Speaker 1: This is Bloomberg Wall Street Week, and we may not
Speaker 1: have an overall recession, we're having a rolling recession.
Speaker 2: Econy of roll looks pretty strongly. It is when it
Speaker 2: comes to jobs.
Speaker 3: The financial stories that shape our world.
Speaker 1: Three major regional bank failures send shockwaves through the banking system.
Speaker 1: We're all trying to figure out what to make of
Speaker 1: generative AI.
Speaker 3: Through the eyes of the most influential voices.
Speaker 1: Welcome down, Doctor Paul Krugman, Ryan Moynahan, a Bank of America,
Speaker 1: deebro Lair of the Paulson Institute, Glenn Hubbard of the
Speaker 1: Columbia Business School.
Speaker 3: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: This week's special contributor Larry Summers on what the jobs
Speaker 1: numbers told us about the state of the economy.
Speaker 4: We've got something of an energizer bunny economy.
Speaker 5: The economy keeps moving right along.
Speaker 1: Glenn Hubbard of Columbia on whether the bond vigilantes are
Speaker 1: knocking at the door, and Ray Dalio Bridgewater on cash
Speaker 1: being trash no longer.
Speaker 6: When you look at the expected returns for this moment,
Speaker 6: cash is a relatively attractive asset class at this moment.
Speaker 1: There was a fair amount of turmoil on global Wall
Speaker 1: Street this week, starting with a turmoil in Washington over
Speaker 1: who is Speaker of the House, as Kevin McCarthy became
Speaker 1: the first speaker in history to be voted out, throwing
Speaker 1: the business of the Congress up in the air until
Speaker 1: they could sort things out.
Speaker 5: The yeas are two sixteen, the nays are two ten.
Speaker 7: The office of Speaker of the House of the United
Speaker 7: States House of Representatives is hereby declared vacant.
Speaker 1: Samuel Bankman Free spent his week worried not about his
Speaker 1: job but about his freedom as his criminal fraud trial
Speaker 1: got underway in Lower Manhattan. Putting Crypto under a bright
Speaker 1: hot spotlights.
Speaker 8: Kind of missed the moment, since that when FTX happened,
Speaker 8: you would have thought that that might bring people together
Speaker 8: in Congress and say, Okay, we really have to do something.
Speaker 1: Things weren't much better when it came to labor disputes
Speaker 1: this week, as the autoworkers kept up the pressure with
Speaker 1: GM taking out a new credit line.
Speaker 9: I know the workers want to see strong companies because
Speaker 9: they want to have jobs, but when the companies got
Speaker 9: in trouble in two thousand and eight and two thousand
Speaker 9: and nine those workers gain so that those companies would
Speaker 9: succeed and wouldn't go bankrupt.
Speaker 1: And seventy five thousand healthcare employees of Kaiser Permanente joined
Speaker 1: the auto workers on strike, complaining of too much work
Speaker 1: and not enough pay.
Speaker 10: Look at the wage pressure on things like the auto strike,
Speaker 10: and you know there's a lot of discussion. If they're successful,
Speaker 10: you'll start to see other unions striking. And sure enough,
Speaker 10: today you had the seventy five thousand employees at Kaiser
Speaker 10: Permanentite going out on strike looking for wage increases. Those
Speaker 10: are going to be very inflationary.
Speaker 1: Whatever turmoil we saw throughout the week, it was dwarfed
Speaker 1: by the blowout jobs numbers that came on Friday, A
Speaker 1: full three hundred and thirty six thousand new jobs added
Speaker 1: in September, about double what we expected, which sent the
Speaker 1: markets reeling, but they quickly recovered. The S and P
Speaker 1: five hundred ended the week up almost percent half a
Speaker 1: percent to forty three ohaight, just under the forty four
Speaker 1: to thirty five median prediction of our Bloomberg elves for
Speaker 1: the end of the year. The NANZDAC fared even better,
Speaker 1: up one point six percent, and once again this week,
Speaker 1: the big action was really in the bond market, with
Speaker 1: the ten year adding almost twenty two basis points, ending
Speaker 1: the week at four point seven nine. To take us
Speaker 1: through this week in the market, Welcome back now, Liz
Speaker 1: Anne Saunders, Charles Schwab, chief market strategist, and David Bianca,
Speaker 1: he is WDS America's Chief investment officer. Welcome both of you.
Speaker 1: Thank you so much for being here. So listen, let
Speaker 1: me start with you about those jobs numbers. They did
Speaker 1: surprise I think pretty much all of us. What do
Speaker 1: they tell us about where we are with the economy
Speaker 1: and how did the markets react?
