1 00:00:00,800 --> 00:00:04,480 Speaker 1: This week was all about heat. Record temperatures in Europe 2 00:00:04,519 --> 00:00:07,400 Speaker 1: and the United States, concerns where the Europeans can heat 3 00:00:07,520 --> 00:00:10,319 Speaker 1: their homes this winter, and central banks trying to take 4 00:00:10,400 --> 00:00:13,640 Speaker 1: the heat out of prices on both sides of the Atlantic. 5 00:00:14,080 --> 00:00:17,520 Speaker 1: This is Bloomberg Wall Street Week. I'm David Weston this 6 00:00:17,560 --> 00:00:20,800 Speaker 1: week's special contributor Larry Summers of Harvard on the growing 7 00:00:20,840 --> 00:00:24,480 Speaker 1: divergence among the economies of the United States, Europe, and China. 8 00:00:25,040 --> 00:00:27,800 Speaker 1: They've got an aspect to their problem that we don't 9 00:00:27,840 --> 00:00:31,040 Speaker 1: have in the United States. This is pushing Europe in 10 00:00:31,080 --> 00:00:35,839 Speaker 1: the right direction in a dangerous situation. And Brian moynihan, 11 00:00:35,880 --> 00:00:38,239 Speaker 1: a Bank of America, on how we can feel so 12 00:00:38,320 --> 00:00:41,360 Speaker 1: bad when the economy appears to be doing so well. 13 00:00:42,159 --> 00:00:45,760 Speaker 1: What they're saying they see versus what they're doing is 14 00:00:45,800 --> 00:01:00,920 Speaker 1: kind of interesting. That's the Fed's toughest challenge. It may 15 00:01:00,960 --> 00:01:05,120 Speaker 1: be summer, but temperatures this week were ridiculous, even from 16 00:01:05,120 --> 00:01:09,840 Speaker 1: mid July, with records broken in London. I'm pretty pretty desperate. 17 00:01:09,880 --> 00:01:13,880 Speaker 1: I mean, there is sweat running down everybody's back. Wildfires 18 00:01:13,880 --> 00:01:18,000 Speaker 1: in Spain have never been seen that condition on the 19 00:01:18,080 --> 00:01:22,759 Speaker 1: fire never It's completely new for us and misery throughout 20 00:01:22,880 --> 00:01:25,480 Speaker 1: much in the United States. This climate debate in a 21 00:01:25,640 --> 00:01:30,119 Speaker 1: very hot America, Washington d C normal one two year 22 00:01:30,160 --> 00:01:32,959 Speaker 1: and a couple of days. But it is a serious issue. 23 00:01:33,360 --> 00:01:35,720 Speaker 1: And if this heat is coming in part from a 24 00:01:35,760 --> 00:01:39,000 Speaker 1: warming planet, Congress told us this week, it isn't going 25 00:01:39,040 --> 00:01:41,640 Speaker 1: to do much about it. Living in to President Biden 26 00:01:41,680 --> 00:01:45,360 Speaker 1: to take matters into his own hands climate changes in 27 00:01:45,440 --> 00:01:47,960 Speaker 1: the mergency in the coming weeks. I'm going to use 28 00:01:48,000 --> 00:01:50,960 Speaker 1: the power I have as president to turn these words 29 00:01:50,960 --> 00:01:55,120 Speaker 1: in the formal official government actions. While Europe is just 30 00:01:55,280 --> 00:01:58,279 Speaker 1: as concerned about not having the natural gas it needs 31 00:01:58,360 --> 00:02:02,240 Speaker 1: come winter because of a threat Russia cut off. Russia 32 00:02:02,360 --> 00:02:07,080 Speaker 1: is blackmailing us, Russia is using energy as a weapon, 33 00:02:07,440 --> 00:02:11,239 Speaker 1: and therefore Europe needs to be ready. And while the 34 00:02:11,280 --> 00:02:15,480 Speaker 1: Commission was preparing for natural gas rationing, the European Central 35 00:02:15,480 --> 00:02:18,200 Speaker 1: Bank moved on a different kind of heat, the heat 36 00:02:18,520 --> 00:02:22,760 Speaker 1: of inflation. We decided to raise the three key ECB 37 00:02:22,960 --> 00:02:27,520 Speaker 1: interest rates by fifty basis points and approved the Transmission 38 00:02:27,560 --> 00:02:32,560 Speaker 1: Protection Instrument. And when it comes to the markets, well, 39 00:02:32,600 --> 00:02:34,799 Speaker 1: they generated their own kind of heat this week with 40 00:02:34,880 --> 00:02:37,720 Speaker 1: the SMP over two and a half percent. That's its 41 00:02:37,760 --> 00:02:40,080 Speaker 1: best week in a month, and that was after it 42 00:02:40,120 --> 00:02:43,200 Speaker 1: gave up almost two percent on Friday alone, in part 43 00:02:43,440 --> 00:02:46,520 Speaker 1: because of disappointing reports from Snap and Twitter, while the 44 00:02:46,720 --> 00:02:49,880 Speaker 1: NAZAC was up three and a third percent, while investors 45 00:02:50,000 --> 00:02:52,640 Speaker 1: liked bonds as well, with the yield on the tenure 46 00:02:52,720 --> 00:02:55,240 Speaker 1: falling from two point nine percent down to two and 47 00:02:55,360 --> 00:02:57,760 Speaker 1: three quarters percent. To take us through it all, we 48 00:02:57,760 --> 00:03:00,560 Speaker 1: welcome now Bob Michael. He's JP Morgan Asked at Management, 49 00:03:00,600 --> 00:03:03,919 Speaker 1: CEO and head of fixed income, and Aaron Brown, portfolio 50 00:03:03,960 --> 00:03:06,160 Speaker 1: manager at PIMCOT. So, Aaron, let me start with you 51 00:03:06,440 --> 00:03:08,760 Speaker 1: on equities and those earnings that we had today, say, 52 00:03:08,800 --> 00:03:11,800 Speaker 1: Snap and Twitter sort of disappointed overall. How are we 53 00:03:11,840 --> 00:03:14,760 Speaker 1: doing with equities and earnings right now? So the bar 54 00:03:14,919 --> 00:03:17,520 Speaker 1: was low going into earning season. But that said, I 55 00:03:17,520 --> 00:03:20,000 Speaker 1: think there are three main takeaways that we're hearing from 56 00:03:20,000 --> 00:03:22,480 Speaker 1: the second quarter. You know. The first is that we 57 00:03:22,560 --> 00:03:26,520 Speaker 1: saw real market excel acceleration downward in terms of demand 58 00:03:26,560 --> 00:03:30,320 Speaker 1: trends and the softening really across the broad board in 59 00:03:30,360 --> 00:03:33,160 Speaker 1: the second quarter. Um, we saw you know, not just 60 00:03:33,440 --> 00:03:37,800 Speaker 1: the early consumer cyclicals disappointed to the downside which we 61 00:03:37,840 --> 00:03:40,080 Speaker 1: heard in the first quarter, but we're now really starting 62 00:03:40,080 --> 00:03:43,400 Speaker 1: to see that broaden out to the broader economy. You know, 63 00:03:43,440 --> 00:03:46,240 Speaker 1: you mentioned the disappointment and earnings that we saw from 64 00:03:46,280 --> 00:03:50,840 Speaker 1: snapchat um on Thursday, but you also saw negative earnings 65 00:03:50,840 --> 00:03:54,200 Speaker 1: revisions lower from some of the consumer cyclicals, some of 66 00:03:54,200 --> 00:03:56,840 Speaker 1: the industrials, some of the medals of mining company and 67 00:03:57,120 --> 00:03:59,760 Speaker 1: really what you're hearing a lot from corporates right