Speaker 1: This is Bloomberg Wall Street Week. We turn our attention
Speaker 1: to the markets this week. Us CPI members reinforcing concerns
Speaker 1: about inflation. The financial stories that chief are worth a
Speaker 1: really different reaction to mark its more indications of just
Speaker 1: how hot the U. S economy really is. Through the
Speaker 1: eyes of the most influential voices. Larry Summers, the former
Speaker 1: Treker Secretary, Katherine Keating, CEO of v n y Moins,
Speaker 1: Sam's l Sharmon and founder of Equatic Group Investment in
Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Radio.
Speaker 1: A week of big moves in the market, a big
Speaker 1: gathering in Davos, and a big signal from the Fed.
Speaker 1: But in the end, it was a tragic shooting in
Speaker 1: a small town in Texas that cast the biggest shadow
Speaker 1: over it all. This is Bloomberg Wall Street Week. I'm
Speaker 1: David Weston. This week's special contributor Larry Summers on whether
Speaker 1: bad news in the markets and the economy is good
Speaker 1: news for the Fed? Humility is the right posture with
Speaker 1: respect to uh monetary follows see and Blair Afron a
Speaker 1: centerview partners on whether things really are as bad as
Speaker 1: they sometimes seem I've never seen, as Murky Turide has
Speaker 1: written right now. Sometimes the biggest events don't move markets,
Speaker 1: but they do overshadow everything else. And this week it
Speaker 1: was the killing of nineteen children in their elementary school
Speaker 1: classroom in South Texas, provoking anger from President Biden. Why
Speaker 1: are we willing to live with this carnage? Why don't
Speaker 1: we keep letting this happen? Time to turn this pain
Speaker 1: and at you. But as much as the tragedy held
Speaker 1: our attention this week, there was a lot going on elsewhere,
Speaker 1: like in Davos, Switzerland, where the great and the good
Speaker 1: of business and finance gathered once in again, and we
Speaker 1: heard about everything from Madame Legarde on the odds of
Speaker 1: a recession. For the moment, we are not seeing a
Speaker 1: recession in the ur area, the Bank of America's Brian moynihan,
Speaker 1: and the strength of the consumer. In the first two
Speaker 1: weeks of May, the consumer spent tempercent more than they
Speaker 1: did last May. And that's over top of the payments
Speaker 1: that went out to pay taxes. To Fidelity CEO and
Speaker 1: richards On the global food crisis caused by the war
Speaker 1: in Ukraine. One of the things that has been really
Speaker 1: constructive about the conversations this week is how the risk
Speaker 1: of a food crisis has gone right up the agenda,
Speaker 1: and George Soros on whether the war could end it all.
Speaker 1: The invasion may have been the beginning of the Third
Speaker 1: World War and civilization may not survive it. And while
Speaker 1: all those bold faced names were talking in Davos, we
Speaker 1: got the minutes from the FEDS May meeting showing that
Speaker 1: by raising rates now they may have more flexibility later on.
Speaker 1: I'm not sure how much the Fed is really moving
Speaker 1: this market anymore. This is a market, I think, kind
Speaker 1: of running on fumes and looking for a direction from anybody,
Speaker 1: and they're not getting there from the Fed, right And
Speaker 1: whether it was the hint of a let up from
Speaker 1: the Fed or just wishing our ways toward better times.
Speaker 1: The equity markets finally broke their downward trend, with equities
Speaker 1: across the board up for the first time in eight weeks.
