Speaker 1: This is Bloomberg Wall Street Week, and we may not
Speaker 1: have an overall recession, We're having a rolling recession. To
Speaker 1: kind of roll looks pretty strongly it is when it
Speaker 1: comes to jobs. The financial stories that shape our word.
Speaker 1: Three major regional bank failures send shockwaves through the banking system.
Speaker 1: We're all trying to figure out what to make of
Speaker 1: generative AI through the eyes of the most influential voices.
Speaker 1: Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America,
Speaker 1: Debro Lair of the Paulson Institute, Len Hubbard of the
Speaker 1: Columbia Business School. Bloomberg Wall Street Week with David Weston
Speaker 1: from Bloomberg Radio. This Week contributor Larry Summers of Harvard
Speaker 1: on how the FED is handling a stronger than expected economy.
Speaker 2: Still think the FAT is considerably too optimistic.
Speaker 1: Stephen Rattner of Wild Advisors on a car industry at
Speaker 1: a crossroads.
Speaker 3: For the Detroit companies to be winners in ev they
Speaker 3: need help from the union.
Speaker 1: And jose Maniyah of Neuvene on investment ideas. You may
Speaker 1: not have thought of that.
Speaker 4: Narrative, which was one that was largely academic around alternatives
Speaker 4: and how do you get a better portfolio that are
Speaker 4: correlated assets. Today it's not an academic discussion, it's an urgency.
Speaker 1: This week, Global Wall Street watched as people tried to
Speaker 1: get started, or at least back on track around the world.
Speaker 1: President Biden went to the United Nations to send China
Speaker 1: message that there's still room for cooperation.
Speaker 5: I want to be clear and consistent. We seek to
Speaker 5: responsibly manage the competition between our countries. We are for
Speaker 5: d risky, not decoupling the child. We will push back
Speaker 5: on aggression and intimidation and defend the rules of the road.
Speaker 6: Good Chair J.
Speaker 1: Powell steps the podium to get everyone to believe in
Speaker 1: that soft landing.
Speaker 7: After all, soft landing is a primary objective, and I
Speaker 7: did not say otherwise.
Speaker 3: That's what we've been trying to achieve for all this time.
Speaker 1: The public offering market took another step forward with an
Speaker 1: instant cart finally going on sale on the NASDAK.
Speaker 8: We have the shares of instacart trading hire by thirty
Speaker 8: nine percent right now, so we're looking at evaluation that
Speaker 8: is closer to fourteen.
Speaker 1: Billion, Quickly followed by eMarketer Klavio, Well, the.
Speaker 7: Way we think about it is that part of being
Speaker 7: a public company is showing the world you know how
Speaker 7: you run your business and saying that you're going to be.
Speaker 9: There for a long time.
Speaker 1: The auto industry tried to get going again, leading to
Speaker 1: the UAW expanding its strike to additional plants. At the
Speaker 1: end of the week, we will.
Speaker 2: Be striking thirty eight locations across twenty states across all
Speaker 2: nine regions of the UAW.
Speaker 1: The equity markets reacted to all of this, and particularly
Speaker 1: what came out of the fad by selling off, with
Speaker 1: the S and P five hundred having its worst week
Speaker 1: since March, down two point nine three percent for the
Speaker 1: week to forty three twenty eight. That is, falling below
Speaker 1: the median year end forecast of our Bloomberg Els that's
Speaker 1: forty four to thirty five, while the Nasdaq took an
Speaker 1: even bigger head, dropping just over three point six percent.
Speaker 1: The yield on the tenure added almost ten full basis points,
Speaker 1: ending the week at forty four point four to three
Speaker 1: one seven after spiking above four point five early in
Speaker 1: the day on Friday. Here to help us sort it
Speaker 1: all out, our Peter Crass, chair and founder of Aperture
Speaker 1: Investors and Sarah Hetter, CEO and co founder of Cosway Capital.
Speaker 1: Welcome back to both of you. Peter' always start with
Speaker 1: you what is going on in the market. So I
Speaker 1: didn't think what the Fed had to say was that
Speaker 1: radically different from what we've heard before. But boy, the
Speaker 1: market shore reacted this time.
Speaker 7: We look in the short run, what the markets are
Speaker 7: reacting to is their expectation of where interest rates are
Speaker 7: going to be in twenty four. Investors believed that the
Speaker 7: Fed was going to be able to engineer a soft landing,
Speaker 7: which Pale again reiterated he was trying to do. But
Speaker 7: investors believe that in twenty four interest rates would begin
Speaker 7: to be cut, and the FED has been a little
Speaker 7: bit more hawkish on that. The Fed has said, well,
Speaker 7: there's probably another rate increase this year. And if you
Speaker 7: look at the dot, which is the explanation of the
Speaker 7: committee's estimation of where rates are going to be, those
Speaker 7: dots moved up and that's what unsettled them are.
Speaker 6: Market.
