WEBVTT - Bloomberg Wall Street Week: May 27th, 2022 0:00:00.520 --> 0:00:03.760 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.880 --> 0:00:07.600 to the markets this week. Us CPI members reinforcing concerns 0:00:07.600 --> 0:00:10.800 about inflation. The financial stories that chief are worth a 0:00:10.840 --> 0:00:13.760 really different reaction to mark its more indications of just 0:00:13.960 --> 0:00:16.360 how hot the U. S economy really is. Through the 0:00:16.400 --> 0:00:19.759 eyes of the most influential voices. Larry Summers, the former 0:00:19.800 --> 0:00:22.920 Treker Secretary, Katherine Keating, CEO of v n y Moins, 0:00:22.960 --> 0:00:26.279 Sam's l Sharmon and founder of Equatic Group Investment in 0:00:26.320 --> 0:00:30.280 Bloomberg wool Street Week with David Weston from Bloomberg Radio. 0:00:30.480 --> 0:00:32.880 A week of big moves in the market, a big 0:00:32.920 --> 0:00:35.560 gathering in Davos, and a big signal from the Fed. 0:00:36.080 --> 0:00:38.400 But in the end, it was a tragic shooting in 0:00:38.440 --> 0:00:41.440 a small town in Texas that cast the biggest shadow 0:00:41.880 --> 0:00:45.279 over it all. This is Bloomberg Wall Street Week. I'm 0:00:45.360 --> 0:00:49.920 David Weston. This week's special contributor Larry Summers on whether 0:00:50.000 --> 0:00:52.720 bad news in the markets and the economy is good 0:00:52.760 --> 0:00:56.640 news for the Fed? Humility is the right posture with 0:00:56.680 --> 0:01:02.120 respect to uh monetary follows see and Blair Afron a 0:01:02.200 --> 0:01:05.479 centerview partners on whether things really are as bad as 0:01:05.520 --> 0:01:11.640 they sometimes seem I've never seen, as Murky Turide has 0:01:11.680 --> 0:01:28.720 written right now. Sometimes the biggest events don't move markets, 0:01:28.840 --> 0:01:32.480 but they do overshadow everything else. And this week it 0:01:32.600 --> 0:01:35.759 was the killing of nineteen children in their elementary school 0:01:35.840 --> 0:01:41.440 classroom in South Texas, provoking anger from President Biden. Why 0:01:41.440 --> 0:01:45.199 are we willing to live with this carnage? Why don't 0:01:45.200 --> 0:01:48.040 we keep letting this happen? Time to turn this pain 0:01:48.120 --> 0:01:51.680 and at you. But as much as the tragedy held 0:01:51.760 --> 0:01:54.840 our attention this week, there was a lot going on elsewhere, 0:01:55.200 --> 0:01:57.920 like in Davos, Switzerland, where the great and the good 0:01:58.000 --> 0:02:01.000 of business and finance gathered once in again, and we 0:02:01.120 --> 0:02:04.400 heard about everything from Madame Legarde on the odds of 0:02:04.400 --> 0:02:08.320 a recession. For the moment, we are not seeing a 0:02:08.360 --> 0:02:12.200 recession in the ur area, the Bank of America's Brian moynihan, 0:02:12.240 --> 0:02:14.880 and the strength of the consumer. In the first two 0:02:14.880 --> 0:02:17.320 weeks of May, the consumer spent tempercent more than they 0:02:17.320 --> 0:02:20.200 did last May. And that's over top of the payments 0:02:20.200 --> 0:02:23.080 that went out to pay taxes. To Fidelity CEO and 0:02:23.280 --> 0:02:26.240 richards On the global food crisis caused by the war 0:02:26.360 --> 0:02:29.880 in Ukraine. One of the things that has been really 0:02:29.960 --> 0:02:33.079 constructive about the conversations this week is how the risk 0:02:33.160 --> 0:02:36.280 of a food crisis has gone right up the agenda, 0:02:36.840 --> 0:02:40.359 and George Soros on whether the war could end it all. 0:02:41.200 --> 0:02:45.000 The invasion may have been the beginning of the Third 0:02:45.120 --> 0:02:52.880 World War and civilization may not survive it. And while 0:02:52.919 --> 0:02:55.679 all those bold faced names were talking in Davos, we 0:02:55.800 --> 0:02:58.560 got the minutes from the FEDS May meeting showing that 0:02:58.680 --> 0:03:02.679 by raising rates now they may have more flexibility later on. 0:03:03.360 --> 0:03:05.000 I'm not sure how much the Fed is really moving 0:03:05.040 --> 0:03:07.000 this market anymore. This is a market, I think, kind 0:03:07.000 --> 0:03:09.600 of running on fumes and looking for a direction from anybody, 0:03:09.600 --> 0:03:12.640 and they're not getting there from the Fed, right And 0:03:12.680 --> 0:03:14.360 whether it was the hint of a let up from 0:03:14.400 --> 0:03:17.400 the Fed or just wishing our ways toward better times. 