1 00:00:00,240 --> 00:00:02,440 Speaker 1: This is Bloomberg Wall Street Week. 2 00:00:02,480 --> 00:00:04,400 Speaker 2: I mean may not have an overall recession. We're having 3 00:00:04,400 --> 00:00:06,840 Speaker 2: a rolling recession. ECONYE roll looks pretty strongly. It is 4 00:00:06,840 --> 00:00:07,680 Speaker 2: when it comes to jobs. 5 00:00:07,720 --> 00:00:09,840 Speaker 3: The financial story is that shape our world. 6 00:00:09,960 --> 00:00:13,640 Speaker 2: Three major regional bank failures send shockwaves through the banking system. 7 00:00:13,680 --> 00:00:15,440 Speaker 2: We're all trying to figure out what to make of 8 00:00:15,600 --> 00:00:17,000 Speaker 2: generative AI. 9 00:00:16,920 --> 00:00:19,320 Speaker 3: Through the eyes of the most influential voices. 10 00:00:19,440 --> 00:00:22,400 Speaker 2: Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 11 00:00:22,560 --> 00:00:25,279 Speaker 2: deebro Lair of the Paulson Institute, well Then Hubbard of 12 00:00:25,280 --> 00:00:26,280 Speaker 2: the Columbia Business School. 13 00:00:26,280 --> 00:00:30,400 Speaker 3: Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 14 00:00:30,280 --> 00:00:34,000 Speaker 2: Responding to adversity, a Maori town devastated by the worst 15 00:00:34,040 --> 00:00:37,480 Speaker 2: wildfire in US history, a Chinese economy that can't catch 16 00:00:37,520 --> 00:00:41,400 Speaker 2: a break, and a former US president facing a fourth indictment. 17 00:00:41,840 --> 00:00:45,159 Speaker 2: This is Bloomberg Wall Street Week. I'm David Weston. This 18 00:00:45,240 --> 00:00:48,280 Speaker 2: week's special contributor Larry Summers of Harvard and Steve Rattner 19 00:00:48,440 --> 00:00:51,000 Speaker 2: Willet Advisors, on why the yield and the tenure is 20 00:00:51,040 --> 00:00:51,879 Speaker 2: headed higher. 21 00:00:52,200 --> 00:00:56,280 Speaker 4: You're looking at it four seventy five on the ten year, 22 00:00:56,400 --> 00:00:58,760 Speaker 4: and it could end up being higher than that. 23 00:00:59,360 --> 00:01:02,800 Speaker 2: And Master's make of the softening Chinese economy. 24 00:01:03,120 --> 00:01:06,000 Speaker 5: I have been more optimistic about China in the past, 25 00:01:06,160 --> 00:01:09,000 Speaker 5: and I will say that I have recalibrated my views. 26 00:01:09,080 --> 00:01:12,119 Speaker 2: And Greg Tason of Spotlight Advisors on the drop off 27 00:01:12,200 --> 00:01:14,240 Speaker 2: in activist investing. 28 00:01:14,120 --> 00:01:24,759 Speaker 6: There's some dampening because of the m and A market. 29 00:01:30,000 --> 00:01:32,360 Speaker 2: It may be August, but it was a tough week 30 00:01:32,440 --> 00:01:36,039 Speaker 2: for many on or near global Wall Street, starting with 31 00:01:36,080 --> 00:01:38,880 Speaker 2: the victims of that wildfire that destroyed much of the 32 00:01:38,880 --> 00:01:42,640 Speaker 2: town of Lahina, Maui, with over one hundred dead, many 33 00:01:42,760 --> 00:01:46,399 Speaker 2: yet to be accounted for, and billions of dollars in damages. 34 00:01:47,000 --> 00:01:51,800 Speaker 7: Whole city destroyed, generations of native Hawaiian history turned into ruin. 35 00:01:52,120 --> 00:01:54,760 Speaker 2: President g Over in China had problems of his own, 36 00:01:54,960 --> 00:01:57,360 Speaker 2: with reports of this week of continued weakness in his 37 00:01:57,440 --> 00:02:01,120 Speaker 2: economy and stimulus moves that the market's pretty much shrugged 38 00:02:01,120 --> 00:02:03,800 Speaker 2: off to someone said we'd like to say more policy 39 00:02:03,840 --> 00:02:07,760 Speaker 2: action before we'd be getting a lot more comfortable moving 40 00:02:07,800 --> 00:02:11,840 Speaker 2: into more chin a related exposure's Former President Trump confronted 41 00:02:11,919 --> 00:02:14,160 Speaker 2: a different kind of problem this week when he faced 42 00:02:14,160 --> 00:02:17,600 Speaker 2: off fourth indictment, this one from a state prosecution in 43 00:02:17,680 --> 00:02:21,120 Speaker 2: Georgia alleging he was part of a racketeering organization along 44 00:02:21,160 --> 00:02:24,600 Speaker 2: with eighteen others trying to overturn the twenty twenty election. 45 00:02:24,840 --> 00:02:27,120 Speaker 1: This is an extremely serious indictment. 46 00:02:27,240 --> 00:02:30,440 Speaker 8: The allegations are serious, and if he's convicted, he's going 47 00:02:30,480 --> 00:02:31,040 Speaker 8: to do time. 48 00:02:31,440 --> 00:02:34,360 Speaker 2: On the brighter side, US retail sales numbers came in 49 00:02:34,400 --> 00:02:38,240 Speaker 2: surprisingly high, indicating the continued strength of the consumer and 50 00:02:38,280 --> 00:02:39,800 Speaker 2: therefore of the economy. 51 00:02:40,120 --> 00:02:43,160 Speaker 8: The consumer is out there and able to spend at 52 00:02:43,200 --> 00:02:44,040 Speaker 8: the moment. 53 00:02:45,760 --> 00:02:48,560 Speaker 2: But continuing strength of the US economy did little to 54 00:02:48,600 --> 00:02:50,799 Speaker 2: reassure the markets this week, as the S and P 55 00:02:50,919 --> 00:02:53,359 Speaker 2: five hundred lost over two percent to end the week 56 00:02:53,360 --> 00:02:55,760 Speaker 2: at forty three sixty nine, bringing it back down toward 57 00:02:55,840 --> 00:02:58,200 Speaker 2: the median number of where our Bloomberg ls predicted we 58 00:02:58,200 --> 00:03:00,520 Speaker 2: will end up the year, that's forty three hundred. The 59 00:03:00,680 --> 00:03:03,160 Speaker 2: Nasdaq also had a rough week of it down two 60 00:03:03,200 --> 00:03:05,519 Speaker 2: point six percent, at least a part because of those 61 00:03:05,520 --> 00:03:08,560 Speaker 2: equity declines, No doubt came from the rise in the 62 00:03:08,639 --> 00:03:11,200 Speaker 2: yields in bonds, with a ten year yield moving up 63 00:03:11,320 --> 00:03:14,959 Speaker 2: nearly ten basis points, putting it well above four percent 64 00:03:15,040 --> 00:03:17,800 Speaker 2: at four point twenty five percent to sort it all out. 65 00:03:17,880 --> 00:03:20,240 Speaker 2: Welcome to Chris Aylman. He's the chief investment officer of 66 00:03:20,280 --> 00:03:24,639 Speaker 2: Couseros and Chanadasai. She is Franklin Templeton's CIO for fixed income. Welcome. 67 00:03:24,960 --> 00:03:26,720 Speaker 2: Both of you took it back to Wall Street Week. 68 00:03:26,760 --> 00:03:28,440 Speaker 2: You've both been on quite a few times now. Chris, 69 00:03:28,480 --> 00:03:30,160 Speaker 2: let me start with you. Were you surprised anything that 70 00:03:30,160 --> 00:03:31,640 Speaker 2: happened with the bond yields this week? 71 00:03:31,840 --> 00:03:32,080 Speaker 1: Well? 72 00:03:32,200 --> 00:03:36,880 Speaker 7: Yes, surprised that as Larry Summers said that bond yields 73 00:03:36,880 --> 00:03:38,680 Speaker 7: are heading up and I think going to be heading higher. 74 00:03:38,720 --> 00:03:43,360 Speaker 7: I mean, he's signed fifty basis points, so I'm I'm cautious, 75 00:03:43,560 --> 00:03:46,200 Speaker 7: and I would be worried about trying to trade fixed 76 00:03:46,200 --> 00:03:49,200 Speaker 7: income in here. I like it as a buy and hold, 77 00:03:49,760 --> 00:03:52,200 Speaker 7: but I don't like it from a trading standpoint. 