Speaker 1: Global Wall Street gathers in Washington with a focus on
Speaker 1: higher rates, shaky banks, and whether the world's two largest
Speaker 1: economies can work together. This is Bloomberg Wall Street Week.
Speaker 1: I'm David Weston this week's special contributor. Larry Summers of
Speaker 1: Harvard on whether we're headed for a soft but slow
Speaker 1: landing after.
Speaker 2: All, I don't see inflation as on a secure path
Speaker 2: down to the two percent of target unless the economy
Speaker 2: turns over a bit.
Speaker 1: Glenn Hubbard of Columbia on whether we're headed for a
Speaker 1: credit crunch. And Sonya Gibbs of the IIF on the
Speaker 1: plight of zombie companies.
Speaker 3: Higher rates are going to cause a lot of pain,
Speaker 3: and particularly for these zombie firms.
Speaker 1: Washington hosted the annual meetings of the IMF and World
Speaker 1: Bank again this week, with a focus on threats to
Speaker 1: global growth. Treasury Secretary of Yellen insisted that things didn't
Speaker 1: look all that bad.
Speaker 4: I said that the global economy was in a better
Speaker 4: place than many predicted last fall. That basic picture has
Speaker 4: remained largely unchanged.
Speaker 1: Though IMF Chief Economist Garancha warned that questions about the
Speaker 1: banks could be a drag on the global economy.
Speaker 5: The risk that banks are going to look at the outlook,
Speaker 5: they're going to look at the bottom line, and they
Speaker 5: are going to be a little bit more prudent in
Speaker 5: extending loans going forward, and that could weigh down further
Speaker 5: on economic growth.
Speaker 1: And geopolitics, particularly the tensions between China and the United States,
Speaker 1: the world's two largest economies, could make the difference. As
Speaker 1: acknowledged by Treasury Under Secretary Jay Shambaugh.
Speaker 4: We obviously need to be able to work together.
Speaker 1: And the USCPI numbers came out showing that inflation is
Speaker 1: still with us, but it appears to be moderating. We
Speaker 1: know that prices are still too high for so many
Speaker 1: things across the economy, but certainly we are looking for
Speaker 1: this downward momentum. The market took all of this, put
Speaker 1: it together with somewhat weaker retail sales numbers, and came
Speaker 1: out slightly higher, with the S and P five hundred
Speaker 1: adding eight tens of a percent and the NASDACK up
Speaker 1: almost three tens of percent, while the yield on the
Speaker 1: tenure was up thirteen basis points to end the week
Speaker 1: just over three point five one percent. For their thoughts
Speaker 1: on what we learned this week. We welcome back now
Speaker 1: Christina Hooper Invesco chief investment market strategist, and Sarah Mallick.
Speaker 1: She is chief investment officer at Nouvene, So welcome to
Speaker 1: both of you. Great Davy back with us, Sara, let
Speaker 1: me start with you. What did we learn this week
Speaker 1: and specifically about where the economy is headed? Maybe more importantly,
Speaker 1: what you think, what the Fed thinks? Is there evidence
Speaker 1: in fact and the CPI and on the numbers than
Speaker 1: in fact we're getting our arms around inflation.
Speaker 6: We learned that progress is being made on the war
Speaker 6: against inflation, but economic damage is yet to be seen.
Speaker 6: We had two data points for the bulls and the
Speaker 6: bears this week. For the bulls, CPI and PPI both moderating.
Speaker 6: Great to see sticky areas like Shelter starting to become
Speaker 6: a tailwind. But for the bears, powkish Fed speak and
Speaker 6: also negative retail sales for March. That's four out of
Speaker 6: five months there, and that concerns us that overall we
Speaker 6: still have economic downside ahead of us, perhaps lower earnings
Speaker 6: going forward and market evaluations with the s and P
Speaker 6: OFBO forty one hundred likely has a tough time going
Speaker 6: forty two hundred to forty four hundred. If it gets
Speaker 6: to that level, I think we just stay in a
Speaker 6: trading range and then go back down from there until
Speaker 6: we clear the decks on what we think is likely
Speaker 6: coming up, which is a mild.
Speaker 1: Recession and the FED twenty five basis once in May.
Speaker 1: What do you think, Sarah.
