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Speaker 1: This is Bloomberg Wall Street Week. We turn our attention

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Speaker 1: to the markets this week. Us CPI never's reinforcing concerns

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Speaker 1: about inflation. The financial stories that cheap are worth a

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Speaker 1: really different reaction to mark its more indications of just

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Speaker 1: how hot the U. S economy really is. Through the

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Speaker 1: eyes of the most influential voices. Larry Summers, the former

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Speaker 1: Treatory Secretary, Katherine Keening, CEO of v n Y mom

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Speaker 1: Sam's l Sharmon and founder of Equatic Group Investment in

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Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.

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Speaker 1: This week, I'm Wall Street Week Raging inflation, the president

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Speaker 1: and international diplomacy and a surging US dollar. There's a

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Speaker 1: lot going on. You have a host of global issues,

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Speaker 1: energy crisis, massive by vergence, and monetary policy. Special contributor

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Speaker 1: Lawrence Summers on what the Fed can do from here.

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Speaker 1: We are asking for our central banks to analyze the

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Speaker 1: economy accurately. And Rockefeller Capital Management CEO Greg Fleming on

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Speaker 1: what asset managers are looking for in this rough climate.

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Speaker 1: This is Wall Street Week. Ye. The June inflation report

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Speaker 1: came in red hot, fueling talk of yet another seventy

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Speaker 1: basis point rate hike or even basis points. Certainly, the

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Speaker 1: inflation report suggests that there's no reason to say that

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Speaker 1: a smaller rate increase some we did last time. I

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Speaker 1: fully support another seventy five basis point increase. However, my

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Speaker 1: base case for July depends on incoming data. If that

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Speaker 1: data come in materially stronger than expected, you would make

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Speaker 1: me lean towards a larger hike. At the July meeting,

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Speaker 1: as President Biden wraps up a trip to the Middle

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Speaker 1: East in hopes of gaining assistance from Saudi Arabia in

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Speaker 1: lower and gasoline prices, we had a good discussion on

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Speaker 1: in shuring global energy security and adequate oil supplies. And

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Speaker 1: I'm doing all I can to increase the supply for

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Speaker 1: the United States of America, which I expect to have

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Speaker 1: and underscoring a summer of volatility, the Euro plunged below parody,

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Speaker 1: something that hasn't happened in two decades. Tweet of the

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Speaker 1: morning from Sam Rogue on you rodala out on Twitzer

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Speaker 1: leaks a big win for travelers who are terrible at maths.

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Speaker 1: Tax that's pretty, that's pretty. How do you start our package? There?

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Speaker 1: And ended with John Farrell. I don't know who made

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Speaker 1: that decision, but we say welcome to you. I'm Tom

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Speaker 1: Keene alongside Lisa Bramwoos. We are not David Weston, but

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Speaker 1: we've had so much funnier on a Friday to bring

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Speaker 1: you Wall Street Week on Friday and of course into

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Speaker 1: the weekend right now. It is a joy to go

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Speaker 1: into the trenches on Wall Street week of strategists and

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Speaker 1: thinkers on Wall Street adjusting in real time. Laurie Calvacina

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Speaker 1: is to the RBC Capital Markets. She is exquisite as

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Speaker 1: small caps in mid caps and also the gyrations of

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Speaker 1: the market. A lot of good work they're bouncing off

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Speaker 1: the work in economics of Tom Porcelli. David Bianco is

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Speaker 1: an institution far too young for the years on Wall

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Speaker 1: Street at Deutsche Bank and now a DWS Group America

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Speaker 1: is so valuable. I think they walked out the door

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Speaker 1: and they brought him back a second time. Two of you,

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Speaker 1: thrilled to have you on what is absolutely an hoddest

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Speaker 1: week in years. LORI were equities removed from the turmoil

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Speaker 1: and the other asset classes, I think they were a

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Speaker 1: little bit this week, but frankly I think they deserved

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Speaker 1: a bit of a break after the year that we've had.

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Speaker 1: In the past couple of months that we've had um

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Speaker 1: and look, I think investors on the equity side, we're

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Speaker 1: also gearing up for earnings, and we were in a

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Speaker 1: little bit of a holding pattern til we got to

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Speaker 1: the end of the week. And financials, I mean there,

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Speaker 1: there's definitely interesting moves and financials today once we finally

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Speaker 1: got through the kind of basic age this morning. David

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Speaker 1: Biaco helped me there because in your research, you know,

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Speaker 1: you say the banks are of interest, but the banks

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Speaker 1: are all varied. Which kind of bank is where investments

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Speaker 1: should be to the big banks, the ones that have

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Speaker 1: sticky deposit bases, the ones that will benefit from the

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Speaker 1: FED hiking and the continued FED hiking. So it's not

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Speaker 1: comfortable to own banks if we're perhaps heading into a recession.

