1 00:00:00,240 --> 00:00:02,440 Speaker 1: This is Bloomberg Wall Street Week. 2 00:00:02,480 --> 00:00:04,400 Speaker 2: I mean may not have an overall recession. We're having 3 00:00:04,400 --> 00:00:06,680 Speaker 2: a rolling recession. A kind of role looks pretty strongly 4 00:00:06,760 --> 00:00:07,680 Speaker 2: is when it comes to jobs. 5 00:00:07,680 --> 00:00:09,840 Speaker 1: The financial stories that shape our world. 6 00:00:09,920 --> 00:00:13,600 Speaker 2: Three major regional bank failures send shockwaves through the banking system. 7 00:00:13,680 --> 00:00:15,440 Speaker 2: We're all trying to figure out what to make of 8 00:00:15,560 --> 00:00:17,320 Speaker 2: generative AI through. 9 00:00:17,160 --> 00:00:19,320 Speaker 1: The eyes of the most influential voices. 10 00:00:19,440 --> 00:00:22,400 Speaker 2: Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 11 00:00:22,520 --> 00:00:25,320 Speaker 2: Gebro Lair of the Paulson Institute, Glen Hubbard of the 12 00:00:25,360 --> 00:00:26,280 Speaker 2: Columbia Business School. 13 00:00:26,280 --> 00:00:30,440 Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio Time. 14 00:00:30,480 --> 00:00:33,000 Speaker 3: In is everything for the FED, for the banking sector, 15 00:00:33,040 --> 00:00:36,080 Speaker 3: and for asset managers. This is Bloomberg Wall Street Week. 16 00:00:36,240 --> 00:00:40,240 Speaker 3: I'm Romain Bostic and for David Weston. This week Barkley 17 00:00:40,320 --> 00:00:43,880 Speaker 3: CEO CS Bencotta Krishnan on his vision for investment banking. 18 00:00:44,080 --> 00:00:47,760 Speaker 4: You bring it all together, and you're talking about us 19 00:00:47,800 --> 00:00:51,040 Speaker 4: thinking about the next generation of leadership of the investment bank. 20 00:00:51,240 --> 00:00:54,160 Speaker 3: Former Treasury Secretary Larry Summers on whether the FED spight 21 00:00:54,240 --> 00:00:55,680 Speaker 3: the curb inflation is working. 22 00:00:55,920 --> 00:00:59,640 Speaker 5: I found the Fed's action a little bit confusing. 23 00:00:59,320 --> 00:01:02,480 Speaker 3: And CBR CEO Bob Selontek on how interest rates are 24 00:01:02,480 --> 00:01:04,240 Speaker 3: reshaping America's biggest. 25 00:01:03,880 --> 00:01:05,440 Speaker 6: Cities, San Francisco. 26 00:01:05,680 --> 00:01:20,080 Speaker 7: That's probably the toughest story out there in office buildings. 27 00:01:21,280 --> 00:01:23,319 Speaker 3: There was a big sigh of relief on Tuesday. From 28 00:01:23,319 --> 00:01:24,400 Speaker 3: Wall Street to Main. 29 00:01:24,200 --> 00:01:25,959 Speaker 8: Street to the hulls of the Federal Reserve. 30 00:01:26,319 --> 00:01:29,680 Speaker 3: The Consumer Price Index released a rise of just four 31 00:01:29,720 --> 00:01:30,759 Speaker 3: percent year over year. 32 00:01:31,000 --> 00:01:32,240 Speaker 8: That's the smallest game. 33 00:01:32,120 --> 00:01:34,120 Speaker 3: Going back to March of twenty twenty one, and it 34 00:01:34,200 --> 00:01:36,800 Speaker 3: suggests that the lag effects of a fifteen month rate 35 00:01:36,840 --> 00:01:38,600 Speaker 3: tightening cycle are lagged no more. 36 00:01:38,760 --> 00:01:41,920 Speaker 9: I have been consistently in the camp that we would 37 00:01:41,920 --> 00:01:45,360 Speaker 9: see some slowing in growth, put no recession, and that 38 00:01:45,400 --> 00:01:48,400 Speaker 9: we could see inflation come down. And part of that 39 00:01:48,840 --> 00:01:50,800 Speaker 9: is because I've had confidence in the Fed. 40 00:01:51,160 --> 00:01:54,120 Speaker 3: Then on Wednesday, a fresh report on supply side inflation 41 00:01:54,240 --> 00:01:57,160 Speaker 3: hit that showed producer prices rising at the slowest pace 42 00:01:57,200 --> 00:02:00,400 Speaker 3: since twenty twenty, normalizing supply chains and a broad cooling 43 00:02:00,480 --> 00:02:03,680 Speaker 3: and commodity costs Aiding that trend. Two big data points 44 00:02:03,680 --> 00:02:06,720 Speaker 3: this week in a disinflationary trend that ultimately gave the 45 00:02:06,720 --> 00:02:10,160 Speaker 3: Fed enough confidence to stand down after hiking rates ten 46 00:02:10,240 --> 00:02:14,200 Speaker 3: straight times. The FMC decision to hold fire it was unanimous, 47 00:02:14,440 --> 00:02:15,959 Speaker 3: and you can call it a pause if you want, 48 00:02:15,960 --> 00:02:17,880 Speaker 3: but don't you dare call it a skip. 49 00:02:18,240 --> 00:02:20,800 Speaker 1: I think that the skip, I shouldn't call it a skip. 50 00:02:21,080 --> 00:02:22,880 Speaker 10: The decision makes sense. 51 00:02:22,919 --> 00:02:25,400 Speaker 3: Pal making it clear that the US economy isn't out 52 00:02:25,400 --> 00:02:28,000 Speaker 3: of the woods yet and more rate hikes could come. 53 00:02:28,440 --> 00:02:32,200 Speaker 11: I still think and my colleagues agree that the risks 54 00:02:32,440 --> 00:02:33,960 Speaker 11: to inflation are to the upside. 55 00:02:33,960 --> 00:02:36,440 Speaker 3: Still, less than a day after the FED left borrowing 56 00:02:36,480 --> 00:02:40,079 Speaker 3: costs unchanged, the European Central Bank raised its deposit rate 57 00:02:40,280 --> 00:02:43,160 Speaker 3: to the highest in more than two decades. But investors, 58 00:02:43,320 --> 00:02:45,840 Speaker 3: they're betting that after four percentage points worth the hikes, 59 00:02:45,919 --> 00:02:48,919 Speaker 3: the ECB, along with other major central banks, they're finally 60 00:02:49,080 --> 00:02:52,040 Speaker 3: at the final stages and they're onslot against the global 61 00:02:52,040 --> 00:02:52,800 Speaker 3: inflation shock. 62 00:02:53,360 --> 00:02:57,360 Speaker 12: We are determined to reach our target in a timely 63 00:02:57,440 --> 00:03:00,200 Speaker 12: manner and to continue to apply the principles that have 64 00:03:00,240 --> 00:03:04,760 Speaker 12: applied today, data dependency, the three elements of the reaction function, 65 00:03:05,240 --> 00:03:07,280 Speaker 12: and moving meeting by meeting. 66 00:03:07,720 --> 00:03:11,440 Speaker 3: Meanwhile, the European banking sector entering a new era, ubs 67 00:03:11,760 --> 00:03:14,120 Speaker 3: completing the government broker takeover of its story. 68 00:03:14,200 --> 00:03:15,600 Speaker 8: Swiss rival Credits sue. 69 00:03:15,639 --> 00:03:18,320 Speaker 3: It's the biggest global banking merger since the two thousand 70 00:03:18,320 --> 00:03:21,320 Speaker 3: and eight financial crisis, and time finally may be up 71 00:03:21,400 --> 00:03:24,359 Speaker 3: for Chrispinoti, ousted from his London based investment firm, A 72 00:03:24,400 --> 00:03:27,880 Speaker 3: makes sexual assault allegations. Od Asset Management now hiving off 73 00:03:27,880 --> 00:03:28,600 Speaker 3: its funds and. 74 00:03:28,560 --> 00:03:31,040 Speaker 8: Employees, a move that would likely signal. 75 00:03:30,760 --> 00:03:34,040 Speaker 3: The end of the multi billion pound firm altogether. Clients 76 00:03:34,040 --> 00:03:36,200 Speaker 3: and business partners up against the clock right now to 77 00:03:36,200 --> 00:03:36,960 Speaker 3: get their money out. 78 00:03:37,120 --> 00:03:41,360 Speaker 13: We're in the process of moving away from their basis. 