Speaker 8: Well, you know, certainly on the surface, looking at the
Speaker 8: headline payroll numbers, it shows an ongoing amount of resilience
Speaker 8: in the labor market that is quite surprising. You could
Speaker 8: pick a little at the numbers if you wanted to
Speaker 8: by looking under the surface. Or continues to be a
Speaker 8: pretty wide gap between the establishment survey, which is a
Speaker 8: survey of companies that's what generates the payroll number, and
Speaker 8: the household survey, which is a survey of just out
Speaker 8: of households. That's where you get the unemployment rate from
Speaker 8: and the household survey tends to be a bit more
Speaker 8: of the appropriate tell when you're at a possible inflection
Speaker 8: point in the economy, and that's been much weaker. And
Speaker 8: then the last thing I'd say is, yes, the wage
Speaker 8: number was better than expected than that it downticked a
Speaker 8: little bit, which is good news from the perspective of
Speaker 8: the FED. But that may be a function of mixshift
Speaker 8: because so much of the job creation was in lower
Speaker 8: wage segments of the economy, which, of course, when you
Speaker 8: put more low wages in an average, you get a
Speaker 8: lower average. So I would say, under the surface, it
Speaker 8: was a little more mixed than the headline.
Speaker 1: David, how would you take away from it? I mean,
Speaker 1: we did have a lot of jobs created, as resident
Speaker 1: centives said, the wages didn't go up as fast as
Speaker 1: we thought they might do, but maybe that's not such
Speaker 1: good news.
Speaker 11: Well, but there's no doubt that there's a strong jobs
Speaker 11: reported surprise to the upside. We're always excited about the
Speaker 11: monthly jobs report on Friday at eight twenty nine am,
Speaker 11: but right afterward it's just another data point, and no
Speaker 11: one single data point makes a trend. But the data
Speaker 11: as a whole would suggest the labor market remains very,
Speaker 11: very resilient, still creating more jobs than the natural growth
Speaker 11: of the labor force in the United States, and it's
Speaker 11: a full employment economy. I think that's the main message
Speaker 11: that even with all of this FED hiking so far,
Speaker 11: we're still at a full employment economy.
Speaker 2: Well, let we follow up on that.
Speaker 1: Can the FED get inflation under control with a full
Speaker 1: employment economy?
Speaker 11: That's what's the big challenge here, And we can debate
Speaker 11: all day long about the need for watching more data
Speaker 11: the jobs market. The inflation report next week will be
Speaker 11: I'm sure scrutinized, but I think we're at the stage,
Speaker 11: given the turmoil in the bond market this week, the
Speaker 11: past couple of weeks, where the Fed should be thinking
Speaker 11: about what it can do to help calm and reduce
Speaker 11: risks for the bond market and bond investors to get
Speaker 11: The labor market so far seems to be taking care
Speaker 11: of itself just fine.
Speaker 1: So listen on what about that? To what extent do
Speaker 1: you expect the Fed to take into account the turmoil
Speaker 1: in the bond market, because certainly we have had that
Speaker 1: this week.
Speaker 8: Well, I think you're starting to hear you had Mary
Speaker 8: dally making comments about the spike in the tenuere to
Speaker 8: some degree doing some of the Fed's job for it.
Speaker 12: You know.
Speaker 8: The one unique aspect or maybe rubing this cycle as
Speaker 8: it relates to what should be happening with the kind
Speaker 8: of surge in yields in conjunction with what the FED
Speaker 8: has done on the short end, is the transmission mechanism
Speaker 8: through the economy, certainly the consumer side, the business side,
Speaker 8: and I don't want to say the economy is much
Speaker 8: less interest sensitive, but when you look at what many
Speaker 8: companies have done in terms of terming out debt, you
Speaker 8: look at things like the mortgage market, and the fact
Speaker 8: that there's so much more of a bias towards the
Speaker 8: fixed rate side of things versus the variable rate side
Speaker 8: of things, like was the case and six when the
Speaker 8: FED was raising. I don't think it eliminates the impact.
Speaker 8: But when we all talk about, and quote Milton Friedman,
Speaker 8: with the long and variable lags, the lag component of
Speaker 8: it may have been added to by virtue of some
Speaker 8: of those offsets. But this, you know, the spike to
Speaker 8: four to eight, it's the speed I think that we
Speaker 8: have to have some concern about in terms of you
Speaker 8: know something breaking breaking, as is often said.
Speaker 1: David pick up on what la za Ane Sanders was
Speaker 1: talking about there, and that is the question of maybe
Speaker 1: the econ it's a little less sensitive to rate hikes.
Speaker 1: And if that's true because of some of the reasons
Speaker 1: you suggest, the terms of the debt, corporate and personal debt.
Speaker 1: If that's true, does that mean the Fed has to
Speaker 1: hike more, have to go further to get the attention
Speaker 1: to the economy.
