1 00:00:00,520 --> 00:00:03,760 Speaker 1: This is Bloomberg Wall Street Week. We turn our attention 2 00:00:03,880 --> 00:00:07,600 Speaker 1: to the markets. This week. US CPI members reinforcing concerns 3 00:00:07,600 --> 00:00:10,800 Speaker 1: about inflation. The financial stories that sheep are were a 4 00:00:10,840 --> 00:00:13,760 Speaker 1: really different reaction to mark. Two more indications of just 5 00:00:13,960 --> 00:00:16,360 Speaker 1: how hot the U S economy really is through the 6 00:00:16,400 --> 00:00:19,800 Speaker 1: eyes of the most influential voices Larry Summers, the former 7 00:00:19,840 --> 00:00:22,840 Speaker 1: treatuer secretary, Katherine Keene, CEO of the N Y mom 8 00:00:22,960 --> 00:00:26,319 Speaker 1: Sam's l Sharman and founder of equitate group investment in 9 00:00:26,360 --> 00:00:30,320 Speaker 1: Bloomberg Wool Street Week with David Weston from Bloomberg radio. 10 00:00:31,680 --> 00:00:36,040 Speaker 1: A strike averted, the tide turns in the Ukraine, war, possibly, 11 00:00:36,520 --> 00:00:40,040 Speaker 1: and inflation. While inflation it just gets worse. This is 12 00:00:40,040 --> 00:00:44,000 Speaker 1: Bloomberg Wall Street Week. I'm David Weston, this week special 13 00:00:44,040 --> 00:00:46,680 Speaker 1: contributor to Larry Summers of Harvard on just how much 14 00:00:46,720 --> 00:00:52,320 Speaker 1: economic trouble we may be in. Headline inflation fluctuates substantially, 15 00:00:52,520 --> 00:00:56,960 Speaker 1: but we've got a significant underlying inflation problem and Dan 16 00:00:57,120 --> 00:01:00,880 Speaker 1: Chung of Alger Management on staying safe by taking some 17 00:01:01,000 --> 00:01:05,199 Speaker 1: risk and our patterns that you can invest in even 18 00:01:05,200 --> 00:01:22,000 Speaker 1: interpolent time. The War in Ukraine took another unexpected turn 19 00:01:22,080 --> 00:01:25,080 Speaker 1: this week as Ukrainian forces pushed the Russians out of 20 00:01:25,200 --> 00:01:28,520 Speaker 1: territory that they had held four months, raising hopes for 21 00:01:28,680 --> 00:01:32,920 Speaker 1: people like former U S Army Europe commanding General Ben Hodges. 22 00:01:33,520 --> 00:01:37,319 Speaker 1: This will end, I believe, early next year. The Ukrainians 23 00:01:37,319 --> 00:01:40,000 Speaker 1: are going to push the Russians back to the twenty 24 00:01:40,080 --> 00:01:43,000 Speaker 1: three February line before the end of this year. I believe. 25 00:01:43,480 --> 00:01:48,040 Speaker 1: While former defense secretary Leon Panetta warned a possible Russian retaliation, 26 00:01:48,600 --> 00:01:51,280 Speaker 1: the real issue is whether Putin now strikes back. He 27 00:01:51,360 --> 00:01:55,080 Speaker 1: already has struck back on the infrastructure, whether he resorts 28 00:01:55,160 --> 00:01:59,200 Speaker 1: to two more you know, including the possibility of battle 29 00:01:59,240 --> 00:02:02,840 Speaker 1: field nuclear and President G of China took the occasion 30 00:02:02,920 --> 00:02:05,680 Speaker 1: to make his first trip out of the country since 31 00:02:05,720 --> 00:02:08,800 Speaker 1: the pandemic hit. And whom did he visit? Well, Russian 32 00:02:08,840 --> 00:02:12,959 Speaker 1: President Putin in Uzbekistan. He essentially pitched his wagon to 33 00:02:13,080 --> 00:02:16,800 Speaker 1: Vladimir Putin. It hasn't gone well. That has gone badly 34 00:02:16,919 --> 00:02:20,239 Speaker 1: for for shade. Meanwhile, in the United States, we walked 35 00:02:20,440 --> 00:02:23,280 Speaker 1: right up to a national rail strike that would do 36 00:02:23,400 --> 00:02:26,640 Speaker 1: real damage to a fragile economy and then avoided it 37 00:02:26,720 --> 00:02:30,200 Speaker 1: at the eleventh hour through round the clock negotiations led 38 00:02:30,280 --> 00:02:33,919 Speaker 1: by the Biden Administration label reach agreement, and I think 39 00:02:33,919 --> 00:02:37,400 Speaker 1: in agreement that really is beneficial post size. But the 40 00:02:37,520 --> 00:02:40,040 Speaker 1: really big story for Global Wall Street? who were those 41 00:02:40,080 --> 00:02:44,079 Speaker 1: CPI numbers on Tuesday, coming in hotter than expected, cementing 42 00:02:44,200 --> 00:02:48,160 Speaker 1: in most minds a path of continued aggressive rate hikes 43 00:02:48,200 --> 00:02:51,000 Speaker 1: by the Fed and maybe, just maybe, for longer than 44 00:02:51,040 --> 00:02:54,160 Speaker 1: we had thought. The Ted has a game plan. Their 45 00:02:54,280 --> 00:02:58,160 Speaker 1: game plan is to make sure that the interest rate 46 00:02:58,280 --> 00:03:01,880 Speaker 1: is higher than invasion. That's a way, they believed, the 47 00:03:01,960 --> 00:03:06,160 Speaker 1: way to kill inflation. But President Biden insists he is 48 00:03:06,200 --> 00:03:09,399 Speaker 1: not worried. The stock market doesn't necessarily reflect the state 49 00:03:09,400 --> 00:03:14,000 Speaker 1: of the economy. You well know, including economy is still strong. Unemployment, 50 00:03:14,080 --> 00:03:17,799 Speaker 1: Sloan jobs are of manufacturing is good. So I think 51 00:03:17,800 --> 00:03:20,640 Speaker 1: we're gonna be fine. Help the inflation number those no, 52 00:03:20,720 --> 00:03:26,040 Speaker 1: I'm not. Well. If President Biden isn't worried about inflation, 53 00:03:26,120 --> 00:03:28,600 Speaker 1: the markets, sure we're. This week we're reacting with a 54 00:03:28,680 --> 00:03:30,840 Speaker 1: vengeance to that CPI news, with the S and p 55 00:03:30,919 --> 00:03:33,519 Speaker 1: five hundred having its worst week since June, down four 56 00:03:34,480 --> 00:03:36,880 Speaker 1: and the NASDACK down almost five and a half percent, 57 00:03:37,080 --> 00:03:40,480 Speaker 1: while bond yields shot up the ten year treasury adding 58 00:03:40,520 --> 00:03:43,800 Speaker 1: fourteen basis points, ending up at three point four and 59 00:03:43,840 --> 00:03:46,840 Speaker 1: an even bigger story with the two year, up thirty 60 00:03:46,840 --> 00:03:49,840 Speaker 1: one basis points, pushing up to just under three point 61 00:03:49,920 --> 00:03:52,880 Speaker 1: nine percent. Tell us understand what the markets are trying 62 00:03:52,920 --> 00:03:55,400 Speaker 1: to tell us. This week we welcome now Sonny Beschli 63 00:03:55,520 --> 00:03:58,680 Speaker 1: CEO of Rock Creek, and Greg Peters, co C I 64 00:03:58,800 --> 00:04:01,120 Speaker 1: O of PGM. So Great. Let's start with you. What 65 00:04:01,160 --> 00:04:03,080 Speaker 1: are the markets trying to tell us? Markets are trying 66 00:04:03,080 --> 00:04:06,000 Speaker 1: to tell you, David, that the Fed has a lot 67 00:04:06,040 --> 00:04:11,480 Speaker 1: of work to do. UH, inflation continues to be quite persistent, persistent. 