Speaker 1: This is Bloomberg Wall Street Week. Market shruggle, higher consumer prizes,
Speaker 1: The economy is in the process of rebounding. Will the
Speaker 1: Federal Reserve have its own digital currency? The financial stories
Speaker 1: that cheap hard work. Many people think the eels are
Speaker 1: just going to keep marching up. We have more spending
Speaker 1: coming out of Congress. One of the big questions I
Speaker 1: think on investor's minds inflation through the eyes of the
Speaker 1: most influential voices. Larry Summer is the former Treasury Secretary
Speaker 1: Bryan Wenthan a backup America, Will Smart CEO Charlie Sharp,
Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Radio
Speaker 1: coming to terms with the pandemic that just won't quit,
Speaker 1: and with a Russian threat to Ukraine. This is Bloomberg
Speaker 1: Wall Street Week. I'm David Weston. The week began with
Speaker 1: President Biden confronting Russian President Putin over Russia's military build
Speaker 1: up along Ukraine's borders, with National Security Advisor Jake Sullivan
Speaker 1: reporting the US made it clear that it would take
Speaker 1: action in response to any invasion. Told President Putin directly
Speaker 1: that if Russia further invade Ukraine, the United States and
Speaker 1: our European allies would respond to strong economic measures, but
Speaker 1: as important as geopolitics are, the continued fight over COVID
Speaker 1: remains the number one thing we all confront with Spikes
Speaker 1: and cases and fears of O Macron leading to shutdowns,
Speaker 1: as British Prime Minister Boris Johnson said his country was
Speaker 1: urging people to stay home from Monday. You should work
Speaker 1: from him if you can, But there was also hope,
Speaker 1: hope that vaccinations and boosters would offer us a better
Speaker 1: alternative to shutting down and staying home, and Johnson and
Speaker 1: Johnson CEO Alex Gorski expressed confidence that science will help
Speaker 1: us get past the crisis in the new year. Obviously
Speaker 1: we're navigating our way through the pandemic uh and there's
Speaker 1: likely to be twists and turns and ups and downs.
Speaker 1: That being said, I'm optimistic and in the end, despite
Speaker 1: some high inflation numbers, the markets decided to choose hope
Speaker 1: over anxiety this week, giving equities their best rally in
Speaker 1: ten months and take the sp all time high, getting
Speaker 1: over three point eight percent on the week, with an
Speaker 1: etact just behind posting three point six percent gains, while
Speaker 1: the yield curves steepen just a little bit, leaving the
Speaker 1: ten year yields still below one. To explain what she
Speaker 1: makes all this, we welcome now our contributor Asani Beschelas.
Speaker 1: She's the founder and CEO of Rock Creek, So Asani,
Speaker 1: we really need your advice here. What's going on the
Speaker 1: market is really on the tear this week by and
Speaker 1: large after last week, sort of selling up a bit,
Speaker 1: despite the inflation, despite the despite the virus. Why David,
Speaker 1: great to be on with you today, and it's again
Speaker 1: about COVID. Right, COVID news were really bad when we
Speaker 1: heard about omicron and COVID news this week as people
Speaker 1: got more data on omicron and not that it's not
Speaker 1: a problem, but seems to be milder, seems to be spreading,
Speaker 1: but not uh, you know, not as scary as some
Speaker 1: variants could have been. I think has calmed the market
Speaker 1: so as people are sort of moving on where there's
Speaker 1: more clarity on the FED position on both taper and
Speaker 1: probably interest rate increases. But of course we have the
Speaker 1: inflation scared at the same time coming up well, and
Speaker 1: there was the question how sure are we about the Fed?
Speaker 1: I mean, j Pow has made it clear they're going
Speaker 1: to advance. It appears in the next meeting coming up,
Speaker 1: the tapering of the bond buying. But some people are
Speaker 1: saying he's going to go faster than even he thinks,
Speaker 1: and they may end up at a higher point. What
Speaker 1: do you think? And can he do that without really
Speaker 1: rocking the boat so much that it hurts the economy.
