1 00:00:00,560 --> 00:00:03,960 Speaker 1: This is Bloomberg Wall Street. We turn our attention to 2 00:00:04,000 --> 00:00:07,600 Speaker 1: the markets this week, us CPI and EVERS reinforcing concerns 3 00:00:07,600 --> 00:00:10,800 Speaker 1: about inflation. The financial stories that sheep are were a 4 00:00:10,840 --> 00:00:13,760 Speaker 1: really different reaction to Mark. Its more indications of just 5 00:00:13,960 --> 00:00:16,360 Speaker 1: how hot the U. S economy really is through the 6 00:00:16,400 --> 00:00:19,520 Speaker 1: eyes of the most influential voices. Larry sum is the 7 00:00:19,560 --> 00:00:22,920 Speaker 1: former Treachery Secretary, Katherine Keening, CEO of v n Y Moms, 8 00:00:22,960 --> 00:00:26,279 Speaker 1: Sam's l Shairman, and founder of Equity Group Investment. In 9 00:00:26,320 --> 00:00:30,280 Speaker 1: Bloomberg Wolf Street Week with David Weston from Bloomberg Radio, 10 00:00:30,920 --> 00:00:35,440 Speaker 1: the Fed, inflation and war in Ukraine all coming together. 11 00:00:36,040 --> 00:00:39,519 Speaker 1: This is Bloomberg Wall Street Week. I'm David Weston. This 12 00:00:39,600 --> 00:00:42,760 Speaker 1: week we had it all a continuing war in Ukraine 13 00:00:42,800 --> 00:00:47,199 Speaker 1: with Ukraine President Zelinski addressing Congress and President Biden. And 14 00:00:47,440 --> 00:00:56,000 Speaker 1: President Biden, you are the leader of the niche. I 15 00:00:56,080 --> 00:01:01,520 Speaker 1: wish you to leave the leader of the wolds. Being 16 00:01:01,560 --> 00:01:05,119 Speaker 1: the leader of the vault means to be the leader 17 00:01:06,040 --> 00:01:09,640 Speaker 1: of this As President Biden plans a trip to Europe 18 00:01:09,680 --> 00:01:13,600 Speaker 1: next week to consult with allies. Oil shot up to 19 00:01:13,640 --> 00:01:17,080 Speaker 1: over one dollars a barrel, only to plunge below one. 20 00:01:18,240 --> 00:01:20,600 Speaker 1: If you have access to a chant in today of 21 00:01:20,680 --> 00:01:25,640 Speaker 1: Frank crude, put it up right now, handle on Brent, 22 00:01:25,760 --> 00:01:27,880 Speaker 1: then take it back a week or so. We've got 23 00:01:27,920 --> 00:01:31,399 Speaker 1: a forty dollar plus swing on crude on Brent tom 24 00:01:31,400 --> 00:01:35,200 Speaker 1: in a week, one single week forty dollar swink, all 25 00:01:35,240 --> 00:01:38,800 Speaker 1: of which were important to investors, but none as important 26 00:01:38,840 --> 00:01:41,880 Speaker 1: as the Federal Reserve decision on Wednesday when it made 27 00:01:41,880 --> 00:01:46,000 Speaker 1: it official we're moving from monetary loosening to monetary tightening. 28 00:01:46,360 --> 00:01:49,560 Speaker 1: Every meeting is a live meeting, and we're going to 29 00:01:49,640 --> 00:01:53,760 Speaker 1: be looking at evolving conditions. I think that the Fed 30 00:01:53,880 --> 00:01:58,280 Speaker 1: has largely abandoned monetary orthodoxy. It's trying to be too 31 00:01:58,400 --> 00:02:04,880 Speaker 1: cute in how it's it's managing this. Whether cute or not, 32 00:02:05,200 --> 00:02:07,440 Speaker 1: markets took what the Fed had to say in stride, 33 00:02:07,520 --> 00:02:10,560 Speaker 1: with stocks rising again on Friday, capping a risk on 34 00:02:10,639 --> 00:02:13,639 Speaker 1: week with the SMP over six percent. That is the 35 00:02:13,680 --> 00:02:17,480 Speaker 1: best week since November of and tech died even better 36 00:02:17,800 --> 00:02:21,119 Speaker 1: with NASDAC hired by eight percent, while bond yields, after 37 00:02:21,200 --> 00:02:23,960 Speaker 1: shooting up briefly with the feds announcement on Wednesday, settled 38 00:02:23,960 --> 00:02:26,480 Speaker 1: back down to one two point one four on the 39 00:02:26,520 --> 00:02:28,160 Speaker 1: tenure by the end of the week up a bit, 40 00:02:28,280 --> 00:02:30,240 Speaker 1: but not that much. In the meantime, Oil after all 41 00:02:30,280 --> 00:02:33,200 Speaker 1: the fluctuations ended up with Brent around one oh seven. 42 00:02:33,480 --> 00:02:36,640 Speaker 1: Stake us through this vulnerable week welcomed. Now joe An Peeney, 43 00:02:36,720 --> 00:02:40,680 Speaker 1: she's portfolio manager at Advisors Capital Management and Sonal Decide. 44 00:02:40,760 --> 00:02:44,000 Speaker 1: She is chief investment officer at Franklin Templeton Fixed Income. 45 00:02:44,040 --> 00:02:46,239 Speaker 1: So so now let me start with you, because bonds 46 00:02:46,280 --> 00:02:48,840 Speaker 1: were very much in the spotlight this week, and what 47 00:02:48,880 --> 00:02:51,000 Speaker 1: the Fed did and the reaction of bond market did, 48 00:02:51,040 --> 00:02:55,040 Speaker 1: what the Feds say makes sense to you. Next see, 49 00:02:55,280 --> 00:02:57,680 Speaker 1: So here's the thing. What the Fed did, I think 50 00:02:57,880 --> 00:03:00,799 Speaker 1: was a smart thing to do. It They dated, well, 51 00:03:00,840 --> 00:03:03,440 Speaker 1: the market was already pricing which was seven rate hikes 52 00:03:03,560 --> 00:03:07,600 Speaker 1: this this year. The reason I would say it's mixed 53 00:03:07,919 --> 00:03:10,600 Speaker 1: is I look at the terminal rates that the Fed has, 54 00:03:10,639 --> 00:03:13,720 Speaker 1: which is around two point eight, and it has inflation 55 00:03:14,400 --> 00:03:17,680 Speaker 1: core pc E dropping with from the four handle this 56 00:03:17,760 --> 00:03:22,760 Speaker 1: year down to two point six next year. So you've 57 00:03:22,800 --> 00:03:27,399 Speaker 1: got rates barely positive. So that part to me, not sure, 58 00:03:27,600 --> 00:03:30,200 Speaker 1: Not so sure. It makes so much sense. The seven 59 00:03:30,280 --> 00:03:32,720 Speaker 1: rate hikes, I mean, it was almost I would say 60 00:03:33,320 --> 00:03:36,640 Speaker 1: a no brainer, given that the market had already priced this, 61 00:03:36,920 --> 00:03:38,720 Speaker 1: it would have been crazy for them to have missed 62 00:03:38,800 --> 00:03:42,240 Speaker 1: that opportunity. I do think actually they've left the door 63 00:03:42,320 --> 00:03:46,640 Speaker 1: open for more than seven rate hikes this year itself. 