1 00:00:00,520 --> 00:00:03,760 Speaker 1: This is Bloomberg Wall Street Week. We turn our attention 2 00:00:03,880 --> 00:00:07,600 Speaker 1: to the markets this week. Us CPI members reinforcing concerns 3 00:00:07,600 --> 00:00:10,800 Speaker 1: about inflation. The financial stories that chief are worth a 4 00:00:10,840 --> 00:00:13,760 Speaker 1: really different reaction to mark its more indications of just 5 00:00:13,960 --> 00:00:16,360 Speaker 1: how hot the U. S economy really is. Through the 6 00:00:16,400 --> 00:00:19,759 Speaker 1: eyes of the most influential voices. Larry Summers, the former 7 00:00:19,800 --> 00:00:22,920 Speaker 1: Treker Secretary, Katherine Keating, CEO of v n y Moins, 8 00:00:22,960 --> 00:00:26,279 Speaker 1: Sam's l Sharmon and founder of Equatic Group Investment in 9 00:00:26,320 --> 00:00:30,280 Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Radio. 10 00:00:30,480 --> 00:00:32,880 Speaker 1: A week of big moves in the market, a big 11 00:00:32,920 --> 00:00:35,560 Speaker 1: gathering in Davos, and a big signal from the Fed. 12 00:00:36,080 --> 00:00:38,400 Speaker 1: But in the end, it was a tragic shooting in 13 00:00:38,440 --> 00:00:41,440 Speaker 1: a small town in Texas that cast the biggest shadow 14 00:00:41,880 --> 00:00:45,279 Speaker 1: over it all. This is Bloomberg Wall Street Week. I'm 15 00:00:45,360 --> 00:00:49,920 Speaker 1: David Weston. This week's special contributor Larry Summers on whether 16 00:00:50,000 --> 00:00:52,720 Speaker 1: bad news in the markets and the economy is good 17 00:00:52,760 --> 00:00:56,640 Speaker 1: news for the Fed? Humility is the right posture with 18 00:00:56,680 --> 00:01:02,120 Speaker 1: respect to uh monetary follows see and Blair Afron a 19 00:01:02,200 --> 00:01:05,479 Speaker 1: centerview partners on whether things really are as bad as 20 00:01:05,520 --> 00:01:11,640 Speaker 1: they sometimes seem I've never seen, as Murky Turide has 21 00:01:11,680 --> 00:01:28,720 Speaker 1: written right now. Sometimes the biggest events don't move markets, 22 00:01:28,840 --> 00:01:32,480 Speaker 1: but they do overshadow everything else. And this week it 23 00:01:32,600 --> 00:01:35,759 Speaker 1: was the killing of nineteen children in their elementary school 24 00:01:35,840 --> 00:01:41,440 Speaker 1: classroom in South Texas, provoking anger from President Biden. Why 25 00:01:41,440 --> 00:01:45,199 Speaker 1: are we willing to live with this carnage? Why don't 26 00:01:45,200 --> 00:01:48,040 Speaker 1: we keep letting this happen? Time to turn this pain 27 00:01:48,120 --> 00:01:51,680 Speaker 1: and at you. But as much as the tragedy held 28 00:01:51,760 --> 00:01:54,840 Speaker 1: our attention this week, there was a lot going on elsewhere, 29 00:01:55,200 --> 00:01:57,920 Speaker 1: like in Davos, Switzerland, where the great and the good 30 00:01:58,000 --> 00:02:01,000 Speaker 1: of business and finance gathered once in again, and we 31 00:02:01,120 --> 00:02:04,400 Speaker 1: heard about everything from Madame Legarde on the odds of 32 00:02:04,400 --> 00:02:08,320 Speaker 1: a recession. For the moment, we are not seeing a 33 00:02:08,360 --> 00:02:12,200 Speaker 1: recession in the ur area, the Bank of America's Brian moynihan, 34 00:02:12,240 --> 00:02:14,880 Speaker 1: and the strength of the consumer. In the first two 35 00:02:14,880 --> 00:02:17,320 Speaker 1: weeks of May, the consumer spent tempercent more than they 36 00:02:17,320 --> 00:02:20,200 Speaker 1: did last May. And that's over top of the payments 37 00:02:20,200 --> 00:02:23,080 Speaker 1: that went out to pay taxes. To Fidelity CEO and 38 00:02:23,280 --> 00:02:26,240 Speaker 1: richards On the global food crisis caused by the war 39 00:02:26,360 --> 00:02:29,880 Speaker 1: in Ukraine. One of the things that has been really 40 00:02:29,960 --> 00:02:33,079 Speaker 1: constructive about the conversations this week is how the risk 41 00:02:33,160 --> 00:02:36,280 Speaker 1: of a food crisis has gone right up the agenda, 42 00:02:36,840 --> 00:02:40,359 Speaker 1: and George Soros on whether the war could end it all. 43 00:02:41,200 --> 00:02:45,000 Speaker 1: The invasion may have been the beginning of the Third 44 00:02:45,120 --> 00:02:52,880 Speaker 1: World War and civilization may not survive it. And while 45 00:02:52,919 --> 00:02:55,679 Speaker 1: all those bold faced names were talking in Davos, we 46 00:02:55,800 --> 00:02:58,560 Speaker 1: got the minutes from the FEDS May meeting showing that 47 00:02:58,680 --> 00:03:02,679 Speaker 1: by raising rates now they may have more flexibility later on. 48 00:03:03,360 --> 00:03:05,000 Speaker 1: I'm not sure how much the Fed is really moving 49 00:03:05,040 --> 00:03:07,000 Speaker 1: this market anymore. This is a market, I think, kind 50 00:03:07,000 --> 00:03:09,600 Speaker 1: of running on fumes and looking for a direction from anybody, 51 00:03:09,600 --> 00:03:12,640 Speaker 1: and they're not getting there from the Fed, right And 52 00:03:12,680 --> 00:03:14,360 Speaker 1: whether it was the hint of a let up from 53 00:03:14,400 --> 00:03:17,400 Speaker 1: the Fed or just wishing our ways toward better times. 54 00:03:17,560 --> 00:03:20,760 Speaker 1: The equity markets finally broke their downward trend, with equities 55 00:03:20,840 --> 00:03:23,919 Speaker 1: across the board up for the first time in eight weeks. 56 00:03:23,919 --> 00:03:26,600 Speaker 1: Both the SMP and the NASDAC were up over six 57 00:03:26,639 --> 00:03:29,079 Speaker 1: point five percent for the week, giving the SMP it's 58 00:03:29,160 --> 00:03:32,840 Speaker 1: best rally since and that risk on sentiment carried over 59 00:03:32,840 --> 00:03:35,560 Speaker 1: to bonds as yields on the tenure gave up four 60 00:03:35,600 --> 00:03:38,320 Speaker 1: basis points end of the week under two point seven 61 00:03:38,360 --> 00:03:41,320 Speaker 1: four to take us through what, if anything, we learned 62 00:03:41,400 --> 00:03:44,000 Speaker 1: from the markets this week. Welcome now, Ben Inker. He's 63 00:03:44,040 --> 00:03:47,360 Speaker 1: gm O co head of asset Allocation, and Liza Saunders 64 00:03:47,520 --> 00:03:50,360 Speaker 1: Charles Schwab, chief investment Strategy. So listen. I'll start with 65 00:03:50,400 --> 00:03:53,440 Speaker 1: you are happy times here again? I think it's too 66 00:03:53,520 --> 00:03:56,720 Speaker 1: soon to tell looking at a one week rally after 67 00:03:56,880 --> 00:04:01,720 Speaker 1: seven weeks of pretty significant carnage, is is more indicative 68 00:04:02,000 --> 00:04:04,840 Speaker 1: of a counter trend move the types of rallies you 69 00:04:04,880 --> 00:04:07,200 