this week's special 13 00:00:41,000 --> 00:00:44,280 Speaker 1: contributor Larry Summers on the new GDP numbers and what 14 00:00:44,400 --> 00:00:48,200 Speaker 1: they lack. It confirmed what I think we knew that 15 00:00:48,680 --> 00:00:52,560 Speaker 1: despite two negative quarters, the economy was not in any 16 00:00:52,600 --> 00:00:56,560 Speaker 1: real sense in recession. And Sam's l on why he 17 00:00:56,640 --> 00:01:01,280 Speaker 1: has more opportunities than ever for good investments. Think about 18 00:01:01,560 --> 00:01:06,000 Speaker 1: the impact of the doubling and interest rates in eight weeks. 19 00:01:19,640 --> 00:01:22,640 Speaker 1: This week, Global All Street saw three new or sort 20 00:01:22,680 --> 00:01:26,240 Speaker 1: of new governments installed, with Rishie Sunak officially taking over 21 00:01:26,240 --> 00:01:28,760 Speaker 1: as the new Prime Minister of Great Britain and promising 22 00:01:28,800 --> 00:01:33,080 Speaker 1: to make nice with the markets. I will place economic 23 00:01:33,120 --> 00:01:38,319 Speaker 1: stability and confidence at the heart of this government's agenda. 24 00:01:38,720 --> 00:01:44,240 Speaker 1: This will mean difficult decisions to come. Not to be outdone. 25 00:01:44,360 --> 00:01:47,319 Speaker 1: Italy also got a new prime minister, and Georgia Maloney 26 00:01:47,400 --> 00:01:51,279 Speaker 1: wasted no time in taking issue with the ECB raising rates. 27 00:01:52,160 --> 00:01:54,840 Speaker 1: It's considered by many to be a rash choice that 28 00:01:54,960 --> 00:01:58,559 Speaker 1: could have repercussions on bank lending to households and businesses. 29 00:01:59,000 --> 00:02:01,520 Speaker 1: And although China a re up to President g for 30 00:02:01,560 --> 00:02:04,280 Speaker 1: a third term, he made his own changes to his 31 00:02:04,320 --> 00:02:07,200 Speaker 1: senior team, surrounding himself with people who see eye to 32 00:02:07,280 --> 00:02:10,240 Speaker 1: eye with him, which cornels each Farsat says is a 33 00:02:10,320 --> 00:02:14,080 Speaker 1: fundamental shift of a different sort. The message is quite 34 00:02:14,160 --> 00:02:17,200 Speaker 1: clear that technocrats are on their way out, the loyalists 35 00:02:17,240 --> 00:02:20,079 Speaker 1: are on their way in. But as much as governments 36 00:02:20,080 --> 00:02:23,400 Speaker 1: may change, the problems they face remain the same. As 37 00:02:23,400 --> 00:02:27,040 Speaker 1: the United States reported stronger GDP growth than expected despite 38 00:02:27,160 --> 00:02:30,480 Speaker 1: higher interest rates, and the ECB hyped another seventy five 39 00:02:30,520 --> 00:02:33,840 Speaker 1: basis points with President Leguards, saying she continues to focus 40 00:02:33,840 --> 00:02:38,360 Speaker 1: on inflation even though the European economy is slowing. The 41 00:02:38,480 --> 00:02:43,280 Speaker 1: risks to the inflation outlook are primarily on the upside. 42 00:02:43,560 --> 00:02:46,360 Speaker 1: The major risk in the short term is a further 43 00:02:46,600 --> 00:02:51,359 Speaker 1: rise in retail energy prices. Over the medium term, inflation 44 00:02:51,520 --> 00:02:54,520 Speaker 1: may turn up to be higher than expected. And if 45 00:02:54,520 --> 00:02:57,200 Speaker 1: Global Wall Street was hoping that tech might help us 46 00:02:57,240 --> 00:02:59,280 Speaker 1: climb out of these doldrums, it was in for a 47 00:02:59,360 --> 00:03:02,440 Speaker 1: letdown this week as the earnings of several big tech 48 00:03:02,480 --> 00:03:06,760 Speaker 1: companies disappointed, particularly in their guidance about what may come next. 49 00:03:07,400 --> 00:03:10,000 Speaker 1: There's big tech names, as they have reported this week. 50 00:03:10,280 --> 00:03:12,799 Speaker 1: You know, look at Microsoft, look at Alphabet today. They 51 00:03:12,919 --> 00:03:17,200 Speaker 1: really have underperformed in a big way. But in the end, 52 00:03:17,240 --> 00:03:19,679 Speaker 1: equity markets shook it all off, with the SMP five 53 00:03:20,120 --> 00:03:21,799 Speaker 1: up for the second week in a row, this time 54 00:03:21,840 --> 00:03:25,040 Speaker 1: by almost four percent, and even the NASDAK rose above 55 00:03:25,080 --> 00:03:28,280 Speaker 1: those disappointing earnings, overcoming a bad week for the Fangs 56 00:03:28,320 --> 00:03:31,120 Speaker 1: and for the Golden Dragon China Index, and turning what 57 00:03:31,160 --> 00:03:33,280 Speaker 1: was a loss as of Thursday into a nice two 58 00:03:33,280 --> 00:03:35,160 Speaker 1: point two percent gained by the end of the week, 59 00:03:35,400 --> 00:03:37,520 Speaker 1: while the yield and the ten years, settled in just 60 00:03:37,680 --> 00:03:40,600 Speaker 1: over four percent by the end of Friday, down from 61 00:03:40,600 --> 00:03:42,720 Speaker 1: about four point to five percent at the beginning of 62 00:03:42,760 --> 00:03:45,440 Speaker 1: the week. Here to sort out a fascinating back and 63 00:03:45,520 --> 00:03:48,320 Speaker 1: forth in markets are Peter Krauts, chair and CEO of 64 00:03:48,320 --> 00:03:52,400 Speaker 1: Aperture Investors, and Monamahagen, she has senior investment strategist at 65 00:03:52,520 --> 00:03:54,520 Speaker 1: Edward Jones. So, Waning, let me pick on you first. 66 00:03:54,760 --> 00:03:56,920 Speaker 1: What did the markets do this weekend? Why did they 67 00:03:56,960 --> 00:03:58,840 Speaker 1: do it? Yeah? Thanks, David. Look, this week was a 68 00:03:58,840 --> 00:04:01,000 Speaker 1: bit of a tug of war. On one side of 69 00:04:01,040 --> 00:04:03,720 Speaker 1: that tug of war, we saw the big cap tech earnings. 70 00:04:03,720 --> 00:04:06,680 Speaker 1: They were um, in a word, disappointing in fact, and 71 00:04:06,720 --> 00:04:09,800 Speaker 1: you noted this upfront. It wasn't necessarily the three Q results. 72 00:04:09,840 --> 00:04:13,280 Speaker 1: It was the guidance across the board between advertising revenue, 73 00:04:13,360 --> 00:04:16,920 Speaker 1: between cloud computing demand. We're seeing the soft thing there 74 00:04:17,200 --> 00:04:19,920 Speaker 1: and that really dragged down the NASDAC. But on the 75 00:04:19,960 --> 00:04:21,560 Speaker 1: other side of this tug of war, we saw the 76 00:04:21,600 --> 00:04:24,359 Speaker 1: Dow up nearly six percent this week. Now what was 77 00:04:24,440 --> 00:04:27,640 Speaker 1: driving that? While we are certainly starting to hear a 78 00:04:27,680 --> 00:04:31,320 Speaker 1: little bit more optimism about a federal reserve that maybe 79 00:04:31,400 --> 00:04:34,000 Speaker 1: looking to raise rates at a more moderate pace. Now, 80 00:04:34,040 --> 00:04:37,040 Speaker 1: of course, next week's meeting, UH, the seventy basis point 81 00:04:37,040 --> 00:04:39,960 Speaker 1: the point seven five percent rate hike UM almost baked 82 00:04:40,000 --> 00:04:43,120 Speaker 1: into the cake. It's probably going to happen. But really 83 00:04:43,160 --> 00:04:46,880 Speaker 1: all eyes will then focus on that December rate hike meeting. 