Speaker 7: We think the Fed is one and done. One more
Speaker 7: twenty five basis point rate hike in May.
Speaker 6: But what we haven't seen yet is now thirteen months
Speaker 6: ago was just the first FED rate hike, and we
Speaker 6: have not seen the effects of monetary tightening through the economy.
Speaker 6: We did just see it recently with the banking system.
Speaker 6: I think there's more to come in terms of how
Speaker 6: higher interest rates are going to impact, for example, of
Speaker 6: the consumer. Tighter credit conditions that's going to impact the economy,
Speaker 6: which is why we're expecting that slowdown going forward.
Speaker 1: Christina, one and done.
Speaker 8: No, I don't think the Fed is going to high
Speaker 8: rates again. I think the odds are increasing that they won't,
Speaker 8: and I think that is the right decision. The Fed
Speaker 8: has already done enough, and I do believe that they're
Speaker 8: going to be relatively comfortable with the pace of inflation,
Speaker 8: especially since we've seen progress made in services x housing,
Speaker 8: which is the component of inflation that the FED is
Speaker 8: laser focused on.
Speaker 1: Are they not going to hike rates Christina, because in
Speaker 1: fact we're headed to a recession. They see that they're.
Speaker 8: Not going to hike rates because inflation is coming down
Speaker 8: at an appropriate pace that they're comfortable with. And they're
Speaker 8: not going to hike rates because they know that there
Speaker 8: are lagged effects of monetary policy, so we haven't yet
Speaker 8: seen most of the damage that has been done by
Speaker 8: the aggressive tightening cycle. But no recession, you think, well,
Speaker 8: I think that there is a pathway. It has narrowed,
Speaker 8: but there is a pathway to a semisoft landing. If
Speaker 8: we get a recession. I think it's going to be.
Speaker 1: Mild Sarah, recession, no recession.
Speaker 7: We're in a mild recession camp.
Speaker 6: And the reason that we think that FED has more
Speaker 6: work to do with raising interest rates is because they've
Speaker 6: been clear that their mandate is two percent inflation as
Speaker 6: a t target. I don't think they're going to take
Speaker 6: their foot off the gas until we get closer to
Speaker 6: that number, and we're just not near that yet. The
Speaker 6: other thing we're concerned about is earnings now coming into
Speaker 6: first quarter? It was nice to see that earnings estimates
Speaker 6: actually were cut to a higher mount than usual, so
Speaker 6: Q one earnings may be come out all right.
Speaker 7: In terms of revenue growth, margins will continue to be.
Speaker 6: Compressed for this quarter and going forward, and I think
Speaker 6: that positive revenue growth we see this quarter may have
Speaker 6: difficulty holding up because revenues have been growing because of
Speaker 6: pricing power, and as inflation we continues to moderate, companies
Speaker 6: may lose their pricing power.
Speaker 1: Sarah, What about credit? There's a lot of talk about
Speaker 1: a credit crunch, whatever that means. Certainly there's tightening credit appears.
Speaker 1: Is that more likely to slow on the economy? Sarah?
Speaker 6: I think it is because the consumer and the employment
Speaker 6: market has been what is holding up the economy here,
Speaker 6: and with the mini banking crisis that we saw, we
Speaker 6: expect banks to tighten credit and that will make it
Speaker 6: tougher for the consumer.
Speaker 7: And just thinking about banks more broadly, they're going.
Speaker 6: To probably have issues going forward with tighter regulations, tighter
Speaker 6: capital requirements, and pressures on their net margins. Even though
Speaker 6: we saw today with JP Morgan an unusually positive men
Speaker 6: interest margin income for them, but I think that was
Speaker 6: unusual and will normalize to the downside going forward.
Speaker 8: So I think that a lot of it depends on
Speaker 8: how much credit conditions tighten, and I think there's a
Speaker 8: big difference between what's happening with regional banks and what's
Speaker 8: going to happen with the major national banks. What I
Speaker 8: hear from my contacts at the big banks is that
Speaker 8: we are not tightening credit conditions, but what we are
Speaker 8: doing is adhering more closely to our own lending standard,
Speaker 8: So a very mild tightening of credit conditions, whereas the
Speaker 8: regional banks some have been under pressure and conditions are
Speaker 8: going to tighten significantly.