Speaker 7: Now, that's a very short term activity, but the market
Speaker 7: reacted significantly to that, Sir.
Speaker 1: At the same time, the FED, I thought said, boy,
Speaker 1: the economy, if anything, looks stronger than we thought it
Speaker 1: would before. Is that good news or bad news? I mean,
Speaker 1: if it's stronger than we thought, does that mean actually
Speaker 1: the FED will have to keep pushing on the interest rates,
Speaker 1: which could lead to something breaking likely.
Speaker 8: It appears that Fed might have underestimated how insensitive US
Speaker 8: market is to rise communists to rising rates. There's many corporates,
Speaker 8: for example, have turned out they're dead, So longer duration dead,
Speaker 8: its fixed rate creates a level of insulation to what
Speaker 8: the Fed is doing. So there may be less sensitivity,
Speaker 8: but ultimately, as rates remain higher for longer, this will
Speaker 8: catch up with those who have borrowed too much or
Speaker 8: where assets prices are falling. Thinking particular about parts of
Speaker 8: the real estate sector, Peter.
Speaker 1: What about the real estate sectors? We don't want anything
Speaker 1: to break, but it's a decided possibility. I think it's
Speaker 1: fair to say, is that what we should be looking on.
Speaker 7: So the real estate sector in the economy breaks into
Speaker 7: two pieces. There's the residential real estate business, which is
Speaker 7: very large and affects a lot of people, And to
Speaker 7: Sarah's point, is the part of the economy that is
Speaker 7: very rate insensitive today because most mortgages today are fixed rate,
Speaker 7: and they were fixed at low interest rates. So households
Speaker 7: today have a big, big benefit. They own a very
Speaker 7: long liability or effective we had asset to them at
Speaker 7: very low rates, which allows them to continue to spend
Speaker 7: and gives them positive operating leverage in their daily budgets.
Speaker 7: In the commercial space, however, that's totally different. In the
Speaker 7: commercial space, there you had buyers buying buildings at low
Speaker 7: cap rates and low interest rates which do need to
Speaker 7: be refinanced, and their sair again is absolutely correct. We
Speaker 7: are going to see refinancing that is going to cause
Speaker 7: problems in the.
Speaker 6: Real estate business. We've already seen that.
Speaker 7: We've seen significant owners in real estate of the last
Speaker 7: six months literally walk away from buildings, unusual just.
Speaker 8: Because at the time that bank credit is tightening too.
Speaker 8: So it's a it's a double whamming well and the SARTA.
Speaker 1: Let me ask you, some people are not saying forget
Speaker 1: about the longer, for higher for longer. What if it's
Speaker 1: higher forever? I mean, what is this Basically there's a
Speaker 1: new normal, as it were. What does that do to
Speaker 1: investment proposition?
Speaker 8: Well, cycles don't normally work that way. Our expectations fall
Speaker 8: at causeway is that the FED will achieve its two
Speaker 8: percenter thereabouts level of inflation, but that will come at
Speaker 8: cost with importment, and as the US economy shifts downward
Speaker 8: and slows dramatically, that in turn will precipitate the FED easing.
Speaker 8: But that might not happen again for quite a lot.
Speaker 8: Couldn't be several more quarters, it could be here, it
Speaker 8: could be longer. It's very hard to say. But the
Speaker 8: longer rates remain high, it's like a slow asphyxiation for
Speaker 8: those that are overleveraged. And there's plenty of that across
Speaker 8: this economy. In fact, there's plenty of that globally.
Speaker 7: It might be a slightly different outcome there. Certainly the
Speaker 7: FED is said they want to get to two percent,
Speaker 7: but I don't think the FED will consciously break the
Speaker 7: economy to get there. And it may be that we
Speaker 7: see inflation at three percent and then the term structure
Speaker 7: of interest rates may shift a bit and perhaps the
Speaker 7: ten uere isn't going to go down to three percent,
Speaker 7: it's going to be at five to six percent and
Speaker 7: cash is going to be at three to four percent.
Speaker 7: And that's not an unusual position for the term structure
Speaker 7: of rates to be. In fact, over the last seventy
Speaker 7: to eighty years was more likely that than not. And
Speaker 7: the economy can be just fined there and stocks could
Speaker 7: you just find there, And that I think is also
Speaker 7: a possibility.
Speaker 1: Sometimes, Peter, I think we tend to focus on the
Speaker 1: FED and the economy like that's the only two players
Speaker 1: in the game. There's also a federal government that is
Speaker 1: spending a lot of money and borrowing a lot of money.
Speaker 1: What does that mean potentially for the rate structure.