68 00:04:12,280 --> 00:04:15,360 Speaker 1: What I think uh, the inflation number showed us is 69 00:04:15,400 --> 00:04:17,839 Speaker 1: that how broad based it was. So the focus was 70 00:04:17,920 --> 00:04:20,200 Speaker 1: on the core number, and the core number came and 71 00:04:20,360 --> 00:04:23,400 Speaker 1: double what was expected and the markets were leaning the 72 00:04:23,440 --> 00:04:26,760 Speaker 1: other way. So I think this is just a reaffirmation 73 00:04:26,880 --> 00:04:31,480 Speaker 1: that inflation is entrenched in the system. The Fed has 74 00:04:31,520 --> 00:04:34,520 Speaker 1: a lot of work ahead of itself, as do other 75 00:04:34,600 --> 00:04:37,720 Speaker 1: central banks, and the markets need to adjust, yields need 76 00:04:37,800 --> 00:04:40,839 Speaker 1: to adjust UH and the economy, as a consequence of 77 00:04:40,920 --> 00:04:45,359 Speaker 1: this higher rate environment, uh needs to slow down. So 78 00:04:45,480 --> 00:04:48,400 Speaker 1: sunny looked like the markets started adjust certainly this week. 79 00:04:48,440 --> 00:04:50,480 Speaker 1: At the same time, how much work does the Fed 80 00:04:50,560 --> 00:04:52,520 Speaker 1: have in front of it, because we keep hearing about 81 00:04:52,560 --> 00:04:54,520 Speaker 1: there's a lag and monetary policy at the same time. 82 00:04:54,560 --> 00:04:59,159 Speaker 1: It looks like they're behind. You're also to rite. And 83 00:04:59,360 --> 00:05:02,120 Speaker 1: what has happened? Thing is now I think the market 84 00:05:02,160 --> 00:05:04,840 Speaker 1: has accepted that we're going to be closer to four, 85 00:05:05,160 --> 00:05:08,279 Speaker 1: four and a half, maybe more, um in terms of 86 00:05:08,360 --> 00:05:13,440 Speaker 1: terminal rates, and that was what shook the markets this week. And, 87 00:05:13,600 --> 00:05:15,799 Speaker 1: as Greg said, this is not just in the US. 88 00:05:15,920 --> 00:05:18,560 Speaker 1: I think the e CBS behind the curve. The Bank 89 00:05:18,600 --> 00:05:21,680 Speaker 1: of England is behind the curve. So this is more 90 00:05:21,880 --> 00:05:25,359 Speaker 1: of the u than more than just the US phenomena Um. 91 00:05:25,400 --> 00:05:28,719 Speaker 1: But no question that the medicine will be tough over 92 00:05:28,760 --> 00:05:32,120 Speaker 1: the next six months and our expectation here is that 93 00:05:32,360 --> 00:05:35,280 Speaker 1: we would probably end up at probably four point to 94 00:05:35,480 --> 00:05:37,640 Speaker 1: five by the end of the year. Well, the medicine 95 00:05:37,680 --> 00:05:39,880 Speaker 1: is tough, but is there any danger the doctor might 96 00:05:39,880 --> 00:05:42,800 Speaker 1: prescribe too much of the medicine overreact because it takes 97 00:05:42,800 --> 00:05:45,320 Speaker 1: a while for to kick in? You're so right, also 98 00:05:45,440 --> 00:05:48,600 Speaker 1: because policies take a while to work through the system. 99 00:05:48,720 --> 00:05:52,240 Speaker 1: So we know in economics one on one that that policies, 100 00:05:52,640 --> 00:05:56,240 Speaker 1: especially interest rate increases, can choke off the housing market. 101 00:05:56,279 --> 00:06:00,000 Speaker 1: For example. They started, you know, with six percent more 102 00:06:00,040 --> 00:06:03,440 Speaker 1: a rates, you're going to see the housing market hugely impacted. 103 00:06:03,480 --> 00:06:05,880 Speaker 1: But that takes not next month but a couple of 104 00:06:05,880 --> 00:06:09,599 Speaker 1: months to work through. So no question that we could overcorrect, 105 00:06:10,000 --> 00:06:12,440 Speaker 1: but I think the Fed now, feeling that they have 106 00:06:12,560 --> 00:06:16,719 Speaker 1: fallen behind, has that danger of overcorrecting. I think the 107 00:06:16,760 --> 00:06:19,039 Speaker 1: good news there is that they can always bring in 108 00:06:19,200 --> 00:06:22,320 Speaker 1: interest rates down a little bit Um in the early 109 00:06:22,360 --> 00:06:25,080 Speaker 1: part of next year, but most likely they will be 110 00:06:25,160 --> 00:06:28,160 Speaker 1: very careful before they do that because we have seen 111 00:06:28,240 --> 00:06:31,159 Speaker 1: with Vulker and others, if you bring down interest rates 112 00:06:31,200 --> 00:06:34,120 Speaker 1: down too soon, you will also have problems. Thank you 113 00:06:34,160 --> 00:06:36,160 Speaker 1: so much, Greg Peters and Sonny Bachalis. They're gonna be 114 00:06:36,200 --> 00:06:38,080 Speaker 1: staying with us as we get some advice on what 115 00:06:38,160 --> 00:06:40,600 Speaker 1: we should be doing with our portfolio is given all 116 00:06:40,680 --> 00:06:42,880 Speaker 1: of the turmoil it's gonna have. Next on Wah Week 117 00:06:43,040 --> 00:07:00,440 Speaker 1: on Bloomberg. This is Bloomberg Wall Street week with David 118 00:07:00,600 --> 00:07:05,160 Speaker 1: from Bloomberg radio. The outlook for oil is bleakest of before. 119 00:07:05,800 --> 00:07:08,159 Speaker 1: We now use nine and a half gallons each day. 120 00:07:08,560 --> 00:07:11,760 Speaker 1: By five the average household is expected to be using 121 00:07:11,880 --> 00:07:15,280 Speaker 1: fifteen gallons of oil, yet even at the present lower 122 00:07:15,360 --> 00:07:18,160 Speaker 1: rate of usage, the reserve on hand would be wiped 123 00:07:18,160 --> 00:07:21,760 Speaker 1: out in ten more years. That was Lewis Rucks, of course, 124 00:07:21,760 --> 00:07:23,840 Speaker 1: on Wall Street, were back in nineteen seventy three, when 125 00:07:23,880 --> 00:07:26,360 Speaker 1: he was worried about running out of oil altogether in 126 00:07:26,400 --> 00:07:29,240 Speaker 1: the globe after only ten years. Literally. We know that 127 00:07:29,280 --> 00:07:31,320 Speaker 1: at the time we were only seven months away from 128 00:07:31,320 --> 00:07:34,320 Speaker 1: an opaque oil embargo which really played havoc with the markets. 129 00:07:34,560 --> 00:07:37,400 Speaker 1: As we were watching the hit movie Poseidon Adventure and 130 00:07:37,440 --> 00:07:39,520 Speaker 1: listening to the most popular song that was were Bert 131 00:07:39,560 --> 00:07:42,680 Speaker 1: of flex killing me softly. So with us are Greg Peters, 132 00:07:42,680 --> 00:07:45,280 Speaker 1: of pigeon and of Snay Bachelists, of rock creeks, of Sonda. 