78 00:03:52,280 --> 00:03:53,200 Speaker 1: Yields are going to head. 79 00:03:53,160 --> 00:03:55,800 Speaker 2: Up four point seven to five. Chris, you agree with 80 00:03:55,880 --> 00:03:56,320 Speaker 2: Larry on that. 81 00:03:57,720 --> 00:04:00,160 Speaker 7: Well, I'm not going to argue with Larry Summers. I'm 82 00:04:00,200 --> 00:04:03,000 Speaker 7: not going to try and nail down that number. That's 83 00:04:03,040 --> 00:04:05,520 Speaker 7: a big reach, Like I said, half a point from here, 84 00:04:05,960 --> 00:04:08,440 Speaker 7: but I do think ingistrates are going to stay higher 85 00:04:08,440 --> 00:04:10,920 Speaker 7: for longer We're not going to see rates go back 86 00:04:10,960 --> 00:04:12,840 Speaker 7: down like a lot of the street is predicted. 87 00:04:13,280 --> 00:04:16,200 Speaker 2: Sona, you really focus on fixed income? What did you 88 00:04:16,200 --> 00:04:17,320 Speaker 2: make of the bond market this week? 89 00:04:17,960 --> 00:04:20,960 Speaker 9: So honestly, I think this is the bond market finally 90 00:04:21,279 --> 00:04:25,960 Speaker 9: coming around, coming to terms with certain facts. Here's the 91 00:04:26,000 --> 00:04:29,719 Speaker 9: thing for a long time, even the sad when you 92 00:04:29,880 --> 00:04:33,080 Speaker 9: look at the Fed funds rate, the long term Fed 93 00:04:33,120 --> 00:04:36,160 Speaker 9: funds rate, they're looking at two point five percent if 94 00:04:36,240 --> 00:04:39,880 Speaker 9: inflation are two percent. This is real yields of half 95 00:04:39,920 --> 00:04:44,599 Speaker 9: a percent. If I look at not the anomaly of 96 00:04:44,680 --> 00:04:47,279 Speaker 9: the post global financial crisis period, but I look at 97 00:04:47,520 --> 00:04:50,560 Speaker 9: from the nineteen fifties all the way up to two 98 00:04:50,560 --> 00:04:55,080 Speaker 9: thousand and seven eight. Really we're looking at yields, real 99 00:04:55,200 --> 00:04:58,480 Speaker 9: yields which were around two to two and a half percent. 100 00:04:59,080 --> 00:04:59,720 Speaker 10: So here's the. 101 00:04:59,680 --> 00:05:01,719 Speaker 1: Thing that you take. 102 00:05:02,279 --> 00:05:05,200 Speaker 9: Even if we get back to two percent inflation, real 103 00:05:06,080 --> 00:05:08,320 Speaker 9: yields at two two and a half percent takes you 104 00:05:08,360 --> 00:05:10,800 Speaker 9: to four and a half already. So and that's the 105 00:05:10,839 --> 00:05:13,359 Speaker 9: short term, and then you have two on premium. If 106 00:05:13,360 --> 00:05:15,640 Speaker 9: you're looking at ten year yields. Yeah, I actually think 107 00:05:15,680 --> 00:05:19,760 Speaker 9: four point seventy five is not unreasonable. 108 00:05:19,240 --> 00:05:20,200 Speaker 10: Not at all Chris. 109 00:05:20,240 --> 00:05:22,159 Speaker 2: When we talk about these bond yields, we talk about 110 00:05:22,160 --> 00:05:25,599 Speaker 2: things like expectations of inflation, and we talk about what 111 00:05:25,600 --> 00:05:28,080 Speaker 2: the Fed is likely to do. What about the demand 112 00:05:28,160 --> 00:05:30,600 Speaker 2: or maybe the supply of treasuries, because it's clear the 113 00:05:30,680 --> 00:05:32,360 Speaker 2: unice discover is gonna have to borrow a lot more 114 00:05:32,480 --> 00:05:34,600 Speaker 2: at the same time, for example, Japan may not want 115 00:05:34,640 --> 00:05:35,000 Speaker 2: as many. 116 00:05:35,120 --> 00:05:37,960 Speaker 7: The bomb market and the Yokurby is nothing but supply 117 00:05:38,000 --> 00:05:40,520 Speaker 7: and demand, and there is a ton of supply coming. 118 00:05:41,320 --> 00:05:45,480 Speaker 7: The Treasure Department has just due to all those budget negotiations, 119 00:05:45,880 --> 00:05:49,080 Speaker 7: a huge calendar in front of them, and we are 120 00:05:49,200 --> 00:05:52,520 Speaker 7: seeing buyers being a little bit cautious. You just reported 121 00:05:52,560 --> 00:05:55,760 Speaker 7: about China and it's weak economy. They've got to protect 122 00:05:55,760 --> 00:05:59,240 Speaker 7: their currency, so they may not have as much capital. 123 00:06:00,000 --> 00:06:02,680 Speaker 7: We've had a lot of focus on the tail on 124 00:06:02,839 --> 00:06:05,760 Speaker 7: all of our bond auctions, in other words, how much 125 00:06:05,839 --> 00:06:09,960 Speaker 7: demand and how clean those actions are. I always said, 126 00:06:10,120 --> 00:06:12,760 Speaker 7: we're a debtor nation, and we better pay attention to that. 127 00:06:12,839 --> 00:06:15,039 Speaker 7: We've got to borrow money, and it may be a 128 00:06:15,040 --> 00:06:16,200 Speaker 7: bit tougher now. 129 00:06:16,200 --> 00:06:18,560 Speaker 2: We borrow a lot of money for fiscal stimulus. We've 130 00:06:18,600 --> 00:06:20,680 Speaker 2: had a lot going into the system. Are we done. 131 00:06:20,760 --> 00:06:23,760 Speaker 2: Yet where are we right now on fiscal supporting this economy. 132 00:06:24,400 --> 00:06:28,520 Speaker 9: Honestly, we are looking at an economy which is true 133 00:06:28,800 --> 00:06:32,720 Speaker 9: almost every estimate of full employment, and we have massively 134 00:06:33,120 --> 00:06:37,280 Speaker 9: expantorary fiscal policy. This is getting hidden and you know, yes, 135 00:06:37,320 --> 00:06:40,719 Speaker 9: there's discussion about you know, terrible budget negotiations, all of that, 136 00:06:40,800 --> 00:06:45,239 Speaker 9: but fundamentally the economy in terms of employment is doing well. 137 00:06:45,920 --> 00:06:49,479 Speaker 9: And at the same time, we are seeing fiscal deficits 138 00:06:49,520 --> 00:06:52,120 Speaker 9: which are close to records five and a half percent 139 00:06:52,279 --> 00:06:55,400 Speaker 9: odd last year. This year it's at least as much, 140 00:06:55,520 --> 00:06:59,720 Speaker 9: if not higher, and the CBO expects six percent is 141 00:07:00,760 --> 00:07:03,320 Speaker 9: the school deficits for the next several years. This is 142 00:07:03,360 --> 00:07:07,600 Speaker 9: a lot officients and definitely that's a supply dynamic that's important. 143 00:07:08,040 --> 00:07:11,360 Speaker 9: At the same time, you mentioned Japan, and Japan's very 144 00:07:12,440 --> 00:07:16,560 Speaker 9: important here because we always focus on China, but actually Japan, 145 00:07:16,640 --> 00:07:19,560 Speaker 9: which is which is the largest holder of US treasuries 146 00:07:19,600 --> 00:07:23,640 Speaker 9: outside the US, and over the next few months, at 147 00:07:23,680 --> 00:07:28,679 Speaker 9: some point the Japan's Central Bank is going to tight 148 00:07:28,960 --> 00:07:32,920 Speaker 9: begin tightening monetary policy, at which point we will see 149 00:07:32,960 --> 00:07:36,320 Speaker 9: a reduction in the month for US treasuries. All of 150 00:07:36,360 --> 00:07:39,440 Speaker 9: this is additional pressure on yields. 151 00:07:40,400 --> 00:07:42,520 Speaker 2: At what point do we run out of the so 152 00:07:42,640 --> 00:07:43,960 Speaker 2: called excess savings. 153 00:07:44,800 --> 00:07:47,600 Speaker 7: Well, David, I think the San Francisco Fed put on 154 00:07:47,600 --> 00:07:51,320 Speaker 7: an excellent paperless week predicting that we may be seeing 155 00:07:51,520 --> 00:07:54,480 Speaker 7: the end of that. And you had a great intro 156 00:07:54,560 --> 00:07:57,960 Speaker 7: where he said the US consumer is strong for now. 157 00:07:58,760 --> 00:08:03,120 Speaker 7: So I'm starting to see little cracks, little signs of worry. 158 00:08:03,200 --> 00:08:03,480 Speaker 10: For me. 159 00:08:04,720 --> 00:08:10,239 Speaker 7: Art Desk uncovered the US credit card applications literally fell 160 00:08:10,280 --> 00:08:14,080 Speaker 7: off the shelf. And that doesn't importend that people won't 161 00:08:14,360 --> 00:08:17,960 Speaker 7: increase and start to borrow, But I'm worried the consumer 162 00:08:18,240 --> 00:08:19,920 Speaker 7: is going to run our money. I think the San 163 00:08:19,920 --> 00:08:21,880 Speaker 7: Francisco Fed really is spot on. 164 00:08:22,320 --> 00:08:24,320 Speaker 1: If the consumer slows. 