79 00:03:43,000 --> 00:03:43,640 Speaker 8: And back here. 80 00:03:43,680 --> 00:03:46,600 Speaker 3: In the US, stocks scoring their best week since March, 81 00:03:46,880 --> 00:03:48,800 Speaker 3: the S and P five hundred climbing more than two 82 00:03:48,800 --> 00:03:51,840 Speaker 3: percent and the Nasdaq one hundred jumping by almost four 83 00:03:52,200 --> 00:03:54,960 Speaker 3: That move higher in the US match by moves overseas, 84 00:03:55,280 --> 00:03:57,920 Speaker 3: Japanese stocks pushing to their highest since nineteen ninety, the 85 00:03:57,920 --> 00:04:00,400 Speaker 3: German Dacks closing at a record high, one of the 86 00:04:00,400 --> 00:04:04,200 Speaker 3: main gauges tracking emerging market equities advancing for a third 87 00:04:04,240 --> 00:04:04,880 Speaker 3: straight week. 88 00:04:05,160 --> 00:04:06,360 Speaker 8: Even commodities got. 89 00:04:06,240 --> 00:04:09,560 Speaker 3: Bought, posting their strongest weekly performance as a group going 90 00:04:09,640 --> 00:04:12,400 Speaker 3: back to November. Joining US now to walk us through 91 00:04:12,400 --> 00:04:14,520 Speaker 3: what happened this week and well, what could happen in 92 00:04:14,560 --> 00:04:17,960 Speaker 3: the weeks ahead Sonala, Sig Franklin Templeton, Tick's income CIO, 93 00:04:18,320 --> 00:04:21,560 Speaker 3: and Bloomberg Managing editor Tracy Alloway, the co host of 94 00:04:21,600 --> 00:04:24,760 Speaker 3: the very popular Odd Lots podcasts. So I'll start with you, 95 00:04:24,800 --> 00:04:27,640 Speaker 3: and I'll start with that FED meeting on Wednesday and. 96 00:04:27,520 --> 00:04:28,520 Speaker 8: That press conference. 97 00:04:28,760 --> 00:04:31,479 Speaker 3: Not necessarily a surprise what they did, but were you 98 00:04:31,600 --> 00:04:33,600 Speaker 3: surprised at what Powell had to say? 99 00:04:34,800 --> 00:04:38,680 Speaker 14: So, you know, I actually feel in some ways that 100 00:04:39,000 --> 00:04:41,440 Speaker 14: Powell got a little bit of the short end of 101 00:04:41,440 --> 00:04:44,800 Speaker 14: the state this time around. Historically been quite critical of 102 00:04:44,839 --> 00:04:48,039 Speaker 14: the communication that the FED does, but I think this 103 00:04:48,120 --> 00:04:52,080 Speaker 14: time around they paused for a very valid reason. They 104 00:04:52,120 --> 00:04:55,040 Speaker 14: hadn't guided the market. Well valid in some people's minds. 105 00:04:55,040 --> 00:04:58,679 Speaker 14: This FED doesn't like surprising the market, and it chose 106 00:04:58,800 --> 00:05:03,000 Speaker 14: not to do so. However, I think they really made 107 00:05:03,000 --> 00:05:06,520 Speaker 14: it clear that sometimes a pause is really just a pause, 108 00:05:06,600 --> 00:05:10,320 Speaker 14: and that's what this meeting was. Prior to the meeting, 109 00:05:10,720 --> 00:05:14,800 Speaker 14: there was a reasonable quantity of people who thought reasonable 110 00:05:14,960 --> 00:05:17,640 Speaker 14: portion of the market which believed that the pause was 111 00:05:17,680 --> 00:05:19,520 Speaker 14: really the end of the hiking cycle. 112 00:05:19,920 --> 00:05:20,279 Speaker 9: It's not. 113 00:05:20,880 --> 00:05:24,039 Speaker 14: That's abundantly clear, And I think that we saw action 114 00:05:25,720 --> 00:05:29,520 Speaker 14: from the Bank of Canada from the Reserve Bank of Australia. 115 00:05:30,040 --> 00:05:33,120 Speaker 14: Both in recent weeks have come back, recent months have 116 00:05:33,160 --> 00:05:35,440 Speaker 14: come back from pauses, and so I think the market 117 00:05:35,480 --> 00:05:39,000 Speaker 14: is beginning to be more realistic about what the Fed's 118 00:05:39,200 --> 00:05:39,800 Speaker 14: outlook is. 119 00:05:39,920 --> 00:05:42,159 Speaker 3: Yeah, how do you feel about that, Tracy? We say 120 00:05:42,160 --> 00:05:44,200 Speaker 3: a pause is just a pause. And of course even 121 00:05:44,279 --> 00:05:47,360 Speaker 3: j Powell had that Freudian skip during the press conference. 122 00:05:47,360 --> 00:05:49,640 Speaker 3: There is there some distinction that we should be paying 123 00:05:49,680 --> 00:05:52,039 Speaker 3: attention to here Freudian skip. 124 00:05:52,160 --> 00:05:54,480 Speaker 15: Was that a Freudian slip of your own their romain 125 00:05:54,560 --> 00:05:56,640 Speaker 15: or all day long? 126 00:05:57,560 --> 00:05:59,479 Speaker 11: We think it will create some of the most valuable 127 00:05:59,480 --> 00:06:02,000 Speaker 11: companies market's ever seen, and I think it's certainly driven 128 00:06:02,040 --> 00:06:04,840 Speaker 11: companies like Cisco, given them the life that they've had. 129 00:06:05,080 --> 00:06:08,599 Speaker 11: It's obviously also spectacularly volatile, but the market is pulled 130 00:06:08,600 --> 00:06:11,400 Speaker 11: back in this sector since it became public, since it 131 00:06:11,440 --> 00:06:13,720 Speaker 11: began in nineteen ninety five, it's pulled back thirty to 132 00:06:13,760 --> 00:06:15,800 Speaker 11: fifty percent at least seven or eight times. 133 00:06:16,800 --> 00:06:18,200 Speaker 8: All Right, A blast from the past there. 134 00:06:18,279 --> 00:06:21,320 Speaker 3: Henry Blodgett, then the Internet analyst over at Merrill Lynch 135 00:06:21,360 --> 00:06:23,520 Speaker 3: back in June of two thousand, when he appeared with 136 00:06:23,600 --> 00:06:26,880 Speaker 3: Lewis Ruckheiser on Wall Street Week. Internet stocks were all 137 00:06:26,960 --> 00:06:29,080 Speaker 3: the rage then, and to a certain extent, they're the 138 00:06:29,200 --> 00:06:32,200 Speaker 3: rage now. It's all about AI, artificial intelligence. There are 139 00:06:32,200 --> 00:06:34,920 Speaker 3: a lot of people trying to look for some parallels 140 00:06:35,080 --> 00:06:37,960 Speaker 3: between the AI frenzy that we're seeing today and the 141 00:06:38,040 --> 00:06:40,400 Speaker 3: dot com frenzy, if you will, that we saw back 142 00:06:40,440 --> 00:06:42,080 Speaker 3: in the late nineties and early two thousand. 143 00:06:42,160 --> 00:06:43,400 Speaker 8: Are you finding that parallel? 144 00:06:43,839 --> 00:06:45,720 Speaker 15: There is no doubt that we are going to see 145 00:06:45,760 --> 00:06:50,360 Speaker 15: shades of dot Com in some of the enthusiasm around AI. 146 00:06:50,560 --> 00:06:53,239 Speaker 15: I mean I was looking at in videos valuation before 147 00:06:53,240 --> 00:06:55,440 Speaker 15: I came on here. I think it's something like forty 148 00:06:55,560 --> 00:07:00,280 Speaker 15: two price to sales at the moment, which is a lot. 149 00:07:00,760 --> 00:07:04,239 Speaker 15: And we have seen some companies already start to pivot 150 00:07:04,600 --> 00:07:07,159 Speaker 15: towards AI. So of course a lot of the crypto 151 00:07:07,200 --> 00:07:10,160 Speaker 15: players that aren't doing so well at the moment are 152 00:07:10,200 --> 00:07:13,360 Speaker 15: now talking a lot about this new technology. The one 153 00:07:13,640 --> 00:07:16,400 Speaker 15: difference I think I was actually at an event with 154 00:07:17,040 --> 00:07:20,920 Speaker 15: Mark Barribau, pgim's global equity head this week, and he 155 00:07:21,040 --> 00:07:23,880 Speaker 15: was talking about the difference is a lot of the 156 00:07:23,920 --> 00:07:28,840 Speaker 15: AI winners so far are incumbent companies. There are places 157 00:07:28,880 --> 00:07:33,000 Speaker 15: like Nvidia, places like Microsoft. These are real companies with 158 00:07:33,280 --> 00:07:37,880 Speaker 15: actual revenue, and from that perspective, we are in a 159 00:07:37,920 --> 00:07:41,080 Speaker 15: different place to say, twenty twenty, twenty twenty one, where 160 00:07:41,120 --> 00:07:44,400 Speaker 15: people were betting on the really speculative stuff. I know 161 00:07:44,480 --> 00:07:47,200 Speaker 15: it's a low bar, but it does bear mentioning that 162 00:07:47,280 --> 00:07:50,440 Speaker 15: to some extent, these are people betting on already incumbent, 163 00:07:50,640 --> 00:07:51,600 Speaker 15: established companies. 