Speaker 1: This is Bloomberg Wall Street. We turn our attention to
Speaker 1: the markets this week. U s c BEHIN members reinforcing
Speaker 1: concerns about inflation, the financial stories that cheap our work,
Speaker 1: a really different reaction to Mark two. 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 Treachery Secretary, Katherine Keene, CEO of v n Y Moms,
Speaker 1: Sam's l Chairman and founder of Equity Group Investment in
Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg radew
Speaker 1: When it rains, it pours, inflation, supply chains, war and
Speaker 1: tightening financial conditions. We've got it all. This is Bloomberg
Speaker 1: Wall Street Week. I'm David Weston this week special contributing
Speaker 1: Larry Summers on what it will take to get inflation
Speaker 1: back under control. The real determinants of inflation have to
Speaker 1: do with the total level of demand that's being stimulated
Speaker 1: by policies. And Roger Altman of Evercreps on whether of
Speaker 1: things really are as bad as they look and what
Speaker 1: can be done about it. It certainly could get worse
Speaker 1: before it gets better. It wasn't a great week on
Speaker 1: Global Wall Street. Consumer price numbers may have slowed down
Speaker 1: how bad, but according to Sarah House of Wells Fargo,
Speaker 1: not nearly enough. You are seeing some deceleration pair, but
Speaker 1: you're going to need to see a lot more. The
Speaker 1: war in Ukraine continued as President Putin made it clear
Speaker 1: he's not about to stop any time soon. It was
Speaker 1: not just sum delier Neat countries didn't want to listen
Speaker 1: to us, and in fact what happened they had completely
Speaker 1: different plans. While in China doubts grow about the economic
Speaker 1: path forward. It's less the story about John estimilating the
Speaker 1: global commy and more about whether or not it can
Speaker 1: even get its own economy on the base level. And
Speaker 1: you can forget about crypto as a place to hide
Speaker 1: from the storm. As Terris u s D stable coin
Speaker 1: lost its dollar peg. In short, the entire model fell
Speaker 1: apart and was unable to withstand a black spawn event
Speaker 1: or an adverse event, and Secretary Yelling warned of the
Speaker 1: potential risks for the financial system overall. I think that
Speaker 1: simply illustrates that this is a rapidly growing a product
Speaker 1: and there are risks to financial stability. And if all
Speaker 1: that weren't enough for you, we ended the week on
Speaker 1: Friday the thirteenth with Elon Musk tweeting that he has
Speaker 1: been for Twitter was on temporary hold sending the stock
Speaker 1: down by as much as at one point before he
Speaker 1: sent another tweet saying he was still committed to the deal,
Speaker 1: which helped a bit but still left the stock off
Speaker 1: about ten percent. And as for the markets, overall, equities
Speaker 1: made a valiant effort on Friday to come back from
Speaker 1: a bad week, but the SMP five hundred still finished
Speaker 1: down two point four percent for the week, closing Laura
Speaker 1: for the sixth week in a row, while the NASDAC
Speaker 1: was off two point eight percent and the yield on
Speaker 1: the tenure came down twenty basis points, ending the week
Speaker 1: at two point nine To to help us make some
Speaker 1: sense out of this rather chaotic week, we welcome now
Speaker 1: Kate Moore, she's black Rock Global Allocation team head a
Speaker 1: thematic strategy and David Bianco c i O for DWS America. So, David,
Speaker 1: it's not a very easy task. But what sense was
Speaker 1: made out of this week? Oh? This week was volatile,
Speaker 1: at least ended on a happy note. UH and We
Speaker 1: appreciate that equities ended the week on on a strong note,
Speaker 1: but let's face at the equity market and most asset
Speaker 1: classes have been under a lot of pressure here to date.