Speaker 2: So then the.
Speaker 8: Question becomes what is the impact on the economy. I
Speaker 8: think that it's certainly going to be a negative source
Speaker 8: of negative pressure, but at the same time, I also
Speaker 8: believe it could be a positive in that the FED
Speaker 8: seas that some of its work is being done for
Speaker 8: it by those tightening credit conditions, and then of course
Speaker 8: decides not to high rates any further.
Speaker 1: Exactly what about that, Sarah, Are the credit conditions actually
Speaker 1: doing the Fed's job for it? Does it make up
Speaker 1: less likely it will actually have to have one and done?
Speaker 6: I think credit conditions did some of the fed's job
Speaker 6: in March. A couple of weeks before the March FED
Speaker 6: rate high markets were expecting fifty basis points and the
Speaker 6: banking crisis took twenty five basis points off of that,
Speaker 6: and we just got twenty five more and forward. I
Speaker 6: agree with Christina regional banks are more at risk than
Speaker 6: larger banks, but these large deposit flows that we've seen
Speaker 6: come from regionals to large money center banks likely moderates
Speaker 6: from here and we probably even see some attrition from
Speaker 6: that going forward. And then the larger banks also have
Speaker 6: these capital markets businesses that are down significantly, which is
Speaker 6: going to be an issue going forward. Then the larger
Speaker 6: bank category, we'd stick with diversified companies like Morgan Stanley
Speaker 6: because of their strong wealth management business or ing, but
Speaker 6: generally we're not positive on banks overall because of the
Speaker 6: structural issues they're going to have going forward, which started
Speaker 6: over a year.
Speaker 1: Ago, and that is exactly where we're going to turn next,
Speaker 1: where we should be puaring our money given this uncertainty.
Speaker 1: Sarah Melick of Nouvigne and Christina Hooper will be staying
Speaker 1: with us as we get some investment advice from them
Speaker 1: in these uncertain markets. That's next on Wall Street Week,
Speaker 1: and we are on Bloomberg.
Speaker 9: Inflation in America. It's a problem that has come and
Speaker 9: gone every time, but this one. Inflation previously was strictly
Speaker 9: a wartime phenomenon, starting with the period during and after
Speaker 9: the Revolution, and returning virulently, even more virulently than lately
Speaker 9: at the time of the Civil War and World War One.
Speaker 9: What was different was that periods of deflation always followed. Indeed,
Speaker 9: the compound annual rate of US inflation since seventeen ninety
Speaker 9: works out to only one point two percent. What's different
Speaker 9: about inflation in the last forty years is not its height,
Speaker 9: but it's length.
Speaker 1: That was Lewsier Grockett Rockeiser on Wall Street Week back
Speaker 1: in January of nineteen eighty one, another time when inflation
Speaker 1: was proving harder to get under control than markets would
Speaker 1: have liked. The top movie back then that week, at
Speaker 1: least was The Incredible Shrinking Woman starring Lily Tomlin and
Speaker 1: directed by Joel Schumacher. And the number one song Well
Speaker 1: that was starting over by John Lennon. So what is
Speaker 1: our Christina Hooper of Invesco and Sarah Mallick of Nouvene. So, Christina,
Speaker 1: let's start with you. Given that what we're having in inflation,
Speaker 1: trying to get inunder control, what the FED is doing,
Speaker 1: What does that tell investors? What this should they be
Speaker 1: doing right now?
Speaker 8: So, David, what I think is it's telling investors right
Speaker 8: now is that there is an awful lot of uncertainty
Speaker 8: out there. We don't know what the Fed's going to do.
Speaker 8: Sarah and I differed and what we expect, and I
Speaker 8: think that's very very true. Markets don't know what the
Speaker 8: FED is going to do. And in addition, what we
Speaker 8: have is this big unknown about the debt ceiling and
Speaker 8: will it be easily resolved or will it be a
Speaker 8: problem like it was in twenty eleven and could it
Speaker 8: be even worse and what we saw in twenty eleven. So
Speaker 8: this is an environment that I think you want to
Speaker 8: be defensively positioned in tactically though, waiting for a change
Speaker 8: and what is that change going to be? Well, to
Speaker 8: make sure the banking crisis is behind us, and also
Speaker 8: of course making sure the FED hits the pause button
Speaker 8: and we are poised. That to me means we'll be
Speaker 8: poised for a different market environment, one that tends to
Speaker 8: be more risk on.
