Speaker 1: This is Bloomberg Wall Street Week. We turn our attention
Speaker 1: to the markets this week. U S CPI nevers, reinforcing
Speaker 1: concerns about inflation. The financial stories that chief are worth
Speaker 1: a really different reaction to mark. Its more indications of
Speaker 1: just how hot the U. S economy really is. Through
Speaker 1: the eyes of the most influential voices Larry Summers, the
Speaker 1: former Tritory Secretary, Katherine Keating, CEO of the n Y
Speaker 1: Mallam Sam's l Sharmon and founder of Equatic Group Investment
Speaker 1: in Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: We just don't know about the U S elections about inflation,
Speaker 1: and goodness knows about cryptocurrencies. This is Bloomberg Wall Street Week.
Speaker 1: I'm David Weston this week special contributor to Larry Summers
Speaker 1: of Harvard on the good, the bad, and the ugly
Speaker 1: of U S elections. I'm quite encouraged, Uh, the center
Speaker 1: is holy. And Glenn Hubbard of Columbia on a Republican
Speaker 1: plan for building an economy for sustainable growth. An awful
Speaker 1: lot happened this week, but it's not yet clear what
Speaker 1: it all meant. The US held those much anticipated midterm elections,
Speaker 1: and instead of a big red wave, we got what
Speaker 1: amounted to a little red ripple. The red wave didn't happen. Instead,
Speaker 1: we're going to have more divided government, with the full
Speaker 1: consequences is still up in the air. How do you
Speaker 1: get things done with the Republican House and eagerly evenly
Speaker 1: divided Senate in bodless process. We also got consumer price
Speaker 1: numbers for the United States. They were good, coming in
Speaker 1: lower than expected on both the headline and the core numbers,
Speaker 1: but they left us wondering whether this was the beginning
Speaker 1: of inflations end for a false dawn, a significant improvement
Speaker 1: in the data that wasn't expected by the markets. And
Speaker 1: then we come to the wonderful land of cryptocurrencies. The
Speaker 1: so called Emperor of Crypto got dethroned, Sam bankmun Fried
Speaker 1: had to turn over the keys to his f t
Speaker 1: X kingdom to his arch rival Jao ching Ping, only
Speaker 1: to have him promptly give them back. And then as
Speaker 1: the weekended, the other shoe dropped. SPF resigned to CEO
Speaker 1: as f t X filed for Chapter eleven bankruptcy, leaving
Speaker 1: questions about the broader crypto industry. One of the people
Speaker 1: that are kind of a larger speakers in this industry
Speaker 1: had said that we were looking for contagion in the industry.
Speaker 1: This is the contagion. But if the rest of us
Speaker 1: had some doubts for this week, the markets sure didn't
Speaker 1: share those doubts. The markets took one look at those
Speaker 1: CPI members and never looked back. With the SMP five
Speaker 1: up five point nine percent in the week, it's best
Speaker 1: week since June, the NASDAC a a whopping eight point
Speaker 1: one percent, and bonds very much in demand, with the
Speaker 1: yield on the tenure falling thirty five basis points over
Speaker 1: the course of the week. Here to take us through
Speaker 1: what they saw in this dramatic market turn are Lori Calvacina,
Speaker 1: she's head of US Equity Strata for OURBC Capital Markets.
Speaker 1: And David Bianco, he's chief investment officer at d SO.
Speaker 1: Welcome back both you. Good to have you here, be
Speaker 1: able to start with you. What did you make it
Speaker 1: this week? It was such a dramatic turnaround on Thursday
Speaker 1: show we believe it. I would not. I would take
Speaker 1: it with a grain of salt. What a week it was.
Speaker 1: The midterm elections and the inflation report, and let's not
Speaker 1: forget Veterans Day. Without our vets a big thanks for them,
Speaker 1: there wouldn't be peace. Uh. The inflation reports stole the
Speaker 1: limelight though for the week, and in arguably I don't
Speaker 1: think it should have. It's just one data point. And
Speaker 1: whilst very welcome that inflation has come down from the highs,
Speaker 1: it still seems broad based, and particularly broad based in services,
Speaker 1: which suggests the labor market is still extremely tight. I'd
Speaker 1: argue that we see narrow disinflation at goods, apparel, used cars,
Speaker 1: and still broad based uh, service inflation. So I I
Speaker 1: think inflation is still still a risk. And I just
Speaker 1: remind people that in October inflation was about six percent
Speaker 1: back then and so it's still about over six percent
Speaker 1: on a core basis. Now, that's a lot of inflation
Speaker 1: over the past two years. It's a really good point.
