WEBVTT - Bloomberg Wall Street Week: November 11, 2022 0:00:00.520 --> 0:00:03.760 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.840 --> 0:00:07.120 to the markets this week. U S CPI nevers, reinforcing 0:00:07.160 --> 0:00:10.639 concerns about inflation. The financial stories that chief are worth 0:00:10.720 --> 0:00:13.480 a really different reaction to mark. Its more indications of 0:00:13.640 --> 0:00:16.239 just how hot the U. S economy really is. Through 0:00:16.239 --> 0:00:19.520 the eyes of the most influential voices Larry Summers, the 0:00:19.560 --> 0:00:22.479 former Tritory Secretary, Katherine Keating, CEO of the n Y 0:00:22.600 --> 0:00:26.160 Mallam Sam's l Sharmon and founder of Equatic Group Investment 0:00:26.200 --> 0:00:30.600 in Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.600 --> 0:00:34.360 We just don't know about the U S elections about inflation, 0:00:34.479 --> 0:00:38.760 and goodness knows about cryptocurrencies. This is Bloomberg Wall Street Week. 0:00:38.840 --> 0:00:42.479 I'm David Weston this week special contributor to Larry Summers 0:00:42.479 --> 0:00:45.160 of Harvard on the good, the bad, and the ugly 0:00:45.320 --> 0:00:49.519 of U S elections. I'm quite encouraged, Uh, the center 0:00:49.600 --> 0:00:53.440 is holy. And Glenn Hubbard of Columbia on a Republican 0:00:53.440 --> 0:01:10.280 plan for building an economy for sustainable growth. An awful 0:01:10.360 --> 0:01:12.720 lot happened this week, but it's not yet clear what 0:01:12.840 --> 0:01:17.080 it all meant. The US held those much anticipated midterm elections, 0:01:17.280 --> 0:01:19.560 and instead of a big red wave, we got what 0:01:19.640 --> 0:01:23.920 amounted to a little red ripple. The red wave didn't happen. Instead, 0:01:23.959 --> 0:01:26.559 we're going to have more divided government, with the full 0:01:26.600 --> 0:01:29.320 consequences is still up in the air. How do you 0:01:29.360 --> 0:01:32.600 get things done with the Republican House and eagerly evenly 0:01:32.680 --> 0:01:37.199 divided Senate in bodless process. We also got consumer price 0:01:37.280 --> 0:01:39.800 numbers for the United States. They were good, coming in 0:01:39.959 --> 0:01:42.920 lower than expected on both the headline and the core numbers, 0:01:43.280 --> 0:01:46.119 but they left us wondering whether this was the beginning 0:01:46.200 --> 0:01:51.600 of inflations end for a false dawn, a significant improvement 0:01:51.720 --> 0:01:55.400 in the data that wasn't expected by the markets. And 0:01:55.480 --> 0:01:58.600 then we come to the wonderful land of cryptocurrencies. The 0:01:58.640 --> 0:02:02.520 so called Emperor of Crypto got dethroned, Sam bankmun Fried 0:02:02.640 --> 0:02:04.320 had to turn over the keys to his f t 0:02:04.520 --> 0:02:08.040 X kingdom to his arch rival Jao ching Ping, only 0:02:08.080 --> 0:02:10.919 to have him promptly give them back. And then as 0:02:10.919 --> 0:02:14.840 the weekended, the other shoe dropped. SPF resigned to CEO 0:02:15.120 --> 0:02:18.680 as f t X filed for Chapter eleven bankruptcy, leaving 0:02:18.760 --> 0:02:22.840 questions about the broader crypto industry. One of the people 0:02:22.919 --> 0:02:25.600 that are kind of a larger speakers in this industry 0:02:25.639 --> 0:02:28.440 had said that we were looking for contagion in the industry. 0:02:28.560 --> 0:02:32.840 This is the contagion. But if the rest of us 0:02:32.840 --> 0:02:35.280 had some doubts for this week, the markets sure didn't 0:02:35.280 --> 0:02:37.880 share those doubts. The markets took one look at those 0:02:37.880 --> 0:02:41.079 CPI members and never looked back. With the SMP five 0:02:41.520 --> 0:02:43.799 up five point nine percent in the week, it's best 0:02:43.800 --> 0:02:46.799 week since June, the NASDAC a a whopping eight point 0:02:46.919 --> 0:02:49.760 one percent, and bonds very much in demand, with the 0:02:49.840 --> 0:02:52.959 yield on the tenure falling thirty five basis points over 0:02:53.000 --> 0:02:54.720 the course of the week. Here to take us through 0:02:54.760 --> 0:02:58.480 what they saw in this dramatic market turn are Lori Calvacina, 0:02:58.600 --> 0:03:01.680 she's head of US Equity Strata for OURBC Capital Markets. 