Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: I mean may not have an overall recession. We're having
Speaker 2: a rolling recession. ECONYE roll looks pretty strongly. It is
Speaker 2: when it comes to jobs.
Speaker 3: The financial story is that shape our world.
Speaker 2: Three major regional bank failures send shockwaves through the banking system.
Speaker 2: We're all trying to figure out what to make of
Speaker 2: generative AI.
Speaker 3: Through the eyes of the most influential voices.
Speaker 2: Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America,
Speaker 2: deebro Lair of the Paulson Institute, well Then Hubbard of
Speaker 2: the Columbia Business School.
Speaker 3: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: Responding to adversity, a Maori town devastated by the worst
Speaker 2: wildfire in US history, a Chinese economy that can't catch
Speaker 2: a break, and a former US president facing a fourth indictment.
Speaker 2: This is Bloomberg Wall Street Week. I'm David Weston. This
Speaker 2: week's special contributor Larry Summers of Harvard and Steve Rattner
Speaker 2: Willet Advisors, on why the yield and the tenure is
Speaker 2: headed higher.
Speaker 4: You're looking at it four seventy five on the ten year,
Speaker 4: and it could end up being higher than that.
Speaker 2: And Master's make of the softening Chinese economy.
Speaker 5: I have been more optimistic about China in the past,
Speaker 5: and I will say that I have recalibrated my views.
Speaker 2: And Greg Tason of Spotlight Advisors on the drop off
Speaker 2: in activist investing.
Speaker 6: There's some dampening because of the m and A market.
Speaker 2: It may be August, but it was a tough week
Speaker 2: for many on or near global Wall Street, starting with
Speaker 2: the victims of that wildfire that destroyed much of the
Speaker 2: town of Lahina, Maui, with over one hundred dead, many
Speaker 2: yet to be accounted for, and billions of dollars in damages.
Speaker 7: Whole city destroyed, generations of native Hawaiian history turned into ruin.
Speaker 2: President g Over in China had problems of his own,
Speaker 2: with reports of this week of continued weakness in his
Speaker 2: economy and stimulus moves that the market's pretty much shrugged
Speaker 2: off to someone said we'd like to say more policy
Speaker 2: action before we'd be getting a lot more comfortable moving
Speaker 2: into more chin a related exposure's Former President Trump confronted
Speaker 2: a different kind of problem this week when he faced
Speaker 2: off fourth indictment, this one from a state prosecution in
Speaker 2: Georgia alleging he was part of a racketeering organization along
Speaker 2: with eighteen others trying to overturn the twenty twenty election.
Speaker 1: This is an extremely serious indictment.
Speaker 8: The allegations are serious, and if he's convicted, he's going
Speaker 8: to do time.
Speaker 2: On the brighter side, US retail sales numbers came in
Speaker 2: surprisingly high, indicating the continued strength of the consumer and
Speaker 2: therefore of the economy.
Speaker 8: The consumer is out there and able to spend at
Speaker 8: the moment.
Speaker 2: But continuing strength of the US economy did little to
Speaker 2: reassure the markets this week, as the S and P
Speaker 2: five hundred lost over two percent to end the week
Speaker 2: at forty three sixty nine, bringing it back down toward
Speaker 2: the median number of where our Bloomberg ls predicted we
Speaker 2: will end up the year, that's forty three hundred. The
Speaker 2: Nasdaq also had a rough week of it down two
Speaker 2: point six percent, at least a part because of those
Speaker 2: equity declines, No doubt came from the rise in the
Speaker 2: yields in bonds, with a ten year yield moving up
Speaker 2: nearly ten basis points, putting it well above four percent
Speaker 2: at four point twenty five percent to sort it all out.
Speaker 2: Welcome to Chris Aylman. He's the chief investment officer of
Speaker 2: Couseros and Chanadasai. She is Franklin Templeton's CIO for fixed income. Welcome.
Speaker 2: Both of you took it back to Wall Street Week.
Speaker 2: You've both been on quite a few times now. Chris,
Speaker 2: let me start with you. Were you surprised anything that
Speaker 2: happened with the bond yields this week?
Speaker 1: Well?
Speaker 7: Yes, surprised that as Larry Summers said that bond yields
Speaker 7: are heading up and I think going to be heading higher.
Speaker 7: I mean, he's signed fifty basis points, so I'm I'm cautious,
Speaker 7: and I would be worried about trying to trade fixed
Speaker 7: income in here. I like it as a buy and hold,
Speaker 7: but I don't like it from a trading standpoint.
Speaker 1: Yields are going to head.
Speaker 2: Up four point seven to five. Chris, you agree with
Speaker 2: Larry on that.