Speaker 11: We Zan's totally right that the lags are uncertain and
Speaker 11: the economy has been resilient in part because it's a
Speaker 11: service driven economy, but also it's only recently that we've
Speaker 11: gotten clearly to positive real interest rates. For a long time,
Speaker 11: inflation was still above where the Fed had the overnight rate,
Speaker 11: and if the economy hasn't slowed down enough, and of
Speaker 11: course inflation has come down more, but there's no guarantees
Speaker 11: that it might not reaccelerate. And if you're a ten
Speaker 11: year bond investor, you want to be comfortable that inflation
Speaker 11: is not going to reaccelerate over a longer period of
Speaker 11: time owing to labor market conditions, supply conditions, and deficit conditions.
Speaker 11: And I think This is the thing. When the FED
Speaker 11: goes into their meeting at the end of the month
Speaker 11: makes a decision November. First, I think they need to
Speaker 11: ask themselves what action helps to prevent the ten year
Speaker 11: treasury yield from going over five percent, because I think
Speaker 11: that would do more damage to the economy and perhaps
Speaker 11: cause a hard landing. So I think the FED needs
Speaker 11: to act in a way that calms the bond market
Speaker 11: and prevents ten year yields from going higher. And usually
Speaker 11: what makes bond investors bullish is when the FED is hawkish.
Speaker 1: So, David, based on what you've seen so far, then
Speaker 1: you think actually the way to calm the bond market
Speaker 1: actually would be to raise rates.
Speaker 5: It's tough call.
Speaker 11: But with the turmoil we've seen in the bond market
Speaker 11: and the uncertainty that's going to be going on with
Speaker 11: the budgeting process, certainly through and into November, because the
Speaker 11: Continuing Resolution only being forty five days to November seventeenth,
Speaker 11: I think it's important that the bond market note that
Speaker 11: the Fed's got its back, while DC is not really
Speaker 11: taking too much concern with these deficits.
Speaker 1: Lezan, same question to you, is the best way for
Speaker 1: the FED to calm the bond market if that were
Speaker 1: their priority, is it to raise rates at this point
Speaker 1: or not?
Speaker 8: Well, either raise rates or at least maintain somewhat hawkish
Speaker 8: rhetoric and continue to emphasize the for longer part of
Speaker 8: higher for longer, which Powell has certainly been trying to do.
Speaker 8: The other issue here is that you know, we know
Speaker 8: the risks that come from such a speedy move up
Speaker 8: in yields and the ripple effect through the economy. The
Speaker 8: concerns that, as David mentioned, are around the deficit and
Speaker 8: financing our debt given some supply demand imbalance, but there's
Speaker 8: also been so much lending done in the shadow banking
Speaker 8: system in private market, So that's that's one of those
Speaker 8: opaque areas where you wonder whether something could break in
Speaker 8: an area where it's hard for any of us as
Speaker 8: market watchers or even the Fed to have a sense
Speaker 8: of where those potential cracks are.
Speaker 1: Okay, it's been really great having both you back with us,
Speaker 1: as David Bianco of DWS Group and Liz Anne Saunders of.
Speaker 2: Charles Schwab coming up.
Speaker 1: Washington lawmakers went to the match this week and Speaker
Speaker 1: of the House Kevin McCarthy ended up taking the hit.
Speaker 1: We go through the long term issues with contributor Glenn
Speaker 1: Hubbard of Columbia on what comes next on Wall Street
Speaker 1: Week on Bloomberg.
Speaker 3: This is Bloomberg Wall Street Week with David Weston from
Speaker 3: Bloomberg Radio.
Speaker 1: The deficit, it's like the weather. Everybody talks about it,
Speaker 1: but nobody does anything about it. Last week on Capitol
Speaker 1: Hill there was more talking.
Speaker 7: The third best option is the one we tried on Friday,
Speaker 7: which said we're going to reduce spending some but.
Speaker 1: In the end not much doing, even though it is
Speaker 1: truly a bipartisan challenge.
Speaker 9: So from my point of view, it's really the responsibility
Speaker 9: of Congress and administration to make sure that they're party
Speaker 9: keeping guinting us on a sustainable path and fiscal policy.
Speaker 1: The US government has been running a deficit for over
Speaker 1: half a century now.
Speaker 13: The US has run a budget deficit practically every year
Speaker 13: in the last fifty years, no matter if you've had
Speaker 13: a Republican or a Democrat precedent, or whoever has been
Speaker 13: in Congress. The attitude has come to be a policy
Speaker 13: makers that deficits don't matter.
Speaker 1: And we're told the time is getting short to make
Speaker 1: some changes.
