Speaker 1: This is Bloomberg Wall Street Week. We turn our attention
Speaker 1: to the markets this week. U S CPI nevers, reinforcing
Speaker 1: concerns about inflation. The financial stories that chief are worth
Speaker 1: a really different reaction to mark. Its more indications of
Speaker 1: just how hot the U. S. Economy really is. Through
Speaker 1: the eyes of the most influential voices Larry Summers, the
Speaker 1: former Treatory Secretary, Katherine Keating, CEO of d n Y
Speaker 1: mom Sam's l Sharmon and founder of Equatic Group Investment
Speaker 1: in Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: History was made this week with the death of Queen
Speaker 1: Elizabeth of Great Britain, the longest serving monarch in British history,
Speaker 1: overshadowing for a moment economics and currencies and central banks
Speaker 1: and yes, even wars. This is Bloomberg Wall Street Week.
Speaker 1: I'm David Weston. This week special contributor Larry Summers and
Speaker 1: Rick Reader of Black Rock. Queen Elizabeth a Great Britain
Speaker 1: passed away this week at the age of nine six,
Speaker 1: leaving behind a seventy year reign and a new king,
Speaker 1: King Charles the Third. Queen Elizabeth was a life well
Speaker 1: lived a promise with destiny kept, and she has mourned
Speaker 1: most deeply in her post. But even as the world
Speaker 1: took a moment to reflect on an era that has passed,
Speaker 1: it continued to contend with the current one, where war
Speaker 1: in Ukraine has led to an energy crisis in Europe.
Speaker 1: As President Putin insisted that he is not using oil
Speaker 1: and gas as a weapon, even as he shut down
Speaker 1: his nord Stream pipeline indefinitely. Nord Stream one is now
Speaker 1: practically shut down, and everyone is saying Russia is using
Speaker 1: energy as a weapon. Ship more nonsense. We deliver as
Speaker 1: much as our partner's needs, and the easy be reacted
Speaker 1: to the inflation triggered by the energy crisis by raising
Speaker 1: rates and historic seventy five basis points with more to come.
Speaker 1: The Governing Council today decided to raise the three key
Speaker 1: ECB interest rates by seventy five basis points. This may
Speaker 1: just frontloads the transition from the prevailing highly accommodative level
Speaker 1: of policy rates towards levels that will ensure the timely
Speaker 1: return of inflation to our two percent medium term target.
Speaker 1: While in the United Kingdom, just before news came the
Speaker 1: Queen's death, the Prime minister she had installed only two
Speaker 1: days before, and now has caps on household energy costs
Speaker 1: and promised to pull her economy through. I have a
Speaker 1: bowl plan to grow the economy. Three tax cuts and reform.
Speaker 1: I will cut taxes to reward hard work and base
Speaker 1: business led growth and investment. I will dry of a
Speaker 1: film in my mission to get the unitsing, Kingdom working,
Speaker 1: building and grabbing. In the United States, markets waited for
Speaker 1: the next Fed decision, now less than two weeks away,
Speaker 1: with all indications that the f m C will stay
Speaker 1: the course and keep raising rates until it's sure inflation
Speaker 1: is under control. We're in this for as long as
Speaker 1: it takes to get inflation down. So far, we've expeditiously
Speaker 1: raised the policy rate to the peak of the previous cycle,
Speaker 1: and the policy rate will need to rise further. And
Speaker 1: when all was said and done, the market has had
Speaker 1: a good week, at least if you were along with
Speaker 1: the SMP three point six in a shortened trading week
Speaker 1: with much of the game coming on Friday, while the
Speaker 1: NASDAK track the SMP nicely up over four with the
Speaker 1: game once again on Friday. And all this was despite
Speaker 1: a rise in bond yield, with the yield on the
Speaker 1: tenure and the week just over three point up about
Speaker 1: twelve basis points. Here to explain all this equity appetite,
Speaker 1: how are Sarah Malick, chief investment officer at Nuvine and
Speaker 1: Jim McDonald, Northern Trust, chief Investment Strategies. Welcome to both
Speaker 1: of you here to Wall Street Weeks. Let me start
Speaker 1: with you, Jim, what do we read into this market?