133 00:07:45,400 --> 00:07:46,800 Speaker 1: You've had a good part of your career dealing with 134 00:07:46,840 --> 00:07:48,240 Speaker 1: the oil. We didn't run out of oil the way 135 00:07:48,280 --> 00:07:50,320 Speaker 1: we thought were. There are a lot of issues, including 136 00:07:50,360 --> 00:07:52,960 Speaker 1: geopolitical ones, but given what we just talked about, that 137 00:07:53,000 --> 00:07:57,400 Speaker 1: possible paradigm shifts from asset value over into wages. If 138 00:07:57,480 --> 00:08:00,200 Speaker 1: you're maintaining a portfolio, if you're investing funds, to you 139 00:08:00,320 --> 00:08:02,160 Speaker 1: do we signing? What does that tell you? What would 140 00:08:02,160 --> 00:08:03,960 Speaker 1: you do? Because it doesn't sound very good for investors 141 00:08:04,200 --> 00:08:06,680 Speaker 1: if st values are going down. David, even in this 142 00:08:07,000 --> 00:08:11,800 Speaker 1: very difficult year for the economy and for renewables, renewables 143 00:08:11,800 --> 00:08:14,600 Speaker 1: were up about nine percent. Now, obviously this year they 144 00:08:14,680 --> 00:08:17,240 Speaker 1: fell far behind oil and gas, as we all know, 145 00:08:17,760 --> 00:08:20,320 Speaker 1: but if you look on a three year basis, I 146 00:08:20,440 --> 00:08:22,960 Speaker 1: have some numbers here, clean energy was up about eight 147 00:08:23,040 --> 00:08:25,760 Speaker 1: point nine percent versus oil and gas, which was up 148 00:08:25,840 --> 00:08:28,440 Speaker 1: three point three percent. If you look over five years again, 149 00:08:29,120 --> 00:08:32,679 Speaker 1: renewables have been doing better. So the interesting thing also 150 00:08:32,960 --> 00:08:35,560 Speaker 1: is that from you asked a bad wages, but there's 151 00:08:35,640 --> 00:08:39,480 Speaker 1: now more people working in clean energy than in fossil 152 00:08:39,559 --> 00:08:42,800 Speaker 1: fuelds as we speak. So the economy is shifting and 153 00:08:42,960 --> 00:08:45,800 Speaker 1: those jobs are actually pretty well paid because there is 154 00:08:45,840 --> 00:08:49,040 Speaker 1: a shortage of people who have the experience. So in 155 00:08:49,240 --> 00:08:53,000 Speaker 1: terms of investments, there are a number of areas, obviously 156 00:08:53,080 --> 00:08:55,880 Speaker 1: in climate, including food and Agg we're seeing that, you know, 157 00:08:55,960 --> 00:08:58,800 Speaker 1: more people are looking for higher quality foods. So there 158 00:08:59,000 --> 00:09:01,720 Speaker 1: is a big potent chill for investing in that area. 159 00:09:01,760 --> 00:09:04,040 Speaker 1: And it's not just in the short term because fertilizer 160 00:09:04,160 --> 00:09:07,360 Speaker 1: prices are high because of the Ukraine war or or 161 00:09:07,840 --> 00:09:11,520 Speaker 1: supply chain problems is a longer tram issue. So energy, 162 00:09:11,760 --> 00:09:14,719 Speaker 1: Clean Energy and food and act obviously have the wing 163 00:09:14,840 --> 00:09:17,760 Speaker 1: on their back, especially also because of the new inflation 164 00:09:17,840 --> 00:09:20,959 Speaker 1: act that is also going to put sources in that area. 165 00:09:21,080 --> 00:09:24,160 Speaker 1: But even if we had not had the inflation act, 166 00:09:24,520 --> 00:09:27,120 Speaker 1: you would still have a lot of interest in those areas. 167 00:09:27,400 --> 00:09:29,040 Speaker 1: The only other two things I was going to say 168 00:09:29,080 --> 00:09:32,800 Speaker 1: on that front is also biotech and life sciences. That 169 00:09:32,960 --> 00:09:36,000 Speaker 1: also got killed over the last few years relative to 170 00:09:36,080 --> 00:09:38,600 Speaker 1: the rest of the market. Are Very interesting. We look 171 00:09:38,640 --> 00:09:41,959 Speaker 1: at it very actively, but but again those are areas 172 00:09:42,080 --> 00:09:45,160 Speaker 1: where you see startups as well as established companies doing 173 00:09:45,200 --> 00:09:47,360 Speaker 1: more and more. Last but not least, I would love 174 00:09:47,400 --> 00:09:49,480 Speaker 1: to know what great also thinks if we could be 175 00:09:49,559 --> 00:09:52,679 Speaker 1: going back to a sixty forty or a seventy thirty 176 00:09:52,720 --> 00:09:55,240 Speaker 1: where people were getting bonds out of their portfolios. But 177 00:09:55,559 --> 00:09:58,360 Speaker 1: is this a good environment to start thinking bonds if 178 00:09:58,480 --> 00:10:02,040 Speaker 1: our scenarios about the economy are right? Yeah, so Sunday. 179 00:10:02,160 --> 00:10:04,199 Speaker 1: So it's uh, you know, I'm thinking the bond market. 180 00:10:04,200 --> 00:10:06,880 Speaker 1: It's a modern day poseideon the venture when I heard 181 00:10:06,960 --> 00:10:09,679 Speaker 1: that quote. So I do think the good news in 182 00:10:09,720 --> 00:10:12,680 Speaker 1: the bond market is that we're largely past the pain 183 00:10:12,800 --> 00:10:15,920 Speaker 1: so it's been a really difficult environment, to say the least. 184 00:10:16,160 --> 00:10:18,840 Speaker 1: If you think about just a ten year treasury, we're 185 00:10:18,840 --> 00:10:22,280 Speaker 1: at fifty basis points. Now we're at three forty basis points. 186 00:10:22,320 --> 00:10:26,000 Speaker 1: So there's been a dramatic repricing. High yield yields are 187 00:10:26,200 --> 00:10:28,120 Speaker 1: up from four and a half to nine and a 188 00:10:28,160 --> 00:10:31,320 Speaker 1: half percent. So I think we're getting closer to the end. 189 00:10:31,960 --> 00:10:35,680 Speaker 1: And just six nine months ago, investors were asking about 190 00:10:36,000 --> 00:10:40,360 Speaker 1: the benefit of bonds in the portfolio. Sixty construct I 191 00:10:40,520 --> 00:10:43,560 Speaker 1: do think that game has changed. It's still a little 192 00:10:43,640 --> 00:10:46,959 Speaker 1: early because some volatile is on the horizon here, but 193 00:10:47,120 --> 00:10:49,360 Speaker 1: we're in a much better place today than where we 194 00:10:49,480 --> 00:10:55,160 Speaker 1: were back in one and twenty. So I feel pretty constructive, 195 00:10:55,400 --> 00:10:59,160 Speaker 1: even though I do believe that there's volatilely head. And 196 00:10:59,760 --> 00:11:02,640 Speaker 1: just think about how we moved from a fed pricing 197 00:11:02,760 --> 00:11:06,559 Speaker 1: perspective right so this time last year there was basically 198 00:11:06,840 --> 00:11:10,199 Speaker 1: zero fed hikes pricing to the market and now we're 199 00:11:10,280 --> 00:11:13,319 Speaker 1: pricing in, you know, close to four and a half percent. 