Speaker 1: This is Bloomberg Wall Street Week. We turn our attention
Speaker 1: to the markets this week. U s CPI members 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 Treker Secretary, Katherine Keating, CEO of v n Y
Speaker 1: Mallin 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: a FED chair speaks, President delivers his blueprint for the
Speaker 1: next two years. Earnings roll in, but a tragedy and
Speaker 1: Turkey overshadows them all. 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 landing at all,
Speaker 1: soft or hard. I think to FED understands that it
Speaker 1: doesn't understand. Stephen Meyer, the man responsible for New York
Speaker 1: City pension funds, on investing for the long term in
Speaker 1: this uncertain market. There's a lot of things to consider
Speaker 1: out there. The risk of recession here and abroad. And
Speaker 1: Josh Bolton of the Business Roundtable on what the President's
Speaker 1: State of the Union message means for American business. You
Speaker 1: won't find a single member of the Business round Table
Speaker 1: saying please put me in a completely unregulated environment. There
Speaker 1: was a lot for Global Wall Street to pay attention
Speaker 1: to this week, but the tragedy of the earthquakes in
Speaker 1: southeastern Turkey cast a shadow over it all as the
Speaker 1: death toll reached into the tens of thousands and the
Speaker 1: difficulties of reaching those in need seemed almost insurmountable. But
Speaker 1: even as the world came to terms with human disaster,
Speaker 1: we also focused on the economy and inflation. When fitzher J.
Speaker 1: Powell talked with Bloombergs David Rubinstein about the latest jobs
Speaker 1: numbers and whether they changed his mind on further rate hikes.
Speaker 1: This process is likely to take quite a bit of time. Uh,
Speaker 1: it's not going to be We don't think smooth. It's
Speaker 1: probably gonna be bumpy. President Biden delivered his annual State
Speaker 1: of the Union address and called for bipartisanship even over
Speaker 1: the cat calls from Republicans on things like the border.
Speaker 1: Congress must restore the right and and energy policy. I said,
Speaker 1: we're gonna need oil for at least another decade, and
Speaker 1: I'm going to exceed and beyond that. The follow out
Speaker 1: from that Chinese by balloon continued with questions about whether
Speaker 1: if it was a Chinese test of US defenses in
Speaker 1: the US passed that test. They wanted to display weakness,
Speaker 1: and I think to some extent they got that. I
Speaker 1: don't know why this wasn't shut down prior to entering
Speaker 1: US airspace. Earnings continued to pour in, with Disney surprising
Speaker 1: the upside on earnings, the downside on subscribers, and newly
Speaker 1: returned CEO Bob Iger announcing a major restructuring and the
Speaker 1: trimming of thousands of jobs. We will aggressively curate our
Speaker 1: general entertainment content. We will reassess all markets we have
Speaker 1: launched in and also determine the right balance between global
Speaker 1: and local content. The markets reacted to all of this
Speaker 1: by being all over the place. The Spire started out
Speaker 1: lower on Monday, spiked up after Pile's talk on Tuesday,
Speaker 1: only to come back down to earth on Friday, ending
Speaker 1: the week down just over one. The NASDAG had a
Speaker 1: tougher time of it. It too, shot up on Tuesday,
Speaker 1: but settled for the week down two point four percent,
Speaker 1: while the yield on the tenure rose more steadily through
Speaker 1: the week, starting out at three point five and any
Speaker 1: of just over three point seven percent. To help us
Speaker 1: sort it all out, we welcome to Christina Hooper, she's
Speaker 1: investco chief Global Market Strategists and Joanne Feeny, partner in
Speaker 1: Advisor's Capital Management. Welcome back to both of you. Great
Speaker 1: to have you here, Joe, and let me start you
Speaker 1: with with you if I could it. Uh, the markets
Speaker 1: get a little bit more sober by the end of
Speaker 1: the week. They seemed a little u fouric after Tuesday. Yeah, David,
Speaker 1: I think that's exactly what we saw. You know, the
Speaker 1: Fed has had a hard time convincing the markets that
Speaker 1: there's a lot more work to be got to bring
Speaker 1: down inflation, you know, and they need to understand the
Speaker 1: market needs to understand that rates are going to go
Speaker 1: higher and they're likely to stay higher through the year.