0:03:01.840 --> 0:03:04.760 And David Bianco, he's chief investment officer at d SO. 0:03:04.840 --> 0:03:06.480 Welcome back both you. Good to have you here, be 0:03:06.480 --> 0:03:08.240 able to start with you. What did you make it 0:03:08.240 --> 0:03:10.760 this week? It was such a dramatic turnaround on Thursday 0:03:10.760 --> 0:03:14.000 show we believe it. I would not. I would take 0:03:14.000 --> 0:03:16.000 it with a grain of salt. What a week it was. 0:03:16.360 --> 0:03:19.560 The midterm elections and the inflation report, and let's not 0:03:19.600 --> 0:03:23.000 forget Veterans Day. Without our vets a big thanks for them, 0:03:23.000 --> 0:03:26.000 there wouldn't be peace. Uh. The inflation reports stole the 0:03:26.520 --> 0:03:28.839 limelight though for the week, and in arguably I don't 0:03:28.840 --> 0:03:31.920 think it should have. It's just one data point. And 0:03:31.960 --> 0:03:34.960 whilst very welcome that inflation has come down from the highs, 0:03:35.600 --> 0:03:40.360 it still seems broad based, and particularly broad based in services, 0:03:40.360 --> 0:03:43.880 which suggests the labor market is still extremely tight. I'd 0:03:44.040 --> 0:03:49.280 argue that we see narrow disinflation at goods, apparel, used cars, 0:03:49.560 --> 0:03:54.000 and still broad based uh, service inflation. So I I 0:03:54.320 --> 0:03:56.880 think inflation is still still a risk. And I just 0:03:56.920 --> 0:04:01.320 remind people that in October inflation was about six percent 0:04:01.440 --> 0:04:04.120 back then and so it's still about over six percent 0:04:04.240 --> 0:04:06.400 on a core basis. Now, that's a lot of inflation 0:04:06.440 --> 0:04:09.080 over the past two years. It's a really good point. 0:04:09.160 --> 0:04:10.680 I mean, we we like to focus on how much 0:04:10.720 --> 0:04:12.920 has come down. It has come down some finally, but 0:04:12.960 --> 0:04:14.560 it's still at a very high level. And do we 0:04:14.560 --> 0:04:16.360 have any insurance it's going to keep coming down at 0:04:16.360 --> 0:04:18.400 a fairly brisk level that goes down to two percent 0:04:18.520 --> 0:04:20.640 or they're about well, look, I think it's all about 0:04:20.640 --> 0:04:23.200 where the numbers come in versus expectations, and if you 0:04:23.200 --> 0:04:26.640 look at street consensus, they're already baking in pretty significant moderation, 0:04:26.680 --> 0:04:28.960 you know, kind of heading back to three percent next year. 0:04:29.080 --> 0:04:31.760 So I think it was, you know, not surprising to 0:04:31.839 --> 0:04:34.320 me to see such a fierce reaction and markets maybe not. 0:04:34.360 --> 0:04:36.400 I didn't expect quite as much as what we got. 0:04:36.880 --> 0:04:38.400 But I can tell you, David, I've talked to a 0:04:38.400 --> 0:04:41.119 lot of investors the last few weeks who have really 0:04:41.640 --> 0:04:44.400 kind of quietly arguing it was getting ready to come 0:04:44.440 --> 0:04:47.520 down building their models. Um, and you know, had gotten 0:04:47.560 --> 0:04:49.520 fooled by this, you know, several times in the past 0:04:49.560 --> 0:04:51.200 when it didn't happen. And I think there was just 0:04:51.320 --> 0:04:55.320 tremendous relief that this kind of idea that inflation is moderating, 0:04:55.360 --> 0:04:58.120 that we finally got the data to cooperate. It's monitoring 0:04:58.160 --> 0:05:00.599 for one data point, Laurie, but we've had the chair 0:05:00.600 --> 0:05:02.320 of the FED say again and again and again, I 0:05:02.360 --> 0:05:04.080 need more than one data point. I need quite a 0:05:04.080 --> 0:05:05.919 few data points before I'm really gonna believe it. So 0:05:06.080 --> 0:05:08.600 do we think there's actually gonna change FED behavior at 0:05:08.600 --> 0:05:11.039 this point? Well, I, you know, unfortunately, I think that 0:05:11.080 --> 0:05:13.520 the FED probably didn't like the reaction that we saw 0:05:13.560 --> 0:05:16.160 on Thursday, and I wouldn't be surprised to see the rhetoric, 0:05:16.279 --> 0:05:18.640 you know, take another kind of hawkish tone to try 0:05:18.640 --> 0:05:21.120 to clamp down enthusiasm. Um, I