Speaker 1: Are we sure about this recovery? From a looming natural
Speaker 1: gas shortage to slowing Chinese growth to in decision in Washington,
Speaker 1: you have to start wondering. This is Bloomberg Wall Street Week.
Speaker 1: I'm David Weston this week special contributor Larry Summers on inflation,
Speaker 1: bond yields, and whether it's all just a bliff. Markets
Speaker 1: are substantially underestimating what it's likely to happen to interest rates.
Speaker 1: Before too long, investors had their fair share to worry
Speaker 1: about this week, starting with a dramatic spike in natural
Speaker 1: gas prices in Europe, putting at risk heat in homes
Speaker 1: and power in China. Here's Jeff Curry Goldman Sachs, Global
Speaker 1: head of Commodity Research. This is just the first inning
Speaker 1: of a multi year, potentially decade long commodity supercycle, which
Speaker 1: only fed the concerns already out there about inflation. Here
Speaker 1: is Republican Congressman French Hill of Arkansas. We have addiction
Speaker 1: to spending in this city, We've had since seventy nine,
Speaker 1: but it's on steroids right now, and it's creating inflationary
Speaker 1: expectations that I think concern every retired person and every
Speaker 1: low income person, because inflation is a thief. And when
Speaker 1: we talk inflation, concerns about the FED tapering its bond
Speaker 1: purchases cannot be far behind. Something Fed Chair j Pole
Speaker 1: put in play last week. So long as the recovery
Speaker 1: remains on track, a gradual tapering process that concludes around
Speaker 1: the middle of next year is likely to be appropriate
Speaker 1: and did nothing to back off of during his testimony
Speaker 1: this week before the Senate Banking Committee. Mainly, what we've
Speaker 1: seen is that the the supply side restrictions that that
Speaker 1: are so much at the heart of the inflation and
Speaker 1: we're seeing have not only not gotten better, they've actually
Speaker 1: in some cases gotten worse. But then again, Senator Warren
Speaker 1: said that if she had her way, it wouldn't be
Speaker 1: Mr Pyle making the decisions anyway. Over and over, you
Speaker 1: have acted to make our banking system less safe, and
Speaker 1: that makes you a dangerous man. And if all that
Speaker 1: weren't enough to set markets off, this week, we had
Speaker 1: the continuing spector of the United States possibly defaulting on
Speaker 1: its debt as Republicans and Democrats continued to bicker over
Speaker 1: the debt ceiling, with each side blaming the other. Here's
Speaker 1: Senators Pat Toomey and Shared Brown. The Democrats have chosen
Speaker 1: to ignore our warnings about this excess of spending, but
Speaker 1: they want us to vote to raise the debt ceiling
Speaker 1: in order to permit the massive spending increases that they're planning. Senator,
Speaker 1: can I really speak between witnesses, but I wonder if
Speaker 1: sexually takes you up on the offer to go get
Speaker 1: a cocktail, if if you would pay, or you'd skip
Speaker 1: out on paying the bill and the expect sector yelling
Speaker 1: to pay, and the markets, well, it could have been worse.
Speaker 1: After taking a hit on Tuesday, equities gained some of
Speaker 1: it back, with the SMP closing the week down just
Speaker 1: over two percent. Well, the NASDAC took the biggest hit,
Speaker 1: down over three percent for the week, while the tenure yield,
Speaker 1: after jumping up on Tuesday's, settled down a bit to
Speaker 1: end the week just under the one point five level,
Speaker 1: while Bitcoin put on a late week surge, closing over
Speaker 1: forty eight thousand. Tell Us make some sort of sense
Speaker 1: out of these markets this week. Welcome to Peter Krause,
Speaker 1: he's chairman and CEO of Aperture Investors. Welcome back. It's
Speaker 1: great to have you back. On Wall Street Week, Peter,
Speaker 1: So it give us a sense of what you think
Speaker 1: happened this week. It was it all about the tenure yield.
Speaker 1: I think you're I think you're opening remarks were terrific,
Speaker 1: But I would say the following there's a lot of
Speaker 1: noise out there, so let's focus on the facts. The
Speaker 1: facts are. The FED has clearly said they're going to table.
Speaker 1: The facts that are the FED is that I'm not
Speaker 1: going to increase interest rates until well into twenty two
Speaker 1: early twenties. Rate facts aren't we continue to have growth.