Speaker 1: We're almost there in terms of the markets forecast. They
Speaker 1: do still expect one rate cut at the end of
Speaker 1: the year, but you know that is quite a different
Speaker 1: position and being relative to the beginning of last year
Speaker 1: where we saw many rate hikes. So there's certainly less
Speaker 1: of a head wind this year from further rate hikes.
Speaker 1: But we're also not likely to get that break that
Speaker 1: the market is hoping for any time this year. Well, Christina,
Speaker 1: what is the market slowly giving up on that break? Glord?
Speaker 1: Later in the year, we had been told the markets
Speaker 1: saying that we're gonna have a cut by the end
Speaker 1: of the year. It looks like they're not so sure
Speaker 1: of that anymore. Well, hopefully, um, they get accustomed to
Speaker 1: that idea, because I don't think we're going to see
Speaker 1: a cut by the end of this year. Um. The
Speaker 1: economy is in better shape than I think most anticipated.
Speaker 1: So there really isn't a reason for the Fed to
Speaker 1: cut rates later this year. Something would have to go
Speaker 1: very wrong. Um for the Fed to need to cut
Speaker 1: rates by the end of the year. It looks like
Speaker 1: it's going to be a softish landing. So Joan, what
Speaker 1: about the economy looking stronger? Can we talk about the
Speaker 1: economy because you talk about different parts of the economy,
Speaker 1: you get different results. I mean, look at housing, it
Speaker 1: doesn't look that strong at all. And some people this
Speaker 1: week we're talking about a so called rolling recession. I
Speaker 1: know that's something you take issue with. Well, yeah, we're
Speaker 1: certainly seeing some parts of the economy in contraction housing,
Speaker 1: as you pointed out, certain parts of the technology sector
Speaker 1: where we've heard about lots of layoffs, shrinking, PC production
Speaker 1: significantly down year a year. So there's certainly parts of
Speaker 1: the economy that are suffering contraction. But there are also
Speaker 1: parts of the economy that continue to expand. And when
Speaker 1: you look at the aggregate of what consumers have to
Speaker 1: work with in terms of spending power, we have seen
Speaker 1: real disposable income rise for the last six months, so
Speaker 1: consumers still have more to work with, and I think
Speaker 1: that's why we're continue to see relatively robust numbers in
Speaker 1: terms of spending. Joanne, this is an important point you
Speaker 1: made to me. I want to make sure we unpack it,
Speaker 1: which is we have a tendency to take a look
Speaker 1: at wages and we say real wages have not gone up,
Speaker 1: they've even gone down, and that's for individuals. But if
Speaker 1: you look at the additional people coming to the workforce,
Speaker 1: you can have the aggregate actually going up, which says
Speaker 1: something strong about the economy. Yeah, that's exactly right, and
Speaker 1: In fact, if you look more granulally at the data,
Speaker 1: In fact, over the last few months, we're seeing an
Speaker 1: increase in real wages as well. So you combine that
Speaker 1: with more people in the workforce, that gets a lot
Speaker 1: of support for consumer spending. Now, it doesn't mean that
Speaker 1: a recession may not be coming at some point in
Speaker 1: the future. High entry straits are clearly an impediment to
Speaker 1: economic activity, whether it's firms investing or households squarrowing for
Speaker 1: the next car or or to buy the next house.
Speaker 1: So we're by no means sanguine that the recession threat
Speaker 1: is over, but we do see continued strength for now,
Speaker 1: at least from the consumer side. Well, consumers as you know,
Speaker 1: or is all what it's all about. What is something
Speaker 1: like the economy as consumer? So what is the state
Speaker 1: of the consumer as far as you can tell, Well,
Speaker 1: I think that consumer is in fairly good shape what
Speaker 1: we see. Of course, it's an incredibly tight labor market.