164 00:07:51,680 --> 00:07:53,160 Speaker 3: That's a good point, and Soanal I want to get 165 00:07:53,200 --> 00:07:55,320 Speaker 3: your thoughts on that, particularly just in the context of 166 00:07:55,320 --> 00:07:58,120 Speaker 3: investor sentiment and really this idea that there does seem 167 00:07:58,120 --> 00:08:00,000 Speaker 3: to be a lot of folks out there who really 168 00:08:00,120 --> 00:08:02,120 Speaker 3: sort of want to, I guess, grab on to that 169 00:08:02,200 --> 00:08:04,280 Speaker 3: next big thing, and at least for right now, it 170 00:08:04,280 --> 00:08:05,400 Speaker 3: seems like it might be AI. 171 00:08:05,640 --> 00:08:07,040 Speaker 14: It does look like this is going to be the 172 00:08:07,080 --> 00:08:09,559 Speaker 14: decade of AI. Really, if you think about the last 173 00:08:09,560 --> 00:08:12,560 Speaker 14: decade as a decade of mobility, that you know, if 174 00:08:12,560 --> 00:08:16,640 Speaker 14: you look at the two thousand and ten twenty twenty. 175 00:08:17,360 --> 00:08:20,000 Speaker 14: I am not an equity specialist. I always make that case, 176 00:08:20,280 --> 00:08:23,440 Speaker 14: but I do think that this decade that we're in 177 00:08:23,520 --> 00:08:25,840 Speaker 14: right now is likely to be the decade of AI. 178 00:08:26,360 --> 00:08:30,120 Speaker 14: I'm not the person to peak individual stocks clearly I'm 179 00:08:30,160 --> 00:08:32,000 Speaker 14: the last person to do so. But if I look 180 00:08:32,080 --> 00:08:34,840 Speaker 14: at the technology, it is something we're very excited about. 181 00:08:35,200 --> 00:08:38,199 Speaker 14: Having said that, there are many other technologies. Whether you're 182 00:08:38,240 --> 00:08:41,800 Speaker 14: looking at what's going on in the field of medicine 183 00:08:41,800 --> 00:08:45,079 Speaker 14: with genomes, there's a lot happening and technology. More broadly, 184 00:08:46,440 --> 00:08:48,880 Speaker 14: AI is very much the flavor of months. So that 185 00:08:49,040 --> 00:08:51,760 Speaker 14: is the element which goes back to what we were 186 00:08:51,800 --> 00:08:54,280 Speaker 14: talking about the dot com to some extent, I'd. 187 00:08:54,160 --> 00:08:57,120 Speaker 3: Say absolutely, and Tracy, I mean, you bring up a 188 00:08:57,120 --> 00:09:01,360 Speaker 3: good point here about kind of these established players in videos, Microsauce, Alphabet's, 189 00:09:01,400 --> 00:09:04,839 Speaker 3: proven companies with relatively solid balance sheets here, but there 190 00:09:05,040 --> 00:09:07,559 Speaker 3: is certainly some froth in this as well, a sort 191 00:09:07,559 --> 00:09:09,320 Speaker 3: of a lot of second and third tier companies that 192 00:09:09,360 --> 00:09:12,880 Speaker 3: have mentioned AI. Your colleague Joe Wisenthal, the co hosts 193 00:09:12,880 --> 00:09:15,120 Speaker 3: of Odd Lots, I thought, had a great point when 194 00:09:15,120 --> 00:09:18,080 Speaker 3: he talked about Kroger, a grocery store chain, where the 195 00:09:18,120 --> 00:09:21,160 Speaker 3: CEO mentioned AI eight times on the conference call. I'm 196 00:09:21,160 --> 00:09:23,440 Speaker 3: having a hard time making that connection, but I don't know, 197 00:09:23,480 --> 00:09:24,760 Speaker 3: maybe they know something we don't. 198 00:09:25,600 --> 00:09:27,360 Speaker 15: I mean, look, I do think there is a danger 199 00:09:27,400 --> 00:09:30,480 Speaker 15: here that everyone starts using AI as basically a synonym 200 00:09:30,559 --> 00:09:33,960 Speaker 15: for every type of software that's currently an existence. I 201 00:09:34,000 --> 00:09:36,280 Speaker 15: can see that happening. However, when it comes to the 202 00:09:36,360 --> 00:09:39,440 Speaker 15: Kroger earnings call, sure he said AI eight times, but 203 00:09:39,480 --> 00:09:42,600 Speaker 15: the stock still went down, which to me suggests that 204 00:09:42,640 --> 00:09:47,560 Speaker 15: people are still being somewhat rational about this. That said, 205 00:09:47,679 --> 00:09:52,480 Speaker 15: there are plenty of pockets of irrationality in the market. 206 00:09:52,600 --> 00:09:57,720 Speaker 15: So there's something called the bubble portfolio that GAM portfolio 207 00:09:57,720 --> 00:10:01,400 Speaker 15: manager Paul McNamara put together many many years ago, and 208 00:10:01,480 --> 00:10:05,440 Speaker 15: it contains a bunch of stuff like Tesla, Netflix, Chinese 209 00:10:05,480 --> 00:10:09,360 Speaker 15: tech companies, real estate developers. That thing has shot back 210 00:10:09,440 --> 00:10:12,440 Speaker 15: up I think something like thirty percent so far this year, 211 00:10:12,480 --> 00:10:16,000 Speaker 15: which is about double the S and P performance. So 212 00:10:16,240 --> 00:10:20,480 Speaker 15: clearly people are piling back in to some low quality names. 213 00:10:20,800 --> 00:10:23,280 Speaker 15: That said, a lot of those names are coming off 214 00:10:23,280 --> 00:10:25,320 Speaker 15: of significant lows. So what does it mean if a 215 00:10:25,360 --> 00:10:28,280 Speaker 15: company goes from you know, ten bucks to twenty bucks. 216 00:10:28,360 --> 00:10:32,280 Speaker 15: That's doubling a performance, but it's still relatively low compared 217 00:10:32,280 --> 00:10:33,200 Speaker 15: to prior history. 218 00:10:33,280 --> 00:10:36,120 Speaker 3: Thanks to both of you, a great conversation. Tracy Alloway, 219 00:10:36,240 --> 00:10:39,400 Speaker 3: she's managing editor here at Bloomberg and co host of 220 00:10:39,400 --> 00:10:43,880 Speaker 3: the Odd Lots podcast and Sonaltasi Franklin Templeton CIO for fixed. 221 00:10:43,559 --> 00:10:46,079 Speaker 8: Income coming up. 222 00:10:46,200 --> 00:10:49,200 Speaker 3: Whether or not bosses want their employees back in the office, 223 00:10:49,280 --> 00:10:53,640 Speaker 3: the economy certainly does. Cbre CEO Bob Solentik says office 224 00:10:53,679 --> 00:10:55,000 Speaker 3: vacancies might be. 225 00:10:55,000 --> 00:10:55,600 Speaker 8: The new norm. 226 00:10:55,800 --> 00:10:57,920 Speaker 7: You really are seeing a push from companies to get 227 00:10:57,920 --> 00:10:59,839 Speaker 7: people back in. I do not think it's going to 228 00:10:59,880 --> 00:11:00,880 Speaker 7: go back to where it was. 229 00:11:02,280 --> 00:11:05,120 Speaker 8: That's next on Wall Street Week on Bloomberg. 230 00:11:12,280 --> 00:11:15,679 Speaker 2: Commercial real Estate, Bloomberg estimates it to be a twenty 231 00:11:15,800 --> 00:11:19,360 Speaker 2: trillion dollar market, one that benefited from years of low 232 00:11:19,480 --> 00:11:22,400 Speaker 2: interest rates, but all that changed when the FED height 233 00:11:22,559 --> 00:11:23,959 Speaker 2: rates at record speed. 234 00:11:24,440 --> 00:11:28,400 Speaker 15: Rates go up, financial conditions titan, and then what happens 235 00:11:28,480 --> 00:11:31,720 Speaker 15: is that consumption drops, investment drops, and then we get 236 00:11:31,880 --> 00:11:33,040 Speaker 15: job destruction. 237 00:11:32,880 --> 00:11:36,280 Speaker 2: Even as offices remained empty in the wake of the pandemic. 238 00:11:36,480 --> 00:11:39,920 Speaker 5: It's shocking to me that the vacancy rate for commercial 239 00:11:40,080 --> 00:11:42,119 Speaker 5: space in San fran is thirty. 240 00:11:41,840 --> 00:11:44,640 Speaker 2: Five percent, hitting valuations hard. 241 00:11:44,960 --> 00:11:47,320 Speaker 3: You're seeing the office buildings that had a six hundred 242 00:11:47,360 --> 00:11:50,240 Speaker 3: million dollar valuation or a three hundred million dollar valuation 243 00:11:50,520 --> 00:11:52,800 Speaker 3: being sold for maybe fifty or sixty. 244 00:11:52,800 --> 00:11:54,680 Speaker 2: With the potential for the problem to spread to the 245 00:11:54,720 --> 00:11:58,320 Speaker 2: banking sector, particularly for the regional banks responsible for much 246 00:11:58,440 --> 00:11:59,720 Speaker 2: of the commercial real estate. 