1 00:00:00,560 --> 00:00:03,800 Speaker 1: This is Bloomberg Wall Street Week. We turn our attention 2 00:00:03,880 --> 00:00:07,160 Speaker 1: to the markets this week. U S CPI nevers reinforcing 3 00:00:07,200 --> 00:00:10,680 Speaker 1: concerns about inflation. The financial stories that cheap are worth 4 00:00:10,760 --> 00:00:13,520 Speaker 1: a really different reaction to mark. It's more indications of 5 00:00:13,680 --> 00:00:16,279 Speaker 1: just how hot the U. S. Economy really is. Through 6 00:00:16,280 --> 00:00:19,560 Speaker 1: the eyes of the most influential voices. Larry Summers, the 7 00:00:19,600 --> 00:00:22,520 Speaker 1: former Rikor Secretary, Katherine Keating, CEO of the n Y 8 00:00:22,600 --> 00:00:26,200 Speaker 1: Mallam Sam's l Sharmon and founder of Equatic Group Investment. 9 00:00:26,239 --> 00:00:29,960 Speaker 1: In Bloomberg wool Street Week with David Weston from Bloomberg 10 00:00:30,000 --> 00:00:33,080 Speaker 1: Radio One for the history books, the markets get the 11 00:00:33,120 --> 00:00:37,479 Speaker 1: message about tightening. Finally, Ukraine stalls the mighty Russian military, 12 00:00:37,720 --> 00:00:40,000 Speaker 1: and a black woman takes a big step for the 13 00:00:40,080 --> 00:00:42,760 Speaker 1: seat on the bench of the highest court in the land. 14 00:00:43,440 --> 00:00:47,279 Speaker 1: This is Bloomberg Wall Street Week. I'm David Weston, this 15 00:00:47,320 --> 00:00:50,159 Speaker 1: week's special contributor Larry Summers on being caught between the 16 00:00:50,280 --> 00:00:54,000 Speaker 1: rock of inflation and the hard place of recession. And 17 00:00:54,040 --> 00:00:57,000 Speaker 1: I share very much the Chairman's hope that a soft 18 00:00:57,080 --> 00:00:59,800 Speaker 1: landing is possible, but I don't think it's something we 19 00:01:00,160 --> 00:01:03,560 Speaker 1: count on. And Candice Browning of Bank of America on 20 00:01:03,640 --> 00:01:07,240 Speaker 1: Corporate America coming to terms was zero emissions even in 21 00:01:07,319 --> 00:01:10,800 Speaker 1: a time of war. This really is a movement. I mean, 22 00:01:10,880 --> 00:01:26,720 Speaker 1: I was surprised. We saw a history being made this 23 00:01:26,760 --> 00:01:30,199 Speaker 1: week when Judge Katangi brown Jackson took a giant step 24 00:01:30,240 --> 00:01:34,280 Speaker 1: towards the Supreme Court. US Supreme Court nomine Quatangi brown 25 00:01:34,400 --> 00:01:37,280 Speaker 1: Jackson is set for questioning by a Senate committee. She's 26 00:01:37,280 --> 00:01:40,160 Speaker 1: told the panel she's an independent thinker who decides cases 27 00:01:40,319 --> 00:01:43,920 Speaker 1: from a neutral posture. Now there may be some who claim, 28 00:01:43,920 --> 00:01:46,560 Speaker 1: without a shred of evidence, that you will be a 29 00:01:46,640 --> 00:01:49,880 Speaker 1: rubber stand for this President. I have four words. Look 30 00:01:50,120 --> 00:01:53,560 Speaker 1: at the record. I interpret and apply the law to 31 00:01:53,880 --> 00:01:57,920 Speaker 1: the facts of the case before me, without fear or favor, 32 00:01:58,680 --> 00:02:03,800 Speaker 1: consistent with my judicial oaks. President Biden traveled to Europe 33 00:02:03,800 --> 00:02:07,160 Speaker 1: and support of the Coalition or raid against Russia. President 34 00:02:07,200 --> 00:02:11,040 Speaker 1: Biden fielding questions from the media. They're talking about saying 35 00:02:11,120 --> 00:02:14,320 Speaker 1: united with Western leaders. Do you think that Russia needs 36 00:02:14,320 --> 00:02:17,360 Speaker 1: to be removed from the G twenty On a latter point, 37 00:02:17,480 --> 00:02:20,200 Speaker 1: my answer is yes. If that can't be done, then 38 00:02:20,240 --> 00:02:25,280 Speaker 1: we should ask to have both Ukraine be able to 39 00:02:25,320 --> 00:02:30,760 Speaker 1: attend the meetings as Russian forces stalled in Ukraine. Ukrainian 40 00:02:30,760 --> 00:02:34,640 Speaker 1: forces have essentially stole the Russian advance at Moscow's awards 41 00:02:34,639 --> 00:02:37,760 Speaker 1: on diplomacy are not really being matched by actions on 42 00:02:37,800 --> 00:02:41,040 Speaker 1: the grounds. Ceasefire is not to way out as a 43 00:02:41,080 --> 00:02:45,680 Speaker 1: way out is immediate withdrawal of those of Russian troops 44 00:02:45,680 --> 00:02:48,359 Speaker 1: from Ukrainian territory, so it's not as a way out. 45 00:02:48,840 --> 00:02:52,320 Speaker 1: Fetcher J. Pow finally got his message through to the markets. 46 00:02:53,040 --> 00:02:56,799 Speaker 1: What would prevent you from doing a fifty basis point move? 47 00:02:57,080 --> 00:03:04,080 Speaker 1: In my what would prevent us nothing? The story has 48 00:03:04,160 --> 00:03:05,919 Speaker 1: changed in a big way in the first quarter a 49 00:03:06,000 --> 00:03:08,200 Speaker 1: t This is not the year people were looking for 50 00:03:08,360 --> 00:03:10,680 Speaker 1: just three months ago. If someone had told all of us, 51 00:03:10,720 --> 00:03:13,400 Speaker 1: everyone that watches the market that the Fed would be 52 00:03:13,440 --> 00:03:17,680 Speaker 1: aggressively hawkish, I think we'd all be surprised. And if 53 00:03:17,720 --> 00:03:19,720 Speaker 1: you had any doubt at all that the bond markets 54 00:03:19,760 --> 00:03:21,560 Speaker 1: got that message, just take a look at the ten 55 00:03:21,639 --> 00:03:24,440 Speaker 1: year this week, having its worst week since two sixteen, 56 00:03:24,440 --> 00:03:27,119 Speaker 1: winding up on Friday just at TAD under two point 57 00:03:27,200 --> 00:03:29,760 Speaker 1: five pc. Not to be outdone, the two year was 58 00:03:29,800 --> 00:03:31,640 Speaker 1: down more in a week than it had been since 59 00:03:31,680 --> 00:03:34,080 Speaker 1: two thousand and eight. And adding to the risk on 60 00:03:34,160 --> 00:03:37,160 Speaker 1: sentiment where the equities markets where the SMP five hundred 61 00:03:37,200 --> 00:03:40,160 Speaker 1: in NASDAC were both up just under two percent, while 62 00:03:40,240 --> 00:03:43,360 Speaker 1: that faithful safe haven currency in the Japanese yen, had 63 00:03:43,360 --> 00:03:47,240 Speaker 1: its worst week and over two years. Welcome now our experts, 64 00:03:47,320 --> 00:03:50,040 Speaker 1: Chris Alman, c i O of the California State Teachers 65 00:03:50,080 --> 00:03:53,600 Speaker 1: Retirement System and the c i O of Nowvine, Sarah Malic. So, Sarah, 66 00:03:53,760 --> 00:03:56,400 Speaker 1: first of all, congratulations, I've becoming c i O. I 67 00:03:56,400 --> 00:03:58,080 Speaker 1: think it's the first time since you've been back on 68 00:03:58,320 --> 00:04:00,880 Speaker 1: Wall Street. That's great to see. Let's talk about this 69 00:04:01,160 --> 00:04:05,320 Speaker 1: relatively risk on week we saw this week. Uh, what 70 00:04:05,360 --> 00:04:07,080 Speaker 1: do you make of it? Given the fact that we 71 00:04:07,120 --> 00:04:10,400 Speaker 1: are at war, well the fence trying