Speaker 1: Facts are we continue to have elevated inflation, not runaway inflation,
Speaker 1: So in that sense it's transitory, but certainly more inflation
Speaker 1: than we had at one point five to two percent.
Speaker 1: So if you have growth, you have inflation, you have
Speaker 1: the FED seeing they're going to taper, you have the
Speaker 1: FED saying you're not going to increase interest rates, it
Speaker 1: seems pretty clear to me that long term rates have
Speaker 1: to start rising, and they have them, that the energy
Speaker 1: prices are reacting, and we have growth, We're not at
Speaker 1: the point of a recession. So I think if you
Speaker 1: take away all the noise, it's actually reasonably clear. But
Speaker 1: reasonably clear as as a good market to invest in
Speaker 1: as a questionable market, because it seems like if you
Speaker 1: take this week and last we put together both weeks
Speaker 1: for different reasons, we had big sellouts and equis and
Speaker 1: they come back again, it seems to be very choppy.
Speaker 1: As they say, yeah, I think at the equity market
Speaker 1: as at the level that is at is clearly at
Speaker 1: a value that is getting a little bit high, and
Speaker 1: I think the equity markets behaving that way. Now. I
Speaker 1: don't think we're going to see your recession, so I
Speaker 1: don't think we're going to see a significant pullback, but
Speaker 1: I've said for the last you know, six months to
Speaker 1: eight months, this equity market could certainly see a retrenchment
Speaker 1: of ten to fifteen perhaps even as it reprices itself.
Speaker 1: The FED activity over the last number of years has
Speaker 1: clearly driven interest rates to very low levels. We know
Speaker 1: wheel rates in the United States are negative, wheel rates
Speaker 1: in Europe are negative. So what does that mean. That
Speaker 1: means that all the cash that might have been running
Speaker 1: after fixed income markets went in the equity markets. So
Speaker 1: clearly the capital allocation is not normal, and people have
Speaker 1: more invested in the equity markets than traditionally, and they've
Speaker 1: driven prices to high levels. So do we have volatility
Speaker 1: rates start to move? Absolutely, would you put cash in
Speaker 1: the equity market today? You probably wait to see for
Speaker 1: the volatility to reside. So the question is if low
Speaker 1: rates really drive this so much? That does depend critically?
Speaker 1: Does it not? On J Pali statement, this is transitory,
Speaker 1: is not permanent. Even this week when he was giving
Speaker 1: testament over the Hill, he said, you know, it's worse
Speaker 1: than we thought it wasn't It's more durable. And every
Speaker 1: time he talks, there's another reason. It was used cars,
Speaker 1: you know, and now it's natural gas prices. There's always
Speaker 1: something else. And those supply chain problems are gonna linger
Speaker 1: for a while, aren't they, Peter? I do think they will.
Speaker 1: I I don't like the word transitory because it suggests
Speaker 1: that the level of inflation it's currently there is going
Speaker 1: to recede to the level of inflation we had before
Speaker 1: rates or inflation became quote unquote higher. I don't think
Speaker 1: that's the case, and I actually don't think that's what
Speaker 1: Pal means. What I think he means is that four
Speaker 1: percent five percent inflation is transitory, but not necessarily two
Speaker 1: or two and a half percent is transitory, and if
Speaker 1: we had two and two and a half percent inflation
Speaker 1: that was normal unstable, we would definitely have higher rates
Speaker 1: and capital allocation would take place, and I suspect the
Speaker 1: equity market would have to reprice that. Thank you so much,
Speaker 1: Peter Krause. He's gonna be staying with us as we
Speaker 1: take a closer look at inflation and how investors might
Speaker 1: cope if in fact it's here to stay contrary to
Speaker 1: what j Pole claims. That's next. This is Wall Street
Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week. I'm
Speaker 1: David Weston. There was more talk of inflation this week
Speaker 1: with fed share Powell admitting it's a bit worse and
Speaker 1: more persistent than he'd expected, but still not really something
Speaker 1: to worry about. And natural gas prices really shot through
Speaker 1: the roof over in Europe because they have some problems
Speaker 1: with some supply chains. What if chair Pole is wrong
Speaker 1: and real inflation is here to stay after all, what
Speaker 1: should investor do? Still well, this is Peter Krause of
Speaker 1: Aperture Investments and now joining us as Nancy Davis of
Speaker 1: Quadratic Capital. She is the CEO and founder of that organization.