247 00:12:00,679 --> 00:12:04,240 Speaker 16: I think you're going to see more bank failures, likely 248 00:12:04,280 --> 00:12:05,880 Speaker 16: in the small bank So it's not going to be 249 00:12:05,880 --> 00:12:09,120 Speaker 16: the big headlines and the size of the failures we 250 00:12:09,200 --> 00:12:13,040 Speaker 16: had so far. But I think there's more problems under 251 00:12:13,120 --> 00:12:13,680 Speaker 16: the surface. 252 00:12:13,920 --> 00:12:14,120 Speaker 10: Well. 253 00:12:14,160 --> 00:12:16,960 Speaker 2: Banking experts like Roger Cohen say it may be a 254 00:12:17,000 --> 00:12:19,640 Speaker 2: more narrowly focused problem than some think. 255 00:12:19,840 --> 00:12:23,920 Speaker 17: I think only a small slice of commercial real estate 256 00:12:24,040 --> 00:12:28,000 Speaker 17: is really being effective, and that slice is office buildings 257 00:12:28,080 --> 00:12:32,280 Speaker 17: in a few metropolitan areas, and even there there are 258 00:12:32,480 --> 00:12:34,680 Speaker 17: vast differences in credit quality. 259 00:12:34,920 --> 00:12:38,000 Speaker 2: And Steve Ross have related insists that the problem does 260 00:12:38,080 --> 00:12:41,119 Speaker 2: not extend to the top tier of office buildings. 261 00:12:41,520 --> 00:12:45,840 Speaker 13: Chennas today are looking to find class office buildings that 262 00:12:45,920 --> 00:12:50,000 Speaker 13: are new, that embody all the latest and technology and 263 00:12:50,040 --> 00:12:52,600 Speaker 13: where people want to work. It's really the class speed 264 00:12:52,679 --> 00:12:55,000 Speaker 13: buildings where the carnage will take place. 265 00:12:55,480 --> 00:12:58,440 Speaker 2: But any way you cut it, as banking goes, so 266 00:12:58,600 --> 00:12:59,960 Speaker 2: goes commercial real estate. 267 00:13:00,440 --> 00:13:03,080 Speaker 10: The key to commercial real estate today, though we'll be banking. 268 00:13:03,360 --> 00:13:06,320 Speaker 5: If the industry can't get a construction loan, real estate 269 00:13:06,400 --> 00:13:07,280 Speaker 5: will have a recession. 270 00:13:10,400 --> 00:13:12,720 Speaker 2: And to take us into the world of commercial real estate, 271 00:13:12,800 --> 00:13:14,600 Speaker 2: where it is now, where it's going. Welcome to someone 272 00:13:14,640 --> 00:13:16,920 Speaker 2: who knows it terribly well. He's Bob Salentek. 273 00:13:17,040 --> 00:13:17,559 Speaker 8: He is the. 274 00:13:17,520 --> 00:13:20,599 Speaker 2: President and CEO of CBRE. Thank you so much for 275 00:13:20,679 --> 00:13:21,040 Speaker 2: joining us. 276 00:13:21,040 --> 00:13:21,240 Speaker 10: Bob. 277 00:13:21,240 --> 00:13:23,000 Speaker 6: Great to have you here in Wall Street Week. Thanks 278 00:13:23,040 --> 00:13:24,920 Speaker 6: for having me, David, really nice to be with you. 279 00:13:25,200 --> 00:13:27,160 Speaker 2: So we hear a lot abot commercial real estate right now, 280 00:13:27,320 --> 00:13:29,400 Speaker 2: not all of it good, a lot of focused on 281 00:13:29,760 --> 00:13:33,480 Speaker 2: office buildings, but we've learned that commercial real estate is 282 00:13:33,559 --> 00:13:35,040 Speaker 2: more than just office buildings. 283 00:13:35,080 --> 00:13:36,600 Speaker 8: It's part of it, but not all of it. 284 00:13:36,600 --> 00:13:38,880 Speaker 2: Give us a sense of overall how commercial real estate 285 00:13:38,960 --> 00:13:39,600 Speaker 2: is doing well. 286 00:13:39,679 --> 00:13:42,720 Speaker 7: Of course, office buildings are the most difficult part of 287 00:13:42,720 --> 00:13:45,480 Speaker 7: the commercial real estate story today when you look at 288 00:13:45,480 --> 00:13:48,719 Speaker 7: other asset classes, so for instance, industrial buildings, which is 289 00:13:48,760 --> 00:13:59,160 Speaker 7: a big asset class, medical office buildings, hotels, life sciences buildings, multifamily, 290 00:14:00,280 --> 00:14:06,480 Speaker 7: institutional quality apartment buildings. Basically very strong fundamentals. And when 291 00:14:06,480 --> 00:14:11,040 Speaker 7: I say fundamentals, I mean the following well leased, in fact, 292 00:14:11,080 --> 00:14:15,800 Speaker 7: some of them historically well leased, strong rental rates and 293 00:14:15,920 --> 00:14:18,560 Speaker 7: upward pressure on rental rates in a lot of cases, 294 00:14:19,080 --> 00:14:22,440 Speaker 7: not a lot of new supply coming on. That's what 295 00:14:22,480 --> 00:14:25,680 Speaker 7: we mean by fundamentals, and when you get beyond office buildings, 296 00:14:25,760 --> 00:14:29,200 Speaker 7: the fundamentals and the commercial real estate group of asset 297 00:14:29,320 --> 00:14:33,200 Speaker 7: classes are generally very strong. And even within office buildings, 298 00:14:33,240 --> 00:14:35,520 Speaker 7: there's a slice of office buildings. I'm going to say 299 00:14:35,880 --> 00:14:40,200 Speaker 7: for thirty to forty percent of them, these newer, better configured, 300 00:14:41,040 --> 00:14:44,680 Speaker 7: better infrastructure office buildings where companies are trying to create 301 00:14:44,840 --> 00:14:48,160 Speaker 7: a really high quality experience for their employees to get 302 00:14:48,160 --> 00:14:49,480 Speaker 7: them back in the office. 303 00:14:49,840 --> 00:14:51,440 Speaker 6: Those assets are doing quite well. 304 00:14:51,560 --> 00:14:55,520 Speaker 7: So the headlines, the headline grabbing stories of an eighty 305 00:14:55,520 --> 00:14:58,920 Speaker 7: percent vacant office building, that's an anecdote. That's not a 306 00:14:58,920 --> 00:15:01,000 Speaker 7: proxy for what's going on on a commercial real estate. 307 00:15:01,040 --> 00:15:03,000 Speaker 2: So when you talk about the newer buildings, we're learning 308 00:15:03,000 --> 00:15:05,600 Speaker 2: to call them a's or A pluses as oppos the 309 00:15:05,600 --> 00:15:08,200 Speaker 2: b's and c's. Yes, but if you take a look 310 00:15:08,240 --> 00:15:10,600 Speaker 2: at commercial estate, the office portion of it right now, 311 00:15:10,720 --> 00:15:12,120 Speaker 2: how much of it's A, how much of it be 312 00:15:12,160 --> 00:15:12,680 Speaker 2: how much of C? 313 00:15:12,800 --> 00:15:14,000 Speaker 6: Would you say? In general? 314 00:15:14,640 --> 00:15:17,520 Speaker 7: Well, I think if you look at true A or 315 00:15:17,560 --> 00:15:21,240 Speaker 7: A plus, it's maybe a quarter of the a quarter 316 00:15:21,280 --> 00:15:23,440 Speaker 7: of the space out there. But you could go down 317 00:15:23,440 --> 00:15:25,600 Speaker 7: a little further and have some very nice buildings that 318 00:15:25,640 --> 00:15:29,400 Speaker 7: if upgraded appropriately, would be true a's and then you 319 00:15:29,480 --> 00:15:32,960 Speaker 7: probably have the bottom core quarter or so that are 320 00:15:33,280 --> 00:15:35,840 Speaker 7: real problematic buildings that are either going to have to 321 00:15:35,880 --> 00:15:40,560 Speaker 7: be mega redeveloped or probably scraped and turned into land sites. 