WEBVTT - Bloomberg Wall Street Week - July 28th, 2023 0:00:00.240 --> 0:00:02.960 This is Bloomberg Wall Street Week. And we may not 0:00:03.040 --> 0:00:05.280 have an overall recession, We're having a rolling recession. To 0:00:05.360 --> 0:00:07.200 Cone roll looks pretty strongly. It is when it comes 0:00:07.240 --> 0:00:10.160 to jobs. The financial stories that shape our work. Three 0:00:10.240 --> 0:00:13.640 major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.440 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:19.320 generative AI through the eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, Bank of America, 0:00:22.520 --> 0:00:25.360 deebro Lair of the Paulson Institute, Len Hubbard of the 0:00:25.360 --> 0:00:28.760 Columbia Business School. Bloomberg Wall Street Week with David Weston 0:00:28.880 --> 0:00:32.640 from Bloomberg Radio. Looking up. As the US economy continues 0:00:32.680 --> 0:00:35.640 to grow, the Fed signals it's nearing an end to hikes, 0:00:35.960 --> 0:00:38.879 and big tech comes back in a big way. This 0:00:39.000 --> 0:00:42.280 is Bloomberg Wall Street Week. I'm David Weston. This week, 0:00:42.440 --> 0:00:45.520 Former White House economist Laura Tyson on why the Fed 0:00:45.680 --> 0:00:47.640 just may have an ace up its sleeve. 0:00:48.240 --> 0:00:52.839 He thinks this time we can engineer. He can engineer 0:00:52.920 --> 0:00:53.920 a soft landing. 0:00:54.480 --> 0:00:57.400 Ralph Schlastin of Evercore on how deal makers are getting 0:00:57.440 --> 0:00:59.440 ready for the next surge. 0:01:00.040 --> 0:01:06.280 We're certainly beginning to see a significantly a greater amount 0:01:06.280 --> 0:01:06.960 of activity. 0:01:07.240 --> 0:01:10.680 And Darren Williams of Southern bancour on the continuing shakeup 0:01:10.720 --> 0:01:12.600 in the ranks of regional banks. 0:01:12.800 --> 0:01:16.560 The particular merger between Pecquests and Bank A Galaia. 0:01:16.080 --> 0:01:17.640 That made sense probably for them. 0:01:17.680 --> 0:01:20.280 It seems that that's going to be a stronger institution. 0:01:33.560 --> 0:01:36.480 There were some puts in takes, but overall Global Wall 0:01:36.480 --> 0:01:39.200 Street had a pretty good week. Big Tech seems to 0:01:39.240 --> 0:01:42.640 be back on track with strong earnings reports from Alphabet 0:01:42.920 --> 0:01:45.480 setting up a move for Ruth port Up to president 0:01:45.760 --> 0:01:48.040 and chief Investment Officer, So. 0:01:47.920 --> 0:01:50.160 She's going to be CFO up until September the first, 0:01:50.280 --> 0:01:52.440 and this has got this newly created role that is 0:01:52.480 --> 0:01:53.600 going to be the CIO. 0:01:53.720 --> 0:01:55.720 I'm president and she's going to remain with the business 0:01:55.760 --> 0:01:59.480 until they find a success. And then Meta reported more users, 0:01:59.720 --> 0:02:03.840 more advertising revenue, and promises of even better yet to come. 0:02:04.520 --> 0:02:06.640 We're really excited about what we think that this is 0:02:06.680 --> 0:02:09.280 going to bring to bear for the consumer experience and 0:02:09.360 --> 0:02:12.960 of course also eventually for businesses to connect with consumers. 0:02:13.160 --> 0:02:16.280 Across the family of ops. Two ups had a somewhat 0:02:16.280 --> 0:02:20.200 different moment in the sun when the union representing UPS drivers, 0:02:20.240 --> 0:02:23.720 reached a tentative deal to avoid a strike, and Teamster's 0:02:23.800 --> 0:02:27.680 chief Sean O'Brien wasted no time in saying he's eager 0:02:27.720 --> 0:02:29.320 to move on to Amazon. 0:02:30.360 --> 0:02:33.000 Amazon's definitely going to be a target to organize. We're 0:02:33.000 --> 0:02:36.280 going to take this historic agreement and use it as 0:02:36.280 --> 0:02:39.640 a template to show the Amazon workers what they will 0:02:39.880 --> 0:02:42.959 receive when they joined the Team Stit's union and reorganize them. 0:02:43.280 --> 0:02:46.639 Things were a bit rockier for President je Over in China, 0:02:46.720 --> 0:02:50.359 who removed Foreign Minister Chin Gong after only seven months 0:02:50.400 --> 0:02:54.480 in office and brought back his predecessor Wang ye I. 0:02:54.520 --> 0:02:56.000 Think one's going nowhere. 