Speaker 1: So Nancy, let's start with you, because you've made something
Speaker 1: a name for yourself. When I say that in the
Speaker 1: area of inflation, without regard to whether you think it
Speaker 1: really is persistent or not. If it were to be persistent,
Speaker 1: what should investor do? I think every investor needs to
Speaker 1: be concerned about inflation, especially retire ease, because you're not
Speaker 1: going to benefit from the wage inflation if you're not
Speaker 1: in the labor force anymore. So we do live in
Speaker 1: a in a real world, and inflation is a risk
Speaker 1: to every investor portfolio because it reduces purchasing power. I
Speaker 1: think investors just shouldn't be taking a bet on whether
Speaker 1: it's transitory or not, and really should have as part
Speaker 1: of a diversified portfolio, should own some amount of inflation protection. Well,
Speaker 1: just to follow that, Nancy, what does inflation protection look like?
Speaker 1: Is that gold? Is that real estate? What is that? Well?
Speaker 1: I definitely have a different view about what inflation protection is.
Speaker 1: I know a lot of investors look at commodities because
Speaker 1: that worked in the seventies in the last period of
Speaker 1: hyper inflation. But we just I think commodities are like
Speaker 1: the laptop. You know, I'm talking with you on tonight.
Speaker 1: It's deflationary. Technology has innovated in that space, So I
Speaker 1: just don't think commodities are the only way to think
Speaker 1: about how to capture inflation. I personally like using um
Speaker 1: the difference between short and long dated rates as another
Speaker 1: measure of inflation expectations outside the consumer price index. I
Speaker 1: think that's the thing that investors have to keep in mind,
Speaker 1: is that's just one index. It's like if you were
Speaker 1: to buy equities, nobody would buy just the Dow Jones
Speaker 1: index and say, oh, I have all equities. I think
Speaker 1: investors have to be diversified. Peter, same question to you
Speaker 1: if you think I think Nancy makes a really good
Speaker 1: point about that. First of all, in in the commodity
Speaker 1: inflation time period, we didn't have the same kind of
Speaker 1: technology boom that we see today, and we didn't have
Speaker 1: anywhere near these social um I shouldn't say social, but
Speaker 1: ecologically beneficial ways to actually produce energy. And Nancy's business
Speaker 1: has has really focused on a long term structural benefit
Speaker 1: that's out there of taking advantage of the difference between
Speaker 1: short and long term rates, and she's made it liquid.
Speaker 1: And I think that if you want to buy inflation
Speaker 1: for detection. That's a piece that's a part of your
Speaker 1: portfolio that you could easily tailor own, and it would
Speaker 1: give you protection to do that. You can also own commodities,
Speaker 1: but you are you are susceptible to supply and demand changes,
Speaker 1: political changes, technology changes. So there's more going on in
Speaker 1: the commodity world than there is in the sort of
Speaker 1: pure rate opportunity. So but let me just pick up
Speaker 1: with something you referred to, which is what's going on
Speaker 1: with climate change and some of the things that are
Speaker 1: being done by the bodymustriction and others. In response that,
Speaker 1: Julian Tether Financial Times this week wrote a column and
Speaker 1: which is she called greenflation because she said, as we
Speaker 1: make this transition, it's a massive transition away from greenhouse gases,
Speaker 1: it's got to drive some prices up. There's got to
Speaker 1: be inflation issue, right. I think she's right. I I
Speaker 1: definitely think she's right, and I think it's a little
Speaker 1: bit difficult to calculate. So what I mean by that
Speaker 1: is we're all going to move towards a green world.