think things are going 0:05:21.160 --> 0:05:23.560 to stay choppy for quite some time. You know, Let's 0:05:23.600 --> 0:05:25.480 enjoy the day while at last it was a nice week. 0:05:25.640 --> 0:05:27.000 You know, we we've been in need of a nice 0:05:27.040 --> 0:05:29.520 week in the equity market. Um. But I wouldn't you know, 0:05:29.640 --> 0:05:31.680 necessarily expect this to go up in a straight line 0:05:31.680 --> 0:05:34.200 from here. Dude, I want to other markets basically baking 0:05:34.240 --> 0:05:36.400 and really getting back down, if not to two percent, 0:05:36.480 --> 0:05:37.960 to sort of two and a half three percent. Are 0:05:38.000 --> 0:05:41.080 they a little complacently bond markets? But I think the 0:05:41.240 --> 0:05:44.320 markets are complacent. It's it's interesting how the bond market 0:05:44.440 --> 0:05:48.040 also yields fell upon the inflation report, and maybe that's 0:05:48.040 --> 0:05:52.560 all that equities need to know. But yes, investors expect 0:05:52.560 --> 0:05:55.440 inflation to come down. But at this stage we can't 0:05:55.560 --> 0:05:58.760 keep saying. Eventually, it's important that the FED or other 0:05:58.800 --> 0:06:02.000 factors get inflation down quickly because we're looking on the 0:06:02.080 --> 0:06:05.640 verge of inflation for inflation becoming a multi year problem, 0:06:05.880 --> 0:06:08.440 and if high inflation is a multi year problem, that 0:06:08.520 --> 0:06:12.039 might change the entire inflation risk premium demanded by the 0:06:12.040 --> 0:06:15.159 bond market. So I think we're very lucky that the 0:06:15.160 --> 0:06:17.560 bond market is staying calm about inflation so far. We 0:06:17.560 --> 0:06:20.760 shouldn't press our luck. So clearly, the CPI drove the 0:06:20.800 --> 0:06:24.320 markets this week and they drowned out any news about 0:06:24.360 --> 0:06:26.440 the mid terms? Was that right, David? Did we pay 0:06:26.600 --> 0:06:28.320 enough attention to do you think the markets to the 0:06:28.360 --> 0:06:30.200 mid terms? Well, you know, Lori and I were talking. 0:06:30.200 --> 0:06:33.240 It seemed like investors were trying to follow some game 0:06:33.279 --> 0:06:35.159 plan they had in mind about how the market would 0:06:35.240 --> 0:06:39.799 rally post midterm elections, and Republican red wave didn't happen. Hopefully, 0:06:39.880 --> 0:06:43.800 the inflation report wasn't a surprise negatively, it was positively. 0:06:44.520 --> 0:06:47.240 But I think this has gone too far, too fast, 0:06:47.640 --> 0:06:49.719 and I think they did put too much emphasis on 0:06:49.760 --> 0:06:52.680 the inflation report trying to ignore the midterm elections, which 0:06:52.720 --> 0:06:56.840 are still on certain Laura Cavacina and David Bianco will 0:06:56.880 --> 0:06:58.559 be staying with us as we turned from what happened 0:06:58.600 --> 0:07:01.159 this week to invest around it next week in the 0:07:01.200 --> 0:07:03.600 week after for that matter. That's next on Wall Street 0:07:03.640 --> 0:07:09.400 Week on Bloomberg. This is Bloomberg Wall Street Week with 0:07:09.560 --> 0:07:34.880 David Weston from Bloomberg Radio. In reality, a disillusioned American 0:07:34.880 --> 0:07:41.120 electorate quite plainly, sternly reassessed the empty promises of and 0:07:41.200 --> 0:07:46.280 concluded unmistakably that the incumbent administration not only had presented 0:07:46.320 --> 0:07:50.480 itself in false economic colors as something new rather than 0:07:50.520 --> 0:07:54.040 an all too familiar throwback to the nineteen sixties, but 0:07:54.160 --> 0:07:56.840 had been seriously off base and way out of touch 0:07:56.880 --> 0:07:59.960 with the changing times. Bill Clinton has been campaigning for 0:08:00.080 --> 0:08:04.840 the start against the nineteen eighties this week the eighties 0:08:04.840 --> 0:08:08.240 one that, of course, was Lewis Rockeys around Wall Street 0:08:08.400 --> 0:08:12.360 back in when a different president's first midterm election ended 0:08:12.480 --> 0:08:15.480 in the repudiation of his aconomic program, and the number 0:08:15.480 --> 0:08:18.640 one movie in America was interviewed with the Vampire, while 0:08:18.640 --> 0:08:20.800 the number one song was I'll Make Love to You 0:08:20.880 --> 0:08:24.200 by Boys Two Men. What a difference thirty eight years makes. 