Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: We turn our attention to the markets this week. USCPI
Speaker 2: Nembers reinforcing concerns about inflation, the financial stories that shape
Speaker 2: our work. A really different reaction to Mark. It's more
Speaker 2: indications of just how hot the US economy really is.
Speaker 2: Through the eyes of the most influential voices. Larry Summers,
Speaker 2: the former Treasurer Secretary, Katherine Keating, CEO of bny ME
Speaker 2: and Sam Zel Sharman and founder of Aquatic Group Investment.
Speaker 2: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: Mixed signals from the economy, from earnings, but not from
Speaker 2: President Biden. This is Bloomberg Wall Street Week. I'm David Weston.
Speaker 2: This week special contributor Larry Summers on whether we're headed
Speaker 2: for a recession after.
Speaker 3: All the odds on that happening sometime in the next
Speaker 3: twelve months, I think are pretty good, perhaps seventy percent.
Speaker 2: Former IBM Haad Sam Palmasano on next steps for generative AI.
Speaker 4: Business leaders and companies can show the way they could
Speaker 4: establish the guard wear.
Speaker 2: And Steve Rattner of Willett Advisors on how to invest
Speaker 2: in China.
Speaker 5: On the plus side, I would say China's back.
Speaker 2: The flip side of it is clearly they're a bit
Speaker 2: off balance. Global Wall Street spent the week pouring over
Speaker 2: a lot of data looking for a signal in all
Speaker 2: of that noise. Big tech earnings are surprised to the upside.
Speaker 6: They have had such large gains in this sector, not
Speaker 6: even the sector as a whole, but these fang names.
Speaker 2: But most of the talk was about artificial intelligence and
Speaker 2: what it could mean for the tech industry, and for
Speaker 2: that matter, for us.
Speaker 7: All AI is bigger than any single company, or any
Speaker 7: single industry, or indeed any single country.
Speaker 2: And after all those encouraging earnings last week from the
Speaker 2: big banks, we learned just how bad things had gotten
Speaker 2: for credit suitees before UBS came to the rescue.
Speaker 5: In three to four years time.
Speaker 4: I like to see the employees of the combined organization
Speaker 4: this country, our clients to be very proud to be
Speaker 4: associated with the UBS.
Speaker 2: And then at the very end of the week, reports
Speaker 2: came that the FDIC will put First Republic Bancorp into receivership,
Speaker 2: saying the time had run out for a private solution.
Speaker 2: President Biden was unambiguous in telling us bed indeed, he
Speaker 2: would like another four years in the White House.
Speaker 5: Let's finish this job.
Speaker 2: There's nothing that.
Speaker 5: We cannot do the thing together.
Speaker 2: And economic numbers pointed in both directions, with home prices
Speaker 2: and sales up.
Speaker 7: If housing comes back does not give the consumer.
Speaker 2: Another boost, consumer confidence down.
Speaker 6: The consumer confidence number really interesting for April, so overall
Speaker 6: it falls a touch, and.
Speaker 2: GDP numbers out Thursday mixed as well, slowing in the
Speaker 2: first quarter, but not as much as some had feared.
Speaker 2: Then on Friday we got consumer spending numbers and the
Speaker 2: all important Employment Cost Index showing spending was flat, while
Speaker 2: the ECI moved up higher than expected one point two
Speaker 2: percent for the first quarter. Markets took it all pretty
Speaker 2: much in stride, with the yield and the tenure down
Speaker 2: about thirteen basis points for the week, ending up at
Speaker 2: three four hundred three point four to three nine, while
Speaker 2: equities held up nicely. The Nasdaq was up almost one
Speaker 2: point four percent for the week, while the sp five
Speaker 2: hundred was up almost nine ten to percent, leaving it
Speaker 2: at forty one sixty nine, or about ninety four points
Speaker 2: above the median of where our l's projected will end
Speaker 2: the year. One of the most prominent of the l's
Speaker 2: Mike Wilson of Morgan Stanley is one of our most
Speaker 2: parish He's projecting at a year end of about thirty
Speaker 2: nine hundred and this week he noted a shift. This
Speaker 2: is according to Mike, while macro news has taken a
Speaker 2: larger focus in recent weeks, the reporting season has the
Speaker 2: potential to refocus investors' attention on equity fundamentals. To take
Speaker 2: us through the week in the markets, we welcome now
Speaker 2: Greg Peters PGIM Cocio for fixed income and Monama Hodgen.