Speaker 1: That's a good objective and we should go there. But
Speaker 1: what we don't know is how long is it going
Speaker 1: to take us us collectively as a global economy to
Speaker 1: actually get to the point where the green world is efficient,
Speaker 1: cost effective, and actually produces enough energy for us to
Speaker 1: operate our world in and that time period we don't know,
Speaker 1: And if we haven't invested enough in carbon fuels to
Speaker 1: actually have the supply to get us there, we're gonna
Speaker 1: see price fake spikes, and we're gonna see them actually
Speaker 1: be very rapid and actually quite uh disconcerting, because you're
Speaker 1: not gonna be able to increase the supply fast enough
Speaker 1: to be able to deal with the shortfall. One of
Speaker 1: the things Nancy, clearly we have not invest enough in
Speaker 1: his supply chains all around the world, and would start
Speaker 1: with semi conductors, but it's gone well beyond that. Take
Speaker 1: a look at all the ships lined up outside of
Speaker 1: Los Angeles and even here in New York. What about
Speaker 1: that is an effect on inflation? Is that going away
Speaker 1: anytime soon? Well, it's really a result of the supply
Speaker 1: shocks around the world. It hopefully will go away soon,
Speaker 1: But we're also having labor shocks at the same time,
Speaker 1: so goods and services are not being able to be
Speaker 1: shipped around the world. Factories are not working at full capacity,
Speaker 1: and it's a bit of a catch twenty two because
Speaker 1: you know something's got to give eventually, and eventually the
Speaker 1: demand will be met. The question is whether we're going
Speaker 1: to have higher costs without the earnings per share growth
Speaker 1: that has been priced into corporate America. If you look
Speaker 1: at stocks and corporate credit, the markets are really expecting
Speaker 1: a lot of growth. And when you listen to some
Speaker 1: of the companies as they report earnings this season, a
Speaker 1: lot of people are talking about the labor market and
Speaker 1: the delays and the higher costs that are not necessarily
Speaker 1: growthee costs there are more potentially a stagflationary costs, or
Speaker 1: we have higher costs but not the earnings for share growth. Peters.
Speaker 1: I listened to Nancy. A lot of what she describes
Speaker 1: is the direct result I suspect to the pandemic. We
Speaker 1: had to shut down the economy and bring it back up.
Speaker 1: But is it really the cause of what we're seeing
Speaker 1: or did the pandemic reveal some underlying structural weaknesses we had,
Speaker 1: perhaps around the supply chain, having too much devoted to
Speaker 1: certain countries like, for example, China. Is it really revealing
Speaker 1: more structural issues for the economy that have to be addressed. Well,
Speaker 1: that's an interesting question. I think you could argue that
Speaker 1: there was nothing structurally wrong with the supply chain, although
Speaker 1: it was clearly concentrated in certain areas. I mean, remember
Speaker 1: the nuclear disaster in Japan and UH automobile manufacturers realized
Speaker 1: that their supply constraints were disrupted dramatically because they were
Speaker 1: getting a lot of supplies at in Japan in a
Speaker 1: specific place. It was near Fukushima. So national events do
Speaker 1: have an effect on supply chain, and COVID had the
Speaker 1: same effect, although in a global basis, and so you know,
Speaker 1: now we're trying to figure out how do we diversify
Speaker 1: the supply chain so that effect isn't doesn't happen as often.
Speaker 1: But we're always going to have some aggregation of supply
Speaker 1: because ultimately there's a benefit of suppliers being near each other.
Speaker 1: They use the same kind of labor costs, use the
Speaker 1: same kind of energy costs, and if those costs are
Speaker 1: low and attractive, you're going to attract the number of
Speaker 1: people that produce goods that have an ecosystem around them.
Speaker 1: So I suspect that you're always going to have these
Speaker 1: kinds of shocks in the supply chain when you have
Speaker 1: natural events that are catastrophic. So in that sense, I
Speaker 1: don't think that COVID exposed a weakness. It exposed kind
Speaker 1: of the persistent issue you have when you're when you've
Speaker 1: got a global supply uh, you know, structure and effectively
Speaker 1: there's a concentration in the system somewhere. Really interesting discussion
Speaker 1: about inflation and the labor market and commodities and the
Speaker 1: climate change. Can't get much more than that. Thank you
Speaker 1: so much to Peter Krausse of Aperture Investments, and also
Speaker 1: to Nancy Davis of Quadratic Capital, where she is CIO
Speaker 1: and founder. Coming up, Bloomberg opinion columnist Frank Berry has
Speaker 1: a bad news for New Yorkers when it comes to elections.