to create a 72 00:04:10,440 --> 00:04:14,600 Speaker 1: Goldilock scenario by engineering a soft landing, The equity markets 73 00:04:14,600 --> 00:04:17,080 Speaker 1: are buying in and the bond markets aren't. We're watching 74 00:04:17,160 --> 00:04:19,720 Speaker 1: three key things to monitor whether we're going to get 75 00:04:19,760 --> 00:04:22,599 Speaker 1: to that, and that is the FED movements, inflation, and 76 00:04:22,640 --> 00:04:26,000 Speaker 1: geopolitical issues. Uh. The equity markets like what the Feds 77 00:04:26,040 --> 00:04:29,040 Speaker 1: said in terms of becoming more hawkish because they're catching 78 00:04:29,160 --> 00:04:32,240 Speaker 1: up to what's going on with inflation, getting more credibility 79 00:04:32,240 --> 00:04:34,960 Speaker 1: around that battle. The equity markets like it because it 80 00:04:35,000 --> 00:04:37,719 Speaker 1: means we won't have runaway inflation. Now, when it comes 81 00:04:37,760 --> 00:04:41,200 Speaker 1: to inflation, the key question is can economic growth be 82 00:04:41,240 --> 00:04:45,600 Speaker 1: strong enough to overcome inflation. We think it can. Geopolitical 83 00:04:45,680 --> 00:04:48,560 Speaker 1: risks are here to stay with Russia, though we see 84 00:04:48,560 --> 00:04:51,800 Speaker 1: overall impact on global growth as moderate, but areas that 85 00:04:51,800 --> 00:04:55,240 Speaker 1: we're monitoring, our financial channels, commodities, and the impact on 86 00:04:55,320 --> 00:04:58,440 Speaker 1: the European Union. All of that together still leaves us 87 00:04:58,480 --> 00:05:02,120 Speaker 1: moderately bullish for the year. So Chris Sarah says the 88 00:05:02,240 --> 00:05:05,640 Speaker 1: effect on the markets will be relatively moderate from the war. 89 00:05:05,800 --> 00:05:07,760 Speaker 1: The war is not going the way we thought it would. 90 00:05:07,800 --> 00:05:09,599 Speaker 1: We thought it would over quickly one way or the other. 91 00:05:09,680 --> 00:05:13,880 Speaker 1: It isn't. Are you more concerned about long term consequences exactly, 92 00:05:13,960 --> 00:05:16,279 Speaker 1: David Sarah, I would have to say, I think the 93 00:05:16,320 --> 00:05:18,839 Speaker 1: markets actually have their heads stuck in the sand. The 94 00:05:18,880 --> 00:05:22,240 Speaker 1: bond market, they're awake and they're paying attention. I mean, 95 00:05:22,279 --> 00:05:26,640 Speaker 1: if David, as you said, two's are back to eight, Uh, 96 00:05:26,800 --> 00:05:30,200 Speaker 1: there's a thirty basis point spread between two's and thirties. 97 00:05:30,520 --> 00:05:32,560 Speaker 1: That tells me the thirty year bond knows it's going 98 00:05:32,600 --> 00:05:34,840 Speaker 1: to be a flight to quality because it's a safe 99 00:05:34,880 --> 00:05:37,640 Speaker 1: haven in a war, which is the word you started 100 00:05:37,640 --> 00:05:42,240 Speaker 1: with this equity markets shouldn't be rising. They go up 101 00:05:42,279 --> 00:05:44,720 Speaker 1: at the beginning of inflation, and Sarah, I give you that, 102 00:05:44,760 --> 00:05:46,720 Speaker 1: but I think long term, the bond markets got this 103 00:05:46,839 --> 00:05:49,640 Speaker 1: right and the stock markets got this wrong. It should 104 00:05:49,640 --> 00:05:52,039 Speaker 1: be more cautionary and it should be more worried about 105 00:05:52,080 --> 00:05:55,719 Speaker 1: inflation long term. So Chris, as you imagine and manage 106 00:05:55,760 --> 00:05:58,520 Speaker 1: that really substantial portfolio there at cal Stars, what do 107 00:05:58,560 --> 00:06:00,520 Speaker 1: you look at in the yield curve? Anthing at all. 108 00:06:00,560 --> 00:06:02,600 Speaker 1: We heard from j Powe this week and he said, look, 109 00:06:02,839 --> 00:06:04,599 Speaker 1: oh sure, we pay attention to everything, which is really 110 00:06:04,640 --> 00:06:07,080 Speaker 1: the very very early part of the curve which we 111 00:06:07,279 --> 00:06:11,560 Speaker 1: focus on, not, for example, the two's tens. J can't 112 00:06:11,560 --> 00:06:13,920 Speaker 1: control the twos tends. He can talk it up and 113 00:06:13,960 --> 00:06:16,560 Speaker 1: he can job on it. You guys have a wonderful 114 00:06:16,600 --> 00:06:19,600 Speaker 1: montage of a whole bunch of Fed governors who all 115 00:06:19,600 --> 00:06:22,320 Speaker 1: talk about the next meeting that not only is fifty 116 00:06:22,360 --> 00:06:24,279 Speaker 1: basis points not off the table. I think one of 117 00:06:24,279 --> 00:06:26,880 Speaker 1: them at the end says, could be zero, it could 118 00:06:26,880 --> 00:06:29,880 Speaker 1: be could be fifty, could be a point. I just 119 00:06:29,920 --> 00:06:32,839 Speaker 1: think we have to recognize for an a rising rate environment. 120 00:06:33,440 --> 00:06:36,440 Speaker 1: Sarah's right, it's the beginning. Bond stocks do quite well 121 00:06:36,440 --> 00:06:39,080 Speaker 1: at the beginning of inflation period. But this is not 122 00:06:39,200 --> 00:06:42,960 Speaker 1: going to go away. This isn't remember transitory, it's not transitory. 123 00:06:43,000 --> 00:06:46,240 Speaker 1: Inflation is going to be around, and this war impact 124 00:06:46,440 --> 00:06:49,400 Speaker 1: is going to be felt. Sarah Malic a movie and 125 00:06:49,480 --> 00:06:51,600 Speaker 1: Chris element of Colchus will be staying with us as 126 00:06:51,600 --> 00:06:53,479 Speaker 1: we turned from the economy and the Fed to what 127 00:06:53,520 --> 00:06:56,400 Speaker 1: a portfolio manager is to do about them. That's gonna 128 00:06:56,440 --> 00:06:59,440 Speaker 1: have next on Wall Street Week on Bloomberg. Still with 129 00:06:59,520 --> 00:07:02,560 Speaker 1: us a Chris Ailment of Counselors and Sara Malic of Nowvines. 130 00:07:02,560 --> 00:07:04,320 Speaker 1: So we've talked about the economy, We've talked about the FED, 131 00:07:04,360 --> 00:07:06,240 Speaker 1: We've talked about inflation. Let's talk about what that means 132 00:07:06,240 --> 00:07:08,960 Speaker 1: for a portfolio manager. Chris. Let's start with you, because 133 00:07:09,000 --> 00:07:11,360 Speaker 1: I think of you particularly when we talk about inflation, 134 00:07:11,400 --> 00:07:13,520 Speaker 1: because you've had a lot of pensions. Are you making 135 00:07:13,600 --> 00:07:16,080 Speaker 1: enough money right now? Stocks are down this year, bonds 136 00:07:16,120 --> 00:07:17,760 Speaker 1: are down this year. Are you making enough money to 137 00:07:17,800 --> 00:07:21,120 Speaker 1: pay those pensions well? When you're looking at it on 138 00:07:21,120 --> 00:07:23,600 Speaker 1: an average, not on a one year period, David, No, 139 00:07:23,800 --> 00:07:26,160 Speaker 1: and markets behind us. So we're having a tough time, 140 00:07:26,560 --> 00:07:29,480 Speaker 1: but we do invest in longer term assets. Real estate 141 00:07:29,520 --> 00:07:33,040 Speaker 1: has held its value. Private equity has done really well, 142 00:07:33,200 --> 00:07:35,840 