Speaker 7: Well, that's going to crowd out borrowers on the duration side,
Speaker 7: and so that is one That is another reason why
Speaker 7: tenure rates may not drop back to three percent or
Speaker 7: three and a half. The federal government is spending a
Speaker 7: lot of money. We have three big programs infrastructure, chips,
Speaker 7: and other spending programs in climate. So I think that
Speaker 7: that stimus is going to continue. That's going to make
Speaker 7: it hard for rates to come down. We could have
Speaker 7: a complete recession of bad recession, and then of course
Speaker 7: rates will come down and we will see low rates,
Speaker 7: but I don't think they'll stay there.
Speaker 1: There are also some other risks out there we're seeing
Speaker 1: right now in the marketplace. One of them is that
Speaker 1: big uaw strikeing actually got expanded some on Friday, at
Speaker 1: least against two of the big automakers. How big a
Speaker 1: risk is that for the markets? Do you think over
Speaker 1: the medium term? I won't even talk about longer term,
Speaker 1: but medium term.
Speaker 8: The risk for inflation in the US and the reason
Speaker 8: why some of this comes from one of our favorite economists,
Speaker 8: Nancy Lazar. She noted that since twenty sixteen, auto industry
Speaker 8: productivity has been declining while auto industry and compensation has
Speaker 8: been rising, So that means labor costs in the auto
Speaker 8: industry have been increasing quite significantly. So without better productivity
Speaker 8: and having wage hikes, this is going to be really
Speaker 8: hard on auto industry and profitability, which is why this
Speaker 8: negotiation is so incredibly fierce. The thirty to our work
Speaker 8: week is definitely not an increase in productivity. So let's
Speaker 8: just say the UEF gets what they want or something
Speaker 8: close to that, then there's a cogningient effect because labor
Speaker 8: across the country the globallyses how we want that, and
Speaker 8: that just adds to to labor inflation, which is something
Speaker 8: that I think that that is very concerned about, given
Speaker 8: how tight and plant it is in this.
Speaker 10: Country and Peter.
Speaker 1: We're focused on the auto industry, but it's broader than
Speaker 1: the utter industry. We've already always, already had the Writer's Guild.
Speaker 1: They're in talks again now they haven't settled it. We
Speaker 1: have the actors, we had ups, we had the ports,
Speaker 1: We've got others waiting in the wings right now. Is
Speaker 1: there the possibility of really a broader set of labor
Speaker 1: issues here that will increase wages rather substantially.
Speaker 6: I think we already have it.
Speaker 7: I mean, the amount of union labor in the country
Speaker 7: we know is low.
Speaker 6: It's certainly historically low.
Speaker 7: Sarah's right about the demands of the UAW and what
Speaker 7: that may portend, at least for that codie of workers.
Speaker 7: But there's a large number of workers in the country
Speaker 7: that are not unionized. They are also demanding higher wages.
Speaker 7: And we also know that we've got a very tight
Speaker 7: labor market, which is frankly the real source of the issue.
Speaker 7: Unemployment still remains relatively low, it's not rising very much,
Speaker 7: and that means labor has a stronger leg at the
Speaker 7: bargaining table, and frankly they probably shouldn't because the last
Speaker 7: ten or fifteen years they haven't. So I think that
Speaker 7: the FED knows that the FED is why the FED
Speaker 7: is being tough on rates and why it's not talking
Speaker 7: about taking them down, and I think why it's going
Speaker 7: to be longer higher, for.
Speaker 1: Longer many Thanks to Sarah Ketterer of Causeway Capital and
Speaker 1: Peter Krauss of Aperture Investors. Coming up, the auto industry
Speaker 1: enters the second week of selective strikes hitting the Big three.
Speaker 1: We talk with where it all could end with former
Speaker 1: cars are Stephen Rattner of Willed Advisors.
Speaker 3: The more the autoworkers get paid, and I'm in favor
Speaker 3: of them getting paid more, the fewer jobs they're going
Speaker 3: to be.
Speaker 1: That's next on Wall Street Week on Bloomberg. This is
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: Automotive Breakdown. That's what's happened to Detroit with the auto
Speaker 1: workers into their second week of striking, selective GM Ford
Speaker 1: and stillants plants with no end in sight. President Biden
Speaker 1: has more or less cited with the UAW demand that
Speaker 1: the Big three share their record profits to make up
Speaker 1: for lost time.
Speaker 5: Auto companies have seen record profits, including the last few
Speaker 5: years because of the extraordinary skill and sacrifices the UAW workers.
Speaker 5: Those record profits have not been shared fairly in my view,
Speaker 5: with those workers.
Speaker 1: While Republicans like former Vice President Mike Pence say President
Speaker 1: Biden has helped create the problem with his push for
Speaker 1: electric vehicles.
Speaker 10: What I'm hearing around the country is that that auto
Speaker 10: workers are very concerned about Joe Iden's Green New Deal
Speaker 10: heavy handed effort to use taxpayer dollars to drive these
Speaker 10: automotive companies into electric vehicle production. I meant, you've got
Speaker 10: one hundred and forty five thousand workers out there that
Speaker 10: have been many of them built a lifetime making gasoline powered.