0:02:56.520 --> 0:02:59.120 And then there was the case of British real estate 0:02:59.160 --> 0:03:03.160 magnet Joe Lewis, arraigned in a Manhattan court for allegedly 0:03:03.160 --> 0:03:06.280 giving illegal stock tips to the staff on his super yacht, 0:03:06.680 --> 0:03:10.960 his private jet pilots, and his girlfriends. But the big 0:03:10.960 --> 0:03:14.160 one this week was the Fed's much awaited July decision, 0:03:14.520 --> 0:03:17.600 which brought another twenty five basis points in rate increases, 0:03:17.680 --> 0:03:21.040 which surprised no one, but left open the possibility it 0:03:21.240 --> 0:03:24.720 may be done or nearly done with tightening. 0:03:25.240 --> 0:03:26.840 It's really a question of how do you have balance 0:03:26.880 --> 0:03:28.720 the two risks, the risk of doing too much or 0:03:28.760 --> 0:03:31.400 doing too little. And you know, I would say that, 0:03:32.520 --> 0:03:34.600 you know, we're coming to a place where where there 0:03:34.600 --> 0:03:36.920 really are risks on both sides. It's hard to say 0:03:36.960 --> 0:03:39.720 exactly whether whether they're in balance or not. But as 0:03:40.280 --> 0:03:43.680 our stances become more restrictive and inflation moderates, we do 0:03:43.760 --> 0:03:45.080 increasingly face that risk. 0:03:45.600 --> 0:03:48.960 As the odds for that soft landing seemed to increase, 0:03:49.280 --> 0:03:52.600 the US economy came in significantly stronger than expected, and 0:03:52.680 --> 0:03:55.280 inflation continued to ease so. 0:03:55.360 --> 0:03:58.080 Better than expected GENP report for the second quarter. This 0:03:58.160 --> 0:04:01.280 is going to have the FED changing some of its forecasts, 0:04:02.960 --> 0:04:03.440 and if. 0:04:03.320 --> 0:04:05.160 All that word enough. At the end of the week, 0:04:05.200 --> 0:04:08.000 the Bank of Japan shook global bond markets by saying 0:04:08.080 --> 0:04:11.280 it's ceiling for ten year jgvs will now be a 0:04:11.360 --> 0:04:14.880 reference point rather than a fixed ceiling. For all the drama, 0:04:15.000 --> 0:04:18.000 bond markets ended the week relatively calm, as the yield 0:04:18.040 --> 0:04:21.119 on the ten year US Treasury spiked to over four 0:04:21.200 --> 0:04:23.760 on the BOJ news on Thursday, but then settled back 0:04:23.760 --> 0:04:27.280 down to three point ninety four stocks. Meanwhile, we're all 0:04:27.320 --> 0:04:30.240 about the FED and the strong economic numbers, with the 0:04:30.279 --> 0:04:32.799 S and P five hundred, up one percent on the week, 0:04:33.040 --> 0:04:35.320 powered in part by earnings per share coming in so 0:04:35.520 --> 0:04:37.240 far in an average of two hundred and twenty three 0:04:37.320 --> 0:04:40.640 dollars compared with the Bloomberg Elves expectation of two hundred 0:04:40.640 --> 0:04:44.239 and thirteen dollars per year end. The Nasdaq once again 0:04:44.360 --> 0:04:47.279 outperformed the S and P of just over two percent 0:04:47.320 --> 0:04:49.479 for the week. To give us his take on what 0:04:49.640 --> 0:04:52.480 we are seeing, Welcome back now, Greg Peters. He is 0:04:52.560 --> 0:04:55.200 pgim cocio for fixing him. Greg. Great to have you 0:04:55.240 --> 0:04:57.400 back on Ball Street week here. It really was sort 0:04:57.400 --> 0:04:58.880 of a bond week, if I can put it that way, 0:04:58.960 --> 0:05:01.200 fixed income, it's your kind of week. First, start with 0:05:01.279 --> 0:05:02.839 the Fed. What did we hear from the Fed? What 0:05:02.880 --> 0:05:04.360 did you hear from the Fed? What does it mean 0:05:04.360 --> 0:05:05.120 for the bond markets? 0:05:06.560 --> 0:05:09.480 Yeah, so the Fed is kind of dancing along the 0:05:09.600 --> 0:05:14.839 nice said tier. Inflation is much more under control than 0:05:14.880 --> 0:05:16.840 where we were a year ago. So we're moving in 0:05:16.960 --> 0:05:21.520 the right direction, but it's far from declaring victory. And 0:05:21.560 --> 0:05:26.440 so they're very open to being data dependent and somewhat ambiguous. 