0:08:24.560 --> 0:08:28.200 Some people expected a similar rejection of President Biden's economic plans, 0:08:28.320 --> 0:08:30.600 but they didn't get it, as the two parties fought 0:08:30.600 --> 0:08:33.640 to essentially a draw, and the Democrats are on a 0:08:33.720 --> 0:08:36.520 path to losing fewer mid term seats than any party 0:08:36.559 --> 0:08:39.200 in power in twenty years. Still with us our David 0:08:39.200 --> 0:08:43.320 Bianco of DWS and Lori Calasina of RBC. So let 0:08:43.320 --> 0:08:45.080 me let me come back to you, Laurie for a second. 0:08:45.160 --> 0:08:47.040 Let's talk about how you invest around what we're seeing 0:08:47.120 --> 0:08:48.880 right now, given what's going on the CPI, given some 0:08:48.880 --> 0:08:51.479 of the uncertainties about inflation and for that matter, geopolis, 0:08:51.920 --> 0:08:54.320 how do you make investment decisions in this climate? So, 0:08:54.360 --> 0:08:55.880 I think you still have to stick with the longer 0:08:55.960 --> 0:08:57.800 term trajectory, you know, kind of where you see the 0:08:57.800 --> 0:09:00.960 most opportunities longer term. Um. I think that there is 0:09:01.000 --> 0:09:03.560 still a real case to be made for switching from 0:09:03.600 --> 0:09:05.840 the kind of new economy back to the old economy. 0:09:05.920 --> 0:09:09.280 Areas like industrials, energy, financials. A lot of these areas 0:09:09.280 --> 0:09:12.080 still have very very good valuations. I think on the 0:09:12.160 --> 0:09:13.880 more growthy side of the market, I think you want 0:09:13.880 --> 0:09:16.520 to be more selective. So we obviously saw things like 0:09:16.559 --> 0:09:19.520 communications services, a lot of the tech companies really rallied 0:09:19.559 --> 0:09:22.040 pretty fiercely over the last couple of days. UM, I 0:09:22.040 --> 0:09:24.240 think you still want to be careful there. UM. So 0:09:24.280 --> 0:09:26.560 we like tech, we like things like software, we like 0:09:26.640 --> 0:09:29.880 things like semis, which look pretty washed out on earning sentiment. Um, 0:09:29.920 --> 0:09:31.440 but we'd be a little bit more cautious with some 0:09:31.480 --> 0:09:34.360 of the internet related names. To draw a football analogy 0:09:34.480 --> 0:09:36.880 that sounds like running off tackle three yards instead of 0:09:36.920 --> 0:09:39.160 throwing a long ball. That you're not really betting on 0:09:39.280 --> 0:09:41.520 a lot of big growth in the near term. I 0:09:41.520 --> 0:09:43.480 think so, I think so. And you know what we 0:09:43.600 --> 0:09:46.120 see when we look at different economic forecast is the 0:09:46.120 --> 0:09:48.880 price we're likely to pay for a short, shallow recession 0:09:49.200 --> 0:09:52.280 is subpar economic growth that follows. So think of something 0:09:52.320 --> 0:09:54.880 like half a percent one percent um. That is an 0:09:54.960 --> 0:09:58.000 environment in which valuation will matter. So, so, DA, what 0:09:58.000 --> 0:09:59.360 do you think of that? I mean, is this the 0:09:59.400 --> 0:10:01.760 time to really dial it back some? What are you 0:10:01.800 --> 0:10:05.080 interested in? Is investment opportunity? Well forward the latter parts 0:10:05.080 --> 0:10:10.000 of this week, we've gotten more defensively positioned. Um. I 0:10:10.040 --> 0:10:12.319 do think that we have a small recession next year, 0:10:12.360 --> 0:10:14.320 and I do believe it hits profits. Profits would be 0:10:14.320 --> 0:10:16.920 flat at best, probably down five percent. I think Lori's 0:10:16.920 --> 0:10:18.960 down a little bit more than that. And har estimate 0:10:19.000 --> 0:10:23.280 so the SMPS at eighteen nineteen times forward earnings. And 0:10:23.360 --> 0:10:25.400 you know, even though it's just in our view a 0:10:25.520 --> 0:10:29.240 short and shallow recession ahead. I think there's gonna be 0:10:29.280 --> 0:10:31.959 more frequent recessions than we've been accustomed to in the 0:10:32.000 --> 0:10:35.480 past twenty thirty years during the ties, and also inflation 0:10:35.480 --> 0:10:39.000 a little bit more sticky. I love these clips after 0:10:39.040 --> 0:10:42.360 that midterm election. I mean that's when when Clinton pivoted, 0:10:42.640 --> 0:10:45.640 and it's also one of the Republicans had strong messaging 0:10:45.720 --> 0:10:50.880 and policy suggestions and a long period of economic growth 0:10:50.880 --> 0:10:54.840 and decline in inflation for uh that decade and twenty 0:10:54.880 --> 0:10:57.560 five years after that. So I'm just not sure we 0:10:57.600 --> 0:11:00.200 saw the signs of that happening today. So what's SCS 0:11:00.240 --> 0:11:02.360 do you like, David? What what are we looking? Well? 0:11:02.400 --> 0:11:04.520 Were there there? I focus on industries and then my 0:11:04.559 --> 0:11:08.360 portfolio managers picked the stocks and the various strategies. I'm 0:11:08.679 --> 0:11:13.400 most overweight healthcare, both big biotech and pharmaceuticals and and 0:11:13.559 --> 0:11:16.440 big banks. Uh. Then we're we're dabbling in a few 0:11:16.440 --> 0:11:19.040 other areas like in our space and defense and oil services. 0:11:19.040 --> 0:11:21.559 But we're overweight, but we're also underweight a lot of 0:11:21.559 --> 0:11:23.840 things that we think are going to be weighed on 0:11:23.960 --> 0:11:28.120 by the the goods and the manufacturing recession that we 0:11:28.200 --> 0:11:32.880 see ahead. Materials, much of industrials. We're still cautious on 0:11:32.920 --> 0:11:38.479 semi conductors, UM and all of everything consumer, consumer discretionary, 0:11:38.559 --> 0:11:41.840 auto retailing, of of both brick and mortar, and even 0:11:41.840 --> 0:11:44.440 internet retailing. How does that match up with you, for example, 0:11:44.480 --> 0:11:45.959 semi conductors. Do you have a different view on some 0:11:46.040 --> 0:11:48.400 of conductors. So, I think with semi conductors, what we're 0:11:48.440 --> 0:11:51.760 seeing is that basically nobody's taking earnings revisions earnings estimates 0:11:51.840 --> 0:11:54.920 up right now, and historically when nobody's taking earnings revisions 0:11:55.000 --> 0:11:57.920 up or earnings estimates up, it's usually pretty good twelve 0:11:57.920 --> 0:11:59.600 month forward signal in the market. Now, it doesn't mean 0:11:59.640 --> 0:12:01.520 they're going to turnaround to day. We have seen some 0:12:01.640 --> 0:12:04.160 of the you know, price action improved, they're a bit lately, 0:12:04.200 --> 0:12:07.400 but it's really a longer term, kind of contrarian type call. Um. 0:12:07.400 --> 0:12:08.760 I would say, though, I think David and I are 0:12:08.800 --> 0:12:10.760 mostly on the same page on a lot of stuff. 0:12:10.760 --> 0:12:12.400 You know, we like the banks, um, I think we 0:12:12.480 --> 0:12:14.760 both still like small caps at this point in time, 0:12:15.320 --> 0:12:18.720 and you know, I'm probably you know, a little more 0:12:18.840 --> 0:12:21.120 cautious on the defensive areas of the market. I think 0:12:21.160 --> 0:12:24.520 things like staples and utilities still very expensive, you've had 0:12:24.600 --> 0:12:27.560 some room left and health care valuations, but that's starting 0:12:27.559 --> 0:12:30.760 to creep up as well. UM, So I'm really by 0:12:30.800 --> 0:12:33.160 health cares. Maybe David is I'm still overweight, but I'm 0:12:33.160 --> 0:12:35.400 getting a little concerned about it. I mean, frankly, just 0:12:35.440 --> 0:12:38.120 because coming into this reporting season we were getting close 0:12:38.160 --> 0:12:39.960 to peak valuation on that sector as well, and now 0:12:39.960 --> 0:12:41.920 we've knocked it down a peggatu that there were some 0:12:42.000 --> 0:12:44.480 rough earnings um with this sector, but I think we 0:12:44.520 --> 0:12:47.680 have to tread cautiously on the defensives. I like small caps, 0:12:47.679 --> 0:12:50.160 I like banks because they are typically areas that do 0:12:50.240 --> 0:12:53.720 well coming out of a recession. You've got really cheap valuations. 0:12:53.960 --> 0:12:55.920 In the case of small caps, we've got a bucket 0:12:55.920 --> 0:12:58.320 of work showing that they're pricing in a recession already. 