Speaker 1: Christina. When you say defensively, I think cash money markets
Speaker 1: are we're turning some pretty nice returns And are you
Speaker 1: talking cash?
Speaker 8: I am not talking cash. I'm talking about with inequities
Speaker 8: being more defensively positioned in terms of technology, healthcare, consumer staples, utilities,
Speaker 8: within fixed income, being more cautious, having investment grade credit,
Speaker 8: so within alternatives, overweighting gold, and underweighthing cyclical commodities, So
Speaker 8: that to me is being defensively positioned, but also recognizing
Speaker 8: that this market could market regime could turn soon if
Speaker 8: we get that pause and if we get more clear
Speaker 8: signs that the banking crisis is behind us.
Speaker 1: So, sir, you're a chief investment officer at Neuvene, where
Speaker 1: you're putting your money.
Speaker 7: We're advising our clients.
Speaker 6: Overall, our theme is quality, making sure you own companies
Speaker 6: that are resilient and can survive lower earnings and a recession.
Speaker 6: So starting with equities dividend growers, these companies tend to
Speaker 6: increase their dividend over time, so it gives clients income
Speaker 6: and also they tend to have strong balance sheets and
Speaker 6: strong free cash flow because they're able to grow their divinends.
Speaker 7: You know. Surprisingly, we also like emerging markets.
Speaker 6: That's an area that we don't think of as sort
Speaker 6: of low beta, but with China reopening and the dollar
Speaker 6: likely weakening as the economy slows in the US and
Speaker 6: valuations on their side, we like emerging markets for a
Speaker 6: little more bang for your buck. Then fixed income we're
Speaker 6: looking at high quality, high yield, again the quality theme,
Speaker 6: and also doub rated corporates where you can reach for
Speaker 6: yield and get a little stronger return. And then real
Speaker 6: assets are interesting.
Speaker 7: Well.
Speaker 6: Our biggest, our top pick coming into this year was infrastructure.
Speaker 6: The components of that are waste management and utilities. Given
Speaker 6: during a recession, we take our garbage and we still
Speaker 6: turn of our life, so that tends to be a
Speaker 6: recession resilient sector going forward.
Speaker 7: Those are the areas that we like.
Speaker 1: A process, so certain, just a pressure a little bit.
Speaker 1: Do you have any good examples of what you call
Speaker 1: dividend growers.
Speaker 7: Sure, So it's across the board. It's not broke versus value.
Speaker 6: A company like Lindo, which is an industrial gas company,
Speaker 6: they tend to have strong margin, strong pricing power, high
Speaker 6: quality company, a nice yield. These are the companies that
Speaker 6: we like going Morgan Stanley's another company we just talked
Speaker 6: about that within financials, but that's the company we like
Speaker 6: in a sector where we're not as positive all but
Speaker 6: they have a nice dive and meal. All these companies
Speaker 6: that have a nice yield and also tend to increase
Speaker 6: their dividend going forward are companies that fall into the
Speaker 6: dividend grower category.
Speaker 1: Okay, this has been a terrific discussion. Thank you so
Speaker 1: much for being back with us. That's Sarah Mallick, she's
Speaker 1: CIO of New ven and Christina Hooper of Invesco. As
Speaker 1: we enter banks earning the season, investors are paying close
Speaker 1: attention to evidence of continuing effects of the failure of
Speaker 1: Silicon Valley Bank and government intervention to protect the pots
Speaker 1: to take us through the likely effects. We welcome back now,
Speaker 1: Glenn Hubbard. He's Deanameritis and Professor of Finance and Economics
Speaker 1: at Columbia Business School. Doctor Hubber, of course, served as
Speaker 1: chair of the Council of Economic Advisors under President George W.
Speaker 2: Bush.
Speaker 1: So, Glenn, thank you so much for being back with us.
Speaker 1: So we've paid a lot of attention to what's going
Speaker 1: with banks, particularly regional banks. What's happened here, What are
Speaker 1: the obvious effects and what have made some of the
Speaker 1: more subtle ones we may be missing?