165 00:08:23,920 --> 00:08:26,600 Speaker 7: Down, then we're going to see the impact of these 166 00:08:26,680 --> 00:08:30,920 Speaker 7: higher interest rates twenty two year highs in mortgages and rates. 167 00:08:31,400 --> 00:08:34,400 Speaker 7: That's got to hurt, and then we may actually finally 168 00:08:34,440 --> 00:08:37,600 Speaker 7: see this recession that I've been predicting. 169 00:08:37,080 --> 00:08:38,040 Speaker 1: For over a year. 170 00:08:38,360 --> 00:08:41,040 Speaker 2: Chanea, as I say, your CEO for fixed income at 171 00:08:41,040 --> 00:08:43,640 Speaker 2: Franklin Tembla. But you watch the equity market. What about 172 00:08:43,640 --> 00:08:45,720 Speaker 2: the valuations right now? Because I looked at it today 173 00:08:45,720 --> 00:08:48,720 Speaker 2: on the Bloomberg we're over twenty times earnings in the 174 00:08:48,760 --> 00:08:51,679 Speaker 2: price for the SPA five hundred. Can we keep that up? 175 00:08:52,760 --> 00:08:55,160 Speaker 9: Okay, I'm going to I'm going to be very careful 176 00:08:55,200 --> 00:08:59,319 Speaker 9: here because definitely I'm more fixing than on the equity 177 00:08:59,360 --> 00:09:01,600 Speaker 9: side of things. But I do think on the fixed 178 00:09:01,640 --> 00:09:05,920 Speaker 9: income side we have finally seen some acceptance that higher 179 00:09:06,000 --> 00:09:08,480 Speaker 9: yields are coming. On the equity side, I think where 180 00:09:08,480 --> 00:09:10,960 Speaker 9: at the beginning of this process. I think, again, in 181 00:09:11,000 --> 00:09:13,640 Speaker 9: your intro, you mentioned that higher yields are going to 182 00:09:13,640 --> 00:09:15,840 Speaker 9: have an impact on the equity market, and I do 183 00:09:15,880 --> 00:09:19,000 Speaker 9: think those yields are higher, and more importantly, they're probably 184 00:09:19,040 --> 00:09:22,360 Speaker 9: higher for a while to stay. And you know something 185 00:09:22,400 --> 00:09:25,680 Speaker 9: that Chris mentioned the strength of the US consumer said, 186 00:09:25,840 --> 00:09:28,600 Speaker 9: I think actually the US consumer probably is going to 187 00:09:28,640 --> 00:09:33,600 Speaker 9: start weakening from a very strong point. And while the 188 00:09:33,640 --> 00:09:37,160 Speaker 9: consumer might be beginning to run out of pandemic era 189 00:09:37,280 --> 00:09:41,920 Speaker 9: savings from a debt perspective, in real terms, the consumers 190 00:09:41,920 --> 00:09:46,040 Speaker 9: actually in pretty good shape. In real terms, the US 191 00:09:46,080 --> 00:09:48,559 Speaker 9: consumer can actually borrow a bit more and still look 192 00:09:48,600 --> 00:09:49,280 Speaker 9: pretty healthy. 193 00:09:49,480 --> 00:09:51,240 Speaker 2: The last time on this, Chris, as we look at 194 00:09:51,280 --> 00:09:54,839 Speaker 2: the GDP esmens, for example, Atlanta GPGP now is way 195 00:09:54,920 --> 00:09:56,480 Speaker 2: up there at five point seven something like that, and 196 00:09:56,480 --> 00:09:58,320 Speaker 2: a lot of people are taking their estimates is that 197 00:09:58,720 --> 00:10:00,320 Speaker 2: there's the economy strong enough to keep going. 198 00:10:01,640 --> 00:10:06,480 Speaker 7: Well, David, the Elves pointed out they're expecting a lower market, 199 00:10:07,040 --> 00:10:09,200 Speaker 7: and I think they're spot on. I think that's a 200 00:10:09,240 --> 00:10:13,080 Speaker 7: great indicator for people that people look ahead and you 201 00:10:13,160 --> 00:10:17,200 Speaker 7: hit it right on the nail. Price earnings ratio is 202 00:10:17,920 --> 00:10:22,280 Speaker 7: really set for expectations in higher levels and I don't 203 00:10:22,320 --> 00:10:25,280 Speaker 7: know those earnings. While we've done okay in this earnings period. 204 00:10:26,160 --> 00:10:29,599 Speaker 7: Everybody who's warning that the future earnings are too difficult 205 00:10:29,920 --> 00:10:32,400 Speaker 7: and that may be a problem in that pe ratio, 206 00:10:32,880 --> 00:10:35,400 Speaker 7: that the earnings falter and that means the price has 207 00:10:35,400 --> 00:10:37,040 Speaker 7: to come down and the Elves will. 208 00:10:36,880 --> 00:10:39,400 Speaker 2: Be right okay, Well, that's always good for the Elves. 209 00:10:39,440 --> 00:10:41,520 Speaker 2: Thank you very much for getting it started. As channel 210 00:10:41,559 --> 00:10:44,559 Speaker 2: the SI of Franklin Templeton and Chris Aylman of Kelster's 211 00:10:46,360 --> 00:10:48,640 Speaker 2: coming up to the yield of the tenure seem to 212 00:10:48,679 --> 00:10:51,719 Speaker 2: settle in well above four percent. This week, we ask 213 00:10:51,840 --> 00:10:55,120 Speaker 2: contributors Larry Sawers of Harvard and Steve Ratner Will Advisors, 214 00:10:55,280 --> 00:10:58,400 Speaker 2: where the tenure wants to go and what that means 215 00:10:58,400 --> 00:11:03,120 Speaker 2: for investors. That's next on Wall Street Week on Bloomberg. 216 00:11:03,960 --> 00:11:08,200 Speaker 3: This is Bloomberg Wall Street Week with David Weston from 217 00:11:08,320 --> 00:11:11,080 Speaker 3: Bloomberg Radio. 218 00:11:16,160 --> 00:11:19,040 Speaker 2: This is Wall Street Week. I'm David Weston. The yield 219 00:11:19,080 --> 00:11:22,160 Speaker 2: on the US tenure government bond this week broke solidly 220 00:11:22,200 --> 00:11:25,040 Speaker 2: through four percent, something it had flirted with last October 221 00:11:25,080 --> 00:11:27,840 Speaker 2: and then again briefly in early July. To consider what 222 00:11:27,920 --> 00:11:29,920 Speaker 2: this might tell us about the state of the US 223 00:11:29,920 --> 00:11:32,760 Speaker 2: economy and what it means for investors. Welcome back now 224 00:11:32,840 --> 00:11:35,440 Speaker 2: special contributor Larry Summers of Harvard, and we're joined as 225 00:11:35,440 --> 00:11:38,160 Speaker 2: well by Steve Rattner, Chairman and CEO of Willed Advisors, 226 00:11:38,160 --> 00:11:41,679 Speaker 2: which manages the philanthropic and personal funds of Michael Bloomberg. 227 00:11:41,760 --> 00:11:44,720 Speaker 2: He is, of course our founder and majority shareholder. So Larry, 228 00:11:44,920 --> 00:11:47,240 Speaker 2: thank you so much for joining us. First of all, 229 00:11:47,520 --> 00:11:49,800 Speaker 2: let's start with what the ten year may be telling us, 230 00:11:49,840 --> 00:11:52,360 Speaker 2: or not tell us, about the economy overall, particularly where 231 00:11:52,360 --> 00:11:54,960 Speaker 2: inflation is and where the economic growth is. 232 00:11:56,080 --> 00:12:00,640 Speaker 4: Look, David, I've been predicting that rates would eyes for 233 00:12:00,720 --> 00:12:04,960 Speaker 4: quite some time. The ten years got three pieces. It 234 00:12:05,080 --> 00:12:10,640 Speaker 4: depends upon expected inflation, It depends upon the real interest rate, 235 00:12:11,559 --> 00:12:15,200 Speaker 4: and it depends upon the term premium of the amount 236 00:12:15,280 --> 00:12:17,520 Speaker 4: that the ten year rate is more. 237 00:12:17,360 --> 00:12:19,560 Speaker 1: Than expected future short rates. 238 00:12:20,280 --> 00:12:25,920 Speaker 4: If I take those three pieces, inflation may come down. 239 00:12:26,120 --> 00:12:28,720 Speaker 4: But I think most people would be quite surprised if 240 00:12:28,760 --> 00:12:33,520 Speaker 4: it was as low steadily as two percent over the 241 00:12:33,559 --> 00:12:37,760 Speaker 4: next decade. So let's assume that inflation averages two and 242 00:12:37,800 --> 00:12:38,600 Speaker 4: a half percent. 