Speaker 1: The SMP it's flirting with a bear market. Who was
Speaker 1: down as much as during the week now it's down
Speaker 1: six from its all time hose And I think we're
Speaker 1: in a range bound market for some time. Markets just
Speaker 1: need to figure out what the normal interest rates are
Speaker 1: and until we have an understanding, has to wear interest
Speaker 1: rates stabilize, and especially not until the bond markets stop
Speaker 1: suffering losses. The equity markets have risk. So so okay,
Speaker 1: when you look at the equity market relations to the
Speaker 1: bond market, how much of this is discounting future earnings
Speaker 1: basically it's a discount rate put against future earnings. And
Speaker 1: how much is actually the multiple in the highest growth
Speaker 1: parts of the market, the stuff that was commanding ridiculous
Speaker 1: multiples for a lot of one. You know, that d
Speaker 1: rating is really started in November UM and has continued
Speaker 1: through the course of We still believe we're far away
Speaker 1: from a recession, and we think the FED is in
Speaker 1: the very early stages of normalizing policy, both in terms
Speaker 1: of policy rates, as well as of course quantitative tightening
Speaker 1: and reducing our partnering changing the size of the balance sheet.
Speaker 1: So you know, those two things together are going to
Speaker 1: I think, exert a bit of pressure and I think
Speaker 1: gonna keep volatility high. We keep watching the relationship between
Speaker 1: you know, rates fall and equity ball and see if
Speaker 1: there's a change in the pattern. But right now, I
Speaker 1: think they're going to stay elevated. That's exactly right. I mean,
Speaker 1: we're watching interest rates, we're watching interest rate volatility. It's
Speaker 1: just representative of how much uncertainty there is on where
Speaker 1: interest rates are likely to go up, but where do
Speaker 1: they plateau. And yes, higher interest rates, particularly higher real
Speaker 1: interest rates, is reducing the PE multiple. And then there's
Speaker 1: this uncertainty about how long this expansion might last. I've
Speaker 1: said that this expansion is two years old, perhaps going
Speaker 1: on seven or nine years old biologically, when it has
Speaker 1: a tenure expected lifespan. So they've not only used to
Speaker 1: hire discount rate to take in the PE, they've also
Speaker 1: shortened their forecast horizons and not paying for future growth. Instead,
Speaker 1: they're valuing the more certain earnings and dividends that you
Speaker 1: see coming from certain companies now yea, and I have
Speaker 1: to say, you know, we look around and say, there
Speaker 1: are a lot of high quality companies that you want
Speaker 1: to own for the next three or five years that
Speaker 1: are trading it pretty attractive multiple right now. That said,
Speaker 1: could the multiples overshoot to the downside? I mean, I
Speaker 1: think the answer is yes, there's a high probability that
Speaker 1: as the uncertainty rises around the macro environment and policy,
Speaker 1: that you end up seeing multiples get to kind of
Speaker 1: really silly cheap levels if you want to average in
Speaker 1: the great But it's this is a challenging environment. I
Speaker 1: think it's still a good environment for the long term investor.
Speaker 1: You have to find that person. That person needs to
Speaker 1: really understand the volatility they may be facing. A twin
Speaker 1: pe is still reasonable given these interest rates, Uh, they're
Speaker 1: still much lower than history. Now the Fed has an
Speaker 1: inflation fight to fight, but it's unlikely that interest rates
Speaker 1: go anywhere near where they were historically. Kate wore a
Speaker 1: black rock and David Bianco DWS America's where we're staying
Speaker 1: with us as we take a look down the road
Speaker 1: and what it means for investors if this inflation is
Speaker 1: here to stay. That's gonna have next on Wall Street
Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio. We've got some inflation built
Speaker 1: into the system, and price risers aren't going to go
Speaker 1: away overnight. But I think we begin seeing some hopeful
Speaker 1: signs that we're at a point here where we can
Speaker 1: begin getting a grip on this situation. That, of course,
Speaker 1: was Paul Volker on Wall Street with way back in
Speaker 1: That was when he was the president of New York Fed,
Speaker 1: before he got to administer his medicine to the economy
Speaker 1: as head of the Federal Reserve. David Bianco of W
Speaker 1: DW S America said, Kate Moore of Black Rock are
Speaker 1: still with us? Okay, let me ask you a question
Speaker 1: that I'm hearing more and more. Some people are suggesting
Speaker 1: this may be here for a long time to come.