64 00:03:47,280 --> 00:03:50,280 Speaker 1: And I'm very interested, and then I'm going to stop. 65 00:03:50,480 --> 00:03:52,560 Speaker 1: I'm very interested in the fact that the market really 66 00:03:52,600 --> 00:03:56,920 Speaker 1: isn't pricing any rate hyps for all practical purposes. After 67 00:03:56,960 --> 00:03:59,080 Speaker 1: the FED is done with this year and a little 68 00:03:59,080 --> 00:04:01,960 Speaker 1: bit clearly the market is still not taking the FED 69 00:04:02,040 --> 00:04:04,520 Speaker 1: very seriously on this, Joan, what about from the equity 70 00:04:04,520 --> 00:04:06,240 Speaker 1: side of it, It was really interesting to see the 71 00:04:06,280 --> 00:04:09,120 Speaker 1: dynamics this week with the FED coming in as expected, 72 00:04:09,160 --> 00:04:12,320 Speaker 1: but you know, lowering their growth forecast for example, and 73 00:04:12,360 --> 00:04:16,080 Speaker 1: delivering that anticipated plan for seven rate heights. You know, 74 00:04:16,120 --> 00:04:19,560 Speaker 1: equities said, Okay, that's what we expected. We've already built in, uh, 75 00:04:19,720 --> 00:04:23,160 Speaker 1: these kinds of rate heights and moreover, the FED is 76 00:04:23,240 --> 00:04:27,080 Speaker 1: just confirmed a slowing growth environment, which you know, equity investors, 77 00:04:27,120 --> 00:04:29,800 Speaker 1: I think we're expecting. And what we saw, interestingly is 78 00:04:29,800 --> 00:04:32,719 Speaker 1: you pointed out, David at the beginning was NASDAC actually 79 00:04:32,760 --> 00:04:35,280 Speaker 1: went up more than the S and T, showing I 80 00:04:35,320 --> 00:04:39,200 Speaker 1: think the beginnings of a return to more growth oriented 81 00:04:39,440 --> 00:04:43,400 Speaker 1: tech oriented stops because in a slowing growth environment, broadly speaking, 82 00:04:43,880 --> 00:04:46,800 Speaker 1: where are investors going to find growth? You're going to 83 00:04:46,920 --> 00:04:49,320 Speaker 1: have to find the names that have secular drivers, and 84 00:04:49,560 --> 00:04:52,360 Speaker 1: a lot of those are technology companies. So now you too, 85 00:04:52,440 --> 00:04:54,720 Speaker 1: refer to the projections for where rates are gonna go. 86 00:04:54,839 --> 00:04:57,920 Speaker 1: Given where inflation is, how is inflation going to come 87 00:04:58,000 --> 00:05:00,360 Speaker 1: up so and come down so dramatically if we're don't 88 00:05:00,400 --> 00:05:02,800 Speaker 1: get to positive real rates is real year? This is 89 00:05:02,800 --> 00:05:04,720 Speaker 1: a practical matter. Don't you have to have the rates 90 00:05:04,720 --> 00:05:07,240 Speaker 1: above for inflation is projected to be and is the 91 00:05:07,360 --> 00:05:09,920 Speaker 1: FED really planning for that? I would just say one thing, 92 00:05:09,960 --> 00:05:13,159 Speaker 1: hope is not a strategy, and I think the Fed's 93 00:05:13,240 --> 00:05:17,160 Speaker 1: forecasts all right, their projections, uh, And I think Joanne 94 00:05:17,160 --> 00:05:20,800 Speaker 1: and I talked about this earlier. But you know, uh, 95 00:05:21,520 --> 00:05:28,080 Speaker 1: it depends on a very rapid resumption of supply chains 96 00:05:28,200 --> 00:05:31,560 Speaker 1: to some form of normalcy, because I don't think that 97 00:05:31,640 --> 00:05:34,960 Speaker 1: monetary policy at this point is going to be successful 98 00:05:35,200 --> 00:05:40,560 Speaker 1: in bringing core PC. Uh. Let's alan headline PC down 99 00:05:41,120 --> 00:05:43,800 Speaker 1: in the time frame the FED is envisaging with its 100 00:05:43,839 --> 00:05:47,599 Speaker 1: style of rate hikes that the FED is planning. And yes, 101 00:05:47,640 --> 00:05:50,680 Speaker 1: there is a growth slowdown. It's not. It is a slowdown, 102 00:05:50,720 --> 00:05:53,919 Speaker 1: but it is not a recession. So I think that 103 00:05:54,080 --> 00:05:56,680 Speaker 1: is a part of what is going on over here 104 00:05:57,040 --> 00:06:00,320 Speaker 1: that you know, we're we're not. I think the FED 105 00:06:00,400 --> 00:06:02,560 Speaker 1: is trying to tread that line of not freaking the 106 00:06:02,600 --> 00:06:07,159 Speaker 1: market out, and it probably clearly very successfully did that. 107 00:06:07,680 --> 00:06:09,600 Speaker 1: But I do wonder and in June, when we get 108 00:06:09,640 --> 00:06:13,360 Speaker 1: the next set of SEP and DOT plots, we're going 109 00:06:13,440 --> 00:06:17,240 Speaker 1: to see something different, and it's going to depend critically 110 00:06:17,400 --> 00:06:19,640 Speaker 1: on what we see on infation over the next to 111 00:06:19,880 --> 00:06:22,839 Speaker 1: three months. Yeah, what's at all points out there, David, 112 00:06:23,320 --> 00:06:26,680 Speaker 1: is is that the wide variety of projections by the 113 00:06:27,200 --> 00:06:29,919 Speaker 1: MC members if you look at those top plots Unfortunately 114 00:06:30,000 --> 00:06:32,680 Speaker 1: we can't teach them apart and look at one person's 115 00:06:32,720 --> 00:06:36,119 Speaker 1: projections separate from the others, but you see this incredible range. 116 00:06:36,880 --> 00:06:39,440 Speaker 1: For example, you know some folks saying they expect the 117 00:06:39,440 --> 00:06:41,760 Speaker 1: FED fund raise to end the three percent, others one 118 00:06:41,800 --> 00:06:44,240 Speaker 1: point five percent, And that tells you there are a 119 00:06:44,240 --> 00:06:47,440 Speaker 1: lot of different assumptions and and understandings of what the 120 00:06:47,560 --> 00:06:50,280 Speaker 1: dynamics are this year that they're going to drive inflation, 121 00:06:50,360 --> 00:06:52,839 Speaker 1: growth and rates. Okay, so now I'll decide a Franklin 122 00:06:52,839 --> 00:06:55,440 Speaker 1: temple And and Joe Anthonia of Advisor's Capital Management will 123 00:06:55,480 --> 00:06:57,440 Speaker 1: both be staying with us as we turn from up 124 00:06:57,480 --> 00:06:59,960 Speaker 1: the Fed did this week to what investors should do 125 00:07:00,279 --> 00:07:03,480 Speaker 1: in response? That's next on the Wall Street Week on Bloomberg. 126 00:07:05,520 --> 00:07:09,480 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 127 00:07:09,600 --> 00:07:13,160 Speaker 1: Bloomberg Radio. So now this side of Franklin Templeton Fixed 128 00:07:13,160 --> 00:07:16,720 Speaker 1: Income and Joanne Feeni of Advisor's Capital Managements stayed with us, 129 00:07:16,760 --> 00:07:18,840 Speaker 1: so we can talk about what investors should do with 130 00:07:18,920 --> 00:07:20,560 Speaker 1: the information that they got this week. Joy, and let's 131 00:07:20,560 --> 00:07:23,400 Speaker 1: starting the equity side this time. What does an equity 132 00:07:23,400 --> 00:07:25,320 Speaker 1: investor take away from this? What stocks do you want 133 00:07:25,320 --> 00:07:27,360 Speaker 1: to buy? Maybe not so much given what we saw 134 00:07:27,440 --> 00:07:29,640 Speaker 1: this week. Yeah, you know, David, it really depends what 135 00:07:29,760 --> 00:07:32,040 Speaker 1: sort of equity investor you are. What are you looking for? 136 00:07:32,240 --> 00:07:35,000 Speaker 1: You retired and you want to be conservative? Are you 137 00:07:35,120 --> 00:07:37,640 Speaker 1: younger or you know, have reason to be more aggressive? 