Speaker 2: She is Edward Jones, Senior investment strategist. Welcome both you
Speaker 2: back to Wall Street weeks. So Moon, let me start
Speaker 2: with you. What about what Mike Wilson had to say?
Speaker 2: Are we looking at fundamentals now more than some of
Speaker 2: the macro factors we have been?
Speaker 6: Yeah, you know, look, I think Mike got it right.
Speaker 1: This week.
Speaker 6: Certainly markets were driven by those earnings results, and really
Speaker 6: their earnings results from the megacap technology names, and as
Speaker 6: you noted, they surprised, and the surprised to the upside.
Speaker 6: And that wasn't only earnings beats. A lot of them
Speaker 6: are now showing that their business models are resilient even
Speaker 6: through economics swings, and also they are showing off a
Speaker 6: little bit of their cash piles. We saw a couple
Speaker 6: of very big share buyback programs announced this week as well,
Speaker 6: and we saw at the end of the week really
Speaker 6: equity markets were bullish, they were positive for the week,
Speaker 6: and that came even despite softer than expected GDP data
Speaker 6: inflation data that might be a little bit stickier than
Speaker 6: some might have hoped for. So generally for the last
Speaker 6: couple of weeks, it certainly has been the earning story
Speaker 6: driving markets and really driving those growth sectors in particular.
Speaker 6: But as we look towards the weeks ahead, especially next week,
Speaker 6: when the FED becomes more in focus again and as
Speaker 6: the economy and inflation continues to remain to the forefront,
Speaker 6: I think we'll see a swing from earnings and equity
Speaker 6: fundamentals to macro picture becoming more in focus in the
Speaker 6: weeks ahead as well. So it's certainly right for this week.
Speaker 2: Greg what's driving the fixed income markets.
Speaker 8: It is inflation, the economy, and what is the FED
Speaker 8: going to do about it? So we're on knife's edge
Speaker 8: in fixed income, whether it's a recession or soft landing.
Speaker 8: There's talk of sagflation still, of course, and the data
Speaker 8: are so all over the place in this furse that
Speaker 8: you can basically draw a narrative or conclusion from you know,
Speaker 8: the data in any way you want.
Speaker 2: Well, so I'm curious about that because the tenure yield,
Speaker 2: at least in my eye, has not been going much
Speaker 2: of anywhere anytime soon. Is that because people are happy
Speaker 2: with where it is, or it's because they can't just
Speaker 2: decide anyway they look, it could go either way, They
Speaker 2: just can't tell.
Speaker 8: Yeah, and so that masks you know, what's underneath. And
Speaker 8: so what we're seeing though on an inter day basis
Speaker 8: in the week, the the moves are pretty extreme. So
Speaker 8: fixed income volatility remains really really high. So yes, the
Speaker 8: tenure is virtually unchanged this month of April, but the
Speaker 8: swings are pretty substantial and mona.
Speaker 2: What about in the equity markets? What are we seeing
Speaker 2: in the fix is pretty subdued, is it not?
Speaker 1: Yeah?
Speaker 6: You know, it really is. One of the key stories
Speaker 6: that has emerged over the last few weeks, which is
Speaker 6: that volatility index some call it the Wall Street fear gauge,
Speaker 6: has been very subdued. In fact, down about twenty five
Speaker 6: percent year to date, which shows a bit of complacency
Speaker 6: from the markets and perhaps a little bit of investors
Speaker 6: hiding out. You know, keep in mind, cash and cash
Speaker 6: equivalents are offering attractive yield, so investors do want to
Speaker 6: wait for better opportunities. They certainly had an alternative now
Speaker 6: that is a pretty attractive alternative. But generally speaking, you know,
Speaker 6: some of the catalysts that were supposed to emerge early
Speaker 6: on this year, including earnings, including the FED potentially next week,
Speaker 6: and including this economic downtry, really haven't yet surprised in
Speaker 6: any material way, and so I do think markets have
Speaker 6: yet to see a meaningful catalyst. Perhaps the FED pause
Speaker 6: that maybe on the horizon will be that one.
Speaker 2: Well, well, Mona, what about the possibility of recession, because
Speaker 2: we still have a lot of economists saying that it's
Speaker 2: more likely than that, perhaps as highest seventy percent likelihood.
