Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: I mean may not have an overall recession. We're having
Speaker 2: a rolling recession. Econy of roll looks pretty strongly. It
Speaker 2: is when it comes to jobs.
Speaker 1: The financial stories that shape our world.
Speaker 2: Three major regional bank failures send shockwaves through the banking system.
Speaker 2: We're all trying to figure out what to make of
Speaker 2: generative AI.
Speaker 1: Through the eyes of the most influential voices.
Speaker 2: Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America.
Speaker 2: Debro Lair of the Paulson Institute, well then Hubbard of
Speaker 2: the Columbia Business School.
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: Realignment for the Chinese economy, for banks, for the Walt
Speaker 2: Disney Company, and for college football. This is Bloomberg Wall
Speaker 2: Street Week. I'm David Weston this week, Rick Reader of Blackrock.
Speaker 2: I'm investing for no landing at all. Even could you.
Speaker 3: Have a technical recession, I just think like you'd have
Speaker 3: to wake people up and tell them because you're operating
Speaker 3: at such a high level in the economy.
Speaker 2: Deborah Lair from the Paulson Institute on the ups and
Speaker 2: downs of US relations with China.
Speaker 4: They're is a reconsideration in Western economies and looking at
Speaker 4: what their relationship is economically with China.
Speaker 2: And George Pine a ruined capital on making money out
Speaker 2: of college football.
Speaker 5: It's run by a very fragmented industry and so it's
Speaker 5: a bit unwielding.
Speaker 2: For most of global Wall Street, it was a quiet week,
Speaker 2: with trading volumes down as many enjoyed some time away
Speaker 2: from their Bloomberg terminals getting ready for what comes next.
Speaker 2: But over in Beijing, things weren't quite so quiet when
Speaker 2: new numbers came in pointing toward deflation and confirming how
Speaker 2: hard it may be to get growth back to the
Speaker 2: levels prison G wants. What China you seeking deflation? For sure?
Speaker 2: The question is how long?
Speaker 6: And I think he's up to the policy miki.
Speaker 2: While they react with accordingly to the it's called on
Speaker 2: the monitory eting. While the United States didn't make things
Speaker 2: any easier by imposing those long awaited outbound investment restrictions, we.
Speaker 7: Will compete with them, and we should be competing with
Speaker 7: them outside this executive order, and we will cooperate with
Speaker 7: them on things like climates.
Speaker 2: Banks had a bit of a rocky week as well
Speaker 2: as you as mid size banks got hit with the
Speaker 2: Moody's downgrade.
Speaker 8: Now the big super regional banks are going to be.
Speaker 3: A little more tightly regulated, and that actually is a
Speaker 3: tailwind for bond investors.
Speaker 2: And Italian banks faced a windfall profits tax that tanked
Speaker 2: their stocks before the government backed off a bit. The
Speaker 2: Walt Disney Company announced its earnings in the midst of
Speaker 2: a mid course correction, with an awful lot on the
Speaker 2: line for the world's largest entertainment company.
Speaker 9: While Linear remains highly profitable for Disney today, the trends
Speaker 9: being fueled by cord cutting are unmistakable, and as I've
Speaker 9: stated before, we're thinking of expansively in considering a variety
Speaker 9: of strategic options.
Speaker 2: And college football continued its conference shake up, with USC, UCLA, Oregon,
Speaker 2: and Washington all going to the Big ten, leaving the
Speaker 2: Pac twelve out in the coals. US CPI numbers came
Speaker 2: in just as predicted, with headline prices up two tenths
Speaker 2: percent or three point two percent year over year, while
Speaker 2: core came down just a bit to four point seven percent.
Speaker 3: As the bond traders would say, this one was on
Speaker 3: the screws came in right as forecast.
Speaker 2: Both those encouraging CPI numbers on Thursday ran right into
Speaker 2: higher than expected PPI numbers on Friday, even as the
Speaker 2: University of Michigan told us that inflation expectations overall continue
Speaker 2: to come down. The markets reacted all this by going
Speaker 2: up and going down over the course of the week,
Speaker 2: ending up more down than up, with the S and
Speaker 2: P five hundred down three tens p percent for the
Speaker 2: week ending at forty four to sixty four, while the
Speaker 2: Nasdaq had another tough week, down one point nine percent,
Speaker 2: making it the longest string of down weeks so far
Speaker 2: this year. While the yield on the tenure ended up twelve,
Speaker 2: it went up twelve basis points at four point one
Speaker 2: point six. Here to sort it all out for us
Speaker 2: are Lysanne Saunders, Charles Schwab, chief investment strategists, and Kristin Burdly.
Speaker 2: She is a city head of North American investors. So Chris,
Speaker 2: let's start with you here. What did you make out
Speaker 2: of what we saw this week? There was a lot
Speaker 2: of back and forth about where inflation's going and therefore
Speaker 2: what the Fed's going to do.
Speaker 10: Yeah, so I think what we saw this week kind
Speaker 10: of a continuation of last week. Is understanding and trying
Speaker 10: to break down what are the expectations really for rates
Speaker 10: in terms of our rates going to be higher for longer?
