WEBVTT - Bloomberg Wall Street Week: November 4, 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. It's 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 --> 0:00:19.799 eyes of the most influential voices. Larry Summers, the former 0:00:19.800 --> 0:00:22.840 Trickery Secretary, Katherine Keening, CEO of v n Y mallin 0:00:22.960 --> 0:00:26.239 Sam's l Sharmon and founder of Equatic Group Investment in 0:00:26.320 --> 0:00:30.280 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.520 --> 0:00:34.879 Getting tired of higher interest rates, chasing stubborn inflation, of 0:00:34.960 --> 0:00:37.800 government's offering more of the same, and of a war 0:00:37.880 --> 0:00:41.360 with much more at stake than just money or politics. 0:00:41.840 --> 0:00:45.680 This is Bloomberg Wall Street Week. I'm David Weston. This 0:00:45.720 --> 0:00:49.239 week our contributors Larry Summers on the Fed decision Day Wednesday, 0:00:49.320 --> 0:00:53.040 followed by the jobs numbers on Friday. Good news is 0:00:53.240 --> 0:00:58.280 economy looking robust? Uh? The bad news is not much 0:00:58.320 --> 0:01:03.640 evidence of inflay. Shouldn't restraint yet? In train? And Steve 0:01:03.720 --> 0:01:06.760 Rattner on what's at stake for investors as Americans go 0:01:06.840 --> 0:01:09.840 to the polls in the mid term elections. I think 0:01:09.840 --> 0:01:13.160 the elections are uguely consequential for investors because there's a 0:01:13.160 --> 0:01:28.800 lot of stake here. This week, it sometimes felt like 0:01:28.840 --> 0:01:32.000 it was more of the same, starting with the next 0:01:32.040 --> 0:01:35.200 phase of Russia's war in Ukraine, which saw Russia targets 0:01:35.240 --> 0:01:38.679 civilian facilities. As explained by John Kirby of the National 0:01:38.720 --> 0:01:41.760 Security Council, we know that this has yet another way 0:01:41.840 --> 0:01:45.320 here air strikes, a lot of missiles fired at in 0:01:45.400 --> 0:01:50.320 particular to capital, fired at both power and water facilities. 0:01:50.840 --> 0:01:54.320 Even as the First Lady of Ukraine, Orleana's Olenska, told 0:01:54.360 --> 0:01:56.960 the world just how hard it is really for the Ukrainians. 0:01:57.600 --> 0:02:01.120 Nobody can't imagine how Ukrainians z threat is not just 0:02:01.360 --> 0:02:04.800 Ukrainian U for Ukraine. For US, fatigue means that we 0:02:04.840 --> 0:02:07.840 would perish. Meanwhile, the rest of the world continued to 0:02:07.880 --> 0:02:11.080 wrestle with the effects of the war, including higher energy prices, 0:02:11.280 --> 0:02:14.640 with President Biden promising to take action and blaming the problem, 0:02:14.720 --> 0:02:18.400 at least in part on the all companies record profits 0:02:18.520 --> 0:02:21.480 today are not because you're doing something new or innovative. 0:02:22.080 --> 0:02:26.840 Their profits are windfall of war In Brazil and In Israel, 0:02:27.040 --> 0:02:30.960 new elections yielded old results, with former president Lula da 0:02:30.960 --> 0:02:34.680 Silva narrowly winning re election to the presidency. We've been 0:02:34.680 --> 0:02:38.760 covering the Brazil election, of course. It's a historic narrow 0:02:38.919 --> 0:02:42.679 victory of Lucy Nazio, Lula the Silva, the former president, 0:02:43.360 --> 0:02:46.320 and Benjamin Netanya, who heading to a fifth stint as 0:02:46.400 --> 0:02:49.960 Prime Minister of Israel. In Israel, the fifth election in 0:02:50.040 --> 0:02:54.000 four years appears ready to return Benjamin Netanya, who to power. 0:02:54.639 --> 0:02:56.959 But the main events for Global Wall Street this week 0:02:57.080 --> 0:02:59.680 came from the central banks, first and foremost from the 0:02:59.680 --> 0:03:03.480 Federal Reserve, which on Wednesday did as expected and raised 0:03:03.480 --> 0:03:07.280 interest rates another seventy five basis points, with more to come. 0:03:07.520 --> 0:03:10.400 According to chair at J. Powell, we still have some 0:03:10.440 --> 0:03:14.320 ways to go, and incoming data since our last meeting 0:03:14.800 --> 0:03:17.400 suggests that the ultimate level of interest rates will be 0:03:17.480 --> 0:03:21.040 higher