Speaker 2: I don't think I can see that very much in
Speaker 2: the equity markets. So does the equity markets know something
Speaker 2: the economists don't, or do the economists know something maybe
Speaker 2: the equity markets don't.
Speaker 6: Yeah, you know, look, I think this recession that is
Speaker 6: on the horizon is probably one of the worst kept
Speaker 6: secrets that's out there among economists and investors. Everybody has
Speaker 6: been talking about it. The deceleration. We saw this this
Speaker 6: past week. In first quarter GDP has shown a slow
Speaker 6: down from three point two percent in Q three, two
Speaker 6: point six percent in Q four of last year this
Speaker 6: quarter one point one percent, So we're seeing this downward trajectory.
Speaker 6: The consumer is still holding up, but if you look
Speaker 6: at forecasts for Q three and Q four of this year,
Speaker 6: we are in fact seeing negative and slightly negative annualized
Speaker 6: growth rates. So in our view, this idea that a
Speaker 6: mild recession is on the horizon is very likely still
Speaker 6: probably still a base case scenario, and markets won't be
Speaker 6: able to completely ignore that. But keep in mind, we
Speaker 6: did put in a lot of work to the downside
Speaker 6: over the last fifteen months or so. The SMP went
Speaker 6: down almost twenty five percent.
Speaker 1: Peak to trough.
Speaker 6: We don't see a repeat of that happening even if
Speaker 6: we have a mild recession ahead. So any period of
Speaker 6: volatility consolidation pullback, we think could provide some opportunities for
Speaker 6: investors as they look past this bear market and perhaps
Speaker 6: towards a recovery period ahead.
Speaker 2: Greg what about the bond markets, because we got a
Speaker 2: lot of economic data this week and it showed sort
Speaker 2: of slow in growth, perhaps, but inflation is not going away.
Speaker 2: Maybe a head in the right direction is not going away.
Speaker 2: Are the bond markets prepared for the possibility to Fed
Speaker 2: hiking even past May No.
Speaker 8: In fact, the market's pricing in the opposite, right, they're
Speaker 8: pricing in rate cuts in the back end of this year.
Speaker 8: And to me, that is, you know, the risk markets
Speaker 8: are ignoring that if the Fed cuts, that means we
Speaker 8: are into a recession or much weaker period. But the
Speaker 8: binding constraint continues to be inflation, and I think we're
Speaker 8: in a very different environment.
Speaker 2: We've been so accustomed to the FED coming to.
Speaker 8: The rescue and it's much easier to do that when
Speaker 8: they're operating below that two percent level. When they're above,
Speaker 8: and they're pretty meaningfully above, their degrees of freedom really
Speaker 8: really get much tighter. So I think the markets are
Speaker 8: miscalibrating what the Fed can do.
Speaker 1: And the opposite is also.
Speaker 8: True, David, where if the numbers continue to assert themselves
Speaker 8: on the inflation side, there's more work to do, And
Speaker 8: the markets have been consistently wrong on the level of
Speaker 8: inflation and what the Fed's response function.
Speaker 2: Yeah, as has a FED quite often wrong, as best
Speaker 2: I can tell. Greg Peers of PGUM and Mona Mahagron
Speaker 2: of Edward Jones. We're going to be staying with us
Speaker 2: as we turn to what a failed First Republic could
Speaker 2: mean for the markets. That's next on Wall Street Week.
Speaker 2: We're on Bloomberg. This is Bloomberg Well Street Week with
Speaker 2: David Weston from Bloomberg Radio. This is Wall Street Week.
Speaker 2: I'm David Weston. The saga of American banks continued this
Speaker 2: week with news that First Republic is headed apparently for receivership.
Speaker 2: To talk about what that could mean for the market,
Speaker 2: it's Monamahadgen of Edward Jones and Greg Peters and PGUM
Speaker 2: are still with us. So Greg, let me turn to
Speaker 2: you first. We don't know exactly what's going on with
Speaker 2: the First Public. Let's assume it does go into receivership,
Speaker 2: as reports right now say it will. What does that
Speaker 2: mean for the markets as a practical matter.
Speaker 8: I think what it means is that the market will
Speaker 8: continue to search for the next weekest link and so
Speaker 8: First Republic has been very much in the market the
Speaker 8: past month or so, so it's not a complete and
Speaker 8: utter surprise, but the markets are really looking to suss
Speaker 8: out the week players to see whether it's systemic or not.
