Speaker 1: This is Bloomberg Wall Street Week. We turn our attention
Speaker 1: to the markets this week at U S CPI numbers
Speaker 1: reinforcing concerns about inflation. The financial stories that chiep are
Speaker 1: worth a really different reaction to Mark. It's more indications
Speaker 1: of just how hot the U. S economy really is
Speaker 1: through the eyes of the most influential voices Larry Summers,
Speaker 1: the former Treatory Secretary, Katherine Keening, CEO of d n
Speaker 1: Y Mom, Sam's l Sharman, and founder of Equatic Group Investment.
Speaker 1: In Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: New governments face old problems, and this time it doesn't
Speaker 1: look like tech will give us the solutions. This is
Speaker 1: Bloomberg Wall Street Week. I'm David Weston, this week's special
Speaker 1: contributor Larry Summers on the new GDP numbers and what
Speaker 1: they lack. It confirmed what I think we knew that
Speaker 1: despite two negative quarters, the economy was not in any
Speaker 1: real sense in recession. And Sam's l on why he
Speaker 1: has more opportunities than ever for good investments. Think about
Speaker 1: the impact of the doubling and interest rates in eight weeks.
Speaker 1: This week, Global All Street saw three new or sort
Speaker 1: of new governments installed, with Rishie Sunak officially taking over
Speaker 1: as the new Prime Minister of Great Britain and promising
Speaker 1: to make nice with the markets. I will place economic
Speaker 1: stability and confidence at the heart of this government's agenda.
Speaker 1: This will mean difficult decisions to come. Not to be outdone.
Speaker 1: Italy also got a new prime minister, and Georgia Maloney
Speaker 1: wasted no time in taking issue with the ECB raising rates.
Speaker 1: It's considered by many to be a rash choice that
Speaker 1: could have repercussions on bank lending to households and businesses.
Speaker 1: And although China a re up to President g for
Speaker 1: a third term, he made his own changes to his
Speaker 1: senior team, surrounding himself with people who see eye to
Speaker 1: eye with him, which cornels each Farsat says is a
Speaker 1: fundamental shift of a different sort. The message is quite
Speaker 1: clear that technocrats are on their way out, the loyalists
Speaker 1: are on their way in. But as much as governments
Speaker 1: may change, the problems they face remain the same. As
Speaker 1: the United States reported stronger GDP growth than expected despite
Speaker 1: higher interest rates, and the ECB hyped another seventy five
Speaker 1: basis points with President Leguards, saying she continues to focus
Speaker 1: on inflation even though the European economy is slowing. The
Speaker 1: risks to the inflation outlook are primarily on the upside.
Speaker 1: The major risk in the short term is a further
Speaker 1: rise in retail energy prices. Over the medium term, inflation
Speaker 1: may turn up to be higher than expected. And if
Speaker 1: Global Wall Street was hoping that tech might help us
Speaker 1: climb out of these doldrums, it was in for a
Speaker 1: letdown this week as the earnings of several big tech
Speaker 1: companies disappointed, particularly in their guidance about what may come next.
Speaker 1: There's big tech names, as they have reported this week.
Speaker 1: You know, look at Microsoft, look at Alphabet today. They
Speaker 1: really have underperformed in a big way. But in the end,
Speaker 1: equity markets shook it all off, with the SMP five
Speaker 1: up for the second week in a row, this time
Speaker 1: by almost four percent, and even the NASDAK rose above
Speaker 1: those disappointing earnings, overcoming a bad week for the Fangs
Speaker 1: and for the Golden Dragon China Index, and turning what
Speaker 1: was a loss as of Thursday into a nice two
Speaker 1: point two percent gained by the end of the week,
Speaker 1: while the yield and the ten years, settled in just
Speaker 1: over four percent by the end of Friday, down from
Speaker 1: about four point to five percent at the beginning of
Speaker 1: the week. Here to sort out a fascinating back and
Speaker 1: forth in markets are Peter Krauts, chair and CEO of
Speaker 1: Aperture Investors, and Monamahagen, she has senior investment strategist at
Speaker 1: Edward Jones. So, Waning, let me pick on you first.