now 68 00:04:00,200 --> 00:04:03,280 Speaker 1: is that the consumer is is weakening, but you're also 69 00:04:03,320 --> 00:04:06,360 Speaker 1: starting to see business confidence also weakened. Then you started 70 00:04:06,400 --> 00:04:09,480 Speaker 1: to see some of those advertiser dollars starting to get 71 00:04:09,560 --> 00:04:12,440 Speaker 1: shrunk on the back of the fact that the demand 72 00:04:12,520 --> 00:04:15,760 Speaker 1: environment just doesn't support it. The other I think, hey 73 00:04:15,800 --> 00:04:18,160 Speaker 1: takeaway that you started to see in the second quarter 74 00:04:18,240 --> 00:04:22,839 Speaker 1: earning season is inflation remains persistent, but what's new is 75 00:04:22,880 --> 00:04:26,480 Speaker 1: that you're starting to see higher financing costs also start 76 00:04:26,520 --> 00:04:30,720 Speaker 1: to really bite in terms of corporate profitability. And the 77 00:04:30,760 --> 00:04:33,920 Speaker 1: interest rate increases that we've seen you on the back 78 00:04:33,920 --> 00:04:36,839 Speaker 1: of the Fed raising rates has really started to hurt 79 00:04:36,880 --> 00:04:40,200 Speaker 1: corporates in terms of their earnings profitability because it costs 80 00:04:40,200 --> 00:04:43,479 Speaker 1: more now to finance. And the third I think key 81 00:04:43,480 --> 00:04:46,080 Speaker 1: takeaway and this is a real change in trend is 82 00:04:46,120 --> 00:04:49,279 Speaker 1: that the dollar strength is also starting to really impact 83 00:04:49,720 --> 00:04:53,720 Speaker 1: the corporate profitability. We've seen the dollar rally about six 84 00:04:53,720 --> 00:04:56,760 Speaker 1: and a half percent in the second quarter. That shaves 85 00:04:56,800 --> 00:04:59,480 Speaker 1: about one and a half to two percent off of earnings. 86 00:04:59,480 --> 00:05:02,839 Speaker 1: And you heard from corporates like Procter and Gambled, Johnson 87 00:05:02,839 --> 00:05:07,159 Speaker 1: and Johnson, as well as IBM all to talk about, 88 00:05:07,360 --> 00:05:11,880 Speaker 1: you know, lower profitability ahead because of the higher dollar. 89 00:05:11,960 --> 00:05:15,040 Speaker 1: And this isn't something that we've heard about, really talked 90 00:05:15,040 --> 00:05:19,000 Speaker 1: about since. So that's a new wrinkle in terms of 91 00:05:19,120 --> 00:05:22,400 Speaker 1: the outlook for the second half. So, Bob, that was 92 00:05:22,520 --> 00:05:25,320 Speaker 1: equal time for the equity side. What about on the 93 00:05:25,360 --> 00:05:27,360 Speaker 1: bond side? And let me add one of the softening 94 00:05:27,440 --> 00:05:29,120 Speaker 1: number we had p m I numbers that came in 95 00:05:29,240 --> 00:05:32,280 Speaker 1: on Friday. We're softer as well. We have a completely 96 00:05:32,360 --> 00:05:36,039 Speaker 1: different take on corporate America and it starts with it's 97 00:05:36,160 --> 00:05:39,159 Speaker 1: priced in. If you look at the start of the year, 98 00:05:39,320 --> 00:05:43,480 Speaker 1: investment grade corporate bonds yielded somewhere around two point four percent, 99 00:05:43,760 --> 00:05:47,080 Speaker 1: they're now yielding four point six percent. You look at 100 00:05:47,240 --> 00:05:50,040 Speaker 1: high yield, it yielded under five percent at the start 101 00:05:50,040 --> 00:05:54,360 Speaker 1: of the yield it's now yielding over eight percent, So 102 00:05:54,440 --> 00:05:57,400 Speaker 1: there's an awful lot of the bad news that Aaron 103 00:05:57,480 --> 00:06:01,240 Speaker 1: talked about priced into the market. We look at those 104 00:06:01,320 --> 00:06:04,240 Speaker 1: yields and we say this is the time to buy, 105 00:06:04,520 --> 00:06:07,760 Speaker 1: particularly in high yield where you're being compensated for default 106 00:06:07,839 --> 00:06:10,919 Speaker 1: rates that can go up to six. We look at 107 00:06:10,920 --> 00:06:13,520 Speaker 1: where we think default rates are going to go. It's 108 00:06:13,520 --> 00:06:17,880 Speaker 1: a much higher quality high yield bond market. A great 109 00:06:17,920 --> 00:06:20,159 Speaker 1: discussion on two sides of the house. Aaron Brown and 110 00:06:20,160 --> 00:06:22,159 Speaker 1: Bob Michael are gonna be staying with us. We're gonna 111 00:06:22,279 --> 00:06:24,720 Speaker 1: turn and take a look around the world and investment 112 00:06:24,760 --> 00:06:28,760 Speaker 1: opportunities and plays like China and Europe. Now that's next 113 00:06:28,920 --> 00:06:38,120 Speaker 1: on Wall Street Week on Bloomberg. The real reason why 114 00:06:38,120 --> 00:06:42,279 Speaker 1: we're optimistic is the underlying economic momentum is so strong 115 00:06:43,080 --> 00:06:46,600 Speaker 1: and um I think that distinguishes Hong Kong and South 116 00:06:46,680 --> 00:06:48,400 Speaker 1: China from moments anywhere else in the world at the 117 00:06:48,400 --> 00:06:51,120 Speaker 1: present time and your view of them. The Hong Kong 118 00:06:51,200 --> 00:06:52,920 Speaker 1: is not going to become like the rest of China. 119 00:06:52,960 --> 00:06:54,599 Speaker 1: The rest of China is going to become like Hong Kong. 120 00:06:54,760 --> 00:06:58,360 Speaker 1: That's the way it looks at the moment. That was 121 00:06:58,480 --> 00:07:01,200 Speaker 1: Lewis Rockey as you're talking with Aubert Lloyd George thirty 122 00:07:01,279 --> 00:07:03,880 Speaker 1: years ago on Wall Street Week. Since then, Hong Kong 123 00:07:03,920 --> 00:07:06,680 Speaker 1: has reverted to China, China has joined the w t OH, 124 00:07:06,760 --> 00:07:09,479 Speaker 1: and the Chinese economy has grown from four twenty seven 125 00:07:09,480 --> 00:07:13,640 Speaker 1: billion dollars to just about about seventeen point seven trillion dollars. 126 00:07:13,920 --> 00:07:15,560 Speaker 1: But I have to say, I'm not sure it's because 127 00:07:15,600 --> 00:07:17,960 Speaker 1: the rest of China has become more like Hong Kong. 128 00:07:18,360 --> 00:07:20,600 Speaker 1: Still with us are Aaron Brown and Pimco and Bob 129 00:07:20,640 --> 00:07:22,640 Speaker 1: Michael of JP Morgan. So let's go around the world 130 00:07:22,680 --> 00:07:24,560 Speaker 1: here a little bit, starting with China, if we could, Bob, 131 00:07:25,000 --> 00:07:27,119 Speaker 1: When you look at the credit marks in continent China, 132 00:07:27,320 --> 00:07:30,520 Speaker 1: bond markets in China, are they attracted to Yeah, they are, 133 00:07:30,680 --> 00:07:33,800 Speaker 1: and and trying to continues to struggle with the zero 134 00:07:33,880 --> 00:07:37,520 Speaker 1: COVID policy and the constant shutdowns. So it's going to 135 00:07:37,560 --> 00:07:40,440 Speaker 1: take a lot off of g d P, and because 136 00:07:40,480 --> 00:07:43,000 Speaker 1: of that, we think that GDP will come in somewhere 137 00:07:43,040 --> 00:07:46,000 Speaker 1: around three percent. You look at the ten year China 138 00:07:46,040 --> 00:07:49,840 Speaker 1: government bond, it's yielding about two point eight percent. That 139 00:07:49,920 --> 00:07:53,000 Speaker 1: looks to be pretty good value to us. I think 140 00:07:53,040 --> 00:07:55,920 Speaker 1: for US, one of the bigger that discussions we're having 141 00:07:56,080 --> 00:08:00,920 Speaker 1: is what does euro COVID policy mean for recession and inflation? 