0:05:26.520 --> 0:05:29.719 And what's really unique about this cycle, David, is that 0:05:29.760 --> 0:05:33.960 the markets are embracing that ambiguity. Typically that is a 0:05:34.080 --> 0:05:38.760 volve producer, but in this case is having the opposite effet. 0:05:38.800 --> 0:05:42.680 So the Fed is doing somewhat of a masterclass year 0:05:43.720 --> 0:05:48.280 on dampening market concerns, which I think is important of course. 0:05:48.920 --> 0:05:51.520 So great, what are the bond markets telling us, if anything, 0:05:51.560 --> 0:05:54.400 about the likelihood a recession, Because on the one hand, 0:05:54.440 --> 0:05:57.680 we got really strong economic numbers this week, surprise a 0:05:57.680 --> 0:06:00.000 lot of people. We don't see a lot of weakness 0:06:00.120 --> 0:06:02.239 in the market. At the same time, as I understand, 0:06:02.240 --> 0:06:05.320 we still are pricing in price rate cuts coming up 0:06:05.320 --> 0:06:05.800 next year. 0:06:07.160 --> 0:06:08.880 Yeah, So I think it's important to remember that the 0:06:08.880 --> 0:06:12.039 bond market's been wrong now for a better part of 0:06:12.040 --> 0:06:14.520 a year or so, so the curve has been inverted 0:06:15.360 --> 0:06:19.520 that typically suggests that a recession is imminent. This has 0:06:19.560 --> 0:06:22.719 been the most forecasted recession that hasn't come about yet. 0:06:23.640 --> 0:06:27.320 So I think, you know, the economy, the nominal part 0:06:27.320 --> 0:06:30.559 of the economy GDP has been quite robust and quite strong, 0:06:30.600 --> 0:06:34.400 and I think that's surprised a lot of pundits. That's 0:06:34.440 --> 0:06:36.600 the first thing. But what's curious in the market as 0:06:36.640 --> 0:06:39.920 well is the fact that we're still seeing rate cuts 0:06:39.960 --> 0:06:43.680 priced in, so investors are quite bullish around the outlook. 0:06:44.920 --> 0:06:47.719 Your risk assets are, you know, taking off and doing 0:06:47.800 --> 0:06:51.200 quite well, but you're still seeing back end rate cuts 0:06:51.200 --> 0:06:53.840 being priced in, and to us, we just see that 0:06:53.920 --> 0:06:56.760 as incongruent. You can't have your cake and eat it 0:06:56.800 --> 0:06:59.880 too right. You can't have a situation where risk assets 0:07:00.240 --> 0:07:03.800 really well and the FED is cutting because of economic weakness. 0:07:03.839 --> 0:07:06.000 So you have to choose a side. And I think 0:07:06.760 --> 0:07:08.559 there's some confusion here on that front. 0:07:08.760 --> 0:07:11.920 Greg. What does that tell you as a bond investor, 0:07:12.600 --> 0:07:14.320 where do you invest if at all? Right now is 0:07:14.360 --> 0:07:16.440 just a good time fixed income? And if so, what 0:07:16.600 --> 0:07:17.559 parts of fixed income? 0:07:18.880 --> 0:07:21.200 Yes, so I actually think it's a great time to 0:07:21.240 --> 0:07:23.720 be in fixed income. And it's very simple premise, and 0:07:23.720 --> 0:07:26.840 that is the income piece and the yield piece. So 0:07:27.080 --> 0:07:30.320 yields are much higher than where we were a year 0:07:30.400 --> 0:07:33.040 or two years ago. I think that is a fantastic 0:07:33.200 --> 0:07:37.000 starting point. So the income producing nature of fixed income 0:07:37.760 --> 0:07:42.600 really starts to assert itself. Where we see value is twofold. 