Speaker 1: Are happy days here again? I mean, we did have
Speaker 1: a really nice game this week, David. I think you
Speaker 1: could spend a couple of hours looking through all the
Speaker 1: fundamental data and not find anything that really supported a
Speaker 1: big increase in risk appetite this week. So I think
Speaker 1: you really have to attribute it to the fact that
Speaker 1: we had a couple of weeks of softness preceding this,
Speaker 1: and then sentiment is terrible, and then technically the market
Speaker 1: is making higher lows. So technically it looks okay here.
Speaker 1: But if you think about what's going to drive the
Speaker 1: market over the next six to twelve eighteen months, the
Speaker 1: growth outlook is deteriorating. Europe's likely in recession, China's is
Speaker 1: clearly in recession. In the US fifty fifty, we think
Speaker 1: over the next twelve months, the FED in the e
Speaker 1: c B or raising rates resolutely, and the inflation picture,
Speaker 1: while improving, is probably overly discounted in the markets. At
Speaker 1: one year break even on the tip, this is a
Speaker 1: two percent, so we think that the environment is probably
Speaker 1: not as robust as this week's market action might indicate. Well,
Speaker 1: I'm sorry, Sarah. When I hear two percent in one
Speaker 1: year break even, that sounds like maybe inflation is coming
Speaker 1: back down again. I think that that number is coming
Speaker 1: back down. Inflation is moderating. Will likely see a little
Speaker 1: bit more moderation when CPI comes out next week, but
Speaker 1: that slope is probably too aggressive. I think inflation will
Speaker 1: remain sticky. We have higher wages and higher shelter prices.
Speaker 1: Those likely stick around, and that's going to keep core
Speaker 1: inflation numbers probably much higher. I wouldn't would would be
Speaker 1: wouldn't be surprised to see that break even actually increase
Speaker 1: over time. The other thing we're watching for is the FED.
Speaker 1: Before we decide if this rally is sustainable, we'd want
Speaker 1: to see more signs of a FED pivot, and we're
Speaker 1: not seeing that. So we agree with Jim, this is
Speaker 1: probably not a sustainable recovery. What about the FED pivot?
Speaker 1: Is it dead effectively? I mean, certainly sounds like J.
Speaker 1: Powe recently has not been saying much it would be
Speaker 1: consisted of the pivot. I don't think we're going to
Speaker 1: see a pivot in early twenty three. But J Pell
Speaker 1: has been saying is that he's going to do what's
Speaker 1: necessary to fight inflation, even if that comes somewhat at
Speaker 1: the spence of the economy, and given that inflation likely
Speaker 1: has the sticky components to it, I think he continues
Speaker 1: to raise rates, likely basis points at the September meeting,
Speaker 1: and then more moderate rate increases from there. If anything,
Speaker 1: you'll see a pause in three, but you will see
Speaker 1: rate cuts until we hit a recession and we see
Speaker 1: that demand destruction. Yeah, David, we've seen in the last
Speaker 1: month a reduction in the cuts that the market is
Speaker 1: priced in. They were pricing in fifty basis points of
Speaker 1: cuts in twenty three. It's now come down to just
Speaker 1: twenty five basis points. And what I'm most interested in
Speaker 1: keeping an eye on is the labor markets. I think
Speaker 1: the FED can't stop raising rates because growth is hurt.
Speaker 1: They can't stop because the market is struggling. They need
Speaker 1: to see the unemployment rate increase to give them cover
Speaker 1: to be able to start slowing down the pace of increase. Okay,
Speaker 1: Sarah Malick and Jim McDonald will be staying with us
Speaker 1: as we get their thoughts on what the smart investor
Speaker 1: does with their portfolio given more we've just been talking about.
Speaker 1: This is Wall Street Week on Bloomberg. This is Bloomberg
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. Well,
Speaker 1: it wasn't pretty. There was unforgettable heroism among the victims
Speaker 1: and the rescuers, but the financial markets, even after what
Speaker 1: was supposed to have been a useful time out, staged
Speaker 1: a historically panicky retreat, mumbling legalistic rationalizations like fiduciary responsibility
Speaker 1: as an excuse for what rapidly descended into unchecked hysteria.
Speaker 1: That was Lewis Orchiser, of course, describing the immediate market
Speaker 1: reaction to the tragic events of nine eleven That was
Speaker 1: twenty one years ago this coming weekend, a reaction delayed
Speaker 1: by the closing at the time of the New York
Speaker 1: Stock Exchange and heroic efforts to get it back up
Speaker 1: and running after just six days. So with us are
Speaker 1: Sara Manic of Nuvine and Jim McDonald of Northern Trust.