Speaker 1: Both the SMP and the NASDAC were up over six
Speaker 1: point five percent for the week, giving the SMP it's
Speaker 1: best rally since and that risk on sentiment carried over
Speaker 1: to bonds as yields on the tenure gave up four
Speaker 1: basis points end of the week under two point seven
Speaker 1: four to take us through what, if anything, we learned
Speaker 1: from the markets this week. Welcome now, Ben Inker. He's
Speaker 1: gm O co head of asset Allocation, and Liza Saunders
Speaker 1: Charles Schwab, chief investment Strategy. So listen. I'll start with
Speaker 1: you are happy times here again? I think it's too
Speaker 1: soon to tell looking at a one week rally after
Speaker 1: seven weeks of pretty significant carnage, is is more indicative
Speaker 1: of a counter trend move the types of rallies you
Speaker 1: tend to see in bear markets. I think it's premature
Speaker 1: to look at this either from a technical or breath
Speaker 1: perspective and suggests that it marks the beginning of a
Speaker 1: new cyclical uptrend. Uh, this is just natural to see
Speaker 1: this kind of pressure. I think you know, as someone ironically,
Speaker 1: it was the weaker economic data to a large degree
Speaker 1: that change the perspective or the narrative as it relates
Speaker 1: to FED policy to maybe they have some flexibility to
Speaker 1: pause after the next couple of rate hikes. But I
Speaker 1: think it's also premature to make that assessment. So Ben,
Speaker 1: I know that you're a longer term investor. You don't
Speaker 1: just look week to week. But did we learn anything
Speaker 1: about that issue, about whether it's a soft landing or
Speaker 1: a hard landing from what we saw this week. I
Speaker 1: don't think we learned anything that's that determinative. We've seen
Speaker 1: some evidence that there are parts of the economy that
Speaker 1: are softening. I mean it's most clear in the housing market,
Speaker 1: and that's the place most heavily impacted by what goes
Speaker 1: on in rates. So uh, you know that shouldn't have
Speaker 1: been a surprise. I'd say from the consumer perspective, the
Speaker 1: consumer still seems to be pretty strong. Um, we haven't
Speaker 1: seen strong evidence of the consumer pulling back. So I
Speaker 1: don't think we've seen anything that should really cause people
Speaker 1: to have said, Okay, great, we're gonna have a soft landing.
Speaker 1: We're not gonna have recession, We're not going to have
Speaker 1: continued inflation problems. But as lis Anne was saying, man,
Speaker 1: it has been a really long run of the market
Speaker 1: losing week after week. Uh. And markets almost never moved
Speaker 1: for long periods of time just in one direction. There's
Speaker 1: always volatility. Lisenne, I wonder what it told us, if anything,
Speaker 1: about the possibility of recession. So clearly the Fed doesn't
Speaker 1: want to engineer or drive us into a recession that
Speaker 1: they do concede at maybe the the price in order
Speaker 1: to narrow the gap between demand and supply in a
Speaker 1: monetary policy can sometimes be a fairly blunt instrument, and
Speaker 1: really all they can control right now is the demand side.
Speaker 1: I think the path to a soft landing would be
Speaker 1: the supply side easing up, not just supply chain disruptions
Speaker 1: but also the supply of labor, and that doesn't appear
Speaker 1: to be imminent, but I think that's probably the primary
Speaker 1: path to a soft landing. Otherwise, I think the conditions
Speaker 1: in place right now, the kind of early deterioration that
Speaker 1: we're seeing, have the needle pointing a little bit more
Speaker 1: toward recession than soft landing. The last thirteen rate hike cycles,
Speaker 1: you've had their ten recessions and three soft landing, so
Speaker 1: simple history says that it's more likely this time. And
Speaker 1: with a forty year high in inflation and the simultaneously
Speaker 1: trying to shrink a nin trillion dollar balance sheet, it's
Speaker 1: hard to suggest at that points the needle more towards
Speaker 1: soft landing, but there is a path in that direction.
Speaker 1: Liz Ana Sanders and Benanco where We're staying with us
Speaker 1: as we turn from what the markets did this week
Speaker 1: to what we should do with the markets going forward.
Speaker 1: That's next on Walter on Boomberg. This is Bloomberg Wall
Speaker 1: Street Week with David Weston from Bloomberg Radio. The market
Speaker 1: end of the week in a sinking coma that made
Speaker 1: it clear that the worst economic shortage of all was
Speaker 1: the shortage of buyers. On Wall Street, it was a
Speaker 1: week that we called the words of Otto H. Kom,
Speaker 1: a famous financier and art patron who once described finance
Speaker 1: as an old lady with shaken nerves. That was Lewis Orchiser,
Speaker 1: of course, on Wall Street Week back in nineteen seventy three.