0:03:17.560 --> 0:03:20.760 The equity markets finally broke their downward trend, with equities 0:03:20.840 --> 0:03:23.919 across the board up for the first time in eight weeks. 0:03:23.919 --> 0:03:26.600 Both the SMP and the NASDAC were up over six 0:03:26.639 --> 0:03:29.079 point five percent for the week, giving the SMP it's 0:03:29.160 --> 0:03:32.840 best rally since and that risk on sentiment carried over 0:03:32.840 --> 0:03:35.560 to bonds as yields on the tenure gave up four 0:03:35.600 --> 0:03:38.320 basis points end of the week under two point seven 0:03:38.360 --> 0:03:41.320 four to take us through what, if anything, we learned 0:03:41.400 --> 0:03:44.000 from the markets this week. Welcome now, Ben Inker. He's 0:03:44.040 --> 0:03:47.360 gm O co head of asset Allocation, and Liza Saunders 0:03:47.520 --> 0:03:50.360 Charles Schwab, chief investment Strategy. So listen. I'll start with 0:03:50.400 --> 0:03:53.440 you are happy times here again? I think it's too 0:03:53.520 --> 0:03:56.720 soon to tell looking at a one week rally after 0:03:56.880 --> 0:04:01.720 seven weeks of pretty significant carnage, is is more indicative 0:04:02.000 --> 0:04:04.840 of a counter trend move the types of rallies you 0:04:04.880 --> 0:04:07.200 tend to see in bear markets. I think it's premature 0:04:07.840 --> 0:04:10.040 to look at this either from a technical or breath 0:04:10.080 --> 0:04:13.200 perspective and suggests that it marks the beginning of a 0:04:13.240 --> 0:04:18.000 new cyclical uptrend. Uh, this is just natural to see 0:04:18.440 --> 0:04:21.440 this kind of pressure. I think you know, as someone ironically, 0:04:21.440 --> 0:04:23.839 it was the weaker economic data to a large degree 0:04:23.880 --> 0:04:27.279 that change the perspective or the narrative as it relates 0:04:27.320 --> 0:04:30.039 to FED policy to maybe they have some flexibility to 0:04:30.080 --> 0:04:33.480 pause after the next couple of rate hikes. But I 0:04:33.720 --> 0:04:36.680 think it's also premature to make that assessment. So Ben, 0:04:36.720 --> 0:04:38.680 I know that you're a longer term investor. You don't 0:04:38.720 --> 0:04:41.080 just look week to week. But did we learn anything 0:04:41.120 --> 0:04:43.360 about that issue, about whether it's a soft landing or 0:04:43.400 --> 0:04:45.400 a hard landing from what we saw this week. I 0:04:45.440 --> 0:04:50.719 don't think we learned anything that's that determinative. We've seen 0:04:50.760 --> 0:04:53.320 some evidence that there are parts of the economy that 0:04:53.360 --> 0:04:56.800 are softening. I mean it's most clear in the housing market, 0:04:56.920 --> 0:05:00.560 and that's the place most heavily impacted by what goes 0:05:00.600 --> 0:05:03.800 on in rates. So uh, you know that shouldn't have 0:05:03.839 --> 0:05:06.720 been a surprise. I'd say from the consumer perspective, the 0:05:06.800 --> 0:05:10.800 consumer still seems to be pretty strong. Um, we haven't 0:05:10.839 --> 0:05:15.520 seen strong evidence of the consumer pulling back. So I 0:05:15.600 --> 0:05:19.520 don't think we've seen anything that should really cause people 0:05:19.560 --> 0:05:23.320 to have said, Okay, great, we're gonna have a soft landing. 0:05:23.320 --> 0:05:25.040 We're not gonna have recession, We're not going to have 0:05:25.560 --> 0:05:28.760 continued inflation problems. But as lis Anne was saying, man, 0:05:28.800 --> 0:05:31.880 it has been a really long run of the market 0:05:31.960 --> 0:05:37.000 losing week after week. Uh. And markets almost never moved 0:05:37.120 --> 0:05:40.000 for long periods of time just in one direction. There's 0:05:40.040 --> 0:05:44.239 always volatility. Lisenne, I wonder what it told us, if anything, 0:05:44.240 --> 0:05:48.000 about the possibility of recession. So clearly the Fed doesn't 0:05:48.640 --> 0:05:51.800 want to engineer or drive us into a recession that 