142 00:08:01,040 --> 00:08:05,520 Speaker 1: And unfortunately, it means stagflation. It means that you're taking 143 00:08:05,560 --> 00:08:08,480 Speaker 1: out a large area of consumption, but you're still going 144 00:08:08,520 --> 00:08:11,720 Speaker 1: to have the supply bottlenecks. That's not necessarily good for 145 00:08:11,760 --> 00:08:14,120 Speaker 1: the rest of the economy. And what about it? Is 146 00:08:14,200 --> 00:08:17,280 Speaker 1: China investable right now? Yeah, this is somewhere we're Bob 147 00:08:17,280 --> 00:08:19,800 Speaker 1: and I actually agree. Um, you know, I think that 148 00:08:20,080 --> 00:08:22,720 Speaker 1: you know, from a Chinese bond perspective, I think Chinese 149 00:08:22,720 --> 00:08:27,160 Speaker 1: bonds do offer value, particularly in a global construct. That said, 150 00:08:27,240 --> 00:08:30,400 Speaker 1: I think the big question mark for China right now 151 00:08:30,520 --> 00:08:32,680 Speaker 1: is what they're going to do with respect to their currency. 152 00:08:33,120 --> 00:08:35,880 Speaker 1: You know, I believe that their currency is likely going 153 00:08:35,960 --> 00:08:39,319 Speaker 1: to continue to weaken in the zero COVID policy where 154 00:08:39,640 --> 00:08:43,200 Speaker 1: growth really is handicapped, and as a result of that, 155 00:08:43,520 --> 00:08:46,600 Speaker 1: I think that that likely means that it's going to 156 00:08:46,920 --> 00:08:49,880 Speaker 1: really harbor poorly for the rest of the world. Remember, 157 00:08:50,280 --> 00:08:54,200 Speaker 1: you know, historically it's been difficult for emerging market assets 158 00:08:54,200 --> 00:08:57,400 Speaker 1: to do well in environments where China growth is very weak, 159 00:08:57,720 --> 00:09:01,120 Speaker 1: and particularly its China continues to weaken it's currency or 160 00:09:01,160 --> 00:09:05,040 Speaker 1: allow for its currency to gradually weaken. It also means 161 00:09:05,120 --> 00:09:08,640 Speaker 1: that you won't likely see emerging market strength outside of China. 162 00:09:09,120 --> 00:09:12,040 Speaker 1: What that ultimately means is that it's it's pretty poor 163 00:09:12,120 --> 00:09:15,480 Speaker 1: for global growth. I think people have been expecting marketing 164 00:09:15,720 --> 00:09:19,000 Speaker 1: UM investors have been expecting that you would likely see 165 00:09:19,080 --> 00:09:22,280 Speaker 1: some type of recovery in China, you know, particularly UM 166 00:09:22,320 --> 00:09:24,680 Speaker 1: this year and in the back half of this year. 167 00:09:24,920 --> 00:09:26,920 Speaker 1: I don't think that we're going to get it, which 168 00:09:27,000 --> 00:09:31,320 Speaker 1: makes in my mind chiny Chinese risk acids pretty uninvestable 169 00:09:31,400 --> 00:09:34,360 Speaker 1: right now. This is where I'm gonna disagree with her. 170 00:09:34,440 --> 00:09:37,960 Speaker 1: And again we're back on track, okay, Um, We're we're 171 00:09:38,000 --> 00:09:41,600 Speaker 1: looking at the rest of the emerging markets, emerging market debt, 172 00:09:41,679 --> 00:09:44,280 Speaker 1: and we think that could be the surprise of the 173 00:09:44,320 --> 00:09:47,280 Speaker 1: second half of the year, well upside surprise for the 174 00:09:47,320 --> 00:09:51,480 Speaker 1: bond market. Absolutely, And if you look at the developed market, 175 00:09:51,520 --> 00:09:54,640 Speaker 1: central banks really when you look at the CB just 176 00:09:54,720 --> 00:09:57,199 Speaker 1: starting to raise rates the FED early on in the 177 00:09:57,240 --> 00:10:00,520 Speaker 1: Bank of Japan, not starting in the emerging market. Since 178 00:10:00,559 --> 00:10:05,320 Speaker 1: the start of thirty central banks have raised rates a 179 00:10:05,440 --> 00:10:09,480 Speaker 1: hundred and seventy times for a total of fifteen thousand 180 00:10:09,640 --> 00:10:15,079 Speaker 1: basis points. So those markets have anticipated inflation, they've priced 181 00:10:15,120 --> 00:10:18,400 Speaker 1: it in their high real yields. There people are afraid 182 00:10:18,440 --> 00:10:22,199 Speaker 1: to go in because of inflation, because of the strong dollar. 183 00:10:22,679 --> 00:10:25,200 Speaker 1: We think there's an opportunity there. You put together a 184 00:10:25,240 --> 00:10:29,520 Speaker 1: basket of Brazil, South Africa and Mexico, you've got a 185 00:10:29,600 --> 00:10:32,400 Speaker 1: seven and a quarter percent yield. All you need is 186 00:10:32,440 --> 00:10:35,160 Speaker 1: for the dollar to remain stable and not keep going up. 187 00:10:35,280 --> 00:10:38,760 Speaker 1: All you need aaron, All you use the dollar. Bob 188 00:10:38,800 --> 00:10:41,960 Speaker 1: took us actually an ECB. What about Europe? Yeah, well, 189 00:10:42,000 --> 00:10:43,360 Speaker 1: I just want to go back to that point, just 190 00:10:43,480 --> 00:10:45,960 Speaker 1: really briefly. I mean, Bob earlier you were saying you 191 00:10:45,960 --> 00:10:48,040 Speaker 1: can get an eight percent yield out of high yield. 