Speaker 1: Lis An Sanders of Charles Schwab and Ben Inker of
Speaker 1: GMO have stayed with us. So Ben, I don't know
Speaker 1: about a nervous widow with uh daily With the markets
Speaker 1: this week, in fact, it was up, not down. At
Speaker 1: the same time, the market has clearly been nervous. How
Speaker 1: do you approach this, and particularly I read with great
Speaker 1: interest you're talking about a so called growth trap. Yeah,
Speaker 1: I think you know. As a value manager, one of
Speaker 1: the things that happens to us all the time a
Speaker 1: client comes in, our prospective client comes in and says, oh,
Speaker 1: you buy value stocks, how you avoid value traps? Um
Speaker 1: And it's a perfectly reasonable question, because value traps are
Speaker 1: a pain for value managers. But what people don't seem
Speaker 1: to focus on is those same kinds of stocks exist
Speaker 1: in the growth universe as well. Right, A trap is
Speaker 1: just a company that winds up not doing as well
Speaker 1: as investors were expecting, and those stocks actually turn out
Speaker 1: to be more painful if they were growth stocks, then
Speaker 1: if their value stocks for not such a weird reason. Right,
Speaker 1: If your value stock nobody expected all that much from you,
Speaker 1: they're still disappointed if you do even worse. But if
Speaker 1: your growth stock, if people were expecting wonderful things out
Speaker 1: of you because you are Peloton and we're going to
Speaker 1: sell a bike to everyone on earth. When you fail
Speaker 1: to live up to that, there's two problems. One, your
Speaker 1: fundamentals are worse, but to your valuation drops right, that
Speaker 1: growth premium you had you're no longer worthy of. And
Speaker 1: whether you're Peloton, whether you're a Netflix, uh, whether you're
Speaker 1: the whole series of growth stocks that have turned out
Speaker 1: to be traps in the past year. One of the
Speaker 1: interesting things that's gone on in the past months is
Speaker 1: this has actually been the worst year to be a
Speaker 1: disappointing growth stock relative to growth stock. So, right, it's
Speaker 1: gonna allows a year for growth stocks. Fine, but the
Speaker 1: stocks that have done excessively badly relative to the rest
Speaker 1: of growth are those growth companies that are disappointed. Um.
Speaker 1: And we we think if you're gonna be hiring active managers, um,
Speaker 1: it's important to recognize they're not going to be right
Speaker 1: every tie. Uh. And one of the things that people
Speaker 1: are only relearning pretty recently is, yeah, it's really painful
Speaker 1: as a growth investor to turn out to have been
Speaker 1: wrong on a stock. And we think that that pattern
Speaker 1: of growth traps doing particularly badly is set to an
Speaker 1: u for a while. So listen, what about that. Obviously,
Speaker 1: when you talk about grows stalks, there are a lot
Speaker 1: of things included on a wide range of different companies
Speaker 1: at the same time. In a world of rising rates,
Speaker 1: rising interest rates, all the things being equal, which they
Speaker 1: never are, growth is going to do worse because you're
Speaker 1: dis kind of that future cash flow, aren't you. Well,
Speaker 1: and especially in an environment where some of these so
Speaker 1: called growth stocks are actually the nonprofitable stock, they don't
Speaker 1: have any earnings growth, they don't have any earnings. And
Speaker 1: I think when you combine that, which those types of stocks,
Speaker 1: whether it's nonprofitable tech, they were very narrative driven. They
Speaker 1: really represented one of the pockets of where speculative froth
Speaker 1: was the primary driver. And in this part of the cycle,
Speaker 1: those types of companies, those longer duration you know, eternal
Speaker 1: duration stocks, as you wait for that earning stream in
Speaker 1: a rising inflation, rising interest rate environment, get absolutely hammered.
Speaker 1: The one thing I'd say, and I it's a little
Speaker 1: bit different a take on the idea or concepts of
Speaker 1: growth and value. And I often describe it as lower
Speaker 1: case the and low work case G is investing based
Speaker 1: on the fundamentals or characteristics or factors of growth or value.
Speaker 1: In fact, you know, Bloomberg does amazing work on factors.