Speaker 12: We're a rich country and we've got time to deal
Speaker 12: with it, but we need to do some things in
Speaker 12: the next few years to change that trajectory, and I
Speaker 12: think that's going to be very important.
Speaker 1: Pretty much everyone knows that those changes are going to
Speaker 1: require addressing some thorny issues like entitlements.
Speaker 14: This has been just a mystery to me as to
Speaker 14: why it is that the public doesn't want to hear
Speaker 14: more about what we're going to do to try and
Speaker 14: solve the long term debt situation in this country. You know,
Speaker 14: it gets back to, ultimately the entitlement programs mixed with
Speaker 14: our demographics in this country, what you have is a
Speaker 14: system where the Medicare system is almost fifty percent underfunded,
Speaker 14: meaning that the taxes and the premiums that go in
Speaker 14: only cover about fifty sin of the program times ten
Speaker 14: thousand every day, and that just keeps digging your hole.
Speaker 1: There are always good reasons not to get to the
Speaker 1: tough ones, the ones that in the end really matter.
Speaker 2: But leaders of Global Wall Street like.
Speaker 1: Jamie Diamond see the looming deficit as a real storm
Speaker 1: cloud on our economic horizon. The fiscal money being spent
Speaker 1: is so big, largest in peacetime, ever America and kind
Speaker 1: of around the world with already very high deficits. To
Speaker 1: explain what all the fighting is about and what's potentially
Speaker 1: at stake, we welcome back Glenn Hubbard of Columbia Business School,
Speaker 1: where he was dean after serving as chair of the
Speaker 1: Council of Economic Advisors under President George W.
Speaker 3: Bush.
Speaker 1: Professor Hubbard is author of The Wall and the Bridge,
Speaker 1: Fear and Opportunity in Disruptions Wake. So, Glenn, thank you
Speaker 1: so much for being back with this. We sure this
Speaker 1: is something you and I have talked about a bit
Speaker 1: in the past. But let's come back to what we saw.
Speaker 1: This huge Sherman drawing, if I can call that now
Speaker 1: that I'm Washington. Media loves to cover it, but did
Speaker 1: an did anything happen that really matters this week in
Speaker 1: Washington when it comes to the deficit?
Speaker 5: Not really.
Speaker 7: It was a farce, sermon drawings, probably even too much.
Speaker 7: I think the big story, or the big drama, really
Speaker 7: is the deficit and debt. We have high and rising
Speaker 7: debt to GDP ratios, and that was completely ignored in
Speaker 7: this drama, but really needs to become front and center.
Speaker 1: Well, and that's a problem that Democrats and Republicans share.
Speaker 7: That's by no absolutely if you ask yourself, bad math.
Speaker 7: The Democrat and Republican parties have no plan and the
Speaker 7: president has no leadership. What could go wrong a lot,
Speaker 7: particularly when you count in the need for higher defense spending,
Speaker 7: spending on opportunity, and particularly in the context of today's
Speaker 7: jobs reports, higher interest rates, and what they do to
Speaker 7: the budget.
Speaker 2: So what about the math? You refer to the math?
Speaker 2: What's the math.
Speaker 1: As opposed to the policy differences before we get to
Speaker 1: the policies.
Speaker 7: Well, the math is the debt to GDP ratio is
Speaker 7: on an unsustainable path, meaning we just can't go there,
Speaker 7: and we can fight about how to address it. That's
Speaker 7: a reason for legitimate political de scores. But denying that
Speaker 7: it's a problem is not. And we can't say that
Speaker 7: we won't raise any tax or cut any spending.
Speaker 2: There's no door.
Speaker 1: Number three, When do we really start to feel the pain?
Speaker 1: Because part of the problem is we keep hearing about
Speaker 1: this drama and then it goes away and nothing quite happens,
Speaker 1: and so at some point it's sort of like the
Speaker 1: Boy that Cried Wolf, Right, We're going to.
Speaker 7: Feel it very soon and it's easy to see why
Speaker 7: we need to spend much.
Speaker 5: More on defense.
Speaker 7: Interest rates have gone up and have really thrown the
Speaker 7: federal budget into a problem. In fact, if interest rates
Speaker 7: stay where they are now, premium over what the CBO
Speaker 7: forecast over the next decade all about a seven percentage
Speaker 7: point increase in the debt to GDP ratio, even over
Speaker 7: bad numbers, and about three trillion dollars more debt. We
Speaker 7: really can't go there.
Speaker 2: So what's the solution?
Speaker 1: Give us the answer to it again, apart from exactly
Speaker 1: what the policies are, but how do we start in
Speaker 1: a path that actually addresses the issue?
Speaker 5: You know, it's a great question.
Speaker 7: I think the problem is we can't go to the
Speaker 7: Congressional Budget Office's long term outlook and start pulling out
Speaker 7: techmocratic proposals.