192 00:10:48,120 --> 00:10:50,319 Speaker 1: So why would you get a seven percent yield out 193 00:10:50,320 --> 00:10:53,400 Speaker 1: of emerging market assets if it's a lower quality asset 194 00:10:53,480 --> 00:10:56,200 Speaker 1: with more FX risk on it. I think that in 195 00:10:56,320 --> 00:10:59,400 Speaker 1: order to be bullish emerging market assets, you need to fold. 196 00:10:59,440 --> 00:11:02,120 Speaker 1: You need one to see a stabilization and global growth, 197 00:11:02,400 --> 00:11:04,800 Speaker 1: and probably even much more importantly, you need to see 198 00:11:04,840 --> 00:11:08,520 Speaker 1: inflation stabilized in emerging markets. Unless and until you see 199 00:11:08,559 --> 00:11:12,280 Speaker 1: e m uh you know, inflation stabilizing, you're going to 200 00:11:12,360 --> 00:11:15,760 Speaker 1: continue to see those central banks chasing um and trying 201 00:11:15,800 --> 00:11:18,640 Speaker 1: to get in control of inflation, and that just means 202 00:11:18,679 --> 00:11:21,520 Speaker 1: that you know, likely you're going to see higher rates 203 00:11:21,520 --> 00:11:23,719 Speaker 1: in emerging market So I think it's too early right 204 00:11:23,720 --> 00:11:27,240 Speaker 1: now to call for a buy in emerging market assets, 205 00:11:27,240 --> 00:11:30,680 Speaker 1: in emerging market bonds. With respect to Europe, you know, 206 00:11:30,720 --> 00:11:33,439 Speaker 1: I think that Europe has really challenged right now, and 207 00:11:33,480 --> 00:11:35,680 Speaker 1: that's you know, largely as as a result of the 208 00:11:35,720 --> 00:11:39,760 Speaker 1: fact that they have much higher UM reliance on energy 209 00:11:39,960 --> 00:11:44,800 Speaker 1: and UM gas from from Russia than the rest of 210 00:11:44,840 --> 00:11:47,640 Speaker 1: the world, and particularly versus the US, And so I 211 00:11:47,679 --> 00:11:51,280 Speaker 1: think that you're going to see a real impairment to 212 00:11:51,760 --> 00:11:54,880 Speaker 1: European corporates in the second half of the year because 213 00:11:55,000 --> 00:11:57,520 Speaker 1: of higher energy costs. And I also think that you're 214 00:11:57,559 --> 00:12:03,200 Speaker 1: gonna see a forced curtail mint of industrial energy usage, 215 00:12:03,240 --> 00:12:06,199 Speaker 1: which is means that corporate profitability in Europe is going 216 00:12:06,240 --> 00:12:09,000 Speaker 1: to be quite weak. I do think that, you know, 217 00:12:09,040 --> 00:12:10,920 Speaker 1: based on some of the p m I data that 218 00:12:10,960 --> 00:12:13,680 Speaker 1: we got over the last forty eight hours out of Europe, 219 00:12:13,760 --> 00:12:16,160 Speaker 1: that we're likely in a recession in the third quarter 220 00:12:16,280 --> 00:12:18,760 Speaker 1: in Europe at the start of a recession, and you'll 221 00:12:18,800 --> 00:12:24,760 Speaker 1: likely see that recession conditions ensue over the next few quarters, 222 00:12:24,800 --> 00:12:27,439 Speaker 1: So I think that Europe is a real bleak spot 223 00:12:27,520 --> 00:12:32,440 Speaker 1: in terms of global growth trajectory. So sir, rebuttal, Yeah, 224 00:12:32,640 --> 00:12:34,559 Speaker 1: I'm going back to emerging. I knew you were. I 225 00:12:34,640 --> 00:12:37,240 Speaker 1: knew you were. I think there are three sovereigns who 226 00:12:37,240 --> 00:12:39,840 Speaker 1: aren't going to be really happy that they just got 227 00:12:39,880 --> 00:12:43,680 Speaker 1: compared to below investment grade US corporates. So let's put 228 00:12:43,679 --> 00:12:46,640 Speaker 1: that to the side. Europe. Yeah, I hear. I agree 229 00:12:47,000 --> 00:12:49,560 Speaker 1: with Aaron. They've got a real problem. It looks like 230 00:12:49,640 --> 00:12:52,640 Speaker 1: inflation is going to remain structurally high. The e CP 231 00:12:52,800 --> 00:12:56,640 Speaker 1: is going to do what they can to slow down consumption. Ultimately, 232 00:12:57,040 --> 00:13:01,080 Speaker 1: we like sovereign debt there, but but we like Germany. 233 00:13:01,120 --> 00:13:04,800 Speaker 1: We're not necessarily sold on Italy yet, so we're sticking 234 00:13:04,800 --> 00:13:08,160 Speaker 1: in the sovereign side. We think there's some normalization and 235 00:13:08,240 --> 00:13:11,000 Speaker 1: policy to come from the ECB, but they're not going 236 00:13:11,080 --> 00:13:13,640 Speaker 1: to get anywhere near as high as in rates, as 237 00:13:13,880 --> 00:13:16,000 Speaker 1: as the federal reserve. So learned to put you on 238 00:13:16,000 --> 00:13:18,240 Speaker 1: the spot. What's the worst problem for Europe right now? 239 00:13:18,559 --> 00:13:21,400 Speaker 1: The collapse of the government in Italy or the problem 240 00:13:21,480 --> 00:13:25,520 Speaker 1: that ECB faces and particularly Russian natural gas. I think 241 00:13:25,679 --> 00:13:28,240 Speaker 1: energy is by far the number one problem that you're 242 00:13:28,640 --> 00:13:32,520 Speaker 1: facing right now, you know, for for Italy specifically, certainly 243 00:13:32,559 --> 00:13:34,720 Speaker 1: the collapse of the government is a challenge, but I 244 00:13:34,720 --> 00:13:38,200 Speaker 1: think that the much larger looming risk out there is 245 00:13:38,320 --> 00:13:42,920 Speaker 1: the curtailment in what's going to be in supply in 246 00:13:43,360 --> 00:13:46,200 Speaker 1: you know, into Europe for natural gas and what that 247 00:13:46,320 --> 00:13:49,920 Speaker 1: ultimately is going to mean for demand destruction. Um, that's 248 00:13:50,040 --> 00:13:52,760 Speaker 1: necessary to come from it. Okay, The main thing I 249 00:13:52,840 --> 00:13:55,079 Speaker 1: want to know is is there a Pimco versus JP 250 00:13:55,120 --> 00:13:57,280 Speaker 1: Morgan softball game this summer? But I would like to 251 00:13:57,280 --> 00:14:00,079 Speaker 1: be there, like to see what perspective positions you've with 252 00:14:00,160 --> 00:14:02,440 Speaker 1: Black because it would be a feisty one. But there's 253 00:14:02,480 --> 00:14:04,440 Speaker 1: been really great having you both on. We really need 254 00:14:04,440 --> 00:14:08,040 Speaker 1: that kind of constructive disagreement. Thank you so much to 255 00:14:08,080 --> 00:14:11,520 Speaker 1: Bob Michael of JP Morgan Asset Managing Aaron Pimco Baron 256 00:14:11,640 --> 00:14:14,240 Speaker 1: Brown of Pimco. Up next, we're gonna look ahead to 257 00:14:14,320 --> 00:14:16,680 Speaker 1: next week on Wall Street and that's on Wall Street 258 00:14:16,720 --> 00:14:32,200 Speaker 1: Week on Bloomberg recession. It's what we fear and what 259 00:14:32,360 --> 00:14:35,320 Speaker 1: some tell us is either inevitable. Unfortunately, I think our 260 00:14:35,360 --> 00:14:38,640 Speaker 1: recession is going to be inevitable or much more likely 261 00:14:38,840 --> 00:14:42,440 Speaker 1: than not. If we're all talking to ourselves into recession 262 00:14:43,440 --> 00:14:46,880 Speaker 1: and being very pessimistic. The odds are that we you know, 263 00:14:46,960 --> 00:14:49,840 Speaker 1: we lose faith in and we go into recession. And 264 00:14:49,920 --> 00:14:53,000 Speaker 1: we certainly have some of the elements in negative growth 265 00:14:53,040 --> 00:14:55,240 Speaker 1: for the first quarter and growth that is at best 266 00:14:55,400 --> 00:14:59,600 Speaker 1: subdued for the second. There's probably close to a chance, 267 00:14:59,680 --> 00:15:02,360 Speaker 1: maybe a a bit less than that, that we've had 268 00:15:02,760 --> 00:15:05,760 Speaker 1: two negative quarters in a row. But then again, we 269 00:15:05,840 --> 00:15:09,720 Speaker 1: have employment that we've rarely seen. We simply