than previously expected. While the Bank of England came 0:03:21.080 --> 0:03:24.800 in with its biggest increase in more than three decades Thursday, 0:03:24.919 --> 0:03:28.320 and Governor Andrew Bailey warned about what could happen if 0:03:28.400 --> 0:03:31.799 they don't take steps now. If we do no time 0:03:31.880 --> 0:03:34.280 false free now, it will be us later on. And 0:03:34.280 --> 0:03:36.800 that's the full cost Way. I'm publishing today's shows. It 0:03:36.920 --> 0:03:41.520 is a tough right ahead. And then we ended the 0:03:41.560 --> 0:03:44.480 week with US jobs numbers which came in higher than expected, 0:03:44.560 --> 0:03:47.680 adding another two in sixty one thou jobs with wages 0:03:47.720 --> 0:03:50.040 going up another four tenths of evercent over the month 0:03:50.080 --> 0:03:52.760 of September, which could have sent markets into a tizzy, 0:03:52.920 --> 0:03:55.720 but didn't as equities had already taken a hit from 0:03:55.720 --> 0:03:58.120 what chair Powe had to say back on Wednesday. For 0:03:58.160 --> 0:04:01.840 the week overall, the sp gave up three point the 0:04:01.920 --> 0:04:05.160 NAZAC was five point six, and the year of the 0:04:05.240 --> 0:04:07.880 ten ure was about sixteen basis points. End in the 0:04:07.880 --> 0:04:10.720 week at four point one six. Take us through the 0:04:10.760 --> 0:04:12.800 week in the markets. Welcome now, Charmian, most of our 0:04:12.880 --> 0:04:16.159 Rockmani Goldman Sex, chief investment officer for Wealth Management, and 0:04:16.200 --> 0:04:19.560 Sarah Kettter, co founder and CEO of Causeway Capital. So 0:04:19.880 --> 0:04:21.680 welcome both of you back to Wall Street. We're good 0:04:21.680 --> 0:04:23.279 to have you here. Let me start you with you, Sarah, 0:04:23.279 --> 0:04:25.400 if I may, so, what's an investor to do with 0:04:25.400 --> 0:04:29.080 what they saw this week? A lot of turmoil, no 0:04:29.200 --> 0:04:32.640 doubt about it, David, and strong payroll data makes the 0:04:32.760 --> 0:04:38.240 FED jump much more difficult. This um labor supply shortage 0:04:38.240 --> 0:04:42.720 situation is quite concerning. So it looks as if the 0:04:42.720 --> 0:04:45.719 FED is going to have to continue raising rates, and 0:04:46.000 --> 0:04:49.400 this creates a tremendous headwind for the US market and 0:04:49.440 --> 0:04:52.960 for markets around the world where central banks have to 0:04:53.040 --> 0:04:55.840 move up, if not un lockstep with the FED, they 0:04:55.880 --> 0:04:59.919 too have to be tightening in order to quill inflation 0:05:00.040 --> 0:05:04.440 that is global Charman, I wonder did j Pal get 0:05:04.480 --> 0:05:06.360 us ready for this to some extent. I'm assuming he 0:05:06.400 --> 0:05:08.039 didn't have any idea what the numbers are gonna look like, 0:05:08.080 --> 0:05:10.479 but he sort of warned this on Wednesday what they're 0:05:10.480 --> 0:05:13.599 gonna have to do. When we think of this number, though, 0:05:13.640 --> 0:05:15.800 I don't think we have as pessimistic of you and 0:05:15.839 --> 0:05:19.679 as pessimistic read. In fact, you could see what happened 0:05:19.680 --> 0:05:22.480 to the market today at the end of the day, 0:05:22.480 --> 0:05:24.080 and you could say, in fact, the market is probably 0:05:24.080 --> 0:05:26.480 saying it's not as bad a number from a tightening 0:05:26.480 --> 0:05:29.560 in a recession perspective. So in fact, our view is 0:05:29.640 --> 0:05:31.839 that if you look at the non farm payroll numbers, 0:05:31.839 --> 0:05:34.560 at the beginning of the year, they were averaging over 0:05:34.640 --> 0:05:37.480 three months about six hundred. The last three months now 0:05:37.520 --> 0:05:41.640 are about two nine thousand, so that's nearly more more 0:05:41.680 --> 0:05:44.960 than half. So that's a significant slowdown in the economy 0:05:44.960 --> 0:05:47.000 that we're seeing. And then if you look at the 0:05:47.040 --> 0:05:50.320 average hourly earnings and you look at what the latest 0:05:50.360 --> 0:05:53.680 three numbers are about three point nine percent. The prior 0:05:53.800 --> 0:05:57.720 three months it was five point two. So directionally between 0:05:58.200 --> 0:06:01.120 what the FED has been doing and JED really financial 0:06:01.120 --> 0:06:04.680 conditions in the United States. Things are slowing down and 0:06:04.720 --> 0:06:07.200 it's not insignificant. So the question is how much does 0:06:07.240 --> 0:06:10.719 the FED need to tighten to lower those numbers even further. 