243 00:12:39,280 --> 00:12:40,720 Speaker 1: I think that's conservative. 244 00:12:41,600 --> 00:12:44,440 Speaker 4: We don't know what's going to happen to the real 245 00:12:44,520 --> 00:12:48,240 Speaker 4: interest straight, but we know that budget deficits look to 246 00:12:48,280 --> 00:12:54,280 Speaker 4: be very large. Perhaps the budget deficit, according to CBO, 247 00:12:54,720 --> 00:12:57,839 Speaker 4: will get to seven percent by the end of the decade. 248 00:12:58,160 --> 00:13:02,360 Speaker 4: And I think on more realistic assumptions that assume that 249 00:13:02,400 --> 00:13:05,800 Speaker 4: some of the Trump tax cuts are preserved, assume that 250 00:13:05,880 --> 00:13:10,200 Speaker 4: we have to expand national security spending, and make realistic 251 00:13:10,280 --> 00:13:14,400 Speaker 4: assumptions about the servicing of the debt. The CBO thinks 252 00:13:14,400 --> 00:13:17,440 Speaker 4: it's going to cost two point three percent for short 253 00:13:17,559 --> 00:13:21,040 Speaker 4: term treasury bills. I think you put all of that 254 00:13:22,360 --> 00:13:25,240 Speaker 4: together and you're looking at a real. 255 00:13:25,080 --> 00:13:28,040 Speaker 1: Interest rate of one and a half to two percent. 256 00:13:29,080 --> 00:13:31,800 Speaker 4: And then you look at the fact that the FED 257 00:13:32,000 --> 00:13:37,080 Speaker 4: is selling down its portfolio. You look at the fact 258 00:13:37,120 --> 00:13:42,679 Speaker 4: that the financial regulators trying to avoid SVB situations, are 259 00:13:42,720 --> 00:13:47,440 Speaker 4: making it harder for banks and other financial institutions to 260 00:13:47,600 --> 00:13:55,320 Speaker 4: buy long term bonds, and term premiums usually are seventy 261 00:13:55,320 --> 00:13:58,720 Speaker 4: five to one hundred basis points. So if you take 262 00:13:59,240 --> 00:14:04,680 Speaker 4: two and a half and for inflation, you take one 263 00:14:04,720 --> 00:14:10,040 Speaker 4: and a half, which isn't especially aggressive for real rates, 264 00:14:10,600 --> 00:14:14,000 Speaker 4: and you take seventy five basis points, which is lower 265 00:14:14,000 --> 00:14:19,600 Speaker 4: than history for term premiums, you're looking at for seventy 266 00:14:19,720 --> 00:14:24,960 Speaker 4: five on the ten year, and it obviously could end 267 00:14:25,080 --> 00:14:29,880 Speaker 4: up being higher than that. So nobody knows, but it 268 00:14:29,920 --> 00:14:34,760 Speaker 4: seems to me we're in a very different era than 269 00:14:34,920 --> 00:14:39,600 Speaker 4: the era we were in in the aftermath of the 270 00:14:39,640 --> 00:14:40,800 Speaker 4: financial crisis. 271 00:14:41,440 --> 00:14:42,960 Speaker 2: So, stee, if does that make sense to you as 272 00:14:42,960 --> 00:14:46,040 Speaker 2: an investor? And perhaps even more important, let's assume that's right. 273 00:14:46,160 --> 00:14:48,120 Speaker 2: Let's assume you knew today it was going to be 274 00:14:48,120 --> 00:14:50,760 Speaker 2: four point seventy five over the medium longer term. What 275 00:14:50,840 --> 00:14:52,360 Speaker 2: does that do to your investments? 276 00:14:52,760 --> 00:14:54,680 Speaker 5: Well, first of all, I think everything Larry said made 277 00:14:54,720 --> 00:14:57,160 Speaker 5: good sense to me, and I think he's probably right 278 00:14:57,280 --> 00:15:01,200 Speaker 5: and certainly very clear and logically a logical think about it. 279 00:15:01,480 --> 00:15:02,760 Speaker 10: Look, from the standpoint of an. 280 00:15:02,640 --> 00:15:06,040 Speaker 5: Investor, it's always a question of what does the market think, 281 00:15:06,360 --> 00:15:08,840 Speaker 5: and do you have a differentiated view of that? And 282 00:15:08,880 --> 00:15:10,560 Speaker 5: if you have a different view than the market, then 283 00:15:10,600 --> 00:15:13,160 Speaker 5: you can obviously proceed on that basis, and if you don't, 284 00:15:13,400 --> 00:15:14,920 Speaker 5: you go where you're going to go. So what is 285 00:15:14,960 --> 00:15:16,920 Speaker 5: the market saying right now? The market looks more at 286 00:15:16,920 --> 00:15:18,600 Speaker 5: the Fed. So let's talk, if we could, about the 287 00:15:18,600 --> 00:15:21,440 Speaker 5: Fed fed funds rate. So the market basically at the 288 00:15:21,440 --> 00:15:24,400 Speaker 5: moment is predicting one more hike in November and then 289 00:15:24,440 --> 00:15:27,040 Speaker 5: a cut in rates next year down I think about 290 00:15:27,040 --> 00:15:28,960 Speaker 5: four and a quarter percent on the This is on 291 00:15:29,000 --> 00:15:31,040 Speaker 5: the short end of the curve. 292 00:15:31,640 --> 00:15:34,160 Speaker 10: And why does the market think we're going to get there? 293 00:15:34,200 --> 00:15:35,800 Speaker 5: Because the market thinks we're going to have a soft 294 00:15:35,880 --> 00:15:38,680 Speaker 5: landing basically, and the market thinks that inflation is going 295 00:15:38,760 --> 00:15:40,200 Speaker 5: to come down to this two two and a half 296 00:15:40,240 --> 00:15:43,080 Speaker 5: percent range. The Fed is going to kind of say, okay, 297 00:15:43,840 --> 00:15:46,280 Speaker 5: and we can now start to cut rates. And if 298 00:15:46,280 --> 00:15:50,600 Speaker 5: you basically cut rates, if you basically assume inflation is 299 00:15:50,600 --> 00:15:51,960 Speaker 5: going to be in this two and a half percent 300 00:15:52,120 --> 00:15:54,520 Speaker 5: range and you take one or one and a half 301 00:15:54,600 --> 00:15:57,120 Speaker 5: percent for real rates, then obviously the Fed fund's a 302 00:15:57,200 --> 00:15:58,400 Speaker 5: rate could come down a good bit. 303 00:15:58,480 --> 00:16:00,840 Speaker 10: So that's how the market is about right now. 304 00:16:01,200 --> 00:16:03,200 Speaker 5: Now, it'd be interesting to hear what Larry has to 305 00:16:03,200 --> 00:16:04,960 Speaker 5: say about that, because if you have a different view 306 00:16:05,160 --> 00:16:08,640 Speaker 5: than that, then you could be a more pessimistic view, 307 00:16:08,680 --> 00:16:11,120 Speaker 5: which I would have, and be interested in Larry's view 308 00:16:11,600 --> 00:16:12,920 Speaker 5: that the Fed is not going to be able to 309 00:16:12,920 --> 00:16:14,880 Speaker 5: cut rates that fast, inflation is not going to come 310 00:16:14,920 --> 00:16:17,120 Speaker 5: down that fast. That I think we're in a little 311 00:16:17,120 --> 00:16:21,160 Speaker 5: bit of a Goldilocks moment. Everybody's feeling great about things, 312 00:16:21,160 --> 00:16:22,720 Speaker 5: but I think there's still a lot to worry about 313 00:16:22,760 --> 00:16:25,440 Speaker 5: on the inflation side. Then you'd have to be reasonably 314 00:16:25,520 --> 00:16:28,840 Speaker 5: pessimistic about the market once it wakes up and realizes 315 00:16:28,840 --> 00:16:29,640 Speaker 5: that we're not going to have. 316 00:16:29,600 --> 00:16:30,960 Speaker 10: A four and a quarter percent rate. 317 00:16:31,160 --> 00:16:33,200 Speaker 5: Now, there's one other way to get to that, which 318 00:16:33,240 --> 00:16:36,280 Speaker 5: is even worse, which is if we have a recession 319 00:16:36,320 --> 00:16:38,400 Speaker 5: and the FED starts to cut rates simply to deal 320 00:16:38,440 --> 00:16:40,040 Speaker 5: with the recession, and there is. 321 00:16:40,000 --> 00:16:40,840 Speaker 10: Pressure on earnings. 