84 00:04:47,240 --> 00:04:49,599 Speaker 1: Um will they go fifty basis points or will they 85 00:04:49,640 --> 00:04:51,960 Speaker 1: go seventy five? And in fact we heard a little 86 00:04:51,960 --> 00:04:54,640 Speaker 1: bit more from some Fed governors that perhaps a more 87 00:04:54,680 --> 00:04:58,680 Speaker 1: moderate rate of rate hikes probably makes sense here, just 88 00:04:58,760 --> 00:05:02,680 Speaker 1: given UM giving them an opportunity to pause, assess the economy. 89 00:05:02,720 --> 00:05:05,839 Speaker 1: See what's happening so interesting moves in the market this week. 90 00:05:06,040 --> 00:05:08,920 Speaker 1: We do think, more broadly, some of those inflationary trends 91 00:05:08,960 --> 00:05:10,679 Speaker 1: that we have been seeing, some of the four looking 92 00:05:10,720 --> 00:05:14,320 Speaker 1: indicators are starting to show some signs of rolling over. 93 00:05:14,680 --> 00:05:17,080 Speaker 1: That gives the Fed a little bit more comfort and 94 00:05:17,160 --> 00:05:19,920 Speaker 1: perhaps going at a more moderate pace. We certainly saw 95 00:05:19,960 --> 00:05:22,280 Speaker 1: that from the Bank of Canada this week this as well, 96 00:05:22,279 --> 00:05:25,480 Speaker 1: who went fifty basis points rather than the expected seventy 97 00:05:26,040 --> 00:05:28,080 Speaker 1: theater what do we say, are we heard from Ona? 98 00:05:28,320 --> 00:05:30,800 Speaker 1: We're hearing some optimism about the Fed? Where are we 99 00:05:30,800 --> 00:05:33,120 Speaker 1: hearing that from? I don't remember the Fed giving us 100 00:05:33,200 --> 00:05:36,479 Speaker 1: much optimism. I think the Fed is giving us any optimism. 101 00:05:37,080 --> 00:05:41,000 Speaker 1: I think that this is an interesting case of are 102 00:05:41,000 --> 00:05:44,400 Speaker 1: you actually listening to the people who have the power 103 00:05:44,600 --> 00:05:47,159 Speaker 1: to move the interest rates? If you're actually listening to 104 00:05:47,200 --> 00:05:49,839 Speaker 1: the Fed, I think it's pretty clear the Feds moving 105 00:05:50,480 --> 00:05:54,479 Speaker 1: to squash inflation, and they're not going to stop until 106 00:05:54,520 --> 00:05:59,120 Speaker 1: inflation goes down. Inflation sticky, and it's not gonna move 107 00:05:59,200 --> 00:06:02,120 Speaker 1: so quickly. And so the likelihood is that we see 108 00:06:02,200 --> 00:06:05,640 Speaker 1: high rates or higher rates, and that those rates probably 109 00:06:05,680 --> 00:06:07,840 Speaker 1: top out sometime in twenty three and they don't go 110 00:06:07,920 --> 00:06:12,760 Speaker 1: down until well into or perhaps twenty four. And I 111 00:06:12,800 --> 00:06:16,200 Speaker 1: don't think the market is completely digested that, and they're 112 00:06:16,240 --> 00:06:20,400 Speaker 1: looking for scintillas of hope that are floating around in 113 00:06:20,440 --> 00:06:23,640 Speaker 1: the market that I would call sentiment but not fact. 114 00:06:24,360 --> 00:06:26,159 Speaker 1: What do you make of it all? And at the 115 00:06:26,160 --> 00:06:28,680 Speaker 1: FED I think wants some consistent data over time that 116 00:06:28,760 --> 00:06:31,039 Speaker 1: shows that the inflation really coming down. You said there 117 00:06:31,080 --> 00:06:34,479 Speaker 1: are a little bit of indications around the edges. Yeah, 118 00:06:34,520 --> 00:06:36,360 Speaker 1: you know. Look, Peter has a point there. They want 119 00:06:36,440 --> 00:06:39,200 Speaker 1: clear and consistent evidence of inflation moderating, and in fact, 120 00:06:39,440 --> 00:06:42,800 Speaker 1: they don't want to indicate anything too prematurely. They started 121 00:06:42,839 --> 00:06:44,760 Speaker 1: to see that in June and we saw markets start 122 00:06:44,800 --> 00:06:47,719 Speaker 1: to rally, you know, financial conditions start to ease rather 123 00:06:47,800 --> 00:06:49,880 Speaker 1: than tighten, which is what they really want to see 124 00:06:49,880 --> 00:06:52,960 Speaker 1: in markets in order to push inflationary pressures down. So 125 00:06:53,000 --> 00:06:54,800 Speaker 1: we're gonna pick out exactly that when we come back. 126 00:06:54,839 --> 00:06:57,240 Speaker 1: Mono Hodgen and Peter Crust will stay with us as 127 00:06:57,320 --> 00:06:59,400 Speaker 1: we turn to some investment advice. They carry us towards 128 00:06:59,400 --> 00:07:01,200 Speaker 1: the end of the year. That's coming up next on 129 00:07:01,320 --> 00:07:06,880 Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street 130 00:07:06,880 --> 00:07:16,760 Speaker 1: Week with David Weston from Bloomberg Radio. Tom Alone will 131 00:07:16,800 --> 00:07:19,360 Speaker 1: tell whether Black Monday enters the history book as the 132 00:07:19,400 --> 00:07:23,800 Speaker 1: day American confidence was so shaken that a premature recession resulted, 133 00:07:24,920 --> 00:07:27,640 Speaker 1: or merely as the day of the computers went wild 134 00:07:28,520 --> 00:07:31,880 Speaker 1: and through the wonders of so called program trading turned 135 00:07:31,880 --> 00:07:36,200 Speaker 1: a normal correction into an early Halloween. That of course 136 00:07:36,320 --> 00:07:38,520 Speaker 1: was the one and only Lewis Rocks on Wall Street Week, 137 00:07:38,800 --> 00:07:41,840 Speaker 1: the friday before another Halloween like we're having when this 138 00:07:41,920 --> 00:07:44,840 Speaker 1: coming Monday. But that one was back in seven just 139 00:07:44,920 --> 00:07:47,880 Speaker 1: after so called Black Monday, when the Dow Jones lost 140 00:07:48,960 --> 00:07:51,600 Speaker 1: in a single day and people back then we're trying 141 00:07:51,640 --> 00:07:54,360 Speaker 1: to figure out what went wrong. The number one movie 142 00:07:54,360 --> 00:07:57,320 Speaker 1: in America that week was Fatal Attraction and the number 143 00:07:57,320 --> 00:08:00,040 Speaker 1: one song, well, it was bad by Michael Jackson. We 144 00:08:00,080 --> 00:08:02,320 Speaker 1: still have with us now, Peter Krause of Aperture Investors 145 00:08:02,360 --> 00:08:05,080 Speaker 1: and Monamohydgen of Edward Jones. So, Peter, when I come 146 00:08:05,120 --> 00:08:06,560 Speaker 1: to you, I mean, it's not a Black Monday. We 147 00:08:06,560 --> 00:08:08,880 Speaker 1: haven't seen that by any means, Thank goodness. And I 148 00:08:08,920 --> 00:08:11,560 Speaker 1: remember that day, by the way, I do too. I 149 00:08:11,600 --> 00:08:14,720 Speaker 1: was practicing law back in Washington. But but give us 150 00:08:14,720 --> 00:08:17,120 Speaker 1: some investment advice here. You started in that direction with 151 00:08:17,160 --> 00:08:20,240 Speaker 1: small caps and duration. If you're putting money to work 152 00:08:20,320 --> 00:08:22,120 Speaker 1: right now, where does it make sense to do that 153 00:08:22,200 --> 00:08:25,120 Speaker 1: given all the uncertainty? Well, I look, I think Mona 154 00:08:25,440 --> 00:08:29,240 Speaker 1: said it as well. There's three places that are in distress. 