Speaker 1: So I'm happy to say we do not have anything
Speaker 1: like the tragedy of nine eleven that we're going fronting
Speaker 1: right now at the same time, impair amount of pressure
Speaker 1: on the markets and things. Fair to say, in this environment,
Speaker 1: how does one constructive portfolio? Well, it's not all doom
Speaker 1: and gloom when we think about portfolio construction. There are
Speaker 1: waste of bl portfolios that are resilient to inflationary environments
Speaker 1: across asset classes that the typical sixty forty equities fixed
Speaker 1: income portfolio has struggled this year. But within equities there's
Speaker 1: companies that are more resilient, like dividend growers. These are
Speaker 1: companies like that continue to grow their divon is over time.
Speaker 1: Broad Com is a great example of that. In fixed income,
Speaker 1: an area that people may not be thinking about it
Speaker 1: for approaching our session is high yield. You can get
Speaker 1: returns of over eight percent and high yield fixed income
Speaker 1: so you're paid to wait until spreads tightened, and the
Speaker 1: companies are higher quality than they used to be. So
Speaker 1: that's a lot to chew on. But let's start with
Speaker 1: one of them, which is credit and high yield. Where
Speaker 1: are you on that? So we're very constructive on how yield.
Speaker 1: It's our largest tactical overweights with a yield the worst
Speaker 1: of eight and a half percent or so downside risk
Speaker 1: of about a third of the equity markets. UH. In
Speaker 1: the high yield markets, you need to think about high
Speaker 1: yield as a risk asset. So this is not something
Speaker 1: we're taking UH investment great bonds and putting it into
Speaker 1: high yields. It's much more of an equity substitutenous environment.
Speaker 1: But that kind of return looks really attractive here. Another
Speaker 1: aspect I would mention is geographic exposure with inequities, So
Speaker 1: we have a slight overweight to the US and underweights
Speaker 1: x US and an emerging market equities really reflecting the
Speaker 1: significant growth issues and inflation problems that are being realized overseas.
Speaker 1: That's another way to give clients some confidence that we're
Speaker 1: positioning for what we think is going to unfold over
Speaker 1: the next twelve months. And lastly, I would say the
Speaker 1: real assets side, we also very much support having some
Speaker 1: inflation exposure, whether it's in globalist and infrastructure which has
Speaker 1: that pricing power, or on a long term basis commodities,
Speaker 1: where we think you can get in a basket of
Speaker 1: listed commodity producers a yield near six percent, which is
Speaker 1: really attractive in this environment. So we're actually more concerned
Speaker 1: about commodities excluding energy because we think that commodities are
Speaker 1: very exposed to demand destruction. But energy is a different
Speaker 1: story where supply remains tight demanded to remain strong. And
Speaker 1: what we love about energy producers is that they're being
Speaker 1: very disciplined this cycle. They're returning cash to shareholders rather
Speaker 1: than just working to just increase volume. Good for those
Speaker 1: companies and to keep oil prices but beneficial to them.
Speaker 1: But Sarah put together, if you will, the slight overweight
Speaker 1: to us not much more than slight that Jim talked about,
Speaker 1: and what you just said about energy, because given this
Speaker 1: energy situation, one might say it's more than a slight
Speaker 1: overweight to U S. Where are you? We are probably
Speaker 1: more constructive on the U S and the rest of
Speaker 1: the world. We think the U S will continue to
Speaker 1: be the safe haven trade because of the resilience of
Speaker 1: the economy versus the rest of the world. Europe could
Speaker 1: run into sagflationary issues with their aggressive increases in interest
Speaker 1: rates while the economy suffers and emerging markets are challenged
Speaker 1: because of the continued lockdowns in China and some of
Speaker 1: the other areas that are having issues. So I think
Speaker 1: non US is going to be a struggle, especially with
Speaker 1: the strong dollar, and so I would add to that
Speaker 1: from a US exposure standpoint. We also like the energy
Speaker 1: sector and the other one that we like our technology stocks.