Speaker 1: I mean, we we like to focus on how much
Speaker 1: has come down. It has come down some finally, but
Speaker 1: it's still at a very high level. And do we
Speaker 1: have any insurance it's going to keep coming down at
Speaker 1: a fairly brisk level that goes down to two percent
Speaker 1: or they're about well, look, I think it's all about
Speaker 1: where the numbers come in versus expectations, and if you
Speaker 1: look at street consensus, they're already baking in pretty significant moderation,
Speaker 1: you know, kind of heading back to three percent next year.
Speaker 1: So I think it was, you know, not surprising to
Speaker 1: me to see such a fierce reaction and markets maybe not.
Speaker 1: I didn't expect quite as much as what we got.
Speaker 1: But I can tell you, David, I've talked to a
Speaker 1: lot of investors the last few weeks who have really
Speaker 1: kind of quietly arguing it was getting ready to come
Speaker 1: down building their models. Um, and you know, had gotten
Speaker 1: fooled by this, you know, several times in the past
Speaker 1: when it didn't happen. And I think there was just
Speaker 1: tremendous relief that this kind of idea that inflation is moderating,
Speaker 1: that we finally got the data to cooperate. It's monitoring
Speaker 1: for one data point, Laurie, but we've had the chair
Speaker 1: of the FED say again and again and again, I
Speaker 1: need more than one data point. I need quite a
Speaker 1: few data points before I'm really gonna believe it. So
Speaker 1: do we think there's actually gonna change FED behavior at
Speaker 1: this point? Well, I, you know, unfortunately, I think that
Speaker 1: the FED probably didn't like the reaction that we saw
Speaker 1: on Thursday, and I wouldn't be surprised to see the rhetoric,
Speaker 1: you know, take another kind of hawkish tone to try
Speaker 1: to clamp down enthusiasm. Um, I think things are going
Speaker 1: to stay choppy for quite some time. You know, Let's
Speaker 1: enjoy the day while at last it was a nice week.
Speaker 1: You know, we we've been in need of a nice
Speaker 1: week in the equity market. Um. But I wouldn't you know,
Speaker 1: necessarily expect this to go up in a straight line
Speaker 1: from here. Dude, I want to other markets basically baking
Speaker 1: and really getting back down, if not to two percent,
Speaker 1: to sort of two and a half three percent. Are
Speaker 1: they a little complacently bond markets? But I think the
Speaker 1: markets are complacent. It's it's interesting how the bond market
Speaker 1: also yields fell upon the inflation report, and maybe that's
Speaker 1: all that equities need to know. But yes, investors expect
Speaker 1: inflation to come down. But at this stage we can't
Speaker 1: keep saying. Eventually, it's important that the FED or other
Speaker 1: factors get inflation down quickly because we're looking on the
Speaker 1: verge of inflation for inflation becoming a multi year problem,
Speaker 1: and if high inflation is a multi year problem, that
Speaker 1: might change the entire inflation risk premium demanded by the
Speaker 1: bond market. So I think we're very lucky that the
Speaker 1: bond market is staying calm about inflation so far. We
Speaker 1: shouldn't press our luck. So clearly, the CPI drove the
Speaker 1: markets this week and they drowned out any news about
Speaker 1: the mid terms? Was that right, David? Did we pay
Speaker 1: enough attention to do you think the markets to the
Speaker 1: mid terms? Well, you know, Lori and I were talking.
Speaker 1: It seemed like investors were trying to follow some game
Speaker 1: plan they had in mind about how the market would
Speaker 1: rally post midterm elections, and Republican red wave didn't happen. Hopefully,
Speaker 1: the inflation report wasn't a surprise negatively, it was positively.
Speaker 1: But I think this has gone too far, too fast,
Speaker 1: and I think they did put too much emphasis on
Speaker 1: the inflation report trying to ignore the midterm elections, which
Speaker 1: are still on certain Laura Cavacina and David Bianco will
Speaker 1: be staying with us as we turned from what happened
Speaker 1: this week to invest around it next week in the
Speaker 1: week after for that matter. That's next on Wall Street
Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio. In reality, a disillusioned American
Speaker 1: electorate quite plainly, sternly reassessed the empty promises of and
Speaker 1: concluded unmistakably that the incumbent administration not only had presented
Speaker 1: itself in false economic colors as something new rather than
Speaker 1: an all too familiar throwback to the nineteen sixties, but
Speaker 1: had been seriously off base and way out of touch
Speaker 1: with the changing times. Bill Clinton has been campaigning for
Speaker 1: the start against the nineteen eighties this week the eighties
Speaker 1: one that, of course, was Lewis Rockeys around Wall Street
Speaker 1: back in when a different president's first midterm election ended
Speaker 1: in the repudiation of his aconomic program, and the number
Speaker 1: one movie in America was interviewed with the Vampire, while
Speaker 1: the number one song was I'll Make Love to You
Speaker 1: by Boys Two Men. What a difference thirty eight years makes.