have a 270 00:15:09,880 --> 00:15:15,120 Speaker 1: very strong unemployment situation, a very strong labor market that's 271 00:15:15,160 --> 00:15:20,960 Speaker 1: continuing to fuel consumer spending, keeping the economy moving forward, 272 00:15:21,160 --> 00:15:23,840 Speaker 1: and twice as many job openings as there are people 273 00:15:24,040 --> 00:15:27,440 Speaker 1: looking for work right now. The labor market is extremely 274 00:15:27,520 --> 00:15:31,960 Speaker 1: tight and I would say unsustainably hot and strong. Retail 275 00:15:32,040 --> 00:15:36,040 Speaker 1: sales the main measure of consumer goods. People were actually 276 00:15:36,080 --> 00:15:39,760 Speaker 1: buying fewer goods over the past few months, and the 277 00:15:39,800 --> 00:15:43,360 Speaker 1: major banks telling us the consumer is strong. They're going out, 278 00:15:43,400 --> 00:15:45,680 Speaker 1: they're traveling, they're doing things, they're getting dressed up, they're 279 00:15:45,720 --> 00:15:48,640 Speaker 1: going to weddings, they're going back to the office, they're 280 00:15:48,680 --> 00:15:51,400 Speaker 1: going out to dinner. More So, how can it be 281 00:15:51,560 --> 00:15:53,920 Speaker 1: that we're heading for a recession when so much of 282 00:15:53,920 --> 00:16:02,040 Speaker 1: the U S economy is still bathed in sunlight. Bank 283 00:16:02,080 --> 00:16:04,880 Speaker 1: of America has one of the best possible advantage points 284 00:16:04,880 --> 00:16:08,400 Speaker 1: on the economy overall and on the US consumer in particular. 285 00:16:08,800 --> 00:16:11,160 Speaker 1: So we took the question of how to reconcile all 286 00:16:11,160 --> 00:16:13,920 Speaker 1: the conflicting data points to the man at the top, 287 00:16:14,440 --> 00:16:18,200 Speaker 1: chair and CEO, Brian moynihan, starting with what he sees 288 00:16:18,520 --> 00:16:22,440 Speaker 1: in the state of the consumer. I just saw the 289 00:16:22,520 --> 00:16:24,640 Speaker 1: data for the first few weeks of July, and you 290 00:16:24,680 --> 00:16:26,960 Speaker 1: know the end of the the day in in the For 291 00:16:27,000 --> 00:16:29,480 Speaker 1: the first couple weeks of July, the consumers in the 292 00:16:29,520 --> 00:16:32,680 Speaker 1: aggregate spent across debit cards, credit cards, checks written, zel 293 00:16:33,320 --> 00:16:35,600 Speaker 1: bunny out, the cash out, the A t MS, cash 294 00:16:35,760 --> 00:16:38,040 Speaker 1: from tellers, all the different ways they spent. They spent 295 00:16:38,080 --> 00:16:40,880 Speaker 1: about nine nine percent plus more than they spent the 296 00:16:40,880 --> 00:16:44,680 Speaker 1: first two weeks of July one um. The transaction vol 297 00:16:44,760 --> 00:16:47,480 Speaker 1: and grew six or seven percent six percent plus. That 298 00:16:47,520 --> 00:16:49,960 Speaker 1: means people are doing more things and so the consumer 299 00:16:50,040 --> 00:16:53,080 Speaker 1: spending is strong. The second thing is the customers have 300 00:16:53,120 --> 00:16:56,160 Speaker 1: in their accounts more money mid month of July than 301 00:16:56,160 --> 00:17:00,240 Speaker 1: they did in in June, and so they can hinue 302 00:17:00,280 --> 00:17:04,160 Speaker 1: to build their account balances, especially in the lower way 303 00:17:04,240 --> 00:17:06,760 Speaker 1: joarning populations. We have in our customer based we serve 304 00:17:06,800 --> 00:17:09,159 Speaker 1: all these customers. So to give you a sense, the 305 00:17:09,600 --> 00:17:12,000 Speaker 1: customer that pre pandemic would have had you one to 306 00:17:12,000 --> 00:17:14,600 Speaker 1: two thousands of average balances in their accounts, had an 307 00:17:14,600 --> 00:17:17,720 Speaker 1: average of fourteen. Now has seven thousand plus in that account. 308 00:17:17,760 --> 00:17:20,240 Speaker 1: That same customer two and a half years later, the 309 00:17:20,280 --> 00:17:23,880 Speaker 1: customer had between two and five average thirty five hundred 310 00:17:23,880 --> 00:17:25,800 Speaker 1: come forward too. And a half years later they have 311 00:17:25,840 --> 00:17:28,520 Speaker 1: thirteen thousands. So there's money and accounts. And by the way, 312 00:17:28,800 --> 00:17:30,560 Speaker 1: they're not going down. They went up a little round 313 00:17:30,600 --> 00:17:32,720 Speaker 1: tax refunds. They came down when they spent some tax 314 00:17:32,720 --> 00:17:35,520 Speaker 1: refunds and that was April May, and then you saw 315 00:17:35,520 --> 00:17:37,159 Speaker 1: them start to grow in June and you're seeing and 316 00:17:37,200 --> 00:17:40,159 Speaker 1: continue in July. So they have money on accounts. The 317 00:17:40,240 --> 00:17:42,760 Speaker 1: third thing is are they borrowing? And the answer is 318 00:17:42,960 --> 00:17:44,960 Speaker 1: we're seeing some growth on our credit cards. Some go 319 00:17:45,040 --> 00:17:49,120 Speaker 1: through our home equity balances, UH stabilization or mortgage balances. 320 00:17:49,160 --> 00:17:50,919 Speaker 1: But at the end of the day, they have plenty 321 00:17:50,920 --> 00:17:53,720 Speaker 1: capacity and home equity to borrow. There were thirty billion 322 00:17:53,760 --> 00:17:55,879 Speaker 1: pre pandemic the loans are around in the low twenties, 323 00:17:55,960 --> 00:18:00,200 Speaker 1: so there's that capacity. Credit cards are billion prepen EMO, 324 00:18:00,280 --> 00:18:03,639 Speaker 1: they're now eight mid eighties moving up. There's that capacity. 325 00:18:03,680 --> 00:18:06,200 Speaker 1: Plus there's other lines, so there's capacity bar The home 326 00:18:06,280 --> 00:18:09,040 Speaker 1: values are still strong, so that's good. So as you 327 00:18:09,080 --> 00:18:11,760 Speaker 1: look across all that data, you say the consumer is strong. Now, 328 00:18:11,840 --> 00:18:14,199 Speaker 1: when you do a survey of what consumers feel like, 329 00:18:14,359 --> 00:18:17,600 Speaker 1: they say consumer sentiments down, and that's because they read 330 00:18:17,640 --> 00:18:20,800 Speaker 1: about inflation. They hear about inflation, so the answers what 331 00:18:20,880 --> 00:18:24,160 Speaker 1: they're saying they see versus what they're doing is kind 332 00:18:24,160 --> 00:18:26,560 Speaker 1: of interesting. And then you look at the unemployment levels 333 00:18:26,560 --> 00:18:29,160 Speaker 1: and wage growth and it's strong. So that's the conundrum. 334 00:18:29,240 --> 00:18:31,360 Speaker 1: That's the Fed's toughest challenge. You have a strong consumer 335 00:18:31,560 --> 00:18:33,600 Speaker 1: and they need to slow down the economy, and that's 336 00:18:33,720 --> 00:18:36,040 Speaker 1: that's a that's a lot of work. And so we 337 00:18:36,119 --> 00:18:39,720 Speaker 1: see everything constructive on a consumer side in our database. 