Speaker 1: They have really struggled this year, improved the valuation. Is
Speaker 1: clearly a long term growth leader globally, and so it's
Speaker 1: a bit of a balanced approach within a US equity portfolio,
Speaker 1: liking both energy and technology stocks. Interesting technology socks tend
Speaker 1: to struggle though when interestrates are increasing because they're considered
Speaker 1: long duration stocks. An area for example Sema Connectors, which
Speaker 1: have even underperformed the technology benchmark. But I think you
Speaker 1: can find value in some of these areas. This this
Speaker 1: goes back to dividend growers. Abroad Coms, a company that
Speaker 1: within the Sema conactor space, tends to be kind of
Speaker 1: offenses and defensive, more resilient business with their enterprise demand
Speaker 1: and also with their software mix and a nice dividend
Speaker 1: that's growing over time. So so as you're putting together
Speaker 1: your portfolio, do you take into account the possibility or
Speaker 1: even some say likelihood of recession or not, Because, for example,
Speaker 1: when you say hi yield, HI, it's a good thing,
Speaker 1: I get a little nervous if we're going into anything.
Speaker 1: But it's a real recession, right Jim. So you have
Speaker 1: to have a view on what the recession will be
Speaker 1: if it unfolds. We're at a fifty fifty probability in
Speaker 1: the US, but we think it will be shallow. The
Speaker 1: baggage system is in dramatically better situation than it was
Speaker 1: during global financial crisis, so credit creation won't really be
Speaker 1: hurts howlshold balance sheets are not in bad shape, so
Speaker 1: it's much more likely to be a shallow cyclical recession.
Speaker 1: And how yield with a starting yield the worst of
Speaker 1: eight and a half percent gives you a very nice
Speaker 1: question in that environment, I agree with that. I mean,
Speaker 1: we're looking for areas, given the environment out there, where
Speaker 1: you're getting the best bang for your book. And so
Speaker 1: even though we do predict a recession, now you're getting
Speaker 1: paid to weight and how yield with that kind of return,
Speaker 1: you can have that resilient income producing portfolio and equities
Speaker 1: with divining growers, and then look for those asset classes
Speaker 1: that actually can benefit from inflation, like within real assets.
Speaker 1: How important is liquidity in all this? When you start
Speaker 1: talking about real estate, for example, farmland, things like that,
Speaker 1: that sounds like I'm giving up something on duration, Right,
Speaker 1: You're giving up something, You're giving up some liquidity, um,
Speaker 1: you're also dampening your volatility. That's why we recommend a
Speaker 1: balanced portfolio. You want to make sure that you have
Speaker 1: your publics and your privates within your portfolio so that
Speaker 1: you do have warries where you can get liquidity if
Speaker 1: you need it, but also the resilience and less volatile
Speaker 1: pieces of the private asset classes can be beneficial, especially
Speaker 1: in this year which is unique where the sixty forty
Speaker 1: typical equity and fixed income portfolios, if people have have
Speaker 1: been highly correlated, all fixed income obviously has not created
Speaker 1: equal Where are you in investment grade, Jim? So we're
Speaker 1: significantly underweight investment grade. We just don't think that the
Speaker 1: nominal yield or the real yield opportunity looks particularly attractive.
Speaker 1: And our number one risk case around sticky inflation, investment
Speaker 1: grade bonds are not going to do well in that environment,
Speaker 1: so that's an underweight in our tactual portfolios. Do you agree, Sarah?
Speaker 1: Generally we would prefer high yield over investment grade for
Speaker 1: the same thing. You're getting greater returns, more bank for
Speaker 1: your buck from high yield. And where are you on tech,
Speaker 1: Jim Teddy? Tech might be a good idea, although, as
Speaker 1: you said, if the interests are going up, typically that
Speaker 1: hurts tech. Yeah, I mean generally, bigger picture, the macro
Speaker 1: environment is not good for long duration technology socks. That's
Speaker 1: why you need to be selective, and we're looking for
Speaker 1: what we said, kind of offensive and defensive tech together
Speaker 1: the companies that either or more resilient because they have
Speaker 1: healthy growing dividends or they have pricing power so they
Speaker 1: can survive the environment. The trade of pre pandemic where
Speaker 1: all technology socks kind of all did well, I think
Speaker 1: that's over. I would just add that the market knows
Speaker 1: that interest rates are going up and have gone up,
Speaker 1: and that has killed evaluations within the technology sector. So
Speaker 1: we think that's what's set up the opportunity today. Tech
Speaker 1: stocks have discounted a great amount of the higher rates.
