WEBVTT - Bloomberg Wall Street Week - July 26th, 2024 0:00:00.280 --> 0:00:02.560 This is Bloomberg Wall Street Week. 0:00:02.680 --> 0:00:07.200 The global push into infrastructure, breaking the IPO logjam in tex. 0:00:07.160 --> 0:00:09.200 The financial stories that shape. 0:00:08.920 --> 0:00:12.040 Our world, cutting inflation without losing jobs. Do we need 0:00:12.119 --> 0:00:14.560 rate cuts? And if so? How many? Investing in a 0:00:14.560 --> 0:00:16.120 time of geopolitical turmoil. 0:00:16.200 --> 0:00:18.560 Through the eyes of the most influential voices. 0:00:18.720 --> 0:00:22.480 Ten Rogueff economists of Harvard, former FDIC had Shila Bert 0:00:22.640 --> 0:00:26.160 ge CEO, Larry Culp, San Francisco FED President Mary Daily. 0:00:26.239 --> 0:00:30.240 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.720 --> 0:00:33.760 Market sped on a September rate cut, Vice President Harris 0:00:33.760 --> 0:00:37.080 wins a key endorsement, and the Paris Olympic Games begin 0:00:37.560 --> 0:00:40.879 after a rail sabotage. This is Bloomberg Wall Street Week. 0:00:40.960 --> 0:00:54.360 I'm Romain Bossed again for David Weston, and we begin 0:00:54.480 --> 0:00:56.960 with the week in markets. I saw our rotation out 0:00:56.960 --> 0:01:00.000 of big tech and into small caps. When you take 0:01:00.160 --> 0:01:02.400 look at an S and P five hundred that rallied 0:01:02.440 --> 0:01:05.119 here on this Friday afternoon but still ended the week 0:01:05.160 --> 0:01:07.920 in the red. You have to overlay that with the 0:01:07.959 --> 0:01:10.399 massive outperformance that we saw in the small and mid 0:01:10.480 --> 0:01:13.040 cap space four straight weeks now where we've seen the 0:01:13.120 --> 0:01:16.680 Russell two thousand outperform, the Nastac outperform, the mag seven 0:01:16.720 --> 0:01:19.640 outperform the broader market overall, and a lot of that 0:01:19.680 --> 0:01:22.520 seems to be predicated on the belief the interest rates 0:01:22.600 --> 0:01:25.120 might be coming down soon. Peter Boro is joining us 0:01:25.200 --> 0:01:28.480 right now, the chairman and CEO of Computer Trading, to 0:01:28.520 --> 0:01:30.039 talk a little bit about some of the moves that 0:01:30.040 --> 0:01:32.000 we saw this week, and Peter, some of this did 0:01:32.080 --> 0:01:34.640 seem to be driven by the macro, whether it was 0:01:34.680 --> 0:01:37.360 the economic data or maybe the feed through into what 0:01:37.400 --> 0:01:39.760 folks think that macroeconomic data is going to mean for 0:01:39.760 --> 0:01:40.119 the Fed. 0:01:41.000 --> 0:01:43.840 Absolutely, but it could also go back to rule number 0:01:43.840 --> 0:01:49.000 one that we all learn by low sell high. This 0:01:49.160 --> 0:01:52.440 market has been one where everybody's been buying high, and 0:01:52.600 --> 0:01:55.480 so what did we have. We had a natural rotation 0:01:55.760 --> 0:02:00.720 to over sold stocks out of stocks that were highly overbought. 0:02:01.080 --> 0:02:05.760 Now the question is has the underlying fundamentals changed to me? 0:02:07.000 --> 0:02:08.560 They have, As you know, the. 0:02:08.520 --> 0:02:10.840 Last time I was on here, we talked about the 0:02:10.880 --> 0:02:16.600 seven c's of all the commodities that market in general 0:02:16.720 --> 0:02:24.639 has been much weaker, grains, crude oil, cotton, copper in particular, 0:02:25.080 --> 0:02:28.440 So that may be an indication that the FED is 0:02:28.520 --> 0:02:33.680 more likely to ease, and therefore the small cap stocks 0:02:33.680 --> 0:02:38.320 benefit significantly in a interest rate environment where rates are 0:02:38.320 --> 0:02:40.440 going down or more stable. 0:02:40.840 --> 0:02:43.800 They would benefit from rates going down. But if economic 0:02:43.880 --> 0:02:46.680 conditions are weakening to the point where the FED thinks 0:02:46.720 --> 0:02:48.840 it needs to cut rates, how is that going to 0:02:48.840 --> 0:02:49.799 benefit small caps? 0:02:51.120 --> 0:02:51.799 Great question. 