WEBVTT - Bloomberg Wall Street Week - October 28, 2022 0:00:00.520 --> 0:00:03.760 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.840 --> 0:00:06.199 to the markets this week at U S CPI numbers 0:00:06.440 --> 0:00:10.280 reinforcing concerns about inflation. The financial stories that chiep are 0:00:10.360 --> 0:00:13.400 worth a really different reaction to Mark. It's more indications 0:00:13.400 --> 0:00:15.960 of just how hot the U. S economy really is 0:00:16.040 --> 0:00:19.439 through the eyes of the most influential voices Larry Summers, 0:00:19.480 --> 0:00:22.279 the former Treatory Secretary, Katherine Keening, CEO of d n 0:00:22.400 --> 0:00:26.160 Y Mom, Sam's l Sharman, and founder of Equatic Group Investment. 0:00:26.200 --> 0:00:30.280 In Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.680 --> 0:00:34.479 New governments face old problems, and this time it doesn't 0:00:34.520 --> 0:00:37.199 look like tech will give us the solutions. This is 0:00:37.200 --> 0:00:41.000 Bloomberg Wall Street Week. I'm David Weston, this week's special 0:00:41.000 --> 0:00:44.280 contributor Larry Summers on the new GDP numbers and what 0:00:44.400 --> 0:00:48.200 they lack. It confirmed what I think we knew that 0:00:48.680 --> 0:00:52.560 despite two negative quarters, the economy was not in any 0:00:52.600 --> 0:00:56.560 real sense in recession. And Sam's l on why he 0:00:56.640 --> 0:01:01.280 has more opportunities than ever for good investments. Think about 0:01:01.560 --> 0:01:06.000 the impact of the doubling and interest rates in eight weeks. 0:01:19.640 --> 0:01:22.640 This week, Global All Street saw three new or sort 0:01:22.680 --> 0:01:26.240 of new governments installed, with Rishie Sunak officially taking over 0:01:26.240 --> 0:01:28.760 as the new Prime Minister of Great Britain and promising 0:01:28.800 --> 0:01:33.080 to make nice with the markets. I will place economic 0:01:33.120 --> 0:01:38.319 stability and confidence at the heart of this government's agenda. 0:01:38.720 --> 0:01:44.240 This will mean difficult decisions to come. Not to be outdone. 0:01:44.360 --> 0:01:47.319 Italy also got a new prime minister, and Georgia Maloney 0:01:47.400 --> 0:01:51.279 wasted no time in taking issue with the ECB raising rates. 0:01:52.160 --> 0:01:54.840 It's considered by many to be a rash choice that 0:01:54.960 --> 0:01:58.559 could have repercussions on bank lending to households and businesses. 0:01:59.000 --> 0:02:01.520 And although China a re up to President g for 0:02:01.560 --> 0:02:04.280 a third term, he made his own changes to his 0:02:04.320 --> 0:02:07.200 senior team, surrounding himself with people who see eye to 0:02:07.280 --> 0:02:10.240 eye with him, which cornels each Farsat says is a 0:02:10.320 --> 0:02:14.080 fundamental shift of a different sort. The message is quite 0:02:14.160 --> 0:02:17.200 clear that technocrats are on their way out, the loyalists 0:02:17.240 --> 0:02:20.079 are on their way in. But as much as governments 0:02:20.080 --> 0:02:23.400 may change, the problems they face remain the same. As 0:02:23.400 --> 0:02:27.040 the United States reported stronger GDP growth than expected despite 0:02:27.160 --> 0:02:30.480 higher interest rates, and the ECB hyped another seventy five 0:02:30.520 --> 0:02:33.840 basis points with President Leguards, saying she continues to focus 0:02:33.840 --> 0:02:38.360 on inflation even though the European economy is slowing. The 0:02:38.480 --> 0:02:43.280 risks to the inflation outlook are primarily on the upside. 0:02:43.560 --> 0:02:46.360 The major risk in the short term is a further 0:02:46.600 --> 0:02:51.359 rise in retail energy prices. Over the medium term, inflation 0:02:51.520 --> 0:02:54.520 may turn up to be higher than expected. And if 0:02:54.520 --> 0:02:57.200 Global Wall Street was hoping that tech might help us 0:02:57.240 --> 0:02:59.280 climb out of these doldrums, it was in for a 0:02:59.360 --> 0:03:02.440 letdown this week as the earnings of several big tech 0:03:02.480 --> 0:03:06.760 companies disappointed, particularly in their guidance about what may come next. 0:03:07.400 --> 0:03:10.000 There's big tech names, as they