Speaker 1: This is Bloomberg Wall Street Week. I mean may not
Speaker 1: have an overall recession, We're having a rolling recession. To
Speaker 1: kind of roll looks pretty strongly it is when it
Speaker 1: comes to jobs.
Speaker 2: The financial stories that shape our world.
Speaker 1: Three major regional bank failures send shockwaves through the banking system.
Speaker 1: We're all trying to figure out what to make of
Speaker 1: generative AI.
Speaker 2: Through the eyes of the most influential voices.
Speaker 1: Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America,
Speaker 1: deebro Lair of the Paulson Institute, well Then Hubbard of
Speaker 1: the Columbia Business School.
Speaker 2: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: Fed up with an auto industry not sharing enough of
Speaker 1: its profits, with a government that keeps spending money like
Speaker 1: a drunken sailor, and with an internet retailer that's just
Speaker 1: too big for the government's comfort. This is Bloomberg Wall
Speaker 1: Street Week. I'm David Weston. This week is Zanny Minton
Speaker 1: Vedows of the Economists. I'm getting the best out of
Speaker 1: technology without losing too many workers along the way.
Speaker 3: With unions, there's a bit of a sense of let's
Speaker 3: stop history. I want to get off and that's the
Speaker 3: worrying thing.
Speaker 1: Portiamopori of HPS Investments on what higher rates and yields
Speaker 1: mean for the world of credit. And Usher Sharma of
Speaker 1: Rockefeller International on whether the US is running out of
Speaker 1: fiscal steam and what that means for the rest of
Speaker 1: the world.
Speaker 4: Because for fifty years we have run these deficits, the
Speaker 4: attitude has come to be a policy makers of deficits.
Speaker 1: Going backive Global Wall Street spent some time this week
Speaker 1: watching a range of people who felt things had gone
Speaker 1: far enough. President Biden and former President Trump tried to
Speaker 1: outdo one another in traveling to Detroit with the message
Speaker 1: that the auto companies needed to step up and share
Speaker 1: their profits with the American workers.
Speaker 5: Her what you've heard, you've heard a hell rot more.
Speaker 6: You're going to pray now.
Speaker 7: You built this country, you love this country.
Speaker 8: And you are the ones that make our country run.
Speaker 1: And the UAW responded on Friday by expanding its strike
Speaker 1: even further. The studios apparently decided that the writer's strike
Speaker 1: had gone on long enough, so it's settled with a WGA.
Speaker 9: It is all at a divorce where you're like, whoever
Speaker 9: comes out of the room smiling.
Speaker 8: I felt like the dank a good one.
Speaker 1: Smiling well, the actors still have a way to go.
Speaker 1: The FTC decided that Amazon had grown more than enough,
Speaker 1: filing a lawsuit claiming that it had violated the anti
Speaker 1: trust laws by using anti competitive practices to build and
Speaker 1: hold its dominant position in online retailing.
Speaker 10: These there are a set of tactics, but ultimately Amazon
Speaker 10: has pursued them to deprive actual and potential competitors of
Speaker 10: the ability to gain the scale and momentum needed to
Speaker 10: effectively compete online.
Speaker 1: And the United States Congress, or at least some members
Speaker 1: of it, decided that the government had gone way too
Speaker 1: far in spending money, and so they moved toward shutting
Speaker 1: it all down, something that just about no one thought
Speaker 1: made any sense.
Speaker 5: The failure of House Republicans to act would hurt American
Speaker 5: FIS families, and because economic kid wins, the S and P.
Speaker 1: Five hundred didn't think much of all that disruption. This week,
Speaker 1: ending down another point seventy four percent, marking its longest
Speaker 1: losing street this year and moving further south through the
Speaker 1: median year end number. Our Bloomberg L's are projecting that's
Speaker 1: forty four to thirty five, while the nasdek eked out
Speaker 1: a positive result of point oh six percent. But the
Speaker 1: market story for the week really was in bonds, where
Speaker 1: the yield on the tenure was up almost fifteen basis points,
Speaker 1: all the way up to four point five eight. That's
Speaker 1: after touching your four point seven on Thursday. Take us
Speaker 1: through the week in the markets. Welcome back now, Rebecca Patterson,
Speaker 1: former chief investment strategist for Bridgewater, So welcome back, Rebecca.
Speaker 1: Always great to have you here. So I think a
Speaker 1: lot of us talk this week was about the yield
Speaker 1: on the tenure higher for longer The main thing not
Speaker 1: so much higher, but longer, How high and for how
Speaker 1: long do you think are we looking at? Well?
Speaker 8: The Fed put.
Speaker 9: In one more possible hike in its projections for this year,
Speaker 9: and I think it did that really to give itself
Speaker 9: optionality in case the consumers stronger than expected, wage inflation's
Speaker 9: higher than expected. But I think they also did that
Speaker 9: one extra dot, one extra possible hike, to prevent financial
Speaker 9: conditions from working against them. If they had given the
Speaker 9: all clear signal, we probably would have had marginally higher
Speaker 9: stock markets, lower yields as people priced in the easing
Speaker 9: to come, and that would have worked directly against the
Speaker 9: Fed's goal. And then for next year, and I think,
Speaker 9: to your point, this is the bigger deal. Next year.