0:02:52.560 --> 0:02:55.799 So that also gets into the yield curve and interest 0:02:55.880 --> 0:02:59.760 rates and whether the FED cuts are longer rates going 0:02:59.760 --> 0:03:02.200 to go up is going to be a bear steepener. 0:03:02.639 --> 0:03:06.840 But the first reaction is mean reversion, so that's buying 0:03:06.919 --> 0:03:11.200 things that were over sold and selling things that were overbought. 0:03:11.320 --> 0:03:14.200 There could be this week, and part of it could 0:03:14.240 --> 0:03:20.240 be the fact that Vice President Harris has done significantly 0:03:20.280 --> 0:03:24.519 better in the polling, and that may imply the expiration 0:03:25.160 --> 0:03:28.639 of the Trump tax cuts, which could lead to higher 0:03:28.680 --> 0:03:32.040 capital gains rates, which could lead to selling winners again 0:03:32.240 --> 0:03:35.600 and harvesting some of your losses which were in the 0:03:35.640 --> 0:03:38.240 small cap. So a lot of positive things have come. 0:03:38.120 --> 0:03:38.680 Together for that. 0:03:38.840 --> 0:03:41.440 It's interesting you raised that point here about people basically 0:03:41.440 --> 0:03:43.720 buying effectively the laggers. I mean, I was looking at 0:03:43.760 --> 0:03:46.800 one stock today on this Friday, neul Brands. Of course, 0:03:46.800 --> 0:03:48.800 it makes all those little rubber may things that you 0:03:48.840 --> 0:03:50.880 have in your cabinet, some more than thirty percent on 0:03:50.920 --> 0:03:52.840 the day. But then when you look at its performance 0:03:52.920 --> 0:03:55.320 prior today on a year to date basis, of course, 0:03:55.360 --> 0:03:57.640 it was also down double digits here, So people are 0:03:57.640 --> 0:04:00.720 definitely looking at the bottom of the barrel and maybe 0:04:00.760 --> 0:04:02.760 finding some hope there. But it gets back to the 0:04:02.840 --> 0:04:06.600 question about economic conditions, consumer spending. And we had a 0:04:06.600 --> 0:04:09.440 PCE report on Friday. You had a GDP report a 0:04:09.480 --> 0:04:12.920 couple of days ago that, while still healthy, certainly showed 0:04:13.400 --> 0:04:14.760 some softening. 0:04:14.320 --> 0:04:17.600 When it comes to the consumer, no question about it. 0:04:17.839 --> 0:04:20.039 And what I look at for the strength of the 0:04:20.080 --> 0:04:23.760 consumer is I look at Visa, I look at MasterCard, 0:04:24.400 --> 0:04:28.919 and those stocks have been underperforming, let's say relative to 0:04:29.040 --> 0:04:32.600 American Express, where American Express tends to be the card 0:04:32.640 --> 0:04:38.320 of choice for higher income HULU. So the economy seems. 0:04:37.920 --> 0:04:39.599 To be slowing. 0:04:39.800 --> 0:04:41.640 It's interesting when we look at some of the market 0:04:41.640 --> 0:04:43.600 moves over the last I don't know, five or six weeks. 0:04:43.640 --> 0:04:45.240 I mean, you've obvious seen a bid come into some 0:04:45.279 --> 0:04:49.120 of those economically sensitive areas like utilities, like materials. Probably 0:04:49.120 --> 0:04:51.359 one of the more interesting stealth rallies out there and 0:04:51.600 --> 0:04:53.560 stealth to me at least, was some of the moves 0:04:53.560 --> 0:04:55.839 that you saw in banks over the last couple of weeks. 0:04:55.839 --> 0:04:57.360 And not just the big banks. We're talking about some 0:04:57.400 --> 0:04:59.600 of those regional banks that everybody sold off about a 0:04:59.640 --> 0:05:00.440 year and awf half ago. 0:05:01.240 --> 0:05:04.080 Yes, So who's going to be the biggest beneficiary of 0:05:04.160 --> 0:05:08.160 those cutting interest rates is going to be the regional banks. 0:05:08.680 --> 0:05:13.520 And over the last three weeks they have really outperformed 0:05:13.839 --> 0:05:17.960 the Goldman Sachs as JP Morgan's of the world. It's 0:05:18.000 --> 0:05:21.760 been to me that's been more impressive than the rally 0:05:22.120 --> 0:05:24.559 in the small cap IWN. 0:05:24.440 --> 0:05:26.599 All right, Peter, always a great conversation, one of the 0:05:26.600 --> 0:05:30.000 best in the business. Peter Borish of Computer Trading Company. 