Speaker 1: tend to see in bear markets. I think it's premature 70 00:04:07,840 --> 00:04:10,040 Speaker 1: to look at this either from a technical or breath 71 00:04:10,080 --> 00:04:13,200 Speaker 1: perspective and suggests that it marks the beginning of a 72 00:04:13,240 --> 00:04:18,000 Speaker 1: new cyclical uptrend. Uh, this is just natural to see 73 00:04:18,440 --> 00:04:21,440 Speaker 1: this kind of pressure. I think you know, as someone ironically, 74 00:04:21,440 --> 00:04:23,839 Speaker 1: it was the weaker economic data to a large degree 75 00:04:23,880 --> 00:04:27,279 Speaker 1: that change the perspective or the narrative as it relates 76 00:04:27,320 --> 00:04:30,039 Speaker 1: to FED policy to maybe they have some flexibility to 77 00:04:30,080 --> 00:04:33,480 Speaker 1: pause after the next couple of rate hikes. But I 78 00:04:33,720 --> 00:04:36,680 Speaker 1: think it's also premature to make that assessment. So Ben, 79 00:04:36,720 --> 00:04:38,680 Speaker 1: I know that you're a longer term investor. You don't 80 00:04:38,720 --> 00:04:41,080 Speaker 1: just look week to week. But did we learn anything 81 00:04:41,120 --> 00:04:43,360 Speaker 1: about that issue, about whether it's a soft landing or 82 00:04:43,400 --> 00:04:45,400 Speaker 1: a hard landing from what we saw this week. I 83 00:04:45,440 --> 00:04:50,719 Speaker 1: don't think we learned anything that's that determinative. We've seen 84 00:04:50,760 --> 00:04:53,320 Speaker 1: some evidence that there are parts of the economy that 85 00:04:53,360 --> 00:04:56,800 Speaker 1: are softening. I mean it's most clear in the housing market, 86 00:04:56,920 --> 00:05:00,560 Speaker 1: and that's the place most heavily impacted by what goes 87 00:05:00,600 --> 00:05:03,800 Speaker 1: on in rates. So uh, you know that shouldn't have 88 00:05:03,839 --> 00:05:06,720 Speaker 1: been a surprise. I'd say from the consumer perspective, the 89 00:05:06,800 --> 00:05:10,800 Speaker 1: consumer still seems to be pretty strong. Um, we haven't 90 00:05:10,839 --> 00:05:15,520 Speaker 1: seen strong evidence of the consumer pulling back. So I 91 00:05:15,600 --> 00:05:19,520 Speaker 1: don't think we've seen anything that should really cause people 92 00:05:19,560 --> 00:05:23,320 Speaker 1: to have said, Okay, great, we're gonna have a soft landing. 93 00:05:23,320 --> 00:05:25,040 Speaker 1: We're not gonna have recession, We're not going to have 94 00:05:25,560 --> 00:05:28,760 Speaker 1: continued inflation problems. But as lis Anne was saying, man, 95 00:05:28,800 --> 00:05:31,880 Speaker 1: it has been a really long run of the market 96 00:05:31,960 --> 00:05:37,000 Speaker 1: losing week after week. Uh. And markets almost never moved 97 00:05:37,120 --> 00:05:40,000 Speaker 1: for long periods of time just in one direction. There's 98 00:05:40,040 --> 00:05:44,239 Speaker 1: always volatility. Lisenne, I wonder what it told us, if anything, 99 00:05:44,240 --> 00:05:48,000 Speaker 1: about the possibility of recession. So clearly the Fed doesn't 100 00:05:48,640 --> 00:05:51,800 Speaker 1: want to engineer or drive us into a recession that 101 00:05:51,880 --> 00:05:55,320 Speaker 1: they do concede at maybe the the price in order 102 00:05:55,400 --> 00:05:58,320 Speaker 1: to narrow the gap between demand and supply in a 103 00:05:58,360 --> 00:06:02,679 Speaker 1: monetary policy can sometimes be a fairly blunt instrument, and 104 00:06:03,040 --> 00:06:05,480 Speaker 1: really all they can control right now is the demand side. 105 00:06:05,520 --> 00:06:07,880 Speaker 1: I think the path to a soft landing would be 106 00:06:07,920 --> 00:06:11,560 Speaker 1: the supply side easing up, not just supply chain disruptions 107 00:06:11,560 --> 00:06:15,159 Speaker 1: but also the supply of labor, and that doesn't appear 108 00:06:15,160 --> 00:06:18,719 Speaker 1: to be imminent, but I think that's probably the primary 109 00:06:18,760 --> 00:06:22,000 Speaker 1: path to a soft landing. Otherwise, I think the conditions 110 00:06:22,040 --> 00:06:25,919 Speaker 1: in place right now, the kind of early deterioration that 111 00:06:25,920 --> 00:06:28,920 Speaker 1: we're seeing, have the needle pointing a little bit more 112 00:06:28,960 --> 00:06:32,279 Speaker 1: toward recession than soft landing. The last thirteen rate hike cycles, 113 00:06:32,560 --> 00:06:35,840 Speaker 1: you've had their ten recessions and three soft landing, so 114 00:06:35,920 --> 00:06:39,200 Speaker 1: simple history says that it's more likely this time. And 115 00:06:39,200 --> 00:06:42,680 Speaker 1: with a forty year high in inflation and the simultaneously 116 00:06:42,680 --> 00:06:45,279 Speaker 1: trying to shrink a nin trillion dollar balance sheet, it's 117 00:06:45,279 --> 00:06:47,760 Speaker 1: hard to suggest at that points the needle more towards 118 00:06:47,760 --> 00:06:49,960 Speaker 1: soft landing, but there is a path in that direction. 119 00:06:50,360 --> 00:06:52,440 Speaker 1: Liz Ana Sanders and Benanco where We're staying with us 120 00:06:52,520 --> 00:06:54,679 Speaker 1: as we turn from what the markets did this week 121 00:06:54,800 --> 00:06:57,480 Speaker 1: to what we should do with the markets going forward. 122 00:06:57,800 --> 00:07:04,080 Speaker 1: That's next on Walter on Boomberg. This is Bloomberg Wall 123 00:07:04,120 --> 00:07:08,680 Speaker 1: Street Week with David Weston from Bloomberg Radio. The market 124 00:07:08,800 --> 00:07:11,680 Speaker 1: end of the week in a sinking coma that made 125 00:07:11,680 --> 00:07:14,760 Speaker 1: it clear that the worst economic shortage of all was 126 00:07:14,800 --> 00:07:17,840 Speaker 1: the shortage of buyers. On Wall Street, it was a 127 00:07:17,880 --> 00:07:20,880 Speaker 1: week that we called the words of Otto H. Kom, 128 00:07:20,880 --> 00:07:24,440 Speaker 1: a famous financier and art patron who once described finance 129 00:07:24,920 --> 00:07:29,400 Speaker 1: as an old lady with shaken nerves. That was Lewis Orchiser, 130 00:07:29,440 --> 00:07:32,400 Speaker 1: of course, on Wall Street Week back in nineteen seventy three. 