WEBVTT - Bloomberg Wall Street Week: June 24th, 2022 0:00:00.520 --> 0:00:03.760 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.880 --> 0:00:07.120 to the markets this week. U S CPI nevers, reinforcing 0:00:07.160 --> 0:00:10.639 concerns about inflation. The financial stories that chiep are worth 0:00:10.720 --> 0:00:13.480 a really different reaction to Mark. It's more indications of 0:00:13.640 --> 0:00:16.239 just how hot the U. S. Economy really is. Through 0:00:16.239 --> 0:00:19.520 the eyes of the most influential voices Larry Summers, the 0:00:19.560 --> 0:00:22.880 former Trickery Secretary, Katherine Keating, CEO of the n Y Moms, 0:00:22.960 --> 0:00:26.239 Sam's l Sharmon and founder of Equatic Group Investment in 0:00:26.320 --> 0:00:30.280 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.600 --> 0:00:33.720 Hoping for better days, but not before we get through 0:00:33.760 --> 0:00:36.880 the fear of more gun violence, of keeping our democracy safe, 0:00:37.159 --> 0:00:40.280 and of a recession. This is Bloomberg Wall Street Week. 0:00:40.400 --> 0:00:44.400 I'm David Weston. This week's special contributor Larry Summers on 0:00:44.520 --> 0:00:47.400 just how bad that recession could get and whether there 0:00:47.440 --> 0:00:50.600 could be something worse coming. I still do think we 0:00:50.720 --> 0:00:54.400 have a meaningful amount of inflation that we have to 0:00:54.600 --> 0:00:57.240 get out of the system. And Rick Reader of Black 0:00:57.320 --> 0:01:00.280 Rock on how we could use the expected down turn 0:01:00.360 --> 0:01:03.680 to make sure we come back stronger. It's a very 0:01:03.800 --> 0:01:06.880 challenging period to think through when you're trying to evaluate 0:01:07.319 --> 0:01:22.880 risk versus reward. This week, there was a lot of 0:01:22.920 --> 0:01:26.520 talk about what could go wrong in Ukraine, as European 0:01:26.640 --> 0:01:29.839 leaders like Italy's Mario Draggy traveled to Kiev to say 0:01:29.959 --> 0:01:33.720 Ukraine should join the European Union. A Cristo propos to 0:01:33.800 --> 0:01:36.800 this purpose. I want to say today that the most 0:01:36.840 --> 0:01:40.280 important message of our visit is that Italy wants Ukraine 0:01:40.520 --> 0:01:43.600 in the European Union. While in the United States, concerns 0:01:43.640 --> 0:01:47.560 over more gun violence led Republicans and Democrats finally to 0:01:47.680 --> 0:01:52.280 come together on gun legislation, driven as Republicans Senator Cornin explained, 0:01:52.360 --> 0:01:57.280 by constituents demanding action since shooting my officers received because 0:01:57.320 --> 0:02:01.520 I'm sure many other members of Congers have have received 0:02:01.520 --> 0:02:05.240 tens of thousands of calls and letters and emails with 0:02:05.440 --> 0:02:09.880 a singular message. Do some Even as the Supreme Court 0:02:09.960 --> 0:02:13.600 came down with a landmark decision striking down as unconstitutional 0:02:13.919 --> 0:02:17.600 New York's license requirement for carrying concealed weapons and having 0:02:17.639 --> 0:02:20.839 a gun out in the open, these like it's incendiary. 0:02:21.000 --> 0:02:23.239 It will only add to fear, it will only add 0:02:23.240 --> 0:02:26.320 to conflict and the potential for violence and when Congress 0:02:26.360 --> 0:02:29.400 wasn't doing something to address people's fears about guns, it 0:02:29.480 --> 0:02:32.040 was investigating a day when lawmakers fear for their own 0:02:32.080 --> 0:02:35.959 safety as rioters came within feet of Vice President Pence, 0:02:36.280 --> 0:02:40.440 approximately forty ft. That's all there was between the Vice 0:02:40.440 --> 0:02:43.600 president and the mob. But the fear most investors were 0:02:43.600 --> 0:02:46.119 talking about it was the fear of recession. As FED 0:02:46.240 --> 0:02:49.520 Chair Powell traveled to Capitol Hill to say it was possible, 0:02:49.880 --> 0:02:53.960 but not inevitable. It's not our intended outcome at all, 0:02:54.040 --> 0:02:57.200 but it's certainly a possibility, And many investors said it 0:02:57.320 --> 0:03:00.720 was more than just possible, the essentially as inevitable. At 0:03:00.720 --> 0:03:03.440 some point, it's almost unavoidable. I got to think that 0:03:03.440 --> 0:03:04.920 the odds side, I think there's going to be a recession. 