0:06:11.279 --> 0:06:13.480 And our view is that they do have more to go, 0:06:13.560 --> 0:06:15.680 but I'm not sure the idea that it's definitive they 0:06:15.720 --> 0:06:17.920 have to go to five percent or five and a quarter. 0:06:18.240 --> 0:06:22.400 It's not so obvious to us, Okay. Charmie Ramani of 0:06:22.520 --> 0:06:25.160 Golden Sex and Sarah Ketter of Causeway Capital, we're staying 0:06:25.160 --> 0:06:27.560 with us as we focus on sell investments outside the 0:06:27.600 --> 0:06:30.920 United States and what we expect from China, emerging markets, 0:06:31.080 --> 0:06:45.839 and Europe. This is Wall Street Week on Bloomberg. This 0:06:46.320 --> 0:06:50.799 is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:06:56.640 --> 0:07:01.760 Wall Street really loves ambiguity because the truth is that 0:07:01.760 --> 0:07:05.160 while the midterm election results scarcely constituted a warm vote 0:07:05.160 --> 0:07:09.479 of confidence in President Reagan's economic program, they were far 0:07:09.600 --> 0:07:14.640 from the Democratic landslide that some pre election forecasters were predicting. Indeed, 0:07:14.680 --> 0:07:19.000 the actual result, Republicans holding the Senate and losing twenty 0:07:19.080 --> 0:07:22.240 six seats in the House, was remarkably closed to the 0:07:22.240 --> 0:07:26.080 figures I gave on this program last week. That was Lewis, 0:07:26.240 --> 0:07:28.920 of course, on Wall Street week after another midterm election, 0:07:29.000 --> 0:07:32.320 two years into a new president. That president was President Reagan, 0:07:32.640 --> 0:07:35.200 and it was two when it didn't come out quite 0:07:35.200 --> 0:07:38.280 as badly as Republicans had feared. Sometimes the Democrats this 0:07:38.400 --> 0:07:41.040 year are hoping for the time. Movie back then was 0:07:41.120 --> 0:07:45.120 First Blood starting to Sylvester Salona as Vietnam Vet John Rambo. 0:07:45.560 --> 0:07:48.120 The number one song was Up Where We Belonged by 0:07:48.200 --> 0:07:51.080 Joe Crocker and Jennifer Warren. Still with us are Sarah 0:07:51.120 --> 0:07:54.280 Header of Causeway Capital and Shermane most of our Rachamani 0:07:54.320 --> 0:07:57.880 of Goldman, Sachs So Sherman maybe some parallels with but 0:07:57.960 --> 0:07:59.640 one thing is very different is there wasn't a lot 0:07:59.680 --> 0:08:04.120 of US investment in China back flash forward today, where 0:08:04.160 --> 0:08:06.000 are you on China, and we just come through the 0:08:06.080 --> 0:08:10.960 twenties National Congress. In general, we've had a very strong 0:08:11.240 --> 0:08:15.680 US pre eminence view, recommending clients have a significant overweight 0:08:15.680 --> 0:08:19.880 to US equities and in turn a significant underway to 0:08:19.960 --> 0:08:23.560 emerging markets, which includes China. If you actually go back 0:08:23.560 --> 0:08:26.360 and look at the returns from the trough of the 0:08:26.360 --> 0:08:29.960 global financial crisis to the present, you will see that 0:08:30.200 --> 0:08:34.080 US equities are up about sixteen on an annualized basis 0:08:34.240 --> 0:08:37.600 and five percent in China on an annualized basis. But 0:08:37.679 --> 0:08:40.599 actually one needs to look at the impact of that compounding. 0:08:40.679 --> 0:08:42.680 Is this chart that you just put up, if you 0:08:42.760 --> 0:08:45.200 had had a hundred dollars and put it in US 0:08:45.280 --> 0:08:48.320 equities today, you would have seven hundred fifty dollars if 0:08:48.320 --> 0:08:51.559 you would put it in China hundred and eighty eight dollars, 0:08:51.720 --> 0:08:54.640 not even a quarter of those returns. Now that has 0:08:54.679 --> 0:08:57.200 prompted some people to say, well, that actually means China 0:08:57.400 --> 0:09:01.239 is very attractive. We actually think that is not attractive. 