131 00:07:32,560 --> 00:07:34,960 Speaker 1: Lis An Sanders of Charles Schwab and Ben Inker of 132 00:07:35,000 --> 00:07:37,120 Speaker 1: GMO have stayed with us. So Ben, I don't know 133 00:07:37,240 --> 00:07:40,800 Speaker 1: about a nervous widow with uh daily With the markets 134 00:07:40,840 --> 00:07:42,560 Speaker 1: this week, in fact, it was up, not down. At 135 00:07:42,560 --> 00:07:45,120 Speaker 1: the same time, the market has clearly been nervous. How 136 00:07:45,120 --> 00:07:47,560 Speaker 1: do you approach this, and particularly I read with great 137 00:07:47,600 --> 00:07:51,800 Speaker 1: interest you're talking about a so called growth trap. Yeah, 138 00:07:51,840 --> 00:07:54,280 Speaker 1: I think you know. As a value manager, one of 139 00:07:54,320 --> 00:07:56,480 Speaker 1: the things that happens to us all the time a 140 00:07:56,560 --> 00:07:59,320 Speaker 1: client comes in, our prospective client comes in and says, oh, 141 00:07:59,480 --> 00:08:02,880 Speaker 1: you buy value stocks, how you avoid value traps? Um 142 00:08:03,120 --> 00:08:05,840 Speaker 1: And it's a perfectly reasonable question, because value traps are 143 00:08:05,880 --> 00:08:09,840 Speaker 1: a pain for value managers. But what people don't seem 144 00:08:09,880 --> 00:08:13,880 Speaker 1: to focus on is those same kinds of stocks exist 145 00:08:14,320 --> 00:08:16,920 Speaker 1: in the growth universe as well. Right, A trap is 146 00:08:17,000 --> 00:08:20,400 Speaker 1: just a company that winds up not doing as well 147 00:08:20,440 --> 00:08:24,760 Speaker 1: as investors were expecting, and those stocks actually turn out 148 00:08:24,840 --> 00:08:27,880 Speaker 1: to be more painful if they were growth stocks, then 149 00:08:27,880 --> 00:08:31,440 Speaker 1: if their value stocks for not such a weird reason. Right, 150 00:08:31,480 --> 00:08:34,240 Speaker 1: If your value stock nobody expected all that much from you, 151 00:08:34,320 --> 00:08:37,160 Speaker 1: they're still disappointed if you do even worse. But if 152 00:08:37,160 --> 00:08:40,360 Speaker 1: your growth stock, if people were expecting wonderful things out 153 00:08:40,360 --> 00:08:42,320 Speaker 1: of you because you are Peloton and we're going to 154 00:08:42,360 --> 00:08:45,720 Speaker 1: sell a bike to everyone on earth. When you fail 155 00:08:45,840 --> 00:08:48,840 Speaker 1: to live up to that, there's two problems. One, your 156 00:08:48,880 --> 00:08:53,440 Speaker 1: fundamentals are worse, but to your valuation drops right, that 157 00:08:53,600 --> 00:08:56,920 Speaker 1: growth premium you had you're no longer worthy of. And 158 00:08:56,960 --> 00:09:00,480 Speaker 1: whether you're Peloton, whether you're a Netflix, uh, whether you're 159 00:09:00,520 --> 00:09:03,160 Speaker 1: the whole series of growth stocks that have turned out 160 00:09:03,160 --> 00:09:05,280 Speaker 1: to be traps in the past year. One of the 161 00:09:05,360 --> 00:09:08,040 Speaker 1: interesting things that's gone on in the past months is 162 00:09:08,080 --> 00:09:12,199 Speaker 1: this has actually been the worst year to be a 163 00:09:12,240 --> 00:09:16,280 Speaker 1: disappointing growth stock relative to growth stock. So, right, it's 164 00:09:16,280 --> 00:09:20,240 Speaker 1: gonna allows a year for growth stocks. Fine, but the 165 00:09:20,360 --> 00:09:24,280 Speaker 1: stocks that have done excessively badly relative to the rest 166 00:09:24,480 --> 00:09:28,959 Speaker 1: of growth are those growth companies that are disappointed. Um. 167 00:09:29,559 --> 00:09:35,640 Speaker 1: And we we think if you're gonna be hiring active managers, um, 168 00:09:35,679 --> 00:09:38,319 Speaker 1: it's important to recognize they're not going to be right 169 00:09:38,440 --> 00:09:41,680 Speaker 1: every tie. Uh. And one of the things that people 170 00:09:41,720 --> 00:09:47,599 Speaker 1: are only relearning pretty recently is, yeah, it's really painful 171 00:09:47,840 --> 00:09:51,040 Speaker 1: as a growth investor to turn out to have been 172 00:09:51,080 --> 00:09:54,480 Speaker 1: wrong on a stock. And we think that that pattern 173 00:09:54,679 --> 00:09:59,880 Speaker 1: of growth traps doing particularly badly is set to an 174 00:10:00,160 --> 00:10:02,440 Speaker 1: u for a while. So listen, what about that. Obviously, 175 00:10:02,480 --> 00:10:04,040 Speaker 1: when you talk about grows stalks, there are a lot 176 00:10:04,160 --> 00:10:06,760 Speaker 1: of things included on a wide range of different companies 177 00:10:06,920 --> 00:10:09,120 Speaker 1: at the same time. In a world of rising rates, 178 00:10:09,280 --> 00:10:11,840 Speaker 1: rising interest rates, all the things being equal, which they 179 00:10:11,880 --> 00:10:14,520 Speaker 1: never are, growth is going to do worse because you're 180 00:10:14,559 --> 00:10:16,800 Speaker 1: dis kind of that future cash flow, aren't you. Well, 181 00:10:16,960 --> 00:10:19,120 Speaker 1: and especially in an environment where some of these so 182 00:10:19,240 --> 00:10:22,280 Speaker 1: called growth stocks are actually the nonprofitable stock, they don't 183 00:10:22,320 --> 00:10:24,800 Speaker 1: have any earnings growth, they don't have any earnings. And 184 00:10:24,840 --> 00:10:27,840 Speaker 1: I think when you combine that, which those types of stocks, 185 00:10:27,840 --> 00:10:31,200 Speaker 1: whether it's nonprofitable tech, they were very narrative driven. They 186 00:10:31,200 --> 00:10:34,319 Speaker 1: really represented one of the pockets of where speculative froth 187 00:10:34,480 --> 00:10:37,959 Speaker 1: was the primary driver. And in this part of the cycle, 188 00:10:38,360 --> 00:10:42,360 Speaker 1: those types of companies, those longer duration you know, eternal 189 00:10:42,440 --> 00:10:46,080 Speaker 1: duration stocks, as you wait for that earning stream in 190 00:10:46,120 --> 00:10:49,920 Speaker 1: a rising inflation, rising interest rate environment, get absolutely hammered. 191 00:10:50,320 --> 00:10:52,640 Speaker 1: The one thing I'd say, and I it's a little 192 00:10:52,640 --> 00:10:55,440 Speaker 1: bit different a take on the idea or concepts of 193 00:10:55,480 --> 00:10:58,360 Speaker 1: growth and value. And I often describe it as lower 194 00:10:58,360 --> 00:11:02,680 Speaker 1: case the and low work case G is investing based 195 00:11:02,720 --> 00:11:08,080 Speaker 1: on the fundamentals or characteristics or factors of growth or value. 196 00:11:08,200 --> 00:11:11,960 Speaker 1: In fact, you know, Bloomberg does amazing work on factors. 