Speaker 1: We had Jason Furman on from Harvard earlier this week
Speaker 1: on Bloomberg. He said he thinks it could be years
Speaker 1: we have really high inflation. If that's right, If that
Speaker 1: proves me true, what does that stay for two investors? Well, actually,
Speaker 1: you know, as much stress as we have around higher
Speaker 1: inflation rates, part really since most of us haven't had
Speaker 1: to deal with us for the majority of our lives. Um,
Speaker 1: there's actually really interesting investment theme around higher inflation. It's
Speaker 1: really interesting to look at within industries, which companies have
Speaker 1: pricing power, which companies are doing a really good job
Speaker 1: of managing their costs and managing to their margins, and
Speaker 1: which are struggling. I mean, I also like this theme
Speaker 1: of looking at companies that have very high labor intensity
Speaker 1: to sales. In other words, do they have to continue
Speaker 1: to hire and especially at a time where we know
Speaker 1: the total cost of an employee continues to rise, or
Speaker 1: do they have business models that are scalable they can
Speaker 1: continue to grow without adding to additional labor. I mean,
Speaker 1: we have to live in this environment and invest in
Speaker 1: this environment, and I think there's some pretty interesting opportunities,
Speaker 1: even though inflation does pinch our wallets. Well, Okay, give
Speaker 1: me an example, what sorts of sectors at least you're
Speaker 1: talking about. Okay, an example might be like, if you're
Speaker 1: just thinking in the consumer sectors, for example, you know,
Speaker 1: some companies have done a really good job of you know,
Speaker 1: writing longer term contracts, of managing their input costs. Sometimes
Speaker 1: they've made great investments in software and systems and technology
Speaker 1: so that they've been able to reduce their dependence on labor.
Speaker 1: All of these things help to sort of mitigate the
Speaker 1: margin pressure that an inflationary environment might otherwise scare us into. Right,
Speaker 1: and so there are some decent fundamental stories even in
Speaker 1: a higher inflationary environment. But you really got to get
Speaker 1: to know the company. And there are some beneficiaries of
Speaker 1: the FED fighting inflation. Banks, insurance companies. They should benefit
Speaker 1: from higher interest rates with the utilities or a really
Speaker 1: good bond substitute with inflation protection, and probably delivering the
Speaker 1: energy of the future electrification. Uh. And we like healthcare,
Speaker 1: and healthcare has become the biggest part of consumer spending.
Speaker 1: It continues to be the fastest growing part. Productivity, medicines,
Speaker 1: devices are needed. There these productivity providers, we think they're
Speaker 1: gonna be able to play an important role in capture profits.
Speaker 1: But I'd love about your clip in nine is that
Speaker 1: even the provoker recognized the challenge ahead. It's surprised even him,
Speaker 1: the big man, to the upside. Inflation can be a
Speaker 1: very big problem when that genie is out of the bottle. Okay,
Speaker 1: that leads me exactly my question you, David, which is
Speaker 1: you studied that period, do we need this time the
Speaker 1: sort of medicine that Paul Wolker ended up administring that
Speaker 1: because it was pretty tough. It was brutal medicine, and
Speaker 1: I think people need to appreciate that it was a
Speaker 1: very high price to pay for allowing inflation to accelerate
Speaker 1: for so long. Folker hyped the overnight interest rate to
Speaker 1: and inflation got to uh, it caused a recession. But
Speaker 1: one of the things that's important to recognize is that
Speaker 1: there was this combination of tightening monetary policy. While there's
Speaker 1: a lot of pro supply side policy. Who was a
Speaker 1: Reaganomics with Volkers monetary discipline that really helped seed a
Speaker 1: terrific nineteen eighties and longer expansion. So Kate helped me
Speaker 1: here because you're responsible for making these sorts of decisions.
Speaker 1: And normal if you've got a lot of inflation, you
Speaker 1: don't want to have cash because it's dwindling as you
Speaker 1: hold onto it. On the other hand, we got a
Speaker 1: lot of uncertainty. So what's your approach. Yeah, you know,
Speaker 1: normally I would say holding cash in the bank and
Speaker 1: not investing it or putting it to work in the
Speaker 1: market in some way, you know, is a waste, and
Speaker 1: especially in real terms, you just think about that cash
Speaker 1: kind of burning away. Of course, holding cash in this
Speaker 1: environment where we've had a really really challenging period for
Speaker 1: both bonds and stocks in terms of returns, has actually
Speaker 1: proven to be a really good portfolio diversifier. In fact,
Speaker 1: we're holding a fairly high level of cash both as
Speaker 1: an expression of our duration view, so we've had a
Speaker 1: sort of shorter duration position in the fund. We also
Speaker 1: de risk part of our equity portfolio while still holding
Speaker 1: some of the higher growth, higher quality companies that I
Speaker 1: think they can compound over the next couple of years.