Speaker 1: mostly because of the technology and the medical booms that 143 00:07:35,880 --> 00:07:38,640 Speaker 1: we've seen this year. But then we also invest in 144 00:07:38,640 --> 00:07:43,160 Speaker 1: inflation sensitive assets. We've got uh Timberland, we've had agriculture, 145 00:07:43,200 --> 00:07:45,880 Speaker 1: we've got commodities which have been up over twenty nine 146 00:07:46,400 --> 00:07:50,760 Speaker 1: so far this year. So the key is diversification. We 147 00:07:50,800 --> 00:07:52,800 Speaker 1: don't put all our money in one basket. We don't 148 00:07:52,840 --> 00:07:55,720 Speaker 1: put it all in domestic stocks. We spread it across 149 00:07:55,760 --> 00:07:58,360 Speaker 1: in a number of different asset classes. That way that 150 00:07:58,480 --> 00:08:01,200 Speaker 1: we can weather years like this and then also make 151 00:08:01,240 --> 00:08:04,640 Speaker 1: money in the positive years. So, Sarah, how do you 152 00:08:04,680 --> 00:08:07,160 Speaker 1: manage in this environment? Certain there's a lot of volatility 153 00:08:07,160 --> 00:08:09,200 Speaker 1: out there, a lot of uncertainty. I've read a number 154 00:08:09,200 --> 00:08:10,560 Speaker 1: of analysts who say, you know, you've got to get 155 00:08:10,560 --> 00:08:12,760 Speaker 1: conservative right now. You know, a large cap you want 156 00:08:12,760 --> 00:08:14,560 Speaker 1: to start wars and start small cap. You want to 157 00:08:14,560 --> 00:08:18,680 Speaker 1: go value rather than growth. Now we also go public 158 00:08:18,720 --> 00:08:21,960 Speaker 1: surprivates at New venes. So in an inflationary environment, we 159 00:08:22,040 --> 00:08:25,280 Speaker 1: like equities, we like commodities and also real assets and 160 00:08:25,320 --> 00:08:28,520 Speaker 1: within equities, and we're being selective, but you know, companies 161 00:08:28,520 --> 00:08:30,960 Speaker 1: with pricing power. We are seeing that from energy, which 162 00:08:30,960 --> 00:08:34,160 Speaker 1: has a very tight cycle and producer discipline, which is 163 00:08:34,240 --> 00:08:37,120 Speaker 1: very important that the producers are not just pulling just 164 00:08:37,160 --> 00:08:40,000 Speaker 1: focusing on volume growth, they're returning cash to shareholders. And 165 00:08:40,000 --> 00:08:42,320 Speaker 1: then we like large caps largely have growth stocks really 166 00:08:42,360 --> 00:08:45,800 Speaker 1: beaten down this year. Economically resilient. These are companies like 167 00:08:45,960 --> 00:08:48,160 Speaker 1: you know, a bell Weather sooft like Microsoft, which has 168 00:08:48,480 --> 00:08:52,120 Speaker 1: such strong growth characteristics going forward, exposure to we view 169 00:08:52,120 --> 00:08:55,080 Speaker 1: as the next digital revolution, which is the metaverse um. 170 00:08:55,120 --> 00:08:57,360 Speaker 1: And then also within fixed income, it is challenging that 171 00:08:57,400 --> 00:08:59,440 Speaker 1: there's areas that you can look at where you can 172 00:08:59,480 --> 00:09:03,439 Speaker 1: find quality or also higher yields like emerging market debt, 173 00:09:03,720 --> 00:09:06,920 Speaker 1: floating rate loans, and we're definitely airring on the shorter 174 00:09:07,000 --> 00:09:09,160 Speaker 1: duration side with fixed income given what's going on with 175 00:09:09,240 --> 00:09:12,960 Speaker 1: infest rates. Sarah with a big grosstalk like Microsoft, are 176 00:09:12,960 --> 00:09:16,360 Speaker 1: you not worried about it's fully valued? You know, the 177 00:09:16,400 --> 00:09:19,040 Speaker 1: growth stocks are actually pretty beaten down this year. Considering 178 00:09:19,040 --> 00:09:22,000 Speaker 1: their structural growth ways, we found them to be quite interesting. 179 00:09:22,040 --> 00:09:25,080 Speaker 1: Another name that we like in technology is applied materials, 180 00:09:25,080 --> 00:09:28,040 Speaker 1: where fans of the semi conductor cycle semis are getting 181 00:09:28,200 --> 00:09:32,440 Speaker 1: larger and more complex, they require more equipment. Applied Materials 182 00:09:32,480 --> 00:09:34,960 Speaker 1: is in the sweet spot of t SMC and Intel, 183 00:09:35,040 --> 00:09:37,199 Speaker 1: two of the biggest foundries, a lot of demand for 184 00:09:37,240 --> 00:09:39,520 Speaker 1: their products, and we think that's so very well position 185 00:09:39,600 --> 00:09:43,520 Speaker 1: company going forward. Chris tell us about bonds in this 186 00:09:43,640 --> 00:09:45,880 Speaker 1: environment with rates going up, why does it make sense 187 00:09:45,880 --> 00:09:49,600 Speaker 1: to be in bonds at all? Good challenge, But I think, 188 00:09:49,679 --> 00:09:51,560 Speaker 1: just like Sarah said, we're looking at the short end. 189 00:09:51,880 --> 00:09:54,840 Speaker 1: We're looking at private credit, which is variable rates, so 190 00:09:54,880 --> 00:09:57,720 Speaker 1: we have opportunities to invest there. There's still a few 191 00:09:57,760 --> 00:10:01,280 Speaker 1: credit opportunities, but it's a challenge. We have the lowest 192 00:10:01,360 --> 00:10:04,560 Speaker 1: waiting in fixed income that we've had in the history 193 00:10:04,559 --> 00:10:07,520 Speaker 1: of cal Star's uh So it's a challenging environment. And 194 00:10:07,559 --> 00:10:09,800 Speaker 1: if you're in a four oh win K investor, it's 195 00:10:09,800 --> 00:10:12,280 Speaker 1: really hard because all you really have is stocks and bonds. 196 00:10:12,320 --> 00:10:14,680 Speaker 1: You don't have a lot of chances. Maybe if you 197 00:10:14,760 --> 00:10:17,920 Speaker 1: have a real asset option in your four oh one K, 198 00:10:18,160 --> 00:10:20,760 Speaker 1: take advantage of that, but you've got to open your account, 199 00:10:20,880 --> 00:10:24,480 Speaker 1: take a look at it and diversify across. As I 200 00:10:24,520 --> 00:10:27,240 Speaker 1: said at the at the earlier segment, David, I think 201 00:10:27,320 --> 00:10:30,440 Speaker 1: that you know, the Feds making it clear they're raising rates. 202 00:10:30,480 --> 00:10:33,600 Speaker 1: Sarah said it herself seven more times already this year, 203 00:10:33,920 --> 00:10:39,080 Speaker 1: and maybe more so that that to thirty uh two 204 00:10:39,160 --> 00:10:42,400 Speaker 1: year is gonna go higher, and that's gonna work against you. 205 00:10:42,440 --> 00:10:44,520 Speaker 1: I mean, so far you have a negative eleven percent 206 00:10:44,559 --> 00:10:47,720 Speaker 1: return in bonds this year. That's a tough way to go. 207 00:10:47,920 --> 00:10:50,679 Speaker 1: So you've got a diverse fy away into other types 208 00:10:50,720 --> 00:10:53,920 Speaker 1: of assets, Sarah, as you manage your portfolio. We just 209 00:10:53,960 --> 00:10:56,520 Speaker 1: heard from of course and seven times. Actually a city 210 00:10:56,600 --> 00:10:58,880 Speaker 1: came out on Friday of this week and said eight times, 211 00:10:59,440 --> 00:11:01,520 Speaker 1: can don't even stand that. I guess the reason I 212 00:11:01,559 --> 00:11:03,360 Speaker 1: asked that as a portfolio manager, do you have to 213 00:11:03,360 --> 00:11:06,760 Speaker 1: be hedging against the possibility recession? Actually, well, if you 214 00:11:06,760 --> 00:11:09,040 Speaker 1: look at the last couple of cycles, the Fed, the 215 00:11:09,240 --> 00:11:12,280 Speaker 1: equity markets peaked in around nine to fourteen rate hikes, 216 00:11:12,320 --> 00:11:15,120 Speaker 1: So I think you know, we can handle multiple rate hikes. 