197 00:11:12,040 --> 00:11:15,000 Speaker 1: And if you look over the last three months, over 198 00:11:15,040 --> 00:11:17,360 Speaker 1: the last six months, sort of this era of tighter 199 00:11:17,400 --> 00:11:22,319 Speaker 1: monetary policy, high inflation, rising interest rates. What's interesting is 200 00:11:22,360 --> 00:11:26,640 Speaker 1: even within segments of the market that are mostly housed 201 00:11:26,760 --> 00:11:32,200 Speaker 1: in the growth indexes tech, consumer, discretionary, communication services, it's 202 00:11:32,280 --> 00:11:36,000 Speaker 1: the value oriented factors that are working that are leading 203 00:11:36,080 --> 00:11:40,400 Speaker 1: meeting stocks at that trade or stocks that screen well 204 00:11:40,480 --> 00:11:43,679 Speaker 1: on those types of factors, whether it's strong free cash flow, yield, 205 00:11:43,720 --> 00:11:47,360 Speaker 1: strong balance sheet, lower volatility, they've been doing well. So 206 00:11:47,400 --> 00:11:50,640 Speaker 1: I think sometimes investors have to take off the blinders 207 00:11:50,840 --> 00:11:53,480 Speaker 1: when they think about growth and value, because you can 208 00:11:53,559 --> 00:11:57,160 Speaker 1: look for value in areas that happen to live in 209 00:11:57,200 --> 00:12:00,520 Speaker 1: the growth indexes. And there are times where and stocks 210 00:12:00,520 --> 00:12:03,800 Speaker 1: that live in the value indexes don't offer a tremendous 211 00:12:03,840 --> 00:12:07,640 Speaker 1: amount of value. Utilities, which have been popular stocks because 212 00:12:07,640 --> 00:12:11,240 Speaker 1: of the defensive nature, are now trading at a record 213 00:12:11,360 --> 00:12:15,760 Speaker 1: or near record positive or or or a premium from 214 00:12:15,760 --> 00:12:19,400 Speaker 1: a p perspective to the SMP five D. So, Ben, 215 00:12:19,400 --> 00:12:21,480 Speaker 1: I'm curious about your reaction that I suspect you might 216 00:12:21,480 --> 00:12:24,000 Speaker 1: not and tell you disagree because you talked about active investing. 217 00:12:24,200 --> 00:12:26,520 Speaker 1: You were saying be careful about growth stocks. At the 218 00:12:26,559 --> 00:12:29,240 Speaker 1: same time, there are these elements such as goal fashioned 219 00:12:29,280 --> 00:12:32,599 Speaker 1: cash flow and balance sheet and and volatility, and like 220 00:12:32,679 --> 00:12:36,800 Speaker 1: that within the growth sector, there may be still some goodbyes. Yeah, 221 00:12:36,840 --> 00:12:40,040 Speaker 1: I mean, well, first of all, they're almost always are right. 222 00:12:40,120 --> 00:12:43,320 Speaker 1: It is. It would be weird if an entire half 223 00:12:43,520 --> 00:12:46,240 Speaker 1: of the market and growth and value tend to be 224 00:12:46,280 --> 00:12:49,679 Speaker 1: defined by half if there was nothing worth owning. UM. 225 00:12:49,800 --> 00:12:53,320 Speaker 1: So even a year ago, there were probably some growth 226 00:12:53,320 --> 00:12:56,040 Speaker 1: stocks that were worth owning. And I would say, we've 227 00:12:56,080 --> 00:12:58,800 Speaker 1: got we have a strategy that we've been running for 228 00:12:58,840 --> 00:13:02,160 Speaker 1: the last year and a half where explicitly long undervalued 229 00:13:02,200 --> 00:13:06,000 Speaker 1: stocks in short overvalued stocks. And one of the things 230 00:13:06,040 --> 00:13:08,480 Speaker 1: we've found in recent months is some of the stocks 231 00:13:08,559 --> 00:13:13,080 Speaker 1: we were sure a year ago are showing up on 232 00:13:13,080 --> 00:13:16,760 Speaker 1: the long side of our book, um, because the market 233 00:13:16,880 --> 00:13:20,800 Speaker 1: has really fallen out of love with them. UM. And 234 00:13:20,880 --> 00:13:24,760 Speaker 1: that's a natural you know, that is a natural process. 235 00:13:24,840 --> 00:13:27,480 Speaker 1: And and one of the things about growth and value 236 00:13:27,800 --> 00:13:33,199 Speaker 1: and that people tend to forget they are always dynamic strategies. 237 00:13:34,280 --> 00:13:37,120 Speaker 1: Right you buy, you buy a value portfolio. You come 238 00:13:37,120 --> 00:13:38,640 Speaker 1: back in a year and some of those stocks aren't 239 00:13:38,679 --> 00:13:43,320 Speaker 1: value anymore. Now, oftentimes those stocks that aren't value, it's 240 00:13:43,360 --> 00:13:45,920 Speaker 1: a good thing because the market and say, oh, this 241 00:13:46,040 --> 00:13:50,000 Speaker 1: is actually something pretty cool, and the valuation goes up 242 00:13:50,040 --> 00:13:53,080 Speaker 1: and they graduate to the growth universe. On the growth side, 243 00:13:53,400 --> 00:13:56,320 Speaker 1: what you really want is for those growth companies that 244 00:13:56,360 --> 00:13:57,880 Speaker 1: you owned at the beginning of the year to still 245 00:13:57,880 --> 00:13:59,440 Speaker 1: look like growth companies at the end of the year, 246 00:13:59,440 --> 00:14:02,200 Speaker 1: because if they doll, it's probably because something like bad 247 00:14:02,280 --> 00:14:05,920 Speaker 1: has happened to though, And that's a piece people don't 248 00:14:06,160 --> 00:14:10,040 Speaker 1: tend to recognize, especially when they're talking about a start 249 00:14:10,160 --> 00:14:14,839 Speaker 1: duration difference between growth and value. I want to give 250 00:14:14,840 --> 00:14:16,680 Speaker 1: you the last word. I was sorry of curveball. Here's 251 00:14:16,679 --> 00:14:18,839 Speaker 1: a curve ball is the real answer here. We should 252 00:14:18,840 --> 00:14:20,840 Speaker 1: all lower our expectations for what they have been, what 253 00:14:20,840 --> 00:14:24,520 Speaker 1: we should expect from our portfolio. Uh. You know, there's 254 00:14:24,520 --> 00:14:27,040 Speaker 1: nobody that I know out there that does long term 255 00:14:27,200 --> 00:14:31,320 Speaker 1: capital markets expectations that has a lofty number in keeping 256 00:14:31,320 --> 00:14:33,920 Speaker 1: with say that that ten years leading up to the pandemic, 257 00:14:33,960 --> 00:14:35,880 Speaker 1: or even the ten years up until the end of 258 00:14:36,000 --> 00:14:38,880 Speaker 1: last year. So I think just where we are in 259 00:14:38,920 --> 00:14:42,480 Speaker 1: the cycle, the fact that household ownership of equities is 260 00:14:42,600 --> 00:14:45,680 Speaker 1: as of UM the end of the year UM, even 261 00:14:45,720 --> 00:14:49,280 Speaker 1: through the first quarter, was at a record high level. 