Speaker 9: The FED went from projecting one hundred bases points of
Speaker 9: cuts to fifty, so definitely higher for longer than we
Speaker 9: had previously thought. And so part of what we saw
Speaker 9: in the market this week, particularly in the bond market,
Speaker 9: was an adjustment to this new FED expectation.
Speaker 1: Where are we inflation? What kind of inflation pressure we
Speaker 1: see right now? We obviously have gas prices really going
Speaker 1: up substantially, but inflation hasn't gone away, No, not at all.
Speaker 9: It's interesting. The market took a lot of solace today
Speaker 9: in that core PCE figure, the Fed's preferred inflation measure,
Speaker 9: because it came down as expected and the month on
Speaker 9: month number was just a little bit better than expected.
Speaker 9: But when you take a step back from that, right
Speaker 9: the FED is trying to get to two, we're still
Speaker 9: well over two. And to your point, you've got some
Speaker 9: risks out there, one from the service sector wages which
Speaker 9: are still rising, you know, depending on how you measure
Speaker 9: around five percent annually. The FED has suggested it that
Speaker 9: needs to get down around three to be in line
Speaker 9: with their target. And then to your point, commodities. You know,
Speaker 9: the FED tries to look through commodities in the short term,
Speaker 9: but oil and food especially have an outsized impact on
Speaker 9: the economy through the consumer. We spend so much of
Speaker 9: our disposable income on those things. And if oil keeps going,
Speaker 9: we're at ninety five ninety six dollars a barrel on
Speaker 9: Brent crude right now, we go to one hundred. Hold
Speaker 9: around those levels for a while. It hurts disposable income,
Speaker 9: it raises inflation and inflation expectations, and that again is
Speaker 9: going to work against what the Fed's hoping to do
Speaker 9: with its soft landing.
Speaker 1: So much of this has been tight up for the
Speaker 1: labor market, and we've heard repeatedly how tight the labor
Speaker 1: market is. Loosened up some, but it still is a
Speaker 1: fairly tight labor market. What do we need to see?
Speaker 1: What does the FED need to see out of the
Speaker 1: labor market first to have that proverbial soft landing.
Speaker 9: Yeah, so, you know, the soft landing, the idea that
Speaker 9: we can get inflation back down closer to two percent
Speaker 9: without a recession. That was what the FED projected last week.
Speaker 9: I think you need to see labor market normalization that
Speaker 9: comes mainly through a reduction of openings and increase in participation,
Speaker 9: with very few layoffs. Now to the Feds, no one
Speaker 9: that's off the Fed's credit. They didn't do this, but
Speaker 9: so far that is kind of what's happening. Participation has
Speaker 9: inched a little bit higher. Job openings had been twelve million,
Speaker 9: We're down to about nine. We get another report next week,
Speaker 9: it'll probably be around eight or nine. But pre pandemic,
Speaker 9: those openings were closer to five million, So we still
Speaker 9: have a long way to go if that happens. Think
Speaker 9: about it. If we just reduce openings, it reduces competition
Speaker 9: for workers, reduces wage inflation, but everyone who has a
Speaker 9: job and income keeps it. That's their soft landing scenario.
Speaker 9: But what's probably more reasonable is you get some of
Speaker 9: that and some job layoffs. And layoffs have been very,
Speaker 9: very modest so far, but we're seeing consumers get more cautious,
Speaker 9: We're seeing companies get more cautious and business sentiment surveys.
Speaker 9: If that translates into more layoffs going forward, then it's
Speaker 9: going to be harder for the FED to get that
Speaker 9: soft landing it'll be a greater risk that companies consumers
Speaker 9: keep pulling back and we have probably a modest recession
Speaker 9: at some point in the year ahead. That would probably
Speaker 9: be my base case, but I think it's going to
Speaker 9: be a close call.
Speaker 1: Rebecca. It's always such a treat to heavy with us.
Speaker 1: Thank you for being here this, Rebecca Patterson. The market
Speaker 1: spent much of the week trying to come to terms
Speaker 1: with higher rates that may well be with us for
Speaker 1: a good long time. To give us a sense of
Speaker 1: how that may affect the credit world, we welcome to
Speaker 1: down Purntum a poori HPS Investment Partners, governing partner and
Speaker 1: head of Liquid Credits. So great to have you here
Speaker 1: in person. We've talked in remote but not in person.
Speaker 1: Wonderfully have you here, so so give us your sense
Speaker 1: about if we have rates that go up, and if
Speaker 1: they stay there for a long time, what does it
Speaker 1: do the world of credit? And which is more important
Speaker 1: how high it is or how long it is.