138 00:07:37,880 --> 00:07:40,600 Speaker 1: You're really very different strategies here. So if we look 139 00:07:40,640 --> 00:07:43,920 Speaker 1: at sort of the more conservative maybe income oriented, you know, 140 00:07:44,000 --> 00:07:45,640 Speaker 1: I think you really have to think about having some 141 00:07:45,720 --> 00:07:49,920 Speaker 1: defensive position, some insurance in the portfolios because global risks 142 00:07:49,920 --> 00:07:51,800 Speaker 1: are elevated, and they're going to stay elevated. And it 143 00:07:51,840 --> 00:07:55,480 Speaker 1: isn't just Russia in the Ukraine, it's it's COVID potentially, 144 00:07:55,560 --> 00:07:58,600 Speaker 1: it's always you know, other things. And so what's maybe 145 00:07:58,640 --> 00:08:01,000 Speaker 1: new now is to have some insurance positions that go 146 00:08:01,120 --> 00:08:03,440 Speaker 1: beyond sort of the energy, the banks, to real estate, 147 00:08:03,480 --> 00:08:06,880 Speaker 1: the protection against inflation towards you know, some of those 148 00:08:06,880 --> 00:08:09,000 Speaker 1: things that will do well if this rush of Ukraine 149 00:08:09,040 --> 00:08:11,520 Speaker 1: situation really lasts a long time. What is it hitting 150 00:08:11,560 --> 00:08:14,960 Speaker 1: commodity prices, So you can own not necessarily the commodities, 151 00:08:15,160 --> 00:08:17,120 Speaker 1: but companies that are going to do well because of 152 00:08:17,120 --> 00:08:19,280 Speaker 1: those higher prices that are going to consist for well, 153 00:08:19,560 --> 00:08:22,160 Speaker 1: for example, a caterpillar or a deer, which is going 154 00:08:22,200 --> 00:08:24,360 Speaker 1: to see a bigger increase in the demand as as 155 00:08:24,400 --> 00:08:27,960 Speaker 1: more mining happens, right as more countries go towards demanding 156 00:08:28,040 --> 00:08:30,880 Speaker 1: food self sufficiency, for example. So there are a lot 157 00:08:30,920 --> 00:08:33,840 Speaker 1: of interesting ways to build insurance of the portfolios in 158 00:08:33,880 --> 00:08:36,800 Speaker 1: this kind of environment. But one shouldn't forget the reopening 159 00:08:36,800 --> 00:08:39,440 Speaker 1: is still happen and there are some reopening trades one 160 00:08:39,440 --> 00:08:42,240 Speaker 1: who play. If you're careful about the inflation exposure in 161 00:08:42,280 --> 00:08:44,720 Speaker 1: a growth portfolio, for example, we just add in match 162 00:08:45,160 --> 00:08:47,480 Speaker 1: as people go out and and date more in person, 163 00:08:47,800 --> 00:08:50,320 Speaker 1: we think that's a good one for folks to to 164 00:08:50,320 --> 00:08:52,880 Speaker 1: to be involved with. And then there's the tech side. 165 00:08:53,000 --> 00:08:55,600 Speaker 1: As we saw some of the rebound has begun when 166 00:08:55,600 --> 00:08:58,200 Speaker 1: we think that's going to continue. But again some of 167 00:08:58,240 --> 00:09:00,839 Speaker 1: that is a little bit more on the aggressive. So 168 00:09:00,920 --> 00:09:03,800 Speaker 1: it really depends. It's sort of a portfolio. We've owned 169 00:09:03,840 --> 00:09:06,040 Speaker 1: these things, a lot of them for a very long time. 170 00:09:06,400 --> 00:09:09,240 Speaker 1: We find it's very important to ride out of policility 171 00:09:09,360 --> 00:09:10,840 Speaker 1: in this kind of a market, but you want to 172 00:09:10,840 --> 00:09:13,960 Speaker 1: make sure you're comfortable doing so. So. Now, not to 173 00:09:14,000 --> 00:09:15,600 Speaker 1: put too fine a point at it, but on the 174 00:09:15,600 --> 00:09:17,960 Speaker 1: fixed income side, why do I want to invest in 175 00:09:18,040 --> 00:09:19,800 Speaker 1: bonds right now, given the fact that I know rates 176 00:09:19,800 --> 00:09:21,920 Speaker 1: are going up? And if I do, which are the 177 00:09:21,920 --> 00:09:24,680 Speaker 1: bonds I want to buy? So I'd say that, for 178 00:09:24,760 --> 00:09:28,199 Speaker 1: one thing, there's always a place for bonds in portfolios, 179 00:09:28,240 --> 00:09:31,480 Speaker 1: and certainly this is not the most attractive time to 180 00:09:31,640 --> 00:09:35,600 Speaker 1: be heavily invested in long duration assets because I certainly 181 00:09:35,640 --> 00:09:37,599 Speaker 1: believe that we are going to see a steepening of 182 00:09:37,640 --> 00:09:40,640 Speaker 1: the yield curve. I know that the markets are anticipating 183 00:09:40,920 --> 00:09:44,360 Speaker 1: the yield curve actually inverting, which would be positive for 184 00:09:44,440 --> 00:09:48,800 Speaker 1: long duration bonds eventually. But I would just note that 185 00:09:48,800 --> 00:09:52,360 Speaker 1: that seems to be assuming that the FED is going 186 00:09:52,400 --> 00:09:55,440 Speaker 1: to come in, swoop in and bailed the bond market 187 00:09:55,480 --> 00:09:57,800 Speaker 1: out again the way it has every single time in 188 00:09:57,840 --> 00:10:00,800 Speaker 1: the last fourteen years since the global financial crisis when 189 00:10:00,800 --> 00:10:03,679 Speaker 1: the market has wobbled. So I do think that long 190 00:10:03,760 --> 00:10:07,680 Speaker 1: duration assets there will be some interesting place there because 191 00:10:07,679 --> 00:10:10,920 Speaker 1: spreads have widened. They may widen a little more, but 192 00:10:11,200 --> 00:10:15,560 Speaker 1: I but towards the end of this cycle, certainly a 193 00:10:15,600 --> 00:10:18,120 Speaker 1: lot of those long duration assets become very interesting again. 194 00:10:18,160 --> 00:10:21,040 Speaker 1: But right now I look at floating great instruments, so 195 00:10:21,080 --> 00:10:24,200 Speaker 1: I look at the bank loan space within how yield 196 00:10:24,280 --> 00:10:27,800 Speaker 1: we have seen spreads blow out, and certainly that allows 197 00:10:27,880 --> 00:10:31,160 Speaker 1: us to go back in and find specific areas and sectors. 198 00:10:31,440 --> 00:10:33,360 Speaker 1: And here I would actually say that a lot of 199 00:10:33,360 --> 00:10:37,720 Speaker 1: what Joanne said from a sector perspective applies to fixed 200 00:10:37,720 --> 00:10:41,560 Speaker 1: income as well, the reopening trades, looking at energy place, etcetera. 201 00:10:41,920 --> 00:10:44,240 Speaker 1: And the last thing I would say is when you 202 00:10:44,320 --> 00:10:47,480 Speaker 1: do see commodity prices taking off the way they have, 203 00:10:48,040 --> 00:10:50,840 Speaker 1: one has to remember that within the emerging market space, 204 00:10:50,960 --> 00:10:53,360 Speaker 1: every country is not a loser. There are countries which 205 00:10:53,400 --> 00:10:56,840 Speaker 1: actually do well when commodity prices go up and others 206 00:10:56,880 --> 00:11:00,199 Speaker 1: that do badly. And so even in that air real 207 00:11:00,400 --> 00:11:02,920 Speaker 1: I would say that there are places where I would 208 00:11:02,960 --> 00:11:07,280 Speaker 1: say that you can hide otherwise stepping slightly outside my roundhouse, 209 00:11:07,320 --> 00:11:09,760 Speaker 1: so to speak. I would say, definitely it's worth looking 210 00:11:09,800 --> 00:11:12,959 Speaker 1: at alternatives and in from the perspective of real estate 211 00:11:13,240 --> 00:11:18,280 Speaker 1: and the classics slightly stagflation ne trades, which would be