Speaker 8: But I think the real issue on the table is
Speaker 8: how broad is the pullback and lending on the regional
Speaker 8: and community bank side, and what influence does that have
Speaker 8: on the market and the economy. And you know that
Speaker 8: contraction of credit is really meaningful because it goes to
Speaker 8: the small and medium sized businesses, which quite frankly are
Speaker 8: the lifeblood of the economy and the labor market.
Speaker 2: So what doesn't mean potentially for equities, but in fact
Speaker 2: we continue to contract on the credit side because the
Speaker 2: banks are under control, under stress, and they get more
Speaker 2: and more conservative as a practical matter.
Speaker 6: Yeah, you know, it certainly has been interesting on equities.
Speaker 6: Of course, financials have had some difficulty this year and
Speaker 6: in fact still down here to date one of the
Speaker 6: worst performing sectors on the S and P five hundred,
Speaker 6: and part of that, of course is the banking turmoil
Speaker 6: we've seen over the last month and now at first
Speaker 6: Republic coming back to the forefront. Really, the question, to
Speaker 6: Greg's point, is is there another shoe to drop after
Speaker 6: First republic and market uncertainty, of course, is never welcomed
Speaker 6: by investors. But what we would say is one the
Speaker 6: bank tightening of credit, and that actually had started even
Speaker 6: prior to the March turmoil. We started to see metrics
Speaker 6: like the Senior Loan Officers Survey starting to show meaningful tightening.
Speaker 6: So what that means is banks will make it harder
Speaker 6: for consumers and corporations to get loans. Now that that's
Speaker 6: a double edged sword. On one side, yes, economic activity
Speaker 6: will cool and the economic growth prospects look worse, But
Speaker 6: on the other hand, the inflationary story we've been talking
Speaker 6: about could see a marginally less pressure on inflation, inflation
Speaker 6: moderating even further because banks are pulling back, and consumption
Speaker 6: and corporate spending may thus pull back as well. So
Speaker 6: really we're watching both edges of that story, of both
Speaker 6: sides of that story. But more broadly, we'd say the
Speaker 6: volatility that we've seen in the financial sector we think
Speaker 6: probably has some room to run here. But one final
Speaker 6: point there, we don't yet see any systemic disruption or
Speaker 6: any scope for a systemic disruption to the US or
Speaker 6: global banking system. We do think large cap banks here
Speaker 6: in the US are still sound and much better.
Speaker 2: Thank you so much, Tomana Mahadjen of Edward Jones and
Speaker 2: also Greg Peters of p JIM. In a week full
Speaker 2: of big tech earnings, all the talk was really about
Speaker 2: generative AI, it's potential and also some of the potential
Speaker 2: risks to take us through. Those who welcome now Sam Palmasano.
Speaker 2: He was the chairman and CEO of IBM. He now
Speaker 2: is chairman of the Center for Global Enterprise. So Sam,
Speaker 2: great to have you back with us on Wall Street week.
Speaker 2: Let me put you back as either CEO of IBM
Speaker 2: or another huge corporation publicly traded. What would you be
Speaker 2: doing right now today to prepare for or to incorporate AI.
Speaker 4: Well, David, it's an excellent question, and as I think
Speaker 4: about it, I would think about all the lessons I've
Speaker 4: learned in the past, either running an IBM or or
Speaker 4: if I was currently a CEO, what I've learned over
Speaker 4: the past ten or fifteen years, and that is that
Speaker 4: we face these challenges before, there's always been these disruptive
Speaker 4: technologies to come along. They represent from phenomenal promise, but
Speaker 4: also they can be disruptive.
Speaker 5: There are a couple of different paths.
Speaker 4: I mean, I'll make some suggestions, but you can dismiss it,
Speaker 4: you can wait and see.
Speaker 5: But then you know, you learn we learned.
Speaker 4: In the last time that you can be left behind
Speaker 4: if you do that and other leaders have urge in
Speaker 4: your peer group. Another way to do is let it
Speaker 4: just go like that would be the early days of
Speaker 4: the internet.
Speaker 5: Just let it run.