262 00:14:49,560 --> 00:14:53,560 Speaker 1: That that doesn't bode incredibly ill for subsequent tenure returns, 263 00:14:53,560 --> 00:14:57,600 Speaker 1: but it does suggest curb your enthusiasm for access returns. Okay, 264 00:14:57,840 --> 00:15:01,160 Speaker 1: many thanks with Luzian Sanders Chara and the Ben Inker 265 00:15:01,200 --> 00:15:05,960 Speaker 1: of g About this is Bloomberg Wall Street Week with 266 00:15:06,040 --> 00:15:18,680 Speaker 1: David Weston from Bloomberg Radio. Okay, we knew it was coming, 267 00:15:18,960 --> 00:15:22,320 Speaker 1: but somehow it's still surprised us. We had pumped record 268 00:15:22,400 --> 00:15:26,640 Speaker 1: amounts of dollars and yen and pounds and euros into 269 00:15:26,720 --> 00:15:29,200 Speaker 1: the global system, all to keep it going through a 270 00:15:29,240 --> 00:15:33,560 Speaker 1: financial crisis and then a pandemic. As justified by then 271 00:15:33,600 --> 00:15:37,000 Speaker 1: FED chair Janet Yelling at Crescent, I view the balance 272 00:15:37,080 --> 00:15:40,760 Speaker 1: of risks as still calling for a highly accommodative monetary 273 00:15:40,840 --> 00:15:45,560 Speaker 1: policy to support a stronger recovery and more rapid growth 274 00:15:45,560 --> 00:15:48,680 Speaker 1: and employment. And then we added trillions of dollars of 275 00:15:48,760 --> 00:15:53,160 Speaker 1: fiscal stimulus, including that American Rescue Plan. President Biden convinced 276 00:15:53,200 --> 00:15:56,200 Speaker 1: us we just had to have for each dollar this 277 00:15:56,400 --> 00:16:02,160 Speaker 1: tax cut cost, it returns eight dollars and benefits. Found 278 00:16:02,160 --> 00:16:05,720 Speaker 1: the line, it's a gigantic helmet's an eight to one return. 279 00:16:06,240 --> 00:16:08,200 Speaker 1: But now the time has come to cut down on 280 00:16:08,280 --> 00:16:11,520 Speaker 1: all that stimulus. On both the fiscal side, we should 281 00:16:11,520 --> 00:16:14,280 Speaker 1: not put more stimulus spending into the economy because that 282 00:16:14,480 --> 00:16:16,880 Speaker 1: is what generated so much of this. And on the 283 00:16:16,880 --> 00:16:20,440 Speaker 1: monetary side, if you want to tighten policy, you have 284 00:16:20,480 --> 00:16:25,239 Speaker 1: to raise interest rates by more than inflation went up, 285 00:16:25,400 --> 00:16:28,440 Speaker 1: leaving us to debate just how bad it could get. 286 00:16:28,800 --> 00:16:32,360 Speaker 1: Supply sharks, demand chalks altogether mix it in one. Of course, 287 00:16:32,400 --> 00:16:36,400 Speaker 1: it is unclear at this moment in time when it 288 00:16:36,440 --> 00:16:38,640 Speaker 1: comes to getting us that's what's really going on in 289 00:16:38,680 --> 00:16:40,840 Speaker 1: the markets and in the business world. There's one person 290 00:16:40,880 --> 00:16:43,360 Speaker 1: we really love to turn to. And then as Blair Fron, 291 00:16:43,480 --> 00:16:47,400 Speaker 1: he is the founder, co founder and partner in Centerview Partners. Blair, 292 00:16:47,440 --> 00:16:49,320 Speaker 1: thanks so much for being with us. So we had 293 00:16:49,360 --> 00:16:52,120 Speaker 1: a lot of stimulus go into the market, fiscal and monetary. 294 00:16:52,160 --> 00:16:54,520 Speaker 1: We took it out and now people are really almost 295 00:16:54,560 --> 00:16:56,720 Speaker 1: in a panic. Some people worry about where we're going. 296 00:16:56,880 --> 00:16:59,800 Speaker 1: What is your sense of where we are if it? 297 00:17:00,000 --> 00:17:01,920 Speaker 1: First of all, life for having me on. And obviously 298 00:17:02,160 --> 00:17:03,760 Speaker 1: everything is a lot more murky than the last time 299 00:17:03,800 --> 00:17:04,840 Speaker 1: I was on. So what I would tell you is 300 00:17:04,880 --> 00:17:10,080 Speaker 1: this one I've never seen as murky at period as 301 00:17:10,080 --> 00:17:12,880 Speaker 1: we're intten right now, I think the answers across the spectrum, 302 00:17:12,880 --> 00:17:14,679 Speaker 1: we're gonna a lot more than the next two months. 303 00:17:15,200 --> 00:17:18,119 Speaker 1: Let's define first what we're looking for. Everybody talks about 304 00:17:18,160 --> 00:17:24,600 Speaker 1: slowdown versus recession. Remember, recession, at least by our traditional definition, 305 00:17:24,680 --> 00:17:27,880 Speaker 1: means two quarters of negative GDP growth. I don't think 306 00:17:27,920 --> 00:17:30,879 Speaker 1: that's going to happen. I do think there's would be 307 00:17:31,520 --> 00:17:33,879 Speaker 1: three or so data points that we're all going to 308 00:17:33,920 --> 00:17:36,719 Speaker 1: pay close attention to in the next two months that 309 00:17:36,800 --> 00:17:41,600 Speaker 1: have to show decent results. Obviously, inflation. Let's assume that 310 00:17:42,200 --> 00:17:44,840 Speaker 1: the Fed funds goal public goal of two to two 311 00:17:44,880 --> 00:17:46,879 Speaker 1: and a half percent is going to look light, and 312 00:17:46,880 --> 00:17:50,680 Speaker 1: it's somewhere between three to four percent before it's all done. 313 00:17:50,760 --> 00:17:53,040 Speaker 1: To be at the better end of that, you're gonna 314 00:17:53,040 --> 00:17:57,080 Speaker 1: hope to see inflation publishing with a seven by midsummer 315 00:17:57,160 --> 00:18:00,560 Speaker 1: and with a six later in the summer. Second, the 316 00:18:00,640 --> 00:18:03,960 Speaker 1: energy prices, did they hang in where they are or 317 00:18:04,000 --> 00:18:05,480 Speaker 1: did they go higher? That's howays going to be a 318 00:18:05,480 --> 00:18:08,800 Speaker 1: big influence to give us the pump. I would note 319 00:18:08,840 --> 00:18:11,080 Speaker 1: that the biggest companies, the biggest the oil majors, have 320 00:18:11,160 --> 00:18:15,200 Speaker 1: not increased their production budgets, which kicks in our intermediate 321 00:18:15,280 --> 00:18:17,879 Speaker 1: terms that they're telling you that uh. In some ways 322 00:18:17,920 --> 00:18:21,440 Speaker 1: today the belief is it's big cycle. And finally, where 323 00:18:21,520 --> 00:18:24,919 Speaker 1: is housing going to be? Mortgage rates two plus basic 324 00:18:25,040 --> 00:18:27,639 Speaker 1: points in just a few months. The last time we 325 00:18:27,680 --> 00:18:31,600 Speaker 1: saw that cooled housing down about weed hasn't do better. 326 00:18:31,800 --> 00:18:34,679 Speaker 1: To the extent this all happens. I believe that we 327 00:18:34,760 --> 00:18:38,919 Speaker 1: will be in a period of slow down, certainly, but 328 00:18:39,000 --> 00:18:42,800 Speaker 1: that there's enough tailwind in different parts of the economy 329 00:18:42,920 --> 00:18:46,200 Speaker 1: to keep this from being uh going to a full 330 00:18:46,200 --> 00:18:49,560 Speaker 1: blown recession. So we're certainly saying a slowdown, let's put 331 00:18:49,560 --> 00:18:52,080 Speaker 1: it wildly. In the equity markets has been really a 332 00:18:52,160 --> 00:18:55,960 Speaker 1: roller coaster, but down substantially this year. Is that translating 333 00:18:56,000 --> 00:18:59,600 Speaker 1: into your business? Our CEO is less eager to make 334 00:18:59,640 --> 00:19:03,720 Speaker 1: deals now? Absolutely. I would say that the biggest factor 335 00:19:04,080 --> 00:19:07,600 Speaker 1: in deal making is going to be confidence. And confidence 336 00:19:07,640 --> 00:19:09,960 Speaker 1: comes from feeling certain in the decision making, certain in 337 00:19:10,000 --> 00:19:12,760 Speaker 1: the outcomes