0:07:42.720 --> 0:07:45.480 One is leaning against those rate cuts. So we think 0:07:45.480 --> 0:07:49.160 the hurdle for the Fed to raise interest rates or 0:07:49.320 --> 0:07:53.120 i'm sorry, cut interest rates is really quite high even 0:07:53.160 --> 0:07:55.240 if there's a tweak, what's being priced in as too 0:07:55.320 --> 0:07:58.160 much in our minds. So we see value being kind 0:07:58.160 --> 0:08:02.160 of short here, at least in the fun end, and 0:08:02.200 --> 0:08:05.080 we see a lot of value in high quality assets 0:08:05.080 --> 0:08:07.640 within fixed income. So no longer do you have to 0:08:07.680 --> 0:08:10.880 reach out the risk curve in order to achieve those 0:08:10.920 --> 0:08:14.240 income goals and targets. So we think it's a great 0:08:14.920 --> 0:08:17.760 time to invest in fixed income where you get a 0:08:17.760 --> 0:08:22.400 lot of safe carry and really kind of good earnings 0:08:22.400 --> 0:08:23.080 along the way. 0:08:23.320 --> 0:08:26.800 So high quality fixed income, are you being compensated for 0:08:26.840 --> 0:08:28.920 the risk when it comes to high yield or leverage loans? 0:08:30.480 --> 0:08:32.640 I think that's where it's a little more tricky, David. 0:08:32.760 --> 0:08:34.920 I look at it, or we look at, you know, 0:08:35.080 --> 0:08:37.440 the parts of the high yield market, We look at 0:08:37.480 --> 0:08:39.880 the lever loan market, we look at the private credit 0:08:39.920 --> 0:08:44.120 market and really question whether you're being appropriately compensated for 0:08:44.200 --> 0:08:47.280 the risks there. So these are still you know, highly 0:08:47.360 --> 0:08:50.360 levered entities. There's been a lot of leverage added to 0:08:50.480 --> 0:08:53.120 capital structures over the past decade or so, kind of 0:08:53.160 --> 0:08:57.280 feasting off the low interest rates. But as those interest 0:08:57.320 --> 0:09:01.240 costs continue to kind of reset high higher, right as 0:09:01.320 --> 0:09:04.440 the cheaper debt rolls off into more expensive debt. I 0:09:04.440 --> 0:09:07.280 think that puts a lot more pressure on these companies 0:09:07.320 --> 0:09:10.640 in that segment of the market, and even without a recession, 0:09:10.720 --> 0:09:14.840 I think you'll have a a higher default experience than 0:09:14.880 --> 0:09:18.600 what we've observed over the past just called five seven years. 0:09:18.800 --> 0:09:20.480 Greg, we can't let you go without talking about what 0:09:20.520 --> 0:09:22.439 happened with the Bank of Japan because it shook a 0:09:22.480 --> 0:09:25.040 lot of people. When that report came out a Thursday afternoon, 0:09:25.160 --> 0:09:27.200 there was a lot of move in the markets actually 0:09:27.200 --> 0:09:29.160 at the time, at least for a short period of time. 0:09:29.240 --> 0:09:31.200 What did you make out of what happened and does 0:09:31.240 --> 0:09:32.600 it have long lasting effects? 0:09:34.040 --> 0:09:36.240 I think it's too early to tell. So it was 0:09:36.440 --> 0:09:38.319 you know, in the price over the past couple of 0:09:38.360 --> 0:09:40.800 days or so. But either way, ten year jgb's kind 0:09:40.800 --> 0:09:43.040 of jumped ten bases points, which is a pretty big 0:09:43.040 --> 0:09:47.120 move in that market. But essentially the Bank of Japan 0:09:47.240 --> 0:09:50.560 is drafting off of other global central banks, so we'll see, 0:09:50.640 --> 0:09:55.320 so they have this last mover advantage and so a 0:09:55.320 --> 0:09:58.640 lot of that the tightening has kind of happened away 0:09:58.640 --> 0:10:01.160 from them, and so they're just catching up. But I 0:10:01.160 --> 0:10:06.559 think it's a rationalization that's finally occurring into Japanese markets, 0:10:06.559 --> 0:10:08.280 but I think it's a long ways to go. So 0:10:09.200 --> 0:10:11.560 you know, our strong senses yields will continue to move 0:10:11.640 --> 0:10:16.520 higher in jaman with in Japan test that one percent threshold. 