Speaker 7: Well, I'm not going to argue with Larry Summers. I'm
Speaker 7: not going to try and nail down that number. That's
Speaker 7: a big reach, Like I said, half a point from here,
Speaker 7: but I do think ingistrates are going to stay higher
Speaker 7: for longer We're not going to see rates go back
Speaker 7: down like a lot of the street is predicted.
Speaker 2: Sona, you really focus on fixed income? What did you
Speaker 2: make of the bond market this week?
Speaker 9: So honestly, I think this is the bond market finally
Speaker 9: coming around, coming to terms with certain facts. Here's the
Speaker 9: thing for a long time, even the sad when you
Speaker 9: look at the Fed funds rate, the long term Fed
Speaker 9: funds rate, they're looking at two point five percent if
Speaker 9: inflation are two percent. This is real yields of half
Speaker 9: a percent. If I look at not the anomaly of
Speaker 9: the post global financial crisis period, but I look at
Speaker 9: from the nineteen fifties all the way up to two
Speaker 9: thousand and seven eight. Really we're looking at yields, real
Speaker 9: yields which were around two to two and a half percent.
Speaker 10: So here's the.
Speaker 1: Thing that you take.
Speaker 9: Even if we get back to two percent inflation, real
Speaker 9: yields at two two and a half percent takes you
Speaker 9: to four and a half already. So and that's the
Speaker 9: short term, and then you have two on premium. If
Speaker 9: you're looking at ten year yields. Yeah, I actually think
Speaker 9: four point seventy five is not unreasonable.
Speaker 10: Not at all Chris.
Speaker 2: When we talk about these bond yields, we talk about
Speaker 2: things like expectations of inflation, and we talk about what
Speaker 2: the Fed is likely to do. What about the demand
Speaker 2: or maybe the supply of treasuries, because it's clear the
Speaker 2: unice discover is gonna have to borrow a lot more
Speaker 2: at the same time, for example, Japan may not want
Speaker 2: as many.
Speaker 7: The bomb market and the Yokurby is nothing but supply
Speaker 7: and demand, and there is a ton of supply coming.
Speaker 7: The Treasure Department has just due to all those budget negotiations,
Speaker 7: a huge calendar in front of them, and we are
Speaker 7: seeing buyers being a little bit cautious. You just reported
Speaker 7: about China and it's weak economy. They've got to protect
Speaker 7: their currency, so they may not have as much capital.
Speaker 7: We've had a lot of focus on the tail on
Speaker 7: all of our bond auctions, in other words, how much
Speaker 7: demand and how clean those actions are. I always said,
Speaker 7: we're a debtor nation, and we better pay attention to that.
Speaker 7: We've got to borrow money, and it may be a
Speaker 7: bit tougher now.
Speaker 2: We borrow a lot of money for fiscal stimulus. We've
Speaker 2: had a lot going into the system. Are we done.
Speaker 2: Yet where are we right now on fiscal supporting this economy.
Speaker 9: Honestly, we are looking at an economy which is true
Speaker 9: almost every estimate of full employment, and we have massively
Speaker 9: expantorary fiscal policy. This is getting hidden and you know, yes,
Speaker 9: there's discussion about you know, terrible budget negotiations, all of that,
Speaker 9: but fundamentally the economy in terms of employment is doing well.
Speaker 9: And at the same time, we are seeing fiscal deficits
Speaker 9: which are close to records five and a half percent
Speaker 9: odd last year. This year it's at least as much,
Speaker 9: if not higher, and the CBO expects six percent is
Speaker 9: the school deficits for the next several years. This is
Speaker 9: a lot officients and definitely that's a supply dynamic that's important.
Speaker 9: At the same time, you mentioned Japan, and Japan's very
Speaker 9: important here because we always focus on China, but actually Japan,
Speaker 9: which is which is the largest holder of US treasuries
Speaker 9: outside the US, and over the next few months, at
Speaker 9: some point the Japan's Central Bank is going to tight
Speaker 9: begin tightening monetary policy, at which point we will see
Speaker 9: a reduction in the month for US treasuries. All of
Speaker 9: this is additional pressure on yields.
Speaker 2: At what point do we run out of the so
Speaker 2: called excess savings.
Speaker 7: Well, David, I think the San Francisco Fed put on
Speaker 7: an excellent paperless week predicting that we may be seeing
Speaker 7: the end of that. And you had a great intro
Speaker 7: where he said the US consumer is strong for now.
Speaker 7: So I'm starting to see little cracks, little signs of worry.
Speaker 10: For me.