0:03:04.919 --> 0:03:08.040 Our economist, as you've noted this morning, had increased their 0:03:08.080 --> 0:03:10.480 odds of the recession this year. This inflation is quite bad. 0:03:10.600 --> 0:03:14.840 It's it's intransigent, it's not transitory, and the consequence will 0:03:14.840 --> 0:03:19.560 be the recession. And if all that weren't enough, on Friday, 0:03:19.600 --> 0:03:22.880 the Supreme Court came down with its monumental decision, overturning 0:03:22.919 --> 0:03:26.480 fifty years of president deciding the Constitution does not protect 0:03:26.520 --> 0:03:29.840 any right to abortion, something President Biden called a tragic 0:03:30.080 --> 0:03:33.120 mistake to day to Sutreme courts in the United States 0:03:33.160 --> 0:03:37.040 expressly took away the conscious right from the American people 0:03:37.920 --> 0:03:42.760 that it has already recognized. They didn't limit it, they 0:03:42.800 --> 0:03:46.400 simply took it away. That's never been done to write 0:03:46.400 --> 0:03:49.680 so important to so many Americans, but they did it. 0:03:50.120 --> 0:03:53.000 It's a sad day for the court and for the country. 0:03:53.640 --> 0:03:57.160 While Republican House Minority of Leader Kevin McCarthy found the 0:03:57.280 --> 0:04:03.200 ultimate affirmation of American values, the voiceless finally a voice. 0:04:03.840 --> 0:04:06.400 This great nation can now live up to its core 0:04:06.440 --> 0:04:11.520 principle that all are created equal, not for an EU 0:04:12.160 --> 0:04:15.320 created equal, and a good part of American business was 0:04:15.400 --> 0:04:18.880 quick to respond, with companies like Amazon, Apple, Disney, and 0:04:18.960 --> 0:04:21.560 JP Morgan pledging to do all that they could to 0:04:21.600 --> 0:04:25.840 support their employees getting abortions in states that still permit them. 0:04:25.880 --> 0:04:28.839 Here to sort through it all with us are Jim McDonald, 0:04:29.080 --> 0:04:32.960 Northern Trust chief investment strategist and Christina Hooper, chief Global 0:04:33.000 --> 0:04:35.920 strategist at Investo. So welcome, Jim and Christina. Great to 0:04:35.920 --> 0:04:37.599 have your Christina, let me start with you on what 0:04:37.680 --> 0:04:40.279 happened with bond yields because they had been really ramping up. 0:04:40.279 --> 0:04:42.240 There's been a lot of all today they settled down 0:04:42.240 --> 0:04:44.240 a bit today this week. Is that because of a 0:04:44.240 --> 0:04:47.760 fear of recession. I do think that it is what 0:04:47.800 --> 0:04:51.039 we're seeing is concerns about at least a slowdown. I 0:04:51.080 --> 0:04:53.960 don't know if it's exactly a recession. I would argue 0:04:54.000 --> 0:04:56.360 that we'll still be able to avoid a recession in 0:04:56.400 --> 0:04:59.280 the United States. And one could argue that that's what 0:04:59.320 --> 0:05:01.839 the bond market telling us. So, Jimmy, isn't that exactly 0:05:01.839 --> 0:05:05.039 what the Fed wants? Is a slowdown maybe short of recession. Absolutely, 0:05:05.080 --> 0:05:08.359 And so I think the softives and commodity prices in 0:05:08.400 --> 0:05:13.080 recent days has also contributed to the moderation and bond yields. 0:05:13.120 --> 0:05:16.000 And the Fed is tightened financial conditions dramatically. And all 0:05:16.040 --> 0:05:17.880 you have to do is look at what's happened to 0:05:18.640 --> 0:05:21.720 mortgage rates and the impact and the housing market that 0:05:21.720 --> 0:05:24.520 that is starting to have to understand that the Fed's 0:05:24.600 --> 0:05:27.200 impact is already starting to make a difference. Well, I 0:05:27.240 --> 0:05:30.640 wonder if we got a University of Michigan consumer sentiment 0:05:30.720 --> 0:05:33.720 numbers out on Friday and they came off a little 0:05:33.760 --> 0:05:36.040 bit actually on the longer term five to ten year 0:05:36.040 --> 0:05:38.920 expectation and inflation. Are we starting to see some effect 0:05:38.960 --> 0:05:41.360 of the FED, do you think? I do think we are. 0:05:41.640 --> 0:05:44.560 I mean, but we're also just starting to see a 0:05:44.600 --> 0:05:49.279 reflection of some commodity prices. Energy prices easing a bit 0:05:49.360 --> 0:05:51.400 in the last several weeks, so I think that is 0:05:51.440 --> 0:05:53.960 reflected in it. I mean. J Powell even said in 0:05:53.960 --> 0:05:57.200 in that FOMC press conference that there is a pretty 0:05:57.200 --> 0:06:02.719 strong correlation between energy prices headline CPI essentially, and inflation 0:06:02.760 --> 0:06:07.040 expectations for consumers. Jim, how much they concerned about inflation 0:06:07.080 --> 0:06:09.800 actually comes right off of energy, just straight off energy. 0:06:10.720 --> 0:06:12.680 I think it's extremely high. I think if you look 0:06:12.720 --> 0:06:16.000 at the correlation between gas prices and the Michigan survey, 0:06:16.400 --> 0:06:19.800 it's really high. It's the most visible demonstration of what 0:06:20.000 --> 0:06:22.599 energy costs are to the consumer. And so I think 0:06:22.760 --> 0:06:26.320 it's going to be a critical point to inflation expectations 0:06:26.400 --> 0:06:28.880 and bond yields over the next year that we see 0:06:28.880 --> 0:06:33.880 at least a flattening, if not some moderation in gasoline prices. Okay, 0:06:33.960 --> 0:06:36.640 Christina Hooper of Invesco and Jim McDonald of Northern Trust 0:06:36.680 --> 0:06:39.200 We'll stay with us as we take take a look 0:06:39.240 --> 0:06:41.039 at the market, at what they did to us last 0:06:41.040 --> 0:06:42.960 week as opposed to what they can do for us 0:06:43.240 --> 0:06:46.000 next week. That's next on Wall Street Week on Bloomberg. 0:06:58.000 --> 0:07:02.000 This is Bloomberg Wall Street Week with David Weston from 0:07:02.120 --> 0:07:11.040 Bloomberg Radio. Everyone's looking at housing and saying it's too 0:07:11.120 --> 0:07:13.560 high priced, and labor costs too much in the material, 0:07:13.640 --> 0:07:15.320 that too much on the land, is too much, and 0:07:15.320 --> 0:07:17.320 they all sit there and say it isn't that terrible? 0:07:18.240 --> 0:07:20.760 What are they gonna do about it? That was Pierre 0:07:20.760 --> 0:07:23.880 Renfred of Rentfred Boston appearing on Wall Street. We way 0:07:23.920 --> 0:07:26.320 back in nineteen seventy six, and it looks like we're 0:07:26.360 --> 0:07:29.239 back to some version of that world again, with higher 0:07:29.240 --> 0:07:32.080 prices and higher input costs for housing, but a slowing 0:07:32.120 --> 0:07:34.880 economy and FED chair j Poale told us this week 0:07:35.120 --> 0:07:37.440 a slowing housing market as well. Still with us our 0:07:37.520 --> 0:07:41.240 Christina Hooper of Invesco and Jim McDonald of Northern Trust. Jim, 0:07:41.240 --> 0:07:42.840 this is exactly where you left us off on the 0:07:42.880 --> 0:07:45.800 housing market. We heard j Pale this week say, yes, 0:07:45.840 --> 0:07:48.480 it is slowing. We could even have housing prices go 0:07:48.600 --> 0:07:51.000 down at least in some markets. How big a drag, 0:07:51.040 --> 0:07:53.760 potentially even a danger of the economy is the housing market. 0:07:54.920 --> 0:07:57.360 I think the danger is more from the volume standpoint 0:07:57.360 --> 0:07:59.800 than it is from the price standpoint. If you think 0:07:59.800 --> 0:08:02.040 of out housing today, it's about four and a half 0:08:02.080 --> 0:08:04.760 percent of the economy. It got to six and a 0:08:04.840 --> 0:08:07.640 half during the bubble, so we're nowhere closed to that 0:08:07.720 --> 0:08:10.960 level of an impact. And what I think will provide 0:08:11.040 --> 0:08:14.600 some cushion to the downside on prices is an inventory 0:08:14.800 --> 0:08:18.480 is incredibly low, Vacancies are very low, So while the 0:08:18.560 --> 0:08:22.200 jump and mortgage rates really hurts affordability, there is just 0:08:22.280 --> 0:08:25.120 a mismatch between demand and supply that I think we'll 0:08:25.160 --> 0:08:29.400 put some downside underneath prices. And I think it's going 0:08:29.440 --> 0:08:31.840 to take a long time to work through that and 0:08:31.880 --> 0:08:35.640 get to the point where supply meets demand, especially given 0:08:35.960 --> 0:08:39.960 all the supply chain issues were currently experiencing. It's just 0:08:40.240 --> 0:08:42.360 not an environment in which we're going to see a 0:08:42.360 --> 0:08:46.640 lot of homes built, especially first time home buyers homes. 