322 00:16:40,840 --> 00:16:43,560 Speaker 5: As you probably know, forecasts, fors and peer earnings for 323 00:16:43,600 --> 00:16:46,520 Speaker 5: next year have been coming down. Market has not reacted 324 00:16:46,560 --> 00:16:49,240 Speaker 5: to that in a major way. But that's the other thing, 325 00:16:49,280 --> 00:16:50,880 Speaker 5: obviously that the market will be watching. 326 00:16:51,640 --> 00:16:54,480 Speaker 2: So Larry see's interested. So am I what your reaction 327 00:16:54,680 --> 00:16:57,160 Speaker 2: is both on the question about the raid cuts next year, 328 00:16:57,200 --> 00:16:59,360 Speaker 2: but also on the recession, because in the past you 329 00:16:59,400 --> 00:17:02,640 Speaker 2: have said fifty or more chance of recession. A lot 330 00:17:02,680 --> 00:17:04,280 Speaker 2: of a kinders have backed off of that. Bank of 331 00:17:04,320 --> 00:17:06,639 Speaker 2: America has apparently the staff of the FED is back 332 00:17:06,680 --> 00:17:08,480 Speaker 2: to other Now we're in you today in a recession. 333 00:17:09,760 --> 00:17:14,280 Speaker 4: So in general, Steve and I are in raging agreement. Look, 334 00:17:14,359 --> 00:17:19,280 Speaker 4: there's no question that the economy has come in stronger 335 00:17:19,320 --> 00:17:22,600 Speaker 4: than almost anybody would have expected over the last few months, 336 00:17:23,600 --> 00:17:28,200 Speaker 4: and despite that, the inflation figures have been relatively favorable. 337 00:17:28,880 --> 00:17:33,440 Speaker 4: And those are the realities, and the question is how 338 00:17:33,480 --> 00:17:39,800 Speaker 4: one processes those realities. My guess is that the economy 339 00:17:39,840 --> 00:17:44,120 Speaker 4: will stay strong for at least a little while from here. 340 00:17:44,200 --> 00:17:49,240 Speaker 4: I'd be very surprised now if a recession started during 341 00:17:49,760 --> 00:17:55,080 Speaker 4: twenty twenty three. I'm not as confident looking out a 342 00:17:55,200 --> 00:18:00,000 Speaker 4: longer distance as many other people are, in part because 343 00:18:00,080 --> 00:18:04,120 Speaker 4: I think the Fed's going to feel pressure to continue 344 00:18:05,080 --> 00:18:08,040 Speaker 4: to tighten, and I think there are a range of 345 00:18:08,160 --> 00:18:16,480 Speaker 4: factors from gasoline prices to healthcare, from continuing labor shortages 346 00:18:17,040 --> 00:18:22,920 Speaker 4: in many places to what's happening in the service sector 347 00:18:23,480 --> 00:18:29,760 Speaker 4: where you're going to see continuing inflation pressures. So I 348 00:18:29,840 --> 00:18:34,399 Speaker 4: still think there's a good chance of a recession in 349 00:18:35,480 --> 00:18:41,920 Speaker 4: twenty in twenty twenty four. If we don't get that recession, 350 00:18:42,720 --> 00:18:46,879 Speaker 4: I think it's much more likely that the Fed's going 351 00:18:46,960 --> 00:18:50,760 Speaker 4: to feel pressure to raise rates faster than is now 352 00:18:50,880 --> 00:18:53,720 Speaker 4: priced in than it is that the FED is going 353 00:18:53,760 --> 00:18:57,960 Speaker 4: to feel pressure to cut rates faster than is now 354 00:18:58,680 --> 00:19:02,879 Speaker 4: priced in, and that will in general tend to push 355 00:19:02,960 --> 00:19:08,679 Speaker 4: rates up outside of the curve. I also think that 356 00:19:09,119 --> 00:19:11,960 Speaker 4: while I don't think the budget deficit is the central 357 00:19:12,040 --> 00:19:16,480 Speaker 4: factor for rates in the short run, I think increasingly 358 00:19:16,680 --> 00:19:20,919 Speaker 4: projected deficits are going to come into focus and that 359 00:19:21,119 --> 00:19:26,119 Speaker 4: is going to be a matter of concern for longer 360 00:19:26,240 --> 00:19:28,160 Speaker 4: term rates. 361 00:19:28,480 --> 00:19:31,600 Speaker 1: And that's part of why I. 362 00:19:31,560 --> 00:19:36,320 Speaker 4: Don't particularly see the current level of longer term rates 363 00:19:36,920 --> 00:19:38,400 Speaker 4: as any kind of peak. 364 00:19:39,160 --> 00:19:41,600 Speaker 2: Okay, Larry Summers and Steve Randner will be staying with 365 00:19:41,720 --> 00:19:43,800 Speaker 2: us because next we're gonna turn to the other big 366 00:19:43,840 --> 00:19:46,119 Speaker 2: story of the week for Global Wall Street. That's China's 367 00:19:46,160 --> 00:19:48,680 Speaker 2: economic struggles. That's coming up next down Wall Street Week 368 00:19:48,800 --> 00:19:49,440 Speaker 2: on Bloomberg. 369 00:19:55,040 --> 00:19:59,280 Speaker 3: This is Bloomberg Wall Street Week with David Weston from 370 00:19:59,359 --> 00:20:00,280 Speaker 3: Bloomberg Rado. 371 00:20:07,600 --> 00:20:10,040 Speaker 2: This is Wall three week. I'm David Weston. China had 372 00:20:10,040 --> 00:20:14,640 Speaker 2: a rough week economically, reporting weaker retail sales and industrial production, 373 00:20:14,760 --> 00:20:17,920 Speaker 2: and continued problems with its property market. Larry Summers and 374 00:20:17,960 --> 00:20:20,359 Speaker 2: Steve Radner have remained with us for their read on 375 00:20:20,400 --> 00:20:22,199 Speaker 2: what's going on in China. Learned me start with you. 376 00:20:22,520 --> 00:20:25,120 Speaker 2: In the past, you have expressed at least some skepticism 377 00:20:25,160 --> 00:20:26,800 Speaker 2: about those who said that this is just going to 378 00:20:27,040 --> 00:20:29,639 Speaker 2: keep going. The juggernaut that is the Chinese economy. It 379 00:20:29,680 --> 00:20:32,080 Speaker 2: may have some problems. They are what we're seeing what 380 00:20:32,240 --> 00:20:34,560 Speaker 2: you predicted, or is even worse than what you thought. 381 00:20:36,080 --> 00:20:42,040 Speaker 4: I try to avoid baking near term predictions, but I 382 00:20:42,080 --> 00:20:45,399 Speaker 4: fought for a number of years that the Chinese juggernaut 383 00:20:45,640 --> 00:20:51,320 Speaker 4: was going to slow. Juggernauts usually do in economics. Classic 384 00:20:51,440 --> 00:20:54,879 Speaker 4: examples were Russia in nineteen sixty when it was seen 385 00:20:55,040 --> 00:20:58,840 Speaker 4: as is going to surpass us in nineteen eighty, or 386 00:20:58,960 --> 00:21:04,560 Speaker 4: Japan in nineteen ninety when people expected that it was 387 00:21:04,680 --> 00:21:10,119 Speaker 4: going to surpass us. So it's a pretty good rule 388 00:21:10,200 --> 00:21:13,320 Speaker 4: that when American high school kids rushed to study a 389 00:21:13,400 --> 00:21:19,240 Speaker 4: foreign language, that's about when the country's economy is peaking. 390 00:21:19,760 --> 00:21:24,479 Speaker 4: So you've got that, then you have a variety of 391 00:21:24,560 --> 00:21:29,360 Speaker 4: near term challenges the kind you just referred to. Financial 392 00:21:30,160 --> 00:21:35,919 Speaker 4: strains in China coming from excessive reliance on real estate 393 00:21:36,480 --> 00:21:42,240 Speaker 4: and the drying up of export markets. Then you've got 394 00:21:42,400 --> 00:21:48,920 Speaker 4: some fairly profound adverse fundamentals for China. The fact that 395 00:21:49,240 --> 00:21:52,880 Speaker 4: Chinese parents had only half as many kids last year 396 00:21:52,920 --> 00:21:57,280 Speaker 4: as they did six years ago. The fact that there's 397 00:21:57,680 --> 00:22:01,120 Speaker 4: large amounts of people with money in China who are very, 398 00:22:01,200 --> 00:22:04,040 Speaker 4: very eager to get it out, which is always a 399 00:22:04,080 --> 00:22:11,720 Speaker 4: sign of impending difficulty in emerging markets. So I would 400 00:22:11,720 --> 00:22:15,280 Speaker 4: not be confident at a wall that China will be 401 00:22:15,320 --> 00:22:22,960 Speaker 4: a faster than average growing major economy over the next decade. 