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Speaker 1: But even if we do ever recession, this is not

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Speaker 1: going to be a deflationary type of financial crisis. I

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Speaker 1: think that the credit costs will be well behaved and

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Speaker 1: the banks will do found how much our financials an

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Speaker 1: idiosyncratic story versus a story of macro economic strength, really,

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Speaker 1: because that really was the feeling when JP Morgan came

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Speaker 1: out and over time it became something different. Well, it's

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Speaker 1: a good question, and I do think when you have

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Speaker 1: it's heart, financials are always a macro story. It's very

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Speaker 1: difficult for financials not to be uh sensitive to the

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Speaker 1: macro and purely idiosyncratic. However, what's happening in the macro

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Speaker 1: situation right now is is inflation and the FED hiking.

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Speaker 1: So who's the only beneficiary of interest rates going up?

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Speaker 1: It's banks. Everybody else is worried about that, not just

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Speaker 1: in terms of slowing economy and earn ings and pe pressure,

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Speaker 1: but banks benefit at least with higher earnings from higher

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Speaker 1: interest rates. So, given that backdrop, Laurie, and given the

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Speaker 1: fact that you said that really stocks were somewhat immune

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Speaker 1: to the volatility we were seeing in other asset classes,

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Speaker 1: what are we pricing in? Is there a disconnect right

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Speaker 1: now between the asset classes with stocks painting a much

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Speaker 1: more sanguine picture. Look, stocks are pricing in a recession

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Speaker 1: at this point in time. I mean, we've we've moved

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Speaker 1: beyond kind of growth scare territory, which is where we

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Speaker 1: were for the first part of the year, and now

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Speaker 1: we've been down around from the peak or so, and

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Speaker 1: your typical recession draw down on a median basis is seven.

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Speaker 1: Your average draw down is thirty two. So we're kind

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Speaker 1: of pricing in that short shallow recession scenario. We're not

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Speaker 1: typing pricing in a typical recession, we're not pricing in

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Speaker 1: a severe one, we're not pricing in an extended one.

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Speaker 1: But I think the good news if we do have

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Speaker 1: that short shallow recession on the back half of the year,

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Speaker 1: baquity market got a lot of that damage out of

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Speaker 1: the way early. Well, I'll join a Friday evening and

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Speaker 1: end of the weekend as we get to continue with

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Speaker 1: Lorie Calvacina and David Bianco as well. Again, we've got

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Speaker 1: so much to talk about here over the R I

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Speaker 1: can't say enough about the importance of speaking with Gregory Fleming,

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Speaker 1: as we will hear in a bit and again Professor

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Speaker 1: Summers was immensely pressient today on some of the images back.

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Speaker 1: He says, maybe panic lessons much it'll be interesting. Yeah,

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Speaker 1: and that's certainly a theme as we try to chart

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Speaker 1: a path. What did we say this week that it's

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Speaker 1: not necessarily the question of whether we get a recession

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Speaker 1: but the path to get there and the path out

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Speaker 1: of it to get back to that two inflation. Right.

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Speaker 1: We've got much more of that coming up after the break. Ye.

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Speaker 1: This is Bloomberg Wall Street Week with David Weston from

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Speaker 1: Bloomberg Radio. The good economic news today was that the

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Speaker 1: US unemployment rate fell to its lowest level in nearly

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Speaker 1: four years, five point seven percent. And for anyone who

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Speaker 1: still hasn't got the message that inflation is the big problem,

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Speaker 1: the index of wholesale prices took its second straight seven

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Speaker 1: tenths of a point monthly jump. The great Lewis Rukeyser

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Speaker 1: show Me Wall Street Week from Sticky show Room. I

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Speaker 1: think that was a great moment of of what Mr

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Speaker 1: rud Kaiser did here, and it speaks to and Lisa Ramo.

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Speaker 1: It's not of Bob Seeger or the moment, but it was,

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Speaker 1: and I'm sure lou would agree it was the dismal seventies.

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Speaker 1: This is not the dismal two thousand twenties. But this

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Speaker 1: week we got a number that was close with the

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Speaker 1: nine point inflation, shocking markets, and we cannot avoid the

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Speaker 1: rhyming aspect of that, even if this isn't and one

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Speaker 1: of the things under the radar this week, folks. So

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Speaker 1: important is compare contrast of Jerome Powell with Paul Boker.

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Speaker 1: I got some major heat from Wall Street pros. Maybe

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Speaker 1: lose that tone and just start looking at where we

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Speaker 1: are right now. Where we are is with Lori Calvacina

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Speaker 1: and David Bianco with RBC Capital Markets in DWS thrilled

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Speaker 1: they could start us out here on the state of

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Speaker 1: where Wall Street is right now. Laura, I'm gonna go

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Speaker 1: to you because you are exquisite. It's something no one

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Speaker 1: talks about anymore, not the red Sox, Meddal relief, but

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Speaker 1: small cap stocks. And the answer is small cap stocks

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Speaker 1: do nothing and then about every nine years boom. Are

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Speaker 1: we close to the small cap boom? And why small

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Speaker 1: caps are in a holding pattern right now versus large

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Speaker 1: cap I think they're waiting for their moments like what

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Speaker 1: seven years Well, they actually have had a terrible last

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Speaker 1: year and a half and actually they've been bad for

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Speaker 1: quite some time. Um. But I think really around was

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Speaker 1: kind of the last moment in the sun that we

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Speaker 1: had there. Um. But look, I think small caps are

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Speaker 1: telling you that this is a market that wants to

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Speaker 1: start bottom fishing where people are starting to look for

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Speaker 1: things that have been de risked. And when I talked

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Speaker 1: to investors about areas of the market risk, small cap

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Speaker 1: is the number one thing that looks like. But are

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Speaker 1: they small cap because their zombie companies or because their

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Speaker 1: managements do not merge into mid cap size? What's the

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Speaker 1: what's the the pixie dust of why they underperformed. There's

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Speaker 1: a few different there's a few different versions of it.