0:08:46.960 --> 0:08:49.600 So Christina, give us a little investment advice here, right, 0:08:49.640 --> 0:08:52.400 that's what we really want. We're saying we're clearly going 0:08:52.440 --> 0:08:54.840 into a downturn. We don't know how bad it will be. 0:08:55.200 --> 0:08:56.599 At the same time, we know we'll come out of 0:08:56.640 --> 0:08:58.720 at some point. As an investor, what do I do 0:08:58.800 --> 0:09:01.360 in the short intermediate term to make sure I'm protected, 0:09:01.760 --> 0:09:03.719 But as important, perhaps more important, what I do to 0:09:03.760 --> 0:09:07.280 position myself to come out of that downturn stronger than ever. Well. 0:09:07.320 --> 0:09:08.960 I think it's a great question. I think it's great 0:09:09.000 --> 0:09:11.839 to look at it essentially in two phases, because what 0:09:11.880 --> 0:09:15.920 we're experiencing right now is this significant drop in the 0:09:15.960 --> 0:09:20.240 stock market and actually a significant stop drop for some 0:09:20.400 --> 0:09:25.559 fixed income um And what has driven that is expectations 0:09:25.679 --> 0:09:28.679 about uh an economic slowdown, whether or not it's an 0:09:28.679 --> 0:09:32.120 actual recession a slowdown. We know that markets tend to 0:09:32.280 --> 0:09:35.920 signal economic events before they happen, So I think that 0:09:36.000 --> 0:09:39.240 before long, certainly before the end of the year, we'll 0:09:39.240 --> 0:09:42.960 start to see a start stock market recovery in anticipation 0:09:43.120 --> 0:09:46.120 of an economic recovery next year, and so I think 0:09:46.120 --> 0:09:48.840 we have to keep that in mind. Too often investors 0:09:48.840 --> 0:09:51.440 have gotten spooped. Look at the global financial crisis. How 0:09:51.440 --> 0:09:54.440 many people got out towards the bottom locked in losses. 0:09:54.640 --> 0:09:57.840 I think it's critical to be forward looking and think 0:09:57.880 --> 0:10:01.319 of this time frame as actually a time to start 0:10:01.679 --> 0:10:05.560 um looking for opportunities to start dollar cost averaging. I 0:10:05.600 --> 0:10:08.040 think you want over the shorter term to have a 0:10:08.080 --> 0:10:11.280 pretty neutral stance when it comes to risk, but start 0:10:11.320 --> 0:10:14.640 to look and start to allocate for that recovery because 0:10:14.720 --> 0:10:17.840 the recovery I think is going to be longer lived 0:10:18.080 --> 0:10:21.200 than the downturn Jim. Right now, a lot of people 0:10:21.200 --> 0:10:23.200 are talking about high yield because of their turns. You're 0:10:23.200 --> 0:10:25.560 getting on high yield right now over seven percent, maybe 0:10:25.600 --> 0:10:27.200 eight per cents on the event. Is that a place 0:10:27.280 --> 0:10:29.840 we want to be right now? I think it is. 0:10:29.920 --> 0:10:32.200 And if you want to be defensive in this environment, 0:10:32.640 --> 0:10:36.119 HW yield bonds provide about one third of the downside 0:10:36.200 --> 0:10:39.480 risk that equities do. And an important distinction is do 0:10:39.520 --> 0:10:42.120 you think of high yield is a fixed income alternative 0:10:42.480 --> 0:10:44.600 or a risk asseid alternative? And we think of it 0:10:44.640 --> 0:10:48.439 as a risk asset alternative. So if we go into recession, 0:10:48.760 --> 0:10:51.640 hi yield bonds on average have declined just four and 0:10:51.640 --> 0:10:55.880 a half percent during the past six recessions, whereas US 0:10:55.920 --> 0:10:58.839 equities are down over twelve and you're getting a current 0:10:58.920 --> 0:11:01.000 yield to worse of roughly eight and a half percent. 