Speaker 7: Art Desk uncovered the US credit card applications literally fell
Speaker 7: off the shelf. And that doesn't importend that people won't
Speaker 7: increase and start to borrow, But I'm worried the consumer
Speaker 7: is going to run our money. I think the San
Speaker 7: Francisco Fed really is spot on.
Speaker 1: If the consumer slows.
Speaker 7: Down, then we're going to see the impact of these
Speaker 7: higher interest rates twenty two year highs in mortgages and rates.
Speaker 7: That's got to hurt, and then we may actually finally
Speaker 7: see this recession that I've been predicting.
Speaker 1: For over a year.
Speaker 2: Chanea, as I say, your CEO for fixed income at
Speaker 2: Franklin Tembla. But you watch the equity market. What about
Speaker 2: the valuations right now? Because I looked at it today
Speaker 2: on the Bloomberg we're over twenty times earnings in the
Speaker 2: price for the SPA five hundred. Can we keep that up?
Speaker 9: Okay, I'm going to I'm going to be very careful
Speaker 9: here because definitely I'm more fixing than on the equity
Speaker 9: side of things. But I do think on the fixed
Speaker 9: income side we have finally seen some acceptance that higher
Speaker 9: yields are coming. On the equity side, I think where
Speaker 9: at the beginning of this process. I think, again, in
Speaker 9: your intro, you mentioned that higher yields are going to
Speaker 9: have an impact on the equity market, and I do
Speaker 9: think those yields are higher, and more importantly, they're probably
Speaker 9: higher for a while to stay. And you know something
Speaker 9: that Chris mentioned the strength of the US consumer said,
Speaker 9: I think actually the US consumer probably is going to
Speaker 9: start weakening from a very strong point. And while the
Speaker 9: consumer might be beginning to run out of pandemic era
Speaker 9: savings from a debt perspective, in real terms, the consumers
Speaker 9: actually in pretty good shape. In real terms, the US
Speaker 9: consumer can actually borrow a bit more and still look
Speaker 9: pretty healthy.
Speaker 2: The last time on this, Chris, as we look at
Speaker 2: the GDP esmens, for example, Atlanta GPGP now is way
Speaker 2: up there at five point seven something like that, and
Speaker 2: a lot of people are taking their estimates is that
Speaker 2: there's the economy strong enough to keep going.
Speaker 7: Well, David, the Elves pointed out they're expecting a lower market,
Speaker 7: and I think they're spot on. I think that's a
Speaker 7: great indicator for people that people look ahead and you
Speaker 7: hit it right on the nail. Price earnings ratio is
Speaker 7: really set for expectations in higher levels and I don't
Speaker 7: know those earnings. While we've done okay in this earnings period.
Speaker 7: Everybody who's warning that the future earnings are too difficult
Speaker 7: and that may be a problem in that pe ratio,
Speaker 7: that the earnings falter and that means the price has
Speaker 7: to come down and the Elves will.
Speaker 2: Be right okay, Well, that's always good for the Elves.
Speaker 2: Thank you very much for getting it started. As channel
Speaker 2: the SI of Franklin Templeton and Chris Aylman of Kelster's
Speaker 2: coming up to the yield of the tenure seem to
Speaker 2: settle in well above four percent. This week, we ask
Speaker 2: contributors Larry Sawers of Harvard and Steve Ratner Will Advisors,
Speaker 2: where the tenure wants to go and what that means
Speaker 2: for investors. 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: This is Wall Street Week. I'm David Weston. The yield
Speaker 2: on the US tenure government bond this week broke solidly
Speaker 2: through four percent, something it had flirted with last October
Speaker 2: and then again briefly in early July. To consider what
Speaker 2: this might tell us about the state of the US
Speaker 2: economy and what it means for investors. Welcome back now
Speaker 2: special contributor Larry Summers of Harvard, and we're joined as
Speaker 2: well by Steve Rattner, Chairman and CEO of Willed Advisors,
Speaker 2: which manages the philanthropic and personal funds of Michael Bloomberg.
Speaker 2: He is, of course our founder and majority shareholder. So Larry,
Speaker 2: thank you so much for joining us. First of all,
Speaker 2: let's start with what the ten year may be telling us,
Speaker 2: or not tell us, about the economy overall, particularly where
Speaker 2: inflation is and where the economic growth is.
Speaker 4: Look, David, I've been predicting that rates would eyes for
Speaker 4: quite some time. The ten years got three pieces. It
Speaker 4: depends upon expected inflation, It depends upon the real interest rate,
Speaker 4: and it depends upon the term premium of the amount
Speaker 4: that the ten year rate is more.
Speaker 1: Than expected future short rates.
Speaker 4: If I take those three pieces, inflation may come down.