have reported this week. 0:03:10.280 --> 0:03:12.799 You know, look at Microsoft, look at Alphabet today. They 0:03:12.919 --> 0:03:17.200 really have underperformed in a big way. But in the end, 0:03:17.240 --> 0:03:19.679 equity markets shook it all off, with the SMP five 0:03:20.120 --> 0:03:21.799 up for the second week in a row, this time 0:03:21.840 --> 0:03:25.040 by almost four percent, and even the NASDAK rose above 0:03:25.080 --> 0:03:28.280 those disappointing earnings, overcoming a bad week for the Fangs 0:03:28.320 --> 0:03:31.120 and for the Golden Dragon China Index, and turning what 0:03:31.160 --> 0:03:33.280 was a loss as of Thursday into a nice two 0:03:33.280 --> 0:03:35.160 point two percent gained by the end of the week, 0:03:35.400 --> 0:03:37.520 while the yield and the ten years, settled in just 0:03:37.680 --> 0:03:40.600 over four percent by the end of Friday, down from 0:03:40.600 --> 0:03:42.720 about four point to five percent at the beginning of 0:03:42.760 --> 0:03:45.440 the week. Here to sort out a fascinating back and 0:03:45.520 --> 0:03:48.320 forth in markets are Peter Krauts, chair and CEO of 0:03:48.320 --> 0:03:52.400 Aperture Investors, and Monamahagen, she has senior investment strategist at 0:03:52.520 --> 0:03:54.520 Edward Jones. So, Waning, let me pick on you first. 0:03:54.760 --> 0:03:56.920 What did the markets do this weekend? Why did they 0:03:56.960 --> 0:03:58.840 do it? Yeah? Thanks, David. Look, this week was a 0:03:58.840 --> 0:04:01.000 bit of a tug of war. On one side of 0:04:01.040 --> 0:04:03.720 that tug of war, we saw the big cap tech earnings. 0:04:03.720 --> 0:04:06.680 They were um, in a word, disappointing in fact, and 0:04:06.720 --> 0:04:09.800 you noted this upfront. It wasn't necessarily the three Q results. 0:04:09.840 --> 0:04:13.280 It was the guidance across the board between advertising revenue, 0:04:13.360 --> 0:04:16.920 between cloud computing demand. We're seeing the soft thing there 0:04:17.200 --> 0:04:19.920 and that really dragged down the NASDAC. But on the 0:04:19.960 --> 0:04:21.560 other side of this tug of war, we saw the 0:04:21.600 --> 0:04:24.359 Dow up nearly six percent this week. Now what was 0:04:24.440 --> 0:04:27.640 driving that? While we are certainly starting to hear a 0:04:27.680 --> 0:04:31.320 little bit more optimism about a federal reserve that maybe 0:04:31.400 --> 0:04:34.000 looking to raise rates at a more moderate pace. Now, 0:04:34.040 --> 0:04:37.040 of course, next week's meeting, UH, the seventy basis point 0:04:37.040 --> 0:04:39.960 the point seven five percent rate hike UM almost baked 0:04:40.000 --> 0:04:43.120 into the cake. It's probably going to happen. But really 0:04:43.160 --> 0:04:46.880 all eyes will then focus on that December rate hike meeting. 0:04:47.240 --> 0:04:49.599 Um will they go fifty basis points or will they 0:04:49.640 --> 0:04:51.960 go seventy five? And in fact we heard a little 0:04:51.960 --> 0:04:54.640 bit more from some Fed governors that perhaps a more 0:04:54.680 --> 0:04:58.680 moderate rate of rate hikes probably makes sense here, just 0:04:58.760 --> 0:05:02.680 given UM giving them an opportunity to pause, assess the economy. 0:05:02.720 --> 0:05:05.839 See what's happening so interesting moves in the market this week. 0:05:06.040 --> 0:05:08.920 We do think, more broadly, some of those inflationary trends 0:05:08.960 --> 0:05:10.679 that we have been seeing, some of the four looking 0:05:10.720 --> 0:05:14.320 indicators are starting to show some signs of rolling over. 0:05:14.680 --> 0:05:17.080 That gives the Fed a little bit more comfort and 0:05:17.160 --> 0:05:19.920 perhaps going at a more moderate pace. We certainly saw 0:05:19.960 --> 0:05:22.280 that from the Bank of Canada this week this as well, 0:05:22.279 --> 0:05:25.480 who went fifty basis points rather than the expected seventy 0:05:26.040 --> 0:05:28.080 theater what do we say, are we heard from Ona? 0:05:28.320 --> 0:05:30.800 We're hearing some optimism about the Fed? Where are we 0:05:30.800 --> 0:05:33.120 hearing that from? I don't remember the Fed giving us 0:05:33.200 --> 0:05:36.479 much optimism. I think the Fed is giving us any optimism. 