0:11:01.440 --> 0:11:03.280 So would people say how can you buy how you 0:11:03.360 --> 0:11:06.400 old bonds for going into recession? The answer is if 0:11:06.440 --> 0:11:09.319 you're trading out of equities into them, it's a less 0:11:09.480 --> 0:11:12.319 offensive position. But you don't want to trade out of 0:11:12.360 --> 0:11:15.640 investment grade bonds into how yield if you expect we're 0:11:15.640 --> 0:11:18.680 going to go into recession because investment grade bonds have 0:11:18.800 --> 0:11:21.959 historically done very well in that environment. What about that 0:11:22.040 --> 0:11:26.440 defensives in equities. Yeah. So the one nuance I would 0:11:26.440 --> 0:11:28.840 add to that is that we still like the natural 0:11:28.880 --> 0:11:33.400 resources sector and commodities oriented energy stocks for example, there 0:11:33.440 --> 0:11:35.720 are a nice hedge against our number one risk case, 0:11:35.840 --> 0:11:38.880 which is sticky inflation. We don't know when these supply 0:11:38.960 --> 0:11:41.520 chain problems are going to get fixed. You keep hearing 0:11:41.559 --> 0:11:44.640 about more issues in the energy patch. For example, what's 0:11:44.679 --> 0:11:47.600 going on in the Ukraine and the big steel production 0:11:47.720 --> 0:11:51.120 facility in Mariuple that is probably shut down and so 0:11:51.200 --> 0:11:53.800 they're not able to provide the steel tubing that goes 0:11:53.880 --> 0:11:57.400 into well exploration. All of those things tell us we 0:11:57.520 --> 0:12:01.040 want to have some hedge in energy, and we do 0:12:01.400 --> 0:12:04.440 like technology. That's a recent upgrade for us for the 0:12:04.480 --> 0:12:08.120 secular growth reasons. We expect technology to grow its share 0:12:08.120 --> 0:12:11.720 of GDP over the next decade by roughly double. Well, 0:12:11.760 --> 0:12:13.720 that's really interesting because there's sort of the bloom has 0:12:13.720 --> 0:12:15.720 been off the roads of a lot of technology recently 0:12:15.760 --> 0:12:18.040 after a really great run, sort to come off again. 0:12:18.160 --> 0:12:21.000 Who are you in technology, Christina? I'm very positive on 0:12:21.040 --> 0:12:23.440 technology now. I think we need to be selective. We 0:12:23.480 --> 0:12:25.600 want to stay away from what I would call spec tech, 0:12:25.760 --> 0:12:28.760 which was actually the first leg of technology to fall. 0:12:29.160 --> 0:12:31.480 But there are a lot of great names in that space, 0:12:31.720 --> 0:12:35.320 some of which look like very good buys right now. Um, 0:12:35.320 --> 0:12:38.560 given where valuations are and given strong cash flow, just 0:12:38.640 --> 0:12:42.640 solid fundamentals in general, because whatever the longer term trends again, 0:12:42.679 --> 0:12:45.600 coming out of whatever downturn there is here, what do 0:12:45.640 --> 0:12:48.240 you think is promising? Are we talking about things like 0:12:49.120 --> 0:12:53.280 green energy? What are we talking about? So? I certainly 0:12:53.320 --> 0:12:55.280 think there are a lot of different themes that are 0:12:55.440 --> 0:12:59.559 very exciting. Some are smaller than others. Green energy is 0:12:59.600 --> 0:13:02.120 certainly one of them. Cyber security is one of them. 0:13:02.360 --> 0:13:04.160 But I think I would take a step back and 0:13:04.160 --> 0:13:06.480 say the bigger picture is that we're returning to a 0:13:06.520 --> 0:13:09.640 more normal environment. And when I say more normal, more 0:13:09.679 --> 0:13:13.720 normal relative to longer term history, Jim, more normal certainly 0:13:13.720 --> 0:13:16.160 sounds pretty good to me right now. At the same time, 0:13:16.360 --> 0:13:19.679 how much of that depends upon the FED not overreacting 0:13:19.720 --> 0:13:22.080 because some people say the FITS hads a really big 0:13:22.120 --> 0:13:25.400 say in the markets. Thus far, getting back to neutral, fine, 0:13:25.559 --> 0:13:28.440 little above neutral, fine, But we're really going well above that, 0:13:28.520 --> 0:13:30.400 to four or five percent. What is that going to do? 0:13:31.760 --> 0:13:34.280 So I would define overreacting a little differently. I would 0:13:34.280 --> 0:13:36.520 say that if they end up doing that, it's because 0:13:36.640 --> 0:13:39.959 inflation has proven to be more persistent, and so their 0:13:40.000 --> 0:13:42.920 action is actually justified, and that is not going to 0:13:43.000 --> 0:13:45.319 be a good circumstance for the