commodities, 212 00:11:18,559 --> 00:11:23,480 Speaker 1: real estate places like old for example, And certainly I 213 00:11:23,520 --> 00:11:26,000 Speaker 1: think that you could you could probably do with some 214 00:11:26,080 --> 00:11:28,800 Speaker 1: inflation protection in any way you can find it. At 215 00:11:28,800 --> 00:11:32,040 Speaker 1: this point, Joan, what about recession protection, because we just 216 00:11:32,040 --> 00:11:34,800 Speaker 1: heard some refer to the flattening yield curve some people 217 00:11:34,800 --> 00:11:37,520 Speaker 1: think is going to invert, often an indication depending on 218 00:11:37,559 --> 00:11:38,880 Speaker 1: which part of the curve you're looking at it or 219 00:11:38,920 --> 00:11:42,120 Speaker 1: possible recession as you do, you as an equit investor, 220 00:11:42,200 --> 00:11:44,400 Speaker 1: need to be taking you to account the possibility of 221 00:11:44,400 --> 00:11:46,920 Speaker 1: recession in your investments. Yeah, you want to give it 222 00:11:47,040 --> 00:11:51,160 Speaker 1: some some probability ways, you don't want to necessarily pivot 223 00:11:51,160 --> 00:11:53,040 Speaker 1: in that direction. We think it's a bit early. We're 224 00:11:53,080 --> 00:11:56,080 Speaker 1: just seeing such good signs of strength in the U 225 00:11:56,120 --> 00:11:59,120 Speaker 1: S economy. The big concern obviously is the war and 226 00:11:59,480 --> 00:12:02,040 Speaker 1: how it might really affect Europe if it goes on 227 00:12:02,080 --> 00:12:04,680 Speaker 1: for a long time. But building the portfolio, what we've 228 00:12:04,720 --> 00:12:07,199 Speaker 1: done for a long time is owned stocks that continue 229 00:12:07,200 --> 00:12:09,480 Speaker 1: to do well even in a recession. UM. There are 230 00:12:09,480 --> 00:12:13,920 Speaker 1: some consumer staples, for example, real estate holds up very well, 231 00:12:14,400 --> 00:12:16,360 Speaker 1: and so you really do have to build that kind 232 00:12:16,360 --> 00:12:19,520 Speaker 1: of insurance into portfolios as well. And so it does 233 00:12:19,600 --> 00:12:23,280 Speaker 1: depend on your time horizon UH and your goals. And 234 00:12:23,360 --> 00:12:25,719 Speaker 1: you know, for example, you know in the growth portfolio, 235 00:12:26,000 --> 00:12:29,160 Speaker 1: you know you're still gonna be pretty long duration as senal, 236 00:12:29,280 --> 00:12:31,440 Speaker 1: but you're going to still own these assets that are 237 00:12:31,480 --> 00:12:34,440 Speaker 1: going to have a longer time to play through UH. 238 00:12:34,480 --> 00:12:37,559 Speaker 1: And and so in a recession environment or just a slowing, 239 00:12:37,600 --> 00:12:41,400 Speaker 1: aggregant growth environment, it's important for investors both along enough 240 00:12:41,400 --> 00:12:43,760 Speaker 1: horizon to say, well, where can I find a book 241 00:12:43,920 --> 00:12:46,400 Speaker 1: what's going to continue to grow even if there's a recession. 242 00:12:46,800 --> 00:12:50,160 Speaker 1: You know, look at cloud computing, look at data center expansion. 243 00:12:50,240 --> 00:12:52,439 Speaker 1: This is still continuing and likely to do so through 244 00:12:52,480 --> 00:12:56,000 Speaker 1: a recession. You know, look at software that is used 245 00:12:56,000 --> 00:12:59,840 Speaker 1: for UH, information technology, infrastructure and firms that those are 246 00:12:59,840 --> 00:13:01,320 Speaker 1: the or the companies by the way that are well 247 00:13:01,400 --> 00:13:04,280 Speaker 1: protected from the wage inflation that may very well be 248 00:13:04,360 --> 00:13:08,000 Speaker 1: devil profits in more labor intensive industries. And so that's 249 00:13:08,000 --> 00:13:09,839 Speaker 1: the way to building that kind of protention into a 250 00:13:09,920 --> 00:13:13,120 Speaker 1: portfolio as well, if you look at real ield curves 251 00:13:13,160 --> 00:13:16,160 Speaker 1: as well, if I look at inflation linkers, that's another market. 252 00:13:16,200 --> 00:13:18,560 Speaker 1: The FED ONMS so you know it owns again a 253 00:13:18,640 --> 00:13:21,440 Speaker 1: quarter of that market. So I tend to be a 254 00:13:21,480 --> 00:13:24,680 Speaker 1: little bit more skeptical about the inflation signals, the duration 255 00:13:24,720 --> 00:13:28,040 Speaker 1: of inflation inflation expectations. I would just note that as 256 00:13:28,040 --> 00:13:31,480 Speaker 1: we come to fall, if what we anticipate happens and 257 00:13:31,520 --> 00:13:34,600 Speaker 1: people have seen seven to eight percent inflation for an 258 00:13:34,640 --> 00:13:38,040 Speaker 1: extended or protracted period of time, the idea or the 259 00:13:38,120 --> 00:13:41,760 Speaker 1: risks of a wage price spiral become far more serious. 260 00:13:41,800 --> 00:13:46,200 Speaker 1: And that means that inflation might hold on for longer 261 00:13:46,440 --> 00:13:48,520 Speaker 1: than the FED would like or indeed any of us 262 00:13:48,520 --> 00:13:50,400 Speaker 1: would like in the market, because that's not a healthy 263 00:13:50,480 --> 00:13:54,959 Speaker 1: environment for any structs of bonds. So yeah, we've made 264 00:13:54,960 --> 00:13:56,640 Speaker 1: at the end of this discussion without a lot of 265 00:13:56,679 --> 00:13:59,160 Speaker 1: discussion about the war. So Joe, I'm going to give 266 00:13:59,160 --> 00:14:01,120 Speaker 1: you the hardest job. Just briefly at the end, the 267 00:14:01,120 --> 00:14:03,880 Speaker 1: markets seem to be looking past Ukraine right now? Are 268 00:14:03,920 --> 00:14:06,760 Speaker 1: they premature? They are they onto something? Well? You know, 269 00:14:06,840 --> 00:14:09,400 Speaker 1: when we look back at the markets and various wars 270 00:14:09,640 --> 00:14:13,520 Speaker 1: and destructions, recessions, pandemics, you know, we do see that 271 00:14:13,679 --> 00:14:17,800 Speaker 1: investors tend to recognize that wars tend to be temporary destructions. 272 00:14:18,000 --> 00:14:21,640 Speaker 1: I think there may be reason to believe that the 273 00:14:21,840 --> 00:14:24,520 Speaker 1: risks associated with this situation are are more elevated, but 274 00:14:24,520 --> 00:14:27,640 Speaker 1: they're in the tails still, and so I think investors 275 00:14:27,680 --> 00:14:31,520 Speaker 1: are are recognizing that the destruction, even if bad, is 276 00:14:31,560 --> 00:14:34,560 Speaker 1: likely to be mostly focused on Europe than here in 277 00:14:34,560 --> 00:14:37,720 Speaker 1: the US. Well done, Joanne, you landed it that hard assignment. 278 00:14:37,880 --> 00:14:40,600 Speaker 1: Thanks so much, just anaths I of Franklin Temple and 279 00:14:40,640 --> 00:14:44,800 Speaker 1: Fixed Income, and also Joanne Pheenie of Advisors Capital Management. 280 00:14:47,320 --> 00:14:51,440 Speaker 1: Coming up, inflation, bed tightening and a war in Ukraine. 