Speaker 5: That's not going to work.
Speaker 7: We first have to tell the American people what's going on,
Speaker 7: actual information. Here's the path, Here's how bad it is,
Speaker 7: Here's what it's going to do to programs you care about,
Speaker 7: the ability to defend the country, educate children, do basic research.
Speaker 7: And then we have to start articulating stories. You know,
Speaker 7: what kinds of policies make sense? Do we have a
Speaker 7: tax system that works. Do we want social Security and
Speaker 7: medicare to be as generous they are now for up
Speaker 7: er income people. We have to have those discussions, and
Speaker 7: then finally we have to talk about gradual adjustment. No
Speaker 7: serious person thinks we're going to slam on the brakes today,
Speaker 7: but how do we like the Greenspan Commission decades ago
Speaker 7: outline something steadily that could make a difference.
Speaker 1: Who's the We we live in a democracy and votes
Speaker 1: count political appeal accounts. I assume you're talking about some
Speaker 1: political leadership that has to really take the bull by
Speaker 1: the horns.
Speaker 7: Yes, I mean, obviously the president should be lea.
Speaker 5: He's not.
Speaker 7: I would hope that in the presidential campaign we will
Speaker 7: see this. My desire would be to have a fiscal
Speaker 7: Commission begin after the election, the twenty twenty four election,
Speaker 7: to really tackle these issues, and whoever's president to take
Speaker 7: that very seriously unless you think it's naive. We have
Speaker 7: plenty of precedents for doing this, and frankly, anything that
Speaker 7: tries to move fast or just isn't politically vibe.
Speaker 1: Tell us about the commission, as you say, it's been
Speaker 1: done before with respect to Social security, as I recall
Speaker 1: also base closings.
Speaker 5: I think yes, those are the two issues.
Speaker 7: So social Security had a cash flow problem. President Reagan
Speaker 7: appointed a commission. Alan Greenspan shared it, and that commission
Speaker 7: came up with a politically palatable idea of gradual changes
Speaker 7: that affected both taxes and spending. I think the same
Speaker 7: thing has to happen here. We have to ask ourselves,
Speaker 7: do we have the right tax system? Hint we don't,
Speaker 7: let's fix that. Do we have the right structure of
Speaker 7: the entitlements? Hint we don't? And how to can we
Speaker 7: gradually change those to bring the budget.
Speaker 2: Back in the past.
Speaker 1: When you use a commission, is it basically because both
Speaker 1: sides know where they need to get to They just
Speaker 1: need to have a way to do it without paying
Speaker 1: too much of a price. And do sides right now
Speaker 1: have that same understanding?
Speaker 7: I think they do. I think nobody wants to admit it.
Speaker 7: Right now, we have a bipartisan consensus that taxes should
Speaker 7: not be raised except on the very rich, and no
Speaker 7: spending should be cut.
Speaker 5: That fails, math.
Speaker 2: Where are we social security?
Speaker 7: Social Security is actually relatively straightforward to fix. We have
Speaker 7: to ask ourselves a fundamental question, what do we want
Speaker 7: it to do. If we want social Security to make
Speaker 7: sure no senior is in poverty, we should raise minimum
Speaker 7: benefits and then flatten them for everyone else. Raising the
Speaker 7: retirement age is something to consider, although one would want
Speaker 7: to make sure it doesn't bind on people who do
Speaker 7: a lot of physical labor as opposed to people who
Speaker 7: do more office labor. But this one isn't hard economically,
Speaker 7: it's just politically difficult.
Speaker 1: Is there only way to get to real deficit reform
Speaker 1: without dealing with Social Security and medicare?
Speaker 5: No?
Speaker 12: No.
Speaker 7: In fact, if you say let's just fix this by
Speaker 7: raising taxes on the rich, if you did all of
Speaker 7: the tax increases on the rich.
Speaker 5: That might be plausible.
Speaker 7: You might be talking about a percentage point of GDP
Speaker 7: that's real money, but not compared to the size of
Speaker 7: the deficit that we're talking about. You really have to
Speaker 7: tackle the entitlement program.
Speaker 1: Is there any way to deal with the deficit problem
Speaker 1: without doing both revenue and costs.
Speaker 5: No. No.
Speaker 7: I think revenue has to be part of their equation
Speaker 7: for two reasons. One is political, but the other's timing.
Speaker 7: If you believe that you need gradual adjustment in the
Speaker 7: spending side, on entitlements. You'll need more revenue upfront, so
Speaker 7: candidates I think would include, let's say, a carbon tax
Speaker 7: or a reform in the tax system that allows you
Speaker 7: to raise more revenue without killing jobs and growth. Both
Speaker 7: of those are possible.