Speaker 11: So that's a good question. I think I think what's
Speaker 11: more important is how long it is in terms of
Speaker 11: the impact of credit. So a couple of things. One is,
Speaker 11: you know, I I think the world's changed its narrative
Speaker 11: in instead of whether or not rates go up, it's
Speaker 11: how long rates stay up. And for corporate credit balance sheets,
Speaker 11: I think there's two things that are happening. The first
Speaker 11: is that there's a lot of investment grade and high
Speaker 11: yield and loans that will reprice over the course of
Speaker 11: time to into this higher rate environment. So that's one thing.
Speaker 11: And two is companies are living in this higher rate environment,
Speaker 11: which means they're getting cash flow squeezed a little bit
Speaker 11: as they're repricing their debt, and you'll see that across
Speaker 11: investment grade. I think you'll see it across high yield.
Speaker 11: Now the loan market's floating rate, so they're participating in
Speaker 11: the rate move. Uh, you know, they participate in the
Speaker 11: last year and are continuing to participate. But really it's
Speaker 11: high yield and investment grade and fixed rate assets that
Speaker 11: are starting to to reprice and you're going to start
Speaker 11: to see the impact.
Speaker 1: So interestation we're really low for a long time. To
Speaker 1: what extent did the corporations go and say, let's lock
Speaker 1: in a lot of long term debt really low rates,
Speaker 1: and so they're protected. I guess it's for some period
Speaker 1: of time to come.
Speaker 11: A lot of them did it, and they are protected
Speaker 11: and there is a you know, you'll hear the words
Speaker 11: maturity wall, but you're certainly starting to see that cliff
Speaker 11: come into play, not necessarily in twenty twenty four, but
Speaker 11: in twenty five and twenty six. And mind you that
Speaker 11: most companies don't wait until the maturity to refinance they're dead.
Speaker 11: So oftentimes you're seeing companies refinance twelve months inside, eighteen
Speaker 11: months inside. So the numbers are pretty big in that.
Speaker 11: In that, you know, the estimates are anywhere from thirty
Speaker 11: to forty percent of investment grade and high yield repricing
Speaker 11: into this higher rate environment over the next call it,
Speaker 11: you know, eighteen months plus.
Speaker 8: Remind us, so, what are.
Speaker 1: The most active parts of your business right now? In credit,
Speaker 1: where's the most activity.
Speaker 11: There's a lot of activity in the private credit world.
Speaker 11: I think you've probably read a lot about that also,
Speaker 11: but you know, that's a very very active world right now,
Speaker 11: the private credit.
Speaker 1: Look.
Speaker 11: Private credit has been around for a long time, and
Speaker 11: private credit has taken share from the banks and they're
Speaker 11: taking share from the syndicated markets. So there's a ton
Speaker 11: of activity there up and down the capital structure and
Speaker 11: I would say there's more interest and activity across corporate credit.
Speaker 11: Certainly when you look at equities versus credit, there's been
Speaker 11: a veer towards credit because number one, the base rate
Speaker 11: environment is so high it's likely to stay high. And
Speaker 11: number two, they're spread across the market. Now, spread's not
Speaker 11: terribly attractive in and of itself, but yields are so
Speaker 11: investment grade, high yield levered loans. There's you know, the
Speaker 11: high old markets training at you know, four twenty four
Speaker 11: to thirty over in the loan market just around five
Speaker 11: point fifty over. So you're looking at eight to ten
Speaker 11: percent yields and high yield and loans, and in the
Speaker 11: private world, you know, it's it's a couple hundred basis points.
Speaker 3: On top of that.
Speaker 1: Thank you so much, really great to have you with
Speaker 1: this plano. It's pretty much POORI of HPS investments coming up,
Speaker 1: the summer of strikes turns into the autumn of strikes.
Speaker 1: We talk with Zanni mitten Vettos of the Economists about
Speaker 1: whether there's more at stake this time. That's next on
Speaker 1: Wall Street Week on Bloomberg.
Speaker 2: This is Bloomberg Wall Street Week with David Weston from Bloomberg.
Speaker 8: Radio workers on the March.
Speaker 1: The US has just been through the summer of strikes.
Speaker 11: We're hopeful, we're hearing good things that they're making progress,
Speaker 11: but the UAW is at the table bargaining in good faith.
Speaker 10: This could end today, it could end a few months
Speaker 10: from now.
Speaker 1: And we're not out of it yet. The Writer's Guild
Speaker 1: has apparently come to terms with the studios.
Speaker 6: They got what they wanted basically, which is that the
Speaker 6: Hollywood studios agreed that they're not going to you know,
Speaker 6: feed of Bunshow's scripts into the AI machine and come
Speaker 6: back and credit a movie to an AI.
Speaker 1: But the actors are still out. Let's get it done.
Speaker 5: Unions haven't been sexy for a really long time, but
Speaker 5: I've always considered it a privilege to be part of
Speaker 5: this union.
Speaker 1: And the auto workers look to be ramped things up
Speaker 1: rather than down, as we've now seen both a sitting
Speaker 1: president and a former president make trips to Detroit to
Speaker 1: show their support. Wall Street did norma country, the middle class,
Speaker 1: PILMA count.
Speaker 8: Class.
Speaker 5: I side with the Auto Workers of American with those
Speaker 5: who want to make America great again.