281 00:14:51,920 --> 00:14:55,160 Speaker 1: They've whirled the markets. So what's the central bank to do? 282 00:14:55,640 --> 00:14:58,520 Speaker 1: We hear from Rick Reader of black Rock. That's next 283 00:14:58,600 --> 00:15:05,320 Speaker 1: on Wall Street Week on Bloomberg. This is Bloomberg Wall 284 00:15:05,400 --> 00:15:12,640 Speaker 1: Street Week with David Weston from Bloomberg Radio. February four 285 00:15:12,760 --> 00:15:15,720 Speaker 1: marked the invasion of Ukraine by Russia. Putin started a 286 00:15:15,760 --> 00:15:19,200 Speaker 1: war with Ukraine, with the democratic world changing the lives 287 00:15:19,240 --> 00:15:23,280 Speaker 1: of millions of Ukrainians. Civilian targets have been hit again 288 00:15:23,600 --> 00:15:26,520 Speaker 1: last nights. The emergency services in the capital city and 289 00:15:26,640 --> 00:15:30,840 Speaker 1: Kiev have also been reporting hits on residential buildings and 290 00:15:30,920 --> 00:15:34,480 Speaker 1: resonating through economies around the world as the United States 291 00:15:34,560 --> 00:15:38,040 Speaker 1: and its allies moved decisively to impose a wide range 292 00:15:38,040 --> 00:15:42,200 Speaker 1: of economic sanctions. We are enforcing the most significant package 293 00:15:42,200 --> 00:15:46,480 Speaker 1: of economic sanctions and history, and it's causing significant damage 294 00:15:46,520 --> 00:15:49,960 Speaker 1: to Russia's economy. But the world was already changing before 295 00:15:50,040 --> 00:15:53,360 Speaker 1: Russian troops came across the border with Ukraine. With concerns 296 00:15:53,360 --> 00:15:57,160 Speaker 1: over inflation higher than they've been in forty years. We're 297 00:15:57,160 --> 00:15:59,960 Speaker 1: not going to let high inflation become entrenched. That cost 298 00:16:00,120 --> 00:16:02,800 Speaker 1: of that would be too high. And ongoing problems with 299 00:16:02,880 --> 00:16:06,120 Speaker 1: the supply chain triggered by a pandemic that touched every 300 00:16:06,200 --> 00:16:11,040 Speaker 1: corner of the global economy. It's just another headwind and 301 00:16:11,040 --> 00:16:13,560 Speaker 1: and a ripple through. You know, supply chains are already 302 00:16:13,760 --> 00:16:17,480 Speaker 1: very stress. Um. We had seen some nascent signs of 303 00:16:17,560 --> 00:16:19,760 Speaker 1: improvement in the supplied chames, but you had seen that 304 00:16:19,840 --> 00:16:22,520 Speaker 1: at year end and going into early this year. But 305 00:16:22,600 --> 00:16:26,080 Speaker 1: I think all of this really gets reverse because of 306 00:16:26,120 --> 00:16:28,760 Speaker 1: the war, all of which poses a unique set of 307 00:16:28,840 --> 00:16:31,440 Speaker 1: challenges for central banks like the FED that have to 308 00:16:31,480 --> 00:16:34,520 Speaker 1: respond to multiple crises when they are very close to 309 00:16:34,560 --> 00:16:38,080 Speaker 1: the zero bound with their interest rates. We are starting 310 00:16:38,160 --> 00:16:41,200 Speaker 1: this FED episode at the lower bound. As you mentioned, 311 00:16:41,520 --> 00:16:44,040 Speaker 1: the last time inflation was like this was actually July. 312 00:16:45,560 --> 00:16:48,040 Speaker 1: It was just under eight percent at short rates at 313 00:16:48,080 --> 00:16:50,640 Speaker 1: that point were eight percent. In the tenure was just 314 00:16:50,720 --> 00:16:54,440 Speaker 1: above eight percent. To take us through what the FED 315 00:16:54,560 --> 00:16:57,600 Speaker 1: is confronting, we welcome back now, Rick Reader black Rock, 316 00:16:57,720 --> 00:17:00,400 Speaker 1: CEO of Goal Fixed Income and head of the Global 317 00:17:00,560 --> 00:17:03,120 Speaker 1: Allocation Investment Team. We're great to have you back with 318 00:17:03,200 --> 00:17:05,680 Speaker 1: this out of Wall Street week. So, as we just said, 319 00:17:05,720 --> 00:17:08,080 Speaker 1: the FED had a hard job before the war came up. 320 00:17:08,240 --> 00:17:10,120 Speaker 1: There are a lot of problems there. Now they get 321 00:17:10,119 --> 00:17:13,199 Speaker 1: the war on top of it, and the nutshell is 322 00:17:13,240 --> 00:17:16,120 Speaker 1: a favorite game. How they're doing, you know, I mean listen, 323 00:17:16,280 --> 00:17:18,119 Speaker 1: and I think Cha Powell alluded to the fact that 324 00:17:18,119 --> 00:17:20,399 Speaker 1: they should have moved earlier. I mean, we're in you know, 325 00:17:20,440 --> 00:17:23,879 Speaker 1: the FED is behind the curve, significantly behind the curve, 326 00:17:24,320 --> 00:17:26,720 Speaker 1: you know. Now, I think what's really tricky is how 327 00:17:26,720 --> 00:17:28,760 Speaker 1: do you move how do you move to the other 328 00:17:28,920 --> 00:17:33,160 Speaker 1: side quickly and not disrupt the system so aggressively. So 329 00:17:33,280 --> 00:17:34,760 Speaker 1: I think they're in a tough spot. In fact, I 330 00:17:34,760 --> 00:17:36,640 Speaker 1: think this is the toughest spot I've seen a FED 331 00:17:36,720 --> 00:17:39,840 Speaker 1: in maybe in my career and so and so, listen, 332 00:17:39,880 --> 00:17:41,800 Speaker 1: I think I think it's gonna be a challenge. I 333 00:17:41,800 --> 00:17:44,200 Speaker 1: think you've got an economy that you always say this, 334 00:17:44,320 --> 00:17:47,080 Speaker 1: high prices are the cure. For high prices, you actually 335 00:17:47,080 --> 00:17:49,680 Speaker 1: see an economy that's starting to moderate in the number 336 00:17:49,680 --> 00:17:51,720 Speaker 1: of places, and I think that I think the FED 337 00:17:52,119 --> 00:17:55,240 Speaker 1: has to try and be careful about not letting the 338 00:17:55,280 --> 00:17:58,800 Speaker 1: economy slip into a recession while they're while they're trying 339 00:17:58,840 --> 00:18:00,919 Speaker 1: to deal with inflation. Listen, m to this. Inflation is 340 00:18:00,960 --> 00:18:03,439 Speaker 1: supply shock driven. You know when you go through some 341 00:18:03,520 --> 00:18:05,720 Speaker 1: of these when we talk about energy a lot, you 342 00:18:05,720 --> 00:18:09,639 Speaker 1: know the global wheat production comes from Russia, Ukraine, pretty 343 00:18:09,640 --> 00:18:12,400 Speaker 1: incredible numbers. You're gonna see that flow through a food prices. 