Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: And we may not have an overall recession, we're having
Speaker 2: a rolling recession. To conge roll looks pretty strongly it
Speaker 2: is when it comes to jobs.
Speaker 3: The financial stories that shape our world.
Speaker 2: Three major regional bank failures send shockwaves through the banking system.
Speaker 2: We're all trying to figure out what to make of
Speaker 2: generative AI.
Speaker 3: Through the eyes of the most influential voices.
Speaker 2: Welcome down, Doctor Paul Krugman, Ryan moynihan, Bank of America,
Speaker 2: deebro Lair of the Paulson Institute, well then Hubbard of
Speaker 2: the Columbia Business School.
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: The Jobs engine continues, Tesla falters and Bob Eiger gets
Speaker 2: his way at Disney. This is Bloomberg Wall Street Week.
Speaker 2: I'm David Weston, but we start with investing legend Ray Daliu,
Speaker 2: who has been on Wall Street Week several times through
Speaker 2: the years, but perhaps never more memorably than back in
Speaker 2: nineteen eight in the wake of the Mexican sovereign debt default,
Speaker 2: when Ray both appear before Congress and on this program
Speaker 2: with Marty's Wag and Lewis Rukaser to take a pretty
Speaker 2: firm position on where things were headed.
Speaker 4: Chairman, mister Mitchell, it's a great pleasure and a great
Speaker 4: honor to be able to appear before you in examination
Speaker 4: with what is going wrong.
Speaker 3: With our economy.
Speaker 4: The economy is now flat teetering on the brink of failure.
Speaker 5: You were recently quoted in an article you said, I
Speaker 5: can say this with absolute certainty because I know how
Speaker 5: markets work.
Speaker 4: I can say with absolute certainty that if you look
Speaker 4: at the liquidity base in the cooperations and the world
Speaker 4: as a whole, that there's such a reduced level of
Speaker 4: liquidity that you can't return to an arab stagflation.
Speaker 2: And we welcome now Ray Dalio of Bridgewater back to Wallstreet.
Speaker 2: Big so, Ray, great to have you back on It's
Speaker 2: great to see you somewhat younger, back in nineteen eighty two.
Speaker 2: But take us back to nineteen eighty two, because you've
Speaker 2: talked about that since it's being a really transformative, a
Speaker 2: pivotal moment in your life. Tell us of what happened
Speaker 2: and what happened afterwards.
Speaker 3: Like watch me, was I arrogant?
Speaker 6: I look at myself, mout I couldn't have been more
Speaker 6: arrogant and I couldn't have been more wrong and painfully wrong.
Speaker 6: And so that's why it was a transitional moment for me, because.
Speaker 3: I got.
Speaker 6: So broke that my dad had to lend me four
Speaker 6: thousand dollars to pay for my family bills.
Speaker 3: So that was my bottom, my big.
Speaker 6: Bottom, and that painful experience made me think, how do
Speaker 6: I get all the upside without the downside of risk? Okay,
Speaker 6: so it's the big question that all investors have to
Speaker 6: deal with being knocked out and the bet that you
Speaker 6: can lose that can take you out is your risk.
Speaker 6: But how do you get the great upside? And so
Speaker 6: then I had to engineer it and I learned about diversification.
Speaker 6: I learned that if I can have fifteen uncorrelated bets,
Speaker 6: I can eliminate eighty percent of my risk without producing
Speaker 6: my return.
Speaker 2: Looking at this says, look, but look at what Bridgewater
Speaker 2: ended up and the extraordinary success you just went through.
Speaker 2: So go back to nineteen eighty two. You said you
Speaker 2: should have been more diversified, and you should have had
Speaker 2: some other points of view. What is it you got
Speaker 2: wrong in nineteen eighty two? Exactly what was your mistake?
Speaker 2: And could there have been somebody come along to say,
Speaker 2: at that moment, we're a second rate. You should think
Speaker 2: about that. You haven't thought about that over there.
Speaker 3: Yes, So.
Speaker 6: I calculated that Mexico, that American banks had lent more
Speaker 6: money to foreign countries than they were going to be
Speaker 6: able to pay back, and that was going to be
Speaker 6: a debt default, which was true.
Speaker 3: Which was true.