200 00:11:13,440 --> 00:11:16,839 Speaker 1: So that's a dramatic move, a real repricing, and no 201 00:11:16,960 --> 00:11:19,719 Speaker 1: wonder why not only bonds were hit but equities have 202 00:11:19,840 --> 00:11:22,600 Speaker 1: been hit in the process. So let's pursue that. Forty 203 00:11:22,960 --> 00:11:26,000 Speaker 1: percent of it in the and the high and the investment, 204 00:11:26,320 --> 00:11:29,000 Speaker 1: I'm sorry, fixed income part of it. We have people 205 00:11:29,040 --> 00:11:31,040 Speaker 1: on here who say high yield, as you just said, 206 00:11:31,080 --> 00:11:33,719 Speaker 1: that's a good idea. Investment grade not so much. Is 207 00:11:33,800 --> 00:11:36,199 Speaker 1: that where you are? You know, the the high yel 208 00:11:36,280 --> 00:11:40,040 Speaker 1: market is really different this time in this cycle. I 209 00:11:40,120 --> 00:11:43,520 Speaker 1: sily talked about energy. So about of the US high 210 00:11:43,600 --> 00:11:47,680 Speaker 1: yield market is the energy space. That's a very different 211 00:11:47,760 --> 00:11:50,400 Speaker 1: market going into this cycle than what we've seen in 212 00:11:50,520 --> 00:11:55,200 Speaker 1: previous kind of economic downturns. It's a much higher quality 213 00:11:55,800 --> 00:11:59,439 Speaker 1: segment than we've seen historically. All the risk has been 214 00:11:59,520 --> 00:12:03,440 Speaker 1: pushed off into levered loan market investment great corporate bonds 215 00:12:03,679 --> 00:12:09,520 Speaker 1: also much longer duration, lower quality. So somewhat perversely and interestingly, 216 00:12:09,880 --> 00:12:12,760 Speaker 1: the high old bond market in the US looks pretty 217 00:12:12,800 --> 00:12:16,160 Speaker 1: attractive relatively. I just think it's a little early to 218 00:12:16,240 --> 00:12:20,160 Speaker 1: get too excited as we enter, or the possibility of 219 00:12:20,360 --> 00:12:22,720 Speaker 1: entering into a recession, as I have yet to see 220 00:12:22,800 --> 00:12:27,760 Speaker 1: credit spreads stay stable and not widen heading into a recession. 221 00:12:27,800 --> 00:12:30,040 Speaker 1: So that's kind of where we're at, but it's definitely 222 00:12:30,480 --> 00:12:33,520 Speaker 1: something to keep on the radar and does change the 223 00:12:34,080 --> 00:12:36,920 Speaker 1: dynamic of sixtyfod. I'm signing. Another thing we hear from 224 00:12:36,960 --> 00:12:39,080 Speaker 1: time to time is high yield might be the new 225 00:12:39,320 --> 00:12:41,000 Speaker 1: form of equity, that that's the place you want to 226 00:12:41,040 --> 00:12:43,040 Speaker 1: take your risk assets and high yield as you look 227 00:12:43,040 --> 00:12:45,000 Speaker 1: at your portfolio. Does that make sense to you? We're 228 00:12:45,000 --> 00:12:48,920 Speaker 1: actually looking at maybe a derivation of what you just said, 229 00:12:49,000 --> 00:12:53,120 Speaker 1: which is a lot of startups got got very large 230 00:12:53,160 --> 00:12:55,160 Speaker 1: funding over the last few years and, as you know, 231 00:12:55,240 --> 00:12:58,520 Speaker 1: it was relatively easy for venture funds to raise money 232 00:12:58,559 --> 00:13:01,280 Speaker 1: and for new companies to raise money. That has come 233 00:13:01,320 --> 00:13:04,479 Speaker 1: to an end and they don't go into the traditional 234 00:13:04,840 --> 00:13:08,760 Speaker 1: high yield market, obviously, but as they can't get funding for, 235 00:13:09,240 --> 00:13:12,600 Speaker 1: you know, the rest of their growth, they're looking at 236 00:13:12,679 --> 00:13:17,079 Speaker 1: new sources within credit markets, and so we're looking at 237 00:13:17,320 --> 00:13:20,360 Speaker 1: those markets specifically because we think that there might be 238 00:13:20,480 --> 00:13:23,079 Speaker 1: a lot of really good value. I think on the 239 00:13:23,400 --> 00:13:27,440 Speaker 1: high yield market there it's always it's as greg sit 240 00:13:27,600 --> 00:13:31,280 Speaker 1: there's the energy component and the non energy component. Obviously 241 00:13:31,320 --> 00:13:33,280 Speaker 1: the energy component has a lot of oil and gas 242 00:13:33,320 --> 00:13:35,040 Speaker 1: in IT and so we have not been doing a 243 00:13:35,120 --> 00:13:37,880 Speaker 1: lot in that area. I'm signing. I'm curious about when 244 00:13:37,920 --> 00:13:39,800 Speaker 1: you talk about renewables. When you talk about some of 245 00:13:39,880 --> 00:13:42,280 Speaker 1: the biotech a lot of those firms included the startups 246 00:13:42,320 --> 00:13:45,240 Speaker 1: you're talking about. It's really based on the earnings in 247 00:13:45,320 --> 00:13:47,760 Speaker 1: the out years. They're not making so much money now, 248 00:13:47,880 --> 00:13:49,480 Speaker 1: maybe not at all. They're gonna make it a Laryer 249 00:13:49,559 --> 00:13:53,400 Speaker 1: years as interest rates go up. That discount really hurts you, 250 00:13:53,480 --> 00:13:55,480 Speaker 1: doesn't it? So does that still make it a good investment? 251 00:13:55,640 --> 00:13:58,400 Speaker 1: I think it's still and we still are going to 252 00:13:58,600 --> 00:14:01,120 Speaker 1: do really well from in a nation, in our economy. 253 00:14:01,760 --> 00:14:04,880 Speaker 1: So out of those companies, while while a lot of 254 00:14:04,960 --> 00:14:07,520 Speaker 1: them will need ten twelve years to grow, some of 255 00:14:07,640 --> 00:14:11,000 Speaker 1: them will not need as long as that. So you 256 00:14:11,160 --> 00:14:15,200 Speaker 1: hope that your investments start bearing fruits. will bear fruit 257 00:14:15,280 --> 00:14:17,440 Speaker 1: a little sooner, some will bear fruit a little later, 258 00:14:17,880 --> 00:14:21,200 Speaker 1: but as a whole we still expect higher returns a 259 00:14:21,280 --> 00:14:24,080 Speaker 1: relative to the markets. Let's not forget the kind of 260 00:14:24,320 --> 00:14:27,080 Speaker 1: returns that we saw an equity markets over the last 261 00:14:27,120 --> 00:14:30,080 Speaker 1: ten years are unlikely in the next ten years. And 262 00:14:30,880 --> 00:14:34,640 Speaker 1: no question that private investments in new startups will still 263 00:14:34,760 --> 00:14:36,920 Speaker 1: do better in our in our view. Many thanks to 264 00:14:37,000 --> 00:14:39,840 Speaker 1: Sonny Bachelists of Rock Creek and Greg Peters of pigeon. 265 00:14:41,680 --> 00:14:44,840 Speaker 1: Coming up whether it's a recession or not. Tougher Times 266 00:14:44,880 --> 00:14:48,520 Speaker 1: are coming and with rates rising the blue maybe off 267 00:14:48,560 --> 00:14:51,560 Speaker 1: the rows of those innovative growth stocks like tech and 268 00:14:51,680 --> 00:14:55,760 Speaker 1: cutting edge healthcare. But Dan showing of aldie management thinks otherwise. 