Speaker 1: I agree that tapering will start sooner and go faster
Speaker 1: than was his original plan, and um and I think
Speaker 1: that it is overdue. But the important thing is that
Speaker 1: the Fed has really had got two jobs right. It's
Speaker 1: inflation and employment. And on the employment side there is
Speaker 1: sort of a new twist that both you may remember
Speaker 1: Treasury Secretary Janet Yellen has been emphasizing it, so has
Speaker 1: um FED chair power, which is equitable employment and more
Speaker 1: equity in growth. And I think that is where, you know,
Speaker 1: it may lead to slightly different actions, which might mean
Speaker 1: that while inflation you know, is what about six point
Speaker 1: eight percent, it might go up too close to seven
Speaker 1: percent and peak around seven percent. But my view is
Speaker 1: that it will come down to about half of that
Speaker 1: um you know, towards the end of next year, as
Speaker 1: the supply chains go away, but also as some hopefully
Speaker 1: some of the build back better UM actual actions get
Speaker 1: implemented and we start having some of the supply chain
Speaker 1: issues get resolved a little faster. I've signed you at
Speaker 1: Rock Creek are an investor rather than a trader, so
Speaker 1: you look over the longer term. You're not in another market,
Speaker 1: as I understand it. Constantly. At the same time, some
Speaker 1: people are saying that we should get used to higher inflation,
Speaker 1: not six point eight percent, but signalically higher than we
Speaker 1: have on trend. If it's true, if we're set for
Speaker 1: three percent or even four percent, lurry summers, and what
Speaker 1: does that do to investor? How has that changed your portfolio?
Speaker 1: So two things. One is depends on how this inflation
Speaker 1: gets translated. For example, a lot of people say, you know,
Speaker 1: wages are going up and that's a bad thing, but
Speaker 1: really in economics one on one depends on exactly where
Speaker 1: the wage growth is happening. If the wage growth is
Speaker 1: happening at the lowest income levels, and that is actually
Speaker 1: the case, um, but don't forget those income Those wages
Speaker 1: are so very low that you know, increase is very
Speaker 1: little on a on a very small base, right, So
Speaker 1: if you have higher growth on wages. What you're going
Speaker 1: to have is potentially more ability to buy goods by
Speaker 1: that group, which has a higher consumption rate than higher
Speaker 1: income goods and UH and higher growth in the longer run. Now,
Speaker 1: the other side of this is as I think some
Speaker 1: of these very short short I would call it short term,
Speaker 1: not just supply chain, you know, but the fact that
Speaker 1: people were reading about inflation got them to buying more.
Speaker 1: The fact that we have some issues with specific issues
Speaker 1: because of COVID that happened with for example, not you know,
Speaker 1: car companies selling their fleets or not investing last year.
Speaker 1: We're seeing that impact this year as they invest next year,
Speaker 1: we're not going to have those same pictures. So you know,
Speaker 1: we might be closer to my my assumption is closer
Speaker 1: to three or three and a half percent, but that
Speaker 1: will go down over time, so not so concerned about that.
Speaker 1: Thank you. So it's always a pleasure to have you
Speaker 1: with us. As Sonny Bachelors, she is the founder and
Speaker 1: the CEO of Rock Creek. Coming up, we get a
Speaker 1: preview of what to expect in the new year from
Speaker 1: the Chairman and CEO of Bank America, Bryan moynihan. That's
Speaker 1: next on Water with on Bloomberg. This is Bloomberg Wall
Speaker 1: Street Week with David Weston from Bloomberg Radio. This is
Speaker 1: Wall Stree Week. I'm David Weston. Two twenty one has
Speaker 1: been another wild year with a continued fight against the pandemic,
Speaker 1: continued fiscal and monetary stimulus, and growing inflation concerns buffeting investors.
Speaker 1: But as we come to the end of the year,
Speaker 1: we asked Brian moynihan at Back of America to take
Speaker 1: a look at what he sees ahead in twenty two. So, Brian,
Speaker 1: it's coming to the end of the year, let's look
Speaker 1: forward to two thousand twenty two and what you could anticipate.
Speaker 1: First of all, let me ask you how uncertain is it?