Speaker 2: So what about from your point of view, Lise Anne,
Speaker 2: higher for longer? How much higher and how much longer?
Speaker 11: So I think you know that's where the disconnect to
Speaker 11: some degree still exists in terms of market expectations. Yes,
Speaker 11: the market has pushed out rate cuts into twenty twenty four,
Speaker 11: but as of now you're looking at five cuts being
Speaker 11: priced in, and under a scenario even if you continue
Speaker 11: with disinflation where you don't see the kind of cracks
Speaker 11: in the labor market. That not that the FED is
Speaker 11: gunning for, but it's certainly in their forecasts. If the
Speaker 11: labor market stays tight and you don't see a hit
Speaker 11: to growth, it's hard to imagine what the scenario would
Speaker 11: be under which the FED would see a green light
Speaker 11: for cutting rates versus just staying on hold. And you
Speaker 11: had Williams Out, New York Fed President Williams Out talking
Speaker 11: about the relationship between inflation if it continues to come
Speaker 11: down and the fact that growth stays fairly strong and
Speaker 11: real rates start to rise, that could be a situation
Speaker 11: where the Fed says, Okay, we're now getting more restricted
Speaker 11: than we would like to be.
Speaker 2: What do you think about the banks right now.
Speaker 11: Well, it's been a unique rally since the October lows.
Speaker 11: If you use the simple definition of plus twenty percent,
Speaker 11: you're in a bull market without really any participation on
Speaker 11: the part of the the banks, which is unusual, and
Speaker 11: I think for sustainability and a move higher, you're going
Speaker 11: to need some participation. Obviously, there's also been that bifurcation
Speaker 11: between the larger banks that came through the banking used
Speaker 11: Jamie Diamond's word incident in March in much better shape
Speaker 11: than the smaller regional banks. And you have the kind
Speaker 11: of doubler triple whammy in the case of the smaller
Speaker 11: and regional banks with the recent downgrade, the fact that
Speaker 11: you've had the deposit flight, and just concerns about commercial
Speaker 11: real estate, which the exposure within the regional and smaller
Speaker 11: banks is much higher to commercial real estate and the
Speaker 11: woes in the office side than the large banks. So
Speaker 11: we're not out of the woods yet, but I think
Speaker 11: the waves from the March problems have clearly died down.
Speaker 2: Chris, what from your point of view, we did have
Speaker 2: that Moody's downgrade on some smaller and regional banks here,
Speaker 2: and they do have as Lininju said, they've got ansual
Speaker 2: you have to pay more deposits that I used to
Speaker 2: pay before. And there is the commercial real estate issue
Speaker 2: looking out there that we're told is more issue for
Speaker 2: regional banks. How big a problem is it?
Speaker 10: Yeah, So I think there's a couple of things to
Speaker 10: look at when it comes to the regional banks that
Speaker 10: are just and it's a question around the underlying strategy,
Speaker 10: because I don't think you can look at all of
Speaker 10: the banks in the same way, but you certainly can
Speaker 10: delineate between the large JASIB banks versus the regional banks.
Speaker 10: And it's a question around so one, what is really
Speaker 10: pressure on profitability? So we were talking about capital requirements
Speaker 10: in Brian Moyahn's comments, but then looking to even just
Speaker 10: flows away from deposits into T bills with the very
Speaker 10: attractive yield and money market funds, that puts pressure in
Speaker 10: terms of profitability. And then if we break down the
Speaker 10: commercial real estate market, so banks overall, so looking across
Speaker 10: the entire sector, are about fifty four percent of that market,
Speaker 10: and then you have about seventy percent within that are
Speaker 10: the smaller regional banks. And so when we look into
Speaker 10: if we're in a higher inter straight environment for longer,
Speaker 10: if we go into twenty twenty four, this is something
Speaker 10: that could put pressure, especially on those banks that have
Speaker 10: high levels of exposure to that sector. And one last comment,
Speaker 10: it's not just all commercial real estate. It really is
Speaker 10: a function of we have to delineate both regionally as
Speaker 10: well as within that space where you're looking to areas.
Speaker 10: Really it's office space more than anything else.
Speaker 2: Listen, I wonder from your point of view, there is
Speaker 2: the issue for the group of banks and whether you
Speaker 2: invest in their stocks or not. But there's also the
Speaker 2: larger question about the growth for the economy. I mean,
Speaker 2: can we grow the economy the way we need to
Speaker 2: to really support the stock market, for example, if the
Speaker 2: banks don't feel like and lend as much.
Speaker 12: Well.
Speaker 11: That goes back to sort of the classics of what
Speaker 11: happens when you go through an economic cycle. When you
Speaker 11: have tighter monetary policy via a FED hiking cycle, and
Speaker 11: of course this has been the most aggressive one. On
Speaker 11: the upside in about forty years, you get a significantly
Speaker 11: inverted yield curve like we have gotten it doesn't immediately
Speaker 11: start to crimp lending. But even before or Silicon Valley
Speaker 11: Bank failing in March, the FEDS slews, you know, Senior
Speaker 11: Loan Officer opinion survey showed that credit conditions have tightened
Speaker 11: into recession territory. So, given the old line of credit
Speaker 11: is the lifeblood of an economy, as it starts to
Speaker 11: feed through with long and variable legs, it ultimately does
Speaker 11: start to crimp economic growth via that investment cycle. We
Speaker 11: haven't seen it in earnest yet, but to suggest that
Speaker 11: this time is different and we're not going to is
Speaker 11: probably to complace in an assumption.