Speaker 6: Mexico defaulted and all these countries afterwards defaulted. And I
Speaker 6: said that that debt crisis was going to cause a
Speaker 6: crisis all the way around the world because to banks
Speaker 6: and so on. And I didn't realize the mechanics of
Speaker 6: how the changing of a debt squeeze, having a debt
Speaker 6: squeeze in those countries so money would not go to
Speaker 6: those countries used to go to those countries and lending,
Speaker 6: and while they were having a squeeze, we could have
Speaker 6: a disinflationary boom, and it produced the eighties.
Speaker 3: My point is that these.
Speaker 6: Experiences in life, if you go back and you study
Speaker 6: history and you see how history repeats many things never
Speaker 6: happened in your lifetime before, and you.
Speaker 2: Built up Bridgewater at the same time. Having studied history.
Speaker 2: Now I'm surmising you knew you got to think about
Speaker 2: succession at some point. You can't stay forever. Now tell
Speaker 2: us how that's worked and has it succeeded. Are you
Speaker 2: satisfied with that succession of Bridgewater?
Speaker 3: It's been so great?
Speaker 6: So I am so I did that and I had
Speaker 6: that track record with them bringing them in as you described,
Speaker 6: and Bob Prince, Greg Jensen, near other people. All of
Speaker 6: those people are all part of that mission. And there
Speaker 6: was also part of a culture of can we be
Speaker 6: radical truth and radically transparent?
Speaker 3: Could we trust each other? Can we go through all
Speaker 3: of that?
Speaker 6: And so that was all they are And then of course,
Speaker 6: you know you want to pass it along and so
Speaker 6: then I, with a lot of planning and with the
Speaker 6: comfort that these great people I've worked with and I know,
Speaker 6: and those great people working together can continue to pick
Speaker 6: up where I left off or we left off together
Speaker 6: and then go bring it to a higher level beyond me.
Speaker 3: And so that's the success.
Speaker 6: And so in about eighteen months they I turned it
Speaker 6: over to them.
Speaker 3: They have their it's.
Speaker 6: Theirs and now I'm a mentor, and as a mentor,
Speaker 6: we have the enjoyment, the great pleasure of being able
Speaker 6: to brainstorm that way, But it's theirs and they owner,
Speaker 6: and so when they have I'm confident that they have
Speaker 6: the qualities and the terrific elements to be able to
Speaker 6: bring them up to have theirs that will be hopefully
Speaker 6: better than ours, Because Wow, I think we had an
Speaker 6: amazing success. And the success it's like raising your kids,
Speaker 6: you know, the joy that the ones who are older
Speaker 6: feel about the next generation and seeing them succeed. That'll
Speaker 6: be my mark of my success. If they succeed, it's
Speaker 6: my success. If they don't succeed, it's my failure. But
Speaker 6: I couldn't have a better group of people and a
Speaker 6: greater simpatico in terms of that element of where we're
Speaker 6: going on the same basic approaches and the same basic culture.
Speaker 2: You've written a recent post about a pivotal year on
Speaker 2: the brink twenty twenty four. Take us through your analysis there.
Speaker 6: There are many things that surprised me in my life
Speaker 6: that wouldn't have surprised me if I had studied the history,
Speaker 6: because they didn't happen in my lifetime, but they happened
Speaker 6: many times before. So I created a need really to
Speaker 6: when certain things are coming along that I'm not used
Speaker 6: to seeing to then go back and there are five
Speaker 6: things that are now the big forces that interact together.
Speaker 6: The way those five forces interact with each other through
Speaker 6: history has a pattern to it, and you know those interactions.
Speaker 3: So when we look at.
Speaker 6: That pattern of what's now happening, and we could look
Speaker 6: ahead with that in mind, we can see that twenty
Speaker 6: twenty four is we are on the brink of a
Speaker 6: number of things related to that. I can list those things,
Speaker 6: but we're on the brink. And it becomes also somewhat
Speaker 6: of a definitive year because of we're going to find
Speaker 6: out how we are with each other politically, and we're
Speaker 6: going to find out geopolitically a lot.
Speaker 2: A definitive year, but not the only one. Neil Ferguson
Speaker 2: of the Hoover Institution, for example, says that twenty twenty
Speaker 2: four stands out compared with the last thirty or forty years,
Speaker 2: but not compared to some of what came before.
Speaker 7: If you go back maybe to the nineteen nineties, Yeah,
Speaker 7: that period seemed pretty low risk. The Soviet Union had collapsed,
Speaker 7: and apart from trouble in the Balkans with the breakup
Speaker 7: of Yugoslavia and some other trouble spots like Somalia. The world,
Speaker 7: by the standards of the rest of the twentieth century
Speaker 7: was pretty peaceful.