Speaker 1: Because right now we're looking at the various banks and
Speaker 1: the projections, for example on SMP five where it ends up,
Speaker 1: it's a wider range we've seen a long time. It
Speaker 1: does that indicate there's less certainty about where we're headed
Speaker 1: in two. I think if you look at the economic projections,
Speaker 1: they're close or bunched. Those have to do with multiple
Speaker 1: evaluations coming in some of the you know, you've seen
Speaker 1: the I p O S trade down, and I think
Speaker 1: people are starting to say, Okay, this just can't keep
Speaker 1: going in one direction. So you're seeing start to people
Speaker 1: start to disperse. I think around this question of where
Speaker 1: they think the market evaluation is and whether the earnings
Speaker 1: growth can sustain. And if you earning growth slows down,
Speaker 1: theoretically market evaluation how to slow down, first by just
Speaker 1: math and then by multiple contractions. So I think I
Speaker 1: think that's more of the thing. But if you look
Speaker 1: at the economy side, you know, we're at four two
Speaker 1: percent for next year and two point two for the
Speaker 1: year after, and I think you know that's you know,
Speaker 1: that's a slowdown from this year. But the roalities sort
Speaker 1: of has to slow down. I mean, in in in
Speaker 1: the federal raised rates to make sure it does because
Speaker 1: inflation and other things. So I think we we feel
Speaker 1: very strongly what we see in our customer base is
Speaker 1: is consistent with four plus growth. What we see on
Speaker 1: the commercial side and consumer side. Now, the risk of
Speaker 1: that is still this pandemic. And so the other thing
Speaker 1: you see this dispersion when you have a you know,
Speaker 1: this new variant surface and people you see people taking
Speaker 1: different actions around the world, and we'll shut down and
Speaker 1: will not people start to make decisions based on that
Speaker 1: and in terms of their valuations and points. And the
Speaker 1: good news is between because the great health care systems
Speaker 1: we have and great science we have. You know, the
Speaker 1: vaccines out there, it's effective. It may have to be
Speaker 1: changed and play with, but you're seeing the impact less
Speaker 1: so far. Alcome what and we'll see what happens. But
Speaker 1: that's a big uncertainty that that Trump's every other thing
Speaker 1: you're talking about. You're not an epidemiologist, as far as
Speaker 1: I know, I'm not, Goodness knows. But you talk to
Speaker 1: a lot of experts. You have people you touch to
Speaker 1: all the time. Your best guest, do you think by
Speaker 1: the end of two we will have this largely behind
Speaker 1: its the pandemic, Not to say it's all gone, but
Speaker 1: we won't have to deal with the day in and
Speaker 1: day out, you know. I think the risk is the
Speaker 1: variant that the vaccines really don't work against. And and
Speaker 1: so if you unwind the decision path by the people
Speaker 1: in charge of government and making rules, it's gonna be
Speaker 1: if my I c U s are overwhelmed, if my
Speaker 1: hospitals are overwhelmed, I have to slow down activity to
Speaker 1: keep people away from each other, you know, to avoid
Speaker 1: that outcome because you can't have people dying in the hall.
Speaker 1: That's just not fair. And so remember back in the
Speaker 1: early pandemic, the field hospitals were being built. We need
Speaker 1: thirty thousand ventilators. We didn't use them, all of it.
Speaker 1: And but the good news as the treatments in the
Speaker 1: monoclona and advising pills and all those things. So I'm
Speaker 1: not I can't make the uh, the medical prediction, but
Speaker 1: our experts say this, we are. We've come from that
Speaker 1: where it was just immediately had to get people away
Speaker 1: with all these tools, the treatment, vaccines, understanding disease better,
Speaker 1: the speed at which it can be adapted to to
Speaker 1: where you know, so the waggle around and outcomes faster. Right,
Speaker 1: So if you look the market, there's a chart the
Speaker 1: other day you saw, you know, it took this long
Speaker 1: for the market to recover the first time, and it's
Speaker 1: gone any edge time and new variants come up, and
Speaker 1: that's because of confidence that you can get behind it.
Speaker 1: I think that means you're in an you know, the
Speaker 1: endemic type of situation as opposed to the pandemic, which
Speaker 1: means we're gonna be living with this and there's gonna
Speaker 1: be ebbs and flows, and I think that's what people
Speaker 1: are for seeing. Twenty two is about now take a
Speaker 1: wool a wat to get used to that fact, you know,
Speaker 1: and and and and that will be interesting to see
Speaker 1: how society adopts. But you know, with with what's going
Speaker 1: on in other countries, you see in them start to
Speaker 1: adjust because there's one fundamental differences. The vaccine levels are
Speaker 1: just not there they are in the United States. So
Speaker 1: the judgment by a person here given this aime set
Speaker 1: of facts could be different based on that fact alone.
Speaker 1: Putting aside the pandemic, and recognize that's a big thing
Speaker 1: to put aside, but put takeing that out of the
Speaker 1: careation for a second. When you take a look at
Speaker 1: the markets, typically valuations were based on corporate earnings and
Speaker 1: that should be a function of growth. You say, growth
Speaker 1: looks pretty solid. Maybe it won't be as high as
Speaker 1: it was this year, but pretty solid. But there's another
Speaker 1: factor which is also margins and profitability. How concerned are
Speaker 1: you going about inflation and their ability to erode corporate margins.
Speaker 1: So at the end of the consumer they have more
Speaker 1: money to spend their all their employed and wages are
Speaker 1: growing fast. They ability to absorb price increases, you know,
Speaker 1: is there now people don't like to give them price increases,
Speaker 1: and that's white companies have different strategies and different pricing schemes.