Speaker 1: Cars, and auto CEOs like GM's Mary Borrow say that
Speaker 1: whatever the politics, they need to invest all those profits
Speaker 1: so they can make the move into evs.
Speaker 11: We need to invest in our future, and we have
Speaker 11: a plan to take all of our employees along. I
Speaker 11: think this is very important. We have worked very carefully
Speaker 11: to have a job for everyone so we can make
Speaker 11: this transformation together. And frankly, when you put it up
Speaker 11: you have a strike and we're not making vehicles, you
Speaker 11: start to put that at risk.
Speaker 1: Some investors, like Bruce Richards of Marathon Asset Management think
Speaker 1: the shift back from capital to labor can ultimately be
Speaker 1: good for us.
Speaker 9: All companies in the next few years are going to
Speaker 9: have a real issue because they're going to pay a
Speaker 9: lot higher labor calls. You see that with the UAW,
Speaker 9: you see that in Hollywood, you see that with what
Speaker 9: the pilots negotiate with the airlines. The labor costs are increasing,
Speaker 9: and we love to see labor costs increases.
Speaker 6: It's good for America. It's good for Americans.
Speaker 1: But former Treasury Secretary Larry Summers warns that this may
Speaker 1: turn out to be a zero sum game where the
Speaker 1: union can't afford to lose and the auto companies can't
Speaker 1: afford for them to win, which could mean things will
Speaker 1: get worse before they get better.
Speaker 12: I fear that there's a bit of an in game
Speaker 12: dynamic going on here, and in that situation, the incentives
Speaker 12: for the union, like the incentives at one stage for
Speaker 12: the coal miners, like the incentive one stage for the
Speaker 12: steel workers, are to get as absolute much as they
Speaker 12: can while they can.
Speaker 1: And here to take us through the auto industry as
Speaker 1: we find it today is Stephen Rattner. He is the
Speaker 1: chairman and CEO of Willet Advisors, which invests the personal
Speaker 1: and film topic assets of Michael R. Bernblerg. He is
Speaker 1: our founder and majority share over. Steve, thanks so much
Speaker 1: for being back with us. You know a little bit
Speaker 1: about cars, goodness knows, given your service in the obamaministration
Speaker 1: putting the industry back together beforehand. Is there a way
Speaker 1: out of this impast right now? Because I sure don't
Speaker 1: see it.
Speaker 3: Look, it does certainly look tougher than I've ever seen
Speaker 3: in any of these contract negotiations. First of all, the
Speaker 3: uaw's demands are, even by the standard of opening demands,
Speaker 3: pretty extreme. Secondly, they're conducting this negotiation largely in public,
Speaker 3: which makes it harder for the union in particular to
Speaker 3: back off their positions if and when they need to.
Speaker 3: But all that said, there's never been a strike that
Speaker 3: I know of that hasn't gotten resolved one way or another,
Speaker 3: and it's not hard to see a resolution here. But
Speaker 3: I think the mood is that it's going to take
Speaker 3: a good while.
Speaker 1: You have written in the New York Times that you
Speaker 1: certainly can understand why there needs to be more wages
Speaker 1: for autoworkers. They've lagged behind for various reason. It's inflation,
Speaker 1: but also the contract that they had at the same time.
Speaker 1: It's about more than just money, is it not. Because
Speaker 1: the autoworkers say, you're going to electric vehicles will require
Speaker 1: fewer of us than the other side the auto industry stage,
Speaker 1: we have to go to electric vehicles or we're not
Speaker 1: going to be in business anymore.
Speaker 3: The classic Harvard Business School case is that a company
Speaker 3: or an industry that tries to protect protect an old
Speaker 3: business model when there's a new one coming ends up failing.
Speaker 3: If the Detroit companies want to be competitive, if we
Speaker 3: as a country want to have a viable domestic auto industry,
Speaker 3: and by the way, it is the government's policy to
Speaker 3: encourage electric vehicles, then we have to welcome this change,
Speaker 3: and there will be displacements and we have to deal
Speaker 3: with those.
Speaker 1: I guess I'm asking how much of this do you
Speaker 1: think in the end is about money? How much of
Speaker 1: a raise people get because everyone agrees they're going to
Speaker 1: get a significant raise, and how much it is more
Speaker 1: fundamental things about the way the companies actually run their businesses.
Speaker 3: I think it's mostly about money or money related things.
Speaker 3: I think, yes, there's a lot of concern about the
Speaker 3: future number of jobs, and so on and so forth.
Speaker 3: But I'm sympathetic to the union in the sense that
Speaker 3: if you look at the last fifteen years, auto workers
Speaker 3: as a whole in this country have basically stayed flat
Speaker 3: after inflation, whereas other workers have gotten some after inflation
Speaker 3: real income increases. And they are good reasons for good reasons.