0:09:01.320 --> 0:09:04.040 China's growth will be much slower than people that expect 0:09:04.040 --> 0:09:09.600 going forward. China has overinvested in property, in infrastructure. They 0:09:09.600 --> 0:09:12.360 have a major demographic problem. So when we actually look 0:09:12.360 --> 0:09:14.840 at it on a forward basis, we think the earnings 0:09:14.840 --> 0:09:18.679 will not be there to even support these valuations. There's 0:09:18.720 --> 0:09:21.480 so much truth in that about China. It's just so 0:09:21.559 --> 0:09:23.680 interesting to see though, that much of the big sell 0:09:23.720 --> 0:09:29.560 off started in just one last year. China is currently 0:09:29.840 --> 0:09:33.760 thirty percent roughly of the Emerging Market benchmark, so it's 0:09:33.880 --> 0:09:37.680 really important, and it has both bullied up the benchmark 0:09:37.760 --> 0:09:42.640 and dragged it down. But there's China and Taiwan together 0:09:42.840 --> 0:09:45.800 or some forty five percent of the index. You sort 0:09:45.800 --> 0:09:47.640 of can't get away from China if you want to 0:09:47.679 --> 0:09:51.719 invest in emerging markets, and one way or another, their 0:09:51.800 --> 0:09:54.840 growth rates have tended, they've tended to be faster than 0:09:54.840 --> 0:09:56.760 the US in the past, and to your poor sharp, 0:09:57.120 --> 0:10:01.480 to your point, Charmie, they are slowing. But the opportunities there, 0:10:01.480 --> 0:10:04.520 because it's just such an enormous market, are really hard 0:10:04.559 --> 0:10:08.360 to pass up. I think the property sector is horrible, 0:10:08.400 --> 0:10:10.960 and what place had the worst property wipe out we 0:10:11.000 --> 0:10:13.720 can think of in the late eighties. It was Japan, 0:10:13.920 --> 0:10:16.080 and yet there was still money to be made in 0:10:16.120 --> 0:10:19.400 that would ended up being rather a stagnating situation if 0:10:19.440 --> 0:10:22.800 stock selection was good. So we're never writing off China. 0:10:22.960 --> 0:10:26.040 But what's irresistible about emerging markets, again with China as 0:10:26.080 --> 0:10:30.080 an anchor tenant, is that it's trading it just twenty 0:10:30.160 --> 0:10:32.800 year low in price to book value, and then on 0:10:32.880 --> 0:10:37.640 a price to earnings basis, it's also at this extraordinary 0:10:37.720 --> 0:10:41.920 bouncing along it's twenty year low versus the US market 0:10:41.960 --> 0:10:46.120 and the world index. So at some point in time 0:10:46.160 --> 0:10:49.560 you have to say the price is right for emerging 0:10:49.600 --> 0:10:53.120 markets led by China, There's no doubt about that, Sarah. 0:10:53.240 --> 0:10:56.120 But when we actually look at the price, we think 0:10:56.160 --> 0:10:59.080 you need to think about the sector weights. So emerging 0:10:59.120 --> 0:11:01.800 markets in general all and that applies to China as well, 0:11:01.880 --> 0:11:04.640 have a very different mix in terms of the sector 0:11:04.679 --> 0:11:07.960 exposure relative to the US. So on the surface, when 0:11:07.960 --> 0:11:11.120 you're looking at the discount from to China or emerging 0:11:11.160 --> 0:11:14.320 markets or even developed markets relative to the U S, 0:11:14.360 --> 0:11:17.240 it looks like it's very low. But on the other hand, 0:11:17.320 --> 0:11:20.600 if you adjust for the sector weights, meaning for example, 0:11:20.800 --> 0:11:25.760 technology is of the S and P five and less 0:11:25.840 --> 0:11:28.960 in China, less in emerging markets, and maybe even less 0:11:28.960 --> 0:11:33.000 than half in developed markets. If you adjust the sector weights, 0:11:33.000 --> 0:11:36.920 then these countries and regions are not as cheap as 0:11:37.000 --> 0:11:40.280 it appears, in fact suddenly emerging markets instead of being 0:11:40.280 --> 0:11:43.120 for example, let's say a multiple of sixteen for the 0:11:43.240 --> 0:11:47.359 US versus tent for emerging markets, once you adjust the weights, 0:11:47.400 --> 0:11:50.559 it's more like fourteen and a half times forward earnings. 