322 00:15:40,600 --> 00:15:43,280 Speaker 7: And then in between you have a variety of different 323 00:15:43,360 --> 00:15:46,480 Speaker 7: kinds of buildings, some of which can be repurposed, maybe 324 00:15:46,520 --> 00:15:50,440 Speaker 7: into multifamily all that's very difficult to do. Some of 325 00:15:50,480 --> 00:15:52,680 Speaker 7: them will be upgraded to Class A buildings, and some 326 00:15:52,720 --> 00:15:54,760 Speaker 7: of them will go the way of land also, so. 327 00:15:54,680 --> 00:15:56,800 Speaker 2: You have different parts to commercial real estate, and then 328 00:15:56,920 --> 00:15:59,040 Speaker 2: within the office part of commercial real estate, you've got 329 00:15:59,080 --> 00:16:02,320 Speaker 2: different classes. Look at what about geography, because another thing 330 00:16:02,360 --> 00:16:04,760 Speaker 2: that we have heard is that it depends on what 331 00:16:04,800 --> 00:16:08,280 Speaker 2: metropolitan area you're talking about. San Francisco may be troubled 332 00:16:08,320 --> 00:16:10,160 Speaker 2: New York, maybe not so great Chicago. But then there 333 00:16:10,200 --> 00:16:15,040 Speaker 2: are others, whether it is Miami, for example, some parts 334 00:16:15,040 --> 00:16:17,560 Speaker 2: of Texas are doing pretty well well. 335 00:16:18,400 --> 00:16:22,400 Speaker 7: You mentioned San Francisco first, So that's probably the toughest 336 00:16:22,400 --> 00:16:26,000 Speaker 7: story out there in office buildings, and it's for more 337 00:16:26,120 --> 00:16:29,560 Speaker 7: reasons than just the tough to get people back in 338 00:16:29,600 --> 00:16:33,280 Speaker 7: the office. First of all, everybody knows that's where so 339 00:16:33,440 --> 00:16:38,080 Speaker 7: much concentration of tech occupancy is those companies have laid 340 00:16:38,080 --> 00:16:39,000 Speaker 7: off a lot of people. 341 00:16:39,040 --> 00:16:40,160 Speaker 6: But David, think about this. 342 00:16:40,920 --> 00:16:44,560 Speaker 7: We all know that the technology companies that are going 343 00:16:44,600 --> 00:16:47,520 Speaker 7: backwards with headcount now are going to go the other 344 00:16:47,600 --> 00:16:50,480 Speaker 7: direction for sure in the long run. We know that's 345 00:16:50,520 --> 00:16:52,480 Speaker 7: going to happen, and that part of what's going on 346 00:16:52,600 --> 00:16:54,560 Speaker 7: is going to come back. And then, of course you 347 00:16:54,600 --> 00:16:58,160 Speaker 7: do have the cyclical thing with the economy being down 348 00:16:58,200 --> 00:17:00,960 Speaker 7: a little bit, and you have the secular thing with 349 00:17:01,040 --> 00:17:03,800 Speaker 7: people not being back in the office as much, and 350 00:17:03,920 --> 00:17:05,359 Speaker 7: technology companies kind. 351 00:17:05,240 --> 00:17:07,640 Speaker 6: Of lead that charge. But by the way, if you. 352 00:17:07,600 --> 00:17:10,160 Speaker 7: See what's going on now, the technology companies are talking 353 00:17:10,160 --> 00:17:12,639 Speaker 7: about getting their people back into the office. 354 00:17:12,400 --> 00:17:14,520 Speaker 2: Talking about it, but they're getting that done. I mean, 355 00:17:14,520 --> 00:17:17,720 Speaker 2: we just this week passed the milestone in New York 356 00:17:17,800 --> 00:17:21,159 Speaker 2: of fifty percent occupancy, and that is by use of 357 00:17:21,160 --> 00:17:23,040 Speaker 2: the sort of security cards they know they're actually in 358 00:17:23,119 --> 00:17:25,000 Speaker 2: the office. Is it ever going to come back to 359 00:17:25,000 --> 00:17:25,719 Speaker 2: where it was before? 360 00:17:26,840 --> 00:17:30,159 Speaker 7: Well, New York is a good example of quite a 361 00:17:30,160 --> 00:17:33,200 Speaker 7: bit of the spectrum of what's going on. So in 362 00:17:33,840 --> 00:17:37,199 Speaker 7: class A top quality buildings here in New York, you 363 00:17:37,240 --> 00:17:39,680 Speaker 7: go over to Hudson Yards or you go to one 364 00:17:39,800 --> 00:17:43,760 Speaker 7: Vanderbilt in Midtown across from a Grand Central station. These 365 00:17:43,800 --> 00:17:46,159 Speaker 7: buildings are doing well and they're going to continue to 366 00:17:46,200 --> 00:17:49,200 Speaker 7: do well. And they're doing well because they create a 367 00:17:50,800 --> 00:17:53,879 Speaker 7: great story for the client or for the tenants and 368 00:17:53,920 --> 00:17:56,040 Speaker 7: their people, a great experience for their people. 369 00:17:56,840 --> 00:17:58,520 Speaker 6: Other buildings are suffering. 370 00:17:58,080 --> 00:18:00,840 Speaker 7: More because they don't create that experience, but they're all 371 00:18:00,880 --> 00:18:03,960 Speaker 7: slowly filling up. We did see a flat spot for 372 00:18:04,040 --> 00:18:06,399 Speaker 7: quite a while I'm going to say from earlier this 373 00:18:06,480 --> 00:18:09,439 Speaker 7: year till about now, but we're starting to see it 374 00:18:09,520 --> 00:18:12,239 Speaker 7: rise a little bit again now, and you really are 375 00:18:12,280 --> 00:18:14,359 Speaker 7: seeing a push from companies to get people back in. 376 00:18:14,640 --> 00:18:16,159 Speaker 7: I do not think it's going to go back to 377 00:18:16,160 --> 00:18:18,240 Speaker 7: where it was, and in fact, the work we've done 378 00:18:18,280 --> 00:18:21,679 Speaker 7: would suggest that in the long run, companies are going 379 00:18:21,720 --> 00:18:25,359 Speaker 7: to take maybe eighty percent of the space, maybe as 380 00:18:25,400 --> 00:18:28,600 Speaker 7: little as seventy five percent of the space as they 381 00:18:28,800 --> 00:18:29,640 Speaker 7: previously had. 382 00:18:29,920 --> 00:18:31,240 Speaker 2: So I don't want to put words in your mouth, 383 00:18:31,320 --> 00:18:32,960 Speaker 2: but I think what I'm hearing you say is by 384 00:18:33,040 --> 00:18:35,800 Speaker 2: and large, looking at as far as you can, you say, 385 00:18:35,800 --> 00:18:38,240 Speaker 2: maybe the market has largely discounted what it needs to 386 00:18:38,320 --> 00:18:39,320 Speaker 2: discount at this point. 387 00:18:39,480 --> 00:18:43,040 Speaker 7: Yeah, I think that's probably the case. Now we all 388 00:18:43,080 --> 00:18:44,520 Speaker 7: need to figure out what's going to go on with 389 00:18:44,560 --> 00:18:48,080 Speaker 7: the economy. Right now, the economy has performed better than 390 00:18:48,119 --> 00:18:49,680 Speaker 7: we thought it was going to perform, quite a bit 391 00:18:49,720 --> 00:18:52,400 Speaker 7: better around the world, in fact that there's now an 392 00:18:52,400 --> 00:18:55,959 Speaker 7: expectation that we won't even have a recession in Europe. 393 00:18:56,040 --> 00:18:59,119 Speaker 7: If we ended up with a worse recession than we 394 00:18:59,119 --> 00:19:01,600 Speaker 7: think we're going to get, values would come down further 395 00:19:01,680 --> 00:19:05,560 Speaker 7: because people would stop spending money of all types, including 396 00:19:05,920 --> 00:19:09,280 Speaker 7: try to spend less on rents. But we think values 397 00:19:09,320 --> 00:19:12,000 Speaker 7: have kind of hit the bottom are going to start recovering, 398 00:19:12,040 --> 00:19:14,560 Speaker 7: and we think we believe that we're going to have 399 00:19:14,600 --> 00:19:17,200 Speaker 7: a mild recession that's going to take place later this year, 400 00:19:17,280 --> 00:19:20,480 Speaker 7: be relatively short, and you'll start to see things come back. 401 00:19:20,480 --> 00:19:23,840 Speaker 7: By the way, there is a massive amount of capital 402 00:19:23,880 --> 00:19:27,520 Speaker 7: on the sidelines that wants to invest in commercial real estate, 403 00:19:27,640 --> 00:19:31,560 Speaker 7: and there is a massive amount of real estate that 404 00:19:31,680 --> 00:19:35,920 Speaker 7: wants to be refinanced or sold, and everybody's uncertain about 405 00:19:35,920 --> 00:19:37,840 Speaker 7: what's going on with values. And as soon as we 406 00:19:37,880 --> 00:19:40,120 Speaker 7: have some certainty, as soon as we think interest rates 407 00:19:40,119 --> 00:19:42,720 Speaker 7: and peaked and are coming down, you'll start to see 408 00:19:42,720 --> 00:19:44,840 Speaker 7: those assets trade and get refinanced. 