Speaker 1: But it's interesting if you look at markets are actually
Speaker 1: less less hawkish than the FED. So there's a mismatch
Speaker 1: there in markets. If now caught up to the Fed
Speaker 1: same level of hawkishness, markets are saying, you know what,
Speaker 1: we expect less rate hikes in the FED expects, and
Speaker 1: we'll see if that happens. Probably depends on if we
Speaker 1: hit that recession and inflation finally dropped significantly. Okay, this
Speaker 1: is really, as I say, really truly discussion. Thank you
Speaker 1: so very much. That's Sarah Mallick of now Vene as
Speaker 1: well as Jim McDonald of Northern Trust coming up. It's
Speaker 1: an uncertain time for investors, full of risk without a
Speaker 1: lot of certain return, but Rippery or black Rock thinks
Speaker 1: that there's the potential for the patient investment to really
Speaker 1: do quite well. That's going up next on Wall Street
Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio. They say it's always darkest
Speaker 1: before the dawn, and there's plenty of dark out there
Speaker 1: for investors right now. With the stock market off, overall
Speaker 1: positioning has still been pretty depressed, and sentiment reflects that
Speaker 1: inflation still raging. Inflation seekiness is not going away anytime. Soon,
Speaker 1: and the FED intent on continuing to hike rates was
Speaker 1: fairly obvious coming a year that the FED would tighten.
Speaker 1: But there may also be some early rays of light
Speaker 1: with commodity prices coming back down. If the Fed continues
Speaker 1: to tighten, and we believe the dollar will turn back
Speaker 1: up and these commodities will continue to fall. So the
Speaker 1: question is whether this is a false dawn or whether
Speaker 1: it's actually a good time for the patient investor to
Speaker 1: position for a rosier future. And that till tell us
Speaker 1: which of those it is. We welcome back now, Rick Reader,
Speaker 1: black Rock ce IO for Global Income and also ahead
Speaker 1: of the Global Allocation Investment team, which includes the black
Speaker 1: Rock Strategic Income Opportunities Fund, rated five stars and gold
Speaker 1: by morning Star. I'm sure you don't want to brag
Speaker 1: about that, but I think we should read for your
Speaker 1: Rick there. So we're very good. Rick. Give us your
Speaker 1: sense of this market from your point of view. I mean,
Speaker 1: you're putting the money to work all the time, both
Speaker 1: on fixed income and also inequities. What do you make
Speaker 1: of this market right now? So I mean, David, I
Speaker 1: mean you're thinking about We came in the beginning of
Speaker 1: this week and so We've got energy caps, You've got
Speaker 1: the turning off of nord Stream. You've got China growth, China, COVID, China, Taiwan.
Speaker 1: You've got a series of issues, uh that are that
Speaker 1: are hard to get your arms around. By the way,
Speaker 1: the good sector of the US economy is softening, So
Speaker 1: there's a lot of challenges out there in the world.
Speaker 1: That being said, you know, if you take a step
Speaker 1: back and you think about as an investor, you know,
Speaker 1: with the FED moving rates higher, all of a sudden,
Speaker 1: you could buy short end interest rates at levels we
Speaker 1: haven't seen a really long time. I was thinking about
Speaker 1: a year or two ago. You know, you had to
Speaker 1: pay less than one percent of fund companies fifty basis points,
Speaker 1: so Amazon twenty five basis points. In three years, all
Speaker 1: of a sudden, you could buy You could buy short
Speaker 1: end assets at four or four and a half five cent,
Speaker 1: Put some money to work, get some carry, and then
Speaker 1: tactically look at areas that are that are where there's
Speaker 1: opportunity and listen. I mean, you can get really really
Speaker 1: concerned about where the world is when you when you
Speaker 1: step back and think about US economy, we think is
Speaker 1: going to have nominal GDP this year five nominal GDP
Speaker 1: of five. You know, you've got a service sector that's
Speaker 1: doing well. I've got a healthcare sector that's doing well.
Speaker 1: You've got parts of the economy. So there's things to do.