Speaker 4: And then the problem is then you have to clean
Speaker 4: it all up, you know, and that takes time, you
Speaker 4: lose some momentum, as it cost you some money, and
Speaker 4: those sorts of things. But I would start with creative
Speaker 4: management system that takes advantage of these technologies in your
Speaker 4: strategy and implement that company wide. The benefit of starting
Speaker 4: there is you won't have the problems of the past
Speaker 4: with digitization in the Internet, and plus you can scale
Speaker 4: and integrate and learn a lot quicker once you get
Speaker 4: your footing and you know where you want to go
Speaker 4: to take your business. The other thing is that I'll
Speaker 4: add is these technologies are going to mature, and they will.
Speaker 4: I mean, there's a lot of innovation yet to come.
Speaker 4: As exciting as this is a lot more to happen here,
Speaker 4: and it has to happen in other gaps that need
Speaker 4: to be filled. Having said that, it becomes ubiquitous, which
Speaker 4: means it touches everybody in your workforce. So you have
Speaker 4: to think about the jobs, the nature and work and
Speaker 4: how it changes how you develop skills. And it's not
Speaker 4: go out hire three data scientists. You're going to have
Speaker 4: to train and educate your people across the entire enterprise.
Speaker 4: And the last one, I would think ask them to
Speaker 4: think about or I would think about culture. Culture are
Speaker 4: so so important you need to adopt ethical principles for AI.
Speaker 4: We see the issues today for companies that haven't done that.
Speaker 4: You need to be trusted in this space if you're
Speaker 4: an enterprise. But they're the things that a management system
Speaker 4: think about, learning of your employee base and the impact
Speaker 4: to them and your culture.
Speaker 2: One of the issues I suspect is productivity. I mean AI,
Speaker 2: a generative AI has the potential at least to really
Speaker 2: increase the productivity of a company, something that we're always
Speaker 2: looking for. How do you make sure that you take
Speaker 2: advantage of that as a CEO without letting it go
Speaker 2: too far?
Speaker 4: Well, that's exactly the point fundamentally, which you need to
Speaker 4: do is I would say you need to think about
Speaker 4: the technology as a compliment to what's going on today.
Speaker 4: So therefore your knowledge worker can become an expert not
Speaker 4: just an average knowledge worker. Or a teacher can become
Speaker 4: an expert teacher, not just a participant.
Speaker 5: In teaching grammar or language, whatever happens to be.
Speaker 4: So if you think about that way, you said, how
Speaker 4: do you compliment the technology with the actual the.
Speaker 5: Work of the knowledge worker in your organization? I think
Speaker 5: if you.
Speaker 4: Do that, you won't have all the chaos that occur historically.
Speaker 4: I mean, chaos is okay, we learned, I mean, so
Speaker 4: there's nothing wrong with learning, but let's take the learning
Speaker 4: into the past.
Speaker 5: And try to avoid those as we get into the future.
Speaker 2: Here, Sam, what is the role if any of the
Speaker 2: government all this. There's a lot of time about regulation.
Speaker 2: We already saw it. China come out with a draft
Speaker 2: or set of regulations basically saying whatever you do with
Speaker 2: this general of AI, it's got to be consistent with
Speaker 2: our values, which is all the censorship that comes with that.
Speaker 2: So when it comes to US government, Europe, India, what
Speaker 2: is the constructive role of government in really directing AI
Speaker 2: in constructive ways?
Speaker 4: Well, I think government does have a role, and we
Speaker 4: see what happens when government's late to get ahead of
Speaker 4: these kinds of issues. You see that today with the
Speaker 4: social media companies and the issues around data and data privacy.
Speaker 5: So there's clearly a role.
Speaker 4: But the challenge is, as we know, and as we've learned,
Speaker 4: these regulations and standards have to be global. I mean,
Speaker 4: standards will emerge over time that are global. That takes
Speaker 4: a long time. So in the interim, what does a
Speaker 4: regulator do? And that's laid out the problem, David. That's
Speaker 4: where it's complicated because there's different systems. I'll call it
Speaker 4: the Chinese control system, there's the open system of the
Speaker 4: United States, and let's see some of the West.
Speaker 5: But then you're somewhere in between.
Speaker 4: So how do you get global regulation that's consistent And
Speaker 4: to do this regionally just won't work. It won't work
Speaker 4: because fundamentally, these platforms are global by definition. They're open
Speaker 4: source software by definition. So I know reagions think they
Speaker 4: can take control, but the technology moves so fast they
Speaker 4: will really struggle in doing so unless you completely shut
Speaker 4: the place down and you wall it off, but that
Speaker 4: has economic implications.