409 00:19:44,840 --> 00:19:46,280 Speaker 2: As in so many places, you need the buyer and 410 00:19:46,320 --> 00:19:47,520 Speaker 2: the cellar to agree on that price. 411 00:19:47,640 --> 00:19:49,640 Speaker 7: Yeah, and you need them to be confident that it's 412 00:19:49,760 --> 00:19:51,560 Speaker 7: kind of gotten where it's going to get to. 413 00:19:53,560 --> 00:19:57,080 Speaker 3: That was David Weston with cbre CEO Bob Silentik. 414 00:19:58,520 --> 00:20:01,640 Speaker 8: Coming up. Former Treasuries Secretary of Larry Summers. 415 00:20:01,400 --> 00:20:04,560 Speaker 3: Gives us a reality check of the Fed's battle with inflation. 416 00:20:05,480 --> 00:20:09,400 Speaker 5: I don't see the idea that we've got a durable 417 00:20:10,000 --> 00:20:13,880 Speaker 5: reduction in inflation clearly established. 418 00:20:14,160 --> 00:20:16,600 Speaker 8: That's next on Wall Street Week on Bloomberg. 419 00:20:18,640 --> 00:20:22,880 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 420 00:20:23,000 --> 00:20:29,640 Speaker 1: Bloomberg Radio. 421 00:20:31,040 --> 00:20:34,000 Speaker 3: Monetary policy dominated the week with great decisions from the 422 00:20:34,080 --> 00:20:37,360 Speaker 3: US FED, the European Central Bank, and the People's Bank 423 00:20:37,400 --> 00:20:41,520 Speaker 3: of China. Three big central bank meetings and three divergent outcomes. 424 00:20:41,800 --> 00:20:44,800 Speaker 3: Let's get the view from Larry Summers, former US Treasury Secretary, 425 00:20:45,000 --> 00:20:48,800 Speaker 3: President emeritus at Harvard University and now a special contributor 426 00:20:48,960 --> 00:20:51,680 Speaker 3: to Wall Street Week. Larry, let's talk about the FED 427 00:20:51,760 --> 00:20:55,520 Speaker 3: meeting more importantly, That FED pause not necessarily a surprise, 428 00:20:56,119 --> 00:20:58,000 Speaker 3: but do you think it was appropriate? 429 00:20:59,280 --> 00:21:02,359 Speaker 5: I'm not sure I found the Fed's action a little 430 00:21:02,359 --> 00:21:10,040 Speaker 5: bit confusing. I understand the arguments for not hiking at 431 00:21:10,040 --> 00:21:14,720 Speaker 5: this meeting, but those arguments wouldn't point towards signaling to 432 00:21:15,040 --> 00:21:20,280 Speaker 5: further rate increases. They wouldn't point towards significantly revising the 433 00:21:20,320 --> 00:21:26,080 Speaker 5: forecast towards a stronger economy and more inflation. I understand 434 00:21:26,119 --> 00:21:31,199 Speaker 5: the arguments for having gone the other way, but I 435 00:21:31,240 --> 00:21:37,280 Speaker 5: don't really understand the internal consistency of an approach of 436 00:21:37,760 --> 00:21:43,840 Speaker 5: pausing at this meeting but then signaling to further rate 437 00:21:43,920 --> 00:21:47,320 Speaker 5: hikes down the road, and signaling that they no longer 438 00:21:47,440 --> 00:21:51,480 Speaker 5: expect unemployment to increase nearly as much as they used 439 00:21:51,520 --> 00:21:55,639 Speaker 5: to expect it. So this meeting felt like it was 440 00:21:55,760 --> 00:21:59,199 Speaker 5: driven as much by the internal political dynamics of the 441 00:21:59,240 --> 00:22:05,080 Speaker 5: Fed as by any consistent and coherent reading of the 442 00:22:05,200 --> 00:22:09,720 Speaker 5: economic situation, and that was a bit disturbing to me. 443 00:22:10,080 --> 00:22:12,440 Speaker 3: They raised some of their economic projections, or at least 444 00:22:12,440 --> 00:22:14,679 Speaker 3: they improved a little bit here, but you still have 445 00:22:14,720 --> 00:22:16,800 Speaker 3: a market that seems to be betting on this idea 446 00:22:17,240 --> 00:22:20,400 Speaker 3: of a recession, the idea that the FED itself may 447 00:22:20,440 --> 00:22:22,560 Speaker 3: have actually overtightened, or at least is on its way 448 00:22:22,600 --> 00:22:23,080 Speaker 3: to doing that. 449 00:22:24,000 --> 00:22:25,880 Speaker 10: That would not be my best guess. 450 00:22:26,640 --> 00:22:29,920 Speaker 5: I think it's very hard to read, but my best 451 00:22:30,000 --> 00:22:34,439 Speaker 5: guess is that the consumer, which is seventy percent of 452 00:22:34,480 --> 00:22:40,800 Speaker 5: the economy, appears to be running really quite strong. At 453 00:22:40,840 --> 00:22:45,800 Speaker 5: this point. We've got very strong employment data, much faster 454 00:22:46,000 --> 00:22:52,000 Speaker 5: than population growth. The indicators on wages are a bit mixed, 455 00:22:52,119 --> 00:22:55,600 Speaker 5: but the ones that seem most reliable to me that 456 00:22:56,160 --> 00:22:59,439 Speaker 5: adjusts for changes in the composition of the labor force 457 00:22:59,800 --> 00:23:06,840 Speaker 5: are showing substantial strength. So I don't see the idea 458 00:23:06,960 --> 00:23:12,880 Speaker 5: that we've got a durable reduction in inflation clearly established, 459 00:23:13,440 --> 00:23:16,400 Speaker 5: nor do I see clear evidence of. 460 00:23:16,560 --> 00:23:18,720 Speaker 10: A slowing coming. 461 00:23:19,240 --> 00:23:24,400 Speaker 5: So in that context, I think the FED has probably 462 00:23:24,440 --> 00:23:30,320 Speaker 5: got to maintain a posture of moving towards restraint. I 463 00:23:30,320 --> 00:23:34,800 Speaker 5: don't think it's very serious what the precise timing is, 464 00:23:34,880 --> 00:23:38,440 Speaker 5: and so if they don't move this time and end 465 00:23:38,520 --> 00:23:42,760 Speaker 5: up lifting rates fifty basis points at the next two meetings, 466 00:23:43,200 --> 00:23:49,199 Speaker 5: that's going to be okay as an outcome. But I 467 00:23:49,280 --> 00:23:53,679 Speaker 5: think that they ought to decide what their balancing of 468 00:23:53,800 --> 00:23:58,840 Speaker 5: risks is, and I was struck that the balancing of 469 00:23:59,000 --> 00:24:04,479 Speaker 5: risks it was implicit in not moving today this time, 470 00:24:05,040 --> 00:24:08,200 Speaker 5: was kind of inconsistent with the balancing of risks that 471 00:24:09,119 --> 00:24:16,880 Speaker 5: was signaled by the two tightenings and by the forecast revisions. 472 00:24:17,160 --> 00:24:20,240 Speaker 3: I want to go overseas to China. They had a 473 00:24:20,320 --> 00:24:22,600 Speaker 3: much different policy meeting coming out of the People's Bank 474 00:24:22,600 --> 00:24:24,600 Speaker 3: of China, a cut And there's been a lot of 475 00:24:24,600 --> 00:24:27,840 Speaker 3: discussion here Larry about the health of the Chinese economy 476 00:24:27,880 --> 00:24:29,840 Speaker 3: and light of the data we've gotten and a lot 477 00:24:29,920 --> 00:24:32,280 Speaker 3: of some of the reports by Bloomberg and others that 478 00:24:32,359 --> 00:24:35,159 Speaker 3: they are considering fiscal or at least some sort of 479 00:24:35,200 --> 00:24:38,680 Speaker 3: economic stimulus measures to get that economy back going back again. 480 00:24:40,080 --> 00:24:45,040 Speaker 5: You know, I think the Chinese have a very difficult 481 00:24:46,200 --> 00:24:51,080 Speaker 5: set of challenges ahead of them. They're very serious financial 482 00:24:51,160 --> 00:24:57,480 Speaker 5: overhangs coming out of what's happening in real estate. I 483 00:24:57,640 --> 00:25:00,640 Speaker 5: take a somewhat more medium term view of it, and 484 00:25:01,080 --> 00:25:07,000 Speaker 5: what's an economy about economies about people and it's about capital. 