Speaker 4: Well, great question. An obvious effect is you're seeing deposits
Speaker 4: move from smaller and regional banks into money center banks.
Speaker 4: You're seeing a lot of questioning of the financial health
Speaker 4: of many regional banks, and a lot of concerns about
Speaker 4: where the line is drawn into posit and shots. We're
Speaker 4: sort of at the worst spot now where we don't
Speaker 4: know what they expanded a lot.
Speaker 7: Is it going back to where it was?
Speaker 4: But to me there's some less obvious but bigger issues
Speaker 4: having to do with a credit crunch. You know, a
Speaker 4: lot of commercial real estate lending, a lot of commercial
Speaker 4: and industrial loans, certainly the heartland of the country are
Speaker 4: made by small and regional banks, and so even if
Speaker 4: depositors are safe, the credit crunch may provide quite an
Speaker 4: impact on the economy and on the FEDS job.
Speaker 1: What could the possible affects me on the real economy
Speaker 1: if I can call it that. I mean, we all
Speaker 1: care about banks, regional banks, we don't want to wish
Speaker 1: them ill, But could there be broader ramifications for the
Speaker 1: economy overall.
Speaker 4: Well, of course, if banks are tightening lending because they
Speaker 4: really don't see good things to which lend, that's certainly fine.
Speaker 4: But if banks are very worried now about the loss
Speaker 4: of deposits and the one wants to be the next
Speaker 4: Silicon Valley bank or fears of needing more capital, and
Speaker 4: then constrict loans and real estate projects can't happen, Smaller
Speaker 4: mid sized businesses can't get loans. That becomes a quite
Speaker 4: large effect on the economy. From the FEDS perspective, that's
Speaker 4: like thinking there's some extra rate hikes happening in addition
Speaker 4: to the ones that the FED is doing, and so
Speaker 4: the credit crunch may well crimp activity going forward, although
Speaker 4: it will help the FED bring down inflation.
Speaker 1: So let's go back to your question about deposit insurance
Speaker 1: and where we are on that, because we have some
Speaker 1: people like Bob Diamond, for example, formerly Barkley, saying we
Speaker 1: should at least insure up to a million dollars of deposits,
Speaker 1: maybe have unlimited If you were back in your old
Speaker 1: job advising the President United States, what's the right answer
Speaker 1: for the banking system and therefore for the economy overall,
Speaker 1: What would you advise and what do we really need
Speaker 1: from our banks?
Speaker 4: I would say let's start with what can't be right.
Speaker 4: The current law wasn't right. The limit was too small
Speaker 4: to deal with the modern economy, and the Treasury or
Speaker 4: the Fed would try to move the increase it whenever
Speaker 4: we get into trouble. So that's not good. Unlimited, I
Speaker 4: don't think is a very good idea that takes away
Speaker 4: any incentive for depositors, even a very large size to
Speaker 4: monitor the bank. And where to draw the line is
Speaker 4: hard because what you would want in principle is the
Speaker 4: payrolls of small and mid sized businesses, individuals, transactions accounts
Speaker 4: to be okay, those could be large numbers. Here's the concern.
Speaker 4: The higher we take that limit, the more we push
Speaker 4: for more regulation of banks. It's not going to be
Speaker 4: the case the taxpayers ensure all the posits in the
Speaker 4: country without changing what banks do. And going to our
Speaker 4: earlier conversations a moment ago, banks are very important in
Speaker 4: lending in some activities, so I think we need a
Speaker 4: more fundamental conversation about what do we want banks to
Speaker 4: do and how are small and mid sized businesses and
Speaker 4: real estate going to give credit.
Speaker 1: So, Glenn, one of the things that maybe goes unsaid
Speaker 1: largely is sort of a desire to preserve regional and
Speaker 1: specialist banks across the country. We have something like forty
Speaker 1: five hundred I think right now banks across the country.
Speaker 1: Is that too many? Can I ask that blunt question?
Speaker 4: Well, I think we've always had too many banks in
Speaker 4: the United States, certainly relative to any of our peers.