Speaker 1: And I always will, but this time may truly be different. Sure,
Speaker 1: it's about wages and benefits, but it's also about the
Speaker 1: future and the worker's place in a world that technology
Speaker 1: is transforming faster than we may know. From writers concerned
Speaker 1: about artificial intelligence taking their jobs, the.
Speaker 8: Clash that you're seeing with the writers.
Speaker 1: And the actors is that, of course that means the
Speaker 1: studios and networks may require fewer people to auto workers
Speaker 1: who know that those electric vehicles won't need as many
Speaker 1: of them on the job as before.
Speaker 5: I fear that between the fact that electric vehicles take
Speaker 5: about four two percent fewer workers per automobile and the
Speaker 5: fact that a large part of the action in the
Speaker 5: automobile industry is moving to the southern part of our country,
Speaker 5: the industrial belt part of the country is gonna shrink
Speaker 5: no matter.
Speaker 1: What, leaving us wondering whether this time we can embrace
Speaker 1: all that technology offers without leaving workers behind.
Speaker 8: Looking out into the future, we're starting to ask ourselves,
Speaker 8: when are these computers going to be as smart as
Speaker 8: we are?
Speaker 1: And to take us through what is going on with
Speaker 1: the labor markets, particularly in the United States. Welcome now
Speaker 1: back Zanni Mintenbto. She is the editor in chief of
Speaker 1: the Economist Danny. Great to have you back on Wall
Speaker 1: Street week. Thank you. So what are we seeing here?
Speaker 1: It has been a summer of strikes, We're not done
Speaker 1: even as we go into the autumn. But how much
Speaker 1: of this do you think is because of a basic
Speaker 1: shift in power toward labor. How much of it is
Speaker 1: new technology on the horizon.
Speaker 3: Well, Fasiva, it is great to be back here with you.
Speaker 3: I think it's a bit of both. I think there
Speaker 3: is definitely a sense that, you know, labor is in
Speaker 3: a stronger position than it has been for much of
Speaker 3: the past few decades. Unemployment is very low, the economy
Speaker 3: is very strong, there's the shortage of labor. The labor
Speaker 3: market has changed after the pandemic, and so there's a
Speaker 3: sense that labor is in a stronger position. But I
Speaker 3: think part of the motivation is also a concern about
Speaker 3: what the next wave of technology means, whether it's you know,
Speaker 3: with the UAW, whether it's EVS and the shift in
Speaker 3: the nature of car manufacturing, whether it's AI. All these
Speaker 3: technologies on the horizon, and there's a sense of concern
Speaker 3: about that change and a kind of grabbing of the
Speaker 3: gains while you can, and perhaps also as so often.
Speaker 3: Unfortunately with unions, there's a bit of a sense of stop,
Speaker 3: let's stop history.
Speaker 11: I want to get off.
Speaker 3: And that's the worrying bit.
Speaker 1: We lost out, particularly manufacturing jobs in the United States
Speaker 1: of America. Is there anything that can be done by corporations,
Speaker 1: by the government to try to avoid the problem that
Speaker 1: we had last time?
Speaker 3: Absolutely there is. But first I think it's understanding what
Speaker 3: is going on right now. And you're right that in
Speaker 3: the past few decades two things were happening. There was
Speaker 3: a bunch of technological change, and there was globalization. There
Speaker 3: was competition from abroad.
Speaker 1: And what we're.
Speaker 3: Seeing now in the kind of backlash against globalization in
Speaker 3: the US, and we're seeing it in both parties, is
Speaker 3: a much greater focus on protectionism. And if you look
Speaker 3: at Bidenomics, if you will, one of the problems with
Speaker 3: the president's policy is that they're conflating a whole bunch
Speaker 3: of things. There's a lot of subsidies to accelerate the
Speaker 3: green transition, to accelerate the shift to electrification. At the
Speaker 3: same time, there's quite a lot of protectionism in there,
Speaker 3: which is of course works at odds with the attempt
Speaker 3: to accelerate that transition. So what I think is important
Speaker 3: is to separate this out. I'm a free trader at heart,
Speaker 3: always have been. That's what we fought for for one
Speaker 3: hundred and eighty years. I don't think protectionism and tariffs
Speaker 3: is a sensible medium or indeed long term strategy for
Speaker 3: helping US workers. I think the goal needs to be
Speaker 3: how to to prepare workers to enable them to take
Speaker 3: advantage of new technologies. And so that's easily said, and
Speaker 3: you know, it's easy to say, well, yeah, yeah, yeah,
Speaker 3: you know you need to retrain, but you do need
Speaker 3: to work out what are the skills that people will
Speaker 3: need to thrive in the new economy and kind of
Speaker 3: stopping technology from being adopted is a very short sided solution.
Speaker 3: So I think that the challenge now, and we didn't
Speaker 3: get it right in the nineties. In the two thousands,
Speaker 3: we definitely didn't do enough to equip workers for new technologies.