Speaker 1: But the reality is is you'd be more afraid if
Speaker 1: if the I'm not sure if the pressure came through
Speaker 1: on the supply side without the consumers and the condition
Speaker 1: they're in, I'd be more afraid of that question. And
Speaker 1: right now, if companies tell us they're able to pass
Speaker 1: through price, either be two B or B two. See
Speaker 1: in other words, that um and and shortages. I mean
Speaker 1: people buy no matter what. So restaurant pricing, hotel pricing,
Speaker 1: trip pricing, you know, people run special and stuff. It's
Speaker 1: all elevated and and that will come through. So I
Speaker 1: think you have to start with the consumer being in
Speaker 1: great shape, having money employed in wages rising and frankly
Speaker 1: freed up to do more. And that's then you back
Speaker 1: into that. Think about all the cars that didn't get
Speaker 1: sold because the chip short At some point, the chips
Speaker 1: are there, and those you know that sixteen million down
Speaker 1: to twelve or thirteen million rate moves back up, and
Speaker 1: so I think there's that's just that housing. You know,
Speaker 1: people are still buying homes. There's a shortage of homes,
Speaker 1: therefore wible demand. They're you've got to get prices back
Speaker 1: in control. Frankly there, But so I think, yeah, I
Speaker 1: think I'd be more afraid of the margin question for
Speaker 1: companies if you didn't have these you know, in the
Speaker 1: end of the day, it's a consumer drives the economy
Speaker 1: two thirds of the activity or whatever the right words are,
Speaker 1: if they didn't have the money spent and they do.
Speaker 1: It looks right now for what the FED share has
Speaker 1: said that we're looking at two is being a pivot
Speaker 1: year with respect to monetary support for the economy. How
Speaker 1: concerned are you about the rapidity with which they tighten
Speaker 1: them might supply because theoretically we could do some damage. Yeah,
Speaker 1: well they have to they have to slow down. You
Speaker 1: don't raise rates and expect the economy not to change
Speaker 1: outcome when you have inflation. And so that's the economics
Speaker 1: one I want about the thing. But let's let's back
Speaker 1: up to this this FED you have saying general people
Speaker 1: two thousand nineteen economy, economy, excize today excise it could
Speaker 1: be bigger probably this quarter. Unemployment three point six or
Speaker 1: four point two already. At the year end, we'll see
Speaker 1: where we are. But my guess is closer to that number.
Speaker 1: The consumer, all that fiscal stimulus went on, and so
Speaker 1: you think about all that, and you're saying, wait a second.
Speaker 1: You know the voages have grown dramatically since then, and
Speaker 1: I expect to grow faster rate. I think they have
Speaker 1: to bring the rates up. The pace will always be
Speaker 1: based on their view, but I think what's more, it's
Speaker 1: going to be more on people's minds. Goes back to
Speaker 1: the question the pathway of the virus. We have we
Speaker 1: won the war, or if we won most of the
Speaker 1: war and the war still out in front of us.
Speaker 1: And I hope and pray that the first is true.
Speaker 1: But I think that will affect their pace more than
Speaker 1: anything else, because they're always trying to make the judgment,
Speaker 1: because they're making the judgment based on the facts, and
Speaker 1: it actually has impact in the future. But I think
Speaker 1: from a maths you know, the employment, full employment, stable pricing,
Speaker 1: you could move rates up and relatively quickly. I think
Speaker 1: the US be slow because I think no matter what
Speaker 1: we think we know, we'll know other things about this
Speaker 1: virus every day, week, month, and I think that will
Speaker 1: keep changing their ebbs and flows, but they're gonna be
Speaker 1: careful not to get ahead of it. But on the
Speaker 1: other hand, they have to resolute to get it, get
Speaker 1: the rate structure back. In the rate structure almost two
Speaker 1: percent fed funds and two percent tenure to you're saying, so,
Speaker 1: what's different, Same size economy, same unemployment, more money in
Speaker 1: people's accounts, more spending, more final demand. At some point,
Speaker 1: you've got to bring the structure back. Thanks to Brian moynihan,
Speaker 1: Chairman and CEO of Bank of America. Coming up, we
Speaker 1: convene our roundtable together in the studio with contributors Larry
Speaker 1: Summers of Harvard and Steve Rattner of Will of Advisers.
Speaker 1: That's next on Wall Street Week on Bloomberg. This is
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: This is Walton. I'm David Weston. I am delighted to
Speaker 1: say that for the first time in nearly two years,
Speaker 1: we are back around our real roundtable in New York
Speaker 1: with our contributor Larry Summers of Harvard and also our
Speaker 1: contrautor Steve Radner of Will Advisers and they're responsible for
Speaker 1: investing the personal and philanthropic assets of Michael R. Bloomberg,
Speaker 1: our founder and majority shareholders. So Larry, let's start with you.