0:11:50.600 --> 0:11:53.400 So in fact, if you adjust the sector weight, then 0:11:53.600 --> 0:11:56.920 we don't think these markets look at as cheap, and 0:11:57.080 --> 0:12:00.920 historically that discount has not always been in an indicator 0:12:01.000 --> 0:12:03.719 of good forward returns. But Sarah, you mentioned a very 0:12:03.720 --> 0:12:06.920 important point, which is stock selection. It doesn't mean that 0:12:07.000 --> 0:12:10.160 stock selection can't add value, but when we look at 0:12:10.200 --> 0:12:13.640 the countries in aggregate and broadly at sectors, we just 0:12:13.679 --> 0:12:16.600 don't find them attractive at all. Yeah, it's a very 0:12:16.600 --> 0:12:20.480 good point about sectors, and and i'd argue this think 0:12:20.480 --> 0:12:23.760 about in terms of value versus growth. The growth part 0:12:23.760 --> 0:12:27.680 of the emerging market benchmark doesn't still look pricey. But 0:12:27.760 --> 0:12:29.960 if you strip out the stocks that are in that 0:12:30.120 --> 0:12:36.680 lower valuation group, they have they just they're at loaves 0:12:36.720 --> 0:12:38.840 that we haven't seen in a long time. They're very, 0:12:39.000 --> 0:12:43.320 very compelling, and they can find those across sectors, which 0:12:43.360 --> 0:12:47.199 is pretty useful, but only for China. The catalyst will 0:12:47.280 --> 0:12:50.800 make China much more interesting it's just a recovery. And 0:12:50.800 --> 0:12:53.880 if it turns out, the head of our China office 0:12:53.880 --> 0:12:57.040 in Shanghai tells us, next March is likely the date 0:12:57.800 --> 0:13:01.400 at which the gradual reopen becomes less gradual. To the 0:13:01.440 --> 0:13:03.920 point was so obvious that they can't be denied by 0:13:03.920 --> 0:13:09.360 the party leaders. That will create an economic tail wind 0:13:09.480 --> 0:13:12.680 for China, even with a very tough property market, and 0:13:12.720 --> 0:13:17.400 it could interestingly coincide with what is still slowing in 0:13:17.440 --> 0:13:22.199 the rest of the world, making China relatively attractive. So Sarah, 0:13:22.200 --> 0:13:24.640 I suspect we're all looking for bargains and trying to 0:13:24.679 --> 0:13:27.600 avoid falling knives, right, whether it's China or somewhere else. 0:13:27.800 --> 0:13:30.800 Talk about Europe. Are there bargains in Europe at this point? 0:13:30.840 --> 0:13:33.880 Where is that a falling knife? Will? It fell with 0:13:33.920 --> 0:13:37.280 the Russia invasion of Ukraine in February. Europe was just 0:13:37.840 --> 0:13:40.600 awful and it continued to be awful. And the cyclical 0:13:40.679 --> 0:13:43.719 part of Europe any type of manufacturing, any users of 0:13:43.840 --> 0:13:47.800 natural gas were sold off heavily by markets. Materials within 0:13:47.880 --> 0:13:51.520 that chemicals, so many stocks trading at discounts to book 0:13:51.600 --> 0:13:57.880 value that indicated apocalypse. So yes, bargains in Europe and 0:13:57.920 --> 0:14:01.600 they're still there. Some of those stocks have improved, but 0:14:01.760 --> 0:14:04.400 to the degree there isn't a harsh winter and Europe 0:14:04.400 --> 0:14:08.040 doesn't consume all of its energy it's gas storage reserves, 0:14:08.320 --> 0:14:12.000 which we think it won't. It looks as if we're 0:14:12.160 --> 0:14:15.680 can squeak through this winter and perhaps even next. Meanwhile, 0:14:15.760 --> 0:14:20.160 there's a feverish effort there to build LERG terminals and 0:14:20.240 --> 0:14:25.280 ensure that there's a regasification capability. This all takes time, 0:14:26.120 --> 0:14:30.440 but Europe is united around their concern. Thank you so much. 0:14:30.520 --> 0:14:32.480 SHO mean most of our ROCKMANI have Goldman Sax and 0:14:32.480 --> 0:14:37.240 also Sarah Header of Causeway Capital coming up. Control of 0:14:37.280 --> 0:14:39.440 the U s. Congress maybe up for grabs at the 0:14:39.440 --> 0:14:42.280 mid term elections on Tuesday, but what is its stake 0:14:42.360 --> 0:14:46.880 for investors? We as Steve Rattner a Willow Advisers. That's 0:14:46.960 --> 0:14:51.600 next on Wall Street Week. This is Bloomberg Wall Street 0:14:51.640 --> 0:15:04.120 Week with David Weston from Bloomberg Radio. Tuesday's the