0:05:51.880 --> 0:05:55.320 they do concede at maybe the the price in order 0:05:55.400 --> 0:05:58.320 to narrow the gap between demand and supply in a 0:05:58.360 --> 0:06:02.679 monetary policy can sometimes be a fairly blunt instrument, and 0:06:03.040 --> 0:06:05.480 really all they can control right now is the demand side. 0:06:05.520 --> 0:06:07.880 I think the path to a soft landing would be 0:06:07.920 --> 0:06:11.560 the supply side easing up, not just supply chain disruptions 0:06:11.560 --> 0:06:15.159 but also the supply of labor, and that doesn't appear 0:06:15.160 --> 0:06:18.719 to be imminent, but I think that's probably the primary 0:06:18.760 --> 0:06:22.000 path to a soft landing. Otherwise, I think the conditions 0:06:22.040 --> 0:06:25.919 in place right now, the kind of early deterioration that 0:06:25.920 --> 0:06:28.920 we're seeing, have the needle pointing a little bit more 0:06:28.960 --> 0:06:32.279 toward recession than soft landing. The last thirteen rate hike cycles, 0:06:32.560 --> 0:06:35.840 you've had their ten recessions and three soft landing, so 0:06:35.920 --> 0:06:39.200 simple history says that it's more likely this time. And 0:06:39.200 --> 0:06:42.680 with a forty year high in inflation and the simultaneously 0:06:42.680 --> 0:06:45.279 trying to shrink a nin trillion dollar balance sheet, it's 0:06:45.279 --> 0:06:47.760 hard to suggest at that points the needle more towards 0:06:47.760 --> 0:06:49.960 soft landing, but there is a path in that direction. 0:06:50.360 --> 0:06:52.440 Liz Ana Sanders and Benanco where We're staying with us 0:06:52.520 --> 0:06:54.679 as we turn from what the markets did this week 0:06:54.800 --> 0:06:57.480 to what we should do with the markets going forward. 0:06:57.800 --> 0:07:04.080 That's next on Walter on Boomberg. This is Bloomberg Wall 0:07:04.120 --> 0:07:08.680 Street Week with David Weston from Bloomberg Radio. The market 0:07:08.800 --> 0:07:11.680 end of the week in a sinking coma that made 0:07:11.680 --> 0:07:14.760 it clear that the worst economic shortage of all was 0:07:14.800 --> 0:07:17.840 the shortage of buyers. On Wall Street, it was a 0:07:17.880 --> 0:07:20.880 week that we called the words of Otto H. Kom, 0:07:20.880 --> 0:07:24.440 a famous financier and art patron who once described finance 0:07:24.920 --> 0:07:29.400 as an old lady with shaken nerves. That was Lewis Orchiser, 0:07:29.440 --> 0:07:32.400 of course, on Wall Street Week back in nineteen seventy three. 0:07:32.560 --> 0:07:34.960 Lis An Sanders of Charles Schwab and Ben Inker of 0:07:35.000 --> 0:07:37.120 GMO have stayed with us. So Ben, I don't know 0:07:37.240 --> 0:07:40.800 about a nervous widow with uh daily With the markets 0:07:40.840 --> 0:07:42.560 this week, in fact, it was up, not down. At 0:07:42.560 --> 0:07:45.120 the same time, the market has clearly been nervous. How 0:07:45.120 --> 0:07:47.560 do you approach this, and particularly I read with great 0:07:47.600 --> 0:07:51.800 interest you're talking about a so called growth trap. Yeah, 0:07:51.840 --> 0:07:54.280 I think you know. As a value manager, one of 0:07:54.320 --> 0:07:56.480 the things that happens to us all the time a 0:07:56.560 --> 0:07:59.320 client comes in, our prospective client comes in and says, oh, 0:07:59.480 --> 0:08:02.880 you buy value stocks, how you avoid value traps? Um 0:08:03.120 --> 0:08:05.840 And it's a perfectly reasonable question, because value traps are 0:08:05.880 --> 0:08:09.840 a pain for value managers. But what people don't seem 0:08:09.880 --> 0:08:13.880 to focus on is those same kinds of stocks exist 0:08:14.320 --> 0:08:16.920 in the growth universe as well. Right, A trap is 0:08:17.000 --> 0:08:20.400 just a company that winds up not doing as well 0:08:20.440 --> 0:08:24.760 as investors were expecting, and those stocks actually turn out 0:08:24.840 --> 0:08:27.880 to be more painful if they were growth stocks, then 0:08:27.880 --> 0:08:31.440 if their value stocks for not such a weird reason. Right, 0:08:31.480 --> 0:08:34.240 If your value stock nobody expected all that much from you, 0:08:34.320 --> 0:08:37.160 they're still disappointed if