Speaker 1: Some people expected a similar rejection of President Biden's economic plans,
Speaker 1: but they didn't get it, as the two parties fought
Speaker 1: to essentially a draw, and the Democrats are on a
Speaker 1: path to losing fewer mid term seats than any party
Speaker 1: in power in twenty years. Still with us our David
Speaker 1: Bianco of DWS and Lori Calasina of RBC. So let
Speaker 1: me let me come back to you, Laurie for a second.
Speaker 1: Let's talk about how you invest around what we're seeing
Speaker 1: right now, given what's going on the CPI, given some
Speaker 1: of the uncertainties about inflation and for that matter, geopolis,
Speaker 1: how do you make investment decisions in this climate? So,
Speaker 1: I think you still have to stick with the longer
Speaker 1: term trajectory, you know, kind of where you see the
Speaker 1: most opportunities longer term. Um. I think that there is
Speaker 1: still a real case to be made for switching from
Speaker 1: the kind of new economy back to the old economy.
Speaker 1: Areas like industrials, energy, financials. A lot of these areas
Speaker 1: still have very very good valuations. I think on the
Speaker 1: more growthy side of the market, I think you want
Speaker 1: to be more selective. So we obviously saw things like
Speaker 1: communications services, a lot of the tech companies really rallied
Speaker 1: pretty fiercely over the last couple of days. UM, I
Speaker 1: think you still want to be careful there. UM. So
Speaker 1: we like tech, we like things like software, we like
Speaker 1: things like semis, which look pretty washed out on earning sentiment. Um,
Speaker 1: but we'd be a little bit more cautious with some
Speaker 1: of the internet related names. To draw a football analogy
Speaker 1: that sounds like running off tackle three yards instead of
Speaker 1: throwing a long ball. That you're not really betting on
Speaker 1: a lot of big growth in the near term. I
Speaker 1: think so, I think so. And you know what we
Speaker 1: see when we look at different economic forecast is the
Speaker 1: price we're likely to pay for a short, shallow recession
Speaker 1: is subpar economic growth that follows. So think of something
Speaker 1: like half a percent one percent um. That is an
Speaker 1: environment in which valuation will matter. So, so, DA, what
Speaker 1: do you think of that? I mean, is this the
Speaker 1: time to really dial it back some? What are you
Speaker 1: interested in? Is investment opportunity? Well forward the latter parts
Speaker 1: of this week, we've gotten more defensively positioned. Um. I
Speaker 1: do think that we have a small recession next year,
Speaker 1: and I do believe it hits profits. Profits would be
Speaker 1: flat at best, probably down five percent. I think Lori's
Speaker 1: down a little bit more than that. And har estimate
Speaker 1: so the SMPS at eighteen nineteen times forward earnings. And
Speaker 1: you know, even though it's just in our view a
Speaker 1: short and shallow recession ahead. I think there's gonna be
Speaker 1: more frequent recessions than we've been accustomed to in the
Speaker 1: past twenty thirty years during the ties, and also inflation
Speaker 1: a little bit more sticky. I love these clips after
Speaker 1: that midterm election. I mean that's when when Clinton pivoted,
Speaker 1: and it's also one of the Republicans had strong messaging
Speaker 1: and policy suggestions and a long period of economic growth
Speaker 1: and decline in inflation for uh that decade and twenty
Speaker 1: five years after that. So I'm just not sure we
Speaker 1: saw the signs of that happening today. So what's SCS
Speaker 1: do you like, David? What what are we looking? Well?
Speaker 1: Were there there? I focus on industries and then my
Speaker 1: portfolio managers picked the stocks and the various strategies. I'm
Speaker 1: most overweight healthcare, both big biotech and pharmaceuticals and and
Speaker 1: big banks. Uh. Then we're we're dabbling in a few
Speaker 1: other areas like in our space and defense and oil services.