Speaker 2: There's also, I think, Chris, a question of supply demand.
Speaker 2: Is it a matter if there's not the credit to
Speaker 2: extend or is there the demand for the credit other
Speaker 2: businesses asking to borrow as much as they were before.
Speaker 10: Yeah, So I think that that is a question. And
Speaker 10: also it's both demand side. So when you look at
Speaker 10: just the overall like particularly within commercial real estate, and
Speaker 10: you look at volumes in terms of origination, that's fallen
Speaker 10: down substantially. I mean you're looking at year over year
Speaker 10: numbers close to sixty percent. But I think the more
Speaker 10: interesting question that we're getting a lot from our investors.
Speaker 10: Is actually, when you look at these sectors that have lagged,
Speaker 10: are they a buy at these levels? For financials, I
Speaker 10: would say go in the direction of preferreds, which is
Speaker 10: really a play on the balance sheet as opposed to
Speaker 10: the equity which could be challenged from some of these
Speaker 10: profitability considerations.
Speaker 2: So interesting. Thank you so much, Chris. That's Christian Ridderly
Speaker 2: of City and liz Anne Saunders of Charles Schwab. Always
Speaker 2: great to have them with us.
Speaker 8: Coming up.
Speaker 2: As China struggles to get going again, the US added
Speaker 2: more restrictions on investment in the Middle Kingdom. We've talked
Speaker 2: with Debora Lair of the Pulse and Institutes on prospects
Speaker 2: for the second largest economy in the world.
Speaker 4: The world has really been very focused, I think, on
Speaker 4: how to deal with a strong China, and now we
Speaker 4: haven't really thought through some of the implications of the
Speaker 4: weak China.
Speaker 2: That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: China, its economy has grown faster than any in the
Speaker 2: history of the world and is either at number one
Speaker 2: or number two to the United States, depending on how
Speaker 2: you measure it. According to Graham Allison of.
Speaker 12: Harvard, China is not just a rising power. China has risen.
Speaker 12: China is now seriously rivaling the US in virtually every domain.
Speaker 2: But despite all the progress made, there are questions about
Speaker 2: whether China can continue its economic miracle, at least at
Speaker 2: the same pace. Economic numbers have been coming in weaker
Speaker 2: than expected.
Speaker 8: We're not going to see China go back to where
Speaker 8: it was.
Speaker 2: It's a very big component of the global economy, raising
Speaker 2: some doubts from Michelle Lamb of Society General about whether
Speaker 2: China can grow at the five percent pace it's set
Speaker 2: for itself this year.
Speaker 13: Destansirisk and I think that primarily comes from the property.
Speaker 2: Sector, and hopes of government stimulus to keep things going
Speaker 2: are not as bright as they might have been because
Speaker 2: of all that debt.
Speaker 13: Talking about China's debt situation, I think is a long
Speaker 13: standing structural issue, and it's no surprise that China is
Speaker 13: facing a very big debt problem, and it's precisely one
Speaker 13: of the reasons we don't see very aggressive stimulus coming
Speaker 13: from China.
Speaker 2: On top of all the internal issues, China also confronts
Speaker 2: a United States imposing new restrictions on trade and investment,
Speaker 2: whether it's export controls on shipments of technology to China
Speaker 2: or those limits on outbound investment into China. President Biden
Speaker 2: announced this week the.
Speaker 7: Goal of this executive order is to make sure that
Speaker 7: we're limiting the ability of financial.
Speaker 8: Flows and then know how it often.
Speaker 14: Goes alongside those financial flows, to give countries of concerning
Speaker 14: the ability to get around the things that we're trying
Speaker 14: to prevent them from getting access to, like the most
Speaker 14: advanced of my.
Speaker 2: Productors, leaving investors to grapple with what to do and
Speaker 2: not do with an economy simply too big to ignore.
Speaker 2: You can't rule out China. Since I started to go
Speaker 2: to China nineteen eighty four, per gap at income increased
Speaker 2: by twenty eight times. It's a power, and it's a
Speaker 2: smart power. And to take us through where we are
Speaker 2: with China right now, we turn to our non resident
Speaker 2: expert here at Wall Street Week on China. She's Deborah Lair.
Speaker 2: She is Vice chair of the Paulson Institute as well
Speaker 2: as being CEO of Edelman Global Advisory. Deborah, great to
Speaker 2: have you back on it always is we are hearing
Speaker 2: a lot coming out of China right now. We had
Speaker 2: numbers this week which were not very encouraging. Perhaps some
Speaker 2: deflation going on. Certainly their trade is down. What is
Speaker 2: your sense of what's happening? What are the important things
Speaker 2: we should be looking at in China right now?
Speaker 4: Well, so nice to see you again, David, and definitely
Speaker 4: she Jmping has a lot on his plate. The world
Speaker 4: has really been very focused, i think, on how to
Speaker 4: deal with a strong China, and now we haven't really
Speaker 4: thought through some of the implications of a week China.