485 00:25:07,520 --> 00:25:10,200 Speaker 5: And what we know is that the number of births 486 00:25:10,240 --> 00:25:14,280 Speaker 5: in China has fallen by almost fifty percent in the 487 00:25:14,359 --> 00:25:18,680 Speaker 5: last six years. Even though they eliminated the one child policy, 488 00:25:19,080 --> 00:25:24,040 Speaker 5: the number of births has kept really falling. And we 489 00:25:24,160 --> 00:25:30,600 Speaker 5: know that Bloomberg reported that the number of millionaires leaving 490 00:25:30,800 --> 00:25:35,720 Speaker 5: China was kind of high by historical standards and high 491 00:25:35,760 --> 00:25:38,879 Speaker 5: by global standards. Now that's a funny measure in a 492 00:25:38,960 --> 00:25:41,679 Speaker 5: lot of ways. But if you look at measures of 493 00:25:41,720 --> 00:25:46,120 Speaker 5: attempted capital flight from China, they look to be pretty strong. 494 00:25:46,200 --> 00:25:47,000 Speaker 10: And if you look. 495 00:25:46,880 --> 00:25:51,080 Speaker 5: At measures of capital inflow, what you saw from Sequoia 496 00:25:51,600 --> 00:25:55,520 Speaker 5: where they were splitting off their China business a week 497 00:25:55,640 --> 00:25:58,399 Speaker 5: or two ago, is indicative of a lot of things 498 00:25:58,440 --> 00:26:04,439 Speaker 5: that are happening, whether it's supply of people, investment in 499 00:26:05,720 --> 00:26:06,600 Speaker 5: new capital. 500 00:26:07,000 --> 00:26:08,200 Speaker 10: I think you've got. 501 00:26:08,000 --> 00:26:13,680 Speaker 5: Some fundamental bets that aren't running that positive in China, 502 00:26:14,160 --> 00:26:18,720 Speaker 5: and that's going to be a challenge along with the 503 00:26:18,800 --> 00:26:24,560 Speaker 5: nearer term issues for the Chinese economy, and so that's 504 00:26:24,640 --> 00:26:29,280 Speaker 5: something that for them I'm worried about. I think that's 505 00:26:29,320 --> 00:26:33,880 Speaker 5: something that's going to point towards there being more softness 506 00:26:33,920 --> 00:26:39,040 Speaker 5: and commodity prices globally than many might have expected, and 507 00:26:39,080 --> 00:26:42,159 Speaker 5: we've seen a certain amount of that in the oil market. 508 00:26:43,040 --> 00:26:47,080 Speaker 3: Let's move over to the European Union, Larry. We got 509 00:26:47,080 --> 00:26:50,320 Speaker 3: the ECB a rate decision, a hike as expected, and 510 00:26:50,440 --> 00:26:53,840 Speaker 3: discussion from Christine Legard that the market should expect additional 511 00:26:53,920 --> 00:26:56,520 Speaker 3: hikes here. When you look at economic conditions over there, 512 00:26:56,560 --> 00:26:59,520 Speaker 3: and you look at monetary policy here, are they in sync? 513 00:27:00,920 --> 00:27:03,479 Speaker 5: You know, I don't think the objective really is to 514 00:27:03,520 --> 00:27:06,800 Speaker 5: have policies in sync. I think the objective is to 515 00:27:06,880 --> 00:27:12,640 Speaker 5: have policies appropriate to particular circumstances and then to let 516 00:27:13,680 --> 00:27:18,280 Speaker 5: exchange rates suggest. And I think the inflation issue is 517 00:27:18,359 --> 00:27:22,000 Speaker 5: probably a more severe one in terms of Europe. 518 00:27:22,000 --> 00:27:23,639 Speaker 10: They haven't moved nearly as. 519 00:27:23,520 --> 00:27:28,680 Speaker 5: Far as we have in the face of somewhat greater threats. 520 00:27:29,200 --> 00:27:35,280 Speaker 5: So I think the European actions were broadly appropriate, and 521 00:27:35,359 --> 00:27:40,520 Speaker 5: I think they're going to very likely need to continue acting, 522 00:27:40,800 --> 00:27:44,680 Speaker 5: especially given that I think that monetary policy in the 523 00:27:44,800 --> 00:27:48,480 Speaker 5: United States is more likely to surprise in terms of 524 00:27:48,560 --> 00:27:52,639 Speaker 5: tighter rates than it is to surprise in terms of 525 00:27:52,680 --> 00:27:53,320 Speaker 5: greater ease. 526 00:27:53,880 --> 00:27:55,440 Speaker 3: Before I let you go, Larry, I mean, I was 527 00:27:55,480 --> 00:27:57,880 Speaker 3: just trolling through your Twitter feed here and I thought 528 00:27:57,880 --> 00:28:01,440 Speaker 3: you tweeted out something related to a pain on the IRS. 529 00:28:01,440 --> 00:28:03,359 Speaker 3: There's been a lot of discussion here about the funding 530 00:28:03,359 --> 00:28:06,119 Speaker 3: for the IRS, about the funding and its capability of 531 00:28:06,200 --> 00:28:09,879 Speaker 3: auditing folks, and more importantly, the return that it gets 532 00:28:10,240 --> 00:28:11,280 Speaker 3: off of those audits. 533 00:28:11,880 --> 00:28:15,680 Speaker 5: Look, we don't have many better investments in government. What 534 00:28:16,119 --> 00:28:20,800 Speaker 5: this study, which is the most careful one done to 535 00:28:21,000 --> 00:28:25,560 Speaker 5: date by my colleagues at Harvard, Nathan Hendron and Ben 536 00:28:25,600 --> 00:28:31,560 Speaker 5: sprung Kaiser, along with government officials, finds is that a 537 00:28:31,760 --> 00:28:39,040 Speaker 5: dollar invested in increased revenues, increased enforcement with respect to 538 00:28:39,040 --> 00:28:42,920 Speaker 5: top one percent taxpayers, people who are audited at a 539 00:28:43,040 --> 00:28:47,360 Speaker 5: rate of only a little more than one percent, people 540 00:28:47,400 --> 00:28:50,800 Speaker 5: who in some cases file returns and the statute of 541 00:28:50,840 --> 00:28:55,040 Speaker 5: limitations runs and the IRS doesn't even notice that a 542 00:28:55,160 --> 00:29:01,880 Speaker 5: greater investment in those that area of tax audits can 543 00:29:01,920 --> 00:29:07,960 Speaker 5: pay off twelve dollars at every extra revenue for every dollar. 544 00:29:08,160 --> 00:29:11,960 Speaker 10: That is invested. 545 00:29:12,480 --> 00:29:19,360 Speaker 5: And it's gotta be in that context penny wise and 546 00:29:20,280 --> 00:29:24,600 Speaker 5: ton foolish to be underfunding. 547 00:29:25,320 --> 00:29:26,320 Speaker 10: The irs. 548 00:29:26,800 --> 00:29:29,600 Speaker 3: Larry, always wonderful to talk to you, Larry Summers. There, 549 00:29:30,160 --> 00:29:33,640 Speaker 3: President emeritith Over at Harvard, former US Treasury Secretary and 550 00:29:33,680 --> 00:29:34,560 Speaker 3: special contributor. 551 00:29:34,600 --> 00:29:36,280 Speaker 10: Here to Wall Street Week. 552 00:29:36,440 --> 00:29:39,640 Speaker 3: Coming up here a new wealth management giant on the block. 553 00:29:39,680 --> 00:29:41,520 Speaker 3: We're going to hear from the Barkley CEO on what 554 00:29:41,600 --> 00:29:43,360 Speaker 3: it means for his business. 555 00:29:43,840 --> 00:29:44,560 Speaker 10: This is Bloomberg. 556 00:29:57,800 --> 00:30:04,680 Speaker 1: This is Bloomberg Wall Street with David Western from Bloomberg Radio. 557 00:30:09,280 --> 00:30:12,480 Speaker 3: This week, banking saw its biggest merger since the financial crisis, 558 00:30:12,760 --> 00:30:16,680 Speaker 3: UBS completing its acquisition of Credit Suite, creating a global 559 00:30:16,720 --> 00:30:20,600 Speaker 3: wealth management powerhouse. We heard from the Barkley ceocs VN 560 00:30:20,680 --> 00:30:23,480 Speaker 3: Kara Christnan. He sat down with David Weston's talk about 561 00:30:23,520 --> 00:30:24,920 Speaker 3: what it means for his bank. 562 00:30:25,520 --> 00:30:29,840 Speaker 4: Credit Suite and UBS's merger has two important consequences. One 563 00:30:30,000 --> 00:30:33,200 Speaker 4: for the financial system as a whole. It has stabilized 564 00:30:33,200 --> 00:30:38,160 Speaker 4: it because a slightly wobbly GCPHI bank is no longer there. 565 00:30:38,200 --> 00:30:41,520 Speaker 4: It's absorbed into UBS in a very solid transaction. 566 00:30:42,120 --> 00:30:43,800 Speaker 10: The second is as UBS. 567 00:30:43,520 --> 00:30:46,840 Speaker 4: Develops its business model, it will be for Barclays both 568 00:30:46,840 --> 00:30:50,160 Speaker 4: an important client for our markets business and a competitor 569 00:30:50,200 --> 00:30:52,840 Speaker 4: for us in investment banking. But that's the way all 570 00:30:52,920 --> 00:30:54,760 Speaker 4: large banks are with each other these. 