Speaker 1: Boston is beating you. That's next on Wall Street Week
Speaker 1: on Bloomberg. This is Bloomberg Wall Street Week with David
Speaker 1: Weston from Bloomberg Radio. Over the next six weeks, Boston
Speaker 1: voters will witness a hotly contested campaign to determine the
Speaker 1: city's next mayor, while in New York voters know that
Speaker 1: November's mayoral election is all but over. We're joined now
Speaker 1: by Bloomberg opinion columnist Frank Berry, who writes admitted New
Speaker 1: Yorkers Boston is beating us. I took a look at
Speaker 1: the city from a different perspective, which is politics, and
Speaker 1: the contrast between Boston and New York could not be
Speaker 1: any different. Right now. Boston's in the middle of an
Speaker 1: extremely close, heated, closely followed mayoral election between two women,
Speaker 1: and in New York it's the opposite. We've got an
Speaker 1: election that no one's particularly following because no one has
Speaker 1: any expectation that the outcome will be any different than
Speaker 1: what everyone believes it will be. And in part that
Speaker 1: is because we have Eric Adams, the former New York
Speaker 1: Police captain, who is the nominee of the Democratic Party,
Speaker 1: and New York City is overwhelmingly Democratic. New York City
Speaker 1: is overwhelmingly Democrat. He won the Democratic Party primary. He's
Speaker 1: facing a Republican who has marginal support, has raised a
Speaker 1: little bit of money, not a lot. But it's a
Speaker 1: race that's really devoid of debate. It's not capturing anybody's attention. Uh.
Speaker 1: And I think that's in large part because everyone expects
Speaker 1: that Adams will win running away. In Boston, it's the
Speaker 1: exact opposite story. It's a very close race between two
Speaker 1: Democrats who both have strong basis of support. One is
Speaker 1: running more from the left, one is running more from
Speaker 1: the center. And so it's very much a debate about Boston,
Speaker 1: but it has national repercussions or overtones, because it mirrors
Speaker 1: a debate that is playing out in Washington and art
Speaker 1: cities across the country between the progressive wing of the
Speaker 1: party and the more centrist wing. And you put your
Speaker 1: finger on the structural difference, which is you have two
Speaker 1: Democrats running into each other. You don't. You don't have
Speaker 1: a Republican versus a Democrat the way you do in
Speaker 1: New York City. Correct. So in Boston they run an
Speaker 1: election process that is often called top two or nonpartisan,
Speaker 1: and everyone gets to compete on the same ballot in
Speaker 1: the first round of voting in the primary, and the
Speaker 1: top two finishers, no matter what party they belong to,
Speaker 1: advanced to the November general election. So that way you're
Speaker 1: short of getting two candidates who are your too strongest candidates,
Speaker 1: no matter what party they belong to. In New York,
Speaker 1: we run party primaries, so each party gets a chance
Speaker 1: to advance one candidate. The problem is the Republican Party
Speaker 1: has been weak for many decades, and they often go
Speaker 1: outside their party to find someone and often don't find
Speaker 1: a strong candidate, and so you end up often with
Speaker 1: a very highly competitive Democratic primary UH and UM a
Speaker 1: Republican candidate who is very weak. And so in New
Speaker 1: York we had a very closely contested Democratic primary, Eric
Speaker 1: Adams one against a very strong field, including two women
Speaker 1: can unidates who were close on his heels, but that
Speaker 1: effectively ended the election, and the November contest that will
Speaker 1: take place is basically afford go one conclusion. Whereas in
Speaker 1: Boston they're getting a chance. They also had a competitive primary,
Speaker 1: but because they didn't give a Republican a free pass
Speaker 1: to the general election, Republican had to compete in the
Speaker 1: primary same as everyone else. UH, they were able to
Speaker 1: advance to November two candidates who either one of them
Speaker 1: has a shot at winning this so it could be
Speaker 1: a coincidence, but you mentioned it's two women in Boston.