Speaker 4: When we look at what is happening in the real
Speaker 4: estate market, there are still major challenges ahead. And this
Speaker 4: is critically important because it's one of the main sources
Speaker 4: of investment for most Chinese and so if the market
Speaker 4: is not doing well there, it has a significant impact
Speaker 4: on growth and investment opportunities. To local debt, this is
Speaker 4: something that policy makers have been tracking for a long time,
Speaker 4: and COVID just made it worse. A lot of this debt,
Speaker 4: and this is what's really concerning, is off the books,
Speaker 4: and so it's very hard to even track and be
Speaker 4: aware of. And it relates to how the Center is
Speaker 4: dealing with and forcing a lot of these local governments
Speaker 4: to take on unfunded mandates. And their main source of
Speaker 4: revenue previously was from the real estate market, and so
Speaker 4: if they haven't had access to revenues coming from the
Speaker 4: sales of.
Speaker 6: Real estate, they have to look for other sources.
Speaker 4: It's a big concern enough for Sigenping to be sending
Speaker 4: down policy enforcement teams, which you would think after all
Speaker 4: this time in office, he wouldn't have to do anymore.
Speaker 4: But it shows the concern that they have with local
Speaker 4: officials and their willingness to actually follow mandates coming from Beijing.
Speaker 4: And then to top that, you have weakness in the
Speaker 4: local banks, which again are lending to the local governments
Speaker 4: and to the local real estate market.
Speaker 6: Top that with youth unemployment.
Speaker 4: For many in China, this is the source of their
Speaker 4: retirement plan, the fact that their children are going to
Speaker 4: be working and supporting the.
Speaker 6: Parents and the grandparents.
Speaker 4: And the numbers are over twenty percent, the unofficial numbers
Speaker 4: are believed to be significantly higher than that.
Speaker 2: Is President gy at this point solving this problem for
Speaker 2: the economics of it, or is he solving it for
Speaker 2: the ideology of it? Because some of his rhetoric has
Speaker 2: indicated he actually may care more about the party and
Speaker 2: the party rigor in the private sector than he cares
Speaker 2: about the economics of it.
Speaker 6: Well, that's an excellent question.
Speaker 4: He certainly has been very focused on using the party
Speaker 4: as the means to govern, whether it's through the government itself,
Speaker 4: whether it's to the military, whether it's to the judiciary.
Speaker 6: It's the party that's supreme.
Speaker 4: And he has tried to create an ideology and a
Speaker 4: unity through that. We see in the new structuring of
Speaker 4: the government that it's all the party committees who are
Speaker 4: actually setting economic policy, and the government more and more
Speaker 4: is just an implementer. So as we see these difficulties
Speaker 4: in the government, these weaknesses in the ability to create
Speaker 4: jobs for the youth, in the challenges in attracting direct
Speaker 4: foreign investment or venture capital or private equity, the big
Speaker 4: question will be whether she jen being pivots and focuses
Speaker 4: more on market opening in creating the confidence and the
Speaker 4: conditions to continue to attract foreign business, which is necessary
Speaker 4: if he's going to continue to grow his economy. He
Speaker 4: can't do it without foreign business being present.
Speaker 6: We've seen him pivot before.
Speaker 4: We saw how quickly he was willing to pivot at
Speaker 4: the end of COVID in opening up to the rest
Speaker 4: of the world, and we're starting to see signs that
Speaker 4: he's beginning to reconsider some of his economic policies to
Speaker 4: be more open and change that emphasis from such a
Speaker 4: focus on the party, not that it's ever going to
Speaker 4: go away, but to really be focused more on providing opportunities.
Speaker 4: Look at what he's been doing in technology and the
Speaker 4: opportunities now and encouraging platform companies and the tech executives
Speaker 4: to be innovative where it wasn't that long ago when
Speaker 4: they were one of the top targets.
Speaker 2: President G may decide that he wants to be more
Speaker 2: open the rest of the world. Is the rest of
Speaker 2: the world open to President G at this point? Certainly
Speaker 2: the United States and the West seems to be taking
Speaker 2: some actions, including this week with the restrictions on outbound
Speaker 2: investment into China. We see various actions being taken. To
Speaker 2: what extent does that hamper what President you can do?
Speaker 2: As you know so well, Deborah, foreign direct investment is
Speaker 2: down rather substantially into China, it is, and I.
Speaker 4: Think one of the biggest questions is around confidence. Confidence
Speaker 4: in China and its leadership. Obviously, the United States has
Speaker 4: to stay very focused on its national security, and these
Speaker 4: outbound investment regulations are limited to areas that it's concerned
Speaker 4: that we might be creating competitors to our own national
Speaker 4: security interests. I think it's going to be important to
Speaker 4: watch if other countries do the same. There definitely is
Speaker 4: a reconsideration in Western economies and looking at what their
Speaker 4: relationship is economically with China.
Speaker 6: It's not to say that companies.
Speaker 4: Aren't investing there and continuing to do business there, but
Speaker 4: more and more we hear they're looking at China for China,
Speaker 4: and then they're looking at the rest of the world.