0:05:30.600 --> 0:05:33.840 Vice president Harris emerged this week as the likely alternative 0:05:33.880 --> 0:05:37.000 to former President Trump, focusing investors on what her approach 0:05:37.040 --> 0:05:39.679 to the economy would be and whether it would differ 0:05:39.880 --> 0:05:42.719 from that of President Biden to take us through the choices. 0:05:42.839 --> 0:05:44.840 Welcome back now, are very special contributor here in Wall 0:05:44.839 --> 0:05:47.320 Street Week. He is Larry Summers of Harvard Lurie. Great 0:05:47.320 --> 0:05:49.159 to have you back with us. What do we know 0:05:49.320 --> 0:05:51.880 or think we know about what a Kamala Harrison administration 0:05:51.920 --> 0:05:54.200 would do with the economy versus a Donald Trump. 0:05:54.520 --> 0:05:55.800 We don't know much yet. 0:05:55.920 --> 0:05:59.800 The campaign's only been going for two days, but I 0:05:59.800 --> 0:06:05.599 think we've got some strong bases for optimism. First, it's 0:06:05.640 --> 0:06:10.040 been the Biden Harris administration, and if you step back, 0:06:10.400 --> 0:06:14.560 it really has a remarkable record. I don't think any 0:06:14.600 --> 0:06:20.400 administration has so outperformed the economic forecasts on the day 0:06:20.400 --> 0:06:24.920 that it came into office as the Biden Harris administration has. 0:06:25.560 --> 0:06:29.680 And that's because of an approach that is about investing 0:06:29.720 --> 0:06:32.839 in America and investing in America's future. 0:06:33.440 --> 0:06:34.640 And if you look at some of the. 0:06:34.600 --> 0:06:40.080 Things Vice President Harris has done, they have that orientation 0:06:40.440 --> 0:06:45.120 to the future. She knows that our children are our future, 0:06:45.640 --> 0:06:49.359 and that's why the childcare credit and investing in children 0:06:49.480 --> 0:06:52.880 investments that reduce the child poverty rate by a half 0:06:53.279 --> 0:06:57.160 when they were in effect, were so important to her. 0:06:57.960 --> 0:07:04.640 She knows that fiscal responsibility is central, and that's why 0:07:04.680 --> 0:07:10.280 she puts emphasis on the fact that we need to 0:07:10.360 --> 0:07:17.240 raise taxes where it is replacing the ineffective massive corporate 0:07:17.280 --> 0:07:23.040 tax cuts that President Trump put into place. She understands 0:07:23.440 --> 0:07:28.280 that much of our future lies in exporting to the 0:07:28.320 --> 0:07:32.520 rest of the world. It's not her approach to call 0:07:32.560 --> 0:07:38.960 Africa and Al Salvador countries as President Trump did. It's 0:07:39.000 --> 0:07:45.000 her approach to work to strongly support their development because 0:07:45.040 --> 0:07:49.280 she knows that more prosperous countries around the world make 0:07:50.000 --> 0:07:55.960 for a more prosperous United States. It's a new generational 0:07:56.040 --> 0:08:02.280 approach and a start contrast with what came before with 0:08:03.760 --> 0:08:07.680 Donald Trump, and, judging by what he's saying on the 0:08:07.920 --> 0:08:13.679 campaign trail, a even larger contrast with what would come 0:08:14.360 --> 0:08:20.480 if he were elected. What he describes David is a 0:08:20.520 --> 0:08:26.840 prescription for massive inflation. Ignore the deficit, bash the Fed, 0:08:27.800 --> 0:08:32.920 trash the dollar, cut back on labor supply by trying 0:08:33.000 --> 0:08:45.040 immediately to send millions of people home, stop subsidizing clean energy, 0:08:45.600 --> 0:08:50.520 and put massive tariffs on so businesses can't get cheap inputs. 0:08:51.280 --> 0:08:56.400 It's hard to imagine a better strategy for creating inflation, 0:08:57.040 --> 0:09:03.520 for creating high interest rates, and the Trump's strategy. President 0:09:03.559 --> 0:09:10.960 Harris I believe will avoid all those pro inflation mistakes, 0:09:11.600 --> 0:09:16.559 and much more important, We'll build a future oriented economy 0:09:17.040 --> 0:09:22.280 through our kids, through our technologies, through containing our debts, 0:09:22.840 --> 0:09:24.360 and through working with the world. 