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Speaker 1: There are the younger growth companies, they're still up and coming.

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Speaker 1: There's some that have been older and fallen on harder times.

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Speaker 1: And then there there are others they're simply a little

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Speaker 1: too niche and haven't gotten scooped up yet. So there's

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Speaker 1: a big variety in there, David. A lot of this

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Speaker 1: hinges on inflation getting back to two percent, as so

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Speaker 1: many people believe. And this is the distinction people are

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Speaker 1: drawing from the terrible seventies saying this is different and

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Speaker 1: it is less entrenched than some people fear. What is

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Speaker 1: the risk that that's not the case or is it

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Speaker 1: a screamingly obvious argument that the Fed will get things

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Speaker 1: back to where they wanted. The FED will do everything

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Speaker 1: it can do, but it may have a bitter medicine

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Speaker 1: for for the economy. So I do think it's instructive

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Speaker 1: to look at the nineteen seventies and and try not

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Speaker 1: to repeat those mistakes. It's early in the um. From

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Speaker 1: nineteen seventy nine, real GDP growth was five percent plus,

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Speaker 1: so real growth is not going to be that strong

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Speaker 1: in the United States. It's really important that inflation does

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Speaker 1: work its way back to the Fed's target of close

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Speaker 1: to two percent. That's going to require the FED doing

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Speaker 1: its job, fiscal discipline, and most importantly are renaissance once again.

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Speaker 1: Like in the early nineteen eighties of the supply side.

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Speaker 1: Reaganomics combined with Folkers monetary medicine is what laid the

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Speaker 1: seed for very good eighties and nineties and thereafter. So

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Speaker 1: we need to learn the lessons of the seventies and

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Speaker 1: not repeat the mistakes. Meanwhile, as people do bottom fish,

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Speaker 1: and Laurie says, there's evidence on the small caps, how

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Speaker 1: much are bonds participating in this? Has the stability in

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Speaker 1: longer duration bonds provided a template for that bottom fishing.

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Speaker 1: For that comfort, they could even persist longer than people think.

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Speaker 1: I think investors are better off for now in short

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Speaker 1: duration bonds treasury bills to three year treasuries. The bond

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Speaker 1: markets not priced for the FED getting to as high

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Speaker 1: as four UM. Nither is the equity market that would

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Speaker 1: be a risk. So I think investors should be careful

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Speaker 1: with with bonds, look for inflation protected bonds, hold onto cash,

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Speaker 1: and then look for real assets, whether it be stocks

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Speaker 1: or real state or utilities. I do like I do

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Speaker 1: like small caps, and I do like banks for those

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Speaker 1: who are willing to take the cyclical risk. I think

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Speaker 1: small caps have been beaten up even more so than

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Speaker 1: the large gaps. And what's interesting about small caps they

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Speaker 1: were held back over the past decade or two from globalization,

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Speaker 1: other factors they would benefit. So we got a promer.

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Speaker 1: I guess agree with the Okay, well here, I think.

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Speaker 1: I think that's why. Yeah, we're put on the couch together.

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Speaker 1: And I do wonder though, when you were all talking

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Speaker 1: about the United States, we have to zoom out. It

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Speaker 1: is not about the United States right now. It is

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Speaker 1: strong in the United States. In Europe, it's another story

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Speaker 1: with gas, and we're looking to the ECB next week.

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Speaker 1: We are looking to the nord Stream one pipeline whether

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Speaker 1: it will come back online. We are looking to emerging market.

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Speaker 1: That's Tom has been talking about it all week as

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Speaker 1: some of the crises percolating in pockets throughout the entire complex.

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Speaker 1: At what point can the United States fall subject to

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Speaker 1: what's happening outside in the rest of the world. Lorie, Well, look,

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Speaker 1: I think we had a template for this back Ineen.

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Speaker 1: We spent most of the year thinking the US would

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Speaker 1: be immune from the first global recession that would emerge

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Speaker 1: from the trade war, and then recession fears came home

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Speaker 1: to roost and markets fell sharply. But we've already done

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Speaker 1: that at this point in time, So I think we

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Speaker 1: can go back to this idea of a relative game.

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Speaker 1: Will Europe be worse off than the US if the

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Speaker 1: US is better off? I think there's a limit to

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Speaker 1: the amount of cash that institutional investors in particular are

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Speaker 1: willing to sit on, so a lot of that money

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Speaker 1: is going to find its way into the US and

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Speaker 1: the small caps. David, I want to go to the

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Speaker 1: heritage of DWS and of course the relationship with Deutsche

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Speaker 1: Bank on the giant David Folkers Lando who on February

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Speaker 1: told me watch the dollar. This will need to be amended.