Speaker 3: There are reasons for that, which is the fundamental competitiveness
Speaker 3: of the auto industry on a global scale. But nonetheless,
Speaker 3: in a world of three point eight percent unemployment and
Speaker 3: one and a half jobs for every American, I can
Speaker 3: understand why these workers feel like it's time for them
Speaker 3: to get a bigger share.
Speaker 1: Last week, President Biden weighed in on the issue, and
Speaker 1: at least to my hearing, weighed in pretty heavily on
Speaker 1: the UAW side, saying there have been record profits out
Speaker 1: of the car industries and there should be a record deal.
Speaker 1: I think he called it basically, is he making the
Speaker 1: situation better or worse? In the port situation. I don't
Speaker 1: recall him weighing in that heavily on the workers side.
Speaker 3: I think that's fair. I think we are closer to
Speaker 3: an election. I think we're talking about the Midwest, which
Speaker 3: are swing states, I don't think California is ever going
Speaker 3: to be a swing state, but I have to say
Speaker 3: I don't think it's overly helpful for him to put
Speaker 3: his finger on the scale. Look, the politics are what
Speaker 3: they are, and I get that. But this is a
Speaker 3: tough situation, and I think there are equities on both sides.
Speaker 1: Whenever we have a very large conflict like this, in
Speaker 1: my experience, at least, there are unintended consequences. There are
Speaker 1: the principal players and who does well who doesn't, But
Speaker 1: there are people are on the side. I can think
Speaker 1: of people like Tesla, other automakers around the world, certain states,
Speaker 1: they're right to work states. What are the unintended consequences
Speaker 1: you think perhaps of this dispute.
Speaker 3: Look, the unintended consequences are what happened is to the
Speaker 3: number of jobs, not the price paid for each job.
Speaker 3: The yin and the yang of this, and it's a
Speaker 3: tough one, is that the more the auto workers get paid,
Speaker 3: and I'm in favor of them getting paid more, the
Speaker 3: fewer jobs are going to be. That's just the inevitable
Speaker 3: result of this. If you look, for example, back since
Speaker 3: two thousand and nine, at the number of jobs that
Speaker 3: have moved to Mexico, and the fact that there are
Speaker 3: now more auto jobs in Mexico than there are in
Speaker 3: the United States. It tells you something about how capitalism
Speaker 3: and free enterprise works. It finds the lowest costs locale
Speaker 3: that can meet its needs.
Speaker 1: What is this safe potential to investors like you making investments,
Speaker 1: not just in the auto industry, about whether you invest
Speaker 1: in audustry, but more broadly, it's in fact there is
Speaker 1: a shift back toward labor that's got to squeeze margins.
Speaker 1: It's a practical matter. Does that mean that the prospects
Speaker 1: for equities come down some if.
Speaker 3: All that happens? The answer is sure, I don't think
Speaker 3: we know yet. Yes, there are a lot of strikes
Speaker 3: and a lot of high would look like big pay
Speaker 3: packages coming through. But you also have an economy on
Speaker 3: the other side where companies have more pricing power and
Speaker 3: they used to. There's less competition, frankly, less anti trust enforcement,
Speaker 3: fewer unions in general, and so forth, and so profit
Speaker 3: margins companies have stayed surprisingly robust. Corporate profits are far
Speaker 3: higher right now than I think most people thought they
Speaker 3: would be at this point in a cycle. And so yeah, sure,
Speaker 3: corporate profits could get squeezed a bit. Maybe they should
Speaker 3: get squeezed a bit, But I don't think that's not
Speaker 3: what keeps me awake at night.
Speaker 1: What does keep you awake at night?
Speaker 3: Well, if you want to talk about this area, I
Speaker 3: think the whole future of manufacturing is a conversation to have.
Speaker 3: President Biden has been clear, and so have a lot
Speaker 3: of other people that they would like to see a
Speaker 3: manufacturing renaissance in this country. The IRA and some of
Speaker 3: the infrastructure bill and other things are heavily tilted toward
Speaker 3: making things here rather than elsewhere. But we have to
Speaker 3: recognize that we cannot produce most things on a globally
Speaker 3: competitive cost basis. We just have too high of wage structure,
Speaker 3: we have too high of an overall cost structure. We
Speaker 3: have much tougher environmental restrictions, which we should have in
Speaker 3: my opinion, but which add to cost. We have permitting
Speaker 3: problems which add to cost, and now those are unnecessary,
Speaker 3: and so I expect that. So people who basically say
Speaker 3: we're going to have this big manufacturing renaissance, I think
Speaker 3: are kidding themselves, and frankly kidding the American Steve.
Speaker 6: Is always great to have you on.
Speaker 1: Thank you so much. Thanks Stephen Radnery of will It Advisors,
Speaker 1: and he is fortunately a regular contributor to Wall Street Week.
Speaker 1: Coming up, we wrap up the week with special contributor
Speaker 1: Larry Summers of Harvard.