155 00:08:29,640 --> 00:08:34,120 Speaker 1: One is long duration fixed income. So whether it's treasuries 156 00:08:34,240 --> 00:08:36,800 Speaker 1: or high yield or long duration bonds that have been 157 00:08:36,840 --> 00:08:41,120 Speaker 1: absolutely crushed this year, those securities are likely going to 158 00:08:41,160 --> 00:08:45,160 Speaker 1: provide attractive yields going forward. They're not going to reduce 159 00:08:45,200 --> 00:08:47,360 Speaker 1: their volatility. They're still going to have a fair bit 160 00:08:47,400 --> 00:08:50,120 Speaker 1: of price volatility to them. But you know this is 161 00:08:50,160 --> 00:08:52,240 Speaker 1: a time when you can start to think about getting 162 00:08:52,280 --> 00:08:55,600 Speaker 1: a little longer and moving out of the very short duration, 163 00:08:55,640 --> 00:08:57,880 Speaker 1: which by the way, is also paying very well, and 164 00:08:57,960 --> 00:09:02,160 Speaker 1: you can buy short duration investment grade bonds at five 165 00:09:02,200 --> 00:09:04,600 Speaker 1: percent or even five and a percent, so that looks 166 00:09:04,640 --> 00:09:07,520 Speaker 1: pretty attractive as well. But I think leaking out a 167 00:09:07,600 --> 00:09:11,200 Speaker 1: little bit into duration makes sense. And the equity side, 168 00:09:12,000 --> 00:09:14,400 Speaker 1: you know, I think you can't abandon the growth world. 169 00:09:14,440 --> 00:09:17,160 Speaker 1: I mean, the tech world today or the tech news 170 00:09:17,160 --> 00:09:19,680 Speaker 1: in the last few days is obviously very negative. But 171 00:09:20,840 --> 00:09:24,240 Speaker 1: there are companies that are not necessarily tech, but our 172 00:09:24,280 --> 00:09:28,600 Speaker 1: growth companies. They're either consumer oriented where their industrial companies 173 00:09:28,600 --> 00:09:32,040 Speaker 1: that have fast growth, and not paying attention to those 174 00:09:32,160 --> 00:09:34,360 Speaker 1: is going to miss a trick that whether they're small 175 00:09:34,400 --> 00:09:37,000 Speaker 1: cap or mid cap or even large cap, but most 176 00:09:37,040 --> 00:09:38,960 Speaker 1: likely you're going to find them in the small cap space. 177 00:09:39,480 --> 00:09:42,280 Speaker 1: So I look at aperture. Our view is small caps 178 00:09:42,280 --> 00:09:44,920 Speaker 1: are very interesting space. The beta is cheap, and it's 179 00:09:44,920 --> 00:09:47,040 Speaker 1: a place where we're probably going to see the first 180 00:09:47,200 --> 00:09:50,360 Speaker 1: move when this market recovers. Well, that's what you said earlier, 181 00:09:50,440 --> 00:09:52,720 Speaker 1: the small caps come back first, Mona. Do you agree 182 00:09:52,800 --> 00:09:54,480 Speaker 1: with that? And if they come back first, what comes 183 00:09:54,520 --> 00:09:56,880 Speaker 1: back second? What comes back thirds, because that indicates where 184 00:09:56,880 --> 00:09:58,000 Speaker 1: you want to be and where you don't want to 185 00:09:58,000 --> 00:10:01,199 Speaker 1: be right now. Yeah, absolutely, you know, Peter's absolutely right. 186 00:10:01,240 --> 00:10:03,520 Speaker 1: When you look historically, coming out of any sort of 187 00:10:03,520 --> 00:10:06,240 Speaker 1: downturn or recessionary period, the thing that tends to lead 188 00:10:06,360 --> 00:10:09,360 Speaker 1: us out our small cap names. And interestingly, this time around, 189 00:10:09,600 --> 00:10:12,640 Speaker 1: small caps do tend to also be more domestically oriented. 190 00:10:12,679 --> 00:10:14,800 Speaker 1: And perhaps when you look across the globe, you're seeing 191 00:10:15,080 --> 00:10:18,800 Speaker 1: a European economy more exposed to the geopolitical issues oil 192 00:10:18,840 --> 00:10:22,200 Speaker 1: and energy crisis. You're seeing an Asian economy more exposed 193 00:10:22,200 --> 00:10:25,400 Speaker 1: to a Chinese economy that may be slowing. So in fact, 194 00:10:25,559 --> 00:10:28,200 Speaker 1: the small cap universe is starting to look more and 195 00:10:28,240 --> 00:10:31,760 Speaker 1: more interesting as well. We probably will have some months 196 00:10:31,760 --> 00:10:35,320 Speaker 1: of volatility ahead as we stabilize get through a potential downturn, 197 00:10:35,360 --> 00:10:39,080 Speaker 1: but I think that is a place to start thinking about. UM. Similarly, 198 00:10:39,240 --> 00:10:42,000 Speaker 1: you know, across equities and fixed income, we talked about 199 00:10:42,000 --> 00:10:45,160 Speaker 1: complementing equities, so you know, think about the stuff that 200 00:10:45,240 --> 00:10:48,880 Speaker 1: has been more quote unquote beaten up this year. UM, 201 00:10:48,920 --> 00:10:51,080 Speaker 1: there is values starting to merge in a lot of that. 202 00:10:51,160 --> 00:10:54,680 Speaker 1: And again when you look historically the twelve months after 203 00:10:54,960 --> 00:10:58,880 Speaker 1: the FED the final FED rate hike, equities broadly are 204 00:10:59,040 --> 00:11:01,720 Speaker 1: up on average, and this is back till since FED 205 00:11:01,880 --> 00:11:05,400 Speaker 1: right tiking cycle since ninety on average up about sixteen 206 00:11:05,480 --> 00:11:07,960 Speaker 1: percent after that peak FED funds rate. So if you 207 00:11:08,000 --> 00:11:12,360 Speaker 1: think it's coming sometime in February March, maybe earlier UM, 208 00:11:12,400 --> 00:11:16,120 Speaker 1: there's certainly an interesting opportunity starting to form. And of course, 209 00:11:16,679 --> 00:11:19,520 Speaker 1: with inequities, the other parts of the market, aside from 210 00:11:19,559 --> 00:11:22,000 Speaker 1: small caps that tend to perform well coming out of 211 00:11:22,000 --> 00:11:24,800 Speaker 1: a downturn, or the more cyclical and growth parts of 212 00:11:24,800 --> 00:11:27,800 Speaker 1: the market, and when growth is slowing, you know, investors 213 00:11:27,880 --> 00:11:31,319 Speaker 1: pen to gravitate towards finding growth in their portfolios. So 214 00:11:31,760 --> 00:11:34,480 Speaker 1: everything that we've talked about and Peter and I have 215 00:11:34,559 --> 00:11:37,800 Speaker 1: probably reiterated a couple of times now, but think about duration, 216 00:11:37,920 --> 00:11:42,480 Speaker 1: think about quality. Growth opportunities are certainly forming. Like I 217 00:11:42,520 --> 00:11:47,720 Speaker 1: also think that don't misunderstand arising economy or a rising 218 00:11:47,760 --> 00:11:49,960 Speaker 1: market that you might have in the next few months. 