Speaker 1: I mean, you know, while it is one of the
Speaker 1: most challenging uncertain times that we've seen in markets in
Speaker 1: a long time, with central banks tightening, there's some things
Speaker 1: to do in the markets, and there's some there's some
Speaker 1: reason to look at some some opportunities out there. So
Speaker 1: there's just as my math works, from a quarter of
Speaker 1: a percent to five cents, pretty big difference. That sounds
Speaker 1: pretty good. You get that kind of return. The same time,
Speaker 1: it depends on what's going on inflation, Right we get
Speaker 1: cp I nembers come out next week. If we've got
Speaker 1: a headline inflation around eight and we've got core around
Speaker 1: five or six, that five percent doesn't look quite so good,
Speaker 1: does it. It actually doesn't look good at all. And
Speaker 1: if you assume that we're going to be running at
Speaker 1: those sort of levels for a period of time. But
Speaker 1: you look at where the inflation markets are, where the
Speaker 1: where real capital including ourselves, are transacting, and today we
Speaker 1: were we were locking in inflation in two years at
Speaker 1: under two point two percent, for two years, five years,
Speaker 1: five years around two and a half percent, ten years
Speaker 1: around two point four. So if you say, gosh, I
Speaker 1: can buy one in two year high quality assets at
Speaker 1: four and a half to five, I'm projecting my inflation
Speaker 1: risk in the low two's. Boy, I'm locking in real rates.
Speaker 1: I'm financing company by the way, not just companies commercial mortgages,
Speaker 1: UM financing companies with a real rate. That's pretty attractive.
Speaker 1: And you can actually people can talk about the stickiness
Speaker 1: of inflation, which is real shelter inflations, high wages are high.
Speaker 1: But boy, you can do some things in the market
Speaker 1: that can that can certainly hedge your your inflation risk
Speaker 1: and then carried quite well in the market today. So
Speaker 1: it's the inflation risk is not what some people fear,
Speaker 1: it is is actually coming down. Why is that? Is
Speaker 1: that because the feed is tightening and tightening the money
Speaker 1: or is it actually is there something the notion the
Speaker 1: supply chain is loosening up some So I think it's
Speaker 1: two parts. One. I think the Fed deserves an awful
Speaker 1: lot of credit, don't So now is there was enough
Speaker 1: criticism to go around myself included that last year they're
Speaker 1: waited too long, Kui. I think that's been well chronicled.
Speaker 1: This year. They cannot be anymore clear. They cannot be
Speaker 1: uh more more strident in inflation is what they're doing,
Speaker 1: and they're not going to back off that. And you know,
Speaker 1: I think they're going to get the funds rate to
Speaker 1: four or three and three quarters of the four probably four,
Speaker 1: and then I think they're gonna let long and variable
Speaker 1: lags of montary policy do their things. So they're pretty clear.
Speaker 1: So I think there's a credibility from the Fed that
Speaker 1: I think you've you've got to uh, you've got to
Speaker 1: applaud in terms of what they're doing today. Second is,
Speaker 1: as you said, supply chain. You see real, real improvement
Speaker 1: and supply change. You see in some of the PPI numbers.
Speaker 1: You see freight costs coming down, you see commodity costs
Speaker 1: coming down. So there are some reasons to see you
Speaker 1: to see that they cash some of this inflation. You know,
Speaker 1: by the way, you also see an inventory levels look
Speaker 1: at retailers or inventory levels are up quite a bit.
Speaker 1: In fact, there's not there's not places to put some
Speaker 1: things that I see you'll see some price discounts. Um
Speaker 1: there and uh. And by the way, in semiconductors, it's
Speaker 1: not it's not perfectly solved around supply chains. But you
Speaker 1: look at some of the semiconductor show stocks these days,
Speaker 1: people are concerned about oversupply. That's not something we've talked
Speaker 1: about for a long time. So it's better and there's
Speaker 1: some reason for optimism, But I think you have to
Speaker 1: start with a central bank that is there is no
Speaker 1: ambiguity and they're quite clear in how they're communicating that.
Speaker 1: Thank you so much, always great to have you with us.
Speaker 1: It's Rick Reader of Black Rock. Coming up. We're gonna
Speaker 1: wrap up the week with our special com twitter Larry
Speaker 1: Summers of Harvard. This is Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. This is Wall Street Week. I'm David western.