Speaker 1: I think you should have dry powder. I really recommend
Speaker 1: people having some cash at this point. We're going to
Speaker 1: get some interesting bites at the Apple Um, you know,
Speaker 1: some other high quality companies, as I was mentioning before,
Speaker 1: may even get che birth in this as we know,
Speaker 1: have a very volatile period over the next couple one
Speaker 1: months of policy adjustment, and you know, recession fears, recession
Speaker 1: appears fading. David in a time of inflation, one thing
Speaker 1: people tend to go to his real assets, real estate,
Speaker 1: and now guy's realized sistem. Does that make sense right now?
Speaker 1: It does, And there's a nice availability of real assets,
Speaker 1: and they're investable more than they were back in the past.
Speaker 1: It's easier to invest in commodities, it's easier to invest
Speaker 1: in real estate, it's easier to even buy inflation protected securities.
Speaker 1: These things, particularly the ease of which they're investable nowadays.
Speaker 1: I bet your investors wish they had those options in
Speaker 1: the late seventies and early eighties. So there are ways
Speaker 1: to help manage through this period of uncertainty and the
Speaker 1: risks of inflation being high. Okay, so this is unfair.
Speaker 1: There's a curveball, Kade, I'll throw your way. Cash is
Speaker 1: not trash. What about crypto? I mean, we've had this
Speaker 1: whole discussion. There was something like two seventy billion dollars worth.
Speaker 1: The value came out of crypto and out of stable coins.
Speaker 1: As we did that teach us anything in general. I
Speaker 1: talked to Larry Summers and he said mainly that greed
Speaker 1: drives the marketplace. Yeah, first of all, I'm stealing Dave's
Speaker 1: cash is not trash, and I might make a little
Speaker 1: tattoo of that on my shoulder. But this is what
Speaker 1: I'll say. I'm by far away not an expert or
Speaker 1: an authority in any on on crypto or digital assets.
Speaker 1: I just would say that for people who are adding
Speaker 1: that into their portfolios as a diversifier, I think we've
Speaker 1: seen an incredibly higher correlation between all of these assets
Speaker 1: and actually between a lot of them and you know,
Speaker 1: more speculative parts of the technology sector. And you know,
Speaker 1: you've got to really think about your portfolio construction. This
Speaker 1: is the very early stages of this, you know, um,
Speaker 1: digital finance revolution, if you will, and you have to
Speaker 1: be I think, pretty balanced in your portfolio if you're
Speaker 1: going to own some of those assets. I don't know
Speaker 1: where it goes from here, but I will say, um,
Speaker 1: you have to be cautious. Just quickly. That's such a
Speaker 1: great point Cages made. We talk about trying to avoid correlation.
Speaker 1: I'm not sure I heard a lot of people talk
Speaker 1: about the corelation between big tech on the on hand
Speaker 1: in crypto on the other, but we surely certainly have
Speaker 1: seen it recently a lot of the same owners, so yes,
Speaker 1: they find themselves haven't been hurt and perhaps having to
Speaker 1: do risk. Um. The thing about one of the things
Speaker 1: to keep in mind the dollar has been getting stronger
Speaker 1: and if the Fed pulls this off, well the dollar
Speaker 1: will reign supreme again. What about that, Kate, What about
Speaker 1: a strong dollar? What does it due to your investment? Yeah,
Speaker 1: we take some concurrency views into consideration. I gotta tell
Speaker 1: you though, over the course of my career, I don't
Speaker 1: have the best batting average and making cross currency. That's
Speaker 1: you know. What I will tell you though, is you
Speaker 1: know it does affect how we think about our internationally.
Speaker 1: I'm sure not currency traders. So thank you so much.