0:05:37.080 --> 0:05:41.000 I think that this is an interesting case of are 0:05:41.000 --> 0:05:44.400 you actually listening to the people who have the power 0:05:44.600 --> 0:05:47.159 to move the interest rates? If you're actually listening to 0:05:47.200 --> 0:05:49.839 the Fed, I think it's pretty clear the Feds moving 0:05:50.480 --> 0:05:54.479 to squash inflation, and they're not going to stop until 0:05:54.520 --> 0:05:59.120 inflation goes down. Inflation sticky, and it's not gonna move 0:05:59.200 --> 0:06:02.120 so quickly. And so the likelihood is that we see 0:06:02.200 --> 0:06:05.640 high rates or higher rates, and that those rates probably 0:06:05.680 --> 0:06:07.840 top out sometime in twenty three and they don't go 0:06:07.920 --> 0:06:12.760 down until well into or perhaps twenty four. And I 0:06:12.800 --> 0:06:16.200 don't think the market is completely digested that, and they're 0:06:16.240 --> 0:06:20.400 looking for scintillas of hope that are floating around in 0:06:20.440 --> 0:06:23.640 the market that I would call sentiment but not fact. 0:06:24.360 --> 0:06:26.159 What do you make of it all? And at the 0:06:26.160 --> 0:06:28.680 FED I think wants some consistent data over time that 0:06:28.760 --> 0:06:31.039 shows that the inflation really coming down. You said there 0:06:31.080 --> 0:06:34.479 are a little bit of indications around the edges. Yeah, 0:06:34.520 --> 0:06:36.360 you know. Look, Peter has a point there. They want 0:06:36.440 --> 0:06:39.200 clear and consistent evidence of inflation moderating, and in fact, 0:06:39.440 --> 0:06:42.800 they don't want to indicate anything too prematurely. They started 0:06:42.839 --> 0:06:44.760 to see that in June and we saw markets start 0:06:44.800 --> 0:06:47.719 to rally, you know, financial conditions start to ease rather 0:06:47.800 --> 0:06:49.880 than tighten, which is what they really want to see 0:06:49.880 --> 0:06:52.960 in markets in order to push inflationary pressures down. So 0:06:53.000 --> 0:06:54.800 we're gonna pick out exactly that when we come back. 0:06:54.839 --> 0:06:57.240 Mono Hodgen and Peter Crust will stay with us as 0:06:57.320 --> 0:06:59.400 we turn to some investment advice. They carry us towards 0:06:59.400 --> 0:07:01.200 the end of the year. That's coming up next on 0:07:01.320 --> 0:07:06.880 Wall Street Week on Bloomberg. This is Bloomberg Wall Street 0:07:06.880 --> 0:07:16.760 Week with David Weston from Bloomberg Radio. Tom Alone will 0:07:16.800 --> 0:07:19.360 tell whether Black Monday enters the history book as the 0:07:19.400 --> 0:07:23.800 day American confidence was so shaken that a premature recession resulted, 0:07:24.920 --> 0:07:27.640 or merely as the day of the computers went wild 0:07:28.520 --> 0:07:31.880 and through the wonders of so called program trading turned 0:07:31.880 --> 0:07:36.200 a normal correction into an early Halloween. That of course 0:07:36.320 --> 0:07:38.520 was the one and only Lewis Rocks on Wall Street Week, 0:07:38.800 --> 0:07:41.840 the friday before another Halloween like we're having when this 0:07:41.920 --> 0:07:44.840 coming Monday. But that one was back in seven just 0:07:44.920 --> 0:07:47.880 after so called Black Monday, when the Dow Jones lost 0:07:48.960 --> 0:07:51.600 in a single day and people back then we're trying 0:07:51.640 --> 0:07:54.360 to figure out what went wrong. The number one movie 0:07:54.360 --> 0:07:57.320 in America that week was Fatal Attraction and the number 0:07:57.320 --> 0:08:00.040 one song, well, it was bad by Michael Jackson. We 0:08:00.080 --> 0:08:02.320 still have with us now, Peter Krause of Aperture Investors 0:08:02.360 --> 0:08:05.080 and Monamohydgen of Edward Jones. So, Peter, when I come 0:08:05.120 --> 0:08:06.560 to you, I mean, it's not a Black Monday. We 0:08:06.560 --> 0:08:08.880 haven't seen that by any means, Thank goodness. And I 0:08:08.920 --> 0:08:11.560 remember that day, by the way, I do too. I 0:08:11.600 --> 0:08:14.720 was practicing law back in Washington. But but give us 0:08:14.720 --> 0:08:17.120 some investment advice here. You started in that direction with 0:08:17.160 --> 0:08:20.240 small caps and duration. If you're putting money to work 0:08:20.320 --> 0:08:22.120 right now, where does it make sense to do that 0:08:22.200 --> 0:08:25.120 given all the uncertainty? Well, I look, I think Mona 0:08:25.440 --> 0:08:29.240 said it as well. There's three places that are in distress. 