Speaker 8: But if you go back.
Speaker 5: Fifty years, imagine we're back in nineteen seventy four. That
Speaker 5: was a much more dangerous time than we're living through now.
Speaker 5: And I speak with some insight as I'm in the
Speaker 5: midst of writing about that period, as I write the
Speaker 5: second volume of my biography of Henry Kissinger. We have
Speaker 5: a tendency to judge the present by comparison with the
Speaker 5: recent past. But the recent past was an inter war period,
Speaker 5: the period between two Cold Wars. Cold War one ended
Speaker 5: with the Soviet collapse, and we didn't really notice Cold
Speaker 5: War two beginning. But I think it really began when
Speaker 5: Exhijinpin came to power in China.
Speaker 2: Geopolitical risk is not the only factor that may make
Speaker 2: twenty twenty four pivotal. We also have elections around the world,
Speaker 2: and particularly in the United States, which raises uncertainty over
Speaker 2: economic policies, which Neil ferguson things markets are well equipped
Speaker 2: to handle.
Speaker 5: I think we know that markets try to adjust for
Speaker 5: domestic political risk. We know this because there's been some
Speaker 5: great work done in recent years on the way that
Speaker 5: in an election year, investors have a tendency to make
Speaker 5: some allowance for policy uncertainty, and the bigger the difference
Speaker 5: between the candidates in the United States, the more uncertainty.
Speaker 5: And we've certainly got a pretty big difference this year,
Speaker 5: but it's the same difference that we have back in
Speaker 5: twenty twenty between Donald Trump and Joe Biden.
Speaker 2: But Ray Dalio is concerned that the election this year
Speaker 2: may go past the policy uncertainty investors have dealt with
Speaker 2: in the past, that given the disagreements, even violent disagreements,
Speaker 2: over the last election, we may face more fundamental uncertainties
Speaker 2: about the underlying political system. And you, in your writing
Speaker 2: so specifically, a focus on that second force is maybe
Speaker 2: the most dominant right now going to twenty three fourth,
Speaker 2: the potential for internal conflict. I mean, you even write
Speaker 2: the possible this is I have a there's a fifty
Speaker 2: to fifty chance of civil war you talk about, Is
Speaker 2: that right? Fifty to fifty?
Speaker 6: Well, so let me define a civil war that you
Speaker 6: have a situation where you have irreconcilable differences so that
Speaker 6: there becomes a failure to follow the rules. In other words,
Speaker 6: let's take January sixth incident. Okay, you could see a
Speaker 6: situation in which you don't accept losing, don't accept the results.
Speaker 6: We are getting more and more, not only just in
Speaker 6: the election, but even in decision making as the state
Speaker 6: of Texas deals with the federal government on issues, or
Speaker 6: we had sanctuary city issues where there may not be
Speaker 6: the agreeing on that these irreconcilable differences. Irreconcilable differences for example,
Speaker 6: on children and sexuality and education, how should that be?
Speaker 6: These are not compromisable issues. That greater and greater extremism
Speaker 6: is an issue. And so when we come to let's
Speaker 6: say this election period, how will we get through that
Speaker 6: and how will we work together in an effective way?
Speaker 6: Or will it be even so chaotic and that we
Speaker 6: keep that we start fighting with each other. So when
Speaker 6: I say we're on the brink, I think that it's
Speaker 6: to say we're accurate to say that some of these
Speaker 6: questions exist and we will find out in a year, Okay,
Speaker 6: how well we can be together, and that well, how
Speaker 6: well we be together not only the conflict, but how
Speaker 6: effective can we be. We're going to find that out
Speaker 6: over the next year. What we need I think is
Speaker 6: a strong middle. We have to do this together with
Speaker 6: a strong middle and a bipartisan and my opinion almost
Speaker 6: the President of the United States should have a bipartisan cabinet,
Speaker 6: draw the best and bring it together so that there's
Speaker 6: a bipartisanship.
Speaker 3: Where it's been such a pleasure having here. Thank you
Speaker 3: so much for doing this. Oh, thank you for having me.
Speaker 3: Many thanks to.
Speaker 2: Ray Value of Bridgewater. Coming up, we go to Argentina
Speaker 2: and hear from President Milay about his economic plans. That's
Speaker 2: next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Well Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 3: This is Walter Weegan.