Speaker 3: To think about from the education system, to the training system,
Speaker 3: to the kind of adoption and the factory, what is
Speaker 3: it that needs to be done to ensure that we
Speaker 3: have the workforce as needed. And to put this in
Speaker 3: very concretely, the context right now, if you look at
Speaker 3: the ambitions of the IRA, the ambitions of the elect
Speaker 3: for the electrification of this country. There are a huge
Speaker 3: number of jobs that are going to be created, whether
Speaker 3: it's in building the factories, whether it's then in actually
Speaker 3: manning the factories, and at the moment, the concerns are
Speaker 3: where will those people come from? And so rather than
Speaker 3: trying to stop that shift, I think the challenge for
Speaker 3: both unions and for companies is how do we ensure
Speaker 3: that we've got the right workers with the right skills
Speaker 3: that we will need, so that we aren't slowed in
Speaker 3: that transition by not having the right kind of people.
Speaker 1: So come back to something you talked about, and that
Speaker 1: is President Biden's plan and Inflation Reduction Act. They're moving
Speaker 1: towards so called green He has caught a little bit
Speaker 1: between two stools here. On the one hand, he wants
Speaker 1: to go to electric vehicles really fast. On the other hand,
Speaker 1: people tell us they probably will need something like forty
Speaker 1: percent fewer workers. Is that as zero sum game? Is
Speaker 1: there a way to have both workers getting good wages,
Speaker 1: having good jobs, and moved to electric vehicles?
Speaker 3: The OGS answer is yes, of course, because there will
Speaker 3: be demand for workers. They may just be doing different jobs.
Speaker 3: They maybe even be in different industries. But I think
Speaker 3: will you put your finger on a challenge that President
Speaker 3: Biden has because he has wrapped his push to green
Speaker 3: vehicles and his green transition in the Inflation Reduction Act
Speaker 3: in a kind of context of this is good for
Speaker 3: the American worker, and not just it's good for the
Speaker 3: American worker, it's good for the union worker and good
Speaker 3: for union jobs. And so he's that's where he's caught
Speaker 3: in a bit of a bind because he's trying to
Speaker 3: say that one policy is great for today's union jobs
Speaker 3: and is going to accelerate the green transition, and there
Speaker 3: really is a bit of a trade off there. I
Speaker 3: think the importance of accelerating the green transition means there
Speaker 3: will be good jobs in the future. The US will
Speaker 3: be greener, cleaner, and will be a stronger twenty first
Speaker 3: century economy, but it doesn't mean that the exact jobs
Speaker 3: that we have today will still be the jobs that
Speaker 3: are there tomorrow.
Speaker 1: Artificial intelligence, at least has the potential to disrupt a
Speaker 1: very different part of the labor force. People who are
Speaker 1: much more trained, a lot of people who are college
Speaker 1: educated and who could really lose their jobs because it's
Speaker 1: being done by generative AI. How do we address that
Speaker 1: problem because you may have a different segment of society
Speaker 1: that is dislocated in the next ten years.
Speaker 3: Absolutely, and the answer, I think the answer is that
Speaker 3: we don't know quite how big that group will be
Speaker 3: or exactly where it will be. Potentially, I think AI
Speaker 3: will disrupt huge swaths of the economy. It will probably
Speaker 3: take longer than many people right now in the midst
Speaker 3: of the hype belief, because quite often if you look
Speaker 3: at technologies, they take a little longer to integrate than
Speaker 3: people think, but then they have a much more fundamental impact.
Speaker 3: So I don't know exactly which industry is the impact
Speaker 3: will be biggest fastest, but it clearly will be there.
Speaker 3: I think the answer is and I think that sounds
Speaker 3: a bit like a broken record, but the answer is
Speaker 3: the same one, which is not to try and stop
Speaker 3: the adoption of the technology, because that yields the productivity improvements,
Speaker 3: which yield the economic growth, which yield the resources which
Speaker 3: enable you then to invest in and create new jobs.
Speaker 3: But it is to equip people with the means and
Speaker 3: the skills for the new kind of jobs. And I
Speaker 3: actually think that AI interestingly, is likely to be a
Speaker 3: big enhancer for many jobs.
Speaker 1: Say, and it's such a treat to have you on WILS.
Speaker 1: We've got Zanni Battis. She is the editor in chief
Speaker 1: of the Economists. Coming up, the summer of strikes turns
Speaker 1: into the autumn of strikes. We talk with Zanni Mitton
Speaker 1: Beadows of the Economists about whether there's more at stake
Speaker 1: this time. That's the next time Wall Street Week. I'm Bloomberg.
Speaker 2: This is Bloomberg Wall Street Week with David Weston from
Speaker 2: Bloomberg Radio.
Speaker 1: This is Wall Street Week. I'm David Weston. The US
Speaker 1: economy has thus far defied the gravity of higher interest rates,
Speaker 1: in part because of substantial fiscal stimulus, but that may
Speaker 1: be coming to an end. To take us through what
Speaker 1: that could mean to the United States and for that matter,
Speaker 1: for the rest of the world. Welcome back now, Rusher Sharma,
Speaker 1: he's chairman of Rockefeller International. Sure, thank you so much
Speaker 1: for being back on Wall Street Week. So you've written
Speaker 1: an article ECTRA on this very subject. Where are we
Speaker 1: fiscal stimulus? It lasted a little bit longer than maybe
Speaker 1: we understood, so.