338 00:18:39,720 --> 00:18:41,480 Speaker 1: And by the way, the wealthy customers the same thing, 339 00:18:41,560 --> 00:18:44,520 Speaker 1: except for Frankly, they had to pay more taxes in 340 00:18:44,560 --> 00:18:47,840 Speaker 1: the second quarter fifty more by estimates than last year. 341 00:18:47,840 --> 00:18:50,119 Speaker 1: So therefore the bounces went down and now the recovery. 342 00:18:50,920 --> 00:18:52,800 Speaker 1: So Brian I think you just put your finger on 343 00:18:52,800 --> 00:18:55,240 Speaker 1: one of the questions. Certainly that's perplexing to me that 344 00:18:55,680 --> 00:18:58,080 Speaker 1: a lot of the data indicate the consumers really strong, 345 00:18:58,200 --> 00:19:01,120 Speaker 1: but the consumer sentiment is really really week How could 346 00:19:01,119 --> 00:19:03,159 Speaker 1: it be that good when we feel that bad about it? 347 00:19:03,200 --> 00:19:05,639 Speaker 1: And I guess the following question that is, can we 348 00:19:05,680 --> 00:19:08,359 Speaker 1: talk ourselves into a downturn? How much of this is 349 00:19:08,400 --> 00:19:12,160 Speaker 1: sentiment and how much this is behavior? But a couple 350 00:19:12,200 --> 00:19:16,280 Speaker 1: of things. So my experience with Summers across the years, 351 00:19:16,320 --> 00:19:19,360 Speaker 1: especially around the investment side, which you know, I ran 352 00:19:19,440 --> 00:19:22,400 Speaker 1: for the company before I CEO for a bunch of years, 353 00:19:22,760 --> 00:19:26,879 Speaker 1: you could see the stock market trading volume of retail customers, 354 00:19:26,960 --> 00:19:30,399 Speaker 1: you know, correlate with sentiments. So you know, when people 355 00:19:30,560 --> 00:19:32,159 Speaker 1: don't feel good, they don't put as much money in 356 00:19:32,160 --> 00:19:34,000 Speaker 1: the equity market, and you're seeing a kick back in 357 00:19:34,040 --> 00:19:36,360 Speaker 1: a little bit now, but you know that went down 358 00:19:36,400 --> 00:19:38,719 Speaker 1: a lot, and so there's you know, these things do 359 00:19:38,920 --> 00:19:42,080 Speaker 1: play off each other. So the sentiment out there plays 360 00:19:42,080 --> 00:19:46,359 Speaker 1: off of stock market levels, house price belief, whether you know, 361 00:19:46,440 --> 00:19:48,120 Speaker 1: the debate about whether I'm going to have a job, 362 00:19:48,160 --> 00:19:51,240 Speaker 1: all those things playoff, But the actual behavior plays off 363 00:19:51,280 --> 00:19:54,120 Speaker 1: of really one straightforward thing, do I have a job? 364 00:19:54,160 --> 00:19:57,800 Speaker 1: And am I getting paid? That was Brian Wynihan, Chair 365 00:19:57,840 --> 00:20:02,560 Speaker 1: and CEO of Bank of America. Coming up, we wrap 366 00:20:02,640 --> 00:20:05,160 Speaker 1: up the week once again with our special contributor Larry 367 00:20:05,160 --> 00:20:09,199 Speaker 1: Summers of Harvard. That's next on Wall Street Week on Bloomberg. 368 00:20:20,440 --> 00:20:22,359 Speaker 1: This is Wall Street Week. I'm David Weston. We are 369 00:20:22,440 --> 00:20:24,679 Speaker 1: joined once again by our very special contributor to Larry 370 00:20:24,720 --> 00:20:27,520 Speaker 1: Summers of Harvard. So Larry. One of the big developments 371 00:20:27,520 --> 00:20:30,560 Speaker 1: of this week was the European Central Bank, which made 372 00:20:30,600 --> 00:20:33,560 Speaker 1: an historic move of fifty basis points also implemented a 373 00:20:33,600 --> 00:20:36,840 Speaker 1: new emergency policy. What did you make of what they did? Look, 374 00:20:36,840 --> 00:20:39,480 Speaker 1: I think they had to do it. Europe's got a 375 00:20:39,560 --> 00:20:42,720 Speaker 1: serious inflation problem. Yes, a lot of it's coming from 376 00:20:42,760 --> 00:20:46,720 Speaker 1: the supply side, but if you don't respond, it becomes 377 00:20:47,000 --> 00:20:51,480 Speaker 1: entrenched and that much more expensive to eradicate. They've got 378 00:20:51,480 --> 00:20:53,960 Speaker 1: an aspect to their problem that we don't have in 379 00:20:54,000 --> 00:20:57,280 Speaker 1: the United States, coming out of the fact that they're 380 00:20:57,320 --> 00:21:02,199 Speaker 1: a monetary union rather than just a monetary system. And 381 00:21:02,240 --> 00:21:05,280 Speaker 1: so if you're gonna have to administer substantial shocks to 382 00:21:05,359 --> 00:21:09,679 Speaker 1: contain inflation, you're gonna have to insulate the European economy 383 00:21:09,760 --> 00:21:13,680 Speaker 1: and the weaker credits in the European economy from that, 384 00:21:13,840 --> 00:21:17,640 Speaker 1: and that's what they had to do. I think all 385 00:21:17,720 --> 00:21:23,560 Speaker 1: things uh considered, UH, they took the right kind of steps, 386 00:21:23,720 --> 00:21:27,679 Speaker 1: and this is pushing Europe in the right direction in 387 00:21:27,760 --> 00:21:31,639 Speaker 1: a dangerous situation. I was very sorry to see the 388 00:21:31,680 --> 00:21:38,040 Speaker 1: political developments in Italy, which are yet another example of 389 00:21:38,680 --> 00:21:44,200 Speaker 1: one of the great challenges of our times, which is uh, 390 00:21:44,440 --> 00:21:51,560 Speaker 1: populist leadership and populist politics um unsettling the prospects for 391 00:21:52,119 --> 00:21:57,680 Speaker 1: rational policy making and creating greater challenges in the long run. 392 00:21:57,800 --> 00:22:03,320 Speaker 1: I strongly suspect Italy will regret that Mario drag did 393 00:22:03,359 --> 00:22:06,720 Speaker 1: not have a longer run as Prime Minister and head 394 00:22:06,720 --> 00:22:09,640 Speaker 1: of government. Well take those two and put them together, Larry. 395 00:22:09,640 --> 00:22:11,600 Speaker 1: Actually the politics of Italy on the one hand, and 396 00:22:11,960 --> 00:22:14,119 Speaker 1: in the monetary policy of the ECB, did the e 397 00:22:14,160 --> 00:22:16,760 Speaker 1: CP try to address some of that with their new policy? 398 00:22:16,880 --> 00:22:19,080 Speaker 1: Was unclear exactly how it gets implements to try to 399 00:22:19,160 --> 00:22:22,520 Speaker 1: keep the spreads on the bonds, for example, between Italy 400 00:22:22,680 --> 00:22:27,760 Speaker 1: and Germany in Czech I mean, here's the ECB's problem, David. 