you do even worse. But if 0:08:37.160 --> 0:08:40.360 your growth stock, if people were expecting wonderful things out 0:08:40.360 --> 0:08:42.320 of you because you are Peloton and we're going to 0:08:42.360 --> 0:08:45.720 sell a bike to everyone on earth. When you fail 0:08:45.840 --> 0:08:48.840 to live up to that, there's two problems. One, your 0:08:48.880 --> 0:08:53.440 fundamentals are worse, but to your valuation drops right, that 0:08:53.600 --> 0:08:56.920 growth premium you had you're no longer worthy of. And 0:08:56.960 --> 0:09:00.480 whether you're Peloton, whether you're a Netflix, uh, whether you're 0:09:00.520 --> 0:09:03.160 the whole series of growth stocks that have turned out 0:09:03.160 --> 0:09:05.280 to be traps in the past year. One of the 0:09:05.360 --> 0:09:08.040 interesting things that's gone on in the past months is 0:09:08.080 --> 0:09:12.199 this has actually been the worst year to be a 0:09:12.240 --> 0:09:16.280 disappointing growth stock relative to growth stock. So, right, it's 0:09:16.280 --> 0:09:20.240 gonna allows a year for growth stocks. Fine, but the 0:09:20.360 --> 0:09:24.280 stocks that have done excessively badly relative to the rest 0:09:24.480 --> 0:09:28.959 of growth are those growth companies that are disappointed. Um. 0:09:29.559 --> 0:09:35.640 And we we think if you're gonna be hiring active managers, um, 0:09:35.679 --> 0:09:38.319 it's important to recognize they're not going to be right 0:09:38.440 --> 0:09:41.680 every tie. Uh. And one of the things that people 0:09:41.720 --> 0:09:47.599 are only relearning pretty recently is, yeah, it's really painful 0:09:47.840 --> 0:09:51.040 as a growth investor to turn out to have been 0:09:51.080 --> 0:09:54.480 wrong on a stock. And we think that that pattern 0:09:54.679 --> 0:09:59.880 of growth traps doing particularly badly is set to an 0:10:00.160 --> 0:10:02.440 u for a while. So listen, what about that. Obviously, 0:10:02.480 --> 0:10:04.040 when you talk about grows stalks, there are a lot 0:10:04.160 --> 0:10:06.760 of things included on a wide range of different companies 0:10:06.920 --> 0:10:09.120 at the same time. In a world of rising rates, 0:10:09.280 --> 0:10:11.840 rising interest rates, all the things being equal, which they 0:10:11.880 --> 0:10:14.520 never are, growth is going to do worse because you're 0:10:14.559 --> 0:10:16.800 dis kind of that future cash flow, aren't you. Well, 0:10:16.960 --> 0:10:19.120 and especially in an environment where some of these so 0:10:19.240 --> 0:10:22.280 called growth stocks are actually the nonprofitable stock, they don't 0:10:22.320 --> 0:10:24.800 have any earnings growth, they don't have any earnings. And 0:10:24.840 --> 0:10:27.840 I think when you combine that, which those types of stocks, 0:10:27.840 --> 0:10:31.200 whether it's nonprofitable tech, they were very narrative driven. They 0:10:31.200 --> 0:10:34.319 really represented one of the pockets of where speculative froth 0:10:34.480 --> 0:10:37.959 was the primary driver. And in this part of the cycle, 0:10:38.360 --> 0:10:42.360 those types of companies, those longer duration you know, eternal 0:10:42.440 --> 0:10:46.080 duration stocks, as you wait for that earning stream in 0:10:46.120 --> 0:10:49.920 a rising inflation, rising interest rate environment, get absolutely hammered. 0:10:50.320 --> 0:10:52.640 The one thing I'd say, and I it's a little 0:10:52.640 --> 0:10:55.440 bit different a take on the idea or concepts of 0:10:55.480 --> 0:10:58.360 growth and value. And I often describe it as lower 0:10:58.360 --> 0:11:02.680 case the and low work case G is investing based 0:11:02.720 --> 0:11:08.080 on the fundamentals or characteristics or factors of growth or value. 0:11:08.200 --> 0:11:11.960 In fact, you know, Bloomberg does amazing work on factors. 