Speaker 1: But we're overweight, but we're also underweight a lot of
Speaker 1: things that we think are going to be weighed on
Speaker 1: by the the goods and the manufacturing recession that we
Speaker 1: see ahead. Materials, much of industrials. We're still cautious on
Speaker 1: semi conductors, UM and all of everything consumer, consumer discretionary,
Speaker 1: auto retailing, of of both brick and mortar, and even
Speaker 1: internet retailing. How does that match up with you, for example,
Speaker 1: semi conductors. Do you have a different view on some
Speaker 1: of conductors. So, I think with semi conductors, what we're
Speaker 1: seeing is that basically nobody's taking earnings revisions earnings estimates
Speaker 1: up right now, and historically when nobody's taking earnings revisions
Speaker 1: up or earnings estimates up, it's usually pretty good twelve
Speaker 1: month forward signal in the market. Now, it doesn't mean
Speaker 1: they're going to turnaround to day. We have seen some
Speaker 1: of the you know, price action improved, they're a bit lately,
Speaker 1: but it's really a longer term, kind of contrarian type call. Um.
Speaker 1: I would say, though, I think David and I are
Speaker 1: mostly on the same page on a lot of stuff.
Speaker 1: You know, we like the banks, um, I think we
Speaker 1: both still like small caps at this point in time,
Speaker 1: and you know, I'm probably you know, a little more
Speaker 1: cautious on the defensive areas of the market. I think
Speaker 1: things like staples and utilities still very expensive, you've had
Speaker 1: some room left and health care valuations, but that's starting
Speaker 1: to creep up as well. UM, So I'm really by
Speaker 1: health cares. Maybe David is I'm still overweight, but I'm
Speaker 1: getting a little concerned about it. I mean, frankly, just
Speaker 1: because coming into this reporting season we were getting close
Speaker 1: to peak valuation on that sector as well, and now
Speaker 1: we've knocked it down a peggatu that there were some
Speaker 1: rough earnings um with this sector, but I think we
Speaker 1: have to tread cautiously on the defensives. I like small caps,
Speaker 1: I like banks because they are typically areas that do
Speaker 1: well coming out of a recession. You've got really cheap valuations.
Speaker 1: In the case of small caps, we've got a bucket
Speaker 1: of work showing that they're pricing in a recession already.
Speaker 1: In financials, I think it's more of an ings resiliency thesis,
Speaker 1: more of a domestic play um. But I think it's
Speaker 1: probably time, in my estimation, to start looking for some
Speaker 1: of those recovery trades. What extent have the projections of
Speaker 1: earnings taken at account inflation, because that really is a
Speaker 1: margin pressure issue, isn't it? Well? So well, our modeling
Speaker 1: is shown on inflation that if we you know, if
Speaker 1: you sort of think about how they play into an
Speaker 1: earnings model. For example, UM, I see see positive correlations
Speaker 1: with revenues. So the inflationary backdrop has really been goosing
Speaker 1: revenues in SMP companies. UM. We find that when inflation
Speaker 1: comes down, it doesn't really help margins all that much.
Speaker 1: But bringing inflation down is going to pull revenues down.
Speaker 1: UM wages are actually you know, have a more important
Speaker 1: factor within margins. So one of the reasons why we've
Speaker 1: been so cautious on earnings next year as a whole
Speaker 1: is because we are baking in that moderation and inflation
Speaker 1: it's going to pull the revenues down is not going
Speaker 1: to help the margins as much. But I do think
Speaker 1: a lot of people who cover stocks don't understand the
Speaker 1: revenue dynamic and don't appreciate that the impact on margins
Speaker 1: isn't going to be as big as they think. Where
Speaker 1: are you on earnings going forward? What are you rejecting?
Speaker 1: I estimate for next year's to twenty and I expect
Speaker 1: this year to finish up at about twenty three too,
Speaker 1: thanks to energy slightly UM the average recession, but we're
Speaker 1: expecting smaller than average causes a decline in profits, but
Speaker 1: usually more than half of that decline in profits is
Speaker 1: from financials and energy. Energy smaller than it's been in
Speaker 1: the past, although it's growing every day. Uh, and we
Speaker 1: think banks will be fine because we're not expecting credit
Speaker 1: costs to surge. Thanks to Julie Sally, Danny Burger, and
Speaker 1: Romaine Bostick coming up with the United States is getting
Speaker 1: a new Congress. However, the votes ultimately add up with
Speaker 1: an opportunity to rethink of policy for sustainable growth. We're
Speaker 1: gonna talk with former chairman of the Council of Economic Adviudgers,
Speaker 1: Glenn Hubbard of Columbia about what a sensible Republican plan
Speaker 1: might look like. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Stick from
Speaker 1: Bloomberg Radio. This is Wall Street Week. I'm David weston
Speaker 1: the u S midterm elections may not be fully resolved yet.