401 00:22:28,040 --> 00:22:31,119 Speaker 1: It's uh, you know, to use a phrase from the 402 00:22:31,160 --> 00:22:36,240 Speaker 1: security area. It's double deterrence. They want, on the one hand, 403 00:22:36,600 --> 00:22:40,800 Speaker 1: to deter the speculators from speculating against Italy and other 404 00:22:40,920 --> 00:22:47,879 Speaker 1: periphery UH countries. That requires a confidence sense that that 405 00:22:48,000 --> 00:22:51,439 Speaker 1: the ECB is going to stand behind them. On the 406 00:22:51,480 --> 00:22:57,440 Speaker 1: other hand, they don't want to finance unlimited spending and 407 00:22:57,480 --> 00:23:01,760 Speaker 1: so they want to put pressure on countries to manage 408 00:23:01,760 --> 00:23:08,000 Speaker 1: their affairs responsibly. So that points towards an element of conditionality. 409 00:23:08,080 --> 00:23:11,800 Speaker 1: But the more the conditionality is credible to the countries, 410 00:23:12,640 --> 00:23:18,000 Speaker 1: the more it's unsettling to the markets. The more confidence 411 00:23:18,040 --> 00:23:21,320 Speaker 1: you give the markets, the more of the country's feel 412 00:23:21,440 --> 00:23:26,040 Speaker 1: that they don't need to do their part in terms 413 00:23:26,080 --> 00:23:30,879 Speaker 1: of making painful policy adjustments. So it's a very difficult 414 00:23:31,000 --> 00:23:36,080 Speaker 1: balance UH to strike, and I think this was a 415 00:23:36,119 --> 00:23:42,000 Speaker 1: reasonable move forward in UH striking that balance, but it's 416 00:23:42,000 --> 00:23:44,199 Speaker 1: not going to be easy going forwards. One of the 417 00:23:44,200 --> 00:23:47,320 Speaker 1: other things that we heard from Medam Liguard is something 418 00:23:47,359 --> 00:23:49,439 Speaker 1: you and I have talked about in connect connection with 419 00:23:49,520 --> 00:23:51,919 Speaker 1: the FED, which is forward guidance. It sounds to me 420 00:23:52,000 --> 00:23:54,119 Speaker 1: like essentially you be saying we're out of the business 421 00:23:54,119 --> 00:23:58,320 Speaker 1: of forward and forward guidance. We'll take it meeting by meeting, David, 422 00:23:58,400 --> 00:24:05,480 Speaker 1: except for some quite particular, quite unusual circumstances, I think 423 00:24:05,560 --> 00:24:10,400 Speaker 1: forward guidance is generally a mistake for central banks. Forward 424 00:24:10,400 --> 00:24:14,000 Speaker 1: guidance tends to run into the problem that the market 425 00:24:14,040 --> 00:24:17,680 Speaker 1: doesn't believe it very much, so it's not very impactual, 426 00:24:18,560 --> 00:24:23,320 Speaker 1: and the central bank takes its own credibility seriously and 427 00:24:23,400 --> 00:24:27,080 Speaker 1: it's constrained down the road by the forward guidance that 428 00:24:27,119 --> 00:24:32,080 Speaker 1: it gave in the past. So, except for very extreme 429 00:24:32,240 --> 00:24:37,800 Speaker 1: deflationary situations, I think forward guidance is a tool that 430 00:24:38,000 --> 00:24:41,080 Speaker 1: is better off kept in the closet. There. Back in 431 00:24:41,080 --> 00:24:43,719 Speaker 1: the United States, We've got a number of important events 432 00:24:43,720 --> 00:24:45,960 Speaker 1: coming up next week. We've got a meeting in the 433 00:24:46,040 --> 00:24:49,800 Speaker 1: f O m C. We also have really important potentially 434 00:24:49,880 --> 00:24:53,879 Speaker 1: data coming out, particularly PCE, CORPC and otherwise, and also 435 00:24:53,960 --> 00:24:55,679 Speaker 1: the e c I numbers. What are you gonna be 436 00:24:55,680 --> 00:24:59,240 Speaker 1: looking at? Look, I think the most interesting and informative 437 00:24:59,320 --> 00:25:03,679 Speaker 1: number is going to be the e c I UH number, David. 438 00:25:04,280 --> 00:25:08,480 Speaker 1: The wage picture is mixed. The average hourly earnings data 439 00:25:08,560 --> 00:25:12,200 Speaker 1: that come out and each employment report have been relatively 440 00:25:12,280 --> 00:25:15,840 Speaker 1: favorable and benign for the last several months. On the 441 00:25:15,880 --> 00:25:19,960 Speaker 1: other hand, the last Atlanta FED reports, which looks at 442 00:25:20,560 --> 00:25:25,520 Speaker 1: the wage changes for particular individuals and therefore controls for 443 00:25:25,560 --> 00:25:30,479 Speaker 1: composition issues, was really quite alarming. And so there's a 444 00:25:30,520 --> 00:25:36,400 Speaker 1: divergence between UH those two reports that is not well understood, 445 00:25:36,840 --> 00:25:39,400 Speaker 1: and I think we'll get greater clarity on that when 446 00:25:39,400 --> 00:25:43,440 Speaker 1: we see what happens with the Employment cost Index. If 447 00:25:43,760 --> 00:25:49,000 Speaker 1: wage inflation is continuing to accelerate, which is what you 448 00:25:49,040 --> 00:25:53,400 Speaker 1: would tend to think given how high vacancies are relative 449 00:25:53,480 --> 00:25:57,399 Speaker 1: to unemployment, that's going to be a very concerning sign. 450 00:25:58,119 --> 00:26:03,960 Speaker 1: If somehow, despite every thing, wage growth is UH slowing, 451 00:26:04,560 --> 00:26:07,920 Speaker 1: that's got to be reassuring to the FED in terms 452 00:26:07,960 --> 00:26:12,920 Speaker 1: of the risks of entrenched inflation. So I think that's 453 00:26:12,960 --> 00:26:18,320 Speaker 1: gonna be a very revealing and informative number when it comes. 454 00:26:18,880 --> 00:26:22,080 Speaker 1: I think at this point most people kind of have 455 00:26:22,240 --> 00:26:26,560 Speaker 1: a seventy five basis point increase locked in for the FED, 456 00:26:26,720 --> 00:26:29,320 Speaker 1: and I don't think they expect the Fed to make 457 00:26:30,000 --> 00:26:35,639 Speaker 1: dramatic news with any policy um announcements. I think the 458 00:26:35,760 --> 00:26:41,760 Speaker 1: pc number can be previewed pretty well on the basis 459 00:26:41,840 --> 00:26:47,240 Speaker 1: of what happened in UH the cp I. It's likely 460 00:26:47,400 --> 00:26:52,280 Speaker 1: to look a bit better, but we've still got us 461 00:26:52,560 --> 00:26:57,199 Speaker 1: very serious slog of inflation ahead of us for the 462 00:26:57,280 --> 00:27:01,040 Speaker 1: medium term a huge amount. I'm just going to depend 463 00:27:01,080 --> 00:27:05,800 Speaker 1: on what happens with commodity prices. UH. The agreement reached 464 00:27:05,840 --> 00:27:09,320 Speaker 1: this morning that suggests that Ukrainian wheat may it long 465 00:27:09,440 --> 00:27:11,960 Speaker 1: last flow to the rest of the world. That was 466 00:27:12,040 --> 00:27:19,480 Speaker 1: certainly an encouraging UH sign. But there are huge overhangs 467 00:27:19,480 --> 00:27:26,479 Speaker 1: of uncertainty surrounding the oil market. And while it's not 468 00:27:26,600 --> 00:27:30,159 Speaker 1: what's currently priced into the forward market, I think we 