219 00:11:50,040 --> 00:11:54,040 Speaker 1: For a market that is absent volatility, there's still plenty 220 00:11:54,080 --> 00:11:58,200 Speaker 1: of shoes to drop, and credit and leverage lending is 221 00:11:58,240 --> 00:12:00,480 Speaker 1: one of them. And we don't know how the market 222 00:12:00,559 --> 00:12:02,679 Speaker 1: is going to react to defaults. We haven't seen a 223 00:12:02,760 --> 00:12:07,000 Speaker 1: significant default cycle really since Frankly two thousand and three, 224 00:12:07,080 --> 00:12:10,400 Speaker 1: two thousand and four oh eight was a liquidity crisis, 225 00:12:10,440 --> 00:12:12,959 Speaker 1: and you know two thousand and twenty was very short, 226 00:12:13,400 --> 00:12:17,720 Speaker 1: so you could have some defaults here in corporate uh 227 00:12:17,840 --> 00:12:21,640 Speaker 1: and in you know, other types of securities, real estate UM. 228 00:12:21,679 --> 00:12:23,720 Speaker 1: And I think that that's going to have some effect 229 00:12:23,760 --> 00:12:26,480 Speaker 1: on the volatility, but investors have to have to live 230 00:12:26,480 --> 00:12:28,920 Speaker 1: through that volatility. They can't get knocked out of the 231 00:12:28,960 --> 00:12:31,559 Speaker 1: market because if you do that, you're gonna miss the opportunity. 232 00:12:31,880 --> 00:12:34,880 Speaker 1: We'll talk about the overall structure of the paradigm as 233 00:12:34,920 --> 00:12:36,840 Speaker 1: it were, of investing. We are going. It looks like 234 00:12:36,920 --> 00:12:40,640 Speaker 1: from a world low inflation, low rates, into higher inflation 235 00:12:40,720 --> 00:12:43,719 Speaker 1: and perhaps significantly higher rates. At the same time, there 236 00:12:43,760 --> 00:12:45,439 Speaker 1: was a good long period of time when it was 237 00:12:45,440 --> 00:12:47,439 Speaker 1: basically there was no alternative, so people went into a 238 00:12:47,480 --> 00:12:50,400 Speaker 1: lot of alternates, a lot of riskier things. What happens 239 00:12:50,400 --> 00:12:52,360 Speaker 1: in this new world, because it's not like the old 240 00:12:52,400 --> 00:12:55,920 Speaker 1: world necessarily, Yeah, you know, that's that's spot on, and 241 00:12:55,960 --> 00:12:58,679 Speaker 1: in fact, we all know the Tina acronym. There is 242 00:12:58,720 --> 00:13:01,760 Speaker 1: no alternative that served us well, probably from the Great 243 00:13:01,760 --> 00:13:05,079 Speaker 1: financial crisis through the pandemic um, we saw a lot 244 00:13:05,120 --> 00:13:08,360 Speaker 1: of investors pushed out the risk curve um in order 245 00:13:08,400 --> 00:13:11,000 Speaker 1: to get that return that they were seeking. And of course, 246 00:13:11,080 --> 00:13:15,720 Speaker 1: as raise rates rose pretty rapidly through two what we 247 00:13:15,800 --> 00:13:18,040 Speaker 1: did see is a lot of more speculative parts of 248 00:13:18,040 --> 00:13:20,640 Speaker 1: the market have started to see the air let out 249 00:13:20,640 --> 00:13:22,600 Speaker 1: of those tires as well. You know, think about this 250 00:13:22,679 --> 00:13:26,439 Speaker 1: back market earlier this year, the Meme stock market, uh, 251 00:13:26,520 --> 00:13:30,120 Speaker 1: even crypto to some extent, we've seen large you know, 252 00:13:30,160 --> 00:13:34,520 Speaker 1: compression and valuations, large downturn in values overall in a 253 00:13:34,559 --> 00:13:37,640 Speaker 1: lot of those more speculative bubbles, and in fact, that 254 00:13:37,720 --> 00:13:40,560 Speaker 1: probably sets us up for a more interesting time in 255 00:13:40,600 --> 00:13:43,280 Speaker 1: the next ten years. You know. The one nice thing 256 00:13:43,280 --> 00:13:46,480 Speaker 1: that's happened over this kind of downturn and markets this 257 00:13:46,559 --> 00:13:50,120 Speaker 1: year is that valuation compression has come in beyond what 258 00:13:50,160 --> 00:13:54,320 Speaker 1: we've typically seen historically. So the SMP PE multiple, for example, 259 00:13:54,320 --> 00:13:58,079 Speaker 1: has come down over um this year already. So the 260 00:13:58,200 --> 00:14:01,920 Speaker 1: valuation correction in our view has likely already happened, and 261 00:14:01,960 --> 00:14:04,920 Speaker 1: that sets us up nicely. But to your point, in 262 00:14:04,920 --> 00:14:08,040 Speaker 1: an environment where it will probably not return to zero rates, 263 00:14:08,120 --> 00:14:12,079 Speaker 1: but with growth at two percent inflation hopefully returning somewhere 264 00:14:12,080 --> 00:14:14,839 Speaker 1: in that two to three percent UM yields may also 265 00:14:14,920 --> 00:14:17,600 Speaker 1: be somewhere in that two to three percent range, and 266 00:14:17,640 --> 00:14:20,600 Speaker 1: so in that scenario, you think about discounting your cash 267 00:14:20,640 --> 00:14:23,360 Speaker 1: flows at a higher rate, and so really that does 268 00:14:23,440 --> 00:14:27,080 Speaker 1: put more pressure to prove your business models, especially those 269 00:14:27,120 --> 00:14:30,560 Speaker 1: business models that expect cash flows in the out years UM. 270 00:14:30,600 --> 00:14:33,200 Speaker 1: But the more steady parts of the market that have 271 00:14:33,440 --> 00:14:36,880 Speaker 1: proven business models, that have proven cash flows, those valuations 272 00:14:36,880 --> 00:14:39,080 Speaker 1: are starting to look attractive here, and I think that's 273 00:14:39,720 --> 00:14:41,640 Speaker 1: really what investors will have to think about in this 274 00:14:41,680 --> 00:14:43,960 Speaker 1: new environment. Thank you so much. It's really great to 275 00:14:44,000 --> 00:14:45,800 Speaker 1: have you both with it as a Peter Crest of 276 00:14:45,920 --> 00:14:52,280 Speaker 1: Aftercure Investors and Hydgen of Edward Jones. Coming up, famed 277 00:14:52,280 --> 00:14:55,120 Speaker 1: investor Sam's l He's a veteran of Wall Street Week 278 00:14:55,280 --> 00:14:57,240 Speaker 1: and he's back now to give us his advice on 279 00:14:57,360 --> 00:15:00,480 