Speaker 2: Glenn. It's always such a treat to have you here.
Speaker 2: Thank you very much.
Speaker 1: That is Glenn Hubbard of Columbia.
Speaker 2: Coming up.
Speaker 1: We wrap up the weekend as we always do with
Speaker 1: our special contributor, Larry Summers of Harvard. That's next time
Speaker 1: Wall Street Week on Bloomberg.
Speaker 3: You're listening to Bloomberg Wall Street Week with David Weston
Speaker 3: from Bloomberg Radio.
Speaker 2: This is Wall Street Week. I'm David Weston.
Speaker 1: We are joined once again by our very special contributor
Speaker 1: here on Wall Street Week.
Speaker 2: He is Larry Summers of Harvard. So Larry, thanks so much. Boy.
Speaker 1: The big question here came up on Friday. Are those
Speaker 1: jobs numbers? It really was so far away and above
Speaker 1: what was expected. What do you make of those numbers?
Speaker 1: Where are we in this economy? And how can it
Speaker 1: keep doing what it's doing.
Speaker 4: Look, we've got something of an energizer bunny economy.
Speaker 5: The economy keeps moving right along.
Speaker 4: It's not only that we got a very strong employment
Speaker 4: number this month, we had upwards revisions for the last
Speaker 4: two months. If anything that looks like job growth is
Speaker 4: accelerating for the moment, this is great news. We got
Speaker 4: an economy that looks very strong, and the wage inflation
Speaker 4: numbers looked very much under control for the medium term.
Speaker 4: Very complex picture that the FED has to read tight
Speaker 4: and substantially tightening labor markets combined with significant labor unrest,
Speaker 4: combined with significant uncertainty about commodity prices. And even though
Speaker 4: it doesn't show up in the inflation statistics explicitly, people
Speaker 4: feel when interest rates are going up, when mortgage rates
Speaker 4: are approaching eight percent, like their cost of living is rising.
Speaker 4: So very challenging environment going forward. These are good numbers,
Speaker 4: and you've got to recognize that these are good numbers,
Speaker 4: but I can't say that they give anything like assurance
Speaker 4: of soft landing. And I think the risks of hard
Speaker 4: landing are very much as real as they were, And
Speaker 4: perhaps the fact that the plane is flying even faster
Speaker 4: than we thought makes the hard landing at some point
Speaker 4: risk look a little greater.
Speaker 1: So, Larry, why is the plane at this point flying
Speaker 1: this past fast I mean, an awful lot of people
Speaker 1: thought once you raise the rates as much as the
Speaker 1: Fed did, as quickly as it did, it would slow
Speaker 1: things down. Shouldn't look like that message is getting through,
Speaker 1: for example, the corporate leadership that's hiring as fast as
Speaker 1: they can.
Speaker 4: David that economists will be studying that for a long time.
Speaker 4: One of the things I've talked about on your show
Speaker 4: is that interest rates may be less restrictive than they
Speaker 4: used to be. When people don't sell houses because they're
Speaker 4: locked in with low mortgages, house prices go up and
Speaker 4: that makes people feel wealthier. When the government's got as
Speaker 4: much debt as it does and interst rates go up,
Speaker 4: that's more money in people's pockets and they spend some
Speaker 4: of it.
Speaker 5: When capital that people are.
Speaker 4: Purchasing is a new AI system rather than building a
Speaker 4: new factory, it's all shorter duration and less intrasensitive. So
Speaker 4: we may be living in a world where the interst
Speaker 4: rate is less of a tool for guiding the economy
Speaker 4: that it used to be, and that means when things
Speaker 4: need to be cooled off, interest rates are going to
Speaker 4: have to be more volatile.
Speaker 5: Than they have been in the past.
Speaker 4: That's one important part of it, and the other important
Speaker 4: part of it is what's happening with the budget deficit
Speaker 4: and what's happening with the government's fiscal position. Even though
Speaker 4: we've got a booming economy, the deficit is a share
Speaker 4: of GDP. Once you take out special factors, well just
Speaker 4: about double this year will rise by more than three
Speaker 4: percent of GDP. That's been a big push forward to
Speaker 4: the economy. And frankly, our financial authorities haven't done what
Speaker 4: has been done by corporate treasurers and by smart households
Speaker 4: over the last several years. When the private sector was
Speaker 4: turning out its debt, we did more turming in with
Speaker 4: QE and what the treasury has done then we've done
Speaker 4: terming out of the debt, and that means that we've
Speaker 4: got a wall of higher and higher debts, debts finance
Speaker 4: that is ahead of us. I think it's a combination
Speaker 4: of the changing impact of interest rates and the fiscal
Speaker 4: expansion that explains where we are, and that's why I
Speaker 4: don't think interest rates are likely to come down quite
Speaker 4: as much, and haven't for a long time thought interest
Speaker 4: rates were going to come down as much as the
Speaker 4: market did. Markets revised its view substantially. I wouldn't be
Speaker 4: surprised if the market revises its view a little more.