Speaker 5: So to me, the question is in the interim, what
Speaker 5: do you do? And I think there's a role here
Speaker 5: for business leaders and companies.
Speaker 4: I think business leaders and companies can show the way
Speaker 4: they could establish the guard wails, the principles ethical transparency
Speaker 4: and implement this themselves.
Speaker 2: And finally, Sam, this week we had some of the
Speaker 2: biggest tech companies reporting earnings and almost all the discussion
Speaker 2: was really about AI and generative AI and its potential.
Speaker 2: And there are people in the street you know this
Speaker 2: right now who are saying, maybe this will give a
Speaker 2: new impetus to the tech sector generally. It has been
Speaker 2: such a growth sector for so long that it was
Speaker 2: waning just a little bit in the growth. Now they say,
Speaker 2: but it's a whole new wave. Do you think they're right?
Speaker 4: Well, it's definitely going to be a huge growth in
Speaker 4: innovation opportunities, There's no doubt about it. The question of
Speaker 4: David is who emerges as the winner here. So I'll
Speaker 4: take you back a little bit in history. If I
Speaker 4: go back like fifty years of the tech industry, it's
Speaker 4: interesting you see these patterns of who emerge as the
Speaker 4: winner take client server to cloud.
Speaker 2: Sam, thank you so much, as always a treasure to
Speaker 2: have you back on Wall Streetek. That Sam PALMASONO, the
Speaker 2: former chairman and CEO of IBM, coming up. We wrap
Speaker 2: up the week with our special contributor Larry Summers of Harvard.
Speaker 2: That's next on Wall Street Week on Bloomberg. This is
Speaker 2: Wall Street Week. I'm David Western. We're joined once again
Speaker 2: by our very special contributor here in Wall Street Week.
Speaker 2: He is Larry Summers of Harvard. So, Larry, thank you
Speaker 2: so much for being vick with us.
Speaker 1: We had a lot of.
Speaker 2: Important economic data this week. We got the first quarter
Speaker 2: of GDP numbers, We've got personal spending, we got ECI.
Speaker 2: What was most important.
Speaker 1: For you, David.
Speaker 3: I've been pointing to the ECI number because I think
Speaker 3: the labor market is the key to the inflation process,
Speaker 3: because it only comes quarterly, because it's the best of
Speaker 3: the numbers for measuring wage inflation, because it includes benefits
Speaker 3: and adjusts for changes in the composition of the labor force.
Speaker 1: And that number was pretty strong.
Speaker 3: That number is running about four point eight percent now,
Speaker 3: both on an annual basis and a quarterly basis. There's
Speaker 3: not really evidence that it is decelerating. The revision for
Speaker 3: last quarter was a little bit upwards and four point
Speaker 3: eight percent labor costs. Inflation just does not go with
Speaker 3: two percent underlying inflation. So I think we've got a
Speaker 3: bit of a stagflationary problem developing, where we have a
Speaker 3: base inflation that's well above target, and as I've been
Speaker 3: saying for the last year and a half, I don't
Speaker 3: think that's going to get back to target without a
Speaker 3: meaningful slowdown in the economy. That doesn't mean the FED
Speaker 3: subjectives should be to induce a slowdown, but if the
Speaker 3: FED does what's necessary to contain inflation, I think a
Speaker 3: slowdown is likely to come along, and the odds on
Speaker 3: that happening sometime in the next twelve months, I think
Speaker 3: are pretty good, perhaps seventy percent. So I think we're
Speaker 3: not looking at an easy situation facing the FED. Given
Speaker 3: these numbers, I think it's pretty clear that the FED
Speaker 3: has to go ahead and move rates in May given
Speaker 3: the emerging credit problems. I think June is very much
Speaker 3: an open question. So what I hope we'll see from
Speaker 3: the FED is a move upwards by twenty five basis
Speaker 3: points in May, followed by commitment to monitoring both the
Speaker 3: activity and inflation figures on one hand, and the credit
Speaker 3: flow issues which are leading of the economy on the
Speaker 3: other So, Larry, there was.