Speaker 1: What did the markets do this weekend? Why did they
Speaker 1: do it? Yeah? Thanks, David. Look, this week was a
Speaker 1: bit of a tug of war. On one side of
Speaker 1: that tug of war, we saw the big cap tech earnings.
Speaker 1: They were um, in a word, disappointing in fact, and
Speaker 1: you noted this upfront. It wasn't necessarily the three Q results.
Speaker 1: It was the guidance across the board between advertising revenue,
Speaker 1: between cloud computing demand. We're seeing the soft thing there
Speaker 1: and that really dragged down the NASDAC. But on the
Speaker 1: other side of this tug of war, we saw the
Speaker 1: Dow up nearly six percent this week. Now what was
Speaker 1: driving that? While we are certainly starting to hear a
Speaker 1: little bit more optimism about a federal reserve that maybe
Speaker 1: looking to raise rates at a more moderate pace. Now,
Speaker 1: of course, next week's meeting, UH, the seventy basis point
Speaker 1: the point seven five percent rate hike UM almost baked
Speaker 1: into the cake. It's probably going to happen. But really
Speaker 1: all eyes will then focus on that December rate hike meeting.
Speaker 1: Um will they go fifty basis points or will they
Speaker 1: go seventy five? And in fact we heard a little
Speaker 1: bit more from some Fed governors that perhaps a more
Speaker 1: moderate rate of rate hikes probably makes sense here, just
Speaker 1: given UM giving them an opportunity to pause, assess the economy.
Speaker 1: See what's happening so interesting moves in the market this week.
Speaker 1: We do think, more broadly, some of those inflationary trends
Speaker 1: that we have been seeing, some of the four looking
Speaker 1: indicators are starting to show some signs of rolling over.
Speaker 1: That gives the Fed a little bit more comfort and
Speaker 1: perhaps going at a more moderate pace. We certainly saw
Speaker 1: that from the Bank of Canada this week this as well,
Speaker 1: who went fifty basis points rather than the expected seventy
Speaker 1: theater what do we say, are we heard from Ona?
Speaker 1: We're hearing some optimism about the Fed? Where are we
Speaker 1: hearing that from? I don't remember the Fed giving us
Speaker 1: much optimism. I think the Fed is giving us any optimism.
Speaker 1: I think that this is an interesting case of are
Speaker 1: you actually listening to the people who have the power
Speaker 1: to move the interest rates? If you're actually listening to
Speaker 1: the Fed, I think it's pretty clear the Feds moving
Speaker 1: to squash inflation, and they're not going to stop until
Speaker 1: inflation goes down. Inflation sticky, and it's not gonna move
Speaker 1: so quickly. And so the likelihood is that we see
Speaker 1: high rates or higher rates, and that those rates probably
Speaker 1: top out sometime in twenty three and they don't go
Speaker 1: down until well into or perhaps twenty four. And I
Speaker 1: don't think the market is completely digested that, and they're
Speaker 1: looking for scintillas of hope that are floating around in
Speaker 1: the market that I would call sentiment but not fact.
Speaker 1: What do you make of it all? And at the
Speaker 1: FED I think wants some consistent data over time that
Speaker 1: shows that the inflation really coming down. You said there
Speaker 1: are a little bit of indications around the edges. Yeah,
Speaker 1: you know. Look, Peter has a point there. They want
Speaker 1: clear and consistent evidence of inflation moderating, and in fact,
Speaker 1: they don't want to indicate anything too prematurely. They started
Speaker 1: to see that in June and we saw markets start
Speaker 1: to rally, you know, financial conditions start to ease rather
Speaker 1: than tighten, which is what they really want to see
Speaker 1: in markets in order to push inflationary pressures down. So
Speaker 1: we're gonna pick out exactly that when we come back.