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Speaker 1: We are now living a dollar surge. And I'd say

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Speaker 1: this week, folks, d x Y the Blended Large UH

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Speaker 1: large Nation index was caught up with late in the

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Speaker 1: week by the Bloomberg Dollar Index. More E M. David,

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Speaker 1: How do our listeners how do they adapt to an

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Speaker 1: incredibly large, strong dollar. It's a tough thing to adapt to.

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Speaker 1: Don't forget the SMP five. Not thanks, but the rest

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Speaker 1: is a very global set of businesses and they're facing

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Speaker 1: foreign exchange rates, and they're gonna be facing tougher competition

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Speaker 1: in the areas of auto and machinery and tools from

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Speaker 1: Japan credibly weekend and Europe. And it's a slow, slower

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Speaker 1: global economy anyhow, David focus Landau from Deutsche Bank was

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Speaker 1: one of them, the first to warn of a recession coming,

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Speaker 1: and at DWS, yes a management business, I do believe

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Speaker 1: there will be one late this year early next. Laura Lincoln,

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Speaker 1: your work with Tom Percelly right now, he's truly expert

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Speaker 1: on wage growth of the lack there of What does

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Speaker 1: terrible real wage grows mean for our listeners? Well, look,

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Speaker 1: it reduces consumer spending power. At the end of the day,

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Speaker 1: there's a weakness right to the undercurrent spending weeks that

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Speaker 1: we're going to see in the coming weeks. I think

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Speaker 1: that you have seen a few companies already allude to

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Speaker 1: the idea that there have been some hits to demand

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Speaker 1: if you read some of the early reporters. So I

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Speaker 1: think that's something we have to watch out for. I

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Speaker 1: think the country is a little bit of a shell

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Speaker 1: shock at the moment with all the recession talk. Lori

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Speaker 1: Calvacine at David Bianco, thank you both so much for

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Speaker 1: spending your Friday night with us here and coming up,

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Speaker 1: we're going to take a look further at what to expect,

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Speaker 1: particularly with global Wall Street, particularly with the dollar, particularly

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Speaker 1: with the ECB. That's coming up next on Wall Street

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Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with

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Speaker 1: David Weston from Bloomberg Radio. Welcome back to Wall Street

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Speaker 1: Week on Bloomberg on Lisa Ramoy. It's alongside Tom Keene,

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Speaker 1: and I gotta say, Tom, this has been amazing to

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Speaker 1: speak with the behemoths in the field over the dozens

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Speaker 1: and decades of Wall Street history as we try to

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Speaker 1: get a sense of our place in current history. We

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Speaker 1: do it right now and the chaos this week from

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Speaker 1: the micro which iss you look at the Bloomberg screen

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Speaker 1: and see where euros and you go it that's not

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Speaker 1: normal or this statistic the curbing version that we saw

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Speaker 1: this week, And we did some of that narrowness with

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Speaker 1: David Bianco and Laurie Calvacina. But now it's time to

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Speaker 1: go broader and we need to get a historical perspective

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Speaker 1: of where we are. And there is no one better

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Speaker 1: to do that than Greg Fleming, chief executive officer of

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Speaker 1: Rockefeller Capital Management, who spent decades running Merrill, running Morgan

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Speaker 1: Stanley Wealth Management and investment management. You have perspective running

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Speaker 1: the big wealth management shop of Wall Street throughout history.

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Speaker 1: So what is the best analog from a historical perspective

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Speaker 1: for the moment that we're in. You know, at least

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Speaker 1: it's interesting if you're looking at analog. I pulled back

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Speaker 1: pieces from different times. So we're still in the time

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Speaker 1: that we were in in the last ten or fifteen

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Speaker 1: years where technologies driven deflation and prices coming down and

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Speaker 1: productivity improvement. So that's still here. At the same time,

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Speaker 1: we've got vestiges of the seventies and early eighties in

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Speaker 1: terms of pressure on the energy side of the equation

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Speaker 1: that we really haven't seen to that degree since then,

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Speaker 1: and a real you know, inflation numbers this week they

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Speaker 1: came in hotter than we've seen literally in decades. So

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Speaker 1: you have a combination of historical times coming together to

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Speaker 1: create the unique time that is this moment. Was a

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Speaker 1: pivot point this week when we got that nine point

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Speaker 1: one percent inflation print, when we got some of the

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Speaker 1: data out of banks showing that they were suspending share

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Speaker 1: buy backs despite the fact that it might be dated

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Speaker 1: by the Federal Reserve. How much do you view the

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Speaker 1: markets as perhaps being overly pessimistic rather than not appreciating

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Speaker 1: the difference of now versus a decade ago. You know,

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Speaker 1: I think the markets there's a tug of war every

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Speaker 1: time there's data out. I mean that today people said

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Speaker 1: retail sales were better than they expected. In June, Michigan

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Speaker 1: sentiment was better, so they start to, uh, you know,

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Speaker 1: markets go up, and it's like, wait, wait a minute,

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Speaker 1: maybe we'll get through the recession risk and be able

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Speaker 1: to bring inflation down. See this tug of war on

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Speaker 1: the data constantly. But the reality is the biggest player here.