Speaker 1: New York City in its history has never had a
Speaker 1: woman mayor, which is pretty extraordinary, never had a woman mayor,
Speaker 1: And we came as close as we ever have this
Speaker 1: year to UH to having a serious UH woman in
Speaker 1: the general election, and had New York been running Boston's
Speaker 1: system of elections where you advanced the top two, it's
Speaker 1: very likely, in fact, let's say it's most likely that
Speaker 1: one of those women, if not both, but certainly one
Speaker 1: of them would have been in the November election. And
Speaker 1: we may very well be talking about the next woman
Speaker 1: mayor or the first woman mayor of New York. So
Speaker 1: let's talk about possible reform. What are the prospects of
Speaker 1: reform of the system in New York City? And we
Speaker 1: should have a little disclaimer here that you worked on
Speaker 1: Michael Bloomberg's campaigns for mayor, and he of course is
Speaker 1: the majority owner and founder of Bloomberg LPR parent company,
Speaker 1: So not that out of the way. Where the projects
Speaker 1: of changing that and and UH and a Boston kit
Speaker 1: I might it's right, you've got another disclaimer. So we've
Speaker 1: got all kinds of disclaimers there. But it's it's always
Speaker 1: been an uphill battle in New York because the parties
Speaker 1: are strong, and UH, in general, neither the Democratic Party
Speaker 1: organizations nor the Republican Party organizations are eager to change
Speaker 1: the system because they have certain advantages that come with
Speaker 1: the status quo um. I actually worked on a uh
Speaker 1: an effort to change the system that Mayor Bloomberg had
Speaker 1: supported back in the early days of his administration, but
Speaker 1: for a variety of reasons it failed, including running in
Speaker 1: a in a low turnout there's a referendum in a
Speaker 1: low turnout primary campaign. But it's my hope that that
Speaker 1: voters will take a look at what's going on in
Speaker 1: New York and what's going on not just in Boston,
Speaker 1: but in places like Seattle, UH places like Atlanta, Cincinnati, Cleveland,
Speaker 1: other places that run their elections like Boston are also
Speaker 1: going to have very competitive elections in November, and places
Speaker 1: that run them like New York, which we're seeing in
Speaker 1: Pittsburgh and Buffalo, are having the opposite of that, having
Speaker 1: the same scenario where the winner of the primary election
Speaker 1: is basically your rubber stamp poinner for the general. That's
Speaker 1: Bloomberg opinion columnist Frank Berry coming up. We wrap up
Speaker 1: the week as we always do with Larry Summers of Harvard.
Speaker 1: That's next on Wall Street Week on Bloomberg. This is
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: We're return to Larry Summers of Harvard. Once again our
Speaker 1: special trailer on Wall Street Week to really take us
Speaker 1: through the week, Larry, First of all, let's start with inflation,
Speaker 1: something we've talked about, I think every single week, but
Speaker 1: we got really some news this week, in no small
Speaker 1: way because of what happened with the ten year yield
Speaker 1: and the treasury which really spiked up. It's still a
Speaker 1: modest number overall, but it climbed really quickly. And you
Speaker 1: and I have talked about the question, if we really
Speaker 1: have an inflation problem, why isn't the tenure yield going up?
Speaker 1: Look at maybe that this is a recognition of some
Speaker 1: combination of the fact that we're going to have more
Speaker 1: inflation and that the FED is going to do more
Speaker 1: than people thought it was gonna need to do in
Speaker 1: order to contain inflation. You know, once these things start,
Speaker 1: they sometimes have a tendency uh to trend. So I
Speaker 1: stand by my view that markets are substantially underestimate in
Speaker 1: what's likely to happen to interest rates before too long.
Speaker 1: You know, if you look at the so called tailor
Speaker 1: rules predictions of FED behavior, and you feed any kind
Speaker 1: of traditional tailor rule through with the way current economic
Speaker 1: data is running. It points you to a pretty substantial
Speaker 1: concern about inflation overheating. So I've got pretty real anxieties.
Speaker 1: I think what's happening with oil makes the kind of
Speaker 1: Powell that I've drawn to the sixties and seventies look
Speaker 1: more real. We just seem to be having a lot
Speaker 1: of surprising bad shocks that are lasting longer than you think.