Speaker 1: Mono Hodgen and Peter Crust will stay with us as
Speaker 1: we turn to some investment advice. They carry us towards
Speaker 1: the end of the year. That's coming up next on
Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street
Speaker 1: Week with David Weston from Bloomberg Radio. Tom Alone will
Speaker 1: tell whether Black Monday enters the history book as the
Speaker 1: day American confidence was so shaken that a premature recession resulted,
Speaker 1: or merely as the day of the computers went wild
Speaker 1: and through the wonders of so called program trading turned
Speaker 1: a normal correction into an early Halloween. That of course
Speaker 1: was the one and only Lewis Rocks on Wall Street Week,
Speaker 1: the friday before another Halloween like we're having when this
Speaker 1: coming Monday. But that one was back in seven just
Speaker 1: after so called Black Monday, when the Dow Jones lost
Speaker 1: in a single day and people back then we're trying
Speaker 1: to figure out what went wrong. The number one movie
Speaker 1: in America that week was Fatal Attraction and the number
Speaker 1: one song, well, it was bad by Michael Jackson. We
Speaker 1: still have with us now, Peter Krause of Aperture Investors
Speaker 1: and Monamohydgen of Edward Jones. So, Peter, when I come
Speaker 1: to you, I mean, it's not a Black Monday. We
Speaker 1: haven't seen that by any means, Thank goodness. And I
Speaker 1: remember that day, by the way, I do too. I
Speaker 1: was practicing law back in Washington. But but give us
Speaker 1: some investment advice here. You started in that direction with
Speaker 1: small caps and duration. If you're putting money to work
Speaker 1: right now, where does it make sense to do that
Speaker 1: given all the uncertainty? Well, I look, I think Mona
Speaker 1: said it as well. There's three places that are in distress.
Speaker 1: One is long duration fixed income. So whether it's treasuries
Speaker 1: or high yield or long duration bonds that have been
Speaker 1: absolutely crushed this year, those securities are likely going to
Speaker 1: provide attractive yields going forward. They're not going to reduce
Speaker 1: their volatility. They're still going to have a fair bit
Speaker 1: of price volatility to them. But you know this is
Speaker 1: a time when you can start to think about getting
Speaker 1: a little longer and moving out of the very short duration,
Speaker 1: which by the way, is also paying very well, and
Speaker 1: you can buy short duration investment grade bonds at five
Speaker 1: percent or even five and a percent, so that looks
Speaker 1: pretty attractive as well. But I think leaking out a
Speaker 1: little bit into duration makes sense. And the equity side,
Speaker 1: you know, I think you can't abandon the growth world.
Speaker 1: I mean, the tech world today or the tech news
Speaker 1: in the last few days is obviously very negative. But
Speaker 1: there are companies that are not necessarily tech, but our
Speaker 1: growth companies. They're either consumer oriented where their industrial companies
Speaker 1: that have fast growth, and not paying attention to those
Speaker 1: is going to miss a trick that whether they're small
Speaker 1: cap or mid cap or even large cap, but most
Speaker 1: likely you're going to find them in the small cap space.
Speaker 1: So I look at aperture. Our view is small caps
Speaker 1: are very interesting space. The beta is cheap, and it's
Speaker 1: a place where we're probably going to see the first
Speaker 1: move when this market recovers. Well, that's what you said earlier,
Speaker 1: the small caps come back first, Mona. Do you agree
Speaker 1: with that? And if they come back first, what comes
Speaker 1: back second? What comes back thirds, because that indicates where
Speaker 1: you want to be and where you don't want to
Speaker 1: be right now. Yeah, absolutely, you know, Peter's absolutely right.
Speaker 1: When you look historically, coming out of any sort of
Speaker 1: downturn or recessionary period, the thing that tends to lead
Speaker 1: us out our small cap names. And interestingly, this time around,
Speaker 1: small caps do tend to also be more domestically oriented.
Speaker 1: And perhaps when you look across the globe, you're seeing
Speaker 1: a European economy more exposed to the geopolitical issues oil
Speaker 1: and energy crisis. You're seeing an Asian economy more exposed
Speaker 1: to a Chinese economy that may be slowing. So in fact,
Speaker 1: the small cap universe is starting to look more and
Speaker 1: more interesting as well. We probably will have some months
Speaker 1: of volatility ahead as we stabilize get through a potential downturn,
Speaker 1: but I think that is a place to start thinking about. UM. Similarly,
Speaker 1: you know, across equities and fixed income, we talked about
Speaker 1: complementing equities, so you know, think about the stuff that
Speaker 1: has been more quote unquote beaten up this year. UM,
Speaker 1: there is values starting to merge in a lot of that.