Speaker 4: That said, while I don't know that we have a
Speaker 4: policy objective of preserving particular community or region banks, we
Speaker 4: do want to preserve blending activities theories. So I don't
Speaker 4: think it's the case that if all deposits in the
Speaker 4: United States suddenly moved to the four largest banks, that
Speaker 4: we'd have the same mix of lending. That's what I
Speaker 4: meant by we really need to step back. We thinking
Speaker 4: of the fat or even the Congress as to what
Speaker 4: we want banks to do, but on on an unhealthy
Speaker 4: path now playing with deposit insurance without thinking about the future.
Speaker 1: Glenn, thank you so much. It's always a pleasure to
Speaker 1: have you with us at Glen Hubbard of Columbia Business Schools.
Speaker 1: Coming up, we wrap up the week once again with
Speaker 1: our very special contributor, Larry Summers of Harvard. That's next
Speaker 1: on Wall Street Week on Bloomberg. This is Wall Street Week.
Speaker 1: I'm David Western. We're joined once again by our very
Speaker 1: special contributor here in Wall Street Week. He is Larry
Speaker 1: Summers of Harvard. Larry, great to have you with us again.
Speaker 1: Tell us where you think the economy is right now.
Speaker 1: We got a raft of eco numbers in CPI and
Speaker 1: others this week that some people in term to indicate
Speaker 1: that maybe actually the Fed is having its way, that
Speaker 1: the economy is softening, inflation is coming back down.
Speaker 2: I think it's very hard to read, David, but I
Speaker 2: think I see some growing evidence of stag but some
Speaker 2: real continuing concern about inflation as well, and that's a
Speaker 2: tough combination. On the stag side, it does look like
Speaker 2: defaults are rising, it does look like the flow of
Speaker 2: credit is coming down. Headline retail sales were not strong,
Speaker 2: although the internals are less are less clear, So I
Speaker 2: think you have some grounds for concern about what's happening
Speaker 2: with real activivity on a forward looking basis. And while
Speaker 2: the CPI and the PPI numbers surprised a bit in
Speaker 2: a favorable direction. You saw one year inflation expectations from
Speaker 2: the University of Michigan pop up, and the Atlanta FED
Speaker 2: a wage tracker, which I actually think is a better
Speaker 2: indicator of what's happening in the labor market than the
Speaker 2: monthly average hourly earnings that popped up a bit last
Speaker 2: month as well. So I think we're still looking at
Speaker 2: a very hard to read economy. I don't see inflation
Speaker 2: as on a secure path down to the two percent
Speaker 2: target unless the economy turns turns over a bit. So
Speaker 2: I think the FED has very difficult choices ahead of it.
Speaker 1: So Larie, let me make it even more complex, perhaps,
Speaker 1: And that is where we are with credit right now.
Speaker 1: There's a lot of reports right now that credit standards
Speaker 1: are going up in the wake of those bank if
Speaker 1: I can call them tremors that we had, how do
Speaker 1: you factor that into it? That could that help the
Speaker 1: FED a bit really curtail some of the inflation.
Speaker 2: Look, I don't think there's any question, David, but that
Speaker 2: some FED work is being done by tightening of credit.
Speaker 2: So there's definitely that effect. The question is how large
Speaker 2: is it. I thought, prior to the tremors in the
Speaker 2: banking system that there was a chance the FED funds
Speaker 2: rate would have to get up to six, and that
Speaker 2: it was certainly more likely than not that it would
Speaker 2: have to get to five fifty. What's very hard to
Speaker 2: know is whether that action in credit which is reinforcing
Speaker 2: the FED, whether that's three moves worth of reinforcement, whether
Speaker 2: it's only one move worth of reinforcement, And that's the
Speaker 2: judgment the Fed's going to have to make on an
Speaker 2: ongoing basis. I'm surprised still that markets are expecting as
Speaker 2: large a set of rate cuts over the next two
Speaker 2: years as is currently priced in, because it seems to
Speaker 2: me that we're not very likely to get six or
Speaker 2: eight rate cuts over the next two years unless the
Speaker 2: economy is headed towards recession, and certainly recession of a
Speaker 2: substantial sort is not what's priced into the stock market
Speaker 2: or for the most part, priced into high yield credit.