0:09:24.559 --> 0:09:28.200 So let's talk about those pro inflation policies, and specifically 0:09:28.240 --> 0:09:30.360 on the fiscal stemua the side, because you've been outspoken 0:09:30.400 --> 0:09:33.360 about that in the past. That that has contributed to inflation, 0:09:33.600 --> 0:09:36.440 and we're investing in children obviously is one thing. She's 0:09:36.520 --> 0:09:39.160 also has been for expanded medicare. In fact, at one 0:09:39.200 --> 0:09:41.040 point she was for medicare for all. She backed off 0:09:41.080 --> 0:09:44.600 that a bit. She's also for rental assistance programs. What 0:09:44.640 --> 0:09:46.640 do you make of those? Are those good ideas? Assuming 0:09:46.679 --> 0:09:49.880 she could get those through? Are those good for the economy. 0:09:50.000 --> 0:09:55.040 I don't think it's fair to judge Donald Trump by 0:09:55.120 --> 0:09:58.800 the things he was saying when he was campaigning for 0:09:59.000 --> 0:10:03.280 office the first time, or even before, and that was 0:10:03.320 --> 0:10:08.240 a very different context. And I don't think that Vice 0:10:08.280 --> 0:10:14.320 President Harris feels committed to the things she said during 0:10:14.360 --> 0:10:20.480 her campaign for the presidency before she joined the Biden 0:10:20.520 --> 0:10:29.520 administration partnership and advocated those policies for four years. No, 0:10:29.679 --> 0:10:34.559 I don't think medicare for all is a good idea, 0:10:34.800 --> 0:10:39.360 and I wouldn't expect that a Harris administration would push 0:10:39.960 --> 0:10:41.120 medicare for all. 0:10:41.480 --> 0:10:43.240 Lauria, next week, you and I will both you got 0:10:43.280 --> 0:10:45.880 an Aspen for the Aspen Economic Strategy for meetings, And 0:10:45.920 --> 0:10:48.400 while we're doing that, the FED will be meeting in Washington. 0:10:48.679 --> 0:10:51.360 We'll have another Fed decision. We just had Bill Dudley, 0:10:51.400 --> 0:10:54.200 whom you know well we all respect, come on just 0:10:54.280 --> 0:10:57.040 this week in a Bloomberg opinion piece saying it's time 0:10:57.040 --> 0:10:59.280 for them to cut rates as early as next week, 0:11:00.200 --> 0:11:02.280 a part of the so called Sam rule about where's 0:11:02.480 --> 0:11:04.840 where on umployments going. What do you think about that? 0:11:05.520 --> 0:11:11.320 On current facts, I would not cut rates next week. 0:11:12.320 --> 0:11:17.559 I think we need to be very careful about making 0:11:18.760 --> 0:11:24.439 the move, especially since when the FED starts to cut rates, 0:11:24.920 --> 0:11:29.840 there will inevitably be an expectation of some cascade of 0:11:29.920 --> 0:11:34.839 rate cuts. It's certainly true that as the news has 0:11:34.920 --> 0:11:38.720 come in over the last several months, it's tended to 0:11:38.720 --> 0:11:43.560 be on the low inflation and on the soft economy side, 0:11:44.040 --> 0:11:49.200 and so markets have now adjusted to expect a rate 0:11:49.280 --> 0:11:55.080 cut in September. I had thought that that was a possibility, 0:11:55.160 --> 0:11:59.320 but not a probability. On current facts, I'd certainly regard 0:11:59.360 --> 0:12:03.280 it as probability, both in terms of what should happen 0:12:03.880 --> 0:12:07.640 and what will happen. But I think it's the better 0:12:07.840 --> 0:12:13.559 part of prudence, particularly in so unsettled an environment where 0:12:13.640 --> 0:12:19.880 the deficit figures are coming in in a very problematic way. 0:12:20.559 --> 0:12:24.280 I think it's the better part of prudence for the 0:12:24.320 --> 0:12:28.280 Fed to wait a little longer before cutting rates. 0:12:28.559 --> 0:12:30.320 Larry, It's always such a pleasure to have you with us. 0:12:30.320 --> 0:12:32.520 Thank you so much. That is our special Wall Street 0:12:32.520 --> 0:12:37.640 Week contribuer, Larry Summers of Harvard, coming up, the view 0:12:37.679 --> 0:12:41.080 from Goldman Sachs on where this economy is taking investors 0:12:41.320 --> 0:12:43.640 with Sherman, most of our Ruckmanney. 