Speaker 1: investing in these difficult markets and why he is seeing 280 00:15:00,520 --> 00:15:03,880 Speaker 1: more opportunities than ever. That's next out Wall Street Week 281 00:15:04,080 --> 00:15:16,840 Speaker 1: on Bluebird. Okay, what a difference a few rate hikes make. 282 00:15:17,320 --> 00:15:20,360 Speaker 1: Not that long ago, when interest rates were at record lows, 283 00:15:20,720 --> 00:15:22,800 Speaker 1: the easy days where they not money on you and 284 00:15:22,840 --> 00:15:25,120 Speaker 1: you don't have much inflation and you don't have much 285 00:15:25,160 --> 00:15:29,160 Speaker 1: time inness those are past. You almost couldn't avoid making 286 00:15:29,160 --> 00:15:32,000 Speaker 1: a deal and setting new records for M and A. 287 00:15:32,240 --> 00:15:35,680 Speaker 1: We are continuing to see a just tremendous momentum in 288 00:15:35,840 --> 00:15:38,880 Speaker 1: U S, M and A. But things have changed. Money 289 00:15:38,960 --> 00:15:43,160 Speaker 1: isn't free anymore. We have got to get inflation behind us. 290 00:15:43,400 --> 00:15:45,520 Speaker 1: I wish there were a painless way to do that. 291 00:15:45,840 --> 00:15:49,600 Speaker 1: There isn't and credit is cutting into that record deal flow. 292 00:15:50,040 --> 00:15:52,760 Speaker 1: I'm looking now at credit spreads in the mid four 293 00:15:52,840 --> 00:15:56,600 Speaker 1: hundreds and they just look too expensive to me. So 294 00:15:56,720 --> 00:15:59,320 Speaker 1: what does that mean for the dealmaker? And are there 295 00:15:59,320 --> 00:16:02,480 Speaker 1: many deal that still makes sense in this new world? 296 00:16:02,840 --> 00:16:06,040 Speaker 1: There's still more room for we think these spreads to tighten. 297 00:16:06,280 --> 00:16:09,240 Speaker 1: Probably at this point, you know, best opportunities are in 298 00:16:09,320 --> 00:16:15,800 Speaker 1: the non investment grade market. And now return to a dealmaker. 299 00:16:15,880 --> 00:16:18,280 Speaker 1: Par Excellan Sophia Sam's l He is the chairman and 300 00:16:18,360 --> 00:16:21,600 Speaker 1: founder of Equity Group Investment Sam. Welcome to Wall Street Week. 301 00:16:21,680 --> 00:16:24,240 Speaker 1: I know you've been on this program in the past. Okay, 302 00:16:24,520 --> 00:16:26,920 Speaker 1: so let's talk about what investor does in this new 303 00:16:27,040 --> 00:16:30,800 Speaker 1: environment of increased inflation and increased interest rates. First of all, 304 00:16:30,880 --> 00:16:33,320 Speaker 1: tell me what's going on with your company? Are you 305 00:16:33,360 --> 00:16:37,800 Speaker 1: seeing less deal flow now just the opposite. We're seeing 306 00:16:37,800 --> 00:16:44,400 Speaker 1: more deal flow. We're seeing more situations where companies are 307 00:16:44,560 --> 00:16:49,640 Speaker 1: having difficulty, uh figuring out what to do. Uh. We're 308 00:16:49,680 --> 00:16:56,360 Speaker 1: seeing situations where nine months ago, financing a transaction of 309 00:16:56,800 --> 00:17:00,440 Speaker 1: X y Z size was nothing. You know, it was 310 00:17:00,720 --> 00:17:05,440 Speaker 1: you know, as you said, money was free. Uh what's 311 00:17:05,600 --> 00:17:09,920 Speaker 1: changed dramatically? I mean, think about the impact of the 312 00:17:10,040 --> 00:17:14,159 Speaker 1: doubling of interest rates in eight weeks double you know, 313 00:17:14,160 --> 00:17:18,560 Speaker 1: it's just eight weeks earlier. Uh, interest rates were you know, 314 00:17:18,680 --> 00:17:20,720 Speaker 1: two and a half to three and now they're five 315 00:17:20,760 --> 00:17:25,480 Speaker 1: and a half to six. That's enormous uh change, and 316 00:17:26,160 --> 00:17:30,639 Speaker 1: it's gonna slow down everybody's activity. It's gonna for sure, 317 00:17:31,320 --> 00:17:36,440 Speaker 1: uh impact getting deals done. But in our particular case, 318 00:17:36,560 --> 00:17:42,000 Speaker 1: because frankly, I've oftentime told the world that you know, 319 00:17:42,480 --> 00:17:46,199 Speaker 1: when I'm liquid, the stock market can't go down. It 320 00:17:46,280 --> 00:17:49,359 Speaker 1: only goes down when I'm ire liquid. And here I 321 00:17:49,400 --> 00:17:52,359 Speaker 1: am sitting there with a level of liquidity I've never 322 00:17:52,440 --> 00:17:57,080 Speaker 1: experienced in my life because my focus for the last 323 00:17:57,200 --> 00:18:00,840 Speaker 1: three and a half years has been nothing more important 324 00:18:00,840 --> 00:18:04,439 Speaker 1: men equality. So you've got a significant deal flow if 325 00:18:04,440 --> 00:18:06,520 Speaker 1: anything is bigger than it was before. What about the 326 00:18:06,600 --> 00:18:08,719 Speaker 1: quality of deals? Are they different from what they were 327 00:18:08,760 --> 00:18:12,439 Speaker 1: for example, preach prandemic. I think they are because I 328 00:18:12,520 --> 00:18:18,639 Speaker 1: think they're a little more realistic. I think in pre pandemic, 329 00:18:19,280 --> 00:18:23,840 Speaker 1: when money was free, Um, there were transaction. I mean, 330 00:18:23,880 --> 00:18:27,480 Speaker 1: the whole spack market was. You know, we did as 331 00:18:27,520 --> 00:18:31,600 Speaker 1: back and chose not to take it to the next 332 00:18:31,680 --> 00:18:35,720 Speaker 1: level because when we did this back spac seemed like 333 00:18:35,760 --> 00:18:41,960 Speaker 1: a very interesting way to in effect monetize opportunity. Uh. 334 00:18:42,000 --> 00:18:47,639 Speaker 1: It very quickly became a highly speculative scenario dependent on 335 00:18:48,160 --> 00:18:52,520 Speaker 1: preposterous valuations that ultimately led to the crash of the 336 00:18:52,560 --> 00:18:57,520 Speaker 1: whole spack market. Uh. You know, world has changed a 337 00:18:57,520 --> 00:19:03,560 Speaker 1: lot since then, and the change is basically modifying what 338 00:19:03,600 --> 00:19:07,080 Speaker 1: you can do. On the other hand, there's always demand 339 00:19:07,119 --> 00:19:11,199 Speaker 1: for capital. Uh, and there's always that demand is always 340 00:19:11,240 --> 00:19:13,920 Speaker 1: on the on the the shoulders of those that have 341 00:19:14,320 --> 00:19:17,679 Speaker 1: preserved the coidity. So let's tell about some specific investment 342 00:19:17,680 --> 00:19:19,840 Speaker 1: of serious energy. Yeah, I mean you even know energy 343 00:19:19,920 --> 00:19:22,439 Speaker 1: terribly well, yes, you see opportunities of energy right now, 344 00:19:22,440 --> 00:19:24,879 Speaker 1: There's been a lot of tumult in the marketplace because 345 00:19:24,920 --> 00:19:28,800 Speaker 1: of Russia and Ukraine, and all