0:12:58.600 --> 0:13:01.200 In financials, I think it's more of an ings resiliency thesis, 0:13:01.200 --> 0:13:03.439 more of a domestic play um. But I think it's 0:13:03.480 --> 0:13:06.160 probably time, in my estimation, to start looking for some 0:13:06.240 --> 0:13:08.760 of those recovery trades. What extent have the projections of 0:13:08.800 --> 0:13:11.080 earnings taken at account inflation, because that really is a 0:13:11.120 --> 0:13:14.199 margin pressure issue, isn't it? Well? So well, our modeling 0:13:14.280 --> 0:13:16.360 is shown on inflation that if we you know, if 0:13:16.400 --> 0:13:18.320 you sort of think about how they play into an 0:13:18.320 --> 0:13:22.320 earnings model. For example, UM, I see see positive correlations 0:13:22.320 --> 0:13:25.360 with revenues. So the inflationary backdrop has really been goosing 0:13:25.360 --> 0:13:29.080 revenues in SMP companies. UM. We find that when inflation 0:13:29.120 --> 0:13:32.000 comes down, it doesn't really help margins all that much. 0:13:32.000 --> 0:13:35.040 But bringing inflation down is going to pull revenues down. 0:13:35.559 --> 0:13:38.240 UM wages are actually you know, have a more important 0:13:38.640 --> 0:13:41.160 factor within margins. So one of the reasons why we've 0:13:41.160 --> 0:13:43.080 been so cautious on earnings next year as a whole 0:13:43.120 --> 0:13:45.400 is because we are baking in that moderation and inflation 0:13:45.720 --> 0:13:47.400 it's going to pull the revenues down is not going 0:13:47.440 --> 0:13:49.160 to help the margins as much. But I do think 0:13:49.160 --> 0:13:51.960 a lot of people who cover stocks don't understand the 0:13:52.000 --> 0:13:55.280 revenue dynamic and don't appreciate that the impact on margins 0:13:55.320 --> 0:13:56.920 isn't going to be as big as they think. Where 0:13:56.920 --> 0:13:59.200 are you on earnings going forward? What are you rejecting? 0:14:00.000 --> 0:14:02.559 I estimate for next year's to twenty and I expect 0:14:02.559 --> 0:14:05.960 this year to finish up at about twenty three too, 0:14:06.600 --> 0:14:12.120 thanks to energy slightly UM the average recession, but we're 0:14:12.120 --> 0:14:16.360 expecting smaller than average causes a decline in profits, but 0:14:16.559 --> 0:14:19.000 usually more than half of that decline in profits is 0:14:19.040 --> 0:14:21.800 from financials and energy. Energy smaller than it's been in 0:14:21.800 --> 0:14:24.520 the past, although it's growing every day. Uh, and we 0:14:24.600 --> 0:14:27.240 think banks will be fine because we're not expecting credit 0:14:27.280 --> 0:14:31.040 costs to surge. Thanks to Julie Sally, Danny Burger, and 0:14:31.160 --> 0:14:35.440 Romaine Bostick coming up with the United States is getting 0:14:35.440 --> 0:14:38.720 a new Congress. However, the votes ultimately add up with 0:14:38.840 --> 0:14:43.000 an opportunity to rethink of policy for sustainable growth. We're 0:14:43.000 --> 0:14:45.800 gonna talk with former chairman of the Council of Economic Adviudgers, 0:14:45.800 --> 0:14:49.360 Glenn Hubbard of Columbia about what a sensible Republican plan 0:14:49.560 --> 0:14:54.840 might look like. That's next on Wall Street Week on Bloomberg. 0:14:56.800 --> 0:15:00.760 This is Bloomberg Wall Street Week with David Stick from 0:15:00.920 --> 0:15:13.400 Bloomberg Radio. This is Wall Street Week. I'm David weston 0:15:13.440 --> 0:15:16.320 the u S midterm elections may not be fully resolved yet. 0:15:16.560 --> 0:15:18.920 The President Biden didn't wait to talk about whether they 0:15:18.920 --> 0:15:22.360 point to a rethink of his policies. What in the 0:15:22.400 --> 0:15:24.960 next two years do you intend to do differently to 0:15:25.480 --> 0:15:28.560 change people's opinion of the direction of the country, particularly 0:15:28.560 --> 0:15:30.480 as you can to play a run for president in 0:15:30.480 --> 0:15:33.920 twy twenty four. Nothing, because they're just finding out what 0:15:33.960 --> 0:15:36.520 we're doing. The more they know about what we're doing, 0:15:36.560 --> 0:15:40.120 the more support through is to give us. His views 0:15:40.160 --> 0:15:43.240 of where economic policy might be headed. Welcome now, Glenn Hubbard. 