Speaker 1: And when you keep being surprised again and again, it
Speaker 1: suggests that there's a pattern and you're missing it. I
Speaker 1: think that's a bit the case with inflation. And of
Speaker 1: course this week we saw some growing set that while
Speaker 1: Europe is not nearly as far along in this as
Speaker 1: we are, that even in Germany inflations right rising to
Speaker 1: uh surprising levels for them. At the same time, we
Speaker 1: have back and forth up on Capitol Hill about spending
Speaker 1: more money more potential fiscal stimulus. This week we had
Speaker 1: Joe Mansion, the Center from West Virginia come out and say,
Speaker 1: I don't like three point five trillion for this build
Speaker 1: back better plan. I like it more like at one
Speaker 1: point five trillion. Now. I don't know exactly what's in
Speaker 1: Joe mentioned plan, but I remember last week on this
Speaker 1: program Wall Street Week you said what you thought they
Speaker 1: should do is do something less than three point five
Speaker 1: trillion and make it more targeted. Is Joe Mansion taking
Speaker 1: the Democrats in the right direction? Do you think? Look?
Speaker 1: I think if the if the bill shrink somewhat, even
Speaker 1: more important, if it's paid for, even more important, if
Speaker 1: it's paid for without gimmicks. I worry about too many
Speaker 1: things being done where they're funded for three years and
Speaker 1: everybody assumes that will be funded after that, or it's
Speaker 1: announced right now that it will start being funded in
Speaker 1: uh seven years. Uh. It's crucial that there be some
Speaker 1: quality to the spending relative to the revenue, rather than
Speaker 1: excessive reliance on timing gimmicks. If we can avoid timing gimmicks,
Speaker 1: if we can pay for it, and we can be
Speaker 1: disciplined and focusing on what will grow uh the economy,
Speaker 1: it is hugely important that we pass a bill. It
Speaker 1: is hugely important that we start doing more than we
Speaker 1: have done on climate change, uh for example. And I'm
Speaker 1: not sure that we need to do everything that center
Speaker 1: Mansion is calling for. UH. There, I think there's a
Speaker 1: lot that absolutely he needs to uh happen, even if
Speaker 1: there is uh some short term dislocation. UH, so I'd
Speaker 1: like to see I think it's desperately important that we
Speaker 1: pass a bill. I hope that this process of of
Speaker 1: compromise uh will eventually UH get to an end, and
Speaker 1: I'm guardedly optimistic that at the end of a process
Speaker 1: that won't have been pretty to watch, we'll get something
Speaker 1: that may not correspond to some people's dreams, but will
Speaker 1: actually be a strong set of initiatives to invest in
Speaker 1: the future of our country. That's more significant, Larry, I
Speaker 1: wonder if you see a possible connection between these two things,
Speaker 1: inflation on the one hand, and what we're doing with
Speaker 1: climate on the other that you just referred to. In
Speaker 1: this sense, we saw, for example, natural gas flat process
Speaker 1: really spike up in Europe. We've got problems now in China.
Speaker 1: Is this something that is really going to stay with
Speaker 1: us on the flation front, because as we convert over
Speaker 1: to potentially zero greenhouse gases, there's got to be a cost.
Speaker 1: I think that's a risk. It's a complicated thing, David,
Speaker 1: because if you reduce the demand for fossil fuels, that
Speaker 1: will presumably reduce their price, not increase their price, and
Speaker 1: that aspect of it will be UH anti inflationary, but
Speaker 1: I think this is something we need to carefully monitor
Speaker 1: and watch. I think the time frames are somewhat different.
Speaker 1: The inflation threats are of things becoming a bit unhinged
Speaker 1: in the next year or two. The climate plans are
Speaker 1: things that will play out over quite a long time period.
Speaker 1: But it's absolutely something that we need to pay very
Speaker 1: close attention to as we UH, as we set the
Speaker 1: policies going forward. Another I could just say, if I
Speaker 1: if I can I just add something on the subject
Speaker 1: of the tech of the tax debate UH that we're having.
Speaker 1: I don't think it's going to happen. It would be fantastic, actually,
Speaker 1: if we were able to place some kind of UH
Speaker 1: tax on, some kind of fee on fossil fuels, not
Speaker 1: laid directly at consumers, but placed upstream on the businesses
Speaker 1: that produced them. I think that would be probably the
Speaker 1: best UH public policy. UH. There is the late George
Speaker 1: Schultz and I advocated UH several years ago. Beyond that,
Speaker 1: I do think that one thing Center Mansion has said
Speaker 1: is absolutely right, and that is that we should be
Speaker 1: repealing much of the Trump tax cuts. There is no
Speaker 1: conceivable reason why we cannot have a corporate tax rate
Speaker 1: in uh, the United States without damaging competitiveness of US
Speaker 1: companies costs of capital or near zero. It is not
Speaker 1: cost of capital that is inhibiting investment. UH. Right now,
Speaker 1: this is something we surely should be doing. And on that,
Speaker 1: I am right with Center Mansion. I'm right with the administration.