Speaker 1: That's a problem perhaps for the Fed in terms of
Speaker 1: its concerns about inflation, but it's it's a wonderful thing
Speaker 1: to have. Um when you have rates going up, right,
Speaker 1: you have so many people employed. Um, yes, they've come
Speaker 1: under some pressure in different areas because of the rate hikes, um,
Speaker 1: but in general people can still afford to go out
Speaker 1: and shop, and so it's a very different environment than
Speaker 1: what we saw when when the Fed was was hiking
Speaker 1: rates and unemployment was higher. I mean, this is a
Speaker 1: very very appealing labor market that leads to a fundamentally
Speaker 1: sound consumer in general. Joan als so much this depends
Speaker 1: obviously on what the Fed things. Now, what we think,
Speaker 1: what the Fed thinks. So what do you think the
Speaker 1: Fed is looking at? What will look at? Is it
Speaker 1: ties eyes whether to keep moving up and how far
Speaker 1: to keep moving up and how long to hold it
Speaker 1: up there? Well, you know, David, the Vets made it
Speaker 1: pretty clear that they're really focused on a persistent source
Speaker 1: of inflation, which could be coming through wages, and so
Speaker 1: nominal wages are still rising. They look also at the
Speaker 1: e c I, the Employment cost Compensation Index, which gives
Speaker 1: you are a much more accurate view of what's really
Speaker 1: going on in terms of compensation. So they're concerned that
Speaker 1: that's continuing to rise at a decent clip and that
Speaker 1: that could feed into inflation. They're seeing inflation still in
Speaker 1: their super core measure that is services excluding housing, and
Speaker 1: so they're going to watch that really carefully. And that's
Speaker 1: why when they say their data dependent, that's really what
Speaker 1: it means. If they see that start to slow down,
Speaker 1: then I think everybody can breathe a bit of a
Speaker 1: sigh of relief. But right now, right we're still seeing
Speaker 1: a lot of demand for services that are keeping that
Speaker 1: inflation pretty robust. At the same time, we're seeing more
Speaker 1: labor flow into the services sector. So if you think
Speaker 1: to the fundamentals of inflation, it was all about shortages
Speaker 1: of supply. Now we're starting to see supply rolling back
Speaker 1: through into services that could help the FED solve this problem.
Speaker 1: But that's what they're going to be watching. Christina. There's
Speaker 1: a lot of talk about plateau ng or holding at
Speaker 1: some point, maybe not quite yet, but having maybe a
Speaker 1: couple more rad hikes. What if that's not enough. I mean,
Speaker 1: you know, there's long and variable legs from mont withven
Speaker 1: facts inflation does not come in. How dangerous it is
Speaker 1: if the FED levels off and then resumes hiking because
Speaker 1: inflation comes back. Well, that's the concern, right That's the
Speaker 1: ghost of Paul Vulker, is that if you don't extinguish
Speaker 1: every ember of inflation, it could come back and and
Speaker 1: fan the flames of higher inflation. However, I think we
Speaker 1: can take a page from the Bank of Canada's playbook. Uh.
Speaker 1: They announced recently that they would have a conditional pause,
Speaker 1: so they're going to be very very data dependent, watching
Speaker 1: the economic data and inflation data like hawks. And I
Speaker 1: think that that could be a model for the FED. UM.
Speaker 1: That means that if anything is concerning, they can move
Speaker 1: right back into action, and markets know that that is
Speaker 1: hanging over them. Well, that's interesting. What do you think
Speaker 1: of that, Joanna? That would that to get care of
Speaker 1: the problem for the market, so they wouldn't react to
Speaker 1: adversely if they had to hike some more. Oh, I
Speaker 1: think the market still would really like to see the
Speaker 1: head cut um. So you know, if they signal, if
Speaker 1: they say okay, we're done for now, and they'll always
Speaker 1: say their data dependent, I think the market might grow
Speaker 1: a little bit too enthusiastic. And then if the FET
Speaker 1: does turn around some months later and say, oh sorry,
Speaker 1: we we still have to raise rates some more, they'll
Speaker 1: be one of these resets again. So I think we're
Speaker 1: in for a year of volatility, both because of what
Speaker 1: the FETE is doing and the larger risks that the
Speaker 1: world economy is still in the middle of, whether it's
Speaker 1: the war, energy price and supply dynamics. I just think
Speaker 1: it's a it's a tough year heading heading through this
Speaker 1: because of this ongoing recession risk and the unknowns about
Speaker 1: rate increases. Thank you so much to Christina Hooper and
Speaker 1: jo and Feeny. They're staying with us as we turned
Speaker 1: to questions of asset allocation in this As Joanne just said,
Speaker 1: very uncertain market. That's gonna up next on Wall Street
Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio. Actually, it turned out to
Speaker 1: be a remarkably good week for the president. His approval
Speaker 1: ratings have never been higher, suggesting that if only two
Speaker 1: or three more scandals can break between now in Washington's birthday,
Speaker 1: he'll have every American behind him. His State of the
Speaker 1: Union address, which began with a plea for fiscal responsibility
Speaker 1: and continued with an extensive laundry list of brand new
Speaker 1: ways to extend governmental power and spending, seems to have
Speaker 1: played beautifully in Peoria. Not to mention, but Keepsie in
Speaker 1: Palm Springs. That was Lewis Rockheiser with his firm and
Speaker 1: his tongue firmly in his cheek on Wall Street week
Speaker 1: back in j You may remember that was the week
Speaker 1: after the Monica Lewinsky scandal broke. That's what he's talking
Speaker 1: about with another presidential scandal. Titanic was the number one
Speaker 1: movie that week, and the number one song was Together
Speaker 1: Again by Janet Jackson. Still with us are joe Anfini
Speaker 1: of Advisor's Capital Management and Christina Hooper fro Vesco. Christina,
Speaker 1: let me start with you, because we've just talked about
Speaker 1: what we think are going to the FED, what's going
Speaker 1: on the economy. How do you put together portfolio? How
Speaker 1: do you allocate your assets in this world? Well, first, David,
Speaker 1: I have to answer the question I keep getting asked,
Speaker 1: which is is the sixty portfolio still alive? And I
Speaker 1: think to a certain extent it very much is. The
Speaker 1: concept of diversification is so important and I think we
Speaker 1: will see the benefits of it this year, and actually
Speaker 1: not just equities and fixed income, but some alts in
Speaker 1: there as well to provide um lower correlating assets. My
Speaker 1: view is, as with Joanne um I believe we're going
Speaker 1: to see a significant amount of volatility, especially in the
Speaker 1: first half of this year. There's just an awful lot
Speaker 1: of uncertainty. So we're going to want to have exposure
Speaker 1: to fixed income and some dividend paying stocks. We need
Speaker 1: that income to stabilize as we move up and down UM.
Speaker 1: I also believe that that as we move further into
Speaker 1: the year, we're likely to see markets start to discount
Speaker 1: in economic recovery, and so that would be a time
Speaker 1: to start to perhaps increase sequity allocations, especially among the
Speaker 1: more cyclical parts of the stock market. But fixed income
Speaker 1: looks attractive, especially in investment grade communis UM. Those are
Speaker 1: very attractive yields right now. I like to think of
Speaker 1: this as almost a golden age of fixed income UM. So,
Speaker 1: so that's an important component of portfolios right now. Joanna,
Speaker 1: what do you think? I mean, it sounds like a
Speaker 1: fairly diversified approach, but with an emphasis on getting some cash,
Speaker 1: whether from dividends or otherwise. Yeah, we offer a range
Speaker 1: of opportunities. It really depends on the client, on the investor,
Speaker 1: and what their time horizon is. You know, at this point,
Speaker 1: there are certainly some opportunities in the market that if
Speaker 1: you're a long term investor, you can be all in
Speaker 1: on equities. But you know, a lot of our clients
Speaker 1: are also looking for that ash flow, and so you know,
Speaker 1: we like to offer them choices a mixture of stocks
Speaker 1: that will appreciate versus stocks that will deliver that yield
Speaker 1: alongside a fixed income and let the client really decide,
Speaker 1: you know, how much they want to put into equities
Speaker 1: at this point, based on their time horizon and their risk.
Speaker 1: But yeah, I mean, I agree, given the volatility that
Speaker 1: we've just talked about, this is an awfully good time
Speaker 1: for a balanced strategy to protect the principle in the portfolio.
Speaker 1: And hopefully if you can get enough of yield on
Speaker 1: the dividend side and also on the fixed income side,
Speaker 1: you can eat your cash flow to pay your expenses
Speaker 1: if you're in retirement, and that will save you from
Speaker 1: having to sell stocks when the market does go down. Christina,
Speaker 1: what about you, is it can't be the case we're
Speaker 1: gonna have as many rate hikes this year as we
Speaker 1: did last year. I don't think at least, So what
Speaker 1: does that mean? Certainly has said something about bonds, but
Speaker 1: beyond that, what does it tell you as an investorment,
Speaker 1: I do think that it gives certainly UM some space
Speaker 1: to technology, right that the tech sector is likely to
Speaker 1: to start to see better performance, especially as as rates
Speaker 1: come down UM. But I also believe that what it
Speaker 1: really does is clear the way for an economic recovery.