Speaker 1: On Friday, we got CPI numbers. As predicted, they came
Speaker 1: in hot headline number six. You've been talking about this
Speaker 1: for some time. What are we learning about inflation that
Speaker 1: we didn't know before? We're having it confirmed that it's
Speaker 1: not transitory. And I think everybody recognizes now with the
Speaker 1: statements from Chairman Powell, with the statements from Secretary Yellen,
Speaker 1: that this isn't going to just go away of its
Speaker 1: own accord, that the Fed is going to have to
Speaker 1: take substantial action to control inflation unless there's some kind
Speaker 1: of other adverse development of crack and markets or something
Speaker 1: of that kind. But we put in motion for the
Speaker 1: first time in forty years, excessive inflation caused by overheating
Speaker 1: of the economy, and that's going to have to be
Speaker 1: worked out of the system. And that's probably not going
Speaker 1: to be such an easy thing. Well, I'll tell about
Speaker 1: that how easy it is, Steve, do you agree with
Speaker 1: that analysis, and if so, what are the prospects that
Speaker 1: in fact the FED can slow this thing out down
Speaker 1: without really causing some damage the economy. Well, I completely
Speaker 1: grew with Larry, and I think you have to recognize
Speaker 1: it's a problem that was not created in two months,
Speaker 1: as a problem creator over the last two years, and
Speaker 1: so it's going to take multiple years, certainly to work
Speaker 1: it out. I know, I want to predict that we're
Speaker 1: going back to where we were in the late seventies.
Speaker 1: But I was sitting in the washingbur the New York
Speaker 1: Times when Paul Vulkan announced his new inflation policy, and
Speaker 1: I watched all that happen, and it took multiple, multiple
Speaker 1: years and a terrible a recession to get it out
Speaker 1: of the system. So it is gonna be painful, and
Speaker 1: it's going to be painful for growth. It's gonna be
Speaker 1: painful for jobs. And we do have an election coming
Speaker 1: next year, which is going to be complicated. Hilarious. Listen
Speaker 1: to the White House. They admit there's inflation, Uh, they
Speaker 1: still say maybe transitory. And one of thing they point
Speaker 1: to is gas prices. They said, that's really artificially spiked
Speaker 1: it up, that's leveling off. Maybe we don't have as
Speaker 1: bigger problem. What about the difference between headline and so
Speaker 1: called core Look there's surely our transitory elements and inflation,
Speaker 1: no question about it. But here's the thing, David. If
Speaker 1: you look at annual rates, if you take this month's
Speaker 1: number and you annualize it, it's ten. So a lot
Speaker 1: of that is, no doubt transitory. But to say that
Speaker 1: a lot of it is transitory is not to say
Speaker 1: that it's going to get anywhere near price stability on
Speaker 1: its own. And there's another point, which is we always
Speaker 1: talk about the things that are high and might be transitory.
Speaker 1: House prices on every index, rental prices on every index
Speaker 1: except the CPI or up over the last year. The
Speaker 1: vast majority of that is not yet in the c
Speaker 1: p I, so it's probably coming. Every business person I
Speaker 1: talked to says the same thing. They say, we're gonna
Speaker 1: have much higher labor costs going forward to retain our people.
Speaker 1: We're gonna have higher input costs, and it's kind of
Speaker 1: okay because we're gonna be able to pass it on. Well,
Speaker 1: that's an environment where there are pressures in many places
Speaker 1: for rising prices, not for uh, falling prices. You know,
Speaker 1: one of the sectors that's been very benign over the
Speaker 1: last time last while is medical services. But as you
Speaker 1: see all the nurses who are quitting, there's gonna be
Speaker 1: pressure there. As you see all the backlogs of elective
Speaker 1: procedures from the last year or two, they're gonna be
Speaker 1: back lugs. Uh there. So I think we're going to
Speaker 1: in trend um inflation way above two, perhaps in the
Speaker 1: four percent or even higher range, unless something happens to
Speaker 1: break the current mood, to break uh the current trend,
Speaker 1: And I don't think it's gonna be three rate increases
Speaker 1: or two rate increases uh next year. I mean, remember this, crucially,
Speaker 1: monetary policy today is far looser than it was a
Speaker 1: year ago. Looser is measured by real interest rates. Looser
Speaker 1: is measured by financial conditions. Looser is measured by the
Speaker 1: size of the Federal Reserves balance sheet. So we've got
Speaker 1: looser monetary policy even as job vacancies are way up,
Speaker 1: and even as inflation is way up as well. So
Speaker 1: Steve Larry says we should be having hykes. He's been
Speaker 1: talking about this for the better part of a year now.
Speaker 1: Uh do you think we should have more than three
Speaker 1: rate hikes next week, next month, next year? Well, I
Speaker 1: don't know yet. We have you know, obviously, as Janet
Speaker 1: Young used to say, you know, the FETE is data
Speaker 1: driven and you take each each month or quarter at
Speaker 1: a time. But I agree with I agree with pretty
Speaker 1: much everything everything Larry said, But I would just make
Speaker 1: this point, Like we talked about oil having leveled off,
Speaker 1: there's no guarantee that oil is going to stay where
Speaker 1: it is. You know, it's not a function of some
Speaker 1: specific supply disruption of something that's can be easily corrected.