217 00:11:15,559 --> 00:11:17,280 Speaker 1: One question for us, as though, it has to make 218 00:11:17,280 --> 00:11:20,200 Speaker 1: a dent in inflation or we're going to have other problems. 219 00:11:20,480 --> 00:11:22,320 Speaker 1: You know, we have to watch the hard economic data. 220 00:11:22,320 --> 00:11:23,960 Speaker 1: I think the FED is doing the same thing. They've 221 00:11:24,000 --> 00:11:27,520 Speaker 1: said their data dependent. Can the economic data hold up 222 00:11:27,640 --> 00:11:29,760 Speaker 1: during all of these rate hikes. I think initially we're 223 00:11:29,760 --> 00:11:32,920 Speaker 1: seeing signs that it can, because sag inflation is a 224 00:11:32,920 --> 00:11:36,600 Speaker 1: period where we have low employment and lower economic growth, 225 00:11:36,640 --> 00:11:38,480 Speaker 1: and we're just not really seeing that yet. We still 226 00:11:38,520 --> 00:11:40,960 Speaker 1: have a very strong economy here, and so you know, 227 00:11:41,040 --> 00:11:43,120 Speaker 1: we are not initially worried about these rate hikes. As 228 00:11:43,120 --> 00:11:45,280 Speaker 1: I said earlier, we want to be careful about leaving 229 00:11:45,280 --> 00:11:47,760 Speaker 1: to money on the table in the early cycles of 230 00:11:47,840 --> 00:11:50,480 Speaker 1: rate hikes, and just because the yield curve is inverting 231 00:11:50,640 --> 00:11:54,080 Speaker 1: in certain places, Sarah, you said, the word that keeps 232 00:11:54,080 --> 00:11:56,800 Speaker 1: saying up at night stag inflation, because I worry about 233 00:11:57,360 --> 00:12:01,319 Speaker 1: is that if if the inflation is coming from external 234 00:12:01,360 --> 00:12:05,800 Speaker 1: sources like the war in Ukraine and the lack of fertilizer, 235 00:12:05,920 --> 00:12:09,800 Speaker 1: the lack of we hire prices two wages because people 236 00:12:09,800 --> 00:12:12,360 Speaker 1: are demanding it before they go back to work, that 237 00:12:12,480 --> 00:12:14,559 Speaker 1: makes me worry that that economic growth is going to 238 00:12:14,640 --> 00:12:17,920 Speaker 1: get squashed in this summer. The FED can't fight that 239 00:12:18,040 --> 00:12:21,080 Speaker 1: kind of inflation with just higher rates, and we end up, 240 00:12:21,120 --> 00:12:24,439 Speaker 1: as you said, in stag inflation. I know for my portfolio, 241 00:12:24,600 --> 00:12:27,640 Speaker 1: that's the worst situation of all there. There's almost nothing 242 00:12:27,720 --> 00:12:30,360 Speaker 1: we can find to invest in to make us money 243 00:12:30,520 --> 00:12:33,920 Speaker 1: in a stagflation environment. If you actually look at the 244 00:12:33,960 --> 00:12:37,839 Speaker 1: seventies during the period of stagflation, during the early period, 245 00:12:37,840 --> 00:12:40,160 Speaker 1: it was a very challenging period invest but later on 246 00:12:40,200 --> 00:12:43,680 Speaker 1: actually that was when equities and real assets actually performed 247 00:12:43,679 --> 00:12:46,680 Speaker 1: pretty well. So you can't find period during that cycle. 248 00:12:46,760 --> 00:12:49,400 Speaker 1: You can't actually have times where you can make good 249 00:12:49,400 --> 00:12:51,959 Speaker 1: returns on your investments. Um. So, I mean, I agree 250 00:12:51,960 --> 00:12:54,160 Speaker 1: it's a concern out there, but it's not something that 251 00:12:54,679 --> 00:12:57,320 Speaker 1: we're worried about right now. Also, within inflation, I think 252 00:12:57,320 --> 00:12:59,599 Speaker 1: the FED seeing the same thing where there's noise in 253 00:12:59,640 --> 00:13:02,840 Speaker 1: those umbers from tier supply chains to the war that 254 00:13:02,880 --> 00:13:05,320 Speaker 1: we're seeing these things that are not necessary, things that 255 00:13:05,320 --> 00:13:07,319 Speaker 1: are going to remain permanently. So what is that true 256 00:13:07,320 --> 00:13:09,920 Speaker 1: baseline inflation number one? We're through this, That's what you 257 00:13:09,960 --> 00:13:11,600 Speaker 1: know we're not clear on. I don't think the fet 258 00:13:11,679 --> 00:13:14,160 Speaker 1: is yet and they have the ability to pull back 259 00:13:14,200 --> 00:13:16,600 Speaker 1: on rate increases. Um. Once we start to see what 260 00:13:16,640 --> 00:13:20,120 Speaker 1: inflation really looks like, we're passing of these unusual currencies 261 00:13:20,160 --> 00:13:23,520 Speaker 1: that are happening. True, Christal, wrap up this investment cycle. 262 00:13:23,559 --> 00:13:25,640 Speaker 1: Let's talk about that you referred to earlier, and that 263 00:13:25,800 --> 00:13:29,960 Speaker 1: is the energy transition. What effect, if any, will the 264 00:13:30,000 --> 00:13:32,320 Speaker 1: war Ukraine have on that? Because we saw just this week, 265 00:13:32,520 --> 00:13:34,480 Speaker 1: for example, the United States now commit to a huge 266 00:13:34,600 --> 00:13:37,400 Speaker 1: new supply of l n G. Look with natural gas 267 00:13:37,600 --> 00:13:40,400 Speaker 1: to Europe. What's going to happen in the energy transition 268 00:13:40,440 --> 00:13:44,480 Speaker 1: in this world? David, it's fronduct to light that it's 269 00:13:44,520 --> 00:13:46,840 Speaker 1: not going to be smooth, that it is going to 270 00:13:46,920 --> 00:13:49,840 Speaker 1: be a difficult transition. I get a ton of pressure 271 00:13:49,880 --> 00:13:53,160 Speaker 1: from teachers that want us to dump US oil companies, 272 00:13:53,520 --> 00:13:56,000 Speaker 1: and now maybe they realize that, well, we don't want 273 00:13:56,000 --> 00:13:59,319 Speaker 1: to be dependent on Russia and Saudi Arabia and Venezuela. 274 00:13:59,679 --> 00:14:04,720 Speaker 1: It needs to be a transition where consumers change, utilities changed. 