Speaker 2: We've still got very real risks to the soft landing scenario.
Speaker 6: That's next on.
Speaker 1: Wall Street Week on Bloomberg. You're listening to Bloomberg Wall
Speaker 1: Street Week with David Weston from Bloomberg Radio.
Speaker 6: This is Wall Street Week.
Speaker 1: I'm David western We're joined once again by our very
Speaker 1: special contributor here in Wall Street Week. He is Larry
Speaker 1: Summers of Harvard. Larry, thank you so much for being
Speaker 1: back with us. Let's start with the Fed. We did
Speaker 1: hear from the Fed today we have a new statement
Speaker 1: of economic projections. What did you make about what we
Speaker 1: heard from jpiwele the chair about where we are?
Speaker 2: I thought, broadly it was in line with expectations.
Speaker 6: Broadly it was reasonable.
Speaker 2: I think the tilt to being worried about inflation was correct.
Speaker 2: I still think the FED is considerably too optimistic. It's
Speaker 2: possible that we will have the proverbial soft landing, but
Speaker 2: I think the risks that inflation will be worse than
Speaker 2: what they say are very real. You've got the UAW strike,
Speaker 2: You've got oil prices having spiked, you've got a budget
Speaker 2: deficit that this year will approach eight percent of GDP
Speaker 2: if you take out the student loan accounting item, and
Speaker 2: you've got a variety of technicals like in health insurance
Speaker 2: that are getting ready to kick in. So I think
Speaker 2: you've got real concerns on the inflation side, and at
Speaker 2: the same time you've got concerns on the other side
Speaker 2: that the consumer.
Speaker 6: Since Labor Day, it's not.
Speaker 2: Much time yet, but looks like the consumer is slowing
Speaker 2: a bit. Delinquencies are starting to rise. There's some wall
Speaker 2: of maturities that's going to come due over the next year.
Speaker 2: So it's certainly possible that it will work out as
Speaker 2: the Fed has it with inflation getting back to two
Speaker 2: with only negligible increases in unemployment, But that strikes me
Speaker 2: as more of a goal than a forecast. So I
Speaker 2: think we've still got very real risks to the soft
Speaker 2: landing scenario, both from the no landing continued inflation the
Speaker 2: Fed's going to have to raise rates more than it
Speaker 2: now expects side, and from the fact that every recession
Speaker 2: that we've had for a generation. People have been talking
Speaker 2: soft landing right before it, and they've turned out to
Speaker 2: be wrong. So I think that people just a little
Speaker 2: too optimistic right now, and I think the FEDS caught
Speaker 2: into that optimism. And you know, on the one hand,
Speaker 2: things won't be any better than and you aspire for
Speaker 2: them to be. On the other hand, it's a good
Speaker 2: idea to under forecast and overperform. So it's a very
Speaker 2: difficult balance that the FED has to walk. But my
Speaker 2: suspicion is that it's more likely than not that they're
Speaker 2: either going to get surprised on the higher inflation side
Speaker 2: or on the week or output downturn side, or possibly
Speaker 2: both could materialize in a stagflationary kind of dynamic.
Speaker 1: Larry, you mentioned the OAW strike that is ongoing as
Speaker 1: we speak here, and the risk for the upside on
Speaker 1: inflation there coming out of that. What do you make
Speaker 1: of where we are right now in that because my
Speaker 1: point of view looking at it is I'm not sure
Speaker 1: where these parties can come to. Yes, between the two
Speaker 1: of them, they seem to be almost really opposed on
Speaker 1: some very basic things.
Speaker 2: Look, it's always easier to compromise on numbers that it
Speaker 2: is like, you know, how big is the way age
Speaker 2: increase is going to be than it is on principles
Speaker 2: like what's going to happen to the battery factories. It's
Speaker 2: easier to compromise on numbers like the size of pension
Speaker 2: packages than it is on questions like changing the separate
Speaker 2: wage structure for recently hired workers. So they've still got
Speaker 2: questions of principle as well as questions of numbers separating them.
Speaker 2: So this may go on for a while. And I
Speaker 2: think there are two big questions. One is what will
Speaker 2: the spillover be to the larger economy and to the
Speaker 2: Midwestern economy, including through price increases if cars get scarce,
Speaker 2: and what that means for automobile and used car prices.
Speaker 2: I also think there's some real questions here about when
Speaker 2: you have these highly publicized labor conflicts and you see
Speaker 2: what's likely to be a big number for the wage increase,
Speaker 2: I suspect that's going to give a lot of workers
Speaker 2: in a lot of places some pretty big ideas, and
Speaker 2: that may be a source of wage pressure as well,
Speaker 2: which complicates the issues around inflation. So this is a
Speaker 2: very difficult thing to manage, and I suspect it's going
Speaker 2: to be one of those things that will be with
Speaker 2: us for quite a while.