Speaker 4: Much bigger in terms of the take up of some
Speaker 4: of these Biden plans was much higher than what anyone anticipated.
Speaker 4: So if you look at it at this time last year,
Speaker 4: the consensus forecast was that the US economy would be
Speaker 4: contracting by now in a recession. Instead, for this quarter,
Speaker 4: it looks like the US economy would have grown by
Speaker 4: more than three percent.
Speaker 1: I can't remember.
Speaker 4: A period in history where the forecasters have been this
Speaker 4: wrong in terms of what they were predicting and what
Speaker 4: actually happened.
Speaker 1: And substantio ABOB trend yes, three percent, the substantial ABOB trend,
Speaker 1: yes exactly.
Speaker 4: I think the US trend is closer to one and
Speaker 4: a half percent. This is like three percent.
Speaker 8: So why did this happen?
Speaker 4: As you only pointed out that a lot of this
Speaker 4: was because the fiscal stimulus was much bigger than I
Speaker 4: think what people expected. There are some estimates that the
Speaker 4: fiscal stimulus may have added one and a half percentage
Speaker 4: points to GDP growth. That's a substantial amount, you know,
Speaker 4: like in terms of adding to economic growth. And then
Speaker 4: the US consumer has ended up being much more resilient,
Speaker 4: partly because so much of the borrowing that the US
Speaker 4: consumer does now is really at fixed rates, so it
Speaker 4: takes a long time for them to refinance and for
Speaker 4: the higher rates to bite them. On the other hand,
Speaker 4: they're earning much higher interest on their deposits in the bank,
Speaker 4: so it's ended up being much softer the blow of
Speaker 4: higher interest rates. But I think the fiscal shock in
Speaker 4: some way, which is so much bigger than what anybody
Speaker 4: had in their models a year ago, is the main
Speaker 4: reason why the US economy has done far better than
Speaker 4: what people expected. The only problem is this that you've
Speaker 4: done this once again by financing it by loads loads
Speaker 4: of debt. The bond market is beginning to sort of
Speaker 4: get troubled by the amount of supply that's coming their way,
Speaker 4: leading to even higher interest rates, and then this fiscal
Speaker 4: stimulus is bound to fade also because some of the
Speaker 4: stimulus is that some of these pandemic programs that we
Speaker 4: had were still rolling on.
Speaker 1: But it's not just the bond market. It's paying attention.
Speaker 1: Certain members of Congress are as well. As we're proceeding
Speaker 1: towards shutting down the government because of that issue. What
Speaker 1: does that portend for the US economy?
Speaker 4: But it is an actual shutdown obviously, sort of it
Speaker 4: begins to detract from growth. But I think that so
Speaker 4: far most people think that the impact will be rather
Speaker 4: modest and the worst will be averted. But every week
Speaker 4: that we have the shutdown, it will obviously have an impact.
Speaker 4: The issue here is that no one is doing this
Speaker 4: on any great principled way, which is the fact that,
Speaker 4: as we have discussed in the past, that if you
Speaker 4: look at the last fifty years, the US has run
Speaker 4: a budget deficit practically every year in the last fifty years,
Speaker 4: no matter if you've had a Republican or a Democrat president,
Speaker 4: or whoever's been in Congress. And that's what's happened that
Speaker 4: because for fifty years we have run these deficits, the
Speaker 4: attitude has come to be of policy makers that deficits
Speaker 4: don't matter.
Speaker 1: In one of the changes has been the interest rate.
Speaker 1: If you go back two years, four years, five years,
Speaker 1: we were told by policymakers, don't worry so much about
Speaker 1: the deficit. It doesn't really matter, as you say, because
Speaker 1: interest rates are essentially zero or very close to it.
Speaker 1: They're not zero anymore. So what does that start to
Speaker 1: do about US expenditures and our budget if we have
Speaker 1: to have that large a debt service.
Speaker 4: I think at some point in time it's going to
Speaker 4: start to impair other spending, including social spending, because this
Speaker 4: cost is going to go up and up, right, that's
Speaker 4: what the bond market is currently pricing in that we're
Speaker 4: going to have rates for higher for much longer. So
Speaker 4: at some point in time then that begins to eat
Speaker 4: up a significant part of the total budget. And if
Speaker 4: you look at the cross sectional evidence of what happened
Speaker 4: in other countries, once interest payments is a share of
Speaker 4: the total budget exceed a particular amount, then the pressure
Speaker 4: comes on to cut social programs. As I said, the
Speaker 4: central question here is this, when do international investors say
Speaker 4: enough is enough and they stop funding this kind of deficit.