Speaker 1: Great to have you both of us as Kate Moore
Speaker 1: black Rock and David Bianco of DWS Americans. Coming up,
Speaker 1: we take a look at what's coming up next week
Speaker 1: on the Wall Street. This is Bloomberg Wall Street Week
Speaker 1: with David Weston from Bloomberg Radio. Run up in stocks
Speaker 1: and then they subsequent set off in stocks on Wall
Speaker 1: Street is really working his way into the global narrative
Speaker 1: thing that sell off pattern in stocks and bonds really continue.
Speaker 1: But economic slowdown spurred another bout of risk aversion. Here's
Speaker 1: that rainy day. It's been a long bowl run in
Speaker 1: the markets, in wealth accumulation and in the economy which
Speaker 1: came back fast even after being brought to a halt
Speaker 1: by a pandemic. The fact is Americans a lot to
Speaker 1: be proud of. We're experiencing the strongest economic recovery in
Speaker 1: the world. But now everything that looked so rosy gives
Speaker 1: cause for concern from inflation. To look at the numbers,
Speaker 1: the headline comes in up three tenths of eight per
Speaker 1: cent to the supply chain. Some of the supply chain
Speaker 1: headaches that someone saying reaching an old time higher. To Ukraine,
Speaker 1: the Russians have been acting more like a bulldozer than
Speaker 1: than a tesla. To China, I think we're they're headed
Speaker 1: for growth recession. So yeah, I think the rest of
Speaker 1: the year is going to be very tough for China,
Speaker 1: leaving an investor to wonder how bad will it get?
Speaker 1: And when you ask a question as basic as how
Speaker 1: big and it gets, you want a true veteran, even
Speaker 1: a legend of Wall Street and Washington, and that's what
Speaker 1: we have here in Roger Altman is the senior chairman,
Speaker 1: of course, the founder of ever Core. Roger, welcome back.
Speaker 1: It's great to have you, Thank you, great to see you.
Speaker 1: So it's been a week maybe a month of hearing
Speaker 1: all the bad things everywhere you turn, and it's inflation,
Speaker 1: and it's the FED, and it's Ukraine, it's China, it's
Speaker 1: the plate China. How bad is it? Well, l as
Speaker 1: of right now is down more or less. And that's
Speaker 1: the definition of a true correction. And so I would
Speaker 1: say it's been pretty severe. Uh. I think the big
Speaker 1: question is how much worse can it get? Uh? And
Speaker 1: no one knows the answer to that, and I certainly don't,
Speaker 1: but it certainly could get worse before it gets better.
Speaker 1: And you know, historically, when you see such a profound
Speaker 1: change of monetary policy, which as as worth having now
Speaker 1: or in the beginning stages of now, historically it's been
Speaker 1: at least over the short term after the change starts
Speaker 1: bad for equity values. It's really been the case very often.
Speaker 1: So it's not surprising that stocks are down now that
Speaker 1: the Fed has ended this relatively long period of almost
Speaker 1: free money uh and has headed up on a on
Speaker 1: a substantial, substantial upward trajectory in terms of tightening. It's
Speaker 1: not surprising stocks are down, But I think, as you
Speaker 1: just said, it coincides with a lot of other negative news.
Speaker 1: Most basically inflation, but also some of the other points
Speaker 1: you make about Ukraine, uh and so forth, and so
Speaker 1: it could get worse. Do I think we're in the
Speaker 1: on the verge of a financial crisis. I don't. I don't.
Speaker 1: I just think it's a sharp correction in equity values, which,
Speaker 1: when you step back and think about them, in so
Speaker 1: many cases, especially tech, were hard to hard to rationalize
Speaker 1: before this change. I mean, there was some astronomical values,
Speaker 1: as you well know, and it's not surprising that they're
Speaker 1: finally recked being rectified. So you're talking about the equity markets,
Speaker 1: We've talked with the bond markets as well, which is
Speaker 1: really taken it on the chin. What's the relationship between
Speaker 1: those financial markets on one hand, and if I can
Speaker 1: put it this way, the rural world, because a lot
Speaker 1: of your work at ever Core is dealing with real
Speaker 1: companies who are buying and selling companies or pieces of companies.
Speaker 1: Does it directly translate into the value of those assets
Speaker 1: or is it somewhat removed. It does directly translate in
Speaker 1: two ways. Uh. The stock market is a uh pretty
Speaker 1: reliable predictor of the broad economy, albeit uh nine months
Speaker 1: or so in advance. Of the real economy is changing.