0:15:43.280 --> 0:15:45.720 He's dean emeritus at the Columbia Business School and he 0:15:45.840 --> 0:15:48.520 was the chair of President George W. Bush's Council of 0:15:48.560 --> 0:15:51.800 Economic Advisors. It's also author of The Wall and the Bridge, 0:15:52.080 --> 0:15:55.560 Fear and Opportunity in Disruptions wig So, Dean Hubbard, thank 0:15:55.560 --> 0:15:57.320 you so much for being back with us, my pleasure. 0:15:57.360 --> 0:15:58.880 I really wanted to talk to you because there is 0:15:58.880 --> 0:16:00.680 this question where do we go for here? I mean, 0:16:00.720 --> 0:16:02.760 we don't yet know exactly what happened in the interns. 0:16:02.760 --> 0:16:05.200 We've got a pretty good hunch, probably a narrow majority 0:16:05.240 --> 0:16:07.800 for the Republicans of the House. Quite possibly Democrats will 0:16:07.840 --> 0:16:11.440 hold a sort of split in Senate. What should Republicans 0:16:11.480 --> 0:16:13.440 do if you're up on Capitol Hill? Is there a 0:16:13.480 --> 0:16:17.480 sustainable economic policy for growth they could pursue? I think 0:16:17.480 --> 0:16:19.400 there is, and in fact there's a pivot for the 0:16:19.440 --> 0:16:22.760 president to you know, listening to him just now reminds 0:16:22.800 --> 0:16:26.600 one of the aphorism of learning nothing and forgetting nothing. 0:16:26.920 --> 0:16:29.000 It's time for a pivot, and I think for Republicans 0:16:29.120 --> 0:16:34.560 GOP is instructive growth, opportunity and participation. There's a way 0:16:34.600 --> 0:16:40.200 to develop bridges to take people, take communities, take more 0:16:40.280 --> 0:16:42.440 people to the economy that will be in the future. 0:16:42.480 --> 0:16:44.240 We've done this before in the country. We can do 0:16:44.280 --> 0:16:46.840 it again. And it doesn't have a partisan label. Anybody 0:16:46.840 --> 0:16:49.240 could grab it. But it's especially after the GOP. So 0:16:49.320 --> 0:16:51.720 let's talk about walls and bridges, which you wrote about 0:16:51.720 --> 0:16:53.600 in your book. It strikes me and maybe I'm not 0:16:54.440 --> 0:16:56.320 being careful enough. I'm listening to it. I hear a 0:16:56.320 --> 0:16:58.640 lot more about walls and bridges. I think these days 0:16:58.760 --> 0:17:02.120 a lot more about protect against change, perhaps both of 0:17:02.160 --> 0:17:04.399 the Democrats and the Republicans. Then about how do we 0:17:04.440 --> 0:17:06.879 embrace change and get ready for it? You do, I mean, 0:17:06.960 --> 0:17:09.640 if you start with the growth part. Change is important. 0:17:09.680 --> 0:17:12.320 There is no model or theory of growth that doesn't 0:17:12.359 --> 0:17:14.919 involve change. So we need change. The question is how 0:17:14.960 --> 0:17:17.440 do you bring everybody along? And that's what we hadn't 0:17:17.480 --> 0:17:20.920 been doing so well in the past few decades. Populism 0:17:21.040 --> 0:17:25.040 comes embraces that and we need to address it. And 0:17:25.119 --> 0:17:28.640 so to do that, you really have to help individuals 0:17:28.640 --> 0:17:31.840 with training and education. You have to help communities to 0:17:32.040 --> 0:17:35.359 bring people along. Can we afford to do it because 0:17:35.760 --> 0:17:39.040 we don't have zero interest rates anymore? Oh sure. In 0:17:39.080 --> 0:17:43.400 the book I outline everything from community college block grants, 0:17:43.520 --> 0:17:46.639 to aid to communities, to reform of the earned income 0:17:46.680 --> 0:17:50.120 tax credit to support work. All of that is probably 0:17:50.160 --> 0:17:53.639 about a hundred billion dollars a year. That's real money, 0:17:53.800 --> 0:17:57.320 but compared to what we've been doing, compared to student 0:17:57.359 --> 0:18:00.280 loan relief alone, that was four hundred billion dollar allers 0:18:00.440 --> 0:18:03.040 the stroke of a pen. We can afford to do this. 0:18:03.440 --> 0:18:05.320 You mentioned earned income tax and a lot of people 0:18:05.400 --> 0:18:07.840 think that that's a good reform that could be pursued. 