Speaker 4: We haven't quite reached the point as yet because the
Speaker 4: dollar is still relatively strong. At some point in time,
Speaker 4: I think we could reach that point, and that's when
Speaker 4: it really begins to count. Is for the US is
Speaker 4: concerned that you can't run budget deficits of six percent
Speaker 4: of GDP every year and have a current account deficit,
Speaker 4: you know, which is three or four percent of GDP
Speaker 4: a year, a twin deficit of ten percent of GDP
Speaker 4: a year. At some point in time, maybe much sooner
Speaker 4: than we think that will begin to count Rushia.
Speaker 1: There's a follow one question I think too, when do
Speaker 1: investors stop funding that, which is, if they're not putting
Speaker 1: the money into US treasurers, where are they putting the money?
Speaker 1: If you look around the world right now, some prospects
Speaker 1: such as China for example, does not seem to be
Speaker 1: as attractive a place for foreign direct investment. So where
Speaker 1: does the money go if it doesn't come into US treasurers?
Speaker 4: Well, that's what's really helping the US that it continues
Speaker 4: to be perceived as the best house in a bad neighborhood,
Speaker 4: right because you got in terms of China in trouble Europe,
Speaker 4: the perennial problem child of the global economy, Like it's
Speaker 4: the first country to sort of enter ric possibly even
Speaker 4: in this cycle. So I think that you seeing some
Speaker 4: other signs of life and other places like Japan is
Speaker 4: doing you know, much better, It's done much better this year.
Speaker 4: I think some of the emerging markets outside of China
Speaker 4: have done relatively well. These include places like India, include
Speaker 4: places like Indonesia, Mexico, Brazil, and even some places in
Speaker 4: Eastern Europe like Greece and even Poland. These countries have
Speaker 4: done well. Still relatively small to absorb too much capital.
Speaker 4: But you can see that this sort of new era
Speaker 4: is beginning. It takes a while, you know, for this
Speaker 4: to happen, but I think that that there will be
Speaker 4: a times pretty so I think soon this decade when
Speaker 4: you will see a much better environment for international investing
Speaker 4: because the dollar stops appreciating. Currently, the dollar keeps reacting
Speaker 4: to the fact that years are going higher, so it's like, okay,
Speaker 4: we must bid the dollar higher. Having said that, it's
Speaker 4: very it's quite interesting that even though the perception is
Speaker 4: that the dollar is the appreciating compared to the increase
Speaker 4: in yields that's taken place, the dollar hasn't gone up
Speaker 4: that much this time. The dollar is still well below
Speaker 4: the highs it hit in September October of last year.
Speaker 4: If you look at the DXY.
Speaker 1: Well, investors start to look for other places to put
Speaker 1: the money. As you say, for example, India, Japan, Indonesia,
Speaker 1: places like that. Often you get into geopolitical questions. Not
Speaker 1: so much in Japan, but certainly Vietnam is an example
Speaker 1: where that's true. And India we've talked about before. Is
Speaker 1: moti getting is act together as a word to make
Speaker 1: India a more attractive place for forid director investment. In
Speaker 1: the past, you've expressed list of some questions about that.
Speaker 4: Yeah, I think like in India's case, the entire issue
Speaker 4: is that there's still a very strong socialist DNA no
Speaker 4: matter which government is in power. Having said that, in India,
Speaker 4: we've seen some pretty significant revolutions that have taken place,
Speaker 4: the entire digital revolution that's taken place in India. I
Speaker 4: think that's very significant in terms of how it's benefiting
Speaker 4: people out there, and how even welfare programs are now
Speaker 4: reaching the people in a more significant way. And just
Speaker 4: the fact that India in terms of currently is seen
Speaker 4: as the one large emerging market where you can heage
Speaker 4: your bit rather than be in China sort of really
Speaker 4: helps India a lot out here. The only issue with India,
Speaker 4: but this has always been an issue with that it's
Speaker 4: the most expensive.
Speaker 1: Market in the world.
Speaker 4: Just now, if we just we fret about the multiples
Speaker 4: of the US market being high, India's at a twenty
Speaker 4: percent premium to even the US market, which is arguably
Speaker 4: the most expensive market in the developed world. So I
Speaker 4: think that the only issue is that expectations out of
Speaker 4: India are very high. But the fundamental Indian story, driven
Speaker 4: by digitization, demographics and geography, I think is still very strong.
Speaker 1: Sure's always so good to have you with us. Thank
Speaker 1: you so much, that's for sure. Sharma of Rockefeller International
Speaker 1: coming up. Sometimes is not just the other side you
Speaker 1: have to worry about. The bullets may be coming.
Speaker 8: From your own troop.
Speaker 1: This is Wall Street Week on Bloomberg.
Speaker 2: This is Bloomberg Wall Street Week with David Weston from
Speaker 2: Bloomberg Radio.
Speaker 1: We asked our international economics and policy course, but I'm
Speaker 1: Michael McKee to look back at other times when the
Speaker 1: government moved to shut down and what the consequences were.