Speaker 2: I'm David Weston. After years of economic struggles, Argentina's new president,
Speaker 2: Javier Milay, is administering shock therapy that he promised when
Speaker 2: he campaigned.
Speaker 8: For his job.
Speaker 2: Bloomberg International Policy and Economics correspondent Michael McKee lays out the.
Speaker 8: Issues for US.
Speaker 9: Argentina has long been a symbol of economic mismanagement. A
Speaker 9: legacy of government overspending has led to recurring bouts of
Speaker 9: high inflation and debt defaults. Javier mile came to office
Speaker 9: in December promising a radical transformation. His plans include massively
Speaker 9: slashing government spending, privatizing state owned businesses, eliminating the central bank,
Speaker 9: and most controversially, replacing the Argentine peso with the US dollar.
Speaker 9: The dollar would, he said, solve the inflation problem because
Speaker 9: the government couldn't spend more dollars than it has, but
Speaker 9: Argentina doesn't have enough dollars in its foreign exchange holdings
Speaker 9: to make it work right now. Adopting it would lead
Speaker 9: to a deep recession and tie Argentina's economy to the
Speaker 9: federal Reserve. While a recession may indeed be in the cards,
Speaker 9: Mela's plans aren't working out as he'd hoped. The opposition
Speaker 9: controlled Argentine legislature has blocked many of the changes he
Speaker 9: wants to make. Inflation remains over twenty percent a month
Speaker 9: or almost three hundred percent a year, so while Melee
Speaker 9: cut the peso's value in half, dollarization.
Speaker 8: Has been put on hold.
Speaker 9: The Mela plan did convince the International Monetary Fund to
Speaker 9: offer four point seven billion dollars in loans to pay
Speaker 9: its foreign exchange debts, and the stock market is up
Speaker 9: twenty percent since he took office. Whether Melea's plans can
Speaker 9: succeed will depend on keeping that optimism going, getting the
Speaker 9: economy going, and bringing down inflation enough to build up
Speaker 9: dollar reserves. He says he's not giving up on dollarization,
Speaker 9: but insists his program needs time until the money stops
Speaker 9: rolling out in all directions David.
Speaker 2: This week, our editor in chief, John Micklethway traveled to
Speaker 2: Buenos Aires for an in depth interview with President Lay
Speaker 2: about what he hopes to accomplish.
Speaker 10: So, first, you need to reform the financial system, which
Speaker 10: is what we are working on. And in that context,
Speaker 10: it's not just that the exchange rate is flexible, but
Speaker 10: also the money amount never varies, and as the economy
Speaker 10: recovers and grows and the money demand increases as the
Speaker 10: amount of business will order be a given endogenously will
Speaker 10: have a dollarization process relating to the monetization performed by
Speaker 10: individuals in the economy.
Speaker 11: I know that you are doing this thing with the
Speaker 11: floating exchange rate, where you've been deprecating or depreciating the
Speaker 11: official rate by two percent each month, and the IMF
Speaker 11: and various people have said, you know you must speed up,
Speaker 11: you must go quicker. Will you proceed? I know you
Speaker 11: are doing these other things, but when you speed up,
Speaker 11: that's rate of appreciation.
Speaker 10: No, because it makes no sense. It makes no sense
Speaker 10: to do that.
Speaker 2: That was Argentine President Milay speaking with Bloomberg Editor in
Speaker 2: chief John Nikelthwaite. We're joined once again by our very
Speaker 2: special contributor here on Walsteretreek. He is Larry Summers of Harvard. So, Larry,
Speaker 2: welcome back. Great to have you here, particularly this week
Speaker 2: when we got those jobs numbers which surprised the ouside.
Speaker 2: What did you make of them?
Speaker 12: This was a hot report jobs above three hundred thousand upwards, revision, strong,
Speaker 12: household survey hours up, payrolls up at nearly a ten
Speaker 12: percent to annualize rate.
Speaker 8: This was a hot report that.
Speaker 12: Suggested that, if anything, the economy is reaccelerating. This is
Speaker 12: very different from what lots of people, most people I think,
Speaker 12: were expecting, and fits the thesis that the neutral rate
Speaker 12: is much higher than people supposed and take money is
Speaker 12: much less potent than people supposed.
Speaker 2: So let's talk about the neutral rate. You've said before
Speaker 2: that the FED should have at least some idea of
Speaker 2: the nutral right to know whether it's restrict or not.