Speaker 1: So um, right now there's a big debate as to
Speaker 1: whether we may have a recession, and uh, I think
Speaker 1: that's about myself. But uh, we're slowing down even right now,
Speaker 1: and and the market is in effect telling us that
Speaker 1: in terms of our own business, Oh yes, it has
Speaker 1: a big effect because when when the volatility is so
Speaker 1: high and people hesitate, they want to step back and
Speaker 1: wait for the smoke to clear in the environment to settle,
Speaker 1: and so transactions slow down. There's no doubt about it. Um.
Speaker 1: And you can see that by the way and the
Speaker 1: valuations of all the investment banks which have come down
Speaker 1: a lot for a variety of reasons, but one of
Speaker 1: them is an anticipated slow down in transaction volume. But
Speaker 1: it's interesting people start to sit in their hands, if
Speaker 1: I can put it that where they're afraid to make
Speaker 1: a move, and that Trump's would otherwise might be an
Speaker 1: instinct is you know, there are some bargains now, so
Speaker 1: prices are coming down. It's the price takes is lower.
Speaker 1: It might cause some cities to say now is the
Speaker 1: time to move well, And in fact, just before I
Speaker 1: just on my way over here, I was on the
Speaker 1: phone with some of my colleagues because we're having a
Speaker 1: call uh with a very very well known company that
Speaker 1: we work with closely. That's a technology company, a very
Speaker 1: big one and a lot of it. The smaller companies
Speaker 1: they've been interested in buying in recent years have just
Speaker 1: been too expensive. Roger, thank you so very much. This
Speaker 1: is so helpful. How was the pleasure? David as Roger Allman.
Speaker 1: He is senior chairman and founder of ever Core. Coming up,
Speaker 1: we wrap up the week with our special Wall Street
Speaker 1: Week contributor Larry Summers of Harvard. This is Wall Street
Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio. This is Wall Spog Week time.
Speaker 1: David Weston ats time once again this week to have
Speaker 1: Larry Summers at Harvard come to us and explain this
Speaker 1: really perplexing week. So Larry, thanks so much for being
Speaker 1: back with this. I could call this the week of inflation,
Speaker 1: as it were. With the CPI numbers, the PPI numbers
Speaker 1: something you've been warning about for some time now. Some
Speaker 1: people are saying that show sort of we've hit the peak,
Speaker 1: it's starting to come down. What did you read into
Speaker 1: those numbers? You know, once again, the numbers were worse
Speaker 1: than people expected them to be. We may have hit
Speaker 1: a peak last month at eight point five, but we're
Speaker 1: not heading anywhere near to anytime soon, and that says
Speaker 1: that we've got very big challenges ahead of us in
Speaker 1: terms of managing UH this economy. And I think there's
Speaker 1: a lot of real risks out there. I see an
Speaker 1: overheated labor market as the core of the inflation process,
Speaker 1: driving service prices up. And I see a lot of
Speaker 1: risks geopolitically in terms of supply chains, geopolitically in terms
Speaker 1: of UH commodity prices. And so I think this is
Speaker 1: gonna be a very difficult environment for quite some time
Speaker 1: to come. Well let's talk about that quite some time
Speaker 1: to come, because we're now starting to see some people,
Speaker 1: including Jason Furman on Bloomberger this week, say he thinks
Speaker 1: that we could have years of inflation even if you
Speaker 1: get a recession. We would because there are some structural
Speaker 1: factors that could give us long, long inflation instead along COVID. Look,
Speaker 1: I think the two sets of issues that mean that
Speaker 1: that is a plausible view. One is, most inflations don't
Speaker 1: get stopped with a single slow down, there are multiple
Speaker 1: attempts to break inflation before there's ultimate success. That was
Speaker 1: certainly the case in the previous big inflation that we've
Speaker 1: had in the modern era, in the nineteen sixties and
Speaker 1: nineteen seventies. And then there is the argument, I'm never
Speaker 1: sure how much weight to give it, that we're probably
Speaker 1: in a more labor short economy that we used to be,
Speaker 1: that the pressures of globalization that we used to feel
Speaker 1: are no longer there, that there's more capacity of firms
Speaker 1: to niche market than there used to be, and that
Speaker 1: all of that means there's gonna be a bit less
Speaker 1: ruthless deflationary pressure than we've seen in most of the
Speaker 1: century so far, and that that could operate in the
Speaker 1: direction of higher inflation. I think I'd be very surprised
Speaker 1: at the average inflation rate during the ties wasn't materially
Speaker 1: higher than the average inflation rate UH during the decade
Speaker 1: of the teens, and it's reinforced via growing number of
Speaker 1: voices UH. I'm not yet prepared to join the chorus
Speaker 1: saying that we should set a target for inflation that
Speaker 1: is higher than two percent. It could conceivably be ultimately right,
Speaker 1: but I think moving in that direction immediately would very
Speaker 1: much undermine what limited anti inflation credibility the FED has,
Speaker 1: So Larry the question that, obviously is what do we
Speaker 1: do about this inflation? Is there anything that can be done?