Speaker 1: And again when you look historically the twelve months after
Speaker 1: the FED the final FED rate hike, equities broadly are
Speaker 1: up on average, and this is back till since FED
Speaker 1: right tiking cycle since ninety on average up about sixteen
Speaker 1: percent after that peak FED funds rate. So if you
Speaker 1: think it's coming sometime in February March, maybe earlier UM,
Speaker 1: there's certainly an interesting opportunity starting to form. And of course,
Speaker 1: with inequities, the other parts of the market, aside from
Speaker 1: small caps that tend to perform well coming out of
Speaker 1: a downturn, or the more cyclical and growth parts of
Speaker 1: the market, and when growth is slowing, you know, investors
Speaker 1: pen to gravitate towards finding growth in their portfolios. So
Speaker 1: everything that we've talked about and Peter and I have
Speaker 1: probably reiterated a couple of times now, but think about duration,
Speaker 1: think about quality. Growth opportunities are certainly forming. Like I
Speaker 1: also think that don't misunderstand arising economy or a rising
Speaker 1: market that you might have in the next few months.
Speaker 1: For a market that is absent volatility, there's still plenty
Speaker 1: of shoes to drop, and credit and leverage lending is
Speaker 1: one of them. And we don't know how the market
Speaker 1: is going to react to defaults. We haven't seen a
Speaker 1: significant default cycle really since Frankly two thousand and three,
Speaker 1: two thousand and four oh eight was a liquidity crisis,
Speaker 1: and you know two thousand and twenty was very short,
Speaker 1: so you could have some defaults here in corporate uh
Speaker 1: and in you know, other types of securities, real estate UM.
Speaker 1: And I think that that's going to have some effect
Speaker 1: on the volatility, but investors have to have to live
Speaker 1: through that volatility. They can't get knocked out of the
Speaker 1: market because if you do that, you're gonna miss the opportunity.
Speaker 1: We'll talk about the overall structure of the paradigm as
Speaker 1: it were, of investing. We are going. It looks like
Speaker 1: from a world low inflation, low rates, into higher inflation
Speaker 1: and perhaps significantly higher rates. At the same time, there
Speaker 1: was a good long period of time when it was
Speaker 1: basically there was no alternative, so people went into a
Speaker 1: lot of alternates, a lot of riskier things. What happens
Speaker 1: in this new world, because it's not like the old
Speaker 1: world necessarily, Yeah, you know, that's that's spot on, and
Speaker 1: in fact, we all know the Tina acronym. There is
Speaker 1: no alternative that served us well, probably from the Great
Speaker 1: financial crisis through the pandemic um, we saw a lot
Speaker 1: of investors pushed out the risk curve um in order
Speaker 1: to get that return that they were seeking. And of course,
Speaker 1: as raise rates rose pretty rapidly through two what we
Speaker 1: did see is a lot of more speculative parts of
Speaker 1: the market have started to see the air let out
Speaker 1: of those tires as well. You know, think about this
Speaker 1: back market earlier this year, the Meme stock market, uh,
Speaker 1: even crypto to some extent, we've seen large you know,
Speaker 1: compression and valuations, large downturn in values overall in a
Speaker 1: lot of those more speculative bubbles, and in fact, that
Speaker 1: probably sets us up for a more interesting time in
Speaker 1: the next ten years. You know. The one nice thing
Speaker 1: that's happened over this kind of downturn and markets this
Speaker 1: year is that valuation compression has come in beyond what
Speaker 1: we've typically seen historically. So the SMP PE multiple, for example,
Speaker 1: has come down over um this year already. So the
Speaker 1: valuation correction in our view has likely already happened, and
Speaker 1: that sets us up nicely. But to your point, in
Speaker 1: an environment where it will probably not return to zero rates,
Speaker 1: but with growth at two percent inflation hopefully returning somewhere
Speaker 1: in that two to three percent UM yields may also
Speaker 1: be somewhere in that two to three percent range, and
Speaker 1: so in that scenario, you think about discounting your cash
Speaker 1: flows at a higher rate, and so really that does
Speaker 1: put more pressure to prove your business models, especially those
Speaker 1: business models that expect cash flows in the out years UM.