Speaker 1: The President Biden didn't wait to talk about whether they
Speaker 1: point to a rethink of his policies. What in the
Speaker 1: next two years do you intend to do differently to
Speaker 1: change people's opinion of the direction of the country, particularly
Speaker 1: as you can to play a run for president in
Speaker 1: twy twenty four. Nothing, because they're just finding out what
Speaker 1: we're doing. The more they know about what we're doing,
Speaker 1: the more support through is to give us. His views
Speaker 1: of where economic policy might be headed. Welcome now, Glenn Hubbard.
Speaker 1: He's dean emeritus at the Columbia Business School and he
Speaker 1: was the chair of President George W. Bush's Council of
Speaker 1: Economic Advisors. It's also author of The Wall and the Bridge,
Speaker 1: Fear and Opportunity in Disruptions wig So, Dean Hubbard, thank
Speaker 1: you so much for being back with us, my pleasure.
Speaker 1: I really wanted to talk to you because there is
Speaker 1: this question where do we go for here? I mean,
Speaker 1: we don't yet know exactly what happened in the interns.
Speaker 1: We've got a pretty good hunch, probably a narrow majority
Speaker 1: for the Republicans of the House. Quite possibly Democrats will
Speaker 1: hold a sort of split in Senate. What should Republicans
Speaker 1: do if you're up on Capitol Hill? Is there a
Speaker 1: sustainable economic policy for growth they could pursue? I think
Speaker 1: there is, and in fact there's a pivot for the
Speaker 1: president to you know, listening to him just now reminds
Speaker 1: one of the aphorism of learning nothing and forgetting nothing.
Speaker 1: It's time for a pivot, and I think for Republicans
Speaker 1: GOP is instructive growth, opportunity and participation. There's a way
Speaker 1: to develop bridges to take people, take communities, take more
Speaker 1: people to the economy that will be in the future.
Speaker 1: We've done this before in the country. We can do
Speaker 1: it again. And it doesn't have a partisan label. Anybody
Speaker 1: could grab it. But it's especially after the GOP. So
Speaker 1: let's talk about walls and bridges, which you wrote about
Speaker 1: in your book. It strikes me and maybe I'm not
Speaker 1: being careful enough. I'm listening to it. I hear a
Speaker 1: lot more about walls and bridges. I think these days
Speaker 1: a lot more about protect against change, perhaps both of
Speaker 1: the Democrats and the Republicans. Then about how do we
Speaker 1: embrace change and get ready for it? You do, I mean,
Speaker 1: if you start with the growth part. Change is important.
Speaker 1: There is no model or theory of growth that doesn't
Speaker 1: involve change. So we need change. The question is how
Speaker 1: do you bring everybody along? And that's what we hadn't
Speaker 1: been doing so well in the past few decades. Populism
Speaker 1: comes embraces that and we need to address it. And
Speaker 1: so to do that, you really have to help individuals
Speaker 1: with training and education. You have to help communities to
Speaker 1: bring people along. Can we afford to do it because
Speaker 1: we don't have zero interest rates anymore? Oh sure. In
Speaker 1: the book I outline everything from community college block grants,
Speaker 1: to aid to communities, to reform of the earned income
Speaker 1: tax credit to support work. All of that is probably
Speaker 1: about a hundred billion dollars a year. That's real money,
Speaker 1: but compared to what we've been doing, compared to student
Speaker 1: loan relief alone, that was four hundred billion dollar allers
Speaker 1: the stroke of a pen. We can afford to do this.
Speaker 1: You mentioned earned income tax and a lot of people
Speaker 1: think that that's a good reform that could be pursued.
Speaker 1: What about the child tax credit, because that's something that
Speaker 1: democrats badly want, They wanted to put through publicans don't
Speaker 1: like it so much. Is that a constructive thing to
Speaker 1: allow people to re enter the workforce in a positive way.
Speaker 1: I think it could be, and it's part of what
Speaker 1: could be a compromise package. You know, if you want
Speaker 1: to allow more people to come back to work, you
Speaker 1: have to loosen all constraints on work, and I think
Speaker 1: the child tax Credit could play a very powerful role
Speaker 1: there if it's accompanied by rewarding work, which is what
Speaker 1: the earned income tax Credit could do very well. Well,
Speaker 1: what about that point the specifically is I understand it
Speaker 1: at least one of the issues for Republicans. If you're
Speaker 1: going to give these breaks, you should actually sort of
Speaker 1: require work. It should be conditioned upon getting to work
Speaker 1: rather than just giving people the money. Is that right?