571 00:30:54,680 --> 00:30:57,280 Speaker 2: Days, Magett, how do you keep score? I mean, one way, 572 00:30:57,320 --> 00:30:59,200 Speaker 2: we look at his price to book and your price 573 00:30:59,200 --> 00:31:01,200 Speaker 2: to book. Right now we're around point four to four. 574 00:31:01,360 --> 00:31:03,680 Speaker 2: You're lagging behind most of your competitors. Do you pay 575 00:31:03,720 --> 00:31:05,560 Speaker 2: attention price to book? And if so, how do you 576 00:31:05,600 --> 00:31:06,840 Speaker 2: get that price to book back up? 577 00:31:07,400 --> 00:31:07,560 Speaker 10: So? 578 00:31:07,640 --> 00:31:09,320 Speaker 4: I pay a lot of attention to price to book. 579 00:31:09,320 --> 00:31:12,360 Speaker 4: It's probably the single most important metric for a bank, 580 00:31:13,080 --> 00:31:17,760 Speaker 4: and a bank's price to book is dependent on one 581 00:31:17,800 --> 00:31:20,320 Speaker 4: of two things, improving the quality of your assets or 582 00:31:20,360 --> 00:31:24,160 Speaker 4: improving your profitability. We have excellent assets, so it's our 583 00:31:24,160 --> 00:31:28,400 Speaker 4: profitability and the scaling of our profitability that we are 584 00:31:28,440 --> 00:31:32,000 Speaker 4: focused on. So within the UK consumer business and the 585 00:31:32,080 --> 00:31:34,600 Speaker 4: investment bank, as I said, we are at scale and 586 00:31:34,640 --> 00:31:37,720 Speaker 4: we look to continue to perform well. And then the 587 00:31:37,760 --> 00:31:40,360 Speaker 4: other three businesses are areas where we would like to 588 00:31:40,400 --> 00:31:44,960 Speaker 4: grow our scale. Our investment bank is about sixty percent 589 00:31:45,000 --> 00:31:47,000 Speaker 4: of the bank. In a way, it's been very successful 590 00:31:47,400 --> 00:31:49,959 Speaker 4: and what we would like to do is while keeping 591 00:31:50,040 --> 00:31:52,800 Speaker 4: its momentum, growing the rest of the bank outside of 592 00:31:52,840 --> 00:31:53,520 Speaker 4: the investment bank. 593 00:31:53,560 --> 00:31:55,240 Speaker 2: How much is the nest mak are the bankers that 594 00:31:55,280 --> 00:31:58,520 Speaker 2: you have because you have had some exodus to Jeffries 595 00:31:58,560 --> 00:32:02,040 Speaker 2: to other places, you've remarked about it, Actually what is 596 00:32:02,080 --> 00:32:04,240 Speaker 2: the issue there? Why are you losing investment bankers? Are 597 00:32:04,280 --> 00:32:05,760 Speaker 2: you losing the ones you want to lose? 598 00:32:06,360 --> 00:32:09,040 Speaker 4: So, first of all, we are losing a few investment bankers, 599 00:32:09,040 --> 00:32:12,840 Speaker 4: but not that much more than what is normal annual turnover. 600 00:32:12,960 --> 00:32:15,600 Speaker 4: I mean this is the period in the first few 601 00:32:16,040 --> 00:32:18,720 Speaker 4: months of the second quarter when people have been paid 602 00:32:18,760 --> 00:32:20,920 Speaker 4: their bonuses, and there's a little bit of musical chairs. 603 00:32:20,960 --> 00:32:23,960 Speaker 4: As you know, it's a time order tradition in this industry. 604 00:32:25,400 --> 00:32:28,360 Speaker 4: We made a management change in our investment bank. We 605 00:32:28,920 --> 00:32:31,440 Speaker 4: spend a lot of time last year thinking about what 606 00:32:31,480 --> 00:32:36,320 Speaker 4: we expected the banking landscape to be over the next decade. 607 00:32:36,680 --> 00:32:40,320 Speaker 4: So what you've seen is rising interest rates, changing business models, 608 00:32:40,800 --> 00:32:43,800 Speaker 4: the importance of sectors that are fairly new to the economy, 609 00:32:44,000 --> 00:32:49,680 Speaker 4: not just technology, but sustainability, mobility, climate, tech. And then 610 00:32:50,360 --> 00:32:53,040 Speaker 4: there is just the different players and the importance of 611 00:32:53,040 --> 00:32:56,120 Speaker 4: the players in the banking market. The private equity groups 612 00:32:56,120 --> 00:32:58,920 Speaker 4: have been very large. Private credit funds are becoming bigger. 613 00:32:59,360 --> 00:33:03,000 Speaker 4: They're slightly dis intermediating what banks are doing. And we 614 00:33:03,320 --> 00:33:06,760 Speaker 4: as we've began with a very American investment bank here 615 00:33:06,800 --> 00:33:09,240 Speaker 4: in the US based from the Lehman acquisition of Barclays, 616 00:33:09,560 --> 00:33:11,480 Speaker 4: and we've grown in Europe, we wanted to put more 617 00:33:11,480 --> 00:33:14,480 Speaker 4: emphasis in Europe as well. So you bring it all 618 00:33:14,520 --> 00:33:18,800 Speaker 4: together and you're talking about us thinking about the next 619 00:33:18,840 --> 00:33:22,479 Speaker 4: generation of leadership of the investment bank, building on our 620 00:33:22,480 --> 00:33:25,000 Speaker 4: strendths in debt capital markets, but growing in equity, is 621 00:33:25,040 --> 00:33:27,680 Speaker 4: growing in m and A growing in Europe. And when 622 00:33:27,680 --> 00:33:30,680 Speaker 4: you do that kind of organizational change, sometimes it has impacts. 623 00:33:30,840 --> 00:33:33,040 Speaker 2: Well, you suggested something I was curious about. It is 624 00:33:33,360 --> 00:33:36,240 Speaker 2: there a strategic shift in emphasis in the investment bank 625 00:33:36,600 --> 00:33:38,840 Speaker 2: a little bit away from United States and toward Europe. Because, 626 00:33:38,880 --> 00:33:41,280 Speaker 2: as I recall, your two coheads before were based in 627 00:33:41,280 --> 00:33:43,240 Speaker 2: the United States. The two coheads now are you based 628 00:33:43,240 --> 00:33:43,760 Speaker 2: in Europe. 629 00:33:44,120 --> 00:33:46,280 Speaker 4: One is in Europe and one is here in the US. 630 00:33:46,760 --> 00:33:50,240 Speaker 4: So it's not a shift so much as an expansion. 631 00:33:50,960 --> 00:33:53,240 Speaker 4: It is to try to give more attention to Europe. 632 00:33:53,320 --> 00:33:57,520 Speaker 4: Relatively speaking, the US remains critically important to US and 633 00:33:57,600 --> 00:34:00,440 Speaker 4: the US businesses or some things, especially in the debt 634 00:34:00,440 --> 00:34:03,440 Speaker 4: capital markets, where we are absolutely leading and we want 635 00:34:03,440 --> 00:34:04,840 Speaker 4: to maintain that position. 636 00:34:04,720 --> 00:34:07,240 Speaker 2: Absolutely in debt capital markets. What about equity? Are you 637 00:34:07,280 --> 00:34:08,320 Speaker 2: shifting toward equity? 638 00:34:08,800 --> 00:34:11,319 Speaker 4: We are trying to expand and grow our business in 639 00:34:11,360 --> 00:34:12,880 Speaker 4: both equities and advisory. 640 00:34:13,239 --> 00:34:15,600 Speaker 2: When you look at US expansion, where would you be 641 00:34:15,640 --> 00:34:16,960 Speaker 2: expanding if you're expanding in I. 642 00:34:17,000 --> 00:34:19,480 Speaker 4: Said, I would love to grow our credit card business 643 00:34:19,480 --> 00:34:23,000 Speaker 4: even more, and then our investment banking and trading businesses. 644 00:34:23,040 --> 00:34:26,360 Speaker 4: As I said, we are the largest non US bank, 645 00:34:26,680 --> 00:34:29,160 Speaker 4: but there's always room to increase our market share and 646 00:34:29,200 --> 00:34:29,600 Speaker 4: our reach. 647 00:34:30,040 --> 00:34:30,440 Speaker 10: That does it. 648 00:34:30,480 --> 00:34:33,080 Speaker 3: For this episode of Wall Street Week, I'm romain pastic. 649 00:34:33,280 --> 00:34:41,320 Speaker 8: We'll see you next week.