Speaker 1: Obviously the Federal Reserve has the frontline responsibility, but we
Speaker 1: also have the executive branch and now the legislature saying, well,
Speaker 1: we can do some things. We have President Biden saying
Speaker 1: to the FEC, take a look at price gouging. And
Speaker 1: then we have the Speaker of the House, Nancy Pelosi
Speaker 1: saying she's going to bring legislation forward next week about
Speaker 1: price gouging at the pump? Is that going to help us?
Speaker 1: The price gouging at the pump? Uh? Stuff, the more
Speaker 1: general price gouging stuff is to economic science what President
Speaker 1: Trump's remarks about disinfectant in your veins was to medical science. Uh.
Speaker 1: It is dangerous, nonsens Uh. There is no material prospect
Speaker 1: that in any enduring way gouging legislation can have any
Speaker 1: substantial effect on inflationary pressure. But it can cause and
Speaker 1: contrive all kinds of shortages. It can distort a complex
Speaker 1: network of flows between crude and refined product. It can
Speaker 1: inhibit the supply responses that are what's ultimately the best
Speaker 1: way to overcome UH inflation. UH. This gouging talk is
Speaker 1: a diversionary confusion. It's something that tends to happen when
Speaker 1: we have inflations. But we only make progress once we
Speaker 1: move through that and we understand that the real determinants
Speaker 1: of inflation have to do with the total level of
Speaker 1: demand that's being stimulated by policies. If politicians outside the
Speaker 1: FED want to make a difference on inflation to the
Speaker 1: limited extent they can, they should be reducing tariffs. They
Speaker 1: should be letting more immigrants into the country. They should
Speaker 1: be reducing regulatory burdens like the Jones Act that mandates
Speaker 1: that only US ships can take crude oil from Texas
Speaker 1: UH to UH the northeast. So let's wrap up this
Speaker 1: week with a couple of quick rips from the headlines.
Speaker 1: One of them is cryptocurrencies and stable coins. The prices
Speaker 1: of those certainly didn't go up this week, and in
Speaker 1: fact I saw it was something like two seventy billion
Speaker 1: dollars where the market value taken away. Do we know
Speaker 1: anything at the end of the week about cryptocurrency stable
Speaker 1: coin that we didn't know at the beginning of the week.
Speaker 1: We've been reminded of something we should have known, which
Speaker 1: is that fear and greed drive financial markets. All financial
Speaker 1: markets and cryptos not immune from that, and bank run phenomena,
Speaker 1: whether it's banks, whether it's money market UH funds, whether
Speaker 1: it's repo, or whether it's crypto. When you don't have
Speaker 1: backing and you lose confidence, you get a big mess.
Speaker 1: And finally, Larry at the very end of the week
Speaker 1: on Friday, Elon Musk tweeted on the one hand that
Speaker 1: he was having some second thoughts about Twitter, and then
Speaker 1: he came back and said, don't know, he's still committed
Speaker 1: to It's not clear. The stocks certainly went down, came
Speaker 1: back a little bit, but it certainly went down substantially.
Speaker 1: Does this say something larger about what's going with tech?