0:11:12.040 --> 0:11:15.000 And if you look over the last three months, over 0:11:15.040 --> 0:11:17.360 the last six months, sort of this era of tighter 0:11:17.400 --> 0:11:22.319 monetary policy, high inflation, rising interest rates. What's interesting is 0:11:22.360 --> 0:11:26.640 even within segments of the market that are mostly housed 0:11:26.760 --> 0:11:32.200 in the growth indexes tech, consumer, discretionary, communication services, it's 0:11:32.280 --> 0:11:36.000 the value oriented factors that are working that are leading 0:11:36.080 --> 0:11:40.400 meeting stocks at that trade or stocks that screen well 0:11:40.480 --> 0:11:43.679 on those types of factors, whether it's strong free cash flow, yield, 0:11:43.720 --> 0:11:47.360 strong balance sheet, lower volatility, they've been doing well. So 0:11:47.400 --> 0:11:50.640 I think sometimes investors have to take off the blinders 0:11:50.840 --> 0:11:53.480 when they think about growth and value, because you can 0:11:53.559 --> 0:11:57.160 look for value in areas that happen to live in 0:11:57.200 --> 0:12:00.520 the growth indexes. And there are times where and stocks 0:12:00.520 --> 0:12:03.800 that live in the value indexes don't offer a tremendous 0:12:03.840 --> 0:12:07.640 amount of value. Utilities, which have been popular stocks because 0:12:07.640 --> 0:12:11.240 of the defensive nature, are now trading at a record 0:12:11.360 --> 0:12:15.760 or near record positive or or or a premium from 0:12:15.760 --> 0:12:19.400 a p perspective to the SMP five D. So, Ben, 0:12:19.400 --> 0:12:21.480 I'm curious about your reaction that I suspect you might 0:12:21.480 --> 0:12:24.000 not and tell you disagree because you talked about active investing. 0:12:24.200 --> 0:12:26.520 You were saying be careful about growth stocks. At the 0:12:26.559 --> 0:12:29.240 same time, there are these elements such as goal fashioned 0:12:29.280 --> 0:12:32.599 cash flow and balance sheet and and volatility, and like 0:12:32.679 --> 0:12:36.800 that within the growth sector, there may be still some goodbyes. Yeah, 0:12:36.840 --> 0:12:40.040 I mean, well, first of all, they're almost always are right. 0:12:40.120 --> 0:12:43.320 It is. It would be weird if an entire half 0:12:43.520 --> 0:12:46.240 of the market and growth and value tend to be 0:12:46.280 --> 0:12:49.679 defined by half if there was nothing worth owning. UM. 0:12:49.800 --> 0:12:53.320 So even a year ago, there were probably some growth 0:12:53.320 --> 0:12:56.040 stocks that were worth owning. And I would say, we've 0:12:56.080 --> 0:12:58.800 got we have a strategy that we've been running for 0:12:58.840 --> 0:13:02.160 the last year and a half where explicitly long undervalued 0:13:02.200 --> 0:13:06.000 stocks in short overvalued stocks. And one of the things 0:13:06.040 --> 0:13:08.480 we've found in recent months is some of the stocks 0:13:08.559 --> 0:13:13.080 we were sure a year ago are showing up on 0:13:13.080 --> 0:13:16.760 the long side of our book, um, because the market 0:13:16.880 --> 0:13:20.800 has really fallen out of love with them. UM. And 0:13:20.880 --> 0:13:24.760 that's a natural you know, that is a natural process. 0:13:24.840 --> 0:13:27.480 And and one of the things about growth and value 0:13:27.800 --> 0:13:33.199 and that people tend to forget they are always dynamic strategies. 0:13:34.280 --> 0:13:37.120 Right you buy, you buy a value portfolio. You come 0:13:37.120 --> 0:13:38.640 back in a year and some of those stocks aren't 0:13:38.679 --> 0:13:43.320 value anymore. Now, oftentimes those stocks that aren't value, it's 0:13:43.360 --> 0:13:45.920 a good thing because the market and say, oh, this 0:13:46.040 --> 0:13:50.000 is actually something pretty cool, and the valuation goes up 0:13:50.040 --> 0:13:53.080 and they graduate to the growth universe. On the growth side, 0:13:53.400 --> 0:13:56.320 what you really want is for those growth companies that 0:13:56.360 --> 0:13:57.880 you owned at the beginning of the year to still 0:13:57.880 --> 0:13:59.440 look like growth companies at the end of the year, 0:13:59.440 --> 0:14:02.200 because if they doll, it's probably because something like bad 0:14:02.280 --> 0:14:05.920 has happened to though, And that's a piece people don't 0:14:06.160 --> 0:14:10.040 tend to recognize, especially when they're talking about a start 0:14:10.160 --> 0:14:14.839 duration difference between growth and value. I want to give 0:14:14.840 --> 0:14:16.680 you the last word. I was