Speaker 1: Right that once we have a stabilization um of of
Speaker 1: rates UM, that is really when the economy can start
Speaker 1: to recover accelerate, and I think stocks are going to
Speaker 1: anticipate that, so so we're likely to see smaller caps
Speaker 1: perform well. I also think the dollar is going to
Speaker 1: be relatively weak this year. That's a trend that's going
Speaker 1: to continue. So emerging markets equities, especially Asia e M.
Speaker 1: We haven't even talked about the China reopening, but that
Speaker 1: is gonna be really powerful for Asia e M. What
Speaker 1: about Joan briefly here at the end, it's strong bounce back.
Speaker 1: Do you think this year in the overall stock market?
Speaker 1: I think I think the jury is still out on that. Uh,
Speaker 1: you know, it looks pretty good from the consumer side.
Speaker 1: Fuer rate increases is a good thing, but ultimately we
Speaker 1: do have a pretty substantial decline in certain sectors of
Speaker 1: this economy. We have to see if housing comes back.
Speaker 1: So I think it's it's an open our ship, and
Speaker 1: that's why we are counseling to really diversify and be
Speaker 1: prepared for volatility. Sounds wise. Thank you so much to
Speaker 1: Christina Hooper of Investco and Joanne Fini of Advisor's Capital Management.
Speaker 1: We welcome now a big time, serious long term investor,
Speaker 1: and he is Stephen Meyer. He is the chief investment
Speaker 1: officer for the New York City Retirement System. Welcome, it's
Speaker 1: great to have you here. Thank you, David. It's a
Speaker 1: pleasure to be here. So you've got a big responsible
Speaker 1: to two d fifty billion dollars. Seven and fifty thousand
Speaker 1: people are depending on this. We've got fireman, policeman, teachers
Speaker 1: for their pensions. Tell us about the investment climate as
Speaker 1: you see it today, it's a bit different than it
Speaker 1: was just two or three years ago, given work over
Speaker 1: with interest rates, inflation growth. Yeah, well, David, I think
Speaker 1: it's gonna be another challenging a year in three for
Speaker 1: the US economy and financial markets. As a long term investment,
Speaker 1: we tend to look less at the fluctuates, short term
Speaker 1: fluctuations and asset prices. We have diversified portfolios that actually
Speaker 1: are geared to weather all different markets. My hope and
Speaker 1: expectation is for the global economy to bob for growth
Speaker 1: to um bottom out this year UH, and inflation start
Speaker 1: to decline more meaningfully. We have inflation coming down the States, UH,
Speaker 1: less so in Europe at this point. You know, there's
Speaker 1: a lot of things to consider out there. We look
Speaker 1: at UM the risk of a recession here and abroad.
Speaker 1: We're coming off of one of the most aggressive interest
Speaker 1: rate hike cycles that we've seen by the FED in
Speaker 1: forty years. UM. You know that monetary policy operates with
Speaker 1: a long and variable lag, so we really haven't seen
Speaker 1: the impact of those rate hikes yet. And those rate
Speaker 1: hikes continue. The Fed hikes basis points earlier this month.
Speaker 1: They've hinted that they're probably gonna do another two and
Speaker 1: that's what fit from futures are pricing in UM. We also,
Speaker 1: as I said, inflation abroad is still sticky on the upside.
Speaker 1: I also think there's a heightened level of geopolitical risk
Speaker 1: to consider. The war the Russian invasion Ukraine is problematic.
Speaker 1: We worry about that escalating, and I do think from
Speaker 1: a longer term perspective, the dynamic between the US and
Speaker 1: China and the relations ship. I think we'll have UH
Speaker 1: implications for growth, competition, asset allocation for years to come.
Speaker 1: So see when you have the luxury of a long
Speaker 1: term perspective. On the other hand, you have to have
Speaker 1: the money when the pensioners need the money. It's you
Speaker 1: have to generate returns. As you say, it was a
Speaker 1: rough year. We had stocks and bonds both down. What
Speaker 1: does that tell you as an asset allocator about stocks,
Speaker 1: bonds and maybe the alternative to the above. So stock
Speaker 1: and bonds, you know, it's rare that they go down
Speaker 1: in tandem, but it's not unprecedented, And you were right, David,
Speaker 1: last year was a tough year. We had that traditional
Speaker 1: sixty forty equity fixed income bond split generated a negative
Speaker 1: return of that's painful for all manner of investor um.