Speaker 1: It right now? We saw that the value of so
Speaker 1: many big tech companies has come down. It's possible, well,
Speaker 1: this is actually having some buyer's remorse. Eon is I
Speaker 1: think you Musk is? I think in some ways the
Speaker 1: Andrew Carnegie of our time, a titanic, innovative, driving, extraordinarily
Speaker 1: wealthy UH figure who when he has leverage uses it,
Speaker 1: and with the changes of Twitter that have already taken
Speaker 1: place in the absence of other bidders, he has enormous
Speaker 1: leverage in this situation, and I suspect he's using it.
Speaker 1: That's fascinating and Andrew Carnegie of our time. That will
Speaker 1: go down. But as the larger issue is techn not
Speaker 1: going to have as larger role in the markets going
Speaker 1: forward as it has in the past. I suspect that
Speaker 1: the share of total wealth, total stock market that's in
Speaker 1: tech maybe somewhat lower over the next few years than
Speaker 1: it has been over the last few years. But I
Speaker 1: think it's gonna can sinue to be the case that
Speaker 1: the most valuable companies are tech companies. I think it's
Speaker 1: going to continue to be the case that as it
Speaker 1: always is, that UH technology and the transformations that it
Speaker 1: brings our driving history. My guess is that we're gonna
Speaker 1: see very profound changes coming out of artificial intelligence over
Speaker 1: the next decade, and I'm not sure where that's gonna go. Okay, Larry,
Speaker 1: it's always such a pleasure, a real treat to have
Speaker 1: you with us. As Larry Summers of Harvard a very
Speaker 1: special contributor for Wall Street week. Finally, one more thought.
Speaker 1: There's no shortage of pessimism in the markets these days,
Speaker 1: with central bankers falling over one another to tell us
Speaker 1: how determined they are to raise rates. We don't will
Speaker 1: out seventy five forever, right, I mean, what I'm gonna
Speaker 1: do is I think fifty the canes were going now
Speaker 1: seems about right to me, and those higher rates can
Speaker 1: mean only one thing, money coming out of the market
Speaker 1: and making all those financial assets less valuable than we
Speaker 1: thought they were. The trader actually told me that the
Speaker 1: consensus here is at the SPI will ultimately trade down
Speaker 1: to a PE multiple of sixteen to eighteen. We're at
Speaker 1: about twenty to twenty one right now, so by that standard,
Speaker 1: we still have a lot more selling to go. When
Speaker 1: it comes to taking money off the table, we always
Speaker 1: start with the riskier, more speculative parts of our portfolio
Speaker 1: like bitcoin. Bitcoin of course extending losses even dropping below
Speaker 1: almost thirty thousand one point on Monday. This is the
Speaker 1: first time it goes as low since back in July.
Speaker 1: And tech socks, including those in Cathy Wood's ARC fund,
Speaker 1: which this week gave back all of its gains against
Speaker 1: the smp F, and then some Cathy would strategy, for example,
Speaker 1: of picking stocks that have fallen victim to the tech meltdown,
Speaker 1: some of her favorites tumbling in an environment of rising
Speaker 1: interest rates and high inflation. There's a look at the
Speaker 1: arc innovation et F. But fear not, there are some
Speaker 1: assets that are holding up nicely, even setting new records, like,
Speaker 1: for example, twentieth century American art. One not to the
Speaker 1: beginning I wanted to send me in one sentiment in
Speaker 1: one twenty. This week, Andy Warhol's portrait of Marilyn Monroe,
Speaker 1: it's called Shot Sage Blue Maryland, set a new record,
Speaker 1: going for one million dollars. That's almost double the previous
Speaker 1: record of one ten million dollars for a painting by
Speaker 1: Jean Michel Basquiette. We did sell the most expensive painting
Speaker 1: of the twentieth century. It's the highest price ever paid,
Speaker 1: close to two hundred million dollars. Uh, let it sink in.
Speaker 1: It's quite something. So with all the talk about cryptocurrencies
Speaker 1: and n f t s is the value of the future,
Speaker 1: It's good to know that the safe haven investment may
Speaker 1: just be in the end good old fashioned art. Though
Speaker 1: I'm sure Mr Warhol would not appreciate being called old
Speaker 1: fashioned in any way that does it. For this episode
Speaker 1: of Wall Street Week, I'm David Weston. This is Bloomberg.
Speaker 1: See you next week.