Speaker 1: Lauria, let's talk about something we haven't talked about that much,
Speaker 1: which is oil. There was reporting by Bluebrook this week
Speaker 1: it really suggested there is something of a rift growing
Speaker 1: between the United States and Saudi Arabia, that, if anything,
Speaker 1: Saudi Arabia is getting closer to President Putin in Russia,
Speaker 1: and the is what does that do potentially for the
Speaker 1: price of oil and therefore at least headline inflation. How
Speaker 1: big a problem do you think this is potentially?
Speaker 2: Look, I think what's happening in the Middle East, and
Speaker 2: it's the Saudi Russian thing that you just referred to.
Speaker 2: It's the Chinese broker restoration of diplomatic relations between Saudi
Speaker 2: Iran is a symbol of something that I think is
Speaker 2: a huge challenge for the United States. We are on
Speaker 2: the right side of history with our commitment to democracy,
Speaker 2: with our resistance to aggression in Russia. We are very
Speaker 2: much on the right side of history. But it's looking
Speaker 2: a bit lonely, Larry.
Speaker 1: I know you've spent the week at those meetings IMF
Speaker 1: and the World Bank in Washington, d C. What did
Speaker 1: you see? What did you hear about that very subject
Speaker 1: that is the extent of which we may be breaking
Speaker 1: up to if I can call this, trading blocks where
Speaker 1: people trade with one another. But actually we're moving away
Speaker 1: from globalization. We're not necessarily all on the same page.
Speaker 2: I think there's a growing acceptance of fragmentation, and maybe
Speaker 2: even more troubling, I think there's a growing sense that
Speaker 2: ours may not be the best fragment to be associated with.
Speaker 2: Somebody from a developing country said to me, what we
Speaker 2: get from China is an airport. What we get from
Speaker 2: the United States is a lecture. We like your values
Speaker 2: better than we like theirs, but we like airports more
Speaker 2: than we like lectures. And so I think that what's
Speaker 2: at stake in some of these really technical discussions that
Speaker 2: they're always having here about debt relief or about the
Speaker 2: future of the World Bank is not just a bunch
Speaker 2: of stuff about lending money to promote different economic activities
Speaker 2: or to make development more sustainable, but what the broad
Speaker 2: structure of the system is going to be. And if
Speaker 2: the Bretonwood system is not delivering strongly around the world,
Speaker 2: they're going to be serious challenges and proposed alternatives.
Speaker 1: Larry, your name came up actually in connection with these
Speaker 1: meetings as people noted that the IMF is really having
Speaker 1: a different projection on long term interest rates, the neutral
Speaker 1: rate of the longer term saying it's going to come
Speaker 1: right back down to pre pandemic levels, whereas you have
Speaker 1: been saying that's not necessarily the case. Where are you
Speaker 1: on that issue?
Speaker 2: Look, I was in a way that the IMF was
Speaker 2: resurrecting and talking about the secular stagnation theory that I
Speaker 2: pushed so hard between twenty thirteen and twenty nineteen, and
Speaker 2: certainly I recognized all the various arguments they were making,
Speaker 2: and it's certainly possible that they will turn out to
Speaker 2: be right. My own sense is that given the huge
Speaker 2: volumes of government debt that have been run up, given
Speaker 2: the very large flow deficits that are in offing, and
Speaker 2: given the large amounts of private investment that are going
Speaker 2: to be devoted to the renewable energy transition and devoted
Speaker 2: to friendshoring and increasing resilience, my sense is that the
Speaker 2: balance and the supply and demand for fun is going
Speaker 2: to be more towards demand, and that's going to mean
Speaker 2: higher real interest rates going forward than we had before
Speaker 2: the pandemic, and so I not expecting that we will
Speaker 2: see a huge return to the secular stagnation situation.
Speaker 1: Larry, in your opinion, how does money supply figure into
Speaker 1: your analysis of the economy overall? There was a lot
Speaker 1: of talk this week by some economists actually saying that
Speaker 1: in fact, the fall in the money supply, particularly M
Speaker 1: two espect the United States really indicates that, in fact,
Speaker 1: we're going to go, if anything, into a recession, that
Speaker 1: we're not going to worry about inflation anymore.