Speaker 1: We do again look on a long term horizon. We
Speaker 1: want that balanced portfolio. But you're absolutely right we had
Speaker 1: the offset, if you will, of private assets. We have
Speaker 1: about allocation into private assets, spanning private equity, private credit,
Speaker 1: it UH, infrastructure, core non core real estate, as well
Speaker 1: as hedge funds. So we do have those offsets that
Speaker 1: that that can help drive that performance irrespect of what
Speaker 1: happens in the public markets. You've had a cap of
Speaker 1: centers I understand it that's now been raised at by
Speaker 1: the governor, got the hocoll Do you expect to use
Speaker 1: a lot of that increased cap. Well, it's a wonderful question.
Speaker 1: So you know, the new legislation was signed in the
Speaker 1: law by the Governor at the end of the year. Uh,
Speaker 1: and it definitely will give us an expand an opportunity set.
Speaker 1: We'll be able to have a more optimal portfolio. My
Speaker 1: expectation is, you know what, We're going to start the
Speaker 1: process of reviewing our strategic asset allocations with the five
Speaker 1: Plan Trustees and their consultants UM hoping to wrap that
Speaker 1: work up by say October and then perhaps if there
Speaker 1: is a change in strategy that will be implemented in
Speaker 1: two thousand and twenty four beyond series. Really great to
Speaker 1: have you ere in Walsh. Thank you so much for
Speaker 1: joining us that Stephen Meyer, he's the chief investment officer
Speaker 1: for the New York City Return from a System coming up.
Speaker 1: We wrap up the week with our special contributor Larry
Speaker 1: Summers of Harvard. 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. This is Wall Street Week, Clim David Weston,
Speaker 1: We're welcome back now our special contributor here at Wall
Speaker 1: Street Week, he is Larry Summers of Harvard. So Larry.
Speaker 1: One of the big events of this week was j Pile,
Speaker 1: the Chair of the Federal Reserve, speaking with our very
Speaker 1: own David Rubinstein the Economic Club in Washington, and the
Speaker 1: markets came away from that saying, you know what, he
Speaker 1: didn't go as far as we thought he would. It's
Speaker 1: saying we've got a tighten more given those jobs numbers.
Speaker 1: Are we becoming complacent because there's talk on Wall Street
Speaker 1: now that there won't we any landing, whether it's soft
Speaker 1: or hard. Basically, we'll just keep going. I didn't the
Speaker 1: FED understands that it doesn't understand because no one can
Speaker 1: know the future with confidence, and I think that the
Speaker 1: Fed is determined to do what's necessary. That's certainly what
Speaker 1: I hope is the case. In a substantially uncertain environment.
Speaker 1: I think the consensus has become uh substantially too complacent
Speaker 1: about inflation. For a variety of reasons. First, let's be clear,
Speaker 1: even after the reductions we have seen, inflation today is
Speaker 1: at levels that would have been unimaginable for inflation two
Speaker 1: years ago. And so we haven't come all the way
Speaker 1: down or got this fully under control. And in a way,
Speaker 1: I guess one way to put it in Super Bowl
Speaker 1: week here is that it's easier to move move the
Speaker 1: ball down the field at midfield than it is when
Speaker 1: you're in the red zone, and we're getting closer to
Speaker 1: the red zone with respect to inflation, and so I
Speaker 1: think the gains in terms of further reduction are going
Speaker 1: to come harder. Second, I think there are a variety
Speaker 1: of bounce back uh factors that we're gonna have. Uh.
Speaker 1: You saw it in the market, wholesale use car prices
Speaker 1: which look like they're gonna be a positive contributor to inflation.
Speaker 1: You've seen some reversal on gasoline prices. More broadly, you've
Speaker 1: seen a variety of prices that blipped way up nine
Speaker 1: months or so ago, and now that's mean reverting. Now
Speaker 1: that's coming back to normal. Well, it's not always gonna
Speaker 1: be going down. And when those become normal, that's gonna
Speaker 1: be an increment to the underlying UH inflation UH figure,
Speaker 1: and so that too, I think is a cause for concern. Third,
Speaker 1: if you look at the variables economists tend to think
Speaker 1: that you should look at to predict what's happening with inflation,
Speaker 1: we are an economy that's got relatively loose financial conditions. Now,
Speaker 1: given what's happened to markets, by some measures, financial conditions
Speaker 1: are looser than they were when all this tightening started.