Speaker 1: We were joined once again by our very special contributor
Speaker 1: Larry Summers of Harvard. Larry, welcome back. At one of
Speaker 1: the big events of this week, besides the queen passing,
Speaker 1: was actually what's going on with currencies with the US
Speaker 1: dollar setting record after record at the same time, the
Speaker 1: yours really falling on and boy, look at the end,
Speaker 1: what is going on with the economies. Look, the United
Speaker 1: States has a huge advantage. We've recognized it for a
Speaker 1: long time in terms of our lack of dependence on
Speaker 1: egregiously expensive foreign energy, and that is benefiting the relative
Speaker 1: strength of our economy. At the same time, we've mounted
Speaker 1: a stronger response macro economically to the pandemic. Our central
Speaker 1: bank is moving faster to do necessary are tightening with
Speaker 1: respect to UH, the respect to monetary policy. UH. Given
Speaker 1: inflation and all those various factors are making us safe
Speaker 1: haven a mecca for capital, and that's causing resources to
Speaker 1: flow into the dollar. It's remarkable that people were saying
Speaker 1: that the dollar's day was past, uh not very long ago,
Speaker 1: given its current strength, and my guess is that there's
Speaker 1: room for this to continue. You know, the euro was
Speaker 1: in the low eighties against the dollar UH twenty some
Speaker 1: years ago, and in some ways the relative fundamentals of
Speaker 1: the United States compared to Europe are even stronger now
Speaker 1: than they were then. So Larry, Uh, there's talk actually
Speaker 1: about for the possibility of intervention in Japan to try
Speaker 1: to support the end given what you just said that
Speaker 1: it's larger macroeconomic factors. Is it possible for Japan actually
Speaker 1: intervened and actually shore up the end? I tend to
Speaker 1: be skeptical that intervention can have sustained impacts UM. The
Speaker 1: capital markets are just so big, even relative to the
Speaker 1: resources that the authorities UH have UH that I would
Speaker 1: be surprised in today's world if interventions could have large
Speaker 1: sustained impacts on maintaining UH the value of the end.
Speaker 1: I think the more fundamental questions UH for the end
Speaker 1: involve the level of Japanese interest rates, both in the
Speaker 1: short and over the longer term, and the extent to
Speaker 1: which the Japanese will at some point feel comfortable raising
Speaker 1: those interest rates, which is not a simple proposition given
Speaker 1: the magnitude of debts in Japan. So we're seeing a
Speaker 1: different sort of intervention over in Europe, both through the
Speaker 1: respect of the United Kingdom, where the new Prime Minister
Speaker 1: is Trust now is trying to impose a cap on
Speaker 1: the cost of households. We also have the possibility of
Speaker 1: a price cap being agreed upon in Europe. Is that
Speaker 1: a reasonable intervention is likely to be effective at dealing
Speaker 1: with the runaway energy costs, particularly in Europe. Look, it's
Speaker 1: an extraordinarily difficult situation, and it's a mistake to be
Speaker 1: too judgmental from too far away. But when I saw
Speaker 1: the emerging plan, it reminded me of standard UM Latin
Speaker 1: American populist approaches fixed the price and commit to unlimited subsidy,
Speaker 1: and those policies often have not worked out well at
Speaker 1: all for those who implemented them, and so it seems
Speaker 1: a very dangerous course. Now. I think we ought to
Speaker 1: give the British authorities an opportunity to explain the rationale
Speaker 1: for their policy, to explain the financing mechanisms behind UH
Speaker 1: their policies. But a policy of tax cutting, avoiding taxation
Speaker 1: of windfall profits, subsidizing consumers for UH low priced energy
Speaker 1: in the face of a nearly unlimited potential liability UH
Speaker 1: seems to me to at least raise very serious and
Speaker 1: severe arithmetic UH questions. And I think people who are
Speaker 1: thinking about the pound are thinking about that is the
Speaker 1: story that overshadowed the entire week, not necessarily in economics
Speaker 1: or finance, but overall, was the passing of Queen Elizabeth
Speaker 1: the Second at the age of ninety six, And I
Speaker 1: wonder if that gives us an occasion to reflect on
Speaker 1: what has happened to the British economy since the nine
Speaker 1: when she became queen and to the present time. It's
Speaker 1: been through an awful lot, it's grown up firm at
Speaker 1: the same time, and what we think is likely in
Speaker 1: store for King Charles the Third. You know, in today's world,
Speaker 1: there are very few leaders who command nearly universal respect,
Speaker 1: and there are very few leaders who are able, through
Speaker 1: decades in the public eye, to maintain um, that dignity
Speaker 1: and to maintain respect. And Queen Elizabeth did that, and
Speaker 1: did it as recently as this year at the age
Speaker 1: of ninety six, and it's a quite extraordinary thing that
Speaker 1: I think history will uh long remember. She stood for
Speaker 1: taking the long view. She stood for rising above passions
Speaker 1: of the moment, and I think those are useful lessons
Speaker 1: for all of us involved in political economy, useful lessons
Speaker 1: when the urge to point scoring or cheap partisan advantage
Speaker 1: um looms large in politics, and useful lessons in with
Speaker 1: respect to uh economics and economic policy as well. And
Speaker 1: one has to take a longer view. And so Queen
Speaker 1: Elizabeth was always acting not with a view to the
Speaker 1: newspaper headline, but with a view to the history books.