Speaker 4: Some of China's own policies, including its national Security law,
Speaker 4: are really emphasizing that fact because it's a very murky area,
Speaker 4: particularly when it comes to issues like data, and more
Speaker 4: and more companies are looking at how they can create
Speaker 4: an island in China for data and not have it
Speaker 4: linked into the rest of the world, and those issues,
Speaker 4: even though they may sound small right now, start to
Speaker 4: have a ripple effect in how CEOs and others are
Speaker 4: making their investment decisions.
Speaker 6: And this is one of the reasons.
Speaker 4: It's not just these geopolitical restrictions that we're seeing that
Speaker 4: are limiting direct foreign investment in China.
Speaker 6: It's some of China's own.
Speaker 4: Policies that are causing a concern within I think the
Speaker 4: foreign business community.
Speaker 8: Debor.
Speaker 2: It's always a pleasure, really a treat to have you
Speaker 2: with us. As tebro Laire, she's a CEO of Edelman
Speaker 2: Global Advisory. Coming up. It looks like we may not
Speaker 2: get that recession after all. What does that do for
Speaker 2: all our investing plans based on worst case scenarios, Well,
Speaker 2: its rit reader a black rock.
Speaker 8: My base case is that inflation is moderating. Those real
Speaker 8: rates we talked about, should.
Speaker 3: Come down with a FED that starts that is now
Speaker 3: stable and will start cutting rates. So I think the
Speaker 3: equity market next year will get a nice boosh from
Speaker 3: what I think will lead a reduction of the interest rate.
Speaker 2: That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 15: That is definitely not the fed's intent and has not
Speaker 15: been the FEDS intent throughout this expansion. We raised interest
Speaker 15: rates in ninety four to five without the intent of
Speaker 15: causing recession. For sure, and we didn't, and the FED
Speaker 15: is trying to do a duplicate of that soft landing
Speaker 15: now not to cause a recession.
Speaker 2: That was former FED Vice Chair Alan Blinder on Wall
Speaker 2: Street Week back in January of two thousand, a little
Speaker 2: more than a year before the US went into a
Speaker 2: recession following a series of rate hikes. But that was then,
Speaker 2: and this is now to bring us up to date
Speaker 2: on whether the current interest rate policy is likely to
Speaker 2: give us a similar recession. Welcome back to Rick Reader.
Speaker 2: He's Blackrock CIO for Global fixed Income and head of
Speaker 2: its Global Allocation Investment team. Rick, great to have you
Speaker 2: on Wall Street. Ras, So, where are we right now?
Speaker 2: Not too long ago, a lot of economists, including FED
Speaker 2: economists as well as Bank of America others, were saying
Speaker 2: we're going to recession. They've all changed their mind. Where
Speaker 2: are you?
Speaker 8: So? I think?
Speaker 3: And I did a presentation a while ago I'd called
Speaker 3: the US economy the polyurethane economy because of how resilient
Speaker 3: it is, like one of those temperpedic matches, and how
Speaker 3: resilient it is that is very hard to dent it.
Speaker 8: And you think about I mean the economy today.
Speaker 3: Versus twenty years ago, seventy percent consumption seventy percent services.
Speaker 8: Think about to create a recession.
Speaker 3: If you're seventy percent services, which are amazingly stable, they
Speaker 3: don't go into recession. Your goods far to your economy,
Speaker 3: which now fractioning of the economy has to really become devastated.
Speaker 3: The other side of it, I think people misinterpret US
Speaker 3: economy is not as interrast rate sensitive as well as
Speaker 3: twenty thirty years ago. People have locked in their mortgages already,
Speaker 3: the banking system runs differently, commercial real estate gets hurt,
Speaker 3: companies have turned out their debt. They don't rely on
Speaker 3: the front end of the yield curve like they used
Speaker 3: to have FED funds rate. And then the last point
Speaker 3: is the big spenders on CAPAX and US economy are
Speaker 3: companies tech companies. They're not big borrowers. So I think
Speaker 3: people overestimate. When the FED raisers rates this much, you
Speaker 3: hurt parts of the economy, the regional banks, of small banks,
Speaker 3: your commercial real estate, but the rest of the economy
Speaker 3: is amazingly resilient to it.
Speaker 2: So it's fascinating. I guess the answer is the question
Speaker 2: of why so do you feel got it wrong? Is
Speaker 2: they had the wrong model. Do we have to revise
Speaker 2: our economic models going forward for the reasons you just identified.
Speaker 2: It's a different economy there was twenty years.
Speaker 3: Ago one hundred percent by the way, now it's a
Speaker 3: different economy today. So we try and model and project
Speaker 3: what inflation is going to look like two three years hence.
Speaker 8: Let alone for the next year.
Speaker 3: Think about now how the economy is evolving around AI
Speaker 3: and productivity and how jobs are going to evolve. Very
Speaker 3: hard to think about economies. People look at the analog
Speaker 3: from ten years ago, twenty years ago, and what happens
Speaker 3: when rates move?
Speaker 8: I think you have to look.