0:12:43.800 --> 0:12:47.000 Us pre eminence is intact and stay invested. 0:12:48.440 --> 0:12:50.800 That's next on Wall Street Week on Bloomberg. 0:12:52.280 --> 0:12:56.520 This is Bloomberg Wall Street Week with David Weston from 0:12:56.640 --> 0:12:59.360 Bloomberg Radio. 0:13:04.400 --> 0:13:06.680 This is Wall Street Week. I'm David Weston. A stock 0:13:06.720 --> 0:13:09.920 market that just won't quit, a bond market rewarding fixed 0:13:09.960 --> 0:13:13.680 income at long last, and inflation apparently coming under control 0:13:13.720 --> 0:13:16.959 at least for now. What's an investor to do? As 0:13:17.000 --> 0:13:20.360 Chief investment officer for Golden Sachs Wealth Management, Charmian most 0:13:20.360 --> 0:13:23.120 of our Rock Money answers that question every single day, 0:13:23.400 --> 0:13:25.240 and we welcome her back now to Wall Street Week. 0:13:25.280 --> 0:13:27.280 Always a delight to have you here, Charmin thank you for. 0:13:27.280 --> 0:13:28.840 Joining us, Thanks for having me. 0:13:29.000 --> 0:13:32.280 Okay, So you talk to investors all the time, customers 0:13:32.320 --> 0:13:34.120 all the time. What are they asking about? What are 0:13:34.120 --> 0:13:34.800 they concerned about? 0:13:34.840 --> 0:13:39.160 Right now, they're asking the questions about our two key 0:13:39.200 --> 0:13:41.920 investment teams. We have been tending clients to be overweight 0:13:42.040 --> 0:13:45.240 US equities, and we've been telling them to stay invested. 0:13:45.640 --> 0:13:48.600 So after this big market rally that's been going on 0:13:48.679 --> 0:13:51.320 for so long, as you pointed out, clients are saying, 0:13:51.440 --> 0:13:54.880 are those themes still valid? Should we still be overweight 0:13:55.040 --> 0:13:58.680 US equities? And should we still stay invested after this 0:13:59.120 --> 0:14:02.920 unexpected be significant rally following twenty twenty three, which was 0:14:02.920 --> 0:14:06.240 also very strong. And our answer to both of those 0:14:06.360 --> 0:14:11.040 questions is yes, US pre eminence is intact, and stay invested. 0:14:11.360 --> 0:14:13.719 So let's break that down first of all the equities part, 0:14:13.760 --> 0:14:16.120 then we'll get to the US part. Equities, we do 0:14:16.160 --> 0:14:19.280 have real returns now in fixed income? Doesn't that shift 0:14:19.280 --> 0:14:21.400 the emphasis at least somewhat because you can make real 0:14:21.440 --> 0:14:22.600 money now on bonds? 0:14:23.160 --> 0:14:25.960 Well, our view is that the upside in US equities 0:14:26.000 --> 0:14:29.240 is substantially greater. So when you're looking at the return 0:14:29.280 --> 0:14:32.360 to expectations, we do recommend especially with US clients, they 0:14:32.400 --> 0:14:35.360 need to look at the returns on an after tax basis. 0:14:35.680 --> 0:14:37.840 So you can't just look at the yield, for example, 0:14:37.960 --> 0:14:41.080 on treasury bonds or on corporate bonds and then compare 0:14:41.080 --> 0:14:44.120 that to the expected return for US equities. You actually 0:14:44.120 --> 0:14:46.640 need to look at both on an after tax basis. 0:14:46.920 --> 0:14:49.960 And one of the most amazing things about US equities 0:14:50.000 --> 0:14:53.440 are if you have them in some passive tax efficient form, 0:14:53.680 --> 0:14:56.080 you have very little bit of a tax liability and 0:14:56.160 --> 0:14:59.440 there's much more long term upside. So we actually recommend 0:14:59.480 --> 0:15:03.240 clients be at their duration target for their fixed income acts, 0:15:03.560 --> 0:15:07.640 but still overweight US equities versus non US equities. 