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Speaker 1: And you all know this because we've seen this historically.

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Speaker 1: The FED is focused and needs to stay focused on inflation,

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Speaker 1: and they will. They have got to change the expectations

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Speaker 1: that are getting embedded from an inflation standpoint. Gregg in

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Speaker 1: the time we've got left is Lisa mentioned we want

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Speaker 1: to go bigger and broader with you, and I don't

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Speaker 1: think you've ever gotten a credit for literally inventing modern

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Speaker 1: wealth management. How does it feel like to see every

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Speaker 1: single firm out there do a press release that's says

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Speaker 1: we want to be like Greg Fleming, We need to

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Speaker 1: go to Asia to gather high net worth assets. Gorman's

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Speaker 1: doing twenty eight percent gross at the shop you invented

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Speaker 1: at Morgan Stanley. Every credit switez has announced you b

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Speaker 1: us of course leading the way, but Scret Sweets wants

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Speaker 1: to be Greg Fleming. What do you say about an

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Speaker 1: industry where everybody wants to get in? Well, first of all, uh,

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Speaker 1: what that means is that the business is a good

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Speaker 1: business to be in, and you know that time the

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Speaker 1: characteristics of wealth management fee based advice, counsel to clients,

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Speaker 1: recurring earnings, so it has characteristics financial characteristics that make

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Speaker 1: a lot of people want to be in the business.

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Speaker 1: What I say, and this is what we're doing at

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Speaker 1: Rockefeller Capital Management is define the way that we're going

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Speaker 1: to operate with competitive advantage. And what we're trying to

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Speaker 1: do for clients is provide them advice across the full

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Speaker 1: range of their needs through private advisors that are experienced

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Speaker 1: on the investment side, open architecture and investment platform where

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Speaker 1: you bring in the best of outside managers. We've put

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Speaker 1: together and we marry that also with family office services.

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Speaker 1: You know, we'll take care of bills, will help you

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Speaker 1: with taxes, if you take care of the full needs

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Speaker 1: of clients you can offer. It's something that not everybody's

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Speaker 1: in the marketplace offers. So we've tried to redefine what

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Speaker 1: it means with highnet worth and ultra highneworth clients. You

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Speaker 1: and I have never seen a bond market like this.

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Speaker 1: The Leman Barclays, the Bloomberg total return aggregate negative twelve percent.

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Speaker 1: Some of the corporate high grade stuff is negative eighteen percent.

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Speaker 1: How does Quiet Money manage with bond prices down twelve percent? Well,

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Speaker 1: you know, the reality is there are a number of things,

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Speaker 1: including on the macro side, and I'll come back to this.

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Speaker 1: On the macro side, you have virtually full employment and

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Speaker 1: everybody worried about recession. So there's things Tom, that even

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Speaker 1: we haven't seen. Back to Lisa's question, what are the

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Speaker 1: historical analogs, there really aren't some for for a number

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Speaker 1: of the things we're dealing with here in terms of

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Speaker 1: the bond market. To have the equity market off as

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Speaker 1: much as it's been this year and fixed thing come

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Speaker 1: off to the degree that you dis ribe, that's something

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Speaker 1: we haven't seen in history as well. So the quiet

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Speaker 1: money was very careful about fixed income when rates were

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Speaker 1: virtually zero across the spectrum. How much have we fully

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Speaker 1: appreciated the absence of Japanese investors, the absence of certain

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Speaker 1: Chinese money, you know, that's one of the things least

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Speaker 1: that's that's happening, both on the financial flow side and

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Speaker 1: even on the trade side, which is you know, uh,

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Speaker 1: the internationalization and the globalization retrenching. For really the first

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Speaker 1: time in my career, Greg Fleming, thank you so much

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Speaker 1: for both here your insights. Thank you, Thank you, and Tom.

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Speaker 1: We have a conversation coming up that is a really

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Speaker 1: important one with US Treasure Secretariat La Summer. Either be

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Speaker 1: medicated for this professor Somers was on fire today, not

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Speaker 1: only about the Central Bank, but we started out on

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Speaker 1: the shocks that we're seeing in Asian and particularly the

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Speaker 1: hugely strange movement of the Japanese yen. Please stay with us.

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Speaker 1: That is on Wall Street Week on Bloomberg. Welcome back

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Speaker 1: to Wall Street Week, and I'm Tom Keenan for David

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Speaker 1: Weston this week, and I'm joined now by someone familiar

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Speaker 1: and deservedly familiar. Lawrence Summers is Wall Street Week contributor.

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Speaker 1: He's a former Secretary of Treasury of the United States,

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Speaker 1: President of Harvard, but far more than that, a contributor

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Speaker 1: to our economic discussion over any number of decades. Larry,

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Speaker 1: I'd like to turn it into a two hour conversation,

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Speaker 1: but we can't do that on a Friday evening into

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Speaker 1: the weekend, and I have to digress off the usual

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Speaker 1: fed discussion here and talk to you about a magazine

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Speaker 1: cover of February Green Span, Reuben and a younger Lawrence Summers.