Speaker 1: That's probably misleading. But if we probably are back to
Speaker 1: somewhere where we were late last summer in terms of
Speaker 1: the degree of tightness in UH financial markets, and we've
Speaker 1: got that at a time when we still have a
Speaker 1: record level of vacancies relative to unemployment. So I think
Speaker 1: with that kind of picture, the prospect that we are
Speaker 1: not on a trajectory now where inflation is going to
Speaker 1: get to the target level, and therefore this tightening cycle
Speaker 1: is not just about one more, two more, three more
Speaker 1: basis point increases, but something more fundamental. That's a substantial
Speaker 1: probability UH in UH this environment. So I don't think
Speaker 1: it's a moment for any kind of UH euphoria UM.
Speaker 1: And I think there is some complacency that's setting in
Speaker 1: in many places, Larry. We heard from Chair Powell on Tuesday.
Speaker 1: A few hours later, we heard from the President of
Speaker 1: States Joe Biden, as he gave his State of the
Speaker 1: Union a rest to Congress. UH. He did talk about
Speaker 1: some economic things fair number in there, including something you
Speaker 1: and I have talked about, such as by America. What
Speaker 1: did you make of the economic part President Biden speech. Look,
Speaker 1: I think the most important thing to say about the
Speaker 1: President's State of the Union was that it was probably
Speaker 1: the clearest, strongest exposition of his economic philosophy that he
Speaker 1: has delivered during his two years as president. I did
Speaker 1: worry that as I heard him talk and speak powerfully,
Speaker 1: and I thought persuasively about the junk fee issues and
Speaker 1: the extra money people are paying for airline baggage or
Speaker 1: paying for overdraft UH fees or a variety of those
Speaker 1: other junk fees. I like that because it was recognizing
Speaker 1: that people's incomes, people's spending power is what matters, and
Speaker 1: that depends on how much they earned, and it also
Speaker 1: depends on the prices they pay. I hope the administration
Speaker 1: is being very careful about that comprehensively. My guests would
Speaker 1: be that the extra taxes people are gonna pay a
Speaker 1: because projects are going to cost more because of buy America,
Speaker 1: the extra prices people pay because of tariffs that we
Speaker 1: put on in the name of create or maintain in
Speaker 1: the name of creating American jobs. My guess is that
Speaker 1: those higher prices from things that we're doing through policy
Speaker 1: probably add more to consumer burdens that all the junk
Speaker 1: fees that the presidents spoke about. So I think we
Speaker 1: need to look very very carefully at UH those UH policies.
Speaker 1: Who One thing that you and I have not talked about.
Speaker 1: I don't believe is Israel and that managment now is
Speaker 1: new government over in Israel. There are a lot of
Speaker 1: political and legal issues involved, but there are also some
Speaker 1: economic issues. As you know, a number of U. S
Speaker 1: economists you I don't think we're involved, wrote a letter
Speaker 1: really expressing concern about some of the proposed changes in
Speaker 1: the judiciary what that could mean for the Israeli economy.
Speaker 1: I was a little surprised to see your name came
Speaker 1: up actually in the Times of Israel as having talked
Speaker 1: to the Prime Minister Benjamin Nille. What do you want
Speaker 1: to tell us about what they're doing over there. So David,
Speaker 1: I don't I don't talk about my UH conversations with
Speaker 1: government officials, as you know, but I have been following
Speaker 1: this issue closely, and I think the temperature has to
Speaker 1: come down on both sides. I think there is a
Speaker 1: taste for strong case for judicial reform UH in Israel.
Speaker 1: It's unusual by international standards for judges to be chosen
Speaker 1: by currently sitting judges. It's unusual for courts to be
Speaker 1: able to rule out legislation UH simply by judging that
Speaker 1: it's unreasonable without having a constitution UH to point to.
Speaker 1: On the other hand, it's very clear from the context
Speaker 1: of the way this is being done that it is
Speaker 1: feeling to a large number of people and a large
Speaker 1: number of people with the capacity to move their money
Speaker 1: in and out of Israel, particularly in the entrepreneurial community,
Speaker 1: that an overly rapid not carefully done judicial reform could
Speaker 1: raise serious and profound questions about the rule of law,
Speaker 1: and that, it seems to me, could have quite serious
Speaker 1: adverse effects on the Israeli economy. And finally, at the
Speaker 1: end of the week, we received word that Mr Kazua
Speaker 1: Huaida may well be appointed the next Governor of the
Speaker 1: Bank of Japan. He is an academic economist as I
Speaker 1: understand it. He has served in the past on the
Speaker 1: Bank of Japan Policy Board. Do you have thoughts about
Speaker 1: either Mr Uaida or where the Bank of Japan needs
Speaker 1: to go next? You know, I think we can think
Speaker 1: of him has been UH Japan's Ben burn Anky. He
Speaker 1: studied at m I T at about the same time
Speaker 1: that Ben did, with the same thesis advisor that Ben
Speaker 1: burn Ank he had. He specialized in similar areas of
Speaker 1: monetary economics and has a soft spoken academic way about him,
Speaker 1: but is also capable of being UH decisive. And I
Speaker 1: think Japan has a very complicated issue ahead of it.