market. If you think 0:13:45.320 --> 0:13:48.439 about bearer markets, there really are three categories. An event 0:13:48.520 --> 0:13:52.199 driven one, which is the least damaging. Secondly, you can 0:13:52.280 --> 0:13:54.920 have one that is more cyclical oriented, and then you 0:13:54.920 --> 0:13:57.360 could have one that's driven by a financial crisis where 0:13:57.400 --> 0:14:01.760 credit creation is impaled. If FED hikes rates too much, 0:14:01.840 --> 0:14:04.320 we're definitely going to go from what's an event driven 0:14:04.400 --> 0:14:07.480 to a cyclical type of recovery. But if you look 0:14:07.520 --> 0:14:10.840 at the FED stress test results over the last twenty 0:14:10.840 --> 0:14:13.640 four hours, and the banking systems in really good shape, 0:14:13.679 --> 0:14:16.320 so we are very unlikely to get into a structural 0:14:16.559 --> 0:14:19.400 bear market, which could be really damaged. Okay, that's pretty 0:14:19.440 --> 0:14:21.400 encouraging me. I'll take that to the bank, no question 0:14:21.400 --> 0:14:24.960 about it. Really appreciate Jim McDonald, Northan Trust and Christina 0:14:25.000 --> 0:14:27.800 Hooper of Vesco being with us here today to really 0:14:27.800 --> 0:14:29.480 give us an insight into what the markets have done, 0:14:29.480 --> 0:14:31.920 but also what they're likely to do in the future 0:14:33.720 --> 0:14:36.760 coming up. We know things are rough and likely to 0:14:36.760 --> 0:14:40.240 get rougher. But what can investors and policymakers do to 0:14:40.280 --> 0:14:43.440 make sure we come back stronger than ever when things 0:14:43.480 --> 0:14:46.440 do turn around? We asked Rick Reader of black Rock. 0:14:47.160 --> 0:14:58.840 That's next on Wall Street Week on Bloomberg. This is 0:14:58.880 --> 0:15:07.760 Bloomberg Wolves Street Week with David Weston from Bloomberg Radio. Okay, 0:15:11.680 --> 0:15:14.640 we can disagree about just how bad it will get. 0:15:14.920 --> 0:15:18.240 There's a chance that we are already in a recession. 0:15:18.440 --> 0:15:21.720 Is it severe? Is it drawn out? The shallow recession? 0:15:21.840 --> 0:15:26.360 Verst stay deep one recession? But no one can deny 0:15:26.480 --> 0:15:29.640 at this point that the economy will slow. Well, I 0:15:29.800 --> 0:15:34.200 expect the economy to slow. Oh, it's been growing at 0:15:34.200 --> 0:15:38.239 a very rapid rate. It's natural now that we expected 0:15:38.320 --> 0:15:43.120 transition to steady and stable growth and the markets could 0:15:43.200 --> 0:15:45.800 continue to fall at least for a while. We've done 0:15:45.760 --> 0:15:48.000 a lot of price damage. Right, we want to be 0:15:48.040 --> 0:15:51.280 investing into the price damage, but we think it's premature 0:15:51.760 --> 0:15:54.920 if the recession is still increasing. But however bad it 0:15:54.920 --> 0:15:58.160 gets and however long it lasts, things will come back, 0:15:58.560 --> 0:16:01.800 raising the question what have we learned from the experience, 0:16:02.000 --> 0:16:05.320 Both in the policies we adapt by most important advice 0:16:05.360 --> 0:16:09.400 to the administrations, don't do anything to shock the economy, 0:16:09.640 --> 0:16:12.320 and in the way we invest. I think we're going 0:16:12.360 --> 0:16:14.880 to see a lot more investors remain on the sidelines, 0:16:14.920 --> 0:16:18.240 remain cautiously positioned, and that actually may lead to some 0:16:18.520 --> 0:16:26.160 interesting opportunities for longer term investors. And to take us 0:16:26.160 --> 0:16:28.880 through where we are and more important, where we are headed, 0:16:29.040 --> 0:16:31.920 We're welcolled now Rick Reader. He is the c i 0:16:32.040 --> 0:16:34.320 O for Global Fixed Income and also ahead of the 0:16:34.320 --> 0:16:36.960 Global Allocation team at black Rock. Rick, thanks so much 0:16:37.000 --> 0:16:39.160 for being here, haven't so before we start about how 0:16:39.160 --> 0:16:41.200 we come out of this stronger, let's talk about where 0:16:41.200 --> 0:16:43.880 we are and now where are we? Listen, I'm for 0:16:43.960 --> 0:16:45.920 markets and for the economy. We're one of the most 0:16:45.960 --> 0:16:48.240 