0:08:29.640 --> 0:08:34.120 One is long duration fixed income. So whether it's treasuries 0:08:34.240 --> 0:08:36.800 or high yield or long duration bonds that have been 0:08:36.840 --> 0:08:41.120 absolutely crushed this year, those securities are likely going to 0:08:41.160 --> 0:08:45.160 provide attractive yields going forward. They're not going to reduce 0:08:45.200 --> 0:08:47.360 their volatility. They're still going to have a fair bit 0:08:47.400 --> 0:08:50.120 of price volatility to them. But you know this is 0:08:50.160 --> 0:08:52.240 a time when you can start to think about getting 0:08:52.280 --> 0:08:55.600 a little longer and moving out of the very short duration, 0:08:55.640 --> 0:08:57.880 which by the way, is also paying very well, and 0:08:57.960 --> 0:09:02.160 you can buy short duration investment grade bonds at five 0:09:02.200 --> 0:09:04.600 percent or even five and a percent, so that looks 0:09:04.640 --> 0:09:07.520 pretty attractive as well. But I think leaking out a 0:09:07.600 --> 0:09:11.200 little bit into duration makes sense. And the equity side, 0:09:12.000 --> 0:09:14.400 you know, I think you can't abandon the growth world. 0:09:14.440 --> 0:09:17.160 I mean, the tech world today or the tech news 0:09:17.160 --> 0:09:19.680 in the last few days is obviously very negative. But 0:09:20.840 --> 0:09:24.240 there are companies that are not necessarily tech, but our 0:09:24.280 --> 0:09:28.600 growth companies. They're either consumer oriented where their industrial companies 0:09:28.600 --> 0:09:32.040 that have fast growth, and not paying attention to those 0:09:32.160 --> 0:09:34.360 is going to miss a trick that whether they're small 0:09:34.400 --> 0:09:37.000 cap or mid cap or even large cap, but most 0:09:37.040 --> 0:09:38.960 likely you're going to find them in the small cap space. 0:09:39.480 --> 0:09:42.280 So I look at aperture. Our view is small caps 0:09:42.280 --> 0:09:44.920 are very interesting space. The beta is cheap, and it's 0:09:44.920 --> 0:09:47.040 a place where we're probably going to see the first 0:09:47.200 --> 0:09:50.360 move when this market recovers. Well, that's what you said earlier, 0:09:50.440 --> 0:09:52.720 the small caps come back first, Mona. Do you agree 0:09:52.800 --> 0:09:54.480 with that? And if they come back first, what comes 0:09:54.520 --> 0:09:56.880 back second? What comes back thirds, because that indicates where 0:09:56.880 --> 0:09:58.000 you want to be and where you don't want to 0:09:58.000 --> 0:10:01.199 be right now. Yeah, absolutely, you know, Peter's absolutely right. 0:10:01.240 --> 0:10:03.520 When you look historically, coming out of any sort of 0:10:03.520 --> 0:10:06.240 downturn or recessionary period, the thing that tends to lead 0:10:06.360 --> 0:10:09.360 us out our small cap names. And interestingly, this time around, 0:10:09.600 --> 0:10:12.640 small caps do tend to also be more domestically oriented. 0:10:12.679 --> 0:10:14.800 And perhaps when you look across the globe, you're seeing 0:10:15.080 --> 0:10:18.800 a European economy more exposed to the geopolitical issues oil 0:10:18.840 --> 0:10:22.200 and energy crisis. You're seeing an Asian economy more exposed 0:10:22.200 --> 0:10:25.400 to a Chinese economy that may be slowing. So in fact, 0:10:25.559 --> 0:10:28.200 the small cap universe is starting to look more and 0:10:28.240 --> 0:10:31.760 more interesting as well. We probably will have some months 0:10:31.760 --> 0:10:35.320 of volatility ahead as we stabilize get through a potential downturn, 0:10:35.360 --> 0:10:39.080 but I think that is a place to start thinking about. UM. Similarly, 0:10:39.240 --> 0:10:42.000 you know, across equities and fixed income, we talked about 0:10:42.000 --> 0:10:45.160 complementing equities, so you know, think about the stuff that 0:10:45.240 --> 0:10:48.880 has been more quote unquote beaten