Speaker 1: And my counsel to uh those who will lead Britain
Speaker 1: politically at this very difficult moment is to do the
Speaker 1: same thing. And I think that's something we can all
Speaker 1: uh usefully keep in mind in every country. So, Larry,
Speaker 1: let's convened the Larry Summers Book Club. Here. Who are
Speaker 1: you reading these days? I understand you have a book
Speaker 1: you like a lot. Brad DeLong, my former student, now
Speaker 1: colleague at the Treasury Department, now a professor at Berkeley,
Speaker 1: has written the one economic history book that I think
Speaker 1: everybody should take a very serious look at. Slouching towards
Speaker 1: Utopia is the title, and it chronicles the world from
Speaker 1: the moment uh growth really took off in eighteen seventy
Speaker 1: pretty much up to the present. And the only thing
Speaker 1: we really can learn from for thinking about the future
Speaker 1: economy is history. And Brad tells it in a dramatic
Speaker 1: and strongly thematic uh way. Thank you so much. I
Speaker 1: really appreciate you being back with us since Larry Summers
Speaker 1: of Harvard our very special contributor here on Wall Street Week. Finally,
Speaker 1: one more thought, everything that goes up must come down,
Speaker 1: or to put it in financial terms, reverts to the mean.
Speaker 1: We've seen it recently in things like Bitcoin coming back
Speaker 1: down towards Earth. The weight that we've seen on Bitcoin
Speaker 1: in the crypto space at large denverblementum. From a longer
Speaker 1: term spect it is very barished right now. In meme
Speaker 1: stocks shooting up and shooting right back down again, so
Speaker 1: called meat stocks like Game Stop down eight percent, AMC
Speaker 1: Entertainment will sit down. And in those n f T
Speaker 1: s that we're going to take us all into the
Speaker 1: bold new world of the metaverse n f team market
Speaker 1: has crashed for the glost has come off of that
Speaker 1: particular world, and now we're seeing it in the world
Speaker 1: of specs. Those special purpose acquisition companies that held out
Speaker 1: the promise of all the benefits of going public without
Speaker 1: all those pesky sec requirements in this back market in
Speaker 1: particular not doing well. This fact craze is over. I
Speaker 1: think that investor sentiment has soured on the product. This
Speaker 1: week we saw the latest stumble of US back when
Speaker 1: the company former President Trump chose to help him take
Speaker 1: his truth. Social media company Public ran into trouble with
Speaker 1: shareholders who refused to let an extend the time to
Speaker 1: close the deal, as the app itself continues to have issues,
Speaker 1: including a ban from the Google Play Store. Truth Social,
Speaker 1: that content moderation piece and making sure that they can
Speaker 1: kind of abide by the standards that Google expects seems
Speaker 1: to be the breaking point at the moment, which brings
Speaker 1: us to baseball and to the New York Yankees, the
Speaker 1: best team in baseball at least through the month of June,
Speaker 1: winning almost seventy of their games during that time period,
Speaker 1: only to revert to that mean with a record well
Speaker 1: below five since then. But in a world of things
Speaker 1: coming back down to earth, there is one part of
Speaker 1: the Yankees that hasn't. He's named Aaron Judge, who has
Speaker 1: already hit well over fifty home runs this season, and
Speaker 1: he's on a pace that, with a little luck and
Speaker 1: a bit of his skill, could approach or even pass
Speaker 1: Roger Morris's record of I'm just blessed to be in
Speaker 1: this position, to be with those guys, and you know,
Speaker 1: looking forward him, you know, send more records with those
Speaker 1: guys and hopefully eventually getting a ring at the end
Speaker 1: of the year. As big a deal as that is
Speaker 1: for the sport of baseball, it may be even a
Speaker 1: bigger deal for Judge's bank account. He was offered two
Speaker 1: thoint five million dollars in a contract attention at the
Speaker 1: beginning of the year, only to turn it down and
Speaker 1: beat on himself and decide he was going to have
Speaker 1: a new contract than the year. Well that that it
Speaker 1: looks like it's likely to pay off. That does it
Speaker 1: for this episode of Wall Street Week. I'm David Weston.
Speaker 1: This is Bloomberg. See you next week. It's turn, It's turn.