0:10:17.640 --> 0:10:21.200 But we're finally starting to see some movement out of 0:10:21.240 --> 0:10:23.920 the Bank of Japan, who's been stuck very much in 0:10:24.000 --> 0:10:28.040 this highly accommodated stance for a very long time. 0:10:28.160 --> 0:10:30.160 Many thanks now, Greg, always great to have you with 0:10:30.240 --> 0:10:33.200 us as Greg Peters of PGM. Coming up, we're going 0:10:33.280 --> 0:10:35.640 to go over with the Fed told us and also 0:10:35.720 --> 0:10:38.560 what it left unsaid with the Connors Laura Tyson of 0:10:38.600 --> 0:10:41.920 the Berkeley Has School of Business. And then next week 0:10:42.000 --> 0:10:44.120 we're going to take you to Aspen for a special 0:10:44.280 --> 0:10:47.000 edition of Wall Street Week from the Aspen Economic Strategy 0:10:47.000 --> 0:10:49.839 Group's annual meeting. We'll sit down with former Council of 0:10:49.880 --> 0:10:54.319 Economic Advisors Chair Celia Raus, Atlanta FED President Raphael Bastik, 0:10:54.640 --> 0:10:58.640 Chicago FED President Austin Goolsby, and more, only on Wall 0:10:58.640 --> 0:11:09.120 Street Week on blueg This is Wall Street Week. I'm 0:11:09.200 --> 0:11:12.320 David Weston. The FED spoke again this week and raised 0:11:12.360 --> 0:11:15.480 interest rates again, this time by twenty five basis points, 0:11:15.640 --> 0:11:18.080 hoping it is doing enough to deal with inflation but 0:11:18.200 --> 0:11:21.199 not too much, a risk that isn't new for the FED. 0:11:21.280 --> 0:11:24.040 As Lewis Ruckheiser described on Wall Street Week back in 0:11:24.120 --> 0:11:26.840 July of two thousand and one, back in the days 0:11:26.840 --> 0:11:28.160 of Alan Greenspan. 0:11:29.480 --> 0:11:33.920 The FED chairman misread the economy's signals so embarrassingly in 0:11:34.000 --> 0:11:36.920 nineteen ninety nine and two thousand that he was raising 0:11:36.920 --> 0:11:40.520 in interest rates to guard against inflation when he should 0:11:40.520 --> 0:11:43.079 have been lowering them to go out against what has 0:11:43.120 --> 0:11:46.199 proved to be the biggest economic collapse in a decade. 0:11:46.440 --> 0:11:48.840 To take us through the risks facing this FED and 0:11:48.960 --> 0:11:51.560 this FED chair. In twenty twenty three, we welcome back 0:11:51.640 --> 0:11:54.960 Laura Tyson, Professor at the Berkeley Hawes School of Business. 0:11:55.160 --> 0:11:57.600 Doctor Tyson served both as chair of the Council of 0:11:57.640 --> 0:12:01.040 Economic Advisors and as Director of the National Economic Council 0:12:01.160 --> 0:12:03.959 under President Clinton. So doctor Tyson, thank you so much 0:12:04.000 --> 0:12:05.960 for being back with us. So a lot that we 0:12:06.120 --> 0:12:08.600 heard from the FED and from Sharepowe was not a 0:12:08.600 --> 0:12:11.120 big surprise. Was there anything you found surprising? 0:12:11.720 --> 0:12:16.040 Really surprising but forward looking or going out a little 0:12:16.120 --> 0:12:20.520 bit to say for a variety of reasons. He thinks 0:12:20.640 --> 0:12:25.600 this time we can engineer he can engineer a soft landing. 0:12:25.720 --> 0:12:29.679 He noted that that's very rare, but he did talk 0:12:29.720 --> 0:12:32.920 about the fact that we have an economy which is 0:12:33.000 --> 0:12:40.000 stronger than expected, stronger than expected. His own FED forecasters 0:12:40.040 --> 0:12:43.360 have taken out a recession for this year and put 0:12:43.400 --> 0:12:47.680 in stronger growth. But he noted, also, we have inflation 0:12:47.800 --> 0:12:52.840 coming down, we have quits coming down, we have job 0:12:52.960 --> 0:12:55.440 openings coming down. We have a kind of sense that 0:12:55.520 --> 0:13:00.160 the labor market may be easing without creating unemployment, and 0:13:00.240 --> 0:13:02.640 that growth may still be strong, and that would be 0:13:02.679 --> 0:13:03.520 a soft landing. 0:13:03.720 --> 0:13:06.560 Well, and underscore what you're saying, doctor Tyson. The day 0:13:06.600 --> 0:13:10.080 after the FEDS decision, we got GDP numbers out that 0:13:10.280 --> 0:13:13.720 really were substantially stronger than we expected, indicating the economy 0:13:13.760 --> 0:13:16.120 is doing quite well. At the same time, we've raised 0:13:16.160 --> 0:13:18.760 interest rates a lot at this point, a lot in 0:13:18.800 --> 0:13:21.240 a very short period of time. How do you account 0:13:21.240 --> 0:13:23.520 for the fact we don't have more unemployment because a 0:13:23.520 --> 0:13:25.920 lot of people, I think, predicted that if you raise 0:13:25.920 --> 0:13:29.400 interestrates that high that fast, you're going to have higher unemployment. 