Speaker 3: I mean, we're trying to spend more time on as
Speaker 3: environmental conditions that you're operating within and what impacts it
Speaker 3: in other way, you know, you talk about we have
Speaker 3: a need for more people the unemployed and rates this
Speaker 3: that three and a half percent is a structural reason.
Speaker 3: You look at and we've talked about on your show
Speaker 3: a bunch of times. You look at the number of
Speaker 3: people hired for healthcare, education, not interest rates sensitive. There's
Speaker 3: a shortage leisure, hospitality, hotels, restaurants, there are shortage of
Speaker 3: people when you have a three and a half percent unemployment.
Speaker 8: Because it's structural.
Speaker 3: It's pretty hard for the economy at good wages, pretty
Speaker 3: hard for the economy to go into a deep percession,
Speaker 3: win so much the economy's consumption.
Speaker 2: So so let's take a look at the investment profile.
Speaker 2: Given what you've just said, where does the ten year
Speaker 2: want to be? Because so many investment divisions are really
Speaker 2: keyed off of where the tenure yield is. Where does
Speaker 2: it want to be right now? Because I hear people
Speaker 2: saying in the mid threes, low threes. I hear people
Speaker 2: say in the mid fours.
Speaker 3: So you know, I think, you know, around four percent
Speaker 3: I think is a reasonable resting place.
Speaker 8: You know. My sense is there's a.
Speaker 3: Couple of a couple of factors that work against one another.
Speaker 3: First one is treasury is issuing an amazing amount of supply.
Speaker 3: We're going through the issues and the Treasuries just announced
Speaker 3: they're going to.
Speaker 8: Increase the supply.
Speaker 3: Longer on the curve, they relied on immense amounts of
Speaker 3: treasury bills.
Speaker 8: You're seeing it's almost almost.
Speaker 3: Three hundred billion a week gross supply, not net, but gross.
Speaker 8: Supply of treasure bills.
Speaker 3: So you're gonna get more supply, so that tends to
Speaker 3: push rates a bit higher.
Speaker 8: However, inflation is coming down.
Speaker 3: You look at the CPI data, and I was looking
Speaker 3: at the three month moving average of core CPI. If
Speaker 3: you if you strip out some of the use this
Speaker 3: funky used car.
Speaker 8: Stuff, is only one percent.
Speaker 3: So now you take okay, so it's actually one point
Speaker 3: one percent three month moving average, So you say, okay,
Speaker 3: a tenure. Note now the real rate net of inflation,
Speaker 3: it's not bad. I mean the level on tenure. So
Speaker 3: I don't think we're going very far. I think the
Speaker 3: supply could push ten years a bit higher. If you
Speaker 3: said to me where we're going to be six months
Speaker 3: from now, nine months, around a year from now, I
Speaker 3: think the ten year is going to migrate lower because
Speaker 3: if you believe that inflation is coming down, which I
Speaker 3: think is right, then the ten years should start to
Speaker 3: move closer to three to three and a quarter. And
Speaker 3: I think we'll see that next year. But you know,
Speaker 3: for the next couple of months, it's sticky at these levels.
Speaker 2: We had so many debates about hard landing soft lending.
Speaker 2: What kind of landing you suggest me, we may not
Speaker 2: have it landing at all. So given that does that
Speaker 2: change your investment outlook right now? Does it change how
Speaker 2: you invest your money?
Speaker 8: So I say one thing about it.
Speaker 3: I mean, I think the economy is moderating from extraordinary
Speaker 3: twelve point three percent nomenal GDP and twenty one seven
Speaker 3: and change percent and twenty two that is unbelievable. I'm
Speaker 3: not saying we can't slow a bit. And you know,
Speaker 3: even could you have a technical recession. I just think
Speaker 3: like you'd have to wake people up and tell them
Speaker 3: because you're operating at such a high level in the economy.
Speaker 3: So how do we think about it? I said, I
Speaker 3: think there are a lot of you know, equities that
Speaker 3: make sense today. The equity markets had a really good run.
Speaker 3: Seven stocks, eight stocks have driven it. There are a
Speaker 3: lot of companies if you believe the economy is stable.
Speaker 3: You can buy a lot of businesses that traded three,
Speaker 3: four or five times cash flow if you believe the
Speaker 3: economy stable, autos, airlines, home builders, some of the energy
Speaker 3: infrastructure traded.
Speaker 8: Pretty low multiple. So I like gowning the equity market.
Speaker 8: So I like running portfolios.
Speaker 3: I think you have upside inequities and then you can
Speaker 3: create amazing amounts of carry the front end I.
Speaker 8: Can talk about the front end the yield curve.
Speaker 3: You can buy commercial paper pine six percent if you
Speaker 3: can create a six and then own some equity. And
Speaker 3: by the way, I guess your point about do I
Speaker 3: need to own a lot of ten or thirty year
Speaker 3: treasuries that at four I don't know, not that interesting.
Speaker 3: But I can buy a lot of front end, a
Speaker 3: lot of yield, and then buy some equity and so
Speaker 3: get some upside with some real income and.