Speaker 2: We heard from share Powell this week is making out
Speaker 2: of Stanford, where he said, yes, we are restricting of
Speaker 2: our policy, and yet he quite explicitly said he doesn't
Speaker 2: need to worry about where the neutral rate is for
Speaker 2: policy going forward.
Speaker 13: So all those are very important things, but they're not
Speaker 13: things that affect the longer run potential output of the
Speaker 13: United States. So honestly, though, so the question of what
Speaker 13: will be the equilibrium interest rate, that the neutral interest
Speaker 13: rate going forward doesn't really matter for policy today.
Speaker 12: Saying we don't need to know what the neutral rate
Speaker 12: is is like saying you should drive your car on
Speaker 12: fees without looking at the speedometer.
Speaker 8: It is just a mistake. You cannot know.
Speaker 12: And look, I don't know what the Chairman said in
Speaker 12: full context, and I want to be fair, but there's
Speaker 12: no way to judge what policy is without knowing what
Speaker 12: would be a neutral policy. My view is that the
Speaker 12: evidence is overwhelming that the neutral rate is far higher
Speaker 12: than the two and a half percent two point six
Speaker 12: percent that the FED talks about. That evidence comes from
Speaker 12: four places. First, we have high interest rates, and we
Speaker 12: have an economy that is, if anything, growing faster than
Speaker 12: its long run potential, creating jobs as fast or faster
Speaker 12: than natural growth in the labor.
Speaker 8: Force, even allowing for immigration.
Speaker 12: Second, we have an economy with financial conditions that are
Speaker 12: extremely loose, that are actually looser than they were before
Speaker 12: the FED.
Speaker 8: Started the whole tightening process.
Speaker 12: If you look at credit spreads, you look at the
Speaker 12: stock market, suggesting that in the fullness of it, all
Speaker 12: financial conditions actually haven't been tightened in an appreciable way.
Speaker 8: Third, if you look at the markets.
Speaker 12: Estimate of the long run neutral rate as formed by
Speaker 12: looking at longer term of forward interest rates, that neutral
Speaker 12: rate is comfortably above four percent. Fourth, if you look
Speaker 12: at the fundamental determinants of the neutral rate, we have
Speaker 12: big surges in budget deficits that, if anything, look to
Speaker 12: get worse given the political process.
Speaker 8: We have big changes in.
Speaker 12: Resilience, investment in green investment in new investment in data centers,
Speaker 12: along with deglobalization which may limit capital inflows into our country. So,
Speaker 12: whether you look at the fundamentals, you look at market estimates,
Speaker 12: you look at financial conditions, or you look at the
Speaker 12: current strength of the economy, seems to me the evidence
Speaker 12: is overwhelming that the neutral rate is far higher than
Speaker 12: the FED supposes, and so cutting rates and hitting the
Speaker 12: accelerator in an economy creating jobs at more at a
Speaker 12: pace of more than three million jobs a year, with
Speaker 12: payrolls growing at rates consisting with inflation far above two percent,
Speaker 12: with a need to hoard ammunition, because we're not one
Speaker 12: hundred percent certain we're past every financial problem in the
Speaker 12: banking system, and with potential supply shocks coming down the road.
Speaker 8: Things could change.
Speaker 12: Things are always subject to rapid change. So I don't
Speaker 12: want to make a prescription for monetary policy in June,
Speaker 12: but on current facts and current trends, I think it
Speaker 12: would be a inappropriate act to cut rates in June.
Speaker 12: And it is deeply troubling to me that the Fed
Speaker 12: somehow thinks that fidelity to its previous forward guidance and
Speaker 12: doc it believes some time ago is a more important
Speaker 12: thing than trying to gauge the neutral rate on an
Speaker 12: ongoing basis.
Speaker 2: There's a lot of talk right now about what we're
Speaker 2: seeing in the labor market. Here actually is an increase
Speaker 2: in immigration, and I'm not necessarily even talking about the
Speaker 2: people coming across the southern border illegally. I'm talking about
Speaker 2: legal immigration, which has increased rather significantly under the Biden administration,
Speaker 2: How is that affecting your model for economic growth in
Speaker 2: the United States.
Speaker 12: Look, that has meant more labor force growth, which has
Speaker 12: meant more supply to the extent that those immigrants are
Speaker 12: earning and increasing the capacity of the economy and remitting
Speaker 12: the money back to their families where they came from.