Speaker 1: And if you look over the last three months, over
Speaker 1: the last six months, sort of this era of tighter
Speaker 1: monetary policy, high inflation, rising interest rates. What's interesting is
Speaker 1: even within segments of the market that are mostly housed
Speaker 1: in the growth indexes tech, consumer, discretionary, communication services, it's
Speaker 1: the value oriented factors that are working that are leading
Speaker 1: meeting stocks at that trade or stocks that screen well
Speaker 1: on those types of factors, whether it's strong free cash flow, yield,
Speaker 1: strong balance sheet, lower volatility, they've been doing well. So
Speaker 1: I think sometimes investors have to take off the blinders
Speaker 1: when they think about growth and value, because you can
Speaker 1: look for value in areas that happen to live in
Speaker 1: the growth indexes. And there are times where and stocks
Speaker 1: that live in the value indexes don't offer a tremendous
Speaker 1: amount of value. Utilities, which have been popular stocks because
Speaker 1: of the defensive nature, are now trading at a record
Speaker 1: or near record positive or or or a premium from
Speaker 1: a p perspective to the SMP five D. So, Ben,
Speaker 1: I'm curious about your reaction that I suspect you might
Speaker 1: not and tell you disagree because you talked about active investing.
Speaker 1: You were saying be careful about growth stocks. At the
Speaker 1: same time, there are these elements such as goal fashioned
Speaker 1: cash flow and balance sheet and and volatility, and like
Speaker 1: that within the growth sector, there may be still some goodbyes. Yeah,
Speaker 1: I mean, well, first of all, they're almost always are right.
Speaker 1: It is. It would be weird if an entire half
Speaker 1: of the market and growth and value tend to be
Speaker 1: defined by half if there was nothing worth owning. UM.
Speaker 1: So even a year ago, there were probably some growth
Speaker 1: stocks that were worth owning. And I would say, we've
Speaker 1: got we have a strategy that we've been running for
Speaker 1: the last year and a half where explicitly long undervalued
Speaker 1: stocks in short overvalued stocks. And one of the things
Speaker 1: we've found in recent months is some of the stocks
Speaker 1: we were sure a year ago are showing up on
Speaker 1: the long side of our book, um, because the market
Speaker 1: has really fallen out of love with them. UM. And
Speaker 1: that's a natural you know, that is a natural process.
Speaker 1: And and one of the things about growth and value
Speaker 1: and that people tend to forget they are always dynamic strategies.
Speaker 1: Right you buy, you buy a value portfolio. You come
Speaker 1: back in a year and some of those stocks aren't
Speaker 1: value anymore. Now, oftentimes those stocks that aren't value, it's
Speaker 1: a good thing because the market and say, oh, this
Speaker 1: is actually something pretty cool, and the valuation goes up
Speaker 1: and they graduate to the growth universe. On the growth side,
Speaker 1: what you really want is for those growth companies that
Speaker 1: you owned at the beginning of the year to still
Speaker 1: look like growth companies at the end of the year,
Speaker 1: because if they doll, it's probably because something like bad
Speaker 1: has happened to though, And that's a piece people don't
Speaker 1: tend to recognize, especially when they're talking about a start
Speaker 1: duration difference between growth and value. I want to give
Speaker 1: you the last word. I was sorry of curveball. Here's
Speaker 1: a curve ball is the real answer here. We should
Speaker 1: all lower our expectations for what they have been, what
Speaker 1: we should expect from our portfolio. Uh. You know, there's
Speaker 1: nobody that I know out there that does long term
Speaker 1: capital markets expectations that has a lofty number in keeping
Speaker 1: with say that that ten years leading up to the pandemic,
Speaker 1: or even the ten years up until the end of
Speaker 1: last year. So I think just where we are in
Speaker 1: the cycle, the fact that household ownership of equities is
Speaker 1: as of UM the end of the year UM, even
Speaker 1: through the first quarter, was at a record high level.