275 00:14:04,760 --> 00:14:06,400 Speaker 1: You know, the number one thing is how we generate 276 00:14:06,440 --> 00:14:10,160 Speaker 1: electricity first and foremost. So we've got to find ways 277 00:14:10,200 --> 00:14:13,400 Speaker 1: to have a thoughtful transition. And we don't want to 278 00:14:13,400 --> 00:14:17,400 Speaker 1: be geopolitically linked to one economy or one type of fuel. 279 00:14:17,400 --> 00:14:20,600 Speaker 1: We want to be diversified. And so you know, we've 280 00:14:20,800 --> 00:14:23,520 Speaker 1: we've got time of twenty years, but it has to 281 00:14:23,600 --> 00:14:26,760 Speaker 1: start now and it has to be meaningful. Thank you 282 00:14:26,880 --> 00:14:28,840 Speaker 1: so very much for both of you. That's Sarah Malic 283 00:14:28,960 --> 00:14:31,560 Speaker 1: of Nouvena and Chris Ellman of Calster. Is great to 284 00:14:31,600 --> 00:14:36,080 Speaker 1: have you both with us coming up. The SEC wants 285 00:14:36,080 --> 00:14:39,880 Speaker 1: companies to disclose their greenhouse gas emissions, but what are 286 00:14:39,920 --> 00:14:43,320 Speaker 1: they already doing to get to net zero? Bank of 287 00:14:43,360 --> 00:14:45,720 Speaker 1: America has done the survey, and its head of research, 288 00:14:45,840 --> 00:14:48,840 Speaker 1: Candice Browning, is here with the report. That's next on 289 00:14:48,880 --> 00:14:54,280 Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street 290 00:14:54,320 --> 00:15:01,320 Speaker 1: Week with David Weston from Bloomberg Radio. Getting to zero, 291 00:15:01,760 --> 00:15:06,120 Speaker 1: that's the goal that countries representing of greenhouse emissions and 292 00:15:07,240 --> 00:15:10,600 Speaker 1: g d P have set for themselves. Making progress all 293 00:15:10,640 --> 00:15:15,600 Speaker 1: but inevitable. That's according to President Biden's Climate Envoy, John Kerry. 294 00:15:15,760 --> 00:15:19,080 Speaker 1: No president in the future would walk into the White 295 00:15:19,080 --> 00:15:22,600 Speaker 1: House and undo what is going on around the world. 296 00:15:24,080 --> 00:15:27,080 Speaker 1: This is bigger than the United States. What is this response? 297 00:15:27,760 --> 00:15:30,800 Speaker 1: People all around the world are retooling, and corporations are 298 00:15:30,880 --> 00:15:34,120 Speaker 1: quickly signing up to do their part. Like VP CEO 299 00:15:34,240 --> 00:15:37,880 Speaker 1: Bernard Looney, we will reinvest two pounds more than that 300 00:15:37,960 --> 00:15:41,000 Speaker 1: actually for every pound that we make, and the majority 301 00:15:41,040 --> 00:15:43,760 Speaker 1: of that investment, the vast majority of it will go 302 00:15:43,800 --> 00:15:47,440 Speaker 1: into helping Britain transition to a zero future. This week, 303 00:15:47,560 --> 00:15:51,480 Speaker 1: the SEC gave corporations a nudge, proposing new requirements the 304 00:15:51,520 --> 00:15:55,920 Speaker 1: public and traded companies disclose their greenhouse gas emissions. So 305 00:15:55,960 --> 00:16:03,360 Speaker 1: now it appears there's no turning back. Before we go 306 00:16:03,440 --> 00:16:05,880 Speaker 1: forward into a zero emissions world, we have to know 307 00:16:05,920 --> 00:16:08,480 Speaker 1: where we are right now, and particularly where companies are 308 00:16:08,600 --> 00:16:12,000 Speaker 1: and really being committed to zero emissions. To find that out, 309 00:16:12,000 --> 00:16:13,800 Speaker 1: Bank of America has done a compremis of survey of 310 00:16:13,880 --> 00:16:16,400 Speaker 1: thirty four hundred different companies around the world, and here 311 00:16:16,520 --> 00:16:19,440 Speaker 1: tell us about what she found out. Were welcome Candice Browning. 312 00:16:19,560 --> 00:16:22,480 Speaker 1: She is head of Global Research for Bank of America. 313 00:16:22,560 --> 00:16:24,840 Speaker 1: So Candice, thanks so much for being here. What did 314 00:16:24,880 --> 00:16:28,040 Speaker 1: you learn from your survey? Oh, David, we learned so 315 00:16:28,080 --> 00:16:30,400 Speaker 1: many things. I mean, the first thing we learned is 316 00:16:30,440 --> 00:16:33,400 Speaker 1: that this really is a movement. I mean I was surprised, 317 00:16:33,440 --> 00:16:38,560 Speaker 1: you know, and nineteen about sixteen percent of the world's GDP, 318 00:16:38,880 --> 00:16:41,720 Speaker 1: you know, by country had committed to some sort of 319 00:16:41,800 --> 00:16:46,120 Speaker 1: net zero plan, and today, just three years later, that 320 00:16:46,200 --> 00:16:49,720 Speaker 1: number is nine. And you know, this whole thing was 321 00:16:49,760 --> 00:16:53,960 Speaker 1: really led initially by policymakers, right. But now, what's happened 322 00:16:54,080 --> 00:16:57,080 Speaker 1: is all these other groups have jumped in, whether it's 323 00:16:57,160 --> 00:17:02,760 Speaker 1: active as shareholders, or whether it's consumers who want to buy, 324 00:17:02,960 --> 00:17:05,679 Speaker 1: you know, goods that they think are not don't have 325 00:17:05,760 --> 00:17:09,560 Speaker 1: a huge carbon footprint. Um, so it's all it's in 326 00:17:09,680 --> 00:17:13,240 Speaker 1: its shareholders. They've all jumped in, and everybody wants to 327 00:17:13,280 --> 00:17:15,879 Speaker 1: get on this wagon. So the first big takeaway was 328 00:17:15,920 --> 00:17:18,080 Speaker 1: that you know, it's it's a movement and it's going 329 00:17:18,160 --> 00:17:22,280 Speaker 1: to happen. And I think actually that the events between 330 00:17:22,359 --> 00:17:25,920 Speaker 1: Russia and Ukraine are actually going to further accelerate this 331 00:17:26,080 --> 00:17:30,200 Speaker 1: because Europe you know, has to get off its dependency 332 00:17:30,280 --> 00:17:33,000 Speaker 1: on hydro carbons. How difficult it's going to be. Because 333 00:17:33,040 --> 00:17:35,040 Speaker 1: one of the things I really focused on in reading 334 00:17:35,040 --> 00:17:39,200 Speaker 1: your survey was there are three different categories here of emissions, 335 00:17:39,240 --> 00:17:41,639 Speaker 1: and one of them is your own companies. Another is 336 00:17:41,640 --> 00:17:44,200 Speaker 1: that people supply you. But then there's a third category 337 00:17:44,240 --> 00:17:47,359 Speaker 1: that actually dwarfs the other two. Yeah, Basically, the first 338 00:17:47,400 --> 00:17:49,480 Speaker 1: one is what you use to make your goods and 339 00:17:49,960 --> 00:17:52,560 Speaker 1: services and products, and then the second one is the 340 00:17:53,240 --> 00:17:56,639 Speaker 1: purchased energy, you know, the electricity that you buy. And 341 00:17:56,680 --> 00:18:00,359 Speaker 1: then the third one is the really difficult one to 342 00:18:00,359 --> 00:18:03,600 Speaker 1: to measure, and that is really the carbon footprint of 343 00:18:03,760 --> 00:18:07,399 Speaker 1: all of your suppliers. And it's estimated that that third 344 00:18:07,520 --> 00:18:10,840 Speaker 1: level David is three times as big as level one 345 00:18:10,960 --> 00:18:13,680 Speaker 1: and level two. In doing your survey, did you get 346 00:18:13,680 --> 00:18:16,440 Speaker 1: a sense of timeline for these corporations? If they're committed 347 00:18:16,520 --> 00:18:18,480 Speaker 1: to NED zero, how long is it going to take? 348 00:18:19,040 --> 00:18:21,320 Speaker 1: So what we found is that of the thirty four 349 00:18:21,440 --> 00:18:25,720 Speaker 1: hundred companies that eleven percent of them globally said they're 350 00:18:25,720 --> 00:18:29,800 Speaker 1: going to get there by that's just eight years away. 351 00:18:29,840 --> 00:18:36,280 Speaker 1: That number quadruples by the time of the company said 352 00:18:36,400 --> 00:18:38,880 Speaker 1: that they would be there. And there are also some 353 00:18:39,040 --> 00:18:43,680 Speaker 1: real differences by region. So if you look at Europe, 354 00:18:43,760 --> 00:18:47,800 Speaker 1: for example, they're twenty percent of companies say they're going 355 00:18:47,840 --> 00:18:50,680 Speaker 1: to get there by twenty thirty, so they're far ahead 356 00:18:50,760 --> 00:18:54,040 Speaker 1: of the rest of the world. In China, fully a 357 00:18:54,160 --> 00:18:57,959 Speaker 1: third of companies don't even have a timeline, So there 358 00:18:57,960 --> 00:19:01,880 Speaker 1: are big differences by region. We'll talk about that geographic dispersion. 