Speaker 1: But the more steady parts of the market that have
Speaker 1: proven business models, that have proven cash flows, those valuations
Speaker 1: are starting to look attractive here, and I think that's
Speaker 1: really what investors will have to think about in this
Speaker 1: new environment. Thank you so much. It's really great to
Speaker 1: have you both with it as a Peter Crest of
Speaker 1: Aftercure Investors and Hydgen of Edward Jones. Coming up, famed
Speaker 1: investor Sam's l He's a veteran of Wall Street Week
Speaker 1: and he's back now to give us his advice on
Speaker 1: investing in these difficult markets and why he is seeing
Speaker 1: more opportunities than ever. That's next out Wall Street Week
Speaker 1: on Bluebird. Okay, what a difference a few rate hikes make.
Speaker 1: Not that long ago, when interest rates were at record lows,
Speaker 1: the easy days where they not money on you and
Speaker 1: you don't have much inflation and you don't have much
Speaker 1: time inness those are past. You almost couldn't avoid making
Speaker 1: a deal and setting new records for M and A.
Speaker 1: We are continuing to see a just tremendous momentum in
Speaker 1: U S, M and A. But things have changed. Money
Speaker 1: isn't free anymore. We have got to get inflation behind us.
Speaker 1: I wish there were a painless way to do that.
Speaker 1: There isn't and credit is cutting into that record deal flow.
Speaker 1: I'm looking now at credit spreads in the mid four
Speaker 1: hundreds and they just look too expensive to me. So
Speaker 1: what does that mean for the dealmaker? And are there
Speaker 1: many deal that still makes sense in this new world?
Speaker 1: There's still more room for we think these spreads to tighten.
Speaker 1: Probably at this point, you know, best opportunities are in
Speaker 1: the non investment grade market. And now return to a dealmaker.
Speaker 1: Par Excellan Sophia Sam's l He is the chairman and
Speaker 1: founder of Equity Group Investment Sam. Welcome to Wall Street Week.
Speaker 1: I know you've been on this program in the past. Okay,
Speaker 1: so let's talk about what investor does in this new
Speaker 1: environment of increased inflation and increased interest rates. First of all,
Speaker 1: tell me what's going on with your company? Are you
Speaker 1: seeing less deal flow now just the opposite. We're seeing
Speaker 1: more deal flow. We're seeing more situations where companies are
Speaker 1: having difficulty, uh figuring out what to do. Uh. We're
Speaker 1: seeing situations where nine months ago, financing a transaction of
Speaker 1: X y Z size was nothing. You know, it was
Speaker 1: you know, as you said, money was free. Uh what's
Speaker 1: changed dramatically? I mean, think about the impact of the
Speaker 1: doubling of interest rates in eight weeks double you know,
Speaker 1: it's just eight weeks earlier. Uh, interest rates were you know,
Speaker 1: two and a half to three and now they're five
Speaker 1: and a half to six. That's enormous uh change, and
Speaker 1: it's gonna slow down everybody's activity. It's gonna for sure,
Speaker 1: uh impact getting deals done. But in our particular case,
Speaker 1: because frankly, I've oftentime told the world that you know,
Speaker 1: when I'm liquid, the stock market can't go down. It
Speaker 1: only goes down when I'm ire liquid. And here I
Speaker 1: am sitting there with a level of liquidity I've never
Speaker 1: experienced in my life because my focus for the last
Speaker 1: three and a half years has been nothing more important
Speaker 1: men equality. So you've got a significant deal flow if
Speaker 1: anything is bigger than it was before. What about the
Speaker 1: quality of deals? Are they different from what they were
Speaker 1: for example, preach prandemic. I think they are because I
Speaker 1: think they're a little more realistic. I think in pre pandemic,
Speaker 1: when money was free, Um, there were transaction. I mean,
Speaker 1: the whole spack market was. You know, we did as
Speaker 1: back and chose not to take it to the next
Speaker 1: level because when we did this back spac seemed like
Speaker 1: a very interesting way to in effect monetize opportunity. Uh.