up this year. UM, 0:10:48.920 --> 0:10:51.080 there is values starting to merge in a lot of that. 0:10:51.160 --> 0:10:54.680 And again when you look historically the twelve months after 0:10:54.960 --> 0:10:58.880 the FED the final FED rate hike, equities broadly are 0:10:59.040 --> 0:11:01.720 up on average, and this is back till since FED 0:11:01.880 --> 0:11:05.400 right tiking cycle since ninety on average up about sixteen 0:11:05.480 --> 0:11:07.960 percent after that peak FED funds rate. So if you 0:11:08.000 --> 0:11:12.360 think it's coming sometime in February March, maybe earlier UM, 0:11:12.400 --> 0:11:16.120 there's certainly an interesting opportunity starting to form. And of course, 0:11:16.679 --> 0:11:19.520 with inequities, the other parts of the market, aside from 0:11:19.559 --> 0:11:22.000 small caps that tend to perform well coming out of 0:11:22.000 --> 0:11:24.800 a downturn, or the more cyclical and growth parts of 0:11:24.800 --> 0:11:27.800 the market, and when growth is slowing, you know, investors 0:11:27.880 --> 0:11:31.319 pen to gravitate towards finding growth in their portfolios. So 0:11:31.760 --> 0:11:34.480 everything that we've talked about and Peter and I have 0:11:34.559 --> 0:11:37.800 probably reiterated a couple of times now, but think about duration, 0:11:37.920 --> 0:11:42.480 think about quality. Growth opportunities are certainly forming. Like I 0:11:42.520 --> 0:11:47.720 also think that don't misunderstand arising economy or a rising 0:11:47.760 --> 0:11:49.960 market that you might have in the next few months. 0:11:50.040 --> 0:11:54.040 For a market that is absent volatility, there's still plenty 0:11:54.080 --> 0:11:58.200 of shoes to drop, and credit and leverage lending is 0:11:58.240 --> 0:12:00.480 one of them. And we don't know how the market 0:12:00.559 --> 0:12:02.679 is going to react to defaults. We haven't seen a 0:12:02.760 --> 0:12:07.000 significant default cycle really since Frankly two thousand and three, 0:12:07.080 --> 0:12:10.400 two thousand and four oh eight was a liquidity crisis, 0:12:10.440 --> 0:12:12.959 and you know two thousand and twenty was very short, 0:12:13.400 --> 0:12:17.720 so you could have some defaults here in corporate uh 0:12:17.840 --> 0:12:21.640 and in you know, other types of securities, real estate UM. 0:12:21.679 --> 0:12:23.720 And I think that that's going to have some effect 0:12:23.760 --> 0:12:26.480 on the volatility, but investors have to have to live 0:12:26.480 --> 0:12:28.920 through that volatility. They can't get knocked out of the 0:12:28.960 --> 0:12:31.559 market because if you do that, you're gonna miss the opportunity. 0:12:31.880 --> 0:12:34.880 We'll talk about the overall structure of the paradigm as 0:12:34.920 --> 0:12:36.840 it were, of investing. We are going. It looks like 0:12:36.920 --> 0:12:40.640 from a world low inflation, low rates, into higher inflation 0:12:40.720 --> 0:12:43.719 and perhaps significantly higher rates. At the same time, there 0:12:43.760 --> 0:12:45.439 was a good long period of time when it was 0:12:45.440 --> 0:12:47.439 basically there was no alternative, so people went into a 0:12:47.480 --> 0:12:50.400 lot of alternates, a lot of riskier things. What happens 0:12:50.400 --> 0:12:52.360 in this new world, because it's not like the old 0:12:52.400 --> 0:12:55.920 world necessarily, Yeah, you know, that's that's spot on, and 0:12:55.960 --> 0:12:58.679 in fact, we all know the Tina acronym. There is 0:12:58.720 --> 0:13:01.760 no alternative that served us well, probably from the Great 0:13:01.760 --> 0:13:05.079 financial crisis through the pandemic um, we saw a lot 0:13:05.120 --> 0:13:08.360 of investors pushed out the risk curve um in order 0:13:08.400 --> 0:13:11.000 to get that return that they were seeking. And of course, 0:13:11.080 --> 0:13:15.720 as raise rates rose pretty rapidly through two what we 0:13:15.800 --> 0:13:18.040 did see is a lot of more speculative parts of 0:13:18.040 --> 0:13:20.640 the market have started to see the air let out 0:13:20.640 --> 0:13:22.600 of those tires as well. You know, think about this 0:13:22.679 --> 0:13:26.439 back market earlier this year, the