0:15:07.680 --> 0:15:11.080 What about the valuation in the equity marketing, Some people 0:15:11.120 --> 0:15:13.640 are concerned, we're getting a pretty high valuation. So you 0:15:13.640 --> 0:15:15.880 say there's a lot of upside left inequities. Are we 0:15:15.920 --> 0:15:16.520 sure about that? 0:15:16.960 --> 0:15:19.520 So there's no short term upside. In fact, the US 0:15:19.560 --> 0:15:23.760 equity market has exceeded our expectations for this year. So 0:15:23.840 --> 0:15:27.040 our good case for US equities this year when we 0:15:27.080 --> 0:15:31.160 published our initial outlook was up thirteen percent, and so 0:15:31.600 --> 0:15:35.960 now we're up about seventeen percent. You're today roughly, And 0:15:36.040 --> 0:15:37.760 so when we look at that we'll say, yes, it 0:15:37.840 --> 0:15:41.840 has exceeded our expectations, but earnings have been better than expected. 0:15:42.480 --> 0:15:45.920 Typically when you start having the Fed cut interest rates, 0:15:45.920 --> 0:15:49.520 as long as we don't go into a recession. On average, 0:15:49.760 --> 0:15:53.640 US equities are up nineteen percent for the next twelve months, 0:15:53.880 --> 0:15:56.400 so we may not have much upside left for the 0:15:56.440 --> 0:15:59.520 rest of this year, but already the markets starting to 0:15:59.520 --> 0:16:02.920 think about twenty twenty five and what earnings will be. 0:16:03.000 --> 0:16:06.280 And then as investors shift focused to twenty twenty five 0:16:06.320 --> 0:16:09.480 and earnings and price targets, that's when you'll see some 0:16:09.760 --> 0:16:10.840 more upside. 0:16:11.080 --> 0:16:13.120 You said something terribly important there, as long as we 0:16:13.160 --> 0:16:16.120 don't go into recession. We had Bill Dudley actually with 0:16:16.200 --> 0:16:19.000 an opinion piece in Bloomberg this week saying he's got 0:16:19.040 --> 0:16:21.960 some concerns now, growing concerns with a slower economy, sink 0:16:22.080 --> 0:16:24.440 with a p some rule that fell into the complicated 0:16:24.520 --> 0:16:27.280 rule about unemployment, and when it points to recession that 0:16:27.360 --> 0:16:29.920 he says, there is now our growing risk of recession 0:16:30.160 --> 0:16:32.400 and maybe the Fed should cut as early as next week. 0:16:32.520 --> 0:16:33.400 What do you think about that? 0:16:34.360 --> 0:16:37.040 We actually followed Bill Dudley and try to talk to 0:16:37.120 --> 0:16:39.480 him often and think very highly of his opinion. He 0:16:39.560 --> 0:16:43.280 went into twenty twenty three expecting a recession and a 0:16:43.360 --> 0:16:46.360 very high probability, So we've had this discussion with him 0:16:46.400 --> 0:16:50.080 on the likelihood of recession. We started this year with 0:16:50.200 --> 0:16:54.400 a probability of thirty percent for the odds of a recession, 0:16:54.480 --> 0:16:57.560 and we have stuck with that, and people say, why 0:16:57.600 --> 0:17:00.800 aren't you lower. Some people are substantially lower. We haven't 0:17:00.880 --> 0:17:04.119 changed our recession probability, partly because of the shape of 0:17:04.160 --> 0:17:07.919 the yield curve. The yield curve is significantly inverted, or 0:17:07.920 --> 0:17:10.480 it was more inverted before, and it has stayed that way, 0:17:10.800 --> 0:17:14.000 and we have what we call a yield curve diffusion index, 0:17:14.160 --> 0:17:17.240 and when that triggers, more often than not, you get 0:17:17.280 --> 0:17:20.200 a recession. That's why we're at thirty percent. However, when 0:17:20.200 --> 0:17:22.960 we think about these various indicators, like the sam rule 0:17:23.000 --> 0:17:26.199 that you refer to, we also have to consider and 0:17:26.280 --> 0:17:30.320 factor in some unusual situations. So people talk about the 0:17:30.320 --> 0:17:32.600 amount of immigration in the US, and so that has 0:17:32.680 --> 0:17:36.200 pushed up the unemployment rate or post pandemic. We were 0:17:36.240 --> 0:17:41.199 at such low unemployment rates that getting slightly above that 0:17:41.600 --> 0:17:44.200 is not necessarily an indication of a recession. 0:17:44.240 --> 0:17:45.080 Around the corner. 0:17:45.359 --> 0:17:47.480 So do we worry about our recession? Do we need 0:17:47.520 --> 0:17:50.880 to be on the alert about it look at other indicators? Yes, 0:17:51.240 --> 0:17:53.639 But are we worried about a recession anytime in the 0:17:53.640 --> 0:17:55.960 next twelve months or so? Not at this point. Thirty 0:17:56.000 --> 0:17:59.800 percent probability. That means seventy percent probability of no recession. 