Speaker 1: Well, so, Larrie, let's go to where the market is
Speaker 1: right now, because we did see real turmoil in the
Speaker 1: bond markets. We saw yields really go up. You two
Speaker 1: or three weeks ago on this program talked about a
Speaker 1: four point seventy five percent on the ten year. At
Speaker 1: the time, it seemed like an off high number. Now,
Speaker 1: if anything, maybe you were you were not fast enough
Speaker 1: and making a call given where we are this week,
Speaker 1: is epic as a supply and demand because of the
Speaker 1: deficit that you're talking about and how much the supply
Speaker 1: is exceeding the demand right now.
Speaker 4: I think it's half underlying reality of the strong economy
Speaker 4: and what's going to be necessary to keep the economy
Speaker 4: in balance what fed watchers call our star, and everybody's
Speaker 4: just just I've been warning for quite some time now
Speaker 4: revising upwards their view of our star. I think that's
Speaker 4: half the story. And I think the other half of
Speaker 4: the story is people thinking that there's just a big
Speaker 4: issuance of debt ahead and there's less willingness to hold
Speaker 4: us long term debt given rising rates in Japan, that
Speaker 4: source of demand may fall off. Who knows what's going
Speaker 4: to happen with China as a source of demand for
Speaker 4: US debt. The changes that all the banks are making
Speaker 4: to make sure that they're not the next SVB caught
Speaker 4: with a lot of long term bonds. That's reducing holdings
Speaker 4: of long term bonds. So if you've got more supply
Speaker 4: and less demand, that may.
Speaker 5: Should be less.
Speaker 4: More supply and less demand, that's gotta gotta have a
Speaker 4: big effect on price.
Speaker 1: Okay, Larry, thanks so much for being with us. That's
Speaker 1: Larry Summers of Harvard. We talked with Bridgewater founder Gray
Speaker 1: Value at the Greenwich Economic Forum this week, and given
Speaker 1: his track record, we asked him the obvious, where should
Speaker 1: we put our money?
Speaker 6: There's a saying in the markets, he who lives by
Speaker 6: the crystal balls, He who lives by crystal ball is
Speaker 6: destined to a ground glass. Okay. What I mean is
Speaker 6: what you don't know is very important relative to what
Speaker 6: you do now. And for that reason, understanding how to
Speaker 6: properly balance and diversify a portfolio, and that diversification should
Speaker 6: be out of country's currencies and assets, is something that's
Speaker 6: important for most investors to make tactical decisions is not
Speaker 6: going to be the best thing they can do. They're
Speaker 6: going to they'll do that badly. And when you come
Speaker 6: to conferences like this, you will get different points of view.
Speaker 6: But unless you actually have a system and your mechanize
Speaker 6: and we put hundreds of millions of dollars lots of money,
Speaker 6: maybe a billion dollars, I don't know into doing a technology,
Speaker 6: and so what to try to get an edge? So
Speaker 6: number one is respect what you don't know how to
Speaker 6: diverse by well, because diversifying allows you to reduce your
Speaker 6: risk by up to eighty percent without reducing your incut,
Speaker 6: without your reducing spectrum of jerk. If you know how
Speaker 6: to do that, well, okay, then I think then what
Speaker 6: you have to do is you have to look at
Speaker 6: the relative appeal of asset classes. So when I go
Speaker 6: through that calculation, the relative cash now as a relatively
Speaker 6: attractive appeal. You know sort of people when I said
Speaker 6: cash is trash and that got a lot of attention,
Speaker 6: But that's when cash was nil. Okay, Now when you
Speaker 6: look at the expected returns for this moment, cash is
Speaker 6: a relatively attractive asset class at this moment, it's not
Speaker 6: just attractive because it has a relatively decent decent not great,
Speaker 6: but decent expected In other words, it has something like
Speaker 6: a one and a half percent real return Okay, not
Speaker 6: bad and not bad in comparison to the other things.
Speaker 6: And it doesn't have price risk.
Speaker 2: That was ray value of Bridgewater.
Speaker 1: Coming up and changing the world by losing a few pounds.
Speaker 1: That's next on Wall Street Week on Bloomberg.
Speaker 3: This is Bloomberg Wall Street Week with David Weston from
Speaker 3: Bloomberg Radio.
Speaker 2: Finally, one more thought.
Speaker 1: Mark Twain said that the only way to keep your
Speaker 1: health is to eat what you don't want, drink what
Speaker 1: you don't like, and do what you'd rather not. Judging
Speaker 1: from current results, an awful lot of Americans are eating
Speaker 1: and drinking pretty much whatever they want, regardless of their health.