402 00:22:23,359 --> 00:22:26,120 Speaker 4: And that's obviously a big difference from the world we've 403 00:22:26,160 --> 00:22:28,800 Speaker 4: been living with for the last forty years. 404 00:22:29,320 --> 00:22:31,840 Speaker 2: So just a personal notes, Steve, let the record reflect 405 00:22:31,880 --> 00:22:34,439 Speaker 2: that Larry's right in his rule. Thlumb I studied Russian 406 00:22:34,480 --> 00:22:37,320 Speaker 2: and high school in the nineteen sixties, So certainly here's 407 00:22:37,400 --> 00:22:40,680 Speaker 2: one anecdote that's aborts you, Larry. So you've an investor 408 00:22:40,680 --> 00:22:42,080 Speaker 2: in China, you spent a lot of time there where 409 00:22:42,080 --> 00:22:44,480 Speaker 2: they're fairly recently, Actually, what do you make of what 410 00:22:44,480 --> 00:22:45,399 Speaker 2: we're seeing right now. 411 00:22:45,680 --> 00:22:48,440 Speaker 5: Well, first of all, look, I have been more optimistic 412 00:22:48,440 --> 00:22:50,879 Speaker 5: about China in the past, and I will say that 413 00:22:50,960 --> 00:22:54,440 Speaker 5: I have recalibrated my views. I mean, it's definitely going 414 00:22:54,480 --> 00:22:57,240 Speaker 5: through a tough period. I don't think I'm as pessimistic 415 00:22:57,280 --> 00:23:00,440 Speaker 5: as Larry is. I would just mention, for example, that 416 00:23:00,560 --> 00:23:03,040 Speaker 5: they may not make their five percent GDP growth number 417 00:23:03,040 --> 00:23:04,800 Speaker 5: this year. Maybe it'll be four, maybe it'll be four 418 00:23:04,800 --> 00:23:07,320 Speaker 5: and a half. It'll still be probably twice what ours is. 419 00:23:07,400 --> 00:23:09,879 Speaker 5: So I don't think we can yet sort of wipe 420 00:23:09,920 --> 00:23:12,320 Speaker 5: China off the blackboard. But look, they have a lot 421 00:23:12,320 --> 00:23:13,640 Speaker 5: of problems, and I would put them in a couple 422 00:23:13,680 --> 00:23:16,240 Speaker 5: of buckets. One, it was clear on my trip there 423 00:23:16,600 --> 00:23:19,840 Speaker 5: that the sanctions that we've imposed and the whole deglobalization 424 00:23:19,920 --> 00:23:22,639 Speaker 5: phenomenon and the fact that business feels that they have 425 00:23:22,680 --> 00:23:25,520 Speaker 5: to be more careful about their supply lines has taken 426 00:23:25,520 --> 00:23:28,800 Speaker 5: a toll and it's definitely affected their exports and their 427 00:23:28,840 --> 00:23:30,360 Speaker 5: general mentality and their business. 428 00:23:30,720 --> 00:23:32,920 Speaker 10: The second big problem they have is. 429 00:23:32,960 --> 00:23:37,600 Speaker 5: Gi who has reasserted its control over the economy, who 430 00:23:37,760 --> 00:23:40,720 Speaker 5: many of our investors that we talk to their field 431 00:23:40,720 --> 00:23:44,840 Speaker 5: doesn't even understand economics and you can buy their policy 432 00:23:44,840 --> 00:23:47,000 Speaker 5: actions so far, I think you'd probably agree with that. 433 00:23:47,440 --> 00:23:50,480 Speaker 5: And so you've got really bad government policy on top 434 00:23:50,520 --> 00:23:53,320 Speaker 5: of a bunch of difficulties, whether it's the property sector, 435 00:23:53,359 --> 00:23:55,720 Speaker 5: whether it's export exports. 436 00:23:55,280 --> 00:23:56,200 Speaker 10: Whether it's whatever. 437 00:23:57,040 --> 00:23:59,960 Speaker 5: But I would say I'm not completely going to write 438 00:24:00,119 --> 00:24:02,480 Speaker 5: China off because I think you have to recognize that 439 00:24:02,520 --> 00:24:05,960 Speaker 5: you do have a lot of tools. For example, everybody 440 00:24:05,960 --> 00:24:09,679 Speaker 5: talks about their debt, nobody talks about their assets. The 441 00:24:09,720 --> 00:24:11,600 Speaker 5: IMF just came out with a paper in the last 442 00:24:11,600 --> 00:24:14,320 Speaker 5: few days that basically tried to look at the balance 443 00:24:14,359 --> 00:24:17,800 Speaker 5: sheet assets and liabilities of the Chinese government, and while 444 00:24:17,800 --> 00:24:21,119 Speaker 5: their net assets have been coming down, they're still substantially positive. 445 00:24:21,400 --> 00:24:23,320 Speaker 5: I think if he went through the same exercise for 446 00:24:23,359 --> 00:24:27,159 Speaker 5: the US, you'd find a different result. Their central government 447 00:24:27,240 --> 00:24:30,040 Speaker 5: debt to GDP is only about thirty percent. They have 448 00:24:30,119 --> 00:24:33,480 Speaker 5: plenty of scope to do something on the fiscal side 449 00:24:33,760 --> 00:24:37,080 Speaker 5: to both stimulate the economy as well as solve some 450 00:24:37,119 --> 00:24:39,520 Speaker 5: of the problems that the provincial governments do have with debt, 451 00:24:39,920 --> 00:24:40,920 Speaker 5: which are very meaningful. 452 00:24:41,840 --> 00:24:44,160 Speaker 2: So Larry typically on one thing that Steve said there, 453 00:24:44,240 --> 00:24:46,480 Speaker 2: if President g is part of the problem, could he 454 00:24:46,520 --> 00:24:48,200 Speaker 2: be part of the solution, And I guess that's a 455 00:24:48,240 --> 00:24:50,199 Speaker 2: way of asking, are there things he could do? We 456 00:24:50,200 --> 00:24:52,439 Speaker 2: saw some actions even this week where we try to 457 00:24:52,440 --> 00:24:54,560 Speaker 2: put some more money into the economy, although it's not 458 00:24:54,560 --> 00:24:57,320 Speaker 2: clear that the consumers have enough confidence to start spending it. 459 00:24:57,480 --> 00:25:00,000 Speaker 2: But are there things the prison g could do or 460 00:25:00,040 --> 00:25:03,679 Speaker 2: what we're seeing larger structural factors that you suggested that 461 00:25:03,800 --> 00:25:04,920 Speaker 2: are outside of his control. 462 00:25:06,440 --> 00:25:10,240 Speaker 1: I think it's a combination of both. I think, by 463 00:25:10,240 --> 00:25:11,160 Speaker 1: the way, there are a. 464 00:25:11,080 --> 00:25:17,480 Speaker 4: Lot of questions about Chinese economic statistics. We talk about 465 00:25:18,000 --> 00:25:24,160 Speaker 4: smooth earnings of US corporations, I would politely suggest that 466 00:25:24,160 --> 00:25:27,480 Speaker 4: that is as nothing compared to a fair amount of 467 00:25:27,520 --> 00:25:32,479 Speaker 4: what goes on in Chinese statistical reporting. I thought it 468 00:25:32,560 --> 00:25:37,280 Speaker 4: was interesting this week when the Chinese authorities, who had 469 00:25:37,320 --> 00:25:43,399 Speaker 4: been facing really very grave youth unemployment figures, announced that 470 00:25:43,440 --> 00:25:46,920 Speaker 4: you though unemployment figures weren't going to be published anymore. 471 00:25:48,720 --> 00:25:49,640 Speaker 1: Going forward. 472 00:25:49,760 --> 00:25:51,840 Speaker 4: So I think there are a lot of questions about 473 00:25:51,840 --> 00:26:00,880 Speaker 4: what the real growth rate is. Beyond that, there are 474 00:26:00,960 --> 00:26:07,280 Speaker 4: obviously things that China could do that would substantially stimulate demand. 