0:18:00.280 --> 0:18:02.120 Charman, it's always such a pleasure having you on. Thank 0:18:02.160 --> 0:18:06.200 you so much. That's Charmine most about ROCHMANI of Goldman Sachs. 0:18:06.520 --> 0:18:10.480 Geopolitical risk remains high and economies around the world face 0:18:10.600 --> 0:18:14.240 different paths ahead. Take us through what this means for investors. 0:18:14.400 --> 0:18:17.600 Welcome back now, David Hunt. He's president and CEO of PGIM. 0:18:17.800 --> 0:18:18.480 Great to have you back. 0:18:18.680 --> 0:18:20.159 It's wonderful to be back with you, David. 0:18:20.240 --> 0:18:22.320 So let's talk with the geopolitics, because we have a 0:18:22.359 --> 0:18:25.280 heightened level of geopolitical risk these days all around the 0:18:25.280 --> 0:18:28.000 world pretty much where ever, Look, how does that affect investors? 0:18:28.560 --> 0:18:30.119 Well, the first thing I would say, David, is that 0:18:30.840 --> 0:18:33.520 it may be heightened the relative to the last ten 0:18:33.600 --> 0:18:36.640 or twelve years, but I would not say it's necessarily 0:18:36.720 --> 0:18:40.400 heightened relative to the longer term sweep of history. We've 0:18:40.400 --> 0:18:43.000 actually had a period of real I would say moderation 0:18:44.280 --> 0:18:48.080 since the GFC in terms of political flashpoints, and it's 0:18:48.119 --> 0:18:51.160 really been the last few years between the health pandemic 0:18:51.280 --> 0:18:55.040 two wars that we've started to see these re emerge, 0:18:55.480 --> 0:18:58.000 and I would say it's more of a getting back 0:18:58.040 --> 0:19:02.560 to normal than it is actually a high of the averages. 0:19:02.960 --> 0:19:05.200 I would also say that I think that this kind 0:19:05.200 --> 0:19:08.280 of summer of democracy, which we're still working our way through, 0:19:08.760 --> 0:19:11.080 is only heightening that as well. So I think we 0:19:11.160 --> 0:19:15.520 have even more geopolitical risk. And indeed, as I travel 0:19:15.520 --> 0:19:20.040 the world talking to our large institutional investors, their number 0:19:20.040 --> 0:19:22.880 one risk is geopolitical. It is not what's the ved 0:19:22.960 --> 0:19:24.399 going to do, It's not where are we in the 0:19:24.440 --> 0:19:28.080 interest rate cycle. They really want to talk about the 0:19:28.119 --> 0:19:32.480 heightened geopolitical risk and what that does for their portfolio construction. 0:19:32.720 --> 0:19:34.639 So talk to me a bit about that very issue, 0:19:34.640 --> 0:19:37.639 the intersection, if you will, how that intersects with the 0:19:37.640 --> 0:19:40.600 politics and the geopolitics. I mean, how does the politics 0:19:40.640 --> 0:19:43.480 potentially affect the long term growth of a Europe, of 0:19:43.520 --> 0:19:45.160 a Japan, of the United States. 0:19:45.800 --> 0:19:49.119 Long term investors have a very different attitude toward I 0:19:49.160 --> 0:19:54.240 think volatility in general and that's probably the biggest difference. 0:19:54.520 --> 0:19:58.920 I think a lot of the popular media confuse volatility 0:19:58.960 --> 0:20:02.359 and risk really not the same thing. So when I 0:20:02.440 --> 0:20:06.679 say we have heightened volatility, that actually can spell as 0:20:06.760 --> 0:20:10.120 much opportunity as it does risk. I mean, the only 0:20:10.160 --> 0:20:12.240 way you lose money is to sell an asset for 0:20:12.320 --> 0:20:14.560 less than you bought it for or take a permanent impairment, 0:20:15.080 --> 0:20:17.679 but simply because market's move does not create a loss, 0:20:18.040 --> 0:20:21.440 and long term investors tend to look through those cycles 0:20:21.840 --> 0:20:24.880 and they use changes in market levels to actually get 0:20:24.920 --> 0:20:27.640 in at a more attractive price. So as we look 0:20:27.720 --> 0:20:33.360 forward to the increased volatility, our key focus is do 0:20:33.400 --> 0:20:37.200 our clients have enough liquidity so that they can move 0:20:37.320 --> 0:20:39.480 and move in size when the. 0:20:39.480 --> 0:20:40.200 Time is right. 