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Speaker 1: In a time of Asian crisis, with dollar strengths and

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Speaker 1: with anticipated federate increases, do we see an emerging market

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Speaker 1: fragility which could lead to something related to the August

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Speaker 1: of you lived I doubt it in the same UH way.

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Speaker 1: Central to that crisis was fixed exchange rates were fixed,

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Speaker 1: exchange rates were very low levels of reserves in many

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Speaker 1: emerging UH market countries, and were debt that was predominantly

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Speaker 1: or heavily UH dollar denominated. I do think that the

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Speaker 1: combination of high energy and food prices, arising dollar, and

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Speaker 1: increasing interest rates does pose risks to emerging markets, but

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Speaker 1: I think they're not likely to be systemic and across

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Speaker 1: the board in UH middle income countries. I'm more concerned

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Speaker 1: about countries with particularly unsound policies. Turkey would be an example,

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Speaker 1: or Argentina would be an example. Countries with particularly problematic

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Speaker 1: um UH food situations Egypt UH would be an example.

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Speaker 1: But I don't think there's gonna be the kind of massive,

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Speaker 1: across the board financial distress that we saw earlier. Professor Summers,

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Speaker 1: I saw a chart this week on the Bloomberg I've

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Speaker 1: never never, ever ever seen in my life, which is

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Speaker 1: a zombie nature of Japanese yen weakening. Again, this is

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Speaker 1: a way from the United States, But when you see

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Speaker 1: the lethargy of yen weakening, given the experiment of yield

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Speaker 1: curve control, how would you suggest that will end for Japan?

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Speaker 1: How will that How would you suggest that will end

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Speaker 1: for the markets? You know, Tom, the problem with pegging

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Speaker 1: financial variables, whether it's an exchange rate or a long

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Speaker 1: term infrast rate, or stock or a stock price, is

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Speaker 1: that it tends to be a much easier strategy to

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Speaker 1: enter than it does to exit. And I think that's

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Speaker 1: got to be an issue of for Japan. Sooner or later,

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Speaker 1: they're gonna have to leave the yield curve control strategy,

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Speaker 1: and I'm not entirely sure what's going to happen when

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Speaker 1: they do. I think in the meantime, the pressures are

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Speaker 1: likely to build, and as they provide more and more liquidity,

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Speaker 1: it could easily lead to an even weaker yet, especially

431
00:24:45,840 --> 00:24:52,359
Speaker 1: given that uh as inflation UH surprised on the highside here,

432
00:24:52,920 --> 00:24:57,639
Speaker 1: market participants revised upwards their expectations of how high interest

433
00:24:57,760 --> 00:25:00,800
Speaker 1: rates are going to have to go. In the United States, Larry,

434
00:25:00,840 --> 00:25:03,159
Speaker 1: let's get back to the United States here, just as

435
00:25:03,200 --> 00:25:07,080
Speaker 1: a general statement, before we look at nine point one inflation,

436
00:25:07,640 --> 00:25:10,280
Speaker 1: are we asking too much of our central bank? We

437
00:25:10,320 --> 00:25:14,399
Speaker 1: had a massive fiscal expansion. I guess we're trying to

438
00:25:14,440 --> 00:25:17,879
Speaker 1: do a fiscal on wind off this pandemic. Are we

439
00:25:18,080 --> 00:25:21,800
Speaker 1: just asking too much of our central banks today as

440
00:25:21,840 --> 00:25:26,000
Speaker 1: an institution? I don't think so. I think we are

441
00:25:26,080 --> 00:25:31,320
Speaker 1: asking for our central banks to analyze the economy accurately.

442
00:25:32,119 --> 00:25:37,280
Speaker 1: We are asking our central banks to keep in mind

443
00:25:37,440 --> 00:25:43,680
Speaker 1: their primary mandate of price stability. And frankly, I think

444
00:25:43,680 --> 00:25:49,280
Speaker 1: in our central bank lost its way. It was talking

445
00:25:49,320 --> 00:25:53,119
Speaker 1: about the environment, it was talking about social justice and

446
00:25:53,160 --> 00:25:58,960
Speaker 1: a range of things. It was confidently dismissing concerns about

447
00:25:59,040 --> 00:26:06,480
Speaker 1: inflation as UH transitory, and it made mistakes in the

448
00:26:06,560 --> 00:26:12,880
Speaker 1: core functioning of a central bank, including leaning into highly

449
00:26:12,920 --> 00:26:17,640
Speaker 1: expansive fiscal policies rather than accommodating them, as our central

450
00:26:17,640 --> 00:26:21,560
Speaker 1: bank UH did. So I don't think we were. I

451
00:26:21,560 --> 00:26:24,359
Speaker 1: don't think we were asking too much of our central bank.