359 00:19:01,960 --> 00:19:04,240 Speaker 1: I can call it that. You talked about Europe, you 360 00:19:04,359 --> 00:19:06,879 Speaker 1: talked about China. Where's the United States? You know, the 361 00:19:06,920 --> 00:19:10,480 Speaker 1: United States is just solidly right um right in the 362 00:19:10,520 --> 00:19:13,439 Speaker 1: middle there. I think it's about I can't remember the 363 00:19:13,480 --> 00:19:17,119 Speaker 1: exact number for but we're solidly in the middle and 364 00:19:17,200 --> 00:19:22,359 Speaker 1: we've been accelerating our timeline. Okay, we have Wall Street. 365 00:19:22,359 --> 00:19:25,280 Speaker 1: We appeal to investors, try to inform them what's this 366 00:19:25,359 --> 00:19:27,879 Speaker 1: gonna cost, what's this gonna do to revenue on the 367 00:19:27,880 --> 00:19:29,520 Speaker 1: top line on the one hand, what's also going to 368 00:19:29,600 --> 00:19:33,000 Speaker 1: do to the cost line. So what we found is 369 00:19:33,040 --> 00:19:40,040 Speaker 1: that in general, companies analysts expected that revenues would decline 370 00:19:40,080 --> 00:19:45,280 Speaker 1: about five Now that averaged from zero percent to as 371 00:19:45,320 --> 00:19:50,680 Speaker 1: much as fourteen percent um depending on the sector. For example, 372 00:19:50,800 --> 00:19:53,159 Speaker 1: energy companies you would imagine would have one of the 373 00:19:53,160 --> 00:19:57,480 Speaker 1: biggest hits. So we think that there'll be a revenue hit. Interestingly, 374 00:19:57,560 --> 00:19:59,800 Speaker 1: we also think that there's going to be a real 375 00:20:00,080 --> 00:20:05,000 Speaker 1: pick up in research costs, So about one point two 376 00:20:05,040 --> 00:20:08,120 Speaker 1: trillion of R and D will be spent we think 377 00:20:08,160 --> 00:20:12,480 Speaker 1: over the next five years, and capital expenditures we think 378 00:20:12,520 --> 00:20:15,280 Speaker 1: will be about two point four trillion over the next 379 00:20:15,359 --> 00:20:18,679 Speaker 1: five years. So put it together, you've got lower revenues, 380 00:20:18,800 --> 00:20:21,639 Speaker 1: you've got higher costs. It means that you're going to 381 00:20:21,720 --> 00:20:24,400 Speaker 1: have a hit to operating profits, which we think will 382 00:20:24,440 --> 00:20:28,600 Speaker 1: be down about five on average. So that sounds like 383 00:20:28,640 --> 00:20:31,680 Speaker 1: a pretty grim picture, and you know, in the short 384 00:20:31,800 --> 00:20:34,800 Speaker 1: term there definitely will be pain, but there are going 385 00:20:34,840 --> 00:20:37,000 Speaker 1: to be companies that are going to be beneficiaries of 386 00:20:37,040 --> 00:20:39,840 Speaker 1: this as well. Well. It's a fascinating study, is I say. 387 00:20:39,880 --> 00:20:41,480 Speaker 1: I learned a lot from and I really thank you 388 00:20:41,520 --> 00:20:43,520 Speaker 1: for sharing it with us here on Wall Street Week 389 00:20:43,560 --> 00:20:46,800 Speaker 1: as Kenneth Browning, she's head of Global research for Bank 390 00:20:46,840 --> 00:20:51,080 Speaker 1: of America. Coming up, we wrap up the week with 391 00:20:51,119 --> 00:20:54,840 Speaker 1: special contributor Larry Summers of Harvard. This is Wall Street 392 00:20:54,880 --> 00:21:01,159 Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with 393 00:21:01,320 --> 00:21:05,000 Speaker 1: David Weston from Bloomberg Radio, and welcome back now our 394 00:21:05,119 --> 00:21:08,240 Speaker 1: special contributor here at Walster Equal Larry Summers. And Larry, 395 00:21:08,359 --> 00:21:10,199 Speaker 1: you were at least perhaps a little bit in the 396 00:21:10,200 --> 00:21:12,920 Speaker 1: news this week for one specific reason. We heard from 397 00:21:12,920 --> 00:21:16,360 Speaker 1: FED chair J Powell at the NAB meetings down in Washington, 398 00:21:16,680 --> 00:21:18,719 Speaker 1: and he went out of his way to sort of 399 00:21:19,240 --> 00:21:22,720 Speaker 1: correct the record on exactly how aggressive the FRED will be. 400 00:21:22,800 --> 00:21:24,760 Speaker 1: Some people have said he was responding to some of 401 00:21:24,800 --> 00:21:27,480 Speaker 1: your criticisms or what he said last week. We're clearly 402 00:21:27,480 --> 00:21:31,119 Speaker 1: the bond markets didn't listen to him. You know, I 403 00:21:31,119 --> 00:21:33,080 Speaker 1: don't I don't know whether I had anything to do 404 00:21:33,160 --> 00:21:38,880 Speaker 1: with it at all. I think he did signal more hawkishness, 405 00:21:39,000 --> 00:21:41,679 Speaker 1: and I think that was very much warranted given the 406 00:21:41,720 --> 00:21:45,840 Speaker 1: inflation threat. I do think there are a number of 407 00:21:46,600 --> 00:21:51,720 Speaker 1: problems in FED thought where they're advocating and making arguments 408 00:21:51,760 --> 00:21:54,639 Speaker 1: that I don't think really stand up to economic scrutiny. 409 00:21:54,760 --> 00:21:56,879 Speaker 1: So let's take let's go through some of those arguments. 410 00:21:56,880 --> 00:21:58,520 Speaker 1: One of the things I think I heard from the 411 00:21:58,600 --> 00:22:01,879 Speaker 1: chair was, actually, inflation is going to get relieved because 412 00:22:02,000 --> 00:22:04,359 Speaker 1: there will be an expansion in the labor force. It 413 00:22:04,359 --> 00:22:06,800 Speaker 1: will relieve some of the wage pressure that you've talked about. 414 00:22:07,760 --> 00:22:12,120 Speaker 1: You know, an expansion in the labor force matters if 415 00:22:12,119 --> 00:22:17,119 Speaker 1: it changes the supply demand balance in an important way. 416 00:22:17,160 --> 00:22:21,160 Speaker 1: But if the people all work, then it translates into 417 00:22:21,200 --> 00:22:26,040 Speaker 1: more demand, off setting the increase in supply. And the 418 00:22:26,119 --> 00:22:30,119 Speaker 1: FEDS not forecasting any increase in unemployment. So with no 419 00:22:30,280 --> 00:22:34,280 Speaker 1: forecasting increase in unemployment, I don't know why one would 420 00:22:34,280 --> 00:22:37,879 Speaker 1: think that an expanded labor force would somehow be a 421 00:22:37,920 --> 00:22:42,760 Speaker 1: reason why inflation would come down. It would only exert 422 00:22:42,840 --> 00:22:48,000 Speaker 1: restraint on wages if it translated into higher unemployment. Something 423 00:22:48,000 --> 00:22:51,240 Speaker 1: the FED is it pains to predict will not take place. 