Speaker 4: But I think most people would be quite surprised if
Speaker 4: it was as low steadily as two percent over the
Speaker 4: next decade. So let's assume that inflation averages two and
Speaker 4: a half percent.
Speaker 1: I think that's conservative.
Speaker 4: We don't know what's going to happen to the real
Speaker 4: interest straight, but we know that budget deficits look to
Speaker 4: be very large. Perhaps the budget deficit, according to CBO,
Speaker 4: will get to seven percent by the end of the decade.
Speaker 4: And I think on more realistic assumptions that assume that
Speaker 4: some of the Trump tax cuts are preserved, assume that
Speaker 4: we have to expand national security spending, and make realistic
Speaker 4: assumptions about the servicing of the debt. The CBO thinks
Speaker 4: it's going to cost two point three percent for short
Speaker 4: term treasury bills. I think you put all of that
Speaker 4: together and you're looking at a real.
Speaker 1: Interest rate of one and a half to two percent.
Speaker 4: And then you look at the fact that the FED
Speaker 4: is selling down its portfolio. You look at the fact
Speaker 4: that the financial regulators trying to avoid SVB situations, are
Speaker 4: making it harder for banks and other financial institutions to
Speaker 4: buy long term bonds, and term premiums usually are seventy
Speaker 4: five to one hundred basis points. So if you take
Speaker 4: two and a half and for inflation, you take one
Speaker 4: and a half, which isn't especially aggressive for real rates,
Speaker 4: and you take seventy five basis points, which is lower
Speaker 4: than history for term premiums, you're looking at for seventy
Speaker 4: five on the ten year, and it obviously could end
Speaker 4: up being higher than that. So nobody knows, but it
Speaker 4: seems to me we're in a very different era than
Speaker 4: the era we were in in the aftermath of the
Speaker 4: financial crisis.
Speaker 2: So, stee, if does that make sense to you as
Speaker 2: an investor? And perhaps even more important, let's assume that's right.
Speaker 2: Let's assume you knew today it was going to be
Speaker 2: four point seventy five over the medium longer term. What
Speaker 2: does that do to your investments?
Speaker 5: Well, first of all, I think everything Larry said made
Speaker 5: good sense to me, and I think he's probably right
Speaker 5: and certainly very clear and logically a logical think about it.
Speaker 10: Look, from the standpoint of an.
Speaker 5: Investor, it's always a question of what does the market think,
Speaker 5: and do you have a differentiated view of that? And
Speaker 5: if you have a different view than the market, then
Speaker 5: you can obviously proceed on that basis, and if you don't,
Speaker 5: you go where you're going to go. So what is
Speaker 5: the market saying right now? The market looks more at
Speaker 5: the Fed. So let's talk, if we could, about the
Speaker 5: Fed fed funds rate. So the market basically at the
Speaker 5: moment is predicting one more hike in November and then
Speaker 5: a cut in rates next year down I think about
Speaker 5: four and a quarter percent on the This is on
Speaker 5: the short end of the curve.
Speaker 10: And why does the market think we're going to get there?
Speaker 5: Because the market thinks we're going to have a soft
Speaker 5: landing basically, and the market thinks that inflation is going
Speaker 5: to come down to this two two and a half
Speaker 5: percent range. The Fed is going to kind of say, okay,
Speaker 5: and we can now start to cut rates. And if
Speaker 5: you basically cut rates, if you basically assume inflation is
Speaker 5: going to be in this two and a half percent
Speaker 5: range and you take one or one and a half
Speaker 5: percent for real rates, then obviously the Fed fund's a
Speaker 5: rate could come down a good bit.
Speaker 10: So that's how the market is about right now.
Speaker 5: Now, it'd be interesting to hear what Larry has to
Speaker 5: say about that, because if you have a different view
Speaker 5: than that, then you could be a more pessimistic view,
Speaker 5: which I would have, and be interested in Larry's view
Speaker 5: that the Fed is not going to be able to
Speaker 5: cut rates that fast, inflation is not going to come
Speaker 5: down that fast. That I think we're in a little
Speaker 5: bit of a Goldilocks moment. Everybody's feeling great about things,
Speaker 5: but I think there's still a lot to worry about
Speaker 5: on the inflation side. Then you'd have to be reasonably
Speaker 5: pessimistic about the market once it wakes up and realizes
Speaker 5: that we're not going to have.
Speaker 10: A four and a quarter percent rate.
Speaker 5: Now, there's one other way to get to that, which
Speaker 5: is even worse, which is if we have a recession
Speaker 5: and the FED starts to cut rates simply to deal
Speaker 5: with the recession, and there is.