344 00:18:12,440 --> 00:18:15,480 Speaker 1: So it's a challenging dynamic that's going to impact the 345 00:18:15,520 --> 00:18:18,879 Speaker 1: economy for sure, and the Fed's gotta gotta run the 346 00:18:18,920 --> 00:18:21,960 Speaker 1: struttle a very fine line. So as you say, high 347 00:18:21,960 --> 00:18:24,240 Speaker 1: prices are said to be the solution for high prices, 348 00:18:24,240 --> 00:18:25,800 Speaker 1: and I'm gonna put up a chart here for our 349 00:18:25,800 --> 00:18:28,480 Speaker 1: television audience, will describe it for those who us joining 350 00:18:28,520 --> 00:18:31,720 Speaker 1: us on radio. That basically illustrates that point in terms 351 00:18:31,720 --> 00:18:35,040 Speaker 1: of real consumption, not non consumption, but real consumption. And 352 00:18:35,080 --> 00:18:37,280 Speaker 1: the extent in which really inflation at this point is 353 00:18:37,280 --> 00:18:40,639 Speaker 1: outpacing the growth and consumption. It's pretty incredible, David. I mean, 354 00:18:40,680 --> 00:18:43,120 Speaker 1: we went through this period, you know, the explosive set 355 00:18:43,160 --> 00:18:47,200 Speaker 1: of real growth of quantities, real growth of goods demand 356 00:18:47,600 --> 00:18:49,720 Speaker 1: that as you as you emerge from the pandemic, people 357 00:18:49,760 --> 00:18:54,560 Speaker 1: buying cards and furniture, etcetera, and across the board electronics, computer, etcetera. 358 00:18:55,040 --> 00:18:57,879 Speaker 1: Then now you get this spike higher in prices. And 359 00:18:57,920 --> 00:19:00,679 Speaker 1: what you're seeing is a pretty extraordinary dynamic like that. 360 00:19:00,840 --> 00:19:04,760 Speaker 1: Now real real consumption is starting to come off, i e. 361 00:19:05,160 --> 00:19:07,480 Speaker 1: The cure for high prices. High prices, people start to 362 00:19:07,480 --> 00:19:10,919 Speaker 1: pull back on demand. You're seeing this in the inventory builds. 363 00:19:10,960 --> 00:19:14,480 Speaker 1: Retailers are growing in terms. You're seeing inventories start to 364 00:19:14,520 --> 00:19:17,560 Speaker 1: build that will bring that will bring prices down. Consumer 365 00:19:17,640 --> 00:19:20,520 Speaker 1: sentence the lowest it's been in ten years, you know, 366 00:19:20,640 --> 00:19:24,400 Speaker 1: desire a good time to buy a car, house durables 367 00:19:24,440 --> 00:19:27,840 Speaker 1: are really falling precipitously. So you know, this is part 368 00:19:27,880 --> 00:19:30,200 Speaker 1: of that dynamic that the feed has got to straddle 369 00:19:30,280 --> 00:19:33,040 Speaker 1: this line and the consumers are gonna are gonna pull back. 370 00:19:33,040 --> 00:19:34,960 Speaker 1: I mean, look at these numbers, and it's pretty staggering 371 00:19:35,080 --> 00:19:37,200 Speaker 1: by the way. You're talking about these numbers falling off 372 00:19:37,200 --> 00:19:39,720 Speaker 1: a cliff when the consumer is arguably the best shape 373 00:19:39,760 --> 00:19:42,400 Speaker 1: I've ever seen them in history. Savings rate is up, 374 00:19:42,800 --> 00:19:46,600 Speaker 1: wages are up, hiring is up. And yet they're gonna 375 00:19:46,600 --> 00:19:49,640 Speaker 1: pull back, and they're gonna wait because these prices are 376 00:19:49,680 --> 00:19:53,439 Speaker 1: are eye popping high and integer weight for a for 377 00:19:53,440 --> 00:19:55,600 Speaker 1: for a better period of time, particularly when when you 378 00:19:55,600 --> 00:19:57,800 Speaker 1: when you look at the consumption basket for lower middle 379 00:19:57,840 --> 00:20:02,160 Speaker 1: income fuel and food shelter, where you're seeing the biggest 380 00:20:02,240 --> 00:20:04,439 Speaker 1: price likes. It makes it really tough for consumption to 381 00:20:04,480 --> 00:20:06,159 Speaker 1: stay up. And yet, as you point out, there may 382 00:20:06,200 --> 00:20:07,800 Speaker 1: be some good news in here that some of the 383 00:20:07,840 --> 00:20:10,600 Speaker 1: middle and lower income people are gaining the most right now. 384 00:20:11,560 --> 00:20:13,480 Speaker 1: So I mean, that's this is you know, I think 385 00:20:13,480 --> 00:20:15,680 Speaker 1: it's a very easy answer. And the car I don't 386 00:20:15,680 --> 00:20:17,760 Speaker 1: think it's a complete answer. When people say, gosh, defense 387 00:20:17,800 --> 00:20:20,200 Speaker 1: just gotta keep raising rights and do it quickly. You've 388 00:20:20,200 --> 00:20:22,680 Speaker 1: gotta be really careful if you think about what's happened 389 00:20:22,720 --> 00:20:25,639 Speaker 1: the last few years. Wages are moving up, you're bringing 390 00:20:25,640 --> 00:20:28,120 Speaker 1: more people into the labor force. By the way, there's 391 00:20:28,160 --> 00:20:30,520 Speaker 1: two million or so less people in the labor force 392 00:20:30,560 --> 00:20:34,440 Speaker 1: today than pre COVID. You need to keep cultivating that. Yeah, 393 00:20:34,480 --> 00:20:36,080 Speaker 1: when when Rick Reader says it's one of the most 394 00:20:36,080 --> 00:20:38,640 Speaker 1: extraordinary weeks in markets, you have to listen to Rick. 395 00:20:38,680 --> 00:20:40,080 Speaker 1: It's always so great to have you here in Wall 396 00:20:40,080 --> 00:20:42,640 Speaker 1: Street Week. There's Rick Reader, of course of Black Rock 397 00:20:44,920 --> 00:20:47,960 Speaker 1: coming up. Special contributor Larry Summers wraps up the week 398 00:20:48,000 --> 00:20:51,920 Speaker 1: for us. That's next on Wall three week on Bloomberg. 399 00:20:57,600 --> 00:21:01,520 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 400 00:21:01,720 --> 00:21:05,439 Speaker 1: Bloomberg Radio. Welcome back once again our very special contriver 401 00:21:05,640 --> 00:21:08,800 Speaker 1: Larry Summers at Harvard tell us wrap up this week. So, Larry, 402 00:21:08,800 --> 00:21:11,440 Speaker 1: you've been calling for quite some time on this program 403 00:21:11,440 --> 00:21:14,280 Speaker 1: and elsewhere for the FED to really wake up, smell 404 00:21:14,359 --> 00:21:17,000 Speaker 1: the coffee and realize we need to be focusing on inflation. 405 00:21:17,000 --> 00:21:20,119 Speaker 1: We need to increase interest rates. They took a big 406 00:21:20,200 --> 00:21:23,160 Speaker 1: step in that direction this week. Was it enough? They did, 407 00:21:23,320 --> 00:21:26,880 Speaker 1: and I was glad to say it. I think they're 408 00:21:26,920 --> 00:21:33,200 Speaker 1: recognizing that they're behind the curve. I think they've still 409 00:21:33,240 --> 00:21:36,280 Speaker 1: got a long way to go. They've got a long 410 00:21:36,320 --> 00:21:41,360 Speaker 1: way to go in forecasting. Realistically, I just don't believe 411 00:21:41,520 --> 00:21:44,320 Speaker 1: that it is plausible that we're going to have three 412 00:21:44,440 --> 00:21:48,280 Speaker 1: years of three and a half percent unemployment while inflation 413 00:21:48,359 --> 00:21:52,440 Speaker 1: falls precipitously. Nor do I believe that inflation is likely 414 00:21:52,480 --> 00:21:57,320 Speaker 1: to fall precipitously on a path where the nominal interest 415 00:21:57,520 --> 00:22:02,040 Speaker 1: right never gets within two points of where the inflation 416 00:22:02,160 --> 00:22:05,879 Speaker 1: radio is right now, not at any point in the 417 00:22:06,000 --> 00:22:10,320 Speaker 1: next three years. I also think that the FED needs 418 00:22:10,359 --> 00:22:15,920 Speaker 1: to recognize that it's framework was perhaps a good idea 419 00:22:16,240 --> 00:22:20,000 Speaker 1: in the deflationary