Meme stock market, uh, 0:13:26.520 --> 0:13:30.120 even crypto to some extent, we've seen large you know, 0:13:30.160 --> 0:13:34.520 compression and valuations, large downturn in values overall in a 0:13:34.559 --> 0:13:37.640 lot of those more speculative bubbles, and in fact, that 0:13:37.720 --> 0:13:40.560 probably sets us up for a more interesting time in 0:13:40.600 --> 0:13:43.280 the next ten years. You know. The one nice thing 0:13:43.280 --> 0:13:46.480 that's happened over this kind of downturn and markets this 0:13:46.559 --> 0:13:50.120 year is that valuation compression has come in beyond what 0:13:50.160 --> 0:13:54.320 we've typically seen historically. So the SMP PE multiple, for example, 0:13:54.320 --> 0:13:58.079 has come down over um this year already. So the 0:13:58.200 --> 0:14:01.920 valuation correction in our view has likely already happened, and 0:14:01.960 --> 0:14:04.920 that sets us up nicely. But to your point, in 0:14:04.920 --> 0:14:08.040 an environment where it will probably not return to zero rates, 0:14:08.120 --> 0:14:12.079 but with growth at two percent inflation hopefully returning somewhere 0:14:12.080 --> 0:14:14.839 in that two to three percent UM yields may also 0:14:14.920 --> 0:14:17.600 be somewhere in that two to three percent range, and 0:14:17.640 --> 0:14:20.600 so in that scenario, you think about discounting your cash 0:14:20.640 --> 0:14:23.360 flows at a higher rate, and so really that does 0:14:23.440 --> 0:14:27.080 put more pressure to prove your business models, especially those 0:14:27.120 --> 0:14:30.560 business models that expect cash flows in the out years UM. 0:14:30.600 --> 0:14:33.200 But the more steady parts of the market that have 0:14:33.440 --> 0:14:36.880 proven business models, that have proven cash flows, those valuations 0:14:36.880 --> 0:14:39.080 are starting to look attractive here, and I think that's 0:14:39.720 --> 0:14:41.640 really what investors will have to think about in this 0:14:41.680 --> 0:14:43.960 new environment. Thank you so much. It's really great to 0:14:44.000 --> 0:14:45.800 have you both with it as a Peter Crest of 0:14:45.920 --> 0:14:52.280 Aftercure Investors and Hydgen of Edward Jones. Coming up, famed 0:14:52.280 --> 0:14:55.120 investor Sam's l He's a veteran of Wall Street Week 0:14:55.280 --> 0:14:57.240 and he's back now to give us his advice on 0:14:57.360 --> 0:15:00.480 investing in these difficult markets and why he is seeing 0:15:00.520 --> 0:15:03.880 more opportunities than ever. That's next out Wall Street Week 0:15:04.080 --> 0:15:16.840 on Bluebird. Okay, what a difference a few rate hikes make. 0:15:17.320 --> 0:15:20.360 Not that long ago, when interest rates were at record lows, 0:15:20.720 --> 0:15:22.800 the easy days where they not money on you and 0:15:22.840 --> 0:15:25.120 you don't have much inflation and you don't have much 0:15:25.160 --> 0:15:29.160 time inness those are past. You almost couldn't avoid making 0:15:29.160 --> 0:15:32.000 a deal and setting new records for M and A. 0:15:32.240 --> 0:15:35.680 We are continuing to see a just tremendous momentum in 0:15:35.840 --> 0:15:38.880 U S, M and A. But things have changed. Money 0:15:38.960 --> 0:15:43.160 isn't free anymore. We have got to get inflation behind us. 0:15:43.400 --> 0:15:45.520 I wish there were a painless way to do that. 0:15:45.840 --> 0:15:49.600 There isn't and credit is cutting into that record deal flow. 0:15:50.040 --> 0:15:52.760 I'm looking now at credit spreads in the mid four 0:15:52.840 --> 0:15:56.600 hundreds and they just look too expensive to me. So 0:15:56.720 --> 0:15:59.320 what does that mean for the dealmaker? And are there 0:15:59.320 --> 0:16:02.480 many deal that still makes sense in this new world? 0:16:02.840 --> 0:16:06.040 There's still more room for we think these spreads to tighten. 0:16:06.280 --> 0:16:09.240 Probably at this point, you know, best opportunities are in 0:16:09.320 --> 0:16:15.800 the non investment grade market. And now return to a dealmaker. 