sorry of curveball. Here's 0:14:16.679 --> 0:14:18.839 a curve ball is the real answer here. We should 0:14:18.840 --> 0:14:20.840 all lower our expectations for what they have been, what 0:14:20.840 --> 0:14:24.520 we should expect from our portfolio. Uh. You know, there's 0:14:24.520 --> 0:14:27.040 nobody that I know out there that does long term 0:14:27.200 --> 0:14:31.320 capital markets expectations that has a lofty number in keeping 0:14:31.320 --> 0:14:33.920 with say that that ten years leading up to the pandemic, 0:14:33.960 --> 0:14:35.880 or even the ten years up until the end of 0:14:36.000 --> 0:14:38.880 last year. So I think just where we are in 0:14:38.920 --> 0:14:42.480 the cycle, the fact that household ownership of equities is 0:14:42.600 --> 0:14:45.680 as of UM the end of the year UM, even 0:14:45.720 --> 0:14:49.280 through the first quarter, was at a record high level. 0:14:49.560 --> 0:14:53.560 That that doesn't bode incredibly ill for subsequent tenure returns, 0:14:53.560 --> 0:14:57.600 but it does suggest curb your enthusiasm for access returns. Okay, 0:14:57.840 --> 0:15:01.160 many thanks with Luzian Sanders Chara and the Ben Inker 0:15:01.200 --> 0:15:05.960 of g About this is Bloomberg Wall Street Week with 0:15:06.040 --> 0:15:18.680 David Weston from Bloomberg Radio. Okay, we knew it was coming, 0:15:18.960 --> 0:15:22.320 but somehow it's still surprised us. We had pumped record 0:15:22.400 --> 0:15:26.640 amounts of dollars and yen and pounds and euros into 0:15:26.720 --> 0:15:29.200 the global system, all to keep it going through a 0:15:29.240 --> 0:15:33.560 financial crisis and then a pandemic. As justified by then 0:15:33.600 --> 0:15:37.000 FED chair Janet Yelling at Crescent, I view the balance 0:15:37.080 --> 0:15:40.760 of risks as still calling for a highly accommodative monetary 0:15:40.840 --> 0:15:45.560 policy to support a stronger recovery and more rapid growth 0:15:45.560 --> 0:15:48.680 and employment. And then we added trillions of dollars of 0:15:48.760 --> 0:15:53.160 fiscal stimulus, including that American Rescue Plan. President Biden convinced 0:15:53.200 --> 0:15:56.200 us we just had to have for each dollar this 0:15:56.400 --> 0:16:02.160 tax cut cost, it returns eight dollars and benefits. Found 0:16:02.160 --> 0:16:05.720 the line, it's a gigantic helmet's an eight to one return. 0:16:06.240 --> 0:16:08.200 But now the time has come to cut down on 0:16:08.280 --> 0:16:11.520 all that stimulus. On both the fiscal side, we should 0:16:11.520 --> 0:16:14.280 not put more stimulus spending into the economy because that 0:16:14.480 --> 0:16:16.880 is what generated so much of this. And on the 0:16:16.880 --> 0:16:20.440 monetary side, if you want to tighten policy, you have 0:16:20.480 --> 0:16:25.239 to raise interest rates by more than inflation went up, 0:16:25.400 --> 0:16:28.440 leaving us to debate just how bad it could get. 0:16:28.800 --> 0:16:32.360 Supply sharks, demand chalks altogether mix it in one. Of course, 0:16:32.400 --> 0:16:36.400 it is unclear at this moment in time when it 0:16:36.440 --> 0:16:38.640 comes to getting us that's what's really going on in 0:16:38.680 --> 0:16:40.840 the markets and in the business world. There's one person 0:16:40.880 --> 0:16:43.360 we really love to turn to. And then as Blair Fron, 0:16:43.480 --> 0:16:47.400 he is the founder, co founder and partner in Centerview Partners. Blair, 0:16:47.440 --> 0:16:49.320 thanks so much for being with us. So we had 0:16:49.360 --> 0:16:52.120 a lot of stimulus go into the market, fiscal and monetary. 0:16:52.160 --> 0:16:54.520 We took it out and now people are really almost 0:16:54.560 --> 0:16:56.720 in a panic. Some people worry about where we're going. 0:16:56.880 --> 0:16:59.800 What is your sense of where we are if it? 0:17:00.000 --> 0:17:01.920 First of all, life for having me on. And obviously 0:17:02.160 --> 0:17:03.760 everything is a lot more murky than the last time 0:17:03.800 --> 0:17:04.840 I was on. So what I would tell you is 0:17:04.880 --> 0:17:10.080 this one I've never seen as murky at period as 0:17:10.080 --> 0:17:12.880 we're intten right now, I think the answers across the spectrum, 0:17:12.880 --> 0:17:14.679 we're gonna a lot more than the next two months. 