uncertain periods we've been in a long time, and quite 0:16:48.240 --> 0:16:50.760 frankly in a generation. We have never had an experience 0:16:50.760 --> 0:16:54.280 where economy is tangibly slowing across almost every piece of data. 0:16:54.800 --> 0:16:57.720 Economy is slowing. You're starting to see it work through 0:16:57.760 --> 0:16:59.920 in the claims data and unemployment data, and we think, 0:16:59.920 --> 0:17:01.760 go with the next couple of employment parts, you're gonna 0:17:01.760 --> 0:17:05.360 see an economy or hiring dynamic that's different. And you've 0:17:05.359 --> 0:17:08.080 got a central bank that's got as its singular focus 0:17:08.200 --> 0:17:12.400 today despite steel mandate, is full employment and price stability. 0:17:12.520 --> 0:17:15.399 That has got to bring down inflation. So it is 0:17:15.440 --> 0:17:17.560 a construct that the markets have a hard time dealing 0:17:17.600 --> 0:17:20.320 with how much will I let the economy go? How 0:17:20.400 --> 0:17:22.800 much with inflation which we think will come down you're 0:17:22.840 --> 0:17:25.119 seeing you're certainly seeing indications that you're seeing in the 0:17:25.119 --> 0:17:28.920 markets pricing of it. So it's a very challenging period 0:17:28.960 --> 0:17:32.640 to think through when you're trying to evaluate risk versus reward. 0:17:33.000 --> 0:17:36.040 What are interest rates doing a portfolio? What are stocks 0:17:36.480 --> 0:17:38.960 hi yiel bonds doing a portfolio? And I think the 0:17:38.960 --> 0:17:42.440 markets having reconciled the solution of that yet and how 0:17:42.520 --> 0:17:44.119 much of that is the markets and they are not 0:17:44.160 --> 0:17:46.280 economy And how much of his policy I know the 0:17:46.280 --> 0:17:49.360 black Rock has a terrific chart basically indicating it surprised 0:17:49.400 --> 0:17:53.160 me in recent years the volatility and monetary policy has 0:17:53.280 --> 0:17:56.520 driven the investments more than the investments at so day. 0:17:56.600 --> 0:17:58.360 But it's a it's a pretty incredible thing and part 0:17:58.359 --> 0:18:00.080 of what we're trying to illustrate on the support it 0:18:00.080 --> 0:18:03.240 is you've you've been investing twenty years ago. Ten years ago, 0:18:03.840 --> 0:18:07.359 it was all about the central banks reaction function to 0:18:07.480 --> 0:18:10.520 the economy and how the central bank would react when 0:18:10.640 --> 0:18:15.159 inflation or employment moved too far away from normalcy. The 0:18:15.240 --> 0:18:18.440 last ten years and certainly anybody we've hired or work 0:18:18.480 --> 0:18:20.199 for us, it's been there ten years has been an 0:18:20.280 --> 0:18:24.320 environment where the central banks are functually all you have 0:18:24.359 --> 0:18:27.760 to focus on because they are driving the dynamic around 0:18:27.800 --> 0:18:30.520 how prices are moving. Why is that the case? I mean, listen, 0:18:30.560 --> 0:18:32.760 you need aggressive monitoring policy when you go through a 0:18:32.760 --> 0:18:35.480 financial crisis or you go through a pandemic, you need 0:18:35.520 --> 0:18:40.399 aggressive policy. But there's been this process of tweaking to 0:18:40.480 --> 0:18:43.359 get back on the line that I would argue is 0:18:43.400 --> 0:18:47.080 creating more volatility to markets. You know, we, I would argue, 0:18:47.119 --> 0:18:49.600 including this central ban, including the FED, we need to 0:18:49.600 --> 0:18:52.600 get to neutral quickly, get to neutral. The system has 0:18:52.600 --> 0:18:55.959 an ability to recalibrate itself, be flexible. I would say 0:18:56.000 --> 0:18:58.240 high prices are the cure for high prices. The U. 0:18:58.280 --> 0:19:01.240 S economy is incredibly adapted of and you're seeing it. 0:19:01.240 --> 0:19:04.080 It was a good article today about you know, you 0:19:04.160 --> 0:19:07.320 do look at gas prices. Higher consumption comes down, the 0:19:07.359 --> 0:19:10.680 system recalibrates. But we've become used to the Central Bank 0:19:10.800 --> 0:19:12.359 is kind of trying to put us back on a 0:19:12.440 --> 0:19:16.000 line of two percent inflation and full employment. And I 0:19:16.000 --> 0:19:19.320 would argue it's actually creating more volatility at times than 0:19:19.520 --> 0:19:23.400 is warranted by how much the economy actually actually gyrates. 