0:16:15.880 --> 0:16:18.280 Par Excellan Sophia Sam's l He is the chairman and 0:16:18.360 --> 0:16:21.600 founder of Equity Group Investment Sam. Welcome to Wall Street Week. 0:16:21.680 --> 0:16:24.240 I know you've been on this program in the past. Okay, 0:16:24.520 --> 0:16:26.920 so let's talk about what investor does in this new 0:16:27.040 --> 0:16:30.800 environment of increased inflation and increased interest rates. First of all, 0:16:30.880 --> 0:16:33.320 tell me what's going on with your company? Are you 0:16:33.360 --> 0:16:37.800 seeing less deal flow now just the opposite. We're seeing 0:16:37.800 --> 0:16:44.400 more deal flow. We're seeing more situations where companies are 0:16:44.560 --> 0:16:49.640 having difficulty, uh figuring out what to do. Uh. We're 0:16:49.680 --> 0:16:56.360 seeing situations where nine months ago, financing a transaction of 0:16:56.800 --> 0:17:00.440 X y Z size was nothing. You know, it was 0:17:00.720 --> 0:17:05.440 you know, as you said, money was free. Uh what's 0:17:05.600 --> 0:17:09.920 changed dramatically? I mean, think about the impact of the 0:17:10.040 --> 0:17:14.159 doubling of interest rates in eight weeks double you know, 0:17:14.160 --> 0:17:18.560 it's just eight weeks earlier. Uh, interest rates were you know, 0:17:18.680 --> 0:17:20.720 two and a half to three and now they're five 0:17:20.760 --> 0:17:25.480 and a half to six. That's enormous uh change, and 0:17:26.160 --> 0:17:30.639 it's gonna slow down everybody's activity. It's gonna for sure, 0:17:31.320 --> 0:17:36.440 uh impact getting deals done. But in our particular case, 0:17:36.560 --> 0:17:42.000 because frankly, I've oftentime told the world that you know, 0:17:42.480 --> 0:17:46.199 when I'm liquid, the stock market can't go down. It 0:17:46.280 --> 0:17:49.359 only goes down when I'm ire liquid. And here I 0:17:49.400 --> 0:17:52.359 am sitting there with a level of liquidity I've never 0:17:52.440 --> 0:17:57.080 experienced in my life because my focus for the last 0:17:57.200 --> 0:18:00.840 three and a half years has been nothing more important 0:18:00.840 --> 0:18:04.439 men equality. So you've got a significant deal flow if 0:18:04.440 --> 0:18:06.520 anything is bigger than it was before. What about the 0:18:06.600 --> 0:18:08.719 quality of deals? Are they different from what they were 0:18:08.760 --> 0:18:12.439 for example, preach prandemic. I think they are because I 0:18:12.520 --> 0:18:18.639 think they're a little more realistic. I think in pre pandemic, 0:18:19.280 --> 0:18:23.840 when money was free, Um, there were transaction. I mean, 0:18:23.880 --> 0:18:27.480 the whole spack market was. You know, we did as 0:18:27.520 --> 0:18:31.600 back and chose not to take it to the next 0:18:31.680 --> 0:18:35.720 level because when we did this back spac seemed like 0:18:35.760 --> 0:18:41.960 a very interesting way to in effect monetize opportunity. Uh. 0:18:42.000 --> 0:18:47.639 It very quickly became a highly speculative scenario dependent on 0:18:48.160 --> 0:18:52.520 preposterous valuations that ultimately led to the crash of the 0:18:52.560 --> 0:18:57.520 whole spack market. Uh. You know, world has changed a 0:18:57.520 --> 0:19:03.560 lot since then, and the change is basically modifying what 0:19:03.600 --> 0:19:07.080 you can do. On the other hand, there's always demand 0:19:07.119 --> 0:19:11.199 for capital. Uh, and there's always that demand is always 0:19:11.240 --> 0:19:13.920 on the on the the shoulders of those that have 0:19:14.320 --> 0:19:17.679 preserved the coidity. So let's tell about some specific investment 0:19:17.680 --> 0:19:19.840 of serious energy. Yeah, I mean you even know energy 0:19:19.920 --> 0:19:22.439 terribly well, yes, you see opportunities of energy right now, 0:19:22.440 --> 0:19:24.879 There's been a lot of tumult in the marketplace because 0:19:24.920 --> 0:19:28.800 of Russia and Ukraine, and all sorts of reasons. Yeah, 0:19:28.200 --> 0:19:33.320 I mean we continue to do something in the energy space, 0:19:34.080 --> 0:19:36.560 not as much as I would have thought when we 0:19:36.640 --> 0:19:42.240 when this period began, the volatility and the energy space 0:19:42.280 --> 0:19:45.640 has been so extreme. Uh. I mean you just think 0:19:45.640 --> 0:19:49.920 about it. Within a twelve month period, the