Speaker 1: That that doesn't bode incredibly ill for subsequent tenure returns,
Speaker 1: but it does suggest curb your enthusiasm for access returns. Okay,
Speaker 1: many thanks with Luzian Sanders Chara and the Ben Inker
Speaker 1: of g About this is Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio. Okay, we knew it was coming,
Speaker 1: but somehow it's still surprised us. We had pumped record
Speaker 1: amounts of dollars and yen and pounds and euros into
Speaker 1: the global system, all to keep it going through a
Speaker 1: financial crisis and then a pandemic. As justified by then
Speaker 1: FED chair Janet Yelling at Crescent, I view the balance
Speaker 1: of risks as still calling for a highly accommodative monetary
Speaker 1: policy to support a stronger recovery and more rapid growth
Speaker 1: and employment. And then we added trillions of dollars of
Speaker 1: fiscal stimulus, including that American Rescue Plan. President Biden convinced
Speaker 1: us we just had to have for each dollar this
Speaker 1: tax cut cost, it returns eight dollars and benefits. Found
Speaker 1: the line, it's a gigantic helmet's an eight to one return.
Speaker 1: But now the time has come to cut down on
Speaker 1: all that stimulus. On both the fiscal side, we should
Speaker 1: not put more stimulus spending into the economy because that
Speaker 1: is what generated so much of this. And on the
Speaker 1: monetary side, if you want to tighten policy, you have
Speaker 1: to raise interest rates by more than inflation went up,
Speaker 1: leaving us to debate just how bad it could get.
Speaker 1: Supply sharks, demand chalks altogether mix it in one. Of course,
Speaker 1: it is unclear at this moment in time when it
Speaker 1: comes to getting us that's what's really going on in
Speaker 1: the markets and in the business world. There's one person
Speaker 1: we really love to turn to. And then as Blair Fron,
Speaker 1: he is the founder, co founder and partner in Centerview Partners. Blair,
Speaker 1: thanks so much for being with us. So we had
Speaker 1: a lot of stimulus go into the market, fiscal and monetary.
Speaker 1: We took it out and now people are really almost
Speaker 1: in a panic. Some people worry about where we're going.
Speaker 1: What is your sense of where we are if it?
Speaker 1: First of all, life for having me on. And obviously
Speaker 1: everything is a lot more murky than the last time
Speaker 1: I was on. So what I would tell you is
Speaker 1: this one I've never seen as murky at period as
Speaker 1: we're intten right now, I think the answers across the spectrum,
Speaker 1: we're gonna a lot more than the next two months.
Speaker 1: Let's define first what we're looking for. Everybody talks about
Speaker 1: slowdown versus recession. Remember, recession, at least by our traditional definition,
Speaker 1: means two quarters of negative GDP growth. I don't think
Speaker 1: that's going to happen. I do think there's would be
Speaker 1: three or so data points that we're all going to
Speaker 1: pay close attention to in the next two months that
Speaker 1: have to show decent results. Obviously, inflation. Let's assume that
Speaker 1: the Fed funds goal public goal of two to two
Speaker 1: and a half percent is going to look light, and
Speaker 1: it's somewhere between three to four percent before it's all done.
Speaker 1: To be at the better end of that, you're gonna
Speaker 1: hope to see inflation publishing with a seven by midsummer
Speaker 1: and with a six later in the summer. Second, the
Speaker 1: energy prices, did they hang in where they are or
Speaker 1: did they go higher? That's howays going to be a
Speaker 1: big influence to give us the pump. I would note
Speaker 1: that the biggest companies, the biggest the oil majors, have
Speaker 1: not increased their production budgets, which kicks in our intermediate
Speaker 1: terms that they're telling you that uh. In some ways
Speaker 1: today the belief is it's big cycle. And finally, where
Speaker 1: is housing going to be? Mortgage rates two plus basic
Speaker 1: points in just a few months. The last time we
Speaker 1: saw that cooled housing down about weed hasn't do better.
Speaker 1: To the extent this all happens. I believe that we
Speaker 1: will be in a period of slow down, certainly, but
Speaker 1: that there's enough tailwind in different parts of the economy
Speaker 1: to keep this from being uh going to a full
Speaker 1: blown recession. So we're certainly saying a slowdown, let's put
Speaker 1: it wildly. In the equity markets has been really a
Speaker 1: roller coaster, but down substantially this year. Is that translating
Speaker 1: into your business? Our CEO is less eager to make
Speaker 1: deals now? Absolutely. I would say that the biggest factor
Speaker 1: in deal making is going to be confidence. And confidence
Speaker 1: comes from feeling certain in the decision making, certain in
Speaker 1: the outcomes of various moves you're gonna make. And right
Speaker 1: now we are an uncertain environment. CEOs can make judgments
Speaker 1: when there's a high growth environment, they can equally make
Speaker 1: judgments in a lower growth environment. Right now, it's certainly
Speaker 1: difficult pory, but things are happening. I tell you, David
Speaker 1: that volumes remain okay, it's actually the value, the overall
Speaker 1: value transactions is down three and that tells you that
Speaker 1: CEOs are focusing still on doing moves that are more
Speaker 1: tactical than strategic, but doing them um, and they are
Speaker 1: getting things financed, I would say, particularly if it's of it.