Speaker 1: It should be, But that's a feature, not a bug,
Speaker 1: in the sense that participation in the economy brings dignity,
Speaker 1: it brings honor, and it brings support for the economic system.
Speaker 1: So that ought to be one of our goals. The
Speaker 1: question is really supporting work and making work pay. The
Speaker 1: e I T C or an income tax credit among
Speaker 1: other things, can do that. So, as I understand from
Speaker 1: you economists, there are two ways to grow. One is
Speaker 1: more people working, in other is more productivity. Ideally you
Speaker 1: get both of those. Talking about more people working, some
Speaker 1: of them are living in the United States right now.
Speaker 1: What about immigration? Is there a way to really address immigration,
Speaker 1: which is really divided the parties. It's a problem we
Speaker 1: have to address at some point in a way that
Speaker 1: would actually give us more people constructively in the workforce.
Speaker 1: It's super important. Immigration has always been one of America's
Speaker 1: great strengths. And the immigration story is really two parts
Speaker 1: in policy. One is about very high skilled immigration, and
Speaker 1: then there should be no doubt we should want every scientist, doctor, businessperson,
Speaker 1: entrepreneur in the world wants to be here, should be here.
Speaker 1: The political debate over low skilled immigration is harder. But
Speaker 1: rather than saying no to low skilled immigration, how about
Speaker 1: yes to training support and helping more people come along.
Speaker 1: I think that would ease the political dilemma. Have we
Speaker 1: ever done that training support well? And by the way,
Speaker 1: should it be private sector or a public sector or
Speaker 1: a combination of both. The truth is we have so
Speaker 1: if you think back to the nineteenth century, the whole
Speaker 1: land grant college movement, which I build on for community
Speaker 1: colleges is exactly that. The g I Bill with President
Speaker 1: Franklin Roosevelt after the Second World War. We have done this,
Speaker 1: and yes it should have heavy involvement of the private sector.
Speaker 1: Throughout the country. We've got great partnerships of business people
Speaker 1: with community colleges, with communities because they know where the
Speaker 1: jobs are fascinating. Great to have you with us. Is
Speaker 1: wall and Bridge is a really powerful way of thinking
Speaker 1: about it. Many thanks to Glenn Hubbard of the Columbia
Speaker 1: Business School. Coming up, and we're gonna wrap up the
Speaker 1: week with our special Wall Street Week contributor to Larry
Speaker 1: Summers at Harvard. That's next on Wall Street Week. Here
Speaker 1: on Bloomberg, this is Wall Street Week. I'm David Weston.
Speaker 1: We're delighted to have our very special contributor, Larry Summers
Speaker 1: are Harrid back with us now on Wall Street Week.
Speaker 1: So Larry, it was a big week on a lot
Speaker 1: of fronts. Let's start with the CPI numbers. They came out.
Speaker 1: They certainly got the markets attention. What did you make
Speaker 1: of those CPN numbers? Are they as encouraging as some
Speaker 1: people seem to think. I think they were good. They were.
Speaker 1: They were good numbers, But one number is never decisive,
Speaker 1: and there were a lot of special factors in these numbers,
Speaker 1: some of which will be reversed. Particular. As always, Team
Speaker 1: Transitory only focuses on the things that are likely to
Speaker 1: come down in the future, not the things that are
Speaker 1: likely to go up in the future. I don't pick
Speaker 1: a power prices will keep going down so fast. I
Speaker 1: don't think we've really got structural disinflation in uh medical care.
Speaker 1: But this was a good number, and the market was
Speaker 1: right to respond positively. Whether the agnitude of the reaction
Speaker 1: was right, I think that's very much in question. There
Speaker 1: was another number yesterday, which was the Atlanta Fed number
Speaker 1: on wages, and that was showing continued strong wage inflation.
Speaker 1: And I don't see away as long as inflation is
Speaker 1: running in the five six range that we're getting to target.