Speaker 10: Pressure on earnings.
Speaker 5: As you probably know, forecasts, fors and peer earnings for
Speaker 5: next year have been coming down. Market has not reacted
Speaker 5: to that in a major way. But that's the other thing,
Speaker 5: obviously that the market will be watching.
Speaker 2: So Larry see's interested. So am I what your reaction
Speaker 2: is both on the question about the raid cuts next year,
Speaker 2: but also on the recession, because in the past you
Speaker 2: have said fifty or more chance of recession. A lot
Speaker 2: of a kinders have backed off of that. Bank of
Speaker 2: America has apparently the staff of the FED is back
Speaker 2: to other Now we're in you today in a recession.
Speaker 4: So in general, Steve and I are in raging agreement. Look,
Speaker 4: there's no question that the economy has come in stronger
Speaker 4: than almost anybody would have expected over the last few months,
Speaker 4: and despite that, the inflation figures have been relatively favorable.
Speaker 4: And those are the realities, and the question is how
Speaker 4: one processes those realities. My guess is that the economy
Speaker 4: will stay strong for at least a little while from here.
Speaker 4: I'd be very surprised now if a recession started during
Speaker 4: twenty twenty three. I'm not as confident looking out a
Speaker 4: longer distance as many other people are, in part because
Speaker 4: I think the Fed's going to feel pressure to continue
Speaker 4: to tighten, and I think there are a range of
Speaker 4: factors from gasoline prices to healthcare, from continuing labor shortages
Speaker 4: in many places to what's happening in the service sector
Speaker 4: where you're going to see continuing inflation pressures. So I
Speaker 4: still think there's a good chance of a recession in
Speaker 4: twenty in twenty twenty four. If we don't get that recession,
Speaker 4: I think it's much more likely that the Fed's going
Speaker 4: to feel pressure to raise rates faster than is now
Speaker 4: priced in than it is that the FED is going
Speaker 4: to feel pressure to cut rates faster than is now
Speaker 4: priced in, and that will in general tend to push
Speaker 4: rates up outside of the curve. I also think that
Speaker 4: while I don't think the budget deficit is the central
Speaker 4: factor for rates in the short run, I think increasingly
Speaker 4: projected deficits are going to come into focus and that
Speaker 4: is going to be a matter of concern for longer
Speaker 4: term rates.
Speaker 1: And that's part of why I.
Speaker 4: Don't particularly see the current level of longer term rates
Speaker 4: as any kind of peak.
Speaker 2: Okay, Larry Summers and Steve Randner will be staying with
Speaker 2: us because next we're gonna turn to the other big
Speaker 2: story of the week for Global Wall Street. That's China's
Speaker 2: economic struggles. That's coming up next down Wall Street Week
Speaker 2: on Bloomberg.
Speaker 3: This is Bloomberg Wall Street Week with David Weston from
Speaker 3: Bloomberg Rado.
Speaker 2: This is Wall three week. I'm David Weston. China had
Speaker 2: a rough week economically, reporting weaker retail sales and industrial production,
Speaker 2: and continued problems with its property market. Larry Summers and
Speaker 2: Steve Radner have remained with us for their read on
Speaker 2: what's going on in China. Learned me start with you.
Speaker 2: In the past, you have expressed at least some skepticism
Speaker 2: about those who said that this is just going to
Speaker 2: keep going. The juggernaut that is the Chinese economy. It
Speaker 2: may have some problems. They are what we're seeing what
Speaker 2: you predicted, or is even worse than what you thought.
Speaker 4: I try to avoid baking near term predictions, but I
Speaker 4: fought for a number of years that the Chinese juggernaut
Speaker 4: was going to slow. Juggernauts usually do in economics. Classic
Speaker 4: examples were Russia in nineteen sixty when it was seen
Speaker 4: as is going to surpass us in nineteen eighty, or
Speaker 4: Japan in nineteen ninety when people expected that it was
Speaker 4: going to surpass us. So it's a pretty good rule
Speaker 4: that when American high school kids rushed to study a
Speaker 4: foreign language, that's about when the country's economy is peaking.
Speaker 4: So you've got that, then you have a variety of
Speaker 4: near term challenges the kind you just referred to. Financial
Speaker 4: strains in China coming from excessive reliance on real estate
Speaker 4: and the drying up of export markets. Then you've got
Speaker 4: some fairly profound adverse fundamentals for China. The fact that
Speaker 4: Chinese parents had only half as many kids last year
Speaker 4: as they did six years ago. The fact that there's
Speaker 4: large amounts of people with money in China who are very,
Speaker 4: very eager to get it out, which is always a
Speaker 4: sign of impending difficulty in emerging markets. So I would
Speaker 4: not be confident at a wall that China will be
Speaker 4: a faster than average growing major economy over the next decade.