0:20:40.640 --> 0:20:43.080 And I would say that as people have moved more 0:20:43.119 --> 0:20:46.760 into privates and more into liquid assets, that liquidity has 0:20:46.800 --> 0:20:49.000 become a bit squeezed, and a lot of the work 0:20:49.040 --> 0:20:50.840 we're doing with clients is to make sure that they 0:20:50.880 --> 0:20:54.159 have the liquidity so that they can move when the 0:20:54.160 --> 0:20:54.840 timing is right. 0:20:54.960 --> 0:20:56.960 It's one of the things your institutional investors take a 0:20:56.960 --> 0:21:00.520 look at your social clients is long term growth prospects. 0:21:00.720 --> 0:21:03.480 Because right now, right now, it looks like, for example, 0:21:03.560 --> 0:21:06.080 Europe is different from the United States, just to joke 0:21:06.119 --> 0:21:06.680 one example. 0:21:07.080 --> 0:21:09.320 No, it's a great example, And I would say that 0:21:09.359 --> 0:21:12.760 we are seeing a pretty big rotation in how people 0:21:12.880 --> 0:21:16.359 view growth opportunities and where they're putting capital work. So 0:21:16.880 --> 0:21:20.040 if you start in Europe, you know, in general, people 0:21:20.080 --> 0:21:25.239 are quite I think pessimistic about growth. The EU is 0:21:25.359 --> 0:21:28.680 no bigger now than it was in twenty eighteen, and 0:21:29.080 --> 0:21:31.879 it really doesn't seem to be breaking out of the 0:21:31.920 --> 0:21:37.160 cycle of low productivity and low growth that it's had. Meanwhile, 0:21:37.240 --> 0:21:40.439 you then go to Asia and you find, on the 0:21:40.480 --> 0:21:42.840 one hand, Japan, which is I would say in a 0:21:43.119 --> 0:21:47.600 new you know, kind of found optimism. They finally have 0:21:47.720 --> 0:21:50.280 inflation back, which they're grateful for. Growth has come back, 0:21:50.560 --> 0:21:54.199 They are very constructive about some of the reforms that 0:21:54.240 --> 0:21:57.640 they've made to corporate governance, and I would say there's 0:21:57.720 --> 0:22:01.280 more optimism there and about internet actional investors looking in 0:22:01.560 --> 0:22:03.560 than we've had in a long time. And in fact, 0:22:03.560 --> 0:22:06.800 I would say that Japan has been the leading country 0:22:06.840 --> 0:22:10.200 to benefit from the tensions with China because many people 0:22:10.200 --> 0:22:12.879 are now building their plants and building their supply lanes 0:22:13.240 --> 0:22:17.399 around a strategy that's based in Japan, So Japan I 0:22:17.440 --> 0:22:20.520 think is much more positive. China, on the other hand, 0:22:20.640 --> 0:22:25.080 is probably in a more difficult position. Even last week 0:22:25.119 --> 0:22:27.159 with the Third Plan, and we did not see the 0:22:27.240 --> 0:22:29.960 kind of concerted action that we all thought was going 0:22:30.000 --> 0:22:33.399 to be needed. So I think people are worried about growth, 0:22:33.440 --> 0:22:35.679 and they're worried that there isn't going to be a 0:22:35.760 --> 0:22:38.800 resurgence of consumer spending, which is what's really need to 0:22:38.840 --> 0:22:44.920 rebalance the economy, but rather continued focus on manufacturing. So 0:22:44.960 --> 0:22:47.919 there's no new money at the moment going into China. 0:22:48.440 --> 0:22:52.679 Then you come back to the US and as difficult, 0:22:52.960 --> 0:22:54.800 and we like to focus on all the problems of 0:22:54.840 --> 0:22:59.960 the US. Actually, productivities has looked not bad. Growth is looked, 0:23:00.960 --> 0:23:04.040 you know, like it's powering through this difficulty. Wages continue 0:23:04.040 --> 0:23:07.840 to be pretty strong, so you know, the US is 0:23:08.520 --> 0:23:11.159 on a relative basis at this point doing very well. 0:23:11.359 --> 0:23:13.240 So the net of that is that there is really 0:23:13.960 --> 0:23:17.960 money coming out of Europe. There is money, no more 0:23:18.000 --> 0:23:20.800 money going into China. There's quite a bit more money 0:23:20.800 --> 0:23:23.720