452
00:26:24,480 --> 00:26:28,480
Speaker 1: But I think in our central bank let us down

453
00:26:29,119 --> 00:26:34,280
Speaker 1: UH quite badly, and as a consequence, they find themselves

454
00:26:34,359 --> 00:26:40,480
Speaker 1: in a very very difficult position, not least because they

455
00:26:40,520 --> 00:26:46,840
Speaker 1: don't have the credibility that they once enjoyed. I want

456
00:26:46,880 --> 00:26:50,080
Speaker 1: to go back to a modest textbook by a guy

457
00:26:50,160 --> 00:26:54,720
Speaker 1: named Samuelson, and two years later, one year later, after

458
00:26:54,760 --> 00:26:59,199
Speaker 1: the miracle of his textbook, there was sky high inflation,

459
00:26:59,320 --> 00:27:02,840
Speaker 1: like the nine one percent inflation we have now not

460
00:27:03,040 --> 00:27:05,760
Speaker 1: once but twice we came down into the Korean War,

461
00:27:06,280 --> 00:27:10,960
Speaker 1: into an Eisenhower disinflation and outright deflation. Do you have

462
00:27:11,000 --> 00:27:13,879
Speaker 1: an optimism we can move from nine point one percent

463
00:27:14,000 --> 00:27:19,440
Speaker 1: inflation down relatively rapidly. I think it's pretty clear that

464
00:27:19,480 --> 00:27:24,480
Speaker 1: there are some factors like what's just happened with gasoline prices,

465
00:27:24,520 --> 00:27:29,560
Speaker 1: that are going to point towards disinflation. But I think

466
00:27:29,600 --> 00:27:33,600
Speaker 1: that if you look at core measures of inflation, if

467
00:27:33,640 --> 00:27:38,240
Speaker 1: you look at UH so called trimmed mean a range

468
00:27:38,280 --> 00:27:41,480
Speaker 1: of different indicators, what they tell you is that this

469
00:27:41,560 --> 00:27:47,000
Speaker 1: is a pretty pervasive expansion and inflation. And my reading

470
00:27:47,040 --> 00:27:50,760
Speaker 1: of the experience of the last sixty years is that

471
00:27:50,920 --> 00:27:57,440
Speaker 1: those don't tend to be reduced UH completely without UH

472
00:27:58,040 --> 00:28:01,960
Speaker 1: significant economic slack. And I think if you look at

473
00:28:01,960 --> 00:28:05,520
Speaker 1: the level of vacancies in the economy, the ratio of

474
00:28:05,600 --> 00:28:09,440
Speaker 1: vacancies to unemployment, or the level of quits, you see

475
00:28:09,480 --> 00:28:12,639
Speaker 1: that we have a currently overheated economy. So we have

476
00:28:13,040 --> 00:28:15,800
Speaker 1: some distance to go just to get back to neutral.

477
00:28:16,480 --> 00:28:20,119
Speaker 1: You wrote an initial paper with a guy named Martin Feldstein.

478
00:28:20,280 --> 00:28:23,440
Speaker 1: This is a few decades ago to say the least. Larry,

479
00:28:23,640 --> 00:28:28,879
Speaker 1: he codified nb R is our measure of recession, and

480
00:28:28,960 --> 00:28:32,760
Speaker 1: your colleague Jeffrey Frankel has done great work on this, like, actually,

481
00:28:33,080 --> 00:28:37,000
Speaker 1: how do we choose to define a recession and the

482
00:28:37,040 --> 00:28:41,360
Speaker 1: magnitude of recession? The parlor game right now of recession,

483
00:28:41,520 --> 00:28:44,479
Speaker 1: I've never seen the guessing of it, the gaming of

484
00:28:44,520 --> 00:28:49,000
Speaker 1: it give us some clarity on how you define recession

485
00:28:49,600 --> 00:28:52,480
Speaker 1: and the magnitude that we could see, you know, I

486
00:28:52,480 --> 00:28:57,120
Speaker 1: think the classic, the classic definition of a recession is

487
00:28:57,160 --> 00:29:04,960
Speaker 1: a broad gaged multi month UH decline in a range

488
00:29:05,000 --> 00:29:12,120
Speaker 1: of economic indicators of activity, and that's something that the

489
00:29:12,240 --> 00:29:16,720
Speaker 1: NBR makes a judgment about. There's a kind of crude

490
00:29:16,720 --> 00:29:21,440
Speaker 1: approximation that many economists use, which is two negative quarters

491
00:29:21,440 --> 00:29:25,680
Speaker 1: in a row. I think there's a quite reasonable chance,

492
00:29:25,760 --> 00:29:29,800
Speaker 1: probably probably or a bit above, that we will in

493
00:29:29,840 --> 00:29:33,560
Speaker 1: the first and second quarters have negative growth in both quarters.