0:17:15.200 --> 0:17:18.119 Let's define first what we're looking for. Everybody talks about 0:17:18.160 --> 0:17:24.600 slowdown versus recession. Remember, recession, at least by our traditional definition, 0:17:24.680 --> 0:17:27.880 means two quarters of negative GDP growth. I don't think 0:17:27.920 --> 0:17:30.879 that's going to happen. I do think there's would be 0:17:31.520 --> 0:17:33.879 three or so data points that we're all going to 0:17:33.920 --> 0:17:36.719 pay close attention to in the next two months that 0:17:36.800 --> 0:17:41.600 have to show decent results. Obviously, inflation. Let's assume that 0:17:42.200 --> 0:17:44.840 the Fed funds goal public goal of two to two 0:17:44.880 --> 0:17:46.879 and a half percent is going to look light, and 0:17:46.880 --> 0:17:50.680 it's somewhere between three to four percent before it's all done. 0:17:50.760 --> 0:17:53.040 To be at the better end of that, you're gonna 0:17:53.040 --> 0:17:57.080 hope to see inflation publishing with a seven by midsummer 0:17:57.160 --> 0:18:00.560 and with a six later in the summer. Second, the 0:18:00.640 --> 0:18:03.960 energy prices, did they hang in where they are or 0:18:04.000 --> 0:18:05.480 did they go higher? That's howays going to be a 0:18:05.480 --> 0:18:08.800 big influence to give us the pump. I would note 0:18:08.840 --> 0:18:11.080 that the biggest companies, the biggest the oil majors, have 0:18:11.160 --> 0:18:15.200 not increased their production budgets, which kicks in our intermediate 0:18:15.280 --> 0:18:17.879 terms that they're telling you that uh. In some ways 0:18:17.920 --> 0:18:21.440 today the belief is it's big cycle. And finally, where 0:18:21.520 --> 0:18:24.919 is housing going to be? Mortgage rates two plus basic 0:18:25.040 --> 0:18:27.639 points in just a few months. The last time we 0:18:27.680 --> 0:18:31.600 saw that cooled housing down about weed hasn't do better. 0:18:31.800 --> 0:18:34.679 To the extent this all happens. I believe that we 0:18:34.760 --> 0:18:38.919 will be in a period of slow down, certainly, but 0:18:39.000 --> 0:18:42.800 that there's enough tailwind in different parts of the economy 0:18:42.920 --> 0:18:46.200 to keep this from being uh going to a full 0:18:46.200 --> 0:18:49.560 blown recession. So we're certainly saying a slowdown, let's put 0:18:49.560 --> 0:18:52.080 it wildly. In the equity markets has been really a 0:18:52.160 --> 0:18:55.960 roller coaster, but down substantially this year. Is that translating 0:18:56.000 --> 0:18:59.600 into your business? Our CEO is less eager to make 0:18:59.640 --> 0:19:03.720 deals now? Absolutely. I would say that the biggest factor 0:19:04.080 --> 0:19:07.600 in deal making is going to be confidence. And confidence 0:19:07.640 --> 0:19:09.960 comes from feeling certain in the decision making, certain in 0:19:10.000 --> 0:19:12.760 the outcomes of various moves you're gonna make. And right 0:19:12.760 --> 0:19:16.240 now we are an uncertain environment. CEOs can make judgments 0:19:16.280 --> 0:19:19.240 when there's a high growth environment, they can equally make 0:19:19.320 --> 0:19:21.560 judgments in a lower growth environment. Right now, it's certainly 0:19:21.600 --> 0:19:24.320 difficult pory, but things are happening. I tell you, David 0:19:24.359 --> 0:19:28.879 that volumes remain okay, it's actually the value, the overall 0:19:28.960 --> 0:19:33.199 value transactions is down three and that tells you that 0:19:33.240 --> 0:19:36.680 CEOs are focusing still on doing moves that are more 0:19:36.720 --> 0:19:40.160 tactical than strategic, but doing them um, and they are 0:19:40.200 --> 0:19:43.359 getting things financed, I would say, particularly if it's of it. 0:19:43.440 --> 0:19:47.240 The equity market's not so. But uh for investment grade, 0:19:47.680 --> 0:19:51.439 no issue, and for below investment grade a lot more 0:19:51.480 --> 0:19:53.720 expensive during the basis points are so higher than it 0:19:53.720 --> 0:19:56.600 would have been even a few months ago. But given 0:19:56.640 --> 0:19:58.960 what's going on a leverage loan market, which is her 0:19:59.040 --> 0:20:03.320 robust taking off a lot of the uh downward impact 0:20:03.359 --> 0:20:05.439 in the high yield market in terms of issuance volume, 0:20:06.000 --> 0:20:11.320 things are actually still frankly getting done. From your experience, 0:20:11.520 --> 0:20:15.199 from your vantage point, is it possible we're all overreacting. 