Speaker 1: The equity market's not so. But uh for investment grade,
Speaker 1: no issue, and for below investment grade a lot more
Speaker 1: expensive during the basis points are so higher than it
Speaker 1: would have been even a few months ago. But given
Speaker 1: what's going on a leverage loan market, which is her
Speaker 1: robust taking off a lot of the uh downward impact
Speaker 1: in the high yield market in terms of issuance volume,
Speaker 1: things are actually still frankly getting done. From your experience,
Speaker 1: from your vantage point, is it possible we're all overreacting.
Speaker 1: That's not a word I would use. No. I think
Speaker 1: this is an environment where, if anything, you want to
Speaker 1: react aggressively, act aggressively, get ahead of it. I'm someone
Speaker 1: that's certainly thinks uh, and I have you and I've
Speaker 1: talked about for quite a while that getting to rate
Speaker 1: raiss had to happen, would have been uh, perhaps better
Speaker 1: happened center the reasons for that. It didn't, but the
Speaker 1: rate had to happen, and you want to cure it
Speaker 1: to happen to deeply. So I believe getting ahead of it,
Speaker 1: particularly because we had an asset price and environment Okay, Blair,
Speaker 1: It's always such a treat to talk to you. Thank
Speaker 1: you so much for trying this Blair affront of Center
Speaker 1: View Partners, Get me Up. We wrap up the week
Speaker 1: with special contributor to Larry Summers up Harvard. This is
Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street
Speaker 1: Week with David Weston from Bloomberg Radio. This is wall
Speaker 1: S three week clim David Weston. We want to wrap
Speaker 1: up the week once again with our very special contributing
Speaker 1: Larry Summers of Harvard. And Larry, we have a lot
Speaker 1: to talk about when it comes to the economy with
Speaker 1: respective markets, but I want to start with something very different,
Speaker 1: and that is what we saw on that tragic shooting
Speaker 1: down in South Texas and now elementary school. I'd like
Speaker 1: to say it's unimaginable, except it's happened too many times.
Speaker 1: Do you have any thoughts about what we're seeing in
Speaker 1: this country? Horror, rage, frustration. We can do better, We
Speaker 1: can do better. We need to think through what the
Speaker 1: right solution is. UH. Some some limits on access to
Speaker 1: guns that don't threaten any real Second Amendment right, some
Speaker 1: red flags set of procedures that catch catch UH signs
Speaker 1: of trouble and people and UH take actions. We just
Speaker 1: can't accept this as the regular order of business in America.
Speaker 1: And I think, David, it reflects something that may be broader,
Speaker 1: a kind of new callousness in our country. We're probably
Speaker 1: only in the fifth inning with respect to UH COVID.
Speaker 1: They're gonna be hundreds of people dying each day as
Speaker 1: far as the eye can see. And we are not
Speaker 1: as a country making the investments, whether it's vaccines you
Speaker 1: can take through your nose, whether it's new therapeutics, whether
Speaker 1: it's a war on long UH COVID and clinical trials
Speaker 1: that we need. We've let the COVID controversy become a
Speaker 1: green eye shade thing about pay for wars and a
Speaker 1: culture thing about masks when they're the highest return investments
Speaker 1: available in our society, for here and for leadership around
Speaker 1: the world, and we just can't seem to get there.