of various moves you're gonna make. And right 338 00:19:12,760 --> 00:19:16,240 Speaker 1: now we are an uncertain environment. CEOs can make judgments 339 00:19:16,280 --> 00:19:19,240 Speaker 1: when there's a high growth environment, they can equally make 340 00:19:19,320 --> 00:19:21,560 Speaker 1: judgments in a lower growth environment. Right now, it's certainly 341 00:19:21,600 --> 00:19:24,320 Speaker 1: difficult pory, but things are happening. I tell you, David 342 00:19:24,359 --> 00:19:28,879 Speaker 1: that volumes remain okay, it's actually the value, the overall 343 00:19:28,960 --> 00:19:33,199 Speaker 1: value transactions is down three and that tells you that 344 00:19:33,240 --> 00:19:36,680 Speaker 1: CEOs are focusing still on doing moves that are more 345 00:19:36,720 --> 00:19:40,160 Speaker 1: tactical than strategic, but doing them um, and they are 346 00:19:40,200 --> 00:19:43,359 Speaker 1: getting things financed, I would say, particularly if it's of it. 347 00:19:43,440 --> 00:19:47,240 Speaker 1: The equity market's not so. But uh for investment grade, 348 00:19:47,680 --> 00:19:51,439 Speaker 1: no issue, and for below investment grade a lot more 349 00:19:51,480 --> 00:19:53,720 Speaker 1: expensive during the basis points are so higher than it 350 00:19:53,720 --> 00:19:56,600 Speaker 1: would have been even a few months ago. But given 351 00:19:56,640 --> 00:19:58,960 Speaker 1: what's going on a leverage loan market, which is her 352 00:19:59,040 --> 00:20:03,320 Speaker 1: robust taking off a lot of the uh downward impact 353 00:20:03,359 --> 00:20:05,439 Speaker 1: in the high yield market in terms of issuance volume, 354 00:20:06,000 --> 00:20:11,320 Speaker 1: things are actually still frankly getting done. From your experience, 355 00:20:11,520 --> 00:20:15,199 Speaker 1: from your vantage point, is it possible we're all overreacting. 356 00:20:16,200 --> 00:20:18,320 Speaker 1: That's not a word I would use. No. I think 357 00:20:18,880 --> 00:20:21,960 Speaker 1: this is an environment where, if anything, you want to 358 00:20:22,000 --> 00:20:27,200 Speaker 1: react aggressively, act aggressively, get ahead of it. I'm someone 359 00:20:27,240 --> 00:20:30,200 Speaker 1: that's certainly thinks uh, and I have you and I've 360 00:20:30,200 --> 00:20:33,960 Speaker 1: talked about for quite a while that getting to rate 361 00:20:34,040 --> 00:20:39,720 Speaker 1: raiss had to happen, would have been uh, perhaps better 362 00:20:39,760 --> 00:20:42,159 Speaker 1: happened center the reasons for that. It didn't, but the 363 00:20:42,320 --> 00:20:44,000 Speaker 1: rate had to happen, and you want to cure it 364 00:20:44,119 --> 00:20:46,080 Speaker 1: to happen to deeply. So I believe getting ahead of it, 365 00:20:46,119 --> 00:20:50,440 Speaker 1: particularly because we had an asset price and environment Okay, Blair, 366 00:20:50,480 --> 00:20:51,960 Speaker 1: It's always such a treat to talk to you. Thank 367 00:20:52,000 --> 00:20:54,080 Speaker 1: you so much for trying this Blair affront of Center 368 00:20:54,119 --> 00:20:58,000 Speaker 1: View Partners, Get me Up. We wrap up the week 369 00:20:58,000 --> 00:21:02,520 Speaker 1: with special contributor to Larry Summers up Harvard. This is 370 00:21:02,560 --> 00:21:07,560 Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street 371 00:21:07,560 --> 00:21:17,560 Speaker 1: Week with David Weston from Bloomberg Radio. This is wall 372 00:21:17,560 --> 00:21:19,280 Speaker 1: S three week clim David Weston. We want to wrap 373 00:21:19,359 --> 00:21:21,760 Speaker 1: up the week once again with our very special contributing 374 00:21:21,840 --> 00:21:23,639 Speaker 1: Larry Summers of Harvard. And Larry, we have a lot 375 00:21:23,680 --> 00:21:25,520 Speaker 1: to talk about when it comes to the economy with 376 00:21:25,560 --> 00:21:28,919 Speaker 1: respective markets, but I want to start with something very different, 377 00:21:29,000 --> 00:21:31,200 Speaker 1: and that is what we saw on that tragic shooting 378 00:21:31,200 --> 00:21:34,119 Speaker 1: down in South Texas and now elementary school. I'd like 379 00:21:34,119 --> 00:21:36,400 Speaker 1: to say it's unimaginable, except it's happened too many times. 380 00:21:36,400 --> 00:21:38,720 Speaker 1: Do you have any thoughts about what we're seeing in 381 00:21:38,720 --> 00:21:47,040 Speaker 1: this country? Horror, rage, frustration. We can do better, We 382 00:21:47,160 --> 00:21:51,320 Speaker 1: can do better. We need to think through what the 383 00:21:51,440 --> 00:21:57,320 Speaker 1: right solution is. UH. Some some limits on access to 384 00:21:57,440 --> 00:22:01,600 Speaker 1: guns that don't threaten any real Second Amendment right, some 385 00:22:01,720 --> 00:22:08,520 Speaker 1: red flags set of procedures that catch catch UH signs 386 00:22:08,560 --> 00:22:14,720 Speaker 1: of trouble and people and UH take actions. We just 387 00:22:15,160 --> 00:22:21,880 Speaker 1: can't accept this as the regular order of business in America. 388 00:22:22,080 --> 00:22:25,080 Speaker 1: And I think, David, it reflects something that may be broader, 389 00:22:25,880 --> 00:22:31,880 Speaker 1: a kind of new callousness in our country. We're probably 390 00:22:31,920 --> 00:22:37,120 Speaker 1: only in the fifth inning with respect to UH COVID. 391 00:22:37,760 --> 00:22:42,240 Speaker 1: They're gonna be hundreds of people dying each day as 392 00:22:42,280 --> 00:22:45,760 Speaker 1: far as the eye can see. And we are not 393 00:22:45,920 --> 00:22:50,639 Speaker 1: as a country making the investments, whether it's vaccines you 394 00:22:50,720 --> 00:22:55,800 Speaker 1: can take through your nose, whether it's new therapeutics, whether 395 00:22:55,880 --> 00:23:01,480 Speaker 1: it's a war on long UH COVID and clinical trials 396 00:23:02,000 --> 00:23:06,639 Speaker 1: that we need. We've let the COVID controversy become a 397 00:23:06,680 --> 00:23:10,240 Speaker 1: green eye shade thing about pay for wars and a 398 00:23:10,359 --> 00:23:15,840 Speaker 1: culture thing about masks when they're the highest return investments 399 00:23:15,880 --> 00:23:21,160 Speaker 1: available in our society, for here and for leadership around 400 00:23:21,200 --> 00:23:24,880 Speaker 1: the world, and we just can't seem to get there. 