Speaker 1: So I think the people who declared victory on the
Speaker 1: basis of this number yesterday were overreacting. But look, it
Speaker 1: certainly was an encouraging number, but we had similar encouraging
Speaker 1: numbers in March and similar encouraging numbers in July, and
Speaker 1: one swallow didn't make a spring uh then, And so
Speaker 1: I think we've got to do what j. Powell said
Speaker 1: he's gonna do, which is be vigilant and integrate all
Speaker 1: the data looking forward. And that was my question. Actually,
Speaker 1: we know how the market reacted, The question is how
Speaker 1: will the Fed react. We have a little time to
Speaker 1: that December meeting. At the same time, given what you've
Speaker 1: seen so far, it can change. Do you think that
Speaker 1: the FED should be variance path one iota? Some people
Speaker 1: are now saying fifty, for example in December. Well, I
Speaker 1: think the market has been expecting fifty for some time
Speaker 1: is the most likely case, and I don't see a
Speaker 1: reason to change UH from UH that expectation. I don't
Speaker 1: think you can make judgments based on a single months
Speaker 1: UH data. There was a very substantial adjustment in markets
Speaker 1: expectations of what the FED would do, and I wonder
Speaker 1: whether that change quite that large of more than one
Speaker 1: full UH move one full basis point move was warranted
Speaker 1: on the basis of UH justice number, but it may
Speaker 1: well prove to be appropriate given what we see UH
Speaker 1: in the in the future, Laria. Much more difficult are
Speaker 1: the markets making the Fed's job because the financial conditions
Speaker 1: loosened dramatically in responsive CPO never the most sense march
Speaker 1: of anounced two trillion dollars in fistical simulants, you have
Speaker 1: to look at both the FED funds rate and at
Speaker 1: the overall UH level of financial conditions. To some extent, UH,
Speaker 1: I don't I think these financial conditions inducas are misleading
Speaker 1: because when the stock market goes up, they call that
Speaker 1: an improvement in financial conditions, but it may just be
Speaker 1: a change towards more optimism about the economy. So I'm
Speaker 1: not that taken with the financial conditions in disease like
Speaker 1: the ones that come out of Golden Sacks to give
Speaker 1: significant weight UH to the stock market or to credit
Speaker 1: spreads in the overall assessment, because I think in some
Speaker 1: sense they're not just reflecting what the Fed does, They're
Speaker 1: reflecting changing views about the economy. Larry are arguably the
Speaker 1: other big news this week with the midterm elections, which
Speaker 1: by the way, aren't really fully fine finalized yet because
Speaker 1: we don't know the results, including who controls the House
Speaker 1: and the Senate. But at this point in the process,
Speaker 1: what do you make these mid terms? And one thing
Speaker 1: I learned was, once again, the people don't pay that
Speaker 1: much attention to pulsters or by the way, the media. David, look,
Speaker 1: I'm I'm quite encouraged. UH. The center is holding. If
Speaker 1: you look at people on the extreme of either party,
Speaker 1: they actually underperformed quite badly. The there was more ticket
Speaker 1: sledding as people voted for one Democrat and one Republican,
Speaker 1: rejecting the radical more radical UH candidates. The swing towards UH.
Speaker 1: Democrats came from independence UM and came from more Republicans
Speaker 1: voting Democratic. I think the reaction to the radical Supreme
Speaker 1: Court decision was actually a substantial part of UH this
Speaker 1: UH story. That's probably cautionary UM for Democrats because it's
Speaker 1: not always going to UH be that be that way.
Speaker 1: But look, we're not having people in the streets fighting
Speaker 1: over the results of elections. Candidates who lose, even very
Speaker 1: radical candidates who lose, are are conceding. I think this
Speaker 1: was an election that suggested some movement back towards the
Speaker 1: center of the country holding. What message you think the
Speaker 1: White House should take away from this, particularly aspect to
Speaker 1: economic policy. Is this time for a mid course correction?
Speaker 1: Are there some lessons in here for the White House?
Speaker 1: And by the way, should they even take a look
Speaker 1: at who the who's on the economic team? Is the
Speaker 1: time to revamp that? I think they've got very good people.
Speaker 1: I don't think the people are are are the issue.