Speaker 1: And I just don't understand why we can't all come
Speaker 1: together on the proposition and innocent Americans shouldn't be dying,
Speaker 1: and then it's government's first obligation in the name of
Speaker 1: security to prevent that from happening. Yeah, it's hard to
Speaker 1: imagine what's going on. Larry. Let's come back now to
Speaker 1: the economy if we could, and particularly had f MC
Speaker 1: units coming out this week that the markets took as
Speaker 1: good news because they talked about having raising rates at
Speaker 1: fifty basis points for two or three times, and then
Speaker 1: that gives them flexibility as that already accomplished much of
Speaker 1: what it has to accomplish with a spectrum inflation. I
Speaker 1: doubt it, but I'm not sure. I think the FEDS
Speaker 1: flexibility is a much better place for it to be.
Speaker 1: And all this emphasis on forward guidance that we were
Speaker 1: having for a long time, I think humility is the
Speaker 1: right posture in UH with respect to UH monetary policy, David,
Speaker 1: As you know, my view has been that inflation is
Speaker 1: not gonna come down without some meaningful downturn in our
Speaker 1: economy that means an increase in unemployment. But I've been
Speaker 1: uncertain as to where interest rates will have to go
Speaker 1: to achieve that, particularly all that's happening that's been adverse
Speaker 1: for financial conditions in the stock market and in credit markets. Okay,
Speaker 1: let's talk about the Congression Budget Office, because I don't
Speaker 1: know how confident they are, but they came up with
Speaker 1: projections this week that that we was sure look like
Speaker 1: a soft landing of me. They have inflation coming down
Speaker 1: at two point three four, they've got GDP growth at
Speaker 1: one point five percent, unemployment still under four percent, three
Speaker 1: and the tenure only goes up to three. That sounds
Speaker 1: a lot like a soft landing to me. Larry, I've
Speaker 1: always thought of the CBO as a bastion of credibility.
Speaker 1: I've watched the CBO projections for forty years. This is
Speaker 1: their least plausible one in the forty years that I've
Speaker 1: been watching. To be fair, they have to lock that
Speaker 1: forecast up months ago, and a lot's happened that's been
Speaker 1: adverse in the last several months. But they are the
Speaker 1: last holdout on team Transitory on the conviction that somehow
Speaker 1: we can have the economy over stimulated and still have
Speaker 1: inflation come way down because the supply side is just
Speaker 1: gonna wonderfully materialize. That's a conceivable outcome. One of the
Speaker 1: velops this week was how the United Kingdom is addressing
Speaker 1: some of the energy cost problems. They're imposing windfall profits
Speaker 1: tax on excess profits from oil and gas. We had
Speaker 1: Muhammad are and say, you know, what. He's not sure.
Speaker 1: It's a great idea, but it's better than the alternatives
Speaker 1: if they give that money to people who are having
Speaker 1: to pay more of that who don't tend not to
Speaker 1: be the people going to afford it. What do you
Speaker 1: think about windfall profits taxes on oil and gas. I
Speaker 1: don't know about the British context, but I think in
Speaker 1: the American context they'd be a grave, grave error. Today's
Speaker 1: windfall profits tax is tomorrow is a return. Is a
Speaker 1: tax on the return people made on investments that are
Speaker 1: prepared for this contingency. A society that imposes windfall profits
Speaker 1: taxes is a society that discourages preparatory investments. It's a mistake.
Speaker 1: If we need revenue, which we do in this country,
Speaker 1: we should get it by repealing the windfall profits giveaway
Speaker 1: that was represented in the Trump tax cuts to a
Speaker 1: substantial degree, and that would enable us also to join
Speaker 1: the world in the global tax cooperation. That was such
Speaker 1: a great success for Secretary Yalet. I've sometimes been critical
Speaker 1: in the Biden administration, but I applaud them for having
Speaker 1: resisted the easy political temptation to uh windfall profits taxes.
Speaker 1: That was the courageous thing, and that was the right thing. Larry.
Speaker 1: Let's talk about how we're trying to get our arms
Speaker 1: inflation back here. We always talk about macroeconomics. You're renowned macroeconomists.
Speaker 1: What are some of the microeconomics things like? And a
Speaker 1: trust policy something we talked about last week on Wall
Speaker 1: Street Week. You tweeted about it to good effect this week.