401 00:23:24,920 --> 00:23:29,080 Speaker 1: And I just don't understand why we can't all come 402 00:23:29,119 --> 00:23:32,639 Speaker 1: together on the proposition and innocent Americans shouldn't be dying, 403 00:23:33,160 --> 00:23:36,480 Speaker 1: and then it's government's first obligation in the name of 404 00:23:36,560 --> 00:23:40,800 Speaker 1: security to prevent that from happening. Yeah, it's hard to 405 00:23:40,840 --> 00:23:43,560 Speaker 1: imagine what's going on. Larry. Let's come back now to 406 00:23:43,600 --> 00:23:46,520 Speaker 1: the economy if we could, and particularly had f MC 407 00:23:46,680 --> 00:23:49,000 Speaker 1: units coming out this week that the markets took as 408 00:23:49,040 --> 00:23:52,199 Speaker 1: good news because they talked about having raising rates at 409 00:23:52,200 --> 00:23:54,040 Speaker 1: fifty basis points for two or three times, and then 410 00:23:54,080 --> 00:23:57,840 Speaker 1: that gives them flexibility as that already accomplished much of 411 00:23:57,880 --> 00:24:00,600 Speaker 1: what it has to accomplish with a spectrum inflation. I 412 00:24:00,720 --> 00:24:03,720 Speaker 1: doubt it, but I'm not sure. I think the FEDS 413 00:24:03,800 --> 00:24:07,480 Speaker 1: flexibility is a much better place for it to be. 414 00:24:07,920 --> 00:24:12,200 Speaker 1: And all this emphasis on forward guidance that we were 415 00:24:12,240 --> 00:24:17,679 Speaker 1: having for a long time, I think humility is the 416 00:24:17,760 --> 00:24:24,879 Speaker 1: right posture in UH with respect to UH monetary policy, David, 417 00:24:24,920 --> 00:24:28,399 Speaker 1: As you know, my view has been that inflation is 418 00:24:28,480 --> 00:24:33,040 Speaker 1: not gonna come down without some meaningful downturn in our 419 00:24:33,080 --> 00:24:37,520 Speaker 1: economy that means an increase in unemployment. But I've been 420 00:24:37,600 --> 00:24:40,880 Speaker 1: uncertain as to where interest rates will have to go 421 00:24:41,520 --> 00:24:45,400 Speaker 1: to achieve that, particularly all that's happening that's been adverse 422 00:24:45,480 --> 00:24:50,840 Speaker 1: for financial conditions in the stock market and in credit markets. Okay, 423 00:24:50,960 --> 00:24:52,960 Speaker 1: let's talk about the Congression Budget Office, because I don't 424 00:24:53,000 --> 00:24:54,520 Speaker 1: know how confident they are, but they came up with 425 00:24:54,520 --> 00:24:57,480 Speaker 1: projections this week that that we was sure look like 426 00:24:57,520 --> 00:25:00,000 Speaker 1: a soft landing of me. They have inflation coming down 427 00:25:00,000 --> 00:25:03,320 Speaker 1: at two point three four, they've got GDP growth at 428 00:25:03,359 --> 00:25:06,600 Speaker 1: one point five percent, unemployment still under four percent, three 429 00:25:07,400 --> 00:25:09,960 Speaker 1: and the tenure only goes up to three. That sounds 430 00:25:10,000 --> 00:25:14,520 Speaker 1: a lot like a soft landing to me. Larry, I've 431 00:25:14,560 --> 00:25:18,080 Speaker 1: always thought of the CBO as a bastion of credibility. 432 00:25:18,760 --> 00:25:24,240 Speaker 1: I've watched the CBO projections for forty years. This is 433 00:25:24,400 --> 00:25:28,840 Speaker 1: their least plausible one in the forty years that I've 434 00:25:28,920 --> 00:25:32,680 Speaker 1: been watching. To be fair, they have to lock that 435 00:25:32,880 --> 00:25:37,320 Speaker 1: forecast up months ago, and a lot's happened that's been 436 00:25:37,440 --> 00:25:42,520 Speaker 1: adverse in the last several months. But they are the 437 00:25:42,720 --> 00:25:48,280 Speaker 1: last holdout on team Transitory on the conviction that somehow 438 00:25:48,359 --> 00:25:52,680 Speaker 1: we can have the economy over stimulated and still have 439 00:25:52,920 --> 00:25:57,040 Speaker 1: inflation come way down because the supply side is just 440 00:25:57,160 --> 00:26:02,520 Speaker 1: gonna wonderfully materialize. That's a conceivable outcome. One of the 441 00:26:02,600 --> 00:26:05,440 Speaker 1: velops this week was how the United Kingdom is addressing 442 00:26:05,520 --> 00:26:09,880 Speaker 1: some of the energy cost problems. They're imposing windfall profits 443 00:26:09,960 --> 00:26:12,399 Speaker 1: tax on excess profits from oil and gas. We had 444 00:26:12,480 --> 00:26:14,200 Speaker 1: Muhammad are and say, you know, what. He's not sure. 445 00:26:14,240 --> 00:26:15,960 Speaker 1: It's a great idea, but it's better than the alternatives 446 00:26:16,080 --> 00:26:17,640 Speaker 1: if they give that money to people who are having 447 00:26:17,680 --> 00:26:20,119 Speaker 1: to pay more of that who don't tend not to 448 00:26:20,200 --> 00:26:21,359 Speaker 1: be the people going to afford it. What do you 449 00:26:21,400 --> 00:26:25,600 Speaker 1: think about windfall profits taxes on oil and gas. I 450 00:26:25,640 --> 00:26:27,800 Speaker 1: don't know about the British context, but I think in 451 00:26:27,840 --> 00:26:33,919 Speaker 1: the American context they'd be a grave, grave error. Today's 452 00:26:34,080 --> 00:26:39,840 Speaker 1: windfall profits tax is tomorrow is a return. Is a 453 00:26:40,000 --> 00:26:43,479 Speaker 1: tax on the return people made on investments that are 454 00:26:43,520 --> 00:26:48,360 Speaker 1: prepared for this contingency. A society that imposes windfall profits 455 00:26:48,440 --> 00:26:55,200 Speaker 1: taxes is a society that discourages preparatory investments. It's a mistake. 456 00:26:55,880 --> 00:26:59,520 Speaker 1: If we need revenue, which we do in this country, 457 00:27:00,200 --> 00:27:05,280 Speaker 1: we should get it by repealing the windfall profits giveaway 458 00:27:05,880 --> 00:27:08,960 Speaker 1: that was represented in the Trump tax cuts to a 459 00:27:09,040 --> 00:27:13,080 Speaker 1: substantial degree, and that would enable us also to join 460 00:27:13,240 --> 00:27:17,160 Speaker 1: the world in the global tax cooperation. That was such 461 00:27:17,200 --> 00:27:22,479 Speaker 1: a great success for Secretary Yalet. I've sometimes been critical 462 00:27:22,520 --> 00:27:26,280 Speaker 1: in the Biden administration, but I applaud them for having 463 00:27:26,880 --> 00:27:32,760 Speaker 1: resisted the easy political temptation to uh windfall profits taxes. 464 00:27:33,240 --> 00:27:37,320 Speaker 1: That was the courageous thing, and that was the right thing. Larry. 465 00:27:37,400 --> 00:27:39,080 Speaker 1: Let's talk about how we're trying to get our arms 466 00:27:39,200 --> 00:27:43,720 Speaker 1: inflation back here. We always talk about macroeconomics. You're renowned macroeconomists. 