Speaker 1: Well, you raise a really important, profound point here, Is
Speaker 1: it possible we're looking at something more than a couple
Speaker 1: of labor disputes into more of a fundamental shift in
Speaker 1: the power between capitol and the one hand and labor
Speaker 1: on the other. Because we've had this with the ports
Speaker 1: in Los Angeles, we had at UPS, We've got the
Speaker 1: Writers Guild out there are a lot of other ones,
Speaker 1: and as you know, Larry, there has been a shift
Speaker 1: in the past really away from labor in.
Speaker 6: The power layer.
Speaker 1: You've even talked about the importance of organized labor.
Speaker 6: I think that's the question.
Speaker 2: I mean, I think there's no question my mind that
Speaker 2: a lot about what's happened in the economy over the
Speaker 2: last several decades can be explained by changes in labor power.
Speaker 2: I think that's contributed substantially to increased inequality.
Speaker 6: I think that's.
Speaker 2: Contributed substantially to rising wage differentials between industries. I think
Speaker 2: it's probably been a contributor to the flexibility that's allowed
Speaker 2: the normal rate of unemployment to come down as well.
Speaker 2: So it's been a two edged thing, and we may
Speaker 2: be looking at things go in the opposite direction.
Speaker 1: Larry, you have been outspoken on this program and elsewhere
Speaker 1: about the plight of Ukraine and what the United States
Speaker 1: and the West should be doing, particularly when it comes
Speaker 1: to some of the Russian government assets, not private but
Speaker 1: government assets. We've had President Zelenski, of course, at the
Speaker 1: UN in New York this week, then going on to Washington.
Speaker 1: Where are you right now on what canon should be
Speaker 1: done with respective for perhaps reparations for Ukraine.
Speaker 2: I would just say this, it does little good to
Speaker 2: win wars if you don't win the peace. The peace
Speaker 2: in Ukraine can't be won without a viable economy that's able.
Speaker 6: To look to Europe.
Speaker 2: That's got a price stag that's measured in the hundreds
Speaker 2: of billions of dollars. There are enormous global needs that
Speaker 2: are already unmet, for climate change, for pandemic.
Speaker 6: For Africa.
Speaker 2: It's a very difficult budgetary time in the United States
Speaker 2: and other major economies. What those facts say to me
Speaker 2: is that we're not going to find hundreds of billions
Speaker 2: of dollars for Ukraine in our budgets, and that if
Speaker 2: we find a lot of money. It's going to be
Speaker 2: enormously expensive money in terms of what it means politically
Speaker 2: and in terms of what it means for the rest
Speaker 2: of the world. And there's a place we can go
Speaker 2: for those resources. We can go to the assets of
Speaker 2: the Russian state that have already been seized and frozen
Speaker 2: and made unavailable to the Russian state. So it's practically necessary,
Speaker 2: morally right, and legally entirely legitimate. And I hope that
Speaker 2: President Zelenski will push President Biden on the issue. I
Speaker 2: hope that President Biden will push his lawyers. He's had
Speaker 2: pretty flexible lawyers when it's come to matters like student
Speaker 2: debt relief, when it's come to matters involving environmental protection,
Speaker 2: it would take a lot less flexibility to free up
Speaker 2: resources here and in Europe for Ukraine at a critically
Speaker 2: important time, and by doing it, we would also make
Speaker 2: it possible for the world to have a much more
Speaker 2: robust climate change global poverty effort going forward.
Speaker 1: Larry, thank you so much for being back with us
Speaker 1: on Wall STREETEK.
Speaker 6: That's Larry Summers of Harvard coming up.
Speaker 1: Jose Maniah of novegne On Investment ideas you may not
Speaker 1: have thought of. And that's next on Wall Street Week
Speaker 1: on Bloomberg. This is Bloomberg Wall Street Week with David
Speaker 1: Weston from Bloomberg Radio. This is Wall Street Week. I'm
Speaker 1: David Weston. As the Fed hit the theme of higher
Speaker 1: for longer once again this week, investors may need to
Speaker 1: be looking for opportunities in different places. Here for his
Speaker 1: thoughts on where those might be is Jose Mania. He
Speaker 1: is CEO of New Vene. So Jose welcome back, great
Speaker 1: Todavi and Wall Street.
Speaker 4: Always good to be here, David.
Speaker 1: So you were responsible for so many investors and their decisions.
Speaker 1: It does look like we're going to have higher rates
Speaker 1: for longer. We can talk about how much longer, but
Speaker 1: how does that change potentially investment decisions.