0:13:30.040 --> 0:13:33.920 We do know that consumers continue to be a spend 0:13:34.040 --> 0:13:38.320 out of their savings, they continue to create strong demand 0:13:38.800 --> 0:13:44.560 for output, both services now and increasingly products, and Pal 0:13:44.800 --> 0:13:49.520 mentioned that yesterday the importance of the shifting of spending 0:13:49.640 --> 0:13:53.720 back towards goods, because that way you can ease some 0:13:53.800 --> 0:13:56.840 of the inflationary pressures on the services side and on 0:13:56.880 --> 0:13:59.440 the good side, as you pointed out, the supply chain 0:13:59.520 --> 0:14:02.320 is really it's strong now. There's a lot of supply, 0:14:02.720 --> 0:14:05.360 so the demand for consumer goods and the shift in 0:14:05.440 --> 0:14:12.640 consumer goods important. He mentioned investment as well, and I 0:14:12.679 --> 0:14:19.360 think there the change in technology, the artificial intelligence breakthroughs, 0:14:19.800 --> 0:14:23.720 and the rush by firms to figure out a way 0:14:23.720 --> 0:14:28.040 to invest in that technology, that's boosting investments. So you 0:14:28.160 --> 0:14:33.680 have sources of demand at home, consumption and investment demand stronger, 0:14:34.280 --> 0:14:38.240 and that's what's keeping the economy going. Certain interest rate 0:14:38.360 --> 0:14:43.840 sectors housing you don't see that strength obviously, but for 0:14:43.880 --> 0:14:46.400 a variety of reasons, demand remains strong. 0:14:47.240 --> 0:14:49.640 Artificial intelligence is all the rage these days, at least 0:14:49.640 --> 0:14:52.200 to talk about. I'm not sure we're seeing it show 0:14:52.280 --> 0:14:55.600 up yet, but there are some who really speculate it 0:14:55.640 --> 0:15:00.200 could have significant effect on productivity. Do you expect it 0:15:00.280 --> 0:15:02.680 may have that effect and if so, how long does 0:15:02.720 --> 0:15:05.400 that take to have to really show up in the numbers. 0:15:06.120 --> 0:15:10.960 So one of the interesting omissions yesterday in the discussion 0:15:11.280 --> 0:15:14.120 of Chairman Pale, and this is a standard omission because 0:15:14.200 --> 0:15:18.040 FED chairs don't talk a lot about productivity. But if 0:15:18.080 --> 0:15:21.800 you're thinking about inflation and you're thinking about, well, as 0:15:22.200 --> 0:15:24.480 our wage is going up, is that going to drive 0:15:24.560 --> 0:15:31.080 inflation up further? There's an intermediate variable there that is wages, 0:15:31.560 --> 0:15:37.200 productivity growth, and prices. If productivity growth picks up and 0:15:37.240 --> 0:15:42.960 you have that allows for stronger wage growth without an 0:15:42.960 --> 0:15:48.200 effect on price growth. So productivity is really important. It 0:15:48.280 --> 0:15:52.120 is very hard to predict. I have to smile at 0:15:52.160 --> 0:15:56.440 the fact that you started with two thousand. The Federal 0:15:56.480 --> 0:16:04.200 Reserve Chairman Greenspan, President Clinton were absolutely surprised by the 0:16:04.240 --> 0:16:08.200 strength of productivity growth. No one predicted it. And there 0:16:08.320 --> 0:16:12.360 was a very significant uptick in productivity growth associated with 0:16:12.520 --> 0:16:18.000 the rollout, the very rapid rollout of internet technology, which 0:16:18.040 --> 0:16:20.880 really occurred from the late nineteen nineties. So you had 0:16:21.320 --> 0:16:26.840 a decade of much stronger percentage point stronger growth rate 0:16:26.920 --> 0:16:31.720 in productivity, and that changed the inflation outlook. It changed 0:16:31.760 --> 0:16:35.720 the course of monetary policy. So I think about today 0:16:36.320 --> 0:16:39.920 and I would say perhaps because I'd mostly spend my 0:16:40.000 --> 0:16:45.440 time in northern California. But there are a number of scholars. 