0:19:23.560 --> 0:19:25.760 We say, get back to neutral. We heard from a 0:19:25.880 --> 0:19:28.480 chair J. Pale, and he's testimony for Congress this week 0:19:28.680 --> 0:19:31.000 saying he still thinks neutrals are around two point five. 0:19:31.800 --> 0:19:33.840 But even he is saying, now we may need to 0:19:33.880 --> 0:19:35.760 go above that. You have other people saying we need 0:19:35.800 --> 0:19:37.880 to go way above it in order to really put 0:19:37.880 --> 0:19:40.160 a stake through the heart of inflation. Is that wrong? 0:19:41.119 --> 0:19:42.440 I said, I don't think you have to go away 0:19:42.480 --> 0:19:44.480 above it. I think the chair is right, and I 0:19:44.520 --> 0:19:46.760 think what they're doing now is exactly the right policy. 0:19:46.800 --> 0:19:49.159 I know, you know, I and others have been critical 0:19:49.160 --> 0:19:51.000 about we waited too long to move, and I think 0:19:51.040 --> 0:19:53.600 the Fat has been clear on that being the case. 0:19:54.240 --> 0:19:56.239 But there's a question of what is the trade off 0:19:56.520 --> 0:19:58.919 from if you get to neutral and in a bit beyond, 0:19:58.960 --> 0:20:01.520 we shouldn't be at e the policy like we are today. 0:20:01.680 --> 0:20:04.879 Get to neutral, do another seventy, get closer to neutral, 0:20:04.920 --> 0:20:06.560 maybe do a fifty on the back side of that, 0:20:07.359 --> 0:20:09.400 You know, you think about what you could do fiscal policy, 0:20:09.800 --> 0:20:12.840 solar battery, You've seen some developments recently, what you could 0:20:12.840 --> 0:20:16.119 do and precision act to help the food market. Multi 0:20:16.160 --> 0:20:20.480 family housing incentives to build more multi family housing affordabilities 0:20:20.520 --> 0:20:24.600 really hard, is really expensive today. Multi family is going 0:20:24.680 --> 0:20:26.560 to be people I can stay in rental. We need 0:20:26.600 --> 0:20:30.240 more development of multi family. These are fiscal initiatives that 0:20:30.320 --> 0:20:32.119 need to come in and can be and by the way, 0:20:32.160 --> 0:20:36.280 have a real velocity to them, create multiplicative economic impacts. 0:20:37.040 --> 0:20:39.720 Just raised just keep raising rates and taking people out 0:20:39.720 --> 0:20:42.880 of work. It's a blunt tool and maybe it doesn't work, 0:20:42.880 --> 0:20:45.560 and maybe it doesn't bring the inflation down. I just 0:20:45.560 --> 0:20:48.760 don't agree. Okay, Rick, thank you so much that care 0:20:48.960 --> 0:20:53.280 Black are always great to talk to. Rick. Coming up, 0:20:53.320 --> 0:20:55.680 we wrap up the week with our special contributor Larry 0:20:55.760 --> 0:20:59.480 Summers of Harvard. That's next on Wall Street Week on Bloomberg. 0:21:01.359 --> 0:21:05.320 This is Bloomberg Wall Street Week with David Weston from 0:21:05.440 --> 0:21:14.240 Bloomberg Radio. This is Wall Street Week. I'm David Weston, 0:21:14.320 --> 0:21:16.640 and we welcome back once again our very special contribute 0:21:16.720 --> 0:21:19.159 Larry Summers of Harvard. So, Larry, a good part of 0:21:19.160 --> 0:21:21.359 the week. This week was given over to talk about 0:21:21.400 --> 0:21:23.600 recession on the one hand and inflation on the other. 0:21:23.640 --> 0:21:26.280 We heard from Fed Chair J Powell for two straight 0:21:26.359 --> 0:21:28.520 days up on Capitol Hill. Let me ask you the 0:21:28.520 --> 0:21:30.800 most basic question, as you look forward to the economy, 0:21:30.920 --> 0:21:32.680 what do you think the biggest risk is right now 0:21:32.720 --> 0:21:35.959 we face Look, I think, David, that a recession is 0:21:36.080 --> 0:21:43.080 almost inevitable, probably a chance within the next two years, 0:21:43.160 --> 0:21:48.080 and there's certainly a real risk that it will come sooner. 0:21:48.920 --> 0:21:52.840 That's gonna be a very difficult thing though, as I say, 0:21:52.880 --> 0:21:55.120 I think it may be inevitable given where we are, 0:21:55.800 --> 0:21:58.320