Speaker 2: A thought, not a hope, but a thought that perhaps
Speaker 2: some of the difficulties we had at Silicon Valley Bank
Speaker 2: and Signature Bank and now First Republic Bank might slow
Speaker 2: down the economy on its own, so the FED wouldn't
Speaker 2: have to go as far. We thought maybe these were
Speaker 2: behind us, We'd now still have issues that looked up
Speaker 2: with First Republic What do you make of the way
Speaker 2: that's being handled as opposed to the way Silicon Valley
Speaker 2: Bank was handled.
Speaker 3: Let me let me just say first, David, that I
Speaker 3: am very connected to people all over the financial sector,
Speaker 3: but I have no specific relationship of any kind that
Speaker 3: I know of with First Republic Bank. I'm surprised and
Speaker 3: disappointed that this situation has continued to linger as long
Speaker 3: as it has, with the bank stock down ninety five
Speaker 3: percent and various other crediting dish of it in a
Speaker 3: problematic direction.
Speaker 1: Look, the big banks and the.
Speaker 3: Government both have a strong stake in this situation being
Speaker 3: contained and resolved. The big banks have deposits in First
Speaker 3: Republic Bank in significant quantity. They have a huge stake
Speaker 3: in the financial system staying stable.
Speaker 2: Lariy, let's take a bit of a longer view here
Speaker 2: now about where we're headed globally with our economy. Had
Speaker 2: Jake Sulim, the National Security Advisor, give remarks at the Brookings'
Speaker 2: decision this week where he laid out what I took
Speaker 2: to be sort of framework under the Bide administration where
Speaker 2: he wants to go with economic policy. What did you
Speaker 2: make of that speech?
Speaker 3: Jake is a very thoughtful leader, and it's probably the
Speaker 3: most carefully intellectually developed exposition of the administration's philosophy that
Speaker 3: we have had to date. And certainly he's right that
Speaker 3: the world has changed. He's right that China represents a
Speaker 3: new kind of challenge. He's right to emphasize, after what
Speaker 3: we've seen in Europe with oil other things, the importance
Speaker 3: of resilience. But I was disappointed that the speech did
Speaker 3: not emphasize the central importance of importing low priced goods.
Speaker 3: That is a substantial part of what determines the living
Speaker 3: standards of Americans, is a substantial part of what determines
Speaker 3: the competitiveness of American producers. For example, we have sixty
Speaker 3: thousand people working in the steel industry and six million
Speaker 3: people working in industries that use steel, So when we
Speaker 3: raise the price of steel, we are hurting people. The
Speaker 3: Peterson Institute estimated some time ago that trade reduced costs
Speaker 3: for consumers by more than a trillion dollars, and if
Speaker 3: we had removed our tariffs on other measures against China,
Speaker 3: it would have added two percent to people's reel incomes
Speaker 3: by reducing inflation pressure. I think that the administration is
Speaker 3: much too quick to move to to industrial policy strategies
Speaker 3: on grounds of resilience.
Speaker 1: Let me give you two examples.
Speaker 3: The Jones Act was the resilience policy of the nineteen twenties.
Speaker 3: Let's have all our shipping be US carriers. That's made
Speaker 3: the price of heating oil considerably.
Speaker 1: Higher in New England all year.
Speaker 3: That screwed up our efforts to help Puerto Rico after
Speaker 3: the hurricane because we didn't have adequate supplies. We had
Speaker 3: a major infant formula problem in this country that was
Speaker 3: related to by American policies. That meant we couldn't turn
Speaker 3: quickly to European supply chains.
Speaker 1: So of course, we're all for resilience.
Speaker 3: We're all for strong US producers and strong US businesses.
Speaker 7: But what I find missing in the approach is helping consumers, which,
Speaker 7: after all, is the middle class and is central to
Speaker 7: how people feel they're doing.
Speaker 2: Let's leave our audience on Wall Street here with a
Speaker 2: quick round of long short, Whether you're long or short
Speaker 2: certain issues and certain people. Let's start with President Biden's
Speaker 2: the launch of his new re election campaign. It happened
Speaker 2: this week. Are you long or short on us?
Speaker 1: I'm long.
Speaker 3: I think that the administration's got a lot that it
Speaker 3: can run on, and frankly, its opposition is in very
Speaker 3: substantial disarray.
Speaker 2: What about the head of the Bank of Japan this
Speaker 2: or way that he had his first meeting this week
Speaker 2: and surprise some people about sort of putting off ultimate
Speaker 2: decisions about you curve control? Are you long or short
Speaker 2: on his premiere?