Speaker 2: The equity front Talk about the discount rate, because we're
Speaker 2: up now north of five right. Some people think it's
Speaker 2: going to come back down next year fairly quickly. Other
Speaker 2: people think it may stay up there. That really affects
Speaker 2: the value of those equities and the valuations you're talking about,
Speaker 2: doesn't it one hundred percent?
Speaker 3: And so, by the way, my base case is that
Speaker 3: inflation is moderating. Those real rates we talked about should
Speaker 3: come down with a FED that starts that is now stable,
Speaker 3: and we'll start cutting rates. So I think the equity
Speaker 3: market next year will get a nice boost from what
Speaker 3: I think will be a.
Speaker 8: Reduction of the interest rate.
Speaker 3: By the way, credit spreads are also really tight. Companies
Speaker 3: don't borrow if they borrow off of their spread to treasuries,
Speaker 3: and it's they're pretty tight. So the discount rate is
Speaker 3: it's not bad today for equities, but it is my senses,
Speaker 3: it's going to come down from here.
Speaker 2: So you went anticipating Fed cutting rates next year, I
Speaker 2: mean how early and how much?
Speaker 3: I mean, I think the FED would like to stay
Speaker 3: on hold for a period of time. But I think
Speaker 3: as you get into the second half of the year,
Speaker 3: and you know, maybe earlier, if inflation accelerates quicker, you know,
Speaker 3: can you do start to do twenty five's a meeting.
Speaker 8: I think so. I think so. I think these are
Speaker 8: I think these restrictive rates.
Speaker 3: You know, my senses, I talk about your show a
Speaker 3: lot there because of the economy is not as interest
Speaker 3: rates sense have used to be. Those restrictive interest rates
Speaker 3: really hurt small banks, They really hurt commercial real estate,
Speaker 3: They hurt targeted parts of the economy which quite frankly,
Speaker 3: I think have been overdone. And the other thing they
Speaker 3: really hurt is the US government is running over thirty
Speaker 3: trillion a debt. The Treasury has usually borrowed as treasury
Speaker 3: bills at zero, with a huge part of their of
Speaker 3: their borrowing scheme is zero.
Speaker 8: Now it's at five and a half percent.
Speaker 3: The debt service in this country will choke the amount
Speaker 3: of fiscal spend that we can have in the country.
Speaker 3: The FED needs to bring the raid down so that
Speaker 3: we don't create too onerous a.
Speaker 8: Problem in terms of debt service in the country.
Speaker 2: Since we last got to talk about on Wall Street week,
Speaker 2: you've got a new gig. It's an ETFEH tell us
Speaker 2: about ETF and why you're doing. What's the itch that
Speaker 2: you're trying to scratch that hasn't been scratched.
Speaker 3: So there is I mean explosion of ETFs. People use
Speaker 3: them in so many different ways. You can trade them
Speaker 3: all day. They're tax efficient money ways.
Speaker 8: People like to put them in models.
Speaker 3: They said, I've got this ETF, they can they buy
Speaker 3: and sell anyway.
Speaker 8: So we've been.
Speaker 3: Asked to do an active ETF, and so there's been
Speaker 3: a tremendous growth of passive ETFs, both in credit and rates,
Speaker 3: et cetera. And now you're seeing more than people want active,
Speaker 3: so give me. In fixed income, most managers outperform indices
Speaker 3: consistently over time for a variety of reasons. There's sixty
Speaker 3: eight thousand fixed income securities. Compare that to the S
Speaker 3: and P five hundred. There's so many tools we have,
Speaker 3: and so people have asked for gosh, i'd love to
Speaker 3: get the exposure in an ETF form. Give me something
Speaker 3: that can get me a little bit more juice. And
Speaker 3: so in this new one we're doing called Bink, you know,
Speaker 3: we've got it's a seven percent yield. You know, we
Speaker 3: manage you know, sometimes we're in securitized assets, sometimes we're
Speaker 3: in high yield. We're moving around tactically credit investment, great
Speaker 3: credit and to get that sort of yield and then
Speaker 3: have somebody it's hard as an individual to buy securitized assets.
Speaker 3: You can buy clos or commercial mortgages to many people
Speaker 3: like evaluating the collaterals hard and so you know, we've
Speaker 3: been doing it for a million years, and so anyway,
Speaker 3: it's becoming really attractive and there's a lot of excitement
Speaker 3: around it.
Speaker 2: Thanks you so much. That is Rick Reader of Blackrock
Speaker 2: coming up. A dollar doesn't buy what it used to.
Speaker 2: We go through a list of how much things cost
Speaker 2: these days, from sports teams to ups drivers to a
Speaker 2: reservation at REOs.
Speaker 16: That's next on Wall Street Week on Bloomberg, this is
Speaker 16: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: This is Wall Street Week. I'm David Weston. The world
Speaker 2: of college football continues to reinvent itself as this week,
Speaker 2: four more schools USC, UCLA, Washington, and Oregon left the
Speaker 2: PAC twelve conference to join the Big Ten, rounding that
Speaker 2: ten number up to an even eighteen. To explain what's
Speaker 2: going on, Welcome out George Pine, founder and CEO of
Speaker 2: Ruined Capital. Where does this all end? We're gonna end
Speaker 2: up with two super conferences as three super conferences.