Speaker 4: And that's obviously a big difference from the world we've
Speaker 4: been living with for the last forty years.
Speaker 2: So just a personal notes, Steve, let the record reflect
Speaker 2: that Larry's right in his rule. Thlumb I studied Russian
Speaker 2: and high school in the nineteen sixties, So certainly here's
Speaker 2: one anecdote that's aborts you, Larry. So you've an investor
Speaker 2: in China, you spent a lot of time there where
Speaker 2: they're fairly recently, Actually, what do you make of what
Speaker 2: we're seeing right now.
Speaker 5: Well, first of all, look, I have been more optimistic
Speaker 5: about China in the past, and I will say that
Speaker 5: I have recalibrated my views. I mean, it's definitely going
Speaker 5: through a tough period. I don't think I'm as pessimistic
Speaker 5: as Larry is. I would just mention, for example, that
Speaker 5: they may not make their five percent GDP growth number
Speaker 5: this year. Maybe it'll be four, maybe it'll be four
Speaker 5: and a half. It'll still be probably twice what ours is.
Speaker 5: So I don't think we can yet sort of wipe
Speaker 5: China off the blackboard. But look, they have a lot
Speaker 5: of problems, and I would put them in a couple
Speaker 5: of buckets. One, it was clear on my trip there
Speaker 5: that the sanctions that we've imposed and the whole deglobalization
Speaker 5: phenomenon and the fact that business feels that they have
Speaker 5: to be more careful about their supply lines has taken
Speaker 5: a toll and it's definitely affected their exports and their
Speaker 5: general mentality and their business.
Speaker 10: The second big problem they have is.
Speaker 5: Gi who has reasserted its control over the economy, who
Speaker 5: many of our investors that we talk to their field
Speaker 5: doesn't even understand economics and you can buy their policy
Speaker 5: actions so far, I think you'd probably agree with that.
Speaker 5: And so you've got really bad government policy on top
Speaker 5: of a bunch of difficulties, whether it's the property sector,
Speaker 5: whether it's export exports.
Speaker 10: Whether it's whatever.
Speaker 5: But I would say I'm not completely going to write
Speaker 5: China off because I think you have to recognize that
Speaker 5: you do have a lot of tools. For example, everybody
Speaker 5: talks about their debt, nobody talks about their assets. The
Speaker 5: IMF just came out with a paper in the last
Speaker 5: few days that basically tried to look at the balance
Speaker 5: sheet assets and liabilities of the Chinese government, and while
Speaker 5: their net assets have been coming down, they're still substantially positive.
Speaker 5: I think if he went through the same exercise for
Speaker 5: the US, you'd find a different result. Their central government
Speaker 5: debt to GDP is only about thirty percent. They have
Speaker 5: plenty of scope to do something on the fiscal side
Speaker 5: to both stimulate the economy as well as solve some
Speaker 5: of the problems that the provincial governments do have with debt,
Speaker 5: which are very meaningful.
Speaker 2: So Larry typically on one thing that Steve said there,
Speaker 2: if President g is part of the problem, could he
Speaker 2: be part of the solution, And I guess that's a
Speaker 2: way of asking, are there things he could do? We
Speaker 2: saw some actions even this week where we try to
Speaker 2: put some more money into the economy, although it's not
Speaker 2: clear that the consumers have enough confidence to start spending it.
Speaker 2: But are there things the prison g could do or
Speaker 2: what we're seeing larger structural factors that you suggested that
Speaker 2: are outside of his control.
Speaker 1: I think it's a combination of both. I think, by
Speaker 1: the way, there are a.
Speaker 4: Lot of questions about Chinese economic statistics. We talk about
Speaker 4: smooth earnings of US corporations, I would politely suggest that
Speaker 4: that is as nothing compared to a fair amount of
Speaker 4: what goes on in Chinese statistical reporting. I thought it
Speaker 4: was interesting this week when the Chinese authorities, who had
Speaker 4: been facing really very grave youth unemployment figures, announced that
Speaker 4: you though unemployment figures weren't going to be published anymore.
Speaker 1: Going forward.
Speaker 4: So I think there are a lot of questions about
Speaker 4: what the real growth rate is. Beyond that, there are
Speaker 4: obviously things that China could do that would substantially stimulate demand.