494
00:29:34,240 --> 00:29:39,280
Speaker 1: I don't think that is itself sufficient to establish a recession,

495
00:29:39,800 --> 00:29:43,920
Speaker 1: because it's heavily being driven by demand that draws down

496
00:29:44,000 --> 00:29:49,280
Speaker 1: inventories and demand that draws in UH imports. But I

497
00:29:49,280 --> 00:29:53,200
Speaker 1: think there's a real risk that will see it through

498
00:29:53,360 --> 00:29:56,440
Speaker 1: this year and an even greater risk that will see

499
00:29:56,440 --> 00:29:59,400
Speaker 1: it next year. I would say the odds are certainly

500
00:29:59,680 --> 00:30:04,720
Speaker 1: in the far above half, probably above three quarters of

501
00:30:04,840 --> 00:30:09,160
Speaker 1: seeing a recession within the next two years. And I

502
00:30:09,200 --> 00:30:11,760
Speaker 1: don't think there's any reason why it needs to be

503
00:30:11,800 --> 00:30:15,160
Speaker 1: a recession like we saw in two or like we

504
00:30:15,200 --> 00:30:18,760
Speaker 1: saw during the Great Financial Crisis. But I think it's

505
00:30:18,800 --> 00:30:20,960
Speaker 1: not gonna be a walk in the park either. And

506
00:30:21,480 --> 00:30:24,760
Speaker 1: I would suggest as a kind of rough model what

507
00:30:24,840 --> 00:30:30,160
Speaker 1: we saw after the bubble burst in two thousand, Larry Summers,

508
00:30:30,240 --> 00:30:31,960
Speaker 1: We've got to leave it there. And again, as I

509
00:30:32,000 --> 00:30:35,040
Speaker 1: speak to you, haven't spoken to you in a while. Congratulations.

510
00:30:35,080 --> 00:30:38,120
Speaker 1: I'm truly one of the great calls in modern economic

511
00:30:38,200 --> 00:30:42,360
Speaker 1: history here questioning transitory Laurence Summers, thank you so much.

512
00:30:43,240 --> 00:30:46,720
Speaker 1: Tom Next week is going to be a tremendous week

513
00:30:46,760 --> 00:30:50,560
Speaker 1: with the European Central Bank in the forefront sating Iraq

514
00:30:50,840 --> 00:30:53,200
Speaker 1: and a hard place and hoping to find some peace.

515
00:30:53,280 --> 00:30:55,080
Speaker 1: I just want to say that everybody was joined us

516
00:30:55,080 --> 00:30:58,280
Speaker 1: here with Greg Fleming and Laurence Summers, and David Bianco

517
00:30:58,320 --> 00:31:01,080
Speaker 1: and Laurie Calvacina. Lee and I were sitting together and

518
00:31:01,080 --> 00:31:03,280
Speaker 1: I looked like marriage therapy. So they got a set

519
00:31:03,280 --> 00:31:06,480
Speaker 1: in and sending her different in the program, it's a

520
00:31:06,480 --> 00:31:10,880
Speaker 1: little more more casual. I'm still numb from this week.

521
00:31:11,000 --> 00:31:13,400
Speaker 1: I will read it over the weekend and we will

522
00:31:13,440 --> 00:31:17,680
Speaker 1: go to what our colleague John Farrell. John Farrell, he says,

523
00:31:17,800 --> 00:31:20,520
Speaker 1: this is the mother of all ECB meetings and protecularly

524
00:31:20,520 --> 00:31:23,280
Speaker 1: for people in America where it's like the lady that

525
00:31:23,400 --> 00:31:24,960
Speaker 1: was with the I m F. She comes out, she

526
00:31:25,000 --> 00:31:28,200
Speaker 1: does a press conference in that No, this time is different.

527
00:31:28,560 --> 00:31:31,400
Speaker 1: The ECB meeting is a huge deal, especially because a

528
00:31:31,440 --> 00:31:34,640
Speaker 1: guest on Surveillance this week was talking about how this year,

529
00:31:35,040 --> 00:31:38,160
Speaker 1: this time around, it's not emerging markets. This time it's

530
00:31:38,160 --> 00:31:42,840
Speaker 1: potentially Europe dragging down the rest of the world complex

531
00:31:42,880 --> 00:31:45,680
Speaker 1: just simply because of the crisis they face with gas,

532
00:31:46,120 --> 00:31:48,640
Speaker 1: with the crisis they face with negative fields, etcetera. Next

533
00:31:48,640 --> 00:31:50,480
Speaker 1: week will be a really interesting There's no one more

534
00:31:50,560 --> 00:31:54,000
Speaker 1: qualified in the world to know that. Christine the Christine

535
00:31:54,080 --> 00:31:57,560
Speaker 1: Leguard to say that it is e M together with

536
00:31:57,640 --> 00:32:01,320
Speaker 1: Jerome Powell, together with Christine Laguard, together with Bailey of

537
00:32:01,400 --> 00:32:03,920
Speaker 1: the Bank of England. I'm not sure I buy the

538
00:32:04,000 --> 00:32:07,520
Speaker 1: Europe only analysis. Did we do okay? Today? I think

539
00:32:07,600 --> 00:32:09,760
Speaker 1: so because We're still sitting here next to each other.

540
00:32:09,800 --> 00:32:11,840
Speaker 1: I guess that the therapy, because somebody emailed us said,

541
00:32:11,840 --> 00:32:14,720
Speaker 1: how can triple How did guy in triple leverage cash?

542
00:32:15,560 --> 00:32:17,400
Speaker 1: To Wall Street Week, I said, I don't know. We've

543
00:32:17,440 --> 00:32:19,760
Speaker 1: been in therapy the whole time. This is Bloomberg