Speaker 12: It's a supply increase without a concombatant demand increase, and
Speaker 12: therefore it's deflationary. But that's what's been baked in and
Speaker 12: is going to happen and has been happening. And so
Speaker 12: the question for movements and inflation is is that trend
Speaker 12: going to accelerate or is it going to decelerate over time?
Speaker 12: As I look at the attitude, which I find ugly
Speaker 12: and unattractive of a potential Trump administration towards immigration, if
Speaker 12: I look at the political pressures on the Biden administration,
Speaker 12: seems to me much more likely that immigration flows are
Speaker 12: going to decrease going forward then that they're going to
Speaker 12: increase going forward. And that's just one of the ways
Speaker 12: in which deglobalization may contribute to higher inflation.
Speaker 2: What other things are worrying you that are out there
Speaker 2: right now?
Speaker 12: David I'm nervous about oil prices is given what's happening
Speaker 12: in the Middle East, and given the increased possibility that
Speaker 12: Iran is going to be drawn into this conflict. Given
Speaker 12: that we've got the coming of summer combined with higher
Speaker 12: wholesale prices projected, I think there's a real shot that
Speaker 12: we will have gasoline prices back to having a forehandle.
Speaker 8: And I think the last.
Speaker 12: Thing is that if I'm right, I'm not convinced that
Speaker 12: duration mismatches in the banking system.
Speaker 8: Have been fully addressed.
Speaker 12: And the combination of duration mismatches plus hot money on
Speaker 12: the depositor side, plus problems in commercial real estate means
Speaker 12: that we could have some real financial distress at some point.
Speaker 8: Again, I think it's odds off.
Speaker 12: But it's a risk, and that's another reason why I
Speaker 12: think the FED should be hoarding its ammunition, not pumping
Speaker 12: up bubbles with easy money at a time of rapid
Speaker 12: growth and epically loose financial conditions.
Speaker 2: Larry, thank you so much for being here, as Larry
Speaker 2: Summers of Harvard are very special contributor here on Wall
Speaker 2: Street Week. Coming up, we welcome back Sonal Desai of
Speaker 2: Franklin Templeton to take us through the week in the markets.
Speaker 2: That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is Wall Street Week. I'm David Weston. Equity market
Speaker 2: served on Friday after those strong jobs numbers. But for
Speaker 2: the week overall, the S and P five hundred was
Speaker 2: down by just under one percent, ending at fifty two
Speaker 2: oh four.
Speaker 8: That is still though one.
Speaker 2: Hundred points over the median estimate of our Bloomberg ols.
Speaker 2: The Nazak goes off eight tens of percent. Bond sold
Speaker 2: off throughout the week, with the yield on the tenure
Speaker 2: up twenty basis points ten to four point four percent.
Speaker 2: To take us through this week in the markets. Welcome
Speaker 2: back now, Sonaldosai Franklin, Templeton's CIO for fixed income. So
Speaker 2: so now great to have you back with us. So
Speaker 2: what should investor take away from this week in the markets?
Speaker 14: Well, you know, it's a part of what investors need
Speaker 14: to take away is it's going to stay voldotile for
Speaker 14: a while longer. And that's really clear. I think bond
Speaker 14: markets have started absorbing the fact that the Fed doesn't
Speaker 14: need to rush in cutting rates. That's also quite clear.
Speaker 14: Having said all of this, next week we might get
Speaker 14: good inflation prints and you might get a fifteen basis
Speaker 14: point Raley. The problem, as I see it, is that
Speaker 14: the Fed has been very clear. Jay Powell has been
Speaker 14: really clear that he would like to be able to cut,
Speaker 14: and I think if he had been in a position
Speaker 14: to cut already, he would have cut. The data has
Speaker 14: not cooperated and so essentially there is a little bit
Speaker 14: of whipsaw action happening right now in the bond market,
Speaker 14: certainly at the equity market. No comments, I have no
Speaker 14: comments as to what's going on there at all.
Speaker 2: Just after the races. Well, as you say what you
Speaker 2: call it rip saw color volatility, there's a lot of
Speaker 2: risks out there that are hard to quantify. We spend
Speaker 2: a lot of the program actually talking about a variety
Speaker 2: of risks, not just economic, but also geopolitical and political.
Speaker 2: As an investor, when you put together a portfolio, how
Speaker 2: do you provide the sort of risks that we're seeing
Speaker 2: right now out there?