Speaker 1: The Centers for Disease Control report that the number of
Speaker 1: obese Americans is now around forty percent, and the severely
Speaker 1: obese are reaching toward ten percent, which has some real
Speaker 1: economic effects for us. All obesity itself is like just
Speaker 1: this gigantic economic force.
Speaker 5: It's a business force.
Speaker 7: The are businesses that thrive on how much people like
Speaker 7: to eat unhealthy foods.
Speaker 2: They're huge cost to insure.
Speaker 1: But things may be changing thanks to pharmaceutical companies coming
Speaker 1: up with a new category of drugs called GLP one,
Speaker 1: originally intended for diabetes, but the turnout to help us
Speaker 1: get around Mark Twain's dilemma. They help us not to
Speaker 1: want to eat the things we shouldn't. Demand for the
Speaker 1: new drugs is through the roof.
Speaker 15: If you take our best setting medicine, Oceanpic for type
Speaker 15: two diabetes that grew the first six months by fifty
Speaker 15: nine percent, that's actually lower pricing, so underlying volume growth
Speaker 15: is much higher.
Speaker 1: With immediate and dramatic effects for the drug companies involved,
Speaker 1: like Novo Nordisk for ozempic.
Speaker 9: The newest thing that we really like is the weight
Speaker 9: loss drugs.
Speaker 1: We say those area, that area is going to just explode,
Speaker 1: and even for whole economies with Denmark that's home of
Speaker 1: Novo Nordisk, the macro ozempic having to deal with an
Speaker 1: influx of dollars so large that it's driving up the
Speaker 1: kroner and requiring Denmark to cut interest rates so it
Speaker 1: doesn't get out of whack with the Eurozone. But the
Speaker 1: new chemical approach to weight loss goes way beyond the
Speaker 1: sale of drugs themselves. In success, they point to whole
Speaker 1: new classes of winners and losers, like the airline companies,
Speaker 1: for example, big winners as people lose weight and require
Speaker 1: less jet fuel to get them up into the sky.
Speaker 16: They saved an ounce on every passenger seat from taking
Speaker 16: out changing the feedstock of the paper that they used
Speaker 16: on their United Airlines magazine and saving eleven pounds for
Speaker 16: per flight. What yeah, and so we extrapolated that into
Speaker 16: ten pounds per passengers one hundred and seventy five people
Speaker 16: per plane. What happens to the fuel savings? They save
Speaker 16: twenty seven million.
Speaker 1: While snack food makers may come up losers in a
Speaker 1: world where there's less demand for things like pringles.
Speaker 2: You've got Canagra that just said that it's watching this.
Speaker 1: Kelenova, the former Kellogg, said earlier this week that it's
Speaker 1: studying the impacts and WW which has worked for years
Speaker 1: to get you on that weight Watcher's diet, has decided
Speaker 1: not to beat the new drugs but to join them,
Speaker 1: cutting back on their diet meetings and expand into telehealth
Speaker 1: to get people the pharmaceuticals that may work better.
Speaker 10: We wanted to enter the space and be able to
Speaker 10: extend our toolkit to not only behavior change and functional
Speaker 10: but also clinical interventions.
Speaker 1: And wait, there's more. Just imagine if we started getting
Speaker 1: the GLP one wonder drugs to all of our troops,
Speaker 1: whose wasts we carefully measure every six months to make
Speaker 1: sure they're in fighting shape.
Speaker 2: Surely it would slim them down.
Speaker 1: Some and maybe take some of the heat out of
Speaker 1: the inner service war over just where our waist is
Speaker 1: measured from anyway.
Speaker 2: But if the pharmaceutical.
Speaker 1: Companies really want to help, maybe they could come up
Speaker 1: with something for our political leadership to take in Washington,
Speaker 1: something that interferes with their appetites not to eat what
Speaker 1: they shouldn't eat, but to spend what they shouldn't spend
Speaker 1: and that we can't afford. We saw that unhealthy appetite
Speaker 1: displayed again this week when the fight of the budget
Speaker 1: led to the House of Representatives for the first time
Speaker 1: in history, voting out a Speaker of the House.
Speaker 5: Chaos is Speaker McCarthy.
Speaker 6: Chaos is somebody who we cannot trust with their word.
Speaker 1: I know we would all like our lawmakers to be
Speaker 1: Santa Claus, but unfortunately there is a price to be paid.
Speaker 5: But it's growing on it. I mean forty five pounds
Speaker 5: a week.
Speaker 2: That does it.
Speaker 1: For this episode of Wall Street Week, I'm David Weston.
Speaker 2: This is Bloomberg. See you next week.