269 00:14:56,160 --> 00:14:58,880 Speaker 1: We'll find out why. That's next on Wall Street Week 270 00:14:59,000 --> 00:15:06,160 Speaker 1: on Boomberg. This is Bloomberg Wall Street Week with David 271 00:15:06,200 --> 00:15:19,080 Speaker 1: Weston from Bloomberg radio. There isn't much certainty out there 272 00:15:19,160 --> 00:15:22,760 Speaker 1: for investors these days. Inflation may have peaked. I think 273 00:15:22,800 --> 00:15:26,560 Speaker 1: there's consensus that we've seen peak inflation, but the question is, okay, 274 00:15:26,600 --> 00:15:29,720 Speaker 1: now what? or it may not. The NASDAC down close 275 00:15:29,760 --> 00:15:32,640 Speaker 1: to four percent, the rusty thousand down over three percent. 276 00:15:32,720 --> 00:15:36,680 Speaker 1: Taylor inflation not peeking. We're headed for a soft landing. 277 00:15:36,920 --> 00:15:40,520 Speaker 1: My hope is that we will achieve as soft landing put. 278 00:15:40,840 --> 00:15:45,240 Speaker 1: Americans know that it's essential to bring inflation down or 279 00:15:45,440 --> 00:15:50,360 Speaker 1: we're not. There's a seventy chance of recession in the 280 00:15:50,480 --> 00:15:53,040 Speaker 1: next two years. But the one thing we can all 281 00:15:53,160 --> 00:15:56,080 Speaker 1: be certain of is that interest rates are going up. 282 00:15:56,240 --> 00:15:59,400 Speaker 1: If there's any doubt at all about seventy five, they're 283 00:15:59,400 --> 00:16:02,680 Speaker 1: definitely going about five and nothing in those CPI numbers 284 00:16:02,720 --> 00:16:05,960 Speaker 1: this week will make those hikes any less likely, leaving 285 00:16:05,960 --> 00:16:08,800 Speaker 1: an investor to think hard about what position makes the 286 00:16:08,920 --> 00:16:16,280 Speaker 1: most sense in a turbulent time. And we turned out 287 00:16:16,320 --> 00:16:19,360 Speaker 1: to someone who is responsible for investing a lot of money, 288 00:16:19,440 --> 00:16:22,880 Speaker 1: over thirty billion dollars, in a turbulent time. He's Dan Chung, 289 00:16:23,160 --> 00:16:26,280 Speaker 1: CEO and CE IO of Algier management. Dan, thanks so 290 00:16:26,400 --> 00:16:28,240 Speaker 1: much for being on Wall Street Week. First of all, 291 00:16:28,480 --> 00:16:30,760 Speaker 1: let's get you your sense of how turbulent time is. 292 00:16:30,840 --> 00:16:34,320 Speaker 1: Are we headed to a recession or not? We do 293 00:16:34,480 --> 00:16:38,200 Speaker 1: think we're headed towards recession at this point. Yes, and 294 00:16:38,440 --> 00:16:43,440 Speaker 1: how bad? How long? Well, you know, recessions are, of course, 295 00:16:43,640 --> 00:16:47,120 Speaker 1: very feared events. Um One of the interesting things about 296 00:16:47,120 --> 00:16:49,840 Speaker 1: the stock market isn't been a great predictor of recessions, 297 00:16:49,880 --> 00:16:53,280 Speaker 1: and typically stocks peak eight to ten months ahead of 298 00:16:53,360 --> 00:16:56,400 Speaker 1: a recession. Stocks peaked at the end of December, early 299 00:16:56,520 --> 00:17:00,520 Speaker 1: January this year. So, although neither hasn't officially declared recession, 300 00:17:00,600 --> 00:17:04,239 Speaker 1: the stock market is saying we're probably in recession now, uh, 301 00:17:04,880 --> 00:17:07,320 Speaker 1: as we speak. So, Dan, one of the things that 302 00:17:07,440 --> 00:17:10,200 Speaker 1: we've seen a lot of in the moving of funds, 303 00:17:10,240 --> 00:17:12,399 Speaker 1: as well as people talking about it, is, as we 304 00:17:12,520 --> 00:17:15,400 Speaker 1: go into these turbulent times, people saying that's the time 305 00:17:15,440 --> 00:17:17,119 Speaker 1: you want to go into value, you don't want to 306 00:17:17,200 --> 00:17:19,600 Speaker 1: be in growth. And in fact, if you look at 307 00:17:19,640 --> 00:17:21,760 Speaker 1: some of the big funds, they've lost the fair amount. 308 00:17:21,840 --> 00:17:24,159 Speaker 1: The growth funds have lost the fair amount. What does 309 00:17:24,280 --> 00:17:26,480 Speaker 1: history tell us about when you go into recession, where 310 00:17:26,560 --> 00:17:29,720 Speaker 1: you want to be? Yeah, so that's a really important point. 311 00:17:29,880 --> 00:17:33,879 Speaker 1: I mean history there are patterns that you can invest in, 312 00:17:34,119 --> 00:17:38,280 Speaker 1: even interpolent times, even through recessions. Very important to understand 313 00:17:38,400 --> 00:17:42,680 Speaker 1: that because essentially it's about having a game plan. Um, 314 00:17:42,800 --> 00:17:45,600 Speaker 1: you know, during an economic alifimity in recession, and what 315 00:17:45,680 --> 00:17:50,080 Speaker 1: the but the history tells us actually is, uh, that 316 00:17:51,200 --> 00:17:54,880 Speaker 1: as we turn into recession, growth stocks, in other words 317 00:17:54,960 --> 00:17:59,600 Speaker 1: companies with strong business models, low debt, operating margins that 318 00:17:59,600 --> 00:18:01,880 Speaker 1: are high in an average, they tend to do better, 319 00:18:02,520 --> 00:18:06,280 Speaker 1: uh than say, highly leveraged companies, companies with lots of 320 00:18:06,480 --> 00:18:09,760 Speaker 1: operating leverage and there's a fixed cost structure. And, of course, 321 00:18:09,800 --> 00:18:12,920 Speaker 1: companies that weren't growing particularly well before. You know that 322 00:18:13,040 --> 00:18:16,960 Speaker 1: only tend to grow with with economic growth. And so 323 00:18:17,080 --> 00:18:20,040 Speaker 1: what we we have seen in the past historically is 324 00:18:20,119 --> 00:18:24,720 Speaker 1: that Um, as we enter into recessions, value companies value 325 00:18:24,720 --> 00:18:30,600 Speaker 1: stocks tend to have a significant earnings uh compression lost, 326 00:18:30,680 --> 00:18:33,640 Speaker 1: you know, declines and earnings. Well, growth stocks actually tend 327 00:18:33,680 --> 00:18:37,719 Speaker 1: to hold up fairly well. Um. Now, the other part 328 00:18:37,800 --> 00:18:40,840 Speaker 1: of history that's important to note is, uh, the first 329 00:18:40,920 --> 00:18:44,920 Speaker 1: stage of a market correction is really valuation compression, and 330 00:18:45,080 --> 00:18:47,560 Speaker 1: we've seen that across the board. And it is also 331 00:18:47,640 --> 00:18:52,360 Speaker 1: classically true that growth stocks compressed more than value stocks. Um, 332 00:18:52,480 --> 00:18:54,639 Speaker 1: but I think we were actually see a lot of 333 00:18:54,720 --> 00:18:57,920 Speaker 1: signes that that that part of this market cycle is 334 00:18:57,960 --> 00:19:01,160 Speaker 1: already over. The next part is really the economic procession 335 00:19:01,680 --> 00:19:04,199 Speaker 1: and the decline and earnings that it will bring, Um, 336 00:19:04,280 --> 00:19:07,040 Speaker 1: you know, across the market, and that's where actually grow 337 00:19:07,119 --> 00:19:10,000 Speaker 1: stocks start to shine. So so that I think it's important. 