Speaker 1: It very quickly became a highly speculative scenario dependent on
Speaker 1: preposterous valuations that ultimately led to the crash of the
Speaker 1: whole spack market. Uh. You know, world has changed a
Speaker 1: lot since then, and the change is basically modifying what
Speaker 1: you can do. On the other hand, there's always demand
Speaker 1: for capital. Uh, and there's always that demand is always
Speaker 1: on the on the the shoulders of those that have
Speaker 1: preserved the coidity. So let's tell about some specific investment
Speaker 1: of serious energy. Yeah, I mean you even know energy
Speaker 1: terribly well, yes, you see opportunities of energy right now,
Speaker 1: There's been a lot of tumult in the marketplace because
Speaker 1: of Russia and Ukraine, and all sorts of reasons. Yeah,
Speaker 1: I mean we continue to do something in the energy space,
Speaker 1: not as much as I would have thought when we
Speaker 1: when this period began, the volatility and the energy space
Speaker 1: has been so extreme. Uh. I mean you just think
Speaker 1: about it. Within a twelve month period, the price of oil. Uh,
Speaker 1: you know, vascillated between thirty and twenty Uh. That's an
Speaker 1: incredible level of volatility. Makes making an investments extraordinarily difficult
Speaker 1: and challenging. Do you see a prospect of a little
Speaker 1: less latil? Because you have on the one plus plus
Speaker 1: trying to live with things. Now you've got the U. S. Government,
Speaker 1: which it was now trying to regulate the price of oil.
Speaker 1: It looks kind of like it is because it says
Speaker 1: when it's gonna, see's gonna to buy, So it looks
Speaker 1: like it's got a bit an ass price. Yeah, but
Speaker 1: we also have an alleged we also have an administration
Speaker 1: it's very anti oil and uh and and too in
Speaker 1: my judgment that the anti oil provision is only going
Speaker 1: to hurt the United States. I mean, we were producing
Speaker 1: eleven million barrels a day of oil. I don't know
Speaker 1: what we're doing now, but I think it's down two
Speaker 1: or three million barrels a day. Uh, as we've cut
Speaker 1: back on capital for the for for fracking, etcetera. Uh.
Speaker 1: Not a healthy set of circumstances. Sam, it's great to
Speaker 1: have you back on wallst Thank you so much. As
Speaker 1: Sam's l he is a chairman and founder of Equity
Speaker 1: Group Investments. Come up. We wrap up the week with
Speaker 1: our special contributor Larry Summers at Harvard. That's next on
Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street
Speaker 1: Week with David Weston from Bloomberg Radio. Okay, this is
Speaker 1: Wall Street Week on David Weston, and we are joined
Speaker 1: once again by our very special contribute to Wall Street Week.
Speaker 1: He is Larry Summers of Harvard. So, Larry, welcome back.
Speaker 1: Great to have you. Let's start with those US GDP
Speaker 1: numbers that came and showed we were back into growth,
Speaker 1: modest growth. What did you see in those numbers that
Speaker 1: would indicate where we are headed? I think it's hard
Speaker 1: to know. It confirmed what I think we knew that
Speaker 1: despite two negative quarters, the economy was not in any
Speaker 1: real sense in recession at this point. But if you
Speaker 1: look through the numbers to private domestic demand, which is
Speaker 1: probably the best indicator of economic strength. It really wasn't
Speaker 1: a strong well below one percent for the third quarter,
Speaker 1: and so I think what we've now had for nine
Speaker 1: months is essentially no GDP growth and inflation on core
Speaker 1: measures probably stronger than it was at the beginning of
Speaker 1: the nine months, suggesting that we've got real challenges ahead.
Speaker 1: There continue to be arguments that inflation rates are going
Speaker 1: to come down, but we haven't yet seen them, uh
Speaker 1: come down. So I don't think the fundamental picture that
Speaker 1: a soft landing remains an enormous and unlikely challenge is
Speaker 1: very different than it was before we got these numbers. Well,
Speaker 1: we're getting some political blowback now, as you know, shared Brown,
Speaker 1: the Senator from a high royal letter to J. Powe
Speaker 1: is followed by Mr. Hickerl Looper, Senator from Colorado, saying,
Speaker 1: you know, we shouldn't give up these gains we've had,
Speaker 1: an employment and progress we've made in the name of
Speaker 1: fighting inflation. We're gonna seem more and more of that
Speaker 1: political pressure, do you think so? I think the two points.