Speaker 1: Also for that matter, terroriffts. We continue to talk about tariffs,
Speaker 1: with even Secretary State B. Lincoln coming out giving a
Speaker 1: speeches week, doesn't sound like those China tarrifts are calling
Speaker 1: off anytime soon. I would say this, Those who say
Speaker 1: that vigorous competition is central to capitalism are absolutely right.
Speaker 1: We should be pushing for vigorous competition. Probably the single
Speaker 1: most important instrument the government has for promoting competition in
Speaker 1: key industries is maintaining open markets in which foreign companies
Speaker 1: have access to US markets and can compete with US producers,
Speaker 1: and which in return for that, US producers get more
Speaker 1: access to UH foreign markets. Trade liberalization is central to
Speaker 1: having competition UH in the economy, and it should be
Speaker 1: at the front of any kind of competition policy. If
Speaker 1: we had not had seventeen and a half percent tariffs
Speaker 1: on infant formula. We would be in a much better
Speaker 1: position with respect to that issue today. If governments had
Speaker 1: more sensible procurement policies with respect to infant formula at
Speaker 1: the state level, we would be in a better position
Speaker 1: with respect to uh infant formula today. Okay, Larry, thank
Speaker 1: you so very much for being back with us this week.
Speaker 1: That's our very special contributor to Larry Summers of Harvard University. Finally,
Speaker 1: one more thought to air is human to forgive divine,
Speaker 1: so wrote Alexander Pope over three hundred years ago, and
Speaker 1: our leaders are giving us plenty of opportunities through the
Speaker 1: years to demonstrate just how divine we all can be. Consider,
Speaker 1: for example, President for during a presidential debate in nine
Speaker 1: telling an incredulous Max Frankel of The New York Times
Speaker 1: that there really wasn't an Iron curtain. After all, there
Speaker 1: is no Soviet dominant nation of Eastern Europe and there
Speaker 1: never will be under Afford administration. I'm sorry, I could
Speaker 1: I just found did I understand you to say, sir,
Speaker 1: that the Russians are not using Eastern Europe as their
Speaker 1: own sphere of influence and occupying most of the countries
Speaker 1: there for a few years later, when President Reagan in
Speaker 1: four was getting ready to give a radio address and
Speaker 1: thinking that Mike in front of him wasn't on. I
Speaker 1: have shined legislations. They will outlaw Russia forever we begin bombing.
Speaker 1: In five minutes. The Soviet Union condemned the remarks, and
Speaker 1: his opponent that year, Walter Mondale, tried to use it
Speaker 1: against him in the election. But we all know how
Speaker 1: that ended. Right. Presidential gaps are not merely relaxed of
Speaker 1: the seventies and the eighties. This week we had two
Speaker 1: reminders that they're very much alive and well in the
Speaker 1: third decade of the twenty one century, as former President
Speaker 1: George W. Bush tried to condemn Russia for its invasion
Speaker 1: of Ukraine and scored something of an own goal, which
Speaker 1: quickly was picked up on by Stephen Colbert. The decision
Speaker 1: of one man to launch a wholly unjustified and brutal
Speaker 1: invasion of Iraq, I mean of the Ukraine anyway, Jimminy
Speaker 1: Christmas the one phrase he definitely should never utter for
Speaker 1: the rest of his life. It's like he's thinking about
Speaker 1: it all the time, and it's just fucked out and
Speaker 1: then there's President Biden on his trip to Asia, when
Speaker 1: he was asked about the US springing to the defense
Speaker 1: of Taiwan if it were invaded. Are you willing to
Speaker 1: get involved militarily to defend Taiwan if it comes to that,
Speaker 1: you are. That's a commitment we made, leading some at
Speaker 1: least to take issue, contending that he was committing to
Speaker 1: take up arms if necessary, rather than merely ensuring that
Speaker 1: Taiwan can defend itself. And this isn't the first time
Speaker 1: the President has appeared to go beyond stated policy on Taiwan.
Speaker 1: It's more like the fourth, reminding us once again of
Speaker 1: that aphorism of Michael Kinsley in Washington. A gap is
Speaker 1: when someone tells the truth by mistake. That does it.
Speaker 1: For this episode of Wall Street Week, I'm David Weston.
Speaker 1: This is Bloomberg. See you next week.