Speaker 14: So you know, the reality is, I couldn't agree more
Speaker 14: with your earlier guests. We are you know any one
Speaker 14: of this series of risks China and Taiwan, Russia, Ukraine,
Speaker 14: the Middle East, and the American of course, and the
Speaker 14: other elections we're going to see around the world. Any
Speaker 14: one of these would have actually been somewhat significant. All
Speaker 14: of them together, of course, increases in terms of the uncertainty.
Speaker 14: It increases, it increases the potential impact, no doubt. The
Speaker 14: problem is you can't actually manage your portfolio to one
Speaker 14: of these risks, because how do you actually handicap any
Speaker 14: one of these as being likely? Just if anything disastrous
Speaker 14: happened in the Middle East, forward, Russia or with China.
Speaker 14: Clearly what you'd want to be in is completely only
Speaker 14: entirely safe. Maybe you'd want gold. I don't know. That's
Speaker 14: not how you manage your portfolio, right, So I think
Speaker 14: for us what we've done, you know, David, we were
Speaker 14: very short for a long time with juist treasuries. We've
Speaker 14: moved to a neutral position, and we are hesitant I'd
Speaker 14: say to go overly long, despite tenures being where they
Speaker 14: are right now, in part because the economy is pretty
Speaker 14: strong and I'm not sure that the Fed's going to
Speaker 14: be able to cut as quickly as they would like
Speaker 14: to cut. So I would tend to agree entirely with Larry.
Speaker 14: I've been saying September now for a while as being
Speaker 14: the right time for the FED to start thinking about this.
Speaker 14: I also think that the overall number of cuts is
Speaker 14: not going to be quite as high as markets would like,
Speaker 14: leading us to that neutral rate of about four percent.
Speaker 2: So what does it tell us about duration? I mean,
Speaker 2: you have cash on the one extreme, you have longer
Speaker 2: duration on the other. Where do you go? Are you
Speaker 2: moving toward more durations now?
Speaker 15: So?
Speaker 14: You know, what I'd say is what I would advise
Speaker 14: people to do. You know, cash has worked incredibly well.
Speaker 14: How can we deny it? You know it's paying really well. However,
Speaker 14: it is important to start thinking about increasing that duration.
Speaker 14: It's not to get massive returns in fixed income. That's
Speaker 14: not what I'm falling for. We are neutral. I'm talking
Speaker 14: about moving from overnight and cash towards ultra short and
Speaker 14: then slowly dipping into low duration and beginning to move
Speaker 14: out on that duration spectrum. But FED wilcut. The one
Speaker 14: thing I would say, though, is this is not a
Speaker 14: series of cuts leading to a multi year rally in yields.
Speaker 14: I think we are in a different place if you
Speaker 14: look at where the fiscal deficit is. You look at
Speaker 14: the fact that inflation is stickier than any of us
Speaker 14: would like. Wages are pretty sticky. You've got to accept
Speaker 14: that Fixtinc. Is not going to give you equity like returns.
Speaker 3: Yeah.
Speaker 2: So now it's so great always to have you with this.
Speaker 3: Thank you.
Speaker 2: Listen now the sigh of Franklin Templeton. Rules are mostly
Speaker 2: made to be broken and are too often for the
Speaker 2: lazy to hide behind. So said General Douglas MacArthur during
Speaker 2: the Korean War when he was disobeying a direct order
Speaker 2: from President Truman. He broke the rules, and the president
Speaker 2: promptly sacked him. There are times when all of us
Speaker 2: have to make tough decisions about following the rules. I
Speaker 2: got crosswise of a rial judge very early in my
Speaker 2: career when I deliberately ignored his instruction not to move
Speaker 2: a controversial document into evidence. It was the only way
Speaker 2: to make a record for appeal, and so I did
Speaker 2: it anyway. I remember Judge Barnes his name, was leaning
Speaker 2: over the bench, raising his voice and reaming me out
Speaker 2: for what seemed like forever on the way out of
Speaker 2: the courtroom. A senior litigation partner for another law firm
Speaker 2: put his arm around my shoulders and said, you don't
Speaker 2: win cases by making friends of judges, and I certainly didn't.
Speaker 2: The business world is full examples of people either breaking
Speaker 2: the rules or coming so close that there's nowhere for
Speaker 2: them to hide. Elon must notoriously kept tweeting about Tesla,
Speaker 2: which got him in trouble with the SEC.