Speaker 1: The first is that the political pressure is a counterproductive
Speaker 1: strategy from the point of view of those who launch it. Frankly,
Speaker 1: the FED doesn't listen, and if anything, feels more pressure
Speaker 1: to prove its independence. So they don't influence short term
Speaker 1: rates and what the FED actually does, but they do
Speaker 1: raise questions in the mind of market participants, and they
Speaker 1: raise long term rates. So political pressure is a fool's
Speaker 1: game and actually probably makes financial conditions tighter than they
Speaker 1: otherwise would be. And that's entirely apart from the merits
Speaker 1: of the argument uh being made. I yield to no
Speaker 1: one in how much I loathe unemployment and want unemployment
Speaker 1: to be as low as it possibly can be over time.
Speaker 1: The concern is that, as in the nineteen seventies, if
Speaker 1: we don't contain inflation, we set the stage for much
Speaker 1: more financial instability and unemployment. And that is the argument
Speaker 1: that has to be made by those who are on
Speaker 1: the dovish side. They say that the FED is gonna
Speaker 1: be counterproductive and overdo it. A corollarrea of that view
Speaker 1: is that they should think either that the FED should
Speaker 1: abandoned its two percent target or that they're gonna push
Speaker 1: inflation below two And I think it would be helpful
Speaker 1: if every critic of the FED were asked exactly that question.
Speaker 1: Are they really saying that two percent inflation should not
Speaker 1: be the goal, in which case they should describe what
Speaker 1: their attitude is towards inflation and how they expected to
Speaker 1: work out over time. Or are they expressing the view
Speaker 1: that the FED is acting so strongly that it's going
Speaker 1: to produce so large a recession that inflation is going
Speaker 1: to fall below two learn it's like a bit of
Speaker 1: a longer view, as you did this week and some
Speaker 1: of your tweets actually, and we had to study out
Speaker 1: showing how much we lost in our children's education because
Speaker 1: of the pandemic, something like six months, and you translated
Speaker 1: that actually into what that really means for the economy.
Speaker 1: Tell us about that problem. If we talk on this
Speaker 1: show about financial capital, it is very important, but human
Speaker 1: capital is even more important. And what a generation of
Speaker 1: economic research has now shown is the human capital is
Speaker 1: the most important determinant of our economy's long term growth
Speaker 1: and most important determinant of the fairness and equity with
Speaker 1: which incomes are distributed in our society. And so when
Speaker 1: we see six months or a year's loss in children's achievements,
Speaker 1: that's a five to ten decline in the value you
Speaker 1: of human capital. For tens of millions of children, and
Speaker 1: if you add up what that value is in terms
Speaker 1: of the lost earnings down the road, it's comfortably into
Speaker 1: the trillions of dollars, and not just a few trillions.
Speaker 1: So we've gotten some really very very discouraging news and
Speaker 1: it points up the importance of our doing much more
Speaker 1: and much better on UH what we're doing in the
Speaker 1: whole education system. We can't fix what happened. We can't
Speaker 1: fix the non learning that took place when kids were
Speaker 1: at home UH during COVID. We can do everything we
Speaker 1: can to double down on learning going forward. And that's
Speaker 1: about how our schools are organized. That's about who's staffing
Speaker 1: and teaching in our schools. That's about making sure they're
Speaker 1: out of resourced, and in my view, that's absolutely critically
Speaker 1: about accountability for everyone, Accountability for those teaching and administering
Speaker 1: UH in the system, and also accountability for UH the kids.
Speaker 1: Whether it's the fact that close to of all the
Speaker 1: grades in the IVY League are a straight A not
Speaker 1: a minus, or whether it's social promotion in too many
Speaker 1: of our schools, or whether it's the move away from
Speaker 1: testing because we don't like the messages that tests said,
Speaker 1: relative to our social aspiration, we have got to get
Speaker 1: more serious about actual knowledge acquisition in our education system
Speaker 1: at every level. Larry started the week with President she
Speaker 1: coming out and unveiling his senior management team, if I
Speaker 1: can put it that way, and we surprised something because
Speaker 1: there were no perceived as modern at all. They were
Speaker 1: really people who were very much aligned with him. He
Speaker 1: also had a fairly aggressive speech on his economic policy
Speaker 1: in China. What did you make of where China's head?