sorts of reasons. Yeah, 346 00:19:28,200 --> 00:19:33,320 Speaker 1: I mean we continue to do something in the energy space, 347 00:19:34,080 --> 00:19:36,560 Speaker 1: not as much as I would have thought when we 348 00:19:36,640 --> 00:19:42,240 Speaker 1: when this period began, the volatility and the energy space 349 00:19:42,280 --> 00:19:45,640 Speaker 1: has been so extreme. Uh. I mean you just think 350 00:19:45,640 --> 00:19:49,920 Speaker 1: about it. Within a twelve month period, the price of oil. Uh, 351 00:19:50,040 --> 00:19:56,080 Speaker 1: you know, vascillated between thirty and twenty Uh. That's an 352 00:19:56,119 --> 00:20:02,400 Speaker 1: incredible level of volatility. Makes making an investments extraordinarily difficult 353 00:20:02,440 --> 00:20:05,000 Speaker 1: and challenging. Do you see a prospect of a little 354 00:20:05,040 --> 00:20:07,680 Speaker 1: less latil? Because you have on the one plus plus 355 00:20:07,960 --> 00:20:10,040 Speaker 1: trying to live with things. Now you've got the U. S. Government, 356 00:20:10,080 --> 00:20:12,240 Speaker 1: which it was now trying to regulate the price of oil. 357 00:20:12,280 --> 00:20:13,680 Speaker 1: It looks kind of like it is because it says 358 00:20:13,720 --> 00:20:16,480 Speaker 1: when it's gonna, see's gonna to buy, So it looks 359 00:20:16,480 --> 00:20:19,119 Speaker 1: like it's got a bit an ass price. Yeah, but 360 00:20:19,240 --> 00:20:22,199 Speaker 1: we also have an alleged we also have an administration 361 00:20:22,680 --> 00:20:27,639 Speaker 1: it's very anti oil and uh and and too in 362 00:20:27,680 --> 00:20:31,119 Speaker 1: my judgment that the anti oil provision is only going 363 00:20:31,200 --> 00:20:34,560 Speaker 1: to hurt the United States. I mean, we were producing 364 00:20:34,600 --> 00:20:38,040 Speaker 1: eleven million barrels a day of oil. I don't know 365 00:20:38,080 --> 00:20:40,280 Speaker 1: what we're doing now, but I think it's down two 366 00:20:40,359 --> 00:20:44,040 Speaker 1: or three million barrels a day. Uh, as we've cut 367 00:20:44,040 --> 00:20:48,880 Speaker 1: back on capital for the for for fracking, etcetera. Uh. 368 00:20:49,119 --> 00:20:51,840 Speaker 1: Not a healthy set of circumstances. Sam, it's great to 369 00:20:51,880 --> 00:20:53,679 Speaker 1: have you back on wallst Thank you so much. As 370 00:20:53,680 --> 00:20:56,440 Speaker 1: Sam's l he is a chairman and founder of Equity 371 00:20:56,480 --> 00:21:01,200 Speaker 1: Group Investments. Come up. We wrap up the week with 372 00:21:01,240 --> 00:21:05,480 Speaker 1: our special contributor Larry Summers at Harvard. That's next on 373 00:21:05,600 --> 00:21:10,480 Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street 374 00:21:10,520 --> 00:21:20,119 Speaker 1: Week with David Weston from Bloomberg Radio. Okay, this is 375 00:21:20,160 --> 00:21:22,080 Speaker 1: Wall Street Week on David Weston, and we are joined 376 00:21:22,119 --> 00:21:24,440 Speaker 1: once again by our very special contribute to Wall Street Week. 377 00:21:24,440 --> 00:21:27,360 Speaker 1: He is Larry Summers of Harvard. So, Larry, welcome back. 378 00:21:27,359 --> 00:21:29,399 Speaker 1: Great to have you. Let's start with those US GDP 379 00:21:29,560 --> 00:21:31,719 Speaker 1: numbers that came and showed we were back into growth, 380 00:21:31,800 --> 00:21:34,679 Speaker 1: modest growth. What did you see in those numbers that 381 00:21:34,680 --> 00:21:37,440 Speaker 1: would indicate where we are headed? I think it's hard 382 00:21:37,480 --> 00:21:40,840 Speaker 1: to know. It confirmed what I think we knew that 383 00:21:41,320 --> 00:21:45,200 Speaker 1: despite two negative quarters, the economy was not in any 384 00:21:45,240 --> 00:21:50,560 Speaker 1: real sense in recession at this point. But if you 385 00:21:50,640 --> 00:21:55,119 Speaker 1: look through the numbers to private domestic demand, which is 386 00:21:55,119 --> 00:21:59,800 Speaker 1: probably the best indicator of economic strength. It really wasn't 387 00:22:00,040 --> 00:22:04,119 Speaker 1: a strong well below one percent for the third quarter, 388 00:22:04,720 --> 00:22:07,240 Speaker 1: and so I think what we've now had for nine 389 00:22:07,280 --> 00:22:13,560 Speaker 1: months is essentially no GDP growth and inflation on core 390 00:22:13,680 --> 00:22:17,879 Speaker 1: measures probably stronger than it was at the beginning of 391 00:22:17,920 --> 00:22:22,439 Speaker 1: the nine months, suggesting that we've got real challenges ahead. 392 00:22:22,960 --> 00:22:26,680 Speaker 1: There continue to be arguments that inflation rates are going 393 00:22:26,760 --> 00:22:30,080 Speaker 1: to come down, but we haven't yet seen them, uh 394 00:22:30,119 --> 00:22:35,320 Speaker 1: come down. So I don't think the fundamental picture that 395 00:22:35,480 --> 00:22:40,679 Speaker 1: a soft landing remains an enormous and unlikely challenge is 396 00:22:40,880 --> 00:22:44,040 Speaker 1: very different than it was before we got these numbers. Well, 397 00:22:44,040 --> 00:22:46,880 Speaker 1: we're getting some political blowback now, as you know, shared Brown, 398 00:22:46,920 --> 00:22:49,000 Speaker 1: the Senator from a high royal letter to J. Powe 399 00:22:49,240 --> 00:22:52,760 Speaker 1: is followed by Mr. Hickerl Looper, Senator from Colorado, saying, 400 00:22:53,000 --> 00:22:55,320 Speaker 1: you know, we shouldn't give up these gains we've had, 401 00:22:55,320 --> 00:22:58,040 Speaker 1: an employment and progress we've made in the name of 402 00:22:58,119 --> 00:23:00,679 Speaker 1: fighting inflation. We're gonna seem more and more of that 403 00:23:00,680 --> 00:23:03,360 Speaker 1: political pressure, do you think so? I think the two points. 