context of that moment, though I'm not 420 00:22:20,040 --> 00:22:25,440 Speaker 1: sure it was, but it is surely not got anything 421 00:22:25,600 --> 00:22:32,600 Speaker 1: connected with our current kinds of UH challenges. So perhaps 422 00:22:32,600 --> 00:22:38,680 Speaker 1: institutions just UH with UH some gradualism. So perhaps we're 423 00:22:38,720 --> 00:22:43,800 Speaker 1: moving in uh the right UH direction. But I think 424 00:22:43,840 --> 00:22:47,240 Speaker 1: there's a long way to go, and I don't think 425 00:22:47,320 --> 00:22:52,160 Speaker 1: the FED has really done all that will be necessary 426 00:22:52,680 --> 00:22:57,440 Speaker 1: to preserve its credibility in the face of the substantial 427 00:22:57,480 --> 00:23:00,159 Speaker 1: inflation that I think is likely to come to us 428 00:23:00,480 --> 00:23:03,960 Speaker 1: UH in recent months. You know, I just had a 429 00:23:04,080 --> 00:23:08,240 Speaker 1: chance to review what is the best data on wages, 430 00:23:09,200 --> 00:23:13,160 Speaker 1: the data from the Atlanta FED, and depending on which 431 00:23:13,200 --> 00:23:15,919 Speaker 1: of the indices you use, how you wait the data 432 00:23:16,040 --> 00:23:19,480 Speaker 1: and so forth, on some measures that wage inflation is 433 00:23:19,520 --> 00:23:24,560 Speaker 1: now getting close to seven percent, and that is just 434 00:23:24,720 --> 00:23:28,520 Speaker 1: not consistent with the kind of places that we want 435 00:23:28,600 --> 00:23:32,200 Speaker 1: to go in terms of inflation. So lawry to focus 436 00:23:32,359 --> 00:23:34,880 Speaker 1: very specifically inflation, which you've been asking us to do now, 437 00:23:34,920 --> 00:23:37,400 Speaker 1: as I say, for over a year. If you take 438 00:23:37,440 --> 00:23:40,800 Speaker 1: a reasonable projection of inflation out over the next year 439 00:23:41,040 --> 00:23:43,840 Speaker 1: two years, what kind of FED funds rate do we 440 00:23:43,880 --> 00:23:46,440 Speaker 1: need to get it down? Clearly we need to get 441 00:23:46,520 --> 00:23:49,800 Speaker 1: into a positive real yield number. And what do you 442 00:23:49,840 --> 00:23:51,679 Speaker 1: need to get the rates to be in order to 443 00:23:51,720 --> 00:23:54,280 Speaker 1: really have the rates be higher than the inflation rate. 444 00:23:54,400 --> 00:24:00,480 Speaker 1: Here's the problem with FED, think uh, David. They assume 445 00:24:00,640 --> 00:24:05,880 Speaker 1: two percent long term inflation, and then they say that 446 00:24:05,960 --> 00:24:10,520 Speaker 1: the neutral rate is two point four, and then they say, look, 447 00:24:10,520 --> 00:24:13,560 Speaker 1: we're gonna raise rates to two point seven, so we're 448 00:24:13,560 --> 00:24:16,119 Speaker 1: gonna be above the neutral rates. So aren't we great? 449 00:24:16,760 --> 00:24:20,080 Speaker 1: But the problem is that that whole calculation is based 450 00:24:20,080 --> 00:24:22,440 Speaker 1: on the assumption that we're going to get inflation down 451 00:24:22,480 --> 00:24:26,200 Speaker 1: to two, and they don't provide a basis for believing that. 452 00:24:27,040 --> 00:24:30,760 Speaker 1: A simpler and more direct way to think about it 453 00:24:30,840 --> 00:24:34,240 Speaker 1: is to say that when inflation goes up, if you 454 00:24:34,400 --> 00:24:38,440 Speaker 1: just raise interest rates as much as inflation went up, 455 00:24:39,119 --> 00:24:43,160 Speaker 1: then you're not changing real interest rates at all. If 456 00:24:43,200 --> 00:24:46,560 Speaker 1: you want to tighten policy, you have to raise interest 457 00:24:46,680 --> 00:24:51,800 Speaker 1: rates by more than inflation went up. We used to 458 00:24:51,840 --> 00:24:56,879 Speaker 1: be a two percent inflation country. Now we're almost certainly 459 00:24:56,920 --> 00:24:59,760 Speaker 1: a six percent inflation country, and on some measures where 460 00:24:59,760 --> 00:25:04,240 Speaker 1: any percent inflation country. And so we've got to raise 461 00:25:04,720 --> 00:25:10,479 Speaker 1: interest rates by more than four percentage points. Um, we've 462 00:25:10,480 --> 00:25:13,240 Speaker 1: got to raise them by four percent to stay neutral, 463 00:25:14,000 --> 00:25:17,800 Speaker 1: and uh, we probably have to raise them more than that. 464 00:25:18,200 --> 00:25:20,840 Speaker 1: So I think ultimately we're gonna need a four or 465 00:25:20,880 --> 00:25:26,080 Speaker 1: five uh interest rates levels they're not even thinking of 466 00:25:26,680 --> 00:25:32,760 Speaker 1: as conceivable. Now. The reason for this is that they believe, 467 00:25:33,400 --> 00:25:36,560 Speaker 1: as do many to be fair to them in the markets, 468 00:25:37,280 --> 00:25:41,760 Speaker 1: that the main problem with Team Transitory was the marketing, 469 00:25:42,280 --> 00:25:46,320 Speaker 1: not the reality. So they think inflation is gonna come 470 00:25:46,359 --> 00:25:51,280 Speaker 1: way down without any action on their part to bring 471 00:25:51,359 --> 00:25:57,560 Speaker 1: it down. Maybe I see rental inflation, which is to 472 00:25:57,600 --> 00:26:02,800 Speaker 1: the core CPI is likely to I substantially UH this year. 473 00:26:03,640 --> 00:26:08,800 Speaker 1: I see UH more bottlenecks coming as China gets into 474 00:26:09,520 --> 00:26:14,560 Speaker 1: very substantial lockdown. I read a story about airline prices 475 00:26:15,080 --> 00:26:22,240 Speaker 1: really taking UH off as people start UH to travel again, 476 00:26:23,040 --> 00:26:27,800 Speaker 1: their numbers suggesting low medical care inflation prices. But every 477 00:26:27,840 --> 00:26:31,639 Speaker 1: hospital in the country is desperately short on nurses and 478 00:26:31,720 --> 00:26:36,119 Speaker 1: other medical personnel. So I don't think we can count 479 00:26:36,200 --> 00:26:40,359 Speaker 1: on the transitory inflation view. And I don't think we 480 00:26:40,400 --> 00:26:44,240 Speaker 1: can count on the restraint they're providing, because by the 481 00:26:44,320 --> 00:26:47,920 Speaker 1: standard measures, they're not meeting the test of providing any 482 00:26:47,960 --> 00:26:52,520 Speaker 1: restraint on their path. And that's why I think we 483 00:26:52,600 --> 00:26:54,560 Speaker 1: have a long way to go. One of the things 484 00:26:54,600 --> 00:26:56,480 Speaker 1: that certainly people at the pumper feeling right now as 485 00:26:56,520 --> 00:26:58,240 Speaker 1: the price of gas. And we had the President this 486 00:26:58,280 --> 00:27:01,520 Speaker 1: week way in and it's week actually really saying wait 487 00:27:01,520 --> 00:27:03,840 Speaker 1: a second, the price of oil at that point was 488 00:27:03,880 --> 00:27:05,680 Speaker 1: down to ninety six dollars a barrel. Last time I 489 00:27:05,760 --> 00:27:07,800 Speaker 1: was there, it was only like three dollars and thirty 490 00:27:07,800 --> 00:27:10,280 