Speaker 1: And certainly the markets didn't like it very much. I
Speaker 1: think anybody who thought that the posture of Chinese policy
Speaker 1: was politicized before the Party Congress but would be reformists
Speaker 1: after the Party Congress got absolutely nothing to make their
Speaker 1: views confirmed. They didn't get it with respect to COVID,
Speaker 1: they didn't get it with respect to personnel, they didn't
Speaker 1: get it with respect to rhetoric on the policy substance.
Speaker 1: So given what happened, I wasn't surprised to see UH
Speaker 1: markets respond with disappointment. Now, Ultimately what happens is gonna
Speaker 1: depend not on what was said add and just which
Speaker 1: personnelity appointments took place at this Party Congress. Ultimately, is
Speaker 1: going to depend on how things in the Chinese economy
Speaker 1: play out, and it's gonna depend on the judgments the
Speaker 1: president she makes. Okay, Larry, thank you so very much.
Speaker 1: Always great to have you with us. That's our very
Speaker 1: special contributor for Wall Street, Larry Summers of Harvard. Finally,
Speaker 1: one more thought, getting it right and getting it wrong.
Speaker 1: Nothing feels better than having plans work out even better
Speaker 1: than we'd hoped. Fiser betting big on m R n
Speaker 1: A and coming up with a COVID vaccine. There's no
Speaker 1: option of failing, and there's no way that we can
Speaker 1: do it because failure is not option. And if not
Speaker 1: Austin who or the Patriots going for the n draft
Speaker 1: pick and coming up with Tom Brady. But what happens
Speaker 1: when it goes wrong when you take a big public
Speaker 1: position and get your head handed to you. Like President
Speaker 1: Putin deciding to advant Ukraine expecting a quick and glorious win.
Speaker 1: President is fa Link in Ukraine. This war is not
Speaker 1: going as planned or for that matter, Kanye West, now
Speaker 1: known as Yea, deciding not to be shy about his
Speaker 1: anti Semitic sentiments and losing his mega deal with Adidas
Speaker 1: in the process. In recent weeks he has made controversial statements,
Speaker 1: including anti Semitic posts on social media that's turned his
Speaker 1: easy line of sneakers into a lightning world for criticism,
Speaker 1: which brings us to economic policy and getting cross wise
Speaker 1: of the markets. Liz Trust made her first big move
Speaker 1: as British Prime Minister be a new budget, which the
Speaker 1: markets promptly and emphatically rejected, leading it to her quick departure.
Speaker 1: I am resigning as leader of the Conservative Party. So
Speaker 1: her successor, she Suna, started his tenure this week by
Speaker 1: saying he'd make it up to the markets. I will
Speaker 1: place economic stability and confidence at the heart of this
Speaker 1: government's agenda. But consider the very different case of President
Speaker 1: gy of China, who this got his way on having
Speaker 1: a third term, surrounded himself with only his closest allies,
Speaker 1: and forged ahead on his aggressive economic policy, which led
Speaker 1: the markets to give another big thumbs down. As very
Speaker 1: lovely of the Peterson insit explained it, one of the
Speaker 1: big things that came out of this is that we're
Speaker 1: going to stay the course with she Anomics, and that
Speaker 1: means continued centralization of power. We're staying the course and
Speaker 1: the course doesn't look that great from the market's point
Speaker 1: of view. No one thinks President she is about to
Speaker 1: pull a Liz Trust. So in the course of a week,
Speaker 1: the markets won one and lost one, and the time
Speaker 1: may be broken just over a week from now, when
Speaker 1: Americans go to the polls in the mid term elections
Speaker 1: with their opinion of President Biden's economic policies very much
Speaker 1: on the ballot, Jared Bernstein from the White House wants
Speaker 1: voters to focus on all the jobs that have been created.
Speaker 1: Our top line objective here's to maintain the economic gains
Speaker 1: we've made for working Americans while significantly easing price pressures. Time,
Speaker 1: as they say, will tell, But from what we've seen
Speaker 1: so far, what James Carville said thirty years ago remains
Speaker 1: true in the United Kingdom, in the United States, and
Speaker 1: I guess we'll see about China. It's the economy stupid
Speaker 1: that does it. For this episode of Wall Street Week,
Speaker 1: I'm David Weston. This is Bloomberg. See you next week.