day 0:15:04.160 --> 0:15:06.640 for Americans to decide who will be in charge up 0:15:06.640 --> 0:15:09.440 on Capitol Hill for the next two years. With expectations 0:15:09.440 --> 0:15:12.480 for the Republicans to retake control of the House. Republicans 0:15:12.600 --> 0:15:15.440 have a lot of optimism going into the election, and 0:15:15.480 --> 0:15:17.960 the Senate pretty much a toss up. No one knows 0:15:18.000 --> 0:15:19.960 exactly what's going to happen with the Senate with race 0:15:20.040 --> 0:15:22.600 is just too close to call. But as much time 0:15:22.640 --> 0:15:24.840 and attention as we're paying to the mid terms, what 0:15:25.040 --> 0:15:27.880 real difference will the outcomes make for global? Wall Street 0:15:28.120 --> 0:15:31.280 Republicans like Kevin Brady claim they will make sure less 0:15:31.320 --> 0:15:34.320 money goes to the government, which will benefit business. You'll 0:15:34.360 --> 0:15:37.760 see a push for less government spending, less taxes, and 0:15:37.840 --> 0:15:40.760 less regulation to drive up inflation. You'll see a push 0:15:40.800 --> 0:15:44.200 for more American made energy, while Democrats claim that it's 0:15:44.240 --> 0:15:48.640 all about fairness. They're gonna shut down the government by 0:15:48.680 --> 0:15:51.280 not providing the votes to pay our federal debt. This 0:15:51.440 --> 0:15:54.800 is irresponsible, but some who follow it closely, like Libby 0:15:54.840 --> 0:15:58.120 can Trail of PIMCO, question how much will really change 0:15:58.280 --> 0:16:02.960 one way or the other. Practical differences between Republicans taking 0:16:02.960 --> 0:16:05.720 back just the House and taking back both the House 0:16:05.800 --> 0:16:12.160 and the Senate are really diminimous. And to give us 0:16:12.160 --> 0:16:14.600 some answers to what difference the midterm elections might make 0:16:14.640 --> 0:16:17.640 for real investors, we now welcome somebody who is putting 0:16:17.720 --> 0:16:20.720 real money to work. He's Steve Ratner. He is chairman 0:16:20.760 --> 0:16:24.040 and CEO of Will Advisors. They invest the personal and 0:16:24.040 --> 0:16:27.000 philanthropic assets help Michael or Bloomberg of course, the man 0:16:27.040 --> 0:16:29.720 who founded our company and still owns most of the shares. 0:16:29.880 --> 0:16:31.960 So welcomes. Great to have you back in Moll Street week. 0:16:32.440 --> 0:16:35.120 So you've had experience in Washington as well as in 0:16:35.160 --> 0:16:37.840 New York on Wall Street. We spend a lot of time, 0:16:37.880 --> 0:16:39.800 people get paid a lot of money trying to analyze 0:16:39.840 --> 0:16:42.280 these elections about what they will mean for investors. What's 0:16:42.280 --> 0:16:45.480 your experience. I think the elections are ugely consequential for 0:16:45.560 --> 0:16:48.520 investors because there's a lot of stay there. Take for example, 0:16:48.760 --> 0:16:51.880 tax policy. If you want lower taxes for wealthy people 0:16:51.880 --> 0:16:54.240 in business, then obviously there's one team that you want 0:16:54.280 --> 0:16:57.240 to vote for. If you want lower taxes for working 0:16:57.280 --> 0:16:59.880 people and people below, then it's another team you want 0:16:59.880 --> 0:17:02.960 to it for. There's all kinds of policy decisions. We've 0:17:02.960 --> 0:17:07.120 seen an enormous amount of legislative activity these last two years, 0:17:07.119 --> 0:17:09.720 particularly this year, and that's the kind of thing that 0:17:09.760 --> 0:17:12.399 happens after an election. So as you say, we've had 0:17:12.440 --> 0:17:14.920 a lot of legislation through Congress, is the last Congress, 0:17:15.000 --> 0:17:17.160 and particularly given the fact that it was really evenly 0:17:17.200 --> 0:17:20.600 divided in Congress. So looking back before we look forward, 0:17:20.880 --> 0:17:23.000 do you think overall that was good for investors? Not 0:17:23.119 --> 0:17:25.400 so good. I'm not sure it was great for investors, 0:17:25.440 --> 0:17:27.120 but a lot of it was stuff that we really 0:17:27.160 --> 0:17:29.320 needed to do for the sake of our economy, particularly 0:17:29.400 --> 0:17:31.679 the climate change. I don't think we should kid ourselves. 