Speaker 1: cents of the pump. Now it's four or forty, it 491 00:27:10,359 --> 00:27:12,800 Speaker 1: must be that the oilcomes they're patting their profits. How 492 00:27:12,840 --> 00:27:15,800 Speaker 1: about that economic analysis, you know, I wish the President 493 00:27:15,840 --> 00:27:23,680 Speaker 1: got more help from his economic advisors. Those spreads between 494 00:27:23,760 --> 00:27:29,119 Speaker 1: gasoline prices and refiners and refined prices very substantially on 495 00:27:29,240 --> 00:27:32,840 Speaker 1: a range of factors. There's lags between the price of 496 00:27:32,880 --> 00:27:36,800 Speaker 1: oil and the price of gasoline, when natural gas is 497 00:27:36,880 --> 00:27:40,440 Speaker 1: in short supply, when diesel is in desperately short supply, 498 00:27:41,000 --> 00:27:45,159 Speaker 1: it affects the mix of products that refiners provide in 499 00:27:45,240 --> 00:27:50,360 Speaker 1: ways to change that spread. Maybe there is a basis 500 00:27:50,440 --> 00:27:54,240 Speaker 1: for thinking that profits are being padded, but there's nothing 501 00:27:54,880 --> 00:27:59,679 Speaker 1: that would support that in the president's tweet, and I 502 00:27:59,720 --> 00:28:03,560 Speaker 1: haven't seen any analysis coming out of the administration or 503 00:28:03,600 --> 00:28:08,880 Speaker 1: any place else that provided serious support for that. Look 504 00:28:08,960 --> 00:28:12,160 Speaker 1: at a time when we have a war to fight, 505 00:28:12,840 --> 00:28:17,440 Speaker 1: at a time when energy security is a central issue 506 00:28:17,560 --> 00:28:20,720 Speaker 1: for us, at a time when over time we're gonna 507 00:28:20,760 --> 00:28:26,120 Speaker 1: have to cooperate with our energy companies on the necessary 508 00:28:26,240 --> 00:28:30,639 Speaker 1: transition away from fossil fuels, I think we should be 509 00:28:30,800 --> 00:28:37,120 Speaker 1: very careful about accusing them of bad behavior unless we've 510 00:28:37,160 --> 00:28:40,400 Speaker 1: got clear evidence. Now the administration may have clear evidence 511 00:28:40,480 --> 00:28:43,040 Speaker 1: and if so, I'll be the first to admit that 512 00:28:43,200 --> 00:28:47,040 Speaker 1: and to want to look and evaluate, uh, the evidence. 513 00:28:47,440 --> 00:28:51,840 Speaker 1: But this kind of comparison that was contained in the 514 00:28:51,880 --> 00:28:55,560 Speaker 1: president's tweet, I'm afraid does not represent that kind of 515 00:28:55,640 --> 00:28:58,680 Speaker 1: clear evidence. That's so terribly helpful, Thank you very much. 516 00:28:58,680 --> 00:29:01,320 Speaker 1: That's Larry Summers are special tributter here at Walster Week 517 00:29:01,320 --> 00:29:05,360 Speaker 1: he of course, of Harvard University. Finally, one more thought, 518 00:29:06,040 --> 00:29:10,200 Speaker 1: cutting through the fog of war. The Prussian military strategist 519 00:29:10,200 --> 00:29:13,680 Speaker 1: Clausewitz wrote of war being the realm of uncertainty? Who 520 00:29:13,680 --> 00:29:16,760 Speaker 1: are three quarters of the bases for actions were wrapped 521 00:29:16,760 --> 00:29:20,000 Speaker 1: in a fog of uncertainty? And the war in Ukraine 522 00:29:20,040 --> 00:29:22,920 Speaker 1: is certainly no exception to that, with Russia claiming the 523 00:29:22,960 --> 00:29:26,240 Speaker 1: United States has secret chemical weapons in Ukraine, something NATO 524 00:29:26,320 --> 00:29:31,320 Speaker 1: Secretary General Yen Stoltenberg terms absurd. They are making absurd 525 00:29:31,440 --> 00:29:38,960 Speaker 1: claims about biological labs and chemical weapons in Ukraine. This 526 00:29:39,080 --> 00:29:42,040 Speaker 1: is just an older line and we get wildly differing 527 00:29:42,080 --> 00:29:45,240 Speaker 1: accounts of the losses being suffered. There still are some 528 00:29:45,320 --> 00:29:48,400 Speaker 1: really really severe images of people being killed, of shelling, 529 00:29:48,400 --> 00:29:51,360 Speaker 1: of residential areas getting bombed, And how much do you 530 00:29:51,400 --> 00:29:54,000 Speaker 1: see that fear in the Eastern European nations that feel 531 00:29:54,040 --> 00:29:58,880 Speaker 1: incredibly voltimorts. They continued destroying us, killing the children's civilians 532 00:29:59,600 --> 00:30:03,320 Speaker 1: and the It speaks for one fact only that even 533 00:30:03,560 --> 00:30:08,880 Speaker 1: if we continued talking with Russia, that does not have 534 00:30:09,360 --> 00:30:13,520 Speaker 1: an impact on the behavior of Russian army on the ground. 535 00:30:13,920 --> 00:30:18,440 Speaker 1: The accusation about the showing of the infamous maternity hospital 536 00:30:18,480 --> 00:30:21,560 Speaker 1: in Mariupol and the showing of the Mariupol theater, and 537 00:30:21,640 --> 00:30:24,840 Speaker 1: the fact that Russia is not allowing refugees to leave Ukraine, 538 00:30:25,120 --> 00:30:28,360 Speaker 1: all these faiths have been refuted many times. At one 539 00:30:28,360 --> 00:30:32,000 Speaker 1: point Russian Foreign Minister Lavrov even denied that Russia had 540 00:30:32,040 --> 00:30:36,080 Speaker 1: invaded Ukraine in the first place. But we're not planning 541 00:30:36,080 --> 00:30:40,240 Speaker 1: to attack the countries we did not Ukraine. And it 542 00:30:40,360 --> 00:30:43,160 Speaker 1: certainly doesn't help that Russia has made any so called 543 00:30:43,280 --> 00:30:47,720 Speaker 1: fake war report a crime, driving Western journalists from the country. 544 00:30:48,000 --> 00:30:52,160 Speaker 1: The media from outside of Russia has a difficult time 545 00:30:52,960 --> 00:30:56,640 Speaker 1: penetrating audiences and getting in. But even in the fog 546 00:30:56,640 --> 00:30:59,840 Speaker 1: of war, sometimes a ray of sunshine makes it through, 547 00:31:00,320 --> 00:31:03,000 Speaker 1: and that's what happened this week on Live Russian TV 548 00:31:03,240 --> 00:31:07,280 Speaker 1: when a news producer named Marina Aciana Kova burst onto 549 00:31:07,320 --> 00:31:09,640 Speaker 1: the set in the middle of an evening newscast on 550 00:31:09,640 --> 00:31:12,640 Speaker 1: one of the States controlled broadcasts, holding up a sign 551 00:31:13,040 --> 00:31:18,040 Speaker 1: condemning the war and saying simply, peruski ze vom route 552 00:31:18,520 --> 00:31:23,160 Speaker 1: they are lying to you. She was promptly arrested, interrogated, charged, 553 00:31:23,240 --> 00:31:26,240 Speaker 1: and find the equivalent of two eighty dollars. At least 554 00:31:26,320 --> 00:31:30,920 Speaker 1: so far so at least sometimes in some places, it 555 00:31:30,960 --> 00:31:34,960 Speaker 1: appears that the truth can conquer even the fog of war. 556 00:31:36,240 --> 00:31:38,040 Speaker 1: That does it. For this episode of Wall Street Week, 557 00:31:38,080 --> 00:31:45,040 Speaker 1: I'm David Weston. This is Bloomberg. See you next week.