404 00:23:04,119 --> 00:23:09,400 Speaker 1: The first is that the political pressure is a counterproductive 405 00:23:09,440 --> 00:23:13,320 Speaker 1: strategy from the point of view of those who launch it. Frankly, 406 00:23:13,400 --> 00:23:17,680 Speaker 1: the FED doesn't listen, and if anything, feels more pressure 407 00:23:17,720 --> 00:23:21,840 Speaker 1: to prove its independence. So they don't influence short term 408 00:23:21,960 --> 00:23:25,800 Speaker 1: rates and what the FED actually does, but they do 409 00:23:26,320 --> 00:23:29,640 Speaker 1: raise questions in the mind of market participants, and they 410 00:23:29,720 --> 00:23:34,560 Speaker 1: raise long term rates. So political pressure is a fool's 411 00:23:34,640 --> 00:23:39,040 Speaker 1: game and actually probably makes financial conditions tighter than they 412 00:23:39,040 --> 00:23:43,640 Speaker 1: otherwise would be. And that's entirely apart from the merits 413 00:23:43,880 --> 00:23:48,479 Speaker 1: of the argument uh being made. I yield to no 414 00:23:48,560 --> 00:23:54,680 Speaker 1: one in how much I loathe unemployment and want unemployment 415 00:23:54,720 --> 00:23:58,440 Speaker 1: to be as low as it possibly can be over time. 416 00:23:59,000 --> 00:24:03,240 Speaker 1: The concern is that, as in the nineteen seventies, if 417 00:24:03,280 --> 00:24:07,040 Speaker 1: we don't contain inflation, we set the stage for much 418 00:24:07,119 --> 00:24:12,360 Speaker 1: more financial instability and unemployment. And that is the argument 419 00:24:12,440 --> 00:24:16,280 Speaker 1: that has to be made by those who are on 420 00:24:16,680 --> 00:24:21,040 Speaker 1: the dovish side. They say that the FED is gonna 421 00:24:21,400 --> 00:24:25,920 Speaker 1: be counterproductive and overdo it. A corollarrea of that view 422 00:24:26,600 --> 00:24:29,879 Speaker 1: is that they should think either that the FED should 423 00:24:29,880 --> 00:24:33,879 Speaker 1: abandoned its two percent target or that they're gonna push 424 00:24:33,920 --> 00:24:37,320 Speaker 1: inflation below two And I think it would be helpful 425 00:24:37,440 --> 00:24:42,600 Speaker 1: if every critic of the FED were asked exactly that question. 426 00:24:43,080 --> 00:24:46,520 Speaker 1: Are they really saying that two percent inflation should not 427 00:24:46,640 --> 00:24:50,119 Speaker 1: be the goal, in which case they should describe what 428 00:24:50,240 --> 00:24:53,320 Speaker 1: their attitude is towards inflation and how they expected to 429 00:24:53,400 --> 00:24:57,520 Speaker 1: work out over time. Or are they expressing the view 430 00:24:57,600 --> 00:25:00,720 Speaker 1: that the FED is acting so strongly that it's going 431 00:25:00,760 --> 00:25:04,119 Speaker 1: to produce so large a recession that inflation is going 432 00:25:04,200 --> 00:25:06,960 Speaker 1: to fall below two learn it's like a bit of 433 00:25:07,000 --> 00:25:09,119 Speaker 1: a longer view, as you did this week and some 434 00:25:09,240 --> 00:25:11,640 Speaker 1: of your tweets actually, and we had to study out 435 00:25:11,680 --> 00:25:14,600 Speaker 1: showing how much we lost in our children's education because 436 00:25:14,600 --> 00:25:18,000 Speaker 1: of the pandemic, something like six months, and you translated 437 00:25:18,040 --> 00:25:20,280 Speaker 1: that actually into what that really means for the economy. 438 00:25:20,440 --> 00:25:23,320 Speaker 1: Tell us about that problem. If we talk on this 439 00:25:23,400 --> 00:25:27,560 Speaker 1: show about financial capital, it is very important, but human 440 00:25:27,600 --> 00:25:32,280 Speaker 1: capital is even more important. And what a generation of 441 00:25:32,320 --> 00:25:36,000 Speaker 1: economic research has now shown is the human capital is 442 00:25:36,040 --> 00:25:39,880 Speaker 1: the most important determinant of our economy's long term growth 443 00:25:40,560 --> 00:25:45,280 Speaker 1: and most important determinant of the fairness and equity with 444 00:25:45,320 --> 00:25:49,920 Speaker 1: which incomes are distributed in our society. And so when 445 00:25:49,920 --> 00:25:55,600 Speaker 1: we see six months or a year's loss in children's achievements, 446 00:25:56,080 --> 00:26:00,080 Speaker 1: that's a five to ten decline in the value you 447 00:26:00,240 --> 00:26:05,400 Speaker 1: of human capital. For tens of millions of children, and 448 00:26:05,760 --> 00:26:08,200 Speaker 1: if you add up what that value is in terms 449 00:26:08,200 --> 00:26:12,560 Speaker 1: of the lost earnings down the road, it's comfortably into 450 00:26:13,000 --> 00:26:17,640 Speaker 1: the trillions of dollars, and not just a few trillions. 451 00:26:17,680 --> 00:26:23,440 Speaker 1: So we've gotten some really very very discouraging news and 452 00:26:23,640 --> 00:26:27,320 Speaker 1: it points up the importance of our doing much more 453 00:26:27,400 --> 00:26:32,439 Speaker 1: and much better on UH what we're doing in the 454 00:26:32,440 --> 00:26:36,960 Speaker 1: whole education system. We can't fix what happened. We can't 455 00:26:37,040 --> 00:26:40,840 Speaker 1: fix the non learning that took place when kids were 456 00:26:40,880 --> 00:26:45,040 Speaker 1: at home UH during COVID. We can do everything we 457 00:26:45,080 --> 00:26:51,200 Speaker 1: can to double down on learning going forward. And that's 458 00:26:51,240 --> 00:26:56,200 Speaker 1: about how our schools are organized. That's about who's staffing 459 00:26:56,280 --> 00:26:59,600 Speaker 1: and teaching in our schools. That's about making sure they're 460 00:26:59,600 --> 00:27:05,199 Speaker 1: out of resourced, and in my view, that's absolutely critically 461 00:27:05,320 --> 00:27:11,080 Speaker 1: about accountability for everyone, Accountability for those teaching and administering 462 00:27:11,560 --> 00:27:17,560 Speaker 1: UH in the system, and also accountability for UH the kids. 463 00:27:18,280 --> 00:27:21,359 Speaker 1: Whether it's the fact that close to of all the 464 00:27:21,400 --> 00:27:24,760 Speaker 1: grades in the IVY League are a straight A not 465 00:27:24,880 --> 00:27:29,840 Speaker 1: a minus, or whether it's social promotion in too many 466 00:27:29,880 --> 00:27:33,400 Speaker 1: of our schools, or whether it's the move away from 467 00:27:33,400 --> 00:27:38,119 Speaker 1: testing because we don't like the messages that tests said, 468 00:27:38,680 --> 00:27:43,240 Speaker 1: relative to our social aspiration, we have got to get 469 00:27:43,280 --> 00:27:49,560 Speaker 1: more serious about actual knowledge acquisition in our education system 470 00:27:49,600 --> 00:27:52,720 Speaker 1: at every level. Larry started the week with President she 471 00:27:52,960 --> 00:27:56,080 Speaker 1: coming out and unveiling his senior management team, if I 472 00:27:56,080 --> 00:27:58,320 Speaker 1: can put it that way, and we surprised something because 473 00:27:58,320 --> 00:28:00,640 Speaker 1: there were no perceived as modern at all. They were 474 00:28:00,640 --> 00:28:02,399 Speaker 1: really people who were very much aligned with him. He 475 00:28:02,400 --> 00:28:05,919 Speaker 1: also had a fairly aggressive speech on his economic policy 476 00:28:05,920 --> 00:28:08,120 Speaker 1: in China. What did you make of where China's head? 477 00:28:08,119 --> 00:28:11,600 Speaker 1: And certainly the markets didn't like it very much. I 478 00:28:11,640 --> 00:28:18,840 Speaker 1: think anybody who thought that the posture of Chinese policy 479 00:28:19,800 --> 00:28:25,200 Speaker 1: was politicized before the Party Congress but would be reformists 480 00:28:25,359 --> 00:28:31,400 Speaker 1: after the Party Congress got absolutely nothing to make their 481 00:28:31,520 --> 00:28:35,919 Speaker 1: views confirmed. They didn't get it with respect to COVID, 482 00:28:36,160 --> 00:28:39,280 Speaker 1: they didn't get it with respect to personnel, they didn't 483 00:28:39,320 --> 00:28:44,280 Speaker 1: get it with respect to rhetoric on the policy substance. 