price of oil. Uh, 0:19:50.040 --> 0:19:56.080 you know, vascillated between thirty and twenty Uh. That's an 0:19:56.119 --> 0:20:02.400 incredible level of volatility. Makes making an investments extraordinarily difficult 0:20:02.440 --> 0:20:05.000 and challenging. Do you see a prospect of a little 0:20:05.040 --> 0:20:07.680 less latil? Because you have on the one plus plus 0:20:07.960 --> 0:20:10.040 trying to live with things. Now you've got the U. S. Government, 0:20:10.080 --> 0:20:12.240 which it was now trying to regulate the price of oil. 0:20:12.280 --> 0:20:13.680 It looks kind of like it is because it says 0:20:13.720 --> 0:20:16.480 when it's gonna, see's gonna to buy, So it looks 0:20:16.480 --> 0:20:19.119 like it's got a bit an ass price. Yeah, but 0:20:19.240 --> 0:20:22.199 we also have an alleged we also have an administration 0:20:22.680 --> 0:20:27.639 it's very anti oil and uh and and too in 0:20:27.680 --> 0:20:31.119 my judgment that the anti oil provision is only going 0:20:31.200 --> 0:20:34.560 to hurt the United States. I mean, we were producing 0:20:34.600 --> 0:20:38.040 eleven million barrels a day of oil. I don't know 0:20:38.080 --> 0:20:40.280 what we're doing now, but I think it's down two 0:20:40.359 --> 0:20:44.040 or three million barrels a day. Uh, as we've cut 0:20:44.040 --> 0:20:48.880 back on capital for the for for fracking, etcetera. Uh. 0:20:49.119 --> 0:20:51.840 Not a healthy set of circumstances. Sam, it's great to 0:20:51.880 --> 0:20:53.679 have you back on wallst Thank you so much. As 0:20:53.680 --> 0:20:56.440 Sam's l he is a chairman and founder of Equity 0:20:56.480 --> 0:21:01.200 Group Investments. Come up. We wrap up the week with 0:21:01.240 --> 0:21:05.480 our special contributor Larry Summers at Harvard. That's next on 0:21:05.600 --> 0:21:10.480 Wall Street Week on Bloomberg. This is Bloomberg Wall Street 0:21:10.520 --> 0:21:20.119 Week with David Weston from Bloomberg Radio. Okay, this is 0:21:20.160 --> 0:21:22.080 Wall Street Week on David Weston, and we are joined 0:21:22.119 --> 0:21:24.440 once again by our very special contribute to Wall Street Week. 0:21:24.440 --> 0:21:27.360 He is Larry Summers of Harvard. So, Larry, welcome back. 0:21:27.359 --> 0:21:29.399 Great to have you. Let's start with those US GDP 0:21:29.560 --> 0:21:31.719 numbers that came and showed we were back into growth, 0:21:31.800 --> 0:21:34.679 modest growth. What did you see in those numbers that 0:21:34.680 --> 0:21:37.440 would indicate where we are headed? I think it's hard 0:21:37.480 --> 0:21:40.840 to know. It confirmed what I think we knew that 0:21:41.320 --> 0:21:45.200 despite two negative quarters, the economy was not in any 0:21:45.240 --> 0:21:50.560 real sense in recession at this point. But if you 0:21:50.640 --> 0:21:55.119 look through the numbers to private domestic demand, which is 0:21:55.119 --> 0:21:59.800 probably the best indicator of economic strength. It really wasn't 0:22:00.040 --> 0:22:04.119 a strong well below one percent for the third quarter, 0:22:04.720 --> 0:22:07.240 and so I think what we've now had for nine 0:22:07.280 --> 0:22:13.560 months is essentially no GDP growth and inflation on core 0:22:13.680 --> 0:22:17.879 measures probably stronger than it was at the beginning of 0:22:17.920 --> 0:22:22.439 the nine months, suggesting that we've got real challenges ahead. 0:22:22.960 --> 0:22:26.680 There continue to be arguments that inflation rates are going 0:22:26.760 --> 0:22:30.080 to come down, but we haven't yet seen them, uh 0:22:30.119 --> 0:22:35.320 come down. So I don't think the fundamental picture that 0:22:35.480 --> 0:22:40.679 a soft landing remains an enormous and unlikely challenge is 0:22:40.880 --> 0:22:44.040 very different than it was before we got these numbers. Well, 0:22:44.040 --> 0:22:46.880 we're getting some political blowback now, as you know, shared Brown, 0:22:46.920 --> 0:22:49.000 the Senator from a high royal letter to J. Powe 0:22:49.240 --> 0:22:52.760 is followed by Mr. Hickerl Looper, Senator from Colorado, saying, 0:22:53.000 --> 0:22:55.320 you know, we shouldn't give up these gains we've had, 0:22:55.320 --> 0:22:58.040