Speaker 1: I think he's a cagy and shrewd guy. Any kind
Speaker 1: of peg.
Speaker 3: Whether it's an exchange rate or an interest rate, is
Speaker 3: a hotel that's much easier to check.
Speaker 1: Into than to check out of.
Speaker 3: And I think by setting forth that study mechanism, he
Speaker 3: is beginning a process of orchestrating leaving a peg that
Speaker 3: probably has outlived its purpose.
Speaker 2: And finally, we talked about the FED A lot we
Speaker 2: don't talk about FED security very much. This week we
Speaker 2: had this remarkable incident where apparently some people who were
Speaker 2: apparently Russian, purported to be President Zelenski of Ukrainian got J.
Speaker 2: Powell the share of the FED on the phone and
Speaker 2: had a fairly detailed discussion with him. You're long and
Speaker 2: short on security at the Federal Reserve.
Speaker 3: Oh, I'm short looking backwards. That I'm long looking forward
Speaker 3: because I'm sure there's going to be a pretty thorough
Speaker 3: review of how that could have happened, that's determined to make.
Speaker 1: That doesn't happen again.
Speaker 3: That's kind of an embarrassing, embarrassing moment. If there's any
Speaker 3: institution in the United States we want to be unconunable,
Speaker 3: I would suggest that it's the FED. But there are
Speaker 3: a lot of very dedicated people there, and I'm sure
Speaker 3: they'll get it fixed.
Speaker 2: Okay, Larry, thank you so very much. Always a pleasure.
Speaker 2: That's Larry Summers of Harvard, our very special contributor here
Speaker 2: on Wall Street Week. Coming up, The richest man in
Speaker 2: the World gives New York a brand new gifts from
Speaker 2: Tiffany's and he spares no expense. This is Wall Street
Speaker 2: Week on Bloomberg. Finally, one more thought. All the goods
Speaker 2: may not be gold, but some of it sure is.
Speaker 2: This week mark not one, but two milestones for luxury
Speaker 2: and particularly for the largest luxury company in the world, LVMH,
Speaker 2: or more correctly LVMH moet Hennessy Louis Viton. This week,
Speaker 2: the market cap of LVMH touched the five hundred billion
Speaker 2: dollar mark, making it the first European company to do that.
Speaker 2: Run by the world's richest man, he's Bernard Arnault, who
Speaker 2: has added the names of some of the best known
Speaker 2: luxury brands to the name of his company as he's
Speaker 2: acquired them. But one iconic luxury brand name didn't make
Speaker 2: it into the company's name. That is tiffany whose flagship
Speaker 2: store at Fifth Avenue fifty seventh Street. Audrey Hepburn made
Speaker 2: iconic in Breakfast at Tiffany's Don't You.
Speaker 1: Just Love It?
Speaker 2: Larbor Tiffany's, and that brings us to the second milestone
Speaker 2: of the week. When LVMH bought Tiffany's back in twenty
Speaker 2: twenty one for sixteen billion dollars, a renovation of the
Speaker 2: Fifth Avenue store was already underway, requiring them to move
Speaker 2: all those jewels to a safe location, hoping to avoid
Speaker 2: the sort of thing that happened in the Italian job
Speaker 2: truck LVMH won't say how much much at All costs,
Speaker 2: but it does include works by Basquat, Damien Hurst, and
Speaker 2: Rashid Johnson, as well as a restaurant from Daniel Balloon.
Speaker 2: So finally you will be able to get indeed breakfast
Speaker 2: at Tiffany's. The transformation of what they now called the
Speaker 2: landmark Tiffany's Store has been overseen by one of mister
Speaker 2: Arnault's five children, Alexandra, who it turns out, is going
Speaker 2: through a process with his father and his siblings, as
Speaker 2: mister Arnault has restructured his company to redistribute the power
Speaker 2: among the five with whom he has monthly power lunches,
Speaker 2: all in an effort to avoid that ugly succession process
Speaker 2: dramatized in the HBO.
Speaker 5: Series Always Tried.
Speaker 3: Could do the best by my children because I love them.
Speaker 2: Maybe you thought about the possibility that your children are
Speaker 2: actually scared of you?
Speaker 1: Fuck off?
Speaker 2: That does it for this episode of Wall Street Week,
Speaker 2: I'm David Weston. This is Bloomberg. See you next week.