484 00:28:44,880 --> 00:28:49,520 Speaker 1: So given what happened, I wasn't surprised to see UH 485 00:28:49,800 --> 00:28:57,400 Speaker 1: markets respond with disappointment. Now, Ultimately what happens is gonna 486 00:28:57,600 --> 00:29:01,120 Speaker 1: depend not on what was said add and just which 487 00:29:01,160 --> 00:29:05,440 Speaker 1: personnelity appointments took place at this Party Congress. Ultimately, is 488 00:29:05,480 --> 00:29:09,680 Speaker 1: going to depend on how things in the Chinese economy 489 00:29:09,840 --> 00:29:13,280 Speaker 1: play out, and it's gonna depend on the judgments the 490 00:29:13,360 --> 00:29:17,120 Speaker 1: president she makes. Okay, Larry, thank you so very much. 491 00:29:17,120 --> 00:29:18,640 Speaker 1: Always great to have you with us. That's our very 492 00:29:18,680 --> 00:29:21,959 Speaker 1: special contributor for Wall Street, Larry Summers of Harvard. Finally, 493 00:29:22,080 --> 00:29:25,560 Speaker 1: one more thought, getting it right and getting it wrong. 494 00:29:26,240 --> 00:29:29,240 Speaker 1: Nothing feels better than having plans work out even better 495 00:29:29,360 --> 00:29:32,240 Speaker 1: than we'd hoped. Fiser betting big on m R n 496 00:29:32,320 --> 00:29:34,880 Speaker 1: A and coming up with a COVID vaccine. There's no 497 00:29:34,920 --> 00:29:37,479 Speaker 1: option of failing, and there's no way that we can 498 00:29:37,520 --> 00:29:40,280 Speaker 1: do it because failure is not option. And if not 499 00:29:40,400 --> 00:29:44,560 Speaker 1: Austin who or the Patriots going for the n draft 500 00:29:44,560 --> 00:29:47,959 Speaker 1: pick and coming up with Tom Brady. But what happens 501 00:29:47,960 --> 00:29:50,920 Speaker 1: when it goes wrong when you take a big public 502 00:29:50,960 --> 00:29:53,640 Speaker 1: position and get your head handed to you. Like President 503 00:29:53,680 --> 00:29:57,520 Speaker 1: Putin deciding to advant Ukraine expecting a quick and glorious win. 504 00:29:57,920 --> 00:30:02,640 Speaker 1: President is fa Link in Ukraine. This war is not 505 00:30:02,880 --> 00:30:06,400 Speaker 1: going as planned or for that matter, Kanye West, now 506 00:30:06,440 --> 00:30:08,960 Speaker 1: known as Yea, deciding not to be shy about his 507 00:30:09,000 --> 00:30:12,880 Speaker 1: anti Semitic sentiments and losing his mega deal with Adidas 508 00:30:12,960 --> 00:30:16,720 Speaker 1: in the process. In recent weeks he has made controversial statements, 509 00:30:16,760 --> 00:30:20,040 Speaker 1: including anti Semitic posts on social media that's turned his 510 00:30:20,200 --> 00:30:23,640 Speaker 1: easy line of sneakers into a lightning world for criticism, 511 00:30:23,680 --> 00:30:27,160 Speaker 1: which brings us to economic policy and getting cross wise 512 00:30:27,160 --> 00:30:30,120 Speaker 1: of the markets. Liz Trust made her first big move 513 00:30:30,160 --> 00:30:33,440 Speaker 1: as British Prime Minister be a new budget, which the 514 00:30:33,440 --> 00:30:38,080 Speaker 1: markets promptly and emphatically rejected, leading it to her quick departure. 515 00:30:38,360 --> 00:30:41,960 Speaker 1: I am resigning as leader of the Conservative Party. So 516 00:30:42,160 --> 00:30:45,320 Speaker 1: her successor, she Suna, started his tenure this week by 517 00:30:45,320 --> 00:30:48,680 Speaker 1: saying he'd make it up to the markets. I will 518 00:30:48,720 --> 00:30:53,920 Speaker 1: place economic stability and confidence at the heart of this 519 00:30:54,160 --> 00:30:58,640 Speaker 1: government's agenda. But consider the very different case of President 520 00:30:58,680 --> 00:31:01,240 Speaker 1: gy of China, who this got his way on having 521 00:31:01,240 --> 00:31:05,280 Speaker 1: a third term, surrounded himself with only his closest allies, 522 00:31:05,520 --> 00:31:09,480 Speaker 1: and forged ahead on his aggressive economic policy, which led 523 00:31:09,480 --> 00:31:12,720 Speaker 1: the markets to give another big thumbs down. As very 524 00:31:12,800 --> 00:31:15,600 Speaker 1: lovely of the Peterson insit explained it, one of the 525 00:31:15,640 --> 00:31:18,440 Speaker 1: big things that came out of this is that we're 526 00:31:18,440 --> 00:31:21,960 Speaker 1: going to stay the course with she Anomics, and that 527 00:31:22,040 --> 00:31:26,560 Speaker 1: means continued centralization of power. We're staying the course and 528 00:31:27,000 --> 00:31:29,520 Speaker 1: the course doesn't look that great from the market's point 529 00:31:29,560 --> 00:31:31,880 Speaker 1: of view. No one thinks President she is about to 530 00:31:31,880 --> 00:31:34,800 Speaker 1: pull a Liz Trust. So in the course of a week, 531 00:31:34,840 --> 00:31:38,080 Speaker 1: the markets won one and lost one, and the time 532 00:31:38,160 --> 00:31:40,120 Speaker 1: may be broken just over a week from now, when 533 00:31:40,160 --> 00:31:42,600 Speaker 1: Americans go to the polls in the mid term elections 534 00:31:42,960 --> 00:31:46,160 Speaker 1: with their opinion of President Biden's economic policies very much 535 00:31:46,200 --> 00:31:48,760 Speaker 1: on the ballot, Jared Bernstein from the White House wants 536 00:31:48,840 --> 00:31:51,440 Speaker 1: voters to focus on all the jobs that have been created. 537 00:31:51,600 --> 00:31:55,840 Speaker 1: Our top line objective here's to maintain the economic gains 538 00:31:55,880 --> 00:32:01,640 Speaker 1: we've made for working Americans while significantly easing price pressures. Time, 539 00:32:01,720 --> 00:32:04,440 Speaker 1: as they say, will tell, But from what we've seen 540 00:32:04,520 --> 00:32:07,560 Speaker 1: so far, what James Carville said thirty years ago remains 541 00:32:07,600 --> 00:32:10,280 Speaker 1: true in the United Kingdom, in the United States, and 542 00:32:10,440 --> 00:32:13,600 Speaker 1: I guess we'll see about China. It's the economy stupid 543 00:32:13,840 --> 00:32:15,560 Speaker 1: that does it. For this episode of Wall Street Week, 544 00:32:15,640 --> 00:32:18,400 Speaker 1: I'm David Weston. This is Bloomberg. See you next week.