0:18:07.960 --> 0:18:09.879 What about the child tax credit, because that's something that 0:18:09.920 --> 0:18:12.840 democrats badly want, They wanted to put through publicans don't 0:18:12.880 --> 0:18:15.080 like it so much. Is that a constructive thing to 0:18:15.160 --> 0:18:18.320 allow people to re enter the workforce in a positive way. 0:18:18.359 --> 0:18:20.159 I think it could be, and it's part of what 0:18:20.320 --> 0:18:23.320 could be a compromise package. You know, if you want 0:18:23.359 --> 0:18:25.720 to allow more people to come back to work, you 0:18:25.760 --> 0:18:28.120 have to loosen all constraints on work, and I think 0:18:28.119 --> 0:18:31.080 the child tax Credit could play a very powerful role 0:18:31.119 --> 0:18:34.520 there if it's accompanied by rewarding work, which is what 0:18:34.560 --> 0:18:37.320 the earned income tax Credit could do very well. Well, 0:18:37.480 --> 0:18:39.720 what about that point the specifically is I understand it 0:18:39.760 --> 0:18:42.120 at least one of the issues for Republicans. If you're 0:18:42.119 --> 0:18:44.760 going to give these breaks, you should actually sort of 0:18:44.760 --> 0:18:47.080 require work. It should be conditioned upon getting to work 0:18:47.160 --> 0:18:49.120 rather than just giving people the money. Is that right? 0:18:49.560 --> 0:18:52.320 It should be, But that's a feature, not a bug, 0:18:52.400 --> 0:18:56.639 in the sense that participation in the economy brings dignity, 0:18:56.720 --> 0:19:00.800 it brings honor, and it brings support for the economic system. 0:19:00.880 --> 0:19:02.800 So that ought to be one of our goals. The 0:19:02.920 --> 0:19:06.480 question is really supporting work and making work pay. The 0:19:06.560 --> 0:19:08.920 e I T C or an income tax credit among 0:19:08.920 --> 0:19:11.879 other things, can do that. So, as I understand from 0:19:11.920 --> 0:19:14.040 you economists, there are two ways to grow. One is 0:19:14.040 --> 0:19:17.399 more people working, in other is more productivity. Ideally you 0:19:17.440 --> 0:19:19.639 get both of those. Talking about more people working, some 0:19:19.720 --> 0:19:21.640 of them are living in the United States right now. 0:19:21.680 --> 0:19:24.760 What about immigration? Is there a way to really address immigration, 0:19:24.800 --> 0:19:27.520 which is really divided the parties. It's a problem we 0:19:27.560 --> 0:19:29.320 have to address at some point in a way that 0:19:29.320 --> 0:19:32.600 would actually give us more people constructively in the workforce. 0:19:32.720 --> 0:19:35.840 It's super important. Immigration has always been one of America's 0:19:35.880 --> 0:19:39.240 great strengths. And the immigration story is really two parts 0:19:39.240 --> 0:19:42.679 in policy. One is about very high skilled immigration, and 0:19:42.720 --> 0:19:48.840 then there should be no doubt we should want every scientist, doctor, businessperson, 0:19:49.080 --> 0:19:51.680 entrepreneur in the world wants to be here, should be here. 0:19:52.040 --> 0:19:55.760 The political debate over low skilled immigration is harder. But 0:19:55.960 --> 0:19:59.040 rather than saying no to low skilled immigration, how about 0:19:59.240 --> 0:20:03.919 yes to training support and helping more people come along. 0:20:04.320 --> 0:20:07.960 I think that would ease the political dilemma. Have we 0:20:08.080 --> 0:20:10.159 ever done that training support well? And by the way, 0:20:10.200 --> 0:20:12.159 should it be private sector or a public sector or 0:20:12.160 --> 0:20:14.479 a combination of both. The truth is we have so 0:20:14.520 --> 0:20:17.240 if you think back to the nineteenth century, the whole 0:20:17.320 --> 0:20:20.280 land grant college movement, which I build on for community 0:20:20.280 --> 0:20:23.440 colleges is exactly that. The g I Bill with President 0:20:23.480 --> 0:20:27.000 Franklin Roosevelt after the Second World War. We have done this, 0:20:27.480 --> 0:20:30.719 and yes it should have heavy involvement of the private sector. 0:20:30.760 --> 0:20:34.600 Throughout the country. We've got great partnerships of business people 0:20:35.040 --> 0:20:38.720 with community colleges, with communities because they know where the 0:20:38.800 --> 0:20:41.040 jobs are fascinating. Great to have you with us. Is 0:20:41.080 --> 0:20:43.360