Speaker 4: But here's the core problem, or a core problem. There's
Speaker 4: a basic tension between the politics and the economics in
Speaker 4: Chinese political economy is ConTroll going to rest with one
Speaker 4: hundred million people who are members of the party or
Speaker 4: the one point two billion Chinese citizens who are not
Speaker 4: members of the party. The expansionary fiscal policy consumption led
Speaker 4: growth agenda is basically an agenda of spreading money all
Speaker 4: over the place and shifting it from the control of
Speaker 4: the Communist Party to the control of regular people who
Speaker 4: aren't part of the Communist Party.
Speaker 2: Steve Larry makes an important point that I've always wondered
Speaker 2: about as an investment in China, how do you trust
Speaker 2: the numbers? I mean, Larry points out that they've decided
Speaker 2: they're not going to report the use of their employment
Speaker 2: because it was over twenty percent. It's not a good number.
Speaker 2: So how do you have confidence in the numbers as
Speaker 2: an investor.
Speaker 5: Well, remember there's a difference between not reporting a number
Speaker 5: and making up a number.
Speaker 10: And I don't.
Speaker 5: Disagree with Larry about the statistics that they may be managed,
Speaker 5: but I would just make that distinction. They were reporting,
Speaker 5: you thounemployment numbers. They were huge numbers, so they decided
Speaker 5: not to report them anymore.
Speaker 10: But the macro.
Speaker 5: Statistics are just a piece of what we think about
Speaker 5: when we invest there. We're investing in companies or in
Speaker 5: managers who are investing in companies, and the question is
Speaker 5: one of the prospects of the companies, and obviously the
Speaker 5: fundamentals of the country do relate to that, but that's
Speaker 5: not the only piece.
Speaker 10: Of how we go about investing.
Speaker 5: But I would say just a couple of things about
Speaker 5: Larry said, and I don't disagree again with well, we
Speaker 5: might disagree a little bit about this. Look, I think
Speaker 5: fundamentally the deal between the Chinese government and the people
Speaker 5: has always been we're going to make you rich and
Speaker 5: let us control. And you know, you're not going to
Speaker 5: have free speech, you're not going to have this, you're
Speaker 5: not going to have that, but you're going to get
Speaker 5: into the middle class and so forth.
Speaker 2: Larry, if China continues to struggle economically the way they have,
Speaker 2: and Steve points out they're still growing more than we are,
Speaker 2: but still struggle compared to where they were, is that
Speaker 2: good for the United States and the rest of the world,
Speaker 2: or is it bad? Do we need a strong China
Speaker 2: economically or a weak one.
Speaker 1: It's two edged.
Speaker 4: It's good when your customer prospers, and it's bad when
Speaker 4: your competitor gets hyper efficient.
Speaker 1: So it's a two edge thing.
Speaker 4: I am concerned that we will become the object of
Speaker 4: China's frustration and that will tempt them to.
Speaker 1: Lash out. I think we need to be very careful
Speaker 1: in our approach to.
Speaker 4: China at a moment of this kind of difficult and
Speaker 4: we need to be more attentive than I think some
Speaker 4: of the policy advocates in Washington are to avoiding a
Speaker 4: situation where we terrify China with the potential economic damage
Speaker 4: that we're going to do to them.
Speaker 2: Thank you so much to both of you for joining
Speaker 2: us on Wall Street Reef. That's Larry Summers of Harvard
Speaker 2: and Steve Radder of Willet Advisors colling up, bringing puppies
Speaker 2: into the fight against inflation. That's next on Wall Street Reef.
Speaker 3: On Bloomble this is Bloomberg Well Street Week with David
Speaker 3: Weston from Bloomberg.
Speaker 2: Radio Activist Investing. For years, it was all the rage
Speaker 2: for those trying to shake up companies and get some alpha.
Speaker 11: As we see companies that we think were once great
Speaker 11: have lost their way, and that we have a plan
Speaker 11: for them to get back to greatness. We're not there
Speaker 11: to leverage up these companies. We're not there to split
Speaker 11: them up. We're not there to do all the terrible
Speaker 11: things that typically go along with the term activist.
Speaker 2: But the dramatic rise in interest rates put a damper
Speaker 2: on mergers.
Speaker 10: Fourth quarter of twenty two, you had nothing.
Speaker 7: Today, you actually have the markets loosening out for the
Speaker 7: right deals.
Speaker 2: And the cooling of the M and A market took
Speaker 2: its toll on activist investing as well as recognized by
Speaker 2: practitioners like Carson.
Speaker 12: Block, last year was probably the worst year in terms
Speaker 12: of the alpha generated by activist shorts since the global
Speaker 12: financial crisis.
Speaker 2: But that would surprise.
Speaker 12: People because it's a year in which the S and
Speaker 12: P five hundred declined.