469 00:27:30,240 --> 00:27:33,760 Speaker 1: have to recognize that there are real risks of substantial 470 00:27:33,760 --> 00:27:36,639 Speaker 1: oil spikes. Where we're all focused on the FED is 471 00:27:36,680 --> 00:27:39,520 Speaker 1: the front line of defense, as it were, against inflation 472 00:27:39,600 --> 00:27:41,960 Speaker 1: at the same time, is it only the Fed? Are 473 00:27:41,960 --> 00:27:44,040 Speaker 1: there things we can do in fiscal policy at this 474 00:27:44,080 --> 00:27:47,400 Speaker 1: point they can address the inflation issue. Look, fiscal policy 475 00:27:47,480 --> 00:27:52,679 Speaker 1: makes a big difference. This is not the time for 476 00:27:53,280 --> 00:28:00,879 Speaker 1: stimulative fiscal policies like continuing moratoriums on student debt relief. Okay, Larry, 477 00:28:00,960 --> 00:28:02,520 Speaker 1: always such a pleasure to have you with this and 478 00:28:02,560 --> 00:28:05,320 Speaker 1: a privilege really that's Larry Summers of Harvard are very 479 00:28:05,359 --> 00:28:08,800 Speaker 1: special contributor here on Wall Street Week. Finally, one more 480 00:28:08,880 --> 00:28:12,840 Speaker 1: thought Stranger things sure, it's a hit series that came 481 00:28:12,840 --> 00:28:17,800 Speaker 1: to Netflix's rescue and earnings this week, but it's also 482 00:28:17,840 --> 00:28:20,120 Speaker 1: a fair description of a lot of what we're all 483 00:28:20,160 --> 00:28:23,760 Speaker 1: seeing these days. Everything from record heating Europe, the scorching 484 00:28:23,760 --> 00:28:27,200 Speaker 1: heat wave tormenting Europe is pushing power assistance to the edge, 485 00:28:27,280 --> 00:28:30,359 Speaker 1: to a slowing economy while consumers keep spending. There's a 486 00:28:30,359 --> 00:28:32,800 Speaker 1: lot of uncertainty. You guys have been talking about it 487 00:28:32,880 --> 00:28:37,000 Speaker 1: all day, higher recession odds, slower growth, to supply chain 488 00:28:37,080 --> 00:28:40,080 Speaker 1: problems that just won't go away. Now we see the 489 00:28:40,120 --> 00:28:43,240 Speaker 1: weak weak links in the supply chain. But sometimes it 490 00:28:43,280 --> 00:28:45,760 Speaker 1: seems as our leaders hope that if they don't tell 491 00:28:45,840 --> 00:28:48,400 Speaker 1: us the bad news, it will simply take care of itself. 492 00:28:48,840 --> 00:28:52,160 Speaker 1: Remember back after nine eleven when President George W. Bush 493 00:28:52,200 --> 00:28:54,040 Speaker 1: told us all we could help in the war on 494 00:28:54,280 --> 00:28:58,040 Speaker 1: terror by doing more shopping. We cannot let the terrorists 495 00:28:58,080 --> 00:29:03,360 Speaker 1: achieve the objective of frightening our nation to the point 496 00:29:03,360 --> 00:29:09,600 Speaker 1: where we don't We don't conduct business where people don't 497 00:29:09,600 --> 00:29:12,800 Speaker 1: shop up. That's that's their intention, or fit Chair J. 498 00:29:12,920 --> 00:29:16,600 Speaker 1: Powe telling us more recently that inflation was only transitory, 499 00:29:16,840 --> 00:29:19,800 Speaker 1: long past the point when we knew otherwise, and We 500 00:29:19,840 --> 00:29:23,120 Speaker 1: don't expect that those that upward pressure will produce uh 501 00:29:23,640 --> 00:29:26,640 Speaker 1: substantially higher prices, or that the effects will be persistent. 502 00:29:26,680 --> 00:29:30,160 Speaker 1: We expect that they'll be transitory or temporary. And it 503 00:29:30,200 --> 00:29:33,040 Speaker 1: doesn't look like we've learned our lesson. We all know 504 00:29:33,160 --> 00:29:35,719 Speaker 1: that gas prices are way too high, even if they 505 00:29:35,760 --> 00:29:38,360 Speaker 1: have come down a bit. But when President Biden talks 506 00:29:38,360 --> 00:29:40,840 Speaker 1: about the problem, he pulls out every trick in the 507 00:29:40,920 --> 00:29:44,280 Speaker 1: book except the one that's most obvious, just asking us 508 00:29:44,320 --> 00:29:47,440 Speaker 1: to buy less gas. Today, I'm calling on Congress to 509 00:29:47,520 --> 00:29:51,240 Speaker 1: suspend the frontal gas tax, calling on states to either 510 00:29:51,320 --> 00:29:54,959 Speaker 1: suspend the state gas tax as well. I'm calling on 511 00:29:55,040 --> 00:29:59,480 Speaker 1: the industry to refine more oil into gasoline or what 512 00:29:59,520 --> 00:30:01,360 Speaker 1: about come up with a plan for that b A 513 00:30:01,480 --> 00:30:06,160 Speaker 1: five subvariant that could wreak havoc on yet another winter. Clearly, 514 00:30:06,400 --> 00:30:08,840 Speaker 1: it needs to be taken seriously because the b A 515 00:30:08,960 --> 00:30:14,080 Speaker 1: five variant has what we call a transmission advantage over 516 00:30:14,920 --> 00:30:17,720 Speaker 1: the prior variants, and maybe the biggest one of them 517 00:30:17,760 --> 00:30:21,280 Speaker 1: all really doing something about climate rather than just talking 518 00:30:21,320 --> 00:30:24,960 Speaker 1: about it. No president in the future would walk into 519 00:30:25,000 --> 00:30:28,400 Speaker 1: the White House and undo what is going on around 520 00:30:28,440 --> 00:30:32,520 Speaker 1: the world. This is bigger than the United States. But 521 00:30:32,640 --> 00:30:36,040 Speaker 1: this week maybe we saw the pattern broken when Europe 522 00:30:36,080 --> 00:30:39,479 Speaker 1: finally admitted the obvious that if Russia cuts the natural 523 00:30:39,520 --> 00:30:42,840 Speaker 1: gas supply, everyone is going to have to cut way back. 524 00:30:43,160 --> 00:30:46,680 Speaker 1: We have to reduce our gas consumption. I know this 525 00:30:46,760 --> 00:30:50,120 Speaker 1: is a big ask for the whole of the European Union, 526 00:30:50,720 --> 00:30:54,320 Speaker 1: but it is necessary to protect us. Every member state 527 00:30:54,440 --> 00:30:57,520 Speaker 1: should we use the use of gas. And our second 528 00:30:57,520 --> 00:31:01,959 Speaker 1: objective is we provide a safety net for all member states. 529 00:31:02,800 --> 00:31:05,480 Speaker 1: Maybe other leaders can take a page from the European 530 00:31:05,560 --> 00:31:07,440 Speaker 1: book so that the rest of us don't have to 531 00:31:07,480 --> 00:31:10,880 Speaker 1: resort to a superpowered teenager to save the day like 532 00:31:11,000 --> 00:31:14,840 Speaker 1: the kids of Hawkins in Stranger Things, chances of success 533 00:31:14,840 --> 00:31:19,120 Speaker 1: are twenty to one. Never tell me the odds. That 534 00:31:19,240 --> 00:31:20,959 Speaker 1: does it. For this episode of Wall Street Week, I'm 535 00:31:21,040 --> 00:31:23,760 Speaker 1: David Weston. This is Bloomberg. See you next week.