Speaker 1: It's largely a function of global demand. And global demand
Speaker 1: isn't going down at the moment. And so I think
Speaker 1: there is a lot of not just in Core, I
Speaker 1: think there's a lot of inflation that is really stuck
Speaker 1: in the economy. And yeah, I think I think Larry's right.
Speaker 1: If the FETE is really serious about getting back to
Speaker 1: an average of two, it is going to take a
Speaker 1: lot more than three rate hikes over some period of time. Okay,
Speaker 1: so that was terrific, great start here. We're gonna come
Speaker 1: back with Larry Summers and Steve Redder just short time
Speaker 1: from now to address the really pressing problem of COVID
Speaker 1: nineteen and now homocron. And this is Wall Street Week
Speaker 1: on Bloomberg. This is Bloomberg Wall Street Week with David
Speaker 1: Weston from Bloomberg Radio. This is Wall Street Week. I'm
Speaker 1: David western We were back with our Real roundtable in
Speaker 1: New York with Larry Summers of Harvard and Steve Runner
Speaker 1: of Willard Advisers. So Steve, let me turn to you
Speaker 1: as an investor on behalf of Mike Bloomberg. One of
Speaker 1: the big stories, not just the week this week, but
Speaker 1: this year is the COVID villars. Now we have the
Speaker 1: omo cron variant. None of us, I dare say, are epidemiologists.
Speaker 1: We can't know what's going on. And by the way,
Speaker 1: even if we were, I don't know that we could
Speaker 1: predict what's happening with virus. But as an investor, what
Speaker 1: do you do about that? Because it could well affect
Speaker 1: your investments? Of course it has has affected our investments,
Speaker 1: and I would say in several decades of investing, I've
Speaker 1: never been in a position where I had to analyze
Speaker 1: things like this that went way beyond the normal parameters
Speaker 1: you look at as an investor. And so it has
Speaker 1: introduced the level of altility into the markets is level.
Speaker 1: It's introduced level of inefficiency in the markets. You see
Speaker 1: stocks reacting in strange ways and uh and and not
Speaker 1: anticipating events the way the market is usually good at.
Speaker 1: And so it has made life very very complicated an economistillary.
Speaker 1: One of the things that may well affect is the
Speaker 1: supply chain problem that you just mentioned in the the last segment.
Speaker 1: I think one of the big questions about any time
Speaker 1: we're talking pandemic is the way I like to say
Speaker 1: it is, how does it affect the number of bartenders
Speaker 1: relative to the number of our customers? Because the thing
Speaker 1: about the pandemic is that it affects both demand and supply,
Speaker 1: and so you know it's gonna be bad for the
Speaker 1: level of output because there's gonna be less demand and
Speaker 1: less supply. But with less demand and less supply, you
Speaker 1: don't know what it's going to mean for prices. And
Speaker 1: that's one of the puzzles in a lot of the discussion.
Speaker 1: Everybody said a year ago, that a year and a
Speaker 1: half ago, that we needed all kinds of stimulus because
Speaker 1: um of the pandemic coming. Now there are many people
Speaker 1: who say the FED doesn't need to tighten because the
Speaker 1: pandemic is gonna end and people are gonna come back
Speaker 1: to work. Those can't both be are unlikely to both
Speaker 1: UH be proper logical UH propositions. I think O Macron
Speaker 1: does introduce substantial uncertainty UH into the future, and probably
Speaker 1: even more for emerging markets than for the United States
Speaker 1: and UH and Europe. It does certainly put an extra
Speaker 1: range of uncertainty. And I also think that we shouldn't
Speaker 1: be so callous as to analyze it entirely through the
Speaker 1: prism of markets or the prism of GDP statistics. Even
Speaker 1: if we don't. Even if it doesn't have any effect
Speaker 1: on mobility and lock up policies and people are still
Speaker 1: flying UH planes, a much more pervasive virus is going
Speaker 1: to have a set of human consequences well. As fair point.
Speaker 1: I know you'd agree with that, Steve first and Foremo
Speaker 1: it's a matter of personal health and safety. But it
Speaker 1: does affect investments and does affect money as a practic matter.
Speaker 1: You have investments around the world, not just in the
Speaker 1: United States. Are you seeing a divergence among the markets
Speaker 1: according to actually the COVID, I mean right now we
Speaker 1: see very different approaches. I mean China really locks down
Speaker 1: pretty quickly to try to protect themselves. You're parts of
Speaker 1: it now. Are starting to really shut things down. Do
Speaker 1: you see divergence an investment based on that? Not? Not really.