338 00:19:10,040 --> 00:19:12,439 Speaker 1: In what you said there, it's not all the companies 339 00:19:12,480 --> 00:19:14,879 Speaker 1: that are considered growth companies. You have a subset that 340 00:19:14,960 --> 00:19:19,080 Speaker 1: you really focus on. Yeah, I mean it's really interesting. Um, 341 00:19:19,440 --> 00:19:24,040 Speaker 1: you know, alts philosophy is focused on, fundamentally, the distructors 342 00:19:24,080 --> 00:19:28,199 Speaker 1: and the innovators across industries, as well as a category 343 00:19:28,280 --> 00:19:30,879 Speaker 1: we call life cycle change, which are sort of companies 344 00:19:31,240 --> 00:19:34,840 Speaker 1: that may have uh, experienced tough times that we think 345 00:19:34,880 --> 00:19:37,960 Speaker 1: are about to experience better times. Because of innovation or 346 00:19:38,040 --> 00:19:42,840 Speaker 1: management and leadership. Um, we have some interesting history from 347 00:19:43,560 --> 00:19:46,320 Speaker 1: uh top growers in particular. If you look at the 348 00:19:47,119 --> 00:19:51,480 Speaker 1: top seventy five companies across the largest seven fifties, so 349 00:19:51,520 --> 00:19:54,640 Speaker 1: the top ten per center of growers. Um, their valuation 350 00:19:54,680 --> 00:19:57,720 Speaker 1: actually has compressed so much that are relative to the market. 351 00:19:57,760 --> 00:20:00,840 Speaker 1: Now they're actually at Multideca glows, and that again it 352 00:20:00,920 --> 00:20:03,760 Speaker 1: gives us some confirmation that it's really probably time to 353 00:20:03,800 --> 00:20:07,520 Speaker 1: start thinking about uh, not so much uh the start 354 00:20:07,560 --> 00:20:11,320 Speaker 1: of the recession, which, as I said, probably has started already, Um, 355 00:20:11,640 --> 00:20:13,600 Speaker 1: but what it looks like coming out of recession and 356 00:20:13,760 --> 00:20:17,040 Speaker 1: into recession. And that's where, again, these kind of growth 357 00:20:17,040 --> 00:20:20,640 Speaker 1: stock leaders. The valuations have compressed, the fundamentals are likely 358 00:20:20,680 --> 00:20:23,280 Speaker 1: to hold up better than than average and certainly better 359 00:20:23,320 --> 00:20:26,639 Speaker 1: than valious difflicals, and we think it's, you know, a 360 00:20:26,720 --> 00:20:28,520 Speaker 1: good time for long term investors to think about the 361 00:20:28,520 --> 00:20:31,600 Speaker 1: opportunities there. So that's Dan Cheng with some really useful 362 00:20:31,600 --> 00:20:34,200 Speaker 1: advice in these turbulous times for investors. Dan Schung is 363 00:20:34,240 --> 00:20:39,600 Speaker 1: the CEO and CE IO of Alger management. Coming up, 364 00:20:39,640 --> 00:20:42,120 Speaker 1: we'll wrap up the week once again with special contributor 365 00:20:42,280 --> 00:20:47,800 Speaker 1: Larry Summers of Harvard. This is Wall Street Week on Bloomberg. 366 00:20:49,160 --> 00:20:53,080 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 367 00:20:53,240 --> 00:21:02,919 Speaker 1: Bloomberg radio. This Wall Street Week Time, David Westdon. We're 368 00:21:02,920 --> 00:21:06,040 Speaker 1: welcome back now our very special contributor, Larry Summers at Harvard. So, Larry, 369 00:21:06,160 --> 00:21:08,639 Speaker 1: I think maybe the biggest news for the market, certainly 370 00:21:09,160 --> 00:21:11,800 Speaker 1: this week, where the CPI numbers. It really disappointed to 371 00:21:11,880 --> 00:21:14,200 Speaker 1: the upside here, particularly on the core. What did you 372 00:21:14,240 --> 00:21:17,080 Speaker 1: make of those numbers? Look, for me they were unwelcome 373 00:21:17,240 --> 00:21:21,040 Speaker 1: but not wholly unexpected. I think the right reading of 374 00:21:21,119 --> 00:21:26,959 Speaker 1: the data all along has been that headline inflation fluctuates substantially, 375 00:21:27,480 --> 00:21:32,040 Speaker 1: but we've got a significant underlying inflation problem and that's 376 00:21:32,119 --> 00:21:35,520 Speaker 1: what that core inflation rate where the month was faster 377 00:21:35,680 --> 00:21:38,199 Speaker 1: than the quarter, the quarter was faster than the half year, 378 00:21:38,280 --> 00:21:40,159 Speaker 1: the half year was faster than the year and the 379 00:21:40,280 --> 00:21:44,240 Speaker 1: year was faster than last year. That's what it showed 380 00:21:44,840 --> 00:21:49,400 Speaker 1: and the month was close to uh seven percent uh 381 00:21:49,960 --> 00:21:55,879 Speaker 1: core rate. We've got a substantial underlying inflation problem. Another 382 00:21:55,960 --> 00:22:00,240 Speaker 1: way to see that was that median inflation is higher 383 00:22:00,320 --> 00:22:04,040 Speaker 1: than it's been any time since we started collecting the data. 384 00:22:04,480 --> 00:22:08,399 Speaker 1: Another way to see that is uh that we're seeing 385 00:22:08,560 --> 00:22:14,560 Speaker 1: substantial inflation in the housing components of uh the index, 386 00:22:14,720 --> 00:22:19,360 Speaker 1: which we know have very substantial persistence. Yet another way 387 00:22:19,440 --> 00:22:22,720 Speaker 1: to see that is in the data from the Atlanta Fed, 388 00:22:22,880 --> 00:22:26,359 Speaker 1: which I think is probably the best wage indicator, on 389 00:22:26,520 --> 00:22:30,399 Speaker 1: those who are switching jobs, which show real the market 390 00:22:30,560 --> 00:22:34,480 Speaker 1: really is, unlike those who are staying on jobs, which 391 00:22:34,600 --> 00:22:38,760 Speaker 1: was running at eight percent or more. So we've got 392 00:22:38,880 --> 00:22:44,520 Speaker 1: a substantial underlying inflation problem that doesn't uh come out 393 00:22:45,080 --> 00:22:49,920 Speaker 1: without very substantial monetary policy adjustment, and the market is 394 00:22:50,480 --> 00:22:54,680 Speaker 1: waking up to uh that fact and is now building 395 00:22:54,800 --> 00:23:00,280 Speaker 1: in substantially more monetary policy adjustment uh than it was, 396 00:23:00,840 --> 00:23:05,560 Speaker 1: with the terminal Fed funds rate up now at four 397 00:23:05,760 --> 00:23:09,160 Speaker 1: point five. If you think back, David, it's been an 398 00:23:09,760 --> 00:23:14,800 Speaker 1: extraordinary journey. It was only fifteen months ago that the 399 00:23:14,880 --> 00:23:17,119 Speaker 1: Fed was saying that the rate was going to be 400 00:23:17,840 --> 00:23:23,000 Speaker 1: zero in uh mid three, and now it's saying that 401 00:23:23,160 --> 00:23:26,520 Speaker 1: that rate is going to approach four and a half, 402 00:23:27,119 --> 00:23:31,000 Speaker 1: and so the idea that that would change UH financial 403 00:23:31,160 --> 00:23:34,880 Speaker 1: conditions can hardly be a very surprising one, was it? Larry? 