0:17:31.760 --> 0:17:34.480 Addressing climate change is going to be expensive for companies 0:17:34.520 --> 0:17:37.199 and therefore for investors, but we have to do it. 0:17:37.760 --> 0:17:41.960 Prescription drug costs we have to get under control. So 0:17:42.160 --> 0:17:44.439 I think from an investor's point of view, some of 0:17:44.440 --> 0:17:46.240 this may cost them some money, but I think there 0:17:46.240 --> 0:17:48.359 were things that had to be done for society as 0:17:48.359 --> 0:17:51.119 a whole. Looking forward to the midterms, we don't know 0:17:51.160 --> 0:17:53.040 what the results will be, obviously, but some people are 0:17:53.040 --> 0:17:55.440 projecting we could have a switch in the majority in 0:17:55.560 --> 0:17:58.040 either the House or the Center, even conceivably in both 0:17:58.760 --> 0:18:01.480 if you get a divided moment, which is what that 0:18:01.520 --> 0:18:04.160 would be. Essentially, is that a potentially good for investors 0:18:04.200 --> 0:18:06.080 simply because they won't do very much at all, They 0:18:06.080 --> 0:18:09.520 can't get much done and there's some stability. Yes, I 0:18:09.560 --> 0:18:12.400 think you're right. If we have divided government, it's highly unlikely, 0:18:12.480 --> 0:18:14.720 particularly in the run up to another presidential that we're 0:18:14.720 --> 0:18:17.160 going to get much done. Look depends what you think 0:18:17.160 --> 0:18:19.480 the alternative is. If you think the alternative was a 0:18:19.560 --> 0:18:22.280 Congress in a White House controlled by people who essentially 0:18:22.359 --> 0:18:25.560 wanted to make investors happy, then obviously that's not as good, 0:18:25.600 --> 0:18:28.720 and vice versa. I happen to personally believe we still 0:18:28.760 --> 0:18:31.440 have huge problems in this country that we need to address, 0:18:31.520 --> 0:18:33.880 long term structural problems like the debt and the deficit, 0:18:33.920 --> 0:18:38.080 for example, and having government frozen is not really the 0:18:38.080 --> 0:18:39.760 way it's supposed to work. You're supposed to be a 0:18:39.840 --> 0:18:42.879 legislate every year, not just every year out of one 0:18:42.920 --> 0:18:45.439 year out of five four or something like that. You 0:18:45.560 --> 0:18:47.720 oversee the investment of a lot of money, and not 0:18:47.800 --> 0:18:50.680 necessarily investing yourself, but really overseeing people who do that. 0:18:51.080 --> 0:18:53.159 In the course of doing that, do you take an 0:18:53.200 --> 0:18:57.040 account which industries, which companies might do better under republican 0:18:57.080 --> 0:19:01.040 administration rather than the democratic one. Sure, you can easily see. 0:19:01.080 --> 0:19:02.639 And as you point out, most of our money is 0:19:02.680 --> 0:19:05.800 invested through other managers who do actual stock picking and 0:19:05.800 --> 0:19:08.160 so forth. But we spend a lot of time meeting 0:19:08.160 --> 0:19:11.120 with them, as you would imagine, And yes, absolutely they 0:19:11.160 --> 0:19:13.679 think a lot about what might happen in Washington, how 0:19:13.720 --> 0:19:16.240 that would affect the investability to use a word that 0:19:16.320 --> 0:19:19.440 might not be a word of different sectors, different industries, 0:19:19.480 --> 0:19:22.439 different companies. So sure, what goes on in Washington. I 0:19:22.440 --> 0:19:24.720 don't think any investor would tell you that what goes 0:19:24.760 --> 0:19:27.879 on in Washington isn't incredibly consequential for the economy, and 0:19:27.920 --> 0:19:29.919 therefore we all pay a lot of attention to it. 0:19:30.520 --> 0:19:32.840 This week, we had the FED Reserve come out raised 0:19:32.840 --> 0:19:36.040 interest rates another seventy five basis points. Uh. If you 0:19:36.080 --> 0:19:38.639 can compare and to trust FED decisions on where we 0:19:38.680 --> 0:19:42.119 are on the ten year yield, for example, versus who's 0:19:42.160 --> 0:19:46.040 in charge of Congress, which is more consequential potentially for investors. Well, 0:19:46.080 --> 0:19:48.399 I