Speaker 1: You know, they are pursuing different strategies, but I'm not
Speaker 1: sure whether the COVID strategies are uh the biggest driver
Speaker 1: of economic differences. I mean, for example, China, there's an
Speaker 1: enormous amount going on in China President Gy. I mean,
Speaker 1: we don't have time to talk about it today, but
Speaker 1: he's fundamentally changing the nature of China's approach to the
Speaker 1: market economy. That is far more important than the fact
Speaker 1: that China has its own approach to COVID versus how
Speaker 1: England approaches it, or how Austrian approaches or this or that.
Speaker 1: So so, Larry, what about that the approach of shutting
Speaker 1: down as opposed to vaccinating, two very different courses, have
Speaker 1: different economic effects. Yeah, they do, certainly while you're locking down.
Speaker 1: I think what I have been struck by in general
Speaker 1: is that the policies seem to have more effect on
Speaker 1: the timing of the disease then they do on the
Speaker 1: overall level of the disease. That if you lock up,
Speaker 1: then you reduce the disease substantially for a while, but
Speaker 1: you have to unlock at some point and then you
Speaker 1: get most of the cases that you avoid it. If
Speaker 1: you look at the different countries within Europe, there are
Speaker 1: a lot of different strategies, but less difference in result.
Speaker 1: Part of what I think has to be a concern.
Speaker 1: You know, when people talk about China, they always talk
Speaker 1: about every grand and that is certainly a very big concern.
Speaker 1: But China, which has had nothing much happened that has
Speaker 1: increased its immunity levels, uh virtually none of the disease
Speaker 1: vaccines that appear to not be nearly as strong as
Speaker 1: the ones we've used. How they're gonna work their way
Speaker 1: out of they're totally locked up situation, I think is
Speaker 1: a very big challenge. And the longer they stay locked up,
Speaker 1: the bigger that challenge is going to be. They're gonna
Speaker 1: have Olympics which are opening up, and Steve Well, they're
Speaker 1: not gonna open up for the Olympics. They're gonna do
Speaker 1: the Olympics in a bubble. And look what I've heard
Speaker 1: about China and their vaccination strategy. Nobody knows, of course,
Speaker 1: the speculation among people who know something is that between
Speaker 1: now and a year from now and the next Party
Speaker 1: Congress occurs, they will figure out how to vaccinate people
Speaker 1: with vaccines that actually work, and they will then start
Speaker 1: to open up. Is that right I have? I have
Speaker 1: no idea, but let me just say two other quick things. One,
Speaker 1: I do think we're learning to live economically with the virus.
Speaker 1: I send some of my colleagues among people I deal with,
Speaker 1: so far, no one is flustered that much by Oh
Speaker 1: my cron. We're still in the office, people are still
Speaker 1: having meetings and so on, and it's something we're gonna
Speaker 1: have to live with, like hijackings on airplanes, and us
Speaker 1: have another way to approach it. The second quick thing
Speaker 1: I'd say is, I don't believe that the reason people
Speaker 1: are not working now is because of the virus generally
Speaker 1: obvious exceptions. I think the reason they're working right now, frankly,
Speaker 1: as many of the don't have to. They have strong
Speaker 1: balance sheets, they don't want to go back to an
Speaker 1: Amazon warehouse. I don't want to go to an Amazon warehouse,
Speaker 1: and so they're taking their time and figuring out what
Speaker 1: they want to do. And there are eleven million jobs
Speaker 1: open out there, and they know they can get one
Speaker 1: whenever they want. On a really important point, let's wrap
Speaker 1: this up now looking forward in two if we could,
Speaker 1: let me start with you, as you look forward to
Speaker 1: the new year, what do you think the biggest downside
Speaker 1: risk is that we face. I think the three risks
Speaker 1: inflation and over extended markets are the three biggest risks
Speaker 1: we face, and I'm not sure in what I'm not
Speaker 1: sure in what order. And I would also say the
Speaker 1: geopolitics of China, Russia and Iran, all of which your
Speaker 1: potential sources of crisis in the next year, is an
Speaker 1: additional concern. Give us one minute on sing and you
Speaker 1: identified omicron is a big risk. Are we testing enough
Speaker 1: in this country? No? We we we're fixing it now,
Speaker 1: but we're a year late too pervasive cheap tests that
Speaker 1: you can give to guests to your home and get
Speaker 1: a result in fifteen minutes. And the faster we move
Speaker 1: on that, and the stronger we move on that, and
Speaker 1: the more universally we move on that, the better it
Speaker 1: will be. So, Steve, same question, you looking at two
Speaker 1: biggest risk. I agree with Larry's through three risks, but
Speaker 1: I think the first one and the third one are linked.