0:16:45.440 --> 0:16:48.040 For Examma McKinsey. Global Wins too just did something on this, 0:16:48.880 --> 0:16:55.320 looking at how AI is affecting already productivity in major 0:16:55.400 --> 0:17:00.440 business functions and sales functions, in accounting functions in majorctors 0:17:00.480 --> 0:17:07.080 of the economy like finance. So it's already looking to 0:17:07.240 --> 0:17:10.399 generate a productivity burst. 0:17:11.000 --> 0:17:13.200 So, doctor Tis, you were there in the White House 0:17:13.440 --> 0:17:17.720 when the Internet phenomenon was really taking hold. As an economist, 0:17:17.800 --> 0:17:20.960 so often the economic numbers are backward looking. How long 0:17:21.000 --> 0:17:23.879 did it take you to see that productivity increase in 0:17:24.000 --> 0:17:25.720 the numbers? How long did it take you to figure 0:17:25.720 --> 0:17:27.239 out this is actually what's going on. 0:17:27.560 --> 0:17:31.840 Well, we saw the numbers pretty quickly. We were surprised 0:17:31.840 --> 0:17:36.280 at the numbers. I want to say, I oftentimes tell 0:17:36.520 --> 0:17:40.600 the story that I used to do brief President Clinton 0:17:40.640 --> 0:17:47.760 regularly on the outlook for the deficit, and that depended 0:17:47.880 --> 0:17:50.840 very much on the outlet for economic growth, and that 0:17:50.920 --> 0:17:54.320 depended very much on the outlook for productivity growth. And 0:17:54.400 --> 0:17:58.879 I used to give them the pretty standard economist answers 0:17:59.320 --> 0:18:04.359 that productivity growth was likely remain slow, We shouldn't expect 0:18:04.480 --> 0:18:09.960 a significant change. We needed to be cautious, and we 0:18:10.080 --> 0:18:17.719 therefore were constantly surprised at the extent of the productivity gains, 0:18:17.760 --> 0:18:21.840 and they really started to come in early. The artificial 0:18:21.880 --> 0:18:26.480 intelligence revolution is going to be as significant as the 0:18:26.520 --> 0:18:29.800 Internet revolution is actually probably going to be more significant 0:18:29.800 --> 0:18:35.120 than that, and the question therefore becomes how fast will 0:18:35.160 --> 0:18:40.760 the effects be felt. A very good positive indicator here 0:18:40.960 --> 0:18:44.679 is that in some sectors which are early adopters, you 0:18:44.840 --> 0:18:48.960 already see some amazing productivity gains. In some of the 0:18:49.040 --> 0:18:53.160 work being done by economists. You see using you know, 0:18:53.600 --> 0:18:56.600 there are cases where they'll sort of look at the 0:18:56.640 --> 0:18:59.919 application of AI to a call center and see how 0:19:00.080 --> 0:19:05.040 how much the productivity of each call center worker increases. 0:19:05.240 --> 0:19:08.160 And it's not just the quantity that's the productivity number, 0:19:08.359 --> 0:19:11.600 but the quality. They do better job, and the customers 0:19:11.720 --> 0:19:15.320 like it more. So. I think we've got a lot 0:19:15.480 --> 0:19:19.119 pieces of evidence all around that this productivity effect is 0:19:19.160 --> 0:19:21.439 going to be large, and it's going to be quick, 0:19:21.880 --> 0:19:27.199 but very We do not have good economic models to 0:19:27.320 --> 0:19:30.400 make this prediction, so we have to look at I've 0:19:30.440 --> 0:19:33.360 been you know, I heard yesterday a lot of companies. 0:19:33.359 --> 0:19:36.119 So even though the interest rate is high, the cost 0:19:36.240 --> 0:19:40.719 of capital is high, credit conditions are restrictive. Companies are 0:19:40.800 --> 0:19:45.919 rushing out to invest in this technology because they realize 0:19:46.400 --> 0:19:50.359 it's maybe signaling a fundamental change. So the long term 0:19:50.440 --> 0:19:53.320 you have to look at your investment decisions. Now for 0:19:53.400 --> 0:19:54.680 the long term. 0:19:54.400 --> 0:19:56.280 Yeah, well, not a certainty, but something we could certainly 0:19:56.320 --> 0:19:58.560 hope for. Thank you so much, doctor, is always a 0:19:58.560 --> 0:20:00.800 pleasure having on the Wall Street Week. That is Professor 0:20:00.880 --> 0:20:03.640 Laura Tyson of the Haas School of Business at Berkeley 0:20:03.760 --> 0:20:09.200 University coming up. Those higher rates brought deal making almost 0:20:09.280 --> 0:20:11.960 to a halt, but there are some indications now that 0:20:12.040 --> 0:20:15.320 things may be coming back soon. We'll ask Ralph Schlastein 0:20:15.400 --> 0:20:16.040 of Evercore. 