Speaker 16: All of these allegations are very pointed. They're very direct
Speaker 16: in alleging that he committed, you know, actions at least
Speaker 16: the SEC feels were against against regulations and potentially against
Speaker 16: the law.
Speaker 2: Apple has been a choose to breaking the rules against
Speaker 2: anti competitive behavior any number of times, most recently by
Speaker 2: the Attorney General of the United States.
Speaker 17: We alleged that Apple has employed a strategy that relies
Speaker 17: on exclusionary anti competitive conduct that hurts both consumers and developers.
Speaker 17: For consumers, that has meant fewer choices, higher prices and fees,
Speaker 17: lower quality smartphones, apps and accessories, and less innovation from
Speaker 17: Apple and its competitors.
Speaker 2: And there are some so called rules that we observe
Speaker 2: in the breach and may be happy doing it, like
Speaker 2: that tailor rule that pointed to much higher interest rates
Speaker 2: than any of us wanted.
Speaker 15: The tailor rule. For example, a guideline that central banks
Speaker 15: around the world have used to guide interstrate policy would
Speaker 15: have suggested, at the outset of this you needed short
Speaker 15: term registrates of nine or ten percent.
Speaker 8: We didn't get there.
Speaker 2: Sometimes it seems like General MacArthur had so our political
Speaker 2: leaders in mind when you talked about breaking rules from
Speaker 2: a certain short term congressman from Queens who simply made
Speaker 2: up as qualifications for the job.
Speaker 18: It's always, frankly, very sad when a public official that
Speaker 18: has that is responsible for properly stewarding the public trust
Speaker 18: portrays that trust. It is absolutely imperative that George Santos
Speaker 18: resigned from his seat. It is extremely important for the
Speaker 18: integrity of this body.
Speaker 2: To a longtime New Jersey senator who stands accused of
Speaker 2: taking bribes.
Speaker 19: The senator and his wife accepted hundreds of thousands of
Speaker 19: dollars of bribes in exchange for Senator Menendez using his
Speaker 19: power and influence to protect and to enrich those businessmen
Speaker 19: and to benefit the government of Egypt.
Speaker 2: And then there's the arcane world of sports rules. We
Speaker 2: couldn't play these games if we didn't have rules to follow,
Speaker 2: But does the NFL really need a rule that ties
Speaker 2: performance payments at the end of the year to where
Speaker 2: a player was picked in the draft.
Speaker 3: San Francisco forty.
Speaker 2: Nine Ers quarterback brock Perty probably doesn't think so. This
Speaker 2: week we learned that he came out twenty fourth on
Speaker 2: the bonus list because, as we all know, he was
Speaker 2: picked dead last his year, which meant that he already
Speaker 2: made about fifty million dollars less last year than his
Speaker 2: counterpart in the Super Bowl, Patrick Mahomes. In the world
Speaker 2: of basketball, we certainly need rules about where we put
Speaker 2: that three point line, which somehow got lost in the Portland,
Speaker 2: Oregon Arena where several of the NCAA women's basketball.
Speaker 3: Games were played.
Speaker 2: Just before game time between Texas and North Carolina State,
Speaker 2: the coaches learned that the three point line was closer
Speaker 2: to the basket at one end of the court than
Speaker 2: at the other. Faced with either playing the game with
Speaker 2: the wrong lines or postponing the game, the coaches decided
Speaker 2: to play on, with NC State winning.
Speaker 3: To go on to the Final Four.
Speaker 2: It was a real embarrassment for the NCAA, but nothing
Speaker 2: like what it confronted three years ago when a player
Speaker 2: went on social media showing how pathetic the weight room
Speaker 2: provided to women athletes in the tournament was compared to
Speaker 2: their male counterparts, where the men got an extensive facility
Speaker 2: with weight machines, squat wrecks, and bench which is the
Speaker 2: women were given just a single stand of dumbbells, causing
Speaker 2: a public outrage, an NCAA apology, and promises a future
Speaker 2: parody for men and women. This year, women's basketball got
Speaker 2: a different sort of parody when Iowah Hawkeye guard Kaitlyn
Speaker 2: Clark passed the men's all time scoring record.
Speaker 3: Maybe this time the.
Speaker 2: NCAA will learn its lesson about paying attention to the
Speaker 2: women's side of the tournament. Or then again, it might
Speaker 2: just need another rule about that. That does it for
Speaker 2: this episode of Wall Street Week, I'm David Weston. This
Speaker 2: is Bloomberg.
Speaker 3: See you next week.