personally think the FED is the biggest game in 0:19:48.480 --> 0:19:51.440 town in terms of affecting the economy. I'm not quite 0:19:51.440 --> 0:19:54.240 a Milton Freedman monitorist, but I believe enough in the 0:19:54.280 --> 0:19:57.840 power of monetary policy to believe that it's uh. It 0:19:58.000 --> 0:20:00.560 is the biggest thing that affects the economy, and by 0:20:00.600 --> 0:20:02.960 the way, it probably affects the stock market even more 0:20:03.000 --> 0:20:05.400 directly in a sense. What interest rates go up, it's 0:20:05.400 --> 0:20:07.680 the enemy of stock prices. They tend to go down. 0:20:07.720 --> 0:20:10.080 And you've seen that happen this year, and vice versa. 0:20:10.160 --> 0:20:12.679 During two thousand one, when the FED poured all that 0:20:12.720 --> 0:20:15.520 liquidity into the market, the market went up. The old 0:20:15.520 --> 0:20:18.040 saying don't fight the Fed. So I watched the FED 0:20:18.160 --> 0:20:20.320 very closely, and I think it is It is far 0:20:20.440 --> 0:20:23.800 more of an influence on the economy than Congress. Steve, 0:20:23.920 --> 0:20:25.400 so great to have you back on Wall STI thank 0:20:25.400 --> 0:20:27.439 you so much. Let's Steve Brantner. He is chairman and 0:20:27.640 --> 0:20:32.119 CEO of will It Advisors. Coming up, we'll wrap up 0:20:32.119 --> 0:20:34.520 the week with special contributor to Larry Summers of Harvard. 0:20:34.720 --> 0:20:55.480 That's next on Wall Street Week on Bloomberg. Okay, this 0:20:55.560 --> 0:20:57.560 is Wall Street Week. I'm David Western. Were joined once 0:20:57.600 --> 0:20:59.840 again by our very special contributor on Wall Street Week, 0:20:59.840 --> 0:21:02.840 he Larry Summers of Harvard. So Larry, welcome back. We 0:21:02.920 --> 0:21:04.959 had a lot of economic news this week. We had 0:21:05.040 --> 0:21:07.880 jobs numbers and we had FED results. Of course, let's 0:21:07.880 --> 0:21:09.679 start with the jobs numbers, because they came in I 0:21:09.720 --> 0:21:12.920 think at least readily strong. How did you interpret them? 0:21:12.960 --> 0:21:17.120 I saw it the same way. Look, the population only 0:21:17.119 --> 0:21:21.080 grows by about fifty adults a month, so anytime you 0:21:21.160 --> 0:21:26.680 have two hifty uh jobs, you're growing at a rate 0:21:26.760 --> 0:21:31.800 that you're not going to be ultimately able to uh sustain. 0:21:31.960 --> 0:21:37.840 It shows that still the economy is uh looking quite strong, 0:21:38.000 --> 0:21:43.840 no recession. UH. Soon you saw wages UH tick up. 0:21:44.000 --> 0:21:48.760 So the good news is economy looking robust. UH. The 0:21:48.840 --> 0:21:54.439 bad news is not much evidence of inflation restraint yet 0:21:54.480 --> 0:21:57.159 in train. Of course, when j Pal the Chairman of 0:21:57.200 --> 0:21:59.920 the Federal Reserve spoke earlier on Wednesday, he didn't know 0:22:00.000 --> 0:22:01.880 of those jobs nuber of me. I don't believe. At 0:22:01.880 --> 0:22:04.159 the same time what he said anticipated just what you 0:22:04.240 --> 0:22:06.480 just said is that inflation continues, they're gonna have to 0:22:06.520 --> 0:22:10.280 keep hiking. I assume you thought what they did made sense. Yeah. 0:22:10.320 --> 0:22:13.600 I think there was a little bit of bouncing around 0:22:13.680 --> 0:22:19.480 immediately after the statement, But after Chairman Powell's press UH conference, 0:22:19.960 --> 0:22:25.280 I thought the necessary and right signal um has been 0:22:26.040 --> 0:22:30.200 sent that the Fed is determined to stay the course 0:22:30.280 --> 0:22:34.680 with respect to inflation, that a sensible judgment of where 0:22:34.720 --> 0:22:38.119 the terminal rate, how high FED funds will ultimately have 0:22:38.280 --> 0:22:43.120 to go, has gone up given the strong inflation numbers, 0:22:43.240 --> 0:22:48.960 the strong UH employment numbers UH that we've seen, and 0:22:49.600 --> 0:22:53.960 that the FED is determined. So I thought those were 0:22:54.680 --> 0:22:58.359 very much the right kind of signals for the FED 0:22:58.440 --> 0:23:04.360 to send. I think it's appropriate. I think we are 0:23:04.960 --> 0:23:09.840