424 00:22:52,119 --> 00:22:54,160 Speaker 1: That's the second thing that we heard from the chair 425 00:22:54,240 --> 00:22:57,840 Speaker 1: today this week was in fact that they are willing 426 00:22:57,880 --> 00:23:00,439 Speaker 1: to go up to the neutral end, up above the 427 00:23:00,480 --> 00:23:02,720 Speaker 1: neutral rate and the FED funds in order to get 428 00:23:02,760 --> 00:23:05,480 Speaker 1: inflation on control. Is that going to do it? I 429 00:23:05,520 --> 00:23:08,320 Speaker 1: think we have to be careful with that. Uh. In 430 00:23:08,320 --> 00:23:11,920 Speaker 1: a sense, I think the Fed is doing assumer can 431 00:23:11,960 --> 00:23:17,120 Speaker 1: opener economics, after the old joke about the economists when 432 00:23:17,160 --> 00:23:20,520 Speaker 1: asked how to how to get into a tuna fish 433 00:23:20,600 --> 00:23:25,440 Speaker 1: can UH says, assume we have a can opener. That 434 00:23:26,560 --> 00:23:31,000 Speaker 1: reality is that the neutral interest rate is a real 435 00:23:31,080 --> 00:23:35,440 Speaker 1: interest rate concept. It reflects the difference between the interest 436 00:23:35,640 --> 00:23:40,320 Speaker 1: rate and inflation. What the FEDS doing is assuming their 437 00:23:40,359 --> 00:23:44,200 Speaker 1: own success with respect to inflation that it comes down 438 00:23:44,240 --> 00:23:48,120 Speaker 1: to about two, and then saying that their interest rate 439 00:23:48,200 --> 00:23:52,280 Speaker 1: forecast will represent a positive real interest rate and will 440 00:23:52,320 --> 00:23:55,920 Speaker 1: correspond to their neutral interest rate. But it all depends 441 00:23:56,000 --> 00:24:02,040 Speaker 1: on assuming their success. Markets are saying that real interest 442 00:24:02,119 --> 00:24:06,239 Speaker 1: rates aren't getting anywhere near the FEDS estimate of the 443 00:24:06,240 --> 00:24:11,400 Speaker 1: neutral real interest rate anytime in the next UH five years, 444 00:24:11,480 --> 00:24:15,000 Speaker 1: and certainly that's what most professional forecasters are saying in 445 00:24:15,119 --> 00:24:21,320 Speaker 1: terms of their views about inflation. So I don't think 446 00:24:21,359 --> 00:24:26,600 Speaker 1: we're seeing the kind of increase in interest rates that's 447 00:24:26,720 --> 00:24:32,240 Speaker 1: usually necessary to go for UH inflation. I don't agree 448 00:24:32,400 --> 00:24:37,359 Speaker 1: with Republican economist John Taylor on not many things, but 449 00:24:37,800 --> 00:24:42,240 Speaker 1: his Taylor principle that to stop inflation you have to 450 00:24:42,359 --> 00:24:46,840 Speaker 1: raise interest rates by more than inflation goes up, because 451 00:24:46,840 --> 00:24:50,399 Speaker 1: otherwise the real interest rate is coming down. That's a 452 00:24:50,480 --> 00:24:54,080 Speaker 1: valid principle, but not one that's yet been internalized in 453 00:24:54,119 --> 00:24:57,639 Speaker 1: the FEDS forecasts. The third thing that we heard from 454 00:24:57,640 --> 00:24:59,800 Speaker 1: the chair this week was he admitted, I think that 455 00:24:59,840 --> 00:25:01,639 Speaker 1: it it's going to be difficult to have a soft landed. 456 00:25:01,720 --> 00:25:04,000 Speaker 1: He nonetheless, it's confident it can be done, in part 457 00:25:04,040 --> 00:25:06,520 Speaker 1: because it's been done before. There are at least three 458 00:25:06,560 --> 00:25:12,120 Speaker 1: other instances people are pointing to, right, I don't see 459 00:25:12,119 --> 00:25:17,000 Speaker 1: how anybody can regard those as very relevant precedents. And 460 00:25:17,119 --> 00:25:21,280 Speaker 1: none of them was the CPI at anything like eight 461 00:25:22,720 --> 00:25:25,760 Speaker 1: when the episodes started. In none of them was the 462 00:25:25,840 --> 00:25:30,200 Speaker 1: unemployment rate or the vacancy to unemployment rate in historically 463 00:25:30,280 --> 00:25:34,520 Speaker 1: tight labor market territory. And in all of them, the 464 00:25:34,560 --> 00:25:39,040 Speaker 1: whole point by the FED was preemptive action to restraint, 465 00:25:39,760 --> 00:25:46,560 Speaker 1: and that's what this FED ruled out in its operating framework. So, Larry, 466 00:25:46,560 --> 00:25:48,600 Speaker 1: are you confident that we know what it will take 467 00:25:48,640 --> 00:25:50,880 Speaker 1: to get inflation down at this point? Are no important? 468 00:25:50,920 --> 00:25:55,160 Speaker 1: Does the FED now? Look? Nobody knows? I certainly don't. 469 00:25:55,320 --> 00:25:59,680 Speaker 1: I don't think the Fed knows. I do think that 470 00:26:00,160 --> 00:26:06,280 Speaker 1: it's likely to require significantly greater interest rate hikes than 471 00:26:06,440 --> 00:26:11,119 Speaker 1: the Fed or markets are now except expecting. And I 472 00:26:11,160 --> 00:26:15,680 Speaker 1: do think that we need clear signals that we're prepared 473 00:26:15,720 --> 00:26:20,240 Speaker 1: to accept some slowdown in economic activity if that's the 474 00:26:20,320 --> 00:26:24,240 Speaker 1: price of reducing inflation. Otherwise we're going to be making 475 00:26:24,280 --> 00:26:28,720 Speaker 1: the mistakes of the nineteen seventies that will ultimately create 476 00:26:28,880 --> 00:26:33,399 Speaker 1: a need for a really catastrophic procession. I think that 477 00:26:33,440 --> 00:26:37,040 Speaker 1: can be avoided, but it can't be avoided if we're 478 00:26:37,440 --> 00:26:42,240 Speaker 1: counting on some kind of immaculate reversion of inflation or 479 00:26:42,280 --> 00:26:46,840 Speaker 1: immaculate disinflation. Larry, as we speak, that horrific war in 480 00:26:46,960 --> 00:26:49,639 Speaker 1: Ukraine continues, and of course we're all fixated on the 481 00:26:49,680 --> 00:26:52,760 Speaker 1: death and destruction, but they're also economic consequences. What do 482 00:26:52,800 --> 00:26:56,280 Speaker 1: you see as potential longer range global economic consequence of 483 00:26:56,320 --> 00:27:02,040 Speaker 1: what we're seeing? I fear and it's too early to know, 484 00:27:02,440 --> 00:27:05,040 Speaker 1: and we may will never get the data to do 485 00:27:05,080 --> 00:27:09,960 Speaker 1: a really accurate measurement. But my fear is that there's 486 00:27:10,000 --> 00:27:14,360 Speaker 1: going to be more death thousands of miles from Ukraine 487 00:27:15,160 --> 00:27:20,399 Speaker 1: because of the food price hikes, food shortages and potential 488 00:27:20,480 --> 00:27:25,880 Speaker 1: famines that are associated with UH, the loss of crop 489 00:27:26,400 --> 00:27:29,919 Speaker 1: in Ukraine and Russia, that that will ultimately be the 490 00:27:30,000 --> 00:27:36,359 Speaker 1: cause of more death than what happens in Ukraine. That, 491 00:27:36,520 --> 00:27:39,680 Speaker 1: of course, is