Speaker 5: I don't know, you do feel more pressure for consolidation.
Speaker 5: I think what's unusual. First of all, college football is
Speaker 5: the number two sport in America, and it's a big business.
Speaker 5: It's a multifaceted and it's run by a very fragmented industry,
Speaker 5: and so it's a bit unwielding, and I think what
Speaker 5: you see is that the suppliers and TV networks have
Speaker 5: a bigger say because of the fragmentation and the lack
Speaker 5: of really a unified vision or leadership in college sports.
Speaker 5: So therefore it's a little bit of the wild West.
Speaker 2: Who is running it? Is it college presidents? Is it
Speaker 2: ourthletic directors. Is it the television providers? Is it the
Speaker 2: Congress who's running it?
Speaker 5: It's really the college presidents of the individual universities. But
Speaker 5: as you've seen, they're not always loyal either. USCUSLA leaving
Speaker 5: the packs well a conference that has been around since
Speaker 5: nineteen fifteen, right, and so it's very fragmented and self interested.
Speaker 5: There isn't a unifying group that looks out for college
Speaker 5: sports and it has the ability to lead college football.
Speaker 2: George, great, you have at Walshert week. Thank you so
Speaker 2: much for being here. That's George Pine a ruined capital. Finally,
Speaker 2: one more thought. Money may not buy you happiness, but
Speaker 2: at this point, what can it buy you? The CPI
Speaker 2: this week confirmed that inflation is slowing in the United States,
Speaker 2: but it's still pretty high, which got us wondering what
Speaker 2: money can still buy you in this time of higher prices.
Speaker 2: We learned this week that it can't buy you a
Speaker 2: fifth World Championship in women's soccer or football as the
Speaker 2: rest of the world calls it, when the US team
Speaker 2: lost to Sweden, but will still get a pay raise
Speaker 2: because of its agreement to split the pot with the.
Speaker 14: Men Women's World Cup is performing quite well. We're starting
Speaker 14: to see increasing.
Speaker 17: Traction, double digit traction as the tournament progresses.
Speaker 2: Enough money will buy you an NFL team, but the
Speaker 2: price is going up, with estimates out this week saying
Speaker 2: it would take a cool nine point two billion dollars
Speaker 2: to get the Dallas Cowboys. That's if Jerry Jones were
Speaker 2: willing to sell it, and that's despite the fact that
Speaker 2: they haven't won a Super Bowl since nineteen ninety six.
Speaker 2: We also learned that enough money about one hundred and
Speaker 2: seventy thousand dollars including benefits, can buy you a UPS
Speaker 2: driver for a year under the new contract with the
Speaker 2: team Stirs, though it may be coming out of the
Speaker 2: pockets of UPS shareholders.
Speaker 17: The difference is that UPS has been negotiating this contract,
Speaker 17: which has been a big over The cost inflation from
Speaker 17: the contract in year one is quite high.
Speaker 8: We're estimating mid high single.
Speaker 17: Digits, whereas Fatex is now transitioning to more of a
Speaker 17: structuring of their ground in express businesses and their costs
Speaker 17: or moving the other way around.
Speaker 2: About two or three thousand dollars will buy you a
Speaker 2: quiet luxury code from Norwegian wool, so you can look
Speaker 2: just like one of the roy family on succession.
Speaker 18: So when you talk about quiet luxury, you know, I
Speaker 18: don't think that's anything all that new. I think most
Speaker 18: of us and most people in the audience who really
Speaker 18: have their own story to tell, they want their brand
Speaker 18: to be the one that's being warned, not another company's brand.
Speaker 2: For something between two and twenty five million dollars, you
Speaker 2: can get a luxury condo at the Cortland in West
Speaker 2: Chelsea and Manhattan and they will throw in not one,
Speaker 2: but two pools, one for swimming laps and one for
Speaker 2: just splashing around. No amount of money will get you
Speaker 2: a reservation at exclusive New York Italian restaurant REOs. For that,
Speaker 2: you need to be one of the regulars who own
Speaker 2: their own tables pretty much in perpetuity. But if you
Speaker 2: can't get someone to take you as their guests, you
Speaker 2: can always just buy a jar of Rayo's tasty pasta
Speaker 2: sauce to enjoy it home and Campbell's Soup this week
Speaker 2: agreed to pay two point seven billion dollars for the
Speaker 2: privilege of bringing you that Rao sauce, and this year
Speaker 2: Steve Cohen is proving there is one more thing you
Speaker 2: cannot buy, no matter how much you're willing to pay,
Speaker 2: a championship baseball team, as his record breaking spending on
Speaker 2: the New York Mets has taken him and his team
Speaker 2: nowhere fast.
Speaker 14: Free agency is really expensive, okay. If you want to
Speaker 14: feel a good team from free agency, that's what it costs.
Speaker 6: If you want to field, you know.
Speaker 14: Fill all the positions with hopefully quality players, okay. And
Speaker 14: sometimes you can get it right, and sometimes you know,
Speaker 14: things go wrong.
Speaker 2: I'll say so, that does it for this episode of
Speaker 2: Wall Street Week. I'm David Weston. This is Bloomberg. See
Speaker 2: you next week.