475 00:26:08,160 --> 00:26:14,040 Speaker 4: But here's the core problem, or a core problem. There's 476 00:26:14,080 --> 00:26:19,040 Speaker 4: a basic tension between the politics and the economics in 477 00:26:19,280 --> 00:26:24,560 Speaker 4: Chinese political economy is ConTroll going to rest with one 478 00:26:24,640 --> 00:26:27,840 Speaker 4: hundred million people who are members of the party or 479 00:26:27,880 --> 00:26:31,199 Speaker 4: the one point two billion Chinese citizens who are not 480 00:26:31,400 --> 00:26:37,840 Speaker 4: members of the party. The expansionary fiscal policy consumption led 481 00:26:38,040 --> 00:26:43,560 Speaker 4: growth agenda is basically an agenda of spreading money all 482 00:26:43,640 --> 00:26:48,800 Speaker 4: over the place and shifting it from the control of 483 00:26:48,840 --> 00:26:53,520 Speaker 4: the Communist Party to the control of regular people who 484 00:26:53,560 --> 00:26:55,679 Speaker 4: aren't part of the Communist Party. 485 00:26:56,440 --> 00:26:58,960 Speaker 2: Steve Larry makes an important point that I've always wondered 486 00:26:58,960 --> 00:27:02,040 Speaker 2: about as an investment in China, how do you trust 487 00:27:02,040 --> 00:27:04,080 Speaker 2: the numbers? I mean, Larry points out that they've decided 488 00:27:04,119 --> 00:27:05,359 Speaker 2: they're not going to report the use of their employment 489 00:27:05,400 --> 00:27:07,439 Speaker 2: because it was over twenty percent. It's not a good number. 490 00:27:07,640 --> 00:27:09,720 Speaker 2: So how do you have confidence in the numbers as 491 00:27:09,720 --> 00:27:10,360 Speaker 2: an investor. 492 00:27:10,680 --> 00:27:12,920 Speaker 5: Well, remember there's a difference between not reporting a number 493 00:27:12,960 --> 00:27:13,840 Speaker 5: and making up a number. 494 00:27:13,840 --> 00:27:14,400 Speaker 10: And I don't. 495 00:27:14,200 --> 00:27:17,520 Speaker 5: Disagree with Larry about the statistics that they may be managed, 496 00:27:17,560 --> 00:27:20,080 Speaker 5: but I would just make that distinction. They were reporting, 497 00:27:20,080 --> 00:27:22,600 Speaker 5: you thounemployment numbers. They were huge numbers, so they decided 498 00:27:22,600 --> 00:27:23,720 Speaker 5: not to report them anymore. 499 00:27:24,119 --> 00:27:25,000 Speaker 10: But the macro. 500 00:27:24,800 --> 00:27:27,240 Speaker 5: Statistics are just a piece of what we think about 501 00:27:27,280 --> 00:27:30,280 Speaker 5: when we invest there. We're investing in companies or in 502 00:27:30,320 --> 00:27:33,159 Speaker 5: managers who are investing in companies, and the question is 503 00:27:33,160 --> 00:27:36,080 Speaker 5: one of the prospects of the companies, and obviously the 504 00:27:36,080 --> 00:27:39,200 Speaker 5: fundamentals of the country do relate to that, but that's 505 00:27:39,280 --> 00:27:40,600 Speaker 5: not the only piece. 506 00:27:40,400 --> 00:27:41,960 Speaker 10: Of how we go about investing. 507 00:27:42,160 --> 00:27:43,720 Speaker 5: But I would say just a couple of things about 508 00:27:43,960 --> 00:27:47,040 Speaker 5: Larry said, and I don't disagree again with well, we 509 00:27:47,119 --> 00:27:49,320 Speaker 5: might disagree a little bit about this. Look, I think 510 00:27:49,359 --> 00:27:52,399 Speaker 5: fundamentally the deal between the Chinese government and the people 511 00:27:52,440 --> 00:27:54,840 Speaker 5: has always been we're going to make you rich and 512 00:27:54,960 --> 00:27:57,359 Speaker 5: let us control. And you know, you're not going to 513 00:27:57,400 --> 00:27:58,800 Speaker 5: have free speech, you're not going to have this, you're 514 00:27:58,800 --> 00:28:00,000 Speaker 5: not going to have that, but you're going to get 515 00:28:00,320 --> 00:28:01,880 Speaker 5: into the middle class and so forth. 516 00:28:02,640 --> 00:28:06,600 Speaker 2: Larry, if China continues to struggle economically the way they have, 517 00:28:06,840 --> 00:28:08,800 Speaker 2: and Steve points out they're still growing more than we are, 518 00:28:08,880 --> 00:28:11,360 Speaker 2: but still struggle compared to where they were, is that 519 00:28:11,520 --> 00:28:13,000 Speaker 2: good for the United States and the rest of the world, 520 00:28:13,119 --> 00:28:15,879 Speaker 2: or is it bad? Do we need a strong China 521 00:28:15,920 --> 00:28:17,320 Speaker 2: economically or a weak one. 522 00:28:19,720 --> 00:28:20,600 Speaker 1: It's two edged. 523 00:28:21,640 --> 00:28:25,720 Speaker 4: It's good when your customer prospers, and it's bad when 524 00:28:25,720 --> 00:28:28,280 Speaker 4: your competitor gets hyper efficient. 525 00:28:29,040 --> 00:28:31,880 Speaker 1: So it's a two edge thing. 526 00:28:33,080 --> 00:28:39,560 Speaker 4: I am concerned that we will become the object of 527 00:28:39,640 --> 00:28:44,480 Speaker 4: China's frustration and that will tempt them to. 528 00:28:45,960 --> 00:28:50,240 Speaker 1: Lash out. I think we need to be very careful 529 00:28:51,800 --> 00:28:54,200 Speaker 1: in our approach to. 530 00:28:54,400 --> 00:29:01,240 Speaker 4: China at a moment of this kind of difficult and 531 00:29:01,280 --> 00:29:04,680 Speaker 4: we need to be more attentive than I think some 532 00:29:04,760 --> 00:29:11,440 Speaker 4: of the policy advocates in Washington are to avoiding a 533 00:29:11,600 --> 00:29:20,280 Speaker 4: situation where we terrify China with the potential economic damage 534 00:29:20,760 --> 00:29:22,400 Speaker 4: that we're going to do to them. 535 00:29:23,440 --> 00:29:25,000 Speaker 2: Thank you so much to both of you for joining 536 00:29:25,080 --> 00:29:27,160 Speaker 2: us on Wall Street Reef. That's Larry Summers of Harvard 537 00:29:27,320 --> 00:29:32,400 Speaker 2: and Steve Radder of Willet Advisors colling up, bringing puppies 538 00:29:32,480 --> 00:29:36,800 Speaker 2: into the fight against inflation. That's next on Wall Street Reef. 539 00:29:37,000 --> 00:29:42,160 Speaker 3: On Bloomble this is Bloomberg Well Street Week with David 540 00:29:42,200 --> 00:29:44,440 Speaker 3: Weston from Bloomberg. 541 00:29:43,960 --> 00:29:55,160 Speaker 2: Radio Activist Investing. For years, it was all the rage 542 00:29:55,200 --> 00:29:58,280 Speaker 2: for those trying to shake up companies and get some alpha. 543 00:29:58,360 --> 00:30:01,880 Speaker 11: As we see companies that we think were once great 544 00:30:02,640 --> 00:30:05,880 Speaker 11: have lost their way, and that we have a plan 545 00:30:06,840 --> 00:30:09,680 Speaker 11: for them to get back to greatness. We're not there 546 00:30:09,720 --> 00:30:13,240 Speaker 11: to leverage up these companies. We're not there to split 547 00:30:13,280 --> 00:30:16,400 Speaker 11: them up. We're not there to do all the terrible 548 00:30:16,480 --> 00:30:20,719 Speaker 11: things that typically go along with the term activist. 549 00:30:21,200 --> 00:30:23,960 Speaker 2: But the dramatic rise in interest rates put a damper 550 00:30:24,000 --> 00:30:24,800 Speaker 2: on mergers. 551 00:30:25,000 --> 00:30:27,760 Speaker 10: Fourth quarter of twenty two, you had nothing. 552 00:30:27,840 --> 00:30:30,440 Speaker 7: Today, you actually have the markets loosening out for the 553 00:30:30,480 --> 00:30:31,360 Speaker 7: right deals. 554 00:30:31,160 --> 00:30:32,760 Speaker 2: And the cooling of the M and A market took 555 00:30:32,760 --> 00:30:35,960 Speaker 2: its toll on activist investing as well as recognized by 556 00:30:35,960 --> 00:30:37,600 Speaker 2: practitioners like Carson. 557 00:30:37,240 --> 00:30:42,680 Speaker 12: Block, last year was probably the worst year in terms 558 00:30:42,680 --> 00:30:45,840 Speaker 12: of the alpha generated by activist shorts since the global 559 00:30:45,840 --> 00:30:46,800 Speaker 12: financial crisis. 560 00:30:46,920 --> 00:30:48,120 Speaker 2: But that would surprise. 561 00:30:47,800 --> 00:30:49,600 Speaker 12: People because it's a year in which the S and 562 00:30:49,600 --> 00:30:51,400 Speaker 12: P five hundred declined. 