not to minimize the tragedy in Ukraine, 492 00:27:40,240 --> 00:27:44,359 Speaker 1: but it is to point up the need for the 493 00:27:44,440 --> 00:27:48,320 Speaker 1: world community to be focusing even on it as it 494 00:27:48,400 --> 00:27:52,840 Speaker 1: focuses on Ukraine, to be focusing on the needs of 495 00:27:53,040 --> 00:27:58,440 Speaker 1: developing countries broadly, the need for financing, the need for 496 00:27:58,600 --> 00:28:04,719 Speaker 1: debt relief, the need for UH food UH allocations. I 497 00:28:04,720 --> 00:28:08,040 Speaker 1: think this is a critical issue, and it could become 498 00:28:08,480 --> 00:28:11,600 Speaker 1: a more critical issue depending on developments in the next 499 00:28:11,680 --> 00:28:15,080 Speaker 1: few weeks. We've had some people this week predict perhaps 500 00:28:15,080 --> 00:28:17,679 Speaker 1: we're seeing the end of globalization. Larry Think, for example, 501 00:28:17,720 --> 00:28:21,040 Speaker 1: for black Rock, said that in the media, what do 502 00:28:21,080 --> 00:28:23,720 Speaker 1: you think about that as a possibility. At this point, 503 00:28:24,920 --> 00:28:28,919 Speaker 1: we're certainly seeing the evolution of hyperglobalization. We're going to 504 00:28:29,040 --> 00:28:34,520 Speaker 1: see more rely more emphasis on justin todd cases rather 505 00:28:34,600 --> 00:28:38,520 Speaker 1: than just in time. But I don't think we're gonna 506 00:28:38,640 --> 00:28:43,120 Speaker 1: see anything like the end of globalization. I think as 507 00:28:43,200 --> 00:28:47,120 Speaker 1: long as there are smartphones, as long as there are 508 00:28:47,280 --> 00:28:52,600 Speaker 1: video cameras, as long as there is zoom, we are 509 00:28:52,680 --> 00:28:59,000 Speaker 1: going to see levels of interaction between countries that are 510 00:28:59,600 --> 00:29:04,080 Speaker 1: great than anything that was taking place even twenty years ago. 511 00:29:04,760 --> 00:29:11,480 Speaker 1: So I think discussions of the demise of globalization are overheated, 512 00:29:11,640 --> 00:29:14,640 Speaker 1: and I think they're even a little bit dangerous because 513 00:29:14,680 --> 00:29:19,040 Speaker 1: they risk a self fulfilling prophecy. Finally, Larry, we lost 514 00:29:19,040 --> 00:29:22,560 Speaker 1: a true pioneer this week in Malon Albright, a scholar, 515 00:29:22,760 --> 00:29:25,440 Speaker 1: a diplomat, the first woman Secretary of State, and I 516 00:29:25,440 --> 00:29:26,800 Speaker 1: believe when she was a point of that position was 517 00:29:26,840 --> 00:29:29,840 Speaker 1: the most senior position ever served by a woman in 518 00:29:29,840 --> 00:29:32,040 Speaker 1: the United States. I know you served with her. Give 519 00:29:32,080 --> 00:29:34,360 Speaker 1: us your thoughts about Matton, all right, what she did, 520 00:29:34,440 --> 00:29:39,640 Speaker 1: what her legacy is. Madeline was a special UH person. 521 00:29:40,400 --> 00:29:45,520 Speaker 1: She was a role model for UH so many women. 522 00:29:46,360 --> 00:29:51,920 Speaker 1: She ascended to the highest levels of power while always 523 00:29:52,000 --> 00:30:00,760 Speaker 1: maintaining the highest level of decency, humanity, collegiality, kindness. UH 524 00:30:01,200 --> 00:30:07,080 Speaker 1: two others. She showed that you could be tough and 525 00:30:07,280 --> 00:30:11,280 Speaker 1: generous at the same time. Larry, thank you very much 526 00:30:11,320 --> 00:30:13,560 Speaker 1: for sharing that with us, as Larry Summers at Harvard 527 00:30:13,560 --> 00:30:17,280 Speaker 1: are very special contributor here on Wall Street Week. Finally, 528 00:30:17,400 --> 00:30:20,920 Speaker 1: one more thought. They say that war is politics by 529 00:30:20,920 --> 00:30:24,400 Speaker 1: other means, but what happens when politics starts to look 530 00:30:24,440 --> 00:30:27,400 Speaker 1: like war? American politics has always had a bit of 531 00:30:27,440 --> 00:30:29,040 Speaker 1: an edge to it, going all the way back to 532 00:30:30,040 --> 00:30:32,960 Speaker 1: when a moderator in a primary debate New Hampshire wanted 533 00:30:33,000 --> 00:30:41,520 Speaker 1: to turn off Ronald Reagan's mike and it got physical, 534 00:30:41,560 --> 00:30:43,440 Speaker 1: and a news conference at bagged in into this an 535 00:30:43,440 --> 00:30:46,320 Speaker 1: age when someone in the audience through a shoe at 536 00:30:46,360 --> 00:30:48,920 Speaker 1: President George W. Bush, So what if they gat to 537 00:30:49,000 --> 00:30:51,520 Speaker 1: a shoe hit me? And of course there was the 538 00:30:51,600 --> 00:30:55,200 Speaker 1: famous confrontation between candidate Joe Biden and the woman who 539 00:30:55,240 --> 00:30:58,640 Speaker 1: was to become his vice president in the primary debate. 540 00:31:00,120 --> 00:31:04,880 Speaker 1: Government must stem in that's rights and the civil rights. 541 00:31:04,880 --> 00:31:07,680 Speaker 1: That's why we need to pass the Equality Act. That's 542 00:31:07,680 --> 00:31:09,719 Speaker 1: why we need to pass the e r A. Because 543 00:31:10,000 --> 00:31:14,440 Speaker 1: there are moments in history for states fail to preserve 544 00:31:14,480 --> 00:31:17,840 Speaker 1: the civil rights of our peoport. But we saw political 545 00:31:17,880 --> 00:31:20,680 Speaker 1: confrontation taken to a whole new level in the debate 546 00:31:20,720 --> 00:31:24,080 Speaker 1: between two Republican candidates trying to win the nomination for 547 00:31:24,120 --> 00:31:28,240 Speaker 1: the Senate in Ohio, Josh Mandel and Mike Gibbons, when 548 00:31:28,240 --> 00:31:30,920 Speaker 1: they came about as close to fisticus as you can 549 00:31:30,960 --> 00:31:35,600 Speaker 1: get on a stage on live TV. Watch what happened? 550 00:31:36,240 --> 00:31:39,440 Speaker 1: Watch what happened. But then again, maybe they're following a 551 00:31:39,480 --> 00:31:42,040 Speaker 1: more ancient tradition, one going all the way back to 552 00:31:42,120 --> 00:31:46,000 Speaker 1: eighteen fifty six, when Congressman Preston Brooks of South Carolina 553 00:31:46,280 --> 00:31:48,560 Speaker 1: went on the floor of the U. S. Senate and 554 00:31:48,600 --> 00:31:52,520 Speaker 1: took his cane to Senator Charles Sumner of Massachusetts, nearly 555 00:31:52,640 --> 00:31:55,360 Speaker 1: killing him right in the miliv of speech. Admittedly a 556 00:31:55,440 --> 00:31:59,400 Speaker 1: somewhat lurd speech against slavery. And although we may have 557 00:31:59,480 --> 00:32:02,280 Speaker 1: come to exp BacT somewhat better of our senators these days, 558 00:32:02,680 --> 00:32:05,840 Speaker 1: there's still always room in the government of Turkey or 559 00:32:05,920 --> 00:32:11,680 Speaker 1: Mexico or Taiwan for a good old fashioned brawl. That 560 00:32:11,760 --> 00:32:13,560 Speaker 1: does it. For this episode of Wall Street Week, I'm 561 00:32:13,640 --> 00:32:17,720 Speaker 1: David Weston. This is Bloomberg. See you next week.