404 00:23:34,960 --> 00:23:37,760 Speaker 1: Let's pick up on exactly that point. As far as 405 00:23:37,880 --> 00:23:40,240 Speaker 1: you see it right now, what would you project the 406 00:23:40,280 --> 00:23:42,080 Speaker 1: so called terminal rate to be? We've got the head 407 00:23:42,119 --> 00:23:44,760 Speaker 1: of economics at Bloomberg saying five percent. Deute banks is 408 00:23:44,800 --> 00:23:47,159 Speaker 1: five percent. Where do you think we end up? That 409 00:23:47,240 --> 00:23:51,600 Speaker 1: wouldn't surprise me, certainly at four fifty. There's more realism 410 00:23:51,680 --> 00:23:56,159 Speaker 1: in market pricing than there was several months ago. I 411 00:23:56,600 --> 00:23:58,560 Speaker 1: think we're more likely to end up above four and 412 00:23:58,560 --> 00:24:01,800 Speaker 1: a half than we are to end end up below 413 00:24:02,240 --> 00:24:04,760 Speaker 1: four and a half, and it certainly wouldn't surprise me 414 00:24:05,440 --> 00:24:10,000 Speaker 1: if that rate has to get above five if we 415 00:24:10,119 --> 00:24:15,360 Speaker 1: are really going to in a determined way UH contain 416 00:24:16,200 --> 00:24:22,400 Speaker 1: and control inflation. Whether the Fed is going to stay 417 00:24:22,440 --> 00:24:26,920 Speaker 1: the course and do what's necessary to contain inflation, you 418 00:24:27,000 --> 00:24:29,919 Speaker 1: know we're gonna have to see how that plays uh 419 00:24:30,480 --> 00:24:35,320 Speaker 1: down down the road. Uh Rick Michigan, a former Fed governor, 420 00:24:35,760 --> 00:24:40,480 Speaker 1: had a very strong op Ed this week making a 421 00:24:40,600 --> 00:24:44,040 Speaker 1: point that I've made a number of times that even 422 00:24:44,800 --> 00:24:49,439 Speaker 1: Paul Vulker had a kind of false start on inflation 423 00:24:49,640 --> 00:24:55,080 Speaker 1: containment where he brought down uh rates and response to 424 00:24:56,080 --> 00:25:01,600 Speaker 1: uh economic band economic statistics in the spring of nineteen eighty, 425 00:25:02,040 --> 00:25:05,320 Speaker 1: which then had to be reversed and forced us to 426 00:25:05,440 --> 00:25:08,240 Speaker 1: have even higher rates than we otherwise would have had 427 00:25:08,320 --> 00:25:12,720 Speaker 1: to have in, uh, the early nineteen eighties. So I 428 00:25:12,800 --> 00:25:17,320 Speaker 1: think it's not gonna be easy, uh, to do what's necessary. 429 00:25:17,920 --> 00:25:24,639 Speaker 1: History records many, many instances when policy adjustments to inflation 430 00:25:25,200 --> 00:25:31,080 Speaker 1: were excessively delayed and there were very substantial costs to that. 431 00:25:31,440 --> 00:25:35,000 Speaker 1: Again and again through the nineteen sixties and seventies, for example, 432 00:25:35,720 --> 00:25:40,200 Speaker 1: I am aware of no major example in which the 433 00:25:40,359 --> 00:25:45,680 Speaker 1: central bank reacted with excessive speed to inflation and a 434 00:25:45,800 --> 00:25:50,280 Speaker 1: large cost was paid, and so I think that lesson 435 00:25:50,880 --> 00:25:56,159 Speaker 1: that in terms of minimizing the risk of a stagflationary catastrophe, 436 00:25:56,680 --> 00:25:59,240 Speaker 1: the Fed has to be prepared to stay the course 437 00:26:00,160 --> 00:26:03,879 Speaker 1: is the important one to internalize. Larry, as you know 438 00:26:04,119 --> 00:26:06,320 Speaker 1: so well, have said repeatedly on this program one of 439 00:26:06,359 --> 00:26:09,719 Speaker 1: the major components of inflation our wages. We walked right 440 00:26:09,840 --> 00:26:11,680 Speaker 1: up to the brink of a national rail strike this 441 00:26:11,800 --> 00:26:14,240 Speaker 1: week in the United States. Have avoided at least tentatively, 442 00:26:14,359 --> 00:26:16,800 Speaker 1: with a tentative agreement. Obviously that would not have been 443 00:26:16,840 --> 00:26:18,640 Speaker 1: good for the economy if there had been a strike. 444 00:26:18,720 --> 00:26:20,480 Speaker 1: At the same time, what does it say about the 445 00:26:20,560 --> 00:26:24,520 Speaker 1: hydraulic pressure from organized labor and otherwise on wages David, 446 00:26:24,600 --> 00:26:29,600 Speaker 1: I think uh we have failed on labor rights in 447 00:26:29,720 --> 00:26:34,360 Speaker 1: this country. Over the last generation. It has been far 448 00:26:34,520 --> 00:26:38,480 Speaker 1: too easy to fire union organizers. We have not done 449 00:26:38,640 --> 00:26:44,680 Speaker 1: enough labor law reform to support the right to organize, 450 00:26:45,119 --> 00:26:49,600 Speaker 1: which I think is something fundamental to having an effectively 451 00:26:50,119 --> 00:26:55,000 Speaker 1: uh functioning labor market and something that is essential to 452 00:26:55,200 --> 00:27:00,960 Speaker 1: having a fair and just society. But I do think 453 00:27:01,280 --> 00:27:07,320 Speaker 1: at a moment like this, when inflation is a crucial issue, 454 00:27:07,960 --> 00:27:12,640 Speaker 1: the federal government needs to be very careful to keep 455 00:27:12,800 --> 00:27:17,840 Speaker 1: a focus on all that advise Um at all, that 456 00:27:18,000 --> 00:27:23,159 Speaker 1: it sets a pattern for to pay attention to holding 457 00:27:23,320 --> 00:27:28,520 Speaker 1: costs down rather than rewarding workers, and I think there 458 00:27:28,600 --> 00:27:34,200 Speaker 1: are a variety of provisions that try to maximize the 459 00:27:34,280 --> 00:27:38,800 Speaker 1: wages of those who are involved in activity the government 460 00:27:38,960 --> 00:27:43,800 Speaker 1: is supporting, and so I worry about provisions that seek 461 00:27:43,920 --> 00:27:47,960 Speaker 1: to enshrine high wages, for example, in those who are 462 00:27:48,440 --> 00:27:53,920 Speaker 1: producing goods related to uh the environment. And I think 463 00:27:53,960 --> 00:27:58,080 Speaker 1: the federal government has to walk a very careful balance 464 00:27:58,280 --> 00:28:06,080 Speaker 1: here between restoring appropriate