0:20:16.200 --> 0:20:18.320 That's not a word I would use. No. I think 0:20:18.880 --> 0:20:21.960 this is an environment where, if anything, you want to 0:20:22.000 --> 0:20:27.200 react aggressively, act aggressively, get ahead of it. I'm someone 0:20:27.240 --> 0:20:30.200 that's certainly thinks uh, and I have you and I've 0:20:30.200 --> 0:20:33.960 talked about for quite a while that getting to rate 0:20:34.040 --> 0:20:39.720 raiss had to happen, would have been uh, perhaps better 0:20:39.760 --> 0:20:42.159 happened center the reasons for that. It didn't, but the 0:20:42.320 --> 0:20:44.000 rate had to happen, and you want to cure it 0:20:44.119 --> 0:20:46.080 to happen to deeply. So I believe getting ahead of it, 0:20:46.119 --> 0:20:50.440 particularly because we had an asset price and environment Okay, Blair, 0:20:50.480 --> 0:20:51.960 It's always such a treat to talk to you. Thank 0:20:52.000 --> 0:20:54.080 you so much for trying this Blair affront of Center 0:20:54.119 --> 0:20:58.000 View Partners, Get me Up. We wrap up the week 0:20:58.000 --> 0:21:02.520 with special contributor to Larry Summers up Harvard. This is 0:21:02.560 --> 0:21:07.560 Wall Street Week on Bloomberg. This is Bloomberg Wall Street 0:21:07.560 --> 0:21:17.560 Week with David Weston from Bloomberg Radio. This is wall 0:21:17.560 --> 0:21:19.280 S three week clim David Weston. We want to wrap 0:21:19.359 --> 0:21:21.760 up the week once again with our very special contributing 0:21:21.840 --> 0:21:23.639 Larry Summers of Harvard. And Larry, we have a lot 0:21:23.680 --> 0:21:25.520 to talk about when it comes to the economy with 0:21:25.560 --> 0:21:28.919 respective markets, but I want to start with something very different, 0:21:29.000 --> 0:21:31.200 and that is what we saw on that tragic shooting 0:21:31.200 --> 0:21:34.119 down in South Texas and now elementary school. I'd like 0:21:34.119 --> 0:21:36.400 to say it's unimaginable, except it's happened too many times. 0:21:36.400 --> 0:21:38.720 Do you have any thoughts about what we're seeing in 0:21:38.720 --> 0:21:47.040 this country? Horror, rage, frustration. We can do better, We 0:21:47.160 --> 0:21:51.320 can do better. We need to think through what the 0:21:51.440 --> 0:21:57.320 right solution is. UH. Some some limits on access to 0:21:57.440 --> 0:22:01.600 guns that don't threaten any real Second Amendment right, some 0:22:01.720 --> 0:22:08.520 red flags set of procedures that catch catch UH signs 0:22:08.560 --> 0:22:14.720 of trouble and people and UH take actions. We just 0:22:15.160 --> 0:22:21.880 can't accept this as the regular order of business in America. 0:22:22.080 --> 0:22:25.080 And I think, David, it reflects something that may be broader, 0:22:25.880 --> 0:22:31.880 a kind of new callousness in our country. We're probably 0:22:31.920 --> 0:22:37.120 only in the fifth inning with respect to UH COVID. 0:22:37.760 --> 0:22:42.240 They're gonna be hundreds of people dying each day as 0:22:42.280 --> 0:22:45.760 far as the eye can see. And we are not 0:22:45.920 --> 0:22:50.639 as a country making the investments, whether it's vaccines you 0:22:50.720 --> 0:22:55.800 can take through your nose, whether it's new therapeutics, whether 0:22:55.880 --> 0:23:01.480 it's a war on long UH COVID and clinical trials 0:23:02.000 --> 0:23:06.639 that we need. We've let the COVID controversy become a 0:23:06.680 --> 0:23:10.240 green eye shade thing about pay for wars and a 0:23:10.359 --> 0:23:15.840 culture thing about masks when they're the highest return investments 0:23:15.880 --> 0:23:21.160 available in our society, for here and for leadership around 0:23:21.200 --> 0:23:24.880 the world, and we just can't seem to get there. 0:23:24.920 --> 0:23:29.080