Speaker 1: And I think when you get to the question why
Speaker 1: the markets so so frothy. I think my own personal
Speaker 1: view is that the vast majority majority of the reason
Speaker 1: is the FED. That when you take interest rates to zero,
Speaker 1: you know, it's tina, what we call tina, there is
Speaker 1: no alternative, and people come into the markets. And what
Speaker 1: you see happening right now is that every time this
Speaker 1: talk of interest rates going up, the stocks that get
Speaker 1: hardest are the growth stocks because their cash flows are
Speaker 1: so far out in the future that when you put
Speaker 1: a discount rate on it, values go down as interest
Speaker 1: rates go up. And so I think the market is
Speaker 1: not really responding to uh international strategic issues it might
Speaker 1: if they became more severe. I think the markets responding
Speaker 1: almost entirely the interest rates. And if the FED starts
Speaker 1: down this path, I think it is going to be
Speaker 1: a tough ride for the market. Well that's my question,
Speaker 1: because it started on the path. We've had it pretty
Speaker 1: clearly from J. Powell. They're going to start down the path.
Speaker 1: Question of how fast and how far so? Do you
Speaker 1: think would you feel better if there was a bit
Speaker 1: more of a taper tantrum. I'm not asking for a
Speaker 1: taper tantrum. And obviously part of why I think the
Speaker 1: FED has moved so slowly is to avoid a taper
Speaker 1: taper tantrum. I think they've successfully mitigated the effects of
Speaker 1: stopping the asset purchases the twenty billion a month. I
Speaker 1: think the markets accepted that. I'm not sure the markets
Speaker 1: ready for three interest rate increases next year, and I
Speaker 1: think that may come as a shock to the inventially
Speaker 1: the precedent. This has been a great round table back
Speaker 1: again after almost two years, I think many thanks to
Speaker 1: Larry Summers of Harvard and Steve Rattner of will It Advisors. Finally,
Speaker 1: one more thought the geo politics parts. Yet once again
Speaker 1: this week, the United States made it official it would
Speaker 1: not be sending any delegation to the Beijing Winter Olympics
Speaker 1: next year. The Biden administration will not send any diplomatic
Speaker 1: or official representation to the Beijing two Winter Olympics and
Speaker 1: Paralympic Games, given the Pierre scenes, ongoing genocide and crimes
Speaker 1: against a humanity in Jin John and other human rights abuses.
Speaker 1: The White House Press Secretary Jen Saki said that the
Speaker 1: administration would be backing Team USA, albeit from a pretty
Speaker 1: big distance. This is hardly the first time that we've
Speaker 1: seen the Olympics used as a lever in geopolitics, going
Speaker 1: all the way back to the nine Olympics in Moscow,
Speaker 1: when President Jimmy Carter didn't just keep American officials away,
Speaker 1: he kept US athletes from competing after Russia invaded Afghanistan.
Speaker 1: I can't say at this moment, but other nations will
Speaker 1: not go to the Summer Olympics in Moscow, hours will
Speaker 1: not go, and the effect well, Russian troops stayed in
Speaker 1: Afghanistan for another nine years. But what might hurt more
Speaker 1: than the loss of a few officials up in the
Speaker 1: stands at the games might be if corporate sponsors pulled
Speaker 1: out their support, something that Richard has of the Council
Speaker 1: and Form Relations has warned about right now in a
Speaker 1: world in which corporations are far more vulnerable uh to
Speaker 1: political pressures from investors and others, I wouldn't be surprised
Speaker 1: if both governments and corporations essentially decided to hold back
Speaker 1: from China, and then there's a threat that China just
Speaker 1: might not get to see some sports at all, as
Speaker 1: in the case of the World Tennis Association, which has
Speaker 1: pulled all of its matches from China out of concern
Speaker 1: over the fate of China's only number one tennis player
Speaker 1: in history, Ms Pung Shwi, after she accused of former
Speaker 1: senior government official of sexual assault and then she disappeared.
Speaker 1: Longtime Olympics official Dick Pound explains all kinds of people
Speaker 1: who are trying to get in touch with her to
Speaker 1: make sure that she was alive and healthy and not
Speaker 1: in captivity and all of those starts of things. But
Speaker 1: if we really want to get China's attention, maybe we're
Speaker 1: better off using sports as a carrot instead of a stick.
Speaker 1: Just remember all the way back in one what happened
Speaker 1: when a simple table tennis match paved the way for
Speaker 1: President Nixon to go to China. And the rest, as
Speaker 1: they say, is history. That does it. For this episode
Speaker 1: of Wall Street Week, I'm David Weston. This is Bloomberg.
Speaker 1: See you next week.