Speaker 2: David, I would describe myself as post monitorist. I think
Speaker 2: when we started paying interest on reserves, and so if
Speaker 2: a bank or somebody had an account at the FED,
Speaker 2: it was kind of just like a interest bearing account,
Speaker 2: and so money was no longer special by virtue of
Speaker 2: not paying interest. When we had that change in our economy,
Speaker 2: I think this whole concept of monetary aggregates as substantial
Speaker 2: predictors of what's going to happen lost a lot of
Speaker 2: its force. And so I'd have to say that money
Speaker 2: stock he's pretty far down on my list of indicators
Speaker 2: to follow.
Speaker 1: Thank you so much. I always great to have you
Speaker 1: with this our very special controuder Wall Street Week. He's
Speaker 1: Larry Summers of Harvard. This is Wall Street Week on Bloomberg. Finally,
Speaker 1: one more thought longing for the good old days. Change
Speaker 1: is hard. Just when we think we have things figured out,
Speaker 1: the world goes and changes on it. Take inflation. After
Speaker 1: Chairman Vulgar administered his harsh medicine of rate hikes.
Speaker 10: A much tougher approach to inflation, which led to nearly
Speaker 10: twenty percent official interest rates hard to believe now, hard
Speaker 10: to remember. At a time when inflation was also in
Speaker 10: the high double digits.
Speaker 1: We thought we'd left that problem behind us. We even
Speaker 1: fought to get some inflation back into the system.
Speaker 11: It was a big thing to start this rate increases.
Speaker 11: I think the fact that they have them to four
Speaker 11: and three quarter to five percent now they'll be a
Speaker 11: little bit higher, probably before they go on pause. And
Speaker 11: I think if inflation is around three percent plus or minus,
Speaker 11: they'll be pretty pleased.
Speaker 1: But that all changed last year when that stimulus finally
Speaker 1: kicked in and reminded us of the bad old days.
Speaker 8: We are seeing inflation coming down, has come down by
Speaker 8: about forty five percent since the peak, but we still
Speaker 8: have more work to do.
Speaker 1: But it's not just inflation that has shifted us. What
Speaker 1: about all those banks that thought there was nothing safer
Speaker 1: than long term treasuries as in investments.
Speaker 12: The basic issue that they took all of these big
Speaker 12: deposits and invested them in long term treasuries and had
Speaker 12: a gigantic mismatch, where again it should never have occurred.
Speaker 1: Now it turns out that what was a safe haven
Speaker 1: has turned into a lot of unrealized losses on balance sheets.
Speaker 13: You have this bank that has deposits from very concentrated,
Speaker 13: highly volatile depositors, and you have a balance sheet where
Speaker 13: they've invested long in treasuries and when interest rates spike,
Speaker 13: they're underwater.
Speaker 1: This week we were reminded that it's not just economics
Speaker 1: and banking where we have our expectations shaken to their core.
Speaker 1: Now we hear the Tupperware, that iconic plastic system for
Speaker 1: keeping food.
Speaker 7: Fresh, plan to have or can the Tupperware party too.
Speaker 1: Maybe going out of business.
Speaker 14: Shares of Toperware falling fifty percent, the most since twenty
Speaker 14: twenty after the company said that it hired financial advisors
Speaker 14: to help improve its capital structure and its ability to
Speaker 14: even say in business.
Speaker 1: The company dates back to nineteen forty six when Earl Tupper,
Speaker 1: Yes there was indeed a mister Tupper, developed it in Leminster, Massachusetts.
Speaker 1: Part of its claim to fame was the way it
Speaker 1: was sold in Tupperware parties, thrown at homes by women
Speaker 1: looking for a new way to make a living after
Speaker 1: men came back from the war and took all their
Speaker 1: jobs back. But however things work out for Tupperware. There
Speaker 1: are times when change is actually for the better. Take
Speaker 1: the iPhone, something that some of us have grown all
Speaker 1: too attached to. So attached to we may have forgotten
Speaker 1: what came before. The BlackBerry, which we don't miss all
Speaker 1: that much, no matter how iconic and cool we tried
Speaker 1: to make it at the time.
Speaker 4: We wear suits, we wear shiny shoes, wear BlackBerry.
Speaker 1: That does it. For this episode of Wall Street Week,
Speaker 1: I'm David Weston.
Speaker 2: This is Bloomberg.
Speaker 1: See you next week.