563 00:30:51,960 --> 00:30:55,480 Speaker 2: So activist investing maybe it's something of a crossroads, with 564 00:30:55,600 --> 00:30:59,600 Speaker 2: some seeing it as becoming more mainstream activist short selling. 565 00:31:00,000 --> 00:31:01,240 Speaker 10: It has become very mainstream. 566 00:31:01,640 --> 00:31:03,720 Speaker 7: What I started in the industry for like twenty three 567 00:31:03,800 --> 00:31:06,160 Speaker 7: years ago is quite unique, and right now, if you 568 00:31:06,160 --> 00:31:08,080 Speaker 7: don't have an opinion on a stockey, you don't publish 569 00:31:08,080 --> 00:31:08,560 Speaker 7: your opinion. 570 00:31:08,840 --> 00:31:10,040 Speaker 10: That's even more unique. 571 00:31:10,120 --> 00:31:13,320 Speaker 2: While others like Jennifer Grancio of Engine Number one see 572 00:31:13,360 --> 00:31:16,480 Speaker 2: it as integral to affecting basic change. As in the 573 00:31:16,520 --> 00:31:17,680 Speaker 2: approach to climate. 574 00:31:18,040 --> 00:31:21,080 Speaker 13: We think of ourselves as performance firm, and so the 575 00:31:21,120 --> 00:31:25,320 Speaker 13: next leg of decarbonization includes how to energy companies change, 576 00:31:25,360 --> 00:31:28,240 Speaker 13: how to auto companies change. Exon wasn't performing in a 577 00:31:28,240 --> 00:31:30,280 Speaker 13: way it should have been performing. We took advantage of that. 578 00:31:32,400 --> 00:31:35,840 Speaker 2: Finally, one more thought, having your cake and eating it too, 579 00:31:36,320 --> 00:31:38,760 Speaker 2: isn't that what we all really want out of life? 580 00:31:39,160 --> 00:31:41,480 Speaker 2: None of us wants to choose between grace Kelly on 581 00:31:41,520 --> 00:31:43,760 Speaker 2: the one hand, and facing our sworn duty to stand 582 00:31:43,840 --> 00:31:45,120 Speaker 2: up to the bad guys on the other. 583 00:31:45,440 --> 00:31:47,800 Speaker 1: I mean, if you won't go with me now, I'll 584 00:31:47,840 --> 00:31:48,760 Speaker 1: be on that train. 585 00:31:48,600 --> 00:31:49,440 Speaker 5: When it leaves here. 586 00:31:50,240 --> 00:31:51,120 Speaker 1: I've got to stay. 587 00:31:51,880 --> 00:31:54,160 Speaker 2: Or giving up a star and professional basketball player in 588 00:31:54,240 --> 00:31:56,040 Speaker 2: order to pursue a championship team. 589 00:31:56,360 --> 00:31:58,880 Speaker 4: Yeah. The toughest thing of this in sports is, you know, 590 00:31:59,160 --> 00:32:01,960 Speaker 4: we all love market smart, but the goal in Boston 591 00:32:02,000 --> 00:32:03,680 Speaker 4: is to win championships, and to do that you have 592 00:32:03,720 --> 00:32:05,800 Speaker 4: to put the best team out there you possibly can. 593 00:32:06,000 --> 00:32:08,560 Speaker 2: And for the last seventeen months, we've all been hoping 594 00:32:08,600 --> 00:32:11,800 Speaker 2: we can avoid another Hobson's choice, that we can have 595 00:32:11,920 --> 00:32:15,080 Speaker 2: our cake of a strong economy and eat into inflation 596 00:32:15,240 --> 00:32:17,840 Speaker 2: at the same time. As of today, it looks like 597 00:32:17,880 --> 00:32:21,400 Speaker 2: we just may pull it off, as inflation has come down, 598 00:32:21,640 --> 00:32:23,880 Speaker 2: even if not yet as much as we would like. 599 00:32:24,360 --> 00:32:27,240 Speaker 1: Right now, inflation is coming down. We've made some progress, 600 00:32:27,280 --> 00:32:28,200 Speaker 1: some good progress. 601 00:32:28,400 --> 00:32:29,440 Speaker 2: I feel good about that. 602 00:32:30,160 --> 00:32:31,960 Speaker 10: It's still too high. 603 00:32:31,480 --> 00:32:34,160 Speaker 2: And even though some continue to warn it may bounce 604 00:32:34,200 --> 00:32:34,880 Speaker 2: back up again. 605 00:32:35,160 --> 00:32:36,920 Speaker 8: If you think that there is a risk that the 606 00:32:36,960 --> 00:32:38,959 Speaker 8: FED is kind of patting itself on the back by 607 00:32:39,000 --> 00:32:42,280 Speaker 8: the end of the year, only to watch inflation potentially 608 00:32:42,320 --> 00:32:45,360 Speaker 8: turn back up, you know sometime next year. 609 00:32:45,560 --> 00:32:48,720 Speaker 2: This week marks one year since the Biden administration's efforts 610 00:32:48,720 --> 00:32:51,080 Speaker 2: to help the FED in the inflation fight with something 611 00:32:51,120 --> 00:32:53,600 Speaker 2: called the Inflation Reduction Act. 612 00:32:53,520 --> 00:32:56,920 Speaker 9: And the bill, as amended is pasted as in. 613 00:32:57,000 --> 00:32:59,880 Speaker 2: Biden now questions the choice of the name, but it 614 00:33:00,160 --> 00:33:03,680 Speaker 2: wasn't simply cynical. Senator Joe Manchin insists that the Act 615 00:33:03,720 --> 00:33:06,040 Speaker 2: would help keep inflation down because. 616 00:33:05,920 --> 00:33:08,320 Speaker 14: On top of that, we did THERA. Now, the IRA 617 00:33:08,600 --> 00:33:11,880 Speaker 14: was done just through reconciliation, which is Democrats only. But 618 00:33:11,920 --> 00:33:14,520 Speaker 14: I can assure you because I worked with everybody for 619 00:33:14,560 --> 00:33:16,480 Speaker 14: the last five years. I've been working with my Republican 620 00:33:16,520 --> 00:33:19,400 Speaker 14: friends and said, hey, Joe, we need more energy. I agree, 621 00:33:19,440 --> 00:33:21,440 Speaker 14: we need to put more product in the market. We 622 00:33:21,480 --> 00:33:23,840 Speaker 14: need to basically pay down our debt. I agree. 623 00:33:24,040 --> 00:33:26,240 Speaker 2: The jury is still out and the full effects of 624 00:33:26,280 --> 00:33:29,880 Speaker 2: the IRA. As pimco's Libby Cantrell reminds us, there's more 625 00:33:29,960 --> 00:33:30,640 Speaker 2: yet to come. 626 00:33:30,960 --> 00:33:34,280 Speaker 9: A lot of this was signed into to law last year. 627 00:33:34,480 --> 00:33:36,880 Speaker 10: Many ways, I think for folks this seems like it's. 628 00:33:36,800 --> 00:33:39,880 Speaker 13: In the rear view mirror, But just knowing how Washington works, 629 00:33:40,040 --> 00:33:42,840 Speaker 13: actually there's a lot of fiscal in the pipeline. 630 00:33:42,880 --> 00:33:45,120 Speaker 2: But we learned this week that there may just be 631 00:33:45,200 --> 00:33:48,320 Speaker 2: another way to fight higher prices. It comes to us 632 00:33:48,360 --> 00:33:50,880 Speaker 2: from England, which, to be sure, is having its own 633 00:33:50,960 --> 00:33:53,840 Speaker 2: battle with high costs, as the UK CPI was up 634 00:33:53,880 --> 00:33:56,800 Speaker 2: this week another six point eight percent, but as much 635 00:33:56,920 --> 00:34:00,320 Speaker 2: trouble as they are having over in England with prices overall. 636 00:34:00,560 --> 00:34:03,920 Speaker 2: The UK site Pets for Homes reports that the prices 637 00:34:03,960 --> 00:34:08,640 Speaker 2: of cute little puppies are almost flat, apparently because people 638 00:34:08,719 --> 00:34:11,480 Speaker 2: don't need canine companionship quite as much as they did 639 00:34:11,600 --> 00:34:15,240 Speaker 2: during the pandemic. So if that Inflation Reduction Act doesn't 640 00:34:15,280 --> 00:34:18,400 Speaker 2: work out quite as planned, maybe Congress could just consider 641 00:34:18,560 --> 00:34:20,680 Speaker 2: legislating more puppies. 642 00:34:20,560 --> 00:34:23,719 Speaker 6: Sometimes helping others the sure ast way to help yourself. 643 00:34:24,000 --> 00:34:27,320 Speaker 2: We can never have enough puppies, right. That does it 644 00:34:27,400 --> 00:34:30,400 Speaker 2: for this episode of WATT, I'm David Weston. This is Bloomberg. 645 00:34:30,520 --> 00:34:32,560 Speaker 2: See you next week.