Speaker 7: Mister Rukaiser was worried about the fight over a six
Speaker 7: hundred ninety five billion dollar budget. The budget they're fighting
Speaker 7: over up on Capitol Hill today is six point nine
Speaker 7: trillion dollars, ten times bigger. Does that worry Wall Street? Well,
Speaker 7: not so much. Shutdowns have become an almost regular thing,
Speaker 7: with twenty since nineteen seventy seven. Most of them have
Speaker 7: lasted only a couple of days, but even the two
Speaker 7: longest in nineteen ninety five in twenty eighteen produced only
Speaker 7: a yawn in the markets a brief dip and then
Speaker 7: a gain for stocks, So you might well ask, what's
Speaker 7: one more and you'd be right unless, well, here's what
Speaker 7: could go wrong first, and lets say this shutdown would
Speaker 7: last a lot longer. It's not a fight between Democrats
Speaker 7: and Republicans, but between Republicans and republicans first, until they
Speaker 7: can agree. They can't even begin to fight with Democrats.
Speaker 7: While the government is in what the Congressional Budget Office
Speaker 7: euphemistically calls a funding gap, roughly three million federal workers
Speaker 7: won't be paid. Many of them, including more than a
Speaker 7: million servicemen and women, will still have to work, but
Speaker 7: for free. Normally, it's a problem for those workers that
Speaker 7: is solved when the shutdown ends and they get back paid.
Speaker 7: But if this goes on for a month or so,
Speaker 7: it will affect consumer spending. While so far shutdowns have
Speaker 7: not hurt overall confidence in the economy, a long one
Speaker 7: might just do that. You can't see any of the
Speaker 7: other prior incidents in GDP, but there's a recession risk
Speaker 7: in a fragile economy these days. Also, a short shutdown
Speaker 7: won't affect the FED, which will be open, but a
Speaker 7: long one, although the economic data for September have been collected,
Speaker 7: the numbers can't be released if no one is there
Speaker 7: to release them. We may not have data on jobs
Speaker 7: or inflation before the next FED meeting on November first.
Speaker 7: Even worse, if the shutdown were to last through October
Speaker 7: or god forbid November, a lot of data won't even
Speaker 7: be collected. Or, as one observer put it, how do
Speaker 7: you achieve a soft landing if the pilots are blind David.
Speaker 1: Thanks to Bloomberg's Michael McKee, friendly fire would hurt just
Speaker 1: as bad as enemy fire, so wrote Tom Clancy in
Speaker 1: his novel Locked On, and history has plenty of examples,
Speaker 1: like Robert E. Lee losing his best General Stonewall Jackson,
Speaker 1: shot by his own troops when returning to his lines
Speaker 1: after a nighttime reconnaissance mission during the Battle of Chancellorsville,
Speaker 1: And who can forget when someone at City mistakenly sent
Speaker 1: nine hundred million dollars to Revlon creditors and spent years
Speaker 1: suing to get it back. This week we had two
Speaker 1: more examples of just how painful friendly fire can be.
Speaker 1: The Canadian Parliament invited President Zelensky Ukraine to Ottawa to
Speaker 1: speak in its August Chamber and the Speaker of the
Speaker 1: House of Commons took the occasion to honor a constituent,
Speaker 1: a ninety eight year old from Ukraine who had become
Speaker 1: a Canadian citizen, someone the Speaker termed a hero of
Speaker 1: both Ukraine and Canada. Unfortunately, he turned out to have
Speaker 1: been a hero for the wrong side, having served in
Speaker 1: a Nazi SS unit in World War II. The leader
Speaker 1: of the Opposition blamed Prime Minister Justin Trudeau.
Speaker 8: Prime Minister is responsible. He is in Ottawa today.
Speaker 1: He can get on his feet and answer for his
Speaker 1: massive diplomatic embarrassment and shame. And the Prime Minister duly apologized.
Speaker 12: The Speaker has acknowledged his mistake and has apologized. But
Speaker 12: this is something that is deeply embarrassing to the Parliament
Speaker 12: of Canada and by extension, to all Canadians.
Speaker 1: Turning what should have been an important and uplifting moment
Speaker 1: for a Prime minister, who after all, has other problems
Speaker 1: to address, into something far from what he wanted it
Speaker 1: to be. And then there's the case of the United
Speaker 1: States senator keeping his savings at home. Majority of leader
Speaker 1: Chuck Schumer already had his hands full. What was trying
Speaker 1: to keep the government funded and trying to hold on
Speaker 1: to his very slim Democratic majority. But this week, the
Speaker 1: majority leader learned that one of the senior members of
Speaker 1: his team, Senator Robert Menendez of New Jersey, the chair
Speaker 1: of the Foreign Relations Committee, had been caught with four
Speaker 1: hundred and eighty six thousand dollars in cash along with
Speaker 1: some gold bars in his house, with a cash stuffed
Speaker 1: into various items of his clothing. Senator Menendez was promptly
Speaker 1: indicted for bribery, leading his own Democratic colleagues to call
Speaker 1: for him to step down, though Senator Mendez doesn't seem
Speaker 1: inclined to take their advice. But as we've learned, you
Speaker 1: know this is never about the gold.
Speaker 8: Whatever helps you sleep a night, sweetheart, 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.