Speaker 1: It's a very experienced UH team. Invitably to over time,
Speaker 1: administrations have turnover. Look, I think the country is governed
Speaker 1: best when it's governed from UH the center and governed
Speaker 1: with moderation nobody's going back to three and a half
Speaker 1: trillion dollar h new deals. That's not on the table,
Speaker 1: and I think it's appropriate given inflation, that nothing like
Speaker 1: that be on the table. I think there's a lot
Speaker 1: we can do to bring down the price of energy
Speaker 1: by promoting energy production of all kinds, renewable and non
Speaker 1: and uh non renewable. I think there's a lot uh
Speaker 1: that the administration can do and will do. With respect
Speaker 1: to technology, particularly in the semiconductor area, it's a big
Speaker 1: challenge to actually the old infrastructure out well in a
Speaker 1: way that's going to contribute to reducing bottlenecks uh in
Speaker 1: our economy. I would like to see more partnership between
Speaker 1: business and government. And frankly, if we're gonna build out
Speaker 1: the necessary energy infrastructure, I don't around the world, I
Speaker 1: don't think, uh, there's any alternative. So I think that
Speaker 1: the administration has a real opportunity now to move to
Speaker 1: an implementation UH phase Larry. One other big development globally
Speaker 1: at least this week, was the next climate Suner and
Speaker 1: co top Charmel shake. Are we making progress on the
Speaker 1: climate or not? It seems sometimes like they just get
Speaker 1: together and talk. Yeah, that's what. Yes, I I agree
Speaker 1: with that, But David, I think UH more is happening
Speaker 1: in UH the laboratory and less is happening in the
Speaker 1: conference room. The good news is that tremendous progress is
Speaker 1: being made in all sorts of UH technologies that point
Speaker 1: towards UH renewable energy. There some really exciting developments with
Speaker 1: respect to batteries and storage that enables renewables. Because it's
Speaker 1: not always windy or sunny. So I think, ironically, even
Speaker 1: though there's less political progress than one would have hoped,
Speaker 1: I actually think we're in a better place with respect
Speaker 1: to the problem than one might have expected a decade
Speaker 1: ago because of the progress and technology. Okay, Larry, that
Speaker 1: was very helpful. Once again, that is Larry Summers of
Speaker 1: Harvard are very special contributor here on Wall Street Week. Finally,
Speaker 1: one more thought, looking for opportunity wherever you can find it.
Speaker 1: In a time of market downturns, investors are looking at
Speaker 1: portfolio losses that remind them of two thousand and runaway inflation.
Speaker 1: What matters is the FED saying we've got to get
Speaker 1: inflation back down, and more than a little political uncertainty.
Speaker 1: Of course, we'll have to see the final results of
Speaker 1: these mid terms. That's we were looking at razor than margins.
Speaker 1: Right now, all of us have to be even more
Speaker 1: resourceful and looking for new opportunities. Former Bank of England
Speaker 1: Governor Mark Karney wants us to find them in sustainable energy.
Speaker 1: A lot of the answer to energy security problems that
Speaker 1: have been exposed by Russia's illegal war have to do
Speaker 1: with sustainability. Citadel CEO Ken Griffin thinks he's found opportunities
Speaker 1: in moving to Florida. I'm gonna say something, it's like, uh,
Speaker 1: you know, it's gonna be thrown out of here. Taxes
Speaker 1: were not part of our decision to come to Florida,
Speaker 1: because when you've got great schools, when you've had a
Speaker 1: great environment, when your streets are safe and clean, you've
Speaker 1: got a place where people want to live in call home.
Speaker 1: And not surprisingly, the CEO of Delta Airlines has found
Speaker 1: opportunities in travel. We're seeing an incredible amount of demand
Speaker 1: that's continuing. It's it's been in place for most of
Speaker 1: this year. We're looking at the upcoming holiday period looks very,
Speaker 1: very strong. And then then there's the irrepressible Simon Cowell,
Speaker 1: record producer International television personality and creator of reality series
Speaker 1: like The X Factor In America's Got Talent, Kyle can
Speaker 1: take credit for discovering hit makers like Fifth Harmony and
Speaker 1: One Direction. Kyle's latest discovery, well, it is the bond market,
Speaker 1: where he just raised one million dollars selling bonds backed
Speaker 1: by his gut talent TV shows. Right now, I feel
Speaker 1: like James Bowmen. But the all time winner of the
Speaker 1: Golden Opportunity Award goes at least this week to the
Speaker 1: holder of the single lottery tickets sold in California that
Speaker 1: earned for its lucky holder get this, two billion, forty
Speaker 1: million dollars. And it wasn't only the winner who got
Speaker 1: some opportunity. The man who sold the ticket, Joe from
Speaker 1: Joe's Service Center, is walking away with a cool million
Speaker 1: dollars as well, with the family with whatever I had needed,
Speaker 1: what my kicks, My gosh, then I live grandchildren. Now
Speaker 1: that is what I call opportunity. That does it. For
Speaker 1: this episode of Wall Street Week, I'm David Weston. This
Speaker 1: is Bloomberg. See you next week.