Speaker 1: I don't think it's going to be able to maintain
Speaker 1: yield control for an indefinite horizon, and he has big
Speaker 1: shoes to fill. I've known UH Corona soon for more
Speaker 1: than thirty years. He's an extraordinarily UH capable analytical but
Speaker 1: also with a real measure of cunning UH central banker,
Speaker 1: and he he will be UH. He will be missed.
Speaker 1: But knowing Mr Huweita, I've got quite a bit of
Speaker 1: confidence in his ability to chart a course forward. Larry,
Speaker 1: thank you so very much as Larry Summers are Harvard
Speaker 1: a very special contributor here on Wall Street Week. Coming
Speaker 1: up on the road again to New York, to Virginia,
Speaker 1: to Australia, but to Hong Kong. That's next down Wall
Speaker 1: Street Week on Bluebird. Finally, one more thought on the
Speaker 1: road again. The pandemic hit traveled like nobody's business. During
Speaker 1: the pandemic, people stayed at home, they didn't go to movies,
Speaker 1: they didn't leave their homes, they didn't travel. As the
Speaker 1: world's economy shut down, so did the airlines and hotels.
Speaker 1: I think we've never seen an economy coming out of
Speaker 1: a shop down like this at a moment like this,
Speaker 1: when the world is in the kind of unusual and
Speaker 1: unique spot that it's in. But now things are coming back,
Speaker 1: with the airlines adding business as fast as they can.
Speaker 1: It's a billion pound ball perspective. With the to be achieved.
Speaker 1: Also the highest drainings ever in the last quarter in
Speaker 1: the company's history, and Airbnb reporting a big jump in demand.
Speaker 1: What we're seeing as hosts made record earnings this past summer.
Speaker 1: Given the upstick and tourism, it's no surprise that governments
Speaker 1: are back in the business of luring visitors. New York
Speaker 1: urges visitors to come check out the slopes. There's something
Speaker 1: for everyone in New York State. Virginia urges us to
Speaker 1: come back to Williamsburg, and even Australia is getting in
Speaker 1: on the act with a campaign featuring Hollywood stars will
Speaker 1: our Nett and Rose Burn, or at least computer animated
Speaker 1: versions of them. There's nothing like Australia. But perhaps the
Speaker 1: most remarkable of these campaigns is Hello Hong Kong, complete
Speaker 1: with offers of five hundred thousand free airline tickets steal
Speaker 1: in Hong Kong, which is badly needed given the reported
Speaker 1: plummet in tourist visas to Hong Kong for a pre
Speaker 1: pandemic high of fifty six million to report it one
Speaker 1: hundred thousand in two though putting prominent Hong Kong citizens
Speaker 1: on trial for national security violations isn't like to help
Speaker 1: that situation much. One thing is for sure. The Secretary
Speaker 1: of State B. Lincoln won't be traveling to Hong Kong.
Speaker 1: He had to cancel his China trip because of that
Speaker 1: pesky spy balloon. We concluded that conditions were not conducive
Speaker 1: for a constructive visit at this time, and there is
Speaker 1: one legendary football player who will not be traveling to
Speaker 1: Phoenix for the Super Bowl. Though, Tom Brady's decision to
Speaker 1: retire managed to drive up the price of beach front property,
Speaker 1: or at least the beach he was sitting on when
Speaker 1: he made his announcement from retiring for good, with reports
Speaker 1: that a jar of and from that beach was bit
Speaker 1: up to almost one hundred thousand dollars on eBay at
Speaker 1: one point. And even if Mr Brady doesn't make it
Speaker 1: back to the super Bowl, he can always head to
Speaker 1: Orlando that doesn't. For this episode of Wall Street Week,
Speaker 1: I'm David Weston. This is Bloomberg. See you next week.