UH labor rights, which has been 465 00:28:06,160 --> 00:28:10,000 Speaker 1: a real flaw and huge problem for the last thirty years, 466 00:28:10,600 --> 00:28:16,240 Speaker 1: and doing things that will in trench inflation uh through 467 00:28:16,800 --> 00:28:21,959 Speaker 1: wage pressure to the detriment of the overall economy, including 468 00:28:22,720 --> 00:28:26,240 Speaker 1: the economy of workers who work with their hands. And finally, 469 00:28:26,280 --> 00:28:29,600 Speaker 1: they were listening to geopolitics for a minute. Obviously Ukraine 470 00:28:29,680 --> 00:28:32,000 Speaker 1: had a rather good week, I'd say, with the advantage 471 00:28:32,000 --> 00:28:34,600 Speaker 1: that made in the northeast, with Russian troops retreating or 472 00:28:34,640 --> 00:28:37,760 Speaker 1: even absolutely right, we're out. On the other hand, President 473 00:28:37,760 --> 00:28:40,080 Speaker 1: Putin had a rough week as he met with president 474 00:28:40,160 --> 00:28:42,800 Speaker 1: she and president she has some concerns about that war. 475 00:28:43,000 --> 00:28:45,160 Speaker 1: What do you make of what's going on there? I 476 00:28:45,880 --> 00:28:51,240 Speaker 1: was heartened by the Ukrainian uh success, but I think 477 00:28:51,360 --> 00:28:55,560 Speaker 1: that from an economic point of view we're gonna have 478 00:28:55,760 --> 00:29:01,120 Speaker 1: to be very thoughtful about how we support Ukraine as 479 00:29:01,600 --> 00:29:05,920 Speaker 1: hyper inflation becomes a greater risk in Ukraine and I 480 00:29:06,000 --> 00:29:13,160 Speaker 1: think more broadly there's enormous uncertainty in markets for natural gas, 481 00:29:13,680 --> 00:29:18,680 Speaker 1: in oil markets, through those markets and markets for diesel 482 00:29:18,760 --> 00:29:25,240 Speaker 1: fuel and UH, for fertilizer and a great deal. We 483 00:29:25,280 --> 00:29:27,920 Speaker 1: don't always say this, but a great deal in the 484 00:29:28,520 --> 00:29:33,280 Speaker 1: US inflation process is gonna hinge on whether, as markets 485 00:29:33,360 --> 00:29:37,920 Speaker 1: tend to be pricing, oil prices stay moderate or even 486 00:29:38,080 --> 00:29:43,920 Speaker 1: come down, or whether, as geopolitical experts warn, we hit 487 00:29:44,080 --> 00:29:51,280 Speaker 1: adverse developments and those prices spike up again. I don't 488 00:29:51,280 --> 00:29:54,080 Speaker 1: have the wisdom to know which will happen, but I 489 00:29:54,160 --> 00:29:57,160 Speaker 1: do think it's gonna be an enormous factor, uh for 490 00:29:57,440 --> 00:30:01,240 Speaker 1: the inflation process in the months ahead. Okay, Larry, thank 491 00:30:01,280 --> 00:30:03,320 Speaker 1: you once again. This week are very special contribute to 492 00:30:03,400 --> 00:30:13,360 Speaker 1: Wall Street week. He's Larry Summers of Harvard. Finally, one 493 00:30:13,400 --> 00:30:18,040 Speaker 1: more thought, taking our lead from China again. Much has 494 00:30:18,080 --> 00:30:20,040 Speaker 1: been made, at least by a certain form of President 495 00:30:20,120 --> 00:30:22,560 Speaker 1: United States, of the fact that the covid nineteen virus 496 00:30:22,840 --> 00:30:25,040 Speaker 1: comes from there. But now it looks like it maybe 497 00:30:25,120 --> 00:30:27,640 Speaker 1: it's work habits that are contagious. Just over a year 498 00:30:27,680 --> 00:30:30,000 Speaker 1: ago we first talked here on Wall Street week about 499 00:30:30,040 --> 00:30:33,920 Speaker 1: the Chinese phenomenon of lying flat. Again, five years ago, 500 00:30:34,040 --> 00:30:36,520 Speaker 1: by a twenty five year old factory worker named Luo 501 00:30:36,680 --> 00:30:40,640 Speaker 1: Hua Jong. Lying flat is spreading through the use of China. 502 00:30:41,200 --> 00:30:44,640 Speaker 1: Tired of the long hours, they've decided to take it easy, 503 00:30:44,800 --> 00:30:48,120 Speaker 1: giving up their jobs, living modest lives off of their 504 00:30:48,160 --> 00:30:51,360 Speaker 1: savings and, yes, sometimes off of their parents. And, as 505 00:30:51,480 --> 00:30:54,360 Speaker 1: we all recovered from the pandemic, employers were concerned that 506 00:30:54,440 --> 00:30:58,160 Speaker 1: some Americans might be lying flat by simply not coming 507 00:30:58,200 --> 00:31:01,280 Speaker 1: back into the workforce, Proba and Sarah Header of causeway 508 00:31:01,320 --> 00:31:05,120 Speaker 1: capital described. For us, the cry we hear from companies, 509 00:31:05,120 --> 00:31:08,760 Speaker 1: and we interview hundreds of companies, is that they don't 510 00:31:08,800 --> 00:31:10,440 Speaker 1: have the Labor they need. This seems to be this 511 00:31:10,600 --> 00:31:13,480 Speaker 1: chronic labor shortage, which is something we haven't seen normally. 512 00:31:13,520 --> 00:31:16,160 Speaker 1: We talk about slack and that doesn't appear to be 513 00:31:16,200 --> 00:31:20,000 Speaker 1: the case. And it's not like the Labor isn't there somewhere. 514 00:31:20,080 --> 00:31:21,640 Speaker 1: It doesn't seem to want to work in many of 515 00:31:21,680 --> 00:31:25,040 Speaker 1: these jobs. But now the problem has morphed into its 516 00:31:25,120 --> 00:31:30,000 Speaker 1: own American version, what some people call quiet quitting, where 517 00:31:30,040 --> 00:31:32,880 Speaker 1: employees show up but make sure that they do just 518 00:31:33,160 --> 00:31:36,320 Speaker 1: what they are required and no more. It's far from 519 00:31:36,360 --> 00:31:40,040 Speaker 1: clear how widespread this quiet quitting is or even whether 520 00:31:40,120 --> 00:31:42,440 Speaker 1: it's entirely new. After all, let's be honest, there have 521 00:31:42,560 --> 00:31:45,120 Speaker 1: always been some co workers who have been happy to 522 00:31:45,320 --> 00:31:48,000 Speaker 1: coast a bit. But it does raise questions for those 523 00:31:48,040 --> 00:31:49,560 Speaker 1: of us who have been in the workforce for a 524 00:31:49,640 --> 00:31:53,080 Speaker 1: while whether the old norms still apply. But whether it's 525 00:31:53,160 --> 00:31:55,960 Speaker 1: big or it's small, whether it's new or it's old, 526 00:31:56,360 --> 00:31:59,520 Speaker 1: this quiet quitting business does pose some challenges for those 527 00:31:59,600 --> 00:32:01,920 Speaker 1: hard charging managers, says some of US have had to 528 00:32:02,000 --> 00:32:04,480 Speaker 1: deal with over the years. That does it for this 529 00:32:04,520 --> 00:32:07,480 Speaker 1: episode of Wall Street Week. I'm David Weston. This is Bloomberg. 530 00:32:07,720 --> 00:32:10,200 Speaker 1: See you next week. m