467 00:27:43,760 --> 00:27:45,840 Speaker 1: What are some of the microeconomics things like? And a 468 00:27:45,880 --> 00:27:47,880 Speaker 1: trust policy something we talked about last week on Wall 469 00:27:47,880 --> 00:27:50,800 Speaker 1: Street Week. You tweeted about it to good effect this week. 470 00:27:51,320 --> 00:27:53,800 Speaker 1: Also for that matter, terroriffts. We continue to talk about tariffs, 471 00:27:53,960 --> 00:27:56,080 Speaker 1: with even Secretary State B. Lincoln coming out giving a 472 00:27:56,080 --> 00:27:58,480 Speaker 1: speeches week, doesn't sound like those China tarrifts are calling 473 00:27:58,520 --> 00:28:03,320 Speaker 1: off anytime soon. I would say this, Those who say 474 00:28:03,520 --> 00:28:08,800 Speaker 1: that vigorous competition is central to capitalism are absolutely right. 475 00:28:09,520 --> 00:28:15,480 Speaker 1: We should be pushing for vigorous competition. Probably the single 476 00:28:15,640 --> 00:28:23,399 Speaker 1: most important instrument the government has for promoting competition in 477 00:28:24,080 --> 00:28:30,160 Speaker 1: key industries is maintaining open markets in which foreign companies 478 00:28:30,240 --> 00:28:36,320 Speaker 1: have access to US markets and can compete with US producers, 479 00:28:36,960 --> 00:28:40,840 Speaker 1: and which in return for that, US producers get more 480 00:28:40,960 --> 00:28:48,520 Speaker 1: access to UH foreign markets. Trade liberalization is central to 481 00:28:48,720 --> 00:28:53,480 Speaker 1: having competition UH in the economy, and it should be 482 00:28:53,600 --> 00:28:59,080 Speaker 1: at the front of any kind of competition policy. If 483 00:28:59,160 --> 00:29:03,040 Speaker 1: we had not had seventeen and a half percent tariffs 484 00:29:03,480 --> 00:29:06,200 Speaker 1: on infant formula. We would be in a much better 485 00:29:06,320 --> 00:29:12,920 Speaker 1: position with respect to that issue today. If governments had 486 00:29:13,120 --> 00:29:18,440 Speaker 1: more sensible procurement policies with respect to infant formula at 487 00:29:18,480 --> 00:29:21,560 Speaker 1: the state level, we would be in a better position 488 00:29:21,720 --> 00:29:28,080 Speaker 1: with respect to uh infant formula today. Okay, Larry, thank 489 00:29:28,120 --> 00:29:29,880 Speaker 1: you so very much for being back with us this week. 490 00:29:30,000 --> 00:29:34,400 Speaker 1: That's our very special contributor to Larry Summers of Harvard University. Finally, 491 00:29:34,600 --> 00:29:38,000 Speaker 1: one more thought to air is human to forgive divine, 492 00:29:38,120 --> 00:29:41,040 Speaker 1: so wrote Alexander Pope over three hundred years ago, and 493 00:29:41,080 --> 00:29:43,680 Speaker 1: our leaders are giving us plenty of opportunities through the 494 00:29:43,800 --> 00:29:47,760 Speaker 1: years to demonstrate just how divine we all can be. Consider, 495 00:29:47,840 --> 00:29:50,600 Speaker 1: for example, President for during a presidential debate in nine 496 00:29:51,680 --> 00:29:54,360 Speaker 1: telling an incredulous Max Frankel of The New York Times 497 00:29:54,560 --> 00:29:57,520 Speaker 1: that there really wasn't an Iron curtain. After all, there 498 00:29:57,720 --> 00:30:02,360 Speaker 1: is no Soviet dominant nation of Eastern Europe and there 499 00:30:02,480 --> 00:30:06,040 Speaker 1: never will be under Afford administration. I'm sorry, I could 500 00:30:06,040 --> 00:30:07,840 Speaker 1: I just found did I understand you to say, sir, 501 00:30:07,960 --> 00:30:11,560 Speaker 1: that the Russians are not using Eastern Europe as their 502 00:30:11,560 --> 00:30:15,440 Speaker 1: own sphere of influence and occupying most of the countries 503 00:30:15,520 --> 00:30:18,280 Speaker 1: there for a few years later, when President Reagan in 504 00:30:19,080 --> 00:30:21,640 Speaker 1: four was getting ready to give a radio address and 505 00:30:21,800 --> 00:30:24,880 Speaker 1: thinking that Mike in front of him wasn't on. I 506 00:30:24,920 --> 00:30:29,880 Speaker 1: have shined legislations. They will outlaw Russia forever we begin bombing. 507 00:30:29,920 --> 00:30:32,680 Speaker 1: In five minutes. The Soviet Union condemned the remarks, and 508 00:30:32,800 --> 00:30:35,360 Speaker 1: his opponent that year, Walter Mondale, tried to use it 509 00:30:35,440 --> 00:30:38,040 Speaker 1: against him in the election. But we all know how 510 00:30:38,200 --> 00:30:41,920 Speaker 1: that ended. Right. Presidential gaps are not merely relaxed of 511 00:30:41,960 --> 00:30:44,680 Speaker 1: the seventies and the eighties. This week we had two 512 00:30:44,760 --> 00:30:47,320 Speaker 1: reminders that they're very much alive and well in the 513 00:30:47,480 --> 00:30:50,640 Speaker 1: third decade of the twenty one century, as former President 514 00:30:50,680 --> 00:30:53,880 Speaker 1: George W. Bush tried to condemn Russia for its invasion 515 00:30:53,920 --> 00:30:57,120 Speaker 1: of Ukraine and scored something of an own goal, which 516 00:30:57,240 --> 00:31:00,960 Speaker 1: quickly was picked up on by Stephen Colbert. The decision 517 00:31:01,120 --> 00:31:06,479 Speaker 1: of one man to launch a wholly unjustified and brutal 518 00:31:06,640 --> 00:31:14,320 Speaker 1: invasion of Iraq, I mean of the Ukraine anyway, Jimminy 519 00:31:14,440 --> 00:31:20,600 Speaker 1: Christmas the one phrase he definitely should never utter for 520 00:31:20,760 --> 00:31:24,040 Speaker 1: the rest of his life. It's like he's thinking about 521 00:31:24,080 --> 00:31:27,680 Speaker 1: it all the time, and it's just fucked out and 522 00:31:27,800 --> 00:31:30,440 Speaker 1: then there's President Biden on his trip to Asia, when 523 00:31:30,480 --> 00:31:32,960 Speaker 1: he was asked about the US springing to the defense 524 00:31:33,040 --> 00:31:36,120 Speaker 1: of Taiwan if it were invaded. Are you willing to 525 00:31:36,200 --> 00:31:39,360 Speaker 1: get involved militarily to defend Taiwan if it comes to that, 526 00:31:41,040 --> 00:31:45,760 Speaker 1: you are. That's a commitment we made, leading some at 527 00:31:45,840 --> 00:31:48,960 Speaker 1: least to take issue, contending that he was committing to 528 00:31:49,120 --> 00:31:52,040 Speaker 1: take up arms if necessary, rather than merely ensuring that 529 00:31:52,120 --> 00:31:55,440 Speaker 1: Taiwan can defend itself. And this isn't the first time 530 00:31:55,520 --> 00:31:58,920 Speaker 1: the President has appeared to go beyond stated policy on Taiwan. 531 00:31:59,480 --> 00:32:03,160 Speaker 1: It's more like the fourth, reminding us once again of 532 00:32:03,280 --> 00:32:07,000 Speaker 1: that aphorism of Michael Kinsley in Washington. A gap is 533 00:32:07,040 --> 00:32:11,120 Speaker 1: when someone tells the truth by mistake. That does it. 534 00:32:11,240 --> 00:32:13,320 Speaker 1: For this episode of Wall Street Week, I'm David Weston. 535 00:32:13,440 --> 00:32:15,480 Speaker 1: This is Bloomberg. See you next week.