Speaker 1: I hope Senator Cinema. It's not clear exactly where she stands,
Speaker 1: and she studied all of this very very carefully, but
Speaker 1: I hope she will see her way clear to support
Speaker 1: a carefully measures tax program that raises revenue we surely
Speaker 1: need from people who surely can afford it um without
Speaker 1: doing damage to investment. Okay, Larry Sumers had thank you
Speaker 1: so very much for being back with us. Larry, of course,
Speaker 1: is our special contributor here Wall Street Week. Finally, one
Speaker 1: more thought, taking a random walk on a hamster wheel.
Speaker 1: We spend a lot of our time try to understand
Speaker 1: the markets, explain the markets, even predict the markets. And
Speaker 1: we have no shortage of experts who can tell us
Speaker 1: what the markets are doing, at least in retrospect. The
Speaker 1: market is first of all rationalizing. We bond an equity
Speaker 1: joint set off this you know, growing anxiety. We're trying
Speaker 1: to read the tea leaves. People are just closing their
Speaker 1: eyes and waiting for this all to be worked out.
Speaker 1: We basically entered a high voluntary regime. You've got to
Speaker 1: tend your yield at one and a half percent. This
Speaker 1: opening in the yield curve. The FIT has said that
Speaker 1: they're changing policy. They've telegraphed the tapering, of course, concerns
Speaker 1: all the pressure on ever grand in Chinese debt markets,
Speaker 1: you can volatility. Some days are going to be pretty uncomfortable.
Speaker 1: Everybody's crying volatility ahead indeed, But now coming out of Germany,
Speaker 1: we have a useful reminder of just how modest we
Speaker 1: should be about how much we think we know about
Speaker 1: the markets. Meet Mr Cox. He is a hamster, and
Speaker 1: like most hamsters, spends his day running on a hamster wheel,
Speaker 1: going in and out of tubes in his cage. But
Speaker 1: his cage is a bit different. His owners set it
Speaker 1: up so Mr Cox can trade cryptocurrencies. Which currency he
Speaker 1: wants to trade depends on where he stops on his wheel,
Speaker 1: and whether he's on the buy side of the cell
Speaker 1: side depends on which tube Mr Cox goes in or
Speaker 1: out of, and we can all watch Mr Cox make
Speaker 1: his investment decisions in real time because it is streamed
Speaker 1: on Twitch, and of course Mr Cox has his own
Speaker 1: Twitter account as well. And the results, well, let's put
Speaker 1: it this way, since June, Mr Cox's portfolio of cryptocurrencies
Speaker 1: is up. If you're keeping score, that's better than Bitcoin,
Speaker 1: better than the SMP, It's even better than Warren Buffett's
Speaker 1: Berkshire Hathaway. But on the other hand, if you'll watch
Speaker 1: carefully that streaming video, you notice something of Mr Cox.
Speaker 1: He actually isn't so much a crypto trader as a
Speaker 1: crypto holder because most of the time Mr Cox is
Speaker 1: in his cage, not doing much of anything. He's not
Speaker 1: in a wheel, he's not going in and out of
Speaker 1: the tubes. So maybe, in one sense Mr Cox is
Speaker 1: a long term investor. Does that remind you of anyone, like,
Speaker 1: for example, investing icon Warren Buffett. I'm buying stocks and
Speaker 1: I but I'm not buying because I think they're gonna
Speaker 1: go up next year. I'm buying him because I think
Speaker 1: they'll be worth quite a bit more money ten years
Speaker 1: or twenty years from now, and I don't know whether
Speaker 1: they're going to go off or down tomorrow or next week,
Speaker 1: or next month or next year. I do know they're
Speaker 1: good businesses, so perhaps maybe the German hamster Mr Cox
Speaker 1: is one more follower of Ben Graham and Warren Buffett.
Speaker 1: That does it for Wall Street week. For this week,
Speaker 1: I'm David Weston. This is Bloomberg. See you next week.