Speaker 4: At this point, I'm going to go back to a
Speaker 4: narrative we've been talking about for quite a while. If
Speaker 4: you go back in the previous decade, or we've had
Speaker 4: more than a decade long of just rising markets and
Speaker 4: low interest rates, at that time, we would talk about, hey,
Speaker 4: you should be thinking about inflation. At some point. It's
Speaker 4: going to show up. By the way, you may want
Speaker 4: to have assets that are not correlated to each other
Speaker 4: in your portfolio because you may have more volatility. And
Speaker 4: by the way, rates eventually will rise. They go down
Speaker 4: over time, and it takes a while as they go
Speaker 4: back up, but they will start rising. That's why that narrative,
Speaker 4: which was one that was largely academic, around alternatives and
Speaker 4: how do you get a better portfolio, better correlated assets.
Speaker 4: Today it's not an academic discussion. It's an urgency. So again,
Speaker 4: going after things like private credit, going after things like
Speaker 4: farm land that we've talked about here before, timber infrastructure,
Speaker 4: private equity in general. These are things that are going
Speaker 4: to be important that today largely have only been accessed
Speaker 4: by large institutional, sophisticated investors.
Speaker 1: If you go back just a short time ago, all
Speaker 1: the talk and investing was about ESG, supposedly ESG Environmental
Speaker 1: Social Governance investing. Now we see some retrenchment, We see
Speaker 1: some of the big guys really pulling down some of
Speaker 1: the funds that they created for ESG. By the way,
Speaker 1: you see the government of the United Kingdom putting off
Speaker 1: some of the dates that that that we're talking about.
Speaker 1: Is ESG investible at this point? Is it less investable
Speaker 1: than it was?
Speaker 4: I believe what you're hearing in the narrative today is
Speaker 4: actual tailwinds for the ESG discussion. And I say that
Speaker 4: because ten years ago people would ask me the question,
Speaker 4: is this thing real people are talking about clients really
Speaker 4: want to buy it?
Speaker 6: Now?
Speaker 4: I would always say, you'll know when it's real when
Speaker 4: the regulators show up. You know when it's real when
Speaker 4: it becomes a political issue. And the reason is that's
Speaker 4: when you know money is really in motion. Will wake
Speaker 4: up when money is in motion. What is not going
Speaker 4: to go away is the risks embedded in around environmental issues,
Speaker 4: climate risk. These things are hitting portfolios. What's not going
Speaker 4: away is client demand for this as well.
Speaker 1: Jose it's always such a treat to heavy here. Thank
Speaker 1: you so much for spending time with us. That is
Speaker 1: jose Mania of Nuvene. Finally, one more thought clothes maketh
Speaker 1: the man, so wrote Erasmus in his collection of Adages
Speaker 1: from fifteen oh eight, though a version of this particular
Speaker 1: adage can be traced all the way back to Homer
Speaker 1: or maybe even the Babylonians. Until recently, many the man
Speaker 1: walking the halls of power, that's whether corporate or government
Speaker 1: took the maxim quite seriously, invariably showing up in the
Speaker 1: uniform of a well cut suit, a white shirt and
Speaker 1: a power tie.
Speaker 9: The richest one percent of this country owns half our
Speaker 9: country's well five trillion.
Speaker 1: Dollars, and women haven't been far behind as they adopted
Speaker 1: their own versions of power suits.
Speaker 4: Hold all colls, Miss McGill, he has Cynthia.
Speaker 6: You can I get you anything. This is a trainer
Speaker 6: for feet.
Speaker 2: To me?
Speaker 1: Is that you right?
Speaker 3: That'll be all.
Speaker 1: But the pandemic may have changed all that as people
Speaker 1: learn to work from home, where it didn't matter whether
Speaker 1: you were wearing your power suit or your tracksuit.
Speaker 13: People who sat at home, which I'm not a fan of.
Speaker 13: Today people who were home were dressing casually. But I
Speaker 13: think that the world is going very much in a
Speaker 13: different place.
Speaker 1: So as CEO's chafe at their workforce is not showing
Speaker 1: up at the office, at least physically.
Speaker 14: My golden rule is don't put the genie back in
Speaker 14: the bottle.
Speaker 6: You can't.
Speaker 14: On the other hand, it's not a complete This is
Speaker 14: not an employee choice. They don't get to Jewessday compensation,
Speaker 14: they don't get to Jewsday promotion, they don't get to Jews.
Speaker 14: Stay I'm five days a week. I want them with
Speaker 14: other employees at least three or four days.
Speaker 1: They may want to consider giving the incentive of some
Speaker 1: extra perks. And now it turns out that no less
Speaker 1: than the United States Senate is moving to loosen its
Speaker 1: dress code for our nation's highest elected legislators. Call me
Speaker 1: old fashioned, my wife and children certainly do. But I
Speaker 1: still think how you dress says something about how seriously
Speaker 1: you take what you're doing.
Speaker 6: Now, I did not tell you dress copriately.
Speaker 13: I wore this ridiculous things for you.
Speaker 1: That does it. For this episode of Wall Street Week,
Speaker 1: I'm David Weston. This is Bloomberg.
Speaker 8: Stay with us.
Speaker 1: Today's top stories and global business headlines are coming up
Speaker 1: right now.