Speaker 2: So activist investing maybe it's something of a crossroads, with
Speaker 2: some seeing it as becoming more mainstream activist short selling.
Speaker 10: It has become very mainstream.
Speaker 7: What I started in the industry for like twenty three
Speaker 7: years ago is quite unique, and right now, if you
Speaker 7: don't have an opinion on a stockey, you don't publish
Speaker 7: your opinion.
Speaker 10: That's even more unique.
Speaker 2: While others like Jennifer Grancio of Engine Number one see
Speaker 2: it as integral to affecting basic change. As in the
Speaker 2: approach to climate.
Speaker 13: We think of ourselves as performance firm, and so the
Speaker 13: next leg of decarbonization includes how to energy companies change,
Speaker 13: how to auto companies change. Exon wasn't performing in a
Speaker 13: way it should have been performing. We took advantage of that.
Speaker 2: Finally, one more thought, having your cake and eating it too,
Speaker 2: isn't that what we all really want out of life?
Speaker 2: None of us wants to choose between grace Kelly on
Speaker 2: the one hand, and facing our sworn duty to stand
Speaker 2: up to the bad guys on the other.
Speaker 1: I mean, if you won't go with me now, I'll
Speaker 1: be on that train.
Speaker 5: When it leaves here.
Speaker 1: I've got to stay.
Speaker 2: Or giving up a star and professional basketball player in
Speaker 2: order to pursue a championship team.
Speaker 4: Yeah. The toughest thing of this in sports is, you know,
Speaker 4: we all love market smart, but the goal in Boston
Speaker 4: is to win championships, and to do that you have
Speaker 4: to put the best team out there you possibly can.
Speaker 2: And for the last seventeen months, we've all been hoping
Speaker 2: we can avoid another Hobson's choice, that we can have
Speaker 2: our cake of a strong economy and eat into inflation
Speaker 2: at the same time. As of today, it looks like
Speaker 2: we just may pull it off, as inflation has come down,
Speaker 2: even if not yet as much as we would like.
Speaker 1: Right now, inflation is coming down. We've made some progress,
Speaker 1: some good progress.
Speaker 2: I feel good about that.
Speaker 10: It's still too high.
Speaker 2: And even though some continue to warn it may bounce
Speaker 2: back up again.
Speaker 8: If you think that there is a risk that the
Speaker 8: FED is kind of patting itself on the back by
Speaker 8: the end of the year, only to watch inflation potentially
Speaker 8: turn back up, you know sometime next year.
Speaker 2: This week marks one year since the Biden administration's efforts
Speaker 2: to help the FED in the inflation fight with something
Speaker 2: called the Inflation Reduction Act.
Speaker 9: And the bill, as amended is pasted as in.
Speaker 2: Biden now questions the choice of the name, but it
Speaker 2: wasn't simply cynical. Senator Joe Manchin insists that the Act
Speaker 2: would help keep inflation down because.
Speaker 14: On top of that, we did THERA. Now, the IRA
Speaker 14: was done just through reconciliation, which is Democrats only. But
Speaker 14: I can assure you because I worked with everybody for
Speaker 14: the last five years. I've been working with my Republican
Speaker 14: friends and said, hey, Joe, we need more energy. I agree,
Speaker 14: we need to put more product in the market. We
Speaker 14: need to basically pay down our debt. I agree.
Speaker 2: The jury is still out and the full effects of
Speaker 2: the IRA. As pimco's Libby Cantrell reminds us, there's more
Speaker 2: yet to come.
Speaker 9: A lot of this was signed into to law last year.
Speaker 10: Many ways, I think for folks this seems like it's.
Speaker 13: In the rear view mirror, But just knowing how Washington works,
Speaker 13: actually there's a lot of fiscal in the pipeline.
Speaker 2: But we learned this week that there may just be
Speaker 2: another way to fight higher prices. It comes to us
Speaker 2: from England, which, to be sure, is having its own
Speaker 2: battle with high costs, as the UK CPI was up
Speaker 2: this week another six point eight percent, but as much
Speaker 2: trouble as they are having over in England with prices overall.
Speaker 2: The UK site Pets for Homes reports that the prices
Speaker 2: of cute little puppies are almost flat, apparently because people
Speaker 2: don't need canine companionship quite as much as they did
Speaker 2: during the pandemic. So if that Inflation Reduction Act doesn't
Speaker 2: work out quite as planned, maybe Congress could just consider
Speaker 2: legislating more puppies.
Speaker 6: Sometimes helping others the sure ast way to help yourself.
Speaker 2: We can never have enough puppies, right. That does it
Speaker 2: for this episode of WATT, I'm David Weston. This is Bloomberg.
Speaker 2: See you next week.