0:20:16.800 --> 0:20:21.560 Certainly the amount of dialogue among our clients is up 0:20:21.640 --> 0:20:23.800 quite dramatically, and our backlogs are up. 0:20:24.280 --> 0:20:29.719 This is Wall Street Week on Bloomberg. This is Bloomberg 0:20:29.760 --> 0:20:41.080 Wall Street Week with David Weston from Bloomberg Radio. Mergers 0:20:41.119 --> 0:20:44.480 and acquisitions. They make the investment bankers world go round, 0:20:44.760 --> 0:20:47.280 And just two short years ago it was going around 0:20:47.320 --> 0:20:50.440 pretty fast, when a record three point eight trillion dollars 0:20:50.520 --> 0:20:52.760 worth of deals were done in twenty twenty one. 0:20:53.480 --> 0:20:56.919 We are continuing to see a just tremendous momentum in 0:20:57.119 --> 0:20:57.760 US emini. 0:20:58.200 --> 0:21:01.040 But then inflation came along and the Fed decided it 0:21:01.080 --> 0:21:04.840 had to raise interest rates fast to get things under control, 0:21:05.200 --> 0:21:07.840 leading to all sorts of uncertainty in terms of our 0:21:07.920 --> 0:21:08.399 own business. 0:21:08.440 --> 0:21:11.440 Oh yes, it has a big effect because when the 0:21:11.560 --> 0:21:14.119 volatility is so high, and that the VIX this twenty 0:21:14.240 --> 0:21:14.960 was thirty two and a half. 0:21:15.000 --> 0:21:20.000 I think of when the day started, people hesitate, They. 0:21:19.880 --> 0:21:22.720 Want to step back and wait for the smoke to 0:21:22.760 --> 0:21:27.040 clear in the environment to settle, and so transactions slow down, 0:21:27.320 --> 0:21:28.360 there's no doubt about it. 0:21:28.600 --> 0:21:31.080 All of which took that three point eight trillion dollars 0:21:31.080 --> 0:21:33.440 in deals in twenty twenty one all the way down 0:21:33.480 --> 0:21:36.359 to two point six trillion last year, and the pace 0:21:36.440 --> 0:21:39.800 this year so far is down another forty percent from that. 0:21:40.440 --> 0:21:43.000 But now markets think we may be nearing the end 0:21:43.040 --> 0:21:46.040 of those rate hikes, leading some people like Michael Jay 0:21:46.160 --> 0:21:48.840 of Blackstone to think the deals are about to come back. 0:21:49.200 --> 0:21:52.879 I think market participants are now seeing that we're nearing 0:21:52.880 --> 0:21:57.560 the end of this dramatic rate increased cycle and therefore 0:21:57.960 --> 0:22:01.600 feeling like there's a little less uncertainty, certainty and are 0:22:01.640 --> 0:22:03.400 readier to transact. 0:22:03.280 --> 0:22:06.960 Though Betsy Grask Morgan Stanley says it maybe next year 0:22:07.000 --> 0:22:11.000 before we really see mergers and acquisitions get their mojo back. 0:22:11.400 --> 0:22:14.760 We are one of those who is looking for an 0:22:14.800 --> 0:22:17.720 acceleration and deal activity as we go into next year. 0:22:17.920 --> 0:22:22.600 Part of the reason is understanding what the terminal rate 0:22:22.760 --> 0:22:23.520 is in Ray. 0:22:23.400 --> 0:22:27.760 Heins, and to bring us up this feed on exactly 0:22:27.800 --> 0:22:30.000 where we are in mergers acquisitions, we turn to a 0:22:30.000 --> 0:22:33.960 true authority. He's Wel Schlestein. He is Chairman emeritus of Evercore. 0:22:34.119 --> 0:22:36.120 Ralph thanks so much for being back on Wall Street week. 0:22:36.320 --> 0:22:38.119 We hear a lot about the fact that M and 0:22:38.160 --> 0:22:40.440 A dropped off, as we know from those record numbers 0:22:40.480 --> 0:22:42.880 back in twenty one. Are they coming back. 0:22:44.000 --> 0:22:51.000 We're certainly beginning to see a significantly greater amount of activity. 0:22:51.119 --> 0:22:56.520 It hasn't manifested itself yet in announced transactions, but announced 0:22:57.080 --> 0:22:58.760 M and A for the first six months of the 0:22:58.840 --> 0:23:02.200